From: Mike TheBloodyIdiot

After the number of "Please explain" e-mails about my statement that casbonds are not relevant anymore has exceeded two dozen, I do not feel like I can play deaf on the subject anymore.

On the other side I stated many times that my mission here is to cheese people off initiating thinking, to generate ideas, blah blah blah. It does not include injuring, especially to people who are running business through this forum.

Apparently response to the simple question from Mr Navra and his fans indicated that any response to the event (other than praise) causes a lot of pain.

Given all of the above, and the fact that answer to the question is raher primitive, would you mind if I give you couple of hints first, then if by Monday nobody is able to give an answer - OK, I will reveal it.

To start with, ask yourself a question - what problem cashbonds fix? Is there a better and simpler solution to this problem?

Then, look at the messages of an absolute unsurpassed champion of the forum Sir Rolf Latham (God bless ASAP financials)- this where I have got the idea from.

If still not good, unpack the latest issue of API magazine - there is very large article on the subject (no cashbonds mentioned though).

Finally, there is also a hint in my initial message on "2003 BOOM" thread.

Please do not waste energy telling that I am bloody bastard - I know that.


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Reply: 1
From: Always Learning

Well naturally maybe I am deluding/confusing myself here, but I cannot see the advantages of a cash bond structure in comparison to the prudent use of LOC and LocDoc finance. In combination both will allow you to convert "equity" but with limited serviceability into increased borrowing capacity.
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Reply: 1.1
From: Michael G


The theory taught, is that cashbonds increase your "income" and thus your debt capacity.

It is handy for those with large amounts of equity but small incomes or those who are deemed too "rent reliant"

LOCs make use of the equity once the debt has been obtained. Cashbonds enable people to obtain the debt.

Michael G
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Reply: 1.1.1
From: Alan Hill


You said:

"If still not good, unpack the latest issue of API magazine - there is very large article on the subject (no cashbonds mentioned though)."

Although I don't have the article from API Magazine in front of me at present, I thought from memory, API indicated this was to be the FIRST in a SERIES of articles addressing this type of issue. I doubt whether all methodologies will be included in the first article.

I'm not really sure what your point with this was anyway Mike. Surely even a Bloody Idiot wouldn't limit themselves to the methodologies of a single article in a single magazine? Although, by definition, maybe a 'bloody idiot' would? ;-)

I agree with Michael. Under the right set of circumstances, I think it's a useful strategy.

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From: Mike TheBloodyIdiot


Well done. First shot, direct hit.

Two people looking at your post, none sees it. Amasing, is not it?

Lo doc finance it is. Since rates for lo docs went down and LVRs up, investor punished even less.

Imagine, you can draw $100K on LOC, but there is a little you can do with it due to serviceability problem.

Way 1: you lock $50K for 5 years or more in cashbond and use other $50K as deposit on your $200 K property.

Way 2: Use whole $100K as a deposit and get $400K in lo doc loans.

Way 3: Get one $200K lo doc, keep $50K under you pillow waiting when very good deal comes around (sharemarket crashes, for example).

Do I have to comment which is more resilient - lo doc or cashbond?

Another issue. Ring any mortgage broker and ask if they would deal with cashbond. What answer will you get?
Ask them about lo doc. Any difference?

There are tax issues also, but I would rather leave this subject for someone else to elaborate on.

Final one. Alan, the only difference between us may be that I know that I am idiot and acknowledge that, but you certainly have a long way to go.


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From: Steve Navra

Couple of points about the use of a cashbond:

1) Serviceability:
The extra income certainly enhances borrowing capacity.
The use of Low doc loans (at good rates) STILL requires an honest declaration of income to be made by the borrower. It has been pointed out that legally the mere stating that one can afford the borrowings needs to be backed up by the actual existing income of the borrower. To declare an income level that is not true would be fraudulent. The existence of the cashbond income lends credence to this honest disclosure.

Aside from borrowing capacity, many investors require the extra income to fund the holding costs of many assets. Also, the 'cushioning' of unexpected expenses such as a rising interest burden or lack of rental income might be helpful.

3)Regularity of Share market entry:
Many choose dollar cost averaging to enter the stock market, rather than lump sum investing - after all the market can decline straight after investing the larger amount. Regular entry at market lows "Dollar Cost Trading" is a useful tool for the conservative investor.

4)Simultaneous use of the dollar:
The structure allows for serviceability, cashlow cushioning et al all at the one time. Employing the same dollar 6 times is certainly a value adding device.

5)Passive Income:
The ultimate aim of all who aspire to financial independence - having a net of tax income stream to live off, whilst the assets accrue over time.

I don't usually enter into forum debates or defence of a particular product. Each to their own - I guess an understanding of the use of the full ramifications of the structure is necessary. Needless to say many well known members of this forum who are financially independent, employ cashbonds as the means to have reached this favourable position.



