Is my financial planner giving me good advice?

Discussion in 'Investment Strategy' started by LA1, 15th Feb, 2020.

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  1. LA1

    LA1 Member

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    Hi All

    I’m hoping to get some different opinions on where to go next with my investment journey.

    I’m 40 years old, currently renting an apartment in Brisbane’s north as I work FIFO so am away a lot, and have 5 investment properties, they are in Burwood VIC, Dandenong VIC, Lane Cove North NSW, Bracken Ridge QLD and Nudgee QLD, all houses except Lane Cove North which is an apartment.

    Total value is $3.5M with $1.5M equity.

    For the most part rental income covers loan repayments however I cover most of the property expenses with my wage which doesn’t give me a great deal of spending money left over.

    I have a financial planner that is suggesting I sell everything except the Burwood house which is worth close to $1M ($400K loan), and use the approx. $900K from the other 4 sales to buy a blue chip property on Brisbane’s north side either outright or with a small loan as a PPOR. His advice is based on me reducing debt and risk while still trying to maximise potential capital growth in the future. It is also to free up a lot of my personal income again for either additional super contributions, another blue chip property as an investment or whatever else I might want.

    I can see the benefits of this advice but at the same time I’m struggling with it as for a lot of years I’ve been reading the property investing forums and thinking I should be accumulating properties. It has also taken a lot of years and a lot of hard work to get to where I am now so the idea of getting rid of most of it is hard for me to get my head around. The purpose of my property investing has always been a long term goal to create a retirement fund for the future.

    Having a blue chip property in Brisbane I would expect to get good capital growth over the next 10-20 years, but would I be worse off or better off by keeping all 5 properties with renters paying my mortgages? I don’t know how to work out which would be better for me.

    I feel like I’m being given good advice by my financial planner but it goes against what I’ve always thought I should be doing. I don’t really know anyone that is into property investing to get some alternative opinions so I’m hoping some of the wise property investing minds out there might give me a bit of perspective on this situation?

    Thanks for reading!
     
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  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    It is not bad advice but structured all wrong.
     
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  3. LA1

    LA1 Member

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    Hi Terry, in what way is it structured wrong?
     
  4. wylie

    wylie Moderator Staff Member

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    So many variables...

    We're like you, worked hard and did without what many others enjoyed (overseas trips, new furniture, new cars etc) to hold the property we'd worked so hard to buy.

    Couple of questions -

    1. Is your adviser suggesting 900k can buy blue chip inner ring? I'd suggest this will get you a nice house, but not "blue chip". In really blue chip suburbs, it may get you a run down shack.

    2. If you add up the rent you get from five properties, take away the interest you are paying and the rates etc, how does rent from one blue chip house compare?

    How long until these five properties rental income can support the loans and one day, put money into your pocket.

    Two examples...

    When our oldest was 21 he bought a unit in Greenslopes. He had to tip in money each week, but probably five years after purchase, he'd rented it and moved elsewhere, and now it puts money into his pocket each week and helps with his much larger mortgage on his main residence. Imagine having five properties tipping money into your pocket in a few years' time, once they turn neutral and then positive. I think he gets 375 per week or thereabouts.

    We have a pretty ordinary, nothing fancy Queenslander in Coorparoo, last valuation 980k with a 20 year old colonial style kitchen and a clean but dated tiny bathroom. It is part of a development we are doing, and once we lifted it, we simply had to put in new kitchen and bathroom. So it has a cheap but new kitchen and bathroom, and is freshly painted, air-con in living and main bedroom, and market rent is 520 per week.

    I'd be better off with two Greenslopes units over one house. But only if we just wanted cashflow. Our block is being developed so that's another way to create income, either developing yourself or selling to someone who wants to develop it.

    But there are so many variables that you need to look at your risk factor, your ability to hold on while rents rise, whether you are comfortable holding five properties. There is no right or wrong.
     
    Last edited: 15th Feb, 2020
  5. Trainee

    Trainee Well-Known Member

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    Any advice depends on the assumptions behind it, and whether you agree with those assumptions.

    Do you need / want a PPOR right now as a FIFO worker?

    Selling to reduce debt may make sense if you expect rents to be flat, or interest rates to go up, or you want to increase cashflow. 2m debt on PandI is 40k in principal payments.

    But it seems unlikely that 900k of Brisbane property will outperform 2.5m of property in other areas. The Brisbane property would have to appreciate at 2.5 TIMES all the others.

    You probably accumulated the properties easlier, so if you sell, its likely you cant build this asset base back up due to lending restrictions.

    The usual argument for a nice PPOR is the benefit you get from living there. In your case, that seems a bit weak because you will be away most of the time. Unless you have a family that will live there, for example.

    Also the question is how much money you want / need. If you say youre happy to retire on the one PPOR and the Burwood house, it might make sense. If you want more, it makes sense to keep more exposure.
     
