Are you happy to retire by "living out of capital"?

[Steve Navra]

So the first draw down / equity grab is easy because we are not retired. We have jobs and the banks love us! BUT after being "retired from paye" for five years we become "rent reliant". This is our goal of course but the banks dont like it.

Questions:

Cash bonds help diversify our income/servicability but how many Banks will be wanting to help us out ?

Currently most of the major banks we have approached are comfortable with the structure.

Are Lo Docs the answer?

Lo Docs are fine, but more expensive.

Do we worry about that when we get there and enjoy life for five years then go to plan B ?

Enjoy life yes . . . but it is reasurring to know that the banks are becoming MORE accepting of structure "outside of the square".

Is it necessary to use a financial institution that Navra has primed up for us and accepts the philosophy ?

No you can do it yourself.
However there is always the chicken and egg scenario of having security to get the cashbond loan in the first instance.

Or will the banks still love us ?

Banks will always try to get their last cent of profit out of you! Doesn't sound very loving , does it? The banks are obsessed with security; as long as the structure offers them enhanced security there is no reason to believe they will not love you. (The cashbond offers guaranteed income over and above your normal income, which could end the next day!!)

Regards,

Steve

 

[Bill.L]

Hi,

Simon, thanks for labelling me as a doom and gloom merchant, when you don't have an answer to my question. I am not that at all.
If you look at history going back what say 10 years, we find that many parts of the country were undergoing a price correction over a period of years. If you go back a little further you find a period where interest rates were consistently high.
Do you really think that anyone who suggests that such things can happen again are making "doom and gloom predictions"??

You of course should be congratulated for reaching the level of financial independance that you have, but to suggest that the "mums and dads" are resourceful investors who adapt to changing conditions is a bit steep.

Steve,
I notice in your example you have nothing but positive growth years. The figures you use are way below the last few years and of course anyone using the system in the last 5 or 6 years has done fantastically well. My concern is for when you get a period like the early to mid 90's and there is negative growth albeit minor over a 5 year period. If the leverage is at 80% at the beginning of the period the retiree would be in a spot of bother when trying to apply for any further loans.
Obviously if the LVR was at a lower % then you could simply raise it during these corrective periods .
Thanks again for this insightful thread.

bye

 

[MJK]

Steve,

In your example cash bond yeild is 4.5% and borrowings are at 7%. When some of the capital from the cash bond is returned to the investor on an annual basis the investor only recieves 4.5% of the remaining funds in the cash bond. Is this correct ? Thus the interest on the cash bond is diminishing where as the interest on the borrowings is static.

So say someone took a $300,000 cash bond over 5 years;

The yeild would be $13500 and the cost 21,000 ( deductable ) real cost roughly $4,000

So in year 5 with 60K left in the kitty.........

The yeild would be $2700 and the cost 21,000 ( deductable ) real cost roughly $10,000

After year five the yeild is $0 and the real cost is $21,000 which needs to be taken up in the next cash bond. Yeah?

MJK

 

[Steve Navra]

Steve,
I notice in your example you have nothing but positive growth years. The figures you use are way below the last few years and of course anyone using the system in the last 5 or 6 years has done fantastically well. My concern is for when you get a period like the early to mid 90's and there is negative growth albeit minor over a 5 year period. bye

Hi Brty,

Firstly just my 2 cents worth on the "Doom 'n Gloom scenario":
To me there is never a doom scenario!! (?)
Rather these downsides (Even if they are extreme) do need to be considered. I term this "Stress Testing". Before classing any system valid, one should by necessity test the outer boundaries. This is a common sense 'Risk Management' approach.

So for example:
One might test the cashbond scenario with interest rates of say 12% per annum. The question that arises is whether the intrinsic cash flow generated by the structure can cope with such a high expense. A lot of results need to be factored in . . . yes based on a rational set of assumptions; but at the end of this process one can make a valid assessment of the level of risk that one is prepared to accept. One can never know what the future might bring; (Don't ever attempt to be predictive!) however most of the extreme factors can be catered for. All that remains is to allow for a budgeted safety net for such circumstances. To merely walk away and say that you are not prepared to take ANY risk . . . is to not invest at all. (Enjoy your state pension then!?)

BACK TO Brty's CONCERNS:

Considering the past twenty years of real estate prices in the capital cities: (Ref: REIA)

SYDNEY:
1989 $199,300
1990 $173,800 -12.79% 1 year
1991 $181,300 - 4.62% 2 years
1992 $178,000 - 3,69% 3 years
1993 $178,000 - 2.78% 4 years
1994 $192,000 - 0.74% 5 years

This is the worst of any 5 year period in Sydney in the last 20 years.

