Surrey, they are arguing that the portion of capital growth you don’t take makes it worthwhile. Those who do not work in finance do not realise that your ‘real’ equity is not your ‘useable’ equity.
In any case, my arguments against this ‘structure’ were in response to Terry’s example of ‘living off equity’ and spending on non-deductible personal expenses as you had no other income. Rental income was lower than the cost of interest so you would not be able to borrow in any case unless you had a very low LVR (NO DOC) or committed fraud and lied on your application (LOW DOC). In either of these examples, you would run out even sooner.
I am still waiting for someone to respond to the cash-bond argument being considered income. I do not believe that a lender would consider a return of capital as an income in any situation especially when there is an interest expense on that capital. This is ridiculous in my mind and I have never seen a lender do it.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksRob, Westpac used to lend on income from annuities. (I have never done a loan involving an annuity).
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Most lenders will use the return on the annuity. They just won’t consider the principal as income.
These guys are saying taking 100k out of your LOC and buy a cash-bond and then the lender will consider you as having 100k income. This is ludicrous.
The Mortgage Adviser
http://www.themortgageadviser.com.au
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Essential LinksNo. The lender would take into account only the annual money received from the annuity. on $100,000 over 5 years, it may be something like $23,000 pa.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Even in that situation, the majority of the $23,000 is a principal repayment which does not belong to the the individual. It has to be repaid to the lender. It is still ludicrous!
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksThose who do not work in finance do not realise that your ‘real’ equity is not your ‘useable’ equity.I’m hearin’ ya Rob.
Or should I just say, welcome to the world of cash flow positive property, where inflation, CGT, property maintenance costs, unforeseen adverse events, & other market forces don’t impact negatively on your portfolio….[arrowhead]
….well, at least not until you have left the seminar [
]Cheers
Jason.Originally posted by JasonBourne:….well, at least not until you have left the seminar [
]The disbelief that there are numerous negitve factors on ‘real’ equity seems to be leaking out into the real world in plague proportions.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksOriginally posted by The Mortgage Adviser:Even in that situation, the majority of the $23,000 is a principal repayment which does not belong to the the individual. It has to be repaid to the lender. It is still ludicrous!
I havn’t used cash bonds but know people who have used them and I have been to Steve’s Seminar. He has been presenting the material on Cash bonds for 3-4 years and it has been subject to much debate on Somersoft. Steve has enough critics over there that if this was a flaw in his strategy it would have been exposed by now.
My understanding is that the repayment of the principle and the interest is treated by lenders as income.
See Change
Can someone spit out a name for a lender who does this so it can be verified instead of just saying ‘they do it’???
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksRob
I asked the broker that I use ( Rolf Latham ).
He said that in the past Westpac, Bank of Queensland and Homeside have come to the party in the past.
He thinks most lenders are way too thick to realise the difference between capital return and dividend paid…..
See Change
Or use it to support a LODOC….
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.
Originally posted by Mortgage Hunter:Or use it to support a LODOC….
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.
Rolf said that was also his preferred option
See Change
See, just as you do not consider managed funds to be shares, I do not consider principal repayments to be income.
I would not submit a loan in this way.
It seems Rolf implied the lenders did not pick up on the principal repayments and were just looking at payments going into bank accounts or through another statement.
What happens when the payments stop and for some reason the borrower cannot re-establish a bond and cannot meet the repayments on the higher loan they obtained as a result of a bank oversight or the broker not informing them of the true nature of the so-called ‘income’?
Who will be smiling on the current affairs program when the borrowers who just lost everything say “the broker told me to do it!”?
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksOriginally posted by The Mortgage Adviser:See, just as you do not consider managed funds to be shares, I do not consider principal repayments to be income.
I would not submit a loan in this way.
It seems Rolf implied the lenders did not pick up on the principal repayments and were just looking at payments going into bank accounts or through another statement.
What happens when the payments stop and for some reason the borrower cannot re-establish a bond and cannot meet the repayments on the higher loan they obtained as a result of a bank oversight or the broker not informing them of the true nature of the so-called ‘income’?
Who will be smiling on the current affairs program when the borrowers who just lost everything say “the broker told me to do it!”?
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksRob
I’ve said before that I wouldn’t use steve’s ( Navra’s overall strategy. With regards to your second last paragraph I agree completely. What happens if the banks ( stung by losses from a property crash ) decided to change their lending criteria , and won’t revalue properties becuase they have lower LVR’s. What happens if the property has gone done in value and the bank want to decrease the amount of the loan…..??!!
There’s so many what if’s
As I said there have been many post on somersoft covering this topic and I expressed my concerns in this post
http://www.somersoft.com/forums/showthread.php?t=14486
If the banks are dumb enough to consider capital distributions as income, that’s their problem.
