Property Hub - Investment Insights & Inspiration - Realty Talk: Risks of buying new + Finance delay blues

Starting point is 00:00:00 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. Well, hello and welcome to the show. Bushy Martin is in the chair once again this week and Bushy, of course, is from KnowHow Property Finance and he's the host of that very popular podcast, Get Invested. Bushy's guests this week are Bryce Holdaway, Rob Newman and Jason Back. First up, Bushy talks to TV property show host and property buyers advocate Bryce Holdaway

Starting point is 00:00:45 about a popular money myth about paying rent. You know, given the massive stimulus incentives being offered by federal and state governments to build new homes, there's been a big increase in the number of first-home buyers who are looking to go down that road. It's always best to know the risks before making that decision. And you're going to hear today what they are from Rob Newman. Now, Rob is a buyer's agent. He's also a builder broker, so he knows what he's talking about. Delays in arranging approved finance for the purchase of a property can now run anything up to eight, maybe even 12 weeks. And that results in many property sales falling over, with everyone involved suffering high anxiety, stress and

Starting point is 00:01:36 frustration. Now, it doesn't have to be that way, according to mortgage broking industry veteran Jason Back. He talks to us about that today. And finally, to wrap up this week's show, So Bushy's last word is about how so many borrowers focus on rate when borrowing. He says, hey, there's much more important things that you need to worry about and that you should be considering. OK, on that note, let's get started. Welcome. Now, as fear of missing out seems to grip property buyers around the country, and as we've seen property prices continue to soar, all the old sales truisms start to get trotted out by the likes of real estate agents and builders. And one of these is that rent money

Starting point is 00:02:30 is dead money. But is this really true? Well, to shed some light on it, we're joined by leading industry commentator, TV host, and buyer's advocate, Bryce Holdaway from the Property couch podcast welcome back to the show bros hey bushy thanks for having me back mate uh we start to hear all these old adages uh around this time in the market uh and the old is rent money dead money is a good one what's your thoughts is it true or not i think the answer is um maybe and uh sounds like i'm a politician but um i remember for two reasons um well two two sort of sources One, I think it's a wonderful marketing spiel that comes from people who are selling new houses to try and get renters off that side of the fence to come and buy a new house and

Starting point is 00:03:19 all props to them, right? And the second source is, I think about my dad's born in 1939. So he was in the shadows of the depression, the shadows of the war. And so austerity and getting your own home was so incredibly important to him. So he told me my whole life that rent money is dead money. so we kind of have this generational conditional um understanding of that statement but it wasn't until uh the early uh early to late late 90s early 2000s when i was moving out of home where i i saw my dad buy a house in 1987 he paid it off as quickly as he could through the 90s which

Starting point is 00:03:56 included the recession we had to have and the idea of uh renting was just was almost like um swearing right but then but then i decided that i wanted to live in the suburb of south perth um when i I grew up there in Perth and I couldn't afford to buy a house, but I could afford to rent. And it wasn't until then that I got introduced to the fact that I could have my cake and eat it too. I could have this wonderful lifestyle around a beautiful river and everything that comes on board with that and then buy an investment property at the same time. So I could actually live where I wanted to live and look after my wealth by buying an

Starting point is 00:04:29 investment property. And that was foreign to my dad and his generation. So that sort of spawned the idea of rent vesting. So my answer to the question is maybe because I think there's an arbitrage opportunity that if you take advantage of, I don't think it's dead money. So, for example, for you to rent a house versus buying the same house, typically it would cost more to buy. And let's ignore that in some suburbs that's not the case, but let's just go at a headline level. Typically it costs you more to buy than it costs to rent. So there's a surplus that you're saving.

