What to do with $325k

Lurking in the background taking it all in.

I havent commented on the Navra fund yet as I'm still getting my head around it.

I'll just mention again

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.

Dave

 

But this is what I think you dont understand - with due respect - the OP is after income, not to 'get rich'. He has already done very well, having 6 IP with low LVR and $325k available to him to invest.

He already has great capital growth through the 6 IP's he has. Now he is after regular income to fund his life style. $325k will get him his $25k PA he is after from a safe low risk investment. Borrowing more money, drawing out equity and margin lending those funds only greatly increases risk for him.

When you make a investment, you need to have a goal, and the goal of the OP in this case is to get regular income.. so lets look at some good income investments, not capital growth investments. Lets leave the IP's there for more future capital growth, and use his $325k to get him his $25k income he requires.

I understand that gearing is what you need to employ to 'get rich' however the OP has already 'made it' and reached his goal. Now he wants to live life and needs to fund his life style. He also indicated he will not be near phones and internet, so he can't monitor his investments.

So why take further risks with large borrowings when he doesn't need to?

Most posts here are focused at growth or building wealth statergies.. which aren't applicable to the goals of the OP.

I do understand the stratergies, and do understand the risk.. and I also understand the OP doesn't need to take the risk your suggesting to reach his required income level of $25k PA.

 

The original poster does want an income eventualy of 60K by rough calculations thats a 19% return on investment needed and that is a big ask to have as a long term average. Last published average 10 year return on property trusts is 15.8% and that is well short of 19%. Shares ran at 12.8% during that time.

So how without gearing are you going to find another 3.2%?

 

Boatboy, I hope some of this discussion is helpful In the end you need to digest this information and make your own mind up on what you wish to do and risk your confirtable with

These stratergies people are suggesting here do work and will provide long term wealth creation, but from what you have told us, you don't need to do this.. you need beer money!

Drawing down equity will only increase your interest commitments, hence reducing your income.. Selling down the ppor will give you CASH to invest with no commitments of interest, hence ALL of it is income WITHOUT gearing..

Drawing down equity is suitable for capital growth investments and long term wealth creation, not for income based investments.

Facts remain, income investments include commercial property, LPTs, covered calls (see ASX statement on covered calls, they say they are low risk income producing stratergie)

Shares, & residential property are long term GROWTH investments, not income investments...

Gearing magnifies your result whether loss or gain, and increases RISK.

 

I'm sure his geared 6 IP's will continue grow in that time, and in the future when he does want his 60k PA, he can sell one of the IP's using the cash proceeds to invest into income based assets.

He is in a excellent position!!! I wish I was in his position

 

$60k will be nice as it will allow us to re-invest or do a project per year to increase the portfolio

$25k will do in the short term, as that will let us live quite well on the boat in Malaysia.

This post here http://www.invested.com.au/31882-post4.html implies that we may well be able to spend our after tax Australian $$$ [$325,000] through a Vanuatu company name and pay zero tax on those investment's as long as we satisfy the NON-resident ruling.

When saying close to retirement be aware that we will be mid 40's not 60's if this help's in the discussion.

Keep it up, it's all good.

Dave

 

So these investments that pay "regular rent", is there any variability in their returns? What about the risks involved? Are you just assuming that because something is called an "income investment" that it will always produce the same income?

I assume by 'trading' you are referring to navra, recommend you have a read through past posts so you understand what you are talking about here.

Again, this is a common misconception about the LOE strategy, for some reason people assume that if you are LOE then you are riding at 98% LVR and if your property doesnt grow this year you will hit the wall.
Perhaps instead of making such ridiculous assumptions, run the numbers with a 50% LVR and AVERAGE growth over a 10 year period. I think you will find it quite conservative when you treat LOE as living off equity from 6/7 years ago rather than living on your equity growth next year. One year of stagnant or declining market wont put you out of business (however in your scenario of relying on one year of your commercial property not producing income means you dont eat).

Just because you take a conservative approach doesnt mean you dont gear, that is a ridiculous comment. That is like saying "shares are risky" or "property is risky".

Funny how you are able to make assumptions about "income investments" always returning the same income every year, yet if someone incorporates a long term growth average or long term interest rate average all of a sudden there are too many hopes.
You HAVE to make some assumptions when creating a strategy, then you factor in contingencies into your plan.
It constantly amazes me how seemingly intelligent people can look at a plan that states "Assuming long term average growth of 10% pa..." and then start screaming "but what if it goes down this year, what if interest rates go up this year!!!!", yet they are perfectly comfortable suggesting that a commercial property trust will give increasing income year in year out regardless of market conditions.

 

crc_error,

I can see where this thread is heading, we've had this discussion before a few months ago - I had very little success arguing the same points you are now with the same people, so don't waste your time!

BoatBoy, good luck looking through all these posts to find the best solution for your particular circumstances.

GSJ

 

Hi Boatboy,

Certainly if I was at an income preservation stage of my life the last thing I would put my "can't afford to lose" money into is any fund that relies on "trading" to produce income. I don't care how brilliant the trader or the system is, the realty is that trading is a risky strategy. Research this area very carefully before committing funds to it.

