Latest / The Follio Property Podcast / Major Banks Warn of Australia's Biggest Property Crash in 40 Years | Property Experts

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Major Banks Warn of Australia's Biggest Property Crash in 40 Years | Property Experts · The Follio Property Podcast

0:00
New data shows national auction clearance rates have risen above 55%.
0:04
Property market is set to fall even further.
0:08
The talk it's going to be the greatest residential house price falling values for the last 40 years.
0:13
Every capital city has either had stagnant growth or negative growth.
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And even areas like Brisbane and Adelaide that have gone on a run for some time are starting to see hit their affordability ceiling and drop off.
0:23
Some of these markets are falling 1.5% a month.
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The wonderful Sydney market is falling by 2% a month.
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But if you aren't tracking data in interstate locations against your local market, you are never going to get outside your current realm or your current portfolio.
0:35
If you aren't outperforming the Australian property market at the moment, you're going backwards and you're going backwards at a rate of knots.
0:42
Is now actually a good time to buy?
0:43
I personally, currently as we speak, I've got off the plane, I've got an offer on a unit complex in Melbourne reason.
0:48
The best opportunities in a softer environment is the fact that you can be extremely selective and picky and find undervalued assets in sub-markets that you just can't even in a balanced market.
1:02
You're listening to the Folio Property Podcast.
1:05
I'm Rhys Bettle and I'm here each week in person for the first time in a while, Lachlan, with my co-host, Lachlan Delahunty.
1:12
Lachlan, welcome.
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I'm back.
1:14
Good to be back in the show, Rhys.
1:15
He's back.
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What have you missed most about the Folio Podcast?
1:18
The studio, mate.
1:19
Missing you, Jonathan, the team behind the mics.
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It's a little family here, so thoroughly miss this.
1:25
Lachlan, today I want to talk through some of the common
1:28
Most frequently asked questions that we get from our clients, and particularly we've looked into the data as a business over the last month, what I want to talk about is now actually a good time to buy, which is by far the biggest query we get, interstate or cross-state investing risk, looking at the PPO upgrade and maybe an accidental landlord versus a first-time investor property.
1:46
I want to go through some unit townhouses versus house trade-offs and look at some forecasts that KPMG have predicted, and then round it out with a bit more of an emotional twist where we're looking at different risk appetites per partner.
1:58
A lot to cover, Reece.
1:59
Some really good questions.
2:00
And these are the most frequently asked questions from clients that we deal with on a day-to-day basis.
2:04
I'm sure our listeners will get a lot of value.
2:06
We've thrown you straight in the deep end.
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You've only just arrived from a 24-hour flight.
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So I thought, look, instead of giving you...
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a lot of preparation to do for this podcast.
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Let's do one off the cuff.
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And I was saying to you before the podcast, you had no idea what we're actually going to talk about.
2:21
The beauty of AI these days is we do run a lot of reports through our business for efficiencies and to understand what our customers or our clients are potentially saying from a challenges perspective, from an opportunity, from a personas.
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There's actually some really good topics in here that we're getting from a common trend amongst the business.
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And I thought if people that are coming to us
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for advice or strategy or to buy a property.
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I'm sure there's a lot of listeners out there that have the same sort of questions.
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So easy one for you to knock off today, mate.
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But let's go through some of the top queries or questions we've had from our clients over the last month.
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Jump into it.
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First one and the biggest one by far, which is no surprise, is now actually a good time to buy.
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The reason people will be saying that is doom and gloom obviously out there.
3:00
We update this through our podcast and through our email about my weekly market updates.
3:05
So
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If you look at the last month or so, every capital city has either had stagnant growth or negative growth.
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And even areas like Brisbane and Adelaide that have gone on a run for some time are starting to see hit their affordability ceiling and drop off.
3:19
So you can understand what people are understanding is now a good time.
3:22
Hindsight's a beautiful thing though, right, Lachlan?
3:24
So firstly, what is your opinion on is now a good time to buy?
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And anyone listening to a property podcast are going to hear that now is the best time to buy because typically behind the property podcast is a hidden agenda to want to buy them property, right?
