X-coll is not good

Time is running out

Dazz;
The reason you should be looking at consolidating now is because of the conduct of the banks with their valuations which in the last 12 months have become laughable. The stupidity of the banks actions particularly with commercial property is going to cause unneccessary foreclosures and ensuring firesales. Those commercial owners who have little or no debt with long term leases will ride out the price falls and will once again see commercial yields at 10-20%. Have a look at what is happening in the U.K. at the moment with commercial property.

There is a lot of money coming out of the share market and my sense is its a herd mentality. In the last stock market crash in 1987 a lot of investors rushed out and overpaid for what they thought was a safe bricks and mortar investment. We remember because we sold our first investment property in early 1988 before the property downturn in 1989:D . I'll be acused of being a sooth sayer but I have my eye on October as being an interesting time on the share market in addition to the majority of sub prime loses yet to wash over the world economy.

My concern for you is that from your posts all your assets are hanging out in the breeze with a bunch of shirts arranging to bend you over early next year to drive home their version of a rectification if you get my drift.

Your comment on timing is a moot point. We have spent the last 12 months trying to protect our assets. I have spent a lot of time at seminars learing about bankruptcy and the new claw back provisions and understanding asset protection through trusts.

Your property portfolio is like a large ship it takes time to turn it around and if your life boats have holes in them you will go down with the ship. No good saying you and the first mate can start again what often happens is the stress causes you to drift apart and the fire in engine room goes out.

Change tack and protect yourselves, to be forewarned is to be forearmed

Please don't take this as a criticism,:eek: its genuine concern I've enjoyed your posts over the last year or so.
 
Are the assets all owned by the same entity? If so, are they held in a Trust?

If it's all in one Trust, I believe that you can clone the Trust (eg if you have 5 properties, create 5 new Trusts with the same Trustees and beneficiaries), and transfer one property into each of the new Trusts via a sale, without incurring CGT?

If held in an individual's name, you could also transfer to 5 bare trusts ("absolutely entitled trusts", trusts with one beneficiary) without incurring CGT.

The new Trusts could then obtain their finance wherever they want, and if they're smart, I'm guessing they'd go to 5 different lenders. ;)

Wouldn't this be an effective way of getting rid of your cross-collateralisation? :confused:

Forgive me if I'm flogging a dead horse, but nobody's answered earlier as to whether this is viable or not, and the limited research that I've done (eg this old Somersoft thread) would suggest that it's at least worth investigating.
 
Sorry Tracey - I have no clue what a clone trust is. As such, the chance of me upsetting the structure that has taken so long to put in place with something that I know nothing about doesn't sound attractive.


On the bright side, the wife and I were talking last night, and came up with the idea of offering to pay off completely our beach house.


It's got a fairly small loan that we could pay off in cash within a week or two. The only hurdle is, whether the Bank will ;

1. Accept the money to cancel the loan, and then say "good, anymore" ?
2. Accept the money to cancel the loan, and then give the title back.


The MB has approached my Banker and as usual he said he wasn't authorised to do anything and he'd have to send it to the adults upstairs.


The waiting game continues - although a small snippet of light peeped through at the end of the tunnel. The wife reckons it's a big train about to smack us for a six.
 
My concern for you is that from your posts all your assets are hanging out in the breeze with a bunch of shirts arranging to bend you over early next year to drive home their version of a rectification if you get my drift.

Dunno about hanging out in the breeze. We invest in supposedly "high risk" assets for sure, but with our experience and systems in place, that risk has reduced, especially as rents have soared and equity has grown in each prop.

We think it's fairly low risk, especially compared to houses, but our opinion is not shared by the Banks or the vast majority of investors.

I'm not sure the Bank will do that....they want the loans repaid - not the properties.
 
We think it's fairly low risk, especially compared to houses, but our opinion is not shared by the Banks or the vast majority of investors.

maybe your bank already knows how high their trickle feed of interest rates is going (and how low subsequent property values)...banks are good at trickle feeding bad news...like Merrill Lynch's rinse lather repeathttp://bigpicture.typepad.com/comments/2008/07/how-****ed-are.html of reassurances and write downs.....check the post of 29/7/08
 
Bandits dressed up as investment Guru's

Hi Winston I had a belly laugh on this part of the link you supplied

An active trader pointed us to this very familiar looking off-balance sheet shenanigan found in the following paragraph regarding Merrill's CDO Sale.

