$2.5 Million portfolio, where to next???

Actually the benefits of families working together like this way are many:
- spread land tax thressholds
- spread servicing across 3 x working adults and their full time income
- Tap latent equity which baby boomers have accumulated but can not access based on their own income
- avoid large CGT bill and liquidating of assets. Kids maintain their inheritance and parents start scrounging off the gen Xs and Ys income.
- gives the old folks something to keep mentally active in retirement (manage family portfolio),
- avoid uncomfortable pre-nup agreements or messy situations with future spouses or ex spouses as you came into the relationship with limited “personal wealth”
- stream passive income to parents name in retirement as their PAYG income diminishes (tax efficiency)

But one caveat - can be very messy and often not worth the headache. the Ethnics may be a bit wealthier than the average but it doesn’t mean they are any happier

 

Setup a retirement village.
Buy the land and put your parents house on the site .
Never sell
Add houses as your family grow
Rent other houses to your relatives

 

Interesting concept here...
I’ve been exploring aged care and retirement villages with the aging population crisis pending

 

1. I'd be suggesting to Mum and Dad that they need to redirect all that surplus cash flow from income and rentals towards paying down the remaining 350K against the PPOR . I dont understand why the PPOR debt is that high and the INV debt is almost paid down.... I'd be making the PPOR debt my #1 focus .

2. Beyond that, Dad's in a great position. Subject to borrowing capacity, he can potentially extract
80% of the value of Hoppers - 320K. This would provide 315K of cash to use towards other deals
80% of the value of Tarneit - 480K. This would provide 380K of cash towards other deals
80% of the value of WV - 384K. This would provide 354K of cash towards other deals

Thats enough cash ($1.049 Million in fact) to go and buy more properties ... and ( assuming the suggestion at point 1 is adopted) it would allow the PPOR to remain unencumbered as well, once its paid down.

I'd be buying outside VIC. Cash cows. Dual Occ's or NRAS. But thats neither here nor there right now. They key is borrowing capacity , and without it nothing can happen. Because you havent provided details of exact rents for each of Dad's properties, dependent children under 18, his credit card limits, his personal loans, his car loans, his living expenses etc.... no way to know.

But assuming he is a cleanskin except for the existing 135K of debt....( 5 + 30 + 100) and assuming he is getting 60K of legitimate , straightforward rental income already and the 2 x cash cows gave him another 70K , he can probably eek out @ 1.4 -1.5 Million of additional funds from a lender such as Firstmac for example ..... but its all hypothetical until Dad sits down with a broker to look at it in detail...

There's a small amount of equity here at 80% LVR, but hardly worth bothering... 36K wont get you anywhere. Bank wont care about the extra income you earn. It cant be a PPOR and a rent producing property for their purposes. So its great you get the extra income, but it wont improve your borrowing capacity. Banks will ignore it. Instead, use the extra 10.4K per annum to make extra repayments. It will make a HUGE difference to paying down the 300K loan, and that's what will get you more equity and more borrowing power .

Be a bit careful... This wont necessarily help with borrowing capacity as banks generally cap acceptable rents to 6% - and it may make the property very hard to sell in future if you don't do it in a way that it just looks and feels like a 4 bedroom house - be especially careful about adding a wet area to a living room . The extra rent may be great, but someone buying it from you may not appreciate one less living space

There's only so far you can get with non standard security types, no matter how good their rents... and because banks generally cap rents at 6% yield , even if you are getting 10% yields it doesnt provide any servicing calc advantage...

Anyway... in a nutshell. Mum and Dad should pay down the PPOR. You should do the same. As far as anything else is concerned, Dad is the key. He has all the equity and the only unknown is whether he can unlock it .The best bet is buying cash cows, otherwise the borrowing capacity just wont be there ... vanilla yields wont get it done.