Navra Cashbond?

[Steve Navra]

Originally posted by Ajax
Does the validity of the Navra bond solution ultimately rest on the need to always tell the absolute truth to lending authorities?

Hi Ajax,

YES . . . the validity of any advice rests upon telling the truth.

Surprised,

Steve

PS: I do not wish to get into any more 'sparring' sessions . . . I believe there is enough content in this post to give a good introductory insight into the use of the cashbond as part of an overall structure. Beyond this please attend a course if you have further interest.

 

[Les]

G'day Steve,

I believe there is enough content in this post to give a good introductory insight into the use of the cashbond as part of an overall structure.

I believe you are absolutely right !!! And I just wanted to say thanks - to you especially - for the effort, detail, and time you have given to it (therefore, to us!!!).

This thread is a classic - the 5 stars at the top seem to agree, too !!!


Regards,

 

[Mr. Fabulous]

Les,
I too am impressed at the amount of information that has come out in this thread. In fact, the willingness of most individuals to share what they know is what makes this a great forum. Sometimes a little pushing and shoving does get more info squeezed out, which is only beneficial to everyone.

Mark
'no hat, some cattle (but the herd is growing)'

 

[Alan H]

Ditto.......

I think someone said something along the lines that too many questions may make some contributors leave the Forum.........in fact I think in the past I may have been one of those accused of asking too many questions.

Personally I think the 'rigorous discussion' that has occurred in this thread highlights the quality of the contributors and might be the answer to that other thread of "why is the Somersoft Forum so successful?"

Even when people had quite opposing approaches, the questions, answers and figures kept flowing back and forward. Like the answers and questions or not, I think many of us have gained from the discussion. No towels seemed to be thrown in the ring and all put in a great effort.

Perhaps we could figuratively raise the hand of the Forum as the winner of this bout with a big thank you to all contributors.

 

[Wannabe1]

Hi,
As a beginner, and having followed this thread since the beginning, I have found it informative and interesting, and I'd like to say a big 'thank you' to all the participants.
I have been trying to join the IP club for some time now, and have been doing a lot of research in the areas of lo-doc, no-doc, cashbonds, loc's etc etc. Whilst I'm still a fair bit 'hazy' on cashbonds/loc's, (and just about everything else, too, I might add) I'm indebted to this forum for keeping me going forward.
Steve has given me some advice on my situation just recently, and I am really indebted to him for that.
To Steve, Les (as always), Sunstone, Always Learning, .....a big thank-you. And to all of you on this forum.......keep talking, 'cos I'm listening. And loving it!!
I've enrolled (although it hasn't been confirmed yet) in Steve's Brissie seminar, and I can't wait.
One day, I'll get there...I'll be one of you....and I'll have ALL of you to thank.
Cheers
Will

 

[Bill.L]

Hi all,

As this thread has probably gone as far as it can I'll conclude with a few salient (I feel) points.

1/ No-one has come up with any examples to disprove my claim that using an annuity as a standalone strategy for purchasing property is a LOSING strategy over the LONG TERM.

2/ Over the long term, growth averages 3.5% above the inflation rate and this holds true over most 10 year periods. During the last 5 years inflation has been around 3% and growth in many areas has averaged over 15%. Either history is wrong, we get into a very dangerous price bubble, or growth becomes near 0 for 6-7 years.

3/ Ask yourself, is it really the time for a NEW property investor, who does not have the serviceability to purchase an IP, to be jumping into the market, by using an extra cost on top of what is probably negatively geared anyway??

4/ As an indication of where we are in the property cycle, a REA friend from the local town (140 km from Melbourne) told me that approx 70% of all sales recently were to investors. Last year it was around 50% and I was worried then. Prices have risen 40-50% in that 12 month period.

5/ I too hope this thread has shed more light on the cashbond concept and thank all other contributors.

bye

 

[WillG]

Hi Everybody,

I have been reading this thread for sometime now and found it informative and interesting. I believe I can add some value with the following things I have got from the thread ...

