Hello and welcome to The Australian's Money Puzzle podcast. I'm James Kirby, the Worth editor at The Australian. Welcome aboard everybody you are interested in property investment in any fashion or even the basic challenge of owning your own home, you should know that really the outstanding issue in property for property investors just now is not a demand or setting up property or finding a property, or even price, because the prices are coming along very nicely. Thank you.
Seventeen months are consecutive price growth in Australia. I mean, it's absolutely tremendous market. The issue for everyone right now is what you might call holding costs. It's costs that as an investor. It's the costs that you are facing as a homeowner. This week, I just did some work already this week on this really interesting dimension of the market for people are extending their mortgages. Something like one
in ten people are now pushing out their mortgages. Right, so you are strapped basically with the price of the mortgage. How do they make against me? Where this extra money comes from? It it's signed away. It's an old fashioned way. You add five years to your mortgage certainly you cut your mortgage bill, buy one hundred and eighty dollars a month or so, but guess what your mortgage costs about
one hundred and forty thousand more. You literally pay one hundred and forty thousand at more to the bank over the ford period of time. That's the average mortgage on the average home in Australia. Very interesting development this week. Similarly, on the investment side, the colding costs. My guest today
has done some work on this. I'm going to talk about it and in essence, but here is the governed is that the holding costs of property, of managing property have really risen quite substantially in recent times, largely on the back of higher interest rates, to which is of course the defining feature of our market.
At the moment.
My guest is a regular on the Show's Stuart Wems. He's an advisor of course, it's a mortgage broker, it's a property yet but author and indeed podcast to host himself of the invest of Belief podcast or Warrior Stuart.
I'm really well, James, always enjoy our chance. I'm particularly excited to talk about holding costs.
Well.
I noticed you are because you've just been writing about them, and you know, and I know, if you write a piece that's something, then you really know it for a while at least. Yeah, that's right, and I wanted to just talk to you about that. Were you aware that people are doing this, extending their mortgages as I's say, one in ten doing it at the moment that that number is going to rise and rise. We were you aware that was happening, you know.
James thinking about it more, I reckon it would be a lot more than ten percent, because every time you refinance, almost always your mortgage term is reset back to thirty years. So if we think about it, a lot of people, in fact, everyone that refinances, and the average life of the loan I haven't seen the most recent data, but it's three to five years. You know, typically people refinance every three to five years, so people are resetting their
loan term. Everyone that refinances is resetting their loan term. Whether they realize they're doing it or not is another question, but it happens as a matter of course when you do refinance. Of course, we've experienced a lot of rate increases over the last couple of years. So one solution to managing the higher cost of repayment is to reset the loan term. Now, it's not going to make a big difference if the loan is relatively new, so it
was only set up a couple of years ago. But if your loan was set up ten years ago and so the remaining term is twenty years, well resetting it back to thirty years is going to reduce your repayments at a cost. As you've alluded to James, you know, the longer you take to your home loan. But I guess there's another element here as well. Is one is trying to set your repayments at the minimum, just to give you yourself a bit of headroom, a bit of safety,
whilst you still might intend to make extra repayments. So it's still possible to keep the repayment amount the same, but just try and reduce to the minimum repayment to give yourself some flexibility maybe in the months where you know incomes a little bit lower, expenses are a little bit higher.
Well, then I came in to you and I said, and this is even I'm just on the whole room. If I said to you, we are absolutely caught. The reate rises have really caught us. My mortgage is very large. I've got to find some extra cash somewhere. Someone said to me, I can cut one hundred needy up after my mortgage a month cash. I'd probably have to make two hundred and fifty a month to be able to find the one hundred needy to pay, if you know
what I mean? What would you say to them? Would you sa say, look, on balance, it's a good idea. Would you said, never do that? What would your instinctive advice be?
