Property Hub - Investment Insights & Inspiration - Get Invested: Your Property Hub Collective Future with Kevin Turner, Eddie the Frenchman, Rasti Vaibhav and Bushy Martin

Starting point is 00:00:00 To me, it's all about the economy and the attractiveness of Australia. And Australia is attractive in terms of the climate and just the lifestyle in general. In terms of the economy, I mean, mining has always been big. We've got China. And if China slows down, I mean, India will overtake China and potentially be China version two for Australia in terms of the mining industry. So I'm very, very bullish in terms of property prices for the next at least 15, 20, even even more welcome to get invested on the property hub podcast channel the leading weekly show to

Starting point is 00:00:36 help you unlock your full self-health and wealth potential i'm your host bushy martin and each week i go deep with the best investors experts leaders and founders to find out what it takes to break free from the grind discover freedom and live by design subscribe now and join me and get invested in the life you really want. Let's get started. Good evening, everyone. I'm very excited to have this first live Q&A for the Property Collective. And thanks for everyone who's joined us. I wanted to introduce, first of all, the beautiful people I've got with me today. So we're going to have Sonia, who's on her way back, Rusty, Kevin, and Bushy. So really quickly bushy and rusty both architects by trade and rusty was an investment analyst for

Starting point is 00:01:28 some time prior to launching his multi-award winning buyers agency get rare properties rusty i've uh i've worked with rusty um on one of our investments and he's an active investor himself and in fact uh he really walks the talk bushy martin arguably you probably one of the most influential figures in the property investment in Australia so very happy to have you on board and and the founder of know how property uh a company that empowers hard-working Aussies to design their perfect life and uh you've achieved actually your financial freedom which is a testament to the strategies that you you teach and um and all the time that you spent with uh your clients and and investors and kevin turner so kevin uh worked on in radio for some time

Starting point is 00:02:20 before plunging into real estate and and uh in sales and and then as a general manager of various real estate agencies kevin is the man behind the reality talk which is australia's most popular online property show and it's a brilliant podcast so the property hub podcast is is really a guest from all walks of life and really invaluable. Last but not least, she's not quite here yet, but Sonia Martin, Bush's wife.

Starting point is 00:02:51 She's an absolute bubble of energy and she's certainly a major influence in the success that both of you have enjoyed, whether it's personal or business. And finally, I'm Elie Chizik, also known as Elie Frenchman on socials, purely due to my name being unpronounceable. I have a passion for investing and sharing what I know and what I've learned over the years with others.

Starting point is 00:03:16 And I really, really enjoy it. I had a lot of light bulb moments and I really want to share what I know and the journey that we've taken to date. Kevin's going to be driving the Q&A today. So I'm going to hand it over to Kevin now. Thanks a lot, Eddie. I think, guys, what we might do is dig straight in because we have limited time and there's so much that I want to try and get out of you all. So thank you very much. Thanks for that introduction, Eddie.

Starting point is 00:03:42 That was very well done. Hey, guys, how about we start with like a market and economic overview, some of the conditions. I might just start with you, Bushy, if I may, and let's talk about RBA. And do you think they're likely to increase those rates? Well, yeah, I'm not a big person for making forecasts, Kevin, because forecasting RBA rates is like forecasting the weather. As we all know, there's more dynamics in the property markets than anything else.

Starting point is 00:04:15 I often say that there's more combinations in property than a Rubik's Cube when you try and break it down. That's something like $85 trillion or thereabouts. But I'm hedging my bets here, obviously. But I guess my feeling, and perhaps before answering that question, Kevin, just to give anyone who's listening in and trying to understand what rates got to do with anything, In very simple terms, the Reserve Bank or the Central Bank for Australia actually tries to control inflation through rates. It's a pretty blunt tool.

