The Interview #11

Like JoeD, I'd be interested in seeing the format of your XLS.

Keith,
Me too please but I don't need to see details, just the format.
Congratulations on your achievements, well done and thanks for sharing your knowledge.:)
Question:
In the interview you mentioned that in the SS chatroom you were inspired by many and particularly TW.
Who is TW?
Cheers
Bill
 
Very inspiring story!

Thanks for sharing Keithj.

Just wondering, is your LVR still quite high on your IPs?
I always wonder when is the best time to start paying off IP borrowings.

Cheers,
JP
 
Me too please but I don't need to see details, just the format.
Who is TW?
Hi Bill,

TW is The Wife - do a search for her posts. [Edit: I just did & found virtually nothing. Try a search in the archives under the Webboard Forum].
She (deservedly) did v. well out of IP & was one of the original & very valued contributors to SS.

And I'll put some work into sanitising my spreadsheet & start a new thread....

Cheers Keith
 
Just wondering, is your LVR still quite high on your IPs?
I always wonder when is the best time to start paying off IP borrowings.
Hi JP

Yes. IP LVR is always as close to 80% as possible - it's cheap money. If interest rates rose significantly then I'd reconsider. I borrow as much as possible as cheaply as possible, before I use borrowing capacity at higher & riskier IRs (eg margin loan).

The best time to pay off IP loans isn't a problem I've come across so far:). Maybe if IRs went sky high, or I got extremely risk averse, or I won lotto, or became terminally ill, .... (long pause).... can't think of any other scenario where I'd pay off IP loans....

Cheers Keith
 
Yes. IP LVR is always as close to 80% as possible

I guess that is the best way, so that every dollar is working as hard as possible.

Due to the loans for IP staying quite large (and growing), are you also just capitilising the interest on your IP loans or using a LOC to pay for it?
 
I guess that is the best way, so that every dollar is working as hard as possible.

Due to the loans for IP staying quite large (and growing), are you also just capitilising the interest on your IP loans or using a LOC to pay for it?
Hi JP,

I capitalised interest on the margin loan. I've never had a LOC - I use my margin loan just like a LOC. My IP loans are always at 80% (the max) so there isn't room in them to capitalise.

Cheers Keith
 
Hi Keith,

So would it be fair to assume all of your dividends and rents go into the Margin Loan, you capitalise the interest on the margin loan, and the interest repayments for your IP's come out of the margin loan?

And when you need funds, you simply transfer money out of your margin loan into your personal account?

Or do you have a transaction account where all the dividends and rents go into, the IP interest comes out of, and you don't pay the margin loan interest as it capitalises?

Thanks
 
Great Thread here from The Wife and one of my Favourites; well worth a repost

http://www.somersoft.com/forums/showthread.php?s=&threadid=859&highlight=to+fish

Gee Michelle,

Your post has really frustrated me, I did say spread the word, yes. And I still believe in spreading the word.

But I cant tell you how many times people have asked me things like, teach me how to fish. And what they really want, is for me to guarantee that they will make money.

Thats basically it, they want a guarantee, now if what I tell them doesnt work for them, they will be upset, say they had a bad teacher.

Michelle, I would love to teach you how to fish, cause I am sure I can, I've caught quite a few fish in my day, I aint doin to bad, but I only catch the fish I like, If I hook something on the line i dont like, i let it go, sometimes its something I have never seen before, and I let it go. I only like MY kinds of fish.

What I would like from you Michelle, is a guarantee that you wont stuff up and blame me, that you wont put limits on me by saying, "no, i dont like your fish, i want you to show me how to be succesfull with my own fish"...I dont want you to say, "show me how to be succesfull MY way", I dont know your way....

And the thing is, and I have said it before, there is NO magic pill....bo special lure that will bring the fish rushing to your hook,

you throw your hook out there just like everybody else does.

The difference is, some people get tired of fishing, and they go home empty handed, some dont watch their line, and off it goes towed out to sea by a shark, some people are just plain silly and dont even bother baiting their hook.

