<\/p>\n
In this week’s show Brad Beer<\/strong> explains how when you are renovating you may be able to get a tax benefit from what you throw away. It is called scrapping and could make a huge financial difference to the reno.<\/p>\n Over the last few weeks we have tried to show you how you may just be your own worst enemy because your <\/strong>personal preconceptions influence your success as an investor.\u00a0\u00a0<\/b>In his fourth and final part of the series on cognitive biases, Michael Yardney will share a few more helpful pointers on why investors often get it wrong and what you need to do to get it right.<\/strong><\/p>\n Buying off the plan \u2013 before anything is even out of the ground \u2013 \u00a0has become\u00a0increasingly popular.\u00a0We take a look at the pros and cons of buying off the plan with\u00a0George Raptis.<\/strong><\/p>\n Angie Zigomanis<\/strong> from BIS Shrapnel flags that there is an oversupply of units in the Melbourne market already.<\/p>\n You may have to sell a property in your portfolio that isn\u2019t performing all that well or maybe it’s because you need to free up some capital to invest elsewhere.\u00a0Whatever the reason its likely there will be a tenant in the property. So do you sell with them in there or market the property while it’s vacant? A good question that we get an answer to today.<\/p>\n Also today, Results Mentor Simon Buckingham<\/strong> tells us why he thinks investing for the long term is the worst piece of advice he has heard.<\/p>\n <\/p>\n <\/p>\n Kevin<\/b>:\u00a0 You have an investment property, you have a tenant inside that who\u2019s very happy, but you\u2019ve made the decision, for whatever reason, that it\u2019s time to sell that investment property. Do you keep the tenant in there, or do you need to wait until it\u2019s vacant? What\u2019s going to be best?<\/p>\n I\u2019m going to talk now to Shannon Davis from Metropole Property Strategists who gives this kind of advice all the time because you also have got a very big rent roll at Image Property Management.<\/p>\n Shannon, what would be your answer to that? Is it better being vacant, or is it good to have a good tenant inside?<\/p>\n Shannon<\/b>: \u00a0It\u2019s going to be harder for the owner to have the vacancy cost, but you will double your market. We need to remember most people out there are owner-occupiers. About 70% are owner-occupiers and only 30% are investors. If you have a tenant in, or a lease and it\u2019s a lease with a long amount of time, be prepared that you\u2019ve just shrunk your market by half if not more than half to only investor-friendly.<\/p>\n There\u2019s going to be lots more restrictions for their comings and goings, because tenants need to be provided entry notices, and they may not care as much about the sale and the presentation of the property.<\/p>\n I have a pretty firm opinion on this: it\u2019s always better to be empty.<\/p>\n Kevin<\/b>:\u00a0 Okay, so you have to effectively wait then until you can either give notice for them to vacate, or you wait for that lease to run out?<\/p>\n Shannon<\/b>:\u00a0 Yes. The lease needs to be definitely towards the end of its natural conclusion. But empty is always better, because we can present it better. It can have more comings and goings, more showings, and we\u2019re not going to be interrupted.<\/p>\n When there\u2019s a person inside the house, the feedback is restricted. People don\u2019t want to offer their thoughts in front of other people. Therefore, the sale eventually is restricted, as well.<\/p>\n Kevin<\/b>:\u00a0 Yes, and love them dearly, too, tenants don\u2019t always present the property the way a property owner would.<\/p>\n Let me ask you another question, though. A vacant property can look very sparse. Are you better off spending a little bit of money and just making sure there\u2019s a dining room in there and something in one of the bedrooms at least?<\/p>\n Shannon<\/b>:\u00a0 Yes. Empty properties tend to look smaller. Staging will definitely help with showing the rooms the right size and definitely the interest that comes from the property. But it would also be a question of investor\u2019s budgets.<\/p>\n When I deal with investors who are trying to sell, sometimes they can\u2019t afford the vacancy. Sometimes they\u2019re going to sell right towards the end of a lease and sometimes there\u2019s no money for the staging, as well. It\u2019s just about getting the best opportunity, and that\u2019s where the choice of agent comes in.