Goodbye Renting

by Tracy Lee Harvey

  into the back of another vehicle which had stopped at a roundabout.

  When the other car was hit it was pushed forward into the roundabout and hit

  from the side by another vehicle on the roundabout. Fortunately no one was

  hurt, but all three vehicles sustained serious damage. Because it was Bazza’s

  fault he would be forced to cover the costs, which amount to nearly $6,000. He

  was forced to sell his car to pay back the repair costs but the car sold for only

  $18,000. After paying back the vehicle repair and using what was left over to pay

  back the car loan Bazza was still left with an outstanding debt of $21,800.00 and

  no car. Bazza was now in financial debt with nothing to show for it. This debt

  would be paid of over the next three years, which put Bazza well and truly

  ‘behind the eight ball’.

  This is an example of how ‘must have now’ without any forethought

  for the future can impact your life.

  The moral of the story is that short-term decisions can have a long-

  term detrimental impact. So… before entering any personal loan

  really consider ALL the alternative possibilities. Now I ask you to

  read about an alternative. I would like to introduce you to Trevor,

  who incidentally is also a trolley boy.

  Trevor

  Trevor had never found school easy. At seven years of age he was

  diagnosed as having a mild form of intellectual disability, which wasn’t significant

  enough to get extra assistance through the schooling system. Although Trevor

  was exceptionally good at mathematics he was a long way behind in al other

  aspects of his curriculum. He was kept down a couple of years in the junior

  years but managed to struggle through to lower high school until his parents

  realised that the constant bullying and intimidation Trevor endured his entire

  school life was having a deep influence on his lack of confidence and poor self-

  esteem. When Trevor was 15 years old his parents decided to take him out of

  school to find a trade more in line with his capabilities and desires. They also

  believed that Trevor needed to have ownership of his own destiny so they asked

  him what he would like to do with his life. He told them that he wasn’t sure what

  job he wanted but was emphatic about being independent and having his own

  place to live in.

  Understandably, his parents were somewhat anxious about how this would

  be achieved given his disability, but gave their commitment to support him

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  nevertheless. After a lot of discussion they set led on a plan that would ensure

  Trevor’s wish could be achieved but could also provide long-term financial

  security when they were no longer able to look after him.

  Trevor was shown a simple graph that demonstrated the process by which

  he could get from point A to point B (his goal). The first step involved get ing

  some form of employment that provided an income. Of course, Trevor was

  entitled to a pension with entitlements, but after he was shown the limitations

  this placed on him gaining total independence, he decided he would rather find

  his own way from the start with the help of his parents, he filled out registration

  of interest for employment at workplaces that promoted their support to people

  with disabilities.

  Eventually, Trevor gained employment as a trolley boy for a large food chain.

  He earned $8.45 per hour and worked 20 hours per week. After tax, he took

  home $157.35 per week.

  He sometimes earned extra income when he worked after hours, public

  holidays or weekends.

  Trevor paid his parents $50 per week board and spent $15 per week on bus

  fares. He took his lunch to work every day and only spent $10 per week on

  incidentals. The rest of his income of $82.35 per week was saved. His parents

  showed him how to set up a fix-term deposit account for five years and they

  organised for the $82.35 of his wages to be direct-debited each week into that

  account. The account accrued more interest than a regular bank account. Trevor

  could put extra money in at any time but couldn’t touch it for five years (I.e., not

  without being financially penalised).

  Any extra income Trevor earned from penalty rates, he would keep and use

  for the movies or clothes or gifts.

  In the first year Trevor had saved $4,117.50 plus an accrued $205.85 in

  interest.

  Totals: $4,323.35

  In the second year Trevor had saved $8,440.85 plus $422.00 in interest.

  Totals $8,862.85

  In the third year Trevor had saved $12,980 plus $649.00.

  Totals: $13,629.00

  By this time, the interest on his fix-term account had risen another 1 percent

  and so had Trevor’s income. Trevor was now 18 years old and his wage went up

  to $13.74 per hour. He had also saved an extra $2,000 from penalty rates, after

  his expenses (which he kept in an access account). Trevor decided to keep

  $1,000 in his access account and raise the weekly deposit to $180 per week (his

  income was $240 less bus and board) to go into his fixed-term account. With the

  extra $1,000 he had saved plus the $9,000 per year he was now saving, he had

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  accrued a total of $25,046.75 with interest after the fourth year.

  After five years Trevor had saved $37,595.55 and was now working 30 hours

  per week.

