Cancer Stricken Battler ... Lends a Hand?

Hi Scott,

I’m in my 50s, and have just battled cancer. I foolishly helped out my partner with $112,000 credit cards that he put in my name over a 10 year period. Now I've beat cancer, I want to fix this up. I have consolidated against my home to lower the massive credit card repayments. My partner isn't repaying the loan but instead wants me to buy a bigger home for us both. With 80% debt now against my place, I can't see this happening. Should I sell up and buy cheaper?

Tina

Hi Tina,

I’ll just come right out and say it (since you, dear reader, are no doubt thinking this as well..).

What the hell is going on with your partner?

You’re battling cancer, and he’s racking up six figure credit card debts in your name?

Then, you get him off the hook, and instead of paying his way, he wants you to buy a bigger home?

Why am I ending each line with a question mark?!

Because if you were my sister, I’d be telling you that before we sort out your finances, there’s one more cancer you need to beat: your partner. 

Scott

Real Estate Mistakes: How to Turn $90,000 into $2.4 million

I’m writing this to you today from my study, which overlooks the rolling hills of my family farm. It’s really peaceful out here.

And, if you drive up to the top of those rolling hills, you can catch a glimpse of a smaller farm that’s just down the road, which was once marketed as Secret Valley.

“Set 45 minutes from the Melbourne CBD, the Secret Valley Estate is 258 acres of breathtaking, beautiful landscape and picturesque views of the Macedon Ranges.”

A few years ago, busloads of property investors would do field trips to Secret Valley.

They’d wander around the paddocks, sizing up what they were told was a canny investment.

The idea was simple: Secret Valley is on the edge of the Melbourne sprawl. Eventually it will be swallowed up by suburbia. And if you were smart enough to own an option on a few plots of land in the Secret Valley Estate, well, you could become very, very rich.

How rich?The marketing pitch that got the property investors on the bus was that if you invested $120,000 you could turn it into $1.2 million.

OK, so if you’ve been reading my column for a while, you won’t be surprised to hear that the investors in Secret Valley got roughly the same treatment that my ewes receive when I put a few daddy rams into the paddock.

A few years on, the only secret around Secret Valley is where all the investors’ loot ended up.

That case is still before the courts, which means I can’t really comment.

So to learn a bit more about “land banking”, as it’s known, I called up an old spiv who was up to his neck in it years ago.

He told me that he’d explain how the game worked, on one condition: that he be totally anonymous. Which is totally understandable … especially when you read what he says.

HERE’S his explanation of how land banking works in the get-rich-quick market:

“You buy rural land for $10,000 an acre. You then turn around and market it to investors as a ‘rezoning opportunity’. The sales pitch is that investors could make 10 times their money when it’s developed. The investors think they’re on a winner, and they’ll fight to buy that same acre for $400,000 a pop. All up, you’ve turned a $90,000 investment into $2.4 million.”

So how is it possible to convince people to buy these plots of land?

He explains:

“You need the best salespeople, and the best salespeople are women. There aren’t many of course, but they’re absolutely dynamite. No one thinks a woman will rip you off, right?

“It works like this. They make three calls.

“The first is to deliver a brochure — something elaborate, expensive, and high quality — lots of bullshit.

“The second call is to find out how much money they have. No one wants to waste their time. They’re getting to know the investor, asking about their kids and stuff, but really all they’re doing is drilling down to see if they have any money.

“This is where it’s easy. Most people have access to their retirement funds. That’s the big opportunity … that’s the honeypot! They look upon it as dead money and are willing to gamble with it. They’re a bit more wet behind the ears in Australia — they have this belief that property never goes down.

“The third call is to land the sale. If you have a client who has money, they’ll pull the trigger. However, you don’t just want to sell a piece of field for $10,000 to a guy who has $1 million. You want to flog him more. The technical term is ‘load up the client’. Generally, if they buy once, they’ll buy five times.”

“LOOK,” he continues, “I graduated from doing small time deals. Suddenly I went from having no money in my account to having $750,000 … in three weeks.

“It’s a fool’s paradise, though, because it doesn’t last. It never lasts. You’re earning $200,000 a month, so you buy a fancy car and you fly first class. But then everything catches up with you. The press catches on to it, investors get shirty, and instead of earning $200,000 a month, you’re earning $20,000.

“I didn’t feel good about myself when I was doing it. Of course. I had really low self-esteem. I drank a lot to block out the reality. I didn’t feel worthy, so I got rid of the money as quickly as I could.

