Albo takes a swipe at our super

Holy Hector!

Can’t a man leave the country for a fortnight without the entire financial system melting down?

I’m barely off the plane and I find out the Prime Minister’s been running the skewer up our super. My inbox is jammed with Barefooters like Brad:

“I’m sure you've picked up on Albo calling our super a ‘national asset’. He’s scaring the hell out of people, including me! I know you lean left and tend to defend Labor, but are you not alarmed by this? By following your steps I've got over $650k in my Hostplus super, yet the thought of him raiding it for his pet projects makes me sick."

(Brad reckons I lean left. My wife reckons I'm to the right of Genghis Khan. Truth is I've attacked every party viciously over the years. Just not all at once.)

So I spent the morning reading what Albo actually said, rather than what journos said he said.

Here it is:

“There is a real potential to see these funds as a national asset that can be used more appropriately and get better returns as well, not just for individuals and for retirees, but for the nation.”

Ah joy mray! as they say in Cambodia (kids, please don’t translate this).

Look, I get it. Australia has a productivity problem. Our living standards have suffered one of the sharpest falls on record. Albo wants to kickstart things, and he’s eyeing off the $4.5 trillion sitting in super to help.

He's seen what happens when governments with big money pick winners. Just look at China. Back in 2001 they decided EVs were the future. They bankrolled the whole lot. Today they make nearly 75% of the world's electric cars. The best of them charge in five minutes, drive themselves while simultaneously massaging your butt, and leave you with change from $50,000.

Now, I reckon Albo and the comrades would love to run Australia like Communist China. (Big plan, big cheque, no pesky questions).

There’s just a few problems with this idea:

Neither side can dig a bloody hole. I don't mean that as a metaphor. Remember Snowy Hydro 2.0? The Liberals sold it to us at $2 billion. Labor's now spent ten times that, years late, and they still haven't finished digging the hole.

Look, after twenty-odd years watching ‘can't miss’ ideas turn to dust, I don’t trust governments with our money. Come to think of it, I don’t trust the industry super funds either, who jet round the globe buying airports and toll roads and glass towers nobody can put an honest price on. (Yes, Brad. That includes Hostplus.)

Super funds have a legal obligation to act in the best financial interests of their members, so I find it hard to believe that they’ll play ball. That said, politicians can be very generous when it comes to spending our money.

For me?

That’s why I’m happy to be boring. My super is invested in a slice of the biggest companies in the world through a low-cost index funds. No private jets. No mystery airports. No grand government plans. Just my money, priced every single day on the share market where I can see it.

It’s our bloody money, Albo. Keep your hands off it.

Tread Your Own Path!

P.S.

We raised tens of thousands of dollars for baby-in-the-bag Sok and Sunrise orphanage in Cambodia.

To those of you who answered the call, thank you.

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Your Questions & Answers

• Revolution in Banking is Here?

• How to Get Rich With Property Investing

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A Revolution in Banking is Here?

Hi Scott,

I’ve been with ING for years and I’ve got no real complaints. But I read this week that Revolut has launched as an actual bank here in Australia, and it’s now covered by the government's deposit guarantee. Low fees, over 5% interest, and it says it’s a “financial superapp”, one app for all things money. It also does cheap currency exchange, which would be handy when we travel. Should I be taking a look, or am I better off leaving well enough alone?

Sonya

Sonya,

Revolut is very un-Australian, in a good way.

No minimum monthly deposit. No minimum balance. No penalty for touching your own cash. That’s a nice change from the bonus-interest obstacle course most banks make you run every month.

Now, about that 5% you read about.

You only get it on their top-shelf ‘Ultra’ plan … and that’ll be a hundred bucks a month, thanks.

Meanwhile Macquarie offers 5% on balances up to $2 million. No hoops. No monthly fee. No dance moves required.

Ah, but look at all the Ultra benefits!

Airport lounges, travel insurance, mobile data, and a ‘platinum-plated’ card, purrs their marketing.

Lounges?

Look, maybe. If cafeteria bain-marie food and getting loaded before you squeeze into your economy seat is your thing, then happy travels.

Free share trades?

Half a dozen apps already charge next to nothing. That stopped being a selling point years ago.

The fancy card?

Their $29-a-month Metal card is made of 18 grams of reinforced steel. I haven’t touched my debit card in years. I pay with my watch, or my phone, or it’s already saved on my computer. Though it may be a handy accessory for cocaine snorters, I guess.

