Going too fast??

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From: Anonymous


Hi,

Just wondering if there is any reason not to go as fast as your equity/bank will allow you. Also is there a rule about loaning over a million dollars, ie more equity taken?

1st house in July 1999 ~ 100,000
2nd house in Feb 2001 ~ 100,000
3rd house in July 2001 ~ 187,000
4th house in August 2001 ~ 175,000

All positively geared. In it for the long term

Have enough equity left to go again now.

Cheers and keep up the good work..
 
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Reply: 1
From: Crystal .


Hi Anonymous,
Where are your positively geared properties?
Just curious,
Crystal
 
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Reply: 2
From: Rolf Latham


Hi Anon

A lot depends if you are using lenders mortgage insurance.

Also as you have identified a lot of lenders get cold feet above 500 to 1 mill depending on your financial makeup and 1. will not give you LMI for your loans and 2. can and do ask to lower your LVR to 70 to 75 % because youa may be reaching a rental dependency.

Part of the secret is not to be cross-collateralised and to be use a variety of lenders.

The other partial "secret" to that is to seek the help of a good independent broker so you can be informed where to place your next million $ worth of business.

Ta

Rolf
 
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Reply: 2.1
From: Duncan M


>Part of the secret is not to
>be cross-collateralised and to
>be use a variety of lenders.

Rolf, could you expand on this please?

Thanks, Duncan.
 
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Reply: 2.1.1
From: Rolf Latham


Hi Dunc

If you do not tie up all your business with the one lender you will find that lender A will lend up to 50 % more than lender B given exactly the same scenario.

In addition most lenders get cold feet above 500 k so you need to pick up your property (or equity out of it) and walk over to
another lender.

Most of my higher value clients have loans with at least 2 lenders. 1 set of loans for core lending with a good offset or LOC product and a second set of loans with a lender that understands high LVRs and lends more dollars.

ta


Rolf
 
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Reply: 2.1.1.1
From: D R


Thanks Rolf,

This makes more sense now. I was wondering what you meant when you answered my x-coll question the other day.

Great stuff

Cheers


DR
 
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Reply: 2.1.1.1.1
From: Gee Cee Cee


Hi Rolf

I always knew that what you were saying at the start was right.

I have been there as well.

Gee Cee

PS . Although it can be hard.

Try to keep things separated. Loans/Mortgages/loans/etc.

!!!!!@@@@ ### & possibly partners/or wives. etc????
 
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Reply: 3
From: Anonymous


Thanks Rolf, a few comments and questions.

The last two properties have incurred LMI. Although l ask for the vendor to pay, and both times successful.
All properties with the same bank, no signs of cold feet yet..
How do you pick up your property / equity when it is tied up with the "cold foot bank".
Can you give an indication of a Lender that understands high LVR?

Can you explain core lending with good offset. (is this about flexibility of cash)?

Cheers again
 
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Reply: 3.1
From: Scott Marshall


As all the Banks have similar rates when negotiated, could you be specific when refering to banks. It would help us all if we actually knew who the cold foot banks were. Just name them, then we can see where to go/not go and increase our bargaining power. I know it will cause great discussion when you advertise, but drop a hint here and there will help. eg. RAMS used to only lend 80% no matter what. They now lend to 95% with LMI.
Scott
 
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Reply: 3.1.1
From: Rolf Latham


Hi Scott

Awww please Scott, on a public forum I think specific negative comment would not lend itself to helping anyone. You have to remember that almost anything goes on a case by case basis with lenders when approaching their boundaries. It would not be fair to bury any lender since they may not do the deal for person A but will for Person B.

On the positive side, it is commonly known that ANZ has a good serviceability model (for most but not all borrowers) and will lend to 95 %.

Ta

Rolf
 
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Reply: 3.2
From: Rolf Latham


Hi Anon

No cold feet yet, must still be below the 500 mark or you have bought them some sheepskin boots :eek:)

Refinance usually thats how, or if you have the equity use a second mortgage.

ANZ, RAMS and Homepath are some lender that can commonly lend to 95 %.


Your core lending refers to how you are using your day to day cash flow, salaries rents etc. Are you parking these in some account with 1 % interest or are you parking these against or in your loan. Properly used in many situations such systems can help you pay your debt out much more quickly.

Ta

Rolf
 
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Reply: 3.2.1
From: Anonymous


Thanks Rolf

We owe $562,000 to ANZ, and yes we have a equity manager where our bucket loads of money sits :0)

Second Mortgage? How..Two banks hold security in the one house...what if the worst happens, do they have a tug of war.?

Rolf l have really enjoyed learning from you, as you are really patient with us learners, keep up the good work.
Cheers GL
See l am feeling more relaxed here now...
 
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Reply: 3.2.1.1
From: Rolf Latham


Hiya

Second mortgage means secured creditor behind first mortgagor -so no tug of war no.

Ta

Rolf
 
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Reply: 3.2.1.1.1
From: Anonymous


Rolf

Quick question on x-collateralisation. Does the bank get cold feet on being too rent reliant if the LVR is greater than 80%.

If you x-coll with your house you can get portability within the investment loan that your house can be cleared from the loan document once the valuation on the IP becomes greater than 80%.

