Seek advice on 1m cash investment in current economy

Buy a couple of well recommended books and read . Learn the basics, goal setting, different strategies, DD process etc. Spend 3 months doing that and you'll gain alot of clarity and some good direction. The ppl who go the furthest in this game are the ones who nail the basics imho. It's such a simple process to start and do well yet most bypass it and don't give themselves the optimal potential to do well. Why... is beyond me.

 

One of my favourite quotes - “Making money is Simple, but it isn’t easy.”

Every healthy adult living in a country like Australia has the self education tools available and the free market opportunities to become wealthy, but that doesn’t mean it doesn’t take hard work.

 

This ^^^

If you want to consult with specialists who do strategy development and location selection as part of their service it can speed some things up but even so you do need a minimum level of education to discern who the scam gurus are.

 

definitely need to do that, do you have any recommendations?

 

There are quite a few good ones. Different folks like different books. The important thing (imo) is to not focus too much on any one author's approach but rather to gain an overall understanding of different angles. Then, you can figure out which path/strategies etc may be best for you.

Some author's books include, Jan Somers, Michael Yardney, Margaret Lomas, Steve McKnight.

 

Right this moment, I'd hoard it... and wait. If necessary to do something, make a lot of crazy ridiculous offers on choice property in great suburbs within 10 kms of the CBD.

 

Vooz99,

Congrats for being in a position that gives you choices.

I know that there are recommendations to wait it out for the possible crash. However, the biggest mistakes I see people make is (a) procrastination, and (b) over tinkering with a good portfolio.

Without knowing all of your circumstances and preferences, I would suggest considering buying two properties - one now, and one later. You have a good deposit, and should be viewed favourably by most lenders. And there is definitely good buying at the moment.

Consider an approach of pairing two Melbourne properties with different risk and yield profiles.

As another BA said on this thread, you likely need a strategy, because your situation affords you some interesting choices.

Best,

 

Do you have some specific examples? What would you suggest?

 

You wont get that if you spend 1.4 on a PPOR. You will have a nice PPOR - but no income. You will have to keep working .

If you are happy to live in a more modest PPOR - say 500K . Use cash. No stamp duty for FHB under 600K in VIC. Duty exemption, concession or reduction for first home buyers | State Revenue Office

This would leave you with an unencumbered PPOR and 500K cash to invest .

1. Buy 500K PPOR. Use Cash for this purchase . This would leave you with 500K cash.

2. Set up 2 x 125K loan splits using the unencumbered PPOR as security.
Split 1 - 125K. Set this loan up P&I from Day 1
Split 2 - 125K. Set this loan up P&I from Day 1

3. Borrow 460K to buy a cash cow. I'll use a dual occ priced at 575K for this example. (land 175K. Build 400K) You would be contributing 20% (115K) + stamp duty (4615) + legals (1500) for a total of @ $121,115 . Split 1 ( 125K) would cover this , and leave almost 4K as a safety net for any unforseen expenses. Set this loan up P&I

4. Borrow 460K to buy a 2nd cash cow . Again, I'll use a dual occ priced at 575K for this example. (land 175K. Build 400K) You would be contributing 20% (115K) + stamp duty (4615) + legals (1500) for a total of @ $121,115 . Split 2 ( 125K) would cover this , and leave almost 4K as a safety net for any unforseen expenses. Set this loan up P&I from Day 1


You'd still have 500K of cash that you could invest in other asset classes.
You could sub-let the bedrooms in your PPOR for cash.

The money you used to spend on rent, plus the money you are receiving from sub-letting rooms, plus the money you are generating from the 500K invested in other asset classes, would be used to make extra repayments towards the debt you are carrying. Firstly, repay the 250K secured against your PPOR. You should be able to do that in @ 5 years if your 500K is generating 6-7% returns (30-35K per annum) and you are subletting rooms (10K per annum - 200 per week) and reinvesting what you used to spend on rent ( another 10K per annum - 200 per week) . Then you can turn your attention towards paying down the 2 x dual occ properties. With 50K per annum ( possibly more) available to make extra repayments, you should be able to pay the 920K or outstanding debt off in @ 10 years.

End result after 15 years. PPOR owned outright. 2 x dual occ's owned outright. 100K + passive income.




Or - just keep renting and invest the $1Million. If you can get 60-70K per annum franked, its more than replacing your 75K taxable income. But you'll still be paying rent.


