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Would you tap your super to buy a first home? · The Money Puzzle

• 0:09
  Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast.
• 0:12
  Speaker 2: I'm James Kirby, the Wealth Editor at The Australian. Now
• 0:15
  Speaker 2: welcome aboard everybody. We have a good show for you today.
• 0:19
  Speaker 2: Could we make it more interesting?
• 0:20
  Speaker 1: The Prime Minister, Anthony Albanese no less, is quitting the
• 0:24
  Speaker 1: investment property market and finding himself in all sorts of
• 0:28
  Speaker 1: difficulties in trying to extract himself as well.
• 0:32
  Speaker 2: He's not entirely quitting.
• 0:33
  Speaker 1: He's selling one of his investment properties and unfortunately for
• 0:36
  Speaker 1: him he has a tenant who doesn't want to leave.
• 0:38
  Speaker 1: So Just what you wouldn't like as an investor, part one,
• 0:42
  Speaker 1: but part two, unfortunately, if you were the Prime Minister,
• 0:45
  Speaker 1: you'd also have the additional complication that your struggles in
• 0:48
  Speaker 1: the property market were on the front pages of the papers.
• 0:51
  Speaker 2: But that's what we're going to.
• 0:53
  Speaker 1: Take a look at because, of course, as we know,
• 0:56
  Speaker 1: many investors are getting out of the market. And you
• 0:58
  Speaker 1: wonder why when you've got rising prices, rising rentals, negative gearing,
• 1:03
  Speaker 1: what's going on? Take a look at that in a moment. Also,
• 1:07
  Speaker 1: The concept of super being used for first homes. What
• 1:13
  Speaker 1: do you think about that? I have, I must say,
• 1:18
  Speaker 1: gone on a journey, you might say, on that one
• 1:19
  Speaker 1: and have come right around and I do at this
• 1:22
  Speaker 1: stage actually think it is the least worst of the
• 1:27
  Speaker 1: options out there. By that I mean, yes, I support it.
• 1:33
  Speaker 1: In a better world, with a better tax system.
• 1:35
  Speaker 2: I wouldn't.
• 1:35
  Speaker 1: But in reality, pragmatically, the tax system is loaded in
• 1:40
  Speaker 1: favor of the home owner, and you win if you
• 1:44
  Speaker 1: own a home. So if that gets you over the line,
• 1:46
  Speaker 1: it gets you over the line. One other thing that
• 1:49
  Speaker 1: you might also take a look at is about the NDIS.
• 1:53
  Speaker 1: And you know all about the NDIS. I'm sure this
• 1:55
  Speaker 1: is a very poorly scoped, very poorly designed system, which
• 1:59
  Speaker 1: is now a byword really for waste and for... fraudulent opportunity.
• 2:04
  Speaker 2: It's terrible what's going on.
• 2:07
  Speaker 1: And it's terrible because it's going to weigh on public
• 2:08
  Speaker 1: sentiment against the provision of care for people with disabilities.
• 2:12
  Speaker 1: And we can't go deeply into that, but we can
• 2:15
  Speaker 1: warn you about the property dimension of NDIS and schemes
• 2:20
  Speaker 1: that are being pushed out there. So we say, who
• 2:22
  Speaker 1: on earth could possibly talk to us about all this? Well,
• 2:26
  Speaker 1: the ideal guest is, of course, James Gerrard of financialadvisor.com.au,
• 2:31
  Speaker 1: who is also your host next week on Tuesday and
• 2:36
  Speaker 1: Thursday when I am off for a few days. How
• 2:38
  Speaker 1: are you, James Gerrard?
• 2:40
  Speaker 3: I'm doing great. Thanks for having me on.
• 2:43
  Speaker 2: You're very welcome. Great to have you on.
• 2:45
  Speaker 1: And you already have got all your notes and your
• 2:49
  Speaker 1: homework done for your two special shows next week. I have.
• 2:53
  Speaker 3: I've been busy preparing to fill those big shoes, the
• 2:56
  Speaker 3: big void that you're going to leave. So hopefully your
• 2:59
  Speaker 3: listeners will have something nice to listen to next week.
• 3:02
  Speaker 2: Thanks, James. I've never been told I had big shoes before.
• 3:05
  Speaker 2: That's a new one for me.
• 3:08
  Speaker 1: So now, are you up to speed with this story?
• 3:12
  Speaker 1: I might just refresh for folks listening. Anthony Albanese has
• 3:16
  Speaker 1: a house on Indulge Hill in Sydney.
• 3:20
  Speaker 2: It's an investment property. He's headed for a couple of
• 3:23
  Speaker 2: He's had it for.
• 3:23
  Speaker 1: Nearly 10 years, and he has decided to sell it,
• 3:28
  Speaker 1: which he's perfectly entitled to do. The surprise part here
• 3:34
  Speaker 1: is that when he went to sell it, the tenant
• 3:38
  Speaker 1: at the property didn't want to leave. And in that respect,
• 3:43
  Speaker 1: I'm sure anyone who's ever had an investment property says, oh, gosh,
• 3:47
  Speaker 1: you know, what does go? What happens when that happens?
• 3:50
  Speaker 2: What happens to you?
• 3:51
  Speaker 3: How.
• 3:53
  Speaker 1: What do you do? And he's had to serve an
• 3:55
  Speaker 1: eviction notice, which is really, I imagine, most uncomfortable for
• 3:59
  Speaker 1: the prime minister to have to do this. It looks
• 4:02
  Speaker 1: like he's going to make money on the sale of
• 4:04
  Speaker 1: this property. He's not going to romp home and sort of,
• 4:08
  Speaker 1: he hasn't exactly hit the jackpot on it, but it's,
• 4:12
  Speaker 1: if I recall the numbers, he bought it for, I
• 4:16
  Speaker 1: think it's 1.2 million about a decade ago, and he'll
• 4:19
  Speaker 1: sell it for about 1.9. And he faces all these
• 4:22
  Speaker 1: issues that every property investor faces.
