The Importance of a Good Financial Plan With - Kora Drage

The Importance of a Good Financial Plan

In This Episode

In this episode of the WA Property Q&A podcast, Peter has an in-depth interview with Kora Drage, a financial advisor from Visia Financial Services. They dive into the nuances of buying property in Western Australia, exploring some important topics that are often ignored or neglected, including

  • the importance of having a financial plan,
  • differences in generational financial strategies,
  • the advantages of adopting a financial plan early
  • the role of property in personal finance,
  • specific strategies young and first-time buyers can leverage
  • and various government schemes like the First Home Super Saver Scheme to assist first-time homebuyers.

In addition, the discussion also covered the significance of diversification in investments, advantages and potential risks associated with investment in property compared to share portfolios, and the impact of life circumstances on financial planning.


00:00 Welcome to WA Property Q&A: Unveiling Property Buying Secrets in Western Australia

00:53 Meet Kora Drage: Financial wisdom for property buyers

02:09 The power of financial planning – insights from Kora Drage

05:17 Navigating property investments, strategies and advice

09:24 Exploring DIY financial planning and its impact

12:24 Leveraging government schemes for first home buyers

25:55 Investment strategies: property vs. shares

36:18 Understanding insurance in your financial plan

43:19 Wrapping Up – key takeaways and how to connect

Links and Resources:


Peter Fletcher

[00:00:00] Peter Fletcher: Welcome to the WA Property Q& A, the podcast where I explore the ins and outs of buying property in Western Australia. I’m your host, Peter Fletcher, and each week I interview local property experts to help you to develop a deep understanding of the nuances of buying property in WA. From market trends to legal considerations, no topic is off limits.

But before we dive in, a friendly reminder, while we provide valuable information, It’s important to note that nothing discussed in this podcast should be construed as personal investment advice. Always remember to seek the appropriate professional advice for your specific circumstances. Now, let’s get started and unlock the secrets to successful property buying in WA.

Thank you. Thanks for having me. Yes. And my special guest today is Cora Drake. Cora owns and operates Vizia Financial Services in Burnswood. And Cora, if I get any of this wrong, just jump in and correct me. What Cora does is provide expert, independent, compliant financial advice for all sorts of people.

And the whole idea of Cora Correct me if I’m wrong, is that you want to empower people to make this decision?

[00:01:24] Kora Drage: I do, I definitely do. And I think the only thing I have to correct that you just said in the intro is independent. And I would, I would prefer to use the term objective and independent is a specific term that’s enshrined in law that can only be used by financial advisors that don’t take responsibility.

Commissions, and we do receive insurance commissions for clients when they have products that are set up through an insurance company. But we are very big on being objective. All of the insurers do pay us a success fee in the same way that a mortgage broker does get paid for the services they deliver.

But we are giving advice to the client for the client and for the best position that it puts them in. That’s something that we do feel very strongly about.

[00:02:08] Peter Fletcher: Yeah. So why should somebody have a financial plan? What’s the G I D?

[00:02:15] Kora Drage: Well, I think that we all have a financial plan, whether it’s one that’s, you know, manifested onto a piece of paper or it’s an idea that we have in our head and a direction that we’re going.

I really love this saying by Yogi Berra, not Yogi Bear, but a yogi. And he says, if you don’t know where you’re going, you’ll end up somewhere else. And I think that finances, they fund your life. So whether you want to go on a holiday, whether you want to buy a particular supplement or live in a specific area, money funds that.

And so having a plan that will map out where your money is going, I think is very empowering. And I know that there’ve been a lot of studies around goals and planning. I think there’s the famous Harvard study. about students that set goals at the beginning of the year. And if they wrote them down, they were more likely to succeed than 80 percent of the class.

But there were this top 3 percent where if they looked at their written goals every single day, I think 10 years later, they’d amassed more wealth than the whole 97 other percent as a proportion. And so having something documented and that you’re looking at and constantly focused on, I think that that is a driver.

And I think sometimes, well, in this day and age, we do need drivers. We do need to be reminded of what we’re working towards.

[00:03:38] Peter Fletcher: So when I was growing up, the whole thing was, You know, no one even talked about a financial plan. It was first job is saving up money, get a deposit and buy your first home.

And that was kind of like the financial plan.

[00:04:00] Kora Drage: Yeah. I one of the. One of the most frequent things that I hear from my father in law is back in my day, we just had to buy a house and pay it down. And that was all we did. We just tried to pay the house down. None of this holidays, none of this. Buying the next car or the newest car.

