Bank Trap

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From: Anonymous


I was just interested what people's view are on using the same bank for all your property investment deals. I use a big bank however they do like to mortgage everything over the same property which has most of the equity.

I know that this is a dangerous thing so I'm thinking about using another bank for my next deal. What do other people think? It's hard to move equity, so how do people get around this. I have most of my equity tied up with one property and it would be nice to 'share' it around so I have exactly 20 - 30% in each but that doesn't seem possible.

What are other peoples experiences? Also, how do you get motivated again? I feel like just sitting back for a while and not doing anything... is that a bad thing?

Cheers!

Landholdings.
 
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Reply: 1
From: Dan D


I too have a mortgage with a big bank, ANZ. Initially, when I applied for a loan, they just went and put it all on the one mortgage, my PPOR.

This meant that I could borrow $260K for my IP.

Then, I learnt that it is better to have a totally separate loan for the IP. So, I asked ANZ to do that for me. The downside of this is that I can only borrow $199K.

Still, off I went a hunting for that IP at around $199K. There were a few around, but not too many of those that were built in 1987 and thereafter. This meant that I had some choice for older homes that needed work, but virtually no option of obtaining a new home at $199K. At least not in an area of historically good capital growth.

Now, I'm thinking that maybe I'll take the small risk and have the loan secured by both properties, take the $260K loan and start hunting for newer properties that will provide me with the capital allowance deduction, as well as good growth prospects. With lower maintenance costs to boot.

Since I am not aiming at amassing multiple properties, but only that one IP and my PPOR, one of which will eventually be sold to fund my retirement, I think that this is the way to go for me.

What will work for you depends on many factors, like risk tolerance, what your goals are etc.

But, you can ask your bank for separate loans. That should be no big deal.

Dan.
 
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Reply: 1.1
From: Duncan M




> Since I am not aiming at amassing multiple properties, but
> only that one IP and my PPOR, one of which will eventually be
> sold to fund my retirement, I think that this is the way to
> go for me.

Whooah.. Risky strategy, you're betting the farm on _ONE_ property? What if
they find contaminated soil in the suburb just as you want to retire.. or a
bikie club moves in next door? etc etc? Reduce your risk by establishing
multiple properties.


Duncan
 
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Reply: 1.2
From: Paul Zagoridis


Woa! Dan D

Your bank is being difficult. There should only be a minor difference (if any) between your borrowing capacity cross-collateralised vs stand-alone. 260K vs 199K is not minor.

Talk to a broker and not your banker.

PaulZag
Dreamspinner
WealthEsteem :: Psychology of the Deal
http://www.wealthesteem.org/
 
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Reply: 1.1.1
From: Dan D


Oh, spanner in the works! Okay. My PPOR is in a good capital growth location and is likely to remain so. This means, that unless my surrounding mansions are suddenly occupied by the local bikie gang or other detrimental happenings occur, my PPOR will over the next 25 years have a lot of equity in it.

Say, I now buy the $230K property also in an area of good capital growth as shown by historical and current data. It will have a heap more equity in it in 5 years time than one bought in a marginal locality with historically marginal capital growth, but which can be acquired for $199K or a little less.

Given this scenario, it would still be better to buy the $230K property, because its capital growth will most likely enable me to purchase that third IP, while the $199K IP is not likely to provide much equity for at least 10 years, and generally offer little return given my high income tax bracket (I'm working on keeping it that high :)) . At least the $230K IP will keep my options open for another IP purchase in the future. Does this sound like a more sensible plan?
 
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Reply: 2
From: Rolf Latham


Hi LH

My views on this are that you become a burden to the lender. On the one hand they have to treat you nicely, on the other hand they start talking 75 % portfolio LVRs and renatl reliance speak.

Spread your business - but not too thinly, for an average investor 500 to 800 is about optimum for most lenders.

Ta

Rolf

Rolf
 
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Reply: 2.1
From: S W


I don't understand why the Bank is talking $260K versus $199K.

I think when you have spoken to them about a separate stand alone mortgage on the IP, they are quoting you on how much you can borrow just on that IP, which will of course be influenced by maximum LVR. Is this the case?

You should still be able to borrow the $260 by taking a new loan on the IP at $199K (is this 80% of value?) and borrowing the additional $61K as a separate facility (with separate statements for tax purposes) on your existing mortgage. The additional $61K would still be tax deductible as it was used to cover costs,deposit etc. on the purchase.

Is it worth talking to the Bank again to clarify this?
 
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Reply: 2.2
From: Peter Henery


Mr.Holdings,
The key (for us) to staying motivated is the "final what if?" in Jan's latest book.

Nothing motivates me more than the thought of working how many years....to then live (?) my retirement on a paltry pension that barely keeps me in bread and butter.

We also find we work in "cycles", we buy, we maybe renovate/paint, we rent 'em, we get 'em "settled down", we revalue,we redo our "numbers" and deal with the bank, we go hunting, we buy some more...and so on.

Keep going. Persistence is the key. Think of Shackleton when the going seems tough.

Peter H.
 
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Reply: 2.2.1
From: See Change


Dan

when you start comparing a property of 199 with 230 , I don't think that's the comparison you should be thinking of.

The comparison you should be making is between a property worth 230 and properties worth 60-80. You still may come down in favour of the one worth 230 , but a property at 199 is unlikely to offer the cash flow advantage compared with three at 80 .

see change

it's better to be guided by your dreams than your fears
 
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Reply: 2.2.1.1
From: Andrew D


Gotta agree 100% with S-C on this one. A single property returning $250ish versus three returning $450ish to me is much better. And for those who think there is no capital growth....my experience has been to look again.

Enjoy
AD

Stumbling blocks are just stepping stones to the successful.
 
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Reply: 2.2.1.1.1
From: Land Holdings


Thanks for all the replies. I am however thinking that I'm going to hold my horses for a little while. I'm not sure what to do about the bank situation as it is cheaper to keep my "extra" funds as extra payments against a loan as it is cheaper than any savings account available and isn't taxed as income. Are there many people who have been burnt keeping all their dealings with just one bank? Or is the mortgaging over a mortgage situation that is risky?

Cheers!

Land Holdings
 
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