All Topics / Help Needed! / PLEASE HELP High Equity, low $ flow for retirement

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  • Profile photo of The ContrarianThe Contrarian
    Member
    @the-contrarian
    Join Date: 2005
    Post Count: 97

    Hi guys,

    Please advise your opinions on unlocking equity for retirement.

    Kind Regards,
    Anthony.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    well, if those properties are worth $1,700,000 and say they are growing at 5%, that works out to be $85,000 pa. If they take a small portion of this each year and factor in the added interest they will have to repay, they should be able to keep their properties. They may even be able to retire now.

    Steve Mcknight doesn’t like this idea and argues against it in the sample chapter of his new book being sent around.

    At least with this idea, they can keep the properties longer, and may be able to supplement the equity with additional income from other areas, hobbies maybe. But you do have to be careful, only borrow a small percentage of the growth, and after it happens.

    Terryw
    Discover Home Loans
    Parramatta
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    Profile photo of foundationfoundation
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    @foundation
    Join Date: 2005
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    Originally posted by The Contrarian:

    Hi guys,

    Like most baby boomers, my parents are cashed up in the equity department. They have 7 in total:
    <snip>
    From what I understand they are still paying interest only on most of them and P&I on one of them. .

    Doesn’t interest only imply that they have little equity? Or did they buy before the boom?

    I’ve heard that (as crazy as it sounds) they can draw an equity loan from an IP upto $1500 per month as one way to receive tax free money and still receive the aged pension.

    I thought there was an ‘assets test’?

    Can’t help, just curious,
    C. [cowboy2]

    Profile photo of marsdenmarsden
    Member
    @marsden
    Join Date: 2004
    Post Count: 112

    No way that they will qualify for the age pension. You can get a part pension up to about 600,000 assets. If they don’t own the property outright they might but they are also restricted as to income.

    Profile photo of dare_to_dreamdare_to_dream
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    @dare_to_dream
    Join Date: 2006
    Post Count: 88

    Hi guys,

    Terryw I recieved Steve McKnights chapter in the post last week and yes he does say that you shouldn’t withdraw money from your loan for items that depreciate.

    However, the single chapter did somewhat annoy me because he talks about the property making money if the gross rental return is larger then the interest paid on the property. This is simply not the case because you need to factor in council rates, electricity, management fees etc.. It just annoys me because he makes it sound so simple, but when it comes down to it their is a lot of things other than interest rates and rental return to consider when buying a property.

    I also didn’t really like the idea about “lazy money” when I property appreciates and the rental return doesn’t. Unless the property sky rockets like Perth is doing, the increase equity won’t be sufficient to re-draw in a years time. Also, the property is likely to be negatively geared these days which means I would’ve thought you would want to be making the property cashflow neutral before necessary buying again. Otherwise, you would need to be finding more money to service your loads????

    Any opinions on what Steve talks about in his new book????

    Cheers

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    The current age pension as we know it has both an income and an asset test applied to it.

    For the current year the max Assets Test for a couple to qualify for the Full pension who are a homeowner is $229,000. This is reduced by $1.50 / fortnight for each $1000 of assets over the min limit.

    Assets which are included in the assessment include:
    1) Total amounts held in banks, B/ Societies credit unions etc.
    2) Surender of life policies
    3) Value of an income stream.
    4) Real Estate.
    5) Business & Farms
    6) Motor Vehicles, boats and caravans not used as a home

    And a few others which we won’t bore you with here.

    The Social Security rules are probably the most complex set of rules in Financial Planning and they would be well advised to sit down with a FIn Planner and work through these issues to enable them to plan correctly for their retirement.

    Cheers

    Richard Taylor
    Residential & Commercial Finance Broker.
    Licensed Financial Planner. Ph: 07 3720 1888
    [email protected]
    Looking for life cover – We Guarantee to beat any quote you have in writing.

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    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of JohnSmithJohnSmith
    Member
    @johnsmith
    Join Date: 2006
    Post Count: 93
    Originally posted by The Contrarian:

    I understand that no-one is able to give any specific advice etc,
    but would anyone have good suggestions to fund their retirement?

    I’ve heard that (as crazy as it sounds) they can draw an equity loan from an IP upto $1500 per month as one way to receive tax free money and still receive the aged pension.

    Anthony

    What you may have heard about is reverse mortages. It is possible to do a reverse mortgage on a property from age 60 (youngest borrower) and the payments do not affect the age pension.

    Whether your parents can get the age pension is another matter, and something they can determine later.

    I have PM’d you

    Regards
    John

    Inspired Finance
    (02) 9944 7776

    [email protected]
    http://www.inspiredfinance.com.au

    Profile photo of lifeXlifeX
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    @lifex
    Join Date: 2004
    Post Count: 651

    John
    What is the maximum LVR on the reverse mortgages you refer to.

    I’ve heard they are a pitiful 20% or something?


    Live, Learn and Grow

    Lifexperience

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Life

    I think it is up to around 45% LVR.

    However, if a person had an ABN they could get a No Doc up to around 70-80% LVR at a cheaper rate too.

    Terryw
    Discover Home Loans
    Parramatta
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    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of JohnSmithJohnSmith
    Member
    @johnsmith
    Join Date: 2006
    Post Count: 93

    The LVR depends on your age

    if 60 then it is 15% and add 1% for every one year age after that. So if 61 then 16%. Up to 90 at 50%

    That is if you take out the lump sum. You can get supplementary payments each month.

    You can also ask for a certain amount of equity to be guaranteed left at the end of the loan. I won’t go into exactly how they do that, but it is based on their own tracking critera of how the property will perform. I will say that all of the lenders assume over time a 3% growth in the property, so it is conservative.

    The better ones also have a no negative amount guarantee – so if the property value does fall, that is their problem.

    Regards
    John

    Inspired Finance
    (02) 9944 7776

    [email protected]
    http://www.inspiredfinance.com.au

    Profile photo of grossrealisationgrossrealisation
    Member
    @grossrealisation
    Join Date: 2005
    Post Count: 1,031

    hi The Contrarian
    unlocking equity is not as simple as it may seem and is more of a structure and a way of doing it for me i posted sitloti on somersoft maybe some one here can add the link and it a way of unlocking equity.
    you do need to set the structure up from the start of investing and to unlock your parents equity is not some thing I would try to do over a board.
    dare_to_dream.
    understanding loe or sitloti these are ideas that people use for there goals and should be taken as information only and to get away from cost you do need to have a balanced porfolio and not just on class ie resi property.
    when setting up your structure you need to set it up to take in pension and other costs and need to be set up by a professional not a board.

    here to help
    contact me [email protected]

    Profile photo of elkamelkam
    Member
    @elkam
    Join Date: 2006
    Post Count: 722
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