australian property investor

7/27/2019 Australian Property Investor

1/6

38 39 JULY 2014 APIWWW.APIMAGAZINE.COM.AUAPI JULY 2014 WWW.APIMAGAZINE.COM.AU

Its never too early or too

late to start building your

property portfolio. API

uncovers the eight best

tips and tricks to building

wealth for yourgeneration.

GENERATION

WEALTH

By Lauren Day @laurenanneday

If only I started investing in property

10 years ago. We hear that sentence

time and time again and yet so

many people continue to do nothing.

Others, of course, take control of their

future. They decide to act now and buy

property when they can afford to, rather

than try to time the market or complainabout the past and just give up.

Imagine if you really had bought that

property a decade ago. Chances are, if

you purchased an investment pad 10 or 20

years ago, youve definitely made money

by now. Some might already have a

considerable property portfolio; others are

just starting out or perhaps still looking to

purchase their first investment property.

Whatever stage youre at, its never too

early or late to start building a portfolioand working towards a secure and

pleasant retirement. Chair of Property

Investment Professionals of Australia

(PIPA) and chief executive officer

and founder of Empower Wealth, Ben

Kingsley, says the strategy investors need

to take depends on how much time you

have left before you exit the workforce.

No matter what your age or cash flow

position, everyone can build a portfolio.

Gen-X or Y have got more time for a

strategy to play out, Kingsley explains.

Baby boomers have less time. Some ofthem are realising theyve left their run

a bit late. They think they have to do the

heavy lifting and take on more risk.

GEMMACARR

GENERATION WEALTH\\ COVER STORYCOVER STORY // GENERATION WEALTH


2/6

40 41 JULY 2014 APIWWW.APIMAGAZINE.COM.AU

However, Kingsley reminds investors

that everyone needs an exit strategy and

a timeframe to retire down debt.

You need the income for when youre

active, not when youre 95, he says.

Property investing isnt about having 10

properties, its about the wealth and the

income it provides.

The reality is investing today is no easier

or harder than it was 20 years ago.Property author and millionaire Jan

Somers, who bought her first property

when she was 22, has heard the same

excuses hundreds of times.

People will say yeah, but you bought

your property when it was $12,000,

Somers says. But we were only earning

$3000 and interest was more than 10 per

cent. Property was never cheap.

So what do you do if youre keen to build

a portfolio but not sure about the best

approach to take?

Somers believes by accumulating as

many properties as possible, the longer

you can hold them, the more cash flow

positive they become. Its a foolproof

strategy and the reason she became a

property millionaire.

It happened over 40 years. The rentgradually outstripped the interest. You

cant look at a timeframe of five to s even

years. Young people today need to look at

the next 40 years.

They also need a plan. But whats the

best method for each age group?

API has uncovered the eight top tips

for each generation to help any investor,

young, old, beginner or experienced, get

ahead of the game.

GEN YYOUNG

AND EAGER

Whats a gen-Y investor?Facebook is, like, so 2013 if youre gen-Y.Instagram is in and forget newspapers youre probably following topics trendingon Twitter.

This is gen-Y. Theyre social medialovers, generally born between 1977 and1994. This mass of Spotify downloadersis the largest cohort since the babyboomers. Theyre known as beingtechnology-savvy, less brand loyal andalso more involved with family purchases,including groceries, cars and properties.

Many gen-Ys would be just starting theirproperty investing journey.

Typically, they have to consider rentalyield as well as capital growth, as theyreat an early stage in their career and mightstill live at home with mum and dad orrent a property with friends.

Gen-Y investors are probably still living

at home with mum or dad, hoping to do

some travel and just starting out in their

careers. Kingsley says they usually spend

and live for today, rather than save for

tomorrow. Theyre also more likely to be

on lower wages.

Generally, the gen-Ys dont have the

cash flow early on, so they have to chase

more yield. If they dont have the surplus

cash flow, theyre in trouble, he says.

Although gen-Y investors might have

less cash flow, the benefit is they have

more time, according to Property Tycoon

Finance director Stuart Wemyss.

The more time you have, the less risk

you need to take, Wemyss says.

All you really need to do is play it safe,

invest in quality assets and bet on surethings. Slow and steady wins the race. If

you have 30 years until retirement, you

can build a massive asset base.

1 GET INTO THE MARKETSo what should you do if youre a gen-Y

would-be investor, living off vegemite

toast and baked beans while renting with

your mates, or eating mums spaghetti as

you try and finish a university assignment

at 11pm?

