Latest / The Money Puzzle / If you don't buy, you rent until you die ... discuss

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If you don't buy, you rent until you die ... discuss · The Money Puzzle

0:10
Speaker 1: Hello, and welcome to The Australian's Money Puzzle Podcast. I'm
0:13
Speaker 1: James Kirby, Wealth Editor at The Australian. Hey, welcome aboard, everybody.
0:18
Speaker 1: In every episode, we cover listener questions. And I have
0:21
Speaker 1: to say, today's batch of questions is really exceptional. And
0:25
Speaker 1: I just want to say thanks to everybody involved. I
0:27
Speaker 1: get more ideas for the show and what to do
0:31
Speaker 1: on the show and have on the show from your
0:33
Speaker 1: questions and your comments, complaints, observations than anything else. So
0:37
Speaker 1: keep them rolling. Later on, we'll hear from a listener,
0:41
Speaker 1: for instance, who lives overseas and wants to come back
0:43
Speaker 1: to Australia. We've got an investor in Perth who's worried
0:47
Speaker 1: that the eastern staters are taking over. I have a
0:50
Speaker 1: question from Robert who says his bank is trying to
0:53
Speaker 1: pull a fast one, basically, because he signed on for
0:57
Speaker 1: a mortgage at a rate. And when it came to
1:00
Speaker 1: signing the papers, the rate was lower. I've experienced that.
1:03
Speaker 1: I'm really interested to pick up on that question. And
1:06
Speaker 1: keep in mind, folks, if we can do something for you,
1:07
Speaker 1: let us know. You'd be surprised how quickly an organisation
1:11
Speaker 1: responds when they get a call from a show like ours. OK,
1:15
Speaker 1: now today, I think we need an advisor here to
1:19
Speaker 1: talk about issues in property and many of your questions.
1:22
Speaker 1: Someone who's across property and is also across advice. Friend
1:26
Speaker 1: of the show, a regular on the show. It's Bruce Bramall.
1:29
Speaker 1: How are you, Bruce?
1:31
Speaker 2: Not too bad. Thanks, James. Thanks for bringing me back.
1:34
Speaker 1: Lovely to have you back. Always good to have you on.
1:36
Speaker 1: I know that we would be of a similar vintage
1:39
Speaker 1: and we might have, I don't know what age your
1:41
Speaker 1: guys are, but mine are now of the age where
1:43
Speaker 1: they're starting. It's just starting. To look around and be
1:47
Speaker 1: aware of the mountain they have to climb to get
1:51
Speaker 1: into property in any way, but obviously, particularly as a
1:54
Speaker 1: home buyer. And one of the things apparently that they're
1:58
Speaker 1: all saying to each other, if you don't mind, is that,
2:01
Speaker 1: you know, the prices are just tipping along at the
2:03
Speaker 1: moment very much at a sort of average rates. In
2:06
Speaker 1: some parts, they're quite slow. And there's a sense that
2:09
Speaker 1: you don't have to move now. There's also a sense
2:13
Speaker 1: of sort of fatalism. And this is really something that
2:16
Speaker 1: is on the cards, I think. And I see it
2:19
Speaker 1: reported and I see it anecdotally, this sense of fatalism
2:23
Speaker 1: with younger investors. Where they're saying, look, it's just out
2:29
Speaker 1: of my, I'm never going to be able to afford
2:32
Speaker 1: to buy a house. And so I'm going to go
2:34
Speaker 1: to Japan for two weeks and ski, something like that.
2:37
Speaker 1: So we have this attitude that it's just become so hard.
2:40
Speaker 1: It's too hard. So forget it. Do you come upon that?
2:43
Speaker 1: And what would you say to someone who said that
2:46
Speaker 1: to you?
2:50
Speaker 3: I guess I don't see as much of it from
2:52
Speaker 3: a client perspective. Talking to people, reading the media and
2:55
Speaker 3: generally being involved.
2:56
Speaker 2: My kids are a bit younger. They're still in high school.
2:58
Speaker 2: There's still a little way off from them.
2:59
Speaker 3: But we do see clients coming in who often have
3:03
Speaker 3: started on the deposits and might have a reasonable amount
3:06
Speaker 3: and want to know what to do with their deposit
3:09
Speaker 3: money while they're continuing to save us and how should
3:11
Speaker 3: we invest it into cash if you're going to buy
3:13
Speaker 3: in the next couple of years. Look, parts of the
3:16
Speaker 3: country are quite slow. Victoria in particular, other parts of
3:19
Speaker 3: the country are running rampant.
3:24
Speaker 2: It's a generational thing to a degree.
3:26
Speaker 3: Back in the 60s and 70s when that generation, which
3:30
Speaker 3: included my parents, were buying a house, they tended to
3:32
Speaker 3: do it quite a lot younger.
3:33
Speaker 2: They had kids a lot younger.
3:35
Speaker 3: The average age of having kids, I think, when I
3:38
Speaker 3: was born was about 23, 24, around that sort of thing.
3:40
Speaker 2: And Buying a home was a.
3:44
Speaker 3: Bit easier, but they're also doing it on one income
3:46
Speaker 3: as a general rule or say an average of 1.1
3:49
Speaker 3: incomes per household. Whereas nowadays, the average household buying is
3:55
Speaker 3: probably 1.8 incomes or there's a lot more single people
3:57
Speaker 3: buying as well. But yeah, property prices have run hard,
4:01
Speaker 3: but like everything, James, it's cyclical. And if people are
4:05
Speaker 3: finding it tough now, which is partly about interest rates,
4:07
Speaker 3: they've come off very low interest rates and they've risen
4:10
Speaker 3: fairly strongly to November last year. You know, it's cyclical.
4:14
Speaker 3: And when prices get too high, prices will come back.
4:17
Speaker 3: People who are finding it tough have just got to make,
4:20
Speaker 3: in my opinion, it's about priorities. And if there are
4:25
Speaker 3: kids in their 20s or young adults in their 20s
4:28
Speaker 3: or 30s and their primary goal is to buy a home,
4:32
Speaker 3: then going off to scan Japan for two weeks is
4:35
Speaker 3: going to be reasonably a pretty expensive holiday.
