{"id":3299,"date":"2015-01-23T12:00:44","date_gmt":"2015-01-23T01:00:44","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=3299"},"modified":"2015-01-23T12:00:44","modified_gmt":"2015-01-23T01:00:44","slug":"the-five-stranded-strategic-approach-tenants-as-property-investors-melbourne-suburb-spotlight-increased-use-of-non-traditional-lenders","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/the-five-stranded-strategic-approach-tenants-as-property-investors-melbourne-suburb-spotlight-increased-use-of-non-traditional-lenders\/","title":{"rendered":"The five stranded strategic approach | Tenants as property investors | Melbourne suburb spotlight | Increased use of non-traditional lenders"},"content":{"rendered":"

 
\nIn this week’s show Michael Yardney<\/a> reminds us about his five stranded strategic approach to investing to ensure the properties in his portfolio will outperform the market averages.
\nAndrew Mirams<\/a>\u00a0speaks about what has\u00a0driven many investors to look at non-traditional lenders.
\nGreville Pabst<\/strong> turns the spotlight onto a bayside suburb in Melbourne and explains the area’s potential for an investment property.
\nWe talk to a buyers agent<\/strong> as she looks at the property market on Queensland\u2019s Sunshine Coast.
\nShannon Davis<\/a> discusses a growing trend with tenants becoming property investors while at the same time continuing to rent.
\nAnd we round the show out with a timely warning from an insurance brokerage firm<\/strong> who have found it necessary to expand their coverage of rental properties to include a previously unheard of risk for investors.
\n <\/p>\n

