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Q: I have two children about to start Private secondary school. We have been putting away money since they were born into a separate bank account and have around $80k. is there a better way that we can use this money - I have heard of education funds, but we have not explored. one idea was to buy an investment property with this money (and some top up) and effectively use some of the rental money to pay their school fees and then incur a debt for the fees against the growth in the property?
A: Hi Rohan,
Unfortunately most mortgage/finance brokers are going to tell you it's a good idea to purchase an investment property, why? because they hope you'll choose them to do the lending part for you and they in turn will receive an upfront commission and an ongoing trail commission for the life of the loan, regardless of whether or not it really is a good decision to make. The only opinions/advice that should be taken seriously are those from licenced experienced Certified Financial Planners, of which I am one.
In reality, I don't think that purchasing an investment property with funds specifically saved for the purpose of your children's education is the right thing to do. This also depends on what the annual fee for your children’s education is likely to be. However, with two children about to start private secondary school I dare say these costs are going to we in excess of $10,000 per annum per child?. The major reasons for this are:
1. The rental derived from the investment property is likely to be all used up in loan repayments and other ongoing costs involved in holding an investment property, potentially leaving you in a negative gearing situation. Although negative gearing is not necessarily a bad position to be in, you would need to be extremely confident in achieving a really good annual growth rate in the property to justify not only the out of pocket expenses of holding the investment property, but also for the ability to draw on equity to fund your children's education;
2. What if the property/properties (including your principal residence - assuming your own and are not renting yourself) do not provide the level of growth needed to access the equity required to fund your children's education costs?
3. When (not if) interest rates rise again, your repayments are going to rise potentially leaving you in a position of not only having to still find funding for your children's education costs but also increased holding costs on the investment property;
4. In an emergency or any unforeseen circumstance, you cannot just simply sell off a chunk of the investment property to quickly access cash, you would have to sell the property. The time and costs associated with this would be a huge risk especially when relying on such for your children’s education costs.
For me, the risks outweigh the potential rewards in this case. Don't get me wrong, I am a firm advocate for using investment properties to grow one's wealth, however, this is not really the question you posed.
In saying the above, there may definitely be other ways to achieve both, that is confidence is paying for your children’s educations costs AND purchasing and investment property to grow your wealth.
I am more than happy to have a more detailed discussion with you about this if you like.
Damien Burns
0413 698 770
damien@dmfinancialservices.com.au
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Q: I have just started investing in Acorns. ($2,000 + $25 per month + rounding up of my purchases) Is this a good investment or do think I am wasting my time & money?
A: Hi Michael, unfortunately taking financial advice from a mortgage broker is akin to asking an electrician to service your car, not good at all. There is absolutely nothing wrong with investing into ETF's and using Acorns to do this. This is NOT a speculative investment and over time you will make a much better return than leaving your money in cash.
Cheers
Damien Butns
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Q: Can my wife and I combine our super into one self managed super fund?
A: Hi Nathan, short answer is yes, absolutely. SMSFs continue to grow in popularity and can be a fantastic way to build your super assets as they open up investment opportunities that simply aren't available using traditional retail or industry funds. However, SMSFs aren't for everybody and a detailed discussion of your individual situation, goals and objectives is paramount before deciding which direction to take. I am more than happy to meet with you and your wife to discuss your options if you like.
Cheers
Damien Burns