4:37
Speaker 1: But logically, if I say to you, I earn $ 100, 000...
4:42
Speaker 1: And I want, my house is going to cost nearly
4:44
Speaker 1: a million. I can never do it. Isn't that, what
4:49
Speaker 1: do you say to that? What do you say to
4:50
Speaker 1: the relatively logical observation that on a hundred grand, you
4:53
Speaker 1: can never buy a million dollar house?
4:56
Speaker 2: No, you can't.
4:56
Speaker 3: You just, you simply can't do it on a hundred
4:59
Speaker 3: thousand dollars. But if you've got two people on a
5:01
Speaker 3: hundred thousand dollars, then it makes it a lot easier.
5:03
Speaker 3: But somebody earning a hundred thousand dollars is unlikely.
5:06
Speaker 2: To be able to buy.
5:07
Speaker 3: It depends on expenses. They've changed the way they do loans.
5:11
Speaker 3: And lending and affordability in the last seven or eight years,
5:14
Speaker 3: it makes it a lot more difficult because they do
5:16
Speaker 3: actually dive deeper into your expenses. What you earn is
5:20
Speaker 3: almost less relevant than how much you spend. And they
5:23
Speaker 3: go and look into it. When you're applying for a loan,
5:25
Speaker 3: they look at your savings, they look at what you're
5:26
Speaker 3: spending your money on and categorize it to see if.
5:29
Speaker 2: The expenses are the same. You used to be able
5:31
Speaker 2: to just go with this minimum.
5:33
Speaker 1: You used to go with a sort of a formulaic
5:35
Speaker 1: thing that they just had to apply to everybody.
5:38
Speaker 3: Yeah, and they didn't really check it too hard. Nowadays
5:41
Speaker 3: they do. You can't, you know, the hems have changed.
5:45
Speaker 1: And what difference did that make, Bruce?
5:47
Speaker 3: An enormous difference because mortgage brokers and the industry, it
5:50
Speaker 3: wasn't just mortgage brokers, the banks were allowing this as well.
5:52
Speaker 3: You could put through if it was, I'm going back
5:54
Speaker 3: a while, but if you had mum, dad and two kids,
5:56
Speaker 3: then there was a minimum spend of that and it
5:58
Speaker 3: might have been at the time about $ 2, 500. Now it's
5:59
Speaker 3: probably $ 3, 000 or $ 3, 500 a month now. But that has
6:04
Speaker 3: changed dramatically. They don't just accept this is what the
6:07
Speaker 3: minimum that mum, dad and two kids can live on.
6:09
Speaker 2: They actually look at your expenses.
6:11
Speaker 3: And if you've got some private schooling or you've got
6:13
Speaker 3: some bigger expenses in there for whatever, they're going to
6:17
Speaker 3: see them and they're going to penalise you for it,
6:19
Speaker 3: but they're going to include that when trying to determine
6:22
Speaker 3: how much it is that you can borrow. And what
6:24
Speaker 3: you can borrow is based on what money's left over.
6:27
Speaker 3: If you can make some changes and find some spending cuts,
6:30
Speaker 3: reduce your expenses, then you want to be doing that
6:33
Speaker 3: at the time that you're going to see a bank
6:35
Speaker 3: or a broker about getting a mortgage because they're generally
6:38
Speaker 3: going to want to see 30, 60, 90 days worth
6:40
Speaker 3: of expenses when you're.
6:42
Speaker 2: Putting in your application.
6:43
Speaker 3: If they see $ 300, $ 400 a month or a week
6:47
Speaker 3: going out to Uber Eats or any of the delivery places,
6:50
Speaker 3: then they're going to see that.
6:51
Speaker 2: It's a bit difficult to hide.
6:52
Speaker 1: Well, I'd be furious if some banker pointed out to
6:55
Speaker 1: me any element of my expenses as to whether I
6:59
Speaker 1: should change them or not. But it's really interesting you
7:01
Speaker 1: say that. It's really good to hear that. So, folks,
7:04
Speaker 1: if you are thinking of– if you are of that
7:07
Speaker 1: persuasion that it's all too difficult, first of all, have
7:11
Speaker 1: a look and see what could change, how you might
7:14
Speaker 1: get to it. But more broadly, Bruce, do you still always–
7:17
Speaker 1: is it always your advice– that you should own your
7:21
Speaker 1: own home? I know it's, I just want to check
7:23
Speaker 1: with you. Is it always in all situations virtually your advice?
7:28
Speaker 3: Well, I think it's for a lot of people, it's
7:31
Speaker 3: a foundational stone of finances. The point about buying a
7:35
Speaker 3: home is the security aspect and those sorts of things.
7:38
Speaker 3: But you're building equity in a place, you're paying down
7:42
Speaker 3: a loan at some point in the future, and it's
7:44
Speaker 3: rarely the 25 or 30 years of a regular mortgage.
7:46
Speaker 2: You're normally paying it off before that. The cost of
7:50
Speaker 2: putting a roof over your head ends.
7:51
Speaker 3: Yes, you've still got rates and you've still got electricity
7:53
Speaker 3: and gas and insurance and all those other expenses, but
7:56
Speaker 3: the main cost of having a roof over your head
7:59
Speaker 3: is done when you've finally paid off the mortgage. If
8:02
Speaker 3: you decide not to buy, you'll rent until you die.
8:05
Speaker 3: So if you don't buy a home and eventually pay
8:07
Speaker 3: it off, you'll be renting through until you're not on
8:10
Speaker 3: the earth anymore and there's an ongoing expense. Now, when
8:13
Speaker 3: you get to that sort of older age, age groups
8:16
Speaker 3: and you're applying for the age pension, they have a
8:18
Speaker 3: different level of pension, higher level of pension for people
8:21
Speaker 3: who don't own their home, partly an acknowledgement of rent
8:26
Speaker 3: being paid and a lower government.
