Advice needed on how to invest

Hi there, my name is Russell and I am new to this forum and the whole property investment thing.
I have recently inherited a little short of $650,000 and I am thinking about investing in real estate.

My partner also is looking into investing in real estate (she has currently about $500,000 that she could re-invest). A few years ago we bought a house which is worth about $330,000 and we have a $130,000 mortgage still to pay off.

Our dream is to invest our money and be financially sort of independent in 10-15 years time, so that we would have to work only part time or not at all if we lived on a tight budget. We know that's probably only wishful thinking and pretty unrealistic, but maybe someone on this forum has some great investment strategy, that would make this dream more realistic, even if it took more than 10-15 years.

Over the last few weeks we have read about investment strategies, home loans etc. but it feels like it's impossible to own more than 2 or max 3 investment properties resp. 4 if my partner and I invested together. More than that and we would not be able to afford the weekly mortgage repayments. We can only afford another weekly mortgage repayment of about $300.
We were also thinking of investing in something other than real estate and maybe use the equity of our house to get another loan and buy only one investment property, but I am not sure if that would make sense.

We would really appreciate like to hear the opinion of some of you experienced folks out there.

Kind regards

 

TBH $650k + $500k ready to invest....
Payoff your $130k, keep $20k and go invest $1M in an index fund.
Not advise

 

Actually very realistic.

@Brady is right on the mark.

Pay off loan, put remainder ($1M) in boring low risk index funds.
@4% ROI, that's $40k/yr.

Keep re-investing profits, and whatever you were putting towards your mortgage for the next 15 years. As close to 0 risk as one can get.

What's your income goal?
Also, income, and age. Will change strategy somewhat.

 

Thanks so much for the quick replies.

We are both in our mid 30s. Income is currently a bit of a problem. Due to health and personal reasons our combined income went down to about $1100 after tax per week.

We are not chasing an excessive lifestyle. We would be happy with $1600-$1800 net, without any mortgages to pay off. Even if it's less than that and we still have to work a few hours a week would be fine.

 

10 to 15 years is not an impossible time frame, sounds like you are in a good position financially at the moment.
You would be best to speak to a good Financial Planner about your goals, they can work out a strategy to get you there, whether via property or shares or a mix of investment assets.

 

You are in damn good position bud..

I'll surely clear debt on the house first. And still have $1million left after that ...

You will get easy 7-9% net return on commercial property clear. That equates to $70k (lower side)...

Goal has already been hit!..

However, considering the age/cash, I think you should leverage and push the boundaries (unless health doesn't permit )..

Cheers,

 

@Russell you're already most of the way there with the resources you have. What other's have suggested will likely get you there and then some well before you're at retirement age.

Owning your own home and $1M cash in the bank by your mid thiry's is a dream come true for many people.

Speaking of formal retirement, look into your super and see what you can do to incorporate that into your plans. It's effectively a way to invest that's almost tax fee, the catch being you can't access it until you retire. Speak with a financial planner about this.

 

I couldn't think of anything worse than loading up the full $1M in a single property, more so commercial at that level.

7-9% would be a pretty risky property IMO (happy to be proven wrong, but if you know of a decent property with that yield I'll find $300k for a deposit)

Have a vacancy and bills start pilling up pretty quickly.



OP should speak with a financial planner and seek professional advise based on their personal situation.

 

Few things -
1) Don't have to buy one commercial property. Can be combination of two or three...
2) 7-9% yields is fairly common to find in commercial ..
3) It's not investment advice. ..



Here's an example -
MAROOCHYDORE BEACHSIDE STRATA

FOR SALE

• + Tenancy area of 61sqm* across 2 lots
  
• + High Exposure to Sixth Ave and Aerodrome Rd
  
• + Corner location with ample signage
  
• + Functional fit-out in premises and plenty of parking
  
• + Leased until February 2020 + 3 year option at a rental of $21,424 pa*
  

+ Net income: $17,650 pa*
For Sale: $259,000 (+ GST if applicable)

That's almost 7% without negotiating on price ...
----------------

This is currently listed (just to explain the point). Not an investment advice please..

 

And btw, why do you think super funds invest so heavily in commercial space??

