OK Smarty Pants'...

[Angry Dragon]

Friend is offered $60K payout from job, new job to slot straight into.

Liabilities:

$5K Personal Loan
$45 Mortgage (currently fixed at 6%)

My recommendations:

Pay off personal loan
Leave mortgage but increase fortnightly repayments by $50

+
$55K Share portfolio ($45K bluechip stocks + $10 specs)

OR

$55K all in a managed fund.


Thoughts?

 

[Pornstar]

Shouldn't invest your own money if you have other options. He should borrow against his equity to open the share portfolio so that he can claim the interest payments. Get him to pay off as much of his mortgage as he can without incurring penalties, because mortgage payments aren't tax deductable (i am assuming he lives in his house?).

 

[Fraser]

Originally posted by Angry Dragon
Friend is offered $60K payout from job, new job to slot straight into.

This friend wouldn't happen to be Angry Dragon would it?

 

[Frodo]

Originally posted by Pornstar
Shouldn't invest your own money if you have other options. He should borrow against his equity to open the share portfolio so that he can claim the interest payments. Get him to pay off as much of his mortgage as he can without incurring penalties, because mortgage payments aren't tax deductable (i am assuming he lives in his house?).

Good advice

 

[bunsen burner]

Originally posted by Angry Dragon
Friend is offered $60K payout from job, new job to slot straight into.

Liabilities:

$5K Personal Loan
$45 Mortgage (currently fixed at 6%)

My recommendations:

Pay off personal loan
Leave mortgage but increase fortnightly repayments by $50

+
$55K Share portfolio ($45K bluechip stocks + $10 specs)

OR

$55K all in a managed fund.


Thoughts?

I personally wouldn't go a managed fund. After you pay the adviser their cut, the chances are that they won't beat the index. Better off to buy indexed shares or a selection of blue chips through a discount broker.

But my favourite - buy an investment property for $220k (inc all costs), with a 2 year rental contract for $200 per week. Pay off the personal loan, leave 5k in a Citibank account @ 5.25% for back up, and put down a 50k deposit. Fix a $170k loan for 5 years at approx 7%. Weekly repayments will be $230 and weekly rent will be $200. Growth @ 10% is $400 per week.

Thats a 50k investment for a $370 per week return. That's a 40% pa return.

 

[Frodo]

Re: Re: OK Smarty Pants'...

Originally posted by bunsen burner

But my favourite - buy an investment property for $220k (inc all costs), with a 2 year rental contract for $200 per week. Pay off the personal loan, leave 5k in a Citibank account @ 5.25% for back up, and put down a 50k deposit. Fix a $170k loan for 5 years at approx 7%. Weekly repayments will be $230 and weekly rent will be $200. Growth @ 10% is $400 per week.

Thats a 50k investment for a $370 per week return. That's a 40% pa return.

You'll have to explain this to me.

I assume that the loan is an interest only one for investment. I doubt if you'd get 7% on that, maybe around 8.5% but it would be tax deductible.
A 2 year contract may take some time to find a taker. In the meantime there is no income. You will also need to pay an agent to do the proprty management and you will need to maintain the property.
Whilst rented you will have your $200 per week which will be taxable at your marginal rate.

What I don't undewrstand is "Growth @ 10% is $400 per week". Are you assuming that the property value will grow at 10% per annum? I would doubt it, and even if so then the capital gain would be taxable.

Leveraging is a gamble. You have to pick the right investment or you have magnified losses instead of gains. I would think that a property in Sydney may well be 10% lower in price in two years time than it is today as the residential market has peaked.

 

[bunsen burner]

Re: Re: Re: OK Smarty Pants'...

Originally posted by Frodo
You'll have to explain this to me.

I assume that the loan is an interest only one for investment. I doubt if you'd get 7% on that, maybe around 8.5% but it would be tax deductible.

7.3% at Aussie, and that's the first place I looked.

http://www.aussiehomeloans.com.au/Content.asp?ContentID=118065

A 2 year contract may take some time to find a taker. In the meantime there is no income. You will also need to pay an agent to do the proprty management and you will need to maintain the property.

I should have explained this a bit better. I know how to secure places with a 2 year rental contract that will pay $200 per week after all management fees and expenses.

Whilst rented you will have your $200 per week which will be taxable at your marginal rate.

But you're paying $230 pw in payments which represents a $30 loss which is tax deductable.

What I don't undewrstand is "Growth @ 10% is $400 per week". Are you assuming that the property value will grow at 10% per annum? I would doubt it, and even if so then the capital gain would be taxable.

You have to know what and where to buy. I know places right now that I'd be confident of getting 10% growth on.

The capital gain isn't taxable if you don't sell it.

Leveraging is a gamble.

The only investment that isn't a gamble is putting the money in the bank, and that is plain stupidity. Leveraging with real estate is relatively safe if you know what you're doing.

You have to pick the right investment or you have magnified losses instead of gains.

indeed

I would think that a property in Sydney may well be 10% lower in price in two years time than it is today as the residential market has peaked.

Who said anything about Sydney? Sydney isn't the place to buy if you are an invetor for a number of reasons.

 

[Frodo]

Re: Re: Re: Re: OK Smarty Pants'...

Originally posted by bunsen burner
7.3% at Aussie, and that's the first place I looked.

http://www.aussiehomeloans.com.au/Content.asp?ContentID=118065

I should have explained this a bit better. I know how to secure places with a 2 year rental contract that will pay $200 per week after all management fees and expenses.

But you're paying $230 pw in payments which represents a $30 loss which is tax deductable.

You have to know what and where to buy. I know places right now that I'd be confident of getting 10% growth on.

The capital gain isn't taxable if you don't sell it.

The only investment that isn't a gamble is putting the money in the bank, and that is plain stupidity. Leveraging with real estate is relatively safe if you know what you're doing.

indeed

Who said anything about Sydney? Sydney isn't the place to buy if you are an invetor for a number of reasons.

The problem is that your solution is based upon your unique knowledge so cannot be an appropriate piece od advice to Angry Dragons friend

 

[bunsen burner]

Re: Re: Re: Re: Re: OK Smarty Pants'...

Originally posted by Frodo
The problem is that your solution is based upon your unique knowledge so cannot be an appropriate piece od advice to Angry Dragons friend

There are actually professional people who provide this service.

 

[Frodo]

Re: Re: Re: Re: Re: Re: OK Smarty Pants'...

Originally posted by bunsen burner
There are actually professional people who provide this service.

Maybe so, but in that case your answer to help AD must be "seek professional help", surely !!!

 

[bunsen burner]

Re: Re: Re: Re: Re: Re: Re: OK Smarty Pants'...

Originally posted by Frodo
Maybe so, but in that case your answer to help AD must be "seek professional help", surely !!!

Fair enough. Just giving him an example of what can be found.

 

[Pessimistic]

Found myself doing something similar recently

Current mortgage over $150k so nothing beats putting the spare cash into that.

Effectively earning the current mortgage rate which ither 'investments' would have to compete with. Theres no extra woek come tax time and no risk.