financial independence

Hello
We have a line of credit exclusively for investment purposes, what would you recommend as the best course of action for us bearing in mind our goal is financial independence in the shortest possible timeframe, (i am 56 my wife is 54). We consider financial independence for us to be $75K per annum.
Regards
Older Investor
 
Hi,

You should probably be talking to a financial adviser.

Forum members will advise you but will need more info.

What amount is in the LOC?
Do you have assets that you are you willing to use as security?

There are ways to get an income from your assets.
 
Hi B V
Thankyou for replying.
We have $288K in our LOC, all of which is available.
We have a property to put up as security if required
Regards
Older Investor
 
With 288K you could do heaps but I don't think you can retire on 75K in just a few years, unless you are willing to take huge risks.

Shares have been improving lately but they are more risky
and after seeing some big company collapses, I am hesitant in putting any significant funds into shares.

Property on the other hand if you invest in the right area
can be very secure but its long term.

Many people only buy negatively geared property
in the largest cities for high capital growth.
They also go for Houses rather than units because houses
have the least flactuation should property prices ease.

In 2003 when price increases started to slow down
we saw an increase of small developer activity (owner subdivisions and small groups of people developing together) and this is still active.
You could look at that option for greater returns if you wanted, but beware of projects that are in low demand/oversupplied areas.

288K in my books would secure me over 1 Mil of property
and with no need to develop or cross collaterise.

Demand for housing has eased in parts of Sydney as investors are getting a feel of the market.

I would only buy good quality property in median price areas with mostly owner occupiers or in areas that are about to be redeveloped, large roads, major shopping complexes etc.
I would avoid the high end market.

Looking at the property market closely, I see more quality property coming on the market each day.
I think its time for some tough negotiations.

Get in touch with one of our expert brokers (look in finance section) He will look at your situation and help you structure your loans in the most tax affective way, get your finances preapproved, check growth statistics, previous sales in the area etc.

Good luck
 
Hi Older Investor
Wow, that's a big ask!
I took a look at what sort of returns I give my investors currently (I do wraps) to see how it would look after 3 years, starting with $288,000.
For a straight 3 year investment of funds only, I would pay 15%.
So the figures year by year:
Start Year 1 $288,000 + 15% = $43,200
Start Year 2 $331,200 + 15% = $49,680
Start Year 3 $380,880 + 15% = $57,132
End year 3 - $438,012
Still at a return of 15%, this gives an income of $65,700 pa
However this doesn't allow for tax, so taking out 50% of the profit for tax, you end up with around $407k, and a potential income of $61k gross at 15%.
This is fun! I've never sat down and worked this stuff out before....
Anyway, I have other investors who become "money partners" (this is only my terminology) and in that scenario the return is around 20%pa and a share in the capital gain profit when the wrap buyer refinances. That's a bit tough to put a price on, because it depends on the number of deals done in the timeframe and the size of the backend, which varies. But let's be really conservative and say you can do 6 deals with backends of around $10,000 each (nice round numbers!).
Also, in this setup you are in for the life of the deal, which may be anything from 1-25 years, although will usually be 1-5 years. However, you may not be able to pull the lump sum at the end of 3 years. But I'll assume that all the deals are finished by then.
So the figures year by year:
Start Year 1 $288,000 + 20% = $57,600
Start Year 2 $345,600 + 20% = $69,120
Start Year 3 $414,720 + 20% = $82,944
End year 3 - $497,664 + 6 x $10k = $527,664
Invested at a return of 15%, this gives an annual income of $79,149.60
Again, this is without tax, so I'll take out 50% tax each year. This leaves a final total of $413,328 (includes $30k capital profit). At 15% this returns $62kpa income, at 20% it returns $82kpa income.
I only did this for a 3 year time frame, obviously you can extrapolate it out further to get exactly what you want from it. And naturally you can replace investing with a wrapper with other investments that return similar percentages.
Yes, it's broad, but hopefully it's given you some indication of what can be achieved fairly quickly.
Plus it's obvious that the less tax you pay, the quicker the results happen! This means it may be worth spending a couple of thousand dollars on a trust structure so that you can split the profits in a tax effective way.
Oops! Just realised - you will also need to deduct the cost of borrowing the money from your LOC, although this should then be claimed as a tax deduction, so will balance out... I think... it's early!!!
 
