The Landlord Experience: Year 2

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

I long aspired to be a property investor. I, like many Australians, was bitten by the property bug. My journey from deciding to take the plunge, the purchase and property management has been documented for the benefit of those considering taking the plunge themselves.

The Purchases

Property number 1 was purchased in July 2019. Then property number 2 was purchased in April 2021, amidst an insanely hot market. Our household also owns a principle place of residence.

Our attention has well and truly been focused on the acquisition of property 2, including an onerous and lengthy mortgage application process, finding a property manager and tenants.

The Landlord Experience with Property 1

Meanwhile, property 1 has been ticking along very nicely. Rent is deposited in our account each fortnight, a rental statement is emailed to me every month. A tidy end of financial year statement arrived by email promptly, for me to forward to my accountant.

Property inspections are organised on schedule by our property manager, although due to COVID-19, these have been virtual this year.

As mentioned in a previous article, our 1st tenants built their new home and vacated in August 2020. They left the property in good condition. Our new tenants moved in within a week. Mid COVID-19, the property was tenanted at a slightly lower rent.

We had tenants competing for the property in 2019, pushing the rent above expectations to $500 per week. In 2020, the property was rented for $470pw. These tenants have now been in for a year (time flies!) and have already renewed the contract, increasing rent back up to $490.

Some legal changes required an upgrade in smoke alarms this year, which the property manager alerted me to and organised. A couple of minor repairs required a handyman and the gutters got cleaned. All of this was organised by my property manager after emailing us to approve.

With the purchase of property 2, we took the opportunity to refinance all of our mortgages. Property number 1’s loan was converted to interest-only at a lower rate, freeing up cash flow for ETF investments.

Financial Results

Similar to last year’s article, I will summarise the financial outlay and capital growth so far.

Costs from 2019-2020 include:

Acquisition Costs $36,000

Buyer’s agent fee $14,000

2019-2020 Cash flow out of pocket costs after-tax benefits –$5085

Costs from 2020-2021 include:

Income25,160
Expenses        
Interest on property loan–         
Council Rates–         
Water–         
Repairs & Maintenance–               
Insurance–         
Cleaning–         
Property agent fees–   
Advertising for tenants –      
Depreciation –



14470
1064
637
2830
657
182
3440
89
3634


Net Rent-6207
Tax Refunded from PAYG employment2793
Out of pocket costs for 2020-2021-$3414

In total we have spent net $58,499 in purchasing and maintaining this property.

I had a formal property valuation in October last year, but have not repeated this.

Our initial purchase price was $587,000. Valuation in October 2020 came in at $630,000. Online value estimates on domain.com.au, realestate.com.au and propertyvalue.com.au currently come in at $668,000, $775,000 and $650-700,000.

I confess these numbers are a bit rubbery! Online valuations are pretty unreliable.

But if I use the lowest estimated value at $668,000 the property has grown $81,000 since purchase in July 2021. This would be around 13.8% growth over just over 2 years.

It also means I am now in theoretical profit.

I will update this article when I have a formal valuation to confirm whether this is a fair assessment.

The Landlord Experience: A Summary.

Again, and frustratingly, there is no real way to know whether this property will perform without waiting many years. This year, property all over the countries has been going crazy. Prices seem to be up all over and there is a full-on buying frenzy going on. We are in a boom time!

I am feeling pretty optimistic that the timing of this purchase was, in retrospect, pretty good. It certainly didn’t feel good, with so much doom and gloom in the media.

Our landlord experience so far has been pretty easy. I suspect a lot of this has to do with having a great property manager.

I have no doubt things will get more challenging at times, and I am aware of many finance bloggers who have sold their properties, regretting the hassle involved. At some point, these properties will need major repairs and renovations.

I am happy to deal with some hassle every few years for leveraged (and untaxed) capital growth. Our plan is to never sell these properties. Only time will tell if we follow this plan.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

 

 

 



Commsec Pocket Review

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Last week, we reviewed the pros and cons of RAIZ. Another strong contender for 1st-time investors or FIRE chasers looking for an easy way to start investing in the stock market is Commsec pocket.

Commsec Pocket Features

  • $2 brokerage for investments of up to $1000 (expensive for under $1K)
  • Ability to automate regular investments
  • No management fee*
  • 7 investing options to choose from making getting started investing simple
  • Unusual amongst micro-investments to be CHESS sponsored – investors legally own the shares
  • *You need a CBA account to use the app. This will cost you $4 per month (more than RAIZ’s account fee anyway).
  • *If you already bank with CBA or can open an account and get wages ($2000 per month) paid directly in, no extra fees apply

How does Commsec Pocket Work?

The Commsec pocket can be quickly downloaded to your phone from the apple or google play stores. You will need a Commonwealth bank account to start investing.

The app is designed to be far simpler than Commsec‘s main online trading platform, still Australia’s most popular broker. Whereas Commsec offers investors all features they could possibly want, Commsec pocket avoids overwhelm by offering just 7 ETF options to invest in.

With Commsec pocket, investors can start investing with just $50.

I’m a bit of a fan of micro-investing. It’s such an easy way to get started, even before you have real money to invest.

Is Commsec Pocket Safe?

Commsec is Australia’s most trusted broker. Shares even with this micro-investment account are CHESS sponsored, meaning the investors legally own the underlying shares.

Newbie investors must understand with any of these apps, they are still exposed to the underlying risks (and rewards of the stock market).

Your balance can certainly drop dramatically and without reason due to market volatility. This can spook early investors, but volatility tolerance can be learned through exposure.

Over the long term, the stock market always goes up.

The aim of the game is to not freak out and sell during market dips. Easier said than done, but I have found this gets easier with time investing (and experience of these market dips and their rebounds).

What Are the Commsec Pocket ETFs

Unlike RAIZ who offer a range of diversified portfolios, Commsec pocket offer individual ETFs.

With RAIZ you just choose a portfolio based on your risk profile, and whether you are interested in sustainable investing or bitcoin.

But with Commsec Pocket you have to decide whether you want to invest in Australia or internationally, with a focus on dividends, emerging market, make sustainable investment decisions or invest in narrow ETFs focussed on healthcare or tech.

Here are the options available:

Investment optionETFUnderlying ETF Management Fee
Aussie Top 200Ishares core S&P/ASX 200 ETF – IOZ0.09%
Aussie DividendsSPDR MSCI Australia high yield dividend yield fund – SYI0.35%
Global 100Ishares Global 100 ETF – IOO0.4%
Emerging MarketsIshares MSCI Emerging Markets ETF – IEM0.68%
HealthWiseIshares Global Healthcare ETF – IXJ0.46%
Sustainable leadersBetashares Global Sustainability Leaders ETF – ETHI0.59%
Tech SavvyBetashares NASDAQ 100 ETF – NDQ0.48%

Now “health” and “tech” both sound like great investments in our current world. But narrow focus ETF just seem to me to be the new “stock picking”.

There is now extensive evidence that active stock picking will not match investing in a broad index ETF for the majority of investors, even professionals. With thematic ETFs investors are attempting to pick market segments that will outperform the average.

There are millions of investors out there. The institutional investors, with the largest investable funds employ full-time professionals to attempt to beat the market. Any advantage I can see in a market segment is likely well and truly priced into the market before I would identify it.

Beginner investors need broad diversification through the broadest (and cheapest) ETFs or index funds they can find. If you’re going to get fancy, at least wait until you have graduated to your mature broker account.

Does Commsec Pocket Pay Dividends

You will receive dividends, automatically reinvested. Each ETF will have it’s own dividend payment schedule. You will receive franking credits on dividends.

A quick explanation. Dividends are payments you receive from your stock market investments. They are rewards paid out to share investors if the company cannot put the funds to better use (growth). Many investors build a strategy around growing a dividend stream big enough to fund their retirement.

