Property Hub - Investment Insights & Inspiration - Realty Talk: Pete Wargent on ‘22 + Cost of Ignorance + Super good, bad & ugly

Episode Date: March 4, 2022

When it comes to what’s likely to happen with property in the future, given its meteoric rise across the board last year, it seems that everyone’s an expert but none more so than Pete Wargent from Buyers Buyers who shares his thoughts on where the property is heading this year. What’s the cost of ignorance? In hyper-competitive seller's markets, many property buyers end up buying anything they can get their hands on close to home, without having an investment plan and without understanding the risks, so to help you avoid these common property mistakes, Lloyd Edge from Aus Property Professionals concludes Part 2 of our special feature.  Have slippery shoe salespeople selling substandard properties using your super tarnished the benefits of securing properties in an SMSF? To round out the show Super Guru Darren Kingdon of Kingdon Financial Services joins us to discuss the good, bad & ugly of purchasing SMSF properties. RealtyTalk is your trusted voice in property investment and Australia’s most popular online property show.  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, a company that helps 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 this week's Realty Talk show. I'm Bushy Martin from Know How Property Finance and we've got some great insights to share with you on this week's episode. When it comes to what's likely to happen with property in the future, given its meteoric rise across the board last year, it seems that everyone's an expert, but none more so than Pete Wardgen from Buyers Buyers, who shares his thoughts on where property is heading this year.

What's the cost of ignorance? In hyper-competitive seller's markets, many property buyers end up buying anything they can, anything they can get their hands on, and often close to home without having an investment plan and without understanding the risks. So to help you avoid these common property mistakes, Lloyd Edge from Oz Property Professionals concludes part two of our special feature. Now, have slippery shoe salespeople selling substandard properties using your super tarnished the benefits of securing properties in a self-managed super fund. Well, to round out the show, super guru Darren Kingdon of Kingdon Financial Services joins us to discuss the good, the bad and the ugly of purchasing properties using your super.

But before we share these great insights, make sure that you don't miss an episode of Realty Talk by signing up on the realty.com.au homepage so that you can get every show in your inbox every week. Now, let's get underway. Hi and welcome. Now, when it comes to what's likely to happen with property in the future, given its meteoric rise across the board last year, it seems that everyone's an expert and everyone's got an opinion. Sadly, most predictions are just that, ill-informed, loose-lipped opinions.

So, if you want to make better informed decisions on what the future holds for property, you need to turn to proven performers who have a track record of combining their accumulated wisdom with demonstrated action. And there's no one better on this front than today's special guest and industry veteran, Pete Wargen, the co-founder of his new business, Buyers Buyers, which is a unique go-to digital marketplace that helps you to find and secure property better and more cost effectively by connecting you with a national panel of leading buyers agents. So welcome back to the show, Pete. Pleasure. Thanks, Bushy. It's always great to be on. Likewise, mate. Everyone loves your words of wisdom and insights. But to kick things off, mate, how do you feel that

property performed against your predicted view in 2021 and what varied, if anything, and why? Well, as you alluded to, predicting financial markets is always tricky, especially in the midst of a pandemic but uh for our sins we do put out annual property price forecast so i guess it's all uh written down in black and white so looking back at what we predicted for 2021 well we weren't very specific but we did say double digit price growth for the capital cities um and uh we didn't we don't um specifically forecast every region of australia it'd be a very laborious exercise but double digit growth. And I guess we just generally felt that the fall in real interest rates should have seen price increases of about 20%. And that's what we got. So I guess there's always this thing,

the timing is never quite easy to predict. But yeah, we did predict double digit growth. And in the end, about 20% is what we saw. So not too bad last year. Now, looking forward, I think we might see slightly slower price growth. So we'll have to wait and see. Well, let's dump into that now. And looking at this year, what is your overall view of how the markets are going to perform in 2022? Yeah, so the market has definitely got off on a solid footing. We've still got very low mortgage rates, cash rate is going to be stuck at near zero, probably for the first half of this year at least. Plenty of cash around, households are sitting on nearly half a trillion of savings at the moment, and stock is still pretty tight. Listings are still about a quarter

or 25% lower than a year earlier. I think the credit impulse, i.e. the change in lending, it is just gradually fading. So we'll still see a positive year for housing, probably price growth in the range of, say, 3% to 8%, but it just won't be as big as what we saw last year. And I think you'll probably find that it just cools off or just comes back into balance later in the year. Yeah, I think you're getting that right on the head. The analogy I've been using is it's a bit like the Australian Open tennis where Medvedev, we might be shaping up to the second serve rather than the first serve this year.

So the first serve goes through at about 206 kilometres an hour. The second serve, while it's not the same meteoric growth, it's still coming through at about 190 kilometres an hour. So everything's relative, but I think we're still looking at a pretty solid year. So what are the key drivers that you think we should watch out for that are likely to influence property this year? Well, the big one is the reopening of the borders.

So for those of us who like to travel, which includes both of us, it's been very difficult the last couple of years to get in and out of the country. Officially, now you can get back in, but actually the borders aren't fully reopened. But we're heading in that direction. In fact, the government, at the time of speaking, only yesterday launched a new campaign a seven million dollar advertising campaign to get

backpackers into australia we've got a shortage of that cohort and if you look back over time the highest number of uh backpacker visas we had was about seven or eight years ago um and over a quarter of a million um so i guess this is one of the things that when the borders reopen we'll see tourists come back international students we've got the backpacker visas so i think tight rental markets will be a key theme in 2022. I think the big sort of question is how much will people move back towards the cities? I think gradually they will, because a lot of people have gone and taken the tree change or sea change through the pandemic. And I suppose another theme is just the gradual rise in mortgage rates. I think that'll get a lot of airtime, but I think

actually we're talking about mortgage rates going from sort of 2% up very marginally. So those are some of the key themes also a lot of people have been working from home early in 2022 so it's a question of well how quickly will people actually get back into the office yes yeah be interesting to see the permanency of some of those transitions but uh mate so in that context what are some of the important sectors that you think we need to keep an eye on in 2022 well interestingly we've been getting an awful lot of inquiries about commercial property which is interesting because I think a few years ago, everybody was just purely focused on capital growth, not even interested in rental yields. I just wonder whether the media headlines about rising mortgage rates is just causing more people to think about rental yields.

I think it'd be interesting to see. We've seen apartment rents actually beginning to rise in inner city Melbourne, for example. And that's I mean, they came right down through the pandemic. So I guess that's going to be an interesting thing, the reach for yield by investors, what will happen to office space. I think offices, there's a lot of uncertainty there. A lot of people have gone into industrial property. And I think, yeah, it would be just interesting to see what happens with apartments because generally they tend to fare better

when people are looking for yield. I think that's just starting to happen again. Yeah, no, good call. Are there any other wildcard elements that you believe may have an impact on property this year? Yeah, I mean, I don't know if it's a wild card, but it's an election year, so that always throws up some interesting policies and debates.

I think the big potential wild card, apart from changes in working habits and the working from home phenomenon, I think it's just whether we get like a new strain or something of the virus that just sets back the recovery. The economy has rebounded really well and there's been loads of stimulus around. um you know the government's been throwing a lot of stimulus into the economy but if we've got a

new strain of the virus or you know there's a setback in uh in terms of the sort of getting back into the office and getting back to work that's the potential wild card hard to predict things in the midst of a pandemic so you just never know yeah no it's a very good call i there's not too many letters left of the greek alphabet for the uh the virus variants uh pete but uh they keep coming up with them. So time will tell. Now, awesome, Pete. Well, thanks again for taking the time to share your insights. We always enjoy your words of wisdom. And thanks again for your time on the show today. Always a pleasure. Cheers, Bushy. Thanks, Pete. Well, when it comes to investing, great knowledge is power. So to improve your property arsenal, reach out to Pete and the

Buyers Buyers team by jumping on buyersbuyers.com.au. More shortly, here on Realty Talk. successful property investment is a game of finance do you have the right team and the right game plan realty talk is brought to you by know how property more than mortgage brokers bushy martin and his team of investment architects set you up with a sustainable strategy structured to lower your costs tax risk and stress while increasing your capacity for growth know how has helped over 1,900 homeowners and investors secure more than $800 million in property wealth. So get set to live more, work less and live your legacy. Want to know how to invest in your freedom? Visit knowhowproperty.com.au. Hi and welcome. Now, over the last couple of years, many property

buyers have been caught up in the herd hysteria and fear of missing out or FOMO of property. as prices have surged with the highest rate of value growth in over 30 years. And in these situations, many property buyers end up just buying anything they can get their hands on close to home without having an investment plan, without understanding the risks. So to help you avoid these common property mistakes, today we continue with part two of our special feature with Lloyd Edge, the Managing Director of Oz Property Professionals Buyers Agency and the author of his bestselling book, Positively Geared. So welcome back to the show, Lloyd.

