One learner at a time

When I learned to drive I was required to have a fully qualified driver in the front seat passenger seat. That “black licence” was required to be sober and responsible. That is good risk management on behalf of the community.

In poker if you can’t tell who the sucker at the table is, look in a mirror. That is good risk management on behalf of your wallet.

When investing make sure there is only one learner in the team per deal. Your team consists of you, your financier/broker, your lawyer and your real estate agent.

I made a mistake with these three units. I am breaking in a new broker, a new lawyer and it’s been a while since I bought three units at the same time — so I’m rusty.

I had a 75% LVR loan offer on the table from NAB as part of my professional’s package. But it needs me to tidy up some outstanding paperwork that is not good timing right now.

I heard of a broker who could organise finance for such small apartments easily. I casually mentioned this to another keen broker I know well, let’s call him Bob. Now Bob is a top producer for his firm. This guy writes loans. A lot of loans. This means he knows how to get things done.

But my requirements are outside the square. Bob is good, but he’s also new at it – a little over a year. So he doesn’t have huge vats of experience.

Bob tells me he can get me 80% LVR no probs. So I go with Bob. Three weeks later I get all the paperwork they want together and am running through the fees. Guess what? The extra 5% LVR will cost me 1% application fee, 3 months interest early repayment fee, 1.18% premium for the risk. So they’ll give me the extra 5% but take it back in fees! I pushed back and Bob found me another loan.

During the scary time in the middle of this I called the Experienced and Reputable Broker. He said 90% LVR, LMI 1.5%, three day approval, two week settlement. I’m meeting with him on Monday.

The lesson is one new driver at a time. Nothing is insurmountable providing there aren’t a dozen problems at once.

Hack Attempt #1

Someone tried to hack the site tonight. I don’t know whether to be angry or flattered. So if you show up one day and it seems like I’ve moved into the porn-biz you’ll know:
1) I’m 0wn3d by script kiddies (i.e. the site has been defaced).
2) Don’t hire me as your IT security consultant
Seeing as I don’t do any IT consulting anymore that should be enough warning.

That leads me to reinforce the message, this site is really for my own and your amusement. Therefore it is in constant flux and doesn’t really get a lot of “systems” attention. While I do wish I could find out what is slowing the computer down, I’m not putting a lot of resources into the server.

Credit Card Danger

I bought a strata unit with a credit card cash advance once. I’ve used the same technique for a deposit in a hurry. Until recently I was a fan of lots of credit cards with high limits — providing you knew how to manage a bank’s Debt Service Ratio (DSR) calculations.

You see, banks assume your credit cards are maxed out all the time and factor that into your borrowing limit. What if you listen to Paul Clitheroe, Robert Kiyosaki or other wealth advisors [like me? ;)] don’t carry a balance on your credit card? Surely that counts for something?

Often not. The major banks’ DSR assume you carry the limit because you can. Look up “contingent liability” someday. So if the DSR looks tight you might cancel or reduce your limits before applying for the loan.

Anyway I no longer favour lots of cards with lots of limits. You ask why (go on I’ll wait)?

Three little words…

…Fees, Fees, Fees.

I have been a Citibank customer for years. It gave me a nice feeling to have Big US Bank credit cards in my wallet. But US banks are “early adopters” of fees and then the Aussie banks follow.

In addition to annual fees and high interest rates, I have the priviledge of: late payment fee, over limit fee, foreign currency conversion fee and cash advance fee. Credit cards are not about convenience where a smart operator can take advantage of a system designed for balance-carrying sheep. The cash advance fee is 1.5% of the drawdown regardless of how long I keep the money.

Now Westpac is following suit with similar fees and my experience is the other banks can’t resist a good revenue stream.

Time to find a new source of quick cash.

Someone’s trying to screw you

I just go home from listening to Peter Holmes à Court give a casual talk at the Sydney Chapter of Young Entrepreneurs Organisation. I won’t reproduce his entertaining, inspiring and insightful comments here — if you ever get a chance to hear Peter talk, take it.

One point he did make was Someone’s always trying to screw you, don’t let it change you.

There is power in this zen-like state. There are crooks, opportunists, charlatans and even terrorists out there. We may be unfortunate enough to cross paths with a few. As a matter-of-fact it’s almost inevitable. But that doesn’t mean we must fret about it. We are big people now, with confidence to deal with whatever life throws up.

Take some risks.

PS Peter’s 10 points inspired a number of reactions in me. I’ll be posting on those reactions over the next few days.

Horse Trading

I sat in on an exchange between two very experienced businessmen today. What an education in five minutes. The Salesman and the Entrepreneur.

Entrepreneur: We bought these from you last time at $1.62. Why do you want $2.25?
Salesman: I have to pay MGM an 18% royalty on these.
Entrepreneur (grabs a calculator): $1.62 +18% (+10% for safety) that’s $2.10. How many have you got?
Salesman: I’ve got 20,000 now and another 15,000 on the water.
Entrepreneur: I’ll take the lot over 3 months and pay you slowly. I don’t want them showing up at my competitors. They’ll kill the market.
Salesman: Ok, deal.

I spoke to the Entrepreneur after. He was happy to get the product at a price he can move the stock. You make your profit when you buy and just collect it when you sell. But you don’t have to screw your supplier. The Salesman knows he’s got a reliable sale. Win-win all round. But the whole deal was concluded in 10 minutes.

Small unit finance

It seems that GE – Mortgage Insurance Services has decided that small units (<50sqm) are not good. This is a relatively new wrinkle as I have seen the lender summaries that brokers use to assess lenders. GEMIS used to do these loans.

Anyhow if it was easy everyone would do it and I wouldn’t have the opportunity to earn excess returns.

Tonight I heard that there is still a financier or two left who can lend 80% Loan-Value-Ratio (LVR). It may cost me a rate premium, but that’s still ok. More as it comes to hand.