Monopoly Money

My name is Tom.

I’m 33 and married, with a four-year-old daughter. We have a $530k mortgage on a house valued at $670k which we bought 20 months ago. We also own a piece of land valued at $125k. With living expenses, we are a little cash poor at the moment. So my question is: should I buy a commercial property (a factory) as an investment with the land as equity? My company (which I own 50 per cent of) could lease it, and I would be the landlord and the tenant. Would love your advice!

Tom

You’re considering taking the Bruce Willis Die Hard approach to financial planning: Bruce would buy the commercial property -- cobbled together from a series of credit cards -- and then flip it to Mark Zuckerberg for $20 million by the time the credits roll.

You, on the other hand, have a young family, a young mortgage, a young business, and (understandably) no spare dough at the moment.

Now is not the time to be buying a commercial property. If I were in your shoes, I’d sell the zero-income-producing piece of land and create a six-month Mojo account (usually it’s three months, but as you’re in business it would be smart to have another three months buffer).

With the leftover money I’d either invest it into the business (but only if you can generate a good return) or pay it off the mortgage.

That being said, if your business is tied to a physical location that you don’t own -- like a restaurant, a shop or a dental clinic -- it can be a smart idea to buy that property in your self-managed super fund (SMSF).

However, I don’t think your factory is in that league, and I know you’re not ready. Instead, screw down a good rental deal on a factory with a long lease, and pour your money into expanding your business.

Scott

Hide the Silverware

I invested $10,000 in silver bars a few years ago when gold and silver prices were on a run. Their value has since declined by 25 percent or so. I guess a foolish decision on my part. Should I hold on in hope of regaining value, or cash in and perhaps reinvest?

Mark

Have you ever been in a relationship that you knew wasn’t going to last? Sure you have. We all have. But instead of biting the bullet and breaking up, you let it drag out. When you eventually break up, all you’ve done is wasted a lot of time. And time is money.

Scott

How to Earn 12% a Month

One of my friends cannot stop raving about the money he is making from FxUnited, which promises a 12 percent return a month on investment. All we need to do is invest a minimum $1,000 (actually we could afford to invest around $10,000) and we will get 12 percent return monthly. It sounds too good to be true. When I search the web there are mixed reviews, to which the company has recently posted a response on their site. I have told my friend that I will check with my finance guru (you).

Sheree

Just for kicks, I had a look at their website. It has a mid-90s, spray-on-hair-in-a-can feel to it. Let me do the maths for you: a 12 percent monthly return represents a stunning 289 percent annual return. To put that return in perspective, the greatest investor on the planet, Warren Buffett, has achieved a 20.8 percent annual return over his 50-year career. It’s a scam.

Scott

The Destitute Father

My father passed away and I am finalising his affairs. In fact, I am the executor of his will. The thing is, he was of no fixed address, living in boarding houses and hospitals -- basically destitute. How would I track down lost super, shares and bank accounts? I would appreciate any assistance.

Kim

You’ll need to wait until probate is granted, because you need a copy of the probate, and the death certificate, to be able to effectively chase down and transfer his assets. You can start your search online: to find shares, bank accounts or life insurance policies do a free search on ASIC’s MoneySmart website.

To locate any super he may hold, do a search with the ATO’s SuperSeeker website. Finally, search the relevant State Revenue Office website, which may uncover unclaimed bond money and the like. It’s also worth talking to his former employers to see if he had any group insurance or any other benefits as well. Good luck.

Scott

Selling the Bolthole

We are five years off retirement. We live mostly out of town, but for the last seven years we have owned a well-located Melbourne city apartment that we use from time to time. It has grown very little in value (and with all the new apartments coming on to the market I can’t see it increasing any time soon), and we no longer need to use it. So should we sell it and invest in the stock market, or rent it and work like crazy to pay off the mortgage? At that point, of course, the apartment would be about 20 years old and in need of a refit! What to do?

Leslie

Sell it. Sell it. Sell it. Seriously, sell it.And to be clear, I’m talking against my own interests: I’m an owner of a Melbourne CBD apartment myself (though I’m at an earlier phase of my life than you and am looking to hold on for decades).

The market is oversupplied -- approvals are running at about 23,000 apartments each year, which is about 75 per cent higher than the long-run average. This is going to flow through and affect vacancies, rental yields and prices.