• 4:25
  Speaker 2: And a lot of people are just saying, it's too hard.
• 4:28
  Speaker 1: I'm getting out. It's not, the numbers don't add up
• 4:31
  Speaker 1: for me. Are you seeing this, James? And if people
• 4:35
  Speaker 1: said that to you, what would you say to them?
• 4:37
  Speaker 1: If I was a client of yours and I said, listen,
• 4:39
  Speaker 1: I've had this rental, you know, honestly, I lose money
• 4:42
  Speaker 1: on it every year.
• 4:43
  Speaker 2: I know there's negative gearing, but you know, so, so what?
• 4:47
  Speaker 2: It's all too much.
• 4:49
  Speaker 3: So definitely those conversations have been had a lot more
• 4:52
  Speaker 3: over the past 12 months, and that's a function of
• 4:54
  Speaker 3: interest rates going up 13 times over the past two years.
• 4:58
  Speaker 3: So if you go back a couple of years ago,
• 5:00
  Speaker 3: a lot of investment properties were cash flow positive, even
• 5:04
  Speaker 3: in the expensive capital cities like Melbourne and in Sydney,
• 5:06
  Speaker 3: because interest rates on investment loans were below 3%. Fast
• 5:09
  Speaker 3: forward to 2024, and interest rates on investment loans are 6.5%
• 5:11
  Speaker 3: to 7%. So you need to have a pretty high
• 5:18
  Speaker 3: rental yield to make that property cashflow positive or even neutral.
• 5:23
  Speaker 3: And that's not happening for a lot of people. So
• 5:25
  Speaker 3: they're finding that they're reassessing their investment property portfolio because
• 5:30
  Speaker 3: where they were getting income from these investment properties, they're
• 5:34
  Speaker 3: now having to spend out of their own cashflow. And
• 5:36
  Speaker 3: remember that rents have gone up significantly, interest repayments on mortgages,
• 5:41
  Speaker 3: on your home loan has gone up as well. So
• 5:42
  Speaker 3: people are finding that bit of a cashflow crunch and
• 5:45
  Speaker 3: they're looking for ways to move into a more comfortable position.
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  Speaker 3: And one of those ways is to sell off something
• 5:52
  Speaker 3: that's costing you money every month. And that's an investment property.
• 5:55
  Speaker 3: But I think you just have to step back and
• 5:57
  Speaker 3: look at the fundamentals of it. So purchasing an investment property,
• 6:01
  Speaker 3: you benefit two ways. One is through the rent that
• 6:04
  Speaker 3: you generate and the other is through the capital growth.
• 6:07
  Speaker 3: And at the moment, half of that equation is negative.
• 6:10
  Speaker 3: Half of that equation is positive. So for most property investors,
• 6:13
  Speaker 3: they're getting negative income, i.e. the cost to maintain that property,
• 6:17
  Speaker 3: the interest on the mortgage, the strata, the council rates,
• 6:21
  Speaker 3: everything that is associated to cost to own that property
• 6:24
  Speaker 3: as an investment is more than the rent that they're receiving.
• 6:27
  Speaker 3: But on the positive side, most capital cities around the
• 6:30
  Speaker 3: country are getting capital growth. The national property prices have
• 6:33
  Speaker 3: gone up 10% over the past 12 months. Some places
• 6:36
  Speaker 3: have done better than others. Perth is up over 20%.
• 6:38
  Speaker 3: Sydney's up 10%. Melbourne's up. 3% to 5%, but some
• 6:42
  Speaker 3: places are negative, like Hobart in Tasmania. But overall, property
• 6:46
  Speaker 3: investors are making money. So I think it's a case
• 6:49
  Speaker 3: of using that, what do you call it, an idiom
• 6:51
  Speaker 3: or a saying that, you know, don't throw the baby
• 6:52
  Speaker 3: out with the bathwater.
• 6:54
  Speaker 1: Yeah, yeah.
• 6:55
  Speaker 2: So you're saying, hang on, folks. This is the game.
• 6:58
  Speaker 2: It's a long game.
• 7:00
  Speaker 1: And you have to sit with it and you have
• 7:04
  Speaker 1: to go through good times and bad times. But at
• 7:06
  Speaker 1: the same time, you are saying, But the numbers have
• 7:09
  Speaker 1: changed that basically your interest rate has probably doubled if
• 7:14
  Speaker 1: you're on this property for more than five years or whatever.
• 7:18
  Speaker 1: So it seems to me when I look at the
• 7:19
  Speaker 1: surveys as to where people are selling, it's throughout Victoria
• 7:24
  Speaker 1: and in areas on the edges of Sydney. The Hills
• 7:30
  Speaker 1: District was mentioned. The Blue Mountains District was mentioned as Um,
• 7:36
  Speaker 1: in this survey from Suburb Trends where they actually said,
• 7:38
  Speaker 1: you know, the sale by investors had gone through the
• 7:41
  Speaker 1: roof in pockets, not across the board.
• 7:46
  Speaker 2: I suppose the way to challenge it all is to say, gee.
• 7:48
  Speaker 1: Um, isn't it a much easier life just to put
• 7:52
  Speaker 1: it all into a share market fund and forget about it.
• 7:55
  Speaker 1: There's never any maintenance. No one ever calls with a
• 7:59
  Speaker 1: broken toilet. Um, if you have shares, it's a lot
• 8:03
  Speaker 1: less trouble. year to year, is it worth all the
• 8:08
  Speaker 1: effort we make as property investors? It's interesting.
