Expert Bust #34 My Worst Mistakes

Learning from my mistakes:

1. Never say “never sell”, there may be a time when you’ll be better off
2. Pick a loan you can easily replace if your lender turns ugly
3. Good finance doesn’t make for a good investment, it’s only a lever
4. Research the tenant if the property you’re buying comes with one already fitted
5. If buying O/S, re-learn everything & make sure you’ll have excellent intel
6. When the banks so “no”, take the hint
7. Renos may deliver bigger gains than a part-time job, but come with higher risk
8. Don’t JV with “talkers”, have very clear terms, especially the exit
9. Don’t cross-collateralise. Unless … no, just don’t cross-collateralise
10. Contribute to the charity of your choice, but act like your insurer would to tenants
11. Always have repairs & maintenance money ready for when things go bung
12. Ensure you have cash reserves that match your portfolio size, jobs don’t last forever

Not exactly an "expert busting" topic, but hopefully helpful to someone.

 

These are good - I don't think you're busting these ones?

 

Great tips. What does this one mean?

 

It means don't cross collateralise unless there's really no alternative (and there almost always is an alternative).

Cross collateralisation - 10 reasons to avoid

 

In 6 years of working with property investors, we've never once 'had' to cross secured loans.

 

Is it not a nightmare to have a separate loan for each property ?
So for a investor with 68 properties on a 12month term I would have to fix a loan every few days ?
Is it not better with less loans?

 

I'm trying to think of where I've crossed an investment loan and am almost coming up blank. The few that come to mind (in 18 years) are:

* A psuedo bridging finance deal, the client was selling a property, but needed equity from it in the short term for another IP purchase. It didn't make sense to pay an extra application fee when a loan would be closed a month later.

* A lo doc deal (over 13 years ago) where the costs of setting up individual loans was very high, it made more sense minimise the number of applications until the client had the financials the following year to transition to full doc.

* I've had a few first time investors use a family pledge loan to buy an IP.

* Multiple unit developments. These are often restructured after titles are issued.

Cross collateralisation tends to be more justifiable in owner occupier scenarios, predominantly family pledge & bridging finance.

68 properties on a 12 month term sounds like a fairly large scale commercial development. That's a very different scenario to the average investor. During the development phase they're likely all under a single title anyway, so technically not cross collateralised.

 

Sorry I meant the interest is fixed for 12mths not the loan term .The 68 properties have been gradually accumulated and held since 1981.

 

There's probably a lot to unpack in a portfolio that large that's been 40 years in the making. This takes us back to the days when women had to have permission from their father or husband to apply for a loan. People had to have a 'relationship' with the bank to get a loan. Someone like this has a very different relationship with finance than most people buying in the last 20 years could expect.

 

I don't have clients with 68 properties. Literally 99.9999% of investors in my experience have less than 6. Yes - that would be an admin nightmare if the splits were all over the place.

 

Five years ago I purchased a property $16m all borrowed from equity. No valuations needed on existing portfolio , no financials required (relied on the annual statements 6months old) approved over the phone!