Advice on how to invest $1.5m in property market.

Hi everyone,

I started a thread recently which led me to the question below which Anthony Brew suggested that I should put in a new thread.. So here it is.

I have an inheritance of $1.5m and can borrow another $500k on the family home... But I'm so stuck with what to do its driving me nuts. I've been doing a lot of reading and listening to podcasts , asking questions but still don't know what to do.. I'm actually comfortable with any of the options below but don't know which to choose.. Do I,

1. Buy a house in Western Sydney , Blacktown surrounds maybe and put a granny flat on it. Total cost $950k and then buy a $500k Property outside of Sydney? No Mortgage..

2. Two Houses with 2 Granny Flats in Western Sydney and a $500k Mortgage.

3. Buy house inner west up too $1.5m targeting growth.. Possibly Marrickville. Entry Level Randwick, Northern Beaches.. No Mortgage.

4. Start a portfolio Australia wide like what most people seem to be doing with houses around $400k-$700k? Then build on that.

5. Use my position to manufacture equity? Maybe buy an $800k property in Sydney.. Do a Reno, hold it a few years and Flip. Build a duplex and sell possibly..

6. Do some of the above and but some Shares / ETF's as well to diversity?

I'm curious as to which of these options would some of you choose if in my situation? I'm from Sydney by the way hence why I'm leaning towards Sydney property. I just don't know much about any other area.

My current job pays my living / household expenses, there is no money left over for anything but I'm not struggling, I own my family home, however sometimes I do get into the red on the credit card.

My goals is that I would like to retire on around $85k after tax per year and that I would like to retire in about 10 years tops..


-Frank

 

Three - four free standing homes with add value potential in Brisbane, within 12km of the CBD.

If you buy right (price, location, type of property) the chances of you doing well is massive imho.

 

^^ yea that is my thought (althought maybe not all in Brisbane).


Simplest solution I can think of is
- buy 3 that you can subdivide or can tear down and build townhouses
- over the next 10 years as your equity increases, take out equity and build the second dwelling on each of them or tear down and build townhouses
- at the end of the 10 years, sell one or two to pay off your remaining debt on the others

The important part of this is knowing in advance before buying that your plan is to subdivide so that you can choose properties that are on one side of the land if you want to subdivide, and zoning will allow for the development in that area. Also buying close enough to CBDs ("close enough" is different distances in each city so research first if you don't know what constitutes middle and outer ring in each CBD and the growth potential in middle vs outer)

Even if you don't develop, you are left with land that others will want to buy to develop on, so your property will be in demand and increase in value accordingly. This way just gives you a lot more options.

Lots of other options but I think this is the simplest and leaves you with a strong cash flow which is what you need to retire on.

@Gockie might want to come in and mention the option of LIC's. From what I understand, well chosen LIC's provide around 4% franked dividend which is 60k pa post-tax return right off the bat with your new found cash. If you can let the dividends be re-invested over the next 10 years along with 4% capital growth, you probably already have reached your goal and it required no work and no frustrations with building or being in debt or tenants, etc. Damn that does sound good. Where can I get a quick 1.5m .
From what I understand, if you do this, it should be with the intention to not take out the capital and instead live off the dividends. If you are planning on taking the capital out, you will need to know what you are doing when investing in shares and understand the risks because despite being able to liquidate in a day's notice, they are a long term investment.

By the way I don't know what I'm talking about... I am just mentioning what other more experienced people have said.
Hopefully some nice people here will continue to chime in with ideas and options.

 

Hi @Frank Manno, you have choices! Re: property investing, I'd personally want a stake in all three Sydney, Melbourne and Brisbane markets. Over time, they'll all do well.

You could definitely buy the LICs and they will both grow in value over time and throw off dividends. Trouble free. Read posts in the LICs thread (there is a beginners guide to LICs thread). I understand Peter Thornhill has his event on this Saturday via the Sydney uni centre for continuing education and for just $410, it's a good investment.

 

Logan
Indooroopilly
Carina
Stafford Heights

I knew PT was into Brissy!

