Strategy: Selling Property on Retirement to buy shares

I've posted many times on this. If all you know about NRAS stock is what you have seen on various online NRAS marketers websites, or what you have heard from others whose knowledge is limited to what they have seen on various online NRAS marketers websites, you have seen the worst of NRAS and it has clouded your judgement. But my clients , who have invested in my NRAS approved stock, will all tell you you're very wrong

Always happy to have an intelligent debate on NRAS, but please come armed with facts .

Here are just a few facts for your consideration...


Castle Hill NSW 2 bed, 2 bath, 1 car. Already up 22.5% before they have settled, and 9K CF+ tax free per annum . The contracts are over 12 months old so this has allowed investors to effectively purchase using zero deposit, even at 80% LVR. Those borrowing 90% will be in significant surplus of @ 40K after settlement, after accounting for stamp duty. zero money in. 40K up and 9K CF+ tax free per annum. Not bad going





Elanora Heights NSW mix of 1 and 2 bedders. Up 30% + in 2 years, and 9K CF+ tax free per annum



Bungarribee NSW 3 bedders. Up 15% before they settled and 9K CF+ tax free per annum. The contracts were 13 months old so this allowed investors to purchase at almost zero deposit . Those who used 90% lending had their 10% and stamp duty and legals funded by the uplift. Those who used 80% lending contributed very little towards the deal.





Port Macquarie

Up 15% in 1 year and 11K CF+ tax free per annum

 

I used to calculate rental yields the way you did, euro73. On paper, the numbers will look fantastic; as time goes on the yields skyrocket as the price of property grows exponentially higher. But I now believe this method is an inaccurate and unfair measurement of rental income. If you want to measure rental yields in 2016, you should use numbers from 2016. Not a historical number. To calculate current rental yields we have to use current market value. Using @Terry_w example above, the rental yield on that property is (250x52) : 500,000 x 100 = 2.6%.

Yields and ROI are not the same thing. ROI is a percentage that is calculated based on the gain from investment over the original purchase price or cost of investment. (You may of course deduct all holding costs from it to get the nett profit or capital gain) The ROI on that example is (500,000-100,000) : 100,000 x 100 = 400%. So we can say that even though the rental yield is pretty dismal at 2.6%, the ROI on that property is simply spectacular.

 

This is what I was getting at... lets clearly distinguish between ROE and ROI and yield so new investors arent confused...

 

I personally observed numerous people who set themselves up for life by buying shares during the GFC (myself included).

Just something to think about.

 

And seems they were not as smart as they could have been when choosing their "advisors".

Indeed I would go so far as to say if you feel you need an investment advisor, you should really be focussed on learning a little more about investing yourself.

 

If you want leverage in stocks you can get that by buying a company that is itself leveraged. You can also borrow against the security of the stock itself (but your rates and lending rationwill likely not be as attractive as property).

 

Only if you don't know what you are doing. And arguably is easier to f up with peppery as a transaction is all or nothing bs stocks where you can ease in and out.

 

The only way i would leverage shares is to borow against real property.

 

Yes great way to do it. For most people that would be the cheapest form of financing.

 

Right. And amazing so many people do not get this.

 

Whilst there are obvious differences between the Internal Rate of Return and the Current Yield, assuming either one or both are not negative, then that should be viewed at least as a good start...

 

I am so confused

 

No brainer for growth with regards to NSW stock

Just curious what about other stock in other States how has this worked for clients. Not trying to nit pick but a genuine question
Cash flow is not going to cut it for me unless there is also growth??

 

I have focused primarily on NSW, to be fair.... I did a few NRAS projects in QLD @ 2 and 3 years back.... Alderley, Windsor, Taringa, Mt Gravatt East, Wynnum, Taringa, Gaythorne, Annerley, Zillmere, Nundah. They have shown a little growth but Brisbane has for the most part been very "blah" to date.

Also did some Melbourne deals. Brunswick, Ringwood, Footscray.

Athol Park in Adelaide, and a few bits n bobs in Perth

But NSW has been the focus.

 

Thanks for sharing.

Anyone buying your stock in NSW would have realised some great gains, from build to completion.

