Financial Guidance for My Current Situation?

Lsomeguycalledpaul on 28/08/2016 - 16:22
Last edited 29/08/2016 - 10:03

Hi there,

I’d like some guidance. I understand that providing financial advice over a forum is not really appropriate - but I wouldn’t mind some point of views or guidance as to how to best proceed from here.

Our situation:
  • Male(Me) - Aged 33 - Income ~$240,000

  • Female - Aged 33 - Income ~$147,000

  • Superannuation - Combined - $220,000

  • Cash in bank (Combined) - $300,000
  • Debt - $0
  • My partner has a investment property with probably $100,000 of equity in that she split with her sister.
  • I have no investment properties nor have I ever owned a home.

Current Living situation: Rent Approx $2000/month

  • Married - not yet.
  • Kids - not yet (1.5 years away maybe?)

The long-game here for us to have a nice 3BR property in an area such as Port Melbourne. We’re finding that based on the current market, that would range from $1.1M-$1.5M.

We’re a bit confused about what we should do here.

The strategies available to us are:
0) Do nothing and keep saving
1) Enter into a large mortgage now — the fear of overcommitting big
2) Find something in a lower price point and live there for a bit (avoid capital gains), then look to buy a second place and rent the first place out.
2a) In the area we want to live, which means apartments (i fear oversupply issues in Melbourne)
2b) In a high growth area, probably somewhere we wouldn’t want to live long term.

So what advice can you give us?

If you can recommend a financial planner in melbourne please message me!
Financial

Comments

  • knowwhat on 30/08/2016 - 19:57
    +2

    I would be interested in what decision you take.
    Would be great, if you could share your decisions to fellow OZbargainers here.
    Might be useful to someone over here :)

  • FisSort on 30/08/2016 - 21:13
    +1

    Are you the guy with that bought the kenwood food processor from DJs and wouldn't fit in your X5 so you had to use the wife's Range Rover? If so, get a Q7!

  • Donkeyface on 30/08/2016 - 22:06

    Just some personal experience to share with you.

    Me and my partner have a combined income of 210K and just turned 30. We started buying properties 4 years ago, and now have 3 houses with a total asset of 1.8M with LVR at about 70%, one of which we are living in. I can tell you that the price raise(read equity) over the years are way bigger than what we could ever save in the bank. Because a mortgage is leveraged, when the house price is appreciated, it will be a much bigger return on investment. We wish we have started earlier.

    I believe in houses, and agree with you that the melbourne apartment market is not doing very well. You need to think long term when invest in real estate. The short term price volatility wont impact much in 10 years time, particularly for houses with land.

    Just my 2c.

    • blint000 on 30/08/2016 - 23:32

      The critical point here is knowing your market and know if your area you are purchasing in is likely to yield strong capital growth. I bought a number of properties that are in coastal towns that are great holiday rentals but have had flat capital growth in the last 5 years. This has meant that my debt ceiling is closer to the limit (meaning even if I have positive cash flow the bank's policy is that I am too risky to lend to) and a poor valuation on the existing property can mean you need to come up with more money to keep LVR above 80% to avoid LMI on the new property.

  • blint000 on 30/08/2016 - 23:27
    +1

    Know your market. As a rule of thumb when investing in property I think if you buy something that you like living in and your standards are reasonable, then it is likely that it will remain a desirable property and increase in value over time. Your risk is usually only in the short term, property prices in Melbourne for properties in a close to city location have risen significantly over just about every 5 year period.

    I consider entering the market a form of hedge against the market. If property prices drop by the time you are looking to buy your dream home, the fact your original property has dropped in value is offset by the fact your new property has a lower purchase price. The reverse is also true, if the market increases the equity can assist in purchasing your new property even with the increase in the market.

    It's not important if you live in it or rent it out, although the latter will generally work out better for you from a tax perspective (and if sold under 6 years renting you can still apply the principle place of residence exemption under certain circumstances).

  • cashless on 30/08/2016 - 23:35

    Based on your combined income of $387,000 & current Super of $220,000 you're already going to fall foul of govt legislation.
    Making a (very broad) assumption that for the next 32 years you both:
    1) contribute 9.5 % compulsory super ($3060 per month), even though that's going up to 12% over time, so you'll contribute more.
    2) assume you both continue working without a pay rise (you hardly need it). You won't, you'll get pay rises.
    3) your combined Super grows at 5% per annum on average.

