It’s a jungle out there in the property market

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

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

QUESTION: We’ve been approached by a company called Lion Wealth to invest in a house-and-land package in southeast Queensland (we live in WA). They say they’ll organise everything while we get all the tax breaks, boost our offset account and pay off our home in 10 years (we owe $200,000). Have you heard of them? Is this a path we should take? James

 

ANSWER: I don’t know anything about this company. I’ve never heard of them. But they sound like good marketers: naming themselves after the king of the jungle is certainly more appealing than something like Tabbycat Wealth (turns up whenever it pleases, licks itself, wees on the rug). You’ve said you want to get out of debt. This outfit seems to be getting you into debt. It sounds like a financial furball to me. The southeast Queensland property market has been hit hard over recent years, so think carefully before jumping on board.

 

CLEAR THE AIR ON DE FACTOS AND DEBTS

Q: Last week you advised a woman with $40k in assets to wait until her partner had rid himself of his $40k debt and attained some assets before “hooking up”. If the couple is living together and has already been doing so for three months, isn’t he technically entitled to half her assets anyway? Chris

 

A: That’s not totally right. Two people are deemed to be in a de facto relationship if they’re not legally married but are in a relationship as a couple and living together on a “genuine domestic basis”. There are a number of determinants, but the main thing is whether the de facto relationship has existed for two or more years. But if you’ve had a child together or you’ve stumped up a substantial financial contribution, you don’t need to pass the two-year hurdle — it’s game on. After a relationship ends, either party has a two-year time limit to make a property claim against a former de facto. The best way for people to protect themselves is with good communication from the outset, and a written binding financial agreement.

 

HOLIDAY WON’T WIPE YOUR MONEY WOES

Q: I am 25 and I am about $30,000 in debt, mostly a personal loan plus a credit card with an interest-free period on it. I earn about $46,500 after tax and am trying to save my pennies for a holiday next year. How can I save for my holiday while still improving my financial future? James

A: Maybe I’m being too harsh, but it’s guys like you — OK, and Justin Bieber — who give the old codgers on talkback radio the ammunition to gripe about “the young people today”. Instead of planning a “sugar hit” holiday, you should be focusing on paying off your debts over the next couple of years. Start with the credit card and then move on to the personal loan (while maintaining the minimums on both). But you can still afford to go on holiday — as long as it’s a weekend camping trip with your mates, some home brew, and a Bear Grylls diet.

 

GIVE LOW-DEPOSIT LOANS A WIDE BERTH

Q: Our 25-year-old daughter has moved back with us for a year to save for a home deposit. She has started looking at low-deposit loans through a well-known building company. What is your opinion of this type of loan? Liz

 

A: I don’t like these loans at all. They’re packaged to appeal to battlers, with the aim of flogging cheap homes in new estates that generally have poor resale value. Their current marketing schtick is: “Low deposit? Solved. Have $2k, and you’re on your way.” Let’s be honest, two grand wouldn’t even get you to Bali for a week, let alone into a brand new home. These loans come at a significant cost: she’ll get hit with lenders mortgage insurance and a higher interest rate than she could negotiate if she had a decent amount of savings and went direct to a bank. When you buy a home without savings, you’re behind the eight-ball from day one. I wouldn’t do it.

 

PLANNER ON NOTICE FOR POOR RETURNS

Q: I was told by my financial planner to diversify and invest in shares, not just property. So I took $50,000, which took years to save, and put it into an MLC share portfolio back in 2008. I’ve been monitoring these shares over time, and have noticed my financial planner takes $3800 in fees every year. I haven’t made any gains because the value of the shares has dropped to $38,500. She keeps telling me her fees are tax-deductible, which maybe right but doesn’t explain whether this investment is worth keeping. Craig

 

A: That sounds like a bad deal. Yes, you bought during the GFC, but should have regained your losses by now. I’m guessing one of two things has happened: you’ve either bought highly speculative shares, or your adviser has put you into a gearing strategy. Borrowing to invest magnifies gains, and also your losses. It also maximises your financial adviser’s fees, as they take a clip from the total amount you’ve invested, plus a clip for putting you into the loan. Whichever the case, it would have been documented in the Statement of Advice (SOA) you were given when you entered the investment. Whether they explained it to you fully is another thing. if the best they can come up with is that you’re getting a tax deduction, I would sack them — but not before you demand in writing a rebate on your fees to pay for a visit to an independent financial adviser who can look objectively at your portfolio and see which shares are worth keeping.

 

barefootinvestor.com

Originally published as It’s a jungle out there in the property market