Property Hub - Investment Insights & Inspiration - Realty Talk: When your tenant cooks more than dinner

Episode Date: November 11, 2023

The use of drugs - and in particular methamphetamine - is a growing concern generally, but particularly in the property investment area.  Unless you have a good property manager or you are testing yourself, chances are you won’t know until it's too late.  Being too late can cost thousands and might even mean total demolition of the property.   So would you be covered - how can you tell and what about the extended liability risks.  Bushy gets some expert opinion in the show.  He also seeks to find out from regular guest and a member of our experts panel Rasti, from Get RARE Property, what diversification looks like and the benefits. NEW - join our Facebook group, The Property Hub Collective: https://www.facebook.com/groups/1857513011165686 Join the Property Hub community on Substack! Sign up to get Australian property news, opinion, and episodes in your inbox: https://propertyhubau.substack.com/ 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.

Hello and welcome to this week's Realty Talk show. Well, the use of drugs and in particular methamphetamine is a growing concern generally, but particularly in the property investment area. The manufacture of that sort of stuff involves some very nasty chemicals. Because of the mixture of those very toxic chemicals and the way they go about it, it can cause some very serious problems. There's two processes. First of all, there's the cleaning of the residence and then there's the restitution

of the damage. Now, unless you have a good property manager, or in fact, you are testing yourself, the chances are you won't know until it's too late. And being too late can cost thousands of dollars and might even mean total demolition of the property. So would you be covered? How can you tell? What about the extended liability risks? Well, Bushy Martin gets some expert opinion later in the show. Also, Bushy, this week we'll seek to find out from a regular guest of ours and a member of our experts panel, Rasty, from GetRare Property,

what diversification looks like and what the benefits are. Hey, if this is your first time with us, welcome. You're going to find us on all podcast players and through the Southern Cross Oz Stereo Network. If you like the show, hit the subscribe button and help us continue to bring you the best guests each week. Join the conversation anytime, of course, on Facebook, and you'll do that by searching for the Property Hub Collective.

We'll be back in just a moment as Bushy kicks off this week's show with Rasty. Property deductions can save you thousands of dollars each year. To make sure you maximise deductions, you need to work with the most experienced quantity surveyor in the country. BMT Tax Depreciation is the leading specialist in the industry. They've completed over 700,000 tax deduction schedules for residential investment and commercial properties Australia-wide. BMT guarantee to find double your fee in the first full financial year deductions.

Call BMT on 1300 728 726 today for an obligation free quote. Here's how Realty's discovery search works. Now, think of AI as an assistant on your real estate journey. How AI works is by using algorithms and data, the words that you use to describe the type of property you want. By entering what you want, the AI learns and makes predictions or decisions, and then shows you the results. So rather than searching by suburb, and then property type, land size, and so on,

simply type in or say what you want. The more you use Realty's AI discovery search, the more accurate it becomes. Realty Talk from Property Hub on all podcast players. Now, it's a sad truism that around 90% of property investors never get beyond one to two properties, which unfortunately is never going to get them to the financial freedom that they're looking for, and it puts them in a situation where they've got all of their investment eggs in a high-risk basket. Now, compare this with the 1% of sustainably successful investors who invest in a way that enables them to live life on their own terms and achieve their version of financial freedom.

So what separates the best from the rest? Well, quite simply, as you're about to hear, they focus on building a diversified portfolio of properties. So what does this actually mean? And why is this important? Well, to reveal this, we're joined again by Rusty Vipap, the author of the highly acclaimed book, The Property Wealth Blueprint, and he's the founder of leading national buyers agency, Get Rare Properties. So welcome back to the Property Hub's Realty Talk Show, Rusty. Thank you, Bushy. Rusty, another great subject to dive into here in relation to diversification, and I think never more important given the market conditions that we are and will continue to experience in the

years ahead. So to kick things off, Rusty, what's your definition of a diversified portfolio? Sure. First of all, I'll say that when we're really talking about building wealth, not all eggs in the same basket is the definition of diversification. And what it also means, it's not really just putting all the eggs in the property asset class. It should also be diversified in other asset classes like debt market or share market. When it comes to diversification in property market, I also say that it's diversification, not just on the basis of the location, because that's what people think geographically. If I buy one here, buy one there, it's good enough. It's also diversification in terms of the type of the property, whether

