Hi everyone, i have been following this forum and Steve McNights phylosophies over the past few months with keen interest. I am not new to this, have been investing for over 15 years now, however, i am new to alot of the ideas on this forum. i invest for both capital growth (negative gearing) and positive cash flow and both have worked well for me in the past (with the latter the market has to be favourable). I have recently listened to the fast track tape and although i think it was brilliant, i really dont understand why steve suggests not to borrow out the money after a property has appreciated. i have properties which although negatively geared to start with, have now trippled their value and are paid off (and have reverted to positive cash flow), why am i crazy to use the equity in these properties to borrow more money for new purchases? this is something i do all the time and it just makes no sense to me to sell the properties am i missing something here? [?]
questioning any advice is appreciatedHi Xenia
I totally agree with you. I would use the equity as you are suggesting (otherwise its an underutilised asset). I think Steve would agree with us… or perhaps I need to listen to FastTrack again.
Steve???
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auI think what Steve is talking abut is using that money to live on. There are many people out there who suggest pulling equity out to quite literally eat it. Once you draw down this equity it is no longer legally tax deductible (unless you use cash bonds….yada yada …..too deep for now). Some people think they can legally do this draw down and when audited or pulled up they get a nasty surprise.
Using your LOC to invest is a great tool. Why leave equity sitting there not working for you.
You may have 500K in equity when borrowed out equals 2.5million in borowing capacity……..That is the what the game is all about.
Enjoy
AD [:0)]
(Andrew)“Character cannot be developed in ease and quiet. Only through experience of trial and suffering can the soul be strengthened, ambition inspired, and success achieved.”
Can you just borrow or redraw the money at bank rates to live on and then sell your property to repay the loan and becuase ur on zero income, your capital gain tax would be at the lowest rate ? Is that how it works?
Xenia, The principal is to leverage of your capital growth, re borrow yes for further investment, borrow to live off for personal use or life style no (unless you must but not purposely to be part of your investment startergy or plan) because 1.you can not claim the interest charged on your borrowings and 2. Your debts are increasing instead of decreasing, rather invest for positive cash flow and use that to live or for life style. Hope this helps
regards
John
Can you just borrow or redraw the money at bank rates to live on and then sell your property to repay the loan and becuase ur on zero income, your capital gain tax would be at the lowest rate ? Is that how it works?Yes you can borrow or redraw to live on provided your servicability allows, or you have at the time of establishment of the loan set up this type of loan structure which allows this. If you have zero income then your serviceability wont allow you to restructure your loan to do this.
Yes you can then sell the property to repay the debt
In relation to the capital gain, 50% of it gets added to your taxable income for the year and you will pay tax on that accordingly. 50% is tax free, how ever you should confirm this with your accountant.
regards
JohnYes I think this is a very good strategy. It is far better to withdraw some equity to live on then to sell a property. Once you have sold the property it can’t grow any more (for you anyway).
If you have $1,000,000 worth of property grwoing at 5% per year = $50,000 pa growth. If you just take, say, 80% of this growth and leave a buffer, you should be right, as next year it will have grown another $50K or so.
You can still borrow without an income using low doc loans, or asset lends.
Terryw
[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
Sounds good ! I just want to go as fast as I can to make up for all my years of partying.
wha???
people can actually draw their increased equity out from their property and use it as living income?
do most banks allow us to do that?Then why do the banks always say the value of the property is the purchase price, not the valuation price ???(they never do any valuation anyway which they charge for, all they do 90% of the time is just use the purchase price).
Fullout
Yes you can do that, banks will lend you the money as a LOC. I don’t know what they would think if you told them it was for living expenses tho! Most just say for ‘investment purposes’.
When buying a property banks insist on a valuation to protect themselves. I could sell you a $100,000 property for $200,000, and if the bank lent you $150,000 and you defaulted they would oly have an asset worth $100,000. ie $50,000 shortfall.
Some banks will not do a valuation if it is under 80% LVR and under a certain amount. Otherwise a valuation is usually conducted,
Terryw
[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
thanks for the advice everyone, as i said, im not new to investing but am new to these space age ideas that are coming up in recent investment seminars and books. seems like i may be on the right track. [
]but you can never know enough in PI [
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