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People, multiple lenders, investors, property investment, diverse set of lenders

Should you have multiple lenders?

By Bianca Dabu

Smart Property Investment’s Phil Tarrant has acquired 17 investment properties on 19 different loans with six lenders—a strategy that has helped spread his risks, achieve good diversity across his portfolio, and attain greater flexibility as a property investor.

Among Phil’s lenders are AMP, Commonwealth Bank of Australia, Macquarie, National Australia Bank, Pepper Money, and Suncorp.

According to Aussie Parramatta’s Ross LeQuesne, the property investor’s mortgage broker: “It's good diversification there. It gives us options, it spreads your risk, it's—in terms of interest rates—gives you flexibility.”

“As you can see … certain lenders have different interest rates. So, yes, it gives you a good diversity across the portfolio,” he added.

Phil’s portfolio is now worth around $7.2 million with a total debt of $4.9 million, which puts his loan-to-value ratio (LVR) at about 60 per cent. Every month, he has to pay $20,000 to decrease the debt on his portfolio.

The average interest rate across the portfolio—across all the lenders and 19 loans—is 5.08 per cent, which Ross deem as “a little bit high”.

The mortgage broker explained: “Some of the lenders had put a premium on for the trust borrowing … By converting to a fixed rate, we could bring that down significantly.”

“The other thing is … some of the rates had crept up because of the interest-only loadings and the investment loadings, which just needed to be repriced.

“I think, that [the] average of about 5.08 per cent, [by] just looking at what we're going to do, should come down to around about an average of ... 4.7 per cent ... after we do the negotiations,” Ross explained further.

By bringing down the average interest rate, Phil can save around $24,000 a year.

Varying rates

Some property investors often find interest rates a little too complicated to deal with, especially considering the different rates you can get, even from the same lender. Phil, for instance, has five loans with one lender, and the lowest rate he pays is 4.89 per cent while the highest is 5.19 per cent.

Simply speaking, the interest rate depends on the initial loan-to-value ratio of a particular investment property, Ross explained. An LVR at 80 per cent or below can get better interest rates compared to higher LVRs.

Phil said: “Anything under 80 per cent, you don't pay lenders' mortgage insurance. Anything over 80 per cent, you pay lenders mortgage insurance on the percentage over 80 per cent.”

“Lenders' mortgage insurance doesn't insure you as an investor. It insures the bank that, should you default on your loan, they [can] flog your property [and] if there's any shortfall, they'll pretty much make their money back,” he added.

Moreover, interest-only loans are also more expensive than principal and interest (P&I) loans following the revised lending regulations implemented by the Australian Prudential Regulation Authority (APRA).

Negotiation

The interest rates can be negotiated once the equity of your property has increased.

“That's a great time to say, ‘Well, [the] value is no longer sitting at a 90 per cent. It's sitting at a 70 per cent loan-to-value ratio so [I’ve] got the argument to get the pricing at the 80 per cent mark,’ ” Ross advised property investors.

There’s always room for negotiation, but you have to be sensitive to the lender’s desire to keep you as a client. You’ve got to work out whether to stay and negotiate or just move to replace your lender.

Phil said: “ It's an inexact science and there's a whole bunch of different reasons why you may or may not do this … If you're a serious investor you've always got to be chasing cash flow efficiency.”

At the end of the day, as a property investor, you’ve got to work out the leverage and make sure it’s in your favor.

Options for improving cash flow

For Phil’s portfolio, Ross suggests shifting variable rates to fixed rates in order to improve its cash position. Phil, Ross, and the rest of the financial team are now looking into shifting three loans from a single lender into a fixed position at 4.4 per cent, which can potentially save them $7,500 annually over a three-year period or $22,000 in total.

Ross said: “We've highlighted what potential savings we can do with fixing the loans … Obviously, [this] lender … is a no-brainer [and] that is something that will get in place straight away because the savings that we're going to have there [by staying with this lender and] by switching to fixed [interest] is [massive].”

Aside from that, Phil can also consider drawing equity out from his existing properties or refinancing his mortgage.

“It [will be] just be a wait and see … what [the lender] come back to with a variable rate and then we decide what we're [going] to do,” the mortgage broker shared.

Diversification and timing

While there are many options available to property investors when it comes to improving their portfolio’s cash position, it’s important to discuss their strategy with property professionals in order to make the best decisions. After all, almost every investment strategy has its pros and cons.

According to Phil: “If we shifted ... most of these loans to a fixed position and [we can get] the current three-year fixed rates … with these five different lenders we use, we'd take about $25,000. Are we going to do that all in one hit? No, we're not.”

“It's very dangerous to shift everything [to fixed] at one point in time … If everything changes and reprices, then you can find yourself in a lot of trouble.

“Diversification and timing of when your mortgages go from fixed to variable [interest] or when they renew [are important] ... Have a whole bunch of different lenders so you're not reliant on any particular actions or behaviours,” he concluded.

