What should we do with $1M

[wylie]

My brother and I control a family trust. We have access to around $1M ($600K loan funds - ready to go, and $400K cash in the bank).

The easiest thing to do is to do nothing, don't draw down the loan and leave the cash there... and perhaps in this world climate, that is the best advice, but I'm curious to know what others think?

We are wondering if we should buy two houses in our area, run-down and able to be improved, hold them as rentals for a year and look at our situation again, or possibly three rentals further out with the same plan.

Perhaps the return from rent on two houses is less than the return from the cash and it means we are not paying interest on the loan.

We could look at some type of commercial but neither of us know anything about commercial and we don't want to take on something that turns out to be a bad decision, sits empty or loses money due to our ignorance and/or bad choice of property.

We are both very comfortable with residential IPs but the market is such that we just don't know whether to just do nothing until we see where the market/economy/worldwide situation is headed.

I recall times where the residential market was moving so quickly that it was hard to buy in and each month it was more expensive. I don't think there is that risk now but I'd hate to sit on the money and wish we had bought something.

Perhaps we are better to keep the cash portion in a high interest account.

We are in a good position to jump on a bargain, add value by renovating (much of it can be done by us) and this is the path I am inclined to favour.

We could buy shares, bonds, not sure what else?

I'm keen to hear what others would do with $1M in the current climate?

 

[chrispy]

I am in the same situation..currently letting the interest accrue but in a perfect position when the bargain turns up

Chris

 

[wylie]

I am in the same situation..currently letting the interest accrue but in a perfect position when the bargain turns up

Chris

Thanks Chris.

I figure that if we buy one house to do up (possibly followed by a second when the first is sorted out and rented), we would need to do better from the rental income less expenses than if we leave the money invested.

I've never been so wary before, probably because it is not "my" money.

If $500K is earning 5% in the bank (not sure what rate is currently) that comes to $480 per week interest. If we spend $500K on a house in our area (including s/d and reno), we would not get $480 per week rent.

We would be relying on house prices rising to make the deal attractive, and right now, that is not happening here.

It makes leaving it in the bank look the safest option, unless we can snag a real bargain. Would you agree? Or are my figures out?

 

[Player]

Capital preservation

Thanks Chris.

I figure that if we buy one house to do up (possibly followed by a second when the first is sorted out and rented), we would need to do better from the rental income less expenses than if we leave the money invested.

I've never been so wary before, probably because it is not "my" money.

If $500K is earning 5% in the bank (not sure what rate is currently) that comes to $480 per week interest. If we spend $500K on a house in our area (including s/d and reno), we would not get $480 per week rent.

We would be relying on house prices rising to make the deal attractive, and right now, that is not happening here.

It makes leaving it in the bank look the safest option, unless we can snag a real bargain. Would you agree? Or are my figures out?

Same position and it's not a bad position to be in. Capital preservation is the name of the game for us right now.

Currently setting up another new trust and corporate trustee to be ready to rock 'n' roll when the right thing comes along especially if it's in Qld or NSW where and/or nominee cannot be used without incurring stamp duty twice.

For us 6 % at call with a couple of banks (net) is OK for now. Looking, researching and refining the target areas and asset type, but in no rush whatsoever. I don't see cash as a long term position, however for us it is the right thing to be in at the moment. This will not suit everyone of course however we do haave a decent asset base already. Not going to buy any old thing just for the sake of it.

 

[Dazz]

If $500K is earning 5% in the bank (not sure what rate is currently) that comes to $480 per week interest. If we spend $500K on a house in our area (including s/d and reno), we would not get $480 per week rent.

Hi Wylie,


This would have to be better than money in the Bank....you would get $ 1,450 per week, and have to spend nothing on reno's, and do nothing.


The CBA have been there since the 80's and guaranteed to be there 'til 2015.


http://www.realcommercial.com.au/property-retail-qld-banyo-5893631

 

[Ed Barton]

We would be relying on house prices rising to make the deal attractive, and right now, that is not happening here.

you've answered your own question.

if you can get a genuine bargain in the current bris climate then go for it. but you will have to offer on many before you get the bargain. be prepared for lots of no's before you get a yes.

 

[cu@thetop]

Currently setting up another new trust and corporate trustee to be ready to rock 'n' roll when the right thing comes along especially if it's in Qld or NSW where and/or nominee cannot be used without incurring stamp duty twice.

http://www.osr.qld.gov.au/legislation-rulings/public-rulings/duties/da022-1.shtml

Wanna bet?

 

[INVSTOR]

maybe you're looking in the wrong area. My computer is dead so I don't have excel to play with at the moment. I'd like to go commercial too and get great returns but like you, not ready. Resi, I've found a place for around $650,000 inc all purchase costs, expenses approx $5000/yr, rent approx $800/wk. Interest rate 6.33 fixed 2 years. Another property - $370,000 Rent $600/wk, expenses about $2500/yr. Another property - purchase about $850,000. Subdividable - new Block worth about $400,000. (neg geared while subdividing) Another property - Asking price $500,000 when another house nearby has sold for around $700,000 nearby. Not sure if it's because agent of cheaper property doesn't realise zoning has changed, or fluke other property sold because marketed better or what?? haven't researched enough. I was planning on going back to work to improve cashflow/lessen risks but my circumstances have changed so I'm not sure if I'll purchase any of my researched properties until next year. I think there is lots of opportunities around at the moment though.

