Investing is more a game of lending than it is investing

Author and property investor, Michal Yardney says “real estate investing is a game of finance with some houses thrown in the middle”.People think that the scarce resource is investment-grade property. But the scarce resource is actually borrowing capacity – as everyone has a limit to how much they can and should borrow.In a normal market, investors that seek professional advice from a buyers’ agent will eventually be able to identify and acquire a quality asset. And if you had an unlimited borrowing capacity, theoretically, you could keep buying property. However, the reality is that everyone has a limit to what they can borrow. Safely maximising that limit allows you to invest more and build personal wealth. That’s why investing is a game of lending, not investing.My recent experience is case in pointMy wife and I recently refinanced some loans from Westpac to ANZ. Most of these loans were established at Westpac in the past 3 to 5 years. One loan was established as a result of an unexpected, but advantageous, property acquisition in late 2016. To get the loan approved, we had to agree to making accelerated (additional) loan repayments to reduce debt.However, over the past 3 years, our loan to value ratio has reduce significantly and our overall financial position has materially strengthened. Plus, we have been making substantial loan repayments thereby reducing our debt.As such, I approached Westpac to (1) restructure our loans and (2) access some equity. In short, they said no! Whilst this was frustrating (and frankly nonsensical), it reminded me how important it is to know the rules of the lending game. You need to know when to push and when to walk. And most importantly, whether a ‘no’ is really a ‘no’ – maybe you are either talking to the wrong person at your existing bank or need to go to a different bank.The short story is that we refinanced to ANZ, obtained a lower interest rate, almost all debt on interest only repayments (only one loan on P&I because we requested it, not the bank) and we obtained access to a large amount of equity.To win at the game of investing, you need to first win the game of lendingI have always counselled my clients to do two things. Firstly, always borrow more money than you think you need (large buffer). Secondly, the best time to borrow is when you don’t need it.When I started talking to Westpac back in September 2019 (yes, nearly 6 months ago!) in regard to restructuring our lending and accessing equity, I had no immediate plans for the further borrowings. However, as it has turned out, as a result of this refinance, I now have access to additional monies I can invest in the property and/or share markets if I want to i.e. there are much better buying opportunities now, compared to 6 months ago.My point is that your ability to successfully invest to build wealth will be severely hindered if you are not able to proactively and efficiently maximise your borrowable equity.The banks and government set the rulesIn order to win the boardgame Monopoly, you firstly need to learn the rules of the game and secondly work out how to play them to your advantage. Winning the game of lending is no different.It is important to understand that there are two types of rules.The first category of rules is prudential lending standards – let’s call these ‘normal rules’. An example of this rule is that most lenders allow you to borrow up to 80% of a property’s value (without charging mortgage insurance). This is a hard and fast rule that cannot be bMy new book is available for pre-order now: Pre-ordering the book will help me get it into bookstores. So please do me a favour - please consider pre-ordering now - links and pre-order bonus are available here: https://prosolution.com.au/book-preorder-bonus Do you have a question for the podcast? Email us at [email protected]. If you're interested in working with our team and me, discover how we can work together here: https://prosolution.com.au/family-office-servicesIf this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://prosolution.com.au/stay-connected IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.