> Key Question:
> Do You Have 30% Cash Reserves?
>
> As a minimum, I recommend you have access to cash reserves of 30% of the value of your current
> debt. This is your buying power.In Steve's latest newsletter, he mentions the above.
I've looked up the term "cash reserves" in the forums and the web but can't find a clear-cut definition. So with the above "30%", does he mean if you have, for example, a 300k loan and have 200k owing with 100k available for redraw, you have the minimum amount of cash reserve you should have to buy another property?
Hello tch
I thought Steve meant money in the bank.
So if you have loans totalling $200K then he recommends having $60K cash available.I hope someone will correct me if I have misunderstood.
Elkatch wrote:does he mean if you have, for example, a 300k loan and have 200k owing with 100k available for redraw, you have the minimum amount of cash reserve you should have to buy another property?The problem with 'equity' is that it isn't cash. Banks can (and do) checks of loans and valuations. If prices begin to fall or credit becomes harder to come by, 'equity' might not be available. Especially LOC 'equity' – do check the T & C on LOC documents – they very explicitly state that the lender has the right to revoke or lower credit limits at their discretion.
Cheers, F. [cowboy2]
I currently owe $190,000 on my PPOR worth $345,000. I will soon be paying a lump sum into it of about $130,000 reducing my loan to about $60,000. I plan to setup a LOC account of about $100,000 and leave about $50,000 available funds for redraw. Then i have cash if required for any reason. A LOC account to purchase any bargains that might pop up. And even if i drew all this available funds the total debt will still be way below house value even if it did drop 30% or more.To me thats a fair stratagy for bad times.
Firstly, thanks for the responses.
elkam wrote:I thought Steve meant money in the bank.
So if you have loans totalling $200K then he recommends having $60K cash available.By "loans", do you don't mean the initial amount or rather what's owing on them?
foundation wrote:The problem with 'equity' is that it isn't cash.I would've thought redrawable money is as good as cash in my example? Well, I guess it depends on the type of loan. This is an offset account where that redrawable money is not equity, it's cash. The place is worth 450-500k but that wasn't factored into my calculation as that implies I'm using equity in the equation.
By loans I meant the amount still owing,not the original loan.
Sorry, I didn't understand your original post correctly so maybe foundation didn't either. If you meant that you have $100K sitting in an offset account and you have an outstanding loan of $200K than your more than covered using Steves 30% recommendaton.
Cheers
ElkaElkam,
Thanks. I was a bit presumptious in my post but you've cleared up what I wanted to know. Thanks again.
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