Just realized I am a millionaire/ now what?

Hello all,

Thanks for taking the time to read my post. I am new to the forum, although I have looked in here occasionally year after year. I have read all of Jan’s books during the year, but have been to busy too implement the ideas to realy be able to say that I know what I am doing! But the time has come to set up some infrastructure and make my money work for me! It has all been trial and error and gut feeling up to now, and it has paid of pretty good. To make it as brief as possible, I will give some detail.

My husband and I have run a very successful business for the past 25 years, in the building and construction area. We are young 47 years olds.We want to take a year of to finish some projects, but also want to start our real estate portfolio in earnest, as a hobby, and also as a retirement strategy. The business will recommence after a year ( guaranteed) so cash flow after the “holiday” period will be taken care of. During this year, I want to be able to invest in some more property, to grab opportunity as it presents itself, and also to make the path for our changing lifestyle. We envision ourselves spending time in North Qld, Brisbane and the Gold Coast, at monthly intervals—our business will allow us to do this.
We have various loans for IP at present, with a lot of equity, but I guess over the years, I have not thought about how to structure these for maximum benefit. Our accountant is great at doing our tax, but is very conservative when it comes to property. Our bank manager loves us, and obtaining loans is no problem. However I have had to make up the game plan as I went along. We paid of our mortgage by the time we were 30 and all our IP’s have been built and held by us, over the years. Our strategy has been to build upmarket houses for ourselves, hold for 5-7 years and sell, and build medium range IP’s and hold. We have also built our own factory, from which we run our business, and which is currently also receiving rent from outside parties.
Current picture is as follows:’

PPOR- $490000.00 / mortgage free

IP1- $1000000.00 / owner built property ( built over 5 years
IO loan- $ 203000.00 / available excess loc of $116000.00 which has sat in the account ready for use for the past 3 years

IP2- $320000.0
PI loan $142223.00- / Repayments $730 P/fortnight
Rented at $260 p/w to family member ( should be $310)

IP3- $280000.00
IO loan- $130000.00 / Repayments at $770.00
Rented at $260.00 p/w self managed

IP4- $510000.00 / Repayments at $1076.00
IO loan $189525.00 Rented at $420.00 p/w Managed by rental firm

IP5- $420000.00
PI loan $108450.00 Commercial/ Repayments at $1900.00 p/m
Rented at $350 p/w as well as owner oc

IP6- $200000.00 vacant land/ Repayments $600.00 p/m
IO loan $74000.00

IP7 $500000.00 vacant land/ Future upmarket home to be built in 3 years/ Ocean frontage/ loan free

IP8 $150000.00- Marina Berth/ loan free
Rented at $100.00

IP9 $750000.00 Of the Plan Unit/ current resale value
IO loan $470000.00 loan not yet drawn/ expected late 2006

IP10- $500000.00 New purchase/ Unit at Gold Coast
IO loan $450000.00 used $45000.00 cash deposit, but do not know if this was the correct strategy. Contract being signed this week

Apart from this I have a share portfolio of about $80000.00 and super etc is all in place.
Last valuations were done 1 year ago. I keep reading about the importance of valuations and refinancing etc.
Should I be looking at doing this- getting yearly valuations?
Is it better to combine some of the loans, and if so, why?
Should I be able to use my equity to finance some more property, without having to worry about the shortfalls?- (we need to ensure a years holiday with limited cashflow . Even if we build a house and sell it in this year, the week to week cashflow incliding the shortfalls, is not going to let us eat) I feel that there are definitely some opportunities out there at present and do not want to wait until after the year break to start. Our business is run through a company,all of the IP’s are run through our partnership, but I have a trust in place which remains unused, as I don’t have a clue on how to use it for my investment portfolio!
I was going to sell our PPOR to pay out the commercial property and the IP1 loan of $203000.00, to free up some cash. This will then become our PPOR for 5 years. Is this a good idea?
I was also going to sell IP4 to free up cash to enable us to buy more property, but I don't realy want to this as the rent is great, and the loan is small in comparison to its value. Do I need to sell this or is there an other way?
Can anyone make some suggestions??
( and by the way-- all our properties are in Mackay/ some have doubled in value over the past 2 years. The growth here has been enormous!)

Without having read the details carefully enough, here are some things that came to my mind:

1. Combine loans - NO, avoid where possible
2. See if refinance is possible in preference to selling if the asset is going to grow further - this will allow you to draw down equity, however it will affect your cashflow.

Many people will be wishing they were in your position! :D


The Y-man
WOW, this should be an interesting thread.

