27 Nov Top regional markets | Potential for positive gearing | Buyer looses a bedroom
Australia is a country with a very sizeable land mass and it’s usually only the big profile cities which get mentioned in property market commentary. Today Simon Pressley identifies some regional markets that are well worth investigating for good returns.
Why would a rich person waste time writing a book helping others to get rich? That is a question I put to Michael Yardney in the show today because it is a question that has been asked. Why not instead relax, do very little and enjoy the success. Michael puts it into perspective.
The goal of an investment property is to make money. The good news is, there are more ways to profit than just collecting rent. Brad Beer explains.
The times they are a changin’ and now it the legal profession undergoing change or disruption. Mira Stammers tells us about a new website she has created that makes getting a solicitor on a fixed rate so much easier.
It used to be that negative gearing was the in-vogue investment strategy. Rachel Barnes remembers people looking at her strangely and thinking it mildly humorous when she found and endorsed the potential of positive gearing back in early 2000. She tells the story of her success if that category.
Yet another horror story about buying off the plan from Patrick Bright. While he admits he has done it he outlines what he has learnt the hard way.
Transcripts:
Brad Beer
Kevin: There’s an old saying in life, “Happy wife, happy life.” But there’s another one, too, that you should bear in mind, and that is, “Happy tenant is going to make you a very happy landlord.”
One great way to keep your tenants happy is to look at renovating your property, continually improving it, and making it a better place to live. That’s the subject of this conversation I’m about to have with Brad Beer from BMT Tax Depreciation.
One might wonder where tax depreciation works in with renovation, Brad, but it really does have a place to play, doesn’t it?
Brad: Yes, it does. I have a few properties myself. I’ve done a lot of renovations, and it always gives you a bit more choice of tenants and helps you sometimes to get that little bit of premium out of that property. Renovating the properties has always worked pretty well for me.
Now, the claims. You buy more things within an investment property. You spend money on capital works. There’s more depreciation to claim. Definitely, you’re putting your things in there, they have value, and they’re starting to depreciate as soon as they’re in there, so there’s claims there for either the plant and equipment or those capital works that have been done.
Kevin: What are some of the big-ticket items that you can claim depreciation on that are actually going to turn the tenants on in your experience, Brad?
Brad: People walk into a house and they look at kitchens and bathrooms straightaway and go, “That’s a nice kitchen. I can see myself cooking there. Nice bathroom.” After that, if there’s paint coming off the walls or the carpet is really old or things like that, anything within a property that just makes it look old and tired or smelly or anything like that.
Even if you don’t do kitchens and bathrooms, a carpet or floating timber boards. These days they have some things that are less expensive than they use to be, and they’re also depreciable quicker. Tidying those things up and the paint really freshens a property up really easily and inexpensively.
Kevin: Yes. The lifespan of some of these items, too, like a new kitchen… For instance, if we spent $15,000 putting a new kitchen into a property, what kind of benefit can I expect over what period, Brad?
Brad: The kitchen itself is seen as a capital works deduction that must be claimed, so kitchen benches, tops, and cupboards have actually got a 40-year life, which is a long time. The things like the stove or carpets – obviously, carpets aren’t in kitchens very often – but things that are plant and equipment – range hoods – that don’t last as long, you get to claim a fair bit quicker.
Your actual kitchen itself is a fairly slow claim. However, putting a new kitchen in is also about happy tenants, better tenants who’ll pay a premium for those, and also making the house more valuable, so you have equity gain on that property.
Depreciation is not the reason to replace a new kitchen; it’s a benefit at the back end of it.
Kevin: Yes. Anything that’s going to keep the house in good repair is going to be good for its ongoing value. Interesting we talk here about renovations, Brad, because another part that I want to touch on, as well, and that is something you should do before the renovation, and that is work out about scrapping deductions. Tell me how they work?
Brad: The most important thing is to make sure you have the depreciation and things worked out before you rip it apart. Renovators call the quantity surveyor first.
