{"id":14250,"date":"2017-10-08T01:00:28","date_gmt":"2017-10-07T14:00:28","guid":{"rendered":"http:\/\/www.realestatetalk.com.au\/?p=14250"},"modified":"2017-10-08T01:00:28","modified_gmt":"2017-10-07T14:00:28","slug":"can-apra-get-any-tougher-andrew-mirams","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/can-apra-get-any-tougher-andrew-mirams\/","title":{"rendered":"Can APRA get any tougher? \u2013 Andrew Mirams"},"content":{"rendered":"

Are there more changes on the way from APRA \u2013 can it get tougher? \u00a0The answer is yes so you need to prepare BEFORE you go to the bank. \u00a0We discuss how to prepare a \u2018financial buffer\u2019 with Andrew Mirams<\/strong>.
\nTranscript:<\/strong>
\nKevin:<\/strong>\u00a0 I did a video recently with Andrew Mirams from Intuitive Finance, and we talked about the changes with APRA, more changes on the way, even getting tougher for property investors. I\u2019m going to continue that conversation in today\u2019s show. Andrew joins me once again. I want to talk about financial buffers.
\nGood day, Andrew. How are you doing?
\nAndrew:<\/strong>\u00a0 I\u2019m doing really well, Kevin, thank you. And you?
\nKevin:<\/strong>\u00a0 Good, mate. Fine, thank you. As we said in that video, things are likely to get a bit tougher. Do we need to be thinking more about increasing that financial buffer? And maybe you might just describe what it is, Andrew.
\nAndrew:<\/strong>\u00a0 Yes, I think that\u2019s a great point. Firstly, what is a financial buffer? We hear that thrown around quite regularly, and I think the average investor, someone doing it for themselves or thinking they know what they\u2019re doing, probably doesn\u2019t set themselves up correctly with these sort of things.
\nAny business, anyone running inventory or stock and things like that, has an overdraft that they trade through. It allows them to buy and sell their stock and deal with short-term cash flows and things like that.
\nIn property investing, that\u2019s exactly what a financial buffer is. When you\u2019re buying investment properties and buying properties, it\u2019s time that makes you money. The asset will make you money, but it only makes that over time. So, you want to buy time, and that\u2019s exactly what a financial buffer really is.
\nKevin:<\/strong>\u00a0 How big should that buffer be?
\nAndrew:<\/strong>\u00a0 That\u2019s a great question, Kevin. Everyone\u2019s situation is very different. You have your first-timers starting and they might be in one position, and you have your mid-tier investors and then your student investors.
\nBut whenever someone has enough equity to at least buy a property or another property or something like that, I always try and look at what their rent is going to be and then what their costs might be.
\nLet\u2019s say they\u2019re going to earn $20,000 a year in rent but their costs are going to be $30,000. There\u2019s a tax consequence and everything like that. We don\u2019t talk about that; we just look at the net cash flow there of $10,000 a year.
\nWe\u2019d always like to try and have at least half of a property cycle. We talk about a property cycle being that seven to ten years, so always at three and a half to five years as a minimum. Hopefully that\u2019s bought us enough time for the property to improve, and then we re-evaluate from there.
\nIt\u2019s costing you $10,000 a year, depending on your properties or whatever, and we do a little bit of analysis around that. It depends on what state you\u2019re in, what rent yield, what your overheads are, and what type of property it is \u2013 body corporates versus a house and things like that. There might be maintenance.
\nWe try and factor all of those things in and do a little bit of a back of an envelope and say \u201cIt\u2019s going to cost you X amount. Now let\u2019s try and multiply that by five times.\u201d I think that\u2019s probably a pretty good buffer to have. If you didn\u2019t have to worry about your property for the next five years because you had the resource there to fund that, I think that\u2019s probably a pretty good position.
\nKevin:<\/strong>\u00a0 Over that five-year period, too, that situation, you would think it\u2019s going to get a little bit better \u2013 wouldn\u2019t you \u2013 as you pay down a bit of that debt, as well. So that buffer, while you wouldn\u2019t change it, becomes even better the longer you keep it.
\nAndrew:<\/strong>\u00a0 Yes, it should do. Really, any client who has a home loan and then they\u2019re buying an investment property for the first time, you want to make sure your personal exertion income is still going towards reducing the non-deductible debt, and you want to make sure your investible debt or your deductible debt is working for you.