it's a house unit and the likes, then also the budget of the markets. And what I mean by that is that if you're really targeting the same demography, we are actually kind of dependent on that demography to do well. So if you really buy maybe a middle range a lower range low socioeconomic and then also high luxury so that's where the diversification can be buying multiple types different types different locations is my definition of diversification in property market yeah i love that man and it's you make a really important distinction there that's not just about geography and location it's the the type the demographics the budget the so you're really uh spreading your eggs to a point where uh if one area or

one income level or one demographic's not performing well, there's others that can pick it up. So a really good distinction there. The obvious flow-on from that, Rusty, is why is a diversified portfolio important then? Coming from the financial markets, Bush, if I can say this, there's no free lunch. But the closest thing that can come to a free lunch

is diversification. For the obvious reasons, and the reasons are, it actually diversifies for risk. Just like what we know, that Australian property market is not homogeneous, it's actually heterogeneous. We have markets within the markets. So when we buy multiple properties across different sectors,

different geographies and whatnot, we are actually diversifying for risk. We are also diversifying for growth because depending on what that market is doing, like where they are in the property cycle, we don't really want, I mean, the good thing is that when everything is going up and when you have something more of a synchronous market, you are actually on the top of the market because everything is going up for you.

But the downside of it is that if everything goes down, I mean, market is going down and you have all the exposure there everything is coming down so the best way as a free lunch in diversification is that you buy in asynchronous markets what it means is that when a market is going down a property is not working for you there's always other property or other sets of properties which are working in favor of you so what we are doing is though the property market goes up and down but when you have a diversification in play then you actually get to a lot more smoother experience of that portfolio. There's other advantage of that,

which people tend to overlook. And that is, it also gives you an advantage of deleveraging whenever you're doing it. So as an example, if I have to really go out on a world tour, I need some money in my pocket. Now I can really choose from that point of view that what property or what market

should I really take the exposure off so that I can really sell it at the right pricing. So it's not really just about buying it low from the diversification point of view, but it's also about thinking where it allows us that allows us to exit later on. So it's more of an exit strategy that it really helps us early on.

Yeah, beautifully said. And I think sort of reading between the lines of what you're sharing there with us, making sure that your portfolio is uncorrelated so that they're not all going up and going down at the same time, but you'll have some going up, some going sideways,

way some perhaps sort of easing so that the overall exercise means that you're in good position but you've also then as you very well reinforced got the opportunity to make choices around what you're doing with each property at the right time in relation to where you're at as far as your strategy goes so yep brilliant thoughts there sort of going on from there then rusty What are the flow-on benefits of a diversified portfolio then? Yeah, so when we really talk about diversified portfolio, first of all, what we've just realized is that instead of buying a $2 million property, one asset, what we're really saying is let's go

for a diversified portfolio. Automatically what we are saying, let's use that same budget of $2 million, now buy maybe three, four, or five, whatever your personal subjective numbers comes up with. What it really means is that you're buying multiple properties. Also, it means in a way that you're buying smaller size properties. Now, what it does in a way is that when we really look at the yield number, as in the rent, as a percentage that we collect on the purchase price, the yield of a smaller size property actually gets higher or better. So when you go for a diversified portfolio, yield gets better as a percentage.

what also it means that because we are not really buying the premium properties of around two million dollar where there's a lot of the way i look at it there's a land component there's a building component and there's a sentiment value of that so the more we go to the daily routine property the the sentiment value or the luxury value is actually taken off so to me in my definition a lower end property is a lot more closer to its intrinsic value which basically It means closer to its land plus building value. So you're not really paying a lot more premium, which you're paying otherwise just for the location.

