QLD Cashflow strategy recommendations?

Let me show you what someone with 100K income and 450K of equity can achieve using NRAS

4 x 105K deposits , to fund 20% + stamp duty + 10K CF buffer per property, for the purchase of 4 x 400K properties. 420K used. 30k set aside as an additional buffer ( you already have 10K allocated as a buffer per property)

1. You will generate @ 68 - 80K of deductible losses. This is achieved by the 17-20K of deductions generated per dwelling . About 7-8K comes from cash flow loss. The balance comes from depreciation.

2. You will generate @ 32K - 40K of additional tax free income . This is generated by the 8-10K of surplus tax free income generated per dwelling, after the neg gearing and NRAS is accounted for.

Result. Negative geared PLUS Cash Flow Positive. Sounds wonderful, but the hip pocket result = 100K taxable income becomes 132-140K total income, with only 20-32K of that being taxable.

Apply the 18,200 tax free threshold to that scenario, and you're looking at paying a 19% marginal tax rate on 2-14K of income . ie between $380-2660 tax payable on total after tax income of 132-140K.

People can have all the arguments they like about strategies, but try to beat these numbers!




Or, with NRAS winding down, take a look at dual occupancy. Not quite as good as NRAS, but quite close. Using a 500K purchase as an example.

3 x 20% + stamp duty + 3K buffer ( much smaller buffer is required ) = 123K ( total of 369K)
1 x 12% + stamp duty + 3K buffer = 83K
( obviously these structures can be tweaked a little bit, but these are just for the purposes of demonstrating the concept)

Total debt 523K per dwelling. 4.09 % I/O = $21,390.70
All other outgoings = Allow @ $4500 - 5000 ( call it 5K to be conservative)
Total Expenses = @ $26.4

3 Bed rent $360 - 390 ( call it 360)
1 bed rent $240 - 270 ( call it 240)
Total Rent $600 -660 per week ( call it 600) = 31.2 K per annum.

Pre tax cash flow = positive by @ 4.8K ( income of 31.2K minus expenses of 26.4K )
Offset @ 14-15K of depreciation ( from 2 dwellings)
Net taxable cash flow goes from 4.8K + to @ negative 10K
Neg Gearing refund for 10K @ MTR 37% = 3700.

You earned 4800 positive ( pre tax) and were refunded 3700 ( post tax)
Total = @ 8500 CF + after tax.

You have to go regional to get 500K dual occ that delivers these sorts of numbers . The numbers for metro dual occ are less impressive because the cost to purchase is so much higher. The entry prices are higher. The debt required is higher. Your 450K wont go as far. Your servicing will bit a ceiling sooner

 

I find this hard to believe? where? or do I have it wrong what you are saying it doubling your money on a reno??

 

do you allow for maintenance, do you buy newish properties??
do you allow for vacancy turnaround?

 

@MTR I think he meant... Buy 300, Reno 20, reval 330-340?

 

Hi JB
I would agree with you but
1 lessors interest (My current focus) are not easily available (please someone prove me wrong!)
2 My net cf (after all expenses incl tax) of $.1m pm is too small to buy a lessors interest each month
Cheers
BEANO

 

Yes, it as per the rule of 39 as mentioned in the thread.
Yes, new property.
Yes, the rule of 39 has factored in a vacancy of 2 weeks, even if you increase it to 4 weeks, i am still positive by nearly 300 provided the numbers work.

Regards

 

Hmm - can you really get $14-15k depreciation If you're purchasing an existing dual occ at $500k (ie. not building)?! Otherwise, building costs need to be added don't they? Or are you buying the land at $300k and putting on a $200k 3-bedder + 1-bedder?

 

I'm talking about new stock And I'm talking regional. Places like Bathurst, Orange, Dubbo or Port Macquarie, for example. Done in small numbers in each location. Perhaps 10 - 15 deals per location. My numbers were deliberately conservative. You will get at least 14-15K depreciation.