Starting point is 00:05:04 and if you're trapping that surplus that you ordinarily would have used to to to have a mortgage in the same house and putting it to work and actually putting it to to buy an investment property like i just described i therefore think it's not dead money versus if you just um think it's easy to buy um to be in a rental property that surplus you're trapping it but you're spending it on lifestyle and it's getting harder and harder to get on the property ladder then i think it's um uh dead money so the conclusion for me is it depends if the sentence has a comma or a full stop is rent money dead money full stop yes if it is rent money dead money comma unless you're buying something else with the surplus then i think that's a smart move so that's why i've

Starting point is 00:05:48 kind of hedged my bets at the top of the bushy yeah so the the key take home from me there is it's what you do with the surplus because if the the differential between paying the mortgage and paying the rent is substantial and you're taking that substantial difference and putting into something that's actually going to grow your asset base, then as you say, you've got the best of both worlds. You're living a lifestyle in the location that you want to, but you're having your assets increasing value that will eventually replace your income down the track. And like you, I was an accidental rent investor many years ago, Bryce, before rent vesting was even a thing back in the early 90s.

Starting point is 00:06:29 Yeah, mate. But I think the other- We're the OGs. We're the old guys who was around- We are the old guys. Before we came in the vernacular. Well, here's the other opportunity with rent investing though that associated with that.

Starting point is 00:06:38 At the other end of the journey, if you've got a number of properties that are covering your income needs and you're still mobile enough, I know my wife and I will be effectively rent investing at the end of our journey as well because we can rent some really good places wherever we want to go

Starting point is 00:06:58 at a fraction of the cost that a mortgage would for that exercise. But we've got all of our assets that are funding that story. So I think it's got applicability at both levels. And the real take home from all of that for me is rent for lifestyle as long as you're investing the rest

Starting point is 00:07:17 is the key take home. I think you've made a wonderful point too, Bushy. And the point is rent vesting sounds sexy, right? But it is like the Titanic. You cannot change directions quickly. So as you know very well, particularly if you're in Sydney, if you start out the journey of rent vesting, I'm committed to rent vesting, I'm in my early 30s

Starting point is 00:07:37 and I'm committed, I'm committed. And then all of a sudden a change of life happens and you go, oops, I actually want to live in my own home. That is very, very challenging if you've set an intention to rent vest. And then all of a sudden you go, hang on a second, I've got to pivot, throw a principal place of residence into my cashflow equation, which is going to be a significant cashflow drain on the bottom line. And therefore I may have to liquidate

Starting point is 00:07:59 assets in a position of weakness where I'm paying capital gains tax. And so you've made a really good point that if you set the intention early that you're going to be a rent investor, stay the path. Or if you follow your plan and my plan is that we're both homeowners. And at some point, We want to rent a nice beachfront, riverfront, penthouse, some sort of lifestyle wow at the later part of our life cycle. That makes sense. But beware the change of course in the middle because it is something that could seriously hamstring you if you haven't looked

Starting point is 00:08:33 around the corner on that. Yeah, and having a very clear idea of the roadmap and the strategy is absolutely key there, Bryce. You make a really good point. Mate, always love talking to you. You had some really great food for thought there around that subject. Appreciate you joining us on the show again today, mate. Hey, thanks for having me, Bushy.

Starting point is 00:08:53 Great. Now, the take-home there, guys, it's rent for lifestyle and invest the rest. Make sure you take advantage of that. You're watching 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.

Starting point is 00:09:17 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, in recent times, there's been a massive increase of interest in new build homes. And this is largely thanks to huge government incentives, particularly for first-time buyers. But building can be very high risk if it's not handled very carefully. So to talk you through the tips and traps of building, I'm joined by leading buyers agent and builder broker, Rob Newman of Blackfords Urban Habitats, who's been involved in property for nearly 40 years now.

