Tag Archives: investment

Baby Boomers – how are you going to retire?

KEY

APRA revealed that the Australian superannuation industry lost $18.5 billion of their clients’ money in the last financial year.

O.K., I accept that last year was a tough year for all types of investments, so let’s be fair and look at the returns over the longer term…

They’re not much better.

Apparently the average rate of return from the superannuation industry over the last 15 years  (between 1997 and June 2012) was 4.9% a year, and this came with a volatility of 8.4%.

Not a very good return considering that for most of that time you could have invested in Government bonds with minimum risk and received a divided of over 5% and the average return from the All Ordinaries accumulation index for the past 15 years has been 7.03% per annum.

Reality Check

A Rabobank poll showed that Baby Boomers are retiring, on average, on about $200,000.

While most folks don’t know how much they need in retirement, it’s generally accepted by the financial planning world that you need around $1 million in retirement to live comfortably.

By the way…I think you need much, much more!

The way planners see it is that, assuming you live in retirement for 15 years with no extra income, a million dollars would give you an annual income of around $65,000.

So you can see retiring on $200,000 simply won’t cut it.

Little wonder that more and more Baby Boomers are looking at taking control of their financial future and setting up Self Managed Super Funds (SMSF.)

What’s are our options?

If these facts teach us anything, it is that it’s up to each of us to become financially fluent and take charge of our future.

More Baby Boomers are setting up their own Self Managed Super Funds and taking their destiny in their hands. Many are investing in shares, but more and more are investing in property. As a matter of fact I have a mixture of both in my super fund.

But my personal preference is for property investment, largely due to the fact that residential real estate has proven itself to be less volatile than shares or managed funds.

Combining the security of bricks and mortar with the tax office changing superannuation regulations back in 2007 so that people can borrow within their own SMSF’s, it is not surprisingly that real estate is becoming an increasingly popular super fund cash cow.

Fact is more and more Australians are recognizing the benefits of property as a strong, stable asset base for their super funds, given its ability to generate excellent returns and capital gains over the long term.

Now, not only can you borrow up to 70 per cent (and under certain circumstances even up to 80%) of a property’s value to invest within your SMSF, you can also seek extra funds to make improvements on the residential properties in your SMSF (with some conditions of course and with special emphasis on repair and maintenance versus improvements).

So what are the main advantages and disadvantages of taking this tact when it comes to building your own retirement nest egg?

The good

  • Control – you have complete control over your SMSF rather than entrusting your future financial wellbeing to a complete stranger, who will take your hard earned cash and invest it in shares and managed funds that may or may not perform.
  • Tax savings – If you buy and hold the property within your fund until you retire and your super goes into the pension phase, you will be exempt from paying either capital gains tax if you sell the investment, or income tax on any rental income should you decide to hang onto it. Before you retire, any capital gains or rental income generated by your SMSF are taxed at a rate of 15 per cent, or 10 per cent CGT is applicable if you hold onto the property for over a year.
  • You could have a diversified investment portfolio that is not reliant on just one investment vehicle, meaning you will have better financial security for your future.

The bad

  • The cost! There can be a significant cost in initially setting up your super fund and the annual compliance costs could be up to a few thousand dollars. But don’t forget the management fees you’re saving by not leaving your money with a fund manager.
  • Higher borrowing costs: currently there are slightly higher fees involved in borrowing to buy property through your SMSF.
  • The confusion: There’s no denying that managing your own super fund can be a minefield of complicated rules and regulations. Get something wrong and you could end up paying hefty penalties. Of course, you can always pay a professional to manage it on your behalf and this is something I would advise anyone with a SMSF to do – whether they’re buying real estate or not!
  • The money: You generally need a bigger deposit to buy a property in your super fund than you need to buy one in your personal name. How much you need depends on the amount of your super contributions. This is not a strategy for someone with a small amount of cash in their super.

Be careful

Of course before you go down the route of setting up your own SMSF, it is critical to seek independent advice from a properly qualified financial planner and to ensure you set up things correctly so you don’t fall foul of the tax man.

With 5.3 million Baby Boomers moving transitioning into retirement over the next fifteen years or so, I see properties bought in a SMSF as a major driver of property values over the next decade.

Source: Michael Yardney. propertyupdate.com.au

If you own or are thinking of buying an investment property

HOUSE

The Australian Tax Office is running FREE Tax Webinars explaining:

Tax issues when buying and owning a rental property

  • what you can claim as a tax deduction
  • how to claim tax deductions.