Kingsley says for this generation, its

all about getting into the market as

soon as possible, even if that means

compromising on some capital growth by

going further out of a CBD and factoring

in rental yield to cover costs.

Its still better to enter the market,Kingsley explains.

You have to look at entry-level

property. The majority of gen-Y investors

understand its a stepping-stone, so

theyre realistic about what they can

achieve. Theyve worked out its far better

doing something than nothing at all.

Open Wealth Creation chief executive

officer Cam McLellan agrees. Hes a

big fan of land content and advises

gen-Y investors to move further

out and purchase something on a

reasonable block.

Youre better off to drop your price

point. If you only have $370,000 to spend,

move out to the suburbs and just get into

the market, he says. All boats rise on

a floating tide. Once a market moves, all

suburbs move, so get in where you can.

If youre not too keen on going out to

the burbs for your first property, Kingsley

suggests looking at units. Somers says

gen-Y investors need to be prepared to

compromise and settle for something less

than what they initially hoped to live in.

Dont try and buy the same property as

mum and dad, Somers says. Lower your

expectations and build as you go.

2 SWEET TALK MUM AND DADAnother option is to buy your first

property and stay at home with mum and

dad, rather than purchase a property andmove out straight away. This drastically

helps with cash flow and is a smart move,

according to Kingsley, even though

only about five to 10 per cent of gen-Y

investors choose this method.

If you dont have a big deposit, have you

considered asking your parents for help?

They might be able to use equity in their

own home to help you but this method

is also risky and should be carefully

considered first.

Perhaps parents might help them out

and then the gen-Y investor can stay at

home, get a reasonable job and then start

looking at whether or not theyll sell or

make their next play, Kingsley says.

3 FOCUS ON CAPITAL GROWTHOf course, if you have a pretty good job

and cash flow is quite strong, Kingsley

says go for capital growth.

If theres no prospect of change to that

strong income position, Id still look at

capital growth because time is on our

side, he says.

Hot Property Specialists buyers agent

Zoran Solano says gen-Y investors need

to purchase in an area that has all the

fundamentals for capital growth.

Im encouraging people not to read too

much into the government incentives, as

far as building boosts (for purchasing new

property), he says.

Starting out youngCarl Emmins is a 24-year-old carpenterwho is already carving out a successfulproperty portfolio for himself and hispartner. He has drive, ambition and bigplans for the future, thanks to gettinginto the property game when he was justa teenager.

My dad pretty much instilled in methat the earlier you get into the property market, the better, Carlsays. I was an apprentice at 16. I wasnt earning much but I wasntspending that much either. I was always a good saver and so I hada bit of money.

By the time Carl turned 19, he already had a small deposit.Like many gen-Y investors, however, it still wasnt quite enough,

and he had to think outside the square to get into property assoon as possible.

Fortunately, Carls father was also keen to jump into bricks andmortar and so the tight-knit pair came up with a plan to go halvesin a property in Highett, Victoria.

They paid $750,000 for the property, which would normally bequite a substantial amount for any gen-Y investor. But in thiscase, Carl only had to cover half the cost.

He and his father also realised they could get more rent if theproperty was split into two. So they undertook a small renovation,which included a new bathroom, oors and deck, and installed adividing fence.

These days, Carls dad lives in the back property, while the frontproperty is rented for $440 per week.

Like most gen-Y investors, Carl had to consider the rental yieldbefore he purchased his rst retirement nest egg, because hewasnt on a massive wage. But he realised the holding costswerent actually that dicult as long as there was always atenant. The main thing, according to Carl, was getting into themarket and buying a property he could aord.

It meant he had to compromise on something closer to thecity, but the benet of going halves with his father ensured anaordable and successful outcome.

However, Carl did miss out on the rst homebuyers grant,because he bought an investment rather than a place to live.

That was a bit of a pain but now its costing me nothing to holdand I can see that Highett is actually going forward.

More recently, Carl has purchased an investment property inBrisbane. It was a $400,000 house-and-land package in thesuburb of North Lakes and is renting for $400 per week.

Its one of many investments he hopes to own by the timehe retires.

If you can own ve to six properties outright by the time youre40 or 50, you can live o the rent, he says.

I think the pension isnt going to be around forever and the costof living is only going to get more expensive.

Carl and his partner are expecting their rst child togetherin November. With added expenses obviously comingup in the very near future, its another reason whygetting into the property market as early as you canhas paid o for this savvy investor.

