Getting a Dream Loan with your Dream Home

You've bought the first home. You've got equity (probably more than you think). The kids need a playroom, the cars are getting old, and you're eyeing the upgrade. So what's the play — sell and buy, keep the first one as a rental, or something smarter?

In this episode, Bindi and Alex unpack the upgrade decision properly. Not the lazy version where you just rent out the first house and stretch into something bigger. The real conversation: what your equity is doing, what your borrowing capacity will actually let you do, and the six options most people don't realise they have.

What we cover

• BBQ Chats (new segment): "I know I've got equity — how do I actually get it out?"
• The two default plays — and why both are usually wrong. 
• The six-option triage. What a good broker actually walks you through.
• Why bridging finance has an unfairly bad rap.
• The borrowing capacity trap.
• The CGT-free window.
• Why people who sell-and-buy in the same market usually win — and why the ones who sell, then wait six months, almost always lose.

Stay in the loop 🎙 Show home → funded.finance/podcast ▶️ YouTube → @finance-butneat

Follow Alex 📸 Instagram → @alexwatson_funded 💼 LinkedIn → Alexander Watson

Funded Finance 📸 Instagram → @funded.finance

🎧 Subscribe to Finance, But Neat wherever you get your podcasts.

Finance, But Neat is hosted by Alex Watson, mortgage broker and director of Funded Finance. Information shared is general in nature only and does not constitute financial, tax, or investment advice.

Transcript

SPEAKER_05 0:00

G'day, ladies and gentlemen. My name's Alex Watson. This is Bindy Holland, and welcome to Finance But Neat, where we know that like a glass of whiskey, finance may make you cough and splutter to begin with, but if you get through that initial shock, you will enjoy the rest of that glass and the outcomes. It's a good analogy.

SPEAKER_01 0:20

It's good.

SPEAKER_05 0:21

It's a good analogy.

SPEAKER_01 0:22

I think it's actually great.

SPEAKER_05 0:23

How many times? And I'm totally guilty of this it probably took me 10 years to be able to actually sit down and have a conversation with Anna about money.

SPEAKER_02 0:32

Yeah.

SPEAKER_05 0:32

It took a lot of time for me to actually mature to the point where A, this is what I discuss all day, every day with everyone. And so to come home and have that conversation, one of the big fixes was removed that to the morning. I don't do it at night anymore, it just doesn't work. Yeah. Um, but just I like I was just a little bit arrogant and expected Anna to just know. Yeah. I think.

SPEAKER_01 0:58

So yeah, I've always looked after things. I think you know, you're probably the same, but when you're a banker, yeah, it's your job.

SPEAKER_05 1:05

Like everyone just we got engaged, Anna come in, we're opening bank accounts. Yeah. 240 Queen Street. Yeah. I think it was Michael. Do you remember Michael? Yeah. That's yeah, we don't need to get into that. Uh yeah. Oh man, I want to talk to you about that. Yeah. All right, we'll talk about that after.

SPEAKER_01 1:25

But today's topic. Yes. Uh, one that I'm really excited for. Yep. Uh, because I think it's it's relevant to people in our age group. Uh, you know, everyone's sort of on their own path as to when they do things. Um, but one of the things that comes up in in I think everybody's life is you've bought your first house.

SPEAKER_05 1:44

Um you can now it's time to get two new cars. And no, no, don't do that. No, don't do that.

SPEAKER_01 1:49

Don't my dad will be so upset.

SPEAKER_05 1:51

Um, no, you know, can I just say that for a second? I I think one of the biggest things of buying a first home, uh, and any first home buyers are going through that really hard grind period and tough thing that you, you know, at the moment you're going, hey, we're saving every little cent. Like we just spoke about it briefly. I've been there, I've done that, I've had the just moment where you finally do it and you're like, all those things that I've been putting off, I can now actually afford and pay for and do. Just delay the car purchase for two years. Yeah, the car. Just do it, do the car purchase for 18 months. It will kill your finances. And it's so easy to get car loans when you own a property.

SPEAKER_03 2:28

Yes.

SPEAKER_01 2:29

Yes, well, that that's the thing, right? Is you you bought your first property um by now. Most of us have a bit of equity in it.

SPEAKER_05 2:36

Um especially with you bought 20 before 2022, definitely.

SPEAKER_01 2:40

Yeah, and with the the the increase in prices, you know, most people have just accidentally got equity, uh, which is a really good position for us all to be in. But uh, you know, you your life changes. You have kids, you need more space, you start businesses, you do different things, and you need a property that suits your needs better than the first one that you entered the market in.

SPEAKER_05 3:00

Yep.

SPEAKER_01 3:01

Um and and so it's time to upgrade. So that's what we're going to be talking about today is the the different things to consider that maybe, you know, your big brother or your friends and family, when they did it, they didn't consider and and could have done differently. So don't just follow in their footpath and and you know, what are some of the the questions that you can ask to make sure that you're not only setting up your next house, which is front of mind, but also your next move in your in your property portfolio.

SPEAKER_05 3:29

But do you think it's and this is a massive aside, but do you think it's harder to live in a three-bedroom house now than it was uh 50 years ago?

SPEAKER_01 3:39

I think the size of your house depends on how old your kids are. It doesn't matter how many kids you have necessarily, it's uh do you mean money? No, I just like space.

SPEAKER_05 3:52

Just space. Like it space. I grew up in three-bedroom homes.

