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gabbigirl

Investment property

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gabbigirl

DH and I have started panicking about retirement and realised we probably won’t have enough to retire on if we keep doing the same things we’re doing now. So we are considering buying an investment property. What are things to take into account when buying one. Any good blogs/information sources people recommend? Thank you

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SplashingRainbows

Can I suggest you do some more research first about other asset classes, and superannuation? And possibly get some personal financial advice?

 

I think the way the world has gone, it’s very difficult for many people to navigate financially on their own.

Edited by SplashingRainbows
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gabbigirl

Thanks splashing rainbows, I appreciate it sounds like I’m a total novice. We do have an accountant but I’m always keen to do my own research as I’m a little suspicious of the financial Planning industry . All of our decisions get discussed with our accountant

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SplashingRainbows

I get the financial planning suspicion, I do. In some cases its well deserved.

Your accountant, unless licensed, will not be appropriately trained to offer investment advice. They can comment on property but not whether property is better than shares. Whether you should instead salary sacrifice to super etc.

 

I have both qualifications so have a deep understanding of the differences.

 

Finding a good planner can help a lot. Your accountant may be aligned with one. I appreciate finding a good planner can be very difficult. Look for one with a degree as a minimum, CA / CPA qualifications are a bonus.

 

An investment property may be appropriate but it also may not.

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born.a.girl

Gabbigirl the things you would need to take into account would mostly be heavily dependent on your current financial situation, and the alternative uses for that money, specifically for you.

 

 

I know a number of people who, over the years, have commented about buying an investment property. One, very little income, said they'd negatively gear it so that it didn't add to their taxable income, which pretty clearly indicated to me that they didn't really understand what they were talking about.

 

 

As per SR, what percentage of your assets is currently in real estate? It may be wise to diversify a bit instead of having another asset with very low liquidity in the mix.

 

Investigate super and make sure you're putting at least the concessional maximum in each year, if you have funds to invest.

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Green Sage

DH and I have thought about investment properties a lot, and may get one eventually. We have made a lot of money on our homes, sums of money we couldnt have made any other way. But here are the things that are holding me back.

 

- Deposit. I wont buy anything without owning a big chunk of it. Not only are low deposit investment loans harder to find these days, but i dont want to end up with no equity or negative equity should the market fall. And having all our savings tied up in property means you cant access that money easily. So i want a big deposit, PLUS plenty of savings in the bank before we will do it.

 

- Time, I dont have time to manage a property, repairs, tennants, etc. Which means i need a good agent to run it. And i dont trust rental agents to do a good job. Its a big risk to leave it up to someone else to manage my asset, i would want to be involved myself.

 

- Cost and location. Even a tiny property around us is beyond our budget. So we would have to look at properties further away. And this adds to the time factor. We would have to drive there for inspections, and I dont have time to be doing that. Plus unfamiliar areas are tricky, I would have to reasearch a lot to make sure we were buying in a safe area as far as land value goes.

 

- Return on an investment property vs return on that money sitting on our current mortgage. Interest rates are low, but still, having our savings on our mortgage is an instant 3.8% return. No guarantees of that with an investement property. So we will have to pay off our current home a bit more before im comfortable enough to direct that money elsewhere.

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teaspoon

Hi OP,

 

Lately I've been doing some reading/ listening to Margaret Lomas and Paul Turner about RE investing.

 

https://realestateta...margaret-lomas/

 

I like that both of them really spell things out and speak in laymen's terms.

 

Still not sure what I'm going to do but feeling better informed.

Edited by teaspoon
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MadMarchMasterchef

Centrelink used to run free unbiased information seminars on such topics. I think they still do. The take home message was that investment properties need to make capital gains over time to be worth it. They usually don't bring in enough rental income to make a profit after all expenses are paid out, unless you were gifted one or were very lucky with where you bought.

 

ETA - this was about 15 years ago so I dont know if the above is still the best advice. Also it was mentioned property is a very long term investment. If you want to sell in 5 years then something else would usually be better.

Edited by MincePieMasterchef
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JoanFontaine

We have young friends who seem to be buying one every couple of years. They are very stretched but feel this is the right wealthmaking strategy for them. Their broker keeps suggesting properties in frankly some bizarre places which will never experience much growth. I suspect they will make money on some and lose on others, but they think this is their road to riches. They have had to make some big lifestyle compromises to do this too, ie~ stopping at one child, going back to work 3 months after baby etc. things most people aren’t prepared to do. We got one in a good spot before the last big boom and could buy more, but have moved into shares. I’m not interested in being a property mogul. I think most people on An average salary have probably missed the boat with making big bucks on property. Too many booms now.

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born.a.girl

We have young friends who seem to be buying one every couple of years. They are very stretched but feel this is the right wealthmaking strategy for them. Their broker keeps suggesting properties in frankly some bizarre places which will never experience much growth. I suspect they will make money on some and lose on others, but they think this is their road to riches. They have had to make some big lifestyle compromises to do this too, ie~ stopping at one child, going back to work 3 months after baby etc. things most people aren’t prepared to do. We got one in a good spot before the last big boom and could buy more, but have moved into shares. I’m not interested in being a property mogul. I think most people on An average salary have probably missed the boat with making big bucks on property. Too many booms now.