<\/p>\n Some agents will work really well with a tenant, help tidy, provide a movie ticket or a bottle of wine, but some agents are only good at selling display homes where there\u2019s nothing, everything\u2019s pristine, and everything\u2019s easily done. That\u2019s where your choice of agent becomes important.<\/p>\n Kevin<\/b>:\u00a0 You make a very good point about the choice of agent. In fact, one of the questions you could ask if you have an investment property and looking at putting on an agent is \u201cHow are you going to keep my tenant happy in this situation?\u201d<\/p>\n Shannon<\/b>:\u00a0 Oh, definitely. We\u2019ve had agents who have cruelled a sale when a tenant is paying $50 above market rents, and that\u2019s a real concern. The best thing about the property was the $50. The guy is hooked onto a tenancy that had to be honored, and yet, the agent is having arguments with the tenant every Saturday morning.<\/p>\n Kevin<\/b>:\u00a0 Yeah. Good stuff.<\/p>\n Shannon Davis, who\u2019s a buyers agent with Metropole Property Strategists and also controls a very big rental agency called Image Property Management in Brisbane.<\/p>\n Shannon, thank you so much for your time.<\/p>\n Shannon<\/b>:\u00a0 No worries, Kevin. Any time.<\/p>\n <\/p>\n Kevin<\/b>:\u00a0 There\u2019s an article in the latest edition of Australian Property Investor<\/i> magazine that takes a look at what\u2019s available in off-the-plan sales in the capital cities around Australia, and also what you should be looking at and maybe what you shouldn\u2019t be.<\/p>\n On the strength of that article, Australian Property Investor<\/i> magazine asked me to do an interview with one of the people quoted in that article about some of the pitfalls, what you should be looking for, and in particular, whether or not there is an oversupply in the Melbourne market.<\/p>\n You can listen to that full interview and, in fact, that podcast, which is available now on the API featured channel at RealEstateTalk.com.au. But I thought now, I\u2019d share just a little bit of that conversation with you \u2013 the conversation that I had with BIS Shrapnel’s Angie Zigomanis specifically about the Melbourne market.<\/p>\n Angie, how bad is the situation in Melbourne?<\/p>\n Angie<\/b>:\u00a0 At the moment, we think vacancy rates are only slightly elevated. There\u2019s been a surge in new apartment construction, and over the last two years, there\u2019s been about 6000 apartments completed annually in inner Melbourne on average, compared to a long-term average of about 2500, so we\u2019re talking about a substantial increase.<\/p>\n Vacancy rates are edging up, but really the issue is in the current pipeline of apartments that are being constructed. We estimate, on average, over the next three years, another 6000 or so apartments per annum will be completed on top of the last two years, which means that the vacancy rates will continue to increase, and that will place pressure on rents.<\/p>\n Kevin<\/b>:\u00a0 Are there any areas of Melbourne that you\u2019re more concerned about than others?<\/p>\n Angie<\/b>:\u00a0 We\u2019re most concerned about the central Melbourne areas \u2013 the CBD, Southbank, Docklands, and perhaps a few suburbs fringing those suburbs, as well.<\/p>\n When you look at anyone who has purchased an off-the-plan apartment in the last two years, the majority, if they were to sell today, would probably sell at a lower price than they purchased it at.<\/p>\n Part of that is because a lot of the stamp duty savings etc. are built in to the purchase price, and anyone who\u2019s buying an established apartment afterwards has to pay stamp duty on their dwelling, so that effectively gets built into the resale price, and so the resale price is slightly lower.<\/p>\n But anyone who does purchase an apartment now after taking into account all the purchase costs, I suspect probably will have definitely recorded a loss in most cases.<\/p>\n Kevin<\/b>:\u00a0 In that conversation with Angie, we cover a lot more detail. We talk about whether or not you\u2019re better off holding back and waiting to buy units at the end after they\u2019ve been completed, what are the features in a unit block that are going to minimize the impact of oversupply, any advice that he has \u2013 and he has a lot of it, too \u2013 for anyone contemplating buying off the plan, particularly in Victoria, and whether or not you\u2019re better off having a valuation done before you agree to buy.<\/p>\n Look, there\u2019s a lot in that chat that I had with Angie. You can hear the full podcast right now by going to the API featured channel at RealEstateTalk.com.au.