Financial advice

[Bravotwozero]

Hi all.

My wife and I have recently bought a block of land which we plan on building our new home on. Currently we have a home that will be sold to fund the building costs of the new place. As it stands, we have roughly $70,000 equity in our current property.

So at the moment I'm thinking of doing 1 of the following:

1: Using the equity in our previous property as a deposit on the building of the new property and lowering the mortgage.

2: Financing most of the new house less about $10,000 deposit and investing the remaining funds into something else.

At the moment we're not too sure which way we should go. Any financial advisors or accountants on here who could give give their opinions, they would very much appreciated. Also, if the second option is a better one, what would you suggest we invest the funds in?

If it makes any difference, the new home will be our main dwelling which we hope we won't be moving out of in the next 20 years or so.

I'm not expecting many intelligent replies to this thread but I live in hope. This sounds like something for Minux so I'd appreciate your reply mate!

[Marco-EFIVL]

Well for starters mate, have you got your current property evaluated? How much do you and/or an agent think you can get for your current place of residence? If you've got $70,000 equity in your current property, then how much is not paid off?

[Bravotwozero]

Currently have $70,000 equity in original purchase price of $220,000. Property has been valued at $280,000-$300,000. Amount owing on mortgage is approx $150,000.

I didn't factor in the $20,000 deposit paid when property was originally purchased so equity is more like $90,000. I don't want to factor in any profits from a sale until the property is actually sold.

[Marco-EFIVL]

Well if I were in your shoes. I'd place down a deposit $60,000 on your recently acquired property and then when you've sold your existing place, I wonder if you'd be able to set a clause with the bank that when the transaction goes through from your sale, then you'd find yourself able to beef that up another $15,000. So you have a deposit of $75,000 and I'd suggest you leave the remaining $15,000 in an account so you have some leeway to pay off your morgage and tackle any unforeseen expenses, if your in any other debt, I couldn't more strongly suggest you under take debt consolidation.


Lastly, are you a share holder? Do you own any shares? If you do I'd suggest splitting your dividend and channelling some into paying off the mortgage.

[minux]

Can i ask why your selling the existing property? You are far better off leasing it and having tenants pay your mortgage for you. It is well worth looking into especially with how hard it is for people to find rentals. Only 2 weeks ago we were able to push up one of our rentals $50 a week because people were desperate.

[ivaninoz]

It is well worth looking into especially with how hard it is for people to find rentals. Only 2 weeks ago we were able to push up one of our rentals $50 a week because people were desperate.

Similar put here,
No Rentals at all.

Though Ppl here might not be as Mercenary as you;
up $50.oo from what to what,
it is relative.

[spice weasel (BAM)]

I don't care what anyone says, the average RESIDENTIAL property income return (rental income) is absoloutely poor. You can get better investment returns getting 6.05% in a direct deposit fund. The average return for a rental property is only around the 3.5% less tax and you don't even get the advanage of an imputation credit if say you have some australian shares paying franked dividends.

The only reason you would want a rental property is for the capital growth and in my opinion the housing boom is finihsed and we will see no major growth in the next 2-3 years, whilst the australian stock market has now seen record highs (over 6000).

the only reason people are so attached to propety, is one of two reasons, either they are still hanging on because of the boom that has just been, or they like to be able to go up to the property and say, this is mine, see i can touch it (tangible) as opposed to either units in a managed fund (pooled investment funds for investing across a wide range of investment assets) or direct shares which is just a bit of paper.

It has also been shown that the share market has outperformed property in almost all ten year rolling periods.

People should not be going off half ****ed giving you adivce. You need to see a qualified financial planner. After the budget changes in 2006 there is now serious advantage in placing money within superannuation as it will be entirely tax free after age 60 (including both earnings on fund and also any pension payments) so things like your current age and retirement goals need to be taken into aco**** when looking at your entire financial position, including income details and other assets/debts.

I personally think it is not a simple question of whether or not you just keep two houses, but what this means exactly in the context of all your wealth enhancement goals, as a financial planner myself the only piece of advice i will give you is this, DO NOT take any advice from unqualified people on this site, go and see a financial planner who can give you advice on your overall position and also the tax consequence of what you are doing, because once you have multiple properties you now have capital gains issues and you need to determine what you intend to elect as your primary residence.

