More than even before, it’s important to have a qualified, competent loan strategist as part of your advisory team (as important if not more important in some cases than having a solicitor and accountant onboard).
There is a story that a Bank’s Business Development Manager told us and to a huge extent it is true:
A client kept applying for ‘pre-approvals’ every three months with a lender as he wasn’t finding the ideal property. When the client found the property , the bank declined his loan. This is because the bank computer algorithm thought that there were too many credit ‘enquiries’ on his credit file and accordingly decided that he was a poor credit risk.
The reason for this
Why we are different?
After the initial interview with you, we work with you on the timeframes for your property purchase evaluate, rank and shortlist the different lenders based on criteria (e.g. interest rate, credit policies, ease of doing business, their service proposition, fees and charges, valuations, specific niches that they offer)and then determine the timing of the loan application.
Before they came to us, here is what happened to a few clients who were building their home:
Every day, we come across situations where investors who have loans for more than one property with the same bank and the loans are not setup properly costing them tens of thousands of dollars if not more.
The most common type of this poor loan structure is cross-collateralisation or cross-securitisation where multiple properties are provided as security for the same loan. Often we have seen 5-7 properties setup as securities for the same loan and the investors don’t even know about it or don’t know the implications until it starts to hurt them. What’s so bad about this?
Why bank lenders do it
Bank branch lenders love to do this so that so they’ve got your loans and properties ‘stitched-up’ well to make it hard for you to leave and so that they can make more money off you. In many cases , they do it because they don’t know any better
Lender raises interest rates and investors are stuck
If the lender that has all the loans raises their interest rates or their fixed interest rates don’t suit your circumstances, then from most lenders , you cannot get some of the properties out of the tangled mess to refinance those properties to another lender
Not being able to take advantage of higher bank valuations or good investment opportunities
If another lender offers a higher valuation on your properties so you can borrow further good debt to invest in property, you won’t be able to take advantage of it by refinancing. I’ve seen people miss out on very good investment opportunities that could have made them well above a hundred thousand dollars.
Not allowing for ‘Risk’
Or maybe the investors could have accessed the equity and kept it as a cash buffer for times of need. A lot of the time these discussions are not had with the clients by the bank lenders and therefore when clients need it most, they are not prepared. This can lead to a ‘distressed’ sale situation or worse bank can sell all the properties (depending on what was on the fine print when signing up for the loan).
See my post on access to cash buffer for investors and strategies for investors
Because the properties and loans are all messed up together, it may well be that you can’t get property tax deductions
We could go on and on about how other mistakes together with the above affects investors but we will save it for another day.
An experienced finance strategist is going to be able to either fix this issues to a certain extent of set things up properly from the start (remember everyone’s situation is different so right strategy for the client’s goals).