Property investing has rarely looked more seductive—or more dangerous. In this episode, Veronica and Chris unpack the growing gap between how property portfolios are being sold and how risk is quietly stacking up beneath the surface. As regulators tighten lending rules and banks pull back, the question isn’t whether the rules are changing—it’s whether investors are paying attention.

The conversation dives deep into aggressive lending practices now under scrutiny: trust lending, SMSF borrowing, equity extraction, and the promise of “instant equity” through optimistic bank valuations. Veronica and Chris challenge the idea that buying multiple properties fast is a strategy, exposing how many portfolios are built on valuation certificates rather than fundamentals—and what happens when interest rates rise, rents soften, or lending conditions tighten.

They also examine the uncomfortable incentives driving this behaviour: buyer’s agents rewarded for volume, brokers pushed to maximise borrowing capacity, and everyday Australians—often in their late 40s and 50s—being sold complex structures they don’t fully understand. From regional markets distorted by borderless buying to SMSFs loaded with illiquid property, the risks are not theoretical—they’re already unfolding.

This episode is a warning shot. If your strategy relies on constant refinancing, rising valuations, or ever-looser lending, this conversation will force you to rethink it. Because when the cycle turns, the consequences won’t be shared evenly—and paper equity won’t save you.

Episode Highlights

00:00 — Introduction to Property Investing Risks

01:11 — Regulatory Crackdown on Risky Lending

01:46 — The Role of Buyer's Agents and Brokers

03:19 — Trust Lending and Self-Managed Super Funds

12:19 — Instant Equity and Market Manipulation

18:40 — The Pitfalls of Following Bad Advice

24:28 — Questionable Advice from Buyer's Agents

25:32 — Judging Awards and Industry Practices

26:16 — Vulnerable Investors and Risky Promises

27:13 — APRA's Role and Investor Lending Trends

29:31 — Superannuation and Property Investments

35:32 — Private Lending and Market Risks

42:53 — Cross Collateralization and Loan Structuring

48:54 — Conclusion and Final Warnings

About the Host

Chris Bates is a mortgage broker and co-founder of Alcove, working with clients across Australia to help them navigate complex property and lending decisions. Known for his data-driven approach, Chris specialises in long-term strategy, lending structures, and helping buyers avoid costly financial mistakes.

Veronica Morgan is a buyer’s agent and property strategist with nearly two decades of experience advising owner-occupiers and investors. With a background in research, data analysis, and on-the-ground buying, Veronica is widely respected for cutting through market noise and focusing on fundamentals, risk, and long-term outcomes.

Together, they bring a practical, evidence-based lens to Australia’s property market — challenging assumptions and unpacking what actually matters.

Resources

1. Visit our website: https://www.theelephantintheroom.com.au
2. If you have any questions or would like to be featured on our show, contact us at:
3. The Elephant in the Room Property Podcast - questions@theelephantintheroom.com.au
4. Looking for a Sydney Buyers Agent? https://www.gooddeeds.com.au
5. Work with Veronica: https://www.veronicamorgan.com.au
6. Looking for a Mortgage Broker? alcove.com.au
7. Work with Chris: chrisbates@alcove.com.au

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See you on the inside,

Veronica & Chris

TEITR 419 (Risky lending & investing)

===

Veronica: We unpack the lending practices and investor behaviors that have been flourishing in recent years and why regulators are now stepping in from APRA's crackdown on risky lending To CB, A and other banks tightening on lending to trusts and increasingly loud voices crying out about poor quality, property advice and buyer's agent practice.

Veronica: The message is clear. The rules are changing. Not a moment too soon, ​

Veronica: Instant equity never materializes. For investors who've built strategies on optimistic assumptions and glossy forecasts, the consequences could be severe and not evenly shared between advisors and clients. Alright, Chris. ~Um, ~this isn't a discussion that you and I have been having off air for some time.

Veronica: You know, and we are looking at it from both sides. From the property advice and buyer's agent side, and also the lending side. Um,~ Um, ~let's start talking about when regulators have seemed to have noticed what we've been noticing,~ um,~ for quite some time. So regulators start cracking down. Banks starting to pull back at the same time.

CB: I think, um,~ um,~ in terms of, for the people that have been following along at home, they probably picked up in episodes that we've talked about. This Ben Kingsley episode was a, was probably the precursor that, you know, we were talking a lot around. The risky borrowing or the risky purchases that investors are making and the scale at which they're buying.

