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The $250k Dilemma: "Pay Down the Mortgage or Power Up Your Portfolio?" · TFS WealthCast

• 0:04
  SPEAKER_01: This is the TFS Podcast where money not gets real and financial freedom is more than just a goal.
• 0:12
  SPEAKER_01: Without further ado, let's dive in.
• 0:17
  SPEAKER_04: Welcome to TFS Wealthcast.
• 0:20
  SPEAKER_04: Today, we are going to talk about a matter that one of our listeners have sent to us asking a question and also asking uh an advice what they should do.
• 0:34
  SPEAKER_04: So let me uh read this question before, and then I will introduce who's going to be joining to this episode.
• 0:42
  SPEAKER_04: I've got a mortgage of$750,000 and my house was recently valued at$850,000, giving me equity of$100,000.
• 0:54
  SPEAKER_04: I have an LVR of 85%.
• 0:57
  SPEAKER_04: I recently sold an asset overseas and will be getting$250,000 Australian dollars.
• 1:04
  SPEAKER_04: My objectives are to build a portfolio so that I can retire comfortably in 20 to 25 years.
• 1:12
  SPEAKER_04: Pay off my current home loan, ASAP.
• 1:16
  SPEAKER_04: How best can I invest the$250,000 to get the best possible return?
• 1:23
  SPEAKER_04: Put part of it towards my current mortgage and reduce my LVR or less than 80% and invest the rest and buy one to two other properties.
• 1:35
  SPEAKER_04: Number two, he's asking, invest the full 250,000 and buy other properties.
• 1:41
  SPEAKER_04: Number three, put the full 250,000 to my current mortgage and bring it down as much as possible.
• 1:49
  SPEAKER_04: And then he has also asked any other options?
• 1:52
  SPEAKER_04: Any other option I have not thought of?
• 1:55
  SPEAKER_04: Question mark.
• 1:57
  SPEAKER_04: So today I've got Sonali Rodrigo, none other than uh our financial planner and uh COO at TFS joining me.
• 2:07
  SPEAKER_04: So Sonali, welcome.
• 2:09
  SPEAKER_02: Thank you.
• 2:11
  SPEAKER_04: Okay.
• 2:11
  SPEAKER_04: So Sonali, now um you heard this uh email from from our client.
• 2:17
  SPEAKER_04: But before that, let's get on to few few questions.
• 2:22
  SPEAKER_04: Let's let's go and iron out uh some of the most important things that some of our listeners may or may not still know.
• 2:31
  SPEAKER_04: Understanding LVR and mortgage fundamentals.
• 2:36
  SPEAKER_04: So Sunali, what is this loan-to-value ratio, LVR?
• 2:41
  SPEAKER_02: What is it?
• 2:44
  SPEAKER_02: So LVR stands for loan to value ratio.
• 2:49
  SPEAKER_02: So if you say, I'll use an example to illustrate the point.
• 2:54
  SPEAKER_02: So let's say that we have a property that is worth um$1 million, and then your loan is$800,000.
• 3:06
  SPEAKER_02: Then you take your loan, divide it by the property value times it by 100, and that will give you your LVR.
• 3:15
  SPEAKER_02: So essentially, if you have$800,000 of debt um against a$1 million property, your LVR will be 80%.
• 3:25
  SPEAKER_02: Um, so usually lenders like borrowers whose LVR is 80% or less because they consider that to be um a less risky borrower.
• 3:38
  SPEAKER_02: You may have heard the term LMI that stands for lender's mortgage insurance.
• 3:44
  SPEAKER_02: So anytime your um LVR exceeds 80%, the lender goes, oh, you guys are a little bit too risky.
• 3:54
  SPEAKER_02: We need to go and take out an insurance policy to make sure that, you know, in case you don't pay, um, that we have some recourse.
• 4:01
  SPEAKER_02: So uh therefore, here's the premium, you pay that because you're the risky one.
• 4:07
  SPEAKER_02: So you pay that and cover the cost for the lender.
• 4:12
  SPEAKER_02: So essentially, anytime you borrow above 80%, um, most of the time, um, you have to pay a lender's mortgage insurance because you're considered a risky borrower.
• 4:24
  SPEAKER_02: Um, there are some exceptions to this rule.
• 4:27
  SPEAKER_02: There are professional LMI waivers, so people like doctors, um accountants, um, there are lots of other professions.
• 4:38
  SPEAKER_02: Lawyers, um, so there's lots of professions that get these LMI waivers.
• 4:44
  SPEAKER_02: You get to borrow up to 90% without LMI.
• 4:48
  SPEAKER_02: And then you guys may have seen in the news recently, you can borrow um up to 95% without any LMI.
• 4:57
  SPEAKER_02: Uh if you're a first home buyer, because now the government guarantees um the loan for the lender, so they don't have to go and get this lenders' mortgage insurance.
• 5:07
  SPEAKER_02: So, therefore, there are you know various exceptions to this rule.
• 5:11
  SPEAKER_02: But in general terms, if you borrow above 80%, you have to pay LMI.
• 5:15
  SPEAKER_04: Um, so so that very important for us to understand what is this LBR and LMI is, because these are the two terms that we will be uh using when it comes to property investment and restructuring your debts, reinvesting, building portfolios.
• 5:37
  SPEAKER_04: All right, so let's get on to this customer's uh or this listener.