Hi Lissy
Thankyou for taking the time to do the number crunching for me.
Do i understand u to mean that I give u $288K and sit back and watch the money roll in??? Sounds too easy!!!
Something that might throw a spanner in the works is the fact that we currenttly have a negatively geared property which we were told was the quickest way to achieve what we wanted. Currently we are making up the shortfall from the LOC. The loan for that property is also $288K (coincidence). Interest is $20160/annum, rental income is $12480/annum, shortfall $7680/annum taken from LOC. Cost to us is $537/annum. Then all the other costs come out also, so the final cost would be around $700/annum.
Disregarding these figures for a moment, if we invested all the LOC with you, the interest payment on $288K @ 7% is $20160/annum or $1680/month. How would we service that.
We could manage the other loan.
I hope you can understand what I am trying to say, that is the situation as it stands at the moment
:confused:
Thanks again
Kind regards
Older investor
 
Hi Older Investor
The fact that you are borrowing the money (ie the LOC) to invest has a plus and a minus. The plus is that you can claim the interest costs as a tax deduction, which helps you reduce your tax at the end of the financial year.
The minus is that you need to be earning at least 7% before you break even on a month to month basis. Yes, with the tax deductions it's probably not as high, but your main issue is that you don't want to be finding more money out of your pocket every month, right? Particularly as you also have to cover your negatively geared property.
So in the end to make any progress at all, you need to be earning more than 7%, and the higher the return, the faster you'll build up enough money to live off in retirement.
But in the words of Paul Clitheroe (and he's not the only one!) the higher the return, the higher the risk. The reason I suggested investing with a wrapper was that although the returns are high (and you definitely need to do your due diligence on the wrapper!) it's basically secure. It's secured by property, and the returns are regular. From my perspective, I know that I have $xxx coming in each month from my wrap buyer, so I know I can service the debt to you. And sometimes I think my investors do better out of this than I do, because they don't have to do any of the work!!!!
I have done other things in the past where I've made some huge returns (ie options trading) but also mixed that up with some serious losses. Overall I did well, but the stress was enormous, and quite frankly I don't think I'd want to be doing that a couple of years before retirement with my nest egg....
so really, you need to work out how much money you need to generate the income you want, then work out what sort of return you need on your funds now to get there. Then it's a question of finding a vehicle that provides that return and allows you to sleep at night.
 
OLDER INVEST

Seems a big ask without being very active.

I have seen it done however..

But one would think you would need to trade properties many times over.
Also the areas need to be in the best CG zones or you lose time.
You can be retired & still trade properties. I know of many couples who how have been doing this for years with bigger results then your goals.

Whats the CG so far on your negartive geared Home??

If cap gain outlook IS not CLOSE TO 15% THIS YEAR one would may start from there?

Free opinions........ Many of those here
thats one of mine

ocean
 
Hi BV
I try to be flexible, but usually they require the FHOG plus something of their own. I aim for $10,000, but don't always quite get there!
I know Rick Otton says that if you're wrapping more expensive houses, then the deposit needs to go up accordingly.
 
Profit on wraps

HI Felicity
I spoke to you over the phone a while ago.
My husband and l are going to do our own wraps. Just a question on how much profit does one normally make on each wrap.
I was under the impression it was around $150.00 per week, but it only comes down to about $70. Not including the profit if they refinance.



Thanks Snez
 
Hi Snez
Yes, I remember chatting to you.
Asking how much profit one makes on a wrap is like asking how long a piece of string is - there are so many variables. Most important are the price of the house. the LVR you've borrowed, the interest rate you've borrowed at and onsold at, deposit you receive etc etc.
That's why I don't usually quote $x per week profit on deals, because it can vary so much. I prefer to look at the % return on cash invested.
Once I know how much money is going into a deal (say from an investor) and I know roughly how much profit needs to come out, then I can look at the numbers and see if I can make that house work.
If it doesn't, I don't buy it.
 
Profit on wraps

HI Felicity

I guess l was just a bit dissapointed when l worked out l was only getting $70 per week out of some wraps. After tax. But l haven't included the money the extra money that will come our way when they refinance.

Snez
 
Hi Snez
Maybe you need to speak to a fabulous accountant like Dale to minimise the amount of tax you need to pay... hehehe
 
From one to another ( older investor that is !!!)

I was 53 when we bought our first ip. It took me 18 months before I picked up on the fact I could create some sort of wealth through property. It started when I read an Ann Somers book. In the next 6 months I devoured everthing I could find to read.
We have since gone into overdrive to try and get what we can as quickly as possible. So ...my advice.
Read Ann Somers ..Marg. Lomas...Investment Property Mag.. and everything on this site.
At every corner ask questions. There is an amazing amount very smart people here who are happy to share everything they know.
If you have to go hard remember...you still need to sleep at night.
So...go get em son..and have fun as you do it...
elwyn.d
 
Hi Elwyn
Thanks for the advice. I too have been reading and listening and talking. Still getting the hang of this forum stuff. I'll find my way to the appropriate sections as I go
Regards
Older Investor
 
Something else to consider would be to have a chat to Steve Navra (www.navra.com.au) who is a wiz at coming up with stratregies for making the most of people's financial situations and has helped quite a few people on the forum to retire years before they thought they would be able to.
 
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