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Biggest mistakes property buyers make at auction · The Money Puzzle

0:08
Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast. I'm
0:11
Speaker 1: James Kirby, the Wealth Editor at The Australian. Welcome aboard, everybody. Now,
0:15
Speaker 1: before we start with the show, you need to know
0:17
Speaker 1: a few things in case you missed it. Don't worry
0:21
Speaker 1: any longer about the government changing negative gearing or changing
0:26
Speaker 1: the rules around capital gains tax. The Treasurer, Jim Chalmers,
0:30
Speaker 1: has explicitly ruled that out and said that the government
0:34
Speaker 1: is not going down that path. There's a bit of
0:36
Speaker 1: a cloud over the market about that for some time.
0:38
Speaker 1: By the way, when he rules these things out, he
0:40
Speaker 1: rules them out until the next election. So let's see.
0:42
Speaker 1: They're ruled out. They're ruled out for half, for six
0:46
Speaker 1: months or so. But he has dropped it for the moment.
0:48
Speaker 1: Keep that in mind. Similarly, all this talk about the
0:50
Speaker 1: mortgage buffer, the 3% extra that you have to. When
0:54
Speaker 1: you go for a mortgage, you want to get a
0:55
Speaker 1: mortgage at 6%. The bank has to assess you at 9%
0:59
Speaker 1: because that's the mortgage buffer rule. They have to add 3%
1:01
Speaker 1: to the assessment of you. There's been an attempt by
1:06
Speaker 1: two banks, basically, to get rid of that And the
1:09
Speaker 1: regulator came out in Parliament on Friday and said, no
1:12
Speaker 1: way are they changing that. And more than that, John Lonsdale,
1:16
Speaker 1: who's the CEO of APRA, made the point that it's
1:19
Speaker 1: not linked with rates. The argument was rates are going
1:21
Speaker 1: to come down, so that buffer should come down. And
1:24
Speaker 1: he's tried to decouple that and said, no, it's actually
1:27
Speaker 1: got to do with a lot more than rates. It's
1:29
Speaker 1: got to do with the possibility of economic shock. So
1:32
Speaker 1: I wouldn't be waiting for the mortgage buffer to change.
1:34
Speaker 1: So as you were, basically, on the rules around tax
1:38
Speaker 1: and property, Now, one of the things I wanted to
1:41
Speaker 1: talk to you about today was the show regularly has
1:44
Speaker 1: buyer's agents on and I've expressed enthusiasm really for buyer's
1:48
Speaker 1: agents because I like their perspective on the market, which
1:51
Speaker 1: is different than real estate agents sometimes or developers or investors.
1:55
Speaker 1: And also I've used buyer's agents, which I personally use
1:59
Speaker 1: them every time I ever bought anything and I found
2:02
Speaker 1: them to be terrific, particularly at auction because I'm completely
2:05
Speaker 1: ham-fisted or whatever at auctions and... You think you can
2:09
Speaker 1: do it, but when you stand there on a Saturday morning,
2:12
Speaker 1: you can't do it, right? Because you can't do it
2:14
Speaker 1: as well as a professional. However, there are issues. And
2:18
Speaker 1: our guest is, though our guest is a buyer's agent,
2:20
Speaker 1: she's not a fan of a lot of the things
2:23
Speaker 1: that go on inside the industry. She is a buyer's
2:26
Speaker 1: agent and she's a real estate educator. So it's going
2:29
Speaker 1: to make a very interesting exchange. It's Veronica Morgan. How
2:32
Speaker 1: are you, Veronica?
2:33
Speaker 2: I'm very good. Thank you, James.
2:36
Speaker 1: Lovely to have you on. I suppose buyer's agents, we
2:40
Speaker 1: think of them as the assistant that stands beside you
2:42
Speaker 1: at the auction. And that's it at their golden moment.
2:44
Speaker 1: That's them at their very best, isn't it? But there's
2:48
Speaker 1: a lot of things you don't like about them. They've
2:50
Speaker 1: arrived and they've become almost baked in, haven't they, to
2:52
Speaker 1: the industry. And if you go to an auction and
2:54
Speaker 1: there's four bidders and three of them have a buyer's
2:58
Speaker 1: agent standing beside them and you don't have one, you're
3:01
Speaker 1: probably in trouble. Am I wrong about that?
3:05
Speaker 2: I've got a slightly more contrarian view of that. And
3:09
Speaker 2: usually when I go to an auction, it's unusual to
3:11
Speaker 2: see a buyer's agent. And I guess that's symptomatic of
3:14
Speaker 2: one of the issues in the industry at the moment.
3:16
Speaker 2: We've had an influx of new people joining the industry.
3:19
Speaker 2: The barrier to entry is very low. And a lot
3:22
Speaker 2: of new buyer's agents are very interested in transactions because
3:25
Speaker 2: the more people they buy for, the more money they make.
