Property Hub - Investment Insights & Inspiration - Get Invested: Adopting 'JOMO' for asset boom speed wobbles

Starting point is 00:00:00 Right here, right now, I think there will be dozens and dozens of parts of Australia, Bushy, that will produce 20% or more capital growth in this one calendar year alone, 20% or more in one year. I think there'll be some locations that might enjoy this sort of rate of growth for maybe around that 18-month mark in total from start to finish. but there'll be other parts of Australia, particularly outside of our capital city markets, where we could see this sort of growth for several years. So once you get those property prices being pushed up, that means when locals are priced out of their market, they might have to rent instead of buy, and that puts more pressure on the local rental market as well. Welcome to the Get Invested podcast, where we share great conversations with experts from all walks of life to uncover their secret

Starting point is 00:00:50 know-how and where they invest their time, their skills and their money and the benefits that this has created. You see, the truth is that everyone invests. Every minute of every day, we're investing our time, our skills, our energy and our money in something. Some of us are investing consciously, some unconsciously, sometimes for good, sometimes for bad, sometimes for no impact. Get Invested will help you to start living by design, not by default. I'm going to help you to make it happen not let it happen you'll hear the top tips on how you can live with conscious intent so that you can live more work less and leave a living legacy by investing now listen to the show to discover the top tips on how to get started make the most of your

Starting point is 00:01:37 investment journey and ultimately to be living your dream not someone else's more episodes can be found on iTunes or at bushymartin.com.au forward slash getinvested. Thanks for listening and now let's get invested. Welcome Freedom Fighters. Now as you probably know, asset markets of all types are in the grips of a rare window of a once in a 20 year boom. So how do you and our governments need to handle asset boom speed wobbles what do we do what don't we do do we invest now or do we sit on the sidelines do we sell now or wait well these are the questions that i keep hearing from you so today in a break from get invested tradition we're doing a special episode to help you answer these and other key questions that will help keep

Starting point is 00:02:35 you informed in the dynamically changing times ahead. And to do this, we're going to draw on two key sources. Firstly, a recent episode of Australia's most popular and longest running property investment show with a regular audience of over 120,000 listeners every week, that being Kevin Turner's Realty Talk, that I'm now very humbled to be the anchor host, which you can all find at channels.realty.com.au forward slash Realty Talk. That's Realty, that's R-E-A-L-T-Y Talk, Realty Talk. And in addition to that, I'm going to jump into a recent article that I wrote for the Property Tribune, which is a great property publication that gives you an independent, honest view on what's happening in our largest $8 trillion industry in the

Starting point is 00:03:28 country and it's a great place to go to get educated and to inspire yourself on all things property. Now if you like what you hear today and you want to read the article in full just jump on the link in the show notes at thepropertytribune.com.au forward slash news forward slash how to handle the speed wobbles of Australian property. But to set the scene and to get a clear picture on what has happened, what is happening, and what's likely to happen in property moving forward, this week's Realty Talk Show that we're reproducing on Get Invested revolves around my interviews with property industry leaders Eliza Owen from CoreLogic, Simon Presley from Propertyology, and Stuart Weems from ProSolutions.

Starting point is 00:04:17 To kick things off, leading property market analyst and the head of research at CoreLogic, eliza rowan discusses her rundown on what's happening with property values and rents around the country along with the factors that are contributing to a tightening in rental markets particularly in regional areas i then have an always lively and informative chat with one of australia's leading and most successful property forecasters simon presley from propertyology who answers your key questions around how long the boom will last he shares what sort of factors are instrumental in separating the property market performances from one city to the next. And Simon concludes with, what are the big picture things that will play a role in shaping

Starting point is 00:05:02 property markets over the next few years? I'm then joined by highly regarded industry professional Stuart Weems of ProSolutions, who shakes up traditional investment portfolio thinking by challenging why he believes that there are occasions when property investors shouldn't diversify. And it echoes what I talk about in my book, The Freedom Formula, where diversification can become diversification in certain circumstances. So that's a great listen. Stuart also explains what he meant when he recently said that in retirement, we pay for living expenses in dollars, not percentages. He then runs through his projections that suggest that medium property values might be appreciating

Starting point is 00:05:49 at over $100,000 a year by the years 230 to 233 and explains what this means for you as a property owner and an investor. Stuart then explains how you can put all of your property eggs in one basket safely while avoiding the risks. And to conclude today's show, My regular bush bite last word talks you through how loan interest can be claimed at tax time and what the rules are around this so that you can optimise your cash flow. So to set the scene on how you and the government can better handle the speed wobbles of asset

Starting point is 00:06:28 booms, let's turn to my recent Property Tribune article. Have you ever been driving a car while towing a caravan or trailer and as you accelerate you start to get the speed wobbles swinging uncontrollably from side to side. Or remember back to your childhood days when you were on a skateboard and you started swaying and wobbling dramatically as you picked up speed. What do you do in this situation? Well, the natural thing to do is to start over-correcting the steering and to slam on the brakes.