Starting point is 00:04:48 You know, I think that it's like trying to fly a jumbo jet using the ailerons to do a 360-degree turn. It's almost impossible. So it's a very blunt instrument. But very simply, if inflation's up, then they try and raise rates to try and dampen demand. and then similarly when the economy's stalling or in trouble they'll decrease rates to try and stimulate spending and it's it's very much about the spending equation so putting that in the into

Starting point is 00:05:15 context from that perspective given that we've seen uh you know the target range for rates is around the two to three percent and if we look at the 10 years prior to the pandemic rates were at three percent or lower so we've been through a very low and inflationary period they jumped up to just over 8% after the massive stimulus that was poured onto the economy as a result of the pandemic. And now they're progressively staggering down with a combination of rates and a whole other series of factors. So there's not a direct correlation between interest rates and what's happening in property in particular. But the good news, I think, is that the thing that was scaring the horses a little bit last month was that the wages increases were starting to scare people in

Starting point is 00:06:05 that regard. The most recent figures indicate that's starting to calm now and follow inflation. So I'm not a betting man, but if I was, Kevin, I would say no, rates won't rise. And I think it'd be a very brave RBA given the sort of federal government's concerns to have rates rise just before we start filling our stockings for Christmas. So my guess would be no. And I did a quick read. The recent finder survey that came out yesterday, about 82% of the experts, that's 31 out of 38 economists

Starting point is 00:06:38 and others, think that rates are going to remain on hold. Yeah. Hey, Eddie, I want to go to you and I want to frame it in a different kind of way because it's important, you know, to get your input on whether you think they'll go up or not. But really, I'm also keen to know how much of an influence that really does have on the market. Like if there's a movement up or down or even nothing, how much impact does it have and how quickly does it have on the property market? What are your thoughts?

Starting point is 00:07:06 Well, I think, I mean, it's all over the news, right? So it's definitely front of mind for a lot of people. Obviously, you know, a lot of people have a mortgage. So obviously, it's going to impact their borrowing capacity for a start. so it's definitely going to have a big impact i think that a lot of investors and us included we've uh we felt the brunt of it for the last uh what is it 15 months now and and that's made a big difference to our cash flow and so you're either in the market and you kind of you know going to be not frightened but you either kind of borrow or you think it's going to cost you too

Starting point is 00:07:44 much cash flow on on a monthly basis or you're not on in the market just yet looking at it possibly putting your toe in the water and the rates are just keep getting higher and it's just going to scare you off so i think it's going to have an impact having said that i mean the prices have kept going up for the last you know since probably january of this year even even though the interest rates have gone up so yeah but i agree with with bushing the fact that it's probably going to stay flat i mean there's a lot of things like you know the fuel prices i mean the barrel is um is tanking the price of the barrel there's a lot of things that are working towards the the the race staying flat i think unemployment is probably one of the things that they'd be looking

Starting point is 00:08:30 at because it's still pretty strong but having said that the last um stats i think for november from sick showing that the you know the jobs ads are dropping so so i think they'll stay on hold for this time around and then back you know in february they'll have a look at the retail number and the unemployment and they'll reassess i guess from from there yeah and and rusty your thoughts on that where do you what do you think the movement will be and and um traditionally we're not impacted until the banks actually action something up or down you know that doesn't mean to say just because the aba do something the banks are going to follow so what's your view on what's what might happen trustee sure so i'll probably just uh come with a very open statement like a

Starting point is 00:09:18 macro economic statement that as to bush's point it's all about inflation and whatnot but all these things matters like when we're talking about long-term investing and we should be looking at the long-term trend what happens on a quarterly basis monthly basis doesn't really have much of an impact as such on the market but what changes is the consumer sentiment as an example we saw that consumer sentiment was 82 out of 100 so basically people are saying that they're not really confident about the economy in general as a survey from best consumer confidence index that's 82 in october and we saw a rate rise and then all of a sudden it became just under 80 so that's a negative sign so to me it's all about not just the fundamental of the long-term way but also

Starting point is 00:10:01 consumer sentiment so going back to the point that she was making on the long inflation and especially when we know uh that it was a surprise dip so the thing that we look at and the reason i'm saying all of this is because of my background in the money management side of things like it's about the surprise element from the from the government as well like what's really going to happen like whether should we go take a great rise or should we take a cut because good thing is that inflation what we really saw uh that was 5.6 percent in september but as of the latest feeding which came only recently for october that was 4.9 percent to me it's a relative term that yes it has dropped but in general the market is expecting inflation to be reading at about 5.2

Starting point is 00:10:45 so the inflation has dropped more than what the market was expecting and based on that and because we are going to get in the christmas holiday in january is a holiday for rba to make such decision I think it's very important for RBA to even consider the consumer sentiment side of things because it has done more than what it was supposedly doing. Market expectation, my bet would be to have a hold until we meet again in February and then again. Yeah, we're all pretty much in agreement there.

