Just realized I am a millionaire/ now what?

[Mr. Fabulous]

Bianca,

My opinion is to not sell anything (why would you?) but instead using the equity to move into other assets that can provide an immediate cashflow. Not saying that anyone else's suggestions are incorrect, this is just what I would do personally.

Horses for courses and all of that sort of thing.

Mark.

 

[GreatPig]

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

I don't quite understand this "at an all time high" thing. The stock market has been rising on average for most of its life, so I'd assume that it has spent the majority of its time at an all time high.

And congratulations, Bianca. That's a wonderful achievement. I haven't seen investing in marina berths mentioned before

Cheers,
GP

 

[thefirstbruce]

GreatPig, on average everything has been rising in value. And it's fine to hold that thought if an indiscrete entry strategy is compensated by time in the market.

 

[redwing]

I can only add WOW

CONGRATULATIONS Bianca..Great effort with what you've done so far..

The only thingI can say is that If you want to 'kick it up a gear' you would need to acquire a Team to assist you. The best thing about this forum is the different levels of experience and knowledge within it's membership so all questions have varied responses..

Maybe you should be telling some of us how 'you' did it Personally I think you've done great..

 

[GreatPig]

if an indiscrete entry strategy is compensated by time in the market

So you're saying it's not so much that the market is at an all-time high, but that it's higher than its average increase rate would suggest it should be now - ie. it's overvalued?

In my experience, stocks you want to buy have a nasty habit of never returning to good value until just after you've bought them

Cheers,
GP

 

[thefirstbruce]

GP, I'll let BHP's chart for the last 12 months speak for itself.

Have you ever read in property investment books that you should buy equity?

 

[GreatPig]

I'll let BHP's chart for the last 12 months speak for itself

Well, BHP was just under $14 a year ago, which at the time was also an all-time high (at least for the data I've got back to 1997). The rate of increase since the previous May was about the same as the average since then, so it may well have looked overvalued even then.

However, it's currently over $21, meaning it's gone up more than 50% since then - a gain that would have been missed if the decision had been not to buy a year ago because the stock looked overvalued.

Cheers,
GP

[Disclaimer: this is just general comment, and not a suggestion that BHP is still a good buy]

 

[jimmy]

Investing in Coal Towns

Considering I live in a coal town (Blackwater in Qld) I thought I might chuck in my 2c worth regarding comments from thefirstbruce. Unless you're a believer in Kondratieff waves, a commodities supercycle and China I dare say you are a year or two late on the mining town investment idea. There are some unbelievable yields around at the moment (I know of a fairly average house being rented out on a long term lease for more than $700 pw in Blackwater at the moment) but it isn't necessarily a good investment idea if you still think coal mining is a cyclical industry (though I might add that I personally believe we are going to see a secular upswing in prices but that there will still be peaks and troughs).

However, there is one opportunity that might suit you perfectly bianca, considering you and your husband are builders. This is to take advantage of the fact that in nearly all Bowen Basin mining towns at the moment the replacement cost of housing is not much more than half of current valuations. There is ample opportunity to buy a block for $50k, spend $100k building and then onselling for near the $300k mark. This situation has arisen because of the huge demand for housing and the undersupply of builders. I was planning on doing this myself a year ago but the difficulty in sourcing a builder put paid to these plans.

Towns like Emerald and Biloela have experienced a surge in demand but because they are also farming towns and not pure coal plays I don't think the opportunity is as big. I would recommend towns such as Blackwater, Moura, Dysart, Moranbah, Middlemount, Glenden and possibly Collinsville and Nebo. No doubt there are many other towns Australia-wide that are presenting the same opportunity with the minerals boom (Kalgoorlie, Port Hedland, Hunter Valley, Mt Isa, Illawarra, Roxby Downs) but I can't vouch for these first hand.

This situation isn't too time-constrained at the moment because with the coal price negotiations that are starting/about to start we are looking at prices at least remaining steady out to April '07 but who knows where prices will head after this. An excellent strategy would be to build a number of properties in one go (economy of scale), sell some off so that you have got the remaining properties for free and then sit back while they return you an infinite IRR. That gives you virtually zero risk and leaves you open to the upside potential from the China/India story (the worst that can happen is you get windfall profits for a couple of years before rents get back to 'real' levels).

Feel free to contact me if you want to patent my ideas or you are a builder who wants to go into partership with me.............

Cheers,
Todd

 

[simonjulie]

I realy need some way to fund the shortfalls whilst taking some time off,setting up some new businesses or building the next IP!
cheers

Hi Bianca
IMHO,That is the key to sustain living off equity. Finding ways to fund shortfalls as they arise.
Your portfolio is in a regional area so your rents wood need to be strong because capital aprecation hits are usually some distance apart. The only other equity increaser in property is adding value through renovation or redevelopment.
With that in mind coupled with a solid finance structure you may be able to see a path through your current delema.
regards
Simon

 

[thefirstbruce]

There are some unbelievable yields around at the moment (I know of a fairly average house being rented out on a long term lease for more than $700 pw in Blackwater at the moment) but it isn't necessarily a good investment idea if you still think coal mining is a cyclical industry (though I might add that I personally believe we are going to see a secular upswing in prices but that there will still be peaks and troughs).

