Kiwis pay over the odds + Labor not positive about negative gearing + 2 cap cities shine

Highlights from this week:

  • FHB in NZ pay above the odds
  • Who is to blame for house prices?
  • Never too old to learn and never too young to start
  • PIPA called on to explain negative gearing fears
  • Brisbane and Perth to shine


Who is to blame for house prices? – Veronica Morgan

Kevin:   Okay. We’re going to give you three reasons now why Labor’s negative gearing policy won’t achieve what it promises. Now don’t turn off. I know I’ve spoken about this on many occasions.
Kevin:   My next guest admittedly is biassed. However, she makes some very, very good points. I’m going to read from a portion of a release from Veronica Morgan. She says, “I am biassed of course, but I do have some serious concerns about the ALP’s negative gearing policy. We love to find a culprit for why our kids can’t afford to buy a home. First we blame Chinese investors, then self-managed superannuation fund investors. Now it’s the wealthy,” or as Veronica calls them, attack the fat cat. “It’s an highly emotive topic, it certainly is, and perfect for electioneering.” I couldn’t agree more.
Kevin:   Veronica Morgan, I’m going to challenge you on a few things that you’ve said here, because… Firstly, hello and welcome to the show.
Veronica:   Thank you. Challenge away, Kevin.
Kevin:   Yeah. Challenge away. I’ve got to say at the outset though, any regular listener to this show will know that I agree with you. However, I think we need to put some points forward. You make the point here that there are some very educated people who think that removing negative gearing is a good thing for Australia, but they need, and while they make some good salient points, they need to educate themselves on the property market. What do you mean by that? Where are they going wrong?
Veronica:   Yeah, look I mean I’ve read a lot of reports and one institution for instance, the Grattan Institute.
Kevin:   Yeah, but that’s a front for the Labor party anyway.
Veronica:   Yes, yes. But, it’s supposedly full of economists and really intelligent people. So I mean, that’s just one example. I mean there’s a number of white pages, white papers that I’ve read on this. So what they’re failing to do is I think, look at actual behaviour. The way in which people in the property market actually do behave because what, they seem to believe there’s a number of things and there’s a lot of misinformation around the stats and the way in which the stats are put forward.
Veronica:   It’s very emotive, and it does tap into the idea that, oh, it’s because of the investors that first time buyers can’t buy. And you know what, if you’re in Melbourne, that is largely true, but it isn’t true for the whole country, and this is a problem here. We have a local issue of affordability and they’re whacking it with a national solution, and I think that that is, at a macro level, the root of the problem.
Kevin:   The difficulty for me is that they don’t seem to have learned from their past experiences, and this is certainly, as you said, just excellent for electioneering. It is low hanging fruit. It’s so easy to say, oh, well this is the reason why you can’t afford to buy a home, and the majority of people will say, well, yes, you’re right, so therefore we need to do something about it. But, I’d just like a little bit of evidence as to why you think it simply won’t work.
Veronica:   Okay, so there’s a number of reasons, right? So if we, we need to look at the policy and break it apart for starters. The policy is, everyone’s calling it negative gearing, but it includes capital gains tax, and so the capital gains tax concession is the biggie in terms of future property investors. That’s the thing that really is going to make a massive impact on your future retirement or your future wealth plans. The negative gearing bit, that’s short term.
Veronica:   Now, and we all love, particularly politics these days is so much more short term than long term. We don’t have any visionaries in our politicians any longer, I don’t think. And so, even just the electioneering around this and banging on about the negative gearing aspect of it and really focusing on the amount of tax deductions that higher income earners get, etc. etc. etc. That is really taking the eye off the ball
Veronica:   Now, and this is really interesting because the reality is that the capital gains tax concession, and just for the listeners, currently it sits at 50%.
Veronica:   So what that means is if you buy an investment property today under the current rules, and in fact this has been in place since 1999. If you buy property and then you go and sell it some time down the track. You take out costs, etc. etc. and you work out what your profit is. You only have to pay tax at whatever your marginal rate is or go up to 47% I’d imagine on half of that.
Veronica:   Now in this policy is the change to reduce that concession to 25% so in the future you’d be paying tax if you buy a property after this comes in, assuming it comes in, and you’re paying tax on 75% of that and what that actually means, you’ll be paying 50% more tax on the capital gains on an investment.
