Hi all and happy new year!
Have been thinking a lot recently on what i should do investment wise and would like some input into a plan i have been thinking about:
I currently live in a property worth 1.6 million dollars in sydney
I have left to pay on the mortgage 1.2 million
i have 1.5 million dollars in sharesSo net i could own the house outright and have 300k left over.
I understand that if long term asset prices increase then it could be best for me to leverge the large equity i have now and so what i could do is this:
Sell all my shares over the next few years and buy 6 million dollars worth of property with the cash.
So i would buy lets say 10 apartments worth 600 000 each and for each one put down a 150K outlay (so will be about 20-25% deposit).
I am 34 now and when i am 55 then i could retire with income from 10 apartments? (if i pay off all the mortgages in 20 years)
not so worried about capital gain but rather if rents will remain solid and rise over the 20 years.my only worry it that it just seems to easy to do (but i do understand that with the capital i already have it makes it far easier than if i were starting from scratch) and of course if prperty prices drop 50% i would be massivly in negitive equity, but as long as the mortgages were payed off in the 20 years they would give me a retirement income.
if you were in my shoes what would you do?
John
Read Chris Grays book the Empire (free to download on his website) once you have enough capital growth in the properties you have, and determined how much you would like to retire on, i.e. $100k year, lets say you have as little as 5 properties purchased for $500k each and they appreciate at conservatively 5% year, this would give you (initially) anyway $125,000 capital growth
If you want say $100k P/A to live off you will have a $25k buffer to start with and could look at setting up a reverse mortgage on your loans (i.e. make no more payments on the properties the same as retirees do with their own home and rely on the capital growth to continue upwards, which it should (statistically speaking property values double every 7 to 10 years based on the last 100 years of property values)). The value of your properties will keep rising at a rate exceeding that of your debt. Instead of needing to earn $100k to have say $50k round figures after tax to spend you can actually redraw from your loans tax free.
You should take into account your personal circumstances when considering this and consult your accountant but read the Empire to get more of a feel for what you could do.
if you have more properties the compounding and leveraging effect of these properties will give you a bigger buffer combined if you are less risk averse than others. Or you could do as you say and pay them off which is fine but don't forget you will pay tax on the rent you earn from the properties once paid off.
Don't forget though that your capital growth comes from the land value not the building which depreciates, so it is important to determine the land value of any property before purchasing and look at buying properties with a at least a 40% land value to total purchase price ratio.
You are in a great position for a 34 y.o i am sure you will do what is right for you, again consult your accountant or financial advisor to determine whether or not this is right for you.
Is the 1.2 Million loan deductible? (eg you may have used it to buy the shares).
If it isn't I would consider selling the shares and paying this down to $1. Then reborrowing it so that all the interest would be deductible if you used it to purchase investments.
From there you can consider what sort of investment.
As for strategy, I think you should look at property with growth potential as close ot cashflow positive as possible and shares with high yields and potential
Have a look at this strategy:
http://www.somersoft.com/forums/showthread.php?t=34046It is one of the best i have heard of. Depending on your needs you could implement something similar and probably retire very soon.
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
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