Help! What strategy would you use?

Hi

I'm new to the board and was hoping to get some guidance / ideas. I recently found out I am due to inherit quite a significant sum which I wish to use to start investing in property.

I will inherit $650,000 and currently have savings of just under $100,000 myself. I'm 35 and based on the GC, never owned property before, have no debts and a Veda credit score of 945. I currently earn very little - around $45,000 a year, but have no children / family commitments and am used to living quite simply.

Obviously there are a lot of things I could do but to be honest I'm a little overwhelmed by the possibilities.

I'm curious as to what strategy others might employ in my situation and would appreciate any advice you can offer.

I've been thinking of purchasing a house outright initially in a growth area that offers dual living, with duplex potential for the future for around $550k. Use that income (roughly $580 pw before fees/tax) to bolster my own wage and then start moving forward from there buying two similar sites before coming back in a few years, remortgaging and completing a duplex development on each site progressively.

I'm not quite sure of my end goal at the moment (I know this is critical in forming a strategy!) but I'd like to study property development and wonder if I could do that while sitting on the sites (and rental income), then pay off my fees through the developments.

So I guess my question is what would you do and what advice can you offer me? Should I go and see a property strategist? Does anyone have any recommendations? Any help much appreciated.

Thanks

 

You may wish to engage an independent financial advisor. QLD

Have you identified your short, medium and long term goals?

E.g.
Short term - $200/fortnight passive income.
Medium - Zero cost accommodation (vague wording because you may choose to have passive income which covers your rent rather than purchase).
Long - passive income of $X per year.

Perhaps then assign time frames for each goal. This will help you identify a strategy.

Some resources that may assist:
Barefoot Investor Barefoot Investor
Mr Money Mostache Mr. Money Mustache

 

Hi Jon.
If I was in your position I'd aim to turn that into $3 mill.

Why? It's because I'd want a 1 mill PPOR and 2 mill in investments to give me a passive income of $100,000 pa (assuming a 5% return rate).
You can't get that automatically from your starting point right now without doing any work, so I would look to leverage into property (shares are too hard for me, dividends are fine but the capital growth aspect is something I am not so comfortable with. So i'd look to go to shares when you hit the targets, but until then, I'd stick to property.)

I'd talk to people on this forum and also an Accountant and mortgage broker who you click with as to building a portfolio that has capital growth and cashflow to get you there.

 

I certainly wouldnt do that unless you want to be sold a bunch of average returning funds which makes for a nice earner for the salesman advisor. But thats just me.

You have a lot of options and a lot to think about.
Get it wrong and you will limit your possibilities. Get it right and you will be well set.

This sits right in @Terry_w's alley. You have a lot to think about and a lot to consider. Tax planning, risk mitigation, succession planning all go hand in hand.

To be honest too many options/considerations to consider on website. Personalised review/reccomendations required.
However, I would think that the set up of a trust with corporate trusee which you lend money to would be my first step. That enity may even on-lend the money to another entity.

Blacky

 

I'd adopt the "party" strategy immediately . Low capital growth but you'll have a heck of a time! Maybe find a girl friend or 3 you're half way there being on the GC

First thing. Don't panic and rush into anything! Im sensing an urgency in your typing
Read heaps and dont be afraid to spend on your education - not that uni BS! Property investing and self development education!

 

Oh and don't tell anyone how much you're getting, sure to get unwanted attention
.....
Pm sent

 

Hey there,

What's stopped you investing prior to your windfall? I always get a little nervous hearing someone who has suddenly got significant windfall suddenly wants to do 'x' - jumping into something without a lot of learning and consideration is a recipe for disaster.

Have a chat to someone regarding your timeline and priorities - do you currently have a home? If not I would look at potentially buying something you could
see yourself retiring in. That way you're set for when the time comes and can rent it out for decent cashflow in the interim. Your income is currently low which may limit your borrowing capacity quite significantly especially if you're renting a house as well - you might find your best bet is to buy something outright, save the income for a couple of years and use that for the deposit on your IP. The cashflow from the first property will supplement your income for the next IP if it's not enough to start with.

 

Are you comfortable living on $45,000pa?

While I understand you have come to a property forum for advice on property, you could also give consideration to shares as well. If you would consider shares as an option, I would start with this thread: Listed Investment Companies (LICs)

In a nutshell, that $750,000 could immediately replace your $45,000pa income, in relatively safe investment environment.

