Cashbonds for Dummies

[achih]

Annuity is all they need to know. The term CB refers to the financial structure of how 'you' are using the annuity to increase dsr in the banks eyes.

Thanks for taking the time to explain this Rixter, please bear with me as I'm a little slow.

So the actual name of the income generating product is call an "annuity". And most banks accept annuity payments (principal + interest) as assessible income?

I have a few questions regarding implementing this strategy:

1. How do you prove to the bank that you are indeed receiving annuity payments? Do you get some sort of certificate when you purchase the annuity from an insurance company? Or does the bank simply call the company up and varify?
2. Once proven, does the bank hold onto the annuity contract as security to prevent you from selling it the moment you receive the loan?
3. Do you need to have had the annuity for a certain period of time prior to the loan application? Or can you theoretically purchase the annuity one week before the loan application?

Sorry about the barrage of questions, and thanks again for your time.

 

[Rixter]

. And most banks accept annuity payments (principal + interest) as assessible income?

Some do some dont. Its up to your MB to determine.

1. How do you prove to the bank that you are indeed receiving annuity payments? Do you get some sort of certificate when you purchase the annuity from an insurance company? Or does the bank simply call the company up and varify?

You tell the bank how much you get per year. Provide proof of it going into you bank account. Show annuity statements if required.

2. Once proven, does the bank hold onto the annuity contract as security to prevent you from selling it the moment you receive the loan?

No they didnt hold it as security.[/QUOTE]

3. Do you need to have had the annuity for a certain period of time prior to the loan application? Or can you theoretically purchase the annuity one week before the loan application?

I received one monthly annuity payment then MB submitted paperwork.

 

[achih]

Thanks Rick, you've cleared up a lot questions for me.

 

[Rolf Latham]

Hiya

If you truly need such a strategy then its a good tool.

For many that are contemplating such a strategy, often a "simple" restructure of their current portfolio, and use of the right lenders at the right time may be a solution.

CB strategies ( like lo docs etc) burn up some of your equity fuel, so dont go down this track to early.

In some ways, this type of structure took a bit of a back seat at the time that Lo docs became more mainstream. now with most lo doc facilities generally restricted to 60 %, I would not be surprised if we see more "equity ration" schemes being out to use

ta
rolf

 

[Rixter]

If you truly need such a strategy then its a good tool.

CB strategies ( like lo docs etc) burn up some of your equity fuel, so dont go down this track to early.

Yes, as mentioned prior, utilising a CB is a last resort option to employ because using it does burn a very small portion of equity as Rolf also states here.

You are effectively purchasing an income by converting equity into cash flow via the annuity

IMHO its ideally suited to investors who are further down the investment track who have a sizable portfolio with significant equity levels already established.

I hope this helps.

 

[Ian (WA)]

Awesome Rixter!!

Just read this thread again for the third time since 2006......need to get a life; can't help myself, I dig out the older posts periodically to remind me of where i've been and where i'm headed.

I'd buy you a beer or three, but sadly, can only provide kudos on forum. Although I like the idea of awarding kudos in the form of green & red monopoly style houses & hotels, and maybe some industrial sheds & office buildings (for Dazz).

Cheers,

Ian.

 

[yadreamin]

Rixter or Anyone else in the know
Can you still get cash bonds today, considering all the changes that have taken place in the last 12 months with lenders?

 

[D.T.]

All of the annuity 'providers' mentioned in this thread are still listing their availability on their websites.

How lenders are treating them now would require someone who's recently done one to answer. Banks like to change their minds a lot.

 

[grossreal]

might be a interesting question but anyone know of a lender thats uses the income to add to other income to get over the income cashflow issue but also that will use the equity position of the bond to increase the value to lend against
so say a 300k property if you had a 300k bond at 10% the value is 600 and lend 60% on the 600 and take the income 30 plus rent of say 30 to say it 60k income
I know they do in singapore anyone here that does this type of lending
I don't see any reason why not
the bond is an asset and the income adds to the income of the property
this is a hypo
but is interesting as I don't see why it cant be done

 

[Rolf Latham]

a 10 % annuity would be very nice for my retired folk

where do I get one or 100 000 please ?

ta
rolf

 

[WinstonWolfe]

I'd be interested to know if anyone has had their lawyer look at the capital guarantee of a cash bond.

I understand that although most bonds are invested in cash, many have a portion in mortgages and mortgage backed securities. If there was a serious downturn in the property market, I wonder how long it might take to get all of your capital back.