Hi, Bushy. good to be with you again. Always, mate. Now, Lloyd, to avoid the sort of current gold rush fever and knee-jerk FOMO approach to buying property, how do you suggest investors draw up a strategic investment plan? Well, the number one thing that people really need to do is ask themselves why they want to invest. And that really comes down to what your goals are. So is your goal to grow some properties for some financial independence, maybe some passive income in the future. Maybe you've got kids and you want to be able to have an inheritance for them. Maybe you want to be able to afford to be able to put them through school, for example, afford that

family holiday later on. Work out what your actual goals are. And then from there, you can actually then draw up a plan and work out how you can get to those goals. And just starting with one property at a time, of course. But then your goals then dictate the sort of property you need, whether it's cash flow property, whether it's a growth or combination. Do you need to add value to the property maybe you need to do a renovation it could be a subdivision it could be a development but once you know your goals then you can draw up a plan and move forward from there and that strategic investment plan is something you can keep adding to and you can document what your goals are and the type of properties you're buying and how they can actually help you move forward

towards your goals yeah spot on you're really providing both a magnet and a compass to guide the decisions that they're then making day to day which is a great way to go now risk is an area that's often overlooked by property investors so what are some of the risks involved with property investment that we need to be aware of lloyd well i think number one is that uh with all investment does carry some risks so there's no guarantee about having growth uh you know in a property or having massive rental yields or anything like that so you can mitigate those risks by ensuring that you're buying in an area that does have you know good infrastructure all the amenities you know i love buying in school catchment zones where there's maybe new hospitals

and universities and all those sort of things and a town or a city that has lots of drivers for economic growth so you know not the one horse mining towns because they're more susceptible to having that crash. I think it's also you know really important to mitigate your risk by having sort of a balance of you know capital growth and rental yields because if you have two you know to lower yield on your property and your interest rates go up, which is a risk, then you can get into a little bit more trouble there. So I think that trying to have good cash flow on your property can help actually mitigate, again, some risks moving forward. On the purchase of a property, if you're buying an established property, then one of the things that you do need to do is get

a building and pest inspection, because one of the risks of buying property is that there could be some structural damage. There might be some termite or some history of termites in there. so you need to get that report done to see if there's anything in there that needs addressing it also gives you the option then that you might want to renegotiate price or pull out of the purchase so things like that there are things you can mitigate to to make the whole process easier and more comfortable for you yeah spot on i find too many investors are focusing on the property and the rewards without really considering the risk and then putting measures in place to protect themselves so great suggestions there and what shouldn't you compromise on then when purchasing

a property Lloyd? So I think you definitely should not compromise on getting a building and pest report done so they're usually around about the $600 mark give or take a bit so you know whether you're spending $300,000 or a million dollars on a property or whatever that's a small amount to you know to pay for peace of mind essentially that's sort of really important there are other things you can compromise on I mean if you're buying a home to live in depending on your budget you might need to compromise the type of street or the or the or how large your home is, how large the living area is. Does it have a pool?

There's plenty of things that might be okay for you to compromise on, but certain things like structural damage is certainly something that you don't want to find out later and cause you a whole heap of problems. Yeah, totally agree. Very good thoughts there. Now, why shouldn't you just buy a property close to home then? So when you're buying close to home, it really closes out the market to a lot of other areas.

Often people think that they know the area where they live. But if I was to ask, and I ask this question all the time of my clients, if I was to ask you, okay, what is the vacancy rate? What is the growth trend in the suburb where you live? They can never answer that question. So people really don't know the suburb where they live. They just think they do because they think they can drive past the property and they're checking on it.

But that's not really how it works. If you buy in another location, which would be another city, could be another state, and you do enough research on it, and you get all the research reports on it, then you'll end up knowing that area much better than the area where you live anyway, because you'll end up knowing what drives the growth in the area. You know, you'll have all sorts of Google or satellite images of the property, you'll probably go and visit the property before you buy it, you'll know the vacancy rates. So you know the area really, really well. And the thing is that unless the suburb where you live happens to be the best area to invest in the country, then why buy there.