  This was a very exciting time for Trevor because he was now only 20 years

  of age and was about to buy his own place to live. With his proud parents, he

  went to a mortgage broker to find out whether he could get a loan. As Trevor

  had a consistent savings record and had been employed for more than three

  months with the same company he was a good candidate. Trevor was now

  earning a regular income of $465 per week less tax. His annual income was only

  $24,000 per annum, but with his savings and first homeowners’ grant of $7,500

  he could borrow as much as $200,000. However, Trevor was a young man who

  stuck to his routine and didn’t like change. The initial plan involved buying a

  small one-bedroom unit close to work and shops, that was relatively cheap to

  pay of and that was what he wanted to do. His mum and dad had encouraged

  Trevor to start small and work his way up. They had already found a small unit in

  an area that was close to work and fitted Trevor’s needs in the lower end of the

  market. The unit was on the market for $110,000 but was sold to Trevor for

  $104,00.

  With the deposit of $45,000 he had a mortgage of $59,000. (If Trevor had

  taken a disability support pension this scenario would be quite different no

  mat er how much he had saved). His repayments, including body corporate fees

  and rates, were $508 per month. Trevor’s weekly budget included $40 per week

  for electricity and phone plus $40 per week for rates and body corporate, which

  was conveniently set up for the bank to direct-debit.

  The only help Trevor did want was the help of a support person (preferably

  around his own age), who could direct him with daily tasks and help with

  shopping and cooking a couple of times a week. An agency provided that

  regular support and guidance in life skills.

  Trevor continued to work diligently and followed his budget to the let er, but


  never missed an opportunity to enjoy his leisure activities such as seeing a

  concert or going to the movies because he planned for the event in advance and

  made sure the money would be there by put ing that bit of money away each

  week. Furthermore, he strictly followed the plan by paying his mortgage every

  week before the monthly payment was due. So fanatical was he about the

  payment that his inflexibility would sometimes annoy his carers. What they didn’t

  know was that Trevor was being incredibly conscientious with his future.

  Trevor continued to work happily as a trolley boy for the next year and paid

  every extra amount of money he earned of his mortgage. After the first year, he

  had paid an extra $3,000 of but more importantly had reduced the number of

  years on the loan by making weekly payments.

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  Just after Trevor’s 21st birthday, the unit next door went on the market. The

  unit was the same as his had increased in value some $25,000. He told his

  parents that he would like to buy that unit and did.

  By now, Trevor had gained a $25,000 capital growth on his own unit and paid

  more of the loan which meant he had equity of $68,000. Trevor hadn’t saved

  much money in the bank, preferring to pay it of his mortgage, but was able to

  get another loan to purchase the unit next door. He bought the unit for $130,000

  with equity from his first property. His support worker and family helped him get

  a tenant to rent the property at $180 per week. This more than covered the

  expenses of the mortgage and other incurred costs. Trevor was still only on a

  small income of under $27,000 per year but his assets had now grown to

  $265,000. Two years later, there was a boom in the property market and the

  prices lifted dramatically. Trevor had bought another property by this stage

  around the same price as the second one, but after the boom each property was

  valued at over $200,000.

  AT 24 years of age, Trevor had accrued assets valued at over $600,000 with

  a debt of less than $300,000. Furthermore, he was get ing large sums of money

  back on his tax due to the deductions he could make on each investment unit

  such as maintenance, agents fees, body corporate and rates. Guess what he did

  with his tax cheques?

  As mentioned before, Trevor was pret y good with mathematics and decided

  to dabble in other investments such as stocks and shares. He had some extra

  cash to play with but made sure that the amount he used for the stock market

  would not af ect his current investment portfolio.

  Trevor went alone to various seminars and forums of ered for free by

  consultants and stock market gurus. He listened, studied and researched in

  books at his local library. Then he began put ing some of that knowledge into

  practice by playing the stock market with pretend money. In other words, he

  watched the market, recorded amounts he would like to put into certain stock

  (without actually purchasing the stock) and waited for a determined period of

  time to see what happened. He tallied his losses and successes and found out

  what worked for him before using his own money.

  Years passed and Trevor remained a trolley man because he loved his job.

  By the time he was 30 he had amassed so much property that he’d paid of

  three units and was get ing an income from all the rents he was receiving.

  Furthermore, his stocks and shares had returned good dividends over the years

  and his wealth was now in the millions.

  The fact is while the circumstances may change from person to person, the

  formula is the same: Plan, work, save and invest.

  Remember, Trevor was always on a very low income and continued to have

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  a low working income but what he did with that money was make it grow. This is

  very achievable and a whole lot easier than you think.

