Get your ratios sorted, then buy
IF you have a burning money issue, or want to win a fight, put your questions to Barefoot Investor.
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QUESTION: I’m 25 years old and have saved $50,000 for a deposit. My boyfriend of five years has $10,000. I believe I will have $110,000 plus saved in two years, whereas he will likely have only $50,000. I’m concerned about buying a home, as the ownership will not be 50-50. Should I buy on my own, or is there a fairer way of buying a home together?
Isabelle
ANSWER: You can buy together as “tenants in common”, which will allow you to nominate what share of the property each of you has. Then I’d suggest you draw up a co-ownership agreement, which will legally lay out the ground rules of how you’ll manage the property. You should get independent advice from a lawyer before doing so. Having said all this, I’d think long and hard before you buy a house together. After all, you’ve been with this bloke for five years and you’re still hedging your bets?
STAY AHEAD OF THE DEBT RECYCLE
Q: After a relationship from hell, I’m struggling financially and need to decide whether to sell my house to get back in front. I’m 55 years old, on a great salary ($120,000 with a car), and I have $450,000 in superannuation, though I only have $1000 in Mojo. The house is worth $650,000 ($590,000 owed), but I rent it out and get $2100 a month in income. My debts are $250 a week in rent and $23,000 on credit cards and a personal loan. I really try to pay more than the minimums but it’s getting me down. Should I just hold on to the house and suffer the costs, or sell now and get rid of it?
Stuart
A: You could sell your home to get rid of your credit card and personal loan, though I’ve noticed that people who sell off assets to pay down their debts often end up getting back into debt — I guess because it’s just a quick fix. So I’d buckle down and use your good income to knock the debts out within six months. Once you’ve got that licked, I’d look to sell your home and buy something more affordable that you can pay off within 10 or 12 years.
DON’T WORRY ABOUT THE KIDS’ FUTURE
Q: I’m a 63-year-old widower with about five years left in the workforce. I have $8000 in savings, a mortgage of $78,000, and $140,000 in super. I received an $80,000 payment after the death of my wife, and I plan to give my three adult kids $13,000 each. But what should I do with the other $40,000?
Allan
A: You don’t have enough money to retire, let alone giving any to your kids. So I’d explain to them that you’re not in a position to give them any money right now. You need to use that money to pay down your mortgage so you can focus on building up your super. Remember, they’ll eventually get an inheritance from your estate!
DIRTY SCHEME BEST LEFT TO BLOCKHEADS
Q: I am considering buying a block of land through an investment scheme. I would be interested to hear if you know of any of the companies and what your thoughts are on the investment proposal.
Daniel
A: I have no specific experience of these schemes but the claims made by companies running such investments made me very, very happy. They claim, quite boldly, that “historically land in Victoria has tripled in value every 7-10 years”. On those figures (which RPData disputes, by the way), our family farm will grow to be worth … $2.2 billion in 50 years! My wife is seven years younger than me and doesn’t really like getting her hands dirty. No worries! If she simply holds on for another 7-10 years after that, the farm will triple in value again — $6.6 billion! She’ll be able to round up the sheep in a Rolls Royce and a diamond tiara, and employ Kyle Sandilands to be her makeshift sheepdog — just for kicks. Seriously, I’m seeing a lot of land banking opportunities peddled at the moment. Often they involve a lot of hype and pressure to get you to lay down an “option fee” to secure the land. Recently there was one in the country town of Shepparton, with another company making similar claims. Reportedly it’s gone into liquidation, with around two-thirds of the $4.8 million in option fees being unaccounted for. Don’t do it.
PAY CASH, AND LEAVE THE BANK ALONE
Q: I keep being told by banks and others that I need a credit card, or even a small loan for a car, so I will be able to get a home loan one day. My question is, are they lying or should I do as they say? I was thinking about spending $15,000 on a car with a $5000 loan, but is this wise?
Steve
A: Mate, it’s total rubbish that you need a credit card to get a good credit rating. Credit reporting agencies, like Veda, can now put positive information on your credit file, not just negative things like defaults. They use both the good and the bad to conjure up what they call a credit score. Only problem is, the banks don’t use their credit scores — they have their own lending requirements, and it generally boils down to you having a good income, savings, and the ability to repay the loan. So my advice is to buy your car with cash. Don’t get a credit card. And pay your bills on time. You’ll not only have a squeaky-clean credit file and the ability to borrow for wealth-creating assets — you’ll be financially better off to boot!
Originally published as Get your ratios sorted, then buy
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