CB: ~Um, ~and you know, if you look at the a FR sort of not rich lists, but the a FR fast starters, you can see many buyers agents on there, and some are. You know, got huge amount of revenue. ~Um, ~which is fair enough, they're businesses and, you know, good on them for,~ um,~ growing their businesses. But I guess when you look at the size of the revenue and divide it by a buyer's agency fee, you can see the amount of scale that they're actually buying at.

CB: But it has gone on,~ um,~ off the scale I think in recent years. You know, particularly access to ~ um,~ these, um, type of buyer's agents sort of, you know, through channels like YouTube or podcasts you know, not just through, you know, ~um, ~people sort of searching online. They're sort of finding their content and um,~ um, ~yeah, so that's been a concern I think on internally as obviously we have mortgage brokers.

CB: Really? Like, and I, and I keep getting shocked, particularly in the non-banking space,~ um,~ not only around trust lending, but self-managed super funds. And so, yeah, I, I think that was brewing. And then Ben Kingsley had a chat with us. And then literally straight after that, Macquarie came out who was probably one of the ones who had more of the relaxed policy lending around trusts.

CB: They said, hang on a sec, we've got an issue here. ~Um, ~and then they said they changed their policy and they came and changed it again a week later realized it wasn't hard enough and CBA pulled out So yeah, this has been, um,~ um,~ obviously a story, but a lot of people have taken it up and a lot of people have geared up hard this year, particularly if they go to these type of.

CB: So yeah, it's, it's a lot going on. I know that was a long start to this podcast.~ ~

Veronica: ~Um, ~I've seen it in LinkedIn. I've seen it elsewhere, of course, but one of the things I've really noticed in LinkedIn, and this is before Ben,~ um,~ penned that letter, the picker letter that we discussed in that episode, which will put the link in the show notes to that episode if you wanna hear that.

Veronica: ~Um. ~So what I've been noticing is a lot, particularly from brokers, right? So I know that buyer's agents and these investor focused buyers agents, I know that they like to buy multiple properties, and I've always looked at it as being, well, they look at the total borrowing capacity and they sort of carve it up.

Veronica: Because let's face it, both the buyer's agent and the broker benefit from this, You know, the broker gets ongoing,~ uh,~ trial commissions from more loans rather than just one that they can afford in their own name. ~Um, ~obviously the buyer's agent's taking, taking a fee every time they buy a different property.

Veronica: They don't just charge you one, one fee and then, okay, well, well, your budget, we can buy three. So it's the same fee as if we buy buy one. ~Um, ~so they're sort of motivated also to go for the volume. There's inherently a lot of very unsophisticated. Investors, which I will say there are a lot of people out there investing in property that are not what you call a sophisticated investor.

Veronica: So, you know, you can. Feel and understand how the message really appeals to sort of middle Australia, particularly a particular sort of cohort who have acquired some equity in their home and sometimes a decent Superfund balance as well. And these advisors. In sort of cohorts with the mortgage brokers, get their, be little eyes on these balances and think, what can we do with that?

Veronica: And so, you know, and this is Ben's Kingsley's letter was really. Identifying where that breaks the law, because that is financial advice and even implicit, you know, even sort of suggesting that, oh, it's a good thing to do because I've done it, is against the law, but it's, so many people playing in this space are unaware of that, or they don't care.

CB: ~um. ~not that I wanna talk down the broking world. ~Um, ~you know, brokers have been very, very good for Australians. ~Um, ~overall very low complaints. ~Um. ~In the scheme of the overall financial assists? Yeah, well, within the, you know, in terms of the track record and market shares dong from when I started 35, 40% to 80%,~ um,~ bank net interest margins have been dropping.

CB: You know, hence why they've been whinging in the papers saying they're not making enough money and they're lending money under cost of capital. And, you know, now we've gotta fight back 'cause these brokers are making us, you know, less profitable. ~Um, ~now we're gonna have our own teams, like brokers are highly successful and they play a great role.

CB: And creating competition in the marketplace. However, this is where I think brokers need to be really careful and they, they are stepping down this with, they just don't know what they don't know. I mean, I've had lots of brokers over the years come to me and go, yeah, ask me about property, and so I'll just stay in my lane.

