Superannuation Discussion + market volatility

[JohnK]

Personally I would never rely on the income from property as my main source of income. Too many variables IMO.

Which variables?

My brother has been retired >15 years and he is 3 years younger than me. His only income is property but not just one property.

 

[RooFlyer]

Personally I would never rely on the income from property as my main source of income. Too many variables IMO.

Although it wouldn't have been my only source of income, but I sold my investment property when I retired. Although it had a good yield (mainly because the base was 20 years ago, when i bought it!), the money could work harder elsewhere.

<snip>. Timing is everything.

I'll say! I sold the above property at the recent spike in Tas house prices. Person who saw it on day 1 offered more than I was asking. Sold! Next door place put on the market a month ago hasn't had an offer yet.

 

[QF WP]

Where should I start @JohnK.

Volatility - prices in SYD and MEL are crazy, auction clearance rates continue to drop Auction Results & Saturday Auction Clearance Rates
Unrealistic expectation of sellers (capital value) - the market makes the price generally, not the seller.
Interest rates - have been at the same level for the last 22 RBA monthly meetings. They will start to go up, it's just a matter of time, which will cause loan stress and loss of return for investors, who will be unlikely to be able to pass on the interest rate hikes by increasing rent. It's going to become a buyers market before too long
Inflexibility - you can't sell a back bedroom if you need capital - need to ask bank for a loan (unless you keep a loan account open)
Having to deal with tenants - either DIY or use a reputable agent
Aging property - capital upgrade costs needed to maintain yield (rental) from tenants increase with the age of the property.
Maintenance - DIY (if you have some skills) or employ tradespeople (or use agents with their tradespeople)

Nah, give me the peaceful life...

 

[JohnK]

Where should I start @JohnK.

I've been facing these issues the past 29 years.

My first loan was at 17.3%, second loan at 11.5% and third loan at just under 10% so not worried about interest rates. Property prices around the world are ridiculously high and I think part of the problem are low interest rates. I would rather savings interests higher to encourage people to save.

Property value is not really a worry. Buy and keep and leave behind for daughter to enjoy.

Age of property is a concern but established property is considerably cheaper than the newer slums of today. A small risk I'm prepared to wear and much lower risk than the 25% superannuation fund corrections of 10 years ago.

Tenants are always going to be an issue. We've never had any real issues over the past 29 years with 5 properties. Just make sure the agent vets any questionable applicants. I don't mind waiting for the right tenant. One property has been vacant for ~2.5 months after losing 20+ years tenant but that just means the ATO gets less income tax next financial year.

 

[RooFlyer]

Inflexibility - you can't sell a back bedroom if you need capital - need to ask bank for a loan (unless you keep a loan account open)
Having to deal with tenants - either DIY or use a reputable agent

Yes!

Rented properties, unless self managed are subject to the quality of the manager, who can change as an individual or the business can be sold. With my place (holiday house, short-term rentals), I had 5 managers in 20 years; all wife-and-husband types, except for the last one.# All were pretty good, except the last one. This one, touting a totally professional outfit, good, well paid cleaners etc etc was the worst. Insisted on arranging all the maintenance (I used to do most of it myself) but never inspected what was done. I let them know how badly it was being done, then they got annoyed at me. Had to point out their cleaners weren't much chop as well. Didn't help that they took on 2.5 x the number of properties within a year. That all made the decision a lot easier to make when the time came. Having the place for 20 years in a fantastic, popular location made it a bit of a wrench to sell, but - show me the money!

# There was one guy who decided to clear a bunch of vegetation from the back - that was good, but then he decided to burn it in a heap in the middle of the lawn , the lawn being a major selling point that it was large and great for kids to go racing around, playing games, out of the house. Fortunately that particular manager didn't last long. The lawn took a year to recover.

 

[Radio8tiv]

It's not? Term deposits are as high as 3.00% for 12 months with Citibank and 2.85% with a few other financial institutions.

I agree, most people on here have no problem churning credit cards to get points. If you apply the same principles to savings accounts and use the introductory offers you can easily achieve over 3%

 

[Pushka]

I agree, most people on here have no problem churning credit cards to get points. If you apply the same principles to savings accounts and use the introductory offers you can easily achieve over 3%

You really can’t churn too much in a Super Fund. And paperwork to change is a pain.

 

[Pushka]

Particularly if you are aiming to have only the one rental property.

One of my father's rentals had a tenant from hell who just stopped paying rent and it took about half a year to get him out, with the place trashed to boot.

Well there’s a dislike. It’s stories like this that send shivers down ones back. That and trashing the property.

 

[Flying mermaid]

Well there’s a dislike. It’s stories like this that send shivers down ones back. That and trashing the property.

Here’s a fun one for you, we had a rental property and decided to manage it ourselves. Friends told us it was really easy. I think it was soon after Master FM was born, so doubly crazy of us . Anyway got a terrific tenant. He as working as an IT contractor and everything checked out. He offered to pay the bond into the rental authority to save us time. Gave us the first week in cash and promised to pay into our bank account. No online banking then - had to wait for account to be posted to check. First month came nothing there - checked with him - he blamed his bank promised to fix it. Then it was Christmas and by the time I checked the next statement it was about 10 weeks oweing. Phoned him and told him we would be round in a couple of days and we wanted the rent in cash.

Turned up and he had done a bunk - there were 4 or 5 suits and shoes abandoned and piles of unpaid bills. I saw on the phone bill the number he had phoned on Christmas Day and phoned it and got his aged mother, who said “what has he done now”. Apparently he had mental health issues. Checked with work, but he had got the sack for non performance and oh of course the bond had never been paid.

