Forum Replies Created
Dear Derek, Zeng, Colin, Terryw, Benny, ptn and Marvellous Milly,
Just a note to let you know I haven’t forgotten you! I’m pleased to tell you I’m going quite well after two more medical procedures on my head – radiation for benign but pressurising tumour and transposition of the nerve that controls the left side of the tongue to elsewhere in the face to perhaps rectify facial paralysis that unfortunately was a result of the brain aneurysom operation I mentioned to you previously. Anyway, life is beautiful still as I spend my time in Coffs Harbour (young son at uni here) soaking up what the surf, jetty etc offers. This may sound absolutely terrible but I could hardly wait to climb out of the effects of the anesthetic to resume digesting all the ideas you have provided. I must say a great thanks to you all for reducing the tension I was feeling about how I could possibly survive with such a poor cash flow. No doubt it has been significant in my dealing with the medical procedures and has heped me in my recovery. I’ll always remember your generosity.
I know I have good properties (2 of the 3 are zoned for 2 and 3 storey redevelopment) and know they will keep increasing in value so I’ll be doing everything I can to keep them…..in fact their value is going up by 10% minimum pa so that makes the overall value increase by 170k for the coming year alone. So I need to get out there and borrow say 500k and invest it well so that it pays off the interest, keeps me surviving and invested well so it makes some gain so that say after 5 years it hasn’t all gone. But anyway on my calculations the debt ratio increases from 23% at present to 56% on borrowing but after 5 years even if I spend the whole 500k my debt reduces to 36% based on the 10% gain each year.
Not sure what I’m going to invest in yet as I’m still to catch up with a good broker and a financial adviser (thanks Zeng for the tip of paying for the hour for good investment advice…I like that idea). I’m even thinking perhaps I could borrow to redevelop a block down the track now that I know I don’t have to be ’employed’ to borrow. Thanks Marvellous Millie for this idea of focusing on capital growth rather than cash flow to really expand on your investment. Currently I do have to focus on cash flow but down the track I’ll be taking this idea of yours and PTN’s into more serious consideration. In fact it has happened that way for me….accidentally….as you know I’ve shown terrible lack of knowledge re investing and the only thing I knew when I did purchase the 3 properties I have is location, location, location! Such thoughts of redeveloping a block that I own of course is easier to make when you’re lying on the sands of a beach and when I get back to Canberra things may change ie I’ll probably soften and go for a more conservative approach for awhile until I sort out my health and work situation.Thanks a lot Derek for the detailed information you’ve supplied me. I’ll be in contact soon to ask more questions. Thanks also to Benny and Terry W for the good advice and encouragement….there is lots for me to learn ie I have no idea what nodoc lender means. I hope one day I’ll be able to pass on tips to others who can gain from them.
Colin….I was amazed by your note and still trying to figure out how you manage or what you do to ‘be careful to not offend (money chasers) but slam the door shut (in their faces) and lock quickly!!” This could be handy but ….I’m sure there is no way to not offend them. Thanks for all the great advice. I’m appreciative beyond wordsI wish you all to attain an early realization to what you want to achieve.
Kind Regards
Carpe-DiemThanks TerryW for your comments.
Thanks Colin. I’ll reply properly to you down the track as without going in details I will be away from tomorrow for about 3 weeks for medical reasons. There is a lot in what you’ve said and I appreciate your efforts, ideas and being generous with your time. I do lack the knowledge and I’m sorry that I’d not become more informed previously but its taken an illness to push me into a new direction that I trust will save the assets that I have already at least. They are good properties …all in the inner part of Canberra city with 2 of them in higher rise redevelopment zones. Trust you don’t mind my delaying my response until I return and by then I expect all that has been said by all parties will have been digested which means I’ll drive you mad with more questions.
Thanks again…
Carpe_Diem[happy3]Hello Zeng
Thanks for your kindness and contribution of good ideas. The penny is certainly starting to drop and I must say I’m a bit embarrassed that I know so little despite what assets I’ve accumulated in bricks and mortar.