• 5:44
  SPEAKER_04: Uh, I would say this listener's um first question.
• 5:48
  SPEAKER_04: Right.
• 5:49
  SPEAKER_04: Um question number one, he wants to know um paying down the mortgage to 80 percent.
• 6:00
  SPEAKER_04: Do you think it's a wise idea to bring down?
• 6:02
  SPEAKER_04: I mean, it's it's about a five percent.
• 6:05
  SPEAKER_04: Um that that according to his uh valuation, that's about five percent.
• 6:10
  SPEAKER_04: But I'm pretty sure the valuation could be a bit more than what he sees in in the internet.
• 6:18
  SPEAKER_02: Um to be really honest, I don't see too much of benefit paying down the LBR because if you already have a mortgage above 80%, chances are you've already paid the lender's mortgage insurance.
• 6:30
  SPEAKER_02: So even if you pay down, um, typically if you've gone above the one year mark, you won't get any refund.
• 6:37
  SPEAKER_02: And even if you do get a refund, it's really not uh substantial enough to you know um amount to too much.
• 6:44
  SPEAKER_02: So I wouldn't use the money to pay down the debt, to be really honest.
• 6:51
  SPEAKER_03: No.
• 6:51
  SPEAKER_02: Um I'd rather use it towards something else that might, you know, make it work a bit harder than that for me.
• 6:59
  SPEAKER_04: Okay, so so so you wouldn't necessarily go down the path of just putting the money and reducing the loan for the sake of it?
• 7:10
  SPEAKER_02: Not to bring down the LVR.
• 7:12
  SPEAKER_02: Okay, yeah, because that really doesn't do too much.
• 7:15
  SPEAKER_02: You've already paid the LMI.
• 7:17
  SPEAKER_04: I mean It doesn't make sense.
• 7:19
  SPEAKER_02: It doesn't make sense just to, you know, I mean, you're not if it makes you feel better or helps you sleep at night that you're at 80% LVR, yes, okay, but you know how many of us need that?
• 7:34
  SPEAKER_02: 85 to 80% is really not a big deal, I don't think.
• 7:37
  SPEAKER_04: Yep.
• 7:38
  SPEAKER_04: But but some some could argue because bringing down the LVR to 80%, uh, you you can get low interest rates from banks.
• 7:47
  SPEAKER_02: That is true, but there are better ways to get lower interest rates, you know.
• 7:53
  SPEAKER_02: You like you said, it might be 85% based on the information you see on the internet.
• 7:59
  SPEAKER_02: But if you actually you know get a broker to revalue your property, um you might be at 80% anyway.
• 8:07
  SPEAKER_04: So the market might give you a better valuation.
• 8:10
  SPEAKER_02: Valuation, yeah, especially considering now the rates are on their way down, property values are on their way up.
• 8:18
  SPEAKER_02: Um, so chances are you'd get a better valuation and you'll be at 80% anyway.
• 8:22
  SPEAKER_02: So if it is a cheaper rate that you're after, yes, you would get a cheaper rate at your 80% of VR as opposed to 85%.
• 8:30
  SPEAKER_02: But there are other ways to kind of get it lowered.
• 8:33
  SPEAKER_02: Um, you know, you you can even consider refinancing even at 85%.
• 8:39
  SPEAKER_02: Some of the lenders do no LMI depending on the client's profession.
• 8:44
  SPEAKER_02: We might get an LMI waiver.
• 8:46
  SPEAKER_02: So there's lots of things that we can look at.
• 8:49
  SPEAKER_04: Um yeah.
• 8:51
  SPEAKER_04: So um coming down to his other uh second one, pay off my current home loan as soon as possible.
• 8:59
  SPEAKER_04: ASAP.
• 9:00
  SPEAKER_04: So what he's thinking is, you know, you use the$250,000, put it to the home home loan or offset account, bring down the interest paying component to$500,000.
• 9:16
  SPEAKER_04: So would that help him to pay down his his home loan um in a in a quick manner?
• 9:24
  SPEAKER_02: Yeah, definitely.
• 9:26
  SPEAKER_02: Um rather than paying it into the loan, if it was me, I would you put it into an offset account um so that it offsets the loan balance and then saves you interest over the longer term.
• 9:44
  SPEAKER_02: Um as opposed to putting it into the loan and then bringing the limit down, then you that money is not easily accessible if you need it.
• 9:55
  SPEAKER_04: If you put the money into the loan.
• 9:57
  SPEAKER_02: If you put the money into the loan and then you adjust.
• 10:00
  SPEAKER_04: Yeah.
• 10:00
  SPEAKER_04: Um like a read, even if you put it as a redraw.
• 10:03
  SPEAKER_04: A lot of customers do this.
• 10:04
  SPEAKER_04: They they put extra money into the loan and keep it as a redraw.
• 10:07
  SPEAKER_02: Keeping it as a redraw is okay, then you can have access.
• 10:10
  SPEAKER_02: But there are some customers who put it into the loan and you reduce the limit.
• 10:13
  SPEAKER_04: Yeah.
• 10:14
  SPEAKER_02: If you reduce the limit, that means you're telling the bank to pay it off.
• 10:18
  SPEAKER_02: So if you need that money again, you have to reapply.
• 10:21
  SPEAKER_02: You have to reapply and go to the go through the credit process.
