Speaker 1: Hello and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirby, the Wealth editor at The Australian and welcome aboard.
Speaker 1: Everybody we have could show for you today? Could we
Speaker 1: make it more interesting? The Prime Minister Anthony Albanesi Noles
Speaker 1: is quitting the investment roberty market and finding himself in
Speaker 1: all sorts of difficulties in trying to extract himself as well.
Speaker 1: He's not entirely quitting, he's selling one of his investment
Speaker 1: properties and unfortunately for him, he has a tendant who
Speaker 1: doesn't want to leave. So just what you wouldn't like
Speaker 1: as an investor part one, but part two unfortunatelyave you
Speaker 1: with the Prime Minister. You do also have the additional
Speaker 1: complication that your struggles in the property market were on
Speaker 1: the front pages of the papers. But that's what we're
Speaker 1: going to take a look at, because of course, as
Speaker 1: we know, many investors are getting out of the market
Speaker 1: and you wonder why when got rising prices, rising rentals,
Speaker 1: negative gearing, what's going on? Take a look at that
Speaker 1: in a moment. Also the concept of super being used
Speaker 1: for first homes. What do you think about that? I
Speaker 1: have I must say, gone on a journey. I might
Speaker 1: say on that one and have come right around, and
Speaker 1: I do at this stage actually think is at the
Speaker 1: least worst of the options out there. By that, I mean, yes,
Speaker 1: I supported in a better world or a better tax system,
Speaker 1: I wouldn't. But the way in reality, pragmatically the tax
Speaker 1: system is loaded in favor of the home owner, and
Speaker 1: you win if you own a home. So if that
Speaker 1: gets you over the line, it gets you over the line.
Speaker 1: One other thing that it might also take a look
Speaker 1: at is about the NDIS. And you know all about
Speaker 1: the NDI, I s I'm sure this is very poorly scoped,
Speaker 1: very poorly designed system which is now a byworld really
Speaker 1: for waste and fraudulent opportunity. It's terrible what's going on.
Speaker 1: And it's terrible because it's going to weigh on public
Speaker 1: sentiment against the provision of care for people with disabilities.
Speaker 1: And we can't go deeply into that, but we can
Speaker 1: warn you about the property dimension of any and schemes
Speaker 1: that are being pushed out there. So we say, who
Speaker 1: on earth could possibly talk to us about all this? Well,
Speaker 1: the ideal guest is, of course James Gerard of Financial
Speaker 1: Advisor dot com dot au who is also your host
Speaker 1: next week on Tuesday. On Thursday, when I am off
Speaker 1: for a few days.
Speaker 2: How are you, James Girard, I'm doing great, Thanks for
Speaker 2: having me on.
Speaker 1: You're very welcome. Great to have you on. And you
Speaker 1: already have you got all your notes and your homework
Speaker 1: down for your two special shows next week? I have.
Speaker 2: I've been busy preparing to fill those big shoes, the
Speaker 2: big boid that you're going to leave. So hopefully you
Speaker 2: listen to this will have something nice to listen to
Speaker 2: next week.
Speaker 1: Thanks. Just I've never been I've never been total. I
Speaker 1: had big shoes before. That's that's a new one for me.
Speaker 1: So now are you up to speak with this story?
Speaker 1: I might I might just refresh for folks listening. Anthony
Speaker 1: Albanezi has a house on Indulge Hill in Sydney. It's
Speaker 1: an investment properly, it's had it for a couple of face,
Speaker 1: had it for nearly ten years, and he has decided
Speaker 1: to sell us, which he's perfectly entitled to do. The
Speaker 1: surprise part here is that when he went to sell it,
Speaker 1: the tenant at the property didn't want to leave, and
Speaker 1: in that respect, I'm sure anyone who's ever had an
Speaker 1: investment properly says, oh, gosh, you know, what does go?
Speaker 1: What happens when that happens? What happens to you? Well,
Speaker 1: how what do you do? And he's had to serve
Speaker 1: an eviction notice, which is really, I imagine most uncomfortable
Speaker 1: for the prime to have to do this. It looks
Speaker 1: like he's going to make money on the sale of
Speaker 1: this property. He's not going to Romp Pullman and sort
Speaker 1: of it hasn't exactly hit the jackpot on it, but
Speaker 1: it's it's I if I recall the numbers he bought
Speaker 1: it for I think is one point two million at
Speaker 1: about a decade ago, and he'll set it for about
Speaker 1: one point nine and he faces all these issues that
Speaker 1: every property investor faces, and a lot of people are
Speaker 1: just saying it's too hard. I'm getting out, it's not.
