{"id":8500,"date":"2016-07-07T10:00:11","date_gmt":"2016-07-07T00:00:11","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=8500"},"modified":"2016-07-07T10:00:11","modified_gmt":"2016-07-07T00:00:11","slug":"the-halo-effect-and-its-possible-impact","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/the-halo-effect-and-its-possible-impact\/","title":{"rendered":"The \u2018halo effect\u2019 and its possible impact + A new investor tool"},"content":{"rendered":"

 
\nIf you have a background in marketing or if you have just started to dig around in the world of property investment, you may have stumbled across the term \u2018halo effect\u2019.\u00a0 This halo effect can be a trap for investors because rather than choosing an investment opportunity based on research and objectivity, people can often make decisions based on bias or familiarity.\u00a0Peter Gionoli<\/strong>\u00a0from Investor Assist explains the financial implications of the wrong halo effect.
\nWe talk to one of the authors of a new research model built to increase the accuracy of rental yield predictions.\u00a0Dr Andy Krause<\/strong> explains how this can be a brilliant tool for investors and we tell you how you can get your hands on the report.
\nMany home buyers and investors are a little intimidated by the thought of bidding for a property at auction.\u00a0<\/b>Michael Yardney<\/strong><\/a> points out that if you avoid properties that are up for sale at auction, you\u2019re going to miss out on a lot of good buying opportunities as many of the best properties are offered for sale by auction, particularly in Melbourne and Sydney so he has some tips on bidding.
\nAccording to real estate author and buyer\u2019s agent Patrick Bright<\/strong>, the easiest way to keep a renovation on track is to ensure all the tradespeople do their work in the right sequence.\u00a0 He has some tips on getting the sequence right in a way that may just save your thousands of dollars.
\nWe have some news today that will have major ramifications for investors and property manages and could see some tenants getting into some legal difficulties.\u00a0Shannon Davis<\/strong> has the news on that.
\nLenders should be required to provide off-the-plan apartment purchasers with a funding pre-approval that will last them until settlement according to iBuyNew CEO Mark Mendel<\/strong>. He explains that if banks are prepared to fund a development for construction, then they should take the same stance on providing finance when it comes to the buyers of those apartments.\u00a0 Hear Mark\u2019s thoughts on that and the other challenges facing the off the plan market right now.
\n <\/p>\n

Transcripts:<\/h4>\n

Peter Gianoli –\u00a0The ‘halo effect’ and its impact on buying decisions<\/h2>\n

Kevin:\u00a0 <\/b>Peter Gianoli is the General Manager for Investor Assist and is a property marketing and investment expert, and he\u2019s talking to me this time about the halo effect.
\nPeter, thank you for your time.
\nPeter:\u00a0 <\/b>It\u2019s a pleasure, Kevin. Nice talking to you.
\nKevin:\u00a0 <\/b>Firstly, tell me, what is the halo effect?
\nPeter:\u00a0 <\/b>Well, I suppose the halo effect has two parts. Number one, it\u2019s probably better known where if you have a look at a property hot spot, where people are constantly looking for property hot spots, the halo effect is the impact of that particular hot spot in and around suburbs around it. So you get a glowing effect of the halo not only from the hotspot but in suburbs around it, and as a property investor, there are opportunities there that are presented.
\nThe other aspect of the halo effect is we all have preconceived ideas. It\u2019s a typical marketing scenario, where each of us have already made up our mind often because of conditioning. So you already have a preconceived idea that the best football team Australia is Collingwood as opposed to, say, the West Coast Eagles, so therefore everything you see regarding Collingwood, you take on a positive message, or it could also be no different to if you\u2019d bought yourself a red car, then you go outside and all of a sudden you notice red cars all the time.
\nKevin:\u00a0 <\/b>Yes, it\u2019s awareness.
\nPeter:\u00a0 <\/b>If you have a preconceived idea to something, that can have an impact on how you make an investment.
\nKevin:\u00a0 <\/b>Well, let\u2019s relate this to property, then. What are some of the biases or familiarities or beliefs that we have that sway us in property?