 

[Player]

http://www.osr.qld.gov.au/legislation-rulings/public-rulings/duties/da022-1.shtml

Wanna bet?

Thanks CU.

Am I correct in reading this that the agent (a person) can enter the contract on behalf of the principal (with a written agreement) however the principal must provide the deposit monies?

My statement in the earlier post relates to a trust that is not in existence at the time of signing hence not providing the deposit. It will reimburse the original person (agent) signing the contract and provide closing and balance costs, however if was not in existence in the first instance, then won't this attract another stamp duty?

Don't wish to stray the intent of the thread, however would appreciate your clarification for a simple non-legal fella.

 

[Aaron_C]

How do you have a loan of $600k if you don't have a property to lend against?

 

[INVSTOR]

Hi Wylie,


This would have to be better than money in the Bank....you would get $ 1,450 per week, and have to spend nothing on reno's, and do nothing.


The CBA have been there since the 80's and guaranteed to be there 'til 2015.


http://www.realcommercial.com.au/property-retail-qld-banyo-5893631

Nice!!!!!!

 

[RumpledElf]

Build a block of 3-4 3br single storey units in <insert area here where that's a good idea>?

That's what I'd do, but I can't think of any places offhand I'd want to do that - certainly not any of the areas I regularly drive through so that would be a big research project first. I still want to build myself an attached duplex locally but that is SO not a 1M project

 

[pennyk]

Dazz's suggestion looks good.

I would tend towards buying something, rather than keeping the money in the bank, assuming that you have a longer term horizon for needing to see a return on the money.
I think there are lots of good buying opportunities at the moment, and they may not go up in value in the next 2-3 years, but you could position yourself nicely for the next upswing.
But I'd be wanting to buy something that you maybe wouldnt have been able to afford in the good times, where you know the capital willcome eventually. So, well established suburbs, larger blocks with subdivision potential... that type of thing.

but that is all assuming you have time to wait for growth....

 

[kathryn d]

With $1mil I could easlily buy 10-25 properties which would return me $9k-$16,500 a month in rent...of course in my home town in canada.

We do have an 11 unit apartment building we will sell you for a $1 mil. It returns $91K rent per year, with full occupancy. We usually have 5-7 % vacancy. It has a set of live in supers to care for the property.
We will even continue to manage the supers, free of charge, for 20 years.

Let us know if you are interested.

 

[Bullfrog]

We should we do with $1M

Give it to me!!!!

Bullfrog

 

[chrispy]

At least the interest rate is greater than inflation for once!!!

I am looking for properties below replacement value. There are a few good ones in Cairns but the vacancy rate is too high.

Clearance rate at auctions this week in Melbourne was down to 54%.

No rush...

Chris

 

[jingo]

Hi Wylie,


This would have to be better than money in the Bank....you would get $ 1,450 per week, and have to spend nothing on reno's, and do nothing.


The CBA have been there since the 80's and guaranteed to be there 'til 2015.


http://www.realcommercial.com.au/property-retail-qld-banyo-5893631

Good find, Dazz.

Could be a nice entry into commercial property.

Regards Jason.

 

[wylie]

Thanks Dazz. That sort of deal is food for thought. I like the weekly rent for the outlay. I like the idea of not having to worry about it. I like the idea of not having to paint it

Do you (or anybody else) know what the CBA bank in Holland Park sold for several months back? I remember it was discussed on SS and wasn't considered (by some) to be a good buy, but I cannot remember why.

On the CBA listing I notice the outgoings are -

Outgoings per annum
Rates: $1 450.00
Water: $ 950.00
Insurance: $2 500.00

... so I assume this is one of the commercial properties mentioned in another thread where the costs are paid by the owner and not the lessee.

Is this usual or, if we dip our toes into commercial, should we be looking for something where we don't pay rates and water. Or are we not likely to find that in the $1M price bracket?

I'm interested enough to at least consider this type of investment. It is a big leap for us because we are clueless about commercial and that is really a big hurdle to get over, that "what if we get it wrong" thought.

Being rather simplistic, I think that if CBA don't renew the lease then someone else could rent it, but perhaps at a much lower rent if we needed it filled by somebody, ANYBODY. That scares me.

But this type of commercial property interests me more than a roller door and office type set-up in a local commercial or industrial area where there could be several vacancies at the same time.

I searched commercial properties, and there is such a huge array of choices, houses in areas that could be used as commercial properties, development sites, centrelink office for under $10M, commercial building with fantastic sounding tenants returning $2M per year (no mention of cost to buy but certainly out of our league ).

I will do some more checking, but buying a house seems so much easier. A house is a house is a house.

But thank you Dazz for the link. It does tweak my interest.

 

[INVSTOR]

My husband doesn't get why the bank would rent, and not own there own premises when it is a good investment. Can anyone explain?? We'd thrown around a few idea's back and forth but I wasn't able to convince him.

 

[wylie]

I think it is because they are in the business of banking and not property, but I also think $900K is chicken feed to the CBA, but I suppose you multiply that by every premises in Australia and that is a lot of money tied up in their premises that could be used better elsewhere.