3:28
Speaker 2: And so if you go to an auction where there
3:29
Speaker 2: are a lot of buyers agents, I'd be thinking, oh,
3:32
Speaker 2: these buyers agents think this is an easy property to buy,
3:35
Speaker 2: which is actually problematic because I want to buy a
3:37
Speaker 2: property that is a cracker asset that's actually quite difficult
3:41
Speaker 2: to buy because the properties are difficult to buy long-term,
3:45
Speaker 2: easy to sell. And if I see a lot of
3:47
Speaker 2: buyers agents, I'm usually worried that I've actually inadvertently chosen
3:51
Speaker 2: an asset that's not as good as I.
3:52
Speaker 1: Thought it was. this low barrier to entry, is it
3:55
Speaker 1: harder to become a real estate agent than a buyer's agent?
3:58
Speaker 2: No, it's exactly the same process. And so we've got
4:01
Speaker 2: eight different jurisdictions in this country. Each state and territory
4:04
Speaker 2: has its own legislation around the process to becoming a
4:08
Speaker 2: licensed real estate agent. So the process is exactly the same.
4:12
Speaker 2: And so buyer's agents, in a way, tacked on to
4:15
Speaker 2: the process that has been long in place to become
4:18
Speaker 2: qualified to become either a property management or a sales agent.
4:22
Speaker 2: And the problem with that is that the buyer's agent
4:24
Speaker 2: really to do a great job needs to know a
4:26
Speaker 2: hell of a lot more about property than a sales
4:29
Speaker 2: agent or a property manager even needs to know. And
4:31
Speaker 2: so we're tacked on because we're a smaller part of
4:34
Speaker 2: the industry. It doesn't seem feasible or economical to develop
4:39
Speaker 2: a whole new educational regime or licensing regime for buyer's agents.
4:44
Speaker 2: It's more convenient, if you like, expedient to lump us
4:47
Speaker 2: in with the rest. And that whole education and qualification
4:51
Speaker 2: process is woefully inadequate for churning out really competent buyer's agents.
4:57
Speaker 1: Tell me, what's the worst stuff that's going on among
5:00
Speaker 1: buyer's agents, the bad ones?
5:02
Speaker 2: The worst.
5:04
Speaker 1: All right.
5:05
Speaker 2: In Queensland, it's currently the easiest state to become licensed.
5:08
Speaker 2: So you need a full license to be able to
5:10
Speaker 2: operate a business. in real estate. So most sales agents
5:14
Speaker 2: or property managers, they wouldn't go and get qualified and
5:18
Speaker 2: then immediately set up an agency. They would get qualified
5:21
Speaker 2: and go and work in an agency. And that's one
5:24
Speaker 2: of the barriers to entry on that side of the equation,
5:27
Speaker 2: because it costs quite a lot of money to set
5:28
Speaker 2: up a real estate agency. And they're sort of forced
5:31
Speaker 2: by the nature of the industry to go and get experience.
5:34
Speaker 2: And in some states and territories, that is baked into
5:37
Speaker 2: the qualification process that you need to have work experience
5:41
Speaker 2: in order to go up the ranks, if you like,
5:43
Speaker 2: in terms of your license. But in Queensland, you can
5:46
Speaker 2: go and get the first qualification, which is a certificate for,
5:49
Speaker 2: you can get that, and then you can do one
5:51
Speaker 2: additional subject, which is one of the diploma of agency
5:54
Speaker 2: management subjects. And with that as the most minor qualification
5:58
Speaker 2: in the entire country, you can get a full license.
6:01
Speaker 2: And what some new operators in the industry are doing
6:05
Speaker 2: are going and getting a service office up there. They're
6:07
Speaker 2: going and finding an RTO that has the easiest and
6:10
Speaker 2: cheapest way to get the license. They get their full
6:14
Speaker 2: license up there and then they apply for mutual recognition
6:16
Speaker 2: in another state or territory. They don't always get it,
6:19
Speaker 2: but they often do.
6:20
Speaker 1: Okay, but that in itself is unimpressive, right, that someone
6:25
Speaker 1: can get in so easy. And that's always the case.
6:27
Speaker 1: There was a time when financial planners could do a
6:29
Speaker 1: multiple choice question with another planner helping them and they'd qualify.
6:34
Speaker 1: And I witnessed that. But I want to ask you, okay,
6:36
Speaker 1: so we'll take it that's not great, but how is
6:38
Speaker 1: it transparent to be a problem then? How is that
6:41
Speaker 1: a problem for anyone who uses them?
