18 Sep The best way to sell a property | Population growth and property demand | 2 big mistakes You make when investing in property | Cross-collateralization of properties | Plus more
This week on RET, we look at the best way to sell a property, by auction or private treaty.
Cate Bakos has some great advice about how you can determine the true market value of a property without having to rely on your own judgment and the advice is FREE.
Michael Yardney tells us why he believes it is not really population growth that predicts property demand.
We answer an excellent question from Michelle about cross collateralization of properties and Jane Slack-Smith tells us the 2 big mistakes people make when investing in property.
With almost a quarter of us living in strata property and with our obsession with renovation it is no wonder there is an increase in the number of problems emerging for property owners in this area. We look at the problems and how you can avoid them.
Transcripts:
Cate Bakos
Kevin: It’s so difficult when you’re in the market to buy a property just to get a handle on what the prices are doing. In recent times, we’ve seen some crazy prices coming out of Sydney and Melbourne. How do you get a bit of a handle on this, and how do you know that you’re not paying too much when you’re going to buy a property?
I’m going to talk now to Cate Bakos who is a buyer’s agent. No doubt, Cate, you face this challenge all the time, every time you’re helping someone buy a property.
Cate: Every single time. Yes, that’s right, Kevin.
Kevin: How do you work your way through that?
Cate: The first set of analysis that I’ll conduct once we’ve found a property that seems to tick all of the boxes or fit the brief is to conduct a comparable sales analysis. What that means is you look at sales results that have taken place in the area for properties that are on similar land size, offering a similar number of bedrooms or layout, and then obviously, you can pinpoint where you think the subject property sits in relation to the ones that you’ve assessed.
It gets pretty tricky when you have a property that is very unusual or doesn’t have a lot of comparable sales or, more importantly, recent comparable sales. You can look at a property that sold a year ago, but in this market with the pace that we’ve been enduring, a one-year-old sale won’t really be helpful because the market has moved quite a bit. You can’t just put a blanket growth percentage on an old sale.
Then you have a few other things that you might look at doing. Obviously, if you’re not feeling up to doing the analysis yourself, you can speak to a buyer’s advocate or you can speak to a certified valuer who will give you a proper valuation report. But there are other avenues that you can go down to get a good idea of where the property value really sits without necessarily having to pay a professional.
Kevin: Are there any cost-effective ways that we can get a handle on that price, Cate?
Cate: Yes, absolutely. Aside from doing your own analysis, there are professionals out there who you can tap in to, and you don’t necessarily have to pay for their advice; you just have to be nice to them.
One method that I’ll sometimes utilize myself is chatting to other agents in the area – obviously, agents who are in competition with the agency that is listing the property. They may or may not have been through that property and had an opportunity to list it themselves, so not only have they met the vendors and they’ve assessed the property, but they will have conducted their own research, as well. Obviously, a local agent with local knowledge is a highly valued person to have on your team when you’re trying to assess what price tag a property could go for.
The other person I find really valuable in this circumstance is a rental manager – not necessarily one from the same agency who is selling the property, but a rental manager who is dominant in the area. If you can get an idea of what sort of rental appraisal they would assess the property with, you can then look at the going yields in the area. Knowing your rental yields calculates what price tag that could deliver you.
Obviously, assessing these methods in tandem is really helpful because that can give you a range of prices, but it also gives you some data to overlay.
Kevin: I remember talking to you a couple of weeks ago, Cate, about putting a value on a property. I think we talked at the time about a property that you’re going to buy and live in is probably one that you may end up paying a slight premium for because of your requirements. But certainly, if it’s an investment property, it’s more of a business decision. Is that the way you look at it?
Cate: Every day, absolutely. Any investor who’s looking at an investment property with even an element of emotional criteria can really get themselves off track. Whether it be something that they could put their children in or something that they could one day live in themselves, it will muddy the waters, and it will take away their ability to be pragmatic.
It’s vital to get the numbers right and to remain focused on the numbers and your reasons for selecting the property. Obviously, you have growth, yield, and vacancy rate targets that you’re looking to achieve. Try and keep the emotional hat off and put the business hat on only.
