Trust Lending And SMSFs: Is The Portfolio Pitch Building Real Wealth Or Real Risk?

In this episode, we discuss the growing gap between how property investing is being sold and how risk is actually building beneath the surface.

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 CBA and other banks tightening on lending to trusts and increasingly loud voices crying out about poor quality property advice and buyer's agent practice.

The message is clear. The rules are changing. Not a moment too soon. Welcome to the elephant in the room. This is the podcast where we love to talk about the big things in property that never usually get talked about.

I'm Veronica Morgan, real estate agent, buyer's agent and buyer's agent mentor, co-host of Foxtel's Location Location Location Australia, author of Auction Ready and co-host of Your First Home Buyer Guide.

Hi, I'm Chris Bates, ex-financial planner and mortgage broker, currently ranked number three in the annual MPA Top 100 Mortgage Broker Awards. Before we get started, everything we talk about today is not personal advice, and we recommend you engage the services of a licensed and experienced professional.

In this episode, we're exploring the advice being given to investors right now, particularly around SMSFs or self-managed super funds, leverage stacking and equity extraction to build portfolios at speed. We interrogate what's happening and what will happen if interest rates rise again, rents soften and the promised 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.

All right, Chris, this is a discussion that you and I have been having off air for some time, you know, and we're looking at it from both sides, from the property advice and buyer's agent side and also the lending side.

Let's start talking about when regulators have seemed to have noticed what we've been noticing for quite some time. So regulators start cracking down, banks starting to pull back at the same time. Is that a warning sign investors should take seriously or one that they're going to be encouraged to ignore?

And I suspect there's some encouragement to ignore happening out there.

I think 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 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. And if you look at the AFR sort of not rich lists, but the AFR fast starters, you can see many buyers agents on there and some got huge amount of revenue, which is fair enough. They're businesses and good on them for growing their businesses.

But I guess when you look at the size of the revenue and divided by a buyer's agency fee, you can see the amount of scale that they're actually buying at. And while they might have other revenue, et cetera, it's

know it's pretty easy to see that they're buying a lot and they're not all of them are on there as well we know that there's also a big cohort of buyers agents that have been buying you know for investment centric for you know way before the recent way but it has gone on off the scale i think in recent years you know particularly access to these and type of buyers agents sort of you know through channels like youtube or podcasts you know not just through you know people sort of searching online they're sort of finding their content and um

Yeah, so that's been a concern. I think on internally, as we have mortgage brokers, we've sort of seen there's been this story in the marketplace that you've got unlimited borrowing capacity. If you type that into YouTube now, you'll find there's many videos on it.

And often they're not people even in the mortgage game. And they're talking about how they do it on their situation. And they're sort of not giving advice on the way that you should do it. They're just saying, this is what I do.

And I think that's really dangerous as well, because what they do is not what you should do potentially. And so I think that there's this been brewing all year. We've seen an issue with the type of properties that people buy, but then also this appetite to do this, what you call trust lending.

And I've also, one of the guys in our team, Piyush, he's probably the guy I go to on this and say, What options have I got? If I want to really extend my borrowing capacity, how do I do it?

And him and I have had chats all throughout 2025 and I'm just like, really? They'll do that? Really? And I keep getting shocked, particularly in the non-banking space, not only around trust lending, but self-managed super funds. And so... Yeah, 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. They said, hang on a sec, we've got an issue here.

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 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 property advisory firms, because the pitch is like, go hard or go home.

You know, like you've got to borrow too many properties. I can get you five properties and I can do it right now. Why would you weigh opportunity costs?

So a lot of people have gone from maybe not much debt to a lot of debt and haven't really sort of built up that sort of confidence or understanding how cashflow is and investing through trusts is a whole other world. So yeah, it's a lot going on.

I know that was a long start to this podcast.

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

So what I've been noticing is a lot, particularly from brokers,

Right, so I know that buyers 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, make sure you buy lots of, as many as you can sort of squeeze into that budget.

You know, it took me a while to realize that there's, often they're in cahoots with a broker who is very aggressively pushing lending, you know, these aggressive lending strategies to their clients because let's face it, both the buyer's agent and the broker benefit from this.