8:28
Speaker 2: Age pension for those who do own their home.
8:30
Speaker 3: But it is the cornerstone for me or a foundation
8:33
Speaker 3: stone of wealth. It doesn't mean that's right for everybody
8:36
Speaker 3: and people have got to move every couple of years
8:37
Speaker 3: because that's their work.
8:39
Speaker 2: We don't want to be tied down.
8:41
Speaker 3: Then if you're making that decision not to buy, to rent,
8:45
Speaker 3: then you've got to make it work for you is
8:47
Speaker 3: what I've always preached.
8:48
Speaker 2: And that is.
8:50
Speaker 3: Whatever you're not spending on a mortgage. So let's say
8:53
Speaker 3: your rent is whatever, three grand a month and a
8:56
Speaker 3: mortgage that costs you four or.
8:57
Speaker 2: Four and a half, then whatever the case is, that.
9:00
Speaker 3: Extra money that you're not using to pay a mortgage
9:04
Speaker 3: really needs to be going into some sort of longer
9:06
Speaker 3: term investing to help look after you when you're getting
9:09
Speaker 3: into Your old years or in your retirement now, whether
9:12
Speaker 3: you're putting that money into super or other investments is
9:15
Speaker 3: another matter that you need to look at on a
9:17
Speaker 3: personal level.
9:17
Speaker 2: But renting is indefinite. Buying a home has an end
9:21
Speaker 2: point for the largest part of having a roof over
9:23
Speaker 2: your head.
9:24
Speaker 1: It could almost be a book title, Bruce. If you
9:26
Speaker 1: decide not to buy, you rent until you die. That's
9:30
Speaker 1: got a certain gravity to it.
9:33
Speaker 3: I'm very sorry, James, but I am actually quoting myself
9:36
Speaker 3: on that one. It's a line from Debt Man Walking,
9:38
Speaker 3: which I wrote in 2008.
9:39
Speaker 1: You're quoting from yourself is not plagiarism, Bruce. Quoting from
9:43
Speaker 1: yourself is the opposite of plagiarism. We all do it
9:46
Speaker 1: all the time. Good for you. Okay. I knew Bruce
9:49
Speaker 1: would be good on that particular issue. Just before we
9:51
Speaker 1: go to questions, I want to do, I want to
9:53
Speaker 1: get to questions quickly this week, because as I say,
9:55
Speaker 1: they were so good and such a range of questions.
9:57
Speaker 1: But one thing that's come up on the show a
9:59
Speaker 1: few times i just want to ask you before we
10:00
Speaker 1: do is about rates okay so we look at the
10:05
Speaker 1: media or we look at the financial press this week
10:07
Speaker 1: and it's all about how rates are going to go
10:08
Speaker 1: down and how gold for instance gold focuses gold the
10:13
Speaker 1: commodity or gold as you buy them through bullion or
10:16
Speaker 1: etfs is really starting to move as an alternative investment
10:20
Speaker 1: with a much clearer record than, shall we say, private
10:23
Speaker 1: equity or private credit. And by the way, I've had
10:25
Speaker 1: some correspondents telling me that I'm too heavy and critical
10:29
Speaker 1: on that. But the point I want to make is
10:31
Speaker 1: that globally rates are going down, but in Australia, it's
10:38
Speaker 1: unclear if rates are going to go down anytime soon.
10:42
Speaker 1: And if they did, RBA rates, we don't know to
10:46
Speaker 1: what extent the banks will cut rates anyway. Where are
10:50
Speaker 1: you coming from, Bruce, when people ask you about that?
10:52
Speaker 1: If people are coming in your door and they're making
10:54
Speaker 1: plans and the plans hinge on the fact that rates
10:56
Speaker 1: are going to be cut, what do you tell them?
11:00
Speaker 2: Well, look, there's always two sides.
11:04
Speaker 3: The main side of the story, which is probably what
11:05
Speaker 3: we're talking about here, is people are wanting to buy
11:07
Speaker 3: a home.
11:09
Speaker 2: You can't bank on them. You just can't. Now, I
11:11
Speaker 2: think competitive pressures are such that in the industry, a.
11:16
Speaker 3: Bank, a lender, a reasonable-sized lender, If they decide to
11:20
Speaker 3: pass it on or pass the vast majority of it
11:22
Speaker 3: on and others are hesitant to do so, then they
11:24
Speaker 3: will pick up market share.
11:25
Speaker 2: It's as simple as that.
11:27
Speaker 3: They get to advertise that they've passed it on in
11:29
Speaker 3: full or they passed on 20 when the average only
11:31
Speaker 3: did 10 or if we're talking about a quarter percent
11:33
Speaker 3: rate cut. And they will pick up market share and
11:36
Speaker 3: they will very quickly... The brokers out there will... Because
11:38
Speaker 3: brokers make up about three quarters of the market now.
11:41
Speaker 3: Of every loan that's done, three out of every four
11:43
Speaker 3: loans that are done are done by brokers.
11:45
Speaker 1: Yeah, most loans go through brokers.
11:47
Speaker 2: Yeah. Yeah, so.
11:49
Speaker 3: The brokers are going to look at that. Most clients
11:52
Speaker 3: are at least a little focused or reasonably focused on
11:54
Speaker 3: interest rates. And if lenders pass it on and other
11:57
Speaker 3: lenders don't, then there is going to be a flow
11:59
Speaker 3: of money to the lenders that do. What I tend
12:03
Speaker 3: to say is that competitive pressures are such that if
12:06
Speaker 3: a few go.
12:07
Speaker 2: More will go.
12:09
Speaker 3: There is a lot of money to be made by
12:10
Speaker 3: banks though in delaying passing it on. So if they
12:12
Speaker 3: delay passing it on by a few days or a week,
12:14
Speaker 3: then given the size of the loan books, particularly of
12:17
Speaker 3: the four majors, there's a lot of money to be
12:19
Speaker 3: made by not passing it on the 17th and delaying it.
12:21
Speaker 2: To the 22nd or whatever.
