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The money puzzle wants to HEAR you · The Money Puzzle

0:10
Speaker 1: Hello and welcome to the Australians Money Puzzle podcast. I'm
0:13
Speaker 1: James Kirkby. Welcome aboard everybody. It's that time where you're thinking,
0:17
Speaker 1: if you're an active property investor, you might be a
0:19
Speaker 1: little bit disturbed, or perhaps you might be greatly encouraged
0:23
Speaker 1: by a trend in the property market for closed tenders.
0:27
Speaker 1: If you don't know what they are, you'll be well
0:29
Speaker 1: across what they are by the time we're finished this show.
0:32
Speaker 1: We're also going to talk about curious properties, right the
0:35
Speaker 1: irregular property, the converted church, the former shoe factory that's
0:41
Speaker 1: in a very attractive, you think house, but is it
0:44
Speaker 1: really for everybody? Should you ever go near an irregular
0:48
Speaker 1: property as an investor. I also have some great questions,
0:50
Speaker 1: including one on granny flats, which you would think is
0:53
Speaker 1: the simplest issue, but let me tell you it is
0:55
Speaker 1: like global trade negotiations, grannie flats absurd complexities around that. Also, folks,
1:02
Speaker 1: we are planning to introduce audio questions, so when you
1:05
Speaker 1: send your questions in you know, the email the Money
1:08
Speaker 1: Puzzle at the Australian dot com dot au, you can
1:11
Speaker 1: send in a voice note just as easy. You just
1:14
Speaker 1: do a voice note on your phone and then you
1:17
Speaker 1: share it with us and it becomes a recorded question
1:20
Speaker 1: and we can have your voice asking your question on
1:23
Speaker 1: the show. We've got some already, we need a few more.
1:26
Speaker 1: Be the first, be an innovator. Let's have them now.
1:29
Speaker 1: My guest today is a regular guest on the show.
1:32
Speaker 1: It's Kate because she's a buyer's advocate and also something
1:36
Speaker 1: of a media personality, active and multimedia. I see her writing,
1:40
Speaker 1: I see her podcasting, I see her on social media.
1:42
Speaker 1: Got a lot to say, always an always good value.
1:45
Speaker 1: How are you, Kate?
1:46
Speaker 2: Thanks? That's a lovely interrot things.
1:47
Speaker 1: James, tell me you did something recently cut my eye
1:50
Speaker 1: about close tenders. We had something on the show recently
1:53
Speaker 1: about expressions of interest, and what is this about expressions
1:56
Speaker 1: of interest? Once upont a time you only had expressions
1:58
Speaker 1: of interest on something like factory or a landmark building.
2:03
Speaker 1: Now you have it for the house around the corner.
2:05
Speaker 1: So you find these innovations that come in on commercial
2:07
Speaker 1: property eventually trick of their way through, first of all
2:10
Speaker 1: at the top of the property market, residential property market,
2:13
Speaker 1: and then they filter through and they become almost every
2:15
Speaker 1: day tell us about close tenders what they are and
2:19
Speaker 1: what you think of them.
2:20
Speaker 2: As you said, otherwise known as expressions of interest, set
2:23
Speaker 2: sale by set date. They've got a host of names.
2:25
Speaker 2: What it really means is it's a bit of a
2:27
Speaker 2: blind bidding process and in most cases the agents will
2:31
Speaker 2: tell you that you get one chance and one chance only,
2:33
Speaker 2: but there's lots of shades of gray depending on the
2:36
Speaker 2: agency you're dealing with. In the number of other potential participants,
2:40
Speaker 2: they often come back to you. So you need to
2:42
Speaker 2: establish those rules before you put in your bid, because
2:45
Speaker 2: there's nothing worse than exhausting yourself and putting in your
2:48
Speaker 2: final bid and then the agent calls back and says,
2:50
Speaker 2: you've got another opportunity.
2:51
Speaker 1: Tell me I see you place. It says close tender
2:55
Speaker 1: or expressions of interest. How is that different? It's a
2:58
Speaker 1: private sale effectively with some particular rules. What are the
3:02
Speaker 1: particular rules that distinguish it? Phone convention pay too.
3:06
Speaker 2: Well, it's got no real rules so other than having
3:10
Speaker 2: a set date. So like an auction where you've got
3:13
Speaker 2: a set date, it will come to a head provided
3:17
Speaker 2: that there's participants, But unlike an auction, you don't have
3:21
Speaker 2: a requirement to be unconditional so these closed tenders can
3:26
Speaker 2: work really well for the top end of the market,
3:28
Speaker 2: where a property is really hard to price. You're looking
3:31
Speaker 2: for that buyer that gets stars in their eyes and
3:33
Speaker 2: just empties their pockets. It can work really well also though,
3:37
Speaker 2: for entry level homes that attract first home buyers, because
3:40
Speaker 2: as we know, first home buyers can get really nervous
3:43
Speaker 2: about putting forward a bid that's unconditional. They're very nervous
3:47
Speaker 2: about doing so. They're often told by their broker to
3:49
Speaker 2: make sure that their offer is subject to finance. So
3:52
Speaker 2: in a lot of cases, a clever agent might introduce
3:55
Speaker 2: this kind of option where they can bring it to
3:58
Speaker 2: a head within a certain period of time, but they
4:00
Speaker 2: might be fielding some conditional offers. So it works across
4:04
Speaker 2: the board. However, I don't always like it. In fact,
4:07
Speaker 2: I really like.
