SSS – July 2014

RBA Cash Rate – Was left unchanged again at the July Board meeting. Those in the industry believe this will be the case for at least the next twelve months. The two main reasons are the high Aussie dollar ($0.94 US Cents) and zero-bound (0.1% – 0.25%) interest rates in the US, Europe and Japan. Our 2.5% cash-rate is attractive to foreign capital combined with Australia’s reputation as a safe, stable and prosperous country. This in effect is what is keeping our dollar so high.

There may be another rate cut later in the year depending on what inflation is doing and how much more of a beating the manufacturing sector can take. I personally think we will have low rates for quite some time and that another cut is not off the mark. The fact the banks still have fixed rates below variable rates demonstrates belief there will be further movement downwards. For this reason I am keeping my portfolio leveraged at variable rates and interest-only whilst maximising use of my DHOAS offset account.

Toowoomba Economy – For those that haven’t seen it, the Courier Mail ran an article on the town’s infrastructure boom currently underway. Toowoomba is Australia’s second-largest inland city (Canberra’s the largest) with on average 50% of goods shipped through the Brisbane Port originating from the Toowoomba and western region. Massive growth in infrastructure (both public and private) is crucial for long-term capital growth. Congratulations to those that have recently acquired investment-grade lots up there! You can read the article here.

Asset Protection – Had a good question last week from a member who wanted to know whether buying in their own name was safe. In my view – yes it is. Purchasing in a Trust (whether it be a Family or Unit Trust) is complex and will cost on average between $2000-$6000 just to set up. Whilst ownership in a Trust means the assets are protected should anyone want to “have a go” at you, you have to weigh it up with what the likelihood is that someone would want to have a go. Most banks and lenders will also charge more for lending to a Trust as it is more complicated than just lending in your own name as there’s more hoops to jump through. You also can’t claim negative gearing in a Family Trust. For those contemplating purchasing in a Self Managed Super Fund (SMSF) – that’s a whole different kettle of fish although no one is in that boat yet.

Provided that you are not negligent in your duties as a landlord (professional property management) and carry the appropriate insurances (building and landlords) then you have adequately assessed and mitigated the risk. For the aircrew amongst us – process is no different to an RMP. Don’t forget you’ll also most likely be leveraged at around the 90% mark at this early stage of your investing career so if someone did mount a claim, there’d be bugger all to take anyway.

Once you start building some serious equity in your portfolio, there are ways and means to protect your wealth and also keep it in the bloodline for multiple generations after you pass on. I’ll probably talk more about that in a future SSS.

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