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Why 'rentvesting' doesn't work (for most people most of the time) · The Money Puzzle

0:08
Speaker 1: Hello, and welcome to the Australian's Money Puzzle podcast.
0:10
Speaker 2: I'm James Kirby. Welcome aboard everybody.
0:13
Speaker 1: Well, it's the first podcast under a fresh new labor
0:17
Speaker 1: administration at federal level, the second term of the Albanese government.
0:24
Speaker 1: Now on the show, we do try not to get
0:27
Speaker 1: particularly sidetracked or bog down in political talk because it's
0:31
Speaker 1: an investor show. But there's times you know, you really
0:34
Speaker 1: do need to know what a change of government means
0:37
Speaker 1: for you as an investor, and this is one of
0:40
Speaker 1: those times.
0:41
Speaker 2: And my guest.
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Speaker 1: Today is Stuart Weems. He's been doing some really interesting
0:45
Speaker 1: work on investment property, which I'm going to talk to
0:48
Speaker 1: him about. We'll also talk about what this all means
0:51
Speaker 1: for you, the investor particularly. I think today we look
0:54
Speaker 1: at the property side of things, the home buyer side
0:58
Speaker 1: of things, and later in the week I'm going to
1:01
Speaker 1: have Will Hamilton on the show and we will talk
1:03
Speaker 1: about the investment side, allocation, super etcetera. So we get
1:07
Speaker 1: right across what this new government means. Because they're in,
1:10
Speaker 1: they're stronger than they were, They have more capacity to
1:16
Speaker 1: pass more legislation than they did because of the arrangements
1:21
Speaker 1: in Parliament, particularly what looks like a more simplified, if
1:26
Speaker 1: you like, Upper House Senate, which is where a lot
1:29
Speaker 1: of stuff got stuck. So we will take a good
1:31
Speaker 1: look at that because I think it's really really relevant.
1:33
Speaker 1: My guest today, as I said, is Stuart Wims from
1:35
Speaker 1: the pro Solution Private Clients Group.
1:37
Speaker 2: How are you, Stewart.
1:38
Speaker 3: I'm really well, James.
1:40
Speaker 4: You know it was only four months ago when we
1:42
Speaker 4: met to talk about our expectations for the property market. Boy,
1:45
Speaker 4: things can change within such a short period of time,
1:48
Speaker 4: can't they.
1:49
Speaker 2: Yeah, yeah, they do, they do, and certainly no one.
1:54
Speaker 1: It is entertaining to watch all the political analysts making
1:57
Speaker 1: the point that no one including them saw this coming
2:01
Speaker 1: at all, and no one on either side that that
2:04
Speaker 1: is an increased majority for the Albaneza government and perhaps
2:08
Speaker 1: less Teals than we had seen and have greatly reduced
2:13
Speaker 1: coalition ranks of course, and maybe an empowered Greens constituency
2:20
Speaker 1: will see about that too. So one of the things
2:23
Speaker 1: that the Albaneza government did just to cover off in
2:25
Speaker 1: terms of what's coming down the line, what's on offer
2:27
Speaker 1: if you like from them, then there was plenty of
2:29
Speaker 1: on offer. So the two big ticket items for them
2:34
Speaker 1: was the offering of a first home guarantee depositive scheme.
2:38
Speaker 1: Now that exists already, but what they've said is no
2:41
Speaker 1: caps anyone anywhere in Australia. First home buyer they want
2:45
Speaker 1: to buy a property, old or new for their first home,
2:50
Speaker 1: the government will help them. They only needed five percent
2:54
Speaker 1: to positive. The government will cover the other fifteen percent
2:56
Speaker 1: that the banks like to see so that the people
3:00
Speaker 1: can actually buy these homes on a ninety five percent deposit.
3:05
Speaker 1: What does that mean for property investors?
3:07
Speaker 4: They remove the income caps, James, but there's still property
3:10
Speaker 4: price caps, although they've been a little bit.
3:12
Speaker 1: There is a and they're kind of layered relating to
3:15
Speaker 1: the different states. We wont go through that, but there's
3:17
Speaker 1: a sort of a ladder which would link the Sydney
3:20
Speaker 1: the most obviously because it's the dearest markets.
3:22
Speaker 3: Yeah.
3:22
Speaker 4: Yeah, And those caps normally range between seven hundred and
3:25
Speaker 4: a million, except for Sydney's is one and a half million.
3:28
Speaker 3: I think it's a.