Its the fisherperson who can stand there, with baited hook, who keeps recasting, who has the determination to stay on the shoreline till they catch a fish, who keeps watching the water , the tides, the flocks of birds overhead, the person who is really trying to read the signs of where the fish are...that is the succesfull fisherperson, they will eventually catch a fish, and they will eventually get very good at it.

And then whilst standing there trying to figure out why your not getting a bite, you watch the sun go down, and everyone else is leaving the beach, but look around you, there is the rest of us die hards, some of us reeling in fish as fast as can be, drinking beer, having a natter to our friends also fishing, then you have found your likeminded friends.

Approach your likeminded friends and ask them, hey, how did you catch that big 14 pound juicy white fish? And how did you sell it so quickly, for so much?

Well the person you asked isnt going to reel their line in to tell you about it, they are going to keep on fishing, and yap yap yap, tell you about it, and they will keep on fishing, and they will be laughing how they did it, and gesture wildly about the size of the fish, the fight it put up, how great it was to sell it.

Its now up to you apprentice Michelle fisherperson, are you REALLY looking at what they are telling you? listen carefully, look where they are pointing to in the ocean, look back up the beach to the place that they are pointing to that bought their fish, this succesfull fisherperson is opening up their mouth, and telling you everything you need to know.

Are they going to put their rod down and come over and cast yours out for you? no i dont think so, but its up to you to listen to them, to watch them, to try to mimmic them, and then actully go back to your rod, pick it up, bait it the way they told you, and throw your line, give it a go, you are now wiser, when you cast, your casting with greater knowledge.

So what about the fisherperson who isnt fishing anymore, can they come stand by you and show you how to do it? No, they are tucked up in bed, they dont have the desire or need to be on the beach's anymore. You will have to learn from those still on the beach, and learn before they dont need to be there anymore.

The thing is,

its the doing,

you can talk about it all you like, but you have to actually do it,

if you dont know where to start, your going to have to go sit quietly, and watch the expert, watch what they do, how they do it.

You may have to try different parts of the beach, you may not like what some people are pulling in, or you may not like the way they kill thier fish, some people can be so inhumane, but watch and make your choice, that is how you will define your own style.
 
So would it be fair to assume all of your dividends and rents go into the Margin Loan, you capitalise the interest on the margin loan, and the interest repayments for your IP's come out of the margin loan?

And when you need funds, you simply transfer money out of your margin loan into your personal account?

Or do you have a transaction account where all the dividends and rents go into, the IP interest comes out of, and you don't pay the margin loan interest as it capitalises?
Hiya,

Rents go into either trust a/c or personal a/c - depending who owns the IP.
Divs go into trust a/c.
I transfer funds from trust a/c to personal a/c for personal expenses & some mortgage payments. (I have drawn down against PPOR to invest in shares, so the funds for these interest payments must come from somewhere.)
IP mortgage payments are taken from their respective trust or personal a/c
Interest in margin loan is capitalised onto margin loan a/c

This structure means that I need never visit a bank again to borrow more funds to use for LOE. The margin loan will automatically allow me to continue borrowing provided the LVR remains reasonable.

Cheers Keith
 
Great interview...thanks Keith for sharing the good oil. I will reread your interview again and again...so much to absorb...tis all good!:D
 
[/quote]
Thanks for your time Ruby,something like this is very special,Keith
what can anyone say i have read this post several times very few
can copy what you have done,Good Luck for the next 3 years
but someone like yourself will not need luck..
willair..
 
Hiya,

This structure means that I need never visit a bank again to borrow more funds to use for LOE. The margin loan will automatically allow me to continue borrowing provided the LVR remains reasonable.

Cheers Keith

Hello Keith

Can you please clarify this statement. How does your structure on your IPs affect your margin loan? Are you LOEing from your margin loan?
 
Hey Keith,

Thanks for answering my previous questions.

