Your Money Your Call 25/05/2015 | Sky News Business
Damian Collins of Momentum Wealth and Brad Beer of BMT Tax Depreciation join host Margaret Lomas in this edition of Your Money Your Call, to discuss the banks’ recent decision to toughen their investor lending criteria; the state of the Australian property market; and answering viewer questions.
Check out the video above and transcription below.
Voiceover: The information featured in this program is general in nature and therefore should be not be relied upon. Guests appearing on the program may have commercial arrangements with some of the companies mentioned. Before making any investment, insurance, or financial planning decisions, you should consult a licensed professional who can advise whether your decision is appropriate for you.
Margaret Lomas, Destiny Property Investors: Hello, and welcome to “Your Money, Your Call,” and welcome to a great night of property information and education. Thanks for tuning in, and I hope that you’re getting your questions ready for us to answer. But before we get to that, here’s your property news for this week, and Macquarie Group has joined the growing number of banks charging property investors higher interest rates, as it faces pressure to curb a rapid expansion in home lending.
After a week in which banks have put the brakes on property investor lending, changes that took effect on Friday will mean that Macquarie customers taking out fixed rate investor or interest only loans will pay higher rates than borrowers who live in their property. The change was communicated to mortgage brokers this week, following hot on the heels of similar moves from ANZ Bank, NAB, and the Commonwealth Bank, which have all scrapped or scaled back discounts offered to investors. The flurry of activity in the booming investor lending market is a response to the Australian Prudential Regulation Authority demanding investor lending growth slow to no more than 10% a year from 10.4% today.
And while property prices march forward in Sydney and Melbourne, it is a very different story on the ground in both Perth and the mining towns, where many investment properties now lie empty. Renter yields in mining towns have dropped by as much as 50%, according to the President of the Real Estate Institute of Western Australia, David Airey, with Karratha and Port Hedland amongst the biggest losers, where once they commanded high rents and high sale prices, the towns are now struggling to attract either.
According to Rich Young, CEO of Perth-based Caporn Young Estate Agents, the situation is dire in some pockets. He recently heard of a house in Port Hedland that was bought a few years ago for $1.2 million, and attracted a bid of $320,000 at an auction recently. He says that these things are cyclical though, and there is a chance that the market will come back to those mining towns, but it may take a while.
I’ve got two of my regular and expert guests in the studio to answer all of your questions tonight. Joining me is Brad Beer from BMT and Damian Collins from Momentum Wealth. Now if you do have a question for anyone on the panel this evening, give us a call right now on the 1300 30 34 35 or email your question to me right now at email@example.com. Welcome to the program and let’s get started. And welcome to you both.
Brad Beer, BMT Tax Depreciation: Hi Margaret.
Damian Collins, Momentum Wealth: Thanks.
Margaret Lomas: Brad, first of all, the news about the investor lending, we’re seeing pretty much all of the banks respond with some kind of a measure. They’re either stopping the discounts to investors, they’re adding interest rates so they have a high rate to investors, or they’re scaling back on the loan to valuation ratios, so not allowing investors to go higher than 80% on the value of the property they’re buying and the ones that they already own. What do you think is happening here?
Brad Beer: Well look, I think the Sydney market is the one that’s run the hardest in the country. The news story, too, talks about the Perth market and it’s struggling. I mean, if you put some more pressure on investors there, that’s probably not necessarily so good. The Sydney market did nothing for such a period of time. And then we had some growth, and now a little bit of explosive growth, but it tends to run in cycles, and it’ll probably slow down soon.
Margaret Lomas: Well the reality is if you measure back over the past 10 or 15 years, the average annual growth rate is about 3.4%. That isn’t anything fabulous if you’ve been in the market that long.
Brad Beer: So it went from ‘03 to, you know, ‘08, ‘09 we had next to nothing. So the average across that period of time still was 3.4% as you said.
Margaret Lomas: When everywhere else, in fact you know, most of the capital cities doubled in that period, and Sydney had a 17% growth in that same period.
Brad Beer: So we have an explosion of market in one space that everybody kind of cares about a little bit because it makes such an impact, I suppose. And then we react so heavily to try and, I suppose, get some investors out of the market. I look at that Macquarie story and they said they had 60% growth, I think, in mortgage lending to investors off a small base. So you know, if you’ve got not many loans, 10% is not many loans. Got a big base, 10% a large amount of loans. I don’t look at…am I fan of the whole concept? Not necessarily, and I think that’s a reaction to one part of an overall strained market.
Margaret Lomas: Damian, I guess it’s, I mean, you would notice it. You’re from Perth. You have your finger on the pulse of the market there. Over here, everybody just thinks there’s an Australia wide property boom. It’s reported as such, and because we have such a large population, everybody thinks that. But you know, you guys in Perth and Adelaide aren’t seeing it, aren’t seeing any of it.
Damian Collins: No definite, Margaret. We run in different cycles to the Sydney market. Particularly I think ‘01 to ‘03 we saw Sydney particularly do really strongly. Perth was at flat, but then Perth had a big run up ‘03 to ‘07. And as you say, the Perth market is pretty flat and there’s not a lot of activity. Sales are down about 11%. And it’s all Sydney based, yeah, half the loan growth in Sydney is from investors. And you know you’re really looking at a bubble when you start to get to that sort of level for a sustained period of time.
