Approach for applying for loans

Discussion in 'Loans & Mortgage Brokers' started by Curoch, 29th Sep, 2019.

Join Australia's most dynamic and respected property investment community
Tags:
  1. Curoch

    Curoch Active Member

    Joined:
    21st Aug, 2019
    Posts:
    35
    Location:
    Canberra
    Hi everyone, I've just finished Michael Yardney's most recent book and he mentioned something in there that caught my eye (paraphrasing):

    "There's lots of finance providers in Australia, sitting across the spectrum with the small, high-charging entities for people who really struggle to get loans all the way up to the big 4 at the other end, who are more conservative. When it comes to approaching financiers, start at the end that has the strictest rules (usually the big 4 and other mid-tier firms). Then as you need more finance options (and as you progressively get shut out by the big banking names), move your way down the chain to the smaller guys. Don't start at the easy end as you'll quickly run out of places to move when it comes to getting more finance"

    Any thoughts on this? I'm a young professional living and working in Canberra with an okay salary ($85k), deposit ($60k) and Army Reserve salary on the side (~$15k per year). I'm looking to buy my first investment property soon and I'd like to leverage the Margaret Lomas-style of positive cash flow property investing (I know it's not her strategy perse but she's the author who's books I've read!)

    Would appreciate any insight/feedback.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    i wouldn't believe anything Yardney says without further verification.

    I say it is not true based on my 17 years experience as a broker. Especially in your case, your income will limit you to one or 2 loans which both could be at the 'loosest' lender
     
  3. Curoch

    Curoch Active Member

    Joined:
    21st Aug, 2019
    Posts:
    35
    Location:
    Canberra
    Thanks Terry. I didn't actually get much value out of his book (compared to the detailed approaches of Lomas) and his strategy doesn't really appeal to me at this stage (buying $600k+ properties in ring suburbs of only Melbourne/Sydney), but of course I'm trying to suck up as much information as possible.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    I wouldn't recommend the approach of Lomas to loans either - in fact I would say steer clear as she recommends some dangerous practices. Don't know about her approach to property though.
     
  5. Curoch

    Curoch Active Member

    Joined:
    21st Aug, 2019
    Posts:
    35
    Location:
    Canberra
    I've already been warned out about her tendency to cross-collateralise, which should be avoided. She makes the case for more regional properties in your portfolio (although not necessarily mining towns/holiday homes) and use their higher yields to pay it off quickly. Of course that's still predicated on having some capital growth which is what her "20 questions" is all about. It's a good strategy but requires a huge amount of research (don't they all?)
     
    craigc and Terry_w like this.
  6. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,673
    Location:
    Perth WA + Buderim Qld
    There is actually some truth to this - it's DEFINITELY possible to extend your borrowing capacity by structuring your loans a certain way and using lenders in a certain order - it used to be much more of a thing a few years ago but can still work.

    The main thing to consider is risk management - it's quite high risk so you want to be clear about what the risks are, as a first step, whether you're comfortable with those risks, and how to mitigate them if possible.
     
  7. Curoch

    Curoch Active Member

    Joined:
    21st Aug, 2019
    Posts:
    35
    Location:
    Canberra
    Thanks. What about it is risky? The chance that one bank/financier won't like your current spread and effectively makes a margin call, forcing you to top up your capital (which may result in a forced sale if you don't have it available)?

    Obviously if I was using multiple institutions I'd clearly communicate all of this. Or is that not the risk you're referring to?
     
  8. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,673
    Location:
    Perth WA + Buderim Qld
    No that's not it at all.
    If you're going to a non bank for servicing reasons, you effectively lock your portfolio in place lender wise, so you need to be well prepared and have everything set up correctly before you go down this route.

    This is where having a strategic investment focussed broker is so important, BC most brokers and ALL lenders would never consider the long term flow on effects and risks of this strategy.
     
    Curoch likes this.
  9. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    3,977
    Location:
    Canberra, Brisbane and Sunshine Coast
    This was a viable strategy back in the day...and it sort of works (to a lesser extent) now.

    These days - most lenders have a very similar method to calculate max borrowing for investors. Therefore - whilst lender selection/loan structure is still important - the choice of lenders you leave until the end have become a lot more sparse....and those lenders will charge you an arm and a leg!

    Cheers

    Jamie
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    say you did get the order of lender use wrong, you could simply refinance. These days there is little cost to change lenders. I think you would have to be careful about incurring LMI though as it could be costly to change.
     
  11. tobe

    tobe Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,814
    Location:
    Melbourne
    Yep. That’s a good test. If you can simply refinance that’s proof you got the strategy wrong.
     
  12. Morgs

    Morgs Well-Known Member Business Member

    Joined:
    7th Dec, 2017
    Posts:
    1,791
    Location:
    Sydney NSW
    Non conforming lenders can definitely play a role in extending the portfolio. They are not as friendly as they used to be for investors though, Liberty for instance loading rates for investors (and again once you have more than a few properties) and Bluestone shutting off the tap once you have more than a few.

    The biggest problem is once you move into this space, you need an exit plan. If you're relying on servicing with a non-confirming for a new purchase then you're going to lock yourself in from a lending position and won't be able to refinance to a bank lender. This leaves you at risk if for instance, rates tend to go up with that particular lender. An exit plan would mean thinking about how you're going to refinance back into a bank lender in time, which in practical terms will require either more income or less debt.
     
    Curoch likes this.