Cashed up, no strategy

[drfuzzy]

Single, mid 30's, no dependants but aging parents
PPOR $850k full equity (offset account $500k cash, mortgage $500k)
Cash/shares $1,200,000
Salary: $180K/year
Bayside Melbourne based
Would like some asset protection in case of profession or future spouse problems.
Willing to take some risks and jump in head first.

I have been reading and learning as much as I can from you good people.

The Plan
Set up discretionary trust
Put in say $500k cash, then....

Option 1
Buy 8 properties circa 250k including costs at 80% LVR
Look for cashflow properties interstate (Western Sydney, Regional WA, QLD) with some hope for growth but 7%+ gross yield
Aim for CF neutral with 20% deposit. Avoid big losses trapped in the trust with cashflow
Do very low budget renos down the track ala Nathan Birch style but use contractors as I will be interstate.
If I am sued or end up in messy relationship assets trust should be secure.

Option 2
Use the 500k (or more) as capital for a larger project eg. whole block of apartments. Enlist a buyers advocate and possibly do a reno job. Hold for yield and built equity.

What would you do in this situation? Other options? I would hope to eventually replace my salary income and have some asset protection. All thoughts greatly appreciated from the gurus and guru-ettes.

Thanks, Fuzzy.

 

[Aaron_C]

Yes you would have to 'gift' the money to the discretionary trust for asset protection.

If you are looking to replace salary income then it depends on how much you are prepared to leverage up. A whole block of apartments sound good in theory but they have large amounts of maintenance.

As for buying many properties for cashflow, that is fine as many people are doing it too. Consider perhaps going for 90% leverages rather than 80% to maximise your cash buffer.

 

[drfuzzy]

Thanks Aaron,

When I first mentioned a trust to my accountant he just said "nah just buy in your own name, why complicate things?" His plan was for me to go out and buy a $1.5m Toorak McMansion (A small one for that price I guess and no doubt heavily negatively geared).

 

[Aaron_C]

Thanks Aaron,

When I first mentioned a trust to my accountant he just said "nah just buy in your own name, why complicate things?" His plan was for me to go out and buy a $1.5m Toorak McMansion (A small one for that price I guess and no doubt heavily negatively geared).

It depends on what you're buying but for investing large amounts of money, structures aren't such a bad idea.

 

[Property Hoarde]

When I was reading this I was thinking, what is your net income target?. You have a great number of options based on your figures but I think you need to start at the end and work back.

 

[Ed Barton]

Would like some asset protection in case of profession or future spouse problems.

It's very difficult to legally protect your assets from a spouse. Near impossible if kids are involved.

 

[drfuzzy]

When I was reading this I was thinking, what is your net income target?. You have a great number of options based on your figures but I think you need to start at the end and work back.

Good suggestion. Plan was to replace my salary with passive income. Salary is 180k. Shooting pretty high with that but I am young so have many years to do it in.

 

[drfuzzy]

It's very difficult to legally protect your assets from a spouse. Near impossible if kids are involved.

No kids. Gay. Have met a very nice potential partner but I tend to be a bit of a loner and shun the idea of living together right now.

 

[jingo]

For someone such as yourself with a good asset/equity base, I'd be inclined to forget resi altogether and jump straight into commercial. That may be direct or through property trusts etc. Resi has extremely high overheads. With commercial, its possible to have your tenant pay for most of these. Makes a great difference to your returns and the amount of properties you may need to accumulate to replace your income.

So, more like your option 2, except with a change in asset class. I'd be investing in a discretionary trust too, but make sure you are neutrally geared.

May be good to continue to hold your shares - could you transfer these to a trust?

If so, I'd establish a separate trust for your commercial property and a separate one for your shares.

Congrats by the way on achieving this level of assets by your mid 30's. If you don't mind me asking, have you saved your way to this level?

Regards Jason.

 

[Blacky]

You have clearly done well with what you are doing thus far.

Firstly I would close out your HL (provided there are minimal fees in doing so) and then re-borrow the $500k. The existing mortgage will not be tax deductible if you spend the $500k in the offset.

You now have $1.7mil available for investment + what ever leverage you can gain against the investment.

A commercial property at this level would be a viable option. A $3mil spend at 50% gearing could potentially be yielding $150k-200k net before tax.

Looking at resi - 20x 300k houses at 80% will leave some cash buffer. Returns will depend on what yield you can get, but overall you would be doing well to average 7% (though it is possible). However, your property holding would be circa $6mil (rather than $3mil with commercial). Meaning an average CG will double your increase (ceteris paribus).

Developments are an option.

Reno's are an option (which could be combined with the above?).

Or any combination of the above really.

What would I do? Probably a combination of commercial, and resi developments/renos.

As for asset protection. It is possible to SOMEWHAT protect what you have. It basically involves trusts and company structures. The more debt you have the easier it is (cos everything is mortgaged). Basically having several companies, all owning each other, pushing assets through a trust - which you are the sole beneficiary of, but not the trustee - though you are the director of the company which is, though you dont own the company - though you are the director and owner of the company which does own the other company...Confused? Excellent - problem solved

Another option is a pre-nup.

Good luck
Blacky

 

[drfuzzy]

For someone such as yourself with a good asset/equity base, I'd be inclined to forget resi altogether ....
Congrats by the way on achieving this level of assets by your mid 30's. If you don't mind me asking, have you saved your way to this level?

Regards Jason.