3:29
Speaker 4: Great scheme in terms of solving the problem of helping
3:32
Speaker 4: people buy houses. Doesn't solve the house cost problem in
3:36
Speaker 4: terms of the price of the house, but the ability
3:38
Speaker 4: to be able to buy the House is pretty good
3:41
Speaker 4: sure that the scheme was previously capped at thirty five
3:44
Speaker 4: thousand per year, so that the government's open that up.
3:47
Speaker 4: There's no limit now, and they estimate there's about one
3:50
Speaker 4: hundred and ten to one hundred and thirty thousand first
3:53
Speaker 4: home buyers each year, which is about eleven percent of
3:56
Speaker 4: the market, So it's pretty considerable. Like in terms of
4:01
Speaker 4: the impact on the market, particularly the sub million dollar
4:04
Speaker 4: price point, does.
4:05
Speaker 1: That mean automatically that that's actually got to be the hottest,
4:07
Speaker 1: most top hoighly contested end of the market, the sub million.
4:11
Speaker 4: The program kicks in or the what's the been announced
4:15
Speaker 4: kicks in at the beginnea of next year, that's exactly
4:17
Speaker 4: what I expect. I think it's going to have a
4:19
Speaker 4: big impact the average mortgage insurance savings about twenty three
4:24
Speaker 4: thousand dollars they've said, which sounds about right to me.
4:27
Speaker 4: It's a pretty considerable saving. But most importantly, get more leverage.
4:31
Speaker 4: You know, you can borrow to ninety five percent when
4:33
Speaker 4: people might have otherwise not decided to do that. So
4:37
Speaker 4: it extends my capacity to be able to spend more,
4:39
Speaker 4: and also it extends people's capacity that were previously kind
4:43
Speaker 4: of priced out of the market just because of lending
4:46
Speaker 4: standards or rules, and now they can get into that market.
4:49
Speaker 4: So I think we'll see a lot higher demand. I mean,
4:52
Speaker 4: that's eleven percent of the overall market. I should have
4:55
Speaker 4: worked out, you know, what proportion of properties sold below
4:58
Speaker 4: than a million dollars, but imagine it's a pretty significant
5:02
Speaker 4: proportion in the market. I think it's going to have
5:04
Speaker 4: a really strong impact. So I guess if you're looking
5:07
Speaker 4: to buy a property that costs less than a million dollars,
5:11
Speaker 4: you probably should do that this year because you'll have
5:14
Speaker 4: less competition.
5:15
Speaker 1: Yeah, because it starts in January, right, it starts January one,
5:18
Speaker 1: in January as opposed to July one. Keep that out
5:21
Speaker 1: of mind, folks. Yeah right, Okay, interesting, really interesting. Okay,
5:25
Speaker 1: so we're probably going to have a fair bit of heat.
5:28
Speaker 1: Government bank rolled heat at the first home buyer layer.
5:32
Speaker 1: If you're an investor, it is what it is, take
5:35
Speaker 1: it or leave it. Alternatively, the government also had for
5:38
Speaker 1: what it's worth. By the way, of course, the Coalitions plans,
5:41
Speaker 1: which was to allow you to do some tax deductions
5:44
Speaker 1: that's gone. And similarly their plan that you could get
5:47
Speaker 1: up to fifty thousand dollars of your own super to
5:49
Speaker 1: buy home. That's gone for the moment. The other labor
5:52
Speaker 1: first home package is the Shared Equity program, which allows
5:55
Speaker 1: people again buying a first house, to share ownership with
5:58
Speaker 1: the government.
6:00
Speaker 2: They will take up to.
6:00
Speaker 1: Forty percent of a new house and thirty percent of
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Speaker 1: an old house. Is that sideline? Now to some degree,
6:06
Speaker 1: that program by the big one of the guarantee.
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Speaker 4: Well, I mean the guarantee is good because it helps
6:11
Speaker 4: the deposit side, which tends to be the difficult thing
6:14
Speaker 4: for younger people wanting to get into the market to
6:17
Speaker 4: try and outsave the market to acquire a big enough
6:20
Speaker 4: deposit or maybe even tap into the bank of mom
6:22
Speaker 4: and dad. But it still requires the serviceability side, So
6:26
Speaker 4: I still need to Whilst I can borrow ninety five percent,
6:29
Speaker 4: I still need to be able to demonstrate that I
6:31
Speaker 4: can afford to do that. So that's going to be
6:32
Speaker 4: linked to my income of course, and in a falling
6:35
Speaker 4: interest rate environment, I guess those two things are working
6:39
Speaker 4: nicely together to extend people's borrowing capacity. But if I'm
6:43
Speaker 4: a low income earner, the five percent guarantee is not
6:47
Speaker 4: necessarily going to help me, because I still can't afford
6:49
Speaker 4: to service the ninety five percent.