Starting point is 00:10:07 So welcome to the show again, Rob. Hey, Bushy, great to be with you. Thanks, mate. Now, this is a big topic and buying does have its trials and building does have its trials and tribulations. Tell us, firstly, one of the things that will be confusing for some is what's the difference between buying a complete house and land package from a builder versus buying a block of land and then finding a builder to build on it? Great question. and we've only got five minutes so I'll try and try and keep this really short if you're buying from a builder that is also the land developer you have probably not always but you've probably

Starting point is 00:10:51 got more chance of getting as close to what we term a fixed price building contract as possible bear in mind there is no such thing as a fixed price building contract however if the builder has done the bulk of the greenfield work and i'm talking out of suburb type homes now i'm not talking urban urban infill they've probably benched the site they've probably done the retaining walls they've probably done the rollover curbs and so forth and you can tie the finance to both contracts so this the works the engineering works won't start on site to discover what your underground costs are until you've signed a building contract that's when they'll take bore logs and so forth i'll go up to the engineers and i'll come back with a figure and also like the

Starting point is 00:11:40 cost and bits and pieces on what the footings are going to cost this will be determined by the width of the footings the depth the amount of mesh they've got to use the spoil that's going to be removed it gets very complicated however if they strike an impediment right such as rock for example which no one knows is is there and they then disclose to you the buyer that look we have struck rock it's going to cost a lot more than what we thought and your finance is subject to both the land contract and the build contract and it becomes prohibitive for you to proceed eg you can't get your finance then you're free to walk away from the deal yeah okay that that's really good to know so uh clearly there's some advantages in uh getting a combined house and

Starting point is 00:12:31 land package to protect you uh in that advent uh tell me uh there are a number of risks in this process uh what are the what are a couple of key ones and and how can we manage them so the main one is obviously what's happening underground um so again as i've just mentioned getting those soil reports done now you won't get those done until you've paid a fee to the builder if it's a house and land they're what we call abortive costs okay so that's when they'll start doing that research and they'll come back and put a price in the building contract to say this is what we allowed for but this is what it's going to be and even then you still have the risk if they strike rock or some other impediment that no one knows about because at this point in time

Starting point is 00:13:17 both the builder and yourself are dealing with the unknown so they genuinely don't know so you've got to hope that they don't find any any impediment and that the price they've given you for the underground works is what it's going to end up being so the bottom line what i'm saying is here make sure you do as much research as you possibly can and allow for reasonable footings in your building contract yeah and i think the the flow on from there too is make sure when you're building that you've actually got some additional funds set aside to cover some of these variances that are inevitably going to occur so you know in our own experience we've generally suggested people add 10 percent uh to cover these things because it's not a matter of if it's it's just generally

Starting point is 00:14:05 a matter of when so yeah okay so one of the other key things I hear a lot about are those that think okay we'll get the land and we'll get the build and then we'll finish it off ourselves what's your thoughts on is this a good idea and if not why not certainly the main thing you need to do Bushy is retain the integrity of certainly the slab and when I say slab I mean the concrete slab that the home sits on okay so things like perimeter paths driveways stormwater is a real classic where you can get those done by the builder it's false economy to think you're going to do them do them yourself all right and if something were to go wrong and you did the stormwater and so forth yourself you'd be in for a real arm wrestle with the builder as to actually

Starting point is 00:14:55 who's at fault yeah yeah and if it's under the builder's hat and there's warranties that are attached to all of that and under the defects liability and you do have an issue then you've got some protection if not then uh you're in a world of pain but uh some uh some really good thoughts there that's just the tip of the iceberg uh building can be very beneficial but you really do need to know what you're doing so i suggest um uh if you're looking at doing that to reach out to you uh rob as a builder broker uh there aren't many that are actually playing that space who look after the client's interests in terms of negotiating and looking after their interests in that regard.

Starting point is 00:15:36 So I reach out to Blackford's Urban Habitats to do that and appreciate you spending some time with us today, Rob. Always my pleasure. Thanks for the chat, Bushy. Thanks, Rob. Stay with us because there's more after the break here on Realty Talk. Property depreciation is the natural wear and tear

Starting point is 00:15:56 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, in days gone by, it was common to buy a property with a two-week finance approval and you'd settle within a month. Unfortunately, it appears that those days are now long gone,

Starting point is 00:16:35 with many banks taking a minimum of two weeks just to pick up and start looking at your application, four to eight weeks to approve it, and up to two to three months to settle. Now, this is creating a lot of stress and frustration for everyone in the game. And unfortunately, many sales are actually falling over as a result. So to shed some light on why and what you need to do about this. We're joined by mortgage-broking veteran Jason Back of Broker Essentials, Australia's leading mortgage-broking coach. So welcome back to the show, Jason. It's great to be here, Bushy. Jason, we're in very interesting times in property and finance at the moment.

