Hi All[biggrin]
As part of my duty of care in advising clients I am required to conduct research into products before issuing advice.In order to compare loan types I used the latest version of PIA Pro software. The model is based on the following assumptions.
The comparison was conducted using a new property valued at $320,000 based in Queensland.
Rent $300 per week (gross rental yield 4.78%)
Total Income of $100,000 made up of two investors earning $90,000 and $10,000 per annum (selected to illustrate differing ownership scenarios).
Average capital growth rate of 4.5% per annum with inflation set at 2%.
Ownership is based on 90% owned by the highest income earner for a negative geared property (7% IO) and the opposite for positive cash flow (0% PO)
The Interest Only loan is fixed at 7% for the life of the comparison.
The principal only loan is repaid over 20 years at 5% per annumThe comparison covers
Equity
Repayments
Cash flow
Tax
Interest rate fluctuations
Total net pay after investment
I also looked at variation of title ownership and the use of other structures such as company and trusts. The use of this product in a Superannuation Fund was also investigatedEquity after 10 years increases by an additional $167,967 to $330,095
Equity after 20 years increases by an additional $334,821 to $771,748
Loan repayments decrease by $563 per month from $1,953 to $1,390
The total amount repaid over 20 year period decreased by $135,040 and results in the loan balance falling from $334,821 to $0.
Total income after rental deductions increased by $26,607
Tax payable increased by $10,029
After tax cost increased by $3,276
Total Net income (cash flow) increased by $13,302 or $255 per week
Conclusion
Equity growth is accelerated by the use of a principal only loan where all repayments are directed towards the amount borrowed.
The amount of extra equity gained is dependant on the length of the loan. For a 20 year loan, equity increases a further 5% per annum. If the loan term is reduced to 10 years, equity increases by an additional 10% each year.
The amount borrowed is fully paid out and the loan expires with time, increasing cash flow considerably after the loan is finalized.
Repayments amounts are fixed at the start of the loan for the entire loan period, removing the risk of interest rate fluctuations and making more accurate assessment of affordability in the future possible. This reduces the possibility of loan default caused by interest rate spikes.
Repayment amounts are reduced as there is no interest component.Regards
Bryce Inglis
Financial Advisor
[email protected]Replies on this site are intended as general information only, as any specific investment solutions/advice must only be given in accordance with the requirements set out in the Financial Services Reform Act 2001 and the ASIC guidelines as set out in PS146.An appropriate professional should be consulted for specific advice
How can you possibly talk about “Duty of Care” and then reccomend a product that is under investigation by ASIC….do you value your Finacial Advisor status in any way??…or does it more reflect the fact that being a “registered”Finacial Advsior really does not mean much??
Either way I can’t belive you have done this.
Hi all[biggrin]
I have been criticized both here and thru private messaging by one individual who states in a private message to me;
Be very careful..the product does not work and never will…if you think it does and start representing as such, any credibility you have will be gone forever.
Show me your proof that it does not work.I have worked in very high level structure finance/money market, both here and in the UK for 15 years and I will tell you upfront …it does not work.
If you are as successful and knowledgeable as claimed, then why haven’t you retired by now as a wealthy person? Do you need a financial planner?You have no upside in supporting or recommending the product in an open forum and as a registered advisor you will realise that once your credibilty has been lost it is very hard to get it back !!Where were you when I lost my virginity and innocence, when I found that sometimes the world can be a cruel place?
There seems to be no factual evidence forthcoming from this individual to back her claims and I wonder if there are ulterior motives to her unsubstantiated claims.
From a post which was deleted before I could answer.
Why are you so keen to put forward your hard earned ASIC Rep Status as a “virtual” credibility wrap around the Derivex product and business??
The more I have examined and analyzed Derivex the more it looks like a product which can be an aid to the financial welfare of some individuals.
My job is to examine products for their risk and their return for clients who wish to use my services as directed under AFSL.Bryce. if you are not on the Derivex pay roll, then you should be….nobody but nobody other than staff or ex staff have ever tried so hard to stick their neck out that far to defend the product.
No I am not on the Derivex pay roll, however in your own words,Nat. if you are not on the conventional banks pay roll, then you should be….nobody but nobody other than staff or ex staff have ever tried so hard to stick their neck out that far to oppose the product.
Nat, judging from your above comments, either you are employed by a bank or you are an expert in a highly specialized field which causes your assessment of the Derivex product to be limited by those skills.
When I first looked at Derivex my first suspicion was of a forward fee scam, in due course this was diminished and I became more comfortable with the product in that regard.
The next hurdle for me to overcome was that it didn’t make sense from my perspective especially in regards to return.
As the product offering exists, it must be worthwhile to the original source of investment funds based on their return/risk ratio. Looking at it from their viewpoint will supply needed answers.
When we take all we can into consideration, then by a process of rejection or acceptance we will be left with the correct answer. If a logical conclusion is not achieved lateral thinking is required. Finally the theory should then be tested by others playing the role of devils advocate in order to reveal any holes in the argument.
Once we have established a motive then we can apply it and reassess the product.Regards
Bryce Inglis
Financial Advisor
[email protected]Replies on this site are intended as general information only, as any specific investment solutions/advice must only be given in accordance with the requirements set out in the Financial Services Reform Act 2001 and the ASIC guidelines as set out in PS146.An appropriate professional should be consulted for specific advice
Slow down Nat – there was no recommendation.
Just someone running figures.
Wish the fish around here bit as fast as you!
Cheers,
Simon Macks
Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
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