However, there is one opportunity that might suit you perfectly bianca, considering you and your husband are builders. This is to take advantage of the fact that in nearly all Bowen Basin mining towns at the moment the replacement cost of housing is not much more than half of current valuations. There is ample opportunity to buy a block for $50k, spend $100k building and then onselling for near the $300k mark. This situation has arisen because of the huge demand for housing and the undersupply of builders. I was planning on doing this myself a year ago but the difficulty in sourcing a builder put paid to these plans.

Todd, I agree with everything you say above, even the $700 a week yield on that house in Blackwater. Kathy Rehbein in Rocky mentioned it to me. THough the average is around $500 a week for a 3 bedder from my research.

BTW, I was implying to Bianca the opportunities aren't in the buying of finished product, but the creation of same.

Would be interested to hear more from you. The risks with many of these towns is that more product will be released downstream by the mining companies themselves, and that large sub divisions may eventually even supply and demand, and erode rents. I understand there is a large men's quarters going up in Blackwater. And much of the land in these towns is leasehold to the mining companies. The other risk is how much growth one might see in the next 10 years. THough I remain confident on coal exports.

But then, as you suggest, there's no risk if one builds and sells immediately...

Do you know what the latest is regarding the MacCarthur Coal coking plant at Stanwell outside Rocky?

 

[bianca]

Thank you all for your replies. I have printed them out and will read them in detail in front of the tellie tonight!! Feet up--its friday! Have to decipher the codes--IMHO- I WILL get it when my brain starts functioning again.
By the way- Moranbah house prices have gone throught the roof over the past 8 months. At the beginning of the year, land was still available for a reasonable price, but now it is the same as in Mackay. A lot of builders from here have taken up residence there to make their fortune.A year or less ago, you could buy a house there in the $250,000.00, and most of the people here went" argghh, who would EVER buy there". Now, $500,000.00 is quite a normal price, with rents over $600.00p/w. Gut feeling was there, but it takes a bit of courage to go and invest in a place where you would never want to live!! Mackay is getting the overflow from the mining activity in a big way. Rental vacancies are at an all time low, and are forecast to remain that way for some time. Miners are just coming in here and buying everything that is available. Sea Change has doubled land values in 1 year- yes-one year.We bought land in February this year which has appreciated by a mere 100% 7 months. I guess Gladstone and Agnes Waters are also doing just as well.
And marina berths are a FANTASTIC Investment, as there is only a limited supply. Plans are in place for the next stage of the harbour marina berth development, and I know people who have bought 4 withouth the blink of an eyelid.Makes it even better if you also buy a unit You can charge anywhere between $100-$180 a week rent, mostly cash, unless you go in the letting pool.

cheers

 

[thefirstbruce]

Bianca, yes the miners et al are buying everything that smells of salt air from Bowen to Gladstone. Was speaking with a developer friend this arvo who was developing stuff in Yepoon last year. The blocks with views there have put on almost 200%.

Regarding marina berths, I looked into them earlier this year in SE Qld, as there is a chronic shortage here, and the govt regs aren't helping new supply. A guy was trying to sell two 15 metre berths 30 mins north of Bris on Moreton Bay for $60k each. They were up for sale for some time. I went off them because the banks I spoke to wouldn't consider them security you can leverage off. i.e. they have no data on how to re-value them. However, I suppose if you are happy to exploit supply and demand disequilibrium, and pay cash, then you go girl...

 

[DD1]

awesome!!

Good work Bianca, others have said no dont sell, but you like I would sell one every now and again to lock in profit and move on.

We are currently buying 2 more in Tassie and selling one in Perth. Swings and roundabouts with a positive outcome. What works for you may or may not work for others, so have the "big hol" and have some fun.

Im achieving my goals by taking a little time out from time to time. I just went last mnth for a weeks diving on the Barrier Reef, and last week started flying lessons. Lesson three is tomorrow.

Work hard then enjoy it, and dont stop smiling. It gets better the more you play with houses like its monopoly.

Great effort

DD1

 

[jimmy]

Ok,

We've all been impressed by bianca's (and hubby's) achievements. And a few have made some good suggestions. But before we put the thread to bed let me have a crack at putting it all together. Like most of this forum's members I am not PS146 compliant and it is therefore illegal for me to give specific financial advice. It is not my intention to give advice (specific or otherwise), and I don't know if I have sufficient information to do so even if I wanted, however, here are a few ideas that might generate further discussion and/or give bianca something to help her decision-making. A few suggestions have already been made but I will repeat them because I think they were worthwhile/good in the interests of trying to put it all together.

