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API SEPTEMBER 2014
SEPTEMBER 2014 API
is expensive to enter and it’s also
expensive to exit. Costs of agent fees and
marketing would need to be added to any
calculation of loss position, to get a true
understanding of your total loss.
You’ve indicated that your father would
be prepared to continue to support you
to purchase another property and if this
is the case, you could start afresh and try
and get it right this time and find an asset
that’s more likely to deliver median or
One way to do this with some greater
predictability is to identify an area and
an asset type that’s in high demand now
and should remain in high demand into
the years ahead. Preferably demand is
coming from homeowners and investors
alike, as this tends to provide the most
support to prices throughout the cycle,
but further indicates an area with high
rental demand, making it more likely your
property will be tenanted through the
cycle. You’ll need to study demographics
of an area to begin to understand this
point, which most property professionals
will have access to. If you do it yourself,
you could look to RP Data for example, as
one source of information.
¿ KEEP IT
There’s also an argument to keep what
you have and accept that it’ll probably
not be the best investment you make.
As you’ve acknowledged, the property
is costing you very little to hold. Interest
rates are at historically low levels mind
you, but if rental increases can keep up
and in time are greater than your interest
cost, the property could ultimately
become positively geared.
You’ll need to stay across what your
property’s rental is worth each year and
try and maximise your rent while not
pricing yourself out of the market. This
can be done in conjunction with your
rental agent, but don’t be afraid to get a
few second opinions.
Another consideration is your purchase
costs. If you were to sell this and replace
it with another property, the new property
would need to achieve growth that
absorbs the purchase and sale costs of
this one, along with the purchase costs
of a new one, making the hurdle rate for
profit higher than simply sitting on this
one. There’s no straightforward answer
on whether to buy or sell unfortunately, so
where to from here?
Our advice approach is to take our
clients through a process of quantifying
what they value most in life and this is
what I’d recommend you do now. What
are your priorities? Your kids’ education,
for example, or buying a home to live
in? What you value is entirely personal
but understanding this will help a lot in
working things out.
Next you need to quantify what your
goals and objectives are financially and
marry these back to what you value
most in life. Once this is clear you’ll be
in the best position to move forward, to
construct a plan.
I think your first big decision is how
highly you value owning your own home
versus renting. Both have positives,
negatives and compromises, so be clear
on what you value more.
Next I recommend you get a clear
understanding of your budget and start a
savings plan. You need to feel confident
that you’ll be able to afford your next
purchase. Demonstrating to yourself that
you can put the money aside comfortably
will give you a lot more confidence when
you come to buy. Starting a disciplined
savings pattern now will also help you
accumulate more for a deposit, reducing
your reliance on your dad, which may or
may not be a big consideration for him
and his retirement.
Outside of property, I’d recommend
you consider your other options.
Superannuation is something you’ve
said you don’t have a lot of yet, as you’ve
been living overseas. However it’s one
of the best ways to save for retirement,
due to its significant tax concessions.
A financial planner can help you create
a plan around your super, to give you
greater understanding and control over
the outcome you achieve.
On balance Melinda, despite your
challenging experiences to date,
considering your strong income and the
fact you have more than 20 years until
you’re 65, when most people retire, I think
you have plenty of time to bring together
a clear plan of action to achieve what you
value and to successfully meet your goals
and objectives. API
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> Don’t sell the Lalor property.
> Forget owning a principal place of
residence and focus on building a
> Build superannuation and then buy
a property through a self-managed
> Look for newer, positively geared
> Undertake a small renovation.
> Research, research, research.
> Think twice before purchasing
another property off-the-plan.
> Look for an asset in high demand now
and likely to remain in high demand.
> Study demographics of an area.
> Try to turn the investment property
into a positive cash flow one.
> Quantify your goals and objectives.
> Start a budget and savings plan.
> Build as big a deposit as possible.
Experts’ suggestions in a nutshell
The advice contained in this article is general advice only. The contents have
been prepared without taking account of the reader’s objectives, financial
situation or needs. Because of that the reader should, before acting on the
advice, consider the appropriateness of the advice having regard to the
reader’s objectives, financial situation and needs. We recommend readers
speak with a professional qualified financial adviser before making any
æStarting a disciplined savings pattern now will also help
you accumulate more for a deposit, reducing your reliance on
your dad, which may or may not be a big consideration for
him and his retirement.Æ James McFall
ROADMAP TO WEALTH // MELINDA SMITH
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