Need to Know | Property Revisited

Candice: [00:00:00] Talk Money to Me. Hi and welcome to talk money to me, I'm Candice Bourke 

Felicity: [00:00:05] and I'm Felicity Thomas and this is your need to know wealth podcast where we make the complex simple. Now our regular listeners will know that Talk Money to me is a podcast where we draw on our extensive expertise and experience to help educate you on all aspects of your financial landscape. But for any newbies listening along, you'll find each of our episodes take a deep dive into a certain investment or financial topic.

Candice: [00:00:27] That's right. So he took money to me. We aren't afraid to jump straight into the deep end of the pool and tackle all the financial jargon and wealth strategies we commonly talk about and chat with our clients. So recently, we've been chatting a lot about property. As we all know, it's so hot right now as to say that Bryce. 

Felicity: [00:00:45] All right, Paris, you know, Candice. My prediction is that now New South Wales has begun. Well, it's not really a prediction, is it? It's the truth. He's begun to open up out of the recent lockdowns. I think we'll actually see a lot more open homes and insights into the property market, and we're still really coming down from our high. After the fantastic chat the other week with Simon Cohen from the Amazon Prime show Luxe Listings. Now, if you actually haven't listened to our interview with Simon, we really recommend you do so, as he touched on a lot of great tips and tricks when it comes to property investing. Yeah, and 

Candice: [00:01:17] he really got us chatting about our own properties when we came off the pod and we realised that there's just so much more we can discuss about property investing and we really do want you to miss out. So part two of the property series, here we go. In today's episode, we're going to continue chatting all things property. We're going to touch on the other structures that we left out and how you can purchase a property through those structures. The nitty gritty and finer details that honestly, you don't get taught in school and when you become an adult, you're like, Holy Moly, what are all these things mean? And then finally, the the difference between a redraw and an offset account. So guys, warning and spoiler alert, we are going to unpack again a lot of information to do with property investing. So make sure in the right headspace to absorb all the information we're going to chat about and we don't want you missing out. Essentially, we don't want you missing out on the awesome insights. These episodes are all about helping further educate you on the certain topic we'll be chatting about with that expert yet. 

Felicity: [00:02:14] So get out your notebook or get out your is it your Apple notes so that you're going to be ready to take down this really, really exciting content? Or you can just rewind and listen to it again, exactly because it's not life. Now you guys know the drill. Please don't take our conversation. Today is personal financial advice, as 

Candice: [00:02:32] even though we are registered financial advisors, please note this podcast and the content discussed does not constitute financial advice. Nor unfortunately, is it a financial product. The content on the pod today is general in nature, and you should seek appropriate professional advice before making any financial decisions. I love saying the pod. It's my new thing. I know 

Felicity: [00:02:51] the pod. 

Candice: [00:02:53] Somehow that's out of the way. Let's get stuck in today's chat, Felicity. In our last episode, we touched on buying property through, you know, the easy ones like your personal name or in joint names. So we went through joint tenancy versus tenants in common. But what else in terms of structures can people consider when buying property?

Felicity: [00:03:10] All right. Well, there's other options and structures to consider, such as trusts when purchasing a property now trust there actually many different types of trusts, so the main ones that you'd use to facilitate a property purchase would be a discretionary trust, which is your family trust. A unit trust or actually a self-managed super fund is a form of trust. 

Candice: [00:03:31] Yeah, and we always get a lot of questions about trusts and whether they're appropriate for our clients and friends and family. You know, for example, each structure, what does it actually mean? They always asking us those questions. What's beneficial to consider? How are they going to help me with our family decisions down the track? So we thought, let's explain why investors look at discretionary trusts or family trusts in order to hold property. 

Felicity: [00:03:52] So investors, I guess, particularly use discretionary trusts to hold property because there's the chance the asset will not form part of a person's asset base in the event of a legal or creditor action. Now it also gives the flexibility of distributing both income and capital gains to a group of people at the discretion of the trustee. Now these are known as your beneficiaries. 

