Property Hub - Investment Insights & Inspiration - Realty Talk: Frustrated investors turn to commercial property + Brisbane goes for gold + LMI - tax or ticket

Episode Date: August 28, 2021

Many residential property investors are getting frustrated with low rental yields and are turning to small-scale commercial property to get higher returns.  Scott O’Neill discusses what is involved if you want to stick your toe in the commercial pool.   With more people searching for affordable property, they are being attracted to lifestyle locations.  Terry Ryder pinpoints the locations and has some thoughts on what the future holds. As Brisbane has won the 2032 Olympic Games, Goose McGrath outlines whether the property in the Sunshine State will win gold. And Bushy’s last word this week answers the question of whether Lenders Mortgage Insurance is a tax or a ticket for property buyers. RealtyTalk is your trusted voice in property investment and Australia’s most popular online property show.  Founded by Kevin Turner and hosted by property expert Bushy Martin, RealtyTalk brings you exclusive interviews with Australia’s property industry leaders who deliver the latest, red hot property investing news and insights.  Subscribe now to get the latest episodes delivered to your inbox three times a week. RealtyTalk is brought to you by Realty, Australia’s leading search and social property distribution platform that helps investors like you beat the crowd, giving you the earliest access to property opportunities, listings, and insights. Check out Realty. RealtyTalk is hosted by top property investment expert, author, and founder of KnowHow Property, Bushy Martin. Find out how Bushy’s KnowHow team helps investors unlock freedom with finance and property here, and check out Bushy’s podcast Get Invested.  RealtyTalk is supported by BMT helping property investors save thousands of dollars each year by maximizing tax deductions from investment properties. Find out more.See omnystudio.com/listener for privacy information.

Welcome to Realty Talk, the show that brings together the country's most authoritative and respected property experts. Follow us on all the socials and subscribe for updates and exclusive offers. Realty Talk is powered by realty.com.au, connecting buyers, sellers and agents differently. Hi, and welcome to Realty Talk, Australia's longest running and most popular property Show. I'm Bushy Martin from Know How Property Finance and host of the Get Invested podcast. Now, while CBD city commercial property has caught an absolute flogging in the mainstream media post-pandemic, many residential property investors are getting very frustrated with the

low rental yields in the current soaring market, and they're turning to small-scale commercial property to start looking for higher returns. So to discuss the opportunities in this area, we're joined by Buyers Agent Scott O'Neill from Rethink Investing. As we're currently in the midst of a nationwide property boom that's sweeping its way across Australia, many are continuing to try and understand what's actually continuing to drive it. So Terry Ryder from Hotspotting joins us to reveal the impact of the current exodus to affordable lifestyle. And although it's still 11 years away, the 2032 Olympic Games in Brisbane is the buzz of many property pundits at the moment.

But what opportunities will really arise from hosting the global games? To answer this, Goose McGrath from Dash.buyers Agents joins us to outline if the games will actually result in a gold medal for property prices in the Sunshine State. And to wrap up the show,

my bush bite this week discusses whether lender's mortgage insurance is a tax or a ticket. We've got a lot to unpack, so let's get on with the show. Welcome back to the show. Now, while city CBD commercial property has caught an absolute flogging by the media post-pandemic, we're seeing many residential investors getting frustrated with the low rental yields in the current rising market, and they're turning to small-scale commercial properties to get a much better cash flow. So to discuss the opportunities in this area, we're joined by Scott O'Neill, founder of Rethink Investing Buyers Agency.

Thanks for joining us on the show, Scott. Thanks for having me, Bushy. Now, mate, why are you seeing frustrated residential investors turning to commercial property at the moment? Well, I think you said it perfectly. There is such poor cash flow out there. you're you're buying a property even with this interest rate on offer right now which is very low you're not getting a great return on your money so you're there just for capital growth and right now it is growing like most parts of Australia but that's not forever there's going to be pockets where it may not grow for many years and you know imagine you're sort of in a market where it's flat and you're getting no cash flow that's just that's a reality many investors are