SPEAKER_01 3:56

Yeah. I I feel like for me, I have two kids.

SPEAKER_05 4:00

Yeah.

SPEAKER_01 4:00

There was a s a time where they had all of the toys, a time you're in now where they've got stuff. They have little kitchens and all of that kind of stuff. That that's got to go somewhere. And I, if you're anything like me, you get crowded in. I'm not. I couldn't deal with that, and we moved to a bigger house to have a separate lounge. I was like, I don't need any more space other than I just need them to have, you know, a playroom. Um older kids, fast forward to older kids. We already downsized, um, and we do not at all regret that. So yeah, I it's they do come with a lot of stuff, but it's only for a short period of time.

SPEAKER_05 4:34

Yeah, I think um, yeah, cool. That's uh it's just on my mind constantly. Like we're three bedroom, but we've got 600 square meters of land. Like we bought in 520, so yeah. 520 in 2019. So we we're one of the lucky few. Yeah. So yeah, yeah.

SPEAKER_01 4:51

But before we get to that, yeah, uh, I wanted to talk to you about introducing a new segment. I'm thinking we call it barbecue chats.

SPEAKER_05 4:59

We're all great financial decisions, yeah, exactly.

SPEAKER_01 5:02

Well, where I will usually get pinned down by somebody um to to chat about whatever's going on in their life and they'll ask me a few questions. Uh it happens so much, uh, which is a great thing. I love to be a resource for people. But just recently, my sister uh asked me a question. You said you weren't gonna say sister. It seemed really obvious to me, but it got me thinking like she's a smart girl. Like if she if she didn't know it, maybe there's a lot of other people that don't know it as well. But she asked me, like, she she knows she's got equity in her property. She bought, you know, a long time ago. She had a fantastic bank lender helping her. She did. I think I think I think you might have done her home loan. Um, but she she's got equity in her property and she knows that. But she's like, How do I get it? Where like where is it now and how do I get it out? I want to use that for something. Yeah, how do I get it?

SPEAKER_05 5:59

Hilariously, I think maybe three, four years ago, my brother's now business partner asked me the exact same thing. Yeah. Um and I think it's it's an interesting kind of because we just take it for granted, you just borrow the money. Like in, you know, in the first episode, we spoke about a two-pillars concept. You always need to show your ability to service, your ability to borrow that money. But realistically, if you want to get the equity out of your house, you're going to have to either sell your home or leverage and borrow against it. Um, and however much that might be, like we've got a few, I think we're doing like 20 grand, 40 grand or something at the moment, uh, as part of a refinance and a bigger restructure. Yeah. And yeah, it's it's not an easier process.

SPEAKER_01 6:45

Yeah. And I mean, you don't have to necessarily borrow like when you're talking about borrowing against it, it doesn't necessarily mean that you have to increase your current loan or even get a you know uh expanded purpose loan or anything like that. It could be cross-collateralized.

SPEAKER_05 6:58

No one knows what an EPHL is outside of no, it's hilarious. Yeah, sorry. Cash out equity, cash out equity.

SPEAKER_01 7:05

Um but yeah, you you know, you could be using the security, like your your property to buy another property without acting and it goes on to the new loan. Like it's all your equity working for you, but you're getting it out in a different way, I suppose.

SPEAKER_05 7:21

Yeah, yeah, and I think like if you just kind of go really simple, like if you cross-collateralize a property, you are just doing a paper exercise to note that you're using the equity. And so the bank isn't worried about apportioning debt to property, they're going, we've got this much equity, we've got this much debt, percentages all make sense, servicing sweet, thumbs up. Um, and then if it is, you know, we need to kind of look at the structure a little bit, then we're just going to be in a position where we go, hey, we've got your home loan here, we're cashed out a little bit of equity, and that's gonna be the the seed fund for another investment or whatever. Like it's I I think we think it's as you know, generally a little bit more complicated than it is uh because we think it's incredibly easy, and so we can often oversimplify at the same time.

SPEAKER_01 8:10

So yeah, well, I mean it kind of leads into today's topic, right? Is you know, you you're upgrading your home. Most people are going to be using the equity that they've built in that time uh to upgrade their home. Um, I think what I see so often, and it certainly has been, you know, the way that's been paved as as the normal thing to do, but most people will realize they have this need to upgrade their property and they'll buy a new one and move into it, and they'll buy that specifically as their forever home that they want to, you know, really spend some time on, raise their kids in that sort of thing. Uh, and then the natural course of action is to then rent out the first one. Um, yeah, like do you see that being the best strategy? Do you is that what most people do in your experience?

SPEAKER_05 8:58

Um I think what everyone wants to do is one of two things. They inherently want to keep their first home as an investment long term, because I never want to sell a property personally. Uh, and we'll kind of loop back to that in a second, or what they want to do is they want to sell and then buy because they they want to be in a not greater debt position or repayment kind of situation. I think those are the two goals that we see time and time again when people start this conversation. Um, and it's it's not a straightforward thing to kind of answer a lot of the time. Like from my perspective, um, you know, when we look at how can we help someone upgrade a home, I'm really looking at like a a bit of a triage process. Right. Uh, you know, what is one of these six processes that we can do to help you achieve this goal? Yeah, cool. Um, and it's all about just giving our clients options as opposed to what works for us. Like it's hey, these are the options. Where do you actually sit on what is possible? Um personally, I would say that the like I never ever want to sell a property, right?