Scrapping: when you decide to do some renovations, there are things within that property that probably still had some value from a depreciation aspect. Now we’ve said old properties still get deductions, so we’ll find out whether there are things there that could be claimed. Now any value that’s left, if you throw them away, instead of continuing to depreciate them, they’re an instant deduction in the year that you throw that away.
I’ve done some renovations where I’ve had $10,000 scrapping deductions before. These were things that still had value that I would have been claiming over the next five years or however long, but because I threw them away, I got an instant deduction in that year.
The important thing is to look at it before you rip it apart.
Kevin: Gee, there must be a lot of renovators or investors who just don’t understand that that money is sitting there, and they just totally waste it, Brad.
Brad: Scrapping is not the tax office term; it’s just an easy thing to understand. If we talk about claiming the residual value of items, people start to maybe fall asleep a little bit more. But if I say, “Don’t scrap and lose your money,” scrapping is an easy word to understand.
Kevin: Yes. It is, indeed. It’s always good talking to you, Brad Beer from BMT Tax Depreciation. Contact the guys through our website, of course. He is there to help you.
Brad, thanks for your time.
Brad: Thanks, Kevin. It’s always a pleasure.
Michael Yardney
Kevin: Last week on the show, I was talking to Michael Yardney about his new book “Michael Yardney’s Guide to Getting Rich.” He joins me once again.
Good morning, Michael.
Michael: Good morning, Kevin.
Kevin: Michael, interesting, I saw a blog that you wrote just recently in response to a question you had from someone who said, “Why would someone who’s rich want to write a book about others getting rich?”
Michael: I guess the implication in that, Kevin, was why would somebody who’s rich share their secrets? Kevin, to me, that’s the type of question asked by a poor person, somebody with a scarcity mentality.
Kevin: I understand what you mean.
Michael: Maybe I should first of all explain the reason I wrote it, and then I’ll go back to why I think it’s a scarcity mentality. Is that okay?
Kevin: Please do.
Michael: The reason I took the time to write my book is because I enjoy writing about the topic of the psychology of success. Kevin, it’s a topic I’ve been studying carefully for over 25 years. Over the last 10 or 12 years now, I’ve been mentoring people, and I’ve been writing about wealth creation online and in hard-copy magazines. I’m proud that a lot of people recognize me as a leading expert in this field. That makes me pleased to share my knowledge.
Kevin, in fact, I think it’s my obligation to share my knowledge and give back to the world that has given me so much. But, of course, it actually helps that I’ve got the time and freedom to do what I please because I’ve built a substantial property portfolio that’s given me the cash machine I talk about.
Kevin: The other thing, too, Michael, I have noticed in life that if you really like doing something and you want to become better at it, the best way to do it is to actually share that knowledge because it’s a learning process, as well.
Michael: Kevin, a lot of people misunderstand the mentoring relationship. They see it as one-sided, that a student takes from a teacher. In fact – you’re right – it’s the other way around. I find that by helping people, by mentoring people, it actually doesn’t just pay forward, it doesn’t just give back to the community, I gain a lot from it. It’s very much a win-win, Kevin.
Now that also goes together with the concept of why I think the question of “Why would you even want to share your secrets?” comes from a scarcity mentality because it doesn’t work that way at all. Kevin, if I build a big property portfolio, does it stop you from getting one?
Kevin: No.
Michael: No. If I get a big share portfolio, does it stop you from building one? But most people think either/or, and that’s not the case at all. Again, there are no secrets that I’m actually giving away. There are no secrets in this book.
It’s just a concept I was saying that people think, “Well, the wealthy people have got these ideas, and they’re not going to share them.” No. There’s enough for everyone, and there’s definitely enough to go around.
My thinking is the more wealthy people in Australia, the better it is for everybody. It lifts us up to a standard rather than brings us down to a standard that some people want us to live at, those people who aren’t pleased when they see other people successful.
