Mum & Dad 8 yrs to retirement - Buy 2 IPS ?

Hi

My parents plan to retire in around 7 or 8 years.

They have 2 properties. Their PPOR and 1 IP. LVR is 20%

They dont have any other debt. Dad has been salary sacrificing into super. Mum has some company shares and super.

Mum and Dad both working and are on $70 K pa & $60 K pa

I've been trying to encourage mum to buy an ip. She is not sure if she has enough time to buy seeing that she is only working for another 7 or 8 years.

I think with their equity they would be able to put down a couple of deposits on 2 ips and would be able to fund the repayments from her own job or capitalising the interest via line of credit. This way also if one of them decides to retire sooner or gets sick they would be ok cos their line of cedit is being used to make the repayments.

I believe they have a great opportunity to do something and that it is not too late for them! Im trying to convince mum.

I think its a possibility that they could buy two $350 K villas.

Mum is not sure of the exit strategy though. I know there has been other similar posts here in the past about oldies buying and I will search but I was hoping to get some individual advice.

I suggested that she goes IO with all loans. Buy 2 ips, then in 8 years time perhaps sell 1 to pay off the other 3. They would live in one as their ppor and the other 2 rentals that would be unencumbered will help to supplement their super.
 
Kim

Because they are so close to retirement it's possible that they could gear their super money buy a couple of properties with it.

It's hard to know what's best for them
It really depends on their age and circumstances.

Where are you thinking of buying?
What are the rents like there?
 
thats a short investment horizon for property related investment and close to shortish for a growth based strategy in shares.

have they been to see a planner ?

Once the risks are "known" it will be much easaier for them to make the decision, and to derive an exit strategy


ta
rolf
 
I wouldn't know where to find a planner

I was thinking of making an appointment to see the accountant. Maybe they can help explain things to her and help guide them.

Just spoke to mum about that super idea but she says it sounds risky.
 
Personally I wouldn't touch the super either.

There was an article in either Australian Property Investor of Your Investment property about eight months ago that profiled a lady who didn't get into property until her mid-50s and has been pretty successful over a period of five years. Perhaps did out a copy of that and give it to them to read.

IMO you can do everything you can think of, but unless you get them enthusiastic about the idea it will be too risky. They will make mistakes. I think you're better off taking the subtle approach in giving them articles profiling people they can relate to - similar age group etc. and seeing that success may breed enthusiasm.

The desire is the same - to help your parents lock away a better retirement deal using property as a vehicle. But you're better to put them in a situation to learn how its benefited people in their shoes, rather than just trying to push and push, because the harder you push, the more they'll resist. It will also kill off the 'oh Kimmy, darling, you wouldn't understand what it's like for people our age dear' argument. :)

Cheers
Greg
 
There's a lot of advantages with super. Maybe your mum should consider salary sacraficing into super to if they can afford it.

I would only look into property only after they have used the full beneifits of super sacarfice. On 70k and 60k and assuming they are over 50 I doubt it. They can put 50k each on it.

The beauty of super is that they can get there money tax free once they hit 60. If one is on a pension, all the income that they earn in the super fund is tax free.

I think your parents are right to be wary of going into the property market with an 8 year time frame. They already have an IP. I think they are better off putting as much money as possible into super.

How would your parents fund the mortages once they have retired? Would they have to sell a property? What happens if the property doesn't nearly double in value in 10 years? Even if it did double, they will have to pay tax on the income on the new IP as well as the IP they already have. I'm assuming to pay the mortgages your dad would have to stop salary sacrificing into super.

Property is one of many investments strategies. If your mother can afford it I would be encouraging your mother to salary sacarfice into super. The tax advantages are just too attractive. Further the share market as a whole does grow at a similar rate as property. Further if they can get a self managed super fund and have assets in shares, once your parents are in pension mode, they will get a huge tax refund from the franking credits. Even before they are in pension mode the tax refunds are still high as the super tax rate is only 15% while the franking credits are 30% of income.
 
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Just spoke to mum about that super idea but she says it sounds risky.

only because she doesn't know about the possibilities.
The biggest advantage of owning a property in a SMSF is that after their 60th birthday capital gains is free of tax.

I thing they need to be talking to a professional

Also, assuming they are 57 years old I'd salary sacrifice into super as much as possible.
I then would use a small amount of my super as a deposit for a property or 2 in a SMSF and the rest I'd invest in shares.

Like our friend "pickle pickle" said, the franking credits are too good to ignore
A large amount of their super is already invested in shares anyway, so it's not that they'll be doing anything different.
 
To have a self managed super fund I would say one needs at least $200,000 in super before it's worth it (maybe more). If one has less than $200,000 than the cost of maintaining the self managed super fund is just too great.

Your parents have some property. As long as they put as much as pooosible into super and pay off the debt on the properties they should have a comfortable reteriment.

Assume they have all the PPOR paid off. The IP is paid off. They get $10,000k a year from rent from IP 1. (even at $20k of rent no tax on income) and if they get $20k a year from super (tax free). At $30k a year with no mortage (and no income tax) they can have a comfortable reteriment. They probably will be earning more than $30k a year in reteriment though from facts given.
 
If one has less than $200,000 than the cost of maintaining the self managed super fund is just too great.

Not really, My SMSF accounting fees are a bit over $1K a year so they are not more than the fees I was paying to Australia super.
I also bought a $323K property and used $105K of my super money for the deposit n legals so it's doable with less than $200K
Have a read if you've got the time
http://www.somersoft.com/forums/showthread.php?p=569533#post569533
 
Intersting. Does work if one is working and can salary sacarfice. But what happens if one retires? One need the income to live off. Where is the income?