And quite often you might find better value for money that's more within your budget somewhere else anyway. Yeah, very good thoughts there. There's over 15,000 suburbs around the country, so the chances of your suburb being the highest growth or the best yield is pretty slim. It might happen, but it's going to be more by good luck than good fortune.

So, no, I love those thoughts, and thanks for these very refreshing and timely reminders, Lloyd, and thanks again for your time on the show today. Thanks, Bushy. Thanks, Lloyd. Well, it's clear that if you want to avoid the property traps of the many, you need to develop a strategic investment plan, understand and mitigate the risks, and avoid buying in your backyard by becoming borderless. And the best way to start achieving all this is to grab yourself a copy of Lloyd's book, Positively Gear, which you can get at all good bookstores and on Amazon, or reach out to Lloyd's buyer's agent team at Oz Property Professionals. Stay with us for more on Australia's longest running property show here on Realty Talk.

Property deductions can save you thousands of dollars each year. To make sure you maximise 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. Greetings and welcome. Now in recent years, the opportunity to secure property through your super has been somewhat tarnished by slippery shoe salesmen selling substandard sight unseen interstate properties.

But has this overshadowed the significant benefits that you can enjoy by purchasing properties using your superannuation monies? Well, to dig into the subject, we're joined again by super guru, Darren Kingdon of Kingdon Financial Services, who's recently released his third investment book, Master Your Super. So welcome back to the show, Darren. Great to see you again, Bushy. Always, Darren. Now, I love jumping into this subject because it's often misaligned, but to kick off with then why has securing property through super been such a popular strategy in recent years well look i think you might have touched on one of them just with the slippery

shoe salesman comment in that look it is seen to be a bit of a honeypot and um and spruikers have obviously latched onto that in in unfortunately in some ways so so people buying um sight unseen off the plan type of properties and things like that have tended to have a really tough time of it and unfortunately learn some very expensive lessons along the way. But it is still one of the reasons why superannuation is intracted, is cash flow. There is generally a lump of superannuation there that can enable investment in property. And that can go a long way towards either a deposit or just to purchase a property that you like outright, just to gain a bit more control over your investment strategy um so that is a factor but but but i think beyond that a lot

of the then when you start to think about personal tax um and and the tax savings that can be achieved by holding an asset in a in a superannuation fund or a self-managed superannuation fund when you think that the worst sort of case scenario tax rates 15 that's pretty good when you compare to tax regimes around the world for retirement assets can potentially be 0% once you get to a pensionable age. So tax is also a very prominent factor on top of the cash flow. And then I think another one that often gets forgotten about is just the asset protection side of owning a property in superannuation, because if there's a financial misadventure or a potential bankruptcy or a litigation that's going on having it owned by a trustee of a

superannuation fund certainly provides a an extra line of defense you know for you to be able to keep the asset for your family very good call yeah and that's one that's that's often overlooked or not known about so um so looking at the uh types of strategies that are commonly used to secure property using super what are they mate look i'd say that probably the the preeminent one is owning a commercial property and leasing it back to a related business. So you start to get the best of both worlds. You have an asset in a low-tax environment

that attracts hopefully capital gains in the long run as well as rent and income with tax at the low rates that we're talking about. So it can become quite a powerful sort of strategy for small business owners. You end up having a couple of different lines of tax deduction that can help keep the bottom line of the business down and keep your day-to-day tax down

while starting to sort of get more in the superannuation environment because the rents don't get included in the contributions caps, which is an important point. So the rent that received by a super fund isn't counted in any cap. And on top of that, you can still do your cap, which is currently the concessional cap anyway,

which is $27,500 per annum for the employees of the business at the moment. So there's a couple of ways there to help reduce the bottom line on the business side, as well as start to build up your retirement nest egg. And looking forward even further, like when you do retire, there's potential for any capital gains

on that property to be tax-free if you actually convert those assets into pension assets once you reach pensionable age. Yeah, there's some pretty significant benefits there if it's done properly there's no doubt about it now let's talk about the lending side of the equation because there's certainly been significant changes in recent years in relation to the banks and the lenders view of leveraging money using super to buy property so can you give us a bit of an update on where things are at now in relation to borrowing money uh using superannuation yeah

