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The BEST Time to Buy Property Is When This Happens: Top Property Experts · The Follio Property Podcast

• 0:00
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• 0:56
  The widening war in the Middle East has triggered a sharp sell-off on global markets. Rental availability is extremely challenging around the country. What do you make of this year with the war, rising rates, incoming budgets? It's not easy to rationalise and ignore all the noise out there. I'd much prefer to be investing than when the forecast rates are coming down because the sentiment's already negative.
• 1:17
  or modifying the CGT discount in negative gear and ruin the rental market. That's a lot of headwinds into an already undersupplied market. And if you push investors out, you are going to squeeze this market to a point where there's no stock for the everyday Australian, this government's increased inflation, put the market on steroids. Now they'll throw some taxes in that really cripple investors. So be greedy when those are fearful and be fearful when those are greedy. People are fearful at the moment. Let's unpack this.
• 1:46
  You're listening to the Folio Property Podcast. I'm Rhys Beddle and I'm here each week with my co-host, Lachlan Delahunty. Lachlan, we get a shed light of questions coming in on the podcast and we haven't done a Q&A in a couple of months. So I thought today would be good to go through. We're not going to get all of them. I don't want to say people's names, so please put in the comments if you don't want to say their names, but there's some really crackers in here that I want to talk about today.
• 2:09
  Let's kick it. Let's get started straight away. Hey, guys, quick thing to share. If you're serious about investing in Australian property right now, you need to see what we put together. It's called the National Investment Report, and it's our brand-new monthly deep dive into exactly where the market is moving, what the data is saying, and what the smart investors are looking at right now. The March edition has just dropped, and you can get the first access completely free. Just scan the QR code on the screen right now or click in the link below to fill out the form.
• 2:38
  First one's pretty topical with what's going on at the moment. It says, boys, what do you make of this year with the war, rising rates, incoming budgets? Lachlan, I know you've got a passionate opinion on this one. Yeah, there's... Rhys, I do. Because there's so much speculation in the market at the moment. And it's not laughable. I shouldn't say that. There's a lot of speculation in the market at the moment, Rhys. And it's a lot of uncertainty.
• 3:04
  And if I look back over history, particularly recent history, for me personally and for our clients, typically uncertainty does present the best buying conditions for an investor. But it takes a long-term view to do that. You can't be in the market looking at the newspaper, news.com, going on Instagram, looking at reels, because there's not going to be a good news story, I believe, potentially for the next three to six months.
• 3:30
  So this is when it takes a bit of courage investing in these markets when there's that level of headwinds. But personally, and what I've done in my journey, it's no different to COVID. I took a very strong position around Australia, but specifically in Perth within the week that COVID hit, which took...
• 3:51
  A lot of courage and for me, yeah, complete uncertainty, right? And you can say that's just a, you know, it's like gambling. But at the time, we pretty much did a PhD on what happens during major global events. And the government was showing their hand. They're going to stimulate the economy with a lot of money. Rates dropped. And I just looked at history.
• 4:13
  And this is very different, right? Because you've got some uncertainty with inflation. You're potentially going into a rising rate environment. But like I said off air, Reese, I'd much prefer to be investing when the forecast rates are going up than when the forecast rates are coming down. Because the sentiment when rates are coming down and there's heaps of tailwinds is strong. So you have to pay a lot more
• 4:37
  for the same asset than you do when rates are going up and sentiment is poor. So it is. You do have to have big kahunas, as you said, and it's not easy to rationalise and ignore all the noise out there. And, you know, I'm no different. I'm human. I'm reading the AFR and listening to other podcasts and a lot of media. Yeah.
• 4:59
  And you've got to take all facts on board. There is a lot of uncertainty and we may get another rate rise in the not too distant future, which impacts cash flow. You can't hide away from that. So you have to do your numbers before investing to make sure the cash flow can support that and you can hold these assets long term. But it's going to be a choppy year. But again, during uncertainty, it does present.