 

I hope that broker is 'just' a mortgage broker, and not a property broker.

 

 

A couple I know are a cautionary tale regarding investment properties, which were going to keep them comfortable in retirement.

 

They bought their first two, which did well.

 

The next three they bought in quick succession through a broker, right before property in their area crashed.

 

Now, they can't sell the ones which are worth less than their purchase price because they don't have the money to repay the bank.

 

They don't want to also sell the two that have done well, because, well, they're doing well.

 

He is retired on a very modest pension, but much of that income goes to pay the mortgages.

 

She, although past retirement age, is forced to keep working reasonable hours to also pay the mortgages.

 

They also re-mortgaged their own house to the hilt to be able to buy the last three places.

 

 

Property tends to go up over long periods, then drop like a stone when it does drop. Heaven help anyone who desperately needs to sell at that point. That's the problem with assets that are not liquid - you can't sell half.

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Mishu

Our financial advisor has been great. We have an independent advisor who charges us a flat, annual feel. The thing I really liked what that he had us do a questionnaire when we first met him to gauge our risk profile and has made recommendations since then in line with our profile. So we are completely comfortable with the investment strategy we are pursuing.

 

He has also mentioned that we could consider an investment property in the next couple of years but said he is not an expert in that area (ie finding a property) so would recommend we find someone who is, to help us locate a property if we wanted to do that. So he really does stick to the financial side of things. We haven’t yet-not sure that we will actually. I’m dubious about it being the pathway to great wealth. We have one child who will inherit our house, so I’m not sure why we would need more property.

 

Buying property through a SMSF (right property for the right reasons) works for some. Friends have done that but they have bought the husband’s business premises. But in their case it does mean that everything is tied up in property-their home, SMSF and investment properties. Not diversified enough for me.

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-Emissary-

I recommend jumping over to the whirlpool forum and taking a look at some of the threads in the finance sub forum and the real estate sub forum.

 

https://forums.whirlpool.net.au/forum/150

 

People tend to buy property because

- they think they understand all the risks involved

- they believe that property only increases in price

- negative gearing is attractive especially if you earn a high income

 

IP isn’t a bad investment choice but you have to be careful of the risks involved, invest in the right area, and have a decent buffer as it’s an investment that will cost you more money if something goes wrong (unlike shares where you only lose your initial outlay).

 

There are other investment options out there where you don’t need initial outlays of tens of thousands to start with like Exchanged Traded Funds (ETF) where you explore the stock markets but still can diversify your risks without needing to hold an buffer for maintenance like an investment property.

Edited by -Emissary-
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Dianalynch

Units have flatlined or are decreasing in value in a lot of areas, so I guess it depends on where you are buying, but I’d say the gains aren’t there at the moment to make it worthwhile- you need good advice though, as it’s very area dependent. Agree with PPs to also consider other strategies like more super and ETFs.

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gabbigirl

This is all very helpful - thank you everyone.

 

We are continuously undecided but know that we won’t have enough in retirement..

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NeedSleepNow

I would definitely start by having a really strong understanding of what your financial goals (and needs) are, and where you want to be in 5, 10, 15 years etc. If you know what you are aiming for, it can be a bit easier to determine the most appropriate path forward.

Not doing this is the mistake I think we have made. We have moved a few times (once interstate), and because of the costs of selling, we have just held our previous properties as we have moved. While paying down mortgages is forced savings, it is a completely useless investment strategy, as the houses are duds as investments. We would have been better served with another strategy, but we really failed to think it through and set some tangible/specific goals.

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born.a.girl

This is all very helpful - thank you everyone.

 

We are continuously undecided but know that we won’t have enough in retirement..

 

 

Are you each paying $25k pa into super (that figure includes your employment super) which can all come off pre-tax income (although you do pay tax within the fund, just not as much).

 

If either of you have less than $500k in super, you can add in any unused portion from previous years, which started 1st June 2018, so if either/both of you have less than the cap, you can use that to add to the $25k this fin year.

 

 

https://www.esuperfund.com.au/learn/contributions-to-smsf/planning/catch-up-concessional

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Green Sage

This is all very helpful - thank you everyone.

 

We are continuously undecided but know that we won’t have enough in retirement..

 

how much do you think you need?

 

Its a tricky question. Dont trust what your superannuation fund tells you.

 

Have you read the barefoot investor? He has some god ideas about retirement. He says Basically, pay off your mortgage, keep working 1-2 days forever (if you can) and access a part pension, and you can live confortably on not much super. Its more complicated than that, but its a good book to read as a starter. Reading his book got me started in investing, now i have a very small investment, and its been interesting to see it grow. makes me more confident in investing in shares. Ill put more money into it soon.

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NotBitzerMaloney

I would strongly recommend topping up super to contribute $25k each per annum. More if you haven’t gotten to $25k p.a in the last couple of years

 

Given the concessional tax rates going in, even if they change the current insanity of tax free going out, you’d be hard pressed to do better in terms of a net rate of return.