<\/p>\n <\/p>\n Kevin<\/b>:\u00a0 Brad Beer from BMT Tax Depreciation joins me once again. Brad, thanks again for your time.<\/p>\n Brad<\/b>:\u00a0 Thanks, Kevin.<\/p>\n Kevin<\/b>:\u00a0 I\u2019m enjoying these conversations about tax depreciation schedules. It\u2019s an area that certainly I needed a lot of education on, and I guess a lot of investors do, as well.<\/p>\n Can I ask you the question about older properties? Can I claim depreciation on older properties?<\/p>\n Brad<\/b>:\u00a0 Most definitely, Kevin. Older properties still get depreciation. It\u2019s a common question. People think it\u2019s too old. Always ring; ask the question.<\/p>\n Older properties don\u2019t get as much depreciation as newer ones. That\u2019s definitely the case. The age will impact on how much you can claim, but it doesn\u2019t mean you can\u2019t claim anything. If it\u2019s not as much, but it\u2019s still deductions, we\u2019ll tell you how much we think it will be before you go ahead. That starter part to find out an estimate is free.<\/p>\n Kevin<\/b>:\u00a0 When I was talking to my accountant last time, he mentioned a building write off and depreciation of plant and equipment. What are the differences there?<\/p>\n Brad:<\/b>\u00a0 Depreciation \u2013 we blanket call it that, but it\u2019s split up into two areas.<\/p>\n The building write off is a deduction that relates to the structure of a building. It\u2019s normally 2.5% of the construction cost each year. This is where the age does matter. It needs to be built after a certain date in order to claim this.<\/p>\n The other part is the plant and equipment. This is the soft stuff: carpets, hot water service, blinds, stoves, curtains, things that don\u2019t last as long. The ATO allows us to claim these things quicker based on an effective life, and there are no age restrictions on these things. There\u2019s no special date that says you can or can\u2019t claim them.<\/p>\n Kevin<\/b>:\u00a0 Now, as a renovator, someone who\u2019s going to renovate a property, how does depreciation change during that process?<\/p>\n Brad<\/b>:\u00a0 Depreciation is something that gets claimed on the things that are there. If you renovate and change what\u2019s there, then you\u2019re adding some new stuff, so there are more things to depreciate.<\/p>\n But in addition to that, the things that were there that you did throw away often have some value, as well, so you want to call the quantity surveyor first and make sure that you\u2019ve assessed what\u2019s there, because sometimes you\u2019re able to scrap or write off the residual value of the existing stuff, as well. Sometimes that can mean quite a few dollars. Do it before the renovation and a little update after for the new things that you\u2019ve put in.<\/p>\n Kevin<\/b>:\u00a0 Tell me about scrapping. Does the Tax Office recognize scrapping reports?<\/p>\n Brad<\/b>:\u00a0 We don\u2019t actually call them a scrapping report. The fact is that \u201cscrapping\u201d is a word that makes it easy to understand what you\u2019re doing. What it really is is writing off the residual value of items. It\u2019s really just a depreciation schedule with a value on items.<\/p>\n You rent the property out for a period of time, and then you decide to throw some of these things away; they still had some value left, and you get to claim it in that year that you throw them away as opposed to continuing to depreciate them.<\/p>\n Kevin<\/b>:\u00a0 What things can\u2019t be depreciated, Brad?<\/p>\n Brad<\/b>:\u00a0 Anything that\u2019s not directly related to construction and part of the construction of the property. Things like soft landscaping and demolition are nondeductible items. Pretty much most other things that relate to construction, to you creating an income from this property have some sort of depreciation in value. Also, the land is something you don\u2019t depreciate as well.<\/p>\n Kevin<\/b>:\u00a0 What about repairs? How do they differ from improvements?<\/p>\n Brad<\/b>:\u00a0 Repairs and also maintenance are things that you get to claim straight away at 100% in the year that you actually do them. Improvements are things that improve the property. When you replace things in the property with something better, you\u2019re improving the property, so those things need to be depreciated.<\/p>\n We\u2019ll talk to the accountant on those things \u2013 which ones they want to claim as repairs and maintenance, and which ones are capital improvements that we need to depreciate and prepare the reports appropriately.<\/p>\n Kevin<\/b>:\u00a0 Yes. You mentioned the accountant there. It\u2019s quite normal to work in conjunction with my accountant in these cases?