Speaker 1: The numbers don't add up for me. Are you seeing this, James?
Speaker 1: And if people said that to you, what would you
Speaker 1: say to them If I was a client of viewers
Speaker 1: and I said this, I've had this rental. You know, honestly,
Speaker 1: I lose money on it every year. I know there's
Speaker 1: negative fear in but you know, so, so what it's
Speaker 1: all too much?
Speaker 2: So definitely those conversations, I mean had a lot more
Speaker 2: over the past twelve months. And that's a function of
Speaker 2: interest rates going up thirteen times over the past two years.
Speaker 2: So if you go back a couple of years ago,
Speaker 2: so a lot of investment properties were cash flow positive,
Speaker 2: even in the expensive capital cities like Melbourne and in Sydney,
Speaker 2: because interest rates on investment loans were below three percent.
Speaker 2: And fast forward to twenty twenty four and interest rates
Speaker 2: on investment loans are six and a half to seven percent,
Speaker 2: So you need to have a pretty high rental yield
Speaker 2: to make that property cash flow positive or even neutral,
Speaker 2: and that's not happening for a lot of people. So
Speaker 2: they're finding that they're reassessing their investment property portfolio because
Speaker 2: where they were getting income from these investment properties, they're
Speaker 2: now having to spend out of their own cash flow.
Speaker 2: And remember that rents have gone up significantly, interest for
Speaker 2: payments on mortgages on your home loan has gone up
Speaker 2: as well. So people are finding the bit of a
Speaker 2: cash flow crunch and they're looking for ways to move
Speaker 2: into a more comfortable position. And one of those ways
Speaker 2: is to sell off something that's costing you every money
Speaker 2: every month, and that's an investment property. But I think
Speaker 2: you just have to step back and look at the
Speaker 2: fundamentals of it. So you're just in an investment property.
Speaker 2: You benefit two ways. One is through the rent that
Speaker 2: you generate and the other is through the capital growth.
Speaker 2: And at the moment, half of that equation is negative.
Speaker 2: Half of that equation is positive. So for most property investors,
Speaker 2: they're getting negative income i e. The cost to maintain
Speaker 2: that property, the interest on the mortgage, the strata the
Speaker 2: council rates, everything that is associated to cost to own
Speaker 2: that property as an investment is more than the rent
Speaker 2: that they're receiving. But on the positive side, most capital
Speaker 2: cities around the country are getting capital growth. The national
Speaker 2: property prices have gone up ten percent over the past
Speaker 2: twelve months. Some places have done better than others. PERFO
Speaker 2: is up over twenty percent. You know, Sydney's up ten,
Speaker 2: Melbourne's up three to five percent. But some places a negative,
Speaker 2: like Hobart in Tasmania. But overall property investors are making money.
Speaker 2: So I think it's a case of using that what
Speaker 2: you call them the idiom or saying that you don't
Speaker 2: throw the baby out with the bath water.
Speaker 1: Think about it. Yeah, so you're saying, hang on, folks,
Speaker 1: this is the game. It's a long game, and you
Speaker 1: have to you have to sit with it, and you
Speaker 1: have to go through good times and bad times. But
Speaker 1: but at the same time, you are saying that the
Speaker 1: numbers have changed, that basically your interest rate has probably
Speaker 1: doubled if you're in, if you're on this property for
Speaker 1: more than five years or whatever. So it seems to
Speaker 1: me when I look at the surveys as to where
Speaker 1: people are selling, it's throughout Victoria and in areas on
Speaker 1: the edges of Sydney. The Hills District was mentioned, the
Speaker 1: Blue Mountains district was mentioned in this survey from suburb
Speaker 1: Trends where they actually said, you know that this the
Speaker 1: sale by investors had gone through the roof in pockets,
Speaker 1: not across the board. I suppose to wait the challenge
Speaker 1: it orders to say, geep, isn't it much easier life
Speaker 1: just to put it all into a share market fund
Speaker 1: and forget about it. There's never any maintenance. No one
Speaker 1: ever calls with a with a with a broken toilet.
Speaker 1: If you have shared it's a lot less trouble year
Speaker 1: to year. Is it worth all the effort we need
Speaker 1: as property industrial It's interesting.