Kevin: Well, Michael, I certainly hope that message does resonate and that many more people do want to or aspire to do that. A good way to do it, of course, is to simply get a copy of Michael’s book, which is called “Michael Yardney’s Guide to Getting Rich.” As we promised last week, there is a button on the show page at RealEstateTalk.com.au for you to go straight through, and it‘ll tell you how you can secure that book for yourself.
Michael, thank you so much for your time.
Michael: My pleasure, Kevin.
Mira Stammers
Kevin: We’re hearing about disruption in a lot of industries. Remember those days when you use to go to a solicitor and never quite know what it was going to cost you? Well, those days could be well and truly over. There’s a new firm called LegallyYours.com.au. I’m talking to the person behind that, Mira Stammers.
Hi, Mira. How are you?
Mira: Hi. I’m really well, Kevin. How are you?
Kevin: I’m well, thank you. How does Legally Yours work, and why did you set it up?
Mira: Legally Yours is really a solution for business owners and other Australians looking for legal services on a price-certainty basis. I was working in London in a fixed-fee environment, and I came back to Melbourne and really noticed that it wasn’t available in a wide capacity in Melbourne. At the same time, I kept seeing all of these really talented women leaving the profession because of the lack of the flexible nature.
I wondered how I could put those two things together and eventually came up with Legally Yours. It’s a way to access legal services on a fixed-fee basis utilizing a pool of very talented women who work predominantly virtually.
Kevin: They are all women who are online?
Mira: There are men and women but predominantly women who have signed up to the service because of the flexible nature of it. Certainly, we can service all different areas of law, and we have specialists in all areas – so family lawyers, commercial lawyers, employment lawyers and whatnot.
Kevin: The fixed-fee arrangement I guess is probably the description. Is that more common overseas than it is in Australia?
Mira: I did find it to be more common in London. Certainly, even on big transactions, there was a demand for fixed fee. I think clients cottoned on to the fact that there is more bargaining power, perhaps because the GFC was a bit more hit over there.
I came back and thought, “We’re behind the times here. We really need to be listening to what clients want and giving it to them.” I just found that law firms here weren’t doing that.
Kevin: Apart from the fixed fees, what have you heard in feedback about other frustrations with the current legal system?
Mira: Well, part of my market research at the outset was to ask business owners and ordinary Australians, “What do you hate about lawyers?”
Kevin: Where do you want me to start?
Mira: That was commonly the response, and so I listened to that. I really listened. I think lawyers by their nature are very risk-averse. They tend to want to do things in a way that suits them. That’s fine, but it hasn’t been working for clients for decades.
I really listened to what clients wanted. They wanted not only fix fee, but they wanted lawyers who weren’t elitist. They wanted to be able to pick up the phone and not be billed every time they do. They certainly wanted to be able to entrust in their lawyers and know that basically there was value-based billing, and they could make sure that they got their phone calls returned and the correspondence was there, as well.
I think lawyers by their nature also haven’t been very responsive to clients. I really wanted to shake that up and change that and do the best that we could to give clients exactly what they want.
Kevin: What reaction have you had from legal firms?
Mira: It’s been varied. Some have been very supportive. Others have said, “Oh. That’s never going to work, and why would lawyers do that when we can charge hourly rates?” I think those lawyers will find out over time that this is working and it’s really about being innovative in your approach and progressive in your thinking.
Kevin: I guess it would be fantastic for lawyers who don’t want to be caught up in a large firm, maybe do a little bit of work for themselves, and as you say, ideal for women who don’t want to be in the full-time work force anymore.
Mira: Absolutely, and I think they’re a very underutilized talent pool. There are lots of women out there who have had amazing training and have great experience, and perhaps they’re at home looking after their kids and they want to continue to do some work. But private practice, the way it is set up, doesn’t really support that. There are some firms doing it out there, but not many. I really wanted Legally Yours to support women to stay in the law so that we didn’t lose these talented women.
