Property Hub - Investment Insights & Inspiration - Realty Talk: When the bank says ‘NO’ + Getting a property to pay your wage

Episode Date: August 14, 2021

When it comes to property investment, residential property dominates the conversation.  Commercial property, although a bit tough right now should also form part of your portfolio if you are a serious investor.  We rethink investing with Scott O’Neill in the show. Terry Ryder from Hotspotting joins Bushy to tell you how and where you can achieve better than the average annual Aussie wage by doing absolutely nothing.   You’ll be pleased to know there are still good alternatives available if you are struggling to finance deals due to the conservative risk appetite of banks.  Nick Brown discusses them in the show.   And to close out the show Bushy discusses why property continues to boom despite ongoing covid gloom and doom. RealtyTalk is your trusted voice in property investment and Australia’s most popular online property show.  Founded by Kevin Turner and hosted by property expert Bushy Martin, RealtyTalk brings you exclusive interviews with Australia’s property industry leaders who deliver the latest, red hot property investing news and insights.  Subscribe now to get the latest episodes delivered to your inbox three times a week. RealtyTalk is brought to you by Realty, Australia’s leading search and social property distribution platform that helps investors like you beat the crowd, giving you the earliest access to property opportunities, listings, and insights. Check out Realty. RealtyTalk is hosted by top property investment expert, author, and founder of KnowHow Property, Bushy Martin. Find out how Bushy’s KnowHow team helps investors unlock freedom with finance and property here, and check out Bushy’s podcast Get Invested. RealtyTalk is supported by BMT helping property investors save thousands of dollars each year by maximizing tax deductions from investment properties. Find out more.See omnystudio.com/listener for privacy information.

Welcome to Realty Talk, the show that brings together the country's most authoritative and respected property experts. Follow us on all the socials and subscribe for updates and exclusive offers. Realty Talk is powered by realty.com.au, connecting buyers, sellers and agents differently. Hi, and welcome to this week's Realty Talk show, Australia's longest running and most popular program for all things property. I'm Bushy Martin from Know How Property Finance, and host of the Get Invested podcast. And when it comes to property investment, residential property dominates the conversation. And commercial property has copped an absolute

battering in the press in recent times with the exodus of people from our city CBDs. But Scott O'Neill from Rethink Investing joins us to reveal why commercial property should be part of any serious investor's portfolio. Now imagine buying a humble home for $250,000 and 12 months later it's worth $315,000. You've just earned the average annual Aussie wage doing absolutely nothing. And Terry Ryder from Hotspotting joins us to show you how and where you can achieve these sorts of results by buying the right property in the right location at the right time. Now in the post-COVID climate, large-scale property developers are struggling to finance deals due to the conservative risk appetite of banks and lenders, many of which

have actually totally withdrawn from this space. But you'll be pleased to know there are still some good funding alternatives available, and Nick Brown from Jamison Capital joins us to discuss them. And to close out the show, my bush bite this week discusses why property continues to boom despite ongoing COVID gloom and doom. We've got a lot to unpack, so let's get on with the show. Welcome back to the show. Now, when it comes to property investment, residential property tends to dominate the conversation.

And commercial property, it's fair to say, has copped an absolute battering in the press in recent times with the exodus from our CBDs. So the big question is, Should commercial property be a part of your portfolio? So to discuss this, we're joined by Scott O'Neill of Rethink Investing, a buyer's agency that specializes in finding rare cashflow positive properties right across the country. So welcome to the show, Scott.

Thanks for having me, mate. So Scott, it's really interesting to dive into this subject because there's a lot of myths and misdemeanors around the whole commercial property space. So can you start by giving us a really quick summary in a sentence of what are the biggest myths surrounding commercial property? Yeah, so the biggest ones I come across day to day when I speak to clients are you can't get much capital growth out of commercial property. That is definitely one of the biggest myths out there, like some capital growth figures,

like I've seen industrial areas in parts of Australia triple in 10 years. look it really just comes down to the supply and demand the asset class but look there is growth in in commercial property it grows from the rental growth yield compression and there's also obviously value adds and stuff like that that come into it as well but definitely a very common myth the other one is you always get long vacancy rates now that can be true if you buy a poor quality property in the middle of nowhere out in the regional town down a back alley that no one wants to be in but what if you're in a you know a prime corner location of a you know a well-regarded area uh once that comes vacant there'll be potentially a line of tenants wanting that

