Navra Cashbond?

I downloaded and read the PDS for The NavraInvest fund and was quite impressed. I also gave it to a financial advisor friend of mine who is evaluating it now, he says looks good in principal but is waiting on the performance figures from NavraInvest.

But I digress , I was also talking to him about the cashbond concept of Steves and he wasnt keen on that one due to the fact that the interest rate gap was too large.

EG: Most people would pay about 6% or a bit over on a LOC loan on 80% of their equity (mine is 5.97% but was 6.04% ) and he says that the best annuity (or cashbond) rates at the moment are offering about 4.5%. This 1.5% gap is too large he feels to make it worthwhile unless you are a retiree with limited funds and need to live on your property equity.

I would like to get forumites opinion on this and also if anyone has actually used this concept for additional cashflow. I have heard so much about it but havnt heard of anyone using it.

While im at it, do any gurus know of any other methods to turn your equity into an income stream besides the Navra cahbond?

[XBenX]

wholesale rates are less than 4.5% atm you'd be lucky to even get 4.5% id think !

it does represent quite a large gap - but as long as your property is out performing the interest rate you are being charged (assuming neutral cashflow) by this amount or greater then your happy

im a bit sketchy on this concept so if it doesnt sound right please correct me

[duncan_m]

Originally posted by brains

While im at it, do any gurus know of any other methods to turn your equity into an income stream besides the Navra cahbond?

Sorry I dont fit the Guru tag..

However bear in mind that money borrowed to pay expenses associated with your Investment Properties results in legitimate deductible interest. If you had a company, or a range of companies that provided services associated with your investment properties (eg, Investment Outlook reports, tax planning services, cleaning etc etc) you could pay some/all of your borrowed funds into these companies.

To complete the tax free cycle, the Income that these companies recieve would have to be expended in a deductible manner.


Dunc.

[Kevmeister]

(Sorry, not a guru)

But when I played with some numbers on cashbonds it became apparent quite quickly that a lot of your capital is also getting eroded in something like a vicious cycle simply to pay the interest bill on the loan which created the cashbond in the first place.

Using rough figures, if you wanted, say $35K per annum for 5 years "in your pocket" you'd have to buy something around a $220K cashbond (assuming an earnings rate of 4% and a loan interest rate of 6%). Look at those numbers.

To get 5 x $35K ($175K) you need to buy a $220K annuity. It has cost you $45K over 5 years for that privilege, or 20% of the annuity's value.

The longer the cashbond term, the more the annuity's income goes towards servicing the debt rather than providing you cashflow. For example, extend out to $35K for 10 years and (unless my numbers are mistaken) you need a $636K cashbond. You spend $636K to get back $350K. 45% of the annuity's value goes towards servicing the interest on the loan that was used to buy the annuity.

The larger the gap between the loan interest rate and the earnings rate the more it costs.

My point nonetheless is it *seems* to be a very expensive way to obtain cashflow, especially for longer term annuities. Of course, if that cashflow means you can use it productively to make more money, the expense is outweighed by the earnings.

[Ajax]

Brains posted "I would like to get forumites opinion...if anyone has actually used this concept for additional cashflow. I have heard so much about it but havnt heard of anyone using it.
"

I have also yet to see anyone on this forum mention they use the cashbond method.

I've been to Steve Navra's seminar which is very instructive and well worth the time. However, if I can obtain a low doc loan through Suncorp Metway at 6.07% p.a. without providing tax returns (just proof of equity) surely this has to be a better choice.

I note that Rolf recently posted that one of the best things around if you qualify is Suncorp lo doc at 6.07 at 75 % LVR for I/O and Integris at 6.55 at 80 % LVR.


Ajax

[Rolf Latham]

Hi Guys

Hmmmm, I think the power of the annuity thing has been missed bu that planner.

Annuities have their place. There will be instances where you will NOT qualify for a lo/no doc product for whatever reason.

Providing that the asset CONTROLLED with the extra serviceability grows at a rate that makes the overall equation worthwhile, the gap between an annuity rtn and the interest used to purchase it is irrelevant.

I do agree though that in many instances a straight no docs may be easier. This is especially so where the equity available is limited.

On Suncorp, like Westpac, they have this week decided to increase one of their rates. Their Pro Pack Offset has gone from 6.07 to 6.17. Must have been getting too much business !

Ta

rolf

Rolf, hes not missing the point of the annuity. Hes just looking at it using the numbers. Wether its used for serviceability as compared to a lo/no doc loan or to live on is of no interest to him.

In reply to your post, i dont think eating up the growing equity of a property to service an interest rate gap is the panacea to serviceability issues this cashbond thing has been promoted to be on the forum.

A lot of forumites recommend or promote it but ive yet to see or hear of anyone using it.

Maybe im missing something with it, please enlighten me if i am.

