investment plan

Hi all,

not sure where to start with a plan to build wealth for my wife and i. Real estate is making me a little nervous as are shares. He is current situation and would like to know what others would do in my position.

current situation

My income $220k / wifes income $60k.
PPOR value $510k
Mortgage $375K
Offset account $65k.

We currently are saving well as loan is small for our apartment and wages are good. Will look to have kids soon and move into bigger house in next 2 or so years but wondering what to do in the meantime. Should we invest in investment property or shares or keep piling it into the offset.

 

Good wage.

I would suggest you change your loan to IO, if not already, and also set up a LOC on the property up to 80% LVR.

Keep placing your wage etc into the offset account and any investments you do make sure you borrow from the LOC. Interest will be deductible and the cash you would have used will stay in the offset saving you almost the same interest.

This will benefit you when you do move out of the unit and begin to rent it. As you would have more cash available and end up with greater deductions.

 

Benny,
It is a matter of what you want to achieve and when.
There are three broad asset allocations, shares, cash and property. They each have a number of options within them.
If your goal is to build wealth over time, then you need to have your assets working for you where you are achieving long term capital growth greater than CPI and in a tax effective manner.

The use of superannuation as a tax effective vehicle can work althougth there are limitations in contributions and it is locked away until retirement effectively. Investing outside super can and does work for many people and as I have expressed previously a finance gearing strategy can accelerate gains (and losses) made. Most investors are better advised to concentrate on one strategy, some like shares and the immediacy of market price and liquidity but it is a very volatile market that can move overnight. Property markets move in long cycles and for many markets they have dropped over the last couple of years but there are markets and areas that continue to grow and achieve decent rent yields. You can add value to property which you cannot to a share. Companies can and do fail, land is very unlikely to disappear.

I agree with Terry, if you are thinking of moving in the next couple of years to a larger property and there is a possibility of keeping your current apartment as an investment property, change to an IO loan and continue to build your offset. The offset amount will be the funds you need to use as a sizeable deposit for your new home. Alternatively you sell your current apartment and have a much larger deposit and lower loan to be able to settle. You can then refinance to establish a LOC facility that can be used for investment purposes. This converts the larger loan to an investment loan rather than an owner-occupier (non tax deductible) loan. Do the numbers to see what makes more financial sense.

It depends on your timing of when you want to start investing and the amounts involved. My view is generally you buy/invest when you can afford to as it is more about time in the market than trying to time a market. If it is property chosen as the asset class, then ownership, type of property negative or neutral/positively geared, how to finance are all questions you will need to decide upon beforehand.

Good luck with it.
Greg

 

thanks for advice thus far. Some food for thought. Does anyone happen to know any decent finacial advisers in Syd that charge fee for service and wont try and sell me life insurance and every other insurance i dont want. Or am i better finding a decent accountant?

 

Benny,
Most financial planners (where did they get that name from?) I know of are simply insurance salespeople or sell financial products from their provider platform. I do not know many that recommend residential property as an asset class other than those who sell developer stock and get paid a very healthy commission. There will be some who will provide decent advice out there.

Most accountants in public practice simply do tax returns and many of those leave a lot to be desired in relation to property deductions let alone advice. Again there are some very good ones out there but you need to search for them. I hear my clients stories of incorrect advice or not claiming depreciation and building allowances or wrong ownership structures or no advice or guidance given at all.

Some investors will use professionals outside their own area or even state. The use of technology no longer restricts having to use local professionals. Find someone that you can relate to, knows what they are doing and are property investors themselves and can back up with testimonals from clients.
Good luck in your search
Greg

 

Hi Benny,

I agree with Greg that most financial planners tend to give biased advice about your particular plan, in order to skew it to sell their set of financial products, in which they typically get a commission.

If you were going to go with a financial planner, however, be sure to ask them how they are paid. Also, prefer to go with one that is paid only a flat fee, rather than via commission.

I think it all depends, however, on your goals and your risk profile. Seems like you are not too keen to take risks in shares and property, although I would aargue that alot of wealth is made in those 2 asset classes, as opposed to the very safe savings account or term deposit.