• 5:19
  typically the best opportunities and when you take longer term views as we have and as we do on markets this could arguably i'm not saying it is but could arguably be the best time to be buying um with that view those that hold properties and i know i'm talking a lot about this one question
• 5:37
  stay the course you know you never want to be selling in times of uncertainty and I have to sort of pinch myself before I do that because naturally it's just like before another two or three interest rate rise I probably should sell that asset but the sentiments the
• 5:52
  has already shifted for those rates to have already occurred. So the sentiment's already negative. So you weather the storm and wait till the sentiment changes. And you think, how quickly is this sentiment? It's happened in a matter of, what, two weeks? Three weeks? Trump's gone out and done his thing, and all of a sudden inflation skyrocketed, fuel's gone up, RBA, knee-jerk reaction, this increased rates, sentiment shifted. Just as quickly as it can...
• 6:15
  turn negative it can turn quite positive when trump declares that he's defeated the entire world and you know the war's over and all of a sudden inflation's under control and oh wait we've probably overshot it let's cut rates so just be mindful that news is never as bad as what it appears to be news is never as good as what it appears to be just take a balanced view and if you know and prepare that's going to be a choppy year and you're looking longer than that then you'll make the right investment decisions
• 6:42
  Is there a famous quote that you sort of can live by in these times, Lachlan? You'd love to hear it, Rhys. So be greedy when those are fearful and be fearful when those are greedy. People are fearful at the moment. Awesome. Let's go to the next one. This is probably more from a strategy standpoint. How to build a team? What are the key players needed for a successful portfolio? Hear you guys talk about brokers, property agents, et cetera.
• 7:05
  So this is probably from an investor angle, I'm assuming. So we obviously talk about it's important to have the right team and sometimes you might outgrow your team, but who is part of your team if you really want to start building out a property portfolio?
• 7:18
  Yep, really good point. Well, I think your first team member to consolidate in any scenario is an investment broker, someone that can give you an understanding on your capacity, how to help you potentially save for a deposit, what's out there if you're a first-time buyer, what schemes are in place. So that would be to me is my first addition outside yourself. Self-education is the number one. And there's so much information out there, podcasts, books, et cetera, that's
• 7:44
  So scrap that, your first team members yourself, and educating yourself. Second to that is your investment broker to work through your capacity and can start to set you up on what you need to save or look at budgets and those sorts of things to get yourself in a good position. Or if you've already got assets and you've got an income, that will give you sort of advice around how to increase your borrowing capacity or structuring. Then next to that is, I would say, a property specialist
• 8:10
  not necessarily a buyer's agent. We talk about the difference between investment advisory, which is sort of our space, Reese, versus a buyer's agent. Buyer's agent comes later, investment advice, property investment advice is very tailored and very specific to those that want to build out property portfolios. And that's sort of-
• 8:26
  Our world, for those that don't know what we actually do, that's sort of where I spend my time and Rishi spend yours, is helping people with proper portfolio planning, investment strategy advice. So that's really important. And there isn't a heap of us out there, I would say. So trying to find someone that's a good fit for you is important. Then it's obviously having a really good accountant, understanding your tax position and looking at, okay, if I am going to make a capital, if I am going to make
• 8:54
  negative returns, be that the rent's not going to cover the mortgage, what's my benefits, how should I be structuring this before I purchase. And financial planning is also really important on your overall lifestyle, your overall life goals and can help with budgeting and planning.
• 9:12
  Not all financial planners have a passion for property. They don't get paid for giving advice towards property. So not all planners will support a property strategy, but a good one is certainly good to have on your team. So that's your first piece. And then you can add a buyer's agent to the mix if you're out there making acquisitions in specific markets, an accountability partner.
• 9:34
  So someone's going to keep you to account so that you actually stay on board. And that's probably likely being your property specialist or your property advisor if you don't have one of those. Someone that's keeping you to account so you don't deviate from the plan that you set out from the start.
• 9:49
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  Apply today and earn a welcome offer of $1,500 cash back after you spend $50,000 in qualifying purchases on your new card within the first six months of card membership. Terms apply. Learn more at go.amex.com. This next one is pretty topical in my life. I get a lot of mates asking this all the time. I'm sure you've been getting it for years. Where can I get the best data to help me calculate what to offer on a property?
• 11:02
  So essentially, I get a lot of mates. Literally, last weekend, I had a mate buying a house in Melbourne, mate buying a house in Heathridge. Actually got the house, so well done to him. A lot of them are asking me in terms of competitive markets in these first-time buyer price points, what do I offer? How do I find out what the best offer is? Is the data out there? What comparables should I be looking at?