What makes dividends particularly attractive to Australians is franking credits. Companies pay 30% tax on profits. They then pay out dividends from that profit to shareholders as dividends. Because the company has already paid tax, you receive a 30% franking credit on already taxed (franked) dividends. This means if you are on the 45% tax bracket, you only pay 15% tax. If you are a retiree on a 0% tax bracket, you receive the 30% tax back as a sort of refund.

It is exactly the same as if the company paid no tax and you pay tax based on your marginal rate. But it is better than double taxation.

Graph thanks to Topforeignstocks.com

Commsec Pocket Review: What are the Fees & Charges?

$2 brokerage is not too back on a $1000 ETF purchase. On a $50 purchase, it’s predatory with the apparent aim of taking advantage of millennials who may not yet understand the significance of fees.

On top of this, if you don’t already bank with Commonwealth you will need to open an account and pay $4 monthly fee.

These may not seem significant amounts, but as a total of your investment portfolio they are way too much, and eating away at your returns.

The underlying ETF management fees are listed above. The Aussie top 200 is a great deal, with broad diversification in the Australian market for just 0.09%. Ideally ETFs fees should be under ~ 0.2%, with the exception of ethical funds, European and emerging markets which tend to charge a bit more.

What is the Difference between Commsec and Commsec Pocket?

The commsec pocket has far less features, and as a result is a lot more user friendly for beginner investors. With Commsec there is a minimum $500 purchase. With Commsex pocket the minimum is just $50.

The educational content in the pocket app is also a lot more appropriate to new (and long-term) investors. It has a fare more step by step approach than RAIZ.

Commsec PocketCommsec
$2 brokerage for up to $1000 (then 0.2%)$19.95 for $1000- $10,000
7 ETF optionsCan buy Australian and international individual shares and ETFs
No advanced (aka high risk) strategies offered)Advanced strategies – Margin lending, Warrants
Educational content aimed at beginner investorsEducational content aimed at traders (twice daily market update and lots of graphs)
 Can set market or limit orders

Commsec pocket for Kids

Unlike RAIZ, commsec pocket don’t offer investing for kids. To be fair, I don’t like RAIZ kids anyway.

Commsec Pocket Review: Performance

The investment performance of Commsec pocket depends on the performance of the underlying ETFs, minus the extra commsec pocket fees. Stockmarket performance over the past 18 months has been very strong, and pocket performance reflects this broad market strength.

Withdrawals

Investors can withdraw their investments at any time. Expect it to clear in your account within 2 business days.

Commsec Pocket vs Pearler

Pearler offers management fee free investing, with $9.95 for any sized trades. You will need to invest $5000 at a time to make this a 0.2% fee. They do provide a lot more choice though, and some brokerage free ETFs. If you like a free ETF through pearler, your brokerage is 0% of your investment.

Commsec Pocket vs RAIZ

If you need to invest much less than $1000 at a time or don’t already bank with CBA, RAIZ may be a better option. This is brokerage free, but charges a management fee. This management fee can be offset if you can take advantage of RAIZ rewards.

Commsec Pocket vs Vanguard Personal Investor

Vanguard personal investor is also a very easy to use platform to use. You can invest brokerage and management fee free if you buy only vanguard products. Nothing’s perfect though, unlike with RAIZ and Commsec pocket, it is not currently possible to automate your investments with Vanguard personal investor. It is possible to direct debit or recurrently deposit your savings into the Vanguard cash account, but you still have to manually press “invest” for each purchase.

If you are looking for a round-up facility for savings, check out ING.

Commsec Pocket Review Summary

For those looking for an easy way to start investing, already bank with Commbank and want to invest $1000 at a time, Commsec pocket is a reasonable choice. If this doesn’t apply to you check out my RAIZ and Pearler reviews.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

raiz Review

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

An Introduction to Micro-investing

Stock market investing has never been so accessible. Investors can invest as little as $5 with RAIZ. Over the past 5 years, there has been an explosion in these micro-investment platforms, aimed at getting millennials into the market.

Many first-time investors got into the market during 2020, and I think it’s great. Back in 2008 as a junior doctor, I watched the market tumble. Although I knew it was a good time to start investing, we had just purchased our principal place of residence and were broke. On top of that, I had no idea how to start investing. As I imagine brokerage would have been comparitively expensive back then, making small investments not really viable. Without a few thousand dollars and some know-how, it was hard to get started investing.

If I had access to a micro-investment account my stock market investing career would have started (all be it on a small scale) a full 9 years before it actually did. I may have screwed up, panicked and sold my few hundred dollars of investments. That would have been a fairly cheap price to pay for the education the experience provided!

Micro-investment apps provide cheap, super easy access to the stock market and cut out the expensive middle man. They are a perfect place to start for many first-time investors.

History of RAIZ

Acorns was started in the US in 2012 before launching in Australia in February 2016. The company rebranded in Australia as RAIZ and listed itself on the ASX in 2018. RAIZ has expanded internationally to offer micro-investing in Malaysia and Indonesia in 2019.

What is RAIZ

RAIZ is a micro-investment account that allows you to invest really amount into the stock market without brokerage. It targets 18-35-year-olds wanting to invest virtual small change, but offers automated regular and lump sum investing as well.

The investment platform is aimed at removing the need for an expensive financial planner. The RAIZ platform offers a small range of diversified portfolios to choose from, with the ability to form your own custom portfolio from a range of 17 ETFs. On sign up, a basic risk tolerance self-assessment occurs to help you select the most appropriate portfolio.

How does RAIZ Work

The signup process for RAIZ is pretty simple. Navigate to the website, click on “sign up”. You will need to link a “funding account” from which your investments will be transferred, and withdrawals from your RAIZ account deposit.
if you wish to “round up” link the relevant credit or debit cards. You can link as many cards as you like.

The minimum investment is just $5. You can receive $10 invested for free (this month) by signing up with my link*.

RAIZ then requests data required by law and offers you the choice of portfolios to select your investment preference from.

There are three ways to invest with RAIZ:

1. Round-Ups.

The idea of round-ups is like a virtual spare change jar. Each time you make a purchase with the linked credit or debit card, the spare change from a dollar is added to the round-up amount.

If a purchase is a whole dollar amount (for example $3), a whole dollar will be added to the round-up amount. These settings can be altered.

When the rounded-up total adds up to $5, this will be invested from your funding account.

Although this seems to be the dominant advertised feature, I don’t like the idea of Round-ups and haven’t activated this feature. But I feel it adds more complexity than is necessary. Unless you are watching the app daily, you have no idea when money is going to be invested from your funding account.

Will you Go Overdrawn?

Students presumably have no money and are the best demographic for this feature. Thinking back to my days as a student though, there would have been a very real chance of there being less than $5 in my account at times. I worry round-ups could result in overdrawn fees for the very skint.

If you are going to invest $20 a month through round-ups, it probably makes more sense to set up a recurring investment of $20 a month. If it leaves your account right after payday, there is no chance of the investment producing an overdrawn fee. Paying yourself first is an excellent habit to get into, even if the amounts invested are tiny initially.

2. Recurring Investments

This is where I think RAIZ really shines. The ability to automate investments is a powerful tool in helping you reach your financial goals.

No matter how little money you have, pretty much everyone can afford to invest the minimum $5 per pay cycle. There are no brokerage fees so this platform is perfectly suited to investing small amounts regularly.

I also think it’s useful for those with money, but no idea about how to start investing. This is one of the easiest ways to get started whilst educating yourself. It’s far too easy to delay investing with endless procrastination. RAIZ was my first stock market investment in 2017.

It’s common to think the amount you could invest is so small it’s not worth it. Invest anyway. Your brain will think up a million excuses to not invest. Get started. It doesn’t matter how small.

If you pay off a debt, immediately increase your investment amount by your previous debt repayment. If you receive a pay rise, increase your investment amount by the expected rise (or a proportion of it). Get these habits started now, and you will build a decent investment portfolio over time. Look back in 5 years and prepare to be amazed at how far you came even though it didn’t really seem “worth it”.