6:51
Speaker 2: At costs, and the bank will say no to you.
6:54
Speaker 3: The bank will say no.
6:55
Speaker 4: I mean, if I've got a very limited income sixty thousand,
6:57
Speaker 4: I'll want to borrow six hundred thousand, ten times income.
7:00
Speaker 3: That's just not going to happen.
7:02
Speaker 4: So I guess the shared equity scheme is going to
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Speaker 4: help lower income owners get into the property market where
7:08
Speaker 4: they otherwise couldn't afford to do.
7:11
Speaker 2: So.
7:11
Speaker 4: There's been a few shared equity schemes around the world.
7:14
Speaker 4: The UK has had one for ten years and it's
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Speaker 4: helped three hundred and seventy five thousand purchases over that
7:20
Speaker 4: ten year period. It's been pretty successful. Okay, So I
7:22
Speaker 4: think it's going to fill a market, but it's going
7:25
Speaker 4: to be quite narrow niche I think it's going to
7:28
Speaker 4: be people that are really struggling from an income perspective,
7:32
Speaker 4: and it's going to be in areas where property is cheaper,
7:36
Speaker 4: I would imagine.
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Speaker 1: So, if you're an investor, you know rets are coming down,
7:41
Speaker 1: and you know that the share market's follows had and
7:44
Speaker 1: you now know that a whole layer of the market
7:47
Speaker 1: will move after January and that the competition would be
7:51
Speaker 1: intensified in that sub million dollar category. So really, as
7:56
Speaker 1: you say, investors, if they're serious and they want to
7:59
Speaker 1: get out started this year, get started before January because
8:02
Speaker 1: there's literally there's going to be an optick after January
8:06
Speaker 1: of demand and it can't start before January because the
8:09
Speaker 1: scheme doesn't start before January.
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Speaker 4: Yeah, they've already exhausted the thirty five thousand places that
8:14
Speaker 4: they previously had in that guarantee scheme. They went very quickly.
8:18
Speaker 4: There's always a lot of demand for it. So it
8:20
Speaker 4: does show us that there's plenty of people out there
8:23
Speaker 4: that want to use that scheme and that will use
8:26
Speaker 4: that scheme. As I said, average first home buyer is
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Speaker 4: one hundred and ten hundred and thirty thousand a year,
8:31
Speaker 4: but maybe because of the scheme, there's going to be
8:33
Speaker 4: more to come out of that would work and it
8:35
Speaker 4: could be a more considerable portion of the market. We
8:38
Speaker 4: only have to think back to around the GFC when
8:42
Speaker 4: the rud government doubled the first home owners grant. Yes,
8:45
Speaker 4: that had a huge impact in that price point back
8:48
Speaker 4: at that time. So we know these sorts of I
8:50
Speaker 4: don't know if you want to call it a stimulus.
8:52
Speaker 4: But we know these sorts of government assistance can really
8:55
Speaker 4: impact the market and the demand for property in that
8:58
Speaker 4: particular price point. So I think you bang on, James,
9:01
Speaker 4: if you're looking to buy in that market, do it
9:03
Speaker 4: as soon as possible, Whereas if you're a vendor, if
9:05
Speaker 4: you're looking to sell in that market, hang on until
9:08
Speaker 4: next year. I think you're probably going to sell in
9:10
Speaker 4: a fully interest rate environment where people have more capacity.
9:15
Speaker 1: Good point. Okay, very good point. All right, Well, take
9:17
Speaker 1: a break. We'll be back in the moment. Hello, Welcome
9:29
Speaker 1: back to The Australian's Money Puzzle podcast. James Kirby here
9:32
Speaker 1: talking to Stuart Weems, regular on the show, as you know,
9:36
Speaker 1: of the pro Solution Group and regular contributor to The
9:39
Speaker 1: Australian on property matters and property investment matters. Now Stuart
9:44
Speaker 1: and I have been talking. I did something I think
9:47
Speaker 1: it was last week the ahu or I Ahurri, the
9:52
Speaker 1: Australian Housing and Urban Research Institute. It's one of those nonprofit,
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Speaker 1: independent think thanks survey groups that has really clout and
10:02
Speaker 1: respect in the market, and they issued a report which
10:07
Speaker 1: was a very interesting report a few days ago.
10:10
Speaker 2: Now.
10:10
Speaker 1: They made the point that if you know, basically property,
10:13
Speaker 1: if you were to scrap negative gearing, rents would go up,
10:16
Speaker 1: for instance, and landloaders and property owners would leave the market,
10:20
Speaker 1: which is deductive and would hardly surprise anybody.
10:23
Speaker 2: But also one of the things they said, they.