1. Investing in real estate isn't an exact science.
2. There is no 100% right or wrong way to finance a deal - in particular, cashbonds/annuities are a tool to be used in certain circumstances.
3. Long term goals should remain the same but your strategy will probably change as economies and your job/life situation changes.

Happy Investing

 

[Steve Navra]

Hi Bill.L,

Good questions . . . I will have a go at answering them:

Originally posted by Bill.L
1/ No-one has come up with any examples to disprove my claim that using an annuity as a standalone strategy for purchasing property is a LOSING strategy over the LONG TERM.

Answer:
DO NOT use the Cashbond as a stand-alone strategy . . . it is only meant to be used as part of an overall structure!

Originally posted by Bill.L
2/ Over the long term, growth averages 3.5% above the inflation rate and this holds true over most 10 year periods. During the last 5 years inflation has been around 3% and growth in many areas has averaged over 15%. Either history is wrong, we get into a very dangerous price bubble, or growth becomes near 0 for 6-7 years..

Answer:
On average . . . YES I agree with you completely.

Originally posted by Bill.L
3/ Ask yourself, is it really the time for a NEW property investor, who does not have the serviceability to purchase an IP, to be jumping into the market, by using an extra cost on top of what is probably negatively geared anyway??

Answer:
YES . . . so long as the invester buys the right property at the right price. (Please read up on Rental Reality and Timing)

Originally posted by Bill.L
4/ As an indication of where we are in the property cycle, a REA friend from the local town (140 km from Melbourne) told me that approx 70% of all sales recently were to investors. Last year it was around 50% and I was worried then. Prices have risen 40-50% in that 12 month period.

Solution:
Do not buy where other investors are buying. (How?? Come to the course! )

Originally posted by Bill.L
5/ I too hope this thread has shed more light on the cashbond concept and thank all other contributors.

Thank you Bill.L

Regards,

Steve

 

[Kevmeister]

1/ No-one has come up with any examples to disprove my claim that using an annuity as a standalone strategy for purchasing property is a LOSING strategy over the LONG TERM.

Steve:

I was quite surprised by your answer to this question. Perhaps I misinterpreted it. I would have thought that for a property portfolio to be "pulling its weight" then all of the properties within it must be pulling their weight.

A Cash Bond should be just as useful to apply to a single property as it should be when used within a portfolio.

Bill:

Anyone can manipulate numbers to substantiate a claim. What do you class as long term? My original example (from memory) showed that a Cash Bond could be used to produce a $80,000 odd capital gain out of thin air. If you did not otherwise have the means of servicing the loan, that's $80,000 more than nothing.

Steve makes no bones about the fact that for this strategy to work you must have good capital growth. Without it you are stuffed. When capital growth is high (like now), it can be a very effective way of yielding $000's that you might otherwise not have been able to. But that increased reward comes with increased risk, so everyone must determine their own level of comfort with the technique. Steve's course outlines risk-mitigation strategies which basically come down to buying a good property at the right price (rental reality).

 

[Steve Navra]

Originally posted by Kevmeister
I was quite surprised by your answer to this question. Perhaps I misinterpreted it. I would have thought that for a property portfolio to be "pulling its weight" then all of the properties within it must be pulling their weight.

Hi Kev,

I think we are referring to different things / maybe I have misinterpreted something too

As I understand the question: A stand-alone is not referring to just a single property, rather is in reference to the simple mathematics of the small extra cost of using the structure.

My answer is to use the method to acquire other asset/s that will achieve Capital Growth . . . that will make much more than the extra cost.

The result then becomes your example of $80,000 that the investor would otherwise not have achieved.

Regards,

Steve

 

[Homer J Simpson]

Steve,

My answer is to use the method to acquire other asset/s that will achieve Capital Growth . . . that will make much more than the extra cost

Is this a segue into your share fund?
Which brings the question would you use the cashbond for investing into shares?

 

[Steve Navra]

Originally posted by Homer J Simpson
Is this a segue into your share fund?
Which brings the question would you use the cashbond for investing into shares?

Hi Homer,

Segue: smooth transition: the act of making a smooth transition from one state or situation to another

Had to look this one up!! (Great word)

The reference to other assets (besides property) was inadvertant:

I do NOT use leverage to buy shares!

