Advice Needed: how to help Mum with 10 years left to retirement?

A

antonio

Howdy folks

I've been tossing and turning for the past few days over an issue running through my head and thought I'd lay it down in the open and see what you experienced folks would or have already done...

Here's the situation:

Have always wanted to help Mum setup (retirement age in 10 years, 65?)

Like all mum's, she's paid off the house and is a real trooper and gives so much of herself to the community. She's so selfless working and giving, any talk of property and numbers and stats just go way over her head and is just not her thing.

The last dealing they had with IP was back in late 80s where interest rates were nearly 20% - suffice to say, that was her first and last involvement with IP until recently...

She went to a property seminar and booked a time to speak to the consultant (I was there) - they sold off-the-plans, mainly apartment developments and said that to guarantee development going ahead - they bought 60% of the deposits so could guarantee developer can get loan to start building (I'm not familiar with developers and how this works or if it's true).

This particular one was 3 kms from Brissie CBD BowenHill, Newstead area, ~$400K, 1 bd, 1 bath, maybe carport - 10% deposit, build finish in 2 years
For mum it'll be around $200 cashflow negative.

Comes in Son: Newbie IP investor and newly married (ie mwah)
Just bought a -'ve cashflow villa

After sitting down with consultant and Mum, mum puts a "reservation" down
with 7 day cooling period. Mum trusts the consultant, who's new and just also bought an apartment in same tower and trusts the director, who's also bought one himself - apparently.

I said to Mum, my gut feel was to calm down and not "rush things" because units were "selling out"!

I still would like Mum to get at least one IP but how...


If you had mum who had ~10 years left to retire, what would you suggest/ or have done?

Graciously appreciate your experience and feedback.

A
 
For a start, cancel the reservation under the cooling off period.

Anything can happen in the next 2 years. Ignore everything the salesmen said, they have a vested interest in selling their project. Just because they SAY they have bought into the project is not a worthwhile recommendation.

If mum wants an IP, the first step is to sit down with your financier or MB of choice, and find out how much mum can borrow, and how much she is prepared to repay (this will give two very different figures).

Then you have set your price range.

Out and about you go, and look for a good deal that meets her criteria. You should be able to get a good idea of rental income, and will see the finished product.

There is no guarantee that a project will go ahead, and from what I have heard they need far more than 60% presales to get financing. You may find your mum tied up for years, and then the project cancelled. There is also no guarantee that financing requirements won't change in the next 2 years, and your mum may not be able to complete the deal.

If mum is determined on Bowen Hills, here's two on realestate.com.au - and they each have 2 bedrooms plus a secure car space (not a "maybe" carport which usually means none):

http://www.realestate.com.au/property-unit-qld-bowen+hills-106523147
http://www.realestate.com.au/property-unit-qld-bowen+hills-106622747

Marg
 
Your mum needs cashflow to retire - the strategy should be around this.

If it were me retiring in 10 years, I would not be borrowing money unless I had substantial cashflow from other sources to hedge the risks (high interest rates, vacancies, declining property prices and rents).
 
marg4000 said:
For a start, cancel the reservation under the cooling off period.

Anything can happen in the next 2 years. Ignore everything the salesmen said, they have a vested interest in selling their project. Just because they SAY they have bought into the project is not a worthwhile recommendation.

If mum wants an IP, the first step is to sit down with your financier or MB of choice, and find out how much mum can borrow, and how much she is prepared to repay (this will give two very different figures).

Then you have set your price range.

Out and about you go, and look for a good deal that meets her criteria. You should be able to get a good idea of rental income, and will see the finished product.

There is no guarantee that a project will go ahead, and from what I have heard they need far more than 60% presales to get financing. You may find your mum tied up for years, and then the project cancelled. There is also no guarantee that financing requirements won't change in the next 2 years, and your mum may not be able to complete the deal.