  I retell this story to illustrate how some people can have exactly the

  same income as others but through a plan and focus can make that

  money grow. Just because you don’t have a high income to start with

  doesn’t mean you haven’t got the ability to build wealth and in this case

  to get your own home.

  Bear in mind, there are many people who are on high income, but

  through poor money management do not have their own home. This is

  generally because they have put a stranglehold on their income with

  accumulated bad debt such as luxury vehicles, numerous credit cards,

  and an extravagant lifestyle. I use the term ‘stranglehold’, because once

  you are in a situation of accumulating debt, owning items that only

  depreciate in value with no income return, it is very, very difficult to get

  out of it. Essentially, the debt continues to grow and you have to work

  harder and harder in order to make payments, with no relief in sight.

  Eventually the debt takes a stranglehold. By not allowing you to grow

  financially or to borrow for beneficial debt such as a home.

  So… as much as the income from employment might be great, the

  downside is that without good money management in place, you’re

  forced to live in hope that the income is always there, you never get sick,

  you don’t get retrenched and that you’ll always get a raise that keeps up

  with the mounting debt.

  Too much stress for me!

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  Body corporates

  What is a body corporate?

  A body corporate in Australia is likened to a Maori Trust Board in

  New Zealand or a strata corporation in other places whereby there is a

  management system for the subdivision of a building or land which is

  registered with the state. A body corporate can be created in any

  subdivision including retail, industrial, residential or commercial. In this

  particular instance its primary role is to manage and administer a legal

  structure by which unit owners can benefit from common property

  together and therefore manage those common areas on the property. This

  may mean the maintenance and upkeep of the surrounding gardens,

  rubbish disposal, carport, tennis and pool areas.

  Incidentally, if you decide to buy into a Body Corporate situation

  there is one question you must ask that many do not.

  Question: ‘How much money is in the Sinking Fund?’

  This is a question that I always ask the real estate agent, but generally

  I get the standard response. “I’ll have to get back to you on that one.”

  For novice purchasers (and I am assuming a first home owner is

  usually a novice), the sinking fund is a portion of money that is used for

  maintenance jobs and future projects that will be required as the property

  ages. A forecast is usually made by a conveyancer predicting the kind of

  work that will be needed in the future and as such the owners (through

  their body corporate instalments) contributes to the sinking fund for

  work that is likely to be needed down the track.

  While you may think the property is affordable at the time of

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  purchase, there could be expenses you haven’t considered that probably

  weren’t identified at the point of sale.

  One of those expenses could arise from the lack of funds in the

  ‘Sinking Fund’.
>
  Here’s what can go wrong in a body corporate situation if there isn’t

  sufficient funds in the sinking fund…

  A boundary timber fence

  In this case the rather large maintenance problem was a timber fence.

  The fence surrounds the perimeter of eight units with bordering fence in

  between. The units are approximately 18 years old. The problem with

  the fence was that apart from being tired in appearance and consequently

  reducing resale value, it had wood not in some parts, termites in other

  parts and a large number of pickets were missing. The fence also

  contributed to its dilapidated appearance. The body corporate committee

  decided that it was time to put up a new fence in part because of the

  appearance but also because it was becoming a potential liability to

  passersby and owners and/or tenants.

  Quotes came back at between $15,000 for a new timber fence to

  $18,000 for a Colourbond fence. This was the problem, as the sinking

  fund only had $6,000 in it. Now, after 18 years of body corporate

  payments, you would think that the monies in the fund would have

  accrued to a much higher amount? Not so.

  The reason was that the owners in the past didn’t want to increase

  their sinking fund levies to stay in line with the forecast. They just

  wanted to pay the absolute minimum amount, not even keeping up with

  the CPI (consumer price index) year after year.

  So, when things went wrong or needed fixing, the sinking fund

  money was quickly eaten up with things such as pest treatments and

  quick-fix maintenance which due to the age of the building was needed

  more and more often. Until - the ‘crunch’ came - a large maintenance

  problem arrived and there wasn’t enough money in the sinking fund to

  cover it.

  So what does this mean? It means that the new owners who bought

  into the premises in recent years were forced to incur an added expense

  called a ‘special levy’ on top of the usual body corporate fees.

  In this case the owners were required to pay an extra $600 per quarter

  for the next 18 months.

  Were they happy?

  No they were not!

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  But if they had checked the Sinking Fund amount as opposed to the

  age of the building, the number of units and the work that was obviously