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Your financial dilemmas solved

Q. I’m in my 20s and find it difficult to save enough of a deposit to buy a property in my home city of Sydney unless I go out to the outer suburbs, which are a long way from my work and my social group. Have you any ideas? Walter, Redfern, NSW.

A. The Government now allows someone who has never bought a property before to use up to $30,000, which needs to be saved over about three years to be used for a home purchase deposit. If you’re married, then as a couple, $60,000 could be on your way to help get a home loan deposit together. Look up the details so you know what has to be done. It’s called the First Home Super Saver Scheme. It could be a big help, though with Sydney prices so high it still might not be enough.

Some young people are buying country homes in tourist areas and letting them out, say on Airbbnb, and using them when they are free to escape to the country. There are potential tax deductions that could make something like this work. These people have decided to rent where they want to live during the week but have got themselves on the property ladder in a more affordable area. It’s not a bad idea.

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Q. What do you think about a financial planner that wants to charge me $3,000 for a financial plan? My wife and I have about a million dollars between us and we’re in our 50s with about five years work ahead of us before retiring. We want to set up a self-managed super fund, as I like investing as a hobby. Jason, South Yarra, VIC.

A. Lots of financial planners charge 1% to their clients for financial services, such as creating a plan and then giving ongoing service. The plan itself is not tax deductible but other services provided can be tax deductible, which can lower the effective cost of working with a financial planner. On your super amount of $1 million that $3,000 charge is only 0.3%, so it’s cheaper than 1% and it’s less than what good industry funds charge. Make sure you know what you get for the $3,000 and see if any part of the charge is for tax deductible services. Make sure he or she will see you two times a year for a review and ask about what kind of contact you will receive over the year. This $3,000 charge is not high but make sure you know what bang you will get for your buck.

QMy husband and I have about $600,000 in super and want to pool our money into a self-managed super fund to buy a property inside the fund. We’re both 45 and want to ramp up our super to retire as early as 60, so we can travel the world in retirement. What do you think about that plan? Josie, Redcliffe, QLD.

A. You have plenty of money to make an SMSF cost-effective so I’ll give you a tick there. The property idea is OK, provided you don’t put the lot into an investment property. Ideally I’d want you to at least keep $200,000 in cash, term deposits and stocks and maybe use $400,000 for a deposit and borrow the rest. Ideally, I’d like $300,000 to be kept in non-property assets but if you have to pay a little more for a good income-producing property that has more chance of capital gain, then go with that. I’d recommend you and your husband pump up your super via salary sacrifice and if you do your homework and secure a great property that tenants will always want to live in, then you two could be very happy travellers in retirement.

Q. I’m in the market for a home loan and while I’ve been advised by friends to go to a mortgage broker they use, I worry that these people could tip me into a loan that pays them the highest commission, looking after themselves rather than me. Will, Double Bay, NSW.

A. It’s true a mortgage broker could do that but provided the interest rate and other conditions are the best possible for you, what does it matter what kind of commission they get? Some lenders will offer higher commission but they still could be great loans for you. I suggest you start with your bank and check out the best interest rate you can get there. If you want a redraw facility and offset account, which can be a great idea, then make sure you tell your lender. Take the loan from the bank and run it by a couple of mortgage brokers to see if they can do better. They usually can but then do your homework to make sure there aren’t hidden fees.

They won’t really be hidden but in your excitement to buy a home, you might not read the find print. If you go to a bank and two mortgage brokers, I bet you end up with a really good deal. Note one important piece of advice: always check the comparison rate on your loan. Some loans sound good but, after fees, their headline rate is a lot higher. This more ‘true’ rate is called the comparison rate and is what you should always ask about. I just checked my Switzer Home Loans rate for a standard variable home loan, which is 3.89% for the headline and comparison rate. Use that to check out what you’re currently paying then look for a better rate — a better comparison rate. But remember this: a cheaper loan might be a ‘no frills’ loan, which offers less extras, such as an offset account.

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Q. I have bought a property interstate and need to go to the town to hire a real estate agent to manage the property. I heard that the Budget this year took away a landlord’s rights to claim travel tax deductions. What is the ruling and can I claim the related expenses? Bill, Gosford, NSW.

A. Accounting firm BDO has interpreted the change of rules and this is what they’ve concluded. “As part of the Government’s agenda to facilitate affordable housing, the Budget proposes removal of a number of deductions in relation to investment properties, which have allegedly been exploited.

“From 1 July 2017, the Government will disallow deductions for travel expenses relating to inspecting, maintaining, or collecting rent for a residential rental property. The Budget papers describe this as an integrity measure to address concerns that many taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private travel purposes. This measure will not prevent investors from engaging third parties such as real estate agents for property management services. These expenses will remain deductible. The Treasurer’s related press release describes this as a deductible expense that is seen as being ‘abused’.

“The Government also makes the point that inspection costs undertaken by third parties will be permissible, meaning that inspection costs are seen as legitimate, but only if genuinely incurred for pure inspection purposes.

Travel expense deductions will still be permitted for non-residential investment property, so presumably investments in more ‘active’ property assets such as business facilities, farming, factories and so on should still be claimable.”

I would get an accountant’s view but you might be able to make a deduction for this exercise of recruiting an agent.

Q. How can I save for a deposit on a unit? I was thinking of going into partnership with my sister so we can save twice as fast. Is this a good strategy? I have also heard of schemes where you can buy bricks in property for as little as $100. What is this about and is this another good way of investing? Lucy, Kangaroo Point, QLD.

A I’m not a great fan of buying bricks in a fund that buys a building and creates units equal to bricks. If a building costs $10 million, the organizers might create 1 million bricks each at $10. If they do well and sell it for $20 million in five years, you’d get around $20 back. Success depends on the building selection. If you decide to buy with your sister, get a legal document that covers the “what if” situations. If you don’t make it businesslike, you could end up losing big time. These partnerships can work but it takes special people or else a really good legal arrangement.


Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds.