All Topics / Finance / 500k inheritence… Advice please

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  • Profile photo of jasandlivjasandliv
    Participant
    @jasandliv
    Join Date: 2008
    Post Count: 39

    Hi all,
    I'm interested to know what some people out there would do with 500k if they decided to put it all into property. Would you… A) Buy the dream home with small/zero mortgage or…
    B) buy numerous property's with positive returns to help fund a larger mortgage on the dream home.
    C) Buy even more property with no dream home at this time and rent for a bit.
    Anyone? Anyone?

    Profile photo of ducksterduckster
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    @duckster
    Join Date: 2004
    Post Count: 1,674

    It really depends on the time you have.
    If you are retiring tomorrow at 65 years of age you probably do not need a dream home but also

    I saw on ACA that a couple won Tattslotto and decided to demolish their house and build their dream home on the land.
    Only problem was after demolishing their house and starting the building their bank that held the funds froze its assets during the financial crisis and the stress of this caused the husband to pass away.

    If you like working you might use the 500k as a good deposit and leverage by part borrowing the rest of the funds and paying off the debts over say 20 years and eventually owning 5 properties outright in 20 years.

    The time factor also can directly relates to the risk tolerance you have to losing 500k
    .

    Profile photo of jasandlivjasandliv
    Participant
    @jasandliv
    Join Date: 2008
    Post Count: 39

    Yeah good points, 32 YO married no kids. If i base my risk on property as an asset in general, I think its fairly conseravtive (except if i was to throw all my eggs into the property basket) I was thinking to lay enough deposit onto each investment property that the positive cash flow (albeit reasonably small cash flow per property) will contribute to the mortgage on the PPOR. I know i will be taxed on any pos cash flow before paying off PPOR mortgage but i think this would be a better idea than buying 100% PPOR.
    Who gives specialist property investing advice? Good Mortgage brokers??? Good, property investing accountants??? Paul Clitheroe???

    Profile photo of pinkladypinklady
    Member
    @pinklady
    Join Date: 2009
    Post Count: 1

    Coming from a tax point of view:

    Purchase a PPOR for cash. Then use that equity to purchase rental properties. Best of both world. All interest is tax deductible, and as you have no PPOR mortgage, cashflow should be an issue (depending ion how far you go)

    Profile photo of jasandlivjasandliv
    Participant
    @jasandliv
    Join Date: 2008
    Post Count: 39

    Thanks, I thought about that but can i do this without having all the different property's secured by the PPOR? Do i have a smaller mortgage on the PPOR and have the reaminding mortgage funded by the cash flow generated by a number of positively geeared property's ( i was thinking 1 high yielding mining town property with the rest geared in more stable areas but geared to be pos(or maybe commercial)) ?
    Either way i don't intend on gearing higher than about 60% in total.
    Any word on getting specialist advice on these issues?

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

    a.

    b would not be wise – you would just be creating an income which would be taxable and then have a non deductible mortgage.

    Buy the house, PPOR, and then mortgage it to get the investments and you will be much better off.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

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

    Profile photo of euro73euro73
    Member
    @euro73
    Join Date: 2009
    Post Count: 60

    Do as Terry suggests, but consider taking a LOC up to 90% of the value of the PPOR so you are only repaying what you draw down.
    1. Pay cash for a 500K PPOR. If you are a First Home Buyer you are exempt from stamp duty, and the FHOG will cover your application and legal fees easily.  You should be left with several thousand dollars from the FHOG. 
    2. Take out an Interest Only LOC that features multiple sub accounts/splits, so that you have the right type of loan to grow your wealth.  You should be able to secure a 90% LOC, so 450K.
    3. Use the 450K to purchase however many Investment properties you wish to.If you purchase at the right LVR the properties should be comfortably cash flow positive. You may pay some tax, but so what? You will also be accumulating significant wealth.
    You need to speak with a broker who can do some calculations for you. Just because you have 450K available to fund X number of deposits, your borrowing capacity will not be unlimited. Your income, your rental income and any liabilities ( personal loans , credit cards etc), plus dependent children as your circumstances change in future, can all have an impact. In your case, you should have no debt. Use cash to pay off all personal loans and credit cards, etc…

    Lets say you buy 3 investment properties worth 500K each. You provide 20% deposit on each ( 100K each- 300K total) plus whatever stamp duties and legal costs ( probably about 20K-22K on each property,but will vary from state to state )  In this scenario you will have borrowed $1.2 Million. ( 400K on each property) but you will have 3 x rental incomes and your own income. 
    You basically have countless options. The most important thing is that you buy your PPOR for cash and then set up a 90% LOC so you can take whatever opportunities you like.  With that kind of money, I'd also be strongly considering a Self managed Super Fund to purchase investment properties.  The Tax on any positive cashflow will only be at 15%, and the Capital gains Tax is NIL if you sell the property after pension age. Even if you sell beforehand, the CGT is only 10%. Go see an accountant /Financial Planner who has a good broker working with him. You'll need tax advice, financial advice and loan advice.
    You're in an enviable position having 500K cash to play with. Your possibilities are almost endless.

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

    Good ideas Euro. Only problem is these days getting cashout of a loan is hard. So may have to set it up as you suggest but borrow 90%, don't pay cash. Then immediately pay down the loans to $0 or $1 and have the money available.

    Sounds stupid, but banks don't want to give people access to large amounts of cash these days. $10k is often the limit.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

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

    Profile photo of euro73euro73
    Member
    @euro73
    Join Date: 2009
    Post Count: 60

    Terry

    There are a couple of lenders with a LOC who will approve the full 90% and just retain the funds until the borrower provides the COS for the investment purchase/purchases. That's just as good as having the money sitting there in redraw waiting to go, I think.

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