Nathan Birch defaulting on IP mortgages...

I don't think diversification would really solve or minimise your cash flow issues in a highly levereged portfolio...


I wonder what the situation is with that Asian lady who was on sunrise with him with a 6m portfolio that he had mentored

 

I’m not sure it’s a market dropping issue. I would say it’s a cash flow issue. Basically - cost of funding went up for Nathan and destroyed his margin.

Cost of funding is bigger risk than price drop to the market.

Or as many people here think- if we have a bubble pop - cost of funding issues may be the factor. If we don’t find cost of funding issues, I might just be a soft landing.

 

Great analysis, thanks for writing it up.

 

In terms of something else going on, it's always possible he's got some other large debts or poor spending habits.

 

It's net profit.
After wages
After rent
After insurances
After interest
After fixed and variable costs

If you run a. Business net profit is extremely different to GP.
Rent collected is GP

Alot of comments with little understanding of this companys) Nb. Operation

 

Don't forget.
The aim of a business is to report as little as possible Net income.

This is why rich don't pay tax.

If you are showing high Net income your accountant is not doing his job.

 

Whats the business rationale for not paying a mortgage?

If this is a bunch of people talking about the cricket in a pub, at least its filled with experienced players. Nb isnt that much of a genuis that no one on here can understand what hes doing.

 

A cashflow problem should be easy to fix when you have a lot of equity. Just sell down to build up a cash buffer.

Good to do this as early as possible but it can be done pretty late provided there is no market crash and you have good assets.

Much more of a problem if you have rubbish, overvalued assets - even more so if the funding is crossed.

 

Of course you are right, but this is a different situation. If you are running a very profitable business and run into borrowing capacity issues that may result ( in this case DID result) in a default, surely you'd have your accountant prepare juicy returns for one year, cop the tax and restore your borrowing power for long enough to avoid said default . Paying a chunk of tax as a one off is better than defaulting and having your credit rating badly damaged, surely?

There are several lenders who will work off one years financials. CBA, STG, BOM, WBC, BankSA, ANZ come to mind off the top of my head. Alternatively you'd use lo doc with self declaration such as RAMS or Adelaide Banks products. Unlike most lenders who ask to see either 1 or 2 years individual, company and trust returns and profit and loss statements and BAS statements, these products /policies allow for up to $1Million with just a borrower declaration and accountants declaration...sometimes more. There are lending solutions available to self employed people that aren't available to PAYG if you present income the correct way, yet he still defaulted and failed to settle on some properties... so it leads me to wonder whether it isn't possible he just doesn't have enough income post APRA to get money?

I dunno, as I said in earlier posts, you don't get into this position overnight ... he would have had quite a bit of time to explore the lending options noted above, or to sell down easily saleable properties to clear the debt and avoid the default. Something isn't adding up.

 

The issue with that is the mortgages are higher than the properties because his inside man at westpac was giving him phony revals

 

Accountant wants low net income, mortgage broker wants high net income, who wins?

 

there are a couple of ways that MB use their magic on vals, ... what's it called drive way vals....

 

Not so, try selling property when markets turn, its totally dependent on the product and where the property is, market conditions.

elling price vs value of property vs market conditions.

If it were that easy there would be no issue

 

Than that would be more than a cashflow problem.

I was more looking at this might relate more generally - we sold down and paid our taxes to make sure there was not a high equity, poor cashflow problem.

Just saying that these problems area usually easily fixed if you have enough equity.

In individual cases, of course, things can be more complicated.

 

Of course - but that is why I had the good assets and no market crash proviso. It will also depend on how much equity because you won’t be able to hold out for the top price.

In this case there should be heaps of equity still in any Sydney assets and there should be no issue selling them at a profit - if there is an issue it would be bigger than just immediate cashflow.

 

Personally I can't imagine him letting this happen without being aware of this as some have suggested

One think to be aware of is that many people will have their money available in an LOC and the banks can change these ....

We did those calculations and decided to sell two properties that are in trust funds and one in our Super .

The two in trusts are cash flow negative and we don't see them going up significantly in the short to medium term , they were bought for long term , but the APRA changes forced a re think . By selling the one in Super ( Manly Sydney , close to double since we bought it ) , Our Super goes into a very nice cash flow positive situation and being in transition to retirement we can access this if we want or NEED to ... the extra cash flow from this would pay any short fall if our loans went to P&I , but I'd prefer to let it build up in the super or if we do take it out, pay down personal debt .

Yep ... and lets not forget Steve Narva and Keiran Trask ( all started of as very successful investors who then tried to change their investment model into a business ...something of a trend here ..... )

Investor loans have gone up significantly with the APRA changes . obvious some of his will be locked , but lets assume ( very conservatively he had 200 loans of 100K which went up 1 % . That gives an increase interest bill of 200K . If he's having to go to lenders of last resort with bigger loans , he's quickly running up a much bigger shortfall

No one's coming forward saying they do have in depth understanding of his business , but in the past he has been a member ,so, many here will have an opinion and interest and there are lessons to be learned by what is happening to him ,

Lets assume that the 500 K is his personal income after all expenses ( we assume he pays tax on that) . Someone who has a personalized Bentley is not living a conservative lifestyle and a significant percentage of that income ( if not most ) is gone with little if any buffer .

An extra cost of 200K has him quickly cash flow negative and obviously every thing comes down to how much buffer he has and give the court action we have to assume it wasn't enough or his just stupid , which probably isn't the case .

Cliff .

 

This is incorrect.
Try this approach and then go to a bank to pass servicing.

The accountant should have the clients goals over the next 5?years or so in mind. Asking, will you have a need for finance in your name or specific entities in your group? If so, we need to ensure we show enough income in order to service.

Otherwise you end up like old mate the chippy making 150k per annuam but showing 58k trying to buy a house.

Unless you yourself are an accountant my friend, your comments are somewhat flippant..

 

Isn't it much harder to sell a property if you used equity to purchase another property? Or maybe there was Cross collateralisation? They only thing that keeps me wonder is why there was no action before the issue started.

Logically thinking, you would try to resolve these issues at the very start, especially when you have a business that is build on a reputation of being a property guru. No action feels like someone is given up. Or perhaps that company owned just that one block in GC and he was prepared to force the company into bankruptcy if he knew the unit block will not fetch enough money. I am new to the whole property universe, but from business perspective this is the only logical explanation I have.

 

[QUOTE

There are several lenders who will work off one years financials. CBA, STG, BOM, WBC, BankSA, ANZ come to mind off the top of my head. Alternatively you'd use lo doc with self declaration such as RAMS or Adelaide Banks products. Unlike most lenders who ask to see either 1 or 2 years individual, company and trust returns and profit and loss statements and BAS statements, these products /policies allow for up to $1Million with just a borrower declaration and accountants declaration...sometimes more. There are lending solutions available to self employed people that aren't available to PAYG if you present income the correct way, yet he still defaulted and failed to settle on some properties... so it leads me to wonder whether it isn't possible he just doesn't have enough income post APRA to get money?

I have used all of those banks, they have always required 2 years financials.

 

Don't you love this thread..... damn got involved in the treadmill to nowhere.

Mention the word "NB" and this creates a million posts.... just watch