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Why it's so hard to get property advice (with James Gerrard) · The Money Puzzle

0:09
Speaker 1: Hello, and welcome to The Australian's Money Puzzled podcast. I'm
0:13
Speaker 1: James Kirby, well editor at the Australian. Welcome aboard everybody.
0:17
Speaker 1: One thing I've discovered doing this show, and particularly when
0:20
Speaker 1: we have a sort of concentration on property on Tuesday's
0:26
Speaker 1: edition of the show, we find that property people and
0:30
Speaker 1: they're very good at many of them. And you hear
0:32
Speaker 1: a agent, surviyor's advocates or mortgage brokers or economists. Everyone
0:37
Speaker 1: involved in property has a view, but they're not advisors, right.
0:42
Speaker 1: And then financial advisors, in my experience, they concentrate on
0:47
Speaker 1: listed securities. They're particularly good on shares and funds and
0:50
Speaker 1: ETFs and superintext they're not really good on property and
0:54
Speaker 1: advising on property. And only some advisors really have any
0:59
Speaker 1: clue about property and it's so important. So what happens
1:01
Speaker 1: to people, and in my experience is they go into
1:03
Speaker 1: financial advisors and they say I'm doing this and I'm
1:06
Speaker 1: doing that, and they say yes, and they're good on
1:08
Speaker 1: these areas that they have some expertise in and they
1:10
Speaker 1: haven't really got much to say on property except they
1:13
Speaker 1: just can't they can't communicate with them. So we found
1:17
Speaker 1: every now and again, folks, it's been very useful to
1:21
Speaker 1: bring an advisor in to talk about property strictly as
1:24
Speaker 1: an advisor, because they're hard to find. I have found one.
1:30
Speaker 1: It's James Gerard, a regular on the show from Financial
1:33
Speaker 1: advisor dot com dot U Hi, James, how are you good?
1:37
Speaker 1: Thank you?
1:37
Speaker 2: James. Good to chet you today.
1:38
Speaker 1: Apart from the fact that you are always been interested
1:41
Speaker 1: in property and you monitor it, you write about it,
1:45
Speaker 1: and you've actively been an investor yourself in different forms
1:50
Speaker 1: of property, and I think that's great experience for you,
1:53
Speaker 1: but also for you as an advisor. That's one of
1:56
Speaker 1: the reasons I was asking you to come on today.
1:58
Speaker 1: There's some mental block with financial property or is it
2:01
Speaker 1: a regulatory gap or what's that explanation that people can't
2:05
Speaker 1: they really can't get very good advice on property from
2:07
Speaker 1: people who aren't up to their neck and selling property.
2:09
Speaker 2: Seem to me, Yeah, it's really unfortunate. It's one of
2:13
Speaker 2: the inadequacies of the financial advisory industry is that we're
2:18
Speaker 2: not very good at giving property advice as the whole.
2:20
Speaker 2: And I think it comes down to really just conflict
2:22
Speaker 2: of interest. The all vested interest may be more to
2:26
Speaker 2: the point of the financial advisor. Most financial advisors they'll
2:29
Speaker 2: charge a fee for this in called a statement of advice,
2:31
Speaker 2: which lays out your current situation, what recommendation should be made,
2:35
Speaker 2: and then shows you a roadmap into the future. And
2:39
Speaker 2: to execute that statement of advice, it usually involves setting
2:42
Speaker 2: up super accounts, investment accounts, and inside of those accounts
2:46
Speaker 2: are usually ETFs and managed funds and not so much
2:49
Speaker 2: physical property. And that comes down to the financial advisors
2:53
Speaker 2: ongoing remuneration. To retain that financial advisor, they'll usually charge
2:58
Speaker 2: you either a flat dollar retainer or a percentage based fee.
3:02
Speaker 2: But their skill set is on monitoring the share market,
3:05
Speaker 2: monitoring the bonds in the portfolio, interviewing the fund managers.
3:10
Speaker 2: It's not on looking at is adelaide a great hotspot?
3:13
Speaker 2: Has Hobart turned a corner with the property market, and
3:16
Speaker 2: as such, they don't.
3:16
Speaker 1: Not in the exams of anything like that at all.
3:19
Speaker 2: It's not. No, it's not and maybe partly regulatory as well,
3:23
Speaker 2: because ACID don't consider property as a financial asset. They
3:28
Speaker 2: consider if you own property through super an a financial asset,
3:32
Speaker 2: but property itself is not, which means all of the
3:35
Speaker 2: regulation is carved away and there's no education requirements and
3:39
Speaker 2: there's no regulation there from an investment advisory perspective when
3:43
Speaker 2: it comes to property as an investment, so you really
3:47
Speaker 2: need to if you're a person looking to invest in
3:50
Speaker 2: property as part of a diversified portfolio and you want
3:52
Speaker 2: to seek advice, you should have a financial advisor because
3:55
Speaker 2: we come in handy as a sounding board. We keep
3:58
Speaker 2: the buyers agent and accountable. We'll probably delve into this
4:01
Speaker 2: a little bit more, but firstly we just lay it
4:04
Speaker 2: up with what's the strategy, why we buy in a property,
4:07
Speaker 2: how much, where are we're going to buy, and then
4:08
Speaker 2: when it comes to the execution, that's where we bring
4:10
Speaker 2: in the buyer's agent.
