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Bill Zhengs workshop - 4% on IP

Discussion in 'Finance & Banking' started by artgul, 28th May, 2006.

  1. artgul

    artgul Well-Known Member

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    Yesterday, went to Bill's workshop here in Syd. For me the best take way were the 2 financial products he's about to release to the market. They are 2 different types of investment loans for RE investors. Bellow is my recollection and understanding of these products:

    1/ One of the loan products will allow you to pay interest rates (I/O) of around 4% pa for about a 5 years period or so (not sure if the 5 years period could be extended). Then, the interest reverts to current market rates at the time. Initial LVR at least 80%. Ofcourse, the loan will increase year after year.

    2/ The 2nd loan product is at standard interest rates. It's also I/O and the period is similar to the previous one (this has to be checked). The difference is that every year it will increase the loan for around 5% (this figure has to be checked to),and make the funds available to the investor (regardless of market conditions).

    For both products no questions would be asked (job, no job, wages, income, liabilities, etc). However, they will look at the property one is buying and will check if the property meets their requirements for granting any of these 2 loan products. In other words, they look at the property and not at the investor.

    This products will virtually make growth IPs cash flow positive or neutral. I think it's brilliant!!! :D

    For what I understood, the product is still patent pending but, they will get it in the next few weeks. Apparently, Investors Direct (Bill's company) has already $600 Mil to allocate.

    In regard to their IP assesment criteria, he didn't say much since that is part of their intelectual property.

    Well, this is all I recall. Were told that more info would be in the email in the next few weeks.

    regards,

    artgul
     
  2. artgul

    artgul Well-Known Member

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    Just in case it wasn't clear, wanted to clarify that the loans are for the standard 25 or 30 years period. The 5 years or so I mentioned was for the feature only (the 4% interest rate or for the equity release feature). Again, I am not sure if that period is or can be more than 5 years.

    Regards,
    artgul
     
  3. Jacque

    Jacque Team InvestEd

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    Sounds interesting Artgul, so please keep us updated with further news.
    Just a question about Bill's IP assessment criteria- I take it that his company isn't going to be only recommending particular properties in order for you to qualify for the reduced loan products?
     
  4. artgul

    artgul Well-Known Member

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    Hi Jaque,

    Two points here:

    1/ My understanding is that they won't be recommending any properties at all. For what I figured out, the system would work like this:

    One applies to them for one of these "special" loan products. They send their valuer. If their valuer gives the ok then, one gets one of these products (based on the application). Otherwise, they will offer any standard mortage loan.

    2/ I wouldn't qualify any of these products as a reduced loan product. The portion of the interest not being paid is getting capitalised in one of them (I'd like to get ATO position in regard to this since -ve gearing will increase too :confused: ). The other product increases the line of credict every year so, borrowed funds increase too. So, the lender gets paid more interest since the levels of borrowing are increasing all the time without them having to find more clients.

    Regards,

    artgul
     
  5. Rolf Latham

    Rolf Latham Well-Known Member

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    Hiya

    Similar ? products that charge say 10 % on the IP loan, and 4 % on the PPOR loan can be built from most of the "at the edge" mortgage managers.

    Equally, if the LVR is low enough you can capitalise interest till the cows come home on a standard lo/doc no doc LOC, which is generally an asset lend anways ( that is the loan is highly reliant on the security).

    Be interesting to see what washes out, and how the mortgage insurers will wear it. I suspect no probs given whats already available.

    ta
    rolf
     
  6. Nigel Ward

    Nigel Ward Team InvestEd

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    Sounds interesting. But if you start at 80% LVR and then get another 5% per annum wouldn't it make more sense to go with a lender who'll go to 97% with capitalised LMI TODAY??? You know time value of money and all that...

    Just some thoughts. Keen to hear more.

    Cheers
    N.
     
  7. Matt1

    Matt1 Member

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    Hi all, my first post, although I am a regular lurker.

    I want to ask a question re Bill Zheng's finance. I am a government employee but have been dabbling in property development for the past couple of years. I only have 4 houses in my little portfolio but they are well placed in SE QLD and whilst I have a good amount of debt against them I'm happy because I see where it is all going (Navra strategy).