If I didnt have these properties undermy belt, I doubt Id buy anything else foranother ve or six years. For now, itspretty early days and Im hoping tosee some benets over the nextthree to ve years, he says.

Name:Carl EmminsLives:MelbourneInvests:Highett,Victoria, and NorthLakes, Brisbane.Properties:2Strategy:Buy andhold

Gen-Y is a social generation,use your social links to yourbenet.Zoran Solano

> Get into themarket as soonas you can

> Save as muchas you can for adeposit

> Make sure youcan aord theproperty

> Think of creativeways to increasethe rent

> Plan for thelong-term

Carls top tips

GEMMACARR

API JULY 2014 WWW.APIMAGAZINE.COM.AU

GENERATION WEALTH\\ COVER STORYCOVER STORY // GENERATION WEALTH


3/6


4 SAVE, SAVE, SAVEGen-Y investors need to forget about

saving 10 per cent of their wage,

according to Somers. Instead, they should

be saving as much as possible, not just

limiting their savings to a small portion.

I had a total, non-spending philosophy,

Somers says. Its the things you dont

buy thatll make the difference.Solano adds it might also be

inconvenient for gen-Y investors to have

to live in a property they purchase for the

first 12 months, which is part of stamp

duty saving rules provided by some

state governments. But you can use this

opportunity to do a small renovation.

Youre better off claiming the

concession and then renting the property

out for a higher yield (after a renovation).

Solano says. Use it as a stepping stone.

He adds out you can also save money by

using social technology. Ask your tradie

mates on Facebook if they can help with

electricals, for example.

Gen-Y is a social generation, use your

social links to your benefit, he says.

5THINK LONG TERM

Its often said property doubles every

seven to 10 years. But Somers says young

investors need to focus on the next 30 or

40 years, not just five or 10. She adopts a

policy of never sell and advises gen-Y

investors to hold for the long-term. Theres

no get rich quick scheme its simply

about being patient and waiting for time

to do its thing.

6DONT MAKE THE SAMEMISTAKES YOUR PARENTS DID

How many gen-Y investors have parents

facing retirement with little to no savings?

After decades in the workforce, its a

very sad situation so many thousands of

hardworking Australians are facing.If this sounds familiar to you, dont make

the same mistake.

Somers advises gen-Y investors to look

at what their parents did and how they

got there. If they were successful, repeat

their formula. If not, do the exact opposite

and start planning your future now.

If they finished up renting with nothing

to show for it after 20 years of hard work,

dont do what they did, Somers says.

7CONSIDER MORTGAGE

INSURANCE

If youre just out of university but on a

relatively high income, consider mortgage

insurance to get into the market faster.

Its not good for those who have had

every opportunity to save and havent, but

mortgage insurance is good for those on a

reasonably high income, Somers says.

McLellan adds it can take years for a

gen-Y investor to save a $50,000 deposit,

but paying mortgage insurance means

you dont miss out on capital growth.

8 BE BORINGWemyss says the best strategy never

has the glitz and glamour and is always

the most boring. It involves buying good

quality assets and repeating the process.

In essence, its not a get rich quick

scheme. Its a safe strategy but it works.

Dont waste money or time on fancy

strategies like share trading, auction

trading or investing in risky areas,

Wemyss says. For gen-Y, its pretty basic,

but people tend to overcomplicate it. They

try and cut corners, they want money fast

and it almost always doesnt work.

GEN XCASHED UP

WITH EQUITY

Whats a gen-X investor?Gen-X had it tough they had to call thedreaded house phone when they wantedto chat to a boy or girl in high school,often being answerable to mum or dad.Only a gen-X person would know the truetorment of picking up a phone, pluggedinto the wall, and dialing a number, thenhiding in the closest room with the cordstretched under the door frame forsome semblance of telephone privacy.This is the generation born between 1965and 1976. They were exposed to moredaycare, more divorce and of course, moreuro pants and hypercolour tops whilegrowing up in the 1980s.

MC Hammer could often be heard

blasting out of gen-Xers cassetterecorders. It was always a mad rush topress record at exactly the right timewhen their favourite songs came ontothe radio you had to time it so the radioannouncer wouldnt be talking for too longat the start or the end of the song. This isalso the generation that knows the truepain of using pencils to try and x tapesafter they were chewed up in a recorder.

Typically, a gen-X person has startedto climb the ladder in their career. Theymight have already married or started ayoung family and hopefully, theres now abit of equity in their property portfolio.

