\nWe like to think we\u2019re rational human beings. However in the last few shows we have been able to share \u00a0with you the concept that we are in fact prone to a group of cognitive biases that cause us to think and act irrationally, and this affects many of our investment decisions.\u00a0Today, in a continuation of that series, Michael Yardney<\/b> will examine some further ways our brains sneakily convince us to make decisions that aren\u2019t always in our best interests.
\nAndrew Wilson<\/b> tells us that right now land prices in Sydney are growing faster than house prices so hold onto your hat in that market.
\nAndrew Mirams<\/b> answers my question about Australian lenders needing to develop more innovative products?
\nWe discuss more on depreciation schedules with Brad Beer<\/b> from BMT Tax Depreciation.\u00a0 We find out if they apply to properties of all ages and how long they last.
\nI talk to Glenn Ryan, a 41-year-old investor who is bucking the trend and finding investment in property in regional areas is anything but a disaster.
\nSpeaking of disasters, we check in with Damian Collins<\/b> about the WA property market with reports that it is a bit of a cot case.
\n <\/p>\nTranscripts:<\/h4>\n
<\/p>\n
Kevin<\/b>:\u00a0 A couple of weeks ago, in the show, I was talking to Andrew Mirams about investment lending. It made both of us think, I guess, whether or not Australian lenders need to develop more innovative products. He joins me to continue that conversation now, officially, online so everyone can hear it.
\nAndrew, what are you thoughts? Do you think that we should be developing more innovative products?
\nAndrew<\/b>:\u00a0 Good day, Kevin. How are you?
\nLook, the reality is probably, but the other reality is our products are probably as advanced as our mortgage products or as advanced as what everyone has around the world. In Australia, we\u2019re one of the leaders in offset accounts, if not the first to bring them in. You can get redraws. There are all sorts of blends of products that our banks and lenders can actually do now.
\nI think we do actually have a pretty good product suite across all the lenders that we have. You can have lenders that have fixed rates with offset accounts. You can have one loan and then multiple offset accounts with it, so if you want accounts for the kids, it can still be working to help you pay down your loans. I actually think we\u2019re pretty well off.
\nKevin<\/b>:\u00a0 I think in the States, they have a couple of things like being able to re-fix or break or renegotiate a fixed-rate loan. You wonder whether they\u2019re good.
\nAndrew<\/b>:\u00a0 Yes. Wouldn\u2019t it be great at the moment if someone who had fixed in for five years, three years ago at 7%, and you could just stroll into your bank and say, \u201cLook, now I know that rates are 4.5%. I want to renegotiate,\u201d and there\u2019s no fee. Sadly, in Australia, you have to pay quite an exorbitant cost because it actually costs the banks to lock that money in.
\nI guess that\u2019s the reality why our banks are so big and strong and profitable versus the issues that they had in the U.S. In the U.S., they can just go in and renegotiate their fixed rate loans. If it goes from 5% down to 4%, they can walk in and just get the new rate and away they go.
\nKevin<\/b>:\u00a0 I think you make a very good point there, comparing the two banks \u2013 Australia and America. I think you would always have to opt in favor of a very healthy banking system based on what we\u2019ve seen happen in America compared to what\u2019s happened in Australia.
\nAndrew<\/b>:\u00a0 Absolutely. Would you rather be paying just a little bit more in Australia but all of the banks are open for business and able to lend money, or do you want the cheapest rate but that\u2019s so hard to get it\u2019s just not worth having them? Our big four banks are rated in the top 10, I think, in the world so that\u2019s an amazing achievement for our banks.
\nKevin<\/b>:\u00a0 I think it\u2019s very easy for the critics to come out, too, and criticize the banks when they do announce their profits and they are quite high. But then, I always say, \u201cWell, thank goodness. We have a healthy banking system; it\u2019s not going to collapse overnight.\u201d
\nAndrew<\/b>:\u00a0 Absolutely. Bank bashing is a pastime, isn\u2019t it?
\nKevin<\/b>:\u00a0 It is, indeed.
