LOE in these times

R

rambada

Some of the forumites were LOE or advocating the same. Just wondering how they are traveling in the current climate?

Please don't get me wrong, this is in no way a dig at the strategy - something that I have in sight for an exit strategy. I want feed back on any one who is utilizing it?
 
LOE is my exit strategy, when the time comes. I've spoken to a few people about this and it seems they take advantage of the "good times" when credit flows more freely and and get revaluations done at that time and siphon funds into LOC etc. That way, it's there for use, even when credit is tight.
To me, this whole credit squeeze deal is the single biggest risk in the LOE strategy, but it's one that can easily be mitigated.
I'm still going for it. The current climate simply provides me with some ideas on how to manage the risk.
 
Hiya

I have many a client on this "strategy"

Its not something new, I know we have given it new names etc , but its been around for donkeys years.

Much depends on if you see the current "cycle" as part of a normal "cycle" or if you percieve there to be a major pardigm shift in markets.

ta
rolf
 
I'm not living on equity, rather investing on it.

Many people here are. Not really worried as I know personally I have enough buffers to chill out for a couple of years..

The hard thing is not to over leverage into more properties, because with this strategy, regardless of what people say TIMING IS IMPORTANT.
 
rambada said:
Some of the forumites were LOE or advocating the same. Just wondering how they are traveling in the current climate?
Click to expand...

I'm not LOE, but I presume that many who are, set themselves up in times when assets were cheap. Like property in the late 90's when it had high yields, or shares in 03/04 with high dividends.

Property recently had pathetic rental yields, and shares had pathetic dividends, so a bit harder to buy assets to LOE. As an example, banks had 6% fully franked dividends in 2003, which when grossed up was over 8%, and money could be borrowed for much less, so that were very positively geared. By 2007, bank yields were less than 4%, and borrowed money was much more expensive.

The world is currently undergoing an asset devaluation back to more sensible values and earnings yields. When this carnage is all over will be the perfect time to get into high yielding assets, and set yourself up for LOE. I'm expecting more drops in both shares and especially property, and at the bottom, bargains will be massive, and not to be missed. Assets were way overvalued and now they will correct to be way undervalued. Just part of the cycle.


See ya's.
 
I'm "pure" LOE with pretty serious neg. gearing along with it. Just a flock of IP's. Still buying and reno-ing more IPs. Retired from job 2 years ago now. Not many of us from my observations. Yep..no problems. We "refreshed" our LOCs in May this year 08 i.e. had the flock all valued, debated the overall LVR with bank, settled on a deal. Good timing in retrospect. ...possibly a talent necessary for LOE. From comments from the bank blokes we're not a problem . It's the blokes with the large share losses that are causing them headaches atm.
LL
 
Hi, if LOE is the same as living on rental income, then many 'older' investors would come under the category.

Robert G. Allen has a graph depicting what most people tend to do. 1st, have loans to buy property until a certain time, then at 'retirement' sell off some & have 0 debt. Then borrow again.

It's quite uncanny. I fit into the graph quite accurately even though I didn't buy his book till long after I'd sold off all residental properties, keeping the commercial ones for rental income.

I found that it didn't make sense to sell properties that have high yield because converting to cash means that I have less income after tax.

In the last 2 years, I'd mixed up rental income & capitalised income from refinancing. Spent more than I should & found it more stressful than originally anticipated.

Proves the point: money is elastic, have more, spend more, have less, spend less.

Have a good day,
KY
 
Question

G'day guys,

Had a question that you might be able to answer for me, probably been answered a few times (something that MB's would know)

obtaining the LOC people use for LOE, i'm presuming that you have to prove that you can service the debt, when people extend their lines of credit that are LOE (no paid income from work/business etc) and are asked to prove they have the $$$ to service their commitments what do they do? Are these people using no/low doc loans or does the bank take into consideration that the growth of the portfolio is servicing the debt? (far chance i presume)

Just wanting to educate myself on that concept their as im looking to LOE (acquiring growth assests)

Cheers,

RH
 
Over the medium term, if your LOE strategy is reliant on Lo Doc loans, you are likely in strife.

