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Margin loans: What's your LVR

Discussion in 'Managed Funds & Index Funds' started by Glebe, 10th Sep, 2006.

  1. Glebe

    Glebe Well-Known Member

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    Hi there,

    Just curious what people's LVR's are.

    Mine is 55.5% or so, and I'm thinking of pushing it to 60%. I just can't help but think that if I don't buy BHP now I'll be regretting it down the track.

    So what's your LVR?
     
  2. gazza

    gazza Well-Known Member

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    Just under 60% at the moment
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I aim to keep mine at around 10% less than my maximum LVR ... which means right now that is about 58%

    Steve Navra recommends to his clients no more than about 50% LVR ... but that's deliberately conservative to significantly reduce the risk of a margin call.
     
  4. Bob

    Bob Well-Known Member

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    margin loans

    I am sitting about 55.2percent. I capitalise and take the distributions so will probably purchase some more units after the distribution. I feel a bit more comfortable at around 50percent, there is always that double whammy when after the distribution the market drops.................

    Bob
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    That's a good point Bob ... I currently have my distributions paid into my margin loan - if I was taking the distributions myself, I would run at a lower LVR.
     
  6. Simon

    Simon Well-Known Member

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    Mine is about 59% atm. But I prepaid a years interest and let it ride so it is artificially high.
     
  7. gad

    gad Well-Known Member

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    48.76% at the moment.
    Distributions are normally re-invested back into more units though this time around I'll be taking 50% of the distribution as cash & this will increase the LVR a little, depending on the size of the distribution.
     
  8. moonbeamzz

    moonbeamzz Member

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    Hi Sim can you clarify the above. We currently take 50% to service loans taken against IPs and PPOR to invest in units and then automatically reinvest the other 50% in more units. Is this what you mean by having distributions paid into margin loan (ML) account or do you mean paid into the ML account so that you are not capitalising the ML interest.
    Cheers
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Capitalising interest means that the interest payments increase the loan amount, and thus the LVR increases.

    Taking distributions as cash means that the value of the holdings decrease (by the amount of the distribution), which increases LVR too.

    Reinvesting distributions maintains the LVR pretty much constant.

    Taking distributions as cash (ie not reinvesting them), but having that cash deposited into the margin loan has the effect of cancelling out the drop in portfolio value from the distributions by also decreasing the loan amount. In fact it actually has the effect of increasing the LVR.

    I don't actually capitalise the interest at the moment - I pay it from other cashflow sources.
     
  10. moonbeamzz

    moonbeamzz Member

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    Thanks for the reply Sim but am still missing the point. Obviously you regard putting distribution money into your ML as a better strategy than using the money to buy more units otherwise I guess you wouldn't do it..:) However would you mind explaining why you prefer this as a strategy as I would have thought accumulating more units would have been better in the long run....am here to be educated...:confused:
    Cheers
     
  11. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Ahh ... but I am accumulating more units ... just not in the same fund :D

    I'm currently diversifying my holdings, using proceeds from my existing funds to buy into new funds.

    If you are still in the process of accumulating units in the funds you already hold, then reinvesting distributions is a good way to go in my opinion.
     
  12. moonbeamzz

    moonbeamzz Member

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    Ah ha, the penny finally drops, so the distribution goes into the ML which you then draw back out to reinvest into another fund. Gotcha :D

    At the risk of pushing our luck any thoughts on other funds we have substantial funds in Navra Retail but are also looking to diversify. Not through any disatisfaction but simply to broaden our investment base. Also have some funds in Platinum International but not a great deal, less than 20% of what we have in Navra Retail.
     
  13. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I only invest in wholesale funds (Platinum are considered wholesale, as is the Navra US fund - kind of) ... currently have money in several of the Platinum funds, and am about to put some into a couple of Colonial First State wholesale funds.

    I like the Platinum International Brands fund and the Platinum European fund, and also the CFS WS Property Securities Fund.

    Not a recommendation by any means, just telling you where I'm putting my money at the moment. I have other funds as well I'm investing in - but they are a bit more volatile and higher risk.

    I'm down to about 50% of my portfolio in Navra now, and once I reach my target amounts across the portfolio, that will be more like 40% Navra (which includes more than doubling my current exposure to Navra in the process).
     
