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What to do with $325k

Discussion in 'Investing Strategies' started by Bloss, 23rd Jul, 2007.

  1. Bloss

    Bloss Member

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    What to do with $325,000 ????

    --------------------------------------------------------------------------------

    Some help please.

    As we have done only property to date we have been on the other forum [SS], and now that we want to have a go at retireing soon, realise that we need to look at way's of generating actual $$$, not just fund's on paper.

    I have been lurking around here for a while and trying to glean info, but know it is time to start asking question's.

    I feel that we need to investigate LOE and this is the place for that.

    To fill you in further my name is Dave, my partner Bloss work's full time and we plan to retire in a couple of years.

    # We will be mid 40's
    # have 6 ip's casflow neutral at present with 40% to 50% lvr
    # currently have just over a mil in equity
    # when current PPOR is sold will have $350k in fold.

    This is a post I put on Somersoft, but I feel that there are posters here who may be able to help who don't frequent the other site.

    What to do with $325,000 ???? - Somersoft Property Investment Forums


    We will be seeing our Accountant in a week, so need to put a couple of scenario's to him, so I'll air them here first for your learned and varied opinion, so as to hit him with a couple of question's instead of a couple of hundred.


    As we will be living on our catamaran, we will have no need for our PPOR, so plan to flog it off.
    It should have gone up in val in a couple of year's [Brisbane Bayside], even in it's current sorry state.

    Unimproved, it'll get $325,000 ish and will be owned outright with no CGT[ we could throw $30k at it and get $340k ]

    Should we,

    1] Take the cash and pay off half of the IP debt, effectively owning 3 outright and have 3 with a 50% LVR. Then use the 50% equity to get into some managed fund's.

    2] Take the cash and just use that to get into some managed fund's, leaving the 6 IP's on 40% to 50% LVR, all cash flow neutral [ after rates, insurance etc etc added in]

    3] Take the cash and leverage the gut's out of everything into managed funds.

    4] Come up with another plan all together.

    Take into account that we are pretty cheap to keep and with no PPOR to pay off, No other bad debt, cash flow neutral property paying for itself, we will live well enough [ by our standard's] in Aus on $60,0000 of today's money.

    Living OS we'll manage well on half of that.

    Being on the boat will mean that communication's will be limited with up to 2 week's between internet and phone access, so whatever we do will have to be able to look after itself fairly well.

    Are we in a position to pull the pin on this working caper or not????

    I look forward to advice, question's & opinion's.

    Dave
     
  2. Bloss

    Bloss Member

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    An addition to that is,

    While trying to get $60 k as the magical number to live, we will in fact be floating around in Malaysia where $25 k will be quite sufficient.

    Any additional fund's can be fed back into ????? to generate more income.

    Dave
     
  3. Nigel Ward

    Nigel Ward Team InvestEd

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    Hi Bloss and welcome.

    I'll respond in more detail later...but could you keep the PPOR and rent it out and leverage against it instead?

    Just a thought to add to the mix.

    Cheers
    N.
     
  4. bundy1964

    bundy1964 Well-Known Member

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    Hands off I would say 50% into an income fund, Navra if you can wear 3 monthly dist. 50% growth funds including a position in asia. Gear 50% for safety and capitalise your interest.
     
  5. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Great question!

    I'm going to be busy tomorrow, but might try and steal an hour or so on Wednesday to run some scenarios for you and explain the risks associated with some different options.

    But hey, they're a strong crowd here, someone will probably beat me to it and make my contribution unnecessary! :D

    Cheers,
    Michael.
     
  6. crc_error

    crc_error The Rule of 72

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    If you are looking at income, then your best bet is to invest some of the funds as follows:

    Navra fund - income from trading shares
    Cromwell Property Trust - income from Direct commercial property
    Macquarie Buy Write fund - income from covered calls

    All 3 are designed for income..

    I don't believe in drawing down equity and then investing it into income funds as suggested above, cause you can't guarantee the income from the investment will exceed the home loan interest.. plus you want to fund your lifestyle, not paying interest! as your looking for income, not growth, so sell your PPOR rather than drawing funds from it.

    You should achieve at least 8-9% yield from the above investments, so thats 27k PA in your pocket each year to live from..
     
  7. crc_error

    crc_error The Rule of 72

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    why would he put money into growth funds and asia funds when he specifically said he wants income? Asia funds are not income funds, but growth funds.

    Its not what you or me would do with the money, but how the OP can achieve the results HE is after..

    again gearing is silly in this instance, cause he doesn't want interest commitments.. he wants to support a life style. we cant guarantee the market will return over 9%PA which a margin loan commands.

    gearing is for long term growth investments.
     
    Last edited by a moderator: 23rd Jul, 2007
  8. Nigel Ward

    Nigel Ward Team InvestEd

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    Hi Crc

    Can u tell us a bit more about Cromwell? It's not really direct commercial property but I think we all get what you mean.

    As this is unlisted, what's the liquidity like? What have returns been historically? What % of distributions are tax-deferred?

    Interested to hear more.

    Cheers
    N.
     
  9. crc_error

    crc_error The Rule of 72

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    cause then he would only have 1/2 the amount to invest into income funds, cause his rent would only cover the property at 50% LVR, leaving the other 50% to invest into incomefund. he mentioned he needs at least $27k PA

    Residential Property is a growth asset, not a income asset. Commercial Property on the other hand is designed for income... hence I suggested the cromwell direct commercial property trust.
     