• 8:11
  Speaker 3: A lot of it is investor psychology. And you have
• 8:14
  Speaker 3: to say, I'm biased by that myself. I like the,
• 8:17
  Speaker 3: I can go and touch the bricks on the investment
• 8:19
  Speaker 3: property and it's there as a physical thing that can
• 8:22
  Speaker 3: never be taken away. Whereas you have that sometimes irrational,
• 8:26
  Speaker 3: but concerned that something on the share market can evaporate,
• 8:29
  Speaker 3: which It generally doesn't happen if it's a property-related stock.
• 8:33
  Speaker 3: If you buy into Goodman Group or something like that,
• 8:36
  Speaker 3: those warehouses aren't going to evaporate. Goodman Group's always going
• 8:38
  Speaker 3: to have a value, same with the other property stocks.
• 8:41
  Speaker 3: But I think the thing to remember here is that
• 8:43
  Speaker 3: the banks don't make it easy and cheap to borrow
• 8:48
  Speaker 3: money to buy shares on the share market, but they
• 8:50
  Speaker 3: do make it more accessible and easier to leverage up
• 8:53
  Speaker 3: to buy physical shares. properties so that's been the major
• 8:56
  Speaker 3: reason why most investors have property in their portfolio because
• 9:00
  Speaker 3: they can borrow the money from the bank.
• 9:02
  Speaker 1: But the state governments don't get involved with your shares
• 9:06
  Speaker 1: and they don't throw in new taxes with every budget
• 9:08
  Speaker 1: and you don't get up and find out oh another
• 9:11
  Speaker 1: tax oh another cost oh another duty or regulation has
• 9:14
  Speaker 1: come in on my whatever my bedsit or my townhouse
• 9:17
  Speaker 1: somewhere or other um that seems to be the key
• 9:21
  Speaker 1: issue actually apart from rate rises, which perhaps, not that
• 9:26
  Speaker 1: we can deal with them, but that we know it's
• 9:28
  Speaker 1: a cycle, that we know perhaps this is as bad
• 9:30
  Speaker 1: as it gets. And from here on, it may start
• 9:33
  Speaker 1: to drop. We don't know when, but it's most likely
• 9:36
  Speaker 1: that the pattern on rates or mortgage rates is that
• 9:39
  Speaker 1: they will fall lower from here. They'll be lower this
• 9:42
  Speaker 1: time next year. So then you're left with the issue
• 9:44
  Speaker 1: of state taxes. And that seems to be really, even
• 9:47
  Speaker 1: though it's probably uncoordinated, all the states have the same idea,
• 9:50
  Speaker 1: which is you can get some money out of property.
• 9:53
  Speaker 2: And they keep adding.
• 9:54
  Speaker 1: New obstacles, I suppose you could call them, particularly in Victoria,
• 9:58
  Speaker 1: and that's where the market is weakest and where the
• 10:01
  Speaker 1: investors are leaving the most.
• 10:03
  Speaker 2: So you think that's ever going to stop?
• 10:07
  Speaker 3: Well, it's definitely a valid concern. The state governments see
• 10:12
  Speaker 3: it as an easy target to add more taxes to
• 10:14
  Speaker 3: investment property owners. But I feel that If they add
• 10:18
  Speaker 3: too much, basically they'll just get voted out at the
• 10:20
  Speaker 3: next election. So there's only so far that they can
• 10:23
  Speaker 3: push it before it becomes unpopular. But I don't want
• 10:26
  Speaker 3: to sound like the champion of investment properties because I'm
• 10:29
  Speaker 3: relatively agnostic between shares and property. But we also have
• 10:32
  Speaker 3: to remember that the share market is subject to regulation.
• 10:35
  Speaker 3: You're correct, not so much to state government, but to
• 10:37
  Speaker 3: federal governments. If we cast our minds back a few
• 10:39
  Speaker 3: years ago, when there was that proposals to remove imputation
• 10:42
  Speaker 3: credits from retirees and that they've changed the tax treatment
• 10:46
  Speaker 3: on share buybacks as well to make them not so
• 10:48
  Speaker 3: attractive as previously. So both share and property markets will
• 10:51
  Speaker 3: continually be affected with tinkering from governments. But I think
• 10:55
  Speaker 3: in summary, you're right in saying that there's more hassle
• 10:58
  Speaker 3: factor if you own a physical property than you buy
• 11:01
  Speaker 3: a stock, a property related stock.
• 11:05
  Speaker 1: Yes.
• 11:05
  Speaker 2: Okay. But as you say, the.
• 11:06
  Speaker 1: Offset is, You don't get up in the morning and
• 11:09
  Speaker 1: find it's fallen 20% overnight. In fact, it might have
• 11:12
  Speaker 1: fallen 20% overnight, but you won't know that unless you.
• 11:14
  Speaker 2: Try to sell it.
• 11:16
  Speaker 1: And there's something very arresting, arresting would be the nice word.
• 11:19
  Speaker 1: There's something quite stomach-churning about share market drops. No matter
• 11:24
  Speaker 1: how many you've seen, they really are alarming.
• 11:28
  Speaker 2: And the more.
• 11:30
  Speaker 1: Closer you are to retirement, the more alarming they become.
• 11:34
  Speaker 1: The other thing I think which we always underestimate, I think,
• 11:37
  Speaker 1: is the long-term value of property. I mean, the serious
• 11:41
  Speaker 1: long-term value of property. And I often tell stories about
• 11:45
  Speaker 1: certain properties that are handed down for generations, that generations
• 11:51
  Speaker 1: have had benefit from. And that's something we rarely think about,
• 11:55
  Speaker 1: but we should because it's a key part, I think,
• 11:58
  Speaker 1: of property investing.
• 12:00
  Speaker 2: On the super, using super....