Kevin: Great stuff. Cate Bakos from Cate Bakos Property. Thank you so much for your time. I look forward to catching you again soon.
Cate: Thanks for calling, Kevin.
Michael Yardney
Kevin: There has been a lot written about Australia’s strong population growth and how there’s likely to be twice as many of us in the next 40 or 50 years. That’s a frightening thought.
Apparently, one baby is born every minute and 45 seconds. Sadly, someone dies every three and a half minutes, and the net gain from overseas is one migrant every two minutes. This results in an overall population increase of one person in every minute and 18 seconds. By the time you finish listening to this interview, there will be another four or five people living in Australia.
Michael Yardney joins me from Metropole Property Strategists. Michael, you’ve been looking at this. What’s happening with Australia’s population?
Michael: Kevin, thanks. Population is being measured, and a lot of people who are interested in property want to understand what’s going to happen to that population to understand what we need for property. But I’m going to suggest it’s not just population growth, but we also have to be aware of household formation – how many households we’re forming.
Currently our population, it’s just under 23.9 million people, and it’s projected to increase by 2036 – Kevin, that’s not that far away – to 32.5 million people. The other thing, of course, is our median age is going to go up. We’re going to be older in 2036. The median age is going to be about 40 years of age or so, compared to 37 years of age now.
The other big thing, of course, is that the proportion of older people, people over 65 years, is going to be higher, as well. This means that we’re going to have more people living on their own in the future.
Kevin: You said 23.9 million. How many houses are there in Australia and how many people per household?
Michael: There are currently 9.2 million households, and the average size is 2.58 people per household.
Kevin: With that population growth, Michael, how many dwellings are we’re going to need?
Michael: In the past, we have been building about 164,000 dwellings per year. It is suggested in the five years ahead of us to 2021, our strong population growth underpinned by the migration is going to require 172,000 homes. Forget the population growth – 172,000 households. That’s about a 5% increase in demand in the next five years compared to the last five years.
Kevin: I guess I could ask you questions about whether we’re going to be able to meet that, but I guess we have to.
What does it mean? What are the households going to look like?
Michael: There are going to be fewer people living in the traditional family home, mom and dad and kids. While, of course, there are going to be more of them, the percentage is going to decrease a little bit. Over the timeframe, single-person households are expected to increase by 24% from 2.1 million to 2.5 million single-person households in the next five years.
Kevin: Does that mean that we’re probably going to be building more apartments? I think we can obviously fit more apartments on the land mass.
Michael: Sure, Kevin. More of us are going to want to live in apartments, but we’re also going to need lots more houses. The number of people living in traditional houses is going to increase by about 770,000 over the next decade or so, but the number of single-person households and two-person households is going to increase proportionately more.
Not all two-person households want to live in apartments. Currently, there are 10 million people living as couples in 5 million dwellings in Australia. They come from both ends of the spectrum, Kevin. DINKS (dual income, no kids) – a bit like you and me – and some are going to have kids in the future. But others are actually older empty-nesters – I guess like you and I. Interestingly, these empty-nesters, the older ones, are predicted to grow by 14% over the next decade.
We have to understand what sort of accommodation is going to be in strong demand in the future, because while this is important for the building industry, it’s really important for investors because we want to own the sort of property that is going to be going up in value because other people – owner-occupiers – are going to want to buy them.
Kevin: What does this mean for property investors?
Michael: As I say, demographics I think are going to drive our markets – how we live, where we want to live, the way we want to live. Over the next decade, in my mind, this is going to be more important than the ups and downs of the economy or the fluctuations in interest rates. They’re going to come and go, but the big driver is how and where we want to live.
I think a growing affluent population whose housing requirements are slowly changing is going to underpin our property markets. That’s why I’m confident we’re going to still do well. I think the bulk of the housing market is still going to require the traditional family home, but currently, 40% of the new dwellings that are being built are apartments, and it’s going to be more in the future.