I still use this method, increasing investments with bi-annual pay rises, and any cuts in expenses. It helps me avoid lifestyle inflation and provides increasing amounts of freedom as time goes on.

3. One Off Investment

One-off investments won’t generally create long term wealth, as you need to automate regular investing over the long term as much as possible. But these can be handy if you have a lump sum to invest (tax return?) or want to invest more than usual during a market crash.

Waiting for a market crash doesn’t make mathematical sense, as the market always goes up over the long-term you are missing out on returns. But I do find it helpful to do something during a market crash, and the returns on money invested during a dip are likely to be better than average. I invest extra cash during significant (10%) market downturns and pick up some extra shifts when I can to refund my cash savings. While I was investing regularly with RAIZ, I arbitrarily invested double when my RAIZ balance fell until it recovered.

Minimum Investment

The minimum investment with RAIZ is just $5. RAIZ allows fractional investing, which means with your $5 you can own tiny amounts of several ETFs. RAIZ allows you to have a diversified portfolio from the start.

What is a RAIZ Funding Account

This is the bank account you nominate investments to come out of. If you withdraw investments, they are also deposited into this account.

RAIZ make you agree not to invest from a credit card or overdraft, which would be a pretty stupid thing to do.

Are Raiz Fees Worth it?

There are no fees on a $0 balance. RAIZ charges $3.50 per month once you have any cash invested until you reach a balance of $15,000 when a 0.275% yearly fee will be charged monthly.

The underlying ETFs also have management fees. The fees for each ETF are listed in the table below, but range from 0.04- 0.59%

The impact of fees on investment performance illustrated beautifully by Folioinvesting.com

There are no brokerage fees, which means you can invest as often as you like. This is ideal for investing a little with each pay.

Whether to invest by paying brokerage fees, or management fees depends on how much, often and long you wish to invest. Paying brokerage (once on purchase) becomes more cost-effective over the long term as you have more invested. Remember, the management fee is a recurring fee every year.

Having said that, RAIZ is still a perfect place to start, but most will want to graduate to a brokerage account or Commsec Pocket once they have accumulated a balance of $5,000 or have $1000 to invest regularly.

If you look at the fees charged in isolation, RAIZ fees are expensive, particularly for smaller balances. Utilisation of RAIZ rewards can completely compensate for the monthly fee, making the platform potentially free.

A premium fee of $4.50 per month is charged for custom portfolios until a balance of $20,000 is accumulated. Fees then revert to 0.275%.

Are the Fees Tax Deductible?

Investment management fees can be deducted from your investment income. Brokerage fees as an investor are added to the capital base when shares are sold. Brokerage can be deducted as an expense for share traders.

What are RAIZ Rewards?

RAIZ rewards are like a cashback account, but better. This feature has improved significantly since I was investing regularly with RAIZ. Back in 2017, I was able to completely offset my RAIZ fees with RAIZ rewards until I had a balance of around $30,000.

RAIZ offers rewards for shopping with 424 online retailers currently! They have also added a search function and a browser extension which will make utilising RAIZ rewards significantly less painful than when I was using it in 2017. I do note, however, that supermarkets are no longer offering RAIZ rewards.

Of course, retailers offer points and cashback to tempt you into spending extra money. With the RAIZ rewards extension, which I have just installed on my browser I think this is less of an issue. It will now prompt me to sign into my RAIZ account and purchase through their link to receive a reward if I am shopping on a site offering RAIZ rewards. This means I can ignore RAIZ rewards and have this prompt and invest any rewards effortlessly.

What RAIZ Portfolio Should I Choose

An option of 7 portfolios is offered, along with a custom portfolio. The decision to choose one can be based on your risk tolerance, time horizon, goals and particular interests/values. The more time and risk tolerance you have, the more aggressive your portfolio could be.

If you are not ready to invest in the stock market, due to a short time line but still like the idea of rounding up, check out this ING review.

For those interested in the actual make-up of the portfolios:

 ETF Management fee (on top of RAIZ fee)ConservativeModerately ConservativeModerateModerately AggressiveAggressive
AAA Australian Money Market0.18%24.5%  9.6%3%3%3%
STW – Australian Large Cap stocks0.13%13.5%21.2%31.7%43.6%54%
IAA – Asia Large Cap stocks0.51%3%3%8%13.8%23.5%
IEU – Europe Large cap Stocks0.59%3%3%4.1%6.4%7.1%
IAF – Australian government bonds0.15%30%30%19.2%3%3%
RCB – Australia corporate bonds0.28%23%25%25%21.3%4%
IVV US large cap stocks0.04%3%8.2%9%8.9%5.4%
 ETF Management fee (on top of RAIZ fee)EmeraldSapphireCustom
AAA Australian Money Market0.18%6%3%Build your own custom portfolio with any percentage of any of the listed ETFs. 
RARI – Australian socially responsible large cap0.45%38.6% 
ETHI – Global socially responsible large cap0.49%34.1% 
STW – Australian Large Cap stocks0.13% 41.4%
IAA – Asia Large Cap stocks0.51% 13.1%
IEU – Europe Large cap Stocks0.59% 6.1%
IAF – Australian government bonds0.15%21.3%2.9%
RCB – Australia corporate bonds0.28% 20%
IVV US large cap stocks0.04% 8.5%
BTC – BitcoinPurchased through Gemini 6%

As expected you will pay a small premium on fees for investing ethically, with the emerald portfolio. You will want to make sure that RAIZ’s idea of ethics matches yours.

RARI excludes alcohol, tobacco, gambling, pornography, armaments and coal mining from it’s investments. It doesn’t exclude mineral mining fossil fuels or uranium mining. Here is information on the holdings in RARI, and here is the ethical investor’s assessment.

ETHI has a better rating by the Ethical Investors. Here is the fund information.

Ethical investing is going to, by definition, include a lot of subjectivity.

Do you Pay Tax on RAIZ & How to Complete your Tax Return

You will always have to declare income to the ATO at the end of the tax year.

RAIZ produces a tax statement after the end of the tax year that you can take to your accountant.

You will pay income tax, and receive franking credits on dividends received based on your tax bracket.

If you have sold investments you will pay capital gains tax (discounted 50% if invested for more than 12 months).

When does RAIZ Pay Dividends?

RAIZ automatically reinvests your dividends in your RAIZ account. They are payable in accordance with the payment frequency of the underlying ETF funds. These pay dividends twice to four times annually.

If this is your first time receiving dividends, you can look forward to a little thrill. This is truly passive income. Initially, the amounts will be tiny, they will grow if you keep investing and re-investing.

RAIZ make it easy for you to stick to the plan by automatically reinvesting dividends.

How to Withdraw

Like the rest of the platform, making a withdrawal is simple and free. You can withdraw your cash at any time.

Is My Money Safe?

RAIZ has been operating in Australia since 2016. Although it is not CHESS sponsored, the underlying investments are managed by a custodian.

In the unlikely event of RAIZ ceasing to exist, the custodian should make sure your money is returned to you. However, this could be a lengthy process. I found this risk acceptable in exchange for the easiness of investing for my first investments.

Few people invest substantial amounts of money in RAIZ. I consider micro-investing as training for starting to invest more independently. The average account balance is a little over $2000. Once you have $5000 or more or are ready to invest $1000 per month or more, it’s worth considering moving on. Commsec pocket and Pearler* are both CHESS sponsored and don’t charge an account fee.

Returns

Investment returns with this platform represent investment returns of the underlying ETFs minus fees. Although past performance is known to be a really rubbish predictor of future returns, 3-year returns are summarised here and look pretty good.

RAIZ Kids

This platform allows you to designate a proportion of your investments for your children. Investors can open sub-accounts for several children. But a percentage, rather than a dollar amount needs to be allocated to each child. Then this percentage of current and future investments are ear-marked for the child.

I found the kids feature pretty unusable, unfortunately. There is no way to invest a set amount for a child (say $5000) and let that grow separately whilst you continue investing into your main RAIZ account.