A typical gen-Xer usually has their own

property. Kingsley says theyre normally

starting to see their employment levels

get to middle management and they

might be cracking through some career

ceilings. They might have also paid down

some debt and already have substantial

equity. So the biggest considerations are

their career prospects, securing a long-

term property and the equity theyve built.Wemyss adds gen-X is usually in a

comfortable phase of their career and they

can still experience two or three property

cycles, which gives them plenty of time to

see solid growth in their property portfolio.

People in gen-X are probably getting

towards the peak of their earning

capacity, Wemyss says.

Cash flow is quite strong but living

expenses are high as well, with a young

family and school fees.

1KNOW WHAT YOURGOALS ARE

Kingsley says a gen-X investors

principal home usually plays a big part in

determining their strategy.

Its also likely theyre at a stage of theirlives where theyre trying to keep up with

the Joneses.

They want the picket-fence home in the

nice street, the good secondary education

for their children. Theyre conscious of the

impact of private school fees and bigger

costs, so theyre really keen to know their

numbers and possibly own the $1 million

house in the suburb they want to live in,

Kingsley says.

Were finding that when the family

comes along, theres a lot more emotional

pressure to have the right home. My

advice is to work out what that dream

home looks like, put that as y our number

one priority and then work around the

sides of that. If theres still an opportunity

to do something earlier, to sneak a cash

cow in, then do it if it wont impact whenyou buy the significant home. Its before

the accumulation phase finishes and

youre retiring the debt.

2 GET AN OFFSET ACCOUNTKingsley advises gen-X investors to

secure an offset account. This works as a

positive double-edged sword. On the one

hand, it helps you pay down your own

principal place of residence (PPOR) faster,

as you can put any spare money you have

into the offset account. On the other hand,

it also helps you build a deposit for an

investment property much faster.

focusing on appreciating assets, rather than depreciating assets,the savvy couple sees the negative gearing as a way of saving fora better future.

We invest and work damn hard for it, Adam says.People buy new boats and cars but those things we dont need.

We both drive Holdens and it costs minimal to drive a smaller car.For us, if the Joneses want to go streets ahead, were quite

happy with looking after ourselves and setting ourselves up for thefuture instead.

That doesnt mean this gen-X couple misses out on enjoyingfamily time together. They still book a family holiday toQueensland every year, they just make sure they put as muchmoney into that oset account in the meantime.

Its about setting ourselves up and our kids up for the future in away our parents couldnt, Adam explains. We now have good jobsand were quite happy in terms of our security.

He advises any gen-Xers thinking about investing to becomfortable with the numbers and negative gearing.

We have only ever made a move when we have beencomfortable with it, he says. We just remind ourselves when themoney gets a bit tight at times and when the credit card looksnasty at other times that its all okay. Theres a plan in place and itall evens out in the end and this is all for our future.

Sacrifce now, enjoy laterTen years ago, Adam and Kim Walsh werekeen to invest and set themselves up forthe future. But like most gen-Xers, the now41-year-olds were also busy progressing intheir careers, paying down their own PPORand raising two beautiful boys. Its a typicalscenario for many people in this age groupand perhaps somewhat of a dicult time.

There are many forks in the road, many bills and education expens-es, but also some equity in the family property and hopefully somecareer progression.

We felt we wanted to set ourselves up as well as our kids for thefuture, Adam explains. We gured our super wasnt going to beenough to live on in a way in which we wanted.

The big question often facing young parents in their 30s and 40s iswhat to do next is it better to pay down the family home or perhapsbuy an investment property? Shares werent an option for Adam andKim, because Adam simply didnt see value in them. After all, peoplewill always need somewhere to rent but they dont always needshares, he says.

Fortunately, Adam, a university lecturer, and his wife, a nationalsales manager, had plenty of equity in their own property.

They bought a four-bedroom property in Strathmore for $428,000in 2006 and estimate its now worth close to $750,000.

Once we put to our mind thats what we were going to do, (buy aninvestment property) we developed a strict budget. We were diligentsavers and we put money in our oset account. Once it was in the

oset account, we never touched it. The advantage was we then alsopaid less interest it was amazing how quickly that money grew.

They were able to pay down their property and also build a depositfor an investment property at the same time. Three years ago, theyfelt theyd enough equity and spare cash to make their next move.They also felt comfortable with the outlay theyd have to fork out andso started searching for their rst investment property.