Margaret Lomas: But it’s not good news for you that the banks are doing this, is it? So people in Perth and the mining towns because, especially in mining towns, which is where the investors buy. You know, the locals don’t really buy because most of the people who live there aren’t from there. They’re working there. So they don’t buy, they rent. It’s investors who come and buy. And if there’s going to be pressure put on those investors, then the ones who are already in there are in for more pain that they don’t need.
Damian Collins: Look, a lot of the banks had already cut back their loan to value ratios in Port Hedland and Karratha some time ago, just because there were, you know, they could see what was happening there. So most of those you struggle to get 70% or 80% loans now anyway. So a little bit higher on the interest rate, yes, but I don’t think it’ll have as much…in fact certainly, we’ve seen it in our mortgage broker division. Some clients, yeah, if you wanted to get 90%, 95% loans, you’re really going to struggle as an investor. It’s going to go back to the old days where you put in that 20% equity in your own home or deposit before you can get into the property market.
Margaret Lomas: Brad?
Brad Beer: I think I’ll say something to be concerned about for some investors, what about all the people that maybe bought something off the plan with some sort of preapprovals in place? What happens if the LVR reduces or the criteria gets more difficult, and lots of people have probably exchanged something off the plan in the country at the moment that will at some point…
Margaret Lomas: And it has to be reapproved. A lot of off-the-plan buyers don’t realise that even if they have an approval in place, it has to be reapproved.
Brad Beer: And reapproved. We’ve got valuation, which if you’re in the Sydney market, you probably would be fine. But you’ve also got the fact of, okay, if they tighten the criteria, they don’t take into account as much of the income, will you have enough equity? Will you be able to actually still afford the payments or actually get the loan at that approval process? Because I think a lot of the preapprovals are not there anymore.
Margaret Lomas: Well of course, these things aren’t well thought through, and I want to come back later if we get some time and just discuss the matter a little more in depth. But for now, let’s go to the phones. And Robert from Sydney, welcome to the program, Robert?
Robert (caller): Thank you very much. Look, I’m considering buying a two-bedroom unit in Sydney’s inner-west in the next couple of months. And I’d just like some advice from the team as to what they feel about Sydney’s west market area, you know, Stanmore or Lewisham, Summer Hill, etc.?
Margaret Lomas: Is this for an investment, Robert, or to live in?
Robert: No, investment.
Margaret Lomas: Okay, Brad? Stanmore, Inner West? What do you think? Summer Hill, around those areas?
Brad Beer: Look, do I fundamentally have an issue with those areas normally? And I’d say no. But we’ve had a lot of growth, where we’ve got a situation where the Sydney market has run pretty hard as we’re just discussing and we generally run in some sort of cycle. If the prices go too high, the investors, well, they may not be able to borrow the money as easy to start with, but less investors in the market means a little bit less pressure on the market. So do we still have the continual boom or, whether it’s boom, the continual growth we’ve been having at the moment? You’d expect not as fast. So then would you look for something with more growth at the moment? The price to get in is going to be high, the yields are low, interest rates are low, but interest rates are low all over the country, not just in Sydney.
Margaret Lomas: Damian, putting aside emotion altogether, and thinking as an investor should, which is where is my most opportune market at this moment in time? I wouldn’t have said it was anywhere in Sydney.
Damian Collins: Definitely not, Margaret. I think Robert will be lining up with a lot of other people. I saw one over the weekend that sold for $500 million out in Sydney in five or six hours. So it’s just that sort of frothy end of the market. And I just don’t think Robert’s going to see the returns. The yields just don’t really stack up. If you could get a 5% or 6% yield, but I really doubt it. It might be worth looking at for cash flow, but I just think the Sydney market’s cooked, and it might be same prices in four or five years.
Margaret Lomas: Yeah, look Robert, when we buy an investment property, the aim is to get in before anyone else does, not after most people are already in, because you need two things, and you need them immediately after you buy. First of all, you need a sufficient yield to be up to at least almost cover your cost, so you’re not continuously putting money in out of your own pocket. If you have to do that, if you have to supplement the rent in order just to pay the outgoings, and don’t forget on a unit you also have all of those body corporate fees to also pay, which tends to make the expenses a little more on a unit. If we have to keep doing that, we need the property to grow better than normal average market growth. And I can’t see that happening in Sydney. It’s simply not sustainable. And if you do the math, we might have a lot of people who live here in Sydney, but sooner or later, the properties are going to go out of the price range of the average income earner, and there won’t be the people left on the ground to buy them.
And the second thing you want to happen in your property is, of course, you want it to grow in value because you need your money to perform better than it can perform elsewhere in the share market or in some managed funds. If you’re only going to get a total yield of around about 5% or 6% a year, then it’s not worth putting your money there. You need to be looking for an area that may grow by at least 5% a year, hopefully 10%, and one that will give you about 5% in yield. And then you’re talking about an investment that’s been worth the risk. I just think that if you buy in Sydney right now, it may go up a little more, but I think it’s an opportunity cost of buying somewhere else where it hasn’t taken off yet, but it’s got a lot of good fundamentals. We talk every week on this show about Brisbane, and it’s certainly stacking up to be a really great place for property investors to buy.
