Monday, July 16, 2007

Newsletter July 2007

Our goal – helping you from zero investment properties to ten
(if the dream is big enough, the facts don’t matter)

Be the Best

Not everyone can be the best in the business, but here’s your invitation to be the best property investor among your family, friends, peers and colleagues.

Remember, property investing is something akin to fishing. You need someone to help you select the tools, and also to guide you to “the sweet spot”. That’s my role.

On a personal note, my thoughts on a solid investment approach is to transform a modest retirement savings program into new productive wealth, by harnessing your own tax monies with bank debt, so that future retirement income can be generated.

Take-off for Property Values

Confirming my predictions to private clients at the start of the year, investors in residential real estate are now smiling broadly.

In an major article on page 2 of its issue of 14 July, “The Australian Financial Review” ran with this headline: Property Roars Back Into Vogue.

The article quoted sources in Brisbane, Sydney and Melbourne as well as statistics on housing finance.

If you are still undecided, it’s still not too late to participate. See next article.

Remember – you can phone me anytime to discuss your options:

Bernard Kelly my mobile is 0414 778 518 and cell phone 61- 414 778 518

Three Year Surge Forecast

Economic forecaster BIS Shrapnel believes (18 June 2007) that property values will increase over the next three years:

22% in Brisbane
8% in Sydney
18% in Melbourne
16% in Adelaide
3% in Darwin

but anticipates that Perth will decline by 5%

The BIS Shrapnel Residential Property Prospects Report 2001 to 2010 says Brisbane's growth is underpinned by several factors, including underlying demand, more attractive affordability compared with other states, and strong economic conditions.

Given the other benefits available to an investor in Queensland (e.g. higher rentals, a low rate of land tax), where would you prefer your properties to be?

Feel free to explore your options with me any time.

Phone 0414 778 518 (cell 61- 414 778 518).

Your Probability of Survival

This is really important – how long will you live?

The Australian Securities & Investments Commission has published estimated probabilities of survival to selected ages on its FIDO webpage.

Women aged 55 today have a 54% probability of living to age 90. For men the probability is 40% to be living for another 35 years

Women aged 60 today have a 52% probability of living to age 90. For men the probability is 37% to be living for another 30 years.

Now if you retire today with say $400,000 in super, and you draw an income of $30,000 per year, your pool will last just 16 years. However, applying the Rule of 72, with inflation at 5%, the equivalent purchasing power will have fallen below $15,000.

If you have 35 or even 30 years to go, you obviously need more investment properties to weight the odds in your favour for continued capital growth and an income protected against inflation.

Feel free to explore your options with me any time.

Phone 0414 778 518 (cell 61- 414 778 518).

Land Tax

Occasionally I am asked about the impact on property investors of Land Tax.

It’s something that I don’t personally worry about – its just another (and relatively minor – except in the ACT) expense in maintaining a property portfolio.

Land Tax varies from state to state, by if you have four investment properties (houses in a growth corridor adjacent to a major economic zone) each with a land content of $125,000 your total land tax bill is based on the value of your asset pool - $500,000.
In Queensland you would pay $0, in WA $855 (plus the Metropolitan Region Improvement Tax), in Victoria $800, in NSW $2616, it’s $1770 in SA, $7000 in the ACT, $4837 in Tasmania and nil in the Northern Territory.

But remember, most of us will be travelling quite comfortably before Land Tax ever becomes an issue.

Are Your Retirement Savings on Track?

The Association of Superannuation Funds of Australia has released a report “Are retirement savings on track?”

The answer is probably ‘No’ because the report suggests that only 27% of men and 12% of women in the age group 55 to 59 are likely to have more than $100,000 in their super entitlement fund when they retire.

If you were to retire with $100,000, how long would that last?

This desperate situation is facing 73% of men and 88% of women.

What are you doing – right now – to avoid any reliance on government welfare?

Feel free to explore your options with me.

Phone 0414 778 518 (cell 61- 414 778 518) any time.

How to Retire Happy

“The Washington Post” carried an article on 3 June 2007 by journalists, now retired, who used to write the column “How to retire happy”.

Their most significant finding was that those who are happiest – both financially and personally - started to plan for their “post career” life while they were still employed.

If you don’t have such a plan at this time, drop me an e-mail and I might be able to suggest some considerations for your personal circumstances.

We Are All Living Longer

I came across an interesting comment recently by Christopher "Kip" Condron, president and CEO of AXA Financial, the world's largest financial services firm.

He said:

“People tend to think, ‘If I'm 65, I've got a 15-year life expectancy’ -- because life expectancies for children born today are somewhere around 80 years.

“But the fact is, if you [make it] to age 65, your life expectancy is a lot longer.

“And then you get into the probabilities because what we found is if you're a couple that is age 65, there is a 62% probability that one of you is going to live past age 90.

“That's the year 2000 data, the most current data we have.

“In the 1970 data, you had a 40% probability that one of you was going to live past age 90.”

How Much Will You Need?

People seriously underestimate the possibility that they may outlive their assets, according to Olivia S. Mitchell, professor of insurance and risk management at Wharton Pension Research Council.

She has this strong dose of advice: It may be a good idea for people to assume that they will need the same level of income during their retirement years that they need now.

Mitchell, executive director of Wharton’s Pension Research Council, says people do not give much thought to is how much income they will need after they stop working.

“A lot of people don’t have very good information about what their expenses will be during retirement,” says Mitchell.

“We know from our research at the Pension Research Council that there’s a substantial underestimation (1) of the need for long-term care and nursing home expenses.

“People also don’t understand (2) what medical costs may be in retirement.

“And many people don’t focus enough on (3) the risk posed by inflation. We haven’t had a lot of inflation lately, but even a low rate over 30 years of retirement can erode one’s nest egg.”

But perhaps the most neglected facet of retirement planning is (4) longevity risk, she says. “People tend not to think about mortality; it’s not a question people willingly face,” according to Mitchell.

“When people do think about mortality, at best they think about life expectancy. But they may not understand that about half of all people live longer than their life expectancy.

“Women especially can live into their 90s or even reach their 100th birthday.”

Until next time

Bernard Kelly

mobile 0414 778 518 cell phone 61-414-778 518

P.S. Your greatest compliment would be a Personal Referral