\nPeter:\u00a0 <\/b>It could be house versus apartment. Certainly in Western Australia, apartments are new. The only people who lived in apartments \u2013 or flats, as they were \u2013 in the 1960s, \u201970s and \u201980s were people living in housing authority blocks of flats, so there is a bit of a stigma around with the empty-nester in Western Australia as an example with houses versus apartments. You\u2019ll hear \u201cDon\u2019t touch an apartment, you have to have a house.\u201d That could be true; it might not be true.
\nKevin:\u00a0 <\/b>Might not be true, yes.
\nPeter:\u00a0 <\/b>New versus established. Do you want new, do you want established? Well, it could be as gruff as \u201cOh bloody hell, you can\u2019t trust builders, so you have to buy established.\u201d
\nIn Perth, it\u2019s north of the river, south of the river. I know it\u2019s eastern suburbs, western suburbs in certain localities.
\nKevin:\u00a0 <\/b>North and south, yes.
\nPeter:\u00a0 <\/b>Positively geared, negatively geared.
\nKevin:\u00a0 <\/b>That\u2019s a good one, positively geared or negatively geared.
\nPeter:\u00a0 <\/b>Yes, some people have heard somewhere along the line that it really doesn\u2019t matter whether they charge you for a guaranteed rental return and put it onto the price, but it\u2019s positively geared or negatively geared, it\u2019s going to cost you a bucketload, but I\u2019ve heard negative gearing is a good thing, who knows.
\nOr public or private education, furnished or unfurnished housing. Are we next to private schools, are we next to public schools? Should we buy something that\u2019s already furnished or unfurnished? These are some preconceived ideas.
\nKevin:\u00a0 <\/b>What about some of the common phrases in real estate, like \u201cLocation, location, location,\u201d or even \u201cBuy the worst house in the best street\u201d? Do these fall into that category?
\nPeter:\u00a0 <\/b>Yes, most definitely. I think \u201cBuy the worst house in the best street\u201d is probably one of the biggest ones, because if it\u2019s already the best street, the value is probably already at its max and you\u2019re actually paying too much for the worst house in the best street.
\nKevin: \u00a0<\/b>Yes, that\u2019s true.
\nPeter:\u00a0 <\/b>Particularly if you compare it to, say, the best house in a lousy street. You might have paid far too much, so that\u2019s one in particular that goes. And of course, \u201cLocation, location, location\u201d at the wrong time could be a lousy investment.
\nKevin:\u00a0 <\/b>I suppose there are many others, too, even locations close to the CBD or even easy access to the CBD.
\nPeter:\u00a0 <\/b>Yes.
\nKevin:\u00a0 <\/b>These are all preconceived notions, aren\u2019t they?
\nPeter:\u00a0 <\/b>Yes, absolutely. I\u2019ve seen properties that are very close to the CBD could be termed good location in that regard but are actually on a busy freeway or a busy road, next door to a petrol station.
\nKevin:\u00a0 <\/b>I imagine this halo effect could be used to great advantage by spruikers.
\nPeter:\u00a0 <\/b>Yes, and that\u2019s what we see. That\u2019s the sad outcome. If you already know what people have preconceived ideas to \u2013 and it\u2019s not difficult if you have a room full of middle aged empty-nesters, and particularly if you know your market \u2013 then there\u2019s a chance if you\u2019re in Western Australia that if you pushed housing, new, with a very reputable builder, north of the river, that\u2019s going to get you your tax back, and maximum depreciation, they\u2019ll all rush to it and say yes, even though they haven\u2019t done any research on the market, the area, the suburb, and the type of dwelling.
\nKevin:\u00a0 <\/b>It\u2019s an interesting subject; it\u2019s one that we should be very aware of. Peter, it\u2019s been great talking to you, thank you. Peter Gianoli is the General Manager of Investor Assist, and you help guide people through this maze quite often. I imagine this is a question that\u2019s asked of you as well on many occasions, Peter.
\nPeter:\u00a0 <\/b>Obviously, the question on everyone\u2019s lips is \u201cWhat should I buy?\u201d because no one wants to look foolish. It\u2019s good if they ask the question, because then you can take them through what all the fundamentals are with property investment, but if they\u2019ve already fallen in love with something, they generally convince themselves that it\u2019s a good idea, and then they\u2019re looking for just those buying cues that reinforce their decision.
\nKevin:\u00a0 <\/b>Peter, great talking to you. Thank you very much for your time.
\nPeter:\u00a0 <\/b>A pleasure, Kevin.
\n <\/p>\n