Direct from yesterday's press release:

"On July 28, 2008, Merrill Lynch agreed to sell $30.6 billion gross notional amount of U.S. super senior ABS CDOs to an affiliate of Lone Star Funds for a purchase price of $6.7 billion. At the end of the second quarter of 2008, these CDOs were carried at $11.1 billion, and in connection with this sale Merrill Lynch will record a write-down of $4.4 billion pre-tax in the third quarter of 2008.

On a pro forma basis, this sale will reduce Merrill Lynch’s aggregate U.S. super senior ABS CDO long exposures from $19.9 billion at June 27, 2008, to $8.8 billion, the majority of which comprises older vintage collateral – 2005 and earlier. . .

Merrill Lynch will provide financing to the purchaser for approximately


75% of the purchase price. The recourse on this loan will be limited to the assets of the purchaser. The purchaser will not own any assets other than those sold pursuant to this transaction. The transaction is expected to close within 60 days."

Let's take this apart:

• Merrill appears to be moving $30.6 billion dollars of bad paper off of their books.

• This paper was carried at a value of $11.1, meaning there was almost $20B in prior related write downs.

• After this transaction, Merrill’s ABS CDO exposure in theory drops from $19.9 billion to $8.8 billion (hence, the $11.1B number).

• The $6.7B purchase price relative to the $30.6B notational value is 21.8% on the dollar


However:

• Merrill is providing 75% of the financing –- and MER’s only recourse in the event of default is to retake the CDO paper back from the buyer.

• While Merrill hopes to be made whole, the reality is they still have potential exposure to these ABS CDOs via the financing;

• Actual sale price = 5.47% on the dollar

Less than five and half cents on the dollar? That's an even cheaper sale than originally advertised.

What this transaction actually accomplishes is getting the paper -- but not the full liability -- off of Merrill's books.

How very Enron-like !
 
Hi Winston I had a belly laugh on this part of the link you supplied

Yeah nr, it just stuns me that some of these gallahs think they can get away with it. It highlights the US (and Aus) regulatory authorities and the media have no idea.

How about the July 31 article re: the US financial accounting standards bureau giving US banks another year to bring off balance sheet assets onto their books. One has to presume if those assets (mortgages and credit card receivables) were brought back now, it'd reveal many banks are insolvent.

Lots of muck to be raked up yet on banks everywhere methinks.
Nevertheless, I can sort of understand the logic behind the Fed and RBA trying to salvage banks. If a lot of them go down, then asset prices would just keep spiralling down......consumption would go through the floor -> massive unemployment and asset deflation -> depression. Might all sound melodramatic but the more I read, the more I realize developed nations run on credit.
 
Yeah nr, it just stuns me that some of these gallahs think they can get away with it. It highlights the US (and Aus) regulatory authorities and the media have no idea.

How about the July 31 article re: the US financial accounting standards bureau giving US banks another year to bring off balance sheet assets onto their books. One has to presume if those assets (mortgages and credit card receivables) were brought back now, it'd reveal many banks are insolvent.

Lots of muck to be raked up yet on banks everywhere methinks.
Nevertheless, I can sort of understand the logic behind the Fed and RBA trying to salvage banks. If a lot of them go down, then asset prices would just keep spiralling down......consumption would go through the floor -> massive unemployment and asset deflation -> depression. Might all sound melodramatic but the more I read, the more I realize developed nations run on credit.

Hi Winston;

What your saying is not melodraumatic at all I believe we are entering a soft depression namely finance for small to meduim businesses will dry up. These businesses are the major employers. What we have is a labour government hell bent on knobbling business with this fairy tale called global warming. The end result is they will last one term but will cause an economic legacy that will last ten years.
 
Dazz, cant help much - finance isnt my thing, but I can absolutely guarrantee if you sell something the bank will take the money. My partner sold a property several years ago, well before the subprime crisis and he wasnt overexposed at all, thinking to use the cash to buy something else, and the bank just took the lot against other outstanding loans. Really pulled the rug out from under him as he had no clue they would do this.
 
Hi, Dazz.

The bank wants to see some repayments on the loans. Such as going to P&I when some fixed interest rate periods expire next year. So, that will happen unless you pay out the loans. There is a fair bit of notice and you can plan for it. If it is acceptable for you, even if unwelcome, that is one path that maybe could be followed provided that the cashflow is manageable. Then after some time, provided all goes well, the problem disappears - as rents rise. Be obliging to the bank and after a couple of years all is good again?