1. Do you need a financial adviser as has been suggested by some? You are obviously taking an active interest in your investments with a fair amount of success thus far and don't seem to be short of investment ideas. So where is the need to introduce a third party who at best spends only spends a portion of his/her time focussed on your interests and at worst has interests that are not aligned with your own.

2. Seeking the advice of a new accountant (even if you still retain your current accountant for tax returns) sounds like it would be invaluable. This would help you sort out the questions you have about how to best structure your investments and make best use of the trust structure you have already set up. In this case there might be some big tax savings just by fine-tuning structures. Dale Gatherum-Goss and Nick Moustakus (I've probably spelt it wrong but should be close phonetically) are a couple of individuals involved with this forum who are very experienced in this area and whom I have heard nothing but good reports about. As mentioned by ani, Julia Hartman is another recommended accountant who might be more convenient for you.

3. I don't see the need for revaluations of your properties. You don't appear to be very highly leveraged so until you start having LVR problems with the bank when trying to obtain loans, I would see any revaluations at all as a waste of money.

4. I see no need to consolidate loans. As you say, you're a great client for the bank to have, so I think it would be a good idea to use your good reputation to your advantage and push for lower rates by playing the banks off against each other. Keeps your options open.

5. If you have plans to sell any properties in the medium term, as mentioned by other forumites, a year of lower income (assuming this year you are below the top rate) would be a perfect opportunity to sell and pay less CGT than you would in any other years. If you are going to pay extra money off any properties make sure you do it off any potential future PPOR or currently non-income producing properties for the obvious tax benefits. MAKE SURE YOU SERIOUSLY CONSIDER THE TAXATION CONSIDERATIONS IF YOU ARE PLANNING ON PAYING OFF NON-TAX DEDUCTIBLE DEBT BEFORE TAX DEDUCTIBLE DEBT (you mentioned plans to pay off debt on an IP and the commercial property). An accountant would be able to give you specific advice on what to do with regards to this situation. As to whether you sell your PPOR and move that is more of a personal rather than financial decision (though why put yourself through the hassle of moving everything unless the new house would be a nicer place to live?).

6. I don't understand how cashflow is a problem, you might need to give me some more detail. Looking at your low level of leverage, how could you not be generating positive cashflow? Having originally built these houses new yourself, there should still be some very good tax deductions for depreciation. Have you enlisted the services of a quantity surveyor to make sure you are maximising these deductions (and therefore increase after-tax cashflow)? Combined with your business income (which I assume should continue, although possibly reduced without active involvement) you shouldn't really have any cashflow problems. If you are talking about having a shortfall because you are planning on using cashflow for future deposits for other businesses/investments can you not use the excess equity you have for this? If you still have cashflow shortages for reasons I have overlooked, then it should simply be a matter of getting a LOC loan on your PPOR to get you through the "holiday" year, or looking at the opportunity to reduce loan repayments where possible. Due to your low level of leverage there should be no reason to sell any of your properties for cashflow reasons, especially if you don't want to - you just need to access the equity you have built up. No doubt your bank manager would be more than happy to help you do this.

7. IMHO is "in my honest opinion" in case you are still pondering.

8. Great story bianca. You've definitely been well-placed to take advantage of the upswing in Mackay. The only thing you might want to consider is diversification (both in geographical location and asset classes), although make sure you are comfortable before you start getting too heavily into any one area.

thefirstbruce,
I'll start another thread with regards to the coal mining town thing rather than hijack this much more interesting story. I notice that Moranbah real estate made the front page of the Courier Mail yesterday. I won't do it right now but in the next few days when I have more time - after spending around 14 hours in the car over the weekend I definitely need my beauty sleep.

Finally, let me reaffirm that my intention is just to generate some discussion and mention a few ideas that will give bianca some food for thought in making some important upcoming decisions. It is not advice.


Cheers,
Todd

 

[Les]

and again, WOW !!!

G'day Bianca,

What an impressive story !!!! You and hubby should be able to take your "year off" with no probs. HOW??? Well, I'm not yet smart enough to answer that. But I know there are those out there that can.

There have been several names mentioned that I know - and any one of them may be the "key". You seem to have Equity in spades - and my broker (Rolf Latham) has often quoted "If you have Equity, DSR is not a problem"

So maybe now is the time to "give up" a small part of your Equity to "buy" that year off. You seem to be in great shape to do just that (from my point of view - i.e. NOT yet where you are at...)

Your answer is "out there" - whether it be via an Annuity, or by selling, or purchasing cf+, or Overseas hedge funds, or borrowing to buy shares, or .......... Wish I could help more, but you are WAY above my league.

Good luck with your search - and enjoy your "year off" - you are an inspiration,

Regards,