• Bad drivers don’t know they are bad drivers
• Pigs don’t know that pigs stink
• And you don’t know what you don’t know about finance structure

The following “Horror Finance Stories” took their victims by as much surprise as the person who had someone pull out in front of their car and cause an accident.

At least when you get behind the wheel of a car you are (mostly) in control. Sure there are other drivers on the road and then there’s things we rely upon – like brakes etc. When it comes to arranging and structuring your finances; you will become a passenger and your broker/banker a taxi driver.

Assuming your broker/banker properly understands the mrd Advanced Finance Strategies we promote, is akin to assuming a taxi driver will always take you to your destination by the shortest route… safely!

You would have probably noticed of late that we have been offering readers and clients alike a no obligation, complimentary “Finance Structure & Cash Flow Health Check”. Many have responded and taken up this Customer Care initiative and as such, we are exposing more and more “crash victims”.

Good people unwittingly letting unskilled drivers take control of their financial vehicle.

CASE 1 – BARRY:

Barry is nearing the settlement of an investment property sourced through mrd. He chose not to use an mrd preferred broker (one familiar with the mrd Advanced Finance Strategies), preferring to use his local credit union. This is completely understandable as he had a long term relationship with his credit union. Barry was comfortable with their service, found them to be friendly and conveniently located near his home.

While friendliness and customer care are essential, there’s so much more to correct finance structure than familiarity and a warm smile.

Barry took up our “financial health check” offer; which was fortunate for him as he was quickly headed for a wreck! His local credit union had initially not allowed any funds for settlement costs, such as stamp duty and legal fees. If we had not intervened he would have arrived at settlement about $12,000 short; that is with just enough funds to cover the property purchase only. This could have resulted in him being charged penalty interest while he madly rushed around trying to find the extra funds required.

It doesn’t end there; the credit union was also…

In the process of mixing private credit card debt with Barry’s home loan

Refinancing an existing loan back to themselves; i.e. replacing an existing loan with an identical loan. This added no benefit to the client but would have incurred another round of establishment fees etc… payable to the credit union

With Barry’s permission, we sent the credit union instructions (in “chapter and verse”) as to how to set the loans up… and they still got it wrong.

Someone from this office then had to educate the loans officer just to ensure Barry was given the correct finance structure!

It didn’t end there…

Round 2! The credit union then planned to mix investment debt and business debt in with his private home debt… and continued insisting on (unnecessarily) rewriting their home loan with an identical loan.

Throwing petrol onto the fire… they had cross collateralised their home and the investment property. With a pending settlement on his doorstep, Barry had no time to lose.

The instructions back to the credit union were simple:

Leave the existing loans as they were and create a single new loan to take to settlement that would have been sufficient to settle leaving about $4,000 in the buffer for their next year’s expenses.  Once the year is passed and the break fees reduced they will be looking to finance away from their local credit union; this time accepting our friendly suggestion that they use one of our preferred brokers.

This story had a happy ending, thanks to Doug… and a potential crash victim was saved!

CASE 2 – MARK:

Mark also chose to use a broker he was familiar with; someone who had an ongoing relationship with his place of employment and offered a bonus interest rate discount, due to this relationship. As it turned out, the discounted rates were similar to the big banks rates anyway.

Much to Mark’s disadvantage the broker encouraged Mark to take out fixed rates; some as high as 8.78% for 3 years.  mrd, knowing the dangers of fixed rates discouraged Mark from using them… but we failed in our attempts to overcome his brokers persuasion. The odds are really against you winning with the use of fixed rates; 87% of the time according to statistics. The benefit of fixed rates for the broker of course is that they are locking in their commission for 3 years as it is too expensive for most clients to escape from.

The total cost of cutting this victim out of the wreckage (moving him from a fixed to a variable rate) is in excess of $50,000! This was a very expensive crash!

This broker advised Mark that he had the borrowing capacity for two investment properties. So, armed with that professional advice, Mark proceeded to unconditional status on two properties. Some months on, interest rates have dropped rapidly… yet Mark is left paying more than $20,000 a year interest above what he would be paying had he accepted our guidance up front. He can swap from his fixed loans to variable… but it will cost him in excess of $50,000 up front to do so.

The fight continues! We have no happy ending here just yet… Doug is busy trying to cut this victim free from a mangled wreck.

CASE 3 – LAURIE:

When Laurie approached mrd he was trying to refinance an existing (non mrd) investment purchase and was looking for additional funding to buy another through us.

When Laurie financed his 1st investment property, he fell victim to a type of loan referred to as a “cash flow mortgage”.  These loans capitalise part of the interest back into the loan, reducing the initial cashflow requirements. The loans rely on continued capital growth.  After a few years people with these types of loans have to start paying the full interest rate. The early years of capitalised interest means they are now paying full interest and off a higher base. Obviously, this can place a heavy burden on some. Capital growth is predictable long term but less predictable short term.

NB: The overall interest rate associated with these types of loans is higher than you can find elsewhere… so “buyer beware”!

To assist with cash flow, Laurie had converted his existing investment property to student accommodation… but this made it undesirable in the sight of lenders. Struggling to find a way forward and build wealth for his family and wanting to please his wife who had her heart set on finishing the renovations on their home… Laurie asked for an mrd Finance Structure & Cash Flow Health Check

Next step… Doug and the mrd preferred broker go to work…

The broker worked tirelessly to find a lender who would accept the (student accommodation) property; eventually succeeding to refinance this loan with a mainstream lender. Laurie’s new loan came with a greatly reduced interest rate and a provision of funds so that he and his wife can complete their home renovations.