Mark Mendel –\u00a0Off the plan finance pre approvals<\/h2>\n

Kevin:<\/b>\u00a0 I mentioned before the break I wanted to talk about off-the-plan sales, but there is another aspect to this that I want to talk about, as well, too. Lenders should be required to provide off-the-plan apartment purchases with a funding pre-approval that will last them until settlement. That\u2019s according to a leading online property agency, which is called iBuyNew. Their CEO Mark Mendel joins me.
\nMark, this of course is a major problem looming for developers, isn\u2019t it? And that is, the funding of off-the-plan sales and whether or not purchasers will be able to settle.
\nMark:<\/b>\u00a0 Yes, it is Kevin. Hi. How are you?
\nKevin:<\/b>\u00a0 Good, mate. Thank you. And thanks for joining us.
\nTell me what your proposal is and what sort of traction you\u2019re getting for it.
\nMark:<\/b>\u00a0 It\u2019s been brought to light, I guess, as the lending policies have changed over the last six months and they\u2019ve become very tough very quickly for a lot of buyers. When a buyer is purchasing an off-the-plan apartment or a townhouse, it can be a lead time of anywhere from six months to 2\u00bd years potentially when settlement will take place. The buyer might be in a position today under the current policies to be able to settle on that property, but in 18 months\u2019 time, policy changes may be different.
\nKevin:<\/b>\u00a0 The banks have really tightened up, too, haven\u2019t they? We\u2019ve seen these moves by state governments \u2013 more recently, Queensland but in particular New South Wales and Victoria \u2013 making it tough on foreign buyers, too.
\nMark:<\/b>\u00a0 Yes. I think they\u2019ve gone too far. I think foreign buyers should be paying some form of additional stamp duty.
\nKevin:<\/b>\u00a0 Why do you think that, Mark?
\nMark:<\/b>\u00a0 If they\u2019re <\/b>putting their money into Australia and they\u2019re buying ahead of an Australian who\u2019s missing out potentially, that additional stamp duty can be used to help the communities where they\u2019re buying property. So additional parklands, upgrades to roads, etc. Why not give the local community the benefit of that while the foreigners might reside overseas? They\u2019ve had the benefit of moving their money out of the country that they\u2019re living in, investing in a stable political economy such as Australia, getting the returns that they\u2019re after. Why not give something back to the community at the same time, as well?
\nKevin:<\/b>\u00a0 Yes, fair enough. But do you think 3%, which is what they\u2019re proposing in Queensland, is too far?
\nMark:<\/b>\u00a0 I think today it is, because the Queensland economy has really taken a hit over the last six months. But they could have done it at 1.5% to start off with and then raised it over time. You have to remember in Queensland you\u2019re still paying another 4.5 odd percent stamp duty as a local buyer where if you look at Victoria, when you\u2019re buying off the plan you pay next to nothing in stamp duty. So they can raise that additional stamp duty to 7% because there\u2019s really no other stamp duty to pay.
\nKevin:<\/b>\u00a0 There is another thing that I wanted to very quickly talk to you about, too, Mark, and get your impression on this and that is off-the-plan sales. They seem to have been tarnished a lot because of the number of spruikers who tend to lean in that direction \u2013 in other words, this is the sort of stock that they sell \u2013 which to me seems very unfair because there are some very, very, good developers around Australia. Pellicano is one that I\u2019ve mentioned this morning. They have a great reputation and you know if you\u2019re buying through them, these guys don\u2019t sell through spruikers; they have their own sales people.
\nMark:<\/b>\u00a0 Unfortunately in the real estate game there is a lot of money to be made by spruikers, which is why they\u2019re there in the first place. Our company, iBuyNew, when we sit down and we talk to a developer, it doesn\u2019t matter whether they\u2019re ASX-listed or a one-man band, we do our due diligence on them and we make sure that they\u2019re going to deliver the product they say they\u2019re going to deliver and that our clients will end up with the right product.
\nI think the message to buyers who are looking off the plan is it\u2019s not a problem as long as you\u2019re buying through the right company. Unfortunately a lot of people are not educated enough about it and they go to a spruiker who ends up selling them something that\u2019s overvalued.
\nIf I look at our last 700 transactions at iBuyNew, I think less than 1% have come in under value, which is a pretty strong record in the industry.
\nKevin:<\/b>\u00a0 A very strong record, yes. Good mate. You\u2019ve made some very good points. iBuyNew.com.au is the website. Mark Mendel is the man.
\nMark, thanks for your time this morning.
\nMark:<\/b>\u00a0 No problem. Thanks, Kevin.
\n <\/p>\n