• 12:04
  Speaker 1: To buy a home, do you think that's a good
• 12:09
  Speaker 1: or bad idea?
• 12:10
  Speaker 3: So I'm 40. If I cast my mind back to
• 12:14
  Speaker 3: when I was in my early to mid-20s and put
• 12:17
  Speaker 3: myself in the shoes of first home buyer, would I
• 12:20
  Speaker 3: have liked to be able to access my super? And
• 12:23
  Speaker 3: the answer was yes. It was my in-laws that lent
• 12:27
  Speaker 3: us money sort of off the record as a gift,
• 12:30
  Speaker 3: quote unquote, to be able to buy our first property.
• 12:32
  Speaker 3: And that allowed us to get in a few years
• 12:35
  Speaker 3: quicker than we otherwise would have. So if it wasn't
• 12:37
  Speaker 3: for my generous in-laws to help us out, it would
• 12:40
  Speaker 3: have been difficult to crack the market. And unfortunately, property
• 12:43
  Speaker 3: markets grow. Unfortunately, for people trying to get into the
• 12:46
  Speaker 3: property market, it always seems to be the case of
• 12:48
  Speaker 3: you're chasing your tail. Your ability to save is often
• 12:52
  Speaker 3: trumped by the growth in the property market. So they
• 12:55
  Speaker 3: just fall further and further behind. So I agree that
• 12:59
  Speaker 3: it's not ideal for the long-term to pull money out
• 13:01
  Speaker 3: of super, but In terms of somebody's financial life and
• 13:05
  Speaker 3: the stages they go through, one of the fundamental and
• 13:08
  Speaker 3: foundational things is generally to buy a property, whether that's
• 13:11
  Speaker 3: to live in or as an investment. And definitely to
• 13:14
  Speaker 3: live in, if they can use one of their assets
• 13:17
  Speaker 3: that they won't be able to access for another 30
• 13:19
  Speaker 3: to 40 years to help them achieve a goal today, well,
• 13:22
  Speaker 3: then fantastic. But I just think that the execution of
• 13:24
  Speaker 3: it needs to be thought through because In theory, somebody
• 13:27
  Speaker 3: in their 20s could be salary sacrificing into super and
• 13:30
  Speaker 3: effectively paying 15% tax to build their super. And then
• 13:33
  Speaker 3: they could be pulling that money out to buy a property.
• 13:36
  Speaker 3: And then they can upgrade that property when they retire.
• 13:39
  Speaker 3: And when they're 67, if they've dumped all of their
• 13:42
  Speaker 3: assets into this house they're living in, they can then
• 13:44
  Speaker 3: pick up the age pension from the government. So I
• 13:46
  Speaker 3: think the government needs to think about the equity of
• 13:48
  Speaker 3: this with regards to Centrelink at retirement and tax benefits
• 13:52
  Speaker 3: that were generated throughout if they are going to let
• 13:54
  Speaker 3: people access super.
• 13:55
  Speaker 1: I completely agree with you, but I'm coming in from
• 13:57
  Speaker 1: a different danger. So I'm saying I'm coming in from
• 14:00
  Speaker 1: someone who's older than you and who, who up until
• 14:02
  Speaker 1: very recently would, would have said, Hey, listen, you know,
• 14:05
  Speaker 1: super policy for super housing policy for housing. Don't, don't
• 14:10
  Speaker 1: mix the two of them up. It's all wrong, but
• 14:13
  Speaker 1: I'm doing that from the comfort of buying my first
• 14:16
  Speaker 1: home for exactly three and a half times my salary.
• 14:20
  Speaker 2: Exactly.
• 14:22
  Speaker 1: And a person in the same position now could not
• 14:26
  Speaker 1: do that. A person in the same position, no way
• 14:29
  Speaker 1: could they do that, buy a house in the middle
• 14:30
  Speaker 1: of Melbourne for three and a half times the salary
• 14:33
  Speaker 1: that I was on, even if you indexed it up
• 14:35
  Speaker 1: to today. And so I'm coming from a different point
• 14:38
  Speaker 1: of view. I'm saying, well, it's easy to sit here
• 14:40
  Speaker 1: and say super is very important. But actually, as you
• 14:45
  Speaker 1: allude to, and I think this is the million dollar point,
• 14:47
  Speaker 1: the tax system has been designed and has morphed to
• 14:50
  Speaker 1: a shape that is totally biased towards the homeowner.
• 14:54
  Speaker 2: So it's not just.
• 14:55
  Speaker 1: That you win when you're 35 or 45 as a
• 15:00
  Speaker 1: homeowner because you get CGT breaks, etc. You win forever
• 15:04
  Speaker 1: because when you're older, in retirement, the value of your
• 15:09
  Speaker 1: home isn't included in pension, but every dollar of super is.
• 15:14
  Speaker 2: So it's, as you say, it's.
• 15:17
  Speaker 1: As a result of that system that So logically, I
• 15:20
  Speaker 1: think you have to say that if you can get
• 15:24
  Speaker 1: your money out of your super to buy your home,
• 15:28
  Speaker 1: then why wouldn't you?
• 15:29
  Speaker 2: Okay, hey, we might take a short break.
• 15:30
  Speaker 1: We'll be back in a moment. Hello and welcome back
• 15:34
  Speaker 1: to the Australian's Money Puzzle Podcast. I'm James Kirby, the
• 15:38
  Speaker 1: Wealth Editor at The Australian, talking to James Gerrard, Financial
• 15:42
  Speaker 1: Advisor at www.financialadvisor.com.au, who is, of course, a regular contributor.
