sitloti

[grossreal]

hi Pablo
In the above example you are using your $80K equity to secure the loan of $176K this amount is the amount that rent will cover of the property so that its neutral you can borrow more if you wish but then it goes into a neg property you can equity lend for less. Considering 20% of $176k is $35.2k is it neccessary to put up all your $80k as security or can you just put up the $35.2k required yes you can put less if you wish there is no fast rule and use your left over equity on another ip yes the only trouble here is that lenders don't want multipul leans on a property becuase each time the lender with the lean has to give you what they call a deed of priorty which means that if your equity is called appone the first one gets paid out first and they cost about 500 dollars so its better to work out a the rental and then do the equity lend per property rather then one then another etc I get to 80% complete and then work out were that equity is going and then line up the deals.

Also do all banks do equity lends and are there higher costs involved yes they do and there is no extra cost when they do the mortgage on the purchasing property they do a second mortgage on the equity property and they give you a value that that second mortgage is for, now you can redeem that second mortgage at any time by either the property value increase,term deposit or pay out in cash.the value increase is my favourite when the value has increased you revalue and remove the second mortgage
I have used anz, suncorp, nab, westpac,hsbc and bankwest topping up with equity is another term but if you explain what you want to do you will find they will all do it as all you are doing is giving them a different form of security and the security is still real estate the percentages do change between resi80% and comm usually 70% but westpac are giving me 80% on comm which is nice.

 

[redwing]

It all looks interesting GR and I'm wondering how applicable it is to some of the smaller investors (me ) and at what stage you get to a position where this is possible..

I'm also "surprised" by the lack of Posts/ Responses from some of the great Mortgage Brokers and Forum Members here in regards to this thread and I'm unsure why there is such a silence

 

[JIT]

Grossrealisation - Unlimited Returns!!!

Grossreal,

yes no interest
and not only that but a tax break( no tax) for 3 years for the overseas investing group so the profit is tax free.
its not a bad deal.

You don´t pay interest on the 80% loan, and you don`t pay tax on profits for 3 yrs in this overseas structure!!!

`Not a bad deal`, I think that`s an understatement! That is UNBELIEVABLE!!!

If you have a return of 35% on the 20% cash deposit, but in your case the 20% is done via an equity lend, that costs O, then your return on investment is 35/0 = INFINITY???!!! Unlimited returns! Is that right??? And the whole thing is government backed!

Hmmm...I know who I´ll be calling when I have equity to spare...

It´s truly amazing what kind of opportunities open up once you reach a certain level of wealth/level of investing. Very exciting stuff. I just cannot wait to get to this stage, but it is a long, long way for me yet.

Double investing, 1 resi for 1 comm sounds like a great strategy, which is basically what I intend to do, at present my focus is on building the bulk of the equity required via residential property (slower process, but I love it).

Salsa, good question re. cross-collaterilisation.

Grossreal obviously has a lot of equity to begin with and is structured such that his equity is growing quickly (combining developments, residential and commercial property), so he has plenty of equity to spare - and in this case it makes most sense to use this equity to invest via strategies such as equity lending to gain further leverage at lower/no cost, rather than, as many of us who are building our residential property portfolios now are doing, by using LOC's (which makes perfect sense for people at this stage/level of investing). Also, in grossreal`s position it does make perfect sense to `live off equity`, as has been discussed (too much!) in this forum.

Again, I would think there are now many on this forum who have significant equity levels since the recent boom, and would certainly be in a position to adopt grossreal´s approaches. I hope you guys are paying attention to this thread! Pure gold!

Equity lending`s simplest benefit I think is to people who have plenty of equity, but have serviceability issues, ie, it is like free money you can use! - there has got to be a book written about this at some point?!

GSJ

 

[grossreal]

hi all
first redwing
I hope I have helped and hope you make money using it.
I think the reason for the lack of others maybe the name
maybe I should post help please to living on equity or some thing and then link or there are no other structures that people are using.
and gsj

You don´t pay interest on the 80% loan, and you don`t pay tax on profits for 3 yrs in this overseas structure!!!

`Not a bad deal`, I think that`s an understatement! That is UNBELIEVABLE!!!

If you have a return of 35% on the 20% cash deposit, but in your case the 20% is done via an equity lend, that costs O, then your return on investment is 35/0 = INFINITY???!!! Unlimited returns! Is that right??? And the whole thing is government backed I haven't told you the value of the project !

Hmmm...I know who I´ll be calling when I have equity to spare...

It´s truly amazing what kind of opportunities open up once you reach a certain level of wealth/level of investing yes. Very exciting stuff. I just cannot wait to get to this stage, but it is a long, long way for me yet.