same position um same goes for uh you know industrial properties and well-located areas where there's uh you know where it's a built-out suburb there is you know you don't always get long vacancy rates like we've actually done the numbers on on our clients like over the years when we've seen vacancies and it's around about three months. Now that might sound long when you compare it to residential, but when the average tenant can stay for five to 10 to 15 years, because remember leases aren't 12 months every time, they can be three, five, 10, sometimes even 15 year leases. If your tenant leaves after that and you suffer that type of vacancy period after that, overall, you're not really dealing with a great deal of vacancy. The other one is commercial

properties only for wealthy people and look you can get into it with a 20 deposit so that's not that different from residential but yes the prices can go much higher because you can deal with anything from you know a 300 grand warehouse all the way up into a billion dollar westfield center so there is a great deal of variations uh out there when it comes to um you know it comes to the different asset classes but yeah look you can get in with i'd say 200 grand minimum we'll get you a good deal in this market and that would be a 600 grand asset you know plus cost so 200 grand would be enough there um probably the only other uh one which comes up is there isn't many value add opportunities now with commercial property there's actually more value add opportunities

because you can play around with the lease the lease actually is a way of increasing value so if you increase the length of lease that increases the security on the asset which entails uh you know a greater security for an investor that they'll pay more for raising rent is another value add increasing floor space because you charge more rent again another value add and all the other stuff you do in residential can be applied to commercial as well so yeah long sentence but they're probably the main myths that i see well you've covered off on a couple of the areas i was going to delve into in a little bit more detail and so i might i might just focus on one of those now where which is to to give us a little bit more color around why you say that the uh the myth of

you can't get capital growth quickly with commercial property is the case mate can you sort of uh put some more shape around that one for me yeah so look quickly like it all depends on the market you're dealing with like right now we're seeing quite rapid capital growth rates for commercial there's there's probably two main reasons for that or three the first is uh there's a lot more investors jumping into commercial uh so that's increasing the demand so the demand's increasing because a lot of traditionally residential investors are jumping ship and they're uh they're doing it because the yields are so low in commercial in residential so where do you park your money to make a good cash flow it's it's hard to find an alternative the share

market's a bit up and down you know are you going to get paid your dividends so cash flow is hard to find in this market commercial is the obvious choice the second one is the interest rates because they're so low people are using that cheap money at higher volumes to purchase commercial real estate so to give you an idea of the types of interest rates i'm seeing in this market i I'd say my average client is getting about a 2.5, 2.6 type interest rate for commercial. So if you're going to buy a 6% net yielding asset in a capital city and you're only paying 2.5% on your money, it's a very good margin, even on 100% debt, makes sense. So that is encouraging more people to come over. And the third one is low stock level. So I've seen some articles out there

saying stock is about 40% down. Now, I think that's due to owners just not wanting to sell for the exact same reason why people want to buy it. Where do you park your money? So a lot of the people we purchase properties from, they're either developers just pulling money for another job, a lot of divorces and all that kind of personal change in circumstances. And yeah, just probably more elderly people just squaring off debt and stuff like that. you know, very late in life. So there isn't many people selling in this market, because why would you sell a good tenanted investment? They're some of the reasons. But yeah, low stock levels are the theme. And that's causing very strong capital growth. These three reasons. Yeah, that's that's

brilliant. That makes perfect sense. So given that whole context, then why should investors consider commercial property now? And if so, what type of property? So anyone that's got a good portfolio already with residential or they're looking for some better results because like if you're going to go to sink your money into residential now it's probably in a record low yield environment so you're dealing with very poor cash flow so is it going to solve a retirement problem no you're there for only growth and then how do you get your money out of the property once it grows selling then pay all that tax and capital gains or refinance and then when you refinance you're just pulling debt out so you're not really going to be uh enjoying a retirement from cash flow