6:43
Speaker 2: The problem for anyone who uses them is that quite often,
6:46
Speaker 2: so you go and do that qualification, and even if
6:48
Speaker 2: you manage to do it at a reputable RTO or organization,
6:52
Speaker 2: There are no modules in that course that teach you
6:56
Speaker 2: due diligence, for example. And you would expect if someone
6:59
Speaker 2: is going to hire a buyer's agent, you would expect
7:02
Speaker 2: that buyer's agent is equipped and educated and experienced enough
7:06
Speaker 2: to know the red flags that you should be avoiding
7:08
Speaker 2: when you buy that property. But these people often have
7:12
Speaker 2: zero property experience, zero real estate experience and And particularly
7:17
Speaker 2: if they're getting qualified in one state and then they're
7:18
Speaker 2: going to apply that learning, if you want to call
7:20
Speaker 2: it that, in another state, which has completely different regime
7:24
Speaker 2: of vendor disclosure and the documents in which you would
7:26
Speaker 2: expect to get from the agent versus those you don't
7:29
Speaker 2: get from the agent. And knowing what you get and
7:32
Speaker 2: what you need to then go and find out yourself
7:34
Speaker 2: and what is discoverable. But if you don't know what
7:36
Speaker 2: you don't know, you won't even go through that process.
7:39
Speaker 2: So that is very alarming. And I run a mentoring
7:43
Speaker 2: program for new buyers agents. And I have a Facebook
7:47
Speaker 2: group and I'm talking with people who are in the
7:49
Speaker 2: process of becoming buyers agents or even those who have
7:52
Speaker 2: set up business and actually taking on paid clients and
7:56
Speaker 2: helping them. And I ask them the most basic questions
7:58
Speaker 2: and they don't know how to answer them. That is alarming.
8:02
Speaker 1: It is alarming. Is it because it's a boom business
8:05
Speaker 1: basically and maybe 10, 15 years ago there was a
8:08
Speaker 1: very small amount of them and now there's many more
8:11
Speaker 1: because basically... trickle down basically. People used to buy them
8:16
Speaker 1: when they were buying trophy homes, et cetera, but now
8:18
Speaker 1: it's like middle of the road exercise.
8:21
Speaker 2: Yeah. It's a little bit like on the sales side
8:23
Speaker 2: of things, when I first started selling real estate 25
8:26
Speaker 2: years ago, nobody used a property stylist. Now everybody does.
8:29
Speaker 2: It may be a little bit similar.
8:30
Speaker 1: Exactly. Same sort of thing.
8:31
Speaker 2: That's right.
8:32
Speaker 1: And then there's a sort of you must, mustn't you?
8:36
Speaker 1: Because that's the competition then, isn't it?
8:38
Speaker 2: A little bit, but I think there's a lot of
8:41
Speaker 2: proponents to say, this is the booming industry. This is
8:43
Speaker 2: the future. There's so much money to be made by
8:45
Speaker 2: becoming a buyer's agent. They turn to America and say, look,
8:48
Speaker 2: in America, everybody's represented. But in America, until very recently,
8:52
Speaker 2: it was that the vendor, the sales half of that equation,
8:56
Speaker 2: they were charged something like 6% commission. And then that
8:59
Speaker 2: was split between the brokers for the buyer and the
9:01
Speaker 2: broker for the seller. And it's not the same here.
9:04
Speaker 2: It's vendor, it's user pays here. And so I think
9:07
Speaker 2: that that's a natural barrier to becoming something everybody would
9:10
Speaker 2: use as a buyer's agent. And look, to be honest,
9:14
Speaker 2: I see buyer's agents in action often at auctions and
9:17
Speaker 2: I watch what they're doing and I see how their
9:19
Speaker 2: processes they're going through. And I think that buyer actually
9:22
Speaker 2: has lost out because they've employed somebody who knows not enough.
9:28
Speaker 2: You know what I mean? I can see that the
9:29
Speaker 2: buyer probably would have been better off doing it themselves
9:32
Speaker 2: in many cases. So it's pretty horrible.
9:35
Speaker 1: Well, I have to change my language on the show.
9:37
Speaker 1: And I have to talk about good buyer's agents, right?
9:39
Speaker 1: Because there's good ones, obviously. Very interesting. Okay. Just one
9:43
Speaker 1: last thing before we move on from this segment. What
9:47
Speaker 1: would be a giveaway of a buyer's agent that is
9:50
Speaker 1: not qualified or capable in your eyes? To the layperson,
9:55
Speaker 1: what would be a signal for someone who was choosing one?
9:59
Speaker 2: There's a few things that I encourage people to look for.
10:03
Speaker 2: And one is look for a local specialist. Now, I
10:07
Speaker 2: know that there's a problem with going to a local
10:09
Speaker 2: specialist buyer's agent because if you ask them for investment
10:12
Speaker 2: advice as to where should I invest, they've only got
10:15
Speaker 2: one tool. Every problem is going to be a nail
10:17
Speaker 2: if the only tool they have is a hammer. So
10:19
Speaker 2: I get that there's limitation in that. And so that's
10:22
Speaker 2: the wrong question to ask that type of buyer's agent.