CB: You know, like this is what the old advice, you know, risks or do you really wanna buy like another one out there? Like it doesn't seem scarce. It seems like it's, you know, like maybe you should reconsider your strategy and try to find some partners, but buy property, um.~ um. ~And our mortgage brokers just weren't really interested in building relationships, like deep relationships and going on that journey of property knowledge.

CB: I think it's like they, they sort of quite like the, well my job's to get the finance, the customer's jobs to decide what they buy. And I don't think that was enough. I've sort of been trying to get them to say, well, no, like if, they're making this decision and you can see that they're a couple and they're thinking about having kids and they're spying all these properties.

CB: When they should have just prioritized buying a home, you could see that that was gonna be an issue three, four years down the line. Then they have to sell that to buy something to live in. And that was a whole waste of time.

CB: Well, not really around their properties. I mean, they, they might go into arrears obviously, you know, it might, I mean that they sell the property and then there's a clawback for the broker if it's in the first two years. But overall, like whether the client makes more money or not doesn't really affect the broker.

CB: We are not tied to that. Right. Obviously, it's good business because if your clients make good decisions, they do well then. Obviously they're gonna be like, okay, well what's my next decision At compounds, you basically get clients for life and they're like, oh, you really helped me with that decision. You stopped me making a mistake.

CB: I'm not gonna go anywhere else 'cause I trust you. Like that's been our business model.

Veronica: it's, that's the same in buyer's agency though. I mean, but the problem with buyer's agency, we don't get retail and commissions. We just get the one-off lump. ~Um, ~but again, you know, the consequences aren't for a buyer's agent if the client makes a bad decision that a little bit more direct.

Veronica: Like it's interest for the wrong reasons. And it's sort of going for this, transactional,~ um,~ Accumulation type of interest and that that's, extraordinarily dangerous. I, I've drawn comparisons a number of times between sort of what's happening out there in borderless buyer's agent space and this sort of multiple purchasing and building portfolio space.

Veronica: I've drawn comparisons between that and say the mining boom, that was about 15 years ago now. That was catastrophic for a lot of people. That mining, boom, the market was full of spruikers. There was all this hubris, there was all this excitement about, the fact that you go to any, Barbecue or dinner party, and some will be talking to you about this crazy property, that decision that they made.

Veronica: Well, we call it crazy now, but you know, they were talking about ridiculous, like yields of 12% and capital growth of, you know, doubling every year or two. You know what I mean? It was, it was madness and you felt mad if you didn't take part in that. You know, this frenzy that's going on in many, ~um.~

CB: ~Um, ~yeah, we can, I think, I think you're right. I think you, these. Me these flavors. I think what happened is brokers are now competing with brokers, right? Because it's, you know, it's not us versus stealing clients from the banks. It's like. And that was easy, right? And that's what the broker industry's been built on.

CB: It's like, oh, actually no, when a customer comes to you, they're comparing multiple brokers. Like that's just the way it is nowadays. Like, and the customer's saying, well, what can you add? You know, what's the value proposition? I think what brokers are doing is they're saying, oh, okay, I want to add more value to you.

CB: But then they don't know what they don't know. Then they're like, oh, I can leverage you up. You want to invest? I can do, and I think the value add is just like exploring this way fund, you know, maximizing, borrowing capacity. Unfortunately though that. When you've got this increase in ation, we used to always get emails calls, can you sell our developments?

Veronica: explain what that is. Let's explain. Explain what

CB: Yeah, like I think that the issue is right now is that, and a buyer's agent will buy it, they will say it's under market value. No, it's not under market value. You just bought it at market value. You can't,

Veronica: Whatever you paid is market value.

CB: like that's market

Veronica: Well, actually, often it's over market value and we can talk about some examples that I've heard about that too. But anyway, so that you paid what you paid, then what's next?

CB: It's in the bank's interest, by the way, because the bank's interest is like, oh, you get a high vow, you're gonna do your loan with us, because all investors are trying to get the highest value. They're looking at rate, but they're also looking at the highest value. So I don't know, I'm not gonna open up that can worms, but what they do is they.

CB: Get the purchase. Six months later they order a vow. Say, Hey, you bought for 500. I got your bank bill at five 80. You've made 80 grand in six months.

Veronica: Instant equity uplift.

CB: exactly. And they can actually access that equity because if they've got their borrowing capacity, they just go to that bank. They do a reval, they release up to 80% often sometimes also going paying lenders mortgage insurance.