4:11
Speaker 1: So just to flip it around. Then, if I'm going
4:13
Speaker 1: in the door to a random financial advisor and I
4:19
Speaker 1: am building an investment portfolio and it's very important to me,
4:21
Speaker 1: it's going to be my super probably and I've got
4:24
Speaker 1: my shares, I've got my bonds, I've got my ets,
4:26
Speaker 1: I've got it all nicely. And then i have property,
4:30
Speaker 1: and it's it's a property in some suburb, it's just
4:33
Speaker 1: got basically got an address, or it's a property multiple properties,
4:38
Speaker 1: But can I reason why can I reasonably expect the
4:41
Speaker 1: advisor to advise me in this on.
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Speaker 2: This Yeah, you can't seek advice from an advisor, But
4:48
Speaker 2: it just comes down to going to the right advisor.
4:50
Speaker 2: I mean, if I could simplify it and put the
4:52
Speaker 2: advisors into three different buckets, that will help the consumers
4:56
Speaker 2: sort of pick the right advisor for them when it
4:58
Speaker 2: comes to property advice. The first type of advisor is
5:02
Speaker 2: the one all the way down the end of the
5:03
Speaker 2: spectrum that I mentioned that has no desire to recommend
5:06
Speaker 2: property investments for you because their fee and their service
5:09
Speaker 2: model is around managing your share and your bonds. So
5:13
Speaker 2: if anything, if you go to that advisor's office, he's
5:15
Speaker 2: probably going to tell you He or she will probably
5:17
Speaker 2: tell you to not worry about property investment as too concentrated,
5:21
Speaker 2: as too much hassle. Let's just put that idea on
5:23
Speaker 2: the side of buying property and put more into your
5:26
Speaker 2: share and ETF and managed firm portfoluo. And by the way,
5:28
Speaker 2: that advisor will probably want to take over that portfolio
5:31
Speaker 2: and charge your fee. So that's the first type of advisor.
5:34
Speaker 2: And then down the other end of the spectrum, we
5:36
Speaker 2: have the advisor who's really pro property and he'll go look,
5:40
Speaker 2: he or she will go, yes, look, that's a great idea.
5:42
Speaker 2: Let's buy some property, but maybe not the one you're
5:45
Speaker 2: thinking of. I've got a really good contact. You can
5:47
Speaker 2: help you buy a brand new property that's in it
5:51
Speaker 2: by the land, and then I'll induce you to the
5:53
Speaker 2: builder and then he can build the property for you.
5:55
Speaker 2: So the problem with that advisor is that there's usually
5:59
Speaker 2: some deal under the table there with regards to getting
6:02
Speaker 2: commissions on the build for these brand new properties. So
6:06
Speaker 2: they like property, but they'll steer you towards ones that
6:09
Speaker 2: benefit them from commission.
6:11
Speaker 1: That's all legal, is it, that's all within the law. Yeah,
6:15
Speaker 1: because the property is excluded because it's not a financial asset.
6:18
Speaker 2: Yeah, that's right. Like as us as funnage advisers, we're
6:21
Speaker 2: not meant to take or not meant to we're not
6:23
Speaker 2: allowed to take commissions. But there's lots of ways to
6:27
Speaker 2: divvy things up. So advisors business people, they're creative. What
6:31
Speaker 2: if they have a stake in the property development business
6:34
Speaker 2: and they get a dividend rather than a referral fee.
6:36
Speaker 2: There's all sorts of ways to skin a cat as
6:38
Speaker 2: the same goals.
6:42
Speaker 1: This is exactly what I was hoping to find out. Well,
6:44
Speaker 1: this is getting to the heart of it, like why
6:46
Speaker 1: why why is advice so hard to find for property investors?
6:51
Speaker 1: Which is the use of this show obviously and shows
6:53
Speaker 1: like it that people This is why people listen obviously
6:55
Speaker 1: because they can't get advised. Sorry, James, keep going. So
6:57
Speaker 1: you had you were going through the types of Yeah,
7:00
Speaker 1: that was the second, and you had one more, yeah,
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Speaker 1: the second.
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Speaker 2: So far, I've gone through both ends the spectrum. The
7:07
Speaker 2: advisor who doesn't like property tries to steer you towards funds.