MELBOURNE:
1990 $141,500
1991 $138,000 -2.47% 1 year
1992 $137,800 -1.31% 2 years
1993 $142,300 +0.18% 3 years
1994 $146,100 +0.80% 4 years
1995 $144,500 +0.42% 5 years


This is the worst of any 5 year period in Melbourne in the last 20 years.

Now the real point is that if one was to have purchased at the peak of the cycle in either of these two cities (Sydney 1989; or Melbourne 1990) and then attempted to live off your cashbond income then:
In Sydney you would have $00-00 to spend plus would be backwards because of the cost of the structure.
Likewise in Melbourne there was a tiny amount of growth that you could have accessed, but this would all have been dissipated by costs.

That assumes though that you were part of the 80% of investors that purchased at the very peak of these cycles. (Not very smart, and the rest of the discerning investors are very grateful to you for making them wealthy!)

Please read up on RENTAL REALITY:
The point really is that if one stayed conservative and applied the Rental Reality formula to your property purchases then you would have purchased in Sydney only up until 1988 when the prices peaked at $120,600. In this case there has always been at the least a 5% average increase for each 5 year period beyond this date. Sydney moved beyond Rental Reality very early in 1989: beyond this point it was not reasonable to purchase Sydney property. If you don’t believe me, please note that I have advised clients NOT to purchase property in Sydney since 2001 for exactly the same reason.

The situation in Melbourne is very similar:
Beyond early 1989, it became almost impossible to find a Melbourne property that was reasonably priced. Similarly if one had stopped purchasing Melbourne property at that point, your minimum 5 year average growth return would have been 5.27%.

Two points to note:
1) It is very difficult to ‘sit on your hands and NOT buy', when everyone else is in a buying frenzy.
2) These are general rules . . . if one researches hard enough; you can always find a bargain that is out of sync with the rest of the market and will still fit Rental Reality. (In which case will still yield the 5% …5 year average.

Clients get very irate with me when I suggest they stay out of a particular market . . .
I am often quoted as saying: “If you can’t find a property that fits Rental Reality, walk away and don’t buy anything.”

It makes more sense to do nothing, or to find another investment medium (Shares) than to overpay and make everyone else wealthy.

Fortunately as one city peaks, so another city seems to start its growth curve. I have never been a major protagonist of Brisbane property; preferring Sydney and Melbourne in the medium to longer term. However at times like now it literally becomes the only option between acquiring property or not. Over the next months the tide will turn again and even Brisbane will move beyond Rental Reality range and the choice might well become NO PROPERTY PURCHASES . . . that is if Sydney and Melbourne have not corrected to the required range.

In the meanwhile . . . shares are looking good. (Especially if you are DOLLAR COST TRADING.)

Regards,

Steve

 

[Steve Navra]

In your example cash bond yeild is 4.5% and borrowings are at 7%. When some of the capital from the cash bond is returned to the investor on an annual basis the investor only recieves 4.5% of the remaining funds in the cash bond. Is this correct ? Thus the interest on the cash bond is diminishing where as the interest on the borrowings is static.

Hi MJK,

Yes the cashbond return is on a diminishing basis, but averaged out over the 5 years. The calculation is that of an I.R.R. (Internal rate of return.)

However please note that the ratio's between income and cost stay roughly the same as the loan is being reduced by a similar amount:

Example:

Year / Start Loan Amount / Interest payable (pa) / Net Bond payment (pa) / Loan Amount at end of year
1.......... $140,000............... + $9,106 ...................- $31,000 ....................$118,106
2.......... $118,106............... + $7,524................... - $31,000 ....................$94,630
3.......... $94,630................. + $5,827................... - $31,000 ....................$69,457
4.......... $69,457................. + $4,007................... - $31,000 ....................$42,464
5.......... $42,464................. + $2,056................... - $31,000 ....................$13,519

Now the choices are as follows:

1) Pay the loan down as per the above example and the difference in interest rates is reflected by the $13,519 dr at the end of the 5th year.

2) Re-invest the income (Hopefully you can return more than the interest rate and you will be ahead.)

3) Spend the money on lifestyle / Fiancial independence: However you need to be sure that you control sufficient assets growing at more than you are spending. (Then you will have net equity in excess of the outstanding balance.)