<\/p>\n Brad<\/b>:\u00a0 Most definitely. We only provide the accountant with really one number for the whole tax return. The accountant still does the tax return; we\u2019re just the specialists in this area, in maximizing a depreciation.<\/p>\n It also takes the risk away from the accountant because the ATO will accept the estimates done by a quantity surveyor for the purpose of these depreciation claims.<\/p>\n Kevin<\/b>:\u00a0 A few more questions I want to ask you, Brad, so we\u2019ll get you to come back. I want to find out about how you claim removal of hazardous items like asbestos, which we\u2019re seeing a lot of now, and also about my own labor, whether I can claim that.<\/p>\n Brad Beer from BMT Tax Depreciation Quantity Surveyors is our guest, and they are the people we recommend you talk to. The website to contact them is bmtqs.com.au.<\/p>\n Brad, thanks again for your time.<\/p>\n Brad<\/b>:\u00a0 Thank you very much, Kevin.<\/p>\n <\/p>\n Kevin<\/b>:\u00a0 I was talking to Michael Yardney last week in the show, and we have been discussing, over the last few weeks, the psychology of success and the things that hold us back. We get in our own way. We\u2019re our own worst enemy.<\/p>\n But what about procrastination, Michael? This is the one, apart from negativity, that I hate the most.<\/p>\n Michael<\/b>:\u00a0 This is deciding to act in favor of the present over investing in the future. Look, we all procrastinate at times, but in the arena of property investment, those who sat on the sidelines over the last couple of years waiting for the investment horizon to look clearer, they\u2019ve actually missed out on some fantastic opportunities.<\/p>\n You have to decide the difference between doing your homework and doing your research, and then getting stuck in analysis paralysis and procrastinating. As you say, Kevin, that\u2019s a very big problem for many beginners.<\/p>\n Kevin<\/b>:\u00a0 What about the people who are content with the present, as opposed to the adventures and what the future may hold?<\/p>\n Michael<\/b>:\u00a0 Psychologists call this hyperbolic discounting. It\u2019s a fancy word for the tendency for us to prefer smaller pay offs now rather than a larger pay off in the future. It leads us to disregard the future. It\u2019s a bit like \u201ceat, drink, and be merry, for tomorrow you may die.\u201d That\u2019s because the consequences that occur later in time, way out in the future, whether they\u2019re good or bad, seem to have a lot less bearing on our choices today.<\/p>\n Now, financial institutions, banks, and credit card companies build their businesses on this hyperbolic discounting because borrowing money and paying interest are actions that spend future resources for the benefit of that one-off gratification now.<\/p>\n I guess that\u2019s one of the reasons that Warren Buffett said, \u201cWealth is the transfer of money from the impatient to the patient.\u201d It\u2019s important in wealth creation to have a long-term perspective, Kevin.<\/p>\n Kevin<\/b>:\u00a0 Yes. We\u2019ll look back now. What about the people who say, \u201cI knew it all along. I knew that was going to be the case.\u201d<\/p>\n Michael<\/b>:\u00a0 Oh, yes. How many people predicted the global financial crisis, the property boom, or the property bubble?<\/p>\n Kevin<\/b>:\u00a0 Yes, and they continue to.<\/p>\n Michael<\/b>:\u00a0 Yes, they do. Hindsight bias is the tendency for people to overestimate the ability to have predicted an outcome that they couldn\u2019t possibly have predicted. The problem is that too often, we actually didn\u2019t know it all along. We only feel now like we probably did then.<\/p>\n Ultimately, this hindsight bias does matter, though, because it gets in the way of us learning from our experiences. If you feel like you knew it all along, it means you don\u2019t stop to examine why something really happened.<\/p>\n Hindsight bias can also make us over-confident, Kevin, and it actually clouds our judgments.<\/p>\n Kevin<\/b>:\u00a0 Is it a fallacy and a fault, too, to think that we can control the uncontrollable?<\/p>\n Michael<\/b>:\u00a0 Yes, Kevin. Delusion of control is a tendency for all human beings. We believe that we more or less influence the outcomes that, in fact, we have no influence over.<\/p>\n One simple form of this fallacy is found in casinos when you roll the dice in craps. You\u2019ve seen them in the movies. They actually throw the dice harder to get a higher number or throw it softer to get a lower number.