{"id":8014,"date":"2016-05-19T10:00:20","date_gmt":"2016-05-19T00:00:20","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=8014"},"modified":"2016-05-19T10:00:20","modified_gmt":"2016-05-19T00:00:20","slug":"why-investing-in-property-doesnt-make-sense-agent-to-the-stars-tells-all-how-to-check-a-sellers-motivation","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/why-investing-in-property-doesnt-make-sense-agent-to-the-stars-tells-all-how-to-check-a-sellers-motivation\/","title":{"rendered":"Why investing in property doesn\u2019t make sense + Agent to the stars tells all + How to check a sellers motivation"},"content":{"rendered":"

Michael Pascoe<\/strong>, finance and economics commentator tells us why, in his opinion, investing in property doesn\u2019t add up.\u00a0\u00a0 He doesn\u2019t say don\u2019t do it but he points out why many investors go wrong.\u00a0\u00a0 We wanted to get a balance to what Michael Pascoe<\/strong> said so we asked Michael Yardney<\/strong><\/a> from\u00a0Metropole Property Strategists<\/a>,\u00a0for his opinion and you might be a bit surprised to hear his view.
\nA person\u2019s motivation to sell is rarely just about financial reasons according to buyers agent Patrick Bright<\/strong>.\u00a0 He joins us to explain how you can spot a sellers motivation and why its important.
\nWe catch up with the world\u2019s most successful celebrity real estate agent – Josh Altman<\/strong> star of the hit American TV show Million Dollar Listing LA. He shares some interesting stories.
\nBrad Beer<\/strong> from BMT Tax Depreciation explains how you can get the maximum deductions available from your investment properties.\u00a0\u00a0 Handy advice in the lead up to the end of financial year.
\nBernard Hickey<\/strong> from Hive News New Zealand has a waning for Australian investors looking to cash in on the hot market there.\u00a0 He gives us detail about a new tax on foreign investment that has been mooted by the NZ Prime Minister.
\n 
\nTranscripts:<\/strong>
\nMichael Pascoe –<\/strong>
\nKevin:\u00a0 <\/b>Joining me now is Michael Pascoe, finance and economics commentator, over 40 years\u2019 experience in all forms of media.
\nIt\u2019s a pleasure to have you on the show, Michael, and thank you for your time.<\/b>
\nMichael:\u00a0 <\/b>My pleasure.<\/b>
\nKevin:\u00a0 <\/b>You\u2019ve written an article that was called \u201cWhy Investing in Property Doesn\u2019t Add Up.\u201d Could you tell us a bit more about that piece and what it means for Australians who are looking to invest in property?<\/b>
\nMichael:\u00a0 <\/b>There are a couple of things to it. First of all, it\u2019s obviously a very general piece, because there isn\u2019t one Australian property market; there are about 10,000 of them at least. But on the averages now, there has been such a surge in prices that you\u2019re obviously not going to see that same soaring capital appreciation, obviously, until we digest a pretty big lift over the last few years.
\nThe other side of it is supply has responded to demand, there has been a lot more building. That\u2019s showing up and investors have certainly been active, meaning there\u2019s more rental property around, meaning some rents are beginning to fall, other rents aren\u2019t rising, and if the gross rental return isn\u2019t flash, <\/b>then the net rental return is even worse.<\/b>
\nKevin:\u00a0 <\/b>When you build that on top of the credit squeeze that we had to have, with the banks toughening up on lending and so on, we\u2019re probably going to see a lot of those units that are being built and apartments being built being left vacant or not being able to be sold, too. Will that add to that problem, or is that part of it?<\/b>
\nMichael:\u00a0 <\/b>I\u2019m not so sure about that end of it. I think before you get to that situation\u2026 I presume you\u2019re talking about properties that have been sold off the plan and then people can\u2019t get finance.<\/b>
\nKevin:\u00a0 <\/b>Yes, I am.<\/b>
\nMichael:\u00a0 <\/b>That\u2019s a problem that the market will digest, but I think it\u2019s a fairly short-term problem. The longer term is if you look in very rough figures, if you assume that prices on average are only going to rise by about the inflation rate for the next few years \u2013 and some people would call that an optimistic view; I think it\u2019s not unreasonable. So let\u2019s say prices go up by 2% a year. When you buy an investment property, depending upon what state you buy it in and how much it is, you\u2019re paying as much as 5% stamp duty, so you\u2019re not going to break even on your stamp duty for two and a half years. On top of that, you have land tax. Again, depends on where you are and how big your holdings are, but that has another bite of it.
\nMy suspicion is that investors very rarely are honest and accurate in their assessment of costs of owning property. They might look at the gross yield and think, \u201cWell, yes, that\u2019s that. Well, we\u2019ll be able to get around it, and we\u2019ll still be making 2.5% or 3%.\u201d I think a lot of investors in property, by the time they factor in all their costs, might be lucky to make 2%.
\nNow, you throw those numbers into the mix and it means an investor buying today, if they\u2019re fortunate and buying the average property, they\u2019re really not going to be ahead for three years. And that\u2019s if they buy a property that\u2019s still appreciating, and there are pockets clearly around the country where they\u2019re not appreciating.
\nSo it really is a challenge. The easy money seems to have been made in residential real estate. It comes along once every decade or so. Prices go through the roof. Like every boom, everyone piles in, and the people who pile in last to any boom tend not to do so well.<\/b>
\nKevin:\u00a0 <\/b>You mentioned in the piece \u2013 that I thought was very good, too \u2013 that there are exceptions to this, and you just acknowledged that yourself, that there will be different parts of Australia that will still improve. What about properties where you can actually add a twist, add an extra bedroom to give you a better rental return, Michael?<\/b>
\nMichael:\u00a0 <\/b>That\u2019s clearly where the professionals come into it, as opposed to the mug amateurs who just get burnt. That ability to pick a property that does have potential other people don\u2019t see, the occasional bargain buy, the occasional stress sale that can do well, that makes the exception.