Would a mortgage broker get two commissions for arranging 2 loans for 2 properties rather than putting both properties under the one loan and getting one commission. Therefore it is not in a mortgage brokers interest to x-coll.
 
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Reply: 3.2.1.1.1.1
From: Rolf Latham


Hi Anon

No A broker gets comm on the $ settled not the loan numbers.

So that theory is up the creek. Why would a broker do twice the paper and leg work for the same amount of comm if he/she could half and get the same money - ? because they actually care about their clients financial future.

Rental reliance is an issue more so with Mortgage Insured Loans.

In 85 % of cases Xcollateralisation suits no one but the lender.

Are you a mobile lender for a bank in disguise :eek:), or tied up tighter than the elastic in a golf ball with xcoll and worried ? Yes, a bank might let you go when the ip reaches 80 % of loan value - as long as you can get a fair valuation.

The xcoll argument is almost as old as Adam, they did not have LMI back in those days :eek:)


Ta


Rolf
 
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Reply: 3.2.1.1.1.1.1
From: Anonymous


Rolf

Actually I was just wondering why you would use a blanket statement of never X-Coll. I just disagree with blanket statements without understanding the situation. Blanket statements such as "shares are better than property", "property is better than shares" and "never x-coll".

By the way I do use x-coll but I'm not wound up tight with my LVR which is about 75%. Blanket statement without knowing the situation?

I'm sure that if someone came up to you and said "I'm going to buy a house - get me the best mortgage" you would want to know some more details than house and mortgage.

Actually I'm pretty disappointed that a professional mortgage broker would advocate a certain line of thought without being open to other lines of thought. This would make it difficult for you to be portrayed as think outside the square kind of mortgage broker.
 
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Reply: 3.2.1.1.1.1.1.1
From: Paul Zagoridis


I went broke in 1992 and cross-collateralised mortgages featured as one of the main causes.

I've counselled many to "never cross-collateralise." Explained at length the loss of flexibility and that the bank has you over a barrel.

Obviously I normally follow my own advice. Except once. I found a great deal - needing a quick turnaround. So I called NAB and told them what I wanted. "No problems" they said.

Once past the point of no return, NAB said, "Oh! BTW it's approved but cross-collateralised". Many arguments later I won some points and lost others, the deal went through cross-collateralised.

Fast forward 6 months, I've sold my residence. NAB says "No worries". Yesterday, four weeks before settlement, they say they want a $30K reduction in the other loan to release the primary security. We'll be arguing over this one for the next 4 weeks.

Never cross-collateralise. When you know the rules you can break the rules. Except this one. The banks just get too much power over your business.

Hey Rolf! Time to refi the entire portfolio.

Paul Zag
Dreamspinner
Oz Film Biz is at
http://www.healey.com.au/~paulz
 
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Reply: 3.2.1.1.1.1.1.2
From: Rolf Latham


Hi Anon

Funny that, I dislike generalisations too.

I do like best deal policies and risk minimisation.

On the subject of " never cross-callateralise" - What benefit do you derive by having xcollaterised properties ??

And on the subject of "out of the square", I am square - and most of my clients seem to like it that way.

Ta

Rolf
 
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Reply: 3.2.1.1.1.1.1.2.1
From: Ian Parham


'Evening All.

Rolf & Paul's last two posts were particularly eerie in the similarity to my own recent predicament, yet very reassuring in that I now know I am not the only one to have been 'snookered' by X-Coll!

"Elastic in a golf ball'...so true(Hey Rolf!)

I must go into bat for Rolf on this one as it was his 'Square thinking';>) that enabled me to see the light to seek alternative opinion, along with some home truths, with the objective being to rejig my finances in a far more appropriate manner. That is, in a way which will provide me with the flexibility to manoeuvre in the future should (when) I need to.

Have just sold one of my IPs with a view to leveraging myself into a better bargaining position for an acquisition I have been eyeing for some time. Interesting comments Paul; my bank started carrying on about me throwing more funds into the pot too prior to discharge of mortgage. Fortunately I was able to ask the representative from the bank to review all figures after a new round of valuations...the news was good; no requirement to contribute! However the point is...this is one of the downsides of X-Coll.

Cheers Ian...and thanks again Rolf!
 
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Reply: 3.2.1.1.1.1.1.2.2
From: Anonymous


Rolf

One advantage X-coll is you only have to pay one lot of fees to set up the loan. Also with one loan it gets very easy to manage. One big stipulation is that the loan has to be portable with security. In other words so long as the valuation of the security is below the LVR stipulated by the bank. X-Coll can be like an IO LOC.

I have friends with 9 properties all under the 1 loan. Sold one recently and paid down the loan with the money - went out and bought another in a another area - no problems with the bank. One other thing is that they have not had a problem of the bank saying that they're too rent reliant.

Maybe owing $800k to the one institution has it benefits? Other than cheaper interest rates, no fees, better deals on insurance and other products.

Actually I'm more amazed that people involved in IPs do not understand different types of mortgages, what features you can get just by asking. After all gearing is integral to IP investing.

By the way I'm not involved with a bank in any way other than they lend me money to invest.

I did not get paid for this post by any bank (ala John Laws) :).

Anon
 
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