They attended open homes for a full 12 months before settling ona two-bedroom apartment in a small block of six, in the Melbourneinner-city suburb of Travancore. The propertys fantastic location andproximity to amenities was well worth the wait and the couple paid$434,000, using cash and some equity to come up with a 20 per centdeposit. Fortunately, this purchase turned out to be successful andhas been a capital growth winner. It now rents for $375 per week andis worth around $500,000.

Adam and Kim could have settled on owning a PPOR andinvestment property but gen-X investors usually have solid incomeand plenty of time to build for retirement. Keen to accumulatewealth at an important phase of their lives, they decided to continue

growing their portfolio. They started searching for their third propertylast year, and just settled on a four-bedroom house in the Melbournesuburb of Gowanbrae. Although they paid $820,000 and its onlyrenting for $450 per week, they should get good depreciation on theproperty. Adam says the area is alsogoing completely ballistic and willhopefully have strong capital growthin the future.

However, the large dierence inthe purchase price and rental returnmeans the property is negativelygeared at the moment. Adam sayslots of gen-Xers buy new cars or newgadgets, but spending more moneyon their future is what mattersduring a wealth-building phase. By

Names:Adamand Kim WalshLive:MelbourneInvest:MelbourneProperties:3Strategy:Buy andhold

> Accumulate as manyproperties as possible

> Dont waste money onexpensive cars and toys

> Focus on capital growth> Establish an osetaccount

> Only buy when you canaord to

Adams top tips

GEMMACARR

COVER STORY // GENERATION WEALTH GENERATION WEALTH\\ COVER STORY


4/6


3 FACTOR IN ONE WAGEIf a baby is on the cards, its imperative to

factor in living off just one wage.

If its a young couple looking to start a

family, that property is going to have to do

some heavy lifting in terms of supporting

itself, Kingsley says.

In some cases, you have to chase yield

for couples looking at going down toone income.

4 FOCUS ON ACCUMULATIONGen-X should work on getting the

accumulation phase over and done with

within a 10-year bracket. If you start

accumulating when youre 35, aim to

finish by the time youre 45. Then focus

on retiring the debt by the time youre 55

and voila, you can exit the workforce not

only early, but also wealthy.

Its never about the number, its about

the goals, Kingsley says.

A lot of people make that mistake.

Theyll say I have four properties, worth

$1.35 million. But they might not be

debt free.

A more conservative and veryachievable strategy, according to

Kingsley, is to buy one property every

seven years, but make sure theyre

properties in blue-chip locations.

Kingsley, who is 42 but started investing

when he was 23, says anyone can follow

this strategy. Like many gen-X investors,

he had his first child in his late 30s. He

also upgraded the family home for a

happy wife, happy life.

McLellan adds its a good time for gen-X

investors to take advantage of equity

they might have, as interest rates are low,

rents are strong and most property cycles

are rising.

Duplication for gen-X is what you

should be doing at this point, he says .

Most people just want to pay off their

own home, but if you have two propertiesworth $500,000, you can wait one cycle

and pay the other one off. Or buy a

couple of properties and set yourself up

for retirement.

On the other hand, Wemyss believes

planning to buy three properties over

five years is a bullish strategy for gen-X

investors, but definitely achievable.

Gen-Y has 30 or 40 years until

retirement and if they accumulate

properties throughout their lifetime, its

likely properties will fund their retirement.

For gen-X, that wont be the case,

Wemyss explains.

If I acquire three properties withinfive years and want to retire in 15 to

20 years, the cash flow will be positive

(by retirement) but not enough to

fund retirement.

An alternative strategy, he says, is to sell

a property down the track to reduce debt

and live off the remaining properties.

For gen-X its about buying property

as quickly as possible. You typically dont

need more than three properties.

He adds many investors want four or

five properties but if you already have

three blue-chip properties, you shouldnt

need another. Everyone has a limit to how

much they can borrow and so its all about

buying the best quality, rather than the

most quantity.

Pay attention to the properties you

already have. The biggest risk isnt losingmoney but wasting time. Time you dont

get back. Theres never a bad time to buy

a great investment property and theres

never a bad time to sell a poor one. If

youre not confident you have the best

asset possible, you should sell it.

5 TAKE A RISK A gen-X investor has time on their side

and so they can take a risk, according

to Kingsley. This means they can pay

lenders mortgage insurance to leverage

on an opportunity they dont neces sarily

need a 20 per cent deposit.

The comfort around the debt level you

take on is to justify the numbers, he says.

