Ideas... not advice

[willoneau]

I think you mean CGT.



If it produced income at any point, when sold yes there would be a cgt calc done...but they could free up money from sale of home tax free to use/invest through retirement until death...ie the cgt is delayed...whereas selling Investment property to free up money for retirement will incur CGT at sale which means CGT not delayed.

yep my mistake
very interesting point willy1111 if they wanted to leave their home i guess
in red, so selling home using the money tax free for income producing investments.

 

[willoneau]

Realestate: PPR value(25 acres) value about 750k equity about 400k
Investment property1: value about 300k equity about 250k
Investment property2: value about 400k equity about 340k
Both IPs rented and cash flow positive with net income roughly offsetting loan on PPR
Cash available via redraw about 200k.

So sell PPR (if willing) and take $400,000 profit, pay off say invest prop1 and move in. Then use 150,000 to invest in income / cap growth investments.

 

[lindsayf]

So sell PPR (if willing) and take $400,000 profit, pay off say invest prop1 and move in. Then use 150,000 to invest in income / cap growth investments.

Thanks interesting discussion.
Just have a few minutes as travelling.
Some contextual points.
1 PPR is a great lifestyle 25acre bush block ( only purchased 12 months ago) with great solar passive solar powered house. Only leaving this place in a box if I have any say. It does have some income producing potential ie maybe a few cattle or sheep or agistment. This place wont be sold. Possible tax advantages(primary producer) here?
2 our current income has very low marginal tax rate due to salary packaging available in health sector. Effective rate is about 20% if that. This makes loading up super to get lower tax environment less attractive.
3 it would be great if i could transfer more debt to the investment properties so awaiting more clarity around that. My advice is that I cant increase debt on a positively geared property...but maybe this is doable?
4 I want to maintain some cash access for trading and general financial flexibilty.

Ok hopping on a plane soon to come home.

Thanks
Lindsay

 

[willoneau]

Hi Lindsay, glad for more information and i did feel that living on acreage is a life style choice, ( i live on 4 acres and love it). I think one way to increase more debt associated with your investment properties would be to borrow to trade with as a business, just one thought but not sure how.

 

[willy1111]

Thanks interesting discussion.
Just have a few minutes as travelling.
Some contextual points.
1 PPR is a great lifestyle 25acre bush block ( only purchased 12 months ago) with great solar passive solar powered house. Only leaving this place in a box if I have any say. It does have some income producing potential ie maybe a few cattle or sheep or agistment. This place wont be sold. Possible tax advantages(primary producer) here?
2 our current income has very low marginal tax rate due to salary packaging available in health sector. Effective rate is about 20% if that. This makes loading up super to get lower tax environment less attractive.
3 it would be great if i could transfer more debt to the investment properties so awaiting more clarity around that. My advice is that I cant increase debt on a positively geared property...but maybe this is doable?
4 I want to maintain some cash access for trading and general financial flexibilty.

Ok hopping on a plane soon to come home.

Thanks
Lindsay

Oops my bad...main residence exemption applies to home under 4.94acres so it might not be entirely tax free on sale even if only ever your home, anyways sounds like you have no intention of selling

https://www.ato.gov.au/General/Capi...ence/Dwellings,-structures-and-adjacent-land/

 

[qldfrog]

Oops my bad...main residence exemption applies to home under 4.94acres so it might not be entirely tax free on sale even if only ever your home, anyways sounds like you have no intention of selling

https://www.ato.gov.au/General/Capi...ence/Dwellings,-structures-and-adjacent-land/

For more than 5 acres, you have to value 5 acres and the rest, obviously the 5 acres you select is your house and all infrastructure, the rest pure land but you will pay cgt on that 20 acre of land component
Ideally you have a valuation of the 2 bits on purchase then when selling to apportion any increase between the tax free and the cgt bits

 

[kahuna1]

My advice is that I cant increase debt on a positively geared property...but maybe this is doable?

Hi Lindsay .... the above, is ... not given by any qualified accountant, it is actually absurd.
I strongly urge you visit a real accountant.

Being positively geared when you have two properties valued at 700k with 600 k in equity and a mere 100 k of debt is EXPECTED. Your barely geared. Whether they are negatively geared and the interest is more than the NET rent or vica versa, to the tax office is an aside as long as correctly reported as either an income or expense. What is NOT is purchase and sale price and capital gains when disposed.