4:07
Speaker 1: It, right, So tell me what you don't like about it,
4:11
Speaker 1: and I can guess, But you tell me. I presume
4:13
Speaker 1: I think the buyer will be at a disadvantage sometimes.
4:16
Speaker 2: Often it's very difficult to ask someone to give their
4:19
Speaker 2: strongest offer for something when there's no social proof, and
4:23
Speaker 2: we do rigorous analysis. We present them with our pricing analysis,
4:27
Speaker 2: but you're still terrified of putting in a bid that's
4:29
Speaker 2: fifty thousand dollars above someone else, yet you don't want
4:33
Speaker 2: someone to beat you for one thousand dollars. It's one
4:35
Speaker 2: of those really difficult situations. So you tend to find
4:40
Speaker 2: that buyers will be really remorseful when they miss out,
4:43
Speaker 2: or they'll be worried when they secure it, which is
4:46
Speaker 2: quite different to an option.
4:47
Speaker 1: Because they're worried that they've paid way too much.
4:50
Speaker 2: Yeah, did I pay too much? There's no visibility, there's
4:52
Speaker 2: no social proof.
4:53
Speaker 1: So very much, so very much. What you put on
4:56
Speaker 1: the property that you're terribly confident of sounds to me. Yes.
5:00
Speaker 2: The one time when those types of purchases work really
5:04
Speaker 2: well is when you've done the analysis and you realize
5:06
Speaker 2: with dread that you've targeted a property that you probably
5:09
Speaker 2: can't afford. You can see that its value sits a
5:12
Speaker 2: little bit above your budget. But if you're prepared to
5:15
Speaker 2: go all in, put it all on the table and
5:17
Speaker 2: hope for the best, sometimes that pays off. You can
5:20
Speaker 2: secure it for price that you didn't imagine what was possible,
5:24
Speaker 2: and you have no regrets.
5:26
Speaker 1: It's interesting, I have assumed it was a top end thing.
5:29
Speaker 1: You cop me with the nation that it apart from
5:32
Speaker 1: being a top end sort of fashion if you like,
5:35
Speaker 1: it's also with properties where the sellers know there's a
5:42
Speaker 1: very high demand and a very particular type of demand. Yes,
5:45
Speaker 1: so the person is sing, I want this as my
5:48
Speaker 1: whole as I'm going to really try and get it.
5:50
Speaker 1: So it's just a way of squeezing more out of
5:52
Speaker 1: the bitter, isn't it really to me? It is?
5:54
Speaker 2: Now there's closed tender advertised campaigns, but there's also private
5:59
Speaker 2: sale campaign where multiple buyers have expressed an interest or
6:03
Speaker 2: they've submitted an offer, and then the agents will call
6:06
Speaker 2: everyone and say we're calling for best and highst which
6:08
Speaker 2: is effectively the same thing, although it's a decision that
6:12
Speaker 2: they've made on the run, and they might decide to
6:14
Speaker 2: wind it all up by five pm tomorrow, for example.
6:17
Speaker 2: So anyone that's shown some interest or is said to
6:20
Speaker 2: the agent keep me posted, they've got their twenty four
6:22
Speaker 2: hour opportunity to get the building inspection done and get
6:25
Speaker 2: the contract reviewed. And again that's a closed tender process
6:28
Speaker 2: because they're calling for the best offers. The quirks to
6:32
Speaker 2: this kind of system, though, is when the agent says,
6:34
Speaker 2: if you're the first person to put forward your offer,
6:36
Speaker 2: we'll give you the last rite of refusal, will give
6:39
Speaker 2: you a phone call and let you know if others
6:41
Speaker 2: are above you, but we still won't give you a price.
6:44
Speaker 2: A lot of buyers are very skeptical and very mistrusting because,
6:47
Speaker 2: as I said earlier, there's no transparency, so you don't
6:50
Speaker 2: know if you've been played or not. And sometimes people are.
6:53
Speaker 1: I bet they are. Tell me the only sense of
6:56
Speaker 1: portion of properties are now under this expression of insure
7:00
Speaker 1: close tender arrangement will be ten percent, it be.
7:03
Speaker 2: More than that. In terms of how the agents facilitate
7:05
Speaker 2: competitive bidding, a very large number now turn to the
7:10
Speaker 2: best and highest method, particularly in a hot market when
7:13
Speaker 2: they're dealing with FOMO. They're working with buyers who have
7:15
Speaker 2: that deep fear of missing out because they've already missed
7:18
Speaker 2: out on one or two. They're the ones that are
7:20
Speaker 2: more likely to go all in and stretch and the
7:22
Speaker 2: agents know it.
7:24
Speaker 1: Gee, that's very interesting. Again, I'm guessing, but I presume
7:27
Speaker 1: that's happening mostly in certain pockets of the larger cities
7:31
Speaker 1: Sydney and Melbourne, and then in the areas that are
7:34
Speaker 1: running hot, which are unusual, not typically running hot on
7:39
Speaker 1: a historical basis, I don't know parts of adelette probably.
