Hi All
I'm in a situation that I have a very high value in property assets (net $2m) but my income is only net $30K. I can live within this but it would be better for me to have more eg another $20k. I have $75k in cash invested that I can use to top up this if necessary. I have investment properties and also my own home that I will sell in the next 3 years or so (no mortgage, no capital gain and value $1.2m). For medical reasons I am not now in the workforce (over 2 years) and although I could go back to professional IT consultancy work I'm rather used to now all the other things I do including voluntary conservation work. As I say I can live on what I have but I'm thinking perhaps I should do more with my equity for the sake of my family. Would I be silly to borrow say $300k against my home and invest it in stockmarket shares with a view to returning a yield higher than the interest rate (risky?)……or just wait it out for 3 years when I will sell the home.
Thanks for any ideas you might have.
Regards CarpeHi Carpe,
Have you ever looked into borrowing against your existing equity and simply spending it on yourself? You should get the advice of an accountant to determine how much to borrow to ensure that you don't overextend yourself. Providing that you don't borrow more than your portfolio rises in value each year, including compounding interest costs on the borrowings, you will be ok. ITcomes down to knowing how to do your sums and keep tabs on your portfolio's value every 6 months or so.
I prepared a spreadsheet to use as a guide in determining how much one can borrow against equity to live off. Click on this link Equity Harvesting and read chapter 12 to get an understanding of the concept to see if it may be of any help to you. Note that this is not to be construed as financial advice.
carpe_diem wrote:Hi All
I'm in a situation that I have a very high value in property assets (net $2m) but my income is only net $30K. I can live within this but it would be better for me to have more eg another $20k.I have $75k in cash invested that I can use to top up this if necessary. I have investment properties and also my own home that I will sell in the next 3 years or so (no mortgage, no capital gain and value $1.2m).
For medical reasons I am not now in the workforce (over 2 years) and although I could go back to professional IT consultancy work I'm rather used to now all the other things I do including voluntary conservation work.
As I say I can live on what I have but I'm thinking perhaps I should do more with my equity for the sake of my family. Would I be silly to borrow say $300k against my home and invest it in stockmarket shares with a view to returning a yield higher than the interest rate (risky?)……or just wait it out for 3 years when I will sell the home.
Thanks for any ideas you might have.
Regards CarpeIs this correct,
You have a PPoR worth $1M 2k and IP ('s) worth $800k?
Is the $30k income rent from the investment propertie/s (value $800k)?
If thats correct then the yield on the IP's is around 3.75% ?
What is the LVR (or are all loans paid out)?
Not sure why you would want to sell and loose your Growth Assets, even at 5% p/a Growth thats $100k per annum you'll miss out on (and working on it doubling every 10 yrs you should be sitting on $4M nett); you'll also have CGT to pay with selling your IP(s)
I'm sure there is a myriad of options out there for you to earn an income from your equity; or to just draw down on this equity as well as tax advantaged methods (as Equity for personal use is not deductible), maybe if you can give more of an indication of your starting point (or i just didn''t read the post right), to clarify?
Great Position you've got yourself into, CONGRATULATIONS, lots of options for you from where i sit.
Regards
Thanks ProDev and Redwing. Just to clarify a few things. My home has no debt (net 1.2) and investment properties have debt of 475k (value 1.1 and net 600k). The 30k income is from these properties (7 to 8% yield). My plan is to sell the home in 3 years as it is in a 3 storey redevelopment area in a premium Canberra city location (or even redevelop it myself but I don't want to do this right away as I'm not ready just yet ). One of the investment properties is also in the city and my plan is to move to it as my home when I sell current home or redevelop it . I have had that particular investment property for 5 years so moving to it would over time negate capital gains tax. As I say I could redevelop my existing house replacing it with 9 apartments but not sure if I can borrow the huge amount required for this. So here I am with all this equity and a relatively small income of $30k. I was in a worse situation in the middle of my illness so I had to sell a couple of other properties that had high debt levels that I could no longer support without a working income. So I am managing OK now with what I've got but as I'm not selling anything more for 3 years I feel that I should do something with my equity until that time comes. I hope I've clarified this as I've not put it into proper property investing terms such as LVR which I have to admit I don't understand. Regards Carpe
I think it would be a good idea to look at using some of that lazy equity to invest in various areas such as shares, and maybe even more property. You have an overall low LVR so you are in a safer position than most people and you have lots of potential to generate more money for your family.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
What did you wind up doing?
If you do decide to invest in shares you have to be prepared to keep a close eye on how the share price is performing as share prices are more volatile compared with property. If you earn dividends that are fully franked you will get money back known as dividend imputation credits if your tax rate is less than 30%. The advantage of shares is that you do not have to buy a $500,000 dollar parcel in one share like go do with property. You can buy as low as $1000 dollar parcels of shares. This means you can spread the risk over a number of shares rather than put $300,000 in one share.
Another method of share trading is called options trading..
I have mentioned this so you know this trading method exists but can't explain any further
as that would be classified as giving financial advice.
.
If you are interested in this type of options trade you need to research options trading to know the risks and methods involved.Thanks Guys. The truth is I have done nothing yet and given the way the stock market has behaved probably it was a good thing. I have been to a financial adviser and it came down to my selling a property rather than my desire to borrow to invest. The interest rate has been going up so perhaps he was right……..I suppose I have always been a bit conservative that's why I have stuck with property investing for the bricks and mortar. For me I think I have two options. 1. Borrow to redevelop the block and convert home into apartments…..or 2. Borrow to buy either a property or shares that pay for the interest and boost my income. Not sure whether the latter is realistic given the predicted rise in interest rates. Perhaps I should get a part time job which seems a bit silly given the equity I have been lucky to accrue……though of course I have not fully recovered from my illness (had a brain aneurysm so why am I worrying about this stuff as I could've been dead!) Still, 29k is not an ideal income with so much equity. Another option is to just keep going until my cash runs out in about 2 years….at least my sons have finished Uni now so my cash is no longer so much under threat). I've restated my financial situation below to make it clearer. Cheers Carpe
Financial Situation – carpe_diem as at 4 Dec 2007
$’000 $’000 $’000
1. Equity Val Debt Equity
Cash 55 0 55
Inv Com’ial Prop 300 0 300
Home 1200 0 1200 ***
Inv Prop 1 500 95 405 ***
Inv Prop 2 590 375 215
Total Equity 2175
2. Cash Flow Inc. Exp Net
Net Comm Prop 1 17 0 17
Inv Prop 1 16.9 8 8.9
Inv Prop 2 33.2 30.1 3.1
Totals 67.1 38.1 29 (net income)
*** Core 3 and 2 storey redevelopment sites
Hi CD,
We've used some of our lazy dollars (Equity) to invest not only into Further Property but also a Managed Fund to provide income and assist with supporting the -Geared IP's; last year was a good year with a 18.5% return on the MF (not as good as some funds which did 60-70%, but we fel this is not as 'risky' and suits our purposes at this point in time).
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