First question that jumps into my mind, James, is have they overborrowed? Is this just a band aid solution? Are we just kicking the can down the road, or do we have a bigger problem here. That's the first thing that I would want to ascertain. It might be that it could be a temporary change in their situation. So one of the spouses is on maternity or paternity leave or something like that, and they just need to get
through this sort of very difficult period of time. And if we feel like it's temporary, it could be a great solution. But if we look at the numbers and we decide, well, look, you probably over extended yourself, then we probably need to have a deeper conversation. Now, we could extend the loan term as an initial step, but we really need to have another solution, which probably is going to be one that means sort of changing their home and changing their mortgage at some point.
Right, I'm actually keep you a very little to do. That's good. Imagine given the choice, it's always easy to kick the can down the world, isn't it the.
Office of the need gratification. As we said, it's always easy to do that.
Yeah, and I think you know it goes to a wider investment strategy question is do they need to have zero home loan by the time they get into retirement
or is a downsizing strategy in their situation. Okay, so if people can make friends with that, if they say, look, we understand extending the mortgage is going to mean that we're going to pay more interest, and by the time we get to age sixty or sixty five, whatever their retirement age target is, we're going to have a home loan and that means we're going to have to downsize
in order to extinguish that home loan. If they can make friends with that, chances are the capital growth will more than offset the interest cost, you know, if they've and particularly from an after attack spasis, so they're probably better off to do that as a general observation, but they just need to make friends with That is our strategy. That's the consequence of doing this, is that we know we need to Dawn's eye at some point in the future.
That's really good, that's a really good answer, and it really cuts to this. Let's just before we talk about investors, just to finish on that. So then the present says, okay, let's listen. I know, I know I'm up for another one hundred and forty thousand that I have to pay the bank, or the bank must be paid in the fullness of time.
And I know I'm.
Pushing tomorrow's problems away from today, but I must do it. And you say, okay, well you must do it on the basis that when the time comes, it's a family home you've got, you must sell it. It's not like you could decide to sell it and move somewhere smaller. Even I have to move somewhere smaller to pay off the mortgage. If you want a mortgage, be retirement, which which on the show has regularly come up as a
sort of a basically a rock bottle. If you want to build wealth, you absolutely got to get rid of that mortgage. So here's a million dollar question. In your experience with people downsides, do they really save that much if they're just buying a townhouse around the corner from the from the family home. It seems to me that they cost more or less the same as those colsors and money stow ups to people set they don't say.
So, is there a proper way to do it?
In my experience, the answer is yes. They downsize to achieve their goal, which is to repay the home loan. Essentially, if that's your strategy, you've got to work out, you know, how much cash and I'm going to walk away with after repaying that mortgage. That's my budget. So you have to make it work. And in the situations that I've helped clients with, we have made it work and it's
been fine. It hasn't created any problems. The thing that I would counsel and encourage people to do is just make friends with maybe the worst case scenario, which is I'm going to have to make some compromises in terms of accommodation size, and if you can make friends with that. Now, it might not necessarily in that way. You know, maybe you're in your cash flows a lot different. Your income might end up being different, interest rates might end up
being lower, maybe the property growth is better. There's a lot that can change over a period of time, you know. But if we can make friends with what is the worst case scenario, well, and then if it turns out better, that's all icing on the cake.
So people can they down size of the same horse could and save money.
Well, they can only if they can make friends with smaller accommodation eyes. So we're going from a family home to a two bedroom townhouse for example, you know, that's what you need, that's what you need to do. And look, most people at that age and stage of life actually want that. Kids and moved out of home. They don't need a four bedroom home. They're sick of doing the garden on weekends, you know those they don't need a
forwarding bar because that's right. Yeah, yeah, So that typically sort of suits their lifestyle decisions or situation as well. But they just have to make friends with that.
Very interesting.
Now let's just flick on to the investor. Quite a different story here, But you tell us first of all, that essential conclusion you came to when you did the deep dive on the figures about holding caston and to the extent of which they're resent for the average investor.