<\/p>\n In property, the concepts much the same if you think you have all your risks covered. In my mind, risk is what\u2019s left when you thought of all the things that could go wrong.<\/p>\n Kevin<\/b>:\u00a0 Indeed. What about information overload, analysis paralysis?<\/p>\n Michael<\/b>:\u00a0 This is the tendency to seek information which actually doesn\u2019t affect our actions. More information isn\u2019t always better, Kevin. Indeed, with less information people can often make more accurate assessments because too much information, as you say, does lead to paralysis.<\/p>\n I\u2019ve found successful investors take action knowing they don\u2019t know everything. But they know they know enough to get started, and they\u2019re prepared to learn the rest along the way.<\/p>\n Kevin<\/b>:\u00a0 Michael, what about the people who make a mistake? They know they\u2019ve made a mistake, but they rationalize it to themselves and try to rationalize it to other people, as well?<\/p>\n Michael<\/b>:\u00a0 Oh, we\u2019re humans, aren\u2019t we? That\u2019s called post-purchase rationalization. We all do this in some form or another at some point of our life. We buy something and it\u2019s not up to the standard we expect, yet we want to believe we didn\u2019t waste our time, our energy, our resources, so we rationalize our purchase.<\/p>\n It happens more often with impulse buys than when we have a carefully planned investment decision. Yet, many investors get carried away. They buy one of the first properties they see that first weekend or when they get excited at a seminar and sign up for a property at the back of the room, when boy, they should have known better, Kevin.<\/p>\n Kevin<\/b>:\u00a0 Michael, what\u2019s the bottom line?<\/p>\n Michael<\/b>:\u00a0 There are probably a lot of biases that we experience, and therefore it\u2019s important to recognize them.<\/p>\n One of the big ones is personal history bias. Depending upon your experience in life, your viewpoints will likely influence your attitude to investing as to everything else. Research shows that the way you feel about a topic is generally pervasive and was most likely shaped by the experiences in your youth.<\/p>\n Someone who grew up in the Great Depression \u2013 like our parents would have \u2013 for example, a much, much different attitude towards money and investing than someone who grew up in a family that experienced financial prosperity in the 1980s. These influences are going to show in the risks they\u2019re willing to take, investments that appeal to them, and how they\u2019re going to handle money and wealth, Kevin.<\/p>\n Kevin<\/b>:\u00a0 Indeed. Michael, it\u2019s been great talking to you about the psychology of success. I\u2019ve learned so much over the last few weeks. Thank you.<\/p>\n Michael Yardney from Metropole Property Strategists. Thanks, mate.<\/p>\n Michael<\/b>:\u00a0 My pleasure, Kevin.<\/p>\n <\/p>\n Kevin<\/b>:\u00a0 As you might know by now, we\u2019ve been talking over the last couple of weeks about an article that\u2019s in the latest Australian Property Investor<\/i> magazine, which is out now \u2013 the April issue \u2013 and it is called Secrets of Our Success. In that article, they\u2019ve spoken to a number of experts about their strategies.<\/p>\n The thing we do know is that there is no one strategy that fits all. However, there is one strategy that Simon Buckingham, who is the Director and Results Mentor at ResultsMentoring.com, says is a bit of a waste of time \u2013 it\u2019s actually not good advice at all \u2013 and that is investing for the long term. He joins me.<\/p>\n Hi, Simon. I\u2019m a bit curious about this. You don\u2019t think it\u2019s a good thing to invest for the long term?<\/p>\n Simon<\/b>:\u00a0 Hi, Kevin. Thanks for having me on the show.<\/p>\n Kevin<\/b>:\u00a0 Pleasure.<\/p>\n Simon<\/b>:\u00a0 I guess in my own experience and in the experiences I\u2019ve seen many other investors go through over the years, there is this saying that crops up again and again or this piece of advice that somebody came up with \u2013 I don\u2019t know how many decades ago \u2013 that success in property investing is all about investing for the long term. But I\u2019ve come to regard that \u2013 perhaps a little controversially \u2013 as some of the worst advice anyone could ever give you in property investing.<\/p>\n There are a number of reasons for that, but perhaps, we need to look at first in terms of why people recommend that you invest in property for the long term. Most market commentators will say that holding on for the long term is a great way to build wealth in property, that if you just hang in there for, say, ten or more years, you\u2019ll be fine and you\u2019ll see your property values double \u2013 words to that effect.