7:10
Speaker 2: And then you've got down the other end of the spectrum,
7:12
Speaker 2: the advisor that does like property, but they're trying to
7:14
Speaker 2: line their own pockets with some commission on some property
7:17
Speaker 2: deal they're trying to shovel you into. And then you've
7:19
Speaker 2: got the third type of advisor who sits in the
7:21
Speaker 2: middle where they're usually self license and they'll usually charge
7:24
Speaker 2: you at flat dollar fee and they'll say, okay, well
7:28
Speaker 2: we can advise you on what's important to you. If
7:30
Speaker 2: you're set with your ETF portfolio, that's fine, we'll scope
7:34
Speaker 2: that out. We don't need to give you advice on that.
7:35
Speaker 2: If you're coming into our office and you'll seeking advice
7:37
Speaker 2: on this commercial property investment around the corner from you, great,
7:41
Speaker 2: we'll talk to you about the pros and cons of it,
7:43
Speaker 2: the tax aspects of it, the funding, the future CGT implications,
7:47
Speaker 2: how it fits into your broader portfolio, and then you
7:50
Speaker 2: can go ahead and make decisions on it. So that's
7:53
Speaker 2: the third type of advisor, which i'd have to say
7:55
Speaker 2: is the minority of advisors, but is probably the biggest
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Speaker 2: asset for a property investor to have on this.
8:00
Speaker 1: Yes, but it's not typical, and it's not typical. Why
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Speaker 1: are they so rare.
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Speaker 2: It's because it's a harder business model for the advisor.
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Speaker 2: They need to charge on an hourly basis or retain
8:14
Speaker 2: a basis linked to the property, and it's harder to
8:17
Speaker 2: show ongoing value. It's more transactional in nature, whereas financial
8:21
Speaker 2: advisors more like to have ongoing relationships. And what I
8:25
Speaker 2: mean by transactional is that the advice is given on
8:27
Speaker 2: a specific property or a couple of properties and then
8:31
Speaker 2: it's done. But then how can you charge a fee
8:33
Speaker 2: every year as a retainer on that property if the
8:36
Speaker 2: client just collecting the rent, paying their mortgage. There's not
8:39
Speaker 2: too much to add. Maybe, sure, there's an argument for
8:41
Speaker 2: once a year to do a review to say should
8:43
Speaker 2: we sell the property or should we keep it? But
8:45
Speaker 2: outside of that, it's tough to give advice, whereas advisors
8:49
Speaker 2: like to keep giving advice. So that's why they prefer
8:51
Speaker 2: that managed fund and ETF type portfolio, and that's why
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Speaker 2: the property financial advisors are few and far between.
8:56
Speaker 1: Oh see that really good answer. It explains it all.
9:00
Speaker 1: I don't want to be fatalistic, but in a way,
9:01
Speaker 1: it seems to me that most of the time most
9:07
Speaker 1: people won't be able to get advice from advisors about
9:10
Speaker 1: property being realistic about it.
9:11
Speaker 2: That's right.
9:12
Speaker 1: Yeah, And then you're left with the property people, and
9:14
Speaker 1: then they're always going it's like you went to the shop,
9:15
Speaker 1: you try on the jacket, the assistant says that jacket
9:18
Speaker 1: looks really good on you. What else would they say,
9:21
Speaker 1: I can't believe how bad it looks on you. So
9:24
Speaker 1: property is the same. If you're dealing with someone that's selling,
9:28
Speaker 1: what else would they say? Do you think this is
9:31
Speaker 1: someone standing there talking to a really staying agent saying
9:33
Speaker 1: do you think this would be a good investment. What
9:34
Speaker 1: are they going to say no? And then where do
9:37
Speaker 1: they seek advice outside the property industry financial advisors, But
9:40
Speaker 1: financial advisors don't do it. So something of a real
9:43
Speaker 1: catch twenty two there, And I think we might just
9:45
Speaker 1: leave that there, James, for people think about listeners to
9:48
Speaker 1: think about it. And as I say, perhaps it's one
9:50
Speaker 1: of the reasons that there are sor there's so much
9:53
Speaker 1: property media, so many property investment gurus out there are
9:56
Speaker 1: various types, but also so many publications and podcast et
10:00
Speaker 1: cetera on property, and that I think essentially is the reason.
10:04
Speaker 1: And it was one of the reasons that I did
10:07
Speaker 1: ensure that we concentrated in a sort of screen fashion
10:11
Speaker 1: on property within the podcast as it rules, because I
10:14
Speaker 1: do believe that many of our listeners need to know
10:17
Speaker 1: and want to know more about property, and it's very
10:19
Speaker 1: hard to get a very good information. Obviously, we're not
10:23
Speaker 1: in the business of providing advice, but we are in
10:25
Speaker 1: the business of providing information, as you're well aware of, folks,
10:28
Speaker 1: when we do the questions each week. Okay, we'll take
10:30
Speaker 1: a short break. We'll be back in a moment. Hello,
10:44
Speaker 1: and welcome back to the Australian's Money Puzzled podcast. It's
10:47
Speaker 1: the two James's here, James gr R James Kerby talking
10:49
Speaker 1: to you on the podcast, James the course regular guest
10:53
Speaker 1: and marvelously heroically stands in sometimes for me when I
10:58
Speaker 1: am off on my Venturers Elsewhere. Now, James, the biggest
11:05
Speaker 1: mistake then, from your side of the desk as an advisor,
11:08
Speaker 1: that you see when people who are diversified, active, useful
11:12
Speaker 1: investors when it comes to property, the biggest mistake they make.
