All Topics / Creative Investing / Equity rich – income poor

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  • Profile photo of MarkatMarkat
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    @markat
    Join Date: 2006
    Post Count: 12

    Hi, I am new to forum. Wondering if anyone has ideas/help for equity rich, cash poor investor. Essentially made money through NG properties and adding value. Also buying at the right time and selling at the right time. Am at a standstill due to employment. But do know I shouldn’t be dependent on an income from employer. I am 800,000 equity = to $130,000 debt. So things are good on that front. It’s just what next…….. I have followed a pretty simple formula that has worked for me. Am not good with figures. With ideas – structuring the deals with finance is imperitive, because I know this can make or break you (from experience)…….

    Markat
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    Profile photo of XeniaXenia
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    @xenia
    Join Date: 2002
    Post Count: 1,231

    We started this way too, however after 5 properties we hit a brick wall when it came to financing and the bank said no more.

    We were able to grow our portfolio even further by increasing the cash flow on some of the properties using creative investing techniques such as lease options. This inceased our serviceablilty and allowed us to buy more without depending on an income.

    Hope this helps : )

    Xenia Ioannou-Mena
    Property Manager &
    Property Sales Consultant
    E: [email protected]
    M. 0412 437 582

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    As Xenia mentions looking at alternative ways of generating a positive cash flow through a variety of financing ideas can be the way forward.

    Also the advent of Nodoc style homeloan has helped many borrowers in exactly the same position.

    Cheers

    Richard Taylor
    Residential & Commercial Finance Broker
    100% Finance on selected properties in the USA.
    Email us to be added to our mailing list.
    [email protected]
    Ph: 07-3720 1888

    Richard Taylor | Australia's leading private lender

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

    Hi Markat,

    Reading your post – you have assets valued at $800K and debt of $130K – is this correct? I will use these figures to demonstrate what you could do.

    Having a large asset base and good equity position means that additional borrowings are relatively easy to secure. A good broker can assist here.

    As Richard has indicated no-doc lenders will allow you to borrow additional sums of money based on your asset position. You will need an ABN and you can borrow 70% of the value of your assets less existing debt. You can go higher if you have had an ABN for at least two years.

    You will, in all likelihood, need to refinance and assuming a 70% lend you could borrow $560K less existing debt of $130K will leave you $430K as additional borrowings.

    This $430K can then become the cornerstone of additional borrowings in accordance with your investment goals, including additional property purchases to the ~value of $1.5m.

    One option is to purchase additional property and continue the cycle ad infinitum.

    Another option would be to earmark some of the funds for cashflow investments (possibly with margin loan added on) to purchase something like (example only – not advice) Navra Managed Funds which has averaged ~18%/annum over the last two years.

    Assume you place $100K of your additional borrowings into something like Navra and the fund performs to its last two years average you stand to earn $18K – $7K interest nets you $11K.

    The $11K can then be used to stump up additional NG properties and you can maintain you existing plan.

    Another strategy is to use some of Peter Spann’s products which. from time to time, allow 100% secured borrowings to do a similar thing. This means that your $430K as above can then be entriely directed towards more property.

    The surplus of income earned through this avenue can then be directed back to you as an income source or reinvestment as you see fit.

    A further option would be to use some of the additional borrowings to finance JV developments where someone is requiring start up funds.

    Now obviously there are risk issues attached to all of these and you would need to ensure that you have conducted due diligence to ensure that you are comfortable with such an approach.

    Derek
    [email protected]
    http://www.mononpoly.tic.com.au
    0409 882 958
    Skype – derekjones2113

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

    Very good reply Derek.

    There are some new No Doc lenders out that do not need a ABN. RAMS can even go up to 80% if you can get a letter from your accountant stating you have been self employed for more than 2 years. OR it may be possible to argue that you are a professional investor (no ABN needed) by the number of properties you own.

    If you could go to 80% on a few this would make Dereks figures even better.

    Terryw
    Discover Home Loans
    Parramatta
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    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of DerekDerek
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    @derek
    Join Date: 2004
    Post Count: 3,544
    Originally posted by Terryw:

    There are some new No Doc lenders out that do not need a ABN. RAMS can even go up to 80% if you can get a letter from your accountant stating you have been self employed for more than 2 years. OR it may be possible to argue that you are a professional investor (no ABN needed) by the number of properties you own.

    Thanks Terry – I was aware of the RAMS package but not the others. It seems the banking world is in a constant change of flux. Must be a nightmare for a broker.

    Derek
    [email protected]
    http://www.mononpoly.tic.com.au
    0409 882 958
    Skype – derekjones2113

    Profile photo of MarkatMarkat
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    @markat
    Join Date: 2006
    Post Count: 12

    Thanks all for your contributions. Sorry for lack of response before now. I am stoked however, with your suggestions. The No Doc was an eye opener and I have gone down that line……

    I have added already to the portfolio with another 200,000 debt (to add to existing 130,000 = 330,000) and property worth 200,000 that can be subdivided. I am thinking of building and subdividing as a quick option. Property has sea views and is within 1/2 hour of major city. Think I will be able to make dollars in this way….

    What are your thoughts, on what one lives off? I am currently living off loan + supplemented by small income. I am happy with this at a certain level. i.e. all loan (and I would be worried) and small amount (no more than 10,000 a year, and I am happy) because I figure this is the very minimum I should be making from property. Is this logic flawed?

    Thanks again ALL
    MARKAT[exhappy]

    Markat
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    Profile photo of sam2009856sam2009856
    Member
    @sam2009856
    Join Date: 2006
    Post Count: 79

    How does one find a sea view property, half an hour from a major city that is subdividable for $200k??????????

