Advantages of one lender?

[Wishlist]

Recently attended a presentation by Margaret Lomas who commented that all of her properties were with the one lender which makes drawing extra finance out of the loan easier when purchasing the next investment property.

Even though the threads I read here all advise against cross-collateralizing property, isn't there some advantage to having the one umbrella loan when ready to draw down some extra equity? If not, then one may have to try and squeeze an extra $20 - $30K out of a number of properties, incurring associated costs with refinancing several different loans.

Up till now, keeping the loans separate seemed like the best idea but would like any opinions on this.

Thanks

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[The Y-man]

They do not need necessarily be x-coll'd, even with the one lender.

I am however, not sure that the refinancing costs would vary whether they were x-coll'd or not (I don't think they did).

The main advantages I found were

1. you know their "procedures" for that bank for refin etc
2. you have some leverage if you have many properties (i.e. large loan)

Cheers,

The Y-man

 

[kaf]

The main disadvantage I've heared - even if you don't cross coll. is that once you get over a certain loan size (seems to be 1mio +) you come up on the "radar screen" and your loans can be reviewed regularly.

You might not want that if you are an "average" investor (like me) who wants to change your job or something happens to your servicability or the market goes flat or backwards for a bit etc.

Seems as if you get out the other end with people writing big loans like Dazzling who appears to do everything with one bank and he said it's worked well for him. Then again he does highly positively geared commercial so different cattle of fish. Actually Lomas is into positively geared property as well so maybe in this case you'r buying more for yield so that might make things different for the banks.

We went with different lenders so that we are not too transparent within one bank in case things get tight. We have a decent LOC buffer for bad times but I wouldn't want banks to know when I'm using it for that reason. Interested to hear other views though.

Happy Easter

kaf

 

[simonjulie]

I have found it beneficial to take the money from whoever will lend it when the cost is right and the deal stacks up.
In my experience the individual lenders will only allow X amount of exposure per customer anyway.
If you are serious about getting wealthy from investing in property learn more about finance.
Cross collateralisation can be both good and bad depending on how you plan to grow and structure your portfolio. It is just another tool.
Simon

 

[alexlee]

e.g. the ANZ breakfree package only covers 5 loans. So once I maxed that out I started looking for other banks. It's not a bad idea to spread your business around, I think. More flexible when it comes to refinancing, and you can play one bank against the other (I got a 0.15% discount on a fixed rate from ANZ last time by threatening to move to CBA). Not much but that's will a couple hundred dollars so it adds up.
Alex

 

[The Y-man]

The main disadvantage I've heared - even if you don't cross coll. is that once you get over a certain loan size (seems to be 1mio +) you come up on the "radar screen" and your loans can be reviewed regularly.

kaf

In our experience, you simply hit the exposure limit, and that's it - no more loans; but we have not been "reviewed" as such. Don't think it stops you from refinancing further either, once you have the loan in place.

Cheers

The Y-man

 

[simonjulie]

The only thing we have hit lately is LMI. We had a refusal by one insurer because we are now classified by them as developers(we have never done a development). That must be a dirty word to them. Fortunately we sTill had other avenues.
Simon

 

[Qlds007]

With Anz Breakfree Yes it only covers 5 loans but there is nothing to stop you having a 2nd / 3rd Breakfree package.

You just pay a 2nd $340 / year. Trust me it works well.

 

[simonjulie]

Thanks
Good to know.
Cheers Simon

 

[Rolf Latham]

Hiya

Aa general comment would be that if you have all your stuff with one lender then:

1. Your work for that lender and they are very kind to you
2. Overall the risk to the lender is low, by that Im intimiating you arent maximising your resources.
3. Or you are a hungry pro active investor you will always outgrow the one lender. If you arent then you are probably within that lenders conservative model, and you aeant hungry
4. Crossing securities............................the best metaphor I can give, is that dont bother paying an accountant for tax advice, just go to the ATO.


ta
rolf

 

[Dazz]

The main disadvantage I've heared - even if you don't cross coll. is that once you get over a certain loan size (seems to be 1mio +) you come up on the "radar screen" and your loans can be reviewed regularly.

We have been X-colled with the one bank our entire investing career.....and loving it...

I honestly can't see what the big deal is. Our Banker offered to uncross all of our loans about 6 months ago, akin to trying to untangle a ball of string after a kitten had been playing with it for the past 4 hours.

