40 y/o,House paid off,What would you do in my situation to grow wealth?

[lochie]

I'm 40 and have house paid off thanks to an inheritance. House is worth about $850k
We live in Adelaide. My wife and I both work and make 150k combined per annum in secure long term jobs. We aren't high rollers but our jobs are secure.
So we can get a loan of some kind + use equity in our home to do something like buy another property or build a duplex etc..but that's about as far as my real estate investment awareness goes.
My first instinct is to use equity in home+get a loan to build a dual occupancy home and live in one whilst renting one out, and then after 12 months renting both out after a year or two and moving back in to current home and then rinse/repeat if possible.

What would you do in my position? We dont make much but we've been very lucky to get a huge inheritance and now we are in position to really build for our retirement and to help our 3 toddler kids in the future when god knows how expensive houses in Oz will be.

Thanks for your help.

 

[ocsoni]

@lochie How's your Super looking? Maybe consider salary sacrificing into it.
I personally wouldn't withdraw $ against the house.
3 toddlers means you'll need easy/ fast to access $ at all times for school fees, extracurriculars and endless bday presents for parties they're invited to. So I'd pump money saved on not having a mortgage into highly liquid investments like shares/ETFs and peer to peer lending. When you've got a decent emergency fund and a spread of investments, maybe use your house as collateral to buy a newish completed build so there's lots of depreciation but no risk of a builder going bust.

 

[lochie]

@ocsoni Thanks heaps for the feedback, hadnt considered the liquidity needs of school age/teenage kids enough tbh.

 

[sophie0813]

@ocsoni Got my QSuper statement yesterday... Made a whopping 2.3% after their fees were deducted from the income. Absolute joke.

 

[christianjmu]

@lochie We are in a very similar position except we earn a bit more, we already have enough in super that it’ll compound to a healthy retirement and our kids are a bit older.

We are slowly starting to invest more in time and experiences and I’m looking to go part time at work. (Slowly because it’s not that easy to leave the accumulation mindset)

Do you really want to be stressing about a investment build, or a bathroom that has failed waterproofing leading to a 10k repair, or tenants that have trashed the place? All for a couple of extra percent?

I’d consider focussing on your super as you’ll ready to cash in just as your kids start to need babysitting. After that, enjoy being in a financial position that is pretty hard to stuff up!

 

[suzanne123]

@lochie You don't need to move out of your house or build duplexes to build wealth.

If you want to buy property I'd just keep it simple, stay in your current home and buy good established properties.

You should have a decent amount of borrowing capacity with your home paid off already and 150k combined income, a broker can help you figure out your borrowing capacity.

 

[moonwalker_03]

@suzanne123 Yeah, especially with the industry choked.

 

[susanitamn]

@suzanne123 Won't they avoid CGT by living in the investment property though? Assume that's why they're planning on moving into it.

 

[suzanne123]

@susanitamn At that time they lose the main residence exemption on the existing PPOR, if they build a new duplex then they only are exempt for the half they live in and it needs to have appreciated from the purchase price to have any CGT to be exempt from.

Given they've paid off the PPOR, when they rent it they couldn't deduct any interest on that either which is a downside.

I just think it's over complicating things, you take additional risk in construction and moving with 3 kids is going to be a pain. Buying existing property is far simpler and probably gets the a similar return if you do it well.

 

[lochie]

@suzanne123 But we could do works on it (eg new bathrooms/kitchen with a loan) and claim the interest off that right?
Thanks for the knowledge

 

[gregp0072]

@lochie You don't want to do something like move house for a tax benefit alone.

My 2 cents would be to buy an investment property somewhere close to home. If it's a nice location or central, you could even airbnb it which can often result in higher yields but is a load more work.

Outside of property, I'd be putting your savings into the stock market. A bank share is a safe way to go.

You'll be in a good position when you retire regardless with your house paid off at 40 and 2 incomes so just enjoy your life.

The idea of this duplex build sounds like a fkn nightmare in terms of time and effort.

 

[finiteimmortal]

@susanitamn Only for the growth during the period live there, during which they’d cop CGT on any growth on their home instead.

 

[prodigalheart]

@lochie Make sure your house is insured

 

[lordsberg]

@prodigalheart Ha! This is obvious but so often overlooked. One year i managed to not insure my investment property (the lender is supposed to not let that happen, but they did). At tax time I was like, where’s the insurance renewal? There isn’t one! If that property had burnt down during that time I would have been in a whole world of pain.

Make sure your property is adequately insured!

 

[kelliekelliekellie]

@lordsberg Hmm and all this time I thought it was the owners responsibility to make sure its insured not the lenders

 

[resjudicata]

@lochie Why do anything else? You have a $850k asset you can draw on in retirement, you can salary sacrifice into super and pump that up significantly. In the meantime, with no significant debt, you can enjoy the freedom of having higher discretionary income and have a very nice debt free life.

Enjoy the freedom this brings rather than fretting about the perceived need to keep building wealth.

 

[aristotle1]

@resjudicata Yep. Not everyone needs to be a property investor/speculator.

Just enjoy life.

 

[karen22]

@resjudicata Though.. in this position, building more wealth probably wouldn’t even really impact their living standards much.

They could put a bit away into an index, or find an investment property without much impact on disposable income. So, why not really.

 

[thegreatquestioner]

@lochie When you have more than you need, build a longer table not a higher fence

 

[kaneakua]

@lochie You're in a lucky position, having your home paid off must feel very liberating! Given everything you've described I think building sounds reaaaally stressful with the little kids. We've got two kids a bit older but renovating and dealing with investment properties even on a minor level can be time-consuming and stressful.

Do you have investments beyond super? We drip feed int ETFs, salary sacrifice to the max into super and we have bonds for the kids. We've recently bought an IP as we're now entering a tax bracket where negative gearing benefits us, but I was reluctant after owning a previous IP and experiencing how much work they can require compared to liquid investments.

As others have cautioned, I'd be wary of ripping out your amazing amount of equity when you've got 3x little ones who will require flexibility in your cashflow in the future. We've got 1 at school and 1 at daycare and the school years have ended up being more expensive than I realised.