Speaker 2: A lot of it is investor psychology, and you have
Speaker 2: to say I'm biased by that myself. I like the
Speaker 2: I can go and touch the bricks on the investment
Speaker 2: property and it's there as a physical thing that can
Speaker 2: never be taken away, Whereas you have that sometimes irrational
Speaker 2: bit concerned that something on the share market can evaporate,
Speaker 2: which generally doesn't happen if it's a property related stock.
Speaker 2: If you buy into a Goodman Group or or something
Speaker 2: like that, those warehouses aren't going to evaporate. Goodman Groups
Speaker 2: always going to have a value, same with the other
Speaker 2: property stocks. But I think the thing to remember here
Speaker 2: is that the banks don't make it easy and cheap
Speaker 2: to borrow money to buy shares on the share market,
Speaker 2: but they do make it more accessible and easier to
Speaker 2: leverage up to buy physical properties. So that's been the
Speaker 2: major reason why most investors have property in their portfolio,
Speaker 2: because they can borrow the money from the bank.
Speaker 1: But the state governments don't get involved with your shares,
Speaker 1: and they don't throw in new taxes with every budget,
Speaker 1: and you don't get up and find out, Oh, another tax,
Speaker 1: so another cost, so another duty or regulation has come
Speaker 1: in on my whatever my vedsit or my townhouse somewhere
Speaker 1: or other. That seems to be the key issue actually,
Speaker 1: apart from rate rises, which perhaps not that we can
Speaker 1: deal with them though, but that we know it's a cycle,
Speaker 1: that we know perhaps this is as bad as it
Speaker 1: gets in it and from here on it may start
Speaker 1: to drop. We don't know when, but it's most likely
Speaker 1: that the pattern on rates or mortgage rates is that
Speaker 1: they will fall lower from here. They'll be lower this
Speaker 1: time next year. So then you're left with the issue
Speaker 1: of state taxes, and that seems to be really even
Speaker 1: though it's probably uncoordinated, all the states have the same idea,
Speaker 1: which is you can get some money out of property,
Speaker 1: and they keep adding new obstacles that I suppose you
Speaker 1: could call them, particularly in Victoria, and that's where the
Speaker 1: market is week a self rre. The investors are leaving
Speaker 1: the most. So do you think that's everyone to stop.
Speaker 2: Well, it's definitely a valid concern. The government's state governments
Speaker 2: seed as an easy target to add more taxes to
Speaker 2: investment property owners. But I feel that if they add
Speaker 2: too much, Basically, they'll just get voted out at the
Speaker 2: next election. So there's only so far that they can
Speaker 2: push it before it becomes unpopular. But I don't want
Speaker 2: to sound like that the champion of investment properties, because
Speaker 2: I'm relatively agnostic between shares and property. But we also
Speaker 2: have to remember that the share market is subject to regulation.
Speaker 2: You're correct, not so much to state government, but to
Speaker 2: federal governments. If we cast our minds back a few
Speaker 2: years when there was that proposals to remove imputation credits
Speaker 2: from retirees, and that they've changed the tax treatment on
Speaker 2: share buybacks as well to make them not so attractive
Speaker 2: as previously. So both share and property markets will continually
Speaker 2: be effected with tinkering from from governments. But I think
Speaker 2: in summary, you're writing saying that there's more hassle factor.
Speaker 2: If you own a few is a coal property, then
Speaker 2: you buy a stock, a property related stock.
Speaker 1: Yes, okay, But as you say, the offset is, you
Speaker 1: don't get up in the morning and find a fall
Speaker 1: and twenty percent overnight. In fact, it might have fallen
Speaker 1: twenty percent overnight, but you won't know that unless you
Speaker 1: try to sell it, And there's something very arresting. Arresting
Speaker 1: it would be in the nice words. So there's something
Speaker 1: quite stumb up churning about share market drops. No matter
Speaker 1: how many you've seen, they really are alarming, and the
Speaker 1: more closer you are to retirement, the more alarming they become.
Speaker 1: The other thing I think which we always underestimate, I
Speaker 1: think is the long term value of property. I mean
Speaker 1: the serious long term value of property. And I often
Speaker 1: tell stories about, you know, certain properties that that handed
Speaker 1: down from generations, that generations have had benefit from. And
Speaker 1: that's something we rarely think about what we should because
Speaker 1: it's a key part I think of property investing on
Speaker 1: the super, using super to buy a home? Do you
Speaker 1: think that's a good or bad idea? So I'm forty.