Michael Yardney<\/a> –\u00a0How to win at auction<\/h2>\n

Kevin:<\/b>\u00a0 As the auction concept grows in popularity right around Australia \u2013 it\u2019s very well engrained in some of the southern states already, but it is growing in popularity in some of the other states, Queensland, Western Australia, South Australia \u2013 there are still buyers, both home buyers and investors, who are intimidated by the auction process. I guess it can be a fairly daunting process, so let\u2019s give you a bit of a hand.
\nIf you find that that\u2019s what you want to do or that\u2019s what you need to do, here are some great tips. Michael Yardney <\/a>from Metropole Property Strategists <\/a>joins me.
\nMichael, I know that you like auctions. Why is that?
\nMichael:<\/b>\u00a0 Kevin, I believe if you have a good property for sale, auction is really the best way to sell it, and as a buyer, I think auction is the most transparent way to buy property. I can see who else is interested in the property, I can see what they\u2019re prepared to pay. I like to see my competition where I can read their body language, watch the signs that they\u2019re coming close to their limit.
\nI know a lot of people don\u2019t see it that way. I know a lot of people get intimidated by it, and to be honest I still get butterflies when I go to an auction. I think it\u2019s more butterflies of excitement, though, in my tummy than nerves. But I think that keeps me on my edge and makes me work well at auctions.
\nKevin:<\/b>\u00a0 There\u2019s nothing worse than being underprepared, and that\u2019s probably why a lot of people do get nervous \u2013 because they don\u2019t know what to expect, Michael.
\nMichael:<\/b>\u00a0 That\u2019s right. If you\u2019ve done your pre-auction due diligence \u2013 such as getting your finance in place, checking the contracts, determining the maximum price, understanding how the auction works \u2013 then you\u2019re going to be in a much better position to buy well. And if you\u2019re not able to bid yourself, I always think it\u2019s good to authorize somebody else to bid on your behalf \u2013 a trusted friend or probably best a buyer\u2019s agent because that\u2019s their business, Kevin.
\nKevin:<\/b>\u00a0 I guess you can\u2019t discount the amount of research that you need to do to put yourself in that right position to know how far you want to go and what your walk-away price is, Michael.
\nMichael:<\/b>\u00a0 Let\u2019s go through what some of the pre-auction due diligence should be then, Kevin.
\nKevin:<\/b>\u00a0 Okay.
\nMichael:<\/b>\u00a0 I think first of all, you have to understand in which entity you\u2019re going to be purchasing the property. Is it in your own name, is it in a superfund, is it in a trust, is it in a partnership with your life partner or your spouse? And then you have to get finance pre-approval.
\nI believe because an auction is an unconditional sale \u2013 you don\u2019t have a chance to get out, there\u2019s no cooling off period \u2013 you have to have your finance pre-approved and you have to know your budget before you attend the auction. And you have to go with a check or a checkbook \u2013 some people still have those, Kevin \u2013 because you have to actually give money across on the day when you\u2019re successful.
\nI think you should also attend lots of auctions to experience the atmosphere, observe the different bidding strategies. I\u2019d not only be going to the auctions of the company that\u2019s selling the property that you\u2019re interested in purchasing but most big companies have a number of different auctioneers. I\u2019d be watching the auctioneer, specifically the one who\u2019s going to be conducting\/calling the auction \u2013 if you can find out who that is \u2013 because they each have their own particular techniques and words they use, and that will give you a level of comfort if you\u2019re familiar with them, Kevin.
\nKevin:<\/b>\u00a0 Michael, I know doing your homework well in advance is very important. Any other thoughts?
\nMichael:<\/b>\u00a0 Apart from getting the due diligence so that you understand what the highest price you\u2019re prepared to pay or your walk away price is, I\u2019d also be getting a solicitor to check the contracts, and you can organize amendments to the contracts. You\u2019re allowed to, Kevin. You\u2019re allowed to ask for different terms. They don\u2019t necessarily have to accept them.
\nAnd then come to the auction prepared to bid and bid strongly.
\nKevin:<\/b>\u00a0 And on the day, Michael?
\nMichael:<\/b>\u00a0 I like to arrive early. I survey the landscape. I see who else is there. I look to see, are they serious bidders? They\u2019re the ones who look at the contract, they say the right things \u2013 not just the neighbors who are looking at it.
\nI like to stand up front, face the rest of the crowd rather than with my back to them, and I like to look like I have deep pockets, stand strongly and firmly, bid loudly \u2013 I\u2019ll often start very close to where I think the reserve is \u2013 and make my bids in full. I don\u2019t procrastinate, I don\u2019t agonize. My last bid is going to be as strong as my first bid to make sure that I\u2019m not giving away any signs that I\u2019m reaching my limits, Kevin.
\nKevin:<\/b>\u00a0 Michael, what do you do when it passes in or if it passes in?
\nMichael:<\/b>\u00a0 Kevin, I want to be in the position that if it doesn\u2019t reach the vendor\u2019s expectation and the property passes in, that I have first right of negotiation. So I want to be the highest bidder at that point. But I\u2019d never bid even higher to get it on the market because auctioneers will often tell you to do that. The trouble is when you do that, all of a sudden, somebody else comes in and you lose it. I like to be in the position that I negotiate with the vendor.
\nOften they ask you to come inside and talk with them on their turf, and I say, \u201cNo, actually I\u2019d rather stay outside.\u201d That puts them off a little bit. But I stay outside on purpose because I want to see who else is hanging around. Are there other underbidders who are still interested or not?
\nAnd then the negotiation starts all over again, Kevin.
\nKevin:<\/b>\u00a0 During the bidding sequence, good auctioneers are very good at giving a strong inference of sale. In other words, they make you believe even though it\u2019s not at the reserve that it could be and that they\u2019re going to sell it. How do you overcome that? Do you ask them, \u201cHave we reached the reserve?\u201d
\nMichael:<\/b>\u00a0 A lot of purchasers or potential purchasers ask have they reached the reserve, and auctioneers have clever ways of wording it. They won\u2019t say no; they\u2019ll say things like \u201cI\u2019m not going to sell it without telling you.\u201d \u201cYou\u2019ll know when it\u2019s on the market.\u201d So what you have to do is do your homework early and understand when it is<\/i> on the market by hearing the words the auctioneer says.
\nI wouldn\u2019t be pushing it above the price I\u2019m prepared to bid to get it on the market, as I said before. If it doesn\u2019t get there, let it pass in. You then have a despondent vendor and you\u2019re in a better negotiating position. You\u2019re going to negotiate when it passes in with a position of strength.
\nRemember, even in great times, at 80% auction clearance rates, 20% of properties pass in. On average, when the auction clearance rates are in the 70%, 30% of properties pass in. So have a good strategy to work when that happens to you, Kevin.
\nKevin:<\/b>\u00a0 Great advice. Michael Yardney<\/a> from Metropole Property Strategists.<\/a> Thanks, Michael.
\nMichael:<\/b>\u00a0 My pleasure, Kevin.
\n <\/p>\n

