Financially Fragile: Could you come up with $2,000 cash in 30 days?

[jaycee]

What does this mean?

If I have $500k of assets and $398k of debt and a $400k Line Of Credit, does that mean when I take $2k out of the LOC to bring the debt up to the $400k limit that I am using cash or debt?

If I have $300k of assets and $398k of debt and a $400k Line of Credit (ie my properties have dropped in value but the Bank is yet to revalue the LOC), does that mean when I take $2k out of the LOC that I am using cash or debt?
If I have $100m of assets and $398k of debt and a $400k Line of Credit, does that mean when I take $2k out of the LOC that I am using cash or debt?

Or do I need to pay every last cent of my debt off, regardless of my asset base, before I can be considered to be using "cash"?

I prefer to think in terms of gross assets, net assets (or LVR) and net income. Whether or not I can access $2k at short notice will depend on the credit buffers I have available - not whether I have saved "cash" separately.

You have $M's in equity in this example.. .what mo you think the obvious answer is ?

Give Bin a litgtle credit,m I'm sure he didn't suggest that...

I think a more typical example may be more like a person who has $0.5m property... $.05m debt and $20k cash in the bank against their offset a/c which they need to meet the shortfall between rent & expensesfor that year otherwise they might be short and unable to pay their bills.... but of course they don't need 100% of that shortfall straightaway.....
Something URGENT comes up and they NEED $2k... of course they take out CASH from their offset.. .but is it savings cash or is it getting into mnroe debt ?

I'd suggest the people who have $100m of assets weren't the focus of eitherthe OP or Bon, nor the ones the original poster wondered about

 

[Seabreeze]

Well that's all very nice jaycee but my point is that the principle is the same regardless of the amounts involved. ie you have assets, a line of credit and you are drawing down the line of credit (or taking money out of an offset account if you will).

If someone says that means you're not "using cash" then that applies as much in the $100m asset case as it does in the $300k asset case. In all three cases you are just increasing your debt levels after all...

So talking about whether you are using "cash" or "credit" is meaningless when you take such points to their logical extreme. Any investor with a reasonable amount of experience in these matters should spot this straight away. The attempted distinction is a total furphy.

 

[Aaron_C]

Money is fungible. $1 here is the same as $1 over there. So if I have even $1 of debt and $1m in assets, even if I take $500 out a proportion of that will still be debt even though the debt is such an insignificant proportion. You are arguing over nothing jaycee.

 

[jaycee]

Money is fungible. $1 here is the same as $1 over there. So if I have even $1 of debt and $1m in assets, even if I take $500 out a proportion of that will still be debt even though the debt is such an insignificant proportion. You are arguing over nothing jaycee.

OK guys, I didn't realise I was arguing, youre all probably right... I was probably looking to deep into it.