COVER STORY // GENERATION WEALTH
GENERATION
It’s never too early or too
late to start building your
property portfolio. API
uncovers the eight best
tips and tricks to building
wealth for your
generation.
By Lauren Day
@laurenanneday
“I
f only I started investing in property
10 years ago”. We hear that sentence
time and time again and yet so
many people continue to do nothing.
Others, of course, take control of their
future. They decide to act now and buy
property when they can afford to, rather
than try to time the market or complain
about the past and just give up.
Imagine if you really had bought that
property a decade ago. Chances are, if
you purchased an investment pad 10 or 20
years ago, you’ve definitely made money
by now. Some might already have a
considerable property portfolio; others are
just starting out or perhaps still looking to
purchase their first investment property.
Whatever stage you’re at, it’s never too
early or late to start building a portfolio
and working towards a secure and
pleasant retirement. Chair of Property
Investment Professionals of Australia
(PIPA) and chief executive officer
and founder of Empower Wealth, Ben
Kingsley, says the strategy investors need
to take depends on how much time you
have left before you exit the workforce.
No matter what your age or cash flow
position, everyone can build a portfolio.
“Gen-X or Y have got more time for a
strategy to play out,” Kingsley explains.
“Baby boomers have less time. Some of
them are realising they’ve left their run
a bit late. They think they have to do the
heavy lifting and take on more risk.”
GEMMA CARR
WEALTH
GENERATION WEALTH \\ COVER STORY
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COVER STORY // GENERATION WEALTH
Name: Carl Emmins
Lives: Melbourne
Invests: Highett,
Victoria, and North
Lakes, Brisbane.
Properties: 2
Strategy: Buy and
hold
Carl Emmins is a 24-year-old carpenter
who is already carving out a successful
property portfolio for himself and his
partner. He has drive, ambition and big
plans for the future, thanks to getting
into the property game when he was just
a teenager.
“My dad pretty much instilled in me
that the earlier you get into the property market, the better,” Carl
says. “I was an apprentice at 16. I wasn’t earning much but I wasn’t
spending that much either. I was always a good saver and so I had
a bit of money.”
By the time Carl turned 19, he already had a small deposit.
Like many gen-Y investors, however, it still wasn’t quite enough,
and he had to think outside the square to get into property as
soon as possible.
Fortunately, Carl’s father was also keen to jump into bricks and
mortar and so the tight-knit pair came up with a plan to go halves
in a property in Highett, Victoria.
They paid $750,000 for the property, which would normally be
quite a substantial amount for any gen-Y investor. But in this
case, Carl only had to cover half the cost.
He and his father also realised they could get more rent if the
property was split into two. So they undertook a small renovation,
which included a new bathroom, floors and deck, and installed a
dividing fence.
These days, Carl’s dad lives in the back property, while the front
property is rented for $440 per week.
Like most gen-Y investors, Carl had to consider the rental yield
before he purchased his first retirement nest egg, because he
wasn’t on a massive wage. But he realised the holding costs
weren’t actually that difficult as long as there was always a
tenant. The main thing, according to Carl, was getting into the
market and buying a property he could afford.
It meant he had to compromise on something closer to the
city, but the benefit of going halves with his father ensured an
affordable and successful outcome.
However, Carl did miss out on the first homebuyer’s grant,
because he bought an investment rather than a place to live.
“That was a bit of a pain but now it’s costing me nothing to hold
and I can see that Highett is actually going forward.”
More recently, Carl has purchased an investment property in
Brisbane. It was a $400,000 house-and-land package in the
suburb of North Lakes and is renting for $400 per week.
It’s one of many investments he hopes to own by the time
he retires.
“If you can own five to six properties outright by the time you’re
40 or 50, you can live off the rent,” he says.
“I think the pension isn’t going to be around forever and the cost
of living is only going to get more expensive.”
Carl and his partner are expecting their first child together
in November. With added expenses obviously coming
up in the very near future, it’s another reason why
getting into the property market as early as you can
has paid off for this savvy investor.
“If I didn’t have these properties under
my belt, I doubt I’d buy anything else for
another five or six years. For now, it’s
pretty early days and I’m hoping to
see some benefits over the next
three to five years,” he says.
However, Kingsley reminds investors
that everyone needs an exit strategy and
a timeframe to retire down debt.
“You need the income for when you’re
active, not when you’re 95,” he says.
“Property investing isn’t about having 10
properties, it’s about the wealth and the
income it provides.”
