Changing city apartment market may be a signal to sell

THE Melbourne city apartment market is oversupplied and for some investors it is time to sell, writes Scott Pape.

THE Melbourne city apartment market is oversupplied and for some investors it is time to sell.

LESLEY ASKS: We are five years off retirement. We live mostly out of town. But for the past seven years, we have owned a well-located Melbourne city apartment that we use from time to time. It has grown very little in value (and with all the new apartments coming on to the market, I can’t see it increasing any time soon) and we no longer need to use it. So should we sell it and invest in the stock market, or rent it and work like crazy to pay off the mortgage? At that point, of course, the apartment would be about 20 years old and in need of a refit! What to do?

BAREFOOT REPLIES: Sell it. Sell it. Seriously, sell it. And to be clear, I’m talking against my own interests: I’m an owner of a Melbourne CBD apartment myself (though I’m at an earlier phase of my life than you and am looking to hold on). The market is oversupplied — approvals are running about 23,000 apartments each year, which is about 75 per cent higher than the long-run average. This is going to flow through and affect vacancies, rental yields and prices. At your stage of life, I’d suggest you sell and make a post-tax contribution to an ultra-low-cost super fund, then focus on building up your nest egg.

 

DESTITUTE FATHER

KIM ASKS: My father passed away and I am finalising his affairs. In fact, I am the executor of his will. The thing is, he was of no fixed address, living in boarding houses and hospitals — ­basically destitute. How would I track down lost super, shares and bank accounts?

 

BAREFOOT REPLIES: You’ll need to wait until probate is granted, because you need a copy of the probate, and the death certificate, to be able to effectively chase down and transfer his assets. You can start your search online: to find shares, bank accounts or life insurance policies, do a free search on ASIC’s MoneySmart website. To locate any super he may hold, do a search with the ATO’s SuperSeeker website. Finally, search the relevant State Revenue Office website, which may uncover unclaimed bond money and the like. It’s also worth talking to his former employers to see if he had any group insurance or any other benefits as well. Good luck.

IT’S TOO GOOD

SHEREE ASKS: One of my friends cannot stop raving about the money he is making from an online trading company, which promises a 12 per cent return a month on investment. All we need to do is invest a minimum $1000 (actually, we could afford to invest about $10,000) and we will get 12 per cent return monthly. It sounds too good to be true. When I search the web there are mixed reviews. I have told my friend that I will check with my finance guru (you).

BAREFOOT REPLIES: Just for kicks, I had a look at their website. It has a mid-’90s, spray-on-hair-in-a-can feel to it. Let me do the maths for you: a 12 per cent monthly return represents a stunning 289 per cent annual return. To put that return in perspective, the greatest investor on the planet, Warren Buffett, has achieved a 20.8 per cent annual return over his 50-year ­career. It’s a scam.

 

HIDE THE SILVERWARE

MARK ASKS: I invested $10,000 in silver bars a few years ago when gold and silver prices were on a run. Their value has since declined by 25 per cent or so. I guess a foolish decision on my part. Should I hold on in hope of regaining value, or cash in and perhaps reinvest?

 

BAREFOOT REPLIES: Have you ever been in a relationship that you knew wasn’t going to last? Sure, you have. We all have. But instead of biting the bullet and breaking up, you let it drag out. When you eventually break up, all you’ve done is wasted a lot of time. And time is money.

 

MONOPOLY MONEY

TOM ASKS: I’m 33 and married, with a four-year-old daughter. We have a $530k mortgage on a house valued at $670k which we bought 20 months ago. We also own a piece of land valued at $125k. With living expenses, we are a little cash poor at the ­moment. So my question is: should I buy a commercial property (a factory) as an investment with the land as ­equity? My company (of which I own 50 per cent) could lease it, and I would be the landlord and the tenant. Would love your advice!

 

BAREFOOT REPLIES: You’re considering taking the Bruce Willis Die Hard approach to financial planning: Bruce would buy the commercial property — cobbled together from a series of credit cards — and then flip it to Mark ­Zuckerberg for $20 million by the time the credits roll. You, on the other hand, have a young family, a young mortgage, a young business, and (understandably) no spare dough at the moment. Now is not the time to be buying a commercial property. I’d sell the zero income-producing piece of land and create a six-month Mojo account (usually it’s three months, but as you’re in business it would be smart to have another three months’ buffer). With the leftover money, I’d either invest it into the business (but only if you can generate a good return) or pay it off the mortgage. That being said, if your business is tied to a physical ­location that you don’t own — like a restaurant, a shop or a dental clinic — it can be a smart idea to buy that property in your self-managed super fund. However, I don’t think your factory is in that league, and I know you’re not ready. Instead, screw down a good rental deal on a factory with a long lease, and pour your money into expanding your business.

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The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice

Originally published as Changing city apartment market may be a signal to sell