And so I think that generationally having dealt with people from, I think the youngest client I advised was 22 through to clients in the eighties, there is a huge difference in the way that people approach their money and how they spend and how they live. And historically those. older clients, they, their focus was to pay down the mortgage.

And then once they paid down their mortgage, it was to save. And once they’d saved enough, then they could think about retirement and their retirement expectations. Typically, I would say are very different to the retirement expectations of clients that I speak to in their forties who want a hundred thousand dollars to live plus 50, 000 to travel every year.

And they’re going to need 10 million at retirement. as opposed to the traditional rule of thumb, which is if you save a million dollars, you get 50, 000 a year to live on for the rest of your life. So financial plans, they vary generationally, I would say.

[00:05:17] Peter Fletcher: Is it still a thing where you would advise someone as their first port of call to, to get their name on a title, by their first name?

[00:05:27] Kora Drage: Well, firstly, I will say property is not a financial product, and therefore I can’t make recommendations as to whether or not you should buy a house. But what I have seen over and over when I model out the scenarios where clients buy a house versus potentially focus a little bit more on lifestyle because typically that is rather than investing it elsewhere.

It is security. And I’ve read some studies around retirees and financial stress in clients that are older, in individuals when they’re in those later years maybe in the tail end of their careers or heading in towards retirement. The financial stress comes from not having that home security.

[00:06:08] Kora Drage: And so I think there was a big conversation at a government level around accessing superannuation for a deposit and these different schemes at the last election that they had thrown around these ideas. To not have your own home in your retirement years can be incredibly challenging and stressful. And so if you can get in early and you can have that solid financial foundation as the capital appreciates, you have more choice, you have more flexibility. And so I think that having that foot in the door to the property, particularly while we’re seeing such rapid growth at the moment, lots of people feel disillusioned that they’re not going to be able to get in.

And we have a number of clients who bought in their twenties. They bought early, jumped in, did exactly what my father in law said, get a deposit by a house, pay it down. And you can see the difference in their financial position, but also in their confidence with making financial decisions and lifestyle choices around parenting, taking time off to be there with the baby when they go to that next stage of life or even later when they’re preparing for retirement.

[00:07:11] Peter Fletcher: So even though property is not a financial what’d you call it? Product. It sounds like it’s still pretty much a core thing that people is worth doing.

[00:07:25] Kora Drage: Yeah, it’s a financial asset and we definitely have conversations about what does it look like if this asset were to grow, whether you have your home or you have an or multiple investment properties.

It’s important to factor that in. It’s the great Australian dream. Everybody, well, a lot of people have it. Not everybody. There is a housing shortage, but most people, that’s what they aspire to do. I think where financial advisors have been perceived as negatively talking about property is more so around diversification, where it’s a component of your financial life, but it’s not your whole financial life.

There are lots of people They have multiple properties and they have say they had four properties and all of their wealth, all of their equity is tied up in four individual assets. Well, you wouldn’t buy a quarter of a million dollars of BHP and a quarter of a million dollars in CBA and think that that’s a diversified portfolio.

And so. Definitely. However, you are subject to the volatility of that one single asset or two single assets. And if they bought in Ascot and it’s not performing as well as South Perth, well, you can’t just buy a little bit of a house here and a little bit of a house there, unless you looked at a unit.

Property trust where you can diversify, but it’s not in residential property. It is not the same. So I think having explored, I personally own property. I also own my office and I think it’s important to have appropriate assets based on your own situation and circumstances, but we also have diversified away from that in terms of equities and making sure we have sufficient cash buffer.

In the event of emergencies. So it’s a bit broader than just having a property. It’s about adding to that portfolio of assets.

[00:09:24] Peter Fletcher: And what’s your thoughts about the kind of DIY financial planning that has sprung out of Scott Pape’s share for the investor? I think you can almost tell people, tell the people that have read Barefoot Investor because they stand in front of you at the checkout and they pull out the orange INT card.

Yes. Barefoot Investor. Yes. Well, what’s your thoughts there? Is he, has he done some good?

[00:09:54] Kora Drage: I do think he has done some good and he used to be a financial advisor I understand back in the day before commissions were removed. on investment products. And there, there was, I think he was a pre GFC advisor.