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  6. wylie

    wylie Moderator Staff Member

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    Edit: Just read @Trainee comment above and re-read your initial post.

    I wouldn't sell properties bringing income (even if they are negative right now) in order to buy a main residence that you are only living in part of the time, being FIFO.
     
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  7. sash

    sash Well-Known Member

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    No Way!

    Your portfolio below is excellent well diversified across VIC, NSW, and QLD. I would not sell any one of those at the moment. They all have great potential!

    Burwood VIC,
    Dandenong VIC,
    Lane Cove North NSW,
    Bracken Ridge QLD
    Nudgee QLD

    You need to sack your financial planner!

     
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  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    The goal should probably be an 80% LVR on the main residence with all of this being deductible debt at owner occ rates.

    Think CGT too.
     
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  9. ellejay

    ellejay Well-Known Member

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    I definitely wouldn't sell those properties if the only reason was to buy a $900k house in Brisbane. I highly doubt that it will outperform what you already have. No one knows for sure, but I doubt it.
     
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  10. Marg4000

    Marg4000 Well-Known Member

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    This is the concern. Never go against your “gut” feelings.

    Frankly, I can’t see much point in selling all your properties with the expense and tax involved just to buy another property.

    If you want to improve your cash flow, maybe consider simply selling the “worst” property you own - “worst” being in terms of poor capital gain outlook, problems getting tenants or high expenses.

    Or just sit tight. You have a good mix of investments in quality areas.
     
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  11. Sackie

    Sackie Well-Known Member Premium Member

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    In short, poor advice imo. Especially if your thinking wealth creation.

    As usual, FP only think survival, not creating wealth. All depends on your own goals really.
     
  12. LA1

    LA1 Member

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    Hi Trainee, thank you for your response.

    You're definitely right about having accumulated the properties more easily a few years back, with the tighter leading conditions I worry if I sold now I'd never be able to get back to this position again.

    I have a partner who also works FIFO and 3 step children and we would both like to quit FIFO work in another year or two and get local jobs, less money but happier lifestyle, and at that time buy a PPOR, the kids go to school in Kedron so somewhere not too far from there.

    Rents on all the properties have been fairly flat for quite a few years, the growth on the Brisbane properties has always been up but quite slow, although the yields on them are better than the others.

    My other thought was to sell Dandenong and Lane Cove North (poor yields on both), keep Burwood and the Brisbane ones and use the sale money for a deposit on a less blue chip PPOR in Kedron or surrounds.

    I live a fairly low maintenance lifestyle now so I can't see that I'll need a small fortune in retirement, just enough to be comfortable. My financial planner says if I free up more cash flow now I can put that into my super as an alternative to boost my retirement, but I don't know how that will compare to holding property
     
  13. TMNT

    TMNT Well-Known Member

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    i agree, ****ing ridiculous

    there is selling costs, and to buy into another area with all eggs into one basket

    I get the vibe, your financial planner, he thinks he knows a better yield/CG combination by investing in brisbane (which may or may not be true) but is willing to ruin your exisiting good setup and take the gamble
     
    Last edited by a moderator: 15th Feb, 2020
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  14. LA1

    LA1 Member

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    You're right, I do have that gut feeling and I always believe in trusting it!
    I agree with your advice, I was thinking that selling Dandenong would be a good idea, I think that's my worst, the house is very run down and currently rented to a friend at a very discounted rate so it's hurting my cash flow. Also Lane Cove North comes off IO at the end of the year so that is going to hurt as well, considering off loading it then but also wanting to see how the market goes this year
     
  15. wylie

    wylie Moderator Staff Member

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    Can you renew the IO on Lane Cove North?

    And I wonder if the planner has calculated that you would lose (guessing) about 100k in selling fees?
     
  16. Trainee

    Trainee Well-Known Member

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    think longer term. Will your kids need help with deposits?
     
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  17. spludgey

    spludgey Well-Known Member

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    And probably a few times that in CGT.
     
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  18. Marg4000

    Marg4000 Well-Known Member

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    Selling Dandenong is probably a good idea given the circumstances you outline.

    But I would try to hold Lane Cove as it is a “good” Sydney area (from what I know about Sydney!). You may be able to continue IO. If not, then you can decide whether to sell or not. Investigate all options before deciding to sell.
     
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  19. Marg4000

    Marg4000 Well-Known Member

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    I would be more concerned about CGT issues if selling multiple properties in the same financial year/s. As a FIFO worker, probably already In the higher tax brackets.
     
  20. LA1

    LA1 Member

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    I probably should have also mentioned I have a bit over $500K in capital loss banked away, I sold my 2 Gladstone properties last year that I bought at the peak in 2012, not something I'm proud but feel like I made the right decision cutting them loose, so CGT is not so much of a factor
     
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