I have a good salaried professional career now 180k. But to answer your question 99 percent comes from casino tables. Im retired from gambling now though.

 

[Ed Barton]

No kids. Gay. Have met a very nice potential partner but I tend to be a bit of a loner and shun the idea of living together right now.

You're not the only gay in the village. With the rights we've won in the last couple of decades come responsibilities.

There's no reason you have to live together now or any-time in the future.

You can set up a pre nup (called something else in oz, financial agreement?), but it's not rock solid.

See a lawyer about this.

 

[Terry_w]

It is a bit late for the asset protection, but better late than never.

You have to think of 3 things that could possibly happen
1. Death
2. Bankrupty
3. Family law issues.

Death, make sure you have a valid and up to date will in place. Even if you have someone such as a lover could challenge your will under family provision. In NSW your trust assets can be at risk too. You have property in NSW so a claim could be brough here. But it would probably be unlikely this would happen.

Bankruptcy could occur and any trust set up could be attacked on several angles. Any gift to the trust could be clawed back, possibly indefinitely, but certainly within the first 4.5 years. The longer the gift before bankruptcy the stronger it will be.

You have to be careful with the terms of the trust and how it is set up. Also need to consider how you conduct things and run the trust.

You must also consider succession of the trust on death as these asset will not form part of your estate. I have seen control of the trust fall into the wrong hands after death. So make sure your trust contains a plan for succession. You also need to consider incapacity. If you were in a coma who would run the trust or control it. What if a court appoints someone? Have an enduring power of attorney set up too. Especially in relation to your SMSF. Consider succession of the trustee company too for both your trust and super. If someone controls the trustee they can wind up the trust and benefit themselves before you know it.

Family Court has extensive powers to make orders on third parties, such as trustees, to adjust ownership. Trusts generally won't help much if in a family law dispute. Trust assets can also be considered assets of the relationship and resources of the relationship and taken into account in any property settlement.

Also there is a recent case, Simpson I think, where an elderly couple had 2 children from previous marriages. They were separated due to illness, but the daughter of the wife/defacto, acting under a power of attorney used the separation to ask for a property settlement. The wife was in a nursing home or hospital. The marriage was still intact. The husband owned the house and the daughter of the wife would have missed out on a large inheritance if the mother died first. Husband was ordered to give the wife about $500k and this would have meant he had to sell the house which he still lived in. It went all the way to the high court on appeal and the husband won. but it just goes to show what can happen...

Just stay at home alone for maximum asset protection.

 

[Rolf Latham]

When I was reading this I was thinking, what is your net income target?. You have a great number of options based on your figures but I think you need to start at the end and work back.

this is good advice

It impossible to maximise your resources if you dont plan your Credit structure with fwd thinking, unless you buy one single asset, then the planning isnt as relevant


ta
rolf

 

[Truly Exotic]

there is so much talk about heterosexual divorces and how so many men get screwed upon divorce but I hear very little about gay divorce, but im curious (as in curiosity) if a gay couple adopt a child how would the divorce/custody/maintenance/asset split laws apply upon a divorce

 

[DaveM]

there is so much talk about heterosexual divorces and how so many men get screwed upon divorce but I hear very little about gay divorce, but im curious (as in curiosity) if a gay couple adopt a child how would the divorce/custody/maintenance/asset split laws apply upon a divorce

In the same way defacto couples can claim, since thats what gay couples are classed as, since they cant divorce due to Australia's head in the sand stance on gay marriage ala secular nation driven by religious conservatives ala WONT SOMEONE THINK OF THE CHILDREN?!@?

 

[Terry_w]

there is so much talk about heterosexual divorces and how so many men get screwed upon divorce but I hear very little about gay divorce, but im curious (as in curiosity) if a gay couple adopt a child how would the divorce/custody/maintenance/asset split laws apply upon a divorce

In Australia same sex couples cannot marry legally. So the defacto laws would have to apply. Same Family Law act, separate sections. Worded slightly different with some different consequences.

Maintenance would be the same I think. Each party would contribute and there would be a shared custody arrangement.

 

[Aaron Sice]

let's not get this thread off topic.

this is a lot of cash to invest and while i do not think a regular financial planner is the right path for this particular scenario; i would have thought

1) develop and hold, or
2) invest for cashflow (comm) or,
3) diversify across different states with different residential classes

might be a good option.

a lot of people want a lot of things to show for a lot of money, not so much to show off but a personal belief/requirement/upbringing - but i would hazard against buying 20 houses in different states because of the headache that would no doubt follow.

if i were you with that much cash to play with, i would start looking in the $3-4m comm bracket and get a good lawyer for the watertight lease - small enough to go under the radar of larger firms, big enough to be out of the mum'n'dad/SMSF 500k-$1.5m range.

 

[JennD]

No kids. Gay. Have met a very nice potential partner but I tend to be a bit of a loner and shun the idea of living together right now.

You can still be gay and have kids.

My partner and I keep all our assets separate, our accounts separate etc etc. Just makes life that much easier in the case of something happening. Good to have a verbal agreement ahead of time, but essentially, our investments are ours and we are clear on that.

If you're not intending to have kids, we're not as well, then it does make things a little simpler. Worth writing everything down and keeping copies, too. Sounds a bit clinical, but often the best way.

 

[LoneWolf]

I would speak to an financial planner about your scenario, whether speaking to someone on SS, or an independent professional.

Actually speak to a few of them, get a few options in mind, and decide for yourself... No one else cares about your money more than yourself.