Smart Money Weekly; Inflation drops, housing correction over and tax tips for EOFY
Hey team,
Happy Sunday.
New inflation data has come out this week from the Australian Bureau of Statistics. Australia’s inflation has dropped down to 7.0% for the Jan-Mar quarter (down from 7.8% the previous quarter). This seems like good news, however the estimate from most economists was a reduction to 6.9% for the quarter - so it has fallen short of the expectation. This could have a negative impact on the RBA’s upcoming rate decision as it provides more fuel for another rise.
In other news, Westpac have stated that they believe the housing correction is ‘largely over’ however, there is still panic in the banking sector in America. First Republic Bank witnessed an almost 50% share price decline this week as they reported that this past quarter over $100 billion ($USD) has been taken out of their deposit funds. This banking turmoil is the worst we’ve seen since the GFC.
Smart Money upside #115
Here we unpack the numbers from a recent client we helped, what they were doing with their money when they came to see us, what they chose to do as a result of going through the financial planning process, and the financial impact and upside we helped them achieve. To chat about how to get these sorts of results, you can book an intro chat with us here.
Numbers/Background
Individual, mid 30’s; household income ~ $100k; total assets ~ $600k; saving ~ 30k annually.
Frustrations
No guidance or direction on an investment strategy and uncertain on property prospects.
What they wanted from us / the advice process
Clarity on investment direction and whether purchasing a property is the right move as well as a strategy that will result in passive income in the future when needed.
What success looks like for them
Having flexibility and owning a property.
What money strategy they were following before we went through the planning process
Investing into shares sporadically with no overarching strategy to its development.
What money strategy they chose to pursue from our planning work
Buying a new property, a new banking structure making it easy to save and distinguish surplus funds, a clear direction around share investments and investing into a new portfolio, a super review and regular cash surplus being directed towards both the new property and investing simultaneously.
Key benefits of going through the process
A clear investment strategy moving forward that will fund passive income when required as well as clarity on property and cash surplus.
Value of advice after all advice fees year one: $20k
Year 20 upside after advice fees: $1.8m
If this story resonates you can book an intro call with us here.
Video of the week
With the end of the financial year just around the corner, every dollar of tax that you can save is an extra dollar you can use to invest, save, or spend. In this video I unpack my top tax hacks to cut your tax bill this financial year. Check out the full video here.
Client story of the week
Dealing with an inheritance can be tricky. You want to put the money to work, but an inheritance also comes with an emotional attachment that often means you don’t want to put your money at risk. This week’s story is from a recent client talking through how she tackled things to build her financial plan. Check out the full video here.
Podcast drop
Learn the tips, hacks, and strategies to help you level up your money game. Pods released last week:
#313 Ditch your bad debt for good
#312 Money News: Aussie bank risk unpacked
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Blog of the week: How to buy property at a $122k discount
The property market has been battered over the last year off the back of 10 consecutive RBA interest rate rises, with the average Sydney property declining in value by $122,741 over the last 12 months.
Today there’s a lot of talk about the potential for a property crash, but at the same time we’re seeing some investors piling back into the market to take advantage of the softer conditions - and property values are again on the rise.
A few months ago I wrote about how even at 5% interest rates, owning an investment property will still make you over $40k every year, but the fear of making a costly mistake still has many would-be property buyers paralysed.
So, is now a good time to buy property?
State of the market
The last year has been a tough one for the property market, with values going down in Sydney and Melbourne almost every month as the RBA cranked up interest rates to combat the inflation crisis.
As a result, most property buyers and sellers pulled back from the market, with buyers worried about the future and sellers not wanting to accept a lower price for their properties.
But as people have come to terms with our new reality, and as everyone realised the crash was less likely, property market activity has increased over the last few months - and property values have increased along with it.
As a result, since December 2022 we’ve seen property clearance rates, i.e. the number of properties actually selling on the market increase. Clearance rates are up from 58% in December 2022 to over 72% today, reflecting an increase of over 25% in the proportion of properties selling. This has coincided with us getting towards the end of the RBA rate cycle.
As a result, we’ve seen the average property value Australia wide again increasing, up 0.8% in March, with Sydney leading the charge with property values up 1.4%. Based on the median Sydney property price of $1,014,393, this reflects an increase of over $14k in the value of an average property in just one month.
There’s still some uncertainty ahead for the property market, but increasingly property investors are realising that now might be their moment to take advantage of the current market conditions to make their next smart property move.
How to make smart property moves in the current market
There’s a stack of opportunity in the property market today for investors that are smart with their approach. But there are also a few things you should keep in mind when planning your next property move if you want to manage risk and give yourself the best chance of success.
Think long term
Property buyers can go seriously wrong if they take a short term view of the property market. Particularly when the market is soft - apart from causing higher stress levels, thinking short term can lead you to making reactive decisions that cost you money.
When you buy property, you should know that it’s a long term investment. Even good properties will go down in value when the market softens. But so long as you have a good property and hold for the long term, history shows us that markets will continue to increase.
Keep this in mind both when you’re buying a property, and once you’re invested. This way you’ll have more peace of mind and get better financial upside from your property.
Run your numbers
With any long term investment, it’s crucial you’re never forced to sell your property at the wrong time. Also specifically when it comes to property, it’s important you can afford to hold your property and live the lifestyle you want.
The key to making this happen is planning smartly around the cash flow of your property before you buy. Take the time to make sure your property fits not just with your financial situation today, but also think ahead to make sure your property will fit with your future financial position.
Starting a family, changing jobs or careers, starting a business, are all things that will change your position and impact how a property fits into your finances.
To avoid nasty surprises down the track, take the time to get clear on this asap. If you’re not strong with numbers, or if your situation is complex, think about getting some good advice to help you here. With average property values around $1m, setting up the best strategy for you here will be valuable - and definitely worth the investment of time and/or money.
Manage your risk
Risk is ultimately a good thing when you invest, because it’s what makes you money - and every investment has risk attached to it. Buying property has risks, as does shares, and even saving in cash has risks - the key here is understanding risks and only choosing the risks that are right for you.
If you want to get good results from your property purchase, it’s crucial your risk is managed well. The three biggest risk areas come around choosing a good property, making sure your mortgage payments are covered (even when rates are rising), and protecting your income through insurance.
Any time you invest, take the time to revisit your risk management plan to make sure you don’t get caught out by something unexpected.
The wrap
In Australia we love property. Buying property, owning property, and talking about property. We also love talking about the potential for a massive property market crash - but history shows us that this just doesn’t seem to eventuate.
While some corners of the market are talking about the world ending, there’s a group of quiet achievers getting on with business and taking advantage of the property market conditions to set up their future.
Property isn’t for everyone, but if it’s part of your future you’ll benefit from making smart moves today.
To your success,
Ben
PS: Pivot Wealth exists to help people invest smarter to create a life not limited by money. If you want help to make your next steps easier, you can book a 10 minute, no BS chat with us here.
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