$2.5 Million portfolio, where to next???

Discussion in 'Investment Strategy' started by Kidgeeq, 6th May, 2019.

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  1. Kidgeeq

    Kidgeeq Active Member

    Joined:
    11th Nov, 2017
    Posts:
    39
    Location:
    Melbourne
    Hey Guys

    Here is a breakdown of my current portfolio.

    Portfolio Valuation
    4 bedroom in Tarneit = $600,000
    3 Bedroom in Truganina =$420,000
    3 Bedroom in Hoppers Crossing =$400,000
    4 Bedroom in Wyndham Vale =$480,000
    5 Bedroom in Wyndham Vale (PPOR) =$650,000

    Total Value: $2.5 Million dollar portfolio
    Total Owed: $800,000


    Structure:

    Father, Mother and Son Team
    Father (58) Mother 49 and Son (26)

    Income: Per Annum
    Mother: $70,000 after tax
    Father: $65,000 after tax
    Son: $85,000 after tax
    Rental Income: $85,280


    Out of the 5 properties, 3 are in fathers name, 1 is in Mums name (PPOR) and 1 is in my name.

    I’m sort of stuck as to where to take this portfolio. I feel as though it needs to go to the next gear but I’m unsure as to what direction to take. The structure is very limiting I feel.

    What steps have you guys taken or would you take to expand the portfolio in today’s market? Would you restructure first? I have full control of the portfolio and was responsible for each purchase

    Any help/ideas will be much appreciated.
     
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  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    There are a range of issues you may have with these properties

    1. They arent yours. Only one (and you live in a house someone else owns?)
    2. They are held on trust and you are underpaying land tax I suspect. Risk of penalties ?
    3. They are held on trust and you are underpaying income tax I suspect (Part IVA at the very least)
    4. You didnt mention debts. A portfolio is only worth its net value.
    5. Estate planning ? What happens if Mum or Dad die ? If you have siblings and/or they dont have a will specifically addressing your property you will be impacted. Doesnt matter what is said.
    6. No main residence CGT exemption.
    7. Parents may be impacted by the asset and income as they age. The problem will get worse, not better

    Lack of planning is evident. It will prevent access to future finance and equity and will be very expensive to unwind.
     
  3. devank

    devank Well-Known Member

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    One simple plan of action.
    1. Workout how your life would be in 20 years time. Look at your friends & family who are 20 years older than you. This will take you to age 46.
    2. Decide how much passive income you want at that stage. Not just you. It'll be your future partner and kids. Lets say $200,00 per year (in 2039)
    3. At 4% return, how much assets do you need to have? $200K/4% = $5 mil. That's how much you need to accumulate.
    4. Make sure to diversify a bit. At least, spread around each state.
     
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  4. Chicken or Beef?

    Chicken or Beef? Well-Known Member

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    What happens when a girl enters the picture?
     
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  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Lots of good advice there

    comes down to

    Exit Strategy :)

    ta
    rolf
     
  6. Chicken or Beef?

    Chicken or Beef? Well-Known Member

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    But everyone always says it’s not advice?
     
  7. kierank

    kierank Well-Known Member

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    That is good advice :D.
     
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  8. Redwing

    Redwing Well-Known Member

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    upload_2019-5-6_13-51-36.png
     
  9. fols

    fols Well-Known Member

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    Diversification. Those properties are all within a stone throw of one another.
     
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  10. euro73

    euro73 Well-Known Member Business Member

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    Location:
    The beautiful Hills District, Sydney Australia
    And all in Vic - with low land tax thresholds . You , mum and dad need to look elsewhere if you keep growing .

    With 85k of rental income against 800k of debt -I’d assume these are P&I and being paid down ....?
    But while that may be the assumption at first glance ... Problem is - you haven’t mentioned individual property debts and rentals - you have only mentioned aggregates ...and because the portfolio isn’t actually one portfolio owned by one entity , the situation may not be that straightforward. Aggregate information isn’t very useful unless it’s all one entity. for example , Is your 1 property holding most the debt and producing the least rental income? Or is dads 3 properties that are the weakest link? Is the PPOR unencumbered ? That’s the sort of detail you’d need to lay out for anyone to start to be able to provide an analysis for you ...individual information for each property
     
    Last edited: 6th May, 2019
    Kidgeeq likes this.
  11. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    It is general advice, meaning not taking into account any personal circumstances, goals, risk profile, resources, future changes, electoral or legislative changes, tax considerations etc :)

    Im sure we could come up with 30 more disclaimer add ons

    ta

    rolf
     
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  12. Wukong

    Wukong Well-Known Member

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    Do you have control over the portfolio or are the 4 properties belonging to your parents their retirement fund?
     