• 15:48
  Speaker 1: to the Australian's Wealth section, and we'll be hosting the
• 15:51
  Speaker 1: show for you in the first full week of June,
• 15:55
  Speaker 1: those two shows coming up. Now, James, I mentioned NDIS
• 16:02
  Speaker 1: at the start, and hey, we could do an hour
• 16:06
  Speaker 1: on NDIS, but so could anyone. Our speciality here is investing,
• 16:11
  Speaker 1: and the investors are looking at the world through an
• 16:13
  Speaker 1: investing prism, it'd be like.
• 16:15
  Speaker 2: Investors, to the extent.
• 16:16
  Speaker 1: That they are exposed directly to NDIS, tends to be
• 16:19
  Speaker 1: on property. And you've done a little bit on this
• 16:24
  Speaker 1: for the paper, which is about these schemes and promotions
• 16:31
  Speaker 1: which suggest to the retail investor, come and participate in
• 16:36
  Speaker 1: this NDIS property and you'll get very good returns, government-backed.
• 16:42
  Speaker 1: And they often give the impression that they are actually
• 16:44
  Speaker 1: government certified or whatever. But when you looked at this,
• 16:48
  Speaker 1: that was not the case. As usual, the NDIS had
• 16:52
  Speaker 1: a leak.
• 16:53
  Speaker 2: What was the leak on this one?
• 16:55
  Speaker 3: So I went down the rabbit hole on the NDIS,
• 16:59
  Speaker 3: having a look at it with regards to how attractive
• 17:02
  Speaker 3: are these property investments? Because You often come across it
• 17:06
  Speaker 3: if you Google NDIS property investment, guaranteed 10%, 15% returns.
• 17:12
  Speaker 3: It sounds really great. And I always felt there was
• 17:15
  Speaker 3: a catch to it, but I never really looked into it.
• 17:18
  Speaker 3: So when I did, it really just comes down to
• 17:23
  Speaker 3: understanding what the numbers are and understanding the likely projected outcome.
• 17:28
  Speaker 3: And it is possible to get 10% yield, 15% yield.
• 17:32
  Speaker 3: but you need to thread the needle perfectly. And there's
• 17:35
  Speaker 3: a lot of cases where you don't. And so, for example,
• 17:39
  Speaker 3: the vacancy rates are higher than a normal investment property
• 17:43
  Speaker 3: with NDIS property. So there's four different types of NDIS accommodation,
• 17:48
  Speaker 3: depending on the needs of the participant in the NDIS scheme.
• 17:51
  Speaker 3: And one section called fully accessible, the vacancy rates are
• 17:54
  Speaker 3: over 50%. And it can take up to six months
• 17:57
  Speaker 3: for a quarter of those properties to be rented out
• 18:00
  Speaker 3: to somebody. So That sort of vacancy rate generally isn't
• 18:04
  Speaker 3: factored in the cash flow. It's assuming that 90% or 100%
• 18:08
  Speaker 3: of the times that the property is tenanted to get
• 18:10
  Speaker 3: your double digit gross rental yield. And the other thing
• 18:13
  Speaker 3: to remember is that it's the NDIS participant that is
• 18:17
  Speaker 3: allocated the money from the scheme. It's not guaranteed from
• 18:20
  Speaker 3: the government over the particular property. So if you don't
• 18:23
  Speaker 3: have NDIS participants who want to rent your property, you're
• 18:27
  Speaker 3: not going to get anything from the government. It's just
• 18:29
  Speaker 3: going to stay vacant. You're not going to earn a cent.
• 18:32
  Speaker 3: So location is really, really important. So what I sort
• 18:36
  Speaker 3: of determined out of my research was two things. One
• 18:38
  Speaker 3: is that you need to understand where the demand is
• 18:42
  Speaker 3: for NDIS properties and you need to get your cash
• 18:45
  Speaker 3: flow forecast right because sometimes the people who promote the
• 18:50
  Speaker 3: NDIS property investments, they're a little bit creative, you could say,
• 18:53
  Speaker 3: with the accounting and the forecast.
• 18:56
  Speaker 1: Because they give the impression they're government sanctioned And they're not, right?
• 19:00
  Speaker 1: They're just pitching into a government scheme and hoping they
• 19:03
  Speaker 1: get signed up.
• 19:04
  Speaker 3: That's it. And ASIC have come out and said that, hey,
• 19:07
  Speaker 3: watch out. If people are saying that this is a
• 19:09
  Speaker 3: government certified scheme or subsidized scheme, run the other direction.
• 19:15
  Speaker 3: Because in reality, it's not. There are grants through the
• 19:18
  Speaker 3: NDIS scheme to help people with accommodation. But again, just
• 19:22
  Speaker 3: because you have a property that's accredited to be eligible
• 19:25
  Speaker 3: to have people under the NDIS scheme rent it, doesn't
• 19:28
  Speaker 3: guarantee you anything. You need to be in the right location,
• 19:31
  Speaker 3: have the right management agency who can help you place
• 19:34
  Speaker 3: people in there. And just one last quick thing is
• 19:37
  Speaker 3: that with the four different categories of disability accommodation, there's
• 19:41
  Speaker 3: different payments that the government make. And I've seen in
• 19:44
  Speaker 3: some forecasts where the property firm have assumed 100% of
• 19:48
  Speaker 3: the occupancy would be from the high physical support, which
• 19:51
  Speaker 3: gets the highest payment from the government.
• 19:54
  Speaker 4: Whereas in reality, they assume the very best, but in reality,
• 19:59
  Speaker 4: it's about a quarter of all of the accommodation is
• 20:03
  Speaker 4: for that high physical support.
• 20:04
  Speaker 3: So it's misleading to project 100% of the rental income
• 20:08
  Speaker 3: from that higher payment. So again, just doing your research,
• 20:11
  Speaker 3: you can make good money from it. But again, it
• 20:15
  Speaker 3: goes back to that. If it's too good to be true,
• 20:16
  Speaker 3: it usually is type thing. So there's a lot of
• 20:18
  Speaker 3: work involved if you want to make good money.
