X-Coll and building large property portfolio

[cceasy]

Hi all,

I need some advice and guidance... Situation is my PPOR is almost paid off so I have a lot of equity to play with... My goal is to reach 6 investment properties in the short term and maybe a couple more later on...

Now not knowing much about X-coll but I knew it's better not to go down that route... I told my broker this and he said ok no probs... I told him I want to keep my PPOR loan with ING and borrow from another lender to purchase these properties... He said fine... My lender of choice was Suncorp... Fast forward, I find 2 properties that I like and made an offer on them.. Offer was accepted and loan contracts with through the normal process...

However I later on found out that I'm now refinanced and they will close the ING mortgage and now my PPOR and the investment properties will be with Suncorp...I rang and spoke to the broker and blah blah blah I realise he had X-Coll even though I didn't want him to... I felt it was a bit too late and I didn't want to risk losing the properties I plan on purchasing so I stuck with it...

Now researching further people are saying that X-Coll will make it harder to build a large property portfolio and this has made me worry. My current lvr which if you include PPOR and the 2 investment property is 46%

What should I do? For me I don't think I would go more than 6 properties anyway... Should I address it now or just continue down this path?

I now know what people on SS mean when they say find a good broker...

 

[Colin Rice]

Have another broker un cross it sooner than later.

As a well known broker on this forum says;

"It (xcoll) doesnt become a problem until it becomes a problem"

Did your current broker explain the current choice of lender to you?

 

[Kinnon Bell]

Sort out sooner rather than later while you can before it becomes a headache.

The broker didn't explain what he was doing at any stage?

 

[cceasy]

No he didn't... I just told him my goal and explained what I didn't want... Is it easy to un cross? what's involve from my end?

 

[cceasy]

I'm partly to blame for this... I should have researched more and stopped it in its; track when I 1st found out... didn't realise how many negatives...

No not much explanation... Told him my situation and he went through which lender had the lowest rates and started the pre-appoval process...

 

[Redom]

Hi all,

I need some advice and guidance... Situation is my PPOR is almost paid off so I have a lot of equity to play with... My goal is to reach 6 investment properties in the short term and maybe a couple more later on...

Now not knowing much about X-coll but I knew it's better not to go down that route... I told my broker this and he said ok no probs... I told him I want to keep my PPOR loan with ING and borrow from another lender to purchase these properties... He said fine... My lender of choice was Suncorp... Fast forward, I find 2 properties that I like and made an offer on them.. Offer was accepted and loan contracts with through the normal process...

However I later on found out that I'm now refinanced and they will close the ING mortgage and now my PPOR and the investment properties will be with Suncorp...I rang and spoke to the broker and blah blah blah I realise he had X-Coll even though I didn't want him to... I felt it was a bit too late and I didn't want to risk losing the properties I plan on purchasing so I stuck with it...

Now researching further people are saying that X-Coll will make it harder to build a large property portfolio and this has made me worry. My current lvr which if you include PPOR and the 2 investment property is 46%

What should I do? For me I don't think I would go more than 6 properties anyway... Should I address it now or just continue down this path?

I now know what people on SS mean when they say find a good broker...

That's poor form, never mind the cross x, the part that your now refinanced to Suncorp on your PPOR against your instruction is just wrong. Probably because they were paying quite substantial bonus commissions (potentially worth thousand(s) for 3 loans) a few months back too.

Anyway, moving forward, at 46% LVR the costs of cross collateralising are less dangerous (more theoretical than practical costs at that LVR IMO). Its really a big mess at higher LVRs and makes withdrawing equity out a painful and potentially expensive exercise.

As you move forward, you need to tap equity in your existing properties. Best to do a simple restructure as part of this process and uncross then.

For now, so long as your borrowing power is ok and well mapped out, you should still be fine to continue on your path to 6 IPs.

If I were you, i'd be giving your broker a spray for the refinance of your PPOR. I don't think that's acceptable if you specifically requested for it to not happen.

Cheers,
Redom

 

[Redom]

In terms of what's involved and how it works:

You may be in a situation where you have $1mill worth of property and a $460k loan with all three securities against it.

