Ask Paul: Have we missed the property boat?


Paul: My partner and I rent and are considering buying an investment property.

We have $10,000 saved. I am 47, earn about $65,000 a year, have $220,000 in a defined benefit super fund and have no debts.

He is 42, earning about $58,000 and has a mortgage ($248,000 owing) on an investment property from which he receives $1080 a month in rent after agent fees, paying an interest-only mortgage. He has a car loan owing $10,000.

ask paul clitheroe missed the boat on property

A recent valuation of the property came back as $280,000, which we considered too low. I have thought about using part of my super fund as a deposit, but this would mean the fund would then become an SMSF, and I'm unsure if this would be a good idea.

We really want to get into the property market, especially as I'm not getting any younger and I'm thinking I may have missed the boat!

Paul Clitheroe: Missed the boat? No need to worry about that - you are both spring chickens in this amazing world with such a dramatic increase in life expectancy.

Even in the 32 years of running my business, life expectancy has increased by more than seven years.

I doubt that anyone would be unhappy about living longer, in particular as we are also healthier. I do get a few grumpy types saying it will be more years "waiting to die" but I don't buy that. Every piece of evidence is that as we live longer, any period of disability is getting shorter, thanks to modern medicine.

So, at 47, your life expectancy is about 34 years. Your partner is a little younger but his is not dissimilar. Now I don't expect nor need you to work for another 34 years but, seriously, you should be thinking 20 years or so. This is the first reason you have not missed the boat.

The second reason is your capacity to generate wealth through savings. You have $10,000 and that is great. It tells me you can budget and save.

Now we need to discuss how motivated you are. You have no debts, your partner has a mortgage but the rent should be covering the current low rate of interest. He also has a $10,000 car loan.

But from your combined income of $123,000 you would clear close to $100,000 a year after tax. This, in anyone's language, is a big bucket of money. Personally, I'd leave your defined benefit super alone. I think the focus is your capacity to save. If you could live on $1000 a week, which I don't think is very radical, you can save $50,000 a year.

If the property market was soaring, I can see you being concerned that it would rise faster than you can save. But our market typically does a big leap, as it has done in Sydney and Melbourne, and then slows, often treading water for years.

After a big jump in prices, we even see falls. I don't see a big correction as our population is growing so strongly but I would be surprised if the market jumped strongly in value in the next few years. Perth is now very soft and Sydney is slowing - going backwards in some areas.

Naturally it depends on where you live and where you want to buy. Every market - city, regional and rural - has its own characteristics in terms of jobs, public transport, education, health, leisure and so on, and you need to take these into account. I would buy only where I saw population growth. And we all know what people value when choosing where to live.

You say you are desperate to get into the property market. Well, I think the future here is entirely in your control. With some savings now, positive equity in your partner's investment property and a good level of income, you really are in a position to build wealth rapidly.

So my advice is simple. Do a budget and set and monitor your cash flow. And start looking at locations and the type of property you want. If you turn your existing $10,000 into, say, $60,000 in a year or so, it seems to me that you have not missed the boat. In fact, you can jump aboard quite rapidly.


Paul Clitheroe AM is a respected financial adviser and Money's founder and editorial adviser. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section.
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