7:43
Speaker 2: Look even the regions, as long as the agent is
7:46
Speaker 2: confident that everyone knows there's multiple offers. It really is
7:49
Speaker 2: a multiple offer scenario when an agent turns to that
7:52
Speaker 2: methodology and you know that you're in more of a
7:55
Speaker 2: buyer's market. When the agent just wants to workshop your
7:58
Speaker 2: offer with you exclusive and then bring it together with
8:02
Speaker 2: an agreeable negotiation between you and the vendor, you can
8:05
Speaker 2: be pretty sure that there's not a second or third
8:07
Speaker 2: party when that happens.
8:10
Speaker 1: Interesting, isn't it? How things flip? How do you hear
8:13
Speaker 1: your flips on a die quickly? Yeah, on a dime,
8:16
Speaker 1: depending on the tempo and the market. It's extraordinary, as
8:19
Speaker 1: anyone will know who who's ever been in that area
8:22
Speaker 1: to buy or trying to sell. Okay, also keate, and
8:25
Speaker 1: I know I'm jumping around here, but another issue I've
8:27
Speaker 1: seen you discuss and I wanted to give our listeners
8:31
Speaker 1: a chance to hear you want it is the notion
8:34
Speaker 1: of the irregular property. Many years ago, I was standing
8:38
Speaker 1: on the street at an auction with a very well
8:42
Speaker 1: known Melbourne real estate agent and one of the greats.
8:45
Speaker 1: And it was a townhouse which was owned by a
8:49
Speaker 1: fashion designer. And the townhouse was on Little La Troupe
8:53
Speaker 1: Street in Melbourne, CBD. At that time there was probably
8:58
Speaker 1: a thousand people living in CBD as opposed to one
9:02
Speaker 1: hundred thousand or so now, and it was very unusual
9:05
Speaker 1: to live in the city. It was also unusual to
9:08
Speaker 1: have a house there. And I remember seeing the house,
9:10
Speaker 1: absolutely charmed by it because it was, you know, as
9:12
Speaker 1: you could imagine, it was a designer's house and it
9:15
Speaker 1: was wonderful. And he said, I'm really worried about this.
9:19
Speaker 1: It's a very unusual house. And I know you will,
9:22
Speaker 1: he says, I know it looks attractive, but it doesn't
9:25
Speaker 1: tick the boxes for many buyers. It's going to be
9:27
Speaker 1: very hard to sell it, really through me, and it
9:30
Speaker 1: was instructive about irregular properties. So you come across these
9:34
Speaker 1: convert to churches, shee factories or whatever. How does it
9:37
Speaker 1: work in reality? Is it more difficult than you might
9:41
Speaker 1: expect to sell them?
9:42
Speaker 2: Yeah, this sounds a bit crude, but there's either quirky
9:46
Speaker 2: good or quirky weed. When it's weird, it can be
9:50
Speaker 2: really problem any times.
9:51
Speaker 1: What do you mean, weird painted black inside and out
9:54
Speaker 1: or what?
9:55
Speaker 2: Oh, possibly, as you said, something that's really only suited
10:00
Speaker 2: to a very tiny few. If it's suited to a
10:04
Speaker 2: particular type of buyer or demographic or whatever or style,
10:09
Speaker 2: that might be enough because, as you know, we only
10:12
Speaker 2: need two people to make an auction viable. When you've
10:15
Speaker 2: got a property that's really struggling to find, it's one
10:17
Speaker 2: buyer out there, so it could be crazy in interior design,
10:22
Speaker 2: or something that really polarizes most people. That can be
10:26
Speaker 2: a hard property to sell. And renovated churches, converted warehouses.
10:30
Speaker 2: What you often find there is you've got these lofty spaces,
10:33
Speaker 2: but you might have insufficient bedrooms to suit a regular family.
10:37
Speaker 2: So it's sometimes really targeted to that single or that couple.
10:40
Speaker 2: And that's okay because we've got a lot of singles
10:42
Speaker 2: and couples with money who want something that's quirky good.
10:46
Speaker 2: When it's quirky weird, it might be in a compromised
10:49
Speaker 2: kind of layout or location or compromises a really important
10:53
Speaker 2: word to think about, because if every buyer looks at
10:56
Speaker 2: it and says, yeah, it's compromised, you'll struggle to find
10:58
Speaker 2: your buyer with these odd property, the odd properties, the
11:02
Speaker 2: unusual ones. The biggest challenge isn't always the layout and
11:06
Speaker 2: the look and the feel. It's often the invisibles, like
11:09
Speaker 2: the zoning, or it could be the owners corporation fees,
11:14
Speaker 2: because these fabulously converted churches cost a lot to maintain.
11:19
Speaker 2: So those are the things that can put buyers off
11:21
Speaker 2: and make property a really hard proposition to sell, particularly
11:24
Speaker 2: when it's industrially zoned or commercially zoned. That zoning really
11:29
Speaker 2: means that a buyer must be prepared to have a
11:32
Speaker 2: forty percent deposit on hand and turn to a commercial
11:35
Speaker 2: loan setup, and they might find that they don't service
11:39
Speaker 2: that because you're amortizing the line over fifteen years as
11:41
Speaker 2: opposed to twenty five or thirty, and all of a sudden,
11:44
Speaker 2: you don't service the debt that irresidential loan product would
11:47
Speaker 2: happily have your service. So it's the invisibles that can
11:50
Speaker 2: really pull apart these odd properties.
