Sequencing & Opportunity Cost
In Australian lending, the order in which assets are purchased matters.
The lending system does not assess properties in isolation. Each decision affects future borrowing capacity, risk appetite, and available structures. This interaction is referred to as sequencing, and mistakes in sequencing create long-term opportunity cost.
What Is Sequencing?
Sequencing refers to:
- the order assets are acquired
- the structure used for each purchase
- the cash flow and serviceability impact of earlier decisions
A property that is affordable today can materially restrict options tomorrow.
Opportunity Cost in Lending
Opportunity cost occurs when:
- early purchases reduce future borrowing capacity
- poor cash flow absorbs serviceability buffers
- capital is locked in structures that cannot be reused
The cost is not the asset itself, but what cannot be done later.
Common Sequencing Errors
Examples include:
- buying low-yield assets first
- purchasing SMSF property early (equity cannot be released)
- over-leveraging a primary residence
- using cross-collateralisation unintentionally
Each decision compounds.
Why Lenders Care About Order
From a lender’s perspective:
- serviceability is forward-looking
- existing debt shapes risk appetite
- flexibility reduces future risk