Investment options for spare cash

[Jack M]

Bank interest rates are very low (2%-3%) at the moment.

What are other investment options to get a higher ROI and better cash flow instead of keeping the extra cash in bank. Seeking suggestions to bounce my ideas off.

[end_of_cosmos]

Mate that question can have 50 different answers depending on your needs. What is your investment window? How important is liquidity to you?
When you say ROI and higher cashflow, do you mean capital gain and cashflow?

[Jack M]

Perhaps, I should have given you more info before posting the question. I have 2 investment properties which started off as negative geared but are now closing on neutral. As a result I have spare cash, but not yet ready to purchase my 3rd property.

Looking for ways to short term gain from the spare cash I have. The investment has to outperform the mortgage interest rate I am on (currently at 3.56%). Term deposits are obviously not an answer.

What ideas do you have (in the current economy) to do better than 3.56%?

I have so far dipped into:

ETFs (Gold)
Shares (mostly pharma)
Cryptocurrency

[end_of_cosmos]

Assuming that you do not want to add to existing investments (chares, crypto, ETF) and also assuming your investment window will be 2 years or less, the only other option you have is to invest in property but not with a buy and hold strategy but rather one of the following two:
• Develop
• Buy and renovate
Taking the assumption of your investment window as a matter of fact, both of the above property investment strategies would be useful considering that it takes 2 years or less to develop or renovate a property. There are a couple of key things to consider here; one being your experience with these property investment strategies and the other one of location concern.
As you will be adding value to either the land you will develop (i.e building the investment on the land which could be in the form of units, townhouses or a single detached dwelling) or the house you renovate, the area you buy in should at least not loose on it median value so that the loss does not eat into the money you make from adding value.
Not to go into statistics here but it is my personal option that after all of the fees you have to pay when you sell the property you have developed/renovated, you will be in a position to make much more than 3.65%. For example, developers do not look at a site if their feasibility or back of the envelope analysis as they call it does not stack up which means that they do not consider worthy any site that does not return 20% minimum (gross that is).

[Jack M]

Hm… I like where you’re going with this.

But wouldn’t I need a significant sum to develop and sell? The bank not likely to allow me to refinance and borrow above 100K based on my current portfolio and salary…

[investingme]

Jack M, there are other ways to obtain lending. You can, for example, have an investment partner or developing can simply mean adding value to an existing property. Also, the 100K you have is more than enough if you undertake some of the aspect of developement by yourself such as the building elements for example through an owner builder licenece

[Jack M]

Thanks, so if I invest 100K in reno into development of one of my existing properties, how would I then extract the value-add from this?

[investingme]

Well, I am not privy to your circumstance but the short answer would be that you would need to refinance your property after completing the renovation – the bank would re-evaluate your newly renovated property and would lend you the amount for the principal providing you with an opportunity to extract or realise the equity. Also, keep in mind, this money is tax free since you have not ‘sold’ your house yet and as such the equity realised is not classified as capital gain. You would however, I believe, still have to pay the interest on the extracted equity.

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