Page 5 - Loan Structure Solutions

Flexibility: Flexibility relates to your ability to make the most of
opportunities. For example, being able to access a sum of money
quickly so that you can take advantage
of an investment opportunity that has
unexpectedly arisen, refinance one of
your loans to a lender that is offering a
sensational fixed rate for a limited time
and so on. Unexpected changes are, by
definition unexpected. It’s hard to plan
for something that is unexpected.

Risk: Rarely do I meet a prospective
client that takes a balanced approach to
assessing risk. Investors tend to be
either overly conservative and spend too
much time on focusing on why they
shouldn’t invest or they are blind to risk
and look at everything with rose coloured glasses. Risk management is
often about playing the devil’s advocate and thinking about all the
things that could go wrong. What if I lost my job, what if I fall ill and
can’t work, what if a tenant gets injured in my property and sues me
and so on. Loan structure plays a role in this too. For example, assume
you run into financial difficultly and you decide to sell one of your in-
vestment properties so that you can use the cash proceeds to pay for
living expenses for the next few years. If your loans are structured
incorrectly (cross-securitisation – more on this later) then the bank can
control all the sale proceeds and force you to repay debt. That’s a risk.
This is only one example of how loan structure affects risk.
Account keeping: This is about
keeping your accountant and the ATO
happy. The onus is on the taxpayer to
prove why they are claiming certain
deductions. For example, if you have
one big loan that relates to multiple
properties and you sell a property but
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