I'm Aussie, 45 yo — five years ago I left Australia with my wife and literally only a few thousand dollars to our name. We were seeking a cheaper lifestyle and new opportunities. Fast forward to today — I've earned about $4 to 5 million cash via a little internet retail venture I set up offshore. I've decided I've made enough, so I will close my business and plan to return to Australia early 2012. The goal is to retire there, I don't plan to work again in Australia, just live off my investments.
This is where I'm stuck. Well, I'm entirely clueless!!
I will want to buy an apartment in Sydney, for the wife and I to live in, estimate cost would be around $1 million. I can have cash available to me by having my offshore company pay me the full amount required. I don't require a mortgage.
So, am I still better off seeking a mortgage for this property, such as for tax purposes, or for allowing me to use the cash for other investments? I will be using the remainder of my cash (3 to 4 million) for offshore investments via an offshore company, so I really could throw 1 million cash down for my apartment without any concern. I just want to know if that's the smartest idea or not — I've never bought a home in Australia before!! It seems all my Aussie friends have mortgages, so perhaps there is some advantage I'm not aware of… ?
Speaking of which, tax-wise, am I better off being paid that money before, or after, I return to Australia? I am presently 'not a resident of Australia for tax purposes'. Or is there possibly any tax advantage of having the full amount for the apartment paid directly to the seller via an offshore account?
I apologize if these answers are obvious, but they really aren't to me, so any kind advice or guidance would be much appreciated. I'm looking forward to moving home!!
Hi FineThanks,
What a impressive story… you sound like you are living the dream.. I wouldn't mind hearing more about how you got the business started and successful.
Here is what I would do if I was in a similiar situation. I would look into mortgages with offset accounts which means your cash would be accessible whenever you need it. The mortgage with offset means that if you purchased a 1million dollar home, you would have to put 20% into the home to secure the mortgage without additional loan mortgage insurance. The remaining 80% can sit in a savings account that would offset the mortgage interest. When you find investments you would like to invest in, you may withdrawl the cash from the account and only then would you be charged interest on the mortgage.
The flexible is very beneficial…
In terms of moving money into Australia. I recommend CO: http://bit.ly/hh4LtR which is a fully integrated online foreign exchange broker. I use it to move money when purchasing offshore property.
Hi FineThanks,
Before going any further I would recommend the book http://www.amazon.com/Aussie-Expat-Luckiest-Person-Earth/dp/9810575467. There are a number of tips which I found useful when moving back to Australia after living in Singapore.
Ordinarily I would pay cash if buying to live in and then each time I bought an investment property create a new mortgage account on on your residence to cover the first 20% and purchasing costs of the investment property.
HOWEVER, at the moment the Australian Dollar is at 25 year high against the USD (and most other currencies) and is predicted to remain that way for the majority of 2011. Therefore you may wish to only send to Australia as little as possible and wait for a downward cycle in the value of the AUD.
I would look for an accountant where you are located at the moment that deals with Australian Expats, and ask them for advice. The tax rates where you are located at the moment will determine if you are better off becoming an Australian resident for tax purposes before you are paid.
Thanks,
PeteI’d never pay in cash if you don’t have to. Donald Trump says you’re “being lazy” if you use your own capital. At the very least, see if you can get a line of credit or something. Just don’t over-leverage the property.
I would suggest that if you have 5 Million and wanted to retire in Australia, then you make your house only less than 20% of your total amount. Plus, get your capital working for you ! Dont be afraid of taking on a loan for your house, just dont make it unaffordable.
How is your actual accounting ledger? I mean its one thing to have an internet venture thats paid out well. But do you have any rental or retail assets returning cash? I have a family friend who in the late 70s sold a city office building for 4 million dollars (yes .. in the 70s) However due to poor investment schemes .. and relying on dividends and returns from banks .. 20 years later he still has … about 5 million dollars. Can you imagine how badly his ACTUAL wealth has depreciated? He's gone from being mega rich (in the late 70s 4 million bucks was big money .. and this was a major city site) to being .. just making it.
The biggest thing you must have is your capital working hard for you. If you feel like investing in a house .. you can put in a third or half to limit your vulnerability and still borrow for a mortgage. As long as the other money comes from regular investments you arent going to have an issue with paying it. And your PPOR will be CGT free. So any money you borrow against it .. is money you are putting back into your own pocket.
If i won 5 million on a lottery ticket tomorrow (i wont .. i have played 7 tickets in my lifetime) I'd sink half into property immediately so i'd have a steady income backstop. That would leave me 2.5 million for chasing more lucrative or more risky investments.
So the brief is, your prime residence in australia .. is capital gains free. So for the pittance you'd sink into it for a mortgage, it returns real wealth out the other side. Dont say you dont need extra wealth .. we all do.
The other thing i should point out is thanks to pumping the economy with cash after the 2008 crash, we are on the precipise now of an inflationary climate. So whatever you can do with what you got .. hard cash is not the safest environment.
Gage for yourself what a retirement level income would be. Consult an accountant as to how to gear things effectively. And most importantly .. enjoy your wealth within your lifetime.
Wow, thanks for the helpful advice guys. I guess I'm smart enough to make money, just not so smart at investing it. Looks like it's time to dive in and learn!!
I've always been a very conservative investor. I've never had a mortgage, nor even had a single late payment on a credit card, my entire life. I'm totally comfortable living that way. But I'm starting to realize now that perhaps that's not the most clever way to utilize one's available financial resources. I'm totally new to the concepts of mortgage offsets and capitol gains, but I kinda see what you guys are getting at. I will be seeking professional advice before I make any decisions and I'll definitely check into that.
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