Speaker 2: If I cast my mind back to when I was
Speaker 2: in my early to mid twenties and put myself in
Speaker 2: the shoes of first home buyer, would I have liked
Speaker 2: to be able to access my super? And the answer
Speaker 2: was yes. It was my in laws that lent us
Speaker 2: money sort of off the record as a gift quote
Speaker 2: unquote to be able to buy our first property, and
Speaker 2: that allowed us to get in a few years quicker
Speaker 2: than we otherwise would have. So if it wasn't for
Speaker 2: my generous in laws that to help us out, it
Speaker 2: would have been difficult to crack the market. And unfortunately,
Speaker 2: property markets grow. Unfortunately for people trying to get into
Speaker 2: the property market, it always seems to be the case
Speaker 2: of you're chasing your tail, like your ability to save
Speaker 2: is often trumped by the growth in the property market,
Speaker 2: so they just fall further and further behind. So I
Speaker 2: agree that it's not ideal for the long term to
Speaker 2: pull money out of SUPER, But in terms of somebody's
Speaker 2: financial life and the stages they go through, one of
Speaker 2: the fundamental and foundational things is generally to buy a property,
Speaker 2: whether that's to live in or as an investment, and
Speaker 2: definitely to live in. If they can use one of
Speaker 2: their assets that they won't be able to access for
Speaker 2: another thirty to forty years to help them achieve a
Speaker 2: goal today, well then fantastic. But I just think that
Speaker 2: the execution of it needs to be thought through because
Speaker 2: in theory, somebody in their twenties could be salary sacrificing
Speaker 2: into SUPER and effectively paying fifteen percent tax to build
Speaker 2: their SUPER, and then they could be pulling that money
Speaker 2: out to buy a property and then they can upgrade
Speaker 2: that property when they retire, and when they're sixty seven,
Speaker 2: if they've dumped all of their assets into this house
Speaker 2: they're living in, they can then pick up the age
Speaker 2: pension from the government. So I think the governmany needs
Speaker 2: to think about the equity of this with regards to
Speaker 2: scent a link at retirement and tax benefits that were
Speaker 2: generated throughout if they are going to let people access super.
Speaker 1: I did agree with you will coming in from a
Speaker 1: different danger. So I'm saying I'm coming in from someone
Speaker 1: who's older than you, and who up until very recently
Speaker 1: would have said, hey, listen, you know super policy for
Speaker 1: super housing, policy for housing. Don't mix the two of
Speaker 1: them up. It's all wrong. But I'm doing that from
Speaker 1: the comfort of buying my first home for exactly three
Speaker 1: and a half times my salary exactly, and a person
Speaker 1: in the same position now could not do that. A
Speaker 1: person in the same position could no way could they
Speaker 1: do that by a house in the middle of Melmour
Speaker 1: for three and a half times the salary that I
Speaker 1: was on, even if you win dexted up to today.
Speaker 1: And so I'm coming from a different point of view
Speaker 1: I'm saying, Oh, it's easy to sit here and say
Speaker 1: super is very important, But actually, as you allude to,
Speaker 1: and this is I think this is the million dollar point.
Speaker 1: The tax system has been designed and has morphed to
Speaker 1: a shape that is totally biased towards the homeowner. So
Speaker 1: it's not just that you win when you're thirty five
Speaker 1: or forty five I as a homeowner because you get
Speaker 1: CGT breaks, et cetera. You win forever because when you're
Speaker 1: older in retirements, the value of your home isn't included
Speaker 1: in pension, but every dollar of SUPER is. So it's
Speaker 1: as you say, it's it's a as a result of
Speaker 1: that system that logically, I think you have to you
Speaker 1: have to say that if you can get money, your
Speaker 1: money out of your super to buy your home, then
Speaker 1: why wouldn't you. Okay, hey, we might take a short break.
Speaker 1: We'll be back in a moment. Hello and welcome back
Speaker 1: to The Australian's Money Puzzle podcast. I'm James Kirby, the
Speaker 1: Wealth editor at The Australian, talking to James Girard, lancial
Speaker 1: advisor at TRIPLEW Financial Advisor dot com dot you, who
Speaker 1: is of course a regular contributor to The Australian's Wealth Section,
Speaker 1: and we'll be hosting the show for you in the
Speaker 1: first full week of June. Those two two shows coming
Speaker 1: up now. James. I mentioned NDIS at the start and hey,
Speaker 1: we could do an hour on NDIS, but so could anyone.