The investments are legally owned by the adult, which avoids punitive child tax rates. Unfortunately, the investments cannot be transferred to the child after they turn 18 without incurring tax consequences (capital gains tax).

The best way to save for your child depends on your personal situation. Check out the best ways to invest for kids.

Investing Education

RAIZ send a newsletter to investors containing finance articles. There are a reasonable number of articles touting their own products. There is no structured education programme like many early investors would benefit from. Check out RASK for free and paid introduction to investing courses.

Raiz Super

If you are looking for a new super fund, start with this article. RAIZ provides detailed information about their super product here. I personally wouldn’t start with a company you like and working out whether their super product is any good.

Start with your super balance, insurance and investing philosophies and values. Then cut options down based on fees. Finally check past returns.

RAIZ App

RAIZ, of course, have a phone app. It is very usable. You can check your balance, invest and withdraw at any time. But I didn’t need any encouragement to check my balance multiple times a day, particularly as a nervous first-time investor! So I deleted the app from my phone.

It takes time to invest with RAIZ. It will take 1-2 business days for your invested funds to clear in your RAIZ account, which makes the minute to minute ETF prices completely irrelevant.

Alternatives to RAIZ
Spaceship Voyager

Space ship is similar to RAIZ. It was founded in 2016, and has no minimum investment. There is also no management fee whilst an account contains less than $5000. Even beyond this, fees remain super low at 0.05-0.1% on top of underlying ETF fees.

Similar to RAIZ, spaceship voyager is not CHESS sponsored. There are only three options to invest in with Spaceship – Passive (spaceship origin), active (spaceship Universe) or environmentally sustainable (Spaceship Earth). There is no rewards system with Spaceship.

ASIC fined Spaceship in 2018 for conduct that was false and misleading. I am pretty cautious around all things finance and this early misconduct put me off ever using the product. Some would consider the minimal number of options a downside.

Commsec Pocket

Commsec pocket has no management fees but charges brokerage.

Its well suited to those able to invest $1000 at a time (for $2 brokerage).

There are seven single ETF options, rather than the diversified portfolios with RAIZ.

Commsec pocket are CHESS sponsored, which is unusual and excellent for a microinvestment product. This means you legally own the shares and can just move them to a different broker.

It is not as cheap as Pearler* if you have larger amounts to invest. Commsec pocket is also only appropriate for a period of time until investors graduate to their big boy/girl brokerage account 🙂

Pearler

Pearler* isnt a micro-investment account, but it may be worth looking into. Check out my Pearler review.

If you are confident in choosing your investments and are happy to save up a few paycheque savings and invest every few weeks or months, Pearler is going to be cheaper than the above options.

The platform is improving fast, and I will provide an update soon on my first $20K invested with Pearler. Pearler enable automation of investments which takes a lot of will power out of investing.

Vanguard Personal Investor

Vanguard personal investor is the other practical alternative. Unfortunately, they don’t currently offer automated investing which is really annoying. But otherwise the platform is looking pretty good if you only intend to invest in Vanguard products. They offer these without brokerage or management fees, which is incredible.

Summary

Micro-investment apps are a low barrier method of starting your stockmarket investing journey. You can get started with minimal cash and no investing knowledge.

Because time in the market is the most critical factor in results and every investor I talk to wishes they started earlier! Being invested also provides time and motivation to learn and get used to volatility. Screw up freak out and sell moments whilst micro-investing provide valuable experience on observing the market rebound with minimal financial loss.

RAIZ is a strong contender and very easy to use platform. It allows you to benefit from a diversified portfolio as soon as you begin investing. If you would like to try RAIZ, opening an account through my link* will reward you (and me) with a free $10 to start with.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Vary PAYG

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

What is the PAYG Tax System

Those of us who are employees have taxes automatically withheld each payslip. At the end of the tax year, we submit our tax returns and claim back any deductions.

Most people consider their tax return like a sort of bonus, for spending on a new TV or holiday.

But a tax return is just what the ATO owes you, as you have paid too much tax through the year.

Self-employed individuals, on the other hand, receive income untaxed. If they (or their business) earns less than $75,000 this tax is due after the end of the tax year. Many save the tax owed for over a year in a mortgage offset account. It’s a great way to save on interest as long as you won’t accidentally spend it! If they earn more than $75,000, they need to register for GST and pay tax quarterly.

The PAYG system means employees don’t have to worry about calculating tax owed on gross income. This is great for those who have not developed a good money management system.

Time to Level Up?

But I’m sure many of my readers are strong money managers. Once you have complete control over your finances, it’s time to start looking at how to get things working, even more cost-efficiently.

Paying too much tax through the year only to be paid back in a tax return is essentially loaning out your cash to the ATO for free. They won’t pay you interest, although they will charge it if you are late in paying.

The ideal situation is to instruct your employer to withhold exactly the right amount of tax. Then that extra money can be funnelled into investments, or paying your mortgage down.

It is possible to vary PAYG tax withholding. If you know you will receive a roughly $10,000 tax refund at the end of the year, you could alternately ask your employer to withhold $400 less each fortnight.

Also, if your income tends to vary significantly from month to month but you have a predictable annual salary, you can request to vary PAYG to an appropriate amount of tax each pay.

Why You May Not Want to Vary PAYG Tax Witholding.

There are a few traps to watch out for when deciding whether to vary PAYG withholding.

  1. You won’t recieve enough of a tax refund to make the effort worthwhile. Owners of negatively geared property will benefit the most from varying PAYG tax. Those with few deductions to claim will probably find it’s not worth the effort
  2. You must be fairly accurate. Some might be tempted to game the system by getting reducing your PAYG witholding too much. The ATO are not going to give you essentially an interest free loan. If they think you have purposely witheld less tax than you need to pay, the ATO will penalise you.
  3. You must have excellent money management skills to make this worthwhile. Many people use their tax refund as “forced savings”. If they were to vary PAYG to reduce tax witholding, it is very likely they will spend the extra income (and not even notice). If you reduce your PAYG tax witholding, set up a direct debit for the corresponding amount to be directed into savings or investments.
  4. Varying PAYG withholding does not just mean making changes every now and then – it requires continuous attention throughout the year. Things change frequently, including expected income and deductions. You need to make sure your PAYG witholding is as accurate as possible.

How To vary PAYG withholding:

  • Visit Mygov and log in
  • Go to the the ATO website
  • Click on “tax” then “Manage” then “PAYG witholding variation”
  • Complete the form including up to two reasons for varying the PAYG witholding.

You will need:

  • Your employers ABN or WPN
  • Employer’s payroll phone number
  • Your employee number or DOB
  • You will need to have lodged all due tax returns (or completed documentation as to why you don’t need to lodge a tax return).
  • You’ve already have paid all moneys owed
  • You must know your expected income and tax liability

Calculating your Tax Liability

One of the most common ways to vary PAYG withholding is by using a special calculator that can be found on ATO’s website. This tool will help you determine how much variation should occur based on your circumstances, but it’s important to note there are some limitations as well.

For example, many people don’t qualify for varying PAYG if they receive commissions or bonuses instead of an actual salary. Other things like changing jobs mid-year may also affect one’s eligibility for varying tax rates because different rules may apply depending on who you’re employed with at any given time.

By vary PAYG, we mean that the amount of income tax withheld from each payment can be changed. This is done through a process called variation and allows individuals to pay too much or too little in taxes throughout the year.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

brick x

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Many millennials struggle to save enough to fund their first home deposit. With prices rising rapidly, and unaffordability in the news every week, it’s easy to feel demoralised.

Savings account interest rates are stupidly low, leading many savers to search for a better return. Savers want to help their savings keep pace with the property market.

Investing in ETFs is tempting, but assuming most have less than 7 years before their planned home purchase, likely too risky. A market crash could decimate your home deposit savings, and take years to recover.