CB: And like ever since you look at my portfolio, look at my client, it's like, yeah, but it's been done in a certain market and it's kind of been forced up. It hasn't been driven by long-term fundamentals.

Veronica: And there's two ways they do that. they either buying inner market's already on the rise, like Perth. ~Um, ~and all their, you know, which is, so there's genuine price rises in a, in a city such as Perth and such as Brisbane. ~Um, ~or they're buying in regional markets where they are buying at scale in those regional markets.

Veronica: And,~ um,~ they are the ones responsible for the instant equity uplift. Like in fact, ~um. ~Every time I go to an re i, new South Wales event,~ um,~ um, because I'm on one of the chapter committees there, I talk to the regional sales agents and you know, like I actually saw on LinkedIn too. A Wagga buyer's agent was talking about this same practice.

Veronica: All the others, every single property bought sight unseen. Every single property bought for more money than locals would pay for it. Every single property,~ um,~ done bought on the strength of an agent's WhatsApp video. The agent or a property manager in their agency did a WhatsApp video. And they're laughing.

Veronica: they like why it was so unnecessary, but they made this offer and then, then they see it in the marketing that they've, you know, they're buying in an area that's just had this growth. And they're like, well, they're pushing prices up. Like quite literally, they're not even, it's not even demand, it's them.

Veronica: Not negotiating. So this is really awful. And it seems to be, there's a, there's a system to it. And this is the thing. It's, at first I just thought it was a bit random, but I think there's actually a way more of a system to this,~ um,~ than I was Would've even dead thought.

CB: You haven't got the same situation, whether it's a, a couple versus a single, whether it's a high income versus a medium income, whether it's you own a home or you don't own a home, like, you know, you can't go back in time and recreate what that are. And, finally, is it even true? Like, is it, and you don't know?

CB: and there's,~ um,~ I've known that more than anyone in recent years that,~ um,~ a lot of people don't say the truth. And,~ um,~ you know, you, you obviously, when you think, you know, your, your view on the worlds, often you look for the good in people. Let's say you're that type of personality, you often want to make believe that people are saying the truth.

CB: And they're doing, you know, hundreds potentially. You can see that they can have a huge amount of income, which is allowing them to leverage much further than you can. Particularly if they can do thi they do other things, you know, in terms of different structures, or they do these JVs, they say they own it.

CB: They don't, they own a fraction of it. They do it. They're part owner in with 10 other buyers in these properties. ~Um, ~and they pretend that they own a hundred percent. And so I think there's lots to be careful when people start banging on about how well they're doing around their own portfolios. And the reason they got there is because of the a hundred percent due to their property decisions.

CB: Often it's not student running a very successful buyer's agency. And often the number that they're telling you isn't true. They're faking it,~ um,~ to make you believe that. ~Um. ~It's really hard to go and cross-reference these things,~ um,~ because they're not just gonna give you all their addresses for all their portfolios and shows their debt and things like that.

CB: When did you buy there? When are you gonna sell? Are you gonna tell us to sell when you are selling? Like, ~um, ~and that's the other thing with these, they go in there and they say, you ask them, we find it really hard to find people to trust under about a million dollars nowadays, like a purchase price.

CB: Because like you are, you're not getting in any of the capital cities into the housing market. You're struggling to get into the high end, like, you know, apartment markets maybe in Melbourne, like there's some decent stuff under a mill, but you really struggle in sort of, you know, Brisbane and Sydney,~ um,~ even Adelaide or Perth.

CB: ~Um, ~and so there's often this under a million we find, who are we gonna refer to? And we just, we find it really hard to find who we can trust,~ um,~ and. ~Um, ~yeah, so I think that's my, I've got lots of concerns around this and we as a business have said, oh, we haven't done as well financially this year with our loans because we haven't got access to this part of the market that's really hot.

CB: We haven't encouraged people to buy in these like riskier locations. And there's a risk of investors sort of fleeing. ~Um, uh, ~

Veronica: ~Um, um, um, Uh, Uh, ~

Veronica: I'm on a personal mission to help more people make better property decisions. You know, most people don't realize that they can cost themselves hundreds of thousands of dollars over the medium to long term when they make property decisions without all of the information that they need. And what I do is help people with tricky real estate problems, which offer masqueraders simple questions like, should I sell my investment property because the interest re payments are hurting, or should I buy before I sell?

