Investopoly

Last week, I highlighted some evidence that indicates investment-grade apartments in Melbourne are perhaps intrinsically undervalued. The topic of this week’s blog is all about whether a house or apartment makes a better investment, specially:1. If your investment budget is $1.3 million or more, should you invest in one house or two apartments?2. If your investment budget is in the range of $700k and 800k, should you invest in an investment-grade apartment in a blue-chip suburb or a house further away from the CDB (or in a regional town)?Of course, my commentary and suggestions below are general in nature and may not apply to your financial situation. Therefore, it is important to obtain independent financial advice. Here are a few considerations that you must take into account:Apartments are susceptible to the impact of future developmentThe number of houses in a blue-chip suburb are somewhat fixed. That is, typically, there is no more than one house per block (excluding the odd townhouse development which is rarer in high land value, blue-chip locations). However, the number of apartments in a geographical location can change significantly over several years. All you need is one or two large developments and that can dramatically impact the supply of apartments. Whilst new-build apartments are vastly inferior assets from an investment perspective, their existence can retard capital growth.The advantage of investing in a house is that supply is relatively fixed. This ensures that the imbalance between supply and demand (in an investment-grade location) remains in the investors favour. That is, if supply is fixed and demand is increasing, you will typically benefit from price appreciation.If you have multiple assets, you have more flexibilityThe advantage of investing in two apartments as opposed to one house is that you have greater flexibility in the future, particularly as you get closer to retirement. For example, if you invest in two apartments at age 45 (which might be 15 years prior to your planned retirement) then you will be able to sell one apartment after you have retired and use the cash proceeds to repay the debt on the other apartment. This may result in you retaining one apartment with no (or very little) debt thereby generating a good income stream to supplement your super.Spread yourMy new book out in mid-2026: To join the pre-order waitlist and get a bonus. More info go to: https://prosolution.com.au/book-preorder-bonus Do you have a question for the podcast? Email us at questions@investopoly.com.au. If you're interested in working with our team and me, discover how we can work together here: https://prosolution.com.au/family-office-servicesIf this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://prosolution.com.au/stay-connected IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

I wrote this blog in February suggesting that I thought investment-grade apartments were intrinsically under-valued. Well, according to Jarrod McCabe, director of Wakelin Property Advisory, “the investment-grade apartment market in Melbourne is showing signs of growth this year”.My view that apartments are intrinsically under-valued has become even stronger over the last 6 months and I would like to share a few reasons why.House prices have appreciated significantly over the past 5-10 years and maybe that’s changingAs this chart suggests, house price growth has become significantly stronger than apartment growth over the last nine years. The median house price appreciated by 6.8% p.a. on average over that period compared to 4.1% p.a. for apartments.Since citing this chart in February, anecdotally, it would appear that demand for investment-grade houses in Melbourne’s blue-chip suburbs peaked towards the end of 2017. Buyer demand in this sector of the market has been less buoyant in 2018. This suggests that perhaps this growth cycle (all markets move in cycles) has ended. Maybe the trend will turn around and apartments will generate stronger growth than houses?Tightening credit means people can borrow lessThe credit environment is very tight (as I have noted many times previously) and that has put downward pressure on people’s borrowing capacities. I estimate that most people’s borrowing capacities has reduced by between 20% and 40% (sometimes more) over the past few years. This means more people will be priced out of the housing market (in prime locations) and be forced to consider invest in a one or two-bedroom apartment instead.Supply of new-build apartmentsThe supply of new-build apartments will have an impact on overall median data and supply-demand fundamentals. However, the geographical concentration of new developments is what you must consider. Capital city data is less meaningful.For example, in Melbourne, there has been a lot of new apartment development in Prahran and South Yarra but that seems to be slowing down now. However, suburbs such as Richmond and East Melbourne currently have a lot of large construction projects in progreMy new book out in mid-2026: To join the pre-order waitlist and get a bonus. More info go to: https://prosolution.com.au/book-preorder-bonus Do you have a question for the podcast? Email us at questions@investopoly.com.au. If you're interested in working with our team and me, discover how we can work together here: https://prosolution.com.au/family-office-servicesIf this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://prosolution.com.au/stay-connected IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

