paid out mortgage, what to do next?

Hi all, My Wife and I are 40 years old (young?) And we had three investment properties before selling the lot to pay out our $550k loan (yay!) Which saved almost a million bucks over the life of a 30 year term so we lost our assets but gained more freedom.

Now our problem is. What to do now? .. We have $800k equity and really want to create a new portfolio that is a growth asset plus provides cash flow so we don't get back into debt again and have to hold full time jobs. We want to semi retire utilizing our existing equity to set us up for life while not sacrificing the position we've worked so hard to reach today.

Please, we're not sure what to do and would love some fresh ideas
Thank you

Invest in Shares?

Commercial property, CF+ properties (read slums ) etc.

Comm property isn't something you can just jump into as the rules are quite different to resi, but the rewards can be huge.

It will be hard if you don't want to get into debt again!

You could set up a LOC on the PPOR, buy one or more ivnestment properties and just try to pay the loans down asap. Maybe sell one investment property later on to pay down the loan on the remaining one(s).

With rents and wages going in you should be able to pay future properties off faster than the first one.

Great that youare debt free !!



Growth x positive cashflow x Nil debt wanted = ?

Hard ask, its a question I would have asked BEFORE paying off the home mortgage. Hopefully the loan is still active and you can redraw from it

Your equity is pretty useless as equity, since you cant really sell a door to buy a share ?

ta
rolf

Whilst you're thinking about what to do next and how to invest, don't change a thing. Take the money you've been putting into your mortgages every month and save it. When you've determined your next steps, you'll be even further ahead.

Thank you so far guys.

Problem being, We really don't want to go yo work much anymore so many of these options don't apply for us. Im happy enough to forego a little wealth for time freedom and happiness for the short to medium term

I have part time work that I enjoy that pays the bills without saving much for now.

investor2009 said:

Thank you so far guys.

Problem being, We really don't want to go yo work much anymore so many of these options don't apply for us. Im happy enough to forego a little wealth for time freedom and happiness for the short to medium term

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Understand, I think we all get there sometimes, but usually cant camp there- yet


so I do hope you have the loan still open then - no income no loan usually

ta
rolf

Hi, Your house is worth 800K but you can't eat it brick by brick.

The retirement calculators say you need 750000 [this was the critical mass point] INVESTED

Which means that if you want to make use of your 800K equity without working you need to look for accommodation that costs 50000.

Then you have about 35-40 thousand a year to live on.

All this means you have to sacrifice your current house.

KY

investor2009 said:

Thank you so far guys.

Problem being, We really don't want to go yo work much anymore so many of these options don't apply for us. Im happy enough to forego a little wealth for time freedom and happiness for the short to medium term

I have part time work that I enjoy that pays the bills without saving much for now.

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Well done investor2009!

You've just paid off your PPOR which is great, but would you really want to borrow against it to invest again already (even though it would be using tax-deductible debt)?

If you do this (which is fine), you will need to invest in positive cashflow investments, and where the income is likely to grow at a decent rate.

Residential property is not great for this, and commercial property is not realistic given you are on what sounds like a modest part-time income (and regardless of your equity available).

So that leaves shares, which I think would be the best asset class for you going forwards.

Ideally though, you would sell the PPOR capital gains tax-free, and buy a similar sized property that suits your needs, but in a more affordable suburb.

Eg. Sell your PPOR for 800k, and buy a new one for 500k.

Then invest the 300k difference (or ~250k after costs, roughly) in shares yielding about 7% grossed-up.

This will give you about $17500 extra cash flow per annum, which could be largely tax-free depending on franking credits and your marginal tax rate, on top of your current part-time income.

If you want to stay in your current PPOR though, then you will likely have to borrow to invest to get any meaningful investments generating cash flow built up.

The reality is that something has to give here.

If you want to stay in your current PPOR, don't want more debt, want to work part-time with not much savings, and want extra cash flow... well, you have to be realistic about what you can achieve.

Just my thoughts, hope this helps.

Thanks guys,

Yes it's as I thought. I'll just take a well earned mini retirement and then get another job somewhere, save my *** off and invest wisely. Maybe an IP, pay down, sell possibly and invest the cash into shares for income. The main goal I had from the start was freedon from a job so I feel we're doing pretty well do far

Why did you sell the IP's?