PS - dont build your portfolio in VIC exclusively. Land tax thresholds will kill you

 

Well there is a ton of info in the LICs and ETFs threads, but if trying to keep a simple but flexible and diversified portfolio, with reasonble growth prospects something like an equal weighting of:

Top 5 Aus LICs by market cap
Vangard ASX ETF

4 x Unhedged global ETFs:
Vanguard world ex US ETF
Vanguard Asia 50 ETF
Vanguard emerging markets ETF
Blackrock US ETF

60% aus exposure, diversified in multiple ways, low MER. Set limits for rebalancing and keep adding for a few decades.

 

No he doesn't euro. Once again you make assumptions, but you don't know what you don't know. Just because you don't know how to do something doesn't mean it cant be done. A very nice house can be got for $1.4m on a property that nets 70k p/a. passive income. 2000 acres rural land with house @ $700 per acre, leasing land at $40 per acre is just one way to do it.

 

Um, yeah...about that ....just trying to figure out how "2000 acres of rural land" is within cooee of the OP's brief ...ie "I want to stay close by to the inner east"

Your suggestion involves taking a guy with $1Million cash and putting him into a position where he adds 400K of debt ( non deductible, by the way) plus significant stamp duty ( 77K to be exact) , to his $1Million cash... Not only is none of the debt deductible, but he wouldnt own his PPOR outright, wouldnt have any diversification in his portfolio ( all his eggs would be in ONE rural basket) and you'd have exhausted all his borrowing capacity.

He doesnt have any back up in case this 70K income you believe is possible , doesnt happen. And even if it does, it turns his property into an income producing, rural property- so bye bye resi lending, hello commercial lending. In other words, you'd have put him in a position where even if everything went right he would have a tough time moving forward.

Oh, and let's not forget that the requirement to relocate to the country also likely reduces his potential employment and salary earning potential .. and leaves him relying almost entirely on having to lease all his land out. So what happens if he cant lease it? Whats Plan B?

So just to compare the pair;

You'd have him live where he doesn't want to live, work where he may not be able to work at what he prefers ( or face a big commute to and from Melbourne daily) with a non deductible 477K mortgage around his neck.... sucking the life out of his borrowing capacity for many years to come on every resi servicing calc in the land , all for the "possibility" of a 70K gross return? With no Plan B.


My suggestion would see him living where he wants to live, working where he wants to work (without the rural commute) owning his PPOR outright , then leveraging that position with deductible debt, purchasing standard resi dwellings that cost $0 to hold ( even under P&I ) and can simply be rented out and paid down over 15 years or less, leaving him with over 100K CF+ , with significant borrowing capacity AND ..... drum roll.... I also left him with the diversification of 500K invested in another asset class....


Just because you can think up these crazy, out of the box ideas doesnt mean you should publish them. You may as well have suggested he buys 10 x 100K 20M2 studio apartments and leases them to students for $200 per week. Looks good. Doesnt work so well.

 

Where in Vic can you get 2 000 acres for $1.4mio? $700/acre. And that would be leased @ $40/acre?

 

Thanks heaps, and great plan, I will put actual figures with actual property on the market to work out, but i think in current Vic market, it's hard to find 500k IP with 6-7% return for units or houses, apt maybe.

 

It's what I do. All day. Every day. I used the NSW dual occ's as the example because they are new builds, so you get full depreciation as well as the 2 rental incomes from the house + granny flat. And the NSW land tax threshold (629K) is also much more generous than the 250K VIC offers, so you can stay under the threshold easily with 2 x dual occ's, meaning all the cash flow is yours to use for debt reduction. Given the land is costing @ 170-180K per dual occ deal, you can even add a 3rd in a few years time if you choose, and still be well under the land tax threshold. If the land tax threshold increased further, you may even be able to hold 4 in future years and stay under the threshold. But your borrowing capacity may not allow for that for quite some time... which is why I stayed within the brief you outlined. 500K PPOR using cash , 2 x CF+ dual occ's paid down over 15 years and leaving you with 100K net income, and the option to invest 500K in other assets of your choice ( and subject to whatever advice you choose to get )

 

Hi euro, it's kinda an interesting topic, and I can see this is actually a good (big) opportunity for everyone.

