All Topics / General Property / Living on borrowed money!

Viewing 17 posts - 1 through 17 (of 17 total)
  • Profile photo of high flyerhigh flyer
    Member
    @high-flyer
    Join Date: 2003
    Post Count: 48

    Hi, to all the IP investors and those who dreamed of having a 6 figures passive retirement income. Steve advocates that you acqiuire enough +ve gear IPs to achieve your dream. I think his strategy is wonderful but to do that you left with not much revenue but to employ WRAP or Lease-Buy option, etc to accelerate the process. For those who is uncomfortable with WRAP, the opportunity is limited!
    Let’s look at the situation at a different angle. To able able to have access to $100k to live on, all you will required is to have an income of $7000 to serving the loan of $100k assuming that the borrowing costs is 7%pa. Now can you generate an income of $7000 pa? If your answer is ‘yes’, then you can live a life style of a $100k pa! How? I hear you asked. Create a LOC, of course! Well, you might say who will lend you the money? THE BANK, of course, as long as you have appreciating assets!
    Let’s put thing into perspective. Assuming that that you have an IPs worth $200K now. If the appreciation rate is 7%pa then you will have an asset worth $400K in 10 yrs time. On the 10th year, just apply for a LOC of $100k to spent for whatever you like! Let’s take this further into the future, on the 20th yr, your IP is worth $800k. You can apply for an additional $200K of LOC to allow for infation. Now you will be owing $300K on an asset worths $800K. Your worry will be to make sure that the rental income is sufficient to cover the interest cost of $300K pa. See, you can live like a high flyer on a shoe string income! [biggrin]
    Well, you say how can I live like a high flyer on $100k for 10yrs? Easy, just acquire 10 IPs B4 you retired![rolleyesanim]
    Now, what do think of this stragey? Please post your comments for the benefit of IPs investors community.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Hi High

    It is a good strategy. If you have say, 10 properties, you could increase the LOC on one property per year, so in year 11, you go back to IP one and do again – they would have hopefully more than doubled in this time.

    Just don’t go taking too much. Maybe 80% of any growth would do. eg IP valued at $300,000 grew at 10% last year = $30,000 so just take 80% of this = $24,000.

    But getting loans without an income is not as easy as you suggest. It would have to be an asset lend which are usually 65% LVR, or you could use a Low Doc at 80% LVR declaring an income, both = higher rates. You wuold probably need multiple banks as they would not be too impressed with this strategy – ie just icnreasing your loans every year without an income comming in from the increase.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of high flyerhigh flyer
    Member
    @high-flyer
    Join Date: 2003
    Post Count: 48

    [Just don’t go taking too much. Maybe 80% of any growth would do. eg IP valued at $300,000 grew at 10% last year = $30,000 so just take 80% of this = $24,000.

    Hi Terry,
    If you have 7-10 IPs, you are dipping into the growth once every 10yrs. There are ample times for the growth to compound. LVR ratio should not be a problem. The problem is as you have pointed out, to have a lender come to the party. May be as time goes by, the attitude of lenders will changed.

    Profile photo of AceyduceyAceyducey
    Participant
    @aceyducey
    Join Date: 2003
    Post Count: 651

    Take a look at http://www.navra.com.au

    They have an approach which incorporates much of what you are talking about & covers the aspect of creating income streams from equity.

    Steve Navra’s seminars are well worth the investment (IMHO)

    Cheers,

    Aceyducey

    Profile photo of AUSPROPAUSPROP
    Participant
    @ausprop
    Join Date: 2003
    Post Count: 953

    this is the pitch from the Investors Club as well – I have always wondered how you would redraw the equity with no job and must ask someone from there how you do it….



    Extensive list of new Perth property available for sale.

    Alternatively, become a joint venture partner in one of our property development partnerships – contact me to find out why our developments are unique. John – 0419 198 856

    Profile photo of 1Winner1Winner
    Participant
    @1winner
    Join Date: 2004
    Post Count: 477

    I find the whole concept absurd.
    This is a bean counter strategy that reminds me when Australia post sold all the prime real estate they had in the 80ties to chineese investors and rented them back from them because of “passive assets restructuring” (fancy accountant words) So clever in deed, where I come from it’s called to sell the family jewels.

    The end result is a snowballing debt. What do you do after 20 years, run to Mallorca?
    I doubt there are many investors that have for goal not producing anything and spend money obtained on loan based on a hipotetical capital growth [thumbsdownanim

    May God bless you
    and prosper you.
    Marc

    Profile photo of AceyduceyAceyducey
    Participant
    @aceyducey
    Join Date: 2003
    Post Count: 651

    Marc1,

    Have you researched this concept thoroughly?

    I have & am satisfied that it works in certain circumstances. I also are aware of at least ten people/couples who have employed this approach via Steve Navra over the past ten years & are doing extremely well. He’s also worked with a lot of people I don’t personally know :)

    I seriously suggest you investigate the approach further before knocking it – at worse you’ll know it’s bunk – at best you’ll decide to do it yourself…and on average you’ll have another tool in your investment toolkit :)

    BTW: No I’m not using it myself at present as it’s not appropriate for our investing goals. However I keep the strategy in mind for the appropriate time :)

    Cheers,

    Aceyducey

    Profile photo of DerekDerek
    Member
    @derek
    Join Date: 2004
    Post Count: 3,544

    Hi Highflier,

    This is a method that some people are aiming for in their ‘retirement’ – whether it suits everyone well that is a different matter. I am regularly in touch with someone who is currently doing this with success and no problems.

