Nathan Birch "dumping" properties according to Macrobusiness

Sound change of strategy. Pandi is a concern. Only a problem for people with a lot of ip debt. Doubt itll be a widespread problem since so few investors have multiple ips.

 

Sensible move... market has changed... this raised a good point. How much of property market is actually driven by finance market (availability of credit)?

Seems significant. Without interest rates going down, and bank bashing... how could the financial market in Australia possibly improve in coming years?

 

Only cash buyers ( who arent borrowing at all ) and first time PPOR P&I borrowers are not affected by changes to credit supply . This is because the "new" money they are applying or was always sensitised on servicing calc - even pre APRA .

It's borrowers seeking additional finance to their PPOR P&I that are affected. For the last 3 years we have seen this building Banks have started treating existing debt with a buffer ( called sensitised rate or benchmark rate within the industry) and higher HEM's have been applied, and secondary income sources ( o/time, comms, bonuses etc) have been shaded. The impact has been significant but not horrible.

Now, with the 30% I/O quota, its getting really tough, really fast. Not only do borrowers have to deal with all of the APRA 1 changes, now the banks are reducing LVR's, increasing HEM's further, limiting I/O terms and the big one, which isnt made public, is the severe tightening of their credit scoring algorhythms. All designed to help them shed I/O weight as fast as possible to get I/O lending below 30% total volume .

The worst affected are INV borrowers carrying lots of I/O debt at thin yields, coming out of long term I/O terms, who face a large P&I cliff and in many ( most) cases wont be able to refinance out. I suspect NB, who operates extremely thin margins ( and that's assuming his numbers are to be believed...I have serious doubts personally because they dont add up to me ) and has relied upon being able to constantly roll his properties over ( with Westpac as I understand..well, I know for a fact ) into I/O over and over again- is finding that his model just doesn't hold up to rate rises or the P&I cliff, in the post APRA 2 world. . And as he has said himself, equity doesnt help. He is being forced to sell or suffer. He has chosen to sell.

The supply of easy, endless I/O credit is exactly what has enabled these types of guys to build portfolio's... by taking it away their business models are now being found wanting. Its really that simple. The cake now needs different ingredients. I have been talking about this for the last few years . There's always lots of bravado on these forums - usually by people in denial about basic maths.... but it's why I talk about adding at least one or two cash cows into a portfolio - simply in order to produce enough surplus income that you can start to pay down debt so that you arent forced to sell, or at a more basic level- just to get some extra income in to your portfolio so that you can cover the P&I cliff thats coming.... enabling you to hold what you have.

For the majority, they should forget rapid expansion... unless you are earning plenty and/or have the ability to service all your debts P&I, its time to start thinking about asset protection by getting some defensive positions into the portfolio. Its time to deleverage. Otherwise, be prepared to sell. But remember - if lots of others in similar positions are doing the same, dont expect top dollar when you sell. Expect ruthless PPOR buyers and ruthless, prepared investors to screw you down on price because you will be over a barrel. As Keating once said...they will wait and do you slowly.

#decade to deleverage

 

Isn't the majority of NB portfolio 'cash cows'? Wouldn't a more appropriate strategy be going for quality over quantity and also using lower amounts of LVR? As NB said banks no longer assess rental income as favourably as they once did.

 

Obviously NB's portfolio might not be as cash cow as he has shown it to be LOL. And development will not be easy given tightening of credit. Many developers go down as a result of tightening credit markets.

As Buffett says, when the tide goes out, like its going now, we will see who is swimming naked.

Let the herd run, it will be elephant hunting season soon, where's my elephant gun?

 

Make way for a long list of threads bemoaning the NB method of wealth acceleration.

 

Outstanding synopsis.

 

I would say he makes more money from his business than is property portfolio. I can not recall how many properties he was sourcing per month but I know it was massive.

He could be selling stock to clients who knows? But if this were the case it would be silly to have a write up about selling?

 

this is ground hog day again...hehe

 

For sure.

Though I think there are probably worse than NB, gurus recommending mining towns etc.

Back to NB, I know some would have made money if they had purchased the cheapies he recommended in Syd, they probably the lucky ones. Not sure about the others.

Its like anything though, there are so many recommendations on where and what to buy on PC.

I know a few that got burnt buying in some dud areas.

Buyer beware, too many investors have stars in their eyes, they put the cart before the horse, want to become rich overnight, and logic goes out the door

MTR

 

Nathan's style would be to leverage as much as he could to buy more properties, so bank and apra policy changes would no longer be friendly on a large scale.

After buying a few houses, the next step s building "hotels".
He's no moving into the long term 10yr+ projects that require cashflow to keep and lots of cash upfront before getting returns.
So he needs to realize some gains and get his LVR down to about 50% or better.
CGT is gonna hurt though.

 

How many people you know are over-leveraging on this forum?

 

With the property developments in Fletcher, maybe he thinks there are bigger profits to be realised with selling OTP properties. Look, I am a results/ numbers guy and I do congratulate him for acquiring many properties. I wouldn't say his choice of property locations are inline with my strategy but at least we have proof of his portfolio numbers and it's well documented.

With the rapid changes in the industry and many other things to come, we do need to go through the basic of going through the SWOT analysis.

 

There are.
I would guess the idea is to hold as much as he can from a low cost base.

 

Pure genius from a business perspective....he is looking for opportunities to keep his business from contracting as he has quite a few staff, here is why:

1. IP loans are harder to fund thus less clients and less sales
2. He is mostly in Sydney and Brisbane/Gold Coast ..much more competition

So he asks people to sell...take the money and recycle into more opportunities in other markets....what is the chance he will fund developments and onsell? Bringing him more mullah via:

1. Profits of developments
2. BA fees
3. Property Management
4. Finance
5. Renos
6. Builders referals

As I said pure genius......

 

That was my first thought

Controlling the process from start to finish used to start from buying the property. Now with Binvested developments, its going to start from the selling side

 

Don't forget the banks have billions of dollars of existing loans which they will continue to profit from. Loans just won't keep increasing like they have for the last few years. But loans were never going to keep increasing at that rate. It was mathematically impossible.

 

Is she rich now?

 

That's a first world problem if I ever heard one! Lol