Conversations with your Bank Manager

If you are lucky enough to be invited to a cup of coffee or lunch with your Bank Manager, don’t miss this invaluable opportunity to educate yourself about how the finance world really operates. 

Try and resist the temptation therefore of acting like the prettiest girl in the class at school who is being courted by the captain of the football team.  Keep your ego in check and refrain from over talking and telling the Bank Manager about your life’s experiences and goals.

Today is the time to be a lot better listener than you are a talker.

Take this occasion to ask the professional about transactions that come across their desk in this current market place.

Ask them for examples of good and bad applications, ones that were approved and others that were declined, and why?

Be humble and know that there is a lot to be learnt from this individual if you just seize this moment.

The words of Robert Kiyosaki are relevant here

I recall attending a seminar run by him when he was last in Australia and he was asked the question, “What was his greatest lesson”.

He immediately responded by saying: “It is to stay humble and realise there is so much more to learn”.

And he said this at a time when he was already very rich and famous and the author of multiple international best selling books.

My Lunch with the Bank Manager

Luckily I remembered my own advice when I was invited recently to lunch with a man whose Bank’s policy prevents him from being named.  He is one of Australia’s most experienced Business Lending Managers.

I asked him what was the biggest mistake investors were making in the current market place as he saw it from his side of the desk.

Firstly, he unequivocally said it was not carrying out proper research themselves, but instead relying on advice from agents and investment newsletters.

He said investors were forgetting to check even the most fundamental research themselves eg. if they were buying a unit, don’t just rely on the advice from the selling agent about rental within the complex.

Investors overlooked making a simple call to the Resident Unit Manager who could update them on current rentals for other units in the same building.

Investors who bought houses were neglecting, he said, to research what other houses in the same street or suburb were commanding for rentals.

He shared with me a story about an experienced but lazy investor who purchased a vacant block of land in an area that was just far enough away from his home to make the drive to and from the area uncomfortable for him (so he didn’t make it).

Instead of visiting the area personally therefore, he relied upon a Google Earth Internet search which on a virtual tour of the streets in the town showed that there appeared to be little vacant land for sale.

Following the settlement of the purchase he then visited the area to find that in the street around the corner from his property, there were for sale 30 new vacant blocks of land.

[sam id=32 codes=’true’]

How did he miss this?

On the Internet search this area appeared just to be parkland, but on his personal visit this “parkland” was clearly newly surveyed land.

The survey pegs, visible on a drive through the street, were obscured by overgrowth on the Internet search.

The blocks were so keenly priced that it became apparent to the investor that he had paid at least $10,000.00 too much for the property.

A cruel example, said my Bank Manager friend, of an investor missing the fundamentals.

Dangers of Bridging Finance

The Bank Manager saved his final salvo for the cappuccino and Greek shortbread.

He was clearly on a roll at this stage, it being obvious to me by now that not many people took this opportunity to ask him questions.

He was clearly relishing the opportunity “to have the floor”.

He was behaving as if he was finally being “rewarded” for his good work as a Bank Manager, but masking the fact however that anyone who took the trouble to listen to this man was the real beneficiary.

After approximately 30 years as a Bank Manager he was firmly of the opinion that bridging finance carried far more dangers than benefits for borrowers.

In this marketplace he was regularly receiving applications for bridging finance for periods of up to a year where the borrower just couldn’t accept low valuations and sales assessments of their property that were coming to them from the marketplace via real estate agents.

In his opinion they lived in the deluded belief that the market would return and their best strategy was to “hold out”, but still proceed with their alternative investment but do it by arranging bridging finance for say another year until the market returned to its better days.

His comment was that over the 12 month period their position would usually worsen because invariably they capitalised the interest on the loan during that 12 month period.

After a year the usual outcome was that they were forced to sell at the real market value.

The pain of meeting the market was compounded by their increased debt because they capitalised the interest.

They eventually sold at a sale price of even less than what they could have got 12 months ago (at a time when they were in disbelief about the low valuations provided by the agents).

His strong advice to Borrowers now was that either “meet the market” or defer your new purchase or investment strategy until that market returns, but don’t take out bridging finance.  It nearly always works against you at the end of the day.

The Final Word

As I washed down the last piece of biscuit with my cafe latte, the Manager’s final sagely advice to me over our lunch dialogue was this…

“And tell your clients to ignore the advice of Economists.

“You know the type,” he said “They have multiple degrees and often post graduate qualifications.

“They usually work for a big Bank, Investment House or Government Department at a senior level of management, and have done so for many years.  The “Wages Bird” just drops their pay packet on their desk every fortnight.

“These people have a diminished sense of reality and they aren’t worth relying upon.  After all, not one of them, including anyone from the IMF or the Reserve Bank predicted the Global Financial Crisis.  Whenever you come across one of their statements in a magazine or newspaper, flip straight ahead to the sports pages.”

[post_ender]



Want more of this type of information?


Rob Balanda

About

Rob is a partner in the Gold Coast based law firm MBA Lawyers. He is a highly regarded educator of property investors and estate agents and the author of the "Made Simple" series of books and CD's.
Visit www.ClausesMadeSimple.com


'Conversations with your Bank Manager' have 3 comments

  1. May 17, 2013 @ 11:25 am Brian Matthews

    Hi Rob,
    What a great article. Thanks for sharing. The advice on basic research is so very important. In my professional world I regualrly see both small developers and Mum and Dad first timers only want us to confirm back to them how good a proeprty is (read How good their deal will be); rather than hear the truth. Never listen to economists……gold!

    Reply

  2. May 17, 2013 @ 12:43 pm Brian Stinson

    Great advice Rob,
    The other questions to ask him is how they go about evaluating loan applications. They vary in what they include as income and expenses. Ask how they calculate credit card limits and guarantees you may have given etc. If you can prepare a loan application through his eyes you are on a winner.
    Cheers

    Reply

  3. January 12, 2014 @ 9:11 am Neal

    Great article, thanks

    Reply


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