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Should we follow the PM to the beach? · The Money Puzzle

• 0:10
  Speaker 1: Hello and welcome to the Money Puzzle Podcast. I'm James Kirby,
• 0:13
  Speaker 1: Wealth Editor at The Australian. Welcome aboard, everybody. I don't
• 0:16
  Speaker 1: know about you, but the most entertaining, interesting story, financial story,
• 0:21
  Speaker 1: I thought, in recent days. And by the way, there's
• 0:23
  Speaker 1: been a few around. If you follow Minres, if you
• 0:27
  Speaker 1: follow WiseTech, but for me, certainly on the property side,
• 0:31
  Speaker 1: it had to be the Prime Minister's ill-timed move to
• 0:34
  Speaker 1: buy a house by the sea. $ 4. 3 million at Copacabana
• 0:39
  Speaker 1: Beach there in central New South Wales. And here's the thing.
• 0:43
  Speaker 1: It was a bargain, right? The prime minister, let's make
• 0:46
  Speaker 1: it clear about this house, whatever the controversy is politically,
• 0:49
  Speaker 1: he paid considerably less than the previous owner who bought
• 0:54
  Speaker 1: it about three and a half years ago for $ 4. 6 million.
• 0:58
  Speaker 1: the prime minister got about 300,000 off there. So politically,
• 1:02
  Speaker 1: you wouldn't describe it as a good deal or even
• 1:04
  Speaker 1: a good idea. But hey, as an investment, it's pretty good. Now,
• 1:09
  Speaker 1: every spring, who can resist this, including the PM? Who
• 1:12
  Speaker 1: can resist it? The lure of the holiday home. There
• 1:14
  Speaker 1: you're working on your ETFs and your dividends and your
• 1:17
  Speaker 1: tax returns. And it's all very dry and it's all
• 1:19
  Speaker 1: up in the cloud and no one sees anything. You
• 1:21
  Speaker 1: buy a holiday home and hey, you can sit on
• 1:22
  Speaker 1: the veranda. You can sit on the veranda with your friends,
• 1:26
  Speaker 1: bricks and mortar, a lot to be said for it.
• 1:29
  Speaker 1: So I decided I should have a guest on who
• 1:32
  Speaker 1: is not just able to advise on things, who's not
• 1:35
  Speaker 1: just across this, but who has direct first-hand experience in
• 1:38
  Speaker 1: all this. Something we've often talked about, actually. It's James Gerrard, financialadvisor.com.au.
• 1:43
  Speaker 2: Hi, James.
• 1:44
  Speaker 1: How are you? Hello. Good. Thanks for having me on.
• 1:47
  Speaker 2: It's a pleasure as always.
• 1:48
  Speaker 1: Do you know that part of the world, the central
• 1:51
  Speaker 1: coast where the PM has bought his clifftop plot? I
• 1:56
  Speaker 1: do know it very well.
• 1:59
  Speaker 2: My accountant's up there. So I go up there to
• 2:01
  Speaker 2: see the accountant, but I had a holiday house not
• 2:03
  Speaker 2: too far from there as well. So I know that
• 2:05
  Speaker 2: part of the world.
• 2:07
  Speaker 1: Oh, then you're going to be ideal to be interrogated
• 2:10
  Speaker 1: on the wisdom strictly from an investment point of view
• 2:13
  Speaker 1: of the holiday home. It is funny, isn't it? In spring,
• 2:15
  Speaker 1: it's only human. That's when all the holiday houses come online.
• 2:19
  Speaker 1: That's when the season is, spring is the season for
• 2:21
  Speaker 1: all auctions, but particularly for holiday homes, because that's when
• 2:25
  Speaker 1: everyone starts to think about them. You don't see many
• 2:27
  Speaker 1: for sale in May or June, where the market completely
• 2:30
  Speaker 1: goes flat. So, first of all, I thought that was
• 2:33
  Speaker 1: very interesting that that's like a first class property, really.
• 2:36
  Speaker 1: And if you look at it, it looks like you
• 2:38
  Speaker 1: paid it off 4.3, but if you look at it closely,
• 2:41
  Speaker 1: it's a hilltop, it's a clifftop plot. And I don't
• 2:46
  Speaker 1: think anybody has any dispute with how much he paid.
• 2:48
  Speaker 1: Not everyone could pay that. But we know Anthony Albanese
• 2:51
  Speaker 1: is a big-time property investor. We know this. We know
• 2:54
  Speaker 1: he has a considerable investment property portfolio, residential property, exactly
• 2:58
  Speaker 1: what we talk about every week. It would be well
• 3:01
  Speaker 1: across negative gearing. He even had to evict a tenant,
• 3:05
  Speaker 1: which anybody would find uncomfortable, excruciating probably, if you're a politician.
• 3:10
  Speaker 1: But he had to evict a tenant from his place there.
• 3:13
  Speaker 1: last from one of these places a few months ago.
• 3:16
  Speaker 1: So that's the sort of downside, isn't it? That's the
• 3:18
  Speaker 1: hard part of property investment. So, James, if I've got
• 3:22
  Speaker 1: it right, you had a holiday home and now you
• 3:24
  Speaker 1: don't have a holiday home. And so I imagine you're
• 3:27
  Speaker 1: not exactly a holiday home flag waver, but maybe I'm
• 3:31
  Speaker 1: wrong from an investment point of view. First of all,
• 3:34
  Speaker 1: what's your approach or attitude towards them? They can be good.
• 3:41
  Speaker 2: Because you have a personal aspect to it in that
• 3:45
  Speaker 2: you get to go to the place. And also, let's
• 3:48
  Speaker 2: just be blunt about it. You have bragging rights. You're
• 3:50
  Speaker 2: standing around at a barbecue on the weekend.
