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Apparently it's okay to xcoll?

Discussion in 'Property Finance' started by Beelzebub, 25th Oct, 2015.

  1. Beelzebub

    Beelzebub Well-Known Member

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    Currently reading 'The Truth About Positive Cash Flow Property' by Margaret Lomas and She is advocating x-coll.

    Her reasons:
    • The bank can reach further than just the security they hold anyway
    • Maintaining a large portfolio with multiple banks is administratively difficult with multiple loans (Makes sense, but doesn't seem like a huge issue)
    • Tax return are cheaper (Okay)
    • You can have one large LOC with one bank against all your properties (Yeh...)
    • This seems to be the only one that makes sense. She gives an example: If you have 10 properties, all with different banks and all with $20k equity and you needed $50k, it would be difficult with multiple banks. Her point seems to make sense with a positive cash flow strategy that relies on cheapies. You would need lots of growth on a $200k purchase before you could pull equity out?

    But:
    • If you sell and the bank makes you pay down debt
    • Wouldn't you hit your serviceability wall really quick
    The book was written in 2007 (8 years ago). Would this have worked at the time of publishing just not now? Apparently she has 35 properties all with the one bank.
     
    Last edited: 25th Oct, 2015
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    That is just a silly comment - and dangerous.

    A bank can end up taking your properties no matter who they are with - but avoiding crossing will give you 6 to 12 months before they can take properties they don't have a mortgage over. And they will only be able to take them if they get a judgment and go through more legal process. This will give anyone in trouble ample time to sell - on their terms.
     
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  3. Beelzebub

    Beelzebub Well-Known Member

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    Great point. I was just repeating what I read and definitely not advocating those points. p77 of her book.

    Any insight as to why she advocates x-coll despite these points, which surely she is aware of?
     
  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Anything pre-2011 is well outside current lending rules and discussions from this time on what the banks can do should be taken with a grain of salt. She built her portfolio at a time where the bank manager still had some discretion to simply lend money, there were fewer checks and balances in place.

    Margaret advice on property research is timeless. Her advice on lending has never been very good.
     
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  5. JacM

    JacM VIC Buyer's Agent Business Member

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    From memory, she liked the idea of putting all the properties in one pot so that when each one went up just a tiny bit in value (no one property going up enough to release sufficient equity to fund a deposit on the next property purchase), she could pull out some equity or line of credit from the aggregate and it'd be enough to fund deposit on another property purchase.
     
  6. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    This isn't anything new - I'm a big fan of Margaret Lomas but don't agree with her thoughts on finance structuring.
     
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  7. Elives

    Elives Well-Known Member

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    this doesn't work does it? say one property goes up 10% but another property goes down 10% so then you can't take out equity if it's x-coll. but you could if it wasn't x-coll

    thoughts?
     
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  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes that is true. If they were uncrossed you could just increase the loan on the one that has grown and ignore the other one.

    It is true that if all go up a little bit you can tap the equity more easily. But with some banks you can tap equity with small loan increases - I have done loan increases for about $8k in the past. It is a pain in the butt, but avoids crossing.
     
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  9. Beelzebub

    Beelzebub Well-Known Member

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    Yeh, reading the book I'm liking what she is saying. Her cash flow strategy makes sense to me and fits my circumstances. However, when I reached the finance structuring part of the book I was a little confused as it contradicted a lot of what has been learnt and advised on this forum, then when she started talking about x-coll I was a bit worried. Thought I'd better get some input as to why she advocates this from the gurus.

    But I think my click bait title made Terry a little angry...
     
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  10. JacM

    JacM VIC Buyer's Agent Business Member

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    The concept Margaret Lomas describes is on the bottom of page 79 of her book called "The Truth About Positive Cashflow Property". The example given describes a scenario whereby a person has 6 properties all held with the one bank under a line of credit structure whereby each property has its own "sub account". To access the total aggregate equity (little bits from each property) a seventh sub-account was set up by applying for an increase to the loan.
     
  11. Beelzebub

    Beelzebub Well-Known Member

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    Yep, and she is saying, among other things, that the ability to do this is a reason to x-coll your loans.

    You can also see her scenario on p78 about how the banks can take your stuff anyway so it doesn't matter - Which Terry pulled apart in his earlier post.
     
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  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    As a member of the cross coll liberation front (CCLF) our goal is to liberate all borrowers from crossing.

    But you can do all she suggests without crossing too.
     
  13. Beelzebub

    Beelzebub Well-Known Member

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    Out of curiosity, does her company, Destiny Finance, still advocate this or has she moved with the times?
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I've heard from ex-clients that they favour St George's Portfolio loan - which is a great product is used on one property! Not sure if they still recommend this.
     
  15. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Loc in and if itself has some issues, against the often very useful benefits

    here is an extract from one banks T&Cs

    Most others that I have seen arent much different

    Looks somewhat open to me

    ta
    rolf



    Facility Term
    Notwithstanding the Facility Term where you have a Home Equity Loan Account or where your Facility is an Unregulated Facility, you................


    acknowledge that the Facility is repayable and terminable on demand. You acknowledge that there is no arrangement or understanding that we will only demand Repayment if a Default Event occurs or if something happens or doesn’t happen.
     
  16. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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  17. Coota9

    Coota9 Well-Known Member Premium Member

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    Can confirm they are strong advocates of X-Coll loans through their in house mortgage brokers..
     
  18. albanga

    albanga Well-Known Member

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    When I first started posting in these forums that was a book I had recently finished reading. It was and still is a brilliant read on property but for the uneducated it finance part is dangerous. I had also just come from a BA seminar which talked about this very thing and the "ease" of a master facility. A lot of "wowwwws" in the room how easy it all sounded, master facility, equity goes up pulled back into master facility, buy again, rinse and repeat until your Scrooge mcduck swimming in a pool of gold".

    At the time I myself was wowed, if I was in that same seminar today my hand would have gone up pretty quickly asking them to explain themselves in detail why they were advocating X coll. Then I would have given them @Peter_Tersteeg and @Terry_w number.
     
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  19. JacM

    JacM VIC Buyer's Agent Business Member

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    Agreed. I am not a fan of giving any one bank easy control of everything.
     
  20. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Have a quite a few ex-Destiny client's - they certainly do still spruik the STG portfolio loan all crossed up from the looks of things.

    Works great until you have equity you can't release because of lender centralisation, try to complete a partial sell down and have the lender tell you to sell your PPOR, have a val shortfall on property 1 which cancels out the gain on property 2 etc.

    Everything looks all rosey until it isn't.