Tax issues when selling a rental property

  • what you can claim as a tax deduction
  • how to claim tax deductions.

http://www.ato.gov.au/content/00154616.htm

Homebuyer confidence rises. 2013 outlook is promising

5 Years from now

The number of Australians who believe it’s a good time to buy a home surged 11.5 per cent over the December quarter, reaching highs not seen in three years.

CommSec chief economist Craig James says the Westpac/Melbourne Institute’s latest index shows more people are keen to park their money in bricks and mortar.

“Real estate was regarded as the second wisest place to put new savings, with that reading just below seven-year highs,” James says.

Housing finance commitments slid slightly by 0.2 per cent in October, new data shows, but total home lending for the year is up four per cent.                                   Loans for land blocks rose by 17.5 per cent over 2012, which is the strongest pace of growth in three years.

“All the pointers suggest there are better times ahead for the housing market, representing good news for builders, tradespeople, material suppliers and a raft of retailers.”

On the wider economy, James says there’s good momentum moving into the New Year. In particular, forecasts for the resources sector show Australia is set to “reap extraordinary earnings” over the coming year. James says the outlook is far brighter than the “doom and gloom school would have you believe”.

Export volumes are predicted to increase substantially and the reason for a forecast drop in export values is due to the drop in commodities prices.        While general consumer sentiment fell by 0.2 points to 100 on the index, loans to buy new or used cars hit a record 1.23 billion in October.

James says the drop is disappointing at first glance but digging deeper shows “sharp divisions across the country” are to blame.  “In short, conditions are very mixed and how you feel depends on where you live and your housing status,” he says.

He believes the data suggests the Reserve Bank may opt to stay on the interest rate sidelines in the early part of 2013, preferring to see how the economy responds to rate cuts.

Source: Australian Property Investor

Are There Genuine Signs of The Long Hibernation Being Over?

In various recent articles, I’ve tried to explain how Australia’s underlying fundamentals are actually very solid.
And by most measures, our economy seems to be travelling at close to its full capacity.
However, the contradiction is that Australia’s budget should now be running at a substantial surplus. And the reason it’s not relates to a number of structural issues.

Even though the high dollar is causing problems for our manufacturers, unemployment is running at just 5.4% — less than 0.5% above what economists deemed to be “effective full employment”. Because when it falls below 5%, this tends to put pressure on wages.

Anyway, it is the feeble retail sales (through a continued high level of savings) which seems to have become the most visible sign of general consumer conservatism. And this is what’s top of mind with most people.
However, in his column in the Age Harold Mitchell touched on the record level of betting that had recently occurred at the Caufield Cup.
And he then asked “… what does that mean when most parts of the country have been stumbling along in the doom and gloom for months?”

But there are other pointers as well …

Mitchell also highlighted the record level of new-vehicle sales; along with the considerable increase in overseas travel.

Clearly, the GFC frightened most people. But maybe, they have now become bored with saving. And are prepared to spend once again — provided it doesn’t cause them to increase their personal debt levels.

Rather cleverly, the car industry seems to have plugged into this consumer sentiment — by offering “0% finance, and 5 years to pay” on any new purchases.
That way, you are able to buy your new car … without having to create another interest meter ticking over.

Bottom Line:

You are now seeing a growing number of signs that people are finally stirring from their long hibernation.
Moreover, Super Saturday weekend’s strong auction results (with clearance rates for Sydney at 68%, and 66% for Melbourne) … have further confirmed an underlying strength, within the residential property market.

Therefore, the traditional holiday break over this Christmas may well provide the tipping point needed for an overall lift in confidence to emerge during a 2013.

And this also makes it the perfect time for you to acquire a neutrally-geared Commercial property investment … as the market moves towards its expected peak, in 2018-19.
Source: Chris Lang. Propertyupdate.com.au

Are you claiming your deductions on your investment property?

As the owner of an investment property you are entitled to claim depreciation on the building structure and the fixtures and fittings inside. The exact amount of depreciation will vary from property to property. Every property investor can claim yearly deductions for the wear and tear on their building and its fittings. When purchasing an older investment property, many investors decide to renovate after settlement. Investors can often claim thousands of dollars in deductions when renovations are done.Check out this handy phone app from BMT Tax Depreciation. The FREE App enables you to estimate how much can be claimed back on a property in seconds! This advanced calculator is extremely helpful for anyone involved in property investing. http://www.bmtqs.com.au/PropertyDepreciationApp.aspx