not efficiently at least with residential so that's why i think people are moving towards this asset class and it's just because it stacks up better it's as simple as that and uh you just got to be wary of the extra risks like you know i'm talking it up you know it's not i guess you just got to be careful you're buying the right asset class so i wouldn't go out and buy a huge amount of uh office space in melbourne or sydney right now because there'll be short-term leasing risk so there are some asset classes that are weaker than others so offices in general weaker there are some pockets of strength but um you know there is a general weakness because people are working from home businesses are reducing you know footprints in office space and stuff like

that um a very strong asset class is industrial industrial is really benefiting from covid due to increased in local manufacturing, logistics movements, storage. It's all important. It's all growing. As the internet grows, so does the need for storage. So it's that whole Amazon model. There is a lot of packed out warehouses on very long leases out there that you'd love to own because you're going to get uninterrupted rent and shutdowns don't really affect them in the majority of cases. Medical, we do a lot of medical purchases at Rethink Investing. So that's dentists doctors like pathologies any type of specialist they're generally nice long leases you know three five ten year leases sometimes and again it's a non-discretionary spend business so

you're going to go down there no matter what the economy is doing and still you know they're going to tick along so if you're in retirement age and you're looking for a retirement income that's a very nice uh option because you're not going to have to uh worry about like so on the other end of the spectrum imagine you've got a high-end shoe shop in uh mossman and then there's a closure and like there's there's all of a sudden a lot more uh there's a lot more risk in getting forced clothes and losing rent in circumstances like that that's terrific right you're certainly opening our eyes to where the real opportunity is in that commercial space and uh i thank you for coming on to do that and thanks for your time on the show today scott no problem mate thank you well

there you have it it's quite clear that if you're looking for a great commercial opportunity and you're looking for much better and more steady cash flow then commercial property is certainly a vehicle you need to be considering and the best people to help you with that is to reach out to the team at Rethink Investing. Stay with us here on Realty Talk. fee in the first full financial year deductions. Call BMT on 1300 728 726 today for an obligation free quote. Welcome. Now imagine buying a humble house for 185 grand and a year later it's worth 240,000 or spending 250 grand in just 12 months time it's valued at 315,000. Now you've just earned yourself the average Aussie wage doing absolutely nothing. And this is exactly the sort

of results that you can achieve if you buy the right property in the right location at the right time. So to discuss how you can do this, I'm joined by industry veteran, Terry Ryder from Hotspotting. Welcome back to the show, Terry. Hi, Bushy. Good to see you. Always good to see you, Now, I'd love to jump into this subject. So what level of property price growth have you been seeing in hotspotting identified areas in recent times? And perhaps can you give us a couple of examples? Yeah, well, we're seeing extraordinary price growth

seemingly everywhere in Australia at the moment. But as is always the case with real estate markets, some places are doing better than others. And we're seeing some absolute outperformance even in these times where it does appear that everywhere is doing quite good. And the latest figures in terms of annual median price growth for the big cities, there's a number of our markets, both regional and capital city, that have done better than 20%.

In the last 12 months, Sydney, Hobart, Darwin, Canberra, and the regional markets, New South Wales, Queensland, Tasmania, they've all done more than 20%. And that's pretty exceptional performance. But individual locations have actually done better than that. for some notable overachievers. And probably the two places in all of Australia that stand out the most are the Mornington Peninsula

on the southern fringe of Melbourne and the Sunshine Coast in Queensland. And they're absolute overachievers at a time where everybody seems to be achieving pretty good stuff. Well, that's interesting, Gerry, because you're on the Sunshine Coast and I'm here on the Mornington Peninsula. So I don't know whether it's got anything to do with us,

but that's a damn good result. let's claim some of the credit but i mean um i mean it's quite common in the morning to potentially define suburbs that have done better than 20 growth in their median house prices in the last 12 months but there's a couple that have done 45 percent um mcrae and blair gowrie of both according to the core logic biggest jump that much in 12 months 45% that's massive it is isn't it extraordinary and you would almost suggest that maybe it's a statistical aberration if we weren't seeing those kind of numbers around the country places that have done certainly better than 30% aren't that unusual at the moment and on the sunshine coast

