D2
The number of clients I have that have annuities I can count on my two hands. Finance for an annuity based structure is BEST implemented with the same group that does the annuity.
Terry
I have numerous clients where the number of seperately titled properties exceeds a dozen.
The highest individual number is 29, and I hate doing his loan apps :O)
As an aside the largest loan app in numbers of pages has been about 230 - faxed to the lender as well :O)
Ta
rolf
The number of clients I have that have annuities I can count on my two hands. Finance for an annuity based structure is BEST implemented with the same group that does the annuity.
Terry
I have numerous clients where the number of seperately titled properties exceeds a dozen.
The highest individual number is 29, and I hate doing his loan apps :O)
As an aside the largest loan app in numbers of pages has been about 230 - faxed to the lender as well :O)
Ta
rolf
are we all talking the same thing?
bbg wrote
and later wrote
"Income" and "taxable income". They are very different beasts. Is this being overlooked by some? It is very simple to have a low/negative taxable income and still have considerable further serviceability capacity, as bbg describes. Easily hundreds of thousands of dollars. And if you're Mr K Packer, add a few zeros to that!
bbg again
I think bbg does not understand the idea of cashbonds (converting equity to income to improve serviceability) and that others don't understand taxable income?
BOTH bbg and Steve agree about using lots of equity to support borrowing!!
bbg wrote
To me, credit = equity. If you run out of credit, you can't buy a cashbond. And by definition, if you've run out of credit how can you borrow more?
and later wrote
Low income. Yet every reference to bbg's income figures is to "taxable income".
"Income" and "taxable income". They are very different beasts. Is this being overlooked by some? It is very simple to have a low/negative taxable income and still have considerable further serviceability capacity, as bbg describes. Easily hundreds of thousands of dollars. And if you're Mr K Packer, add a few zeros to that!
bbg again
The argument is not about being limited by equity - in fact it is the equity that allows the cashbond!
I think bbg does not understand the idea of cashbonds (converting equity to income to improve serviceability) and that others don't understand taxable income?
BOTH bbg and Steve agree about using lots of equity to support borrowing!!
Mikhalia, If I put equity (collateral) on the table when I deal with banks, most are happy to talk.
If I have an IP valued by the bank at 250K with 100K loan, will they lend me 200K to by another and take both as collateral?
collateral= 450K loan= 300
From my experience so far, I see no problem getting this loan.
This thread was about having lots of equity and not being able to borrow.
(soory off thread topic)
Mostly I use substantial deposits because I don't like negative cashflow, I don't like the idea of worrying how to pay the next interest bill. I did that in the late 80's & 90's.
Yes many may be thinking they could buy 30 ip's all cashflow positive by $5 wk on little deposits etc etc, but that's not part of my long term plan.
best wishes
bbg2003
If I have an IP valued by the bank at 250K with 100K loan, will they lend me 200K to by another and take both as collateral?
collateral= 450K loan= 300
From my experience so far, I see no problem getting this loan.
This thread was about having lots of equity and not being able to borrow.
(soory off thread topic)
Mostly I use substantial deposits because I don't like negative cashflow, I don't like the idea of worrying how to pay the next interest bill. I did that in the late 80's & 90's.
Yes many may be thinking they could buy 30 ip's all cashflow positive by $5 wk on little deposits etc etc, but that's not part of my long term plan.
best wishes
bbg2003
Re: are we all talking the same thing?
Hi Pete, answering your post:
To me credit= equity as well, and that's all I need to buy IP's.
I see no problem converting equity into more IP's, hence (as you point out) my complete dismay about the cashbond idea.
In a high growth market like Syd & Melb last few years, equity grows faster than income, so I use that.
I agree with your statement about "taxable income", most overlook the importance of them.
Don't forget we are talking about high net equity investors.
Hi Pete, answering your post:
To me credit= equity as well, and that's all I need to buy IP's.
I see no problem converting equity into more IP's, hence (as you point out) my complete dismay about the cashbond idea.
In a high growth market like Syd & Melb last few years, equity grows faster than income, so I use that.
I agree with your statement about "taxable income", most overlook the importance of them.
Don't forget we are talking about high net equity investors.
Would the interest charged when using the equity in a property to obtain a cashbond still be tax deductable (since the argument is that the cashbond is needed to obtain serviceability) If the extra serviceability that it gains is not used(sits there in a form of LOC) for a financial year?