Sorry if im ranting i just hate it when people without the qualifications think its ok to give people advice on these matters when it can HUGELY affect their life and financial stability

[minux]

I don't care what anyone says, the average RESIDENTIAL property income return (rental income) is absoloutely poor. You can get better investment returns getting 6.05% in a direct deposit fund. The average return for a rental property is only around the 3.5% less tax and you don't even get the advanage of an imputation credit if say you have some australian shares paying franked dividends.

The only reason you would want a rental property is for the capital growth and in my opinion the housing boom is finihsed and we will see no major growth in the next 2-3 years, whilst the australian stock market has now seen record highs (over 6000).

the only reason people are so attached to propety, is one of two reasons, either they are still hanging on because of the boom that has just been, or they like to be able to go up to the property and say, this is mine, see i can touch it (tangible) as opposed to either units in a managed fund (pooled investment funds for investing across a wide range of investment assets) or direct shares which is just a bit of paper.

It has also been shown that the share market has outperformed property in almost all ten year rolling periods.

People should not be going off half ****ed giving you adivce. You need to see a qualified financial planner. After the budget changes in 2006 there is now serious advantage in placing money within superannuation as it will be entirely tax free after age 60 (including both earnings on fund and also any pension payments) so things like your current age and retirement goals need to be taken into aco**** when looking at your entire financial position, including income details and other assets/debts.

I personally think it is not a simple question of whether or not you just keep two houses, but what this means exactly in the context of all your wealth enhancement goals, as a financial planner myself the only piece of advice i will give you is this, DO NOT take any advice from unqualified people on this site, go and see a financial planner who can give you advice on your overall position and also the tax consequence of what you are doing, because once you have multiple properties you now have capital gains issues and you need to determine what you intend to elect as your primary residence.

Sorry if im ranting i just hate it when people without the qualifications think its ok to give people advice on these matters when it can HUGELY affect their life and financial stability

ah huh, i agree with what you are saying, i nor no one else here is qualified to give advice. However, most people do not make money from rentals, they make the money by selling the rentals with other people paying for them.

I have 4 houses, of 1 i own completely, of the others tenants pay for them to an extent. My aim is to own this land so that when i die my kids have something to sell. With where i own the house and land it is already 2.4 times my purchase price to sell today. Thats is more what i was aiming at.

[spice weasel (BAM)]

Not a problem minux, i get a little touchy on this subject i have seen many bad results of people listening to people they shouldn't be. (not saying you don't know what you are doing for yourself, just that people think that what works for them automatically must fit for everyone else and its like saying because i wear size 11 shoes, they must fit everyone.)

At the end of the day we say to our clients that they need to be comfortable where they are invested. Shares do yeild a higher return and in return for that you accept the higher risk of a negative return. If you can't sleep at night then you are invested in the wrong area. I still firmly believe and so does my financial planning group that the property boom has now finished and although there has been great returns over the past 5-7 years people need to continue to look for the best investment return.

So i suppose the advice i am giving to you Bravo is that you should seek the advice of a financial planner who can look at your entire financial position and determine what will be most approriate for your individual circumstances to most improve your net wealth, whilst assisting you to remain comfortable across your prefered asset allocation (preferred mix of investment assets).

And i know alot of people claim that it is expensive, but when you are talking your entire future, what is a few thousand dollars in the context of hundreds of thousands, to millions of dollars????

Just my 2c

[Bravotwozero]

I don't care what anyone says, the average RESIDENTIAL property income return (rental income) is absoloutely poor. You can get better investment returns getting 6.05% in a direct deposit fund. The average return for a rental property is only around the 3.5% less tax and you don't even get the advanage of an imputation credit if say you have some australian shares paying franked dividends.

The only reason you would want a rental property is for the capital growth and in my opinion the housing boom is finihsed and we will see no major growth in the next 2-3 years, whilst the australian stock market has now seen record highs (over 6000).

the only reason people are so attached to propety, is one of two reasons, either they are still hanging on because of the boom that has just been, or they like to be able to go up to the property and say, this is mine, see i can touch it (tangible) as opposed to either units in a managed fund (pooled investment funds for investing across a wide range of investment assets) or direct shares which is just a bit of paper.

It has also been shown that the share market has outperformed property in almost all ten year rolling periods.