    By the time you're both 65, you'll have more than $4 million combined in Super
    (http://www.thecalculatorsite.com/finance/calculators/compoun…)
    You won't, you'll have far more than that.
    Govt legislation is going to make it hard to hold more than $1.6 million per head in Super soon. That will be indexed, but so will your salary.
    My advice is learn about Superannuation Law first.

    • danyool on 09/09/2016 - 15:27

      you'll get pay rises.

      Also assuming they keep these high paying jobs/economy doesn't tank/jobs outsourced/redundant/company isn't taken over or merged and less roles required/the new kid on the block gets the big bucks… several scenarios where there's a possibility of Less pay.

  • JimmyF on 31/08/2016 - 10:46
    +3

    Earning nearly $250k between them a year, has a fear of 'overcommitting' to a $1M house…. umm ok.

    • cyrax83 on 31/08/2016 - 12:50

      Agree

    • JimmyF on 31/08/2016 - 14:55

      sorry, typo. $390k between them!

  • cyrax83 on 31/08/2016 - 12:48

    $347k / annum income between you and your partner. You are the 1% :O

    You could afford a 2 - 2.5 mil+ house if you wanted. Rent money is dead money, especially with your high income

  • Ven0m on 31/08/2016 - 12:57

    Hi mate, I'm a financial planner and I get this kind of query from time to time. I am not going to tell you what's right or wrong on this forum given it would be unprofessional and I honestly couldn't without talking with you, however having read some of the constructive comments on this thread I would suggest you take their suggestions with a high level of criticism as people will offer advice based on their own experiences and generally do not have any idea what current legislation allows or what the real state of the economy currently is.

    The best piece of advice I can give is to talk to a Certified Financial Planner (CFP) from an unaligned (non-bank) financial planning firm. You could start here: http://fpa.com.au/find-a-planner/

    A financial planner should be able to provide you with some analysis showing you your options and help guide you to the right decision.

    You're welcome to seek people's opinions on this kind of forum of course and it may help you, however in the interest of helping out a fellow Ozbargainer, I would urge you not to make any decision based on someone's comments when they may have no qualifications and little information to base their comment on. Everyone's situation is different and people have different experiences which influence their personal opinions.

  • locknuts on 31/08/2016 - 16:19
    +1

    Well my wife and I basically did your option 2. We had no children at the time and so living in a less desirable area while we built equity wasn't really an issue as we're not particularly proud people. After about 3 years we had 1 child and moved into a nicer area and rented the other one out.

    The 2 properties formed an equity base we could draw from to buy more investments in the future. It's working out quite well for us and our incomes are substantially lower than yours. I've found that houses with land tend to hold their value far better than cash. I would follow your advice and avoid the apartment market though. Oversupply in the 3 biggest capital cities is a real worry and I've lost some money on my unit (I only own 1) over the last 3 years. The houses have all gone up in value though.

    Also, buy new if you can. I've reduced my taxable income a lot just by using depreciation alone.

    That's my advice. Take it or leave it.

  • centrelink on 31/08/2016 - 16:29

    Well you seem to be well off but here is a tip gained from my wisdom of experience. If you are going to mention money and how much you make, it will always piss off some people out there. Some people really do get offended if the money you make is higher to what they make and they will most certainly try to justify their existence by talking some nonsense.

    A while ago I saw some teen around 18 years old driving a Ferrari on the street and it did not go well for the casual on lookers who seemed to get a iffy from a teen driving a luxury car.

  • Bludgeman on 31/08/2016 - 18:32
    +1

    All the advice given so far is wrong.
    - Go on a massive bender
    - Make a human
    - The End
    Any qualified financial planner would know this.

  • fane on 31/08/2016 - 21:44

    Hi someguycalledpaul - great question and well put.

    I can offer some solid advice being a mortgage broker with an office in both Melbourne and Sydney and ties to fantastic financial planners. How can we connect directly?

  • MadTacoWarrior on 31/08/2016 - 21:57
    +2

    Eneloops and Chromecasts!

