In today’s show Brad Beer from BMT Tax Depreciation has compiled his New Years resolutions for property investors.
Kevin: It’s only fitting, as we head towards the end of 2015 – this in fact is our last show for the year – that I’ve invited Brad Beer to join me. Brad, of course, is the CEO for BMT Tax Depreciation.
Good day, Brad.
Brad: Hi, Kevin.
Kevin: Looking back on 2015, it came with a few challenges, Brad, didn’t it, for the property investor?
Brad: Yes, it did. The clampdown of APRA on banks regarding lending. I think there’s still more to see out of that, but just looking at the clamping down on that loan growth in investors by more than certain percentage. We’ve seen increased rates against investors only, which is not something we’ve seen for some time. A lot of things there to make it a little bit tougher for the investor.
Kevin: Yes, they have, indeed. We got some good news, and I guess the year 2015 highlighted for us, Brad, that there are so many different markets around Australia, if you’re going to be a property investor, you really have to do your homework. There was some interesting news out from CoreLogic RP Data as well in – their quarterly report.
Brad: Yes. If we take 2015 and look at the substantial growth in the Sydney market, especially – something that’s fueled by many things and low interest rates and people having a fear of missing out on getting into the property market – we’ve had such substantial growth, probably too fast. We’re probably on the back of that now, meaning that we’re seeing reduced auction clearance rates and probably a slowing of that market. But then we’ve had other markets – Perth in WA, for example, that’s not been performing anywhere near as well, and it’s in the same country – just.
Kevin: It’s interesting, because in the first few shows of next year, we’re going to feature comments from a number of our commentators who we’ve used over the years to give us their view looking back on 2015, looking ahead to 2016. But I thought it would be interesting, because I understand that you’ve done the property investor resolutions for 2016, the first one being “I’ll go outside my comfort zone.” That should be every investor’s resolution, I would have thought.
Brad: Look, Kevin, I’ve bought a lot of properties over the last 15 odd years since I’ve been investing, and a lot of them are actually in similar areas. One things that if I look back in hindsight, over many of those years, I’ve bought places close to what I know for reasons. Now, sometimes, because I know those areas, that’s good, but the fact is the same area doesn’t always perform, and you need to look outside of “around the corner” because it’s easy – you can drive past it – and look at investing to other areas around the country, potentially with enough research to know what’s good and what’s bad, and not just around the corner because you think it’s easy to look after, and you believe in that area because that’s where you live.
Kevin: Yes. The second resolution was that you will not follow the herd, and I think that’s wonderful. That herd mentality is pretty poor because most times, by the time you get there, the rush is already over.
Brad: And the people follow. Everybody’s making money. It’s growing, the prices are really high, and as soon as that happens, it’s almost like it’s too late to buy there. You have to be picking those places that haven’t had that herd and everybody pushing up the prices.
Sydney is probably at the back of that at the moment, where we’re seeing those decreased auction clearance rates and the prices probably having that flattening over the next little period of time, especially because people have kept pushing those prices by following herd mentality.
We need to be looking at where it has been struggling with some reason why it will come forward in the future.
Kevin: And looking, too, at the complete picture, highlighted here by the fact that part of the investment journey is all about depreciation, which is your pet love.
Brad: The cash flow in every way, depreciation is obviously an important part of that. We still have a situation where 70% or 80% of investors don’t maximize this deduction properly. It’s like buying your investment and asking for less than the market rent.
Every part of your investment from a cash flow perspective, you should be asking for market and proper rent and doing whatever it is to the property you need to to make sure it’s attractive to tenants. Depreciation is the one I see missed the most that’s just leaving money on the table you don’t need to.
Kevin: Speaking about leaving money on the table, too, budgeting is pretty important. When things get busy, we tend to overlook that area of it, but you have to keep a close eye on that as well, Brad.
Brad: Look, simple things like if you’re a normal tax payer doing a PAYG so that you can get more money into your pay packet on a fortnightly basis, which is a really simple thing that your accountant can do after you’ve had your calculations of the year, what it should look like, including your depreciation numbers, then you might as well get that money back in your pocket today so that you can sit it into offset accounts, pay less interest, and actually have use of that money through the year instead of letting the tax office hang onto it and get it back later on when you do get around to doing your tax return. Making sure you’ve budgeted properly through the year and just having that buffer of money available is also a great idea.
Kevin: I think, too, taking notice of people like yourself, and listening to Real Estate Talk and programs like that, you actually learn a lot. You have to learn from that experience, Brad, don’t you?
Brad: I still go to quite a number of property seminars and things. Often I’m the depreciation speaker at these things because that’s one important part of investing, but one thing I do is always take something away from that to add to my knowledge about investing in the property, and take heed of that.
Also what it does is gets me keen to re-look at my portfolio of properties, make sure I’m always open to learning how to make it perform better and also for those purchases in the future.
Kevin: Brad, all the best for the rest of this year, and look forward to working with you during 2016. Thanks, once again, for your support of our program, as well.
Brad: Thanks, Kevin. Look forward to it.