going to run into in the next you know whenever it slows down and it might be two years it might be five we don't know but it will slow down at some point and that's where you're going to be happy with your cash flow result right now and it's unfortunately not cutting it for most residential markets and commercially it's still it's it's far superior in that department like you know our average yield we're hitting is in the low six percent net returns and that's capital cities and you know to put that in context you buy a million dollar property you might get say 62 and a half thousand 6.25 net yield but then your tenant pays all your outgoings now outgoings can be another 10 to 15 grand because you've got your insurance your stamp not your stamp duty

sorry your uh your rates your maintenance rental management all these costs can be generally passed back to a commercial tenant but in a residential equation it's all on you and uh you know that makes a huge difference so residential that million dollar property might give you a four percent gross yield that 40 grand minus say 15 grand of cost you're down to 25 grand net your mortgage at if you're paying three percent on a million dollars that's negative 5 000 a year now commercial you're going to collect say 62 65 000 uh and that's it that's clear you know so you might minus your mortgage off that 30 grand you're clearing say 30 35 grand passive income per year so it's a pretty good result um it's you know negative five versus 35 plus it's you know

that's a 40 grand swing in income and that that equation's what making uh lots of people move to commercial because you don't retire on negative five grand a year that's the that's the difference so yeah it's a solution yeah and i very well summed up in some great comparisons there to sort of continue on the comparisons. What are some of the other pros and cons of commercial compared to residential property, Scott? Yeah, so I'll start off with the negative. So you will generally have to come up with a little bit more money deposit wise. So average deposit is a 30% plus costs. Residential, you can get away with 10. Most people put 20% down if they can to avoid lender's mortgage insurance, but you've got at least an extra 10% on the deposit. So that's its first

con next one is um it's harder to find a good property like it is a lower stock environment you're not everything on the internet is worth buying in fact i think most aren't i'd say you know there's probably one in a hundred you'd really want to buy and these are the ones that will be readily tenanted good tenant in a great area that the bank will love like all the all the stuff that you need an investment i guess the same rule may apply with residential like there's a lot of ones that are overpriced and you know there's a lot of average deals not many great deals out there so picking the right one is harder there's more knowledge needed you don't just you know go and buy a commercial property and hope it goes well residential you're more protected so

there's less downside because you're protected by I guess it's just like a unit you buy a unit you know there's another 20 down the street all protecting its price you know it's it's just a lot easier to understand so uh there's more downside in commercial when you get it wrong because you may value it wrong you might buy a tenant that's about to fail um so these are the negatives um the positives are you're dealing with longer leases with commercial you're going to be dealing with i think much better quality tenants you're dealing with businesses that have their own reputation they've got their own image branding you know like the last thing they're going to do is not pay your rent if business is good you know so you're dealing with a more

corporate tenant that can on you know that can mean smoother sailing as well i know personally with my properties so i don't hear anything from my commercial ones my residential ones have a lot more touch points there's always maintenance issues there's always uh tenants leaving there's little disputes here or there about everything and um commercial is just a lot quieter and and for a sophisticated investor quite as good and um i think that's a big positive and one other positive for commercial is it's there's different lending rules so you can come under more of a case by case or you know basically if the deal stacks up there is a lot more funding methods so there's things called lease stock loans where the property will fund itself as long as you have a deposit

you can do a standalone deal on that so that's really handy for those residential investors that have reached a limit in their lending capacity and rather than not buying a property you've still got this angle you can still buy commercial and you can scale it further as well so they're probably you know the main pros and cons but there's obviously many other layers to that as well yeah absolutely so you uh just very briefly then what what types of commercial property are producing the best results at the moment scott so i've seen industrial the last 12 months like uh to give a bit of a figure annualized growth has been somewhere between 10 to 15 percent in the last 12 months so there is rapid growth in that department uh build costs

have gone up uh there's uh a large like i guess it's become in flavor so a lot of people used to view industrial sheds as a bit of an unknown hard to understand thing but i think that's becoming a lot more accessible to people because people understand you know that when you ship things from overseas you need to store them you need you've got trucks you've got like the whole logistics manufacturing movement normally goes under an industrial shed roof so people get that more um there's really good opportunities with like you know if you can buy a neighborhood shopping center so we've got a lot of clients that target those sort of larger purchases where you might have a supermarket a few medical type properties and then your hairdressers and

