What to do with $325k

While not pretending to know how LOE actually work's yet, or who provides the lending required, the reasoning behind thinking we could do something was that when using some of the spreadsheet's and punching in

9% interest rates [currently mid 7%]
5% growth on property
9% rental yeild [ it is currently ]
3% inflation

Show's $93k increase in val in the first year.

year 2 $97,650
year 3 $102,533
year 4 $107,659
year 5 $113,042

I expect cap growth to be better than that as it has been historicaly 11% in the area since about 1974. The last 3 years have done way better than that.

We havent thrown the PPOR sale of $325k into the mix yet either.

Dave

 

the other good thing about the cromwell fund is the unit price doesn't move.. sits at around $1.. so its fairly capital stable.. with pritty much fixed income..

 

Hi Dave,

OK, ran three quick scenarios with outcomes as follows based on the assumptions shown in the spreadsheet attached.

Option 1: Sell PPOR and buy $325K worth of income generating managed funds, LOE by drawing down 65% of growth pa. (No margin loan, just cash invested, if you ML it then your income goes up by the $325K margined amount times the spread between your cost of the loan and the income generated).

$81K pa income

Option 2: Sell PPOR and pay down $325K of IP debt, LOE by drawing down 65% of growth pa.

$74K pa income

Option 3: Keep PPOR and turn into IP, LOE by drawing down 65% of growth pa.

$75K pa income

All of these options assume that you are comfortable living off equity to supplement your passive income. It draws down only against your "equity growth" by 65%, leaving 35% in there to offset CPI and to continue to grow your net worth. This also allows for the "rainy day" problem when the capital gain is not sufficient to fund the income for a given year and you need to chew into your net worth a bit.

Just some more thoughts that I quickly threw together. I might think of some other options tomorrow and see what it looks like.

Cheers,
Michael.

 

Good on ya mate, I'll have a look through that with a rum or 3 while the other boy's hit each other with stick's.

Ta

Dave

 

Well Boatboy,

You are probably totally confused by now. You will have to decide what your definition of success is. We all have our biases so seek advice, do your research and go with what you feel most comfortable with.

Cheers - Gordon

 

Gee mate, I just wanted a few beer's and a Roti on a beach in Malaysia

Dave

 

Its called a discussion/debate. I'm pointing out what I see as pit falls or points which need to be highlighted.

Where did I say they are wrong or right? Your more then welcome to highlight risks or disadvantages in what I'm suggesting. I'm not going to be offended. I always said its up to the OP to make their decision based on the discussion taking place..

And show me where I'm complaining? Some are complaining that I'm highlighting issues I see with a certain stratergie.

 

Excellent thread Guys. This discussion is raising a lot of interesting thoughts in my head. Keep it up!

 

I thought so, but the Sysop here is getting upset that I'm challenging certain stratergies! Then accusing ME of getting upset!!! lol Presumably ones he endorses... o well..

Different opinions is what makes investing fun.. and allows everyone to learn from each other.. there is no 'right or wrong' as the sysop accused me of saying about his stratergie.

 

I appreciate it as well guy's, thank's.

It has certainly got me running around like an idiot trying to DEFINETLY find out if I can have a Company Name in Vanuatu to trade through , so no tax [ only if deemed a NON-resident of OZ and not including property in OZ] http://www.invested.com.au/31882-post4.html

Also trying to find out who'll lend me money to do the LOE thing working on the numbers in post http://www.invested.com.au/31948-post61.html above.

Any suggestion's on lenders who'll understand this approach???

After looking at MichaelWhyte's numbers on his XL spreadsheet, it is pretty exciting to see that this should actually work.

Thank's all, much appreciated, as I had no real Joy on the other site.

Dave

 

MW, Will doubling up the $325K via a margin lender make a lot of difference?

I am also getting a bit out of this thread thanks mate and thanks Dave for starting it.

Reckon we should have a cocktail party aboard this boat at some exotic locale in 12 months time - have a investment meeting to make it a tax deduction!

Do you need a deckhand to help you get to Langkawi?

Cheers,

 

If you double up with a lower risk fund, like a income fund, then no, but you could put 1/2 into something more conservative, and then borrow the other 1/2 into a growth investment but more aggressive?

Hopefully one day I can join you guys on the island when I make it!!