My comment on NO net income on two proprieties with 700 k value that should be generating say 27k Gross rent ... a little under 4% ,.,, minus agent fee and rates and depreciation and then 5k interest on the loan the NET ... should be positive of around 12k per year.

SHOULD.

I would secondly strongly advise a visit to a financial planner ... a qualified one !!
Both accountant ... real one this time ... I suggest and yes YOU will have to pay them for their time.

Why ?
Lots of obvious reasons and here comes a slap ...
You have a net income of 80k after tax. You have another 5 k off the shares.
You have a loan for 300 k over I suspect your dream home of 750k value.
If you tried to pay off the loan, saving hard and around 25k a year into that loan ... it would take 17 years to repay.

I take it your not planning to retire age 72 or the wife 65 ?

As mentioned the feat .,,, and it is NO feat to be basically covering the interest when you have 600k equity on 700 k of investment properties ... is NOT good. One would expect NET income pre tax of 12-14k !!'

Even assuming a mere 50k if the properties were sold to be Capital Gains tax ... right now so real NET equity is say 550 k. Pay off totally the home loan, a mere 250 left added to 100k super and 100k of old shares. So 450k as of today debt free ?

If one were to be bullish and expect ... 5% over time capital gains on your investment side properties ... even after 10 years, the 700k goes to 1 mio .... it is 5% GROSS minus inflation so 3% post inflation, but this aside, 300k more when sold of which CGT of 50% reduced and then hopefully you spread the sales over tow years and over both you and your wife's incomes so as NOT to hit the top end of 50% marginal tax ... but say 20% on 150k so a mere 30 k ... and no loan at the end once you have fixed the issue with NO income net in 2019 ... and get it so it pays off the loan over the next 10 years. Then ... 550 plus net of CGT on today's number and another net 270 would be a good result. So 820 in 10 years but still the home loan is NOT paid off and of the 300k there is still 190 owing. so NET in 2019 dollars ... 630k plus the 100k still keeping pace of those old shares and say 120 super PLUS I hope another 100k added via working another 10 years.

So scrimping and saving in 10 years, you own your 25 acres outright and have in 2019 dollars, 630 plus 120 super and 100 more super ... its 850 k

Now today 450k is NOT enough to last.
In 10 years, ignoring home equity .... 850 k .. u being age 65 and wife 58 at that time you need INCOME to live on pay the bills. You need it for 35 years so ... being conservative a 5% return, given we have had way above average returns on asset classes into 2019 and are at all time highs .... whilst your super may have 9% return on a balanced fund over 10 years ...

Here comes a slap ... YOU WILL BE OLD and a capacity to earn money working not there the older you get. You must be conservative and PLAN that way. Less risk ... NOT more ... talking about trading is MORE risk and a skill very few have .... very few. Short term trading and you mentioned futures and short term stuff, well FORGET it ... its your future and your wife's.

Lower returns even with a balanced portfolio and LESS risk ... at 5% are decent and a very good result for less risk. It will produce 50 k per annul for 35 years with zero left !!
Not a great income.

That is WORKING and saving hard for 10 years with your current plan. You are age 55 with 400 k of debt .... 300 on the home you plan to live in. Whilst yes net assets of investment properties are 600k and a I presume I suspect correctly if sold they will have Capital Gains of at least 50k .... your NET if you paid it all down today is a mere 450k for retirement and that needs to last not 35 years as I set out ... but 45 years .... and even more conservative nature would be needed to protect income and future income.

MORE conservative equals less risk and LOWER return.
The 450 k today number, well you cant touch the 100 k super and cant touch the shares to what you said massive CGT tax implications. Which leaves an at best 250 k net if you sold investment properties today,

NO pension till age 67 ... so if you can make 250k last 12 years I would be amazed.

Talk about income from 25 acres .... absurd. Sheep ? are you joking ? 10 sheep still need shearing, still need looking after as much as 1,000 sheep on just checking fences and water and so on. An at best income from 10 sheep .... unrealistic. Or say 6 calves raised to adults a likely Gross 6 k a year NET at half that and checking every day fences and water ?

Please please please go see a real accountant, one that is qualified not the one your using which I suspect is not a real one due comments about negative and positive gearing.