• 3:52
  Speaker 1: I alluded to bragging rights at the start, yeah. But
• 3:56
  Speaker 1: you and I are both bragging rights. So let's talk
• 3:58
  Speaker 1: entirely theoretical here from a money point of view. So
• 4:01
  Speaker 1: they can be good. Why can they be good?
• 4:03
  Speaker 2: Yeah, they're good because it's a mixed asset. You have
• 4:06
  Speaker 2: the ability to have personal enjoyment. from that property. You're
• 4:09
  Speaker 2: saving accommodation elsewhere by using your holiday house, but also
• 4:13
  Speaker 2: it could be a good financial investment depending on how
• 4:15
  Speaker 2: you treat it. If you rent it out on short-term
• 4:18
  Speaker 2: letting sites while you're not using it, you're generating income
• 4:21
  Speaker 2: from the property and also you're generating hopefully capital growth
• 4:25
  Speaker 2: as well. But then Some people, they stay there a
• 4:28
  Speaker 2: week in the Christmas holidays, stay there over Easter, lock
• 4:31
  Speaker 2: up the house when they leave, and then it just
• 4:32
  Speaker 2: stays vacant after that. And they're a little bit more
• 4:36
  Speaker 2: of a money pit because they're paying council rates, they're
• 4:38
  Speaker 2: paying for repairs. There's a higher chance the property will
• 4:41
  Speaker 2: get broken into because people in the area know that
• 4:43
  Speaker 2: it's a holiday house and no one's using it. The
• 4:45
  Speaker 2: only thing that has going for it is the capital
• 4:47
  Speaker 2: growth if that's happening. So it can be good. And
• 4:51
  Speaker 2: you mentioned that I sold my one, which I did
• 4:54
  Speaker 2: a couple of years ago during, just after COVID, because
• 4:56
  Speaker 2: what I'd noticed was that the market pretty much doubled
• 4:58
  Speaker 2: in the space of a year and a half because
• 5:01
  Speaker 2: people were flocking out of Sydney, going up the coast, going,
• 5:04
  Speaker 2: we're never going back to the office again. Interest rates
• 5:07
  Speaker 2: were low. All the conditions were right for growth in
• 5:09
  Speaker 2: those coastal properties. And that's exactly what happened. So I thought, great,
• 5:13
  Speaker 2: let's take that profit. And since that point in time,
• 5:15
  Speaker 2: we've seen big corporates forcing people back to the office.
• 5:18
  Speaker 2: And there's been a bit of weakness in that coastal
• 5:20
  Speaker 2: market and astute property investors like the PM himself have
• 5:23
  Speaker 2: jumped in. So it's actually probably not a bad time
• 5:25
  Speaker 2: to be buying these sort of coastal holiday regional type areas.
• 5:30
  Speaker 1: Exactly. You timed it very well. And I suppose the
• 5:33
  Speaker 1: flow back to the city did happen. Probably a bit slower,
• 5:35
  Speaker 1: I imagine, than you thought or anyone thought. It's still slower.
• 5:38
  Speaker 1: But I was talking to another regular guest on the show,
• 5:41
  Speaker 1: Eliza Owen, and head of research at CoreLogic. And I
• 5:44
  Speaker 1: was saying, I was trying to get her basically to
• 5:46
  Speaker 1: talk directly about the Prime Minister's House, which... Obviously, she
• 5:50
  Speaker 1: was uncomfortable doing, but I said, okay, let's talk about
• 5:53
  Speaker 1: that area. Let's just talk about Central Coast, New South Wales,
• 5:56
  Speaker 1: which could be any area, by the way, really. By that, economically,
• 6:00
  Speaker 1: from an investment point of view, the coast is the coast.
• 6:03
  Speaker 1: And if you can be within a striking distance of
• 6:07
  Speaker 1: any of the cities, then it's a lucrative, potentially lucrative
• 6:11
  Speaker 1: and desirable zone. That would be anything from the Morrington
• 6:14
  Speaker 1: Peninsula in Victoria, right up along through the north and
• 6:18
  Speaker 1: south coast, up and beyond Sydney. The particular area here,
• 6:21
  Speaker 1: Copacabana Beach, which will become famous now, of course, is
• 6:25
  Speaker 1: between Sydney and Newcastle. So I said to Eliza, tell
• 6:28
  Speaker 1: us about that market from the data. Just tell us
• 6:31
  Speaker 1: about that market. And she said, there's a couple of
• 6:33
  Speaker 1: really interesting things happening. There's a sea change reversal. So
• 6:36
  Speaker 1: people are coming back to the city. And we know that.
• 6:40
  Speaker 1: And in many ways, the voluntary part of that phase
• 6:43
  Speaker 1: might be over. And we're now into the involuntary part
• 6:46
  Speaker 1: where companies are now demanding rather than asking people to
• 6:49
  Speaker 1: come back to the office. This is a very different
• 6:51
  Speaker 1: sort of tone to all that. She mentioned that mortgage
• 6:55
  Speaker 1: rates were elevated and people who had two mortgages, if
• 7:00
  Speaker 1: you've got inflation like we have, even if the capital
• 7:03
  Speaker 1: growth is there, it could be hard to keep those
• 7:06
  Speaker 1: two mortgages running or you could have almost no money left.
• 7:09
  Speaker 1: What's the point of having a holiday home if you
• 7:10
  Speaker 1: can't fix your front fence or something? So that's definitely
• 7:14
  Speaker 1: an issue. And there was a third issue that people
• 7:16
  Speaker 1: had been hanging out for a rate cut and it
• 7:19
  Speaker 1: hasn't come. And every week it is less likely. And
• 7:23
  Speaker 1: I think we can rule it out this year already.
