Retirement plan

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From: Nic Hutty


Hi Everyone,
Can't tell you how much I love this forum.
I am a Newbie and have a question for a friend who is in desperate need of a retirement plan and I suggested IP could be one option for him.
Rich is 50 and has a low paid job, possibly $26,000/year. I am not sure if his young wife works or not. He owns his own home worth ~$270 000. How many properties do you think he may be able to buy? Will he have enough time to get things going before retirement? I think he should.
Any more info required?
Hutty
 
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Reply: 1
From: Mike .


Hi Nic,

If you're suggesting Rich purchase IP's using equity from his home to get bank loans, will the banks agree given that Rich is not too far away from retirement?

The other problem I have with your idea is that Rich's home will be encumbered if the equity is used for deposits on IP's. He won't be able to sell his home and he'll be stuck in it until he can remove the encumbrance through refinancing, which could take years.

Look for an idea that is a little more flexible given Rich's circumstances.

Regards, Mike
 
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Reply: 1.1
From: Jeanette .


My brother is in his 50s and I know that the Bank looked at how much superannuation he was due to get when he retired. So I think if you have a decent sized super coming your way, the Bank will take this into consideration favorably and lend you money even though it is late in your working life.
 
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Reply: 1.1.1
From: Rolf Latham


Hi Jeanette

Most banks do have "ageist" policies. Obviously these are unwritten and disguised as protecting the borrower under the consumer credit code. Such disrimination is illegal.

There are major lenders that do NOT assume that your "earning" life comes to an end at age 65.

I have clients in their early 50s that have been pushed into very high repayments because of the banks "protective" policies.

A good broker will be able to sort this one out easily.

Ta

Rolf
 
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Reply: 1.2
From: Nic Hutty


Mike,
Could Rich use a line of credit account to get the deposits for one or a few investment properties and then finance and secure the loans at a high LVR to each individual property? Possibly when the loan has come through he can use any leftover money to pay back the line of credit loan?
Any ideas on this one?
Hutty
 
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Reply: 1.2.1
From: Mike .


Hi Nic,

What you're suggesting is possible since other forum members have used this strategy. My feeling is that using credit will worsen the DSR (Debt Service Ratio) and hence the borrowing capacity. Perhaps Rolf could comment on this. If I'm mistaken then go ahead. The next step is to work out what type of properties would best fit Rich's retirement plan. Any suggestions, anyone?

Regards, Mike
 
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Reply: 1.2.1.1
From: Rolf Latham


Mike and Nic

Without "knowing" the client from a detailed financial, risk and emotion assessment criteria I would not necc even agree that going into any IP structure is appropriate.

A lot depends on "investment horizons" (how long till retirement) what sort and make up of super, what risks the client is willing to take etc.

As general advice, yes Mike the DSR obviously increases if one uses borrowed $ to fund deposits and costs. If the serviceability is ok then does not matter from borrowing point of view.

The upside is if your investment performs well in growth terms, then your Return on your own $ will be greater, because there is less of your own money. On the downside, if you stuff it up, the loss will also be greater, because you have lost more of someone elses money.

We must always remember that "gearing" amplifies returns, but equally gearing also amplifies losses.

Nic, would really require much more info th provide relevant help. Email me if you wish.

regards

Rolf
 
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