Please see a very qualified financial planner.

Outcomes if you act, vastly different.
Even if I were mean .,.. and halved say investing in the very best funds returns over the last 10 years, NOT you managing it, but the best of the best, 8-10% on most asset classes i what I would expect say outside bonds and cash. Half the past 10 years, so 9% .... minus inflation ... 7% growth verses having a maybe 3% ... in the investment properties ?

Even if you halved the investment property side and got 4% more, the impact over what I think is a realistic 10 years more working is going to add a vast amount. Sort out the bloody mortgage.

Yes you can trade, here is 50 k in 10 years o the 850k. NOT more, keep records and if you make consistently a decent return over 5 years YOU can have a bit more !!

At this stage, and its sounding like you plan to retire soon or in the next few years, well ... a harsh conservative and adult look at things is often NOT welcome. For a single person I would not even contemplate retirement with 450k NET and 12 years to pension with only 250 k I could really use over the next 12 years. I don't know what income you expect in retirement but I suspect its 50 k joint and sobering as it is ... without HELP and change that's 15 years away !!

Please please please go see a real accountant,

Please see a very qualified financial planner.


This is what a real accountant and a REAL financial planner would say. As for income out of 25 acres ? Unless you planning a market garden on 10 hectares or some other intensive Ag option, agistment will net say 2k a year or 3 k if yu can find it. Trading ? Ohh its easy .... well when the s+p 500 has risen from 1,800 to 3,000 or 66% since Trump slashed taxes there which I might add cant be sustained unless healthcare becomes not an option .... and now again is about to lower rates ...

It looks easy in a bull market. Hero's are made every day in many many minds. Over the previous 7 years 2010 to say 2017, the ASX 200 went sideways, it had not much gained after it bounced off the lows around 3,100 on the ASX 200 and hit say 4,200 or so and waffled and waffled for a long while.

Whilst it looks good, smells good, the rise from 4,200 over 50% most happened in two years out of 10.

Hope the hand-print of the slaps are fading, but one has to be realistic and especially into old age. RISK ADVERSE .... you cant go to the wife, sorry ... this share I liked just went broke and our nest egg just halved, bread and water for 30 years dear !!

Trading and risk are an art-form. Any imbecile looks and thinks they know risk in a bull market. I started in 1982 as a junior trader, my life, my sole income and only income has come from investing and earlier on trading. I of course know not a thing. I give my time for free and have done so for now 25 years ... its my own form of giving.

Not I might add to much avail. I mean no disrespect, but I must be harsh and at times blunt. It dose not sink in normally, certainly not immediately, but go see a real accountant, a real financial planner, they WILL charge and KEEP the receipts and tax deduct it !! Then compare and play devils advocate form my side ... if they are too bullish. Oh and DON'T PAY ANY FEE's for them to manage your money ... don't go into any scheme they have to save you ....

With return ... their is risk, so if they offer you some absurd 10% return, bet your bottom dollar its so risky it should be paying you 20% !!

Good luck ... sobering ... and forget farm income, enjoy the grass !! ITs 25 acres, mow it by hand and get fit !!

 

[willoneau]

Realestate: PPR value(25 acres) value about 750k equity about 400k
Investment property1: value about 300k equity about 250k
Investment property2: value about 400k equity about 340k
Both IPs rented and cash flow positive with net income roughly offsetting loan on PPR
Cash available via redraw about 200k.

Just a thought (Kahuna1 don't jump down my throat), if the two investment properties are net income producing enough to pay the principle/interest loan on home off without any of their net pay (job) going into it would holding the investment properties at this stage of the housing cycle be a good idea. I see the point of selling investments and using the profit to pay off home completely and starting again with only a investment loan.

 

[kahuna1]

Just a thought (Kahuna1 don't jump down my throat), if the two investment properties are net income producing enough to pay the principle/interest loan on home off without any of their net pay (job) going into it would holding the investment properties at this stage of the housing cycle be a good idea. I see the point of selling investments and using the profit to pay off home completely and starting again with only a investment loan.

I have no idea, a lot more information needed and what has been supplied suggest NO net income to repay loan its just covered. It may be actually what I suggest ... actually making 12-14k pre tax and able to pay off the loan. It makes it better ... this occurring for obvious reasons that say in 10 years no debt of 100k ..