Starting point is 00:11:13 I want to come back to you, Bushy, if I may, and just let's have a look at next year now. What are the triggers for the RBA to probably move rates next year? And if so, do you think they will? Yeah, I think there's going to be a wait and see. I think things are calming down. It'll be much flatter year next year than what it has been in the last couple because there's been a bit of a rollercoaster ride over the last couple

Starting point is 00:11:35 of years with the ups and downs. And I think the key triggers will really be economically looking at whether we fall into a defined recession. And some of the triggers around that and the things I'll be watching pretty closely are going to be the unemployment rate. So if there's a significant increase in the unemployment rate, that will probably be the trigger. But I think it's going to be a while off. I think we may get another rate rise in February.

Starting point is 00:12:00 Again, there's a lot of time between now and even then. But if there is, again, just reading a lot of the commentary around the marketplace at the moment, most of them, most of the economists are predicting that there's unlikely to be much movement in rates for a significant period of time. The downward trigger is likely to be towards the end of next year. But then for those that may be expecting pretty significant drops, given we've had pretty significant rises, that's a lot likely to be the case. So, again, we might see a 1% drop in rates starting towards the end of next year, over a year to a year and a half,

Starting point is 00:12:41 so that rates will settle from the cash rate perspective around the sort of mid-to-mid threes, which if you look historically, that's about roughly where they've sat on average over an extended period of time. So we're really just returning to normal. That's the cold hard reality. Guys, we're getting a few questions coming through, which is really good.

Starting point is 00:13:02 I'll get to them in just a moment. Marcus, we'll get to your question in just a minute. But before we do, before we move off this, can I just get all three opinions on what you think will happen with prices over the next 15 to 20 years. Bushy, we'll kick it off with you, mate. 20 years. Well, as you know, Kevin, you and I have been in the property game

Starting point is 00:13:24 about the same length of time, and it's not a year that doesn't go by when I hear people say, oh, prices can't continue to go up. This is never going to happen. It's going to fall through the floor time and time again. That's been proved wrong. And the fundamentals are still there. It doesn't change. Yes, we go through cycles and we expect highs and lows and periods where it's pretty flat.

Starting point is 00:13:47 But the reality is, from where I sit, given the very simple supply, demand and sentiment indicators, we are going to see continued growth in property. And particularly in the short to medium term, we've got very limited supply. We've got shrinking household sizes, which just the decrease in household size in recent years has put a 40% increase on the number of houses required just to satisfy the existing population. We've had 620,000 skilled migrants come into the country the last year. And that level of migration, while it'll tail back a bit, is going to be maintained at a reasonably high level. And then we've got a construction industry that's in strife and will be for a while yet. So we're way under supplying the already very significant shortage of housing that is required. And that's evident in the rental crisis that we're seeing.

Starting point is 00:14:40 That's been a long time coming. So in very simple terms, I don't think things changing. It will be fragmented, though, and it always has been. So when people talk about the property market, I don't believe there is one because every area and different location, every property and every street is different from every other one. So there's an opportunity here for those that are very smart about what they buy and where they buy it to continue to do very well in property for the next 15 to 20 years. Yeah, well said, Bushy.

Starting point is 00:15:08 Hey, Rushdie, do you want to add something to that? Anything you can add? No, I'll probably add just on the supply side as well. Like, yes, we saw that kind of demand happening and the reason why there's limited supply is because lots of developers, A, probably have got a lot of economic pressures on themselves, what's really going on, and also they've chosen to go for build-to-rent kind of thing that is going on.

Starting point is 00:15:29 Plus, they're moving towards bigger infrastructure projects, which probably the government needs to, I guess, promote it. So there's a limited supply plus more demand building up. And coming back to your question, like 15 to 20 years, yes, it's a heterogeneous market. There's no such market. Then long-term, this is the thing which is easy for anyone to answer. For the long-term, let's follow the long-term fundamentals.