“The truth is that I even got scammed myself by another crowd. Overall, I think I turned over $15 million. You’d expect me to have $10 million. I don’t.”

SO how did it end?“

We could have sold more plots if it weren’t for articles in the newspapers. That’s what screwed us up. People would Google stuff and it made our job almost impossible. We ended up closing ourselves down and heading overseas — the writing was on the wall.”

Except it wasn’t.

This old spiv left the game seven years ago. In the meantime, there’s been land banking schemes from Bendigo to Ballarat, from Shepparton to Secret Valley. It’s been reported that, in the past few years, thousands of Aussie investors have sunk more than $100 million — and possibly as much as $300 million — into land banking schemes. Strewth!

So, as I wrap this column up, there’s probably one last question left unanswered:

Aren’t I effectively doing a bit of “land banking” with my farm?

No.

As I type this I’m watching a few grain-fed sheep fertilise my drought-ravaged paddocks. Seriously, there are better investment opportunities going round. But ... it sure is peaceful out here.

Well, most of the time.

Tread Your Own Path!

Mum was a Survivor

Hi Scott,

I’m 48 and a stay-at-home mum of three children. Until recently I was also carer of my mum, but sadly she didn't survive heart surgery. She kindly left her house to me. Due to grief I am unsure what is the best way to honour her, as she was a single mum and a victim of domestic violence. Our home loan is $405k on our home which is worth $800k. Mum's home is worth $700k, and has a reverse mortgage of $126k. My husband is 50 and earns $105k p.a. Do we sell Mum's home or keep it as a rental?

Denise

Hi Denise.

If I were in your shoes, I’d sell your mum’s home, pay down the reserve mortgage. After accounting for selling costs, you should come out with roughly $560,000 (and, importantly, you won’t pay Capital Gains Tax if you sell your mum’s home within two years of inheriting it). I’d save three months of living expenses (which will be dramatically lower when you don’t have a mortgage). With the balance, I’d do two things: make an undeducted contribution to an ultra-low cost super fund, and a donation to a domestic violence shelter in your mother’s name.

Scott

The Financial Fatty

Hi Scott,

I’m a successful professional who achieves big goals: I have multiple degrees and a great job -- and I recently lost 12kg. Yet I have a $280k mortgage, a $36k credit card debt, and no savings. I have made small dents into my debt, only to blow it again. I am now focusing on my finances and using what I have learned from my other achievements. I have read your articles and tried (unsuccessfully) to follow the advice. Can you help me get myself out of this hole?

Andy

Hi Andy,

How did you lose your lard?

Was it when you sat down and read Michelle Bridges’ book?

Was it when you restricted yourself to only eating grapefruit for 12 weeks?

If you’ve been able to keep off the kilos, it’s because you changed both your behaviour and your beliefs.

It’s exactly the same process when it comes to winning with money.No book or super strict diet is going to work long term.

Seriously, the only enjoyable way I know to win with money is to convince yourself of the truth:

There’s nothing broken about you that requires you to have a ‘debt card’. They’re a marketing con-job, designed to trap you into paying high rate interest for your entire life. They are not convenient, and they are not for emergencies. They are robbing you of your self-respect and your freedom.

Having savings, on the other hand, gives you choices. It rebuilds your self-respect, because no matter what happens to you financially (within reason) you’re in control.

Now, here’s the cool thing I’ve found from years of helping thousands of people: the moment you understand this in your gut, you’re already free.

A massive burden of indecision is lifted off your shoulders. You know you’ve done the right thing. Better yet, you don’t even have to wait until you’ve paid off the last card. Just cut them up, and fist pump the air. You’re mentally free, now it’s just a matter of time.

Here’s the rub. Getting to that point can take an hour, or a lifetime.

Over to you.

Scott

Becoming a Shipping Magnate

Hi Scott,

I recently heard about investing in shipping containers through a company based in Hong Kong called Pacific Tycoon. They lease the containers owned by individuals and rent them to the shipping industry. The individual is paid a monthly rent equal to 12% of the purchase price of the container. I would need to take out a loan to purchase the containers so I was just wondering if you think it would be a wise investment?

Mel

Hi Mel,

I’m not the sharpest tool in the shed. However, I googled “Pacific Tycoon”, and the second listing was the Western Australian Government’s ScamWatch website. You should check it out -- they use very amusing puns for government bureaucrats: “investing in a sea container may not be a water-tight investment”. Gold! To which I’ll add, ‘it sounds like a load of ship to me!’.