12:23
Speaker 3: But there will be lenders that will take it as
12:25
Speaker 3: an opportunity and a marking opportunity to cut rates in
12:28
Speaker 3: full or even go a step further and offer 30
12:30
Speaker 3: basis points.
12:31
Speaker 2: Okay.
12:31
Speaker 1: Do you think it's sufficiently competitive in the banking circle
12:35
Speaker 1: that they will cut rates when the cuts come from
12:37
Speaker 1: the RBA?
12:39
Speaker 2: I think so.
12:39
Speaker 3: Look, we're getting a lot of emails from the banks
12:41
Speaker 3: at the moment talking about Fixed rates already being cussed,
12:44
Speaker 3: making some reductions there, making some bets there. Bond traders
12:48
Speaker 3: are beginning to price in and it gets to move around.
12:50
Speaker 3: But the RBA made a statement in whatever that was, 2021,
12:53
Speaker 3: about where they saw rates.
12:56
Speaker 2: Bond traders called them liars. Very soon afterwards, who was right?
12:59
Speaker 2: The bond traders.
13:00
Speaker 1: The bond vigilantes. Yeah, don't ever doubt them. The money
13:03
Speaker 1: markets will override central banks any day, folks. We've probably
13:08
Speaker 1: seen that and you know that. And you know that
13:09
Speaker 1: even here, the RBA has already, in recent history, being
13:13
Speaker 1: called out and if the money market says rates are
13:16
Speaker 1: going to fall in a very strong way and the
13:18
Speaker 1: RBA are dithering and saying they mightn't the likelihood is
13:22
Speaker 1: they will okay now let's go to questions we'll be
13:25
Speaker 1: back in a moment so Hello and welcome back to
13:38
Speaker 1: the Australian's Money Puzzle podcast. I'm James Kirby, the wealth
13:41
Speaker 1: editor at The Australian, talking to Bruce Brammell of Bruce
13:44
Speaker 1: Brammell Financial, financial advisor, author and regular guest on the show. Christopher,
13:52
Speaker 1: I'm an Australian government official posted abroad, commonly deployed to
13:58
Speaker 1: faraway places for years at a time. And I don't
14:02
Speaker 1: own property, but I'd like to and I If I
14:05
Speaker 1: bought my dream home on the New South Wales coast,
14:08
Speaker 1: would it be considered my principal place of residence, even
14:11
Speaker 1: if I'm not living in it? Part one. If I
14:14
Speaker 1: rent out my principal place of residence while I'm posted overseas,
14:18
Speaker 1: would this mean it becomes subject to capital gains tax
14:22
Speaker 1: upon resale? Okay, very clear. And none of this is advice.
14:25
Speaker 1: It's always information. If he doesn't own a place and
14:29
Speaker 1: he buys a place, and he declares that his principal
14:32
Speaker 1: place of residence for tax purposes, can he come? Is
14:35
Speaker 1: that all clear and he can still be wherever he
14:37
Speaker 1: might be in, what does he call it, a faraway place?
14:41
Speaker 3: Yeah, Chris, I think firstly check with your accountant specifically
14:45
Speaker 3: on that one. If you're not living in it, you're
14:48
Speaker 3: renting it out, you're drawing an income, you've probably got
14:50
Speaker 3: a loan, you're claiming tax deduction for it, you're probably
14:53
Speaker 3: claiming tax deduction for rates, insurances, land tax, if that's
14:57
Speaker 3: what's happening, if that's what you're actually claiming. There's also
15:00
Speaker 3: something called the six-year rule, which I'll come back to
15:02
Speaker 3: in a bit. If you're intending to come home and
15:06
Speaker 3: live in it, understand that it is the portion, what
15:09
Speaker 3: the ATO looks at is the portion of time that
15:11
Speaker 3: it was a PPOR, your principal place of residence, versus
15:14
Speaker 3: how long it was rented out for. So if you
15:17
Speaker 3: had it rented out for a couple of years, let's
15:19
Speaker 3: say you're coming home in a few years to retire,
15:21
Speaker 3: it sounds like you've been overseas for a while, and
15:23
Speaker 3: you have it rented out for three years, but then
15:26
Speaker 3: when you come back, you live in it for another
15:28
Speaker 3: 17 years or something.
15:29
Speaker 2: And then sell it.
15:31
Speaker 3: If you were to do that, then three twentieths of
15:34
Speaker 3: the gain would most likely be accessible, and the other
15:39
Speaker 3: 17 20ths wouldn't be. On that 320, you should also
15:42
Speaker 3: get the 50% capital gains discount because you've owned the
15:46
Speaker 3: asset for more than a year, and the amount of
15:48
Speaker 3: CGT that you would actually pay would be fairly small
15:52
Speaker 3: on a gain property that you've held for that period
15:54
Speaker 3: of time. Do talk to your accountant about though, and
15:57
Speaker 3: specific taxation advice is what you need in regards to that.
16:00
Speaker 3: There's also what's known as the six-year rule. So a
16:02
Speaker 3: lot of expats will have a property in Australia. They
16:04
Speaker 3: only go and work overseas for a period of time.
16:07
Speaker 3: You have six years, six and a half years, I
16:09
Speaker 3: think it is, from the time that you turn it
16:11
Speaker 3: into an investment property to either return and move back
16:13
Speaker 3: into it or to sell it and have it CGT free.
16:17
Speaker 3: So this one's a little bit different to that in
16:19
Speaker 3: that you won't have lived in it. And the third
16:21
Speaker 3: thing I'll probably point out, Christopher, is that if it
16:24
Speaker 3: becomes your dream home and you don't, you rent it
16:26
Speaker 3: out for a period and then you move into it
16:28
Speaker 3: and you never depart it until such time as you're
16:31
Speaker 3: going out in a box, then you won't be paying
16:33
Speaker 3: any CGT on it anyway. You only pay CGT when
16:35
Speaker 3: you sell an asset. So if it was to be
16:37
Speaker 3: your dream home and that was going to be your
16:39
Speaker 3: last home, then yeah, okay, it might become a problem for,
16:42
Speaker 3: not a problem, but there might be a tax issue
16:44
Speaker 3: for your kids when they're selling it, but it shouldn't
16:46
Speaker 3: be in your lifetime if that's the case.