Veronica:   Now that’s a big, big, big issue. That’s a big deal. Whereas the negative gearing and saving a few thousand dollars here and there in the first few years of owning a property, that’s not such a big deal. And yet you’ll notice all the rhetoric does not focus on the capital gains tax, it’s even called negative gearing policy, and I reckon it’s a bit of a Trojan horse.
Kevin:   Yeah, the other dangers too of course are the ones that you talk about and that is that spruikers, it’s going to open the opportunity for spruikers to become a lot more active. And also the emotional debate about what’s going to happen to rents. I mean rents are going to have to rise. It’s just a consequence of what will happen.
Veronica:   Well, this is interesting. So there’s two things there. The rise of the spruikers, that is massively alarming to me because obviously the less savvy, lesser educated investor is going to fall for that idea of negative gearing because once again, it’s that short term thinking, so spruikers will love it. Developers will love it because of course, they’re going to be able to sell their properties to investors on the basis of that.
Veronica:   However, an investor has to just stop for a moment and look at two things. One is history because brand new property has historically, and we’re talking say the last 10 years, there’s a lot of evidence to show that this is the highest loss making sector in the property market, so that’s number one. You’ll look at history and say, well actually in the past, brand new hasn’t been such a great investment even with all this negative gearing.
Kevin:   That’s right.
Veronica:   Right? What’s to say it’s going to continue or get any better? Now so you’re then moving to the future. The second thing to consider is, okay, well the only way in which negative gearing makes sense is if I’m going to make a lot of money on the capital growth. Because in order to negative gear, you’re still losing money. And so if you don’t make a capital gain, what is the point?
Kevin:   Exactly.
Veronica:   And so if you have no secondary market, i.e. no investors will buy that unit that you’ve just bought because they don’t get all the negative gearing. It’s not attractive to them as it was to you. It doesn’t make as much sense to them on a cash flow perspective as it did to you. Then who is going to buy that apartment and there’s not enough first home buyers to fill the gap and they don’t build this stuff to appeal to first home buyers.
Kevin:   I mentioned earlier too about why can’t Labor learn from their past experiences when they did this last time, but it took them, I think was it six or 12 months to realise that they were actually on a disaster course and they turned it around.
Kevin:   But I want to talk about something even more current, and that is what’s currently happening with Brexit. I think if you look at the debate that happened leading up to Brexit, it was very emotional. It was very political. This is what’s, this is why we should be leaving the EU, and it was all about how much money we’re paying. And it was only after the public voted to leave that they really started to understand what the ramifications were. So much so that now they can’t even get a solution to it.
Veronica:   Yeah.
Kevin:   I think we’ve got to be very careful that we don’t get caught up in the emotional debate here and look at what the real issues are.
Veronica:   Well, this is the thing, and so you mentioned don’t they learn from their mistakes? And I have to say I was guilty of just not investigating myself when I put out a tweet saying something about rents rose in 1985 to 1987 when Labor, the Hawke government put in, removing negative gearing back then.
Veronica:   And it’s interesting. Actually I was challenged on that so I went and investigated that and I did discover that rents only rose in Sydney and Perth. And what is interesting though is that though they rose in Sydney and Perth because vacancy rates at the beginning of this period where really, really low and so in a cyclical sense, they were due to rise anyway.
Veronica:   But in a submission, because it only lasted two years before they reversed it.
Kevin:   Was it two years, yeah.
Veronica:   Yeah, and so in a submission to the cabinet at the time, Paul Keating, who was then treasurer, he made reference to the fact that local factors determine what happens in these markets, not tax. So that’s the first thing.
Veronica:   So back to that affordability piece, which I know is a separate issue to the rent. But they are basically, as I said, it’s a local issue particularly to Sydney and Melbourne and they’re applying this national solution. And even though history has told them that local factors will play out in each property market.
Veronica:   On the rent side, I think one of the weakest arguments for the property industry, they just come out and say, well, rents will have to rise because landlords will put their rents up to pay, to cover their additional costs. Well, that’s a really weak argument because (a) current landlords won’t have an additional cost, and (b) just because you put the price up doesn’t mean that there’s a capacity for somebody to pay it.
Veronica:   But what I do think is that it will impact supply. There is no doubt and that is what is going to result in rents going up. And so there’s a lot of figures out, again, once again, the Grattan Institute love banding this figure out, which is more than 90% of funds borrowed for investment property goes to existing and they want to tip that balance.
