Managed Funds

[Toby]

Can anyone expand on how you can invest equity/LOC that is secured against IP's into managed funds to assist the shortfall on neg geared IP's?

Is this eg correct?

Access 100k Loc
Invest in managed funds at 10% return pa = 10k
meet IO 7.5% pa repayments on LOC = 7.5k
Walk away with 2.5k to assit in covering shortfall on neg geared IP's

Cheers

 

[twobobsworth]

Are you assuming the fund is going to pay a distribution of 10%???? If you're going on the rates funds advertise, it is a combination of income from the distributions and growth in the unit price.

 

[The Y-man]

Is this eg correct?

Pretty much. Just be careful as Twobobsworth says, that often performance is quoted as a combination of income and growth.

There are aslo tax implications/benefits depending on the type of fund (eg deferred tax, franking credits etc)

Cheers,

The Y-man

 

[Simon]

Can anyone expand on how you can invest equity/LOC that is secured against IP's into managed funds to assist the shortfall on neg geared IP's?

Is this eg correct?

Access 100k Loc
Invest in managed funds at 10% return pa = 10k
meet IO 7.5% pa repayments on LOC = 7.5k
Walk away with 2.5k to assit in covering shortfall on neg geared IP's

Cheers

Hypothetically such a plan might go something like this ... I am no adviser though so this is not advice - just idle chat.

Find a managed fund that focuses on income rather than growth. Frequency of payment is important. Monthly payments are ideal but quarterly is probably the best you will find.

Use your $100K LOC to open a margin loan. Draw $200K to buy units in the fund. This is a safer 50% LVR rather than using the max 70% usually available for a good fund.

Use the income from the fund to pay your interest bill. Might be something left over that you can reinvest.

Best of luck,

 

[twobobsworth]

Also a lot of the income derived from managed funds is from realised capital gains so unless you have losses to offset against them you'll be paying your fair share of CGT.

 

[The Y-man]

Just looking back on the income component only from the (income oriented) funds I use:

CFS Prop Sec: 11.99% pa avg for past 3yrs
DB RREEF: 11.75% pa avg for past 3yrs
Colliers Int Prop: 8.16% pa (1 year data only)
Navra:17.24% (05-06 FY), 9.57% (YTD 06-07 FY)
MQ Multi Strat Cap Prot #1: ~4% pa (1 year data only)
MQ EIFF: Yet to distribute

Cheers,

The Y-man

 

[buzzlightyear]

So how long does a bank usually require you to receive the income for it to take it into the account when calculating your serviceability?

 

[Toby]

Thanks for the feedback!

Can anyone recommend any reading on this topic?

The more I think about it the more questions I have.

Cheers

 

[twobobsworth]

All the PDS documents for the funds Y man has mentioned. There's a couple of books on managed funds at your library as well.