You have to remember when Steve was doing this strategy the world was a very different place money was a lot easier to organize, loans were a lot smaller and where they were buying properties were cheap and easy to rent. so if you have assets that pay for themselves your actual borrowing power is unlimited.
ALso in those days there was the being of the Nodco loans. LVR <60% no risk to the bank, no disclosure of income or disclosure of Assets & Liabilties. this stuff is not rocket science it is just working smart and putting your money and property equity to work for your.
Rish Dad Poor Dad philosiphy If you are going in to debt make sure it is good debt and some else is paying for it and you are making money from it.
These guys were accountants and you will find that the books balanced at the end of the day. though they may have some good stories to tell.Today the <60% nodoc loan is still there. And possitive gear property is back on the market acording to Steve. This strategy carries no risk to the bank and all the banks care about is the monthly payment if that is made every months there will be no questions. especially if they have a portfolio of properties with an LVR of <60%. the only restriction here are the amount of properties per area.
of coarse this is only my opinions and is not to be taking as advice LOLBut of course there is a different way and that is to Buy low sell high and reinvest the profit.
bfantastic wrote:if you have assets that pay for themselves your actual borrowing power is unlimited.‘taint necessarily so.
1) Banks often only allow you to count approx 75% of rental income, which often changes your positive cashflow to negative cashflow.
2) Many lenders have an absolute lending limit, ie limit their exposure per customer, such that you can only borrow $1M (or whatever their figure is) regardless of how good your cashflow and LVR is. (Obviously this is for resi investors, not businesspeople or commercial investors.) Of course, you can always go to another lender, but you would eventually exhaust all practical lending options.
Having said that, I do agree with the philosophy that if you find a good enough deal, you should be able to obtain finance.
Hello Trakka. I haven't seen you on the forum for a while. Welcome back!
Just going back to your original post, I have my own thoughts on declaring other borrowings. I am an ex lawyer so this doesn't constitute advice but just how I would approach disclosing other borrowings.
I think it all depends on the application form. If the application form only asks for borrowings in my name, that is all I would disclose. Borrowings in a company are in a different structure and are not in my name. I am only legally required to disclose what I am asked in the form. If a bank did a search and came back to me and said "you are a guarantor on a, b and c loans" my response would be "you only asked me for borrowings in my name".
However, I imagine that most banks would require disclosure of all liabilities. And loans for which I am a guarantor are my liability. I think the difference between this and the example you gave earlier on being guarantor on your child's car loan is that the car loan would be quite easy to accidentally overlook. I think you would still be required to disclose the car loan on an application form that asks for all liabilities, but if the bank did a search and queried you on your failure to disclose the car loan, the bank would probably accept that it was simply an oversight. I think you would have a harder time explaining away failure to disclose guarantees on significant assets (properties in structures that you are a director, trustee etc of) as simply an "oversight".
I expect that as lending criteria have tightened, the questions in application forms have become more specific. Every time I have applied for a loan in the last few years, and there have been several, I have been asked to disclose ALL liabilities, whether those liabilities are in my name or not. Perhaps that wasn't the case when Steve started out several years ago.
Just my thoughts.
Cheers
Karen
Thanks, Karen, for your completely reasonable response. Thank you also for assuming that I’m raising this issue in good faith – because I am!
I guess I like accounting sheets to balance. Let’s say I have a $1M asset with an $800K debt in a Trust for which I am Trustee and a beneficiary (so I can gain control of the asset), and I am guarantor for the Trust’s loan.
If the Trust was applying for finance, they would declare a $1M asset and $800K debt, and have a net worth of $200K.
If I were applying for finance, I couldn’t declare the $1M asset but have to declare the $800K debt, and have a net worth of $-800K.
Combined, the Trust and I have a -$600K net worth, due to the liability having to be accounted for twice. This just doesn’t seem logical… I’m not saying it’s not correct; I’m just asking somebody to explain the logic, if they can. Or maybe it just is a terrible idea – in terms of servicability – to guarantee loans.
As per my earlier question, how do company directors ever get loans to buy their own home, when I assume some of them will have provided director’s guarantees for potentially enormous company borrowings?
If you are having a problem with the concept of investing for cash flow and developing an unlimited borrowing power then maybe you should have a rethink and read the new Book from Robert Kiyosaki 'Conspiracy of The Rich: The 8 New Rules of Money'
you can read it for free here:
trakka wrote:Thanks, Karen, for your completely reasonable response. Thank you also for assuming that I'm raising this issue in good faith – because I am! I guess I like accounting sheets to balance. Let's say I have a $1M asset with an $800K debt in a Trust for which I am Trustee and a beneficiary (so I can gain control of the asset), and I am guarantor for the Trust's loan. If the Trust was applying for finance, they would declare a $1M asset and $800K debt, and have a net worth of $200K. If I were applying for finance, I couldn't declare the $1M asset but have to declare the $800K debt, and have a net worth of $-800K. Combined, the Trust and I have a -$600K net worth, due to the liability having to be accounted for twice. This just doesn't seem logical… I'm not saying it's not correct; I'm just asking somebody to explain the logic, if they can. Or maybe it just is a terrible idea – in terms of servicability – to guarantee loans. As per my earlier question, how do company directors ever get loans to buy their own home, when I assume some of them will have provided director's guarantees for potentially enormous company borrowings?it is just because you have guaranteed someone else's debt. It is a terrible idea to guarantee someone else's loan, but your trust or company won't get a loan without a guarantee.
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
Hi trakka
You have raised a very good point and one which, to be completely honest, I don't have the answer. I suppose if the banks were to go strictly by the application form that discloses ALL liabilities but only assets in individual names, then company directors, trustees and others who have signed guarantees would never get a loan.
If I was filling out an application form and was asked to disclose all liabilities, I would ensure that somewhere in that form I would also be disclosing all assets as well, whether I was asked to or not!
I have two companies and two trusts and I go full doc with a bank. I know my business manager asks me about ALL assets as well as ALL liabilities, so everything is accounted for.
But, as I said, you have raised an excellent point.
I think I have changed my motto from "only disclosed what you are asked" to "only disclose what you are asked unless it is in your interests to disclose more!".
Cheers
K
nock nock are you there steve
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