Well John wrote this week with the concern about insurance and he asks, “Hi Margaret, we often heart the insurance industry warning us about under-insurance, but every time I use one of their online calculators to determine rebuilding costs, it spits out ridiculous numbers. Latest was $440,000 recommended sum insured for a property in Ipswich worth only $260,000. Isn’t using their calculators a bit like asking the bank how much they think you should pay in fees? A higher sum insured equals higher premiums for them. How do we get independent guidance on rebuild costs and sums insured?”
Damian, I think a lot of people though, to be fair to the insurance company, completely underestimate a rebuild cost.
Damian Collins: Absolutely.
Margaret Lomas: You know, just because a property is worth $260,000, doesn’t mean that to rebuild something there will cost the land value less that value and then whatever’s left over. You’ve got to demolition if you have to rebuild, which can be, you know, a $30,000, $40,000, $50,000 removal of debris, or the cost that you’ve got to pay to live somewhere while it’s being built, can stack up.
Damian Collins: Yeah, definitely. I’ve looked at those online calculators, and while they do seem high as you say, there’s demolition costs, your cost to live elsewhere, there’s a raft of things that goes into it. And look, the extra, you know, $40,000, $50,000 insurance property isn’t that significant. But the biggest problem is people are far more uninsured than are underinsured. That’s where the problem really lies. And people think if something happens to my property, I’ll only insure it for half of what it’s worth. But insurance call that coinsurance. And so look, I’d rather be a little bit over than a little bit under.
Margaret Lomas: Do you want to just explain very quickly what coinsurance means?
Damian Collins: Yes, so basically what that means is when you’re insuring a property, let’s say it’s worth $400,000, if you insure it for $200,000, then insurance company figures well you’ve self-insured for the other half.
Margaret Lomas: Yeah, so basically, they’ll only pay half.
Damian Collins: So if you have a claim, they’ll only pay half the claim. Now if you’re close to around the market, they’re probably not goingto quibble about it, plus or minus 15% I would imagine, but you’re really quite significantly underinsured, they’re likely to say something. So again, the extra premium probably not that significant, although your premiums are around burglary and other stuff that are not impacted as much by the value of the property. So I would say better to be a little bit cautious and over-insure.
Margaret Lomas: I agree. Brad, you’re a quantity surveyor, and you know how much these things cost, and I wouldn’t have thought that $440,000 for a $260,000 value property in Ipswich was really that much too much.
Damian Collins: The fact is, as you’re saying, both saying there, is it’s not just about rebuilding the actual house. Sometimes it’s removal of debris. You have to build it under today’s laws. So value and construction costs are often two very different things because you can’t go and rebuild some of the properties that are there because they’re not up to current standards. You’ve got to bring it up to current standards. What if it’s full of asbestos? You might have hazardous materials…
Margaret Lomas: And it probably is in Ipswich.
Damian Collins: That’s right. Hazardous materials to remove. Now the actual premium change in your insurance policy based on a higher construction cost, it’s not like if you add another $100,000, you double your premium because there’s a whole lot of factors in your insurance premium, and construction cost is one of them. You’re best off to be a little bit over, not ridiculous, but a little bit over and a lot of people just don’t realize that there’s actually other things, that it’s not just rebuilding that house. And that’s the big problem we have.
Margaret Lomas: So are you saying trust the online calculators because they’re normally fairly accurate? They’re not just designed to boost up premiums, are they?
Brad Beer: Well see, we’ve actually built one. And so we’ve made it, well, we believe, it’s called Repcost. It’s an app that is a calculator. Now we’re not a vested interest because we’re not the insurance company.
Margaret Lomas: Oh there you go. So go to BMT…
Brad Beer: And we’ve actually got one there.
Margaret Lomas: There’s your answer. Go along to the BMT website. They have a calculator there, and you can check that with the one you’ve done on the insurance company and work out exactly what you should be paying to rebuild the property.
Thank you for tuning tonight. If you’re new to the program, you should know that every Monday night we choose one question from either the emails or the calls and we send a copy of one of my books. This week the winning question will receive the “20 Must Ask Questions For Every Property Investor.” It’s a must-have if you’re ready to buy. Call us now on 1300 30 34 35 or email firstname.lastname@example.org with a question, and then make sure you wait to end of the show to find out if you’re the lucky viewer. Don’t go anywhere while we head off for a short break. We’ll be back very soon. Don’t go away.
Good to have your company tonight on “Your Money, Your Call.” I’m joined by Brad Beer from BMT and Damian Collins from Momentum Wealth, and we’re here to make sure that you get all the answers that you need. If you do have a question, grab the phone and call us on 1300 30 34 35, or of course, you can email us on email@example.com. Remember you could win my book, “The 20 Must Ask Questions For Every Property Investor.” Arty, you’re on the phone. Welcome to the program.
Arty (caller): Hi, how are you doing?
Margaret Lomas: Now what’s your question for us tonight, Arty?
Arty: Yeah, two part. First is what’s your view on Western Melbourne, Inner Western Melbourne, the suburb is called Truganina
Margaret Lomas: Yes.
Arty: And the second part of the question is the growth in price that we’ve seen recently, it’s attributed to overseas funds, you know, from China and India, and all that. So I’m just wondering is that, I’ve been told that that’s just very little at the moment. There’s a lot more money coming from overseas, so actually the prices are under. You know, it’s not really the right price so you can go up even much higher, so what’s your view on that?