Before coming to this site I was thinking I would have to sell at least one of the assets to get more cash to get me through at least the year ahead but what I’ve got out of all this so far from Derek and yourself is that no don’t sell. Rather what I should do is refinance all loans and take out a loan on my residence (all up to 80%) and the excess is what I borrow for converting into cash flow. I’ve then to find shares or whatever other investments that are going to yield cash flows over and above the new loans interest rates. So for example, if I borrowed say $500k interest might be roughly $37k and as long as the investments are returning roughly 15% then net cash flow will be $37k for me to spend. Apart from all the tax fix ups etc is this it in a nutshell? Is this the way I take up the discussion with a financial adviser? This is such a good site and there is a lot of material on here that I will be perusing over the next couple of months that I need to let sink in and think about before I actually take the plunge. Please let me know if I have misunderstood the main thrust of what you think I should be doing.
Thanks a lot……..I appreciate the time and effort that both you and Derek have so far put into this.
Cheers Carpe_Diem
[fez]Thanks Derek
Still stewing about all this Derek but some good ideas nevertheless. I’m wondering how others on this site are feeling re this idea of living off equity. So far noone has responded. Sorry to say this but my research so far does not hold Steve McKnight in a high regard particularly in respect of the ‘wrapping’ legal matter.
Carpe Diem
[confused2]Originally posted by Derek:Hi CD,
Thanks for the offline details.
I’ll post an approach here that will. in all likelihood, provide some debate.
As it currently stands you are asset rich and cashflow poor so an option may be a reverse mortgage or modification thereof.
Currently your debt level is 23% of your overall property portfolio – own home included.
Breakdown each of the three properties and you have 100% ownership of your home, 59% of your first investment property and 29% of investment property 2. Some ‘experts’ would say you almost have enough equity to adopt a living off equity approach.
Using such an approach you have accessible equity in each of your three properties which will (with a good broker) enable you to go to a no-doc lender and borrow up to 70% (with Macquarie @ 6.98%) or 80% (with RAMS @ 7.24%) on each of these properties.
If you really wanted to you could conceivably access additional lines of credit valued at $630K (against own home through Mac), $56K (against IP1 & with Mac) and $145K against IP2 (also with Mac).
You could conceivably push the envelope even further if you used RAMS by a further total of $174K if all loans were placed with RAMS.
During this process you would also be able to unlink loans if in fact they are linked or cross collateralised.
Given it is one year before you return to work and you only require a further $37K (above exising cashflow) it would be possible to live off the IP2 line of credit very easily indeed for almost 3.5 years even allowing for some capitalisation of interest within this line of credit and not allowing for any further growth in your properties.
In effect IP2 will provide you with your income for the ‘off work period’ with time to spare.
As an aside if you do pursue this approach ensure you set up at least two lines of credit. This will allow you to clearly establish what is deductible and what isn’t.
Use one line of credit for personal expenses (clothes, groceries, home bills, travel, car etc)
Use another for all investment related expenses including loan interest and all of this interest will be deductible.
If you really wanted to, you could use some of the available funds in a managed share fund.
I would suggest something like Navra (note I am shareholder – so do you rchecks and balances).
Based on a track record of 20% the previous (04/05) financial year and currently tracking at 15% at this stage of the 05/06 financial year.
Assume you invest $200K in this fund taken from your home line of credit.
At 7% this will cost ~$14K in borrowing costs.
At 10% returns this will realise $20K less costs and realise a net return of $6K.
At 20% return the net gain increases to $26K.
Obviously this is not something for the feint hearted but it will certainly tie you over. You may also want to grab a copy of Michael Yardney’s new book – it explains the living off equity set up very well.
Please note that this should not be construed as advice – it is the ravings of a mad man and needs to be considered in this light.
Hope this helps.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Hello Derek
Wow this is some response! I thought I was in a position of not being able to borrow with no employment but you seem to be saying this is not an issue. Lots of stuff in your note that I’ll have to digest as its different thinking. It may well work out that I can’t go back to work while at the same time you’re saying I think that I could live off equity of these properties until the time is right to sell the properties that are particularly of high interest to developers. I’ll get hold of the book you suggest and have a read. If you were me who would you arrange an appointment with to discuss the use of equity to get me out of my current cash flow problem before I lose more of my savings. Alternatively should I spend the savings first before going for living off equity in the event I do go back to work?
Derek, I appreciate very much your efforts in responding to my cry for help. I don’t know how the star system works but I gather you didn’t earn 4 easily overnight. In fact as a new member on this site as of yesterday I’m impressed by the response that other members are making to their property mates on all sorts of questions.
Cheers
Carpe Diem
[suave2]
