What to do with $325,000 ????

Some help please.

As some of you may be aware, Bloss and I are having a pretty good go at trying to retire in a couple of year's.

We will be seeing our Accountant in a week, so need to put a couple of scenario's to him, so I'll air them here first for your learned and varied opinion, so as to hit him with a couple of question's instead of a couple of hundred.


As we will be living on our catamaran, we will have no need for our PPOR, so plan to flog it off.
It should have gone up in val in a couple of year's [Brisbane Bayside], even in it's current sorry state.

Unimproved, it'll get $325,000 ish and will be owned outright with no CGT[ we could throw $30k at it and get $340k ]

Should we,

1] Take the cash and pay off half of the IP debt, effectively owning 3 outright and have 3 with a 50% LVR. Then use the 50% equity to get into some managed fund's.

2] Take the cash and just use that to get into some managed fund's, leaving the 6 IP's on 40% to 50% LVR, all cash flow neutral [ after rates, insurance etc etc added in]

3] Take the cash and leverage the gut's out of everything into managed funds.

4] Come up with another plan all together.

Take into account that we are pretty cheap to keep and with no PPOR to pay off, No other bad debt, cash flow neutral property paying for itself, we will live well enough [ by our standard's] in Aus on $60,0000 of today's money.

Living OS we'll manage well on half of that.

Being on the boat will mean that communication's will be limited with up to 2 week's between internet and phone access, so whatever we do will have to be able to look after itself fairly well.

Are we in a position to pull the pin on this working caper or not????

I look forward to advice, question's & opinion's.

Dave

There is another option as well.

We'll be selling a specy in 5 mth's, the profit's from which will allow the PPOR to be owned outright, freeing up a fair wad of cash each month.


We could leverage up into managed fund's or similar then and get some more $$$ in over the next 2 year's, but of course won't own the PPOR outright anymore 2 year's down the track.

So many different scenario's, I am starting to confuse myself.

Dave

Dave,

Let's start with an end in mind, if you don't have one then any course will get you there

What do you wish to achieve with this lump sum?

You suggest paying down some IPs so as to get some cashflow? You could get this by renting out your paid off PPOR AND also keeping an extra bucket out in the rain to catch some more equity come the next boom.

I reckon you are after income, I would be with your plans. An income managed fund might provide you with a more hands off investment vehicle plus give you some diversification. But after a 4 year bull market you might think twice before buying in, but people were saying that two years back

I reckon when you articulate your goals the choices will be clearer.

Cheers,

I can't help but focus on property and still can't bring myself to put money into Managed Funds, as it feels like I am handing over my money to someone else to manage and I would lose control!!!

I was in your situation and bought commercial property in Cairns, it is still reasonably priced. I paid $250k for a return of $400 a week, that pushed my cashflow up and I am still in property.

I will be interested to hear others comments on the managed funds as I am still trying to learn.

Chris

Simon said:

Dave,

Let's start with an end in mind, if you don't have one then any course will get you there

What do you wish to achieve with this lump sum?

You suggest paying down some IPs so as to get some cashflow? You could get this by renting out your paid off PPOR AND also keeping an extra bucket out in the rain to catch some more equity come the next boom.


I reckon you are after income, I would be with your plans. An income managed fund might provide you with a more hands off investment vehicle plus give you some diversification. But after a 4 year bull market you might think twice before buying in, but people were saying that two years back

I reckon when you articulate your goals the choices will be clearer.

Cheers,

Click to expand...

Thank's for that mate , stick another option on the list.

As the current PPOR is pretty much stuffed, we don't really want to do improvement's to then rent out, although it is an option.

We may [ in 2 years time if the rules change] be able to feed it through the mash and build duplex as we are 100m from rail on a 10m x 50m block with the 50m having street frontage. Current zoning say's no, but...........

But quite frankly, I am starting to feel a little " house'd out " at the moment.

The last few years have been frantic getting the last six and the specy happenning and the boatbuilding project has suffered horribly and has infact ground to a stop over the last 12 mth's, so I need to put my energy back into that and get it finished.

The end in mind???? $60k/year+ keeping up with inflation with an almost set and forget portfolio.

I understand what you say about the "bull run" on the MF's, but was thinking we needed to balance thing's up a bit, but not if they are about to go pear shaped on us. Believe me, I have thought long and hard about if they are the way to go.

Dave

Here is a scenario ...
Sell your PPOR for 325k and spend $60k per year for 6 - 7 years while sailing the world. During this time your 6 IP's would have grown significantly and will provide some good cashflow. At this time you may want to sell an IP to fund another 6 - 7 years travelling or something entirely different. Repeat this process.