all that kind of stuff around it that produce a real good blended yield that's spread out over many tenants and that is very popular uh for the high net worth base and the cheaper end you're probably industrial sheds uh in strata complexes small retail shops with essential service businesses um and even office if you have a good uh even a lawyer an accountant one of those good sort of you know stable tenants that can you know operate in all economies they're very popular as well. Yeah, awesome. You're giving us a really good taste of where the opportunities are there. Just to close out then, what does an investor need to invest in a quality commercial property, Scott? So first of all, minimum deposit. 12 months ago, I would have said it was 100 grand,

but the bottom end of the market is tightened. There's not as many opportunities. So that minimum budget is probably about a 200K amount. So once you factor in loans and stamp duty and all that it kind of equates to about a 600 grand purchase if you can get over a million dollars you're going to be buying a very good property generally freehold you know maybe a multi-tenant that kind of stuff the other thing is they need to understand what asset class they're buying into you don't just go into this cold if you don't understand it don't buy it there's there's ways to get help in that department if you need it but it is important to have some type of business knowledge or have a very good lawyer on your side or a very good mortgage broker like you've got to

have the right team around you otherwise just do a lot of homework pick the asset class you you want to you know become part of and uh then it's just finding that right asset in that asset class and i think you'll do pretty well from there brilliant no some of that extremely well and uh again you painted a really good picture there scott so i thank you for coming back on the show today and sharing those insights. No worries. Thank you, mate. Thanks, Scott. So it's pretty clear that if you're frustrated with residential property and you're looking for higher yielding cash flow investments, then reach out to Scott and the team at Rethinking Investing. Stay with us for more 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 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 1300 728 726 today for an obligation free quote. welcome now you have to be living under a rock not to realize that we're currently in the midst of a nationwide property boom so what continues to drive it and what's the impact of the current exodus to affordable lifestyle or to discuss this i'm joined by highly respected and long-term

property observer terry rider from hotspotting welcome back to the show terry i wish it was good to be here. Likewise, mate. Great subject we want to dive into today. So let's start off by getting you to tell us what you believe are the key factors that are continuing to drive the national property boom. There's lots of them, Bushy. I've got a list of reasons, there's 16 dot points on it. And that's one of the reasons why I think this property boom is so powerful and why it's got longevity. Now we have a high level of government stimulus in the mix. We've We've got people in lockdown and otherwise restricted, unable to travel, for example. So people are saving more money and many of the people are saving lots of money, being forced to, putting it into real estate.

We've got a pent up demand for real estate at a time we have a shortage of listings. We've got ultra low vacancies across the country, except for the inner city areas of our biggest cities. and that's driving up rents and that tends to have impetus for prices as well we've got expat Australians coming back from overseas creating more demand for real estate we've got investors who've been sitting on the sidelines for the last few years now starting to come back in we've got a big infrastructure spin which is always very pivotal for residential property markets and there's more but you put it all together and you can see why it's so powerful why there's so much momentum in real estate at the moment yeah it's a pretty exciting time in that

regard and um so tell me i know that you see the exodus to affordable lifestyle as as a key driver why are you seeing that as so important yeah well i think exodus to affordable lifestyle is the most powerful force influencing residential property in australia so far in the 21st century and it's actually been underway for quite a few years but quietly and media hasn't really picked up on it and a lot of them today media tends to describe it as a as a reaction to COVID-19 but in actual fact it's been happening for longer it's more it's about technology and the fact that people more and more people have realized well you know we're living in the big expensive congesting city because we have to because that's where our you know that's where our work is our career is once

they realize that maybe they don't actually have to be in the big city to to work that they can work remotely through technology that they start to make different choices and that has been exacerbated and enhanced by the lockdowns that have come from the pandemic and so it's sort of the the last 18 months the period of the pandemic has kind of turbocharged a trend that was already underway right i think people are getting out of the city to escape the the pandemic and the lockdowns but also the congestion and the high cost of living i mean you can sell you can sell a home in sydney or melbourne buy a comparable home in a in a good regional center or smaller capital city and have a lot of money left over and have a different lifestyle um i still continue