You can do a valuation on each property, say $330k each and then borrow 46% against each individual property. Therefore you'd have 3 loans, one against each property, each around $153k.

To do this, its just a restructure of your loans (an internal refinance process) with Suncorp. There may be a few fees involved, but the costs of cleaning it up shouldn't extend that far.

You can do it now if you'd like, or when planning your next move. Be careful, a new broker MAY suggest moving away from Suncorp. This may activate a clawback fee from your old broker. Just keep this in mind.

Cheers,
Redom

 

[cceasy]

I know... I feel annoyed but at the same time the guy is really friend and I feel bad going off at him... Settlement hasn't occured yet on the 2 properties as it's still early days... Is there something I can do now without costing me money to restructure?

 

[Peter_Tersteeg]

The broker acted specifically against your instructions. The likely reason this was done is because Suncorp will pay a full commission on the refinance, whilst ING would only pay on the equity release component. Suncorp recently had a very cheap rate promotion which may work in your favour but I suspect there's an element of this broker putting a high priority on their own self interests.

For the objectives you've outlined, Suncorp is a very bad choice of lender simply because their serviceability model is terrible for investors. They're fine if you want a 'set and forget' loan, but if you're looking to build a portfolio and access equity along the way, they're terrible. Sadly I'd also put ING in the same category.

If you combine a bad choice of lender with cross collateralisation, it will almost certainly get in the way of building a larger portfolio in the future. Unfortunately I think you're heading towards a train wreck with the outlined loan structure and choice of lenders. It may not happen with the first or second IP, but it will almost certainly become a serious and likely expensive problem in the future.

 

[Kinnon Bell]

No not much explanation... Told him my situation and he went through which lender had the lowest rates and started the pre-appoval process...

Sounds like there wasn't too much planning (from the broker) and conversation held in the process. Interest rates are just one part of the equation. If you're looking at building a sizable portfolio then structuring your loans to best advantage this is more important than rates.

Find a good broker to sit down with and sort out your current structure and have a detailed conversation to map out your future purchases too.

 

[cceasy]

The broker acted specifically against your instructions. The likely reason this was done is because Suncorp will pay a full commission on the refinance, whilst ING would only pay on the equity release component. Suncorp recently had a very cheap rate promotion which may work in your favour but I suspect there's an element of this broker putting a high priority on their own self interests.

For the objectives you've outlined, Suncorp is a very bad choice of lender simply because their serviceability model is terrible for investors. They're fine if you want a 'set and forget' loan, but if you're looking to build a portfolio and access equity along the way, they're terrible. Sadly I'd also put ING in the same category.

If you combine a bad choice of lender with cross collateralisation, it will almost certainly get in the way of building a larger portfolio in the future. Unfortunately I think you're heading towards a train wreck with the outlined loan structure and choice of lenders. It may not happen with the first or second IP, but it will almost certainly become a serious and likely expensive problem in the future.

Crap I'm freaking out now

 

[cceasy]

Can anyone recommend a good broker Sydney west around Fairfield area?

I just signed the contract for the 1st invesmtent property last week so they have that contract now..> I just received the 2nd contract but have yet to sign it... Can something be done now before the loan has been settled without affecting settlement?

 

[neK]

I know... I feel annoyed but at the same time the guy is really friend and I feel bad going off at him... Settlement hasn't occured yet on the 2 properties as it's still early days... Is there something I can do now without costing me money to restructure?

Never do business with friends.
In most cases it ends badly.
Friends who don't understand that.... well you probably shouldn't be friends with.

 

[Peter_Tersteeg]

Crap I'm freaking out now

I appreciate the broker may be a friend, but it does sound like the loan structure is being implemented on the basis of competitive interest rates and minimal work for the broker.

Cheap rates are great, but unless you've very cashed up and on a very high income, this structure and this lender is going to be a serious problem in the future.

You can probably use Suncorp with a non-crossed structure, but understand that at some point you will almost certainly need to refinance when they'll no longer let you access equity because you don't meet their serviceability criteria.

The Suncorp saving is in the order of 0.1% and an annual fee (if you applied before Christmas). The cost of moving is $700 - $1000 in bank and government fees, more if the broker charges clawbacks on their commissions.