Patrick Bright –\u00a0Keeping your reno on track<\/h2>\n

Kevin:\u00a0 <\/b>The easiest way to keep a renovation on track is to ensure that all the tradespeople do their work in the right sequence, but what is the right sequence? We\u2019re going to tap into that now and talk to Patrick Bright from EPS Property Searches, also the author of The Insider\u2019s Guide to Renovating for Profit<\/i>, and if anyone should know, he should know.
\nGood day, Patrick. How are you doing?
\nPatrick:\u00a0 <\/b>Good, thanks, Kevin. Nice to speak with you again.
\nKevin:\u00a0 <\/b>It\u2019s a bit of an art, isn\u2019t it? Many people see renovation as a quick way to make a dollar, but there are also a lot of ways you can go wrong if you get that sequence wrong.
\nPatrick:\u00a0 <\/b>Yes, and it costs you money if you don\u2019t get a number of things right. The sequence of tradespeople is always an important one, and something that I notice people\u2026 So when you\u2019re looking to do a renovation, it\u2019s a good thing to always ask the tradespeople how long they\u2019re going to take, ask them which trades do they follow, and ask them which trades follow them. That way, you\u2019re not going to have people going in over the top of each other or having to redo work or fix up work and have people come back.
\nKevin:\u00a0 <\/b>We\u2019re going to talk in our conversation with Patrick exactly how you take that information and use it, but let\u2019s just go over those questions once again. The first one was \u201cHow long will you take?\u201d
\nPatrick:\u00a0 <\/b>Yes.
\nKevin:\u00a0 <\/b>Second one was \u201cWhich trades do you follow?\u201d
\nPatrick:\u00a0 \u201c<\/b>Which trades do you follow?\u201d and then \u201cWhich trades follow you?\u201d
\nKevin:\u00a0 <\/b>And the only reason you\u2019re asking those questions\u2026 Good tradies would be able to answer that, wouldn\u2019t they? If they looked at your plans and they knew what you were going to do, they\u2019d say \u201cWell, we fit into this part here.\u201d Is that right?
\nPatrick:\u00a0 <\/b>Yes, correct. And some trades \u2013 like your plumbers or electricians, for instance \u2013 they might have to come in and put some pipework or some wiring in and then come back and finish off. There are some trades that will have multiple visits, but you need to know when they\u2019re coming. That way, they\u2019re not having to work over the top, or it makes their job easier.
\nIf all the walls are, say, sheeted out with Gyprock, and then you have the electrician coming on, then they actually have to chase wires through the wall. It can be done, but it just takes a lot more time, marks things up a little bit, and you\u2019re going to pay more money, and you\u2019re going to have to have them come back.
\nKevin:\u00a0 <\/b>So once you have all this information, then you put that into a spreadsheet and format the whole thing in terms of dates?
\nPatrick:\u00a0 <\/b>Yes, that\u2019s pretty much right. It\u2019s just using a simple old spreadsheet \u2013 nothing too complex \u2013 and then you just put the types of trades and the work that\u2019s being done in a logical order, and then put the dates so that you have an estimated timeframe. That way, you know how long they\u2019re likely to take, and that way, you\u2019re going to have people dovetailing in behind the other.
\nKevin:\u00a0 <\/b>Okay, so the first question was \u201cHow long you\u2019re going to take?\u201d You mentioned about a buffer, how much of a buffer should you allow around each person?
\nPatrick:\u00a0 <\/b>It depends on the trade. I allow 10% buffer, so if they\u2019re saying they\u2019re going to be a week\u2026 I\u2019d put at least one day in-between any trade unless they\u2019re less than a day\u2019s work, but if they\u2019re going to be a week or two, you might want to put in an extra couple of days as a buffer \u2013 but a, say, 10% or 20% rule of time. You have to allow for weather and things like that, as well, depending on the type of work that\u2019s being done.
\nKevin:\u00a0 <\/b>Yes, because those things can throw the whole sequence out, can\u2019t they? I suppose you have to advise the trades that \u201cWhile I\u2019m giving you some dates here, these dates need to be flexible, as well?\u201d
\nPatrick:\u00a0 <\/b>Exactly, yes. And you\u2019re better of having a few days\u2019 buffer and then ringing up the trades and say \u201cHey, look, the Gyprocker has just finished.\u201d You ring the tiler and say \u201cMate, do you want to come a bit earlier?\u201d Something like that is better than \u201cMate, I have to push you back a few days,\u201d because then that\u2019ll push everybody back, and they\u2019re usually running from job to job.
\nParticularly in this market, I find \u2013 and have for years \u2013 good tradespeople really are busy, and they don\u2019t have a few spaced days to space things out for you, so you need to book them in and keep that schedule running.
\nKevin:\u00a0 <\/b>Yes, so once you\u2019ve made the dates, set them out on the spreadsheet, you then book all the tradies in in advance, rather than just ring them a couple of days out. How far out do you normally book them, or how far can you book them, Patrick?
\nPatrick:\u00a0 <\/b>Weeks, if not months sometimes. I run a lot of rental projects, I\u2019m doing a few a month, always on the go for clients who we\u2019re managing. Most people will take, for example, about 10 to 14 weeks to, say, renovate a two-bedroom apartment. That\u2019s completely gutting it, from start to finish. I\u2019ll do that in about six, maybe eight weeks tops, depending on weather and things. You can do a lot quicker by being efficient, and I will book those tradespeople in sometimes six, eight, ten weeks in advance.
\nKevin:\u00a0 <\/b>Once we have all this nailed down, from your experience, where do you see most amateur or first-time renovators go wrong?
\nPatrick:\u00a0 <\/b>From a renovation point of view, it\u2019s very, very common to either under- or over-capitalize. I\u2019d say 20% get it right, and you\u2019re probably looking at maybe 40% to 50% over-capitalize, and probably about 20% or 30% under-capitalize. That\u2019s simply because they\u2019ve gone too cheap, they\u2019ve not looked at the projects.
\nYou can under-capitalize by doing a cheaper kitchen or cheap tile fittings or cheap tapware, and it looks cheap because they\u2019re trying to renovate to a budget. You have to renovate to a standard, not a budget. Budgets are important to stick to, but set the budget in advance.
\nI find people who try to renovate to a budget because they pay too much for the property, they\u2019re looking at their margin and it\u2019s getting squeezed, so they start cutting costs on the items in the fitout, which ends up having a subpar job, and you won\u2019t get the value out of it. The tiles, the equipment, or the fixtures that you\u2019re putting in just won\u2019t stand the test of time and just won\u2019t look the part.
\nThen you have got the other side, which is what the majority of people do: they spend too much. They don\u2019t shop around. You can sometimes spend half as much on very similar look and feel and quality if you know where to look.
\nThat\u2019s something that comes generally with experience, so it is a good idea sometimes for people to outsource a project, but if you\u2019re going to make a bit of a hobby or a bit of a part time career from it, then you\u2019re going to have to learn on the road, learn from your mistakes, and you\u2019ll get better and better. But if it\u2019s a one-off that you\u2019re going to do here and there, then you\u2019re probably better to get an outside advice.
\nKevin:\u00a0 <\/b>Okay. The message or the bottom line here is after you\u2019ve firmed up on the price with the tradie, the three questions to ask are \u201cHow long will you take?\u201d \u201cWhich trades do you follow? and \u201cWhich trades follow you?\u201d then spreadsheet the whole thing. Just one other quick question before you go, Patrick. Fixed-price quoting, is that what you do?
\nPatrick:\u00a0 <\/b>Yes, when it\u2019s known. Like if you\u2019re digging a hole in the back yard, you don\u2019t know if you\u2019re going to strike rock. You\u2019re not going to get anyone to fixed-price quote that. However, I do get the fixed-price quotes from tradespeople, yes. I tell them \u201cLook, I want to know, I want it to be fixed, I need to stick to it,\u201d unless, of course, there\u2019s complete unknown. But you shouldn\u2019t have any trouble getting fixed-price quotes.
\nKevin:\u00a0 <\/b>Okay. Patrick Bright, and Patrick is from EPS Property Search and also the author of The Insider\u2019s Guide to Renovating for Profit<\/i>. Thanks for your time, Patrick, great talking to you, mate.
\nPatrick:\u00a0 <\/b>My pleasure. Thanks, Kevin.
\n <\/p>\n