Candice: [00:04:14] So what Felicity is essentially saying here is that a trust can be advantageous to not only protect the individual. Let's just say dad in this example, you know from creditors. Probably mum both, right? But say mum and dad own the corner ice cream business or something like that, and they want to be protected from potential creditors. And then they have a family of three beautiful children, so they protecting through the trust unit. But then also they can decide if they want to distribute the income to to the younger generation because typically they are paying less tax, right? So it's advantageous from that side of things, but also

Felicity: [00:04:49] important to note that trusts have actually changed over the years. So previously you could actually distribute to children and not pay the top tax rate they used to have the tax free. Threshold, which is 18000 200. However, the government obviously caught in on that loophole and changed it so that if you do distribute income to children under the age of 18, you only get about 460 or 480 tax free. Other than than that, you'll get taxed at the top tax rate. So it's actually really good for families with adult children who are still at uni, not really working, and they can distribute income to those children. Does that make sense? 

Candice: [00:05:24] Yeah, it does 100 percent, right. 

Felicity: [00:05:27] And another benefit under normal circumstances, the rent and any capital gains belong to you, the owner. Sorry, what I mean by normal is if you purchased it as an individual or joint in a trust situation, they belong to the trust, and the trust has to distribute them or give them away. Okay, so trusts are great, but they're actually not as widely used as you'd expect because there also are downsides. So firstly, a trust structure can be costly and complex to set up, and it can be a similar burden as a company to actually operate. It creates an extra set of accounts documentation such as meeting minutes and judgements. Now, it's usually more expensive to get trust tax returns done than it is for your normal personal returns as well, and you'll be subject to greater land tax as the tax thresholds for trusts differ to that of individuals. Also, if you're buying a house to live in, there may be tax implications like capital gains tax exemptions that you're actually giving up by having it owned in the trust. 

Candice: [00:06:24] But apart from the added costs that we commonly see, a lot of people don't realise that a trust while it can distribute the income, it can't, however, distribute a loss. Right?

Felicity: [00:06:32] Yeah, that's correct. And it's often missed when making the decision to purchase property in a trust structure because, to be honest, we've noticed this with our clients. Not everyone makes money in property investing, to be honest. We've actually seen a lot of really bad investing choices and locations that they've actually crystallised a loss. So if your investment property gives you tax deductions that you offset against your normal income, a trust won't allow you to use those deductions. A trust will actually hold on to any losses and only use them to offset profits within the trust. Now, once you take depreciation into consideration again, that's another thing to get get a depreciation schedule when you have a rental property. It could take a while until the property is often ready to return and income after tax and profits. So during that time, you won't actually be getting any tax relief that you do get usually. So for some people, this is an issue. But for many property investors, the tax deductions over the first 10 years are often the key to affordability and pursuing other financial goals, such as paying off the home loan or their main residence home loan. 

Candice: [00:07:36] And let's address the elephant in room here. You're making an investment decision at the end of the day, right? You're hoping that your asset class being property will go up over time. Nobody likes making a loss. Know when your asset doesn't go up over time and you're going backwards. It's caused a lot of headaches, so you can just avoid 

Felicity: [00:07:52] 100 per cent. I think we also used to have Candice. People were like, I want to have a negatively geared property. And we were like, That's great, but it's still negative, still negative 

Candice: [00:08:00] here

Felicity: [00:08:00] in the Ren. You know, it's not actually that great, especially if your income is not, you know, 300000 a year, you're still negative. Essentially, what you really want to be is neutrally geared. 

Candice: [00:08:10] And I think Australians in particular, we just fall in love with property and we fall in love with being negatively geared for all the tax purposes. But yeah, it's in the red. 

Felicity: [00:08:18] So you're still paying tax like it's not good. 

Candice: [00:08:22] So a second option that people can choose is also via a unit trusts. Now, this is not as available for people buying apartments or units like the name kind of suggests. It's actually really funny if you think about it, how the finance industry comes up with these weed jargons names. Yeah, I 

Felicity: [00:08:37] know I wonder who actually came up with this name, but when you hear the explanation, it will make a lot more sense. 