\nI\u2019m talking very broad averages. By nature of those broad averages, there are some that are doing well. If you look nationally, the consensus view from people who watch property seems to be that Brisbane is going to fare better for a while yet, that the party is pretty much over or close to being over in Perth and Melbourne, and of course, the party is going backwards in Perth.
\nOne interesting thing that I\u2019ve come across in the last week or so from a finance broker and also from the comments made by the Reserve Bank\u2019s Financial Stability Review is that it seems to be upside in Adelaide. Now, poor old Adelaide doesn\u2019t get much of a look in and tends not to fly as high as any other state but also tends not to fall as low. I\u2019m told that a couple of major banks are still happy to lend to developers for units in the Adelaide CBD when they\u2019re not happy to lend for units in the CBD of the East Coast cities.<\/b>
\nKevin:\u00a0 <\/b>That\u2019s interesting. Just on another point, should property investors be focused more on long term, and if so, how long term?<\/b>
\nMichael:\u00a0 <\/b>Property investors have to be focused on the long term, because except when there\u2019s a crazy boom on when you can buy and flip something fairly quickly \u2013 except for that once in a decade period \u2013 I would think looking at property in anything less than ten years, you\u2019re fooling yourself. Part of the return that comes there is really for savings anyway if you do have to service the debt.
\nAPRA and the banks have probably done investors a favor on a couple of fronts. I think they\u2019ve forced a pull on the market, they\u2019ve made people look a bit harder on what\u2019s happening, and given what is happening with the returns, that\u2019s a good thing. They\u2019re also really encouraging banks who in turn encourage their clients not to do interest-only but to actually start knocking off some of the loan, and that should be a very helpful factor over the next several years.<\/b>
\nKevin:\u00a0 <\/b>Jonathan Tepper, a researcher and economist from the UK, has loudly predicted that the Australian market is going to crash spectacularly within the next 12 months. He\u2019s predicting 20 to 50%. What are your thoughts on that?<\/b>
\nMichael:\u00a0 <\/b>Oh, spare me. He\u2019s another one, the latest in a long line of doomsday callers. I go back a fair way. I remember Steve Keen, when he came out with his famous prediction, and you have that klutz, the American who turns up here every couple of years with a new book he\u2019s trying to sell.<\/b>
\nKevin:\u00a0 <\/b>When he\u2019s a got a book; yes, that\u2019s right.<\/b>
\nMichael:\u00a0 <\/b>They make the same predictions. Nothing is impossible in the financial world, as we all know, but to have a serious housing crash in Australia, you would need to have a serious rise in unemployment. If you look at how Australians behaved during the 1990\u201391 recession when we had double-digit unemployment, the last thing they let go of is their real estate. We eat dog food before we sell the family home. So to get the sort of mass sales you would require to seriously crash prices, you\u2019d have to paint me a scenario where we have a major rise in unemployment, and there is nothing on the horizon that you can say is likely to lead to that.
\nOne of the things you never have to worry about is missing bad news. There will always be someone who wants to tell you bad news; it takes a bit of effort to go and find a more balanced picture. And the more balanced picture is that the Australian economy is close to pulling off an incredible transition from its resources boom into something more sustainable. We haven\u2019t done it yet, but it\u2019s looking like we could do it, and we have a situation where we have jobs continuing to rise, we still have good population growth, and as long as you have more employment and more people, it\u2019s hard to see how you could have a really major property crash.
\nAlso, unlike the lending institutions in Europe and the US, our banks haven\u2019t lost the plot. We are fortunate to have APRA pull them up, as APRA had to pull them up last year and this year. So I just can\u2019t see why that\u2019s the probable outcome, because you get the odd clown who looks at charts from the other side of the world and does a taxi driver survey in western Sydney and extrapolates that to the nation. It doesn\u2019t make sense.<\/b>
\nKevin:\u00a0 <\/b>And more importantly, has a book to sell.<\/b>
\nMichael:\u00a0 <\/b>That tends to be the case.<\/b>
\nKevin:\u00a0 <\/b>Michael, it\u2019s fantastic talking to you. Thank you so much for giving us your time today.<\/b>
\nMichael:\u00a0 <\/b>A pleasure.
\n 
\nMichael Yardney <\/a>–<\/strong>
\nKevin:\u00a0 <\/b>Just before the break there, you heard what Michael Pascoe had to say about the Australian market. Let\u2019s get not so much another view, but an extended view on that. Michael Yardney <\/a>joined from Metropole Property Strategists.<\/a>
\nMichael, I know that you\u2019re familiar with what Michael Pascoe had to say. What would be your reaction to his sentiment?<\/b>
\nMichael:\u00a0 <\/b>Kevin, it may surprise you, but I agree. I think Michael Pascoe is right, most new property investors are going to fail over the next couple of years.<\/b>
\nKevin:\u00a0 <\/b>What does that say about the market, or does that say something about the investor?<\/b>
\nMichael:\u00a0 <\/b>It\u2019s really nothing new here. Statistics show that 20% of property owners sell up in the first year and up to about 50% of people who get into property investment sell up in five years of owning a property, so as I said, most property investors fail. Those who stay in the market, 93% of them never end up with more than two properties, which means they never get the financial independence they require.
\nOf course, at this stage of the property cycle, I think we\u2019re not going to have anywhere near as much capital growth. That means mistakes won\u2019t be covered up by the strong growth that particularly the Melbourne and Sydney markets have experienced, and Brisbane to a different degree over the last year or two. I think that means a larger percentage of those who get into property will be disappointed.
