Ask Paul: Should I use my inheritance to buy rural land?


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Dear Paul,

My dear mother passed away recently and I will receive a cash inheritance of $160,000. I would like to invest $5000 for my six-month-old grandson, and I am gifting my two adult children $10,000 each, which will leave me with enough to invest for myself. 

Ideally, I would like to buy a block of land in the bush and at a later stage build my retirement home there. 

ask paul clitheroe should i use my inheritance to buy a block of land in the bush

I am 47 years old and working casually in hospitality for 25-30 hours a week. I rent my home through a co-op, which means I only pay rent at 25% of my annual income. 

I have no loans and own everything else.  My superannuation is currently sitting with Colonial First State at $54,000.

I am unsure what to do with my inheritance and where to invest my grandson's money until I retire. Ideally, I would be wise to put it all into my superannuation fund, but I worry about it being locked away if I need it in a hurry. - Michelle

Michelle, my commiserations about losing your mum. I do think, though, she would be very pleased about your thoughtful approach to using your inheritance.

I am sure that $10,000 each will be really helpful to your two adult kids. I'm hoping they use this money to help create long-term wealth, which could be debt reduction or investment.

Investing $5000 for your grandson is also a great idea. My wife and I now have three little grandchildren and are doing the same for them.

My view is to keep things nice and simple, so you could look at one of our investment managers, such as BlackRock or Vanguard, and invest in a low-cost, diversified share fund.

You would do this in your name as trustee for your grandson, and once he is an adult you can transfer it to him with no capital gains tax as he will always have been the beneficial owner.

With your plans, I am a bit concerned about buying an undeveloped rural block. If you are looking at an area where there will be long-term population growth, then I am less worried.

A vacant block will cost you money with rates and maintenance, such as grass slashing and so on. But without a property on it, you can't rent it, so it becomes a cash drain.

The offset, of course, is capital growth. If you think it will grow in value in excess of costs, provided you have the cashflow to support the property until you build on it, then that is okay. But I want you to do plenty of research before you proceed with buying vacant land.

Maybe an initial strategy is to take advantage of rising interest rates and invest your money in a safe term deposit while you plan. You'd be likely to earn more than 4%, which with excellent security is a pretty good return.

With super, I agree about not locking your money away until retirement, but if your budget allows, adding to super using salary sacrifice may well save you some tax and be a good way to create the wealth you would need in time to come to build on a rural block.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. View our disclaimer.
Just Crackers
April 12, 2023 6.09pm

Look, I appreciate the generosity of Michelle, but I am concerned about her retirement outlook with such a small amount in Superannuation at 47 years old. The 6 month old grandson has a whole lifetime ahead to earn and invest, so he won't miss his $5000. The 2 adult children also sound like they have ample time to earn and invest and are hopefully fully launched. However I could concede $5000 each to them as an assist if really needed. Preferably, as time is creeping up on Michelle I would like to see her invest the whole amount for herself. Put 25% into her Superannuation account, and 75% into dividend paying index funds for some growth and income. With her hospitality work income this could make all the difference for more quality of life for her when it comes time to ease back on her work when she chooses.

Jane Potter
April 13, 2023 5.17am

With what money is she using to build on this block!? Who will give her a loan? And how will she live in an isolated area when she's old?