More debt is a disaster
With her job in doubt, Tess may find ...
QI am a 57-year-old widow with two children who are uni students. I work full-time and earn $71,574. I have been told my job might not exist by 2018. I inherited recently and paid off my mortgage. I recently bought an investment property based on a 20% deposit and my wage only. I have $450,000 in a term deposit and $44,000 in savings left over from the inheritance. I was thinking of purchasing another investment property and maybe salary sacrificing $400 a fortnight. Do you have any suggestions on what I should do to best utilise what I have to enable me to live comfortably and help my children and to move forward financially? My husband and I were in the sharemarket previously using the equity of our house and were bitten very badly through wrongful doings by a financial adviser. I went to the ombudsman and received partial payment for our losses but my husband died soon after, hence my skittishness about shares.
Tess, thank you for the amount of detail you have given me. I can much better understand why you are concerned about shares.
First, I fully support the salary sacrifice of $400 a fortnight. In fact, including your employer contribution, I would be happy for you to have the maximum contribution going into super of $35,000 this year but reducing to $25,000 from July 1. This is really tax effective and it is a bit of a sneaky way for me to get you exposure to shares. Most balanced funds hold about 60% in shares, but these are professionally managed for you, it all happens automatically and in any good fund fees are very low. The performance of all the major funds has been very good for many decades.
For a property 20% is not a big deposit, so I am very much against buying another on the same basis, in particular as your job may not exist in 2018. You already have two properties, super and cash. Personally, I would be consolidating. I would look at an undeducted contribution to super, using some of your cash. I would then set up an offset account on the investment property and hold my surplus cash there, knowing I can access it.
I do worry that two properties with large mortgages could be a disaster for you if your job disappears, interest rates go up and tenants are harder to find. You are in a great financial position now; my opinion is not to risk it with more debt.