I think at the core of what he talks about in financial management, it is actually a very powerful tool. We definitely use budgeting and financial planning in our

financial plans as the core of wealth management. However, I have, I’m somewhat torn because I have a level of envy that he can sell a book for 30 at.

came out or Big W and I have to go get a degree, be qualified, be registered, pay licensing fees. And so finfluencers, I think, are great conversation starters. And I think that a solid foundation of a good budget from a young age is great. And I know that. commend him for starting that conversation. However, he doesn’t have the same responsibilities and obligations.

As I just said earlier at the start of the podcast about an enshrined term, financial advisor is an enshrined term. And it’s because we have responsibilities and obligations and we can’t just over a barbecue say you should buy BHP shares because they’re great. Because if the person that listens to that advice loses money, there’s a risk that we’ve given inappropriate advice. We have insurances that will cover us in the event of errors or issues. And you just don’t get that with a book or with a finfluencer or a suggestion.

[00:11:31] Peter Fletcher: So being that this is going to go live, what cheers do you recommend? So let’s talk about for a bit, because Like real estate is where my passion lies and it’s core to where, like the Australian Sophian and you and I working with, you know, some of the same people in this space, how does it, what is the fast track method for a young person to get their name on a title?

[00:12:07] Kora Drage: Well, very interesting, I actually presented to a group of young professionals a couple days ago, and. I didn’t ask their ages, but this girl did definitely look like she was in her mid twenties, very proudly picking up the keys to her house this week. I said, Oh, that’s fantastic. But have you heard about the First Home Super Saver scheme?

And nobody in the room had heard about it. And so really great that she and her partner have been able to save enough, buy a house and be able to get their foot in the door. However, what became available in 2022 is the ability to make contributions into a sub account in your superannuation that is deemed first term super saver scheme.

If you’ve never owned property before, you can contribute up to 15, 000 pre or post tax. So you can claim a tax deduction and save yourself net about 5, 000 a year. and then withdraw up to 50, 000. So you’d have to wait at least three and a bit financial years. You put 15k

[00:13:08] Peter Fletcher: in per year, is that right?

[00:13:11] Kora Drage: Correct.


[00:13:13] Peter Fletcher: so up to,

[00:13:15] Kora Drage: up to 15, 50, 000.

[00:13:18] Peter Fletcher: So you can put in four tranches of 15 plus five.

[00:13:23] Kora Drage: Three tranches of 15 plus a five. My bad.

[00:13:26] Peter Fletcher: Don’t judge me.

[00:13:27] Kora Drage: And then the really cool thing is, The government will then give you an interest rate of the RBA rate plus 3%, so you’re getting over 7% interest in addition to saving your marginal tax rate.

[00:13:43] Peter Fletcher: That is just a no brainer, that that is just an absolute no brainer. So you get, you’ve got 15 pay in, you get it $5,000,

[00:13:52] Kora Drage: well, you get a personal marginal tax rate deduction. Yeah, let’s call that five. Let’s say they’re on the 34 and a half percent.

[00:14:03] Peter Fletcher: Like I can take the liberties that Cora can’t. So 15, 000 in you get a, you get 5, 000 bucks. Back at tax time. Back in tax that you could put straight into your ING. That’s right. It’s a Macquarie now. And earn a high rate of interest as well.

[00:14:22] Kora Drage: That’s correct. And so if it gets taxed 15 percent on the way into super, but if you’re getting more than 7 percent interest, your total tax on that 15, 000 is around the 7 to 8 percent mark.

And so that’s a fantastic outcome for anyone. So with that young girl, her and her partner could have each saved 15, 000 a year. Each contributed a 50, 000, 7 to 8 percent taxed deposit. What would that extra 30, 000 do for their new home? Whether it’s the garden, whether it’s furniture, whether it’s paying down a giant chunk of the mortgage from the outset or a bigger deposit to buy a better house.

So I think that there are some great things young people can do. The prices are obviously higher than they used to However, there are some great Schemes, this is specifically a government scheme that can help people with that. I do understand there’s also an LMI government guarantee scheme for first home buyers in different capital cities.

I know in Western Australia, it’s 600, 000. So long as you have a 5 percent deposit and LMI, then the government can kind of back that and you get treated like a person with a full 20 percent deposit. So I would say.

200, 000 I think it might be as a combined income. Yes. Correct. Correct. Yes. Or 150, 000 as an individual. I don’t remember exactly, but there are some great support schemes out there for people to get into the market, I think.

[00:16:01] Peter Fletcher: Mm hmm. That, that super scheme. So when that first came out, it sounded dreadful because it sounded as if, well, we’ll

[00:16:11] Kora Drage: pull money out of their super,

[00:16:13] Peter Fletcher: they’re going to retire on no money, which is, it’s not that it’s, you put the money in first and then you draw back out against, yes, you do.