10:24
Speaker 2: But a local specialist will actually help you buy the
10:27
Speaker 2: best possible asset in that area if they really are
10:31
Speaker 2: very good at what they're doing. Whereas if you go
10:33
Speaker 2: to one of these, we jokingly call them fly-in, fly-outs,
10:37
Speaker 2: borderless buyers agents, they don't fly anywhere anymore. They buy
10:40
Speaker 2: property sight unseen across the country. They don't know how
10:44
Speaker 2: to choose good assets. And in fact, sales agents and
10:46
Speaker 2: I routinely hear the story of sales agents in regional
10:49
Speaker 2: areas and other capital cities sort of sniggering at the
10:53
Speaker 2: stock that they sell to these buyers agents and the
10:56
Speaker 2: prices that they get for them. So you need a
10:59
Speaker 2: local specialist. You also need to have somebody who I
11:02
Speaker 2: say has got 10 years experience. And the reason I
11:05
Speaker 2: say 10 years, or they work within a team that
11:07
Speaker 2: has experienced where they're mentored by people that have a
11:10
Speaker 2: good 10 years, because you need someone who's seen that
11:12
Speaker 2: market through up cycles and down cycles. Because the sorts
11:16
Speaker 2: of competition you get in an up cycle, everybody competes
11:20
Speaker 2: for everything. And that means that C-grade properties are getting
11:22
Speaker 2: competition as well as A-grade So you need discernment to
11:26
Speaker 2: be able to sort that out and really behave accordingly
11:29
Speaker 2: in terms of what the market conditions are, but also
11:32
Speaker 2: have that healthy regard for the risks that you're taking
11:36
Speaker 2: and that healthy, yeah, that concern for what could happen
11:38
Speaker 2: when the market does turn. And you want that. You
11:41
Speaker 2: want somebody who's got more experience than you do. And
11:44
Speaker 2: the other thing that I would say, you really want
11:45
Speaker 2: them to care and communicate with you throughout the entire
11:49
Speaker 2: due diligence process. I would ask any buyer's agent, what
11:53
Speaker 2: is your due diligence process? And you want something in
11:56
Speaker 2: that that they disclose to you and they show you
11:58
Speaker 2: how they actually present that information that surprises you. That
12:01
Speaker 2: is not something that you would have done or you
12:03
Speaker 2: would have assumed would be done, but something beyond that.
12:06
Speaker 1: How are they adding value?
12:07
Speaker 2: Yeah.
12:08
Speaker 1: To you as a buyer. Really good. Okay, terrific. We'll
12:11
Speaker 1: take a short break. That was very interesting. And a
12:13
Speaker 1: dimension that I suppose the problem for me has been
12:18
Speaker 1: that the ones I used were good. All right, we'll
12:20
Speaker 1: talk in a minute. Hello, welcome back to the Australian's
12:30
Speaker 1: Money Puzzle podcast. I'm James Kirby talking to Veronica Morgan.
12:33
Speaker 1: She hasn't been on the show before. Nice to have
12:35
Speaker 1: her on. She's a buyer's agent. She's a property educator.
12:37
Speaker 1: She's a podcaster herself. And she has good individual perspective
12:45
Speaker 1: on the buyer's agents, which I think perhaps part of
12:48
Speaker 1: the problem is they're all too polite and they don't
12:52
Speaker 1: actually tell us what they're up against, the good ones,
12:54
Speaker 1: because I only have good ones on the show folks,
12:57
Speaker 1: as you would know, and I'm pretty selective as to
12:59
Speaker 1: who I have on myself. I think I've only had
13:01
Speaker 1: maybe four and I know all four. Okay. Now the
13:04
Speaker 1: other thing, we're talking about auctions and I was talking
13:07
Speaker 1: about how you haven't a clue. You think you have,
13:09
Speaker 1: you think you'd be good at an auction, even if
13:10
Speaker 1: you've done it before, you've done it for friends, but
13:12
Speaker 1: when you do it for yourself, you go to an auction,
13:15
Speaker 1: you think I can do this. I can certainly, I
13:17
Speaker 1: know what I want. I'm very clear. I've done my homework,
13:20
Speaker 1: but it happens so fast sometimes. And it's such a game.
13:27
Speaker 1: that if you are up against people who are very good,
13:29
Speaker 1: you're at a disadvantage. You've got to tell us about
13:32
Speaker 1: some of the mistakes that people make when bidding at auction.
13:37
Speaker 1: And I'm really keen to hear what they are, Veronica.
13:40
Speaker 2: I love going to auctions. Not only when I'm bidding.
13:42
Speaker 2: In fact, I prefer to go when I'm being a spectator.