3:37
So I'll give this as factually as I can and answer it as honestly as I can.
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I personally, my personal world, currently as we speak, I've got off the plane, I've got an offer complex in Melbourne, Ray.
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So I do think it is a really good time to buy for the right asset and the right opportunity.
3:55
But I'm hearing a lot of commentary around you must be in the market, be greedy when others are fearful.
4:00
We talk about that a lot.
4:02
But some of these, I won't call them all spruikers, but some of these property experts that are really double down that now's the best time to buy are buying in heavily falling markets, and I don't support that.
4:14
And what I mean by that, there's a few different type of groups, and we know the market at the moment, it's running at about five different speeds.
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We've got markets within markets across the country,
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and we've got sub-markets that are on the rise, and we've got sub-markets that are falling.
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We're talking well over a percent a month.
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Some of these markets are falling 1.5% a month, and you've got groups buying into that fall, and that I don't understand.
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If I'm going to buy something today for one point, call it $3 million, and by the end of this year, it's likely going to be worth 10% to 15% less, then those particular markets, you're better off holding to where you're
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that we're entering recent and we're buying things that we believe they're worth $650 today and retail value on those are probably $7, $750 and they're growing by 1% to 1.5% a month because they're very competitive and they're in areas where demand outweighs supply.
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I think they're good markets to be interested in because
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we're dealing with, yes, multiple offers and competitive buyers.
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But when there is genuine consensus that the market's performing well on a macro level, so the headline media is saying prices are surging, that's when the sheep mentality, the herd mentality comes in.
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And instead of competing with two or three offers, we're going to be competing on 20 or 30 offers.
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And we've been in Western Australia when we're dealing with 50 groups who are home open and
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even playing close to market value, having to pay 10% more than what we perceive as market value just to get in because there's so much momentum, there's so much energy in the market.
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Across Australia, that energy isn't across most price points.
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Is it a good time to buy?
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Don't just go out there to buy because you're hearing experts such as us saying, be greedy when others are fearful.
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Yeah, that's a great headline and we speak to it a lot.
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And I do support that notion for the most part.
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But be really selective with what you buy because the best thing about a softer market, and we know it's not soft across all markets and sub markets, the best opportunities in a softer environment
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is the fact that you can be extremely selective and picky and find undervalued assets in sub-markets that you just can't, even in a balanced market, right?
6:28
This headline media around doom and gloom, around the talk it's going to be the greatest residential house price falling values for the last 40 years, creates a really good buying environment for those that do their work, do their due diligence.
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It doesn't mean you just go and buy off on a whim.
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but it gives you the opportunity to be really selective, take your time and get the right asset.
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The next commonly asked question amongst our clients, and this is, you know, there'd be over 450 clients this has gone through, actually aligns with the first question on is now a good time to buy.
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It's around interstate and cross-state investing risk.
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Now, what I want to ask you with this is the is now a good time to buy, you mentioned there you've got to pick your markets.
7:07
Do people in this current environment need to have the appetite to invest outside their backyard if they want to make money in property in 2026?
7:13
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7:16
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7:21
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7:26
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7:30
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7:33
If you look at investing and take all the emotion out of it, absolutely.
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If you are not considering assets outside your comfort zone, outside your backyard, outside your state, you're not an independent investor.
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You're not a true investor that purely looks at...
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The macro and micro data sets, right?
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And that's, you don't go invest outside your backyard just because you think that's a good idea.
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But you've gotta be open to it.
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If you aren't tracking data in interstate locations against your local market, don't consider yourself a sophisticated investor.
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You are never gonna get outside your current realm or your current portfolio where it currently sits.
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Because eventually, no matter what market you invest in,
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you are going to go through a stagnation and a house price fall at some point in time.
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That's just reality.
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We're seeing that.
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The wonderful Sydney market that every spruiker in Australia and every local in Sydney said prices only go up.
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They only go in one direction in Sydney, and particularly eastern suburbs of Sydney.
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The prices only ever go one race.