    I must be seriously missing something!!

    Profile photo of MarkatMarkat
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    @markat
    Join Date: 2006
    Post Count: 12

    It’s called “Adelaide”! Property can still be found at a reasonable prices south of adelaide. You do have to do your research and be quick off the mark. i.e. purchased this with a cash offer, and before it hit the papers (off the net)…… etc. etc. I am happy to sell portion, for 180,000 with current house which I have done a small reno on…. it will help fund, my building project on the back block! so if you want the sea views, and a block to build on, or with a current house (small shack is more of an apt description) at land value….. reply!

    Markat
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    Profile photo of kpkp
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    @kp
    Join Date: 2004
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    Hi Markat
    I came across these guys recently.
    They have one solution that may work for you.
    Spent two days with one of the directors, and came away impressed with both their bona fides, as well as the system.

    Essentially, they have a full asic approved pds in place, to raise funds for their developments, on which they pay between 12% & 15% monthly.
    If you draw down on an LOC to buy into the fund, then it generates pos cashflow, which you can use for additional servicability, which allows you to keep adding property to the portfolio.
    They are primarily property developers based in Brisbane.
    May pay you to have a chat with them.

    http://www.kaizengroup.com.au

    Standard Disclaimer: I am not affliated, not do I receive commissions, or referral fees, or am I recommending their product or system.

    Kevin..

    Profile photo of SimSim
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    @sim
    Join Date: 2006
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    Originally posted by Markat:

    Wondering if anyone has ideas/help for equity rich, cash poor investor.

    Something that may help is a series of articles written by Steve Navra on “Living on Equity”.

    The basic concept is to live on the growth in your portfolio. You only spend a percentage of what your portfolio “earns” so you don’t go backwards by spending too much. Income from the investments is used to service debt. This does of course mean increasing amounts of debt, but it can be a very effective way of accessing the equity for lifestyle.

    You can read Steve’s articles on InvestEd – registration is required (it’s free) – http://www.invested.com.au/Articles/LivingOnEquity

    Profile photo of MarkatMarkat
    Participant
    @markat
    Join Date: 2006
    Post Count: 12

    Thanks for that tip. Will definitely look into that one as it seems exactly what I am doing on a gut feel – that is feeling okay – but needing a little bit more concrete figures to feel entirely confident.

    Thanks

    Markat
    Email Me

    Profile photo of Mortgage HunterMortgage Hunter
    Participant
    @mortgage-hunter
    Join Date: 2003
    Post Count: 3,781
    Originally posted by kp:

    Hi Markat
    I came across these guys recently.
    They have one solution that may work for you.
    Spent two days with one of the directors, and came away impressed with both their bona fides, as well as the system.

    Essentially, they have a full asic approved pds in place, to raise funds for their developments, on which they pay between 12% & 15% monthly.
    If you draw down on an LOC to buy into the fund, then it generates pos cashflow, which you can use for additional servicability, which allows you to keep adding property to the portfolio.
    They are primarily property developers based in Brisbane.
    May pay you to have a chat with them.

    http://www.kaizengroup.com.au

    Standard Disclaimer: I am not affliated, not do I receive commissions, or referral fees, or am I recommending their product or system.

    Kevin..

    I don’t know these people but be aware that this is high risk stuff. They pay above bank rates to borrow your money for a reason …..

    Westpoint ring a bell?

    Simon Macks
    Residential and Commercial Finance Broker
    ***NODOC @ 7.15% to 70% LVR***
    [email protected]
    0425 228 985

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of grossrealisationgrossrealisation
    Member
    @grossrealisation
    Join Date: 2005
    Post Count: 1,031

    hi all
    here is something that is out side the box but is doable and is not to be seen as any form of investing its for information only.
    what happens is you trade your equity into a project for a return of 22% the developer takes the complete loan from a bank or lender to there equity and your equity plus your interest for the duration of the loan.
    then you put a second mortgage on the property for the value of your equity.
    so if all goes graet you make 22% on equity that you have not paid for.
    if the project goes west the lender comes in for there loan
    which is the borrowers 70% of there property.
    they get paid and come to you for the other 10%
    you have 22% of the value in your bank and you get paid back for the equity loan plus interest again as thats part of the loan you set it that way in the documents.
    yu have no responsablity to the lender as your are just giving equity and you get a letter of priority from the lender that this is the max of your exposure to them.
    you check the project that the equity is going into to make sure your equity is covered and its money well worth using.
    not for ppor but good for ip and you use the equity that is sat there to generate cash flow.
    westpoint was a very different kettle of fish and I don’t think it helps to post each time taht different forms of finance come up westpoint ring a bell for me westpoint was designed to cheat and if the people had of been given or had the knowledge they would not have invested in these forms of finance.
    equity lending in this form is relatively new to the market but can be very handy for a developer and for an investor as its no money down high return yes could be seen as high risk but do your own due diligencies. and its not for everyone but is very different.

    here to help
    If you want to get involved in some of the projects I’m involved in email to [email protected]
    currently looking for up front money at 15% p/a pm me if you wish

    Profile photo of wealth4life.comwealth4life.com
    Member
    @wealth4life.com
    Join Date: 2003
    Post Count: 1,248

    Equity lending is not new and was around in the 80’s.

    These deals are extreemly RISKY for the unsophisticated investor and IMHO should be avoided at all times.

    Get legal advise from a large firm such as Gaydens before you even think of this.

    If a developer resorts to asking ordinary mums and dads for this type of investment that means that the bank doesnt have enough faith in the development to lend all the necessary funds.

    Very Very High risk … IMHO

    D

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