Help with strategy - $1mil net passive income in 10 years...

Discussion in 'Investment Strategy' started by Macca7, 16th Sep, 2017.

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  1. Macca7

    Macca7 Member

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    Hi Everyone :)

    I am seeking some guidance/recommendations on who to see for an investment/funds management strategy.

    My situation is quite unique...

    just turned 26 years old, no dependents.

    Require ~$100k net to live.

    Income - $30k last month, will increase to $70-100k per month in next 12-24 months. These figures are after all expenses but before tax. Basically, i will be netting (after expenses & tax) around $600k to $900k per year.

    Personal Goal - $1mil net passive income by age 35 (10 years).

    i have a 'little bit' of an idea on resi property investment, but absolutely no idea on commercial property, shares, risk management etc

    My initial thoughts are to chase 'cash flow' as im struggling to see the benefit of having wealth tied up in equity...but i will leave the advice to the experts!

    Appreciate any help....
     
    Macca7, 16th Sep, 2017
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  2. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Why not just do that nice paying job for the 10 years and live off term deposit interests and not have to deal with tenants?

    Edit: if you only need $100k to live now, why will you want/need $1m passive income later? I assume per annum??
     
    Westminster, 16th Sep, 2017
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  3. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    With that income and that time frame I'd be looking at dividend paying shares/LICs/ETFs, rather than property.
     
    Jess Peletier, 16th Sep, 2017
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  4. The Y-man

    The Y-man Moderator Staff Member

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    I think you are one of the cases of:

    1. Go find a good lawyer (you are going to need some serious structuring BEFORE you get started because of the large income and fast growing asset base)

    2. A *really* good accountant - because TAX is your major expense

    3. ...and dare I say it, you may also need a *fantastic* paid-by-the-hour (and I mean the $200+ per hour type) non-commission-based financial planner

    The Y-man
     
    The Y-man, 16th Sep, 2017
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  5. Archaon

    Archaon Well-Known Member

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    Or look into LIC's potentially, there is a whole thread on them, looking to return 7% gross, 5% fully franked.

    You could buy a 50k parcel every month that way you aren't lump sum investing.

    5 years and you will have 3mil worth of shares returning 150k fully franked, this will get you over the 1mil mark if the annual net is 850k.
     
    Archaon, 16th Sep, 2017
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  6. The Y-man

    The Y-man Moderator Staff Member

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    With all due respect, I disagree - the tax bracket would make anything paying income not the most effective option. Franking has no impact here, because that tax bracket is way over 30% on the base pay (39% pa tax on base $360k pa, and when the income is $1.2m pa will be at 44%pa).

    I'd say input into almost pure cap growth instruments, and then convert to income instruments in 10 year's time (when I assume the idea is to "retire").

    Even then, you could have the "ability" to generate $1m pa but in reality you would not do it.

    The Y-man
     
    The Y-man, 16th Sep, 2017
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  7. The Y-man

    The Y-man Moderator Staff Member

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    That's interesting wording - mining sector FIFO or offshore perhaps?

    The Y-man
     
    The Y-man, 16th Sep, 2017
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  8. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Yeah - that was a quick answer I spent less than one second thinking about. :oops: Was thinking of the end result and not the 10 year part. However possibly ways around the tax issue if structured correctly.
     
    Last edited: 16th Sep, 2017
    Jess Peletier, 16th Sep, 2017
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  9. Macca7

    Macca7 Member

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    Can you please give some examples of pure cap growth instruments?

    Also, I should clarify that i am self-employed. .
     
    Macca7, 16th Sep, 2017
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  10. Macca7

    Macca7 Member

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    Can you reccomend anyone? I'm based in Sydney and happy to pay for the right advice...
     
    Macca7, 16th Sep, 2017
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  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You need to work out how much capital you will need to produce $1mil p. a.

    To do this divide $1mil but the expected return after costs. Say 3% for property.
    $33.33million in net assets would be needed.

    Is this achievable?

    Prob not.
     
    Terry_w, 16th Sep, 2017
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  12. The Y-man

    The Y-man Moderator Staff Member

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    Oh geez - ok lawyer is your first stop......

