so basically say your 2 ips away from hitting the serviceability wall you would instead of purchasing an ip you would gather equity and cash and get a cash bond then buy the ip so in 2 years (when the CB income can be used) you can purchase the next one and maybe top up with another CB?
no job = no loan ??
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so basically say your 2 ips away from hitting the serviceability wall you would instead of purchasing an ip you would gather equity and cash and get a cash bond then buy the ip so in 2 years (when the CB income can be used) you can purchase the next one and maybe top up with another CB?
at 80% you should be able to get money easy
80% of rent is fine. I think it's 0% of vendor finance. Has anybody had experience with this?
The basic cashbond principle:
You give me $1mil
And I give you back 100k (minus my fees) per year for 10 years.
You then claim it as income, or investment income.
Of course i take fees for the process.
You give me $1mil
And I give you back 100k (minus my fees) per year for 10 years.
You then claim it as income, or investment income.
Of course i take fees for the process.
You get some interest as well. Perhaps not at great rates, but it should more than cover fees.
It's just a tool which can be useful in some circumstances. Like any tool, it's goo for what it does but no good for other things.
Correct Geoff....but no fee's. the provider pays you - interest.
Aaron's made an excellent point, the net effect of a cashbond is a loss in this strategy. Also possibly because most investors don't have anywhere near enough equity or cash to purchase a deposit bond large enough to make the exercise worthwhile, whilst still keeping enough equity or cash for a deposit against the next IP as well as having a solid equity buffer.
Thanks, I was trying to get my head around this stuff (cash bonds), personally, I just don't like the idea of using my equity to service more debt, for me, it just goes against the grain. However, if it has worked for some well then great.
Years ago now I only used no doc and lo doc, I never for a minute thought they would disappear
Years ago now I only used no doc and lo doc, I never for a minute thought they would disappear
Correct, but think of the tax deductible loss as your CB purchasing price. You are effectively purchasing an income stream to provide DSR for the servicing of more loans. However the loss is only effective whilst the CB is in existence. You can commute it when ever you want ie like after its served its purpose and got you across the DSR line, ready to be utilised at another date in time
That is unless you use savings in the first instance instead of borrowed funds for the CB purchase.
Yes IMO it's a last resort strategy (for more experienced investors with substantial size portfolio & equity holdings) at one's disposal after less impacting options may have been exhausted.
Cash bonds will assist you to overcome a debt servicing hurdle to access more debt to buy an asset with the intended outcome that the capital gains will outstrip the loss incurred purchasing the cash bond utilising borrowed funds.
Seems legit to me (if you know what you are doing?)
Seems legit to me (if you know what you are doing?)
So whoever sets up this annuity (aka cashbond) charges no fees for their time?
Is it a social/community service?
Of course you probably only need it if you draw on a LOC, so you the "cashbondee" will pay interest on the drawn out funds.
Next question being: what's the spread?
at 80% lvr you should be able to get loans no probs
as long as you are confident you will receive it and can make the repayments then accessing the funds should not be a problem
Depends how it's structured. I'm sure your broker tried to make it work so I trust there was a hurdle there that couldn't be overcome.
From what I've read on other sites if you purchase an off the shelf one director one shareholder Pty Limited company and borrow $ in the company name for predominantly business purposes then no NCCP applies.
That may be a way a sidestepping strict rules post NCCP legislation. However changes may be coming for small business lending
http://www.hallandwilcox.com.au/news/Pages/Consumer-Credit-Update-310113.aspx
Am also a bit concerned about what tax rate will apply when you sell the property if held in company (30% tax rate). You could always pay yourself a directors fee in that year to reduce the company tax paid (if your marginal incremental tax rate is lower than 30%).
Not sure what rates are available for a lo doc business loan secured by first mortgage over property.
That may be a way a sidestepping strict rules post NCCP legislation. However changes may be coming for small business lending
http://www.hallandwilcox.com.au/news/Pages/Consumer-Credit-Update-310113.aspx
Am also a bit concerned about what tax rate will apply when you sell the property if held in company (30% tax rate). You could always pay yourself a directors fee in that year to reduce the company tax paid (if your marginal incremental tax rate is lower than 30%).
Not sure what rates are available for a lo doc business loan secured by first mortgage over property.
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Only if the banker / broker arranging the finance or the borrower is not disclosing stuff. Confidence and LVR have no bearing to NCCP covered lending borrowing capacity. In reality your probably right though.
Once positive credit reporting comes in though its going to be a lot harder for the borrower / broker / banker to gloss over some of the more grey areas of interpretation shall we say. Interesting first few months when it comes in!
CCR will kill off a lot of these "techniques" and for good reason.
Why anyone would put their ACL at risk by actively gaming the system is beyond me.
CCR is going to be a disaster for a long time, fixing a problem that does not exist, have you seen the trials, it is all over the place.
Not sure how it is gaming the system, he is getting paid for 10 years ,(if he doesn't get paid he takes the business back) how is that any different to having a business with one client. As long as the loan term matches up and an exit strategy is in place what is the problem.
Good equity, income, a proven history of running the business if need be an exit strategy and a good property portfolio, what more do you want?
Let's be brutally honest here, cash bonds (as has been described here), don't really increase your income by very much in practice.
The real income you earn is based on the interest rate you get on the cash bond, which I would guess is something very small eg. 3-5% pa.
The rest is just a return of your principal in yearly instalments.
As per the example used of the 100k cash bond giving you an "income" of 23k pa (ie. 20k of your principal and 3k of interest income each year).
If lenders can't see through this sort of "smoke and mirrors" as Rolf calls it, then investors can play/game the system according to these lending criteria.
How long and with how many lenders this will be possible is anyone's guess though.
If this is central to your long-term investing or retirement strategy I think you are taking on a significant risk.
And from my reading these cash bonds are different to traditional annuities (eg. from Challenger Financial Services etc.), of which there are lots of varieties, and don't all automatically return your capital back each year in this way (or at all).