I think that we’re building the wrong sort. I think a lot of these high-rise apartment towers are not where the affluent DINKS or the empty-nesters are going to want to live, and I think they’re going to be the slums of the future.
On the other hand, well-located, medium- and low-density apartments and townhouses in the inner suburbs of our capital cities I think are going to remain the preferred style of accommodation for an increasing demographic of people, and Kevin, I think they’re also going to make great long-term investments.
Kevin: Fascinating stuff. Michael, thank you so much for your time.
Michael: My pleasure, Kevin.
Kevin: Michael Yardney there from Metropole Property Strategists. You can catch up with Michael, too, of course, on his very popular blog site, PropertyUpdate.com.au.
Michael, talk to you again soon.
Michael: Thanks, Kevin.
Jane Slack Smith
Kevin: You would by now know that we’re currently promoting your involvement in The Ultimate Guide to Renovation. It’s a great video series we’ve been running.
Are enrollments now open, Jane?
Jane: Yes, they are.
Kevin: Jane Slack Smith joins me. Jane, of course, is the mastermind behind that and the person you’ll see right through the entire program. If you do want to get into renovation, this is going to be the opportunity for you. Enrollments are open right now. You can use the link on the homepage at RealEstateTalk.com.au.
Jane, the question I have for you is, in this environment, can you renovate any property?
Jane: No, you can’t, Kevin. It’s such an important question. In actual fact, we spend six modules over the 12 modules in The Ultimate Guide to Renovation course making sure that people understand how important location is in finding not just the right suburb but the pockets of potential within a suburb and then the property to renovate.
Kevin: I guess there are so many questions to ask about whether it should be a two-, a three-, or even a four-bedroom property. Are those sorts of things important, Jane?
Jane: Absolutely. I speak to people all the time, and they say, “I want to buy a property. I know my own area so very well, so I’m going to buy close to where I live. I don’t want to travel very far, and I don’t have a lot of time on my hands.”
I often challenge them and say, “How well do you know your area? What was the capital growth last year? What’s the current rental return? What’s the pricing difference between a two- and a three-bedroom property or a three- and a four-bedroom property? What’s the rental yield? What are the infrastructure plans or the information around the difference of a pricing disparity between an un-renovated and a renovated property?”
They look at me a bit blank, Kevin, and say, “I don’t know that information.” That’s what you need as an investor to know what property is ripe for renovation in the right area.
Kevin: It just seems to me that by not asking those questions, you’re approaching it totally from the wrong angle because you should be looking at this as a business. As such, in a business you do actually ask all those questions to get all that information.
Jane: Absolutely. I think that’s the problem with first-time investors and especially people who see shows on TV that show that it’s really easy to renovate in a weekend and make money. The reality is that you have to start with the right property but that property has to be in the right area. You really need to have a plan, so before you even purchase a property, you need to be very clear on how much money you can make on it.
Kevin: What about questions like whether I should go for cash flow positive or whether I should just look at capital growth. Are they important considerations?
Jane: They are. A lot of people have a mentality that they have to choose. I know when I started over ten years ago, there were two camps and you really had to fall into one or the other.
Over the time when I built my Trident Strategy, I realized that if I renovated a property and could improve the rent, I could actually achieve both. You don’t have to choose. I have my property portfolios that are going up in value and aren’t costing me a lot of money. That is the thing that you can do with renovation as an active property investing strategy.
Kevin: I talked at the opening of our chat about The Ultimate Guide to Renovation, which is actually open right now. What can we expect inside that, Jane?
Jane: We open enrollments twice a year, and we do have a really hard deadline on that. It actually says there September 24, and that’s so that we can jump straight in and help our students.
There are 12 modules that are released weekly. There’s a private Facebook group. We have thrown in so many bonuses this year, and I would really get your listeners to go to your homepage and have a look at what’s involved.
We really are dedicated to having successful students. We jump in boots and all and help people through that entire process. This year is going to be bigger and better than ever.
