Best use of capital ?

[Vandra]

Having suffered, over the last couple of years, with hugely deminishing Superannuation returns, we are determined to apply Jan's strategies to our own situation as we believe we can do a lot better for ourselves than Superannuation can.

We envisage acquiring, say, four properties in the short-term future with more to come over the next 5/10 years - the low range median house price in our local area is around $120 000/$130 000.

We are both in our mid fifties, still working and (because of a resignation and reinstatement) have immediate access to $115 500 of superannuation money.

We owe $11 500 on credit cards and $102 000 on our home (value $180 000). Obviously paying off the cards is #1 priority. We are unsure, however, as to the best strategy for maximising the value of the remaining $104 000 - do we pay off our house completely (and be able to offer $180 000 as unemcumbered security) or do we pay off most of the house, but retain (say) $10 000 as working capital or can you suggest some other strategy to enable us to maximise our current resources? Incidently, after paying off cards and house, our joint "cash in hand" incomes would be in excess of $2 700 per fortnight before living expenses.

Any ideas welcome.

 

[gailh]

Hi,

My feeling (and its not much more than that) is that I'd put about half into your home, as the current mortgage is still sizeable and its non tax deductible debt. Once you get the home mortgage down to about $50,000, then it will free up a lot of weekly income, and you could almost just let inflation take care of the rest of it.

Of course, you may be able to put the whole lot onto your home loan to maximise interest savings and redraw amounts for deposits (if your loan allows it) as and when you find investment properties. The deposit/s should then be tax deductible as they are borrowed against your home (check with accountant that this rule still applies when you are redrawing funds that have been put on as one lumpsum - I think it does but its hard to believe the ATO allow it!).

Good luck

Gail

 

[geoffw]

Vandra,

My thoughts only.

As Gail says, paying off non-deductible debt is a good idea. I'd be looking at paying off the PPOR and credit cards using the super money- and then using that as security for a Line of Credit loan, which you can then use to purchase other properties- as deposit and expenses- as Gail says.

I don't believe this will cause any tax problems. There are two events. One is that you are paying off your home loan with available cash. The subsequent event is that you buy Investment Properties (borrowing a proportion). That event is designed to produce income- you pay interest and other expenses to get that income. So the interest you pay on those loans is tax deductible, as it is directly used to derive income. Completely legit, and probably used by at least of tens of thousands of Australians.

Your concern may be that, at your age, you will need to be a bit more careful than people who have the advantage of many years ahead. Jan says (in effect, from memory) that time can cover mistakes. Buying at 10% too much may not hurt too much in the long term- but it may hurt much more in the shorter term. If you don't have that time (or it's the wrong part of the property cycle right now), you may have to choose more carefully.

How has Townsville performed? What sort of rental yields are there? What's the vacancy rates? What's the growth prospects? Are you, indeed, even looking at Townsville?

Perhaps student rentals are a possibility- better cashflow, but less reliable.

The last time I was in Townsville, it was showing very good prospects. But that was 20 years ago, when the airport had just become an "International" airport. Probably the only international airport to serve beer in bottles in styrofoam stubby holders two years old (with graffiti to prove it).

 

[saskatoon]

Hi Vandra.
I had the same choice as you. Decided to pay off PPOR loan completely. Makes accounting easier in terms of interest deductability, and it's a good feeling!
Have since used the equity for LOC to buy IP's, as GeoffW also suggested. This equity becomes your working capital.
My hint: don't use a credit card unless you pay it all off each month!
Have you allowed for taxation if you don't roll over the super?
There are also threads on self-managed super funds to read.
Terry

 

[INVESTRON]

i would pay off all undeductable loans, use my equity in my own home and borrow and buy as many ip's as possible, both positive and negitive geared, because you havn't got much time left - sorry to be so blunt.