Navra Cashbond?

[Bill.L]

Hi all,

Firstly a big THANKYOU to Steve for his input to this thread as it has made me have a reality check. And NO I still don't like the numbers.

As everyone else seems to like summarising my position I thought I would have a go at it myself.

1/ Every investor likes to think they can do better than average.

2/ I believe that any strategy can be shown to work well. You just have to produce a period of results that conform to what you want them to. For me to accept a strategy it has to be able to work over the long term by itself. If it doesn't work over the long term, but has worked over the short term, then starting to use it now is very dangerous.

3/ In many threads on this forum a question gets asked along the lines of ; I'm new to property investment, don't have much income but want to get started. Someone eventually pipes up "cashbonds"( I'm the first to admit, it's NOT Steve). There are people who will believe anything, and by trying to save themselves money by not doing Steves course, may get themselves into trouble by not taking into consideration the risks.

4/ What I know.
a/ Over the long term median priced property grows at 2-3% above the rate of inflation.
b/ Inflation at around 3% , it has been for over ten years, and growth of many properties averaging 15% or more over the last 5-6 years.
c/ Something has to give soon. Though some will argue " This time it's different", not me.

5/ Do I think property is a good investment? Yes sure do, if done properly using a strategy that is proven to work, by itself over the long term.


Lastly, as the herd of lemmings raced toward the edge of the cliff to leap to the otherside the leaders chimed " Let the rest of the herd believe it can't be done."

 

[Steve Navra]

Originally posted by Bill.L
. . . For me to accept a strategy it has to be able to work over the long term by itself. If it doesn't work over the long term, but has worked over the short term, then starting to use it now is very dangerous.

Hi Bill.L,

Thank you . . . and yes I do agree that structure does need to conform to circumstances that present themselves at all times:

Taking a positive look at the early 1980's . . . perhaps the following structure would have sufficed:

$65 pw X 52 X 80% = $2704 / 15% buffer

Borrowing amount available from Rental Income = $18,026

Shortfall required from cashbond: $44,000 - 18,026 = $25,973

$25,973 at 15% buffer rate = $3,896 pa

1 year cashbond of $3,896 plus $3,896 at 15% ($584) = $4,480.

This is all that is required to get the serviceability across the line.

So even at the higher interest rate . . . in compensation the cashbond term can be reduced. The question remains then is a cashbond worthwhile at the higher interest rates??

NOTE
Cost per anum of the cashbond portion of the loan:
The difference between the cost of the loan and the return on the annuity = 15% - 1.5% (buffer amount) = 13.5% - 9% = actual cost per anum of 4.5% of the amount borrowed.
The shorter the term the lower the return on the annuity!!

So: $4,480 x 4.5%pa = $202 pa X 1 year = $202.

And PRESTO . . .

A $44,000 property would need to achieve capital growth of 0.45% pa to cover the EXTRA COST!

Any capital growth above that figure is the reason that justifies the cost of using the structure.

Regards,

Steve

PS:
1) Structure remains an "INVESTMENT TOOL" which can be utilised to accord with most reasonable circumstances.

2) I do think this post has been instructive, despite the 'passion' shown by BillL and myself.

3) I repeat what I have always stated . . . The cashbond should NOT be viewed in isolation, it is part of an over-all structure and should only be applied to properties that conform to a strict selection criteria, so as to ensure that the TIMING and VALUE of the asset is sound. (See Rental Reality)

 

[yeslist]

Steve's cash bond strategy(tool) worked for me.
At the time (around two years ago) we where facing a common problem to investors, serviceability. Steve's investment strategies were new to us and so we did our research and then refinanced and took up a cashbond so we could by more property. I might note that we had substantial equity in our existing portfolio at that time.
That strategy at that point in time gave us a window of opportunity to buy into the Sydney market and also give up working for a boss and more time to work on our investments.
We are still doing that today however the Cashbond was only part of out strategy for a few months. Once we had obtain our objective which was a Sydney property(not one of Steves) we cashed the bond in and started using low doc loans to get us through the next lot of hurdles.
Now we have mooved back to main stream banking and who knows what next.
the cash bond was a great tool at the time.
y

 

[Homer J Simpson]

we cashed the bond in

Do you mean that you cancelled the bond before maturity?
If so, are there any penalties associated with an early withdrawl?