At your stage of life I’d suggest you sell and make a post-tax contribution to an ultra-low-cost super fund, then focus on building up your nest egg over the next five years.

Scott

The $2 Million Question

I’m 41, married, with three kids under five.I’m a 50 percent owner in a successful business that pays me $290k a year. My net worth is approximately $430,000, plus my share in the business, which is worth about $2 million.In four years’ time I’ll have to find $2.5 million to buy my business partner out, or else find a new business partner. What are your thoughts? 

Clinton

You’re doing very well! But there are two ways you could still screw it up.

First, you could get a new business partner in four years’ time. In all the years I’ve been Barefoot I can count on one hand the really successful long-term business partnerships I’ve seen (hello, John Farnham and Glenn Wheatley).

Second, you could borrow a heap of money and put yourself under a lot of stress. I wouldn’t do that either. You’re already wealthy -- why risk it?

Here are the two choices that I’d make:

I’d either sell the business when your partner leaves, bank a bloody big cheque, and enjoy watching your kids grow up.Or I’d talk to your business partner in the next few months about structuring an ‘earn-out’.

That is, instead of being paid $290,000 a year, you make an agreement to earn a smaller amount each year and gradually buy him out. Why would your partner agree to this? Possibly for sentimental reasons, but primarily because you’ll pay him more over time -- they’ll share in the upside.

That’s what I’d do. Up to you.

Scott

How to Get a Cheap Work Car

My husband runs his own painting business. He is driving an old heap that is on its last legs and needs a new business vehicle. Our accountant has suggested a ‘chattel mortgage’, which sounds like a good deal at 6 percent interest for $20,000 over five years. We have a lot of debt to pay off and want the most cost-effective option.

Lorraine

The most cost-effective option is to pay cash for a second-hand van. However, if you don’t have the coin, and can’t buy it out of savings, your accountant is giving you decent advice. Remember that, as long as the price of the van is under $20,000, you’ll also be able to claim the Government’s accelerated depreciation allowance, which will potentially reduce your tax by $6,000.

Scott

What to do When You’re too Successful

I am 48, and over many years my wife and I have built a company. It keeps growing and we have good long-term employees (15 employees and 10 subbies), and I feel responsible for their ability to pay their mortgages. I love what I do but I am burning out -- and drinking too much. We earn a lot of money and take great holidays, but both my wife and I are fed up working 14-hour days. How do I find a new boss to keep this going?

Matt

Hi Matt,

You sound burnt out. (I know because I’ve been there myself.)That’s what happens when you feel you have a duty to provide for 25 families. And that’s also why you rightfully deserve the big bucks -- it’s people like you who drive the economy forward.

Here’s the thing: like most small business owners, you’re walking the self-employment tightrope because you want your freedom. The only problem is that you end up working for the worst boss in the world: yourself. Fact is, most small business owners have less freedom than the people they employ!

There’s no cookie-cutter answer to any of this -- only the obvious: you’re not in the building game, you’re in the bringing-money-in-the-door game. You’re a salesman. Everything else you do in your 14-hour day should be outsourced to someone better (and cheaper) than you.

Scott

The Million Dollar Idea

I’ve written to you a number of times but never heard back. But I will keep trying! I have stumbled upon a game-changing idea in the education space -- no-one is doing it. Right now I am part way through registering all my intellectual property, but I have spoken to some successful businesspeople and they agree it has the potential to be huge. I’d like to talk to you about it confidentially if you are willing to sign an NDA (non-disclosure agreement). Looking forward to talking to you -- it’s potentially HIGHLY lucrative.

Brad

Dude, unless you’ve invented a way to stop U2’s Songs of Innocence album from playing randomly on my iPhone, I’d respectfully argue that your ‘game-changing’ idea isn’t worth a bunch of Bono’s sunnies.

New ideas are too risky.

You have to create a brand new market. That’s expensive. What’s more, why haven’t the established players done it already? And what’s stopping them from doing it once you show up?

Better to be like Apple -- knock off an idea, or merge a couple of existing ideas.

Successful business is all about business models: profitable business models. Where are businesses that are already making money? Follow the money -- just do it just a little better.

Scott

Thank-you Barefoot!