The ScamWatch site sums up the investment opportunity by saying: “be aware that if an investment scheme turns out to be a web-based fraud by overseas criminals, authorities in Australia may not have the resources or appropriate international powers and law enforcement connections to find those responsible or trace your money”.

Scott

Why you should invest like a girl

It was  International Women’s Day last week, so I’d like to talk to you about a Q&A session I’m doing next week at a high school with a bunch of teenagers.

I’ve done a lot of work in schools over the years, and here’s what I can tell you: if you push them for an answer, most teenage girls will tell you that they see themselves getting married, buying a house, and having kids.

Whether they’ve given it much thought is debatable: the fact is, that’s what society has taught them to expect. Then again, society has also taught them that boys are more financially valuable than them.

We all know that women get paid less than men.

And it starts early. Last week the Heritage Bank released a study saying that, when it comes to pocket money, girls get paid 26 per cent less than boys.

Why?

I have no idea. I’m tempted to write it off as a publicity play from a third-tier bank.After all, it’s hard to imagine that parents would actually pay a girl less pocket money than her brother of the same age, right?

Then again, it’s hard to believe that adults in corporate Australia — with HR departments and remuneration consultants — would on average pay an educated, accomplished women 19 per cent less than a similarly qualified bloke.

All of this goes someway to explaining why a NAB Wellbeing study this week found that young women under the age of 30 are more likely to be stressed about their finances than the rest of us.

That being the case, here are three things that I say to teenage girls when I talk to them.

Women are better investors than men

THIS is, like, so not fair.

However, the truth is that you have a natural advantage over men when it comes to investing.

Repeated studies show that women are much better investors than men, because they think long term and don’t take unnecessary risks.

Women have less ego, and are more willing to reach out and follow professional advice.

US-based financial firm SigFig analysed 750,000 portfolio accounts and found that women outperformed men by 12 per cent a year.

Romeo may arrive in a rented Alfa Romeo

DO you want the good news or the bad news?

The good news is that you’ll find a partner (the maths majors at the ABS say so). And I predict (well, the ABS does) that you’ll be walking down the aisle when you’re 28.3 years old. And you will have been shacked up with him for a number of years.

I also predict (with a little more help from the ABS) you’ll have your first kid at 29. (Scandal! Yes that’s right, you’ll be pregnant on your wedding day!). And you’ll be done and dusted with kids by the age 34.

Okay, now the bad news.

Once the kids come along, you get to work around the clock … and not get paid!Worse, your husband could decide that because he’s the only one earning a wage, it’s time to treat you like a teenager (again) and ration out the cash.

Relationships Australia suggests that you will fight about money. Now, if you married a jerk, it will take you 8.8 years to work it out, suggests the ABS.(A quick recap for the cool kids in the back row: you get married at 28.3, you have your first child at 29, and you’re back on Tinder at 37 … as a single parent.But let’s not be too negative.

There’s a good chance you’ll marry that hot guy and live happily ever after (actually it’s two in three, says the ABS).

Until he dies.Yes, those guys at the ABS just do not let up! The statistics are again in your favour — chances are you’re going to outlive him by 4.2 years.

Here’s the thing: in my job I see a lot of older women who haven’t played to their natural strength in being a superior investor.

The upshot is they have no freaking idea of how to manage their money. They’re petrified, and that’s no way to live.

A man is not a financial plan

I’VE been having fun with the ABS statistics, but the truth is, you’re unique. I don’t know what’s going to happen with your life. And right now you don’t know either.

However, the one thing I do know is that right now you are more powerful than you know.

Seriously, right now you have the ability to lay down million-dollar habits.

What habits?

Saving. Not getting sucked in by marketers who aim to make you feel incomplete, so you’ll buy their stuff. And, of course, trying out your God-given talent for investing.

The reason it’s critical that you start doing it now — even with just a few bucks — is that today you don’t have anyone telling you that you can’t do it.

But over the next 10 years, believe me, you will.

It could be your boyfriend. It could be your boss. It might even be yourself.

Ladies, quite simply, a man is not your financial plan.

Now don’t get me wrong. The aim of all this is not to become rich.It‘s not about living a Kim Kardashian lifestyle.

It’s not about coming back all botoxed up to your 20-year high school reunion.