[00:16:22] Kora Drage: And yeah. One really big, very important step in this is that you have to request the money back out of your superannuation via the ATO MyGov portal before you sign a contract. So there’s an important process to get it out, because if you don’t follow that process, the government says Actually, that’s staying in super until you retire.

So it’s a great scheme, but they want you to follow the process to the letter of the law. Oh

[00:16:50] Peter Fletcher: my God, wouldn’t that be a surprise for some.

[00:16:52] Kora Drage: Yes.

[00:16:53] Peter Fletcher: They got that.

[00:16:54] Kora Drage: Definitely. But it’s also not just for young people because I had, I met with some clients that were aged 61 and 65 that were born overseas and they’ve never owned a home in Australia.

So he actually already has full access to his superannuation at age 65, but we have the ability to use this scheme to get them these great tax deductions and they can sign a contract. They already have a house that they’re ready to buy. They sign the contract a week later after the contribution’s been put in and claimed.

So it’s not just something for young people. It’s for people that haven’t owned a home in Australia. And if one party has and one party hasn’t, it doesn’t prevent the party that hasn’t from using the scheme with someone who’s already purchased property before. So it’s far more flexible than previous first homeowner grants.

So I’ve, I love it. I’ve recommended it to numerous people.

[00:17:48] Peter Fletcher: Yeah, look, I’ve known about it for a while, but it was, yeah, the other day when we met and you explained it to me, I thought, wow, this is just a no brainer. You just, Would be raising.

[00:18:03] Kora Drage: Definitely. And I think I’m sure he won’t mind me referencing him, but my brother, we talked about him purchasing a property several years ago.

And I said, I don’t know when you’re going to be ready, but let’s just do this. Let’s do the contribution. We actually thought he was going to be ready to buy last year. So we quickly did a one off 15, 000 lump sum in July. And the house that he was looking to purchase didn’t quite Come through. And so he’s still looking, hasn’t found quite what he wants and he’s just been contributing throughout.

So actually, sorry, that was his third 15, 000 contribution. If he doesn’t make it till July, if he doesn’t buy by between now and July, he’ll do the final 5, 000. And from the beginning, we thought, Oh, maybe we’re ready now. And that was calendar wise only two years ago, but it’s three financial years ago. So you can actually use, do the whole 50, 000 of savings in the space of two years and one month.

If you start in June and you finish in a July, so he’s very, because he doesn’t even think about it, it now comes out of salary sacrifice. It’s just automatically set up to go

[00:19:12] Peter Fletcher: well, okay, so you don’t have to save the money. You don’t have to save the 15,000 and then put that in as a lump sum. You can put it in at 1000 whatever a month.


[00:19:25] Kora Drage: yes.

[00:19:27] Peter Fletcher: So the reason why we’ve, and so you set that up with your. with your employer into a specified sub account within your super fund?

[00:19:37] Kora Drage: No. So the sub account exists on the ATO portal where the ATO has tracked voluntary contributions that could form a part of that. So it’s a, it’s an imaginary sub account the ATO, the government has created, but you would just tell your employer, please salary sacrifice 1, 250 a month, or X amount per pay and any,

[00:20:00] Peter Fletcher: And you give them the relevant numbers.

Well, if they’re already, as in bank account numbers,

[00:20:08] Kora Drage: It’s not even a bank account. It just, if you have Australian super, or if we’re talking about Scott Pape, I think he’s a fan of Host Plus. If your employer’s already making contributions into that super fund. They just add additional contributions to your existing super fund.

You don’t have to do anything other than tell them. The condition is that you

[00:20:27] Peter Fletcher: How does the government know that is extremely dangerous?

[00:20:30] Kora Drage: So the way that super contributions are coded is super guarantee, so it’s an employer mandated. You cannot access your super guarantee. But if it’s voluntary pre tax contributions, so salary sacrifice, or you’ve made the contribution and claim the deduction, or non deductible You know, that thousand dollar co contribution that the government talks about, that’s a voluntary contribution.

So that would form part of that sub account that they could then choose to redraw in the future.

[00:20:59] Peter Fletcher: Yes. Do they need a financial planner to do all that?

[00:21:04] Kora Drage: They definitely can do it themselves. I think that what I found with this team, this young team that I spoke to on Wednesday. The reason why they needed a financial planner was to tell them that the scheme existed.