So the idea came out a lot of conversations I've been having with investors and obviously been invested myself. I've noticed over the last four years, so let's say, really, since the beginning of the pandemic, we're all being conditioned to understand that, you know, costs have increased substantially, and sometimes these things creep up on us. Right, we have one year of very high inflation, and then inflation started to come down a little bit. We might fool ourselves
into thinking, oh, well, actually things are normalizing. Not really, prices are never going to go backwards, that the new cost is the new cost. And so I had a look at some of these things across some clients and my own properties. Council rates over the last four years up about thirty percent, Insurance up about twenty percent, general cpis up about seventeen percent over that time. Land tax so since the start of twenty twenty, interest rates are
sort of doubled over that time. You know, variable rates might have been circued three three and a half percent, then our so six six and a half.
Percent, seven percent, that's the big one.
Now that's the big one. Yeah, So so naturally it's natural, I think for property investors, think all these costs, arising, compliance costs. You got to pay your property manager a little bit more because they're doing a lot more work today for their money than they were ten years ago. And so it's natural think, you know, how does that impact my investment returns? Is it worth hanging on to
these properties? You know, if I haven't seen the growth, particularly in Melbourne and Sydney, they're underperforming the other cities, I should say, it's naturally ask, you know, is it worthwhile to hang on to this? And so I thought, let's do an analysis on this financial analysis and my gut feeling was that the holding costs would have a material impact on investing in property. That was that was my initial feeling going in before I did the numbers.
The answer is it doesn't. It doesn't really have much of an impact at all. And that the two factors, the two most important factors. The first one is capital growth. You know, how much will your property grow over long term. Second one is interest rates. They're the only two that are quite sensitive to investment returns. Everything else isn't very sensitive to your investment returns. And the approach that I looked at James was looking at it what's called an
internal rate of return. And so just to explain it quite simply obviously, is when we invest in property, typically most investors go and borrow to do that. So there's not an initial capital outlay because we're borrowing that the purchase price plus the costs and so forth. But what we do have to contribute from our own pocket is the are the holding costs, you know, the shortfall between the rent after expenses and the loan repayments.
The monthly costs would be like or they're on in costs.
Yeah, exactly right. So that's our contribution towards the investment. That's our cash contribution. Let's say that costs us after tax twenty thousand dollars a year. So if we hold that property for ten years, we're put in two hundred thousand, or twenty years four hundred thousand dollars. So if I've contributed four hundred thousand dollars over twenty years, what is
my return. And so what we can then work out is, if we sold the property in twenty years time, we paid capital gains, tax, selling costs, repaid the loan, et cetera. What percentage return did I achieve by investing and when expenses were they used to be but pre pandemic about twenty five percent of gross rental income. So if your property was generating thirty thousand dollars or let's say forty thousand dollars to make the math simple, your expenses are
going to be about ten thousand dollars a year. These are the things like maintenance, managing, cost insurance, you know, these sorts of things. So when they were twenty five percent, my internal rate of return. If I held the property for twenty years achieved seven percent growth and the average interest rate was six and a half percent, my internal
rate of return is thirteen and a half percent. So that means that because I've been putting in twenty thousand dollars a year, I've essentially earned on that twenty thousand dollars thirty and a half percent, which I think everyone would agree is really good and compares favorably against other alternatives such as making additional super contributions or investing in the share market, you're probably not going to achieve thirteen and a half percent. Now, it's going to be clear,
it's not about property. It's about gearing. That's why we've got the thirteen half percent. It's not because property is so fantastic. It's because we borrowed the entire capital contribution at the beginning. So if I change those numbers and instead of assuming twenty five percent for costs, I assume thirty five percent for costs. So that's what it is now. About thirty five percent of grocery engel income should cover
your costs excluding land tax and excluding interest. Well, the internal rate of return drops from thirteen half percent to twelve point eight percent, so it's point eight of a percent, which isn't I mean, it's reasonable, I think, but it's still worthwhile. Right, borrowing to invest in property is still worthwhile despite the higher costs. And this analysis just proved to me yet again that it's all about capital growth.