It’s about being in control. It’s about being able to stand up for yourself.

And it’s ultimately about being able to sidestep a lot of the crap that many other women have to deal with. And if you meet a guy who is intimidated by your financial prowess, that’s cool too ...

You’ve just saved yourself 8.8 years.

Tread Your Own Path!

How Do I Pay Less Tax?

Dear Scott

I work 80 hours a fortnight and am the main provider for my family. Four months ago I got a new job that pays $86,000 a year. Earning over $80,000 means I am now in the higher tax bracket, so I pay more tax. I worked out that if I reduce my work to 70 hours and keep my income to just under $80,000, I would take home the same amount of money as do I now. Is it worth reducing my overall income to avoid paying too much tax?

Dave

Hi Dave,

Dude! You’re the main provider of your family, why are you playing defence?Besides, if lowering your tax is your endgame, I can show you how to slash it to zero: just buy a bunch of negatively geared properties. In quick time you’ll be so negatively geared you’ll be positively screwed.

Jimmy Barnes wrote a song about the slog of a salary, it’s called the Working Class Man. There’s honor in working hard, delivering value, and providing for your family. To answer your question, yes you can game the system by cutting back on your hours. But what’s the long-term cost? Where will that thinking take you and your family in 20 years time?

Scott

The Great Grandmother

Hi Scott,

I’m in my seventies, and I’m very anxious. One of my grandchildren doesn't have enough savings to qualify for a housing loan, and is short by about $160,000. I’m prepared to use my apartment as a guarantor for that amount to enable the loan to be approved. My question is if in the future the loan is defaulted on, and my property has to be sold to pay back this money, would only the $160,000 be taken back by the bank, or would they take it all? Hoping you can help?

Joan

Hi Joan,

If things go bad, the bank won’t want your apartment, they will just want their money back. How you cough up the cash is totally up to you. You could sell your apartment, and move in with your grandchild -- for the rest of your life -- for instance.

You’re being very financially prudent asking this question. So, my advice would be not to go guarantor for your grandchild, and instead help them become financially prudent. Buy them a copy of my old book, the Barefoot Investor. It’ll teach them that they’ve got a wonderful opportunity: time. You don’t have as much of that. That’s why you shouldn’t be taking risks.

Scott

Insane in the Membrane

Hi Scott,

Warning: we’re completely insane.I’m married with two kids (1 and 3 years old). Work full-time ($85k plus super). Hubby works two days a week and clears $650 a week.

We’ve finally paid off our tiny 2 bedroom flat (approx $400k), which we rent out to a friend for $300 per week (mates rates). We in turn rent a 3 bedroom townhouse for $550 a week.

Here’s my question: Should we sell the unit? Keep the current scenario? Pack up the kids and live in our tiny flat? Or do we give in and buy house and land package in the outer burbs?

Kirsty

Hi Kirsty,

The only evidence that you are indeed crazy is if you actually decided to move your family of four into that ‘tiny 2-bedder’. You paid off a $400,000 investment, pat yourself on the back! If I were you I’d stay sell your investment property. Even after accounting for Capital Gains Tax (CGT), it’ll provide, to quote Donald Trump, a ‘Yuge’ deposit. On your household income you could comfortably borrow another $300,000. I’d buy an existing home, in a good suburb, that you can see yourself living in for at least ten years.

Scott

The 93 Year Old Barefooter

Hello,

I am a 93 yr old self-funded retiree. We’re in a comfortable position, however the drop in rates has dented our income badly. We have $156K in Commbank’s Hybrid securities known as PERLS, which are terminating on April 16th, and they are offering to convert it to Perl VIII. The rate is attractive: bank rate plus 5.2%, but there is added risk too. Would you agree and is there a better alternative? Not interested in capital gains - only income.

Reg

Hi Reg,

I wouldn’t let my grandparents invest in these so-called hybrid securities. CBA’s PERLS are sold as an alternative to term deposits, but in terms of risk they’re closer to shares, mainly because there’s no guarantee you’ll get your money back, or get paid interest. There’s a lot of fine print, but that’s the guts of it. I’d be even more conservative, and stick with term deposits. Remember, you also have the option of drawing a little bit down, conservatively.

Scott

Donald Trump Effect

Hi Scott,

Should investors panic if Donald Trump wins the Republican nomination for president....or only panic if he actually wins the presidency? He has managed to offend almost every minority group in America as well as quite a few foreign nations who may no longer wish to have dealings with the USA as long as such an ignorant and arrogant moron is in charge of the world's largest economy. Will he have an effect on world markets?