• 20:20
  Speaker 1: It's very disappointing because I'm sure many listeners would earnestly say, gosh,
• 20:25
  Speaker 1: wouldn't that be good? If you could do that, invest
• 20:28
  Speaker 1: in this, it would actually impact investing virtually and you
• 20:33
  Speaker 1: would get a reward. So just for those who stick
• 20:36
  Speaker 1: with it or stick with the notion of Of those
• 20:39
  Speaker 1: four categories, is there a category that is, you would think,
• 20:42
  Speaker 1: the most economically reliable?
• 20:43
  Speaker 3: Yeah, there seems to be that middle category, which I
• 20:45
  Speaker 3: think is called robust or the fully accessible one. That
• 20:48
  Speaker 3: seems to be where the majority of the demand is.
• 20:51
  Speaker 3: So that was sort of the safer place to be
• 20:53
  Speaker 3: inside of the NDIS scheme. So I absolutely agree with
• 20:57
  Speaker 3: you that it is great social investing. It has a
• 21:01
  Speaker 3: good feel about it, that you're purchasing an investment property
• 21:04
  Speaker 3: that has benefits to the broader community. community by housing
• 21:08
  Speaker 3: people with disabilities. However, I feel the big problem is
• 21:11
  Speaker 3: that because the property sector in general isn't regulated by ASIC,
• 21:16
  Speaker 3: there's too much sort of eagerness with the promotion of it.
• 21:20
  Speaker 3: And I think sometimes the claims that are being made
• 21:23
  Speaker 3: aren't fully factual or they're being exaggerated a bit, which
• 21:27
  Speaker 3: then leads to people being disappointed, which otherwise is still
• 21:29
  Speaker 3: a decent investment, but not as good as what was
• 21:32
  Speaker 3: being hyped up to be.
• 21:34
  Speaker 2: Okay, very good. Very well explained. It's disappointing, as so.
• 21:39
  Speaker 1: Many things are in relation to the NDIS. I mean, really,
• 21:42
  Speaker 1: if they had scoped this out properly at the start
• 21:44
  Speaker 1: in a rigorous fashion and had allowed and had looked
• 21:48
  Speaker 1: forward and said, what could go wrong here? Is there
• 21:50
  Speaker 1: any chance at all that a property developer might exaggerate
• 21:53
  Speaker 1: the scheme and had, you know, really had it ironclad?
• 21:57
  Speaker 1: Then this wouldn't have happened. Then ASIC wouldn't be warning
• 22:00
  Speaker 1: about a government scheme, which is just, you know... inverse
• 22:04
  Speaker 1: of what should have happened here anyway all right we
• 22:07
  Speaker 1: will leave that when we will take a short break
• 22:08
  Speaker 1: we'll be back in a moment with some great pieces
• 22:10
  Speaker 1: of correspondence some very good questions some very cheeky questions
• 22:14
  Speaker 1: too back in a moment Hello and welcome back to
• 22:17
  Speaker 1: the Australian's Money Puzzle Podcast. James Kirby with James Gerrard.
• 22:21
  Speaker 1: We've got some really good questions. First question is from Andrew.
• 22:24
  Speaker 1: Would you like to read the first question? James, can
• 22:27
  Speaker 1: you see it there?
• 22:27
  Speaker 3: I can. It'd be my pleasure. So Andrew asks, there
• 22:30
  Speaker 3: was a comment from Anil about the notion of limiting
• 22:32
  Speaker 3: negative gearing to one property or $ 1 million value. I
• 22:36
  Speaker 3: know you were very busy with the budget at the time,
• 22:38
  Speaker 3: but feel like you went over this a little bit
• 22:40
  Speaker 3: too quickly. I think there is a real opportunity in
• 22:42
  Speaker 3: there for discussion. Surely anyone with two or more investment
• 22:45
  Speaker 3: properties or owns a single high-grade investment property would fall
• 22:49
  Speaker 3: outside the quote-unquote mum and dad investor, which is the
• 22:52
  Speaker 3: usual cohort politicians claim that they're trying to protect. It
• 22:56
  Speaker 3: sounds like the tax change that might actually work politically, socially,
• 23:00
  Speaker 3: and financially. The only sticking point I can see is
• 23:03
  Speaker 3: if the $ 1 million is the right amount across all
• 23:06
  Speaker 3: of Australia. I assume because he's saying that it's cheaper
• 23:09
  Speaker 3: to buy a property in Hobart than it is in Melbourne,
• 23:11
  Speaker 3: for example. and how it could be indexed to remain
• 23:14
  Speaker 3: fair into the future. What do you reckon, James?
• 23:17
  Speaker 2: I don't know.
• 23:17
  Speaker 1: I wonder, does he mean a million in equity? You know,
• 23:25
  Speaker 1: I could have a teeny piece of equity on a
• 23:26
  Speaker 1: million dollar property.
• 23:27
  Speaker 2: Am I gone?
• 23:28
  Speaker 1: Is it all over for me already on that basis?
• 23:31
  Speaker 1: Andrew and all the Andrews out there, this is never advice,
• 23:34
  Speaker 1: only information. It's very hard to know how they might
• 23:39
  Speaker 1: restrain or reform negative gearing. It is not impossible, but
• 23:44
  Speaker 1: take it for granted, it's politically very difficult. Paul Keating
• 23:47
  Speaker 1: couldn't manage it. When Paul Keating was managing just about
• 23:50
  Speaker 1: everything under the sun, he couldn't do it, and he
• 23:52
  Speaker 1: brought it back. So that's the political backdrop. And then
• 23:57
  Speaker 1: you have the fact that there's 2 million people already
• 23:59
  Speaker 1: engaged in property, and they would have to be, I suppose,
• 24:01
  Speaker 1: grandfathered out through the system.
