Hi All
on the Navra Investments website there is a short section on cash bonds, where the author esposes that these can be made to produce cash flow from your spare equity and will even resolve issues with lenders when you have maxed out your servicability.
http://www.navrainvest.com.au/navra_1/Features/Rental%20Reality.html
“A solution needed to be found, that would simultaneously allow cash flow, serviceability and equity buildup: – the Cash bond.”I have not heard of these before, so could someone enlighten me as to exactly what they are and how they work ?
cheers
Bruce [
]PS thanks to Watto for providing the link for Sooshies “Useful Links” thread !
Hi Bruce
Don’t take this explanation as all inclusive, I’m booked into Steve’s course in November.
How it works (roughly) is that you take some equity (say $100,000) and use it to purchase a cash bond. This may last say 5 years at 5% a year. So each year you get paid $20,000 of your capital back plus 5%. You can spread these payments monthly or whatever you want.
Yes, you are paying for that money at say 6%, because you’ve borrowed the initial stake of $100k, but the idea is that you’re purely trying to raise your serviceability.
Point to note – not all banks accept cash bonds as income for serviceability calculations.
Hope that makes sense, it is early.Keep smiling
FelicityBruce
I’ve done the course and Felicity’s explanation seems to be correct.
You basically buy an annuity and the money recieved back (both the principle and interest component) is classed as income with some banks.
With Felicity’s example, the $20,000 plus interest per year (say approx $21,000 per year) is simply added to your income for serviceability purposes. If you had a salary of $50,000 per year and $100,000 in a loc, you could buy a annuity and your income would then be $71,000 for the bank’s serviceability calculations. This enables you to borrow much more
You would make a small loss, but this is tax deductible as the purpose was to income your borrowing capacity for investing.
It is a bit hard to get your head around this at first.
Terry
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
Felicity & Terry
what a sensational concept !
That is a great one to have in the bag of tricks. Thankyou both very much for explaining it ! [
]BTW I understand that at certain times of the economic clock that investors use this asset class to benefit. Can anyone fill in the blanks here ??
cheers
the Bruce
“Life is a Dance”
]
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