The reality is investing today is no easier
or harder than it was 20 years ago.
Property author and millionaire Jan
Somers, who bought her first property
when she was 22, has heard the same
excuses hundreds of times.
“People will say ‘yeah, but you bought
your property when it was $12,000’,”
Somers says. “But we were only earning
$3000 and interest was more than 10 per
cent. Property was never cheap.”
So what do you do if you’re keen to build
a portfolio but not sure about the best
approach to take?
Somers believes by accumulating as
many properties as possible, the longer
you can hold them, the more cash flow
positive they become. It’s a foolproof
strategy and the reason she became a
property millionaire.
“It happened over 40 years. The rent
gradually outstripped the interest. You
can’t look at a timeframe of five to seven
years. Young people today need to look at
the next 40 years.”
They also need a plan. But what’s the
best method for each age group?
API has uncovered the eight top tips
for each generation to help any investor,
young, old, beginner or experienced, get
ahead of the game.
GEN Y
YOUNG
AND EAGER
What’s a gen-Y investor?
Carl’s top tips
>> Get into the
market as soon
as you can
>> Save as much
as you can for a
deposit
>> Make sure you
can afford the
property
>> Think of creative
ways to increase
the rent
>> Plan for the
long-term
GEMMA CARR
Starting out young
GENERATION WEALTH \\ COVER STORY
Facebook is, like, so 2013 if you’re gen-Y.
Instagram is in and forget newspapers –
you’re probably following topics trending
on Twitter.
This is gen-Y. They’re social media
lovers, generally born between 1977 and
1994. This mass of Spotify downloaders
is the largest cohort since the baby
boomers. They’re known as being
technology-savvy, less brand loyal and
also more involved with family purchases,
including groceries, cars and properties.
Many gen-Ys would be just starting their
property investing journey.
Typically, they have to consider rental
yield as well as capital growth, as they’re
at an early stage in their career and might
still live at home with mum and dad or
rent a property with friends.
40
API JULY 2014
æGen-Y is a social generation,
use your social links to your
benefit.Æ Zoran Solano
Gen-Y investors are probably still living
at home with mum or dad, hoping to do
some travel and just starting out in their
careers. Kingsley says they usually spend
and live for today, rather than save for
tomorrow. They’re also more likely to be
on lower wages.
“Generally, the gen-Ys don’t have the
cash flow early on, so they have to chase
more yield. If they don’t have the surplus
cash flow, they’re in trouble,” he says.
Although gen-Y investors might have
less cash flow, the benefit is they have
more time, according to Property Tycoon
Finance director Stuart Wemyss.
“The more time you have, the less risk
you need to take,” Wemyss says.
“All you really need to do is play it safe,
invest in quality assets and bet on sure
things. Slow and steady wins the race. If
you have 30 years until retirement, you
can build a massive asset base.”
1
GET INTO THE MARKET
So what should you do if you’re a gen-Y
would-be investor, living off vegemite
toast and baked beans while renting with
your mates, or eating mum’s spaghetti as
you try and finish a university assignment
at 11pm?
Kingsley says for this generation, it’s
all about getting into the market as
soon as possible, even if that means
compromising on some capital growth by
going further out of a CBD and factoring
in rental yield to cover costs.
“It’s still better to enter the market,”
Kingsley explains.
“You have to look at entry-level
property. The majority of gen-Y investors
understand it’s a stepping-stone, so
they’re realistic about what they can
achieve. They’ve worked out it’s far better
doing something than nothing at all.”
Open Wealth Creation chief executive
officer Cam McLellan agrees. He’s a
big fan of land content and advises
gen-Y investors to move further
out and purchase something on a
reasonable block.
“You’re better off to drop your price
point. If you only have $370,000 to spend,
move out to the suburbs and just get into
the market,” he says. “All boats rise on
a floating tide. Once a market moves, all
suburbs move, so get in where you can.”
If you’re not too keen on going out to
the ’burbs for your first property, Kingsley
suggests looking at units. Somers says
gen-Y investors need to be prepared to
compromise and settle for something less
than what they initially hoped to live in.
“Don’t try and buy the same property as
mum and dad,” Somers says. “Lower your
expectations and build as you go.”
2
SWEET TALK MUM AND DAD
Another option is to buy your first
property and stay at home with mum and
dad, rather than purchase a property and
move out straight away. This drastically
helps with cash flow and is a smart move,
according to Kingsley, even though
only about five to 10 per cent of gen-Y
investors choose this method.
