She's On The Money - Investing 101: House it going?

Episode Date: February 23, 2021

Where does property rank among the four key investment types in Aus? Today you’ll find out. Join the SOTM team as we explain the ins and outs of property investment, including the best bits like capital growth and passive income and the less glam parts no one talks about like stamp duty, tax, building inspections and more. Can’t wait? Then press play friend!Joining you this week you’ve got millennial wizard Victoria Devine and everybody’s favourite human, Georgia King.Do you love the podcast SICK and want more SOTM? Course ya do. Join our Facebook page to share your money wins and money confessions, follow us on Insta for daily inspo to keep you on track and DEFINITELY subscribe to our newsletter https://www.shesonthemoney.com.au/newsletter the written recap of the pod's key takeaways, including some bonus bits you won't want to miss. Finally, if you're in a money mess and need help untangling the muddle - we've got you sorted - simply record your question and send it through to us at [e-mail] and you may just end up on the podcast!The advice shared on She’s on The Money is general in nature and does not consider your individual circumstances. She’s on The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. Victoria Devine is an Authorised Representative of Australia Pacific Funds Management Proprietary Limited ABN 34 132 463 257 - AFSL 339151.See omnystudio.com/listener for privacy information.

She's on the money. She's on the money. Hello and welcome to She's on the money, the podcast for millennials who want financial freedom. Part four of our investing series is here and today it is time to talk investment property investment. Correct. My name is Georgia King, I'm a copywriter and journalism student and joining me as always

is financial advisor extraordinaire Victoria Devine. Very dramatic, every single time. Yeah, I've got to be. Hello Georgia King. Hello. People don't like me using your whole name but... That's savage. Savage, it's a good name.

I like calling you Victoria Devine but also Vicky D, VD, V the Lord. Just for those playing along at home, this isn't just for the podcast, we actually call each other this in real life. Yeah, that's the thing. I just think that people think I'm putting it on for the show and it's actually not. It's just how we roll. Like we actually interact like this.

I'm sorry if that disappoints anybody and they think that we're actually as socially awkward as we come across. We're actually fine in real life. Yeah, we're fine but all right, carry on. Okay. So with all of that said, Bea, talk us through what is ahead on today's episode of the show. Okay, so we have had so many questions in the Facebook community about property investing this week, which is no surprise because we can't ask them to ask us questions about property investing.

And obviously, it is a huge topic. But by the end of today's episode, we are going to all have a clear idea about where property ranks within the investment space and you'll know whether or not property is the right move for you moving forward. I also have a few thoughts to share with you guys about investing in properties versus shares, so I'll absolutely make those pretty well known as well. I've got a feeling I already know what you're going to say there, V. No, you don't though. You don't though. Oh, that's the thing. Alrighty, so let's get into it. What is property investing, V? What's the return like and how does it compare to other forms of investing?

Okay, let's just dive straight in and say that property investment actually comes in many, many different forms a lot of people might say that the home you buy is an investment but i've said it on the podcast a million times it's overly dramatic but that is totally okay that it's not but you also might buy property purely as an investment have tenants in it you also might purchase property to flip and buy a bomb and then renovate it sell it at a higher price point very sexy in the instagram world at the moment maybe just from me because i like following those Instagram account but you might also buy a block of land or a house and just sit on it for a few years sell it when it's increased in value you can also purchase property inside the share market

by going down the commercial property route and purchasing shares that give you exposure to commercial property but we're not going to talk about that here but I do want you to know that that is an option as well so if maybe you don't have a heap of money but you're like Victoria but I love property and I really want my money to be exposed to that. But you also just don't want the commitment. You could actually purchase shares that expose you to that asset class. So kind of cool, but we're not going to talk about that today. So there are so, so many different ways to invest in property and that's kind of exciting.