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Well, they're late last year, probably October, November, and almost the arrogance in the market when you speak to agents, brokers, professionals, real estate professionals, we
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pretty outspoken guest on in the form of Jack Henderson that pretty much made the comment that house prices never go backwards in eastern suburbs of Sydney.
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Okay, I'd love to replay that episode because here we are today and that market is falling by 2% a month.
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So reality is if you aren't looking outside your backyard, you're not a true independent, sophisticated investor.
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Not to say you just go and buy something outside your backyard because you think it's a good thing to do or you've listened to a podcast that suggests that's what you have to do, but it's looking at the data.
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It's looking at the fundamentals and you need to find markets that are going to outperform the Australian property market.
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If you aren't outperforming the Australian property market at the moment, you're going backwards and you're going backwards at a rate of knots.
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So yes, be mindful to look outside your backyard, but not just because you think it's the right thing to do.
9:24
And let's talk around that risk, right?
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So a lot of the common questions that we've sort of seen from our clients over the last month when they're, you know, maybe when we've presented opportunities that are outside their backyard is tax, especially when we're talking about Melbourne tax, not being able to see it, looking at flood risk from a lot of these clients as well may never even see the property.
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right?
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You've invested outside your backyard for many years, right?
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And as a business, we've done that for clients, although we'd have boots on the ground.
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What do you say is the biggest risk that investors should get comfortable with if they're going to invest outside their backyard?
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The thing
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Let's start from why you invest in real estate.
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I know we're taking a long way back here, and it's for capital growth, right?
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You are trying to build a portfolio.
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It's capital growth and cash flow, but you're not investing in real estate for capital growth and to increase your wealth position.
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You're better off staying out of the game.
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So that's what we're investing in property for.
10:20
Then there's the cost association of participating, right?
10:23
And that is stamp duty, land taxes, maintenance, all those things.
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And obviously the risk of that unknown possibilities of those risks when you go out interstate are higher because you're not on the ground, you can't see the property.
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So there's an element of...
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Trusts you put in other parties, be that property managers or buyers agencies.
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There's all these things you can't do yourself.
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I can't fix the kitchen, I can't fix the lot, I can't do some landscaping, and there's inherent things that you can't control, which is land tax.
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But let's set a perfect example of two different markets
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And we'll use Perth and Melbourne as the example.
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And we're in the year 2021 and we are having the same conversation.
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I'm situated in Melbourne.
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I'm like, I want to buy in Perth, but I'm worried a little bit about the additional costs.
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I'm going to have to pay a buyer's agent.
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That's going to be $20,000, $25,000.
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I'm going to pay for maintenance.
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I'm going to have to pay for landscaping, things that I can't do myself.
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All in, I'm going to pay an extra, say, $30,000 for that first 12 months and maybe another $1,000 a year for the inconvenience factor.
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He bought a property for a million dollars.
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That property in Perth's now worth two to 2.1.
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That property in Melbourne's probably worth a million dollars.
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The $40,000 to $50,000, and that's conservative figures, that's bullish, of inconvenience by investing out of state.
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you're $950,000, if not more, in most of the cases I'm talking about, it's much more than that, you're $950,000 better off by investing interstate in that situation.
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Getting the right asset in the right market, regardless of where it is, the performance of that asset
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will significantly, disproportionately outweigh the upside in terms of what it's going to cost you for the inconvenience.
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So it doesn't really even come into conversation.
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If I can go to you, Reece, hey, you give me $50,000 today, and in five years' time, I'm going to give you $950,000 back.
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for the inconvenience, I think you'll take that bet.
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And that's what people fail to understand.
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Don't get caught up in the weeds.
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Yes, they're important when you're managing your cash flow.
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You need to know your numbers.
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And that's what we talk about on PropStack all the time.
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You need to know your numbers because you don't want to run into cash flow issues.
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But you don't invest to save tax.
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You don't invest purely to reduce your land tax bill.
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You don't invest to fundamentally reduce your maintenance costs.
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Think bigger picture.
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Then when we go into the micro, as you said, how can you mitigate some of those risks?
