Borrowing offshore at lower interest rates.

[grossreal]

hi all
I can only be very generic with regards to this type of loan as they are very specific in what you can and can't lend against and they are not the normal westpac or bankwest type of loan.
add to that to make them work you need to have over the 2.5 mil mark or the setup cost and the run.
they can and are very successfull.
and there is alot involvd in the hedging position and most of it is not for a board
and most require a confidentiality agreement and thats not a reality when using a free open ended board.
I can answer a few question of a generic nature but thats about it
as for the structure of these type of loans thats where they are off a board.
I do deal with a few lenders and fx is not a major issue.
and yen is ionly one of the currences that is traded and for me there are alot more stable and more interesting currencies around to leverage off.
and since this post was started we have successfully hd three relatively large loans running and we have had the us dollar go from 71 cents to a high of 98 cents and back to 63 cents and no margin call at all.
and no this is not to say this is investment advice
nor for that matter would I recommend you to do this type of funding and











is to add the rest of the disclaimer paste in as required.
There was a time when I did post information on different forms of investing and lending and was told that this forum is not for that use
hence I have not mentioned anything to do with this and other types of external or for that matter types of investing and or lending.
but for a regular comm broker this type of lending is not in their tool boxes and for me thats good.
as the more specific it is the less stuff ups happen.
but that just my view.
and those guys that have those little adds with we have 10 mil sovereign loans or overseas funder with 5% interest rate ring 041177fool.
they only put those in there because they are available but they just can't get to the funding.
and thats what you have to avoid like the plague.
this is very specific but yes you can do it.
just is a bit of work

 

[kum yin lau]

Hi, if someone understands all the ramifications, the loans are the same as normal home loans. The borrower need to monitor FX directions & make some money on reading the movements right.

The other way is to REPAY in the chosen currency. Banks normally lend to people who prove steady income in the currency that they're borrowing.

I was approved an Asian currency loan @0.8% by Westpac in 2003 LVR 75% BUT I was working overseas and had IPs in Australia.

I was going to hedge with roughly the same amount on the FX markets. The loan allows 3 free transfers i.e. you can move between Aud and the chosen currency loan for very little cost.

In 2005, I was approved a foreign currency loan by Lloyds Hong Kong again when I was overseas @70%LVR This was for NZ properties.

My strategy if it can be called that was to make use of the arbitrage in the short term to quickly accumulate & pay down principal. If interest rates change [usually currency fluctuations follow rates movements] I could opt to change over to the home currency. That way, it becomes a normal home loan at the prevailing rates. Losses can be contained.

But these are abnormal times.

I'd look to choose a stable currency if one can be found.

I love FX loans for the number of variations that can be done as you've all discussed.

Eg $500000 loan carried by a cross FD is an interesting one.
Start @ 2% vs 7% you get a 5% spread.

BTW, if you ask why I no longer do this, it's because the banks no longer love me after I stopped working & the earned income is no longer there. I used to quip "Is rental income cow dung, it's not income?"

Good luck,
KY

 

[grossreal]

hi kum yin lau
you are correct except for one minor point.
and thats the last part.
bank don't like you because you are talking about australian banks and unfortunately for them the rest of the world doesn't require any form of agreement from them.
your form of hedging is the same and there is a few different ways of doing it.
this form of structure has a couple requirements and that is that the value is over 3mil and the person is alive.

 

[Property Meister]

hi everyone.

thought I might add my to this list.....

so today the usd is something like 63c. JPY not doing much better,

assuming you knew that the exchange rate was not going to get worse or will just be the same for a while.

could you borrow say $1 million at low rates from JPY or USD?

I had a friend who borrowed $1 million at close to 0% from JPY when it was like 55c bought a house, house has doubled since then, the $1m was for his home business, business is going quite well, so his made a killing on the property, exchange rate, interest, and he is VERY happy as you can imagine..


I think now would be a good time to do a similar thing..