Now, the biggest benefit, which we are going to talk about in more detail, and this is entirely my own opinion, but I've got a really high regard for my own opinion at this point in time. So do I. Yeah, thank you. It's actually so that we create a passive income and that is very, very cool. It's about having an asset that is going to pay us in the future so that we don't have to work. So for us, if we have tenants who are paying us rent and the capital growth of that asset, so the increase in value,

great. Over the long term, we have an asset that's worth more, but we've actually got an income stream of that tenant paying us money each and every single week after that property is completely paid off and you don't have any mortgage on it. So it's like a double whammy. Yes, because you could always sell that property and obviously make a capital gain, which is where you profit off a base level of capital. So maybe the property when you purchased it was worth $300,000 and then over time it's now worth $500,000. Your capital gain would be $200,000, which I think is pretty cool. But the question there is, do I actually sell that or is the fact that I've got a tenant in that property paying me $400 a week better for me long term than actually just having 200

grand in my pocket right now, which I would arguably have to pay tax on. Yeah, right. And also the capital growth could grow further, I guess. Yeah, absolutely. Absolutely. And it's one of those things where I've said this on the podcast before, where my favorite types of assets are the ones that produce income, but also increase in value over time. So you can actually have exposure to that type of asset within the property world as well. We always talk about things like the Australian dream and everybody wants to buy property and whatnot, but I'm just going to put that to the side. I think something that is really attractive, especially to younger people, is that property is tangible. You can touch it, you can taste it, you can have a pizza

on the front lawn of the property, you can drive past it, you can point at it. You can't do the same thing with a share portfolio. It's not nearly as attractive and it's just not as exciting, let's be brutally honest but at the end of the day i think that's why people see it as a very attractive asset because they feel quite safe with that because they can see it in front of them and property in general is not considered as risky as the share market so the return most people go by is around 10 but i'm going to preface that and say that i don't think that that will continue that is absolutely personal opinion it is not advice but i cannot personally see how the increase in the property market is going to be sustained over the long term based on the historical growth.

Well, that's the thing because I was talking to my dad about this the other day. How would you ever get into the market if it goes up 10% every year? Yeah, exactly. Yeah, I just can't. I can't fathom it. And we've all seen those properties online where people have flipped them, made a million dollars and all of that. Please don't get me wrong. We've also seen all the clickbait articles where people are saying things like, oh my gosh, I bought my 50th property by my 29th birthday. And to be honest, what you don't see is how much debt they're

carrying to be able to afford that. And I think you need to really bring it back down to earth and go, well, what does an investment property mean for me? How does that work? As much as the very attractive return exists, what people don't understand when it comes to return is that's just a great looking return. Does property return? Yes, absolutely. They haven't taken into consideration the costs that you incur along that journey to maintain that property. They haven't talked about water or about rates. They haven't spoken about the hot water system that broke that you had to reinstall or that pesky tenant that keeps calling saying that the air conditioner is broken and it's their fault. So I think it's really, really important

to consider that if you invest in property, but then you spend $50,000 on it and then you sell for a hundred thousand dollars more than you purchased it for you didn't actually make a hundred thousand dollars on that property you might have made 50 but then you'd have to play capital gains taxes and i just think that there's a lot to it that people don't take into consideration and i think that a lot of us and georgie might have experienced this before people don't tell you how much it costs to renovate their house or change things or you know what costs they incurred they'll be like, oh, George bought that house in 1992 for $30,000 and then sold it in, you know, 2012 for, you know, 800. And you go, wow, that's pretty good. How much do you spend on that?

Nobody asks that follow-up question. So I think it's really important to take that into consideration when we talk about return on a property as well. That's the end of my rant. I liked that. Well, that kind of leads into my next question, which is what we need to be considering when buying an investment property. But before I do ask you that, I just wanted to quickly let everyone know that we do have the property playbook coming, which is our A to C of home buying. So this chat today isn't about how to buy a home. I think a few people might be thinking that, but it's more a chat about investment properties and how we go about doing that. And what that asset class is so that you can properly understand it as an asset. And that

actually helps me a lot Georgia in answering the question that you just asked me and that is what do we need to consider and the first thing is what your purpose is are you purchasing an investment property or are you purchasing a future home those two things are really different if we are purchasing an investment property I think people get really tangled up in their emotions they start wow that's so pretty I'd love to own that apartment in that location once you've decided that your future investment property is going to be just that an investment you need to look at it pragmatically you need to say okay cool what are the key features I need to be purchasing what does this look like it's not about how pretty it is it's not about any of that I mean it kind of helps

sometimes but it's also you know mainly just aesthetics but at the end of the day if you are in a position where you're considering investment property we're not buying a dream home we're not buying something really attractive we are purchasing property with the expectation that it will increase in value and we'd get some capital growth and we'd also be able to create an income stream and be in a position where we have a tenant paying a mortgage that's what we're looking for it's not about what the property is we then go into budget and what that looks like and how that works whereas georgia if you said well i want to buy my first home or i want to buy a property that'll be an investment then i'll live in it that's a different story yeah so that's not what