 

[brains]

Yeslist,

Its good to hear a practical example of the cashbond working in your circumstances. But i noted you only used it for a short time, but fair enough - it did its required job.

Does anyone else have a practical example of using a LOC-> casbond structure. Im sure the forum would love to hear some 'real life' examples.

 

[yeslist]

Homer

Yes there was a cost but our gain since then has far exceeded this and made the exercise extremely worthwhile but due diligence is essential and an open and creative mind.

Yeslist

 

[Steve Navra]

Originally posted by brains

Does anyone else have a practical example of using a LOC-> casbond structure. Im sure the forum would love to hear some 'real life' examples.

Hi Brains,

My clients are instructed NOT to say too much about the bonds!!

Why?? Mainly we keep the exact structure 'close to our chests' so as to protect the integrity of the structure. (Has been abused in the past.)

However . . . do come to our next client get together / cocktail event and I will introduce you to many clients who use the structure . . . some of whom have increased the net value of their portfolio well in excess of $1 Mil over the past few years.
(Something they could not have achieved without the extra serviceability.)

My reason for preferring the face to face intro is so as not to fall foul of privacy laws.

Regards,

Steve

 

[Bill.L]

Hi all,

Welldone yeslist, I have no dispute that the how the concept has worked over the last couple of years.
Despite being labelled a cashbond basher, and not having a clue I have made statements like the following in earlier posts
"Yes I am one of those cynics, I don't know that the next 5 years
will be a repeat of the last 5. Obviously if there is 7-10%
growth p/a then the cashbond strategy will work fantastically
well."

My concern/interest was to see how the strategy worked(as a stand alone) over the long term. Why? Because if a strategy that has worked well for the last 5 years and continues to work over the next 10-15 years, through a couple of cycles, then it gets to be successful in the long term. I don't want to wait for the next 10-15 years to go by to see if I'm going to use something. So I drag up some numbers of an actual property we bought and start running the numbers.

The first thing I learnt is that if you put in nothing, and re-capitalize your yearly losses, the loan size would have grown from the original size of $44,000 to about $217,000 today. You could go and buy a similar property for around that ammount
today. The conclusion, if you put nothing in you get nothing back.
By then adding the extra cost of funding the purchase by using the cashbond, does not matter if it is $1 or $1000, the result is the re-capitalised loan would be higher than it otherwise would be with the do nothing approach. As do nothing = neutral result, then do nothing plus extra cost = negative result.

Where does the long term wealth come from? read Jan's books.

Steve,

Throughout this thread we have been looking at the cashbond amount over
5 YEARS

Kev was the first one to bring the term up, and the rest of us, including yourself used that period. His example was at $220k, Yours was then $100k

My example was around $30,000(keeping the numbers rounded for simplicities sake) over the same term as we had been discussing.

I don't have the exact number for the "buffer" at the time , but used 2.5% instead. In a time of more stringent lending criteria, this was prudent.
So I'll ask, using the 5 year term cashbond we had been discussing, and the 2.5% buffer, How far off the "around $30,000" are we?? Does this difference justify the personal attack you dished out??

Steve said
"WHAT??
You stated that the original loan was approximately $40,000 . .
. if you believe that a $30,000 (!!!!!) cashbond is required . . .
Pfffffff, sorry but you haven’t got a clue what a cashbond is, or
how it might be structured.

This perhaps is why you have ‘revved’ me so . . . you are
offering an uninformed opinion about (Yes bashing) a structure
that clearly you do not seem to fully understand."

bye

 

[brains]

Thanks Steve

Id like to come to your next client get together in Sydney and be convinced

To be honest, the more i read on here the more i believe it will work in my case.

Id also like to enquire more about the 'structure' and how i can implement it in my particular circumstances

 

[BUNDY]

I am in the process of implementing a cashbond through Steve as banks would not lend me any more money for the past 18mths due to servicability issues.

I have a number of properties which have shown excellent capital growth and are in "Blue chip " areas, however income has only increased marginally. The Cashbond system will allow me to continue to grow my portfolio without me having to sell one of my properties just to access my cash/equity to continue investing.

This is a fantastic structure for people who have large amounts of equity, but cashflow issues.