It's our assumption. So I've made assumption seven percent over the long term, which is really the meeting house price return over the last four decades in Australia. So it's not I think it's a reasonable assumption. That's the key number here is buy a property that over many decades, not the next twelve months or the next five years, over many decades is going to generate a really good quality return.
And part of your messaging is that this fed all of our obsessions with costs and taxes, et cetera, and they have increased. It's the interest rates that really is the variable. It's the key variable, and so a drop an interest rates from here would be very very useful, obvious said for on that basis in terms of everything, in terms of all your numbers, including your entirement method return, it's the key number to watch. Okay, that's very very interesting.
And also you mentioned a couple of things there above the sheer scale of inflationary costs on the invent and how much things had how much things had lifted over the period. Did you say that the curis of CPI was seventeen percent over four years.
Yep, And that's just general CPI and we know things have increased a lot more than that. James.
Yeah, yeah, But that's why the other thing that you a partially capital or the other key feature, I'm sure our listeners think about is rent and off set into some degree there was higher costs that you mentioned. What was the rent increase, what was the rental income increase over that same four years.
Thirty two percent. But insurance is up twenty counsel rates up thirty again, interest which will be you know, probably ninety percent of your holding costs has doubled over that time. So investors are still worse off. They haven't passed on the full cost increases onto renters. But I think the other thing I would say is the starting point four years ago, pre pandemic. The starting point in strates were relatively low, like they were below long long term average.
There were the lowest said bind for a generation or whatever. So fork, it's clear obviously inflection and costs are a RIF factor for investors. It is clear that they have gone up, and you're holding costs as an investor have gone up. The key message from Stewart's for it was that to vary, but it really matters this interest rates. It's more than all virtually all the others put together, doesn't it.
Capital growth is the number one. Capital growth and then interest rates. Now we can't alter interest rates. We have to wear price takers there, we can't impact that. We can try and impact capital growth by you know, first making sure we buy a high quality property at the beginning and then potentially, you know, looking ways to improve
its value over time. So that's the one that I would be focusing on as an investor, and if I'm a new investor, that's probably the best lesson I can learn today before I actually buy the properties to realize I need to buy something today. So in thirty is time, the average growth rate is being above a seven or above seven per.
And as you say, they're doing comfortably above that or as my old friend the property developer always used to say, you make your profit when you buy. Okay, we take your break and we'd be back at the moment. Hello and welcome back to The Australian's Money Puzzle podcast James Kirby with Stuart Williams on the show today, Regular guest, there was one other thing I wanted to talk to you about before we.
Go to questions, Stuart.
When we stand back from it over a long period of time, three things really matter. What was the property you bought, what was the interest rate you paid, and what was the capital growth you got? And we just said at the start of the show, seventeen months in a row now of consecutive price increases eight or nine percent last twelve months and be forecasters, which is never an easy task. But the core caster see two to five percent growth bist calendar year. That's hot off the
press from prop Track this week. Two to five percent growth this calendar year. That seems a little bit on the low side to me.
What do you think, Well, that's that's national right, two to five per.
National dwelling value.
I mean it's all averages, okay, but we know that inflation's four, right, inflation's four, and they're saying property is two to five. Well, if it's on the wrong side of four, no one's making any money.
Yeah.
Well, they're probably been pulled back by Sydney and Melbourne because if you look at CBA's forecasts, they forecast this calendy year and next for Brisbane, Adelaide and Perth to be the standout capital cities and Melbourne and Sydney to underperform. And if it's a weighted average, which it probably is given the meeting house price is in Melbourne and Sydney, well, certainly Sydney are much higher. Then the relative underperformance pulls
those figures back. I would say, I would say fore casters. Would Buffett say, forecasters will fill your ears, but never your pockets. And I would say, look, as someone that's been in this space for a couple of decades, I would say that the banks and most economists have been absolutely terrible at forecasting property price movements, to the point where, really, when I read a forecast, I think to myself, Okay, well, I know it's not going to be that. They're probably
good at forecasting what's not going to happen. So and the other thing I would say is who cares?