we're talking about today. That is not what we're talking about. So for me, it's separating your emotions from what you want versus what you need at the very beginning. And then we want to do our research. We want to understand what we're buying. And I think that this is something that so many people don't consider when it comes to investment properties. They'll say, yeah, but it's really beautiful and it's in a really great location. Fantastic. Would you say the same thing about shares? Or would you tell me that you chose that share or that ETF or that managed fund because it's got good track record and proof and it's made up of well diversified asset like you'd have a solid reason no one looks at a share on the share market says it's just really pretty and it's in a

good location and yeah no one says that but we're so much more emotional about property so we need to strip that away and when we're doing our research go okay cool what do we need to consider do we need to work out where we're buying what that location looks like do you understand if you're buying in a city and there's a development going to go up in the next 12 months next door to you that's going to decrease the value of your current property are you aware of it have you done your research do you know what property is planned around to the outside of that property that you're going to purchase if you don't you need to do some more research so for me it is really really important when it comes to purchasing property we're not talking about first homes here

and this is really important for me to preface because I think that a lot of people be like oh but Victoria said X on this podcast about property. I'm not talking about your home. I'm not talking about your first home. I'm talking about a property that you do not have any intention of living in at any point. You need to identify areas that are high growth and high yield. The more that you can charge for rent, obviously, the more of an income that you're going to be taking home. Plus, you probably should be considering any plans that are in the works. As I said just before, that could impact the property purchase price. Now, this goes the other way as well. might not be a high density apartment complex going up near you might be a train line that's

actually going to increase the value of the property you're purchasing because it's just become more accessible like your school so you're in a great school zone now might be a hospital which would increase infrastructure in your area there are so many different things that could impact the property price that you have so generally suburbs that are closer to the city are more expensive to buy in and also coastal suburbs are as well because lifestyle aesthetic but the further out you go often you'll find greater affordability but with that comes compromise because obviously the further out you are the less you can charge for rent the further out you are the harder it is to get to work if someone works in the city etc so on and so forth do you see that

changing with the whole covid situation obviously a lot of people are making the move to the coast and they're like i'll work from home three days go into the office two days so then they don't need to live in like close to the cbd anymore is that going to have an impact on where we should be buying property? It can it's not it's not something that I would bet on for the long term with COVID we've obviously been you know granted this ability to be more flexible in our workplaces and we're seeing that already being reflective in the price of property so I know where you and I from Georgia on the peninsula property prices are significantly increasing because people want to live down the peninsula now because they can same thing is happening in really beautiful regional

town so it's definitely worth looking into but you can see what is going on I think for me it's just about understanding what you're buying why you're buying and what return you're expecting it's actually not about oh it's a really pretty location like I just get so frustrated when people tell me that when they're looking for property because that is not the priority when we are actually investing our money if you're investing the purpose is to get a return okay so from that investment perspective then what would you say the benefit of buying an apartment versus a house is which one's better because often people would say go with the house talk us through that so most people are going to say buying a home is a much better investment or a detached property than

purchasing an apartment because you get land like this is not the first time you guys have heard this and if you do purchase an apartment you're actually purchasing part of a complex and you'll probably have to pay body corporate fees so on and so forth and you're not actually purchasing the land and the difference is that land appreciates while buildings generally depreciate so what i'm talking about there is land is land you can knock something down and rebuild it often in the more expensive areas so you look at really expensive areas in sydney and in melbourne it's not actually about the house that is on it it's about the location of the land and what that looks like you could knock the house down and not have it there and it would still be very close to

the property value that was there prior so for me it's really important to understand an apartment cool in 50 years if you still own that it's going to need a lot of work that is a cost you're going to have to cough up you're not in a position where you just knock it down and sell it like it's just not an option so i think it's important to understand that land does carry higher value it does increase in value whereas apartments tend to cap out in saying that i think that there is a really great market for purchasing apartments but I would be looking into getting advice on where that is because we're not talking about really high density high volume apartment buildings because they're not going to increase in value in the same way that an apartment you know maybe in