11:16
Speaker 1: I have no idea what answer you're going to give,
11:18
Speaker 1: which is good. So what's the biggest mistake?
11:22
Speaker 2: In my opinion, it would be listening to people and
11:26
Speaker 2: listening to the wrong people and not listening to your
11:28
Speaker 2: own gut. Because, as you've hinted that, there's a lot
11:32
Speaker 2: of people in the property industry. You have real estate agents,
11:36
Speaker 2: you have buyers agents, you have mortgage brokers, you have lawyers,
11:40
Speaker 2: and all of them only make money if you do something,
11:43
Speaker 2: if you transact, so their vested interest is to make
11:48
Speaker 2: you do something, oh, usually to buy a property or
11:50
Speaker 2: if you have the property, to sell a property. So
11:53
Speaker 2: the issue there is using your own judgment to go okay, well,
11:59
Speaker 2: is this person telling me this is a fantastic property investment,
12:02
Speaker 2: whether it's a buyer's agent or a real estate agent,
12:04
Speaker 2: is this the right thing for me to do. And
12:06
Speaker 2: a big mistake that goes hand in hand with that
12:09
Speaker 2: is people being pressured, so people going, well, I need
12:12
Speaker 2: to make this call, otherwise I'm going to miss out
12:14
Speaker 2: on this property. You really need to just step back
12:16
Speaker 2: and go, well, this is just one property. If it
12:20
Speaker 2: goes fine, you know, it might have been a great property,
12:22
Speaker 2: but there's going to be more of them. There's not
12:24
Speaker 2: the only property that it's ever going to come up
12:25
Speaker 2: on the market. And usually when people step back and
12:29
Speaker 2: where they're in that pressured situation to make a call
12:31
Speaker 2: and buy it, if they don't, it usually fate happens
12:34
Speaker 2: and then the next week something better and cheaper comes
12:36
Speaker 2: onto the market. But had they been pressured and went
12:39
Speaker 2: ahead with that, I usually see that that can be
12:41
Speaker 2: a big mistake and they regret that purchase, having overpaid
12:45
Speaker 2: on the buy side and taken too low of a
12:47
Speaker 2: price on the cell side.
12:48
Speaker 1: Yes, it's a terrific observation, and it reminds me of
12:51
Speaker 1: a story I can cross one time, which is I
12:54
Speaker 1: thought so revealing. So we as property investors will think
12:59
Speaker 1: that as you say, the lawyer's calling, the mortgage broker says,
13:03
Speaker 1: everything's ready, the property is ready to be boat, and
13:07
Speaker 1: you're there, and you're sort of being rafted along with
13:10
Speaker 1: all this. But in fact, the most powerful position is
13:15
Speaker 1: that they all want your money, basically, and you have
13:18
Speaker 1: the power to say yes or no. And there was
13:19
Speaker 1: a marvelous anecdote about a one of the founding fathers,
13:24
Speaker 1: if you like, one of the patriarchs of the Rich List,
13:27
Speaker 1: one of the big families on the rich List, who
13:29
Speaker 1: was famous property operator, but became famous slash infamous for
13:34
Speaker 1: what you could call a trick he had, and this
13:36
Speaker 1: was in commercial property, and basically what he would do
13:39
Speaker 1: was and this happened consistently, so it was clearly a plan.
13:43
Speaker 1: They would get to a point when this particular tycoon
13:47
Speaker 1: was ready to buy the property. Let's just pick a property, okay,
13:49
Speaker 1: let's just say it's whatever, you know, number four Pitt Street,
13:54
Speaker 1: and let's say it costs eighty million or something, and
13:56
Speaker 1: they would all go along to a certain point and
13:59
Speaker 1: the deal be ready, and they'd finally meet the last day.
14:03
Speaker 1: Everyone's there, the lawyers are there, and the brokers and
14:06
Speaker 1: the agents and the buyers, et cetera. And everyone's ready.
14:11
Speaker 1: They're there to seal it, there to see the deal.
14:14
Speaker 1: And he would stop and he said, I just don't
14:19
Speaker 1: know about this. I'm just I think I just think
14:24
Speaker 1: we'd have to go back and look at a few
14:26
Speaker 1: And everybody was weakened by this because everybody said, we're
14:30
Speaker 1: here to do it. It's done, and everyone thought they
14:33
Speaker 1: were across the line and it would be renegotiated, always
14:37
Speaker 1: in his favor. Very interesting. I thought it was most
14:40
Speaker 1: interesting about that true story is you're in charge. It
14:47
Speaker 1: isn't that you must buy, it's that they need you
14:52
Speaker 1: to purchase. And I think if you kept that in mind,
14:55
Speaker 1: which is very much underpinning what you're saying, would be
14:58
Speaker 1: very good. Okay, that was a very good answer. The
15:00
Speaker 1: biggest mistake people make, and I expect James, the less
15:05
Speaker 1: experience you have, the more likely you make that mistake.
