Latest / The Money Puzzle / Mortgage wars: why the banks are offering sweeter deals

Transcript

Mortgage wars: why the banks are offering sweeter deals · The Money Puzzle

0:12
Speaker 1: Welcome to the Money Puzzle. I'm your host, Julianne Sprague,
0:16
Speaker 1: Wealth editor at The Australian, filling in for James Kirby,
0:19
Speaker 1: who is on a well deserved break, and today we
0:22
Speaker 1: are going to jump into something interesting that is happening
0:25
Speaker 1: with the major banks. I don't usually offer big deals
0:28
Speaker 1: to first home buyers, and that really is because beggars
0:32
Speaker 1: can't be choosers. But things have shifted, things are changing,
0:35
Speaker 1: and we'll dive into that with my colleague Wealth reporter
0:38
Speaker 1: Anthony Keane, who has also detailed how he brought a
0:42
Speaker 1: number of investment properties without having to hand over a
0:45
Speaker 1: single cent. It's a clever strategy, but it did spark
0:49
Speaker 1: plenty of commentary. People picked apart found some issues and
0:53
Speaker 1: so we'll find out some of those with Anthony Kean. Anthony,
0:58
Speaker 1: Welcome to the Money Puzzle.
1:00
Speaker 2: Thanks julian good to be here.
1:02
Speaker 1: It's good to have a chat about these sorts of things,
1:04
Speaker 1: because it was interesting this week. We've sort of had
1:06
Speaker 1: a look at what was happening in the banking sector
1:10
Speaker 1: on the back really of this expanded first home buyer
1:13
Speaker 1: scheme from the government. It seems that the banks is
1:16
Speaker 1: sort of doing something unusual here where they actually are
1:19
Speaker 1: enticing these first home buyers.
1:20
Speaker 2: What's going on, Anthy, Yes, we're seeing a new front
1:23
Speaker 2: breakout in the battle for business for mortgages. As you
1:28
Speaker 2: said earlier, banks have traditionally not really given the best
1:32
Speaker 2: deals to first home buyers because they much prefer people
1:35
Speaker 2: with big chunks of equity, which is obviously much lower
1:38
Speaker 2: risk for them. But with this wide expansion of the
1:42
Speaker 2: new five percent deposit scheme where people only need to
1:47
Speaker 2: five percent deposit to buy their first home and the
1:49
Speaker 2: government will guarantee the other fifteen percent, which helps people
1:54
Speaker 2: avoid having to pay that expensive lender's mortgage insurance. So
1:58
Speaker 2: you're still paying a twenty percent positively for your home,
2:01
Speaker 2: but you've only got to stump up five percent the
2:02
Speaker 2: government guarantees the other fifteen So that's been expanded dramatically,
2:08
Speaker 2: And what the experts are seeing now is there's a
2:10
Speaker 2: lot more deals coming out for first home buyers, quite
2:14
Speaker 2: a few, and the scheme onely used to be a
2:17
Speaker 2: handful of members. Now I think it's about thirty eight
2:19
Speaker 2: almost forty different lenders in this scheme, and a large
2:23
Speaker 2: majority of them are offering good interest rates below five
2:28
Speaker 2: point five percent, and there's even a couple that are
2:31
Speaker 2: four point nine nine percent first home buyer rates. So
2:35
Speaker 2: that is certainly a good deal for first home buyers who,
2:40
Speaker 2: as we said earlier now do not need to save
2:43
Speaker 2: as much to get a foot in the door of
2:45
Speaker 2: the housing market.
2:47
Speaker 1: What are the other deals that they're offering, I mean
2:50
Speaker 1: attractive interest rates. That sounds pretty good, but it seems
2:53
Speaker 1: that they are jostling for market share at this end
2:56
Speaker 1: of the market, which is interesting. What are they trying
2:58
Speaker 1: to tempt people with.
2:59
Speaker 2: There are still a few cash back offers, and we
3:02
Speaker 2: saw these really boom a year or so ago, and
3:05
Speaker 2: some of the mortgage experts are telling me now they've
3:08
Speaker 2: been dwindling back a little bit, but there's still a few.