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The obvious, have an expert that deals with this on a daily basis, a qualified buyer's agent or investment advisor, and a really good property manager.
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You can't underestimate post-transaction the importance of a good property manager to de-leverage that.
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And then just generally speaking, be more prepared.
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So knowing is power, right?
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Knowledge is power.
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So going in before your purchase...
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understanding the additional costs and being comfortable with that.
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So there is no surprises, means you can prepare for it and cash flow accordingly.
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It might mean you have to buy a slightly higher yielding asset.
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Instead of buying something at 3.8%, you might have to buy something at 4% to cover the additional cost of buying interstate.
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But regardless, we want to get the best performing assets we can in the country.
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That's our job as a business race.
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And we will do that because if we do that right and get to disproportionate returns on that asset,
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those minor costs associated, stamp duty, buyers, agent fees, maintenance along the way, become really insignificant.
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And particularly over the long term, when you're talking about 10%, 12%, 14% compounding growth over a five-year period, 1% to 2% costs associated at the front end become more or less irrelevant.
13:45
Not completely, in context, irrelevant.
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I think that's it.
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It's looking at the big picture, right?
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Because especially when we look at some of our clients as well and people that do comments through the podcast, that's using something like a Victoria, for example.
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They're constantly talking about the tax.
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Obviously, crime's a completely different thing, but high tax over there versus other states.
14:02
But you've got to look at everything, right?
14:03
You've got to look at it.
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PMs are cheaper in Victoria than what it is in most other states.
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Yeah, it's almost half price compared to Western Australia.
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Those people are white.
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But it's looking at the bigger picture.
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I think that's where a lot of the noise get people fixed out with the wrong points to the strategy.
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So before we get into it, please, those that are listening on Spotify, give us a five-star review.
14:22
We haven't asked this in a good six months.
14:24
YouTube as well, please give us a subscribe on that as well because we really want to grow the channel in the back after the year.
14:30
Yeah, we don't ask for a lot, Rhys, and we do put a lot of time and energy in.
14:34
For our loyal listeners, if you could do that, it means a lot to us because for us to continue to grow this channel and want to continue to rock up here every week, we want to make sure that there's people that are interested in our content and that's the way that you can show us that...
14:47
Yeah, you enjoy listening to us.
14:48
Next one on the list here, and I think we've spoken about it briefly on the pod, but we haven't really done, I haven't really got your opinion on this.
14:55
So, this would be a good one.
14:56
It's the PPOR upgrade versus first investment property.
15:00
Now, this is a pretty prevalent question we get now off the back of the budget changes where are people in a better position to upgrade their property and maybe even keep it as a...
15:10
accidental landlord their first investment property due to when they purchased that property so they would be able to have the capital gains benefit versus looking for their first investment property?
15:20
Really good question.
15:20
And it's subject to where you live in my mind, Rhys.
15:23
So I'm in that position personally where there is an opportunity to upgrade and there's a lot of talk around there's a bit of flight to your primary place of residence because it's the best tax environment for a home.
15:36
And I absolutely agree with that in some situations, certainly not all.
15:40
I think it's all about the opportunity cost and it's typically when you're upgrading, you're upgrading for personal use, you want to go to a nicer home, but maybe closer to the coast.
15:50
So there's a lot of personal benefits for upgrading.
15:53
If this is purely a financial decision, it's really market dependent.
15:57
If I was in Melbourne right now and I've got the choice to buy an investment property or upgrade, subject to where you're upgrading, right, there's markets within markets.
16:06
it would make a lot of sense to consider, not without knowing concepts, but considering the upgrade option because you're in, I believe, the most undervalued market in Australia with really good fundamentals.
16:16
If I'm in Perth, which I currently reside in Perth, I've looked at this and considered it.
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I think the opportunity cost for me to outperform with my investment properties outside of Perth for the next three to five years, my capital's better place for that.
16:30
than upgrading in this current environment.
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It's really dependent on where you're located, where we see, based on the data, where the markets are going.
16:39
If you are the brink of a rising market, really good opportunity to get ahead in a tax-free environment for sure.