Some interesting information and data has been released this week which I would like to discuss with you.Variable mortgage rates will probably rise soonInterest rates that apply to interbank lending have increased significantly since the beginning of the year. These benchmark rates are used to set the banks borrowing costs. This benchmark rate has increased significantly compared to the RBA’s cash rate as depicted in the chart below (from Montgomery). Essentially, this means it costs more for the banks to borrow. Between approximately one quarter and one third of the banks mortgages are funded through facilities that are linked to these short-term indicator rates. Therefore, it has been estimated that the banks cost of funds have increased by circa 0.10% p.a.Various second tier lenders such as ING, BoQ, IMB, Citibank, Bank SA, and ME Bank have already increased variable rates.Pressure will be on the Big 4 banks to follow. However, I suspect that they haven’t increased yet because they are worried about the inevitably bad press that it would attract – particularly for the bank to move first. That said, if these higher costs persist then they might have to lift variable interest rates sooner rather than later (probably by around 0.10% p.a.).Can you afford principal and interest repayments?There has been a bit of press lately about a possible looming credit risk i.e. interest only loans converting to principal and interest repayments which might put negative pressure on borrowers cash flow.If you have a loan on interest only repayments that is approaching its expiry date, you have a few options. You should consider whether you are better off with principal and interest repayments – see this blog. If not, speak to us and we can investigate whether you can roll over to a new 5-year interest only term with your existing or a new lender. Do it sooner rather than later to avoid the risk of being caught by any future changes or credit tightening.The Reserve Bank (RBA) and interest ratesThe main thing holding back the RBA from increasing the cash rMy new book out in mid-2026: To join the pre-order waitlist and get a bonus. More info go to: https://prosolution.com.au/book-preorder-bonus Do you have a question for the podcast? Email us at questions@investopoly.com.au. If you're interested in working with our team and me, discover how we can work together here: https://prosolution.com.au/family-office-servicesIf this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://prosolution.com.au/stay-connected IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

Are you a spender or saver? Do you find it hard to stick to a budget? Do you find it difficult to save towards a goal? For some people, saving money comes easy to them. For others, it’s like pulling teeth. You might need to adopt a different investment strategy depending on your answers to the above questions.Success requires some incomeSurplus cash flow is oxygen for any financial strategy. Without it, no financial strategy can survive. As I have said in the past, it is critical that you contribute a certain amount of your income towards building your financial future every fortnight, month and year. It is virtually impossible to build wealth without surplus cash flow. Therefore, if you are spending as much as you earn, you cannot expect to get ahead financially.Basic stepsMost people are smart enough to realise that wasting money is stupid. The problem however, is that if you don’t know where your money is going how do you know if you’re wasting it or not? And that is the most common mistake that people make – not knowing where their money is going. Worse still, I find that most people consistently underestimate how much they spend. If you’re underestimating how much you spend, then possibly you’re also underestimating how much money you’re wasting. You cannot manage what you do not measure. Therefore, at an absolute minimum you must sit down every six months to understand exactly where your money is going – even if it’s at a high level. In my new book Investopoly, I have dedicated a full chapter to helping people improve their cash flow management. I provide a screenshot (click to enlarge) of page 34 below which sets out how to review your last three months of expenditure.If you’re a spenderThere are a couple of investment strategies that spenders will find it easier to stick to. The key theme in all of them is to do what Warren Buffett tells us to do which is to “invest first and then spend what’s left over”.Idea 1: Make additional super contributionsOne thing you can do is contact your payroll department and ask them to deduct a certain amount of money from each pay and contribute that into super (as a concessional contribution). This is also a tax effective strategy as any contributions are taxed at 15% insteadMy new book out in mid-2026: To join the pre-order waitlist and get a bonus. More info go to: https://prosolution.com.au/book-preorder-bonus Do you have a question for the podcast? Email us at questions@investopoly.com.au. If you're interested in working with our team and me, discover how we can work together here: https://prosolution.com.au/family-office-servicesIf this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://prosolution.com.au/stay-connected IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