there are a number of those sorts of places particularly the top end of the sunshine coast market but what i did an analysis just very recently and found that there are 33 suburbs across the sunshine coast region that have done at least 12 percent growth but the best have done more than 20 percent and there's a couple at the top end of the market sunrise beach and manyama that have done 30 35 percent in the last 12 months so those are sort of numbers we're seeing in the best performing parts of the country but you know we're in we're in a market where small country towns and sleepy little coastal villages uh having you know 20 plus growth in the median prices at the moment not all but i would have to say sensible stuff um i think um there are some investors out

there that are buying a bit recklessly and may regret their choice of location yeah the very good point and i i sort of heard a recent core logic figure that was quoting you know around Around about 94% of regions around the country have all experienced pretty substantial price rises over the last six months. So why do you think this is the case, Terry? Look, I think, you know, like all real estate situations, the answer is complex. We tend to get very simplistic answers from the economists and mainstream media telling us it's all about the level of interest rates, which I think is kindergarten analysis.

I've got 16 dot points on my list of factors that are feeding into this and you can almost summarize them by saying that it's not despite the pandemics it's because of the pandemic because many of the big forces that are actually creating this momentum which is forcing up prices so strongly are responses to the pandemic situation such as government stimulus measures such as the fact that many expat Australians who are living in COVID hotspots overseas are coming back and they're buying real estate. That's a big force on the market at the moment. The big infrastructure spend that's being unleashed by state and federal governments in response to the economic downturn precipitated by COVID-19, the exodus to affordable lifestyle trend that's driving regional markets,

which has been underway for a while, but it's certainly gathered pace as a response to COVID-19. So all of these and many, many other factors are feeding into what we're now seeing, which is an extraordinary property market, the like of which I haven't seen before. And I've been doing this for almost 40 years. Yeah. Yeah, I'm not far behind you on the same thing. We saw a similar type of exercise in the early 2000s, but not to this level and not this widespread. So sort of looking into the future then, how long do you believe the current property upswing is likely to continue and why would you say that? I think it's got longevity.

I think it's going to continue beyond this year and into next year and maybe beyond next year because there are so many factors driving this. And some of the biggest factors, I believe, haven't fully been felt yet. like the infrastructure spin i think is very influential and it's going to roll out over a number of years and so it's going to continue having an influence on presidential property markets for quite some time um the fact that most of the growth we've had to date and now i've just given you some numbers which which illustrate just how strong it's been has been generated primarily by owner-occupied buyers and investors have been for a number of years sitting on the sidelines they're only just recently starting to come back in so that the full force of that

hasn't been felt yet and the fact that foreign investors are now starting to buy again in Australia they've been missing for a while they're coming back we haven't felt the full force of that as well and then there's a fact that we haven't felt at all yet because international borders are closed but we'll eventually we'll get to the point when they will reopen and we're going to have an avalanche of overseas migrants wanting to come to Australia and that's going to unleash another wave of demand for Australian property so I think putting all that together for some considerable longevity in this up cycle i think the pace of price growth will have to level off but prices will continue to grow for the next couple of years i think yeah absolutely great

exciting times ahead uh looking at the future uh specifically then can you give us an example of a hot spot location that you believe is likely to outperform you've mentioned the ones that have already outperformed or any specific ones just to whet our appetite that you think are going to do well yeah one that i really like is uh the original city of toowoomba in queensland i think it's an absolute special you can still buy typical houses there in the 300 thousands i think it's poised to do what the sunshine coast has been doing for the last three years which is having a major a renaissance in the economy and out of that a big uplift in the property market for a big infrastructure spend um toowoomba's already got its new airport which is having a big impact

It's got the second range crossing completed, but the inland rail link is coming very fast in its direction. It's the pivot point in Queensland for that very, very big infrastructure project. And that's going to be a game changer for Toowoomba. On top of a whole lot of other things is a big hospital project planned and a whole lot more. So I think that that's one of the places that I think investors could be

targeting that, you know, perhaps up until very recently, they may never have considered. Yeah, absolutely agree. No, very interesting. And I really want to thank you for those very considered thoughts, Terry. You always share such great information with us and we appreciate your time on the show today.

You're welcome, Bushy, anytime. Now, it's clear that if you want to achieve above average results, then you need above average information. And the best place to get that information is hotspotting.com.au. Information is king. So stay with us for more here on Realty Talk.