16:44
But if there's the opportunity cost of those funds, and we know that the best way to get ahead and pay off debt is through investment properties, because there's no emotion.
16:51
Typically they outperform, if they're bought well, outperform prime and post-residence
16:56
As an emotional purchase, right, you're buying more assets that are built on the fundamentals of capital growth, not emotional appeal, what you want to live in or what I want to live in.
17:04
There's always going to be biases around that.
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So it is a little bit subjective.
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One thing I had this conversation with clients is if they know what they want to be and absolutely in the next two or three years they are going to upgrade and they're in a rising market, best time to do it was yesterday.
17:18
Okay.
17:18
But if there's any uncertainty on where that location is, what it's going to be, there could be some changes.
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We're thinking about another kid, thinking about different school catchments.
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Don't put pressure on that situation now, but don't be out of the market.
17:28
Get a really good quality investment property.
17:30
So then in three years' time, that investment property you bought for 600 that's now worth a million bucks, that 400K equity is going to give you more options for your primary place residence than less.
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So if there's any sort of questions around what that PPR upgrade looks like and it's gonna put emotional stress and it's too much uncertainty, we'll just stick to the facts and the figures and get a really good investment property.
17:49
It's gonna give you more options.
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And I think for those that are considering this option, like you said, it is subjective to the market they're in, their circumstances.
17:58
It's talk to some, a property expert, like someone like yourself, but also a finance expert as well.
18:04
So while you were away, we did a podcast with Michael Killen, who's a mortgage broker.
18:09
and he was getting a lot of queries about this.
18:11
And actually paying off your principal place if you don't think it's ever gonna be a forever home for you, might not be the best outcome because you might wanna reserve your cash, and then you've had that pre-negative gearing changes, and you could potentially use that for negative gearing.
18:25
However,
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The other caveat he did say is, because I asked him, I said, well, how do banks treat that as terms of, you know, will they, if you wanted to do that upgrade, are they going to look at all of your debt or are they going to offset your offset?
18:38
And he said, some will, so your specialist lenders will.
18:40
So what I'm getting at is there's a lot of moving parties here.
18:43
So you really want to-
18:44
You really want to speak to- Well, you know you're going to get more debt through investment properties as well, right?
18:47
Yeah.
18:47
Because there's serviceability, right?
18:49
If you upgrade, you're going to get less capital because there's no rental returns.
18:52
If you're going to get investment properties, your serviceability increases dramatically because you're going to get a rental return on that.
18:56
So there's a lot of things that come into equation.
18:59
Yeah.
18:59
And for 80%, 90% of the clients I meet with, Rhys, we have an hour to two hour meeting around this, go through all the pros and cons.
19:06
And the outcome is get one, two, or three quality investment properties.
19:12
because we know the performance on them are going to give them far, significantly more options in years three and five to then maybe double upgrade, right?
19:21
Skip the three by two and let's just go to the four by two with a backyard and pull close to the beach for two and a half million rather than trying the upgrade now for 1.5.
19:28
And we've done that with a lot of clients and that seems to be typically a strategy for, I would say, 95% of the clients I meet with.
19:35
Next one we've got here, and this is quite prevalent.
19:37
We've always been a business that has liked these assets, and we've gone in previous podcasts.
19:43
So if those want to know, put your questions in the comments.
19:46
We've gone through previous podcasts and looked at data of why we like –
19:50
units as an asset type and we're very particular with the units as well.
19:54
But one of the most common questions we do get as a business is unit townhouses versus the house trade-off.
20:01
Lachlan, so the obvious thing here from a unit townhouse versus house trade-off is everyone ideally wants to get that house with a bigger piece of land.
20:09
Why would a unit or a townhouse, a great asset in this current environment, be a unit or a townhouse?
20:13
Yeah, and I think a lot of this has changed, Rhys, post-budget because strategies change.
20:18
And the old school theory around building a residential property is always land value.
20:25
You get the best piece of dirt, the biggest piece of dirt, and the best location you can, which was a fantastic strategy and one that we endorsed for probably 10 years.