If mum is determined on Bowen Hills, here's two on realestate.com.au - and they each have 2 bedrooms plus a secure car space (not a "maybe" carport which usually means none):

http://www.realestate.com.au/property-unit-qld-bowen+hills-106523147
http://www.realestate.com.au/property-unit-qld-bowen+hills-106622747

Marg
Click to expand...

Thanks for the advice and links Marg

Mum has emailed the consultant to cancel the reservation and surprise...she hasn't heard back yet. The buggers better not charge her credit card.

I like your steps of sitting down with financier and working out how much she can and prepared to fund.

BowenHills was just where the development was and was offered. Mum had no particular resaon to choose that area.
 
bene313 said:
Your mum needs cashflow to retire - the strategy should be around this.

If it were me retiring in 10 years, I would not be borrowing money unless I had substantial cashflow from other sources to hedge the risks (high interest rates, vacancies, declining property prices and rents).
Click to expand...

Thanks Bene313

That was my concern - I don't want mum to be still looking for cash to pay off an IP ongoing every week. She's basically got 10 years of working income.

Hence my question, what are some strategies to pursue?

Find an slightly negative geared property which will, hopefully, go neutral, positive in 10 years time?

Find a cashflow positive property now?

That's the extent of my knowledge...finding the property is another issue...
 
Antonio, have a search on here for Off The Plan. It will tell you all the pit falls of buying that way. Marg has done one of the first things you need to do and that's to find comparable sales, from what she has found it is obvious that your Mum was going to be sold down the river.

Some of the pit falls are:
Paying too much.
Low rental demand with many coming on the market at the same time.
Not getting what you 'thought' you would get.
Huge strata fees.

There are plenty of others on the list but I doubt we need to go into it further...

Gools
 
antonio said:
Mum has emailed the consultant to cancel the reservation and surprise...she hasn't heard back yet. The buggers better not charge her credit card. .
Click to expand...


Follow the email up with a fax ' Cancelling the reservation' and print & keep a copy of the fax transmission report as evidence you did cancel within cooling off period.


Regards
Sheryn
 
antonio said:
Thanks for the advice and links Marg

Mum has emailed the consultant to cancel the reservation and surprise...she hasn't heard back yet. The buggers better not charge her credit card.

I like your steps of sitting down with financier and working out how much she can and prepared to fund.

BowenHills was just where the development was and was offered. Mum had no particular resaon to choose that area.
Click to expand...

Give the credit card company the written advise that she is not proceeding and advise them not to honor any transaction from them.
 
Antonio,

I would move swiftly! Your mother needs to contact her solicitor to advise him/her that she does not wish to proceed.

The Bowen Hills area is going to be great in the future, but at this stage of the development and at this time of your mother's life, she can do better, as it's far too risky. The market is too uncertain to buy something off the plan.

Why Brisbane? How about an older style house on a good block of land, not too far away from the Perth CBD?

Just to confuse things, I spoke to my husband; he thinks OTP in Bowen Hills/Newstead area would be ok.

Those are our opinions.

RK
 
antonio said:
Pardon my newbieness Bene313, out of genuine non-understanding, I don't get your 2 questions and how it relates...

PPOR house is around $400k...and saving from what per annum?
Click to expand...

I meant how much money could she accumulate per year (bank savings). How much cash does she have now?

How this relates is that if she has "x" cash now, can save "y" cash pa, she'll have "z" cash in 10 years - this can be used to generate income (interest or dividends).

As for the value of the house, there may be the option of downsizing to a smaller place and using the excess cash to create income (interest or dividends).

A positively geared property will not provide the income stream she requires to retire. At 7% interest rates the property would have to yield 10% to break-even before tax.

If she purchases property now, there may be some capital gains over the next 10 years - but there may not be also. We have just had one of the biggest runs for property in a long time. It may be quite some time before we see another run like that.

A couple of options:

1) Begin accumulating shares/cash now, reinvest the profits, over 10 years. Consider downsizing the house now or in 10 years to harvest some excess cash.

