In this, Part II in our Tier 2 Lending Limits series, we’re going to be discussing the limitations of Tier 2 lenders; we’re going to give you the lowdown on the different types of Tier 2 Lenders and, more specifically, the provision of Managed Investment Schemes. As a borrower, you don’t need to know all of the gory details so, we’ll spare you the minutiae and keep that for the specialists at Acumen Finance, who love to be in the know and thrive off sharing our expertise with you ─ if ever you wanted to be ‘in the know’ too.
There is a myriad of different lenders who come under the Tier 2 category. Usually, you just hear about credit unions and building societies, but in reality, there are other investment schemes that compete with them in this lending space. Before we get any deeper though, let’s have a quick recap of the Tier 2 Lender. As you may remember, all Tier 2 lenders are ASIC-regulated (Australian Securities and Investments Commission). Some lenders, however, are further removed from the traditional, Tier 1 banking scene, which is regulated by APRA (Australian Prudential Regulation Authority). This distance means that, while APRA does loom large over all Tiers of the Australian financial markets, Tier 2 lenders are able to move in a less stringently-regulated space, judged primarily on ASIC’s prerogative to protect all parties involved in financial dealings, including creditors, investors, and customers.
So, that’s the official stuff dealt with. Let’s get on and take a look at what a Managed Investment Scheme is and what it could mean for you, as a borrower.
A Managed Investment Scheme might not be something that you’ve come across or heard of before as a borrower, and that’s completely understandable. We’re here to ‘know’ about the intricacies, instead, right? A Managed Investment Scheme is a type of scheme that brings multiple investors together in a group ─ each puts money or equal collateral, like a physical asset, into an investment. Once all of the funds are locked in, teams of experts and specialists, on behalf of their respective companies, use it to work on making that money make money, and each investor then has the right to receive dividends from the return on the investment.
When it comes to MIS, government bodies regulate them via the Corporations Act 2001, which outlines legislation that should help to ensure that investors, creditors, and borrowers alike are protected in their financial union. The legislation specifies:
So, beyond the regulation, there are two different types of schemes, and both are available for you to borrow from but have some minor differences below the surface. Here they are:
Pooled Mortgage Schemes
Right, first out of the gates we’ve got pooled commercial mortgage investment schemes, which, behind closed doors, bring together a group of loans funded by investor capital, held in trust as collateral issuance of mortgage-backed security. The idea is that because the pooled funds are spread across multiple loans, the risk is less because even if one loan is having a down-day, another might be having an excellent one, creating balance. The majority of pooled funds are professionally managed by an expert or team of experts whose job it is to ensure that the scheme runs smoothly without any hitches. With that in mind, remember that the fund manager’s name will be listed on the title of any investment properties.
Contributory Mortgage Schemes
On the other hand, we’ve got the contributory scheme, which is open and accessible until there is enough capital to facilitate a loan and take mortgage security over an individual asset. The loan from the scheme can fund commercial property, investment property or even a chunk of an industrial estate. There is one catch though… When it comes to a contributory fund, each investor is named individually on the mortgage of the property that your purchase. So, if you’d rather see one name, rather than many on your commercial property investment, do bear that in mind.
Which Route Is Best For You?
The most common question of them all is, ‘which do I choose?’ and, understandably so. The thing is, as a borrower, there isn’t much difference between the two options ─ all that changes on your end is the number of names on the title deed of your property. To be honest, money is money, and if there is a Tier 2 MIS lender who can facilitate your financial needs, we’d bet a dollar that we already know them. We’ve been in this game for a long time, and we have working relationships with a myriad of Tier 2 lenders, we understand the details of their charters and the regulations surrounding the market. Fortunately, due to our relationships, we know who is overleveraged in certain areas or certain assets, and we can point you in the direction of an MIS which can help.
However, like everything, sometimes things don’t go to plan ─ it isn’t always possible. With that in mind, we also have a collection of Tier 3 private/P2P, high-net-worth individuals and lenders, who can help make your investment dreams a reality with a click of their fingers.
But, if you’re still not one-hundred per cent on Managed Investment Schemes, before you jump the gun, get in touch with the team of experts at Acumen Finance. We’ve got access to a plethora of Tier 2 lenders in Australia, and we know which ones are most likely to underwrite the loan that’ll kick-off your commercial property investment portfolio. So, perhaps it’s time for you to leverage our sophisticated pool of Tier 2 or 3 lenders and we’ll put our know-how to good use to fast-track your loan applications and increase your chance of approval. To get your loan pre-approval process underway, drop us a line today, and we’ll arm you with the capital that you need to achieve your next best commercial property investment.