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Investing in property

Bill Meehan, managing director of Certain Wealth Group, joins Peter Switzer on his Sky News Business Channel program - SWITZER - to discuss how he thinks people can lay the foundations for a retirement plan based around property.

Meehan says the company was founded to fill a gap in the marketplace. A lot of people go to seminars or workshops, from which they are inspired, but following that they don’t know which direction to take.

“We’re looking at creating a land-based portfolio of residential investment property, and to do so slowly, and to do so through equity and through duplication,” says Meehan.

Meehan says many people overestimate their financial position.

“You’ll often get a couple come in together, and they will believe they’re doing well; we’ll review it and we’ll find, in fact, that they’re not going to retire,” he says.

Certain Wealth Group takes the financial planner approach of working out and structuring goals, which Meehan says, not many people have. According to Meehan, 90 per cent of people retire at or below the poverty line today, which is pretty dramatic.

“The poverty line regarded around $23,000 to $24,000. And one per cent of us are retiring around $50,000,” he says.

How it works

Switzer asks what kind of lump sum people should be aiming for. Meehan says every person is in unique position, or “like a fingerprint in many ways … different equity positions, different financial position, different age, different requirements.

“From my point of view, if a couple can create, say, six or even more properties over a 10-year period, hold them for a couple of years, and then sell off a couple to reduce the debt, and then live on about $85,000 of positive income.”

This income, says Meehan, is CPI adjusted, “because you’re increasing the rents every year, so it’s not like if I put it into a fund, and I’m drawing the interest on it, this is not going downwards. So about $85,000 up after 10 or 12 years.”

Meehan brought a chart to show SWITZER viewers the median house prices since 1967.

“The fascinating thing is if we bought in 1967, say in Sydney,” he says. “Let’s say we put down $1300 deposit, 10 per cent [and] we’d borrowed 90 per cent, as an investment property it would be worth something like about more than 300 times, not 30 times, but 300 times.”The six rules

Meehan says growth in the capital cities comes and goes, adding that “every five years one market overtakes the other market in terms of growth”.

Meehan says his company has six cardinal rules that need to be followed before investing in property:

  1. What land should I be buying?
  2. When should I buy it?
  3. Where should I buy it?
  4. How should I finance it?
  5. Is the demand there for my property?
  6. Can I afford it, can the tenant afford it and am I optimising my tax?

“I challenge people, if you get all of those things right, then its very, very difficult not to be getting a good growth market,” he says.

Take it slowly

Switzer suggests that a problem is that people try to take things too quickly, which Meehan agrees can be an issue.

“It’s an issue that is always in front of us, because you get an older couple, maybe 10 years out from retirement, who want to give you everything,” he says. “Suddenly they realise they’re in trouble and all of their life savings, all of the equity they’ve got in their house, they’re prepared to risk with you.”

Meehan says he will not allow someone to be in the program “unless they’re comfortable, they’re confident and, in fact, they can financially do it.

“[Property investment] is a long-term thing and it’s going to be with you for a long time, so even moving to the next property, you should never do it until you’re financially comfortable,” he says.

Meehan says the current undersupply of property at the moment is helping his model and that demand for property is increasing in Melbourne.

When it comes to home loans, Switzer asks if Meehan is an interest only, fixed man.

“No, I generally prefer standard variable rate depending on the person again though, but I myself personally prefer standard variable rate with a discount,” he says.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.


Published on: Friday, August 14, 2009

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