Starting point is 00:15:51 And that is actually pointing out to a lot more growth. And of course, I mean, if you bring back to the previous point about adjusting for inflation, this is a real asset as a real estate. So this is the biggest hedge or one of the biggest hedge against inflation. As the government itself is targeting the right level of inflation, properties as a real asset would be actually as a hedge of the hedge of the inflation would actually rise just from that fundamental point of view. So for someone who wants to conserve the purchasing power, they should be looking at the real estate as a hedge for inflation. Eddie, do you want to add some points? Yeah, just a quick one.

Starting point is 00:16:30 I think, I mean, to me, it's all about the economy and the attractiveness of Australia. And Australia is attractive in terms of the climate and just the lifestyle in general. In terms of the economy, I mean, mining has always been big. We've got China. and if China slows down, I mean, India will overtake China and potentially be China version two for Australia

Starting point is 00:16:52 in terms of the mining industry. So I'm very, very bullish in terms of property prices for the next at least 15, 20, even more. Actually, we do have a question from Marcus. It's directed to you, Rasty. So I'll ask you the question and then we might, if you other guys want to make some comments, that would be great.

Starting point is 00:17:15 Marcus writes, Rusty, with rates as high as they are, as what you guys are talking about, should I be looking at high yield or high growth in residential properties? What's your advice on that, Rusty? Great question. So first of all, I'll say that property investing is actually, should be done for more for the capital growth reasons, because this is a growth asset as a fundamental level,

Starting point is 00:17:38 as asset class of residential property market. This is a growth asset. Just like why we should be investing in share market, it's not for the dividend's sake, it's more for the capital growth that the value increases over the period of time. But having said that, we are really talking about an asset class against which we are doing a leverage or taking borrowing, and the cost of borrowing is there for one to be mindful of, and the cash flow implications. So I would be saying that we should be, as much as possible, should be tilting towards capital growth, but then the subjective nature

Starting point is 00:18:10 of the household expenses or the balance sheet should come into play, that how much they can afford to buy for the capital growth because the cash flow, the holding cost is also meaningful and should be considered. So brief answer, buy for capital growth, but not to the extent that it becomes or makes a hole in the pocket that it's hard to get like a long-term investing. Yeah. Very good.

Starting point is 00:18:34 Hey, Bushy, it might come to you, mate, if I could just ask, as an add-on to that, maybe to help Marcus a little bit as well, Have you got any tips on staying afloat in terms of cash flow and if you want to stay in for the long term? 100%. It's all about affordable growth. So really reinforcing what Rusty's just shared with us. There's always this argument about cash flow versus growth.

Starting point is 00:19:00 The simple matter is if you're in a position where your projected nest egg when you want to stop work is below where it needs to be, you need to go for growth. And as Rusty's well communicated, property is a growth asset. You'll never retire on the rent from property unless you've got the umpteen properties. You'll never have the borrowing capacity to make that happen. So go for growth and then convert to cash flow,

Starting point is 00:19:22 but make the property affordable to hold onto to go the long distance to actually enjoy the fruit of the end. And some of the very simple techniques that you can utilise to take advantage of that, obviously make sure you're dealing with the right bank, number one, because there's a massive variation across the banks in terms of what the cost of those loans are. And you need to bolt on facilities like offsets. If you're investing, still consider interest-only

Starting point is 00:19:48 because repayments on interest-only are generally 35% less than a principal and interest loan, particularly if you've got a home loan that you're trying to pay off because you want to be pumping all your surplus into that. And a couple of other things to make sure that you're making it affordable. Make sure you've got a rainy day reserve in your what we call the war chest, so an equity loan against the home that gives you some breathing space for periods like this when rates are a little bit up but also if you're an employee consider getting a PAYG withholding

Starting point is 00:20:15 tax variation done because the average investment property that we look at you know a five or six hundred thousand dollar home depending on what your income is that's going to give you something like 10 to 15 grand in tax credits rather than wait for the end of the year to get that lump back talk to your accountant do a variation 10 grand a year is about 191 bucks a week if you get 191 bucks a week extra in your pay packet as a result of smoothing that cash flow that's going to make it more affordable to hold and you're not sort of having hogs in the bucket and then you are getting a big lump back at the end of the year so that's the key also look at your ownership entity structuring so tenants in common modeling against the higher higher income earner can give