Transcripts<\/h4>\n

 <\/p>\n

Andrew Mirams<\/h4>\n

Kevin:\u00a0 <\/b>It would appear that investor lending maintained its strength throughout 2014. The latest figures from the Reserve Bank of Australia reveal a 9.7% surge in investor lending in the twelve months to November, so much so that Australian property investors who have maxed out on their borrowing power are turning to specialist lenders or non-traditional lenders to continue growing their portfolio. Is this a concern? Are you finding yourself in that position?
\nI want to take some counsel now from Andrew Mirams<\/a> from Intuitive Finance, one of our experts responsible for putting a lot of great content on our site. Check it out at Real Estate Talk.
\nGood day, Andrew. Happy New Year.
\nAndrew:<\/b>\u00a0 Good day, Kevin. Happy New Year to you.
\nKevin:<\/b>\u00a0 Is this a concern? I know that APRA is concerned about it.
\nAndrew:<\/b>\u00a0 I think that as soon as you get regulatory bodies looking at these things, it\u2019s the type of investor or the appetite that investors have got. There are people out there who are borrowing to the hilt and taking 95% and 97% loans, and absolutely everyone should be concerned about that.
\nBut the reality is your smart and seasoned investors know to make sure they\u2019re got enough backup plans, as in buffers and financial resources, to make sure if and when the cycle turns, they\u2019ve still got the ability to hold their properties and not have to sell down in potentially tougher times.
\nKevin:<\/b>\u00a0 What are you seeing? Are you seeing some investors with a higher risk threshold? In other words, they\u2019re prepared to take a risk coming to you and saying, \u201cI want to continue to grow my portfolio no matter what the market is like.\u201d
\nAndrew:<\/b>\u00a0 Yes. I think across the history of time, any time that rates are lower, it does fuel that a little bit, because the costs to hold your borrowings is a lot less. Even though your investment returns \u2013 depending on whether you\u2019re in Melbourne, Sydney, Brisbane, or where you\u2019re invested \u2013 with the yield there, there\u2019s not that great a differential in holding the property, and that can sometimes fuel the ability to take up a higher LVR loan.
\nIt means that when rates are a bit higher, it might be a 50%, 60%, or 70% loan, whereas now that\u2019s 80%, 85%, or 90%. The holding costs are very similar when the rates are lower.
\nKevin:<\/b>\u00a0 What are you suggesting in terms of a buffer?
\nAndrew:<\/b>\u00a0 Depending on everyone\u2019s portfolio, whether you\u2019re a first time investor or seasoned investor, we generally like to see as a minimum \u2013 and it\u2019s very client specific as well, because you have clients earning significant incomes, but they\u2019re still at risk if that was to turn down \u2013 at least a half a property cycle. We like to make sure that whatever their negative in terms of their holding costs are \u2013 let\u2019s say they\u2019ve got five properties and they cost them $50,000 a year in total, $10,000 for each one \u2013 we\u2019d like to see a $250,000 buffer in there, about five years. At least half a cycle, depending on whether it\u2019s a seven or ten year timeframe. It depends where the properties are, etc.
\nI think just making sure you\u2019ve got that buffer there gives you the certainty to make sure you can hold your properties over the long term, because as we all know, that\u2019s where you make your money in the property market.
\nKevin:<\/b>\u00a0 That\u2019s right. How much clout does APRA have with the banks?
\nAndrew:<\/b>\u00a0 You would probably have to ask APRA that! There\u2019s a lot of speculation around that they want them to increase their capital ratios and things like that because of the growth in lending at the moment.
\nThere has to be a balance to all of that, because if the banks are made to hold more capital, then that\u2019s going to cost us all more to borrow. The banks are very quick in passing that on. They\u2019re money-making machines in their own right, so they need to do that.
\nThey want to be sure if and when a bad time comes \u2013 and like all cycles we know that it\u2019s not going to be as good a time as it is right now forever \u2013 that the banks can continue to trade in their own right.
\nThat\u2019s where Australia was very lucky throughout the GFC. Our banks were very strong, compared to America and Europe where we had lots of banks falling over and government bail-outs. Even today, there\u2019s still some hangover from all of that. Really, they\u2019re just making sure our banks will continue to be strong lenders now and well into the future.
\nKevin:<\/b>\u00a0 That in itself should be a concern for a lot of people, because these non-bank specialist lenders are not governed by that prudential regulator. They tend to fly under the radar a bit, and they don\u2019t even have to comply with mortgage insurance rules.
\nAndrew:<\/b>\u00a0 That\u2019s right. Arguably, there is a spot in the market for these guys \u2013 non-traditional lenders and banks like that. They\u2019re not subject to mortgage insurance. They do what they call \u201cself insurance.\u201d But through the GFC, a lot of these guys went out of business, or couldn\u2019t get access to funds, or just stopped lending full stop.
\nWhat they did, their rates, that are traditionally higher anyway, all of a sudden were jacked up because they needed to make sure that they could service their own loan book, because they\u2019re securitized lenders, generally. They\u2019re borrowing it from somewhere else.
\nThat\u2019s a real risk if you\u2019re really looking to aggressively grow your portfolio and you\u2019re out there using specialist lenders. Just make sure you\u2019re covering off all your bases. They\u2019re not lenders that we generally use at Intuitive Finance. If you can\u2019t get it from a traditional lender, I think there\u2019s a pretty good reason.
\nKevin:<\/b>\u00a0 Absolutely. That\u2019s what you have to look at.
\nAlways good advice from Andrew Mirams from Intuitive Finance. Great talking to you. All the best. We\u2019ll talk again soon.
\nAndrew:<\/b>\u00a0 Thanks, Kevin.
\n <\/p>\n