Employers must contribute 9.5% of your salary (up to a maximum of $20,050 p.a.) into super. But should you make additional super contributions? This is a question I’m asked regularly.Of course, like many financial planning matters, the answer does depend on your individual circumstances. However, there are some fundamental concepts that help us understand whether additional contributions are going to help you achieve your financial goals.The power of starting earlySusie is a 30-year-old earning a salary of $100,000 a year. Therefore, she is already contributing $9,500 per annum into super (i.e. her employer’s contributions). If Susie contributed an extra 3.5% p.a. of her gross salary (i.e. $3,500 p.a. or $67 per week), by age 60, her super balance would be 32% higher ($965,000 versus $1.27 million). That is a big reward for a relatively small sacrifice.Compare this to someone who starts a lot later in life. Matt is 50-years-old and his super balance is $400,000. Matt’s salary is $150,000 per annum so his employer is contributing $14,250 per annum into super. If Matt makes additional contributions so that his total contributions equal the concessional contribution cap (i.e. the maximum you can contribute – currently $25,000 per annum), by age 60, Matt’s super balance will only be 13% higher ($845,000 versus $955,000). I think you’ll agree that that’s a relatively small reward for a significant amount of additional contributions (approximately $100,000 in additional contributions over 10 years).The above two examples demonstrate that making additional contributions is a relatively ineffective investment strategy unless you begin making them when you’re in your 30’s. That is not to say that you shouldn’t make them as it is a good force-savings plan. However, it means that you probably need to think of other investment strategies that you can implement in addition to super contributions.Worried about locking your money away inside super?Some people choose not to make additional super contributions because they are worried that the government will change the rules on them and they won’t be able to access their savings to fund retirement. Whilst it is inevitable that the government will continue to tinker with the superannuation rules, it doesn’t mean that we should ignore super altogether. The superannuation environment provides some taxation benefits – so ignore them at your own peril. I believe that super should play a material role in most people’s rMy new book out in mid-2026: To join the pre-order waitlist and get a bonus. More info go to: https://prosolution.com.au/book-preorder-bonus Do you have a question for the podcast? Email us at questions@investopoly.com.au. If you're interested in working with our team and me, discover how we can work together here: https://prosolution.com.au/family-office-servicesIf this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://prosolution.com.au/stay-connected IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

Over the past two years lenders have been incrementally increasing interest rates on investment loans and loans with interest only repayments (as opposed to principal and interest). As the chart below illustrates, the average interest rate margin between a principal and interest home loan and an interest only investment loan is now 1.04% p.a. As recent as January 2016, interest rates for these loans were virtually identical.This begs the question, should you switch your investment loan to principal and interest repayments to save approximately 0.47% p.a. in interest costs (i.e. difference between 1.04% and 0.57% in the chart below)?The conventional wisdom for interest only repaymentsThe conventional wisdom has always been to set up investment loan repayments as interest only. The rationale for this is it allows you to have better control and flexibility over your cash flow and capital. That is, it frees up more cash flow which you can direct towards the repayment of non-tax-deductible debt (i.e. home loan) or invest in other assets for example. But you could always make principal repayments at any time.This approach had strong merit whilst interest rates for all loans and repayment types were virtually equal i.e. there was no penalty for repaying interest only compared to principal and interest. However, now this has changed, does it still make sense to have interest only repayments?Our rule of thumbI have financially modelled the long-term impact of setting up an investment loan with interest only repayments compared to principal and interest (for people that still have a home loan). Obviously, if you set up your investment loans as interest only, you have more cash flow to repay non-tax deductable debt, as despite the interest rate being higher, the repayment does not include a principal component (only interest).Here is the rule of thumb that I have determined:If your total investment debt represents 40% or less of your overall debt, set up your investment loans on interest only repayments. However, if your total investment debt represents 40% or more of your overall (total) debt, then set up your investment loan repayments as principal and interest – subject to the exceptions mentioned below.The reason this rule of thumb works is because if your home loan is relatively small (compared to your overall debt) then any savings resulting from making extra repayments (i.e. if your inveMy new book out in mid-2026: To join the pre-order waitlist and get a bonus. More info go to: https://prosolution.com.au/book-preorder-bonus Do you have a question for the podcast? Email us at questions@investopoly.com.au. If you're interested in working with our team and me, discover how we can work together here: https://prosolution.com.au/family-office-servicesIf this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://prosolution.com.au/stay-connected IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