In this last case you would draw down against the net equity to finance the next 5 years. Note that your LVR will go back to the 80% level. (Or less if you wish) Your growth over and above the 20% equity held within the LVR, will be of another mediums assets. (Shares)

It is this extra growth, which is over and above what you are spending that serves to reduce your overall LVR.

Regards,

Steve

 

[Alan H]

Hi Brty,

Please read up on RENTAL REALITY:
The point really is that if one stayed conservative and applied the Rental Reality formula to your property purchases then you would have purchased in Sydney only up until 1988 when the prices peaked at $120,600. In this case there has always been at the least a 5% average increase for each 5 year period beyond this date. Sydney moved beyond Rental Reality very early in 1989: beyond this point it was not reasonable to purchase Sydney property. If you don’t believe me, please note that I have advised clients NOT to purchase property in Sydney since 2001 for exactly the same reason.


Two points to note:
1) It is very difficult to ‘sit on your hands and NOT buy', when everyone else is in a buying frenzy.
2) These are general rules . . . if one researches hard enough; you can always find a bargain that is out of sync with the rest of the market and will still fit Rental Reality. (In which case will still yield the 5% …5 year average.

Clients get very irate with me when I suggest they stay out of a particular market . . .
I am often quoted as saying: “If you can’t find a property that fits Rental Reality, walk away and don’t buy anything.”

It makes more sense to do nothing, or to find another investment medium (Shares) than to overpay and make everyone else wealthy.


In the meanwhile . . . shares are looking good. (Especially if you are DOLLAR COST TRADING.)

Regards,

Steve

Steve,

You mentioned how you generally use 'Rental Reality'to ascertain whether the property market is currently too expensive ie. post 2001 in Sydney.

Do you find that PER is a suitable analogy for the share market or do you treat that market in a totally different way. eg. If historical PER aveage is 15, do you consider the share market too expensive once it rises much beyond that point but adopt a similar approach that there will always be some individual stocks worth buying?

As you have a background in both, it would be interesting to hear how analogeous a relationship you believe exists between these markets.



Thanks.

 

[Steve Navra]

You mentioned how you generally use 'Rental Reality'to ascertain whether the property market is currently too expensive ie. post 2001 in Sydney.

Do you find that PER is a suitable analogy for the share market . . . As you have a background in both, it would be interesting to hear how analogeous a relationship you believe exists between these markets.

Hi Alan,

YES!!
The theory behind Rental Reality stems from exactly that source. Price / Earnings ratios.

I consider the following:
1) Average market PER
2) Average sector PER (Each sector is different.)
3) Other exposure: off-shore influences as an example.

The principle is identical . . . value an asset on it's objective ability to perform. (Income)

Regards,

Steve

 

[simonjulie]

brty
you wrote

1."Simon, thanks for labelling me as a doom and gloom merchant, when you don't have an answer to my question. I am not that at all."
and,
2."Do you really think that anyone who suggests that such things can happen again are making "doom and gloom predictions"??""
Also,
3."You of course should be congratulated for reaching the level of financial independance that you have, but to suggest that the "mums and dads" are resourceful investors who adapt to changing conditions is a bit steep."
Answer
1.Where did I label you as a doom and gloom merchant?
2.No.
3.Where or when did I make that suggestion?

I am concerned that you may have missed the point of my posting.
My point again,
Living off Capital is a fringe benefit of a sound investment strategy.
So what has that got to do with Japan?
Simon

 

[MichaelM]

I've been running through a few examples on paper to gain a better understanding of Cashbonds.

Let's use an example where you had a property portfolio of $2 million and interest rates reached 10%.

If you borrowed $240,000 to buy a 5 year Cashbond you would receive a tax free income of $48,000 p.a. But this is before the interest cost of borrowing the money for the Cashbond.

So 10% of $240,000 = $24,000 p.a. This would mean half of your $48,000 income is spent on servicing the loan.

If after 5 years your portfolio increased as per Steve's example - "$2,000,000 of property growing at 5% p.a. for 5 years = $2,552,557-59 at the end of the 5th year. Equity gain of $552,557-59." This would be more than enough equity to allow a further cashbond of $240,000, providing another 5 years of $48,000 p.a income. BUT - you are now receiving $48,000 minus $24,000 interest on the previous Cashbond minus $24,000 interest on the new Cashbond. Leaving NOTHING for income. So to receive the same $24,000 net income as you had for the first 5 years you would need to have bought a Cashbond for more than $360,000 this time around.

In this case to maintain your income of $24,000 p.a the interest repayments will at least double every time you take out another 5 year Cashbond. This seems to be an extreme amount of interest to be paying for a fairly low income.