15:07
Speaker 1: Flipping it over, what did you think was the trait
15:12
Speaker 1: that you thought most common among successful property the best investors.
15:16
Speaker 1: And you deal with people who've been dealing in property
15:19
Speaker 1: all their lives, So what do you see that they
15:22
Speaker 1: have in common?
15:23
Speaker 2: The thing I see in common is that they have
15:25
Speaker 2: a plan. They know why they're buying a property. They
15:30
Speaker 2: have an idea of when they're going to buy a property,
15:32
Speaker 2: and I'm not talking about the next property. I'm talking
15:34
Speaker 2: about ten properties down the track, so that they've got
15:36
Speaker 2: a plan to buy a property every six months or
15:39
Speaker 2: every twelve months. And when I say they have a plan,
15:42
Speaker 2: there's a multiple parts of this plan. They're taking into
15:44
Speaker 2: account taxation. So they're thinking about structures and buying properties
15:48
Speaker 2: in the right structure, whether that's through their personal names.
15:52
Speaker 2: They might pick one of the spouses for tax reasons.
15:54
Speaker 2: They may buy it through a family trust, they may
15:56
Speaker 2: use super, they may use an investment company. There's pros
15:59
Speaker 2: and co of these, and so seeking advice on that
16:02
Speaker 2: is important if you're interested in learning more about structures.
16:05
Speaker 2: But the long term successful property investors will understand the
16:08
Speaker 2: different structures and they'll know, Okay, for these ten properties
16:11
Speaker 2: I'm going to buy over the next five to ten years,
16:13
Speaker 2: I'm going to buy a property two in super, property
16:15
Speaker 2: five in my personal name because I can negative gear
16:18
Speaker 2: that one property eight through the family trust to distribute
16:20
Speaker 2: income through the family and someone and so forth. But
16:23
Speaker 2: it's not just that. They'll then have a look at
16:25
Speaker 2: the characteristics of the property, because investment properties will have
16:30
Speaker 2: income the rental return, they'll have potential capital growth, and
16:34
Speaker 2: some properties will have more growth, some properties will have
16:36
Speaker 2: more income. So understanding what type of property are you
16:39
Speaker 2: targeting in that particular structure is important, and that's what
16:42
Speaker 2: these property investors do. And that relates back to the
16:46
Speaker 2: bank as well, because usually there's borrowing involved. They borrow
16:50
Speaker 2: money from the bank to buy a property, that property
16:53
Speaker 2: goes up, they then leverage the equity, they buy a
16:55
Speaker 2: second property, and just repeat that process over and over again.
16:58
Speaker 2: But the smart long term investors realize that the banks
17:02
Speaker 2: aren't going to just keep giving them unlimited amounts of
17:04
Speaker 2: money unless they shape their property portfolio in a certain way.
17:08
Speaker 2: So what they'll do with these property investors, they'll forecast
17:11
Speaker 2: to go, all right, I know what my employment income is.
17:13
Speaker 2: I think I know what it will be over the
17:15
Speaker 2: next five years with increases, and then they'll forecast their
17:18
Speaker 2: borrowing capacity, and then they'll put in the properties that
17:21
Speaker 2: will maximize their ongoing ability to borrow from the banks,
17:24
Speaker 2: because at some stage the bank will go you don't
17:27
Speaker 2: have enough serviceability, your income's not enough to service its
17:30
Speaker 2: next loan, or the bank will say you don't have
17:33
Speaker 2: enough equity. If I have, your properties aren't enough for
17:35
Speaker 2: us to lend you more money. So the property investor
17:38
Speaker 2: will think ahead and then buy the right properties to
17:41
Speaker 2: make sure the banks will keep lending the money ongoing
17:43
Speaker 2: and ongoing, to keep building their portfolio.
17:45
Speaker 1: That's very interesting, So begin with an end in mind,
17:49
Speaker 1: a sort of a lifetime approach. Absolutely interesting, isn't it.