What I would try to do ...
Sell the specky to pay off the PPOR and get a modest cashflow. Sail the world while you have your health and hold off selling properties for as long as possible. Review your finances every 6 months so you have a better idea what $$'s you need. Pickup odd jobs on your travels to suppliment living costs, keep the 'grey matter' working and meet new people.

Good luck

Dave,

I will be recommending you share market as well but I am not a fan of managed funds as such. Even though some of them have been discussed here in the forums for returning 15% income over the year but the fact is that most of them have underperformed the index and charged fee to do it . If you still believe in them for diversification then try some Index funds, ETF’s or LIC. Low fees and taxes.

I have been investing into shares directly recently and have been able to do reasonably well. You don’t need to actively manage them. Just buy some good dividend paying blue chips. However keep in mind I am talking about 4-4.5% dividend fully franked and not 15% p.a.

So on 325K that you invest in the shares for example will give you close to 15K p.a and not 60K that you want. I am assuming that your IP portfolio is neutral and does not need and annual cash injection from your side. Your problem is that 50% equity is held in you existing IP’s which you may be reluctant to sell (and I don’t recommend that either) and free up some money. So till such time that they are fully paid or you sell them you might not be seeing cash flow from there.

My 2 cents. Thanks-

traveller said:

Dave,

I will be recommending you share market as well but I am not a fan of managed funds as such. Even though some of them have been discussed here in the forums for returning 15% income over the year but the fact is that most of them have underperformed the index and charged fee to do it . If you still believe in them for diversification then try some Index funds, ETF’s or LIC. Low fees and taxes.

I have been investing into shares directly recently and have been able to do reasonably well. You don’t need to actively manage them. Just buy some good dividend paying blue chips. However keep in mind I am talking about 4-4.5% dividend fully franked and not 15% p.a.

So on 325K that you invest in the shares for example will give you close to 15K p.a and not 60K that you want. I am assuming that your IP portfolio is neutral and does not need and annual cash injection from your side. Your problem is that 50% equity is held in you existing IP’s which you may be reluctant to sell (and I don’t recommend that either) and free up some money. So till such time that they are fully paid or you sell them you might not be seeing cash flow from there.

My 2 cents. Thanks-

Click to expand...

I dunno that I would be jumping into an index fund at this point in a bull market. I hope the coming year or so proves me wrong as I have a healthy equity portfolio - I am certainly not wedded to Ips only as many know.

Cheers,

traveller said:

Dave,

I will be recommending you share market as well but I am not a fan of managed funds as such. Even though some of them have been discussed here in the forums for returning 15% income over the year but the fact is that most of them have underperformed the index and charged fee to do it . If you still believe in them for diversification then try some Index funds, ETF’s or LIC. Low fees and taxes.

I have been investing into shares directly recently and have been able to do reasonably well. You don’t need to actively manage them. Just buy some good dividend paying blue chips. However keep in mind I am talking about 4-4.5% dividend fully franked and not 15% p.a.

So on 325K that you invest in the shares for example will give you close to 15K p.a and not 60K that you want. I am assuming that your IP portfolio is neutral and does not need and annual cash injection from your side. Your problem is that 50% equity is held in you existing IP’s which you may be reluctant to sell (and I don’t recommend that either) and free up some money. So till such time that they are fully paid or you sell them you might not be seeing cash flow from there.

My 2 cents. Thanks-

Click to expand...

I'm probably showing my lack of knowlege , Zero, on shares/MF etc, but wouldnt $325,000 @ 15% give $48k/year not $15k , and if we borrowed another $175,000 using equity from the IP's would'nt that give us $75,000 per year.

Minus fees and interest it comes back to around the $60k.

Is that right???


Dave

BoatBoy said:

I'm probably showing my lack of knowlege , Zero, on shares/MF etc, but wouldnt $325,000 @ 15% give $48k/year not $15k , and if we borrowed another $175,000 using equity from the IP's would'nt that give us $75,000 per year.

Minus fees and interest it comes back to around the $60k.

Is that right???


Dave

Click to expand...

I dunno that it would be wise to do your sums at 15%. Many would suggest 5% yield and 5% growth to be a decent planning figure.

But you need to understand the benefits of franking credits as well - so much to learn!

I note you wrote something to the effect you are tired of housing.
However is that a good reason to terminate.
Your priority is the boat, which is cool.

