A pub with no cheer can lead to a house with no beer
A PUB owner who hates his day job wants to sell his pub and keep his house but the Barefoot Investor says it’s time to bite the bullet on the house. And as for the pub …
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TERRY WRITES: I want to retire soon, because I hate my job. I’m 56, and I earn $65,000 a year. However, I also own a pub, which is presently worth $650,000 (though it’s dropped in value by half since 2007), and I have a loan against it for $260,000. I also have a business loan for $184,000 (the business pays this). I also have a $2 million home I love, with a $970,000 mortgage. I lease out the pub for $1200 a week. I have $130,000 in my SMSF, $26,000 mojo, and $30,000 in Barefoot Blueprint shares. Here’s my question: can I afford to stop working at a job I hate? I’d also like to sell the pub as it’s a worry (but that means losing the rent). Please don’t advise selling my home — I love it!
BAREFOOT SAYS: For a bloke earning $65,000 a year, you’ve certainly had a fair old swing at things.Yes, you need to sell your house. Here’s why: Back of the envelope calculations: you’ve got about $2.8 million in assets, and about $1.4 million in debts. Seriously, cobber, you should be laughing all the way to the bank, not crying into a drip tray. It’s a worry that the pub has lost half its value in eight years: either you paid too much, or the business has been run into the ground. That being said, if I was in your shoes, I’d want to own a $700,000 home outright, and have $700,000 in good quality shares through your SMSF. You can bring forward two years of after-tax contributions into super ($540,000), after selling your home free of capital gains tax. That being said, your case isn’t clear cut — your best investment would be to sit down with an accountant, a pub broker and a real estate agent (but not a banker), with the goal to pay down your debts, boost your super, and simplify your life.
FUNERAL INSURANCE
MALCOLM WRITES: I am 76, a pensioner with very little money, and I don’t want to be a financial burden on my daughter, so I am thinking of taking out insurance for my funeral costs, which I have seen on television.
BAREFOOT SAYS: I’ll only let you take out funeral insurance if you promise to die within the next two years. Otherwise you’ll be locked into paying an increasingly expensive premium for the next 20 years (if you’re lucky enough to live into your 90s), and in most cases if you cancel it you lose your cover. Don’t do it.
UP IN THE AIRB’N’B
KERRI WRITES: I’m alone and scared. After 10 years of marriage my husband decided I wasn’t the one for him. I have taken the principal place of residence and we have sold our investment properties. I have drawn up a budget to make sure I can make ends meet, but I think I’m stretching myself, so I have spent the past 10 weeks renovating the downstairs area of my house so I can rent it out on AirB’n’B to help pay the mortgage. Do you think I’m crazy with the AirB’n’B thing?
BAREFOOT SAYS: Yes, I think you’re crazy for doing the AirB’n’B thing. Your solution to feeling “alone, scared and financially stretched” is to rent out part of your home, nightly, to strangers. That’s not a financial plan, it’s a Better Homes and Gardens segment. You’ve written that you feel “stretched”. That’s your gut talking right there. The best way to get financial confidence is to build up three months of living expenses (which I call mojo), in an online savings account. If you can’t afford your mortgage at a time when interest rates are at historical lows, you need to seriously think about things. You have three options: taking on a long-term tenant, trading down and buying a cheaper home, or renting, saving and investing.
TAKING A YEAR OFF, GETTING HIGH
WALLY WRITES: I’ve read that when marijuana was legalised in the US, companies that were in the business of supplying it went from zero to hero very quickly. With talk marijuana will be legalised in Victoria and perhaps other states soon I’m interested in investing in ERI (Erin Resources) and MMJ (MMJ Phytotech) — they’re the companies which recently won the bid to produce it in Australia. Is it possible previous success could be accounted for in the stock price already? I’m taking a year off work next year and want to know if it’s a good short-term investment.
BAREFOOT SAYS: Ah, the dot bong boom. Yes, there’s money to made selling weed. However, both the businesses you’ve mentioned are the equivalent of tiny, speculative mining companies. Take Phytotech as an example: its shares listed at 20c in January, raising $5.9 million. The shares reached a high of 92c that day, before they veged on the couch, played XBox, and ate some nachos. The controversial chief clearly wasn’t smoking enough weed because he went postal on social media, and then abruptly resigned from the company. All within the first week. The shares are now back trading at 30c. If you’re taking a year off, I think it would be smart to steer clear of the weed, and the weed stocks.
Originally published as A pub with no cheer can lead to a house with no beer
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