Veronica:   But the thing is, they’re looking at ABS data that talks about the total amount of money that is spent in buying investment properties. There’s no actual data on the actual amount of properties, and also they haven’t really mentioned how many existing actually exist versus brand new. You know, proportionately there’s a lot more existing stock out there.
Veronica:   So, they pull these figures out. There’s been modelling by the Parliamentary Budget Committee, I think it’s called, that suggests that they think that it will double the amount of investment in new property. And so you’ve just got to look at those two figures and say, well there’s still going to be a supply shortage, a massive shortage of supply.
Kevin:   Veronica, great talking to you. We’re out of time. There is a white paper that Veronica has produced. Look for it on our website,
Kevin:   Hey, Veronica Morgan from Good Deeds, thank you so much for your time.
Veronica:   No worries. Thank you, Kevin.

FHB in NZ pay above the odds – Kelvin Davidson

Kevin:   First home buyers in New Zealand have generally been paying the highest prices relative to each area’s average property value, according to some research that’s just been released by CoreLogic in New Zealand. Joining me to talk about that, CoreLogic’s property economist in New Zealand, Kelvin Davidson. Kelvin, thanks for your time.
Kelvin:   No worries.
Kevin:   Looking through your research, a number of points I want to make, but firstly, just give us a bit of an overview. What has it revealed for you about what and where first home buyers are buying in New Zealand right now?
Kelvin:   Yeah, so what it reveals to me is that first home buyers are still pretty active around the market. They’re even finding some ways of buying into the most expensive places, even though prices in, say somewhere like Auckland, are a million dollars on average. The first home buyers are still finding a way in.
Kelvin:   So they’re pretty active right across the country regardless of price, but if anything, probably a bit more active in the cheaper markets. And that’d be the these are cheaper, these are regional markets outside the big cities. By the looks of it, being able to access perhaps a better property in those regional markets because prices are just that bit lower.
Kevin:   You’re certainly getting a lot more bang for your buck in the regional areas. Just before we move into that, can I just ask you? The comment you made there about finding creative ways to get into the market, even the most expensive markets. What are some of the things that you’re seeing them do, Kelvin?
Kelvin:   There are two things. First, well, this is not probably particularly creative, but they do here in New Zealand, they do have access to KiwiSaver for a deposit, so that’s superannuation scheme that people pay into. And what you can do as a first home buyers is withdraw your money from that early and use it for a house deposit.
Kevin:   Yeah, that’s certainly is a big bonus. Is there anything else they’re doing, Kelvin?
Kelvin:   Yes, the second thing with the … they’re showing a willingness to compromise, really, on either location of the property or the type of property. So more willing to move to the edges of a big city and perhaps take an apartment, rather than a standalone property, so a couple of things going on there.
Kevin:   Yeah, very good. Can we just talk about the regional areas? Because you made a very good point there, and we’re seeing the same thing in different parts of the world, actually. The regional areas are starting to outshine some of the cap city areas because of affordability. But what, in your opinion, makes one regional area outshine the others?
Kelvin:   Well, what we’re seeing in New Zealand is regions, perhaps in the Central North Islands and certainly Dunedin and the South Island are the ones that are running pretty hot. Shortage of properties on the market there and lots of demand, so prices are going up. And really, I think in general, just outside those big cities, it just really does come down to that affordability thing, prices are lower. And it’s helped by the fact that people have generated quite a lot of equity, say in the Auckland market over the last 10 years, and seeing a little bit of a trend for people to cash up in Auckland and move out to these regional markets across the lower North Islands, central lower North Islands, and down to Dunedin as well, [crosstalk].
Kevin:   Yeah, sorry, Kelvin. Is there much of a trend that you’re seeing for people to live remotely because of infrastructure, transportation improving the internet, allowing people to go out into these regional areas more?
Kelvin:   Yes, that’s happening. It’s hard to show a figure, but certainly, anecdotally, you talk to a lot of people, I do it myself, actually. So there is that going on and I think that will happen more and more, but it is just a little bit hard to prove with data. It’s more anecdotal.
Kevin:   In your report too, you talk about first home buyer market share and what’s happening with that. Give me an observation about that, what’s the trend there, Kelvin?
Kelvin:   So the trend for first home buyer market share is pretty strongly up. And it’s been a long term thing, really, over the last five or six years, just first home buyers slowly, slowly improving their share of the market. They’ve got up to about 25% now, more or less, across the country. So really, competing with investors to be the sort of active buyer group and competing for those properties on the market.
