One for Rolf?

From: Alan Hill


Hi Rolf,

I saw a recent advertisement for a Henry Kaye Seminar where he was promoting the concept of 'mezzanine mortgage lending'.

Just curious....does Rolf or anyone know how this works? What it is? If it's lega.....never mind.


PS. Rolf...I think I passed you in Charles Street the other day....sorry I couldn't stop but I was running a bit late.....:)



:)
 
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Reply: 1
From: Rolf Latham


Hiya Allen

Commonly used terminology in commercial lending, but no real idea what it actually means. I suspect it relates to a number of mortgages secured against the one property ?

Ta

Rolf
 
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Reply: 1.1
From: Mike .


Hi Alan,

Interesting question.

A google search revealed that mezzanine debt lending is normally associated with large-scale commercial and industrial projects for either acquisitions, refinancing, or renovations.

Interesting that Henry Kaye is promoting this type of finance to ordinary residential investors. Just another example of his high risk strategies.

The word meaning of mezzanine is: A low storey between two floors of a building, especially the first two floors; an intermediary floor. In a theatre, a shallow balcony between the main floor and the first balcony.

Mezzanine Financing is aggressive 1st, 2nd or 3rd mortgage financing on income-producing properties. Not to be entertained for negative geared property. Might be an option for the Wrappers out there.

Typically interest only, short-term (12 months), high interest rate 10-20%, probably secured as a second mortgage. Wrappers could use this to fund deposit of next property.

Investors who have bought multiple off-the-plan properties using deposit bonds could use it to hold these properties until buyers are found. As I said high risk but offers flexibility.

Regards, Mike

PS: Rolf, what borrowing strategy do you recommend for wraps?
 
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Reply: 1.1.1.1
From: Michael Yardney


Alan
As I understand it, mezanine finance is a short term development loan usually used in Australia for especially commercial but sometimes large residential development projects.
It is basically a 2nd mortgage and sits after the first mortgage in being paid out if the borrower defaults. It is therefore more risky and attracts a higher rate of interest.
Sometimes the lender gets a share of the development profit as well as or instead of interest.
As Mike suggests it fits in with Henry Kaye's high risk strategies. I spoke with my solicitor about it last night. Leave it for the speculators. It is certainly not for the average investor. It's back to the old risk /reward storey. The greater reward you are looking for, usually the greater risk you will need to take.
Michael Yardney
Metropole Properties
 
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Reply: 1.1.1.1.1
From: Waverly Bay





Industry questions Kaye claims
Apr 6
Tina Perinotto

Property seminar spruiker Henry Kaye says investors can earn up to 35 per cent on mezzanine mortgage lending with their capital guaranteed. The industry says they can't.

Mr Kaye has made an impact in the last few years with would-be property millionaires happy to pay up to $20,000 to hear how to get rich on property, using mostly borrowed funds.

Despite media attacks on get-rich-quick schemes, the Melbourne-based Mr Kaye has continued to enjoy up to $6 million for each event that can pack out Sydney's Superdome or the Convention Centre with emotional investment "empowerment" techniques.

His latest seminar offering, which appeared this week in newspaper advertisements, promised to reveal how to invest in mezzanine funding with 100 per cent borrowed funds, and how to guarantee against any loss.

The investments are passive and this makes them "the perfect investment vehicle for retirees and superannuation funds, as well as ordinary 'mum and dad' investors", the advertisements said.

Offered at a giveaway $39, which industry sources say is a common hook to attract targets for more expensive information, the seminars have attracted the attention of the NSW Department of Fair Trading, but they are offered in all major cities except Perth.

"In NSW advertisers must be able to substantiate any claims they make in their advertising or any other promotional material," a Department of Fair Trading spokesman said.

"If there is actuarial evidence that Mr Kaye's methods do not achieve up to 35 per cent return, Fair Trading would welcome that evidence."


Mezzanine finance is a sophisticated product for sophisticated investors. Generally it provides 10 per cent of funding for an investment or development, but the loan is subordinate to the first mortgage which is paid first in the event of bankruptcy.

It was used during the frenzy of the 1980s property boom, but disappeared after the fiasco of the property crash and the huge losses made by ordinary retail investors in high-risk property investments, such as those offered by Estate Mortgage.

Today, mezzanine finance is back, but strictly for institutional or sophisticated investors. At Macquarie Bank, for instance, you need to be an institution or have a spare $500,000 to invest. Investec Australia, soon to launch a fund offering a mezzanine lending product with returns of between 15 per cent and 30 per cent, will offer it only to its merchant banking clients.

Associate director of Investec, Brendan O'Sullivan, said his company is one of the biggest players in the field. Can the loan be capital guaranteed? Mr O'Sullivan has never heard this could be possible.

Is there any way you can secure this through some form of insurance? "Not at all."

Asked where "mums and dads" could find such investments, Mr Kaye told The Australian Financial Review that he "preferred right now not to talk about it". But he said he would tell people how to find the deals for themselves, including the developers if they wanted the higher returns and mortgage funds for the lower returns.

But the Department of Fair Trading has advised: "High capital returns usually are associated with high risk and often the schemes are very complicated so that people cannot properly understand them without consulting a licensed adviser."
 
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Reply: 1.1.2.1
From: Mike .


Hi Rolf,

I'm trying to establish whether it's possible to operate a wrap business without using equity from my current portfolio.

Is there 100% finance available with LMI for wraps? 80% LVR loans would require deposits from somewhere. I don't want to factor in the FHOG since it is only temporary.

Your question puzzled me. Are you suggesting that there are different sorts of wraps?

Regards, Mike
 
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Reply: 1.1.2.1.1
From: Mark Pardi


In brief

mezzanine finance is 2nd mortgage finance !!

usually on commercial property and large "lots" of residential only.

traditionally its been set at very high interest rates of about 25%

essentially mezzanine is not for mum and dad investors or the faint hearted.
 
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Reply: 1.1.2.1.2
From: Rolf Latham


Hi Mike

Different people have different ideas on what makes a wrap work for them, 20 to 60 % mark up on purchase price and 2 to 5 % spread on rate is a big variation.

The biggest hurdle will always be sourcing finance where the lender's mortgage and loan contract actually specifically allows you to onsell using installement contracts.

A recent post I read suggested the wrap finance association had a product through Mortgage House of Australia which was a 100 % lend.

Ta
Rolf
 
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Reply: 1.1.2.1.2.1
From: Asy .


Have a look at:

www.financewraps.asn.au

asy :eek:)

"Don't forget what happened to the guy who suddenly got everything he ever wanted...
He lived happily ever after.
(Willy Wonka).
 
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