\nAndrew<\/b>:\u00a0 I think, yes, for fees and interest rates and things like that. But the reality is you have to treat them like a commodity. They\u2019ve got something that we all want, and unless you\u2019re a very fortunate few, we need to go into a bank, we need to borrow from a lender that is going to give us the terms that we can then go and buy a house or an investment property or numerous investment properties, upgrade that house, whatever it is.
\nLike I said, unless you are very fortunate and you don\u2019t need them, half your luck, buy lots of shares in them, and they\u2019ll pay you back quite handsomely. Otherwise, we need them. You need to be able to treat them as a commodity, because they need you because they need you to make money but you also need them to get the money.
\nKevin<\/b>:\u00a0 Yes. I generally find when people are critical of the banks like that or of filthy capitalists or investors who are making money on the back of investment properties, I always ask them whether they have an investment property themselves, and nearly always the answer is no.
\nI was going to canvas some comments on the topic we\u2019re talking about today and say, if you have a comment on this, let us know,\u201d but I think I know what those comments are going to be because largely, listeners to our show are investors and investors in property.
\nAndrew<\/b>:\u00a0 Yes, absolutely. Look, I think it would be great to open up to the listeners, Kevin, and say, \u201cWhat do you think would be a great innovation for our banks to come up with?\u201d
\nKevin:<\/b>\u00a0 Good idea.
\nAndrew:<\/b> \u00a0I work in it everyday and probably, I think generally as a rule, what we have is a pretty good mix but I think the listeners might have some great ideas about what the banks could, should, or would do in terms of innovation. I think that would be a great idea.
\nKevin<\/b>:\u00a0 Okay, let\u2019s open it up. Let us know what you think. You can always contact us through the website; there is a comment section available there. Let us know what you think and tell us the sorts of packages you\u2019d like to see. I don\u2019t know how far we\u2019ll get with it, Andrew, but it would be well worth having a look at.
\nAndrew<\/b>:\u00a0 Absolutely. Yes, I think it\u2019s a great idea, Kevin.
\nKevin<\/b>:\u00a0 Andrew Mirams from Intuitive Finance. Let us know through the website. What do you think? Should Australian lenders develop more innovative products, and if so, what should they be?
\nAndrew, once again, thanks for your time.
\nAndrew<\/b>:\u00a0 My pleasure, Kevin. Have a good day.
\n <\/p>\nDr. Andrew Wilson<\/h4>\n
Kevin<\/b>:\u00a0 When we talk about real estate prices, we sometimes forget that it really rides very much on the value of land. It\u2019s interesting to see that there is a report out by Dr. Andrew Wilson, who is the chief economist for The Domain Group, saying that Sydney land prices<\/a> are now rising faster than houses. Kevin: <\/b>\u00a0Brad Beer joins me once again. Brad, thanks again for your time. Last time we met, we discussed depreciation schedules. If you missed that, you can go and have a listen back to that chat where we talked about what the depreciation schedule was. Kevin<\/b>:\u00a0 Most of us think that we\u2019re rational, but deep down, we\u2019re not. That\u2019s one of the lessons we\u2019ve learned over the last few weeks talking to Michael Yardney about the psychology of success. You\u2019ve taken us through a few of the biases, Michael, but we\u2019re not really all that rational, are we? Kevin<\/b>:\u00a0 Property commentators have been loudly criticizing investment in property in regional areas due to some horror stories that have come out in surrounding mining towns. Does this necessarily mean that all regional areas should be no-go zones? It\u2019s certainly safer to invest in property in capital city areas where the economy is much more diverse and therefore property investment could be seen as being more stable. Kevin: <\/b>\u00a0You may have heard of some of the stories coming out about the West Australian market \u2013 horror stories. I\u2019ve been talking to Dr. Andrew Wilson about what\u2019s happening around Australia, as well. We like to think we\u2019re rational human beings. However in the last few shows we have been able to share \u00a0with you the concept that we are in fact prone to a group of cognitive biases that cause us to think and act irrationally,…<\/p>\n","protected":false},"author":176692471,"featured_media":249,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[24],"tags":[101],"class_list":["post-3729","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-shows","tag-podcast"],"yoast_head":"\n
\nHe joins me. Andrew, what do you read into that situation?
