Be super cautious on property investment, stick to profitable companies

IF you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.

06/02/2009 BUSINESS: Scott Pape. The Barefoot Investor. HWT staff.

Q My husband and I are in our mid-50s and have our own super funds.

We are now interested in creating a SMSF with property as the main investment.

I have read about a property group that lets you buy apartments directly from the developer. Is this a good place to start? They sound reputable on paper but I would like your opinion.

Wendy

A Hi Wendy,

No, I think it sounds like a terrible place to start.

There may well be sharp, decent investment professional groups that help people to buy investment properties within their superannuation — though I’m yet to meet one.

Instead I’d encourage you to stick to an ultra-low-cost fund that invests in Australia’s most profitable businesses. If you’re in your mid-50s, you don’t have time to stuff around with spruikers.

FLYING START

Q I’m a 20-year-old university graduate who will be starting full-time work next year ($120,000 package). Unfortunately, my dad passed away when I was very young, but he was clever with money and his life insurance payout was substantial (about $100k).

I want to get the best possible start financially and, although I don’t see the need to move out, I would like to own my own home as soon as possible. What would you recommend I do with my salary and my father’s life insurance?

Ella

A Hey Ella!

Here’s how to make your father really proud: own your home outright.

You’ve got two choices: you could choose to buy a small, sensible home now, using your inheritance, and then rent it out while you continue living at home. You should be able to live off $500 a week, and put the rest of your income (about $50,000 a year) into paying down your mortgage. In about five years you’ll own a $500,000 home free and clear.

If that doesn’t appeal, you can wait, save your money as above, and look to buy something in five years.

DUD INVESTMENT

Q We have an investment property located in a small Queensland mining town. It’s declining in value and the market is stagnant. We feel trapped by it. We currently live in the Gladstone region on a good salary. We would like to relocate closer to Brisbane, but can’t because of the investment — we would have trouble servicing the investment loan on a reduced salary. We have been to two financial advisers. One wanted to sell us a mountain of product (and take a percentage), the other said to do nothing. What do you say?

Brendan

A Hi Brendan,

Don’t look through the rear view mirror — look out the windscreen. If you wouldn’t buy the property again today, you’ve got your answer.

(And I’ve never seen more money — or more time turn a dud property into a good one).

If the growth prospects aren’t good, I’d cop the loss and move on, and focus on owning your own home instead.

JUGGLING COSTS

Q My husband and I earn a combined income of about $90,000 and we owe just over $400,000, including a credit card debt of $6500. We have about $600,000 in equity in our home and at the moment we manage to save about $500 a month. We have two children, aged seven and five, and would like to start investing to have a more comfortable future, including some overseas travel. Where should we start?

Liz

A Hi Liz,

You need some plastic surgery. Cut up and pay off your cards within 12 months.

When you’ve done that, you’re next goal should be to save at least three months of living expenses into a Mojo account.

Once you’ve cleaned up your finances, you should let your family belt buckle out a little. But let’s be honest, on $90k a year with two kids, money is going to be tight. You’ve got two choices, focus on raising your family income, or downsizing your home.

Originally published as Be super cautious on property investment, stick to profitable companies