This way I can keep all of my properties which will continue to grow and also buy more. Why sell a great investment, pay capital gains, agents fees etc, just to buy another and pay stamp duty etc etc and and access some cash. (Very stupid)

I didn't really understand the concept either until I attended Steve's seminar. And yes, it "clicked".

Hold me back. Can't wait to buy a couple more properties, missed out on heaps of great opportunities as I did not know of any ingenious ways of being able to borrow money apart from the normal bank method.

I will keep you posted on how things pan out.

Cheers
BUNDY

 

[brains]

Bundy,

Your post makes sense. I think the penny has finally dropped for me but i still consider Bill's concerns relevant as the past few years have been a bonanza for property investors, the next five will sort the wheat from the chaff.

Also i understand the major reason for the cashbond is to supply serviceability but as i dont have serviceability issues. (I have my own business so i just increase my wage when i want to and use the depreciation & normal property deductions as a counter to the increased tax liability plus the directors loans and retained company earnings come in handy )

For the above reasons i was looking at the cashbond as a supplementary income to my passive investment income when i retire fully in the not too distant future.

 

[beech]

Yes there is more to cashbonds than some of the standard posts we get here regarding them.

it has been excellent reading this thread the last couple of days.

while Steve & Bill might have got a little frustrated and hot under the collar its been very valuable for forum members to understand more in regards to the advantages of Cashbonds.

they are certainly a valuable tool when used correctly and in conjunction with your own weath building.

Tibors post was a fantastic example of this system working for him in his particular circumstance.

enjoy the course Brains if you can get a spot

i have enjoyed the weekend twice with Steve and within the month will be added to his client list.


beech

 

[Steve Navra]

Hi Bill.L,

Can we stop sparring . . . please?

Yes, I did get revved . . . I do try very hard to offer a balanced view of the various aspects of the structure I employ, on the forum for the benefit of all the members.

I have stated many times that the cashbond is a complex structure and that I really do need to fully understand a clients situation before I can offer anything but 'general' advice.

I did feel that you were unfairly bagging the workings of the cashbond without fully understanding the vagaries of how the structure can be tailored to fit many different circumstances.

I previously stated that I would have to write a 'book' on the forum to cover all aspects and urged all who might be interested to attend a course . . . and then to proceed with caution. I spend the best part of half a day on this topic at the course . . . only then with a large amount of interactive Q&A does the penny seem to drop for most attendees.

The structure is versatile:

Older clients have a shorter time horizen; low interest rates allow for a longer bond term; passive cashflow may / may not be required; a single bond / continuing roll overs might be necessary . . . and many many combinations of all of this and more!

It all depends on the clients circumstances and the economic conditions at play at a point in time.

Bill, humbly I am suggesting that in the absense of you having attended a course, I felt you were not in a position to adequately or fairly offer the continual critique you were putting forward. Such negativity could only serve to spoil the educational benefit that these discussions afford all forum members.

So . . .

Originally posted by Bill.L
Throughout this thread we have been looking at the cashbond amount over
5 YEARS

Yes, that is the term you requested . . . I acquiesced, knowing full well the 'something' you appeared to be unaware of, that is that different cashbond terms can be tailored to suit the different circumstances.

Also in all FAIRNESS I DID clearly state this was possible:

Originally posted by Steve
Then:
3) What term cashbond? (Doesn't have to be 5 years)
A 4 year bond would be 20% less . . . and so on.

My real feelings were that you were unwittingly taking a very one dimensional view of a muti- dimensional structure and by your own admission being unduly cynical.

I am the first to suggest that one does need to do their due dilligence . . . skepticism represents fair open minded questioning. Cynicism on the other hand is close minded and negative.

Your example of "around $30,000" was to the best of your knowledge apt . . . but inapproriate.

Now, please accept that everything I have said here IS NOT a criticism or a personal attack on you . . . I really do believe that you are honestly well-intentioned. Also I did sincerely mean it when I stated that you should continue posting on the forum as your posts are valuable and in general accurately thought out. (We all enjoy them )

The forum remains an incredibly valuable learning tool for all of us.
My belief is that Sim should print the entire thing out . . . it will become the PREMIER PROPERTY BEST SELLING BOOK!!

Bill, sincerely THANK YOU for your contribution to this post . . . I hope one day to be able to catch up with you over a drink or few

Kindest regards,

Steve

 

[watto]

Bill.L....

