Thinking of Selling up and Best Options for Cash

Hoju on 01/02/2023 - 12:01

Hi all. I’m looking for people’s advice or experience on the best way to create a good lifestyle with a decent sum of money. Essentially I mean make my money work for me so I can have time with family.

Qualifier - I will be talking to an accountant but would like to go in bouncing ideas off them rather than just listening.

My initial thoughts are to sell our family home and move into a rental. This would not only free up the time, money and energy spent on maintaining a large house, but also give us around $2.2m cash spare based on 3 x agent appraisals. I would like this cash to provide a steady income that pretty much covers rent of $1800-2000/week.

A HISA seems to provide about 4% or $88k a year so that is one option however I would need a way to avoid tax - a trust? Splitting across family members / kids that have no income?

I don’t really want the headache of buying other properties and leasing them as an income stream as anecdotally this is a challenge.

Any thoughts and experiences appreciated

Financial

Comments

  • 87percent on 01/02/2023 - 12:04

    with the current rental market, will you even be able to get a place (from what everyone is saying)?? also, what about when that owner wants to sell the house, or whatever? you think that won't cause you headaches?!

    • Hoju on 01/02/2023 - 12:09

      No action would be taken before a lease was signed.

    • ThithLord on 01/02/2023 - 12:13
      +1

      with the current rental market, will you even be able to get a place (from what everyone is saying)??

      OP has stated up to $2000 a week, isn't the rental issues surrounding the more affordable rentals? For OP's price-point, it wouldn't be too difficult I'd imagine (I am spit-balling here, though, ofc)

  • Debt Free on 01/02/2023 - 12:10
    +9

    just buy a small house to always have at least a home your children can call their own.

  • Muzeeb on 01/02/2023 - 12:11

    Do you want to stop working completely or just part time?

    • Hoju on 01/02/2023 - 12:26

      I work part time at the moment / contracting but don’t want to attribute the income however it comes in to me as I’m already in the highest tax bracket

  • Debt Free on 01/02/2023 - 12:12
    +1

    Rent money is dead money- it earns you nothing.

    • netjock on 01/02/2023 - 12:14
      +1

      Same with interest on your PPOR.

      • Debt Free on 01/02/2023 - 12:21

        your Principal Place of Residence goes up in value every year while the place you Rent- the rents just go up every year.

        • Hoju on 01/02/2023 - 12:25
          +2

          Not sure you can argue the value goes up every year at the moment. It also comes with additional costs that a rental does not. For example a strata apartment can typically cost you $16,000+ per year in levies plus rates on top of this.

          Rent money frees you of this but also frees up equity and allows it to grow in other ways. Property including PPOR is one of these but I’m more interested in other options that don’t come with a tax burden.

          • EightImmortals on 01/02/2023 - 12:32
            +4

            @Hoju: If the owner is paying 16K in strata levies you can bet he will passing that cost onto the tenants. You would not be avoiding the cost as a tenant, you would baying it for the landlord, along with their interest and other costs.

          • Debt Free on 01/02/2023 - 12:44
            +1

            @Hoju: now that Interest Rates are starting to offer higher returns, I expect a lot of others will look to sell their larger houses too. Just do your maths and make sure your rent does not eat up a huge chunk of your returns, or better still buy a little house you can easily afford- freestanding with no body corporate fees and just average council rates- you should be able to buy one- even on a full bank loan that costs just a bit more than rent.

    • mike6969 on 03/02/2023 - 11:29

      Saying rent money is dead money is the same as saying food, transport, and bills are dead money. These are necessities of life and purchasing a house is not the best option for many people, even if they can.

      • Debt Free on 06/02/2023 - 22:26
        -1

        Food nourishes you, transport moves you, bills warm and clean you but Rent Money is Dead Money- for a tiny fraction more people can pay to own their own home instead of throwing their money away when they really can own something which can be theirs for life.

        • mike6969 on 11/02/2023 - 09:39

          Silly argument not worth my time

  • netjock on 01/02/2023 - 12:13
    +3

    Speak to your accountant. If they can't make it work then ask another accountant. They can't all be that bad.

    I wouldn't trust these boards because someone will tell you a crypto that will go to the moon and you'll lose all your money.

    If you want a starting point look at VAS which is the ASX200 I think. 2.8% dividend yield. Would that work on your capital?

    We don't know your age, we don't know what it means spending more time with the family. If kids are school aged and they are in school 9-3.

    I'll leave it there. In the end the money is yours and if you got $2.2m then you can afford a few thousand in good advice that you actually have some protection (professional indemnity) rather than OzB uninsured.

    • Hoju on 01/02/2023 - 12:29

      Unfortunately I don’t have $2.2m but instead have a load of debt tied up in a valuable property. I get your point though. However I’d still appreciate others experiences on generating minimal tax income from a large amount of cash, if they have it

      • netjock on 01/02/2023 - 13:16

        but also give us around $2.2m cash spare based on 3 x agent appraisals

        But you will have $2.2m. Just have the accountant bill it as part of tax preparation expense and claim it back on tax.

  • Richmond Tigers on 01/02/2023 - 12:16
    +4

    I'd buy a smaller modern house that is easy to maintain.

    Our last house was 40 years old, big house on a big block but everything was going wrong with it that don't go as wrong in modern houses (burst copper pipes, no insulation, poor electrical, layout designed for 80's appliances and furniture).

    Have downsized to something low maintenance on a smaller block, which actually makes you look to do improvements because you have the time.