Starting point is 00:07:03 But if you've ever been in this situation, you'll know that this is exactly what you shouldn't do. Why? Because this reactive overcorrection will, at best, cause you to jackknife, and at worst, result in a serious crash. So how do we handle the speed wobbles? What do you need to do? Let me come back to that in a minute. because the rapid rises in asset prices and values across everything from shares to precious metals, crypto and property prices have been creating similar vehicle momentum challenges for both governments and investors.

Starting point is 00:07:42 Since the onset of the pandemic, after an initial drawback, asset values have been going through the roof. Why? Because global economic responses to the COVID crisis have created the perfect storm for increases in investment assets of all descriptions. Massive government stimulus packages, the central bank's printing of money, which is often disguised as qualitative easing, aka QE, along with drops in interest rates to historic lows means that there's lots of money sloshing around and money has never been cheaper to borrow. It also means that the worst place to leave your money is in the bank as savings rates that are just at or just over zero

Starting point is 00:08:29 result in you losing money when inflation is taken into account. And to top things off, lockdown down times and working from home have resulted in everyone having much more time to start doing something with all of their extra cash. The result? Every man, woman, child and their dog are investing, or more likely speculating and gambling, by throwing their hard-earned savings and borrowings

Starting point is 00:08:57 at the next best shiny thing. And they're piling in, as mainstream and social media promote the instant overnight rags to riches stories. This has created a tsunami of speculation-fuelled FOMO, or the fear of missing out. In the space of just over six months, media commentators have swung full tilt from fears of doom and gloom to fears of boom and bust. Home and property values are a perfect case in point.

Starting point is 00:09:29 And there are already media calls for the government to start stepping in to dampen demand through a mixture of macro-prudential measures such as tightening bank lending policies or potential tax changes or interest rate rises due to fears of housing price growth raising that old chestnut of housing affordability particularly for first home buyers. And we've already seen this start to take place. But this hasty reactive overcorrection

Starting point is 00:09:58 is no different to slamming on the brakes while towing the swaying caravan. this is the worst thing to do and let's not forget that first home buyers only represent about 10 to 15 percent of the market while over 50 percent of all of our household wealth lies in the value of our homes particularly for the massive baby boomers and generation x's that are nearing retirement where increasing home prices may be the difference between being able to stop work and living comfortably in their golden years, or having to keep working until you drop. So, in my humble opinion, we need to take a deep breath and keep calm, rather than the government make hasty changes to satisfy the few at the expense of the many.

Starting point is 00:10:47 Perhaps there's a better alternative. Let's return to the swaying car towing trailer analogy. What's the best thing to do when you've got the speed wobbles? Now, it's counterintuitive and contrarian, but all we know is that the best way to handle this scary situation is just to take your foot off the accelerator and allow things to stabilise. In other words, to do nothing and to allow the car and the trailer to correct themselves. And from where I sit, that's exactly what we should be doing in the housing market,

Starting point is 00:11:24 because what many are missing is that we're experiencing a short-term period of price exuberance that's flowing from pent-up demand created by COVID, along with a very limited supply of properties for sale. The resulting scarcity, increased demand and the access to credit, along with the limited supply and media-fueled FOMO, have all combined to push up prices for quality properties sharply, to overcompensate for 12 months of not being able to do much. But like every coiled spring that has been released suddenly, it will overreact short term and then return to equilibrium. The current activity in property is no different. Stimulus packages are already starting to abate and a natural increase in the number

