Hi
For the second time at least I have read that cross collateralisation is potenially bad when investing.
Can someone explain whay this is so. Does that mean if one property is sold then things get complex with possibly all properties being sold???
Later…….
Hi there mate,
I’m just a newbie myself but what I can gather is that cross collateralisation is bad because the you are tying up the equity for all or a few of your properties to fund getting an IP. If something goes wrong with this IP and the bank forecloses then you stand to lose the whole lot.
O[
][]G’day Hot Rod…
As stated in the previous reply you have……. it does tend to give the Lenders more security than is required. This obviously reduces your available equity for another purchase.
You certainly make it harder for yourself if two or more loans are cross collateralised.
For example if the properties are “stand alone” deals then it is much easier to sell one of them.
This is not the case if they are cross
collateralised. Also easier to borrow additional funds. There are plenty of advantages in “stand alone” deals and if the LVR is at or below 80% they should not be cross collateralised.Don’t kid yourself…If you default on an investment property the Lender can Sell up the property in question and if there is any shortfall they will take any other property you have including your own home.
Stand alone deals you have better control of your properties and Finances.
Cheers
Bill O’Mara
Real Estate,Mortgages,Share Market Strategies.
[email protected]X-collateralisation is not “bad” per say… it’s just not optimal.
The advantages of not x-collateralising are:
1. Properties are not tied to one bank.
2. Doesn’t give the lender access to all security.
3. Deling with one property does affect other loans/properties.Cheers
Stu
Hi All[
]
One of the reasons is it gives you more protection against losing your principal place of residance if an investment goes bad.
Basically your home can be with one bank whilst your investment streams can be with another.
If you get into trouble then you can sell one of the investment properties and use the cash to reconsolidate debt without having your home affected.Regards
Bryce Inglis
[email protected]
http://www.ipal.com.auIt also means you can utilise different banks for different loans. Then when you have a new property you need a loan for, you are an existing customer of more than one bank, and sometimes it’s easier to go to them first – you can ‘shop’ your loan, and tell them you are looking for the best deal.
For instance, we had all loans with St George, who wouldn’t come to the party last year for our next lot. We wanted finance at valuation for an off the plan purchase. NAB were going to do it, but then we found out that they would only offer that deal if we were existing clients.[
]We now have a couple of properties with three different banks to give us the flexibility.
Cheers
MelHi Hot Rod
Something else to think about with regard to x-coll
Is serviceability,
When you hit a particular lenders max lend amount,
Some reasons given by lenders may well include…
Lenders may feel you are to rent reliant to service the debt,
this can be a problem if you have a high level of mortgage insurance
attached to your loans, and a high LVR.Some ways around this problem include, but are not limited to,
use multiple lenders, larger deposits low LVR,
have your investments set up in a trust
(Seek advice from an accountant) on this issue.Hope this is of some help.
Regards Steven.
Mobile Mortgage
[email protected]
Phone 0402483216Hi Hot Rod
1 point eveyone appears to have missed is that it is a breach of the Property Act to cross collateralise the loan on a property which is subsequently sold under an Installment Contract.
Cheers Richard
[email protected]
http://www.fhog.com.auThere is no such thing as a problem.
Just a solution waiting to be foundRichard Taylor | Australia's leading private lender
Please elaborate Qld’s 007. I do not understand your point entirely.
Quote:Hi Hot Rod1 point eveyone appears to have missed is that it is a breach of the Property Act to cross collateralise the loan on a property which is subsequently sold under an Installment Contract.
Cheers Richard
[email protected]
http://www.fhog.com.auHi Richard
X Coll in this case is with multiple ips,
Example, (IP A) 200K loan commitment with ANZ Bank
(IP 200K loan commitment with NAB BankRegards Steven.
Mobile Mortgage
[email protected]
Phone 0402483216Can Cross Colateraliation be undone?
Luckily cross coll can easily be undone after some growth. Simply apply to your lender for a release of security. for a small fee they will get the property revalued and un cross it (if equity is there of course).