If you don’t have a big deposit, have you
considered asking your parents for help?
They might be able to use equity in their
own home to help you but this method
is also risky and should be carefully
considered first.
“Perhaps parents might help them out
and then the gen-Y investor can stay at
home, get a reasonable job and then start
looking at whether or not they’ll sell or
make their next play,” Kingsley says.
3
FOCUS ON CAPITAL GROWTH
Of course, if you have a pretty good job
and cash flow is quite strong, Kingsley
says go for capital growth.
“If there’s no prospect of change to that
strong income position, I’d still look at
capital growth because time is on our
side,” he says.
Hot Property Specialists buyers’ agent
Zoran Solano says gen-Y investors need
to purchase in an area that has all the
fundamentals for capital growth.
“I’m encouraging people not to read too
much into the government incentives, as
far as building boosts (for purchasing new
property),” he says.
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SAVE, SAVE, SAVE
Gen-Y investors need to forget about
saving 10 per cent of their wage,
according to Somers. Instead, they should
be saving as much as possible, not just
limiting their savings to a small portion.
“I had a total, non-spending philosophy,”
Somers says. “It’s the things you don’t
buy that’ll make the difference.”
Solano adds it might also be
inconvenient for gen-Y investors to have
to live in a property they purchase for the
first 12 months, which is part of stamp
duty saving rules provided by some
state governments. But you can use this
opportunity to do a small renovation.
“You’re better off claiming the
concession and then renting the property
out for a higher yield (after a renovation).”
Solano says. “Use it as a stepping stone.”
He adds out you can also save money by
using social technology. Ask your tradie
mates on Facebook if they can help with
electricals, for example.
“Gen-Y is a social generation, use your
social links to your benefit,” he says.
5
THINK LONG TERM
It’s often said property doubles every
seven to 10 years. But Somers says young
investors need to focus on the next 30 or
40 years, not just five or 10. She adopts a
policy of ‘never sell’ and advises gen-Y
investors to hold for the long-term. There’s
no get rich quick scheme – it’s simply
about being patient and waiting for time
to do its thing.
6
DON’T MAKE THE SAME
MISTAKES YOUR PARENTS DID
How many gen-Y investors have parents
facing retirement with little to no savings?
After decades in the workforce, it’s a
very sad situation so many thousands of
hardworking Australians are facing.
If this sounds familiar to you, don’t make
the same mistake.
Somers advises gen-Y investors to look
at what their parents did and how they
got there. If they were successful, repeat
their formula. If not, do the exact opposite
and start planning your future now.
“If they finished up renting with nothing
to show for it after 20 years of hard work,
don’t do what they did,” Somers says.
7
CONSIDER MORTGAGE
INSURANCE
If you’re just out of university but on a
relatively high income, consider mortgage
insurance to get into the market faster.
“It’s not good for those who have had
every opportunity to save and haven’t, but
mortgage insurance is good for those on a
reasonably high income,” Somers says.
McLellan adds it can take years for a
gen-Y investor to save a $50,000 deposit,
but paying mortgage insurance means
you don’t miss out on capital growth.
8
BE BORING
Wemyss says the best strategy never
has the glitz and glamour and is always
the most boring. It involves buying good
quality assets and repeating the process.
In essence, it’s not a get rich quick
scheme. It’s a safe strategy but it works.
“Don’t waste money or time on fancy
strategies like share trading, auction
trading or investing in risky areas,”
Wemyss says. “For gen-Y, it’s pretty basic,
but people tend to overcomplicate it. They
try and cut corners, they want money fast
and it almost always doesn’t work.”
GEN X
CASHED UP
WITH EQUITY
What’s a gen-X investor?
Gen-X had it tough – they had to call the
dreaded house phone when they wanted
to chat to a boy or girl in high school,
often being answerable to mum or dad.
Only a gen-X person would know the true
torment of picking up a phone, plugged
into the wall, and dialing a number, then
hiding in the closest room – with the cord
stretched under the door frame – for
some semblance of telephone privacy.
This is the generation born between 1965
and 1976. They were exposed to more
daycare, more divorce and of course, more
fluro pants and hypercolour tops while
growing up in the 1980s.
MC Hammer could often be heard
blasting out of gen-Xers cassette
recorders. It was always a mad rush to
press ‘record’ at exactly the right time
when their favourite songs came onto
the radio – you had to time it so the radio
announcer wouldn’t be talking for too long
at the start or the end of the song. This is
also the generation that knows the true
pain of using pencils to try and fix tapes
after they were chewed up in a recorder.
