the voigtstr's battle plan

Discussion in 'Share Investing Strategies, Theories & Education' started by voigtstr, 5th Aug, 2007.

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  1. Chris.R_WA

    Chris.R_WA Well-Known Member

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    Thought I had a pretty good grasp of debt recycling, but that post has just crystallised EVERYTHING in my mind!!

    Thanks tailcat, much appreciated - kudos.

    Chris
     
  2. voigtstr

    voigtstr Well-Known Member

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    tailcat I now know exactly what to do with the ppor loan next year :)

    To get the equity out of this current ppor which is on a fixed interest P&I for another 3.5 years, I just need a separate LOC account? Then since that LOC will be bad debt for buying the next ppor with, I should just pay that down as quick as possible, rather than starting on the debt recycling on the new ppor?

    Once the Villa unit is a rental, it should be on a interest only account shouldnt it (as I understand it I wouldnt need offsets etc only need that on the PPOR).

    If I'm on 50k ish a year, is it worth paying a break fee on the fixed interest loan (6.74%) break fee of upto 3 months interest, to make whatever savings I'd make in tax? (current loan amount is approx 167k), or should I just wait until the fixed loan period is up.

    I guess I'd also have to factor in the difference of the low interest vs refinancing to a new interest only account but at a higher rate.

    To to the brokers here, do you need any more info to give a ball park figure on the costs of staying as is or refinaning?
     
  3. voigtstr

    voigtstr Well-Known Member

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    Just had a weird conversation with ingbank. Asked about the break fee, If I refinaned today there would be no break fee. If I was planning to refinance in a few months time, then they can cant tell me if there is a break fee or not.
     
  4. voigtstr

    voigtstr Well-Known Member

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    I think my partner's next question is going to be
    "Why is the loan on the ppor interest only instead of principle and interest"

    is there a concise answer which doesnt involve her wrapping her head around tail cats excellent posts above?
     
  5. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Because it improves your cashflow. I/O is definitely the way (for me) whilst building a portfolio. If you want to pay down debt later, you can do it with future dollars whose value has been eroded with inflation.

    Mark
     
  6. voigtstr

    voigtstr Well-Known Member

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    do you mean "has not been eroded with inflation?"
     
  7. Simon Hampel

    Simon Hampel Founder Staff Member

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    No - he said what he meant.

    The time value of money means that a debt of $100,000 is worth somewhat less in X years time because of inflation.

    (Similarly a savings account that holds $100,000 is also worth somewhat less in X years time for the same reason ... the difference that a savings account is YOUR money being eroded, rather than someone else's in the case of a loan).

    This is why using other people's money is such a great wealth building tool - they wear the costs of inflation, not you !!

    (although inflation affects everything, including some of your other costs, which will rise over time too - but generally interest is by far the largest cost)
     
  8. voigtstr

    voigtstr Well-Known Member

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    ding light bulb moment.
    its the the value of the loan that has eroded over time, not the value of the money I'm going to pay the loan with.

    thanks sim!
     
  9. Simon

    Simon Well-Known Member

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    These little epiphanies are the difference between you and the person who thinks investors are foolhardy with their money and that all loans are bad. I see them all of the time.
     
  10. voigtstr

    voigtstr Well-Known Member

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    wife's question in red:

    (quoting tailcat)
    Now talk to bank and set up a third account (LOC with cheque book?) and
    draw down the equity into the new account. Limit on A1 is also reduced by
    $30000.


    But in the scenario below where does the extra $30,000 come from? If after
    having transferred $30,000 from A2 to A1 you have one account with $236,000
    and one account with $0 and this gives you $30,000 available equity then
    how do we end up with $30,000 in the A3 account and still have $236,000 in
    the A1 account? Shouldnt it be $266,000 again?


    A1: $236000 IO means there is now $30000 available equity.
    A2: $0 100% offset
    A3: $30000 money that is usable for investments


    Cheers
    Simon
     
  11. tailcat

    tailcat Well-Known Member

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    How about $280 per month extra to pay off your credit cards........


    $266000 using P&I at 8% over 25 years = $2053 per month repayments

    $266000 * 0.08 / 12 = $1773 per month IO payments

    Difference 2053 - 1773 = $280


    Would your partner appreciate that.

    Once you have erased your personal debts this money can then accumulate in the OFFSET account having exactly the same effect as the P&I repayments would have.

    However, to begin with, you have chosen to use the money to deal with your very bad debt.

    SORRY, I have just re-read the whole thread. These numbers are for your purchase next year once you have got rid of your credit card debt. Just apply the above equations to your current PPOR numbers.

    Tailcat
     
    Last edited by a moderator: 8th Aug, 2007
  12. tailcat

    tailcat Well-Known Member

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    I think I have found your current details:

    How about $176 per month extra to pay off your credit cards........


    $167000 using P&I at 8% over 25 years = $1289 per month repayments

    $167000 * 0.08 / 12 = $1113 per month IO payments

    Difference 1289 - 1113 = $176


    Would your partner appreciate that.

    Once you have erased your personal debts this money can then accumulate in the OFFSET account having exactly the same effect as the P&I repayments would have.

    However, to begin with, you have chosen to use the money to deal with your very bad debt.


    Tailcat
     
  13. voigtstr

    voigtstr Well-Known Member

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    I've got an updated spreadsheet to play with. Make sure circular references are turned on (100 iterations or .001 change)

    This spreadsheet allows for investing in Navra and CFS (although I dont know what distributions CSF pays yet or how often)
     

    Attached Files:

  14. Simon Hampel

    Simon Hampel Founder Staff Member

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    I'm just wondering why you are considering the Colonial First State 452 Geared Australian Share (FSF0090AU) as opposed to the Colonial First State Geared Share (FSF0264AU) ??

    I'm not suggesting one is necessarily better than the other - just making sure you were aware there are two CFS geared share funds - each slightly different to the other in investment style and gearing management.

    The 452 fund MER is 1.90% and the CFS Geared Share MER is 1.43%
     
  15. voigtstr

    voigtstr Well-Known Member

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    good point.. I'm not too sure which I one I applied for now... I decided to kick one off with 1k and and the savings plan.. I'll find out when they mail me the welcome kit. Which one is the more aggresive fund (and which one allowed 1k entry with a saving plan)
     
  16. voigtstr

    voigtstr Well-Known Member

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    I think it was the non 452 one.
     
  17. voigtstr

    voigtstr Well-Known Member

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    I still dont have the paperwork even though theyve taken out the initial 1k and one fortnightly contribution already.

    I got them to email me the confirmation letter. They called it CFS geared Share. On the website the fund is shown as FSF0264AU.
     
    Last edited by a moderator: 21st Aug, 2007
  18. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    That sounds kinda painful and you have one to look forward to every two weeks. Glad it's you and not me.

    Mark
     
  19. voigtstr

    voigtstr Well-Known Member

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    It'll pick up :)
     
  20. voigtstr

    voigtstr Well-Known Member

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    back to the plan..

    So after the end of next year, I should have a rental, a ppor, enough invested in navra to look after the rental shortfal, margin interest and loc interest.

    How many more houses do I need to buy (balanced with fund income for rental shortfall and interest) before I can throw away my job and wifes job and live on rent/managed fund income?