Kevin: There are so many other things I want to cover with you, too, but unfortunately, we are out of time. I’d love to get you back into the show just to talk to us about some of the things that you’re finding – legal tips for investors, etc. We’ll have to get you back at a later time for that, Mira.
I want you to check out the address. It is Legally Yours.com.au.
Mira, once again, we’ll look forward to having you back in the show at some future time. Thanks again for your time.
Mira: Thanks, Kevin.
Patrick Bright
Kevin: Buyer’s agent Patrick Bright joins me. Patrick, of course, is from EPS Property Search.
Good day, Patrick. How are you doing?
Patrick: Very good, Kevin. Nice to speak with you.
Kevin: Good. Nice talking to you, too. I want to talk to you specifically about buying off the plan and what you’re seeing with certain developers enacting the sunset clause. You might tell us firstly what the sunset clause is.
Patrick: A sunset clause is a clause in a contract that says that if a property takes a certain amount of time, it has an expiry date, so if the developer is taking too long, the buyer can actually withdraw from the contract and get their deposit back.
But by the same token, if the property is taking that long – usually the same date – let’s say, it’s a two-year project, and we’re at two and a half years, the seller can say, “All right. I’m going to terminate the contract,” or the buyer can terminate the contract.
Now if the market goes up – and as we’re seeing and it’s been well publicized – several developers have enacted that sunset clause, given the original buyer their 10% deposit back, and then they’ve gone off and resold the property for significantly more money.
If the situation is on the other foot, what we’re not seeing is when these projects are actually worth less money than what the purchaser signed up to buy it for at completion, the developers are making sure they’re completing them within the timeframe, so their sunset clause isn’t being exposed.
It’s a gray area from the point of view of are the developers purposefully dragging the contract out, and in some cases, are they making sure they finish in others? That’s pretty much what we’re seeing happen.
Kevin: Well, you probably would have seen a lot of that happening in the Sydney market with the way that market’s certainly turned in the last year or so.
Patrick: It certainly has. Yes, we have seen a lot of that. That’s what’s been well publicized recently of a number of developers doing that.
Kevin: You can obviously just turn around and renegotiate the contract if you want. Are you seeing much of that happening?
Patrick: Not really. What we’re seeing is they’re saying, “You may have signed up to buy this property at $800,000 two years ago, but now the market has gone up, it’s actually worth $1 million. Here’s your 10% deposit back. I’m going to re-sell it for $1 million.”
The buyer either pays that $1 million, or they end up with their deposit back. You have a number of problems there. You have lost opportunity cost. You’ve missed out on the growth of the market over that time.
Look, off the plan isn’t for everybody. I have personally done it myself before. I haven’t done it for any clients or myself essentially since 2008. A lot of things changed in 2008. Rules affecting foreign buyers in Australia changed and allowed 100% of new development to be sold to foreigners. Previously to that, it was restricted to 50%, so that meant they had to get the sales here.
So you’re having a situation where it’s well known in the industry that foreigners will pay a lot more than the local market, so we’re seeing inflated prices, developers chasing the foreign dollar. They’re getting presales, and then they’re using those presales to influence local market on price.
Even though we’ve had fantastic growth in the last couple of years in Sydney, properties are only just coming in on valuation. That means people were paying 20% or 30% more than they should have a couple of years ago because the foreign buyer is pumping up the market. That’s another concern with off the plan.
You have situations where they have shrinkage clauses, and they’ve changed the size of the properties. There’s a recently well-publicized case of a gentleman who thought he bought a one-bedroom apartment, but they changed the size of it and he ended up with a studio. Now that changes the price significantly. If you don’t have a proper one-bedroom and you’ve now got a studio, you’re talking possibly 20% to 30% of the value of the property.
Kevin: The two major clauses there that would concern any purchaser – or they should – are that sunset clause and that shrinkage clause. Is there any way that you can knock both of those out of the contract?
Patrick: You could if you get a developer that will agree to it. I’m not aware of any that have agreed to it. When I did these off-the-plan purchases for myself and other clients in a different rule environment, we did negotiate with the sunset clause that it was our discretion not the developers. The sunset clause was there but they couldn’t terminate that clause, only we could enact it – to tie them to us, so we had the upper hand there.
