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Investing for LIFE. (long winded- sorry)

Discussion in 'General Property Chat' started by theGhostwhoWalks, 22nd Nov, 2015.

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  1. theGhostwhoWalks

    theGhostwhoWalks Member

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    Hi all,

    I find my self in a great position, i am 30 years old and i have recently inherited approx $1.5m in cash and assets which i aim to liquidity by the end of the fin year, and start investing for the future within a trust.

    I am at a loss of which option to take, there following 2 are i feel worth investigating and i would love any opinions.

    1. Pool the cash together, go about by day job (income circa 90k) and start out with a small development on the outskirts of syd, or woolongong, central coast etc. duplex/townhouses etc. Max value 2m for serviceability. (pending chats with the relevant people)

    *this option is of great interest to me, as i come from the building industry, and after one or 2 small developments i would like to build them my self. Also the freedom on not having a client is an appeal, whilst still running my own business. also the possibility of higher profits in shorter period of time.

    2. Embark on a buying spree.
    Target regional hubs, maybe 3-5 towns, and purchase 20 properties, valued @ approx 250k
    20 x 250k = 5,000,000
    LVR 70:30
    Cash injection 1.5m

    Hold for 15 years, enjoy CG of (lets be conservative) 75%

    8.75 total value.

    remaining debt in 2030 of 30% (roughly thinking 15 years of repayments = 50% of mortgage paid, + positively geared income from 70:30LVR?)


    Remaining debt 2.625m

    8.75 -
    2.625

    sell some of the 20 to become debt free, with approx assets of 6.125m
    5% yeild = gross return in 2030 of $306,250

    *Seems like a great idea in theory, not sure if the numbers work in that way obviously there are tax implications within the 15years hold period etc. I like the income and being financially free by age 45.

    I own a PPOR value 1.4
    mortgage 610.
    this would be totally seperate to above investments and we (wife and i) would like to upgrade every 5 years (within market conditions)



    What would you do?

    i see this as just 2 of hundreds of options, and am lost as to which decision to make, although i know i must make one in the short term.


    Thanks everyone.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Speak to a lawyer about setting up a post death testamentary trust. And seek advice on asset protection. A simple example is not having the trust with the money do the development.
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Simple but not obvious question.

    What is your end game and what do you need to achieve that ?

    The above ideas are very different in risk profile and capacity regarding your resources

    is it wise to tip all your eggs into the one omlette ?

    ta
    rolf
     
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  4. FireDragon

    FireDragon Well-Known Member

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    I will buy something with good rental income + development potential in capital cities or large regional areas. For example block of units that can be renovated, strata titled and add more units in the future or commercial blocks with development potentials.
     
  5. theGhostwhoWalks

    theGhostwhoWalks Member

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  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    financially free and income without 9 to 5 and waterfront home are great

    That may be achieved by being on centrelink and renting a house in a flood plain in a country town......

    I know what you are getting at, quanitying what you want, by first crystallising what you want to live like, will allow u a greater chance of achieving same.

    Im not saying you need to spill your dreams here, just saying, that goals stuff works.

    ta
    rolf
     
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  7. devank

    devank Look, lets just get on with this, ok? Premium Member

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    [​IMG]
    (thanks @neK )

    I would allocate 750K for a development (& buffer) and 5 x 500K buy & hold.

    I know many do it but managing 20 PMs or managing two development is like having a part-time job!
     
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  8. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Everyone wants to be financially free, but that's a very vague statement. What does that actually mean in terms of finances?

    Start with what sort of income you want to enjoy for your financial freedom. Then figure out what sort of portfolio will be required to get achieve those figures. From there you can create a plan to put that portfolio together.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Here is one strategy you could do.

    Take the borrowings on the PPOR up to 80% LVR with a separate LOC for the excess.

    Gift a some of money to discretionary Trust A. Borrowing enough money to park in the offset account on your $610,000 loan. You will still have a $610k loan associated with this property but no interest to pay. When you move out the interest on the $610k should be deductible (provided it is all associated with the purchase of that property).

    Then do a development. Depending on the circumstances this could be done in discretionary trust B. DT B could borrow from DT A or, DT B could use other commercial borrowings by borrowing against the land or land and construction. Or depending on the amounts needed you and DT A may be able to lend DT B the money to develop.

    DT A could even take a first or 2nd mortgage over the development site.
     
