To Invest or not to invest?

Hi all,

I have been reading this forum for quite a while and have found it very informative so thank you to all the contributors. I have decided to sign up in an effort to share things that I can add from my perspective where feasible. I have the following dilemma which I'd like your opinion on:

- We're a couple, living in our PPOR in Sydney in our mid 30s.
- Combined income = approx. 310k per year (180k and approx. 130k). One of us is a contractor hence the "approx." being used.
- Purchased our PPOR in June 2017. Purchase price 1.28M with just over 20% deposit.
- The mortgage was split into 70% fixed for three years, and the 30% on variable rate with a 100% offset. All Principal and Interest. 30 year term.
- Current mortgage balance is 1,006M (301k on the variable + 705k$ on the fixed portion)
- Current monthly mortgage repayment are approx. 4730$.
- Current savings = 75k all sitting in the offset
- I have some shares with work worth around 50k (these can't be sold for another 2 years)

We realise we're in a comfortable position and that we're in a very lucky position compared to a lot of people and we are able to, genuinely, save approx. 7k per month after the mortgage and all living expenses are taken into account.

The main question is: should we continue to put all the money we can save into the offset and repay the mortgage as quick as we can? At this rate, if our circumstances remain the same, we could be mortgage free within the next 8-10 years.
Or should we invest in properties? If so, in which way?

Our goal, ultimately, is to retire within 15 years, if this is at all realistic. A passive income would be required at this point (say 70k per year?).

We're good with money in that we have good incomes and are good with saving but the investing part is the big question.
Any thoughts?

 

Debt recycling may assist. @Terry_w writes tips about it: Tax Tip 2: Debt Recycling

More here: Is debt recycling right for you?

 

Your income is 310k. Your assets maybe 400k. Geared to the gills on nondeductible debt.

You lose one job for 3 months and your toast. Having a kid will cost you.

You spend the next 10 years paying the loan, and youll be 45 yo investment newbies with a nice house which earns you nothing.

Comfortable now, maybe. Retire in 15 years? Not unless you invest very well.

 

I agree with @Trainee coments about either loss of job, or possibly having/adopting even/other circumstances.
No persons job is 100%, not a gov position, or getting hurt/burnt as a contractor.
So take your time, pay down a little more debt for a while
You aren't missing much, sydney will be flat for a few years (as will several other areas/states).
I ensured we we fairly "comfortable" with a great buffer before i jumped in

 

Planning on having kids? If so, say goodbye to one income, or if you send to daycare then $30k/yr (after rebates) + general costs of kids.

A goal of $70k passive income in 15 years will be one hell of a goal! By my basic calculations, you'd need to be putting an average of $155k/yr ($13k/mth) into your PPOR and investments. Your $7k/mth won't cut it.

You'd need $1.4mil in investments, fully paid off, paying 5% to achieve this goal.

 

Not enough. One downturn will kill you, if inflation doesnt kill you first.

 

Thanks all for your comment so far. It may sound obvious to you but you've definitely brought up some points that I hadn't considered so far.
I will do some research on debt recycling to better understand how it works and whether that is something we would entertain in the future.
Also, from the initial comments, it does seem that the before-mentioned passive income goal is too ambitious. This is good feedback and I therefore need to work on a more realistic target.
Building wealth is what I am trying to achieve but I am not in a rush. I will continue to educate myself whilst also seeking inputs from more experienced "propertychatters" (apologies for the neologism)

 

@Rolf Latham I am doing some research on debt recycling.
Let's say out of my 75k savings currently in the offset, I repay 50k in the mortgage (thus leaving 25k in the offset as emergency fund).
I understand that I can then take a line of credit for 50k as investment loan to invest in shares. The loan would be interest only.

1) Hopefully, the shares would yield dividends. Is the theory that the dividends would yield more than the interest only payments of the investment loan? My intention with debt recycling would be to pay off the home loan quicker whilst building wealth at the same time. In order to do that, am I right in thinking that the investment (funded by the line of credit) would need to cover more than the interest loan repayment so that the extra income helps pay off the home loan quicker (taking into account the tax benefits on the interest only loan etc)?

2) If yes, I assume that all income (salary, dividends etc) would go into the offset of the home loan and both the home and investment loans would be paid from the offset. Is this correct?

3) Finally, one thing I can't get my head around is at which point is the investment loan paid off? If it's interest only, then I don't actually pay it off every month. Do I then bank on the investment growing in value over time, sell them and repay the investment loan? Is that how it works or am I missing something here?

Thanks everyone for your responses so far. Initially, I was thinking that an IP would be appealing but given that we already have a million dollar mortgage, diversify into other things such as shares might be more sensible to get started initially.

 

I actually think the goal is very doable. Often people overestimate what they can do in the short term but underestimate what can be done in the long term.

Just some rough back of the envelope calculations. If you put 70k shares in a well diversified shares portfolio now (LIC or ETF etc) and invest 7k a month for 15 years while reinvesting dividends I think you'll be pleasantly surprised with where you end up. Even on a relatively conservative assumption of 9% total returns (dividend and CG), you should end up with a portfolio of shares of roughly just under 3 million. At an assumed 5% dividend yield, the passive income from the shares would be $150k per year.

Throw in the tax savings from debt recycling as well and you should finish up well north of that. Plus if you keep paying P&I then the mortgage would be at least half way done and this doesn't take into account utilising CG in the property for further investments as well.

 

Pay off the house, top up super and then look at putting aside money for other investments. I think the goal to pay off the mortgage in 8-10 years is ambitious enough.

 

Your mortgage is rather huge and its non deductible which is the biggest liability for you. Mid 2017 is also happened to be the peak amount most of Sydney's suburbs so I hope that it still worth the same and not less. Lots of properties purchased at that time are not so lucky. If it was earlier part of the cycle than perhaps you'll have extra equity to withdraw from your ppor. If Sydney has truly peaked and not recovering anytime soon then you have to work and save a lot harder for your next IP deposit. 15 years is a long time, so if you are determined enough I think its doable.