Kelvin:   It’s a pretty strong market for first home buyers in the country at the moment. That is a market share in a quiet market, so the actual number of purchases by first home buyers is perhaps relatively low in kind of a sort of historical context, but their market share is good. And yeah, as I say, access to KiwiSaver and that willingness to compromise. As well as banks, banks are targeting first home buyers, so there is money available, if you can raise the deposit and you can prove that your income and expenses are satisfactory, and that you can service in a risk scenario as well. So if interest rates went from 4% to 8%, in that extreme scenario, the banks want to see that you can still afford the mortgage, and there are first home buyers out there that can do that. So if you can do that, banks have got some good deals.
Kevin:   Are there any disincentives that the government or the banks are putting forward to try and discourage investor activity in New Zealand, similar to what’s happening in Australia? It’s had a somewhat devastating effect on supply and demand. Is there anything similar happening in New Zealand?
Kelvin:   Yeah, there’s a lot going on around investors at the moment from the government, so they’ve been targeted for a little while, actually. Now, government will say it’s targeted at speculators rather than the true, genuine long term investor, but I think, either way, everybody gets caught up in the net. And there’s a lot of measures been introduced around improving the state of rental properties, so that imposes an extra cost on landlords. What we’re seeing coming up in about a month’s time is the removal of the ability to use losses on rental property to offset other income, so that’s another sort of extra cost, effectively, that landlords will have to face. And just today, there’s been an announcement that a Tax Working Group we have has recommended that the government impose a capital gains tax on investment property. Now, that’s still a couple of years away and the government has to accept the recommendation and survive the next election. But it’s just another thing that makes, I guess, the economics of property investment harder.
Kevin:   When we talk about disincentives for property investors, you know, as we’ve seen in Australia, you do see them start to vacate the market, not become as active, and that has an impact on things like market share. I know you mentioned there first home buyer market share about 25%, but what’s happening in real numbers? Is volume falling off because of the disincentives?
Kelvin:   Well, volume is down across the market. It’s a fairly tough market out there in terms of activity. Prices are high, and yet there’s still credit available, but it’s not as loose as it might have been in the past. Yeah, well, overall volumes are down, and so when certain groups have increase in their market share, a lot of the time, it’s actually that they’re managing to hold on better than other groups, rather than necessarily increase in absolute terms. So yeah, it is changing market shares within an overall quiet market.
Kevin:   Excellent, great talking to you. My guest has been Kelvin Davidson. Kelvin is a property economist with CoreLogic in New Zealand. Kelvin, thanks for your time.
Kelvin:   Thank you very much.

PIPA called on to explain negative gearing fears – Peter Koulizos

Kevin:   Further to concerns that Labor may just win the next federal election and then fulfil their promise of fiddling with negative gearing, there was a round table held in Canberra recently. The PIPA chairman, Peter Koulizos, who’s a regular contributor to our show, was actually amongst those at the meeting. He joins us to talk about that.
Kevin:   Peter, thanks very much for your time. What was behind the meeting? Who called it?
Peter:   The Liberal Party did, more so the Assistant Minister to the Treasurer. The Treasurer was there, the Prime Minister also popped in for about five to 10 minutes and spoke to the people in the room.
Peter:   Now, the people in the room included the CEOs of the Property Platform of Australia, the Master Builders Association, Real Estate Institute, Urban Development Institute of Australia, so some of the big property heavyweights. There was a couple of CEOs of property research companies there as well such as Louis Christopher, he was there. They just wanted to get a better understanding of the impact of the proposed changes by the Labor Party to negative gearing and capital gains tax.
Peter:   So you got input from people that were involved in building, you got input from people like ourselves who are more focused on the investor, and then you also got people that provided input on a general basis as to what it will do for housing starts, property prices and so on.
Kevin:   Well, we’ll get to what you believe were some of the outcomes of that meeting in just a moment, but it occurs to me that it probably wasn’t the best audience for you to be called to. I mean, surely you should’ve been talking to the Labor Government, or the labor Party.
Peter:   Unfortunately I didn’t send out the invitation, Kevin. We would love to. We would love to have the same opportunity with the labor Party to give them our impression what the impacts will be if they were to introduce these changes.
