Capital to cash flow

[rambada1]

I'm sure this has been spoken of before but Im not sure if its in a single thread and I'd like to update for 2013.

What are the strategies out there for capital to cash flow? What are the efficient models in terms of tax - CGT & income tax, time, simplicity, costs? I'm a string believer that capital appreciation of property through both value adding and time is relatively easy. But I cant go to Woolies with my duplex!

• Buy multiple properties, wait, then sell some and have cash flow positive properties? Simple but can be subject to CGT and income tax, plus can take time.
  
• Accumulate then live off borrowed equity? Nice in that the investment is still held and is a tax effective return. But you are subject to cost of borrowing ie % rates, lending policy, LVR, sustained growth.
  
• Large portfolio that is positive geared with time? Requires a large portfolio to create significant numbers in terms of cash flow.

Please, let the thoughts flow.

 

[DavidMc]

Personally, I'll be looking at some combination of selling down some resi to put into higher yielding commerical combined and/or some LOE. Naturally this depends on the credit environment and commerical property sector at the time. For example, there are solid commerical opportunities right now that yield 9% (best case, of course!) that cost you 5%, all net. That's a straight 4% in your pocket. Equity required is bloody high though! Best to be built up via resi.

I think if you were 100% resi buy, hold and no sell you just won't get enough cashflow.

Still working that one out, but it's years away.

 

[alexlee]

I see it as a three stage (ideally, you want at least 3 cycles) plan.

First cycle, gear up for capital growth. Second cycle, refinance and buy higher yield assets. e.g. there was a great opportunity to buy high yield shares around 2007-2009. By the third cycle, you have some income and some capital growth. Just put in on cruise, enjoy the life and tweak as needed.

So, you plan for having enough income to 'retire' by around the end of the second cycle, say 25 years after you start.

This is the Living off Income method, as opposed to the LOE method some subscribe to.

 

[china]

I think if you were 100% resi buy, hold and no sell you just won't get enough cashflow.

.

Probably need to have subdivision and development to generate cashflow via resi IP.

 

[DavidMc]

Well put Alex, and hello old friend

Yes, high yield shares or high yield commerical property, either would do just nicely.

Looking forward to this second cycle to kick off, 10-15 years in already.

 

[rambada1]

Good thoughts

Commercial scares me a bit as experience is zilch. But I love the math. But it is a high entry cost hence the start in residential.

The high yield shares has me thinking. Should the numbers pan out, re-gear to rent neutral level and purchase high yield shares. Would work well in a SMSF with tax breaks.

I too think it will be some form of combination of strategies. Hence he question as the more strategies the more options.

More idea's out there or variations

 

[alexlee]

The high yield shares has me thinking. Should the numbers pan out, re-gear to rent neutral level and purchase high yield shares. Would work well in a SMSF with tax breaks.

Subject to / limited by a number of things: difficulty in refinancing property in SMSF, rules re lending to SMSF by members, your age (if you start at 18, by the end of the second cycle you're in your 40s. If everything is in the super fund, you can't get at it for a while), being ready for it when the opportunity comes up.

 

[quoll]

A mix of stuff

It's a question with multiple answers, you just have to work out which mix is the best fit for YOU.

Our current choice, keep buying non standard resi properties, not really interested in the average house in an average street with an average 3-5% rental return.

Develop, do a project a year, don't build to sell (GST removed), hold then sell as required to bring it into positive situation.

Work, is there something fun that you would be happy to do to earn income? What is stopping you from doing it? Can you do it semi retired? retired? flexible 6months on 6months off?

Other investments: Commercial, Shares, etc (passive buy hold)

Trading: Shares, Forex, Commondities (buy sell, active) houses come in here if you buy reno sell or do something that is not a 3+ year keep.

Don't do:
I would stay away from things that you can't walk away from easily. Don't get involved in business with leases and employees.
Long term deposits or bonds or cash accounts.

Try not to make too many mistakes, they can be an expensive way to learn, but then again we don't listen very much.

Cheers
Graeme

 

[Terry_w]

I'm sure this has been spoken of before but Im not sure if its in a single thread and I'd like to update for 2013.

What are the strategies out there for capital to cash flow? What are the efficient models in terms of tax - CGT & income tax, time, simplicity, costs? I'm a string believer that capital appreciation of property through both value adding and time is relatively easy. But I cant go to Woolies with my duplex!

• Buy multiple properties, wait, then sell some and have cash flow positive properties? Simple but can be subject to CGT and income tax, plus can take time.
  
• Accumulate then live off borrowed equity? Nice in that the investment is still held and is a tax effective return. But you are subject to cost of borrowing ie % rates, lending policy, LVR, sustained growth.
  
• Large portfolio that is positive geared with time? Requires a large portfolio to create significant numbers in terms of cash flow.

Please, let the thoughts flow.

Broadly, there are only 2 choices
1. Sell
2. Borrow
2. a. to live on
2 b. Borrow to invest and live on the proceeds