Veronica: Or ask me for introduction to the small group of buyer agents that I would personally recommend across the country. That's Veronica Morgan dot com au.

Veronica: If you're considering a property move, which is buying your first time, upgrading, renovating, or investing, the team here at Alcove would love to help you think through your decision and get the finance right.

Veronica: Please go to cove.com au to reach out.

Veronica: Uh, well, there's two things I'll talk about.

Veronica: And some of them, uh, ~ uh, um, ~one of the ones that they'd met with had been around quite a long time as well. This isn't all just the newbies

CB: Yeah, there's a whole, there's a cohort that have been doing it for a while. Yeah.

Veronica: Yeah. And they said, look, something just doesn't smell right. Veronica. Like, and I'm like, oh, thank God you came to me.

Veronica: Thank God you came to me. ~Um. ~Look, I've re, I've referred them to some reputable buyer's agents in Brisbane and Melbourne and I haven't put together a, a portfolio plan for them 'cause I don't necessarily believe in that, in a, in a sense. But I want them to diversify.

Veronica: They wanna diversify. I want 'em to buy a grade assets and I wanted them to talk to the buyer's agent. ~Um, ~in Brisbane that I recommended and the buyer's agent in Melbourne that I recommended they speak to, 'cause I wanted them to understand what, constitutes an A grade asset for an investor in these markets?

Veronica: You don't have to do it all at once. ~Um. ~and don't be buying multiples. They were sort of advised by one buyer's agent who, apparently never spends more than 750,000 on a, on a property. I don't know how you sort of set that figure when a rising market anyway, but,~ um,~ they never spend over $750,000 on a property.

Veronica: It's like, you know, I can get you great returns from that. And, and, you know, showed all his examples. It. you know, maybe there's some good stuff in there, but like, it just didn't look to me like it was being bought in areas where you've got good upward pressure on capital growth, you know, but the, big alarm belford them was, it was a one size fits all strategy.

Veronica: 'cause they're focused on the volume of property, the volume of transactions, and there's nothing in there about long term. There's nothing in there about asset selection. There's, it is all about location is more important than the asset. Not understanding the two go hand in hand, you know? It actually, it really does.

Veronica: that is one of the most, I think, vulnerable cohorts in this country at the minute, because they are just sitting ducks for the promises of these brokers and buyer agents. It's really. Really horrific. ~Um, ~that's why we wanna talk about it because this is becoming so much more obvious and it's becoming more widespread, but at the same time, the voices are starting to get louder that are recognizing what's going on.

Veronica: And we just wanna add to that the word of caution, just please don't go down this path.

CB: Yeah, I mean, I, we, at the start I was talking about love, CBA and I, I sort of completely forgot about Ara coming in. ~Um, ~I mean, I did a post like. While ago on, Hey, I think APRA's gonna step in and stop investor lending. I was like, just, you could see just with the, you know, totality monthly, they do a percentage of lending's investing and it was just way higher.

CB: And I'm looking at the, the sort of loan flows.

CB: Yeah. And then I can see it's, you know, in certain states it's obviously much higher than it usually, you know, is, and so what you're doing, and,~ um,~ that's not often where other investors are going. You're creating a glut of rental properties, not where the other ones are. I think we've spoken about that hundreds of times on this.

CB: But you can also see loan flows through the banks and a BS do figures as well. So you can see exactly the amount of investor lending coming. And ~um, um,~ you know, and I think you're right, like a lot of those people aren't, say the, the couple young family, 'cause they've leveraged up often into their home.

CB: It's usually maybe a little bit later the kids are getting a bit older. That sort of num magic number of 50. ~Um. ~So I'm 39 this week, so the forties coming for me. But I mean that magic number of 50 is kind of like a,~ uh,~ uh, oh, we better get going. Right? And like it was when I was in the financial advice where we get so many clients,~ um,~ some come early fifties, but often they think they should do it then, but they don't come and see the advisor till maybe mid to fifties, a 55 number.

CB: We've just focused on getting the kids through school and now we've gotta really focus on our retirement. We've got a house, we've got heaps of equity in it. We've got our super balances have gone up quite a lot because just naturally super and they've been on reasonable incomes and so they're super balance quite a lot, but they just feel like there's a gap.

CB: And this cost of living crisis is only amplifying that. Right. Like. God, look how much we're spending. We've gotta have to prepare for our timers. Like, you know, we're spending so much just to live. ~Um, ~it doesn't matter if we're mortgage free, we need a decent income. And I think those two things go hand in hand.

