Investing in property can help spread your financial risk, giving you and your family tax advantages and helping you achieve your wealth creation goals sooner. NAB Health Senior Financial Planner, Matthew Wilson joins us for a Q&A to explain how.

Q: Firstly, why should private wealth creation and the growth of a healthcare business be synchronised?

A large portion of healthcare professionals become high-net-wealth individuals, so investing tax effectively is important in helping them to meet their longer-term financial goals. Diverting surplus business cash flow tax-effectively into superannuation can help to achieve this.

The end financial goal for most is financial independence for themselves and their families. Once this goal is achieved, however, many individuals in the healthcare sector, and their families, face large tax bills and high marginal tax rates for the rest of their lives. Remember, retirement can last a long time.

Investing, planning and diverting funds into superannuation has provided many of our clients with tax savings that range from tens of thousands to millions of dollars, at the same time diversifying their investment position.

Many of the investments clients are able to hold via superannuation are the same investments and assets they’d have otherwise acquired outside the super environment (in their personal names, in family trusts etc). Contributing into superannuation funds over time, plus other business tax concessions, allow for such favourable outcomes. In this way, we’ve helped clients bring forward their long-term financial objectives by more than a decade. The importance of synchronising business growth with private wealth planning can’t be understated, as the motivation for both is the same end goal.

Q: What tips can you offer about different property investments?

For a principal residence:

1. Choose wisely. Stamp duty and other entry costs, in addition to expected general lower short-to-medium-term price increases, would make moving (and needing to sell) an expensive exercise.
2. Would it be easily leased if you had to move? Seek the numbers on rental yield and cost of maintaining the property. Can you afford to carry a net cost after any deductions if borrowings are involved?
3. Don’t overcapitalise. Although a principal residence is a capital-gains-tax-free investment when it’s owned in personal names, some people make the mistake of spending too much on building or renovations.

For a holiday home:

1. Ask yourself, ‘How often will we use it?’.
2. If you do plan to lease your property, how much of the year will it need to be leased to meet your revenue requirements? For instance, will the minimum income you require from the property per annum be achieved only by leasing it during peak times when you may wish to occupy it yourself?
3. Remember: location, location, location.

For an investment property:

1. Do thorough research before buying, paying attention to the property’s location, rental yield, expected vacancy rates etc.
2. Engage a realestate agent to lease and market the property.
3. Consider different types of properties – residential, commercial and industrial – to ensure you buy the one that best matches your personal profile and needs. The golden rule of building a successful investment portfolio is diversification. Property is inherently a growth asset class, and generally, property prices and sharemarket values correlate closely. To protect asset prices in your investment portfolio, fixed-interest securities or defensive assets are a must.

Q: Can you elaborate on ‘defensive assets’ and ‘portfolio diversification’?

The first and most important step for an investor is to establish a risk profile by reviewing their investor experience and knowledge. This’ll guide the investor to the different investment options available. Primary asset classes in which to invest are: international and Australian shares; international and Australian fixed interest; international and Australian property; and alternative assets, such as infrastructure and commodities. Access to all these markets can be achieved by investing directly via shares on the stockmarket, and indirectly via managed funds or through a rapidly growing sector: exchange traded funds.

Q: Potential investment risks in the current economic climate?

Over the past 15 years, property has been a tremendous success story for many but currently, NAB sees a common overexposure to property. This scenario generates lower tax-effective income with illiquid equity longer-term. The bank has seen a number of instances in which clients became asset-rich and cash-poor, which resulted in them having to sell property to support their lifestyle and income needs. Often, a forced sale occurs at a time that’s less than favourable for tax purposes or with respect to the property market.Australiastill remains one of the most overvalued property markets in the world, so approach with caution.