Any financial advisor types around here ?

[Grant]

My best friend (my wingwoman) is not too sure what to do - i'm not of much help.
her mother is 65 (or 66) now - pretty bad heart condition.
her mother has an apartment worth around R3.5m, but monthly levy etc is becoming unaffordable, so she wants to sell.

so she can sell, and buy another property (lesser monthly levy) and lesser value - lets assume R2.5M - leaving her around R1m in cash.

or, she can sell, invest the proceeds of the sale, and rent another home.
she would (or should) be able to live comfortably off her regular monthly pension + interest out of the R3.5m invested

given the combination of her age and health, i'm inclined to feel this is not the time for her to be ploughing a large portion of the proceeds of the sale into the purchase of another property.
i'm of the opinion (somewhat hedonist), but sell, rent another place, invest R2.5m and keep R1m to enjoy while she can.

i have offered to go into a sale and lease back agreement with her, whereby i purchase, pay for maintenance, monthly levy etc, as in a regular lease agreement.
however that is off the table as she wants to move for a few reasons beyond just the monthly levy cost.

any bright ideas on this ?

 

[Tomtomtom]

Not a financial advisor but I'm with you on the idea she should sell and rent.

The trick is how to invest the proceeds cleverly. I am a fan of using an RA, especially after retirement, because none of the major drawbacks apply past age 55 but the benefits are still there.

She can open a new RA (even though she's already retired on a pension) and she can invest a lump sum. Then she can convert it immediately into an LA to augment her existing income. The over-contribution carries forward and can be offset against taxable income for years to come. Meanwhile the asset is now excluded from her estate, so the estate is easier to wind up, and it's a quicker process to distribute to heirs if the account outlives her. 10x has an article on this approach.

Just don't let her sign off on any annual financial advisor fee! If she wants to take paid advice it should be once-off.

 

[Thrasil]

there is security for a old person knowing they cant be kicked out of their house. she could live for another 25 years etc. will her income keep up with inflation to keep affording rent. Definitely need a financial advisor to give you all the ins and out. One thing that has worked well in my family is buying life rights to a place for a final place. Often alot cheaper than buying out right but you get the security of not being booted out that you get with rent. Then also your income does not need to cover rent but just the levy. Which even if you fall behind on i dont think they can kick you out. They just take it from your estate. ( i may be very wrong on that though). The above does not work if they think they need to move somewhere else later in life. Should be their last place before frail/hospice etc as you lose out on any capital growth.

 

[W@P]

Not a financial advisor but I'm with you on the idea she should sell and rent.

The trick is how to invest the proceeds cleverly. I am a fan of using an RA, especially after retirement, because none of the major drawbacks apply past age 55 but the benefits are still there.

She can open a new RA (even though she's already retired on a pension) and she can invest a lump sum. Then she can convert it immediately into an LA to augment her existing income. The over-contribution carries forward and can be offset against taxable income for years to come. Meanwhile the asset is now excluded from her estate, so the estate is easier to wind up, and it's a quicker process to distribute to heirs if the account outlives her. 10x has an article on this approach.

Just don't let her sign off on any annual financial advisor fee! If she wants to take paid advice it should be once-off.

I agree with you on all of the above.

Sell, then rent.
Get an RA, convert to an LA, and take the smallest possible % of monthly income from it.
Absolutely no annual advisor fees. If FA is a must, then it should be one-off.

 

[Splinter]

My best friend (my wingwoman) is not too sure what to do - i'm not of much help.
her mother is 65 (or 66) now - pretty bad heart condition.
her mother has an apartment worth around R3.5m, but monthly levy etc is becoming unaffordable, so she wants to sell.

so she can sell, and buy another property (lesser monthly levy) and lesser value - lets assume R2.5M - leaving her around R1m in cash.

or, she can sell, invest the proceeds of the sale, and rent another home.
she would (or should) be able to live comfortably off her regular monthly pension + interest out of the R3.5m invested

given the combination of her age and health, i'm inclined to feel this is not the time for her to be ploughing a large portion of the proceeds of the sale into the purchase of another property.
i'm of the opinion (somewhat hedonist), but sell, rent another place, invest R2.5m and keep R1m to enjoy while she can.

i have offered to go into a sale and lease back agreement with her, whereby i purchase, pay for maintenance, monthly levy etc, as in a regular lease agreement.
however that is off the table as she wants to move for a few reasons beyond just the monthly levy cost.

any bright ideas on this ?