\nLet me be clear, Kevin. I\u2019m not actually suggesting you shouldn\u2019t get into property investment. What I\u2019m saying is to be successful, you actually have to do things differently to the average investor.<\/b>
\nKevin:\u00a0 <\/b>Is it that we\u2019ve gotten carried away with the boom or the optimism, Michael?<\/b>
\nMichael:\u00a0 <\/b>I believe lots of beginning investors bought in thinking they could buy any property and it would double in value in seven to ten years\u2019 time. Property should never be seen as a short-term investment, and the thought that any property is an investment-grade property is also very wrong.
\nMichael was correct in saying that on average, properties are probably going to only go up over the next couple of years in line with inflation, and in some locations, property values are going to go down. But if you talk about averages, some will outperform and some will underperform. I guess that\u2019s how averages are made. What a successful investor needs to do is find those properties that will outperform. Otherwise, he\u2019s right; property investment won\u2019t make sense.<\/b>
\nKevin:\u00a0 <\/b>Do you think we\u2019ve gone too much for generalizations? That statement about property values are going to double every ten years, that may happen in some areas and some properties, but that doesn\u2019t happen across all markets.<\/b>
\nMichael:\u00a0 <\/b>First of all, it doesn\u2019t happen across all markets, and also, it happens more when there\u2019s high inflation. Currently, with inflation low and interest rates at historic lows, you really don\u2019t need double-digit capital growth to make a property work strongly for you.
\nIt\u2019s unlikely over the next while that those sort of returns, double-digit growth, and properties doubling in seven to ten years will occur. But there are ways you can make your property outperform, and that\u2019s by finding the sort of property that\u2019ll be in strong demand in the future, that will be pushed up in value by lots of owner-occupiers not investors wanting it. It\u2019s owner-occupiers who buy with their hearts, not their calculators, who push up property values.
\nFind the locations with those owner occupiers have more income, higher disposable income, can afford to and are prepared to pay, and then I like buying properties where if the market is not going to do the heavy lifting, I\u2019d be doing it by doing some renovations or redevelopment, so there are still going to be opportunities at the next stage of the cycle, while other people are sitting on the sidelines, wondering what\u2019s going on.<\/b>
\nKevin:\u00a0 <\/b>You say the next stage of the cycle. What stage are we at?<\/b>
\nMichael:\u00a0 <\/b>Each state is in its own stage of the cycle, and Kevin, even within each state, we have multiple markets \u2013 some at different price points, some geographically, some have different property types.
\nFor example, what I mean by that is if you look at the inner-city Brisbane apartment market and the near-city Brisbane apartment market \u2013 and it\u2019s really much the same in Melbourne, as well \u2013 there is an oversupply, where they\u2019re in a more mature stage, and really, in some ways a slump stage where property values are dropping.
\nThat\u2019s not always reflected in the sale of new properties, because that\u2019s an artificial market, in many ways supported by foreign investors. But when those newish properties in the high-rise towers come onto the secondary market, we\u2019re finding that the values of them \u2013 the real value, the market value when the market tests it \u2013 is maybe 20%, 30% less than the contract price.
\nIn some markets or in regional towns, mining towns, we\u2019re already at the stage of the cycle where we\u2019re pedaling backwards. In other parts, the market is still moving forwards. Only over the last week or so, Domain sent out its quarterly review, and we saw that in Melbourne, property prices are increasing and in Hobart, they are, but interestingly, in every other capital city, property values are tracking backwards \u2013 on average. Again, that means not all properties, but some are.
\nIt\u2019s a time where you have to be cautious, and if you want to think about property investment, be very selective in your property purchases.<\/b>
\nKevin:\u00a0 <\/b>You say to be selective. Are we looking therefore at properties that outperform the averages? If that\u2019s the case, how do we find those?<\/b>
\nMichael:\u00a0 <\/b>What we\u2019re looking for are properties that are going to remain in continuous strong demand over the next year or two when demand won\u2019t be as strong. In general, 70% of properties are bought by owner-occupiers and overall about 30% by investors. But that equation got tipped over over the last couple of years, where investors lead the pack, particularly in Sydney, where up to 50% of properties were being purchased by investors, pushing out first-home buyers.
\nIn general, 15% to 20% of properties are in the first-home buyer category, so to become a successful investor, to choose those properties you just asked me about, Kevin, I\u2019d be looking at those that are attractive to the wider demographic who can afford to and are prepared to pay, and that\u2019s more in the upper price brackets, not the first-home buyer market where they\u2019re more interest-rate sensitive and job-sensitive, and not investment-grade properties, which are often the new and off-the-plan in the big complexes, but properties in streets in the middle-ring suburbs of Brisbane, Sydney, and Melbourne, and all of our capital cities, really, where people are still getting married, getting divorced, having kids, getting new jobs, and moving on with their lives.
\nThat\u2019s going to continue on over the next couple of years, despite all the other things that are happening in the world. The properties that will attract them \u2013 not that we want to sell to them, but they\u2019re going to push up the value of properties next to ours, similar properties to ours, to make sure that our property values, our investment properties, don\u2019t falter.<\/b>
\nKevin:\u00a0 <\/b>The culture of home ownership that we have in Australia has probably driven us and made us be prepared to pay more, or as much as we can, to get a home. Has that influenced us or actually tarnished us a little bit, if we\u2019re looking for investment properties?<\/b>
\nMichael:\u00a0 <\/b>Kevin, homebuyers in Australia own bigger homes than in other parts of the world. Most people have a spare bedroom in their home. Many people will buy a home they\u2019re going to be proud of. It\u2019s a very different culture to overseas, you\u2019re right, and Michael Pascoe in his interview with you a moment ago said a beautiful line: \u201cThey\u2019d rather eat dog food than give up their homes when things get tough.\u201d
\nSo the fact that 70% of properties in Australia are owned by owner-occupiers \u2013 and in fact that 50% of them don\u2019t even have a mortgage \u2013 underpins our Australian property markets. It means that as an investor, you\u2019ll be buying in an investment market if it\u2019s not dominated by investors, and that leads to a level of stability to the market.