13:45
Speaker 2: I find them fascinating. And you can really put down
13:50
Speaker 2: the entire, all the mistakes that buyers make to really
13:53
Speaker 2: one core mistake, and that is that they don't prepare properly.
13:57
Speaker 2: And the reason they don't prepare properly is got no
13:59
Speaker 2: idea what they're in for, or they make various assumptions
14:02
Speaker 2: such as, oh, I'm good at public speaking, so I'll
14:04
Speaker 2: be fine at auction. It's a completely different kettle of fish,
14:08
Speaker 2: particularly when it's your money, as you've mentioned in there
14:11
Speaker 2: in the intro. Even I see people bidding on behalf
14:13
Speaker 2: of other people. And again, they've made the assumptions about
14:17
Speaker 2: what it takes to be good at auctions and they've
14:18
Speaker 2: got it all wrong. So the preparation, I say, is
14:22
Speaker 2: a number of areas that people really fail to do.
14:26
Speaker 2: And one of them is to literally go to auctions
14:29
Speaker 2: and observe. The amount of times I've met and spoken
14:33
Speaker 2: to people, the first time that they've actually bid has
14:36
Speaker 2: been the first time they've been to an auction. So
14:38
Speaker 2: they go to an auction for the first ever time
14:40
Speaker 2: and bid, and they've got no idea what they're in for.
14:46
Speaker 2: So that's the first thing.
14:48
Speaker 1: Yes. Okay. Do your homework and get out there and
14:51
Speaker 1: witness auctions at least several times. Yeah.
14:54
Speaker 2: That's exactly right. And there's three different main sort of
14:58
Speaker 2: forums for auctions. If you like, there's in rooms. So
15:00
Speaker 2: that's where there's a whole lineup. It's usually on an
15:02
Speaker 2: evening and The agency will have a whole bunch of
15:05
Speaker 2: properties lined up, one auctioneer, everyone's bundled in a room.
15:08
Speaker 2: If you're in the states where you register for auction,
15:10
Speaker 2: you'll be lining up first to register, but you won't
15:12
Speaker 2: know which property you're registering or other people are registering for.
15:15
Speaker 2: And if you're in Melbourne or Victoria, of course, you
15:18
Speaker 2: don't need to register, so you've got Buckley's there. So
15:21
Speaker 2: that's the in-rooms auction. A very popular one is on-site,
15:24
Speaker 2: and so that's an individual performance, if you like. per
15:28
Speaker 2: property usually on a Saturday and the auctioneer will be
15:32
Speaker 2: in the car whizzing around all around the city popping
15:36
Speaker 2: up whatever the next thing property is on their agenda
15:38
Speaker 2: and the third one is online which there's still a
15:41
Speaker 2: little bit of a hangover of that from COVID that
15:43
Speaker 2: became a thing in COVID it's not that common but
15:47
Speaker 2: again you needed to work out if you're going to
15:49
Speaker 2: go for a property that is being marketed for auction
15:51
Speaker 2: you need to understand which of those three forums is
15:55
Speaker 2: it going to take Or forms is it going to take?
15:57
Speaker 2: And then do some research as to those forms as
16:00
Speaker 2: well because they're all very different.
16:01
Speaker 1: Do you think any of the formats is more useful
16:04
Speaker 1: to the buyer than another?
16:06
Speaker 2: No, they've all got pros and cons, to be honest.
16:10
Speaker 2: They've all got pros and cons. And also a lot
16:12
Speaker 2: of it depends on the competition of that particular property
16:15
Speaker 2: as well. You can't necessarily judge that or guess that.
16:18
Speaker 2: I know that most auctioneers actually have a YouTube channel now.
16:22
Speaker 2: So you can usually check them and their form out.
16:26
Speaker 2: But what you're not going to check for that is
16:28
Speaker 2: you're not going to understand what the other bidders are
16:30
Speaker 2: doing because what they, that's the, I love it. When
16:34
Speaker 2: I go to an auction, the auctioneer's got to be
16:36
Speaker 2: able to see me. I don't really care what the
16:37
Speaker 2: auctioneer's doing. I care what the other bidders are doing.
16:40
Speaker 2: Most buyers will look at the auctioneer, not the other bidders.
16:43
Speaker 2: But the other thing and the huge mistake that people make,
16:46
Speaker 2: and this comes back to prep as well, is understanding
16:49
Speaker 2: what that property is worth in a market sense. So
16:52
Speaker 2: doing your research on really what the value should be
16:56
Speaker 2: in terms of fair value for that property in the
16:58
Speaker 2: current market. And there's a process you need to go
17:01
Speaker 2: through to really look at other properties and compare. Hinge it.