Tax is most people’s largest lifetime expense! Therefore, it is not difficult to understand how taking proactive steps to minimise your taxes can produce significant financial benefits. Different taxes will impact you at different stages of life depending on the wealth you have accumulated i.e. types of investments, amounts and ownership structures used.The common mistake that people make is that they are too short-term focused. That is, they focus on reducing taxes immediately, with little regard for the longer-term repercussions. Instead, it is prudent to employ a more balanced approach. There are four main taxes you need to consider.Income taxObviously, whilst you are working, income tax is a significant expense. Therefore, looking for ways to reduce your income tax expense is very important. There are several strategies that we can draw upon such as negative gearing, super contributions, shifting income and deductions between spouses in different tax brackets, tax-effective business income structures and so on.Future expected changes in employment income also need to be considered.It is also important to consider what your tax position might be in the future too, particularly in retirement. It might be great for one spouse to own all the investments assets prior to retirement (to enjoy the best negative gearing savings) but that might result in a very uneconomical distribution of taxable income in retirement.Finally, there is a common theme of income tax brackets flattening around the world with the top rate of tax in both the US and UK being under 40%. Therefore, it doesn’t make sense to be too convoluted with your tax planning/allocations as a small change in rules might eliminate any expected savings.Capital gains tax (CGT)You may need to sell investment assets at some point to reduce/repay debt or fund retirement. After all, you can’t take them with you when you die! Assuming you have been an Australian tax resident for the entire time you have owned the investment (and have owned it for more than 12 months), you should be entitled to the 50% CGT discount. This means that your effective CGT tax rate will be a maximum of 23.5% of the total net gain (being 50% of the highest marginal rate of 47%).If you invest in quality assets and hold them for a long period of time, any capital gain is likely to be considerable (in dollar terms). Therefore, the ability to share such a gain with other taxpayers (e.g. via family trust distributions) would save a reasonable amount of money. Tax payablMy new book out in mid-2026: To join the pre-order waitlist and get a bonus. More info go to: https://prosolution.com.au/book-preorder-bonus Do you have a question for the podcast? Email us at questions@investopoly.com.au. If you're interested in working with our team and me, discover how we can work together here: https://prosolution.com.au/family-office-servicesIf this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://prosolution.com.au/stay-connected IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

Financial stress is a terrible thing. I’m sure everyone reading this blog has stressed out about money at some point in their life. But the thing is, stressing about money doesn’t change the outcomes. Instead, it just ruins your day.So, am I suggesting that you should never worry about money? Not really. I believe that if you are doing all the right things then it will all work out well in the long run. And worrying about it in the interim won’t help. Taking all the rightactions and still worrying about money is a complete waste of emotional time and energy.Here is a list of things/actions that you might need to worry about.Spend without any consideration for the futureDo you think before you spend? Or do you consistently adopt the attitude that “you only live once and could be dead tomorrow” so I may as well buy it?Everything in life is about moderation. I know it sounds really boring, but it’s true. I believe that we shouldn’t continually deny ourselves the things we enjoy. Investing is a journey and it should be enjoyed as much as possible. However, by the same token, we can’t always buy everything we want either. Sometimes we must make sacrifices and compromises. That is, live comfortably within our means.If you regularly deny yourself some of the things you desire, then you probably have nothing to worry about.Have no idea how much you spend on general living expensesDo you know how much you spend on general living expenses (i.e. tell me an actual amount)? I don’t mean ‘guess’ or ‘estimate’. Have you actually sat down and worked out what that number is?Probably 80% or more of prospective clients I meet cannot tell me (accurately) how much they spend on general living expenses (i.e. everything excluding mortgages, investments, school fees and holidays). I would like to make two important points about this:You cannot manage what you do not measure. How do you know if you are spending too much if you don’t know how much you are spending? How can you make any plans or commitments without a clear picture of your cash flow?Most people materially under-estimate how much they spend. The problem is that there are probably 30+ items in everyone’s budget that consist of several small transactions. These small expenses can add up. Often people are surprised by how much they spend.Just knowing how much you spend is usually enough. You will find that you naturally become more carefMy new book out in mid-2026: To join the pre-order waitlist and get a bonus. More info go to: https://prosolution.com.au/book-preorder-bonus Do you have a question for the podcast? Email us at questions@investopoly.com.au. If you're interested in working with our team and me, discover how we can work together here: https://prosolution.com.au/family-office-servicesIf this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://prosolution.com.au/stay-connected IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