Starting point is 00:12:16 of properties for sale, occurring as rental moratoriums and home loan holidays end, alongside with the increased confidence, is enticing more property owners to list their homes for sale. So, just like the swaying car and caravan, the best thing to do in housing may be to do nothing. Just take the foot off the accelerator and let nature and market forces take their course. Conversely, any hasty over-correction by braking or over-steering through macro-predential interventions, tax treatments or rate rises may result in an unwanted downturn along with other unforeseen consequences. And property buyers need to start doing the same, shifting their mindsets from the current FOMO faux pas to what I call JOMO. From the fear of missing out,

Starting point is 00:13:09 to the joy of missing out because having the patience to sit tight now may create better opportunities in the near future. So in my humble opinion we need to adopt JOMO instead of FOMO and if you're adopting our suggested long-term approach to investing for 15 years or more you don't need to concern yourself with buying at the bottom or selling at the top as this generational investing approach will ensure that you enjoy full growth cycles so the best time to invest is every time you can afford to. If you're an existing property owner with properties that are underperforming in terms of growth or cash flow, then this is a time it might be worth considering selling any laggards

Starting point is 00:13:52 so that you can put your capacity into higher performing investments. Now, Warren Buffett's old adage that you need to be fearful when others are greedy and greedy when others are fearful also rings true here. And even more relevant is the Buffett truism that wealth is the transfer of money from the impatient to the patient. But unfortunately, we live in a world where adopting long-term patience and doing nothing is perceived as being weak and unfashionable.

Starting point is 00:14:24 So my challenge to you and our governments is do you have the courage and the resilience to ignore the overemphasized noise of the vocal, knee-jerk, short-term view squeaky wheels and allow nature to take its course. So what will you do now? Well, if you're unsure, the best thing you can do is get invested in your knowledge because knowledge eliminates fear and gives you more clarity and confidence in your investment decisions. and one way to increase your investment knowledge is to grab a copy of my book the freedom formula

Starting point is 00:15:02 where i share the full step-by-step guide to achieving financial freedom that has worked really well for sonia and i along with nearly 2 000 other investors that we've helped over the years so if you want to grab yourself a copy just jump on www.knowhowproperty.com.au forward slash resources forward slash books where you can also grab yourself a free copy of my award-winning book, Get Invested. Or you can also jump on bushimartin.com.au forward slash books where you can get it direct or at all good bookstores as well as a few bad ones.

Starting point is 00:15:37 And remember, the profits from the books go to a non-for-profit charity called Living It Rough and Doing It Tough where they look after the needs of the dogs of the homeless so that rather than be taken away and put down, they remain with their owners and the hope, companionship and sense of responsibility that goes with this unique bond has proven to sustain them and get them back on their feet far quicker. Now, if you're not a reader, but you're ready to find out how property investment can support your growth goals and create the life that you were meant to live, or if you want to

Starting point is 00:16:16 improve on your current property portfolio so that's working much better for you, feel free to join me live in our unique Know How Property Freedom Flight program, where I'll personally guide you through our proven process for investment success. To book your ticket or to find out more, just click on the link in the show notes at knowhowproperty.com.au forward slash freedom fighters. Or if you just want to have a chat with myself or one of our amazing Know How Property team to answer your burning questions, just jump on knowhowproperty.com.au and click on the purple get in touch or book appointment buttons to lock in a time that suits you. In the meantime, to really fine-tune your awareness of what's happening and what to do about it,

Starting point is 00:17:03 enjoy these informative and ear-opening chats with industry leaders Eliza Owen, Simon Presley and Stuart Weems. hello once again welcome to the show well the annual growth rate of combined regional dwelling values at 13 percent was more than twice that of the capital cities in the 12 months up till april this year that's according to core logic but remarkably rent values across the combined regional markets have outpaced capital city rents even more. Bushy Martin today catches up with CoreLogic's Eliza Owen to dig a little bit deeper into the findings.

Starting point is 00:17:51 You know, when the COVID pandemic struck and the country was locked down in March last year, everyone was predicting doom, gloom and the potential collapse of the property markets around the country. Everyone, that is, except Simon Presley. He tells Bushy today why he was so bullish. You know, it's a generally accepted investment principle that diversification can reduce your risk and improve your investment returns. But are there times when property investors shouldn't diversify?

Starting point is 00:18:30 Well, Stuart Weems tells Bushy that it could be called diversification. Now, that's a new word, and Stuart explains what that means today. But first up, Bushy talks to Eliza Owen about some truly amazing findings that are emerging from CoreLogic's quarterly regional property report. Welcome. Now, CoreLogic has recently released its quarterly regional report, which reveals that the annual growth rate of regional dwellings at around 13% is more than double that of the capital cities at about 6.8%. And even more remarkably and interestingly, rent values across combined regions have increased almost three times more than the capital cities over the year. So to discuss this and the details and implications behind it, I'm joined by a Realty Talk regular and leading property analyst, Eliza Owen from CoreLogic.