PS: Mike, your posts DO elicit interest and promote discussion, which is good for the forum - so keep them coming!
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From: Mark Brokenshire

Feeling a bit naive but what are cash bonds and what is a lo doc loan.
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From: Always Learning

Dear Steve and others,
On 6/29/02 12:55:00 AM, Steve Navra wrote:
>Couple of points about the use
>of a cashbond:
>1) Serviceability:
>The extra income certainly
>enhances borrowing capacity.
>The use of Low doc loans (at
>good rates) STILL requires an
>honest declaration of income
>to be made by the borrower. It
>has been pointed out that
>legally the mere stating that
>one can afford the borrowings
>needs to be backed up by the
>actual existing income of the
>borrower. To declare an income
>level that is not true would
>be fraudulent. The existence
>of the cashbond income lends
>credence to this honest
Maybe Rolf can answer this, if I was on a very low income (eg. pensioner ) and owned a 100% of a $800K PPOR, what LVA on a LOC could I get?
If I had 30% cash (from LOC) would there be a low doc product to let me buy without proof of income (apart from rental return)?
>Aside from borrowing capacity,
>many investors require the
>extra income to fund the
>holding costs of many assets.
>Also, the 'cushioning' of
>unexpected expenses such as a
>rising interest burden or lack
>of rental income might be
<p> Wouldn't a healthy LOC be better for this, than a cashbond?
>3)Regularity of Share market
>Many choose dollar cost
>averaging to enter the stock
>market, rather than lump sum
>investing - after all the
>market can decline straight
>after investing the larger
>amount. Regular entry at
>market lows "Dollar Cost
>Trading" is a useful tool for
>the conservative investor.
Maybe I need to go to your 2 day course as I am confused with this point. The implication I draw from this statement is that people would take out a 5 year cashbond, and use the cashflow from it to fuel a 5 year slow accumulation of shares?
>4)Simultaneous use of the
>The structure allows for
>serviceability, cashlow
>cushioning et al all at the
>one time. Employing the same
>dollar 6 times is certainly a
>value adding device.
Again need to take your course. Without any knowledge of the subject, a little red light is blinking in my brain: "in 5 years hope to god that you have made excellent capital gains from the employment of your cashbond dollar"!
>5)Passive Income:
>The ultimate aim of all who
>aspire to financial
>independence - having a net of
>tax income stream to live off,
>whilst the assets accrue over
YES! YES! YES! Freedom!! Just an aside but I am always surprised by vast majority of people who don't have such a goal. In the group that does most only want it vaguely and take no interest in moving towards it's achievement. By definition, the alternative to financial independence is financial dependance, dependance on government handouts, your relatives etc. Personally I love freedom, and I must be prepared to pay the price up-front to achieve my goal of financial independence!

>PS: Mike, your posts DO elicit
>interest and promote
>discussion, which is good for
>the forum - so keep them
Mike, as your stated objective is to raise thought provoking issues, promote discussion etc. I cannot reason why wrapping your ideas up in a testosterone induced in-your-face "but I'm an idiot" ( IMO the subtle implication is "but I'm smarter than you" ), is the best way to achieve the objective.
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From: Mike .

Hi Mark,

There are several types of financing available.

Owner-occupant loans are relatively easy to qualify for (they check for a pulse, that's about it). Interest rates and setup costs are usually lower than no or lo doc loans.

Investor loans are more difficult to get than owner-occupant loans. They may be Conforming or Non-conforming. Conforming loans must meet certain underwriting standards. These require more paperwork and the borrower's finances are investigated in greater detail than non-conforming loans. Non-conforming loans are offered through sub-prime lenders.

Sub-prime lenders will lend to people with less than perfect credit or who are doing something risky like a rehab. Of course, they charge a higher interest rate and establishment costs for carrying a greater risk. If you are doing multiple renos or rehabs then sub-prime is probably the way to go. Particularly if they can process the loan application quickly. It should be apparent that the major banks are not sub-prime lenders. I'm not sure if a sub-prime lender has a shop front or whether they are only accessible through a mortgage broker.

Self-employed people should be able to get loans from sub-prime lenders.

A standard investment loan with a bank is a "full doc" loan. Full documentation loans require bank statements, tax returns, payslips etc. Self-employed people with less than 12 months income history will find it tough to satisfy full doc lending criteria.

"Lo/low doc" loans, on the other hand, require little proof of income. Perhaps 3 months of bank statements and proof of held assets, but no tax returns or audited financial statements of the business. I believe you can get low doc loans with non sub-prime lenders for a slightly higher interest rate. Don't know about no doc loans, however.

No doc loans can be had from sub-prime lenders. You may even get close to 100% financing at higher interest rates and setup costs.

I'm not sure what comes after that, perhaps Mezzanine finance? Anyway, you wouldn't go near it unless you knew exactly what you were doing. For the experienced professional only.

Anyway, this is my layman's understanding only so don't take it for gospel. Use it as a guide only and seek further clarification from the experts. Good cue for Rolf to add his expert opinion here.

Regards, Mike
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From: Mark Brokenshire

Thanks Mike for the information. Appreciate the time to answer. I am still unsure however what cash bonds are??

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From: Rolf Latham


Depends on location and a few other issues like that the pensioner is a full time investor and has a clean CRAA etc etc.

75 % LVR LOC for investment purposes is possible at rates of around 6.5 %

Just as an aside I normally keep my mouth firmly shut, however I would like to offer that Annuituities are accepted by many lenders as a legitimate form of income which they of course are.

Annuity based structures are not new, though Uncle Steve has made more extended use out of them, and has taken a Model A Ford to a current car.

I would argue though that a cashbond purchased with borrowings is in effect no different to making a declaration of income on a no/lo docs loan. Both forms of borrowing require an ASSET based view on lending, and both are based on loan "round robins". Without equity neither one flies.

BUT, I stand by my comment that if Annuity policies are properly implemented and risk MANAGED they can and do work for people. and in some instances where no docs finance is not easy to obtain.

There is no one Cure all.


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