10:26
Speaker 1: Made the point that rent investors, if you don't you
10:28
Speaker 1: know what renvestors are, I'm sure. Okay, So these are people,
10:32
Speaker 1: invariably younger people who can't afford to buy the house
10:36
Speaker 1: they want in the place they want, but can't afford
10:38
Speaker 1: to buy an investment property, and do so in order
10:41
Speaker 1: to get a foothold in the market in order to
10:43
Speaker 1: access negative gearing. But inside this report it almost implied
10:47
Speaker 1: that layer of the market are regular losers, didn't it, Stuart,
10:50
Speaker 1: because of the time frame that they spend. Do you
10:53
Speaker 1: want to explain what's happening there?
10:55
Speaker 4: Well, they sort of concluded that half of investment property
10:58
Speaker 4: owners sold within it two year periods, So sold within
11:01
Speaker 4: a short two year period. I didn't delve into the data.
11:05
Speaker 4: It doesn't make any sense to me, certainly not. That's
11:07
Speaker 4: not our experience. I think we've got a pretty wide
11:10
Speaker 4: data set to sort of lean on, and it doesn't
11:13
Speaker 4: stand to logic, if you buy and sell within a
11:15
Speaker 4: two year period, you've got entry and exit costs.
11:17
Speaker 1: You're probably going to lose money, aren't you.
11:19
Speaker 3: You're almost certainly going to lose money.
11:20
Speaker 4: Yeah, it's a difficult thing, but you know, if we
11:22
Speaker 4: got to rent invest in, it's a really interesting strategy
11:26
Speaker 4: and it does garnish I guess, more attention in a
11:29
Speaker 4: market that becomes less and less affordable, and particularly maybe
11:33
Speaker 4: with the backdrop of trying to have your cake and
11:35
Speaker 4: eat it too, which we know in life isn't always
11:37
Speaker 4: possible and in fact really possible. So you know that's
11:41
Speaker 4: I think the appeal, James, is that I don't have
11:43
Speaker 4: to make any compromises in terms of where I live.
11:46
Speaker 4: But then I feel like I can also build wealth
11:48
Speaker 4: and have some sort of property ownership as well. And
11:51
Speaker 4: it feels like you're ticking both those boxes. And certainly
11:55
Speaker 4: in the short term, you know, from a cash flow perspective,
11:58
Speaker 4: it can be cheaper because I can go and rent
12:01
Speaker 4: a house that might be worth one and a half
12:02
Speaker 4: million dollars and I might be paying a two percent
12:04
Speaker 4: rental yield. You know, that's all I'm paying to live
12:07
Speaker 4: in that property. I don't have to pay for counsel rates, insurance,
12:11
Speaker 4: I don't have to do any property maintenance.
12:13
Speaker 3: On the face of it, you go, that's pretty cheap.
12:15
Speaker 4: But the problem is the longer term outcomes of being
12:19
Speaker 4: a lifelong rent investor, because you're going to carry that commitment,
12:24
Speaker 4: that rent commitment, throughout your entire life, including and most
12:28
Speaker 4: importantly into retirement, which means it's going to drain your
12:32
Speaker 4: asset pool.
12:33
Speaker 2: So let's just split it in two.
12:35
Speaker 1: You are of the view it's not a great approach,
12:39
Speaker 1: despite an increasingly popular approach. Can you break your critique
12:44
Speaker 1: of it as an investment technique if you like, for
12:49
Speaker 1: pre retirees, ordinary people working and then for retirees the
12:53
Speaker 1: distinct issues for both those two camps.
12:55
Speaker 4: Yes, So for pre retirees and particularly people that we
12:58
Speaker 4: would call a cumulate, people that are trying to build
13:02
Speaker 4: enough wealth so that they have some financial independence and
13:05
Speaker 4: can retire, it can work in some scenarios. If I'm
13:09
Speaker 4: moving around for work, I need a lot of flexibility,
13:12
Speaker 4: or because of work, I'm living an area that wouldn't
13:15
Speaker 4: otherwise make a good investment. You know, it's not a
13:18
Speaker 4: good area to own property in Rent investing can work
13:21
Speaker 4: fine in that situation, but for most people the family
13:25
Speaker 4: home can be indirectly one of their best investments, particularly
13:29
Speaker 4: on after tax basis. You've spoken a lot, James about
13:32
Speaker 4: the tax system really rewards the homeowner because there's no
13:36
Speaker 4: capital gains tax.
13:37
Speaker 1: Yes, it's biased in favor of the homeowner at every age.