Starting point is 00:19:29 Welcome back to the show, Eliza. Thanks for having me back. Awesome, Eliza. Now, can you start by giving us a bit of a rundown on what's happening with rent across the country? Yeah, so we've seen somewhat varied rental performance depending on what kind of market you're looking at. whether it's in a city, whether it's houses or units, but generally overall rental values have been increasing. Across the regions, there's been a pretty broad-based increase

Starting point is 00:20:02 in rents across both houses and units. So we saw that in the year to May, growth in regional rents was sitting up at around 10.5% over the year. across the capital cities however there was still an increase but it was only about four percent in the 12 months to make so there's this enormous differential that's kind of opened up between rapid rental increases across regional Australia and kind of more of a recovery in rental conditions that we've seen across the capital cities. Yeah, okay.

Starting point is 00:20:43 So what are you seeing as the factors that are contributing to tightening rental markets, but particularly in the regions? I think the big one for the regions is that, you know, we talk a lot about this migration story where people were leaving in droves from Sydney and Melbourne to elsewhere across Australia. And to an extent, there were more departures from Sydney and Melbourne over the COVID or since COVID hit Australia. But that narrative is a bit overblown.

Starting point is 00:21:15 What is less reported is the fact that not a lot of people left regional Australia to go to cities since the onset of COVID, whether it was because they had a job lined up and they no longer needed to go to the city or they were going from a regional part of Australia maybe to a big city for university university or something like that and for obvious reasons that didn't happen for um since covid so the overall movement of people from regions to the capital cities was about four percent below levels that we would usually see and as a result i think we didn't get as much stock being freed up

Starting point is 00:21:56 across the regions so i think demographically that that's been a huge driver of keeping those regional rental markets quite tight. We've also seen that the nature of movement from capital cities to regional Australia has been more in that wealthy, mobile worker who can, you know, do a professional kind of job and afford to work remotely. So that's put additional pressure, not just on rental markets, but on the purchase prices of properties particularly in lifestyle areas um geelong the central and north coast of new south wales and the sunshine coast and the gold coast so once you get those property prices being pushed up that means when locals are priced out of their market they might have to rent instead

Starting point is 00:22:52 of buy and that puts more pressure on the local rental market as well um and the final factor i'd say would be as we've started to see eased restrictions as COVID is more contained we get this resurgence in domestic tourism in interstate travel and that has reversed the narrative that we heard initially of you know this Airbnb stock thing flooding the market and and loosening up rental markets, I'd say the reverse is probably true now, where because of the boom in domestic tourism, we're seeing a lot more of that stock be reverted to short-term accommodation, namely Airbnb. And that's supported by some data from AirDNA, where in bigger markets like Richmond Tweed or Gold Coast, we're starting to see those short-term accommodation volumes rise

Starting point is 00:23:50 through the March quarter, say, for the first time since the onset of COVID. Yeah, interesting. So looking at that, what do you think this means for tenants? You've covered some of that already, but also the potential impact on housing stress and homelessness. I think it's created some real housing crises in parts of Australia. So across some of the regional centres that we've looked at over the year, rental stock is virtually halved so rental stock on average has declined by

Starting point is 00:24:26 about 46 percent across the major regions that that we've analyzed which is enormous it's just an enormous reduction in available rentals yeah and then on the price side of things of course once you have diminishing supply rising demand that creates an increase in rental values. So across some of the major regions that we've analysed, the average increase would be about 10%, which aligns with our broader combined regional rent value increase of 10% over the year. And for some regions like the Richmond Tweed area of New South Wales, rents have gone up as much as 20%. So that means you have people becoming displaced,

Starting point is 00:25:12 you know they can't afford to get into their rental market locally so they may have to find somewhere to live further away and in some instances we've seen reporting on increased homelessness increased youth homelessness where the rental cohort tends to be younger as well and that's not just the regions it's also happening in cities like Hobart where there's just virtually no rental stock available so you know it's a real problem and one that unfortunately when we talk about solutions to these kinds of problems social housing and affordable housing is probably the most obvious answer but that's pretty inelastic you know it takes time to construct those dwellings so yeah it's just another awful bizarre consequence of of what's

