Property Hub - Investment Insights & Inspiration - Realty Talk Vault: Going cheap

Episode Date: December 28, 2022

We bring you another classic Realty Talk episode from the vault, which was originally published on October 12, 2021, but is still just as relevant today. The cheapest solution is not always the best.�� Can 2 cheap properties be better than one more expensive property?  That is the question Bushy asks buyers agent Josh Masters. You might guess his answer, but Bushy also asks Is there a budget that is too low or too high, where it’s not worthwhile splitting? RealtyTalk is part of the Property Hub podcast channel, your home for property investment insights, inspiration, and stories from Australia’s top property experts, investors, leaders, and analysts. Subscribe now to get every RealtyTalk episode delivered to you each week for free, and also get full access to Get Invested, the leading podcast for Australians who want to unlock their full ‘self, health, and wealth’ potential and get inspired by the stories of investors, founders, and entrepreneurs. Subscribe to RealtyTalk on the Property Hub channel: Apple Podcasts | Spotify | Google Podcasts | Email Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast network DM Media.  Business and partnership enquiries: [e-mail] omnystudio.com/listener for privacy information.

Hi and welcome. Now at a time when property markets are going crazy and there's been a significant post-COVID shift from CBD concentration to regional decentralisation for those that are chasing lifestyle, safety and security, one of the common questions we hear from prospective investors revolves around whether it's better to buy one high value property or to split your capacity to secure two or more. So to discuss the ins and outs of this conundrum, we're joined by leading buyers agent, Josh Masters from BuySide. Welcome back to the show, Josh. Thanks, Bushy. Thanks for having me. Always, mate. Now, Josh, what are the pros and cons of buying one higher value property

versus splitting the budget to secure two or more? Yeah, this is definitely a question I get asked a lot by my clients when we're going out there to purchase investment properties. I think being able to split properties into two, for example, if you've got an $800,000 budget and you want to buy two at $400,000, obviously, there's this diversification aspect to it. Just like when you buy shares, rather than putting everything into BHP, you get to buy multiple shares. And over time, depending on what the market's doing, some could be performing better than others at any time. And hopefully, over the long term, both will come out in front without the risk of having everything in one basket.

Also, when I'm dealing with clients, I always like to take stock of what their portfolio looks like because we've got land tax thresholds that we want to avoid. So if you've bought a lot in, say, New South Wales or potentially Queensland, you want to make sure that you don't hit that land tax threshold and you want to be purchasing in alternative states because that can take a real hit to the budget over time of course sometimes you'd say well you know these cheaper properties they're cheap for a reason and often we can find that if we're buying something that's more expensive we'll get a better quality tenant and hopefully a better quality property that won't incur so much maintenance over time yeah interesting you know it's a it is a bit of a conundrum so

if investors split their budget will they achieve the same outcome with the benefit of diversification do you think well they definitely will get diversification but it really depends on the performance of those properties and those areas i always like to say it's the area that will outperform uh rather than the property itself you know the the rising tide lifts all ships so to speak but it can depend on what those areas are doing for example you might look at somewhere in uh you know the brisbane area looking to take advantage of the olympics uh then you also might be looking at somewhere in regional victoria looking to take advantage of uh you know the melbourne exodus and the proximity to melbourne from some of those satellite regional centers

that are doing quite well like geelong ballarat bendigo etc that are very strong in employment transportation links uh employment nodes etc and being able to diversify across both of those but which one will come out in front and will they both perform over time we don't have a crystal ball you definitely get the diversification but you know even we've spoken on the show about how this these property markets will perform in in Brisbane in reaction to the Olympics and look the the the jury may be out but the research certainly shows that it may not be performing as much as people may think yeah yeah it's exactly right it's uh there's a little bit more to it than than just the the price of the property is going to determine its performance

and and that's where the sort of science that you apply to the process starts to make the difference between a performer and non-performer but tell me from from that budget perspective is there a budget that's too low or too high where it's not worth worth considering splitting yeah good question and look let me couple cover one thing in the middle of that um that low point and the high point. I don't necessarily buy into the adage that buying what we call a blue chip suburb will necessarily be a better performer than the others. What we do know is that buying in somewhere like, let's take Sydney's Lower North Shore, for example, it will perform well over time. I wouldn't say consistently, but at a 6% or 7% growth rate, that will certainly outperform

some of the regional centers that we've seen over the last 10 or 20 years no question however there are very good reasons to be buying at the lower end and what i could call a lower end is probably you know your 350 to 400 minimum plus yep um where they really have good grounds for infrastructure spending um proximity to employment transportation links going in you know all of these things that make solid fundamentals for for growth drivers happening in those areas that you can rely on now just because it's cheap doesn't make it good and you know there's a lot of areas out there that uh for example i would say uh maybe in the western australian market which ride very closely to the iron ore price now iron ore attached to mining

um you know went through the doldrums around 2015 2016 and only recently peaked at around 220 in july however now that's come down to 125 and that's only happened in the last couple of months so how will the markets react so you've got to know why you're getting into these areas it can't be just because you know it's had good performance you've got to understand the reason why it's not just attached to the iron ore price it's got to have the drivers behind it's got to have the government spending uh that will push that forward however i do think that there is a price point you get to at the top end where it doesn't suit every client and look don't get me wrong i have clients going in at 1.5 million dollars 1.8 million dollars and some of the

best performers in the sydney market for example are houses in the inner ring of you know the five to 10 kilometer radius yeah now you buy there in a strong performing market and you can't beat it you know you've got eight to nine percent you know year-on-year growth and you've got a lot of money in the market so your return over 10 years is going to be exceptional but the rental return could be quite poor so it doesn't suit everybody if you've got a little bit of cash to put out of your pocket you know every every week or every year to make up the negative gearing component then that's okay but it's not for everybody yeah and then you you make a very good point it's it's horses for courses and it's it's really clear it's it's not it's not really

about the the price exercise it's about we mentioned diversification in terms of uh the property side we also need diversification in terms of the economy so that there you know there's a critical mass that's not reliant on one industry uh for employment uh you've mentioned infrastructure which is a very strong uh future driver so we want committed infrastructure that's not there yet but that's going to go in and we want strong and growing income so that the incomes as they grow people can continue to pay more for properties in that location so uh mate uh i love always love chatting about these subjects with you mate uh really appreciate your balanced view on on this josh and and thanks again for your time on the show today pleasure bushy thank you for

for having me, mate. Thanks, mate. Now, the takeaway again is very clear here. Before you secure a property, reach out to an independent property strategist and a buyer's agent. And if you're wanting to know what's really happening with property around the country, subscribe to Buyside's monthly report at buyside.com.au. Stay with us here on Realty Talk.