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Ask Noel

I'M 36, have $60,000 in savings and own a $400,000 apartment. I earn $50,000 a year from contract work. Without job stability, I'm reluctant to take on a mortgage. How can I build wealth?

I'M 36, have $60,000 in savings and own a $400,000 apartment. I earn $50,000 a year from contract work. Without job stability, I'm reluctant to take on a mortgage. How can I build wealth?

You've done well to date for a person whose income is irregular. Job instability may well make it a challenge to commit to a mortgage but you could still make regular deposits to an investment plan without any sort of commitment. Another option is to invest in a geared share fund, which would provide the benefits of leverage without the necessity for you to make loan repayments. The internal gearing means these share funds can be volatile so take advice and make sure you understand the product before you invest.

We owe $140,000 on our home worth $300,000. We'd like to buy land and build a home to live in within the next few years. If we buy this land as an investment property now for the purpose of claiming interest, buying costs and maintenance fees, do we have to pay capital gains tax when we start building?

You don't pay CGT until you dispose of a property, so building on it won't create a CGT liability. However, if you move to the new place when it's built and retain the original home, you will be liable for CGT on any increase in the value of the existing home from the date you make it available for rent. You cannot claim interest, rates, etc, on the vacant block as it's not income-producing. But if you decided not to build on it and eventually sold it, they would be included in the base cost and reduce any CGT liability.

My grandmother recently passed away and left her home to my mother and her sister. My partner and I have offered to buy it. My mother wants to give/lend us her share of the property and we will borrow the rest. What would be your advice?

Take advice before you act because your mother's aged pension entitlements could be adversely affected if she is of pensionable age or within five years of it. Also, keep in mind that to be successful in real estate investing you should try to find a well-located property at a bargain price. By buying the deceased's property, just because it is available, you are restricting yourself. I suggest you look at what other properties are available before you decide to buy this one.

My wife and I earn $180,000 gross combined. We own a $500,000 investment property and also own our home worth $900,000. Our home has the full amount in an offset account, while the investment property has $150,000. I also have $150,000 in managed funds/cash. Our home needs major renovations costing $400,000. How should I finance the renovations?

If you have $900,000 in your offset account and you intend to remain in that home, simply withdraw the money in the offset account. This is a much better option than taking out a non-deductible loan for a private purpose. On the other hand, if you intend to rent out the house in the foreseeable future, borrow for the renovations as the interest would be tax deductible once the house is rented out.

Noel Whittaker AM is a co-founder of Whittaker Macnaught. Advice is

general and readers should seek their own professional advice.Contact noel.whittaker@whittaker macnaught.com.au.

In recent years I have come to believe that we "normal" investors have little or no influence on the price of shares. Do you think this is correct?

You have highlighted one of the basic differences between property and shares. If you buy a property you can improve it by adding value or ruin it by neglecting it. The sharemarket is a different animal entirely it will be influenced by a multitude of factors that are outside the investor's control. This is why a savvy investor will have a diversified portfolio and understand the way each investment type works.

Questions to: Ask Noel, Money, GPO Box 2571, Qld, 4000, or see moneymanager.com.au/ask-an-expert.


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