5 Living Off Equity Strategies to Speed up Retirement

Discussion in 'Investment Strategy' started by Terry_w, 11th Jan, 2016.

Join Australia's most dynamic and respected property investment community
  1. Piston_Broke

    Piston_Broke Well-Known Member

    Joined:
    30th Jul, 2015
    Posts:
    4,081
    Location:
    Margaritaville
    What Tom could've done is:

    1. Pool all rents into paying IP1 wihle capitalising the other 5.

    2. Sell PPOR and move in IP1 with little or no loans. 500k no CG

    3. Pile all rents into paying off IP2, capitalise other 5.

    Sell PPOR (IP1) and move into IP2. 420k+ 500k = 900k

    Repeat, sell with IP2. 820k+500k =1320k

    IP3 1240k+ 500k = 1740k
    IP4 1660k + 500k = 2160k
    IP5 2080 + 500k = 2580k

    Move into IP6 or leave it rented and use rent for a PPOR
    And have 2580k in cash which is about 30yr at 80k pa.
    And the rental.
    No tax, no super regs, no gov.
    They could be sold at one per 12 mths or staggered whenever timing is suitable.
    And I assumed price would'nt change, which they did.

    There are many variables, and i deducted 80k per sale. Tax or wateva.
    It's the concept that's important.
     
    Last edited: 3rd Feb, 2021
    JPHustle likes this.
  2. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    Yes thats a good strategy, but he could have also loan recycled - keep the loan open when selling and then buy a replacement property each time.
     
  3. Piston_Broke

    Piston_Broke Well-Known Member

    Joined:
    30th Jul, 2015
    Posts:
    4,081
    Location:
    Margaritaville
    I don't think the banks do that these days.
    Most want the loan amount in a term deposit as collateral to keep it open.

    To minimize tax he could capitalise loans as long as possible, though banks these days won't just refinance without serviceablility.

    Maybe a long term plan is to get the highest LVR possible even with LMI and pay down the loan after pruchase what would've been the bigger deposit.
     
  4. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    Think outside the square

    Banks do allow it. If you structure things right you can even do it if they don't allow it.
     
  5. skater

    skater Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    10,222
    Location:
    Sydney? Gold Coast?
    Just been through this with Wesuck. Sold a property and wanted the loan transferred to another security. They wanted to put it in a term deposit. HECK NO!!!! Got it sorted & transferred to another property.
     
    Piston_Broke, Perthguy and Terry_w like this.
  6. doublebrick

    doublebrick Well-Known Member

    Joined:
    14th Oct, 2018
    Posts:
    142
    Location:
    Sydney
    That is strange. If you already have another property as security for the existing mortgage (ie security substitution) why would the bank need a term deposit? I can only think of the situation when you’ve sold your property but haven’t found your replacement property, then a bank will keep the mortgage open if you set up a term deposit in the interim (usually 6mths) until you buy the new property as security.
     
    Terry_w likes this.
  7. skater

    skater Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    10,222
    Location:
    Sydney? Gold Coast?
    There was no real reason for it. The bank was being an ass. Maybe it was a newbie employee trying to flex some muscle, who knows. Got the solicitor onto them & they sorted it.
     
  8. Lacrim

    Lacrim Well-Known Member

    Joined:
    25th Jul, 2015
    Posts:
    6,175
    Location:
    Australia
    So, say you have a property, IP1 you want to sell with a loan of $200K and value of $400K.
    When you sell it, you get proceeds of $200K.

    You're saying Westpac allowed you to keep the $200K loan open while you shopped around for IP2 to replace IP1?

    The drawback of course is the $200K proceeds from IP1 will be decimated by CGT, selling costs etc so you may end up with $150K proceeds instead of $200K.

    Therefore, the value of IP2 can only be a max of $350K ($200K loan + $150K net proceeds) unless you have cash lying around to top up. You'll also have to come up with stamp duty etc in order to purchase IP2 and funds will be needed for that too.

    Have I got that right?
     
    twisted strategies likes this.
  9. skater

    skater Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    10,222
    Location:
    Sydney? Gold Coast?
    No, my situation was more like this.

    IP Value $550K, 2 loans totalling around $280k
    2nd IP Value $900k with no finance.

    Loans were transferred to 2nd IP. They're non deductible, which is fine as they've both got full offsets attached to them.:p
     
    Lacrim and twisted strategies like this.
  10. Shamrock1

    Shamrock1 Well-Known Member

    Joined:
    20th May, 2020
    Posts:
    78
    Location:
    Newcastle
    If you’re using cash in IP offsets to live on though the interest wouldn’t be tax deductible.
     
  11. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    craigc and MikeyBallarat like this.
  12. skater

    skater Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    10,222
    Location:
    Sydney? Gold Coast?
    Where did you get that idea from?o_O
     
    MikeyBallarat likes this.
  13. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    One other way to live off equity is to sell one property yet keep the loan used to buy this property open and to loan recycle. Pay into the loan and ideally draw on it over time to improve cash flow.
    To do this you would have to make sure the loan is not secured by the property you are selling.