Starting point is 00:20:57 you a significantly better boost in terms of that ongoing holding cost affordability and circling back to what russie said at the start make sure you're buying properties that are growth but there's a sweet spot between the price you pay and the rental yield you get so don't don't go and buy one one million dollar property buy two five hundred thousand dollar properties and then make sure the yield's at a point where it's making it as affordable as it can to hold it while that property is growing in value so that that will be the quick maths on all that kevin Yeah, a lot of gold in there, Bushy. Thanks, mate.

Starting point is 00:21:29 Hey, Eddie, the reason I love talking to you, and it's great to have you running our Facebook collective page too, is because you bring so much practical experience to this. Based on what Bushy's just said, what did you draw out of that and what are some of the big lessons you've picked up on? Get a good accountant and a good advisor. No, they're just gold nuggets, yeah. As you said, it is paramount.

Starting point is 00:21:54 it's something when we started we that was the first thing on our minds you know cash flow wise what is it going to mean to us on a week to week or month to month basis that was the main thing forget about you know when you get to a point where you want to invest in property you've realized that property is an asset class that will achieve what you want to achieve the next question is what can i how is it going to impact my life right now because the thing is most a lot of hardworking australians that are on decent income they don't feel like they're on decent income because life is expensive they usually have young kids you know they start paying for school and then sport and then so so this is paramount to to try and get a good grasp as to

Starting point is 00:22:36 you know what the cash flow is going to look like so i totally agree with rusty's comment in terms of growth but keeping in mind that obviously you cannot just forget about the cash flow part of it Hey, Eddie, I want to start with you just for a minute, if I may. I want to ask you a little bit more about your investment strategy, and particularly in relation to regional areas. And I'd like to get your opinion on that too, Rusty, if I may. So, Eddie, do you favour regional areas? Are they a good place to invest?

Starting point is 00:23:06 Well, I didn't to start with. I was always thinking that when migrants come in, look, it is the cash, right? when migrants come in usually they go to melbourne sydney some go to brisbane and then but but having said they don't usually buy so uh and then then they choose you know their place of living i think that i mean historically speaking you regional has achieved some great growth as much as other cities the the good thing with regional is typically the less expensive to buy and hold the yield is better as well so we just talked about cash flow so it makes more sense over the

Starting point is 00:23:48 time cash flow wise so i really turned my opinion in terms of regional versus you know the big capital cities but i think rusty would be probably the best person to ask on this one rusty and bushy well rusty will come to you do you like do you think it's preferential a bit of a mix a bit of cap city and regional or do you well if you can if you can afford look i mean and i'll talk from personal experience from two years ago we're looking at uh buying something in melbourne but the cash flow that came with it and that was when the rate were at two percent was like we're gonna it was i think it was gonna cost us something like 15 grand a month when the rate were at two percent because the property was expensive but the

Starting point is 00:24:33 yield you were getting was terrible so you know if if we had bought this we'd be bleeding 30 grand a year from that property alone so you know even if the growth is exceptional uh it's quite a bit of cash flow to sustain every single year for you know 10 15 20 years rasty what's your view on that uh like my take is that it's it should be more about diversification so not every proper like not every exposure in metro, not every exposure in regional to the point that it should be diversified. And the point I'm coming from is that diversification is not just geographical, like having few properties exposed in regional or few properties in metro is not good enough. It's more about what diversification at what socioeconomic level we are doing.

