How to Use Your Equity for an Income Stream

Another alternative to HEAS is that you can downsize your house and, with $6 million, move into a swanky retirement complex and still have millions left.

I am 65 years old, my wife is 60 and we both work part time. Together we have $700,000 in pension, own our house plus an investment villa, of which we receive $590 a week in rent. We also have $600,000 in cash in the bank and don’t earn much interest. After visiting a financial advisor, we were wondering what your thoughts are on a managed discretionary account (MDA) as a way to preserve our capital and provide a stream of income once I retire next year? My wife plans to continue working. SW

When the federal government banned trailing commissions to financial advisors, the question arose how their companies could survive? Faced with hours of work seeing clients and creating reports – Statements of Advice – those who charged one-time fees began charging thousands of dollars for their services.

One-time appointments, however, create unequal revenue streams to their companies, and it’s much better to have steady streams. That’s despite often exorbitant annual fees from the Australian Securities and Investment Commission.

So you can see why advisors use MDAs, and there are any number of software systems out there offering to maintain these accounts. The questions to answer are: Do you really want an MDA? Have you managed without it before? Would you feel happier if you handed over your portfolio to someone else to manage? If you do that, the next question is, what will it cost and how does it compare to other MDAs?

As a general observation, most people go through their working lives and leave their super in their fund’s default option. A smaller number seek financial advice and choose to leave their portfolio to an adviser. Which group would you like to fall into?

I have had a vacation unit in a block of 10 since 2007 that I have never rented. I intend to sell and I know I will pay capital gains tax (CGT). I read an article that said I can claim the legal entity fees as part of my cost base to reduce my capital gain. Can you clarify this? Can I also claim the rates? mmm

The Australian tax office lists five elements of a cost basis. The first is the price paid, the second includes the cost of buying and selling – stamp duty, advertising, etc. Also tax advice, if made after June 30, 1989.

Your question relates to the third element, which includes the cost of owning a CGT asset – expenses that have not been offset against income as there were none in your case. These include rates, legal fees, repairs, land taxes, insurance, mortgage interest, etc., provided the property was purchased after August 20, 1991. Make sure you have receipts.

The fourth and fifth elements cover any capital costs to maintain or increase the value of the property. For example, applying for zoning plans and defending your property.

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Consult a tax advisor if you are unsure. Selling a home often involves a lot of money.

  • The advice in this article is of a general nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that considers their own personal circumstances before making any financial decisions.

If you have a question for George Cochrane, please send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. All letters answered. Helplines: Australian Financial Complaints Authority, 1800 931 678; Centrelink pensions 13 23 00.

#Equity #Income #Stream

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