To get back to my original question: Does anyone know of another way to turn equity into income?

[dtraeger2k]

Originally posted by brains
To get back to my original question: Does anyone know of another way to turn equity into income?

No, so that probably justifies the cost of it (the interest rate gap).

[Mark Laszczuk]

Okay,
Those of you that have been to Steve's seminar will know this, but he really stresses the point that the cashbond is only used when all other avenues have been exhausted. He does say that it is an expensive tool to use, hence the reason why it tends to be a last resort thing.
I don't use it (hopefully, I may never have to) but the thing to remember, is that it is not the holy grail of investment strategies, it is just one tool of many that Steve uses to help people achieve financial independence, which is his job!
Another way I look at it is that the difference between interest rates is the cost of having the extra serviceability or being able to quit your job.
Steve's strategies differ from the large majority of investors, which is I believe he has been so successful. He integrates all forms of investment (cash, shares, property) into his strategy to gain optimum returns at all times. This is a very very rare thing in investing, I have observed.
The large majority of people either invest ONLY in shares, ONLY in property or ONLY in cash (whether you determine that to be investing or not doesn't really matter). Why used one when you can use them all? I guess that's why only a small percentage of investors actually retire on an income higher than 50K - .8% of the population, if I remember correctly.
Sure, it can be done using only one strategy, but it can be done so much easier and quicker with all three going at once. And I guess that's what makes the difference. Maybe those of you that are concerned about the cost aren't seeing the forest for the trees?

Mark
no hat, some cattle

Mark,

That Steve recommends investing in cash, property and shares is not unique to him.

To invest across the three asset classes and to diversify within them is a fundamental and common form of investing.

[Steve Navra]

Originally posted by Kevmeister
(Using rough figures, if you wanted, say $35K per annum for 5 years "in your pocket" you'd have to buy something around a $220K cashbond (assuming an earnings rate of 4% and a loan interest rate of 6%). Look at those numbers.

To get 5 x $35K ($175K) you need to buy a $220K annuity. It has cost you $45K over 5 years for that privilege, or 20% of the annuity's value.

Hi All (Especially Brains!)

Using Kev's figures above:

So according to Kev this will cost you $45,000 . . .

And if you used the extra serviceability to acquire a property for:
$400,000 (based on the extra $35k pa income stream)

If the property averaged 3% growth pa for 5 yrs: = $463,709

If the property averaged 4% growth pa for 5 yrs: = $486,661

If the property averaged 5% growth pa for 5 yrs: = $510,512

If the property averaged 6% growth pa for 5 yrs: = $535,290

If the property averaged 7% growth pa for 5 yrs: = $561,020

If you don't think you can average 3% pa in property . . . why don't you just stay in cash??

Seems to me that the equity gain more than justifies the cost . . .spend a Dollar and make 2 Dollars.

Am I missing something . . . Brains??

Regards,

Steve

[Les]

G'day Brains,

a fundamental and common form of investing.

Is that the same kind of "common" as used in the phrase "common sense"

Regards,

[Lissy]

Originally posted by brains
Mark,

To invest across the three asset classes and to diversify within them is a fundamental and common form of investing.

Oh, this one totally cracked me up. I'm still wiping the tears of laughter from my eyes.
Sometimes I think the rarefied air on this forum blinds us all to the realities of the world outside.

Originally posted by Steve Navra
Hi All (Especially Brains!)

Using Kev's figures above:

So according to Kev this will cost you $45,000 . . .

And if you used the extra serviceability to acquire a property for:
$400,000 (based on the extra $35k pa income stream)

If the property averaged 3% growth pa for 5 yrs: = $463,709

If the property averaged 4% growth pa for 5 yrs: = $486,661

If the property averaged 5% growth pa for 5 yrs: = $510,512

If the property averaged 6% growth pa for 5 yrs: = $535,290

If the property averaged 7% growth pa for 5 yrs: = $561,020

If you don't think you can average 3% pa in property . . . why don't you just stay in cash??

Seems to me that the equity gain more than justifies the cost . . .spend a Dollar and make 2 Dollars.

Am I missing something . . . Brains??

Regards,

Steve

DOH!! I mistakenly forgot to include the cap. growth of the properties bought with the increased cash flow in my calculations.

Thats what i was missing. Obviously anyone can achieve better than 3% growth over an extended period, if they cant they shouldnt be buying investment property.

The thing is i wasnt looking at using it only from a point of view to buy property with but for any use. Even non investment related, where the above does not apply.

Originally posted by Lissy
Oh, this one totally cracked me up. I'm still wiping the tears of laughter from my eyes.
Sometimes I think the rarefied air on this forum blinds us all to the realities of the world outside.

Lissy,

I should have qualified that statement with "common form of investing for investors".

I agree that most people wouldnt understand that statement let alone action it.