Your debt exit plan
PUBLISHED : | UPDATED:Australians have collected investment properties like we’ve collected Apple products. “You say it’s a mining town where rents cover the mortgage twice?” Sold. “There’s a place where houses are less than $200,000 and vacancy rates are tiny?” Sold. “So it’s a slippery computer between the size of a phone and a laptop?” Get me in that queue – and sign me up for some kind of stand!
The trouble is, very few of us have given thought to why – or how – we are ultimately going to extract all the wealth we have tied up in these investments. (I’m talking property – you can kiss your iSpend goodbye.)
The ultimate goal for most of us will be to turn property into prosperity. How though? A fully paid-off roof over your own head by retirement is a fundamental financial target. If you’re not there yet, you could sell an investment property and use the equity released to pay it off. If your home is unencumbered, though, you could sell one investment property to pay off others – mortgage brokers report this as a popular strategy. Or you may choose to pay down investment debt to the point where properties generate positive cash flow, and fund your lifestyle.
In any case, once you are no longer in paid work, a property portfolio designed to cut your tax bill is pointless. You need, if not to be debt-free, then at least for any debt to be self-servicing (and think too about what would happen if you lost tenants).
Our cover story this month – “Debt exit plan” – takes a forensic look at the best ways to unwind a portfolio so that you can eventually unwind yourself. We also examine the best structures for right now – interest-only is not the panacea so many of us think. And if you, your children or your grandchildren are despairing of ever getting on the property ladder, we lay out some clever approaches for first-home buyers.
Of course, all these decisions must be made in the context of a property market that is in the doldrums. Latest Australian Bureau of Statistics figures show all capitals posted a decline in 2011, with Brisbane leading the falls at minus 6.7 per cent (although the floods could be skewing the data). Next most depressed were Adelaide, Melbourne and Perth. Most resilient was Sydney, which capped losses at 2.7 per cent. The outlook for property – and whether you should hold on to what you’ve got – is the subject of this month’s Vox Pops.
We also talk DIY super with a panel of experts . More than 600 funds are being set up a week – should you jump on the bandwagon? And how can you do so cheaply and safely?
In terms of what to put in a self-managed super fund, which is typically run more conservatively than a public-offer fund, our number crunching also reveals the retail investor darlings. These are the stocks we continue to love, come what may. And it seems with good reason …
Keep your investments smart,
Nicole Pedersen-McKinnon Smart Investor