Starting point is 00:26:06 happened since the onset of COVID? Well, we're clearly in ongoing interesting times. I appreciate you sharing those thoughts with us, Eliza. It's always great to have you on the show. No worries. Thanks for having me. Well, it's clear that with change there's opportunity, but there's also winners and losers and the regions are benefiting from the exercise. So, more challenges ahead, but there's more to come. So, stay with us here on Realty Talk. property deductions can save you thousands of dollars each year to make sure you maximize deductions you need to work with the most experienced quantity surveyor in the country bmt tax depreciation is the leading specialist in the industry they've completed over 700,000

Starting point is 00:26:50 tax deduction schedules for residential investment and commercial properties australia-wide bmt guarantee to find double your fee in the first full financial year deductions call bmt on 1-300-728-7285 726 today for an obligation-free quote. Welcome. Now, when COVID pandemic struck and the country was absolutely locked down in March last year, just about everyone predicted gloom, doom, and bust in property markets, with the notable exception of today's regular guest, Simon Presley from Propertyology. Welcome back to the show, Simon.

Starting point is 00:27:28 Thanks, Bushy. Always good to chat property, mate. Now, Simon, you were pretty much the only person to correctly forecast that property markets would be booming within months of the COVID lockdown. So given that success, how long do you think the current boom is going to last? Yeah, great question. I wish I could answer that with confidence. It's probably easier or more accurate to answer it by talking about the things that are going to influence how long it will last. um you know right here right now uh i think there are there will be dozens and dozens

Starting point is 00:27:58 parts of australia bushy that will produce 20 or more capital growth in this one calendar year alone 20 or more in one year um i think there'll be some locations that might enjoy this sort of rate of growth for maybe around that 18 month mark in total from start to finish but there'll be other parts of australia particularly outside of our capital city markets um where we could see this sort of growth for several years let's not forget that australia's most prosperous era was the five years ending 2005 and if we um if we think we're having a boom now well back then there are 138 individual towns or cities where the median house price doubled in less than five years so uh whether we get to that i don't know but uh volumes of properties listed for sale

Starting point is 00:28:46 will um it will be what determines how long this rate of growth lasts now when we return to more normal volumes will vary from one location to the next. I think Sydney and Melbourne will probably get closer to normal volumes sooner than some other markets, perhaps as early as the later part of this year. And the other thing that hopefully it doesn't intervene, that if APRA ever get nervous and intervene by tightening credit policy, that will act

Starting point is 00:29:17 as a handbrake of sorts. Yeah, and I totally agree. So, given that context, what factors do you believe are instrumental in separating the property market performances from one city to the next? Yeah, well, there's always a number of variables from one city to the next, Bushy. In no particular order, it's things like the cost of housing. That directly affects the size of deposit that one needs and the cost of stamp duty to transact in property. So, you know, Sydney has always been in a league of its own there for how expensive it is there. but there's many other parts of Australia

Starting point is 00:29:49 where the purchase price of a typical house has a four in front of it. Large parts of Australia have that. Financial capacity. So what I mean by that is someone who already owns property, their ability to upgrade, for example, or to leverage off some equity in the family home to invest in property.

Starting point is 00:30:04 That's going to be largely influenced by how their own local market has performed over the last five years, whether they've got that equity there or not. The volume of properties listed for sale, as I said, you know will vary from one location to the next the quality of the rental market right now Sydney and Melbourne rental markets are very very soft but the rest of Australia has never seen tighter rental conditions so some of those current renters will become owner occupiers and add extra pressure

Starting point is 00:30:32 on asset values and some of those high strong rental markets will encourage investor activity adding to asset values migration patterns you know whilst the international border is closed we've really seen an acceleration of people not only moving properties but moving towns so where are they moving from if they're moving away from from a location that reduces pressure in a market and where are they moving to so that's going to be different from one location to the next but the biggest and most important influence is local economic conditions some of our markets rely very heavily on international business, whether it's tourism or students.