 

[grossreal]

hi Property Meister
my simple answer to the post is that it would be the last thing to do that type of transaction.
that is exactly what people did when they went into the westpac type of currency loan.
and its one of the worst type of this type of funding.
and alot of people
a lost their shirt
and b gives this type of lending a very bad name.
the guys that do that type of loan do not have any form of structure around it.
and for me is like building a house not on foundation but no foundation and on sand.
it is not the case that you go and borrow in us, jpy, euro or stirling
you need to have a structure that you borrow in and this is what the foreign currency loans and I think they are still in court some of them did not do.
there was nothing but take the loan and pay it off in aust dollars and she'll be right.
and its not
like say I know trust
so I will just buy anyone
does matter if its a unit,discre, hybrid, blood any trust will do
and doesn't matter is it in your own name or company
doesn't matter who that entity is
I heard you need a trust so got one of them and go and buy some thing.
and then when it falls around your ears as has happened
then people say well it was the loan or its
don't use trust as mine did not work.
simple the structure is the most important part with trusts and definately with currency loans
even more so for me with currency.

 

[kum yin lau]

Hi GrossR, thanks for the info. My broker did say that HSBC would give loans of 4M.

So my mistake was to ask for too little!

But seriously @ 85-90 cts to USD, I wouldn't have touched it with the proverbial whatnot.

Now at 60cts [may even be 55 soon], it's beginning to look alluring again.

Incidentally, my loans were very small, $300000 and $175000 only residential, they wouldn't accept my commercial properties and you should see how they slash at the rental income like you wouldn't believe.

Not income, cow dung!
KY

 

[grossreal]

hi kum yin lau
couple of things
and these are not for a board for me but its up to you if you want to post them
I don't
put the amount of comm
as there are lenders that will do currency lending on comm here from o/s
I have just put up 37mil for a client( I don't mind putting up a clients numbers as there is very little chance you know this client as he has not heard of somersoft from my understanding) and thats all comm.
and the currency movement is not a major issue nor for that matter is the denomination it depends on the structure and the lender adn is relatively simple to move it need be.

these structure are not designed to trade currency( they in effect do trade but thats not the main aim)
and 500k is not going to get near to the bench mark but could be added to a umbrella loan but again need to be structure to suit your hsbc guy maybe able to do that.
I take it he is hsbc singapore not hsbc sydney
if it just the broker saying it he got it off a web site.

 

[Property Meister]

thanks grossreal for your answers,

I think that myself included a few of us are wondering ,how the average joe can get into borrowing overseas...not quite 37m though.... maybe 36mill for me!!

 

[grossreal]

hi Property Meister
a very good question and one that needs a very good answer
and the simple answer to it is
that it not for a board or in reality this board.
if you read thru alot of my earlier posts you will see that I have posted alot on syndication
and that you can't recommend a syndicate or anything like that but you can answer a direct question which your is.
so heres a part answer
you basically syndicate the loans so you could have 500k and another 20 people have 500k loans and you bundle them together.
the rams of this world us to do that
until they got to a point where they were large enough to have a line of credit you would call it but its a line of debt for them and they just keep filling up the numbers
and this is a numbers game.
from 5 mil to 35mil may seem a very long way to people
buts its 3.5 mil each for 10 people
or 1 mil for 35 people
or it can be a 25 mil guy and 10mil of filler and the filler is 20 guys at 500k
there is just as much work in a 500k deal as there is in a 35mil so the work is alot more but it depends the number involved.
so the simple answer to your question how do you get to investing overseas the way above or the other way and thats my prefered way
is to simply buy more property to the value of 5 mil
now that may sound a very silly question or answer but its not and it definately is not in this current market.
but the second one is not for a board and this board would not allow it and as such it will not be posted

 

[urchin]

This might be a crazy question but.....
Has anyone looked into borrowing a slab of money overseas at a lower interest rate to pay out debt here? Why should we pay high interest when other parts of the world is lending at much lower rates than us?
Any clues?
Cheers
Simon

i considered this angle a little while back. i moved here from japan, where mortgages go for 2.5%. however, since the yen has basically doubled vs. the AUD, i am glad i never pursued it (though i think it would be very, very hard to get a loan at that rate for an overseas property anyway given the increased risk).

as many people have already mentioned, this would effectively double your risk--not only do you have to worry about interest rate movements but also currency fluctuations. not to mention the fact that you get charged a substantial premium (1%-ish each way) on all currency exchanges. so you lose 1% sending the money over here and another 1% on each payment going back..

the downside seems pretty substantial and potential upside pretty low...
but i am extremely conservative with my money. i would rather protect my principal than increase my return.