Exit Strategies?

This is the part that I am not sure. Will this give them the wrong impression they don't need to work hard in the future? I think most of us need to work hard initially to accumulate the properties.

 

Its about working smart, not hard.

 

Agree... but they still need to work in the future. I just don't want to give them the wrong impression they don't need to work. Also, the kids may discuss with their friends regarding their parents' day job. What should they tell their friends...?

 

Sorry OP for the off topic posts. I didn't expect so many replies... I may need to start a new thread.

 

My dad is an investor!

 

Yeah, at the computer = working

 

Rixter can you explain this a little more. I remember printing out and reading the thread where you completely outlined your exit strategy. I think it might have been just before you took the plunge. I forget the nuts and bolts of it now though.

Did you make a significant headway into reducing or offsetting debt before topping up LOCs? My portfolio is still quite highly geared at around 80% LVR so I would be constantly looking to top up to meet payment requirements.

 

@Rixter @Terry_w I am curious on this strategy also, can you elaborate or post the thread link about this. thanks in advance

 

I have written about this before in the liviing off equity threads i htink

 

Andrew, its a financial structure for LOEing with tax deductibilty.

 

Mike LVR's sub 50% via multiple LOC. I don't use offsets.

 

You should get onto them, they're the way of the future.

 

They have their place but I dont have a place to use them. Its simply a tool.

 

Kudos Terryw, despite being very experienced, I've never thought about this.
What would you suggest if using the increased buffer amount to pay interest isn't fully adequate. Could I employ a combo ie use half of the net rent (after mgt fees, rates, repairs etc) to live off and the other half to service the loans in tandem with the borrowed funds?

 

You can use what ever split/amount is pertinent to your particular situation providing you have sufficient equity/funds available, including (..and I strongly suggest) a SANF buffer. 100% rental funds is just one LOE example.

 

Yes.
The idea is to borrow to pay interest and this would be more tax effective. If you have no other income other than rent, which is not enough to live on, this may be acceptable from a Part IV point of view.

 

This is interesting. How would it work on the following example? If I have a couple of properties that earn $1k each per month and the mortgage payments on each are $800 per month? Are you saying that I can borrow $20k to pay the interest payments on both properties for a year (provided the bank will lend), how does the tax part work? At some point though the money has to be paid back, during a brief return to work perhaps or do some just wait and hope that the property value increases? I guess it may be a good strategy to use minimally if you wanted to take a year out, but I'd be worried about adding more debt whilst not working.

 

The idea would be to structure one's portfolio accordingly. Just another example of the term, start out with the end in mind.

 

You need to seek specific tax advice, but you could borrow $800 per month to pay the interest and then live on the $1000 per month. If this was your only source of income then the interest on the interest would probably be deductible. See my tax tips on capitalising of interest.

You would be increasing the loans so it is not ideal but there are a few reasons to do it
1. You were intending to sell a property to pay down the loans so you could live off the rents. You may not have to do this, or it may be delayed so you can get more capital growth before selling.
2. You expect rents to increase in the future and don't want to wait too long.
3. LOE - you just want to live off equity

 

Thanks, that's interesting to know. My online calculator says that we have enough rental income and equity to retire now on a comfortablish amount but this might be useful if I wanted to top up the monthly amount for a while. The plan is to sell off all of our ips over the next twenty to thirty years so I guess paying back any extra loan should be okay in theory.