Wednesday 1 March 2023

Net worth: Feb 2023

My monthly NW estimate has been updated in NetWorthShare for the end of February. Chart is in the side-bar.

The purchase of my investment apartment settled on 24 Feb, and as part of the loan conditions the $1MM loan was used to pay the balance of the purchase price ($900K), the various fees and adjustments, plus pay off our remaining home loan balance and 'portfolio loans'. As my residential loan was used to pay off DW's portion of our home loan (around $8K) and her 'portfolio loan' (about $67K) I actually have a 'credit' in the form of an IOU from DW that I haven't included in Networthshare. So my NW will be understated by around $75K - assuming DW eventually pays me back ;)

I have removed the deposit and stamp duty payments from the 'stocks' figure, so the 'stocks' figure showed an artificial drop this month, but the reported figure now more accurately reflects what  I actually have invested in 'stocks' - some NAB shares, some cash sitting in my margin lending accounts, my Superhero US stock/ETF trading account, shares in my employer (a 'fortune 500' US company), my investment bond (which is invested in a mix of Vanguard and Dimensional index funds), and an investment in a MAM investment fund. Plus whatever cash is sitting in various bank accounts at the end of each month. The revised 'shares' figure for this month was $149,833.

The value of my 'Other Assets' category (gold and silver proof coin collection, valued at bullion value only, Perth Mint unallocated gold, silver and platinum holdings, and my small art investment via Masterworks) was down slightly during February, falling -$446 (-1.34%) to $32,917.

Our estimated house price for February (my half) fell another $5,182 (-0.49%) to  $1,062,356 with continued weakness in the Sydney real estate market due to rising interest rates. The RBA increased interest rates by another 0.25% in early Feb, which will increase the monthly interest payments on my residential investment loan by about $7 per day ($2,500 pa) -- so hopefully inflation will start to moderate soon and the RBA will stop raising interest rates!

The value of my retirement savings decreased to $1,468,798 (down -$12,908 or -0.87%) during February. I have ceased making any salary sacrifice into super, as I will need the extra cashflow to fund the residential loan interest payments (and the negatively geared property make the tax benefit of salary sacrifice negligible). I may submit a PAYG tax variation with the ATO in July, so I have less income tax withheld from each bi-monthly pay, rather than just get a huge tax refund after the end of the financial year. I should have a better idea of the rent income and actual expenses (and have a depreciation schedule) by June.

As I now own the residential apartment (well, it is mortgaged 100% to the bank) I will track the 'estimated value' each month of both the residential apartment and the 'lake house' (hobby farm). As part of the residential loan approval process the bank obtained valuations for both our home (which is being used as collateral) and the residential apartment. Our home valuation was almost exactly what my monthly estimate predicted. The residential apartment on the other hand received a very low valuation (only $750K) which I think was based purely on 'similar' one bedroom apartment sales in the suburb (which has a lot of older, low-rise apartments that are not really comparable to the high-rise 'luxury' development my apartment is in). However, the purchase price was $1MM (back in October 2019) and prices have risen considerably since then. Also, the same residential apartment (but a few floors higher up) was recently sold for $1.35MM, so I'll be sticking with my 'estimate' (which is currently $1,181,330) as I think it is a better guestimate of the actual market value for my residential apartment.

Overall, my estimated NW for the end of February is $3,779,984. It can't really be compared to previous months due to incorporating current market value estimates for the residential apartment and my weekender/lake house. It is probably a reasonable "ball park' figure of what my NW currently is.

ps. For the loan application I had received a 'rent estimate' of $700-$750, but when I collected the keys the agent said the rent should be in the range of $750-$800 (due to the apartments being in high demand). It then turned out that some overseas students (funded by their parents) want to rent the apartment and will pay $850 per week (the extra being due to having a small dog - and many investors are unwilling to rent to tenants that have pets).

pps. Labor announced plans to increase the tax rate on superannuation in accumulation accounts from 15% to 30% for the amount over $3MM. It won't affect me (I'm unlikely to exceed the $1.9MM transfer balance cap by the time I retire), but I think it isn't good for governments to legislate for tax changes they didn't announce during the recent election campaign. It also isn't a great idea to have tax changes apply retrospectively (although it will be future income that is taxed at 30%, the money was invested years ago under the prevailing tax arrangements -- and it is especially dodgy to change tax retrospectively on an investment that can't legally be accessed/withdrawn until retirement age). The whole 'foregone tax' argument also seems a bit spurious to me -- after all, superannuation income is deferred income (for up to 40+ years) NOT current income, so there really isn't any reason to compare the superannuation tax rates to the income tax rates. Also, if taxing superannuation at 15% is a 'cost' to the budget compared to the maximum personal income tax rate of 45% that 'should' apply, then the 'cost' of the progressive tax system itself should also be publicised -- just imagine the huge 'cost' to the budget of having an $18K tax free threshold, and the bottom marginal tax rate being 18% rather than the 45% income tax rate that apparently Labor thinks "should" be applied to all income (unless you are in Labor's voting demographic). Anyhow, I don't think capping the amount that can be held in the accumulation account is a bad idea (it is already effectively capped due to the limits on concessional and non-concessional contributions), but they are trying a blatant 'tax grab' by looking at a relatively small number of high value accounts that were accumulated into super years ago under the tax rules applicable at that time. Perhaps a fairer change would be to limit the total amount that can be held within superannuation to 2x the TBC ie. $3.8MM once the TCB increased to $1.9MM on 1 July. Any amount about 2x TBC at the end of each FY would have to be withdrawn from super (same as now applies to any excess contributions).

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