Typically, a gen-X person has started
to climb the ladder in their career. They
might have already married or started a
young family and hopefully, there’s now a
bit of equity in their property portfolio.
Sacrifice now, enjoy later
A typical gen-Xer usually has their own
property. Kingsley says they’re normally
starting to see their employment levels
get to middle management and they
might be cracking through some career
ceilings. They might have also paid down
some debt and already have substantial
equity. So the biggest considerations are
their career prospects, securing a longterm property and the equity they’ve built.
Wemyss adds gen-X is usually in a
comfortable phase of their career and they
can still experience two or three property
cycles, which gives them plenty of time to
see solid growth in their property portfolio.
“People in gen-X are probably getting
towards the peak of their earning
capacity,” Wemyss says.
“Cash flow is quite strong but living
expenses are high as well, with a young
family and school fees.”
1
KNOW WHAT YOUR
GOALS ARE
Kingsley says a gen-X investor’s
principal home usually plays a big part in
determining their strategy.
It’s also likely they’re at a stage of their
lives where they’re trying to ‘keep up with
the Joneses’.
“They want the picket-fence home in the
nice street, the good secondary education
for their children. They’re conscious of the
impact of private school fees and bigger
costs, so they’re really keen to know their
numbers and possibly own the $1 million
house in the suburb they want to live in,”
Kingsley says.
“We’re finding that when the family
comes along, there’s a lot more emotional
pressure to have the right home. My
advice is to work out what that dream
home looks like, put that as your number
one priority and then work around the
sides of that. If there’s still an opportunity
to do something earlier, to sneak a cash
cow in, then do it if it won’t impact when
you buy the significant home. It’s before
the accumulation phase finishes and
you’re retiring the debt.”
2
GET AN OFFSET ACCOUNT
Kingsley advises gen-X investors to
secure an offset account. This works as a
positive double-edged sword. On the one
hand, it helps you pay down your own
principal place of residence (PPOR) faster,
as you can put any spare money you have
into the offset account. On the other hand,
it also helps you build a deposit for an
investment property much faster.
GEMMA CARR
4
GENERATION WEALTH \\ COVER STORY
Ten years ago, Adam and Kim Walsh were
keen to invest and set themselves up for
the future. But like most gen-Xers, the now
41-year-olds were also busy progressing in
their careers, paying down their own PPOR
and raising two beautiful boys. It’s a typical
scenario for many people in this age group
and perhaps somewhat of a difficult time.
There are many forks in the road, many bills and education expenses, but also some equity in the family property and hopefully some
career progression.
“We felt we wanted to set ourselves up as well as our kids for the
future,” Adam explains. “We figured our super wasn’t going to be
enough to live on in a way in which we wanted.”
The big question often facing young parents in their 30s and 40s is
what to do next – is it better to pay down the family home or perhaps
buy an investment property? Shares weren’t an option for Adam and
Kim, because Adam simply didn’t see value in them. After all, people
will always need somewhere to rent but they don’t always need
shares, he says.
Fortunately, Adam, a university lecturer, and his wife, a national
sales manager, had plenty of equity in their own property.
They bought a four-bedroom property in Strathmore for $428,000
in 2006 and estimate it’s now worth close to $750,000.
“Once we put to our mind that’s what we were going to do, (buy an
investment property) we developed a strict budget. We were diligent
savers and we put money in our offset account. Once it was in the
offset account, we never touched it. The advantage was we then also
paid less interest – it was amazing how quickly that money grew.”
They were able to pay down their property and also build a deposit
for an investment property at the same time. Three years ago, they
felt they’d enough equity and spare cash to make their next move.
They also felt comfortable with the outlay they’d have to fork out and
so started searching for their first investment property.
They attended open homes for a full 12 months before settling on
a two-bedroom apartment in a small block of six, in the Melbourne
inner-city suburb of Travancore. The property’s fantastic location and
proximity to amenities was well worth the wait and the couple paid
$434,000, using cash and some equity to come up with a 20 per cent
deposit. Fortunately, this purchase turned out to be successful and
has been a capital growth winner. It now rents for $375 per week and
is worth around $500,000.
