Cracknell shows us the busy day of a mortgage broker and tells us how to achieve your property goals from the very beginning and the various financing options that come with it.

Timestamps:
0.17 | Changing Careers and Succeeding
4.33 | What Does a Mortgage Broker Do?
9.08 | Benefits of Building on Vacant Land
16.21 | The Approach of Different Mortgage Broker Clients
21.42 | Top Tips for Building Your Own Home
24.41 | Cracknell’s Key Influences

Resources and Links:

[7:54] We're able to guide the customer as well to ensure that they're building something within their means, not stretching their budget. And at the end of the day, it's a great result for everyone. 

Tyrone Shum:
This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

I’m Tyrone Shum and in this episode, we catch up with Loan Gallery Finance mortgage broker Darryl Cracknell. He gives us important insights into buying land and building a new home, and explains the key differences of getting a construction loan rather than merely a mortgage. We also take an inside look on the processes involved in mortgage broking.

Cracknell has learned a great deal about property during his journey, changing careers from manufacturing to mortgage broking. 

[0:17] The only thing that comes to mind at the moment is, I remember starting off as a mortgage broker dealing with customers, when you're new, when you're inexperienced, you can come over as a little bit nervous, which can imply that you may perhaps not know what you're talking about so much. So, I received a piece of advice from a mentor at that point in time, just to fake it basically, just pretend that you're a ten-year veteran mortgage broker. So it comes across that you're confident and you're competent. But I guess when I got to the point where I was just talking to people, as a person, rather than as a mortgage broker trying to win their business, just being real to a person, I think that was an ‘aha’ moment. Because then you sort of see people open themselves up, relax and feel more comfortable about telling you whatever it is that you need to know.

[2:44] I actually considered going into real estate as well, myself. It's actually the first property that I bought, I actually sold it myself through vendor finance. And going through that experience, where I would bring people into the home, show them around, you're selling, you're trying to sell your home, it was quite an exciting experience for me, dealing and interacting with people. And I guess that's where I sort of thought real estate may be the way, funnily enough, the first gig that I did get, leaving manufacturing was with a company where it was sort of a dual role; you were a mortgage broker, but mainly what you're doing is you're selling investment properties to people. And I guess having that dual role, the sales portion just didn't, I just wasn't comfortable with that. I'm not a salesperson. And I just enjoyed the mortgage broking side of things much more, because you just feel like you're, rather than trying to sell something to someone, you're actually on their side, and you're actually trying to help them out, rather than trying to sell a product. So that just sat with me more. So after about three years with that first company that I worked with, as a mortgage broker, I did venture out and that's where I found Loan Gallery because I just wanted to be purely a mortgage broker, I really didn't want to sell properties.

Going into more detail, he tells us about the function of his mortgage broking in respect to who he works with.

[4:33] One of the things that really attracted me to coming to Loan gallery was the amount of leads that they have. Basically, they've established a relationship with Metricon, who are the biggest builder in the country. And they've been working together for the last nine years now, I believe. And that allows me to basically just focus on the finance side of things. Obviously, Metricon has got their sales consultants who sell the homes and can help their customers find land as well, to build on. So I guess that takes away that side of things from my end. And I guess with that, what we're doing is a lot of house and land loans. So purchasing vacant land and construction loans as well, obviously having that close relationship with Metricon. A lot of first time buyers as well come through that channel. 

[5:28] So being able to help them. And again, with the journey that I've been on, it's something that I really enjoy doing just to make sure that they've got that guidance, and they know exactly, it's not about just getting excited with them, it's about I try to sort of bring them back down to earth a bit and just let them know about the actual risks involved as well, so that they're going through this with their eyes wide open, basically.

Cracknell further explains the type of work his company and its collaborators do. 

[6:31] Metricon is a builder. They build residential properties, so if anyone's looking to build their own home that they want to live in, Metricon is, as I mentioned earlier, the biggest builder in the country, so they'll be able to service that to an extent. If you've already got your own land, or if you're knocking down, maybe your old, existing property, and you want to build on your current block of land, they can also assist with that. So anything to do with building residential property, Metricon certainly can [help], there's a service there that they can provide. And, I guess how we tie in with Metricon is predominantly around the finance side of things. From their perspective, they do a lot of work in terms of preparing contracts and going through [with] their customers in terms of choosing all the fixtures and finishings in their home and the rest of it. What they're looking for [from us] is just some peace of mind, knowing that the customers they are dealing with can qualify for finance at the end of the day, because at the end of the day, if they can't get that loan from the bank, then Metricon is unable to build. 

[7:42] That's where we come along, we can not only give Metricon that peace of mind in terms of giving them the confidence that they're working with someone who can actually qualify and build a home. But obviously, we're able to guide their customers as well to ensure that they're building something within their means, not stretching their budget. At the end of the day, it's a great result for everyone. 