In keeping my example simple I have not allowed the income to increase in line with inflation. It is also a WORST CASE SCENARIO and I have used higher interest rates (and not yet taken into account the interest portion paid from the Cashbond which would obviously improve the figures).

 

[Steve Navra]

I've been running through a few examples on paper to gain a better understanding of Cashbonds.

Let's use an example where you had a property portfolio of $2 million and interest rates reached 10%.

If you borrowed $240,000 to buy a 5 year Cashbond you would receive a tax free income of $48,000 p.a. But this is before the interest cost of borrowing the money for the Cashbond.

So 10% of $240,000 = $24,000 p.a. This would mean half of your $48,000 income is spent on servicing the loan.

If after 5 years your portfolio increased as per Steve's example - "$2,000,000 of property growing at 5% p.a. for 5 years = $2,552,557-59 at the end of the 5th year. Equity gain of $552,557-59." This would be more than enough equity to allow a further cashbond of $240,000, providing another 5 years of $48,000 p.a income. BUT - you are now receiving $48,000 minus $24,000 interest on the previous Cashbond minus $24,000 interest on the new Cashbond. Leaving NOTHING for income. So to receive the same $24,000 net income as you had for the first 5 years you would need to have bought a Cashbond for more than $360,000 this time around.

In this case to maintain your income of $24,000 p.a the interest repayments will at least double every time you take out another 5 year Cashbond. This seems to be an extreme amount of interest to be paying for a fairly low income.

In keeping my example simple I have not allowed the income to increase in line with inflation. It is also a WORST CASE SCENARIO and I have used higher interest rates (and not yet taken into account the interest portion paid from the Cashbond which would obviously improve the figures).

Hi Michael,

The actual figures at 10% interest on the loan look as follows:

Int Rate 10%

Loan Amount Interest p/a Bond payments pa Closing Balalnce
Start year 1 240,000 22,869 48,000 214,869 End year 1 (Interest payed monthly)
Start year 2 214,869 20,237 48,000 187,106 End year 2
Start year 3 187,106 17,330 48,000 156,436 End year 3
Start year 4 156,436 14,119 48,000 122,555 End year 4
Start year 5 122,555 10,571 48,000 85,126 End year 5

So at the end of the 5th year after servicing the loan and paying down the balance, only $85,126 would be left outstanding.

Now, the assumption that your properties have grown at 5% p.a. has produced an extra $552,557 of equity. (Seems like a good result to me??)

HOWEVER:
If you spent all the dollars each month (IE just serviced the interest) then you would still owe the full $240,000 at the end of the five years.

$552,557 X 80% = $442,045 New cashbond = $88,049 p.a.
Less: $442,045 + 240,000 X 10% = $68,204 p.a.

Leaving a balance of $20,205 p.a. net to live on. (Which is a lesser income than the first 5 years!)

Solution:
IF Interest rate averaged 10%
AND the cashbond income did not increase proportionately
AND the properties only averaged 5% p.a. average growth

THEN:
It would not be prudent to be spending ALL the income in the first 5 years!! (You shouldn't spend what isn't being produced . . . so a cost / budgeting excercise would need to be worked out.

I realise that you have portrayed a 'Worst Scene Scenario'
In such a case, one would need to budget accordingly.

The example looks more reasonable if you look at 7% interest, 4.5% CB return and 5% property growth as follows:

CB income = $48,000 net p.a
Loan cost at 7% = $16,800 p.a.
Net income p.a. for first 5 years = $31,200

Int Rate 7%

Loan Amount Interest p/a Bond payments pa Closing Balalnce
Start year 1 240,000 15,779 48,000 207,779 End year 1 (Interest payed monthly)
Start year 2 207,779 13,450 48,000 173,229 End year 2
Start year 3 173,229 10,952 48,000 136,182 End year 3
Start year 4 136,182 8,274 48,000 96,456 End year 4
Start year 5 96,456 5,402 48,000 53,858 End year 5

$552,557 X 80% = $442,045 New cashbond = $88,049 p.a.
Less: $442,045 + 240,000 X 7% = $47,743

And then your income net of costs increases to $40,306 for the next 5 years.

