Nathan Birch defaulting on IP mortgages...

Karina...knowing how lenders work they would not have wanted that level of acrimony and publicity...if he would have paid the interest and penalties...it probably would not have got to this point. But the question needs to be asked...he reported 6 months ago he was selling down..why is it taking so long?

I think this story has more things coming....

There is a real lesson for lots on this forum...property is not always all apples...

 

Nathan's investment strategy always struck me as being based on gaming desktop valuations, sometimes through a cheap and cheerful renovation. As @euro73 said, he'd buy something, have it revalued, and then extract equity.

The thing is that he's spent the last few years spruiking this model through BInvested, only they'll have less equity than he did after paying the fees.

If I can put my Doom and Gloomer hat on for a minute, there are a lot of investors using a similar approach, albeit with better quality assets. Namely, buy an initial property, then use price rises to extract equity. I wonder how many of these "I bought a portfolio worth $4 million by 30" types are going to get into trouble.

 

That son...would get very interesting.....lots of $4m by 30 types have proabably only get about $800-$1m in equity.....should get very interesting...if they have to sell and the market has turned.....

From my perspective people need to get down to a 65% LVR to be safe That means on a $4m portfolio...they will have $1.4 in equity (hopefully with 600k in offsets) and $2.6m in borrowings and hopefully 160-180k in rents.

 

December 2016

 

a lot made their coin in Sydney and Melbourne - and moved to other states thinking to replicate the same method. The boom in Sydney was very much diff to other states and have various factors that were vastly different

I had the same recollections when I was trading indexes and CFDs making early gains then you think you are like a magician or an expert investor but then you start making rash decisions and then it is more gambling rather than making informed decisions.

anyway the methods of buying high cashflow pulling equity in low socio economic places and looking to build big portfolio in current lending climate and "motza money" is probably not something that will work as it was in the past.

 

This happens every cycle.

I remember you and I got trolled to dare to suggest Logan lower socio was not a good idea and that part of Sydney like the Druie will leave people exposed.

Till the Cowboy Rides Away...and the credits roll ..the sad song won't play yet...

The other thing is most people do not have exit strategies...this is even more dangerous when you are always walking on the ledge of high rise...

 

With the size of his portfolio, he should have that sort of money plus more sitting in a bank account, just in case.

When I was in business, I always had a minimum of 6 months of expenses sitting in cash. My philosophy was that, if **** happens, I could run the business for 6 months without a $ coming in the door. Great comfort and security to all.

Geez, my portfolio is a lot smaller than NB’s but I can withdraw that sort of money right now .

 

But he didnt buy high cashflow. 200 + properties generating 500K?

I generate 365K net from 15 properties.... 200K of that is gross taxable salary, which I am able to reduce to 200K completely tax free because of deductions... and then the portfolio adds 165K of additional net income, or an average of @ 11K per property.

If I had 200 properties the way I do it, I'd be generating over 2.2 Million in cash flow.... but lets be conservative and cut that figure in half to $1.1 Million....

Compare that to 200 properties he claims to own and the 500K net he claims to generate from the portfolio. Its hardly high cash flow...2.5K per property at best... its nice but it isnt enough to be safe from P&I.

Im also wondering where all those 10K buyers agency fees go..? If he is doing even 100 properties a year thats an additional $1Million. And the property management business....that would generate income....? And the mortgage business? Allowing for commercial rent expenses, staffing and taxes, he must be pulling another several hundred K in salary as well.... at least. So why cant he service his debts?

 

Yeb...spot on.....someone's been tellin' porkies...

 

Totally agree with you. Having a buffer big enough to withstand changes to interest rate rises etc is essential. Perhaps some of the loans came off IO and went onto P&I and could not be extended. Could also be too many new acquisitions on the go that went unconditional and then could not finance them due to lender changes depleted the buffer. A lesson for everyone on the forum to ensure they are not overcommitted.

 

For what?

How not to manage finances? Strange game of brinkmanship...Herr Rolf ...question would you ever market that way?

 

There are a dozen employees listed as working for BInvested on Linkedin. Most of these appear to be project managers or in PR / events. There might be more, who haven't got a profile, or updated it recently. Neither Nathan Birch nor Daniel Young are listed, for example.

If each employee costs $200K per year, then the company's costs could run as high as $2 to $3 million a year. They would need fees from 200 to 300 properties a year just to break even.

 

True... but I assume he doesnt run Binvested at a loss

Anyone needing 12 FT employees would have to be running a fairly busy business doing fairly good volumes of sales.

I have no staff, but was able to write 20 million in loans per annum and sell 100 + NRAS properties per annum by myself during 2013,14,15 and 16. Ive moved into dual occ now and am doing far less volume ( deliberately - not interested in 100+ hour weeks any more) but you get my point ...

 

That might be due to other reasons!

 

He certainly would have given a directors guarantee and the article says he did. That will mean a mortgagee could pursue him personally and potentially get at his person assets - not other entities.

 

Yes they do, but they don't investigate every company that merely defaults on a loan. But if there is more to something they might.

 

Doesn't sound that surprising that he might run into cashflow issues.

If your strategy constantly depends on extracting equity from your current portfolio to settle on new property. Your going to get into trouble when that tap gets turned off. Especially if as it sounds like he has done, having multiple offers on the go all the time and being used to always be able to extract equity and be able to settle.

Sounds like he might have had multiple properties awaiting settlement when the changes came through.

This is one issue with running a high LVR still once your portfolio gets large. It becomes hard to rely on your wage, cutting back, emergency savings, to bail you out as they pale in insignificance.

Sounds like a case of flying to close to the sun.

 

A good word for this forum perhaps.

It is not sufficient simply to succeed. Others must fail.

 

From what I understand it's got nothing to do with his property portfolio, but everything to do with how business is conducted, so it's a separate issue.

But when there's a fire burning, you don't just put out the fire, you check the houses next door next door to make sure they're not burning as well. Most people behave consistently across multiple elements of their lives, especially when it comes to money.