like South Yarra or in a city like up to 10k's from the CBD in a block of six is going to that's a very different asset than purchasing a apartment in a high density apartment in Melbourne CBD that has 700 other apartments in that complex completely different ball game okay I yeah I think I always knew about the land thing but maybe I forgot or something that kind of yeah it makes sense and you also can't knock it down and rebuild it right absolutely and another one of the benefits of houses over apartments is you can add additional value so you could add an extension or you could conduct some renovations or you know put a second story on the property with an apartment you don't have that choice usually you can only move the internal walls and that's still questionable as

to whether they are load-bearing walls or not and I won't get into that but generally apartments are more affordable and by no means saying they're a bad investment we just want you to be educated on what the investment you are making is in comparison to another option yeah and now it kind of makes sense as to why they are cheaper beyond just the size of them generally being smaller okay next question here this one actually came from Erin from our community what's up Erin She is asking what the go is with paying down your mortgage faster versus an offset account, rather. Okay, so there's no right or wrong here.

At the end of the day, it completely depends on your own personal situation. The thing I'm going to say when it comes to right here and now is mortgages are very cheap at the moment. If you do not have a two in front of your mortgage, you need to have a chat to your mortgage broker and get that changed because to be really blunt money's really cheap right now you can borrow at like 1.5 percent the share market is still returning on average seven and a half percent so I know where I'd want to be putting my additional money so if you are thinking about that I think it's definitely

worthy of having a conversation with somebody who can advise you on the right decision to make for you and work out what that means but the benefit of having money in an offset account for those of you're playing along a home is you can actually access the money really quickly and it decreases the amount of interest you need to pay so for example if you paid off in quotation marks your entire mortgage so say you had three hundred thousand dollars cash lucky you for one but say you had three hundred grand cash and you had three hundred thousand dollars owing in your mortgage if you paid it off you'd extinguish that debt completely but if you put that entire amount into your mortgage offset you actually wouldn't have to pay any of your mortgage because like the

entire amount of interest would be completely offset so for me it's a very attractive way of putting money against your mortgage and making sure that you're paying less interest while still having quick access to those funds in case you do want to purchase another home and you've got the ability to put down another deposit or invest in something else that has a higher amount of interest being paid on it at that point in time I think it's really important to understand what works for you though because I do have some clients that are just going you know what Victoria I want to pay down my mortgage. Personally, that's not what I'm doing. I am not making additional mortgage repayments at the moment because for me, I'm actually bumping up my share portfolio because

for me, that's where money is working harder. I think the downside of offset accounts is when you withdraw money from an offset account, you're going to be charged additional interest. You're not going to be charged fees and charges, but essentially if you were offsetting interest before, now you've pulled the money out, it's no longer offsetting it. You're going to pay a higher interest rate so that's definitely worthy of consideration but I think it's really important for you to understand what your long-term financial plan is not just oh I've got debt I should extinguish that because we talk about good debt we talk about bad debt and we talk about okay debt and to me a mortgage is okay debt to hold as long as you've got a long-term financial plan

yes or something like a personal loan to me bad debt that's credit cards that is personal loans that is zip pay after pay all of the pays that that needs to go asap because the fees are really high the interest rates are very high and they are not putting you in a financially optimal position whereas a mortgage you're helping create wealth yeah you are helping to buy an asset over a long period of time and at the end of the day if you said to me hey victoria but i can pay off my mortgage 15 years earlier i'm going to do an entire podcast on how to do that so that you understand that but hey vitro i'm going to pay off my mortgage 15 years earlier okay great but would you like to pay it off over 30 and at the end of that period of time have your mortgage

paid off completely and have a two million dollar investment portfolio like which one would you like it's about making the right decision for you not necessarily just seeing it and going oh alarm bells i need to pay it off asap so how can erin figure that out is she going to have to chat with someone or will this not advice but our chat today do you think that'll help her hopefully it helps her but i think her question was more about should i be paying down my mortgage faster or putting it in an offset account my friend it is completely up to you it's all about access do you want access to that cash in the future my answer is you know depending on what your financial goals are but as i always say this is not about me saying oh my gosh but your money could be making

more elsewhere i mean good but it's about saying do you know that's an option for you great now you do go make an educated decision that is right for you maybe paying down your mortgage still is the most important thing for you but it does not necessarily mean that I think you're making the wrong decision I just worry when people just don't know all of the facts and the figures and don't know what they're missing out on that would be the worst thing for me yeah 100% all right good pep talk there hope you enjoyed that one Erin up next we'll be chatting the hidden costs of home buying, which we kind of alluded to a little earlier on in the show, we'll be getting to the bottom of capital gains tax, and we'll be shedding a little light on what the devil negative gearing

is. Now, do remember, guys, that conversations like the fabulous one we are having right now Don't just happen on the podcast. We are also having these chats on our Facebook page, 138,000. I think that's where we're at today. That's wild. That's wild. Is that actually where we're at today? I believe that is what I saw today.