Adam and Kim could have settled on owning a PPOR and
investment property but gen-X investors usually have solid income
and plenty of time to build for retirement. Keen to accumulate
wealth at an important phase of their lives, they decided to continue
growing their portfolio. They started searching for their third property
last year, and just settled on a four-bedroom house in the Melbourne
suburb of Gowanbrae. Although they paid $820,000 and it’s only
renting for $450 per week, they should get good depreciation on the
property. Adam says the area is also
going “completely ballistic” and will
Adam’s top tips
hopefully have strong capital growth
>> Accumulate as many
in the future.
properties as possible
However, the large difference in
>> Don’t waste money on
the purchase price and rental return
expensive cars and toys
means the property is negatively
>> Focus on capital growth
geared at the moment. Adam says
>> Establish an offset
lots of gen-Xers buy new cars or new
account
gadgets, but spending more money
>
>
Only buy when you can
on their future is what matters
afford to
during a wealth-building phase. By
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API JULY 2014
Names: Adam
and Kim Walsh
Live: Melbourne
Invest: Melbourne
Properties: 3
Strategy: Buy and
hold
focusing on appreciating assets, rather than depreciating assets,
the savvy couple sees the negative gearing as a way of saving for
a better future.
“We invest and work damn hard for it,” Adam says.
“People buy new boats and cars but those things we don’t need.
We both drive Holdens and it costs minimal to drive a smaller car.
“For us, if the Joneses want to go streets ahead, we’re quite
happy with looking after ourselves and setting ourselves up for the
future instead.”
That doesn’t mean this gen-X couple misses out on enjoying
family time together. They still book a family holiday to
Queensland every year, they just make sure they put as much
money into that offset account in the meantime.
“It’s about setting ourselves up and our kids up for the future in a
way our parents couldn’t,” Adam explains. “We now have good jobs
and we’re quite happy in terms of our security.”
He advises any gen-Xers thinking about investing to be
comfortable with the numbers and negative gearing.
“We have only ever made a move when we have been
comfortable with it,” he says. “We just remind ourselves when the
money gets a bit tight at times and when the credit card looks
nasty at other times that it’s all okay. There’s a plan in place and it
all evens out in the end and this is all for our future.”
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COVER STORY // GENERATION WEALTH
3
FACTOR IN ONE WAGE
If a baby is on the cards, it’s imperative to
factor in living off just one wage.
“If it’s a young couple looking to start a
family, that property is going to have to do
some heavy lifting in terms of supporting
itself,” Kingsley says.
“In some cases, you have to chase yield
for couples looking at going down to
one income.”
4
FOCUS ON ACCUMULATION
Gen-X should work on getting the
accumulation phase over and done with
within a 10-year bracket. If you start
accumulating when you’re 35, aim to
finish by the time you’re 45. Then focus
on retiring the debt by the time you’re 55
and voila, you can exit the workforce not
only early, but also wealthy.
“It’s never about the number, it’s about
the goals,” Kingsley says.
“A lot of people make that mistake.
They’ll say ‘I have four properties, worth
$1.35 million’. But they might not be
debt free.”
A more conservative and very
achievable strategy, according to
Kingsley, is to buy one property every
seven years, but make sure they’re
properties in blue-chip locations.
Kingsley, who is 42 but started investing
when he was 23, says anyone can follow
this strategy. Like many gen-X investors,
he had his first child in his late 30s. He
also upgraded the family home for a
“happy wife, happy life”.
McLellan adds it’s a good time for gen-X
investors to take advantage of equity
they might have, as interest rates are low,
rents are strong and most property cycles
are rising.
“Duplication for gen-X is what you
should be doing at this point,” he says.
“Most people just want to pay off their
own home, but if you have two properties
worth $500,000, you can wait one cycle
and pay the other one off. Or buy a
couple of properties and set yourself up
for retirement.”
On the other hand, Wemyss believes
GENERATION WEALTH \\ COVER STORY
planning to buy three properties over
five years is a “bullish” strategy for gen-X
investors, but definitely achievable.
“Gen-Y has 30 or 40 years until
retirement and if they accumulate
properties throughout their lifetime, it’s
likely properties will fund their retirement.
For gen-X, that won’t be the case,”
Wemyss explains.
“If I acquire three properties within
five years and want to retire in 15 to
20 years, the cash flow will be positive
(by retirement) but not enough to
fund retirement.”
An alternative strategy, he says, is to sell
a property down the track to reduce debt
and live off the remaining properties.
“For gen-X it’s about buying property
as quickly as possible. You typically don’t
need more than three properties.”