Well, you said a few minutes ago you're assuming seven percent?
Great long time?
Yeah, yeah, And I don't care. I know it's not going to happen uniformly. Of course, I know we're going to go through periods. Of My research highlights that every market moves through a flat period and then a growth period, and then another flat period and other growth period, so it's two distinct cycles. I know what's going to happen.
I don't really care. I just want to buy something that's above average, better than average, and something that has the attributes that are going to continue to push that price along over many decades. If I get zero percent this year or ten percent, whatever doesn't worry.
Me, doesn't worry you as long as you can manage the volding costs, which is what we were talking about earlier.
And the key variable on that is rice.
No one knows, as you say, forecasts, no one knows. And it's isn't that amazing that when we started the year, those kate to do forecasts were saying that rice would drop this year.
Some people were saying rich would drop several times this year.
You can't find someone who says rates would drop this year anymore. Either're pushing it out to next year. The truth is a no one knows. B The nearest thing to somebody knowing is how much people are putting on the line besting in the money markets. Money markets are banging on fifty to fifty. Yeah, So really we're at a point where it's it's wide open. Isn't it really been aunced about us go in any direction? Possibly do nothing?
I think the money markets, the money markets have been right. The money markets were totally right during COVID, you know, even when even when the RBA was saying no we're not hiking till twenty twenty four. The money market's still baked in these hikes, and it was kind of I was puzzled at the time, thinking, well, what does the money market now because the person in control is saying
distinctly we're not hiking. But you know they were right, and if you look at them today that they're baking another rate increase this year.
So so so folks followed the money we were to the extent that anyone knows anything the few pop who are actually putting their money on the line.
So that could be a really infused this year.
Who knows except to see that we have now got a sort.
Of not a stable brief output.
But the prospects are that rece won't move as often as they have been moving in obviously they had no prety call but up in the last six years and hopefully still what we have really is this period quess normalized in that REX would be flaked with an advance and if we haven't we know the direction. It's going to be a quarter of a percent. We're not going to get any structural change. And how we do our numbers looking out.
And the silver lining James my gut filling, so obviously we need a dune quarter CPI that's going to be the deciding factor. My gut feeling is we'll get a rate hiking in August, and the silver lining might be if we do get a rate hike in August, I think that'll be probably enough to pop the balloon. And if we do, I think the chances of then getting a rate cart early next Yurium are much higher, okay, because I think I think they will really scare the market.
I think that will discretionary spinnings already down. You notice that at restaurants, and you can get a seat at a restaurant a Saturday night now easily couldn't do that even three months ago. So it's a narrow indicator.
But I reco on the volue, Yeah, yeah, on my son, I think they won't do anything I want.
I don't think they'll do anything from first six months or so. But photos O, we're on a titled opinion.
We'll take short break and we have some really good questions, specifically own property and property investments.
In a minute.
Hello, Welcome back to the Australian's Money Puzzle podcast. James Kirby webs editor in Australian talking to Stuart Willims, who is of course a property expert, author, podcaster, contributor to the web section of The Australian and on the show today, answering all sorts of questions. Okay, we might get you to read the first one if you like.
Absolutely so, Phil asks a property tax question for you. I recently bought and rented out my first investment property. It's a regular brick bungalow built fifty years ago, costing me five hundred and thirty thousand dollars. I'm interested to know whether it's worthwhile to consider getting the expense of a depreciation schedule, which he expects to pay around five hundred dollars for. What are the benefits where the property is simple and doesn't have many expensive features?
Great question, Phil, This has never advised. Everybody's on the information and I don't know what you're going to assist, but I would say, hey, you've never done an debreciation schedule, Spend mine these fever, see what you get first time.
Anyway.