• 10:25
  SPEAKER_02: So then, you know, you you may or may not qualify, but then it's a process again.
• 10:30
  SPEAKER_02: Whereas if you put it into an offset account um or even redraw, you can take it out again um if needed.
• 10:38
  SPEAKER_02: Um, if a portion is needed, you can just access that.
• 10:41
  SPEAKER_02: Um, so that will save you interest at the loan interest rate, basically.
• 10:50
  SPEAKER_02: That's almost like a guaranteed return almost.
• 10:53
  SPEAKER_02: Um, and a tax-free return, essentially, because you don't really have to pay tax on that interest sale.
• 10:59
  SPEAKER_04: Only thing in Australia that is tax-free, in my opinion.
• 11:02
  SPEAKER_04: Um your own home, you you create equity in about a few years' time.
• 11:07
  SPEAKER_04: If you if you sell it, you get that money to yourself.
• 11:10
  SPEAKER_04: It's like that's the only thing that is tax-free.
• 11:14
  SPEAKER_04: Is it right?
• 11:15
  SPEAKER_04: Is is is a tax winning a uh lottery is tax-free, is not?
• 11:19
  SPEAKER_02: Uh don't ask me tax stuff.
• 11:22
  SPEAKER_04: It's so so it's it's um um paying down the home loan, using the money, it's actually not bad if you don't want to go down the path of reapplying access equity, buy investment property, this and that.
• 11:36
  SPEAKER_04: You want to, you know, just just focus on paying down the home loan only.
• 11:40
  SPEAKER_04: Yes, use the 250,000, pay it down or keep it in the offset account, start paying the principal, uh, so you reduce the the term of the loan.
• 11:50
  SPEAKER_02: Yeah, so um, I mean, even that, if you even if you keep it in the offset account, um, it outperforms most term deposits nowadays, right?
• 12:00
  SPEAKER_02: Yeah, term deposits give you like what 3.5, 3.9, 4%, maybe.
• 12:04
  SPEAKER_02: So that's still better than putting into a term deposit where you would pay tax on the gain that you get there, the the income that you get there.
• 12:15
  SPEAKER_02: So this is better than doing that.
• 12:17
  SPEAKER_02: But um, there are far better ways to use that money, I think, while still achieving the uh objective of paying down the mortgage quicker.
• 12:27
  SPEAKER_04: Yeah, so why why why do in in your industry as a financial planner, I know for a fact that there's two types of debts in Australia.
• 12:39
  SPEAKER_04: Right?
• 12:40
  SPEAKER_04: So you have good debt and then you have a bad debt.
• 12:44
  SPEAKER_04: Could you explain about this to our listeners?
• 12:47
  SPEAKER_04: What is a good debt?
• 12:48
  SPEAKER_04: What is a bad debt?
• 12:50
  SPEAKER_02: Okay, so simply put we call it good debt and bad debt, but the um you know technical term is non-deductible debt is bad debt, and deductible debt is good debt.
• 13:01
  SPEAKER_02: So if you um let's say your home loan, for example, that is not an income-producing asset.
• 13:10
  SPEAKER_02: So then that is technically termed a bad debt because the interest that you pay on that own occupied home loan is not tax-deductible.
• 13:20
  SPEAKER_02: You can't deduct it from your income tax and pay less tax.
• 13:24
  SPEAKER_02: Whereas the like the ATO allows you, if you borrow to buy an income-producing asset, the interest that you pay on that loan, that borrowing, you can reduce it from your taxable income.
• 13:42
  SPEAKER_02: So that is called a deductible debt, which is what we term a good debt.
• 13:47
  SPEAKER_02: Um, so the objective for a lot of people is to reduce non-deductible debt and then you know convert it to good debt, which are income-producing capital appreciating assets.
• 14:01
  SPEAKER_04: Okay.
• 14:02
  SPEAKER_04: Okay, so in this case here, how would you advise this customer to use this 250,000 that he's getting in the best possible manner that help him to be fr financially free?
• 14:26
  SPEAKER_04: So that's what he's asking, right?
• 14:27
  SPEAKER_04: He he build a portfolio so that I can retire comfortably in 20 to 25 years.
• 14:35
  SPEAKER_04: It's not uh it's not unrealistic here.
• 14:38
  SPEAKER_04: 20 to 25 years is a very good amount of time.
• 14:44
  SPEAKER_04: How would you use this 250,000 in a situation like this?
• 14:48
  SPEAKER_04: What would be your first move?
• 14:51
  SPEAKER_02: My first move right now is to say if this person is listening, I really need to sit down with you further before uh you act on anything that I say.
• 15:04
  SPEAKER_02: I just want to sort of give some options and what you can think about, then you can decide um, you know, whatever what suits you, and then apply that, or we can have a proper sit-down chat and then go through it.
• 15:17
  SPEAKER_04: Absolutely.
• 15:17
  SPEAKER_04: So we are using this as an example for uh for for you for you, the listener who sent that this sentence.
• 15:25
  SPEAKER_02: This is general advice only, and it is not personal financial advice.
• 15:29
  SPEAKER_02: Absolutely.
• 15:30
  SPEAKER_04: And then also for the other listeners, if you're in a situation like this, this is something that you can think, you know.
• 15:35
  SPEAKER_04: Um this this this is uh this is a opportunity for you all to uh now start thinking.