  14. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Actually ... just to confuse things a bit more ... I don't tend to actually reinvest using the distributions themselves, I reinvest using the increased equity in the portfolio throughout the year - which is a continual process of "gearing up" as the portfolio increases in value. I also refinance my property portfolio every couple of years to get extra capital to invest - which is handy when the markets are down and you can buy in cheap. This is what I'm doing right now ... just got a very nice cheque in the mail today from a loan refinance (idiot bank was supposed to deposit it into my account, but can't follow instructions :mad: ) ... which is very handy given that many of my funds are down (ie cheap) at the moment ... spending spree - waahoo :cool:

    The distributions are really just deposited into the margin loan to maintain the LVR ... I add to my portfolio almost weekly (my account manager must be starting to dread my Monday morning faxes :D ) ... so it would kill me to have to wait for the distributions, especially the Platinum funds, which are only paid annually :eek:
     
  15. rambada

    rambada Well-Known Member

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    To clarify in my head. You have the Navra distributions paid into your ML. This drops the LVR. As the value /fund grows you gear up to 58% (approx) and use the new 'cash' to purchase other funds?
    So I take it that your properties dont require servicing from managed funds and this is still part of an overall growth strategy?
     
  16. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Yes, but not by that much (since the value of the holdings has dropped as well as a result of the distribution).

    Yes. This is only because I've reached my short term goal for funds allocated to Navra and want to diversify. Otherwise I would have continued to have distributions automatically reinvested in Navra.

    My properties are not quite self funding - there is a bit of a shortfall each month which I can usually cover from other cashflow sources (eg my own pocket). Every so often cashflow gets short, so I draw down $5K from the margin loan to help pay the interest costs on the loans. It's what I call "occasionally" capitalising interest.

    The only reason I don't fully capitalise interest is that I don't have to (yet) - and by funding the interest (as much as possible) from other sources, I maximise the growth potential in my portfolio by not forcing the LVR higher each month with the interest payments.

    And yes, this is all definitely part of an overall growth strategy.

    The key with having the distributions paid into the margin loan is that I don't intend to use that for cashflow. I intend to use the growth in the funds as my cashflow - drawing on the increased equity to fund other investments and eventually living off it too.

    It requires a bit of a different mindset, but I don't differentiate between income and growth - it all just gets compounded together, some of it gets used to pay the interest costs and the rest is reinvested for growth.

    When I've got enough funds growing, I'll start extracting some of that growth for living expenses (although in the medium term, it will be used to fund more property acquisitions).

    Just remember - my strategy is quite agressive, and involves large (and increasing) amounts of debt. I have a high disposable personal income to back up my short term strategy - so it's not going to be suitable for everyone.

    I'm not suggesting anyone else do this - heck, I don't even know if it will achieve what I expect ... ask me again in 5 years how well it worked :D
     
  17. rambada

    rambada Well-Known Member

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    Thanks Sim. I'm still new to managed funds and margin lending. IP's have been my bread & butter and I find them easy. Good strategy for diversifying laterally into other funds.
     
  18. moonbeamzz

    moonbeamzz Member

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  19. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Cheaper. No entry fees, no exit fees, no trailing commissions paid, and lower ongoing management fees.

    Downside: often requires a much larger initial investment ... but Platinum is only $25K minimum, and while Navra AUS Wholesale is $250K minimum, you only need $100K @ 60% LVR to get your $250K starting investment.

    CFS requires a minimum $100K, but that can be split across multiple funds, and again, only need $40K @ 60% LVR to get you in to CFS Wholesale.
     
  20. MichaelWhyte

    MichaelWhyte Well-Known Member

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    My LVR on my Navra holdings is about 102.5%

    i.e. my loan is greater than my valuation...

    Of course, that loan is split between a LOC and a margin loan. If you are really asking what my margin loan to valuation is then I'm at about 46% and getting worse by the day. That's because I capitalise the interest on my margin loan and the growth left in the fund after distributions isn't keeping up with the capitalised interest.

    All just semantics. My net return is positive so its working well for me. :D

    Cheers,
    Michael.