What is Brick x

Brick X is an online managed fund. The platform offers fractional residential property investments. I note they have recently branched out into commercial property.

Brick X purchased its first property in 2015. This Australian company purchase properties within a trust with or without borrowings. They then divide the properties into 10,000 virtual bricks, available for purchase by investors.

Brick X organise the property management, tenant screening, rent collection and deal with any real estate dramas. They pay investors distributions based on rent minus expenses, but the main draw of the platform is to invest for capital growth in the property value.

The idea is that want to be homeowners (and investors) can invest their savings in Brick X, so that their savings can keep pace with the property market.

How Does it Work?

Investors can start with $250. Brick X clients can choose a property from those available on the platform, or opt to direct debit a regular investment and let Brick X allocate their investment money.

The platform has a low barrier to entry, particularly in comparison with buying direct property. The ability to automate investing is a useful feature in helping investors stick to their own plan.

I have looked into the platform several times over the past 3 years. Initially trying to save a deposit for our 1st investment property, the Brick X concept seemed appealing.

What are the Brick X Fees?

Investing through this platform is, as expected, more expensive than investing in property directly. But is it worth it? Fees according to the 97 page PDS:

A signup fee of $10 taken from your initial minimum $250 investment

0.5% transaction fee on any purchase and sale of bricks. If wanting to direct debit small amounts into the platform each pay, this fee eats into returns. Investing less often would obviously create fewer transaction fees.

The Brick X transaction fee is comparable with brokerage fees. With Commsec Pocket, you will pay $2 for a $1000 trade, or 0.02%. If you can invest larger amounts less regularly, brokerage can be found far cheaper.

Brick X employ property managers and charge a 6% per annum property management fee. This seems very reasonable, from my experience with property managers so far.

Acquisition Costs

On purchase, the usual acquisition costs include stamp duty, solicitors fees and a cash reserve for unexpected expenses is calculated. A cash reserve consisting of 3 months of expenses, along with all other acquisition costs is added to the purchase price when setting brick prices. These costs are amortised over 5 years.

Brick X orders an independent valuation of each property annually, which incurs another small fee and updates the price of individual bricks.

But this is the killer. Brick X can claim a management fee of Up to 2% of the gross asset value per year. Thanks to Michelle, I note this fee is variable, and often far less. You need to read the individual additional disclosure statement attached to each property to work out what the management fee is.

My super fees are ~0.7% and ETF fees are usually less than 0.5%.

Unless you have been living under a rock for the past 10 years, you will have seen an industry superannuation advert, and understand the significance of a 1% increase in fees compounded over decades.

The return on your investment needs to compensate for this management fee plus transaction fees.

But Brick X can also reward themselves with a bonus if the asset outperforms their prediction. They can take a performance fee of 30% of any outperformance in addition to all the fees above. This is also disclosed in the individual property disclosure statement, and is also variable according to the property.

What are the Risks?

Property Market Risks

By investing in property, you are taking on all the usual risks of the property market. Property prices can and do go down as well as up. Some take years (or even decades) to recover.

Interest rate risk exists, albeit to a lesser extent with Brick X because most of the properties have lower loan to value ratios than most individual investors would start with.

Tenant risks also exist. The professionally managed properties should have robust tenant screening. Of course, this is not 100% effective, but Brick X investors also have no power over assessing the competence and diligence of their property manager.

Expensive repairs and vacancies also occur at no fault of a tenant.

But with Brick X you also have an additional risk, that of the company itself. If Brick X goes bust, they turn the properties over to an alternative manager who will sell the real estate and return funds to investors. I wouldn’t like to guess how long that might take.

What are the Returns?

Capital Growth Performance

Brick X investors are trusting in Brick X to choose suitable properties for investing. The platform provides historical suburb capital growth and predicted rental income. Of course nothing in investing is guaranteed.

Brick X’s historic performance is not that easy to find. The company produce reports every 6 months comparing performance with Corelogic’s home value index.

In the six months leading up to June 2020, Brick X underperformed the index representing the entire Australian property market.

In the six months leading up to June 2019, Brick X outperformed Corelogics home value index. June 2018’s report also shows Brick X outperforming.

I couldn’t find the data I really wanted – Brick X’s performance since its 1st property purchase in 2015.

I would expect properties purchased by professionals for investment to consistently outperform a home value index representing all Australian homes. It is unclear from the reports I can find whether the report to June 2020 was just a blip.

Brick X may Dilute Investors Holdings in Property Price Falls

If a property value drops significantly, so that is worth less than the valuation of 10,000 bricks, Brick X state they may release extra bricks to fund the shortfall, effectively devaluing current investors holdings.

Rental Returns

Net rental returns have historically been around 2% or less. As regular readers will understand, I am a fan of focusing on capital growth more than yield. I prefer gains to be in capital growth, to compound tax free for years before I will need retirement income.

I do note some higher rental yield properties on the platform now, offering 5-6% net rental yield. They appear completely different types of property than the initial investments, suggesting a change in investing philosophy by Brick X.

Historic returns plus expected net rental returns advertised are 12-13%, which seem almost too good to be true. It will be interesting to check in again in another 3 years to find out what the actual performance was.

An Example of a Property I have been Following.

Brick X purchased this cute 2 bed in Ballarat in August 2018. I was almost tempted to invest in this property 3 years ago.

Ballarat has been an area of interest for property investors, and I liked the look of the property when I first looked (not an amazing investment thesis!).

The purchase Price 3 years ago was $401,000.

Brick X incurred $44,021 in acquisition costs, including stamp duty, solicitors and bank fees

A cash reserve of $5,279 was set in case of unexpected expenses.

The property was conservatively leveraged with a loan to value ratio of 30%. A 5-year interest-only loan was fixed at 3.79%, after which the loan will revert to principal and interest repayments.

Each brick was priced initially at $33.

An independent valuation in June 2021, almost 3 years after purchase came in at $450,000. That’s around a 12.2% return in 2 years and 10 months of ownership.

But the current brick value is $35.69, representing only an 8.15% total return over 2 years and 10 months. Not terrible, but certainly nowhere near Brick X’s advertised historic annual capital growth of 8.17%.

Net rental income is just 1.23% annualised or around 4 cents per month currently.

Perhaps it seems a little unfair to analyse this single property based on just under three years valuations. But this was the property I would have invested in 3 years ago if I had decided to go for it.

A three year period also represents a fairly likely scenario for a first time home buyer investing their savings intended for a home deposit.

Liquidity

The lack of liquidity seems to be the major complaint of Brick X investors. You cannot simply sell your bricks back to the platform for their current valuation. Most of the time, this seems to happen in around 3 days currently.

To sell your bricks, you need a buyer. And you need to agree on price. This means sellers may offer less than the official brick valuation.

In the event that Brick X had some major negative publicity, fewer investors may wish to invest in Brick X. If Brick X were in serious (and public) financial difficulty, investors may find their bricks unsellable. They would then be waiting for the property to be sold in order to recoup their investments, similar to direct property investment.

Diversification

One positive of investing in bricks rather than direct property investment is the ability to diversify a relatively small amount of money among several properties.

Direct property investment is an extremely “lumpy” investment, resulting in a large amount of investors net worth being tied up in a single asset. This makes asset selection (and in my opinion professional assistance) paramount. But even professional help does not guarantee results.

By spreading your investment over several properties you can hedge your bets, and spread the risk. If one property ends up vacant for six months, all is not lost as your other properties continue to perform. However, having your investment spread across a handful of properties with BrickX, all exposed to the business risk of Brick X is not nearly as diversified as purchasing shares in a real estate investment trust, or in broad-based index ETFs.

My Brick X Conclusions

Fractional property investing is a nice idea. Unfortunately, the fees and liquidity risk make Brick X less appealing, and certainly more complicated than other options.

I was curious and tempted to invest in Brick X in 2018 whilst saving a deposit for our first investment property. It seemed to be taking forever (it always does!).

However, I couldn’t get over my doubts concerning liquidity and risk.