Selling to pay out loans is unattractive because of the large CGT. PPOR is CGT exempt if owned in your own name/s. So, if serious about selling, that would be first to go. I wonder if your previous PPOR is owned in own names and is now a rental? You could move back into that with the intent that after some time there the CGT obligation would reduce if that were also sold. You could rent for a while.

The bank is going to review the situation in May. What would be good news for them? What can you do between now & then to achieve that? (And I'm just thinking these up now, it is nothing I know about.) What if you gave the bank a monthly status report of your situation? A paragraph on each property, what was happening, income, expenses, news, whatever. Cashflow & general forecasts for the next 12 months or more. Information on the tenants & their business & their industry. Recent sales & indications of property values. Arranged revalutions if worth doing in January or February so that the bank was up to date in May. Maybe provide the information to your accountant and have them prepare it on your behalf.

Maybe build up as large as possible a deposit in a different bank.

If selling is a real possibility, you've many months to do this whilst you are in control. Though I guess, as long as you are maintaining loan payments, this would not be forced upon you; it would only happen if the whole market went bad.

I wonder what grossreal would say on this? Maybe pm him as I reckon he'd have some interesting comments.

And meanwhile, enjoy every day. HTH. Regards,
 
.....I forgot to mention - we are all in excellent health....:)
Well that covers the main primary issues.

But the rest just sux BIG time.
It's a reflection on the current environment though. The banks are running scared from RE, commercial in particular.
They basically see a huge boom in the Perth market coming to an end, with much more downside risks than most other places.

fwiw I would start with a bottom-up looking approach from the worst case scenario. ie: Are you in danger of the bank foreclosing and selling off?
And work your way up from there to the point of.

I cant know anyone else's exact position is, but what I would not do is start ruling things out.
I would not want to appear like a person putting my arms around the chips on the table saying "they're all mine and there's no chance I'm letting go" whilst singing "Songe d'automne".
Instead (depending on the bottom-up analysis), I would be looking at all possible options one by one.
---
"but a few of the cheaper loans we established 5 years ago shall expire, and hence a few of the properties will go from +CF back to -CF if we refinance....not good. I have no intention of going down that track."

Now If I was your lender and knew this (as they obviously do) I would be very very concerned as well. Unfortunately there is a chance that you may not have any choice, which makes it imperative that whatever you do (if you decide to change anything), you do it asap.


I've seen many lose the lot, other saved by a "whisker" and others breeze through these situations. Just remember, you can go to fast and to hard.
And just like driving a car, you don't want it to be a tree or a truck stopping you.


I wish you all the best.
 
Last edited:
hi all
pete sent me this post and ask in I have an opinion
well yes I do.
I structure and I organise or reorganise soups and this is a soup.
so I will give my .002 worth.
1.banks don't have the control of a property
the owner does
a bank can say they will stop lending you and thats fine
but you own the property and even if they got to the equity court to try to get it off the owner
they still have to fight for it
its not as simple as you signed this we own it
not by a long shot.(even caveat,mezz lender are in the same boat)

2.you have a low equity level with one bank crossed or not
and that bank won't lend you
is not a lets grab the knife I'm out of here.
if they have 50% equity then there is still 50% equity and you can leverage off that commercial or resi.
3. banks like to play big brother so you have to stand up and say this is what I want to do and if you won't lend me thats fine
off to the next guy.
4.If you have all your properties with one lender and you want to pay out one.
then you find out what the exposue to the lender on that security is (and they will tell you)( and a nice legal letter will get the answer very quickly)and then go looking for a lender that will better the deal
yes you will have refinance costs and registration cost but that the norm
for me I would not bother.
I would vanilla finance behind the first
and if the bank you are with is not happy with that
then look at refiancing it else where.
5.
this area of lending does get a bit involved
and yes getting ideas on a board is fine
but in reality you need to get the hard hat on and go into battle with the bank.
but first I would look at leveraging off that equity position that you are current in and then using those extra cash to look at you options.
6. what you are talking here about is not the bank
its credit
and credit is a very different animal to the bank,
a bank has the bank managers and credit the bank manager is the one that shakes your hands and give that warm inner feeling