    My initial aim is to acquire a portfolio of properties with a low debt/asset ratio so that I will have a number of options up my sleeve – from a line of credit set up & structured before retirement through to Steve Navra strategy through to a sell some and live of the rents of the others (Jan Somers strategy) through to sell the lot and live off the proceeds.

    Already in the last two/three years we have seen major banks introduce the concpet of reverse mortgages, an increased availability of low doc and no doc loans and so – so an asset rich client – no dramas.

    Whichever option you ultimately choose you will be constrained by the need to ‘spend less than you earn’ – this limitation exists with a growth related retirement plan equally as it does with an income related retirement plan – mind you it also exists in a working life too.

    Derek
    [email protected]

    Property Investment Support Available. Ongoing and never stopping. PM welcome.

    Profile photo of wayneLwayneL
    Member
    @waynel
    Join Date: 2003
    Post Count: 585

    Just as an aside, this type of strategy is being employed by a sharetrader I know, with margin lending.

    This particular chap has already removed in excess of his entire initial investment from the account, as income, and still has buckets of equity.

    So as a concept, it does very well in the right circumstances.

    I believe there are some interesting tax implications as well….as you are not selling an asset. Any accountants to expand on this?

    http://www.tradingforaliving.info

    Profile photo of AceyduceyAceyducey
    Participant
    @aceyducey
    Join Date: 2003
    Post Count: 651
    Originally posted by wayneL:

    I believe there are some interesting tax implications as well….as you are not selling an asset. Any accountants to expand on this?

    Not an accountant, but have looked at it in depth.

    If you’re living off equity you don’t pay tax. Simple as that. Equity is NOT taxed unless you convert it to cash by selling assets. Borrowing against assets isn’t taxed (as anyone who’s ever refinanced to buy more assets will know).

    If you buy annuities, the interest on the annuity is taxable but not the rest of it (the bit you pay for from the refinance of your equity).

    I wouldn’t advise this approach for people who rely neavily on negative gearing :)

    Cheers,

    Aceyducey

    Profile photo of redwingredwing
    Participant
    @redwing
    Join Date: 2003
    Post Count: 2,733

    Didn’t Dolf De Roos also Promote this concept in his book also, redrawing on the Equity of IP 1 , Then Next year IP 2 etc etc and back to IP 1 , wherein, if in a Growth area, by the time you get back to it, the Value has again increased.

    – Not at retirement age, but think about my long term goals too..

    REDWING

    “Money is a currency, like electricity and it requires momentum to make it Effective”
    Count The Currency With This Online Positive Cashflow Calculator

    Profile photo of luckyoneluckyone
    Member
    @luckyone
    Join Date: 2003
    Post Count: 148

    What I don’t understand is, if you keep adding more money to your loan amount each year. ie. you add $40,000 to your $100,000 loan to become a $140,000 loan. How do you afford these extra repayments, I mean it’s not like you’re going to suddenly have more income coming in, is it?

    Thanks,
    Luckyone

    Profile photo of 1Winner1Winner
    Participant
    @1winner
    Join Date: 2004
    Post Count: 477

    Oh, that’s easy, you simply draw the repayments from a credit card, when it maxes out you open another one and so on. Very simple and basic.

    May God bless you
    and prosper you.
    Marc

    Profile photo of CeliviaCelivia
    Participant
    @celivia
    Join Date: 2003
    Post Count: 886

    Yes I’ve heard of this too, I think Jamie Mcintyre promotes it as well, for retirees, and if I remember correctly he claims it works very well with just 3 IPs in high-growth areas.

    THere’s always a risk, don’t you think, that during a flat market there will still be the repayments to be made, but CG then have come to a stand-still. Or am I seeing this wrong?

    ABout the repayments, just a question, do you necessarily need creditcards to make repayments, wouldn’t it be easier/cheaper if interest repayments just come off this as well? Just wondering.

    Profile photo of wayneLwayneL
    Member
    @waynel
    Join Date: 2003
    Post Count: 585

    The chap with the margin loan, allows interest to capitalize.

    I once had a LOC that allowed interest to capitalize also. Maybe this is what is being done.

    But I agree with Celivia’s comments. (in line with my bearish stance)

    An extended flat market would be most disconcerting if employing this strategy.

    http://www.tradingforaliving.info

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Marc

    I think you have confused yourself somewhere. No credit cards are needed, just you borrow a portion of the growth to use for living expenses. Keeping it low allows for periods of low growth. It is nothing like selling your real estate and then renting it back, but the opposite. Where as you wuld otherwise has to sell, you instead keep the property and just access a percentage of the growth. That way you get to keep the property and then acess to future growth. I know somebody who is doing this with only one property – he is just taking some money supplementing his income between jobs.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of MTRMTR
    Participant
    @marisa
    Join Date: 2004
    Post Count: 663

    Terryw, I understand the concept. This is not something new, many out there promoting this.

    Just prefer eventually to own property outright.
    Disadvantage with this though is having to sell and associated costs involved in this process.
    I guess different strokes for different folks.
    Cheers

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