  10. crc_error

    crc_error The Rule of 72

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    You can read more about it here Cromwell Investments - Products Overview

    it is a direct property fund as the fund directly purchases office etc properties and leases them out. Not via LPT's. Your a part owner or a syndicate owner of the portfolio of properties.

    you should expect about 8.5% PA monthly income with a tax deffered component.. you would need to read the PDS to find out more details.. but I believe this fund pays monthly as well.. and its fixed, not like with LPT's.. so someone looking at collecting montly 'rent' from commercial property, but without actually purchasing one directly, this is the next best thing.. Plus your a owner of a portfilio of properties so if one is vacant, you don't loose your rent for 12 months (as it takes allot longer to get a tenant into a commercial property)

    As for liquidity, I think there are 6 monthly withdrawals, so its much the same as owning direct property...
     
  11. crc_error

    crc_error The Rule of 72

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  12. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Can you gear into this fund ? What LVR ?
     
  13. JIT

    JIT Well-Known Member

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    From memory there's very few unlisted direct commercial property trusts that allow individuals to gear - I can only think of one, BT is the fund manager, they had a BT Office, BT Retail, and BT Industrial Trust too I think.

    GSJ
     
  14. Bloss

    Bloss Member

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    Why could we not access some of the $1 million dollars of equity we have in our six ip's which are cash flow neutral, and in 2 years should be cash flow + and add that to the $325k and get into something that pay's around the $60k/year???

    Obviously not the same as what has been discussed here, but a mate of mine has been having a nice result to date with these.

    http://www.am.australia.db.com/inde...&objectid=38598AC6-3B93-11D6-878600B0D068149B

    I realize that for the return there is some risk, but how much would something like this have?

    Thought's anyone

    Dave

    PS, trying to get my Boatboy name sorted out, but am still waiting on my notification email from the webmaster, so have to stick with the Girly Bloss tag for now.
     
  15. JIT

    JIT Well-Known Member

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    Leveraging into an income fund...

    Hi 'Bloss' :p ,

    $1 million in borrowings (for simplicity, and secured against your $1 million in equity) at 7% interest cost = $70k pa.

    $1 million borrowed funds + $325k cash = $1.325 million to invest

    If you invested this money into an income fund or funds earning about 10% pa, that will give you an income of $132500 pa.

    So, Income - Interest Expense = 132500 - 70000 = $62500 income pa!

    Easy, isn't it!

    Still have to pay tax on that income though, which will vary depending on how you are structured...

    The issue here though, which was debated endlessly in the 'Navra no longer an income fund' thread, is that you are leveraged at 75% LVR into income funds.

    GSJ
     
  16. coopranos

    coopranos Well-Known Member

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    although it will take a little while to get your head around the concept, growth IS income depending on your strategy.

    I think MichaelWhyte will probably give you seem pretty good ideas, and I think he has the spreadsheets all set up already, so I will just drop a couple of ideas if only to give you something else to think about, even if you dont agree!

    Re: cromwell p/t - I am personally not a massive fan of these sort of deals. I am sure a lot of people make money out of them, but I have seen far too many stories of retirees losing their life savings in these things, particularly if you are cashing in your chips. I would think you would need to go to a whole new level of conservatism when making the big retirement move, because you dont want things to go well until you hit 60 and then hit the wall.

    Your PPOR - there is a 6 year main residence exemption available as long as you do not acquire another main residence. Personally I would rent the PPOR out, rip out the equity and whack it into some liquid investment (perhaps an income fund, or a growth fund in which you can sell down units to fund your living costs). That way you get the income/growth from the managed fund, plus the growth on the property, instead of cutting the legs off of all future growth by selling it. As long as you keep a nice LVR, if you need more money out of the PPOR as it grows you can just rip it out, then if you decide to sell it in 6 years you will still get your CGT exemption, plus it will probably be worth 600+ by then (which equates to another $300k being able to be put into managed funds, which could give you up to $40K more per year if you margin lend on it and get 15% income).

    Also be sure to have a read of Steve Navras LOE article under the articles section, it will explain things a lot more clearly than i could!

    Good luck, and enjoy planning!
     
  17. Bloss

    Bloss Member

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    Hi Bloss:p

    Good on ya GSJ:) ,

    Sound's like a bit of reading on the 'Navra no longer an income fund' thread, is in order.

    Dave
     
  18. Bloss

    Bloss Member

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    I'll look forward to seeing what Michael has to say as he seem's to have made it work .

    Could do that, but as as stated will need to throw a fair wad of fold at it to get it to a similar standard as our other IP's. Our tenant's all have nice houses, our's is crap.

    Certainly not discounting it as an option though as we are close to rail/school/shopping and gateway arterial and being a 50mx10m block with a 50m road frontage, may be able to do duplex at a later stage ......................maybe


    I have started wading through it, but it's hardly Clive Cussler.:D

    Essentual reading none the less

    Thank's.

    Dave

    PS, happy with myself, finally figured out multi posting.

    Now if only I could use my powers for goodness and nicety:)
     
  19. coopranos

    coopranos Well-Known Member

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    Also might be worthwhile having a read of Michael Yardney's book, basic property stuff that you are probably well past, but good section on LOE.

    If it can get a tenant to pay rent thats all you care about!
    Dont do that, not when you are so close to retirement!
     
  20. Bloss

    Bloss Member

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    Actually going to the Michael Yardney seminar on 29/7 in Brisbane, so hopfully will hear something then.

    Dave