Shannon Davis –\u00a0Tenants at legal risk<\/h2>\n

Kevin:\u00a0 <\/b>I mentioned at the start of the show about an issue that could have major ramifications for tenants, property owners, and property managers. A recent ruling handed down in the Supreme Court of Victoria could have serious repercussions for all of these people. The courts there had previously ruled that a tenant may not be in breach of their lease by offering the use of an entire property through Airbnb as a short-term rental.
\nWe\u2019ve spoken about Airbnb on a number of occasions on this show and always expressed a little bit of concern about it. I can see there are some great advantages for it, I\u2019m not knocking the principle overall, but I think its use sometimes needs to be very carefully monitored as you\u2019re going to hear.
\nWhen that decision was challenged by the owner, the courts overturned the original decision. So what are the ramifications for tenants, property owners, and property managers? In fact, the courts there ruled that the owner had the right to decide who was going to live in their property.
\nI want to get a little bit more information about this, and I always turn to one of our experts, Shannon Davis from Image Property Management, also Metropole Property Management. They do property management, as well.
\nGood day, Shannon.
\nShannon:\u00a0 <\/b>Good day, Kevin.
\nKevin:\u00a0 <\/b>I want to talk to you about Airbnb. Now, I\u2019m not knocking the business itself, but I am expressing some concern about how it\u2019s being used. Just give me a bit of background on this, Shannon.
\nShannon:\u00a0 <\/b>It\u2019s another one of those share economies. They actually own no bricks and mortar, but they have some of the most accommodation in the world \u2013 so people\u2019s spare bedrooms or the teenagers\u2019 retreats being rented out as a pseudo-hotel for a short-term stay accommodation rates.
\nKevin:\u00a0 <\/b>From a tenant\u2019s point of view, this sounds like a great idea. This is like \u201cOh, wow, here\u2019s an opportunity for me. I have a spare bedroom over here. I can maybe make a little bit of cash on the side by offering it up to somebody who might be travelling and make a bit of extra money,\u201d but they don\u2019t realize the ramifications of this and their legal requirements under the lease, do they?
\nShannon:\u00a0 <\/b>Yes, definitely. I think it\u2019s a victory for common sense that now the Supreme Court has turned it around. If you have permission from the landlord, then by all means, go ahead and turn a spare bedroom into a short-term stay, but surely, the decision remains the owners of the property and for its intended use. They could have chosen that Airbnb option themselves, but they\u2019ve taken the secure, longer, and less cash flow option of a long-stay tenant.
\nKevin:\u00a0 <\/b>As I see it, too, there are some other major ramifications that can come back on both the tenant, the property manager, but especially the owner when it comes to insurance. Now, if someone does actually come and live in the property, they\u2019re not on the lease \u2013 so therefore they\u2019re not legally there \u2013 and in the event that something happens \u2013 the place is burned down \u2013 as the fault of this person who\u2019s been put in there through Airbnb, or they do a little bit of damage, what would happen to the insurance in that case?
\nShannon:\u00a0 <\/b>It makes for a very ugly scene when it comes time to claim, and there have been precedents where the insurer is going to walk away from any claims related to the Airbnb. I\u2019ve seen the Airbnb stump up some money to mitigate damages in previous incidents, but it\u2019s not very reassuring to the owner of the property.
\nKevin:\u00a0 <\/b>Okay. What are the other problems that could emerge, apart from insurance, as you see it? If a tenant were to do this, they are in breach of their lease, aren\u2019t they?
\nShannon:\u00a0 <\/b>Yes, definitely, and it\u2019s going to mean that we have to put these clauses in and get a little bit more specific, to make sure that it\u2019s all cut and dried. I\u2019m all for innovation and the share economy and things like that, but I think it also needs to be a bit of a level playing field.
\nIt\u2019s unfair if Airbnb\u2019s competitive advantages may not be the tax that they\u2019re paying, less regulation, or insurance compliances. I think it\u2019s new, I don\u2019t think any of our governments have really got their head around it just yet. I think competition, but it should have some level playing field being involved.
\nKevin:\u00a0 <\/b>Yes, I think the original idea behind Airbnb was for an owner-occupier, if they were going to be traveling overseas, maybe then do some kind of swap with someone in Paris. You know, there are those possibilities. \u201cI\u2019m going to go over to Paris for a couple of months, so therefore, someone from Paris can come and stay in my place.\u201d That seems to me to make a lot of sense, and there are those business models that are out there.
\nI want to pick up on a point you just made about putting additional clauses into a lease. There has to be some caution here, where if an agent just goes and writes something in the lease, it may not necessarily be legal. The bodies who write these leases, what are they doing? The Law Society is an example.
\nShannon:\u00a0 <\/b>Yes. We always get our legal advice for the best clauses to use in these types of incidents and just to make our owners safer with that option. We won\u2019t tolerate \u2013 at any stage, be it Airbnb or elsewhere \u2013 where the leaseholders are approved, that we have unapproved people living there. So we\u2019ve always very vigorously defended that, because that should be the owner\u2019s right, that he or she knows who\u2019s living in their property.
\nT<\/b>he other one as well is by the unrelated people living in the same space, it\u2019s classified as a boarding house, as well. If you had a couple of strangers with some permanent dwelling there, that\u2019s the other bit of legislation you might be breaching, as well.
\nKevin:\u00a0 <\/b>Okay, so a boarding house therefore requires special insurance cover as well, doesn\u2019t it? Are boarding house is still very hard to insure?
\nShannon:\u00a0 <\/b>There\u2019s a very stringent compliance, such as cleanliness and fire regulations and stuff like that, and they get checked every one to two years by council and get another stamp for the future.
\nKevin:\u00a0 <\/b>I recall that there were a number of insurance companies in Australia who simply would not give you insurance cover over a boarding house. I wonder if that\u2019s changed. Is it more liberal now?
\nShannon:\u00a0 <\/b>Yes, it\u2019s very comprehensive, the checks that are made these days, so that gives the insurers a little bit more peace of mind.
\nKevin:\u00a0 <\/b>Yes, we have to give them all the peace of mind in the world, don\u2019t we?
\nShannon:<\/b>\u00a0 That\u2019s right!
\nKevin:<\/b> \u00a0Shannon Davis, thanks for your time, mate.
\nShannon:\u00a0 <\/b>No worries, Kevin.
\n <\/p>\n