Kevin: Use the button on our homepage, as Jane said, at RealEstateTalk.com.au. You’ll find it there. Click on that link. It will tell you about all the bonuses. It tells you all about the program. If you’re serious about renovation, this is the program that you need to lock into. It’s called The Ultimate Guide to Renovation. Look for it on our homepage.
Hey, Jane, all the best. Thank you for your time.
Jane: Thank you, Kevin.
Andrew Mirams
Kevin: I spoke last week on the show to Andrew Mirams from Intuitive Finance. We had a good chat about cross-collateralization – cross-collateralizing properties and all of the pros and cons of doing it – which led to an e-mail from Michelle. Thanks, Michelle.
Michelle writes: “I was interested to hear about Andrew Miram’s warning about cross-collateralization and found myself confused between that and using equity in your home to purchase additional property. Are you able to elaborate on the distinct difference and potential gray areas between the two? Where is using equity in an investment property not considered cross-collateralization?”
Great question, Michelle. I’ll refer straight to Andrew Mirams.
Andrew, a very good question.
Andrew: A brilliant question, Kevin, and I think this is still a little area of confusion in the markets. I think the key point is whether you have one loan secured by two properties or two properties with individual loans against them.
Kevin: Is it that simple?
Andrew: Well, it is to me, but this is what we do, of course. I think if you have one loan and there are two properties, and still if you have multiple facilities against that, but there are two properties held, they’re cross-securitized. What cross-securitized means or cross-collateralized means is that there’s more than one property that secures those loans.
The question was – you’re right, it’s a great question – can you use the equity from one property to assist you to buy another property? That’s not cross-securitized. That’s using your equity to help you grow your portfolio, and that’s really smart, really strategic. That’s the way I think you should be doing it and the way we certainly encourage and advocate doing it. But not the other way around.
Kevin: Let’s hypothetically say that Michelle is with lender A on a particular property. By going to lender A to secure another property, that is cross-collateralization?
Andrew: Not necessarily. Not unless they’re using the equity to assist. Let’s just say, for rough numbers, the home is worth $500,000, and they have a $100,000 loan. So from bank terms, there’s $300,000 in equity, using an 80% loan to value ratio.
If you then go and you buy another property for $500,000, and you finance the $500,000 plus the stamp duties and fees and whatever it costs, it might be about $530,000, $540,000, and you do that all in one loan. The equity to be able to give you 105% against that property has to come from somewhere, and that’s where they’ll link the two properties together.
A more strategic way would be to take the balance of your equity from property A, as we said, Have a line of credit for the $300,000, and then use that as your 20% plus your fees and your contribution into property B for the $500,000. Do a loan at 80% loan-to-value ratio there, and they’re now very separate. Still 100% tax deductible because you still used the funds out of property A to be able to buy property B.
But they’re just not linked. Should one go up or down or you want to sell or refinance because you have some equity gain, they’re not linked, and they can’t be held against each other by doing it that way.
Kevin: That can be done with the one lender?
Andrew: Absolutely, yes. We still do them. A little golden rule we have with most of our people is somewhere between two and four properties at a lender, because that gives us the opportunity to negotiate great rates, great outcomes for our clients, but also not get too deep into just one lender, and making sure then we look to have some other opportunities with other lenders so that we can at time, whether exploit or whether just take opportunities of different rates or fees or credit policies at times with different lenders.
Kevin: There you go. Great question. Thanks, Michelle, and we’re going to send you a 12-month subscription to Australian Property Investor magazine for that question.
Andrew Mirams from Intuitive Finance, thank you for answering it.
Andrew: My pleasure, Kevin. Thanks.
Rod Amos
Kevin: A question that’s commonly asked is, “What’s the best way to sell my property? Should I do it through auction, or should I do it through private treaty?”
My next guest is Rod Amos. Rod is professional auctioneer who works around New South Wales. His company is East Coast Auctions.
I guess we come across this quite often, Rod, where people genuinely want to know: is it about the property? Is it about the market? Is it about the price? What makes a good auction?
Rod: Good question, Kevin. I’ve been an auctioneer for 15 years. Going back to 15 years ago, there was a bit of a belief in lots of areas that I do that auctions really benefited something that was a little bit unique. Why would you take a property to auction, for instance, in the estates where the only difference might be the color of your front door?
