{"id":10922,"date":"2017-03-26T03:00:34","date_gmt":"2017-03-25T16:00:34","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=10922"},"modified":"2017-03-26T03:00:34","modified_gmt":"2017-03-25T16:00:34","slug":"traps-for-young-players-starting-out-shannon-davis","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/traps-for-young-players-starting-out-shannon-davis\/","title":{"rendered":"Traps for young players starting out – Shannon Davis"},"content":{"rendered":"

If you are finding it tough to get funding for a property purchase, it could be that it is not a reflection on you, your portfolio, anything you have done in the past or how you have managed your affairs but more about an APRA type boom.\u00a0 Shannon Davis<\/strong> explains.
\nTranscript:<\/strong>
\nKevin:<\/b>\u00a0 Shannon Davis from Metropole Property Strategists joins me. We talk about the restrictions that the banks are currently putting on lenders is probably one of the biggest concerns for property investors right now.
\nShannon, as I read it, the banks are really toughening up, looking at where they\u2019re lending, how big their books are going be. In fact, in some cases, some of the banks are saying they just simply won\u2019t lend any more to property investors.
\nShannon:<\/b>\u00a0 Yes. I was recently talking to an investor client of ours, and they got asked for a letter from his in-laws that they could live rent-free in their house in order for the loan to go through. That was the extent of how much. And this person was well capitalized and on dual income, so they\u2019re really tightening it up. In some areas, it\u2019s been referred to as an APRA-type boom in that the tightening up actually has the wrong effect on prices and making the demand even more.
\nKevin:<\/b>\u00a0 Yes. There\u2019re going to be a lot of very nervous developers, I would think, hearing the stories that I\u2019m hearing out of places like Cairns where the banks are having their own valuations prior to settlement and they\u2019re coming in so much under the purchase price.
\nShannon: \u00a0\u00a0<\/b>It definitely makes it hard to complete if you have to afford an extra $20,000, $30,000, $40,000, $50,000 to make the settlement occur. There will be people walking away from deposits, I would think.
\nKevin:<\/b>\u00a0 Shannon, I want to talk to you now about the common mistakes you see investors make in this market, and it probably changes because of some of the things we\u2019re talking about \u2013 the way the banks are reacting, what APRA is doing and so on. But what are some of the common mistakes you see investors make?
\nShannon:<\/b>\u00a0 I think people like to beat their chest in trying to have a quantity approach and try and buy ten properties, but what you\u2019ll see is maybe those ten properties will be worth $3.7 million and the investor only has like $400,000 of equity in that portfolio.
\nKevin:<\/b>\u00a0 Very high risk, isn\u2019t it?
\nShannon:<\/b>\u00a0\u00a0Yes, high risk. It\u2019s not about how many properties you own; it\u2019s that difference between the net debt and the market value, which gives you your equity, is what you\u2019re worth.
\nKevin:<\/b>\u00a0 Because without that equity you can\u2019t gear either, can you?
\nShannon:<\/b>\u00a0 You can\u2019t buy again. You can\u2019t extend your portfolio. It\u2019s the difference, really, between a fast-moving portfolio and a slow-moving one. There are people who have used up their borrowing capacity with non-investment-grade properties and are just stuck in the mud, for want of a better term.
\nKevin:<\/b>\u00a0 You must see a number of those? To help them out of it, they have to really sell down, get out of those bad properties?
\nShannon:<\/b>\u00a0 And sometimes can\u2019t afford to sell. There\u2019s no market there or they owe more than what it\u2019s worth now.
\nKevin:<\/b>\u00a0 They need to make a loss, don\u2019t they?
\nShannon:<\/b>\u00a0 Definitely, and they can\u2019t afford to crystalize that loss.
\nKevin:<\/b>\u00a0 Wow.
\nShannon:\u00a0<\/b>\u00a0That\u2019s a real sad part. They would have been better off doing nothing than investing.
\nThat\u2019s where we get it wrong. We think that property is always going to go up, that each property is very much the same\u2026
\nKevin:<\/b>\u00a0 Well, they do if you buy well.
\nShannon:<\/b>\u00a0 They do if you buy well, but there are going to be times in the market where we\u2019re not booming and there are going to be times where we go sideways, and there can even be times where we\u2019re going to contract. When you\u2019ve been an experienced investor, you\u2019ve seen all those times through.
\nAgain, it\u2019s long term, but let\u2019s do our research. Let\u2019s not take advice from people who are compromised, and by that I mean like selling agents. You shouldn\u2019t be getting your investing advice by your selling agent because they have a different agenda to you.
\nYou shouldn\u2019t be getting advice from someone who\u2019s going to bring out a list and say, \u201cAny one of these properties will be your answer,\u201d because they\u2019re compromised to that list of properties and they\u2019re probably getting a commission from that builder and developer.
\nThese are the type of traps for young players that I\u2019m talking about, where people are taking the advice from compromised people or the wrong types of people.
\nKevin:<\/b>\u00a0 Didn\u2019t really finish you talking about gearing, and we might do that next time we catch up because I think that\u2019s a fascinating subject on its own \u2013 how you gear \u2013 because many people don\u2019t understand the benefits of it. They have all this equity in a property but they don\u2019t understand about gearing. We\u2019ll talk about that.
\nAlso lines of credit \u2013 and we have got about 60 seconds left. A line of credit and the importance of having the buffer for things that you\u2019ve been talking about then.
\nShannon:<\/b>\u00a0 Yes. And again, it comes back to the equity in your portfolio and a sophisticated broker probably giving you that access to that line of credit. That can help you with your contingencies, whether it\u2019s emergency repairs or a slight loss of employment. Once it\u2019s been extended to you, it\u2019s very much up to your discretion of how it\u2019s spent, and if it\u2019s used wisely, it\u2019s like this big credit card that\u2019s not really costing you anything to have but can buy you time to get out of a bad scenario, such as loss of employment, emergency repairs, a tenant absconding from your property.
\nKevin:<\/b>\u00a0 Thirty seconds. Sum it up for me.
\nShannon:<\/b>\u00a0 Begin. That would be my first advice. Begin. You have got to grow your asset base wide if you want to have that delayed gratification in the end. Time your life, don\u2019t time your market. Do things to your personal circumstances, not to what the headlines are saying around you. And finally, have a plan. If you want to execute that plan, get some expert advice.<\/p>\n","protected":false},"excerpt":{"rendered":"

If you are finding it tough to get funding for a property purchase, it could be that it is not a reflection on you, your portfolio, anything you have done in the past or how you have managed your affairs but more about an APRA…<\/p>\n","protected":false},"author":176692471,"featured_media":10927,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[6,32,34,10,11,13,36,25],"tags":[101],"class_list":["post-10922","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-buy-in-brisbane","category-buying-a-property-topic","category-finance-topic","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-property-investment-topic","category-sponsored-channels","tag-podcast"],"yoast_head":"\nTraps for young players starting out - 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