You know, the broker gets ongoing trial commissions for more loans rather than just one that they can afford in their own name. Obviously, the buyer's agent's taking a fee every time they buy a different property. They don't just charge you one fee and then, okay, well, with your budget, we can buy three.

So it's the same fee as if we buy one. 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.

And for them, they see that volume, the amount of properties that you have is a metric that they're chasing. And they're also lured by high rents because it feels like it doesn't cost them much.

It feels like if you're getting a high yield and the out-of-pocket expenses aren't that great, it doesn't feel as expensive as a high growth asset that is going to have a lower yield and is going to cost you and is going to hurt your cash flow.

So 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 super fund balance as well.

These advisors in sort of cohorts with the mortgage brokers get their beady little eyes on these balances and think, what can we do with that?

How can we sell this dream of property ownership and this great retirement to these unsuspecting, hardworking Australians who've sort of, you know, been pretty conservative up to this point in their lives? And I've spoken to a number of people. I've saved some from the clutches of the devil.

Others, sadly, I've only spoken to after they've already bought shit assets that are selling them backwards. But the pitch is really understandable and it's a willing, receptive market for that pitch.

But as I said, first I saw it, you know, so I've known that buyers agents, that type of buyers agent wants to do this and I've known that that practice existed.

What I hadn't realized is the brokers were just so complicit and this idea of the recommending the trust lending or the insinuating even by saying, well, this is how I've done it. And so, you know, this is Ben 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.

I don't know whether, you know, there's probably a bit of both, but it is alarming. And as I said, I've just done so many strategy sessions with people that are either about to do this and on the brink of really just sending themselves down a really terrible path or already have.

I'm glad the banks have taken note, but what I've also seen is some of the social media from these buyers agents who are just, it's outrageous. You know, they're outraged. And so now they're recommending the non-bank lending, you know, so they're not actually changing their practices.

They're just going around it because sadly there's only four or five banks that are regulated, right?

Not that I want to talk down the broking world, you know, brokers have been very, very good for Australians overall, very low complaints, you know, in the scheme of the overall financial system.

Yeah, well, within the, you know, in terms of the track record and market shares down from when I started 35, 40% to 80%, bank net interest margins have been dropping. 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 now we've got to fight back because these brokers are making us less profitable. Now we're going to have our own teams. Brokers are highly successful and they play a great role in creating competition in the marketplace.

However, this is where I think brokers need to be really careful and they are stepping down this. 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, you know, ask me about property and so on.

I'll just stay in my lane. I'm like, well, is that enough? Like, I think you need to educate yourself. Like, I think you need to go, well, if you are borrowing this money, if you're making a poor property decision, I sort of need to be able to identify that you are doing that.

And, you know, I don't have to have the solution, but just, hey, mate, I think you might need to rethink buying that off the plan apartment. You know, like this is what the old advice is. you know, it risks or do you really want to 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 by property and our mortgage brokers just weren't really interested in building relationships, like deep relationships and going on that journey of property knowledge.

I think it's like they sort of quite like the, well, my job is to get the finance, the customer's job 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 buying all these properties when they should have just prioritized buying a home.

You could see that that was going to be an issue three, four years down the line, and then they have to sell that to buy something to live in. And that was a whole waste of time.

But see, what are the consequences for the broker, though, if somebody makes a bad decision?

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

We're not tied to that, right? Obviously, it's good business because if your clients make good decisions, they do well, then obviously they're going to be like, okay, well, what's my next decision? It 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. I'm not going to go anywhere else because I trust you. Like, that's been our business model.

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.

But again, you know, the consequences for a buyer's agent, if the client makes a bad decision, a little bit more direct, you know, he's more direct towards the buyer's agent than it is to the mortgage broker, that's for sure. But, you know, the broker's sort of like hands-off.

You know, I'm just helping you get the money. What you do with that money is your problem. You know, so I can sort of understand why brokers may not be interested, but I think that there is more interest these days, but it's interest in the bad way.

Like it's interest for the wrong reasons and it's sort of going for this transactional accumulation type of interest and that's extraordinarily dangerous. 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.

