VIC $4million cash, 40, single [plan needed]

Discussion in 'Where to Buy' started by cloudproof, 4th Apr, 2017.

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  1. cloudproof

    cloudproof Member

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    Hey PC community!

    You are such a great resource of knowledge - I would appreciate some ideas! I am about to reach a point in life where I wish to pivot and change my goals and financial plan.

    Summary
    Age: 40
    PAYG job: $200,000 pa (professional career)
    Savings: $4,000,000 cash
    Super: $300,000
    No debt
    Single, no kids or commitments
    Location: Melbourne

    I would like to soon ditch my PAYG job to boot-strap an online business while travelling overseas. I have some experience with this and could probably earn enough to cover most of my living expenses while having a good time.

    Living expenses: $80k/year would fund my lifestyle including travel and housing costs, I live on less now.

    Experience: I have some experience in property, shares, and investing. I have completed one development which was quite rocky but I learnt a lot.

    Requirements: I'm willing to invest in active investments and put in some "sweat" equity. I have done poorly from actively managing my shares over the past 10 years but better from real estate. Happy to put time into finding deals, managing tenants, renovations, even small developments.

    Current thoughts:
    1) Invest primarily in residential real estate. Mix of higher yield and capital growth assets spread around Australia. Include a single dwelling future development site with growth prospects and claim PPOR CGT exemption. Do some small cosmetic renovation projects and hold long term. Diversify across Australian residential markets. Invest some of the cash other asset classes - eg index funds.

    2) Invest primarily in commercial real estate with 1 or 2 key assets. Less hassle than residential property but possibly less potential to add value and risk concentration. I have no experience with commercial property. Have one residential house with growth prospects for PPOR CGT exemption. Invest in index funds.

    3) Invest in hands-off investments - listed property trusts, managed funds, overseas index funds. Own one growth housing asset, obtain PPOR CGT exemption.

    With each of these strategies, the aim would be for an income stream of between $80k/year and $100k/year after expenses with a growing asset base.

    I feel comfortable borrowing to invest further to an LVR at or below about 50%.

    I can take some risks. I can return to PAYG employment at any time if I had absolutely had to. But considering my savings and modest living needs I don't want to be compelled to.

    I am most attracted to option 1. What would you do? What else should I consider?
     
  2. Gockie

    Gockie Life is good ☺️ Premium Member

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    Hi @cloudproof.... that's awesome! May I ask how you got yourself to the position of $4 mill savings?

    Anyway, I'd do a few things, perhaps a $2mill+ house on land for yourself for now and then perhaps a unit block or 2? Anyway, I'd suggest educate yourself in LICs first... there's a few threads...
    :)
     
    Last edited: 4th Apr, 2017
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  3. Blacky

    Blacky Well-Known Member

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    Easy position to be in.

    My strategy would consist of
    1) asset protection - various trust/company entities, and maybe even super and various loans to each entity.
    2) moderate leverage - maybe $2mil.
    3) consistent reoccurring income - shares and comm property.
    4) ability to generate equity - development/improvement.
    5) long term capital growth assets - real estate and stocks
    6) tax effective - look at becoming non-resident plus various trusts/company entities.

    That should provide $250k+ income. On a cost base of a bit over $100k (pretax).

    Getting the structures right would minimize your tax, and provide good asset protection. And depending on how active you want to manage it would depend on the asset mix.

    Nice position to be in.
    Relax and enjoy.

    Blacky
     
  4. cloudproof

    cloudproof Member

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    I went from $0 to $2,000,000 over 4 years in my 20s with an online income niche that eventually stopped working. I was doing this afer-hours while starting out in a professional career. I'm not passionate with my career, but I put my energy back into that. In my 30s I tried all kinds of things - share investing (poor results), more online businesses (no great success - but not focusing with little time outside of career), a high-end property development (many mistakes and largely saved by a booming market and low interest rates). My goal is $4m, it's been a slow grind and I'm nearly there.
     
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  5. TMNT

    TMNT Well-Known Member

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    Damn. I'm the same age as you and now I feel inadequate!!! :)

    Well done to get to your position
     
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  6. Terry_w

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

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    If you stored your cash in a suitcase and took out $80k per year it would last you another 50 years.

    How long do you plan to live? And do you want to leave anything behind?
     
  7. Perthguy

    Perthguy Well-Known Member

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    That's no fun @Terry_w. Investing would be a lot more fun@ :)

    I would probably pick up a duplex block in Perth and develop it. Do the same on Adelaide. Pick up a good commercial property or 2. Then dump the rest into LICs and an ETF.

    Once I had everything in place I would borrow modest amounts to invest in LICs. Then use surplus funds to pay down debt and borrow again.

    Most important thing for me would be to get the ownership structures right. This would be a relatively small investment to hire someone really good like @Terry_w to advise on ownership structures for tax effective investing.

    I don't think it would be terribly difficult to build an investment portfolio generating $300,000 per annum income before tax.
     
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  8. euro73

    euro73 Well-Known Member Business Member

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    Get a bunch of that money into Super before the limits are introduced. 540K for starters. ( 3 years x 180K ) - it all changes on July 1 and you'll be limited to 750K extra contributions for life, after that date.