<\/p>\n The promotion of this approach seems to be based on an idea that it doesn\u2019t really matter where you buy or what you buy, property prices are going to double on average every eight years or so.<\/p>\n Now, if we actually step back from the hype behind that approach and these kind of ideas and start to think for ourselves and question what\u2019s behind all of this, rather than just accepting it as law or common wisdom in property, when we dig below the surface, we start to see actually quite a different picture.<\/p>\n For property prices to double on average every eight years or so, you need an average annual growth rate of around 9% per annum. Unfortunately, when you do go back in time and look at what has actually happened in the behavior of property prices, that 9% average is a myth. In fact, there\u2019s no statistical evidence on it.<\/p>\n If you take studies of median house price movements going right back to 1901, which is about as far back as the records can go, the average rate of growth is a lot less. It works out to be something closer to 6%, and that\u2019s even before you take out inflation, so it can potentially be a lot less.<\/p>\n Kevin<\/b>:\u00a0 Yes, I agree totally. I think you\u2019re highlighting a point here that a number of our experts have said, too, and that is that there is no one market around Australia. They\u2019re all very, very independent, they\u2019re different, and they change from time to time, Simon.<\/p>\n Simon<\/b>:\u00a0 Yes, absolutely right. If you look at times where property prices have done really well generally \u2013 and then again, there would be differences down at the individual state, city, and suburb levels \u2013 the prices have only really doubled in eight years in times like the late 1940s, during the post-war years, and really between around about 1967 and 1990. Outside of those times, the rate of growth has generally been much, much lower.<\/p>\n I think the attitude that just buy anything anywhere, doesn\u2019t matter, probably prices will double in eight years, hold on for ten years or more, you\u2019ll be fine, ignores a few realities. One is, as you said, you will get quite significant differences from one place to the next. It also ignores the reality that property prices in an area can and will go down and sideways potentially for an extended period of time.<\/p>\n Kevin<\/b>:\u00a0 Of course, sophisticated property investors, as you rightly point out, seek greater certainty in that they take greater responsibility for their financial outcomes. They actually do their homework and make sure they do this due diligence on it.<\/p>\n Simon<\/b>:\u00a0 That\u2019s right. If you throw out a statement like \u201cinvest for the long term,\u201d it\u2019s the equivalent of saying \u201cshe\u2019ll be right, mate.\u201d As a sophisticated investor, obviously, we need to be a bit smarter than that, not just have a cop-out that says, \u201cWell, I don\u2019t know what the markets going to do tomorrow, five years, or ten years from now. So I\u2019ll just gamble and hope and pray that everything turns out okay by waiting long enough.\u201d<\/p>\n That\u2019s ultimately an abdication of responsibility for your own financial outcomes. As a smarter, sophisticated investor, you need to be not throwing away that responsibility but taking on that responsibility.<\/p>\n Kevin<\/b>:\u00a0 Simon, what\u2019s your top investment rule?<\/p>\n Simon<\/b>:\u00a0 My number one investing rule really goes opposite to the invest for the long term mentality. My number one investing rule is that if I don\u2019t expect to make a significant profit in a six- to 36-month timeframe, I won\u2019t do the deal.<\/p>\n There are a few reasons for that. A significant profit to me, is five figures or better, or if I was doing it for income, it would be some sort of immediate or near-term positive cash flow. But when I look at a property deal, before I go into it — and you\u2019ve said this yourself, Kevin \u2013 it\u2019s absolutely critical to understand the numbers in the deal, to do the due diligence, and from my perspective, to actually quantify the profit you expect to make.<\/p>\n I won\u2019t accept the notion that it\u2019s okay to invest in a property if it goes up in value. I want to know how much am I expecting it to go up in value by and by when, and specifically, how much do I expect to make from this property deal in the next six to 36 months?