Jimmy Prince has taught students at the CAE how to be smart with money for 30 years.
With over half a century of experience as a tax consultant, Jimmy has helped Australians far and wide navigate their tax returns. He is also the author of Tax for Australians for Dummies, which recently published its tenth edition.
Having been devoted to facts and figures in his career, he said writing was something he fell into.
“When I first started writing books, I rang up my publisher and said, ‘how come you’re always publishing me?’ and he said, ‘well, it’s because you can explain things in simple terms’.”
It’s this quality that has made Jimmy a staple of the CAE and has helped hundreds of students manage their finances and make smart investments.
In Building Wealth with Real Estate, Jimmy gives students honest insight into the advantages and disadvantages of investing in real estate.
“If I were a real estate agent, I would be emphasising the advantages of getting into property. Whereas for me, the idea is to tell them these are the good bits and these are the bad bits. You’ve got to be aware of the pros and cons.”
We asked Jimmy for four key things to watch out for before you invest in real estate:
The affordability ratio test
There’s a simple test Jimmy asks all his students to consider before investing in property: the affordability ratio test.
Put simply, the affordability ratio test is about comparing the amount of money you earn to the value of the property.
“To repay a loan, you’ve got to make sure that you have 30% of your household income devoted to paying for the home. Anything above that, we call mortgage stress – you can’t afford to pay off the home and support yourself at the same time,” Jimmy explained.
Land and asset ratio test
If your primary interest is to start or build a property portfolio, Jimmy has another test in store for you: the land and asset ratio test.
“You need to look at the size of the block. When you’re buying real estate, it’s the land that appreciates, the building depreciates. That’s why it’s important to know the size of the block, because that determines whether you can build two units, four units, or whatever you want to do with them.”
Jimmy’s rule of thumb is that properties of 700m2 and larger give you flexibility to build a new house, or subdivide a property.
Beware the extra fees
As well as budgeting enough for the purchase of a property, it’s important to budget for the ongoing costs it will incur.
“With real estate, there are ongoing costs – rates, land tax, insurance, maintenance, repairs,” Jimmy said.
In addition to ongoing repairs and maintenance to the property, Jimmy noted that it’s important to consider the other costs that go into purchasing a property. He uses hypothetical scenarios to explain this in his classes:
“You’re at an auction: the price is $1.3 million and you’re the highest bidder. Someone bids $1.35 million, so you up your bid and all of a sudden, you’re paying $1.4 million. Everyone comes up and pats you on the back and congratulates you. Then me, the accountant, comes up to you and says ‘You realise you just lost $80,000?’ Because now you’ve got to pay stamp duty. That’s $75,000, you’ve got to pay your agent’s commission, and all of a sudden, it’s not as good as you think.”
“You’ve got to be wary of these things.”
Share market or real estate?
Real estate is not the only area of investment that Jimmy has experience in. He’s also an experienced share market investor, and teaches the ‘Introduction to the Share Markets’ course at the CAE.
In Building Wealth With Real Estate, he explains the advantages and disadvantages of both opportunities, using his industry knowledge.
“Let’s say you buy a $1.3 million property, that will only generate $20,000 in revenue, whereas shares could be generating $60-70,000 in revenue in that time. But you have to realise that property is a long-term investment. In property, you don’t make your money from rent, you make it from capital growth.”
“Shares are highly liquid, that means they can be converted back to cash within a matter of days. With real estate you can’t, it might take weeks, months, years to sell.”
These are just some of the fundamentals you can learn at the CAE. Want to know more before making your next investment? Take advantage of Jimmy’s experience and join him in an upcoming personal wealth management course.
Disclaimer: The above information is for informational purposes only and does not constitute financial advice. Always consult a professional before making investment decisions.