I inherited a fortune from my parents
– 3 shops value up to $1.7 mil (freehold)
– 2 shops valued up to $780,000 (60% owing to the bank)
– 2 offices valued up to $670,000 (60% owing to the bank)
– 5 residential properties valued up to $2.25 mil (70% owing to the bank)
They also gave me a substantial cash deposit of $600,000 sitting in a bank account. All of them are in SA. So as you can see, they left a very big asset but also a multi-million $ debt for me and I’m overwhelmed. With the cash I now have, I want to acquire some more properties to add to the portfolio. My income from the freehold shops and personal income is at around $160,000 p.a. before tax. I’ve obtained some advices from friends. They said I should keep a cash reserve to minimize the risk in case of unfortunate events. Personal I think it is a good advice but I don’t know how much cash I should keep in reserve especially with the prospect of Adelaide’s booming market. I don’t want to miss out the chance. Any advices would be appreciated. Thanks in advance.
There are two other ways you can have cash in reserve, and minimise your expenses and maximise your returns on the investments your parents left you:
1. Structure the existing loans so that you have the $600k in an offset account against the loans. The offset means you have the cash available to use if you want, but while it is in the offset it will minise the interest still owing on the loans.
2.Structure the existing loans so you can pay all the $600k into the existing loans, but with a re-draw or line of credit which allows you to access the money if needed. The $600k will dramatically decrease your interest payments and inprove your cashflow.
Talking to a property savvy Mortgage Broker (there are a few on this forum who can help) is the thing to do.
Hi Duc,
I'm from Adelaide also and I know that the property market here at the moment is very exciting. I think Marc's advice is very good in that if you structure some of your loans so that the $600K sits in an offset account, the cash will still be available in case of an emergency, however it will offset against your interest repayments giving you more cash flow.
If you are looking to expand your property portfolio, you may not want to use all of the cash, but maybe half. With $300k for deposits and costs you could conservatively purchase a further $1.2m of property so long as you could service the debt through future rents and income.
If you would like to catch up and have a chat about how to structure you finances, give me a call or send me an email.
All the best,
Matt Centrone
Investor Finance
108 King William St
ADELAIDE SA
[email protected]
Office: (08) 82120788 Mob: 0402278019I agree that you probably don't really need cash, – just access to it if you run into trouble. Some people recommend you have between 6 -12 months of annual repayments available if needed.
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
Hi Duc
I can understand that you are feeling overwhelmed. Take a deep breath and sit down for a while!!
You are in a wonderful position and really can't go too far wrong. Even if you do absolutely nothing but maintain your present portfolio then you will have far more assets than you will ever need or want.
But it is great that you want to move forwards.
I would suggest that on each and every loan you calculate the payments for the next 12 months (not including any rent to be received) and put it in an offset against that loan. It may be lots of accounts, but I would put an offset account against each loan. That way your payments for the next 12 months are covered. Arrange for the rent from the property to be paid into the offset account attached to the loan on that property. The idea I am trying to get across is to set each property that has a mortgage up as a separate unit of "loan – offset – payment goes out of – rent goes into".
Hopefully there will be something left from the $600K, but if not you still have your salary + the income from the shops you own outright. This should quickly build up to enable you to undertake more investments. You may want to investigate properties outside the area in which you presently hold properties in order to spread your investments across other areas.
But I am no expert – it may pay to get professional advice.
Good luck!
Margcondolences for the loss of your parents Duc.
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