So I just got the latest email from Mr Yardney:
Over the last few months the biggest challenge investors have mentioned to me is the cash flow shortfall they have when trying to grow a substantial property portfolio.
Then only last week, my friend Bill Zheng from Investors Direct told me of a new loan product that wild turn all this on its head….
He showed me a way that you can grow a substantial property portfolio and not be hamstrung by negative cash flow.Anybody know what it is? Please tell me they haven’t introduced negative amortisation products?…
F.[cowboy2]It is a product that starts at 4% and increases over a few years to a higher rate.
The theory is that it grows as rents and valuations do.
I think it is a pure asset lend as well.
I don’t know much more than that.
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[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.
So I’d take it this is either:
a) A low introductory rate loan with hefty break fees to prevent borrowers from refinancing after the intro rate runs out.
b) A US style negative amortisation loan where borrowers make only part of the interest payment, the remainder is added to the outstanding capital.But if it’s a, then surely there’s no guarantee that rents will rise enough to ensure cf= by the time the introductory rate gets above the standard variable rate? Remembering that rents on average rise 3% pa, if the property is returning 4% gross rental yield, then it will take 21 years of rents rising and equivilent interest rate rises (4.0%, 4.12%, 4.24%, 4.37%…) for the repayment rate to hit 7.44%…[blink]
Can’t be.
I’m leaning towards option b). Cripes. “I’m leavin’ on a jet plane…”
F.[cowboy2]
This is something I wrote and have been meaning to post so a perfect opportunity!!
Hi guys, I went to a seminar last month titled “Masters of Cashflow Super Conferenceâ€. Very interesting with the speakers being Bill Zheng, Rick Otton and Mal Emery. The seminar was cheap at $55 and the trade off was that they tried to sell their products, they all had different styles and were brilliant with their information and sales techniques, very interesting to watch. What may interest people will be a new positive cashflow loan product which has been created for investors. This is how it works to make your investment +ve cashflow
Say loan purchase price is $100k and you put down a 20% deposit ( I think this is a requirement) so your loan is 80k. The interest rate works on a sliding scale starting at 4% year 1, 5% year 2, 6% year 3, etc up to 8% I think. You can refinance after 2 years and put the rate back to 4%. So the rent you receive should yield above 4% making this a +ve cashflow investment.
Yr Rate Outstanding Loan Interest Rental Income Cash In
1 4% 80,000 3,200 5,200 2,000
2 5% 88,000 4,400 5,200 800
3 6% 96,800 6,400 5,200 (1,200)
4 7% 106,480 7,500 5,200 (2,300)
5 8% 117,128 9,400 5,200 (4,200)You can see that after a couple of years that your +ve cashflow dries up and it is time to refinance. So if the value doesn’t go up you would be disadvantaging yourself to refinance hence the reason it goes up to 8% gradually to be above the market rate.
Please don’t ask me what is the catch as I don’t know this is all the info that was released and I suggest keeping an eye on http://www.investorsdirect.com.au the product will be available from June 15 and demand is supposed to be high so may be a waiting period initially.
cbellesini
You are right – in principal what you have expained is my understanding of this loan product.
Just to clarify things – we don’t have anything to do with the loan product and get no refferal commisions.
It sounds like an interesting product that will suit some but definately not all investors.
Obviously one product or loan etc can’t suit everybody.
It helps with cashflow if the interest you are paying is half the going rate and I understand it will start off at 3.75% ( that’s what I have been told)
The balance is deffered and you pay it out of capital growth. So you need to own the right type of property otherwise you can get yourself into real trouble!!
But that’s only one of the hundreds of things the 3 speakers will be discussing.
You can find out more at:
http://www.metropole.com.au/newsletter/0606/juneflash.htmThere’s a heap of wealth creation bonuses and some credible speakers – but then I’m biased aren’t I?[biggrin]
I’ve received a stack of emails over the weekend about the bonuses as they were for the 1st 100 bookings – so this is a great chance to explain things.
They went in the first hour. We had over 700 bookings so far in 2 days. So we extended the bonuses for everyone – to hard to do otherwise.
Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
Join over 15,000 readers each month.
FREE subscription http://www.PropertyUpdate.com.auEither my calculator or my logic must be in trouble.
Based on both of the above is it really possible that in the first year you are actually paying 14% interest and it only goes up from there?
original loan $80,000
interest paid 3,200
loan balance at end of yr 88,000So in fact you are paying $3,200 + 8,000 = 11,200 / 80,000 % giving 14% [eh]
Doing the same calculation for year 4 gives me 17.04%. [hmm]
So which is it please. My logic, my calculator …….. or neither?