This is exactly the the kind of thing I am already putting together for 2017 and 2018 to replace NRAS cash flow in the post APRA, debt reduction critical era .

I have developers starting to option sites , and we have put together great designs for detached and attached versions of dual occ. Better yet, can deliver them on single contracts , making them suitable for SMSF's as well.

I have a lot of clients who have completed the Stage 1 acquisition phase in their personal names, and by doing so have now minimised their taxable incomes to very low levels for the next decade, and have maximised their after tax income for the next decade, and have over the past 2-3 years started seeing 30,40,50K surpluses roll in, which will grow to 60 and 70K in the coming years as this years settlements start reaping big dividends next year. And with that surplus cash flow at hand, they have begun redeploying it towards debt reduction ( if they still carry non deductible debt) or additional super contributions ( if their circumstances allow) So their dividend reinvestment structure is built and is starting to reap the rewards.

For many of those clients, purchasing additional properties in their personal name is not on the radar for several years at least, as they have to focus on debt reduction for a while. But what they can do, and are looking to do, is to establish SMSF's next year and start duplicating their successes outside super, inside super. Although NRAS opportunities wont exist, a 500K dual occ dwelling product means that those with @ 170K or more in super can participate. This will be Stage 2.

The concept is simple. Borrow 70%. Utilise an offset. Pay down the debt so that the property becomes an income generator for the fund. With the fund contributing 30% + stamp duty towards the deal, a 350K loan will be required for a 500K dual occ purchase.

Member contributions for couples with household income of 150-200K , plus the 8 or 9K after tax income generated from the dual occ property will mean they can make significant repayments into the offset account , and more than likely build a 350K offset balance within 12 years or so. Faster for some, slower for others - depending on their contributions...but the end game is that even with zero growth ( which is unlikely) taking 170K of super and leveraging it into an unencumbered asset worth 500K in just a dozen years is impressive. That' s pretty close to tripling your money in 12 years. Having it generate 40K+ in additional earnings from rental income for the SMSF per annum is even more impressive.

So in their personal names - my clients have built a structure whereby they will enjoy a very low tax, high income outcome for the best part of the next decade, allowing them to focus on mortgage reduction/debt reduction

And starting next year - we will be attacking the same 'dividend reinvestment" approach within super. After all, there are only two resi property assets you can own that are CGT free upon sale. Your PPOR and SMSF property sold post pension phase. But the order you do it in, is the key . Personal name first, using the right lenders in the right order. Exhaust what you can do there. Then focus on super.

In the end, the game is the same - dividend reinvestment - just like Warren Constant high cash flow being reinvested into debt reduction, leaving a large asset base , little debt and and a large passive income...

And of course, those who didnt embrace NRAS , but to whom the "dividend reinvestment" concept of aggressive debt reduction made possible by strong cash flow appeals, may want to commence their Stage 1 ( outside super) using dual occ instead. Its less complex than NRAS, and almost ( not quite, but almost) as potent for cash flow...

whatever people decide to do in approaching a cash flow investment strategy, just always remember that it's always, always, always best to complete purchases in your personal name before entering into limited recourse borrowing arrangements for super, where personal guarantees hamstring your borrowing capacity. Build your portfolio outside super first. When you are done with that, start looking at super. Super should always be Stage 2 The only exceptions to this would be those who have very strong incomes for whom a simultaneous approach is manageable on lender servicing calcs.

 

Great numbers @euro73 .

How do NRAs look like after the term finishes? Dual occ off course continue generating the same numbers.

Secondly, I dont think you need to go regional to generate those kind of numbers with dual occ. The example I gave in my first post is in north brisbane. Better than even your numbers...

 

Yep.

 

Yes, except every man and his dog is delivering dual occ in SEQld now...along with the apartment tsunami, the rental market will cannibalise itself

And, they are likely attached, not detached dwellings?

Id love to do dual occ in SEQld, but far too many are going to be built there in the next few years.