credit are the guys that pi-- on you and try to get as much out of you as possible.
so on one hand you have to shake hands
and the other use a club to beat off credit
thats what they call finance.
but I digress.
really your position to me is not that bad.
if I read it correctly a bank has tied you up into a ball
and they have put you into a cocoon and leaving you there to eat if they wish.
and you are not happy about that which is understandable only
because you are looking at it as a broker, bank or someone that looks at this in that light.
I see it very differently.
I see an assett that is protected (nothing can be done to it so very secure) and with a lvr of 50%.great
and you want to lend
great.
so go to another lender and set up a second structure ( an this time setup the structure correctly) and have a second investment stream running off the cocoon investment.
I set mine up as silo's or stand alone and no two in 5 years with the same lender
this is being corrected at the moment due to alot of lenders shutting there doors on lending.
oh and on that point there are alot of hand shaking guys that have lost there jobs because of credit
and there none lending policies
so this is a very big thing to tell the hand shakers
when they say sorry we can't lend you any more
say thats ok see you at your next job at harvey norman or the local taxi driver
because unless they lend they don't have a job.
and a few brokers here will know of the lenders that have taken down the construction funding lables off a few doors and some of those were very good at there jobs
but credit was to strict and there out the door.
I think that you need not to keep looking at it as the bank looks at it
but what can I do with this equity
and how can I use it start to do this
and you will find the answer.
and no sorry can't post here as not allowed.
and the other dazzling will send me a very nasty note and probably wouldn't have that scotch he owes me.
again thanks pete this is my opinion on the post
 
Last edited:
Thanks, grossreal. I very much appreciate your comments.

The 'big picture' is clearer. Please let me get you a scotch when the opportunity arises.

regards,
 
ok I feel compelled to write more as it seems to me that most people here have no clue what it means for a bank to say "sorry we can't loan you money".

I know because it happened to me in the early 90's on residential RE, not commercial. My financial situatution (as it seems to me) was much stronger than Dazz's currently appears.
To be exact the loan (my only one atm) was 60K on a 160K purchase!
I was paying interest only at the time, and the bank said "sorry from now on we can only give you P&I". And I thought, "sure who cares (its peanuts), plenty others out there". (admittingly much less lenders than now)
But all the banks could see was a huge amount of loans being foreclosed on, and just took a whole blanket approach to the market.

The same is happening again, they see blood in the water and are getting very concerned.
Compounding the problem is that it's commercial property.
The current 50% LVR does'nt seem all that appealing to the banks who now see a possible 20-30% decline in the market.
Put yourself in their position.
They know that the loans will soon become cf- (as they will for many others out there) and are preparing for the worse case scenario.

On the positive side, I know of nobody who who made all the repayments and lost any property or was foreclosed on regardless of LVR.

Now you can workout all the fancy structures you wish, but there still is a loan (and interest) to be paid.



hope for the best, be prepared for the worst.
 
The glare of reality sometimes is painful

ok I feel compelled to write more as it seems to me that most people here have no clue what it means for a bank to say "sorry we can't loan you money".

I know because it happened to me in the early 90's on residential RE, not commercial. My financial situatution (as it seems to me) was much stronger than Dazz's currently appears.
To be exact the loan (my only one atm) was 60K on a 160K purchase!
I was paying interest only at the time, and the bank said "sorry from now on we can only give you P&I". And I thought, "sure who cares (its peanuts), plenty others out there". (admittingly much less lenders than now)
But all the banks could see was a huge amount of loans being foreclosed on, and just took a whole blanket approach to the market.

The same is happening again, they see blood in the water and are getting very concerned.
Compounding the problem is that it's commercial property.
The current 50% LVR does'nt seem all that appealing to the banks who now see a possible 20-30% decline in the market.
Put yourself in their position.
They know that the loans will soon become cf- (as they will for many others out there) and are preparing for the worse case scenario.

On the positive side, I know of nobody who who made all the repayments and lost any property or was foreclosed on regardless of LVR.

Now you can workout all the fancy structures you wish, but there still is a loan (and interest) to be paid.



hope for the best, be prepared for the worst.

Piston this is a brilliant post. When you have been on a roll like Dazz has it is sometimes difficult to stand back and look where the other side is coming from.
The banks are in the business of lending money to people who don't need it full stop. We have noticed our bank starting to act like a rat on a sinking ship. The valuations that their valuers are coming up with are around 67% for RE and 50% for commercial. Most owners are still in denial. We are headed for a major crunch but many contributors to SS are in denial.
 
Piston this is a brilliant post. When you have been on a roll like Dazz has it is sometimes difficult to stand back and look where the other side is coming from.
The banks are in the business of lending money to people who don't need it full stop. We have noticed our bank starting to act like a rat on a sinking ship. The valuations that their valuers are coming up with are around 67% for RE and 50% for commercial. Most owners are still in denial. We are headed for a major crunch but many contributors to SS are in denial.