Peter:   But we take what we can get. We were more than happy to meet with the Prime Minister, Treasurer, and Assistant Minister to the Treasurer to give them our point of view.
Kevin:   Do you think they’ve got it all? Have they got enough to put a convincing argument to the people of Australia as to why it could be a dangerous move?
Peter:   Yeah, well, look, just two simple examples that I brought up, just to give you an idea of what happened. Almost exactly the same thing happened in 1985 when the labor Party fiddled with negative gearing and introduced capital gains tax. The two years from the introduction of those initiatives, property prices dropped by 10% and housing starts dropped by 27%. Now, I’m not saying exactly the same thing’s going to happen, but it’s like history repeating itself. We don’t know how bad it will be, but it was certainly bad 30 years ago.
Peter:   The other explanation that I gave was, if you only encourage investors to buy new property, then you’re going to have the opposite effect that you want so far as the federal budget is concerned. What you’ll be doing is you’ll be handing out more tax benefits to investors, because new properties have a greater depreciation benefit, but because generally new properties don’t appreciate as well as established properties, you will be earning less in capital gains tax. And overall, when everything is included, Federal Government makes money from property. Yes they dish out some in negative gearing benefits, but they earn far more in capital gains tax revenue.
Peter:   So the point I tried to make to the group was, you are far better off keeping the 50% discount and getting a 50% tax on a huge amount of capital gain than getting a 75% tax on a very small capital gain. Certainly the people in the room understood that. Whether the decision-makers in the labor Party [inaudible] understand, that’s a different story.
Kevin:   There was some powerful minds in that room, in that meeting. Were there any comments made by other groups or other parties that maybe hadn’t occurred to you that you thought were really good points?
Peter:   Yeah, look, Louis Christopher mentioned the drop in housing starts from 1985 to 1987, which I wasn’t aware of. I just focused on what happened to property prices. There were a few gems provided by some of the big organisations, ’cause they’ve got their own little research departments who can focus on their particular area, whether it’s a building start, housing finance, but Mark Bouris was there, for example, and he talked about how the lenders would react to this.
Peter:   So, yeah, look, it was a great discussion. Everyone got an opportunity to have their say, and now we all have a much better idea because everyone gave their perspective of what the possible impact could be.
Kevin:   Well we can certainly hope that you get the same opportunity to have a talk to the labor Party, maybe enlighten them a little bit as well.
Kevin:   But Peter, thank you very much for joining us. Congratulations on your work and please keep us in touch.
Peter:   Will do. Thank you very much, Kevin.

Never too old to learn and never too young to start – Daniel Walsh

Kevin:   You’ve probably heard the story about the chap who was so focused and so impressed with the product that he ended up buying the business. I think it was something to do with a shaver company. I’m not quite sure. I want to tell you a success story now about a young person who decided to get into property investment and decided he enjoyed it so much that he wanted to share the knowledge. Similar story, I guess. Daniel Walsh joins us. G’day Daniel, how are you doing?
Daniel:   I’m good, Kevin. How are you going?
Kevin:   Yeah, mate, fantastic, thank you. Now, Daniel has a company which has been operating for a couple of years, I guess, run pretty much by your partner or your wife. It’s called Your Property, Your Wealth, but you’ve now gotten into this full time as well, Daniel?
Daniel:   Yeah, we started the company around two years ago off the back of my personal investing journey. I’d built my property portfolio up and created a passive income that a lot of people started really sharing and resonating with. They started to say, “you know what, i want you to be able to help me achieve the same goals” That was when we started our own property buyers agency and we specialised in investing and building clients’ portfolios. We’ve been doing that for around two years now. I have recently quit my job and my property portfolio allowed me to do that. We used the passive income to support our lifestyle while we built our business up as well.
Kevin:   Yeah, for many people it’s a dream and you’ve done it at, I think your age’s what, 28, now, if you don’t mind me saying? Is that right?
Daniel:   Yeah, yeah, 28. It’s been a while. I started investing when I was just 19 years old and I started studying investing at the age of 16, so I’ve been in it quite a while but I just started very early.
Kevin:   Yeah, I mean, many people will tell you they’ve got a portfolio but your portfolio itself, you’ve got equity in that of a couple of million, I understand. Is that right?
Daniel:   Yeah, currently we’re sitting at around two million dollars worth of equity and a total portfolio of four million. My aim was to be able to make sure that we were doing a bit of debt recycling in the last couple of years while we were able to increase our cash flows. That was going to give us the necessary income for us to, I guess, retire from the corporate world under 30.