    If you are too cheap to seek a qualified financial planner, at least find a finance-related forum to get advice.

  • sliick on 01/09/2016 - 00:07

    Has anyone actually seen a financial planner and thought it was worthwhile?

    I would continue renting where u are since you obviously like the area but I would not buy an apartment there for >$1m

    I have an apartment from 6 years ago and it has only gone up 20%. The same money spent buying a house with land would have doubled already.

    Buy a house in an area with a good high school. How many kids will you have and could you afford to send them to private school? Eg if you have 3 kids you'd be looking at >$100k a year post tax by the time they get to school but if u only want 1 kid it is more manageable.

    If u intend to send kid(s) to private school, u can buy anywhere u feel like is within your driving tolerance.

    If u can't afford private school then get into a good school zone. Balwyn North, Glen Waverley, McKinnon.

    Don't live there yet and rent it out for now. Live where u r since u don't have kids yet. This is just to hedge yourself in case the market goes up beyond you. With your income you will only be able to afford a dump in these suburbs. Think about that.

    If the market drops you will still have the land and since u will never sell this , you will ride it out, build a nice family home when the time comes and live happily ever after.

    If the market rises, u will be glad u have already purchased.

    The extra disposable income u have left over u can use as u please. Buy a nice car, go on holidays more times a year. Don't buy investments just because ppl tell u to. If u already have a house, can pay it off, are happy u will be already well ahead of a lot of ppl. If u choose to invest just make sure u are not over leveraging yourself. Life changes. U could get fired. U could get sick of work and want to go part time. U might go back to uni and change careers. Do so after u've set yourself up with a paid off PPoR.

  • Dr Prepper on 01/09/2016 - 11:25

    Like some the others said some basic tax planning like salary sacrifice super ,a little negative gearing while it is still around.I would buy the poor in port Melbourne then use the equity to avoid LMI on the investment.

  • [Deactivated] on 01/09/2016 - 15:47

    Do you and your partner love your work?

    If not, or even if you do, on on that kind of coin I wouldn't be looking at property. I would be looking at building financial independence.

    Sure, property might form part of your investment portfolio - but it may be more effective to establish a set of medium and long term goals, and then selecting a range of investments to give effect to that.

    i.e. maybe a smaller house, but much more travel. Maybe the same income, pro rata, but work as a consultant but less days? The high income should buy you more freedom and flexibility, not tie you to specific investments for the sake of it.

  • icejester on 08/09/2016 - 23:46

    Okay so ignore all the plebs shouting the same crap "get a financial adviser"

    Here's my 2c
    First you should get a property
    Your principal place of residence is not subject to capital gains tax
    It is in my opinion the best first and safe option to invest

    Otherwise I hear index funds aren't too bad over the course of several years

  • REVet on 12/09/2016 - 00:14

    You are both young, full of energy and on a high active income. Congratulations.

    Unfortunately something like "security" of a great job and high income doesn't last indefinitely.

    Based on so many great responses from the participants in this discussion, you may have derived an idea about the course of action that suits you best.

    However, let me share with you my thoughts.

    What would I do if were in your current financial position and of your age?

    Keep renting. Define an exact area (suburb and street) where I would love to live. Rent there a townhouse (I would not live in the CBD and in an apartment). Accumulate quality, positive cash flow real estate per year, borrowed from banks - LVR max 50%, no cross-collateralization (goal 2 properties; townhouses only – with $300K cash on hand easily achievable). Would closely watch market in the area where I would like to live (a property micro-cycle in there and sales/property values). I would calculate how much cash I would require to purchase a house or a unit in any condition (not more than two titles/address). I would buy at right time and as soon as I could afford a loan maximum LVR50%. Would expect to purchase my place minimum 3 years from the date of purchase my first investment property (would sell my 3 oldest investment THs). Rent out straight away. This would be my site to build my dream house. I would expect the sustainable capital gain for the area and my land growing in value according to my thorough due diligence). I would continue accumulation of properties producing passive income (borrow at LVR50% max) and would dispose the older townhouses to accumulate cash for construction of my new house (demolish old dwelling) and pay off my home loan (non-investment) in full.

    Regarding apartments – I would never buy one in a block of 8 or more. Would avoid lifts, gyms and swimming pools.

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