Here’s the kicker, though. ING already dropped its international transaction fees, so your card works overseas without the usual slug. You’re better off than you thought. And if you’re sending money overseas, check out Wise.

My Barefoot verdict?

You’d want to be on drugs to pay a hundred bucks a month for a bank account.

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How to Get Rich With Property Investing

Scott

I want to change the off-the-plan apartment industry for the better. Over 9,000 Australian investors a year buy through groups charging $44,000 to $100,000 in hidden commissions. These groups run their own accountant, broker, researcher and financial planner in-house. Property isn’t regulated, and most clients end up with negative equity. We’re building a transparent alternative. We’re remunerated by the developer, but we are bringing in independent advisers to help people. I’d love to talk about bringing more awareness to it.

Paul from …. (name of business given, but not printed)

Hi Paul,

As a rule I bin the pitches I get. I made an exception for yours, and you’ll see why in a minute.

You’re right about the industry. We’ve all seen the property investment gurus on social media and podcasts promising to show you how to get you out of debt (by taking on more debt), save tax, and get rich ‘like they did’.

As you’ve pointed out, they’re really running a sausage factory, loading apartments with up to $100,000 in commissions … which is how they actually get rich. They rely on novice investors and ‘churn and burn’ them.

(And if one of these outfits set up a self-managed super fund for you, understand what happened: they got you to borrow inside your super to buy their overpriced apartment, locked away where you can’t easily sell it, and clipped you on the way in. That is the single most expensive mistake in this space, and thousands of Aussies have made it.)

There’s only one problem with your plan to clean up the industry:

You’re one of them.

Read your own sentence again: “We’re remunerated by the build itself.” Translation? The developer pays you. So when you sit across the table from some young couple, they’re not your client – they’re your product. The bloke building the apartment is your client, and he’s paying you to move his stock.

And now that the market is softening, developers are getting desperate. Desperate developers pay fatter commissions. Your pay rise arrives at the exact moment your buyers should be walking away.

I’m also calling bulldust on your claim of getting independent financial planners and accountants. If they really were independent, they wouldn’t recommend your properties. They’d say what I’d say:

Don’t you dare buy this overinflated piece of crap.

So why did I publish you (but not your business name?)

Because your pitch is the best warning I’ve read all year. Every reader now knows exactly what the sales script sounds like.

I want nothing to do with you.

Thank you for reading!

Scott

Albos War on Property Investors

Scott,

 I read a financial commentator suggesting Labor is planning to cut the Capital Gains Tax discount from 50% to 25%, and that anyone thinking about buying an investment property should do it before the May Budget. What are your thoughts? 

Phil

Hi Phil,

There's a good chance the Treasurer is floating this now to soften people up. Whether it actually happens in May will depend on how loud the backlash is over the next few weeks.

That said, I've always thought the CGT discount was a bonehead policy. It pushed property prices higher.

Which was exactly the point.

And if this change only hits property (rather than shares), then owning an investment property will become less attractive after Budget night: Good news for first home buyers. Bad news for property investors.

My view?

I don't make investment decisions based on proposed tax changes. But over the long run, Aussie shares with their tax-effective franking credits are likely to deliver better income, stronger growth, and fewer hassles than being a landlord (after all, shares do not leak, break, or ring you on a Sunday needing a plumber).

New Mum is Ghosted and Gutted

Hi Scott,

I’ve been trying to sell an investment property since early 2024. A buyer came through, signed everything, and I was told the contract was unconditional. But they only paid $1,000, not a real deposit, and kept stalling on settlement. Weeks dragged into months. The tenants moved out, so we were bleeding money with zero rent, still paying the mortgage.

So I found a lawyer, despite the expense – I just couldn’t watch that nasty person walk away free. Well, the lawyer couldn’t even verify the buyer. The name was ‘Jenny Tren’, but there was no ID on file and no way to trace her. We couldn’t sue. I’ve copped thousands in losses – two advertising campaigns, legal fees, settlement costs, months of mortgage repayments – and relentless stress. I’m giving birth to my second baby next week, and I’m still lying awake at 5am thinking about this mess. Who do I speak to? Can I track this ghost?

A furious, sleep-deprived mum-to-be

Hello Mum-to-be,

Bloody hell, what a mess.

No wonder you’re awake at 5am. You’ve been screwed around by amateurs who couldn’t sell a sandpit.

Seriously, a thousand bucks down and no ID? It sounds like your real estate agent thought they were flogging a Labradoodle on Gumtree, not handling a property sale.

Now most property sales require a 10% deposit. It’s not just a tradition, it’s a form of protection: if the buyer bails, you keep the cash. But in your case they vanished into thin air and left you holding the bill.

Something stinks here, and it’s your agent who stepped on the turd. 

Here’s my advice. Have your lawyer ask the agent for a full written statement: specifically, how they vetted the buyer, why they let that tiny deposit slide, and why no ID was ever collected. If they are found negligent, the agent’s professional indemnity insurance may cover your losses.

Good luck with the new bub. This is one dirty nappy that you don’t have to change. It’s their mess – make them clean it up!

Scott

Where Are They Now?

Hi Scott,

You won’t remember me, but 12 years ago I reached out to you, desperate for help. I had made a bad property investment and then found out I was pregnant. You reached out and personally called me. I was a single mother, struggling both financially and emotionally as I prepared for the birth of my baby girl. 

I did the hard yards. I read your book, worked my arse off, and followed your advice. I’ve often thought about writing to thank you, but kept waiting for the ‘perfect time’, which of course never comes. But your words were true: “You will come out stronger, even though you don’t think you will”. And now I have hard-won lessons I can pass on to my daughter.

Thank you for everything

Kim

Hi Kim

Ahhh, you got me! (Or perhaps it’s the hay I’m feeding to the sheep that’s getting in my eyes.)

Congratulations on all your hard work, and for sticking at it – I’m really proud of you.

Here’s to all the hardworking Barefooters out there who are  slogging away in silence, paying down debts, building up their Mojo, and creating a better life for their kids. 

You’re changing your family tree, and leaving a legacy that’s worth much more than money.

Scott

Buy a House, or Get Screwed?

Hi Scott,

A few years ago, my husband and I lost a lot of money in a housing downturn. We’ve since saved over $400,000 and are ready to buy again, but the market is crazy. Should we invest in shares, buy now and flip in 12 months while prices are booming, or hold off, knowing property in our regional town can crash hard and fast? We’re keen to make a smarter move this time. What would you do?

Terri

Terri,

Here’s a little Barefoot cheat code for you. Whenever someone asks me a money question, the first thing I do is throw it right back at them and say:

“What do you think you should do?”

Because most of the time they already know. They really just want someone to stand there clapping while they set fire to their own eyebrows. 

And right now you’re flicking the lighter so close I can smell your monobrow starting to sizzle. That four hundred grand is about to light up your whole face. You’re tossing up buying shares, flipping a house, or sitting around waiting for a crash.

I don’t love any of those ideas.

So let’s flip this around. You’re not really looking for a quick win. You’re chasing financial security after getting your fingers burnt last time.

So why not keep it simple? 

Buy a home you can afford in a place you’d be happy to stay for the next 10 years. Boost your super contributions to 15% and enjoy the tax deduction while you’re at it. Then start chipping away at building yourself a nice Mojo account with three months’ worth of living expenses.

Boring? Sure. But boring is beautiful when it comes to money. It’s what lets you sleep through the night instead of lying there at 2am panic-refreshing house prices like a gambler feeding a pokie machine.

Good luck.

Scott

My Best Friend Thinks I’m Scum

Dear Scott,
 
I am so privileged. Thanks to following Barefoot from age 17, I bought my own home in Brisbane on a modest salary when I was 24, which I am now renting out while I live interstate. At 27, I am with the man I plan to marry and we are looking to the future. Yet I feel guilty about having multiple investment properties during a cost-of-living crisis. My best friend says “all landlords and shareholders are scum”. I want to build wealth for my family and future children, but I feel bad about getting ahead when others are being left behind. Can I please get some advice?
 
Lina
 
Hi Lina
 
Congrats on your success, I’m so proud of you!
 
Now, what I tell my five-year-old daughter is that whenever someone tries to hurt you with their words it says much more about them than it does about you. They’re the ones who are in pain.
 
Your friend sounds like she’s frustrated that she hasn’t been able to achieve financial security.
 
I get it. You get it. Fact is, we may all live in the wealthiest country on earth, but there’s a growing divide between the haves (home owners) and the have-nots (renters) that is driving deep-seated resentment.
 
However, calling people names is a five-year-old’s way of looking at the world, and it’s going to lead her to becoming a bitter and twisted Greens voter.
 
If this was a playground tiff, I’d tell you to not take it personally and to try and be kind to your friend as she goes through a rough patch. However, if she continues to use you like a cat uses a scratching post, I’d argue it’s time to branch out and find some new kittens to play with.
 
Onward and upward, Lina.

2024 Will Bring The Biggest Crash of Our Lifetime

Hi Scott
 
A question for you if you wouldn’t mind commenting – is there any truth to economist Harry Dent’s latest dire warning of doom for shares and property in Australia? 
 
Jenny
 
Hi Jenny,
 
So I watched Harry on the Today show. He predicted that “2024 will bring the biggest crash of our lifetimes”, and suggested that the value of both Aussie shares and property could more than halve this year.
 
It was frankly … weird.
 
 The folks on Today are supposed to be journalists, but the hardest hitting question they asked wasn’t even a question. All the interviewer said (with a giggle) was, “Geez, that’s a bit depressing”.
 
So here’s a question I would have asked Harry:
 
“Harry, you’ve been incorrectly predicting that Australian property prices will crash for years.
 
“You said they’d be down by … 55% in 2009, 65% in 2011, 55% in 2014, 50% in 2016, 40% in 2018, and 40% in 2020. You have been ball-tearingly wrong for so long, why should we believe you today?”
 
And because he’s a savvy sausage, Harry would no doubt have a well-rehearsed rebuttal that would sow enough doubt in the minds of viewers eating their cornflakes to let him wriggle out of that question. So then I’d then follow it up with my final question:
 
“Harry, if you have all the answers, why don’t you set up an investment fund and make billions profiting from your predictions?”
 
Because, once upon a time he did. Except it was a dud, reportedly losing 80% of its assets before it was merged and closed down.

Should I kick my friend out?

Dear Scott,

I’m in a difficult situation with my friend. She’s been renting my large family home from me for the last three years, paying $825 a week in rent. I recently had a rental appraisal done and the estimated rent for the house is now between $1600-1800 per week! I’ve sent her the agent’s quote and asked her to make a decision within the month. My friend said the agent has overpriced my house and she wouldn’t pay much more than $820 per week. I know there is a housing crisis on at the moment and she has a family to consider. Help! What would be a fair thing to do? She’s already ‘unfriended’ me on Facebook!

Jocelyn

Hi Jocelyn

Thank-you for providing me with reason #784 that I am not on social media.
Look, it’s your money and not my place to judge what you do with it … but we’re not exactly quibbling over ten bucks here: you’re subsidising her to the tune of $50,000 per year!

So, you’ll have to decide whether you want to continue doing that.

If you don’t, I’d recommend hiring an agent to deal with this for you. Yes, it’s an added cost … but then again, so is the emotional cost of being unfriended on Facebook!

My advice?

Be classy, with your head held high. Tell the agent you want to give your current tenant the first right of refusal at the market rate. And if I were in your thongs, I’d be generous about giving her time to find alternate accommodation if she doesn’t want to pay the market rate.

Scott.

Am I a Greedy Landlord?

Scott,

I own an investment property in an area where rent prices have basically doubled during COVID. Do I keep my good tenant of nearly 10 years who is now on very, very low rent, or chuck him out to cash in on the double dollars with new tenants? The tenant could actually be making money as he has two rooms to sublet, and the rent from these could exceed the entire rental. The rent is actually so low now that it is embarrassing me — I feel stupid!

Helen

Hi Helen

You’re embarrassed? Really?!

Helen, there are plenty of things you could be sheepish about, but this is not one of them.

Helen, stomp your hoof, you’re a rolled gold daddy ram!

Here’s another way to frame your situation:

You’re a savvy investor. The value of your property probably went up 30% over the COVID period, while you were still able to provide a secure roof over the head of your tenants who were likely going through a really stressful time.

Am I saying you should let them rent it out well below the market rate?

No.

What I am saying is that you renegotiate while also being considerate of the people who’ve been paying off your investment. If they’ve been good tenants and have maintained your property well, they’ve earned the right to sit down and make a fair deal with you. Good tenants are hard to find. Giving a little often goes a long way.

Baaa!

Scott.

Timeshare Tragedy

Dear Scott,

My husband and I are in our sixties and on the pension. In 2007 we went to an Accor timeshare seminar and signed up to their deal. We paid $22,000 upfront, plus an annual maintenance fee. We’ve only used the hotel three times (it’s always booked out). Yet we’ve been paying these annual fees ever since. Our bill this year was $990, and it goes up every year. We’ve been told we can’t get out of these annual payments unless we declare bankruptcy, or die. We’ve had to sell a lot of our assets to live. Help!

Julie and David

Hi guys

This is outrageous.

You were robbed — with a pen — by a $12 billion-dollar publicly listed company!

At least with an old-fashioned hold-up it’s done and dusted in a few minutes. These robbers are holding a gun to your head till the day you die!

(Consumer group CHOICE found that timeshares can “lock you into contracts that run from 60 to 99 years, and can cost you as much as $450,000 over the long run”).

If I were in your shoes — pensioners on a low income — I wouldn’t pay them another cent.

After all, they’ve already made their money twenty-fold from you.

Fair cop!

However, if you do this they may play hardball and sic their debt collectors onto you, and even try and bankrupt you.

So it seems to me you have two choices:

You can keep paying them till the day you die.

Or you can call the (financial) cops on these robbers. Give me a call during the week (when I have my financial counsellor hat on) and I’ll help you lodge a complaint with AFCA, the Australian Financial Complaints Authority.

Scott.

Following My Dream

Hi Scott,

I am trying to follow my dream of buying my own home before I turn 30, even though I am on an average wage. But my accountant recently put me in touch with his property advisory team and they are adamant I should buy an investment property (with their help) as a way to pay less tax. It has got to a point where I have started ignoring their calls as they just will not listen to me. Am I being too stubborn or am I doing the right thing?

Tash

Hi Tash,

Interesting predicament.

Here’s what I’d email your accountant (feel free to use it):

Dear Mr Accountant,

I’m breaking up with you and your firm, effectively immediately.

It’s not me, it’s you … and your salesmen mates who keep hassling me.

Seriously, they remind me of a desperado date I’ve been on before (I know they only want one thing, and they won’t take ‘no’ for an answer).

It’s all a little creepy and, dude, I just don’t need that from my bean-counter.

Regards, Tash

If you have an uncomplicated set-up (pay-as-you-go job, no investment properties), you should be able to complete your tax return with myTax through myGov. And if you need to maximise your deductions, check out the ATO’s myDeductions app.

Put the money you save towards your house deposit, not these clowns.

Scott.

Scrooge McDuck

Sir Scott,

I see your dread and fear of low interest rates, and will slay this with my positive outcome. My investment property in Queensland, which I bought cheaply, is positively geared and is reaping the rewards. I bought it in 2018 and interest rates have continued to decline each year. I feel this is a much better approach then just letting money sit in the bank earning next to nothing. I am quite shocked as to why you never encourage investment property purchasing when there is affordable housing across Australia. I feel you coach people to be Scrooge McDucks.

Pete

Hi Pete,

As they say in the classics, where do I start?

Whenever I talk about cash, I’m talking about short-term savings: money you’ll need in a pinch.

You suggesting that an investment property is an ‘alternative’ to saving money in the bank is weird.

They are not the same.

There are three things your 18-month journey into property investing hasn’t taught you yet:

First, interest rates may be the lowest in history now, but remember you are taking on a 25-year mortgage.

Second, properties are expensive to maintain. Something costly almost always goes wrong when you least expect it, and that will eat into your return.

Third, when speculators without Mojo go bust, it’s not pretty. And it happens quite a bit, especially in the go-go Queensland apartment market. Wait a few more years and you’ll probably see it.

Look, it’s not about being Scrooge McDuck, having money for money’s sake. That’s the opposite of my message. Rather, it’s about having a financial cushion so you can say “I’ve got this” no matter what happens to you.

And that gives you the ultimate return: sleeping well at night.

Crash Landing

Hi Barefoot,

My wife and I live in regional Australia, earning good dough. Our problem is our rental in Brisbane. Our tenants (no problem up to this point) have been stood down due to COVID. He is a pilot and the main income-earner for his family of six. For the past three months we have discounted their rent by 50%. They have just come back requesting a further discount period because he is still on stand-down. Shouldn’t they have their finances sorted so that my wife and I are not subsidising their lifestyle? Or do I show a level of compassion and continue with discounted rent on the basis that some rent is better than zero?

Gary

Hi Gary,

You seem like a good bloke. Many landlords haven’t been as generous as you, judging by a report out this week from Better Renting which found that fewer than 10% of tenants who asked for rental relief received a satisfactory discount. Yet, if I were you, I wouldn’t simply approve their request for a further discount period.

Instead I’d write to them explaining that the fairest thing you can do is give their family time to make some tough financial decisions. Nominate a certain date you’re willing to give them to make that decision, and, importantly, spell out the amount that this will cost your family. At that date they need to come to you with an acceptable offer, or move out.

Scott

Student Digs

Hi Scott,

You generally advise your readers to buy a house first and invest later, but I am wondering if this is always the best approach. I am currently trying to decide whether to invest in a student accommodation apartment. It costs only $150,000 and I have enough for a 20% deposit. I am thinking the rental income will pay itself off and I can make extra repayments as well. Meanwhile, I will continue to save up for my house deposit. What would be the risks?

Leonard, Your #1 Fan

Leonard,

Be honest: you don’t really want to buy a dog-box in the sky.

What you really want to do is speed up the time it takes to save a house deposit. Other people try doing it with shares, thinking it’s better to own shares in, say, a bank (and be paid a dividend) than to have money in their miserly savings accounts.

Compared to saving up money in the bank, you can currently earn a higher income from property or shares, but your capital will not be secure. And that’s the biggest risk you face: a few years down the track you may find a home you really want to buy ... but the banks will knock you back because you own a ‘same-same’ student apartment that’s worth less than you paid for it.

Scott

Are Index Funds in a Bubble?

Hi Scott,

The financial guru from the movie The Big Short, Michael Burry, who made a fortune betting against the US housing collapse, is saying that the next big bubble is index funds and exchange traded funds (ETFs), and that things will get really ugly should the share market crash. Aren’t index funds what Barefoot recommends? How do you respond?

Steve

Hi Steve,

After the 1987 crash, governments around the world held at least six inquiries to work out what caused it.

There was no conclusive answer.

My guess is that investors were driven by their emotions:

First, by greed as they watched stocks going up (buy, buy, buy!), and then quickly by fear (sell, sell, sell!).

And, given human emotions don’t change, this behaviour will be what causes the next crash.

Faced with all this erratic decision-making, wouldn’t it be good to have a mechanical, unemotional, by-the-numbers way of investing?

Enter index funds (and Exchange Traded (index) Funds (ETFs).

They are simple to understand: you own, for example, a share in the 300 largest businesses on the ASX.

They have transparent investing rules: twice a year they rebalance the portfolio so it matches with the index (the market).

And, as a result, they have low turnover, low taxes and low fees.

In other words, they are the exact opposite of those actively managed funds that try and pick market swings and roundabouts.

In fact, we know that, over the long term, investors in these actively managed funds will end up with less money than they would if they’d invested in a simple index fund. (And repeated studies show that even those actively managed funds that do well in the short term often do so by luck rather than skill.)

Now, to your question: will things get ugly for index funds if there’s a share market crash?

Yes.

Yet it will be ugly for every investor, whether they’re in index funds or not. However, I still can’t see how owning a collection of the largest stocks on the market would put you at a greater disadvantage than other investors.

Steve, if you’re lying awake at night worrying whether you’ll be able to sell your investments in the event of a once-in-a-lifetime crash — rather than, I don’t know, making love to your wife — you really need to check yourself before you wreck yourself.

Besides, history tells us is that the day a market crashes is the worst time to be selling.

Scott

Let me tell you about the smartest 23-year-old woman I know:

Her name is Samantha, and she’s worked out a way to get a private 30-minute financial strategy session with me every single month. How much does she pay me?

Nutt’n.

In fact, I pay her $40!

Then again, she does wield sharp scissors and often holds a razor to my throat (so I’m the very definition of a captive audience).

Over the past few years I’ve heard about her on-again, off-again, on-again boyfriend (it’s my version of MAFS … each month I get a new episode). Yet over the past 12 months they’ve gotten engaged, and are now looking to buy.

She put in my lap a brochure from a new development on the ‘fringe’ of Melbourne.

“This joint looks more like the back of the mullet than the fringe”, I quipped (as she snipped dangerously close to my ear). “How much are you looking to spend?”

“We’re looking at places around $450,000, and we’ve saved up $50,000”, she said.

“That’s a great start, but not enough.”

“Well, we’ve already got pre-approval from the ANZ!” she countered.

“Did you have to submit payslips or any other documentation?” I asked.“Er … no.”

That, I explained, is the equivalent of a swipe right on Tinder: you’re not getting married, you’re simply in the ‘maybe’ pile. So I challenged her to spend the next month playing the field, and she dutifully went to two banks and a broker.

The response? “Yes ... no … and maybe."

Still, Samantha is in a rush, and she wants me to wave my magic wand and help her buy as soon as possible, “while prices are low.”

But here’s the interesting thing:

At 23, she has absolutely no concept of an economic downturn. In fact, even her parents, who are in their early forties, have never experienced a recession in their adult lives.

Let’s put that in perspective:

In the 1991 recession, Aussie property prices had their longest fall on record: 20 months of decline.

So how does that compare to today?

Well, nationally prices peaked in September 2017, which means they’ve been falling for 17 months.

However, I’d argue that this slump is only getting started, for three reasons:

First, the Reserve Bank suggests there are almost $500 billion in interest-only loans that are due to be reset to principal-and-interest in the next five years, which their analysis suggests will cost the typical borrower $7,000 more a year.

Second, interest rates are already at historical lows, so small rate cuts add up to only small repayment savings. And besides, it’s unlikely the banks will pass on the full rate cuts.

Finally, the upcoming federal election will likely bring a new government, and with it changes to negative gearing and capital gains tax (CGT).

As a result of all these factors, banks are being very cautious with their lending … and it’s the banks that ultimately control property prices, based on their willingness to lend.

Plenty of people who bought in the past two years are copping a buzzcut. That’s why my advice to Samantha -- and anyone else with less than a 20 per cent deposit -- is simple: there’s no rush!

Tread Your Own Path!

When cashed up bogans run out of luck

You know what really grinds my gears?

Cashed up bogans.

For years, their success stories have been clickbait for news websites. They all run along the same lines:

Craig and Cheryl were just like you - wasting their lives away reading empty articles on the internet instead of applying themselves at work. Yet unlike you, they made the decision to buy five investment properties five years ago.

Today the young couple are worth $3 million and they’ve retired (to run a property investment advisory business). The savvy couple’s advice to people wanting to follow in their footsteps? “If we did it, anyone can. All you need is passion” says Cheryl. “Hustle!” adds Craig.

(Insert photo of the smug couple with matching tans, tattoos, and teeth.)

“Come on, they were just lucky!” I yell at my computer screen.

They didn’t work, or create anything … all they did was take on a lot of debt and rode their luck!

Well, let me show you what happens when your luck runs out, this time with a real couple: Michelle and Ian Tate.

In 2013, the Tates decided to expand their property portfolio … to five properties.

Despite the fact they had three young kids.

Despite the fact that they were relying on only one income, which was heavily dependent on a cyclical industry (mining, as a fly-in fly-out FIFO worker).

It didn’t take long for things to go (as my father would say) ‘tits up’.

So, who is to blame?

Well, the couple blame the bank for lending them the dough.

And so do their lawyers, Maurice Blackburn, who have made them the lead plaintiffs in their blockbuster Westpac class action with the charge of irresponsible lending.Hang on a moment.

If we’re talking about acting irresponsibility, how about not taking a few moments to question how their single wage could possibly feed both a family of five, and five properties. It’s not that hard. All they needed to do was click away from Facebook and head over to a Mortgage Calculator:

“Strewth! If interest rates go up by 0.1% the computer says we’re cactus!”

It seems to me that there was a healthy dose of greed and stupidity on both sides.

The banks closed their eyes and went on a borrowing binge to hit their profit targets ... and many borrowers did pretty much the same thing. (And now, in the circle of corporate life, the greedy lawyers are licking their chops at the chance of a big payday.)

Look, I’m a fan of kicking the banks, yet I’m an even bigger fan of personal responsibility. And the media? Well, it’s a fan of whatever gets the most clicks, which this week was, “Family’s $1.8m Westpac mortgage hell”.

