What are my options?

I am 37, wife and two kids under 2.

I own 33.3% of a company that is valued at $20M, but my partners and I only draw about $140k p/y from it. Wife is a nurse, so total family income for next 12 months pre-tax is about $195k.

The banks are happy to lend to us though.

We also have setup a Pty Ltd trustee of a family discretionary trust.

My wife and I bought our first home 4 years ago in Glen Iris, a 3 bedroom 1969 brick unit. It's the front one of four units, has a front yard etc. We paid $708k and had it valued recently at $900k.

We owe $530k and have $91k offset in the bank. So in theory I guess if we sold I would guess we have approximately $400 - $460k equity.

So my question is, if I wanted to start down the path of investing in Melbourne property, what should I do/what are my options?

a) sell current unit and buy a bigger home to get the growth on a higher value property? (e.g. purchase a property worth $1.5M and continue servicing a new P+I mortage)

b) hold current unit, gear it at 50% (rental would basically cover costs of mortgage now) and buy another place to live in. This would mean borrowing another 1.4M which might be harder to service? Do you go just interest only? My financial adviser said I would be better off selling and moving to a bigger home and getting the growth on that, than trying to hold the existing unit?

c) sell current property, take the $450k and buy 1 or two new investment properties, move into a rental for my own residence?

Are there other options?

Also, who are the best people to work with in Melbourne for consulting on this sort of thing. I want the right advice. I am the kind of person who is happy not to go down the path of 90% of the population and buy/live in my family home.

I am always up for the long tail play.

Help me out!! I need to learn what to do to get started.

Cheers.

 

If the valuation of your company is right, your investment objectives will be different from most investors. You need serious advice on tax, estate and business advice. Who owns the shares in the business? Who are your other partners (family or unrelated people)? Whats the plan on selling the business in the future? Are you retaining a lot of profits for reinvestment? What happens if one partner wants to sell? If you can keep building the business, who cares about this small property stuff?

 

Hi, welcome to the forums

Do you need to upgrade your home? If not, You could keep living where you are, access the equity in the house, debt recycle some of the $91k if necessary and leverage into an investment property/ies - not only in Melbourn as it's at the top of its cycle, but anywhere you like.

 

Thanks for the input so far. I am keen to get this thread trending to gain as much insight as possible.

I do need to upgrade home within 2 years. The place is big enough for us now, but not in 18m/2 years time.

Knowing that I don't know if I would be best committing to buying an investment prop on top, or should I?

I know my wife would feel better upgrading the primary residence, but does this aid in the long term?

I want to know what moves I can make to win in the long game!

Keep the ideas flowing

 

We are a high growth software company, and that valuation is 18 months old. I believe the best move from a invest prop perspective however is to not rely on that capitalisation event and have a side strategy for ongoing wealth creation. If and when we do something (sell % down, IPO, sell out completely) that will be a life changing bonus. But until then I leave that outside of my personal wealth/asset strategy.

In regards to your questions:
- We have excellent business advisors (legal/financial) but I am unsure my business financial adviser is a GUN at property. They are not bad and have a good record of their own, but still, I want to get more opinions (or find an additional prop invest consultant) to guarantee the right moves on this personal asset front.
- Who owns the shares in the business? Three shares owned by 3 discretionary trusts (representing our three separate families) with Pty Ltd trustees.
- Who are your other partners (family or unrelated people)? Unrelated, but we look after each other as if family
Whats the plan on selling the business in the future? Noting certain. I have a literal spreadsheet of VC's who have expressed interest. Probs will consider looking at selling down 30% to unlock capital within a couple of years, remaining as majority shareholders and keep growing globally.
- Are you retaining a lot of profits for reinvestment? We re-invest all company profits back into business. We're getting 10x on it, so we only take a small salary for lifestyle $140k currently)
- What happens if one partner wants to sell? We have a robust shareholders agreement with drag along/tag along clauses.
- If you can keep building the business, who cares about this small property stuff? I'm an entrepreneur, I can work my personal assets and wealth to the fullest potential as well. It all adds up. We do keep building the business and hopefully one day, we'll cash out enough to be comfortable, but I would like to make the most of this property avenue a well as I can.

So, any advice?

 

Work out your strategy & end goal and work back.
Consider perhaps holding the unit as it sounds like a great location and sounds like a good one to hold long term, rent it out & go and rent yourself (rent vest). Yield on a $1.5m+ Melbourne property for living in is easier to pay rent and invest your investment $ elsewhere (interstate?).
Can use 6 year main residence absence rule also on Glen iris so any Capital Gains could potentially (all other 6 year conditions being met) be tax free.
Just some options to consider.
Good luck!

 

If you do need to upgrade your family residence in the next two years then if it was me I would make that my next move And hold the current house, you’re in a good place with current PPoR given you’ve paid into offset rather than paying down the loan. You have a strong balance sheet position including the business but it’s not accessible should cashflow get tight. Perhaps focus on building up the offset for the next year and start to figure out where u want the next Ppor to be. Work out a rough number for the Ppor purchase and stress test the portfolio at different interest rates to see if you are comfortable with the risk. Transaction costs will be highest with option C, seems over complicating it to me. Holding current and buying a new ppor will have lowest transaction costs