17:04
Speaker 2: Don't just add 10% to what the agent is guiding
17:06
Speaker 2: because that is completely the wrong way to work out
17:09
Speaker 2: what you should pay for a property. So you work out, okay,
17:12
Speaker 2: where does that property really sit? And then you've got
17:14
Speaker 2: to think, where will I push myself if I have
17:17
Speaker 2: to with competition in order to buy that property? And
17:21
Speaker 2: what I see is that people go into auctions really
17:24
Speaker 2: with their limit in their head is what they'd like
17:26
Speaker 2: to buy it for, not what they will pay in
17:29
Speaker 2: if they have to. And so what actually happens, and
17:32
Speaker 2: I often say there's really confident bidding up to the
17:34
Speaker 2: point where people have reached their, I would like to
17:37
Speaker 2: pay it at limit. Yeah. Then they look at, if
17:39
Speaker 2: they're in a couple, they look at each other, absolutely
17:42
Speaker 2: give the game away. That's why I look at buyers,
17:44
Speaker 2: not at the auctioneer. They give the game away. The
17:46
Speaker 2: auctioneer works on that. They play on that. They work
17:49
Speaker 2: on that, all that body language. And so this, and
17:52
Speaker 2: this is for me. And then I know when I'm
17:54
Speaker 2: bidding against somebody, if they're over there, I wanted to
17:57
Speaker 2: pay at limit, then I've got to try. I've got
17:59
Speaker 2: my tactics as a bidder will change if I'm against
18:02
Speaker 2: somebody like that. And the auctioneer is also working them
18:06
Speaker 2: in a certain way. And that's, that is the biggest
18:08
Speaker 2: mistake that I see buyers make that lack of preparedness
18:11
Speaker 2: to think it's a competition. And at what price will
18:15
Speaker 2: I go to versus what price will I walk away?
18:17
Speaker 2: So yeah, that's the number one mistake.
18:20
Speaker 1: Yes. Can I ask you one thing? How do you,
18:22
Speaker 1: what's your assessment of all the games that go on
18:26
Speaker 1: at auctions, which are, as you say, they're fascinating. The
18:29
Speaker 1: person pulls up in a, in an E-type Jag and
18:31
Speaker 1: parks it in the, parks it in the driveway of
18:34
Speaker 1: the house. They're only a bidder. I've seen that done.
18:37
Speaker 1: I've seen someone come around the corner on a bicycle,
18:43
Speaker 1: start bidding and win the auction. I don't know. Were
18:46
Speaker 1: they psychological games? I think they were. But how does
18:49
Speaker 1: a buyer respond to this sort of thing?
18:52
Speaker 2: I don't know about the bicycle, but the E-Type Jag
18:54
Speaker 2: and such games, I think what a joke. If you
18:58
Speaker 2: need to do that, you probably don't have enough money.
19:01
Speaker 2: The real games come in to the actual bidding and
19:04
Speaker 2: there's different sort of avatars I have for different types
19:07
Speaker 2: of bidders and I hate coming up against the testosterone
19:09
Speaker 2: bidder because that's where the ego kicks in and that's
19:12
Speaker 2: where it's just a desire to win. The price is secondary.
19:15
Speaker 2: That always bothers me when I see that sort of behavior.
19:18
Speaker 2: But this sort of posturing and fluffing, puffing out your
19:21
Speaker 2: feathers and all that sort of palaver.
19:23
Speaker 1: Does it not work?
19:24
Speaker 2: It's naive. I think most people just think wanker. I
19:27
Speaker 2: don't think it works.
19:29
Speaker 1: Oh, it's a thing, right? So there's 10 people there.
19:31
Speaker 1: Let's say it's a first home auction. There's six couples there.
19:35
Speaker 1: They all look more or less the same. And someone
19:36
Speaker 1: very clearly arrives with their rich dad. The dynamics of that,
19:40
Speaker 1: what would you do in that situation? Do you ignore
19:42
Speaker 1: the rich dad or?
19:44
Speaker 2: Look, I clock everybody. I clock everybody and the rich
19:48
Speaker 2: dads or even just dads. full stop are dangerous at auction.
19:52
Speaker 2: And I've been at auctions where I've seen the adult
19:55
Speaker 2: children turn to dad and say, Dad, I don't want
19:58
Speaker 2: to pay that. Don't worry, son, I got you. There's
20:01
Speaker 2: an ego and pride that goes on with that, and
20:03
Speaker 2: that's way more dangerous than somebody trying to show up
20:06
Speaker 2: with the flashy car.
20:07
Speaker 1: Right. Yeah. Okay. Very interesting.
20:10
Speaker 2: Yeah. Sometimes I think the thing is sometimes you just can't,
20:13
Speaker 2: there are some people you cannot compete with and there's
20:16
Speaker 2: luck involved with auctions. That's lucky for the vendor. It's
20:19
Speaker 2: unlucky for every other buyer. Yeah.