Instead, I worked a lot of locum shifts and eventually pulled that deposit together in my mortgage offset account.

You never really know how an investment will turn out until you have been invested for a few years, but I don’t feel like I missed out on much with Brick X.

Those wanting to save for a property deposit should consider the First home super saver scheme, as potential tax savings can augment your deposit savings. Consider the pros and cons and alternatives on my article on saving that first home deposit.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

A Step by Step Guide to Writing Australian Wills

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Chances are that at some point in your life you will need to write a will.

But the process can be confusing and intimidating so I’ve put together this step-by-step guide to writing wills in Australia. Since the property purchases, I need to get mine updated.

What are Wills?

A will is also known as a last will and testament. This legal document lays out how your estate (all your assets) should be distributed in the event of your death.

This document can also contain instructions for guardianship of children and pets. A will can also contain requests for your burial/cremation and funeral.

It does not include the distribution of your superannuation, which may for many be their largest asset. For this, you need to complete a binding nomination form, easily downloaded from your super website. This usually needs to be completed every 3 years to remain current.

Life insurance payouts are also excluded from the will and go directly to the beneficiary listed with your insurance company.

Who needs a Will?

Solicitors will tell you that everybody needs a will.

I guess when considering whether you require a will and testament, assessing what happens if you die without a will (intestate) is useful. If you die intestate, a court will distribute assets according to a strict set of rules.

These rules, of course, are different from each state and territory of Australia, and don’t take into account any personal information!

The rules aim to provide a simple, fair settlement for most families, the New South Wales intestacy rules are:

  • If you were married or in a de facto relationship, your spouse / defacto recieves your entire estate
  • You were married in a de facto relationship with children to that same spouse, your spouse / defacto still recieves everything.
  • If you were married but have children to someone else, your spouse recieves your personal effects, a statutory legacy (arbitrary set amount of your estate, $480,700 in VIC) and half of the remaining assets. If there are any remaining assets left, they are split between your children.
  • You have children but no spouse, the children recieve equal parts of your estate.
  • If you do not have a spouse of children, other relatives including parents, grandparents and siblings will share your estate
  • You have no relatives or dependents, all of your assets will become the property of the New South Wales government (!)

Dying intestate involves more complexity, administrative and financial burden for those left behind. Unfortunately, it also sometimes leads to family quarrels over who gets what.

As soon as you have any assets, a mortgage or children, a will really is essential.

Nominating an Executor

The executor of the will is the person who carries out your wishes after your death, including organising the funeral, paying off debts and distributing the assets. This is a pretty huge responsibility, so you need to check with the potential executor that they are willing to take this on.

There is nothing like an inheritance to split up a family. Previously harmonious and reasonable people can turn into green-eyed monsters and do unthinkable things when a large amount of money is at stake.

An independent professional executor seems an ideal situation, particularly if you think your loved ones will be overwhelmed by the process. Unfortunately, fees can be expensive. It’s worth checking with your public trustee and solicitor what the fees would be for your estate if an independent executor would be appropriate.

Whoever you choose as executor, they need to know where to find an original will document to apply for a grant of probate. This is the first step as executor and gives them the legal right to handle your estate.

You may want to provide your executor with an original will or leave one at the solicitor’s office as well as in a safe place at home. Make sure you inform your executor where your will is and who your solicitor is.

Unpleasant surprises (such as being given less in the will than expected) cause family disputes and legal challenges. It is best to let your family know your wishes so no one is surprised on discovering your will.

Your executor should claim a fee if they are not a beneficiary in the will to compensate for the time and effort involved in the role of being the executor of the will. If they are a named beneficiary they cannot claim a fee. If you want to set a specific amount of compensation for the executor, you can do this by naming them as a beneficiary of what you think is reasonable.

How to Write a Will

There are three main ways that wills in Australia can be written. “Do it yourself” wills, hiring a solicitor and using the services of the Public Trustee. Each has its own advantages and disadvantages.

DIY Wills

The benefit of DIY wills is that you can do them yourself and it will cost a lot less money if you have little assets to leave behind. You need to ensure the will is valid, so it’s worth getting the public trustee or a solicitor to check you have correctly completed the document.

Public Trustee Wills

Public trustees will complete your will for free if you are aged over 60 years or nominate the public trustee to be the executor of the will. Unfortunately, there seem to be fees upon fees for this service. It is definitely worth checking the fees involved in the management of the estate and carefully considering options.

Solicitor Wills

If you want help with drafting or executing your will then hiring an experienced wills solicitor is ideal. The advantage here is that they know what should and shouldn’t go into your will, making sure everything goes smoothly and nothing gets forgotten about.

It may like a more expensive option at first, but it could save a lot of money and heartache if you have an estate to distribute.

Before we owned investment properties, we paid ~ $800.


What to Include in Your Will

  • Assets such as savings, investments, properties
  • Guardianship of children
  • Belongings of substantial emotional or sentimental value (ours includes the distribution of hubby’s fishing gear!)

What is Not Included in Your Will

For many readers, your largest assets on death may not be included in your will. Your superannuation and life insurance payouts go to your nominated beneficiary.

Writing a will with a solicitor’s help is a sobering process. It involves thinking through every morbid situation you can imagine and working out how to write your wills to cover all situations.

Remember to consider:

  • If you die and leave your family / dependents
  • What if you die and then your partner remarries?
  • If you and your partner die together
  • You, your partner and children die together

If you die, and your partner dies a year later, are you happy with your partner’s will beneficiaries? Many couples have “mirror wills” that are exactly the same.

Naming beneficiaries

Here you name your beneficiaries and what they should receive. It makes sense to make this as future proof as possible, as your assets now will change and hopefully grow over time.

Using percentages of your assets gives the flexibility to keep the will relevant as your net worth grows. If there is a possibility of more children being added to the family, ask your solicitor about dividing assets “between the children”. Stepchildren, however, will not be included under this and will need to be named specifically.

You can name anyone you want as a beneficiary including non-relatives and charities.

If there is anyone you specifically want to exclude from the will, talk to your solicitor about this. Excluding someone who would normally be expected to be a beneficiary can result in legal challenges, expenses and long court battles. Your solicitor may advise you to provide documentation of your reasons for excluding a person or bequeath them a small gift to demonstrate that their omission was not accidental.

Guardianship of Children

I reckon this is where most people get stuck and put off writing a will forever. It’s an awful thought experiment to consider options if your children were orphaned. It’s very unlikely to happen, but unfortunately, it does occur.

The alternative if you do not make a decision is that your children’s future will be decided in family court by strangers. Consider it a preventative measure using Murphy’s law, if you make a plan it surely won’t ever be needed!

For some, this decision will be easy. If there is a geographically close family member who is actively involved in your children’s lives, has a great relationship with the kids and would be willing to take on their care, that’s perfect. Keeping the kids close to home means less upheaval after such a traumatic event it would be kind to keep them at the same school and close to their friends.

For many of us far from family, there is no ideal solution. The guardian can be a close family friend rather than a relative if that is more appropriate. But if your sister with a non-existent relationship with the kids on the other side of the country might be shocked you chose a friend over her, you need to inform her just in case. Explaining your reasoning can help prevent surprises and legal battles. Often it’s a case of choosing the least bad situation.

The most important factor for us is that our children would feel loved and supported, as well as have a stable home with guardians young and healthy enough to care for them until adulthood.

Obviously, asking someone to become a parent to your children is a massive ask! This should definitely be discussed prior, with the opportunity for the potential guardian to decline without feeling obliged. No one wants their kids to grow up in a family that resents them.

Your Children’s Money

A testamentary trust can be set up on your death to hold assets, including property and investments, for your children. This trust will be managed by someone you designate to manage this until the children turn 18 (or whatever age you choose). This is obviously open to abuse.

The person in charge of your children’s trust should be someone to trust to do the right thing. You can also give the financial trustee role to someone other than the child’s guardian. Whether this will help protect the money, or cause family arguments is very dependent on the individuals.

