What to do with $325k

Discussion in 'Share Investing Strategies, Theories & Education' started by Bloss, 23rd Jul, 2007.

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  1. Emoi

    Emoi Well-Known Member

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    And here I am back as Boatboy

    Dave
     
  2. Rod_WA

    Rod_WA Well-Known Member

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    Holy Schmoly, is that a picture of your boat?
    (If it is, I understand your plan to just sail away.)
     
  3. Nigel Ward

    Nigel Ward Well-Known Member

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    Nor can you guarantee that your growth investments will grow at a higher rate than the interest cost nor that divdendsdistributions will be sufficient to help offset that interest...

    There are no guarantees in life or investing. You are always anticipating that your investment will produce a return in excess of the cost of your capital (regardless of whether its debt or equity capital).

    I say why sell a growth asset to convert it to cash and then invest in several other, admittedly more liquid, investments if you don't have to.

    If the now former PPOR is debt free then renting it out gives say 5-6k net ungeared. I think it would be a waste of equity not to borrow against it...but cashflow capability and risks perspectives differ. Cash though buys time for growth.

    And as Coops has noted, Bloss and Boatboy can take advantage of the 6 year rule and rent it out for a few years and still have the chance to flog it off CGT free in due course if they're squeezed for cash.

    with regard to Cromwell, no it's not direct commercial property, its just an unlisted trust. In any event no point splitting hairs. To my mind it's too illiquid. Further if you can't gear against it then it's about as useful as a two-legged stool :D but that's just MHO.

    Cheers
    N
     
  4. coopranos

    coopranos Well-Known Member

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    At least you can use a 2 legged stool for firewood after the directors of the unlisted property trust choose from the following:
    a) Run to South America with the money
    b) Get drunk and lose the money gambling
    c) Hide the money under their mattress, cop a couple years in the can, and come out smelling like roses

    (possibly a little bit cynical, oh well!)
     
  5. Emoi

    Emoi Well-Known Member

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    Uh-no, not yet anyway.

    Look's like this at the moment, motor's, shafts,tank's, rudders and primer done, but give me another 18 mth's..................

    Dave
     

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  6. Emoi

    Emoi Well-Known Member

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    Thank's for the comment's so far guy's, keep them comming.

    The main reason we were thinking of selling PPOR was that we thought if we had $325k of our own cash, we would have a better chance of borrowing additional fund's to get the $60k payoff.

    The $325k if re borrowed using PPOR as collateral, would require an interest payment, eating a goodly slice of the beer money.

    I notice no one has commented on this style of higher risk but higher return stuff yet

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

    Not neccesarily suggesting this one, but something similar maybe?????

    Dave
     
  7. bundy1964

    bundy1964 Well-Known Member

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    Hi Dave they are taking a bit of a hit currently so until the dust settles you are trying to catch a falling knife. You still have plenty of time till the boat is finished so they will of sorted themselves out by then.
     
  8. TPI

    TPI Well-Known Member

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    Hi Dave,

    Yes, I think these types of funds are much better than straight income funds, especially if you are using some degree of leverage, because they offer the prospect of moderate capital growth and thus an inflation hedge.

    Note, the listed property trust sector has done very well in recent years, but this performance may not necessarily continue in the future. Also, if you look at the 5 year performance of the fund - it is 15.0% pa net, compared to the index which returns 15.3% pa net. So pretty much the same as the index.

    I would invest in this sector using index funds or ETF's instead. It's simpler because you don't have to choose between individual funds/fund managers. And also much cheaper with the lower management fees.

    The only problem is the lack of index funds/ETF's available for Australian investors - as I mentioned before, only a handful.

    GSJ
     
  9. crc_error

    crc_error The Rule of 72

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    Why do you want to gear it? Since we are after income in this case of the OP.
     
  10. crc_error

    crc_error The Rule of 72

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    I believe there is a special macquarie loan product which allows you to gear into such products up to 60% LVR. Can't recall the name of it.
     
  11. crc_error

    crc_error The Rule of 72

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    Show me which income funds pay 10% PA on a regular basis?

    I don't think the OP wants no food on the table some months!

    I think many people here are suggesting far to high risk stratergies, ie drawing down equity etc.. What happens if the market has a downer?

    The OP wants high yield investments which are consistent.. not dependant on share market returns for that year.

    He already has a good portfolio of growth properties which are neutral geared, now he needs a regular income stream.. and direct commercial property is probably the best vehicle to do this.
     
  12. crc_error

    crc_error The Rule of 72

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    The the OP is requiring income, so if he has borrowing, dividend gets eaten up by the interest, which is not what the OP is ofter in this case. So he needs a investment which pays regular income which is quite consistent.

    Exactly, so why not select a investment which pays regular dividends rather than relying on growth? If the rent cheque keeps on coming in, who cares about its capital growth! Its far more risky to rely on income from 'trading' rather than a dividend or rent from property.