absolutely no so um certainly at the big end of town that there has been a reluctance to engage in superannuation borrowing, that they'll sort of haul over the coals through the Royal Commission, as were financial advisors. So there has been a reluctance to do that. But, I mean, we do, anecdotally, we do say that they will still come to the party if you're a good enough customer of the bank, I think, in large part. But there has been a proliferation of small and mid-tier banks

starting to participate again in the limited recourse borrowing. That's the type of borrowing that a superannuation fund can engage in. And the terms and conditions of those have really been sharpened quite a lot, I think, over that last six to nine months. I mean, we can see some competitive interest rates, which is around that three, you know, mid threes, high threes, early fours. So there's some starting to get some pretty good choice there. And the maximum terms are quite good as well. Like there was a period where the terms would be quite short, but they have been sort of stretching out to that 30-year mark for certain people. So there's some quite sort of positive movement there.

I mean, obviously, it's a big deal going and borrowing money and investing. So you need to have your cash flow sort of house in order. And also I noticed as well, you know, with offset accounts, that there has been generally a reluctance of the providers to provide offset accounts with these. but there has been more of those starting to pop up in that last six, nine months, which has been encouraging. Yeah, very encouraging. It tends to be a bit of a cycle, doesn't it, in some of these niche lending areas.

When things get tight, the lenders pull out. When they're starting to get a bit more aggressive and competitive, they start dipping their toe back in the water. And the very clear message there for me is that if people are looking to secure property through their super and they're wanting to borrow money then talk to someone like you who really understands the niche products that are available that will allow them to do that rather than just going talking to your bank that's right yeah no that's good final question and this is one we often get from people who who start to think about using their super to invest in

properties can existing properties be transferred into your super down well it does well it depends on what type. If it was a residential property, generally not. But if it was an existing commercial or industrial property used in business, then that's basically the criteria. There's a legal phrase called business real property. So as it sounds, if it's a property that's used wholly and exclusively for business purposes, then that's when it can get transferred into a self-managed fund. And then it becomes a question of, well, how do you do that? And what are the implications of that. So for example, if we sell the property to a self-managed fund or it's contributed to a self-managed fund, well, there'll be a CGT implication. So that's an actual cost of the

transaction. There'll be other transactional costs, including stamp duty. So those sort of things need to be weighed up against what's the potential benefit, what is going to be the potential tax saving on on rents or even land tax or even future cgt savings so so it becomes a bit of a business decision cost benefit exercise as to whether or not that those types of business property can and and should be moved into a self-managed fund and also sometimes you've got to sort of think the other way i think with um pandemic and how people are starting to rethink about their lives a little bit more um just had a case recently well you know wanting to buy a farm inside a self-managed fund and that's going to be their future retirement sort of strategy or

semi-retirement strategy so same sort of thing going the other way well you aren't allowed to generally speaking use a property of the fund um for private purposes unless you can argue that it's a primary production business and you're really going to be dabbling in in that in your in your retirement years um so you've got to think about um yeah the movement of the movement of assets both ways unless of course you're going to sell it and let somebody else pay for the stamp duty yes yeah good call but but important to understand the changeover costs uh involved before uh going any further with that yeah that's awesome mate well look uh thanks again for these eye-opening observations darren and thanks again for your time on the show today

yeah great to see you again bushy thanks darren well it's clear that there are still very significant opportunity to secure property using your hard-earned super so if you're interested in finding out more reach out to Darren and the Kingdon Financial Services team and make sure that you grab yourself a copy of Darren's great book Master Your Super from masteryoursuper.com.au stay with us for more here on Realty Talk well that's another wrap for this week's show another big thanks to our special guests pete wargent lloyd edge and darren kingdon and to make sure you don't miss an episode of australia's longest running and most popular online property show subscribe to realty talk now on apple podcast

google podcast spotify youtube or wherever you listen and make sure you sign up on the realty.com.au homepage to get every episode in your inbox every week. And while you're there, make sure you check out one of Australia's most extensive range of properties for sale from over 7,000 agents nationally. Thanks again to realty.com.au and BMT Tax Depreciation for their ongoing support. I'm Bushy Martin from Know How Property Finance, and I look forward to seeing you again next week. 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.