• 24:04
  Speaker 2: Of course, it could be modeled and.
• 24:10
  Speaker 1: capped in the fashion that super is capped. So it's
• 24:12
  Speaker 1: not impossible. And I would just leave it at that.
• 24:15
  Speaker 1: How you actually do it will be difficult. But I
• 24:17
  Speaker 1: think you'd have to zone in on the equity the
• 24:20
  Speaker 1: person has rather than the value of the property, because
• 24:24
  Speaker 1: the value of the properties could be multiples of the
• 24:26
  Speaker 1: equity they have. What do you think, James G?
• 24:29
  Speaker 3: Every time negative gearing and changes come up, my mind
• 24:32
  Speaker 3: casts back to Bill Shorten and the unlosable election, highly
• 24:38
  Speaker 3: politically unpopular to make any changes to the tax benefits
• 24:43
  Speaker 3: that mum and dad, property investors generate. It's a really
• 24:48
  Speaker 3: difficult one. I don't think there will be any change
• 24:52
  Speaker 3: because the federal politicians know they'll be out of power
• 24:54
  Speaker 3: the next election if they do something like that. But
• 24:59
  Speaker 3: it does make sense because we do have caps for
• 25:01
  Speaker 3: a So it makes sense. We have caps for the
• 25:06
  Speaker 3: age pension as well. There's caps for taxation and other
• 25:09
  Speaker 3: government benefits. So it makes sense that there is some
• 25:11
  Speaker 3: sort of ceiling. I feel $ 1 million is too low.
• 25:14
  Speaker 3: You buy average investment property in Sydney or Melbourne, it's
• 25:17
  Speaker 3: going to be close to or exceed $ 1 million, whereas
• 25:19
  Speaker 3: you buy something in, I had a client buy an
• 25:21
  Speaker 3: investment property in Rockhampton in Queensland, a three-bedroom house, 1,000
• 25:25
  Speaker 3: square meters of land last week, $ 300, 000. You can buy
• 25:28
  Speaker 3: four of those or one property in Sydney or Melbourne.
• 25:31
  Speaker 2: How about that? What's the vacancy rate like in Rocky?
• 25:34
  Speaker 3: Pretty low. I don't know what's driving that market, but
• 25:36
  Speaker 3: I suspect it's probably similar to other places that have
• 25:39
  Speaker 3: done really well in recent years, like Perth, which sounds
• 25:43
  Speaker 3: a little bit silly, but I think it's just the
• 25:46
  Speaker 3: thinking behind it is that people are looking outside of
• 25:49
  Speaker 3: their own capital city as it becomes expensive. It's expensive
• 25:52
  Speaker 3: if you live in Sydney or Melbourne. So they go, oh,
• 25:54
  Speaker 3: where can I buy something cheap? And previously it was Adelaide,
• 25:57
  Speaker 3: it was Hobart, it was Perth. And now those markets
• 26:00
  Speaker 3: have gone up again. Oh, it's not so cheap anymore.
• 26:01
  Speaker 3: So Rockhampton, your turn to shine.
• 26:04
  Speaker 2: There you go, cascading effect. Okay, yeah, yeah. Well, logically,
• 26:09
  Speaker 2: I can see what people are doing.
• 26:10
  Speaker 1: Okay, Phil asks, I keep hearing stories about how unfair
• 26:14
  Speaker 1: the new $ 3 million superannuation cap is because it introduces
• 26:18
  Speaker 1: the concept of taxing people on unrealized gains on their
• 26:22
  Speaker 1: super asset. My simple retort is get over it, folks.
• 26:28
  Speaker 1: The government here is clearly intending to have no one
• 26:32
  Speaker 1: with a.
• 26:32
  Speaker 2: Balance over $ 3 million.
• 26:33
  Speaker 4: Yep.
• 26:34
  Speaker 2: Yep, no problem with that statement at all, Phil.
• 26:38
  Speaker 1: I think I put it to Julie Dolan, head of
• 26:41
  Speaker 1: SMSF at KPMG last week, which was like, really, this cap,
• 26:45
  Speaker 1: in a way, it's basically saying, we don't want you.
• 26:48
  Speaker 2: To have more than 3 million in silver.
• 26:50
  Speaker 1: It's not a cap, but it's effectively so. And it
• 26:54
  Speaker 1: is not formally a cap, but it will work as one.
• 26:58
  Speaker 1: And I think what we will see, of course, is
• 26:59
  Speaker 1: people moving money all over the place to to ensure
• 27:02
  Speaker 1: that they're not in there. And the only people who
• 27:04
  Speaker 1: might get stuck are people with extraordinary amounts of super.
• 27:08
  Speaker 1: And they are obviously being targeted and they are obviously.
• 27:15
  Speaker 2: Not going to get enormous public support. Okay. Last question
• 27:19
  Speaker 2: is from Michael. You want to read that one?
• 27:22
  Speaker 1: Yes.
• 27:23
  Speaker 3: My wife and I both retired in our early 60s.
• 27:26
  Speaker 3: Although our financial advisor continues to suggest managed funds and
• 27:29
  Speaker 3: more recently a separately managed accounts, consisting of direct shares, ETFs,
• 27:33
  Speaker 3: and managed funds with a quote-unquote growth profile. I question
• 27:37
  Speaker 3: whether a simple strategy of investing in a small number
• 27:40
  Speaker 3: of passive index funds, such as the ASX 200 or
• 27:43
  Speaker 3: the S & P 500, would provide just as good
• 27:46
  Speaker 3: or even better returns at a lower cost. What are
• 27:49
  Speaker 3: your thoughts?
