Rather than hijack this thread...
http://www.somersoft.com/forums/showthread.php?p=224020#post224020
I thought Id start a new thread regarding cashbonds. I have a number of questions Id like to ask and certainly dont want to take the previous thread any further off topic than I have already done so.
Hopefully Rixter can explain further any questions regarding cashbonds as Im keen on learning!
Original post below...
Awesome post Rixter - have provided KUDOS!
Just slightly off topic - what are typical amounts invested into cashbonds? 100K, 250K? What provide best returns? And when you say an "insurance company" what do you mean by this? Whos door do I have to knock on to make this happen?
RJ
http://www.somersoft.com/forums/showthread.php?p=224020#post224020
I thought Id start a new thread regarding cashbonds. I have a number of questions Id like to ask and certainly dont want to take the previous thread any further off topic than I have already done so.
Hopefully Rixter can explain further any questions regarding cashbonds as Im keen on learning!
Original post below...
Rixter said:Mustang,
This is how I have used a Cashbond/Annuity to keep purchasing IPs. I use it in conjuction with my CGA Strategy -
When you have a few IPs under your belt Serviceabilty will eventually become an issue. The banks/lenders will not lend you money due to you not meeting their standard lending criteria. As you know banks/lenders work out seviceability under 2 modules - LVR & DSR.
Where the majority of investors start to reach their borrowing capacities is in relation to the DSR or Debt Service Ratio. In other words not enough cashflow income to service your IP debt. Now this isnt really a problem if you can increase your income. But how can you do that
Obviously there are many ways as the mind can conjure up. But the main ways most investors know of is to increase you PAYG income and/or increase your IP rental income. As these methods are fairly well reliant and restricted to market conditions alot of investors dont know where to go to from there. Alot forget about the store of Equity they have with their low LVR's created over time by past capital growth.
Thats where a Cashbond or Annuity comes into play - which is method I have implimented to get me around the lack of serviceability issues and allowed me to keep borrowing to build my Portfolio.
A cashbond basically works by converting existing equity into cashflow for the purposes for increasing your income in the eyes of the banks/lenders.
The way it works is as follows - you purchase a Cashbond/Annuity or guarranteed income plan from an insurance company. That Insurance company then pays that back to you plus interest over a nominated term - usually 5 years. You purchase the Cashbond using funds with drawn from a LOC.
For example if you purchased a $100,000.00 cashbond over a term of 5 years, each year you would get $20,000 plus interest paid back to you. Now when you go to the bank for a loan to purchase your next property you can show 100% of that $20,000 income on the INCOMES side of your loan application on top of your existing Payg Income & all your other rental incomes...In other words You have effectively increased your borrowing because you have an extra $20,000 income in the eyes of the banks. Pretty neat hay
You can also use that cashbond income to service your portfolio holding costs as well.....this giving you sleep at night factor knowing you can service the debt comfortably.
This how I have been able to keep purchasing. Now I know this method is not for everyone. It all depends on your circumstances, goals, time frames & your individual investor risk profile.
Hope this has provided you & everyone else with some food for thought.
Awesome post Rixter - have provided KUDOS!
Just slightly off topic - what are typical amounts invested into cashbonds? 100K, 250K? What provide best returns? And when you say an "insurance company" what do you mean by this? Whos door do I have to knock on to make this happen?
RJ