Property depreciation is the natural wear and tear of a building and its assets. Property investors can claim depreciation as a tax deduction each financial year. Depreciation is a non-cash deduction. This means you don't need to spend any money in order to claim it. On average, BMT tax depreciation find residential investors almost $9,000 in first full financial year deductions. Call BMT on 1300 728 726 today for an obligation free quote. Welcome back to the show.

Now, in the post-COVID climate, large-scale property developers are struggling to finance projects due to the post-pandemic policy restrictions that we're seeing from the major banks and a lot of the lenders. But we're pleased to hear there are still some good alternatives available. And to discuss some of them, we're joined by Nick Brown of Jamison Capital.

So welcome back to the show, Nick. Good afternoon. Now, Nick, what funding challenges are property developers currently experiencing as you see it? Yeah, look, I mean, as we see it or what we get as feedback from parties that we work with is probably a variety of issues that they're currently facing. The first and perhaps most obvious is the inability to extract credit from senior lenders. a lot of the major banks yes they they are undoubtedly the cheapest form of capital in this country like their lending rates are always going to be lower than everyone else's that's fine that's understood except sometimes when you might find an excellent opportunity you might be

looking for an answer and you might be looking for a turnaround in a time frame that is just well beyond what most of the major banks can achieve that that tends to be the biggest issue that we hear from uh parties that are working with major banks is just the uncertainty and the time it takes to sort of go through a process um a lot of the non-bank lenders and there's a you know excellent group of non-bank lenders in this country now that have you know well and truly passed those early stages they're a very sophisticated group of investors a lot of those groups are willing to provide capital to development projects yes in some instances they are more risk averse than perhaps what they were prior to the crisis but that is a

good alternative but we are experiencing we are finding that some borrowers are just not able to access the amount of capital that they would like to be able to and at the other end of the spectrum we find that a lot of property developers they might have had support from investors in their projects previously that now for a variety of reasons they're just not able to you know drum up the same level of support and that might be because people that have invested with them previously have their own issues with their own business and they're just not in a position to invest in a new property development or a new venture so I guess we sort of you know bridge or work between both of those areas where we might say to someone look you know this sounds

like a fantastic project we agree that the business plan is sound the market you want to operate in appears to be a very very good one we are happy to invest with you as you know a capital provider um you know we'll leave you with all of the upside we'll come in as some form of um you know credit investment or some form of debt investment provide a little bit more leverage to them um and give them the autonomy that they need to you know carry out the project they want to build i mean we are not property developers the parties that we work with are experts in those individual fields so frankly who am i to tell them um you know how they should finish their apartment or you know who their target market should be so our preference is to actually give them that

autonomy and provide them with the capital they need yeah perfect so sort of getting into the details then what sort of funding alternatives are you and jameson capital able to provide developers yeah i mean look where we tend to operate is um you know beyond where a senior lender might traditionally operate um so they might be willing to lend up to a certain threshold but that might fall short of where a property developer's you know capacity might be to contribute the balance so we will tend to fill in that gap or we will provide debt over in addition to what the bank provides up to a point that means that the property developer has enough money to complete that project so it is a debt product often but sometimes it will share some features of

know equity investment or sort of you know a joint venture partner type relationship um but like i said leaving a lot of the decision making to the actual property developer themselves yeah and obviously enabling projects that might be at risk to actually proceed which is uh you know one of the issues that's certainly been challenging in the market at the moment tell me uh what advantages does uh your options give property developers as you say it yeah i mean look we talk to a lot of groups that have perhaps bought a property a year or two ago they've spent a lot of time and a lot of money going through a expensive planning process as we all know planning in this country takes a long time um they might have even gone to the extent of you

pre-leasing office space or pre-selling apartments and they've done all that on the assumption that they will be able to borrow from a bank what they don't have and complete that project and sometimes they go and have a conversation with that lender and they're just not able to get what they want so their options are pretty scarce at that point raise additional funds from another investor but that tends to dilute their holding in the project which isn't fantastic or worst case scenario potentially sell the property which destroys all the value they've created in the planning permit and pre-sales or thirdly bring a party like us into the project that can leave them with all of the upside make sure they don't have to sell the

property but they can hold it and see it completed so that's sort of the advantage that we bring leaving them with the flexibility to continue on the path that they were on We are certainly offering a bit of a life raft to a number of developers who got caught in that situation where they've started projects with full confidence and policies have changed quite significantly post-COVID. And given the timeline that's attached to some of these major projects, you really are giving them the ability to actually see it through and maintain control. So really, thank you for coming on and sharing those thoughts with us today, Nick.