• 15:41
  SPEAKER_04: Uh if you have the money, what you should be doing with it.
• 15:45
  SPEAKER_04: Um Sanali,$250,000.
• 15:48
  SPEAKER_04: What would you do now in this situation?
• 15:50
  SPEAKER_02: So I would pay down his non-deductible debt, which is his home loan, by$250,000.
• 15:57
  SPEAKER_04: So that means the loan comes down to$500,000.
• 16:00
  SPEAKER_02: Yes.
• 16:00
  SPEAKER_02: So from$750, it would come down to$500,000.
• 16:04
  SPEAKER_02: Um, I would set up a separate investment loan facility, borrow that back out again, the same$250.
• 16:12
  SPEAKER_02: So you're essentially left with the$750 debt.
• 16:16
  SPEAKER_02: So you need to get your head around um the fact that, yeah, you'll be left with the same level of debt, but we've changed the clothes essentially.
• 16:26
  SPEAKER_02: Previously it was non-deductible debt, but now$250,000 suddenly became a deductible debt.
• 16:33
  SPEAKER_02: So the interest portion on that will be tax deductible if you use that$250 to buy an income-producing asset.
• 16:41
  SPEAKER_02: Now, what is the income-producing asset you want to buy?
• 16:45
  SPEAKER_02: That depends on your risk tolerance.
• 16:48
  SPEAKER_02: You could possibly put it into like Australian dividend-paying shares, exchange-traded funds, managed funds.
• 16:55
  SPEAKER_02: You could buy an investment property with it.
• 16:58
  SPEAKER_02: Um, yeah.
• 16:59
  SPEAKER_02: So as long as it produces income.
• 17:02
  SPEAKER_02: And then what you could do also is let's say you invest into Australian dividend paying shares or exchange traded funds, that would pay a dividend probably twice a year.
• 17:14
  SPEAKER_02: So when you get that dividend, you can put that against your home loan again.
• 17:20
  SPEAKER_02: So use the income and then pay off your non keep paying off your non-deductible debt.
• 17:26
  SPEAKER_02: So then you end up paying your home loan faster.
• 17:29
  SPEAKER_02: However, when compared to if you just went off and paid off your home loan, you now have you're paying your home loan off, but you also have an appreciating asset, an income-producing asset as well.
• 17:44
  SPEAKER_02: So you almost get the best of both worlds when you do that.
• 17:48
  SPEAKER_02: But the thing to do is you have to get your head around how these things work.
• 17:53
  SPEAKER_02: Because for some people, they might want the peace of mind knowing, ah, my home loan is paid off and I don't have to worry about it again.
• 18:00
  SPEAKER_03: Yeah.
• 18:00
  SPEAKER_04: Right.
• 18:00
  SPEAKER_02: So it depends on each person's risk tolerance.
• 18:04
  SPEAKER_04: Yeah.
• 18:04
  SPEAKER_02: You can't just have a one-size-fits-all thing because every one of us feels differently about money anyway, and debt.
• 18:12
  SPEAKER_02: And it depends on our upbringing, how we, you know, how we were exposed to money as kids, you know, our experiences, all of that shapes, you know, how we act around it.
• 18:22
  SPEAKER_02: So, you know, for some people, debt is like, oh my God, no, I can't sleep if I have debt.
• 18:27
  SPEAKER_02: So, you know, for those sorts of people, yes, you might go and just reduce your debt, and that's that's fine.
• 18:32
  SPEAKER_02: But once you educate yourself around these things, you'll start to slowly learn how it works, how what's good debt, what's bad debt.
• 18:42
  SPEAKER_02: Um, you know, that good debt might not be as bad as people think it is.
• 18:48
  SPEAKER_02: You know, in the end, over the long term, you would end up with quite a good portfolio and a good um platform for retirement.
• 18:57
  SPEAKER_04: So this, I know that a lot of people call this debt recycling.
• 19:01
  SPEAKER_03: Yeah.
• 19:02
  SPEAKER_04: What you just explained.
• 19:03
  SPEAKER_04: Right?
• 19:03
  SPEAKER_04: So you put your 250, bring down the home loan to 500, and then you take this 250 back or slightly lower, maybe about 200,000, you take it back.
• 19:13
  SPEAKER_04: Um it's about 170,000 up to 80 percent.
• 19:19
  SPEAKER_04: We stick with the 80 850,000 valuation, right?
• 19:24
  SPEAKER_04: 80% of that is uh uh 680.
• 19:30
  SPEAKER_04: Is that right?
• 19:32
  SPEAKER_04: See my calculations are correct.
• 19:36
  SPEAKER_02: 680, yeah.
• 19:37
  SPEAKER_04: 680.
• 19:38
  SPEAKER_04: So you you brought down your home loan to 500,000.
• 19:41
  SPEAKER_04: You're bringing, you're taking uh uh an equity loan or an investment loan from the bank of 180,000 to reinvest into a uh uh property or shares.
• 19:55
  SPEAKER_04: What can they do with 180,000 personalize?
• 19:58
  SPEAKER_04: What can they do?
• 20:00
  SPEAKER_02: You pay down paid down 250 and you're borrowing only 180 back.
• 20:04
  SPEAKER_02: That is, if you keep your LVR at 80%.