17:53
Speaker 1: Rather than that idea I must buy it, I must
17:55
Speaker 1: buy a property, I must buy come bank shares, I
17:58
Speaker 1: must buy a property, and deeper plan than that, just
18:01
Speaker 1: that I should have one. Everyone does it. I should
18:04
Speaker 1: have it. There's no plan there at all. Very interesting. Okay,
18:08
Speaker 1: great answers, James, thank you very much. We'll take a break, folks,
18:11
Speaker 1: and we'll be back with some terrific questions from David
18:13
Speaker 1: and Jack and John. Hello, and welcome back to The
18:31
Speaker 1: Australian's Money Puzzled podcast. David, I expect that customers of
18:36
Speaker 1: the wealth industry are typically older and more established in
18:38
Speaker 1: their careers, and so sometimes it seems that discussion is
18:42
Speaker 1: too focused on lower risk wealth strategies. That's the discussion
18:46
Speaker 1: on the show, David things. I wonder whether these apply
18:49
Speaker 1: to all listeners. For example, those that are much earlier
18:52
Speaker 1: on in their careers should potentially be encouraged towards taking
18:55
Speaker 1: much larger risks, like starting a business. It would be
18:58
Speaker 1: interesting to hear this explode on the podcast. Okay, David,
19:02
Speaker 1: no problem what you're saying at all, David, Yes, absolutely,
19:06
Speaker 1: the younger as a very broad principle, the younger you are,
19:09
Speaker 1: the more risk you're you're able to take. And if
19:12
Speaker 1: you are much older, there's two things on if you're
19:15
Speaker 1: much older. One is you've got more to lose. That's
19:18
Speaker 1: the first thing, which probably doesn't come up very often,
19:21
Speaker 1: but it's psychologically very importantly. We've got if you haven't
19:23
Speaker 1: got much to lose, if you've got fifty grand and super,
19:27
Speaker 1: that's one thing, and you take risks. If you've got
19:30
Speaker 1: a million and super and you're close to retirement, it's
19:32
Speaker 1: a very different approach to risk at that stage. But
19:35
Speaker 1: I would completely agree with the principle. Maybe sometimes on
19:38
Speaker 1: the show there is an emphasis on I hope there
19:42
Speaker 1: isn't an emphasis too much on by the preservation, because
19:45
Speaker 1: that's the sort of I think if you get to
19:48
Speaker 1: that point, then the show is less useful to you.
19:51
Speaker 1: What do you think, James, I agree with that.
19:54
Speaker 2: I use the analogy of climbing a mountain, So the
19:58
Speaker 2: younger willth accumulators down the botto of the mountain and
20:01
Speaker 2: the pre retiree or the retirees at the top of
20:03
Speaker 2: the mountain. So when you're down the bottom of the mountain,
20:06
Speaker 2: you can afford to take risks and try and climb faster,
20:08
Speaker 2: and you fall down a bit, that's fine, you can
20:10
Speaker 2: dust yourself off and you go back up that mountain.
20:13
Speaker 2: But when you're near the top, you don't want afford
20:15
Speaker 2: down half the mountain. You don't want to lose a
20:17
Speaker 2: lot of your assets, so you become a lot more cautious.
20:20
Speaker 2: So David's right. A lot of the wealth industry is
20:23
Speaker 2: focused around the older investor, and that's because they have
20:27
Speaker 2: the money. That's said that, there are a great amount
20:32
Speaker 2: of younger financial advisors and younger property advisors who service
20:36
Speaker 2: those people who are in their twenties and thirties who
20:38
Speaker 2: are just getting started. It's just about doing research and
20:41
Speaker 2: interviewing a couple of different people and finding the ones
20:44
Speaker 2: that focus on that younger demographic and which one resonates
20:47
Speaker 2: with you.
20:48
Speaker 1: Yeah, And we have had advisers on the shore and
20:50
Speaker 1: they say, my main business is worthy people come to
20:54
Speaker 1: me and I keep them money, and that's good and
20:56
Speaker 1: that's fine. We all walk together someday on the show.
21:00
Speaker 1: But actually a lot of the show is focused on
21:04
Speaker 1: building and starting and aculating phase of wealth and investing
21:10
Speaker 1: because I think that's where people really need some support,
21:13
Speaker 1: and that's the nature of the show that we're in.
21:16
Speaker 1: Just as an aside. Unfortunately, the tax system is also
21:18
Speaker 1: loaded towards the older Australian and you think about how
21:22
Speaker 1: SUPER works and that you can have from July. It's
21:26
Speaker 1: going to be two million per capita in Super tax
21:28
Speaker 1: free from July this year for sure, the way inflation
21:31
Speaker 1: indexing works. But at the same time, the most you
21:34
Speaker 1: can put into SUPER on a contributing basis as you're
21:37
Speaker 1: building it is thirty per annum. This is a pre
21:40
Speaker 1: tax concession. How many years are you going to have
21:42
Speaker 1: to be contributing to get up to where these people are?
21:45
Speaker 1: So I think there's a terrible it's quite upside down,
21:48
Speaker 1: and I say it all the time. The Super innovation
21:51
Speaker 1: systems upside down and the older Australians are treated better
21:53
Speaker 1: than younger ones. Okay, question from Jack? Can you see
21:56
Speaker 1: that you want to read it again?