3:10
Speaker 2: And they are where you you take out a mortgage
3:12
Speaker 2: and the lander will give you anything between generally two
3:15
Speaker 2: thousand to four thousand dollars cash back as a bonus
3:18
Speaker 2: for taking out a mortgage with a Commonwealth bank very
3:22
Speaker 2: recently introduced. Instead of a cash back, they're giving you
3:25
Speaker 2: three hundred thousand frequent fly points three thousand, yeah, which
3:30
Speaker 2: is equivalent to depending on how you spend those points,
3:32
Speaker 2: it's equivalent of thousands of dollars of benefits.
3:35
Speaker 1: So and do you know so is that if you
3:37
Speaker 1: do the deal direct with the bank. I'm wondering what's
3:39
Speaker 1: happening in.
3:40
Speaker 2: Yes, doors and the experts were telling us that so
3:44
Speaker 2: they can avoid them having to pay mortgage broker fees.
3:47
Speaker 2: It was through with their digit home loans, their direct
3:49
Speaker 2: home loan. So yes, they can offer that because they're
3:52
Speaker 2: not having to pay big trailing commissions and things to
3:54
Speaker 2: mortgage brokes.
3:55
Speaker 1: But what would the advice be then, though, to a
3:57
Speaker 1: first home buyer. Should they be seeing a mortgage broadcast
4:00
Speaker 1: so they have a view of the overall market rather
4:03
Speaker 1: than get lured in by the chance of three hundred
4:06
Speaker 1: thousand frequent firepoints.
4:08
Speaker 2: Yes, and mortgage brokers are very handy for first home buyers.
4:12
Speaker 2: The alterna is, if you don't want to do that channel,
4:14
Speaker 2: you can do all of the homework and the research yourself.
4:17
Speaker 2: But that is difficult. That can be quite difficult and
4:20
Speaker 2: quite time consuming.
4:22
Speaker 1: Did you do that?
4:23
Speaker 2: I think the first they're the first two mortgages I
4:26
Speaker 2: got in. This was decades ago. Now, both were three
4:29
Speaker 2: mortgage brokers and it was only after being in the
4:33
Speaker 2: market for a while, and for further sort of loans
4:35
Speaker 2: or investment loans, we would co direct through your bank
4:37
Speaker 2: because you've got that relationship. But yeah, don't just automatically
4:41
Speaker 2: say I'm bank with this big four bank and I'm
4:44
Speaker 2: going to put my mortgage with them, because quite often
4:46
Speaker 2: the big four banks they still have the majority of
4:49
Speaker 2: home loans in Australia where they also do not up
4:52
Speaker 2: with the best deals when it comes to interest rates.
4:55
Speaker 2: And one of the things experts say with all these points,
4:58
Speaker 2: frequent flyer points or cash backs, the most important thing,
5:01
Speaker 2: the biggest benefit you're going to get is a sharp
5:03
Speaker 2: and low interest rate. Yeah, you go over it, all
5:06
Speaker 2: the bells and whistles. Just the lower the interest rate,
5:08
Speaker 2: the more you're going to save over many, many years.
5:11
Speaker 1: It makes perfect sense. The lower the interest rate, the
5:13
Speaker 1: better off you're going to be. And then hopefully as
5:16
Speaker 1: the years go by, you can go back to the
5:17
Speaker 1: bank and press them again and say you can lower
5:19
Speaker 1: my rate, thank you very much. I was wondering about
5:21
Speaker 1: this in that this is unusual that they are going
5:24
Speaker 1: after the first home buyer market. As I said earlier,
5:27
Speaker 1: the biggest gump be choosers. And so you want to
5:29
Speaker 1: get in. This is the loan on offer for you.
5:32
Speaker 1: So I'm just not entirely sure what that might mean
5:34
Speaker 1: for the rest of us. So sorry to all the
5:37
Speaker 1: first time buyers out there, And as I now worry
5:39
Speaker 1: about what's the interest rate for me? But does the bank?
5:43
Speaker 1: Do the banks try and claw it back elsewhere?
5:45
Speaker 2: I don't think it's just these finely tuned machines that
5:49
Speaker 2: they're running. Whether they're they're changing their savings rates, they're
5:52
Speaker 2: changing them all this rates. They're tweaking fixed and variable
5:55
Speaker 2: rates all of the time. But what you could do,
5:59
Speaker 2: as if you're non first time by, if you're seeing
6:01
Speaker 2: your bank's offering a great deal for fair time by,
6:03
Speaker 2: you could go and say, hey, look, I'm by a
6:05
Speaker 2: much lower risk proposition than someone who's got fucks deposit.