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 someone will be talking to you about this crazy property that decision that they made.

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

And this instant equity uplift thing that I bang on about, which really does my head in. Should we talk about that for a little bit?

Yeah, we can. I think you're right. I think it's giving me these flavors. I think what happened is brokers are now competing with brokers, right? Because it's not us versus stealing clients from the banks. That was easy, right? And that's what the broker industry has been built on. It's like, oh, actually, no.

When a customer comes to you, they're comparing multiple brokers. That's just the way it is nowadays. And the customer is saying, well, what can you add? What's the value proposition? I think what brokers are doing is they're saying,

oh, okay, I want to add more value to, 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. And I think the value adds is just like exploring this way from, you know, maximizing borrowing capacity.

And then unfortunately, though, that, you know, when you've got this increase in buyers, we used to always get emails, calls. Can you sell our developments? No, you know, all the time. Even though we were so vocal against it, we'd be like, mate, have you not read anything that we've been writing or saying?

Can you not see our website? We're against all this stuff. So there was all the new build stuff. I think that's the off the plan sort of boom of 2015. I agree that the mining boom in 2012, that was around that period, 2008, 2008, 2012 or something. That was pretty scary.

But I think this is where it's moved to the next level. And I think what you're talking about is instant equity uplift. And I think the other issue we've got now is they're being proven right.

Let's explain what that is. Let's explain what it is.

Well, yeah, like I think 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. Whatever you paid is market value.

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?

Well then, yeah, and then they go six months later and they order bank value. Now the bank values that they order are not, they're often using desktop values and they're often using a bank that's very optimistic with the value.

There's one bank in particular whose valuations often come out much higher on a desktop than other banks. It's in the bank's interest, by the way, because the bank's interest is like, oh, you get a high VAL.

You're going to do your loan with us because all investors are trying to get the highest VAL. They're looking at rate, but they're also looking at the highest VAL. So I don't know. I'm not going to open up that can of worms. But what they do is they get the purchase.

Six months later, they order a VAL and say, hey, you bought for $500,000. I got your bank VAL at $580,000. You've made $80,000 in six months.

Instant equity uplift.

Exactly. And they can actually access that equity because if they've got the 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. I've seen brokers recommend that and then repaying it, which sometimes can work.

It doesn't say, but I'm just saying that this val uplifting, and it's like, is a property determined on how good your purchase is and a bank val is in six months, or is it how it's going to perform over five years?

Well, unfortunately, the issue there for all these guys, buyers and the brokers they've got is that they've all seen quite good returns because they've been pushing prices up.

And so there's this self-fulfilling prophecy of, and then they're going to brokers and saying, hey, I've got all this, done this really well in my recent year. Look at my portfolio, look at my client. That'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.

And there's two ways they do that.

They're either buying in a market that's already on the rise, like Perth, so there's genuine price rises in a city such as Perth and such as Brisbane, or they're buying in regional markets where they are buying at scale in those regional markets, and they are the ones responsible for the instant equity uplift.

Like, in fact, every time I go to an REI New South Wales event, 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 buyers agent was talking about this same practice.

I've talked to people in Tamworth, in Parks, in Armidale, in...

Aubrey in Dubbo like I've talked to agents across the board right and they all say the same thing I say how many buyers agents are you dealing with it's more and more right how many have you met now only one and the last function I went to only one of them had actually met a buyer's agent that was actually happened to be in Tamworth right 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

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. They're like, on one hand, they're horrified for the buyer, but they are laughing because it's easy selling for them.

And so, and also some of the stories they tell me about this,

you know, where they're selling this stuff, like the wrong end of town, that these outside, that neither the buyer nor the buyers agency are aware of really the socioeconomics and that where not to buy and where to buy in these areas, right?

So all this is going on and, you know, and I've heard stories about individual buyers agency, I'm not going to mention here, about where they say, look, you know, they're paid 20, 50 grand more than they needed to on a property. There was no negotiation. Why?

It was so unnecessary, but they made this offer. And then they see it in the marketing that they're buying in an area that's just had this growth. And they're like, well, they're pushing prices up. Quite literally, it's not even demand. It's them not negotiating. So this is really awful.

