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how to make 20K pa passive income ?

Discussion in 'Small Business' started by Logan, 6th Dec, 2015.

  1. Logan

    Logan Well-Known Member

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    this is a question - I have a few ideas but I am looking for suggestions.

    One of my current goals is to pay down my PPOR in the next 5 years. I am about $400 a week short to meet this goal so I am looking at passive ways to create extra cash flow. I don't want to take on another job or do uber / airbnb and I have many projects outside of my current payg job that I am working on. These projects will create another income stream long term but are still in development at the moment.

    The simplest way I can think of is capitalising all running costs (including management and interest) on 5 IPs - this would get me close to the 20k mark tax free. Over the 5 year period I would be using up 100K equity debt - I can't see this as being an issue as my portfolio would have to be pretty rubbish to not grow more than this in one year (let alone 5 years). The interest on the debt would also be deductible.

    Any thoughts on this strategy or other cash flow strategies ?
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    Once you pay down your ppor, this releases say 400k equity. Use it as a 20% deposit on a 2mil comm IP. Tada 20k passive cash flow.
     
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  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    To pay down a loan quicker you will need more money (to state the obvious!).

    You could do several things
    - sell an IP and use the equity to pay down the loan. This may be the quickest way
    - borrow more to invest in income producing shares and use the extra income to pay down the loan (after interest costs on the shares)
    - borrow to pay expenses on the IPs, freeing up cash to pay down the loan quicker, which will free up more equity to borrow to further invest
    - down grade the main residence
    - sell existing shares and buying them back (after advice)
    - spousal sale on investment property
    - getting a lower interest rate on the home loan.
    - get a pay rise
    - increase rents
    - make sure you are claiming everything you absolutely can

    Or a combination of the above.
     
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  4. Speede

    Speede Well-Known Member

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    Google Armchair Expert
    Example?
     
  5. Hodor

    Hodor Well-Known Member

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    Um, Given you have PPoR debt I think you need to reconsider the deductibility of interest on capitalised interest repayments. I think the ATO would consider this deductibility issue differently. You will likely end up with mixed purpose loans along with tax avoidance.

    But hey seek advice from a professional, not someone on the internet who claims to be homeless.
     
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  6. Logan

    Logan Well-Known Member

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    Thanks for the suggestions

    I am already debt recycling into shares

    this is the strategy I was suggesting above


    The strategy I am suggesting only involves capitalising running costs - not interest. Basically I would be using borrowed funds to pay for things like rates, water, insurance, repairs etc and using the cash to pay down my PPOR.

    It does get me thinking though. Maybe it would be better to just sell an IP in 5 years and pay down PPOR then - can't do this now as IPs too fresh without enough equity to cover entry and exit fees.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Maybe you could sell the shares every $10k or so in growth. Less transaction costs.
     
  8. JacM

    JacM VIC Buyer's Agent Business Member

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    A couple of other ideas to throw in the ring...

    Across your home, car, health and IP property insurances, I'll bet there are some savings to be had by reviewing your cover and possibly moving to a different insurer. Or if all your policies are with one insurer, demand a hefty discount to stay put with them. That should save you up to say $2k.

    Buy grocery items you aren't precious about at cheaper stores such as ALDI. It seems to me everything there is $1 cheaper than the likes of Woolworths and Coles. Do you really care about your brand of floor cleaner, or tinned crushed tomatoes? Probably not. Buy such things cheaply and save yourself $50 a week and bang you've saved over $2500 per year.

    I can't say I'm an advocate of self-managing investment properties - but just to point out you are probably paying at least $7k per annum in property management.
     
    Last edited: 6th Dec, 2015
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  9. Logan

    Logan Well-Known Member

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    Tempting
     
  10. Logan

    Logan Well-Known Member

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    The insurance thing maybe a goer.

    I run a pretty tight budget and can make a dollar dance. Aldi is great and most of their products don't have artificial colours and preservatives. I did Costco for a while too but not worth it for the half day in traffic to get there.

    Self management wouldn't work for me on a time cost benefit basis.

    All great ideas, thanks for your thoughts
     
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  11. JacM

    JacM VIC Buyer's Agent Business Member

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    Glad we were able to give you some ideas that might work for you :D:D
     
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  12. Bullion Baron

    Bullion Baron Well-Known Member

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    Since this is posted in small business... pay to have a website/app developed that automates something worth at least $150pa to 200 subscribers. There's $30k in revenue, $7.5k in running expenses (advertising, maintenance and hosting), $2.5k to repay initial capita.... $20k/pa left over. Now you just need the idea :D
     
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  13. MTR

    MTR Well-Known Member Premium Member

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    what yield? commercial is stuffed at the moment high risk, and hard to leverage moving forward.. can you explain?what exactly
     
    Last edited: 7th Dec, 2015
  14. Bayview

    Bayview Well-Known Member

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    o_O
     
  15. Hodor

    Hodor Well-Known Member

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    That's not what your original post implied

    Good luck finding a way to find that 100k. If I had a way I'd be doing it.
     
  16. MTR

    MTR Well-Known Member Premium Member

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    and your homeless....:)
     
  17. JacM

    JacM VIC Buyer's Agent Business Member

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    I do believe that capitalising running costs is known as paying for things on a credit card, and then transferring the balance to one of those 0% interest for ages credit cards. o_O
     
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  18. DanW

    DanW Well-Known Member

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    DT idea is great, but you can also do it easier if you find some syndicate or trust operator you trust.

    There are some unlisted property trusts paying in the range 10% annual distributions.
    Borrowing at 4%, you get 6% net. Just over 300k equity invested in these sort of things gives you this return of 20k net.

    Of course there is alot of due diligence and research needed before you can make that next step, caveat emptor etc. There are risks.
    But where there's a will there's a way.
     
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  19. willair

    willair Well-Known Member Premium Member

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    Maybe look into margin lending,there are a few ASX listed that due too things out of their control the prices go into free fall,at current prices some are above 10% franked,and as long as dividend payment stay at current levels,and if they go up more the 30%,depending on how much you buy at 16 week turnaround sometimes work..imho..
     
  20. inertia

    inertia Well-Known Member

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    I love this one. There must be something I can come up with!!!

    Cheers,
    Inertia.