16:47
Speaker 1: Okay, interesting. Hey, Bruce, can I just double check on something?
16:51
Speaker 1: If the person owns the property, rents it, and then
16:56
Speaker 1: moves into it afterwards. If they move in after six years,
17:01
Speaker 1: are you saying the first six years are not accounted
17:04
Speaker 1: for CGT?
17:05
Speaker 3: No, if you've lived in it and it's been your
17:08
Speaker 3: principal place of residence, then you've moved either interstate, overseas,
17:11
Speaker 3: even across town, really. You have six years, six and
17:14
Speaker 3: a half years to either sell it or to move
17:16
Speaker 3: back into it and maintain the CGT-free status of the property.
17:21
Speaker 1: So you have to have lived in it and left
17:24
Speaker 1: it and come back?
17:25
Speaker 3: I would think so, but that is what I'd want
17:27
Speaker 3: Christopher to chat to an accountant about, the actual technicality.
17:30
Speaker 1: Of that rule. I hope that's interesting for you. It's
17:35
Speaker 1: worth exploring. Let's put it that way. We don't give advice,
17:37
Speaker 1: but it's worth exploring. All right. I'm going to read
17:39
Speaker 1: this question from Stephen.
17:41
Speaker 2: From Stephen, I'm a local resident of Manjura in Western Australia.
17:45
Speaker 3: I recently bought an investment property locally and called the
17:48
Speaker 3: real estate agent for a rental appraisement. appraisal, she automatically
17:52
Speaker 3: assumed I was interstate and was shocked when I said
17:56
Speaker 3: I wasn't. As the real estate agent said, we don't
17:59
Speaker 3: have any West Australians buying houses here.
18:03
Speaker 1: Eastern state colonists charging in carpetbaggers from Melbourne and Sydney
18:09
Speaker 1: pouring into Manjura. Hey, I'll tell you something. Do you
18:13
Speaker 1: want to know the reverse of that? People put their
18:16
Speaker 1: home up for sale in parts of Melbourne. And they
18:19
Speaker 1: get flyers in the door saying, moving to Queensland. Such
18:22
Speaker 1: and such removals. We are around the corner and here's
18:25
Speaker 1: our phone number. So there you are, two sides to
18:27
Speaker 1: every coin. Thank you for that, Stephen. All right, a
18:29
Speaker 1: question from Shankar, S-H-A-N-K-A-R. I was amused by your example
18:34
Speaker 1: of what people do while listening to the podcast as
18:37
Speaker 1: blowing leaves. This is exactly what I do each week
18:39
Speaker 1: with my Husqvarna backpack blower. You've identified your core demographic. Perhaps.
18:46
Speaker 1: I have a couple of those. Some very interesting ones.
18:48
Speaker 1: We must actually, I must collect them and read a
18:51
Speaker 1: few out someday of what people do listening to the show.
18:53
Speaker 1: We had a chap who was so fed up of
18:55
Speaker 1: the waiting for a builder to build something for him
18:57
Speaker 1: that he started building himself and sent me pictures of
19:01
Speaker 1: himself on the veranda doing what looked like quite elaborate
19:04
Speaker 1: building work. So there you are. And other things. Shankar's question, however,
19:09
Speaker 1: is this. My question relates to superannuation. I am 57.
19:13
Speaker 1: Super balance. We don't need to know. My wife is 59.
19:17
Speaker 1: Super balance. Okay. They've got plenty of super. She will
19:20
Speaker 1: likely work beyond 60. I am not currently working. Both
19:24
Speaker 1: our super balances remain in big super in retail funds. Okay.
19:30
Speaker 1: As we're nearly 60, I'm considering how and when to
19:33
Speaker 1: restructure for pension. Okay. That makes a lot of sense
19:37
Speaker 1: so far. First question from Shankar. Are we missing a trick?
19:42
Speaker 1: by remaining in these retail funds and not commencing an SMF?
19:46
Speaker 1: Big question, Bruce. comes up all the time people get
19:49
Speaker 1: to their retirement phase and then they say will I
19:52
Speaker 1: start an SMSF my instinct is if you were that
19:56
Speaker 1: type you would have done it years ago what do
19:58
Speaker 1: you say and this is not advice Shankar this is
20:00
Speaker 1: for all the Shankars in the.
20:02
Speaker 3: World yeah look you Certainly with the balances that you've
20:06
Speaker 3: pointed out there, which are north of 2.5 mil for
20:09
Speaker 3: the two of you, there's a lot of reasons that
20:11
Speaker 3: you might start an SMSF. One of those might be
20:14
Speaker 3: around cost. Certainly, I think that once you get to
20:17
Speaker 3: about 750 or a mil, SMSFs can start to make sense.
20:20
Speaker 3: They can start to make sense before that from my
20:22
Speaker 3: perspective when I'm advising clients that 750 to a mil
20:25
Speaker 3: can be where they start to make sense from an
20:27
Speaker 3: overall cost perspective. Once you get to 2.5 mil, almost inevitably,
20:31
Speaker 3: it will make sense. It's not always about costs, though.
20:34
Speaker 3: A lot of retail funds will offer you the same
20:37
Speaker 3: opportunities that you can get for a similar cost. There's
20:40
Speaker 3: what's known as family fee aggregation. You might be at
20:44
Speaker 3: two different retail funds, but if you bought your funds
20:47
Speaker 3: to the same platform, the same fund provider, linked them
20:51
Speaker 3: in the background, that doesn't mean putting the money together,
20:53
Speaker 3: but linking them in the background, then what you'll often
20:55
Speaker 3: find is that they look at your The relationship they
20:59
Speaker 3: have with husband and wife, we go, okay, we've got
21:01
Speaker 3: 1.5 mil here, 1.1 mil here. We don't have two
21:03
Speaker 3: separate relationships. We've got sort of one relationship that is
21:07
Speaker 3: worth 2.5, 2.6 million, and the fees come down accordingly
21:11
Speaker 3: as if you had one account that was doing that roughly.
