Property Hub - Investment Insights & Inspiration - Realty Talk: The Steven Bradbury of property + Avoiding a dangerous buying strategy

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. Hello once again and welcome to another week of Realty Talk, where we bring you informed and unbiased insights from the best in the industry. I'm Bushy Martin from KnowHow Property Finance and the host of the Get Invested podcast. And this week, we kick off the discussion on your property strategy. Do you have one or do you just buy and hope for the best? Well, today, leading buyers agent Pete Wardgen from buyersbuyers.com.au

Starting point is 00:00:45 takes you from strategy to strategy by opening your eyes to the absolute criticality of a well-integrated strategy to achieve your long-term goals. Now, competition for real estate remains very strong across the country, resulting in many buying any property just to get their foot in the door. But this is a very dangerous approach. And Kate Bakos, who's the president of REBA, the Real Estate Buyers Agent Association of Australia, joins us to discuss the pitfalls. Now, for some time, Adelaide has become known as the Stephen Bradbury of property, where it slowly and surely performs consistently, while other states experience the rollercoaster rides of the ups and downs. So to discuss the opportunities that are currently on offer in South Australia, we're joined by Todd Sloan, a leading agent with Tim's Real Estate. And to close the show, I'll show you how your credit cards may be costing you your next property.

Starting point is 00:01:52 We've got a lot to unpack, so let's get underway. Welcome. What's your property strategy? Well, for many, it's just buy a property and assume that you'll be able to retire on the rent. For me, that's a bit like hidden hope. And sadly, most investors don't have any form of real strategy at all. They just focus on the properties without any plan on how they're going to achieve their lifestyle goals. And it's a bit like driving a car without a destination or a GPS to get there. Now, as a strategist myself, or a strategist, as I like to say, we'd like to help you to get really clear on what the end game is, get clear on your lifestyle vision, then integrate the finance and the property strategy

Starting point is 00:02:40 to really realise your goals long-term. So to open your eyes to the benefits of a real integrated strategy before you buy the property, we're joined by Pete Wardgen, the co-founder of buyersbuyers.com.au, which is an IT platform that connects buyers with buyers' agents right across the country. Welcome back to the show, Pete. Always a pleasure. Thanks, Bushy.

Starting point is 00:03:03 Pete, kicking it off, how do investors begin with the end in mind as you see it? Yeah, so it's an interesting question because I suppose even starting with what is, you know, when you say the end in mind, you're talking about the sort of retirement years. If you're talking about transitioning into retirement years, I guess a good starting point for a lot of people is working out, well, how much is enough? So how much might your annual living costs be? How much do you need to live on? And as you already sort of alluded to factoring in your personal circumstances, and it may well be different, for example, if you've got kids and you want to leave a legacy for them, then you might not want to eat the seed corn, so to speak, and you want to live off just off the income. if you don't have kids you might be able to spend some of the capital so I guess those are some of the questions that people need to think about and then you need to think about financially and from

Starting point is 00:03:59 a property perspective what kind of strategy is going to get you from where you are today to having a portfolio that can actually fund that lifestyle that you desire in retirement yeah absolutely spot on mate that's that's music to my ears mate in in relation to the approach because it's a rare one and one that you don't see much in the industry, unfortunately. And just while we're on that subject of the importance of the finance piece,

Starting point is 00:04:24 because as you and I know, property is very much a game of finance. How do investors work out an effective borrowing strategy? Yeah, I mean, that's become a much more important question in recent years. As you know, if you went back to

Starting point is 00:04:38 before the financial crisis, to a certain degree, if you had some equity, you were good to go. You could always effectively redraw some equity and invest again. And there weren't too many constraints in terms of your borrowing capacity. That's changed quite a lot since 2014. These days, as you know, borrowing capacity tends to be capped based on how much income you earn. I mean, there are some

Starting point is 00:05:02 differences depending on your situation. But it's much more important now because there is effectively a limit to how much debt people can carry. It's become much more important that every dollar of debt that you carry is working as hard as possible for you if you're trying to get to those goals and begin with the end in mind I mean in terms of answering the question how to work out an effective or appropriate borrowing strategy obviously what you need is a mortgage broker or advisor who's familiar with the full range of products out there for example as you would know very well the different lenders might have very different borrowing capacity so you might you know the big lenders might cap out at a certain level then you've got the second tier lenders and then