But getting shrinkage clauses, they ask for different percentages. Some of them are 5%. Some are 3%. You need to negotiate that. These things are negotiable, but in a strong market, you’re not getting developers being flexible.
This is the problem with access to the foreign buyer like never before, with unrestricted access to the foreign buyer with new products, getting the FIB approval is very simple for these guys these days. They don’t have to be flexible, whereas before, they were flexible because they had to sell to the local market, as well. Now they do sell to the local market but only generally after they’ve sold to the foreign market.
Kevin: It would be pretty wise, with all of these conditions floating around, that you make sure that you engage a lawyer who is a specialist in off-the-plan type purchases.
Patrick: Very much so, Yes. Look, off the plan, as I said before, I’ve done it, but more than a decade ago was the last time I did it. The rules have changed. It is concerning. You do need a lawyer.
I’ve come to the conclusion – although, I didn’t see it that way back then when I was buying myself – that it’s speculating. You’re not investing. If you’re buying off the plan, you are speculating. Let’s just call it what it is.
You’re taking a punt on a lot of things. You’re punting on the market going up. You’re punting on what interest rates are going to be like at the time. You’re punting on how banks are going to value it, which is another issue.
Banks now have changed the rules. If you bought a property off the plan a couple years ago and you go to settle now, in the last six months, we’ve had a lot of changes in the rules. Banks now want 20% deposits if you’re in a capital city. Before, they would take 10%. Regionally, they want a 30% deposit. You look at these things. If you only had 10% required before, where do you come up with the other 10% or 20% if you don’t have it?
Kevin: You don’t.
Patrick: Right. Now you get also a situation where you can default. What happens then is you can’t pay the balance, the developer takes your 10% deposit, resells the property, and can sue you for the difference. If they sold it for 80% of its value, they can chase you for the other 10%. You’re exposed. You’re very exposed. It’s something that’s quite high risk. The deeper you look into it, you scratch your head and you wonder why you’d do it.
Kevin: Certainly a lot to think about there. Patrick, I want to thank you for giving us your time and drawing that to our attention. Patrick Bright, of course, from EPS Property Search and Property Management.
Thanks for your time, Patrick.
Patrick: A pleasure, Kevin.
Rachel Barnes
Kevin: My next guest is Rachel Barnes from InvestorFriendlyAgents.com.au.
Rachel, thanks for your time.
Rachel: You’re welcome, Kevin.
Kevin: No doubt, as we’re talking to many property investors around Australia, we get to talk about positively geared property and negatively geared property. Let’s talk about positively geared because I know that you’ve basically built quite a good portfolio on that strategy. Is it still possible, Rachel, to do that?
Rachel: Yes, it is. It’s just harder to find new negatively geared property, and that’s the thing. Often people either put it in the category that “If I get positively-geared property, I won’t get capital growth” – and I haven’t found that to always be the case – or they think it’s too hard to find. But there are compromises sometimes that you have to make, and that’s where it gets down to just choosing the right property in the right place for your strategy.
Kevin: Do you find that you can work with buyer’s agents in this way? A positively geared property depends on how much capital you’re putting yourself in a lot of cases, doesn’t it?
Rachel: Well, sometimes, and that’s just the thing. You see a lot of places advertising positive cash-flow properties, but you really have to check the assumptions that they’ve put on there because they may be assuming that you’re only borrowing half the amount. But, of course, then it’s going to be much easier to make it positively geared.
Whereas, when I look at it, I’m looking at more 80% to 100% of a loan – one way or the other, either using two properties or one to make it still positive cash flow so that I can buy as much as possible.
Kevin: You mentioned earlier in our chat about the possibility of getting capital growth and cash flow at the same time. Is that possible?