And it seems to be there's a system to it. And this is the thing, at first I just thought it was a bit random, but I think there's actually way more of a system to this than I would have even dared thought.

Yeah, like I think the issue I find though is when they start talking about their own portfolios as well, like I get it that, you know, part of your pitch is to prove how successful you've been and everyone wants to follow in someone's footsteps, but everyone, you can't live the path of somebody else.

You haven't got the same situation, whether it's 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. And there's, I've known that more than anyone in recent years that a lot of people don't say the truth. And, you know, you obviously, when you think

You know, your view on the world is 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. But in this space, I know for a fact they're not. And they haven't got the portfolios they have.

And it's when you, you also the issue that they have, if they have got a decent portfolio, often the reason they can leverage that portfolio is due to their income. Now, the reason they're usually pushing their income up is because they're running their own business. They're running a buyer's agency business.

And that buyer's agency business is much higher than the average salaries. Talking about 20 grand a pop and they're doing 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 do other things in terms of different structures or They do these JVs. They say they own it, but they don't. They own a fraction of it.

They do it. They're part owner with 10 other buyers in these properties and they pretend that they own 100%. 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 100% due to their property decisions. Often it's not. It's due to running a very successful buyers agency. And often the number that they're telling you isn't true. They're faking it to make you believe that.

And it's really hard to go and cross-reference these things because they're not just going to give you all their addresses for all their portfolios and show us their debt. It's not going to be that transparent. And so be really careful falling for that, like following what they've done.

And secondly, often they're probably just taking advantage of the markets. And when they especially say, I'm buying there, I think that's also like a bit of a concern as well. When did you buy there? When are you going to sell? Are you going to tell us to sell when you're selling? Like,

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 purchase price, because like you're, 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, even Adelaide or Perth.

And so there's often this under a million, we find out who are we going to refer to? And we just, we find it really hard to find who we can trust. And 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. And I'm like, well, yeah, but I don't know if that's a part of the market we want access to.

Yeah, I'd love to. Some of those clients absolutely are great clients, but this proliferation around the portfolio strategy is just not something. So we've got zero exposure to this trust lending. We've got zero exposure.

When I say exposure, I mean clients that have done this because we don't want clients coming back and saying, hey, oh, you told us to do this and So we can sleep at night going, okay, well, we haven't encouraged any of this lending that's getting unwound.

We haven't encouraged people to buy in these riskier locations and there's a risk of investors sort of fleeing.

I'm on a personal mission to help more people make better property decisions. You know, most people don't realise 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 often masquerade as simple questions like, should I sell my investment property because the interest repayments are hurting? Or should I buy before I sell? Or the other way around.

You can connect with me and access all of the tools that I've created to help you make better property decisions at veronicamorgan.com.au. And there you will find resources for first home buyers, details about my buyers agent mentoring program.

You can connect with my Sydney based property management and buyers agency teams, Australia wide vendor advocacy, or ask me for introduction to the small group of buyers agents that I would personally recommend across the country. That's veronicamorgan.com.au.

If you're considering a property move such as buying your first home, upgrading, renovating or investing, the team here at Alcove would love to help you think through your decision and get the finance right. Please go to alcove.com.au to reach out.

There's two things I'll talk about. First of all, some of the people that do actually have good incomes and can afford to buy really good quality properties and fewer of them, but they get lulled into this idea and it's easy for them. They don't even have to go into the trust structures.

Some of these people have actually got the incomes to buy multiple properties. One of my clients that I actually bought a home for in Sydney a few years back, they contacted me after they'd been meeting with about three of these serial offenders.

And some of them, 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.

Yeah, there's a whole, there's a cohort that had been doing it for a while. Yeah.

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

Look, I've referred them to some reputable buyers agents in Brisbane and Melbourne, and I haven't put together a portfolio plan for them because I don't necessarily believe in that in a sense, but I want them to diversify. They want to diversify. I want them to buy A-grade assets.

And I wanted them to talk to the buyer's agent in Brisbane that I recommended and the buyer's agent in Melbourne that I recommended they speak to because I wanted them to understand what constitutes an A-grade asset for an investor in these markets. How much money is that going to cost me?