• Their expenses are now much lower than before
• They can breathe easy
• His wife is happy that the renovations are again on the radar
• With the added value these renovations will add to their home, Laurie will soon qualify to consider his next investment property; should that remain his goal
• With the lesson learned from this experience, Laurie has now converted his property back to a “normal” residential house

Thanks Doug… another crash victim has been saved!

CASE 4 – CRAIG:

Craig had been a student of various investment strategies for some time. Having taken some steps of his own, he secured a few cheap, older properties. Initially coming to us curious as to what the mrd Advanced Finance Strategies may reveal, one of our preferred brokers worked with Craig and put forward a proposal to deliver the objectives Craig was looking for:- Remove the cash flow strain associated with supporting his property portfolio from his family, so as to allow him to continue to build wealth for his family… without having to live like a pauper.

In reviewing his situation, Doug identified huge opportunities that Craig was not taking advantage of.  We put together a proposal that allowed Craig:

• The ability to meet his initial objectives
• Add more than $1 million dollars worth of property to his portfolio

While Craig was yet another victim of a poor finance structure… the greater loss was an opportunity cost.  Assuming that the $1 million additional value to his property portfolio doubles over 7 years (historical average), their wealth will now increase by an average of more than $142,000 per year each year for the next 7 years*!

* NB: A property that doubles in value over seven years, will probably experience five years of little and no growth, followed by two years of phenomenal growth; that is growth is normally not linear.

Craig is already better off… but the real gains are still ahead of him. This all came about without costing Craig a single dollar:

• mrd undertook this as a part of our Customer Care Program
• The new properties will settle without the need of a cash injection
• The mrd Advanced Financing Strategies have positioned Craig such that he will soon hold an extra million dollars worth of property in his portfolio for less money than it cost him before the $1 million was added

This was a massive wealth creation opportunity that only came to Craig’s attention because he responded to our offer of a no obligation, complimentary Finance Structure and Cash Flow Health Check.

Well done Doug! Not only have we saved another crash victim, you topped up his fuel tank allowing his (property) vehicle to take him further!

CASE 5 – Peter:

Peter had never had any dealings with mrd. He was referred to us when he was wanting to sell a property.  This one was a sad case of injustice… Peter was not just a victim of poor finance structure… but of ruthless financiers and predatory marketers!

Peter and his wife live in country NSW (probably under water right now). To us they are typical of hard working, honest (‘as the day is long’) country people; the backbone of this wonderful country!

Peter had developed a skill-set over his working life… but that skill-set did not include knowledge about property investing or finance.

His goal was to build a retirement fund through property investment, to provide an income for his family that did not rely on government assistance. To achieve this, Peter needed the support of someone who would supply the knowledge and experience that he lacked.

Guess What?

Rather than finding support from someone who cared… Peter ran into some of the rogues that are prevalent in the real estate and finance industries. Would you believe me if I told you that Peter “fell for” a group whose guidance served their own interests; rather than Peter’s?

Of course you do… they’re everywhere unfortunately!

Peter settled on a property that was sold to him at an inflated price. I can say that because mrd was actually offered these very same properties when they were first released to the market by the developer. We turned them down; based on price only!

The property was fantastic and in a great location… just not good value! To have lost a bit to an overpriced property would not have been so bad. It would not have caused him to crash… rather slow him down a little (property is very forgiving if you just wait).

His real crash came from the finance arrangements.  The marketers and the finance company combined to get every cent they could out of Peter; whose existing loan was with the CBA.  It would have been very simple to finance the investment property also through CBA on a good interest rate… allowing Peter to achieve his goals. This is exactly what should have happened! That wasn’t good enough for these vultures (sorry, I have no idea how to be gracious in these unjustifiable situations!).

They refinanced his own home; which was of itself completely unnecessary… and tied the two properties together with high interest rates and heavy break fees.

Peter was a goner the moment he signed the paperwork!!!!

It was only a matter of time before Peter got into trouble with the loans.  Anyone with a conscience would have tried to help these “Aussie battlers”… but instead they all lined up to make sure they got their commissions and fees out of Peter.  The final straw was them taking over the property and evicting the tenant to ensure Peter could not recover. Not only was his investment property in danger but also his own home. The vultures were circling.

It was at this time that mrd became aware of his plight. Along with our experienced brokers and Peter’s solicitors, Doug and I worked tirelessly trying to rescue Peter’s investment property (i.e. help him to hang onto it)… but he was too far down the legal path for it to be saved. The best we could do is counter the remaining blows being thrown at Peter and ensure he salvaged whatever he could from the wreckage.

We were able to minimise his losses and ensure he kept his home; something he very nearly lost also! We were also able to assist Peter in lodging a formal complaint with the regulatory authority about the finance company involved.

In this case, Peter lost the investment property and was (temporarily) derailed from his financial goals… but his home was saved… and he is still alive to have another go at a later time. Had Peter come to us earlier and requested a complimentary Finance Structure and Cash Flow Health Check, we would have been able to identify the issues involved and intercept them before the crash. This was not to be!

Peter’s was a story with “as happy an ending as was possible”; in the 11th hour… thanks again Doug!

If you have not had personal dealings with mrd… you would be forgiven for thinking we are “just another mob out of Queensland flogging any old property to whatever sucker comes along”. I challenge you to test us. We know we’re different, but you never will know until you experience the mrd difference. I am so proud of the wonderful and dedicated team that I lead. If you suspect that mrd may be able to add some value to your wealth creation journey, then click here to request a no-obligation, complimentary “Finance Structure & Cash Flow Health Check” for yourself.

Happy Investing,

Nick Lockhart
mrd Customer Care Program… because investing is personal