\nBut you\u2019re right; you were asking does that taint investors, and I think many beginning investors buy a property thinking, \u201cCould I live in it? Would I live in it? Is it the sort of house that I\u2019d live in?\u201d That probably isn\u2019t one of my criteria for investment-grade properties, Kevin.<\/b>
\nKevin:\u00a0 <\/b>Michael, we\u2019re out of time, unfortunately, but I want to thank you for that insight, and also surprised to see that you did agree there, but I can understand now when you describe to me why you would agree with Michael Pascoe.
\nMichael Yardney <\/a>from Metropole Property Strategists, <\/a>thanks for your time this morning.<\/b>
\nMichael:\u00a0 <\/b>My pleasure, Kevin.
\n 
\nPatrick Bright –<\/strong>
\nKevin:<\/b>\u00a0 Whenever I ask a seller what it is they look for when they\u2019re looking to buy a property, they always talk about the motivation of the seller. I wonder just how important that is, or in fact, how you can even spot a motivated seller, and what is one anyway? Is it about desperation? Is it about their need to move on or just their desire to move on?
\nMy next guest is a buyer\u2019s agent, and I guess Patrick Bright from EPS Property Search deals with this all the time.
\nHi, Patrick.
\nPatrick:<\/b>\u00a0 Hi, Kevin.
\nKevin:<\/b>\u00a0 Probably a common question you\u2019re asked, as well, about the motivation of the seller: How important is it to know that, Patrick?
\nPatrick:<\/b>\u00a0 It\u2019s helpful to know that you have a motivated seller, but at the end of the day, it\u2019s important to buy from someone who is motivated to sell. There is a percentage of people who put their property on the market simply because they\u2019re just testing the market or they\u2019re not highly motivated or the local sales agent has knocked on the door or rung them and said, \u201cLook, would you think of selling? What are you looking for?\u201d They say this number, and they say, \u201cWell, if I can get that for you, would you be prepared to sell?\u201d and they\u2019re looking to get it on the market. That\u2019s not what I would call a motivated seller.
\nSomeone who is motivated has actually bought something else and they need to sell theirs, and they are happy to listen to fair market value, and they are not going to hang out for a Disneyland price.
\nKevin:<\/b>\u00a0 I think you\u2019ve often said in the past \u2013 and I\u2019ve read a brief on this \u2013 that it\u2019s rarely just about financial reasons that would make someone motivated to sell. Is that correct?
\nPatrick:<\/b>\u00a0 Yes. There are a number of reasons, but I think the top few are if there is unfortunately a relationship breakdown that does happen and people need to separate and move on with their lives and they need to separate the financial aspects of their lives, as well, which is unfortunate but reality.
\nThe financial difficulties as we\u2019ve just mentioned do come into play, but I think the main thing that they\u2019ve already purchased elsewhere is very strong, particularly in a rising market. Most people want to find something before they sell because they know they are going to sell it because the market is tight. So it\u2019s often about finding what they want first, getting that, and then they don\u2019t want to have two mortgages. They have to get on with it pretty promptly because a lot of people can\u2019t fund two mortgages at the same time.
\nThey could be relocating for work. There could be difficult tenants. It could be an investment property and they\u2019re having trouble with a tenant who has gone a bit feral on them. It\u2019s not common, but it does happen. That\u2019s why it\u2019s good to have landlord insurance, of course. But they could be giving them some difficulties, so they\u2019re just over it and they want to sell.
\nThere are a bunch of reasons that people do want to shift a property. What you want to do is ideally buy from someone who is motivated to sell, because they are more likely to listen to a fair market price.
\nKevin:<\/b>\u00a0 How reliable is it when an agent does actually put on an ad \u201cOwners have purchased elsewhere\u201d? As you\u2019ve indicated, that is a good motivator. Things like \u201cDesperate to sell,\u201d \u201cMust sell now.\u201d Are those just marketing ploys?
\nPatrick:<\/b>\u00a0 Absolutely they are. They wouldn\u2019t publish something like that unless there was some truth to that, otherwise it\u2019s misleading advertising. You\u2019re taking a very big risk to be publishing something that isn\u2019t factual.
\nI remember when I was a selling agent 20-odd years ago now \u2013 getting on \u2013 one of the things we noticed was that if you put \u201cHighly motivated seller\u201d or \u201cMortgagee sale\u201d or \u201cDeceased estate\u201d on a property, the amount of extra interest was dramatic. In fact, if you could get away with it you would probably advertise the fact that the property is a deceased estate even though it wasn\u2019t, just to get extra interest.
\nThose properties very rarely sell for a conservative price, because most buyers are doing this for their first or second time, they\u2019re not educated, and they go along and they think it has got to be a bargain whatever it sells for. Some of those properties sell for really silly prices, because you have everyone thinking, \u201cWell, whatever I buy it for, it\u2019s a desperate seller and I\u2019m going to do well.\u201d
\nYou do have to do your own independent research. You do need to make sure that you\u2019re making an educated offer on the property or setting an educated, well-researched limit so that you don\u2019t get caught up being that person.
\nKevin:<\/b>\u00a0 How do you approach that as a buyer\u2019s agent? If it were going to auction and under that kind of duress, would you try to secure the property before the auction?
\nPatrick:<\/b>\u00a0 It depends on the property. I see every property without a price because I\u2019m going to do my research. Prices that are listed on properties are very often what the agent had to promise the vendor to get it on the market or a price that the vendor says they want, which isn\u2019t often very realistic but the agent needs to run with that initially until they get buyer feedback and then educate them on what the market value is. I\u2019ve been in real estate 20-odd years now and I don\u2019t know anyone who has ever told me their home is worth less than I thought it was. I\u2019m unemotional about it, and they are.