Starting point is 00:05:46 these days there are what's called non-banks or lenders that aren't governed by the same rules as the ADIs are so you might be able to extend your borrowing capacity if you're not a person who works in the industry it's very hard to stay across all those changes so you basically have to have a mortgage specialist or broker or advisor who can fill you in on that because then they can work out a borrowing strategy or plan across your time horizon. Yeah I'm at again music to my ears obviously yeah given that's the the place we we play in and and you raise a really good point there because I have often said that the the most important asset of a property investor in terms of the finance isn't the rate it's a borrowing capacity and that there's a across the 40 odd

Starting point is 00:06:33 lenders that we deal with, there's a 60% variation in how much they'll let you borrow based on exactly the same financial position. So, you know, the rate chasers of the world and the banks and most of the brokers focus on that one dimension, which is lowest rate. What they're missing out on is the massive buying capacity opportunity that exists with other lenders they may not be aware of. And I mean, a 60% variation is the difference between able to purchase a half a million dollar property and an $800,000 property. And you buy a property worth 300 grand more over 20 years, and you're adding millions of dollars to the nest egg at the end. So 100% agree there, Pete. It's an important part of the overall mix. Coming back to the end game again, then,

Starting point is 00:07:23 What might be the end game, actually? And how does that look for investors as you see it? I think what a lot of property investors have in mind is paying down or retiring some debt and just living off the rents and the rental income. Now, if you can achieve that, then that's fantastic. In my experience, it may not for everybody be the most effective way to go, because as anyone who's owned a property would know, there are often costs that come along in terms of repairs and rates and rental vacancies and levies and who knows what else insurances there's

Starting point is 00:07:58 always things that are just clipping the ticket along the way and also it's actually not the most tax effective rental income stream so some people look at commercial property as a way to generate income I think things have changed an awful lot in just a generation really back in our parents generation they looked at annuities and term deposits sometimes bonds but interest rates are so low now I think for a lot of property investors what it may well prove to be is a transition from property to other income producing assets in Australia stocks are very popular because they're so tax effective so look it might be a combination of property rents and stocks and as I mentioned it comes down to some degree on your personal circumstances are you looking

Starting point is 00:08:44 to keep growing your capital for your kids because if you're not, you may be quite comfortable eating some of that capital as you go through. So it does come down to a personal decision as well. Yeah, you're saying that very well. And it's a subject that not a lot of investors are thinking about. They're focusing on the accumulation phase. But in recent times, as we speak,

Starting point is 00:09:09 I've had a lot of investors reaching out to me saying, well, I've got all these properties now, Bushy. what do we do with them how am i going to convert that into a tax effective income stream that's going to allow me to work less and effectively retire and you know sort of following along on the same lines that you've mentioned i talk about the capital growth the cash flow curve and there is a transition there because you're quite right i think property is a fantastic vehicle to grow the size of the nest egg but it's not the vehicle that's ultimately going to give you enough rental income to replace your income long term. But if you convert the growth once it

Starting point is 00:09:49 gets to the right level into tax effective income streams, that might be, as you say, commercial properties or other high yielding instruments in that area, or it might be index funds in the equities exercise where it doesn't require a lot of your time, but still giving you a good dividend yield, then suddenly you're using the growth to create that cash flow that's then going to sustain the the end game as you well mentioned mate so now I love that but mate I will get you back on to talk more about that subject because it is a subject that I think isn't getting much focus but you've really given us some great eye-opening thoughts around that whole subject Pete so I appreciate you coming on the show today always a pleasure thanks Bushy

Starting point is 00:10:29 thanks Pete so it's really clear that if you feel that your property portfolio is a bit like a boat without a rudder, then reach out to Pete and the team at buyersbuyers.com.au to give you some direction on where to head. Stay with us. You're watching 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.

Starting point is 00:11:15 Call BMT on 1300 728 726 today for an obligation free quote. Welcome. Well, competition for property is still very strong across the country and it's up about at 7.8% over the last year, according to the most recent CoreLogic figures. And this is leading many buyers to consider buying any property just to get their feet on the ladder. But is this the best approach? Well, to discuss this, I'm joined by the President of REBA, the Real Estate Buyers Agents Association of Australia. And that's a big mouthful, we're Kate. Yes, indeed. So we're welcoming Kate Bacos who's released a warning on this topic which is a very appropriately titled buy in haste and repent at leisure. Welcome back to the show Kate. It's great to be on the show