I advise clients to go higher than 80

per cent on a loan if its appropriate fortheir risk profile. There can be a long-term

positive outcome if a loan is as high as 90

per cent (of the value of the property).

Wemyss adds borrowing more than

80 per cent isnt a problem for a gen-X

investor. What matters is affordability and

servicing the loan.

6 STOP PROCRASTINATINGWhat if you havent already jumped into

the property market? Stop procrastinating.

If you have kids, dont use that a s an

excuse, Somers says.

A lot of people have the attitude, Myparents couldnt afford this, Im not letting

that happen to my own kid. But they

spend, spend, spend on their kids and its

the wrong attitude. Teach your children

good spending habits.

By teaching children good spending

habits, you can save more money and

suddenly, there will be no excuse to

procrastinate. After all, these are the most

important years of your life, where you

have the chance to either set yourself up

financially or do nothing and then live in

regret later.

Dont kid yourself, Well do it later.

That never happens. Have the right frame

of mind, you need to invest early.

7 MANAGE DEBTFamilies with children need careful debt

management, according to Somers. She

says there should always be a line of

credit of about 10 to 20 per cent of a loan.

This means if you have a $600,000 loan,

you should have a $60,000 line of credit as

a minimum.

If something goes wrong you can live

off your equity, she says

But you cant go to the bank when

there are no tenants or when you lose

your job. You have to set it up beforehand.

It may never come to that, but having

access to that money is really important.

McLellan advises gen-X investors to get

a bank valuation on their current home, no

matter what their situation. Then, create

an equity loan.

Then you know your exact borrowingcapacity and the loan you can get,

he says.

Id then look at the middle to outer

ring, under the median house price (for a

potential investment property).

8 DONT WASTE SPARE CASHFor this generation, Wemyss believes its about trying to

carve out a bit of your income and allocating that towards

an investment strategy for retirement. You only need about

$10,000 to $15,000 extra to start, he says.

Its about getting access to equity and getting access to

buying opportunities. The sooner you can buy an investment,

the longer you can hold it a nd it will work nicely.

What if youre gen-X heading towards baby boomerterritory? Wemyss says someone in their 40s can still

accumulate three properties over five years, but they have

less time.

If it takes 10 years, it will be less effective, he says.

So the key component for the strategy is how to utilise

equity in the family home and accumulate as many properties

as possible in the shortest amount of time.

BABYBOOMERS

TIME IS OF

THE ESSENCE

Whats a baby boomer investor?If you thought gen-X had it tough, being forced to call the familyhome phone number when they wanted to speak to their crush,imagine how much harder it was for the baby boomers. Theyhad to actually post a letter.

This is the generation born between 1946 and 1964. Itsthe generation now heading towards retirement, some of

those Vietnam veterans. While property might have beenmuch cheaper back then most households were also only onone wage, with mum staying at home to look after the kids.Of course, this was also the rst generation where womenhad careers as well as families. Throughout their propertyinvestment journey, many baby boomers have probablyexperienced having to pay interest rates of 18 per cent in theearly 1980s. Ouch!

Much of what baby boomers can do depends on their

current wealth base and how much time they plan to stay

in the workforce, according to Kingsley. Most baby boomers

planning to build a portfolio are in their late 50s. The kids have

moved out and in some cases, theyve hit the panic button.

Unlike gen-Y investors, baby boomers probably have more

equity and a good income. But gen-Y investors have more

borrowing capacity because they have more time.

One thing were conscious of is retiring debt out, Kingsley

says. Part of their exit strategy might be to sell down a ssets,

or retain assets for a 10-year period, see the gain and thenretire that debt out.

1 BE REALISTICWemyss says baby boomers usually have 10 years or less

to fulfill their financial goals. On the one hand, that means

they need to take a higher risk, because otherwise they just

wont get there. On the other hand, they need to take less

risk, because they dont have time to waste. He prefers the

latter choice.

If a baby boomer employs a bad strategy, theyll have

wasted half the time they have left, Wemyss says.

So you have to be really focused on the quality of assets.