The days of the banks being happy to take a punt are gone for the foreseeable future and you will need to prove real income capable of supporting payments on the equity you intend to draw down. In addition, we are already seeing a reduced appetite for banks to allow drawdown for generic purposes (as distinct to buy or refinance stuff).

We're not in Kansas anymore, Toto.
 
I can only speak from our very limited experience, and others may well do it entirely differently. Our facilities are all total "full-doc"....if that makes sense. Total truth and transparency. Based on a large portfolio of IPs accumulated over about 12 years and an overall low LVR ( like 50%) So the bank has LOTS of cover. (Obviously enough to keep 'em happy cause I'm still buying beer.) Servicability per-se does not come into it. Repayment of the facility, if ever done, would be by selling the security. Maybe "concentrate on "getting big" " would be a possible tip.
LL
 
Getting big is the goal of the growth phase - but at some stage you have to be able to buy groceries at Woolies. Now the very nature of structure set ups is to begin with the end in mind. Hence for me the need to know or have a concept of exit strategy. I am a system person, and really like the concept of LOE - not yields - true LOE. Just trying to gleen information off those that are doing it during these times.
 
rambada, pleased to help if we can...hence the forum. Can assure you we buy our groceries at Safeway (Woolies to you...) or Coles, regularly. Our "exit strategy" was & is LOE. Mind you, the way they are now dropping IRs so fast ( hope you didn't fix...) we'll possibly go "cash flow positive" next year so we can then partly or wholly "live off rents". (i.e rents will exceed our interest charges plus property costs pus living expenses.) Then we'll have a tax problem again!
LL
PS Just to be clear... I've re-read a previous post. It may be mis-leading. Our LOC's are based on "around" 75% LVR ( It differ's with different IPs and with different banks) but we actually use about 50% LVR atm. The remainder is our "sleep soundly" factor. Hope that's a bit clearer. Good investing.
 
hi, thanks for clearing up the LOE concept. I realised I confused living off rental income with LOE.

I suppose I'd done a combo in the last 3 years. It's quite a rollercoaster to LOE as opposed to rental income.

I refinanced & spent part of the proceeds on living costs [be careful - I found from experience that keeping to a plan is harder than it sounds]

I sold devt properties & kept on for 3 years. Every time the cash dipped to under $10000, I borrowed again.

Quite stressful - I'm looking to borrow another $250000, partly to pay debts & the rest to buy shares. However, out of the last refinancing, I still have some money locked away in FD

So, still investigating LOE.

ky

Question with LOE is that there might come a time when the debt may catch up with the equity, isn't that a nightmare?
 
kum yin lau said:
Question with LOE is that there might come a time when the debt may catch up with the equity, isn't that a nightmare?
Click to expand...

Only if you havent structured your portfolio correctly & you're spending to increase debt faster than your portfolio is appreciating.
 
aaarghhh said:
What structures do you suggest for LOE?
Click to expand...

Depends on ones individual preferences. By structure I mean the whole gammit - how you put together or built your portfolio & have set everything up. ie properties type, locations, finances - loan type, entity ownership on title etc etc.
 
Hi all

I understand the concept of LOE. What i find harder is to see the picture how the structure is actually set up.

For example say you have 5 IP properties
1. Val $400,000 owe $200,000 LOC $120,000
2. Val $400,000 owe $200,000 LOC $120,000
3. Val $400,000 owe $200,000 LOC $120,000
4. Val $400,000 owe $200,000 LOC $120,000
5. Val $400,000 owe $200,000 LOC $120,000

Total val $2m debt $1m equity $1m LOC $600,000

Now these are IP properties so the interest etc is tax deductible.

-Now do you have 5 seperate LOCs
-Do you combine the lot to give you One big LOC
-Do you have to create seperate LOC for living vs the interest deductible portion.

How is this all set up for LOE.

Cheers
BC
 
You must log in or register to reply here.

Similar threads

R
A Positive Post for the Day
Replies
5
Views
1K
spludgey
spludgey
S
New Investor: Hi to the forum
Replies
6
Views
2K
Schpeet
S
A
Desperate situation..please help
4 5 6
Replies
105
Views
23K
Perp
Perp
S
Financing process - first purchase
Replies
19
Views
3K
tobe
tobe
T
Independent Valuation Issues
2
Replies
21
Views
4K
T_Trade
T
Back
Top