Which property goal should we be tackling first?

Answering this question right now as part of Start Here Welcome back everyone to Start Here, the very special mini series within Sugar Mama's Fireplay where I answer your real life money questions with confidence, with clarity, and with actionable steps to help you get started and move forward.

Today's question comes from our listener in her late forties, who wrote, Hi, Canna, my husband and I are in our late forties and would really appreciate your guidance.

We have thirty thousand dollars left on our mortgage.

Both work full time and for personal reasons, we don't want to invest in shares.

I have one hundred and eighty thousand dollars in super and my husband has none.

We have a few goals we'd like help, prioritizing building a granny flat to rent out, buying a small apartment overseas in my husband's home country which we may also rent out when not using it, and eventually purchasing a two bedroom investment unit here in Australia.

Our questions are what is the smartest order to pursue these goals?

How could each option realistically generate rental income for us?

And how can we best start saving to actually achieve these goals.

Thank you so much for your advice.

Okay, first of all, thank you so much for your honesty, and thank you so much for trusting me with such big financial dreams and goals.

You know, these are really thoughtful goals, and the fact that you're asking me how to prioritize rather than just rushing in headfirst into something that you may not fully understand, tells me that you're going to make some really wise decisions here now, before we dive in, I need to make something abundantly clear.

This is general advice only.

I don't know anything about your financial situation.

I only know the surface level details, so I can't tell you exactly what to do.

But what I can do is help you understand the key considerations, the risks, the strategic order in which these decisions often flow, and the essential questions to be asking a financial planner and an accountant before you move forward.

So together, right now, we're going to break this down step by step to help you get started, all right.

Step number one and this part I think is the most exciting part for you, and that is to clarify your goals but also the time horizon for these goals.

This is essential when you have multiple goals like these, especially property goals.

The first step is not to choose which one feels the most exciting, as tempting as it may be.

You need to take a moment to stop and ask yourself a few questions to get a really deep understanding as to what's going on here and what really does matter and why.

So there are some simple questions I would recommend you ask yourself such as, why does this particular goal have the most emotion attached to it?

What is it behind it that really mean something to you?

Which goal is urgent, Which ones do you want to get done as a priority, Which goal is actually the most financially efficient one to attack and to I guess get started with that will actually help you be financially independent.

And what are the time frames for each of these goals?

You questioning the efficiency, taking away the emotions, understanding what is actually going to serve you and actually make life easier for you in your late forties in building wealth now, particularly because you've got such a small mortgage and you're at such a sweet spot where you really are going to see your wealth accelerate, if you make the right decision.

So, for example, you might look at the granny flat and think, you know what, this is one that we really should prioritize because it's not going to cost too much to build, perhaps, and it will start earning a rental income for us really quickly.

And then you might look at say the overseas apartment and you think, well, you know what, that's actually more of a lifestyle driven goal rather than a financial one, so perhaps we can just hold off on that for the time being.

And then you might go through the idea of the Australian investment property and you think, you know what, that's actually going to be the foundation of our wealth accumulation journey.

So perhaps we need to actually set up an account that starts saving now, not necessarily by really spend time exploring each of those goals and understanding why you want to achieve these goals and what they represent and how they're going to add efficiency to you and your financial goals.

You know, your time lines really do matter here because if you are in your late forties, your retirement is say in the next fifteen in to twenty years, so we want to make sure that your cash flow the level of debt that you take on, the tax structure that you may use, and of course superannuation.

They all support these goals and they're actually all working together in harmony.

And this is where a financial planner can really add so much value here and so much clarity.

Whilst a financial planner cannot recommend direct property as such, they can run some really helpful projections to help you gain some important clarity and insight as to which one would be most efficient for you to actually work on immediately as a priority.

And then you can add back in the emotions to help you make the best decision that serves your goals but also helps soothe your lifestyle goals as well.

This is so incredibly important.

Don't begin this process without doing this step.

So the next step is to understand the value of superannuation.

This part is vital.

You mentioned that you have one hundred and eighty thousand dollars in your super and your husband as none.

Okay, I'm going to be really honest here.

I had alarm bells ringing when I read that.

You know and whilst you are like focusing on property, which is obviously a long term growth asset, can I deeply encourage both of you to just pause and consider a few things, mainly around superannuation.