Margaret Lomas: Okay, so Truganina in the Inner West, there’s a lot happening with the rail hub in Sunshine being completed there, or almost completed. It might be already completed, so there’s a lot of attention around Sunshine. Of course, Altona, and Altona North, which is closer to the coast. They’ve done really well surprisingly for many people. Damian, what do you think of Truganina?
Damian Collins: Arty, I know a few people who’ve bought it there in 2008, in one of those new estates, and they didn’t do particularly well for quite a long period of time. It’s certainly more established now, but look, it’s not an area I’d particularly be fond of. I think you could do better in perhaps the east side of town. But look, Melbourne again is, particularly in recent suburbs, well overheated, the outer suburbs not quite as much. But I think you’d be better off, you’re from Sydney, maybe if you’re looking interstate, maybe have a look up towards Brisbane. That’s probably the market’s going do best at the moment. In terms of overseas money, look, there’s no doubt there’s a lot of foreign money. But a lot of the foreign investors, they can only buy generally brand new unless they live here or have a permanent residency so…
Margaret Lomas: Especially now with the new rules for foreign investors, they’re really cracking down on them at the moment, and making sure that they can’t buy those established properties. And Truganina, as you said, you’d have a lot of brand new homes there. But there’s not as many coming on now, so it’s more existing supply, so yeah. Good, Brad?
Brad Beer: Look, from what you say there, you know, some near new homes and it is a little more established. And the slightly more coastal areas had some decent growth would probably suggest the difference between those two might mean that it’s probably not such a bad thing. The near new houses, they still get quite good depreciation, not much less than new, and therefore the numbers will probably stack, which is only part of the decision, of course. But they’re not like there’s nothing or only a little bit. And had the expansion already, I suppose, and then now it’s in field, and people that are leaving there, I suppose, it’s a positive. Overseas money coming in, it’s always been coming, but they’re staving on it pretty hard in my opinion to make sure it’s not being done…making you resell if you shouldn’t have bought, and they cannot bind your stock.
Margaret Lomas: Yeah look, Arty, I’m actually in Eastern girl in Melbourne myself at the moment as well. I think the eastern suburbs, but a little bit further out of the places to be. We haven’t seen as much growth there, and I think there’s plenty coming. But I’m with Damian on this one. I definitely think Brisbane has better chance than Truganina, so why don’t you start having a look around there as well? Pamela, how are you going, Pamela? You’re from Melbourne?
Pamela (caller): Yes.
Margaret Lomas: And you’re looking to invest in Melbourne as well I believe?
Pamela: Yes, we’re looking more like between Melton or Digger’s West, first investment property.
Margaret Lomas: Okay, Brad, the thing about Melton is that Melton years ago, I kind of picked as a good place to invest. And then unbeknownst to everyone, and quite randomly, the local council was given 7,000 extra hectares of land. And they put 4,000 of it out to residential development. And suddenly the pressure that was being played upon the existing housing was very diluted out into that new housing. Are you familiar with the area?
Brad Beer: Not highly familiar. I know I’ve seen a lot of jobs come through there, but so much supply I suppose is what that says to me. And I guess the other part of your question, you’re buying in Melbourne because you live in Melbourne, I was having the same discussion with someone I know quite well yesterday about, do you just need to buy exactly where you are? And sometimes, you know, the excuses that we use for that are, I’ve been guilty, are sometimes about value as well, which has been sometimes my reason. But being close to it, being able to watch it, you don’t really want to drive past it and watch it anyway. So therefore, looking wider is not as hard as it sounds sometimes.
Margaret Lomas: Absolutely, Damian, Melton, certainly on a rail line, so it’s an easy commute back into Melbourne identified in the 2030 plan, which has been replaced by the Melbourne something or other plan. But identified in the 2030 plan as a transport hub, and it certainly does get that, especially if they do that ring road going from the port right up into the northern suburbs there. It’s going to go certainly past Melton and create, you know, quite a lot of focus on Melton. What do you think?
Damian Collins: It all really comes back to how much supply. It’s got some good things going for it. Look, I remember growing up, Digger’s Rest actually was a place where diggers used to rest.
Margaret Lomas: Did you live in Digger’s Rest?
Damian Collins: No, I lived on the eastern side, but I remember we’d go on trip into the country in Victoria, and stop there. It was a long, long way out. So it is obviously, suburban has sprawled out there, and but again, you’d want to be looking at the supply. If there’s still a lot of estates around there, which I feel there probably is, particularly around Digger’s Rest, well why is your prices going to go up if there’s lots more supply to meet that demand? We want to buy in areas where there’s good demand. Perhaps the market’s undervalued, but there’s that supply constraint is there. That’s where you get price growth. So I’d have a good look. If there’s still a lot of land subdivisions out there, I wouldn’t be buying out there.
