Diversifying Banks

Guys, any reason why I should or should not split up my loans across different banks? What do you do and why?

The reasons I can think of for going with one bank is a) for the convenience and b) for the off chance that they may give you a discount. Are there reasons to diversify?

 

all monies clause is one thing to consider.

 

Owe the bank $1000 you have a problem. Owe the bank $1mil and the bank has a problem.

If you want to avoid review by the banks risk teams, diversify lenders.

I owe money personally to 3 banks. Maybe I'd get a better discount if I had all my lending with one. I'd say about .1% off my variable rate.

Convenience isn't that big a deal, they all direct debit from the rent account where the property managers pay the net rent.

Convenience of getting the best val for equity release? Priceless.

 

If you put all or lending with only one bank, you'll only get so far. Whilst putting all your loans with a single lender might get you a slightly better rate, if you intend to build a portfolio large enough to achieve some measure of financial freedom it will cost you a lot more than a cheaper rate would gain.

 

What if you are done with property investments? Would it be ok to move all into one bank? Even a small better rate on all loans would may a decent difference.

 

Yes, as long as you don't default!

 

Being done is one of the riskiest times to have all of your lending with one lender. I have seen multiple clients who had all their lending with one lender, starting to see some cashflow, reduce working hours/retire and then assume they can sell up one or two properties and use the proceeds.


Xcoll means they can't. The lender controls what happens to the proceeds. With multiple lenders this scenario is much easier to navigate.

These discounts everyone assumes is possible based on large loan amounts, after tax, aren't much. Certainly not worth the lack of flexibility/control.

 

It's good to have different lenders.

Last year when I had loans with 2 lenders and lenders were giving discounts on interest rates, I played one off against the other and got all my interest rates discounted. This would not have happened if I was just with one lender. Of course now they are all putting rates up again

 

One of the most common benefits of using multiple lenders is that it enhances your max borrowing. If you purchase all properties with one lender you'll hit a serviceability wall quicker - if you take a strategic approach and choose the right lenders at the right time - you can go further.

Cheers

Jamie

 

Spot on @Jamie Moore I was with 1 lender up until recently. If I hadn't moved 2 of my ips to another lender I wouldn't be able to continue buying ips as I was maxed out. The intrest rate is higher but it's a small price to pay to continue investing.

 

Single lender doesn't mean loans need to be cross collateralised.

 

Correct, but apart from @Brady I have never come across a banker that's writes like that (or many brokers either).

I can also see the discharge team referring a single security discharge request back to credit in such a situation as described above as the clients circumstnaces have changed, less rental income which is a change to financial circumstances outlined in all mortgage docs. They can't reduce at whim the proceeds of the sale, but I can see them making an issue of it the way things are heading nowadays.

 

There's certainly value in utilising a diversified lending strategy when borrowing, in terms of protection, borrowing capacity increases etc.

A few months ago I wrote about the the exact details of this here (theres some pretty graphs): Diversified Lending Structure (how to maximise your borrowing capacity)

One thing some overzealous investors early on don't realise however is that it DOESNT mean that suddenly each property/loan must be with a seperate lender - so long as the borrowing capacity is sufficient it can be prudent to place the first few properties with the same lender for cost mitigation/streamlining. This doesn't mean they will be cross collateralised just because they're with the same lender - so long as your broker knows what they're doing. (and not lazy..)

 

I have had loans all with one lender at 2 different stages and moving from one lender to another through a broker. We only even crossed one loan strategically when that was the only way to move forward at that point. My broker explained what it meant, the reasons to do it and how to uncross at the right time. We did uncross as soon as possible afterwards and there were no issues. The broker certainly didn't cross loans as standard though. He did one of ours as an exception for a specific reason.

At least our broker explained the cross collateralisation process, showed us what to look for in the loan docs and helped us uncross as soon as possible after. I see posters here asking if their loans are crossed. Not good. People should know if they have crossed or not and I think those with brokers who have unwittingly crossed and don't even know it should ask their brokers some hard questions.

 

Is there a "magic number" that you shouldn't reach with a single lender? I am damn close to hitting $1m lol. Should I split?

 

$1m is fine for most people - after 3 properties or $1.5m-ish I start looking at other options, generally speaking.

 

You guys are awesome.