Have you had a long history of dealing with Managed funds?
Are you content to have negative growth , which was the case several years back.
If not, then whilst they are the easiest sit back and relax option ,it may not prove such a great move. You need to look very long and very hard at particular funds like I have. I wish I could boast about my funds performance but it is only after 4 years have my funds started to hit there promised targets. They were negative for more than 2 years. Many funds really under perform but I hope there is no need to say this.
What immediately struck me about your post is that whilst overseas you will have no PPR once you sell your run down home.
Buying a nice PPR , putting down a lot of cash and getting a loan for 30% LVR would probably make the Newe PPR cash flow neutral and take advantage of Capital gain in your absence.
You could sail for 6 years come back and not pay CGT

Is this not an option?

Part of you answer lies in how long you intend to sail around and how long you will actually sail around. eg I enjoy Mime such as Marcel Marcou , but when I saw a 2 hour show , all I wanted to do was leave as I was so bored.
The same occurred with a Simon and Garfunkel concert.
Short cruises and long voyages may be very different. In your case I have no idea bit I just throw it into the mix, for something to consider.
.


Being O/s more than 10 years I am aware of trying to manage a property from a distance. The only real secret is to get a great PM, and one that will not switch jobs. I have had 5 companies and about 15 PM s in 10 years. I would be content to stay O/s for another 20 years with the PMs and companies I have now.

Sell the PPOR, put the money in an income producing fund, margin said fund, live off income. When equity becomes available in IP's, draw down, add to fund, margin extra funds.

Mark

OK, well now you're are really confusing me, I can take my $325K and get 6% with ING for example which is better than travellers 4.5%.

I was thinking that $325k in fold plus a million in equity should be able to have us looking pretty good.

LOE spreadsheet's were certainly showing that , especially taking into account a 5% compounding increase in IP value.

Dave

Nah mate, I wouldn't be putting it in ING, with such a small amount, you'll have sweet bugger all income.

Mark

Mark Laszczuk said:

Nah mate, I wouldn't be putting it in ING, with such a small amount, you'll have sweet bugger all income.

Mark

Click to expand...

Had no intention of it mate, your earlier post was more what I was thinking,

Quote

Sell the PPOR, put the money in an income producing fund, margin said fund, live off income. When equity becomes available in IP's, draw down, add to fund, margin extra funds.

Dave

With regard to option 1
you would be expecting your Managed funds to return around 16% which is not viable in the long term,IMHO, except possibly if you happen pick the future Number 1 or Number 2 managed fund.

If you want take more risk then of course you can achieve higher.....go into a currency fund if you ever get bored!!!!!

I am assuming if you want to access 50% of your equity you would be paying an average of at least 9% for the privilege to access the funds in the coming years, giving a net return of 7% before taxes

The next option is to eventually sell your boat in Japan since prices are so high according to a couple of sailing friends I know.

BoatBoy said:

OK, well now you're are really confusing me, I can take my $325K and get 6% with ING for example which is better than travellers 4.5%.

I was thinking that $325k in fold plus a million in equity should be able to have us looking pretty good.

LOE spreadsheet's were certainly showing that , especially taking into account a 5% compounding increase in IP value.

Dave

Click to expand...

With ING that is all you get whereas with Shares 4.5% is just the dividend the main thing is the CG that you get over longer term...like IPs pretty much. Dividend being just the rent.

Dave - I did not take LOE into account. If you have Million in equity then you might look into to fund your expenses...

Hi Gumpshot's,

Tired of houses this week that's for sure, but have no intention of offloading our current 6, and once the boat is in we'll look at taking on a project a year if possible, just to keep our hand in, so to speak.

Zero experience in managed fund's as yet.

Yep, we will sell our Current PPOR, but planned on making one of our 6 ip's into a PPOR before we bugger off OS on the boat.

Getting bored with the boat thing, I think not, as it will have a bit of land based frivolities thrown in as well. We have done month's away before leading up to this. All the yacht's we have owned and built in the past have been sold and traded up, just to get us to this moment.

She aint some smellie little fishing boat, this cat has more room than our house

We have a good PM looking after our IP's and have managed them from 700k away, so I don't think distance will be a probem.

Ta

Dave

If you sell your IP /PPR it will not be CGT free.
Sounds like a great adventure to me

traveller said:

With ING that is all you get whereas with Shares 4.5% is just the dividend the main thing is the CG that you get over longer term...like IPs pretty much. Dividend being just the rent.

Dave - I did not take LOE into account. If you have Million in equity then you might look into to fund your expenses...

Click to expand...

That's what we are trying to finese at the moment......... which way to do it.???

In earlier post's on other thread's I mentioned baseing the boat in Langkawi
http://www.somersoft.com/forums/showpost.php?p=310414&postcount=46
and being able to live very comfortably on $25k per year, allowing extra fund's to go into the investment mix.



Dave