He adds many investors want four or
five properties but if you already have
three blue-chip properties, you shouldn’t
need another. Everyone has a limit to how
much they can borrow and so it’s all about
buying the best quality, rather than the
most quantity.
“Pay attention to the properties you
already have. The biggest risk isn’t losing
money but wasting time. Time you don’t
get back. There’s never a bad time to buy
a great investment property and there’s
never a bad time to sell a poor one. If
you’re not confident you have the best
asset possible, you should sell it.”
investor. What matters is affordability and
servicing the loan.
6
STOP PROCRASTINATING
What if you haven’t already jumped into
the property market? Stop procrastinating.
“If you have kids, don’t use that as an
excuse,” Somers says.
“A lot of people have the attitude, ‘My
parents couldn’t afford this, I’m not letting
that happen to my own kid’. But they
spend, spend, spend on their kids and it’s
the wrong attitude. Teach your children
good spending habits.”
By teaching children good spending
habits, you can save more money and
suddenly, there will be no excuse to
procrastinate. After all, these are the most
important years of your life, where you
have the chance to either set yourself up
financially or do nothing and then live in
regret later.
“Don’t kid yourself, ‘We’ll do it later’.
That never happens. Have the right frame
of mind, you need to invest early.”
7
MANAGE DEBT
Families with children need careful debt
management, according to Somers. She
says there should always be a line of
credit of about 10 to 20 per cent of a loan.
This means if you have a $600,000 loan,
you should have a $60,000 line of credit as
a minimum.
“If something goes wrong you can live
TAKE A RISK
off your equity,” she says
“But you can’t go to the bank when
A gen-X investor has time on their side
there are no tenants or when you lose
and so they can take a risk, according
your job. You have to set it up beforehand.
to Kingsley. This means they can pay
It may never come to that, but having
lenders’ mortgage insurance to leverage
on an opportunity – they don’t necessarily access to that money is really important.”
McLellan advises gen-X investors to get
need a 20 per cent deposit.
a bank valuation on their current home, no
“The comfort around the debt level you
take on is to justify the numbers,” he says. matter what their situation. Then, create
an equity loan.
“I advise clients to go higher than 80
“Then you know your exact borrowing
per cent on a loan if it’s appropriate for
their risk profile. There can be a long-term capacity and the loan you can get,”
he says.
positive outcome if a loan is as high as 90
“I’d then look at the middle to outer
per cent (of the value of the property).”
ring, under the median house price (for a
Wemyss adds borrowing more than
potential investment property).”
80 per cent isn’t a problem for a gen-X
5
æFor gen-X it’s about buying property as quickly as
possible. You typically don’t need more than three
properties.Æ Stuart Wemyss
8
DON’T WASTE SPARE CASH
For this generation, Wemyss believes it’s about trying to
carve out a bit of your income and allocating that towards
an investment strategy for retirement. “You only need about
$10,000 to $15,000 extra to start,” he says.
“It’s about getting access to equity and getting access to
buying opportunities. The sooner you can buy an investment,
the longer you can hold it and it will work nicely.”
What if you’re gen-X heading towards baby boomer
territory? Wemyss says someone in their 40s can still
accumulate three properties over five years, but they have
less time.
“If it takes 10 years, it will be less effective,” he says.
“So the key component for the strategy is how to utilise
equity in the family home and accumulate as many properties
as possible in the shortest amount of time.”
BABY
BOOMERS
What’s a baby boomer investor?
If you thought gen-X had it tough, being forced to call the family
home phone number when they wanted to speak to their crush,
imagine how much harder it was for the baby boomers. They
had to actually post a letter.
This is the generation born between 1946 and 1964. It’s
the generation now heading towards retirement, some of
those Vietnam veterans. While property might have been
much cheaper “back then” most households were also only on
one wage, with mum staying at home to look after the kids.
Of course, this was also the first generation where women
had careers as well as families. Throughout their property
investment journey, many baby boomers have probably
experienced having to pay interest rates of 18 per cent in the
early 1980s. Ouch!
Much of what baby boomers can do depends on their
current wealth base and how much time they plan to stay
in the workforce, according to Kingsley. Most baby boomers
planning to build a portfolio are in their late 50s. The kids have
moved out and in some cases, they’ve hit the panic button.
Unlike gen-Y investors, baby boomers probably have more
equity and a good income. But gen-Y investors have more
borrowing capacity because they have more time.
