Yes ditto what RJ said Rixter...tried to kudos too but I must spread around my love 
but thankyou anyway
but thankyou anyway
Explain how one can keep accumulating property
- Thread starter Mustang
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ramone_johnny said:Awesome post Rixter - have provided KUDOS!
Just slightly off topic - what are typical amounts invested into cashbonds? 100K, 250K? What provide best returns? And when you say an "insurance company" what do you mean by this? Whos door do I have to knock on to make this happen?
Hi RJ,
I basically purchased a $100k Cashbond/Annuity or the product name known as "Guarranteed Income Plan" from a financial services company named Challenger Financial Services.
There are many financial/insurance companies including some banks that provide these type products. You can approach them direct yourself or via your own registered financial advisor for a quote, and to find the best returns available.
Hope this provides you answers.
Rixter said:
Awesome! This is exactly the answer I was looking for. Sorry to go off topic again in this thread but I have just one more questions that Id like to ask.
Is it best to invest your own money rather than borrowed money? I mean if you borrow to invest, wont you then have to make loan repayments which include interest which would inturn erode profits?
Would I be correct in thinking that its just a matter of drawing down from the equity gained in property and pushing it directly into cashbonds?
Just roughly what sort of returns are there on a $100,000 cashbond investment, and at what rate is the interest calculated.
Thanks mate,
RJ
PS. I like this bit!
"Income payment frequency The frequency of annuity payments that are made to an annuitant; either monthly, quarterly, half-yearly or yearly"
GoAnna! said:
Low docs are really for the self employed, not because someone has run out of serviceability, the ATO is currently cracking down on this. Cashbonds allow you to use normal everyday loans when you can't service any more with traditional income.
Without wanting to speak for GoAnna, I think she understands the distinctionFrankGrimes said:
But her point is one I agree with. When cashbonds first became popular, Lo and No Doc loans were both relatively scarce, and a lot more expensive rate-wise than standard loans. In that environment, cashbonds might have been a better option.
But even the most vocal earlier proponents of cashbonds now advocate using it only as a last resort, due to the ease of access to cheaper funds.
This isnt saying cashbonds aren't useful - for some people at some stage in the market, they are a handy tool. Obviously for Rixter it was the right thing to do at the right time.
But with the proliferation of easy and and flexible credit, non-bank lenders and great mortgage brokers, and the uncertainty of where the property market (in all states) is heading in the near future, I'd be recommending people investigate all options before going down the cashbond road. There are good brokers on the forum who can overcome serviceability problems a lot more cheaply than using a cashbond.
Jamie.
Cashbonds can be very useful. But they cost.
If you have $100K in equity, but not enough income to show servicibility:
.You borrow say $100K to purchase a cashbond
.You are paying perhaps 7% to service that loan
.Your cashbond, which is effect an annuity, pays you out at at 20% of the total value of the bond each year. Your capital is being reduced by 20% pa. This shows up as income for those 5 years.
If you had invested that same amount into another investment, say at 10% pa, you would show a much smaller cashflow- which may not be enough to buy "that" property. But you would have the capital intact (well, hopefully) after a period of time.
If you have $100K in equity, but not enough income to show servicibility:
.You borrow say $100K to purchase a cashbond
.You are paying perhaps 7% to service that loan
.Your cashbond, which is effect an annuity, pays you out at at 20% of the total value of the bond each year. Your capital is being reduced by 20% pa. This shows up as income for those 5 years.
If you had invested that same amount into another investment, say at 10% pa, you would show a much smaller cashflow- which may not be enough to buy "that" property. But you would have the capital intact (well, hopefully) after a period of time.
GoAnna! said:
A Lo/No doc does not allow you to increase your aset base 4 times the lo/no doc loan borrowed amount.
The CB is paid back to you over the 5 year term. There is a small amount still outstanding due to the rate differences. This would still be tax deductable
If you capitalise portfolio expenses on a LOC the interest would still be deductable providing it used purley for investment purposes.
Cheers
Thank you, Rixter for great posts now and in previous thread.
I read it with interest, as it may help my situation.
With my bank I have reached now the LVR and DSR ratio. Yes, banks seem to have a limit of $1,000.000 in borrowings.
With a LOC against my PPOR to use as deposits and a pre-approved loan for IPs, I can only buy 2 IPs for now.
I would like to get 3 or 4.
Thought about a LODOC/NODOC further loan from another institution, but perhaps the cashbond/annuity may be the answer.
I will still have left about $90,000 in the LOC, and a substantial amount in a cash management account (preferably kept for any shortfalls).
I know I need to speak with my accountant, and do some number crunching.
My question is regarding the Challenger Guaranteed Income Plan.
I noticed there are 2 options: RCV100 and RCV0 (Residual Capital Value 100% versus Residual Capital Value of Nil).
From my understanding with RCV100 you get your capital back on maturity but with lesser income, and with RCV0 you forfeit your initial invested capital but you get higher income instead.
Is one better than the other?
Personally I would rather get my original invested capital back.