Jessica Ritchie, is that where we're at today? Fact check. I am having 139,100. Oh, it's gone up 1,000 this morning. It's actually 139. Oh, I was a bit ahead of myself there, guys. But that's okay. That's not unlike me.

It's a lot of pals. So tomorrow morning it'll be 140. We'll have 140 tomorrow morning. Yeah, because we get about 500 people overnight. 500 people, okay. Jeez Louise. I clearly don't pay enough attention to the numbers coming in. I just like getting my opinion out on all the posts.

So, yeah, there's that. We also haven't been deleted by Facebook. I think a few news publications are, but we don't fall into that category. Lucky us. We are fine. More space for us to spread financial literacy. Heaven. We're also on Instagram, YouTube, TikTok, newsletter.

Is that everything we got? Yeah, we do. But, like, don't downplay that newsletter. It's my favourite piece of She's On Money content, guys. Yeah, yeah. That'll drop today in your inbox, guys. What are you going to talk about in the Friday newsletter, G? A lot to come this week.

She doesn't know, guys, is what that means. I think last week my recommendation was electric bikes. So let me know if anyone got around to that. I'm sure you didn't. Do you even own an electric bike? My mum does. And if you read last week's newsletter, then you would have known that. But check out my knee.

Look at that gnarly scar. Yeah, everyone's so shocked. They're so impressed. It's actually cool. I'm a biker chick. Anyway, should we get back to the show? Yeah, absolutely. Back to the show.

Read the newsletter. George King's a biker chick. Summarized. Okay, so we had a question from Sarah who was asked what you would say the hidden costs are that come with buying a house or an investment property. Yeah, there are lots. Talk me through them, doll. Okay, so there are a number of hidden.

I don't know if they're hidden anymore. keep talking about them so maybe they're not so secret maybe yeah you just don't know right so when it comes to purchasing property there are actually a number of different costs they're not necessarily hidden but they feel hidden when you haven't done your research and you're purchasing your property and they're like oh here pay the land transfer fee like what sorry new phone who is this so here we are trying to educate you the end of the day beyond the deposit for your home and the repayments that you're going to need to cover for the next few decades sorry friends you also need to pay stamp duty i think we already all knew that one you need to pay

conveyancing fees they're non-negotiable you actually do have to get legal advice you can't just diy you need to pay mortgage insurance which is something i didn't realize was actually non-negotiable for the bank to allow you to get your mortgage there you go council rates very exciting you'll have to pay water you'll have to pay for pest inspections on the property building inspections to make sure that you're not buying a property that is riddled with termites you'll have to pay for loan application fees which I just feel like is a bit of a kick in the pants because uh I'm already giving you all my money bank why are you trying to take more grim yeah pretty rude but that's okay you have to pay moving costs those are pretty pricey at the end of the

day I think it cost me nearly a thousand dollars to move house last time I did you're kidding you just got me around yeah I was around the corner but like can you pick up a queen bed frame yeah no I couldn't either don't worry and giant wardrobes it was a nightmare at the end of the i'm glad i paid for it to be honest because me dragging it down the road wouldn't have gone well and appliances also the cost of furniture to refurnish places broken broken appliances the other week georgia king i had to call out the plumber twice because it turns out i have roots going into the plumbing although i have roots growing into the pipes under my house so he had to clear that twice that cost me 220 dollars per call out so that is 440 dollars

