Based on the population growth
argument, it is reasonable to
assume growth in value over time.
This is quite a lot of exposure to
one property market, but I suspect
the house may well be your future
home. This is something I strongly
support. Owning a home now or
for the future just makes a lot of
sense to me.
With interest rates falling like
a stone, the affordability of your
mortgages, in particular after rent
and possible tax relief, is high.
I am not surprised you can afford
to invest weekly.With
employer-supplied,
below-market
rent, the gen-
erally lower
living costs
in a region-
al area,
your high
incomes and
two rented
properties,
I would like to
think you cansave
a large amount.
However, the $35,000 in per-
sonal debt concerns me. It may
well be that you have recently
moved or your salaries have only
recently increased, but this must
be tackled first. My advice is to
clear this before you do anything
else. With your high incomes,
I would like to think you can
clear that in under a year.
Once this is done, we can turn
to the future. I want you to do
your research when it comes to
wine-country property. The rent
may be good, but there is little
long-term evidence of regional
areas showing growth in values
anywherenearthatoflargeinner-city areas. It is important that you
follow your own path, but you also
need to make evidence-based
decisions with your money.
I would argue that a close-to-
the-city apartment in a high-
growth city – Sydney and Mel-
bourne stand out – is likely to give
you higher returns over time.
Diversification is also important
and I don’t count more property
in WA as genuine diversification.
I personally lean towards your
suggestion of regular contributions
to a low-cost managed fund.
Anothergreat option, in
particularfor Melissa,
is topping up
super. Obviously,
this money
would be
locked away
for decades,
but with
only 15% tax
paid on salary
sacrifice top-
upsinto super,
thisis a terrific
taxminimisation and
wealth-creation strategy.
In your situation, my order of
priority would be:-^ Plan a strong savings program.
-^ Pay off personal debt.
-^ Consider topping up super,
in particular in Melissa’s fund.
-^ A regular savings plan into
a low-cost managed fund.
-^ Possible property investment in
a strong population growth area.
You are young and with
your good incomes I have no
doubt you will achieve financial
independence. The key issue
is setting up a strong savings
discipline. With powerful savings,
prettymuchanythingis possible.
Buy a property in WA’s wine country or
stay put and invest into managed funds?
I
am 34 and earn $116,000 before tax. My wife, Melissa, earns
about $125,000. We live in regional WA in housing supplied by
our employer for below-market rent. We have two investment
properties in Perth: one house valued at $610,000 with a
$544,000 interest-only mortgage with offset and one apartment
valued at $350,000 with a $463,000 interest-only mortgage
with offset. We have $2000 savings, own both our cars (worth
$25,000) and have $35,000 in personal debt. We can afford to
invest money weekly into managed funds (for example, Vanguard)
or we can purchase a property in a desirable WA south-west
town known for its wine region, with all purchase costs (stamp
duty, conveyancing fees) covered by our employer, for $400,000
maximum. We have two kids and want to ensure they are set up
for the future so we’re seeking advice about what to do next. Is
there something we haven’t thought of? NathanPaul’s verdict:
Increase your
savings power andpay off personal
debt first
But think twice about
purchasing in
a regional areaPaul Clitheroe PAU L’S V ERDICT
Family ties ...
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place in a wine-growing
area sounds good in theory,
Nathan, but despite all
purchase costs up to $400,000
being covered, I am far from
convinced this is your best strategy.
Let’s start with the big picture.
You have excellent family income
of $215,000 pre-tax. This means
you will have some $20,000 a year
going into super from your employ-
er. The Perth property market has
had a few tough years, but I was
shocked when I saw the value of
your apartment had gone down so
much. Like any property market,
its prospects will sit firmly with
population growth, which in turn
will link to job growth. With Austral-
ia’s population predicted to reach
35 million in just 35 years, that’s an
increase of 10 million people. One
thing is for sure: they will all need
a roof over their heads. You already
own two properties in Perth and
carry a fair chunk of debt on these.