Dr Andy Krause –\u00a0More accurate rental yield predictions<\/h2>\n

Kevin:<\/b>\u00a0 Some news: two lecturers from the Melbourne School of Design, University of Melbourne, have released a report that has been looking into predicting the accuracy of rental yields \u2013 predominately in the Melbourne area but it looks like it will be extended into other areas around Australia. Let\u2019s get a bit of an insight into this. Joining me, one of the authors of the report, one of the researchers, Dr. Andy Krause.
\nDr. Krause, thank you very much for joining us today on the show.
\nDr. Krause:<\/b>\u00a0 Thank you for having me, Kevin.
\nKevin:<\/b>\u00a0 Tell me about the research. How was it conducted and what did you find out?
\nDr. Krause:<\/b>\u00a0 My co-author, Gideon, and I started off with just trying to look at what areas spatially in Melbourne had better or worse rental yields. In getting into it, we realized that the question was perhaps a bit more complex than we had initially thought, and we realized that there are a number of different ways to measure rental yields. So we ended up backtracking a bit and working through those ways first.
\nKevin:<\/b>\u00a0 Could I ask you, firstly, why did you undertake the study? What was behind it?
\nDr. Krause:<\/b>\u00a0 My co-author, Gideon, had been doing a bit of work with some of the banks here in Melbourne, and there was understanding that they were going to start to look at limiting lending in some of the various postcodes. So we thought it was a fortuitous time to take a look at the issue of how yields vary over space or over the city.
\nKevin:<\/b>\u00a0 Okay, that\u2019s given us the basis for the study. Tell me how it was conducted and what were some of the findings?
\nDr. Krause:<\/b>\u00a0 How it was conducted is we made a few calls, and luckily we had a relationship with APM and Domain.com.au, and we were able to work out some data access from them looking at all sales and rentals of houses and units in Melbourne over the 2011\u20132015 period.
\nThe first step was really getting data access, which can be difficult. Once we had that, we then said, \u201cOkay, let\u2019s create a property-specific yield and let\u2019s look at each property that sold and rented, and create an actual yield value for each of those properties, plot those on a map, and let\u2019s see what shows up.\u201d
\nKevin:<\/b>\u00a0 Right. What were the results?
\nDr. Krause:<\/b>\u00a0 I think we have two major findings at this point. The first is that\u2026 Often when you look at information that comes out of industry, you see yields shown at a suburb level: \u201cIn this suburb, yields are 4.6, and in this one, they\u2019re 2.3, etc.\u201d What we found is that yields vary quite a bit even within a suburb.
\nI think the first takeaway is that for investors, analysts, whoever it may be, lumping everything into one suburb can make you miss a lot of variation and in some ways leave a lot of money on the table perhaps if you\u2019re an investor.
\nKevin:<\/b>\u00a0 Just looking at some of the heat maps that I have with your report here \u2013 I call them heat maps, they\u2019re color coded \u2013 if you look at, say, the area of Fitzroy, there are some areas in there that are offering a 6% yield compared to some that are as low as 2%. These are almost within streets of each other.
\nDr. Krause:<\/b>\u00a0 Yes. Again, the big takeaway we had was did people realize how much yield can vary over 400 meters, for instance? That was really the first takeaway.
\nWe then started to look at that a bit more closely and said, \u201cWhat are some things that may influence yields?\u201d At this point, we started with the idea of train stations \u2013 probably something very, very important to people. What our research has shown to date is that in the middle and inner suburbs in Melbourne, for units especially, being within 400 meters of a train station can up your yield up to 0.2%. So purely looking at the transit accessibility can increase yield.
\nKevin:<\/b>\u00a0 Did you find that in areas where there was a predominance of units as opposed to stand-alone homes, there was a difference in terms of the yield? In other words, did the units offer a higher yield?
\nDr. Krause:<\/b> \u00a0Units do on average offer a higher yield \u2013 about 0.5% higher. That\u2019s fairly common knowledge over the entire market, you get a little better yield on units. Of course, what generally happens with units is that you get a little less capital appreciation, so there\u2019s some trade off there as an investor, obviously.
\nWhat we tried to do was when we looked at our maps and looked at our analysis, we separated houses and units out simply because some areas are predominately units \u2013 for instance, the area around the University of Melbourne and RMIT here in Melbourne \u2013 and then there are other areas such as the near Eastern suburbs that are almost entirely stand-alone houses. So we\u2019ve conducted our analysis splitting those two apart since the markets in some ways really are different.
\nKevin:<\/b>\u00a0 Yes, getting back to what I call the heat map, if you look at the area around Melbourne, which I assume is the Melbourne CBD, very high levels of return \u2013 around 6%. Predominately, I would imagine, they would be units?
\nDr. Krause:<\/b>\u00a0 Correct. Those are predominately units. Although if you have a stand-alone or one of our terraced homes in the Fitzroy neighborhood, if you\u2019re renting to students, you can still pull a pretty decent yield out of some homes in that area as well. But it\u2019s predominately units, yes.