I recently spent on plumbing, which I didn't see coming, but also could have used that as a money loss on the pod. Yeah, save it for next time. I'll save it for next time. Everybody acts shocked when I talk about that. But I think that there's so many different costs that we just don't think about and it is so important that we're aware of these fees and costs because they genuinely do stack up and it's really stressful. So it's going to be different state to state, but here in Victoria, stamp duty is currently void for first home buyers who are buying property of less than 600 grand that is an epic money win because stamp duty is spenno and there's a concession for first home buyers who are buying between the amounts of 600 000 and one dollars and 750 grand so if you

fall into those categories the amount of money falls on a pretty sliding scale so for me i think that's pretty good because at the end of the day it used to be about 10 stamp duty really spenno that is spenno i didn't realize when homes were like 30 grand though absolutely so like back in the day uh i'm not to be honest i am not the professional here amy lenardi who is going to be on the property paybook is but i was genuinely gobsmacked when it came to how much money i had to pay for my house deposit if you are now purchasing property is much less so that is pretty attractive have a check on your local government website to see what concessions you can get if you are purchasing property i think it's really important to make sure that you're

making the most of everything that is on offer to us because there could be state level or even national plans so definitely if you're looking at property in the near future have a look and see or just ask the she's on money community they've got they'll know they know they always know arguably sometimes they actually know more than i do because they're more across it 130 000 people you can ask well that's it 138 000 not to be confused with 178 000 make sure that you actually search the group before just chucking your question up because we actually, and I know that some people get a little bit annoyed by this, but I actually decline a lot of posts because that question has already been asked in the community and I don't want our community to become a place

that is just super repetitive. I want you to talk to me about capital gains tax. Oh, capital gains tax. CGT. CGT. Very attractive. If you use the acronym in a really fast way, it makes you sound like you know what you're talking about which thankfully i do so cgt is capital gains tax and that is a tax that you pay basically if you sell a capital asset so whether it is shares or whether it is property you'll either make a capital loss or a capital gain and that means you made money and you'll need to pay tax on that because any money that you make in australia you do need to pay tax at your marginal tax rate on so this is referred to as cgt but it is also lumped onto your income tax rather than just like a completely separate tax return so it definitely

isn't something that you have to go and do above and beyond yeah it'll all be included how do you know like is that an automatic thing or like how do you know this is where if you own property it's important to have an accountant or a little bit of prowess when it comes to doing your own tax return once you go from just being a salary and wage earner who just submits all this stuff to the ATO website and DIYs their tax return, this is where you probably need to make sure that you're tracking how much you're spending on the property so that you can claim it. And then if you sell a property, making sure that your accountant knows how much you sold that property for versus how much you purchased it for so that they can calculate the CGT

on that asset for you. And you only have to pay capital gains tax once. That's once you've sold your asset. With property, yes, it's once you've sold your asset, but it's going to differ depending on shares based on how much money you make and whether you're reinvesting dividends or not but at the end of the day my friends if you are making money that is a good thing and paying tax is also a really great thing and for me i get really frustrated when people like oh my gosh like i can't believe i had to pay a capital gains tax on that like yeah but it was never yours you always

knew that so they changed the goal posts like that's how it works in this country yeah so we're really lucky to be able to do that and that is my personal opinion love it well said um okay we have lots of questions and we always do about positive and negative gearing. I got you. What's the deal? You don't want to explain it? Absolutely not. Can you imagine? So negative gearing is where the expenses associated with your asset, i.e. your home or your share portfolio, are more than the amount of money that you made from that asset. So say you purchased an investment property and you spent a whole heap more money on that property than what you made. Say, for example, you spent $50,000 on it, but you only made $20,000 in rent that came in. That is a negatively geared property

and that means that you're not going to have to pay heaps and heaps of tax because you can claim it. Whereas a positively geared property is where you are actually making money from that property and the expenses associated with that property are lower than the amount of money that you're making, which is obviously the dream. Okay, so let's have a chat about the gearing of property. So you mentioned negatively geared properties and positively geared properties, but did you also know that you could have a neutrally geared property? Absolutely not. Making it complex over here.

So I will explain all of those really quickly at the end of the day. This can be a little bit complex, but a negatively geared property, geared, but a negatively geared property means that the income that you are making from that property is less than the mortgage repayments and expenses you're incurred on it. So negative. Does that make sense? You are looking so confused. No, I know.

I think I just have a pre-existing fear of positive and negative gearing, which I feel like surely some listeners... It's not scary, I promise. It is just literally a fact and we just want to understand it for tax purposes. Okay, hang on. Can I try and explain it to you? Yeah, of course you can. So negative gearing.