Other than, WOW, I can't think of anything else to add at the moment.......

I wouldn't sell IP4, I would access the equity through another LOC. I wouldn't sell anything.

You have so much equity it is hard to say where to start. Because of this I think it is very important you come up with a plan and find an accountant that can help you invest.

Perhaps you should split your funds between property and shares (income producing).

You may need to look at investing outside Mackay to limit your exposure to the area.

Plan first!
Sorry Bianca, no advice for you, way out of my league! But quick one for Y-man, why do you recommend not combining loans, I currently have 3 IPs and 2 different loans, is it not more economical to combine them so all the equity can be used with one lender?

Cheers, Pete
Thanks Cheeks, any chance of a definition, I presume it is like investment diversification and not having all your eggs in one basket!? - I never was much good with big words!

Great stuff.

I'd be looking towards diversifying into other asset classes, more than the $80k in shares. I'd be putting a few hundred thousand into international shares, some hedged some unhedged.

First of all congratulations! That's an excellent portfolio and to have achieved that by 47 is an outstanding achievement. You deserve that year off! ;)

Having read your post my initial thoughts are that you are too heavy in property as an asset class and could do with some more investments in equities and maybe cash. (Just noticed Glebe beat me to this suggestion whilst I was typing it). As a Brisbanite I'd suggest doing Steve Navra's structure course. It would help you no end in getting the optimum balance between your asset categories to maximise your return and minimise your taxes.

Hi pete1000

I'm sure if you do a search you'll find loads of posts about cross-collateralisation, if not start a new post to discuss it as I think it will get quite long and I don't won’t to hijack this thread.
Nice to see some replies, thanks folks. I am still confused though. I will look up Steve Navra on the net and see what he has to offer--seems to be a lot of posts about him on here.
1-Accessing equity. How exactly do you access your equity?Do you just refinance some loans and then use the cash to invest in other areas?What advantage does this have over just getting an other loan, or is this strategy used to get access to the maximum amount of money at the lowest interest rate?Sorry if I sound like a dummy-- a lot of common sense and a lot of excellent gut feeling hasn't allowed me to learn the finer areas of investing.
2- managing that darned shortfall. Some people are talking about capitalizing the investment. I had thought of getting an other LOC in place to use for deposits and other costs, getting the rents placed into this LOC and the repayments to be drawn from this account.Then paying the shortfalls from an other account, and then repaying them immediately from the LOC.The LOC debt will obviously increase quite quickly this way,and I would be paying interest on my interest, but the capital growth should cover this in the long term( hopefully)Some of the property purchased this way would be sold to clear the LOC at some stage. Is this how other people do it? Or is this just dumb?
Is this capitalizing the investment debt? Any financial planners in here who can throw in some suggestions?

Hi Bianca
couple of things that need to be found out first.
structure that thes properties have been bought in.
IE self, company,with or without trust.
use of an investment accountant or not( I hope the answer to this is yes)
currently you are very equity heavy which is not unusual and know wonder the bank manager loves you.
of all 10 properties you have only one commercial.
commercial is a great mopper up of equity with the advantage of great return the banks hate it ( so you may remove the smile off the face of your bank manager but ha there bank managers and are supposed to look unhappy).
I won't bore you with regard to gaining access to equity and short fall as the above will address most of both of them.
look forward to you posting the above and if in sydney meet you at some time
Amazing stuff Bianca. Would love to hear more about your business.
Can't imagine how you have accumulated all that property without your accountant getting you up to gear on leverage and getting your holdings more evenly spread.

Seems your shortfall is the thing requiring attention first. Others here can offer better advice on technical structure. However, in the long term, you want to spread things around.

Below are my thoughts about opportunities to diversify. However, I haven't taken into consideration your need short term shortfall.

- international shares, especially US at this time, as the US have signalled their interest rates are continuing to go up. Many commentators are saying this will strengthen their dollar, up to 13%. This will come on top of any CGs and divs, though US shares aren't big on divs. You might also consider shares in UK equities too, to spread the risk. Some are saying Asian equities can only go up from here, but I don't know enough about them, and it all sounds too risky to me.

- Aussie stocks at an all time high, so if getting into them, maybe it might pay to wait for a pullback from these historical highs. From what I read, resources still have the most steam left. But get as much advice as you can.

- Managed funds might make it all a little easier to manage. Many here recommend Steve Navra's fund, but make sure you understand what dollar cost trading is first, and what might happen to the fund in a long bear market.