In relation to another post of yours, ie "3-tiered approach" to retirement, you mention that for Tier 1 (living essentials) you have low risk investments that provide enough passive income if all tenants stop paying rent for a year and shares stop paying dividends for a couple of years (very unlikely of course). So knowing that you don't keep much in cash and seem to be excluding property and shares I was curious which low risk investments you mean.

Cheers - Gordon
 
Can you please clarify this statement. How does your structure on your IPs affect your margin loan? Are you LOEing from your margin loan?
Hiya,

Yes - I am using my margin loan for LOE. I borrow (using the margin loan) to buy shares, I don't pay (all) the interest on that loan, but I do keep the dividends from those shares.

When I revalue IPs and draw down equity, then that equity will pay off part of the margin loan.

Cheers Keith
 
In relation to another post of yours, ie "3-tiered approach" to retirement, you mention that for Tier 1 (living essentials) you have low risk investments that provide enough passive income if all tenants stop paying rent for a year and shares stop paying dividends for a couple of years (very unlikely of course). So knowing that you don't keep much in cash and seem to be excluding property and shares I was curious which low risk investments you mean.
Hi Gordon,

Good question. I don't always practice what I preach:eek:. I don't currently have anything significant in Tier 1 (the 99.99% income & capital guaranteed tier).

My excuses are -
  • the stage in the cycle means there's still growth to be had at acceptable risk
  • I'm still an active investor - I enjoy it

Maybe in a couple of years it'll be the right time for a higher weighting of capital preserving assets rather than growth assets.

Cheers Keith
 
Hiya,

Yes - I am using my margin loan for LOE. I borrow (using the margin loan) to buy shares, I don't pay (all) the interest on that loan, but I do keep the dividends from those shares.

When I revalue IPs and draw down equity, then that equity will pay off part of the margin loan.

Cheers Keith

I still dont get how you draw down equity without using a LOC to the same value as the equity as a means of getting the cash in your hands.
 
I still dont get how you draw down equity without using a LOC to the same value as the equity as a means of getting the cash in your hands.
Hi voigtstr,

When an IP increases in value I refinance it either -
  • using an ordinary investment loan from the same (or different) bank - the new (bigger) loan pays out the previous loan & I keep the surplus equity as deposit for another IP (or shares)
  • using an additional investment loan from the same bank which is the difference between the previous equity & the new equity. This 2nd loan is where a LOC would often go. eg I have one property securing 3 investment loans as equity has increased

In practice I actually put this equity into my margin loan (since it's a higher IR). And then use my ML like a LOC.

Cheers Keith
 
I thought I had it, then I lost it!

Margin Loan - you use this to LOE. When you draw down for personal use, ie living, then that part of the loan is no longer tax deductable?
Or do you not claim % on the margin loan and the capital growth covers the %?
Its the 'purpose' concept of tax deductable loans I'm getting at.

From what I understand, you are now in a position where you live off dividend returns - what about initially in reference to the above questions?
 
I thought I had it, then I lost it!

Margin Loan - you use this to LOE. When you draw down for personal use, ie living, then that part of the loan is no longer tax deductable?
Or do you not claim % on the margin loan and the capital growth covers the %?
Its the 'purpose' concept of tax deductable loans I'm getting at.

From what I understand, you are now in a position where you live off dividend returns - what about initially in reference to the above questions?
Hi Rambada,

When I sold IPs (& shares), I paid tax & put the remainder into the DT - I lent the DT this cash. Whenever I need $$ for living expenses I ask the DT to repay me the cash. It gets this cash from its margin loan & has to borrow (from the ML lender) to repay me. So I lend $$$ to the DT, if I want them back then it has to find an alternative lender (which is commbank). So it all stays deductible.

Does this clarify ?

Cheers Keith
 
Thanks for the quick reply.
Good use of structure. So when the trust receives income via dividends, you would use this to pay down margin loan/buy more margined shares, & draw down to 'pay' yourself for living?
 
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