Without knowing what her other current income is, it is difficult to advise. Except, it's not a great idea to stick it all in cash and live off the interest. Inflation will make standard of living evaporate more quickly than you would believe.

Then again, it seems you do not expect her to be around for too long. Of course, last thing you would want is for her to stick around for years to come, in poor health and with diminishing resources.

The living annuity option sounds ok, but again, 3.5m is not that much, depending on her other income and how long she will still be around.

Your wingwoman will love me, but best bet (for the mother ) would be to move in with her daughter and rent out the unit. This way there is a steady income, increasing with inflation, and the capital asset is retained. Wingwoman might even inherit it.

 

[DarkStarMonday]

My best friend (my wingwoman) is not too sure what to do - i'm not of much help.
her mother is 65 (or 66) now - pretty bad heart condition.
her mother has an apartment worth around R3.5m, but monthly levy etc is becoming unaffordable, so she wants to sell.

so she can sell, and buy another property (lesser monthly levy) and lesser value - lets assume R2.5M - leaving her around R1m in cash.

or, she can sell, invest the proceeds of the sale, and rent another home.
she would (or should) be able to live comfortably off her regular monthly pension + interest out of the R3.5m invested

given the combination of her age and health, i'm inclined to feel this is not the time for her to be ploughing a large portion of the proceeds of the sale into the purchase of another property.
i'm of the opinion (somewhat hedonist), but sell, rent another place, invest R2.5m and keep R1m to enjoy while she can.

i have offered to go into a sale and lease back agreement with her, whereby i purchase, pay for maintenance, monthly levy etc, as in a regular lease agreement.
however that is off the table as she wants to move for a few reasons beyond just the monthly levy cost.

any bright ideas on this ?

Rule of thumb for investments:

Roughly R6000 pm per 1 million in interest per month.

+ - R21 000 pm from the interest.

Is this doable ?

Edit: depends on the what type of investment the money is put into - high risk or low risk etc.... and SARS lol never forget SARS !!

 

[W@P]

Remember, she will be taxed on any interest earned.

 

[NarrowBandFtw]

Remember, she will be taxed on any interest earned.

tends to not matter if that's your only income, you'll be under the minimum income needed to pay any tax at all

 

[Grant]

Not a financial advisor but I'm with you on the idea she should sell and rent.

The trick is how to invest the proceeds cleverly. I am a fan of using an RA, especially after retirement, because none of the major drawbacks apply past age 55 but the benefits are still there.

She can open a new RA (even though she's already retired on a pension) and she can invest a lump sum. Then she can convert it immediately into an LA to augment her existing income. The over-contribution carries forward and can be offset against taxable income for years to come. Meanwhile the asset is now excluded from her estate, so the estate is easier to wind up, and it's a quicker process to distribute to heirs if the account outlives her. 10x has an article on this approach.

Just don't let her sign off on any annual financial advisor fee! If she wants to take paid advice it should be once-off.

I'm doing a little exploratory fishing in this thread.
RA - i have my staff with allan gray. - can "employ" her and bundle her in if she wants.

fin advice - yea, normally investec / allan gray, but i like to explore on my own initially - for example 10ppl may say "dont go near x", but advisor says "go with x - then i have good reason to question his advice

 

[Grant]

Without knowing what her other current income is, it is difficult to advise. Except, it's not a great idea to stick it all in cash and live off the interest. Inflation will make standard of living evaporate more quickly than you would believe.

i dont know her income amount - i seem to think its around R15k per month.
but the property is bond free and she has very few credit comittments.