Dave

Hi Dave,

In my unqualified opinion, Trump is a complete trainwreck.

The idea that in order for America to ‘win’, other nations have to lose, makes me want to repeatedly smack him over the head with Adam Smith’s Wealth of Nations.

Still, it’s easy to get sidetracked watching this idiot. The truth is that the US has had it’s fair share of loonies in the oval office, but over the past 100 years the US market has still risen 18,520-fold.

Scott

Whisky...as an Investment?

The Lord moves in mysterious ways.

An interview I’d hoped to bring you this week fell over at the very last minute - leaving me staring at a blank screen. Yet in the darkness of my deadline, he reached out to me and sent a message from above. (Okay, it came via Gmail). It read:

Dear Scott,

I thought I would share something my husband and I are looking into: Nant Whisky from Tasmania. They’re offering a 9.5 per cent compounded return on a 4-year investment of $25,000. Seems better rates than any term deposit or savings accounts. We thought this could pay for a new car or holiday every 4 years ($11,000 profit).

Thoughts?

Nicole

My first thought was ‘thank you Nicole for saving my bacon!’

My second thought after reading the Nant Whisky investment pitch was that I needed a very stiff drink.

By all accounts Nant produces a damn fine drop -- it’s been referred to as ‘liquid gold’ by a liquor buff -- and they’ve won awards at the World Spirit Awards. They’re also expanding rapidly into whisky bars across the Australia and Asia.

Yet it was Nant’s ‘investment opportunity’ that was giving me a hangover.

Nant offers investors the opportunity to buy two barrels of their single-malt whisky for $25,000.

Then Nant ‘guarantees’ that, in four years’ time, they’ll buy back the barrels for $36,007 (precisely). That works out to be a cracking 9.55 per cent per annum compounded return.

As Nicole wrote, that’s an $11,000 profit in four years.

Sniff! Sniff! Something smelled off. So I called up the company and spoke to Nant’s founder, entrepreneur Keith Batt in Brisbane.

Barefoot: “So who is behind the guarantee to buy back the whisky?”

Batt: “We are.”

Barefoot: “But you’re a bankrupt. You owe $16 million. And the company behind your last venture is in the process of being liquidated owing $20 million!”

Batt: “I’m the General Manager. I’m not the Director.”

Barefoot: “How much money have you taken from investors?”

Batt: “We don’t give out those figures … we’re a private company.”

Barefoot: “Yes, but you’re taking the public’s money. Specifically from mums’ and dads’ SMSFs. You run national newspaper ads using Aussie cricket legend Matt Hayden to spruik your investment and your ‘guaranteed’ returns.”

Sniff! Sniff! Something smelled off. So I called up Matty Hayden, who was in Bangladesh.

Barefoot: “Mate! What gives?”

Hayden: “Look, I love their whisky but I’m not involved in the strategy of the business. I’m seeking clarification on my current contract … as I haven’t been paid for a few months.”

(Fair enough. I hope he really likes their whisky. Maybe they’ll pay him in booze?)

Anyway, as my day wore on, the more people I spoke to about the business, the more concerned I got.

Sniff! Sniff! Something smelled off -- and then I found it -- it was cow dung.

Nant’s latest ‘investment opportunity’ is for investors to “buy 10 purebred Black Angus breeding cows, for $30,000”. And just like with the whisky barrels, investors are being lured by a guarantee: Nant guarantees they’ll purchase the cows back in five years’ time for $47,335.

Guess what the annual return works out to be?

The same as the whisky barrel investment: 9.55% per annum, payable in five years’ time.

So I called Nant and spoke to their PR person, in Brisbane.

Barefoot: “I may be a little stupid, but shouldn’t there be a difference between the returns an investor would get on whisky and what they’d get on cows? Why are you offering EXACTLY the same returns?”

Nant spokesperson: “We’re a vertically integrated company and we have opportunities to be retailers.”

Barefoot: “Uh-huh.”

The truth is you should never invest in anything you don’t understand -- even cattle.

That rules me out.

I have two cows. They’re named ‘Cash’ and ‘Frank’, and they were a wedding gift from a mate.

After years of having them knock over our fences, eat my wife's roses, and crapping all over the place,  I finally announced at the dinner table (over beef casserole, I believe) that it was time to sell them.