• 7:27
  Speaker 1: We're talking early next year now for the holiday home
• 7:29
  Speaker 1: investments or for any investor who wants a lower and
• 7:32
  Speaker 1: is dependent on rates coming down to keep it all rolling.
• 7:35
  Speaker 1: What about then the issue of a holiday home? Everyone,
• 7:40
  Speaker 1: very few people would not like to have one. To me,
• 7:43
  Speaker 1: it seems many people have them and they say we're
• 7:45
  Speaker 1: never there. That's a constant complaint. We're never there. We
• 7:49
  Speaker 1: were supposed to go down this weekend, but my nephew
• 7:51
  Speaker 1: is playing soccer or whatever. Another one is that when
• 7:54
  Speaker 1: they have a holiday home, they think that they might
• 7:57
  Speaker 1: move down there, whatever, that never comes to pass. They
• 8:00
  Speaker 1: think that they're It would be wonderful for the wider family,
• 8:04
  Speaker 1: but that never works out either, often because people aren't around.
• 8:07
  Speaker 1: One person wants to go down, the other person never does,
• 8:10
  Speaker 1: et cetera. So you have those complications. But that's thinking
• 8:14
  Speaker 1: of it in the old-fashioned way, I suppose, as strictly
• 8:17
  Speaker 1: an asset that's unmortgaged. But if we approach a holiday
• 8:20
  Speaker 1: home from an investment point of view and say, look,
• 8:23
  Speaker 1: that's another property. I have a negatively geared property in
• 8:27
  Speaker 1: the metropolitan area, and now I'm going to have a regional, coastal,
• 8:32
  Speaker 1: investment property that happens to be a beach house. I
• 8:35
  Speaker 1: can rent it. I could Airbnb it. What about it
• 8:39
  Speaker 1: as a proposal, as a financial proposal under those terms, James?
• 8:45
  Speaker 2: Good. Yeah, it works out well. When I looked at
• 8:49
  Speaker 2: the numbers on my holiday house, which we had mainly
• 8:52
  Speaker 2: as an Airbnb, we'd stay there for the minority. of
• 8:56
  Speaker 2: the time, the utilization. So the amount of time that
• 8:59
  Speaker 2: people were staying in the property was about 40%, which
• 9:02
  Speaker 2: meant that most weekends, holiday periods, people were renting out
• 9:05
  Speaker 2: the property. And I stacked the numbers up side by
• 9:09
  Speaker 2: side to say, if I put a permanent tenant in
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  Speaker 2: the property, I would get X per week. If I
• 9:14
  Speaker 2: get 40% utilization on stays and Airbnb, I get Y
• 9:18
  Speaker 2: return per year. And it worked out to be about
• 9:20
  Speaker 2: a 2% increase in yield rental return if I rented
• 9:24
  Speaker 2: out short-term versus a permanent tenant. And that also sliced
• 9:28
  Speaker 2: away a bit of time for family to go utilize
• 9:30
  Speaker 2: the property as well. So for us, it worked out perfectly,
• 9:33
  Speaker 2: but it resonated what you said with regards to the
• 9:36
  Speaker 2: common complaints as to what happens with holiday houses, that
• 9:39
  Speaker 2: we didn't go there a lot. We went there a
• 9:41
  Speaker 2: lot in the first 12 months, but then after that,
• 9:43
  Speaker 2: you take it for granted. We really need to go there.
• 9:45
  Speaker 2: Other things pop up. It's always going to be there.
• 9:47
  Speaker 2: We could go there another time and you never really
• 9:49
  Speaker 2: get around to it. Whereas if you go on a
• 9:50
  Speaker 2: holiday somewhere else, You need to book a combination. You
• 9:53
  Speaker 2: really need to put it in the calendar and it
• 9:55
  Speaker 2: becomes an event that you look forward to. Whereas a
• 9:57
  Speaker 2: holiday house, again, you take it for granted.
• 10:00
  Speaker 1: Interesting. I never thought about it that way. Yes. Yeah,
• 10:03
  Speaker 1: I imagine that's certainly an issue. And just on one
• 10:06
  Speaker 1: other practical matter before we take a break, apparently it's
• 10:09
  Speaker 1: really hard to get tradies in these holiday areas. It's
• 10:13
  Speaker 1: hard to get them in the middle of the city.
• 10:14
  Speaker 1: So I presume it's considerably even more difficult in regional areas.
• 10:19
  Speaker 2: It was awful trying to get tradespeople there. But it
• 10:22
  Speaker 2: didn't help because we were on the Lake Macquarie and
• 10:25
  Speaker 2: there was 98 steps from the street down to the property.
• 10:29
  Speaker 2: And I remember trying to get an electrician there and
• 10:32
  Speaker 2: he came to the front. I heard his ute. I
• 10:34
  Speaker 2: saw him from down the bottom there. He looked at
• 10:36
  Speaker 2: the 98 stairs, jumped back in his ute and drove
• 10:38
  Speaker 2: off again. So it was hard to get people there.
• 10:41
  Speaker 2: But the thing is that once you find these good tradespeople,
• 10:45
  Speaker 2: They're worth their weight in gold. So you just need
• 10:47
  Speaker 2: to be patient and find the right ones through trial
• 10:50
  Speaker 2: and error. And then you've got a great little network
• 10:52
  Speaker 2: of electricians, plumbers, handymen to help fix up the property.