• 11:21
  Yeah, they're not going to like the answer because the data that you'll get access to and the data that we get access to outside our team is typically delayed by three to six months because you're looking at CoreLogic data, REA data, and you don't get that data until it settles, and often that's two to three months too late. It's on the ground data because you want to know what it went under offer last week, and the only way you get that is either being out in the field yourself or being out in
• 11:46
  You know, speaking to agents and doing the calls and, you know, seeing what's gone on and after, trying to hopefully build the relationship to get that information or using specialists, be that buyers, agents on the ground that specialize in that specific market that will know every sale, that will know what's under offer.
• 12:03
  that will know what's sold off market. So they're your two options. It's just, you know, and people don't like it. It's doing the work, being out in the market, speaking to a lot of people and collating that information. That's going to give you that distinct advantage because ideally...
• 12:19
  you want to be $1,000 above the highest offer if it's an on-market campaign, right? You want to be the least amount above the highest offer. And the only way you're going to know that is getting better data sets. But if you're using realestate.com or RP data, unfortunately, you're three to six months behind.
• 12:34
  So hear that, build relationships, speak to local agents, get out in the market yourself, have the conversations. The more conversations you have in your market, that Heathridge example, I'd be calling every agent in Heathridge, anything that went on the market, giving the agent a call, go to the open, and agent, what would that end up selling for? How did you go, how many offers did you have? You can start to really paint your own picture if it specialised in one centralised market. It's amazing how quickly, if you go about it the right way, how quickly you can get that data.
• 13:01
  Next one is, what is the art of exiting and taking a profit on real estate? What are the signs of a market topping? And when should someone look to exit the market? Pretty good one. I don't think we've touched too much on this before.
• 13:15
  The art to it is not having self remorse and understanding a gain is a gain and because you're never gonna pick the top. And my personal philosophy, I'd rather sell into a rising market than miss the top of the market, right? So I spend my whole week analyzing data, recent research and speaking to our economist and my job is to try to get us as close to we can to buy in at the bottom and selling at the top.
• 13:43
  I'd be lying if I'm going to pick the day of the year that a particular market tops or bottoms. But the opportunity cost of your...
• 13:52
  of you exiting. So you gotta come back to it's the opportunity cost. That's what you're giving up by keeping exposure in any given market, right? So what is the opportunity cost of you not exiting the market is what you need to really understand. And it's always better to be selling, like I said, in the first question, I want to be buying in an uncertain market and selling in absolute certainty. And for instance, I had a timely sale in Leaderville
• 14:22
  four weeks ago, probably a week before the war started when there's nothing but tailwinds, a lot of positive sentiment, that's the right time to sell. If I'm in that position today when there's uncertainty, I won't be selling that property because you won't get the premiums that you get when there's tailwinds. So a market at the top of the cycle goes through a really strong FOMO phase, fear of missing out phase. You want to be selling-
• 14:45
  right in the midst of that, and noting and understanding that you may leave some dollars on the table and being okay with that because the opportunity cost to take a position in another market that represented better value outweighed staying in this market longer term and potentially missing the top of the cycle.
• 15:03
  Next one we have, I think they wanted us to do an episode, but I think you could do a quick summary on it. It could be an interesting episode, but let's just do a quick summary. Loving the content, gents, would be good if you could do a summary about the differences between this Perth boom with the one we had in 03-07, the key metrics from both cycles, and more importantly, how much more runway does this current one have? That last question I know you can answer off the top of your head. Appreciate you don't have all the data sets in front of you, but what is some... Put me on the spot. Yeah.
• 15:33
  Well, I read the last line. I'm like, Lachlan knows the answer to that straight away in terms of the affordability ceiling or the runway. But yeah, we could obviously do a deep dive into this, like a whole episode. But from a question standpoint, what's some key differences that you're seeing in this cycle? Yeah.
• 15:49
  You look at the similarities, well, let's just compare them like for like. And people forget this. So the 2000, really started in 2001, ran really hard till 2006, almost 2007. GFC stagnated the market for about 12, 18 months. And then it went on another absolute tear. People forget that. The peak of the market in Perth wasn't 2007. It was 2014. And that was a lot to do with what they call like the...