\nAndrew<\/b>:\u00a0 It really does crystallize that underlying shortage of land in Sydney, Kevin, which is a key catalyst for driving prices over the last decade really and creates <\/b>that underlying pressure for prices growth that really seems to show no end.
\nOur latest report shows that Sydney land prices rose by just under 20% over 2014, which was higher than the 14% reported for house prices over the same period. Certainly very scarce on the ground land in Sydney and plenty of demand.
\nWe\u2019ve seen some of those outer Western Hills areas of Sydney prices growth. In Kellyville, for example, up by nearly 40% over 2014. That\u2019s a real extraordinary rise in prices. When we look at the medians out that way. Kellyville has a median land price of nearly $650,000, which by the time you put a house on a block of land with that value, you really don\u2019t get much change out of $1 million.
\nI think this does reflect that the buyers for vacant blocks of land in Sydney are really coming from changeover buyers who are either looking to change up in their local areas or are moving out from the inner suburbs of Sydney looking for, I guess, that semi-green change type of lifestyle in the outer suburbs.
\nWhat this means, of course, is that first time buyers have another competitor in the marketplace. Those entry-level buyers have typically looked, over the generations, for fringe house and land packages as their entry point into the housing market, but now they\u2019re competing with changeover buyers who are pushing prices up very strongly in that Sydney outer fringe.
\nKevin<\/b>:\u00a0 Certainly to say, not good news for first-home buyers. What impact will it have on established homes sales?
\nAndrew<\/b>:\u00a0 It\u2019s just offering another variety, another neighborhood characteristic. It means that not everybody wants to live closer to the CDD, not everybody wants an apartment, not everybody wants to live in an established middle ring suburb, that there is still solid demand for new homes in the outer suburban areas from changeover buyers, and they\u2019re prepared to pay money for it.
\nThe real issue in Sydney is there is just a shortage of land. It\u2019s not just about land releases from the authorities; it\u2019s about the geographical constraints \u2013 the Blue Mountains to the west, the Pacific Ocean to the east, the Hawkesbury River to the north, the national park to the southeast. It means that land can really only funnel down to the southwest.
\nThat means that new estates are now 70 or 80 Ks from the CDD and it\u2019s difficult to develop. The costs of new infrastructure in those areas is significant and it\u2019s really a problem for Sydney in terms of keeping a cap on what is the strongest prices growth in the country.
\nKevin<\/b>:\u00a0 Just moving out of that Sydney market, what about other cap city markets \u2013 Brisbane, Perth, those areas? What\u2019s it like there?
\nAndrew<\/b>:\u00a0 We\u2019ve seen strong prices growth in Melbourne and Perth, as well. Those markets \u2013 both Melbourne and Perth \u2013 are attracting still reasonable numbers of first-home buyers out to the fringe. They have a different geographical profile. Melbourne can spread to the north, to the west, and down to the southeast so it has plenty of broad acre capacity there for new house and land packages.
\nFirst-home buyers are still quite active in those areas. That Sydney median land price last year was $319,000 which was clearly the highest of all the capitals. When we look at Melbourne and Brisbane, they were down under $250,000. Perth was up around $300,000.
\nBut that Perth housing market is also supplying a lot of properties for first-home buyers. Perth has the highest proportion of first-home buyer activity of all the capital cities, and a lot of them are buying on the fringe. Some good news there, I guess, for first-home buyers; they\u2019re still competing in the marketplace, but not so much good news with prices rising strongly.
\nBut in the Brisbane market, land prices were up by around 4% last year, which was under that 6% growth that house prices increased by in Brisbane. A lot of that land sales activity was happening to the north of Brisbane, out in that North Lakes <\/b>area, which is proving very popular with first-home buyers.
\nI think that shows that that Brisbane house and land package market, particularly directed towards first- home buyers is still resonating and still providing some balance. I think that\u2019s a good news story going forth for first-home buyers looking to get into a new property to start their journey on the property ladder.
\nKevin<\/b>:\u00a0 What about land size? Does that impact this. If you look at square meterage and what we\u2019re paying per square meter in those cap cities, does that vary much?