CB: It's like ridiculous. Like you shouldn't be able to borrow that much. ~Um, ~

Veronica: What's the LVR now?

CB: well it's not the LRV more than multiple times your contributions you know, and the way that they assess that and the way that they will, you know, even if you're not contributing it, you can kind of say that you are.

CB: And then even if you want to need to top up your super fund, you can sort of show, say you're gonna do it. ~Um, ~and like basically, so you could leverage like, you know, say four or five times your contributions. You couldn't buy that much in super before. So I'd be like, okay, you can consider it, but what are you gonna buy for that price?

CB: And you're gonna punt your whole superannuation on this type of property? And then everyone's like, oh, okay, I'm not gonna do that. I'm like, yeah, cool. But now it's like, oh no, now I can borrow, you know, a million bucks. Oh, I can buy a good asset. Oh, okay. But then it's like, actually no, you still gotta pay that mortgage.

CB: You still gotta cover that shore for you gotta top up. So you're basically still punting everything on one property.

Veronica: But,~ um,~ the other thing that I think, and I did not even realize this until I heard this on Stuart Williams podcast, invest Ly was talking about that when you get to the age, the, the pension age, where you need to draw down a pension from your super balance, you need, it starts at 4%. You have to draw that down every year.

Veronica: Now, if you don't have enough liquidity in your fund, and generally speaking, you're not gonna end up with 4% net after costs of rent, even if that property is a hundred percent debt free. if that is all you have and it's paid off, you're gonna struggle to, ~ um,~ fit that criteria and then you're gonna be forced to sell it.

Veronica: And then you could be asking what's the point of having it? That's apart from the fact that I've seen so many people that have bought off the plan and new house and land packages in their super,~ um, uh, ~um, uh, anyway, it just, I obviously can't advise people on what to do with their super, but I can say that there's a, in terms of property, go and get some advice from an, an expert on this before you go down this path.

Veronica: And I also warn most people don't, not to do it. Don't buy property in your super, Hey, I'm a property person and I'm, please don't do it. Please don't do it without really good guidance. Now, for some people it's, I've done it myself, right? Some people is the right thing to do, but I also did it a long time ago.

Veronica: It seemed to die off and the buyer's agents are back out, spruiking it again. So it, that is a really, really scary area in my view.~ ~

CB: ~um,~ yeah, I mean the broking world is, is it's, banks are very risk on,~ uh,~ I know that people say, oh, you know, banks don't wanna learn, and it, they have got way tighter. Like they,~ uh,~ you know, compared to when I started. I've said this story probably a hundred times outta 400 episodes, but you know, it's decreased way less, you know, you can borrow way less, but I have seen the last two or three years to lending as tight as it's ever been in terms of multiples of incomes and banks being banks just need to lend more money.

CB: Right? That's, they're all got shareholders, they've all got, you know, people that they need to answer to and credit growth. and, and the mortgage is like the backbone, right? Like the mortgage book and you know, that's what they're judged on. And if that's growing at what you call market rate, like the rate, everyone else is growing, or if it's not hitting market rate, you are losing market share.

Veronica: But they've already done that and they've already tried the, you know, two grand to, to switch and all that sort of stuff. And they've realized that if they can do it, so can the other bank. And then it just becomes a costly exercise in swapping clients.

CB: That's right. Exactly. That's right. So they all pulled outta that. That's right. They all like the cartel went, no, no, no, no. We're all losing money. Why are we all doing this? Let's all step back. And they, but they have seen that they're relaxing credit policy, you know, 40 year loans have come out. Obviously all the non-MEC are coming in here.

CB: A lot of the, you know, which is Macquarie and other banks have sort of come outta the trust lending. ~Um, ~but you know, it's not to say that we just, you know, but they are looking for little niches and is definitely risk on, like exceptions are going through. You know, and low dock loans is a bit of an issue.

Veronica: So would you say that that, could you draw a line between that and this type of advice? You know, ways to increase your ability to build a portfolio quickly?

CB: ~Uh, ~I do think people are getting themselves,~ uh,~ uh, going down private lending. Yep. And they are doing it to, whether they're doing it to grow and do other type of more riskier lending. Or they're looking just to survive,~ um,~ because they're leveraged up and they, you know, need cash and their business isn't going anywhere near as good as it is.

