Mattisinagreatposition,so it’s ...Time to
build up
wealth
Q
MywifeandIareboth33.We
work full time and our combined
income is $200,000. Our house
is valued at $1.2 million and we have a
$260,000mortgage.Wehave$70,000
in an offset account and $200,000 in
combined super. We have no children.
We recently purchased two blocks
of land ($230,000 and $290,000) and
havea10%depositonthem.Theyhave
increasedinpricebyaround$100,000
each. We have been approved financially
to build one home on each block and are
wonderingifit’sagoodideatodothis
andstartarentalpropertyportfolio.
Or should we sell the land and put the
profits after capital gains into our current
mortgage.Oristhereabetter plan for
our financial situation?Well,Matt,youandyourwifeareinagreat
financialpositionatanearlystageinyour
working lives, which is very pleasing to see.
Basedonwhatyoutellme,thisisnotreally
thetimetotaketaxableprofitsonyour
blocks of land and to pay off your remaining
mortgage, which should not be costing you
muchmorethan3.7%pa.Yourincomesare
highandthisisthetimetocreateinvestment
wealth for your future.
My major reservation is around your plans
forafamily.Don’tgetmewrong,Ireckon
thatifkidscomealongitisagreatthing.But
beforeyouborrowtobuildtwohouses,Ido
wantyoutodoastresstestonyourfinances
to make sure you are going to be OK if you
areononeincomeforawhile.
The other issue is to be sure your land is
inagrowtharea.Butgiventheblockshave
recentlyappreciatedby$100,000,itseems
to me that they must be well located. Before
youhitthegobutton,justmakesureyou
have a quality builder and a fixed-price con-
tractandalsotalktolocalagentsabouta
realisticlevelofrent,andthendouble-check
your numbers. If in doubt you could always
sell one block.Q
Iam64andmywifeis70and
we are both retired. We own our
home and have $920,000 in
super, $20,000 in shares and about
$300,000 in savings accounts getting
about 3%. We need to live off the
interest. I am thinking of moving more
into after-tax super from our savings. It
seemsthatwewouldgetmoreinterest
fromsuperthanabank.Ihavetriedto
get the greatest interest but there do not
seemtobemanyoptions.Youradvice
would be greatly appreciated.Depending on whether or not you have put
yourownafter-taxmoneyintosuperin
recenttimes,asyouareunder65youmay
beabletoaddtoyoursuper.After65you
will need to pass the work test.
ButIamnotreallysurethatthiswillsolve
your primary problem. Sure, a super fund
should, over time, outperform the 3% bank
interest that you get on your savings. This isTonyisretiredandwantsahigherincomebut...Risk will be higher too
notbecauseasuperfundcanearnhigher
interest. Your super fund should do better
because it takes more risk. Depending on
your choice of super funds, it could be as
muchas60%inshares.Thisisgreatin
years when markets do well, but your super
wouldfallintheyearswhenmarketsfall.
If a super fund owned bank term depos-
its,itwouldgetthesame3%orsoyouare
gettingnow.Sothisisallaboutyourviews
on investment risk. If you move your savings
intogrowthinvestments,youshouldearn
more but with more risk.
Ithinkyourpensionincomefromsuper,
plus interest on your savings, would be
around $60,000 tax free. If you need more,
then considering more risk is one option, but
if this is adequate I quite like where you are
nowwithyourownhome,anicepotof
superthatwillownamixofinvestments
and some secure but low-interest cash.
It really does get down to your attitude
to risk!