and money has before so it's a trend that's powerful well and i think uh i mean you and i are living examples of that terry we we've we've both been living in beautiful locations uh running our businesses remotely and virtually as a as a flow on from our access to the technology that enables us to do that and i agree with you i think covid uh it's not a reaction to it all it's done is thrown petrol on the fire and uh we look back through history back when the spanish flu came came through way back in the uh early 1900s we saw a similar uh move away at decentralization from the cities to the regions but the benefit here is with technology now then we've suddenly woken up to the fact that with great lifestyle and technology we can live eat and breathe from

anywhere so you and i are visionaries bushy we're ahead of our times and the move that we made some time ago more and more people are doing and it's um interesting that um i know where you live and you know where i live and both those locations are probably the two places i'd nominate as the locations in australia that have had the biggest price uplift in the last 12 months or so and this this trend the exit is to affordable lifestyle is very much what's driving it it's very powerful and I don't think it's going to slow down any time soon. Well, you sort of take the words out of my mouth there. So you mentioned Morning Peninsula and the Sunshine Coast

as a couple of locations that are benefiting. Are there any others that you're seeing that are benefiting from this move in a big way? Oh, look, we're seeing it right across the country. Regional Australia is actually, you can look at many regional locations in New South Wales, for example, that have been outperforming Sydney on price growth for the last five years. It's the same in Victoria.

It's the same in Queensland. So Sunshine Coast, the Gold Coast, other parts of Queensland have been getting considerable uplift right throughout regional Victoria. We've seen three or more very strong years of price growth in places like Geelong and Ballarat and more recently Bendigo, but it's spread far and wide now. initially I think it was those good strong regional centres within an hour or two of the capital city but now we're seeing it in regional Victoria for example places much further out like

Warrnambool and Mildura, Aubrey-Wedonga at the New South Wales border these sorts of places have also been getting extraordinary demand and their prices have been moving very very fast because they offer such great value for money compared to the big cities as well as a completely different lifestyle and these are places they have a high level of amenity as well you don't depends on the individual it doesn't it doesn't work for everybody but for a lot of people you know what you actually need to have a happy existence you can get it get it all in a place like Aubrey Wodonga or Orange in New South Wales or the Sunshine Coast hinterland where I live you're not sacrificing anything by leaving the city I don't think there's no there's great schools in some of these areas

wonderful shopping cafe culture and you've also got that i mean what i love about where i live is that there are no traffic lights and you can get a park in the main street and you walk into the the butcher shop and you're greeted by name i mean all those things about community that you get in a smaller place is is what um but i value so much and i think a lot of people increasingly are recognizing that yeah totally agree mate no some good insights there um and you've already pretty much answered this but uh do you believe that the affordable uh lifestyle trend is going to be a short-term fad or a long-term paradigm shift look i think it's got considerable longevity and it's interesting because it's kind of a reversal of what you know in the last 50 years

there's been this drift from the country to the big cities and now we're starting to see to a certain degree at least a reversal of that trend and i think it's it's strong powerful and going to continue and one of the metrics is um popped up in in media just in the last couple of weeks where the uh the networking business networking site linkedin which is also a jobs site where people advertise jobs and they were commenting um they done did some research on based on the jobs that advertised on their network and chain there's been an exponential rise in the number of employers offering jobs with the flexibility to work remotely and it was like like a trebling of that in um in the last say two years so we we're actually

seeing a trend like that where employers are actually proactively offering that because it works for them a lot of employers as well if you've got 80 of your workforce working very happily and efficiently and effectively remotely your office costs which are probably the biggest single you know um fixed cost of a business um dramatically drop and that that's great for the bottom line um so um i think you know on that point alone this trend is going to continue and continue on and it works for so many people um you know it's a lifestyle this is something that people do do treasure if you if you can have a great relaxed country style lifestyle um at a a fraction of the price of living in the city well why wouldn't you do it absolutely and our

