Nearly ready....but still lots of questions.

Discussion in 'Share Investing Strategies, Theories & Education' started by skater, 13th Mar, 2018.

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  1. skater

    skater Well-Known Member

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    Ooh....that does sound nice. Still reading! My eyes hurt!
     
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  2. Ben_j

    Ben_j Well-Known Member

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    @The Y-man are the dividends on REITS generally fully franked?
     
  3. The Y-man

    The Y-man Moderator Staff Member

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    Ok this is where it gets a bit complicated.

    Many of the listed "reits" are actually stapled securities (means you get a share in the management company "stapled" to a unit in the property trust).
    So the dividend portion of distributions a usually fully franked.
    The other bit of the distribution that comes from the rental does usually carry some form of tax benefit for the depreciation etc but not always.

    The Y-man
     
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  4. asw1

    asw1 Well-Known Member

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  5. The Y-man

    The Y-man Moderator Staff Member

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    I agree that if REITs (and other income instruments) are the only things you do, it is insufficient.
    IMHO it has to be remembered on this forum however is that people (like the OP and myself) has a significant capital growth base (in resi IP), and which in my case is CF-

    So an income instrument
    1. "feeds the shortfall" on the resi IPs
    2. feeds the owner
    while the asset value grows.

    The Y-man
     
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  6. skater

    skater Well-Known Member

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    This is exactly my dilemma. Thankyou for explaining it so eloquently!

    By taking money out of offsets to invest in shares, we need to generate enough of a yield so that it warrants moving the funds in the short term, as, essentially each dollar invested has the same outcome as if it is borrowed money. As we live off of rents, taking a large amount out of the offsets at one time, could cause issues, so this needs to be addressed.

    Our situation is different to those who are working and growing a portfolio through savings plans. We HAVE a property portfolio that currently sustains us, but wish to move into an even more passive stage.

    I COULD theoretically move $1mil + straight into the share market tomorrow, but that would leave us with a debt of the same amount that no longer has an offset on it, so there would be interest that would need to be paid until the dividends start to roll in, plus the risk of the dividends not being large enough to cover the amount that I'd like covered....as well as the risk that I've not done proper diligence in selection. So, yes, I'd LIKE lots of CG, but need to be very careful of yield as well.

    Also, not really sure how to go about this. Obviously I'm not going to dump that much into the market at once. I'm trying to decide how aggressive I want/need to be. I'm trying to decide if I should just do, say, $10k a month, or more/less.....
     
  7. Terry_w

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

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    This is not necessarily the case.

    Example
    Joe Bloggs owns several IPs all fully offset. Joe's son has just turned 18. Joe encourages his son to invest in shares and lends, interest free, him $200,000 to invest. The shares pay $20,000 including franking credits. so the son pays no tax at all. The interest on Joe's loan jumps as $200k less offsetting. This might be $10,000 at 5% pa interest on an IO loan. Joe is on the top tax rate so that puts an extra $4,700 in his pocket.

    Example 2
    Joe has no son, but sets up a discretionary trust. Now he has diverted $10k to $20k income to his discretionary trust from where it can be diverted to a bucket company to cap the tax rate at 30%.

    Example 3
    Joe marries Ms Joe who is on the 37% tax rate - joe withdraws and lends interest free to ms Joe and they save about 10% tax between them.
     
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  8. skater

    skater Well-Known Member

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    Oh Terry.....you are doing my head in. My learning curve is large enough at the moment, I think I really need to use the K.I.S.S. method at the moment.
     
  9. The Y-man

    The Y-man Moderator Staff Member

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    The other thing you need to be careful of is income "smoothing". Most listed REITs only pay in Feb and August - whereas bank interest is usually charged monthly.

    The minimum amount you can invest into listed REITs is technically $500+brokerage ~ although to make it worthwhile in terms of brokerage, you probably need > $1,000

    The Y-man
     
  10. Terry_w

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

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    Nothing complex or unusual on what I have written. It is simple basic structuring.
     
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  11. skater

    skater Well-Known Member

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    Will be more than $1k at a time, wherever I put it.
     
  12. sharon

    sharon Well-Known Member

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    Since you are thinking to simplify - are you thinking to sell a house, pay out the loan and use the remainder to invest in shares? That way just converting one asset into another. I appreciate that you will loose in selling costs. But it will simplify and you will not have to worry about interest payments.
     
  13. skater

    skater Well-Known Member

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    No, as posted earlier, we have a chunk of money already sitting in offset accounts.
     
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  14. Lizzie

    Lizzie Well-Known Member

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    Don't over analyse - do you costings (yes, I know, reams of paper later) with realistic figures. Calculate in a 1% interest rate rise - use the average share price/return for the last 2 years as a guide ... and see if it's worth it.

    Gotta be conservative at this stage as, if you lose the base cash, very hard to re-earn it now that you've retired.

    Also, you're doing a bit of travelling now - how much do you want per year to keep going? Remember that, as you get old, your costs tend to go down

    Is it worth selling one of the properties, paying out the loans on the others and then investing the rest in dividend yielding shares? Debt after retirement makes me very nervous and we'll be going out debt free
     
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  15. skater

    skater Well-Known Member

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    I am planning on being conservative, but I want to dump enough into the market so I can get comfortable with it.

    Selling? Yep, we've already offloaded several. We're keeping the remaining Sydney ones for the time being......the rest, as far as I'm concerned can go, but I'm not ready to pull the plug yet. I plan to wait a few years, hopefully get a bit more growth first, then downsize a bit more. We've still got a heap of debt, but more than half of it has full offsets sitting against it..
     
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  16. Shady

    Shady Well-Known Member

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    That property was very difficult to secure tenants for...noone wanted to be there because of its location. Cheap rent offered but still hard to get it away. Very little public transport, one road in and out and in a predominately light industrial area not office environment.
     
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  17. Shady

    Shady Well-Known Member

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    I know you haven't asked for opinions but...I've ready many of your posts over the years and it certainly sounds like you've done very well for yourselves by sticking to what you know and not trying to get too fancy. Is branching off into a completely new and unknown market something you have fully considered?...hopefully not just because there are a few stock market threads on a property investment forum
    Best of luck with your decision
     
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  18. skater

    skater Well-Known Member

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    Thankyou, yes we have done well, and yes, I have fully considered this. I'm not going to jump out & put huge amounts anywhere. This is a learning curve & when ready, it will be only small amounts invested at first. After 20 years of IPs, they are not going to completely go from the portfolio, but it's time to diversify. I am taking my time, and reading so much that my head hurts.
     
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  19. oracle

    oracle Well-Known Member

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    If you get tired of reading. May be watch some youtube videos. Search for Charles Ellis, Jack Bogle, Burton Malkiel. They explain very well how to succeed in the stock market over the long term.

    Cheers,
    Oracle.
     
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  20. skater

    skater Well-Known Member

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    Thankyou, I've seen a few from Peter Thornhill. Now reading Motivated Money. I haven't heard of any of those, so added them to the 'to do' list.
     
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