Candice: [00:08:43] So a unit trust falls under a fixed unit trust structure. The property is firstly purchased by the unit trust, and then that unit trust is the one that receives rental income and pays any rental expenses in relation to the property. So the unit trusts distributes the net income to each of the unit holders in accordance to how the unit is set up or the unit trusts set up. Unit trusts structures are typically the ones that we see in the listed markets. So if you decide to invest in a listed unit, property trusts like a rate on the market or even a listed investment fund, they're actually technically mini unit holders of a large entity. And if you think about it, it's the unit trusts job to then distribute income down to you being the shareholder or the unit holder. Another way to think about it is comparing industry super funds like AustralianSuper or AMP, or any one of those big ones that you see on the TV, like all those ads to individually manage super funds. 

Felicity: [00:09:40] You know, that's a really good analogy, Candice. So I guess let's break it down a little bit more and give a real life example. Where would you use a unit trust? You'd use it in the sense that say you purchased a property and you had, you know, 10 years worth 100 units. One person bought 50 units. Say, You and I Candice, we bought 50 units together as. Tenants in common and then my super fund actually bought the other 50 units, so that's where you'd have a real life example of where unit trust actually works and because it's 50-50. All right, the income would be split and the loan repayments would be split. Yeah, but we don't actually have to do 50-50, right? So say Candice wanted to get out of this investment. She could actually sell her units 25 of them to Sascha, our producer. So then Sascha would own 25 units. I would still own 25 units and my super fund would own 50 units. So I really got the good end of this deal because essentially I earn 75 percent of this property,

Candice: [00:10:39] so I don't know where I've gone in that example. But let's say, for example, you know, I sold because I wanted to set up my own self-managed super fund with my husband and I wanted to buy another property. How can I buy a property in SMSFs? Yeah.

Felicity: [00:10:52] So this is another really good structure. So when it comes to buying property inside your self-managed super fund, you can absolutely do that versus if you have, you know, a normal industry super fund, say, with AustralianSuper or a retail super fund like Hub 24, you don't actually get that option to buy direct property. So when you buy a property, whether it's commercial residential inside a structure like a self-managed super fund, it's a whole other kettle of fish in which you really, really, really need to seek professional advice. 

Candice: [00:11:23] Very much so. And you know, our listeners, they're about to understand that this is your bread and butter, Felicity. I swear when we talk about awesome assets and buying property, you know you could do this in your sleep, particularly when you're in meetings, right? You can't say this, but I can see your eyes light up and you the decline or the prospect is thinking, you know, I'm close to retiring. What should I do? I want to buy property. You're like, Let me tell you something about this. 

Felicity: [00:11:49] I suppose the main thing Australians are really, really, really like yes, property, property, property, right? But the reason that you make so much money in property is you use gearing. So the ability to actually use gearing in your self-managed super fund to purchase property gives you that whole other, I guess, level or edge to really boost your retirement savings. You know, I really love this strategy, and we're not saying that you actually have to use gearing to purchase a property in a self-managed super fund. You don't. You might have enough cash to actually just buy it outright yourself, or you can purchase it with a unit trust. But the reason we really like gearing is it allows, you know, people with maybe a $500000 balance rather than a $1 million balance, actually buy that $1 million property in the super fund. So this is actually called a limited recourse borrowing arrangement. Now you also need to make sure that your trust allows for you to do this and that your investment strategy also allows for you to purchase direct property using gearing. But what I want to really get across is that most major bank lenders and bank lenders are now out of this space, so it's really a non-bank lenders that you'll need to look at for this area. You also generally need to get a statement of advice from a financial adviser, which is provided to your mortgage broker and the lender to support the investment strategy. I'm not 100 per cent sure if that's 100 per cent required. That's something that we can check next week. But again, very important. 

Candice: [00:13:11] Yeah, and very important note. Also not a plug here at all. You know, we always stress this use the internet and the tools around you to look at your financial advisers, qualifications and the mortgage brokers as well. Before you make these big decisions and check particularly what they can provide financial advice on, you know, as advisers were all registered on the regulators like Asik. So you can search for us that way and what we can actually chat to you about. 