People should not be going off half ****ed giving you adivce. You need to see a qualified financial planner. After the budget changes in 2006 there is now serious advantage in placing money within superannuation as it will be entirely tax free after age 60 (including both earnings on fund and also any pension payments) so things like your current age and retirement goals need to be taken into aco**** when looking at your entire financial position, including income details and other assets/debts.

I personally think it is not a simple question of whether or not you just keep two houses, but what this means exactly in the context of all your wealth enhancement goals, as a financial planner myself the only piece of advice i will give you is this, DO NOT take any advice from unqualified people on this site, go and see a financial planner who can give you advice on your overall position and also the tax consequence of what you are doing, because once you have multiple properties you now have capital gains issues and you need to determine what you intend to elect as your primary residence.

Sorry if im ranting i just hate it when people without the qualifications think its ok to give people advice on these matters when it can HUGELY affect their life and financial stability

Thanks for the well thought out reply. For starters I will be getting professional advice before I commit to doing anything. I'm not going to take anything on here as gospel. Just thought some people might have more of an idea than I do.

Ok Minux appreciate the reply. I'm selling the property for one of two reasons. The biggest one being that we plan on starting a family soon and will have to live for a few years on my income alone. So basically I'm not willing to be paying such a high mortgage. Well actually that is the only reason.

As for other debts, I have nothing on finance. No credit cards nothing. So it is just the mortgage. Thanks for the replies so far (especially Weasel & Minux), you've given me something to think about.

[Not_An_Abba_Fan]

This may sound harsh but I'll say it anyway. Putting money into a term deposit that earns you 6.05% when you are paying roughly 7.25% interest on a mortgage is not very good money management. You are paying more in interest than you are earning. You are better off putting it all into your mortgage to reduce your interest then if you can afford to put some money each week into a managed share fund.

We have 2 rental properties also which the interest, rates and maintenance are fully covered by the rent return we get. We make no money from the rent but when we sell them in 3 years, (that is when the interest only period of those mortgages run out) we will make enough to pay out our current mortgage.

Having savings is good but not when they cost you money. I don't have a cent towards savings, apart from super, and all my extra cash goes into the mortgage. Keeping the interest down and paying it off sooner will give us a better quality of life down the track. We are not struggling by any means but we do forego some luxuries for the long term picture.

[Bravotwozero]

This may sound harsh but I'll say it anyway. Putting money into a term deposit that earns you 6.05% when you are paying roughly 7.25% interest on a mortgage is not very good money management. You are paying more in interest than you are earning. You are better off putting it all into your mortgage to reduce your interest then if you can afford to put some money each week into a managed share fund.

We have 2 rental properties also which the interest, rates and maintenance are fully covered by the rent return we get. We make no money from the rent but when we sell them in 3 years, (that is when the interest only period of those mortgages run out) we will make enough to pay out our current mortgage.

Having savings is good but not when they cost you money. I don't have a cent towards savings, apart from super, and all my extra cash goes into the mortgage. Keeping the interest down and paying it off sooner will give us a better quality of life down the track. We are not struggling by any means but we do forego some luxuries for the long term picture.

Yeah this seems to be the best option I would have to say. Cheers!

[minux]

I still firmly believe and so does my financial planning group that the property boom has now finished and although there has been great returns over the past 5-7 years people need to continue to look for the best investment return.

I completely agree with you here, we bought for long term investment though, we currently have a 3 bedroom place in camberwell, and 2 places in geelong that we lease, we figured in 20 years time they will be worth quite a pretty penny.

[Reaper]

Hi all.

My wife and I have recently bought a block of land which we plan on building our new home on. Currently we have a home that will be sold to fund the building costs of the new place. As it stands, we have roughly $70,000 equity in our current property.

So at the moment I'm thinking of doing 1 of the following:

1: Using the equity in our previous property as a deposit on the building of the new property and lowering the mortgage.

2: Financing most of the new house less about $10,000 deposit and investing the remaining funds into something else.

At the moment we're not too sure which way we should go. Any financial advisors or accountants on here who could give give their opinions, they would very much appreciated. Also, if the second option is a better one, what would you suggest we invest the funds in?

If it makes any difference, the new home will be our main dwelling which we hope we won't be moving out of in the next 20 years or so.

I'm not expecting many intelligent replies to this thread but I live in hope. This sounds like something for Minux so I'd appreciate your reply mate!