• 27:51
  Speaker 1: These financial advisors, you've got to watch them so closely. Look,
• 27:55
  Speaker 1: we don't know in Michael's particular circumstance. And again, it's
• 27:59
  Speaker 1: to say that this is not advice.
• 28:00
  Speaker 2: However....
• 28:02
  Speaker 1: They're both retired, numero uno. So I don't know why
• 28:08
  Speaker 1: there's this windup for growth. If you're both retired, you
• 28:13
  Speaker 1: would imagine income is the primary driver there.
• 28:16
  Speaker 4: And I.
• 28:18
  Speaker 1: Don't know what exactly was agreed between everybody, but a
• 28:24
  Speaker 1: simple strategy of investing in passive index funds... underpinning a
• 28:30
  Speaker 1: portfolio would seem to be perfectly sensible.
• 28:32
  Speaker 2: To me in retirement. We don't know, right? We don't know.
• 28:35
  Speaker 1: But just talking in very general terms, what do you
• 28:38
  Speaker 1: think of the suggestion that you could just passively invest
• 28:42
  Speaker 1: in ETFs rather than setting up all these new growth-focused
• 28:47
  Speaker 1: vehicles in retirement?
• 28:50
  Speaker 3: It's a great question from Michael. It's a healthy level
• 28:52
  Speaker 3: of cynicism about the structure that he has and being suggested.
• 28:55
  Speaker 3: I guess I'm We'll let your listeners into a little
• 29:00
  Speaker 3: secret in the financial services sector, and it's that the SMAs,
• 29:04
  Speaker 3: those separately managed accounts, are one of the biggest rorts
• 29:07
  Speaker 3: going around. So if you're a financial advisor, it's a
• 29:10
  Speaker 3: recommended one. Have a think about it because you're hit
• 29:14
  Speaker 3: with four layers of fees.
• 29:16
  Speaker 2: I have always thought so, James. I have always thought so.
• 29:19
  Speaker 1: Every time someone explained it to me, I just said,
• 29:22
  Speaker 1: I should actually have, of course, I should have gone
• 29:24
  Speaker 1: and done something honest. but they seem so arcane, and
• 29:29
  Speaker 1: to me, I just couldn't see the attraction. But just
• 29:32
  Speaker 1: to be fair to all concerned, what is the alleged
• 29:35
  Speaker 1: attraction of the self-managed, separately managed account?
• 29:39
  Speaker 3: Yeah, the alleged attraction is that your financial advisor who's
• 29:44
  Speaker 3: charging you a fee will recommend a separately managed account manager.
• 29:49
  Speaker 3: So they're basically outsourcing their function saying that, look, I'm
• 29:51
  Speaker 3: your financial advisor. I can talk to you about state
• 29:53
  Speaker 3: planning and other things, but I'm not an investment expert.
• 29:56
  Speaker 3: So we're going to pay this other company to manage
• 29:58
  Speaker 3: your portfolio. So this other company will run the SMA,
• 30:01
  Speaker 3: they'll charge a fee, but they won't directly invest into
• 30:04
  Speaker 3: shares most of the time. They'll go buy managed funds
• 30:07
  Speaker 3: and ETFs, which both have fees as well, and they'll
• 30:10
  Speaker 3: run the separately managed account through a platform, which also
• 30:13
  Speaker 3: has a platform cost. So that's where your four different
• 30:15
  Speaker 3: costs come in. So you're sort of around 3% outgoings
• 30:20
  Speaker 3: from day dot before you're sort of making anything, you're
• 30:23
  Speaker 3: behind the board. So if you wanted to simplify things,
• 30:26
  Speaker 3: you would just go for like what you said, the
• 30:28
  Speaker 3: simple strategy of a couple of index ETFs that get
• 30:32
  Speaker 3: the ASX, the S & P 500, maybe the property
• 30:35
  Speaker 3: sector as well. And then some bond ETFs and your
• 30:39
  Speaker 3: total cost is going to be less than half a percent.
• 30:42
  Speaker 3: So again, anyone who has an SMA, go ask your
• 30:45
  Speaker 3: financial advisor, what exactly are you doing? Because they can't
• 30:47
  Speaker 3: make changes on it. That's what the SMA manages for.
• 30:50
  Speaker 3: So if you're paying the advisor fees, Make sure it's
• 30:53
  Speaker 3: not for the investment management side if you're in an SMA.
• 30:56
  Speaker 1: So if you're paying four or five times the fees,
• 30:58
  Speaker 1: it would want to be kicking it out of the
• 31:00
  Speaker 1: park to make sense, it seems to me, broadly.
• 31:05
  Speaker 2: Okay.
• 31:05
  Speaker 1: Well, isn't that an interesting turn of events? That question
• 31:08
  Speaker 1: turned out to be very juicy indeed. Thank you very much, Michael.
• 31:11
  Speaker 1: And thank you, everybody, who sent in questions this week.
• 31:14
  Speaker 2: They're great questions.
• 31:15
  Speaker 1: Keep them rolling. Thanks very much, James. Everyone's looking forward
• 31:19
  Speaker 1: to you taking the week of next week. on the
• 31:22
  Speaker 1: show and i know you always get interesting guests so
• 31:25
  Speaker 1: they'll hear from you soon thanks for today.
• 31:28
  Speaker 3: My pleasure and um you know everyone's in through some
• 31:30
  Speaker 3: questions so we've got lots of interesting things as always
• 31:32
  Speaker 3: so have a chat about let's next week i look
• 31:34
  Speaker 3: forward to um chatting to everyone.
• 31:35
  Speaker 1: Then i leave plenty in the can for you james
• 31:38
  Speaker 1: all right and in any event let's have some more
• 31:41
  Speaker 1: the money puzzle at the australian.com.au is the email talk
• 31:45
  Speaker 1: to you soon Thank you.