• 10:57
  Speaker 2: But I guess overall, with holiday houses, they can work
• 10:59
  Speaker 2: quite well. And the prime minister is very astute in
• 11:02
  Speaker 2: that someone told me years ago that when you're buying property,
• 11:05
  Speaker 2: one thing that you can't build more of or get
• 11:07
  Speaker 2: more of is waterfront. There's only going to be a
• 11:09
  Speaker 2: finite supply of properties on the lakes, on the oceans.
• 11:12
  Speaker 2: And so you're pretty much assured a decent capital growth
• 11:15
  Speaker 2: long term, assuming you don't buy the wrong point in
• 11:17
  Speaker 2: the cycle. But if you buy something that's on the water,
• 11:20
  Speaker 2: it's always going to be a scarce resource.
• 11:22
  Speaker 1: That's so true. That is so true. We'll come back
• 11:24
  Speaker 1: to that in a moment, folks. We'll take a short break. Hello,
• 11:37
  Speaker 1: welcome back to the Australian's Money Puzzle. James Kirby with
• 11:39
  Speaker 1: James Girard. And thank you, James, for hosting in September
• 11:44
  Speaker 1: when I was away. That was great. Thank you very much.
• 11:46
  Speaker 1: I meant to say that at the start. The median
• 11:48
  Speaker 1: price at that coastal resort where the PM bought is 1.9.
• 11:52
  Speaker 1: And he paid 4.3. And I remember thinking, when I
• 11:55
  Speaker 1: saw the first photograph, I said, 4.3 for this house.
• 11:58
  Speaker 1: That looked, it's an interesting house, but it's by no
• 12:01
  Speaker 1: means outstanding. And the area isn't particularly well known either. However,
• 12:05
  Speaker 1: on closer inspection, you realize that what he bought was
• 12:08
  Speaker 1: exactly what you're saying, absolute water frontage. If you see
• 12:12
  Speaker 1: aerial pictures, it's on a cliff. So it's actually a
• 12:16
  Speaker 1: really terrific slice of land. I saw even just doing
• 12:20
  Speaker 1: the numbers, if you look at Airbnb, that place, the house,
• 12:25
  Speaker 1: is worth up to $ 900 a night, $ 900 a night
• 12:29
  Speaker 1: on Airbnb, which would put it in the top shelf,
• 12:32
  Speaker 1: I would imagine, of Airbnb properties. One other thing... Which
• 12:37
  Speaker 1: I think will be very interesting. I just thought I'd
• 12:39
  Speaker 1: bring this up. I think our listeners would find it
• 12:41
  Speaker 1: really interesting. We were talking about holiday homes and how
• 12:44
  Speaker 1: they work and the economics of it. If you do
• 12:46
  Speaker 1: your work, as James says, you can make them work.
• 12:50
  Speaker 1: And there are aspects to them that are a drag,
• 12:53
  Speaker 1: like any investment property. And that means bills and repairs
• 12:56
  Speaker 1: and the ongoings, etc. And one of the issues with
• 13:00
  Speaker 1: the holiday homes for everybody is that they don't get
• 13:03
  Speaker 1: used enough. Some people don't like renting or putting their
• 13:06
  Speaker 1: property on Airbnb. But a few months ago, I came
• 13:10
  Speaker 1: upon something, James and I were talking about this a
• 13:12
  Speaker 1: while ago, called Third Home. And Third Home is a
• 13:15
  Speaker 1: US group. And they're basically what they call a luxury
• 13:20
  Speaker 1: holiday home exchange club. And what you do is you
• 13:23
  Speaker 1: join and you become a member. And then you get
• 13:27
  Speaker 1: to swap houses with other members around the world. And
• 13:30
  Speaker 1: here's the catch here. if you like, or the threshold
• 13:37
  Speaker 1: of what makes it special. The rock bottom minimum value
• 13:41
  Speaker 1: that your property must be worth to join this club
• 13:44
  Speaker 1: is US 1 million, which puts Copacabana comfortably inside. But
• 13:49
  Speaker 1: maybe not for most people. I wonder what the average
• 13:51
  Speaker 1: holiday home is worth. I presume it's under US 1 million.
• 13:55
  Speaker 1: Are you familiar with those guys, James? What do you
• 13:57
  Speaker 1: think of that arrangement?
• 14:00
  Speaker 2: I've heard of similar concepts, not that particular company in detail.
• 14:04
  Speaker 2: And it's worked well for people. The feedback that I
• 14:07
  Speaker 2: had from friends and family who've used similar things was
• 14:10
  Speaker 2: that the availability of homes overseas was somewhat limited. And
• 14:15
  Speaker 2: so they had lots of requests for people to stay
• 14:16
  Speaker 2: in their place, but they couldn't really find or get
• 14:18
  Speaker 2: accepted to places overseas. And making the dates match up
• 14:22
  Speaker 2: nicely with busy work schedules was difficult. as well. So
• 14:26
  Speaker 2: in theory, sounds great, can work, but there's a little
• 14:28
  Speaker 2: bit of work involved with it. And you mentioned that
• 14:31
  Speaker 2: the PM's place worth 900 a night. Is that with Mr.
• 14:33
  Speaker 2: Albanese serving you toast and coffee.