SPEAKER_01 10:13

Yeah, I feel that.

SPEAKER_05 10:14

I never uh like I I've spent all this money, I've bought the house, I've paid it down, the debt's decreasing in a really comfortable debt position, you know, unoccupied. Like it's you know, personally, and this isn't isn't professional advice, personal advice whatsoever, but just how I feel, like I've got a really comfortable home loan amount. Yeah. Uh to then go and turn that house into an investment property, very low is positively cash geared already. But then I've got like a two million dollar property, like realistically, to upgrade in Aspley, I'm probably gonna have to spend one and a half to two mil. Uh whether I will or won't do that, it can or can't do that, it's beside the point. I don't really want to do it. Um, but that's just the the facts and the figures, right? And so suddenly you've got a small amount, you've got a cash, you know, positively geared property, you've got Anna and I double income, and what I'm just always looking at this calculus going, like that's a lot of debt, a lot of cash.

SPEAKER_01 11:12

Yeah. So if you guys were to do what I just said, yeah, upgrade the house, you're spending a whole bunch of money to buy something better than what you've got now. Yeah, if you were to rent out everything structured in the way that you've got it, you've got a positively geared property, which you know, like they in into like great, but in terms of how can you maximize your income, that doesn't sound like the best option.

SPEAKER_05 11:38

Yeah. It would probably be sitting down with a financial planner and going, hey, and accountant, seeing who will actually give me personal advice. Yeah. Because I think between those two experts, like financial planners will give personal advice, right? Yeah. That's what they do. Where I think um, and accountants they they can in certain structures, but they're sometimes a little bit reticent to do that. It's just a little bit uh, you know, it can get a little frustrating having those conversations. Um, and if you're a business owner out there, just push back on your accountant, challenge them, see, make sure they know what your goals are. I think that's really important. Um, it's why I love mine so much. It's, you know, we we can have a healthy tension on what we're trying to achieve. And it's there's no projection of her risk appetite. It's just, hey, this is how you stay legal and compliant. Yeah. Um, which thank you for protecting me, Laura. Uh YOLO. I would say for us, I I actually think what we'll end up doing is uh a reno, keeping our debt position, yeah, and then using the equity to go and buy other things. Yeah. Um, I would love to cash flow the reno, but that's probably unrealistic, to be honest. Like that's yeah. I don't want to live for the next five years in a house that's getting renovated. Yeah. Um, and I also don't just want to go like here's, you know, we've spent five years saving XYZ money, 200 grand or whatever that would be, and prices are up here now. And like there's just, yeah. Yeah. Um, so I think like to kind of get back to the question, I would be really, really interested to sit down with my financial advisor and have a conversation. Hey, is this property in this structure in my personal name the best way?

SPEAKER_03 13:32

Yeah.

SPEAKER_05 13:33

Um, or do I need to sell this house, get all that equity and cash, buy chuck it into a new purchase, and then maybe I can take it out and do other things with it. So I've minimised that own occupied loan on the the next stage. So Anna and mine's lifestyle, you know, choices stay relatively the same. Um and then we can go and do other equity things and invest and do what we want kind of with that equity elsewhere.

SPEAKER_01 14:01

Yeah. So I guess if there's so many options and different things, and you know, I'm I'm sure in your experience in lending to people, you sort of start to see new ones that their accounts and financial planners have suggested or whatever. But if there's so many different strategy approaches, I guess how do you how do you figure out which one's the right one for you?

SPEAKER_05 14:24

Yeah, I think there there isn't that many 35-year-olds like at our age, you know, we've owned property for three to five plus years. Um, we've got a bit of equity, we've got the kids, like yours older than mine, but you know, the girls are four. Uh now they're starting school next year, and it's like, if we add another kid to that mix, it starts to like, man, you know, my second bedroom, which is my dressing room, really, and my whiskey storage, that's gone. Yeah. And so it just becomes this kind of like, where does this, where does this kind of stop? I would say it's about kind of understanding where you're at now and what your options are first, and then taking those options to the right professional, or as a couple sitting down and figuring out what you want to do. And ultimately, as a you know, couple or whoever's making this decision, it's I find these decisions are easy when you are in a couple because you've actually got people to disagree and bounce off. Um, it's generally unfortunately our single clients who get stuck in that analysis paralysis a bit more. But for us, what we do is we'd look at our current situation, see where we're at, understand what our options are. As the broker, I would go, hey, this is this, and we've got a really clear-defined triage process, right? So if someone comes to me and go, okay, can we keep the existing home, rent it out, and then borrow to buy a new one?

SPEAKER_02 15:52

Yeah.

SPEAKER_05 15:52

And then if you guys change your mind later on, you can sell. That's your choice. But for now, can we nail that? Um is there a timing thing where you can purchase the new property as an investment where maybe you don't need to move into it for a little while? So can you do that now? Purchase an investment and then sell and buy kind of in 12, 18 months, two years, whenever you need to do that, right? Like that's kind of an option. Yeah. Um, sell with a long settlement and then just purchase. To be honest, that's probably the biggest win. I see that.

SPEAKER_01 16:26

So negotiate a longer settlement period with you.

SPEAKER_05 16:29

You've got you're selling a property, you've got the power.

SPEAKER_01 16:31

Yeah.

