22 Aug How Using Multiple Banks Can Supercharge Your Portfolio
Did you know that about half of Australians remain loyal to their first-ever bank throughout their working lives?
Their mortgage, credit cards, and savings accounts are all with one bank from their first day to their last.
Competition in the banking sector has skyrocketed over recent decades, which means that such misguided loyalty can often result in poorer financial outcomes over their lifetimes.
Not only that, property investors who own more than one or two properties will likely see their portfolio flatline because all of their loans are with one lender.
To better illustrate my point, here are seven reasons why using multiple banks can supercharge your portfolio.
1. Using one lender for all of your property loans means that your fortunes will always be dependent on their policies. Perhaps they decide to slow down lending to investors or they increase their serviceability calculations which means you are no longer able to borrow funds to grow your portfolio.
2. A common trap for novice investors is cross-collateralization property loans with one lender. They often do this because they don’t have enough savings to invest in a second or third property, so they cross collateralise it with their home for example. One of the major problems with this is that even if another bank wants to lend them money, they can’t easily refinance because their loans are all tied together with one lender.
3. Another major issue with cross-collateralization with one lender is that if an investor wants to sell one of their properties, for whatever reason, they can’t do that without it impacting the other property loans. Say, you wanted to sell a property to free up some cash, but the bank indicates that some of that money will need to be used to pay down the loan on one of the other properties. The end result? Less cash in your pocket and more in the banks.
4. Ultimately, whether it’s crossing properties with one lender or being too loyal to one bank, the outcome is that they will potentially have more control over your financial future that you do. By using a mix of different lenders, you will be in control and will be able to buy, sell or extract equity more easily because you have spread the “loan love” around.
5. Ditto, if you have property loans with multiple banks, your risk profile will be lower with each lender because of your smaller borrowings with them specifically. Rather than having $2 million worth of debt with one lender and hitting their debt ceiling, you may have four lots of $500,000 spread across four banks who are likely to still be happy for you to borrow more.
6. By spreading your loans across a variety of lenders, you will have access to different loan products as well as interest rates, which will benefit your portfolio over the long run. You will also be able to grow your portfolio when it is the right time for you.
7. I’ve mentioned this briefly already, but one of the biggest benefits of using multiple lenders is that if one bank won’t let you extract equity, another bank might. This happened to me with one lender saying no and the other saying yes. So I extracted $100,000 of equity and bought another investment property that has grown in value by $50,000 in just one year. If I had had all my loans with one bank, I would literally be poorer because of it.
As you can see, there are myriad reasons why becoming friendly with multiple banks is a sound strategy.
Not only will it ensure you retain control over your portfolio and your wealth creation efforts, but it will also create competition between them, which means the power is in your hands and not theirs.