20:32
The beauty of that strategy was you could buy 80%, 90% land value
20:37
And the property could cost you $20,000, $30,000, $40,000 a year, which the government would give you a subsidy through negative gearing and essentially pay you to hold that property.
20:45
Well, that's no longer in play.
20:46
So why has units become far more topical?
20:49
It's cash flow.
20:51
But it's not just cash flow.
20:52
What you're seeing in the national Australian market now, and there's quite a bit of media around this, is that the government's intention of what they're trying to create is more housing at the lower price points for first-owned buyers.
21:02
The opposite has happened because...
21:04
Everyone's competing now at lower price points because you get a higher yield.
21:08
And with no negative gearing benefit, the higher price points, so north of a million dollars investors, aren't playing in that space as commonly for investments as they were pre-budget.
21:19
To answer your question, black and white, where's the appeal?
21:22
What's the difference?
21:24
It's purely cash flow and it's purely price point.
21:26
You can get an A-grade location at a very affordable price point where the cash flow, if not close to, neutrally geared.
21:34
in this current state of mind in comparison to where it was pre-budget where you could landlock something and you're going to get a kickback from the government to help you cover the cost of that asset for as long as you hold the asset as an investment property.
21:45
What does that mean?
21:46
It means we think, and you can look at the KMG report I think you're about to dive into, is that the forecast on the unit market compared to the house market price market over the next 12 months.
21:57
is really bullish.
21:58
And that's going to surprise.
21:59
I don't think too many forecasts I've seen in the last decade.
22:03
There's been a prediction that unit house price growth is going to outperform houses.
22:06
And we've seen that take place in the last three years in markets like Perth and Brisbane, right?
22:10
So we know it can happen.
22:12
But to have forecasts now predicting, that's really interesting.
22:15
Looking into that report as well, you've got, as you said there, every major market, every capital city in Australia, KPMG are predicting units to outperform houses next year.
22:25
Now, this is looking at December 26, so what we're going to see for the back end of this year versus to December 27.
22:32
The other fascinating thing is markets like Sydney and Melbourne, which are pushing nearly 2% negative growth a month from a macro perspective,
22:39
they predict will be neutral by the end of the year from a unit perspective, but still 5% to 5.5% loss on the houses.
22:46
So even in this current market predicting that units will hold its price better than what a house will, any of those figures surprise you?
22:54
Or I guess a better question is, you know, we speak about some of these forecasts from banks and, you know, looking at KPMG as well.
23:01
Do you agree with this?
23:02
I agree with it, for sure.
23:04
The rationale behind it is that nationally, we're still a very undersupplied market race, and people fail to understand the true cost of replacement cost.
23:14
Building units isn't a cheap exercise, particularly when you're talking in complexes of, and when we're talking units, it's typically complexes less than $20.
23:21
The replacement costs on some of these units are $650 to $700, and they're trading or selling for $450 or $500.
23:27
So you're buying significantly under replacement costs, where the prices of these houses don't have the replacement cost differential.
23:34
So you can buy a house about a suburb where you can essentially buy the house for what it costs to buy the land and build on it.
23:41
So, there's a larger gap in replacement cost, but you've got to understand units have underperformed historically as well for the last sort of 15 years.
23:49
So they've got some catching up to do.
23:50
The gap between houses and units has never been so great pretty much across every market in Australia.
23:54
That story that's playing in the background.
23:55
Replacement cost, the divide between houses and units.
23:59
and the lack of builders in the marketplace to build multi-residential, which is typically units.
24:04
Less builders in that place than there are in the freestanding space.
24:07
So you've got this forecast supply that's likely not to come on.
24:11
Building costs are going up, and we're nationally still undersupplied.
24:15
So you're going to see a lot of competition.
24:17
in that sub million dollar space, which is typically where most units are.
24:20
We've got first home buyers competing with a huge push from investor groups because of the yield, the cash flow.
24:26
Mum and dad investors all now fishing from the same pond.
24:29
So much demand, very little supply, very little forecasted supply coming on in the next two to three years.