Over the past couple of years there have been many changes that have dramatically reduced your borrowing capacity. The Financial Services Royal Commission, government has put pressure on the banks to reduce investment lending and a directive to tighten lending standards just to name a few. If you are unable to borrow then your only alternative is to invest your after-tax income/savings… and that is a much slower path to wealth.But don’t despair. You can still leverage your assets and income to build wealth. It’s just that some of the rules have changed.Be more proactive and plan aheadGone are the days when clients would buy an investment property on the weekend and ring us on Monday requesting us to organise a new loan. It just too risky to do that these days (then again, arguably, it’s always been too risky). It is important to plan ahead as credit is much tighter these days and credit polices are changing regularly. This will help you project your future borrowing requirements thereby allowing your mortgage broker and you to work out the best time to make any required applications. You must be more strategic.You must maximise borrowable equityIn a constantly changing credit market it becomes even more critical to maximise your borrowable equity. Borrowable equity is the amount of unused loan facilities that you have access to. Maximising your borrowable equity requires you to proactively increase your credit limits to 80% of your property/s current market value.The three common benefits of maximising your borrowable equity include:(1) To fund future investment(s) and/or other uses such as home upgrade, renovation, etc.(2) To maximise your loan buffers in case of any unforeseen changes or expenses – the more access to credit you have, the lower your overall risk as you have adequate financial resources to weather most storms.(3) In case your borrowing capacity changes in the future e.g. start a family and go down to one income, change employment, move overseas, property values decrease, credit policy changes, etc. We never know what is around the corner.Watch this 5 minute video that I recorded last year to learn more.Start early and don’t waste timeBuilding wealth is more of a marathon than it is a sprint. Becoming financially independent takes time. And in an environment where money is more difficult to borrow, it becomeMy new book out in mid-2026: To join the pre-order waitlist and get a bonus. More info go to: https://prosolution.com.au/book-preorder-bonus Do you have a question for the podcast? Email us at questions@investopoly.com.au. If you're interested in working with our team and me, discover how we can work together here: https://prosolution.com.au/family-office-servicesIf this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://prosolution.com.au/stay-connected IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

Over the last few weeks we have been working closely with our advisory clients assisting them with end of financial year tactics. I provide a list below of some of the tactics that we have been implementing. It is worth taking a couple of minutes now to see if you can benefit from any of these.Additional tax-deductible super contributionsIf you are under 65 and generate some taxable income (i.e. working), you can make up to $25,000 of tax-deductible superannuation contributions per year (if you are aged between 65 and 74 you must meet the work test). This is called the ‘concessional contributions cap’ (“CCC”).Included in the CCC is any contributions that your employer has made on your behalf (i.e. the mandated Superannuation Guarantee Charge of 9.5% p.a.). If you have any insurance policies which are owned inside super and you pay for the premiums personally, then this amount is also included in the CCC (if in doubt, speak to your insurance adviser).This year (2017/18) is the first year that both employees and self-employed persons can make a personal super contribution from their personal savings and then claim a tax deduction for this contribution in their personal tax return. If you do this, you will need to complete a ‘notice of intent’ and give it to your super fund.For example, if you expect employer will contribute say $12,000 into super for the year ending 30 June 2018, then you can make an additional contribution (from personal savings) of $13,000 and claim a tax deduction for it. If your income is less than $200,000, then this $13,000 contribution will only attract tax at the rate of 15% within super (thereby possibly saving you 32% or over $4,000 in tax – which is the difference between the super fund tax rate and your marginal tax rate).Getting some more wealth inside superIf you are under the age of 65 (or between 65 and 74 and meet the work test), it might be worth contributing some of your savings (in your personal name) into super. This is called a Non-Concessional Contribution (NCC). The NCC cap for people with less than $1.4 million of super is $100,000 per year or $300,000 in one lump (bring forward the next three years cap).Super is obviously a very tax-effective environment (nil tax whilst in pension phase). Therefore, if you are approaching retiMy new book out in mid-2026: To join the pre-order waitlist and get a bonus. More info go to: https://prosolution.com.au/book-preorder-bonus Do you have a question for the podcast? Email us at questions@investopoly.com.au. If you're interested in working with our team and me, discover how we can work together here: https://prosolution.com.au/family-office-servicesIf this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://prosolution.com.au/stay-connected IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.