Yes, property will help build your wealth, but superannuation also helps you build wealth, but in a far more tax efficient, passive, and sometimes possibly a more reliable way than owning a property directly.

Outside of super.

Superannuation is taxed at fifteen percent as an absolute maximum under current legislation.

You know, property rental income is taxed at your marginal tax rates unless you're using company structures or tax structures.

The reason I mentioned this is if your husband has zero super at his age, then contribute to his super, even just modestly, maybe one of the highest value, lowest risk wealth strategies that you could actually put into place and get started with today.

So remember you can make spouse contributions.

You also may be eligible for co contributions.

And this is again where a financial plan will be so helpful, and you could probably both look at some salary sacrificing strategies.

But I would not be ignoring your superannuation.

I would really be prioritizing this if I was you and getting some professional personal advice as soon as possible.

And by no means does focusing on super mean that you are giving up on your goals around investing in property.

In fact, a financial plan may even suggest looking at a self managed superfund.

But these are things you've got to consider if you are really serious about building wealth over the next fifteen to twenty years and setting yourselves up to be financially independent.

Superannuation is going to seriously strengthen your financial foundation dramatically.

Okay, Step number three.

So I get a little bit pasionate sometimes and that is seeking professional advice early now.

Because one of your goals involves property outside of Australia, this is a non negotiable for me.

You need a licensed financial planner and they can help you model the cash flow, look at the risks, you know the retirement outcomes, you know all the loopholes, that is the legal loopholes and obviously that sequence of your goals.

An accountant, though, an accountant who specializes in international tax, specifically the tax laws in your husband's home country.

Now you might be thinking, why, well, this is really important and you get it wrong, it could be very expensive to fix and come with a lot of regrets.

So some countries have foreign tax ownership rules and they're quite different to what we have here.

There also may be double tax rental income.

You also may need to lodge your taxes in two different urisdictions.

They're also maybe withholding taxes.

And in some countries foreigners can't actually borrow money, which means if you want to buy a property overseas, you may potentially have to pay for it outright, which means cash, which means having a lot of savings ready to go.

Your overseas purchase might still be a wonderful goal.

I'm not here to get in your way, but it's important that you understand the tax, the legal issues, and the ownership implications before you start transferring any money overseas and going and buying a property.

So please go and see an accountant that specializes an international tax as well as a financial planner.

Step number four.

Okay, let's talk about the granny flat here.

You know, a granny flat can be a fantastic first goal because it can obviously generate rental income pretty quickly, you know, depending on where you live.

You know, some granny flats rent out for say three hundred and fifty to six hundred dollars per week.

In fact, one of my really good friends has built a granny flat recently and she rents it out on Airbnb and is doing really well.

That might be an option for you for short term leasing.

And also, you know the fact that you already own the land.

You know, this increases your return on your investment because you're not paying for that underlying property all over again, and you're almost mortgage free, only thirty thousand dollars left on your mortgage.

You may be able to borrow for the construction relatively easily without expensive interest, depending on obviously on the bank's assessment.

So these are the things I would really consider.

Obviously, the council rules and approvals, you've got to get a DA.

You've got building costs and will there rental income affect any future tax issues that you may have.

Obviously there is the ongoing maintenance, the wear and tear.

There's also like privacy and lifestyle impacts.

You know, you've got someone essentially living in your backyard.

But then there's also the massive upside.

This can really help fund another investment, So that say three hundred and fifty dollars per week that it pays, you could help build up a deposit to help fund that.

Australian investment property that you spoke about.

This is exciting.

This is that flow on effect, that domino effect where you can see your wealth really start to explode when you've set things up correctly, wisely and with proactive advice and consideration.

That rental income from the grunny flat will speed up your savings and it could actually be a really smart move.

And then step number five and that is the overseas apartment.

Now this is where emotions and logic really need to work together.

Lifestyle property is beautiful, it's a luxury, you know.

But the thing is, with eyes wide open, those rose tinted glasses taken off, it rarely yields high rental returns because it's your home and you're using it, say as a holiday home or you know, sort of limited times during the year you need that access, so there could be long vacancies.

You also may face like foreign ownership rules, particularly if those rules change, and you've got to understand the obligations both in Australia and in your husband's home country.