Starting point is 00:25:19 When we are buying a property of half a million dollars, we are really talking about an average social media class level that we're talking about compared to buying a million dollar property plus whereby it's probably a metro and it says that the sentiment that it feels that it's much more safer because metros like people do appreciate the international investors tend to come to the likes of sydney melbourne and gold coast as an example so people feel more confident there is a bias first of all that people think that the area that they live in is the only area that is growing so there's a bias of you know buying in the backyard kind of a scenario of course there's more population in in the metros as a as a survey if you do the major sentiment would

Starting point is 00:26:04 be that no it's the metro that will grow uh but i would also say this like not every area is the same just like not every you know bushim at a point it's market within the markets it's a heterogeneous market so first of all i'll be thinking about diversification i would also argue that it really comes down to the long-term picture here if somebody has to buy or build a portfolio of 10 million dollar portfolio i won't really say that let's go and buy in regional 20 of them as a half a million dollar each because 20 properties too much for someone to hand hold the whole process of course there are professionals around that but still a lot more to think about or worry about um on the other hand if somebody can only afford to build a portfolio of three or four

Starting point is 00:26:44 million which is a typical household level that we can actually achieve and suddenly makes sense to buy four or five or six properties within that budget having a good level of diversification so it's really a courses for courses kind of a scenario I would be talking about and I can go on but I'll let Bushy add on to that. Well and you make some very good points both of you gentlemen in that regard. My thinking really is around what's right for the individual investor given their particular circumstance and given their goals. And what we're seeing a lot of now is there is real pressure on buying capacity, which has an impact on your purchase price power, which means that it's not about being a city or a region, but it's the biggest thing we need to

Starting point is 00:27:29 focus on now from an affordability perspective, given that we've had massive growth in property post-pandemic. It's one of the very rare periods where we saw the rising tide float all ships in property because normally each area is out of sync and going in a different stage through its growth curve. So for me, it's not about regional or city, it's about looking for quality properties and quality areas that have got current and ongoing growth drivers. So there must be, and I talk about the three I's of growth. So there's a lot more to it, but if we break it down into three I's, it's new and growing infrastructure. I'm talking roads, rail and technology in particular at the moment. And in conjunction with that, you've got to have strong and growing industry

Starting point is 00:28:12 diversity. So you can't be in a one-horse town. You've got to have a critical mass there with a number of industries that are growing. And that's needed to be supported by strong and growing income so that people can continue to pay more for properties as values in that particular area increase. So I don't think it's a regional or city discussion to some degree. I think it's more a performance exercise. And if you've got that template right and you're looking for the right things it doesn't matter whether it's city or or regional it's a matter is it ticking the three eyes growth box hey bush i want to stay with you for a minute if i may because i want to change tack just a little bit uh because we're getting very close to the end now but

Starting point is 00:28:49 there's a couple of key questions i want to ask you uh and that is i live in an area where predominantly there's a ton of new homes being built uh and the thing that i've noticed is the majority of those are owner occupiers. Very few are being picked up as investment properties. My question to you is, do you think ever we're going to see the opportunity for people to be able to buy investment properties or new homes as investment properties? Yeah, I do. And traditionally, I've been a big fan of new builds, Kevin, because from a stamp duty savings perspective and the depreciation benefits, which are much more significant on you build properties than they are existing properties but I want to qualify it though

Starting point is 00:29:34 because you don't want to be building properties in areas where there's masses of undeveloped greenfield space that will dilute the ability for the values to increase but all we need now is for the industry to settle down and it's gone through a major period of disruption post pandemic we've had we've got shortage of trades trades we've got a massive increase in the supply of material costs uh rates have gone up so the only three things that we need before we can reconsider building in the right circumstance in a tightly held area uh being able to control time quality and cost so if you're borrowing the money time is money so you've got to be able to negotiate a fixed delivery time and a fixed price contract

Starting point is 00:30:21 and make sure the quality of the build is there. And then all of those flow-on benefits in terms of stamp duty savings and depreciation benefits, which are really going to help the cash flow side of the equation holding the property, will come back into force. So I think we're probably two years away, Kevin, and I wouldn't be saying it across the board, but where you can actually control those things

Starting point is 00:30:41 in a tightly held scarce area where there isn't masses of land, then new builds are a definite thing to consider for an investment perspective. Because infill is a big thing too. You know, you look at houses on double blocks, as an example, take the house off and build two new homes. They're returning very well. Yeah.