Starting point is 00:12:05 Bushy it's lovely to see you again. Always yeah I love sharing your insights and a good topic that you've raised given what's happening in the market at the moment. To kick the questions off why is buying low-hanging inferior properties in what you'd well describe as off markets a bad strategy and in conjunction with that why are buyers pursuing that approach? Yeah it's been a very difficult market so it's understandable that buyers are going for low-hanging fruit because you'll meet many people if you get out and about take a few polls who have missed out at auction and it's heartbreaking for a lot of people and if you've been continually missing out and you're watching your cash on hand that you've got lose a bit of value as the market continues to move

Starting point is 00:12:52 past you, you can start to get a bit panicked. And a lot of buyers are doing this. And so rather than just adjusting their expectations, a lot will try and hunt for the low hanging fruit because there's always the property that has less competition, is a bit easier to pick up because it has a fundamental flaw and this might seem like a good idea at the time because in a hot buyers market like the hot sellers market like we're in now it it feels like you're getting a solution to your problem but it's a very forgiving market on sellers so a seller can can put a compromised property on the market and get an okay price for it it's forgiving for the seller the person that's not forgiving for is the buyer because when they get that property on the market in in years to

Starting point is 00:13:39 come they won't necessarily have these same conditions and the conditions that we're in I've heard the word unprecedented a lot and the reality is that it's just a really nasty hot market and we don't typically have markets as hot as this so the chances of replicating this scenario and being able to sell in a forgiving market is pretty limited and the buyer might find that they're picking up a dud it's very hard to offload the discounting that they have to apply to get it sold could be far greater than the discount that they're buying for. And the days on market could be really extensive. So if they're in a hurry to sell, if they've got true motivation, it could be a very stressful exercise. Yeah, and that's well put. We're in one of those rare once in a 20 or

Starting point is 00:14:23 30 year markets where the rising tide's floating all ships, but that doesn't happen very much. Kate, tell us what are the key questions that buyers need to ask to avoid making those mistakes? The first thing that they have to be really clear about is what sort of appetite does the bank have for what they're buying? Because if the bank doesn't like it, they've already got an issue in front of them. It might be a limited ability to borrow. They might have to jump three more hoops. Worst case scenario, they might not be able to finance it under their own steam because the loan that they've got pre-approval for might not even cover this type of asset. So they have to make absolutely sure that it's something that can be financed to start with. And the second question

Starting point is 00:15:05 they should be asking themselves is how mainstream is this? Why hasn't it sold? Is it not selling because most people don't like or don't want it? If that's the case, what can be changed about that property? If that particular floor can't be changed, if it's geographic based, if it's location based, then should they really be buying it? And then the final question that they should be asking if they can't work out why this low hanging fruit is not going anywhere is what's what's wrong with the title or the price because there's no point jumping into something with no competition in a hot market and not asking yourself you know why is this thing still around you might have just got lucky but you might have missed something really critical as well

Starting point is 00:15:46 yeah some some really good questions there so what types of locations and property issues need to be avoided k anything that can put people off put buyers off put tenants off and that that might be a main road that's super noisy. It could be high voltage power lines. It could be a train line running right along the side. It could be something that is likely to be applied in the future, such as road widening or a freeway going through the area. It could be earmarked for compulsory acquisition. There's lots of different fundamental flaws that can't be changed. And unlike changing a configuration or taking advantage of northern light with clever windows with a south facing rear you can't really workshop a bad location so you've got to be certain

Starting point is 00:16:33 not only that that you can stand it and you won't find yourself wanting to sell the property but you've got another market for it if you do decide that it's time to sell or you've got a solution for your tenants if you decide to pop a tenant in there when it's location based it's really difficult and when it's title based that can be near on impossible to change yeah very good comments there well let's drill a little bit because to something you've already mentioned because it's I'd really like to understand why it's important to understand the types of properties that banks may have actually issues with yes what we know about lenders is they will have appetite for something that's crowd-pleasing and that is likely not to experience price

Starting point is 00:17:17 volatility they're very clever they're like insurers they know what they don't want and so quirky title types and zoning that isn't necessarily residential zoning the bank might take issue with these types of properties they might still be prepared to finance them but they could apply restrictions if they apply LVR loan to value ratio restrictions that means that the buyer might need to have a significantly higher deposit saved if they're applying commercial loan rates to something that the buyer wants to live in so let's say it's commercially zoned and the bank says, yeah, we can say it's a house or a unit, but it's commercially designed and we're treating it as such. It's a commercial property for financing purposes. That not only means that