13:41
Speaker 4: Yeah, And there's not a lot of tax free things
13:43
Speaker 4: in life, right, so we should probably take one when
13:46
Speaker 4: the opportunity arises. And the other thing I find is
13:50
Speaker 4: that whilst people are happy to rent at one particular
13:53
Speaker 4: stage of life, almost always they turn around to me
13:56
Speaker 4: and say, Stuart, Okay, we want to buy a home.
13:58
Speaker 4: We're sick of renting. We want to make modifications to
14:01
Speaker 4: our home. We don't want the uncertainty of being forced
14:04
Speaker 4: out of the area because now our kids go to
14:06
Speaker 4: school and they love this school, and we don't want
14:08
Speaker 4: to spend a lot of time traveling. So at some
14:11
Speaker 4: point people turn around and go, I want to own
14:13
Speaker 4: my own home.
14:14
Speaker 3: Now.
14:14
Speaker 4: What happens if you've been renting investing for the last
14:16
Speaker 4: decade or more and then you turn around and think, oh,
14:19
Speaker 4: now I want to buy a home. You might have
14:21
Speaker 4: exhausted all your borrowing capacity on investment properties, and in
14:25
Speaker 4: that case, then you need to go and sell all
14:26
Speaker 4: those properties so that you can afford to go and
14:28
Speaker 4: buy a home.
14:29
Speaker 1: Oh yeah, that's a really important point. So you want
14:32
Speaker 1: to get to mortgage and they say, well, listen, you're
14:34
Speaker 1: already stretched. Yeah, we can't throw you another nine hundred
14:38
Speaker 1: thousand dollars.
14:39
Speaker 4: So it's almost you've got to throw the baby out
14:41
Speaker 4: with the bath water and almost not start again per se.
14:44
Speaker 4: But you know, destroy a lot of well through transactional costs,
14:47
Speaker 4: capital gains, tax, all those sorts of things. Yes, so
14:51
Speaker 4: that's the sort of pre retiree. But post retirement, this
14:54
Speaker 4: is when it really becomes a problem. Because if I
14:57
Speaker 4: need say one hundred thousand dollars a year for generally
15:00
Speaker 4: the expenses, which is probably a target for most people,
15:03
Speaker 4: Let's say then I need another fifty thousand dollars to
15:06
Speaker 4: pay my rental expense, it means it means I need
15:09
Speaker 4: to draw one hundred and fifty thousand dollars from my
15:11
Speaker 4: retirement asset pool. So compared to someone that's a homeowner,
15:15
Speaker 4: I need fifty percent more assets. But if I've used
15:18
Speaker 4: property to build all my wealth, that's an a liquid
15:21
Speaker 4: asset that provides me relatively low income neative expenses. There's
15:26
Speaker 4: always maintenance, land tax, all these sorts of things. So therefore,
15:30
Speaker 4: if I'm a rent investor, I'm going to need to
15:32
Speaker 4: go and sell those properties in retirement, which means then
15:35
Speaker 4: I crystallize a whole bunch of capital gains tax. Because
15:38
Speaker 4: I can't progressively sell a property like I can a
15:40
Speaker 4: share portfolio or super I've got a whole thing in
15:44
Speaker 4: one tax year.
15:45
Speaker 1: Well, what do your tax FREEK status as a retiree
15:48
Speaker 1: help you?
15:49
Speaker 4: Help you a little bit, But hopefully you've made a
15:51
Speaker 4: huge gain, so you can save a little bit of
15:54
Speaker 4: money by spreading it across maybe you and your spouse
15:57
Speaker 4: in terms of the capital gain. But you're still going
15:59
Speaker 4: to pay a large amount of capital gains tax.
16:01
Speaker 1: Because it wasn't held and you're super fund. It was
16:04
Speaker 1: held outside of super.
16:05
Speaker 4: Yeah, and because you've got to sol the whole asset
16:08
Speaker 4: all at once, whereas with a share portfolio, I can
16:10
Speaker 4: sell twenty thirty forty thousand dollars of stocks each year
16:14
Speaker 4: and not pay very much tax at all.
16:16
Speaker 2: Gee, that's really interesting.
16:17
Speaker 1: Can I ask you, just going back on the report
16:19
Speaker 1: that said half of all investment properties, a sawt within
16:22
Speaker 1: two years that the holders of them, Even if it
16:26
Speaker 1: isn't entirely true, but let's say it substantially. So do
16:29
Speaker 1: you think that's rent vestors there right there, selling earlier
16:32
Speaker 1: than they should.
16:33
Speaker 4: It's hard to say that the situations I've had, James
16:36
Speaker 4: that rent vestors tend to do it for more than
16:39
Speaker 4: two years. You know, they tend to do it for
16:41
Speaker 4: five to ten years before they then work out or
16:43
Speaker 4: change their mind that hey, they want to become a
16:46
Speaker 4: home owner.
