$300k cash in bank - what would you do?
- Thread starter Michalsz
- Start date
I'd buy this outright and collect the $ 500 pw and channel that elsewhere.
Then spread my towel out on the beach and go back to sleep.
http://www.realcommercial.com.au/property-offices-vic-melbourne-5816715
Then spread my towel out on the beach and go back to sleep.
http://www.realcommercial.com.au/property-offices-vic-melbourne-5816715
Haha how can you go to a beach to sleep with $500 pw?!?! Well you probably can - but that's about it, sleep.
To answer your question - it depends on your situation.
If you have a portfolio going already, I'd think of ways to make this $300k generate 20% returns per annum (using leverage or whatever). Because the money sitting in the offset account does nothing - it gives you a return of 6.5%. If you're negatively gearing it probably gives you a return of 3.25%.
If you don't have a portfolio, maybe you try to get yourself one so you have some stable income. That said it all depends on your risk appetite. If you're young (ie under 30) even if you don't punt the hell out of i... you should be looking for 20% returns. Buying an icecream shop for 2x will probably give you 50% returns - probably better than whatever job most people are doing. And no, buying something that yields 5% is not punting
If that was the end game I would've been at the beach sleeping at 20 already
To answer your question - it depends on your situation.
If you have a portfolio going already, I'd think of ways to make this $300k generate 20% returns per annum (using leverage or whatever). Because the money sitting in the offset account does nothing - it gives you a return of 6.5%. If you're negatively gearing it probably gives you a return of 3.25%.
If you don't have a portfolio, maybe you try to get yourself one so you have some stable income. That said it all depends on your risk appetite. If you're young (ie under 30) even if you don't punt the hell out of i... you should be looking for 20% returns. Buying an icecream shop for 2x will probably give you 50% returns - probably better than whatever job most people are doing. And no, buying something that yields 5% is not punting
If that was the end game I would've been at the beach sleeping at 20 already
Firstly, you should consider asset protection and possible tax advantages. Gifting to a discretionary trust would be a good idea followed by a loan back to yourself or another discretionary trust for investment.
It wouldn't be 100% safe in the early years, but would be good asset protection thereafter.
It wouldn't be 100% safe in the early years, but would be good asset protection thereafter.
Hi Terry,
Does the gift and loan back strategy work for cash?
I thought it only worked for things like equity in a house, because when the trust loaned the equity back, it had a mortgage registered to it. I don't think you can obtain a security/mortgage with cash?
Yeah, now we're talking. Lying on the beach daydreaming is boring ... ;-)
regards
Michal
How would that work?
True,
What's the point of life if you're not spending evry minute investing
Not to enjoy the result of it
Just to invest
Then you can hold yourself in higher sesteem than other people and know you're right.
You've got to dedicate yourself to investing, not to life (what a waste that would be)
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Once you gift cash it is no longer yours. You could then borrow it back (and it still wouldn't be your money, but borrowings). The trust could take a charge over property that you acquire with the money.
Even if you just borrowed the cash to gamble it would still be beneficial as if you went bankrupt your trust would be a creditor and the trust may get a little bit back from the sale of your other personal property. Whereas if you just kept the cash yourself and then blew it and went bankrupt you have lost the lot.
Not 100% effective, but still adds a layer of asset protection.
Just think of the trust as another person. You give X $300,000. A may be kind enough to lend you $300,000 without interest, but they will only do this if you give them a second mortgage over your house and a charge over your TV, stamp collection and pet dog.
You go out and buy $1,000,000 worth of property in your own name. $700,000 loan from ANZ and $300,000 loan from X. Things go bad and your business fails and you are sued by the landlord for the personal guarantee you gave for the rent of the shop for your business. You owe $300,000 and the landlord gets a judgment against you.
Firstly, before the landlord may try to enforce the judgment they may get you examined in court (no gloves involved). You should your assets and liabilities. In This case you owe $1mil and have $1mil. Net worth = Nil. So it may stop there.
If the landlord decides to take it further they could bankrupt you. No problems you say as they cannot get blood from a stone. You may even be able to keep the house (but they are likely to get at any equity that builds up during bankruptcy).
