What to do?

I posted this in the wrong place it seems since this seems to be the 'what to do' discussion so I thought I'd repost in the hope that some of the knowledgable people here may have good suggestions for ways for me to think on this:

I have PPOR (latest val = 600k+) and just purchased IP (PP= 320k). Total loans outstanding on both = 540k. (about $300 a week from my wages to service after rents etc) No other debts. LVR 60% approx. Annual income 65k paye. Rent on IP 300 pw. Super 500 per month drawdown paid to loans. About 20k bullion backstop if the world as we know it gets too dramatic - yes former paranoid hippie who lived through the 70's and 8o's GFC's and Oil crises and the 90's property stagnation lol - which makes me happy with conservative options - and able to live very cheaply when required)

Like many here I want to retire asap (current age 57 no dependents). At 65 I get a fixed super pension from the good old days of super plans. So I have to make it through the next 8 years or so before a ~60k pa pension starts.

I have in mind to sell PPOR soonish while things are rising and before next GFC, clear all debt, put balance of sale to drawdown pension, move to IP for about 12 months more of work, saving all the while, and then retire to the rose garden and hobby jobs (two that give me about 10-15k pa currently plus probably about 10k from draw down pension. Total spendable then would be about 25k pa I'd say)

Would some of the more experienced and thoughtful like to share their views and perspectives on my options. I'm really quite open to all options (selling all, some, none etc ) except the one where I'm a PAYE employee for another 8 years.

Many thanks in advance.

No replies then? I can't figure it out either.

JulieW said:

No replies then? I can't figure it out either.

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Julie, I think it is mor a case of "we can't figure out what the question is"

Your plan sounds great - what is worrying you?

(Just one clarification - you are going to make the IP your PPOR correct?)


The Y-man

Thanks Y-man, I suppose what is worrying me is whether it actually IS a good plan and whether I've considered all the options.

I've tried to follow the best practice advice here so far - supposedly rising area, get good PM, good accountant etc but I read the posts here at Somersoft and see so many people with vast knowledge of finances, property and options and worry that my actual plan is unsophisticated and naive.

That means I worry that the 'brains' here have much better ideas of how to plan/structure/balance my options and casually know things I haven't even thought about.

After making the decision to gamble on an IP about 6 months ago my conservative nature is one blood pressure reading away from 'a little terrified' to 'mostly terrified'. lol

Julie, as you see your decision to invest in an IP as a "gamble", I strongly suggest you do not purchase anything until you are able to see the decision as a good investment strategy.
Marg

Hi Marg, Probably wrong word - gamble in the sense that every investment can go up or down. I think housing has a much higher probability of going up which is why my caution chose property versus shares etc

JulieW said:

...worry that my actual plan is unsophisticated and naive.

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The best plans are usually the simple ones.

The Y-man

JulieW said:

Hi Marg, Probably wrong word - gamble in the sense that every investment can go up or down. I think housing has a much higher probability of going up which is why my caution chose property versus shares etc

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I don't get it - why does it matter if your housing goes up or down, since you will be living in it? Surely it is immaterial in the scenario you have outlined.


Cheers,

The Y-man

Rephrased

Sorry. Perhaps if I rephrase it will make it clearer:

If you were alone and had:

PPOR Valuation 600k, rentable at $420 pw conservatively,and;
IP Valuation 320k, rentable $300 pw conservatively, and;
Income of 50k pa for another 18 months maximum. and;
an LVR of 60.8% (560/920)

and you wanted a comfortable roof over your head and about $25k pa to live on for another 8 years with a little wiggle room.

What would you do?

JulieW said:

Sorry. Perhaps if I rephrase it will make it clearer:

If you were alone and had:

PPOR Valuation 600k, rentable at $420 pw conservatively,and;
IP Valuation 320k, rentable $300 pw conservatively, and;
Income of 50k pa for another 18 months maximum. and;
an LVR of 60.8% (560/920)

and you wanted a comfortable roof over your head and about $25k pa to live on for another 8 years with a little wiggle room.

What would you do?

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You said you have a (defined banefits?) super income - how much will that be?

Cheers,

The Y-man

Currently 60k pa. Probably about 62-63 by the time it's available assuming quit this industry next year after the latest pay rise deals.

JulieW said:

Currently 60k pa. Probably about 62-63 by the time it's available assuming quit this industry next year after the latest pay rise deals.

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Sorry, I finally undertsand your question!!

You are wanting to know how to survive the 8 years between when you quit work and the 60kpa pension kicks in right?

Ok, what's the interest rate on your loans?

The Y-man

Yes!
ANZ variable rate less 0.5% discount (one of those preferred professional customer type discounts).

I would do everything possible to maintain my asset base without selling anything, however:

Thinking optimistically that you can rent rooms out in your PPOR - say 2 rooms at $100pw net each = $10k/year + $25k/year in other income you have identified = $35k/year income plus circa $12k / year in net IP income = $42k/year, assuming you manage it yourself.

Interest cost = $540k x 7% (average long term IRs) = $37k/year, leaving you only $5k to live off! Not enough methinks. Say you need $25k/year to support yourself each year at least, your interest bill needs to be $20k per year below what it is currently.

At 7% IRs you would therefore need $290k less debt than you currently have at least, if you wanted to avoid capitalising interest, which could be a bit scary with these numbers over eight years. On your salary it looks like this could take the eight years you are trying to avoid working!

So I can't think of a way of (safely) keeping the assets you have and retiring now. If you wanted to take a risk you could always buy cashflow positive IPs instead! So your plan sounds reasonable to me but it completely goes against my grain to ever recommend selling anything so I can't be much help there I'm afraid... the prospect of eight years of freedom versus keeping your assets is a trade off only you can make.

Good luck with it!

Thanks all for your inputs. Sounds like it's a consolidate, save and see year coming up for me. Julie

JulieW,

Even if you sell your PPOR off and go to live in the IP, I see a bit of a problem - in that essentially you'll be left with a fully paid off home and $75000 (your next 18 months of work) to last you 8 years.

That only gives you $9300 odd per year - so will be short $15,000 pa.....

The Y-man

The Y-man said:

JulieW,

Even if you sell your PPOR off and go to live in the IP, I see a bit of a problem - in that essentially you'll be left with a fully paid off home and $75000 (your next 18 months of work) to last you 8 years.

That only gives you $9300 odd per year - so will be short $15,000 pa.....

The Y-man

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Hi Y-man

I believe Julie mentioned approx $25k in "hobby" related income post working?

HiEquity said:

Hi Y-man

I believe Julie mentioned approx $25k in "hobby" related income post working?

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Oh yeah.... fair point.

Cheers,

The Y-man