\nYou need to get that independent assessment. Do your own numbers, because you don\u2019t want to be influenced. Let\u2019s say they put a million dollars on the property and it may only be worth $900,000. Then someone says, \u201cWell, if I can get 5% off that asking price, or if I can get it for $950,000 I\u2019d probably be getting a good deal.\u201d But what if it\u2019s only worth $900,000? You\u2019ve now been influenced by that million-dollar asking price.
\nIgnore asking prices. Ignore price guides. You need to do your own research. That way, you set your own sensible, well-researched limit. Then if their price guide or whatever guide the agent has provided if there is one being provided, you can factor that in if you want to. But you\u2019ve done your own research separate to that.
\nKevin:<\/b>\u00a0 That\u2019s really good advice: make up your own mind rather than be conditioned by the agent. As you rightly point out, everyone wants more than their property is worth, and that is probably what the pitch price is going to be from the agent because they are working for the seller.
\nPatrick:<\/b>\u00a0 Correct. There are two types of prices that get pitched. There is the Disneyland silly price that gets pitched because that\u2019s what they need to get the vendor\u2019s agreement to get it on the market, or that is what the vendor has agreed to sell at only, so they have to pitch that price. Or you get the underquote price where it is really pitched low to get a lot of interest, but it\u2019s well below where the vendor would really sell at.
\nDo not get caught out being underquoted or overquoted to and influenced by a price. I hear people say this at barbeques and gatherings: \u201cI got a great deal.\u201d I say, \u201cWell, good on you. Well done. Just out of curiosity, what were the numbers?\u201d And they say, \u201cOh, they were asking $1.1 million for it and I wore them down and I got them down to a million and twenty.\u201d The question I would have is was it ever really worth $1.1 million?
\nPeople will convince themselves that they have a good deal when they may not have. On occasion, you might have got a great deal because you have got a motivated seller on the other end of it and that was the best offer they got and they took it and they ran.
\nBy the same token, don\u2019t be afraid of properties that have been sitting on the market for more than six weeks because they get a stigma that they\u2019re stale. They may have had a silly price or they may have poorly marketed or they may have been poorly presented, and people can\u2019t see through that. Some of the best property deals I\u2019ve bought at great prices have been from the fed-up seller, if you like, who has been on the market six, eight, or ten weeks or they\u2019re with their second agent and it\u2019s been listed before.
\nEvery property has a digital footprint. If you Google the address, you could find out historical advertising and you could find out how long it\u2019s been on the market or if it\u2019s been with a previous agent. Then you know the seller is a lot more motivated than they were last time.
\nKevin:<\/b>\u00a0 Some great advice there from Patrick Bright, EPS Property Search.
\nPatrick, once again thanks for your time.
\nPatrick:<\/b> A pleasure, Kevin, as always.
\n 
\nBrad Beer –<\/strong>
\nKevin:<\/b>\u00a0 In the lead-up to the end of the financial year, investors will be busily preparing their documentation to ensure that they claim the maximum deductions available for their investment properties, and why wouldn\u2019t they? Now, of all the deductions that an investor is entitled to claim, property depreciation continues to be the one that is most commonly missed. I wonder why that is?
\nBrad Beer, who is the Chief Executive Officer of BMT Tax Depreciation, joins us. Is this one of the most misunderstood deductions, Brad?
\nBrad:<\/b>\u00a0 Yes, I think it\u2019s misunderstood. Because you don\u2019t pay for it and it\u2019s a non-cash tax deduction is probably one of the big reasons that that is the case. People don\u2019t understand that if they haven\u2019t paid for it they may still be able to get a deduction for it. They don\u2019t really understand much about their investment property sometimes, so it\u2019s often missed.
\nKevin:<\/b>\u00a0 From your experience, how many actually miss out on depreciation deductions?
\nBrad:<\/b>\u00a0 We\u2019ve done some research, and probably close to 80% of investors don\u2019t maximize their deductions. It\u2019s not that they\u2019re missing out altogether, but it\u2019s that they\u2019re not claiming as much as they can claim. It\u2019s because they guessed, their accountant guessed, or they used some information provided. It needs to be done properly so that you can get the maximum deductions, because if you don\u2019t, you\u2019re just leaving cash on the table.
\nKevin:<\/b>\u00a0 You\u2019ve obviously looked into this. What are the most common reasons why investors don\u2019t claim all their depreciation entitlements?
\nBrad:<\/b>\u00a0 I\u2019d call two of the most common things. One is that people sometimes buy investment property without a full understanding about the numbers. I think you really should crunch numbers. The most common thing I hear is, \u201cThat\u2019s tax. I think my accountant looks after that,\u201d or \u201cI have got a good accountant.\u201d Now accountants are our friends, but accountants also sometimes need specialists in certain areas to make sure you\u2019re getting the most out of that property.
\nThe second most common thing I would hear is that people think old property doesn\u2019t get depreciation. It does. It\u2019s not as much, and there are some things about age that do matter, but the important thing is that old property still gets some depreciation. Let\u2019s find out how much, make sure it\u2019s worth it, and get it assessed if necessary.
\nKevin:<\/b>\u00a0 Someone who is listening now may be a property investor who hasn\u2019t been claiming depreciation or may be doubting whether they\u2019re getting it all. What should they do?
\nBrad:<\/b>\u00a0 It\u2019s really easy. We\u2019ve got calculators on the website or we could talk to you about your property. With the address, we can see some photos usually these days and get an indication of what sort of deductions could be claimed.
\nHave a check against your tax return and see what you are claiming, and if you haven\u2019t been getting it all you can easily go back and amend up to two years of tax returns and can potentially get some money back from the tax office, which is always nice.
\nKevin:<\/b>\u00a0 I have read on your site about the site inspection process. What is that?