11:52
Speaker 1: Oh that's really interesting. So and you say oder a
11:55
Speaker 1: regular I'm just thinking in simple terms of the unusual
11:59
Speaker 1: property that doesn't typical. But you're saying that irregularities on
12:03
Speaker 1: zoning or title or anything like that. Yeah.
12:07
Speaker 2: Yeah, sometimes they're impractical. Sometimes they're just really expensive to run.
12:13
Speaker 2: I remember looking at a beautiful converted warehouse that was
12:16
Speaker 2: essentially like a two and a half story interior, but
12:20
Speaker 2: the cost to run the heating would have been eyewatering.
12:24
Speaker 1: Yeah, because there was no doors. Probably that's right.
12:27
Speaker 2: And the other challenges we've had is a lot of
12:30
Speaker 2: people that are targeting these beautiful properties, particularly the expensive ones,
12:34
Speaker 2: like the idea of having a vehicle, and usually an
12:37
Speaker 2: electric vehicle. Now in some of those properties, you haven't
12:40
Speaker 2: got that option to have the right electricals to power
12:44
Speaker 2: an AV or in the case of a converted church,
12:46
Speaker 2: sitting at the church car park won't cut it for
12:49
Speaker 2: someone with an av That's really interesting.
12:51
Speaker 1: I suppose the flip side of this is a fairly
12:53
Speaker 1: prosaic point that the more regular is it necessarily the case,
12:58
Speaker 1: then the more regular, anonymous, broadly appealing property from a
13:04
Speaker 1: commercial point of view is better.
13:07
Speaker 2: Yes, without a doubt. If we think about a stunning
13:10
Speaker 2: family home with the perfect floor plan, a converted space
13:14
Speaker 2: at the back where you've got an open plan leading
13:16
Speaker 2: out onto an al fresco in a decent yard. They
13:20
Speaker 2: always attract a lot of buyers.
13:23
Speaker 1: Yeah, so supply and demand again.
13:25
Speaker 2: Yeah, less of a risk for an agent for sure.
13:27
Speaker 1: Very interesting stuff with Take Shore Break. We'll be back
13:29
Speaker 1: in a moment. Hello, Welcome back to The Australian's Money
13:44
Speaker 1: Puzzle podcast James Kirby with Kate Bakos, buyer's advocate, regular
13:49
Speaker 1: on the show, Kat, I and you are not alone?
13:53
Speaker 1: Can I say on the show where you are examining
13:56
Speaker 1: the tea leaves in relation to Melbourne property, Probably because
14:02
Speaker 1: most experienced property people are aware that it may well
14:08
Speaker 1: be a bargain right. Because how on earth do we
14:10
Speaker 1: have a situation where a city of five mayion that
14:12
Speaker 1: it's growing, that is the second biggest city in Australia
14:16
Speaker 1: has the weakest numbers on almost any measure, the weakest yields,
14:21
Speaker 1: the weakest price growth, negative price growth at times last year,
14:26
Speaker 1: and other issues, absence of investors, a lot of negatives
14:32
Speaker 1: of leap. If you believe in property cycles. Stuart Wims
14:35
Speaker 1: was on, and he's a real believer of property cycles,
14:37
Speaker 1: then he believes it will turn. The question is when
14:42
Speaker 1: two things do you think it's turning already? On what
14:44
Speaker 1: you've seen I want to say yes.
14:47
Speaker 2: If you'd asked me this a month ago, I would
14:49
Speaker 2: have said, let me hang in there and determine whether
14:52
Speaker 2: it's a dead cat bounce, whether it's the February factor,
14:55
Speaker 2: or whether things are really starting to move. I believe
14:58
Speaker 2: that they are, and it's not just the Februar factor.
15:02
Speaker 2: We're now well into the next month and we're getting
15:07
Speaker 2: a lot of investors from interstate and that's always a
15:10
Speaker 2: bit of a sign. Why are they coming to Melbourne.
15:12
Speaker 2: Some of them think that there's an opportunity there to
15:15
Speaker 2: get in before the rest of the herd. They've obviously
15:18
Speaker 2: subscribed to the mean reversion theory, while others are looking
15:23
Speaker 2: at our yields and they're saying rental yield isn't too bad.
15:27
Speaker 2: It really does help with the land tax burden. We
15:30
Speaker 2: can chat about that at another time. But I think
15:32
Speaker 2: a lot of them are just seeing value. They're looking
15:34
Speaker 2: at the value proposition.
15:36
Speaker 1: I did say the years were but you're saying admitted
15:38
Speaker 1: because the prices have been static, if not going backwards,
15:41
Speaker 1: the years have improved. Is that they have.
15:42
Speaker 2: Indeed, Melbourne's rental rates have climbed dramatically. In fact, we've
15:47
Speaker 2: had one of the biggest overall surgeres since COVID, and
15:50
Speaker 2: we came off a low base. Melbourne was always traditionally
15:53
Speaker 2: the city that had pretty awful rental yields, along with Sydney,
15:57
Speaker 2: and we've come up now to a ridge yield of
16:01
Speaker 2: three point seven which has us on par with Brisbane
16:03
Speaker 2: and Adelaide. In fact, I think we've just marginally overtaken
16:06
Speaker 2: both of them. So that's a big turnaround for Melbourne.