And so what we do when we give financial advice is we go through a process of fact finding, finding out about their scenario, and I educate them. I talk about

these are the sorts of strategies that might be helpful for you to know about. This is how salary sacrifice works. This is the first time super saver scheme.

This is why you might want to have some insurance. This is how budgeting works. So our initial meeting is very much around education and options. I don’t give them advice, but I do help them understand in general terms, what is available to them. Lots of people can go to their employer without a financial planner holding their hand and say, please salary sacrifice into my superannuation.

And they can work out if there’s nine months left in the financial year, how to divide 15, 000 by nine months. The one thing that I have encountered with a client who use this via the employer and not personal contributions is that if your employer delays making the contribution into superannuation, So it’s accrued on your payslip.

The employer isn’t actually obligated to pay that until the quarter after, or the month after the quarter has finished. So if you have salary sacrifice in October, you sign a contract in December, but the money isn’t contributed until January, it would have been a better idea to do it personally. But I think I’m getting a little bit too into the logistical technicalities of how the scheme works.

[00:22:48] Peter Fletcher: Transcribed Okay, so we’ll, we’ll accept that that is a really good idea for first home buyers.

[00:22:57] Kora Drage: We can put the link in the podcast and you can go to the, directly to the government website with the explanation.

[00:23:04] Peter Fletcher: We will do that. Yes. What a great idea. Thanks. Now talk to me about other things that first home buyers can do.

Let’s say you’ve got a hundred grand sitting in bank account you for whatever reason you just don’t want to pull the trigger Would you suggest just putting what the majority of that into a high interest account or are you? Inclined to say to people go and buy and you know some Take some of it and put it into an ETF or something like that.

It depends. And I get that. Yeah. What you’re, this thing is going to say, well, it depends on people’s circumstances, but it’s just.

[00:23:49] Kora Drage: I would say it depends on their timeline, not just their circumstances. So we had a client receive an inheritance last month and he’s on a fixed mortgage. And so he doesn’t want to pay out t

He does want to hold it in offset, but for the next four months, Cora, can you tell me how I should invest this money now in the next four months, the market could go up 10 percent and could go down 10 percent could move. far higher than 10 percent either way. And so the most important thing is the timeframe before you want to access that money.

So in the GFC, the market took 18 months to get from the top to the bottom. In COVID, it was a month. So the markets can move very quickly. So if you have a quick timeline, a short timeline where you want to be able to access that money back out to buy a house. Then growth assets aren’t necessarily the best thing to do.

If you’re not quite ready to pull the trigger and buy a house. That’s fine, but I think a high interest account is a good solution because I do know that there’s accounts that pay you four and a half percent on those high interest, even if it’s on a five month five month bonus interest introductory rates.

You can get some great interest rates whilst you’re searching. But if it’s beyond that timeframe, if you’re thinking more a year to two years to three years, you’re building up that deposit. Then I love the idea of having dollar cost averaging and making regular contributions into a portfolio, whether it’s an ETF, whether it’s a managed fund, whether you are a speculative share trader and you love doing that.

I like, I love that people are interested in wealth and would like to build their wealth in other ways rather than just sitting in cash.

[00:25:37] Peter Fletcher: So someone buys a property and a few years later, they’ve started paying down their mortgage or perhaps instead of paying down their mortgage, they’ve started accumulating money in an offset account and they have some equity.

The property’s gone up by a couple of hundred. Now I’ve got some equity, what’s your thoughts on investment properties versus share portfolios?

[00:26:04] Kora Drage: It comes back to that question of diversification. I think that there’s lots of coming from a European family and married into a European family. Bricks and mortar is definitely something that people love.

They can see it, feel it, touch it. They know it’s there. It exists. Not everybody understands shares, managed funds. They don’t understand how unit trusts work. And so if they don’t understand it, it’s easier to go down the path of

property. When we meet with our clients and we model scenarios and they have 200, 000, they’re willing to invest, We will run a scenario.

Okay. Well, what sort of ideas do you have about that? Oh, what if we bought this sort of house using this deposit? Okay. Okay, great. Let’s punch in those numbers and what is the outcome? And we extrapolate out the short and the long term wealth impacts. There are some assumptions that we make around growth rates and interest rates.

And the same thing goes for managed funds. The same thing goes for salary sacrifice into super. So we take a look at that 200, 000 and depending on their age. So someone in their thirties has 30 years before they access super, whereas someone in their fifties, far shorter timeframe. And salary sacrifice offers this phenomenal tax saving.