\nBrad:<\/b>\u00a0 Depreciation is a claim on the wear and tear of the building and items within it. In order to work out what this claim is, it relates to the construction costs and the value of items in the property. In order to get that done properly, in order to find all of these things, we do a site inspection.
\nWe go out and visit. We\u2019re quantity surveyors. We estimate the construction costs of the property, we put the values on the items, we identify everything we can to claim as fast as we can. It\u2019s important for the site inspection to make sure we\u2019re thorough and we get everything we can so that we can maximize deductions and therefore your cash flow.
\nKevin:<\/b>\u00a0 Bottom line here, Brad, if we could. Could you explain the impact of depreciation deductions, and what sort of impact can they have on an investor\u2019s cash flow?
\nBrad:<\/b>\u00a0 It\u2019s a good question. Depreciation is wear and tear of items to create a deduction. As I say, a non-cash tax deduction, so you don\u2019t pay it out. What it means is a deduction that you don\u2019t pay out. On average, a first-year deduction\u2026 Against the hundreds of thousands of residential depreciation schedules we\u2019ve done, the first year claims around $10,000.
\nWhat that means is the first-year deduction is about $10,000 at your marginal tax rate. You get cash back in your pocket in some way. There are other numbers to be involved in this, but effectively it should mean if your tax rate is 47 cents on the dollar, it\u2019s $4700 in your pocket. If it\u2019s 30 cents on the dollar, that\u2019s $3000 in your pocket. So it is cash that you do get back if it\u2019s done properly.
\nKevin:<\/b>\u00a0 Brad Beer, who is the Chief Executive Officer of BMT Tax Depreciation, has been my guest. That\u2019s something you should look into. You can use the link that\u2019s on our website at RealEstateTalk.com.au to contact Brad and his team and just check. Find out whether or not you are getting all of those allowances that Brad has been talking about. Obviously, it\u2019s going to make you a lot happier financially.
\nBrad, thank you very much for your time. It\u2019s always great talking to you, mate.
\nBrad:<\/b>\u00a0 Thanks, Kevin. Great to be here.
\n 
\nBernard Hickey –<\/strong>
\nKevin:<\/b>\u00a0 Just like in Australia, when there is a Reserve Bank decision in New Zealand, there is a lot of interest about it. It happened this week, and joining us to bring us up to date on that and the New Zealand market generally, Bernard Hickey, publisher for HiveNews.co.nz.
\nWhat did they decide to do, Bernard?
\nBernard:<\/b>\u00a0 The Reserve Bank kept the Official Cash Rate at 2.25%, which was widely expected. There were about three economists out of about 17 who thought there might be a cut this week, although financial markets were expecting a higher chance of a rate cut.
\nThere was no rate cut, but the Reserve Bank did indicate it would likely cut the Official Cash Rate one more time later this year 2%. That would see mortgage rates drop below 4% in New Zealand. Most people in New Zealand take out fixed-rate mortgages, and they are currently around the 4.2% mark.
\nKevin:<\/b>\u00a0 So when the Reserve Bank in New Zealand adjusts the rates like that, is that an automatic follow-on from the bank, or do the banks make those decisions independently?
\nBernard:<\/b>\u00a0 That is a really interesting point, because with the last rate cut which was a surprise on March 10th<\/sup>, the banks didn\u2019t pass it all along to floating-rate mortgages. New Zealand is a bit different from Australia in the way that the mortgage market operates. In New Zealand, most people now with mortgages have fixed-rate mortgages, so they will take out a one-year or an 18-month or a two-year mortgage, which typically at the moment have rates at around about 4.2% to 4.6%. About 25% or so of mortgages are floating-rate mortgages.
\nOn March 10th<\/sup>, the banks \u2013 which are the same big four banks that you have \u2013 decided only to pass on about 15 to 20 basis points of the 25 basis points of cuts to floating-rate mortgages. They argued that their foreign funding costs were higher early in 2016 than they had been in 2015.
\nKevin:<\/b>\u00a0 It would appear to me that the market is still very, very hot, particularly around that Auckland and even Northland area. I was surprised to see that Gisborne actually had a bit of a movement, too, in its asking price. What is happening in that area?
\nBernard:<\/b>\u00a0 Gisborne and Hawke\u2019s Bay are unusual in New Zealand in that they are relatively small provincial areas with relatively weak local economies, and particularly in Gisborne\u2019s case, falling population. So its house prices have been underperforming over the last decade or so, particularly relative to Auckland.
\nBut what we have seen in the last six months or so is that Auckland property investors in particular have looked to leverage up some of their equity gains in Auckland by buying property elsewhere. There have also been some people who have decided to move out of Auckland to crystalize their capital gains, which are tax-free in New Zealand, and buy a bigger house on a bigger section or maybe a lifestyle block in a regional area. Gisborne is a pretty attractive part of the country. It has some great vineyards, it has the most sun, and it is a pretty attractive place for a lot of people.
\nWe are seeing a bit of heat now starting to build up in some of these previously unloved provincial areas, like Gisborne, like Napier, like Dunedin, and to an extent Wellington. It\u2019s also being driven by a change in Reserve Bank policy in November.
\nIn New Zealand, the Reserve Bank is the regulator of the banks, not APRA, and the Reserve Bank specified that from November 1st<\/sup>, if you were a rental property investor in Auckland, you couldn\u2019t borrow more than 70% of the value of the property. However, outside of Auckland you could borrow up to 80% of the value of the property.
\nSo a lot of property investors now look ahead in New Zealand to a future of no capital gains tax, no stamp duty, and falling interest rates along with an economy that is growing solidly at 3% with jobs growth of 2.5% \u2013 so plenty of demand for property.
\nKevin:<\/b>\u00a0 There\u2019s a big debate over here, too, in Australia is about negative gearing. That\u2019s something that you don\u2019t have in New Zealand.
