Hello, and welcome to the Money Puzzle podcast. I'm James Kirkby well T editor at The Australian. They welcome aboard everybody. I don't know about you, but the most entertaining interesting story financial story I thought in recent days. And by the way, there's been a few round if you follow
a minrais, if you follow wisetech. But for me, certainly on the property side, had to be the Prime Minister's ill timed moved by a house by the sea four point three million dollars at Copacabana Beach there in central New South Wales. And here's the thing. It was a bargain right the Prime Minister. Let's make it clear about this house. Whatever the controversy is. Politically, he paid considerably less than the previous owner who bought it about three and a half years ago for four point six The
Prime Minister got about three hundred thousands off there. So politically you wouldn't describe it as a good deal or even a good idea. But hey, as an investment it's pretty good. Now. Every spring who can resist this, including the PM, who can resist it? The lure of the holiday home there you're working on your ETFs and your dividends and your tax returns, and it's all very dry and it's all up in the cloud and no one sees anything. And you buy a holiday home and hey,
you can sit on the veranda. You can sit on the veranda with your friends. Bricks and water. A lot to be said for it. So I decided I should have a guest on who is not just able to advise on things, not just across this, but it has direct first end experience and all this something we've often talked about. Actually, it's James Gerard Financial Advisor dot com dot you Hi, James, how are you hello? Good?
Thanks for having me on the Pleasures always.
Do you know that's part of the world, the Central Coast where the PM has a body's cliff top plot.
I do know it very well. I my accountants up there, so I go up there to see the accountant. But I had a holiday house not too far from there as well, so I know that part of the world.
Then you're going to be ideal to be interrogated on the wisdom strictly from an investment point of view of the holiday home. It is funny, isn't it. In spring it's only human. That's when all the holiday houses come online. That's when the season is. Spring is the season for all auctions, but particularly for holiday homes, because that's when everyone starts to think about them. You don't see many for sale in May or June, where the market completely
goes flat. So first of all, I thought that was very interesting that I think a first class property really and if you look at it, it looks like you paid it off four point three but if you look at it closely, it's a hilltop, it's a cliff top plot. And I don't think anybody has any dispute with how much he paid. Not everyone could pay that. But we know Anthony alban is a big time property investor. We know this. We know he has a considerable investment property portfolio,
residential property exactly what we talk about every week. It would be well across negative gearing. He even had to evict a tenant, which anybody would find uncomfortable excruciation, probably if you're a politician. But he had to evict a tenant from his place last from one of the places a few months ago. So that's the sort of downside, isn't it. That's the hard part of property investment. So, James, if I've got it right, you had a holiday home and now you don't have a holiday home, and so
I imagine you're not exactly a holiday home flag waiver. But maybe I'm wrong from an investment point of view. First of all, what's your approach or attitude towards them.
They can be good because you have a personal aspect to it in that you get to go to the place. And also, let's just be blunt about it, you have bragging rights. You're standing around at a barbecue on the wakend.
I alluded to bragging rights at the start. Yeah, but you and I are above bagging bragging rights. So let's talk entirely theoretical here and the money point of view. So they can be good. Why can they be good?
YEA, the good because it's a mixed asset. You have the ability to have personal enjoyment from that property. You're saving accommodation elsewhere by using your holiday house. But also could be a good financial investment depending on how you treat it. If you rented out on short term let insights, while you're not using it, you're generating income from the
property and also grating hopefully capital growth as well. But then some people they stay there a week in the Christmas holidays, stay there over Easter, lock up the house when they leave, and then it just stays vacant after that, and they're a little bit more of a money pit because they're paying council rates the pain for repairs. There's a higher chance the property will get broken into because people in the area know that it's a holiday house and no one's using it. The only thing that has
going for it is that the capital growth. If that's happening, so they.
Can be good.
And you mentioned that I sold my one, which I did a couple of years ago during stufter COVID, because what I've noticed was that the market pretty much doubled in the space of a year and a half because people were flocking out of Sydney, going up the coasts, going we're never going back to the office again. Interest rates it were low, all the conditions were right for growth in those coastal properties, and that's exactly what happened. So I thought, great, let us take that that profit.