<\/p>\n If I can\u2019t quantify it or if I can\u2019t put a timeframe around it, I won\u2019t buy the deal. The reason for that is because if I focus on a 36-month horizon, I\u2019m in a far better position to be able to predict the movements in the local market. I can have regard to things like the dynamics of the balance between supply of housing and listings versus the demand evidenced by sales in the area and what direction that\u2019s going, and I can make some fairly accurate inferences about where prices are likely to go in that six- to 36-month timeframe.<\/p>\n If I try to look beyond that, there is no science in the world that can give you any degree of accuracy or high confidence in what prices will actually do. You just start to get too many influences coming in and too many unknowns that far out. Frankly, if anyone tells you that they can predict where property prices will be ten years from now, you should turn around and run away very quickly because it\u2019s frankly impossible.<\/p>\n That\u2019s where I get a little bit anxious or upset when I\u2019m talking to investors and they show me things like a table in an off-the-plan sales pack that says, \u201cThe average growth in this property over the next ten years is likely to be 8% or 10% per annum.\u201d<\/p>\n That\u2019s completely made up. There\u2019s no way anyone can say that that\u2019s going to occur with any confidence.<\/p>\n Kevin<\/b>:\u00a0 That\u2019s right. Very sobering advice and very good advice, too.<\/p>\n Simon, I want to thank you for joining us on the show and bringing that to our attention. Simon Buckingham, who is the Director and Results Mentor at ResultsMentoring.com.<\/p>\n Thanks for your time, Simon.<\/p>\n Simon<\/b>:\u00a0 Thanks, Kevin. You\u2019re more than welcome.<\/p>\n <\/p>\n Kevin<\/b>:\u00a0 It\u2019s always a telling sight around Australia when you see those cranes go up. You know there\u2019s a lot of construction happening. We\u2019re certainly seeing that now in the capital cities around Australia.<\/p>\n There\u2019s word that there is an oversupply of units hitting the market in Melbourne. I wonder what the situation is like in Sydney. That\u2019s a bit of a landmark market for Australia. I\u2019m going to ask George Raptis from Metropole Property Strategists what he\u2019s seeing on the ground.<\/p>\n Any risk that there may be an oversupply on the way in Sydney, too, George?<\/p>\n George<\/b>:\u00a0 Hi, Kevin. What we found in the Sydney market up until recently is being Australia\u2019s largest market, we have been struggling with a bit of an under supply of property actually, but there is quite a number of new apartments coming out of the ground. They\u2019re traditionally in those inner-city type locations whereby they used to be the old commercial industrial sites and now transformed into residential living.<\/p>\n Kevin<\/b>:\u00a0 Yes. One of the things I notice about new unit development is by the time it starts to come out of the ground, most of them are sold through presale activity, because the banks demand that there is a certain level of presales before they\u2019ll even allow finance to go ahead.<\/p>\n Let\u2019s have a look at what might be happening in the future and what people would be aware of if they\u2019re actually going to buy off the plan, George.<\/p>\n George<\/b>:\u00a0 Yes, it is. The banks do look at these type of developments very carefully. Interestingly, a lot of the major banks don\u2019t like to expose themselves too much as far as lending in these types of developments.<\/p>\n In other words, in some cases, they like to keep to about a 15% ratio. That means if you\u2019re the 16th<\/sup> person going to the bank and want to buy in that particular development, there could be a bit of a drama.<\/p>\n Kevin<\/b>:\u00a0 On what basis, George? How do they base that?<\/p>\n George<\/b>:\u00a0 Especially in the developments whereby there are thousands of these things, they all look the same, they like to limit their exposure, Kevin. They don\u2019t want to expose themselves completely, because sometimes these types of developments, you need to be very wary that they are going to be the right property for the investor out there.<\/p>\n Kevin<\/b>:\u00a0 What precaution should someone take if they\u2019re going to go to the bank? You don\u2019t want to get knocked back too often. It goes against you on your credit file.<\/p>\n George<\/b>:\u00a0 That\u2019s right. They need to obviously be in touch with a bank who they\u2019re speaking to there, make sure that then they have all the right information with regards to the development and get the feedback from them.