If settlement is still more than 30 days away, you've probably got time to make alternative arrangements.

 

[Redom]

Crap I'm freaking out now

Ok - putting some perspective, so long as your borrowing power is there, you should be fine to achieve your goal. You've started on the back foot, but by no means have trapped yourself or stopped yourself from achieving what you've ultimately set out to do.

Its more difficult to take out equity from Suncorp and ING because they are typically very conservative lenders in terms of borrowing power. You'll 'cap out' with them much sooner than some other lenders.

Noting this, given your current LVR, you could refinance out and go to a more suitable lender. This shouldn't cost all that much (assuming no broker clawback fees and on a variable rate). We're talking $1000-$2000 to do this - IF necessary-- and even then, some suitable lenders have refinance rebates going on that'll cover your expense.

As Peter mentioned, the biggest issue is that your broker was likely to be acting in their own interest instead of yours.

You can still achieve your goals so long as your borrowing powers there - and the cost of your mistakes isn't likely to be alarmingly high in $$$ terms. There may be a refinance/paperwork involved, but not a huge cost.

No freaking out necessary - just some adjustments to your structuring and building a tailored plan to your circumstances.

Cheers,
Redom

 

[cceasy]

I appreciate the broker may be a friend, but it does sound like the loan structure is being implemented on the basis of competitive interest rates and minimal work for the broker.

Cheap rates are great, but unless you've very cashed up and on a very high income, this structure and this lender is going to be a serious problem in the future.

You can probably use Suncorp with a non-crossed structure, but understand that at some point you will almost certainly need to refinance when they'll no longer let you access equity because you don't meet their serviceability criteria.

The Suncorp saving is in the order of 0.1% and an annual fee (if you applied before Christmas). The cost of moving is $700 - $1000 in bank and government fees, more if the broker charges clawbacks on their commissions.

The house has settled yet and I just signed the loan on the 1st property, I haven't signed it on the 2nd... can something be done now? Can they un cross it now before it settles?= without incurring fees and delaying settlement?

 

[Redom]

Can anyone recommend a good broker Sydney west around Fairfield area?

I just signed the contract for the 1st invesmtent property last week so they have that contract now..> I just received the 2nd contract but have yet to sign it... Can something be done now before the loan has been settled without affecting settlement?

Are you talking contract of sale for the property or loan documents? When are the settlements due?

Brokers that operate in Sydney are a plenty on this forum.

Cheers,
Redom

 

[Redom]

The house has settled yet and I just signed the loan on the 1st property, I haven't signed it on the 2nd... can something be done now? Can they un cross it now before it settles?= without incurring fees and delaying settlement?

Check the 'security' section of the loan contract. Does it have one security or multiples?

 

[cceasy]

Ok - putting some perspective, so long as your borrowing power is there, you should be fine to achieve your goal. You've started on the back foot, but by no means have trapped yourself or stopped yourself from achieving what you've ultimately set out to do.

Its more difficult to take out equity from Suncorp and ING because they are typically very conservative lenders in terms of borrowing power. You'll 'cap out' with them much sooner than some other lenders.

Noting this, given your current LVR, you could refinance out and go to a more suitable lender. This shouldn't cost all that much (assuming no broker clawback fees and on a variable rate). We're talking $1000-$2000 to do this - IF necessary-- and even then, some suitable lenders have refinance rebates going on that'll cover your expense.

As Peter mentioned, the biggest issue is that your broker was likely to be acting in their own interest instead of yours.

You can still achieve your goals so long as your borrowing powers there - and the cost of your mistakes isn't likely to be alarmingly high in $$$ terms. There may be a refinance/paperwork involved, but not a huge cost.

No freaking out necessary - just some adjustments to your structuring and building a tailored plan to your circumstances.

Cheers,
Redom

So I should wait until both properties settle and find another broker to refinance? How do I determine if the broker has clawback fees? Do I just ask him?

 

[cceasy]

Check the 'security' section of the loan contract. Does it have one security or multiples?

I don't have the contract with at the moment but will check it... So once I check it, what does this mean whether it's one or multiple?