Hey Scott,

This isn't a question, it's a thank you. I just turned 30 and after spending my 20's in debt with no financial clue, I am now in the green after Mum got me your book two years ago. I made a spreadsheet, put $2k in a high interest account, paid off my credit card and threw it in the blender, paid off my car loan, and smoked cigars with friends to celebrate, then paid out my interest free laptop. Future is bright.

Matt

Hey Matt,

Thanks for your kind words, you made my grandmothers day.

Scott

Setting up a Family Trust on the Cheap

Hi Scott,

Do I need to pay my accountant to set-up a Family Trust and a Bucket Company (fees circa $500), or is it relatively easy to do myself? If you suggest doing it myself, what are the pitfalls?

Andrew

Hi Andrew,

You could do surgery on your dog by watching a few Youtube videos, but I wouldn’t recommend it. I’m joking of course (but not about the dog). I’d want good asset structuring advice from an experienced accountant. As part of the conversation, tell them you can set up simple bucket company and family trust via a website. Quote the fees, and ask them how much they charge to do the same thing.

Scott

Should I ditch Comminsure?

Hi Scott,

I'm a single self-employed professional. I took out income protection insurance (and the full suite including trauma, total and permanent disability and life insurance) when I bought my first house, with CommInsure. With all the recent media coverage I'm feeling unsure that my premiums are good value for money and I will get a payout if I ever need to claim. Please advise.

Kath

Hi Kath,

The 4 Corners story on CommInsure (the insurance business of the CBA), uncovered serious cultural flaws in Australia’s biggest bank. The bank’s CEO, Ian Narev came across as a complete and utter banker.

The truth is that a lot of CommInsure policies are sold in much the same way that Maccas sells it fries: as a juicy upsell on another transaction: in your case, you got a side serve of insurance your mortgage.

I’d talk to a financial advisor to insure that you have adequate cover, and have them review your policies to ensure that in the event of a claim, you’ll be covered.

What the 4 Corners investigation showed, was that you can’t trust the CBA to do the right thing.

Scott

Negotiating with the big boys

Hi Scott,

Can you help me negotiate for a better deal with my superannuation provider? I've already asked them to reduce my fees twice, but they seem reluctant. Surely the whole industry cannot be sewn up like this? It seems incredible that they won't work a little harder to keep my business. Please help.

Brendan

Hi Brendan,

I like the way you think.

A US-study by Morningstar found that the best predictor of success didn’t come from a funds past returns, or their investment style, or even Morningstar’s own ‘star ratings’: it all came down to fees.

Over the long-term, the funds with the lowest fees earned the best returns.

However, there’s a better chance of the Reserve Bank Governor rapping his next interest rate announcement “yo, we’re keep’n the cash rate at 2 point ohhh!”, than you do getting your super fund to change their asset based fee. That’s just not how their system are set up.

You have two choices: if you have $500,000, you can open an SMSF, and invest directly in shares, Listed Investment Companies and Exchange Traded Funds (ETF). Or, you can hunt around and find an ultra low cost industry fund.

Scott

What’s the Go with Kidman & Co?

Hi Barefoot,

We've been looking for a small australian based investment to have a dabble and came across the sale of S. Kidman & Co Ltd. Any advice?

Peter

Hi Peter,

I love the idea of owning a part of one of Australia’s most iconic cattle companies.

As a kid from the country, the Kidman empire -- which spans 100,000 square kilometers -- is the equivalent of the Playboy Mansion for me (okay, just with different heifers).

Would I invest my own money in it?

No.

History shows that investing in agriculture businesses are essentially commodity plays with very little pricing power. And, the commodity in question, beef, is at record highs right now. A very good time to be selling Australia’s biggest capital empire.

My view is that there are better quality investment opportunities to be had owning businesses that are operating higher up the economic food chain.

Scott

Cancer Stricken Battler ... Lends a Hand?

Hi Scott,

I’m in my 50s, and have just battled cancer. I foolishly helped out my partner with $112,000 credit cards that he put in my name over a 10 year period. Now I've beat cancer, I want to fix this up. I have consolidated against my home to lower the massive credit card repayments. My partner isn't repaying the loan but instead wants me to buy a bigger home for us both. With 80% debt now against my place, I can't see this happening. Should I sell up and buy cheaper?

Tina

Hi Tina,

I’ll just come right out and say it (since you, dear reader, are no doubt thinking this as well..).