    People need to understand what the purpose of a investment is.. Residential property and mostly shares are GROWTH assets, not income assets, so lets not try to make something do which it isn't designed to do! Yes, having residential property ungeared is a waste of time, cause the only real benefit of res-property is its gearing, take that away, and its the lowest performing asset class..

    its not DIRECT property as you OWN directly the property, but the fund buys DIRECT property, not LPTs. Yes its not liquid, but why do you need liquidity? We aren't going to trade the unlisted fund are we? If he does need liquidity, then he should consider LPT's which contain their own set of risks.
     
  13. TPI

    TPI Well-Known Member

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    Hi crc_error,

    I actually agree with you! - (reference to the thread 'Navra no longer an income fund' and you will see my thoughts on this: http://www.invested.com.au/7/navra-no-longer-income-fund-10214/).

    In the example I used - you only have to drop the amount invested by a small amount, increase the interest rate by a small amount, and decrease the income return by a small amount, and pay a small amount of tax, to see that you will very soon be in BIG trouble, and that 60k pa becomes much, much less!

    I was hoping BoatBoy would pick up on this on his own...

    GSJ

    PS: And who is 'OP'?
     
  14. TPI

    TPI Well-Known Member

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    Nice posting crc_error. Now we have a bit of discussion going! Where's iiinvestor :D ?

    GSJ
     
  15. Simon Hampel

    Simon Hampel Founder Staff Member

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    Assuming you are generating in excess of 10% income per year, then your gearing costs are well covered, and you then get the benefit of additional remaining income.

    I personally think that if you aren't going to aim for 10%+ income (usually because you don't want to take the risk), then you are better off to simply get a guaranteed 6% or so from a high interest online bank account.

    I personally think the risks of aiming for income above 6% but less than 10% are more risky than aiming for either 6% guaranteed, or 10%+ with no guarantees at all !!
     
  16. Simon Hampel

    Simon Hampel Founder Staff Member

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    NavraInvest has returned the following income over the past 4 years:

    03/04: 10.58%
    04/05: 16.17%
    05/06: 17.24%
    06/07: 18.53%

    ... and while there are no guarantees that you will continue to see that level of income being produced, the fact is that these distributions are real and are locked in (a drop in the market can't take them away from you). With some careful use of buffers, any downturn should be easily weathered.
     
  17. crc_error

    crc_error The Rule of 72

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    Growth ISN'T income, its as you said, its growth. What happens if the sector doesn't produce growth certain years? Are you not going to live?

    You need a income asset which pays regular 'rent'. And not income which relies on growth or 'trading'. Cause those two rely on a market going up.

    Life savings are generally lost in property developments, not buying quality commercial properties with long term blue-chip tenants. In any case, you need to consider the risks associated with your investment before you make a commitment. This is the whole point I'm trying to make, if people use these highly geared strategies with borrowings and relying on capital growth to fund the whole thing, this to me is far more risky than relying on 'rent' from commercial properties with no borrowings against it.

    If your at retirement age, gearing is something you really shouldnt be doing as it greatly increases your risk and exposure at a stage in your life where really you should have a conservative approach.

    Lets hope interest rates don't go up, lets hope the sharemarket continues to grow, to much 'hope' in your above stratergie...

    This stratergie relys on growth, and low interest rates, and is heavily geared greatly increasing risk.. Someone may be comfortable with the risks associated, but for me, I would be happy to reduce my risk in time when I retire.. People have a unrealistic expectation of the market due to the 'boom' we have experienced over the last few years.. You can't expect growth out of the market at current levels forever..
     
  18. crc_error

    crc_error The Rule of 72

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    Excellent, someone here understands what I'm trying to say!!!!!!

    All these schemes suggested by others in here only require 1 thing to go wrong, ie interest rates to go up, or growth to decrease BACK to normal levels, and then you will go without food on the table for years!!!

    Give me regular 'rent' from commercial property with long term blue-chip tenants sounds like a more stable low risk strategies to me! without the large borrowings!!!!
     
  19. crc_error

    crc_error The Rule of 72

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    And how is this income derived? from trading, so if the sharemarket has a down turn (capital growth), then this income becomes non-existent. Or returns back to the 4% PA dividend level.

    You only quote returns in years where the sharemarket has returned 20%+ PA, what about when the market was down/sideways trending between 1998 - 2003? A drop in the market can take the income from you, cause the stock value can drop, and because income from the stock market is 4%PA, it may not be enough to absorb a larger fall.

    All Navra is doing is selling down stock with a capital gain and realizing it.. Which is actually a bad thing cause as soon as you do this, you pay CGT. Its not really income, but realizing capital gain.
     
  20. Simon Hampel

    Simon Hampel Founder Staff Member

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    crc_error - most of the concerns you have are about risk. Most risks can be managed.

    You can't become wealthy without taking some risks ... although the level of risk you are prepared to take is a very individual thing.

    Don't dismiss other people's strategies just because you find them too risky - mostly that just means that you don't understand them completely.

    Have you read the Living on Equity articles ? If not - I suggest you do. Pay particular attention to the sections on risk management.

    There are plenty of investors here who have lived and invested through multiple market cycles and are fully aware of what happens during each phase of the cycle - don't just assume that everyone here is buying shares and funds trying to "get rich quick".