McLellan adds if you plan to retire in two years, you need

to be able to support your holding costs. But dont chase

For gen-X its about buying property as quickly aspossible. You typically dont need more than threeproperties. Stuart Wemyss

COVER STORY // GENERATION WEALTH GENERATION WEALTH\\ COVER STORY


5/6

GEMMACARR

WWW.APIMAGAZINE.COM.AU

46API JULY 2014

PORT HEDLAND

Government of Western AustraliaDepartment of Housing

There are still few places in Australiaoffering the property investment returnsavailable in this still fast-growing PilbaraCity of the future.With the large number of iron ore andother resource projects planned fordevelopment in the region, the prospectsof more, substantial economic upswings inSouth Hedland remain excellent.At present, the Western Australian

Department of Housings highly successfulSouth Hedland New Living project has awide range of homesites in quality newdevelopments, and there are refurbishedhomes and development opportunitiesavailable to investors and builders.Homesites are available from $240,000and theres a fantastic selection of single,duplex, cottage and group sites offeringgreat potential.

Quality refurbished homes are alsoavailable for immediate purchase andoccupation from just $700,000.To obtain detailed information, talk to RayWhite, the selling agent, by telephoning(08) 9140 2300 or you can visit the websiteat southhedlandnewliving.com.auYou should see the excellent investmentopportunities waiting for you now inSouth Hedland.

Better late than neverLike many baby boomers, Loretta Myliusspent most of her working life putting hertwo children rst and never really worryingabout her own future.

When the 56-year-old started her career,there wasnt compulsory superannuationand investing was out of the question Loretta only lived week to week, providing

as much as she could for her daughters.But years of putting others rst had big consequences. The single

mother admits she now has next to nothing in super and, untilrecently, was facing a tough retirement.

I didnt start getting super until much, much later, Loretta admits.Theres no way I could save for another 10 years and then retire on it.Fortunately, Loretta had a lot of equity behind her, thanks to

paying down most of her mortgage on a property in Chelsea Heights,Melbourne, which is worth about $470,000.

After turning 55, alarm bells started ringing when Loretta realisedshe only had 10 years until retirement.

She certainly isnt alone its a deadline that makes many babyboomers panic after years of slogging it out. While everyone dreamsof playing golf or travelling the world after life in the workforce, thereality can be very dierent if there are no plans put in place.

Having never invested before, Loretta sought advice from anancial planner and buyers agent, choosing a more cautiousapproach to purchase her rst investment property.

Baby boomers cant aord to get it wrong because they just dont

have the time to make up for mistakes if the property doesnt perform.Loretta isnt prepared to take big risks, and thats why she decided

to purchase a property in the safe but stable and promising areaof Ballarat. She has taken on many of the tips for baby boomers,including being realistic, not borrowing too much and considering therental yield of the property.

Ballarat ticked all the boxes and after nding a four-bedroom, brickhouse, Loretta has just settled on her rst ever investment property.

She paid a very aordable $265,000 for the investment and isgiving the property a mini renovation, replacing the carpet, paintingover the purple and pink walls and also installing central heating. Shehopes to rent it out for about $310 per week in a few weeks, whichmeans the property should be more or less neutrally geared.

Another big tip for baby boomers is structuring the loan correctly.For the rst time in her life, Loretta has just set up an oset account.

A lot of young people do it these days but I never did, being a singlemum and all, Loretta says.

The pay goes into that oset account now, the bills are directlydebited through a credit card and I dont use the credit card for

anything but the bills. Thats then paid o every month out of theoset account. I also get weekly money to spend on food, etc.

Lorettas only regret is the fact she didnt start investing muchearlier in life. She advises baby boomers thinking about investingthat its never too late to start and planning for your future todayand making small sacrices is much better than having no nancialnest egg for life after the workforce. Her plan is to purchase anotherproperty before retirement, using the equity she already has, and aimfor something with a high yield in another regional area.

Theres a lot of things I wish I could have done 20 years ago,Loretta says. If I didnt do this, I would still be living week to week ona wage and not doing anything about the future.

Hopefully when I retire I can still have some weekly income fromthe investment properties. Its all still very new to me but its workingout so far. Im very glad I have done this, I think its just meant to be.

> Stop procrastinating better late than never

> Establish an osetaccount

> Use the help ofproperty experts

> Dont take big risks> Consider rental yield

Lorettas top tips

Name:LorettaMyliusLives:ChelseaHeights, MelbourneInvests:BallaratProperties:2Strategy: Buy andhold

COVER STORY // GENERATION WEALTH


6/6

48API JULY 2014 WWW.APIMAGAZINE.COM.AU

Brisbane Sydney Canberra Melbourne Adelaide Perth

positive cash flow just because youre

facing retirement.

Are you planning to live longer than 10

years? McLellan asks.

Obviously yes. If thats the case,

acquire a (capital) growth property.