    The other 3.5 Million ...

    5 x 530K dual occs purchased at 90% LVR, would use @ 70K each ( 12% + stamps + construction interest ) . Thats 350K spent , for @ 45 -50K after tax income.

    5 x 530K dual occs purchased at 80% LVR would use @ 120K each ( 20% + stamps + construction interest ) Thats 600K spent, for @ 45-50K after tax income

    So 950K used for deposits + stamps + costs , gets you 90-100K after tax income.

    With the 2.6 Million left over, buy a PPOR - sounds like a 2 bed unit would do you fine, so spend 600K and put the other 2 Million into ETF's and LIC's

    You'd own your PPOR outright.
    You'd have 10 x dual occ costing you $0 to hold, but returning you 90-100K p/a.
    You'd have LIC and ETF income - at 6% returns thats 120K p/a
    You'd have @ 840K in your super.... and then you could use that to leverage into 2 or 3 resi properties or perhaps 1 x commercial property
    It gives you an unencumbered home, @ 220K annual income - which replaces your current income - diversification, and ensures you are set for retirement as well by boosting your super ....
     
    Last edited: 5th Apr, 2017
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  9. Perthguy

    Perthguy Well-Known Member

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    What's the land tax on 5 x 530K dual occs?
     
  10. willair

    willair Well-Known Member Premium Member

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    Maybe just stand back and have a good look at yourself it's not that hard to do,no family no partner and that sort of back-up in cash and still working ,maybe stop reading anything written by academics and grasp the difference a 9-5 worker and someone who can be free within 10 minutes..
     
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  11. S1mon

    S1mon Well-Known Member

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    Still time to pop out a few kids mate, i would invest in that
     
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  12. Terry_w

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

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    Nothing potentially.
     
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  13. larrylarry

    larrylarry Well-Known Member

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    Hmmm I haven't quite thought that way. Why invest then? Too hard work! ;)
     
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  14. Scott No Mates

    Scott No Mates Well-Known Member

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    @cloudproof - every position is tough & having 2 bob can be even tougher if you know what I mean.

    A good conservative approach to have an LVR <50% as this will give you another $4m to play with.

    I can empathise with your inclination towards multi tenanted commercial. $8-10m should get a 6% nett on a fully let basis as the competition from mum and dad investors drops off above the small millions. Spread over one or two sites.

    Interest is more than covered with plenty still coming back to you as well.

    Structure will be important whether it be a unit trust or jv with your super (yes, 67 is a long way off but you could contribute upfront as above and leaverage).
     
    Last edited: 5th Apr, 2017
  15. hammer

    hammer Well-Known Member

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    You're in an amazing position congrats!!

    I reckon you've got a bigger question that needs answering before you work out your investments..

    What's your purpose? Like seriously...if you wanted to do anything in the world...what would it be?

    Why are you here?

    You could shove it all away into a savings account and live like a king forever (not recommended...but you could do it) but without some kind of purpose it would be a hollow victory.
     
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  16. Henry

    Henry Member

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    @cloudproof - what an awesome position to be in. On the flip side, you want to make sure you're protected. Lots of good advice here.

    What I like is that you know you want to earn about $80,000 per year. If we assume that is before tax, and we divide by 50 (to keep numbers easy), that is $1600 per week.

    Depending on how risk averse you are, you could use $2M of your savings to find properties that would give you a total net rent of $1600 per week, especially with your ability to keep your LVR low.

    It would just come down to how you want to do it. Once you break down your goal into smaller components, it becomes easier for you to achieve your goal in the way that's most comfortable for you.

    Good luck mate - and congratulations by the way on reaching this position. You'd be the envy of many!
     
  17. Omnidragon

    Omnidragon Well-Known Member

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    Look offshore, especially low tax jurisdictions.
     
  18. euro73

    euro73 Well-Known Member Business Member

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    Depends on the states you buy in. In NSW, at 160K per lot, you'd have 800K of land. The first 530K is exempt, so 270K would be taxed at 1.6% + $100 levy. ie $4420
     
  19. Hodor

    Hodor Well-Known Member

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    Given the above I wouldn't be worrying about leverage or tenants and definitely wouldn't be putting your cash into something you never have before (commercial).

    Maybe consider;

    Buying your PPOR with cash or minimal LVR (was a priority in all your thoughts)

    Index funds and LICs could be your friend.

    Or be even lazier and dump $3m (say this is left after your PPoR) into a Vanguard Wholesale fund. Won't shoot the lights but will (to the highest guarantee possible) pay you growing quarterly distributions totaling well over your target income.

    Investment Products

    Given your goals I can't understand why you want potential headaches and risks that are totally unneeded.
     
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  20. Wukong

    Wukong Well-Known Member

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    Not many here has reached your level of wealth. You'll really only want advice from people who are more successful than you, which you probably already know. From posters so far it's only @Omnidragon

    Car analogy. You're a Porsche. You don't go to a Holden dealership to service your car!
     
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