Melb market I would expect the same scenario looking at the areas above

Brisbane a mixed bag I think?

Adelaide and Perth, a totally different story

 

I was quite deliberate in where I placed NRAS allocations. I chose projects that before all else, valued up. That was , and remains, criteria numero uno as I wanted to distinguish myself from the pack of online marketers whose first question is 'how much are the comms". I can make great money doing this while still making sure my clients don't overpay. One of my aims when I started this business was to quietly disrupt what greedy, lazy, antiquated marketing models were doing.

My focus on valuations will continue next year as I move into high yielding dual occupancy, a product that will pretty well replicate the cash flow produced by a single NRAS dwelling, if done well - and I will do it well

Beyond valuations, the low interest rate environment and NRAS tax free incentives take care of the cash flow. It will be exactly the same for dual occupancy. I expect to be able to produce 8 -10K CF+ after tax for someone on a 37% Marginal Tax Rate. Even better if we see any further rate cuts.

You and I still disagree about growth being all that matters. I approach portfolio building from a bankers perspective. How can I get a client from A to B in the new credit environment? I assist my clients to build a portfolio being fully considerate of their borrowing capacity limitations. Most my clients are starting out and still building portfolios, so borrowing capacity just has to take priority in the acquisition stage. Getting them into 1 property or 2 properties and exhausting all their capacity is just not part of the strategy. My clients just about all now have 3,4, or 5 NRAS properties, purchased deliberately and specifically to match/suit their available budgets, with the medium term priority being redeployment of the surpluses/dividends towards paying down debt, which in turn leads to equity and borrowing capacity improvements...

In other words, we use NRAS exactly like a dividend reinvestment plan. Keep harvesting fully franked dividends and keep reinvesting them back into the portfolio. In this credit environment we believe this will match or better a growth only focus, and offers far superior redundancies.

It will most definitely prove better for servicing purposes. and if we get no growth ( which is extremely unlikely when you can hold a property this long at no cost) we still get to pay off the PPOR mortgage - not a bad outcome by any measure. And we can hold the properties for 2 decades, 3 decades if we choose, because the properties will remain CF+ post NRAS when they revert to full market rent - unless rates get beyond 10% - in which case everyones portfolio would be struggling .

But yes, NSW has done well.... but none of my clients are selling - why would they? their cash flow allows them to hold - so the gains are really just on paper

 

Did you sell of all of your properties and if so how with regards to CGT etc

Holding properties rather than shares as you get closer to retirement seems like a lot of extra work, properties get older and need maintenance or renovation, may face time of no rent as vacancy rates increase and prices fall (think WA in current climate)

 

There are some problems with property nearer retirement. Say you somehow acquired 10 new properties in reasonably good areas. You have a nice rent premium for a new property, depreciation, rents faster, less maintenance etc. Over time, you lose the depreciation, the properties don't rent for as much, wear and tear repairs, maintenance, takes longer to rent because it is older stock etc. Rents are supposed to appreciate so your returns increase over time. I have not found that to be the case. I held an IP in Melbourne for 9 years and at the end of that time the rent was just $10 pw more than at the start. The buyer did a cosmetic reno, paint, polish the floorboards etc. Must have spent a few thousand. New rent was $10 pw more than I was getting. Hardly worth it really.

 

Worthwhile seeing a good accountant when intending to do this.

We sold a property every year or two to manage capital gains tax. From memory back then I was able to take advanatge of much higher Super Personal deductible contributions to reduce CGT. Most were in Trusts and I was retired very early. So used a combination of things to best manage CGT.

Buying property was never something I wanted to do. But my wife's employment situation for around a decade made it near impossible to invest in Shares. So very grudgingly, kicking and screaming I reluctantly invested in IPs during this period. Once my wife left that job it was full steam ahead in progressively selling this baggage and buying back into shares.

Now extremely happily retired with only one IP left. Would love to sell it too but wife won't let me because my mother-in-law lives in it. The things you do for love. That said, my crash buying opportunity LOC is secured against this IP.

 

Maybe not as extreme as your approach...but I plan to do a similar thing....one day very soon.