Starting point is 00:17:15 Why is it taking so long to get a loan these days? Look, Bush, it's actually quite a complex issue. As much as I'd like to sort of sit there and say, look, it's the banks just dragging their heels, I think it's a little bit more complex than that. uh i've been in the industry for just over 30 years now uh when i started in the bank uh you know credit was um something that we all had to go away and actually learn like a bit of a classroom exercise um you know there used to be the four seas of credit i think it went out to about the eight seas of credit i think it's back to now the five seasons you know character um capacity capital collateral and conditions so you know credit itself is actually quite a complex um

Starting point is 00:17:50 thing it's not um you know it's not as simple as just going and buying a loaf of bread or a pint of milk, it really actually is a complex scenario. And really, the customers generally only see the tip of the iceberg when it comes to the process. So what's really going on at the moment is probably a few things. One is technology has certainly changed and how brokers and banks get your information so that they can make a decision on whether you're worthy of lending money to. That's a complex scenario. Banks for many years have been stripping back, obviously, from a staffing perspective so resources have been you know offshored and then onshore and offshore and insured and outsourced so there's a bit of complexity there as well so some of them

Starting point is 00:18:32 really are running on some fairly skeleton staff because they're trying to keep their costs down to you know keep shareholder return high although that's really impacting from the customer customers experience perspective the other thing is obviously we also see a large influx of other players into the market as well so there's also a really broad scope of how many people or how many banks or providers people can actually go to now so and they all do things really quite differently so you know what one bank requires and another bank may not the way one bank allows you to do verification of your identification needs to be done in a branch at one particular bank or others might allow you to do it online so there's a bunch of sort of things going on out

Starting point is 00:19:13 there but it is certainly adding to um the the drains as far as time and at the moment for the first time in in my my career um people are actually interested in their mortgages uh you know COVID-19 uh shone a spotlight very heavily on people's personal finances and people started to pay attention to uh you know what interest rate they're paying what cash flow is going out every month their you know their monthly expenditure uh so that certainly has uh increased the volume of people not just with purchases but also refinances um we've got a rising property market so people are drawing in equity so they're putting in swimming pools and i think it's over a year's wait to get a swimming pool these days um you can't buy a new car at the moment so that

Starting point is 00:19:55 takes six months so there's so much it's like a perfect storm at the moment um but that being said you know there are solutions out there yeah and i think you make a very good point and i think the the mistake i see a lot of people making is they'll chase the the cheapest rate but of course every man woman dog and child is chasing the same thing so you get this absolute backlog and and stockpile of opportunity blocking up the works and therefore no surprise that it's taking longer to get through but tell me how can borrowers be better prepared then in this current environment than jason yeah i think one of the the challenges that we've got is that especially in my career I think one of the biggest mistakes the banking industry actually made was telling people

Starting point is 00:20:41 that it's a really easy process, that it's quick, it's fast, it's overnight, it's 22 minutes, but it's actually not that simple. So for the customer to be more prepared, they really do need to go away and do a little bit of research, obviously work with people like the broking community so that they can basically gather up those five Cs. And generally, we determine those things by doing some research into having a budget and your expenditures. we want to know what you're earning so we want current payslips or you know bad statements or

Starting point is 00:21:10 p&l or balance sheets or whatever you know employment structure you're under um you know we want to understand your existing position so what assets that you hold whether that's superannuation or shares are you existing property so basically being more prepared and to be more prepared generally means time it's very unusual for someone to wake up on a wednesday morning saying you know hey bushy let's go buy a property on friday so uh we generally you know we know that happens in the market we get thousands of people coming in saying oh i need an approval in principle today um and my question is how long have you been thinking about buying a property for and for most people it's generally been north of six months so um my biggest bit of advice for people is is get