Starting point is 00:31:14 Some are benefiting from more than normal domestic tourism. And large parts of Australia have some really robust sectors such as manufacturing, education, a lot of renewable energy projects, and mining sector's strong and defence sector's strong. But where those jobs are will be different from one location to the next. Yeah, interesting. So looking at the macro situation, what are the big picture things that you believe

Starting point is 00:31:42 are going to shape property markets in the next few years? One of those is economic conditions. If we bring up this graphic here, Bushy, just looking at economic growth, large parts of Australia at the moment, our economy, Jesus chalk and cheese, if we compare how we feel today compared to this time 12 months ago when we were in national lockdown.

Starting point is 00:32:01 But you can see here the green column. So we'll see the blue column here showing the job growth, you know, comparing now to, say, two years ago. The blue column there is Australia. But then seeing how it does vary quite largely from one capital city to the next. And also we've lumped all of regional Australia into one big column there. And then on the right-hand side of the graphic here, job advertisements. So the job hasn't been created yet, but an employer somewhere has advertised it. You can see there that if we look at regional Australia, there's 86% more jobs advertised today than directly before COVID, whereas places like Melbourne, 30% and Sydney, 18%.

Starting point is 00:32:48 So economic conditions, very different from one location to the other. But I think big picture stuff, CBDs in all our big cities, you know, they're feeling some pain. Whilst broadly the greater city might be going okay economically, I think we're going to see and hear a lot more about some pain in CBD businesses in the coming couple of years. Another influencing factor is the work from home phenomenon. It is a major structural change.

Starting point is 00:33:21 For most people, it's a permanent change, not a temporary thing. It might have started out as a temporary thing during the initial national lockdown, but a lot of people have made that permanent decision there. Housing supply. At the moment, we're talking a lot and focusing a lot on not enough properties listed for sale. That's one form of housing supply. I'm more referencing new construction. we are ramping up our construction sector stimulating the rate of new construction at a time when the international border is closed so our population is not growing

Starting point is 00:33:57 there will be in a couple of years time there'll be some parts of Australia that might suffer from some oversupply on the flip side of that we have a this is a global issue problems getting certain materials to construct dwellings and they were already a construction sector are already seeing whilst they want to build a lot of homes they can't get materials now when you've got big countries like america and china australia's a drop in the ocean compared to them they are stimulating their big countries similar to what australia is doing here and a lot of it is construction based so i think um globally we are in for a period of many years where it's going to be very very hard to get certain materials and similarly trade labor whether it's

Starting point is 00:34:48 our hospitality sector or whether it's uh different um segments of our construction sector the job advertisers advertisement stuff that we're looking at earlier bushy um jobs are available in large parts of australia but there's no skilled people to fill them and i think what this is going to do before too long is put upward pressure on wages. Yeah. The employer who's prepared to pay the most will be the one who'll get that person with skills to fill a particular role. Stepping through that, we may see a return to inflation

Starting point is 00:35:21 earlier than what we thought, which stepping, you know, way down the track, a few years in the track, we might see a rise in interest rates, even though, you know, that might have seemed impossible over the last 12 months. it might happen sooner rather than later um international border when will it open um will will it be floodgate stuff i don't think so i think it'll be a gradual progression um but that will obviously create more demand for housing and probably the most important bit all this stimulus uh state government and federal government it will be interesting to see how each government

Starting point is 00:35:57 responds in a year or two's time when their focus turns to paying back that debt. I think the first sign we saw of this was two weeks ago. The Victorian State Government released their budget and there was a number of new taxes released in that. I think that will become the norm for some governments in the next couple of years. Yeah, and there are some really interesting factors

Starting point is 00:36:25 that people need to start taking account of in a very different world to the one pre-COVID. There's no question about it. So we really appreciate you sharing those insights with us on the show today, Simon. My pleasure. Any time, Bushy. Thanks, mate.

Starting point is 00:36:40 Well, there's a really clear takeaway for me from those insights, and that is that you need to follow the jobs because jobs growth generally drives property growth. and it's very clear that there's been a big shift in that direction. So, third to thought, more shortly, you're here on Realty Talk. Property depreciation is the natural wear and tear of a building and its assets. Property investors can claim depreciation as a tax deduction each financial year.

