Anna* is 36, she’s an Emergency Medicine registrar and is married, with no children. She’s recently started doing locum work.
She grew up in a coastal town that’s popular with tourists. Her PPOR (Principal Place of Residence) is there and she bought her first investment property nearby. Together with her partner, she’s thinking about buying a second investment property in the same area, when she can find the time.
Anna’s accountant and mortgage broker have been her main point of contact for all financial advice until this point. The accountant has suggested setting up a trust to buy the next property – for asset protection. Her mortgage broker has suggested a Principal and Interest loan for her next investment property.
It’s typical for doctors to rely on one or two specialists for financial advice. Unfortunately, the advice they provide isn’t always suitable, particularly for doctors who can access different financial opportunities to other professionals.
“there could be better options for Anna”
In Anna’s case, she’s relying on an accountant and mortgage broker to guide her through the process of buying a second investment property. Because her mortgage broker does not typically work with doctors, they may not be aware of the increased LVR (Loan to Value Ratio) available without paying LMI (Lenders Mortgage Insurance). As the broker doesn’t know the big picture, there could be better options for Anna than a Principle and Interest loan, particularly if she has debt on her PPOR.
She may be working with her ‘local’ real estate agent and mortgage broker which could be the reason she wants to invest in her local area. She’s sticking to who she knows and an area she can see. While this may be easy to relate to, by limiting the possibilities like this she is increasing her chances of buying a sub-optimal investment. Investing in the same area can lead to concentrated risks. Anna might expose herself to regional downturns – this can particularly be the case in areas heavily reliant on one industry (like tourism). It could also mean that Anna ends up exposed to additional taxes, such as landing in the zone of paying state-based land tax.
Trusts can be useful for asset protection when used right, but in Anna’s case, she’s fully financed her new investment property and does not have any equity to protect. If Anna went ahead with the trust structure purchase, it would result in thousands of dollars of lost tax deductions every year.
When it comes to protection, Anna should also consider reviewing her insurances and Income Protection. There is a misconception that locum work and Part Time Private Practice work prevents you from being able to get coverage.
“you should have a consolidated, co-ordinated plan”
Finally, what Anna really needs is a solid financial plan. Though she has multiple advisers assisting her, without a clear plan, long term goals and a structure to achieve them, she is likely to make many avoidable errors along the way.
You should have a consolidated, co-ordinated plan. You should have a specialist who understands your occupation. Your adviser should inform and educate you along the journey, justify their recommendations and document the actions needed accordingly.
“not all advice is good advice”
Anna’s scenario does not have this – she has a bit of downhill momentum from having started something, and a group of people fighting over the driver’s seat without looking out the windscreen – she’s headed for a disaster. Not all advice is good advice. The more limited the scope the more likely the errors.
Operating on a membership basis, MedCapital works exclusively with doctors and their families. We work closely with you to create a personal financial plan. We will co-ordinate our team of specialists to help you to achieve your goals.
Doctors have unique opportunities available to them and it’s important that the specialists you work with understand that, so that you don’t miss a thing. That’s why we have in-house specialists like our mortgage broker who understand your needs in relation to your overall personal financial plan.
*Anna is a representative client only. This fictional case study is designed to be illustrative of typical issues and solutions we deal with at MedCapital and should not be taken as personalised advice.