My toddler Louie’s top lip began to quiver: “No! Don’t take my Cash Cow Daddy!”

(They’re both still here.)

Anyway, let’s get back to our tale of investment beef jerky.

By now the smell was overwhelming, so I called up one of Australia’s leading cattle farmers, David Blackmore in Melbourne. His award-winning wagyu beef is served in posh restaurants like Rockpool and Nobu, and he exports to over 20 countries.

Barefoot: “What do you think of the returns Nant are offering?”

Blackmore: “Well, I’d struggle to achieve that return on our wagyu cows. And to pay that return to investors and still make a buck! Well that would be very … difficult.”

Barefoot: “You’re being kind.”

Blackmore: “I’ve been in agriculture for over 50 years and I’ve never seen one investor make money out of any of these schemes.”

Throughout my frustrating conversations with Nant, they kept on reiterating that they weren’t offering a financial product. There’s a reason for that. If they were, they’d have to issue a Product Disclosure Statement (PDS), and be regulated like any other investment company by the Australian Securities and Investments Commission (ASIC).

“The investors, they own the cattle. At the end of the lease they’re free to take them ... and put them in their backyard if they wish.” said Nant.

Trust me on this -- you don’t want to do that. They’ll knock down your fences, eat your roses, and crap all over you. They’re not cash cows.So now let me get back to Nicole -- my gift from above -- and the woman whose innocent investment question kicked this all off.

Nicole, since I got your email I’ve worked my way around the world (well, Tassie, Queensland, and Bangladesh) and my advice for you is this:Grab your $25,000.Invest it in a simple online savings account -- which really is guaranteed (by the Government).

In a year’s time you’ll have earned roughly $875 (less taxes).

Not much? Sure.

But it’ll buy you a dirty big rib eye steak, and four bottles of Nant whisky.

It’s apparently a great drop.

Sniff, sniff!

Tread Your Own Path!

Should I set up a SMSF?

Hi Scott,

I have inherited $500,000. My existing super fund balance is $140,000. I own my home and have an investment property (value $500,000) that I owe $230,000 on. I plan to work for another five to ten years. My accountant is recommending I set up the SMSF as a 'tax structure', saying it is the 'last tax haven' available. I am keen to buy more property with the funds in the SMSF. What do you think?

Greg

Hi Greg,

Here’s a car analogy:Your accountant is selling you on how wonderful cars are -- ‘beats the hell out of walking!’ Of course you could buy any old car to get you round, but your accountant is suggesting you rent a car from him. (Perhaps I’ve been watching too much Top Gear, but the analogy I’m using is the ongoing fees in an SMSF that would flow to the accountant’s pockets.)

However, if you were sitting across the desk from me, I’d suggest you’ve already got too much exposure to residential property through your own home and investment property. I’d suggest that diversifying into local and international shares would be a smart idea -- and generally share funds give a better income yield in retirement with much less hassle.

Speaking of hassle, I’d ask you about how active you (and your partner) want to be with your investments. If it’s not really your thing, I’d suggest you try an ultra-low-cost super fund. But then again I’m not a car salesman.

Scott

Single Mum Wants Security

Hi Scott

My home insurance is up for renewal and (like Tegan who wrote in last week) I'm looking for a total replacement policy. You said you use an insurance broker -- is that the right step for everybody? And if it is, how can I tell which ones might rip me off? I am a single mum with two little boys and I am on a little income.

Janet

Hi Janet,

I’ve received a lot of mail about this, so now’s a good chance to explain how this all works.

There are a number of insurers who offer ‘total replacement’ policies, but it’s certainly not the standard in the industry. The standard is ‘sum insured’, which is pretty simple: you guesstimate how much your home would cost to replace and insure it for that value. If you’re wrong and the house burns down, the insurer will only cough up the sum you’ve insured for. You foot the difference.

Therein lies the problem. Most people have no idea of the true cost of rebuilding a home. A good insurance broker will know, and will advise you accordingly. They’ll also read through your policy and alert you to clauses that could affect your ability to claim. And, if you have to claim on your policy, a good broker will represent you.

How do you find a broker who won’t rip you off? It’s actually a lot like dating. Don’t fall in love with the first guy. Make sure he takes the time to educate you, rather than just selling you on how big his policy is. And always trust your gut. Good luck.

Scott

A Super Simple Question

Hi Scott,

I am 42 and a high-income earner ($260,000 a year) and my wife is a stay-at-home mother. I know I am able to make an after-tax contribution to my wife -- but am I able to make a pre-tax contribution to her super account?