Steve

 

[MichaelM]

The actual figures at 10% interest on the loan look as follows:

Int Rate 10%

Loan Amount Interest p/a Bond payments pa Closing Balalnce
Start year 1 240,000 22,869 48,000 214,869 End year 1 (Interest payed monthly)
Start year 2 214,869 20,237 48,000 187,106 End year 2
Start year 3 187,106 17,330 48,000 156,436 End year 3
Start year 4 156,436 14,119 48,000 122,555 End year 4
Start year 5 122,555 10,571 48,000 85,126 End year 5

So at the end of the 5th year after servicing the loan and paying down the balance, only $85,126 would be left outstanding.

Hi Steve, what would this actually be achieving? Isn't the aim to live off the capital/Cashbond? By servicing the interest and paying down the loan each year then I assume you must be paying the $85,126 purely to increase serviceability in the eyes of the banks? Therefore equity in excess of the Cashbond amount would be required if you are to use this increased serviceability to actually purchase more property (because you still need to come up with the deposit/s)?

If you use this serviceability to purchase good properties in high growth areas I presume they will be negative geared - so where does the extra cashflow come from for these new properties? The bank has used the Cashbond income in their serviceability calculations but your example shows this income being paid back straight into the loan. How do you fund the shortfall?

Furthermore, why would you buy a 5 yr Cashbond? Wouldn't it make more sense to buy a larger Cashbond for maybe 1 yr and hold just long enough to use in your finance applications!

HOWEVER:
If you spent all the dollars each month (IE just serviced the interest) then you would still owe the full $240,000 at the end of the five years.

$552,557 X 80% = $442,045 New cashbond = $88,049 p.a.
Less: $442,045 + 240,000 X 10% = $68,204 p.a.

Leaving a balance of $20,205 p.a. net to live on. (Which is a lesser income than the first 5 years!)

What you have addressed above is what I was getting at - using a Cashbond to live off the capital and not paying down the loan.

Cheers, MM.

 

[austini]

Cash Bonds through a Discretionary Trust???

Hi gang,

This is certainly an excellent thread.

Being overseas I have unfortunately not been able to attend one of Steve's courses yet. Back soon but.

I have an important question below which hopefully someone will be kind enough to answer.

An increasing number of property investors are using Trust structures. Therefore will all the benefits of Cash Bonds mentioned previously still apply if the properties were purchased by a Disc or Hybrid Disc Trust? I may have misunderstood but I thought I read somewhere a long time ago that income from an annuity held by the trust would be taxed as a distribution in the hands of the associated benificiary.

Thanks - Gordon

 

[Steve Navra]

An increasing number of property investors are using Trust structures. Therefore will all the benefits of Cash Bonds mentioned previously still apply if the properties were purchased by a Disc or Hybrid Disc Trust? I may have misunderstood but I thought I read somewhere a long time ago that income from an annuity held by the trust would be taxed as a distribution in the hands of the associated benificiary.

Hi Gordon,

The simple solution is to keep the annuity out of the Trust. (In your own name.) The income can still be used for serviceability, with the assets held within the trust.

Perhaps Dale or Nic might wish to comment??

regards,

Steve

 

[austini]

Hi Gordon,

The simple solution is to keep the annuity out of the Trust. (In your own name.) The income can still be used for serviceability, with the assets held within the trust.

Perhaps Dale or Nic might wish to comment??

regards,

Steve

Thanks Steve,

Unfortunately Dale is on Holidays in the UK and Nic doesn't seem to be around much lately but I might be lucky.

I had considered what you suggested but more importantly the question is how does one do this?

Thanks - Gordon

 

[Steve Navra]

Unfortunately Dale is on Holidays in the UK and Nic doesn't seem to be around much lately but I might be lucky.

I had considered what you suggested but more importantly the question is how does one do this?

Hi Gordon,

My understanding would be that the assets (properties / shares) are owned by and held in the trust, but that the borrower is the individual; whom might then own units in the (Hybrid) Trust. So the serviceable income shown to a lending institution would be the individuals personal income plus the annuity income outside of the trust and the rental income within the trust.

However, please check the facts with one of the experts.

Regards,

Steve

 

[Bill.L]

Are we forgetting something??

Hi all,

I know that everytime I comment on cashbonds, I draw great criticism about how I should do the course etc, but I just can't resist here after all the numbers being bandied about.

What everyone seems to forget in the current discussion is the existing cost of the property portfolio. Using 80% leverage on a $2Mill property portfolio, even at 5% yield(leaving about 4% net), will leave you with a deficit of $32,000 p.a. assuming Steves 7% interest rate.
Now at the end of 5 years, with the growth of 5% p.a. and even if the yield stayed at 5%, then on the current value of the portfolio of $2,552,560 the net return still leaves you with a deficit of around $10,000 p.a.