So there's two types of depreciation that you can claim on in investment property, a residential investment property, capital works or capital allowance Capital works really relate to the actual dwelling, the construction itself, the building. Typically, you can depreciate a building over forty years, so two and a half percent
per year straight line over forty years. So if the dwelling is older than forty years, chances are there's noreciation left because you can get a quantity surveyor and what they have to do is estimate the cost, not the replacement cost, but the cost it would have taken to build or construct that home save in the eighties or seventies whenever it was.
Is it no depreciation on an ongoing business? You even did this for a few years old.
Well that they would argue that the building is fully depreciated. You know, the last forty years we've depreciated. So then the question is when was it constructed, Was it less than forty years ago, Well there might be some depreciation left, or was it renovated, extended anything like that over the last forty years. If it was, there could be some depreciation left. The second one is capital allowances, and this changed back in May seventeen in the federal budget in seventeen.
The capital allowances really relate to things that won't last forever and can be removed from the property. Curtains, flooring, kitchen appliances. These sorts of things you can own only claim unless you own that property before May seventeen. If you bought after May seventeen, the only CAUP allowances you can claim is what you spend on the property. So again, if you have replaced some of these items since you've owned it, and if you purchase after May seventeen, then
there may be some depreciation there. What I would suggest to Phil is probably give one of these depreciation report providers a call. You can give them the property address. They might ask you a few questions about the property and they will give you their best estimate of what depreciation might be left in terms of annual depreciation, and that'll tell you whether it's going to be worthwhile for you.
Yes, I have found them to be really okay, and I can remember one time, on one property I can't remember quent flied, they actually said.
Look, don't get a report.
They actually said, you know, no, I think in your case it said don't bother doing it. So as a general observation to all the films out there, check it out, see if they think it's worth it. They will give you a sort of off the show rest of.
It pretty fast.
And if you've never done it before, certainly it's working the exploring because you may well find that you've refuge if you granted that you use there's a tax deduction there if they if they find anything at all, all right, Andrews, said James Gerard. James Gerard, our regular guest on the show of Financial Advisor dot com dot you, who often hosts the show. He recently mentioned that a lot of superannuation farthers will do an in speaks, the transfer when
moving from accumulation to retirement. Is this the most common approach I've heard conflicting advice and have been told that many funds will rather sell down positions in rebuy as part of a move to the retirement phase. And of course the other dimension to this is there is property. Uh And in CC chancewer first of all, could we explained to everybody what an spec chancefer is, Stuart, And could you explain whether there's a difference in dealing with
property or with shares how they're truced. Sure?
So, in specie transfer, I mean if you're going to transfer between two accounts and so most people with superannuation would call that a rollover, you know, moving between funds for example, or moving from an accumulation account into a pension account with the same fund or a different one.
You can either do that in two ways. You can sell all the investments and just transfer the cash, or you can keep the investments and just do an off market transfer those investments from one account to the next account. We call that an in specie transfer because you're not exiting the market, you're not changing the underlying investments. All you're really doing is moving it from one account to
the next account. Now, the critical question here is from one account to the next account, does the superannuation trustee change, Because if the trustee changes, it's a change of beneficial ownership. It will trigger tacks. But if the trustee is the same, there's no tax. So that's the key question here and so and then the second question is what type of superfund do you have? Because if it's a unitized superfund,
like all the industry super funds are bad luck. Your tax is taken out every day like they calculate the tax on the unrealized gain and subtract it from your account. Subtract it from the uniprice essentially, So if you're a if you're in an industry fund, this is not going to apply this option. But if you're in a wrap platform it could apply. And we use Macquarie and net Wealth for example. I know that we can do an
in specie transfer and not trigger capital gains tax. The key question, as I said, if you're on a rap platform, is work out who the trustee, or ask who is the trustee for the superproduct the pension product, I should say, versus the accumulation product, and maybe I'll explain what is the benefit. Why would you do this? James? Actually, before I get there, let's talk about property, because if you've.