 

Because they have lump sum of funds which allow them to buy better class commercial assets, I would be surprised if super funds are playing in the <$1M space

My experience that 7-9% yields in the $200k - $1M space come with a fair amount of risk.

 

Everyone's definition of risk is very different.. Some are scared of taking debt to buy PPOR others have amassed portfolio worth millions by accumulating good debt ..

Personally I think some great opportunities in that price mark for commercial!..

Cheers,

 

You realize your close to financial freedom already right?
Others have said it but if your happy to stay where you are then pay off the mortgage and then you have 1mil left to invest.

I would personally leave a 200k buffer and then go buy a few decent yielding properties. You could have $800 of income on those properties coming in each week alone. With your current incomes you have already hit your goal.

 

Great financial position to be in as you now have options

It really depends on what the end financial goal is - if you're happy with $1600-$1800 per a month, then like others said - pay off debt on remainder of the home and then invest remaining of the fund in other asset classes that can give you 4 - 5% return. Perhaps look at splitting them between properties and other asset classes (shares, index funds etc). That way you have multiple income streams coming in and minimizes your need to trade time for money.

Cheers,
David

 

Thanks a lot everyone for all your opinions and advice.

Not sure if 1 mill is really enough for 2 people, though.
Sorry, I didn't mention in my previous post that I meant $1600-1800 ($800 - 900 each) per week, not per month.

I think we start looking at index funds and possibly also do more research on commercial property investment.
It might really the best, to look for a good financial planner.

 

Why do you need that sort of money is what I was thinking straight away.

Your not going to get that return with 1 mil cash from property unless you look outside the box and really work on good deals.

4 decent 500+k houses in outer Syd would bring in near that sort of money, minus costs and repairs, but they would all need to be debt free, 40ks out your going to need about 3 mil worth to get 2k minus costs

Bris and other cities prob do better, but the more places, the more costs. The more work and admin too.

I know nothing of shares really, except they are volatile, you can lose money and your income stream fast.

But you can surely buy more resi property than 2 or 3, but with debt, the income must pay that debt then, so not in your pocket.

I only caution at this idea of the easy life while money from property rolls in, unless you hit the jackpot, or maybe a few times, it is going to take work, besides that, working hard is good for you. And others.

 

Hi Russell,

You’re in a fantastic position and don’t need to take unnecessary risks that may see you become very wealthy or conversely go backwards. In the current market I’d personally take the easier pathway. You already have a bird in your hand which is worth so much more than two in the bush so to speak.

Forgot resi or commercial property at this time in the property cycle. I’d do the following:

1. Set up an offset on your property loan and put $130,000 into the offset which will be your buffer. Set the loan to interest only and you won’t have any payments to make until the interest only term matures at which time you may choose to refinance to interest only again or pay out your loan, or even make p and I payments on your loan if you so choose.

2. Keep $20,000 aside in a Term deposit as another buffer.

3. Invest $500,000 in VAS returning 4% = $20,000. Franking credits of about 75% = $6428

4. Invest $500,000 in LIC’s such as MLT, ARG, AUI, AFI @4% return = $20,000. Fully franked at 100% = $8571.

Total income: $54,999. Not allowing for tax = $1057 week.

Reinvest the dividends and your income will continue to compound and grow. Invest further funds as you can and you will reach your goal of $1800 week without the stress of dealing with debt, tenants, vacancies, repairs etc.

Kind regards Jason

 

Continuing from what Jason said above, have a look on the "Other Assets" thread and study it. Do not consider buying a commercial property yourselves at this time - maybe later when you are more experienced. I dont usually read that thread but I expect there will be some people there who are willing to discuss REITs with you. REITs are shares in an investment trust company that pools its income to buy commercial property and manage it, paying you a regular dividend.

 

Correct. Most commercial properties under $3-5M level come with a fair degree of risk unless it’s high land value, you can add tenancies, it’s under rented or if The tenant leaves you could operate your own biz from. But if u get a long lease

At $1-2M, the yields are pretty low as you are competing with the resi investors.

For most people with under $1M to play with, index funds and shares are a no brainer for income. 40-50k a year with zero stress or headache.