Starting point is 00:37:13 Depreciation is a non-cash deduction. This means you don't need to spend any money in order to claim it. On average, BMT tax depreciation find residential investors almost $9,000 in first full financial year deductions. Call BMT on 1-300-728-726 today for an obligation-free quote. Welcome. Do you spread your investment eggs across multiple baskets? Well, it's a general investment principle that diversification can reduce your risk

Starting point is 00:37:45 and improve your returns. But there may be times when investors shouldn't diversify. So to discuss this, we're joined by a leading industry veteran, Stuart Weems from ProSolutions. Welcome back to the show, Stuart. Hey, Bushy. Great to be with you. Thanks for the invitation. Yeah. Now, really interesting subject, Stuart. Very interested in your thoughts on why you do believe that there are occasions when property investors shouldn't diversify. well i guess it does buck conventional wisdom but i think quality trumps diversification every day

Starting point is 00:38:21 of the week so i would rather own one quality asset one quality property and that's all i ever own as long as it's the best let's just assume it is the best property in australia well i'm always going to do well out of that asset over long periods of time. And the reason for that is just stands to really basic logic, Bushy, is that you can't expect above average returns from an average or below average quality property or asset or investment or methodology. You can apply it across the board, across broad asset classes, really. But when we're talking about property, it's really about the quality of that asset. And really, it comes down to the imbalance between supply and demand.

Starting point is 00:39:08 So if I had the opportunity, if someone said to me, Stuart, would you like three average properties or would you like one above average property? I know in the long run that the above average property, as long as we're comparing the same dollar amounts, is going to produce better outcomes for me in the longer run and also reduce my investment risk because if I'm investing in a sure thing, if you like, a really high-quality

Starting point is 00:39:31 blue-chip asset, then I would say my risks are relatively low in terms of the capital growth that asset will generate. Yeah, it's a really good point. We had a client recently that's really relevant to this discussion that was tossing up he had $900,000 he could put towards a property and he was wondering does he buy two at $450,000 or one at $900,000? Well, we demonstrated to him that it was worth spending the $900,000 on a property much closer to the city.

Starting point is 00:40:01 in a very tightly held location with very strong demand graphics and a demographic of strong and growing incomes, well, that's a much better proposition than two much lower properties much further out. So it certainly makes a lot of sense. Now, you've recently said that in retirement we pay for our living expenses in dollars, not percentages. What do you mean by that?

Starting point is 00:40:27 Well, look, when comparing investment returns between different asset classes and actually investment within that asset class. Of course, percentage returns in that comparison perspective are incredibly important. But when we invest in property to hopefully fund our retirement, we must realise that it's the dollar value of growth, not really the percentage, is the most important thing.

Starting point is 00:40:52 So if we look back 30 years ago in 1991, the median house price between Melbourne and Sydney was appreciating by about $10,000. Now, adjusting per inflation, that's worth about $20,000 in today's dollars. Now, if I'm retired and I'm spending $100,000, then that's one-fifth of my spending. Whereas if we look at the median house price today and we're assuming long-term sort of average growth of around 6%,

Starting point is 00:41:22 which historically has been higher than that, but let's just be conservative, well, then my median house price is increasing by $60,000. Well, that's now 60% of my annual living expenses. So whilst we look at percentages and they're important, what we must understand is because the compounding growth in property, that it will start to deliver in growth-wise a greater proportion of our living expenses. And that's important in an overall investment strategy to ascertain how we're going to fund

Starting point is 00:41:52 retirement and how long that money is going to last for. Yeah, that's perfectly said. I guess a great segue into the future because reading some of your projections, they sort of indicate that the appreciation in property over the next 10 plus years may be over $100,000 a year. What's that going to mean to investors? Well, I think it supports the investment case that perhaps one fantastic quality property, just like your client contemplated, is better than two average quality properties. that sometimes we have this sort of goal or idea in our head, I would love a property portfolio, you know, several properties and it would make me feel like I'm a successful investor,

Starting point is 00:42:36 et cetera, et cetera, but it's really not necessary. I would much rather, again, put all my eggs in one basket and that be a fantastic basket because chances are over the next two or three decades that that property's growth rate every year will be more in dollar terms than what I'm spending in retirement and as long as that's the case of course i need other liquid assets to fund retirement but at least i know if i've got say half a million dollars of super and i'm spending a hundred thousand dollars a year but i've got this asset that's appreciating quite two hundred

Starting point is 00:43:06 thousand dollars a year i'm going to sleep very well at night knowing that hey i might have to sell this asset one day but at least i know it's working in the background it's it's working while i sleep to build my personal wealth yeah well said so the million dollar question then is how do i I put all my eggs into one property basket safely while avoiding the obvious risks? So I think it's really two things. I would counsel people to really test their own comfort levels in respect to what an investment property budget looks like.