Starting point is 00:31:00 So, yes, I do. Right now, and, you know, we were big fans of new builds and we helped a lot of investors into new builds up until COVID. We pulled the pin completely in COVID because we lost confidence around the ability to control the cost. Once that cost control is back in the right circumstance, then it's definitely an avenue that should be considered. I'll get comment from both Eddie and Rasty on that as well,

Starting point is 00:31:25 if you've got something you'd like to add, guys. There's one more question, key question I want to get to before we finish, though. But did you want to add anything, Eddie, to new bills? Oh, I think Bush has covered it all. I mean, labour shortage is really there. There's a lot of infrastructure investment from government. And I know for a fact, in the company that I work for, we lose a lot of labor to labor that, you know, getting paid much higher rates, working on infrastructure development.

Starting point is 00:31:52 So I think, yeah, until you get that under control, I think material was, I mean, I'm not an expert on it, but I think the prices, they won't go back to where they were two years ago. Nothing does. But I think they, you know, going back down in terms of labor shortage is a big one. Rasty, anything? yeah all i say is that um when it when we are talking about long-term investing whether it's a new build or old existing home it actually if you're picking the right region and the right i guess configuration of the property it's likely to go up so it's certainly the ease of buying a new build is much easier because we are looking at everything in a brochure uh we know what they

Starting point is 00:32:31 are going to build we probably have less questions marks around things as compared to buying an existing property um there's certainly a benefit of negative gearing when it comes to work you know for the higher tax bracket people like probably it might make much more sense relatively speaking but the benefit of buying an old property and that's where somebody has to make a decision whether they should be buying a new versus old with the old like it's very hard to do it on their own um and like if unless we're taking a professional to go and figure it out where to buy what to buy because the choices are immense when it comes to buying an existing property so at a very high level making a choice is much easier when they're going with a new property

Starting point is 00:33:08 because there's a lot of marketing companies they're trying to you know build get the package out there as a brochure but for someone who's really taking professional help um i would think it might probably really be speaking depending again on the circumstance of the individual or the family where they are where they want to go where the discapitite is it really comes down to understanding the risks and the benefits of investing in either old or the existing part so So the city has to be done before making a conclusion, which makes sense. Eventually, yes, the question is when it will come in the favor. Right now, to the point that Bushy and Eddy actually recreated, it's the shortage of labor.

Starting point is 00:33:41 The labor has gone. The material cost has gone up. Labor cost has gone up. There's dirt in field block of lands. So taking all of that account, it's probably much more easier to go with a professional to buy the right property in the right place at the right price. Well said, mate. That's very good.

Starting point is 00:34:00 Hey, Bushy, just in closing, get some comment on this, and that is about the buffer, that 3% buffer. What do you think needs to happen for that to be dropped or lowered? Yeah, it's a really tough one, Kevin, because, you know, there's layers upon layers of risk protection in the finance world these days, and I mean literally layers upon layers. You might just explain what that is, what the buffer is, actually. Yeah, very good point.

Starting point is 00:34:28 So very simple terms, if you rock up to a bank today and they offer you a rate somewhere between 6% and 7%, what they probably don't tell you and you don't know is that they are part of APRAs or the Australian Prudential Regulation Authority, which is really the police for the banks, if you like, from the government side. They then add an extra 3% on top of that rate and then they will look at your ability to service a loan at 10% to 11% rather

Starting point is 00:34:54 than the actual rate you're paying. Now, the reason they're doing that is they want to accommodate any further rate increases so that if it gets to a point that it gets to 10 or 11 percent, that they know that the borrower can continue to afford to repay that loan. That's number one. Number two, if there are major changes in the borrower's circumstance, that also covers them. So there's some risk protection built in. But I guess my concern now is that we're getting to the tail end of the rate rising fraternity. it's it's pretty unlikely that rates are likely to increase much beyond where they currently are so is that three percent buffer because it's been ratcheted up quite a bit over time uh is it still relevant in what we're talking what's the history of that what what is the history of it when you

Starting point is 00:35:37 say it's been ratcheted up over time yeah well uh it's gone from zero about 10 years ago to three percent it was my last uh last rise was two and a half percent to three percent in 2021 when it was last increased to give that extra layer of fat when rates dropped to, you know, the cash rate was 0.1%. The thing that a lot of people don't get their heads around, though, is that that extra servicing buffer also significantly reduces how much you can borrow. So it's the borrowing capacity as much as the cost

