What would you do with a 1.1m dollar home?

Or borrow the same amount (ie 50% gearing, so nowhere near margin call territory). Double your returns (& risk).

 

I'd say 50% gearing is far too much for a set and forget - a 50% drop like the GFC could wipe you out. No Gearing, No Margin Calls = a lot less stress

 

Yeah, but no gearing really cuts your returns. There is a balance between a highly risky level of gearing and a ridiculously low return.

 

This is financial suicide. Jump full exposure into the stock market...
There are bad times ahead there, big corrections coming, world politics holding certain markets together.

This has been my view for a while.
Also if anyone listens to "rich dad radio" (rich dad poor dad podcast), Robert rips apart the idea of building a portfolio in the stock market over your life time.
Interesting listen.

 

I was just replying with the limited info so given you do appear to have good serviceability and development experience it gives you much more scope.

That being said I still stand by my original post. I would sell, the tax outcome is a guaranteed. Developing is full of uncertainty. I know you said "sell one as PPOR" but just speak to @Terry_w this might not be as clear cut as you think. The ATO may think your up to something else.

I also think 27% is WAY to much for your costs. Maybe if you bought a maintenance nightmare or somewhere with astronomical body Corp fees but I would be basing it on smart buying and allowing 20%.
You can also diversify your portfolio, you said "won't be as good a suburb" but your basing that on now. This could be very dangerous, what happens if where you are now is market peak? There may be no capital growth for years to come. A good development project is one in which CG occurs during the planning and building stage.
3 well bought townhouses in less desireable areas may net a way bigger CG as they have more scope. Heck even buy on the ripple effect of your desireable suburb.

 

you must have a good crystal ball grey ghost...i assume with that level of confidence you are shorting the market and will soon be living the dream

imo diversified shares are a good idea...as per the 'other assets' threads, some good ETF's/ LIC's will serve you well.

 

Don't let my membership confuse you that I know what I'm taking about but..

Based on my purchase in Edens landing 379,000 and rent 475 a week, 3 of these could give you 74100 return gross .

 

All the posts above are nice ideas, but you can beat them all by a wide margin and achieve diversification. Firstly, rent the property out and then, subject to borrowing capacity;

Draw down 880K ( 80%) and use it to fund

1. 20% deposits , stamp duty and 10K cash flow buffers for of 6 x NRAS properties at 270K each
This would require @ 72K per property . Or 432K in total . Call it 435K
The tax free outcome per property will be @ 10K CF+ , so 60K tax free across 6 properties
That's a 13.8% Tax Free return on 435K of equity , plus whatever capital growth you can
generate across the period of ownership
Also keep in mind- if you redirect the surplus cash flow towards paying off debt, you could
pretty much pay off 3 of the 6 properties in full by the end of 10 years, leaving you with the
ability to sell off the other 3 and retain a passive income for life from the first 3 , which at full
market rents after the 10th year should be @ 20-25K per annum, per property....


2. This would leave you with 445K of the 880K that you could invest in other asset classes for diversification , such as the high yield funds listed above - but this will deliver a 50% inferior result to NRAS on a yield basis, and funds dont deliver any potential for capital growth either. None the less, the entire 880K would be averaging a return of @ 11.5% , would extremely tax effective, would be building you further passive income for life, would be building your equity base through dividend reinvestment and debt reduction, and that's good going in anyone's books.

 

I will have just over 500k in super if all goes well by retirement so investing further into this class makes me a think to much in one asset, makes me nervous.

 

Get tax advice on whether you would get the main residence exemption if sold now.

I see 3 options
1. Sell
2. develop
3. keep as is
4. Borrow against

Which one you prefer will depend on your
1. risk level
2. other situation - where do you live now, spouse etc
3. appetite for adventure
4. long term plans
5. location

 

That being said I still stand by my original post. I would sell, the tax outcome is a guaranteed. Developing is full of uncertainty. I know you said "sell one as PPOR" but just speak to @Terry_w this might not be as clear cut as you think. The ATO may think your up to something else.

I also think 27% is WAY to much for your costs. Maybe if you bought a maintenance nightmare or somewhere with astronomical body Corp fees but I would be basing it on smart buying and allowing 20%.
You can also diversify your portfolio, you said "won't be as good a suburb" but your basing that on now. This could be very dangerous, what happens if where you are now is market peak? There may be no capital growth for years to come. A good development project is one in which CG occurs during the planning and building stage.
3 well bought townhouses in less desireable areas may net a way bigger CG as they have more scope. Heck even buy on the ripple effect of your desireable suburb.[/QUOTE]

Yes I agree, developing is full of uncertainty and I think Essendon will drop in value soonish by somewhat. the 27% I just used a rough figure I guessed at. I know some people that go as far as 30% of expenses to get there nets. 20% would be much better scenario but I like to think the worst.

Your way of thinking has made me think. And purchasing elsewhere can give me better returns in cashflow if I sold. Hope my figures don't confuse you as I did it this morning, let me know your thought? And if the are wrong.

If I sell as is 1,067, 000 after selling expenses.

If I build 3 (850k cost to build) and sell all 3...
My figures, front property 1 sell for 850k, middle 750k,rear 850kequals total 2,450,000.
2450000-850k of build costs = 1,600,000
Minus ppor 850k from selling leaves me 750k that needs cg tax payable.
If I keep the other 2 longer than a year I get the cg tax discount.
So 750k/2=375k Minus selling costs of 3% on all 3 is 73500.
So 375k-73500=301,500 that's needs cg tax to be paid.
I was adviced about 20% cg tax would be payed on this, I may have misunderstood this so not 100% sure yet.
301,50-20%cg tax leave 241k rounded off.
So 241k +850ppor gives a profit of 1,091,000

So doing these figures it's not worth it, unless I can get the build costs right down.