“One thing we’re conscious of is retiring debt out,” Kingsley
says. “Part of their exit strategy might be to sell down assets,
or retain assets for a 10-year period, see the gain and then
retire that debt out.”
1
BE REALISTIC
Wemyss says baby boomers usually have 10 years or less
to fulfill their financial goals. On the one hand, that means
they need to take a higher risk, because otherwise they just
won’t get there. On the other hand, they need to take less
risk, because they don’t have time to waste. He prefers the
latter choice.
“If a baby boomer employs a bad strategy, they’ll have
wasted half the time they have left,” Wemyss says.
“So you have to be really focused on the quality of assets.”
McLellan adds if you plan to retire in two years, you need
to be able to support your holding costs. But don’t chase
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THE ESSENCE
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COVER STORY // GENERATION WEALTH
Outstanding
Opportunities
Available.
Name: Loretta
Mylius
Lives: Chelsea
Heights, Melbourne
Invests: Ballarat
Properties: 2
Strategy: Buy and
hold
Like many baby boomers, Loretta Mylius
spent most of her working life putting her
two children first and never really worrying
about her own future.
When the 56-year-old started her career,
there wasn’t compulsory superannuation
and investing was out of the question –
Loretta only lived week to week, providing
as much as she could for her daughters.
But years of putting others first had big consequences. The single
mother admits she now has next to nothing in super and, until
recently, was facing a tough retirement.
“I didn’t start getting super until much, much later,” Loretta admits.
“There’s no way I could save for another 10 years and then retire on it.”
Fortunately, Loretta had a lot of equity behind her, thanks to
paying down most of her mortgage on a property in Chelsea Heights,
Melbourne, which is worth about $470,000.
After turning 55, alarm bells started ringing when Loretta realised
she only had 10 years until retirement.
She certainly isn’t alone – it’s a deadline that makes many baby
boomers panic after years of slogging it out. While everyone dreams
of playing golf or travelling the world after life in the workforce, the
reality can be very different if there are no plans put in place.
Having never invested before, Loretta sought advice from a
financial planner and buyers’ agent, choosing a more cautious
approach to purchase her first investment property.
Baby boomers can’t afford to get it wrong because they just don’t
have the time to make up for mistakes if the property doesn’t perform.
Loretta isn’t prepared to take big risks, and that’s why she decided
to purchase a property in the safe but stable and promising area
of Ballarat. She has taken on many of the tips for baby boomers,
including being realistic, not borrowing too much and considering the
rental yield of the property.
Ballarat ticked all the boxes and after finding a four-bedroom, brick
house, Loretta has just settled on her first ever investment property.
She paid a very affordable $265,000 for the investment and is
giving the property a mini renovation, replacing the carpet, painting
over the purple and pink walls and also installing central heating. She
hopes to rent it out for about $310 per week in a few weeks, which
means the property should be more or less neutrally geared.
Another big tip for baby boomers is structuring the loan correctly.
For the first time in her life, Loretta has just set up an offset account.
“A lot of young people do it these days but I never did, being a single
mum and all,” Loretta says.
“The pay goes into that offset account now, the bills are directly
debited through a credit card and I don’t use the credit card for
anything but the bills. That’s then paid off every month out of the
offset account. I also get weekly money to spend on food, etc.”
Loretta’s only regret is the fact she didn’t start investing much
earlier in life. She advises baby boomers thinking about investing
that it’s never too late to start and planning for your future today
and making small sacrifices is much better than having no financial
nest egg for life after the workforce. Her plan is to purchase another
property before retirement, using the equity she already has, and aim
for something with a high yield in another regional area.
“There’s a lot of things I wish I could have done 20 years ago,”
Loretta says. “If I didn’t do this, I would still be living week to week on
a wage and not doing anything about the future.
“Hopefully when I retire I can still have some weekly income from
the investment properties. It’s all still very new to me but it’s working
out so far. I’m very glad I have done this, I think it’s just meant to be.”
Invest now.
Loretta’s top tips
>> Stop procrastinating –
better late than never
>> Establish an offset
account
>> Use the help of
property experts
>> Don’t take big risks
>> Consider rental yield
GEMMA CARR
Better late than never
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æAs an adviser, if I’m sitting in front of someone at the
age of 70 with $500,000 in super, I want something
that will give me rent.Æ Ben Kingsley
positive cash flow just because you’re
facing retirement.
“Are you planning to live longer than 10
years?” McLellan asks.
“Obviously yes. If that’s the case,
acquire a (capital) growth property.”