16:47
Speaker 3: Because you make a.
16:48
Speaker 4: Commitment to that strategy, there's a lot of costs associate
16:51
Speaker 4: obviously buying property, stampgedy, all those sorts of things. You
16:53
Speaker 4: don't want to turn around and change your mind.
16:55
Speaker 1: It would suggest they're doing it pretty fast, like mid twenties,
16:58
Speaker 1: mid twenties starting.
17:00
Speaker 4: Yep, they tend to be younger people as well, and
17:02
Speaker 4: I guess a pre family you know that having the
17:05
Speaker 4: security of a home is less important depending on their situation.
17:10
Speaker 4: But look like at everything, it's going to suit some people,
17:12
Speaker 4: but I think the vast majority it's probably not going
17:15
Speaker 4: to suit. And it might suit some people during different
17:18
Speaker 4: stages of their life. For example, buying your kind of
17:21
Speaker 4: forever home, if you like, and renting that out as
17:24
Speaker 4: an investment property while you're younger, and using the negative
17:28
Speaker 4: gearing to help you manage that debt, and then with
17:31
Speaker 4: the idea to eventually occupying that property maybe in five
17:34
Speaker 4: to ten years time. That's a great strategy, and that's
17:36
Speaker 4: sort of a tiltson rent vestie, I guess, so it
17:40
Speaker 4: can be used to some advantage, But I think at
17:42
Speaker 4: some point you've got to ask yourself, how am I
17:45
Speaker 4: going to fund the family home? Right and if you're
17:48
Speaker 4: going to need to borrow to do that, you're probably
17:50
Speaker 4: better off buying that family home as soon as possible
17:53
Speaker 4: because you're going to have to If you delay it,
17:55
Speaker 4: it's probably going to cost you more in ten or
17:56
Speaker 4: twenty years time. And then also you're going to think about, well,
17:59
Speaker 4: how does that impact my retirement as well.
18:02
Speaker 1: That's really interesting. So you think renvesting really doesn't work
18:05
Speaker 1: most for most people most of the time, with the
18:07
Speaker 1: exception of when they actually which is not quite the
18:09
Speaker 1: same thing, that they buy this house they've gone to
18:12
Speaker 1: the plan to live in, and the price of that
18:14
Speaker 1: long term would be they'd have to pay a bit
18:16
Speaker 1: of capital gains on the years they didn't live in it, wouldn't.
18:18
Speaker 3: They Yeah, that's right, Yeah they would.
18:20
Speaker 2: I mean they'd have to ring the ATO and volunteer
18:22
Speaker 2: that information.
18:23
Speaker 3: Yeah, they would.
18:24
Speaker 4: I mean they'd have to do that if they went
18:26
Speaker 4: and sold the property, of course, And if they think
18:28
Speaker 4: that's there forever home and they're going to live there
18:31
Speaker 4: for the rest of their life, then they probably don't
18:32
Speaker 4: really care about it.
18:33
Speaker 1: Oh yeah, yes, to make that clear the day they
18:35
Speaker 1: sell that property. So let's say they rent vested it,
18:39
Speaker 1: which is the ugliest, most awkward term even by financial standards.
18:42
Speaker 1: Let's say they rent vested it for ten years and
18:46
Speaker 1: then they lived in it for twenty years, and they
18:49
Speaker 1: sold it after thirty years. It would be capital gains
18:53
Speaker 1: exempt for twenty of those years.
18:55
Speaker 2: And though it's.
18:56
Speaker 1: Complicated, don't worry, the tax people would have worked out how
18:58
Speaker 1: much you will know that?
19:00
Speaker 2: Yes, straight up, you the person.
19:02
Speaker 3: That's right.
19:03
Speaker 4: But the reverses, Well, if I don't buy that property
19:05
Speaker 4: ten years sooner before I occupy it, it's going to
19:08
Speaker 4: cost me a lot more in after tax dollars to
19:10
Speaker 4: get into that market. And I think that would more
19:13
Speaker 4: than outweigh the potential capital gains tax costs as well
19:17
Speaker 4: as the negative gearing benefit.
19:19
Speaker 2: Really good, very interesting.
19:20
Speaker 1: Okay, we'll take your break, folks, and we'll be back
19:23
Speaker 1: with some listener questions and comments from recent days. Back
19:27
Speaker 1: in a moment, Hello, Welcome back to the Australians Money
19:40
Speaker 1: Puzzle podcast. I'm James Kirby talking to Stuart wims w Emyss.
