How I've utilised Cashbonds for Increasing Serviceability

Discussion in 'Innovative Property Investment Techniques' started by Rixter, 9th Feb, 2016.

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  1. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    For the other dummies:

    How Do Annuities Work? - For Dummies

    This extract doesn't fill me with confidence:
    Most annuities are sold with 78-page contracts that no one, not even lawyers, can understand.
     
  2. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    For example, at age 56 you can buy an immediate annuity for $100,000 that pays you about $5,800 a year for the rest of your life, with payments starting right away. Or, you can buy a deferred income annuity that gives you about $68,600 a year, with payments starting on your 85th birthday — if you’re still around.

    Of course, even if you are, with future possibilities of raging inflation, $68,600 a year may be just enough income to keep you stocked up in dental floss.

    So now the question is (using the above example) am I better off with that $100k as a deposit and continuing to save to buy property, or am I better off foregoing that $100k and boosting income by $5,800 p.a.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You would have to leave a LOC sum available or to use cash you have built up.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I think you are looking at the wrong annuities.
    Check out a fixed guaranteed annuity. one example is Guaranteed Annuity - Challenger

    Lets say you borrow $100,000 from a LOC and buy a fixed term annuity with a 5 year term. You might get back $21,000 per year for 5 years.

    Some banks may treat $21,000 as income for servicing. But it is really only $1000 in taxable income plus $20,000 of your $100k coming back.

    Interest paid by you may be $5,000 but for servicing income would be $21,000 and that is how it helps servicing..
     
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  5. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    Perfect, now I understand how it works. Add it to the list of things to be explored at our meeting Terry!
     
  6. Rixter

    Rixter Well-Known Member

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    It's different for everyone because everyone has different financial circumstances, investment strategies, goals, time frames, and personal risk profiles. Personally for me, modest is sub $300k and substantial is $1mil+.

    Using your $100k LOC example, banks/lenders have already previously taken it into consideration for the purpose of calculating one's DSR irrespective of whether the LOC has a $0 balance or it's fully drawn.

    With the CB's I've structured over the years, the time has varied from 1 month to 3 months depending upon lender. Some just required the initial CB statement as proof that it exists and others required both the CB statement & bank statement where the monthly CB payments were paid into.

    It is not too late if you are funding the CB purchase from a offset savings account or a like.

    My reference to it being too late, was in relation to if you don't have any already approved available equity at your disposal to purchase the CB and you need to set up a new loan to do so, you do not have the required serviceability to do so. Catch 22.
     
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  7. S0805

    S0805 Well-Known Member

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    Thanks @Rixter. Make sense you are converting your equity in to the income stream while its sitting there....lazy equity as some will call. I guess this helps if you have LOC setup as buffer which is not being used or planned to be used for whatever annuities term is and create additional income stream in lender's eyers. One thing i may consider is use savings from offset subject to how lender assess the annuities income....

    what about Managed funds, Insurance bonds, share portfolio are they considered as income or varies among lenders....
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Keep in mind that annuities may be able to be cashed in too.
     
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  9. Perthguy

    Perthguy Well-Known Member

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    I was wondering this too. You will have to speak to your broker I guess.
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes income from shares etc can be taken into account in servicing..
     
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  11. D&J

    D&J Well-Known Member

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    Does anyone know which lenders include the principal repayment as income. CBA told me they only include the interest income
     
  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Westpac used to. Not sure now.
     
  13. Elives

    Elives Well-Known Member

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    How does this work. the accountant signs off on your profit forecast or your actual income of that year? :S
     
  14. MTR

    MTR Well-Known Member

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    projected income
    I am a developer so I have ongoing projects with estimated profits and income, so he signs off on this, stop gap measure for me. now on full doc

    there is also fine print on this to cover accountants liability on this

    contact your accountant
     
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  15. D.T.

    D.T. Specialist Property Manager Business Member

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    By having a good indemity insurance policy :)
     
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  16. bythebay

    bythebay Well-Known Member

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    @Rixter
    When you receive the annual payment from Challenger Life eg: $21k using Terry's example, do you have to declare $21k on your tax return as income or just declare $1k as interest?

    Thanks
     
  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Only the interest would be income. the other is the return of capital.
     
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  18. D.T.

    D.T. Specialist Property Manager Business Member

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    Wouldn't bother. It wasn't useful then and is even less useful now with lending changes.
     
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