business is a living example of what you've just described we've got a dozen on our team and they are spread all over Australia and in fact we've got a team member in New Zealand it's totally virtual everyone works from home it works beautifully for everyone's lifestyle it keeps the the overhead cost down and we've got a much more uh happy workforce as a as a consequence of that so um now some great insights there mate i always love talking to you terry and really appreciate you joining us again on the show today now always a pleasure to talk about real estate and related issues with you bushy yeah i love it mate now uh there you have it guys so if if you want to benefit from the exodus to affordable living and you want to identify the best locations

to do that, then reach out to Terry and his team at hotspotting.com.au. Stay with us for more 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. 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. Now, although it's still 11 years away, the 2032 Olympic Games is all the buzz of the moment for Queenslanders in particular, whose home city has recently won the hosting of this awesome event. But it's not just the excitement of the world's largest multi-sport event that's got the tongues wagging up there. And hosting the Olympics could be a game changer for Queensland, according to their Lord Mayor, Adrian Schooner, who recently said that it could deliver

20 years of accelerated opportunity for the state. So what opportunities will arise from hosting the Olympic Games? And will these opportunities result in an increase in property prices in the Sunshine State? to delve into this we're joined by goose mcgrath co-founder of dash shop buyers agents welcome back to the show goose good day mate good to see you again always good to see you mate uh and certainly creating some excitement post the olympics uh sort of jumping straight in what what

impact do you feel that the olympics uh has had on property markets in the past and let's use the sydney olympics as an example totally i think um i'm going to try and keep this tight because it's a very expansive topic, but it's also one that I've got a distinctly contrarian view on. I think it's a very easy catch cry for real estate pundits, governments, and all of this kind of stuff to say, hey, oh my God, the Olympics, there's going to be this boom. And I've even seen people saying there's going to be as much as 90% growth. And my view on it is I didn't know. So what I did is I went and did a bunch of independent study and research and found studies that actually looked the impacts on markets across the world and um broadly speaking i think there's going to be

significantly less direct impact on the property market from the olympics than one might think um you know there is some correlation but not causation right and so when we're talking about correlation not causation you know you could say property prices went up and also there was an olympics therefore the olympics caused the growth it's like you know a cat a cat has a tail a dog has a tail therefore a dog is a cat so that's that's the kind of logic that is being applied in many cases whereas in actuality if you look at the if you look at the facts and the statistics and if you look at the the research that's been done on the on the topic there's a fantastic research article done by uh constantine costa costa called the the price of victory which is

a really great analysis and that studied the impact across multiple cities la seoul sydney barcelona calgary and atlanta and what it actually found was that the different cities performed in different ways. And it was also relative to a bunch of other stuff going on. Now, if we go back to the Sydney case example, because a lot of people say, well, there was an Olympics in Sydney in 2000. And also the property market in Sydney boomed in the early 2000s. So there's an easy distinction to draw. However, interestingly, if you look at the property market broadly in Australia at that time, Melbourne boomed, Sydney boomed, Canberra boomed, Brisbane boomed. The boom was everywhere. It wasn't isolated to Sydney. Therefore, it's actually much harder to draw that

distinction. And I'll go a little bit further to that. If you actually chase the tail of that boom, you'll actually find that it didn't start in Sydney. So you can't even argue that the Olympics was the catalyst to a national boom because the boom started in other cities. It actually started in Melbourne just slightly earlier than Sydney. So I would suggest that there's not a huge amount of direct impact. Now, I want to qualify this in a few different ways. We could probably dig into this maybe in in a minute um but one of the interesting one of the interesting uh studies that i found was one on that specifically looked at the impact on the london olympics and what it found was that uh that the impact on property prices within a nine mile radius

of the main stadium was between two percent and five percent right so we're not talking quantum quantum leaps in terms of growth uh and also all of the studies that i looked at and from a variety of different uh backgrounds they all acknowledge that they that the the performance metrics they looked at didn't individually isolate the impact of things like it already planned infrastructure jobs um general market conditions was it was there an upcycle that was going to happen anyway etc and i really think if we look at the case of brisbane everyone's been saying brisbane's going to burn brisbane's going to burn brisbane's going to burn then it's like well there's an olympics and well maybe it was going to already grow anyway and also just a just a final point