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born.a.girl

I would strongly recommend topping up super to contribute $25k each per annum. More if you haven’t gotten to $25k p.a in the last couple of years

 

Given the concessional tax rates going in, even if they change the current insanity of tax free going out, you’d be hard pressed to do better in terms of a net rate of return.

 

 

It's not insanity, alternatives that many think are better, would actively discourage anyone adding to super - just what we need people reaching retirement with less super.

 

It's concessional going in, but given most of it is compulsory, you'd have WW3 going on if it was all after tax money.

 

Then, when you withdraw it, it's a 15% FLAT tax that you've paid on every cent.

 

p.s. the top is 'only' for people with less than $500k super, although I'd assume that's most younger people, it's not automatic given phenomenally generous schemes like uni super's 17% that many get.

Edited by born.a.girl
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Ivy Ivy

Gabbigirl,

I find a lot about retiring and investing and super perplexing. Also, because I've been massively ripped off by financial advisers previously, I am wary of following professional financial advice, and don't know how to find a decent adviser to trust. They all seemed to be on kickbacks and side hustles, skimming off the surface of my investments or insurances, when I used them.

 

Nobody seems to know how much super a single or couple needs, there are such varying figures out there. What I find worrying is my current super balance is less than I earn per year - how on earht can it keep me in my current lifestyle for 20-30years?

 

Also, I had kids late, so at the same time I'm raising young kids, buying their clothes and books and toys and holidays, and paying for all the costs of running a household for a family, plus 26 years of private school fees, I'm also meant to be putting money into assets of some sorts to retire, and simultaneously miraculously paying a large mortgage, and somehow also be around, not working to make money, to actually, you know, see my kids - all at the same time, across the same years aged 40-60. Doing just one of those things would be possible, having to do them all simultaneously, it's a strain.

 

An elderly man told me he put the bulk of money into super after the kids were finished school/uni and just during the last few years of working, before he retired, but I don't know if that's possible anymore.

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blimkybill

 

An elderly man told me he put the bulk of money into super after the kids were finished school/uni and just during the last few years of working, before he retired, but I don't know if that's possible anymore.

 

I think it is possible, and will be for you (based on the information you just gave). You just have to not think of retiring at 60, make it closer to 70, then you will have some good years to pump up your super.

 

But if it was me I wouldn't bother with the private school fees...

 

I have recently stopped having to provide for my 3 kids. The reduced financial pressure is amazing and what's more I am watching my super balance go up.

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timtam92

I would start by salary sacrificing into super. Then you can go from there. You will be surprised how fast your super will grow without a huge drop in take home pay.

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timtam92

Gabbigirl,

I find a lot about retiring and investing and super perplexing. Also, because I've been massively ripped off by financial advisers previously, I am wary of following professional financial advice, and don't know how to find a decent adviser to trust. They all seemed to be on kickbacks and side hustles, skimming off the surface of my investments or insurances, when I used them.

 

Nobody seems to know how much super a single or couple needs, there are such varying figures out there. What I find worrying is my current super balance is less than I earn per year - how on earht can it keep me in my current lifestyle for 20-30years?

 

Also, I had kids late, so at the same time I'm raising young kids, buying their clothes and books and toys and holidays, and paying for all the costs of running a household for a family, plus 26 years of private school fees, I'm also meant to be putting money into assets of some sorts to retire, and simultaneously miraculously paying a large mortgage, and somehow also be around, not working to make money, to actually, you know, see my kids - all at the same time, across the same years aged 40-60. Doing just one of those things would be possible, having to do them all simultaneously, it's a strain.

 

An elderly man told me he put the bulk of money into super after the kids were finished school/uni and just during the last few years of working, before he retired, but I don't know if that's possible anymore.

 

Private school is a luxury. You need to work out your financial priorities. Start by putting extra into your super now

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Mose

I agree with PPs, step 1 has to be to really understand your goals.

 

Ignore all of the generic stuff super funds say about how much a couple "should have" in retirement. These numbers are based on averages, and tell you exactly nothing about your personal situation.

 

Questions to start considering:

At what age do we want to retire?

Does either partner have a job that is so physically demanding or precision based (IE fine motor skills) that it may not be possible to do that job until the desired age? If so, are their skills transferable, and what plans are being made so that a change will be realistically possible?

Will you have paid off a house by that age?

Will you want to continue to live in that house, or potentially downsize?

How many years before retirement do you expect your children to stop bring financially dependent on you?

What are your retirement plans - local lifestyle and community stuff or vast travel dreams?

What percentage of your current income could you live off comfortably in retirement?

 

Once you start landing all of these questions (and no doubt more) you can actually get more of a handle on what you need, and what decisions need to be made to achieve it.

 

DH told me a month or two back he wants to retire at 60. I told him pretty quickly that unfortunately that was a conversation we needed to have had before buying our current home!!

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Murderino

Find a fee for service advisor rather than one who gets a commission from the investments they sign you up to.

 

My concern with property as your investment for retirement is eventually you only have that rental income and it has to service your lifestyle, repayments if you haven’t paid it off yet and all the expenses. Fine if you can afford a huge portfolio of properties and get them paid off before retirement but if not?

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