And since that point in time, seeing big corporates forcing people back to the office, and there's been a bit of weakness in that coastal market, and astute property investors like the PM himself have jumped in, so it's actually probably not a bad time to be buying these sort of coastal holiday regional type areas.
Exactly. You timed very well, and I suppose to flow back to the city. Did happen? Probably a bit slower, I imagine that you thought, or anyone thought, it's still slower. But I was talking to another regular guest on the show, Eliza on and had a research a core logic, and I was saying, what about I was trying to get it, basically to talk directly about the Prime Minister's house, which obviously she was uncomfortable doing. But I said, okay, let's
talk about that area. Let's just talk about central coast South Wales, which could be any area by the way, really by that economically, from an investment point of view, the coast is the coast, and if you can be within striking distance of any of the cities, then it's a lucrative, potentially lucrative and desirable zone. That would be anything from the Morrington Peninsula in Victoria right up along through the North and South Coast up and beyond Sydney.
The particular area here Copa Capana Beach, which will become famous now of course, is between Sydney and Newcastle. So I said to Eliza, tell us about that market from the data. Just tell us about that market. And she said, there's a couple of really interesting things happening. There's a sea change reversal, so people are coming back to the
city and we know that. And in many ways the voluntary part of that phase might be over and we're now into the involuntary part where companies are now demanding rather than asking people to come back to the office. Is a very different sort of tone to all that. She mentioned that the mortgage rates were elevated and people who had two mortgage if you've got inflation like we have, even if the capital growth is there, it could be hard to keep those two mortgages running or you could
have almost no money left. What's the point of having a holiday home if you can't fix your front fence or something. So that's definitely an issue. And there was a third issue that people had been hanging out for a raid cut and it hasn't come and every week it is less likely, and I think we can rule it out this year already, and we're talking early next year now for the holiday home investments or for any investor who wants a lower and it's dependent on rates
coming down to keep it all rolling. What about then, the issue of a holiday home. Very few people would not like to have one. To me, it seems many people have them, and they say, we're never there as a constant complaint. We're never there. We were supposed to go down this weekend, but my nephew is playing soccer or whatever. Another one is that when they have a holiday home, they think that they might move down there
whatever that never comes to. They think that there it would be wonderful for the wider family, but that never works out either, often because people aren't around. One person wants to go down, the other person never does, etc. So you have those complications. But that's thinking of it in the old fashioned way. I suppose as strictly an asset that's un mortgaged. But if we approach a holiday home from an investment point of view and say, look,
it's another property. I have a negatively geared property in the metropolitan area, and now I'm going to have a regional coastal investment property. That happens to be a beach house, I can rent it, I could air be and be it. What about it as a proposal as a financial proposal under those terms, James.
Good Yep, it works out well. When I looked at the numbers on my holiday house, which we had mainly as an airbnb, we'd stay there for the minority of the time. The utilization the amount of time that people were staying in the property was about forty percent, which meant that most weekends, holiday periods, people were renting out the property. And I stacked the numbers up side by side to say, if I put a permanent tenant in
the property, I would get X per week. If I get forty percent utilization on stays and Airbnb, I get why return per year. And it worked out to be about a two percent increase in yield rental return if I rented out short term versus a permanent tenant, And that also sliced away a bit of time for family to go utilize the property as well. So for us
it worked out perfectly. But it resonated what you said with regards to the common complaints as to what happens with holiday houses that we didn't go there a lot. We went there a lot in the first twelve months, but then after.
That you take it for granted. We really need to go there.
Other things pop up. It's always going to be there. We could go there another time, and you never really get around to it. Whereas if you go on a holiday somewhere else, you need to book a combination, you really need to put it in the calendar and it becomes an event that you look forward to, whereas a holiday house, again, you take it for granted.
