When thinking about your wealth and the wealth of all the people you know and see around you have you ever asked WHY?
WHY do so many conservative people stay conservative, like the teachers told us to be?
WHY do so few 'Money Experts' know so little about finance?
WHY is it that we are all struggling and complaining about our finance, while it seems that noone is actually doing anything REALLY creative about it?
Wealth creation is not at all about what the media and our conditioned selves tell us, instead it is actually based on being creative and using your SMART imagination!
Are you seeing rising interest rates threatening to squeeze your cash flow? Or maybe you are holding back from investing in another investment property (a business for you) because you fear this is not the time? Are you then making BIG decisions based on your fear, from the perceptions that have been downloaded into you by others?
The 'Busting Loose in a 10 Hour Week' approach to building long term financial security incorporates 2 great finance strategies for handling the cash flow issue. After all, building a portfolio of business investments (residential and commercial properties) should not mean that you have to live on Subway sarnies!
The 1st strategy you may well be familiar with - Building a 'Buy Time Buffer' into your finance strategies.
This buffer will bridge any gap between the interest payments on your investment loans and the rents received so that you do not have to put hand into pocket for more cash unless you want to.
Here's an example -
Recently our clients Jay and Mici were debating whether to buy a lower priced property outside Sydney, or a middle range property ($500,000) in Sydeny metro area in a location where capital gains had a track record of consistent increases. Whilst they had sufficient deposit for either property (from a line of credit secured on their home), Mici was worried that they would need to tighten their belts too much in order to hold onto the higher valued property, especially with the way interest rates were moving up.
We explained that by being willing to increase the line of credit on their existing home up to a 90% lend (it was currently at a 70%) and purchasing the new property at 90% lend as well, they would have more available in their line of credit for a buffer, and would also spend less of it up front on deposits for the purchase. This preserving of available funds allowed them to retain a safer level of buffer.
In Jay and Micis case the buffer was $190,000 and we calculated that it would fund any shortfalls from holding the new property for 7 years. Cashflow was preserved, they have bought 7 years in time from the higher buffer, and all this happens whilst a well chosen property gains in value.
Now, that makes buying property in any market climate realistic, doesn't it? You see it pays to listen to the actual professionals, and not your 'professional' friends, or the professional media!
The 2nd strategy is our 'Rich Debt Poor Debt' wealth plan.
This is a 'new' strategy that is supported by a unique 'new' loan product that we have just released.
This strategy is great for savvy smart investors who are borrowing under low docs/ no docs policies (declaring loan affordability as opposed to providing tax returns and payslips) where there are generally limits to borrowing levels that are strictly set at 80% loan against a property (LVR).
Where you are at 80% lend but would like access to 10% of your equity to help manage cash flow then this is a brilliant lending solution.
Simply speaking the 'Rich Debt Poor Debt' program capitalises a portion of your interest payment onto the loan itself above the 80% level and continues to do this over 5 years. The interest rates are a little higher, however you are freeing up cash flow in exchange for this. It takes a lot of pressure off the cashflow budget as you hold your property portfolio and watch it grow. There is a risk fee applied up front (similar to a mortgage insurance fee) which can be added to the loan as well, however this is in essence little different to the mortgage insurance fee that would apply in the first strategy we mentioned above.
Here's an example of how the loan works -
Interest on the Low Docs Cash Flow Manager is currently 8.45% ... however ...
In Year 1 - you pay 4.20% and add the remaining 4.25% to the loan balance.
LVR is now 83.2%
In Year 2 - you pay 5.45% and add the remaining 3.00% to the loan balance.
LVR is now 85.8%
And so on up to 90% LVR
It's SO easy and more importantly ... IT WORKS!
You can roll this loan capitalising pattern back to the starting point the end of the second year, thus extending the time that the 'Rich Debt Poor Debt' strategy will give a positive cash flow, and you'll even actually achieve a decent lump sum payout for your efforts in the process (man ... who thought of this!!!).
With the 'Rich Debt Poor Debt' wealth plan building your portfolio of business investments has never been easier or so rewarding! Now that you can see what creative imagining in a traditional finance arena can do, don't waste it ... !
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