The Courier-Mail

SHARES HAVE DRAW­BACKS WHEN SAV­ING FOR A HOME

- NOEL WHIT­TAKER

OUR daugh­ter held an ac­count with the dis­banded gov­ern­ment First Home Savers scheme, and with our help had saved quite a good sum. What would be the best op­tion for a sim­i­lar ac­count to save to­wards a de­posit, as she has been ad­vised by her bank that the best it can of­fer is an online sav­ings ac­count. It will be around five years be­fore she

is in a po­si­tion to buy a prop­erty. Would a term de­posit be an al­ter­na­tive, or should she look out­side banks and con­sider a good share port­fo­lio?

The re­al­ity is that online sav­ings ac­counts are the only prac­ti­cal al­ter­na­tive. If she in­vests in shares, she could suf­fer a cap­i­tal loss if the mar­ket falls, or be li­able for cap­i­tal gains tax if it rises. MY hus­band has just ac­cepted a vol­un­tary pay­out of $115,000 and we are un­sure of the best way to move for­ward. We have a mort­gage on our house of $158,000 and also have two rental prop­er­ties, which are both pos­i­tively geared. My salary is $98,000. Our plan is to pay $75,000 off our mort­gage and use the re­main­ing money to ren­o­vate one of our rentals. Al­ter­na­tively would it be bet­ter for us to put the money into buy­ing another prop­erty, although we are wor­ried this may put a strain on our fi­nances given we will only have one steady in­come?

You should try to max­imise your de­ductible debt and min­imise your non-de­ductible debt – there­fore any spare funds should be di­rected to pay down the non-de­ductible hous­ing loan. Also con­sider bor­row­ing for the ren­o­va­tions on the in­vest­ment prop­erty as the in­ter­est on this loan will be tax de­ductible. I note the in­vest­ment prop­er­ties are pos­i­tively geared, which means they are cost­ing you noth­ing to keep. If you feel they have good po­ten­tial for cap­i­tal gain, an op­tion may be to con­sider keep­ing them be­cause they will not be a drain on your cash flow, even if you are liv­ing on one in­come. You al­ready have three prop­er­ties so it may be worth­while talk­ing to an ad­viser about bor­row­ing to in­vest in shares. MY daugh­ter in­tends to con­tinue her ed­u­ca­tion in a cap­i­tal city in the next three years. With this in mind, my hus­band and I are think­ing of buy­ing ei­ther a house or apart­ment there now. Can you

give us some guid­ance as what we should be do­ing or who we should con­tact?

My view is that an in­vest­ment de­ci­sion must be as de­void of emo­tion as pos­si­ble. To buy a prop­erty just be­cause your daugh­ter is study­ing there means you are clos­ing your mind to all other in­vest­ment op­tions. These could in­clude buy­ing in other ar­eas and/or buy­ing other as­set classes such as shares. If you do de­cide to buy a prop­erty, keep in mind the se­cret of do­ing well is to buy in a prime lo­ca­tion from a ven­dor who needs an ur­gent sale.

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