MichaelRoss
August 16, 2008, 07:57 PM
Chatting the other day with a co-worker about UFOs, supposed lack of technological advances since the Bomb back in 45, and other offbeat topics, we got onto the question of Debt. Not personal debt for BigScreen TVs - although we did touch on that briefly - but investment debt. Debt that Makes you money. And. A person's ability to handle it.
For instance...
A bank may lend up to 100% on a property. But for example sake we'll say 5%. So a $200k place will have a mortgage of $190k. Three such places will see a debt of $570k. Throw in your own home - say a $300k joint - and your total debt is $870k.
Could you handle that debt, mentally?
Investment Debt is all about the numbers. If the numbers work, the debt is fine, right. BUT, some people cannot mentally handle the numbers. Just the Thought of being in Debt, say, for a million bucks, frightens them. They cannot mentally handle it. It doesn't matter if the Servicing of the million dollars debt is fine. That they owe, One... Million.... Dollars... Scares the bejeebers out of them.
A bloke I know has plant/machinery debt of over $2.4 million. I asked him about and he said, "Anyone could do it". And he explained how it came about...
He used to work for a guy that hired-in plant/machines as he needed them. The guy I know, let's call him Bob, said, "If I buy one of these machines will you hire it from me?" The boss said, "Yes, but Bob, I can't guarantee any amount of hire for any amount of time."
So Bob found out to get finance - 100% finance - all he had to do was show Income Projections - and - a letter from his Boss saying there was X amount of work for the machine. Basically, when the Financier saw the debt was totally serviced by the hiring out of the machine, they financed it 100%.
Bob told me, after that, it was easy. They could see he was making his payments. Business was going fine. And they just offered him the money for the next purchases, without the need of income projections or proof of work for the machine.
Bob reckons any one of the guys he now works with could have done it. Guys that have been operating the machines for 20 years. But they don't, or won't. Even when they know, that Bob could not only not operate the machine he'd just bought, but he'd never even worked with one. He just knew his previous boss used to hire them a lot, so he bought one. And then another. And another. Now he has Over $2.4 million of debt.
But even with that debt, it is being serviced. Comfortably at the moment.
Many people could not handle such a debt. The "What If" game comes into play to Scare them out of it.
Like the guy who has about a million in machinery debt. He's fine for two three months. Then for a week or two he cannot sleep, he goes off his food. As he has anxiety attacks about his million dollars in machinery debt.
Granted. If the income dried up, the repayments still need paying. And the money needs to come from somewhere. And there is likely no Job that will pay enough income to be able to service a million dollar machinery debt. But, that's a hypothetical. Seems real. And we all have Heard stories of people who went bust thanks to Other People's Money (OPM).
Yet. If those Big Dollars is what you're after. Then at some point you Will need to play with OPM. You cannot save fast enough or in enough volume to acquire what you need to make the Super Big Dollars. But you can Progressively use OPM to get there. (Besides doing Finder, Jim Straw, Harvey Brody deals)
Like Bob. The first machine was... hard to acquire. After that, it was one machine at a time. Same thing. Just the Scale is different.
Look at Trump. Could you handle a debt of one Billion dollars?
When Australian rich bloke Alan Bond bought, I think it was the St Moritz hotel from trump, he paid like over $100million. A person cannot save $100mil. It Has to be borrowed. And in Bond's case... interest only. That was Bond's trick - and as far as I can tell, Trump's as well. Pay interest only.
See. When Bond went bust, he was Made Bust by the banks. Who called in their loan - something like $600 million. Bond argued... why? I have Never failed to make my interest payments, nor have they been late. But the bank was scared. Scared Bond might go bust, so called in their $600mil loan and made Bond go bust - after all, there aren't a lot of people around with a spare $600mil to buy all your assets within like 60 days - or whatever the ridiculous timeframe was.
When a builder - even a small time house builder - builds places they Borrow the money. Only pay interest on it. Then pay back the principle when the home sells.
Depending on what Trump acquires. He appears to do much the same. Use OPM. Pay Interest.
Go for a drive into Any industrial estate. Look at the businesses there. Businesses you've never heard of which appear to have been there for a Long time and are a hive of activity. They'll have plant and machinery debt of some description.
Even the humble car yard - new cars too - have to Buy-In the cars they sell. All of it financed by a finance company. And those interest payments can amount to millions of dollars.
