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what would you do right now?

Discussion in 'General Property Chat' started by giswal22, 13th Jul, 2015.

  1. giswal22

    giswal22 Well-Known Member

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    If you had $1 million to spend on creating a passive income portfolio right now, what would you do? In todays market, what is a beneficial strategy to create wealth with this amount as a kickstart? How much potential can $1 million unlock?
     
  2. OC1

    OC1 Well-Known Member

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    Long answer....depends.
    Short answer, buy some CBA shares and go back to sleep. May go join @pinkboy in Chile too.
     
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  3. giswal22

    giswal22 Well-Known Member

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    I meant more in an active sense. If someone was to hand you that amount of money, how far could you make it go and what passive income could you create with it? Would you purchase a couple of resi properties and let them sit for CG? or jump into a commercial? where would you park your funds for a decent return?
     
  4. sanj

    sanj Well-Known Member

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    I wouldn't call buy and holds an active strategy.

    With that in mind though $1m cash atm if you could buy a $2.5m commercial property yielding 6% you'd be getting $150k in rent and paying less than 70k interest. Good start at least...
     
  5. Angel

    Angel Well-Known Member

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    I'd buy a bank or a centrelink office somewhere. ie Commercial.
     
  6. LibGS

    LibGS Well-Known Member

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    I'd be looking to buy more NRAS properties.
     
  7. euro73

    euro73 Well-Known Member Business Member

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    If you are willing to stay working for 10 years, and assuming a taxable income of 100K, I would purchase 6 x NRAS properties using 80% LVR lending. You can set yourself up for a passive income for life.

    From the $1 Million cash, fund 20% + stamp duty + 5K cash flow buffer per property. Working on an average purchase price of 400 K, this would equate to @ 100 - 105K of cash deployed towards each property. Across 6 properties that would equate to @ 600 - 630K . Total debt taken on @ 1.92Million ( 320K x 6)

    Each property will produce @ 13-15K in ATO deductions ( 5K cash flow loss + 8-10K depreciation) resulting in total deductible losses of @ 80-90K. This is sufficient to reduce a 100K taxable income to @ 20K or less, which is pretty much the tax free threshold.

    Each property will also produce significant CF+ results from the Refundable Tax Offset. At an LVR of 80% the first property will comfortably produce @ 11K CF+ ( the neg gearing is working at 37% ) , the 2nd will comfortably produce @ 10K CF+ ( some neg gearing at 37%, some at 32.5%) the 3rd and 4th will comfortably produce @ 8.5K CF+ ( 32.5% NG) the 5th will comfortably produce @ 7K CF+( part 32.5%, part 19% ) and the 6th will comfortably produce @ 5K CF+ ( 19% MTR)
    Total CF+ income = @ 50K

    Summary of results
    Gross pre tax /pre NRAS income = 100K
    Net after tax income = @150K ( tax free)
    Over 1.5 Million in tax free money generated over 10 years.
    Cash at hand @ 370-400K ( you only deployed 600-630K)
    Multi Million dollar portfolio

    With little or no growth, you can pay off the 1.92million debt after 10 years and be left with 6 x rental incomes and no debt.

    You could also take the 90% approach, and purchase 5 instead of 6. This would require that you commit 12% + stamp duty + 7K buffer to each deal. ie Borrow 88% + LMI. For a 100K salary you will only require 5 x NRAS properties, as you will generate slightly larger CF losses of 7K per property because of the higher debt amount and LMI. Combined with depraciation, average deductions per property will increase from 13-15K to 15-17K. This will just about get you below 20K assessable income.

    In this scenario, you will only contribute 12% + stamps + buffer, so @ 70K per property. ie 350K of the $1 Million.

    With 5 x NRAS, the after tax surplus would be reduced from 50K to @ 45K.

    This would still produce great results
    Gross pre tax /pre NRAS income = 100K
    Net after tax income = @145K ( tax free)
    Over 1.45 Million in tax free money generated over 10 years.
    Cash at hand @ 650K ( you only deployed 350K)
    Pay off the 1.92million debt after 10 years and be left with 5 x rental incomes and no debt and a substantial chunk of cash and millions in equity.

    of course, this is just a rough mud map. You could use the 10 year equity and cash flow position to grow far beyond what I have outlined, never work again and never travel economy again :)
     
    Last edited: 14th Jul, 2015
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  8. Bayview

    Bayview Well-Known Member

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    Easy for me; pay out all existing debt, that'll leave the workshop free and clear and an IP free and clear.

    Promote my mechanic to manager and leave him to it - maybe do an hour or two every other day to oversee the bookwork, and draw an average wage.

    Then, use some equity in the PPoR to fund some buy/subdivs and sell - 2-4 townhouse projects where I sell 3, keep 1 etc. Keep repeating this process - accumulate one rental per project.

    Might even buy an Audi R8 (1 or 2 year old second hand, of course) with the profit from one of the first townhouses. :cool:
     
  9. twobobsworth

    twobobsworth Well-Known Member

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    Why does investing have to be active? This doesn't guarantee a greater return and can often cause significant risk.

    If it's $1m cash I would buy 2 resi properties in QLD and drip feed the remaining funds into an EFT/LIC over a 2 year period. Not really sexy sorry.
     
  10. sumterrence

    sumterrence Well-Known Member

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    If I have 1mil and I want to draw passive income of cause I'll buy up half of the regional high yield town and control the market myself ;)