The best thing you can do is to find a licensed (independent) adviser in your area and pay for it. By independent I mean just that - not somebody who works for a bank. This person can look at your whole situation and take all of your long and short term objectives into account and then put together a proper plan to move forward.

Furthermore, it is specifically illegal to offer any financial advice unless you have the appropriate financial planners license. Anybody who does offer such advice opens themselves and the owners of the website to prosecution from ASIC.

Cheers,
Reaper

[Not_An_Abba_Fan]

Ummm....I beg to differ there, we are offering an opinion and personal details. Also, a professional advisor can still only offer an opinion and it's your choice to take their advice or not. If you take it and lose out there is no comeback on the advisor. Just like a tax agent doing your return, stuffing it up and costing you money. The agent is not liable for it.

[Reaper]

ah huh, i agree with what you are saying, i nor no one else here is qualified to give advice.

Precisely - In that light I hope that nobody offers such. In a more general form, a discussion of the pros & cons of different asset classes and strategies might be helpful for some people.

I have 4 houses, of 1 i own completely, of the others tenants pay for them to an extent. My aim is to own this land so that when i die my kids have something to sell. With where i own the house and land it is already 2.4 times my purchase price to sell today. Thats is more what i was aiming at.

Yeah the great thing about property is that they aren't making any more of it (well for the most part) and 100 years of history has many people making a lot of money from it. As for the return, in the first few years you might be actually subsidizing the property (more than likely this will be the case) however after a few years of cpi rent increases the property will eventually become cash positive giving you extra income (and equity thru capital growth) to buy another and the thing becomes a self perpetuating snowball almost forcing you to buy more and more real estate (or any other investment) to keep your income (and tax bill) under control.

Cheers,

Reaper

[Reaper]

I completely agree with you here, we bought for long term investment though, we currently have a 3 bedroom place in camberwell, and 2 places in geelong that we lease, we figured in 20 years time they will be worth quite a pretty penny.

On a long time frame like that the timing of acquisition is relatively un-important. Timing is much more important for the shorter term investor like the other poster who was looking to sell in the next 3 years or so.

One thing worth noting is that building starts (In Victoria) are now way off their highs of around 3 - 4 years ago. When the December 1/4 stats come out I'd expect to see a rather sharp dip in building starts (seasonally adjusted) as we had a very slow Christmas rush this year. Talking to others I have the feeling it was industry wide with only a few pockets of people busy here and there.

One thing for the original poster to keep in mind is that if his original house was his principal place of residence and then he decides to rent it out, he won't be able to claim the interest payments that he makes on the property as a tax deduction plus the cgt becomes a nightmare when he decides to sell the property. All in all it's very tax in-efficient to do it in this way and even more important to get some good advice.

Cheers,
Reaper

[Reaper]

Ummm....I beg to differ there, we are offering an opinion and personal details. Also, a professional advisor can still only offer an opinion and it's your choice to take their advice or not. If you take it and lose out there is no comeback on the advisor. Just like a tax agent doing your return, stuffing it up and costing you money. The agent is not liable for it.

Putting forward your opinion as to what somebody should do in this context is exactly the same as advice and you must be licensed to offer such advice. To offer advice without this license is illegal under financial and corporations law.

I agree though that even if you get advice from a professional, it is an opinion however a licensed adviser is required to stay abreast of all the relevant tax law, investment products and strategies along with all other relevant issues.

Just for the record I have no issue with the principals you have described in this thread although your sunset probably wouldn't work for me. I hope you get the returns you need - paying off your house is a huge step forward.

Cheers,
Reaper

[Marco-EFIVL]

People should not be going off half ****ed giving you adivce. You need to see a qualified financial planner. After the budget changes in 2006 there is now serious advantage in placing money within superannuation as it will be entirely tax free after age 60 (including both earnings on fund and also any pension payments) so things like your current age and retirement goals need to be taken into aco**** when looking at your entire financial position, including income details and other assets/debts.

To be very frank I couldn't agree more, I was going to say the same thing but neglected to mention it. Financial planners spend their time doing this professionally and are qualified to give appropriate advice and guidance on these matters.

[spice weasel (BAM)]

not an abba fan. Just for your information, we are not even allowed to give our opion on a specific issue without preparing a statement of advice, otherwise we are liable even if the client takes the information incorrectly. As a financial advisor we have whats known as a duty of care to everyone we discuss financial matters with. You should notice i only state general information in what i am saying and not specific to his situation, so you are wrong.