James

Hi James,

Yes you can. You split your employer super contributions (including salary sacrifice amounts) up to your limit of $30,000. You get the tax breaks, she gets the extra cash in her super. You’re the man! Happy wife, happy life!

Scott

Help! My Son Is on the Nibble!

Urgent help needed! My son is turning 30. He earns good money. He doesn't live at home but pays very cheap rent. Yet I have now found out he lives borrowing on NIBBLE -- he owns nothing and is still paying off his $30k car loan. You had an article in the Herald-Sun some time ago about these loan sharks. Can you send it to me so I can send it to him? I give him hints all the time about him about it, and I even bought him your book, but nothing is doing any good.

Jenny

Hi Jenny,

I think you mean that your son is taking out loans with a crowd called ‘Nimble’, who target Gen Ys with TV ads showing an ironic hipster rabbit. Their tagline is ‘smart little loans’. They’re trying to be all 2.0, but the truth is they’re just another payday predator.

As a parent, my heart goes out to you. It’s totally natural to want to help (read: nag) our kids into making smart decisions. However, your son is now a grown man and he’s obviously not listening to you (or me!). So you’ll have to leave it up to life to teach him this lesson. And based on Nimble’s terms, it’ll be delivered sooner rather than later. When it does, don’t bail him out under any circumstances.

Scott

Are we in a housing bubble?

Are prices going to crash by as much as 50 per cent, as some experts predicted in the news this week?

Will the government have the ticker to change the negative gearing rules?Well, to answer these questions, and offer some views on livestock, this week I caught up with none other than the newly crowned Deputy Prime Minister of Australia, Barnaby Joyce.

And in doing so, I worked out we actually have quite a lot in common: we’re both country blokes. We both have a love of numbers. And we both have a habit of saying whatever’s on our minds at the time.

Barefoot: “Thank-you for your time Deputy Prime Minister. I currently own two Alpacas on my farm, and I just don’t care for them at all. They’re more stubborn than Greens Senator Sarah Hanson Young. Have you ever been spat on by an alpaca...or a Greens supporter?”

Barnaby: “No, although I’ve actually had alpacas run alongside me as I go for a jog down the side of my road. They just look like too much…hard work”.

Barefoot: “First home buyers have the footprints of property investors squarely on their backs. Negative gearing has created an uneven playing field because they can write off their losses against their tax. Explain to me how this is fair or productive?”

Barnaby: “Well….there are affordable houses, there just mightn’t be affordable houses in the places you’re looking. When people say there’s no affordable houses, well that’s not correct, there are, and in regional areas they’re vastly more affordable than in the cities”.

“Look I bought a house in St. George in South-West Queensland. I lived out at Charleville, now I’m living south-of Tamworth, but here’s the thing: I’m still out of town where it’s cheaper. What I’m saying is you’ve got to look across the nation. If you look around and say the houses around me are unaffordable you’ve got to ask yourself... is there somewhere else you can go where they are affordable?”.

Barefoot: “So what you’re basically saying is the Government doesn’t have the ticker to touch negative gearing, right?”

Barnaby: “The problem you’re going to have is that if you start messing around in any place without a proper plan, the problems you can create can be vastly greater than the problems you had. If you go into any market and take a substantial group of people out of that market, you can have an incredibly detrimental effect on all the people who have currently bought a house. There’s two sides to every equation”.

Barefoot: “Yes, but there is a substantial group of people who right now are priced out of the housing market. They’re called first home buyers”.

Barnaby: “There are two groups of people who you always have to consider: the people who want to get in and the people who are already there. So it’s never a simple equation, if you’re going to say I’m going to make all houses cheaper, you’ve just made all the people who own houses or owe money to a bank on a house, poorer”.

So here’s my take out from my discussion with the Deputy Prime Minister.

There is absolutely zero chance the government will do anything more than fiddle around the edges of negative gearing policy.

As Barnaby says there are two sides to every equation -- and make no mistake, in politics the side that wins is usually the one with the most voters -- and roughly two-thirds of Australian voters are homeowners.

It makes perfect political sense: who the hell wants to be remembered as the government that pricked the biggest housing bubble in history?

Well, I’ll tell you who: Bill Shorten.

He’s got nothing to lose, so he’s prepared to roll the dice, and end negative gearing for existing homes.It’s bold, and it’s brassy.