Then again, it seems you do not expect her to be around for too long. Of course, last thing you would want is for her to stick around for years to come, in poor health and with diminishing resources.

i guess i would be a safety net - she has been like a 2nd mother to me.
having said that, my own heart is finished - i'm headed toward either cardiac or respiratory failure according to my cardiac surgeon.
be that as it may, her daughter - my wingwoman - stands to inherit a significant portion of my estate.
ironically, my mother died a few years back, her estate in only about to be finalised now - im sole beneficiary.
so if i die next week, mrs wingwoman benefits from both my and my mother's estate - and i miss the boat.

The living annuity option sounds ok, but again, 3.5m is not that much, depending on her other income and how long she will still be around.

Your wingwoman will love me, but best bet (for the mother ) would be to move in with her daughter and rent out the unit. This way there is a steady income, increasing with inflation, and the capital asset is retained. Wingwoman might even inherit it.

that will never happen
mrs wingwoman is jewish by birth, has extended her dietary choices beyond bacon cheating, to full scale pork consumption, and to compound things has developed a penchant for muslim boys !

 

[Grant]

Rule of thumb for investments:

Roughly R6000 pm per 1 million in interest per month.

+ - R21 000 pm from the interest.

Is this doable ?

Edit: depends on the what type of investment the money is put into - high risk or low risk etc.... and SARS lol never forget SARS !!

should be doable
interest + monthly pension

 

[Corelli]

My best friend (my wingwoman) is not too sure what to do - i'm not of much help.
her mother is 65 (or 66) now - pretty bad heart condition.
her mother has an apartment worth around R3.5m, but monthly levy etc is becoming unaffordable, so she wants to sell.

so she can sell, and buy another property (lesser monthly levy) and lesser value - lets assume R2.5M - leaving her around R1m in cash.

or, she can sell, invest the proceeds of the sale, and rent another home.
she would (or should) be able to live comfortably off her regular monthly pension + interest out of the R3.5m invested

given the combination of her age and health, i'm inclined to feel this is not the time for her to be ploughing a large portion of the proceeds of the sale into the purchase of another property.
i'm of the opinion (somewhat hedonist), but sell, rent another place, invest R2.5m and keep R1m to enjoy while she can.

i have offered to go into a sale and lease back agreement with her, whereby i purchase, pay for maintenance, monthly levy etc, as in a regular lease agreement.
however that is off the table as she wants to move for a few reasons beyond just the monthly levy cost.

any bright ideas on this ?

She will pay fees when selling and fees when buying. Probably loose about R250-500k in the process, depending on the agent and what needs to be done etc.

Do consider though that Old Age homes can be extremely expensive ie my dad paid R21k a month for just care, plus extra for medical fees etc. Its really not cheap. Best would be to build her a seperate entrance or so at one of the kids' homes and they would then share the costs, of which she can rent out her current place which is risky or sell and invest it, and well our market is pretty darn risky as well.

Best investment for retirement is not soo much the RA which you will pay tax on, but depends how much.

Its the Tax free savings account, which can pass tax free between spouses only. And the best part of that.......No capital gains tax, no dividends tax and ....NO INCOME TAX. But yip you need that for about 40 years to get any real benefit.

 

[DarkStarMonday]

should be doable
interest + monthly pension

Good thing is you can take what you need and leave the rest so it grows as each year passes.

Just don't trade it for magic beans mmmkay

Any banking fraternity or maybe Discovery, they all a dim and a dozen to be honest ( pardon the pun )

 

[Tomtomtom]

i dont know her income amount - i seem to think its around R15k per month.
but the property is bond free and she has very few credit comittments.

That does illustrate the issue. A R 3.5-million apartment is quite a lot of capital for R 15k monthly pension to maintain, levies and rates being what they are.

If she went the RA/LA route she would probably want to draw from it enough to bring her gross income to at least R 30k/month. The over-contribution would create an annual 27.5% deduction, reducing net tax to about R 1 700/month.

If she keeps it all discretionary her tax would depend on how it was structured. If it were all interest or rental income it would be over R 4k/month to SARS.

It can make sense to do a mix though. e.g. have R 500k bonds + R 500-1000k ETFs, for flexibility and to make use of annual interest and CGT exclusions.

ironically, my mother died a few years back, her estate in only about to be finalised now - im sole beneficiary.
so if i die next week, mrs wingwoman benefits from both my and my mother's estate - and i miss the boat.