Got your ticket yet Foundation? [glum]
Elka
Yeah I know what you are saying, I’m still a bit sketchy on the whole thing. I’d imagine that you have access to the $8k otherwise as your calcs show why would you do it? It is just like giving your capital gains to the bank.
Exactly cbellesini. What’s more the lenders “share” of the capital gains (even if there isn’t one) is a guaranteed 10%+ per annum.
What also puzzles me is that the effective interest rate appears to start at 14% and then go up over the years even though the part of the interest that you are actually paying increases.
i.e yr 1 4%, yr2 5 % etc.
I would have understood this loan better if this had been decreasing.
Where is the flaw in my logic please. [confused2]
Elka
[NOTE: THIS IS SPECULATION ONLY AND MAY NOT REPRESENT ACTUAL FIGURES, PROCESSES OR RESULTS FROM INVESTORS DIRECT OR ANY OTHER LENDER!!!]
I don’t think there is a flaw in your logic elkam!
Thanks cbellesini for your input. I think you must be half correct in what you suggest. It’s impossible for anyone to be offering actual 4% interest rates, so what they’re likely doing is making you pay 4%, and charging perhaps another 4% to the loan account (I can’t believe they’d ever get away with charging 10% as suggested by your figures!). At year 2, say the rate rises to 5%, with 3% added to the loan account, and so on. So you wouldnt actually ‘have access to that 8k’, as it’s 8k in additional debt, not equity.
[NOTE: THIS IS SPECULATION ONLY AND MAY NOT REPRESENT ACTUAL FIGURES, PROCESSES OR RESULTS FROM INVESTORS DIRECT OR ANY OTHER LENDER!!!]
Now if this scenario reflects the real product on offer, you have to consider:
a) if this is supposed to be a solution to the CF equation, is it perhaps simply hiding a CF- investment inside a higher debt? If the repayments rise from 4% to 5%, are you likely to be able to increase rents by 25% to keep it cashflow neutral?
b) when it comes time to refinance, your equity levels may be considerably LOWER than when you purchased the property. Are borrowers going to be trapped in a high-interest rate product / be forced to get LMI to refinance elsewhere?
c) how much money would this rake in for the lender? Consider the $80k scenario, 4%/4% initial split rate and 1% split change per year:
After_Year1__$83,200_debt
After_Year2__$85,700_debt
After_Year3__$87,400_debt
After_Year4__$88,300_debtIf you then refinanced and payed P&I (7.0%) over 30 years, the total cost would be $211,350, or $136pw.
Now with the original $80k loan, that $136 pw would have payed the whole lot off in 22.5 years (7.0%), for a total cost of $158,935. Over $50k difference![NOTE: THIS IS SPECULATION ONLY AND MAY NOT REPRESENT ACTUAL FIGURES, PROCESSES OR RESULTS FROM INVESTORS DIRECT OR ANY OTHER LENDER!!!]
I write this because I find the proliferation of such negative amortisation loans in the USA to be quite alarming. They are a very high risk strategy often employed by the over-exuberant speculator who in reality simply cannot afford the repayments. God help us all if these become commonplace in Australia.
<Ring Ring>
“Hello, Travel Centre, this is Miranda”
“Hi Miranda, could I please purchase a one way ticket?”
“Certainly sir, where would you like to go?”
“ANYWHERE!!! JUST GET ME THE HELL OUT OF HERE!”F.[cowboy2]
[NOTE: THIS IS SPECULATION ONLY AND MAY NOT REPRESENT ACTUAL FIGURES, PROCESSES OR RESULTS FROM INVESTORS DIRECT OR ANY OTHER LENDER!!!]
Foundation
I am as keen as anyone to find out all the details of this loan product and as I explained, I have no financial interest in this – nor do we get any refferal commissions.
Let’s look at your figures another way…
What if we bouight a well located but average property.
It only goes up the “average” 10% a year ( for Melbourne Sydney or Brisbane) because we were not smart and didn’t negotiate the purchase well.
It only goes up the average 10% per annum – not every year but over a 7 to 10 year cycle – because we weren’t smart enough to buy a property in an area with above average growth.
It only goes up on average by 10% per annum because we don’t know how to increase the value of our property by adding value.
Then after 1 year the property is worth $110,000
After 2 years the property is worth $121,000
After 3 years the property is worth $133,000
After 4 years the property is worth $146,000If this is the case, why would iIworry if my loan principal has increased from $80,000 to $88,000.
I am still so far ahead with extra equity that it doesn’t matter.
Over the 4 years my loan to value ratio has dropped from 80% to 60%.
There are much better ways to make money out of property than cash flow – non taxable capital growth seems fine to me.
And even if the property only grew at half that rate you are still ahead.
Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
Join over 15,000 readers each month.