Margaret Lomas: Yeah, I think a point too is that at the moment we’re seeing that growth on the other side and closer to Melbourne. So we’re seeing the focus shift from a lot of the inner Melbourne stuff because I think everyone has accepted that that is going to be an oversupply for some time to come. You know, it’s still getting pushed along, but that’s mostly by the foreign buyers. And for all the reason you said earlier, the fact that they can only buy new, so they are focusing on those apartments. They’re going up and they’re going up and they’re going up. And I think for an ordinary everyday investor, they need to steer clear of them, of those apartments. We’ve already seen people buying in Docklands and South Bank, finding that their money’s just going nowhere, and in fact, it’s worth less once they settle. And so therefore the attention’s just gone between the CBD and all the way out to Melton, into that inner part where we’ve got Sunshine, and to a lesser extent, Truganina. We’re probably going to get a better result by investing there if we have to invest in Victoria as well. I’m with the boys though, Pamela. I think you need to look outside of Victoria altogether at the moment unless you’re prepared to go probably out east. You are going to get better opportunities in some other areas, even the central coast of New South Wales, and maybe the south coast will probably do better than some of those areas in Melbourne. And certainly the areas in and around Brisbane, and we’re talking suburban Brisbane.
Well this is “Your Money, Your Call.” It’s time for another quick break. We will be back very soon, and while we’re gone, you can call in your question by phoning 1300 30 34 35 or emailing us on firstname.lastname@example.org. Don’t go away because we’ll be right back.
Welcome back and thanks for staying with us. I’m Margaret Lomas, and with me tonight is Brad Beer from BMT and Damian Collins from Momentum Wealth. We’ve got plenty of time left for more questions. Just dial 1300 30 34 35 or email us on email@example.com. Remember that if we answer your question tonight, you might be selected to receive my book, “The 20 Must Ask Questions For Every Property Investor.” Gary, you’re on the line from Sydney. How can we help you?
Gary (caller): Good evening, Margaret. Looking at an apartment on Macquarie Links, which is a gated community on a golf course estate. And there are 20 apartments on the block, and all the land is now gone. Asking price is $505,000 and it’s three two and two. It’s very well built in 2005. The levies are quite high because there’s one lift per five apartments, and the levies on the lift obviously are fairly high at $7,000 per annum. Just want to get an opinion, very good access to the M5 and the M7, and I just want to get an opinion.
Margaret Lomas: Gary, is this to live in?
Gary: It’s an investment property.
Margaret Lomas: Okay, Brad, it’s not actually a bad buying price for Macquarie, and for Macquarie Links, especially given that he’s actually getting a three two. I would have expected him to be only getting a two two for that price. What do you think of the area?
Brad Beer: Look, not a bad buying price as you say. It’s 10 years old, so not brand new, and not that brand new is necessarily the wrong decision. But golf course estates sometimes, I suppose, they’re heavily sold to start with. I suppose, and then everyone gets all excited about golf, and then reality kind of has to set in to the golfing estate, I suppose. And I’m not a regular golfer either, but at that sort of prices, at that sort of age, you’re still going to get some good depreciation numbers. Yeah, levies are high. Now that’s because you got a lift per floor. You’ll get better depreciation, but you have got to pay for it. Do you get enough return out of that to really, I suppose, justify those high levies I guess is a problem because they’re always going to be there.
Margaret Lomas: Damian, in my experience, golf course estates typically don’t go as well as people think they’re going to go. I mean, we’ve got them all over Australia, and they’re often a little hard to move, aren’t they?
Damian Collins: Yeah, and I suggest, Margaret, he might want to go back and have a look at the price that was originally paid in 2005. My gut feel is previously not like a huge amount of capital growth for good reason.
Margaret Lomas: And there should be because it’s in Sydney.
Damian Collins: Yeah, and for $505,000, yeah, it seems cheap but golf course investments, people generally don’t want to rent there. It’s someone who’s potentially 65, retired, scaling down to something smaller where they can play golf to their heart’s content. So I’m not sure you’re going to get a huge rental demand in that sort of estate. Plus you’re looking at a high fees, as was mentioned, so from an investment point of view, I wouldn’t be buying in golf course estates.
Margaret Lomas: Yeah, I tend to agree, Gary. I think the reason I asked whether you were buying it to live in is because if you were, I would say, you know, nice buy, nice lifestyle choice, and a lot of people really enjoy living in the golf course estates. But my experience with them as a property investment advisor is that generally they don’t fare well. And I’d be very interested to see what these sold for originally, and the kind of condition they’re in now. If you’re looking for a good cash flow investment to help you build a nice, strong portfolio, I would suggest that there’s probably better properties to buy, and buying this one could be an opportunity cost of buying somewhere that’s going to give not only a better return in the short term, but better growth in the short term as well.
Let’s go and see an email from Megan. Now Megan wrote to us and said, “Hi panel, I watch your show religiously. My husband and I have a principal place of residence and an investment property. We just turned 30 and we have a young child. We’d like to purchase another investment property soon, however I’m on maternity leave so I’ve been told (very briefly by a mortgage broker) that my wage won’t be considered until I’m back at work, so serviceability will be a real issue. You always say viewers should get good financial advice, but I don’t know where to look, any advice? I don’t want to give up on further investment just because we’ve started a family.”
Of course, Damian, the mortgage broker’s right. She’s probably not going to be able to service a loan at the moment. But it’s probably a good time for her to use this time to get a bit more educated and to start looking around for someone to help her with a proper strategy.
Damian Collins: Yeah, look Megan, you certainly should be looking to talk to a proper investment advisor, someone who knows more than just about finance, who’s qualified at QPIA, someone from the proper investment professionals of Australia. I recommend you go to that website.