What's my cash flow going to be like? You know, what's the rental return going to be? What sort of future buyer would I have? How difficult is it to buy that type of asset?

And then to work out, you know, to prioritize the next one that you buy, do it one at a time. You don't have to do it all at once. 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 property.

I don't know how you sort of set that figure when in a rising market anyway, but they never spend over $750,000 on a property. It's like, you know, I can get you great returns from that and, you know, showed all these examples.

maybe there's some good stuff in there, but it just didn't look to me like it was being bought in areas where you've got good upward pressure on capital growth. But the big alarm bell for them was it was a one-size-fits-all strategy. Every single client that came to them realized

regardless of their financial position, regardless of their current equity position, was sold exactly the same formula. And if you can afford more, you get more. And if you can only afford one, you get one. And I just found that astounding.

So thankfully, they're smart enough to come to me and go, we're just not, you know, they're about to sign, you know, but they just had this niggle. Thank God. And when I judge awards, which honestly, I need about two weeks to get over the judging process, to be quite frank, because I'm reading...

the success stories if you want to call it that of buyers agents who follow this sort of practice and are proud of what they do and proud of what they buy because 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 no it's all about location is more important than the asset not understanding the two go hand in hand

It actually, it really does, it upsets me. I've cut back on my judging because it really does bother me. And it's so prolific and there's more and more of it. And then so there's that sort of high net worth potential person who's squandering their borrowing capacity.

And then you've got the others that I mentioned earlier, who are the sort of the mums and dads who are often in their late forties, early fifties, and they're suddenly starting to think, oh, you know, we're like 10, 15 years away from retiring and I don't think we've got enough.

and they've got a home and they've got a bit of a super balance. 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 buyers agents. It's really, really horrific.

That's why we want to 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. And we just want to add to that the word of caution.

Just please don't go down this path.

Yeah, at the start I was talking about CBA and I sort of completely forgot about APRA coming in. I mean, I did a post like a while ago on, hey, I think APRA is going to step in and stop investor lending.

I was like, just you could see just with the, you know, Quartality Monthly, they do a percentage of lendings investing and it was just way high. And I'm looking at the sort of loan flows.

The last quarter has actually been the highest. since that last quarter in 2016, where then they started, you know, clamping down and we're back up there.

Yeah. And then I can see, you know, in certain states it's obviously much higher than it usually, you know, is. And so what you're doing, and that's not often where other investors are going. So 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, but you can also see loan flows through the banks and ABS do figures as well. So you can see exactly the amount of investor lending coming and And I think you're right.

A lot of those people aren't, say, the couple, young family, because they've leveraged up often into their home. It's usually maybe a little bit later. The kids are getting a bit older. That sort of magic number of 50. So I'm 39 this week. So the 40 is coming for me.

But I mean, that magic number of 50 is kind of like a, uh-oh, we better get going, right? It was when I was in the financial advice world. We get so many clients.

Some come early 50s, but often they think they should do it then, but they don't come and see the advisor till maybe mid to 50s, a 55 number. And they're like, oh, I've only got 5, 10 years, I'm going to get going.

But that's around circa 50 age is, you know, they've had the house, the kids are getting through school, they're getting into high school, you know, maybe school fees are finishing, you know, and they're like, actually, we've got to pick up the pace here. We've just focused on getting the kids through school.

And now we've got to really focus on our retirement. We've got a house, we've got heaps of equity in it. 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 balanced quite a lot, but they just feel like there's a gap. And this cost of living crisis is only amplifying that, right? Like they go, God, look how much we're spending. We've got to have to prepare for our timers. Like, you know, we're spending so much just to live.

It doesn't matter if we're mortgage free, we need a decent income. And I think those two things go hand in hand. I think A, they leverage up hard personally. And then I hate when they leverage up their superannuation. our SMSF loan volume's so low and we've never fan of it.

And just in this year in particular, the non-banks have come in and the amount you can borrow on self-managed super funds is off the charts. It's like ridiculous. Like you shouldn't be able to borrow that much.

What's the LVR now?

Well, it's not the LVR, it's 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, and then even if you want to need to top up your super fund, you can sort of say you're going to do it.