Tune in to Phil Tarrant’s portfolio update on The Smart Property Investment Show to find out how you can stay ahead of the game when attempting to get a loan from banks and lenders for a property, how a shift from variable rates to fixed rates could impact your portfolio, and how the future plans for your investment can impact the loan you require. 

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  ["title"]=>
  string(51) "Boost for investors as app sets up off-site bidding"
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  string(55) "boost-for-investors-as-new-app-sets-up-off-site-bidding"
  ["introtext"]=>
  string(144) "

Property investors are now able to identify and bid on auctions remotely using a new live-streaming functionality launched by Gavl.

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Called “Request an Auction”, the new functionality enables users to watch and bid on any Sydney or Melbourne auction remotely.

Through Gavl, prospective buyers are now able to register to bid on their preferred auction. The platform will obtain permission from the listing agent and confirm within 48 hours.

Vendors can also request to have their auctions broadcast to a larger buyer audience.

Co-founder Joel Smith said that auctions streamed on Gavl attract 47 per cent more viewers than traditional ones.

He said that Request an Auction will be valuable for remote buyers.

“Buyers are able to have Gavl attend any auction they nominate, so they will never have to miss out on an opportunity due to logistical complications in physically attending the auction.

“Vendors, too, have the opportunity to directly book an auction with us, so they can open up their event to buyers all around the world. With more potential buyers, they’re giving their property the chance to receive more bids and maximise their sales result.”

Mr Smith said that prior to the Request an Auction app, buyers were limited to what they could achieve through the Gavl technology.

Gavl is a live-streaming and bidding platform for real estate auctions.

Mr Smith said that it has streamed more than 6,000 auctions, which have achieved 3.5 million views from 50 countries.

Gavl’s Request an Auction function is currently being offered in Melbourne and Sydney only.

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Boost for investors as app sets up off-site bidding
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Having to split her time between Hong Kong and her original base of Sydney has not slowed Julia Tita’s goal of building a high-performance Australian property portfolio. Instead the resulting alterations to her strategy have positively impacted her investing success.

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Having recently purchased her 6th property, Julia joins host Tim Neary to discuss her journey, share her ups and downs over the years, and reveal her thoughts on why some properties are better than others.

Julia also explains why she no longer makes a move without the help of a buyer’s agent, why working with a strong team of specialists is extremely important and discloses her long-term property ambitions.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

Why is Australian property so unaffordable?
Brisbane infrastructure attracts international interest
Going global
Australia desirable to foreign investors

AREAS MENTIONED:

Eagleby
Charters Towers
Townsville
Brisbane
Paddington
Sydney
Orange
Melbourne 
Glen Iris
Bondi

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How a move to Hong Kong impacted Julia’s Australian property goals
object(stdClass)#1196 (52) {
  ["id"]=>
  string(5) "18159"
  ["title"]=>
  string(88) "‘Common’ referrer practice of being paid on both sides of the fence coming to an end"
  ["alias"]=>
  string(82) "common-referrer-practice-of-being-paid-on-both-sides-of-the-fence-coming-to-an-end"
  ["introtext"]=>
  string(246) "

The practice of property investment firms sharing undisclosed kickbacks among the supply chain involved in development sales will be outlawed in NSW on 1 July this year under the Real Estate Reform being handed down by regulators in NSW.

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Property commentator and valuer, Suburbanite’s Anna Porter, said the reform will address conflicts of interest.

She said they arise when a mortgage broker, accountant or financial planner receives part of the commission from the property firm, who receive their fees from the developer or seller.

“This puts the broker into a position by which they are being paid on both sides of the fence,” she said.

“Until now this has been a grey area and there was nothing stopping this practice.” 

Ms Porter said this has been a common practice in the industry.

"Some well-known mortgage broking firms openly admit to receiving $5,000–$10,000 per referral in their pocket.”

She also said this process has been going on for decades.

"Property investment firms commonly pass some of their commission on to the mortgage broker, accountant or financial planner as a reward to them for passing on the referral. This means that many brokers or financial service providers are making significant amounts of money just to refer on to a property firm, often totalling hundreds of thousands of dollars a year," Anna Porter said.

Ms Porter said the Property, Stock and Business Agents Amendment (Property Industry Reform) Bill 2017 will be in force from July this year, and will prohibit this practice unless the broker or referring partner also holds a real estate industry license.

"Under the new laws, if the broker takes a referral fee from the property firm, they will have to be a licensed real estate agent and also hold a corporation’s license,” she said. 

“Subsequently, every transaction that they receive a referral fee from, they will be putting their license up against the transaction and taking full liability for the conduct, practices and outcome of that transaction, even if they have little to do with the transaction; they are a party to it financially and therefore take as much risk as everyone else in the transaction.”

Mr Porter said where a referrer holds a real estate license, and receives a part of the sale commission, they may find themselves in breach of the ethical requirements under the act.

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‘Common’ referrer practice of being paid on both sides of the fence coming to an end

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