Efm

Newbee post.

Has anyone used this Shared Equity product?

http://www.efm.info/

I understnad it could in a bull market be very expensive, but if the market is moving sideways it could certainly improve your cashflow.

I would be interested in understand how the mechanics work eg to they wear (or give credit for) any of the transaction costs like stamp duty? What happens if you do a reno how do they work out the value of works etc.

Second question if you have used them what has been your strategy?

eg If you beleive Richman Poorman your PPOR is a liability. That being the case wouldn't it make sense to pull out as much equity from your PPOR as possible, even after a LOC, to invest in cashflow assets?

Thoughts?

Andy P
 
Product is offered through Adelaide Bank and Rismark International.

Did quiet a few of them the first few months they were around (actually did 1 or 2 really nice sized loans) but you are right in a low interest bull market probably wasnt the best product of you could satisfy the serviceability and afford the loan repayments.

In saying that of course with the market as it is and interest rates starting to rise why wouldnt you share the burden of debt with someone else on your PPOR and use your own cash funds to buy IP's.

Property is in your name so you pay the Stamp Duty on the Transfer.
 
Case Study

Lets say your PPOR was bought for $400k and is now worth $800k. And you have maxed out you equity

You now have an 80% LVR including your LOC.

PPOR 800
Mortgage 640
Repayments $3,733 pm (Assume 7%)

IP's 1,200 (Assume zero growth)
Mortgage 960

So if you used this product, EFM they say you need 10% in. (Question will they accept external security?)

PPOR 800
EFM 200
Mortgage 520
Repayments $3,033 or $700 per month lower

IP's 1,600
Mortgage 1,280

So in this example you could have one more IP and have an improved cashflow. If you give EFM 40%* of the upside and your keeping 100% of the upside on the new IP.

Eg If both properties went up by 10% the following would occur:

EFM 80 x 40%* = 32k
IP 40 x 100% = 40k
So we are $8k ahead plus we save $700 per month.

* Varies according to percentage loan taken. This example may not be correct.

Simplistic example I know (ie no transaction costs etc) but looks worthy of further consideration.

Thoughts?

Andy P
 
" Reduce the upfront and ongoing costs of buying a home by up to 25% or more
Reduce your monthly repayments by up to 25% or more
Buy up to a 25% or more valuable home"

You are probably right about the 20%, saw all the 25% numbers and didn't look at the fine print.

Andy P
 
Adjusted Numbers - Still shows its worth a look.

Sorry about the format, cut and paste from excel.


Growth Cashflow
PPOR 400,000 800,000 800,000
EFM 20.0% -160,000 -3,733
Debt 80.0% -320,000 -640,000 -560,000 7.0% -3,267
Equity 80,000 160,000 80,000 -467 Benefit
LOC

IP's 1,600,000 2,000,000
Debt 80.0% -1,280,000 -1,600,000
Equity 20.0% 320,000 400,000


Estimated Position - Assume 10% Growth over 12 months
PPOR 10.0% 800,000 880,000
EFM 40.0% -160,000 -192,000 -32,000
Debt -560,000 -560,000
Equity 80,000 128,000

IP's 10.0% 400,000 440,000 40,000
Debt 80.0% -320,000 -320,000
Equity 20.0% 80,000 120,000

Add Cashflow Benefit 5,600
13,600

Could do a 10% EFM and the numbers are probably better but trade off the cashflow benefit.
www.efm.info
 
Numbers seem ok. Sounds reasonable.

My worry is, how does another lender look at EFM when you are looking at your 3rd or 4th investment property? Like being wholly and severally liable, will the new lender take account of the reduced repayments in their serviceability assessment, or what the whole lot would normally be?

If I was a credit assessor, having an applicant who only owns part of their PPOR might weaken the deal?
 
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