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 going to buy for that price?

And you're going to punt your whole superannuation on this type of property. And then everyone's like, okay, I'm not going to do that. I'm like, yeah, cool. But now it's like, oh, no, no, I now can borrow a million bucks. Oh, I can buy a good asset. Oh, okay.

But then it's like, actually, no, you still got to pay that mortgage. You still got to cover that shortfall. You got to top up. So you're basically still punting everything on one property.

there's no voices of reason suggesting that they don't do it. And accountants aren't even suggesting that they don't do it. Maybe some are, but obviously they get more fees out of it. But that's a crazy reason to suggest somebody has an SMSF. But the other thing that I think

And I did not even realize this until I heard this on Stuart Williams' podcast, Investopoly, was talking about that when you get to the age, the pension age, where you need to draw down a pension from your super balance, you need, it starts at 4%, right?

You have to draw that down every year. Now, if you don't have enough liquidity in your fund, And generally speaking, you're not going to end up with 4% net after costs of rent, even if that property is 100% debt free.

If that is all you have and it's paid off, you're going to struggle to fit that criteria. And then you're going to be forced to sell it at a point that might not be the right time to sell it.

If you're buying in your self-managed super fund and you've only got 10, 15 years left of working, it's very unlikely that that is going to be debt free by the time you retire.

And if you don't have those cash reserve, you don't have liquidity in your account, you're going to be forced to sell that. And then you could be asking, what's the point of having it?

It'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.

Anyway, I obviously can't advise people on what to do with their super, but I can say that in terms of property, go and get some advice from an expert on this before you go down this path. And I also warn most people not to do it. Don't buy property in your super.

I'm a property person. Please don't do it. Please don't do it without really good guidance. Now, for some people, I've done it myself, right? Some people is the right thing to do, but I also did it a long time ago.

It is the right thing to do for some people and they've got enough money in there to be able to do it and still invest and have a balanced portfolio. But this is a real issue.

And as you said, you've seen the proliferation of non-bank lenders more willing to lend in this space, make it easier. And I've noticed that too. It seemed to die off and the buyers agents are back out spruiking it again. So that is a really, really scary area in my view.

Yeah, I mean, the breaking world is it's banks are very risk on. I know that people say, oh, you know, banks don't want to lend. And they have got way tighter, like they, you know, compared to when I started. And I've said this story probably 100 times out of 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, right? They've all got shareholders.

They've all got... you know, people that they need to answer to and credit growth. And the mortgage is like the backbone, right? Like the mortgage spore. 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're losing market share. That's not good news. You get absolutely smashed by your shareholders. So they're all looking at ways of, you know, and they're all competing.

They don't want to compete on price because price is like they're not profitable growth.

But they've already done that. They've already tried the, you know, two grand 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.

That's right. Exactly. That's right. So they all pulled out of 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. But they have said that they're relaxing credit policy. You know, 40-year loans have come out.

Obviously, all the non-mechs are coming in here. A lot of the, you know, which is Macquarie and other banks have sort of come out of the trust lending.

But it's not to say that we just, but they are looking for little niches and is definitely risk on like exceptions are going through and low dock loans is a bit of an issue. Private lending is a private lending boom. I don't know if that's probably talked about enough.

And ASIC, if you type in private lending and ASIC, you'll see that there's a lot of focus on how much money is getting lent here. And the whole scheme of a $2.5 trillion market of lending in home loans, it's not that much.

But the growth of it and the amount that's happening in just the recent years is a real thing to be concerned about.

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?

I do think people are getting themselves 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 because they're leveraged up and they need cash and their business isn't going anywhere near as good as it is.

You know, they need to keep paying for these properties or keep their business afloat or keep paying mortgages on things.

So yeah, private lending's absolutely got 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.

just to have access to equity but the amount of money that's willing to do that is really much higher than it's ever been you know as in what they're using as security is often homes or other properties or and they're just instead of going to banks where the banks say no no we're tapped out they go to like not even non-banks like private lenders so basically private lending private cash

So when things tighten up, you know, when interest rates go up again, you know, rents at some point, they'll stop their rapid rise or they'll slow down or they'll even go backwards because that has happened in the past, right? 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, it's built on the house of valuation. certificates, their cash flow suddenly gets tight, right?