Example. Shares such as ARG, AFI, MLT, BKI, and WHF are ageless LIC companies, with long history of growing dividends and long term growth. Purchased sensibly at todays prices, you could get dividend yield of around 4.3%. Calculation as follows:

$750,000 x 0.043 (4.3%) = $32,250.

Because these specific shares have already paid tax on the profits of the company, the ATO doesn't 'double dip' tax, and provides the shareholder franking credits (the dividends are declared as fully franked (FF)) of 30% tax paid:

$32,250 / .7 (simple calculation of 100% FF) = $46,071.

Effectively, if you were happy with that income, you could be financially free immediately. You could then work on you terms, or not work at all. Honestly I don't think you need to see a financial advisor, especially if you can read for the next 12mths and be comfortable with your options.

pinkboy

 

Hi pinkboy, fair call! Not a bad way of seeing things actually.
I could retire too... but I want to keep accumulating a bit longer.

 

Hi Jon,

Please remember the quote: "A fool and his money are soon parted"

You will receive a lot of advice, information and strategies from here and whoever else you happen to speak too along the way. This can be a great thing because the people giving you have learned their own way, either through a combination of good decision-making, mistakes, hard times, etc. However, these are not your personal lessons and you will need to discover your own way.

This can be a danger of receiving money all at once. Someone said not to tell anyone about your inheritance, and this is great advice at least until you work out what you'd like to do.

Please put your money into a savings account for 12-24 months; forget about your inheritance. It does not exist for the time being. Do not worry about the markets and what the sales people are saying. Work on improving your education, mindset and research by reading all the newbie threads from here and other forums. Start reading investment (property, shares, business, etc) books and magazines and actually ask yourself the question: is property investment is what you are interested in? If not, that's okay too. You may wish to put the money towards further education.

Any decision that you make from here on, I would do so on the basis that you are still earning 45k per year, not a 600k something inheritance, because we no one knows what will happen in the future and you will need to service any loans you have.

Do not rush ahead of yourself; and please do not become one of those lotto winners that seems to have lost everything a few years from now.

 

Keep the money safe for now .

Go to dymocks and buy a whole range of property investment books, wealth creation and mindset development. Make your room into a dark, cave . .minimal light , blinds down. Light some large candles around your room. Use highlighters and make notes as you absorb the pages on your newfound secret adventure. Like a young magician learning magic for the first time in a secret location . Books by day, scavenging the forum threads by night . ..after 6 months of reading, learning, absorbing, formulating and planning... you'll emerge a warrior with a whole new perspective and indeed a new person , ready to know what to do.

 

@Leo2413 and the @Do Androids Dream have nailed it. Well and truly put the breaks on! Every second "property investor" thinks they can property develop and the sad truth is they cannot or they have been successful mostly due to market forces over the past 5 years.
Jumping straight into anything is a very bad idea!
I would most definitely not go see a financial advisor on a whim, I would spend 12 months in here, in books and other resources before contemplating speaking to one so you have an idea of anything they are trying to push your way!

I don't know your situation well but the first thing I would be addressing though is your salary. I am unsure why it is so low? Care to elaborate?

 

Agree with the past few posters! Learn first before touching that money.

 

Dear Jon,
When I was dating I was Very careful about divulging my assets. I told them I owned one house...

 

Love this. Agree education is king. It will then become clear what the right path is for you.

 

If you asked "Barefoot Investor" he would say something like:

• Put 6 months of living expenses into a savings account. This is your buffer (he calls it Mojo)
• Go on a holiday - a good holiday!
• Put the rest into a term deposit. Either 3/6/12 months. Don't touch it as you figure out what this windfall means to your life and come to terms with your new-found wealth.

If you're not familiar with his work, I recommend you look him up. And when you're back from holida and waiting for your TD to mature, do what others on the forum have recommended - invest in your financial education. You don't need to understand balance sheets and P&Ls but you do need to understand franked dividends, capital gains tax (CGT) and the tax impact of deductible borrowings.

Property may not be the answer - especially if you don't know the question.

Best of luck.

 

I agree with Wobbycarly above, however I also believe it is important to understand Profit and Loss. There will be plenty of sales people tell you to "do things" so you can get a tax deduction. You will need to know that a tax deduction often comes from making a loss, which we don't recommend.