CB: And, you know, they need to keep paying for these properties,~ um,~ or keep their business afloat or keep paying mortgages on things. So yeah, private lending's absolutely gotta a place where people can't borrow any more money and then they have to go to private lenders pay often much higher interest rates and application fees and things like that.

CB: So basically private lending, private cash.

Veronica: So when things tighten up, you know, when interest rates go up again, you know, rental, at some point they'll stop their rapid rise. ~Um, ~or they'll slow down or they'll even go backwards. 'cause that, that has happened in the past, right? ~Um, ~and I think to the mining boom when everything crashed at once. but if these people who bought, built these portfolios over a short period of time, they're sort of, it's built on a house of cards or built on the house of valuation certificates, ~ um,~ their cashflow suddenly gets tight, right?

Veronica: Even if they go do a private, uh, lender to get some money to free up their cash flow, they're just making their situation worse, right? They're gonna start to have, sell, sell these houses,

CB: So at some point the buyer's agents shift, right? So then all the people who have got properties in that. Then it's whoever's buying in there often is just the locals. Often home buyers or investors, the local investors are like, nah, nah, no way. I'm, I was out a long time ago. I can't even believe it's gone up to where it is.

CB: they, they're already beyond what they think. ' cause it's gone from 600 to 900 and the locals can't even afford 900 because their incomes haven't kept up that much and they think it's overpriced. 'cause they're like, not gonna wanna buy it at current prices. And then if you find the investors, start bailing now if they have to bail, because you're right, maybe if interest rates go up, they can't extend interest only terms.

Veronica: I've also got a bit of a theory on this as there's more buyer's agents coming in and they're starting to look for more markets, and they're trying to find markets that the other buyer's agents aren't already in. Now, data is a wonderful thing, but data can be manipulated and you can create a story. and also if you look at, you know, one of the things that we have done in the past, we've looked at past behavior.

Veronica: Now past performance is not the predictor of future performance, but we've looked at it in our core markets where we are buying. But we know these markets extraordinarily well, and they're not full of these. Sydney is not the target of these buyer's agents. So this sort of lending, so we're sort of a bit immune to this, but the thing is that it's sort of.

Veronica: Spoken about that. You look to the past and you think if this property has shown its potential to say doubling value over a 10 year period, for example, then it's got a good chance of being able to, to outperform other properties, other choices in this area. Right? That's one of the things that we have always looked at that's sort of commonly understood to be smart when you're buying property.

Veronica: But reversion mean, reversion means that it's gonna go back again. Do you know what I mean? Like you, you can see how the story can be, concocted. So then a new wave of different buyer's agents can move into an area that's that's left decimated from the last site and the whole thing starts all over again.

Veronica: this is. Something that I'm sort of developing this sort of theory that this could happen. Even the fact that, you know, I've, heard of these regional agents who are operating in areas that I wouldn't thought was necessarily,~ uh,~ a hotspot for an investor, not necessarily a robust economy, not necessarily,~ um,~ you know, diverse economy and not necessarily,~ uh,~ diverse by pool.

CB: ~um,~ I do think time, time will tell,~ um,~ and I do think some people are saying in this situation, oh, well, they've done well and. Have they though? You haven't? Like it's paper. It's paper profit, like, you know, it's not well to yourself. And the problem with property is that you just, it's not, it's, and you can access equity.

CB: This is one of the best things about residential property is banks will lend on it pretty freely, like we spoke about earlier on with bank valuations. And so you can access equity without paying any capital gains tax and then reuse that level, reuse it, lifestyle, use it to support other properties.

CB: Whether you invest it like. That's your call, right? But you can access it. But that doesn't mean that it's worth that. It's just a bank valve when it's, what's actually the line in the sand is when you actually sell it one day. And I think that's where I think, you know, people will start to go, hang on a second, I'm worth this.

CB: ~Um, ~because the ones who got in early can usually sell a few things to get through. ~Um, ~and then they get, and they, they, they can, they can basically take on a couple of losses, you know, if they lost 200 grand on something, that's okay. They can sell something else. They can get out of it. And it's like, yeah, I'm okay.

CB: I didn't make it. If they've got the ability to, to ride that wave, it's the ones who get in last, who get cut, you know, stuck carrying the bag Really.

