$1.5m cash windfall and $150k yr/income

[Ajax]

How would you invest $1.5m cash windfall where your income was about $150k/yr. A client asked me this question. He is 50 years old, owns own house (quite basic three bedder) and has a part share of an industrial property.

The more experience I have the less willing I am to give him any ideas.

If it was me (I wish it was me) I would consider borrowing another 50% then buying a property or several properties to a value of about $2.25m. If it was me I'd look at suburbs I know. Maybe a house in Bronte but with a very poor yield (about $1000/week).

http://www.realestate.com.au/cgi-bi...eader=&c=96335938&s=nsw&snf=ras&tm=1199711257

or better still 2-3 terraces in Redfern

or perhaps something like this-waterfront in Sutherland shire (don't know much about this area but it seems to be very good value compared with eastern suburbs of Sydney)

http://www.realestate.com.au/cgi-bi...r=&c=28210937&s=nsw&snf=ras-syd&tm=1199711614

These are some others I've been looking at

http://www.realestate.com.au/cgi-bi...inbed=&maxbed=&parking=&minlandsize=&p=30&o=p

Any other ideas?

Ajax

 

[Kristine..]

Hi Ajax

You haven't said what end result he would like

But if that windfall came my way, I would find a nice block of flats and buy the block outright.

That way the income is spread out over multiples, and will cover the occasional vacancy, new kitchen, refurbishment etc In other words the investment will be self funding

Once he settles in with that, he could then think about buying another block - and then another.

Blocks of flats are often under rated as an investment. They are a fairly traditional property investment for those who have enough money to do the job properly. There is little maintenance if the block is brick - just eaves and gutters and the occasional run around with the weed spray.

In Melbourne there are various areas which are solidly built with such blocks and no doubt Sydney and other capital cities have these areas too. Close to hospitals or universities in well established areas will see the block hold it's value and benefit from modest but steady rental increases.

Of course, if he wants to get fancy, he can call it a block of apartments!

Cheers

Kristine

 

[Francesca C]

The more experience I have the less willing I am to give him any ideas.

Ajax

Hi Ajax

Funny comment you made, I am the same. I do not like giving people any advice, esp friends.

Just wondering, does your client have any experience investing? is he savvy? how does he feel about risk? can he be bothered managing his own investments?

I think it would depend on what sort of person he is and if he wants to make alot of money or simply invest the money to live off.

If it were me, I would want to keep multiply the amount however, we are all different.

 

[oasis1frog]

Hi Ajax

You haven't said what end result he would like

But if that windfall came my way, I would find a nice block of flats and buy the block outright.

I have a block of flats for just over 1 year. As far as investment goes I am having a second thought. Mine is a 6X2 bedder, the rent is around $150/wk each, in terms of maintenance there are 6 X air-conds, 6 X stoves, 6 X hot water services. Also if I sell the market may be limited, therefore I am thinking of strata titling.

 

[Ajax]

Thanks for the input.

I am pretty sure my client wants a no hassles investment. I suspect he is not that financially savvy (though is very skilled in his trade/occupation) ...he is not looking for huge gains and will not want to actively manage the investment.

The answers given are very instructive. If it was me and I could find a block of 4-6 units in Sydney Eastern suburbs under 2.25m I'd be tempted to buy these (though this is not for my client).

Was hoping someone would post along the lines "$2.4m for a house in Bronte rented at $1000/week...forget it..try buying at X...6% yield...subdivision potential...good capital gains"

Here's another idea...

http://www.realestate.com.au/cgi-bi...c=&c=17640669&s=nsw&snf=ras-syd&tm=1199744226


Ajax

 

[Sunfish]

We don't know enough about your client but a 50yr old on 3g/w should own more than a basic 3 bedder.

Sounds as if he needs "set and forget" investments unless you plan to hold his hand. One that Aussies know little of, including me, is the Canadian Royal Trusts. They are safe income producing investments.

Maybe our American/Canadian friends can tell us more about them. I would like to know more.