Hi guys,

I've been spending a bit of time reading before posting.

Daz, sorry to hear about your situation. Seems like grossreal and others have options you might explore though so all is not lost.

I've got to say, the advice of looking @ worst case scenario and working upwards seems like the wisest advice to me.
You need to stand back and do a fresh DD on your situation from all angles... attempt to remove yourself from the situation and all emotions... the (conservative) bank has done this and you decided they were wrong last year ... they are doing it again and enforcing their decision this time (not so much payback as being the conservative bank you said they were... it's about protecting their investment and shareholders going into this possible recession)... as you said, the bank will review it again next year and get heavier if required... ie things out of your control have gotten worse, things in your control have not helped them feel your debt is secure enough.

Honestly, worst case scenario is not that you need to work for another 5 years... it's that you need to work for another 20 years and lose a large part of your portfolio in a fire sale.

Others have posted that a recession is possible/likely... and that the credit crunch is far from over... I'd have to agree.

Today's LVR means little in 12 months if things have gotten worse.. all it buys you is time. What you do with that time is up to you... but freezing like a deer in front of an oncoming truck's lights does not sound like your style.

My advice would be to read up on the credit crunch some more... the possibility of an economic recession and one of your tennants going belly up (with all of the grief that delivers to debtors).

Decide what the future holds that you can not control, and, if you feel it's grim, take Control your situation sooner rather than later... even if that means selling an asset for the bank to simply squirrel away and needing to work for a another 5 years. It will buy you wiggle room to look for a job you do enjoy if required.
Lastly, letting ego get in the way of selling that last shed purchase may not be wise.

Best of luck regardless... I suspect you will not be the only person who hoped to retire on the capital gains of RE have their hopes dashed /delayed over the next year or two.

rastus2
 
Last edited:
Thank you one and all for the contributions to this thread over the past week or so. I have been busily beavering away behind the scenes, taking all of your suggestions on board. I've spoken with grossreal on the phone, but most of his suggestions are way way above my level and simply scare the bejesus out of both the wife and I. I think we are way too conservative to try any of his techniques.

We do however have a few glimmers of hope, and I'm working them now. Both involve talking to mortgage brokers on this forum, so I'm digging away at that, and hopefully something will come of it.

I've registered a complaint with the Bank's complaint dept...or internal banking ombudsman as they euphamistically term it. After lodging my complaint, it took less than 25 minutes for my Private Banker to slam that door shut, saying that my situation doesn't comply with the normal avenues of address. Don't know if that is true or not.

I jumped on the external, impartial banking ombudsman's website, and that wasn't much better. They don't handle anything that hasn't been through the internal one.....does getting a flat rejection 25 minutes later qualify as having been through the process ?? In any case, they don't handle anything over 280K....wtf ??

....anyway, I'll keep plugging away and see if I can get out of this straight jacket they have me in.


the possibility of an economic recession and one of your tennants going belly up (with all of the grief that delivers to debtors).

Yeah, well this has happened twice to me in the past 12 months and it's absolutely fantastic when it does. A bit stressful when it initially hits you, but when you dust yourself off, kick them out of your property and re-install other tenants at a much higher rental, things look rosy. As I said, this has happened twice and the way to handle it is to simply inform the Bank after the whole process has been complete, and you are able to email them an executed PDF copy of the new lease schedule at the much higher rental rate. Instead of hollering and moaning and threatening to pull the plug on our finances, they beam with confidence and say wow that was lucky.


letting ego get in the way of selling that last shed purchase may not be wise.

Maybe - maybe not. I can only go on past experience, of which we have a very good example 3 years back. It was wise to hold and do nothing back then. Of course, that verbal offer never eventuated into a solid written signed offer, they have until the end of the month to present it to me, otherwise I've told them to shut up and keep forking out all of the expenses for the proeprty without any moaning this time.
 
I got this piece of advice from an advisor recently, which seemed relevant to this thread:

Always match the term of the loan with the term of the investment...

So a 10 year investment time-frame means a 10 year loan term.

I think it's a good one for CIPs.

If you're signing someone up on a 10 year lease and not intending to sell for 10 years, seems prudent to take the bank re-valuing/re-financing process out of the picture and perhaps get some level of control back...
 
Back
Top