It seems you have just shuffled the debt amount plus given away CGT and agent fees to find yourself looking to invest again.

I would have kept going a bit longer in your current IP's and worked toward trying to build enough equity to own one or two outright prior to selling the other.

The need to pay off the mortgage on PPOR is all in your mind. It works if you can pay it off and then retire and forget about borrowing to invest but it seems like you will probably have to go out and buy the same assets you just sold (of course after losing CGT and agent fees)

Just my 2c.

investor2009 said:

Thanks guys,

Yes it's as I thought. I'll just take a well earned mini retirement and then get another job somewhere, save my *** off and invest wisely. Maybe an IP, pay down, sell possibly and invest the cash into shares for income. The main goal I had from the start was freedon from a job so I feel we're doing pretty well do far

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I would start looking at the loan purely in terms of the numbers. e.g you should buy an IP, wait until there's some equity, then refinance and invest the proceeds into shares for income.

Instead of just thinking 'I want to pay off debt ASAP' you should be thinking 'can debt get me to where I want to go faster, and what are the risks'?

If you'd been thinking like this before, you might not have had to sell the IPs at all and still be able to move to higher cashflow investments.

As an object lesson, selling all the investments to pay out the PPOR mortgage, leaving you with no investable assets unless you reborrow against the PPOR, is NOT usually a smart financial decision. Usually this is done as an emotional response, not as part of a well thought-out plan.

You need investable assets to generate cashflow. If you stop working on top of this, it's very difficult to even borrow against the PPOR.

Debt is a tool. Neutral in itself, good or bad in the hands of the user.

In fact, a more realistic and (even though it involves more debt) conservative plan is to buy IPs, then use the equity to build up income assets, then sell SOME of the IPs to increase overall cashflow, but still keep some for the capital growth.

If you're 40, your money has to last the next 50 years, and you have to survive inflation and periodic market crashes.

May I just say guys, I saved nearly a million after tax dollars and can now stop paying $800 every week. I also saved 25 years work.

To say that it eould have been better to keep working for the banks isnt quite what I understand to be a wise thing to do. Sure ! Its all well and good to wait for cg while you foot the bill but whats the point if you still work like everyone else? Sure, I like the idea of Loe but the numbers werent right for us.

May I just say guys, I saved nearly a million after tax dollars and can now stop paying $800 every week. I also saved 25 years work.

To say that it eould have been better to keep working for the banks isnt quite what I understand to be a wise thing to do. Sure ! Its all well and good to wait for cg while you foot the bill but whats the point if you still work like everyone else? Sure, I like the idea of Loe but the numbers werent right for us. Would love to hear what you would have done in my old position?

I dont mean to be nosey or anything, but would you care to share the value of your house and your house hold income?

I'm willing to bet that a few people here could put some theoretical scenarios together with varying approaches or risk profiles to see you get to where you want.

i sold an IP last year so i could pay off PPOR debt faster

i soon realised it was a big mistake to reduce my asset base....so i ended up buying another IP recently that's settling in a couple of weeks.

luckily no CGT as I claimed it as my PPOR, and i got the FHOG and stamp duty exemption.

but wasted 10K on selling agents fees and now 12K on stamp duty for the new IP

costly exercise but lesson learnt

I don't think that there is any problem with selling the properties as such, particularly if they are very negatively geared and you are working full-time in a job that you really don't like very much to keep the whole portfolio afloat (and which you may only realise after buying the properties).

And particularly if they are properties that have not had much historical capital growth or not likely to have much future capital growth.

Selling a really good property on the other hand should be done with much consideration.

I think there's lots of people though who unnecessarily hold onto under-peforming properties due to CGT implications and sales costs.

And leveraging up into more property really only works if you have an income from a job and/or business to service the loans, but if doing this job and/or business makes you very miserable, then gearing up is not necessarily going to make you any happier or wealthier.

For investor2009 I would only caution not to repeat what he previously did, and consider a change in approach and in particular a change in asset class that may better suit his needs going forward.

alexlee said:

If you stop working on top of this, it's very difficult to even borrow against the PPOR.

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That's true, with no income or minimal income it makes it much harder to leverage off a PPOR or investment properties to buy any other assets.

One exception is of course borrowing using margin loans, which in my experience is very easy to get and with minimal documentation required, but this is much higher risk and will not suit everyone.