Batten down the hatches – Jane Slack-Smith

As we head into 2019, Jane Slack-Smith joins me to have a chat about how we should be preparing for what is ahead and what we should be doing right now to shore up our portfolios.
Kevin:   As we head into 2019, Jane Slack-Smith joins me to have a chat about how we should be preparing, what we should be doing right now to shore up our portfolios. Jane, of course, from Your Property Success and Investor’s Choice Mortgages, Happy New Year to you, Jane.
Jane:   You too, Kevin.
Kevin:   Good to have you in the show again. What do we do? How are we going to shore up our portfolios for this year, Jane?
Jane:   Look, it’s batten down the hatches time, I think, Kevin. It’s around looking at your current portfolio and planning ahead. It’s all around cash flow as well. If I look at, for instance, people who have properties at the moment, let’s consider when does your interest only term come up. If it is coming up in the next few years, why not renew that and try to extend it because I think there’s going to be a lot of pressure in the market and a lot of confusion. If people can actually lock in the interest only terms, so they’re not paying 25% greater than they might be paying on a principle interest over an interest only loan, then they can start minimising the cash flow that’s going to start going out for them.
Kevin:   A few weeks in the show, Jane we talked about the opportunities that are there right now, and we’re right in the middle of that period, aren’t we? Even though it’s the start of January, there are still some good buying opportunities.
Jane:   I just love January. People come back from holidays with that fresh uplift. They’re not going to read all the negative papers and get all that negative intent and sentiment that’s in the market. They’re going to start looking at the numbers, and the numbers are 50% of the market are walking away every week from an auction wanting to negotiate and wanting to sell. The confusion is confusing other people, so there’s opportunity to put your offers in there and get into good, quality areas.
Kevin:   You mentioned cash flow earlier in our chat. Is now a good time to be looking after that? What do we do, Jane?
Jane:   Look, it depends on your risk profile. There are types of ways that you can improve the cash flow from your properties because I think there’s no doubt that we’re going into a period of maybe stagnation in the market. We’ve seen that in the last couple of months, and it’s been well-reported on. When we look at cash flow, there might be opportunities, for instance, to use your property as a short-term stay property, or maybe as a multiple occupant or unit dwelling, and actually improve the cash flow. Then there’s always my favourite, Kevin, which is renovation and looking at your portfolio and seeing how you can boost your current property with renovation. Now we’ve just had a student that has put their rent up by $120 a week by doing a $40,000 renovation. They’ve got the equity now that they’ve banked up as well, making at least $2 for every $1 they spend. When the market recovers they can tap into that equity and start it using for their subsequent purchase. In the meantime, they’ve got this buffer built up of an extra $100 plus a week that they can start using to improve their cash flow.
Kevin:   It’s interesting, isn’t it? There are always opportunities. You highlighted this for us just a couple of weeks ago and even earlier in this chat as well. Is renovation still working, and is this a good time to be doing it, Jane?
Jane:   Look, I think renovation is just the catch-all, evergreen strategy that anyone can use. We heard from a student just a couple of weeks ago who sent me a letter thanking me for putting a renovation strategy in front of her. She’s from Perth. They have a house in a street where every other house in the street has gone into a negative equity position, so the loan is higher than the value of the property. Whereas her property, they’ve done a strategic renovation and that allowed them to add equity to the property, so their loan is still below the property value. Even in a dropping market like this, renovation can actually protect you from the negative equity position, but then it can add value to your cash flow because you can put the rent up. You’ve got a better quality property, so you can rent it out. We look at the Sydney market at the moment with the high vacancies, a renovated property where people want to live is a property that is going to rent really quickly.
Kevin:   Is this a time for flipping?
Jane:   Look, I have concerns always around flipping, and it’s no secret. It’s Chapter 13 in my book, Why Flips Flop Sometimes. I think that when you have a market that’s going down, then that pricing pressure of what you’re in sale value that you need to achieve and what you buy it for and all your costs, as they change, the only thing that can actually move is your profit. As the sale price comes down, your profit gets smaller. Having said that, as you and I have discussed so many times, Kevin, there’s markets in markets. The Sydney and Melbourne market might be in decline. We have other markets in Australia that aren’t in decline. For those who do have flipping as a strategy, as always, I tell you please just do your numbers because there is opportunity out there, but it’s something that I’d be very, very wary of in a downturning market.
Kevin:   Well-spoken. Jane Slack-Smith, our guest, Your Property Success and Investor’s Choice Mortgage. It’s always good talking to you. Thanks for your time, Jane.
Jane:   Pleasure.

Leave a Reply