Thanks heaps for sharing! Read all your replies above, Perfect basic plan for spending 1m (or 500k I guess)

May I clarify few things, just for my personal note (for learning and understanding)

1. The 500k PPOR, is it 250k cash + 250k loan?
2. The two "cash cow"s, is it 125k + 460k loan each?
3. Deposit 500k (maybe some costs) Loan 1160k. And still have 500k for anything else?


Anything apart from those above (loan type, servicing, etc...), I won't discuss as I just want to know the basic of basic

Thanks again!

 

Hi.

Part 1 - the purchasing


1. Buy 500K PPOR with cash. No loan . No Stamp Duty to pay ( under 600K in VIC)
This would leave you with 500K cash.

2. Set up 2 x 125K loan splits using the unencumbered 500K PPOR as security.
Split 1 - 125K. Set this loan up P&I from Day 1 This is 20% deposit + costs for cash cow #1
Split 2 - 125K. Set this loan up P&I from Day 1 This is 20% deposit + costs for cash cow #2
Total Loan secured against 500K PPOR would be 250K. 50% LVR

3. Borrow the other 80% (460K) to buy a cash cow. I'll use a dual occ priced at 575K for this example. (land 175K. Build 400K) You would be contributing 20% (115K) + stamp duty (4615) + legals (1500) for a total of @ $121,115 . Split 1 (125K) would cover this , and leave almost 4K as a safety net for any unforseen expenses. Set this loan up P&I from Day 1 and let it start paying itself off.

4. Borrow 460K to buy a 2nd cash cow . Again, I'll use a dual occ priced at 575K for this example. (land 175K. Build 400K) You would be contributing 20% (115K) + stamp duty (4615) + legals (1500) for a total of @ $121,115 . Split 2 ( 125K) would cover this , and leave almost 4K as a safety net for any unforseen expenses. Set this loan up P&I from Day 1 and let it start paying itself off.


You'd still have 500K of cash that you could invest in other asset classes.


Part 2 - the debt reduction

The money you used to spend on rent, plus the money you are receiving from sub-letting rooms, plus the money you are generating from the 500K invested in other asset classes, would be used to make extra repayments towards the debt you are carrying.

1. Repay the 250K secured against your PPOR. You should be able to do that in @ 5 years or so if your 500K is generating 6-7% returns (30-35K per annum) and you are subletting rooms (10K per annum - 200 per week) and reinvesting what you used to spend on rent ( another 10K per annum - 200 per week) .

2. After you have paid down the 250K, then you can turn your attention towards paying down the 2 x dual occ properties ( 460K each) . With 50K per annum ( possibly more) available to make extra repayments, you should be able to pay the 920K of outstanding debt off in @ 10 years.

End result after 15 years. PPOR owned outright. 2 x dual occ's owned outright. 100K + passive income.

subject to borrowing capacity - you can be more aggressive than this if you choose.

With a 500K property owned outright, you could ( subject to borrowing capacity ) draw down 3 x 125K loan splits instead of 2 , and purchase 3 x cash cows instead of 2.

In 5,6,7 years time- when the 250 ( or 375K) is fully paid down, you could repeat - subject to borrowing capacity of course , and purchase cash cows 4,5 and 6 ....

Really, you can continue accumulating cash cows and paying down debt as many times as you want- subject to borrowing capacity. The 500K PPOR acts as the foundation piece in all of this.

Eventually, ( again- subject to borrowing capacity) you may well find that you can sell the PPOR and upgrade , or you could even decide to retain the PPOR as an investment and upgrade to a larger PPOR .... Either way you'd still have the income stream from the 2 or 3 or 4 or 5 or 6 cash cows ..... so really, it's completely up to you how much you want to achieve. But with $1Million cash as a starting point - the world is your oyster. The example of 2 cash cows that I laid out is really quite conservative.

I have worked with many many propertychat members and I'm sure that if you were to ask them, they would all tell you how effective cash cows ( whether NRAS or Dual Occ) have been in helping their cash flow, and therefore their debt reduction... and how they are well on the way to achieving a passive income for life. They would also tell you it doesnt happen overnight, and that it takes patience.

But only you can decide what appeals to you and your risk appetite, and ultimately only you can pull the trigger . What I would say to you is simply this; whatever you decide, the sooner you begin the better chance you have of getting where you want to go.



.

 

Much appreciated euro73, thanks for the time explaining things, big thanks. noted down everything.
Don't know what business are you in but, hopefully someday we can see each other in this game.

 

I do what I posted . I sell cash cows

 

sound interesting! pm-ed!