Starting with $3,900,000 - what would you do?

My concern is that if I borrow in USD to buy in AUD and the AUD then falls significantly against the USD I will have lost a lot of value. Also it's a really risky strategy to borrow against something liquid to buy something illiquid and which can't easily be made liquid to pay off debt if things go sour.

That's the only downside you would be looking at,that's the only good part about worldwide equities markets the turn around is very fast,property depending on the timeframe is a different game again..

 

Dude if you want kids- which I saw you mention- then you should get to work on it sooner rather than later given your ages.
3 mill? I could retire on that and would but unlike Datto I wouldn't watch TV but play video games instead.

 

Agree. Under no circumstances should you borrow in USD and transfer to Australia to pay for a property purchase. People have been completely wrecked their finances for doing this.

 

it wouldn't be

 

We had our first child when I was 40, last one 3 years ago when I was 51, so no big deal these days.

Two of my mates are in their early 50's and have recently had little ones, and I knew a guy in the USA whose first child came when he was 56.

It really depends on what sort of 50/40/30 year old you are too.

 

I'd assume the guys who had their kids in their 50's didn't have partners in their 50's

cliff

 

They probably opted to have their 30's & 40's instead.

Thinking about it more carefully, it probably makes some sense to have kids later, so you can be more financially secure, and have gained more wisdom to pass onto your offspring.
Some parents these days are not fit to be parents, and their offspring are usually highly disadvantaged from the start.

 

Translation please.

Likewise. I had my first child when I was 36, second at 38 and third at 40. I have friends who decided to take the same path. Study/work/traveled widely.... and then settled down. I have no regrets. I did all the things I wanted to do and selfishly enjoyed myself prior to having my family.

I was ready to be a parent by the time I was a parent. I was financially comfortable and self secure. I couldn't image the 20 year old version of me being the parent I am today.

 

Well, after all this - with the amount you have in cash, if I were renting at that rate, I would buy a modest home and have a mortgage of less than half your rent amount, and use the remainder for some well thought out purchases, the only thing I would vary may be if the home is mortgaged or mortgage free by clawing back some funds to cover.

Personally I would probably be extracting some funds to buy a good job too.

 

Like most things in life, there are pros and cons in having kids earlier/later. All depends on the individual/couple and what they want out of life and WHEN they want it.

 

Borrowing in USD to buy in AUD might not be a complete disaster, but it's probably not the best time either.



Eyeballing the chart, the AUD seems to generally sit in a band between 0.6 and 0.8 USD, and it's currently at 0.7. Borrowing in the USA back in 2002 would have been a smart move though.

I think that both @Fortune Favors the Bold and @theGhostwhoWalks are looking at their situations from the wrong angle. They've got enough to support themselves for the foreseeable future (Fortune's fortune could conservatively generate an index linked $120K / year in perpetuity), so why not figure out what you really want to do, and pursue that.

 

Hi Sanj, I feel silly for asking, but what would you suggest to do with a sum like that?

Perhaps a business?

 

Hi all, I just want to let you know that I am reading all of your comments / suggestions, and learning a lot from them. Please keep them going. I'll respond in more depth soon....

 

Good moves:
* holding cash in 2007 rather than purchasing shares when the SP500 was around 6500
* buying inner suburb land in Melbourne in 2013
* starting a small business generating a modest profit
* gearing to reduce tax
* learnings from the experience

Poor moves:
*Overweight investments in mining, energy and iron ore in particular.
* Investments in MYR, ERA, CCV, gold, Centro, Babcock and Brown, amongst others
* Investing in ASX during the downturn in 2008 far too early.
* purchasing a PPOR apartment that has performed poorly.
* not investing enough in myself and post graduate education
* over diversification
* too much focus on Australian investments

 

Every decision, good or bad, is a learning opportunity for future decisions. The next downturn you will be able apply and navigate much more lucratively.

 

A couple of notes on these 3 things:

1 After being on this (and previously somersoft) forum 13 yrs I can confirm the brokers here are amongst the very best in the country for investment strategy. You will need to ask them about the international specifics though.