This could be incredibly complicated.

And then there's of course the currency fluctuations.

This can work for you or it can work against you.

So timing here of transferring money and taking rental income back is going to be really needs to be mindfully navigated with fluctuating currencies.

But on the other side, it can also be a wonderful goal if you plan to use it on a regular basis.

You know you can afford to use it without any financial strain, and you've got some fantastic advice with amazing clarity around how the rules work in both countries.

So this is why I recommend the overseas property may be considered after you've got some really detailed and documented financial advice from an accountant and that you have worked out whether it really is actually an income producing asset after all.

One way of thinking about this maybe letting the granny flat help fund this particular dream, not the other way around.

Step six the Australian two bedroom investment unit.

Now, as I mentioned at the beginning of this podcast, it sounds like this asset, the Australian investment property, will be your ultimate long term wealth builder.

You know, Australian property is familiar.

We can touch it, we can see it, we can drive past it.

Obviously it's a lot easier to manage because we're nearby.

We can finance, it a lot easier.

The banks obviously aren't going to go and fund a property overseas that's not on their asset books.

It's also easier to ensure and you can have a much clearer understanding of where all the boundaries are when it comes to tax and you know, obviously it's going to vary from country to country and area to area, but it might be perhaps more reliable for those long term growth and income opportunities.

However, when it comes to buying property, you as particularly if you're going to be boring to invest, you need to have a really strong cash flow, you know, and especially if interest rates start to move north again.

And this is where your retirement timeline really does matter here, and in fact it matters comes in quite a heavy factor here.

Now, if you're planning to invest in your fifties, the property that is this investment property, it's got to make sure that it's affordable and that it creates a sustainable cash flow, and you have a sustainable cash flow to help pay it off.

You're never pushing yourself into this mortgage stress.

And you know, this does actually work for your long term wealth creation strategy for most couples, in your situation, this goal becomes the goal number three, perhaps after your granny flat and after you've established some of your superinuation goals and some contributions into superannuation as well.

So it is something that's worth thinking about.

It's worth something saving up a deposit for and getting some advice on and speaking to your bank or a mortgage broker as to what your limits may be and how you structure this in a way where you are paying it off and you pay it off with it a time frame that works for your retirement plans.

So get advice, speak to your mortgage broker, speak to the bank, and do your research, and of course get that deposit building up as quickly as possible.

Step number seven and that is how do we actually prioritize all of these very exciting goals.

So based on everything that you've shared with me, this is my general advice only I guess framework to how to prioritize this.

So what I would be thinking first is paying off your remaining mortgage could be something incredibly helpful.

You've only got thirty thousand dollars left and becoming debt free gives you enormous cash flow power.

You know, I just mentioned about the importance of saving up a deposit.

When you redirect your previous mortgage repayments towards a savings account, that deposit for the investment property or that money to help build the granny flat becomes a reality, which takes me to two.

Building that granny flat first, as we mentioned, it's an income producing asset which may help work towards your passive income goals, which means you can start generating rental income quickly.

It increases the value of your home very much so, and it helps fund your international and local property goals.

And if it's in Australia, which obviously is where you're living right now, you have amazing clarity around the legal tax and rental market.

So then I would be working on number three, and that is your husband's superannuation.

Even if you were to look at doing say fifty or one hundred dollars per week, you know as salary sacrificing or an after tax contribution into his super, this really can help transform his retirement income.

I have mentioned the immediate tax savings that come from superannuation obviously are not privy to your marginal tax rates, but for the average Australian that's on about thirty five percent marginal tax rate.

That is a significant savings.

This is so incredibly important, particularly if l ledge remains as is and when you go to retire further down the track, some of that income can come back to you potentially tax free.

So please make sure you start looking at superannuation once you start building that granny flat, and again that granny flat income may actually end up helping fund the superannuation contributions.

Number four, considering the overseas apartment look, I would only consider this after you've spoken with an accountant with international tax expertise and a financial planner and if needed, a lender in the country that you're looking to potentially buy.

Please promise me that you will make sure you fully understand the ownership rules, the taxes, the rental laws, and whether foreign buyers can actually borrow at all, because this actually may be a bit of a roadblock for you that you'll be glad you discovered sooner rather than later, So do your research.