FREE subscription http://www.PropertyUpdate.com.auMr Yardney, may I refer you to my recent post:
https://www.propertyinvesting.com/forum/topic/24432.htmlBefore you read it, perhaps a gentlemanly wager is in order… Melbourne median house price 2013 (ten years from peak at $368,000). Above $736k*, you win, below $736k I win, as measured by APM/RBA series. Name your poison!
[biggrin]
Cheers, F.[cowboy2]
*I’m happy to make it more interesting, say above/below $500k by EFY 2010? That’d be under 36% in seven years, far below “the average 10% per annum” that you’ve stated! Remember 10% = Doubling every SEVEN years.
Originally posted by foundation:Mr Yardney, may I refer you to my recent post:
https://www.propertyinvesting.com/forum/topic/24432.htmlBefore you read it, perhaps a gentlemanly wager is in order… Melbourne median house price 2013 (ten years from peak at $368,000). Above $736k*, you win, below $736k I win, as measured by APM/RBA series. Name your poison!
Cheers, F.[cowboy2]
*I’m happy to make it more interesting, say above/below $500k by EFY 2010? That’d be under 36% in seven years, far below “the average 10% per annum” that you’ve stated! Remember 10% = Doubling every SEVEN years.
Thanks for the challenge [biggrin]
I’m happy to take on your challenge and donate $2,500 each to 2 charities – total of $5,000 on your initial wager..
The best indicator of future performance is past performance and for the 30 or so years I have been investing there have always been others who have siad it won’t happen again. And everytime there “excuses” seemed to make sense at the time.
The bet is on!
Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
Join over 15,000 readers each month.
FREE subscription http://www.PropertyUpdate.com.auExcellent! I was thinking you’d be more of a bottle-of-Grange kind of fellow (although I don’t believe it generally lives up to the promise of the pricetag – perhaps I’m too impatient?), but I support your charitable suggestion. I hereby solemnly swear to donate $2500 to each of 2 charities if APM/ABS figures show the median house price in Melbourne to have surpassed $500,000 in June 2010.
Best of luck Michael. See you back here in four years.
F.[cowboy2]
Oh! this is a very interesting wager. I shall keep a close eye on it for the next 4 years. Good luck, gentlemen!
I thought I had made the “initial wager” which was for 2013 – I still plan to be around then.
The median price of Melbourne property will be above $736K by 2103
Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
Join over 15,000 readers each month.
FREE subscription http://www.PropertyUpdate.com.auMMah so after making enough from property and shares to now ‘”iive on our equity” – all this achieved while NOT living in a ‘dog box’ in a bogan suburb (as per the Somersoft way )or buyin humpies to rent to permanently ‘restin’ folk (kinda like Steve used to do) and at the same time educating 4 children through from primary ages in the private system– and never having spent any money on one of these “Education Seminars” I finally let the moths outa me purse and put up $59 to go to The Yardney day at Luna park(Oh I hope that venue name is not a prophetic indicator)– on readin all this thread I seem to have wasted one third of me entry fee all ready!! that’l learn me– Still, i will use me own Motto- Keep me mouth shut and me options open until—-???
Originally posted by Magellan:…. I finally let the moths outa me purse and put up $59 to go to The Yardney day at Luna park(Oh I hope that venue name is not a prophetic indicator)– on readin all this thread I seem to have wasted one third of me entry fee all ready!! that’l learn me– Still, i will use me own Motto- Keep me mouth shut and me options open until—-???
You probably haven’t wasted your money.
If the seminar isn’t any good you could always go on the rides at Luna Park[biggrin]
Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
Join over 15,000 readers each month.
FREE subscription http://www.PropertyUpdate.com.au“Probably” ????? Thought there was a money back thingie. Like I said options open–
Originally posted by Magellan:“Probably” ????? Thought there was a money back thingie. Like I said options open–
You are right – there is a 200% money back thingie
Interestingly we had a fantastic session in Melbourne yesterday – over 800 attendees and not one person asked for the thingie
I guess they all thought they got their money’s worth which is great
Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
Join over 15,000 readers each month.
FREE subscription http://www.PropertyUpdate.com.auOriginally posted by elkam:Either my calculator or my logic must be in trouble.
Based on both of the above is it really possible that in the first year you are actually paying 14% interest and it only goes up from there?
original loan $80,000
interest paid 3,200
loan balance at end of yr 88,000So in fact you are paying $3,200 + 8,000 = 11,200 / 80,000 % giving 14% [eh]
ElkaFrom a cursory look I thought that $88,000 was the new value at 10% CG, not the new loan <insert confused smiley here> and that the interest was only $3,200 why is the new loan $88,000?
Redwing
“Money is a currency, like electricity and it requires momentum to make it Effective”
Online Positive Cashflow and Renovating Calculators
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