We went through what it would involve, and the pros and cons of it. To me, all I wanted to know was, at the end of the process, would I be able to borrow more or less funds....what's my leverage. It was clear that I could borrow significantly more by being crossed up the wazoo.

We chose to stay crossed up....beautiful. Give me the biggest lever possible, so I can shift the biggest asset possible.

Don't know anything about a radar screen.....quite fancy being a big blip on someone's watch.....hopefully they'll look after you better.

If there is a limit to borrowing because of X-coll, we haven't reached it yet. And if we outgrow one of the big four banks such that they won't lend us any more funds, they I say bring it on.....their limit is a tad higher than anything we'll ever get to...probably by a factor of 10,000 to 1.

Get ém crossed up, have a crack at it.....you know you want to....

 

[simonjulie]

Hi Dazzling
On the flip side regarding X coll
A couple of years ago a friend of mine was voicing his frustration that he had no room to move forward because his lender dictated the value of his portfolio and business. That bank held conservative estimates of valuations and they could only be review once per year.
X Coll is a tool that can be handy at different times.
I have used a strategy in the past that worked extremely well.
this is what I did
: I refinanced from one lender where I had 6 properties all crossed.
I then set up my loans with the new lender as "stand alone" with the exception of three that I X Collateralised to pay for an annuity that I bought through Steve Navra.With some more of the freed up funds bought two more properties and added two more loans.
So my new structure was about nine loans in total with three X colld
An annuity that gave me an income for serviceably. Over time the values of the properties rose and the three crossed properties were converted to stand alone.
The next strategy was to shift securities so as to free up property and get titles back from the bank. What happened there was: when a particular house gained enough value to take another loan that existed on another property I arranged with the bank to shift the loan on the property that I wanted back onto the property that had gone up sufficiently to carry both loans. I used that strategy on a number of similar occurrences of the same happening to other properties. So at the end of the day I still had all the original loans but I have less securities against those loans.
The freed up titles were then used for growing the portfolio larger through refinancing to a different lender.
Just something to think about.
Cheers

Simon

 

[Rolf Latham]

Hi dazzling

Rather than get on my usual soap box and cast my view on xcoll, because we usually agree to dis agree) instead here Im thinking you might want to qualify your advice a little there


While it might be ok for BIG FISH like yourself at this point, think about the little guy who has a million exposure at 90 % with the one lender and LMI provider.

He/She is going to get absolutely slaughtered every time they take another wee loan, assuming they even get approved for it ..............as for pulling more equity ............

The strategy of all with one lender simply doesnt work well for emergent investors with limited equity.

This changes once you are talking LVRs of 70 to 80%, but even there its generally not wise. While there are cases as pointed out by Alistair Perry on this post

http://www.somersoft.com/forums/showthread.php?t=30042

I know for example spanny did the same thing once he got to a certain point................had all his biz with one or 3 lenders.

ta
rolf

 

[Scoob]

I have found that personal business banking or commercial banking can be triggered by three main factors (disadvantages of putting all your eggs in one basket)

1) more than 5 home loans with one lender

2) more than 1 million dollars in loans ( some are higher at 1.5 mil)

3)Many lenders would also become wary if more than 50% of your perceived income was derived by rent.

'Firebreaks' (more than one lender) allow you to manager these triggers so you remain at residential lending rates.

 

[Dazz]

you might want to qualify your advice a little there

Ummm, I'm just having a quiet chat Rolf. That to which I wrote definitely wasn't advice, and I hope no-one thought it was. I'm not officially qualified to say boo.....but I thought we were all just having a chinwag about our experiences. I hope no-one tries to do what the wife and I have done....ços it's as boring as all hell staying with the one lender.

While it might be ok for BIG FISH like yourself

Whoa back there chief. Big is a relative word Rolf. 3 years ago we jumped out of our little goldfish bowl as we'd outgrown it and into a smelly industrial pond. We feel like a little minnow compared to some of the barracuda's and whale sharks swimming these waters.....who'd sooner swallow you whole and spit you out the back end rather than look at you. Sure, we don't look at 2 bedroom apartments anymore, but then alot of people here are also well on their way.

The strategy of all with one lender simply doesnt work well for emergent investors with limited equity.

Dunno. I'll have to bow to your experience levels on this one. We started down this track and have just kept plodding along - blissfully unaware of all of this X-coll stuff. Hasn't affected us one bit. Perhaps you'd be willing to accept that there is more than one path to walk down do reach the same destination. Simon illustrated a good example there.