Could you handle that. Mentally. That's what we talked about. My co-worker said he couldn't. Even thinking about owing one million would frazzle his brain. He wouldn't be able to Work because his mind would be pre-occupied with this Enormous debt of only one million dollars.
How about you?
Michael Ross
For instance...
A bank may lend up to 100% on a property. But for example sake we'll say 5%. So a $200k place will have a mortgage of $190k. Three such places will see a debt of $570k. Throw in your own home - say a $300k joint - and your total debt is $870k.
Could you handle that debt, mentally?
Investment Debt is all about the numbers. If the numbers work, the debt is fine, right. BUT, some people cannot mentally handle the numbers. Just the Thought of being in Debt, say, for a million bucks, frightens them. They cannot mentally handle it. It doesn't matter if the Servicing of the million dollars debt is fine. That they owe, One... Million.... Dollars... Scares the bejeebers out of them.
A bloke I know has plant/machinery debt of over $2.4 million. I asked him about and he said, "Anyone could do it". And he explained how it came about...
He used to work for a guy that hired-in plant/machines as he needed them. The guy I know, let's call him Bob, said, "If I buy one of these machines will you hire it from me?" The boss said, "Yes, but Bob, I can't guarantee any amount of hire for any amount of time."
So Bob found out to get finance - 100% finance - all he had to do was show Income Projections - and - a letter from his Boss saying there was X amount of work for the machine. Basically, when the Financier saw the debt was totally serviced by the hiring out of the machine, they financed it 100%.
Bob told me, after that, it was easy. They could see he was making his payments. Business was going fine. And they just offered him the money for the next purchases, without the need of income projections or proof of work for the machine.
Bob reckons any one of the guys he now works with could have done it. Guys that have been operating the machines for 20 years. But they don't, or won't. Even when they know, that Bob could not only not operate the machine he'd just bought, but he'd never even worked with one. He just knew his previous boss used to hire them a lot, so he bought one. And then another. And another. Now he has Over $2.4 million of debt.
But even with that debt, it is being serviced. Comfortably at the moment.
Many people could not handle such a debt. The "What If" game comes into play to Scare them out of it.
Like the guy who has about a million in machinery debt. He's fine for two three months. Then for a week or two he cannot sleep, he goes off his food. As he has anxiety attacks about his million dollars in machinery debt.
Granted. If the income dried up, the repayments still need paying. And the money needs to come from somewhere. And there is likely no Job that will pay enough income to be able to service a million dollar machinery debt. But, that's a hypothetical. Seems real. And we all have Heard stories of people who went bust thanks to Other People's Money (OPM).
Yet. If those Big Dollars is what you're after. Then at some point you Will need to play with OPM. You cannot save fast enough or in enough volume to acquire what you need to make the Super Big Dollars. But you can Progressively use OPM to get there. (Besides doing Finder, Jim Straw, Harvey Brody deals)
Like Bob. The first machine was... hard to acquire. After that, it was one machine at a time. Same thing. Just the Scale is different.
Look at Trump. Could you handle a debt of one Billion dollars?
When Australian rich bloke Alan Bond bought, I think it was the St Moritz hotel from trump, he paid like over $100million. A person cannot save $100mil. It Has to be borrowed. And in Bond's case... interest only. That was Bond's trick - and as far as I can tell, Trump's as well. Pay interest only.
See. When Bond went bust, he was Made Bust by the banks. Who called in their loan - something like $600 million. Bond argued... why? I have Never failed to make my interest payments, nor have they been late. But the bank was scared. Scared Bond might go bust, so called in their $600mil loan and made Bond go bust - after all, there aren't a lot of people around with a spare $600mil to buy all your assets within like 60 days - or whatever the ridiculous timeframe was.
When a builder - even a small time house builder - builds places they Borrow the money. Only pay interest on it. Then pay back the principle when the home sells.
Depending on what Trump acquires. He appears to do much the same. Use OPM. Pay Interest.
Go for a drive into Any industrial estate. Look at the businesses there. Businesses you've never heard of which appear to have been there for a Long time and are a hive of activity. They'll have plant and machinery debt of some description.
Even the humble car yard - new cars too - have to Buy-In the cars they sell. All of it financed by a finance company. And those interest payments can amount to millions of dollars.
Could you handle that. Mentally. That's what we talked about. My co-worker said he couldn't. Even thinking about owing one million would frazzle his brain. He wouldn't be able to Work because his mind would be pre-occupied with this Enormous debt of only one million dollars.
How about you?
Michael Ross