\nWhile one might be coming down, the other one might be going up. But at the end of the day, what we\u2019re trying to do is base it from your personal circumstances, making sure you have a personal buffer, that if you want to go on a holiday or there are some urgent repairs to home or your car needs to be replaced or something like that, that you have sufficient personal resources.
\nThen where we can, we want to make sure we also have\u2026 We don\u2019t want to buy a property and then in a year, we\u2019ve put someone in jeopardy that they have to sell because you won\u2019t make money necessarily in a year. It\u2019s over the journey that you really make money. By buying the right asset and then giving it time to grow is where you\u2019ll make your money in property.
\nKevin:<\/strong>\u00a0 At the opening of this chat, I mentioned about the Skype interview that you and I did, the video about APRA. Go back and have a look at that, too. It\u2019s simply called \u201cAre There More Changes on the Way from APRA?\u201d Have a look at that because inside there, we talk about how the banks will start to look at you. You need to be looking at your disposable income.
\nI would imagine, too, Andrew, if you\u2019re going to go to a bank and you talk intelligently about your buffer and you talk about what you\u2019re suggesting, they\u2019re going to have a lot more confidence in you as a borrower, aren\u2019t they?
\nAndrew:<\/strong>\u00a0 Yes, if you\u2019re a little bit more astute, you set yourself up well, and you get to the right people who can explain and articulate that, then yes, you\u2019re going to get a far greater hearing because there is a lot more scrutiny on living expenses, there is going to be a lot more work around that.
\nThere\u2019s a lot of work being done to make sure that people aren\u2019t over-extending themselves. So, by having yourself well-resourced with the right buffer in these times, it\u2019s going to buy you that time.
\nWe are going into a bit of a credit contraction. We started it a couple of years ago, and we\u2019re still going through it where we have two markets \u2013 Melbourne and Sydney, particularly \u2013 over-heating and the regulators have some concerns there. They\u2019re just trying to slow the markets down to a more normal pace, which from your and my perspective, Kevin, makes good sense.
\nKevin:<\/strong>\u00a0 It does.
\nAndrew:<\/strong>\u00a0 We want slow and steady growth, not the boom\/bust cycles because that\u2019s not good for anyone. We don\u2019t want to over-expose people and so probably, we haven\u2019t been doing enough analysis around clients\u2019 living expenses, people\u2019s living expenses. Let\u2019s get that right and then look at what their borrowing capacity is.
\nMake sure you have an adequate buffer in place. You\u2019re better to have it and not need it, in my opinion, because when you need it the most is when you\u2019re least likely to get it.
\nKevin:<\/strong>\u00a0 As I\u2019ve said a few times in here, it\u2019s how you look to the bank. You could be even smarter than that. You could go and talk to Andrew and his team at Intuitive Finance who will take care of all of that for you and make sure you do look good when you talk to the bank.
\nAndrew Mirams from Intuitive Finance, one of our regulator contributors. By the way, if you have a regular question for Andrew, fire it in through the website. I\u2019ll pass it on to him, and we\u2019ll make sure that we answer it in one of our forthcoming shows.
\nAndrew Mirams, Intuitive Finance, thanks for your time, mate.
\nAndrew:<\/strong>\u00a0 Thanks, Kevin. We\u2019d love to speak to anyone who thinks they could do with our assistance, and appreciate your time.
\n <\/p>\n","protected":false},"excerpt":{"rendered":"

Are there more changes on the way from APRA \u2013 can it get tougher? \u00a0The answer is yes so you need to prepare BEFORE you go to the bank. \u00a0We discuss how to prepare a \u2018financial buffer\u2019 with Andrew Mirams. Transcript: Kevin:\u00a0 I did a…<\/p>\n","protected":false},"author":176692471,"featured_media":14259,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[10,11,13,36,22,25],"tags":[101],"class_list":["post-14250","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-property-investment-topic","category-research-topic","category-sponsored-channels","tag-podcast"],"yoast_head":"\nCan APRA get any tougher? \u2013 Andrew Mirams - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/can-apra-get-any-tougher-andrew-mirams\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Can APRA get any tougher? \u2013 Andrew Mirams - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"Are there more changes on the way from APRA \u2013 can it get tougher? \u00a0The answer is yes so you need to prepare BEFORE you go to the bank. \u00a0We discuss how to prepare a \u2018financial buffer\u2019 with Andrew Mirams. 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