Felicity: [00:13:37] Yeah, exactly. So you can actually search Candice our eye on your money smart financial adviser register and say that we are qualified financial advisers 

Candice: [00:13:44] and see that this is your bread and butter, Felicity. 

Felicity: [00:13:47] Well, and you'll also have the issue. What was it? All the scams that went on with financial advisers during Ponzi schemes and stealing a lot of money from clients? You know, if the client had actually sucked, they would have seen that their advisor wasn't registered. Therefore, they're not a financial advisor at all. 

Candice: [00:14:02] Exactly. And you know, when I reflect on our career, it's a bit kind of like when you sit down for that first date because when you meet a new client, you're potentially taking on a lot of their baggage, unfortunately, that you're going to inherit, right, because they have had poor financial advice or poor accounting advice in the past. And it's led them to make these unfortunate often property decisions and we have to get over that together as a relationship and

Felicity: [00:14:28] work on buying off the plan, then the adviser gets a kickback for that. That is not good. That is not something that you want anything to do with. I'll tell you why the property is a fully priced, and it's also paying your advisers commission fee for that. So that's bad. Bad, bad. Now let's get back to the self-managed super fund. I think it's really important for our listeners to know that if they do purchase a residential property via their self-managed super fund, they can never live in it. It has to be an investment property. You know, the interest rates are usually a little bit higher, but there's a lot of benefits, right? So the. Rental income is only taxed at 15 per cent or zero per cent if it's in pension phase. The capital gains tax on the sale is 10 per cent if it's in accumulation and held for 12 months, or, you guessed it, zero per cent in pension mode. So a real life example. Say I purchase a property for $1 million. I then sell it for $1.5 million in pension mode. I've got a $500000 loan who I essentially pay back my $500000 loan. I've made a million dollars and that's all tax free. Fantastic. 

Candice: [00:15:32] And Felicity, you're in retirement mode a.k.a. pension mode. So no CGT to worry about. 

Felicity: [00:15:37] Zero. Not a thank you. Thank you very much. Now, another really exciting and we might have to do a whole another episode on this as well. There's so many. There's so much to get through. But lastly, if you're investing in a commercial building or commercial property, you can actually run your business through this property. Therefore, you're essentially paying rent from your business to your self-managed super fund. And there's one other little important thing to note is if you do have a commercial property that's existing, you can actually transfer that into your self-managed super fund. You can't do that with residential property. You can not transfer residential into the super fund, but you can with your commercial. However, you'll need to speak to an adviser because you'll need to know whether it's a contribution or whether it's purchased. There's a few different things to go through. Probably don't do this on your own. 

Candice: [00:16:22] No, definitely. Don't seek advice and don't get caught out here. So Sasha, our producer, make sure that you know Felicity is charging you market rate for the property, investing inside her as MSF and the unit trust. In that example, it's got to be above board big. No, no, you can't give yourself a discount,

Felicity: [00:16:38] but it market rent market rent market rent 100 percent, but

Candice: [00:16:42] it's not over. Is there one more structure that you can purchase property in? 

Felicity: [00:16:46] There is, and it's a company. So again, one way to limit your legal and financial liability is to purchase property as a company. Now, the good things about a company is they may attract a lower tax rate on any net rental income from the property, and individuals will actually be protected from liability to an extent. However, the negative aspects of buying property through your company include not receiving the 50 percent CGT discount. So obviously, if you've held an investment property for more than 12 months, you get that discount and the capital gain can actually be hard to access. So, for example, you may want to use your property to purchase another property, and that's a bit hard because the mortgage broker will actually want to look at the company. Tax returns 

Candice: [00:17:28] to use financials will 

Felicity: [00:17:29] not see any losses that are incurred can only be deducted from future income. So it's actually hard to get that equity release. Again, a company can be quite expensive to set up and maintain, so it just needs to be worthwhile. So, you know, we really recommend actually speaking to a really good accountant. We know a few happy to recommend them. 

