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Do brokers add trail commission when crunching numbers on own IP's?

Discussion in 'Property Finance' started by albanga, 8th Sep, 2015.

  1. albanga

    albanga Well-Known Member

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    Something a bit light amongst all the APRA threads but as brokers when working out cashflow of a property do you take into account the trail you would receive?

    I know brokers write their own loans and depending on the aggregator would get a different trail based on the loan size.

    Just interested to know if you take this into consideration when making a purchase, for example whilst the property may be performing negatively the trail is offsetting that loss.
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Not me - the trail forms part of business income, so the only way it is considered is in terms of how much I can contribute to the deal in the early stages via my income rather than "This property is costing me 'x' per month, but the loan will generate 'y' in trail per month, so actual cashflow is 'z'.
     
  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    haha - no. It's a nice little benefit - but not something I've considered when calculating holding costs. I treat it the same as Jess - it just forms a tiny portion of my trail book.

    Cheers

    Jamie
     
  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    No. Any commissions are income to my business, not to me personally. Two different entities. My business pays me a salary.
     
  5. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    For example $3mil debt would earn circa $375 per month gross before business costs etc, a drop in the ocean based on the portfolio size.

    Agree completely with Peter, my company is very separate to my investments.
     
  6. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Same as above :)
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    nope, different legal entities invovled.
     
  8. albanga

    albanga Well-Known Member

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    I was just more generally meaning to Assist in you deciding to making a Purchase. Going off your example Corey on a 500k purchase you would get around $15 a week cashflow but the other consideration is the upfront which would be around what? Say $2500? If you refinanced that every couple of years as well then it would be around another $25 a week on average so $40 a week.

    I get your business and investments would be in different entities but alas it's a nice little benefit a broker has when also being a property investor.
     
  9. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    It's kind of like asking if a salary increase of $15 a week will make a particular purchase is a good deal or not. Your income is only relevant in terms of affordability, it doesn't define how good the deal is. Besides, I don't give myself a pay rise for each deal written (I haven't actually given myself a pay rise in years).

    Like most people, I don't refinance my own properties unless there's a reason to. The commission isn't a good reason in itself, I refinance my own properties for a (significantly) better deal or to release equity - usually both at the same time.

    It's actually not really worth me refinancing just for a $2500 commission. The refinance costs are probably around $800. The business costs for a reasonably sophisticated business often runs over $1000 per loan. The difference is just paying ourselves for the time spent on it. The trail income won't increase (it's more likely to drop) so there's no real benefit. It's actually more profitable to spend that time on someone elses loan.

    Would you believe I'm still getting paid trail on the loan for another broker on this forum after 6 years?
     
    albanga likes this.
  10. Redom

    Redom Mortgage Broker Business Member

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    Peter summed it up perfectly.

    Its often a thought from new brokers when guesstimating whether its prudent to become a broker, but if your trying to run a successful brokerage you do it for your customers, not you. It probably doesn't even come up in mind for those with this attitude (good example from Peter's other broker).

    Refinancing every couple years for commissions may make sense if you do $10mill a year and make up 20% of your own book. When you're writing $100mill and you make 0.2% of your book, you're unlikely to have the small amount of comms you get factor in your decision making.

    But if your trying to run a brokerage business, you'll need to think much wider than your own business and focus energies on trying to build a successful business. Refinancing your own book for a few dollars doesn't really assist with that goal.
     
    Last edited: 8th Sep, 2015