<\/p>\n Kevin<\/b>:\u00a0 I guess a lot of these developments have their own finance people on site. Is that a better way to go, rather than deal with your own bank?<\/p>\n George<\/b>:\u00a0 A lot of them try to tie everything up in a nice neat parcel and have their own finance people, have their own solicitors, that sort of thing. I\u2019m always a little bit wary of that. I like to keep a bit of an arm\u2019s length, keep someone totally independent from the transaction, someone who\u2019s going to give you honest and independent advice.<\/p>\n Kevin<\/b>:\u00a0 Let\u2019s have a look now at the situation. We talked about these developments coming out of the ground, and there\u2019s obviously been a number of presales, but by the time they go to construction, there will be still a number unsold. As an investor, am I better off waiting until towards the end because there might be a bit of a clean out at the end, George?<\/p>\n George<\/b>:\u00a0 It\u2019s a bit six of one, half dozen of the other, Kevin.<\/p>\n I found that in my previous life as a selling agent sometimes some people got better deals at the beginning, sometimes people got better deals at the end. It really depends on the development \u2013how popular it is, for example. They do limited releases to start with. They see how quickly they sell these properties.<\/p>\n If they see they\u2019ve got a lot of enthusiasm in the beginning stages, what they tend to do is then uplift the prices on the remainder of the properties, so sometimes at the end, you\u2019re paying more.<\/p>\n If it\u2019s a development where it\u2019s not as popular and they\u2019re struggling to sell in the initial stages, then what you\u2019ll find later down the track, they probably will discount. You just have to watch what you\u2019re getting yourself into.<\/p>\n Kevin<\/b>:\u00a0 Even in over supplied markets, George, we see units continue to sell. What is it in one block compared to another that\u2019s going to minimize the impact of an oversupply? Are there any features that stand out that you\u2019ve seen?<\/p>\n George<\/b>:\u00a0 With regards to features, I always like to look for something that\u2019s unique, something that\u2019s got a bit of a boutique feeling about it, something where they\u2019re not like rabbit warrens, where every one looks like the other one and you can\u2019t differentiate one from the other.<\/p>\n It could be floor plan. It could be the aspect. One might have a nice city skyline view or a water view as opposed to something that\u2019s looking into another block. I\u2019m always looking at something that\u2019s got that uniqueness about it.<\/p>\n Kevin<\/b>:\u00a0 What about that mix of owner occupiers compared to investors? Is that something we should be concerned about \u2013 in other words, trying to get into a block that\u2019s got more owner occupiers than investors?<\/p>\n George<\/b>:\u00a0 Always a better thing to do. I don\u2019t like looking at properties where it\u2019s predominantly investor owned. Unfortunately, they don\u2019t get involved in the day-to-day runnings of the property. They don\u2019t take a lot of interest, so what happens is you have this huge flow of people moving in and out and places get knocked around a lot.<\/p>\n If you\u2019re looking at something and it\u2019s predominantly owner-occupied \u2013 which unfortunately, in a lot of cases, a lot of these larger developments, they\u2019re not; they\u2019re mainly investor-owned \u2013 I\u2019d say a good rule is if it\u2019s mainly owner-occupied, it would go well in the future as far as it being well looked after.<\/p>\n Kevin<\/b>:\u00a0 Good idea, George. George Raptis there from Metropole Property Strategists. A bit of wise advice if you\u2019re planning on buying off the plan.<\/p>\n George, thanks so much for your time, mate.<\/p>\n George<\/b>:\u00a0 Thank you, Kevin.<\/p>\n","protected":false},"excerpt":{"rendered":" In this week’s show Brad Beer explains how when you are renovating you may be able to get a tax benefit from what you throw away. It is called scrapping and could make a huge financial difference to the reno. Over the last few…<\/p>\n","protected":false},"author":176692473,"featured_media":1693,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[24],"tags":[101],"class_list":["post-25190","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-shows","tag-podcast"],"yoast_head":"\nTranscripts:<\/h4>\n
Shannon Davis<\/h4>\n
Angie\u00a0Zigomanis<\/h4>\n
Brad Beer<\/h4>\n
Michael Yardney<\/h4>\n
Simon Buckingham<\/h4>\n
George Raptis<\/h4>\n