    Hey a structuring lawyer just posted above me ..... (I've never used him though, so caveat emptor!)

    The Y-man
     
    The Y-man, 16th Sep, 2017
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  13. Macca7

    Macca7 Member

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    Resi wont get me there it seems, but commercial yields at 6-10% which would mean asset base of $10-16mil - this is doable?

    Years 1-3 - save $3mil
    Year 3 - Buy $10mil com property @ 70% LVR
    Year 10 - Loan would be fully paid off (assuming i paid $80k p/mth in extra repayments)

    At yield from 6-10% that would achieve 600-1mil p.a after costs...

    Are these calculations on the right track?
     
    Macca7, 16th Sep, 2017
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  14. scientist

    scientist Well-Known Member

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    What is the nature of your income? If it's PAYG, you don't have many options. But if it's business income, then you have many options. For example, gift the business entity to a family discretionary trust, then put excess profits into bucket company inside the trust, use bucket company to buy shares (ETFs and LICs). Depending on equities growth rates in the next 10 years, you might reach your goal of 1mil pa as long as growth is at least modest.
     
    scientist, 16th Sep, 2017
    #14
  15. Biz

    Biz Well-Known Member

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    You're on 100k a month. You should be advising us what to do.
     
    Biz, 16th Sep, 2017
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  16. The Y-man

    The Y-man Moderator Staff Member

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    Well for me, inner melbourne residential property has been a "negative income capital growth" instrument (even more tax effective than a pure cap growth instrument!).

    Here's how some very high income people I know of did it:

    They bought inner city HOUSES in one of the eastern seaboard capitals (you may as well look at Sydney - you're there) and big tracts of land in middle ring suburbs.


    At the point they wanted to "retire" and convert to income mode, they
    1. sold some resi property (CGT can hit you, so structuring is very important)
    2. bought commercial property (at about 12% pa income)

    Now they could have just gone LIC/ETF/Shares/REIT at that stage for a slightly lower income (about 5%~7% pa) but if you really wanted the $1m pa income you'd have to risk up a bit.

    An interesting thing I saw them doing: the PPOR tax free tactic - these people moved - a LOT!! They would buy a home, live in it, and then move when the value went up (I used to refer to them as the nomads - I think they never really unpacked!!). While this may sound trivial, because of their income, their PPORs were typically very large developable blocks - one place they lived in was a house on 3 acres less than 20km from the CBD of an eastern capital. They sold that to a developer.


    The Y-man
     
    The Y-man, 16th Sep, 2017
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  17. The Y-man

    The Y-man Moderator Staff Member

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    That is one way - however, for me, the 70% LVR would scare the begeesus out of me.

    1. Your income could drop or stop (for many reasons), meaning servicing can be problematic
    2. A vacancy with that sort of LVR can mean the bank asks for 30 day pay out of loan (happened to the people I wrote about above - they sold one of their resi IP's to meet the call)

    As a suggestion, why not look at 2 x $1m (at today's $) quality resi ips (i.e. inner suburban house or mid ring house with larg block) at 50% LVR for 10 years - that's 20 resi IP's in 10 years.
    It may be by then, they have enough cap gain that you can sell and buy CIP and still have some spare houses left over.

    That way you cover your backside if the income stops because at 50% LVR they should be holdable, and if you chose well you should be able to sell them in a fire sale for a decent quid if things get really desperate.

    The Y-man
     
    The Y-man, 16th Sep, 2017
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  18. Trainee

    Trainee Well-Known Member

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    Just continue whatever it is that will make you 100k a month?
     
    Trainee, 16th Sep, 2017
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  19. Chabs

    Chabs Well-Known Member

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    I would set up a family trust and start having kids to distribute income to .;)
     
    Chabs, 16th Sep, 2017
    #19
  20. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    If you did want to go resi then developing would be quite a good money spinner for you. Not only would you grow your money buy doing a 20-30% return project but what you have is brand new and comes with awesome depreciation to help reduce your tax.

    Now I must say that structure and entities will make all of this work better than just throwing money into one thing.
     
    Last edited: 17th Sep, 2017
    Westminster, 16th Sep, 2017
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