• 16:19
  the mining boom, right? And it's like, it's never going to happen. It was once in a lifetime and here we are. But the difference is that market, it was a tripling event in a very short, like sharp period of time of essentially five years. We've had a doubling event. So the upswing in this cycle at this point in time has been quite subdued in comparison. There was a year there where we've seen a 100% growth in an 18 month period. The best we've seen is 25% growth in a 12 month period.
• 16:48
  To say that markets can't go at that level of growth, I'll never say never about anything because markets will surprise you. What the similarities were, they're both built around population growth. And this particular...
• 17:04
  I don't like using the term boom, but this particular period of growth in Perth has been built around population growth. Has it been solely mining? No, Perth's very diverse in comparison to where it was in the early 2000, which gives a little bit more strength and probably a bit more certainty to investors and people that live here that...
• 17:22
  Post the upswing, the stagnation or the potential downturn in the market will be less vulnerable because it's far less reliant. It's still a mining city. Anyone says it's not kidding themselves. It is mining, mining related. But it's not just oil and gas now. You're talking nickel. You've got gold, lithium, rare earth, nickel. It's very diverse. It's not just an iron ore market. And construction.
• 17:48
  The richest state, West Australia, is one of the most wealthiest states in the world in Australia, right? So you've got such a strong economy that is attracting jobs in all different industries now. So that population growth is as high as it was in the early 2000s. So the difference between...
• 18:06
  say now and when the market peaked in 2014, is that WA and Perth specifically oversupplied the market by 106% in 2014. And that was the undoing. That also correlated with negative interstate migration because the mining boom stopped. When I look at this particular upswing, we're not waiting for a mining boom to stop because we're not really in the midst of a mining boom. We're in the midst of a strong economy.
• 18:30
  and an economy boom, but not so reliant on one industry. So I don't think there's a pop in the Perth market where all of a sudden the music stops and we can't oversupply the market. Like you look at the forecast and the current supply coming in, there's no obvious solution because building and construction constraints and labour constraints...
• 18:50
  I will never say never, but it's very unforeseeable that we can oversupply the market in the same degree we did in 2014. So I think there's a layer of protection for long-term sustainable growth, not the growth that potentially everyone's become used to, 2% every month, but a more balanced and sustainable growth in the Perth market longer term.
• 19:10
  Keeping on the Perth trend, the next question says, awesome stuff on the asset location grading, something you speak about quite a lot on the podcast, Lachlan. Lachlan said capital cities are A grade, but what about the importance within a capital city? In a Perth context, comparing somewhere like Armidale to Scarborough?
• 19:29
  or Mount Lawley to Alkamos. So I guess we probably should have to clarify that. So when we say, I don't think we would say, would you say capital cities are A grade? Are you saying there's A grade suburbs? So when we look at capital growth, right, when we look at the grading, it's not graded on necessary locations, it's graded on the long term compounding growth rate.
• 19:49
  So yes, if you look at Perth, it's long-term compounding growth rate exceeds 6.5%. So yeah, Perth is an A grade location where Bunbury's long-term compounding growth rate got five, five and a half percent. Therefore, it would get a B grading. But then you can do the same with the suburbs. So Armidale's run just over 5% compounding growth over the long term. Therefore, it would attract a B grade rating.
• 20:17
  my concerns with that market around the overexposure investment activity would probably downgrade it to a C. When I look at the example, was it Scarborough or? Yeah, well there's a few there. So it was Armadale to Scarborough or Mount Lawley to Alchemist, so they're much more much less. So then we look at Scarborough. Scarborough's long-term compounding growth rates now close to 7%, which gives it that A grade rating and supported by strong own occupier activity, strong amenity, retains that A grade rating.
• 20:46
  Same with a Mount Lawley and long-term compounding growth rate of, again, almost 7% A-grade rating, Alkal Moss, sub 6% B-grade due to the amount of supply in that far northern corridor would give it a downgrading to a C.
• 21:02
  So if I look at that, we're giving Armidale a C, Alkermoss a C, Mount Lawley an A, Scarborough an A. So it's not necessarily the location on a macro scale. You can give a city a rating, but it's really important to get to the suburb rating. And that's when we're looking at long-term compounding growth rates. Because history tells a story. That's the key thing, looking at long-term data sets to understand what the grading is.