Starting point is 00:18:01 you'll need a 35 or 40% deposit, but you'll be facing commercial loan rates, which are higher and they're amortized over a shorter period. So you'll have much higher repayment rates. And for some people, their ability to service that might eliminate that as an option altogether for them. so we have to be really cognizant of what banks don't like and they're just the title type and zoning type properties we also need to know what banks could risk they could apply a risk rating to something that's had fire damage flood damage something in a postcode that's been impacted by these events so the banks are all over what they don't like and I've got a common saying that I use with with my clients I don't like what the banks don't like because if the bank doesn't

Starting point is 00:18:44 like it it's very hard to finance it even if you're paying cash when you go to sell it your auction crowd will be substantially smaller because there won't be many people in that pool who can finance it in the way that you were able to yeah very well said and uh as a finance broker myself kate uh you are an honorary broker with a description like that i think you've you've nailed it i think it's particularly relevant in the current environment where we're seeing this big shift to the regions. And as you would know, a lot of the banks have postcode restrictions, as well as limitations on the size of the property. If we're talking rule, then you've got to have sealed roads, you've got to have services. And when we're seeing people that

Starting point is 00:19:27 are making this transition to the region because of the lifestyle benefits, they can trip themselves up when suddenly, as you say, the banks don't like it. So extremely well said, Kate. And thanks, Kate. Look, I always love your insights. You bring a refreshing view to what's happening in the market. I really appreciate your time today. Oh, thanks for having me on the show, thanks, Kate. Now, it sounds to me like buyers really need to start shifting from FOMO to what I like to call JOMO. So from fear of missing out to the joy of missing out. But if you really want to protect yourself, make sure you engage an independent professional buyer's agent. And the best place to find one that's going to suit you locally is at www.reba.com.au. Stay with us.

Starting point is 00:20:17 You're watching 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 1300 728 726 today for an obligation free quote. Welcome. Now, over the last few years, Adelaide Property has been a consistent performer in both good and bad times with values up about 0.7% over the last three months, and up over 2% over the year, according to the

Starting point is 00:21:08 most recent CoreLogic figures. And this is set to continue with Adelaide ranked as the third most livable city in the world recently. So to dig into the details of my home state, Good Old South Australia, we're joined by fellow leading local agent Todd Sloan of Tim's Real Estate, and he's also the host of a popular pizza and property podcast. So welcome back to the show, Todd. G'day, Bushy. Thanks for having me back, mate. Awesome, mate. Now, what's the state of play on the ground in the South Australian property market at the moment? And what's, in your opinion, likely to happen over the medium term?

Starting point is 00:21:48 So medium term, I'm looking at this and looking at it, I like to think a little bit logically and trying to pull out a few stats. So we've actually grown by, I believe it was 11.8% over the past 12 months. So we've actually finally cracked a median dwelling value of half a million dollars now. I think we're now 500,600, something around there.

Starting point is 00:22:08 Now looking at that and sort of pulling it out over the next two years, if we keep on track with the same growth rate, Adelaide would be looking at a median house price of around that kind of $620,000, which to me doesn't seem incredible or unaffordable. It's probably going to be around mortgage payment difference of around that $100 a week mark, which I know for some people could be make or break. That could be really a huge difference.

Starting point is 00:22:31 But it doesn't put us into some kind of crazy Sydney price or something that's unjustifiable. And considering we haven't really grown for such a long time in Adelaide, we've been steady little Adelaide, as people like to say, I really think just looking at it logically, we're due to continue. Okay. And you think that's sustainable given all the other market forces surrounding the drivers that support property values, Todd? Yeah. Well, for me personally, and I'm not an economist, I just am fortunate enough to chat to people that are a lot smarter on property than I am, such as yourself. And everything that's really coming my way information-wise is pointing towards this continuing. Another thing that's been brought to my attention several times is that it's potentially not actually property prices

Starting point is 00:23:15 that are really going up, it's the value of our currency that's actually going down. We're potentially in a real inflationary period. And if there's no sign of that really stopping, well, then why is the growth going to stop? Because if it's growth, then it kind of changes the way that it's looked at. Yeah, that's a very good point. So if we sort of coming back to the market as you see it right here, right now in South Australia and Adelaide in particular, what's your summary of what you're seeing on the ground so crazy hot to begin with the start of 2021 was just the insanity and insanity is the best way to put it like 150 people at an open i felt like a nightclub bouncer standing at the front of the most popular club in town like it was ridiculous and and that's

Starting point is 00:23:57 called because that was never sustainable because realistically now we're seeing more like anywhere between sort of 30 and 50 groups so it's still that's huge numbers but the crazy craziness has has kind of pulled back a bit now we're seeing just kind of steady crazy if that makes sense so the the spring is sort of starting to come back to some form of equilibrium but so on balance then uh clearly you're seeing it as a seller's market why are you seeing that what are the reasons that you think it supported this craziness that we're talking in about and what we're seeing well the household savings are at an all-time high i don't think they've been this high i was looking at the stats the other day i should have memorized this for like 20 odd years or