Make Sure its Valid

There is no point in writing a will if it is not valid. It needs to be signed by two witnesses and yourself. It needs to revoke previous wills. Any adjustments to a pre-existing will need formal adjustment (a Codicil) and again needs to be signed and witnessed by two witnesses. I would urge professional help if you have assets outside superannuation and life insurance.

A will is invalidated by marriage, so you need to organise a new will after the wedding. Divorce also changes the validity.

While Your At It

While you’re doing grown-up jobs, consider the need for an advance health directive or Power of attorney.

If you are unable to make your own decisions (in a coma for example), an advanced health directive can appoint someone to make medical decisions for you, or state what you want in advance.

If you are unable to make your own decisions because you’re in a coma, someone still needs to pay the bills. An enduring power of attorney gives your designated person the right to make financial decisions on your behalf in the event you are incapacitated.

Adulting sometimes sucks and involves some jobs that just suck. This is one of those. But it is so important, particularly once you have children to make sure you have a reasonable estate plan in place. Get it sorted and then do something a little more fun!

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

How to become a Millionaire

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Thomas Stanley’s studies of the everyday lives and habits of millionaires found that most have a particular set of attitudes. They are disciplined, live below their means, believe in long-term investments, and know how to manage their money.

Stanley’s books* are a result of decades of data collection on the wealthy. Stanley focused his research on those who had been raised poor but eventually achieved millionaire status.

The first book was published in 1998 when a million dollars was worth considerably more. But most of the subjects in Stanley’s latest book were multi- millionaires, and the lessons are timeless.

The first study asked people who claimed to be millionaires how they made their money. The second study compared those responses with how others’ actually became, or did not become, millionaires. His recent book Millionaire Women Next Book* examined the habits and behaviours of women millionaires and compared them with the males studied previously.

There were striking differences between what the financially successful believed about wealth building and how their peers responded to questions on the topic.

How to Become a Millionaire: Upbringing

Stanley found that the majority of millionaires are not raised in wealthy households. These individuals did not inherit large sums of money nor were they born into wealth and privilege either. Instead many came from very average backgrounds where financial deprivation was commonplace. In a 2018 study, only 2% of millionaires came from wealthy families!

Furthermore, these same individuals often worked odd jobs while attending school to support themselves or even worked full-time while still enrolled at university. Over 61% of women millionaires fully funded their own tertiary education. The majority of millionaires grew up in supportive families, but were not spoilt, coddled kids.

Some even achieved early financial independence through this work ethic. Mark Zuckerberg achieved millionaire status by age 27 years. He was busy creating Facebook whilst attending Harvard University, until dropping out to work on it full time.

How to Become a Millionaire: Grit over Intellect

Most millionaires surveyed indicated they were not exceptional performers at school. They did not consider themselves unusually intelligent but considered grit to be the primary factor in their success.

Stanley’s work points out that while some people are born to privilege, most millionaires had to work hard for everything they have achieved. Anyone, therefore, has a chance at achieving financial success even if you weren’t raised with it yourself! Consequently, no one is guaranteed wealth without good money management and /or work to achieve it.

Even if you are a “trust fund baby” you need to manage money well and invest wisely to avoid death by inflation. There seems to be no limit to the size of an inheritance that can be lost or squandered.

Similarly, a large income does not equate to wealth if none of it is captured and invested. Thankfully the Australian employees get a helping hand with their discipline through compulsory super contributions.

It would, however, take over 50 years in the workforce to retire with a 10% savings rate. Whilst the aged pension helps shorten this for lower-income earners, higher-income earners will be ineligible for the aged pension for a long time due to the asset test.

What’s more, if higher-income earners have never learnt to save more than 10% of their income, they are going to struggle to reduce spending in retirement. Most high-income earners also had a delayed entry into the workforce due to tertiary education, making a 50-year career a bit of a push!

Despite doctors usually having been top performers at school, they have a reputation for a low financial IQ. Don’t fall into the trap of thinking you have money sorted because you have a good salary!

How to Become a Millionaire: Take Carefully Calculated Risk

People who become millionaires also tend not to take big risks with their earnings. Instead of chasing the next big thing, they invest over time.

Women millionaires were found to be particularly good at researching their investments and minimising transaction fees – factors most strongly associated with the best returns.

How to become a Millionaire: Practice Frugality

Millionaires who live below their means also believe that financial success is defined differently than how most people view it. Self-made millionaires were generally not driving around in Bentleys and living in mansions, as many would expect.

A millionaire doesn’t see being rich as how much they earn each year but rather how many years they can live solely off their investment income.

Millionaires see how little happiness materialistic purchases bring instead compared with relationships, meaningful careers and how much joy can come from simple activities. Shopping is an annoying necessity to these people, not a hobby.

Most millionaires interviewed did not drive expensive cars. A typical millionaire paid less than 2% of their net worth on a car. Most owned a car worth less than $75,000, the median maximum paid for a car in women surveyed was under $40,000.

Most millionaires had paid up to $400 for a suit, and the most popular watch was a Seiko, not a Rolex. Between just 3 (for women) and 4% (for men) was the median amount of income spent on holidays.

The frugal habits of these millionaires seem to be personality traits, and even after they had accumulated significant wealth.

“If you want to become wealthy to consume, you are unlikely to ever be rich.”

Thomas Stanley

Millionaires are Goal Directed

Men and women interviewed were highly goal-directed. Women tended to have multiple goals over different time scales. Men tended to be focused on a single goal. Some (usually over the age of 65) had accomplished all their goals.

Women interviewed for Stanley’s book averaged 49+ hours of work per week, woke up before 6 am and exercised frequently. Most continued to work despite financial independence, for personal fulfilment. 95% found work provided them with great satisfaction.

Many (but not all) Millionaires Owned Businesses

The book continues to expel millionaire myths and stereotypes. Millionaires in both books were generally business people. But not all self-made millionaires did it by building a business.

Among employees, teachers (particularly female teachers) have a high propensity to accumulate wealth. Extremely impressive given the reputation teaching has for poor pay (particularly in the US). A 2018 study confirmed that the 2nd most common career for millionaires was teaching! Here is the top 5:

  1. Managers
  2. Teachers
  3. Financiers
  4. Lawyers
  5. Doctors

Millionaires are Humble

The truly wealthy individuals Mr Stanley interviewed were not prone to showing off or bragging. These highly successful people were not insecure enough to social signal wealth to their peers.

On the contrary, most practised stealth wealth. Many of these millionaires made their wealth in blue-collar businesses and continued to blend in with neighbours and friends until their fortunes were revealed by large donations to charities after death.

Donations

Charitable donations were a consistent feature of male and female millionaires. Women on average donated more money (7% of income) than men and also were more likely to volunteer their time to worthy causes. Financial supporting family members was also common.

How to Become a Millionaire (or Multimillionaire)

Live below your means by avoiding lifestyle inflation or growing accustomed to an increasingly luxurious standard of living. Reject social signalling and “fitting in” for living life based on your own priorities. Practice gratitude for the simple pleasures in life.

Save and invest wisely over time. Understand your household budget. Take carefully calculated risk. Practice patience and avoid chasing the next big investing fad. Avoid false economies.

And for the next generation? Nurture individual, confident and self-sufficient children with good money management skills and a lack of entitlement. Avoid outpatient economic care!

If you haven’t read Thomas Stanley’s books* I would recommend them. For those wanting to grow wealth in order to show off, it includes a well-needed dose of realism. For those living a relatively frugal life in our world of excess, this book provides reassurance that it’s OK (even great) to be different from those around you.

Your wealth accumulation journey starts as soon as you make the first step. Subscribe to Aussie doc for a weekly email to keep you up to date on track to your goals.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

How to Choose a Property Manager

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Have you, or are you in the process of purchasing an investment property? You can breathe a sigh of relief after finally completing the kilograms of mortgage paperwork and exchanged!