 

Hi Gockie,

I have been reading a little about LIC' and ETF's.. Would buying ETF have the same result as the LIC? Any particular reason you're favouring LICs?


-Frank

 

No reason except that Peter Thornhill recommends them, and if it works for him, it works for me.
Perhaps ask the same question in an other assets thread.

 

..Blasphemy!!

 

With $1.5mil you could dump that in a high dividend fund and just about be done with it.

If property is the way you want to go, I think Leo nailed how I'd go about it.

Buying in Sydney for growth, now? Comfortable, but not sensible. Wrong end of the cycle

 

$1.5M to invest, would be hard to go past LIC/EFT/direct shares with a 6%+ gross yield with some growth and collect the dividends.

 

Absolutely - will outperform in cash flow and no maintenance/ongoing costs eating into the income.

Property is a great vehicle in that it has easy and available leverage to help you grow an asset base. The key is then in converting that equity into a cash flow driver through alternative asset classes.

No one is retiring effectively on property portfolios of solely <4% gross rental yields and all the costs - or if they are they're shooting themselves in the foot.

 

man that sounds good. I would love to know that too...

 

Totally achievable today if you put it into LICs/blue chip shares for the ~6% grossed up fully franked dividends. Zero maintenance so you won't need to factor in the 20~30% of gross rent holding costs like you do with property.

Or maybe half shares half property. Grab a couple of high yielding properties within a major capital city still very early in its property cycle. Still able to achieve 6%+ yields in Brissy for freestanding houses in certain areas.

 

Hi jack,

I like the idea of half shares half property that way I'm mixing it up a bit..

But do you think I should be chasing yield with property and not mainly growth? I was thinking possibly getting shares for the yield and a Sydney property for the growth? What do you think?


-Frank

 

Hi @Frank Manno, keep reading and learning. Can I suggest you try a few investment risk profile tests online as well. These can help determine your investment choices based on your personal risk appetite. If you're a nervous investor and want to sell out soon as your shares drop a little it might not be for you, vice versa for property. Give it shot and see what it says about you.

 

Worth going to this:
Understanding Investing for Long-Term Gain Course

$410 very well spent. Next session is this Saturday.​

 

I would love to go to that but it's on Saturdays.. I work Saturdays.. I put my name down on the waiting list.. Thanks..

 

I don't disagree with this or any of the above posts but the fact is I know lots of retirees who have changed their mind over a period of time about owning direct real estate as a part of their long term pension phase (ie post retirement). The capital gain that continues ticking away underneath the rental returns are like a hedge for inflation and the couples I talk to (these are NOT current clients as already retired 5-15yrs) say they thought about liquidating the entire portfolio at retirement and are SUPER glad that they did not do this. Having a couple of properties along with some shares or fixed income products gives them great diversity, peace of mind and a little upside exposure to market gains. The rents keep growing too.

So to the OP my advice is this. Have a good long hard think about what you want your life to look like 5+ years into retirement and beyond, are you willing to be taking calls from PM's about fixing hot water systems and squeaky doors? Do you want ongoing gains and income or just more income, do you love real estate? Do you love shares? Do you enjoy watching the market at trading or do you want it completely passive? Once you have a destination in mind you can at least put some building blocks in place to get you there.

Personally, 3 or 4 affordable homes in decent but affordable growing markets in a couple of states to create market diversity and reduce any future land tax obligation plus a good chunk of equity for income, shares and play money would be my response.

 

Reason why I mentioned Brissy is that it's still very early on in its property cycle so if history is anything to go by you've got alot of upside potential with the added bonus of being slightly positive cashflow after factoring in all property outgoings.

Compare to buying in Sydney in today's market that's already had a huge run in price growth and now has compressed yields. Not saying Sydney is bad, just questioning what part it has to play in your portfolio if your goal is to retire in under 10 years.

Also highly recommend you attend the next Thornhill seminar. Ask @Gockie to organise another PC special event

You'll come to learn that shares will give you strong income growth over the long term - far in excess of inflation so your spending power is protected in retirement. So it's not just about the current spot yield.