21:59
Speaker 2: Jack, I'm currently sixty eight years. I'll old own my
22:02
Speaker 2: house and have nine hundred thousand in super. I want
22:05
Speaker 2: to work another three to four years. I've been told
22:07
Speaker 2: to close my accumulation super account and turn it into
22:10
Speaker 2: a pension as you pay no tax on the gains
22:12
Speaker 2: in pension super if you are over sixty five, take
22:16
Speaker 2: the minimum out each year, which is five percent, and
22:18
Speaker 2: reinvest it in the accumulation account. When I'm ready to retire,
22:22
Speaker 2: close both the pension and accumulation down and put them
22:25
Speaker 2: into a brand new pension account. I'm doing this to
22:28
Speaker 2: get better returns. Can it be done? It might seem
22:31
Speaker 2: greedy on my part, but I don't want to be
22:32
Speaker 2: a burden on my kids or society when I get
22:35
Speaker 2: too old.
22:36
Speaker 1: Thank you Jack. This is never advice, of course, but
22:40
Speaker 1: recontribution strategy is crazy, daft, wacky, but utterly legitimate and
22:45
Speaker 1: recommended by advisors. And why not because our system is
22:47
Speaker 1: on nuts that it's no surprised that there's a sort
22:50
Speaker 1: of a knotty. There's a knotty business going on, which
22:53
Speaker 1: is called recontribution. Take money out of soup and put
22:55
Speaker 1: it back in believe it or not, and that's better
22:58
Speaker 1: in lots of ways. Is Jack on track? And what
23:01
Speaker 1: he's saying there everything sound sensible.
23:04
Speaker 2: It does sound sensible as a general strategy. So maybe
23:07
Speaker 2: just going through that the technical rules at a very
23:10
Speaker 2: high level, when you're sixty years old, if you stop working,
23:14
Speaker 2: you can access your super so you can start that
23:17
Speaker 2: pension accounts. Jack describes if you're between sixty and sixty five,
23:22
Speaker 2: you need to have a break and employment to be
23:25
Speaker 2: able to start these tax free pensions. You don't have
23:27
Speaker 2: to retire, but you just need to not be working
23:29
Speaker 2: at that point in time. And if you're sixty five
23:32
Speaker 2: years old, it doesn't matter if you're working or not.
23:34
Speaker 2: You can start these tax free pensions out of your
23:36
Speaker 2: super account. And this is where Jack is because he's
23:39
Speaker 2: sixty eight. So a lot of people come to me
23:41
Speaker 2: and they say, I don't want to touch my super.
23:44
Speaker 2: I'm happy with my salary. I don't need to draw
23:47
Speaker 2: down on it. But what they fail to appreciate is
23:49
Speaker 2: that even though they don't need that money out of
23:51
Speaker 2: that super account that SUPER accounts currently paying between ten
23:55
Speaker 2: and fifteen percent tax on earnings and capital gains that
23:58
Speaker 2: it's making each year. And if they start that pension account,
24:02
Speaker 2: sure that they're getting four or five percent out of
24:04
Speaker 2: their Super each year, which they don't need because they're
24:06
Speaker 2: fine off their wages. But they can recycle that back
24:09
Speaker 2: into SUPER again. So just using simple mass on someone
24:13
Speaker 2: with nine hundred thousand in super, if they're making about
24:16
Speaker 2: seven percent return, that seven percent return gets taxed at
24:19
Speaker 2: ten to fifteen percent, and that equals about ten thousand
24:22
Speaker 2: dollars a year in tax. So if someone with that
24:25
Speaker 2: nine hundred thousand dollars balance, if they're over sixty five,
24:27
Speaker 2: and they start that pension account, they're saving ten thousand
24:30
Speaker 2: dollars in tax because that's not being chewed up inside
24:33
Speaker 2: of their Super.
24:34
Speaker 1: And apparently it's common. Isn't there a lot of people
24:36
Speaker 1: out there who could be paying less tax if they
24:40
Speaker 1: just sat down for a second and said, Hey, I'm
24:42
Speaker 1: an age of which I can chante my super arrangements
24:46
Speaker 1: and contributions and I shouldn't be paying the tax I do.
24:52
Speaker 1: So keep that in mind, folks. It's an issue. It's
24:55
Speaker 1: that strange not strange, but it's an issue where people
24:58
Speaker 1: are between so somewhere between sixty and seventy. Basically all
25:03
Speaker 1: the rules change as you because you because you're moving
25:06
Speaker 1: from accumulation to retirement. But it's phased under our system.
25:12
Speaker 1: So it's an area that that's an area people really
25:16
Speaker 1: do need advice on and it's an area where their
25:19
Speaker 1: advice could be quite rewarding. Quite if you're paying too
25:21
Speaker 1: much tax and suddenly you can do something and not
25:24
Speaker 1: pay that tax, that sounds pretty useful to me, all right, John,
25:27
Speaker 1: final question with the government's goal for a one point
25:30
Speaker 1: two million new homes in the next five years. That's
25:32
Speaker 1: a goal, John, that's a target, very ambitious one. There's
25:35
Speaker 1: a need for speed. Perhaps this would be an election issue.
25:39
Speaker 1: What if everyday Australians like me could more easily invest.
25:44
Speaker 1: He's leading to the into building and into residential property.