SPEAKER_05 16:32

So like I I have seen so many people miss out on a and I'm getting ahead of myself actually, but I've seen so many people just sell and then go out and buy. And those ones seem to win every single time. So we'll loop back to that. But uh you can sell with a rent back arrangement, so it's a 30-day settlement period. Yeah. Rent it, you've got six months to find something.

SPEAKER_02 16:55

Yep.

SPEAKER_05 16:55

Um I've just seen too many people get stuck in their house on that one.

unknown 16:59

Yeah.

SPEAKER_05 17:00

And then like 12 months down the track, they're like, oh, the market's moved.

SPEAKER_01 17:04

And I suppose does that limit your like the people that are buying the property? As in, do they have to be equipped to be able to rent it out? I suppose it limits who will do that with you. Yeah.

SPEAKER_05 17:17

I mean, look, it depends if you're quibbling over 20 grand on an offer in this market, especially in Queensland, like who cares? Yeah. Um, yeah. I I think most people, like if you're if you're selling to a first home buyer, right? You're like, hey, like, I'm gonna, I just want to stay for two months. Yeah. I need a rent back option in case we don't find something. But as soon as I get a contract, you've got 30 days. Like, just what you can say, and this is really the commute the communication between you and your agent. What you can say through an agent may is very different from what a solicitor will allow at the same time. Yeah. So uh when I bought my first home, we got told one thing from the agent, and then when the solicitors started engaging, yeah, the sellers are like, nah, actually, we didn't nail that transaction, saws.

SPEAKER_02 18:07

Yeah, okay.

SPEAKER_05 18:09

So uh I think, and look, I I always tell my clients as well, like always communicate through the agent first before you go through, like control messaging through the agent will help with that before you go to solicitors, because solicitors will go, here's the request, yes or no. Yeah, agents will warm up, yeah. They'll flirt with the the other party a bit, go, hey, they know what they're doing. Hey, how you doing? Yeah, uh, not just do you want to go out? Um, and then look, bridging finance. I love bridging finance. I think it's um it's got a bad rap, yeah, but man, does it solve so many issues? Yeah, so many issues. Uh and then honestly, it's an option, it never works buying subject to the sale of your house. Yeah. It just when sellers have a lot of it. Yeah, it always falls over. I can't remember last time I had one worked. Um, you know, if someone says they're willing to consider a condition, they just want an offer. The agent just wants an offer out of you. Yeah.

SPEAKER_01 19:08

So and I think in this market as well, you've got like that many people keen to move around that you don't you don't always have the ability to put in difficult clauses and things like that.

SPEAKER_05 19:20

Yeah, when you're when you're rocking up to a a you know purchase where it's like, hey, here's an offer, hope I get it. You've got, especially in Queensland, like I think in in Sydney and New South Wales, like it can be a little bit of back and forth, you can get consumped unless you exchange contracts. WA, it's fast and furious, you're back and forth, back and forth, especially in Perth at the moment, it's crazy. Yeah. SA a little bit more sedate. But Queensland, we've got the first like best and final offer rules. Yeah. So it's very much here in Queensland where you go, hey, there's multiple offers situations. So legally, we are in multiple offers. Yeah. You put your best foot forward. What's your best and final? Yeah. And that where I think agents go wrong is not misrepresenting that as an option. But actually, when they're going, oh, I've got other offers, it's like, yeah, if you would, if you actually really had other offers though, you'd be doing this. Yeah. So a client had that recently, and I was like, mate, if that offer was real, he'd go, what's your best in final? Yeah.

SPEAKER_01 20:20

So basically what you're saying is you've got like as a lender, and you're working with their team, their financial planner, and whoever you're talking about. Broker. Um as a broker. As a broker. Um you're you've got, you know, a triaging process to figure out what is the least amount of impact I've got to give this person to get them to their next goal. And as their options, like you rule them out and keep going through to figure out how much you actually have to change or impact things that they maybe didn't want to flex on until they get to that point where they've they find equilibrium.

SPEAKER_05 20:57

When every option seems open, it's really hard to make a decision.

SPEAKER_01 21:00

Yeah, right. Yeah.

SPEAKER_05 21:01

So if we can remove options, figure out where you're at. So we'll go through, hey, what are the basic information we need to run a borrowing capacity?

SPEAKER_02 21:08

Yeah.

SPEAKER_05 21:08

And then let's problem solve.

SPEAKER_02 21:09

Yeah.

SPEAKER_05 21:10

And this is the five or six things that I'm running through going, what's an option, what's an option, what's an option, what can we give them to work with to make the decision what actually suits their life family goals. Yeah. And so I think once you go through them, you go through the pros and cons, you understand their needs and requirements, which is a big thing for us, once we've done that, then it actually distills the options into okay, we want to make this move, and this is how we're going to do it. So I just think, like I use this analogy forever now. Like a broker is legitimately the current location on your maps. If you need to know where you're at, a broker helps that.

SPEAKER_02 21:46

Yeah.