before we kind of move on from there is that most of the studies found that the the growth happened after the olympics right and so so there is some evidence to suggest that some growth happens before but only in cities and countries where the the the cities were largely underdeveloped anyway and so that the impact was like in barcelona it was a massive overhaul of the whole city so there was a little more growth and in fact those countries spent a significantly higher percentage of gdp right so the actual spend was a lot higher um so if we're talking now should we be investing because of the olympics now when it's 11 11 years away if most of the growth happens after it uh i would suggest that we probably need to check back and go and just look at the real fundamentals of

the location first before making a decision yeah it's a very good insights in that regard mate so taking that all into account what effect if any then do you think that the uh 2032 olympics is likely to have on brisbane property um so i think it's going to have some impact on on brisbane property i think i think you would have to be uh ignorant or you know being just deliberately obtuse to say that there will be no impact i think there will be some impact um i actually have the benefit of having worked on an olympics and having come from from the background of working in in large-scale events and what tends to happen with commonwealth games and olympics is they have crews and people who roll around and do these events all over the place and they're contract

based right yeah so what will happen is there will be some additional infrastructure put in in brisbane but good understand brisbane is already putting in a lot of infrastructure anyway and you've also then got to look at what is the causation of of that so which comes first the chicken or the egg did brisbane get awarded the olympics because it was putting in heaps of infrastructure so it was able to host the city and it was in better place to do it or is Brisbane putting in the infrastructure so that it can get the Olympics that's a you know that's don't have the answer to that but you've got a question which comes first so then you're actually going to look at well what actually impact will the Olympics have of course there is going to be you know an

economic impact around the time of the event there'll be a lot of productivity and spending and tourism and all of that kind of stuff and there'll be a big marketing push around Brisbane which will help to raise Brisbane's profile internationally in a in a general sense there will be some impact. But primarily, most of the businesses and workers that work on those type events are transient. And so what that means is they'll come and they'll rent for a period of time and then leave. So what I believe we'll see is we'll see a short-term impact on rental prices as we get closer to the event to accommodate for tourists, but also to accommodate for workers. But I honestly think that the driving force behind any property price growth will be underpinned by

by general market fundamentals not by not by a once-off sporting event it's just not systemic enough i'm 100 agree i think the only real and we'll get into this now because i'd be interested in your feelings on which areas if any are likely to benefit uh the most and my my reader that is that given they are effectively decentralizing the olympics and spreading it around the gold coast the sunshine coast even to womba and townsville i think are going to be hosting some events where there's new infrastructure that's going to go into some of those regional locations there is likely to be a flow-on effect in that particular spot it's just when you put a blanket over the whole area and say what's the impact then it's it's almost impossible to track but

what are your thoughts on the locations uh and and the the sort of regional impact that may flow on from that yeah absolutely hit the nail absolutely on the head right so the distribution of the games in a decentralized format is awesome because what it does is it recognizes that the largest single impact, the economic impact that happens from the games is going to happen from tourism dollars or during event spend, right?

So it's going to be the people going to those places. And so the reason the government's decentralized games like this, it doesn't always happen, but it often happens, is to try and spread the economic impact to decentralize the flow of money. And so it can bring up, so the state governments can bring up the whole state.

So that's why they do it. They recognize where is all the money going to come from? where is it all going to go let's push that out so that's why they do it um and so what that then lends itself to saying is okay well is the impact going to be seen in brisbane or is it going to be seen in queensland and then you've got to look at like what again what is the underpinning of that and so the areas that will benefit most are the areas that have uh long-term infrastructure projects i want to talk long-term infrastructure projects it's there's a difference between dressing up the gabba um to make it a better sporting event sporting venue or putting in a

train line for the first time they're two distinctly different impact projects so if you've got a town or a suburb that hasn't had a good public transport link before and a public transport link gets put in that's going to have a long-term impact on the on the on that specific suburb or region versus something that already exists making it a little bit nicer because the quantum of impact is going to be asymmetrical so what you want to be looking at is what transformative infrastructure projects are happening because they're going to drive jobs in the in the short in the near term to actually build them and they're going to have a long tail impact way beyond the games you've got to remember the games is just like a sugar hit it's like it's like it's