Veronica: Also in terms of risky lending,~ um,~ 'cause that's one that, you know, we're talking about risky lending and investing practices here. ~Um, ~okay, so go off outside the big five banks. Let's call it the Big five banks. Now,~ um,~ you continue to do your trust lending and continue to use non-bank lenders, and you can continue to do it that way.

CB: So look good. Brokers won't do this,~ uh,~ particularly if you're buying risky assets like, you know, and it doesn't mean that all your lenders, all your loans are with one lender and all your lender, your loans are with five different lenders. You can still be uncross ized, collateralized. Or you can be cross collateralized at the same level.

CB: It's just how you lodge the loan application. Yeah, exactly. And so basically the issue, you know, you can have,~ um,~ is when you basically combine all your properties together and say, Hey, I just want a facility that's secured by all my properties and I don't want to have separate loans, basically secured by individual properties.

CB: The problem when it's cross secured is firstly, if you get valuation issues, it sort of affects your li letting limit. Whereas if you had like unsecured, like each loan was by each property, if one vow drops, well only affects. That one, you can't borrow any more money against that property. And,~ um,~ whereas you, if another property goes up, well you could that release equity on that one.

CB: So it protects you if one of your properties falls in value as well and allows you to still access equity. Whereas if you've got this like total limit, if one goes up or one goes down, well that means you might not be able to borrow any more money. So it's just another way to protect yourself. It, it allows you to be a bit more flexible with lenders and maybe do, you know, four or five properties here, and then you do another one at a different bank.

CB: It just gives you way more flexibility. The, the dream that the, the major thing, what people talk about is if, you end up defaulting your loans, the bank will just sell your best asset, which is usually your house. If they wanna recoup their money as fast as possible, they won't ever sell it in the market.

CB: And,~ um,~ yeah, so that, that's what good mortgage advice is. It's sort of strategizing and going, how do we not only give you the amount of credit that you want, but we structure in a way to protect you the most and increase the most tax efficiency with it. The most tax deduction with it as well. ~Um, ~but then also like we've, if we go back, we've learned, I think it's like 2.8 billion now as a firm.

CB: If we look at the amount we've used non-banks, I haven't looked, but it'd be under 5%. It'd be under, it'd be under that. It'd be, it'd be probably two or 3%. So we just don't, we, we just haven't got caught up with this because it's the natural option though with brokers is, oh, I can't, I've tapped out at the banks.

CB: And then all the other banks reprice their loans in 20 22, 3. After higher interest rates and people got stuck on rates, you know, 2% above market. ~Um, um, ~so yeah, we, we are very apprehensive on this. We just wanna make sure clients are, I don't think you need to, I think you could build wealth by still just using the majors.

Veronica: It's a long time since I've bought an investment property, actually, 'cause I've moved my investment strategy some time ago. I'm a bit older than you. Um.~ Um. ~So how does someone, if they've got their home and they wanna go and buy an investment property and they want to tap into the equity in their home, how does that work without cross securing it?~ ~

CB: ~Uh, ~so what you do is you, yeah. So what you just do with, without the property, just round numbers is so much easier, right? So property's worth a million dollars. The loan on it's 500,000. The bank would, you might do a little bit of a gain. You might get a four different banks and get a vowel at 1.1 million or something, right?

CB: That free 80 would sit in an offset account against that loan, so you wouldn't pay interest on it. And then we would set up a pre-approval at a different bank. IE might be St. George, it might be ING, whoever it might be at for investment property purchase. And then when you bought that, let's say you bought something at a million dollars, what we would use is the 20% deposit, 200 plus stamp duty 50.

CB: So what did you use that money for? I used it by an investment property. Okay. Well that's deductible. And so in this situation, they're not cross secured and you have got the full tax deductible debt on that investment property because, but it's just splitting two loans. You've got an 800,000 loan, you've got 250,000.

CB: Of the three 80 that you used. ~Um, ~and so that's just a real simple example. ~Um, ~rather than, you know, both loans, being at Macquarie and having 1,000,050 loan on that investment property, and then that loan being secured also by your home it's the same position, but it's just that you've got this tie up with your home, which you don't really want.

CB: ~Um, ~

Veronica: So thanks for listening and ~uh, ~we'll be back with another guest next week.

Veronica Morgan: If you have a question that you'd like us to answer in an upcoming q and a episode, you can send us a voicemail or written question via the website. The elephant in the room.com au. Or you can email us directly at questions at the elephant in the room.com

Veronica Morgan: au.

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