Another disadvantage may be higher LMI premiums. If you are using 2 properties as security, you may have to pay LMI on both-depending on how high your LVR is.
Steven, are you saying that setting up a trust affects serviceability? I have found that it makes no diffence as the lenders require personal guarrantees anyway.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
G’day Hotrod…
If you had asked ” What’s good about XColl…
You’d have got 9 short answers……….“Nothing”
Bill
Bill O’Mara
Real Estate,Mortgages,Share Market Strategies.
[email protected]
Steven, are you saying that setting up a trust affects serviceability? I have found that it makes no diffence as the lenders require personal guarrantees anyway.Terryw
Discover Home Loans
North Sydney
[email protected]Terry,
One of the advantages with trusts,apart from asset protection, is the ability to distribute profits in a tax effective manner,
hence increasing funds and the level of serviceability,
here is a link to more information regarding trusts,http://www.strategicwealth.com.au/e2content.asp?Request=Structure.Structure
http://www.gatherumgoss.com/news.htm
seek Professional advice from an accountant regarding the benefits of using a trust.
regards Steven.Mobile Mortgage
[email protected]
Phone 0402483216Steve
So you are saying that trusts can save you tax. but it makes no difference in serviceability if you borrow through a trust or not because personal guarrantees need to be given. Infact it may even hinder serviceability by using a trust because you, as trustee, would be responsible for the loan, but may not receive any income from the asset as a distribution as the income would go to the benficiaries on the lowest taxable income.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
SteveSo you are saying that trusts can save you tax. but it makes no difference in serviceability if you borrow through a trust or not because personal guarrantees need to be given. Infact it may even hinder serviceability by using a trust because you, as trustee, would be responsible for the loan, but may not receive any income from the asset as a distribution as the income would go to the benficiaries on the lowest taxable income.
Terryw
Discover Home Loans
North Sydney
[email protected]Hi Terryw
You say, “it makes no difference in serviceability if you borrow through a trust”
And “income would go to Beneficiaries on the lowest taxable income”Beneficiaries of a Hybrid Trust can include you or your partner, spouse, Children etc.
You also say, “personal guarantees need to be given”
The guarantee is the trust, and you pay the loan,
Regards Steven.Mobile Mortgage
[email protected]
Phone 0402483216Steven
I am not sure I understand what you are saying. being a beneficiary of a discretion trust or a hybrid trust is no guarrantee of income. It is up to the trustee’s discretion. But since personal guarrantees are involved, you would personally be responsible for the loan. Therefore you must inform future lenders about your guarrantees.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Steven
I am not sure I understand what you are saying. being a beneficiary of a discretion trust or a hybrid trust is no guarrantee of income. It is up to the trustee’s discretion. But since personal guarrantees are involved, you would personally be responsible for the loan. Therefore you must inform future lenders about your guarrantees.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Having all one’s properties tied up for the one loan takes away one’s manoeverability.
If you get yourself into trouble it may be difficult to get one’s lender to increase the loan amount or, for that matter, to get the lender to release one of the properties (so you can raise money on it).
Another problem may be that if one happens to sell a property the lender may insist on some (or all) of the sales proceeds being used to reduce their existing loan.
So to place oneself in a better situation give a lender as little security as possible.
Cheers,
Pisces133
Hi Terryw
I have contacted DaleG, Accountant, and Trust Guru, and invited him to stop by here, to help explain and maybe enlighten a few here with regards to some of the Trust issues discussed,
In the meantime I have included a link to an interesting discussion at the Somersoft Forum where DaleG regularly contributes, you may find this particular discussion relevant to the discusion here.
http://www.somersoft.com/forums/showthread.php?s=&threadid=12237Also, below is a link to DalG web site.
http://www.gatherumgoss.com/Kind Regards Steven.
Mobile Mortgage
[email protected]
Phone 0402483216
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]
200K loan commitment with NAB Bank
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