Got yeah, can I just put in a seat on the property front. So let's say I have a property like field there and he had his he had his property in it, this worth fight forty And I said, you know what, really I should have had that in my super fund. Can I put it in my super fund? And does that work done in that same methodology in specie?
No, you can't. You can't transfer residential property into super.
That's about an investment property. And I didn't buy it in super I just said, and I decided I wanted to swing it into my super Brook. Is that an special transfer? And can I do it in any fund? Or is the only self managed Super?
So I should have used another word. You can't transfer a residential investment property into SUPER. You can potentially transfer a commercial property into SUPER from your personal name or from another entity into your Super.
So your investment investment property of any description, no I can no, no, no.
Not if it's a residential you can't. I can.
I can trust for a factor, but I can't trus for a house.
Yes, yes, so they call that business real property. That's the definition. In that said, there's a specific exemption for business real property. I guess it's to help people that are self employed that want to go and buy their business premises and so forth. Put it in Super makes a bit of sense. But if I've got a normal residential investment property, I can't put that into SUPER. I can buy it into Super initially, of course, but I can't put it into SUPER.
You can't buy it, but you can't chance there it in Oh yeah, it is loaded against us. It really is count transferading, Okay, I have to have deeper it so in specie just across in general, Andrew, So listenes understand, it's the transfer within the supersystem of an asset. And what happens is that if you said I have my comeback shares and they'll worth one hundred grand of my super and I want to move to another farm, then
they do it in special transfer. Is that if they don't sell them, they say there worths we can move them across a X because we know they're precise value.
Is that in the simple part, spot on, and let's think about what the benefit is here, James, because it's huge. If you bought those if you held those CBA shares, Let's assume you bought it at IPO like in the in the eighties or something, whether they sold for three dollars or five dollars or something like that. With THEE hundred yeah, no, there are one hundred, one hundred and thirty.
If you had a if you moved those assets and it was a change of trustee, you're going to be taxed in super first on the gain and then that money is going to be moved across. Whereas if you don't, if you aren't taxed on the in specially transfer, that that gain even though you made it many many years ago. When you're an accumulation, it disappears right, there's no capital gains. So if i'm let's say I'm really I'm thirty years, I'd love to be thirty day. If I'm thirty today,
I'm going to have SUPER for another thirty years. If I go and buy an ASEX two hundred index, I can potentially buy that index, hold it for the next thirty years, not make any changes, which wouldn't be a bad idea, by the way, And if I then in specie transfer my total gain over that time capital gain. Of course, I've been taxed on the income, but the capital gain disappears. It's really valuable, particularly if you're if you've got a lot of unrealized gains in SUPER, or
if you're young. But having that flexibility to be able to do that in specie transfer and not be taxed is very valuable for superannuation investors.
So keep that in mind, everybody, including Andrews. It is a it is a It is a really good methodology. On the flip side, make sure that you'll never get caught having to pay tax on something you didn't have to if it was possible to do in it specy transfer.
That's the that's the real lesson here.
Okay, final question from Glenn, who seems to be a dad worried about.
It's son, and he must be a dad from your neck of the woods, James. Using the term lad, he says my lad and he's.
Is that the booksell or a Scottish probably.
My lad and his fiance just managed to reach their twenty percent deposit and avoid al ami lender's mortgage insurance. Buying first home brilliant since interest rate increases. Like many of the generation, they're only just getting buy, my advice was to ask for a better interest rate and also shop around. But he's saying that existing first home buyers with less than twenty percent equity will need to pay
for lender's mortgage insurance. Essentially, the lender's mortgage insurance government guarantee is no longer available to him, and he believes it's also not able to transfer if he transfer it to another lender.
Is this true?
In the meantime, what's the general advice that you have for his situation?
Okay, Well, about the government guarantee scheme, which is what it is, so of course you can go in under that scheme. You put a deposit down and the government will cover up to I think it's fifteen percent of your twenty percent, and then you don't have to pay under this mortgage insurance, which is something of a well it's a debatable the best of times.
But here's the thing.