SPEAKER_05 21:46

Do we help break the tie? You know, what's the best, most ideal, optimal finance? Like, I will always argue against optimizing finance because of risk. It I don't think it's always taken into account enough. Um, but the

SPEAKER_01 22:00

reality is that like you've got less options than you sometimes think and that's not a bad not a bad thing yeah not a bad thing yeah I really want to highlight one of the options that you said because you sort of you know you breeze through it um but it's it's a little bit outside the box in the way that people's brains normally think and I really like it is that sometimes the goal is to upgrade the property but sometimes it's two things. Sometimes it's like hey we need to buy an investment property therefore let's upgrade and rent this one out and that's like just just a it you know the actual upgrade itself might might be thought number two. It may be it's I need to do an investment. The natural course is let's get ourselves something better and then rent this one out. But you said before one of the options could be the actually you just buy the investment property. And it really sparked something with me because you can you can be really quite tailored around the property that you buy if you're going out to buy an investment property right like you put it near a train station near whatever school or whatever you could really set yourself up if you're going out to market to buy an investment property. And maybe maybe the the forever home is a is piece number two in that project. Like it's it doesn't have to be that way.

SPEAKER_05 23:19

Yeah and I think that's that's probably where Anna and I are leaning at the moment right it's we've got a really cheap home and we can probably buy a couple of I know a mortgage broker. I know we can buy two investment properties. Yeah like it's right there and so it's do we do we get the dream home now or do we go and create some equity kind of long term get some really really good performing assets wait for that to catch up then pivot. And where West we love where we live right so I think that's an advantage I remember 2019 in Brackenridge rocking up as a mobile banker for Combank and these guys on Garway Road had purchased this house as first home buyers and they just tried to shoehorn whatever they could get into right like as you do with your first home at times like you just do you want to buy a property yes what can I buy please let me buy something like that's the process. They're bought in 2015 Queensland had done nothing Brisbane is one percent growth which was less than inflation in Australia at the time it was just like don't get I yeah I I don't know if you remember but financial planners were walking in uh to meetings in branches going why would you buy property and I'm there as the mobile banker going buy property buy property what are you on about they're like just put money into I'm like you're just selling bonds and insurance go away yeah um but no like if these guys are like we've owned this house for five years and I'm like it's done nothing. Yeah like yeah you've got no equity to get into a bigger house. So sometimes and that's the that's the assumption that I was under when I bought my first home in 2019 like hey I'm gonna have to say to buy another investment yeah like you could just sit here stagnant for five years and we spin our wheels yeah but we've in the market it's gonna double five to ten years which I hilariously I was like dad always taught me that growing up like property doubles every seven to ten years. Yeah and I was like sure I was like all right and we'd had arguments about I was like look at this I know historically from like the 1990s to the 2010s like sure it's gone from 90 grand to 400 like that's massive it's not going to do that again and it's kind of stagnant I'm an idiot. Here we are experience teaches you nothing. But yeah like it was it was in a position where I was looking at these guys going hey we've got these houses we can't move at all that's the assumption I bought my house going I'm just gonna stick here until it worked. Yeah but because I had that assumption I actually worked harder to buy that first home a little bit better. Yeah and so I made sure I was buying something a bit better that would suit me longer I've got a 40 square meter uh lounge room which is hard to articulate but it's double the size of this office wearing like it's massive and then three bedrooms which aren't massive at all but that lounge room would make it Bindi palatable for kids start yes right well you don't have the problem that I have I do have the problem we've two two kids the problem is that I'm the tidy person and you've seen this office.

SPEAKER_01 26:24

Yeah yeah sorry uns um one of the other things that you said that um just made me think is is bridging uh I like you I love bridging the the the whole idea of bridging I think is fantastic um I know a lot of people uh are scared of it I know you know I've had you know an older generation sort of say to me oh like you don't want to go you don't want to have ever have a bridging loan that's last resort that's so expensive your parents my first exposure to bridging loans was as a bank lender. Right. Like had you already got these preconceived ideas about bridging from family before that I mean I may or maybe around that time maybe when I started to understand it um I even had when I was a lender I had customers and I would suggest it as a solution and they'd be like oh no and and someone had said to them it it'll absolutely kill your finances if you do a bridging loan. And I was unable to understand it at the time because it just it's a solution right like it's it's a means to an end. And it there's a lot of situations that of people that I know where they can do what they want to do through only a bridging loan and you know and that's a good thing.

SPEAKER_05 27:37

So I know we don't have coasters and breaking script yet oh don't I'm using the books. Sorry Morgan Housel you write a great book yeah it's a great book if anyone wants to look at it The Art of Spending Money it's a good book but right now it's glorified toaster coaster um sorry that is not actually my dog ear I'm not that far into it. Uh yeah look there it has changed over years and so you and I probably made some pretty good living off uh bridging loans that had nothing owing on the back end. Yeah um I know I really enjoyed those loans uh one of my biggest ever loans that I funded within a year or two of my of starting our careers uh and Callan I I big note myself early on and Callan uh was like mate anyone can be 150% to target when they do three million dollar bridging loans with nothing owing afterwards yeah I was like dang it um and you guys all went to platinum and I didn't um not bitter uh but no like I I remember it used to always be so like Combank just because that's the context we were working in they would do zero residual loans just as like it was just a service really they made no money out of it uh it was all the same interest rate for bridging and during and post bridging like it no like it was just a actually really good deal. Yeah the banks now have removed discounts off the bridging portion. So like you know all the majors maybe not nab but I think most of the majors a fair few second tier banks they all do bridging you know like there's a lot of options out there. If there's no residual debt it's a little bit harder. Your bank will generally do it for you if you've got a relationship but it is a service for them like it could be two weeks.