Rachel: Yes. It’s funny because sometimes you go into a property and you know it’s negatively geared and you think, “But that’s okay. I’ll just hope and pray that we’ll get capital growth, and then we’ll be fine because everything will catch up.”
Of course, the longer you go, the harder it can be, and then you can end up sometimes selling it for a loss because you couldn’t wait long enough because of the cash-flow negativity to actually reap the capital gain benefit, so that can go backwards.
Whereas, with positively cash flow, if you’re picking the time right, you buy well, you get the right type of property in the right area, and you have the positive cash flow come through, you’re not going to be in such a hurry to sell it. Therefore, you can hold on until the time is right in the market.
Kevin: In your experience, have you found that there are some places or some areas around Australia that are better to pick up positive cash flow properties than others?
Rachel: Yes, but it all comes down to timing. Obviously, as I mentioned before, if you have positive cash flow, you can hold onto it to pick the right timing, but also getting in at the right time.
For example, there’s no way I’d be looking at Sydney at this point in time and saying, “Oh, yes. It’s easy to get a positive cash flow property in Sydney,” because that’s just going to be really difficult. I wouldn’t say impossible – nothing is impossible – but very, very difficult.
Whereas, when you go out a bit further and you look at the ripple effect, where housing still basically hasn’t caught up with the capital growth perspective but is getting the high yields because that growth has been kept down, then often, you’re actually riding a wave before it hits the shore, if you know what I mean.
Kevin: Yes. What should we be looking out for as a positive cash-flow property?
Rachel: Generally, just to be sure of what we’re looking at, the positive cash flow means that after all of your expenses, the property is still going to be putting some money in your pocket. That may be partly due to depreciation, depending on what tax structure you’re on, but also generally, it means that you’re getting somewhere around a 7%-plus yield.
If you assume that 5% is going to be gone in interest, 2% might be going into extra costs. I’m just talking about ballpark figures here, but generally speaking, you’re looking at least getting a 7% growth yield before you’d even start to put it into an analysis software to work out exactly what the end result cash-flow-wise would be for you.
Kevin: It is a possibility that you might be able to secure a property and then add a bit of value to increase the income, which is going to make it a bit more positively geared for you? Is that a way to go?
Rachel: Indeed, it is. That’s one of the best strategies I believe at this point in time in a lot of places, because if you can buy a property that’s run down, doesn’t have much income coming in at the moment, and you can increase the value of the property, as well as the income from the property, as well as the depreciation because of the work that you’re doing on the property, then you have three real major benefits with that.
Kevin: I guess subdivision would fall into that category, as well as renovation, wouldn’t it?
Rachel: It does. Granny flats are also starting to fall into that category in some areas, where people are adding an extra dwelling so that they can get some extra income. It doesn’t always add to your capital growth, but it does add to your yield, and therefore, you can hang on for a bit longer and you have more property on that lot. So, yes, there are a number of different factors, but subdivision is one of the keys where you can sometimes get a block of land for free.
Kevin: Yes, that’s right. A big bonus, isn’t it?
I mentioned at the start, too, I introduced you as being from the website InvestorFriendlyAgents.com.au. That’s a business you’ve set up to educate agents about how to talk to investors. Are you finding that you’re having some wins there, Rachel?
Rachel: It’s interesting; I was advertising it for a little while, but I found that I was getting the wrong type of agents contacting me – the people who were trying to sell off-the-plan properties to perhaps very naïve investors who don’t really understand what they’re getting into.
I stopped advertising; I’m basically going by word of mouth. Since then, I’ve found it really good. I’ve included property managers, but the agents I’m finding that I’m getting sourced through word of mouth. We have some amazing agents out there with very high integrity, people who are really eager to help their customers and to leverage and help investors to buy more property and sell those at the right time.
Yes, it’s really nice to actually find people in the industry where it’s got sometimes such a bad reputation, but there are an amazing number of really great, ethical, high-integrity agents and property managers out there. I love to connect with them.
Kevin: Yes. Is there a list of these agents somewhere? Is it on your website?