But there’s just one little problem with it: getting Aussies off negative gearing, is alike a junkie getting off the gear. Long-term it’s totally the right thing to do. Just not today...maybe tomorrow (but probably not). The scary part is that everyone knows there will be a withdrawal period, and it will be nasty, and no one can accurately predict what will happen. But let's have a go...

Bill Shorten has said that if he’s elected, negative gearing on existing properties will be axed on the 30th June 2017. However, he’s also assured landlords (and his party) that anyone who buys before that, gets grandfathered tax deductions for life.

So, what do you reckon the property market will do in the run up to the cut off date?

Boom, baby!

What will happen the day after?

Will we be shivering in in a corner, with our heads in a bucket?

Who knows?

Either way we should encourage our politicians to make hard, courageous decisions, that benefit the country in the long-term. However the trouble is for a politician, long-term isn’t even a three year electoral cycle these days -- just ask Kevin, (and Julia and Tony).

So where does that leave first home buyers, with the likelihood that the Barnaby and his boys will be returned to power?

Well, last year the former Treasurer, Smoke’n Joe Hockey’s advice to young people who were struggling to crack into the Sydney property market was to ‘get a good job that pays good money’ (teachers, nurses, police-women, scientists... no house for you. Lawyers, bankers, politicians, you win!).

When I asked Barnaby the same question, here’s what he said:“

The great thing about Australia is if you’ve still got the drive, if you’ve still got the mongrel about you that wants to get up and go, you’ll get there. But if you think you’re going to – by some stroke of luck – walk into a multi-million dollar place for a couple hundred thousand bucks, well that just ain’t going to happen. Like everything in life you’ve got to start from the bottom, work hard and you’ll get there”.

Tread Your Own Path!

Check Out Choice!

Hi Scott

You have strongly suggested (and The Checkout and Choice agree with you) that homeowners should get a ‘total replacement’ policy. So, being the devoted follower I am, I spent my morning looking into it. Who offers such a thing? Well, I looked at ALL the usual suspects ... and not one of them offers it. Everyone’s recommending it, but someone forgot to tell the insurance companies -- and of course if it is to our benefit then they will not want to offer it! Any suggestions?

Tegan

Hi Tegan,

There’s a reason they don’t offer it. Most people totally underestimate the true cost of rebuilding a brand new home, the same way that most people underestimate the cost of replacing all their possessions. You’re bearing the risk of this underinsurance, not the insurance company.

That’s the reason I pay an insurance broker manage all my general insurance: first to make sure I am insured for ‘total replacement’, and secondly, because they’re experts at dealing with the claims process. Insurance isn’t like buying baked beans. Cheaper is not better.

Scott

Negative Gearing Going?

Hi Scott

My question is simple, though I know your answer may not be. What do you think will happen with negative gearing? I’m worried because I own three properties (all on interest only loans, all negatively geared), and I worry what will happen if they abolish it. I am thinking about buying another property in student accommodation.

Rosemary

Hi Rosemary,

Labor’s proposal won’t come into effect until 2017, and they’ve said in their policy document that the changes won’t be retrospective. In other words, your existing tax deduction status is safe. Still, negative gearing is now officially an election issue, and the Minister for Networth will now have to have address it, one way or another.

My personal view is that negative gearing, much like superannuation concessions to higher income earners, will eventually be clipped. Not if, but when. That’s why I don’t advocate making an investment solely for the tax benefits. Right now you’re losing money. Work out how to turn that around, because any changes to the tax treatment of housing will likely hit the market hard.

Scott

‘X’ Marks the Spot

Hi Scott

I am recently retired and I have topped up my Australian Super to $400k and put $1,050,000 into my SMSF. I will also have a part of $1.2 million to invest after our Family Court matter is settled. Last week I got a call from a fellow who claims his company made 28 per cent after tax in 2015 through investing in the share market. It is called ‘Shares XP’. Is this too good to be true?

Mal

Hi Mal,

Congratulations! You’ve won the money game. With (roughly) $2 million in savings, you can comfortably draw $100,000 per annum tax free in retirement and you’ll never run out of money. There’s only one final risk that you face: financial salespeople getting their mitts on your money. I don’t know anything about Shares XP other than what I’ve seen on their website. It appears part of their service is trading Contracts For Difference (CFDs). These types of trading products are financial cancer. Don’t do it. Stick with AustralianSuper, and find another hobby.

Scott