As to selling the properties ? No idea. We have seen prices appreciate a lot over time and closer to highs than lows. Not being able or frankly qualified to comment on the virtues of the said investment properties, they may have massive upside as I said, be awful stand alone houses with great views on blocks that could be split.

This is up to the gent and his wife to decide. I could be totally right and of course totally wrong and without knowing if they are units, or free standing, or their merits who knows.

I am just being blunt and blunt not to be a bugger, but blunt as to realities about risk and HOW possibly which may be right or totally wrong ... again up to the couple to decide other than when one enters end of life or retirement its NOT time to take risk.

Pointing out a net debt free number of 450k today is an absurd level to retire upon ... easy.

It may be a mix of a lot of things. Some make sense, some don't, some they disagree with ... others they do not. Any advice even paid, the decision comes down to the client and their views.

Some things such as tax laws and I got my accreditation in 1983 via a distinction in the subject at uni ... and yep are up to date, are not open for debate. NOR time value of money and earning 5% on a pile but needing say 50k a year, is maths.

Sadly so. Whilst an opinion about trading income and so too income from 25 acres, both, I have vast experience in. It may sound cruel to hoes down a possible income from 25 acres, reality is ... another thing. Making an income from say 50 k capital trading and say 25k income each year is a 50% return and RISK ... leveraged return I suspect to get there ... which means either your a freak with supreme discipline and well founded track record to back that belief or about one chance in 10,000 of it being realistic.

Leveraged return say via CFD's or options or futures .... and this is ex head of trading at a top 10 bank globally hat on ... even professionals at times come unstuck and that's why they have a lot of rules and limits to stop self destruction even for a 15 or 20 year veteran to protect themselves. Granting say naked options you may do it for 3 years, collecting premium after premium then ... one day you loose all 3 years and in fact 30 years worth of premiums.

It happens. So they say. Not something for the faint hearted and not something to retire and relax upon.

Enuf ... I have no idea of their real state or whether this was a fishing expedition. At times, over the years have been asked and presented by a 60 year old with 50 k savings how they can retire on 50k a year by age 65.

 

[willoneau]

Fishing expedition , good point were details are lacking.

 

[qldfrog]

About income from 25 acres, forget it...
I live on 42acres and really though about it, lease horse agistment, farming,etc
What you can do is be self sufficient food,energy, water
This can be easily achieved at reasonable cost so great roi here
But no income as such
Unless you are ready to farm a market garden and that is a whole job, not a retirement
You can add a cottage and get a good income stream of that based on your local council regulations
$200k to build it up, around $350 net a week so 18k a year 9%return but a bit of work, maintenance and sharing your lifestyle property
You will be taxed on it
Low risk and better than paying a body corporate managed unit

 

[lindsayf]

Thanks every one.
Yes of course this is a fishing expedition @kahuna1...fishing for ideas of which you, and others, are providing many. Just to clarify, full retirement for us both is at least 10 years away, but I would like to reduce my hours maybe starting in a few years.
So Kahuna..how do I find a ‘real’ accountant. Happy to ditch the current one but wont be doing so without a good recommendation...do have some ideas on who to talk to re this though.
Re the ‘Farm income’ ok yes @qldfrog i agree it is a bit unrealistic...but a bit of horse agistment ( of which there is good local demand) may provide a few thousand a year of near passive income. That may be about it...and yes we can just enjoy the place..that is why we bought it after all.
There seems to be some emotion especially from Kahuna that I will blow the whole lot trading.
I like trading and I am very risk averse...I can assure everyone that there wont be significant capital lost through my trading activities because of this...really..relax..esp Kahuna. I can say this as a trader of many years experience...I am not a novice.
And Kahuna, I get your strong message of conservatism and that our capital base is way too low to be looking at retirement within 10 years...fully agree. It is this awareness that has triggered this thread..I want to make good decisions over the next several years.

All contributions appreciated.

Still on the road but home soon.

 

[kahuna1]

Fair enough,
Just be careful.

Glad retirement a few years away, as to accountants and advisors, ask your friends ? Do a bit of research on the net and possibly find one. Yep some concern from me about trading, whilst in a bull market buying stocks the tide is always going one way, in a sideways or down market, the other.