2) Buy an after-tax neutral cashflow property, and accumulate cash for 10 years. After 10 years the strategy could be to sell the property and buy shares/cash with the proceeds; or hold the property if rents have risen enough.

3) Sell the house now or in 10 years time. Rent somewhere smaller. Use the cash (400k if sell now) to invest in shares or funds yielding say 10% including imputation credits. That's 40k pa before tax to cover the rent and living costs. There will be no tax on the 40k if the investments are held by a superfund.
 
Last edited:
Antonio, It isn't clear to me why your mother went to this "seminar" at all unless it was at your urging.

Why would you do that?
 
When the market is ... lets say ... not running its head off, every time a prospective buyer has come into my office, with an off the plan brochure in hand, with "rental assessment letter" attached, and I then spend an hour, driving around the suburb of purchase, with current sales data, as well as current rental lists .... every prospective buyer has then said to me ...... oops ... looks like the sale price is $xxxx to high, and the rental figure $yyy to high. Usually I do not have to comment any further than ..... quoting the numbers.
Now, I do remind them, that the "non cash" deductions are very high, and not to be ignored, how ever, if we put some, lets say more "market reflective" numbers into the somersoft software, and then look at what the, weekly cash contribution looks like. If you are in a high tax bracket, then negative gearing, has a place, while you have confidence in the capital growth over the next 10 years. If its your last 10 years working ... phew ... I would look for very much lower risk investments
 
Thank you everyone for your replies.
I really appreciate it.

@Gools
I'm definitely going to read up on Off-The-Plan pros cons

@Sheryn
The consultant has email replied to my Mum and suggested
that they meet up for a quick chat (I'm guessing that the consultant
doesn't want to lose a fish off the hook...)

@Chilliblue
good idea re calling the cc company

@rkordic
only reason why Bowen Hills came up is because that's one of
their projects which they suggested to mum

@Bene313
Thanks for clarifying and taking the time to explain. Essentially
consider different vehicles.

That's why I'm edgy about -'ve cashflow IP for mum with such a short timeframe and as you said, just after coming out of one of the longest RE runs.

@Sunfish
Mum saw an ad for a free seminar of a successful ethnic person. The follow-up was from a consultant of that person's company helping people with real estate investing.

@Ridin-High
Mum knows about investing and wants to do it but being so busy doing what she loves and helping the community, she doesn't have the "maths" head to really get into the nitty-gritty. Heck even she has a close friend who has been RE investing.

@Peterw
uhuh - the low risk investments I can think of are:...

bonds?
term deposit?
ETF's?
index funds?

= = =

Seems like the general consensus is to:

Buy a cash-neutral IP or put money into low-risk vehicles...

Thank you again for your generous help and feedback

We're having a family dinner tonight and I'll be bringing this up with Mum.

Being the eldest...I'm very conscious of the responsibility of modest financial advice that I know of and informing Mum...
 
Last edited:
antonio said:
The consultant has email replied to my Mum and suggested
that they meet up for a quick chat (I'm guessing that the consultant
doesn't want to lose a fish off the hook...)
Click to expand...

So much for "cooling off period"... I really hope you will be able to get out of this dodgy sounding OTP deal. Maybe bring a legal person along to the "quick chat" session??

Good on you for wanting to pass on good financial advice to your Mum. There are many books she can start off by reading, eg. any of Jan Somers books which clearly outline the numbers behind property investing. I borrowed most of these from the library when I started out, so check your local library. There's a book thread here:
http://www.somersoft.com/forums/showthread.php?t=38340
(and probably more book threads if you search for them)

Cheers!
 
antonio said:
Being the eldest...I'm very conscious of the responsibility of modest financial advice that I know of and informing Mum...
Click to expand...

That's an excellent attitude to have Antonio.

If you're in Perth, I'm available for a chat if you wish. PM me.
 
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