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  10. Ouga

    Ouga Well-Known Member

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    "Trying is the first step towards failure" Homer
    Your second option would in theory generate about $300K gross per annum. It relies on a few assumptions though.
    Like the other guys have pointed, what does it mean financially free for you? A lot of people on the forum have the vague target of 100K passive income from investments as a financially free achievement. Whether that number is suited for your needs or not, only you can decide.
    In general I would think it is safe to say if you have your home paid off and can generate $100K passively from your investments, you would be doing pretty well for yourself and should not need to work 9-5, given most of your salary would just end up in income tax.

    Now, once you know how much you'd like in the end game stage, you can work backwards to see how to achieve this. With a $1.5m asset pool, there are many options.

    Perhaps you could allocate like this:
    Current home value: allocate towards new waterfront PPOR.
    1.5m assets received: allocate towards passive income generation.

    One asset you could consider as part of your overall strategy long term could be shares: with the benefits of franked dividends, you easily achieve a tax efficient return of 4.5%+ , absolutely passively. Opt for the dividend reinvestment plan and let that compound for you. When you exit the 9-5 job, you can then choose to get the dividends paid to your account for living expenses. Just something you can consider with part of your asset pool. Also a diversification from property.

    If you have experience/skill in development, then no doubt you can add value. I would recommend to keep things simple in general - this is not easy! We naturally tend to favour more complex options.

    Good luck with it all!
     
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  11. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    I'm a developer so I'm biased but I like number 1. Of course you could do both as someone else has also said.
    I'm not a huge fan of buying something and hoping it will go up in value.
    With your skills if you want to buy something established then I would buy those places that need enough work to make the unattractive to others but not so much that it's too expensive.

    With developing you could implement a strategy to hold some stock and sell some stock. For example if you were doing a triplex, sell 2, hold 1 and rinse and repeat.

    Most importantly before you sell off these inherited items seek wisdom from a lawyer and accountant on the best way to do it.
     
  12. D.T.

    D.T. Adelaide Property Manager Business Member

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    This is probably the way I'd go too.
     
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  13. The Falcon

    The Falcon Well-Known Member

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    What sort of $ waterfront are we talking?
     
  14. devank

    devank Look, lets just get on with this, ok? Premium Member

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    Sorry to quote my own post but I thought I should expand a bit more with possible numbers.
    (I'm procrastinating from finishing an online course work)

    This is what I would do:
    1. Development using 750K
    Vic: Buy a suitable place for say 500-600K.
    Deposit 20% + cost 5% = 150K gone. 600K left.
    Keep 200K as buffer. 400K left.
    At 25% (deposit + paper costs) you can borrow 1.6 Mil for construction!

    2. Buy & Hold
    Leave 125K as buffer. 625K left.
    At 25% (deposit + costs) you can buy 2.5 Mil worth of assets (5 x 500K).
    Buy 3 in QLD: One each in Brisbane north, south and west.
    Buy 2 in SA

    Now you have 5 Mil in assets at the age of 30.
    Assuming you don't do anything else...
    Age 42: 10Mil
    Age 55: 20 Mil
    Age 70: 40 Mil... wow... now follow these advices :)

     
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  15. theGhostwhoWalks

    theGhostwhoWalks Member

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    surely with 610 on PPOR and income approx 90k it would be impossible to get a construction loan through on serviceability right?


    Goals for me more specifically would be.
    use PPOR to eventually gain Waterfront PPOR value 3-4m ( by using current PPOR strategy of buy and renovate sell for profit and upgrade may need a top up from investments to make purchase in 5-15 years depending on position)

    establish an income of somewhere in the 200-300k (allowing for 15 years of inflation i feel this is conservative)

    My main occupation to be looking after my kids and tinkering on my income making properties.

    Thanks so much to everyone so far for the advice!!










     
  16. theGhostwhoWalks

    theGhostwhoWalks Member

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    P.s. Really laying my dreams out here!!
    :eek::eek::eek:
     
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  17. theGhostwhoWalks

    theGhostwhoWalks Member

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    Wow... Scary.
     
  18. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Well a 3-4m PPOR will hamper your end goal a bit but if you do as you say, some renos then upgrade on the growth you can keep it separate from the investment side.

    When you look at IPs and loans the banks will take rent into account for serviceability so you can often borrow more than you think BUT first you need to consider structure, tax and finance implications.

    Structure and tax will affect how you borrow. How you borrow will affect how far you can get before banks start saying no. Each bank has different requirements and if you want to go hard at the beginning it will pay dividends to sit down with a good broker and see what the best options are - the answer won't be the one with the lowest rate - the answer will be the one who is most suited to your strategy and position.

    You are in an awesome position. Take the time to make the most of it by getting some good advice then get the ball rolling for purchases.
     
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