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API SEPTEMBER 2014
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It’s been a rough few years for Melinda
Smith, to say the least. The 44-year-
old human resources manager has
moved houses “four or five times” while
working in a demanding management
role, undertaking a masters degree at
university and also taking care of her two
teenage children 50 per cent of the time.
“ Since a divorce in 2007, it’s taken me a
while to find my feet,” Melinda explains.
“ But now I figure it’s time to move on
and it’s time to have seven good years. ”
So, are seven years of bumper crops
likely to come her way? Melinda sure
hopes so. In fact, she isn’t quite sure how
she’s managed to have such bad luck
Like many investors hitting their 40s,
Melinda has already made moves to
secure some sort of financial freedom for
later in life. In 2011, she and her father
went halves to buy a property off-the-
plan in Lalor, based in Melbourne’s
Unfortunately, it was a case of getting
caught up in the hype and the bells and
whistles at a property seminar. Sadly,
that property hasn’t performed since
it was purchased. She and her father
paid $425,000 but it’s now worth about
$400,000 . And to make matters worse, the
loan is actually $460,000 . Melinda isn’t
sure why it’s that much, but suspects
it’s due to the fact the property has a 100
per cent loan-to-value (LVR) ratio. Then
the stamp duty, mortgage insurance
and furniture package was added on
top. It was simply a case of ticking all
the boxes on a form, and being told the
developers could also organise the loan
and added expenses.
“ Anything that could go wrong has
gone wrong,” Melinda says. “T here were
building problems. I thought I could rely
on people for advice but I bought a lemon.
It’s taken me a few years to accept it. If
we sold it now, we’d make a loss.”
Melinda’s father has taken a $120,000
line of credit against his own principal
place of residence, which is owned
outright in Darwin, and put this against
the Lalor house. This takes the loan down
to $340,000 , but of course it would jump
back to $460,000 if the line of credit was
“ T he line of credit was taken out under
his name, but I have joint responsibility of
it,” Melinda says.
“ (It) was taken out against my father’s
principal place of residence to get the
Lalor property off the ground.”
To make things even more complicated,
the Lalor property is held in a trust.
Melinda admits this was an added cost
and a ridiculous mistake, but that was the
advice she and her father were given at
the time of the purchase.
“It’s an over-complicated way of doing
things for two average employees,”
She’s since had advice to sell the Lalor
property and cut her losses while she can,
but Melinda isn’t keen on this idea. After
all, the tax return she gets every year
pretty much covers the cost and makes
the property close to neutrally geared.
“I don’t know if it’s the right way of
looking at it though,” Melinda admits.
Unfortunately, some investors are facing
this sort of scenario – the difficult choice
between selling for a loss, or holding on,
and hoping for things to turn around.
But while Lalor has been a bit of a
lemon, Melinda’s cash flow is excellent.
She earns a healthy $135,000 a year and
enjoys living in the trendy Melbourne
suburb of Coburg. However, at $2340 per
month, rent money is simply cash down
the drain. Melinda isn’t sure if she should
try and purchase a property in Melbourne
and renovate, then sell it, or try and buy
another investment property. At the
moment, there’s no deposit, just a dream
and a go get ’em attitude.
“Do I buy a property to live in, just in my
name or one that’s positively geared?”
“I don’t think I can afford the
money to outlay more on a negatively
On the other hand, Melinda loves living
in Melbourne and is hoping to seek advice
on whether or not she should try and buy
something in the city she calls home.
Melinda loves Coburg but it’s becoming
unaffordable and so she might move out
of the area once her teenage children
finish high school.
“ I can’t afford to buy in the inner
10-kilometre radius of the CBD, so I’m
looking at two options,” she says.
“ Is it best to stay renting but look for
a cheaper investment that’s positively
geared? Or do I buy a smaller place to live
in now that maybe needs a bit of work? I
could do it up, sell it and then move to the
next one. Is this a good idea?”
Ideally, she’d love to buy 10 properties
within 10 years. One small problem is
that Melinda only has about $22,000 in
savings. She might need a larger deposit
but her parents are willing to go guarantor
Melinda also loves her job. She hopes
to perhaps be able to progress in her
career and move to the next role, although
she doesn’t want to risk her borrowing
capacity. She’s also aware she doesn’t
have much super and so needs to act
now, in order to be where she wants in 10
to 15 years.
“ I’d like the option to move into the
consultancy world or do some other
things,” she says.
“ I’m late off the ground as I’ve lived
overseas most of my life. I spent time in
Beijing and Switzerland. It was a great life
but I wasn’t really focused on the financial
side of things. Now I really need to get
So how can Melinda best make up for
lost time? API has asked two experts for
help on how this ambitious mother of two
can fast-track her retirement plans.
Name: Melinda Smith
Household income: $135,000
SUMMARY OF GOALS
> Purchase 10 properties within
> Create stability and flexibility
through passive income.
> Freedom to take on consulting
work at age 55.
> Single mum.
> Two dependent teenagers.
> Negative equity loan in Lalor, Victoria.
THE NUMBERS | MELINDA SMITH
Jun 2011 $425,000
$35,000 $460,000 $400,000 $365
The Lalor property
API SEPTEMBER 2014
SEPTEMBER 2014 API
MELINDA SMITH \\ ROADMAP TO WEALTH
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