Look, we’ve been able to recently, with some of the banks, on maternity leave, they’re getting a little bit easier. So it’s not completely out of the question. What we’ve found is that if you’ve got a letter stating that you’re going back to work from your employer and yourself, that you’re stating you’re going back to work, and you get enough savings to make up for that shortfall during that period of time you’re on maternity leave, we’ve been able to get some of those loans through.
Now obviously, you don’t want to put yourself in a financial predicament where it’s going to be tight, so have a good look at that before you do. But I’d suggest you get your broker to have a better look into it or someone who knows a bit more about that. But there might be some options, but again, you don’t want to put yourself in financial difficulty.
Margaret Lomas: Brad, it’s good to have a strategy in place before you get started as well.
Brad Beer: And I think absolutely, a strategy on where you’re going. Congratulations firstly Megan on actually buying your principal place of residence and then investing a property, and looking for a second one. I think the serviceability being issue is something that, well, you’re going to have to make the payments. So really you don’t want to borrow money that you can’t afford to pay back at whatever time. Part of that plan needs to realise the fact that you’re probably going to have children and need to look after them at some point. And what that may mean is that you might have to look at different property that actually returns a little bit better, has better cash flow, and then you don’t actually need quite as much money to actually prop up that loan on the way through.
Margaret Lomas: Some good advice there for you, Megan. Megan, I think it’s a good time for you to sit back and start to think about becoming more educated about investing in property. In my experience, of all the people who come to my company for help, the ones who are in trouble or who have a portfolio that isn’t performing as well as they would like, or think that property investing doesn’t work, they’re normally the ones who started becoming a property investor by leaping into an investment property without really getting professional advice, and without becoming more educated. So perhaps do a really good course, read a lot of great books, and as Damian says, go to the Property Investment Professionals of Australia website, which is pipa.asn.au, and make sure that to get guidance, you get someone who is a qualified property investment advisor. At least then you’ll know that they’ve done some kind of a qualification, and they most likely know what they’re talking about. And they’re also being watched by a really great not-for-profit association. It’s just trying to raise the standards in property investment advising to make sure that all of their members comply with a set of rules that are really, really good for the consumer. Rhonda, you’re from Bowral. How are you going?
Rhonda (caller): Not too bad. Thank you very much for allowing my call to come through. I’d like your opinion on the Southern Highlands, especially Bowral. I’m looking for an investment here, land and house, what do you think? Is there any growth left or is it only for families, trades people, and retirees? And there are eight gold courses here by the way…
Margaret Lomas: I know that. In fact, you’d be interested to know, Rhonda, that I was in your part of town on Saturday, and I was doing a town spotlight for property success. And that’s in an upcoming episode. That episode will be around about September, I believe, will be the air date for that. So we went down checking out the area. We went to Kiama as well, Shellharbour, and Wollongong while we were there. We went into Bowral. Brad, what do you think about Bowral? I mean, we all know that’s where the great Don Bradman came from, and I’ve got plenty of footage of the Don Bradman Museum, and the oval, and all the stuff you got to get footage of.
Brad Beer: Well that’s great. But I think with Bowral, eight golf courses, it…
Margaret Lomas: Speaks for itself.
Brad Beer: A little, a little. It speaks of, and I look at the last caller and think that the buying in the golf course estate is probably impacted on by where you’d like to go on holidays. Where we go on holidays is not necessarily always the best place to invest. Now if you’re from Bowral, that’s not your reason, but you think it’s a beautiful spot in a beautiful area. It’s not a great reason, necessarily, to invest in there. Saying that, with the Sydney market going so hard, often what happens is that these areas tend to have some movement, some growth, and some good performance. But they also hurt first, because people can’t afford the golf house anymore, or the weekender that they bought really for holidays, not making an investment decision, making a future I love this area decision instead sometimes.
Margaret Lomas: Have you ever been to Bowral, Damian?
Damian Collins: No, Margaret, I haven’t. But what you said there makes me want to go.
Margaret Lomas: Yeah, it’s beautiful.
Brad Beer: Absolutely beautiful.
Margaret Lomas: In fact, you know, one of the things that we kept saying, we had the camera out. There was just so much to take pictures of, and we kept saying, “Oh, this is so pretty. It’s beautiful. And there’s that many gorgeous character houses.” But the feeling that you get when you’re there, and although there are some families there, is that it does have an older than average population. And of course, eight golf courses, that would explain it. If there’s enough people in a small town to play golf at eight different golf courses, there must be a lot of golf being played. If there’s a lot of golf being played, there’s not much work being done.
Damian Collins: Exactly, and that’s always the problem I’ve had with retirement type areas. It’s great for people who live there and retire, but where’s the income coming from for these people to move in? What’s the industries that are going to sustain high paying jobs out that way? And don’t know a lot about Bowral, other than generally where it’s located, but I’d be looking at industries. What’s going to sustain it? Are there high paying jobs? And if there are not, well then I can’t see that location long term is going to perform well. As Brad said, look, when people in Sydney, particularly they start feeling wealthier, the holiday homes and the second homes start to come in. Same happens in Melbourne in the Mornington Peninsula on the other side as well. But I guess, as Brad said, exactly that. As soon it gets time to get tough, the holiday houses are the first thing to go. So they’re not great investments, holiday regions, for me.