Interesting, I never thought about it that way. Yes, yeah, I imagine that's it. That is certainly an issue, and I'm one of the practical about it. Before we take a break, Apparently it's really hard to get treaties in these holiday areas. It's hard to get them in the middle of the city, so I presume it's considerably even more difficult in regional areas.
It was awful trying to get trades people there, but it didn't help because we were on the lake Lake Macquarie, and there was ninety eight steps from the street down to the property, and I remember trying to get an electrician there and he came to the front. I heard his mute I saw him from down the bottom there. He looked at the ninety eight stairs, jump back in his ute and drove off again. So it was hard
to get people there. But the thing is that once you find these good trades people, they're worth their weight in gold. So you just need to be patient and find the right one through trial and er and then you've got a great little network of electricians, plumbers, handyman to to help fix up the property. But I guess overall with holiday houses that they can work quite well.
And the Prime Minister is very stuting that someone told me years ago that when you're buying property, one thing that you can't build more of, for get more of, is waterfront. There's only going to be a finite supply of properties on the lakes, on the oceans, and so you're pretty much assured a decent capital growth long term, assuming you don't buy the wrong point in the cycle. But if you buy something that's on the water, it's always going to be a scarce resource.
That's so true. That is so true. We'll come back to that in a moment, folks. We'll take a short break. Hello, Welcome back to the Australian's Money puzzle James Kirby with James Gerard, and thank you James for hosting in September when I was aware that was great, Thank you very much. I meant to say that at the start, the medium price at that coastal reserve where the PM board is one point nine, and he paid four point three. And I remember thinking when I saw the first photograph, I
said four point three for this house. That looked house, but it's by no means outstanding, and the area isn't particularly well known either. However, on closer inspection you realize that what he boat was exactly what you're saying. Absolute
water frontage. If you see aerial pictures, it's on a cliff, so it's actually a really terrific slice of land I saw even just doing the numbers, if you look at Airbnb that place, the house is what the up to nine hundred a night, nine hundred dollars a night on Airbnb, which would put it in the top shelf I would imagine of Airbnb properties. One other thing which I think would be very interesting. I just thought i'd bring this up.
I think our listeners would find it really interesting. We were talking about holiday homes and how they work on the economics of it. If you do your work, as James says, you can make them work. And there are aspects to them that are a drag, like any investment property, and that means bills and repairs and the ongoings, etc. And one of the issues with the holiday homes that they for everybody is that they don't get used enough.
Some people don't like renting. You're putting their property on AB and B. But a few months ago I came upon something James and I were talking about this a while ago called Third Home and Third Home is a US group and they they're basically what they call a luxury holiday home Exchange club. And what you do is you join and you become a member, and then you get to swap houses with other members around the world.
And here's the catch, if you like or the threshold of what makes it special, the rock bottom minimum value that your property must be worth to join this club is US one million, which which puts Copoa Cabana comfortably inside, but maybe not for most people. I wonder what the average holiday home is worth. I presume it's under US one million. Have you familiar with those guys, James, what do you think of that arrangement.
I've heard of similar concepts, not that particular company in detail, and it's worked well for people. The feedback that I had from friends and family who've used similar things was that the availability of homes overseas was somewhat limited, and so they had lots of requests for people to stay in their place, but they couldn't really find or get accepted to places overseas, and making the dates match up
nicely with busy work schedules was difficult as well. So in theory sounds great, can work, but there's a little bit of work involved with it. And you mentioned that the PM's place where nine hundred to night is that with miss Alberteazy serving you toast and coffee in the morning, is at nine hundred.
A night and telling jokes written for him by former journalists on the Australian. Yes, yes, okay. Put that to one side. Where were we? Yes? Now James cutting to the serious part of the show. If someone's listening and they want to do this, and this is a we have many listeners who are very engaged in property, it would seem, and the PM has flagged this very clearly. If you're ever going to buy one. In terms of value, they are relatively better value than they were. That house again,
the PM's house. He bought it for four point three three years ago. It sold for four point six. And there is discounted prices all around the country. I mentioned the Mornington Peninsula, which is outstanding in Victoria because Victoria, of course the whole market's week. So the holiday house market's going to be weaker because it does tend. They do tend to overdo it, don't they, James. They fly higher than the rest when things are going up, and
they sink harder when everything else is dropping because they're discretionary. Really, are there any spots around the country you're aware of where there is relative value. Yeah.