Because today there are people who are happy to pay that price. Doesn't really mean that's really the value. But of course, the property investing works in a way that today I'm paying this much price. There will be always other buyer later on because we believe in the long-term growth of the property market. But believe it or not, that's not true. It grows for sure, but the rate of growth is actually different

because of the different supply and demand forces playing behind it so if i really think about the whole i guess um the the thematic behind property investing in australia and why it is safer is because the population growth now when there's a population growth is happening there's a lot more people who are coming as a student in this country or we are create young traders who are coming this country and the demand that they have is not for the luxury property they are actually for the daily routine property whereby they are just looking for a roof on their head so what it means is not only the yield percentage is better the growth and the growth is better and also it's much more safer because there's always a lot more demand in that segment and the other thing i would

also say is that you don't really have to go and buy you know four or five properties at the same rate what we can say is that whenever you have x affordability in terms of the cash flow as an affordability for holding the property also the deposit that you really need plus the safety net for a smaller size property it's a lot lower so as an example if you have to buy a property for about 500k um the amount required uh in terms of the equity or the cash to buy that property is a lot more smaller than someone who's going to buy a two million dollar property so what it means is that sequentially it's much more easier for anyone to keep on building the portfolio one property at a time and because of the virtue of better yield better growth that means there's a

lot more boring power because of the yield a lot more equity in the portfolio because of the better growth relatively speaking and not a lot more risk appetite because that's why they can choose to go more and also the lender would love that person because they would see that this is more of a business approach that the person is taking and the lenders would be happily lending more money So, yes, as a broker, you know better that it's not just about the simple DTI, the debt-to-income ratio. It's more about the credit risk and the collateral and the character and everything comes into play when it comes to the credit assessment or taking more loan. Because as an investor myself, I got a lot of properties, my DTI income ratio is going through the roof. And people tend to ask me, like, how come when we are talking about 6 to 8 DTI, how come your numbers are far more inflated from there?

And the key is taking this as a business. And when you can really see that you as a borrower is taking it as a business and making money out of it, the lender would also love you because they make money when they lend you money, you borrow money to make money. So then it becomes a lot more easy handshake on both sides. Yeah, beautifully said. And I think you make a really good point because I've heard this a lot in recent times, Rusty. people asking the question, well, should I buy a one high value property or a number of lower value properties? And as you beautifully said there, property or any investment comes

down to supply and demand. Now, if it's more affordable or lower price, you're going to have more potential buyers and sellers so that you're more likely to be in the sweet spot as well as enjoying increased yields that go with that exercise. So some real merit in adopting that approach, which you've explained beautifully. Thanks, Rusty. So to summarize all of this, then, Rusty, what are your key takeaways on this subject?

Yeah, my key takeaway, first of all, would be saying that as an investor, it's not just about finding the right property. It's actually about finding the right investment. And sometimes the right property might not be the right investment. So that's where it's more methodical approach there, a lot more strategic when it really comes down to building wealth through property investing.

Diversification is certainly the key. And if I really go back to the statistic that you put earlier in the chat, was that 90% of property investors end up buying only one or two investment properties. But it's only a handful of percentage, like less than 1% of property investors in a country obsessed with property investing,

it's only that percentage was able to build that portfolio of five or more properties yes somebody might argue it's not about the number of property it's about the wealth or rather the value of the properties somebody even i would even go and argue saying it's not about the portfolio value it's actually the the equity that matters because that's yours so really going by going by those statistics if you really see that how this less than one person, successful property investors are doing things. And if I can summarize, there are only two things that they're doing differently than an average property investor. And if you want to become a successful property investors, I think it's better for all of us to really learn from

what the successful property investors are doing. And if I have to summarize in two words, that's that of the strategy, which is basically getting a blueprint from where you are to where you want to go, just like a GPS in your physical journey. And the second part is due diligence, because yes theoretically we can learn a lot more about the strategy we can learn how to fly our plane but unless we learn with experience and know how to do it and a lot more confidently we can do it that's where the due diligence comes into play so if you can do it right the strategy and due diligence uh i'm pretty sure there will be a lot many successful property investor rather than just a generic property investors yeah well extremely well said and and something you mentioned earlier

in the chat is treating your investment as a business rather than just something that's a bit of a sideline hobby. I think the discipline you bring to that exercise is going to give you much better rewards. So, look, again, I want to thank you for reinforcing the critical importance of building a diversified investment portfolio, Rusty. And for those of us who have really resonated

with your message and want to take action from here, how can Realty Talk listeners get a free copy of your great book, The Property Wealth Blueprint, to help them follow your proven steps to build their portfolio? Sounds good. So like if it is about getting a book, yes, they can jump on the website,

getrear.com.au and the book is for anyone who would like to learn about the blueprint or the GPS or the strategy around building wealth for themselves or building a robust portfolio, a diversified portfolio. I like the book.