  13. Bris developer

    Bris developer Well-Known Member

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    Pros
    - your family is likely migrants - common to see that level of trust and integration. Good as you pool risk and can amalgamate servicing but as others have said without planning, and a clear strategy it can be an expensive nightmare to unwind.

    Cons
    - all resi
    - all vic
    - land tax but you are likely ok as u have spread around 3 x individual thresholds. Trusts are a nightmare.

    800k loan on $2.5M — Your lvr is 32%. Far too Capital inefficient for resi.

    My advice
    - try and gear to at least 60% LVR on parents (low debt due to age)
    - 80% LVR on yours
    - unlocks about 700-800k cold hard cash as per my calcs
    - try to avoid cross securing of loans

    - then u have only say $1M (vs. $1.7M Capital) blocked generating 3-4% growth on a $2.5M asset base .
    - you may be slightly neg geared but as you have cheaper high yielding properties... your cashflow loss should b minimal.
    - now you maybe lose $20k p.a across the portfolio (tax deductible)and generate $75-100k p.a paper gains (concessional taxed)... THE WHOLE POINT OF RESI INVESTMENT is leverage and tax arbitrage... You get rich over decades and the Govt gets less of your hard earnt.

    Exit strategy on the resi portfolio
    - sell down when parents are in retirement (have minimal PAYG Income) to minimise CGT
    - subsitute the securities over time to diversify into better suburbs, development plays, interstate markets entering an upswing etc



    The remaining 700-800k you need an income / active strategy for your family as they enter retirement.

    0. Cash up and wait for opportunities
    1. Buy a business
    2. Buy shares
    3. Dump cash into super and generate tax free income
    4. You could buy outright an ungeared 700k commercial property in a trust and generate 50k pa to live off
    5. Income and Servicing improves, build a deposit with a few years of further PAYG sweat and hard work and voila , you can expand again in time for the next upswing
     
    Last edited: 6th May, 2019
  14. Kidgeeq

    Kidgeeq Active Member

    Joined:
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    Location:
    Melbourne
    Here is abit more information

    Mum owns the PPOR: it’s owing $350,000 valued at $650,000

    Dad owns three rentals
    Hoppers owing $5,000 valued at $400,000
    Tarneit owing $100,000 valued at $600,000
    Wyndham Vale owing $30,000 valued at $480,000

    I live in my PPOR
    Owing $300,000 valued at $420,000
    I charge 2 house mates rent of $200 per week

    Estate Planning
    I’ve ensured all my siblings (over 18) have purchased a property. Those under 18 will follow suit. At the end of the day there is cultural element that makes this situation abit easier.

    My current project:

    convert my dads Tarneit 4 bedda into a rent by room setup (its 1 minute walk to supermarket,train station, and everything else you can think off. At $200 Per room bills inclusive I should generate $41,000 per annum before cost. If this strategy works I’ll likley convert garage into two smalller rooms and add a shower in the second living room area and have a 6 bedroom sharehouse

    Aside from the above I’m stuck as to actually expanding portfolio. I guess a restructuring is much needed.

    You guys have dropped some gems however! Awesome value

    Many thanks
     
  15. Kidgeeq

    Kidgeeq Active Member

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    Melbourne
    Awesome value! I’ll be back with a few questions in a few days once I go over some of those suggestions
     
  16. euro73

    euro73 Well-Known Member Business Member

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    Location:
    The beautiful Hills District, Sydney Australia
    Mum and Dad have all the equity ....
     
  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Any siblings?
    Who can borrow? Undrawn borrowings or cash?
     
  18. TMNT

    TMNT Well-Known Member

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    One thing no one has said is well done to get into a strong position
     
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  19. jprops

    jprops Well-Known Member

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    He doesn't have a 2.5 million dollar portfolio.
     
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  20. TMNT

    TMNT Well-Known Member

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    so?

    its 1.7m equity
    as someone mentioned if they are a migrant family, then it doesnt really matter on a personal level, whose name its under

    I have some properties under my parents name
     
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