You ask if it's transferable, No, it's not. You ask if it's not available to him. Well, how it works If they have a batch and I think it's something in the order of ten to twenty thousand spots in that program, and within that they have limits on regions, and they have limits on you know, single moms where are given a certain quorum of it, so there's only so much, and then they close it off each year and then they open it again. That's generally how it works.
So yes, if your sun did miss it, it doesn't mean that they would miss.
It the next time round. But that's how it works.
It works in there facts. Yeah, that's the scheme.
Yeah, So I did a bit of research on this, and if the gentleman just googles Housing Australia First Home Guarantee, you'll find the web page. There is an information guide, a PDF information guide on that web page. Actually says, you can refinance the loan if you want to, but there has to be another participating lender, and there's plenty of majors and all the big four on the participation.
Actually A and Z's the only one that doesn't. But there's a whole bunch of other lenders, certainly enough lenders in order to shop around, so you can refinance even if you still need that government guarantee if it's another participating lender. But the other thing, James, is if you go and call the bank and ask to speak to retention. So what I would be doing is call the bank.
So i need to speak to retention because I'm just about to sign what's called a discharge authority because I'm going to refinance.
Is it part for words, Glen, remember them. Just say it once more, Stuart, because it's so parful this.
Just tell them I'm about to sign a discharge authority. It's important to use the right terminology, discharge authority, because my mortgage broker is just going to refinance me to a new lender. But I just want to speak to retention. Every bank has a retention team. I want to speak to retention to see if there's anything you can do to help.
Yeah, that is fantastic. I have used that you taught me about the years ago. I did it. Then I wrote several articles about it. They went crazy online.
Never forget it, folks.
It's so good because the process of the other end of the cost center just goes, oh my god, this present knows what they're talking about, and Morgan's discharged form and put me onto a retention Yeah, okay, sorry's interruption.
And then and then now here's that's okay. Here's the kicker. Whether your LVR is loan to value ratio is ninety five percent or five percent, there's very little chance of retention ever picking that up. And I would bet that their systems aren't even good enough to flag that it has a government guarantee against it as well. So chances are you don't need to worry about it. Chances are you can make the call and you can shop around.
You can find the lowest interest rate. You can call your existing bank back and say, hey, I'm going to refinance to this institution. I'm just about to sign the paperwork walking you do who knows, I don't know. I mean, discounts are based on loan value ran and first time buyers. Typically they have relatively low loan, which means they're not going to get maybe the best discount, but I'm pretty sure you'll be offered something and there'll be some interest
rate saving there. And it's a good it's a good thing for people to understand that even if they feel like they wouldn't even qualify to refinance. You know, so they borrowed two or three years ago and they just wouldn't requalify, maybe because the change the situation or anything like that. Don't you don't need to worry about that. They're not smart enough to pick up to ask the question would we approve the loan or would another lender
approve the right loan? They just want to retain the business.
They want to retain to business. They don't want their book to shrink. It's very simple. August discharge of for is he put me through through attention. Don't forget those nine folks. They are very very good and I can tell you on perst time that their work they work for me. Okay, terrific, Hey, thank you very much. Sure that was great, very very interesting. Isn't that amazing how the property market moves under our feet? And we think
we're on top of it and then something happens. I think today's show really shows that that will issue about the mortgage extensions for the if you are a homeowner, it's there if you want to do it. If you're going to do would have a plan. Keep in mind that an investor that you're holding, costs are higher than they were a few years ago. The note to ways about that inflation has really pushed things up to keep
bigger his interest rates. That's the one that's going to move for your capital growth and interest rates so important. And also on that broader issue well re financing, you actually have some have the banks have actually become more competitive. Believe it or not, it is true that they will give you better times if you know how to play the game. And part of that is the language which we discussed today.
Terrific Stewart, thanks very much.
Thanks James fan as always great to talk to you.
Will have you on again soon and do keep the questions coming folks. The Money Puzzle at the Australian dot com dot au Ok you soon