like eating it's like eating a donut right you're going to get all jacked up and probably end up with a headache afterwards right uh but but what we want to look for what we want to look for is where is the sustainability and this is why it all boils way back down to fundamentals now if the the entire olympic games was confined to one half of brisbane like a very small isolated area there would be a significantly deeper case for saying that will have a massive impact on that specific location but like anything if you spread the butter thin enough you're not even going to know that it's there right and it's going to the whole bit the whole piece of bread is going to get buttered and it'll be tasty but you're not going to end up with globs of it so

this is the kind of this is the kind of thinking that we need to apply and i think i i caution anyone who is getting caught up in olympic fever and thinking oh my god now's the time to buy in brisbane because the olympics are coming number one it's too early number two you're not looking at the fundamentals number three there's probably better places that are going to be more distributed that are going to have a greater impact i'd always love your very balanced view uh substantiated with good cold hard facts and some great analogies in terms of how to actually comprehend the But sometimes complex issues are attached to that, mate. So I really appreciate you coming on the show to share that.

And thanks for your time today. My pleasure. Well, it certainly appears that it's the infrastructure drive and the impact of that that is likely to determine what's likely to flow out of the Olympics. So watch this space. And in the meantime, stay with us for more gold here on Realty Talk. Welcome. Have you ever been running late for a train and you arrive on the platform just as the

train starts leaving the station and you start racing to catch it but the faster you run the further it pulls away as it gathers speed and you're left gasping and frustrated as you miss it and just see it disappearing into the distance? Well this is very much what the property market looks and feels like for many buyers and investors. By the time they save the deposit the property they use have increased so much that they never seem to have enough to get onto the property ladder and they're caught short and frustrated, like cats that are constantly chasing their tails. But what if there was a ticket that you could buy to get you on the property train faster and easier? Well, there is. It's called Lenders Mortgage Insurance, better known as LMI. Many borrowers

will move heaven and earth to avoid paying it. But is LMI really as bad as people make it out to be? And are there situations when you can use LMI to your advantage? Unfortunately, lender's mortgage insurance is often maligned and very misunderstood. So today I'll debunk some of the LMI myths so you can understand clearly what it is, what it means and when it's appropriate. Now, LMI is a tool that allows you as a property buyer to purchase a property with a small deposit by protecting lenders against you if you default on your repayments. Lenders mortgage insurance is insurance that you pay to cover and protect the bank's position.

And when does LMI apply? Well, for most banks and lenders, LMI is only applicable if you're looking to borrow more than 80% of the purchase price of the property. And what does it cost? Well, this depends on various factors like a property purchase price, how much you're looking to borrow, the type of loan that you're looking to take out, the type of borrower you are, and of course, the bank or lender that you're talking to. An LMI applies on a sliding exponential scale that's dependent on how much you borrow and the ratio of the loan as a percentage of the value of the property. So starting at zero with a loan at 80% of the value of the property for most banks, LMI rises to approximately 3% to 4% of the purchase price once you hit the maximum borrowings of about 95% of the purchase price, again depending on the

bank. Now as an example, on a $500,000 property purchase with a loan of 80% of the value of the property, no LMI is applicable. But if you take out a loan that equals 90% of the value of the property, then LMI premiums range around about the $5,900 mark or approximately at 1% of the purchase price. And if you lift the borrowings to the maximum of 95% on the same $500,000 property, then the LMI premium doubles to about $12,700. And there's a big variation across the bank, so it's really worth shopping around or getting a savvy mortgage broker to show you the comparisons. so why would you want to spend an extra six to twelve thousand dollars to buy a property isn't it about minimizing your cost at all times well here's the rub you don't have to stump up the

thousands in lmi in a lump sum because most lenders will allow you to add it to a loan in this way the twelve thousand seven hundred in lmi for a 95 percent loan on a five hundred thousand dollar property purchase converts to just ten to twelve dollars a week at current interest rates. That's equivalent to just two or three cups of coffee a week. So this is the difference between viewing LMI as just a cost versus seeing it as an opportunity cost, or the difference between seeing LMI as a tax versus a ticket, because LMI is a key to a much bigger property opportunity, a gateway to give you much more access for a low ongoing cost. Now let's look at what LMI means to homebuyers, particularly first-time buyers that are struggling to save