But you still have a pending deadline. You need to find a great tenant and decide whether you will manage the property yourself, or engage a professional property manager.

Why Employ a Property Manager?

Managing the property yourself can save a few dollars in the short term, but without experience, screening of tenants is less likely to be thorough. If you have invested in property far from your hometown, managing maintenance yourself is impractical.

Many have plenty on their plate and wish to make their property investments as passive and stress-free as possible. And that is where a great property manager comes in.

I have recently completed the purchase of our 2nd investment property. A property manager local to each property professionally manages the rentals. There was never any debate that I wouldn’t employ a property manager, but I could find very little information on how to choose one.

Now I have selected two property managers and worked with both for 4 months or more. I’m starting to pick up the contrast between the two, and what to look for in a property manager in the future. I thought I might share my insights with those of you investing in property.

What Does a Property Manager Do?

A property manager in Australia must have a certificate IV qualification and may have other real estate qualifications. They (often as part of a team) provide property management for multiple properties. Included in a property manager’s role are:

Advertising for a tenant.

Property managers are experienced in finding tenants for properties. They will have a streamlined process for photographing, providing a written advertisement and setting up an advert on Realestate.com.au and other websites.

Tenant Screening

A property manager will provide potential tenants with an application process. Tenants need to be screened, previous references checked and tenant database searches to check for prior blacklists, verify tenant identity. Tenant screening is the most critical first step in avoiding a nightmare tenant.

Organising a Written Contract

Your property manager should have a legally checked tenant agreement, and work out any negotiations between tenant and landlord.

Rent Collection, Payment of Bills & Income Statement

The property manager will provide the tenant with a convenient way to pay their rent, and prompt the tenant if payment is late.

You can request your property manager to pay all the bills for the property. Organise these to be sent directly to the property manager. Water, rates and maintenance bills will be paid out of rent before you receive it.

A big advantage of this is having everything documented with the management company. At the end of the tax year, your rental property manager will provide an income statement documenting all ingoings and expenditures ready for your accountant. No lost paperwork and one less thing to do for you.

Your property manager will also collect the rental deposit and document appropriately.

Maintenance

Your property manager will be responsible for keeping the home in a safe and comfortable condition. Should the tenant raise an issue, it is your manager that will initially field the call. They will manage any issues they can sort without your intervention (and that really depends on your agreement), or request approval from the landlord to carry out repairs.

In the middle of the COVID lockdown, the stove in our 1st investment property broke. With supply chains interrupted by COVID, it was my poor manager who spent days searching for a replacement, not me!

I have found the property manager’s access to reasonably priced and reliable tradespeople invaluable so far. Little maintenance issues come up regularly. The property manager emails me a quote, I click to approve and it gets organised.

I can’t even get a tradesperson out to my own home to fix issues a lot of the time!

I also find I’m being charged far more reasonable rates for repairs in Brisbane and Geelong than in my own regional town.

It is also a property manager’s responsibility to understand the rental property laws and ensure the property is maintained in accordance with them. These, of course, vary with each state and include fire alarm checking, gas and electricity safety checks. If you plan to own real estate in multiple states, keeping up to date with these rules may be something you wish to outsource to a property manager.

Organising and Completing Property Inspections

Property inspections are important for picking up maintenance issues before they get too bad. A property manager will contact tenants to organise an inspection, perform this and send the landlord a detailed report.

Lease Renewals

A property manager will contact the tenants before their lease expires, and confirm whether they plan to stay. They can make a recommendation on any change in rent in line with market conditions and negotiate between tenant and landlord before signing a new lease.

If the tenant moves out, the property manager will complete a final inspection and handle refund of the deposit, or repairs as appropriate.

Tribunals & Evictions

If the worst should happen, your property manager will guide you through the process and help to keep you at an arms-length from the stress.

During COVID property managers helped landlords consider applications for rental relief.

Short-term Rentals

Airbnb type short term rentals need far more intensive property management due to frequent turnover of guests, cleaning and higher maintenance requirements.

How Much Does Professional Property Management Cost?

Property management fees vary by location, structure and level of service. There is a large range between 5 and 12% of the gross rental payment.

My property management is 8.8% of the gross rent in Brisbane, 6.8% in Geelong. If you are going to outsource such an important job, it’s worth paying a reasonable amount to secure a great manager. There is considerable variation in fees between cities.


Property management fees are tax-deductible, along with the other maintenance costs, and interest paid on an investment property.

The fee structure varies. As well as a direct fee, monthly admin fees, re-letting fees, end of year statement and inspection fees may apply. It’s really a case of comparing each potential manager’s fees in detail.

Property Manager A vs Property Manager B

It’s hard to know what you’re going to get with a property manager. I had conversations with both of my property management companies before signing up. My properties were immediately handed over to a property manager working under the principal manager.

Within 4 months of signing my new property manager (for the second investment property), the difference between the two managers is obvious. Property manager A emails me inspections on schedule and occasional maintenance requests. She called me during the stove problem and kept me in the loop whilst she solved all the problems.

Property manager B’s company was selling the property I was buying. It made sense to engage the same real estate business so that it would be in their interest to allow an open inspection before exchange to secure a tenant faster.

Problems surfaced pretty quickly with this second manager. The big issue from the very start has been communication. I had to chase this manager to find out whether they had any potential tenants days before the exchange. Safety reports were performed, found issues that weren’t communicated to me until I chased the manager.

Maintenance and cleaning was supposed to be performed and then turn up later as having not been done (or done properly). COVID is not helping with inspections currently being performed virtually in both properties. But it is obvious that manager A is far more on top of things. Manager B, I have to proactively check-in and prompt about routine matters.

How to Choose a Property Manager

I’m not sure this would have been identifiable before the property manager was actually employed. I think the most valuable factor in selecting a property manager is a glowing personal recommendation from another investor.

If you don’t have a personal recommendation, it’s probably best to interview a few potential managers. Communication, organisation, experience and access to reliable and reasonably priced tradespersons are the most important. I would suggest asking your actual potential property manager give you a call. Find multiple sources of online reviews, if possible and read in detail.

Questions to ask include

  • How many properties does your agency, and each manager control? Do you have a dedicated property management department?
  • What are the qualifications and experience of my property manager? Can they give me a call for a chat?
  • Do you have access to a reliable and reasonably priced pool of tradespeople?
  • If my manager is sick is there someone else who will stand in?
  • How many of your current tennants are in rent arrears?
  • How often do you schedule open homes? Do you perform these yourselves?
  • What are all the fees?
  • How often do you organise inspections? Do you perform these yourselves? How much detail is provided to the landlord?
  • How are potential tenants screened?
  • Can I speak to a current landlord client

What to Expect from your Property Manager

  • Communication without having to be chased for information
  • Scheduling inspections and informing you
  • Cleaning and maintenance to be organised at a reasonable cost and be performed correctly (or promptly corrected without additional expense)
  • All legal requirements to be completed, and this communicated to you

How to manage your property manager

  • Make a note of when inspections, and leases are due. Set a reminder on your calender or schedule an email to yourself to check whether the inspection or lease renewal has been organised.
  • If your property manager hasn’t already been in touch by the inspection due date or within 3 weeks of lease renewal it’s time to reach out and check in. With COVID-19 difficulties, a little more flexibility is required, but needing to prompt your property manager to organise an inspection is not a good sign.
  • When maintenance or compliance work is requested, make sure you recieve confirmation it has been completed. Again, reach out to confirm the maintenance was completed successfully.

If your not happy with your current property manager, it is reasonably easy to change over. Check your property management contract for the notice period, and find an alternative property manager to take over. We will find a replacement property manager B towards the end of the lease, I’ll probably check if my buyer’s agent can recommend someone.

Are you a property investor already? What was your experience with property management?

Your wealth accumulation journey starts as soon as you make the first step. Subscribe to Aussie doc for a weekly email to keep you up to date on track to your goals.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.