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How do use managed funds to improve cash flow

Discussion in 'Investing Strategies' started by Alwayslooking, 18th Apr, 2007.

  1. Alwayslooking

    Alwayslooking Well-Known Member

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    Hi everyone

    I am hoping someone out there can clarify this for me.

    I have been investing in property (only) over the last 7 years.

    I currently use a LOC for all IP expenses and I capitalise the interest.

    How can I use managed funds to improve cashflow if I am borrowing 100% using loc doc/no docs at 7.5%, am I missing something as after reading many posts I am still struggling with this.

    Thanks for your help.
     
  2. Nigel Ward

    Nigel Ward Team InvestEd

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    Ignoring the deductibility of the interest payments, won't you be ahead so long as the return (and more particularly here the cash distribution) exceeds 7.5%?

    I.e. It's an arbitrarge play between your cost of funds and the return...

    Say you borrow 100k and get a 10% distribution you'll be 2500 ahead before tax.
     
  3. Alwayslooking

    Alwayslooking Well-Known Member

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    Hi Nigel, thanks for reply

    You stated 10% distribution is this pretty much the target and achievable from your experience.



    Cheers.

    AL:)
     
    Last edited by a moderator: 18th Apr, 2007
  4. Nigel Ward

    Nigel Ward Team InvestEd

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    No, my experience has been much better than that...but then we've seen a fantastic boom in the sharemarket over the last 3+ years so I wouldn't expect it to continue.

    Is 10% achieveable, I think so. Will you ALWAYS get it, I don't know. You must build in a margin of safety/cash buffer. I wouldn't like to hear that anyone was so finely tuned on cashflow that a couple of quarters where the interest bill exceeded the distributions would send them to the wall.

    Cheers
    N.