24:35
So we're going to see a run in prices on the back of that.
24:38
I wanna round out with the last one, which is a bit of an interesting take from what we've spoken about earlier today.
24:44
Now, this is from a joint applications perspective, when we have people coming through our business, there's a lot of mismatch.
24:50
So how couples with mix match risk appetite align on a joint strategy.
24:55
Now, I can relate to this personally in my life because my risk tolerance is much more higher than my wife's risk tolerance, right?
25:02
And this comes up a lot, right?
25:04
I'm looking at where this ranks with our clients.
25:07
So there generally seems to be one of the applicants in a much higher risk tolerance than the other.
25:11
Without being specific, what are some things that A, the person who has the high risk needs to push back, or B, the person who's got a low risk tolerance, where do they meet?
25:23
Where's it from in the middle of the round?
25:24
Yeah, this little borderline's on like a...
25:26
Psychologist question, how to deal with these conversations with your partner.
25:30
But the only way that I do this with clients is go back to the data and get comfort around your numbers.
25:39
So cash buffer is a really good one.
25:41
So when we sit down, what cash buffer is going to give both parties in that scenario the comfort.
25:46
Let's not talk about the future purchase.
25:48
Let's not talk about overall debt.
25:50
Let's look at the scenarios of where things can go wrong.
25:52
What is the more conservative partner or decision maker?
25:57
Where are their pain points or where are their concerns?
25:59
Likely, they'll say, oh, I'm afraid of debt.
26:01
Okay, why are you afraid of debt?
26:03
I'm worried we won't be able to make the repayments.
26:05
I'm worried we're gonna run out of money.
26:07
So the way that we work through that is through the numbers.
26:09
Okay, so where...
26:11
You're worried about the cash flow?
26:12
Well, let's go through a comfortable cash flow.
26:14
How much surplus spend do you both have on a monthly basis?
26:17
Start with that.
26:18
There's an allocation of that that we can put towards property.
26:20
What does that look like?
26:21
That's going to give us some parameters of which we can invest in.
26:23
Cash buffer is another one.
26:24
Where do we both feel very comfortable in if one of us was sick or away from work or wanted to go on a long holiday for six months or 12 months, where are we really comfortable that if both of us stop work tomorrow?
26:36
How much time do we want in the form of a cash buffer to be able to make all financial obligations?
26:41
And there'll be a period around that.
26:43
Well, the likelihood that we're both not working for more than 12 months is unlikely, but that's a conservative amount of time that I think we're both comfortable to agree on.
26:50
Well, let's work on a cash buffer that allows both parties not to work for 12 months.
26:54
And then they're like, okay, well, worst case scenario-
26:57
We'd both have to be at a job for 12 months, no other income come in, and we don't have a tenant for six months.
27:04
Some very unlikely possibilities before there was ever a risk that we actually needed to sell this property because we can't afford to make the repayments.
27:10
And once you work back from that, it becomes...
27:13
much more comfortable because you know your worst case scenarios.
27:15
That's what people want to know.
27:17
It is daunting.
27:18
You are taking on debt and debt is fearful if you don't understand what debt is, but as long as you can meet your requirements, both parties typically feel very comfortable and having a really good safety net.
27:29
And then you got to work out what is the exit strategies if things change.
27:33
If we are going to exit, can we add value to make sure that we cover our costs?
27:36
We're buying in a market that we see there's more upside than downside based on the data.
27:40
So there's layers on that.
27:42
But essentially, it's just being across your numbers and understanding your worst case scenarios typically gives both parties more comfort because you'll be surprised with a good cash buffer how far it will get you in terms of not having to work or meet your financial obligations.
27:55
Anyone got any common questions, please put them in the YouTube comments, put them in Spotify.
28:00
We'll do another deep dive on these in a couple of months.
28:03
But yeah, these common questions we see, some are different from some budget changes or market dynamics, but a lot of these are very similar each month.
28:10
So I'm assuming a lot of people listening to the podcast will have some of these similar questions.
28:14
You've been listening to the Folio Property Podcast.