INVESTMENT STRATEGY WITH CASH

Hi All,

Hoping to get some opinions to start our investment journey.

We are a 35yrs couples, both working full time. We have three houses as this stage (one PPOR and two IPs) all are in Victoria.

My PPOR values at $1 mil ($500k mortgage)
1st investment house : $500k ($400k mortgage). rent $1500/month. P&I repayment: $1900/month
2nd investment house : $500k ($400k mortgage). rent $1500/month. P&I repayment: $1900/month

All three with different banks as we borrow under owner occupier loans (lower interest) and pay P&I. We don't have any problems with repayments as rent cover all interests, so we just pay for principal.

Now, we have $1.5 million worth of Bitcoin and planning to sell all them with cash. (we will sell directly to person to avoid tax)

So, planing to pay off mortgage of my PPOS ($500K), then we will have $1 million cash and two investment properties with $800k mortgage.

Total value is $2M with equity now is $1.2 mil and extra $1 million cash.

So, we will plan to build a strong portfolio balance between cash flow and capital gain with two options as below? (please note we only buy house)

1. Create a trust family account then use $1million cash to buy 4 x investment properties (around $500k each) two in Brisbane with good cash flow and two in Victoria with good capital gain. Value will be $2M with approx $1.1M mortgate (included ~5% stamp duty) in trust and $2m under our personal name. Then take time to buy more and more.

2. Transfer two current investment properties into a trust account. Then buy another 4 x investments properties with good cash flow in Brisbane. So, only my PPOR under our name and our trust will have 6 properties, value $3M and mortgate $1.9M)

3. ATO may question how I can pay off my PPOR and buy a lot of properties in a year. So, we will slowly deposit into our loan then pay off all mortgage $1.3M.

After that, sell two investment properties.
We will have my PPOR worth $1M
$1M in bank account after selling two investment properties and $200k cash
Then we can start a strategy as option one above.

OR, transfer title of two investment properties into trust and use their equity and positive cash flow (now, we are free of debt) to buy a couple of investment properties.

I’m hoping some of the wise property investing minds out there might give me a bit of perspective on this situation?

Thanks for reading!

 

How does selling directly avoid cgt?

1. How will the trust use your cash?
2. Consider the duty, cgt general income tax and other issues too
3. This doesn't make it legal and creates another potential offence or 2

 

Thanks for your prompt comment

How does selling directly avoid cgt? --> i just transfer my bitcoin to their own wallet and receive cash.

1. How will the trust use your cash? --> i don't deposit cash into trust. the positive cash flow from investment properties in trust will be give to my parents, relative.
2. Consider the duty, cgt general income tax and other issues too --> after selling all my bitcoin, i will a lot of of cash but ATO won't find it. However, we worry about how to use that cash to pay off mortgate.
3. This doesn't make it legal and creates another potential offence or 2[/QUOTE] --> thanks. understand that, but all crypto holders will do that to avoid a massive CGT.

 

Surely transfer of Bitcoin is a cgt event.

1. You should read my legal tip on this.

Be careful of some serious criminal and tax consequences.

 

So you are asking for advice on tax fraud?
Seriously?

 

The world is your oyster... setting aside any debate about whether CGT is payable, and assuming you do in fact end up with an unencumbered PPOR and $1Million to work with.... I guess you need to ask yourselves, what do you want to achieve? Is there a level of income you want to reach?

For starters, even if you buy nothing else, the 2-2.5K you probably spend on your PPOR P&I repayments at the moment will be freed up. If reinvested as extra repayments towards the 800K of existing P&I INV debt, those two INV properties should be paid off about 14.5 - 16 years faster than making minimum monthly repayments . Realistically, it would happen faster than that as rents increase over time... but call it 15 years

Or you could just clear all 1.3 Million of your debt - the 500K PPOR mortgage plus the 2 x 400K P&I INV mortgages, and be left with 200K cash and @ 6K per month (72K per annum) that would no longer be required to service the existing mortgages. And of course, @ 3K per month in rental income from the 2 x unencumbered INV properties ( 36K per annum) .

That's why I asked what you want to achieve..... because for many, what I have outlined above would surpass their wildest dreams. But 72K of the income above comes from salary, not rental income.... so if you really want to get to the next level and have the choice to work or not, you probably need to take things further

One option would be to clear all of the debt first, then using the equity from the 2 Million in unencumbered assets, leverage into several cash cows/dual occ's .... If you look at an example of 3 of them at mid 600's each... so @ 2 million all up, powerful things can be achieved. Set them to P&I, and let them pay themselves off over @ 15 years.