• 21:24
  And what's underpinning that market? Own occupiers versus investment activity. What's the scarcity factor? You can't build, it's very difficult to bring on supply in Mount Lawley. Very easy to bring on supply in Armidale or Alkermos.
• 21:35
  This one I think is going to be an easy answer for you, like a quick one, but I think we could take it in a different direction as well. So this question says, long-time listener, great episodes recently. Thank you, listener. Had a question regarding increasing rental cash flow. If my investment purchase has solar and battery storage, will that increase my rental return?
• 21:56
  Or does it just make it more appealing to rent? So I think that could be a quick answer. But is there, I guess, firstly, give us the answer on that. But are there things that people will be paying on their property that actually won't add value from an investment standpoint moving forward?
• 22:09
  It tends to be a gross lease or a net lease, right? So some people will charge for all things included, electricity, internet, those sorts of things. In that scenario, you can increase your cash flow quite significantly, but often that's not the case. Therefore, there's no real benefit other than attracting a tenant that has to pay less. But if you're going to package it up, so in those scenarios where it's like room sharing or co-living, yeah, it's a fantastic solution because you can charge them...
• 22:37
  250 bucks per person per week and all costs are included because then you know and you're taking on and you're getting a benefit because you're not paying for the solar or you're getting a discount on the solar and the battery so only in specific examples would i suggest that that is a cost saving exercise when you're leasing out a property but majority of leases aren't structured that way
• 22:56
  Interesting. Any other things, I know I'm putting you on the spot here, anything off the top of your head where people will make an investment in their property thinking it's going to add value, but actually from a yield perspective or even just a salability perspective, it actually doesn't add value at all. It's purely an advantage just for that homeowner.
• 23:16
  Yeah, there's a lot of examples of that. Landscaping is a huge one where people might... Accidental landlords always happens, right? You go in there and spend all these things that you want if you live in the home, but tenants are not going to necessarily appreciate it or pay you an additional increase in the rent. So, landscaping is the common one where people can overdo it from investment properties, things that you can't touch and see. Installation is another one. Retiling the roof, all these things that are really nice to have, but aren't going to increase
• 23:46
  Okay, next one. With Perth and Brisbane still booming, are we heading for a two-speed property market rather than a national downturn? And this is off the back, this question's come off the back of the second rate rise. Yeah, I think markets, Sydney is for the first time in the foreign line where it will see negative growth over the next three to six months. We are going to see a two-speed market. We're going to see the likes of Brisbane, Darwin and Perth be, I believe, strong performers over the next six months
• 24:16
  In light of a rising rate environment, I think you're going to see pockets of Melbourne continue to do well. Pockets of Melbourne potentially face some stagnation or negative growth. You're going to see collectively, I believe, Sydney a struggling market.
• 24:32
  and the likes of Tasmania where there's low population growth really struggle, or Hobart specifically, really struggle, Launceston really struggle because you've got negative interstate migration and not a lot of investment. I think those sort of markets will go through a really tough or challenging six month period. Okay, two more to go. One challenges you which I thought would be good to touch on.
• 24:56
  Hello, I was a little shocked when I heard Lachlan very anti-changing CGT and negative gearing laws. Can you please explain why modifying the CGT discount for existing homes would ruin the rental market? The homes don't just disappear. If an investor disincentivised to not purchase any more houses, won't that mean...
• 25:17
  A first home buyer or upgrader, downgrader could, I think, limiting the CGT and negative gearing to one property would be a good way to go. No grand fund, da-da-da-da-da. Okay, so just, I guess the question there is talking through why you were very anti on the CGT and negative gearing.