Double investing, 1 resi for 1 comm sounds like a great strategy, which is basically what I intend to do, at present my focus is on building the bulk of the equity required via residential property (slower process, but I love it).

Salsa, good question re. cross-collaterilisation.

Grossreal obviously has a lot of equity to begin with and is structured such that his equity is growing quickly (combining developments, residential and commercial property), so he has plenty of equity to spare - and in this case it makes most sense to use this equity to invest via strategies such as equity lending to gain further leverage at lower/no cost, rather than, as many of us who are building our residential property portfolios now are doing, by using LOC's (which makes perfect sense for people at this stage/level of investing). Also, in grossreal`s position it does make perfect sense to `live off equity`, as has been discussed (too much!) in this forum not sure if you can class it as living off equity as the equity never goes down the money from the equity we live on.

Again, I would think there are now many on this forum who have significant equity levels since the recent boom, and would certainly be in a position to adopt grossreal´s approaches. I hope you guys are paying attention to this thread! Pure gold!

Equity lending`s simplest benefit I think is to people who have plenty of equity, but have serviceability issues, ie, it is like free money you can use! - there has got to be a book written about this at some point I think there is a few book on it I just have never read any?!
hi all and for those interested here is the link to my developing system
http://www.somersoft.com/forums/showthread.php?t=22296

 

[JIT]

More Comments on Equity Lending/Grossreal System...

If you have a return of 35% on the 20% cash deposit, but in your case the 20% is done via an equity lend, that costs O, then your return on investment is 35/0 = INFINITY???!!! Unlimited returns! Is that right??? And the whole thing is government backed I haven't told you the value of the project !

Grossreal,

You are the man! [ADD - and there is no currency fluctuation due to equity lending, no presales, and none of your own money is used!!!]

I dare to think of what kind of numbers we are looking at here, you´re probably doing a little singing and dancing infront of your laptop everyday at the thought of this deal. Well done!

Redwing, agree, not enough posters on this thread, feel like I´m asking all the questions, and this stuff is not even relevant to me at my stage of investing.

Would be good to hear if any resident mortgage brokers have had any experience with equity lending, and if any of the structuring experts are familiar with grossreal`s systems/approaches.

Surely, many here have read The Richest Man in Babylon, wasn´t one of the lessons something like, when the rich man speaks, the wise man shuts up, listens, asks questions, learns as much as possible from him, then does as the rich man does...!

GSJ

 

[JIT]

Mezzanine Financing and Equity Lending

your equity is also cover but you also have a second mortage on the site and you need that paying out also so what ever you get is profit.
you have 150K for no cost+ what ever you get if the project doesnt work if it does and takes 18months your happy as larry.
you check the developers figures to make sure that the numbers are right and in effect you are a mezzanine funder but using equity.
and if as I am looking at you insure the developer will complete the project(or someone will complete the project) the developer pays that insurance fee on your behalf.

Grossreal,

I revisited this post, and it makes a bit more sense to me know.

So with the risk, if the development falls over, you still get up to 150K p/a at no cost, but the rest of your equity is mortgaged and it is possible that you may not get the whole mortgage released, as the bank has the first mortgage, you have the second mortgage, you are second in line to be paid out, so to speak? So in theory you could lose up to $1 million worth of equity? That`s a HUGE downside/risk? Is this right???

Please clarify?

GSJ

 

[grossreal]

hi gsp
you are send in line but in reality if a project goes west all the creditors come together and work out who gets whatnow the lender can only get the max of there lend and the second tier even thou is second in line is also a lien to the first so in reality and again as long as you have been following the project that can't be over 80% as the bank can't lend more then that and you have set your profit margin at 21% or above as a risk management tool.
so if you got to say 70% of the project complete and it went bad and the debt is 7mil to a lender the value at the end ex gst would have to be 13mil less your 20% profit margin =10.4 consturction cost.
at 70% complete and 80% of the money spent but you have an assett of 9.1 mil and a contingency of of .5mil.
so at this point in value you owe 7 mil you could take a 20% reduction in price and still be covered for the equity you would only make 300k but your position is covered.
I haven't had a project go west because my builders are part of the project as per the building system post.
you can changes the numbers around to 95% if you wish but if you have a 20% profit marging for me it is very difficult for a project to go west.
with a margin of 20% and contingency of 5% I would like to hear from people that have had projects that go west on a min 21% margin at these margin you only need to sell down to 50% to pay back the lender cover your loans and hold the others.