Yeah. Nothing to do with bike gears, even though I'm a biker girl. You are a biker gal. So if you buy an investment property... Yes, sir. and you bought it for like 200 grand yeah thanks it's pretty cheap good but you spent and you've got tenants in there and over the year they pay you like 20 grand for rent yeah nice but you had to do up the bathroom and that cost 50 grand it was expensive no bathroom for a $200,000 house

it was made of gold oh wow that's pretty cheap for a gold bathroom what's happened here is it's negative gearing yes because the rental income that you received is less than the expenses that you incurred and the mortgage repayments that you had to pay so then you can claim it yes but what does that mean it means that you can claim it on tax so each year the property costs you money to owe right negative costs you money to owe negative gearing that is what it is okay and the benefit is that it's lower tax and you still have that asset which has that capital growth. Yeah yes exactly and negatively geared doesn't mean you actually have to spend any money on your property for example you could have purchased a property where the mortgage repayments are four thousand dollars

a month but you're only generating two thousand dollars a month of rental income therefore your shortfall would be two thousand dollars a month that you have to cough up yourself to pay for that property making it negatively geared because that asset isn't producing income for you that you could technically spend okay does that help it does help and i have a question was this a thing that like the rich fellas were doing that kind of shut us young fellas out of the market no g that was positively gearing so that's the opposite of negatively gearing and that is where the rental income that you make is more money than the mortgage repayments and the expenses that you make on the property so each year that property is making you money to own so that's money win

okay obviously example of that would be mortgage repayments are three thousand dollars a month but you are renting that property out for three and a half thousand dollars a month therefore you are making five hundred dollars a month more than what that property is costing you right money win and now to absolutely surprise and shock you all neutral is where the rental income is actually equal to the mortgage repayments and expenses so each year the property then doesn't cost you anything out of pocket at all. Does that make sense? Is that good? I'm just going to put a graphic on the Instagram feed. Yeah, let's just make it visual. How about that? All right, let's move on. That was fun though. Was that fun? Did you like that? I did like that. Thank you. I'm

not sure if anybody else did, but at this point, you're so deep in the episode that if you're still here. It's way too late. Suck it. Suck it indeed. Now the risks of property. I feel like we don't talk about them as much as we talk about the benefits. So here's our opportunity. Talk us through that? Property is very attractive because it is the Australian dream. I'm not saying it is attractive. I'm saying we think it is attractive. And often we put ourselves in positions where we buy outside of what we can afford. Now, I'm not saying that you purchase something that requires you to spend five grand a month on it. You just don't have that money. I'm saying you can't afford it because it's sacrificing too much of your lifestyle and you can't have a life in addition

to that. We forget that a mortgage is a 30 year commitment that puts us in a position where we actually have to honor that commitment each and every single month. It's not like a savings plan where you're saving for your first home and if this month you went out with the girls too many times you just don't add to your savings. If you don't pay your mortgage you're actually in a bit of a pickle. So we need to make sure that we are buying within what we can afford and what we actually want to put towards wealth creation because that's the plan. So when we're buying a mortgage which is essentially what you are doing that's a long-term commitment. I just don't think the people see the gravity of that situation because we get so caught up in this love bubble of purchasing your property

and being excited about having made the deposit and it's all just really exciting but what we really need to do is pare it back a little bit and be like okay what can I afford each and every single month to put to this second thing is timing the market the best thing to do is buy when you can afford not when you think is going to be a really great time to buy because if you think it's a really great time to buy so does everybody else so don't let FOMO actually influence you because at the end of the day it's not a good investment if it puts you in a financially strained position terrible idea from my point of view um and then also just not considering all the costs and all the fees that come above which we already went with there is just so much more

to buying property than a lot of people think there is I think something that came up a long term commitment you know well that's you're not ready you're not ready that's the thing so we do have the property playbook coming up to explain the a to z of buying houses what about homes everything i'm genuinely so excited about this this wasn't meant to be a plug for the show but it totally is a plug for the show they just go hand in hand yeah and also cool name right the property playbook pp alliteration with that one uh by myself it is good thank you i like it but okay so property playbook aside if someone is thinking investment property it's the way i want to go who should they be talking to where should they start chat to your mortgage broker about