2DONT LEVERAGE OR

BORROW TOO MUCH

Kingsley advises most baby boomers to be

very cautious about the amount of money

they wish to borrow.

Theres no debt in the conversation,

were buying these things outright,

he says.

As an adviser, if Im sitting in front of

someone at the age of 70 with $500,000

in super, I want something that will giveme rent. I would be apprehensive of doing

any type of leverage, definitely no more

than 20 or 30 per ce nt.

Kingsley has seen many would-be

clients ask for help in their 60s but

most investors need a 40-year cash flow

strategy. Thats why starting out early is

so important.

A baby boomer needs to understand

where their cash flow is forecast to be.

These things can be dominoes, he warns.

3 DONT BE DEBT-SHYOn the other hand, some debt isnt

necessarily a bad thing, Kingsley says.

For example, a property might still

have a $100,000 debt but provide a

passive income.The reality is it can take anything from

10 years before you turn a corner from a

gearing perspective, he says.

Wemyss believes baby boomers really

need to step up and embrace debt while

they can. He usually advises gen-Y and X

investors to try and purchase three quality

properties over five years.

Baby boomers might need to do this

within 18 or 24 months, he says.

Even quicker if possible, because they

only have 10 years left, he says.

The property should still double in that

period of time. We dont want to waste

the next seven years.

4 DONT TAKE A BIG RISKOut of all the generations, Wemyss

believes baby boomers have it the

hardest. They need to take on debt before

its too late, which is considered risky. But

they cant afford to make a mistake either.

For this reason, baby boomers need to

stick to blue-chip property, he says.

We want to make sure the property is

blue-chip, no punts, and only betting on

sure things. Then, let time do its thing.

It might take five years to discover

whether or not an asset is performing.

Baby boomers simply dont have this

time, so they need to get it right within 12

months of purchasing.

5CONSIDER A SMSF

While Kingsley is more cautious about

starting to invest later in life, Somers

believes its never too late to purchase an

investment property, no matter how old

you are. She says a good way for those to

purchase a property today is through a

Self-Managed Super Fund (SMSF).

Wemyss adds going from zero to three

properties is a more risky strategy, but it

might be the only opportunity to acquire

properties. A SMSF might help you get

there faster, he says, and in some cases, it

might be your last chance to purchase an

investment property.

6STRUCTURE THE LOAN

CORRECTLY

Somers says structuring the loan property

can save you thousands of dollars over

time and help you pay your mortgage off

faster. You should take out an interest only

loan and only fix a portion of it. Also make

sure the interest rate is attractive and you

can obtain a line of credit.

You dont want to pay a principal and

interest only loan at that stage, she says.

You could get a loan half fixed a nd half

variable, which means you can get a line

of credit. Then, every ounce of savings

goes into the credit line (which is held

against the variable loan). This helps

reduce the interest.

7 CONSIDER THE RENTAL YIELDBaby boomers also need to consider

neutral or positive cash flow properties,

according to Kingsley. Some dont have

that wealth and so theyre looking for

property to accelerate it.

But if your income isnt too crash hot,

you might need to consider the rental

yield and look in safe, regional areas close

to capital cities.

It might have lower capital growth but

in both situations get a split loan half

fixed for protection, half a line of credit,

where you can pay it down, he says.

Youre in a situation where you need

some equity, real quick. Dont wait for the

market to go, create the equity yourself by

paying down the loan.

8 CONSIDER DOWNSIZINGHave you considered downsizing your

family home? You might find you have

considerable equity in your own property

and by selling youll make a substantial

profit. You could then downsize into

something smaller and perhaps buy a

property with the remaining cash.

If your block of land has space for a

granny flat, you might also like to consider

embracing the granny title.

You might be able to rent out your

own property and live in the granny flat,

or alternatively, you could rent out the

granny flat. Of

course, you could

also move to a unit.If youve made

your money but

youre living in an

expensive home, its

time to downsize,

Somers says.

A lot of middle-

aged people all

park their money in

their own home and

dont want to move.

But theres no point

living in a palace if

you dont have any

cash flow. API

As an adviser, if Im sitting in front of someone at theage of 70 with $500,000 in super, I want somethingthat will give me rent.Ben Kingsley

BONUSCONTENTUse your smartphone

or tablet and yourfavourite QR scanner

app to watch aninterview with gen-Xinvestor Adam Walsh.

+

scan.me/jcr7c8

COVER STORY // GENERATION WEALTH

australian property investor

Documents