Then finally, the Australian investment property that comes last, So once you've built your granny flat and it's rented out, paying you some fantastic passive income, you've still mortgage free.

Your debt levels, that is, your investment debt levels are easy to manage, they're coming down, or you've actually paid everything off as well, and you can have some great confidence around what you want from your retirement planning when you want to retire on how much income and everything feels stable, and you've obviously built up your husband's superannuation, it feels like both of you are back on track.

This is the time that potentially you could look at that investment property, and that investment property may actually supplement or even actually be part of your overall superinnation strategy, such as a self managed super fund.

Again, this is where that advice comes in, that personal advice that knows the nitty gritty, finer details of your situation, who you are, what you stand for, what your risk profile is, and knows to a much deeper level as to what your goals are really about and who you're about.

They can design the best strategy for you.

So, how do we start saving for each of these goals?

Which is such a brilliant question.

So to give you some really practical steps to follow to help you get started, can I number one recommend you do a budget if you haven't done one already, this will let you see where you're potentially wasting money that you can then use pay the home loan faster or to help pay for the costs of that granny flat.

Number two would be to create a dedicated property goals account, having a separate savings account away from your normal spending account and nicknaming it, you know, say, granny flat.

This is where you have a clearly defined place to put all extra savings to help save up to be able to build that granny flat and start earning that passive income.

Then I would start practicing the repayments.

If you needed to borrow money for the granny flat, which I'm going to assume here, you might want to maybe look at doing a bit of a dress rehearsal.

So this is where you pretend you have a loan of say two hundred thousand dollars, work out what the repayments would look like at say an interest rate of say seven percent at the moment to be conservative.

You can actually see what those repayments look like and whether you can still actually service them without any stress.

If you do find it stressful, that's your sign that perhaps you need to build up a bigger deposit, or maybe look at borrowing less money so that when you do build that granny flat you're not over extending yourself.

But this is a great practice and something I would also recommend for when you buy that investment property as well.

The next thing is to automate as much as you possibly can.

When you've looked at your budget and you look at what you can save, try and set up a regular savings plan, whether it be fortnightly, monthly or even weekly.

I recommend trying and doing this so that it comes out a couple of days after you get paid, so you're prioritizing paying for yourself first.

And then of course emergency money.

You haven't mentioned this in your DM to me, but if you don't have emergency money, can you please make sure you build that emergency money up sooner rather than later.

Cannot afford to be investing confidently without having a safety net behind you.

This is a non negotiable.

And then of course speak to your bank about your borrowing power when you understand the details of your financial situation, which comes from speaking with a good quality mortgage broker or your bank.

You have so much understanding and clarity around what your responsibilities are.

You know what your personal debts are and how to keep them minimized as much as possible, how to make sure that your credit score is nice and healthy, how to actually build those consistent healthy savings habits, and why thinking about having a stable employment where possible can actually also help improve your borrowing power.

You know, the cleaner and clearer your financial picture is, the more options you will have, and also you'll be able to see better opportunities far more efficiently than when things are a little bit up in there and a little bit messy.

So as we wrap up today's episode, let me just say this.

You have some really exciting goals ahead of you.

A granny flat, an overseas lifestyle property, an investment property here in Australia, and you're only thirty thousand dollars from being mortgage free.

Like that is a remarkable position to be.

And I can say this, a lot of people would be very jealous of your thirty thousand dollars mortgage.

But I need you to remember this.

You don't need to do everything at once.

You just need to put the goals in the right order that are right for you.

You want to focus on strengthening your financial foundation as a priority and making sure that each investment that you make is actually working for you, has its job and it will actually help fund the next goal of yours.

Your future is not determined by the start date, but actually how intentionally you move forward from this very moment as you get started.

Now, if this episode helped you, can you please do me a huge favor and share it with someone who is juggling some really big goals at the moment and really does need some clarity in their financial life as well.

And if you have a question for yourself on start here, I have popped my email address and of course my Instagram account, so you can reach out to me at any stage.

Al Right, everyone, thank you so much for listening.

If you could leave me a rating and review, I would greatly appreciate it, and I'll see you on Monday morning at five am on Sugar Mama's FIREPLA