Candice: [00:17:47] So alright, that's a lot to unpack. Let's just quickly recap. So in part one, we talked about buying it in your individual name, joint name being tenants in common on joint tenancy. Today, we've talked through family trust or discretionary trusts, then a unit trust, and it's a massive and then you can also purchase property inside a company. So as you can tell, there's many options when it comes to investing into the property market. So really, the key takeaway that we want to stress Flossie know is have that really good conversation with your financial advisor and your mortgage broker, accountant, partner, whoever is your trusted source before you make the financial decision. We don't want to inherit any more lovely clients with all of these problems. We want to fix them for you. And it's all about being educated at the end of the day. 

Felicity: [00:18:32] Yeah, prevention is better than a cure. 

Candice: [00:18:34] Exactly. So in a second, we're going to move on to the more nitty gritty, finer details, the accounts and structures that you can have attached to your home loan and then a few more insights as well when it comes to property investing. But before we do, we're going to take a quick break to hear from our sponsors. 

Felicity: [00:18:51] Okay, and we're back so now that we know about the different structures. Let's begin by breaking down some of the basics when it comes to taking out a loan and your repayments. So you've actually got two types of repayments being principal and interest and interest only principal and interest. You're paying the principal and you're getting charged. Interest and interest only is your only paying interest and not repaying any principal. You've also got two types of rights being a variable rate and a fixed rate. So a variable rate means it will move with interest rates, and a fixed rate means you're locking in a fixed rate for a period of time. So you have a little bit more certainty. 

Candice: [00:19:28] And let's face the reality here, it's mainly interest in which we're paying back over the course of the average loan here in Australia. Typically, loans, you know, average from 20 to 30 years, so you can imagine how much interest the bank has made over the years from us. Right. Nobody likes paying interest, but that's how they make their profits. At the end of the day, they charge us interest. 

Felicity: [00:19:48] And it's the reasons why we always tell our clients to quickly and aggressively pay down your main residence, mortgage and principal debt because it's not tax deductible debt. And no one ever likes to pay interest, especially if you're not getting a tax deduction for it. Well, who share a really, really great strategy with you? It's actually called debt recycling. We get the best of both worlds where you essentially turn your non-deductible debt into deductible debt. But again, you'll need a full focussed notepad episode for this. So back to Penny CB 

Candice: [00:20:20] or say that, Jim for another time? That's it. Now, naturally, as you slowly chip away at your principal debt repayments, you're also ensuring that your over time paying less interest rate via the paying higher repayments vs. the difference is, if you opt in to only pay interest only, you're just paying off the interest that the banks charging you and the amount you borrowed is still going to remain the same. Now, from the banks perspective, when you opt in for interest only, you're actually a higher default risk customer and they call this the delinquency rate. And that's because you're not contributing to the bank's debt, which you've borrowed over time. So that's why typically interest on the repayments, the banks are going to set those rates a little bit higher than pay and they want you to be on paying, essentially. 

Felicity: [00:21:03] So at the moment, I guess the average interest only repayment is in the midterms to mid threes versus the really low interest rates of paying I, which are actually in the high ones to mid twos. Now, if you're borrowing inside a self-managed super fund, the average interest rate is more like four, perhaps to six percent pending the gearing ratio. And that's probably where we need to start discussing fixed versus variable. I'll paint a little picture so you can better understand what I'm trying to get across. Say my loan is $1 million and my variable principal and interest interest rate is two and a half percent, meaning the rate can go up or down at any time. I can also make as many extra repayments as I'd like. I can have an offset account and I can have a redraw facility, but I want more certainty. So I've actually decided that I'll fix 500000 of my $1 million loan at two per cent principal and interest for three years. What that means to the bank is they can't increase my right from two per cent for the next three years for the fixed portion. 

Candice: [00:22:06] But okay, hang on a second. Let's let em Felicity. So what you're essentially saying is you've decided to split your one million loan. You've put five hundred thousand away at two per cent for three years. So you've decided to fix that part. And then your other remaining proportion of the five hundred thousand is variable at 2.5 per cent correct. 