Not a problem. And I mean, like that sort of is true and sort of potentially more acutely felt in different sectors. Like if you're an aged care or, you know, retirement living developer, it is very challenging to raise money at the moment because that is a sector that is on the front page of the paper often. and other things like self-storage or data centres that are perhaps a little bit less popular or there are fewer investors in that space, again, harder to find someone that's willing to back your project. So they're the sectors that we tend to sort of focus on in addition to residential and commercial.

Yeah, Brian, well, again, Nick, really appreciate you sharing that with us today. Thank you very much. Okay, so if you're a property developer and you're seeking a broad range of funding options from anywhere between 5 mil up to 200 mil or more, then reach out to the team at Jackson Capital. More shortly, here on Realty Talk.

Welcome. I had a call from Money Magazine this week who asked me why, in the midst of the COVID carnage, is property still booming? So here's my thoughts. Since early 2020, we've been buried in a continuous deluge of 24-7 news reels painting gloom and doom for industries and individuals. The constant threat of reactive rolling lockdowns is seeing over 60%

of Aussies confined to their homes and with international borders closed indefinitely, population growth has ground to an absolute halt. Yet despite this negative backdrop, house prices continue to boom. According to the latest CoreLogic figures dwelling values have soared nationally by an average of over 14 percent over the last seven months with strong price rises occurring in 94 percent of regions right across the country. Now you may be thinking this just doesn't make sense. So to understand why we need to see residential property as being a bit like a grass fire, where the three things that are required to burn to create spontaneous combustion are fuel, heat, and oxygen. Now, the fuel is the number of properties for sale,

the heat is the level of demand, and the oxygen is the money supply. And despite expectations of the contrary, COVID hasn't been a killer, it's actually been a catalyst. It's added petrol to the property fire instead of water, generating heat and adding oxygen. So our property inferno comes down to just two words, scarcity and spend. Scarcity has been created by limited properties for sale and pent up and growing demand. For the six months or more after COVID hit, house values looked like that large pile of freshly cut grass. Nothing appeared to be happening and property prices held their ground as very few homeowners were able to sell due to the lockdown restrictions. But under the surface, the heat was building from pent-up buyer demand.

Buyers were quarantined at home with nothing to spend their money on and they've been seeking more lifestyle, safety and space to escape the COVID threat. And the oxygen that ignited the house fire is the increase in spend with billions of government stimulus money, property incentive programs and the lowest interest rate records in history. Now money has never been more plentiful and it's never been cheaper to borrow and property has always been a game of finance. Once the lockdown subsided at the end of 2020 and frustrated buyers were able to purchase homes a property firestorm has erupted like releasing a compressed spring at very low rates this means that it's cheaper to buy a home than to rent so lots of tenants and adult children that have still

been living at home with their parents armed with thousands of dollars in incentive programs have flooded the market and many others are taking advantage of the cheap money to to upsize, downsize, tree change and seed change, to improve lifestyle and to get more space and that sense of safety and security. But it hasn't stopped there. The raging house fire has been further fanned by media coverage of the boom,

bringing on the fear of missing out, or FOMO. More Australians have been fighting for their piece of action, making the headlines predicting price rises become self-fulfilling prophecies. and we're not likely to see an end to this any time soon. Scarcity is not easily solved, but spend may be slowed when the government, the Reserve Bank and the banks reduce the oxygen supply

by tightening lending policy or increasing interest rates, which are unlikely to be happening any time soon. In the meantime, sellers can continue to cash in on this rare opportunity, while buyers may have to boost their budgets or bide their time. If you want to check out the full article, have a read of the Money Magazine.

That's food for thought. I'm Bushy Martin from Know How Property Finance. Stay tuned for more. Well, that's a wrap on this week's show. A special thanks to our guests, Scott O'Neill, Terry Ryder and Nick Brown. 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 and BMT Tax Depreciation for their ongoing support. 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. We'll see you next time.

We'll see you next time.