Even if they go to a private lender to get some money to free up their cash flow, they're just making their situation worse, right? They're going to start to sell these houses.

I think, so what you say, if the buyers start buying in these areas because they've dominated the price growth, at some point they move on to the next market. Like it doesn't make sense just to keep piling in. And they do that.

One minute we're buying Mildura, then we're buying Townsville, then we're buying Darwin, then we're buying this, right? So at some point the buyers agents shift, right? So then all the people who've 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 was out a long time ago. I can't even believe it's gone up to where it is. They're already beyond what they think because 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 because they're like,

not going to want to buy it at current prices and then if you find the investors start bailing now if they have to buy because you're right maybe if interest rates go up they can't extend interest only terms their car home mortgage gets up they lose their job they maybe over leverage they can't afford the cash flow then they start selling and then all of a sudden it starts to hey you can't sell it at 900 now it's 800 and then it's like well shivers we're actually getting close to negative equity if it drops to 700 let's get out

I've also got a bit of a theory on this. As there's more buyers agents coming in, and they're starting to look for more markets, and they're trying to find markets that the other buyers 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. Now, past performance is not the predictor of future performance.

But we've looked at it in our core markets where we're buying, but we know these markets extraordinarily well, and they're not full of these. Sydney is not the target of these buyers agents, so this sort of lending. So we're sort of a bit immune to this. But the thing is, it's sort of,

spoken about that you look to the past and you think if this property has shown its potential to say double in value over a 10-year period, for example, then that's got a good chance of being able 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. Then you can abuse that history because then you can look at these areas that have had this sudden growth and

not attributing it to the fact that it's been other buyer's agents because there's no transparency around who's buying. When you actually look into the data in these areas and you go, look, this area has had a boom and it's come off, but mean reversion means that it's going to go back again.

Do you know what I mean? 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 left decimated from the last site and the whole thing starts all over again.

This is something that I'm sort of developing this sort of theory that this could happen.

Even the fact that I've heard of these regional agents who are operating in areas that I wouldn't thought was necessarily a hotspot for an investor, not necessarily a robust economy, not necessarily diverse economy and not necessarily diverse buy pool. And I'm thinking, why are they buying there?

You know, what's their story and their pitch around that area? But this is happening. These stories are being created. And now with this history, that can then feed into more stories. So that's the true Ponzi scheme, right?

I do think time will tell. 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 pay-per-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 this is one of the best things about residential property is banks will lend on it pretty freely like we spoke about early on with bank valuations so you can access equity without paying any capital gains tax and then reuse that let's use it lifestyle use it to support other properties 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 vow. What's actually the line in the sand is when you actually sell it one day. And I think that's where I think people will start to go, hang on a second, I'm worth this.

Maybe they leverage up even further. And then hang on a sec, if there's a 15% correction in prices, what have you actually made out of this? And now you've got things that are actually costing you money. Do you bail?

And I think there's always people who've got in really early and have made big price growth. And there's people who have got in late.

And unfortunately, it's usually the ones that get in late who get hit the hardest because the ones who got in early can usually sell a few things to get through. And then 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. I didn't make it. But they've got the ability to ride that wave. It's the ones who get in last who get stuck carrying the bag, really.

Also, in terms of risky lending, because that's one that, you know, we're talking about risky lending and investing practices here. Okay, so you go off outside the big five banks, let's call it the big five banks now.

You continue to do your trust lending and continue to use non-bank lenders and you can continue to do it that way. But some people might not do that. They might want to stick with the regulated banking sector. What's the deal with cross-collateralization?

So, because this is something that investors need to be aware of as well, right? In terms of how they structure their loans.

So, look, good brokers won't do this, particularly if you're buying risky assets. And it doesn't mean that all your loans are with one lender and all your loans are with five different lenders. You can still be uncross-collateralized, collateralized. or you can be cross collateralized at the same time.

It's just how you lodge the loan application. Yeah, exactly. And so basically the issue you can have 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.