There was no such book like that before. That's why I actually took time out to really share my insights on how to go about doing it so that's what i've compiled and it's free of cost for anyone who would like to get a copy of that yeah it's a it's a great book i've i've read it myself and it goes through from where to go and and does give them that uh gps that that you're talking book so i can i can personally recommend that uh so again you can get it for free it's it's i think uh you're doing people a great service by giving it to them for nothing because there's a lot of value in that book, Rusty.

So again, if you want to grab yourself a coffee, jump on getrare.com.au and the website will take you from there to actually allow you to get that copy. So again, thanks for sharing all of this and your words of wisdom here on the Property Hub's Realty Talk Show, Rusty. My pleasure.

Thank you so much for having me. Hi, just before we go back to the show, I want to spend a few seconds and tell you about a book that was sent to me that's now become my go-to reference when I'm looking for inspiration about property investment. You know, sometimes it's not about knowing all the answers. It's certainly more important to know what questions to ask. This book by Rasti is called The Property Wealth Blueprint, and it's one that you don't read just once and then put it away. It stays out as a reference. It's a book

that you'll go back to time and time again, as I do, because it's packed with personal experience and with great examples of how to get property investment right. It's very frank. It's to the point. And as you can see here, I've needed to bookmark several points. And I can tell you that it's a constant companion on my desk here. The remarkable thing is that it's absolutely free on Rasty's website, getrare.com.au. Get Rare, it's a gateway to a richer life. The website there for you again, getrare.com.au. So get this book, get it for yourself.

Subscribe now to Realty Talk. It's out every week. Now finding out that your investment property has been used as a drug lab is more than just distressing, it's inevitably expensive. Whether your rental was turned into a cannabis grow lab or used to cook methamphetamines, chances are there's going to be substantial damage to the

premises. So if you're a property investor landlord and you discover that your tenants have been cooking more than just their dinner in your rental property, it's going to take more than a bit of a go over with some spray and wipe to clean the premises if it's been used as a drug lab, as this unfortunate trend continues to grow. But the important question is meth contamination covered by your landlord insurance. Well, to discuss this, we're joined by Wayne Johnson, the State Manager of New South Wales and South Australia for specialist landlord insurer EBM Rent Cover. So welcome to the Property Hub's Realty Talk Show, Wayne. Thank you very much, Bushy. Great to be here.

Great to be chatting to you, mate. And you're on the road and doing the work out there in the Hastings, which is great to see. So just to set the scene around this whole issue, Wayne, what damage can meth labs create in rental properties well i think everybody knows that the manufacture of that sort of stuff involves some very nasty chemicals uh and often uh those chemicals are handled by people that really don't know what they're doing they're certainly not chemists um and so because of because of the mixture of the those very toxic chemicals and the way they go about it and the unsupervised or you know it's i mean how do you there's no manual for creating methamphetamine labs so uh yeah it's it's very toxic material uh and as a

result of that which we'll discuss a little later it can cause some very serious problems to the residents yeah okay well there's certainly that that ongoing chemical residue that can pretty much seep into everything everything yeah certainly create some issues down the track so sort of moving on from there then wayne what should landlords or investors do if they suspect that their rental's being used to manufacture meth? Okay, so yeah, there's some curly things to consider here. First of all, I'd certainly be having a chat with the landlord to let them know what's happened.

Secondly, I would be contacting the insurer straight away just to alert them of the possibility. But from there, really what should happen is testing. If there's any evidence of manufacture or smoking, then we need to ensure that the legal liability aspect is covered here primarily. Of course, there's damage, but there are other issues which we'll discuss a little later on. So, yeah, most definitely we need a testing regime happening as quick as we can.