\nBernard:<\/b>\u00a0 That\u2019s right. Losses are ring-fenced in New Zealand, so it\u2019s much harder to make a big loss on a rental property and then offset it against your income tax. One thing to watch for, though \u2013 some news that has broken the last few days \u2013 is that the Prime Minister, John Key, has suggested that New Zealand might introduce a land tax for non-resident owners of property in New Zealand.
\nWe have some of the same stresses on our property market here where first-home buyers are struggling to get in. There is plenty of foreign investment, particularly from China, and there is a lot of political pressure on the government to do something about that because we don\u2019t have any restrictions on foreign buying of property here.
\nWhen we say a land tax, that\u2019s a tax of let\u2019s say 1% per year on the value of the land every year ongoing, not a stamp duty. The government hasn\u2019t said they are going to go ahead with it yet, but the Prime Minister has talked about it. That means if you are an Australian investor buying a property in New Zealand, you could be subject to this land tax on non-residents \u2013 if it is brought in.
\nThere is still a lot of news to come yet. We still haven\u2019t heard the detail, but the Prime Minister did suggest that this week.
\nKevin:<\/b>\u00a0 It\u2019s very interesting. We will follow what happens on both sides of the Tasman. Of course, one of the major banks here, Westpac Bank, cutting off its book entirely for foreign investors, so we\u2019ll see what happens there.
\nBernard Hickey is the publisher of HiveNews.co.nz.
\nBernard, thanks for your time.
\nBernard:<\/b>\u00a0 Cheers.
\n 
\nJosh Altman –<\/strong>
\nKevin:\u00a0 <\/b>Josh Altman is the world\u2019s most successful celebrity real estate agent, and I\u2019m proud to say that he joins us. Josh, of course, works with some really big stars, people like Kim Kardashian, Kanye West, Britney Spears, Ashton Kutcher, Miley Cyrus, and many, many more. He is their real estate agent, and he is also the star of the hit TV show Million Dollar Listing L.A.<\/i> and he is coming to Sydney, Melbourne, and Brisbane in June. We\u2019ll tell you a little bit more about that, but firstly let\u2019s welcome him to the show.
\nHi Josh. Welcome to Australia, and welcome to our show.
\nJosh: <\/b>Thanks for having me. I\u2019m looking forward to coming out to Australia. I can\u2019t wait.
\nKevin:<\/b>\u00a0 That\u2019s June 14th<\/sup>, 15th<\/sup>, and 19th<\/sup> respectively on a tour around Sydney, Melbourne, and Brisbane. We\u2019ll give you more detail about that in just a moment.
\nJosh, firstly, tell us about how you became a real estate powerhouse and where your passion for buying and selling property came from.
\nJosh:<\/b>\u00a0 I definitely am in love with real estate, for sure. I\u2019m a real-estate-aholic is what we like to say here. But it didn\u2019t all start with touring around celebrities and selling $20 or $30 million houses; it actually started when I moved out to L.A. about 13 years ago.
\nI started working in the mailroom for $7.50 an hour. I had saved all the money that I had made in the mail room. I ended up investing in a property with 100% financing and ended up flipping that property and making more money in three months than I had all year long in the mail room. So I went and I quit my job, and I decided that real estate was the way for me to go.
\nEver since, I\u2019ve sold about $2 billion worth of high-end residential real estate, and now we sell properties all over the world.
\nKevin:<\/b>\u00a0 Tell me about that transition from becoming a successful developer or real estate entrepreneur to then selling properties and then moving up and selling them on behalf of people like Kim Kardashian. Was that a hard market to break into?
\nJosh:<\/b>\u00a0 Well, yes. My background is that I\u2019ve flipped a lot of houses, as well, which helps me be the type of agent that I am because I really understand all aspects of the real estate business as far as rehabbing properties, flipping properties, financing them, and now, of course, selling them.
\nWhen you work in Los Angeles as a realtor, you\u2019re going to have celebrity clients one way or another, because everybody is famous out here; it\u2019s just breaking into that upper echelon of the A-list celebrity clientele. The most important thing is always treating them the same as you would treat anybody else.
\nA lot of times you have to realize that we only need these people one time showing them the house. The rest of the time we\u2019re just dealing with their entourage of business manager, attorney, managers, accountants, and so on. It\u2019s not like we\u2019re driving around spending tons of time with Kim and Kanye.
\nKevin:<\/b>\u00a0 Of course, you\u2019re a TV star in your own right. You and your brother have your own television show. What is it like when you meet these guys? They obviously know you because they must watch the show. Is that a big attraction for them?
\nJosh:<\/b>\u00a0 For some people, it is. For others, it actually is not a big attraction because they\u2019d rather keep their finances private. I would say out of, let\u2019s say, 100 clients a year, I only put 10 of them on the show. I have to be very careful to let people know that not every showing or every deal I do is taped, because we have a very private side of our business, as well.
\nThere is a fine line that I have to deal with, as well, because I don\u2019t want to become a celebrity. I\u2019m not a celebrity; I\u2019m a real estate agent who happens to have a show. I don\u2019t want people to think that I\u2019m too big to show them a $500,000 condo or a $1 million house, which is on the lower end of what you can find here in Los Angeles, because then that will start affecting my business. It\u2019s a fine line of being on TV and selling houses.
\nKevin:<\/b>\u00a0 The competition we see between you and your brother Matt in the show, is that real or is that just done for television?
\nJosh:<\/b>\u00a0 Of course, that\u2019s real. That\u2019s healthy brotherly love competition. Matt beat me up my whole life growing up because he was three years older than me \u2013 until I started going to the gym and then I beat him up once, and ever since then, we\u2019ve been best friends. He is the best partner in the world to have. Nothing better than working with your family and having somebody that you can trust 100% always to have your back. With that, I also now have my wife \u2013 Heather \u2013 who works with us, which really completes the full circle of having all family involved in the business.