Rachel: It is. We’re still in the process. I have a number of property managers that we’re just starting to go through now, so that’s the extra arm, but we’re trying to do teams, so the agent, the property manager, even the receptionist, altogether, and do agency-by-agency.
But even though, I go out to the agents as a whole, I do the training for the whole lot of them so that they’re on the same page, I do find that I’m only going to be accrediting the people individually, because people can move on, agencies can change hands. It’s all down to checking with the person that they’ve actually got their certificate of accreditation if you’re dealing with them.
Kevin: The website is InvestorFriendlyAgents.com.au. My guest has been Rachel Barnes.
Rachel, thanks for your time.
Rachel: A pleasure. Thanks a lot, Kevin.
Simon Pressley
Kevin: Well, Australia is a big country, and if you look around the country, you’ll notice that a lot of the focus for property investors is on the cap city markets, mainly because most people choose to live in those capital city markets. But look outside those, and there are some really interesting regional markets. Even if you drill down further, there are some really interesting smaller regional markets.
That’s the focus of this conversation that I’m about to have with Simon Pressley from Propertyology.
Simon, I notice that amongst other areas, you did have a look at Tasmania. Hi. How are you?
Simon: I’m very well, Kevin, and you?
Kevin: Good, mate. So Tassie is one of those markets that you’ve looked on, you’ve given to us as a very good example?
Simon: Yes. We picked the local government authority of West Coast – which is North West Tasmania, Kevin – just to highlight one of literally dozens of examples to property investors of locations right throughout Australia where they have a small population base but are very, very affordable typical property price point that have actually performed, in a lot of cases, a lot better than high-profile cities.
Kevin: Is there a typical population size that you look at, Simon?
Simon: No, not really. West Coast, for example, the whole region has only got a population of 4500 people, which is small, really. I guess the most prominent town within West Coast is Strahan, which is quite a sleepy, popular tourist attraction. It’s very, very scenic, and its industry is really cottage tourism with a little bit of agriculture around it. But a typical three-bedroom house in Strahan today, Kevin, would cost around about $130,000.
Kevin: What sort of return would you get for that?
Simon: How does 11% rental yield sound for you?
Kevin: Oh, that sounds pretty good to me. No worries with vacancy? There are still plenty of people wanting them?
Simon: Yes, that’s the risk with these things, I suppose. When you have a small population base and the property does become vacant, I guess that increases the chances of a prolonged period of vacancy, and then that’s probably a bit similar to a commercial property investing where a typical vacancy rate is 15% or 16%.
That is a risk, but that’s also balanced by the holding costs. The properties themselves are so affordable, the holding costs are so much smaller than in these bigger-profile cities.
Kevin: What are some of the other examples you have around Australia where the small fish can be a lot sweeter?
Simon: So to put some context around the thing, West Coast that we’ve just been talking about, it’s had a total return of 20.5%. That’s average annual capital growth and rental return over the last 15 years.
Let’s look at some other parts of Australia. Barcaldine in Central Queensland has got a typical property of about $152,000 for a three-bedroom house. The population in Barcaldine is only 3500 people, but yet it’s had a total return of around 20% over the last 15 years.
Further south in Victoria, there’s a little regional town called [3:14 inaudible], which is really dairy country, not far from the Great Ocean Road. $162,000 for a typical three-bedroom house and an 18.2% total return.
There are dozens of these all around the country.
Kevin: How do we find these locations, apart from doing the hard work ourselves? Do you make them available on your website?
Simon: We haven’t published a report as such. We have put the one about West Coast, which is titled “Small Fish are Often the Sweetest,” up on the Propertyology website to get a bit of a rundown of it. The intention is just to really stretch the property investor’s imagination about what’s really available out there.
Kevin: Yes. If you’d like to know a little bit more and you’d like to contact Simon Pressley and his team, you can do that through Propertyology.com.au. There’s lots of great information there, and you can contact the boys directly.
Simon, thanks for your time.
Simon: My pleasure, Kevin.
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