Speaker 1: Our speciality here is investing and the investors are looking
Speaker 1: at the world through an investing prison, maybe like investors
Speaker 1: to the extent that they are exposed directly to NDIS
Speaker 1: tends to be on property. And you've done a little
Speaker 1: bit on this for the paper which is about these
Speaker 1: schemes and promotions which suggests to the retail investor, come
Speaker 1: and participate in this NDIS property and you'd get very
Speaker 1: good returns and the government backed and they often give
Speaker 1: the impression that they are actually government certified or whatever.
Speaker 1: But you when you looked at this that was not
Speaker 1: the case. As usual, the NDIS had a leak. What
Speaker 1: was the leak on this one?
Speaker 2: So yeah, I went down to the rabbit hole on
Speaker 2: the NDIS having a look at it with regards to
Speaker 2: how attractive are these property investments because you often come
Speaker 2: across it if you google NDIS Property Investment Guarantee ten
Speaker 2: fifteen percent returns. It sounds really great, and I always
Speaker 2: felt there was a catch to it, but I never
Speaker 2: really looked into it. So when I did, it really
Speaker 2: just comes down to understanding what the numbers are and
Speaker 2: understanding the likely projected outcome. And it is possible to
Speaker 2: get ten percent yield fifteen percent yield, but you need
Speaker 2: to thread the needle perfectly, and there's a lot of
Speaker 2: cases where you don't. And so, for example, the vacancy
Speaker 2: rates are higher than a normal investment property with NDIS property,
Speaker 2: So there's four different types of NDIS accommodation depending on
Speaker 2: the needs of the participant in the NDS scheme, and
Speaker 2: one section called fully accessible. The vacancy rates are over
Speaker 2: fifty percent and it can take up to six months
Speaker 2: for a quarter of those properties to be out to somebody.
Speaker 2: So that sort of vacancy rate generally isn't factored in
Speaker 2: it in the cash flow. It's assuming that or one
Speaker 2: hundred percent of the times that the property is tenanted
Speaker 2: to get your double digit gross rental yield. And the
Speaker 2: other thing to remember is that it's the NDIS participant
Speaker 2: that is allocated the money from the scheme. It's not
Speaker 2: guaranteed from the government over the particular property. So if
Speaker 2: you don't have NDIS participants who want to rent your property,
Speaker 2: you're not going to get anything from the government. It's
Speaker 2: just going to stay vacant. You're not going to earn
Speaker 2: a cent. So location is really really important. So what
Speaker 2: I sort of determined out of my research was two things.
Speaker 2: One is that you need to understand where the demand
Speaker 2: is for NDIS properties, and you need to get your
Speaker 2: cash flow forecasts right because sometimes the people who promote
Speaker 2: the NDIS property investments they're a little bit creative, you
Speaker 2: could say, with the accounting and the forecast because.
Speaker 1: They give the oppression their government sanctioned and they're not right.
Speaker 1: They're just pitching into a government scheme and helping there again,
Speaker 1: that's it.
Speaker 2: And assic have come out and said that, hey, you know,
Speaker 2: watch out if people are saying that this is a
Speaker 2: government certified scheme or subsidized scheme, you don't run the
Speaker 2: other direction, because in reality it's not. There are grants
Speaker 2: through the NDIS scheme to help people with accommodation. But again,
Speaker 2: just because you have a property that's accredited to be
Speaker 2: eligible to have people under the NDA scheme rented doesn't
Speaker 2: guarantee you anything. You need to be in the right location,
Speaker 2: have the right management agency who can help you place
Speaker 2: people in there. And just one last quick thing is
Speaker 2: that with the four different categories of disability accommodation, there's
Speaker 2: different payments that the government make. And I've seen in
Speaker 2: some forecasts where the property firm have assumed one hundred
Speaker 2: percent of the occupancy would be from the high physical support,
Speaker 2: which gets the highest payment from from the government, whereas
Speaker 2: in reality assume they assume assume the very best, but
Speaker 2: in reality it's about a quarter of the All of
Speaker 2: the accommodation is for that high physical support, So it's
Speaker 2: misleading to project one hundred percent of the mental income
Speaker 2: from that higher payment. So again, just doing your research,
Speaker 2: you can make good money from it, but you know
Speaker 2: it again goes back to that if it's too good
Speaker 2: to be true, it usually is type things, So there's
Speaker 2: a lot of work involved if you want to make good.