Starting point is 00:43:40 And we have to realise or acknowledge that a lot of our preconceived notions around this are really as a result of our upbringing our own personal experiences as well which may serve us well but also may not necessarily serve us well so i'm not inviting people to go and borrow way too much money than they ever should borrow and you know go and buy a three million dollar property or anything like that what i'm saying is that in your mind if an investment property is worth a half a million dollars well particularly in capital cities you're going to need to make some compromises but if you can get your head around and if it's appropriate for you to say spend a million dollars

Starting point is 00:44:20 well you've got better options available to you to maximize the quality of that asset so that's the first thing the second thing is get some advice you know particularly if you're not an experienced investor but even if you are an experienced investor i think it makes really good sense to get some professional advice from a good quality buyers agent that is a local area expert that has been operating in the market that you're looking to invest in and has been operating in that market for many years so really knows the street suburbs knows the agents has been have been through a lot of the property that you know that's available for sale and so forth and we've got to remind ourselves that just a one percent growth differential on a million

Starting point is 00:45:04 dollar property in 20 years is equal to half a million dollars today right so if by using a buyer's agent i can make a better decision and that better decision is going to get me one percent more capital growth and that's going to cost me 20 grand most people 20 grand or buyer's agent that's a lot of money but if it's going to make me another half a million dollars in today's dollars over the next 20 years it's a no-brainer right you pay 20 grand wouldn't you bushy to make half a million bucks so every day of the week yep every day of the week so they're the two things push the budget as much as you can but still obviously within your safe limits and get some advice. Yeah, really good advice as always, mate. Really appreciate your insights into getting us

Starting point is 00:45:43 to think differently around some of the assumptions we make around property. I really appreciate you coming on the show again today. Pleasure's all mine. Thanks a lot, Bushy. Thanks, mate. So the message is very clear there that we need to focus on quality. And if you want to get above average returns, you need to focus on above average properties. You're watching Realty Talk. Welcome. What loan interest can you claim on your investment property? It's a question that often gets asked around this time of the year. And according to the ATO tax office, nine out of 10 investors make mistakes when reporting their rental deductions. And one of the biggest areas of confusion revolves around claims for loan interest. So today's bush fight helps you to

Starting point is 00:46:37 clarify this. And it's interesting and important to note that I've actually covered off on borrowing expenses in a separate bush fight segment. Now, if you take out a loan to purchase an investment property, the interest charged on the loan is a claimable tax deduction. It's often one of the large deductions you get on the property. However, you need to make sure that you're abiding by the tax office rules. And these include that firstly, the property must have been rented or genuinely available for rent in the year that you're making the claim. Secondly, if the property has been used for private purposes at any stage during the year, then the interest needs to be apportioned accordingly and thirdly if the loan is used

Starting point is 00:47:28 for more than one purpose then say it's for private use at some point in time then the interest needs to be apportioned into deductible and non-deductible portions now one of the tips that you may be able to take advantage of is that you can prepay the next financial year's interest in advance, in a lump sum, and claim it all this year. So if that's advantage to you, have a chat to your accountant about that. You can also deduct interest on investment loans where you're financing renovations to the property, where you might be repairing the property, and where you're purchasing assets like air conditions, et cetera, that are improving the property. And in closing, here's a quick tip. If your rental property has been vacant for any

Starting point is 00:48:20 periods during the year, make sure that you can prove that the property was available for rent. Now, you can do this by rental listings with property managers or online with, again, rental adverts or proof or evidence through things like Airbnb. That's food for thought. Stay tuned for more. Thanks, Bushy.

Starting point is 00:48:45 Well, that's it for another show. A special thanks to our guests, Eliza Owen, Simon Presley and Stuart Weems. And a reminder too that you can see all of our shows at realty.com.au along with one of Australia's most extensive range of properties for sale from over 7,000 agents nationally. Thanks to realty.com.au and also BMT Tax Depreciation for their support. I'm Kevin Turner. We'll see you next time. get a summary of all this investment gold in the show notes, just email me on hello

Starting point is 00:49:21 at khgroup.com.au. That's H-E-L-L-O at khgroup.com.au. Or check us out at www.bushymartin.com.au forward slash getinvested. I look forward to joining you next week for another episode of the Get Invested podcast. So thanks for listening. And as always, dream as if you live forever and live as if you'll die tomorrow.

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