But when you look at the agents and offices who do specialize in it, they understand the dynamics of it. It has pretty much been proven that even where you’re looking at like for like, it’s a matter of really getting the clarity and, importantly, the competition of people on the day. That’s a big difference.
As a buyer, it’s taken with a grain of salt when you’re told, “The offer’s not high enough, and there is somebody else who is also looking at it.” The big thing for buyers is that on auction day, they’re actually able to see and listen to the competition, as well.
To me, that’s oftentimes a bigger advantage for the buyer because they get to see that the market is just in favor of that property as they are. But it also means they have some clarity there that they’re not the only ones who definitely want to get their hands on it.
Kevin: There is a common saying in the industry, too, that if you want to get a premium price, the only way to do it is to go to auction. Do you subscribe to that?
Rod: Every property I’ve sold myself – which is only a handful – I’ve always taken to auction. Naturally enough, I’ve employed another agent, and then I’ve had to entrust and put the pressure and responsibility on another auctioneer.
It’s also the case that the thing for me different to most people is that because it’s a day-to-day occurrence, I’m familiar with the process, I understand how it works, and naturally enough, that’s what gives one the confidence to go forward with it. It’s a little bit different, obviously, if it’s a vendor, and for most people, you’re selling every ten years, or as a buyer it might be the same time in between purchasing property.
I think in general when we look at some of the major markets, Sydney and Melbourne in particular, it is the preferred way of selling. The reason it’s preferred is the vendors see that it’s working for their neighbors and buyers also get a little bit on clarity of the fact that they’re exactly where their competition is on the day when it gets down to finding out who the new owner is.
Kevin: I think sometimes, Rob, we ask the wrong question. We ask whether this is the right property to be taking to auction when we should be saying, “Am I the right person to have my property auctioned?” Properties are properties. They don’t make the decisions about whether they should sell or not. It’s really the buyers and the sellers who make those kinds of decisions.
Rod: That’s right. The point being that I find with auction, too, the pressure goes back onto the agent. I’m in an area where lots of agents who probably aren’t quite as effective in the marketing and negotiation and doing the hard yards will say to people, “Don’t go to auction because it’s a really strong market. We’ll sell it probably in less time, and you’re going to be really happy with the result.” We know when we have that level of competition, in most cases they’re probably going to achieve more at auction or through an auction campaign.
Bear in mind, not everything sells under the hammer; it may well be that the pressure of going to auction will often draw forward an offer from the buyer well beyond the vendor’s expectations, and we do see properties selling prior to auction. That’s generally because you have one buyer well out beyond the rest of the pack due to the competition.
Kevin: As I’m speaking to you, Rod, of course, you told me off air that a number of your properties this weekend have actually sold prior to auction. Is that a good idea for a seller to accept an offer before auction?
Rod: There’s only one person who can make that decision, and that’s certainly the vendor. What it basically comes down to is obviously when an agent is listing a property, the vendor and the agent deciding, “Based on where the market is and on comparables, where do I see it?” and obviously, a vendor would like to see a higher figure than a lower one.
You’re working on a figure for the vendor that the agent’s responsibility is to deliver and exceed. Throughout the campaign, it’s often a case of there’s one buyer who, for whatever personal reasons, is well beyond the indication other buyers are giving leading up to the auction. Now, generally that will only happen in the last week of the campaign where the agent knows who they’re working with and is aware of who is prepared to be there on the day.
I should make a distinction. It’s one thing to make an offer. What any good agent should be doing is saying, “Well, if you do want to move forward and purchase this property, there’s no point in just giving me your price. What I’m going to need to do is have a signed contract with that with that 66W to ensure that it can go forward. I’m going to need to have a check to deliver to the vendor. Once I have that, I’m to leave it with the vendor to make a decision.”
In fact, there were three instances out of six this weekend where there was one party who was well beyond the expectations of the rest of the market.
Kevin: It goes to show, but as you say, it’s really up to the seller to make that decision.