SPEAKER_01 29:31

So just to clarify a couple things so when you say residual debt you're talking about the loan that's left over after the the property is sold and you've paid off your bridging loan there is sometimes a residual debt as in that's your new home loan now. Yeah that goes on for the next 29 years. Yeah.

SPEAKER_05 29:49

Um and when you say the post-bridging yeah yeah yeah cool and so also you you just mentioned then um they've removed discounts you mean from the rate like the actual interest rate is more for bridging so there's uh at a very high level there's two types of products right you get a packaged product with offsets and all the features and all the uh kit and caboodle and then you get basic with just redraw no offset generally fixed and standard variable fall under that when you go bridging you generally have to go to a packaged product of some sort and so if you've got like a 9.49% advertised rate as a bank or like that's their base rate then we as brokers go and negotiate your discount which sticks on that loan for life alone which then post settlement you help manage that with the banks um and we like so that kind of all happens on your post residual bridging loan portion. Right. What they don't do anymore is they go, we're just going to charge you the highest undiscounted rate on the the during bridging loan. So if you've got 500 grand is probably eight to nine percent interest rate on that. Okay. Um which like you know uh clients who just settled recently it was five days.

SPEAKER_01 31:04

Yeah well that's the thing about it is how long that was WA you can actually time it well. So like it may be a small amount of time but in actual fact you save those expenses on moving your stuff around or get or staying somewhere else or or whatever. Like you would really have to think about yeah it's interest and everybody hates paying interest especially at a higher rate but how long like let's numerize it per day how how much are we actually talking about and does that save me in other areas in terms of making this the logistics of this move easier?

SPEAKER_05 31:37

Yeah.$124 a day right in interest on a 500 grand bridging line. Yeah I was doing it already when you said let's numerise it I was like done yeah I was like thank you I don't know how you did this um if we have a look like let's just say it's 60 days like that's eight grand for two months to go from house to house now most capital cities right now apart from pockets in Melbourne uh if you go I want to buy a house I'm gonna get a bridging loan we're gonna go really really hard my feedback to you is your life needs to be focused on two things preparing your house to go and market yeah and when you're making offers make sure you tease the new agent you're buying off as hey we're selling over here if they're local we're selling if you want to can we get an appraisal at the same time guarantee you're gonna get an insight into that like you're going to get an inside track. Yeah the next thing that you need to do is you need to be preparing for buying that property so you're at all the open homes while you're looking to sell and preparing for sell. So like the clients who I see win they're packed they're ready they're ready to stage they've already got the agreement they've locked in the agent and as soon as they've got the contract they're on the market the next day. Yeah so as soon as they've got a proper so they're minimizing that bridging time so they're minimizing their interest yeah so the guys who did it recently they they had we'd actually talked about this 18 months ago and they just need to get through some or maybe 12 like some maternity leave and get a a cash payout he had and all this like there was a bit of stuff going on. So once it did happen there was no doubt in his mind he's like I do not want to be homeless. I don't want to be in between we'll go on bridging we've got the equity we've got the cash we can make it happen. Yeah we restructured everything preparing for this move so we could actually have the maximum amount of you know owner occupied debt on the non-bridging loan so that decreased the cost again right um and then we had you know just the ability to do it quite simply and easily and he yeah they settled uh four days with a public holiday thrown in between that was not stressful at all uh but they settled four days after five days or something crazy yeah after like it was not not an expensive process and they're in there they're forever home yeah like what is really what is that cost? Now that's the major banks if you are struggling to kind of get it within their policies because they've got a few policies that you need to kind of admit they're a bit conservative there are specialist lenders who will do bridging loans. Right and that's when the cost the traditional cost that I think we know about starts to come in. So the bridging interest rate isn't too dissimilar with those. You have no payments whatsoever during that bridging and they capitalize all the interest onto the loan.

SPEAKER_02 34:41

Okay.

SPEAKER_05 34:41

And Westpac, for example, also does uh interest capitalized as well like every bank has a different policy. It's really like there's a lot of options out there. What I would say is you're like you've really got to go okay here's it's super easy to get this quote is there something happening in my life that I just need longer on this bridging and maybe the non the bridging specialists are a bit better. Like there's all these different options and we just go hey these are the goals that you you said you wanted this is your needs, your goals requirements let's talk about the pros and cons of these options but here's the quote if if we can't get this through here. Yeah because these guys generally will give you better purchase price.

SPEAKER_01 35:21

Yeah yeah so I guess ideally you're preparing for worst case scenario there's a lot of levers that you can pull in the moment but you know if you're working with if with a good team you can pull a lot of levers in the moment to reduce the cost of a bridging loan as in if it was me I would have a bridging loan approved if my buyer for my original property if they're ready if they're if they're if they're ready to settle I'm saying hey do you want to move in a couple weeks earlier like you know that that sort of thing because you you try and make things better for you in the situation but prepare for the worst a little bit I guess. Yeah.

SPEAKER_05 36:01

Yeah I think um I've seen settlement dates lined up very very quickly in the past. So we've gone unconditional on uh like a purchase with bridging loan and it's just really easy to unwind the bridging portion.

SPEAKER_02 36:16

Yeah.

