Welcome back!
At this point, it is important to point out a very important rule – where possible try not to use the same bank! If you go to Bank “A” and ask for the money for your next property they will welcome you with open arms. But they will not structure it the way we have suggested.
Instead, they will offer you a loan for 100% of the purchase price and all of the costs. So in our example, they may lend you $400,000 plus the $20,000 costs, or a total of $420,000. And then what they will do is what they call “cross-collateralise” your two properties together. What that basically means is that if you default on the mortgage on one property, they can sell both of them to get their money back! Now that’s not a good situation to be in if one of those properties is your home.
Furthermore, and this is the most important thing to note, they will keep cross-collateralising your properties until you get to about four. Then they will STOP lending you money! Because at about that point, you become too big a risk to them. If you fall over in one day, they lose four mortgages on that day.
Worse still, the other banks won’t be interested in you either, because you are overexposed to the first bank. The best policy is to simply only use one lender for each property. There are approximately 150 lenders in Australia, so you can have 150 properties before you run out of lenders and you have to go back to the first one again!
Sometimes when pushing the growth of your portfolio aggressively you may have no choice but to go to the same bank for a second, or maybe even a third, but you should really try not to.
Stop and think about this: only buy properties that pay for themselves.
Yes, it is so simple. Join me tomorrow and I will discuss this in more detail!
~Daimien Patterson
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