It’s in effect, if you’re on around a hundred thousand dollars a year, it’s a guaranteed tax saving of 19 and a half percent. So I don’t know about you, but that’s a pretty good return. Even if you were to contribute only into cash holding in your superannuation, you’re too anxious to look at market investments.

So the recommendations we would make to clients depend on how soon they’re wanting to access it, what risk they’re willing to take, and awareness of what it actually costs to buy that property. So, stamp duty, LMI, repayments, interest rate fluctuations, vacancy period. Now, we don’t have vacancy at the moment, we have very, very low availability of rentals, but we need to look at the long term.

So, When we were modeling scenarios for clients three years ago, when interest rates were two to two and a half percent, that’s not real. That’s not a long term real interest rate. When we model with clients, we do a six and a half percent interest rate because that’s actually a long term average. This, what we’re experiencing now is the norm.

And so if people, we’ve had so many clients come off that. Interest rate cliff where they’ve gone from being on a two and a half percent interest rate to coming back to six and a half and not everybody has that four hundred thousand dollar inheritance that they can put against their offset. Some people have to just wear the cost we had a call from a client in December they had multiple investment properties and their repayments were going from.

They were increasing, sorry, they were increasing by 60, 000 a year. That’s an increase of 5, 000 from one month to the next. So if you don’t know that that cliff is coming, if you’re actually making an investment decision for something

that’s for the short term. The short term circumstances, but you’re intending to keep it long term.

That’s a very powerful consideration. And that’s why I really love financial modeling. We’ve invested a lot in technology to be able to see it with the click of a few buttons. What does this really look like for you long term? And is this what you want?

[00:29:31] Peter Fletcher: The advantage that I see in in investment property is you can gear it.

So I could go out and buy an 800, 000 property with, you know, borrow, let’s say 600, 000 to buy an 800, 000 property and getting capital growth. I hope that it’s going to get capital growth over the last 10 years or up to a few years ago. The growth didn’t look so great, but let’s just roll with, we’re going to get capital growth on 800, 000. which is, you know, 21, 000 a year or something like that. 60, 000 a year thereabouts. Whereas you wouldn’t get that sort of capital growth in a share portfolio and nor could you get the same size of share portfolio.

[00:30:25] Kora Drage: Well, I won’t name the fund, but there is a fund that is a geared share fund and it has had since inception phenomenal growth because for every dollar that’s Invested, they borrow 50 to 60 cents.

So you can gear a share portfolio, however, it can either be an internally geared fund, so you’re investing in a geared fund, or you can borrow money to gear. They’re called margin loans, and we heard a lot about them during the GFC. The problem with gearing in shares, and the problem with gearing in property also, is the fact that unless there’s a substantial deposit.

The bank is taking all the risks. So with property, because we have a property shortage, it’s unlikely that the bank, if they ensure you have a 20 percent deposit or mortgage lender’s insurance, they’re covered. They actually don’t care, as long as they’re protected. Whereas in a situation where you have a share portfolio that you have a margin loan against, if the market drops, they have the right to a margin call.

So you can actually use,

[00:31:31] Peter Fletcher: yes.

[00:31:32] Kora Drage: And that is I became a financial advisor in the GFC recovery. You know, we heard a lot about Storm Financial and we saw a lot of

news around that and the people that were affected. And I remember meeting a lady early in my career who had been a Storm client and she loved them.

And she said, we believed in the strategy. We knew what we were doing. The problem is that so many people, when they saw those equity made ads, they jumped on board and they, she felt like they weren’t appropriately warned of the risks and therefore it all just, you know, I felt it was very interesting insight that someone who had been, you know, perceived as a victim of, of this strategy, she actually felt very positive still about the strategy and just felt the timing was wrong and that the wrong people had made that decision.

When we talk to clients about gearing, we don’t recommend margin gearing. It’s not something that I feel ordinary investors could truly grasp the implication and really seriously think, Oh, if COVID hit, would I be able to stump up this extra money? And you need to have some real serious conversations.

And I think that not everybody needs to take on that level of risk. However, there are options where you can utilize the equity in your property, or you can utilize your cashflow to be able to buy into these portfolios at smaller Chunks and you can still get great growth, maybe not that magnified growth through the gearing that you would get with an 800, 000 property purchase.

But let’s change that scenario and say, okay, Peter, you’ve got $200,000 of equity in your home. Why don’t we go borrow 600,000 and sink it into the As SX today? Let’s do that. It’s a different response that you get in terms of anxiety. ,

[00:33:31] Peter Fletcher: I might palm the sweaty just thinking about it.