    I have placed my figures in front of 3 brokers and come up with 3 different answers. One says I'm tapped out, one says I might be able to squeeze a bit out for shares and 1 (Bill's) says go and buy another property - no worries! Is this alarm bells ringing too good to be true?

    The reason Bill Zheng's Investor Direct broker says I can go again is because apart from my PAYE wage, I apparently have a 'property development' business wage equal to 10% capital growth on my current portfolio (which they also add to the 10% CG on the property I wish to purchase) Hence my income figures come in looking pretty impressive (I wish it was in my wallet)

    So my question is, if I went down this track and I borrowed again on a lo-doc or no-doc loan am I opening myself up to some sort of drama from the ATO which I'm not aware of? What other things should I be considering? I know I will be taking on a considerable amount of more debt but if I was to continue in the same vain with developments (and actually selling a few rather than hanging onto them as I have been until now) then I could easily replace my government wage and could really concentrate on some serious wealth creation rather than filling my days as a glorified street sweeper.

    I welcome all-comers to rip my virginous post to bits.
     
  8. artgul

    artgul Well-Known Member

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    Hi Matt1,

    As I understand, the issue with the ATO and the low-doc loans is when the person states an income for which he/she isn't paying any or minimum tax. In your case, that should not be a problem since you are declaring your PAYE wage (there is no way you can't avoid to do that). The other part of the income that went into the calculations can't be taxed since it is capital (well, I guess you can say that the tax is = to the interest you're paying the Bank for it) so, no worries with the ATO. If they want they can check (you're clean anyway) :D

    The question in regard to the amount of debt you're getting into as well as buying another property, etc., only you know the deal you're pursuing as well as you capacity to hold onto your portfolio.

    Rgds,

    artgul
     
  9. Nigel Ward

    Nigel Ward Team InvestEd

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    Hi Matt1 and welcome! We always like it when lurkers come out of the woodwork!

    If I've understood your post correctly, I have a little bit of a concern that you're being told to declare capital growth (never a certainty, particularly in the current market) as "income".

    Whilst we all know that jobs are not certain and secure (altho you're in government so perhaps more secure than most! ;) ), your govt wage is far more secure than the expectation of capital growth. The reality is that you can't (in the absence of a loan) buy the groceries or PAY YOUR INTEREST with capital gains.

    Contrary to popular belief, bank servicability models are created with some logic behind them...:D

    Sure it's mostly to protect the bank, but they do that by making sure (on a typical set of assumptions for the average aussie in your position) that you can afford the loan (at a few percentage points higher than the current interest rate). If the banks are telling you "No" then you need to find a bank (or better yet a broker) who can use a different servicability model.

    That's just my 2.2 cents worth.

    Good luck with it.

    Cheers
    N.
    Can I suggest
     
  10. Matt1

    Matt1 Member

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    Thanks for the replies. It is great to hear another perspective which is why this forum is great.

    I suppose if I was just purchasing a property to buy and hold I would also be very concerned about using this strategy (unless I knew I could get it for a substantial discount) whereas if I was to purchase a property and value add (develop it) then I could use the CG (ie equity growth upon completing the development) by borrowing back against it (a loan) to maybe pay some of the interest or even some living costs. If I tweaked the development correctly this strategy may even allow me to sell some units within the development to allow me to hold a portion of the development with very low levels of debt.

    I suppose in answering my own question it is a question of risk. If this strategy enables me to get into a development which will assist me to grow my capital and help eliminate debt along the way then as long as I get it all done without the guts falling out of the property market or interests rates spiralling upward for some unforseen reason then it might be worth it.

    But, as you stated Artgul I should be right with the ATO because even though I would have to declare this CG income I could legitimately show that I had paid the tax on the portion that the law requires me to pay (i.e PAYE income).

    Nigel, I noted your post ended with 'Can I suggest' .....was there anything else you could suggest? Thanks again.
     
  11. Nigel Ward

    Nigel Ward Team InvestEd

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    D'oh! That thought ended with "talk to some more brokers". Rolf Latham is superb.

    Cheers
    N