Mortgage Secrets #1 How to Keep Your Money if You Sell a Property

So today, we’re going to talk about
separating securities and how to make sure that if you’re going to sell one of
your properties now or in the future, that you’re going to be able to keep that
cash. And what we want to make sure is that, you know, if you want that
money, you know, for your retirement fund, or to put into a business or another
property that you don’t end up selling a property that has debt on it
or a security on it from the bank, thinking that you’re going to be
able to keep all of the money, it’s called net proceeds from that sale,
when in reality, you’re going to have to pay the bank back more money than
you anticipated. And so let’s have a look at a few quick examples. So,
on this side, what we’ve got is three properties in a portfolio that’s all at
the same bank. And this is quite common. And whether you have your property or one
or two other properties in a look-through company or trust, or you think there’s
like a clear separation between your portfolio within the bank, quite often,
it’s actually at the bank’s discretion. So let’s have a look, let’s say you’re
thinking of how you want to buy another property, you found you
want to upgrade one of your rentals from a cash flow, you know,
negative or neutral property to something that has a bit more
potential for cash flow or capital gains. So you’re going to sell this property
here. And once you’ve sold that property, you’re going to complete the sale,
complete the purchase of another property. So in this scenario, there’s
$600,000, on this property, of debt, and the property’s worth 800k. So you
think, “Okay, I’ll sell the property, I’m going to be able to keep the $200,000
difference.” But as you can see, because there’s debt on the other
properties in the portfolio, what you’re actually going to have
to do is check with the bank, regardless of how the structures are set
up, is, are you going to have to pay back 600 on a sale, or actually 800?
Because there’s other lending in your portfolio, and the lending
policies at banks change all the time. So you might find yourself in a situation
where your income has changed since you originally got the debt,
or the lending policy has become a bit tougher, which is happening a lot
more often. So the way that you would get around to make sure that you get
to keep this $200,000 from that sale is potentially move this property
to another bank, and that way, it’s completely separated.
It’s got $600,000 of debt on it, and it’s a $800,000 property.
Then if you sell it, you know, it’s clearly you’re going to be able to
keep that $200,000. And one way that we might actually do it is we would say,
okay, before you sell, let’s shift some of the debt onto the other properties.
And then so you might end up selling it when it only has $200,000 of debt on it.
And in this situation, where it’s at the same bank, you might actually
have to separate it completely, freehold it or put it in another bank to
really make sure that you’re going to keep that money. Now, the way to set it up
properly is consider using two banks right from the start or to refinance one of your
properties. Now, setting it up for the future sale. So, you can see that in the
situation, there’s a property at a second bank that has $200,000 of equity
in it, and there’s not going be any issues. If you sell this property,
you’re going to be able to keep the money, because this bank here, bank A,
let’s say you put it with ASB, and this is Westpac. You know,
your selling a property at ASB is a clear separation, you know,
there’s not going to be any issues. And before you sell that property,
you might even decide to shift some of that debt over. And what we’re
helping a lot of people do at the moment is separate securities,
and actually, you know, remove this cross-collateralization,
because when you have everything at one bank, what they do is
they just treat it like a big pie, and they take all of your debt and all
of your assets, combine it together, and then when you’re trying to make
financial decisions, selling or buying, they’re looking at your whole situation,
whereas really you want to structure it so that you’re giving yourself the
advantage of having lots of different future options. And you know,
Westpac is never going to say, “Hey, the way that you can get what you
want is to involve a second bank.” ASB is never going to say that, you know.
Bankers are not going to say, “Hey look, the way that you can do this is,
why don’t you freehold this property and don’t let the bank have a claim over it.”
And so you’ve just got to say, “Hey look, before I sell this property, am I
going to get all of the money from the sale that I expect to get,
or is the bank going to make me pay back the 600 plus this 200?” And so I’m
actually selling an asset that’s producing cash for me, and that’s getting capital
gains, and then the worst thing is you don’t get the money and then you
can’t buy again. So what you’ve done is you’ve had a three-property portfolio, and
then you can’t buy that third property again, and so you’re putting yourself in a
worse position by making sure you’re not… by not asking the right questions. And so,
you know, that’s what mortgage secrets is all about. You’ve got to know what
the right questions are to ask. So, check out the case study below, and fire questions our way
if you’ve got them.

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