Speaker 1: It's very, very disappointing because I'm sure many listeners would
Speaker 1: earnestly see, gosh, that be good. If you could do
Speaker 1: that invest in this, it would actually be impact investing virtually,
Speaker 1: and you would get a reward. So just for those
Speaker 1: who stick with it, or stick with the notion of
Speaker 1: those four categories, is there a category that is you would.
Speaker 2: Think the most middle category, which I think is called
Speaker 2: robust or the fully accessible one that seems to be
Speaker 2: where the majority of the demand is. So that was
Speaker 2: the sort of the safer place to be in withinside
Speaker 2: of the NDIS scheme. So I absolutely agree for you
Speaker 2: that it is great social invest in it. It has
Speaker 2: a good feel about it that you're purchasing an investment
Speaker 2: property that has benefits to the broader community by housing
Speaker 2: people with disabilities. However, I feel the big problem is
Speaker 2: that because the property sector in general isn't regulated by ACIK,
Speaker 2: there's too much sort of eagerness with the promotion of it,
Speaker 2: and I think sometimes the claims that are being made
Speaker 2: aren't fully factual or they're being exaggerated a bit, which
Speaker 2: then leads to people being disappointed. Which otherwise is still
Speaker 2: a decent investment, but not as good as what was
Speaker 2: being hyped it up to be.
Speaker 1: Okay, very good, we're very well explained. Disappointing, as so
Speaker 1: many things are in relation to the NDIS. I mean, really,
Speaker 1: if they had sculpt this out properly at the start,
Speaker 1: in rigorous fashion, and had allowed and had looked forward
Speaker 1: and said, if it could go wrong here, is there
Speaker 1: any chance at all that a property developer might exaggerate
Speaker 1: the scheme? And had you know, really had it ironclad,
Speaker 1: then this wouldn't have happened. Then wouldn't be warning about
Speaker 1: a government scheme which is just you know, absolute inverse
Speaker 1: of what should have happened here. Anyway, all right, we
Speaker 1: will leave that when we would take sure a break,
Speaker 1: we were back in a moment with some great pieces
Speaker 1: of correspondence, some very good questions, some very cheeky questions
Speaker 1: to back in a moment. Hello, and welcome back to
Speaker 1: the Australian's Money Puzzle podcast James Kirby with James Gerard.
Speaker 1: We've got some really good questions. First questions from Andrew.
Speaker 1: Would actually read the first question, James, can you see
Speaker 1: you there?
Speaker 2: I can, It'd be my pleasure. So Andrew asks there
Speaker 2: was a comment from a Neil about the notion of
Speaker 2: limiting negative gear into one property or one million dollar value.
Speaker 2: I know you were very busy with the budget at
Speaker 2: the time, but feel like you went over this a
Speaker 2: little bit too quickly. I think there is a real
Speaker 2: opportunity in there for discussion. Surely anyone with two or
Speaker 2: more investment properties, or owns a single high grade investment
Speaker 2: property would fall outside the quote unquote mum and dad investor,
Speaker 2: which is the usual cohort politicians claim that they're trying
Speaker 2: to protect it. Sounds like the tax change that might
Speaker 2: actually work politically and financially. The only sticking point I
Speaker 2: can see is if the one million dollars is the
Speaker 2: right amount across all of Australia, I should be could
Speaker 2: be saying that it's cheaper to buy a property in
Speaker 2: Hobart then it's in Melbourne for example, And how it
Speaker 2: could be indexed to remain fair into the future. What
Speaker 2: do you reckon, James?
Speaker 1: I don't know. I wondered if he means a million
Speaker 1: in equity? You know I could have I could have
Speaker 1: a TV piece of equity on a million dollar property.
Speaker 1: Am I gone? Is it all over for me already?
Speaker 1: On the on that basis, Andrew and all the Andrews
Speaker 1: out there, this is never advice on the information. It's
Speaker 1: very hard to know how they might restrain or reform
Speaker 1: negative gearing. It is not impossible, but it's take it
Speaker 1: for granted, it's politically very difficult. Pulcating could manage it.
Speaker 1: When Portkating was managing just about everything under the sun.