Starting point is 00:36:08 that's the issue here. So we've had rates rise by 4%. That's sliced off about 30% to 40% of a person's borrowing capacity over that time so it's making it very difficult uh to for to allow people now to actually have the horsepower to buy the property they want so there's a couple of things that i want to mention there not all banks are affected by that buffer so only those that come under appraisal control are affected by that there are quite a few second tier banks and specialist lenders that operate completely outside of that and even the major banks now are pushing because

Starting point is 00:36:42 they're doing it tough too by the way they're a business and we've seen the commonwealth bank and others dropped the rate on refinances. So like-for-like refinances, they've dropped the buffer down to 1%. Other banks don't have the buffer at all, which still gives you the horsepower. So again, get yourself a good, savvy mortgage broker who knows the ins and outs of each of the lender's policies and they'll be able to optimise the exercise for you

Starting point is 00:37:05 in terms of that borrowing capacity and the impact of that servicing buffer as having on your ability to borrow money. That's a really interesting point because, Bushy, I always thought that the banks were dictated to about that level, and they obviously are, but there's a bit of flexibility in there, which I wasn't aware of. Yeah, the big five in particular are totally affected by APRA, and there's a few others that get caught in that net,

Starting point is 00:37:28 but there's a lot of secondary lenders that fall outside that altogether, and some will still impose a 3% to give their own risk protection, but there's a lot of competitors, lenders, who don't put the buffer on them at all. Wow, that's fascinating. Hey, guys, we are out of time. We're a little bit over time, actually, and I knew we would do that. Just before we go, just quickly, if you can just give me, you know,

Starting point is 00:37:52 one tip you'd like people to take away from this to help them in their investment journey. We might start with you, Rasti. So my take would be that everyone is different. Everyone has their own circumstances. Let's find out what are we trying to achieve at an individual level. Yes, there are risks in investing.

Starting point is 00:38:16 Let's work out the risk of not investing enough as well. And that's where we need to weigh the risk of investing versus risk of not investing enough. Yeah, very well done. Eddie? Yeah, for me, if our audience is already converted into they know they need to do something, I think cash flow and cash flow projection

Starting point is 00:38:38 and a solid plan to be able to stay in the market for the time that you need to be in the market for is paramount. So I think that the cash flow point was very important and interesting to me. And Wajid? Yeah, a couple of points there. I think it's – I constantly get this question, is now the right time to buy?

Starting point is 00:39:00 You've heard me say this a thousand times, Kevin. It's never about when. It's always about what and where. if you've got the horsepower use time as your friend don't don't let the time slip through your hands because time is the biggest driver of results when it comes to asset growth and property the second thing switch off the news use the newspaper to wrap your chips and chuck it in the bin and get your get your information from quality sources like this from people who are active in the market rather than self-professed experts who know enough to be dangerous well said guys

Starting point is 00:39:33 brilliant we might wrap there and Eddie I'll hand it back to you and thanks to everyone for joining us Eddie? Yeah thank you thanks Kevin thanks for driving it that was great and thanks everyone as well for joining us we'll do another Q&A

Starting point is 00:39:49 most like obviously in the new year now December is a busy month for everybody and most likely in February so stay tuned and we'll have there's a lot more questions and good content that can be uh we want to cover so uh yeah we'll we'll do that again in feb thanks everyone great to talk to you and thanks for all seeing hosting kevin that was sensational mate yeah thank you see you guys

Starting point is 00:40:12 thank you so much thanks for tuning in to get invested on the property hub podcast channel your home for property investment insights and inspiration and don't leave yet until you've taken the next step towards living by design by getting my award-winning book get invested absolutely free when you sign up at knowhowproperty.com.au or bushymartin.com.au. And finally, make sure you subscribe to Property Hub to get your weekly dose of Get Invested inspiration, along with every episode of Realty Talk, Australia's leading property show for red-hot property investing news and insights, direct from industry leaders and influencers. Remember to always get invested in your knowledge, and I look forward to seeing you next time.

Property Hub - Investment Insights & Inspiration - Get Invested: Your Property Hub Collective Future with Kevin Turner, Eddie the Frenchman, Rasti Vaibhav and Bushy Martin

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.