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If you had $100k, what would you invest in and why?

Discussion in 'Investing Strategies' started by Sk3tChY, 11th Aug, 2007.

?

You have $100k cash, where would you start and why.

Poll closed 8th Sep, 2007.
  1. Shares

    4.3%
  2. Managed Funds

    8.7%
  3. Property

    43.5%
  4. Shares & Managed Funds

    4.3%
  5. Shares & Property

    8.7%
  6. Managed Funds & Property

    30.4%
  1. Sk3tChY

    Sk3tChY Well-Known Member

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    Scenario: You have $100k cash, and no other investments. Where would you start, and why.

    ps: This is a completely hypothetical situation, not that I, or the person polling has $100k. I'd just like to see what people would do. in this situation.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I would start with property due to the leverage I could get for my money.

    Using my income to service the debts (along with rent etc), refinancing and drawing out equity every couple of years until I basically ran out of servicability.

    Then I would take that equity and start investing in managed funds to increase my cashflow.

    The whole process would probably take 5 - 10 years to get to this point.

    Naturally it relies on starting with enough surplus income to fund a property portfolio, and on buying at a time where properties will see some reasonable capital growth.

    Then when you get to the point of having generate good cashflow, I would start the process again, using my new income to service more property, which later on funds more cashflow from managed funds, etc etc., building up until I had enough equity and/or cashflow for my goals.
     
  3. Sk3tChY

    Sk3tChY Well-Known Member

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    Ahhh very wise. I'm starting to see the value in property now. 2 questions;

    1. What do you mean by 'run out of serviceability' do you mean until you can't draw anymore equity from the property?

    2. Any particular reason from steering clear of shares? I should have put an option for all three, but I forgot heh.
     
  4. voigtstr

    voigtstr Well-Known Member

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    For cash flow I would do both.
     
  5. Simon

    Simon Well-Known Member

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    Serviceability is your ability to repay or service the loans. According to their calculations not yours.

    Many serious investors hit a wall where the banks stop lending because of this. Alternative lenders are often keen to cover the shortfall.
     
  6. voigtstr

    voigtstr Well-Known Member

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    Do banks recognise the income from managed funds as assisting with serviceability?
     
  7. Simon

    Simon Well-Known Member

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    Some do, some don't.

    My NAB guy disregarded my margin loan because it "was probably breaking even".

    Cheers,
     
  8. voigtstr

    voigtstr Well-Known Member

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    I hope they do consider it.

    In the attached spreadsheet, its the margined return (plus a 3 month buffer of cash for the occaisonal <3% navra distribution) that I'm planning to have pay the interest on loc and rental shortfal, and margin interest.

    (turn on cyclical formulas if prompted)
     

    Attached Files:

  9. Triu

    Triu Well-Known Member

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    Property

    I would just buy property. As i could leverage up to 90% and then wait a little while and buy more. I would then in the meantime learn about investing in managed funds and shares and invest myself for the longterm until i built up enough equity to buy a solid business then run that with my wife for a few years then sell it and then place some money into my SMSF.
     
  10. Sk3tChY

    Sk3tChY Well-Known Member

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    Buy a solid business? Such as what? This isn't an option i've really heard much of, im intrigued..
     
  11. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Hi,

    I also voted buy property only. My reasons are similar to Sim's but I'll spell it out a bit more.

    Property is my growth engine. I can leverage more into property, so even at a 80% LVR I could buy a $500K house and then just wait. I would use my salaried income to supplement the rent in order to service that $400K debt.

    I don't buy shares or managed funds for growth. I only invest in them to supplement my other forms of income so I can service larger debts on properties. So, properties are for growth and shares for cash flow. Given that relationship, it makes sense only to buy shares when I need additional cashflow, given doing so actually consumes some of my equity and leverage that could otherwise have been invested in properties for growth.

    My strategy is currently a growth one, so I want to maximise my property holdings and have only sufficient shares/MF to assist the cashflow.

    Having said that, in the future I intend to re-distribute my portfolio to be more income than growth when I want to retire and live off my net worth, so will likely sell down my property assets at that point and transfer more of my net worth into shares/MF for their superior income returns (yields) over property. Of course, I would always retain a paid off PPOR over and above these investments.

    But in the scenario posed here, I'd definately be buying property only, and as big an amount as possible. Oh, and probably somewhere in an East Coast capital if considering location.

    Cheers,
    Michael.
     
  12. Sk3tChY

    Sk3tChY Well-Known Member

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    Very nice michael. I got some very useful info from your reply. Buying shares/mf's for income seems like a top idea. I've bought mine at the moment mainly to try build up a portfolio, because I can't afford to get into property atm, but once I do, i'll probably go for the same approach as you. :)
     
  13. Sacko

    Sacko Well-Known Member

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    I'd go for shares in the short term and leverage them further with a Margin Loan and use the income to build up a deposit for an IP.
     
  14. crc_error

    crc_error The Rule of 72

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    After done both shares and direct residential property, I would stick to my current stratergie and employee managed funds.

    They are hastle free, liquid easy to get finance for, cheap to setup.

    Property may have a higher LVR, however its very expensive to transact. Also property capital growth and yield is very poor. Was reading somewhere that the long term capital growth of property after maintainence is about 5% PA plus 4% yield. Thats a poor 9% PA return. If you borrow at 8.25%, your only making 3/4 % on your borrowed money.

    Managed funds however is a completely different story. MArgin loan is about 9.25% and you can get 14% long term. I have funds averaging 20% PA over the last 5 years. Since you shouldn't gear property at any more than 80%, and 60% for margin loans, the results are far better with managed investments.

    Property is good if you fall into a high income tax bracket, or if its your first investment and you want 90% LVR to get kick started.

    I would select a quality portfolio of diversified managed funds. say about 6, and invest about $250000.00 geared. You will have no hastles and you can save from your wage $20,000 pa and made a additional investment in 12 months time.
     
  15. Sk3tChY

    Sk3tChY Well-Known Member

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    I see... What MF's you got crc_error..?
     
  16. AsxBroker

    AsxBroker Well-Known Member

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    Hi Sketchy,

    Hypothetically, I would invest it in PPI2 and leverage (like Sim) to the HILT. But since I don't have $100k available I'll keep on dreaming :)

    Cheers,

    Dan

    The above email is not advice to invest in PPI2. Before investing in any investment speak to your FPA registered Financial Planner, Accountant or Tax Adviser.
     
  17. Sk3tChY

    Sk3tChY Well-Known Member

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    PPI2 ?

    HILT ?
     
  18. voigtstr

    voigtstr Well-Known Member

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    I think I would buy 2 or 3 houses at 95%lvr and put the rest in navra to pay for the rental shortfalls.
     
  19. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Property for the leverage. Then access the equity to covert to an income stream as well as buy more property.

    Mark
     
  20. crc_error

    crc_error The Rule of 72

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    which can be done with 100% finance products.. like the perputual product pointed out earlier... equity can be sold down and used to purchase more stock for income. but without the high costs associated with entry and exiting a property and refinancing property.