 

[Rolf Latham]

Hiya WW

Annuities are a retriree product pretty much, and pretty well protected and have such sad rtns because of that.

A lot of DYI investors building their own incomes that invested in various mortgage funds had their fund redemptions frozen when th GFC hit.

Not so much because of the GFC itself, but the unlevle playing field that was created when the Feds provided a guarantee to ADIs but not to mortgage funds

As a reult the money fled the mortgage funds...............and these things arent exactly liquid.

ta
rolf

 

[Rixter]

Annuities are a retriree product pretty much, and pretty well protected and have such sad rtns because of that.

As Rolf points out an Annuity is low return, however its not the low return as to the reason why we are utilising it. For us as investors when used in a cash bond structure it can be very beneficial to getting around lenders serviceability models. One must not forget tho that by structuring a cash bond you are effectively purchasing an income to show lenders to satisfy their lending modules.

I hope this helps.

 

[Rixter]

Awesome Rixter!!.................
............. I'd buy you a beer or three, but sadly, can only provide kudos on forum. Although I like the idea of awarding kudos in the form of green & red monopoly style houses & hotels, and maybe some industrial sheds & office buildings (for Dazz).

Ian, Thank you for the Kudos. IM glad the post has been of some help to you. Maybe you can buy me that beer one day ...well heck, Ill even accept houses and/or a hotel from you too if you insist.

 

[WinstonWolfe]

Annuities are a retriree product pretty much, and pretty well protected and have such sad rtns because of that.

A lot of DYI investors building their own incomes that invested in various mortgage funds had their fund redemptions frozen when th GFC hit.

Thanks Rolf. My mother is a self funded retiree with several annuities amongst other things.....I asked because I presume most think a capital guarantee is bullet proof. And from my research into capital guarantees, I believe this is false.

Cash flows can be frozen as you say, as can capital....and what happens to the guarantee when the guarantor tanks? Admittedly if the guarantor is a government printing press, no problem.....the capacity to socialize losses is the best guarantee of all.

 

[Melbear]

Hi all

Looking into this strategy to help my folks - all they want to do is consolidate their loans with St George rather than 3 separate banks. I have around $75K cash which I can use to purchase an annuity for my Mum.

Anyone been successful with this lately and/or know if St George will accept?

Thanks

 

[jaycee]

SO the idea is to use casshbonds when you find yourself without en ough INCOME to service th a new mortgage for anew investment

So you use equity to purhcawe a cahsbond, which give s you income

Look say I wanted to buya $400k property and I had $150k or LOC ...but not enough income to obtain a mortgaghe for the oother $300k

If I bought $100k cashbonds, I get an income of $25k per annum.....

But by equity hass dropped..... $100k and my expense haave gone up $7000 odd per annum - so my nexcw GROSS income after expenses, but b efore tax = $18,000

So I now qualify for the income side of things, but now I no longer have the 20% deposit..........


Does this mean this is for more advanced incesteors who have more assets after deducting their borrowings than people like me sitting at 70something% LVR

Who / when is this type of strategy suitable for ?

 

[Piston Broke]

The principle is this:

You borrow 500K on your equity, give it to someone else who pays you back 50K a year for 10 yrs.
You then go to the bank and say "I now earn 50k on top of my salary, my income is 50k more"

Of course you pay many fees for the honor of giving them your money so they give it back.

Always sounded dumb to me, and now looking back sounds even dumber.

 

[locko24]

The principle is this:

You borrow 500K on your equity, give it to someone else who pays you back 50K a year for 10 yrs.
You then go to the bank and say "I now earn 50k on top of my salary, my income is 50k more"

Of course you pay many fees for the honor of giving them your money so they give it back.

Always sounded dumb to me, and now looking back sounds even dumber.

Constructive as usual PB.

What is your strategy? Do you even have one?

 

[jaycee]

The principle is this:

You borrow 500K on your equity, give it to someone else who pays you back 50K a year for 10 yrs.
You then go to the bank and say "I now earn 50k on top of my salary, my income is 50k more"

Of course you pay many fees for the honor of giving them your money so they give it back.

Always sounded dumb to me, and now looking back sounds even dumber.

SO it will work well if you have a shedload of equity but not enough income in the bank's eyse

If I wnated to buy asay a $500k property
And I had say a $600k LOC available... but m,y income was too low and the bank said nah, we wont lednd you more money as amotgage...

Instead of buying a cashband with some or all of my $600k LOC .. couldn't buy the blooody proerty with my $600k LOC and be done with it ?