19:46
Speaker 1: By the way, if you're wondering how that's spelt, now
19:49
Speaker 1: a couple of comments. You will recall, folks that I
19:53
Speaker 1: did something slightly different in recent weeks in that we
19:57
Speaker 1: had two shows. One was About to Divorce with Nathan
20:01
Speaker 1: Fradley and that was about the financial side of divorce
20:06
Speaker 1: and trying to help anyone who cared to listen about
20:09
Speaker 1: how to steer through the financial rocky voters of divorce.
20:14
Speaker 1: And then we had a follow up show which was
20:16
Speaker 1: The Tax Clinic and Akho Marquaus and her fascinating experiment
20:22
Speaker 1: if you like, at the University of New South waliz
20:24
Speaker 1: So she is running this clinic for people who are
20:28
Speaker 1: mostly small business owners and business people or entrepreneurs or
20:33
Speaker 1: people having a go in various ways who'll get into
20:35
Speaker 1: all sorts of difficulty financially because of financial abuts basically,
20:40
Speaker 1: and that clinic only works through referrals from other agencies,
20:43
Speaker 1: which she's doing some really interesting work and gave us
20:45
Speaker 1: a really interesting steer on those shows. Stephen says, thanks
20:50
Speaker 1: very much for that episode. I am currently going through
20:52
Speaker 1: a separation and eventually divorced. The episode was very beneficial.
20:56
Speaker 1: It makes me even more grateful that my ex partner
20:59
Speaker 1: and I are been kind to each other. I even
21:01
Speaker 1: called her and suggested she considers stamp duty capital gains
21:05
Speaker 1: as I'm staying with the house, something we had not
21:07
Speaker 1: considered previously. Thank you very much, Steven and Peter adds,
21:11
Speaker 1: thank you for the podcast talking about the tax clinic
21:15
Speaker 1: and the previous episode on divorce.
21:19
Speaker 2: Very good.
21:20
Speaker 1: I'm glad that they were useful to you. As Peter says,
21:23
Speaker 1: it's not often I hear about these areas and money shows. Yeah, well,
21:26
Speaker 1: we're trying to capture all aspects here, not just when
21:29
Speaker 1: things go right, but when things go wrong.
21:31
Speaker 2: All right?
21:32
Speaker 1: One final question from Lynn l Yn. She says, with
21:35
Speaker 1: the twenty percent Hecht's discount now coming from the new government,
21:41
Speaker 1: when will it commence?
21:42
Speaker 2: Okay? Lynn?
21:43
Speaker 1: Now, Stuart has some interesting things to tell you about
21:46
Speaker 1: the Heck's discount. But we'll answer the question first of all, Stuart,
21:50
Speaker 1: about when does it start.
21:52
Speaker 4: It will be applied on one June twenty twenty five, so.
21:55
Speaker 1: A couple of weeks. It's happening in a couple of
21:57
Speaker 1: weeks time. It is the first of all these schemes
21:59
Speaker 1: I imagine to kick in.
22:00
Speaker 4: But of course the law hasn't even been interested into
22:03
Speaker 4: Parliament yet, so they need to pass that, so it's
22:06
Speaker 4: going to be backdated. Of course, I don't know when
22:08
Speaker 4: Parliament seats, but they'll need to present that law, it'll
22:11
Speaker 4: be approved, and then they'll reduce the debt before the
22:14
Speaker 4: indexation is applied for this year.
22:16
Speaker 1: By twenty percent, which is quite a cut. And I
22:19
Speaker 1: imagine a successful political employ that was in the election
22:22
Speaker 1: for if somebody was offered straight up a twenty percent
22:24
Speaker 1: cut on their debt.
22:25
Speaker 3: It's an off budget item.
22:27
Speaker 1: To James, of course it is, what isn't It's a
22:30
Speaker 1: bit of a free kick.
22:32
Speaker 2: We all go into this off budget stuff, folks.
22:34
Speaker 1: Except to say that more and more governments of offers
22:37
Speaker 1: visions put these things off budgets and then they don't
22:39
Speaker 1: come up in the budget and they don't seem to
22:41
Speaker 1: be as troublesome when they're off budget as when they're
22:43
Speaker 1: sitting there in the budget. Anyway, what people really want
22:47
Speaker 1: to know is about this he's discount from the government.
22:50
Speaker 1: So the new government promises they will deliver it whatever
22:53
Speaker 1: your hex bill is. They were kind about twenty percent.