Rod, we’re out of time, unfortunately, but it’s great talking to you. Rod Amos has been my guest from East Coast Auctions talking about whether or not you should go to auction or private treaty.
We have a lot more to cover, Rod, so we’ll come back in future shows and talk to you again. Thanks for your time.
Rod: Thank you, Kevin.
Matthew Wrigley
Kevin: Almost a quarter of the Australian population live in a strata title home, and with the rise in apartment living, the number is increasing every day in parallel with the obsession for home renovation. Influenced by the promise of instant profit, Australia has become a renovation nation. Rarely is any renovation experience straightforward, but when it’s compounded by the lack of or lax strata bylaws, it’s only a matter of time before there is a problem.
Matthew Wrigley is the managing director of Perpetual Strata Management. He says there is an increase in the number of disputes arising from strata property renovations. He joins me.
Hi, Matthew.
Matthew: How are you, Kevin?
Kevin: Matthew, I’m well. Thank you. Tell me, what’s the basis of these? Are you surprised by the increase in the number of these?
Matthew: Not at all. With many homeowners now looking to property to invest in, they’re looking for quick capital growth areas, and that’s why they’re buying un-renovated properties and then adding value to them.
Kevin: What do most of the strata issues and disputes relate to?
Matthew: Most of the disputes relate to noise and damages. The damages can be from knocking a brick through the common wall into your neighbor’s property or even the time they start work.
Kevin: In that case, what steps then should someone take if they’re in a strata property before actually planning a renovation?
Matthew: Communication is key. You need to work with your strata manager. The strata manager is there to give you the best advice possible and help you through all these things. They’re not there to work against you; they’re there to help you get through the whole process of getting it completed.
Kevin: You mentioned that noise is one of the factors. I think, too, getting tradies onsite and the general confusion down in the common areas can also be a bit of a problem.
Matthew: Yes. Stopping the lifts, where they’re parking all their vehicles – it all contributes to basically just annoying other tenants and owners. That’s one of the big keys. When a jackhammer starts at 7:30 in the morning, I can say I’d probably have at least a couple of calls that morning.
Kevin: It would be quite disconcerting, too, if someone was actually knocking a hole in the wall and a few bricks came through into my apartment. I think I’d get a bit upset about that, as well.
Matthew: Yes, and it does happen.
Kevin: What about the changes you make inside? Making sure that you’re not knocking down any supporting walls? Do you need to get some sort of professional advice about that before you go ripping walls out?
Matthew: 100%. You need to have a structural engineer involved. You need to get that all approved prior. You need to have it approved once it has been taken out and the structural beams have been put in and signed off. You just need to have the correct paperwork.
Kevin: What about liability? Are there any rules that people might not know about if they’re going to go into these things?
Matthew: The liability is with the owner. However, there is a gray area if the lot is then sold with the problem because then it goes back onto the owners corporation.
Kevin: What are the guides to a good strata renovation?
Matthew: The first thing to do is consult your strata manager. Advise them of what you’re looking at doing. Also, investigate and research to find the correct builder to do it. If you can find the correct builder who will be willing to work with the strata manager, you’ll be always able to get through the project a lot smoother.
Kevin: Do the rules change around Australia? I know this show goes all around Australia. Are they different state by state?
Matthew: They are different. New South Wales, I would say, would be one of the strictest with Queensland closely following. It all comes down to the owners corporation and how they want to run the building. If you can set the building up initially to have correct bylaws in place that allow people to do renovation but they must follow a certain process to do so, it allows them to do the renovations. Unless the buildings have correct paperwork, the owners hold responsibility for it and it doesn’t fall back onto the owners corporation to maintain it, look after it, or problem-solve the issue.
Kevin: As you said, going right back to the start, Matthew, it’s all about communication. Make sure that you communicate well, and before you go slipping into getting any renovations done, make sure you’re talking to the appropriate people in your organization.
Matthew Wrigley, managing director of Perpetual Strata Management, thanks for your time.
Matthew: Thanks, Kevin.
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