I'd say there's a lot of places in most states actually that are a regional and coastal that have weakened over the past couple of years due to the things that you've mentioned, with high interest rates, that reversal of working from home type trends, general cost of living pressure.
People have been offloading those discretionary assets. And you can find good land with homes on it for less than half a million dollars in a lot of places, and The way that I purchased my holiday house on about one hour outside of Sydney was that it would be somewhere that I could downsize to in the future. So I locked in my retirement property in today's dollars rather than have to buy it down to the track. And we saw it because we didn't actually like the lifestyle
up there. We preferred the hustle and bustle of Sydney. So we ended up purchasing and property on the low off shore that looks into the harbor and see the fireworks on New Year's Eve, and that really agreed with us. So having a holiday house, you need to think about why you're doing it. Is it because you want to enjoy it now with yourself, friends, family? Do you want to get capital growth? Do you want high income from it?
Do you want to lock something in that you give yourself options that you can downsize into in the future. So in terms of where to buy, you.
Might like to got under for your holidays. Let's not forget the original principle of the holiday home.
True.
Keep that in mind, folks, you might actually use it for holidays. It's ironic, isn't it. The people that have the drive perhaps, and the drive more than anything else, and the tempo to have multiple investments and have a holiday home are probably not the same people who can sit on the veranda for very long. That's one of the ironies of life. Okay, I hope that you found that interesting, folks. It's been something that I wanted to
do for a long time. And thank you to the Prime Minister for triggering the notion of a show based on holiday homes, because I've been waiting to do it. Now we have some really good questions, so I want to move on to them pretty quickly, and they are actually quite properly focused, these questions, and James has seen them. So we're going to come back in a moment and we'll be covering those. Hello and welcome back to the
Australians Money Puzzle Podcast James Kirkby with James Gerard. Okay, I'm going to I'll read out the first one James, and these first two questions they are a tiny bit specific, so I will say, first of all, we don't give advice on this show, and I will probably minimize some of the detail. I don't need this much detail, folks. When you send in your questions, Okay, here we go.
The first question from James. I bought a regional house in a regional town for two seventy k. It's been geared ever since, low maintenance, probably worth five fifty now. Growth has been great, renting easy. That sounds good. How do I know when it's time to sell? That's a really good question that comes up all the time, and it's asked by so many people. That question, which I think actually is from Michelle. I'm sorry, Michelle. She says I'm on the highest tax backet, but love to have
your thoughts, not advice. Never advise Michelle? When is it time to sell? Zillion dollar? A question? What would you say? If she? What would you see?
I'd say to people generally who have investment properties and they're not sure and when to seal is why do you want to sell? And what happens if you sell? What are you going to do with the money? Is there a purpose non deductible debt against your house? Do you want to purchase another investment property? What's the outlook for the investment property that you hold? Will it continue to go up or do you think it's hit its peak and thus it might be a good time to sell.
And also for people on the highest marginal tax bracket, they're going to have to pay twenty three and a half percent capital gains tax assuming that they've held the property for more than twelve months. There is a fifty percent discount off the forty seven percent, but still it's
twenty three and a half. Alternatively, if people wait until they retire five ten years away, for someone in there their fifties or early sixties, and they don't have their employment income pushing them up into the highest marginal tax rate, if they then choose to sell the property, then they're going to pay a lot less capital gains tax. So you need to think about what you're going to do with the money. How much capital gains tax would you pay now if you're sold versus if you waited it
and sell it down the track. So put all these things together and then you can make an informed decision.
So if I buy a holiday house and I said I'm sixty four, I pay CGT. And if I retire and I said it when I'm sixty six, I paen noal CGT.