This is hardly the stuff to start thinking about borrowing more to fund a retirement. Then if we used Micheal's 10% scenario(say you fixed now at 7% and 5 years time you came out of the 7% into the new 10% variable) you would be down the gurgler by $58,000 p.a. before you even contemplated using the cashbond to fund your retirement.

On my understanding of the numbers, keeping your leverage at 80% would be foolish, given a yield of 5% on growth property. However at a much lower leverage the numbers and risk factors work out better.

I'm sure you will have some comment Steve.

bye

 

[Aceyducey]

I know that everytime I comment on cashbonds, I draw great criticism about how I should do the course etc, but I just can't resist here after all the numbers being bandied about.

Bill - do the course.

All the points you've brought up thus far about cashbond annuities are covered in the course.

Particularly this one, which you've belaboured at least four times to my knowledge, adding no new information to our knowledge pool on any of those occasions.

And you keep insisting erroneously that Steve suggests this approach as THE way of living off your equity!

Steve's main focus is about how this is ONE approach of turning equity into income for purposes of building your property portfolio.

You would only consider it (consider mind you) using it to live off your equity if:

1) You have a LOW LVR (NOT 80% level EVER!!!!)
2) You're comfortable with having your debt increasing over time
3) You're not using your equity for other purposes
4) You're either retired or are at an age where you're about to retire

Bill, I like your comments on this forum - but please keep'em to areas where you're actually prepared to do your research.

And as you keep saying you're not prepared to do Steve's course - even when Geoff was prepared to pay for you to go - this isn't one of those areas.

Cheers,

Aceyducey

 

[Steve Navra]

I'm sure you will have some comment Steve.

Hi All,

I must come to Bill's defence!!

Everything Bill has stated here is true . . .

I absolutely agree that one should not spend the income generated if the costs increase above the cash flow.

As I previously mentioned:
A budgeting excercise is necessary (every step of the way) to make sure that the equity increase is more than sufficient to make up for the extra costs.

If interest rates increase to 10% and everything else remains static, then by definition the amount of income that one can spend for lifestyle will decrease.

To date . . . including the decline of property growth in the early 1990's; the model still works fine at a 5% real estate growth minimum, per five year period.

I suppose the point to consider strongly is the excess equity that one builds up during the 'good times' and then utalising this excess to provide a level income stream through the 'not so' good times.

Lastly, if one has not built up an equity gain . . . well then you could hardly expect to spend what doesn't as yet exist.

Happy Bill??

One does need to start somewhere . . . and for anyone who has started in the last year / years; well you are already ahead.

regards,

Steve

 

[see_change]

Bill - do the course.

Steve's main focus is about how this is ONE approach of turning equity into income for purposes of building your property portfolio.

Cheers,
Aceyducey

I'd disagree on you with this one. I've just done the course, and while obviously you are building up your equity , the main aim of the exercise , from my understanding seemed to be to turn the equity into income. The reason being is that drawing down your equity is not taxable income. You stay ahead because the value of you assets ( hopefully ) stay ahead of the increasing value of your debt. Again you have to be comfortable with this. Again we have the proviso that the consultation that occures after the talk needs to be considered as part of the whole.

Steve compared his model with an approach you can take of building up a portfolio on either a jan somers type senario or a cash flow model , and then selling enough before you retire to pay of your debt so you then live on the residual income from your debt free portfolio , which as Steve points out is subject to income tax.

Steve uses the example of Kerry Packer declared income of 25 K and then makes the assumption that if he's living the life style he is on that income , he must be doing it by drawing down on his capital. He may well be doing that , but as anyone who works within a company structure knows it's very easy to bring you declared income down to a low figure. If I look at my own setup , last year my declared income was slightly over one third of what my actual " income package" was. When you have the financial and legal muscles that Kerry has available it's easy for him to structure his situation to declare what ever taxable income he wants to.

BTW Bill , I would agree with Acey that the course is worth while doing . As I've said before I think that all of the aspects that Steve suggests have merit when used appropriatly , my only concerns arose when Steve put the whole structure together at the end. I feel that there are less risky ways of building up wealth than on an increasing mountain of debt , part of which is used to generate income.

See Change

 

[ToGetProperty]

I feel that there are less risky ways of building up wealth than on an increasing mountain of debt , part of which is used to generate income.

See Change

See Change:

Good information. I feel the same now.

However, I will look forward to use a similar strategy as Cash Bond many many years later when 10% of my equity will be enough for my whole retirement funding.

Thanks

TGP