Kevin:   When you say debt recycling is that gearing? Is that what you’re talking about?
Daniel:   No, what we’re talking about is just really focusing on a few properties, and we were actually paying some of those down by our offsets. We’re putting a large cached buffers in offset and being able to pay down through offsets.
Kevin:   Where did you learn all these skills? Was it born in you from a young child? Did your parents have this sort of knowledge?
Daniel:   Yeah, when I was younger I did a lot of renovations in my life. My parents used to flip properties. I started off I guess with the knowledge from my parents of renovating and flipping properties. I remember my dad telling me, and this was only a few years ago when I was working for him. He said to me, you know if I just held three or four of these properties for the long term I wouldn’t be working today. And that was when I realised that I had to build a property portfolio but do that for the long term instead of just flipping properties. I knew that the wealth was built in making sure that we build these portfolios over a 15 to 20-year period.
Kevin:   Yeah, you’re very lucky that you learned that lesson at a young age because that is the secret. It is buy and hold. There are markets and times I guess in the market when you can actually flip and make a good profit but I don’t think that now is the time. That’s my view.
Daniel:   Yeah, definitely. I think it all comes down to your strategy if you want to create a passive income. For me it was about when the market was moving, especially in Sydney and Melbourne, I wanted to capitalise on that. Renovating and flipping properties, it just wasn’t going to get me to the outcome that I wanted. To me I wanted to be able to move a lot quicker. So to me I released equity and was able to buy in multiple markets throughout Australia and that was what allowed me to create that two million dollars worth of equity in such a short amount of time.
Kevin:   Your first property at age 19. Tell me about it. What was it?
Daniel:   The first property I bought it was actually land. I bought land that was subdivided. I built up the property myself. It wasn’t a house and land package as such. We did everything for cost price. That was back in the early days when I was an auto electrician. I was just coming out of my apprenticeship at that time so I had saved for around four years for this deposit to come for the house that I’d just purchased. I ended up building that property. I even had to sell down my skydiving gear and things like that to be able to purchase the property and be able to build driveways and fences and stuff like that. It was quite a tough period of time but I knew that it was going to serve me well in the future.
Kevin:   From there did you hold that property?
Daniel:   Yeah, I still have that today and that alone gives me around ten thousand dollars a year passive income. That property has also allowed me to leverage for other properties as well. It was a good stepping stone for my first property to be able to build my portfolio and start that off.
Kevin:   You built that house yourself or that property yourself. How involved were you in that, when you said you did it all for cost?
Daniel:   Yeah, well pretty involved with that in terms of a lot of the landscaping ourselves and fences and everything like that, layouts and how we wanted that. I just didn’t want to buy a house and land package and and have some sales agent obviously sell me some overpriced off the plan property. I wanted to buy something that was subdivided and we bought the land at cost price and were able to keep costs down. So the total bill, this is in southwest Sydney, and the total bill cost, with the land, was $324,000.00 at the time.
Kevin:   What’s that property worth now?
Daniel:   Roughly six fifty, it was valued last by the banks.
Kevin:   You said you were gearing against that. Do you still got gearing against that? Is it still borrowing?
Daniel:   Yeah, so we do have gearing against that in terms of we used that for other properties. What we have done since then was we paid a lot of money in cash back into the offsets to those splits. So effectively we’re paying zero interest on all the offsets from what we leveraged. That was able to get my debt down so that’s what we’ve been focusing on the last sort of year and a half to two years.
Kevin:   After that first one how long did it take you to get into the next one?
Daniel:   Yeah, so the next year we actually bought the second property. That was literally, I can still see, so when I bought it it was just one street over. I can see one roof to another. I bought the second house which is a mortgagee sale. We paid $303,000.00. That’s roughly worth around $600,000.00 now. That property there I leveraged from my very first one into the second one. Then from there I had actually a break from property investing for around two years in between.
Kevin:   Was there a reason for that? Did you lose your nerve or?
Daniel:   Yeah, so back then what actually happened was I was going to the banks for finance and when I had bought my second property they cross securatised my first property which is obviously something that you don’t want to do.
Kevin:   That’s right.