• 14:35
  Speaker 1: In the morning? Is that 900 a night? And telling
• 14:38
  Speaker 1: jokes written for him by former journalists on The Australian. Yes, yes. Okay,
• 14:44
  Speaker 1: put that to one side. Where were we? Yes, now, James,
• 14:47
  Speaker 1: cutting to the serious part of the show. If someone's listening,
• 14:51
  Speaker 1: and they want to do this, And we have many
• 14:54
  Speaker 1: listeners who are very engaged in property. It would seem,
• 14:59
  Speaker 1: and the PM has flagged this very clearly, if you're
• 15:02
  Speaker 1: ever going to buy one, in terms of value, they're
• 15:04
  Speaker 1: relatively better value than they were. That house, again, the
• 15:08
  Speaker 1: PM's house, he bought it for 4.3. Three years ago,
• 15:11
  Speaker 1: it sold for 4.6. And there is discounted prices all
• 15:15
  Speaker 1: around the country. I mentioned the Mornington Peninsula, which is
• 15:18
  Speaker 1: outstanding in Victoria because Victoria, of course, whole market's weak,
• 15:24
  Speaker 1: so the holiday house market's going to be weaker. They
• 15:26
  Speaker 1: do tend to overdo it, don't they, James? They fly
• 15:29
  Speaker 1: higher than the rest when things are going up and
• 15:31
  Speaker 1: they sink harder when everything else is dropping because they're discretionary, really.
• 15:37
  Speaker 1: Are there any spots around the country you're aware of
• 15:40
  Speaker 1: where there is relative value?
• 15:44
  Speaker 2: Yeah, I'd say there's a lot of places in most
• 15:48
  Speaker 2: states actually that are regional and coastal that have weakened
• 15:51
  Speaker 2: over the past couple of years due to the things
• 15:54
  Speaker 2: that you've mentioned with high interest rates, that reversal of
• 15:57
  Speaker 2: working from home type trends, the general cost of living pressure,
• 16:00
  Speaker 2: people have been offloading those discretionary assets. And you can
• 16:04
  Speaker 2: find good land with homes on it for less than
• 16:09
  Speaker 2: half a million dollars in a lot of places. And
• 16:11
  Speaker 2: the way that I purchased my holiday house on about
• 16:15
  Speaker 2: one hour outside of Sydney, was that it would be
• 16:18
  Speaker 2: somewhere that I could downsize to in the future. So
• 16:20
  Speaker 2: I locked in my retirement property in today's dollars rather
• 16:24
  Speaker 2: than have to buy it down the track. And we
• 16:27
  Speaker 2: sold it because we didn't actually like the lifestyle up there.
• 16:29
  Speaker 2: We preferred the hustle and bustle of Sydney. So we
• 16:32
  Speaker 2: ended up purchasing a property on the Lower North Shore
• 16:35
  Speaker 2: that looks into the harbour and see the fireworks on
• 16:37
  Speaker 2: New Year's Eve. And that really agreed with us. So
• 16:41
  Speaker 2: having a holiday house, you need to think about why
• 16:42
  Speaker 2: are you doing it? Is it because you want to
• 16:44
  Speaker 2: enjoy it? now with yourself, friends, family? Do you want
• 16:47
  Speaker 2: to get capital growth? Do you want high income from it?
• 16:49
  Speaker 2: Do you want to lock something in that you give
• 16:51
  Speaker 2: yourself options that you can downsize into in the future?
• 16:54
  Speaker 2: So in terms of where to buy?
• 16:57
  Speaker 1: You might like to go down there for your holidays.
• 17:00
  Speaker 1: Let's not forget the original principle of the holiday home.
• 17:06
  Speaker 1: Keep that in mind, folks. You might actually use it
• 17:08
  Speaker 1: for holidays. It's ironic, isn't it? The people that have
• 17:11
  Speaker 1: the drive perhaps And the drive more than anything else
• 17:16
  Speaker 1: and the tempo to have multiple investments and have a
• 17:19
  Speaker 1: holiday home are probably not the same people who can
• 17:21
  Speaker 1: sit on the veranda for very long. That's one of
• 17:25
  Speaker 1: the ironies of life. Okay, I hope that you found
• 17:28
  Speaker 1: that interesting, folks. It's been something that I wanted to
• 17:30
  Speaker 1: do for a long time. And thank you to the
• 17:33
  Speaker 1: Prime Minister for triggering the notion of a show based
• 17:36
  Speaker 1: on holiday homes, because I've been waiting to do it. Now,
• 17:38
  Speaker 1: we have some really good questions. So I want to
• 17:40
  Speaker 1: move on to them. pretty quickly and they are actually
• 17:43
  Speaker 1: quite property focused these questions and James has seen them
• 17:47
  Speaker 1: so we're going to come back in a moment and
• 17:49
  Speaker 1: we'll be covering those. Hello and welcome back to the
• 17:59
  Speaker 1: Australian's Money Puzzle Podcast. James Kirby with James Gerrard. OK,
• 18:05
  Speaker 1: I'm going to read out the first one, James. And
• 18:08
  Speaker 1: these first two questions, they are a tiny bit specific.
• 18:12
  Speaker 1: So I will say, first of all, we don't give
• 18:13
  Speaker 1: advice on this show and I will probably minimize some
• 18:17
  Speaker 1: of the detail. I don't need this much detail, folks,
• 18:19
  Speaker 1: when you send in your questions. OK, here we go.
• 18:22
  Speaker 1: The first question is from James. I bought a house
• 18:26
  Speaker 1: in a regional town for 270k. It's been geared ever since.
• 18:29
  Speaker 1: Low maintenance, probably worth 550k now. Growth has been great.
• 18:33
  Speaker 1: Renting easy. That sounds good. How do I know when
• 18:36
  Speaker 1: it's time to sell? That's a really good question. It
• 18:38
  Speaker 1: comes up all the time. And it's asked by so
• 18:42
  Speaker 1: many people. That question, which I think actually is from Michelle.
• 18:45
  Speaker 1: I'm sorry, Michelle. She says, I'm on the highest tax bracket,
• 18:49
  Speaker 1: but I'd like to have your thoughts, not advice. Never advice, Michelle.
• 18:55
  Speaker 1: When is it time to sell? Oh, zillion dollar question.
• 19:02
  Speaker 1: What would you say if she was– what would you say?
