Finance with Don Fraser Fraser Farm Finance

Given that I am semi-retired, still as busy as ever, and given that I see and hear a lot about life, I thought I should traverse some of the key issues around passive income.

It is tough enough giving up our farms and orchards to the next generation or selling to a new purchaser, let alone having to face lack of retirement cashflow.

I admit right here that I had scant regard as to how our twilight years might look 10 years ago with very little passive income organised. I am a bit like the mechanic and his car – fixing everyone else’s problems.

Fortunately, with a little encouragement from my lovely wife and some serious focus on our own business, along with some strategic moves on the old chess board, we have put ourselves back in a strong passive income position.

So, why am I telling you all this? Because I care about others who have not and cannot provide for their golden years of life, who have little or no money. Also remember that ‘we guys’ are expected to live to an average age of 83 and 85 for women. That damn testosterone.

Retirement Commission

How can one provide for passive income? One place to start thinking is to go online to the Retirement Commission and have a look there.

Some of the options could include:

Farm leasing:

Maybe selling the cows and the shares, clearing the remaining debt if you can, staying in the house – then you don’t have to buy one – and leasing your farm out.

Fund management:

Selling up and investing the cash with a suitable fund manager, who will look after your money by investing it in a balanced portfolio and trickling money back to you. Choosing a fund manager requires skill and focus – and making sure they are approved and your money will be secure. Watch out here for going for a high return as your capital may be more at risk. Talk to your professional advisers, particularly your accountant.

Houses:

Buying houses to provide passive rental income is great for capital gain at the moment, but not so good a ‘return’ on investment. If you are tempted, remember you have to pay rates, insurance and all maintenance out of your rental income. And then there are issues with ‘tenants from hell’, not to mention risk of methamphetamine issues with rentals.

Commercial Property:

Historically this has shown very good returns to the investor. Ordinarily the tenant pays rates and insurance and most of the maintenance. Cash returns have been about twice that of residential. Commercial does require excellent negotiation skills and a clear understanding of the issues. Frankly this is where I personally have invested my capital.

Combination:

A combination of the above with many and varied options.

Remain:

Finally, some remain on the farm and choose to soldier on.

Here’s some caveats

Remember that any form of partnership is easy to get into and hard to get out of.

Buying minority shares in commercial property can work, but sometimes you take a hit on exiting. For example, is a 20 per cent share of a building really 20 per cent when you want to exit? Or something less like 16 to 17 per cent.

And back to passive income. If you do not have this organised as you approach ‘slowing down’ and retirement (it’s a dirty word really), please, please focus down on it – now. Get some professional advice and ensure you manage your affairs so you can provide for yourself and your partner/wife and or family into the future.

I know there are far too many people trying to live off little more than the national super. Some can and many can’t. Make sure you are not one of them.

Disclaimer – These are the opinions of Don Fraser of Fraser Farm Finance. Any decisions made should not be based on this article alone and appropriate professional assistance should be sought. Don Fraser is the principal of Fraser Farm Finance and a consultant to the Farming Industry. Contact him on 0800 777 675 or 021 777 675. A disclosure document is available on request.