whether you can afford it or not get pre-approval start having that conversation they can assess your financial position work out where you're actually sitting what you can afford what you can't afford usually they have a pretty good idea of what the market's up to too so have a chat to them because they're usually smart individuals but then also have a chat to a financial advisor establish what you can do in the long term because too many times we just say i need to buy an investment property i'll work it out all after that i'll just work out my financial life once i've just secured my first property that is not the time to work out your financial life it is when you have the least amount of commitments but the most amount of choice and that is before you

purchase your home so for me have a chat to someone who can actually advise you there are property specific financial advisors i'm not actually one of them so i probably wouldn't talk to me personally about purchasing property because whilst I'm very passionate about it as an asset class I would not have a clue where you personally should be purchasing a buyer's advocate on the other hand is going to be able to guide you when it comes to that and there are buyer's advocates not to trump Amy's own horn which you know she'll love this because she does also listen to our podcast she knows what is good when it comes to purchasing investment properties like that's her bread and butter she purchases investment properties for investors like she

looks for them she makes sure that they're going to be a great asset someone like that on your team is definitely worth the money in my books do a google with your location and brokers in that area if you're looking for someone obviously we've got a great arguably great referral program where we can match you with a broker but then also have a chat ask friends and family work out who they've been talking to because to me referral is the best source of finding someone okay and to round out today's show v please give us the scoop if we had to choose shares or property oh if you had to choose i think that's really silly that's the that's a terrible question to wrap a show on georgia how awful let's not answer that no actually i think it's really hard to question

that uh because it's personal preference one is not better than the other and it frustrates me to think that people are oh should i do this or that i don't know your values yeah i don't know what you want to do i don't know what your life plan is do you want to have six kids do you want to have no kids like who are you what are your goals find an asset that aligns to your goals not purchase an asset because you think it's better than the other one because at the end of the day this is a long-term commitment and if you have the right strategy in place there are lots of different ways to create long-term wealth full stop end of story stunning okay well there is so much for us to all take home today guys i think the main things i've probably taken away uh take

home to your new investment property is that stunning stunning she's good um so what i've taken away to my home is that property is a great investment option because of the potential for passive income and capital growth but you've got to watch out for capital gains tax but you've just got to expect it because that's coming for you when you sell if you did a good job and you bought a good property you were gonna pay capital gains tax correct that means you bought a good property it's a good thing good thing good thing uh generally houses are better than apartments as an investment because of the land. The land, yes.

So you can extend, you can knock down, rebuild all of that jazz. It's not to say that apartments won't have good return. Absolutely not. And the final thing I learned was what negative gearing means. Checking out. Sort of. We'll make a really great graphic and we'll put that in the Instagram this week for those of you who are still confused.

Like me, I'll check that one out. I think it's time to leave it there, V. Okay, but just before we head off, we'd like to acknowledge and pay respects to Australia's Aboriginal and Torres Strait Islander peoples. They're the traditional custodians of the lands, the waterways and the skies all across Australia. We thank you for sharing and for caring on the land which we are able to learn. We pay our respects to elders past and present and we share our friendship and our kindness.

And don't forget, guys, that the advice shared on She's on the Money is general in nature and does not consider your individual circumstances. Now, She's on the Money exists purely for educational purposes and should not be relied upon to make an investment or a financial decision. Absolutely not. And we promise Victoria Devine is more than just talk. She's legit. She's still an authorised representative. Still an authorised representative of Australia Pacific Funds Management, Proprietary Limited, AFSL.

Damn it, I tried to do it without looking. AFSL? I totally was. 3-4-1-3-2-4-6-3-2-5-7. Do you see that? I closed my eyes for that. Did you? Yep.

AFSL 3-3-9-1-5-1. I did it too, but I looked first. That's cheating. It wasn't really that impressive anyway. But we got there. Yeah, so what else do we do at the end of this show? Oh, we say thank you to everyone. Thanks to Jess sitting in the room, the big legend.

Thank you to Brian. She keeps us on track. Brian, who's naughty in the room because he's editing another podcast of ours. And Beck, who's hopefully having a beer on this lovely... No, she's having a bike ride right now. She said she's going on a nice bike ride. I hope she doesn't fall off and hurt her knee. Anyway, that's enough from us today.

We're going to Fonda to have our... Fish burritos. All right, see you next week, guys. Bye, guys. We'll be right back.