Multi Property Finance problem

Hi Mike, good topic and one that will affect anyone building a portfolio. Basically what has happened in your case is the bank has cross secured or cross collateralised (same thing) your loans in order to give the lender more security and control over your properties. Worst case if you default on one of your loans they can sell out from under you and of course it has stifled the growth of your portfolio.

Sad thing is I see many brokers .. even brokers who have been in the game for years structuring like this for investment properties, and even including a PPOR into the equation risking everything. It limits your potential to grow and is very costly to re-structure as you need to pull properties away from the structure and refinance as stand alone. Then of course there are potential exit fees and partial release issues and costs involved if you want to move forward.

There are a few factors that limit your borrowing in a case like this. 1: Overall maximum LVR is lowered, 2: The assessment rate to which they calculate borrowing capacity is now spread over the entire portfolio. If it were a stand alone security the assessment rate is applied to the loans directly related to the top-up and purchase. Thats another thing, if it were set up as stand alone a refi and associated costs may not be necessary as you could top-up an existing loan facility for cash out to cover costs related to the next purchase. 3: The lender also has a max debt level (ceiling) and once you reach that debt limit with them thats the end of the road.

You would need to have your situation properly analysed, but providing you service and you have enough equity, my suggestion is to refinance one of the properties as stand alone security with another lender, do 2 splits in the loan for the refi, one to payout existing mortgage owed and a 2nd split for the cash out component to cover deposit and costs in purchase of your next investment property. You wont need any fancy bells and whistles like LOC or Offset accounts in my opinion, they cost and a cheaper option would be a basic variable loan with redraw facility, that will do the job with internet banking access and all.

Then for the purchase, again stand alone security, and basic variable loan.. do them both with the same new lender perhaps.. but dont be afraid to diversify lenders..

Theres alot of issues to consider when financing a portfolio and especially if you are planning to keep growing i.e… how you structure loans with a lender/lenders, what type of lenders you place loans with , are they deposit book lenders or securitised, do they have in house LMI (mortgage insurance) or is LMI outsourced and you need to keep tabs on your debt with mortgage insurers as well.. once your portfolio gets to a considerable size all this will be an issue. Keep a spreadsheet with all these details.

Anyway I could go on forever, later on down the track you would tackle the other cross secured properties and slowly pull them way and restructure.

I hope this helps. Good luck with it all.

Regards
Tony Born
Ph: 0407 617 141
Email: [email protected]
Ask me about a free Property Investor Toolkit.

Mike,

How much equity do you have (i.e. what is the LVR)
and how much salary income (apart from the rental income)?

I still prefer the Offset account for the PPOR eventhough it has slightly higher interest rates 0.06%-0.1% (ANZ Simplicity vs. ANZ breakfree package for example)
but it is much easier if you convert PPOR into IP in the future.

I made similar mistake intially just to chase the cheaper interest rates…. and end up costing more to restructure the finance again..

Hi Mike
I noticed Tony's comment up there, he is absolutely spot on.. Ive got 7 properties and now buying #8 and you need a broker who knows what hes doing. I can tell you 100% for sure that bank employees are pressured to not only set up lending structures to give the banks more security but also to sell you all the extra features they can. The banks are out there to make money and protect themselves, and thats all there is to it. Cheers Steve

I just had a client this week whose bank (starting with a H) said he couldn't even afford what he had now, let alone getting another 1. Took him to another bank and he is able to borrow another $600,000 on top of what he already has.

Like a doctor needs to see patients before they are sick to keep them healthy, brokers ideally need to see clients before they max out. This can help longevity!

Hi Steve,

I feel your pain! I've just had to sell a commercial property to free up funds.

You could also form a trust and then approach another bank, as the new bank will view your debt differently to your current one.

My new broker is very good with structure so if you want some advice he'd probably be happy to talk to you.

Dean

Yes please!!  very frustrated in trying to grow portfolio.

A mortgage innovator!!!

What is a mortgage innovator? Someone who innovates mortgages I guess, but what does this mean?

Mortgage Innovator is a CBA Mobile Lender effectively. They onlys ell CBA products and work on commission only

I'm also in the same situation but I only have 3 properties and two banks.  I finding it hard to believe it is just the structure. I think I'm on a relatively low income and that is my main problem.  I am going to attempt to refinance but would like to hear any suggestions or comments on my situation.

My rough details are:

Bank 1 Loan 1 – 250k (equity maybe 65k)
Bank 1 Loan 2 – 330k (equity maybe 50k)
Bank 2 Loan 3 – 330k (equity maybe 40k)

*equity based on real estate sales and I know will not be bank valuations

Income 1 – 45k
Income 2 – 65k
Rent 1 – 15k
Rent 2 – 15k

I've been told by both banks that I won't be able to service the loans, do you guys agree or perhaps some magic can be pulled out from a hat?