16:10
Speaker 2: And the reason for it is we've had a lot
16:11
Speaker 2: of our rental stock decaying, we've had investors getting out,
16:16
Speaker 2: we've had static price movement or slightly negative, and the
16:21
Speaker 2: supply and demand equation has kicked into gear with our rents.
16:25
Speaker 2: We've had a lot more tenants than the landlords and
16:27
Speaker 2: you can spot an advertised property for rent because the
16:30
Speaker 2: queue that goes around the corner is generally longer than
16:33
Speaker 2: that of a house that's for sale. So we've caught up.
16:37
Speaker 1: That's been a case for some time.
16:39
Speaker 2: It has.
16:40
Speaker 1: Yeah, three point seven yield gross, that's right, Yeah, yeah,
16:46
Speaker 1: for all dwellings, yes, okey.
16:48
Speaker 2: So we're starting now to say three percent for houses,
16:51
Speaker 2: which I haven't seen that for a very long time
16:53
Speaker 2: in Melbourne.
16:54
Speaker 1: Yeah, and then you have mortgage or even investment mortgage
17:00
Speaker 1: it's dropping as well. Ever so small your mortgages dropping
17:03
Speaker 1: here is improving an improved outlook? Have we any hard
17:07
Speaker 1: evidence of it? I know you may be anecdotally seeing this.
17:09
Speaker 1: Have we any numbers yet on investors coming back to
17:15
Speaker 1: the great southern state of Victoria.
17:18
Speaker 2: Only very early data. The challenge that we have is
17:21
Speaker 2: we source that data. If it's not directly from the banks,
17:24
Speaker 2: we get it from the ABS and we have a
17:26
Speaker 2: three month lag on that. So we've only recently got
17:29
Speaker 2: the December data that's showing a slide uptick for Victoria
17:33
Speaker 2: as a state. But still we've been underdone on the
17:36
Speaker 2: investment front for the last few years because we've not
17:38
Speaker 2: been the city or the state that's been the most attractive.
17:43
Speaker 2: Agents are certainly reporting a change, and we've also seen
17:45
Speaker 2: our rental rates, our rate of growth almost plateau, and
17:51
Speaker 2: the managing agents are also reporting that they're getting a
17:54
Speaker 2: few more investment properties added to the rent roles. I
17:57
Speaker 2: think that rate of rental growth isn't likely a high
18:00
Speaker 2: cup again, because we do have investors.
18:02
Speaker 1: Back interesting and there's a point at which you don't
18:05
Speaker 1: want rented growths. It's a two edged sword, isn't. You
18:08
Speaker 1: want real growth, but you don't want it to run
18:10
Speaker 1: too high because obviously then there's problems inside the system. Okay,
18:15
Speaker 1: very interesting. I was very keen to see what you
18:18
Speaker 1: had to say about that. And it's one of the
18:21
Speaker 1: questions of the year, really because if we get this right,
18:24
Speaker 1: it investors get it right, obviously it will be it
18:28
Speaker 1: will definitely be the opportunity of the year. It's the
18:32
Speaker 1: potential opportunity of the year.
18:34
Speaker 2: So yeah, we've got to see another month or two.
18:37
Speaker 2: As they say, one data point doesn't make a trend line,
18:40
Speaker 2: but at the cold face, it's certainly quite different, and
18:43
Speaker 2: we can see it in our auction clearance rates. We've
18:45
Speaker 2: got some pretty aggressive bidding. We're eclipsing our reserves by
18:49
Speaker 2: quite a margin in a lot of places, and our
18:52
Speaker 2: auction attendance was very different, vastly different to twenty twenty four.
18:56
Speaker 1: Do the same stay government, of course, which what do
18:59
Speaker 1: all those new taxes? But let's see if the market
19:01
Speaker 1: will actually rise above.
19:02
Speaker 2: That or November twenty twenty six isn't too far away.
19:05
Speaker 1: Is it. Okay, we'll take a break and we'll be
19:08
Speaker 1: back in a moment with some very interesting questions. Hello
19:17
Speaker 1: and welcome back to the Australians Money Puzzle Podcast James
19:20
Speaker 1: Kirby with Kate Bakos. Here we are talking property. We
19:23
Speaker 1: are talking investment property in particular cases. A iers advocacy
19:28
Speaker 1: operates out of Yarraville, very trendy, fashionable Yarraville in the
19:32
Speaker 1: center of Melbourne. I've got some great questions I thought
19:36
Speaker 1: we have. First of all, let's have a look at
19:38
Speaker 1: what we had from car loss, which is an old chestnut,
19:42
Speaker 1: and we won't go too far down this because we
19:45
Speaker 1: could have a whole show. We could have a whole
19:47
Speaker 1: series of show one. Carlos's question, but just in any event,
19:51
Speaker 1: to give it to you and read it out to you.
19:53
Speaker 1: He asks, in terms of property versus shares debate, what's best?