2 Development has the potential to be the single most lucrative strategy for you. But remember it has inherent risks and you should proceed slowly and learn on small deals before committing to larger ones. Returns of 20-40% are possible with capital, time, skills and experience. You don't have experience right now so building a team of people who can assist is imperative but choose carefully you don't want some rip off merchant. Market capital growth can be an added bonus on top of the development return.

3 Agreed. Make decisions like that slowly and after speaking to a few smart advisors. Be happy to pay them for an hour or two of their time for unbiased advice it will be worth it.

 

@FFTB - Thanks for sharing your story with us.

I'm a relatively new member and while I have some investment experience, I have very little property specific knowledge. You will find the forums are a good way at bridging the knowledge gap.

Just doing quick sums here, suppose you purchased a PPOR in Australia and without knowing your requirements, I will just say for $1.5m (using cash + share sale of difference), you would still have about $2.1m in shares (less if CGT paid on sale). That would still generate about ~30k in dividends and given you own your PPOR outright, it would be a reasonable income to live on once you add your own income even without your partner.

I would consider doing this to improve your 1) diversification and 2) cash flow.

- All your shares are in $USD and my calcs show your getting a 1.5% div yield. Consider buying some Australian shares with will average more like 4-5% (and higher with franking credits). Also reduces your FX risk if you intend to stay in Australia long term.

- In addition to your PPOR, probably look for 1 or 2 IP's maybe totalling $600-$800k. It will be easy to beat your div yield of 1.5% and will offer you more steady returns. Don't know about you, but a 20% fall in the equity market is not too uncommon and I feel a little uneasy losing 680k of your $3.4m portfolio. A more balanced split between property and shares (across different markets) seems more sensible.

- Definitely talk to a tax advisor/financial planner before you purchase any assets. Eg: you may want to hold the assets in a trust.

 

As per @drfuzzy's post, diversification for the sake of diversification can be risky. Any investment needs to have a purpose and be part of a strategy.

 

Hi folks,

Thanks once again for all your helpful thoughts and guidance. I really appreciate it. Sorry to be missing in action for a few days.

While I've been away I've had a few positive developments:

• My partner and I got pre-approved to borrow up to AUD 1.6 million. Without having done any negotiation yet the bank is offering a discount of 1.20% off the standard variable rate - currently 5.56% - bringing it down to 4.36%, on a 30 year loan.

The pre-approval application was put in just over a week ago, based on the information provided in my original post. Since there, however:

• My partner has been offered a new job paying around AUD 120,000 + AUD 30,000 in benefits.
• I've been offered a new job paying around AUD 75,000.

Both jobs will be based overseas, so it's likely we'll move in January or February to take up the jobs, and will be away from Australia for a year or two.

What we're thinking is that it might be smart to buy before we go overseas and rent the place out while we're away.

The big question is whether we should aim to buy a place now that will eventually become our principal place of residence, or whether we should buy one or two smaller investment properties, rent them out indefinitely, rent a place to live in when we return, and aim to by a PPOR someday further down the track. Any thoughts?

I've also been busy trying to put together a good team to guide us on taxes, general accounting, financial planning, conveyancing, identifying the right purchase, and it's NOT easy with my US citizenship. I spoke to a specialist at Ernst & Young and he suggested that he has two main recommendations for his clients - either establish a discretionary trust in Australia, with annual reporting costs of upwards of AUD 10,000, or renounce US citizenship. Seriously?!?!? Grrrr....

Anyway, I'll keep trying.

Moving overseas adds a whole new element for us, particularly because if we want to buy before we go then we need to buy soon, and the auction market is about to shut down for several months. Today is the biggest auction day of the year and I've seen very little of interest in Melbourne. I think most of the really great places sold during the past month. Do you think we should try to wait until January / February, or make a push now?

Okay - time to head out to inspections. Thanks again to all of you. You've been a really great help.

Best,
Chris

 

I'm going back to my previous question, "What do you want to do?"

The jobs, including all the benefits, are worth $220K a year. That's almost a rounding error on your investments, which would earn $270K a year assuming a total return (growth and dividends) of 7%. They're worth more than your work to your income.

I do freelance work. It's easy for recruiters to push me into jobs, and the fear of not having an income to encourage me to take them. As a consequence I've found myself going around in circles professionally for a few years now.

If it's an interesting project, or you're still thinking about what to do, then it won't hurt. Just giving an alternative perspective.