If I build 2, sell 2 off, I'd be better off selling as is.

I could sell home as is now for example, and get 36000 interest a year in bank. Which is pretty safe returns. After paying income taxes about 32k

If I build 3, sell one off as that would pay the 850k construction costs, I could rent 2 out and get 35k after all expenses. And still have 2 assets earning rentals and perhaps capital growth over the years, perhaps no growth.

Sell 2 and keep one scenario.
850k clear profit as its ppor,
Selling costs on 2 = 51k
-Building costs 567k for 2, taken the other 3rd of costs out of the price below to get the cg tax on the second dwelling.
Minus 54100 cg tax on the second town house
Gives a profit of 216400 plus 850k -(567as this is still a cost I haven't factored in yet) = 499400
So round it off 500k cash in bank, earning 3.6% =18k
One rental property worth 750k and rented for 400, 20,800-27%=15184. Add the two figures, gives you 33k a year,
30k after taxes.

So going by this selling the old house as is, works well and easy. Or building 3, selling one to pay all costs and keep the other 2 works better as I have access to redraw and the returns are very similar.

have I messed this up?

 

As its a replacement income I have to make sure the risk is low. As long as I get continual returns every month regardless just like a job wage. I don't care for capital growth, it's a bonus, but the cashflow must always be there otherwise I need to work to replace the income.

Are my figures kinda right terry? Cheers.

 

T

thanks, I'm not familiar this place. If I was to buy again it would have to be Melb or Sydney as close to sourounding of CBD. Under 20km. I definitely can't afford Sydney now. But good returns from your figures.

 

Hi euro, I'm not at all familiar with nras properties, can you buy and sell them when ever you choose once purchased?

A little lost with your figures, I'm not good with maths and figures and I get easily confused. I believe it's cause I was dropped as a baby and these are the side affects.

Going by my figures, does your scenario better mine for cash flow instantly to replace a wage.?

I build 3, sell 1 off, have 2 rentals earning 35k combined net every year. Both properties combined would be valued at 1.6mill.

Or I sell as is for just over a mill, and generate about 32k a year in cash every year. If I don't touch that cash and let it build, if rates don't change that is at 3.6%, and in ten years the total will be around 1.5mil. And nothing owing.

I'm after low risk.

 

Everything has risk..

Lowest risk is having it stored under the mattress and never leave home, no gains.

For very small gains putting it in the bank would do it, yes at 3.6% you would be getting ~32k p.a but cash in a bank generally doesn't keep up with inflation also banks can collapse.

Medium risk is buying quality stock (Share or property), over the long period of time they will generally keep going up, however there is still risks (market crashes, house burns down, war?).

High risk would be buying risky stock e.g. mining towns, start up companies. If you buy before a mine starts and build houses and then sell when the mine starts you would be laughing. However if the mine doesn't go ahead you are left holding the baby or if you bought during the peak of the mining town and the mine shuts down you again have lost.

If you are after the quickest way to double your money instantly would be to walk into a casino and put it all on red (or black), however this is the highest risk. Doing this scenario you would either walk away with $2M or $0.00, if you did it again putting it all down you would have $4M or nothing.

So as you can see it depends on your risk tolerance and saying less risky = no gains.

 

Yes- NRAS properties can be sold at any time, to another investor, who is free to use or not use the NRAS. You are also free to sell to an Owner Occupier. Its just a tax credit attached to the property. The owner is not obliged to participate their property in the scheme if they prefer not to

To make NRAS work best, you should retain a taxable income, because if you don't, you are forfeiting the neg gearing, which contributes to the overall after tax result. ( I would say this of any inv portfolio unless you are at very low LVR, to be fair) Otherwise, if you do not wish to work and maintain a taxable income, invest at a much lower LVR of 55- 60% and the numbers should work pretty well as you wont have any pre tax loss at that LVR- but you'd be putting 40%-45% + stamp duty into each deal instead of 20% + stamp duty. ROE would be halved at best. Instead, stay at work for 10 years, use NRAS to accumulate a large, high yielding portfolio and THEN quit work, with much more than 1.1 Million in assets.

An example.... if you bought 6 x 270K NRAS as outlined in the hypothetical I posted earlier, stayed working and used the surplus tax free cashflow to pay off the investment debt used for 3 of the 6 properties.. even with ZERO capital growth across all the properties, after 10 years you'd still have the 1.1 mil property carrying @ 217.5K INV debt ( 50% of the 435K you used to pay the 6 x deposits and stamp duty) , but you'd also have 3 x unencumbered 270K properties generating @$20-25K per annum each from rent . Total of 1.92 Million asset value..... and thats with ZERO growth, which would be incredibly unlikely. With just 50% growth against that portfolio you'd have assets worth 2.865 Million and debt of 217.5K, or 2.65 Million NET. That beats your plan by @ 1 million and is very low risk in my view. You only need 50% growth in a decade .... even if you got zero growth you'd still have a NET position of 1.7 Million. It's fairly straightforward. NRAS is money for jam if deployed correctly as a dividend reinvestment plan ..but you really need to stay working for 10 years to get all the juice out of the lemon

 

Thanks euro, I would prefer to just purchase my own properties outright if I was to leverage further.

 

If you pay cash for properties Barny, you wont be leveraged. Leverage is borrowing.

 

Yes, I mean if I was to purchase properties I would do it outright, find my own without having to follow anyone's rules or terms and conditions that can and are attached if I was to purchase for example nras.

 

Sounds like you have it all worked out