- And finally, I 'd recommend you get some property away from Mackay, even though I presume Mackay will be firing for the next decade with all the coal activity. Maybe more Gold Coast luxury high rise. the stuff that attracts OS interest. It might give you a bit of negative gearing relief.

- Have you thought of getting into child minding centres up there, if there's a need for it? I understand Mums in regional towns don't use them as much as city slickers. They generate good cash flows.

The other good long term investment, though progressively more hobbled by local council regs, are caravan parks, esp with long term sites for mobile homes. A lot of baby boomers won't have any choice then to retire to these. The Northern Territory might be easier regarding regulations.

The last thing I'd consider exploring is a Fernwood gym franchise. I understand a lot of miners park their families in Mackay and they live at the mines when working. I should imagine there are a lot of females who get a little bored and need a bit of social outlet. Fernwoods can do really well in these circumstances. Or you could always set up a local club in opposition to them :) Go the whole hog with the facials and beauty treatments....

Lots of options there for you though. How exciting...
Hi grossreal,

oops sorry, probably got your name wrong. Couldn't remember it when i went to reply :rolleyes:
structure?- partnership has purchased all the property so far.
investment accountant- nah-he is our business accountant and I don't ask him about my investment strategies anymore. He has been sceptical about having "huge" debts, and gets a bit cranky with me for being too blase! i still do all my cash books by hand, a major sore point on his behalf! :D Funny thing was that he actually ended up buying the block of land next door to ours, after seeing how much ours had increased in value.
I guess the main point I need addressed urgently though is whether i should be borrowing the entire amount for the newly purchased unit at the Gold Coast, and thus reclaiming my $45000.00 self funded deposit,( by accessing my equity)or if this was the best option with regard to my portfolio.I have to sign the loan this week..arghhhh, and I don't want to lose my chances of getting any more money as i have an other apartment in sight which i realy realy want to buy.Hence all the questions regarding LOC's and equity.
Thanks for taking an interest folks.

Hi "thefirstbruce"

I appreciate your response and ideas. a lot of food for thought. The Gold Coast apartment has already been done--last week!! :) The beauty franchise idea has already been played with!Great minds think alike. I have been studying shares in my spare time as well, but they continue to scare me, especially OS.Would you borrow against the equity to fund a bigger share portfolio? But then the repayments for that loan would add to the shortfall dilemna as well.

I realy need some way to fund the shortfalls whilst taking some time off,setting up some new businesses or building the next IP! Is that why you suggest shares, to get some dividend income and cashflow?
I have to admit, i am not totally ignorant of the negative gearing advantages- 25 years of setting up and running businesses ourselves has given me a pretty good business sense.But I feel as if I have hit a brick wall, which I need to jump over, either with more knowledge or help. So I will devour all these comments with great gusto!!

Hi all,

Bianca, congrats on what you have achieved.

I am of a different opinion to others (how unusual :rolleyes: ). You know property, have been involved with property for a long time , and have done very well from property. Stick to what you know.

Can I ask why you have recently bought property that will be cashflow negative when you are planning to take a year off?? You have heaps of free equity and will need cashflow, seems like a no brainer to me to sell a property that has a large gain, in the year you have off work (to reduce the CGT), pay off some of the other loans/or utilise the funds for whatever during the year.


My thoughts run along the same line as Bills. Sell your PPOR which will incurr no CGT, then pay off some of your loans (the ones with the highest interest rates), this should give you an extra $600-$700 per week in cashflow depending on your interest rate.
Please note that this does not take into consideration lost tax deductions on the investment loans you will pay off, so the 600-700 will be reduced depending on your tax rate.
But in any case you will have extra money to fund your year off.
Bianca, I'd agree with Pablo and Bill re liquidating something not earning cash. Seems to be the only logical choice to your immediate cash issues.

Regarding other cash flow opportunities, I understand there is still a shortage, and likely to be firm demand for a decade, for low maintenance rental accomodation in coal towns. esp Moura and Emerald. i.e. not houses, but townhouses or flats. Would seem worth considering for positive cash flow opportunities.
Hi Bianca.

Think I have a new hero in you. $5,120,000 in assets (approx) (incl. PPOR) and approx an LVR of 34%, great going.

Beyond me to try and advise, just wanted to say congratulations. Only suggestion I have is to seek out a few financial advisers and mortgage brokers and use the ones you feel comfortable with who may be able to structure your current and future set-up a bit more beneficial to you. You may want to consider another accountant who is more savvy to your way of thinking as well.

All the best, hope you keep posting here.