[00:33:33] Kora Drage: Correct. And so I don’t think that that’s a solution for many people, but that is what a lot of people do with property.

And so I think financial decisions are serious business and a lot of people don’t seriously think about their finances, Oh, I’ll just buy some, you know, they bought something, Oh, it wasn’t good. I’ll just buy another one. You can’t do that with a major financial asset purchase, whether it’s 800, 000 of shares or 800, 000 and 800, 000 property.

[00:34:06] Peter Fletcher: Who should who should people talk to their tax accountant? Or their financial plan or both?

[00:34:14] Kora Drage: I think that a good collaborative relationship with clients accountants is very useful. So there are things that we can talk about that

they can’t talk about and vice versa. We don’t execute from a taxation point of view.

We don’t execute anything other than notice of intent to claim a tax deduction on those super contributions. We do financial modeling and the impacts on tax, but the accountant lodges the tax return. The accountant does the capital gains tax calculations and deductions. And we have a great working relationship with numerous accountants where we work on their clients.

We make the recommendations. Accountants understand contribution caps and they’re allowed to talk to clients about the cap availability. But my understanding is that they can’t say you should do this. It’s a little bit different. So working I have this Client I’m thinking of, she had a small business and there are distributions that could have been made out of that business.

And the accountant and I worked out what would be an optimal level of tax for her to pay, but also a contribution level and a draw down from her pension, her investment pension to get the cash flow that she needs. So working together. is the best outcome for the client and then they don’t feel like the middleman translating from the accountant said this or the financial planner thought that we’re all on the same page working together.

[00:35:41] Peter Fletcher: I get people coming to me all the time wanting to buy investment properties. It’s the usual stocking trade and they, what’s your budget? 600, 000. Where

do And very few people have even have given any thought to managing the financial risk of buying the property. So, and by which I’m talking about, what if I lose my job? What if I get injured in an accident? How do we manage those risks?

[00:36:22] Kora Drage: Well, I think cashflow buffer is important. So if you’re, earning 1, 000 that you’re not spending 1, 000 every week.

You need to make sure that you’re living within your means, that you’ve got a rainy day fund set aside. For clients who, you know, if you break a leg, you work FIFO, break a bone, you might be able to get back on site in a couple of months. Our rule of thumb is to make sure you have enough money to last three months.

But in this cost of living crisis with inflation going up, I think it’s tough for some people. We are very cognizant of the fact that there are responsibilities you have. A mortgage doesn’t stop just because you broke your leg and you

don’t have enough sick pay to cover that. So we have the options around income protection.

So income protection is the only tax deductible insurance for an individual. And you get. a tax rebate at tax time because the government understands that the disability pension or New Start is insufficient to meet the day to day needs for a person. So an insurer will assess your risk as a property buyer’s agent versus a financial planner versus an underground blast And so they will quote a premium based on your occupational risk and the probability of you having time off work.

And there’s a premium that you can pay to outsource that financial risk. And that’s what insurance is. It’s outsourcing financial risk. You can either wear it and the stress of what if I couldn’t make, pay the bills. If you have a pot of money, That’s available to you. If that happened to you, then you’ve minimized your financial risk by having resources to draw on.

If you do not have resources to draw on, insurance is a good fallback to make sure that you’re going to be okay. You’re going to be able to fund those expenses and meet your obligations.

[00:38:19] Peter Fletcher: So that is called income protection insurance. Would you ever say to somebody you don’t need income protection insurance?

[00:38:28] Kora Drage: I look at insurance as a jigsaw puzzle and the individual has to prioritize what’s most important to them. I would say single people or people with non financial dependents, they’re probably not as concerned about, you know, their income. If a bus hit me and I was gone, what happens to who’s left behind?

They’re probably more focused on how would I continue to pay the bills if I’m still around and I don’t have someone to look after me or someone to pay the mortgage whilst I am not able to earn. So I have had clients where the premiums. are significant. You know, you reached your 50s, the premiums are phenomenally high.

We have a client that’s coming in shortly, they’ve sent through their insurance premiums and they’re paying at the moment more than a thousand dollars a month for their insurances. At a certain point, the question of whether that’s cost prohibitive, whether the actual premium would outweigh the potential probability of them actually claiming on that policy, that’s a conversation that needs to happen.