However, the cashbond return can be directed into a share portfolio, as opposed to paying down the LOC . . . it all depends on the risk profile and balance of the investors total portfolio.

Regards,

Steve

 

[Kevmeister]

Segue

The problem with the word "segue" is that it looks nothing like its pronounciation: seg-way. Hear it often enough on TV and radio...

Steve:

Yep, I understand what you're saying now . A bit like the old business adage of "you have to spend money to make money"...

You have to spend money (on a cash bond) to make money (as capital growth of a property)...

 

[Steve Navra]

Re: Segue

Originally posted by Kevmeister
The problem with the word "segue" is that it looks nothing like its pronounciation: seg-way. Hear it often enough on TV and radio...

Grief . . . and I always thought it was in ref to the traffic. (Some new kind of blockage on the freeWAY!

Steve

 

[Bill.L]

Hi all,

After lots of discussion I thought this thread could go as far as it could, now I find that Steve and I have reached some common ground.

Kev, I interpret long term as 10-20 years or longer, I thought I made that clear in my example going back 22 years. In regard of the $80,000 out of thin air, yes easily possible in the market of the last 5-6 years, but my contention has been that the period we have just been through(still in?) is probably NOT going to be repeated in the next 5-6 years.

Steve ,

I try not to invest where investors are treading, it's just that they seem to follow where I have already bought and give me quick cap growth, but then again I do like to purchase things that are going up in value, not down.

SEGUE DOH! that aint a Homer word, where's LISA.

bye

 

[XBenX]

Originally posted by XBenX
wholesale rates are less than 4.5% atm you'd be lucky to even get 4.5% id think !

it does represent quite a large gap - but as long as your property is out performing the interest rate you are being charged (assuming neutral cashflow) by this amount or greater then your happy

im a bit sketchy on this concept so if it doesnt sound right please correct me

just revisiting this thread.... any thoughts on this ?

 

[D.T.]

Hi Steve / anyone else,

I cant really wait until next fortnight's course to find the answer to something that puzzles me a little bit. Perhaps im not thinking right

As seen in this thread, the cashbond seems to be a way to increase your serviceability to buy more property, and is quite often purchased with a LOC (hence the discussion on the gap in rates).

Anyway, if your having servicability issues, but you have a big LOC that your considering buying a cashbond with, this brings 2 things to mind.

1) How did you qualify for the big LOC?
2) Why not use the big LOC as a higher %age deposit than normal?

Just a thought

-Regards

Dave

 

[Kevmeister]

Originally posted by dtraeger2k
1) How did you qualify for the big LOC?
2) Why not use the big LOC as a higher %age deposit than normal?

1. This is a chicken-and-egg problem. Essentially the bank needs to be convinced (or it put in writing etc) that the LOC in fact will be used to purchase a cashbond, and the ability to service the LOC will be created by the purchasing of that cashbond. Steve tells us that you can in fact convince a bank to go with this.

2. The problem here comes back to serviceability. You have to prove serviceability to the bank before you can get the LOC. They won't give you the LOC in the first place if you don't have the serviceability, so it's a moot point to think you can instead use the LOC as a big deposit (or even as the full purchase price of the property). Of course, one could argue that with a positive cashflow property you do in fact get the serviceability (ie. income exceeds expenses) but unlike a Cashbond where the income is guaranteed, rental income isn't. And, unlike a Cashbond where 100% of the income is counted for assessment purposes, only 75% or so of rental income is counted.

 

[Steve Navra]

Originally posted by Kevmeister
This is a chicken-and-egg problem.

Hi Dave,
What came first the chicken or the egg??

Logically . . . The egg
(Chickens don't lay eggs - only hens do, therefore if the choice is chicken OR egg . . . has to be the egg)

C U at the Perth Course

Regards,
Steve

 

[XBenX]

Originally posted by XBenX
just revisiting this thread.... any thoughts on this ?

i find it interesting that with all the comments in this thread no one has replied to this comment....

is my original post confusing ?

just wondering why there has been no comments