Do yourself a favour...pay the $286.00 to get along to one of Steve's courses and take him up on his offer...

"Bill, sincerely THANK YOU for your contribution to this post . . . I hope one day to be able to catch up with you over a drink or few..."

Steve's course would have to be the best value for money by a long shot. For the $286.00 you get 2 morning teas, 2 lunches and 2 afternoon teas and a hell of alot of investing information chucked in... there is also the fantastic opportunity of meeting 40 or so other like minded people and getting to do some networking with them.

I am 100% certain you won't be disappointed......


cheers
watto

 

[charliey]

I attended Steve's course couple weeks ago in Melbourne and it was highly recommended.

Cheers
Charliey

 

[Terryw]

Sorry to jump in late.

I would like to know the differences between going for a cash bond verses going for a low doc loan.

Eg assume I had $400,000 available in a LOC. I could use half of this to purchase an annuity and the rest for deposits.
Or
I could use the whole lot as deposits and get low doc loans. I may have to overstate my income, and may have to pay a slightly higher rate on the low doc (could go suncorp or integris first to get the low rates).

If I use the cashbond I am losing 2.5% per year plus having to pay for the bond setup (3.5% of teh bond amount?). But with a low doc, I may have to pay 1% extra interest at most.

Would there be a difference in borrowing capacity?

 

[paulzag]

Originally posted by Terryw
Sorry to jump in late.

I would like to know the differences between going for a cash bond verses going for a low doc loan.

Eg assume I had $400,000 available in a LOC. I could use half of this to purchase an annuity and the rest for deposits.
Or
I could use the whole lot as deposits and get low doc loans. I may have to overstate my income, and may have to pay a slightly higher rate on the low doc (could go suncorp or integris first to get the low rates).

If I use the cashbond I am losing 2.5% per year plus having to pay for the bond setup (3.5% of teh bond amount?). But with a low doc, I may have to pay 1% extra interest at most.

Would there be a difference in borrowing capacity?

It's late and I'm tired but I think annuities are as a rule the last option.

More importantly I'd be extremely wary of overstating income on even a no-doc loan. You are signing a stat dec in most cases and just because they take your word for it doesn't mean you can't get unstuck down the track. Fraud is not worth it.

Regards

Paulzag
Dreamspinner

 

[Ajax]

TerrW,

I think you have a good point (it's taken me a long time to understand the pros and cons of the Navra cash bond). Lodoc or nodoc has to be preferable to the cashbond method in most cases.

You may get the argument that the cash bond will give you actual cash flow to service interest payments. This argument (if made) is spurious. If you go the lodoc or nodoc path, with a 400k LOC simply don't draw down on a part of this until you need it.
Use 300k for deposits and retain 100k as a buffer for interest payments and other payments that can't be serviced from rental income.

Cheers Ajax

 

[Steve Navra]

Originally posted by Ajax
Lodoc or nodoc has to be preferable to the cashbond method in most cases.

If you go the lodoc or nodoc path, with a 400k LOC simply don't draw down on a part of this until you need it.

Use 300k for deposits and retain 100k as a buffer for interest payments and other payments that can't be serviced from rental income.

Hi Ajax,

Yes you are correct!

That is IF you can get the low doc / no doc .

What happens if you DO NOT have the required income to get the loan?? (As TerryW suggested)

Are you advising that income should be overstated on the application??


Regards,

Steve

 

[Ajax]

Hello Steve,

I'm not advising anyone to do anything. If I was I would wish to receive a commission (as you do).

Interesting thing is that equity and income are really part of the same thing-financial capacity (though not viewed this way by accountants/tax office/banks). Tax authorities in some countries recognise this and require individuals to file annual statements of assets and liabilities along with annual income tax returns.

If I have a 400K LOC which I propose to draw down to 300k I can turn the 100K into "income" whenever I wish. Simply draw down the remaining 100k and buy a 3 or 5 year annuity.

It really comes down to the type of statement I need to make when applying for the lo doc or no doc loan. If it is a true no doc loan query whether I have to push the boundaries on this defintion of income at all.


Ajax


P.S. Does the validity of the Navra bond solution ultimately rest on the need to always tell the absolute truth to lending authorities? I'd hate to think this alone was the main strength of the solution being offered.