What the hell is going on with your partner?

You’re battling cancer, and he’s racking up six figure credit card debts in your name?

Then, you get him off the hook, and instead of paying his way, he wants you to buy a bigger home?

Why am I ending each line with a question mark?!

Because if you were my sister, I’d be telling you that before we sort out your finances, there’s one more cancer you need to beat: your partner. 

Scott

Real Estate Mistakes: How to Turn $90,000 into $2.4 million

I’m writing this to you today from my study, which overlooks the rolling hills of my family farm. It’s really peaceful out here.

And, if you drive up to the top of those rolling hills, you can catch a glimpse of a smaller farm that’s just down the road, which was once marketed as Secret Valley.

“Set 45 minutes from the Melbourne CBD, the Secret Valley Estate is 258 acres of breathtaking, beautiful landscape and picturesque views of the Macedon Ranges.”

A few years ago, busloads of property investors would do field trips to Secret Valley.

They’d wander around the paddocks, sizing up what they were told was a canny investment.

The idea was simple: Secret Valley is on the edge of the Melbourne sprawl. Eventually it will be swallowed up by suburbia. And if you were smart enough to own an option on a few plots of land in the Secret Valley Estate, well, you could become very, very rich.

How rich?The marketing pitch that got the property investors on the bus was that if you invested $120,000 you could turn it into $1.2 million.

OK, so if you’ve been reading my column for a while, you won’t be surprised to hear that the investors in Secret Valley got roughly the same treatment that my ewes receive when I put a few daddy rams into the paddock.

A few years on, the only secret around Secret Valley is where all the investors’ loot ended up.

That case is still before the courts, which means I can’t really comment.

So to learn a bit more about “land banking”, as it’s known, I called up an old spiv who was up to his neck in it years ago.

He told me that he’d explain how the game worked, on one condition: that he be totally anonymous. Which is totally understandable … especially when you read what he says.

HERE’S his explanation of how land banking works in the get-rich-quick market:

“You buy rural land for $10,000 an acre. You then turn around and market it to investors as a ‘rezoning opportunity’. The sales pitch is that investors could make 10 times their money when it’s developed. The investors think they’re on a winner, and they’ll fight to buy that same acre for $400,000 a pop. All up, you’ve turned a $90,000 investment into $2.4 million.”

So how is it possible to convince people to buy these plots of land?

He explains:

“You need the best salespeople, and the best salespeople are women. There aren’t many of course, but they’re absolutely dynamite. No one thinks a woman will rip you off, right?

“It works like this. They make three calls.

“The first is to deliver a brochure — something elaborate, expensive, and high quality — lots of bullshit.

“The second call is to find out how much money they have. No one wants to waste their time. They’re getting to know the investor, asking about their kids and stuff, but really all they’re doing is drilling down to see if they have any money.

“This is where it’s easy. Most people have access to their retirement funds. That’s the big opportunity … that’s the honeypot! They look upon it as dead money and are willing to gamble with it. They’re a bit more wet behind the ears in Australia — they have this belief that property never goes down.

“The third call is to land the sale. If you have a client who has money, they’ll pull the trigger. However, you don’t just want to sell a piece of field for $10,000 to a guy who has $1 million. You want to flog him more. The technical term is ‘load up the client’. Generally, if they buy once, they’ll buy five times.”

“LOOK,” he continues, “I graduated from doing small time deals. Suddenly I went from having no money in my account to having $750,000 … in three weeks.

“It’s a fool’s paradise, though, because it doesn’t last. It never lasts. You’re earning $200,000 a month, so you buy a fancy car and you fly first class. But then everything catches up with you. The press catches on to it, investors get shirty, and instead of earning $200,000 a month, you’re earning $20,000.

“I didn’t feel good about myself when I was doing it. Of course. I had really low self-esteem. I drank a lot to block out the reality. I didn’t feel worthy, so I got rid of the money as quickly as I could.

“The truth is that I even got scammed myself by another crowd. Overall, I think I turned over $15 million. You’d expect me to have $10 million. I don’t.”

SO how did it end?“

We could have sold more plots if it weren’t for articles in the newspapers. That’s what screwed us up. People would Google stuff and it made our job almost impossible. We ended up closing ourselves down and heading overseas — the writing was on the wall.”

Except it wasn’t.