• 20:08
  SPEAKER_02: Now, if this is someone who qualifies for the LMI waivers, um, we could borrow up to 90% back.
• 20:14
  SPEAKER_04: As a professional.
• 20:15
  SPEAKER_04: As a professional.
• 20:16
  SPEAKER_04: If you're a doctor, if you're a nurse, or I mean doctors, you can go up to 97%, I think.
• 20:20
  SPEAKER_02: Well, it's like a whole list of professionals.
• 20:22
  SPEAKER_02: I can remember there are um so you know you could you can depending on you know what it is without paying LMI.
• 20:28
  SPEAKER_04: If you if you don't mind uh sharing these uh uh professions uh who can go up to 90 percent, right?
• 20:36
  SPEAKER_04: Um just you know, whatever that you can remember.
• 20:40
  SPEAKER_04: Uh it's good for listeners uh who are listening to this.
• 20:43
  SPEAKER_04: Um they may not even know that they they would be uh qualified for this.
• 20:47
  SPEAKER_02: Yeah, just off the top of my head, doctors, nurses, accountants, lawyers, um physio, vet, dentist, like there's a lot.
• 21:00
  SPEAKER_04: Vets as well.
• 21:02
  SPEAKER_02: Yeah, which is a good thing.
• 21:02
  SPEAKER_02: Oh wow, okay, okay.
• 21:05
  SPEAKER_02: So I mean they qualify for special, you know, medical options as well.
• 21:10
  SPEAKER_02: So yeah.
• 21:12
  SPEAKER_04: So that is that is that's that's a lot of that's that's that that lot of professions, right?
• 21:19
  SPEAKER_04: And and uh so professionals, if you're if you guys are if you guys are listening and if you're in those kind of professions, there you go.
• 21:26
  SPEAKER_04: You know, up to 90% you can borrow, you don't need to pay lenders' mortgage insurance.
• 21:31
  SPEAKER_02: I do want to say something controversial though.
• 21:34
  SPEAKER_02: Um so LMI is not all bad either, right?
• 21:41
  SPEAKER_02: There are certain situations where just paying that is fine.
• 21:44
  SPEAKER_02: Because to be honest, if you're borrowing to buy an income producing asset, LMI is also tax deductible.
• 21:50
  SPEAKER_02: Not straight away over a period of five years, but you know, that's also tax deductible.
• 21:55
  SPEAKER_04: Over five years is tax deductible.
• 21:57
  SPEAKER_02: Yeah, so it's you have to.
• 22:00
  SPEAKER_02: Weigh up the pros and cons and decide on a case-by-case basis whether you go do the LMI or not.
• 22:06
  SPEAKER_02: But yeah, it's not always, oh, let's avoid LMI at all costs.
• 22:10
  SPEAKER_02: It depends on your situation.
• 22:12
  SPEAKER_02: There are instances where we've asked customers to you, you know, pay LMI.
• 22:17
  SPEAKER_02: That's fine.
• 22:18
  SPEAKER_02: Because it achieves the objective of what they want to do at that minute.
• 22:22
  SPEAKER_02: So yeah, I just wanted to say that.
• 22:24
  SPEAKER_02: Um we've paid LMI before for some of our own loans.
• 22:30
  SPEAKER_04: Um we we we paid LMI quite a lot of times, I believe, as far as I can remember.
• 22:38
  SPEAKER_02: Because we were very confident that what we were going to do with the extra money was going to be like, you know, um it's an opportunity cost.
• 22:45
  SPEAKER_02: It's yeah.
• 22:46
  SPEAKER_02: So um it was completely fine uh for us to pay that.
• 22:50
  SPEAKER_02: So um, but since you know my my favorite lender introduced uh no LMI for my profession, we'll stop playing LMI, but um yeah, we paid that before as well.
• 23:04
  SPEAKER_04: So you're pretty much taking the LMI to ourselves now when we're investing it.
• 23:08
  SPEAKER_02: So yeah, I just wanted to say that.
• 23:10
  SPEAKER_02: So um sorry, you were asking me what are the things they could do with the money that they bought.
• 23:17
  SPEAKER_04: Um yeah, it depends on so in this case, um this client can borrow 180 up to 80 percent, no LMI.
• 23:24
  SPEAKER_04: Yes, you don't pay LMI, but you got$180,000 now.
• 23:28
  SPEAKER_04: Yeah, uh recycle the cash what you had.
• 23:31
  SPEAKER_03: Yeah.
• 23:31
  SPEAKER_04: Uh right.
• 23:32
  SPEAKER_04: So uh which was non-tax deductible before, but now it's now it's become a tax deductible.
• 23:39
  SPEAKER_04: Yes.
• 23:39
  SPEAKER_04: Uh uh, right?
• 23:40
  SPEAKER_04: So there's more.
• 23:41
  SPEAKER_04: So what can what can what can he do?
• 23:43
  SPEAKER_04: What can he do?
• 23:44
  SPEAKER_02: He can go and invest in shares.
• 23:48
  SPEAKER_04: Can then and what sort of what sort of uh returns you reckon in a very average?
• 23:53
  SPEAKER_04: I mean you'd have to be.
• 23:54
  SPEAKER_02: Average returns are between eight to ten percent.
• 23:58
  SPEAKER_04: Per annum.
• 23:58
  SPEAKER_04: Per annum.