Daniel:   This was the early days of my investing and I had realised that I couldn’t move banks to be able to free up capital. So that was when I started to realise that having a team and a really good team on your side to be able to build a property portfolio. I ended up getting one of my brokers that I still have now on our team. He ended up coming on board with us. He has 21 houses himself so he knew what to do in terms of structuring portfolios. He was able to unsecuritise within that two years and from there we ended up continuing building that portfolio.
Kevin:   In your journey over the last nine years of buying property has there been one point in time apart from the one that you just described to us where it became difficult, where you had to overcome a number of obstacles you probably didn’t see?
Daniel:   I think being that I’ve come from being an apprentice and anyone that’s an apprentice in doing a trade it’s always tough to save money. So every property that I have put into my portfolio has been difficult and I don’t think it ever really gets easier. You’ve always got two different sides, you know? You’ve either got equity but the serviceability is tough or you’re just starting out and you need the equity to continue building. So it’s always difficult with property investing.
Daniel:   There’s always a hurdle to overcome. Finance for me had always been tough being that I was always on a lower wage. When I started off I was younger. I had to save from nothing so just to save my first $34,000.00 for my first deposit took me four years. So staying true to my 15-year plan was something that I knew I needed to do and have a really strong mindset to being able to build this large portfolio.
Kevin:   The 15-year plan, did that start when you were 19 or when you were 15?
Daniel:   No, that actually didn’t start until I was around 23, is when I started implementing that plan. It was-
Kevin:   So you’re five years into it now.
Daniel:   I was about five years into it at that stage, yeah. So what actually happened was when I had gotten stopped from my second property and then I was wanting to buy my third property I had realised at that time I needed to have a plan. What was going to be my exit and I need to work backwards from there because if you want to stay property investing a lot of people fall off the bandwagon half way through their journey because they don’t know the outcome that they’re trying to strive for.
Daniel:   So for me it was, “What outcome do I want and now can I keep this outcome and how long’s it going to take me?” That for me was all about mindset because I think when it comes to real estate and investing as a whole, it’s nice if you set a mindset game and it’s only 10% of investing. If you don’t have a strong mindset you will never be able to create a large portfolio because there’s a lot of things around. You know you’ve got debt. You’ve got a lot of hurdles to overcome and it’s never going to be easy no matter how large you build your portfolio.
Kevin:   Yeah, absolute gold. I really appreciate you giving us your time. All the best with your business, Your Property Your Wealth is the business. Daniel Walsh has been my guest. Daniel, I want to catch up with you again because there’s so many lessons I think we can learn from you. You’re an inspiration. Thank you very much for spending some time with us tody.
Daniel:   No worries, Kevin. Thanks for having me and it’d always be a pleasure to come back.

Brisbane and Perth to shine – Emma Everett

Kevin:   I was actually at a breakfast meeting this morning and Brisbane was highlighted as one of the market’s in Australia that is going to do quite well. I was interested to receive a release from Momentum Wealth about how they feel about the Perth market, and tipping also is Brisbane and Perth are going to lead the pack amongst prospective investors. Joining me now, buyers agent or team leader for Momentum Wealth buyer’s agent Emma Everett joins me. Emma, thanks for your time.
Emma:   Thanks for having me.
Kevin:   It’s about time we had some good news about Perth. It’s been struggling for awhile.
Emma:   It’s been a tough market for coming up to five years now. So we’ve seen some false starts and a variety of conditions have kept selling conditions soft, so great for buyers getting in and getting a bargain but tough for people waiting to see some growth on their properties. So good to see some good news.
Kevin:   Now this information’s coming off the back of some research that you’ve done. You had a talk to what, just under 500 investors across Australia, and they picked Perth and Brisbane as the two areas to watch.
Emma:   That’s right, yeah. Almost 500 investors all across Australia and Perth and Brisbane were the most popular cities in Australia from an investor sentiment point of view. And 70% of Perth based investors considered that it was or WA investors believe it’s a good time to buy in WA.
Kevin:   Is that because-
Emma:   That was a strong response two years in a row.
Kevin:   Yeah, was that like a hometown advantage in some ways?
Emma:   Look, it might be. Having said that, we’ve had, as you can appreciate after a couple of years of tough market, previous surveys haven’t delivered that response so it’s really been a big increase the year before now and that’s continued this year. So we are seeing improved confidence in WA, no doubt as mining pipeline starts to build up a little bit again and we see that the big resources influx. And also the rental market recovery gives you a lot of confidence as well.