Speaker 1: He couldn't do it, and he brought it back. So
Speaker 1: that's the political backdrop. And then you have the fact
Speaker 1: that there's too manyon people already engaged in property and
Speaker 1: they would have to be I suppose going for through
Speaker 1: the system. It could of course, it could be modeled
Speaker 1: and capped in the fashion that super is capped, so
Speaker 1: it's not impossible, and I would just leave it at that.
Speaker 1: How you actually do it will be difficult, But I
Speaker 1: think you'd have to zone in on the equity the
Speaker 1: person has rather than the value of the property, because
Speaker 1: the value of the properties could be multiple of the
Speaker 1: equity be have. What do you think, James g.
Speaker 2: Every time negative gearing and changes come up, my mind
Speaker 2: cast back to Bill Shorter. Any of the unlosable elected
Speaker 2: highly politically unpopular to make any changes to the tax
Speaker 2: benefits that Mum and Dad property investors generate. Okay, it's
Speaker 2: a really difficult one. I don't think there will be
Speaker 2: any change because the federal politicians know they'll be out
Speaker 2: of power the next election if they do something like that.
Speaker 2: But you know that it does make sense because we
Speaker 2: do have caps for a lot of things. We have
Speaker 2: caps of superinhoation, so it makes sense. You know, we
Speaker 2: have caps for the age pension as well. There's caps
Speaker 2: for taxation and and other government benefits, so it makes
Speaker 2: sense that there is some sort of ceiling. I feel
Speaker 2: a million dollars is too low. You buy average investment
Speaker 2: property in Sydney or Melbourne, it's going to be close
Speaker 2: to or exceed a million dollars, whereas you buy something
Speaker 2: in I had to client buy an investment property in
Speaker 2: Rockhampton in Queensland, three bedroom house, thousand square meters of
Speaker 2: land last week three hundred thousand dollars. You can buy
Speaker 2: four of those or one property in Sydney or Melbourne.
Speaker 1: How about that? What's then sery like in Rocky pretty low.
Speaker 2: I don't know what's driving that market, but I suspect
Speaker 2: it's probably similar to other places that have done really
Speaker 2: well in recent years, like Perth, which is sounds a
Speaker 2: little bit silly, but I think it's just the thinking
Speaker 2: behind it is that people are looking outside of their
Speaker 2: own capital city as it becomes expensive it's expensive if
Speaker 2: you live in Sydney or Melbourne. So they go, where
Speaker 2: can I buy something cheap?
Speaker 1: And previously it.
Speaker 2: Was Adelaide, it was Hobard, it was Perth and now
Speaker 2: those my it's have gone up again. It's not so
Speaker 2: cheap an YouMore so Rockhampton your turn to shine?
Speaker 1: There you go cascading effect. Okay, yep, yeah, Well logically
Speaker 1: I can see what people are doing, okay, Phil asks
Speaker 1: I keep hearing stories about unfair the new three million
Speaker 1: dollars superannuation cap is because it introduces the concept of
Speaker 1: taxing people on realized gains on their superasset. My simple
Speaker 1: retort is, get over it, folks. The government here is
Speaker 1: clearly intending to have no one with the balance over
Speaker 1: three million. Yep, yep, no problem with that statement at all, Phil.
Speaker 1: I think I put it to Julie Dolan, head of
Speaker 1: SMSFT KPMG, last week, which was like, really, this cap,
Speaker 1: in a way, it's basically saying we don't want you
Speaker 1: to have more than three million super It's not a
Speaker 1: it's not a cap, but it's effectively so. And it's
Speaker 1: not formally a cap, but it will work as one.
Speaker 1: And I think what we will see, of course, as
Speaker 1: people will be money all over the place to ensure
Speaker 1: that they're not in there. And the only people who
Speaker 1: might get stuck up people with extraordinary amounts of the
Speaker 1: super and they are obviously being targeted and they are
Speaker 1: obviously not going to get enormous public support. Okay, last
Speaker 1: question is from Michael. You want to read that one.
Speaker 2: Yes, my wife and I both retired in our early sixties,
Speaker 2: although our financial advisor continues to suggest managed funds and
Speaker 2: more recently are separately managed to account consisting of direct
Speaker 2: shares ETFs and managed funds with a quote unquote growth profile.
Speaker 2: I question whether a simple strategy of investing in a
Speaker 2: small number of passive index funds such as the ASX
Speaker 2: two hundred or the S and P five hundred would
Speaker 2: provide just as good or even better returns at a
Speaker 2: lower cost. What are your thoughts.