Clients, we have four types of personal insurance, life insurance, you’re not around anymore, total permanent disability or income protection are both for you’re sick and unable to work. One is you never go back to work. One is you do go back to work, but we don’t know when. So there’s timeframes that that pays.

And then the fourth one is trauma insurance for critical illness, like heart attack, stroke, cancer, when you’re sick and you need funds to be available for treatment. Now they all kind of work in together, but the individual prioritizes what’s most important to them. And across the board, just about every parent that I’ve met with wants life insurance.

Statistically, the probability of you making it to retirement or age pension age is 97%. Now, those odds are pretty good that you’re not going to claim on that insurance, but most parents want it in case they’re one of those 3%. I don’t get to tell them. that they should get it. What I do is I model the financial impacts for them if you were to die, become disabled, become sick, or injured.

These are the premiums if you wanted to entirely outsource your financial risk, and they then choose what they’re willing to pay to outsource. And some of it is, you know, To insource. Great. Well, I’m going to make sure I have that three month buffer so that I can have a 60 day wait period instead of a 30 day wait period, and that will drop my premiums.

And it’s a trade off conversation as opposed to, you shouldn’t get that. I personally have gone through this process numerous times when I was single. When I went on a snowboarding trip and I did this really funny backflip, I definitely increased my insurance when I came home. But then when I had children, the types of insurance I had changed because I did not have life insurance, but I did I did get it when I had kids and it was high when they were, babies, and then when they went to school it dropped, and my intention is when they’re 12 it will drop again.

So for me, my husband and I have had that trade off conversation about what we would want to happen, and then we’ve made a decision about what cost we’re willing to bear. And every individual client, It’s different depending on what they value.

[00:41:49] Peter Fletcher: So insurance is just part of the package.

[00:41:55] Kora Drage: Insurance I think is a very important part of your financial strategy, but it’s a plan B. I think having given advice for 15 years, we have had to pay insurance. We’ve had to lodge insurance claims, both temporary

critical illness and death. It’s very sad, TPD, people never go back to work, it is really hard.

But the majority of people don’t. And that’s where I do feel very strongly about plan A as the priority. So making sure that you have a great wealth strategy and a great wealth plan. And that plan B is exactly that. If you have a solid plan A, as you progress along that plan A and your wealth grows, your need for plan B should diminish.

And so I do encourage clients, certainly when they’re well into their 50s, do your assets, and your dependents, you know, you have children that are 23 living at home with you. If you weren’t here, you no longer need to give them a million dollars each to live without you. They, you need to have the conversation about what is really going to help them in their wealth plan and the trade off conversation would be to, I would say, reduce your premiums and redirect that towards more plan A.

So, it becomes like this lever that you can pull.

[00:43:18] Peter Fletcher: Yep. Cora, I’m just aware of the time starting to get away on us. It’s like we just started talking two seconds ago and now we’ve come to the end of our time. This has been really good and incredibly educational. Oh, good. This, the whole thing about this SUBA, Is it a super saver?

[00:43:40] Kora Drage: The First Home Super Saver Scheme.

[00:43:42] Peter Fletcher: First Home Super Saver Scheme. I reckon that is a super, super idea for first home buyers. So, thanks again for coming along and being part of the podcast. For people that want to employ your services or even just tick your brain? How would they get hold of you?

[00:44:01] Kora Drage: Well, we’re very very central in Perth. We are based in Burrswood. We’ve got a great office there not far from your own, so it’s nice and local. People can give us a call. We offer a complimentary discovery call so we can have a conversation about what they’re looking to achieve. We’ve tried to make everything accessible.

advice accessible with our initial advice meeting proposition where we do model scenarios without giving full advice. So they can find us on Facebook, on Instagram, on LinkedIn, or if they just Google us, we have Visio Financial Services and they’ll be able to call through and have a chat.

[00:44:38] Peter Fletcher: Thank you so much for your time.

Have a great day. And folks, that’s all we’ve got for this episode of the WA Property Q& A podcast. Until next time, this has been Peter Fletcher. And that wraps up another episode of the WA Property Q& A. We hope you found our discussion valuable and gained some valuable insights into the world of property buying in Western Australia.

Remember, while we strive to provide useful information, It’s crucial to consult with the appropriate professionals before making any investment decisions. Don’t forget to tune in next week for another exciting episode where we continue to unravel the mysteries of the WA property market. If you have any questions or topic suggestions, feel free to reach out to us.

Until then happy property hunting and remember to seek the right advice for your personal circumstances.

Thank you for listening.