\nAndrew<\/b>:\u00a0 The other thing, of course, Kevin, is that I guess over the years, we\u2019ve seen land sizes fall. The notion of the quarter-acre block really has fallen away. Blocks can vary from as low as 200 square meters in size, but most blocks in capital cities are averaging around 500 to 600 square meters in size. When you start looking at the \u201cbang for the buck\u201d you get per square meter, it can vary considerably.
\nBut overall, I think that there has been a move to more inside living rather than outside living. Whether that\u2019s been a price-driven outcome, people really are moving away from the sense of a backyard. There are lower offsets from the neighbors and also from the frontage offset, and certainly smaller backyards, with people with resident homebuyers looking now more for an internal lifestyle rather than that external lifestyle.
\nOf course, that suits developers in the sense that they can provide smaller lots and still keep the number of houses supplied at reasonable levels.
\nKevin<\/b>:\u00a0 I think Michael Yardney sums it up nicely. He says, \u201cPeople are trading backyards for balconies.\u201d That pretty much sums it up, I reckon.
\nAndrew<\/b>:\u00a0 That\u2019s right. I suppose that\u2019s all a part of technological change, as well, and more efficient floor plans. This is a positive thing. Also, recreation is now becoming something that is a community-provided recreation rather than something that you provide within your own family group or neighborhood group, in a sense. That, once again, eschews, I guess you\u2019d say, the need for a backyard.
\nKevin<\/b>:\u00a0 Always good talking to you. Dr. Andrew Wilson is chief economist with The Domain Group. You can see Andrew\u2019s blog site and also check out The Wilson Curve at DoctorAndrewWilson.blogspot.com.au.
\nAndrew, thanks for your time.
\nAndrew<\/b>:\u00a0 My pleasure, Kevin.
\n <\/p>\nBrad Beer<\/h4>\n
\nMy question for you this time is how long does one of these schedules run? How long does it last?
\nBrad: <\/b>\u00a0Thanks, Kevin, for having me back. If you buy a new property now, you get to make those claims for 40 years. Basically, the schedule will actually project it out for 40 years. You just take that back to your accountant every year. If you still have that property in 40 years, you\u2019ll still be making deductions based on that.
\nKevin: <\/b>\u00a0One of the questions I\u2019m constantly asked by investors is does it depend on the age of the property as to how powerful that depreciation schedule, or even if it applies?
\nBrad: <\/b>\u00a0This is one of the most common questions I get, as well, Kevin. What I\u2019d like to say is don\u2019t worry about the age; ask the question. Older properties don\u2019t get as much depreciation, but they definitely do get some.
\nWe will talk to you about your properties. The age will impact how much you get to claim, but you definitely get to claim it on older properties. Call, ask the question, and we\u2019ll give you an idea of what sort of deductions may be available prior to your going ahead and preparing it. That part is free.
\nKevin: <\/b>\u00a0How often should these depreciation schedules be updated, Brad?
\nBrad: <\/b>\u00a0Once you\u2019ve done it, it should be right. As we said, the depreciation schedule lasts for 40 years. The only thing is if you actually do some renovations to the property, then you may need to get it updated because you\u2019re changing the things that are there and you\u2019re changing what\u2019s available to depreciate.
\nKevin: <\/b>\u00a0Is it just a renovation, or could it be any additions that are made to the property \u2013 if we put some new equipment in, for instance?
\nBrad: <\/b>\u00a0Any renovations or any additions change what you\u2019re able to claim, so you want to ask about that.
\nKevin: <\/b>\u00a0Is there any particular time that I should get my depreciation schedule done, Brad?
\nBrad: <\/b>\u00a0When you need your depreciation schedule is when you\u2019re doing your tax return the first time after you\u2019ve bought this property, the first financial year. If you do it prior to the 30th<\/sup> of June, our fee will be claimable and 100% deductible in the year you actually do it. Doing it before the end of the financial year is best. If you\u2019re doing an adjustment to your tax throughout the year, then whenever you buy the property is the time to get it sorted out.
\nKevin: <\/b>\u00a0What about backdating? Can I do that?
\nBrad: <\/b>\u00a0We find that the best part of 80% of investors are not maximizing this deduction properly. You can easily backdate a couple years of your tax return and go back and get some money from the tax office if you\u2019ve been missing out.