25:49
Speaker 1: John asks what would need to change in the supersystem
25:53
Speaker 1: make this possible without the need without the need for
25:56
Speaker 1: a self managed superfund. You're smiling there, James, because you
26:00
Speaker 1: did something smack on this a while ago, didn't you.
26:04
Speaker 1: We've had a couple of people you and I have
26:06
Speaker 1: both come across people who have had various schemes and
26:09
Speaker 1: ideas where super can be used in the housing industry
26:17
Speaker 1: because at the moment you can do everything super. You
26:19
Speaker 1: can buy crypto, which can't buy the house around the corner. Similarly,
26:24
Speaker 1: big super funds are in every conceivable assetask, but they're
26:27
Speaker 1: not in housing. And here we are with a rental
26:29
Speaker 1: crisis and a vacancy rate of one percent. There's two
26:32
Speaker 1: sides to that, isn't there how big super could get
26:34
Speaker 1: into housing and how smsfs could get into housing. On
26:39
Speaker 1: the big super side, they say that they need a
26:43
Speaker 1: lot more help for that those investments to make sense
26:47
Speaker 1: for them, despite Jim Charmers really trying to get them
26:49
Speaker 1: to do that. That's where we are so far. The
26:52
Speaker 1: buill to rent is some sort of hybrid area where
26:54
Speaker 1: that's coming on just for individuals. Maybe people are more interested.
26:59
Speaker 1: You can go in and buy the market for super savers.
27:03
Speaker 2: Am I right? You are? Yeah, you are. You can
27:05
Speaker 2: use your super to convert to a self managed super
27:07
Speaker 2: fun You can buy a residential property, but you can't
27:11
Speaker 2: live in. That's's something which a lot of people have
27:14
Speaker 2: tried to solve because it's interesting challenge, particularly with cost
27:19
Speaker 2: of living pressures and the property price growth over the
27:22
Speaker 2: past fifty years, people are constantly chasing their tails. They
27:25
Speaker 2: may be able to service a mortgage, but it takes
27:28
Speaker 2: on average ten years to save up a deposit. The
27:31
Speaker 2: average person to save the average posit to buy the
27:33
Speaker 2: average property in Australia where that wherever they live, and
27:36
Speaker 2: so these people are left renting for ten years and
27:39
Speaker 2: sometimes much longer than that. So if there was a
27:41
Speaker 2: way that they could use their hundreds of thousands of
27:44
Speaker 2: dollars sometimes in super to help kickstart and fast track
27:48
Speaker 2: that goal to buy a property, a lot of people
27:50
Speaker 2: see that as a greater good, but as the rule stand,
27:53
Speaker 2: that's definitely not allowed.
27:54
Speaker 1: And big super by the way, folks they similarly, but
27:58
Speaker 1: more to do with their investment disposition, are shy of
28:03
Speaker 1: going near housing in the sense of residential housing as
28:06
Speaker 1: we know it and fixing that problem with shortage. There
28:09
Speaker 1: has been efforts and there are several schemes that are
28:13
Speaker 1: in front of big super funds and they are looking
28:15
Speaker 1: at right now to see if they can do this,
28:18
Speaker 1: if there are ways, for instance, that they can go
28:20
Speaker 1: into housing as a fund, or if there are ways
28:24
Speaker 1: even more creatively for an individual through their big super fund,
28:29
Speaker 1: can go into housing. In one case we've come across
28:32
Speaker 1: wherever they can go into their own housing. That is
28:34
Speaker 1: that you could they would deal with your superfund, and
28:38
Speaker 1: that super fund in turn would invest in a house
28:41
Speaker 1: in which you aspire to live in. Eventually, there's all
28:45
Speaker 1: sorts of efforts going on. They are all hypothetical at
28:48
Speaker 1: the moment. No one's managed to crack it yet. Someday,
28:52
Speaker 1: if somebody does, it would be a very successful business. Okay,
28:56
Speaker 1: we might leave it there for the moment. James, Thank
28:58
Speaker 1: you very much for being honest today. Great to have
29:00
Speaker 1: you on.
29:01
Speaker 2: As always, my pleasure is always, thank you, James.
29:04
Speaker 1: Really good to have an advisor talk about property, it's
29:07
Speaker 1: something we must do. I have to commit to you
29:10
Speaker 1: folks to do this regularly, to have an advisor to
29:13
Speaker 1: talk about property. Because everybody in property likes to have
29:17
Speaker 1: an opinion. But the vast majority of people who know
29:20
Speaker 1: anything about property are in this and they're probably selling
29:23
Speaker 1: you something. Is that sort of divide we have to
29:25
Speaker 1: try and cross, and it's up to us to try
29:27
Speaker 1: and help you with that one. All right, thank you
29:29
Speaker 1: very much for listening. Today's show. Thank you very much
29:32
Speaker 1: Leah Samuel Glue for producing and keep the emails rolling
29:36
Speaker 1: the money puzzle at the Australian dot com dot au.
29:40
Speaker 1: Talk to you soon.