So, if I choose RCV100, and invest say $100,000 for perhaps 3 years (5 years makes me bit nervous), I would get $20,000 income per annum (or say $1,666 monthly as is your strategy? ), and at the end of the term I still get the $100,000 back? Minus the 7% pa for the interest on the LOC offset by the tax deduction etc.
Is this how it works?
I have never done this before, so I am new at this.
Just trying to brainstorm different possibilities.
Heard about cash bonds/annuities in the past, but could not get my head around it then.
Now it makes more sense to me.
Any feedback will be much appreciated.
Thank You,
GMG.
I read it with interest, as it may help my situation.
With my bank I have reached now the LVR and DSR ratio. Yes, banks seem to have a limit of $1,000.000 in borrowings.
With a LOC against my PPOR to use as deposits and a pre-approved loan for IPs, I can only buy 2 IPs for now.
I would like to get 3 or 4.
Thought about a LODOC/NODOC further loan from another institution, but perhaps the cashbond/annuity may be the answer.
I will still have left about $90,000 in the LOC, and a substantial amount in a cash management account (preferably kept for any shortfalls).
I know I need to speak with my accountant, and do some number crunching.
My question is regarding the Challenger Guaranteed Income Plan.
I noticed there are 2 options: RCV100 and RCV0 (Residual Capital Value 100% versus Residual Capital Value of Nil).
From my understanding with RCV100 you get your capital back on maturity but with lesser income, and with RCV0 you forfeit your initial invested capital but you get higher income instead.
Is one better than the other?
Personally I would rather get my original invested capital back.
So, if I choose RCV100, and invest say $100,000 for perhaps 3 years (5 years makes me bit nervous), I would get $20,000 income per annum (or say $1,666 monthly as is your strategy? ), and at the end of the term I still get the $100,000 back? Minus the 7% pa for the interest on the LOC offset by the tax deduction etc.
Is this how it works?
I have never done this before, so I am new at this.
Just trying to brainstorm different possibilities.
Heard about cash bonds/annuities in the past, but could not get my head around it then.
Now it makes more sense to me.
Any feedback will be much appreciated.
Thank You,
GMG.
GMG said:
GMG,
Thats is correct RCV100 you still have your intial capital left on maturity date, and RCV0 you have your capital (plus interest) returned to you, with no funds left on term maturity.
As previously mentioned the whole purpose for utilising a CB in the first instance is to increase serviceability in the eyes of the bank/lenders. Therefore in order to maximise your borrowing capacity it mandatory you choose the capital return throughout term option in order to demostrate to your bank/lender maximum income possible.
All the bank/lender needs to know is your income received. They dont get to see how that income is derived (ie capital & interest)..All they need to know is the total per annum.
Hope this sheds some light.
Hi Rixter,
Thank you very much. Yes, your reply is very helpful. Now I understand the gist of the CB much better.
And it is good to know that the bank is not interested in how the income is derived, just that it is received!
I didn't realise there was another thread on this topic under the "Innovative Techniques" forum until now.
Thank you for your patience and your very helpful answers.
Cheers,
Margo.
Thank you very much. Yes, your reply is very helpful. Now I understand the gist of the CB much better.
And it is good to know that the bank is not interested in how the income is derived, just that it is received!
I didn't realise there was another thread on this topic under the "Innovative Techniques" forum until now.
Thank you for your patience and your very helpful answers.
Cheers,
Margo.
Rixter said:
I must be having a bad day cause you've totally lost me.
Can you show mathematically what you mean?
If you have say $200K equity and use $100K to create an annuity and the other $100K as deposit and purchase costs surely that would not take you further than using the full $200K as a deposit and purchase costs.
From my calculation that $200K would purchase a property valued at $770K if a lo doc loan was used.
GA, you would use a CB as a last resort if you have exausted other options as by using a CB it costs you to do so. You are effectively purchasing an income stream to satisfy the banks/lender eyes in relation to servicability.
What I meant by "4 Times" is if you purchased a CB for $150k it would allow you to increase your asset base holdings by approx $600k using normal bank loans.
What I meant by "4 Times" is if you purchased a CB for $150k it would allow you to increase your asset base holdings by approx $600k using normal bank loans.
so - i'm completely lost as don't understand the lingo. is that like ... australian capital reserve currently advertise 8% return for 12 months, paid quarterly or compounding until maturity - so if you borrowed, say, $100,000 at 7% against a property, and received 8% interest compounding then your income would be higher than your repayments.
is that right?
is that right?
i'm also kind of new but...
suppose you are borrowing to buy a 300k property and you have 50k deposit
if, instead of putting 100k into cashflow to increase your income by ~20k over 5 years, you use that 100k to borrow 150k instead of 250k, which decreases repayments, improving DSR...
actually, it seems like if your IP is 1-5 LVR seems more important than DSR if you also have a salary
suppose you are borrowing to buy a 300k property and you have 50k deposit
if, instead of putting 100k into cashflow to increase your income by ~20k over 5 years, you use that 100k to borrow 150k instead of 250k, which decreases repayments, improving DSR...
actually, it seems like if your IP is 1-5 LVR seems more important than DSR if you also have a salary
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