Never Cross Collateralize Your Loan Arrangements

Cross-Collateralizing-2
Part 2: Proper Loan Structuring can give you Protection.

LAST TIME (in Part 1), you discovered why the banks should not be allowed to call the shots. And perhaps a couple more Case Studies will help to further explain that.

Let’s take a look at what happened “Kevin”

He was a very successful property investor who had an impressive portfolio, consisting of several residential and commercial properties.

Kevin was able to build this portfolio through a mixture of a good knowledge of the market, savvy negotiating skills, a high-income job with a resources company and, it has to be said, some luck in picking the trends.

Kevin’s problem was that he wanted to retire early — which is something someone of his net worth should easily be able to do. But he made one major mistake. [Read more…]

Never Cross Collateralize Your Loan Arrangements

Cross-Collateralizing
Part 1: Don’t be easily Swayed by your Bank.

A COMMON piece of advice given by mortgage brokers to Commercial property investors — at least, by astute brokers — is to keep securities for each loan separate. In other words, any form of Cross Collaterization (as it’s known) is to be avoided at all costs.

So, just what is Cross Collaterization; and why is it so bad?

Put simply, it is the combining of one mortgage registered against two or more properties (or sometimes even your business) as security. [Read more…]

Be Wary of Bank Bills

BankBills2
Part 2: Remain in Control of your Destiny

LAST WEEK, we made a start on understanding the pros and cons of Bank bills. But you also have other options.

Non-bill facilities are available through the big four banks, but are generally priced in a way as to only be competitive at smaller loan amounts.

While the big four banks are generally able to price better than smaller lenders, there are other factors considered to be important than merely the cost. And for small business, the interest rate on their borrowing is a relatively small consideration, in the overall scheme of things.

Far more important is access to credit, and flexibility of being able to draw up and down on that credit. Because, having this ability will reduce your overall interest costs in the longer run. [Read more…]

Be Wary of Using Bank Bills

BankBills
Part 1: An Understanding, plus the Hidden Costs

WHENEVER YOU ARE financing a commercial property investment or a business, the types of funding can be broadly classified into two categories: bill facilities and non-bill facilities.

The Concept

Bill facilities are charged as a margin over the inter-bank lending rates, published each day in the Financial Review as commercial bills; while non-bill facilities are charged as a straight interest rate.

The funds for these facilities may also be raised through the money markets, but they are priced on a simple interest rate basis over a loan term. [Read more…]

Arranging Your Finance

Your Top 5 Tips ...

IT IS NO SURPRISE that banks are still rather coy about funding Developments, so maybe a few ideas on how to get your projects across the line could be helpful.

Here are the Top 5 Tips …

  1. Properly Assess Your Capital Requirements
    Do a thorough feasibility before proceeding with any project, to ensure you have sufficient funds to complete the project based on 80% funding of total costs. Make sure you factor into your calculations capitalised interest, for least 12 months.
    .
  2. Lock In Enough Pre-Sales
    Make sure you are aware of the number of pre-sales you will require. And also properly research the market — so you are confident the properties in your development will sell off-the-plan. If your development is not suited to pre-sales, ensure that you are able to arrange finance without pre-sales (or with a lower pre-sale requirement through a non-bank) before proceeding. [Read more…]