Less CGT because you're you're starting income is zero, assuming that there's no other sources of income that you have for your tax return, whereas while you're working, the average worker makes one hundred thousand year, so they're reready in the thirty something percent tax bracket, and then the CGT gets added on top of that.
Yep, all right, So it's something to consider. And income stream would be free of course too, wouldn't it. If you're the income. If you're getting twenty grand a year from the house or thirty or whatever, then pre retirement you pay income tax on your income, and post retirement you would possibly have no tax at all unless you're over at one point nine million assets. Yeah, is that how I got that right?
Yeah, that's right. Personally you can earn depending on whether you're a singer or a couple. But in the ballpark of twenty five thousand a year when you apply tax offsets in terms of personal income and not pay any tax. And then if you have property in super you're right up to that one point nine million dollars of asset value in super you pay no capital gains tax. And just touch on something really quickly. It's interesting that holiday houses, even if you don't rent them out at all, there's
still a CGT asset. There's no exemption there. You only get one exemption, which is your primary residence. And then holiday houses, even if you use as a personal asset, are still subject to capital gains tax.
Okay, that's really interesting. Yeah, so keep that in mind, folks, really interesting approach, and always keep that in mind that your tax situation changes after you retire. So just consider that for a moment. It may be the case that you hadn't planned that or hadn't thought about that. That's two Michelle and all the Michows out there. Okay, So the next question is from andre A and d r z DJ. Would you like to read it?
James, So, Andrea's rights. We bought a block of land in a small coastal town south of Perth, built a house on it fifteen years ago, and then thirteen years ago they bought the neighboring block of land and they amalgamated the two blocks together because they just wanted one set of rates and they were looking in at building a shed on the block, which Andres didn't do. We would also like a large garden and no rear neighbors. Fair enough, they're in a residential area. They're three hundred
meters from the beach. They've got three thousand square meters of land. Property prices that are booming there. So Andre's question is around he knows that he can't sell a part of your house to raise cash, but what if he subdivided the land and sold off a piece. What do you have to pay capital gains tax on the part that he subdivided, which I assume would be that backyard,
that second lot that they purchased. And then can they put some of the proceeds into his wife super And I'm assuming Andres's referring to the downsize of contribution, where you can put up to three hundred thousand dollars as a nonconcessional contribution if you've lived in your property for ten years. So it's really interesting. It's probably worthwhile getting advice from a tax accounter because it's quite a specialized
situation here. But I would have thought generally that if you had two blocks of land you lived in a house on one you bought the other one made into your garden or looking to put a shed or something on it, you didn't generate any income from it. I would have thought that if you separated the get and sold the back part, there'd be no capital gains tax. But that's just my personal.
Thoughts, because you're selling a part of your principal place of residence exactly place of residence enlarged that one point, which is entirely feasible. Okay, that's a guide on the situation, hypothetical situation where they occur. Listeners, and I'm sure you can all follow that. Okay, very interesting. Yeah, funny that never came up before. Okay, Gordon says, I'm the sure. Jackie C. Shark advised. Maybe she didn't advise Gordon. She said that you could get some basic advice from mates.
From mates, I have a fairly decent grasp of finance, and says Gordon, I have my emergency funds sorted. I realize many of my friends haven't done this, and did at a point start providing some very generic advice. I asked a clarifying question in a closed Facebook group on something I had been doing. People who were all fairly clewed up, were very adamant that this could be interpreted as advice which I am not qualified to give. Since then,
I've never offered this to friends. Where did the boundary line sit? Oh? Yes, million dollar question, Gordon look, there is advice, is there's general advice, and there is individual advice. So there is actually there is layers to it. But I wouldn't worry about advice from one person to another. If I meet my neighbor on the street and my
neighbor says should I sell my house? I'm thinking of it, and I say, yeah, I go for it, that's not advice, and that's not formulated advice given on a statement of advice. There's no license in the seeing or whatever. That's casual that happens every day in every city. There is a
at the other end of the spectrum. If you go into a financial advisor like James, fully qualified, fully credentioned, licensed in giving you advice, he has to go through an enormous amount of paperwork, this thing called the statement of advice, which is supposed to be clear or possibly dropped all together in this new regime being very slowly put through Parliament, but it remains a place for the moment. There's layers. Also, there is a general advice. Again, when
we talked, we never talked specifically on the show. For instance, if Frank comes in with a question about his particular situation and he owns two houses and he wants to sell one. We don't talk about that one person. We talk about a character. If a person in Australia was in that situation, what they could do, and that is how we approached its information only. So I hope that's
untangled things. Just from your perspective, James, as a qualified licensed advisor, is it dangerous for you if you're sitting on the train and someone you never met in your life stars talking to you and they say, I'm thinking of whatever? Are you? Actually? What happens if you say something to them?
