WHAT WOULD YOU DO IF you had 500K in cash & and 80K per annum salary

I've recently received an inheritance of $500,000 and currently working as an engineer with a pre-tax super inc salary of $81,400 per year.
I would like to invest in the property market but unsure about what strategy to choose. Property development, subdivision and positive cash flow properties have been suggested to me. What is the best strategy in my case to maximise the return?
Cheers

 

What experience and skills do you have? Having money doesnt make you a developer.

 

Live it up! lol

 

civil and construction engineer, have designed residential houses. Haven't done a feasibility study before though

 

Hey and welcome to the forum!

It's going to depend on your borrowing capacity - your income alone isn't huge, and if you have a family you'll be even more limited so best to get your borrowing capacity checked and work out a strategy from there.

Buying something you 'can' develop and add value to is a good strategy for those with limited borrowing capacity and a decent amount of cash...BUT there's a learning curve so don't rush, and get educated as you can before proceeding.

 

5 x loans of $500k each. 1 in each state's best growth corridor (reduce land tax)

100k deposit for each loan (20%)

Watch it grow for 10 years.

Thank me later

 

What is your age and health - when would you like to retire? Are you single, children etc? How secure is your job? What knowledge and experience do you have with real estate? What are your life goals? How financially literate are you? Are you potentially likely to fall for a scammer?

I don't particularly want to know the answers, but these considerations will all play a part in what is the answer to your question.

 

Great idea where do you see this?

 

How old are you? Depends on your risk appetite. The younger you are, the faster you want to compound returns, without a degree of risk you can stomach.

 

How will someone on 80k a year service 2mil in debt?

 

No one can answer this for you as we don't know anything about you or your actual financial situation. If I was you I'd read and get the knowledge I need and seek a financial advisor. However, if it was me I'd go buy around the Moreton bay area of Brisbane for around 400-450k one with a large enough block for a granny flat or subdivision out the back depending on feasibility study and put a 100k deposit on that. I'd then build or subdivide/build on it to add the cash flow let's just say I'd put another 100k into that. I'd then go buy a property in around Maddington in Perth probably 300Kish, again big enough to do the exact same thing I did in Brisbane depending on feaso study. Now those I would keep for the cashflow and capital but on the last 100k I'd use that to do a development maybe in Brisbane or Geelong something big enough to subdivide into 3 seperate blocks and either sell off the blocks or build and sell depending on feaso study. Again my life situation is different to yours. Sit down and talk to professionals for guidance.

 

Agree with this, he would max out on about 1.2 - 1.3mill debt assuming no kids and rents each house at $350 pw

 

As a starting point. Do you have a PPOR?

 

I would use the cash and any borrowing capacity to JV with an experienced developer and/or flipper who will allow you to get some experience as part of the deal.

 

Your strategy would have been a good suggestion in 2014, it won’t work in today’s climate.

He wouldn’t qualify for that loan amount unless he has a spouse on a similar income and no kids. There’s also a good chance that property values will start to drop soon and his 20% deposit would become nothing. Add in stamp duty and he could sit on negative equity (re - last decade in Perth). The effects of Rona have barely started.

if I was him, I’d be sitting aback and learning and waiting to invest 12-24 months from now when we are in a deep recession.

 

Personally I’d prob just wait & do as much research on shares & property I could in the next 6 months. Re-evaluate sentiment then with the idea of buying 2x properties quite possibly at a discount this year

Spend 80% of it buying your $500k ppor
Spend 20% on the $500k IP
Reborrow 60% /$300k from the ppr
Use $300k into well researched shares/funds paying a nice dividend and pay off your ppr in record time. Opening up the opportunity to re borrow off the poor in future keeping assets tax effective

 

I would not invest in resi or development sites at your wealth stage . The 2012-2016 era is over and that strategy of gearing into multiple small properties and value adding / extracting equity is much harder.

Your income is too low. You need cashflow.

I would look for a small strata tenanted (5yr + WALE) $1M commercial property - 70% LVR. Try and convert the bank garantee to a cash bond to cover your stamp duty. If you can get 12%% cash on cash that $40k p.a free cash flow immediately improves your servicing.

Once you have income ($80k PAYG + $40K comm prop) - then look at creating growth and being a developer. Most people do it the wrong way around.

Remaining $200k sit back and wait...cash is an asset class in itself....

 

Use the 500K to purchase a PPOR. Something adequate . Doesn’t need to be a million dollar PPOR.
If you already have one - use the 500k to pay it off.
A roof over your head that you own outright should be priority #1

From there - borrowing capacity permitting - purchase 2 or 3 CF+ properties , set them to P&I and pay them off . That’s probably about as far as your borrowing capacity will permit you to go based on an 81k salary. 15-20 years from now you will be well set, with the properties paid off and generating a healthy income stream.
Between now and then , if and when your salary increases , or you have a partners income to add to the mix , you may be in a position to expand on things further. If that happens, it will just mean that 15-20 years from now you will be even more set. But if that doesn’t happen , In 15-20 years you will still be set for life.

A lump sum such as this is not enough to change life quickly . It wont allow you to stop working for example. You really need at least 2-3 Million for that. But if you take the long view, buy yourself a modest /adequate PPOR outright and stick to a plan, the 500K is a huge head start towards being life changing over 15-20 years. Don’t try to keep up with the Joneses ...most of them haven't ( and won't) get ahead of the curve.

 

500k house rented for $350 a week what area are you buying????

 

Sorry my calculations was based on houses at either 300k or 400k each.