SPEAKER_05 36:16

Like it's very simple and I think banks do that by design because they don't want to like they understand that quite often it can secure a large amount and if they quick aren't quickly to pivot on a bridging loan it can be quite quite poor. Yeah. The specialist guys are just they're world class at it. They they'll approve something in 48 hours they'll just attack it. They understand where they are in this they're a solution. Yeah yeah so I I think kind of going hey worst case scenario we're gonna go bridging but let's actually we can and look what we can do from a triage perspective is we can go we'll prepare for a bridging and then pivot to a same day settlement a sell and buy any other option if it comes yeah let's go on the market let's get you pre-approved with the bridging take your property onto the market and then like let's react as it all happens.

SPEAKER_02 37:05

Yeah.

SPEAKER_05 37:06

So yeah I know in the UK just as a a sidetrack like I believe what happens a lot is they actually have these chains of properties like all stacked all subject to and if one falls over it just so I'm kind of glad that's subject to the sale.

SPEAKER_01 37:21

Actually had I've been involved in that as a lender you know I we we had to move settlement because somewhere down the track three three houses ago it didn't settle one time.

SPEAKER_05 37:31

Yeah I'm glad thank you agents for your self-interest in removing that because it's just the amount of heartache I've seen over that yeah like yeah just sell and buy no but no like I think just going to a client having the conversation understanding capacity understanding equity again tying it back to the two pillars that make it possible we can then go okay is option one can we keep existing home rent it out borrow to buy the new one do we need to purchase the next property as an investment and take a bit more of a long-term strategy can we sell with a longer settlement or just sell and buy really quickly and that I actually think just as a side note the reason I've seen people win out of that so much is it's in the same market. Yeah you're selling and buying in the same market it's when people sell don't buy immediately don't feel the pressure and buy six months and have to go crap I need to save more money and my money's now going like two three four five years later suddenly they're back in the market. Yeah and it's like man just do it at the same time sell with a rent back arrangement like it's just it I I don't think I don't think my parents ever sold a property without doing that. I don't think Dad and Katrina ever did like yeah they're like we've got a family we're selling you want this house and it's it's you got more power as a seller now. Yeah so yeah um bridging finance and then buying subject to the sale of the house like it's an option it really isn't an option. Yeah so these are all the things that we can kind of rule in rule out yeah as I'm having the conversation with a client we're going hey where where is your risk appetite inevitably when it sells sell and buy it always like oh I don't want to do that. A lot of the time that comes back as an option because people realize how how quick it actually can be and the right buyer's agent will also help with that one a lot. Like if it is a genuine fear but something you have to do a buyer's agent involved.

SPEAKER_01 39:24

Yeah so okay um let's talk about uh when we're upgrading to our forever home um in terms of borrowing capacity which is a b is a big one um because you know you're going from if if you're keeping your existing rental as a rental you've got two loans which you've maybe never had before um so you're increasing your exposure to debt and and repayments and interest rate increases and all of that kind of stuff.

SPEAKER_05 39:55

But in terms of maximizing borrowing capacity so that I'm in the best position to put a really good offer on my dream property what does that look like when we're talking about renting out the existing property yeah I think we're not just look at it purely from a how banks assess it perspective and this this ties into you know like banks know what the ATO will let you do, right? They understand tax deductibility. They want to maximize your borrowing capacity at the same time and so they're not going to do a property portfolio efficiency test or anything like that, but they are going to look at you know the tax deductibility nature, your income ownership like they're going to assess all that. And so if I look at myself for example or you know anyone kind of wanting to upgrade uh if you've got three to five six hundred thousand owing on your home and it's worth 1.2 to 1.5 and you try and upgrade to that one$2 million property if you look at that kind of you know renting that out increasing your taxable income what you'll start to find is your borrowing capacity is very very limited compared to what your equity can do.

SPEAKER_01 41:11

Yeah and so realizing the equity as a sale event quite often so like if I looked at you know renting that out you might get 4% rental yield on a good day buying that I would say you're better off releasing that equity than using your borrowing capacity in that perspective so your borrowing capacity and these are just numbers I'm pulling out might be 1.8 but if you sold your property your borrowing capacity might decrease down to 1.5 yeah but you've got seven eight hundred thousand dollars to use yeah and so what would you rather would you rather take all that decrease your loan buy for you know two million dollars get a 1.2 you know and$1.4 million dollar loan have a lower home loan still have some equity to do something with in the future or would you rather be limited to that 1.8 mark yeah well I suppose it depends on the market and minus cost kind of what kind of house you want but I mean if you've got a little bit of equity left over and you know you could you could then buy another property as your investment property that maybe was tying up less of your equity or or whatever you could you could then choose you going to market for that investment property again right?

SPEAKER_05 42:23

Yeah so if you've got the borrowing like a healthy borrowing capacity um and you're walking away with you know eight hundred to a million dollars in equity once you sell you go buy that you've still got like if you get a million dollar home loan yeah with a million dollars cash 800 cash which sounds insanely high but it isn't unrealistic it isn't unrealistic that you would have that much equity like I think I'm only three to four hundred thousand off that equity position right yeah so with looking at that kind of like cash position well you give me four to five hundred thousand dollars equity that we can cash there are banks and lenders out there that if you're using it towards another property with a letter from your accountant or financial planner we can get negative gearing on that cash out. Yeah when we then look at the next kind of transaction we can take that equity go and buy an investment property that's probably better performing yeah than your original home potentially like get a finite you know proper financial advisor property advisor get the right experts to make sure you're building a portfolio but from a one that's going to make you some money yeah like my my house is tapped out like it's not growing at the moment and so I'm like well what's my equity doing in the house how can I get it else out at that kind of higher end market it doesn't grow as aggressively sometimes as the first home buyer markets do because you know guarantees yeah so like it's you know where's your money better off yeah and it's just it's that real like I don't want to sell a property.