Margaret Lomas: No, they’re absolutely not. And even though Bowral is within easy reach of Sydney, it’s just that little bit far away for someone to reasonably commute, although people do. But the greater proportion of the population certainly don’t. You live in Bowral at the moment and you would know that the prices there are fairly expensive really, relatively speaking, and that’s because they’re all such beautiful properties and people do retire there, and they tend to spend what they need to there. But I can’t see a lot of room in that market anymore, or not a lot of room. And even if it cops a bit of that leftover heat from the Sydney market, I’m not actually picking Bowral to do an awful lot in the coming couple of years. I’m not saying it’s going to lose value, it’s just not going to get the kind of growth that you want to see from an investment property. And let me reiterate to all of our viewers, it’s just not good enough to buy a property that just does okay, or doesn’t lose value. You need your investment to outperform anything else that your money could be buying at that moment in time. And I think a buy in Bowral might even grow a little. But do I think it’ll outperform? I don’t think it will, and I think there are many areas that will definitely outperform that you should be thinking about if you truly want to invest in successful property for the future.
Well we’re about three quarters of the way through the program, but you might still be able to get your question answered if you hurry along to phones while we go off for our last break. Now call us on 1300 30 34 35 or email us on firstname.lastname@example.org. We’ll see you soon.
Welcome back. It’s been a great night with Brad Beer from BMT and Damian Collins from Momentum Wealth answering your calls. The lines are now closed, but during the week, you can email your questions for next week to email@example.com. Now we just have time for our last couple of questions here. We’re going to start with Mike from Perth. Welcome to program, Mike.
Mike (caller): Thanks for taking my call. I know Margaret, you’ve been saying a lot of good stuff about Brisbane, but I just want to ask the panel’s opinion in regards to Everton, Everton Park. I bought a townhouse, actually off the plan. It will be settled around October this year, so I was wondering of the views, you know, from the panel in regards to that subarea.
Margaret Lomas: Yes. You know, there’s a lot of townhouses being built all around that area. So they are the kind of property that is in demand, but there are a lot of them. Damian, what do you think?
Damian Collins: Yeah Mike, I’ve had a good look around up around Chermside and under, and we do like those areas up through north of Brisbane there. But we don’t buy townhouses for that very reason that Margaret mentioned. A lot of supply of them, and yes, there’s certainly demand, but there’s to my opinion, too much supply. A lot of them are in pretty ordinary complexes that were built, you know, pretty averagely. So look, you’ve bought it now. It’s good to ask the question, but it’s too late, Mike. Look, the good news is that Brisbane market’s going to likely perform the best in the capital cities around Australia for the next couple of years. So that’s a good upside. And you’re going to get some good depreciation. It’s brand new, so hopefully your rental yield is strong and I think it’ll be an okay investment. But just watch out for the longer term supply in that area.
Margaret Lomas: Brad, good news for Mike is that on a townhouse, you also get a little bit of common property as well to depreciate, which ups your claims.
Brad Beer: Absolutely. Common areas, your land, your piece, obviously you get, you know, decent depreciation based on that. And brand new still does get the most depreciation. I guess settling in October means you’ve probably bought it a little while ago, not just now, so…
Margaret Lomas: Hopefully got a lower price.
Brad Beer: Hopefully, with a little bit of movement of that market, and you’ve got a little bit of lower price. And even if there’s a little bit of oversupply, I suppose, then as long as there’s not too much over the long term given the overall area’s not too bad, hopefully it’ll do all right for you.
Margaret Lomas: Yeah, I think the whole area is going to go okay. If I was to pick the area that’s my favourite in Brisbane, it wouldn’t be Everton Park, but that doesn’t mean they’re bad areas. It means that they will still grow. I just don’t think they’ll have the hottest growth in Brisbane. They’re just a little bit outside of all of that CBD building, where there’s a lot of units going up. But then we’re seeing a lot of townhouses in that band where you are. And I think it’s an area where there are a lot of families who probably are going to demand those houses. But as the panel has said, it’s not a bad investment. I think it’ll go okay for you, and you will get all those great depreciation claims along the way.
John, from Sydney, how can we help you, John?
John (caller): Margaret, I understand that you’re a big Brisbane fan. If we can cut to the chase a little bit, give us a bit of a tip as to where and why in Brisbane if you’re going to spend about $500K to $600K.
Margaret Lomas: Okay, first of all, I’m going to qualify all of this by saying that you should never use an amount of money you’ve got available to choose an area. So if you said I’ve got $600K, where should I buy? That might actually make you buy in an area that’s not the best area to buy in. You agree, Damian?
Damian Collins: Exactly. So I wouldn’t let that determine your total strategy there in that case particularly, John. But look, I do like Chermside that Margaret says, she thinks there’s some good areas. But look, I do like it. It’s one of those strategic metropolitan areas in the Brisbane’s plan for long term. Also Nundah is another area. It’s again, it’s in that sort of 8 to 12 kilometer bracket that we like. We don’t like buying right in the city. We don’t like buying in the hot suburbs that everyone knows are popular. We like to buy in those areas where you can still get properties in that $450k to $650k odd range that are likely to be rerated by the marketers as the wealth of the city grows. So I do like that sort of area. Mount Gravatt’s okay. But look, yeah, there’s some good opportunities in Brisbane. Just do your homework.
Margaret Lomas: What do you think quickly, Brad?