He answers the question of why you would buy an empty piece of land and build on it, rather than invest in an existing property. 

[9:08] Aside from the obvious benefits that you know, it's a brand new home, no one's ever lived in it before. There's, for first home buyers as well, there's some benefits in terms of being able to qualify for the government grant of $10,000 1st home owners grant. Well, it is here in Victoria, I should say. That's purely for new property. So if you're purchasing an existing property as a first home buyer, you won't be able to qualify for that. 

[9:35] Also, in terms of the stamp duty concessions as well that are applicable for first home buyers, so I guess here in Victoria, again, each state is going to be different, but here in Victoria, if you're purchasing an established property above $600,000, then that's where the concessions sort of the 100% concession cuts off, there will be some stamp duty applicable. But you know, if you're building a house and land where you might be building something for $800,000. But as long as the land is less than $600,000 then you'll still be able to get that full stamp duty concession, because I guess the calculation or the dutiable value that the state government calculates will be just on the land the value of the land itself. So there's a saving there. And even if you're an investor, if you're purchasing an established property, then obviously the stamp duty implications [are there], whereas if you're building house and land, again, the stamp duty is just calculated off the land value rather than the whole property price, which is once it's finished building.

[11:19] With an established property, you don't know what hidden surprises may be in store for you, which could end up costing you even more. So, absolutely, the initial outlay would be less for purchasing a brand new property, building a new home, compared to purchasing established, those surprises as well. Who knows what could be lurking in terms of things, maybe breaking down appliances and the rest of it?

Focusing in on the key demographic for his business, Cracknell goes through some of the mindset of clients he sees and speaks to. 

[12:02] I would have to say a majority is definitely homebuyers, whether it's the first, second or third home, it's hard to [identify] a strong majority [of clients] that we see to be quite honest with you. In terms of investors, I've got a few clients of my own, I probably can't speak too much from I a broad, broad sense, but we've got a few customers of my own who did build with Metricon initially and have come back and wanted to build again, for an investment, or what they do is they'll build an even bigger and better home, maybe the dream home and keep their first home, as in convert that into an investment. 

Coming up after the break, Cracknell explains the key differences of getting a construction loan rather than merely a mortgage on an existing property…

[13:41] [Typically] you've got the one settlement basically where the funds from your loan goes to your purchase, whereas with construction, it's sort of broken down into different stages.

The phases his clients go through when considering their options

[16:21] Some people will just buy the land first and sit on it for a little while. Ideally, though, if you wanted to start building straightaway, then we would apply for a home loan.

The patience needed to enter the property market. 

[22:52] Those days are long gone, where you can just turn around and say, Well, I'm gonna buy a house today just, you know, put in 8000-9000. That's fine. It's a long term goal [now]. 

And that’s next. I’m Tyrone Shum and you’re listening to Property Investory.

Cracknell continues to distinguish the processes of purchasing an existing property and purchasing land before building a property. 

[13:35] I guess the main difference is, compared to purchasing an existing property if it is an existing property, you've got the one settlement basically where the funds from your loan goes to your purchase, whereas with construction, it's sort of broken down into different stages. The first stage is once once your land is settled, a portion of the loan will obviously go towards paying for whatever's left owing or whatever the remaining purchase price is and then what the bank will do though is they will hold the funds back for construction. So they won't actually pay the builder until they've started progressing through the build. 

[14:18] And generally there's five different stages of the construction. The first stage is generally the base stage, then you've got the frame where basically the builder will put the frame up of the house. And then you've got the lockup where basically the property is considered locked up. So you know, you'd have to have your brick work or whatever it is, and you've got your door so you can essentially lock up the house. And then you've got fixtures or fixing which is just the internal stuff, putting in all the walls and all the appliances, cabinetry and those sorts of things. And then the last stage is completion. So generally once a builder completes each of those stages, they will send the customer an invoice for the works done during that portion of the build, and then it's a matter of the customer who basically would just need to give, send that invoice to their bank and just give them confirmation that they're happy for the bank to pay the builder. So the builder can continue on with building their home, I suppose. And we're there, with our customers throughout that whole journey as well. So we're not just getting them approved and then see ya later, we're actually guiding them through the whole process too. So it is a longer process. It's not just one settlement. And that's it.

With this process in mind, he discusses the different approaches clients take, explaining how the operation of a construction loan works.

[16:21] Some people will just buy the land first and sit on it for a little while. Ideally, though, if you wanted to start building straightaway, then you would apply, we would apply for a home loan. So both the land and the construction at the same time. In order for the bank to give us an approval for that loan, though, we do need to provide them with a signed build contract. So you would have needed to have chosen all your fixtures, and finishings, all the inclusions in your home, you would have needed to finalise those things, your floor plans and the rest of it as well. Because we need to determine how much you are building for, they'll get valuations done on that as well. 