Fast forward 15 years - you'd be @50 by then.... and you'd have the 2 existing properties paid off in full, and then 3 x dual occ's paid off in full. If the rents from the current properties appreciated by just 50% in that 15 years, those properties would be producing @ 54K per annum . And if the rents from the dual occs ( which is @ 40K today) appreciated by 50% in 15 years as well, those 3 properties would each be producing @ 60K per annum. 3 of them means 180K . That's 234K in total, before expenses and taxes. Achieved with $2 Million of debt that self services at P&I and is paid off within 15 years


Looking at another example- if you leveraged into 6 of them at mid 600's each, say $4 million of debt.... same principle applies. Set them to P&I and they will pay themselves off in @ 15 years.

Fast forward 15 years and you'd have the 2 existing properties paid off in full, and then 3 x dual occ's paid off in full. Again, if the rents from the current properties appreciated by just 50% in that 15 years, those properties would be producing @ 54K per annum . And if the rents from the dual occs ( which is @ 40K today) appreciated by 50% in 15 years, those 6 properties would each be producing @ 60K per annum. 6 of them means 360K . Thats 414K in total, before expenses and taxes. Achieved with $4 Million of debt that self services at P&I and is paid off within 15 years

In either example, you could conceivably be retired with a very nice income - and with more than enough to set your mind to attacking superannuation for the following 10-15 years, providing for even more income , but untaxed, in pension phase....

Or pour all the money into ETF's /LIC's.... or commercial..... or chase resi growth if you prefer, and hope that it can get you to a 400K + income ... doubt it though.

World is your oyster.... but dual occ cash cows would be my choice. May not be yours

 

Not yet, until i decide to sell all my bitcoin.

 

Big thanks to you Euro73,

Really appreciate with your seriously advice,

Dual occ is definitely a good choice for positive cash flow as earlier retirement is our goal also

 

1. CGT re bitcoin should be given advice. It doesnt need the bitcoin to convert to AUD to trigger tax. Just a change of wallet could be a sale. Changing types of coin also are taxed as trades with the profit taxed at each point. The ATO and other worldwide tax agencies share this data. Evasion etc. And then there is Austrac who watch for this stuff. $1.5m coming from any offshore source is gonna be on a report somewhere. here, USA, Britain,. NZ, HK, Singapore, Italy and so man other countries that share tax data with Australia. Austrac watch this stuff as your method to bring $1.5m is also used by drug traffickers and terror financing and fraud. So they watch and profile. Homepage | AUSTRAC
2. Betterment risks are certainly a concern. The ATO have ways and means to look at wealth and changed wealth and elevate review and audit. They dont have that many staff so they risk assess using data. Like property transfers, bitcoin trade data (IP address etc) and debt reduction and so on. Ever heard of 5 Eyes? that watches data ? And already hacks bitcoin info ? Yep Australia is one set of eyes. And they have your whole lifetime to ask you to explain it. There is no time limit. ie They share the Austrac info so someone at the ATO starts to look.
3. Some of the issues you allude too could even be referred to the DPP by the ATO. ie Criminal law and evasion. PC isnt really a forum to admit or ask for advice on "avoidance" as that could be a crime.
4. Transfer costs of the property sales ie CGT and duty and legals. Is this worth it ?
5. Strategy of land tax diversification comes to mind as a strategy here.

IMO you would be best engaging with some tax and law professionals to address your situation and base your decision on sound advice

 

Thanks Paul,

Not sure how they can track if we transfer bitcoin between cold storage (let's say from ledger nano to ledger nano) because they don't require us to KYC (Know Your Customer) when register and activate a wallet.

 

Basically you engage in tax avoidance and hope ATO cant track or find out
if and when they catch up to you, your world could be undone pretty quickly
just pay your CGT and live a happy life.

 

thanks for a good advice

 

I'm a bit miffed at this so perhaps you can help me out.

Will there be at some point in time a total of $1.5m value going through your bank account? If so, why would the ATO not be flagged? Or are you keeping all the value of the sale in a digital wallet some how.

TB

 

Wasn’t that shy accountants were invented.

 

Why property?

Why not shares?

 

ATO won't ask if a big amount deposited to your account, but Austrac will do. In my case, I will slowly deposit into our three home loan accounts

 

Austrac is a reporting agency. They report on their system which is accessed by the AFP, ATO, customs, state police etc

Slowly depositing money is likely to draw similar attention to large sums. It can also be a crime known as 'structuring'.
$1.5mil will be noticed, even if done over 10 years

 

I did just pay the cgt to legitimise a great one off gain!

Give what is due and you will live easier.

TB

 

The mind baffles. How does one end up with 1.5 million in bit coin?

 

The fires have only just been extinguished.....don't start new ones.

You may one day have an audit of some description. Don't tempt fate. You may also
need to explain how you drip fed small amounts into your loans or offsets when you re-finance something. When you sell your BTC/Crypto, you will need to do so on an exchange unless you transfer from nano or trezor to another party and receive cash at some secret meeting spot. Cash proceeds from an exchange will go into some type of bank account.........you may be asked to "please explain"

Don't overpay tax and certainly don't avoid minimising it, but pay your fair share. Evasion is a crime and end of day, we all need to pay our fair share to enjoy living in the greatest country in the world.