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30k in cash- want to get started

Discussion in 'Other Asset Classes' started by Inov8ive, 7th Aug, 2016.

  1. Inov8ive

    Inov8ive Well-Known Member

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    I have a decent property portfolio and have bought and sold many properties over the last 8 or so years. Recently I have been thinking about diversity and getting started in other asset classes and am wondering where to start. I have been reading up on stock market trading, commodities, bonds, managed funds etc. I was thinking about buying some blue chip stocks and just forgetting about them but have thought that some good advice at this point good could really make all the difference in the long run. I am hoping to get some opinions from you guys on what you would do with this cash if you were in my position with the same level of knowledge/experience. I have 30k to invest, I can add to this regularly, I am looking medium to long term and I am prepared to be exposed to a medium level of risk to obtain good growth. All opinions are welcome.
     
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  2. Tyler Durden

    Tyler Durden Well-Known Member

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    Start right here on PC...

    Listed Investment Companies (LICs)

    Make a nice hot beverage, there are a few pages to read.
     
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  3. Inov8ive

    Inov8ive Well-Known Member

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    haha thanks, I did see this thread and think that I should probably read it. Just looked really long haha. But if it's full of good stuff then I will gladly have a read. Cheers
     
  4. Tyler Durden

    Tyler Durden Well-Known Member

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    It's full of lots of good stuff, excellent content by @austing and @The Falcon
     
  5. teetotal

    teetotal Well-Known Member

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    Invest in New start-ups.
     
  6. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    That can be lucrative but wouldnt fit the OPs profile as he is looking for medium risk where start ups are ultra high risk.
     
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  7. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    Have you considered NRAS?
     
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  8. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    @DaveM do you recomend NRAS for people with no non deductable debt and if yes whats the reason besides cashflow?
     
  9. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    Mate its $10k pa tax free, thats Boganomics 101. Tax free, nothing else to know!!
     
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  10. euro73

    euro73 Well-Known Member Business Member

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    $11K, actually :)
     
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  11. Inov8ive

    Inov8ive Well-Known Member

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    I have seen them talked about a lot in certain parts of this forum but don't know a whole lot to be honest. My thoughts were these are just more property/ is there diversification there? Can you elaborate on why I should look at this asset class?
     
  12. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Yea that is nice.

    Not bagging NRAS as its a legitmate strategy that suits some better than others but there are other factors to consider in the decision to NRAS or not to NRAS :)
     
  13. euro73

    euro73 Well-Known Member Business Member

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    I recommend 12% + stamp duty + 9-10K buffer for any property purchase...including NRAS.

    So 30K just isnt enough to work with, even for a 250 or 300K property purchase. You would need to have closer to 55K to start considering property - NRAS or not.

    Lets use a hypothetical 300K NRAS purchase though, to answer your broader question about what sorts of returns you might expect....

    Typically, a 300K NRAS property will produce @ 10K CF+ ( tax free) per annum when gearing the entire purchase. ie 100% of purchase price + 100% of stamp duty + 100% of buffer . This is a result of the neg gearing + the NRAS tax credit. ie It is the net, after tax result.

    But in your case, if you invested @ 55K in cash, the net after tax result would be closer to 12K because you'd be borrowing 55K less.

    So... what does that mean in real terms? Well...... your 55K cash - which would have funded 12% of 300K ( 36K) + stamp duty (10K) + 9K buffer - you'd borrow the rest from a bank - would be generating 12K tax free.

    If that was a share portfolio, you'd call that a 21.81% fully franked dividend

    If that was a bank account, term deposit or any other cash product, you'd call it 21.81% tax free.

    I dont know about you, but returns of better than 20% tax free sound pretty hard to beat, to me....

    But because you'd own a property as well, you can call it 21.81% return on 55K investment + whatever growth you achieve over the period you own the property., which will be 10+ years...

    Hard to see too many other asset classes get even close to that....

    Far too many on here still see NRAS as just a property purchase. It's far more attractive than that.
     