[17:36] What it comes down to is the LVR [which] is the loan to value ratio. If you're aiming to avoid Lenders Mortgage Insurance, then you need a 20% lien. But you were incorporating the land value in the loan that you've taken out for the land in that as well, because obviously that falls under the same value for that construction portion, I suppose. It depends on different banks’ processes [which are conducted] differently as well. Some banks will want to hold back the full amount in order to complete construction. So whatever it is that you needed to contribute, would generally have to be contributed at land settlement. But other banks structure it differently, where they will sort of require you to make a small contribution at the start of construction before they'll release funds to complete it, basically.

[18:57] Each customer is going to be different, right? Everyone's going to be in a different circumstance. Some may be able to come up with a 20% deposit and avoid Lenders Mortgage Insurance, happy days, some may have parents who would be willing to provide a security guarantee. In those cases, they need minimal contribution if they don't have the savings, they don't necessarily need to. And then you've got people who may struggle to come up with a minimum deposit. So we work closely with our customers over the long term as well. A lot of our customers that we see are purchasing land that's not titling for 12 to 18 months, maybe even 24 months. And that may be just perfect and suitable for them because they may not have enough savings right now. But what we can do is we can give them an understanding of the numbers and put a savings plan in place that they can stick to. And basically by the time that the land is titled, then they've got the sufficient funds in their savings to give them the best chance of qualifying for a home loan. It just comes down to the specific customer's circumstances and what they're capable of contributing. 

[21:07] Different banks process things differently. They have different processes. So it can become tricky when you've got banks who do require the loans to be split. It can make things a little bit a little bit more confusing. But overall, it's still the same thing, if you're just looking at it from an overall picture.

He shares with us his best tips for anyone considering building their own home 

[21:42] Do the due diligence that I didn't do. Speak to friends, family, but moreso, the experts, so speak to a mortgage broker. Preferably a mortgage broker who does specialise in house and land space, because what I come across a lot is customers, first time buyers who may have gone to a bank. And maybe they've only got 10 or $15,000 in savings at this point in time. The response that they get is, you can't get a home loan right now come back when you've got 60 or $70,000. So we can help those those people out, if we can just show them what sort of a savings plan they would need to employ in order to get them into a position because, just saying save 60 or 70,000 to someone doesn't mean anything, right? And what we find is with our customers, once they've actually committed to securing a house and land package, and we put them on these savings plans, they actually, more often than not, actually exceed what they initially thought that they were capable of saving. Because when you're not saving for anything in particular, it's just too hard. It's just you might get you might do okay for a little while, but then you know, things in life will happen. But once you've actually got something, a goal in mind you're aiming for, that helps you achieve your goal, in my opinion. Speak to the experts, speak to mortgage brokers, conveyancers, get all the advice that you can before taking that next step. 

[23:50] 15 years ago, when I purchased my first home, those days are long gone, where you can just turn around and say, ‘Well, I'm gonna buy a house today just, you know, put in $8000-$9000. That's fine.’ It's a long term goal. So if you can find someone who's willing to show you how to get there, then you're well on your way.

Cracknell mentions the books that have influenced his professional life, and discusses the influence of his mentors when starting out in property. 

[24:41] During the early days when I was sort of looking at what to do you know the old classics Think and Grow Rich, Rich Dad Poor Dad. How to Win Friends and Influence People, those classic books they get your mind on the right track, I suppose in terms of heading in the right direction. If you haven't read those books, they are classics. So get a hold of those.

[25:37] The previous company I worked for was really pushing the sales side of things in terms of the psychology of your customers and all those sorts of things. There were a couple of really great salespeople with that company that I learned a lot from. I don't regret working for that company. Because they did, they did teach me a lot. And they gave me that opportunity that I needed. But I guess from those the mentors that I had there, I did take away a lot from how I guess just how they operated in terms of professionalism, I suppose.

If you could say something to yourself 10 years ago, what would it be? And what are you excited about for the future?

[27:20] Get back into the investing side of things sooner. But I guess I was restricted in terms of starting out again, changing careers. So it would have been about 10 years ago, when I was actually considering changing careers, because it was something that was in the back of my mind, sort of, because it wasn't an easy decision to make. So it took a while to work up a bit of courage for me to actually take that leap, to be honest with you, it wasn't until my son was born. And just looking at him one day, and just realising ‘Okay, I've got to try something, I can't just do this forever.’ So I think he, as he always has done since he's been born, just gives me the strength to take those challenges on. 

[28:21] Property certainly, there's a lot of doom and gloom reports out there at the moment in the media in terms of where the property market's heading and the rest of it, but we've just been through a global pandemic. [Even] that couldn't slow down the property market. So, no doubt there's going to be a flat period, no doubt interest rates will rise, but there's still going to be demand out there for property. So I'm really looking forward to what’s in store over the next five years. 

Thank you to Darryl Cracknell, our guest on this episode of Property Investory.