22:56
Speaker 1: It would commence lynn on the first of June, but
23:00
Speaker 1: you have to be backdated because the laws won't pass
23:02
Speaker 1: for a while new parliament, et cetera. So let's say
23:05
Speaker 1: in six months time the ATO when your hex bill
23:08
Speaker 1: comes around, they will assess it and they will take
23:10
Speaker 1: twenty percent off from the first of June and they'll
23:12
Speaker 1: work all that out. There was another aspect of it.
23:14
Speaker 1: You're reminded me of Stewart about hex What was that?
23:17
Speaker 4: The ALP said that they will allow the banks to
23:21
Speaker 4: ignore hex repayments when calculating someone's boring capacity.
23:25
Speaker 3: Okay, which is a very.
23:27
Speaker 4: Important issue because typically first home buyers, they tend to
23:31
Speaker 4: be relatively tight on income and boring capacity as they're
23:34
Speaker 4: starting their careers and these sorts of things, and HEX
23:38
Speaker 4: repayments can be significant, up to ten percent of your
23:41
Speaker 4: taxable income, so it can really dramatically as a commitment
23:45
Speaker 4: reduce your boring capacity. And so the government's announced this,
23:49
Speaker 4: and together with lower future interest rates hopefully and also
23:53
Speaker 4: the government guarantee, it's almost a three pronged approach to
23:57
Speaker 4: really improving the capacity for first home buyers. Now, the
24:02
Speaker 4: banks haven't made any changes yet. Some of the banks
24:04
Speaker 4: are kind of playing around with the fringes. If your
24:07
Speaker 4: hexstet will be repaid within one to five years, they'll
24:10
Speaker 4: shade it off a little bit. But if it's not
24:12
Speaker 4: going to be repaid over the next five years, then
24:15
Speaker 4: they're going to include the full kind of repayment amounts
24:17
Speaker 4: if you like.
24:19
Speaker 1: I see the phrasing enough that they will allow the
24:21
Speaker 1: banks not to consider it. It's not quite to say
24:26
Speaker 1: them as saying the banks are going to take it off.
24:28
Speaker 4: No, but by law, the banks have to test affordability.
24:32
Speaker 4: So by law, if they ignored a commitment, they would
24:35
Speaker 4: be breaking the law. So what they're going to do
24:38
Speaker 4: is say they would change the law. Now, let's remember
24:40
Speaker 4: the banks are in the business of lending. They're in
24:43
Speaker 4: the business of growing their loan book. I think they're
24:45
Speaker 4: going to come to the party with this, maybe not
24:47
Speaker 4: to the extent where we're going to ignore your complete heckstet.
24:51
Speaker 4: But maybe they'll play around on the fringes with maybe
24:54
Speaker 4: a lower buffer, for example, less living expenses. But I
24:58
Speaker 4: think they will sort of come to the and extend
25:01
Speaker 4: borrowing capacity for people that do have hex dates.
25:05
Speaker 1: So you've got to improved borrowing capacity with the hexstead crowd.
25:08
Speaker 1: You've got a five percent deposit for anyone buying your
25:12
Speaker 1: first house, and you've got interest rates stopping into a
25:16
Speaker 1: relatively steady housing market in from an economic point of
25:19
Speaker 1: view or an investment point of view, really really interesting.
25:22
Speaker 1: You know, NAB's economic team yesterday said it expects five
25:29
Speaker 1: five rate cuts in the coming year, a double rate
25:33
Speaker 1: cut in May, followed by a quarter point a quarter
25:38
Speaker 1: BIPs you know, twenty five BIPs quarter percentage in July
25:42
Speaker 1: and August and November and February.
25:45
Speaker 2: Think about that.
25:46
Speaker 1: That's going to bring your mortgage right down five ish. Okay, folks,
25:50
Speaker 1: isn't that an interesting And that's just the start of it. Okay,
25:53
Speaker 1: we'll open up this to markets, et cetera and super
25:56
Speaker 1: in a few days time. That was Stuart Williams of
25:59
Speaker 1: the pro Solution Group and by the way, I meant
26:01
Speaker 1: to say, with the questions coming in, it's great to
26:03
Speaker 1: get them. And I noticed, what are two clever listeners?
26:06
Speaker 2: All our listeners are clever.
26:07
Speaker 1: They're all above average, they're all about average investors. But
26:10
Speaker 1: they put in two questions sometimes three. That is absolutely
26:13
Speaker 1: fine if you go and make the effort of sending
26:15
Speaker 1: in a question, send in two, send in three. I'll
26:18
Speaker 1: just keep them short, but love to have more, so
26:21
Speaker 1: use that opportunity. The email is the money Puzzle at
26:25
Speaker 1: the Australian dot com dot au at. Today's show was
26:30
Speaker 1: produced by Joshua Burton