Broking for yourself? Possible?

Discussion in 'Loans & Mortgage Brokers' started by MrSponge, 14th Jul, 2017.

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  1. MrSponge

    MrSponge Member

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    Hi All,

    Long time reader first time poster here. I was always told the only stupid question was one not asked so here goes. Feel free to tell me I'm an idiot ;)

    Do the mortgage brokers on here broker their own finance? Or is this not permitted/illegal?

    I'm a long time investor/developer and have always used mortgage brokers, however my current and much beloved broker has decided to call it quits at the grand old age of 75 and rather than get a new broker I'm contemplating doing my cert IV, becoming a credit rep and broking my own deals.

    I know there is much more to broking than just the minimum qualification but with a good mentor, figure that given the frequency with which I purchase that it would easily cover itself and then some.

    At upto 0.6% upfront and 0.25% on trail for every $1M of loans I would be getting back $6K upfront and $2.5K PA on trail.

    I'm planning on buying a new PPOR in early 2018 which on its own would be $2-2.5M of finance.

    I have an unhealthy obsession with all aspects of property so would find the course intriguing, even though I have no intention of actually being a broker.

    So curious if this is even possible?
     
  2. D.T.

    D.T. Specialist Property Manager Business Member

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    Its certainly legal for them to do their own deals. However, its not worth getting into just so you can do your own loans. The costs and time involved will far outweigh the cashback you'll get, besides, many lenders require a certain volume to let you on their panel.
     
  3. Jess Peletier

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

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    You'd lose that sum pretty quickly in Complience costs, PI and all the other requirements. Plus all the ongoing education you need to go to. Not worth it for yourself I don't reckon.
     
  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Trail is almost half of that.

    The Big 4 are trying to cut our comms too.

    There are better ways to make money than brokering your own deals.

    Cheers

    Jamie
     
  5. Terry_w

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

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    There was another thread on this exact same topic about 2 weeks ago here.
     
  6. Redom

    Redom Mortgage Broker Business Plus Member

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    Personally, if your the type of household buying a 2-2.5mill PPOR + (lending amount) - then its unlikely that the amount of work, effort, time and training involved makes sense. Your likely a high income household where time has a high opportunity cost.

    If its more than the marginal $ you'll receive after costs and time involved & you feel you get a payoff associated with learning & personal development - then sure. :)

    For your own reference, I'd estimate budgetting 2 full weeks of time to get it done and ~10k+ in expenses. Also trail is 0.15% and shade 20% of your upfront in aggregation costs too.
     
  7. MrSponge

    MrSponge Member

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    Hi,

    Thanks for all the prompt replies.

    So what are the absolute minimum start up costs for a broker? How much time does it take to broker just one deal? (bearing in mind that I would be my own client). Do I even need PI insurance if I'm the client?

    Given the forum is anonymous (My real name isn't MrSponge) I may as well give some more accurate figures.

    New PPOR purchase will have $2-2.5M new finance ($4-4.5M purchase price).

    Investment debt approx $4M to refinance.

    I figure approx comm's on PPOR $12-15K upfront (0.6%)
    +
    $3K-3.75K PA on trail (@0.15% acknowledging I overestimated this, thanks Jamie.)

    Over a 20 year hold thats $60-75K in trail + upfront $12-15K. Total = $72-90K

    Thats not including refinancing my investments or any further purchases.

    I know this might sound crazy, but to give a bit of background my main occupation, basically goes very quiet for half of December and the entire of January so I get a lot of free time to basically sit in the office and just self educate.

    This year I got my real estate licence by correspondence and have recently agreed a silent conjunction with a well known selling agent. There was no way, I would be able to negotiate a .75% selling commission without it, as typically its 1.5% in this area. That .75% will save me $22,500.

    The licence cost me $1500 for the course and $500 to register. I have no intention of selling property as a profession, but useful for myself and close friends and family. My feeling was that broking the finance might be similar (albeit with more compliance).

    Am I that wrong?

    P.s. TerryW I couldn't find the previous thread, any pointers? :)
     
  8. Brady

    Brady Well-Known Member

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    I say do it.

    By the sounds you have the time to do it and with strong interest in property will potentially enjoy the work involved.

    If you're going to do it a buy for $4-4.5M make sure you go up to 80% if you have the capacity.
     
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  9. Terry_w

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

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    Probably around $5k to $10k to set up plus ongoing of about $1000 per month
    Yes you will need insurance or you won’t be able to join an aggregator
     
  10. MrSponge

    MrSponge Member

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    Wow, if thats the case then it would definitely be a pointless exercise. Whats the loose breakdown?

    With such a long sales cycle and high expenses I'm starting to see why brokers always struggle with cashflow in the early days.
     
  11. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    If trail commission is 0.15% (which it generally is) and costs run to $1,000 per months (which is $12,000 per year), then the volume of loans required to generate enough trail to cover ongoing cost is:
    $12,000 / 0.15% = $8,000,000

    That actually feels about right.

    In my experience brokers settling less than $1M per month on an ongoing basis would be better off doing something else.

    $8M might make a little upfront commission over and above the initial set up. You'd also need to consider the amount of time it takes to write $8M in loans. If they're all $2M+, it would only be a few weeks work. If they're $400k loans, it would take months of work.
     
  12. MrSponge

    MrSponge Member

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    Hi again,

    Found the archived thread here which had lots of good info of a similar nature.

    Certainly enough info there to put me off my whim altogether.

    Appreciate all the input from everyone though.
     
  13. Archaon

    Archaon Well-Known Member

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    Didn't I hear tell of the big4 trying to cut commissions to One-off fee's per loan?
     
  14. Terry_w

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

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    Yes they are always wanting to do this and they do it periodically as loan sizes keep rising. Upfronts used to be .80% and .30% for trails for example.
     
  15. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    you are older than me :)

    I recall averages of 70 and 25

    As for loan sizes rising.............................

    That might be all good and well for the syd and melb brokers, but regionals and non Syd or Mel, for established businesses, average loan size are likely 300 k.

    As an aside, the cost on a unit of a product to the supplier doesnt really change if its linked to a fixed cost, its a nice red herring the lenders have created.

    proportionately, the direct broker cost of a 100 k loan is the same as 2 million loan

    ta
    rolf
     
  16. Tom Simpson

    Tom Simpson Well-Known Member

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    I don't know about everyone else but I found the actual education part of the diploma tedious and boring.

    I'm an accountant so everything in there to me seemed like common sense with a few legislative references. The only reason I went through all of the content is because I'm such a nerd and didn't want to miss anything.

    I can't condone doing the course for the excitement :)
     
  17. Terry_w

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

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    Yes you are right Rolf, but I recall we used to get extra bonuses on top with some lenders such as Bankwest.
     
  18. Jess Peletier

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

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    Hahaha! I completely agree - the diploma is about as exciting as eating cardboard. It's the people we work with that make the job interesting. :)
     
    Last edited: 15th Jul, 2017
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  19. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    indeed

    then there were flexi comms of 40 and 40 with ABL I recall, we jumped on that, but at the time it didnt work for them...............we lurved it because our average loan life is 7 years or >

    ta
    rolf
     
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  20. Ross Forrester

    Ross Forrester Well-Known Member

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    Yay! I am interesting.
     
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