Same for a financial advisor, quite different totally skill set to an accountant and even a chartered accountant. The fully qualified financial advisor his or her specialty is tax into retirement and structuring the assets to get the best return and nest egg you can. They as opposed to an accountant will be able to tell you exactly how to structure super and the nest egg into a tax free pension post age 67 in your case.

Most accountants and even good ones have not much idea about these issues. They of course will claim they do, but rarely ever do. I would strongly suggest NOT using any of the big banks financial advisors and a RG 146 is not a financial planner, you want someone with the degree !! Do not go and set up your own super fund .... its not needed and the not for profit super funds offer an ability to hold shares in a super fund with correct franking paid to you .... for 10% the price ...

That said, good luck. Accountants and lawyers come in all shapes and sizes and most, as someone who has been in both sides of this, the law and accounting and also financial planners ect, most, and with respect ... MOST are hopeless or barely competent. Avoid if you can but, well ... one needs advice and structure so YOU and your wife can choose what is the best and most effective way forward. One telling you that this is the only way to go .... often is total BS ...

It will require as you seem to know a lot of work and some planning and that's a good thing !! A very good thing.

 

[barney]

accounting and also financial planners ect, … MOST are hopeless or barely competent.

Sounds like a job I would have been good at

Good thread gentlemen.

Speaking in general terms …. Refinancing the Investment property loan/s to pay your home off seems the most logical plan of attack in the short term.

If you are servicing those new (tax deductible) loans easily …. perhaps it may be time to purchase another IP?? ….. Current Interest rates are no barrier and you will gain a further tax advantage.

After you retire, sell one of your IP's every few years (you now have 3 thanks to me) and live the dream growing spuds and cauli flowers on your block of dirt!

 

[Smurf1976]

The fully qualified financial advisor his or her specialty is tax into retirement and structuring the assets to get the best return and nest egg you can.

Nothing personal to anyone but I think a big problem with the industry is that's not really what most would have in mind.

A plumber does plumbing, right? They know what to use and how to do it first and foremost and cost is secondary yes. Same with anything from building to medical.

First thing many would expect from a financial advisor is advice on what to invest in.

Second is how to go about doing it in practical terms.

Tax is after all only relevant after there's a profit on which to be paying it. Sure, don't pay more than the law requires but first and foremost is actually making money in the first place.

 

[kahuna1]

First thing many would expect from a financial advisor is advice on what to invest in.

Sorry my bad ,,,,, Planner not advisor ...

Financial Planner ... NOT for investment advice, not for what shares to buy or assets, but STRUCTURE ... best way to take best advantage of tax concessions of say super ... and best for transition of super fund from accumulation as you add to it ... to the pension phase and the best way around and to navigate the capital gains issue. For example, those shares you inherited ... whilst Capm gains gets a 50% discount where tax is concerned, it may be possible to get them into super somehow and whilst its 15% to get them in, and I suspect no way around that, when you sell them whilst in pension phase there is no cap gains or was no cap gains or tax post age 67. IT depends of course on what they are, what franking they attract if any ? whilst the hit of 15% ... verses paying top marginal rate on the 5% of income seems a bit harsh ... if your say saving 2% a year over 12 years, and then at the end can sell them ... not incurring CGT in a pension phase of the super fund ... well ... over time your ahead.

Of course one needs the details and a really good financial planner, not the generic ones that work for banks ... who on the main ... whilst having on paper the qualifications, are less able than the ones who operate outside the high fee sell bank products with high hidden fee markets.

An advisor or broker and sorry for the confusion ... is no different quite often from a taxi driver giving you a hot share tip. Suggesting they have some crystal ball as to what is great or good share .. is not even remotely possible. I just went through all the LIC share companies in Australia and barely ONE .... after fee's added value or beat the index over 3.5 or 7 and 10 year time frames. Some were so shocking loosing 10% v the index it makes me wonder.

On the overseas side and infrastructure a few and these guys are worlds best, Australian ones stood out ... MFF ... golly ... overseas stocks but 5% above the index over ten years ... he is in the top 100 out of 10,000 funds globally ... MFG ... not bad but less ... both kind of associated ... I do like the MFG infrastructure fund and the listed version of it ... seems ok ... MICH ... but this is trading above the NTA so ... well whilst a good if not great return well above the index, being a scab I hate paying above NTA for anything.