• 19:05
  Speaker 2: I'd say to people generally who have investment properties and
• 19:11
  Speaker 2: they're not sure on when to sell is why do
• 19:13
  Speaker 2: you want to sell and what happens if you sell?
• 19:17
  Speaker 2: What are you going to do with the money? Is
• 19:19
  Speaker 2: there a purpose, non-deductible debt against your house? Do you
• 19:22
  Speaker 2: want to purchase another investment? property, what's the outlook for
• 19:26
  Speaker 2: the investment property that you hold? Will it continue to
• 19:28
  Speaker 2: go up or do you think it's hit its peak
• 19:30
  Speaker 2: and thus it might be a good time to sell?
• 19:33
  Speaker 2: And also for people on the highest marginal tax bracket,
• 19:36
  Speaker 2: they're going to have to pay 23.5% capital gains tax.
• 19:40
  Speaker 2: Assuming that they've held the property for more than 12 months,
• 19:42
  Speaker 2: there is a 50% discount off the 47%, but still
• 19:44
  Speaker 2: it's 23 and a half. Alternatively, if people wait until
• 19:49
  Speaker 2: they retire, say five, 10 years away for someone in
• 19:53
  Speaker 2: their 50s or early 60s, and they don't have their
• 19:56
  Speaker 2: employment income pushing them up into the highest marginal tax rate,
• 19:59
  Speaker 2: if they then choose to sell the property, then they're
• 20:01
  Speaker 2: going to pay a lot less capital gains tax. So
• 20:05
  Speaker 2: you need to think about what you're going to do
• 20:06
  Speaker 2: with the money, How much capital gains tax would you
• 20:09
  Speaker 2: pay now if you sold versus if you waited and
• 20:12
  Speaker 2: sell it down the track? Put all those things together
• 20:14
  Speaker 2: and then you can make an informed decision.
• 20:16
  Speaker 1: If I buy a holiday house and I sell it
• 20:20
  Speaker 1: when I'm 64, I pay CGT. If I retire and
• 20:25
  Speaker 1: I sell it when I'm 66, I pay no CGT?
• 20:28
  Speaker 2: Less CGT because your starting income is zero, assuming that
• 20:32
  Speaker 2: there's no other sources of income that you have for
• 20:34
  Speaker 2: your tax return. while you're working, the average worker makes
• 20:37
  Speaker 2: 100,000 a year. So they're already in the 30 something
• 20:40
  Speaker 2: percent tax bracket. And then the CGT gets added on
• 20:42
  Speaker 2: top of that.
• 20:43
  Speaker 1: Yep.
• 20:43
  Speaker 2: All right.
• 20:44
  Speaker 1: So it's something to consider. And income stream would be free,
• 20:48
  Speaker 1: of course, too, wouldn't it? If you're the income, if
• 20:50
  Speaker 1: you're getting 20 grand a year from the house or
• 20:52
  Speaker 1: 30 or whatever, then pre-retirement, you pay income tax on
• 20:56
  Speaker 1: your income. And post-retirement, you would possibly have no tax
• 21:01
  Speaker 1: at all, unless you're over 1.9 million assets. Yeah. Have
• 21:04
  Speaker 1: I got that right?
• 21:05
  Speaker 2: Yeah, that's right. Personally, you can earn, depending on whether
• 21:08
  Speaker 2: you're a single or a couple, but in the ballpark
• 21:10
  Speaker 2: of $ 25, 000 a year when you apply tax offsets in
• 21:13
  Speaker 2: terms of personal income and not pay any tax. And
• 21:16
  Speaker 2: then if you have property in super, you're right up
• 21:18
  Speaker 2: to that $ 1. 9 million of asset value in super, you
• 21:21
  Speaker 2: pay no tax. capital gains tax. And just touching on
• 21:23
  Speaker 2: something really quickly, it's interesting that holiday houses, even if
• 21:26
  Speaker 2: you don't rent them out at all, they're still a
• 21:29
  Speaker 2: CGT asset. There's no exemption there. You only get one exemption,
• 21:32
  Speaker 2: which is your primary residence and then holiday houses. Even
• 21:35
  Speaker 2: if used as a personal asset, they're still subject to
• 21:37
  Speaker 2: capital gains tax.
• 21:39
  Speaker 1: Okay. That's really interesting. Yeah. So keep that in mind, folks.
• 21:42
  Speaker 1: Really interesting approach. And always keep that in mind that
• 21:46
  Speaker 1: your tax situation changes after you retire. So Just consider
• 21:51
  Speaker 1: that for a moment. It may be the case that
• 21:53
  Speaker 1: you hadn't planned that or hadn't thought about that. That's
• 21:56
  Speaker 1: to Michelle and all the Michelle's out there. Okay. So
• 21:59
  Speaker 1: next question is from Andre, A-N-D-R-Z-E-J. Would you like to
• 22:07
  Speaker 1: read it, James?
• 22:09
  Speaker 2: So Andre's writes, we bought a block of land in
• 22:11
  Speaker 2: a small coastal town south of Perth, built a house
• 22:14
  Speaker 2: on it 15 years ago. And then 13 years ago,
• 22:17
  Speaker 2: they bought the neighboring block of land and they amalgamated
• 22:20
  Speaker 2: the two blocks together. together because they just wanted one
• 22:22
  Speaker 2: set of rates. And they were looking at building a
• 22:25
  Speaker 2: shed on the block, which Andres didn't do. We would
• 22:27
  Speaker 2: also like a large garden and no rear neighbours. Fair enough.
• 22:31
  Speaker 2: They're in a residential area. They're 300 metres from the beach.
