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It doesn't matter if you are at sea, driving to work or managing your mortgages. Risk management is always something that should be factored into your journey. The key to this is incorporating backups, alternatives, or Plan B's, for when plan A goes sideways.
If you have multiple properties, you have multiple risks, and therefore risk management is even more pertinent for you. What did Nana always say? Don't put your eggs all in one basket. Well, it is true.
Let me just rip this Band-Aid off right here and now.
If you own multiple properties and all your banking is at one bank, then you have failed in the basics of risk management.
I am in no way implying that your money is at risk from the bank going bust. You are however, at the mercy of that bank’s lending policy. And you may not receive a favourable outcome on the day when they come calling.
Take for example, the recent stories of banks using customer's house sale profits to pay off other mortgages, as proof of this.
We often build a property portfolio using the equity that has built up in property number one, to act as security for property number two, and then rinse and repeat. This is a great strategy, but it does need a little finesse.
If you use the same bank for multiple mortgages, your ability to borrow more is dependent on the whim of the bank you are at. Furthermore, the money you potentially receive from sale proceeds of one house depend on the bank's lending policy. Meaning you may not be able to walk away with 100% of the proceeds that you thought you could.
For example:
If you have one mortgage with Bank A, when you sell your property and repay the mortgage you get to decide what happens with the residual funds. Winning.
If you have two mortgages with Bank A, and you sell one property, Bank A gets to decide what happens to your residual funds, and whether they will use this to pay off your other mortgage with them. Potential losing scenario.
As a rule of thumb if you have two or more properties, then use two or more lenders.
If you borrow from multiple banks, this will give you more options for future lending and retaining profits. This is particularly important for those like yours truly, who are lucky enough to be over 50 ( .. okay, 55).Mortgage terms get shorter as you get older, so you need to manage this with a bit of strategic planning.
The key to all of this is to plan ahead, and plan at some level for the worst.
At times when we are surrounded by risk, let’s take all the steps to reduce what risk we can control.
GG.
About Graham
Hi there, I’m Graham and I started Velocity Financial nearly 20 years ago. I had for many years been running youth development programmes for The Salvation Army and I liked the idea of continuing to help people thrive in other areas of their lives. It started with helping first homebuyers, and I now work mostly with business owners. This is around planning, lending, and managing risk for them and their staff. I’m passionate about community and connecting those in need with opportunity. I’ve been very privileged to do this in my previous career, now in my business and also for 20years as a Trustee of the Te Aro Health Clinic. Our clinic delivers high-quality health care for Wellington's most vulnerable and I'm very proud of the fact that Te Aro is now an integral part of Wellington City Health system. I work in New Zealand's two best cities, Tauranga and Wellington. In Tauranga I swim, bike and run (maybe YOGA if I'm feeling particularly aware!) and in Wellington I mostly seem to buy my adult children dinner and drinks.
Disclaimer: Graham Goodisson (FSP95428) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Graham’s disclosure statement on our website.