Example: If a property has $400K in equity and you use $100K to purchase a Cashbond to satisfy serviceability, thus $300K lies in a LOC for a financial year.
Which begs another question, if you purchase a property using that remaining $300k in your wife's name. Is the interest on the $300K tax deductible in your name and would the argument of having the cashbond to satisfy serviceability still stand if no assets were bought in your own name?
Example: If a property has $400K in equity and you use $100K to purchase a Cashbond to satisfy serviceability, thus $300K lies in a LOC for a financial year.
Which begs another question, if you purchase a property using that remaining $300k in your wife's name. Is the interest on the $300K tax deductible in your name and would the argument of having the cashbond to satisfy serviceability still stand if no assets were bought in your own name?
bbg,
Thank you for your comments so far.
My comment "credit=equity" was really my interpretation of your use of "credit". In the original context used, "credit" was unclear to me.
You convert equity into IPs. That is also what the cashbond does.
The beauty, as I understand it, of the cashbond, is it converts equity into cashflow satisfying serviceability when that might otherwise be limiting.
(Steve often writes that the cashbond idea is appropriate only when other financing methods are not. At least, that is my understanding. BTW, I've not attended any of Steve's seminars. I've read about the cashbond on this forum and am keen to learn more as it sounds a great tool.)
I'm assuming for you that the serviceability can not be limiting (otherwise your recent loans would have not been approved), hence you have no need to use a cashbond. As above, I assume this would be Steve's approach too.
What would you do if you were limited by serviceability and yet still had surplus equity? (You write that we are talking about high net equity investors. To me, this is a most appropriate question for those people. I'm curious, what do they do to keep investing?)
This is a situation I expect to approach next year. I'll be looking at an annuity approach.
Have you another solution?
Regards
Thank you for your comments so far.
My comment "credit=equity" was really my interpretation of your use of "credit". In the original context used, "credit" was unclear to me.
You convert equity into IPs. That is also what the cashbond does.
The beauty, as I understand it, of the cashbond, is it converts equity into cashflow satisfying serviceability when that might otherwise be limiting.
(Steve often writes that the cashbond idea is appropriate only when other financing methods are not. At least, that is my understanding. BTW, I've not attended any of Steve's seminars. I've read about the cashbond on this forum and am keen to learn more as it sounds a great tool.)
I'm assuming for you that the serviceability can not be limiting (otherwise your recent loans would have not been approved), hence you have no need to use a cashbond. As above, I assume this would be Steve's approach too.
What would you do if you were limited by serviceability and yet still had surplus equity? (You write that we are talking about high net equity investors. To me, this is a most appropriate question for those people. I'm curious, what do they do to keep investing?)
This is a situation I expect to approach next year. I'll be looking at an annuity approach.
Have you another solution?
Regards
Steve,
I was not challenging your strategy. I understand how your strategy works and why you'd use it
The point I had hoped to of made was how I would evalulate whether it is a valid one in a persons individual situation.
I was hoping to see whether this is how other people would evaulate the strategy....
Now I dont want to put a negative on your strategy (im just asking the question in a different way).... im sure your strategy would simply mean using rental reality to ensure that the growth of your property exceeds the interest/annuity gap (again assuming neutral cashflow.
To put it a different way.....
If the growth of your property (assuming neutral cashflow) is less the the gap between your interest rate and the annuity rate, would the cashbond strategy be a good one?
I was not challenging your strategy. I understand how your strategy works and why you'd use it
The point I had hoped to of made was how I would evalulate whether it is a valid one in a persons individual situation.
I was hoping to see whether this is how other people would evaulate the strategy....
Now I dont want to put a negative on your strategy (im just asking the question in a different way).... im sure your strategy would simply mean using rental reality to ensure that the growth of your property exceeds the interest/annuity gap (again assuming neutral cashflow.
To put it a different way.....
If the growth of your property (assuming neutral cashflow) is less the the gap between your interest rate and the annuity rate, would the cashbond strategy be a good one?
Originally posted by Steve Navra
The annuity rates quoted by various insurers changes on a weekly basis . . . The rate currently hovers around 4% depending on the term. As a rough guesstimate I use a 2.5% difference so:
$2,500 per $100,000 X number of years.
Now before Bill.L jumps all over me . . .