Further what happens if there is no rental income for a couple of months when one retires? How is the mortgage paid?

If one is young, greater risks can be taken. But if one is nearly retired, why have the heartache of the risks.

I can't see someone paying off two mortgages at 700k on $130K a year in less than 10 years.

Once you are retired, one shouldn't have too much debt (if any). Yours is a good stragey if young but at nearly retirenment age, I wouldn't be getting into too much debt so one has debt at retirement.
 
Intersting.
Once you are retired, one shouldn't have too much debt (if any). Yours is a good stragey if young but at nearly retirenment age, I wouldn't be getting into too much debt so one has debt at retirement.

I agree, you shouldn't have debt in retirement but my point is that we should try to gear our money before retirement and accelerate or wealth.

For me it works, I estimate that the property I've just bought will have at least doubled in value in 10 years time and the loan will have been paid off using the rent plus my employer's contributions. So in the end I'll have an asset worth at least $650K and paying me at least $550/w in rent.

In comparison to leaving that $105K in a balanced fund and assuming that's increasing by 8% plus added by 9% employer contributions for the next 10 years time it would have only come to $350K

Ofcourse if my calculations or the timing are out a bit I won't lose any sleep over it because SMSF property is only 1 part of my retirement plan.
 
Some more info dad is 65. he might only have 3-5 years left of work. Mum says she will work for another 7 years but at 80%.


Interesting discussion

I agree about the great tax benefits of salary sacrificing into super pickle pickle. Dad has been doing that I think. I think half of his pay is salary sacrificed and thats been happening for a couple of years.

I agree with BV though in that if you buy a property using a SMSF then you have the ability to gear.

I need to find out more about buying a property using a SMSF.

If I can explain to mum how it works and go to see an advisor that specialises in this type of investment then she and dad can decide what is best.


If they dont gear into a property I agree that the next best thing would be straight out salary sacrificing as much as they can afford to from their pays each fortnight.


I think they may have left their run about 2 or 3 years too late. I dunno


Anyway I think when they retire I think they should be ok for a while, but at some point i think they will struggle and run out of money. By then in about 20 years time I will be in a position to help them out financially.

They'll be ok :)


thanks
 
I've just been thinking about this some more and I'm thinking maybe property isnt the best option for my parents emotionally. Mum said a few things that got me thinking.

A few things mum talked about:

They got burned about 10 or 15 years ago buying a property and its scarred them. It has frightened them.


They have always been taught to pay down their debts, not to owe to the bank


She doesnt like being in debt. Dad is the same

Dad likes to see the debt going down.

Dad has been very happy salary sacrficing into his super

Their SANF is very important. I think they would be worrying about being in debt.

Dad is getting on, he is not in the best of health
(obese, smokes, mentally not well)


I think the best plan of action for them is to continue to salary sacrifice into super and hold onto their investment property. When they retire they can pay down their loan on the ppor and ip out of some of their super.

I'm wandering if it would be an idea for them to go IO on their PPOR so that they can salary sacrifice more into the super. Then when they retire they can pay it down.
 
only because she doesn't know about the possibilities.
The biggest advantage of owning a property in a SMSF is that after their 60th birthday capital gains is free of tax.

I thing they need to be talking to a professional


I think its a good idea to talk to a pro?

Would an accountant be a good person to talk to?

At least then she will have all the facts and then can make a decision. I said I can go along with them. I wont be pushing anything though. I'll listen and see how they feel about things.
 
I think its a good idea to talk to a pro?
I'm sure it will be money well spent but considering your dad's age a SMSF probably won't be something he should be looking at.

Would an accountant be a good person to talk to?
It depends on who the accountant is and what he specialises in.
I'd start with an accountant but there is a lot of information online
Do a search in google for transition to retirement
 
To have a self managed super fund I would say one needs at least $200,000 in super before it's worth it (maybe more). If one has less than $200,000 than the cost of maintaining the self managed super fund is just too great.

I would say you are wrong. BV has already mentioned he has set one up with $105k in super; I have about $100k in super and I'm setting one up right now. Mind you, I just turned 30 so time is on my side.

I would tell anyone who's considering setting up a SMSF (and Kim5 - your parents might very well be in this category) to do the sums, check with your accountant and financial planner and then do the sums again.
 
hi all
a very interesting thread
I am in the middle of a chatting with groups that setup smsfs for investing into presales in developments.
and know you don't need to have 200k in super to do this.
you can do it alot less depending on who or how you do it.
it is better the more that you have to invest but by buying in thru the construction stage you get the benefit of part ownership in the profit margin of the project.
there is lots of things that needed to be checked and thats the normal due diligence.
if you were to invest and do one a year this way then as you get to the 60th date you can start to sell down.
if the deal is structure and most of mine are.
then the accountants can make the smsf work
if you pm me I can send you an accountant in your area that can chat about smsf
I don't get involved in the setup as that up to others but investing via smsf is very interesting and you can have some very interesting smsf structures
I am not sure about the risky side of smsf investing its no more risky then amp or shares you do have to know what you want to invest in and thats why you need to have an accountant run it
yes you can run it yourself but for me its better to have them run it to make it conform.
2 ips in 8 years via smsf
8 in 8 yrs would be the number I would aim at 1 per year and neutral each time brand new
 
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