enough deposit to secure a property, particularly when property values are rising strongly and the rate of price increases is faster than you can actually save. Again, it's like running after that train leaving the station that's just beyond your reach and keeps getting further away from you the faster you run. This is where LMI can come to your rescue and give you the ticket to get safely on that property train. So let's say you're starting to buy a property of about $500,000. You need to budget an extra $30,000 or approximately 6% of the price to cover all of the establishment costs. So a $500,000 property is going to cost you about $530,000 or up. Now, if you're hell-bent on minimising your costs and want to avoid LMI by limiting your loan to 80%

of the value of the property, then you're going to need cash savings of $130,000 to complete that purchase. Now, that sounds like a lot. How can you reduce the size of the cash savings deposit that you need to get into property faster. Well, this is where LMI comes to your rescue. If you borrow 90% of the $500,000 property, then your deposit drops from $130,000 down to $90,000, which is 40 grand less or a reduction of 30%. And if you borrow the maximum of 95%,

your deposit drops down further to just $70,000. That's nearly half the deposit required if you're buying without lender's mortgage insurance. So for the cost of $10 to $12 a week in repayments in LMI, you can drop the deposit you need to secure a half a million dollar property home by close to half. So it's clear that LMI enables home loan borrowers to get into the housing market with a much smaller deposit and much faster. And there's another way to look at lender's mortgage insurance, which is relevant to home

buyers, but also investors. And this revolves around the value of property the LMI actually enables you to purchase. Let's say you've got 70 grand in savings that you want to put towards a property. If you buy a property to minimise your cost without LMI, then borrowing a maximum of 80% of the purchase price, your 70 grand is only going to get you a $270,000 property. But if you go the whole hog and borrow 95% of the purchase price,

your 70,000 buys you a $500,000 property with LMI costing you just an extra $12 a week in repayments. so for the cost of three cups of coffee a week the maximum LMI is going to help you secure an 85% higher price property. Now this is very significant particularly as a property investor looking to build your wealth as the size and the value of your property portfolio will have a massive impact on the size of your nest egg over the long term. Now I don't know about you but that sounds like an absolute no-brainer and if you're an investor with a good accountant then the LMI costs are tax deductible and can be written off over one to five years. Now I reinforce that

nothing I'm talking about today can be considered as financial advice and you need to seek out independent advice from an accountant or a financial advisor so that you're making fully informed decisions based on your needs, your circumstances and your risk tolerance. And make sure that you seek out guidance from a savvy mortgage broker so you fully understand the ins and outs before you commit to purchasing property. So on balance, LMI is not the evil cost that it's generally painted out to be. Quite the contrary, LMI enables borrowers to get into the housing market fast with a small deposit. And with home ownership increasingly appearing to be out of reach for many Australians, LMI can be the key and the ticket to enabling you to secure a

property. So while many say good things come to those who wait, in situations like this, the early bird catches the worm. And early birds who buy property sooner with a minimum deposit have the opportunity to secure their property or their investment property before prices rise further and potentially capture capital gains as their property values increase in a rising market. Now, LMI can act as a leveraging tool to purchase higher property values. So LMI is actually an asset amplifier for homebuyers and investors, allowing you to secure a much higher property value to grow your nest egg. So ask yourself the question, is LMI a cost or an investment, a tax or a ticket if you continue to focus on minimizing cost and avoiding lmi you run the

danger of minimizing your opportunity for me lmi is not a cost but a key an opportunity investment that gives you a low cost to get to get off the stationary platform and catch the accelerating property train that's more food for thought this is bushy mountain from know how property finance stay tuned for more well that brings us to the end of another week a special thanks to our guests scott o'neill terry rider and goose mcgrath and reminder 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 agencies nationally thanks to realty.com.au and bmt tax depreciation for their ongoing support.

I'm Bushy Martin, host of the Get Invested podcast, and I look forward to seeing you all next time. Miss something in this week's show or want to catch up on past shows? Do it anytime at realty.com.au, where we connect buyers, sellers and agents differently.