 

[myla]

hello,

shouldnt this thread be shut down or moved

you have numerous people unable to understand what is going on

and this person is then promoting for people to join the forthcoming projects

thankyou
myla

 

[grossreal]

hi myla
interesting your post.
you have 34 post so far on this forum I think.
you have asked me twice on the other post that gsj asked about whether you can join any of my projects and I have told you that there are non available at this stage you have pm me twice onece to do a jv and I asked you if the jv was to jv with you or you with my group and you sent a return post that it was you with me and I told you then that that wqs not available and that if it did become available that I would let you know.
I don't mind people finding out about my structure and answering any questions and thats what gsj has asked.
but because you either don't understand or don't wish to understand or learn does not mean that everyone else is in the same boat.
if you don't wish to use these structures it doesn't cause me any headackes.
and ifpeople can use them even thou you can't all well and good and I hope they can.
I hope you well in your endevours and hope to learn something from your investing structures one day but it maybe A a long time and B I don't think I need to but I am here to learn.
My .002

 

[TomL]

If I could possibly give more kudos to gross, or rate this thread as excellent a few more times, i would.

Its exactly this sort of thing that I hang out on this forum for ... when someone with real life experience cares enough to share things that have enormous potential benefit to what we all do.

Even if no-one takes any action on any of this, at least it opens the mind a bit to the fact that there are a million ways to do things.

Keep it up Lawrence, i'm glad of your generousity and patience.

Tom.

 

[grossreal]

hi tom
one thing that I do is make rules for all my projects
and I do break them as I did with a vendor yesterday
which I am very quickly pulled back in line by michael my legal person
is my rules are not allowed to be adjusted even by me and I keep my projects separate but one rule that I do have is
I never give out networth and those that have gone to any presentation by me will let you the same
but the one thing that most people ( forget those that don't want to learn) my networth doesn't require me to give any of this information.
I have been asked by lots of people why go to these mettings and try to understand why people invest these ways and that is simple I learn a little also.
sitloti is not for everyone and maybe not for anyone but me and there's a very simple why.
because I designed it
I built it
its was made for my investing path and had not there been so many posts on living on equity and everyone saying that its not possible hence I let you know it is.
and as a duck the rest is off my back

 

[myla]

hi myla
interesting your post.
you have 34 post so far on this forum I think.
you have asked me twice on the other post that gsj asked about whether you can join any of my projects and I have told you that there are non available at this stage you have pm me twice onece to do a jv and I asked you if the jv was to jv with you or you with my group and you sent a return post that it was you with me and I told you then that that wqs not available and that if it did become available that I would let you know.

I don't mind people finding out about my structure and answering any questions and thats what gsj has asked.
but because you either don't understand or don't wish to understand or learn does not mean that everyone else is in the same boat.
if you don't wish to use these structures it doesn't cause me any headackes.
and ifpeople can use them even thou you can't all well and good and I hope they can.
I hope you well in your endevours and hope to learn something from your investing structures one day but it maybe A a long time and B I don't think I need to but I am here to learn.
My .002

what a load of crap gross real

not one pm has been sent to you

if a moderator wants to check my pm's to verify this and post the outcome would be greatly appreciated


thankyou
myla

 

[grossreal]

hi maya
Hey

A JV with u maye. Just wondering whats the minimum required to invest.

regards

Ritzy

 

[grossreal]

first and second pm
unlike a few people I don't have anything to hide
and for your infiormation They are the last two pm have a look mods if you wish.
put for me it doesn't matter save your time you have alot more to use your time on then as ritzy or maya what every name is current for this month such cr-p
Hi

Just wondering if you were looking for people towards a joint venture.

regards

Ritzy

 

[JoannaK]

I do what I call double investing so I invest in a development site using equity and usually do a 50/50 share with a builder (most will know this)
then we sell down to an amount that is neutral and we split this 50/50 if it 10 units 1 unit each.
this gives me a unit that is 0 value but has say 600k in equity( these numbers change but you will get the idea of what I do) then I take an equity
for 80% on this unit so thats 480k
then I use this 480K equity to go into a comm at 30 mine/70 bank thats a 1.6mil comm property
the bank lend the lot at 7.4%
thats 160k income
and 118k bank loan debt
thats 41k cash flow

now I take that 41k split in two and put that into two of the units in the same development.
so in effect at 50/50
I keep 3 unit and the other 50% keeps one if as I have tried to train they wish they keep 3 also and do the same
you end up with
0 profit and 0 cost
but you have 3 x 600k units and a 1.6mil comm
and its all fixed for 3 years so you leave to grow.
I use the same equity to do larger developent.
harrington waters is 2 sets of duplex and using the above with have settled and will develop a 7 town house looking at sand at harrington.
and the builder is using my system as his accountant agrees that this give flexability and leverage.
any profit from any sales goes into a split loan and equity lend off term deposit.

if you make you projects 0 profit or return but grow equity it gives you alot of flexability.
with regards to loe you can trade your equity and by using sitloti you can (if you want to take risk) get a very good return for your equity.

hi GR,

I agree with leveraging equity from retained units in order to undertake other developments. I do the same thing myself and have been quite successful at it...I agree that it can provide a great degree of flexibility...

but, i would appreciate your clarification on two things as i have received different advice to what you post above, from 3 separate accountants who have all advised me of the same thing.