Also i just said the 6.05% in the bank is better than 3.5% income return from investment property, which you also pay over 7% home loan interest rates on your mortgage on in the current market, so in order for your rental income to match your interest on your loans, the mortgage must be substantially lower than the value of the home, which would take years to get there and would lose out hugely on other available income in the market. I suggest before you go off half ****ed you actually get your facts right.

Minux. It is always a pleasure to see someone who looks at the long term rather than the short term it is rare that anyone thinks very further in advance than a couple of years, until retirement panic sets in around 50-55 and by then it is often to late. Anyone who thinks the government pension is still going to be around in 30-50 years is kidding themselves as we are an aging population and unless we do something about it the system will eventually colapse (yes the govt is doing something with super but it is not enough) more than half of people will be underfunded in retirement.

[Not_An_Abba_Fan]

While I agree with you in principle spice weasel, it is the main residence mortgage I am referring to. If you are paying more in interest than you earn from a term deposit you are in front by putting extra funds into your mortgage.
Investment property isn't just about a rental income. You add that to the return you get when you sell the property then it is a worthwhile investment. This s just my opinion. So far it is working for me as we are still riding the wave of the property boom here. A 100% equity jump in 12 months is better than 6.05% on a term deposit.

[Not_An_Abba_Fan]

To be very frank I couldn't agree more, I was going to say the same thing but neglected to mention it. Financial planners spend their time doing this professionally and are qualified to give appropriate advice and guidance on these matters.

[WHINGE] The same can be said for mechanics. Four year apprenticeship, then a number of years gaining experience to be able to offer qualified advice. Every man and his dog gives opinions, advice and even 'guarenteed' fixes on various problems and nobody jumps up and down about accountability. I never told Bravotwozero do this or do that. I told him what works for me and what my opinion was on another persons post. I'll cop the advisor liability issue because I honestly thought it was a 'take this advice at your own risk' type of thing just like a tax agent. So if I undertake a repair that someone has suggested and bugger it up, can I sue them? Before people start waving the qualifications flag, have a think about the solutions you offer and are these qualified opinions or just a 'try this and see how much money you can spend' because, hey, it's not my car. [END WHINGE]

[spice weasel (BAM)]

The reason i am specifically discussing rental income is because i am separating income and growth component. I definately agree with you that if you have money earning 6.05% in the bank and you have a mortgage you should be paying the mortgage off, its common sense, but my understanding is that we are talking about rental property returns, and borrowing to invest, not about your lifestyle assets.

From a growth perspective i have already said i believe the boom to be over for now, although i agree with you the boom has definately lasted longer in both WA and down here where i live in tassie due to median house prices being substanitally lower in these areas and we had a bit of catching up to do compared to other states), however i find that people are still very attached to the massive growth that has occured for a few years, and im talking about continuing to search for the best return, which at the present moment is definately not the residential rental market.

Once again these are just my thoughts, i am not saying that you cannot make money off the residential rental market, just that in the present market there are much better returns to be had and that in the long run (10 years plus) shares will outperform residential property, especially with the income being concessionally taxed (imputation credits on franked dividends)

[spice weasel (BAM)]

I think it is also important i make a comment on diversification.

If all your funds are in the housing market, not to mention the housing market in your state, if things take a downturn you can take a serious hit on your net wealth. You know the old saying about not putting all your eggs in the one basket.

When putting together a portfolio, (depening on risk preference) we make sure our clients are not just in one asset class, we mix across direct shares (aust and international), residential and commerical real estate and also fixed interest/govt bond products, hedged funds etc. So im not sure personally i would be entirely comfortable having all my funds tied up in large assets which cost substantial amounts of money and time to get access to your capital (without incurring interest if you loaned money instead of selling, whereas i can get access to the fixed interest component of my portfolio quickly and without cost, meaning i can leave more of my funds invested earning money and don't feel quite at much as risk.

[Not_An_Abba_Fan]

Point taken. I have shares as well but at the moment I am seeing better growth in my properties. Like I said, when the interest only period runs out, I will be selling them and paying off my residential mortgage. They were never a long term investment anyway, 5 years maximum and I took an opportunity when it arose. Take advantage of any boom if you can. I think I might invest in coal......