Starting point is 00:21:54 ready early so understand your current position your current state obviously desired state where you really want to be and what you want to buy um really map that out with your broker but do it early so you so that you can get that approval in principle if that's the case um now some of those might only last 30 days some of those last six months um but if you're not seeing any material change to your position it puts you in a really strong position when you're going to go and buy a property yeah very good advice there i think a couple of uh uh points that that uh support that to me are the fact that we also need to start educating real estate agents in particular around what is achievable from the lending perspective so they're not creating dates and

Starting point is 00:22:39 times that just can't be met and I think you've made a really good point around buyers having a chat to a savvy mortgage broker because you know you with 40 odd lenders that they can access a good broker will know which banks are turning approvals around more quickly than others and if if that's quite often in a heated market like this the settlement time frame can be the difference between getting the property and not getting the property then it's certainly an avenue that they need to pursue anything else that you want to add around that to close off then jason well she i think it's a really good question i think some of these things are bigger picture issues about rethinking how the property market transactions actually work. And to your point

Starting point is 00:23:22 there, we forget that sometimes real estate agents actually work for the vendor. They actually don't work for the purchasers. So when you've got five purchasers lined up, the real estate agent's going to look at cash offers. They're going to look at people that don't have finance conditions. They're going to look at people that don't have bridging finance requirements because they want to make it easy for their client, right? From a broker perspective, you're our client. So we want to make it easy for you to purchase so that the faster you can get in and talk to us now about your needs for the future the more prepared you can be so that when you go in you go in strong you go in hard you know what your best offer is and you're giving yourself every opportunity to

Starting point is 00:24:01 be successful especially for places like where we are in in melbourne or sydney where auctions obviously are the predominant sort of way of selling properties you really want to go in hard So again, to me, the whole thing is about being prepared early and giving us every opportunity to make the experience a really pleasant one for you. So the more prepared you are, the more time you give us, the better the experience will be. Yeah, I love it. Some great take-homes there. So be prepared. Use a savvy mortgage broker who can place with a lender that is more timely in their response. Educate the agents to what's achievable when you've got that opportunity. Some really good insights there, mate.

Starting point is 00:24:39 So I appreciate you sharing that with us today. Absolute pleasure, Bushy. It's great to see you as always. Thank you, Jason. Interesting times. You're here on Realty Talk. Welcome. I want to have a quick chat to you about investor reach versus rate.

Starting point is 00:25:01 So let me start by asking you a quick question. If you're a property investor, what's the most important thing that you need to focus on when getting a loan? Now most people think rate and if this is you, you may be missing the boat because your most important investment loan focus is actually your reach, not the rate. It's your buying capacity. Why? Because high capacity can mean securing a much higher value property and this can be very significant because you may not know that there's over a 50% variation across the banks in terms of how much they'll let you borrow. Now, as a quick example, this could be the difference

Starting point is 00:25:47 between enabling you to secure a $500,000 property versus a $750,000 property. And over 20 years, that equates to an extra $600,000 in equity, just by focusing on your reach, not the rate. And if you want to find out how to maximise your capacity, have a chat to a really good and savvy mortgage broker. So remember, focus on your highest reach, not your lowest rate. More food to thought here on Realty Talk. Thanks, Bushy. Really good advice as usual.

Starting point is 00:26:29 You can catch more of Bushy at his Get Invested podcast. Well, that's it for another show. Thanks for your company. Thanks also to Bushy's guests, Bryce Holdaway, Rob Newman and Jason Back. And a 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 also BMT Tax Depreciation for their support.

Starting point is 00:27:00 I'm Kevin Turner. I'll see you 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

Property Hub - Investment Insights & Inspiration - Realty Talk: Risks of buying new + Finance delay blues

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