ONE

How do you have ZERO profit on a project as stated above, when you've sold down to a neutral position?

The advice i've received from my 3 accountants (in my own words) is that the construction costs and land costs are bundled together, then divided by the number of units in the development, usually on a unit entitlement basis. This then forms the cost base of each unit that is to be sold, retained or otherwise.

So, taking a very simple example:

Say I built a block of 10 units. Total costs for land and construction of the whole building is $2,500,000. If construction and land costs for a single unit in a development is $250,000 and you sell for $300,000, then effectively you've made a $50,000 profit that you must pay tax on.

According to my advice the accountants, nor the tax office, do not look at development on the whole, but rather, the cost base and sale price of each individual unit within a development.

So, if you've sold say 8 units in a 10 unit site those 8 units that you've sold still show a profit. ie....

the tax office or your accountant SHOULD NOT say:

total cost is $2,500,000
total sales is $2,400,000

therefore NO PROFIT


They SHOULD say

OK...8 units
each one cost you $250,000 to build including your land
you've sold each one individually at $300,000

therefore, you've made $50,000 on each unit...30% of each $50,000 please...

I hope everyone is following me here...i'm trying to keep it as simple as possible.

TWO

Another thing I've picked up in your post that I've received extensive advice on, from the tax office may I add, was the administration of GST.

Now, this applies only to the development of residential property.

You're building a block of units, and you're claiming input tax credits throughout the duration of construction. You are entitled to claim those input taxed credits....AS LONG AS YOUR INTENTION IS TO SELL THE PROPERTIES THAT YOU ARE BUILDING

If you don't sell....and you decide to rent...then guess what...12 months after the day your tenant moves in, you have to pay back all those input tax credit dollars you've claimed.

And this can potentially run into tens of thousands of dollars.



I would appreciate any clarification you can provide on these two items as I too am in the industry, and would love to know how one gets around the above, if in fact they can.

Thanks.

 

[grossreal]

hi joeanne
from my understanding and will clarify with the accountant if you sell down to a level that will sustain a loan you have not sold the project, you have refinanced the loan.
so in reality the project still has a debt and until that debt has been repayed there is not the tax, the time that you apportion debt levels is when the project is sold out or you re assign the units, costs can be assigned to the sales but is not nessessary depending if a profit margin is required, what but if the developing company holds the units for what ever reason you as far as I am aware don't assign or apportion the cost but I have acouple of accounts that do my projects and will ask.

I have asked to accountants and they will look into it and they have never heard of that before .
as they are of the opinion as me that until sold the max would be that you would be asked to pay the input credits back.
if anything
but at this stage we have two totally different accounting companies ( and might add that the accountants are not the same for my projects as that is decided by the groups invloved hence we use different accounts not that one is better then the other just in case they read this post) for our projects and both concer that this is the case
maybe another account here may have a view.
from our point of view haven't had an issue.

 

[JoannaK]

perhaps one of the many esteemed accountants that frequent the forum would care to comment and enlighten us all...anyone?

 

[Mry]

Hello, I am an accountant.

I'm afraid I haven't read through all of the thread so far because I am so busy, but what JoanneK has stated above is 100% correct. I don't know what more I could add. If anyone has a problem with what JoanneK has stated, I'd visit your accountant or change them.

I'll have to look through the thread later and give a more thorough answer then.

from my understanding and will clarify with the accountant if you sell down to a level that will sustain a loan you have not sold the project, you have refinanced the loan.

I am having trouble understanding that statement, but it seems to be saying that you haven't made any taxable sales even though you have made sales until you have "sustained a loan" (I have no idea what context that phrase is made in at the moment or what it means) because that is refinancing a loan. If someone could clarify that for me I would appreciate it, but on the face of it there are at least two false assertions there.

 

[Bill.L]

Hi all,

Grossreal,

I too would also like other accountants to comment on this.

My understanding in relation to tax office matters has always been along the lines of when ownership of an asset changes, is the trigger for the taxable event.
The tax office does not take consideration of the loan other than the purpose of the loan(for interest deductions). Therefore the loan could stay in place, and be either deductable or not ,depending upon what (new)circumstances it is used for.

bye

 

[grossreal]

hi bill
I leave these to the accountants and you are right but

My understanding in relation to tax office matters has always been along the lines of when ownership of an asset changes( if the ownership has not changed as the same owners that constructed it refinance it), is the trigger for the taxable event.