• 22:34
  Speaker 2: They've got 3,000 square metres of land. Property prices are
• 22:37
  Speaker 2: booming there. So Andres' question is around, he knows that
• 22:40
  Speaker 2: he can't sell a part of your house to raise cash,
• 22:42
  Speaker 2: but what if he subdivided the land and sold off
• 22:45
  Speaker 2: a piece? Would he have to pay capital gains tax
• 22:47
  Speaker 2: or on the part that he subdivided, which I assume
• 22:50
  Speaker 2: would be that backyard, that second lot that they purchased.
• 22:53
  Speaker 2: And then can they put some of the proceeds into
• 22:55
  Speaker 2: his wife's super? And I'm assuming Andres is referring to
• 22:57
  Speaker 2: the downsizer contribution where you can put up to $ 300, 000
• 23:00
  Speaker 2: as a non-concessional contribution if you've lived in your property
• 23:04
  Speaker 2: for 10 years. So yeah, it's really interesting. It's probably
• 23:08
  Speaker 2: worthwhile getting advice from a tax accountant because this is
• 23:11
  Speaker 2: quite a specialised situation here. But I would have thought
• 23:14
  Speaker 2: generally that if you had two blocks of land in
• 23:18
  Speaker 2: You lived in a house on one, you bought the
• 23:19
  Speaker 2: other one, made it into your garden or looking to
• 23:22
  Speaker 2: put a shed or something on it. You didn't generate
• 23:24
  Speaker 2: any income from it. I would have thought that if
• 23:25
  Speaker 2: you separated the get and sold the back part, there'd
• 23:28
  Speaker 2: be no capital gains tax. But that's just my personal thoughts.
• 23:31
  Speaker 1: Because you're selling a part of your principal place of residence.
• 23:36
  Speaker 2: Exactly.
• 23:36
  Speaker 1: Place of residence enlarged at one point, which is internally feasible. Okay,
• 23:41
  Speaker 1: that's a guide on the hypothetical situation where they occur. Listeners,
• 23:47
  Speaker 1: and I'm sure you can all follow that. Okay, very interesting. Yeah,
• 23:50
  Speaker 1: funny that never came up before. Okay, Gordon says, on
• 23:54
  Speaker 1: the show, Jackie Clark advised. Maybe she didn't advise, Gordon.
• 23:57
  Speaker 1: She said that you could get some basic advice from mates,
• 24:00
  Speaker 1: from mates. I have a fairly decent grasp of finances,
• 24:04
  Speaker 1: says Gordon. I have my emergency funds sorted. I realize
• 24:09
  Speaker 1: many of my friends haven't done this and did at
• 24:13
  Speaker 1: a point start providing some very generic advice. I asked
• 24:16
  Speaker 1: a clarifying question in a closed Facebook group on something
• 24:19
  Speaker 1: I had been doing. People who were all fairly clued
• 24:23
  Speaker 1: up were very adamant that this could be interpreted as advice,
• 24:27
  Speaker 1: which I am not qualified to give. Since then, I've
• 24:30
  Speaker 1: never offered this to friends. Where did the boundary line sit?
• 24:34
  Speaker 2: Oh, yes.
• 24:35
  Speaker 1: Million dollar question, Gordon. Look, there is advice. There's general
• 24:39
  Speaker 1: advice and there is individual advice. So there is actually
• 24:42
  Speaker 1: there is layers to it. But I wouldn't worry. about
• 24:45
  Speaker 1: advice from one person to another. If I meet my
• 24:48
  Speaker 1: neighbor on the street and my neighbor says, should I
• 24:51
  Speaker 1: sell my house? I'm thinking of it. And I say, yeah,
• 24:53
  Speaker 1: go for it. That's not advice. That's not formulated advice
• 24:58
  Speaker 1: given on a statement of advice. There's no licensing or whatever.
• 25:02
  Speaker 1: That's casual. That happens every day in every city. At
• 25:06
  Speaker 1: the other end of the spectrum, if you go into
• 25:08
  Speaker 1: a financial advisor like James, fully qualified, fully credentialed, licensed,
• 25:13
  Speaker 1: in giving you advice, he has to go through an
• 25:15
  Speaker 1: enormous amount of paperwork, this thing called a statement of advice,
• 25:18
  Speaker 1: which is supposed to be cleared or possibly dropped altogether
• 25:22
  Speaker 1: in this new regime being very slowly put through Parliament.
• 25:25
  Speaker 1: But it remains in place for the moment. There's layers. Also,
• 25:29
  Speaker 1: there is a general advice. Again, when we talked, we
• 25:32
  Speaker 1: never talked specifically on the show, for instance. If Frank
• 25:35
  Speaker 1: comes in with a question about his particular situation and
• 25:38
  Speaker 1: he owns two houses and he wants to sell one,
• 25:41
  Speaker 1: we don't talk about that one person. We talk about it.
• 25:44
  Speaker 1: a character, if a person in Australia was in that situation,
• 25:48
  Speaker 1: what they could do. And that is how we approach it.
• 25:51
  Speaker 1: It's information only. So I hope that's untangled things. Just
• 25:57
  Speaker 1: from your perspective, James, as a qualified licensed advisor, is
• 26:02
  Speaker 1: it dangerous for you if you're sitting on the train
• 26:04
  Speaker 1: and someone you never met in your life starts talking
• 26:06
  Speaker 1: to you and they say, I'm thinking of whatever? Are
• 26:10
  Speaker 1: you actually, what happens if you say something to them?