    • Hoju on 01/02/2023 - 12:27
      +1

      This is one option we’re considering - smaller house / apartment that’s more modern and manageable. Waiting to see what hits the market

  • Porker on 01/02/2023 - 12:33
    +2

    The difference between your 'headache' buying rental vs selling your principle residence is that the rental is potentially on-going income. Selling your primary residence and treating that as your income source will mean that after a few years, it'll be depleted.

    Kids needs/costs will increase as they get older (schooling, equipment, clothes, etc)…

  • jv on 01/02/2023 - 12:39
    +2

    I would need a way to avoid tax - a trust?

    trusts do pay tax.

    there are also compliance requirements which also cost money…

    • Hearthstone on 01/02/2023 - 13:11
      +2

      Trust don't pay tax but distribution from trust to beneficiaries will add to beneficiaries income and beneficiaries will have to pay additional tax

      • jv on 01/02/2023 - 13:34
        +1

        Trust don't pay tax

        The trustee does.

        • Hearthstone on 02/02/2023 - 08:31

          Read my reply up the top only beneficiaries pay tax.

          Trustee and trust don’t pay tax, trustees is just entity running it, it can be a person or a corporation

          the beneficiaries pay tax if they received distribution
          I can be a trustee and don’t received a distribution so there is no extra tax for me to pay.

  • jv on 01/02/2023 - 12:40

    kids that have no income?

    kids still at school that aren't employed will pay the max marginal tax rate…

    • Hoju on 01/02/2023 - 13:07

      That I did not know. Time to get them a job at maccas

  • AustriaBargain on 01/02/2023 - 12:49

    Buy a fleet of hotdog stands, train reliable teenagers to operate them, then spend the rest of your life counting fat stacks of cash.

    • Muzeeb on 01/02/2023 - 12:55
      +4

      reliable teenagers

      I found the flaw in your plan.

    • trialex on 03/02/2023 - 11:46

      There's always money in the Banana Stand

  • JIMB0 on 01/02/2023 - 12:55
    +1

    What ever you do watch out for inflation. In a savings account inflation will slowly whittle it away. If I was in your situation I'd borrow against the house to invest in shares (ETFs only). This would generate an income stream. Or to be less risky downsize the current house and invest the surplus cash in shares.

  • Seraphin7 on 01/02/2023 - 13:09
    +2

    OK, so a lot there. Here's just a few points.

    While your HISA might produce 4% now, and perhaps even a bit more in the foreseeable future, it wasn't that long ago that you would be lucky to get 2%. What is your plan should such a situation return?

    Assuming your HISA generates sufficient returns to cover your rent now, what is your plan as rent increases over time?

    On the narrow question of tax, a trust will only allow you to stream income (and therefore tax liabilities) to individuals who presumably will be on lower tax rates, not to "avoid it". Anyone who you are streaming income to in this way must be over 18 or they will be slugged with penalty tax that destroys the whole proposition.

    Owning your own property is one of the key determinants of "affluence" especially in retirement.

    If you are serious about pursuing something along the lines of what you are alluding to, the real consideration is whether you financially (not necessarily physically) downsize your current property and use the excess cash generated for investment purposes (with an emphasis on longer term growth) that may facilitate an earlier retirement/transition.

    • Hoju on 01/02/2023 - 13:32
      +1

      Thanks for the points. The last part is probably the ideal, downsizing to free up cash.

      I don’t think it’s fair to assume savings rates will drop. While rates are going up now and we feel they are high, it’s only due to the historic lows, and over the last 10 years average savings account rates have been more around the 3.5-4% even over 5%

      I’m always curious about the France/Germany/ Switzerland models where less than 50-60% of the population own their own home. Where does their money sit?

      • Seraphin7 on 01/02/2023 - 13:40
        +1

        I don’t think it’s fair to assume savings rates will drop. While rates are going up now and we feel they are high, it’s only due to the historic lows, and over the last 10 years average savings account rates have been more around the 3.5-4% even over 5%

        Hope for the best, but plan for the worst. Either way, the combination of any future decline in interest rates and an assumption that you'll be spending whatever interest is thrown up means there is serious downside risk over anything more than the current economic phase.

        European (and other models) of home ownership (and other politico-socio-economic matters) are regularly thrown up, often with glowing praise and a thinly veiled implication that Europeans are "smarter than us", without consideration of the whole picture. I don't pretend to be an expert on this issue but you will find a whole range of factors at play that are far more complex than "just deciding" that renting rather than owning is the way to go.

  • redfox1200 on 01/02/2023 - 14:17

    savings accounts normally cap the balances you can keep on them. you might need 20 savings accounts with 100k each in them

    • Hoju on 01/02/2023 - 14:45

      True, some but not all. The highest / honeymoon rate ones do but there’s a spreadsheet around somewhere on whirlpool that gets updated with some good options

  • leiiv on 01/02/2023 - 14:58
    +1

    My initial thoughts are to sell our family home and move into a rental. This would not only free up the time, money and energy spent on maintaining a large house, but also give us around $2.2m cash spare based on 3 x agent appraisals

    Only do this if you can turn the $2.2m into a solid-proof business that can make more than the increased capital value of that home plus the rent. Don't forget the tax you have to pay from the profit of the business. You can calculate the projected figure from, say, the last 20 years.
    And don't forget that there is always a risk that the business gone puff no matter how small it is.

    The rent figure of $2000 a week is already $104000 a year, so obviously HISA is not an option.

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