This is the other half of the case for the LA. The insurer (the fund manager) pays out directly to the nominated beneficiaries. There's no wait on the estate.

 

[Grant]

so a bit of a change.
i will probably buy her place.
I got a loom report, we went thru recent sales in the direct vicinity & worked out the average price per m/sq.
using that metric, her apartment comes out at R3.85m - which became my offer.

to sweeten the deal, i offered her use of one of my places for 6months rent free, while she figures out what she wants to do.
the rental value equates to around R150k for the 6 month period.

she accepted my offer, but i told her she needs to sleep on it for a few days & get other opinions

 

[Grant]

That does illustrate the issue. A R 3.5-million apartment is quite a lot of capital for R 15k monthly pension to maintain, levies and rates being what they are.

If she went the RA/LA route she would probably want to draw from it enough to bring her gross income to at least R 30k/month. The over-contribution would create an annual 27.5% deduction, reducing net tax to about R 1 700/month.

If she keeps it all discretionary her tax would depend on how it was structured. If it were all interest or rental income it would be over R 4k/month to SARS.

It can make sense to do a mix though. e.g. have R 500k bonds + R 500-1000k ETFs, for flexibility and to make use of annual interest and CGT exclusions.




This is the other half of the case for the LA. The insurer (the fund manager) pays out directly to the nominated beneficiaries. There's no wait on the estate.

makes sense

 

[Grant]

She will pay fees when selling and fees when buying. Probably loose about R250-500k in the process, depending on the agent and what needs to be done etc.

see post #15 above.

i have suggested offshore payment, or part payment offshore (hsbc - hong kong) if she wants to rent a property instead of buying again - and look to investing offshore.

Do consider though that Old Age homes can be extremely expensive ie my dad paid R21k a month for just care, plus extra for medical fees etc. Its really not cheap. Best would be to build her a seperate entrance or so at one of the kids' homes and they would then share the costs, of which she can rent out her current place which is risky or sell and invest it, and well our market is pretty darn risky as well.

those homes are way expensive - she is in very good physical shape right now - but that can change overnight.
in reality, she faces no real financial risk - if something happened i would step in (while i'm alive).
if i'm dead, wingwoman and mother would be feasting on wagu steaks served on white truffle jus while earthworms enjoy my eyeballs for sunday lunch !

Best investment for retirement is not soo much the RA which you will pay tax on, but depends how much.

Its the Tax free savings account, which can pass tax free between spouses only. And the best part of that.......No capital gains tax, no dividends tax and ....NO INCOME TAX. But yip you need that for about 40 years to get any real benefit.

 

[SauRoNZA]

Is the monthly levy REALLY unaffordable or it is more of a “I don’t like to pay that kind of” unaffordable.

Because one has to wonder if the selling and all the related costs and ideas would level out over simply playing the levies for the next twenty years.

 

[Grant]

Is the monthly levy REALLY unaffordable or it is more of a “I don’t like to pay that kind of” unaffordable.

Because one has to wonder if the selling and all the related costs and ideas would level out over simply playing the levies for the next twenty years.

the monthly levy is R4200 pm - 1 bed apartment, no garage etc.
it is high.

i have served as trustee in a few buildings, as well as chairman - so pretty familiar with levy costs in the area and things that could impact levy contributions.
in this particular instance, it is airbnb.
there are a number of apartments used for this - the airbnb lobby in the building keep pushing for increased security etc - so they can advertise and charge higher rates.
the building is contacted to 4 companies:
concierge service
24 hr security
armed response company
off-site cctv monitoring company

the staff are very well paid, deservedly so.
building manager is on about R34k p/m

levy aside, she does not want to live in a hotel / timeshare environment with an endless flow of strangers thru the place

 

[Tomtomtom]

the monthly levy is R4200 pm - 1 bed apartment, no garage etc.
it is high

Sea Point or surrounds?

so a bit of a change.
i will probably buy her place.

This sounds like a good solution. A private sale will keep a lot of money in your pockets. Providing you want the exposure.