Speaker 1: Well, these financial advisors are going to watch them so closely. Look,
Speaker 1: we don't know any Michaels particular circumstance, and again as
Speaker 1: to say that this is advice, however, they're both retired. No,
Speaker 1: so I don't know why there's this wind up for
Speaker 1: growth if you're both retired you would imagine income is
Speaker 1: the primary driver there. And I don't know what exactly
Speaker 1: was agreed between everybody, but a simple strategy of investing
Speaker 1: in passive index funds underpinning a portfolio would seem to
Speaker 1: be perfectly sensible to me in retirement. We don't know, right,
Speaker 1: we don't know, But just talking in very general terms,
Speaker 1: what do you think of the of the suggestion that
Speaker 1: the that you could just passively invest in ets rather
Speaker 1: than setting up all these new growth focused vehicles in retirement.
Speaker 2: Yes, it's a great question from Michael. It's a healthy
Speaker 2: level of cynicism about the structure that he has and
Speaker 2: being suggested suggested. I guess I let let you all.
Speaker 2: This is into a little secret in the financial services sector,
Speaker 2: and it's that the SMAs A separately managed to counts
Speaker 2: one of the biggest routs going around. So if your
Speaker 2: financial advisor is recommended one, have a think about it,
Speaker 2: because you hit with four layers of fees.
Speaker 1: I have always thought so, James, I've always thought so.
Speaker 1: Every time someone explanded to me, I just said, I
Speaker 1: should actually have of course I should have gone and
Speaker 1: done something, honest, But they seem so arcane and so
Speaker 1: to me, I just couldn't see the attraction. But just
Speaker 1: to be fair to all concerned, what is the alleged
Speaker 1: attraction of the self managed separately managed account?
Speaker 2: Yeah, the alleged attraction is that your financial advisor who's
Speaker 2: charging you a fee, will recommend a separately managed account manager,
Speaker 2: So they're basically outsourcing their function saying it, Look, I'm
Speaker 2: your financial advisor. I can talk to you about state
Speaker 2: planning and other things, but I'm not an investment experts,
Speaker 2: So we're going to pay this other company to manage
Speaker 2: your portfolio. So this other company you will run the SMA.
Speaker 2: They'll charge a fee, and then but they won't directly
Speaker 2: invest in two shares. Most of the time, they'll go
Speaker 2: buy managed funds and ETFs, which both have fees as well,
Speaker 2: and they'll run the separately managed to count through a
Speaker 2: platform which also has a platform cost. So that's where
Speaker 2: your four different costs come in. So you sort of
Speaker 2: around three percent outgoings from day dot before, you're sort
Speaker 2: of making anything behind the ball. So if you wanted
Speaker 2: to simplify things, you would just go for what you said,
Speaker 2: the simple strategy of a couple of index ETFs that
Speaker 2: get the asx the SMP five hundred, maybe the property
Speaker 2: sector as well, and then some bond ETFs and your
Speaker 2: total cost is going to be less than half a percent.
Speaker 2: So again, anyone who has an SMA, go ask your
Speaker 2: financial advisor what exactly are you doing because they can't
Speaker 2: make changes on it. That's what the SMA manages for.
Speaker 2: So if you're paying the advisor fees, make sure it's
Speaker 2: not for the investment management side if you're in an SMA, So.
Speaker 1: If you're paying four or five times the fees, it
Speaker 1: would want to be kicking it out of the park
Speaker 1: to make sense. It seems to me broadly. Okay, well,
Speaker 1: isn't that an interesting turn of events? That question turned
Speaker 1: out to be very juicy? Indeed, Thank you very much, Michael,
Speaker 1: and thank you everybody who sent in questions to speak
Speaker 1: they're great questions. Keep them rolling, Thanks very much, James.
Speaker 1: Everyone's looking forward to you taking the week of next
Speaker 1: week on the show, and I know you always get
Speaker 1: interesting guests so they'd hear from you, So thanks for today.
Speaker 2: That might pleasure And everyone's sent through some questions, so
Speaker 2: we've got lots of interesting things as always, so have
Speaker 2: a chat about let's next week and I look forward
Speaker 2: to chatting to everyone.
Speaker 1: Then I leave plenty in the camp for you, James,
Speaker 1: all right, and in any event, let's have some more.
Speaker 1: The money puzzle at the Australian dot com dot au
Speaker 1: is the met Talk to you soon,