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Q
I am a 57-year-old widow with two children
who are uni students. I work full-time and
earn $71,574. I have been told my job might
not exist by 2018. I inherited recently and paid
off my mortgage. I recently bought an investment
property based on a 20% deposit and my wage only.
I have $450,000 in a term deposit and $44,000
in savings left over from the inheritance. I was
thinking of purchasing another investment property
and maybe salary sacrificing $400 a fortnight.
Do you have any suggestions on what I should
do to best utilise what I have to enable me to live
comfortably and help my children and to move
forward financially? My husband and I were in the
sharemarket previously using the equity
of our house and were bitten very badly
through wrongful doings by a financial
adviser. I went to the ombudsman and
received partial payment for our losses
but my husband died soon after, hence
my skittishness about shares.Tess, thank you for the amount of detail you
have given me. I can much better understand
why you are concerned about shares.
First, I fully support the salary sacrifice of $400 a
fortnight. In fact, including your employer contribution,
I would be happy for you to have the maximum
contribution going into super of $35,000 this year
but reducing to $25,000 from July 1. This is really tax
effective and it is a bit of a sneaky way for me to get you
exposure to shares. Most balanced funds hold about
60% in shares, but these are professionally managed for
you, it all happens automatically and in any good fund
fees are very low. The performance of all the major funds
has been very good for many decades.
For a property 20% is not a big deposit, so I am very
much against buying another on the same basis, in par-
ticular as your job may not exist in 2018. You already have
two properties, super and cash. Personally, I would be
consolidating. I would look at an undeducted contribution
to super, using some of your cash. I would then set up an
offset account on the investment property and hold my
surplus cash there, knowing I can access it.
I do worry that two properties with large mortgages
could be a disaster for you if your job disappears, interest
rates go up and tenants are harder to find. You are in a
great financial position now; my opinion is not to risk it
with more debt.With her job in doubt, Tess may find ...More debt is
a disaster
Q
We have recently paid off our place of
residence valued at $420,000. We are
business owners (30 and 31) earning
around $130,000 a year. We recently purchased
a rural property of about 1.5 hectares and plan to
build. Do we rent out our house in our home town in
country South Australia that is paid for, or sell and
build our new house and then buy an investment
property in Adelaide?Good question, Alex. First, congratulations on paying
off your home – that is a great start. I assume that when
you say it is paid off, you have done exactly that and
have no mortgage. If so, we have a tax issue. If you rent
it, the income will be taxable. Yet the new mortgage on
the home you will build is not tax deductible. History
also says that well-located, central property in a capital
city tends to grow in value more than property in
regional areas.
I’d like you to discuss this with your accountant. If you
have paid off your home via an offset account, meaning
the mortgage is still in place, then that would shift my
thinking somewhat.
But my view is that selling your home, building a
new one with little or no debt and then borrowing to
buy in Adelaide makes a fair bit of sense. I would argue
that the city investment property should grow in value
more strongly over time, the interest on your loan is
tax deductible via negative gearing and you have a new
home to live in with little or no debt.Alex has paid off the mortgage, so ....Now it’s time
to invest
Q
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