Two banks, two offers and I couldn’t believe the difference in the total cost of the loans!
It had been 4 years since I started my agency and I was keen to buy a rent roll. Ready to add some revenue without a heap of extra fixed costs – I already had an office, admin, Head of PM and all those overheads whether we’re looking after 100 or 500 properties. This purchase was 190 and a big chunk of the revenue would go to my bottom line profit.
The interest rates offered were “only” just over half of one percent apart. The higher bank manager pushed their professional, personalised service and strong real estate industry knowledge. All valid. But for me that 0.6% on a $1m loan was another $6,000pa.
But there was more.
Transaction costs can nibble away at your agency’s profit and you will (almost always) need to move your trust accounts to your lender bank. In this case I would also be paying a higher fee every time I collected rent, likely to add another $19,000 to my costs. Suddenly my two loan offers were $25,000 apart. And remember that was $25,000 of my potential profit (or about half the then salary of a PM – the good old days!)
So it definitely pays to shop around for loans. Steve Marinucci is a Queensland finance broker specialising in rent rolls and says many banks will lend to agencies, but their appetite and policies vary depending on several key factors. “These include the borrower’s experience and time in business, the loan-to-value ratio (LVR) available against the rent roll, and the specific valuation methodology required by the lender.”
Steve says the stronger your position on his “three C’s”, the better your bargaining power.
“They’ll assess your “Character (the borrower’s experience and track record), Cashflow (the business’s ability to service the debt), and Collateral (the quality and strength of the security offered).”
Because each lender has different credit nuances and risk tolerances, it’s important to engage a broker who understands the market and can align the right bank with the client’s stage in their business lifecycle.
I always took a fairly simple view of my agency borrowings: money is a simple commodity and I wanted the cheapest overall offer. Profts are too hard to earn and need to be protected.
Steve Marinucci is a great source of info on rent roll loans and he’s on 0438 315071 and steve@marra.finance
If you’d like an appraisal of your current rent roll I’d be very happy to help. I’m on 0423 332 022 or rob@honeycombe.com.au