cash bonds and NAVRA

[JYK]

Hi, This is my first post and I am new to this. Wanted to get opinions on the following 'wisdom' I got from Steve Navra's seminar. The foundation of his strategy with 'living of capital' appears to be based on achieving a growth rate year after year in you property greater than the interest rates you pay on the increased borrowing. I understand this. However what concerns me is that it relies on the three things you (the investor) cant control in investment, interest rates, capital gain/growth and tax breaks.

I am a cash flow investor that uses syndicates (OPM) to buy growth property to quick cash solely to raise capital to buy more cash flow property. Obviously I pay tax on the income, but Im of the belief that a true passive dollar is worth than a hard yakka dollar as Im lifestyle driven. Moreover the evergrowing debt would worry me and gives cause to ask if I dont sell anything and keep borrowing to fund my lifestyle, how do I achieve financial independance?

Im considering seriously Steve's strategy but would like to get opinions on the pros and cons of doing this?

Thanks

 

[always_learning]

Just an aside, but word "debt" is an interesting world .

What is it in my opinion simply speaking it is an "obligation to repay". Living without debt in many ways is being free of obligation a wonderfully feeling I guess.

Imagine you are a bank, you take deposits, this is infact debt, you the bank must (obligation) repay it. However a bank doesnt feel good if it is free of obligation as this would mean it has no deposits no depositors and no business (as a traditional bank).

If you think of yourself as an IP investor as a bank, your depositors (the real bank) after some due dilligence (loan app) deposits money in your property investing bank account in the form of a property title.

Logically speaking we (IP investors) should take exactly the same view as a bank in regard to debt, it's good, it's great, the more the better as it gets us to where we want to be. What is important is that we dont loose control and make sure we are getting a healthy premium/profit on our depositors money.

Back to cashbonds, I agree it does seem a rather risky way to fund your retirement. Lets say you are 80 years old, are you still going to be able to trot up to a bank and say, I want to apply for yet another cashbond based on the 5% increase value of my asset base in the last 3 years? Property prices too over history have shown some quiet long periods of stagnation and/or zero growth over inflation. As an extream example using cashbond structure in Japan over the last 10 years would have you living a cardboard box under a bridge. I am sure in 1989 cashbond type structures would have gone down very well with Japnese investors.

However I think cashbond would be excellent to fund a mid-life retirement, ie if you have lots of equity and life a cashbond funded lifestyle much below CPI. Ie if you have $4-5M of property and 25-35% LVA and want to live on $100K /year then cashbonds make a lot of sense. When you turn late 60's then maybe selling some investments paying down debt if need be.
Being mid-life, then if everything went down the toliet you could still yuk "get a job", however when you are 80 that option doesnt exist.

 

[Sim]

Originally posted by JYK
what concerns me is that it relies on the three things you (the investor) cant control in investment, interest rates, capital gain/growth and tax breaks.

There are lots and lots of things you can't control in investment. What you can do is take steps to minimise or insure against risk.

Some basic things that can be done in this specific example:

- interest rates... that's what fixed loans are for
- capital gain/growth... that's what Steve's rental reality strategy is aimed at
- tax breaks... Steve always recommends a private ruling for a cashbond setup

These are not risks that are ever going to be completely mitigated - and you are very wise to be concerned about them. However, I think you might need to sit down with Steve and have him explain in a lot more detail how he deals with these risks to minimise the impact.

If you look at the bigger picture - Steve's strategies do not rely on property alone - he is very strong on sharemarket investment (direct or managed) and using your earned dollar up to 6 times to maximise returns.

At the end of the day, I know plenty of people who went to Steve's seminar, took what they could from it, and decided that the cashbond strategy itself was a little beyond their comfort zone, and so decided not to implement that part of Steve's plans. I don't think anyone has any problems with that choice at all - so at the end of the day, if you are not comfortable with the concept of cashbonds - don't use them !

If you are looking for a solution and cashbonds might help - but you are still unsure about the risks - go and spend some time with Steve or one of his advisors, they'll take the time to explain it all to you without any pressure.

 

[JAZPER]

KYK
Were you at the course 31/01/04 at the Stamford?