But all stakeholders need to be advised of what's happening. Yeah, and you make a good point there. Letting the insurer know straight off the bat can also influence the outcome later on. But tell me, Wayne, if a rental's been contaminated, what's required to make the property fit to live in again? okay so um there's there's two processes first of all there's the uh the cleaning of of the residents and then there's the restitution of the damage that's been caused by the residue um so that entails a whole lot of things um there needs to be a special cleaning processes with contamination boxes etc the place needs to be thoroughly cleaned by a professional cleaner

it's not just your cleaner down the road uh these people need to know what they're doing um and then from there we need to ensure that any of the surfaces any of the furnishings the soft furnishings any of the walls ceilings and other parts of the building uh are restituted um because leaving any of any residue there at all could pose a health risk and uh primarily but also a legal liability risk for the property owner down the yeah well let's jump straight into that then And as you touch on that, the lingering presence of meth toxins, does it actually present a liability risk? Why?

Well, potentially it could. These things are never a certainty until someone takes action and it goes to the authorities. But yeah, potentially it could. And I certainly wouldn't like to have a young baby in a house where some of these residues have been left there. I would want to ensure as a landlord and also as a tenant that the contamination was completely cleaned. And to that end, that's why we need these professional cleaners and also the measurements before and after, people that understand how to measure accurately whether there is an issue.

Yeah. And what about the potential breaches of the Residential Tenancies Act? Is that influenced by any of this? Well, there is a duty of care. I mean, all states as investors will probably have different rules. It's just one of those things about australia uh but there is generally across all of them a duty of care and um and if the if the agent and or the landlord uh can't demonstrate that they've done everything possible to eliminate these sorts of problems then yes there is definitely a legal liability issue a potential legal liability issue uh and when these things um go to the authorities mud sticks on everybody so yes of course the health issue is the primary concern yeah of course of

course all right well uh the the the big question then which comes back to your area of expertise are the cost to clean and repair damage resulting from a drug lab and or a meth contamination covered by landlord insurance well uh as an easy answer to that um not all landlord insurance policies are the same um banks and generals will call a policy of landlord insurance and yes they certainly have some sort of cover. There are just a few specialist landlord insurers products available and a couple of those products including EBM rent cover have coverage for contamination by meth and also damage caused by hydroponic. So we have coverage up to $70,000 for the cleaning and restitution and looking at the average claim the cleanup costs we've had

25 since January 2001 and the cleanup cost is about $62,000 on average and then removal of contamination I think the average is about $34,000 a claim so these are not cheap jobs and to get a specialist in it's going to cost and so it's very important that you check with your insurer and ask them are you covered for these particular circumstances well just sort of uh summarizing that uh i know that they're sort of general off the shelf uh in landlord insurance obtained uh through the general insurers and or the banks generally don't cover uh any of these issues as opposed to what you do there at ebm yeah you buy your milk and your meat at Coles and you buy your insurance policy for

the specialist landlord insurance provider. We don't sell milk or meat. That's a pretty good analogy. And look, I really want to thank you for these really good insights, Wayne. It really does clearly reinforce that while claims for drug lab cleanups and meth contamination aren't that common, but they are on the increase. When they do occur, they're clearly very expensive, which is why having a policy with a landlord insurance specialist like your own EBM rent cover that covers these and other events is really a very smart investment

for landlords rather than just relying on a limited cover generalist policy. Because as I always say, it's not a matter of if an issue is going to occur, it's just a matter of when. So thanks again for showing all of this on the show here today, Wayne. My pleasure. Thanks, Bushy. Cheers, everybody. successful property investment is a game of finance do you have the right team and the right game plan realty talk is brought to you by know how property more than mortgage brokers bushy martin and his team of investment architects set you up with a sustainable strategy structured to lower your costs tax risk and stress while increasing your capacity for growth know how

has helped over 1,900 homeowners and investors secure more than $800 million in property wealth. So get set to live more, work less and live your legacy. Want to know how to invest in your freedom? Visit knowhowproperty.com.au. Subscribe now to Realty Talk. It's out every week. and that brings us to the end of this week's show a big thanks to wayne and rasty who joined bushy in this week's show make sure that you don't miss a single episode of realty talk or bushy's get invested podcast both delivered to you each week and you can do that by subscribing at the property hub now on your favorite podcast player or wherever you are listening to or watching this show also join the conversation anytime on facebook at the property hub collective thanks

to our supporters and content partners realty.com.au bmt tax depreciation know how property finance get rare property and apiro marketing i'm kevin turner and on behalf of bushy and the whole property hub team look forward to seeing you again next week