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Please advise....

Discussion in 'Introductions' started by zforlife, 2nd Nov, 2007.

  1. zforlife

    zforlife New Member

    30th Oct, 2007
    Hi Everyone,

    I'm new to this forum and this is my first post so can't help but feeling a bit nervous :). However, I have been reading some of the threads and find that there are quite a few experts and knowledgable people who gave pretty good advices. Therefore I hope that I can get some advices for our investment situation, any feedbacks are much appreciated. :)

    Below is our situation:

    1. We own our own home which worths around 960K conservatively.
    2. Own a rental unit around $300K (mortgage free) - rental return $265/week
    3. A rental house around $530K (mortgaged $300K) - rental return $275/week (note: the house is old and small but the land is ~880 sqm. Hoping the zoning will be changed from 2B to 2C)
    4. A 1BR serviced apartment around $290K (mortgaged $300K) - rental return $340/week
    5. managed Funds ~ $12K
    6. Shares ~ $20K
    7. Overseas investments (loan $400K) return 15%/pa
    8. Our monthly income (incl wages, rental and investments ~ $20K)


    1. We are thinking of selling the rental house (low rental return) and serviced aparments (no capital growth) to invest in something else. Do you think this is a good idea?

    2. We would like to use the equity to invest in something like shares/management funds or even properties. However, we would like to invest some of these amounts in something that can produce cashflows to help us with the loan repayment.

    3. Should we use the money from equity to invest in shares/mgt funds or use margin loan? (I have very little knowledge with margin loan and gearing)

    4. We would like to fix some of the loans (say 600K) in LOC into 3yr fixed loan at 7.77%. Is it a good idea?

    I hope this is not too confusing. Thanks in advance for your advice!

  2. voigtstr

    voigtstr Well-Known Member

    24th Jan, 2007
    If it was me, I'd be pulling out some of the equity and investing it in managed funds....
  3. Billv

    Billv Getting there

    15th Jul, 2007
    Sydney, NSW
    Where are the IP's you intend to sell?
    I would go with all options 2,3,4 but wouldn't invest as yet.
    I would refinance to access the equity of the IP's
    (but not the equity of the house you live in). I would wait till the right time comes.

    You'll need to pick a good entry point for shares and managed funds.
    I personally think the time is not right yet, but if you want to spread the risk you can start slow and invest small amounts every month till you get some experience and a feel for the health of the market.

  4. Rod_WA

    Rod_WA Well-Known Member

    18th May, 2007
    Inglewood, WA
    Firstly I am no expert - and certainly not a licensed financial adviser - and what I add here are just my thoughts. Please seek advice from your accountant or other licensed professional.

    In my opinion, you're in quite a lucrative situation. You own your PPOR outright (a lifetime milestone for many people), and have a reasonable suite of property investments, with significant equity in those investments.

    You are in a low-medium risk investment situation compared to many folk, in a volatile interest rate environment, since your overall gearing is reasonably low.

    Many of the people on this forum are big fans of gearing, and use margin loans and other leveraging tools to crank-up their investments. To this point you have not pushed your gearing too hard, obviously some property gearing, but with a low LVR overall. As it stands, you've got significant equity accessible, so there would be little reason for you to consider margin lending immediately. In your situation the equity can be accessed through an LOC which will attract a significantly lower interest rate than a margin loan.

    The first question I think you should ask yourselves is whether your existing investments suit your needs and your risk profile. It's a healthy exercise to review your investments regularly (at least annually) and decide if they still suit your goals and your risk profile. This is where a financial planner is helpful, but please keep in mind that many FPs will be agents for a larger licensee, and they will go through the exercise of determining your risk profile, with an end goal of determining which of their funds they can put you into. But determining your risk profile is a vital undertaking.

    Personally, I know my own risk appetite, I don't need an FP to print it out for me. For me, it's simply the 'can I sleep at night' threshold, but I know my own goals and life situation. Yours will be completely different.

    With regards to your existing investments, you can review them one by one to see if they still are good investments. Here an accountant is perhaps more useful than an FP, since the accountant will run the figures.

    Serviced Appartment
    A 1BR serviced apartment around $290K (mortgaged $300K) - rental return $340/week
    You say that the serviced apartment has low capital growth, but its rental yield is about 6%. This sounds reasonable, but are there other costs associated with this property? Assuming the costs amount to $300 a month, then the net yield is reduced to about 4.7% and you're looking at a 3% shortfall against the interest repayments. It's a simple equation then, is the capital growth going to exceed 3%? If not, it's a bad investment, that's costing you money. If so, by how much? Is there enough difference to justify the effort involved in holding this? I see that the loan amount is larger than the value, so I expect that you won't have a significant CGT liability if you choose to sell this.

    Rental House
    A rental house around $530K (mortgaged $300K) - rental return $275/week (note: the house is old and small but the land is ~880 sqm. Hoping the zoning will be changed from 2B to 2C)

    I don't know what 2B and 2C means (I'm in WA) but what hope is there? 1%? 90%? This will weigh significantly in your decision.
    This investment is low yield, at 2.7% (sounds like Perth!) on the value. Assuming 2% costs (eg land tax) reduces this yield towards zero (!) you demand capital growth greater than 8% to make this a useful investment. If the zoning doesn't come through, do you have enough capital growth regardless?
    Even though you only owe $300k on the loan, the raw investment return needs to be thought through... ie do your figures on $530k not $300k.
    You've probably got a significant CGT issue if you sell this, so you'll need to weigh this up too.

    Rental Unit
    Own a rental unit around $300K (mortgage free) - rental return $265/week
    Well done with this one, mortgage free, 4.7% yield, plus capital growth. Ideal.
    (many in this forum would say, look at all that juicy equity!)

    Shares and Managed Funds
    You are heavy in property, and a FP would say that your asset allocation needs re-balancing. I don't know your superannuation situation... maybe you have a significant super balance and it's invested in 'growth' assets, or maybe its just in the good old 'balanced' fund. Regardless, I am of the opinion that you are top heavy in property (about $2m vs $32k, or about 60:1!)
    I reckon MFs may be the best option for you (gulp, can't believe I'm saying this, I'm a great fan of direct shares!) to diversify, as they will iron out the blips associated with individual shares, and it seems that this will suit your profile better.

    You really don't need to consider margin lending, given your available equity. But I urge you to learn more about how gearing works. Obviously you're familiar with negative gearing in a property sense, but educating yourself in different investment strategies is immensely useful if only to understand what you're doing (think Westpoint: they took advantage of people who didn't educate themselves, thinking that their FP knew everything).

    Don't rush into anything, nothing really changes overnight. Talk it over with your accountant, ask more questions here. Start researching MFs, I urge you to ask questions at this forum, and visit Sim's new site, see
    Compare Funds :: Managed Fund Comparison Charts and Statistics

    Look at your big picture, your goals, your lifestyle needs. Do you want to retire soon, and need to develop an income stream? Can you access your super soon via a TRIP? Should you consider investing more within super rather than directly? Many questions.

    I hope this helps and doesn't boggle things. But please, let me repeat, all the correspondence you get on this forum is just the thoughts of strangers, not licensed advice, and none of us knows your full situation. You must see a planner with a AFS license if you want your risk profile defined, or you must see an accountant if you wish to have your tax position confirmed.
    - Rod.
  5. zforlife

    zforlife New Member

    30th Oct, 2007
    Please advise...

    Thank you all who responsed to my questions. Your advice were very throrough and were very much appreciated. I'll certainly study them a bit more and try to learn as much about gearing as possible. I'm glad that I've joined this forum. Thanks again!:)