20:21
Speaker 1: Okay. Information is power, isn't it? It's very interesting. Very interesting. Yes.
20:26
Speaker 2: Yes.
20:26
Speaker 1: I think I told the story of an auction in
20:28
Speaker 1: my neighborhood where there was a very contested auction and
20:32
Speaker 1: there was basically a little old lady and I knew
20:35
Speaker 1: that her daughter and family lived around the corner and
20:39
Speaker 1: i knew that this woman was going to pay it
20:42
Speaker 1: didn't matter she was going to until she she got
20:45
Speaker 1: to the point where she was broke basically she was
20:47
Speaker 1: going to take whatever that house cost she was going
20:49
Speaker 1: to buy it because she wanted to be there and
20:51
Speaker 1: if you knew that then you would have really changed
20:54
Speaker 1: information is so important okay terrific we'll take a short
20:57
Speaker 1: break we'll be back in a moment with some questions Hello,
21:11
Speaker 1: welcome back to The Money Puzzle. James Kirby with Veronica Morgan. Now, folks,
21:15
Speaker 1: we had great fun. I think fun is probably the
21:17
Speaker 1: right word. About the Prime Minister and his ill-timed purchase
21:21
Speaker 1: of his beach house for 4.3 million on Copacabana Beach
21:25
Speaker 1: up there on the central coast. And we talked all
21:27
Speaker 1: about holiday homes and were they good and were they
21:28
Speaker 1: bad last week. And whatever else it cost the Prime Minister.
21:33
Speaker 1: Do keep in mind that he paid less than the
21:35
Speaker 1: person who bought it prior. So he paid 300,000 less
21:38
Speaker 1: than the person who had bought that house four years ago.
21:40
Speaker 1: So as an investor, no problem with the PM's moves
21:43
Speaker 1: there at Central Coast. As a politician, it was badly timed,
21:47
Speaker 1: as we all know. Okay, Sean says, I have a
21:49
Speaker 1: holiday home for 25 years. I use it for children's
21:51
Speaker 1: school holidays. Use Buy Them Now for free. I rent
21:54
Speaker 1: it out to people I know. 600% capital growth. 600%
21:58
Speaker 1: capital growth, says Sean. Sort of place is not being
22:01
Speaker 1: created anymore. I use it twice a year. And basically
22:05
Speaker 1: he says, yes, but tradies are a problem. So there
22:07
Speaker 1: you are. That's one person's view of the holiday home.
22:10
Speaker 1: And that's when it goes very well, I imagine. Nothing
22:12
Speaker 1: like staying in the market for a long time. Now
22:14
Speaker 1: on questions, Cal says, I caught up with a mate
22:19
Speaker 1: who is a self-employed builder. And I asked him two questions.
22:23
Speaker 1: How's work? He said he answered that he knows some
22:25
Speaker 1: people who don't have work and are running out of work.
22:28
Speaker 1: These are tradies. And he asked, are building products still
22:31
Speaker 1: going up? And this person said, yes, they are still
22:35
Speaker 1: going up in price. And he blamed the price of
22:38
Speaker 1: energy for manufacturing, especially concrete, which is very energy intensive.
22:43
Speaker 1: Is he right? That's very simply answered, actually. Yes, he
22:47
Speaker 1: is right. You know, the inflation rate is about three
22:49
Speaker 1: and a half percent. And the building materials inflation is
22:52
Speaker 1: considerably higher than that. It's up at five and six percent.
22:56
Speaker 1: Cost of building a new home is up about 40%
22:58
Speaker 1: over four years, according to some builders. And I'm quoting
23:04
Speaker 1: the managing director of Garth Chapman Queenslanders, Stephen Havas, who
23:09
Speaker 1: has said that the exponential rise in the cost of construction,
23:12
Speaker 1: he's not the only one, lots of builders have talked
23:14
Speaker 1: about that. It is particularly to do with materials. And
23:18
Speaker 1: it must be said, topic for another day, But regulations
23:22
Speaker 1: and standards, which both environmentally and just generally ESG standards,
23:27
Speaker 1: are definitely, definitely putting extra costs on builders. So their
23:31
Speaker 1: inflation rate is much higher than the general public. Yes, Cal,
23:35
Speaker 1: that is how it goes. OK, Sally, you would be
23:38
Speaker 1: dealing mostly, I'm sure, Veronica, with existing properties rather than
23:43
Speaker 1: new ones, aren't you, when you work in your area? Correct.
23:45
Speaker 1: So that issue wouldn't be a big thing for you? Correct.
23:49
Speaker 2: Although we do have clients that are buying to renovate,
23:52
Speaker 2: but yeah, we don't buy brand new.
23:54
Speaker 1: Do you find people are more worried than usual or
23:56
Speaker 1: scared than usual to renovate at the moment?