Kevin:   Mm-hmm (affirmative). At the breakfast meeting that I was at this morning that I mentioned at the start of the interview, a lot of talk there about lending restrictions and how that’s actually put a bigger damper on the market than even supply and demand. Would you go along with that?
Emma:   Absolutely. We meet with a lot of qualified buyers who are really interested and motivated to get into the market. And because of the changes to either bank calculators or government policies, they’re not able to get the loan that they’re seeking that they might have qualified for a couple of years ago. So that is definitely keeping some buyers out of the market. Not just in Perth, of course, but all around the country.
Kevin:   Mm-hmm (affirmative), as we’re also hearing in the show today, some restrictions coming into the New Zealand market and a lot of caution there about what’s happening. So I think governments have gotta sit back and maybe take a bit of a deep breath because while we might be trying to make it more affordable for first time buyers, we could also be doing the market a lot of damage, Emma.
Emma:   Well, it’s an interesting thing and financial policy decisions is a tough one because it’s a national decision, that’s national policies, and yet, every property market in the country might be effected in a different way. So when APRA announced some of these changes in restrictions, the Sydney and Melbourne markets were overheated by anyone’s definition. Sydney had almost 50% investors in the market at that time, which is just not sustainable. Those policies did work in slowing down investor activity, slowing down what they considered to be a bubble waiting to happen, to burst. But the Perth market was soft at that time, and so were some others, so we didn’t particularly need that slow down and having said that-
Kevin:   Yeah, sorry, Emma, but not only Perth, but a lot of the regional markets around Australia too were-
Emma:   That’s right.
Kevin:   They’re the ones that suffered the most.
Emma:   And the same policies were applied to all different types of investment properties. So whether it was an off-the-plan apartment or a rental property that was in the suburbs, they’re all kind of treated the same way, so that’s the limitation I suppose to some of those types of instruments. The government can’t make a policy necessarily that only impacts, for example, New South Wales and not other parts of the country. So they did their jobs and APRA themselves have come out and said on the record that they have done more than they expected and they’re not going to be kind of imposing any further restrictions and that they’re gonna be seeking to relax some of those requirements. But then of course they had the Royal Commission as well, and so banks are understandably being a bit cautious in the wake of all that and being extra careful to make sure that they are not being accused of lending money that people can’t afford. So some of their policies have become more cautious in the light of that.
Emma:   So hopefully that’s behind us now and everything can settle down and we can find a new normal with how that plays out.
Kevin:   Yeah, I wouldn’t be at all surprised if the RBA in fact take rates down, which is a lot of the tips that are coming out now that’s likely to happen, which is an indication that the economy’s not doing all that well.
Emma:   Well, again, that’s a national instrument. So if it helps people in Perth qualify for their loans, that’s great news. We are finding that there is increased business confidence in WA and certainly the investment pipeline in to the resources sector is really good news for WA. But again, they’re responding to a national property market and national lending situation. But if it helps people get into the Perth market because their capped rates get to be kinder, then I’m all for it.
Kevin:   Another national issue too and almost the elephant in the room, which we’re not gonna find out about until later this year is negative gearing. That’s set to impact a huge number of investors around Australia-
Emma:   Absolutely. It will. It’s an interesting one, 61% of our survey respondents have a cash negative portfolio so they’re relying capaital growth to offset their negative gearing over time. Having said that, the Labor government has been quite clear that they will only, the Labor party I should say, have been quite clear that that will not be retrospective. So, it won’t effect 60% of all investors. It would just effect new investors coming into the market, Is our understanding at this time, of course policies can change. So our expectation is that will effect new investors coming in and not existing investors, so if anything, that might be a reason to buy sooner to lock in those advantages now.
Kevin:   Mm-hmm (affirmative).
Emma:   And for investors that buy after policies are announced and then governments change and policies are finally agreed on, which can take some time, there will still be other strategies and other opportunities. So it’s important for investors to remember the tax deductions on negative gearing are attractive and they’re really helpful to investors, but there are other ways to make cash flow affordable and the overall fundamentals of the investment are the most important thing and so it’s just another factor to take into account. Just like loan costs or the rent return at that time, any of those things, just factor it in, and to seek advice because it might effect you less than you think.
Kevin:   Always great talking to you, my friend, team leader for Momentum Wealth’s buyer’s agents, Emma Everett. Emma, thank you very much for your time.
Emma:   Thanks, Kevin, always love to chat with you.

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