Tread Your Own Path!

Preparing for Apartment Armageddon

Hi Scott,

A few years ago I read your prediction that inner city apartment prices would fall. Since then I’ve been saving hard and am relieved to see property prices finally going down! I am now a few months away from having enough for a 20% deposit. Do you have any advice for first home owners looking to buy in the next year?

Tammy

Hi Tammy,

Well done for playing the long game!

(In 2015 I wrote ‘an open letter to the young people of Australia’ where I predicted that 2018 would be the year that first apartment owners would get their revenge, because of an oversupply of newly built inner city apartments.)

My first bit of advice is that there is no need to rush.In fact, 2019 is shaping up to be an even tougher year for the property market. A NAB survey released late last month found that confidence in the housing market has hit new lows (then again, NAB’s own behaviour hasn’t exactly been a confidence-builder either).

The apartment market has gone from FOMO (Fear Of Missing Out) to FONGO (Fear of Not Getting Out).

Use it to your advantage. With a large (and growing) deposit, and the ability to negotiate, you’re in the box seat.

FONGO on!

Scott

Does Renting Now Make Sense?

Hi Scott,

I would like your thoughts on something that is bothering me. Forecasters think that house prices are set to fall at least 5% over the next year. If you buy a million-dollar house now, in a year you will have paid 4% stamp duty upfront and 4% interest in servicing -- and suffered a 5% drop in value. That’s 13% gone, wiping out over half of a 20% deposit! Isn’t renting at a 3% to 4% yield better? Should there be a ‘Barefoot Warning’ that rent money sometimes is not wasted?

Dee

Hi Dee,

My warnings for first home buyers aren’t about falling property prices, but rising interest rates.I devoted an entire chapter to it in my book: it’s called ‘The Curious Case of the Postcode Povvos’ … first home buyers who live in cafe suburbs … but can’t afford a coffee because they’re a slave to their mortgage.

In that regard, I totally agree that rent money is not dead money if you can’t afford to comfortably service a mortgage and have a commonsense buffer for higher interest rates (which will come at some stage in the next decade).

My view?

With falling prices, there is absolutely no rush to buy your first home. Yet don’t get paralysis by analysis. You’ll pay stamp duty and interest whenever you decide to buy. So, once you find a home you love, that you can afford, and that you will live in for at least a decade, buy it.

Scott

This morning I arrived home from a family holiday from Bali

I’ve just arrived home from a family holiday.

As I opened my front door, I quickly realised I’d brought home a souvenir from Bali: bacteria.

Yes, I’m typing this bent over with a bad case of ‘Bali belly’. Yet nothing bad ever happens to a columnist, so I’m using my tummy troubles as an analogy for how the world financial markets are feeling right now:

Queasy.

And worried about what’s coming down the err … pipes.

Case in point, here are the headlines that greeted my arrival back into the country:

“House prices to fall 15%: Morgan Stanley”

“ASX plunges ‒ $50 billion bloodbath”

Pass the bucket!

However, I view these headlines as about as reliable as consulting Dr Google about my tummy troubles:

“Bloating? Cramps? Vomiting? You could have stomach cancer! And possibly rabies!”

So what is really going on with investment markets, and, more importantly, what should you do about it?

Well, at long last the markets have started paying attention to the fact that global interest rates are on the rise.

Yet this shouldn’t come as a surprise to my regular readers … I’ve been banging on about it for years.

In fact, way back in 2015 I wrote an article entitled “2018, The Year First Home Owners Get their Revenge”, in which I urged young people to start aggressively saving up for a 20% deposit so they’ll be prepared to take advantage of lower house prices.

And for people approaching retirement I’ve long advised to save up a buffer of two to three years of living expenses in cash (less any government pension payments) in their super, so they aren’t forced to sell when the real crash comes.

That’s the real rib-tickler: for all the doom and gloom headlines this week, global interest rates are still incredibly low, and they’ve only just begun rising. In my tummy analogy, what we’re experiencing is merely an uncomfortable rumbling.

Yet the truth is that we Aussies, by taking on record household debt at a time when interest rates are at record lows, have already swallowed the bug. As a result, plenty of overstretched people may well find their financial lives will end up in the toilet sometime in the next decade.

The most important thing to take out of this week is to ask yourself: am I prepared?

Trust your gut.

Tread Your Own Path!