\nKevin: <\/b>\u00a0It\u2019s well worthwhile. Would you do an assessment of my situation for me?
\nBrad: <\/b>\u00a0Most definitely. We\u2019ll have a look at what you\u2019re claiming. Often a guess has been made or something has been provided by the developer at the time and it\u2019s not looking at maximizing your deductions. We\u2019ll have a look at how much you are claiming and see whether or not we can make it any better.
\nKevin: <\/b>\u00a0What about the difference between a depreciation schedule and a valuation? Can you explain that to me?
\nBrad: <\/b>\u00a0Yes, definitely, A depreciation schedule tells you what to claim off your tax as far as depreciation is concerned and relates to the cost of the building. Valuation is quite different. It\u2019s about what is the property is worth to sell at the moment.
\nDepreciation really relates to construction costs at the time of construction and the market value of some items within there at the time \u2013 as opposed to valuation, which is the total you could sell this property for at the moment.
\nKevin: <\/b>\u00a0Finally, I just want to ask you this question: \u201cI\u2019m working with my accountant, and normally the accountant looks after the depreciation. Why should I get BMT involved?\u201d
\nBrad: <\/b>\u00a0That\u2019s probably the second most common question. People think their accountant looks after it. Often they do; they\u2019ll send you off to someone like us to get it sorted out properly. The accountants are my friends. We work alongside them. We\u2019re a specialist just in maximizing this depreciation. We give them one of the numbers of the full tax return. Most of the time, the jobs to BMT actually come referred by the accountant.
\nKevin: <\/b>\u00a0I could just say to my accountant, \u201cI want BMT to do this for me\u201d?
\nBrad: <\/b>\u00a0We\u2019re happy to talk to the accountant before we go ahead and do anything, most definitely.
\nKevin: <\/b>\u00a0My guest is Brad Beer from BMT Tax Depreciation Quantity Surveyors. The website is BMTQS.com.au<\/a>.
\nBrad, once again, thanks for your time.
\nBrad: <\/b>\u00a0Thanks again, Kevin.
\n <\/p>\nMichael Yardney<\/a><\/h4>\n
\nMichael<\/b>:\u00a0 No, Kevin, we\u2019re not, but simply becoming aware of these biases means we\u2019ve beaten half the battle against our own worst enemy, which happens to be ourselves.
\nKevin<\/b>:\u00a0 Yes. You\u2019ve shared a few great biases with us, the confirmation bias and the bandwagon effect, as well.
\nMichael<\/b>:\u00a0 Sure, so let\u2019s talk about a couple of others this week. One of them is what I call the \u201costrich effect.\u201d When an ostrich is scared, the bird supposedly buries its head in the sand to stay ignorant of the approaching threat.
\nNow, the logic in this is \u201cIf I can\u2019t see it, it doesn\u2019t exist.\u201d It may be right, but in fact, as ridiculous as it sounds considering other human beings do this, as well, we simply don\u2019t have a neck long enough, obviously, to stick your head in the sand. But we do deliberately look away from our money problems.
\nSome investors avoid unpleasant information, such as reading negative financial news, checking on the performance of their properties, while many Australians just bury their heads in the sand about their future financial security, and they put off investing altogether, Kevin.
\nKevin<\/b>:\u00a0 You can actually block things out, though, can\u2019t you?
\nMichael<\/b>:\u00a0 Yes. Now, one would say that\u2019s a protective mechanism, and it is, but it also doesn\u2019t really protect you. It\u2019s hiding in the sand, and it doesn\u2019t help you move on.
\nKevin<\/b>:\u00a0 It would be hard to communicate with someone and try to convince them that they\u2019ve actually got this ostrich effect because the first thing they\u2019re going do is block it out.
\nMichael<\/b>:\u00a0 You\u2019re right, Kevin. That\u2019s why we started this whole series by saying, \u201cWe are our own worst enemy.\u201d
\nKevin<\/b>:\u00a0 Yes, we are indeed. Sometimes, Michael, we tend to overlook some opportunities in the past because we\u2019re content with what we already have.