\nKevin:<\/b>\u00a0 Then, of course, if you jump across and look at the same map that looks at the housing yields, you can see that they\u2019re mainly in the red, which would indicate anywhere from 2% to maybe even 3% yields that you\u2019re getting. But as you\u2019ve pointed out, the balance there is the capital gain is probably greater with the house as opposed to the unit.
\nDr. Krause:<\/b>\u00a0 Correct. That\u2019s generally what has happened here. If you look at the last five to seven years, your capital gain has been higher on stand-alone homes than on units.
\nKevin:<\/b>\u00a0 How can an investor use what\u2019s coming out of this study to help them either predict where they\u2019re going to get the best capital gain or the best return in the years to come?
\nDr. Krause:<\/b>\u00a0 I think at this point in time, what we\u2019ve really been focusing on is trying to say something about yield. Our follow-up study is both looking at Sydney and Brisbane as well as looking into the impact of busy streets, green space, access to water. Those are all things we\u2019re working on at the moment. What we want to be able to do is to come out and say, \u201cLook, as an investor, these are the things to look to for yields.\u201d
\nNow, each investor has their own risk appetite they\u2019re willing to look at, and that is what they need to look at when it comes to capital appreciation and what sort of time frame they\u2019re trying to hold over.
\nWe\u2019re trying to attack the first question and say, \u201cLet\u2019s first understand yields,\u201d because yields vary a lot over space, but we can expect that general differences over space probably won\u2019t move all that much over time. The capital appreciation could move quite a bit, as both sides have been saying about this election, so we want to move into that in the future. But at the moment, we\u2019re trying really just to focus on the yield.
\nKevin:<\/b>\u00a0 It will be really interesting to watch what happens in Sydney in particular where the market is pretty hot right now, and then you look at Brisbane. Of course, one of the big influences on yield is lower mortgage rates, and we\u2019re certainly enjoying that. That does have an impact on yield, doesn\u2019t it?
\nDr. Krause:<\/b>\u00a0 It does. A lower mortgage rate, generally speaking, will drive up the price, which does drive the yield down. So there is certainly a relationship between interest rates and yields. If you plotted them over time you would see that. Yes, you\u2019re absolutely correct.
\nKevin:<\/b>\u00a0 Have you got a feel for what may happen when you extend the study into Sydney and Melbourne?
\nDr. Krause:<\/b>\u00a0 In terms of looking into a crystal ball, not necessarily. We suspect that a lot of the major trends will hold \u2013 mainly that there is variation within the suburb. We don\u2019t see a case where the suburbs in Melbourne vary quite a bit in yields and then we go to Sydney and Brisbane and it\u2019s completely flat across the suburb.
\nWe don\u2019t really see any reason for that since the drivers of yields, in some way, are looking at what are the things renters value and what are the things homeowners value? And where those two things differ is where you get yields on the very high and the very low end. We think that same set-up exists in some ways in all major cities in Australia.
\nKevin:<\/b>\u00a0 Great talking to you, Dr. Andy Krause, a lecturer at the Melbourne School of Design, University of Melbourne. Tell me how we can get hold of this report. Is it available through Domain?
\nDr. Krause:<\/b>\u00a0 If you go to Domain, there are a few new stories about it in Domain, and there\u2019s a link, too. At the moment it\u2019s being hosted on my personal website at http:\/\/www.AndyKrause.com<\/a>. You can go to Current Research and two different reports are there. We also hope to have this forthcoming in an academic journal sometime in the near future. But I would check out my website for the time being.
\nKevin:<\/b>\u00a0 That website again is http:\/\/www.AndyKrause.com.au<\/a>. Look for Current Research, you\u2019ll find that button in there.
\nDr. Krause, thank you once again for your time and I look forward to hearing from you when we get some results out of Sydney and I guess also Brisbane.
\nDr. Krause:<\/b>\u00a0 Absolutely. We will let you know. It was great to speak with you this morning, Kevin.
\nKevin:<\/b>\u00a0 Thank you. Thanks for your time.<\/p>\n","protected":false},"excerpt":{"rendered":"

  If you have a background in marketing or if you have just started to dig around in the world of property investment, you may have stumbled across the term \u2018halo effect\u2019.\u00a0 This halo effect can be a trap for investors because rather than choosing…<\/p>\n","protected":false},"author":176692471,"featured_media":8557,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[13,24],"tags":[101],"class_list":["post-8500","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-latest-story","category-shows","tag-podcast"],"yoast_head":"\nThe \u2018halo effect\u2019 and its possible impact + A new investor tool - 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\/the-halo-effect-and-its-possible-impact\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The \u2018halo effect\u2019 and its possible impact + A new investor tool - 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