Am I in a good position to become a property investor? Ask Margaret

Hello Margaret,

My husband and I, both 50, are considering purchasing an investment property to potentially provide us with an income for our retirement. We have two dependent children, aged 19 and 16, a combined annual income of around $200,000, a mortgage of $320,000 and our home, recently appraised, is worth about $1 million. We are paying off our mortgage at $2,200 per fortnight at 5.1%. We always clear credit card debts before interest is incurred. We have no other loans.

We both have frozen pension overseas, seven and 12 years, and both have had workplace super since returning to Australia in 2006, contributing an extra $100 per fortnight each. We have savings and shares to totaling about $10,000.

I am concerned we will need to sell the family home and downsize, in order to adequately fund our retirement. We would prefer to leave an inheritance for our two children, to enable them to each get on the property ladder before real estate eventually becomes too pricey.

I have been reading your articles over the past year and I'm not sure if we are in a position to purchase a second home, or if this is the way forward for us?

We used 10 years of (cashed in) super, to purchase and develop our first property, at the ripe age of 38 and 35, overseas, giving us a significant profit over the seven years we lived there. Ultimately, this enabled us to return to Australia and purchase our first home here in a good suburb.

Hope you can help us with some independent advice.

Kind regards,

Maria

Margaret's answer on the next page. Please click below.

Hi Maria,

I'm glad you wrote to me before rushing ahead and making any major mistakes.

Firstly, I think it is imperative that you think about planning for your own retirement before you think about planning for your children's inheritance!  You are a lot older and closer to retirement than they are, and the best inheritance you can give them is parents who are financially independent and who lead by example.  Teach them how to be good investors by becoming one yourself and they won't need to inherit.

You are in an excellent position to begin investing, in fact you have been for some time so there's no time to waste.  I've done some quick calculations based upon your equity of around $700,000 and your incomes of $200,000 and, along with projected rental incomes which buying property would bring, there is no reason why you could not in fact borrow enough to buy total property to the value of around $2 million.

Now, don't rush out and do that  - just because you qualify doesn't mean you should do it! 

You must start with a strategy, an assessment of your risk profile, a plan which matches your personal circumstances, then some good quality education to enable you to become a skilled investor before you start.  If you do not follow this sequence you will be setting  yourself up as fodder for every dodgy property spruiker that you are bound to find lurking in every corner - waiting to part you with your money on property which might be right for them (due to their large commissions) but possibly wrong for you. 

Here are some things to be wary of:

Mortgage brokers giving you 'property advice' - they are licenced to give you loan advice only and largely have no qualifications or skills to assist you to invest well.  Their property recommendations are most likely being made because they will be receiving commissions from developers for anything you buy.

Financial advisers giving property advice - recent changes to the law means financial advisers no longer make money from commissions, instead they must charge the client.  Some are turning to developer stock to sell to their clients, for which they receive large commissions, with no requirement in the legislation to tell you about them.

Glossy brochures advertising fabulous property in areas that you cannot confirm is really a hotspot.

Anyone giving you 'property advice' and selling you a property as well - it's impossible to be independent if there are commissions to be made, and these people cannot possibly have properties to sell you in a hotspot which also just happens to be perfectly matched to your own financial circumstances.

Now that I've provided all the warnings, get going!  Read some good property books and look for an adviser who offers a pure advice model.  Get educated too, but beware the spruiker seminar with the high price tag!

Regards,

Margaret

She is the founder of Destiny.

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