PLANNER .... not Advisor. Sorry .... my bad

 

[lindsayf]

Minor update:
What I did not mention about our 25 acres is that it has a free standing (western red cedar clad, full of bush character) self contained granny flat that used to be used as a B and B / farm stay up until about 15 years ago. We have used it as visitor space and for my wifes art passion. However due to the thinking triggered buy this thread and my wifes interest, we have decided to update and reincarnate it. It wont cost more than about 10k to refurb it and it is really a terrific bit of infrastructure to not utilise within our longer term financial plan.
Details tbc re how often we make it available, how we market etc. but that is now in the picture.
That will mean we will need a new space for her art, but that is not really much more than an insulated shed so not too expensive.

I think I will need to go to Melbourne to access some quality financial planners and finance brokers.
Happy to recieve some recommendations.

Thanks

 

[sptrawler]

Sounds like a job I would have been good at

Good thread gentlemen.

Speaking in general terms …. Refinancing the Investment property loan/s to pay your home off seems the most logical plan of attack in the short term.

If you are servicing those new (tax deductible) loans easily …. perhaps it may be time to purchase another IP?? ….. Current Interest rates are no barrier and you will gain a further tax advantage.

After you retire, sell one of your IP's every few years (you now have 3 thanks to me) and live the dream growing spuds and cauli flowers on your block of dirt!

Be very carefull IMO, if you are considering rolling your PPR loan into your investment property loan, IF you are audited I doubt it would be allowed.
Just my opinion
There is a very fine line between tax minimisation and tax avoidance.

 

[barney]

There is a very fine line between tax minimisation and tax avoidance.

Definitely get pro advice to confirm as you say Homer

What say ye @kahuna1 ?? Can you re-draw money already paid off an IP to pay off your PPR and then claim the interest on the "extended" loan as a tax deduction?

 

[lindsayf]

I am looking for some ideas on how to approach finances to position myself and wife for retirement. Nothing anyone says will be construed as financial advice...I am just finding that accountants and financial advisers are limited and conservative in their offerings...at least the ones I come across.

So the gist is this:

Me 55, wife 48..both working part time and this can be the case for the next at least 5 years. Combined income about 100k(140k). No remaining dependents. Good at frugality.

Super: about 100k (145k) each, both in industry funds. (Yes there are good but unfortunate reasons for such low super balances).

Realestate: PPR value(25 acres) value about 750k (1.1m)equity about 400k (700k)
Investment property1: value about 300k(400k) equity about 250k(350k)
Investment property2: value about 400k(500k) equity about 340k(430k)
Both IPs (free standing houses) rented and cash flow positive with net income roughly offsetting loan on PPR
Cash available via redraw about 200k.

All properties in regional NE Vic with moderate ( well it turned out was better than expected) prospects for capital gain.

Inherited bluechip shares: face value about 110k (now 150k) but no point selling due to CGT.
Dividend income about 5k pa ( less now)

Trading plan: I plan to scale up my trading as I move more into semi retirement. I can do this both in my super and out of super. I will be trading ASX shares on weekly timeframe, Forex on weekly timeframe and futures intraday, probably Bund. I have not decided on capital allocation but the majority will be with the weekly systems, unless my intraday performance improves.

Again, NOTHING anyone puts in this thread will be taken as advice... I am not so naive as to implement anything I have not thoroughly looked into myself. I am just after some general ideas to think about and if of interest then look into more deeply in a way very specific to the details of our circumstances. I am happy to be a bit aggressive in approach.

Many thanks in advance...

I was reviewing this the other day and thanks again for the ideas.
2 years have passed. They turned out to be pretty good for us...and probably many here. This despite my wife studying 2020 rather than working. We are still working and will be for another several years - especially my younger wife ..But she wants to, so all is good there. Look above for the changes to our circumstances in 2 short years.
The figures in bold are the current figures.

I am currently preparing investment property 1 for sale. There will be CGT but with the 50% discount pro rata'd for the % of time it has been let it wont be too bad. And I can make a voluntary super in same FY contribution to minimise the hit.

Those funds will go towards the loan on the PPR - and will take the balance down to under 60k.

Interest rates will go up at some point so it seems a good time to do this with this unexpected CG.

Still happy to take ideas!