20:01
Speaker 1: As with politics, you can find an answer you want
20:03
Speaker 1: to hear easily enough, which makes it hard for newcomers
20:05
Speaker 1: to understand. I want to suggest you'd run a case study,
20:08
Speaker 1: or you can be as objective as possible, helping people
20:11
Speaker 1: see what it's like to either buy an investment property
20:15
Speaker 1: or to invest in the share market. Well, Carlos would
20:17
Speaker 1: love to do that, and we could put say half
20:19
Speaker 1: a million on the share market today, and we put
20:21
Speaker 1: half a million on a very good property, advised by
20:24
Speaker 1: a very good buyer's advocate like Kate, and then we'd
20:27
Speaker 1: run it for what five years, three years and come
20:30
Speaker 1: back to you. You'd have a sample of one one
20:32
Speaker 1: property versus the entire market. I think the issue would
20:37
Speaker 1: be revealed then that all property is individual, so you
20:41
Speaker 1: could do fabulously property that wouldn't necessarily tell you how
20:44
Speaker 1: property did. But markets obviously are generics, so if you
20:48
Speaker 1: just bought an ETF, you would know how markets did.
20:50
Speaker 1: What do you think, Kate?
20:52
Speaker 2: I completely agree with you, James. I think if we
20:55
Speaker 2: look at a median value, or we pick a particular market,
20:59
Speaker 2: we could get a rounded out set of statistics there
21:02
Speaker 2: as well and prove this point nicely for Carlos and
21:05
Speaker 2: dare I say it. In recent years there are some
21:09
Speaker 2: markets like my own, in particular in Melbourne, the shares
21:12
Speaker 2: would have won every day of the week. But this
21:14
Speaker 2: debate has been run to death by so many people,
21:17
Speaker 2: and there are books about it. There are real life
21:20
Speaker 2: case studies and you can get your hands on that.
21:23
Speaker 2: The reality is, though people would turn to property investment
21:26
Speaker 2: because it has one benefit that share investing doesn't have,
21:29
Speaker 2: and that is how much you can leverage. So it's
21:33
Speaker 2: important to keep that in mind. Because if someone started
21:36
Speaker 2: with some seed capital at a young age, and they
21:40
Speaker 2: were consistent in their approach and they leveraged with it
21:44
Speaker 2: a reasonably i won't say aggressive, but a very dedicated approach,
21:48
Speaker 2: they leveraged into property. So let's even say eighty percent lvrs,
21:52
Speaker 2: which the bank's particularly like. That means you're put in
21:54
Speaker 2: down twenty percent of your own money and you're borrowing
21:56
Speaker 2: eighty percent. You will find over time that property will
22:00
Speaker 2: outperform shares when you're leveraging and you have time. I
22:04
Speaker 2: think where shares start to come into their own is
22:08
Speaker 2: when you don't have time. So let's take someone who
22:10
Speaker 2: is ten years off retirement, five years off retirement, or
22:14
Speaker 2: even in retirement. They're not wanting to settle up for
22:16
Speaker 2: a property to start with. They won't want to take
22:19
Speaker 2: on a large debt and then be burdened with having
22:21
Speaker 2: to pay that debt because they'll have in most cases
22:24
Speaker 2: a negatively get asset, and they won't want to deal
22:26
Speaker 2: with the maintenance, and they probably won't want to deal
22:29
Speaker 2: with the property taxes either. So it really does depend
22:32
Speaker 2: on what stage in life you're at, how long you've
22:34
Speaker 2: got on your working treadmill to run before you can stop,
22:40
Speaker 2: So there's no debate about it. Shares is much easier
22:44
Speaker 2: as that class when it comes to maintenance and taxes,
22:47
Speaker 2: but there's also volatility there as well, and good advisors
22:50
Speaker 2: will talk to you about diversification. It's for that reason.
22:54
Speaker 1: Yes, absolutely, I agree with you to a point. Academically,
22:57
Speaker 1: you can see over a long period of time, you
22:58
Speaker 1: go back over one hundred years, so that there isn't
23:00
Speaker 1: really much in it that is between the average property
23:02
Speaker 1: outcomes and average market outcomes. The thing is that you
23:06
Speaker 1: can buy an average market outcome through an exchange traded fund.
23:10
Speaker 1: You can just buy the ASEX. You can put fifty
23:13
Speaker 1: grand into an ax ETF, close your eyes and come
23:16
Speaker 1: back in ten years and you will have the average
23:18
Speaker 1: return of the market. Now, that is not the case
23:20
Speaker 1: with property, so every property is individual. So I can
23:25
Speaker 1: tell you what the average increaseable was this year, last
23:27
Speaker 1: year or whatever for Australian property, but it really doesn't
23:29
Speaker 1: tell you much between say some little village in Tazi
23:32
Speaker 1: and an north shore suburban Sydney, for instance, they don't
23:35
Speaker 1: really have much in common, so the averages are quite misleading.
23:38
Speaker 1: Car loss. However, as Kate is saying, there's a couple
23:41
Speaker 1: of things of property leverage that you can leave rich shares,
23:44
Speaker 1: of course, but most people most of the time are
23:49
Speaker 1: wary of doing that. They are comfortable in leveraging against property.
23:54
Speaker 1: And by the way, you can get negatively geared chairs
23:56
Speaker 1: just as easy. It's just very quick people to do it.
23:58
Speaker 1: The other thing, as Kate pointed out, control and work.
24:02
Speaker 1: You can't do anything about your share portfolio once you've boted.
24:06
Speaker 1: You can't make HP Gupperdell. But with a property you can.