\nMichael<\/b>:\u00a0 Kevin, I think that\u2019s a good point. It\u2019s a bit like if you own a good Windows computer instead of Apple one like you and I do, you\u2019re more likely to downplay the faults of Windows and amplify the faults of Apple computers. It\u2019s just like when you\u2019re convinced an investment you\u2019ve made is great just because you spent so much time, so much research, so much emotion selecting it.
\nIn fact, you rationalize your past choices to protect your sense of self. Now, you may not necessarily be wrong, but it\u2019s a bias you should be aware of in the future when reviewing the performance of your property portfolio.
\nKevin<\/b>:\u00a0 You talked about research there, but what about people who look for patterns in research and make themselves believe that that\u2019s the path they should follow?
\nMichael<\/b>:\u00a0 Kevin, psychologists call this the clustering effect. It\u2019s a tendency to see patterns that happen in random events. This is particularly seen with gamblers. They\u2019re desperately trying to beat the system by seeing a pattern in the roll of the dice or the roulette wheel. \u201cI had four reds in a row. Now it must be black\u2019s turn,\u201d when in fact it\u2019s a 50\/50 chance next time.
\nWe\u2019re pattern machines and recognize people and things from the overall patterns rather than the full details. While this is very useful \u2013 it helps us get through life \u2013 it also means we can sometimes see patterns where there\u2019s nothing, as you said, Kevin. This selective thinking can lead to wrong conclusions when faced with the multitude of mixed messages we\u2019re currently getting in the property market, so it\u2019s just something to be aware of.
\nKevin<\/b>:\u00a0 Indeed it is. I know we come across it quite often, too, and that is that people end up with closed minds, Michael. They don\u2019t have an open mind; they\u2019re not even willing to even learn or listen.
\nMichael<\/b>:\u00a0 That\u2019s right. One of the challenges is more with intelligent people, I\u2019ve actually found, because intelligent people sometimes have difficulty remembering what it was like when they started. I see this particularly in property investment when I come across professionals who are successful in their own fields and believe that this can translate to success in the arena of real estate.
\nHighly intelligent people, I\u2019ve found, have difficulty asking for help or taking advice, because they think they should be able to work it out themselves. They try to tweak and improve and fine-tune someone else\u2019s property strategy, they interpret it with their own biases, and then they wonder why it doesn\u2019t work.
\nOn the other hand, I\u2019ve found that many of the successful investors I\u2019ve come across are, I\u2019ll very politely say, dumb. They just find a strategy that works; it\u2019s worked for their mentors, and they just follow it.
\nKevin<\/b>:\u00a0 What about the overconfident people, Michael?
\nMichael<\/b>:\u00a0 That\u2019s a challenge too, isn\u2019t it? It is the downfall of many investors. In fact, one of the worst things that can happen to an investor is to get it right the first time when they buy a property. This has happened a bit in the last year or two, really, during boom conditions when somebody\u2019s just bought something, and they think they\u2019re smarter than they are.
\nThis has occurred when beginning investors bought mining towns, and all of a sudden, the prices inflated, or they bought at the right time of the cycle. Unfortunately, though, many are now finding out that they weren\u2019t as clever as they thought they were as the value of their properties keeps falling, especially in the mining towns and in regional areas where prices are deflating.
\nAs you can see, a lot of these preconceptions influence your success as a property investor. They get you to interpret the information that\u2019s coming to you incorrectly, and you end up making less-informed decisions, Kevin.
\nKevin<\/b>:\u00a0 There\u2019s one that we haven\u2019t touched on that we might pick up on next week, and that is the one of procrastination. I think this is probably one of the worst ones I\u2019ve ever seen, Michael.
\nMichael<\/b>:\u00a0 That\u2019s very common, isn\u2019t it? Let\u2019s talk about next week.
\nKevin<\/b>:\u00a0 Michael Yardney from Metropole Property Strategists. Thanks, Michael.
\nMichael<\/b>:\u00a0 My pleasure.
\n <\/p>\nGlen Ryan<\/h4>\n
\nIn the April edition of Australian Property Investor <\/i>magazine, you might be interested to read an article that was written about a 41-year-old investor by the name of Glenn Ryan, who is bucking the trend and finding investment property in regional areas is anything but a disaster. He joins me.