At least he didn’t trash the place. We gave all the clothes to St Vinnies, wrote it down to experience and handed the place to a property manager.

 

[Pushka]

Here’s a fun one for you, we had a rental property and decided to manage it ourselves. Friends told us it was really easy. I think it was soon after Master FM was born, so doubly crazy of us . Anyway got a terrific tenant. He as working as an IT contractor and everything checked out. He offered to pay the bond into the rental authority to save us time. Gave us the first week in cash and promised to pay into our bank account. No online banking then - had to wait for account to be posted to check. First month came nothing there - checked with him - he blamed his bank promised to fix it. Then it was Christmas and by the time I checked the next statement it was about 10 weeks oweing. Phoned him and told him we would be round in a couple of days and we wanted the rent in cash.

Turned up and he had done a bunk - there were 4 or 5 suits and shoes abandoned and piles of unpaid bills. I saw on the phone bill the number he had phoned on Christmas Day and phoned it and got his aged mother, who said “what has he done now”. Apparently he had mental health issues. Checked with work, but he had got the sack for non performance and oh of course the bond had never been paid.

At least he didn’t trash the place. We gave all the clothes to St Vinnies, wrote it down to experience and handed the place to a property manager.

That’s a sad story all round, isn’t it.

 

[Flying mermaid]

That’s a sad story all round, isn’t it.

It was really - after talking to his Mum we didn’t take it any further - not that I think there was much we could have done anyway.

 

[andy2015]

That’s not a cash account though. Need to lock it away.

Bank accounts:
RAMS 3.00%
UBank 2.87%

Both however have strings attached which I'd consider minor.

 

[Pushka]

Bank accounts:
RAMS 3.00%
UBank 2.87%

Both however have strings attached which I'd consider minor.

RAMS savings accounts not available for businesses or trusts. Super Funds are held in the name of a trust.
Haven’t checked UBank.

Certainly the Banks do not offer anything like 3%.

 

[RooFlyer]

Haven’t checked UBank.

UBank is supposed to be good; ING has an intro rate of about 2.5% for (I think) 6 months, but 1.5% otherwise.

Bouncing around accounts/financial institutions to get their intro rates (as suggested by someone else) is a PITA, as if you are a new client, you'll have to go through the excruciating new 'money laundering' checks each time. If you are after intro rates for >4 months to park cash somewhere, then better to open a term deposit. I did this with house sale proceeds, until I was ready to roll it into Super in the new FY and was actually able to negotiate an extra 0.2% for the period I wanted (I am a minnow customer but have a CBA relationship manager - real person in an office in Hobart)

 

[Pushka]

UBank is supposed to be good; ING has an intro rate of about 2.5% for (I think) 6 months, but 1.5% otherwise.

Bouncing around accounts/financial institutions to get their intro rates (as suggested by someone else) is a PITA, as if you are a new client, you'll have to go through the excruciating new 'money laundering' checks each time. If you are after intro rates for >4 months to park cash somewhere, then better to open a term deposit. I did this with house sale proceeds, until I was ready to roll it into Super in the new FY and was actually able to negotiate an extra 0.2% for the period I wanted (I am a minnow customer but have a CBA relationship manager - real person in an office in Hobart)

We used to have a Real Person in Adelaide with NAB. Business Relationship Manager. Our business was handled by them. Maybe 2 years ago NAB decided that Adelaide did not need any and now its based out of Melbourne. And they are useless.
The concept of proving we are a Super Fund, Trustees, yada yada is just a royal pain. I would just not bother for an Intro Rate and the usual rate is around the same as the banks anyways.

I think JohnK you need to rethink that Bank Interest.

 

[tgh]

All sorts of irritations with lending your money to a bank.
We sometimes roll over for less because chasing a small % gain isn't worth the drama.
It is "almost always" possible to lever a bit more out of the big banks.

 

[burmans]

I think JohnK you need to rethink that Bank Interest.

In my view its kind of moot whether you can get 2% or 3% in the Bank when John has stated he wants 5% Income plus 2% capital appreciation each year. Its clear to me we aren't anywhere near that ballpark with Bank Interest (nor with property in todays market).

 

[Buzzard]

Cash is not 2.5%

I think it's currently 2.89% in a savings account with uBank. Not locked away, I can pull it out with my ATM card.

 

[RooFlyer]

For anyone who was reading my issues with investment adviser and the 'Wrap' platform product they were recommending, and the problems I had with it over its complexity etc.

I sent a mildly terse e-mail to the adviser saying exactly what my problems were and asking if they could suggest resolutions. To my surprise, they did, at least as far as they could, I think.

They suggested an arrangement where the fees might be crystallised would be less and they also said while they couldn't change the sign-up form and the complex contract that produced, they did send me an e-mail with words that addressed my points of concern. If the things that concerned me ever come to light, I'm pretty sure I can rely on the e-mail to mitigate.

So, I'm going to go forward, but only investing half the amount I originally intended. I do believe in the principle that you get what you pay for, and its worth paying a professional for advice. I'm not stuck with either the adviser firm or the product and can punt either if I need to - at some cost, but its not onerous.

I'm opening a CommSec account with an attached cash account which gets me very cheap brokerage - not the absolute cheapest out there, but I still have my other accounts with CBA and like I said above, there is a real relationship manager in the Hobart office who helps me out from time to time. Plus its not a bad share trading platform. (I've had a personal one for years).

Going to get some EFTs with the balance of the funds that were going to the Wrap platform.

 

[Pushka]

I think it's currently 2.89% in a savings account with uBank. Not locked away, I can pull it out with my ATM card.

It’s moot now. I’m withdrawing a lump sum Monday week to pay off a mortgage. Most of the rest of the super is now in shares.