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  14. Inov8ive

    Inov8ive Well-Known Member

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    Ok, I still don't quite understand how everything you said is possible but from what I have heard, I am interested. I have access to more funds if need be, just have 30k that I was looking to utilise for this particular venture on stock or whatever. Where are these properties? Who sources them and what are the downsides?
     
  15. ellejay

    ellejay Well-Known Member

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    No short cuts unfortunately, you need to dedicate an evening to the thread Tyler linked..then jump on Morningstar website for another day or so :) Then follow up with more specific queries. Just don't ask me cos I've only just read them myself.
     
  16. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    There is if you speak to the right people and they have already commeted ;)
     
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  17. ellejay

    ellejay Well-Known Member

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    Depends on what he's looking for. He may not be looking for more property, NRAS or otherwise. Just sayin'
     
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  18. Greyghost

    Greyghost Well-Known Member

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    If only the 14% yield government bonds still existed lol..
     
  19. euro73

    euro73 Well-Known Member Business Member

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    21% 10 year Govt bond called NRAS does exist :)

    Although, more typically you'll see 15% ish returns. 21% requires a 300K property or less.
     
    Last edited: 8th Aug, 2016
  20. euro73

    euro73 Well-Known Member Business Member

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    Ok, here are the maths on a real world NRAS approved property available today at 390K.

    1. Using your cash, you contribute 12% deposit (46.8K) + stamp duty (12.9K) + 5K cash flow buffer. That would equate to @ 63.7K of CASH

    2. You borrow 90% INC LMI. ( or 88% + LMI ) - for a total loan of 351K. Lets say you take a 3 year fixed rate I/O 3.99% . Your total interest for the year = $14,005
    Allow 5K for strata, landlord insurance, rates, NRAS compliance fee and tenancy management
    The property will cost you @ 19K per year , inclusive of all expenses. Call it 20K to be sure.

    The market rent for the property is $360. Under NRAS ( national RENTAL affordability scheme) you are required to discount the rent by 20%, to $288 per week. That means the property can generate @ $14,976 per annum. Call it 15K

    So Total Expenses = 20K. Total Income = 15K . Pre Tax Loss is therefore 5K - This is a deductible loss - and this is also what the 5K cash flow buffer is there to cover, so that you dont have to put anything into the property out of your pocket.Add Depreciation @10K - which is also a deductible loss, and the total deductible loss is therefore @ 15K.

    How this affects you will depend on your marginal tax rate. But as an example, if you are earning a salary of 100K, your taxable income becomes 85K ( after applying the 15K deduction) so you get a refund for the tax your employer already deducted for the 15K during the year . In this example, that would be refunded at a 37% Marginal Tax Rate ( incomes between 80-180K are taxed at 37% ) so the refund would be $5550.

    If this was where the story ended, your after tax position would basically be @ 550 positive. ie You have topped up the rental income by $5000 during the year in order to cover all expenses , and now you have just received a $5550 refund. But that is not where the story ends... NRAS then comes into effect, and changes the numbers dramatically.

    Here's how it works. In additional to the ATO negative gearing refund of $5550 you also receive an NRAS credit. It is paid in two parts. 75% of the annual NRAS tax credit - which is currently valued at $11,048 ( 2015/16) is paid to you by the federal government via a refundable tax offset. 75% of $11,048 = $8286 and its completely tax free . This amount is added to your negative gearing, so the total amount received from ATO = $13,836 tax free . ($5550 + $8286)

    In addition to the tax free ATO refund of $13,836 you then also receive the other 25% of the NRAS balance ( $2762) from the State Government. This is also 100% tax free .

    Total amount received = $16,598 tax free

    Now, from that pile of money, take 5K and replenish your buffer , so that your "loss" for Year 2 is fully funded in advance again... The remaining 11.6K is yours to reinvest however you desire.

    So, to review. 63.7K cash invested. After all costs for interest, utilities, NRAS fees, tenancy management, strata and insurances are accounted for, and after your tax return is done, 11.6K tax free cash is returned to you as a dividend , available for you to reinvest. 11.6K = 18.21% tax free return on 63.7K.
     
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