My investment journey, but what should I do next?

Hello all

Intro

Hoping to get some ideas from the many property experts here on what I should do next!

A bit about me. I am mid 30's, married and have a 3 year old son. I am currently employed (fairly stable), income $230k per year pre tax ex super. Wife does not work anymore. Current annual living costs are ~$100k per annum (incl $20k childcare net of rebate and ex any IP property costs. Property portfolio is cashflow positive ~$40k-$50k after all costs but before tax.

I have had very bad experiences with shares (GFC) so do not hold anything significant in terms of shares.

Portfolio


Goals

1. Wife to stop work to spend more time with the little one – have achieved this.

2. Pay down SMSF loan as soon as possible. I can pay down $25k of principal each year, which should get to less than $150k outstanding loan in 10 years time. The loan should then be able to pay off itself without additional contributions from me.

3. Continue to de-risk the portfolio, mainly through paying down all debt as soon as we practically can. Goal is to have at least $100k after tax passive income. Appetite for risk is fairly low.

4. Stop working as soon as I can.

Risks

1. Heavily exposed to property, in particular the Sydney market.

2. Interest rates – already seeing the impact of this, and I suspect there is more to come.

3. One person in family working, although I have taken out sufficient insurance inside and outside of super.

Options

1. With the recent repricing, I am considering changing the IO loans to P&I, but not sure if this is a good move. It comes down to preserving my loan facilities vs paying a lower rate. However given it will be difficult to roll my IO loans in the future when the IO period finishes, should I not just change over to P&I now?

2. Fix additional loans before rates move further.

3. Cash out of the Sydney market? My preference is not to as strategy was to hold on to them for the long term.

4. Anything other obvious options?

 

Is the Hornsby property worth keeping? The yield is under 2.5%, you could always sell it off and invest in something with a better yield in another capital city or regional area. We invested in Brisbane and our yield is just over 6%

On a side note, any jobs going at your work?

 

That's a valid point. The current net yield is bad as it includes a share of land tax. Off the original purchase price the yield looks better, but is still not great.

If I do sell it off, presumably I can retain the loan facility by securing it against a TD? Wife does not work anymore so banks will not lend her any money. The other positive if I go interstate is no land tax.

Haha, with the hours I work and associated stress I think sometimes it is not really worth it!

 

I was thinking along the same lines as Tim. If there was one to get the spear it would be that one, and then consider switching to Brisbane or maybe even Perth.

It would be interesting to run the numbers on what sort of capital gains tax would be payable by your wife if it was sold this year. I guess you should never really make decisions based on potential government changes to tax, but it would be no surprise to me if Mal and Scott slashed the cgt discount from budget night (they have form for stuff like this). If something like that happened you’ll be wishing you had done something to be a bit less Sydney-centric perhaps.

Great portfolio btw.

 

Great portfolio - you have a number of options.

You have plenty of equity for deposits and I assume you have borrowing capacity. If I was in your situation, I would buy a number of positively geared properties (residential or commercial) to reach your goal of $100,000 after tax passive income. You already have assets that are likely to keep growing so it doesn't matter if these have less growth potential (but it would be good if they still had some).

 

Given you are risk averse, I would definitely follow option one for atleast one of your properties and change to a principle and interest loan

 

Yes I'm on the same page. The upside is I will get a better rate. Downside is losing the flexibility of being able to claim a deduction on the repaid principal over time. Can't see any other downsides to this...

 

why change to P&I when you can leave as IO but put the extra $ that the P&I would want and park in the offset. this would be risk straagety so it gives you accessible cash but also be paying the P&I amout.

They are some pretty serious Syd properties, and I would not be rushing off to sell. even if they are low yields with your LVR % they are probably neutral so they are not demanding much from you.

you've covered goods points but little on future planning.

if you were to sell one Syd property would you buy property elsewhere or would you put in shares/other investments?

 

Reading between the lines it sounds like your job is more of the issue because it's all consuming. It's probably also inflating your living expenses due to being time poor.

Is it an option to pick up a job with less hours, less pay? I'm on significantly less than you but at the moment I only work a 10 hr x 4 day week and despite a 2 hour commute each way I'm in door before 6pm of an evening.

More of a work lifestyle balance may be what you need rather than outright retirement.

 

You have heaps of equity and cash and a high paying job and youth......... What makes you think you need advice from anyone on here?

 

Your loan structure looks fine on the face of it except you're pretty CBA heavy - I'm hoping they are all stand alone securities? If they aren't it would be worth looking at uncrossing particularly if you have your eyes on retirement.

The only sad thing is you'd be unlikely to retain those discounts so it ends up needing a bit of cost/benefit analysis and future planning.

Paying P&I can be wise if it fits with your goals - once you have no non deductible debt and aren't in acquisition mode it can make sense to start paying down loans.

 

I would sit tight. Put all savings into offsets.

Now that your wife is not working you will have considerable extra savings as child care costs will cease.
Marg

 

Paying P&I can be wise if it fits with your goals - once you have no non deductible debt and aren't in acquisition mode it can make sense to start paying down loans.[/QUOTE]
@Jess just thinking on my situation where i have 2 loans on IO and only started my journey in 2015. Should i be trying to reduce the debt or continue to build funds for the next purchase? I have LOC on both so if i pick one loan and start paying down into it will that be a good strategy as i am currently in the accumulation phase. I can spare a couple 100s per month but not sure if i would rather put it towards the savings

 

Do you have any non-deductible debt? If so, best to keep saving into that offset, and paying P&I on that one but leaving the IP's on IO. If you're still looking to buy in the future, P&I can still work but it depends on a few things - it would be worth getting some specific advice.

 

I am still rentvesting hence no non-deductable debt. I am sometimes tempted to by PPOR but it means my serviceability will be impacted slowing down the accumulation. Goal to reach 5 IPs then by then look at eventually buying PPOR. Given the current environment where lenders are putting the screws my then delay achieving the 5 IPs soon.

 

Yes that is correct. More flexibility is what I would like, and getting to 4 days would be a great start. I think I need to consider what I need to do to get there - thanks for sharing.

 

None of them are cross collateralised

When you say I won't retain those discounts, why is this? Are you seeing cases of people being moved off even on variable rate loans? Or is this only when you roll off a fixed rate loan?

 

Some brief points.

Your would probably want to divert income to your wife as she pays less tax. You could do this simply by storing cash in offset accounts attached to her loan. Either a gift or interest free loan from yourself.

Is paying down the smsf loan a good idea? Funds cannot be redrawn so it might be better to just store the cash in the smsf offset instead.

 

Just wondering if it is possible to
Step 1: Extract equity out of your PPOR.
Step 2: Gift/loan to DT
Step 3: Invest in shares under that Trust
Step 4: Distribute the income to your wife