Starting point is 00:24:42 something it's it's a long time interest rates are at not only historical lows but never before seen lows from what i understand then we're mixing that together with the fact that a lot of people right now the investment properties are getting sold because some people have started cashing in at the very beginning and then tenants are looking at it going hold on a second it's cheaper to actually own it than it is to rent it why don't we get into the market which is creating this there's a whole nother section of buyers that was just never even there 12 months ago. And that's just a couple of factors. I know we were obviously pressed for time, so I can't go into all of them,

Starting point is 00:25:12 but I think those are a few of the big keys personally. Yeah, no, it's spot on, mate. They are definitely the key drivers. So given that context, what should both buyers and sellers be doing to optimize their positions in the current market? So sellers, depending on what you're selling, going back to the three P's, I think you and I have talked about this before. it's it's a stereotype but it's true make sure you're priced right presented right promoted

Starting point is 00:25:37 right can't sell a secret you've got to be having that emotional connection with the presentation and price yourself in a way that you're not too low not too high it's just that kind of goldilocks pricing effect that's really what you're after as far as buyers are concerned get educated seriously like learn as much as you can because people that that are doing well in this market right now are the people that know what's going on if if you just want to sort of sit back and kind of feel your way through this you're either going to miss out or you're going to unnecessarily pay a lot more than you actually needed to yeah very well said mate uh some great and very timely insights there i really appreciate your read of the current market in south australia and we really

Starting point is 00:26:18 appreciate your time on the show today appreciate it thanks again for having me thanks todd well it's obvious that uh adelaide continues to be what i'd like to call the steven bradbury of the property market. And for those of you that are a bit younger than I, Stephen Bradbury was the gold medal winner at the Olympics when everyone else fell over and he managed to skate to the finishing line. But I also believe that Adelaide continues to be the best kept secret in the country. And if you want to take advantage of the fantastic and very affordable opportunities that continue to exist in Adelaide compared to other states, reach out to Todd and the team at Tim's real estate. But if you want to upskill your knowledge on what's happening so that you're

Starting point is 00:27:03 better placed to take advantage of the property opportunities that are present, make sure you grab a copy of Todd's newly released book, Australia's Home Buying Guide. So stay tuned for more here on Realty Talk. Welcome. Now, this week's bush bite, I want to ask you, are your credit cards costing you your next property? And let me start by asking you, do you have a credit card, an interest-free card, some store cards or something similar? Because currently there are 13 million credit cards in Australia with an average balance of just under $3,000. And apparently about 70% of all adults have a credit card, and many of us have multiple. But what you may not know is that credit cards have a massive impact on how much

Starting point is 00:28:00 you can borrow towards getting your next property. You see, banks don't look at the balance on the card, they look at the limit. And then they assume a minimum payment of 3% per month of that limit, which equates to a whopping 36% interest rate per year. So you may have cards that you've never used or haven't used for years, but they're still severely reducing how much you can borrow for your next property. And as a rule of thumb,

Starting point is 00:28:32 for every $1,000 of limit you have on a credit card, it reduces how much you can borrow by up to $4,000 to $7,000, depending on which lender you're talking to. you. So a $10,000 credit card limit reduces how much you can lend up to $40,000 to $70,000. Now, this may be enough to actually prevent you from getting your next property. So the bottom line, cancel any unused cards and reduce the limit to the absolute minimum. And while we're at it, don't go over the limit in terms of your spend in a month and don't be

Starting point is 00:29:13 late in making the repayments because they can be red flags and knockout punches to some lenders and some banks. The bottom line, cut your credit cards to the limit if you want to get your next property. That's moved more food for thought on Bushy Martin from Know How Property Finance. Stay tuned for more. Well, that's it for another show. A special thanks to Pete Wargin of buyersbuyers.com.au, Kate Bakos from Reba, and Todd Sloan from Tim's Real Estate and the Pizza and Property Podcast. And a quick reminder that you can see all of our shows at realty.com.au, along with one of the most extensive range of properties for sale from over 7,000 agencies right across Australia. Thanks to realty.com.au and B&T Tax Depreciation, their ongoing support.

Starting point is 00:30:03 I'm Bushy Martin, and I look forward to seeing 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: The Steven Bradbury of property + Avoiding a dangerous buying strategy

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