Evening all,
It has been 12 months since my last confession – I mean post.
I know this isn’t a financial advice forum, and every circumstance is different yada yada. But I’m wondering what peoples general opinions are for the following scenario, and I promise not to hold you accountable :)
Non tax deductible debt – ~ $450k. Value ~ $625k
Tax deductible debt ~ $550k. Value ~ $725k (2 properties – Interest Only)
Approx loan servicability – another $1mil, plus more if you include rent from the investments.
Currently salary sacrificing ~ $12k into super (gets to the $30k limit). Return around 17-20%p.a at the moment.
34 years old. Wife, 2 kids, but expenses are probably at my max now (school fees etc).
Paying off an extra $25k or so a year on the home loan without much effort.My question is, where do I put my money… At the moment I’m going with super as it’s returning a lot and is easy, and paying down $25k on the home loan. Should I buy another IP as I have the serviceability / equity and not salary sacrifice into super? Should I just pay the house off?
Any ideas are appreciated.
It depends on the answers to the following two high-level questions;
– Is there an immediate requirement to increase your cashflow?; and
– What is the end goal? (Defined in terms of annual passive income stream by a certain point in time).It would be important to understand the current balance in super and what this will equate to upon retirement (and thus how many years of living costs this buys you when retirement day comes). It might turn out that the current approach to superannuation investment will not serve your requirements.
There have been a lot of market changes driven by shifts in banking offerings, which presents challenges and also some incredible opportunities. Not sure if we’ll ever see opportunity like this trumped in our lifetime. It’s exciting.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Jacqui
– There is no immediate requirement to increase cashflow. I’m still working for the majority of the cash I generate, but I’m still young’ish and in a very stable job – which I enjoy. Plus, my wife is only PT at the moment (in a FT role), so she can always go back to work to generate more. I’ve also picked up a ‘2nd job / scholarship’ for 2 years which will add another $30k+ net per year… if I can force myself to study again. I’m likely to work until I die just because I can.
– The end goal is a paid off PPOR and $100k pa in passive income that doesn’t erode any capital and goes up with CPI. ie. $3mil cash with a 6% return, pay out 3% as income and reinvest 3% for CPI – very broad, but that’s the concept. Obviously I wouldn’t have the $3mil in cash in reality. $3mil will pass down to kids etc in my will.On a side note, one of the reasons I put money into Super is because I split my PPOR loans 18 months ago, fixed a chunk for 2 years and wanted to pay off ~$60k in that period. It turns out I paid off nearly $70k pretty quickly, so I paid down $20k on the fixed (max without penalties), and had only $10k left on the variable. So, I had a few options at that point, but with the high return of Super / tax benefits etc, I decided to pay extra in there even though I can’t get it for 26 years.
In general,
– Should I pay off $50-$60k of the PPOR, redraw, get another IP? adding one at a time in the current market?
– Pay it off completely in 3-4 years, redraw and buy 5 in one go?
– Invest elsewhere? Super, short term loan market etc.I like the first one because it forces me to actual start down the investment path and if I have the bill, it will get paid – like my current IPs. If don’t have a bill (ie. option 2), there is a real chance that I’ll just go on a holiday! My other concern with things like short term lending is it should (all going well) increase my income (actually, it would all go to my wife not me) and then I’d need to come back to this question about what do I do with it :)
If you have anything to add, or think I’m wrong / crazy then let me know.
Thanks again.
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This reply was modified 8 years, 8 months ago by
TheNewGuy.
How much do you current have in super between the two of you?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Couldn’t you keep contributing money into Super and home loan + also purchase an IP now.
At 5% ++ rental yields and property interest rates around 4.5%, the property would basically look after itself.
Your approx. $80k in current equity (assuming 80% LVR) could be the deposit (inc. costs) on another investment property purchase.
We are buying sub-dividable properties in Brisbane for $300k to $450k. Neutral to positive cash-flow with development upside when you feel like doing the project. You can tick nearly every box right now…………….
Chris White | Pillar Property
http://www.pillarproperty.com.au/
Email Me | Phone MeThe Property Investment Specialists
Hi Jacqui,
The majority of my super is in a defined benefit fund that I can’t touch without withdrawing it… which I don’t want to do. In my other super, for me and my wife it’s about $150k. The other issue with using our super is that I believe if my wife goes to a self managed super fund then her work’s contribution drops back to 9.25%, which is a noticeable drop from 15.4%. I haven’t checked that in a few years, so that might not be true anymore. I also like the idea of having super managed by someone else, particularly if it’s making a good return. But I’m interested in any other ideas as well – obviously the tax concessions are pretty good.
Hi Chris,
Yea, that’s definitely an option. I guess my only real concern is if interest rates go up quickly and I have $1mil+ in loans. While I would reduce that risk by fixing the loan for a while, it’s still a little bit concerning. It’s definitely something that I am considering.
The interesting thing about these sorts of super funds where the employer makes extra contributions is… the only rule that seems to apply is that your member contributions have to land in that fund. What happens thereafter is up to you. We have a lot of clients with a similar situation. They let their contributions land in the fund in question, and then once or twice a year they do a chunky rollover to their SMSF.
I have a high-level spreadsheet that looks at retirement funding expectations, factoring in assets outside super, and also factoring in super. Feel free to drop me a line if you are trying to determine if you want me to run your numbers through.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
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This reply was modified 8 years, 8 months ago by
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