Ask Paul: We owe $2.3 million on property - should we worry?


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Q. My husband [26] and I [27] own four investment properties in Brisbane with 10% equity - they are negatively or neutrally geared with interest-only payments.

We have a large investment property mortgage of $2.3 million and we owe HECS debt but no personal or credit card debt.

We have saved $350,000 in our offset account, own $80,000 worth of shares and have combined superannuation of $80,000.

paul clitheroe money magazine savings owe financial independence

We plan on moving into one of our investment properties next year and starting a family. .

We have our own business (on which we have a $430,000 business loan) which brings in $2000 a week (after tax) for my husband, and I do contract work at about $2000 a week (after tax). I would drop to no work when having children and do casual work if required.

I just wanted to get an opinion on where to go now. I also question whether we have over-leveraged ourselves.

Should we continue to invest our money or should we keep that as a cash buffer? - Louise

A. Pause and take a breath is my advice to you, Louise.

I can see you have reasonable equity, you have a solid amount of cash in your offset account, your business is doing very well and your income is excellent.

But with thoughts of a child and moving to one income it is time to consolidate.

I would be adding to that offset account as rapidly as I could.

With four properties, you have plenty of skin in the property game.

I would be "de-risking" your position by building more cash.

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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. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.
December 6, 2017 4.05pm

On $2.3M, even an extra 0.25% would mean finding an additional $5,750 a year in interest ALONE, which is about $100 a week more, and even more if it is P+I payments. Personally, I wouldn't be able to find that and I don't know many who would, and I doubt that tenants would just 'accept' a rate rise 'because'.

There's going to be a lot of people - especially on the Eastern seaboard - who are going to be hurting in the next few years, because they overextended themselves.

December 6, 2017 4.20pm

My son has begun looking around to buy a unit in Brisbane that he will live in. He is fully cashed up and in no rush to buy and the one thing we have noticed is that it has become a buyers market and looks like it will get worse for sellers. Being too leveraged with the potential for interest rate increases in 2018 could hurt you in the long run.