 

[The Y-man]

....will not want to actively manage the investment.

Which means he may need some managed investments - probably geared (for tax reasons)

Cheers,

The Y-man

 

[pieman]

Dont know the sydney market but I would buy 3% yielder houses close to infrastructure, amenties etc with a 50% LVR, probably as many as I could, probably "land value houses" and then value add.
Here in melb, the suburb I like you can buy them for about 650k so he could buy quite a few.
cheers
pieman

 

[bort]

Thanks for the input.

I am pretty sure my client wants a no hassles investment. I suspect he is not that financially savvy (though is very skilled in his trade/occupation) ...he is not looking for huge gains and will not want to actively manage the investment.

shares? managed funds? LICs?

 

[Indifference]

How long will the 150k income last? What Super does he have? Does he want to remain in current house or upgrade? What passive income (whilst preserving capital) does he need/want? Does he want growth or passive income?

The answer may be a simple one depending on his lifestyle expectations.... Sounds like he is after a portfolio of managed funds/trusts and maybe a bit of bricks and mortar thrown in to offset the tax....

 

[Francesca C]

The forum can join forces and invest his money for him on developments, we'll look after is money

What other strategy could you offer someone who wants to keep their money safe and is not after massive returns except buy and hold R/E and managed funds? I am not sure there is anything else out there that doesnt have high risk attached to it.

 

[Nullagine]

How would you invest $1.5m cash windfall where your income was about $150k/yr. A client asked me this question. He is 50 years old, owns own house (quite basic three bedder) and has a part share of an industrial property.

The more experience I have the less willing I am to give him any ideas.

If it was me (I wish it was me) I would consider borrowing another 50% then buying a property or several properties to a value of about $2.25m. If it was me I'd look at suburbs I know. Maybe a house in Bronte but with a very poor yield (about $1000/week).

http://www.realestate.com.au/cgi-bi...eader=&c=96335938&s=nsw&snf=ras&tm=1199711257

or better still 2-3 terraces in Redfern

or perhaps something like this-waterfront in Sutherland shire (don't know much about this area but it seems to be very good value compared with eastern suburbs of Sydney)

http://www.realestate.com.au/cgi-bi...r=&c=28210937&s=nsw&snf=ras-syd&tm=1199711614

These are some others I've been looking at

http://www.realestate.com.au/cgi-bi...inbed=&maxbed=&parking=&minlandsize=&p=30&o=p

Any other ideas?

Ajax

Right now, put $450,000 undeducted contribution and ($50,000 - 9% * $150,000) / year salary sacrifice in super? Invested most conservatively that on its own would be worth about $1,700,000 and generate at age 60 a pension of about $68,000 / year which is about $51,000 in today's money.

That would leave $1,050,000 as working capital and $50,000 after tax and salary sacrifice for living expenses.

 

[Ajax]

Thanks for the replies,

Nullagine's post just goes to show how little I know about superannuation..and at 50 years of age it won't be too long before my client can access the super via a pension/annuity.

Indifference, in reply to your post "How long will the 150k income last?" not sure...depends on the relationship he has with his new employer (purchaser of his business)

What Super does he have? Not sure...I understand his accountant has set up an SMSF

Does he want to remain in current house or upgrade?
Happy to remain in current house.

What passive income (whilst preserving capital) does he need/want? About $150k/pa before tax...if he works he will have this income...if he stops working he will need this as passive income.

Does he want growth or passive income?
If he keeps working he will only want growth. If he stops working he will want growth + passive income of $150k/pa

My prejudices in this exercise...I am not too keen on financial planners who push managed funds only. I don't think substantial upfront and trailing commissions paid to financial planners are always justified.

I consider that really well positioned investment property or several can deliver better returns than managed funds.



Ajax

 

[Nullagine]

If he stops working he will want growth + passive income of $150k/pa

Ajax

If from $1,500,000, I'd suggest that expectations have not met reality yet.

However, if from licensing, franchising and the like then capital need not apply, just apply intellect.