23:59
Speaker 2: Absolutely. And that's one of the reasons you've seen a
24:01
Speaker 2: real disparity with the old renovators delight. I know we're
24:05
Speaker 2: near as popular as they used to be.
24:07
Speaker 1: Are they, as a result, potentially better value than they
24:11
Speaker 1: used to be?
24:12
Speaker 2: Possibly, and I think that if you have the skills
24:14
Speaker 2: and know what you're doing with renovating, then there's some
24:17
Speaker 2: good opportunities there. But I think that the reality is
24:20
Speaker 2: that most people are pretty much more aware of the
24:22
Speaker 2: risks around the cost blowouts with renovating now than they
24:26
Speaker 2: potentially were beforehand.
24:27
Speaker 1: Yes, that's right, because there's both the inflation issue that
24:30
Speaker 1: we know the building inflation is higher than normal, than
24:32
Speaker 1: general inflation, and then we know that there is a
24:35
Speaker 1: shortage also, it would seem, of some tradies. Okay, Sally says,
24:40
Speaker 1: my partner and I are looking to buy a regional
24:41
Speaker 1: investment property with the money that we have saved. My
24:45
Speaker 1: personal income is substantially less than my partner's. Is there
24:48
Speaker 1: any advantage in buying the property in my name only,
24:51
Speaker 1: instead of having a joint ownership with my partner? And
24:54
Speaker 1: will this have an impact tax-wise? Okay, we don't answer
24:59
Speaker 1: individual questions, and it's never advice, only information. But I
25:02
Speaker 1: did put this to our regular guest, financial advisor James Girard, Sally.
25:07
Speaker 1: about this whole thing about what do you do if
25:09
Speaker 1: there's a big gap in income between the two partners.
25:11
Speaker 1: And he says, on income tax, it generally makes sense
25:15
Speaker 1: to purchase investment property in the highest income earner's name, okay,
25:19
Speaker 1: if the property will be negatively geared. If the property
25:22
Speaker 1: is neutrally geared, joint names is common, and if it
25:24
Speaker 1: is cash flow positive, then the lower income earner typically
25:27
Speaker 1: buys the property to minimize the tax on the net rent. Okay,
25:30
Speaker 1: I hope that's clear. So you can see that, obviously,
25:33
Speaker 1: if someone is making a lot more, they pay a
25:35
Speaker 1: lot more tax. So then if it's negatively geared, the
25:38
Speaker 1: person with the hiring would be the buyer. On land tax,
25:42
Speaker 1: it's a state-based tax. And although the family home is excluded,
25:45
Speaker 1: investment property and holiday homes are included. So best to
25:49
Speaker 1: go to the state revenue website and see what allowance
25:51
Speaker 1: you can have before land tax will apply. And he says, finally,
25:55
Speaker 1: this is James Gerrard, financialadvisor.com.au. Land tax will be assessed
26:00
Speaker 1: based on the percentage ownership split. Okay, very interesting. Keep
26:04
Speaker 1: all that in mind.
26:05
Speaker 2: It's not easy.
26:07
Speaker 1: Property investment becomes complex tax-wise, particularly complex on new regulations,
26:13
Speaker 1: which makes it all dear.
26:15
Speaker 2: Can I add something there, James?
26:17
Speaker 1: Yes, you can.
26:18
Speaker 2: Yeah, the borrowing. They said that they're using their savings,
26:22
Speaker 2: but unless they've saved up the entire purchase price, in
26:25
Speaker 2: which case they said there won't be negative gearing, they
26:28
Speaker 2: will be borrowing and they need income to borrow. It's
26:31
Speaker 2: nice to think you can actually set up the ownership,
26:34
Speaker 2: the naming of or whoever the owner is based on
26:37
Speaker 2: income and tax decisions and But if you can't borrow
26:40
Speaker 2: the money because you're setting up with the lower income
26:43
Speaker 2: earner as the owner, then you might not be able
26:47
Speaker 2: to buy the property in the first place.
26:49
Speaker 1: Very true. Very true. Yes. But Sally and all the
26:52
Speaker 1: Sallys out there, get the structure right. That's for sure.
26:55
Speaker 1: Get that structure right before you move. It can really
26:57
Speaker 1: make a difference long term. Okay. Terrific. But it's been
27:02
Speaker 1: really good to talk to you, Veronica. And you got
27:04
Speaker 1: a lot in there. You got a lot into the
27:06
Speaker 1: 30 minutes. Thank you very much. Great to talk to you,
27:09
Speaker 1: Veronica Morgan.
27:10
Speaker 2: My pleasure. Thank you, James.
27:13
Speaker 1: Lovely to have Veronica on the show. She'll be on
27:15
Speaker 1: again for sure. Okay, folks, keep those emails rolling in.
27:18
Speaker 1: Talk to you soon.