I know you've got a loyal following here Rolf, so the following will probably be a tad unpopular....but it's an opinion that has evolved over the last say 5 or 6 years, since we've really started to be looked after by the Bank.

I've slowly come to the realisation the ones with the greatest opposition to X-coll and the ones consistently shouting from the rooftops about how bad it is and how average schmuck investors who don't know any better will get gobbled up by the big bad nasty banks, are usually the mortgage brokers themselves. Is it because you can't access the equity as an outsider when the Bank and investor are financially joined at the hip....hence no business can be done from your side ?? A smart canny aggressive investor, together with a Bank rep who can see the runs on the board from previous deals, can strike a deal but the poor hapless mortgage broker is shut out of the action.

Good for the Bank, good for the investor, bad for the mortgage broker.....conclusion.....it's bad ?? Not sure I buy that argument.

Dunno - as I said, you guys live and breathe this stuff every day, we do it about once every 2 years. All I'm here to say is that we haven't found it to be the big bogeyman that it's portrayed to be, and that's starting out as an average couple, on an average single wage, buying avearge houses once every 2 years....nothing startling there.

 

[geoffw]

I have come across the barriers of xcoll and hitting the wall.

xcoll was a tool which suited us well at the time. We could not have got our flock of bats without it- so I'm very grateful that it was available to us. I did now the potential downside, so I went in with my eyes open.

Though my bank had two surprises for me:

1. They had a comfort zone ceiling. As just ordinary M&D investors, they became uncomfortable lending above the amount of debt which the flock gave us- in fact, if it wasn't for a great personal banker, we would not have even been able to buy the flock.

2. They changed the rules about revaluing property. So, at the peak of the boom, we had lots of equity which we were unable to use. The only way we were able to access the equity was to split off some of the properties and to take them elsewhere. Without that splitting, we would not have been able to buy the business (though in hindsight, that may not have been a bad thing )

 

[Rolf Latham]

Hiya Daz


Unpopular, nah, it’s a free world, I have clients that still want to cross deals, that’s their choice. Heaven forbid, even we use xcoll in some circumstances where it suits the client, but certainly not as a global strategy.

I dont get to see the PB spaghetti investors until their knuckles have been grazed, and they have a couple of bruises .

Often, then it takes several months to sort the mess out, and because the structure has been designed to gather “maximum contribution”, it can in some instances take a couple of years to gradually break stuff out.

One thing that’s not obvious, is once you get to being on the banks nose, then we have had instances of the lender not allowing partial releases, because it raises the remnant LVR to above what was previously approved, and you either go through a new credit assessment, or

I suppose xcoll cant be that bad for business, because if you ask 10 brokers, 8 will think there isnt a problem with it either...................

I go back to my emergent client equity scenario, the type of person that might be influenced by what we post…………………………..and yes its not advice per se

Take this not unusual example

1 million in loans at 95 %, say over 4 properties

now want to buy another place worth say 250

STG wont do the deal.

Westpac might, the NAB and CBA might, the regionals generally wont, and the securitised lenders might.

Effective premium for the 5th property crossed over 5 properties………13 000.

Effective premium on a standalone basis 3300.

And that’s assuming you can find a lender and an insurer that will do it, and then where to from here ?

That’s the stuff that’s under consideration here ( I think)………………..someone has been to a Lomas seminar and is asking does this make sense …………..they aren’t working with commercial/industrial, and they might be playing with 2 bed units and they might have to sit around for a while with 7 or 8 % cap gain for a while.


Yes, there are many paths, im not invalidating what you are saying, you are beyond the LMI mess anyways.

Im attempting to ensure that the context isnt misunderstood………………….so that a relatively new investor from within, different markets, different cycles, different experiences, and different resources, makes an informed decision.


Ta
Rolf

 

[Dazz]

Fair comments Rolf.

 

[kathryn d]

2. They changed the rules about revaluing property. So, at the peak of the boom, we had lots of equity which we were unable to use. The only way we were able to access the equity was to split off some of the properties and to take them elsewhere. Without that splitting, we would not have been able to buy the business (though in hindsight, that may not have been a bad thing )

Geoff,
If you knew what you know now, would you have still bought "the business"?
I would think owning a business can be very risky.

 

[Wishlist]

Thanks for all the opinions. It is good to see some of the pros and cons of cross-collateralisation and to know that it has served some people well.


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