\nGood day, Glenn. Thank you for your time.
\nGlenn<\/b>:\u00a0 Good morning, Kevin.
\nKevin<\/b>:\u00a0 Glenn, tell me, how do you safeguard against investing in an area that\u2019s potentially so volatile?
\nGlenn<\/b>:\u00a0 Basically I\u2019ve been investing for the last 10 years. I have 14 properties, the majority in regional New South Wales and one in Tasmania. My investing has really intensified post-GFC, when investing in regional New South Wales in particular has just been so affordable. In a way, I\u2019m a little bit of an oddity or a curiosity, which is understandable.
\nWhat I\u2019ve found in these towns that I\u2019ve invested in is if you purchase entry-level or bread-and-butter properties, there seems to be a general pool of tenants who look for those properties, which reduces your volatility. You have a greater pool of tenants applying to these properties, but they\u2019re not flash. It\u2019s certainly not hard to rent them out. These towns typically have negligible vacancy rates, certainly less than 2% vacancy rates, so sort of safeguards my cash flow and investment.
\nKevin<\/b>:\u00a0 When you\u2019re looking at these regional towns, do you look for those that have a fairly diverse economy \u2013 in other words, not based just on one industry like mining?
\nGlenn<\/b>:\u00a0 I\u2019ve found that with the properties that I purchase, typically Centrelink comes into play. I\u2019ve found that probably three quarters of my tenants are relying on Centrelink. In a way that\u2019s not reliant on volatility or industries, and in another way it\u2019s a recession-proof business model. Of course, the capital growth kick will be with any industries near these towns do take off, and that\u2019s what I hope for and that\u2019s what I\u2019ve researched.
\nKevin<\/b>:\u00a0 Is it coupled up with affordability?
\nGlenn<\/b>:\u00a0 Yes, definitely. That\u2019s why I\u2019ve been able to afford with these properties. If you want to take out a 30-year loan, borrow out 110%, it\u2019s very easy to get cross-mutual properties in regional New South Wales or Tasmania, where I have another one. Critics of that would say it\u2019s going to take forever and a day to sell all these properties if you wanted to sell them.
\nKevin<\/b>:\u00a0 In the article in Australian Property Investor <\/i>magazine, you hinted the fact that there have been a few trials and tribulations. I think your words were something like, \u201cA bit of a rough road.\u201d What have you learned from those experiences?
\nGlenn<\/b>:\u00a0 What I\u2019ve learned is because my strategy has been to purchase entry-level or bread-and-butter properties, what tends to be the issue is that they are basic houses. The challenge has been unexpected repairs on a lot properties. You just have to have that amount of cash and be ready for the next problem that will present with an older house.
\nKevin<\/b>:\u00a0 What\u2019s next for you, Glenn? What are you considering investing next, and why?
\nGlenn<\/b>:\u00a0 I\u2019m certainly casting my eye over any town in the Gunnedah basin. About one week ago, there was a major announcement that Shenhua Watermark had just been given the green light from the New South Wales government to start a coal mine south of Gunnedah. Certainly anything in the Gunnedah coal basin \u2013 Gunnedah, Boggabri, Curlewis. I\u2019m pretty well excited about anything around Gunnedah. It would have to be entry-level. I wouldn\u2019t be going investing in a very expensive modern house with a pool or anything like that.
\nKevin<\/b>:\u00a0 What is entry-level, Glenn?
\nGlenn<\/b>:\u00a0 Basically, three-bedroom. It would have to have air conditioning. Typically, it would have old carpets in it. It would have an old kitchen. The place would allow me to just do the basic renovations if I wanted to.
\nKevin<\/b>:\u00a0 What price range, Glenn?
\nGlenn<\/b>:\u00a0 From the $60,000 to the $100,000 price range.
\nKevin<\/b>:\u00a0 What sort of return would you expect to get from that?
\nGlenn<\/b>:\u00a0 For example, Moree. A lot of people are aware of Moree. <\/b>It\u2019s quite a cash cow, but it\u2019s not hard to buy a house in Moree <\/b>for, say, $100,000, and rent it out for $200 a week.
