To Refinance or not to Refinance

I am with one of the four major banks. The bank's valuation on my mortgage free PPOR was very conservative with a $200k difference between their 'on paper' valuation and market value according to sold properties of the same type in the area.
I applied for my next loan and was advised that although I had the equity (for the deposit) and serviceability for the amount requested, as the total debt would go over $2m I could not move forward with a new loan. The bank advised that they have a $2m policy where if your investment income used to pay the debt is more than 50% of your PAYG income then they would not lend any extra funds. They considered the risk too great. As one of the major banks I was very surprised at this conservative view and decided that my only action moving forward was to look into changing banks.
I decided to go to a reputable broker to utilise their networks and researching skills to find financial institutions who would be willing and able to move forward with future purchases. I didn't want to be 'blocked' by my bank each time I wanted to utilise equity. As someone who likes to 'bundle' their affairs, moving banks was a bit daunting as I had insurances and direct debits with the current bank. Using a broker is at no cost as they gain their commissions from the lending institutions so there were only positive reasons to go this way.
The broker found a bank who was willing to provide complete walk through valuations on all of my properties prior to signing over my portfolio as an act of good will. As there is a cost involved in having an independent valuation (from a Certified Practicing Valuer) I could not have negotiated with a bank on my own to have this done without a commitment that I would be refinancing with them (and maybe not even then unless I agreed to pay). 
This was the precursor to sourcing whether or not I would be in a better financial position and had enough equity to use if I moved banks. The risk was if the values came in lower than the debt requiring more equity transferred from my PPOR I may be in a worse situation rather than better. 
I doubt very much that a bank would have done this without the negotiation of my broker and it gave me a warm fuzzy for the new bank, who sits just under the four majors so still very reputable with a lower interest rate and a less conservative approach to investors. Of course, an increase of $200,000 in equity was a huge bonus also however it just brought my property back to market value which my bank ignored during their desktop valuation.
The somewhat 'forced' refinancing was a blessing in disguise as I'm unsure if I would have initiated relooking at my finances without the 'push'. In hindsight I should have been looking at my situation at each purchase to better utilise built equity from the changing market. 
My hope is to release a few of the properties from the security of my own home so they stand alone, the thinking behind it being if I decide to sell my own home while the market is high and then rent while waiting to purchase my next property when the market lowers I will not have problems with finding security for the investment properties to transfer to.
As I head into my next investment I will target relatively low cost properties which can be renovated or built on to add value and maximise rental amounts. As such the location will be close by. 
I am not yet in danger of a great amount of land tax and so do not feel the need to change my location as my next property will have future development potential with me wanting to be close by. Whether this will be as a battleaxe subdivision or a knock down and build multi properties I'm unsure but it's time to start looking once I get the go ahead on financing.
With a government approved 'proposed' marina still in the pipeline, the Rockingham Beachfront is an attractive option due to it's still relatively low cost and more bang for your buck with quarter acre blocks.
I intend to buy another 5 properties in line with my goal of 10 properties. When I am ready to retire in five years time (we all have to have a goal right?) my intent is to sell off one each year to pay down debt and hopefully pay off a property each time with the profit leaving 5 properties providing income for me to retire on. To do this while prices are still relatively low is the goal before they increase out of my price line and the intent is to replace my salary income.
The main lesson I have learned in the past few months of looking at my finances would be that just because your bank says no, doesn’t mean that other banks aren’t in a position to help. Other’s will compete for your business as a valued customer and may in fact provide a better package, so shop around and look into the use of brokers because they hold a wealth of knowledge and their networks can be invaluable. Mine has certainly become a part of my investing team.

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  • Sue Evans says on 20/09/2013 02:55:27 PM

    This is fantastic Lisa, I always think about doing this but think perhaps I am not capable but now feel you have given me the courage to go for it!!
    Thankyou :-)

  • Micky G says on 20/09/2013 07:43:01 PM

    A great example to get pro-active to shop around, wheel n deal with the lenders all the while honing your negotiation skills...after all its your future...great article Lisa

  • Marissa Schulze says on 24/09/2013 08:59:45 AM

    Great Blog Lisa.
    It is a shame that Banks do not look after their clients or value client loyalty and that is why it is so important to have a great mortgage broker as part of your team. I run a mortgage broking business in Adelaide called Rise High Financial Solutions and we find that we can almost always get our clients a better deal/structure to help them to achieve their goals than what they have been offered by their bank. Even if clients want to stay with the same bank they are already with, a great broker will be able to negotiate a better deal for them. If you are serious about property investing, make sure you find a great mortgage broker who understand property investment and who is an investor themselves.

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