We have started over last few years trying to establish investment strategies - if it doesn't bore you essentially our aims are to have mixed shares and property but will need to aim to educate four children in fifteen years time. We have our PPOR valued at 550K which we owe 90K on an IP valued at 320K that we owe 217K on for which we have to contribute an extra $1000 per month and shares valued at 67K plus 50K freehold car. Up to now we have paid for everything with cash but now cash flow drying up and paid astronomical amount in tax last year, looking to borrow money to maximise returns - where do we start? do we go for margin loan - fixed rate/variable rate/pre-paid? do we take line of credit from PPOR? Ideas appreciated
Could do all or none of the above. Congratulations on what you have achieved so far, it gives you a huge number of options. You really need to work out what you are comfortable investing in, and how aggressive you want to be in your approach. The most important thing is to have a plan that you follow with consistency. Set your goals and then work out the plan you need to get you there.
Welcome Fran, Nice to have a near neighbour. What sort of cashflow do you have? THis will dictate where you can go from here. Tailcat
You are in a nice position, with a very solid platform for investments. And with a 15 year timeframe before needing to access cash from the investments, you can safely stay in growth asset classes (not advice! just thoughts!). LOC vs Margin Loan? I suggest a LOC, given that you have a good whack of equity in the PPOR and IP, and most importantly, the interest rate on a LOC is likely to be 1-1.5% lower than the ML. So how large a share/fund portfolio can you get in your situation? Ooh la la, quite significant if you gear up to the max! (80% x $870k = $696k, $696k - $307k = $389k, then at 75% LVR in a ML = $1.55m! in shares/funds). Unfortunately you'd have a MUCH more serious cashflow crunch! And you'd have to have a very high tolerance for risk, a different league than you have demonstrated so far. You can set up a LOC for investment purposes, without diving straight in to shares or MFs (you only pay interest on the money you have taken out of the LOC). So you can safely set up a LOC (you have clearly demonstrated your capacity to look after the money built up in your PPOR/IP loans). Any margin loan arrangement can be made down the track - even after you have invested into shares/MFs (you can transfer the holdings to your ML account). So I don't think there's any need to start picking your margin lender just yet. Now, where/when to invest? That, my friend, is where my contributions have to end, and the advice of an accountant or licensed financial planner is required.
LOC vs ML thanks rod for your thoughts - with taking a LOC is the interest tax deductible as is that for a margin loan or do the benefits outweigh buying the tax deduction. also it is probably a long-standing discussion for many but are property or shares better?
Absolutely, LOC interest is 100% deductible. Just keep the LOC purely for investment purposes, see the discussions in http://www.invested.com.au/3/debt-recycling-16545/ Ahhh, a good question. 'Diversification' suggests both. You have nearly a million in property, and $67k in shares. Sounds a little unbalanced to me, similar to my situation a few years ago, and so I focussed on growing my share portfolio. The equity in the properties allows the LOC, and this provides a wonderful platform for share/MF investments (whether boosted further by mrgin lending or not). (Note I bundle shares and managed funds together, even though I personally stick to direct shares, since the choice of shares/MFs often comes down to personal choice and whether you feel equipped to handle your portfolio yourself or let the professional managers do it for a % fee). Of course your properties should continue to grow in value, and I certainly don't advocate selling any property to get into shares, simply work on boosting your shares. BUT: the choice of property vs shares is a golden oldie, and often comes down to personal taste.
