Behind the Scenes – A Look into the Hidden Costs of Poor Portfolio Structure
As a property advisory firm, we often encounter clients who—intentionally or not—have allowed their portfolios to evolve into sub-optimal portfolio structures. Over time, what started as a simple mortgage or two may have evolved into a web of cross-collateralised loans. While this configuration might seem efficient at first glance, it can severely limit your financial flexibility and long-term growth potential.
How Cross-Collateralisation Ties Your Hands
Often, clients come to us struggling with portfolio stagnation. Despite steady capital growth in some properties, they find it challenging to tap into that equity to fund new acquisitions, renovations, or diversification moves. In many cases, the culprit is cross-collateralisation—where multiple properties serve as security for one or more loans with a single lender.
Why does this matter so much? Because cross-collateralisation makes you beholden to that one lender’s valuations, policies, and processes. Selling one property in the chain can trigger a revaluation of your entire portfolio. Refinancing a single asset becomes a drawn-out negotiation, rather than a straightforward transaction. In short, you lose agility—one of the most valuable qualities a growing investor can possess.
Why Lenders Default to Cross-Collateralisation
From a lender’s perspective, cross-collateralisation streamlines risk management and lending assessments. They’re effectively spreading their security across multiple properties, ensuring that if one underperforms, another might compensate. It’s a neat package for them—but not necessarily for you. While it can occasionally simplify initial loan approval, the trade-offs in flexibility and control often outweigh the short-term convenience.
If you’ve been feeling stuck, don’t worry. A lesser-known element of the mortgage broking industry is that career mortgage brokers are incentivised to choose the loan configuration that will be approved in the shortest timeframe to maximise turnover. The most efficient configuration, then, uses cross-collateralisation loans as they require the least amount of work as well as being more favourable for the bank, which can leave unsuspecting investors with less agile portfolios and a cache of ‘locked’ equity.
Signs Your Current Setup Isn’t Serving You
Consider whether you’ve encountered any of the following hurdles:
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- Difficulty Accessing Equity: You know your property is worth more now, but accessing that built-up value feels like running in place.
- Complexity in Refinancing: Changing lenders or negotiating better rates seems complicated because one move requires re-evaluating multiple properties.
- Challenges in Selling Individual Assets: Offloading a single underperforming property without triggering a domino effect across your portfolio has become near impossible.
If any of this sounds familiar, it’s time to rethink your structure.
Strategies to Optimise Your Portfolio
As advisors, our role is to help you regain control and flexibility. Some approaches we typically consider include:
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- Unbundling properties from a single lender
- Diversifying lenders
- Leveraging offset accounts and interest-only periods strategically
- Regular portfolio health checks
- Expert negotiation and timing
The Long-Term Payoff: Control, Growth, and Peace of Mind
Reversing a suboptimal portfolio structure isn’t just a short-term fix; it lays the groundwork for sustained growth. Without the constraints of cross-collateralisation, you have the freedom to chase new opportunities as they arise. You can pivot to emerging suburbs, develop, renovate, or liquidate assets without needing your lender’s sign-off on every move. And when you do decide to rebalance or exit part of your portfolio, the process is smoother, more predictable, and more profitable.
In Conclusion
If you’ve found yourself hamstrung by cross-collateralisation, remember: you are not alone, and you are not stuck. With the right advisory support, you can strategically restructure your loans, regain control over your equity, and reshape your portfolio into a dynamic, responsive, and resilient investment platform. The key is recognising that restructuring is not just a housekeeping task—it’s a strategic move that can set you on a clear path toward achieving your long-term property goals.