How many of us know someone in this predicament? They barely have enough cash to buy their own lunch but go home to a million dollar home each night and have an SMSF in the hundreds of thousands as well. They feel they cannot access any of that cash. Why? Because it’s for their retirement. In short, they’re asset rich and cash poor.
We recently had a client that did something similar to the following:
Let’s say they brought their house some time ago at a fraction what it costs today. Let’s assign a nominal value on that property of say $1.5 million with a small mortgage. Let’s also assume that the person has an SMSF of around $300,000 – mostly invested in cash earning around 3%. Let’s further assume that this person has savings of around $120k.
Usually this person is so focused on repaying their mortgage that all else seems unimportant. They forget to live and to take advantage of their wealth (which they probably don’t see).
The strategy below is what some of our clients are doing. Let’s start with the home and assume that the owner has equity of around $1.3 million. They can use a fraction of this amount along with the cash that they have and borrowings from a bank to invest in another (smaller, positively geared) property – obviously not in Sydney or Melbourne. If they have $300k in SMSF, they can use say $150k as a payment on a $400k investment property – again, not in Sydney and Melbourne. They have lifted their yield and introduced the possibility of achieving a capital gain (or loss) into their investment portfolio.
Cash is a safe investment but investing at 1% above the inflation rate means you have a real yield of that amount (1%).
Please note that this is not financial advice – merely an example of what some of our clients are doing. Any advice you receive should be done by a professional financial planner, accountant or property adviser (all of whom should be qualified to provide such advice) and should be tailored to your individual needs. If you don’t know how to get in touch with one of these professionals, we can put you in touch with one’s that we deal with.