Felicity: [00:22:25] It could go up and down, right, so the two and a half per cent could come down to one point nine per cent or it could go up to three per. So what I can actually do with my 500000 that is variable. I can offset that with my savings. I can make extra repayments as well. It's important to note, though, if you do have a fixed portion, you can't sell your property in that fixed period without breaking costs. 

Candice: [00:22:47] Yeah, that's that's a really important thing to note there. 

Felicity: [00:22:50] That's really important. And usually with a fixed rate, they may let you pay back between 15 to 20000 a year. But again, that is something that you'll need to double check with your bank and your mortgage broker. 

Candice: [00:23:02] Okay, so essentially, there's many ways to skin this cat, right? In Felicity's example she's provided. It's all about, though, just making sure you're doing the right strategy for you that best suits your goals to pay down your mortgage and super important, just make sure you read all the terms and conditions that the bank is offering you. Because, like Felicity said, you don't want to, you know, get a great offer on your property, but you've locked in to that three year fixed term and you can't. So you get to penalise, you know, that decision to to sell your property. So that leads us to the final point. Another key difference that we often talk about with our clients between paying an interest on the repayments, remember, is that upon a set period of time, your interest only repayments, it's unfortunately going to come to an end and you. We'll have to decide what to do. You know, if you decide to hold onto the property, that's where typically the banks should reach out to you and say, you know, Hey Felicity, your interest only repayments is coming up. What do you want to do? Do you want a role to penny? And this is a good opportunity to see what the market's offering, because often we find that existing customers don't get the best rates with a bank, then what they advertise on TV for a new customer. So don't be afraid to kind of chat to mortgage broker at this point and shop around and see what the market's offering because you want the best rate at the end of the day. Right? 

Felicity: [00:24:22] Well, that's it. I mean, I wouldn't worry that my interest only portion was actually coming up because you can just refinance somewhere else. 

Candice: [00:24:29] That's right. Thank you. I'm not loyal to a bank. Move on. Happy days. 

Felicity: [00:24:33] All right. Well, this leads us to our final topic redraw versus offset account. So we always get asked about these. What's the difference? So even if you don't own a property and you aren't even thinking about buying one anytime soon, we really want to share with you what these actual banking terms mean. So you're more prepared when you do take out a home loan. Again, there's probably heaps of property moguls listening along, but it obviously never hurts to have a refresher. Some people think they've got an offset account, and they actually don't. So an offset account is like an everyday savings transaction account. The only difference is that it's attached to your home loan. 

Candice: [00:25:09] So essentially, the more money you have in your offset account, the lower your mortgage interest payments are going to be. A lot of people are actually aware that banks calculate interest daily, but charge it monthly. So even if you transfer $10000 one day in the month into your offset account, you're helping reduce your overall interest repayments applicable for that one day. Right? It's going to help you. That's why for listeners have set up our own personal finance isn't always chat about it at our desk. You know that we want our business income, our salary, our income, our wages to go into the Offset's accounts. A offset account is generally available for most home loans, but just double check this with your mortgage broker or the bank. 

Felicity: [00:25:51] Exactly. So you know, you also need to be aware that if your loan is with Macquarie, for example, but your savings account is with Westpac, that won't work as an offset account. Your offset actually needs to be with Macquarie or your lender as well. You also need to remember that most banks if you fixed your rate, you can't use an offset account or redraw. 

Candice: [00:26:12] Great point. Definitely worth clarifying. Now what about regional facilities? How are these different? 

Felicity: [00:26:18] So a redraw account lets you access any additional repayments you've made, if you wish. For example, if you want to make monthly regular payments that are higher than your set minimum monthly repayment, or even a few random ad hoc payments like you get a big bonus at work, you have the option of putting this into your loan and then taking the funds out when you want to. However, it's really important to note that even though redraw accounts aren't locking your funds away, you know you do need to be careful because I did know and heard of some of the banks in the 2020 Covid crash, they actually locked the redraw portion for some customers being able to withdraw their extra payments. So it's not as flexible as an offset account. 