Yes this is an EXTRA cost, BUT I maintain that as long as the structure is used to acquire a half decent asset (PROPERTY) bought in the 'right'place at the 'right' time and definitely at the 'right' price . . . then the capital growth should be in excess of the cost.
NOTE The structure is flexible . . . so at times of high interest rates the term of the annuity can be varied to reduce the extra cost. (What you save in cost is offset by the length of time of the cashflow)
regards,
Steve
Hi XBenX,
Growth less than the gap???? (2.5%)
Well, I would have to say that the property was (to be polite) well below average!
If the expectation of return (capital growth) on the property is less than 2.5% then rather put your dollars elswhere . . .
To directly answer your question then:
NO you would not consider a cashbond for THAT property.
Regards,
Steve
Im not suggesting that a property such as this exists.... it was an extreme example to get an answer...
They say when you dont get an answer it's upto you to ASK a better question, so I simply rephrased the question in the negative.
Thanks for your insight...
PS no need to be so defensive of your strategy, I wasnt questioning your strategy, just seeing whether ppl agreed with my logic for evaluation
They say when you dont get an answer it's upto you to ASK a better question, so I simply rephrased the question in the negative.
Thanks for your insight...
PS no need to be so defensive of your strategy, I wasnt questioning your strategy, just seeing whether ppl agreed with my logic for evaluation
I see XBX's point, though. It's a good boundary condition to illustrate when it is not appropriate to use a cash-bond.
Steve, this raises another interesting question - would you ever recommend using a cashbond for a low-growth property if that property was cashflow positive?
(I was actually thinking in reverse along the lines of "high yield properties are often low CG", so could a cashbond be made to work in that circumstance).
Steve, this raises another interesting question - would you ever recommend using a cashbond for a low-growth property if that property was cashflow positive?
(I was actually thinking in reverse along the lines of "high yield properties are often low CG", so could a cashbond be made to work in that circumstance).
Last edited:
Hi Ben,
I WASN'T having a go at you . . .
Nor being defensive . . . the strategy is what it is.
Mainly though a lot of people were questioning the strategy using examples that were unrealistic / inappropriate.
Also, many whom have not attended a course were taking aspects of the strategy and picking it apart (without understanding the big picture) . . . this creates a false perception which is out of context.
Your understanding as a result of your knowledge has been spot on . . . so THANK YOU for your questions, I believe your contribution to this thread has helped many gain a better insight!
Sincerely,
Steve
Hi Kev,
Yes . . . but you would need to be reasonably sure that the high yield + the low growth + LEVERAGE was sufficient to make up for the extra cost of the structure.
Regards,
Steve
B
brains
Guest
We only have to wait a couple of years and all property will be low-growth, then we will find out.
This you know for a fact . . . right??
Regards,
Steve
B
brains
Guest
No i dont know it for a fact (If investors knew things in the future were fact, we'd all be milionaires...ummm...make that ....billionaires)
Its an educated guess but heres why i think it will be:
The last few years have sucked so much demand from the market it will adversly affect property prices for the next few. And i think imigrants from 3rd world countries wont be buying much $500k Sydney property.
Interest rates will rise in the next few years on the back of a market rally and a strengthening economy, this will cause a lot of grief for highly geared punters and a lack of demand for property.
Pathetic yields due to rising prices will scare away most investors as i think they will head to stocks.
Government intervention seems to be on course to stop the rise in property prices by whatever means they can think of.
And its just the nature of a property cycle where growth will level out and rent will catch up until the next price cycle.
Im sure theres a few more supporting my case but i think the above is enough for now.
Its an educated guess but heres why i think it will be:
The last few years have sucked so much demand from the market it will adversly affect property prices for the next few. And i think imigrants from 3rd world countries wont be buying much $500k Sydney property.
Interest rates will rise in the next few years on the back of a market rally and a strengthening economy, this will cause a lot of grief for highly geared punters and a lack of demand for property.
Pathetic yields due to rising prices will scare away most investors as i think they will head to stocks.
Government intervention seems to be on course to stop the rise in property prices by whatever means they can think of.
And its just the nature of a property cycle where growth will level out and rent will catch up until the next price cycle.
Im sure theres a few more supporting my case but i think the above is enough for now.
Originally posted by Steve Navra
This you know for a fact . . . right??
Regards,
Steve
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