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Discussion in 'Introductions' started by costcutter, 6th Oct, 2007.

  1. costcutter

    costcutter New Member

    Joined:
    4th Oct, 2007
    Posts:
    4
    Location:
    Adelaide, SA
    Good morning all

    Well I am new here coming over from Somersoft. More of a reader than a poster, but my main reason for coming over is to see how to best invest equity I have in Investment property's.

    My situation is.

    Salary $75,000 gross year
    Investment property 1: Loan $86,000 current value $130,000 rent $140/week
    Investment property 2: Loan $86,000 current value $130,000 rent $140/week
    Investment property 3 Loan $196,000 current value $205,000 rent $235/week
    PPOR Loan $340,000 current value $550,000


    Line of credit attached to property 1 & 2 of $35,000 each, not being used

    Savings $40,000 just sitting in a online account at 6.5%

    Still interested in investing in property further, but have only been in the game for 2 years. Will renovate investment property's 1 & 2 to achieve $165.00 week so will be cash flow slightly positive, but this will offset property 3 as this is negative approx $1,500 a year allowing for depreciation.

    So what is my question?
    Well.... was really looking on best way to invest equity to give some form of return. I will trawl my way through this fantastic site, but any suggestions would be greatly appreciated. Go gentle, very new to this side of investing

    Cheers
     
    Last edited by a moderator: 6th Oct, 2007
  2. tailcat

    tailcat Well-Known Member

    Joined:
    18th Jun, 2007
    Posts:
    96
    Location:
    Yeppoon
    Equity -> Income : Catch 22

    Welcome CostCutter,

    You look to have made an excellent and solid start on your road to freedom.

    My one suggestion would be to start looking at your future serviceability NOW.

    You may need to start some new sources of income and have them on stream well before you think you need them. Some banks will only accept distributions from managed funds if they are on your last tax return....

    It is very easy to fall into a serviceability "Catch 22": You have plenty of equity to invest in managed funds to create income, but the bank tells you you do not have enough income to pay for the borrowings to set up the income stream.

    Believe me this is easier to solve BEFORE you buy that last possible IP that the bank manager says you can afford.

    All the Best in your future endeavours

    Tailcat
     
  3. costcutter

    costcutter New Member

    Joined:
    4th Oct, 2007
    Posts:
    4
    Location:
    Adelaide, SA
    Another Newby

    Thanks Tailcat for your reply. I am slowly starting to realize that serviceability will be a problem for future investment, and I understand your advice to start something now. Being so focused on Property investment for the past two years I have little understanding of the Manage Fund option.

    I have allot to learn and will enjoy finding information on this site.

    The main concern I have is the percentages earned from Managed funds, I'm sure this will be difficult to answer, but is there any assurance that 16 + % can be earned from these types of investment? sorry if this is sounding like one of those questions like "where do you find positive cash flow property" I know there is no straight answer, but some pointers would be greatly appreciated.
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Unfortunately there are never any guarantees.

    There are funds that regularly return 30%+, but these same funds also sometimes return -20% or worse. It's the old higher-returns = higher-risk equation.

    It really depends on what your goals and timeframes are ... over the long term, I'm confident that you would see average returns of 16%+ ... but you may have to wear periods of negative return to get there ... so it depends on how important positive returns are to you to a large degree.
     
  5. Elkam

    Elkam Member

    Joined:
    21st Jun, 2006
    Posts:
    22
    Location:
    Lanaken, Limburg
    Hello costcutter

    My suggestion to you would be to organise a 100% offset account against your PPOR loan and move that $40k of savings into it.

    Even if the interest on your housing loan is at the same rate as your online savings acct. your still losing money needlessly.

    The interest on your housing loan is not tax deductible but you pay tax on the interest you earn on your savings account.

    Cheers
    Elka
     
  6. costcutter

    costcutter New Member

    Joined:
    4th Oct, 2007
    Posts:
    4
    Location:
    Adelaide, SA
    Good point

    Thanks, Elkam, a good point. I keep any savings out of our main account (100% offset) and separate it so I am not fooled into thinking it is money I can spend (this really is a discipline thing) and have never considered the tax side of things. I will move the money back into the offset account and work on the discipline side of things.:(

    This does raise one question for me. If I invested it into Managed Funds as suggested and any returns I made I invested back into the fund. a) would this be subject to any tax issues b) would the bank still see this as income if it is being reinvested.

    Thanks
     
  7. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    A) Only the standard tax the same that would occur if you didn't invest back into the fund

    B) The bank will still see this as income whether it is reinvested or not.

    Cheers,

    Dan