Quote:
|
Originally Posted by Maverick
If what Nigel suggested was possible, i.e. Trust's $100,000 worth of existing managed funds could be used as a security and individual would get a margin loan of $100,000 (50% gearing) and buy income producing units in Hybrid Trust, which would make Trust's capital of $200,000 (existing $100,000 + $100,000 from units subscription), COULD THEN TRUST GET ANOTHER MARGIN LOAN (e.g. $200,000 for 50% gearing) AND INVEST A TOTAL OF $400,000?????
I do not think that would be possible because THE SAME ORIGINAL FUNDS WOULD BE USED AS A SECURITY TWICE 
Some help will be highly appreciated here... |
That's right, you couldn't use the same assets as security for two loans without disclosing that to financiers (and thus they wouldn't accept it)...but as I mentioned, you could buy your income units with a loan secured against your IPs and then your Trustee could get the margin loan using the shares/managed fund units bought by the trustee with the proceeds of unit subscription...so it's effectively borrowing against assets bought with borrowed money - double gearing... makes your cash on cash return infinite because it's all borrowed money. If you get the arbitrage right (i.e. the difference between returns and weighted average interest cost) then it's basically making money out of nothing... or to look at it another way you're working your equity twice as hard...
WARNING WARNING DANGER WILL ROBINSON  please don't try this at home without getting financial advice.
Cheers
N.
__________________
Nigel
This is a general comment only and does not constitute advice. Before making legal or financial decisions you should seek advice from a professional adviser, who can take into account your specific circumstances and investment goals.
|