It depends on your goals, your can make a booking with suellen from Navra and takes in all your goals comfort zones ect.. Well worth a visit.

The cash bond has heaps on it from other threads with internet links, top right search "cash bonds".

Jazper

 

[Colonel]

Hi JYK,

Quote

am a cash flow investor that uses syndicates (OPM) to buy growth property to quick cash solely to raise capital to buy more cash flow property.


Could you explain the above - how this works for you - how the syndicate is set up

What's OPM? sorry I'm a newbie!!!

Thanks

Jon

 

[asy]

Originally posted by Colonel
What's OPM?

Other People's Money...

And Welcome Newbie!!!

asy

 

[quoll]

The drug of choice

O.P.M
Other Peoples Money

Opium = How you pronouce OPM

Opium = drug does bad things to your life, grandiose plans, illusions of grandiour (spelling seems wrong, o well), is it really that bad?

quoll

 

[Steve Navra]

CASHBOND RISK???

It can only be a risk IF YOU SPEND THE INCOME.
If you are very risk averse, then utilise the extra serviceability for growth; and divert all the income back into paying down the loan.

Better still, wait until you SEE the growth in your assets, then enjoy the lifestyle the extra income affords you.

Never spend it before you've made it.

Cashbonds are the OPM of the masses???

regards,
Steve

 

[Lplate]

Cash Bond Practical Example

CASHBOND RISK???

It can only be a risk IF YOU SPEND THE INCOME.
If you are very risk averse, then utilise the extra serviceability for growth; and divert all the income back into paying down the loan.

Better still, wait until you SEE the growth in your assets, then enjoy the lifestyle the extra income affords you.

Never spend it before you've made it.

Cashbonds are the OPM of the masses???

regards,
Steve

Steve
Sounds good but I need to reduce it to an example to understand.

What about say a couple in their late fifties with $600 000 equity in a
$800 000 house and superannuation income of $35 000 PA. They could have $150 000 payout (less tax) from another lump sum super scheme.

What options do they have to best utilise your approach to increase their income to $50 000 PA by renting their present PPOR and purchasing another PPOR for $300 000?

What if they want to increase their net worth each year?

Many people live to regret selling a property, but is continuing to hold the original PPRO a poor strategy although the area has had good growth.

I believe this sort of scenario is not uncommon.

Lplate

 

[Sunfish]

It looks as if cash bonds are converting capital growth to income (in a tax effective manner)

Now my mate wants to sell (hypotheticly) his wharehouse and lease-back on a long lease. $300k buys the w/house and I get $3k/mth return. Now if I own my own PPOR , car etc and have a few grand to play on the sharemarket the lack of CG would be irrelevant because I'm not dependent on it. Note that I am talking about retirement income here, 30yr olds would not want the extra taxable income.

Am I reaching the same goal on a different road?

Thommo

 

[Ajax]

Won't a lodoc line of credit strategy (i/e. using the equity you have accessed as a deposit on a further purchase) acheive the same thing as Steve's cash bond strategy, but less expensively.

What's the interest you earn on the annuity and what's the money borrowed to purchase the annuity actually costing you (there's an interest rate differential).

Haven't the raft of recently released lodoc loans at interest rates around or just above standard loan rates spelt the death knell for the cash bond strategy. Some of these lodoc loans actually revert to the standard loan rate after a year or two (if the account is kept in order).

Ajax

 

[Aceyducey]

Haven't the raft of recently released lodoc loans at interest rates around or just above standard loan rates spelt the death knell for the cash bond strategy. Some of these lodoc loans actually revert to the standard loan rate after a year or two (if the account is kept in order).

No, cashbonds still address the securitisation issue.

Lo Doc loans still have income requirements for securitisation.

Cashbonds allow you to turn equity into 100% securitisable income, therefore increasing your lending power - whether you use standard or low-doc loans.

Thommo, primary use of cashbonds is for this securitisable income to allow people with lots of equity but lower income to borrow more to buy more income producing assets....

Using it for income is definitely best saved until retirement unless you have a very large amount and percentage of equity available in your assets.

Cheers,

Aceyducey