Lots of money - what to do with it?

H

HighFlyer529

Hello,

I am in the fortunate position of earning an income from my job that is approximately $110K gross per year and I also receive 2 personal cheques each year from a family member that total $400,000 per year and it will be ongoing.

I have invested a fair bit in my own primary residence and in shares and instead of just putting more and more into my share portfolio which is mostly blue chip stocks like banks, manufacturing, resources and retailing etc I am looking at diversifying into the property market and see negative gearing as a good way to draw down my income tax from my job and realise capital gains.
Since my job is a technical role and in no way does it have any form of business, investing or commerce element to it - I am a bit lost as to how to go about it.

I am hesitant about seeing a professional because (A) I don't know who is trustworthy these days and (B) will they act in my best interests.

I could just keep sinking the $400,000 each year I receive into shares and paying down my home loan which is 60% paid off, but I would like to diversify into the property market in Brisbane as this is where I live and I think its good to have an investment portfolio that contains both shares and property.

Could someone who is familiar with my situation or can understand how unique it is point me in the right direction as to what they would do if they in a financial situation like mine and also which investment agency in Brisbane would act in my best interests.

Regards

HighFlyer...
 
yeh well pay off the home loan of course. then I would buy $200k of bullion and each year allocate $200k to shares and also leverage on an income producing beach house and buy a new car.

$400k is a nice level of income in this country, especially net of tax!
 
HighFlyer529 said:
I am hesitant about seeing a professional because (A) I don't know who is trustworthy these days and (B) will they act in my best interests.
.
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You should get a few different opinions. No need to trust anyone unless you will be handing over money - which you shouldn't (other than consult fees). Just get some ideas and then investigate to learn more about the area of advice.

You have already made a mistake which is costing you money if you are putting the cash directly into shares. Why not pay the cash into the home loan and then borrow to buy the shares. overall same loan amounts, but this would have converted non deductible debt into deductible saving you thousands.
 
I do enjoy it. I go to the U.S. every year skiing and don't need a flash car like a Merc or BMW. I give about $15K away each year to Cancer Council and about $5K to the royal flying doctors. I live a fairly modest life for the income I receive and like to walk around in my crappy shorts and thongs so am unassuming and like to stay that way but not drawing unnecessary attention to myself.

My apartment was bought for $1.245 million and have about $500K left to pay on it.

I'm keen to pay of the loan but like to have a good cash reserve in the bank and don't want to just keep topping up my woollies and bank shares all the time.
Just been thinking about property and the return on investment through negative gearing in property Vs my average 7% return on shares through dividend payments.
 
HighFlyer529 said:
I could just keep sinking the $400,000 each year I receive into shares and paying down my home loan which is 60% paid off, but I would like to diversify into the property market in Brisbane as this is where I live and I think its good to have an investment portfolio that contains both shares and property.
Click to expand...

Why would you just diversify into the property market in Brisbane? You could leverage to buy some properties in Brisbane, but also use the services of buyers agents to buy in other cities. You can certainly also afford property management fees for properties interstate. You also could afford to look at doing small scale developments - splits or townhouses and the like - might want to stick with Brisbane and surrounds for that sort of thing.
 
in your circumstances I would like to add something tangible to society, like incubate a product, back a start up entrepreneur, something like that.
 
HighFlyer529 said:
Terry_w what do you mean by deductible debt when borrowing to by shares?? Vs just paying cash outright? How do I find out more about this?
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I would like you to stop and not do anything till you get up to speed with these basics, even if it means being in cash for 6-12 months whilst you do it. Or just pay your home loan off whilst you learn

Read these forums, book some hours with an accountant and get them to explain gearing, leverage, tax law etc, read books on investing
 
Terry has hit the nail big time. You're costing yourself a lot each year by not structuring what youre doing to maximise you returns. All the $400k should be going off the home loan, then reborrowed (separate facility for ease of accounting going forward) by reborrowing the funds you're creating a new purpose... If you use those funds for investing they would be tax deductible (and there you have 'debt recycling')
 
HighFlyer529 said:
Terry_w what do you mean by deductible debt when borrowing to by shares?? Vs just paying cash outright? How do I find out more about this?
Click to expand...

If you borrow to invest the interest is generally deductible. Interest on your home loan isn't.

As Ausprop says, basic stuff. I would advise not to do anything further until you understand the importance of this simple concept. And don't worry, most don't understand it.
 
Also with $400k per year coming in it is likely you will want to upgrade the principal place of residence or move interstate/overseas or etc.

To keep the option open of having current place as investment property later on you should be putting funds into offset account not directly into the loan. Reduces the interest but keeps the flexibility open for later.
 
A few scenarios spring to mind:

1. Live off the $110k from your job, allocating as much as you can afford from that into your current investment strategies.

Meanwhile, pretend the $400k doesn't exist and plow the entire amount into you PPoR loan.

Once the PPoR loan is gone; revisit more of stage 1 for further investing of it. Then talk to one of the very good MB's here on this site to discuss some strategies for buying some property with some of the funds.

2. Live off the $110k abd use to $400k to buy some property - try to structure it so that whatever you buy is CFP from day 1. This may involve buying 2 cheaper IP's and using most of the $400k cash as larger deposits to get the CFP.

Use the nett rent to pay down more of the PPoR loan.

3. Live off the $110k, put half the $400k into one cheaper IP, pay the CFP into the PPoR mortgage and the other half into more shares etc.

Keep repeating the above until the PPoR loan is paid out, then use the ongoing $400k to pay out existing loans and then live off the $400k and the rent/dividends from the investments.

After 10 years, buy a State of Australia....:D

Don't buy anything with the sole purpose to try and decrease your $110k tax - with your income and $400k; it's a non-issue, and it's a stupid strategy anyway; the idea with investing is to make money.
 
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