This old spiv left the game seven years ago. In the meantime, there’s been land banking schemes from Bendigo to Ballarat, from Shepparton to Secret Valley. It’s been reported that, in the past few years, thousands of Aussie investors have sunk more than $100 million — and possibly as much as $300 million — into land banking schemes. Strewth!

So, as I wrap this column up, there’s probably one last question left unanswered:

Aren’t I effectively doing a bit of “land banking” with my farm?

No.

As I type this I’m watching a few grain-fed sheep fertilise my drought-ravaged paddocks. Seriously, there are better investment opportunities going round. But ... it sure is peaceful out here.

Well, most of the time.

Tread Your Own Path!

Mum was a Survivor

Hi Scott,

I’m 48 and a stay-at-home mum of three children. Until recently I was also carer of my mum, but sadly she didn't survive heart surgery. She kindly left her house to me. Due to grief I am unsure what is the best way to honour her, as she was a single mum and a victim of domestic violence. Our home loan is $405k on our home which is worth $800k. Mum's home is worth $700k, and has a reverse mortgage of $126k. My husband is 50 and earns $105k p.a. Do we sell Mum's home or keep it as a rental?

Denise

Hi Denise.

If I were in your shoes, I’d sell your mum’s home, pay down the reserve mortgage. After accounting for selling costs, you should come out with roughly $560,000 (and, importantly, you won’t pay Capital Gains Tax if you sell your mum’s home within two years of inheriting it). I’d save three months of living expenses (which will be dramatically lower when you don’t have a mortgage). With the balance, I’d do two things: make an undeducted contribution to an ultra-low cost super fund, and a donation to a domestic violence shelter in your mother’s name.

Scott

The Financial Fatty

Hi Scott,

I’m a successful professional who achieves big goals: I have multiple degrees and a great job -- and I recently lost 12kg. Yet I have a $280k mortgage, a $36k credit card debt, and no savings. I have made small dents into my debt, only to blow it again. I am now focusing on my finances and using what I have learned from my other achievements. I have read your articles and tried (unsuccessfully) to follow the advice. Can you help me get myself out of this hole?

Andy

Hi Andy,

How did you lose your lard?

Was it when you sat down and read Michelle Bridges’ book?

Was it when you restricted yourself to only eating grapefruit for 12 weeks?

If you’ve been able to keep off the kilos, it’s because you changed both your behaviour and your beliefs.

It’s exactly the same process when it comes to winning with money.No book or super strict diet is going to work long term.

Seriously, the only enjoyable way I know to win with money is to convince yourself of the truth:

There’s nothing broken about you that requires you to have a ‘debt card’. They’re a marketing con-job, designed to trap you into paying high rate interest for your entire life. They are not convenient, and they are not for emergencies. They are robbing you of your self-respect and your freedom.

Having savings, on the other hand, gives you choices. It rebuilds your self-respect, because no matter what happens to you financially (within reason) you’re in control.

Now, here’s the cool thing I’ve found from years of helping thousands of people: the moment you understand this in your gut, you’re already free.

A massive burden of indecision is lifted off your shoulders. You know you’ve done the right thing. Better yet, you don’t even have to wait until you’ve paid off the last card. Just cut them up, and fist pump the air. You’re mentally free, now it’s just a matter of time.

Here’s the rub. Getting to that point can take an hour, or a lifetime.

Over to you.

Scott

Becoming a Shipping Magnate

Hi Scott,

I recently heard about investing in shipping containers through a company based in Hong Kong called Pacific Tycoon. They lease the containers owned by individuals and rent them to the shipping industry. The individual is paid a monthly rent equal to 12% of the purchase price of the container. I would need to take out a loan to purchase the containers so I was just wondering if you think it would be a wise investment?

Mel

Hi Mel,

I’m not the sharpest tool in the shed. However, I googled “Pacific Tycoon”, and the second listing was the Western Australian Government’s ScamWatch website. You should check it out -- they use very amusing puns for government bureaucrats: “investing in a sea container may not be a water-tight investment”. Gold! To which I’ll add, ‘it sounds like a load of ship to me!’.

The ScamWatch site sums up the investment opportunity by saying: “be aware that if an investment scheme turns out to be a web-based fraud by overseas criminals, authorities in Australia may not have the resources or appropriate international powers and law enforcement connections to find those responsible or trace your money”.