21:14
Speaker 3: That's one sort of potential opportunity. You've said you're in
21:16
Speaker 3: retail funds at the moment. That would allow you the
21:18
Speaker 3: ability to buy the shares, the ETFs, and various other
21:21
Speaker 3: things that you wanted to if you want to take
21:23
Speaker 3: direct control. The biggest thing about self-managed super funds, though,
21:26
Speaker 3: is control, and that's the reason that most people start them.
21:29
Speaker 3: Some might be looking at expenses, but it's about control.
21:32
Speaker 3: Do you want to control the investments, or do you
21:34
Speaker 3: want to work with an advisor to help you control
21:37
Speaker 3: the investments? By doing that, I mean buying direct shares.
21:40
Speaker 3: A lot of people start their SMSFs because they want
21:43
Speaker 3: to choose to buy BHP over Rio or to exclude
21:46
Speaker 3: certain things, and they've got certain investment interests that they
21:50
Speaker 3: want to follow and think that they can do it
21:52
Speaker 3: just as well as the fund managers. Some will be
21:53
Speaker 3: able to, some won't. But there are a lot of
21:56
Speaker 3: different options there. Considering doing it at this stage in
21:59
Speaker 3: life when you're going to turn on a pension, is
22:01
Speaker 3: it necessarily a bad idea, James? I don't necessarily think
22:05
Speaker 3: that that's a bad idea.
22:07
Speaker 1: To play devil's advocate on it, Bruce, I would say
22:09
Speaker 1: what about the fact that it looks like it would seem,
22:13
Speaker 1: I don't know, but it would seem I see no
22:15
Speaker 1: complaints about their retail super funds and they have pretty
22:18
Speaker 1: healthy super balances. And so it would be worth asking,
22:22
Speaker 1: could you really do better? And how much more work
22:26
Speaker 1: would it involve? And are you sufficiently equipped and energetic,
22:31
Speaker 1: if you like, to take on the substantial, not just
22:35
Speaker 1: the logistics and paperwork of doing an SMSF, but the
22:40
Speaker 1: actual stress of being in charge of your own retirement
22:44
Speaker 1: when it has become exceptionally important to you. It's more
22:47
Speaker 1: important to you now than it was two years ago.
22:49
Speaker 1: That's just to play devil's advocate there. The second part
22:52
Speaker 1: of Shankar's question is more or less the same as
22:54
Speaker 1: the first. Would we be better off moving to pension
22:57
Speaker 1: products in our existing providers? That's the playoff between that
23:00
Speaker 1: and SMSFs for you to decide, Shankar. I hope that's
23:03
Speaker 1: useful to you. Okay, I think you read the next one.
23:07
Speaker 3: So from Robert, purchased a property prior to auction earlier
23:11
Speaker 3: this year and received unconditional loan approval from the bank.
23:14
Speaker 3: Settlement was due at the end of August. His bank
23:18
Speaker 3: had quoted him an interest rate in June, but when
23:20
Speaker 3: he received the mortgage documents, the bank had increased the
23:22
Speaker 3: quoted rate by 0.27% without informing him, and obviously there'd
23:28
Speaker 3: been no RBA rate increases during that period. When he
23:31
Speaker 3: questioned the change, he was informed that they had withdrawn
23:33
Speaker 3: the special introductory offer at the end of July after
23:37
Speaker 3: he'd purchased the property, but before he'd been given unconditional approval.
23:40
Speaker 3: It's now only a couple of weeks to settlements, and
23:43
Speaker 3: the idea of sourcing property A loan without delaying settlement
23:47
Speaker 3: could be difficult. Robert feels badly mistreated by the bank.
23:50
Speaker 3: They used a great offer to lure him in and
23:53
Speaker 3: then pulled the loan prior to him signing the documents
23:57
Speaker 3: and whatever.
23:57
Speaker 2: So.
23:58
Speaker 1: Dude, it's such a good question. I don't know about you, Bruce.
24:00
Speaker 1: Have you come across this? The first home I ever bought,
24:04
Speaker 1: I also fixed. So it was very important what the
24:07
Speaker 1: deal was. And I remember I fixed for five years.
24:10
Speaker 1: And when we sat down opposite the guy... In NAB,
24:15
Speaker 1: and I noticed Robert hasn't. By the way, folks, you
24:18
Speaker 1: can mention these institutions anytime you wish, and we'll make
24:21
Speaker 1: a decision whether it's fair to mention them in turn.
24:24
Speaker 1: But in any event, when we got in to sit
24:26
Speaker 1: down with my wife, when we got in to sign
24:28
Speaker 1: the documents, the banker was talking ad nauseum about all
24:32
Speaker 1: sorts of things, and then just mentioned the rate, and
24:34
Speaker 1: I just noticed it was a half percent higher than
24:38
Speaker 1: we'd agreed all the way along. And we were at
24:39
Speaker 1: the last moment, and I just said, hang on a second, blah, blah, blah.
24:43
Speaker 1: And he backtracked and said, yeah. And I don't know
24:45
Speaker 1: how much that meant to us over the years, but
24:47
Speaker 1: it was a lot. So my point is that whole
24:52
Speaker 1: first thing I would suggest to anyone in that situation
24:55
Speaker 1: is to kick back hard on the bank and see
24:58
Speaker 1: how they respond. They're not inflexible. And you have worked
25:05
Speaker 1: on a deal on the assumption of a rate which
25:07
Speaker 1: you all agreed on, and they're changing it. It doesn't
25:09
Speaker 1: matter what the explanation is. They're changing it. What do
25:12
Speaker 1: you think, Bruce? That's what I think. What do you
25:14
Speaker 1: think as an advisor on the ground?