• 25:34
  And were you negative on the proposal altogether? We did have Ben Kingsley on the show last week. Yeah, like I said, I definitely agree with his thoughts, which that podcast was released last week. And there needs to be some reform to it for sure. But I just don't think a blanket 30% discount is the way to go. I just don't – you've got to really – and what you've got to understand is absolutely we want more people to be able to buy their home
• 26:00
  but we've got the most undersupplied market Australia's ever seen. We've got the lowest national vacancy rate that we've ever had. And what I'm saying is the most vulnerable people in society are typically tenants. They don't have the ability often, through choice, to be able to actually buy a home. So if we don't create additional supply and we're in an environment now where we're facing a lot of headwinds, where you're gonna see probably investment sentiment drop because of rising interest rates, uncertainty around
• 26:28
  geopolitical affairs, you've got negative gearing that's looking at a potential reform, now you've got CTT, now you've got the capital gains discount potentially reducing. That's a lot of headwinds into an already undersupplied market. And if you push investors out,
• 26:46
  Queensland was the perfect example. They tested the waters with a new policy and that was making the land tax in Queensland applicable to your entire portfolio.
• 27:01
  So again, what happened? Investors not only stopped buying in that market, so overnight there was pretty much a handbrake pulled on that market, there was a mass sell down of investment properties. So what happened? Vacancy rates shrunk incredibly quickly and rent skyrocketed. Do we want that? No, because who is our most vulnerable? Those that are renting. So yeah, I know you might be shocked because absolutely it's the Australian dream for everyone to buy a property
• 27:27
  but it's also the Australian dream for everyone to have a roof over their head. And if you take a large portion of the market, 30% of the market, you disincentivise them with 1,000 cuts, which we're seeing at the moment, negative gearing, CGT, interest rates, you are going to squeeze this market to a point where there may be
• 27:52
  no stock for the everyday Australian to rent a property. And that hurts a lot of people, those that are moving when they don't really want to move, divorces, downsizes. People are getting kicked out of home, they're getting evacuated. That's what I'm talking about. So no, I definitely want everyone to be able to have a chance to buy a home. You can say that investors have driven up markets and those sorts of things. No, I don't believe that to be solely true.
• 28:16
  But the way this government's handled the last 12 months doesn't give me a lot of confidence, Rhys, because they've increased inflation, pretty much put the market on steroids. Now they're like, okay, let's throw some taxes in there to really cripple investors if you're going to tackle both negative gearing and capital gains in the same budget reform in probably the most uncertainty the market's seen since COVID. Do I think that's a good idea? Probably not.
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• 29:14
  Final question. You've just touched on all of it. So it was basically talking about all the uncertainty, exactly what you said, the war, the rate hike, CGT, negative gearing. This particular listener has said, should I sell my investment property in Perth off the back of all this, everything that's going on there? So they're reacting to the sentiment. I've made over 1.9 times the purchase price on my investment. Great work.
• 29:36
  Bloody great work. Should I now reduce my PPOR? That's a very specific question with no framework of their situation and their personal situation. And I hate being the one that's like, it's very dependent on your personal situation, right? So it's...
• 29:53
  I'd love to be able to give some direct advice, but I actually gently need to know the opportunity cost of you and your current situation. And is it vacant? Is it tenanted? Like there's a lot, what type of property is it? It's going to be driven to own occupiers. Is it going to be invested? Is it a B-grade asset in a C-grade location? Is it an A-grade asset in an A-grade location? All those things change my thoughts and feelings. Like I had a client with 50-odd properties in his portfolio the other day and he goes,
• 30:19
  Should I sell them? And I said, sell the portfolio. And I was like, that is like, let's unpack this. Like, what assets are in it? And it turns out that 80% of the portfolio I would never have bought. So a good large portion of that portfolio, it's a great time to exit
• 30:35
  Average assets, so CD grade assets. It's a good time to exit it when there's FOMO in the market. Would I want to be selling when this podcast is released? Probably not because there's uncertainty. You want to sell when there is no uncertainty, nothing but certainty because that's when you get premium prices. But to caveat, reach out. I'll happily catch up with this particular individual and have a good look because I don't want them to take the wrong advice on this podcast and just see what should be done in that scenario.
• 31:02
  Probably another 20 questions in there just on that. But there was a lot of advice questions on there we obviously can't go through. I thought that was a good one just to kind of touch on because it was 1.9 times. But, yeah, guys, we're going to keep doing this moving forward. So send the questions in. There's some crackers in there. We'll try to get to some of these ones that we didn't touch on this episode. Leave in the comments some more and we'll continue. If those like this episode, let us know as well because if you want to see some more Q&A, happy to do it. Love to hear from you.
• 31:30
  Awesome. You've been listening to Follow Our Property Podcast.