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Please Have a look at my strategy

Discussion in 'Investing Strategies' started by Hunting_dollars, 3rd Apr, 2008.

  1. Hunting_dollars

    Hunting_dollars Member

    Joined:
    28th Oct, 2007
    Posts:
    24
    Location:
    SA
    Ok, so Here's my situation

    My income = 65k
    Wife = 37k


    Also, tell me what you think about this scenario here I have been thinking about a way to draw down on the equity I have in both my Principal Place of Residence and My Investment property to invest in either shares or property or both.




    Draw down on equity from my Principal Place of residence and put it into a Line of Credit loan, capping the PPOR loan at 260k
    use, say 80% of this LOC to invest in a margin loan for shares geared at say 60%
    retain the 20% portion of the LOC loan undrawn and sitting there to meet any shortfalls in servicing the new loans


    e.g. I have 140k equity in the home (purchase price 400k less loan outstanding of 260k)

    I put it all into a LOC and use 112k to invest in a margin loan for shares at 60% gearing so I would control shares worth 112k from line of credit plus 74k loaned through margin loan (nearly 200k)



    I don’t know what the return on 200k in good blue chip shares would be but would probably be better than what I am doing now, which is nothing.



    The other part of the plan, which would depend on whether I could afford the interest repayments, would be to

    1. draw down on the equity in my Investment Property (approximate value say 370k less loan outstanding of 175k = 195k

    2. put it into another LOC (or maybe the same one as above depending on what is more beneficial)

    3. use 80% (156k) plus another say 100k loan to buy a 2 bedroom unit as a second rental property.



    I would be able to claim all the interest repayments on every loan except my Principal Place of Residence as a tax deduction as well as depreciation and income from the share portfolio and rental properties. (wouldn’t I?)



    I haven’t done any hard numbers yet, I might have to come and see you to see what you think

    Does this plan sound too risky?



    I want to aquire another IP and perhaps invest in a manged fund like Navra in order to improve cash flow. I constantly asking myself the same question how to generate cashflow to service these loans for extra IP's? I hear stories of people having 6 or 7 IP's and I can't see how I can get much past 2 let alone another 5?
     
    Last edited by a moderator: 3rd Apr, 2008
  2. handyandy

    handyandy Well-Known Member

    Joined:
    6th Jun, 2006
    Posts:
    312
    Location:
    Sydney Nsw
    Just looking at your numbers

    PPOR value $400k outstanding loan $260k

    IP value $370 outstanding $175

    The available equity that could be draw on

    at 100% - PPOR $140k IP $195k = $335k available
    at 90% - PPOR $100k IP $158k = $258k
    at 80% - PPOR $60k IP $121k = $181k

    Immediate strategy would be to recycle the PPOR debt within the allowable criteria as per the ATO. The method used is to concentrate all excess into the PPOR loan rather than into the IP loan thus reducing the PPOR bal at the expense of the IP loan.

    It is generally recommended that you use an offset rather than a LOC for the PPOR so that any additional payments can be redraw at a future date without impacting the what you spend those funds on. This is handy where the PPOR becomes an IP at a later date and the full (and original loan bal ) can then become tax deductible.

    A twist with the offset can be where you then need to use any offset money for purposes like covering a margin call which will impact the loan bal/int on the PPOR and potentially not be tax deductible if exercised. A member had this happen recently. Not exactly sure about the final wash up.

    Getting back to your figures

    If you were to invest in blue chips or something like Navra then to end up with a $200k investment you would need to use $100k from your equity and a margin loan at 50% giving another $100k.

    This strategy could be impacted by the economic climate and defiantly the chartist amongst us would indicate that we are still in a bear market (meaning a higher risk to your capital).

    Similarly any new investment in property would need to take account of the recent price increases and also the increasing interest rates and credit constriction.

    I used to think that it would be hard to pass 3 properties but invariably opportunities just happened that allowed further investment at times when these investments made sense and added to my overall wealth position. What I am trying to say is don't force the issue and put yourself under financial stress at a time when there may be no immediate benefit.

    Cheers

    PS we now have a portfolio in excess of 50 properties and a similar sized investment in the share market, so it is possible
     
  3. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    I would not margin shares which you are already using borrowed money to buy.. if you do borrow on margin loan, then keep it at 30-40% max.
     
  4. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    I'm wondering where the Life, TPD and Income Protection is personally.

    If the s**t hits the fan and something happens wouldn't you rather pay the mortgage off than sell the properties?

    Cheers,

    Dan

    PS Before making an investment or insurance decision speak to your FPA registered Financial Planner.