Scott

Why you should invest like a girl

It was  International Women’s Day last week, so I’d like to talk to you about a Q&A session I’m doing next week at a high school with a bunch of teenagers.

I’ve done a lot of work in schools over the years, and here’s what I can tell you: if you push them for an answer, most teenage girls will tell you that they see themselves getting married, buying a house, and having kids.

Whether they’ve given it much thought is debatable: the fact is, that’s what society has taught them to expect. Then again, society has also taught them that boys are more financially valuable than them.

We all know that women get paid less than men.

And it starts early. Last week the Heritage Bank released a study saying that, when it comes to pocket money, girls get paid 26 per cent less than boys.

Why?

I have no idea. I’m tempted to write it off as a publicity play from a third-tier bank.After all, it’s hard to imagine that parents would actually pay a girl less pocket money than her brother of the same age, right?

Then again, it’s hard to believe that adults in corporate Australia — with HR departments and remuneration consultants — would on average pay an educated, accomplished women 19 per cent less than a similarly qualified bloke.

All of this goes someway to explaining why a NAB Wellbeing study this week found that young women under the age of 30 are more likely to be stressed about their finances than the rest of us.

That being the case, here are three things that I say to teenage girls when I talk to them.

Women are better investors than men

THIS is, like, so not fair.

However, the truth is that you have a natural advantage over men when it comes to investing.

Repeated studies show that women are much better investors than men, because they think long term and don’t take unnecessary risks.

Women have less ego, and are more willing to reach out and follow professional advice.

US-based financial firm SigFig analysed 750,000 portfolio accounts and found that women outperformed men by 12 per cent a year.

Romeo may arrive in a rented Alfa Romeo

DO you want the good news or the bad news?

The good news is that you’ll find a partner (the maths majors at the ABS say so). And I predict (well, the ABS does) that you’ll be walking down the aisle when you’re 28.3 years old. And you will have been shacked up with him for a number of years.

I also predict (with a little more help from the ABS) you’ll have your first kid at 29. (Scandal! Yes that’s right, you’ll be pregnant on your wedding day!). And you’ll be done and dusted with kids by the age 34.

Okay, now the bad news.

Once the kids come along, you get to work around the clock … and not get paid!Worse, your husband could decide that because he’s the only one earning a wage, it’s time to treat you like a teenager (again) and ration out the cash.

Relationships Australia suggests that you will fight about money. Now, if you married a jerk, it will take you 8.8 years to work it out, suggests the ABS.(A quick recap for the cool kids in the back row: you get married at 28.3, you have your first child at 29, and you’re back on Tinder at 37 … as a single parent.But let’s not be too negative.

There’s a good chance you’ll marry that hot guy and live happily ever after (actually it’s two in three, says the ABS).

Until he dies.Yes, those guys at the ABS just do not let up! The statistics are again in your favour — chances are you’re going to outlive him by 4.2 years.

Here’s the thing: in my job I see a lot of older women who haven’t played to their natural strength in being a superior investor.

The upshot is they have no freaking idea of how to manage their money. They’re petrified, and that’s no way to live.

A man is not a financial plan

I’VE been having fun with the ABS statistics, but the truth is, you’re unique. I don’t know what’s going to happen with your life. And right now you don’t know either.

However, the one thing I do know is that right now you are more powerful than you know.

Seriously, right now you have the ability to lay down million-dollar habits.

What habits?

Saving. Not getting sucked in by marketers who aim to make you feel incomplete, so you’ll buy their stuff. And, of course, trying out your God-given talent for investing.

The reason it’s critical that you start doing it now — even with just a few bucks — is that today you don’t have anyone telling you that you can’t do it.

But over the next 10 years, believe me, you will.

It could be your boyfriend. It could be your boss. It might even be yourself.

Ladies, quite simply, a man is not your financial plan.

Now don’t get me wrong. The aim of all this is not to become rich.It‘s not about living a Kim Kardashian lifestyle.

It’s not about coming back all botoxed up to your 20-year high school reunion.

It’s about being in control. It’s about being able to stand up for yourself.

And it’s ultimately about being able to sidestep a lot of the crap that many other women have to deal with. And if you meet a guy who is intimidated by your financial prowess, that’s cool too ...

You’ve just saved yourself 8.8 years.

Tread Your Own Path!