Asset Rich Cash Flow Poor

Where are all the LOE investors these days?

pinkboy

 

Bankrupt?

 

It is easier to turn assets into cash than it is to turn cashflow in to assets.

Been plenty of times I've wanted to sell up and have plenty of cash. Glad we have stuck it out.

Having said that - we've always had a income.

 

It needs to be put into perspective, No point for a 30 yr old reducing assets for increased cash flow if he/she wants to build more wealth/more equity for greater cash flow later on. Also makes little sense for a 84 year old to struggle on the pension with kids helping out to pay all the bills when she lives alone in a 4.5m dollar old home. It's all about perspective.

 

My parents are around 80 now and are struggling with low incomes. However, Dad doesn't want to sell the IP to put into higher returning investments because it is his kids inheritance. I would rather they be comfortable now than worry about our financial security 15 or 20 years from now. My grandparents all died in their late 90's so we need to financially plan for my parents for at least the same time frame. I wish they would start worrying about themselves and not their kids!

 

Your parents are good folks.

 

I know, but how do the kids convince them to improve their cashflow?

I was thinking if they can manage 2 IPs in Adelaide they can have twice the capital growth of one property?

They could be open to something unconventional such as buying land and building, a H&L package or buying a splitter block and building 2 houses. I could maybe sell them on the capital growth potential of Adelaide?

Say the property in Melbourne was worth $800k but only renting for around $400pw. That's a low return for the amount of capital tied up, noting that I don't know what the property is worth, how much their loan is or what the rent it. Just estimating at this stage.

Looking in Adelaide and picking a random property I know nothing about, there is a H&L package for $456k. With purchasing costs, let's assume they spend $500k all up. From one other property in the area that is listed for rent at $445pw, I would assume they could get at least $400pw for rent... similar to Melbourne but $300k less capital tied up for the same level of income.

19 Allambee Avenue, Edwardstown, SA 5039 - House for Sale #123531370 - realestate.com.au

If we could somehow swing 2 properties like this, that would boost their gross income to $800 pw. I don't know if they are prepared to or able to take on additional debt at this point but they would need to if they wanted to do this.

I have no idea if this is a good area or had potential for capital growth. @D.T. would have more idea.

Anyway, just trying to think of some ways they might be able to boost their incomes. I am pretty sure they will want to stick to property.

 

Each child could gift them a certain amount of money weekly, or annually. It could be a gift instead, or perhaps paying for certain expenses instead.

 

1 out of 5 would be able to do that. The other 4 would not. This is part of the reason 'the inheritance' is so important to my father... because 4 out of 5 of his kids would actually benefit from it. I still think their comfort now is more important though.

 

@Perthguy the main thing would also be not to lose their capital at their age so personally i wouldn't be employing higher risk strategies to increase their yield. I'd stick to something with less risk than improves their yield.

 

Very likely.

I think edwardstown could be a risky proposition. South Rd passes through there and is the main artery for Adelaide (think Mitchell Fwy in Perth or paramatta rd in Sydney) that they're currently expanding section by section. In one section they've widened it, acquiring ans demolishing houses / businesses in the way. In another section they've built another level above the existing road so its no longer servicing local businesses. So, depending on what they plan for the edwadstown section, it could increase or decrease values accordingly.

 

No offence but let's review this in 5 years
I had the same mindset when I experienced 1 boom and no bust cycle

When assets decrease and no buyers and interest rate rises then the playing field changes... After boom comes bust. During boom times, investors continue accessing equity and most do not sell down. Not an issue in boom times, but a different story when loans are maxed out and the property market is falling as cycle has changed.

Selling and taking profits is difficult when markets change that is the point, net value is what it is today, tomorrow another story

 

I'd like to know how you got yourself through the bust, MTR. It's great to hear stories of how others have managed to get themselves out of a very negative/difficult position - there's a lot to be learned if we are willing to listen to the experiences, mindset, and wisdom of others.

 

Thanks @D.T. Nothing beats local knowledge

 

Well, that depends on what you're calling "cashflow".... is it passive investment / super income or from a J.O.B.?

I'd rather have a secure, steady, passive income stream that meets my lifestyle requirements. I'm really not too fussed about what the asset base value is, or net worth etc., as long as passive cashflow requirements are met. We all have a different number... some of us are realistic & there. Others are shooting for the stars... go hard I say. Enjoy your journey.

I know plenty of people with far greater asset bases than me but bugger all cashflow... and some of them say that "I'm lucky..." .... ahhh no. They're just living in ridiculously expensive PPORs paying huge mortgages off, driving financed cars & chasing an egotistical "net worth" rather than realising what they already have.... good luck to the rat race fraternity. May they keep "living the dream"

Enjoy the journey

Indi

 

I would imagine a lot of people who fall into this category still have PAYG incomes though. I haven't had a good look at property (harder to track / so many different markets), but I've done a lot of playing around with ETF & shares in excel & to me it looks like "typically" your long term (lets say 10+ year) ROI is better off ignoring dividends (cashflow) & chasing asset growth. Simplistically, this seems to be due to dividends (income) being taxed yearly, vs growth isn't taxed until sale.. So all that $$ that would've been paid in tax is compounding away nicely until you end up selling it (IF you end up selling it), when you likely get the 50% CGT discount for holding it more than 12 months anyway.

It doesn't make sense to me to worry about this until you're close to retiring.

 

I've diversified from property into managed funds and when I need the cashflow I'll just set a few funds to pay out instead of automatically reinvest.

 

[

Its a sellers market in Melb as you know very good time for your parents to sell, however my guess is it may be difficult to persuade them. I would have thought diversifying into other asset high yield shares may be another good option, lot less stress.
Otherwise its not all that bad you will inherit quality property one day... got to love your mum and dad

 

@MTR's story is a case of 1 step back and 15 steps forward!

 

Been around a little longer than that - but I take your point.

Would love to convert some equity to cashflow but saving that for retirement.
Also having trouble stopping the accumulation phase.

Understand very well your point about needing sustainable cashflow.