24:11
Speaker 1: You can improve that property, you can work on it,
24:15
Speaker 1: and I think that's the enormous difference really. First of all,
24:18
Speaker 1: you can choose the individual property, but you've no choice. Unfortunately,
24:20
Speaker 1: you can't buy the average, but you choose the in
24:23
Speaker 1: visual property and you can make it better, which is
24:26
Speaker 1: something you can't do, and I think that's something you're
24:28
Speaker 1: doing to more work. We recently, in our family, we
24:31
Speaker 1: recently sold an ETF that we had outside of super
24:35
Speaker 1: and we just made a point that you're so easy,
24:37
Speaker 1: and did it on your phone, tick so gone, never
24:40
Speaker 1: did any work, Never spend two minutes on this and
24:43
Speaker 1: thinking about selling a property. The documentation alone will take
24:47
Speaker 1: a day longer than selling an ETF. So these are
24:49
Speaker 1: points really worth thinking about, Carlos. And that's really I
24:53
Speaker 1: don't want to simplify and give you an answer and
24:55
Speaker 1: say once better than the other, except to say they
24:58
Speaker 1: are very different. Average performances can be achieved on shares,
25:03
Speaker 1: but all properties individual. Okay, Claire, I have a female
25:06
Speaker 1: listener here. Thank you, Claire, thanks so much for the podcast.
25:09
Speaker 1: She says, I have just hit the big five. Zo
25:11
Speaker 1: and I have hatched a cunning plan to help fund
25:13
Speaker 1: reduce working hours and my retirement. I am selling our
25:17
Speaker 1: family home. I'm planning to build a new house with
25:20
Speaker 1: a granny flat, which I hope to rent out to
25:22
Speaker 1: generate an ongoing income. This is this is really good
25:26
Speaker 1: for all the crazy fifty somethings out there hatching such
25:29
Speaker 1: a plan. Could you please offer some information on the
25:33
Speaker 1: potential CEEGT implications if the granny flat has rented out
25:36
Speaker 1: on a commercial basis, and she has other related questions
25:39
Speaker 1: on that, Okay, you might think this is unbelievable, Claire C.
25:44
Speaker 1: L A I R E. You would think that this
25:48
Speaker 1: is all easy enough. The granny flat thing is absurd.
25:52
Speaker 1: It's absurdly complicated. It shouldn't be. Don't let it stop
25:55
Speaker 1: you what it is. And I met someone last night
25:58
Speaker 1: who said that they were at a confidence and it
26:00
Speaker 1: was a two hour session on the technicals around granni flats.
26:03
Speaker 1: And then someone has tracked a joke. But I think
26:05
Speaker 1: it's true that you can get around a lot of
26:07
Speaker 1: these problems if the granny flats on wheels, because you
26:10
Speaker 1: can classify it as something different than the property. That's unofficial,
26:14
Speaker 1: not advice, never is okay. Now for a formal official answer,
26:19
Speaker 1: Kate and I are referring to James Gerard of Financial
26:23
Speaker 1: Advisor dot com dot who you know regular guests on
26:25
Speaker 1: the show, and this is what James says about Granni
26:28
Speaker 1: flats not the worst plan. Building a house with the
26:30
Speaker 1: granny flat has a couple of benefits. You create an
26:32
Speaker 1: income stream that can help fund part of your retirement
26:35
Speaker 1: income and have a place for a family or a
26:38
Speaker 1: care if you need it down the track. The disadvantage
26:42
Speaker 1: is you will have to clear the net rent in
26:45
Speaker 1: your personal tax return if your income is above a
26:49
Speaker 1: tax free threshold in retirement. In addition, okay, this is important,
26:56
Speaker 1: if you ever sell the property, you will need to
26:58
Speaker 1: pay capital gainst. Will you hear this? And a portion
27:01
Speaker 1: the floor area and land between principal residents which is
27:06
Speaker 1: CGT three. Write your palm with CGT three exam from
27:10
Speaker 1: capital gains tax and the granny flat which is subject
27:13
Speaker 1: to capital gains tax. Right, So, yeah, they don't make
27:17
Speaker 1: it easy, That's all I have to say to you, Claire,
27:20
Speaker 1: But you can do it.
27:22
Speaker 2: There is one more little tax implication there, and that's
27:25
Speaker 2: land tax. So there'll be an a portion amount there
27:29
Speaker 2: as well. And I'll stay in my line and leave
27:31
Speaker 2: it at that. Granni flats are a challenge though.
27:34
Speaker 1: It shouldn't be that. We're talking about dentsification. We're talking
27:37
Speaker 1: about and you know, why do they have to make
27:39
Speaker 1: it so damn difficult?
27:40
Speaker 2: Really, if you're in my home state, you've got to
27:43
Speaker 2: get a permit for grunny flat, and most tits and
27:46
Speaker 2: territories will have some kind of permitting process. In addition,
27:50
Speaker 2: if you don't have separate water meters and electricity meters,
27:53
Speaker 2: you can't pass on usage to your tenant, which means
27:57
Speaker 2: you're paying for it, so that needs to be incorporated.
28:00
Speaker 2: The next point that I'll make is if you ever
28:03
Speaker 2: go to sell the property, you've potentially diminished its appeal
28:06
Speaker 2: because not every buyer out there wants a backyard with
28:09
Speaker 2: a granny flat unit. So if you've lessened your number
28:12
Speaker 2: of potential buyers, you've lessened your competition, you've possibly lessened
28:16
Speaker 2: your selling price. So that's something to bear in mind
28:19
Speaker 2: as well.