25:17
Speaker 3: Mortgage broker, hat on, you need to settle, basically. Now,
25:21
Speaker 3: you settle with a bit of a sour taste in
25:23
Speaker 3: your mouth. It probably is too late. We're getting pretty difficult.
25:25
Speaker 3: We don't know enough about the circumstances, your incomes, all
25:28
Speaker 3: that sort of stuff to see whether you do actually
25:29
Speaker 3: have time to go to another lender. I would probably
25:32
Speaker 3: suggest settling, accepting, pushing back on them a bit and saying,
25:35
Speaker 3: hang on a second, but it sounds like you've probably
25:37
Speaker 3: given that a try. Push back on them a bit,
25:39
Speaker 3: but the most important thing is settling, getting the property
25:41
Speaker 3: in your name. Once you've done that, you don't owe
25:44
Speaker 3: any loyalty to this bank. It doesn't sound like you've
25:48
Speaker 3: gone through a broker. I would probably suggest going to
25:50
Speaker 3: see a broker straight afterwards or even now and say
25:53
Speaker 3: this has happened, particularly if you've gone direct.
25:55
Speaker 2: To a bank.
25:56
Speaker 3: Go and see a broker and explain to them what's
25:58
Speaker 3: happened and see whether the rates, whether there are more
26:01
Speaker 3: competitive rates out there. If you did go through a broker,
26:04
Speaker 3: then get your broker to push back on the bank.
26:07
Speaker 3: It might not have an impact.
26:08
Speaker 2: They do have to cut off special rates at various
26:11
Speaker 2: periods of time. That's what they do.
26:12
Speaker 3: And it is to try to get people in the door.
26:15
Speaker 3: I would probably suggest settling, getting the place, and then
26:19
Speaker 3: looking to move on or to bash the bank. Go
26:21
Speaker 3: back and tell the bank that you're not happy with
26:25
Speaker 3: it and you're going to leave. They've done a lot
26:26
Speaker 3: of work. They're not making any money really out of
26:29
Speaker 3: this in the short term. Banks make money the longer
26:31
Speaker 3: you hang around with them. And you might find in
26:34
Speaker 3: that situation that if you go and push back or
26:36
Speaker 3: threaten to leave once the loan is settled and say
26:38
Speaker 3: that you're unhappy, that something might happen.
26:40
Speaker 2: And if it doesn't, take it to the market, go
26:43
Speaker 2: and see a broker.
26:44
Speaker 1: Thank you for that answer. It's so good and really
26:47
Speaker 1: reflected your own skills, Bruce, and experience. I didn't even
26:51
Speaker 1: know and even into my mind that you could, after settlement,
26:55
Speaker 1: take a second look because in my mind, that was it.
26:58
Speaker 1: That was the end.
26:59
Speaker 3: In your case, I think in your case, James, you're
27:01
Speaker 3: talking about a fixed rate and we don't know whether
27:03
Speaker 3: Robert's talking about a fixed rate here or not. If
27:05
Speaker 3: he's talking about a fixed rate, then yes, that's not
27:07
Speaker 3: going to necessarily be possible. If it's a variable rate, yep,
27:10
Speaker 3: he doesn't have to hang around. There might be some fees.
27:12
Speaker 3: You've got to figure out whether the fees to get out,
27:15
Speaker 3: which are not as big as they used to be,
27:16
Speaker 3: but the fees to get out are worthwhile to get
27:18
Speaker 3: the new rates at a new bank or something like that.
27:20
Speaker 3: But fixed rates would be difficult, variable maybe less so.
27:24
Speaker 1: OK, so and also mortgage broker on that occasion, I
27:27
Speaker 1: think sounds like to be absolutely essential for anyone in
27:31
Speaker 1: that position. Very interesting. OK, we'll take a short break.
27:34
Speaker 1: Back in a moment. Hello, welcome back to the Australian's
27:43
Speaker 1: Money Puzzle podcast. I'm James Kirby, wealth editor at The Australian,
27:47
Speaker 1: talking to Bruce Bramall, financial advisor, author, media figure and
27:53
Speaker 1: regular on the show. Now, it's a question from Neil.
27:57
Speaker 1: I heard Danielle Ekoye on the show a few weeks
28:00
Speaker 1: ago mention she never borrows to invest. But what about
28:04
Speaker 1: the property market? My question is, if leverage is a
28:10
Speaker 1: good idea, then why do more investors not borrow to
28:13
Speaker 1: invest in the share market as opposed to the property market?
28:16
Speaker 1: And he mentions one of the He mentions the NAB
28:18
Speaker 1: equity builder, which is often mentioned here and there for
28:23
Speaker 1: people who are leveraging, looking for what you might call
28:26
Speaker 1: a structured product or an arrangement to go into the
28:29
Speaker 1: share market and borrow. Now, that was unusual. I was
28:32
Speaker 1: surprised that Danielle said that, but because she's in the
28:34
Speaker 1: markets a long time and a very skilled operator herself,
28:37
Speaker 1: but that's her view. Most people identify property and leverage
28:42
Speaker 1: property through negative gearing because there are specific tax advantages involved.
28:45
Speaker 1: Those tax advantages are also available to you if you
28:48
Speaker 1: buy shares. So, Neil, just to enhance the question a bit,
28:53
Speaker 1: why don't people borrow more often to buy investments outside
28:58
Speaker 1: property when they can negatively gear them, just like they
29:00
Speaker 1: negatively gear property? What do you think, Bruce? Why? Is
29:03
Speaker 1: it because the trauma of watching share prices bounce around
29:08
Speaker 1: every day?
29:08
Speaker 3: It is partly about volatility. Shares are just simply far
29:14
Speaker 3: more volatile than property. I love both as asset classes
29:17
Speaker 3: and we have clients with both, obviously. But borrowing to
29:20
Speaker 3: invest in the share market is less popular because of
29:24
Speaker 3: things like if you're using a margin loan because of
29:26
Speaker 3: margin calls, when markets tend to fall quite heavily and
29:30
Speaker 3: there's a margin call, that can be a problem. The
29:34
Speaker 3: other way of borrowing for a share investment is potentially
29:37
Speaker 3: without margin calls is to borrow against another asset.