One idea may be to have at least the next 2 - 3 years living expenses invested in cash (eg high interest online account such as Bankwest etc). You then know that your first few years of sailing around the world is guaranteed from a financial perspective. After this time there is highly likely to be more growth in your IPs and whatever else you decide to invest the remainder of your PPOR proceeds into. Also after that time there will then be greater potential to implement a more conservative LOE strategy with increased equity in your IPs. In fact if it was me I would always keep 2 - 3 years of living expenses in cash on hand and continually top it up with income from other investments and LOE if needed.

Certainly if I was in your situation to live a life long dream of sailing around the world it would be heart breaking if through having taken a riskier strategy to find it all go pair shaped and have your dream cut short.

Obviously this is not advice. I tend to be more conservative than many on this forum so bear that in mind.

Cheers - Gordon

 

What about a fund that buys blue chip shares on weakness and sells into strength?

Would that be as risky?

 

What do you consider "success" to be? Everyone agreeing with your point of view?
That would be a pretty exciting forum then!
GSJ: why not, for the sake of fun, outline your points and arguments in another thread and lets have some discussion on them.
Also outline a scenario to explain what you are trying to say as this will probably make it easer.

 

No you don't have to agree, just understand...And no, I am not going to elaborate any further, just refer to the locked up thread I made a link to .

GSJ

 

Still sounds like trading to me, 'blue chip' or not.

GSJ

 

Blue chip doesn't mean 'risk free'. I recall the days when CBA was $30 and fell to $22 in the space of weeks...

I think most people would consider 'safer' but certainly not 'risk free' when one extracts 'rent' or 'company profits' as more certain than a trader thinking he is 'buying cheap and selling expensive'

If you buy CBA, then I can assure you they will pay 2 dividends twice a year.. however I can't assure you their growth would be up year in and year out.. or that I can pick the tops and bottoms of the share price consistently.

So if I invest enough funds into CBA where the 4% PA is sufficient for me to live on, I don't need to care about its capital growth, whether up or down.. as I know I will get my pay cheque twice a year...

Its when people are 'trading' they take a risk 'hoping' their strategie produces a profit.

With commercial property, you have a 10-15 year lease signed, and you know how much rent you will collect from the tenant each month. This wont change and will be very steady unless your tenant leave's, goes bust etc. Cromwell has 'blue-chip' tenants so the risk of this happening is reduced. You don't care about the 'value' of the building as its the rent your concerned with to live on.

What do you think is a safer bet when on a boat at sea? A trader getting it right each time, or a blue-chip tenant paying their commercial lease each month?

I'm glad you can see the point I'm trying to make. And people here saying that gearing doesn't increase risk, then they obviously don't understand what gearing does.. All you can do is manage the risk to the best of your ability, not pretend it doesn't exist because of some scheme you have implemented!

 

Hi Simon,

I don't want to get into any trading related debates. The above is still a trading system and to me is not what I consider investing. It relies on certain rules and probabilites which in my mind are much riskier than the alternative of holding a long term portfolio of quality shares, LPTs (or index funds/ older LICs) etc. The odds of success seem stacked much more in favour of the long term investor.

No amount of debate on this subject ever seems to change the mind of those involved. So I won't waste any energy entering into one.

Cheers - Gordon

 

Cool, that is really awesome.

 

Not in the case of cromwell. Cause a lease is signed, and the rent is paid, and is fixed for the lease period. Does your rent vary when you sign a residential lease? I'm not talking about all income investments. Those which rely on 'trading' or capital gains will vary according to their success that month. As in the case of Navra. LPT's will also vary cause allot of the income paid is also capital growth. This is why you need to read the PDS carefully so you understand how the income is obtained.

LOE can work, and may suite some people, but its not a 'one glove which fits all' You need to understand the risks associated with it and be comfortable with them. Capital growth for property over the long term is around 8%PA.. If commercial property pays similar amounts in yield, why bother with complex refinancing, interest rates, tenants, maintainance etc.. You really think the OP wants to worry about blown hot water units when he is at sea??

No one is saying its 'risky'. I'm saying that gearing increases the risk.

There is nothing funny about it. If you understand commercial property - which seems like you don't - then you would know that the long term growth for it is actually higher than residential property. You would also understand that yield is allot higher than residential, and the lease periods are 10-15 years, not 6-12 months. Plus into the lease agreements is built in a CPI increase, so this is guaranteed over the term of the lease, so then you would understand they give increasing income year in and year out regardless of market conditions. Plus all the outgoings are paid by the tenant, so not need to worry about blown heaters and hot water units.. With residential property, you need to factor all the other costs which reduce your income. The disadvantage with CPT is that the capital growth is far more volatile, but this shouldn't worry the OP because he is interested in its income, not relying on growth/equity for income as you do with your stratergie.

 

Everyone makes their own decision on how they invest.. I'm suggesting one solution for the OP's requirements...

Its simple, low risk, will pay regular monthly income, doesn't rely on trading, capital growth, interest rates, LVR's, blown heaters etc..

If you prefer more complex strategies, because they sound good, then you can invest into them.. and you can share your experience with others... but there is no need for people to get upset if others choose a different path to get a result they are after.

Your stratergie is a growth - wealth building - stratergie, not a income one.. so we don't need to make the glove fit onto hands which are of different sizes.

As for the Navra fund... time hasn't shown how it performs in a bad year.. so far I have seen underperformance in stella years..