Now, instead of this, you had used $300,000 as deposit from your own cash.
You would have had the landlord get an order to sell your house so that he could recover his money or he would have issued a notice of bankruptcy straight away.
The above is a simplistic example and may not work if it was designed as a scheme to defeat creditors. It may not work in the first 5 years too as it may be possible that the money is clawed back from the trust and end up in the hands of the creditors.
You can also invest in shares and earn a decent income on your $300K.
Last month you could have bought CBA shares for $44 bucks and earned $3.20 per share fully franked dividend. This should equate to approx $600 (gross) per week.
Alternatively, there are several other quality companies that you can invest today (eg. GUD @ $7.44 paying 64cents fully franked) that give you 12% gross dividends which should equate to approx $700 (gross) per week.
Cheers,
Oracle.
Yes buying 3-4 negatively geared properties and paying LMI since you're at 85% gearing. You've just thrown yourself in to the rat race for 10 years. Good job.
Well maybe not. A slight variation on this could be 2-3 properties at 20% + cost. Then you ride the capital gain wave for 3-5 years. Might be a good way to go.
If you buy property wisely, income could be as high as 3 times that. Although not without liability of some mortgage. Depends how much you hac hold and maintain normal lifestyle.
Just wondering where the wave is??
You could also ride the decrease in capital gain in the next 3 - 5 years down the toilet.
Sigh... Let me do the sums for you.
You buy 3 x $500k properties with $25k stamp duty. Put in $100k for each, that's the 80% gearing you're talking about.
At $425k debt (since you don't have money to pay the stamp duty) at 6.8% that's $29k interest you have to pay per property. If you have three of them, that's $86k. Then you have to pay council rates, land tax, agent fees etc which will be in the vicinity of another $6k. So your total costs is $92k. Follow so far?
Now what rent do you hope to get? Maybe $500 rent per week, which is a 5% yield? So at $500 per week x 3 properties that's $78k. So you're losing $14k per year. Now here's the questions.
a) Can you even afford to lose $14k per year? Not if you're earning $50k I can tell you that and trying to save money.
b) Can you even get that much financing? What's your reported income?
c) You sure there's a wave 3-5 years later? Check out a city called Sydney, but if you must check out one called Tokyo.
You buy 3 x $500k properties with $25k stamp duty. Put in $100k for each, that's the 80% gearing you're talking about.
At $425k debt (since you don't have money to pay the stamp duty) at 6.8% that's $29k interest you have to pay per property. If you have three of them, that's $86k. Then you have to pay council rates, land tax, agent fees etc which will be in the vicinity of another $6k. So your total costs is $92k. Follow so far?
Now what rent do you hope to get? Maybe $500 rent per week, which is a 5% yield? So at $500 per week x 3 properties that's $78k. So you're losing $14k per year. Now here's the questions.
a) Can you even afford to lose $14k per year? Not if you're earning $50k I can tell you that and trying to save money.
b) Can you even get that much financing? What's your reported income?
c) You sure there's a wave 3-5 years later? Check out a city called Sydney, but if you must check out one called Tokyo.
if you have a property and loan - just leave in it offset
and then wait for opportunities to come up, evaluate options. running to buy something just coz the money is there without some strategy or analysis is risky
just because you can buy a porsche doesn't mean you have to.
and then wait for opportunities to come up, evaluate options. running to buy something just coz the money is there without some strategy or analysis is risky
just because you can buy a porsche doesn't mean you have to.
Yes, definitely paying attention to the market. I have lived in Sydney for 10 years until recently and I can tell you that there are areas in Sydney that never go down. They might plateau, but never go down. Historically Melbourne has outperformed all other capital cities. Again, Melbourne has areas that never go down. With the right research, the right property can buck the trend easily.
However, I acknowledge that in general terms, when you look at the press and general market data, prospects do not seem positive.
But it was interesting how people on this forum perceived this hypothetical scenario. I also suspect there are many people out there who are or have been faced with similar questions in their minds.