You asked in this thread for someone to name which banks consider it as income and I’ve provided you with a reply. So you reply that you wouldn’t consider it as income…. that’s your perogative, but someone did answer your question. If you chose to dismiss that again that’s you perogative.
I don’t imagine too many people on this forum would have sympathy for people who get into financial trouble and then try to shift the blame of to their mortgage broker. I can’t imagine you would
. Your comment on that vein only comes across as an attempt to distract people from the fact that someone has answered you question.Re you comment about shares. If you want to continue that debate , why don’t you continue that debate where it was raised. I will stand by my statement that I don’t think too many people would consider buying managed funds , investing in shares…..
But maybe we should let people draw their own conclusions
http://www.somersoft.com/forums/showthread.php?t=20752
See Change
See, I did not dismiss your response about the lenders. I have already sent two emails and will call the lenders tomorrow to confirm that they do this. Your ‘distraction’ comment is just ridiculous and reaching. My response after your naming of the banks was addressing other issues and expressing my views again.
As for linking to Somersoft, I think that is rude in PI.com and there is no need to do it. In regards to continuing a ‘debate’, there isn’t one as far as I am concerned. Managed Funds invest in shares and people buy them as an easy way to buy shares. I know I do. I only mentioned the example so you would understand the point I was trying to make. It obviously didn’t work.
As you may know, I ignored you over at Somersoft and I am disappointed that I cannot do the same here (that I know of). I will just endeavour to ignore all future posts you make.
Have fun ‘debating’ whatever it is you think is being ‘debated’.
PS: When posting straight after the message you are responding to, there is absolutely no need to quote the whole message and repost it. It is just a waste of space.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksOriginally posted by The Mortgage Adviser:As you may know, I ignored you over at Somersoft and I am disappointed that I cannot do the same here (that I know of). I will just endeavour to ignore all future posts you make.
[purple]The Mortgage AdviserIt’s easy to ignore someone when you want to,
You just don’t reply to them [biggrin]. But it takes will power…….
Again a post full of red herrings and distractions
See Change
Originally posted by The Mortgage Adviser:Jeff, there is no healthy discussion when you use the demeaning “Can you see that?” comments even after asked not to. I think I have proven my point that this ‘strategy’ is extremely restrictive in it’s use. No more repetition is needed.
Firstly, not many people can accumulate a $2,000,000 net position in their lifetime so at least we agree that you need a lot of equity to do this. (You do not need to have a net position of $2.0m to apply compounding growth, a gross position would suffice)Do you not see how you would run out of equity with capital growth running at 5% on average and the cost of funds running at 7% annually?
The demeaning nature of such comments must be contagious Rob, something I caught from you.By my calculations, I’m now over 100 years old and my equity is still growing. Can you please answer 3 questions
1. When $2.0m of capital compounds at 10% and an annual drawdown of $100k compounds at 7%, at what year is the “turning point”? (ie when your capital starts reducing)
I maybe under this misconception that 10% is not actually greater than 7%
2. With a growth at 5% and funding at 7%, if only 50% of your annual growth is drawn upon when would the turning point be for that?
3. When $4.0m of capital compounds at 5% and an annual drawdown of $100k compounds at 7%, at what year is the turning point?
Anyone???
Cheers
JeffJeff, please go and read the earlier posts about this topic in the various threads. This ‘living off equity’ discussion relates to someone who has no income from work and a negative portfolio (meaning they are geared substantially). Then, go and look at the ability to borrow based on no employment and a negative rental position and then get back to me.
Until then, as far as I am concerned, this ‘structure’ is only useable by those who don’t need it or those with a huge equity position with low gearing. If either of these people ‘needed’ it, they must be doing something wrong. Using it to further invest is not what I am discussing. I am an advocate of ‘investing off equity’.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential Links1. When $2.0m of capital compounds at 10% and an annual drawdown of $100k compounds at 7%, at what year is the “turning point”? (ie when your capital starts reducing)Jeff, surely you don’t think this is a normal situation (ie sustainable) do you?
I just checked my stats for median Melbourne house price (REIV) versus standard variable rate home loan (RBA) over the 34 years from 1971 to 2004 and found that the home loan interest rate was higher than nominal house price inflation in 15/34 years. IRs were higher than inflation adjusted HPI in 24/34 years with an average of -7% (HPI-IR).
Yeehaa. Where is the turning point in that scenario?
Cheerio, F.[cowboy2]Foundation, the ‘living off equity’ (without income other than rental) advocates also forget by spending on non-deductible personal items would soon see them paying tax on the rental income due to the reducing portion of deductible interest being exceeded by the rental income. They also neglect the impact of inflation which you demonstrated.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential Links
]
. Your comment on that vein only comes across as an attempt to distract people from the fact that someone has answered you question.
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