\nKevin<\/b>:\u00a0 Glenn, all the best with your investing. You make a lot of sense, and I appreciate you giving us your time. Thank you.
\nGlenn<\/b>:\u00a0 Thanks for your time, Kevin.
\n <\/p>\nDamian Collins<\/h4>\n
\nI want to get a bit more on-the-ground information about that, so I\u2019m talking to Damian Collins from Momentum Wealth, who has got his ear very close to the ground for us.
\nGood day, Damian. How are you doing?
\nDamian: <\/b>\u00a0Good, Kevin. And yourself?
\nKevin: <\/b>\u00a0Good, mate. Now tell us what is happening in the WA market. Is there any reason for concern there?
\nDamian: <\/b>\u00a0Kevin, the market is patchy; there\u2019s no doubt that. We\u2019re finding that Perth is still traveling along okay. In terms of pricing, it\u2019s up about 4.5% last year. We\u2019re expecting this year to be relatively moderate gains, maybe up to 3%, but certainly nothing of substance.
\nHaving said that, within particular suburbs, we\u2019ve seen last year even though the market only did 4.5%, some suburbs were up 18% and some properties were up even a little bit more if they were the right properties in the right locations.
\nThere are still opportunities, but it\u2019s very much a selection market. But yes, certainly, in some of the regions, there are some significant price falls happening.
\nKevin: <\/b>\u00a0Is this on the back of what\u2019s happening with mining?
\nDamian: <\/b>\u00a0WA has always been a resource-based economy, Kevin, and that affects the property market. It is a bit more volatile than you\u2019ll find some of the other locations around Australia. Having said that, Perth is not nearly as volatile as some of the regional areas. As I said, we\u2019re expecting moderate growth. Even though e had a slowdown in mining last year, we\u2019re still expecting moderate growth \u2013 even at worst case, sort of flat.
\nThe regional areas, particularly in the Pilbara, have been hit very significantly by the mining downturn, and that\u2019s reflected in their pricing and the rents that we\u2019re seeing come back quite a lot.
\nKevin: <\/b>\u00a0What\u2019s happening with the returns there?
\nDamian: <\/b>\u00a0We\u2019re seeing, certainly in Karratha and Port Hedland, rents down in the order of 25% and even in Karratha, down towards 40%, and prices down similar sorts of levels. Look, it was always obvious. We were telling clients in 2012, \u201cDon\u2019t go there. You\u2019ve missed that boat. That has had its run.\u201d
\nWhen you were paying $1.5 million and $2500 a week rent for a three-bed, one-bath, pretty average property, it was pretty clear it was unsustainable, and once the supply came on, it was always going to happen. Unfortunately, some people just wanted to see blue sky forever and got in at the wrong time.
\nHaving said that, if you had got in eight or nine years ago when the pricing was right, you could have bought a house in 2006 in those areas for $300,000, now still worth $700,000. Those areas are really speculative. You\u2019ve got to get in at the right time. We still think there\u2019s a little bit of downside, but it\u2019s getting closer to where it\u2019s worth having a look at.
\nKevin: <\/b>\u00a0Damian, if I were to come to you with $500,000 to spend, where do you recommend I should spend it?
\nDamian: <\/b>\u00a0For our clients with $500,000, we\u2019re looking around in areas that are proposed re-zoning. We\u2019ve been buying quite a bit in High Wycombe and Forest Hill over the last 18 months. It\u2019s starting to get up there. We don\u2019t see it as undervalued as much as we did 18 months ago, but it has certainly had a good run.
\nThey\u2019re the sorts of things you want to be looking for in Perth. Even though we\u2019re going to have a flat year, there are still areas that will do relatively well. Study the Directions 2031 strategic plan for Perth, and you\u2019ll see the activity centers. That\u2019s where we\u2019re seeing opportunities \u2013 near train stations, around areas that are likely to be re-zoned. That\u2019s where we think the market out-performance will be in the next two years.
\nKevin: <\/b>\u00a0Damian Collins from Momentum Wealth in WA, thank you very much for your time.
\nDamian: <\/b>\u00a0Thanks, Kevin.
\n
\n <\/p>\n","protected":false},"excerpt":{"rendered":"