PPOR equity and the path forward

Discussion in 'Investor Psychology' started by Spoony, 21st Sep, 2016.

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  1. Spoony

    Spoony Well-Known Member

    17th Aug, 2016
    Hi everyone, I'm new hear but have spent a little time already scrolling through the various sections and threads. So much great information to take in . My brain is bubbling haha :)

    I'm at that point in my life (age 38) where I want to start getting ahead, making what money/equity (be it not huge) I have work for me, planning for the future. My first thought was property investing, though the more I research both property and other assets, the more I know I need to really sus out what is best and what is achievable.

    So I'm trying to work out the best strategy to enact.

    On the recommendation of a friend I've gone an see a Financial Adviser (whom is his Brother in law).
    His recommended a debt recycling strategy (leveraging my PPOR), which I've done plenty of reading on and feel I've got me head around fairly well now. The idea seems good, however I do realise there is level of risk involved and investments need to be selected carefully due to the compounding nature of any losses.

    However in doing my own calculations, I've borked at signing up with this adviser as for the amount I have to work, gains seem to be largely are chewed up by fees. $5200 for the initial SOA, planning and implementation and $360 ($4320pa) a month for management & review. I have no problem paying for good advise and service, but one has to ensure the benefits along with associated risks will out weigh the cost.

    My PPOR is worth maybe $320k, the outstanding mortgage is around $160k. So I have some equity in this property. My income is $73k pa. So as you can see, not huge volumes of equity nor cashflow to work with vs the advisers fees.

    At current payments and rates the PPOR will be paid of in 10ish years.
    The GF and I have laid out some future plans, she'll be moving in within the next 6 months and with this the PPOR could be paid off in around 6 years.

    We have a future plan were in around 6+ years we'd like to relocate on some property in a more remote location but also realise that income streams and amounts can be more limited with such a lifestyle. So the aim is to setup more self sustainable (the property), with possible diverse income streams, including hopefully some created wealth.

    I first had the idea to turn the PPOR into a rental. However given the outstanding loan amount tax advantages in doing this with this property won't be as great. I'm looking at moving to interest only with offset to give more future options here.

    So one strategy one is to slug it out, pay of the PPOR while also renovating it (within what's worthy of the local market) and selling it.

    From there I've been thinking an IP could be purchased with maximum loan value, while the new PPOR would be largely paid by the sale of the existing PPOR + an additional loan. I'd want the IP to yield OK, with the aim to at least cover the IP, however positive would be nice, so we only personally have to cover a smaller PPOR loan maybe ($150k+). The earnings from the IP obviously paying down the PPOR first for tax purposes, somewhat using the IP to debt recycle?

    The aim with the above that in 20+ years both properties could be paid off or perhaps more added as equity grows, so as to achieve a passive income.

    The above strategy involves waiting, and doing nothing more than paying down debt and adding value (reno) to the PPOR over the discussed time frame.

    Would it be better to leverage what equity I currently have to get into a IP sooner? Risk is increased but there are tax advantages over this period obviously. Single income I'm on + available equity would limit the IP property value but should be still achievable. Factoring the GF's income would help here, but that would have to be a little more of a future outlook of 1+ years.

    The other strategy doesn't involve property but instead aligns more along the advisers take. Refinance to $250,000k use $80k to invest (ETF, LIC, something diverse) and convert good debt/bad debt. It's obviously my mindset, but this idea just seems so much more risky than getting into an IP.
    I think if played smart this strategy has it's advantages, and going in with a moderate risk investment view still would get me/us ahead quicker than the 'slug it out' route. While also slowly growing a portfolio.

    This portfolio would continue to grow as the PPOR is paid down, the PPOR's sale would cover a fair portion of the new PPOR's purchase, and the cycle could continue, while the portfolio grows. While it's easy for me to envisage the passive income off a IP(s), I'm not sure it would look similar with grown ETF or LIC investment.

    However I think with the volume of money discussed, a bit more of DIY approach (perhaps just with specific services/advise needs) is probably needed to be advantageous than paying the adviser fees I outlined above. Or perhaps his fees are on the high side, or at least high for what's been offered/needed?

    One last note being our ethical stance on how our money gets used. This is a consideration (thought not brutally strict), as there are somethings I'd rather not support or invest in. This choice currently includes where my super is parked, and is currently somewhat steering banking options as I'm moving lenders anyways (away from CBA for a number of reasons).

    Encompassing all of the above, moving lenders and restructuring the loan is also a consideration. As such at least for now I'm looking at interest only + offset, with split abilities also available within the loan. Does this sound fair to start with?

    Wow, I type heaps to anyone taking the time to read all that, thanks :)