You're bound with liability to give them a statement of advice if you make statements to them which are of a personal advice nature. And the thing is that the vast majority of financial advisors really care about people and they just want to help people and they want to share the information and knowledge that they have, but unfortunately we have all this red tape and regulations and you hit the nail on the head with general versus personal.
So someone sitting on the train and they say to me, James, what do you think of ETFs? So they a good idea and should I should? And tell me about salary sacrifice as well? I can talk about that. Yep, these what ETFs are, basket of stocks blah blah blah. This is what salary sacrifice is. Thirty thousand per year limits catch up concessionals and they go, oh, do you think I should buy some ETFs? And do you think that I should salary sacrife in the superb Then that's where
the line is drawn. I can't respond to that.
No, but you can't. You could say many Australians like ETFs, so are many Australians sacrifice into super and it works for many Australians, etc. And basically turned that into a generic but not a particular or an individual conversation. I hope that's useful to you, Gordon. It's interesting. Now, perfect segue into the next question, which brings up this subject. David, who would you like to read that one? James?
Sure? David right. So, I enjoyed your recent show and declining numbers of financial advisors and the increasing advisor fees to me, the financial advice regulations are an example of why over the zealous regulation is flatlining productivity. More generally in Australia. We recently asked our financial advisor of almost twenty years if we should switch our superinnuation to the pension phase. We receive back a statement of advice of
twenty six pages plus three other compliance documents. Of the twenty six pages, six were relevant, the rest were complying. It could have been written in two pages, including modeling. In David's opinion, David's question is what happened to the Michelle Levy Quality of Financial Advice Review?
Indeed, indeed, so there's the statement of advice we're talking about, and the only thing to say to you, David is that your advisor was probably just as I knowed about that statement as you were. They must buy load do that, they must buy load do that. This is the problem. What happened to Michelle's Quality of Advice review is that the government orchestrated a potential new regime for financial advice called Delivering Better Outcomes, but they broke it into phases.
The first phase is through, but it's some very minor red tape clear ups and some small issues to do with big super funds. But the big changes remain on, not through Parliament and not put in yet. There's a variety of things. They are much greater simplification of advice, including the removal of that statement of advice for something else, allowing big super funds to really get in and give advice in the way that we are as we know it. That still coming down the lines. That's where we are
on all that. Hey, thank you very much, James. Very interesting to hear your views. I knew that I knew that you'd be good on this one because you've been in one door and out the other on that. And if ever there was a time to do the holiday home show, this was it. So thanks very much, my pleasure.
Thanks James.
Great to have you on. Okay, folks. On Thursday, I'm having I am having Alex Moffat on the anniversary of the Great Stockmore market crash, the Great Crash of nineteen eighty seven. He was on the floor trading as a stockbroker when it happened. Not many people around that can really give us a clear view of what it's like to wake up in the morning with the twenty five percent drop overnight in the value of your shares. It's something everyone should know could happen again. And I want
to talk about that. This is coming Thursday, but Alex so looking forward to that. Let's have some questions, observations, comments, love to have them. The Money Puzzle at the Australian dot com dot au is the email and do mention us to any of your friends that you'd like to show. That would be really good and we'd appreciate that and talk to you soon