Like that's really what you want. You want is basically is every loan to be secured by one property. So if you default on one loan or you get late, the bank will sell that property first and then they'll come at you and say, hey, you still owe us money.

And then you go, okay, well, I'll sell that, you know, take that property, et cetera. The problem when it's cross secured is firstly, if you get valuation issues, it sort of affects your lending limit.

Whereas if you had like unsecured, like each loan was by each property, if one VAL drops, well it only affects that one. You can't borrow any more money against that property. And whereas if another property goes up, well, you could that release equity on that one.

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.

And so it's just another way to protect yourself. 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. It just gives you way more flexibility.

The dream, the major thing what people talk about is if you end up defaulting on your loans, the bank will just sell your best asset, which is usually your house. They want to recoup their money as fast as possible. They won't ever sell it in the market.

It'll just be a fire sale, bang, bang, bang. And then I think that's it. But that's a disaster strategy. But even if you're defaulting on one property, you're in trouble. And it's just, you know, and there's just these small benefits, like you can have different terms on different loans.

This interest-only loan could be higher and... Yes, that's what good mortgage advice is.

It's sort of strategizing and go, how do we not only give you the amount of credit that you want, but we structure it in a way to protect you the most and increase the most tax efficiency with it and the most tax deduction with it as well.

But then also, if we go back, we've lent, I think it's like $2.8 billion now as a firm. If we look at the amount we've used on banks, I haven't looked, but it'd be under 5%. It'd be under that. It'd be probably 2% or 3%.

So we just haven't got caught up with this because it's a natural option, though, with brokers is, oh, I've tapped out of the banks. I'll go to these non-banks and we can just see it is, yeah, but you might become a mortgage prisoner there, which a lot of people did.

Or you might find that, you know, and that happens even the last three or four years, a lot of people became mortgage prisoners at banks, non-banks that just wouldn't reprice their loans.

And then all the other banks repriced their loans in 2022-3 after higher interest rates and people got stuck on rates, you know, 2% above market. So yeah, we're very apprehensive on this. We just want to make sure clients, I don't think you need to.

I think you can build wealth by still just using the majors.

It's a long time since I've bought an investment property actually, because I've moved my investment strategy some time ago. I'm a bit older than you.

So how does someone, if they've got their home and they want to 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?

So what you do is you, yeah, so what you just do a vow on the property, just round numbers is so much easier, right? So property's worth a million dollars. Their loan on it's 500,000. The bank would, you might do a little bit of a gain.

You might get a 40 from banks and get a vow at 1.1 million or something, right? So, The 1.1 million, you refinance your loan from say St. George to Macquarie and 80% on 1.1 million is 880. Your loan was 500. So Macquarie would release $380,000 as an equity release.

And the reason they do that is because there's no risk really to them because the property is worth $1.1 million and they're only lending you $880,000. That $380,000 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, i.e. might be St. George, it might be ING, whoever it might be for investment property purchase. And then when you bought that, let's say you bought something at $1 million,

What we would use is the 20% deposit, 200 plus stamp duty, 50. So we would use 250,000 out of that 380,000 we released for the deposit on the million dollar property and then borrow $800,000 at whatever bank it is.

at 80%. And so they're two separate properties. The loan that you used at Macquarie, the 380, well, the $250,000 of that that you used for a deposit on the investment property is tax deductible because the ATO care about what was the purpose of that loan, not what it's secured by.

So what did you use that money for? I used it to buy 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 of the $380,000 that you used. And so that's just a real simple example, rather than, you know, both loans being at Macquarie and having a million and 50 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.

So look, I think the upshot of this episode is that we really want to warn you about risky lending practices. We want to sort of give you a sense of what it's like to talk to a broker who is not pushing those types of practices so you can tell the difference.

And likewise with the buying practices, there's just so much risk being taken out there in the property space at the minute. And we're alarmed by it and we want you guys to be aware of it so that you don't fall into any of these traps inadvertently.

So thanks for listening and we'll be back with another guest next week. If you have a question that you'd like us to answer in an upcoming Q&A episode, you can send us a voicemail or written question via the website, theelephantintheroom.com.au or you can email us directly at questions at theelephantintheroom.com.au.

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