Candice: [00:27:00] Yeah, I do remember that. I remember reading a lot of articles during that time. It was like March, April of 2020, right? And that's because the banks are just trying to protect those delinquency rates going up at the end of the day. I remember, though, you know, panicking going, Oh my God, is my bank going to do that? And luckily they didn't. Few because asides from that redraw facilities are such a great lending tool that we can use to give you more control with what you want to put in and pull out of your loan. 

Felicity: [00:27:25] And that's the main difference between an offset account and a radial, so an offset you're essentially offsetting your interest to help reduce your interest. Charged vs. redraw is also reducing your debt and interest repayments, but the funds are actually paying off the line, whilst with the offset it's just offsetting the interest and not actually paying down the line. Again, important to note, you won't get charged a fee for taking funds from your offset account, but there might be an account keeping fee. But you may get charged for redrawing, so you need to look at the terms and conditions of your line. 

Candice: [00:27:59] That makes a lot of sense to me, but just for the benefit of our listeners. Maybe give us an example, Felicity, of how you've structured your recent property purchase so we can understand that. All right. 

Felicity: [00:28:08] So this is my example. My first property was an apartment and my main residence. However, I set my payments to interest only. The reason I did this is because I knew that this apartment wouldn't be my forever home and that one day it would be an investment property. So rather than paying down the debt with principal and interest repayments, I actually built up my offset account to reduce the interest whilst I was living there because it wasn't tax deductible. For example, say my loan was $600000, I had 250000 in my offset account. I was only actually paying interest on 350000. My rate was variable. It wasn't fixed. 

Candice: [00:28:45] Yeah, because you can't have an offset account with a fixed rate, right? You know 

Felicity: [00:28:48] that exactly. But my intent? And Jim, was to use the cash that I built up in my offset account as a deposit for my next purchase, buying my house and therefore my apartment would become an investment property, which meant I would prefer to have a higher tax deductible debt being my investment property than a higher non-deductible debt being my main residence. Does that make sense? 

Candice: [00:29:10] It definitely does, and that's how a lot of people jump from one property to the next, right? You lived in that apartment for five, seven years. I can't remember exactly how many years it was. That was it? And then you built up your cash and your offset. The bank then goes, Great job, Felicity. That's going to help pay your next deposit for the next place. Plus, they're going to revalue your apartment at that time and it's going up in equity that 

Felicity: [00:29:31] I could do an equity release, but I actually didn't do one because I didn't need to, luckily. But you do have the ability to do an equity release, correct? 

Candice: [00:29:39] And that's how a lot of investors do it right. I sit on that asset for a while. They make it their main residence and then they leapfrog to the next one. 

Felicity: [00:29:47] And people do get really caught up on paying debt down, paying debt down. But you know, I had a 20 per cent deposit when I did purchase my apartment, so I wasn't geared up to my eyeballs, essentially. And as the property went up in value, my gearing ratio went down. So that's why I structured it that way. I was just planning ahead, saying This is not going to be my forever home. You know, now the rent actually covers all of the repayments, so it's neutrally geared. I don't actually make money on it, but I don't lose money either, which is fantastic. 

Candice: [00:30:17] And that's what we were saying earlier. That's what we want. You don't want to be necessarily negatively geared. No, I think being neutral is the happy medium. 

Felicity: [00:30:23] That's it. 

Candice: [00:30:24] All right. Well, that's a wrap for today's episode. We hope you learnt something new about the ins and outs of property investing, or found it as a useful refresher to spark a conversation with your mortgage broker or financial advisor. On that note, we're excited to bring to the pod next week a fantastic special guest coming on the show to talk about, you guessed it, all things property investing. So we're pumped for our conversation with one of Australia's most leading mortgage brokers, Chris Bates from Wealth Full. 

Felicity: [00:30:54] Yeah. And we'll be asking Chris all of your property questions. So as a reminder, send us your queries either via email or reach out to us on our Instagram, which is at Talk Money to Me podcast. And as always, if you'd want to get in contact with Candice or I. The details are in the show notes below. Until next time.