By Cam McLellan
As a property investor your professional team is vitally important to your success. I’ve previously written about how to choose your conveyancer and today I’m going to look at brokers.
Your broker can make you or break you. To give a real life example, I’m going to talk about a situation my business partner Al and I were put in when we were trying to organise the purchase of a property, at a time when we already had a reasonable portfolio behind us.
So in this situation we threw a broker we didn’t know a fairly large bone because he was referred by a friend of ours. We explained what we wanted to do with our next purchase and the broker told us we would need to put some equity, or a property in. With that in mind we asked him to package it all up everything up, including the additional equity or property and put together a deal for us.
Our contract for the purchase included a finance clause (which you should always have) however it got to the stage where this guy had extended finalising the deal four times, because he had no idea what he was doing. He was out of his depth and it was probably our fault as we hadn’t asked the right questions.
So what should we have asked to ensure he was the right broker for us?
- Tell us about your other clients
- Show us your experience
- What have you done in the past
- What lenders does the broker work with?
- Do they capitalise interest?
- How much involvement do they have in the preparation and review of documents?
- Do they have a check sheet to help you prepare your application?
- Do they provide you with disclosure of valuations?
- Do they have the ability to contest the bank valuation? This is a really important one. A lot of brokers will just put up their hands and walk away. One property to them is not a large commission, so it is easier for them to go and try for a new sale, than to help you out of a difficult situation. Understand how much they get paid and how much your time is worth to them, so you don’t end up abandoned by your broker and left in a financial pickle.
- Ask your broker about deadlines and milestones throughout the loan process and make sure they stick to them. You need to scream, kick and yell to make sure everyone is meeting those milestones. If you’re setting up equity loans and have a finance clause at 21 of 28 days, you need the equity loan submitted within two days because you have an eight day time limit to get the equity loan set up. If you haven’t got the equity loan set up to release some equity and pay for your deposit and costs, then you’re not running to schedule and won’t make your finance approval date. You could end up paying penalty interest or worse still, get a bad name in the market place.
Against our better judgement (and we were experienced investors way back when we were dealing with him), we went with the recommendation and learnt just how important it is to do your own due diligence with everyone you deal with, and not to take that for granted because someone else has dealt with them.
In the end we got the finance through because we told him to go away, went straight to the bank and said, “Can you do this for us?”
They did it pretty quickly.
As a property investor you will build your portfolio, learn to establish direct relationships with each of the banks and eventually outgrow brokers. This will only happen once you attain all of their relevant knowledge, so you can communicate with the banks at a reasonable level. So if you absorb all of the information your broker provides, you will be able to have a proper financial conversation with the bank or a business broker; the sky is the limit!
Another bad experience I can share was when my wife Felicity bought her first property, a 2600 square metre block in one of Melbourne’s outer suburbs, we’d planned to put four or five units behind the house that was on it but nearly came undone because of a bad broker. The broker had helped me in the past but in this case he was on holidays on the Gold Coast and at 4pm on settlement day I was standing on the beach screaming at the broker to get this thing across the line. They finally got approval and it did settle but it was white knuckle sort of stuff. So make sure you understand if your broker is out of their depth.
There is a checklist of things to ask when choosing a broker on our website which you can download HERE.
There are some great brokers out there – dig around and make sure you ask the right questions.