Kristy Smith<\/h4>\n

Kevin:<\/b>\u00a0 Even though we talk a lot about the use of buyer\u2019s agents in Australia many people \u2013 me included \u2013 wouldn\u2019t be aware of the fact that almost 88% of property purchases in the U.S.A. were handled by professional buyer\u2019s agents. While I\u2019m not suggesting that overnight that\u2019s going to be the case in Australia, it certainly is a growing trend.
\nWhat are the advantages for you, as a buyer, using a buyer\u2019s agent? I\u2019m going to talk now with Kristy Smith from Agility Property, who are based in Brisbane. I believe you\u2019re on the Sunshine Coast as we speak, Kristy?
\nKristy:<\/b>\u00a0 Good morning, Kevin. I am on the Sunshine Coast up here, looking at some potential properties for clients and enjoying a bit of a break.
\nKevin:<\/b>\u00a0 Good on you, that\u2019s the way. We might talk a little bit about that market, too. That\u2019s an interesting market. But I wanted to touch base with you about this growing trend of using buyer\u2019s agents.
\nWe talk to quite a few on this show, but tell me about the type of people that are coming to you and looking for your services.
\nKristy:<\/b>\u00a0 I\u2019d say the predominant are those who are either not in the location that they desire their property to be, or they\u2019re time-prohibitive, or their time is better invested in their own business rather than the time that\u2019s involved for research with regards to property.
\nKevin:<\/b>\u00a0 Are we talking primarily about investors engaging your services?
\nKristy:<\/b>\u00a0 Yes, but also executives who are moving interstate, or upcoming professionals who are moving interstate but are moving with a short period of time to do that. They engage us to get the ball rolling more quickly for them.
\nKevin:<\/b>\u00a0 No doubt. In America, the system is a little different over there, where it\u2019s quite customary for people to only pay for a seller\u2019s agent and also pay for a buyer\u2019s agent. Whereas in Australia we\u2019ve got that culture where the agent actually spans both.
\nKristy:<\/b>\u00a0 Yes, they do. It is a little bit different. I guess the one luxury here is that from a buyer\u2019s perspective, we very much are only working for the buyer, and we are strong advocates for that. We certainly don\u2019t enter into any of the selling arrangements, other than provide professionally a suggestion as to an appropriate seller for a client, if they\u2019re interested.
\nKevin:<\/b>\u00a0 It raises an interesting question, too, that we\u2019ve posed on a number of occasions, and that is how can one agent represent both parties \u2013 both the buyer and the seller?
\nKristy:<\/b>\u00a0 By law, it\u2019s unavailable, but there are some that still canter into that area from time to time. I am a very strong advocate that you can only ever have one client and you can only ever have their best interests at heart at that time.
\nFrom a seller\u2019s perspective, if they are looking to give you alternatives to purchasing property, they\u2019re probably only giving you property that is on their books, whereas a buyer\u2019s agent is looking at all the available property that\u2019s on and off the market and only that which suits you.
\nKevin:<\/b>\u00a0 We talked at the start of the interview about you being on the Sunshine Coast in Queensland. A little bit about that market: I\u2019ve noticed over the last couple of years, there has been a huge amount of stock available, which has really kept prices fairly low. Is that still pretty much the case?
\nKristy:<\/b>\u00a0 It still is in some areas, but the areas such as Caloundra is certainly up and coming, and probably moving slightly past that. They\u2019re working on their community services and providing a more comfortable feel about the area, about trying to keep up that trend with Mooloolaba, Alexandra Headland, and then through to Noosa. But they\u2019re still very affordable property: land holds, one or two streets from the coast, under $500,000 on a good size block.
\nKevin:<\/b>\u00a0 Are we talking about houses or units?
\nKristy:<\/b>\u00a0 Houses.
\nKevin:<\/b>\u00a0 Are these houses with some development potential?
\nKristy:<\/b>\u00a0 They could do. They\u2019re probably sitting on an 800 square meter allotment. You could certainly subdivide and do something with that arrangement. The expense of the build doesn\u2019t need to be extravagant, either. Most people here are here for a holiday, and as long as it\u2019s comfortable and has a modern feel to it, you\u2019ve probably done very well.
\nKevin:<\/b>\u00a0 What area in particular would you be looking for in the Sunshine Coast? If you had a buyer who was looking to spend around that $450,000 to $500,000 mark and securing a property with some development potential, what areas would you look in?
\nKristy:<\/b>\u00a0 I think I would still be looking in and around Caloundra. I\u2019d be keeping my eye on some of the Mooloolaba areas, but you\u2019re probably sitting a couple of streets back from the coast, and you would probably be leaning to look a little more inland. It just depends on how close to the coast people want to be or how close to the community services they want to be. But I still like the look of Caloundra.
\nKevin:<\/b>\u00a0 Good on you, Kristy. Lovely time talking to you. Kristy Smith there from Agility Property. Kristy, thank you very much for you time.
\nKristy:<\/b>\u00a0 And you. Have a good day.
\n <\/p>\n

Michael Yardney<\/h4>\n

Kevin:<\/b>\u00a0 You might recall that last week I was talking to Michael Yardney<\/a> about what we can expect is likely to come up in 2015, what strategies will work, and what strategies won\u2019t work.
\nJust to recap, Michael, we might go over some of those strategies. You were pointing out last week that we should be very careful about hot-spotting.
\nMichael:<\/b>\u00a0 I think this year is going to be of lower capital growth, so:<\/p>\n