• 23:59
  SPEAKER_04: Eight to ten percent, okay.
• 24:00
  SPEAKER_02: Yeah, but then depending on the type of share you buy, there would be an income return as well.
• 24:05
  SPEAKER_02: Um, but I do have to say shares are quite volatile, so I you you have to look at it over the long term, it's about eight to ten percent.
• 24:13
  SPEAKER_02: So I don't want to say for every year it goes up eight to ten percent, it doesn't.
• 24:17
  SPEAKER_02: Um, it can go up and down.
• 24:19
  SPEAKER_02: But typically, if you buy a good blue chip stock, you would get about four to five percent dividend yield.
• 24:25
  SPEAKER_02: So that is income producing as well.
• 24:27
  SPEAKER_02: So then you can use that to pay off your home loan while you wait for the capital appreciation that comes with shares over the long term.
• 24:34
  SPEAKER_04: This is all comes with the risk appetite and your risk profile, right?
• 24:38
  SPEAKER_04: Definitely.
• 24:38
  SPEAKER_04: I mean, I'm thinking it's 180,000, you could possibly buy a business.
• 24:43
  SPEAKER_04: Yeah, you can buy a business and create more income for yourself.
• 24:46
  SPEAKER_02: Yes, but you have to be very careful because not everybody knows how to go about running a business or even how to, you know, look at a business to buy.
• 24:54
  SPEAKER_02: So that is for a very limited number of people that I would advise to go buy a business.
• 24:59
  SPEAKER_04: So you know, um if you're if you're a sophisticated investor, you can go down the path.
• 25:04
  SPEAKER_04: You can invest in a venture capital fund, right?
• 25:07
  SPEAKER_02: Definitely.
• 25:08
  SPEAKER_04: Am I making sense here?
• 25:09
  SPEAKER_02: Yeah, yeah, yeah.
• 25:10
  SPEAKER_02: Yeah, right.
• 25:11
  SPEAKER_02: But again, like I said, because we have to be very um conscious of you know the sort of background knowledge and experience that's required to do those sorts of investments.
• 25:23
  SPEAKER_02: So it's not suitable for everyone.
• 25:25
  SPEAKER_02: So um even shares, same thing.
• 25:29
  SPEAKER_02: Depends on your knowledge around these things and your risk appetite.
• 25:32
  SPEAKER_02: You can do manage funds.
• 25:34
  SPEAKER_02: Manage funds.
• 25:35
  SPEAKER_04: Um can I ask a question on that?
• 25:36
  SPEAKER_04: Can they can can can they also uh go and invest uh in cryptocurrencies?
• 25:42
  SPEAKER_04: Yeah.
• 25:42
  SPEAKER_04: I mean, I know that's quite a lot of people.
• 25:44
  SPEAKER_02: You can.
• 25:46
  SPEAKER_04: Yeah.
• 25:47
  SPEAKER_04: You can.
• 25:48
  SPEAKER_04: And it is it is also in Australia, it is now you you have to pay tax for it, right?
• 25:54
  SPEAKER_04: Your gains.
• 25:54
  SPEAKER_04: What I've heard, uh, I don't know, I've read it somewhere.
• 25:57
  SPEAKER_04: Uh, I think you have to pay tax for your for your gains.
• 25:59
  SPEAKER_02: I shall not comment on crypto.
• 26:01
  SPEAKER_04: Okay, there you go.
• 26:02
  SPEAKER_04: So I'm I'm I'm getting carried away.
• 26:03
  SPEAKER_04: So I I I you know the uh in my head there's 180,000.
• 26:07
  SPEAKER_04: How can I invest for this client?
• 26:09
  SPEAKER_04: And my my head is just running like crazy.
• 26:11
  SPEAKER_04: Now, okay, right.
• 26:12
  SPEAKER_04: So we talked about the the asset classes like these.
• 26:16
  SPEAKER_04: Um, what about property?
• 26:18
  SPEAKER_04: Bricks and mortar.
• 26:19
  SPEAKER_04: You and I had done this, we're very comfortable there.
• 26:23
  SPEAKER_02: The beauty of bricks and mortar is now like I I think I explained this in one of the other episodes that we did.
• 26:29
  SPEAKER_02: So if you invest in shares, unless you do more something called margin lending, where you borrow against that, um, you're essentially investing the 180,000, 180,000 that he took out as an investment split from the home loan, right?
• 26:46
  SPEAKER_02: But if you invest in an investment property, you use the 180,000 as a deposit, you borrow a like a, I don't know, further 80%, let's say, from the bank, and then you buy an asset that is worth far more.
• 27:02
  SPEAKER_02: So um you use the 180 as your 20% deposit plus cost, stamp duty, all legal costs and stuff like that.
• 27:10
  SPEAKER_02: And then you buy an asset that will give you rental income and then will also give you capital appreciation over the long run.
• 27:18
  SPEAKER_02: But then the capital appreciation is not just on the 180, it's on the full property.
• 27:24
  SPEAKER_02: So you get the benefits of you know, it's leverage.
• 27:28
  SPEAKER_02: It leverages it, um, and then you get the return on the full 100%.
• 27:35
  SPEAKER_03: Yeah.
• 27:36
  SPEAKER_02: So that always ends up being a winner over the long term if you buy well.