28:20
Speaker 1: I did have a friend who had the marvelous I
28:22
Speaker 1: would you call it like a not a prefab but
28:26
Speaker 1: kind of a little model, perfect retirement unit for hard
28:30
Speaker 1: dad in the back garden. But it was really good,
28:33
Speaker 1: and I do recall it had wheels, not that they
28:35
Speaker 1: ever mold it, but I think it has week No advice, right, something?
28:38
Speaker 1: What exploring? All?
28:39
Speaker 2: Right?
28:40
Speaker 1: Okay, pat asks at the top. At the average interest
28:44
Speaker 1: rate's been offered by thirty two banks, it's four point
28:46
Speaker 1: sixty three percent. Since the RBA lowered its interest rates
28:52
Speaker 1: in February, the average among the thirty two banks now
28:57
Speaker 1: is four four percent. Given the fairly dramatic decrease. This
29:02
Speaker 1: is about term deposits, Folcus. This is what you can
29:04
Speaker 1: get for your money pass sets. Given the dramatic decrease
29:08
Speaker 1: in term depositibly since the RBA decision, do you think
29:11
Speaker 1: it would be predictable with more rate cuts like to
29:15
Speaker 1: come next year that by the end of next year
29:17
Speaker 1: financial year that rates on offer on deposits could have
29:23
Speaker 1: dropped even in the three percent three percent, that is,
29:26
Speaker 1: you will only get three percent for your money compared
29:29
Speaker 1: to four and a half now, absolutely entirely feasible. If
29:33
Speaker 1: the economists say there's two to three more cuts coming
29:36
Speaker 1: and into two to three more cuts are the same
29:39
Speaker 1: quantum of the ones we're used to, which are always
29:41
Speaker 1: these days a quarter percent and ago, then it would
29:44
Speaker 1: be entirely feasible that you'd have a three in front
29:47
Speaker 1: of the number, even if you lock it away. I
29:51
Speaker 1: think that can't have it both ways, even the rate
29:53
Speaker 1: to coming down, rates coming down, do you think, Kate?
29:56
Speaker 2: I think k Stree gives us that answer that the
29:58
Speaker 2: lenders are very good at adapting quick when there's a
30:00
Speaker 2: right movement.
30:01
Speaker 1: They move like lightning. Yeah, they're so efficient.
30:04
Speaker 2: Or they're really slow on the other side.
30:07
Speaker 1: Very slow on the other side. It's strange, isn't there
30:08
Speaker 1: two different departments, one's very good and one's very slow
30:11
Speaker 1: and sleepy.
30:12
Speaker 2: It comes to term deposits, you've got a few options
30:15
Speaker 2: with other lenders, and obviously risk and reward is something
30:18
Speaker 2: that every investigates to cape in mind. You can say
30:21
Speaker 2: some really stunning returns that are being pitched, but you've
30:24
Speaker 2: got to understand what's happening with your money and what
30:26
Speaker 2: the risk might be.
30:27
Speaker 1: That's been very careful here, folks. We're talking about and Patasfian,
30:31
Speaker 1: we term deposits in banks right locked away for a
30:34
Speaker 1: period of time. No games approved deposit taking institutions government
30:40
Speaker 1: guaranteed do not. And I think Kate tell me about misleading,
30:44
Speaker 1: but I think what you're alluding to is advertisements that
30:47
Speaker 1: say they say the word deposit and they say the
30:49
Speaker 1: word rate, etc. But it's not a term deposit. It's
30:53
Speaker 1: lending to builders or something, and it's completely different, and
30:56
Speaker 1: so you get two percent more, but you're taking much
30:59
Speaker 1: much greater risk. I'm talking here about risk free rates
31:03
Speaker 1: always distinguished. Is that what you were driving at completely? Yes, Yeah,
31:08
Speaker 1: it's something people should be very careful of. And I
31:11
Speaker 1: find it very frustrating that you can perhaps accidentally mislead
31:17
Speaker 1: people with advertising so easily. All right, we will leave
31:20
Speaker 1: it there. You can see that as something we could
31:22
Speaker 1: go into another day. But thank you very much Kate
31:25
Speaker 1: Bakos for coming on the show. Lovely to have you
31:26
Speaker 1: on again, been a pleasure.
31:28
Speaker 2: Thank you.
31:29
Speaker 1: Always interesting to talk to you. Great to get that
31:32
Speaker 1: feeling from the street, basically from the floor of what's
31:34
Speaker 1: going on in the property market. We don't want to
31:36
Speaker 1: ever talk too much from a helicopter point of view.
31:39
Speaker 1: It's all very interesting about what's going on demographically, et cetera.
31:42
Speaker 1: But you as listeners, I sure want to know what's
31:44
Speaker 1: going on out there and buyer's advocates are really good
31:48
Speaker 1: for that. Oh, Kate, Thanks a lot, Kate, and thanks
31:50
Speaker 1: lot everybody for listening. The Money Puzzle at the Australian
31:54
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31:57
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Speaker 1: do love to have. Today's show was produced by Leah
32:02
Speaker 1: Samma Gloom. Talk to you soon. Talk to you later
32:05
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32:12
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