SPEAKER_01 43:51

I was gonna say this this comes right back to that emotional tie then because you're like you're either you know s similar to you where you just want to hold on to all your Assets because it makes no sense to get rid of them. Or like me, like I never want to get rid of this house because it means so much to you.

SPEAKER_05 44:07

Yeah, but you want a cloak room.

SPEAKER_01 44:11

Which I cannot have in my little townhouse. But yes, but also I yeah, like I don't ever want to get rid of it.

SPEAKER_05 44:17

So it's you know you've got to really sort of part ways with it. Curtains. Um yeah, like and there's other considerations which you know, chat to your financial planner and and accountant. We'll say this a lot in this conversation because there is there's a lot of tax stuff that surrounds this conversation. So we can talk to what the lenders will do and assess, and it closely mirrors what is possible tax-wise. Um but quite often a lender will go, No, I won't do that, and the accountant goes, But I can do that. So that it is a different conversation. Yeah. Um when you chat to your accountant and financial advisor, look at these things, it's like, well, you've lived in that house, it's CGT free. You're not paying any capital gains on that. So why not leverage? Like, there's a lot of considerations, and that's not to say sell and buy, do that. That's to say there's so much more than you're considering.

SPEAKER_01 45:09

Yeah, just let it be an option for someone to talk you through. Yeah, yeah. Yeah, yeah.

SPEAKER_05 45:16

The I think the other thing that's probably important to kind of uh probably look just after the CGT thing is um that kind of equity piece as well. Once you do sell, buy, there's just really an opportunity to have a pretty clean debt structure from there in terms of loans, accessing equity. And it is an opportunity quite often to just clean things up a little bit. And so if you've gone, say you are in the position where you've invested in properties, you've taken equity out, you've gone that, you're looking to sell your home and finally upgrade and not get rid of the other properties. This whole process is a really, really important juncture to actually just go, can we just review this whole thing? And so the scenario that I said around getting everything right, clean, neat with uh the clients who had four or five days bridging. Yeah, we redid the whole structure, and it is more because of equity, we could actually get all the loans like individual per the property, which is cool. Um but he like literally has said to me, He's like, This was the easiest structure we've ever had our investments in. And so I think it's just also going into this conversation with a holistic perspective to go, how can this be neater for me to manage better in the future?

SPEAKER_01 46:34

Yeah, because you depending on what you've done in the past, you may have you know, you may have had a split loan and then and you only have to have a couple of those for a few different properties, and you honestly don't know what's doing what. So yeah, tidy it up at the same time.

SPEAKER_05 46:46

Yeah, yeah. Um look, I I think just to to tidy it all away and kind of like we've got that neatness perspective of hey, you have an option to really get those solutions together, like you can really bring that in, make it very simple. It's six things. What is possible within that? And then if none of them are, which is rare, there's rarely not an option, what is the easiest thing to boost it up? And so is it, hey, a second income if you have only one income as a family? What do all these things look like to make this happen? Yeah, and these things quite often is a month or two away from acting.

SPEAKER_02 47:28

Yeah.

SPEAKER_05 47:30

Uh so if we can make take that opportunity, go through those six options, see what lands and what is possible, we then can actually plot a path to get you into your next home. Yeah. Still not sacrifice the future with building a property portfolio and investing into property, whilst at the same time making sure kids, you know, schools and everything's paid for, you're not feeling stretched, you're not maxed out, whatever you want to accept as your risk appetite, it's all on the table. And so I think these things are really, really neat to be able to just actually take away and go into the next kind of phase of whatever you and your family need to do. Um, it's not a big conversation. It's it's a bit of information, a bit of decision making. Yeah. But realistically, we've got six options we want to run through. We'll triage through, see what you want to do, what one speaks to you as a couple. Yeah. And then from there, let's just start moving. The momentum started, let's keep it going. Yeah. So uh, but yeah, I think as we close, like I think what we want to do next is get a financial advisor to actually go through these figures.

SPEAKER_01 48:41

I was gonna say, if only we had a financial planner that we could talk about.

SPEAKER_05 48:45

We've got a fair few that we know. Um, but no, look, we are going to get uh Riley in to have a chat. We I've got two clients. The one I've just mentioned actually is one of his clients. So we are gonna go through um and just discuss what he is recommending to his clients. Uh, we've got another client of his at the moment that were actually mine first, now with him. Uh, and we are just gonna discuss what it looks like to, you know, time it properly and get it all moving forward and what he as a financial advisor looks for to make these decisions within the tax implications that he can actually talk to.

SPEAKER_02 49:20

Yeah.

SPEAKER_05 49:21

Uh so guys, this is our second podcast. We hope that you've liked it, really enjoyed it. Uh we're sorry we didn't give you the intro that we thought we were. It was a great intro. We talked about socks, jocks before we got into finance and accessing equity. Great topics. Uh, but the next one, we're gonna go have a chat to Riley. And yeah, until then, uh, I hope you like this video. Please subscribe. There's gonna be way more coming down from here. And welcome to Finance buttney.