\nKevin:<\/b>\u00a0 I read somewhere, I think, and correct me if I\u2019m wrong here, that you sold the most expensive one-bedroom home in history. Is that correct?
\nJosh:<\/b>\u00a0 Yes. It was $21 million. It was a one-bedroom home. It was a very famous estate owned by Dick Zanuck, who was a very well-known movie producer here in Los Angeles. The gym was built by Arnold Schwarzenegger, who was a very dear friend of his, as well. So that was pretty cool.
\nWe have many records, but that one definitely takes the cake. I just listed a $53 million house that is 53,000 square feet with an indoor and outdoor tennis court and an indoor and outdoor pool. We come across some pretty wild houses out here.
\nKevin:<\/b>\u00a0 How do you get the prices on these? Some of them are very unique. I\u2019ve watched the show, and I can see where there is a bit of a battle. Every seller wants more than what it\u2019s really worth. How do you<\/i> establish value in your mind?
\nJosh:<\/b>\u00a0 That\u2019s a good question, because a lot of these houses are so unique and they are one-of-a-kind that a lot of times in the higher end there are not that many comps to go after. As far as a normal house, you can pretty much figure out what it\u2019s going to sell for because there are 10 other houses like it.
\nBut when you are dealing with a mini Taj Mahal, you have got to take all different things into account: what buttons it hits, what the amenities are in the property, the acreage, the square footage, what type of buyer, and do those types of buyers typically pay more? There is a lot that goes into the equation.
\nKevin:<\/b>\u00a0 Who was the most difficult person you\u2019ve had to deal with as a high-profile star? I don\u2019t know whether you\u2019ll even be prepared to answer that question.
\nJosh:<\/b>\u00a0 Myself. I\u2019m a real pain in the butt when it comes to buying and selling houses, let me tell you. I\u2019m super picky. I typically pick up about three houses a year. I write about 50 offers a year and only end up with about three houses. I\u2019m pretty picky myself.
\nKevin:<\/b>\u00a0 So you actually offer on about 50 \u2013 like one a week, on average. Is that right?
\nJosh:<\/b>\u00a0 Yes, that\u2019s correct. For me as an investor, it\u2019s all about getting the best deal. So what better way than to write a bunch of offers, throw them against the wall, and see what sticks.
\nKevin:<\/b>\u00a0 Are you holding onto these properties, or are you flipping them?
\nJosh:<\/b>\u00a0 As of right now, I\u2019m flipping them. But it just depends on the deal. I\u2019m always open to holding them, selling them, partnering, building, knocking down, whatever it is. It just really depends on the deal.
\nIn fact, I just got married two weeks ago, and we just closed on our newest dream home in the Hollywood Hills last week, so I\u2019m pretty excited about that.
\nKevin:<\/b>\u00a0 Congratulations. Well done.
\nAre the properties that you\u2019re buying in different parts of the States, or are you buying primarily where you\u2019re selling?
\nJosh:<\/b>\u00a0 I\u2019ve always been very big on buying what I know. If I can drive around and I can see it, then I\u2019ll look at buying it. If I can\u2019t, then it\u2019s not something that I\u2019m too excited to do. A lot of people pitch me properties in other states that are good deals, but I like to see it, feel it, drive by it, and touch it.
\nThat\u2019s how I look at my real estate portfolio. They are mostly in the areas where I am the expert, because I know what a good deal is and I know it better than anybody else in the area. That\u2019s typically what I do. I have three houses within about 22 houses of each other. I guess you could say that I like a specific area.
\nKevin:<\/b>\u00a0 We\u2019ve heard some horror stories out of the States in terms of real estate and what has happened with the market there, how it tanked in areas like Detroit. Is the market generally starting to improve in the States again now? Is supply and demand getting into a bit more of a balance?
\nJosh:<\/b>\u00a0 I\u2019ll tell you this, the market right now is super hot. As far as globally, we are still very cheap compared to every other major market. We are a destination location, as well, which is nice.
\nBut I will tell you there is going to be a lot of inventory hitting the market in the next six to twelve months. That is due to the market continuing to go up and a lot of people investing in the market are finished building those houses that they had been buying. At that point, you are going to probably see a little of an adjustment and there will be some good deals for you to buy.
\nKevin:<\/b>\u00a0 So the market is likely to come back a little bit, do you think? Will there be certain parts of the States where that will happen more than others?
\nJosh:<\/b>\u00a0 Yes. For me, it\u2019s always invest in location, location, location. That\u2019s the one thing that will be the safest bet in real estate. In good markets or bad markets, if you\u2019re buying overlooking the park in New York City or if you\u2019re buying in prime Beverly Hills, those are always going to be strong locations to buy and invest your money in.
\nKevin:<\/b>\u00a0 Josh, great talking to you, and thanks for your time.
\nJosh:<\/b>\u00a0 Thank you for having me.<\/p>\n","protected":false},"excerpt":{"rendered":"

Michael Pascoe, finance and economics commentator tells us why, in his opinion, investing in property doesn\u2019t add up.\u00a0\u00a0 He doesn\u2019t say don\u2019t do it but he points out why many investors go wrong.\u00a0\u00a0 We wanted to get a balance to what Michael Pascoe said so…<\/p>\n","protected":false},"author":176692471,"featured_media":8017,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[10,11,13,24],"tags":[101],"class_list":["post-8014","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-shows","tag-podcast"],"yoast_head":"\nWhy investing in property doesn\u2019t make sense + Agent to the stars tells all + How to check a sellers motivation - 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\/why-investing-in-property-doesnt-make-sense-agent-to-the-stars-tells-all-how-to-check-a-sellers-motivation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why investing in property doesn\u2019t make sense + Agent to the stars tells all + How to check a sellers motivation - 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