Brad Beer: I think, like you say, the Mount Gravatts, maybe even a bit further south back towards Logan, you can probably nearly get two for that price, and you don’t have to put all the money in the same place. Brisbane hasn’t had some of the, probably the same level of growth that Sydney has, and probably gets out of whack with where it should be in comparison to Sydney’s prices. So people eventually, when we become too expensive here, look at other places to invest a little more, and Brisbane’s probably on the radar then.
Margaret Lomas: Look, I’m an Edens Landing in Upper Mount Gravatt fan at the moment. I also don’t mind Forest Lake, but stay away from the townhouses there. There are a couple of areas that aren’t getting quite as much attention as the Logan shire. I do like the Logan shire still, and you can probably pick up two there, but I wouldn’t. If I bought in Logan, I’d buy one there and probably one up in Deception Bay, so you’ve got two different kinds of markets at the same time. I wouldn’t spend the $600k in one place in Brisbane right now however. I probably wouldn’t even spend $500k right now. I’d go for maybe the $400k to $450k band, or even in that $300k band and get two. Because that way, you’re going to get your finger in two different pies, and both of those pies should go very well.
This week, Matt has a question about something a little different. And he asked, “Hey Margaret, I’m just thinking outside the square, and I’m wondering about opportunities and risks associated with investing into US real estate. The appeal is obvious, but I’m just wondering what to be aware of in terms of capital growth, risks, fees, investing outside of the country, etc. Brad, the US.
Brad Beer: The US, there was at every property show for some time, there was heaps of guys selling lots of…guys and girls, people selling and flogging US property when it was really, really cheap. I think depending on the area, probably not massive amounts of growth unless you pick the right one. It’s a big country. We don’t know much about it. It’s a long way away. There’s a lot of problems with property management and getting it done properly. You’ve got loans in the US as opposed to Australia. You’ve got to bring your money back. It’s got a lot of things aside with it that just make it a lot harder than investing in Australia where we’re from, where we understand a little bit better. And unless you really want to diversify out of this country because you got that much here, then we’ve probably got lots of opportunity here which I’d probably look at first.
Margaret Lomas: You know the depreciation laws in America?
Brad Beer: Not in a whole lot of detail, but they’ve got…it differs in different states actually, and Canada differs again.
Margaret Lomas: Oh wow, yeah. I know it’s different all over the world. Damian, you’ve got to ask the question why they’ve come all this way down under to sell us property?
Damian Collins: Because they can’t find any suckers in their own country.
Margaret Lomas: That’s right. If it was that good, I mean, you know, all due respect to the Americans, but they’d buy it if it was good, wouldn’t they?
Damian Collins: Of course, of course. And that’s the difficulty, when you’re buying property, I mean, you got one asset in another country, you’re choosing the season. I mean, Detroit was pushed around. Now I wouldn’t send my worst enemy to Detroit. It’s going backwards in a big way. Though selling stock they couldn’t sell locally, and still that reason is they’re trying to sell properties, albeit, there’s not as many promoters of it as there was, Matt.
So look, as Brad said, unless you’ve got this massive portfolio in Australia, I wouldn’t be looking overseas at all. There’s a lot of risk. What happens if you get a bad property manager? You know, what happens if a tenant wrecks the place? Who’s going to look after all those things? So I’d steer clear.
Margaret Lomas: And you know, speaking of bad property managers, my understanding of the American market is that bad property managers is something that you do get a lot of. Property management isn’t anywhere near as well developed as it is here in the country.
Brad Beer: Nowhere near as good.
Margaret Lomas: Yeah, and people have all sorts of problems with that whole possession is nine-tenths of the law thing-o, where someone gets in and they’ll squat in your house, and you can’t get them out. And also in many states, back taxes attach to the property. And so you might buy the property for $50,000 and it might have $50,000 or $100,000 worth back…they call them property taxes, but they’re like counsel rates, that haven’t been paid and they become your responsibility. It’s very difficult to uncover all of that information.
Brad Beer: And if you’re an expert at the American property market across the whole country, then maybe a thing to consider after you’ve bought a whole lot here, but as your first or early investments, it’s really, it’s a minefield.
Margaret Lomas: Yeah, it’s speculative, isn’t it? Look, Matt, I knew someone once who was offered a property in Florida for $20,000. And he figured that since he could put that on his credit card, he’d give it a go. And I think it was worth $10,000 a year later, but that’s not what I’d call a big risk. I know someone else who was sold a property in Detroit and she was told that because it was…it was great because it was in the inner city. And anyone from Detroit will tell you don’t go anywhere near the inner city because that’s where all the gangs are. And she paid $250,000 for that. And at the time, the property was probably worth about $25,000. And the intermediary pocketed all the rest of the money, and it’s like a sucker born every day. I just think you’ve got to be very careful. It’s hard enough to invest here in Australia and to work out where to buy, and when to buy, and which markets are going to take off next. It’s impossible to work that out in an overseas country that you know nothing about. And you’re relying on the people selling you the property to give you the right kind of information. And they’re not going to do that because it’s in their best interest to see you walk away with a property, and they walk away with your funds. Just stick to Australia where you have more surety, and certainly as Brad says, plenty of opportunity left in this market.
Well that brings us to the end of this week’s show…. Thank you to my guests this week, Brad Beer from BMT, and Damian Collins from Momentum Wealth. As always, their advice is spot on
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