• 27:44
  SPEAKER_02: Um tax deductions.
• 27:52
  SPEAKER_02: Tax deductions.
• 27:52
  SPEAKER_04: Yeah, tax deductions.
• 27:53
  SPEAKER_02: Further tax deductions there as well.
• 27:55
  SPEAKER_04: Capital growth that you can gain leverage and do the same thing if you if you're smart.
• 28:03
  SPEAKER_02: There's quite a few things there that list goes on.
• 28:05
  SPEAKER_02: Yeah.
• 28:06
  SPEAKER_04: Yeah.
• 28:06
  SPEAKER_04: So you he he he he can he he can with$180,000, right?
• 28:14
  SPEAKER_04: At a very level, very, very, very, I would say, um without painless mortgage insurance, just borrow hundred uh borrow back again.
• 28:23
  SPEAKER_02: Just off the top of my head, he can buy something for about$650,000 to$700,000.
• 28:26
  SPEAKER_04: Easily.
• 28:27
  SPEAKER_02: Easily.
• 28:28
  SPEAKER_04: Establish property, pay stamp duty, is that is that right?
• 28:30
  SPEAKER_02: Um it depends what you want to do.
• 28:32
  SPEAKER_02: Like if it's if it's something that's you know in a good area, you can do a house and land or whatever it is that they want to do.
• 28:40
  SPEAKER_03: Yeah.
• 28:40
  SPEAKER_02: Um, it's yeah, it's up to them.
• 28:43
  SPEAKER_02: But$180,000 is more than enough.
• 28:45
  SPEAKER_02: Do that.
• 28:46
  SPEAKER_04: Yeah, I think so.
• 28:46
  SPEAKER_04: I think it's way more than enough.
• 28:48
  SPEAKER_04: Um we have done, I remember a portfolio.
• 28:52
  SPEAKER_04: We we started with uh uh 180 or 170,000 that we created about four property portfolios within two years from the 180.
• 29:05
  SPEAKER_04: Because we we we started leveraging back again, back again, back again.
• 29:09
  SPEAKER_03: Yeah.
• 29:10
  unknown: Right.
• 29:10
  SPEAKER_04: So so there are quite a lot of ways that you can recycle the debt as well.
• 29:14
  SPEAKER_04: It's not just recycling for the sake of it.
• 29:17
  SPEAKER_04: There are so many other avenues and so many other ways that you can keep recycling the debt uh to get more benefits for yourself.
• 29:27
  SPEAKER_04: And and if you ask um successful property investors or successful um individuals who have done the correct way of investing and building larger property portfolios, uh you know, sustainable share portfolios, they they they have always leveraged.
• 29:49
  SPEAKER_04: And then one of the common things that they have is that.
• 29:52
  SPEAKER_04: And also one of the uh common things they have is they have a group of people who understand these investments, who understand how to access the equity, how to recycle the debt, how to maximize the tax deductions, and keep investing and building the portfolio.
• 30:09
  SPEAKER_04: You can't just do it, you can't just go and ask somebody, uh, okay, you just give me$180,000 loan.
• 30:16
  SPEAKER_02: No, so see, one of the way, right?
• 30:18
  SPEAKER_02: Most of the time, people hit uh a borrowing capacity ceiling at one point, right?
• 30:23
  SPEAKER_02: So you need to know how to structure it in such a way that you can continue to do that.
• 30:28
  SPEAKER_04: So so there are so many ways this 250 can be used.
• 30:32
  SPEAKER_04: Used, yes.
• 30:33
  SPEAKER_04: Right?
• 30:33
  SPEAKER_04: You don't even need to necessarily have to put it to the loan and recycle this debt and start investing as well.
• 30:39
  SPEAKER_04: You could possibly start using this 250 as a as a as your capital investment to different kinds of properties under trust.
• 30:50
  SPEAKER_04: Right?
• 30:51
  SPEAKER_04: So, but these are these are complex ways of investing, these are um these are different strategies.
• 30:58
  SPEAKER_04: You can do that because because end of the day, you're not gonna get a personal tax deduction, you know, when you go and invest in a uh uh a property through a trust.
• 31:08
  SPEAKER_04: No, no, so so you can invest your capital to a trust and start acquiring properties as well if you want to.
• 31:17
  SPEAKER_04: So it is always up to you, I believe, right?
• 31:19
  SPEAKER_04: And how you want to do it.
• 31:22
  SPEAKER_04: What do you think, Surali?
• 31:24
  SPEAKER_02: Yeah, it it see it's a fine balance.
• 31:27
  SPEAKER_02: You have it's on a case-by-case basis, like I always say, it depends on your income.
• 31:32
  SPEAKER_02: It depends on what are the benefits of investing in your personal name versus under another um structure.
• 31:38
  SPEAKER_02: Should we maximize what's in the personal name?
• 31:42
  SPEAKER_02: Well, how how would it affect borrowing?
• 31:44
  SPEAKER_02: There's a lot of things to consider um when you're doing that.
• 31:49
  SPEAKER_02: So yeah, that's a whole nother episode.
• 31:52
  SPEAKER_04: Yeah, it is.
• 31:53
  SPEAKER_04: So, guys, um we covered quite a lot here.
• 31:57
  SPEAKER_04: Um I believe uh we've given the uh uh bit of information for for our listeners what what he could do with this 250,000.