• 26:14
  Speaker 2: It you're bound with liability to give them a statement
• 26:18
  Speaker 2: of advice if you make statements to them which are
• 26:21
  Speaker 2: of a personal advice nature. And the thing is that
• 26:24
  Speaker 2: the vast majority of financial advisors really care about people
• 26:27
  Speaker 2: and they just want to help people and they want
• 26:29
  Speaker 2: to share the information and knowledge that they have. But unfortunately,
• 26:33
  Speaker 2: we have all this red tape and regulations and you
• 26:36
  Speaker 2: hit the nail on the head with general versus personal.
• 26:38
  Speaker 2: So someone's sitting on the train and they say to me, James,
• 26:41
  Speaker 2: what what do you think of ETFs? Are they a
• 26:43
  Speaker 2: good idea? And tell me about salary sacrifice as well.
• 26:48
  Speaker 2: I can talk about that. Yep, these are what ETFs are,
• 26:50
  Speaker 2: basket of stocks, blah, blah, blah. This is what salary
• 26:52
  Speaker 2: sacrifice is, 30,000 per year limits, catch-up concessionals. And they go, oh,
• 26:57
  Speaker 2: do you think I should buy some ETFs? And do
• 26:58
  Speaker 2: you think that I should salary sacrifice into super? Then
• 27:01
  Speaker 2: that's where the line is drawn. I can't respond to that.
• 27:04
  Speaker 1: No, but you could say many Australians like ETFs. There
• 27:08
  Speaker 1: are many Australians sacrificing to super And it works for
• 27:12
  Speaker 1: many Australians, et cetera. And it basically turned that into
• 27:16
  Speaker 1: a generic, but not a particular or an individual conversation.
• 27:19
  Speaker 1: I hope that's useful to you, Gordon. It's interesting. Now,
• 27:22
  Speaker 1: perfect segue into the next question, which brings up this subject. David,
• 27:28
  Speaker 1: would you like to read that one, James? Sure.
• 27:31
  Speaker 2: David writes, I enjoyed your recent show on declining numbers
• 27:34
  Speaker 2: of financial advisors and the increasing advisor fees. To me,
• 27:38
  Speaker 2: the financial advice regulations are an example of why overzealous
• 27:41
  Speaker 2: regulation is flatlining productivity more generally in Australia. We recently
• 27:46
  Speaker 2: asked our financial advisor of almost 20 years if we
• 27:48
  Speaker 2: should switch our superannuation to the pension phase. We received
• 27:51
  Speaker 2: back a statement of advice of 26 pages plus three
• 27:55
  Speaker 2: other compliance documents. Of the 26 pages, six were relevant,
• 27:58
  Speaker 2: the rest were compliance. It could have been written in
• 28:01
  Speaker 2: two pages, including modelling in David's opinion. David's question is,
• 28:06
  Speaker 2: what happened to the Michelle Levy Quality of Financial Advice Review?
• 28:10
  Speaker 1: Indeed, indeed. So there's the statement of advice we're talking about.
• 28:14
  Speaker 1: And the only thing to say to you, David, is
• 28:15
  Speaker 1: that your advisor was probably just as annoyed about that
• 28:18
  Speaker 1: statement as you were. They must by law do that.
• 28:22
  Speaker 1: They must by law do that. This is the problem.
• 28:24
  Speaker 1: What happened to Michelle's Quality of Advice Review is that
• 28:27
  Speaker 1: the government orchestrated a potential new regime for financial advice
• 28:32
  Speaker 1: called Delivering Better Outcomes. But they broke it into phases.
• 28:37
  Speaker 1: The first phase is through, but it's some very minor
• 28:41
  Speaker 1: red tape clear-ups and some small issues to do with
• 28:44
  Speaker 1: big super funds. But the big changes remain on, not
• 28:49
  Speaker 1: through Parliament and not put in yet. There's a variety
• 28:53
  Speaker 1: of things there, a much greater simplification of advice, including
• 28:56
  Speaker 1: the removal of that statement of advice for something else.
• 28:59
  Speaker 1: and allowing big super funds to really get in and
• 29:02
  Speaker 1: give advice in the way that we are, as we
• 29:04
  Speaker 1: know it. That's still coming down the line. So that's
• 29:07
  Speaker 1: where we are on all that. Hey, thank you very much, James.
• 29:09
  Speaker 1: Very interesting to hear your views. I knew that you'd
• 29:13
  Speaker 1: be good on this one because you've been in one
• 29:15
  Speaker 1: door and out the other on that. And if ever
• 29:18
  Speaker 1: there was a time to do the Holiday Home Show,
• 29:21
  Speaker 1: this was it. So thanks very much.
• 29:23
  Speaker 2: My pleasure. Thanks, James.
• 29:26
  Speaker 1: Great to have you on. Okay, folks, on... Thursday I'm
• 29:29
  Speaker 1: having I am having Alex Moffat on the anniversary of
• 29:34
  Speaker 1: the great stock market crash the great crash of 1987
• 29:38
  Speaker 1: he won on the floor trading as a stockbroker when
• 29:43
  Speaker 1: it happened. Not many people around that can really give
• 29:46
  Speaker 1: us a clear view of what it's like to wake
• 29:48
  Speaker 1: up in the morning with the 25% drop overnight in
• 29:52
  Speaker 1: the value of your shares. It's something everyone should know
• 29:55
  Speaker 1: could happen. Again, And I want to talk about that
• 29:58
  Speaker 1: this coming Thursday with Alex. So looking forward to that.
• 30:01
  Speaker 1: Let's have some questions, observations, comments. Love to have them.
• 30:07
  Speaker 1: The moneypuzzle at theaustralian.com.au is the email. And do mention
• 30:13
  Speaker 1: us to any of your friends that you like to show.
• 30:16
  Speaker 1: That would be really good. And we'd appreciate that. And
• 30:19
  Speaker 1: talk to you soon.
• 30:24
  Speaker 2: Thank you.