Have you had enough? Ready to sell the portfolio?

So how does this work?

My guess is:

• you sell property A for $1mill, loan $500K..and
• replace it with property B worth $625K, same loan at $500K, and
• inject remaining proceeds of $375K into shares unencumbered?

 

Thats possible Or sell for $1mil with a loan of $500k and buy another $500k property with that loan and put $500k into shares. Keep some extra for stamp duty and CGT too

 

Nah - lets say property A and B have gone up. You can now change the security of property A's loan to property B. Then you can sell property A without having to repay any loans. You can then invest those funds into shares or whatever else takes your fancy, after the ATO have taken their cut...

To do this properly and maintain deductibility, you may have to pay down and then redraw the loan but this is not tax advice - see your accountant.

 

Tax tip 342: Tax Issues with Loan Recycling Tax tip 342: Tax Issues with Loan Recycling

 

Thanks! So the bank consolidates loans A&B and it's securitised with just property B?

I presume one (large) hurdle is that you'll need to meet serviceability for this to happen given there's only one lot of rent coming in?

Will they factor in the dividends coming from the shares purchased by the proceeds of A?

 

I may hold quite a few IPs but I'm a total noob when it comes to these strategies.

 

This could all (and undoubtedly will at some point) happen but I shudder to think what the impact would be on a leveraged property portfolio of the same net value. Leveraged anything, really... particularly with inflation / IR increases thrown into the mix.

 

Servicing is generally only needed to be met if you have to change banks. But even then it can potentially be gotten around.

 

I have pointed out this strategy to you at least once before on these forums, possibly more times. You retirement is being delayed unnecessarily!

 

You already have the loan so you're not applying for a new one. Changing the security of a loan is more of an admin procedure and not a new loan application, although I understand some banks these days want to know the full story and might start rifling through your underwear. Brokers should be able to advise the latest on this.

If the loans aren't with the same bank then you will need a re-fi, which is a new application, as there is only one security to go around now... Still a bit easier than asking for a new loan.

 

Yeah I'll take that one on the chin. It was a little more subminimal before but I think I get it now...particularly the use of proceeds for shares rather than another IP, which I favour less.

I guess for a number of reasons, I don't have a compelling urge/requirement to 'retire' right now.

Have decided to wait a couple of years at least. That said, I'll look into what's been suggested (for a 2nd time).

 

We should start a club! Call it "People too chicken to retire" or "Just one more boat..."!

 

It can be very hard to quit your secure job. You keep thinking about the easy money you make and hten you get the one more year syndrome. but you are eating into your most precious resource - time.

You can also get another job in the future too if you need one.

Think Shane Warne - he made the most of his life from the videos doing the rounds.

 

OK pls indulge me for a second while I use the property to shares example.

If you don't pay down the debt of prop A and basically just shift the debt to Prop B, then your cash OUTFLOW remains the same.

Your cash INFLOW will be a combination of rent from Property B and dividends from Property A's proceeds, as opposed to two lots of rent....correct?

So the benefit really is hopefully being able to generate more (net) cash INFLOW from the div/rent combo OR, having at your disposal a large sum of cash from selling Prop A.

Have I missed the point again?

 

yeah good question didn't think of that

 

It wouldn't need to be repaid if it was secured by a mortgage over a property that was being kept. But the interest would not longer be deductible and that is why you should loan recycle - pay it down then redraw to invest further thereby making the interest deductible - covered in the tax tip that I just posted.

 

You can replace the security with existing property equity, and put 55k into super, 200k into LOC for rainy day and toys, and put 700k into shares. If you start with a $ million with 5, 200k properties that have had 50% gain you can take out 300k cash and still have a lower LVR of 66% instead of the original 80%, with $1.2m of property securing loan . Dont understand why you would sell a whole portfolio. For the next property sale, growing revenue from shares can help with service ability of security transfer.

 

Yes, you might get a higher yield from the shares and less expenses, but the biggie is the large some of capital released which you can live on for x years and/or buy shares

 

Thanks Terry, this is the part I'm not so comfortable with ie selling property and eating capital in part or whole.

I'd prob opt to buy shares with the proceeds (not more property unless it was a future PPOR). The downside is because you're only deriving divs at say 4% net, you need to let go of a lot of property.

But I get the gist, and having a large buffer from the proceeds buys options (and time) till 60 when Super kicks in (and rents go up).