• 32:07
  SPEAKER_04: Um, like Sanali said, um, if you're listening, uh it is time to uh give us a call and we'll we'll we'll set up a time uh discuss and come up with the right plan and and the you know a plan that customized for yourself, right?
• 32:25
  SPEAKER_02: Yeah, because it depends on the risk tolerance, cash flow comfort, the investment time horizon, whether you are conservative, aggressive, or we whether we do a mix of both, yeah.
• 32:39
  SPEAKER_02: Like maybe you know, half, half or whatever it is.
• 32:41
  SPEAKER_02: So yeah, um, that depends on a whole host of other factors, like you know, what's his income?
• 32:47
  SPEAKER_02: What's what are what are his other you know, debts?
• 32:50
  SPEAKER_02: Does he have any other debts?
• 32:52
  SPEAKER_02: Um, what does the partner do?
• 32:53
  SPEAKER_02: What's her income?
• 32:55
  SPEAKER_02: You know, how do we then structure it?
• 32:57
  SPEAKER_02: What's the ownership like going to be like this whole lot of things?
• 33:00
  SPEAKER_02: There's a whole lot.
• 33:01
  SPEAKER_04: I mean, is I mean, there you we can talk about the whole episode about this, uh the the uh uh the the areas you have to consider.
• 33:10
  SPEAKER_04: Now um we had to wrap it up.
• 33:12
  SPEAKER_04: Um I believe it's uh it's a very good, very good uh episode for for a lot of people, not just the uh this particular listener who who sent this uh question and the concern.
• 33:25
  SPEAKER_04: Oh uh, you know.
• 33:27
  SPEAKER_04: Uh I I invite you all who's listening, send us the questions.
• 33:32
  SPEAKER_04: Send us what are what what are the things that you like to do and and the the ways that you think that you could invest or you could how how you could you know increase your portfolios.
• 33:44
  SPEAKER_04: Please do share your story as well with us because your story could inspire quite a lot of other people as well as us uh to do certain things.
• 33:53
  SPEAKER_04: So um I welcome you all to send your questions, send your concerns, um, send your strategies to us.
• 34:02
  SPEAKER_04: We would love to see them.
• 34:03
  SPEAKER_02: So yeah, I think one of the main reasons we started doing this was because we started to understand it might inspire a lot of people.
• 34:15
  SPEAKER_02: So it's it's actually worth it.
• 34:18
  SPEAKER_02: So send it in.
• 34:19
  SPEAKER_02: Where do they send it in to?
• 34:21
  SPEAKER_04: We have uh uh an email um in in our podcast, so you can obviously uh uh send that to that email itself, or you can visit our website, which is Tomorrow Financial Solutions.
• 34:35
  SPEAKER_04: It's actually not the website, so so guys, I'm so sorry.
• 34:38
  SPEAKER_04: It's tomorrowfs.com.au, right?
• 34:41
  SPEAKER_04: You can visit our website or you can Google us saying tomorrow financial solutions, we will pop up, uh uh send us a message.
• 34:50
  SPEAKER_04: Uh say look, we've been listening to the podcast.
• 34:52
  SPEAKER_04: You know, we want to, you know, say whatever you want.
• 34:56
  SPEAKER_04: We we we we will never judge you, but if you want to ask certain questions, please do.
• 35:00
  SPEAKER_02: Uh please do don't be too critical.
• 35:03
  SPEAKER_04: No, I it's okay.
• 35:05
  SPEAKER_04: Sometimes I I like I like that.
• 35:07
  SPEAKER_02: That's you, speak for yourself, right?
• 35:09
  SPEAKER_04: Guys, I I do like it.
• 35:10
  SPEAKER_04: So so if you want to be critical, be critical.
• 35:13
  SPEAKER_04: Uh, because that will help me to to grow this podcast, to go and achieve or go and reach more people and and and give more uh uh advice to a lot of other people to inspire them to invest and and so you know it'll inspire a lot of other people as well.
• 35:29
  SPEAKER_04: So I'm I'm looking forward to this uh uh questions and concerns and and strategy sharing, knowledge sharing.
• 35:36
  SPEAKER_04: I'm looking forward from our listeners.
• 35:38
  SPEAKER_04: Uh so please do uh get in touch with us.
• 35:41
  SPEAKER_04: So thank you all for listening.
• 35:44
  SPEAKER_04: And Sonali, thank you for your time.
• 35:46
  SPEAKER_04: Thank you for explaining this um uh these these strategies so much of information.
• 35:52
  SPEAKER_04: Um behalf of everybody, I like to say thank you.
• 35:55
  SPEAKER_04: So looking forward for the next episode.
• 35:58
  SPEAKER_04: Stay tuned, guys, and please subscribe.
• 36:00
  SPEAKER_04: Please, please, please share whatever you think that you like in our uh podcast uh so this can go to a lot of other people.
• 36:10
  SPEAKER_04: Thank you.
• 36:11
  SPEAKER_04: Until next time, take care.
• 36:13
  SPEAKER_01: Thank you for tuning in to another episode of the TFS Podcast, where we turn knowledge into action and big goals into real results.
• 36:22
  SPEAKER_01: Now, don't forget to like and subscribe and share this episode with someone working towards their next financial step.
• 36:32
  SPEAKER_01: Now, with that being said, until next time, keep building.