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