29:40
Speaker 2: Asset, generally a property.
29:41
Speaker 3: So you might want to invest tax effectively into a
29:44
Speaker 3: share portfolio, a diversified share portfolio.
29:46
Speaker 2: I've got equity in my home.
29:47
Speaker 3: I'm going to borrow, get a $ 200, 000 facility against.
29:51
Speaker 2: My home, secure against my home to invest in $ 200, 000
29:53
Speaker 2: worth of shares.
29:55
Speaker 3: You'll get a home loan rate on there, which can
29:59
Speaker 3: be one way of doing it. And you're investing in shares,
30:02
Speaker 3: which will be returning dividends and distributions. And there will
30:05
Speaker 3: be some negative, most likely when you start, some negative
30:07
Speaker 3: gearing around that. So you can and do have that ability.
30:11
Speaker 3: The shares are just more volatile. The thing about property is,
30:14
Speaker 3: when you're borrowing for property, you're normally lending against.
30:18
Speaker 2: The asset itself.
30:19
Speaker 3: And depending on which way you do it, 80% against
30:22
Speaker 3: the property, and then you need to either put up
30:23
Speaker 3: the remainder of the money or borrow the remainder of
30:25
Speaker 3: the money, the extra 20% plus your stamp duties, and
30:28
Speaker 3: put that against another property. But I think the reason
30:31
Speaker 3: that most people, it's less well taken up is largely
30:36
Speaker 3: because of the volatility element of it.
30:38
Speaker 1: Yes, and you were alluding there to the fact that
30:40
Speaker 1: the banks are lenders with property that If you say
30:44
Speaker 1: you've got a million dollar house, it's worth a million dollars,
30:47
Speaker 1: they'll take it as a million dollars. If you say
30:48
Speaker 1: you've got a million dollar share portfolio, they don't take
30:50
Speaker 1: it as a million, do they? They ratchet it way
30:52
Speaker 1: back and they say, we'll only assume that's worth. They
30:55
Speaker 1: mark that down a fair bit for collateral purposes.
30:59
Speaker 3: From a lending perspective, they tend to take it at
31:01
Speaker 3: face value. They might discount a little bit. They certainly
31:03
Speaker 3: do discount the income that comes from it when they're
31:07
Speaker 3: looking for loans. So if you've got a million dollar
31:09
Speaker 3: portfolio yielding 4% plus some franking credits, then they'll take 20%
31:13
Speaker 3: as a general rule, I think, of that and discount
31:16
Speaker 3: the income stream because dividends can be cut, but GFCs
31:19
Speaker 3: or not, you know, COVID.
31:20
Speaker 1: But don't they assume that rentals can be vacant?
31:25
Speaker 3: Yes, they do, but they assume that there's a percent
31:28
Speaker 3: rental vacancy on any given property. Yeah, 2% as in
31:35
Speaker 3: a couple of weeks a year or something. So if
31:37
Speaker 3: you tell them that's worth 500 bucks a week, they
31:39
Speaker 3: automatically discount it by probably about a similar sort of
31:42
Speaker 3: percentage of 20%, but that's to cover vacancy rates, insurances,
31:46
Speaker 3: the other costs of holding a property as well.
31:48
Speaker 1: Okay, yes. And as you say, the risk of a
31:50
Speaker 1: vacant property just now is more or less zilch. Okay,
31:54
Speaker 1: final question from Ben, if you would read that one.
31:58
Speaker 2: I'll read this one, but I think this is definitely
31:59
Speaker 2: a question for you, James.
32:01
Speaker 1: I know.
32:01
Speaker 3: So from Ben, how come you're expanding the top advisors
32:04
Speaker 3: list to 150? Why not just expand it to 15,000
32:07
Speaker 3: and cover all advisors? Maybe an idea is to do
32:10
Speaker 3: like wines and categorize them best for small accounts, best
32:14
Speaker 3: for retirees, best for big families.
32:16
Speaker 1: Yes, thank you, Ben. The top advisors list goes from
32:19
Speaker 1: 100 to 150 this year. On its seventh year, Ben,
32:22
Speaker 1: we're not exactly rushing it. Started with 50 and 217,
32:26
Speaker 1: and then we opened it up to 100 a couple
32:28
Speaker 1: of years ago. Very careful opening it up at 150
32:31
Speaker 1: out of 15,000.
32:32
Speaker 2: That's not exactly.
32:35
Speaker 1: It's a balance between offering something that's really useful and
32:38
Speaker 1: that it's not so tiny that it's not useful because
32:41
Speaker 1: nobody can get into these people. As to how big
32:44
Speaker 1: the list will get, I couldn't tell you. And I
32:47
Speaker 1: like your idea, of course. And by the way, so
32:49
Speaker 1: does Barron's. And in the US, they have sufficient data
32:52
Speaker 1: and scale that they do slice and dice it like that.
32:55
Speaker 1: They have the best male and the best female and
32:57
Speaker 1: the best family advisors. And they have it state by state.
32:59
Speaker 1: And it's all quite marvelous. But they're doing it for
33:02
Speaker 1: 25 years there. And they have an enormous population, of course.
33:06
Speaker 1: But we are steadily and conservatively moving along on that one.
33:11
Speaker 1: So that's the explanation, Ben, which I hope is good
33:13
Speaker 1: enough for you. All right. Hey, thank you very much, Bruce.
33:16
Speaker 1: Great to have you on today.
33:18
Speaker 2: Absolute pleasure. Thanks for having me on, James.
33:21
Speaker 1: Always great to have Bruce Brammel, Bruce Brammel Financial Advice
33:25
Speaker 1: on the show. Thank you, everybody, for listening. Do mention
33:28
Speaker 1: us to someone, one person you know. It would be
33:30
Speaker 1: lovely to spread the word about the show. and keep
33:33
Speaker 1: the emails coming in, themoneypuzzle at theaustralian.com.au. Talk to you soon.