 

I reckon there'll definetly be a few sherbet's happening on board for anyone who has offered support to help us pull off the dream

But the actual berth position's for passages are being reserved for the "actual unpaid workers" who help with sanding, fairing and building.

Strangely after 3 year's, none of these berth's have a name on them yet.

What are you like at doing totally mind numbing grunt work??

All my mates avoid me like the plague when the build is on, but rest assured, they'll all come begging a ride when she's in the ****, just like last time.

There'll be dissapointment for most this time.

Dave

 

I did 17 years in the Army. I remember painting rocks and then when I was proudly finished being told to turn them over and paint the bottoms - I was aghast as they were still wet. Back then all kerbs in the Army were painted red and white to denote parking etc. I painted a few km of them too ...

When I crewed in Perth I was the only one who was free when it came to scraping the bottom or similar jobs. Funny how they all turn up to race but their bosses wont let them have a "make and mend" day off...

But Newcastle to Brissy is a bit far to pop over to lend a hand. So that berth wont get my name on it either

 

Sound's like you're well qualified for the job

With that sort of attitude there may be a place for you yet.

We'd like a "Boatboy" in Langkawi

Dave

 

The LOE stratergie I think is a excellent one.. and I have employed parts of it over the years. However I feel that its perhaps not as well suited for the OP as I feel gearing at high levels during a 'retirement' phase of life is not the best thing to do.. But thats MY opinion, doesn't mean I'm right or wrong or visa versa.

I don't think your/other strategies are 'wrong' or 'right'.. In the end the person who decides this is the OP in this case and he will make his own decision on what/how to invest. I'm just putting forward what I would do in his situation, and why I think what other people are suggesting may not be what I would do.

If I came across as putting down, or dismissing others stratergies, I apologize for that.. and I'll try to word what I'm trying to say a little better next time

 

Simon,

Not much based on the model I built. Based on the assumptions on income/growth for the Navra fund it adds five thousand in income. But its a conservative model and doesn't consider capitalising the interest.

That makes sense when you think about it in simple terms. The spread (difference between rate earned and rate paid) is only 1.4% odd. i.e. a cost of 8.6% and a yield of 10.0% only gives you 1.4% net profit on the extra $325K margined portion.

However, she's a pretty robust structure as it stands currently being neutral on IPs and no margin loan. So, a bit of a risk ante up makes some sense. With a Navra type fund, you don't have to worry too much about the capital movement unless you get into margin call territory which would be unlikely on a 50% LVR. So, just sit back and ride the ups and downs comfortable in the knowledge it should distribute at least 10% pa in income. If it does the 20% odd it did last year, then that's an 11.4% spread on your margin loan costs, or an additional $37K in income. And if you capitalise the interest on the margin loan then its an additional $65K in income!

It also means you wouldn't have to LOE last year, but could live off the managed fund income alone. i.e. $650K invested at a cost of $28K ($325K at 8.6%) generating $130,000 in income ($650K at 20%) gives a net return of $100K even assuming you don't capitalise interest. With capitalised interest it goes up to $130K.

$100K to $130K Dave and no equity draw down, what do you say?

I like that approach because it means the LOE is your fallback position. You've got some good passive income even if the $650K does 10% pa ($65K-$28K=$37K), but with upside potential to a lot more. If you want even more cash flow, then capitalise the interest on that margin loan portion. That would give you the $28K back and turn even a 10% return into a $65K income year. The growth retained in the fund should offset your capitalised interest and leave your LVR in the 50% range.

So, to summarise it:

• $325K proceeds from sale of PPOR invested into Navra and margined to $650K at a cost of 8.6% pa.
• IPs stay as is, neutral cash flow, doing their thing growing your net worth.
• Live off the proceeds of Navra, capitalising the interest on the margin loan portion.
• Forget LOE, you've got enough to live off your income managed funds now! Save LOE for a really rainy day.

Now, THAT's what I call a strategy!!

Cheers,
Michael.

 

Excellent, I like this!! pretty much what I suggested, with a few tweaks.

One point I don't like is we are relying ONLY on Narva.. I would choose 2-3 'income' type funds to complement the Narva fund. I would add a LPT into it and perhaps a covered call stratergie (if you can gear it).

I still like the cromwell style fund for you, due to its low risk, regular fixed monthly income. (if you want to gear it then I believe Macquarie has a special type of loan for unlisted property funds) I believe there are a couple of other companies out there doing simular things as cromwell...