2
DON’T LEVERAGE OR
BORROW TOO MUCH
Kingsley advises most baby boomers to be
very cautious about the amount of money
they wish to borrow.
“There’s no debt in the conversation,
we’re buying these things outright,”
he says.
“As an adviser, if I’m sitting in front of
someone at the age of 70 with $500,000
in super, I want something that will give
me rent. I would be apprehensive of doing
any type of leverage, definitely no more
than 20 or 30 per cent.”
Kingsley has seen many would-be
clients ask for help in their 60s but
most investors need a 40-year cash flow
strategy. That’s why starting out early is
so important.
“A baby boomer needs to understand
where their cash flow is forecast to be.
These things can be dominoes,” he warns.
3
DON’T BE DEBT-SHY
On the other hand, some debt isn’t
necessarily a bad thing, Kingsley says.
For example, a property might still
have a $100,000 debt but provide a
passive income.
“The reality is it can take anything from
10 years before you turn a corner from a
gearing perspective,” he says.
Wemyss believes baby boomers really
need to step up and embrace debt while
they can. He usually advises gen-Y and X
investors to try and purchase three quality
properties over five years.
Baby boomers might need to do this
within 18 or 24 months, he says.
“Even quicker if possible, because they
only have 10 years left,” he says.
“The property should still double in that
period of time. We don’t want to waste
the next seven years.”
4
DON’T TAKE A BIG RISK
Out of all the generations, Wemyss
believes baby boomers have it the
hardest. They need to take on debt before
it’s too late, which is considered risky. But
they can’t afford to make a mistake either.
For this reason, baby boomers need to
stick to blue-chip property, he says.
“We want to make sure the property is
blue-chip, no punts, and only betting on
sure things. Then, let time do its thing.”
It might take five years to discover
whether or not an asset is performing.
Baby boomers simply don’t have this
time, so they need to get it right within 12
months of purchasing.
5
CONSIDER A SMSF
While Kingsley is more cautious about
starting to invest later in life, Somers
believes it’s never too late to purchase an
investment property, no matter how old
you are. She says a good way for those to
purchase a property today is through a
Self-Managed Super Fund (SMSF).
Wemyss adds going from zero to three
properties is a more risky strategy, but it
might be the only opportunity to acquire
properties. A SMSF might help you get
there faster, he says, and in some cases, it
might be your last chance to purchase an
investment property.
6
STRUCTURE THE LOAN
CORRECTLY
Somers says structuring the loan property
can save you thousands of dollars over
time and help you pay your mortgage off
faster. You should take out an interest only
loan and only fix a portion of it. Also make
sure the interest rate is attractive and you
can obtain a line of credit.
“You don’t want to pay a principal and
interest only loan at that stage,” she says.
“You could get a loan half fixed and half
variable, which means you can get a line
of credit. Then, every ounce of savings
goes into the credit line (which is held
against the variable loan). This helps
reduce the interest.”
7
CONSIDER THE RENTAL YIELD
Baby boomers also need to consider
neutral or positive cash flow properties,
according to Kingsley. Some don’t have
that wealth and so they’re looking for
property to accelerate it.
But if your income isn’t too crash hot,
you might need to consider the rental
yield and look in safe, regional areas close
to capital cities.
“It might have lower capital growth but
in both situations get a split loan – half
fixed for protection, half a line of credit,
where you can pay it down,” he says.
“You’re in a situation where you need
some equity, real quick. Don’t wait for the
market to go, create the equity yourself by
paying down the loan.”
8
CONSIDER DOWNSIZING
Have you considered downsizing your
family home? You might find you have
considerable equity in your own property
and by selling you’ll make a substantial
profit. You could then downsize into
something smaller and perhaps buy a
property with the remaining cash.
If your block of land has space for a
granny flat, you might also like to consider
embracing the ‘granny’ title.
You might be able to rent out your
own property and live in the granny flat,
or alternatively, you could rent out the
granny flat. Of
course, you could
+ BONUS
also move to a unit.
CONTENT
“If you’ve made
Use
your
smartphone
your money but
or tablet and your
you’re living in an
expensive home, it’s favourite QR scanner
app to watch an
time to downsize,”
interview with gen-X
Somers says.
investor Adam Walsh.
“A lot of middleaged people all
park their money in
their own home and
don’t want to move.
But there’s no point
living in a palace if
you don’t have any
cash flow.” API
scan.me/jcr7c8
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