6:10
Speaker 2: I've got all these equity in my home, and you
6:11
Speaker 2: can argue that you should get a better deal, And
6:14
Speaker 2: if you do your own research, you can threaten to
6:17
Speaker 2: leave if you have to. There are there can be
6:20
Speaker 2: benefits for switch. We tend to stay sticky to our
6:23
Speaker 2: banks and our mortgage providers just because we think it's
6:25
Speaker 2: such a big hassle to move. But look, if the
6:29
Speaker 2: big savings are there. There's no reason why you shouldn't.
6:32
Speaker 2: You are their customer and they should be looking after you.
6:36
Speaker 2: So it's really Yeah, it.
6:37
Speaker 1: Is interesting, isn't it. With banking you sort of do
6:40
Speaker 1: stay there. I think there was a recent story too
6:42
Speaker 1: on transaction accounts, which I quite love. There was a
6:44
Speaker 1: statistic in that. So was it thirty percent? Thirty percent
6:47
Speaker 1: of Australians have had the same transaction account for twenty
6:50
Speaker 1: years or more.
6:51
Speaker 2: Yep, yeah, and I'm among that too. So have various
6:57
Speaker 2: other accounts that come on, come and go. But there
6:59
Speaker 2: that original one. It's great, isn't it. You look at it,
7:01
Speaker 2: it's basically the bank brands that no longer exists anymore,
7:04
Speaker 2: or where you lived when you were in your l
7:06
Speaker 2: eighteen say, it's very interesting.
7:08
Speaker 1: But the reason but transaction accounts have changed over time.
7:12
Speaker 1: There used to be quite nice that the banks used
7:14
Speaker 1: to want to have your business and helped you out.
7:16
Speaker 1: Now it's the other way around. Whe If you don't
7:17
Speaker 1: have a certain amount of minimum money in the account
7:20
Speaker 1: every month, I'll slug your fee. There's all these sorts
7:22
Speaker 1: of little things you need to check out.
7:24
Speaker 2: Yeah, a few, a few slug fees if you're not
7:28
Speaker 2: using them to transact with if you've forgot your wage
7:31
Speaker 2: going into them, you can be and these are generated
7:33
Speaker 2: the big a few of the big four banks. If
7:35
Speaker 2: you're not if your wage isn't going into them, I
7:37
Speaker 2: think it's like a minimum of three or five four
7:39
Speaker 2: thousand dollars a month going in. If you haven't got
7:42
Speaker 2: their money going in, then they can hit you with
7:43
Speaker 2: a fee. They wave those fees otherwise, and interest rates
7:46
Speaker 2: on transaction accounts on almost all of them zero or
7:50
Speaker 2: zero point one percent.
7:51
Speaker 1: So honestly, if I've got a fee for keeping my
7:54
Speaker 1: money in the bank, I would be a happy person
7:56
Speaker 1: that day. The last coming out of my mouth would
7:58
Speaker 1: be fairly significant. We've gone down a different tekend. Let's
8:02
Speaker 1: get back to the housing market, mortgages, and we did
8:06
Speaker 1: hear the Reserve Bank spell out of this. Interest rates
8:09
Speaker 1: are unlikely to be falling this year. That we've had
8:13
Speaker 1: three cuts this year. Most economists are ruling out a
8:16
Speaker 1: cup by the end of the year. So rates are
8:18
Speaker 1: on hold for the foreseeable future. So what's the best
8:21
Speaker 1: thing we can do now?
8:23
Speaker 2: Yeah, a lot of the big bank economists have come
8:25
Speaker 2: out and changing and said that, Yeah, all the money
8:28
Speaker 2: was on our Melbourne Cup Day rate cut up until
8:30
Speaker 2: some recent inflation triggers. And then we had the Reserve
8:33
Speaker 2: Bank holding at its October meeting and some sort of
8:39
Speaker 2: pretty bleak commentary if you're hoping for rate cut because
8:42
Speaker 2: we've only had three and now no one seems to
8:46
Speaker 2: know when the next one will come or if we
8:49
Speaker 2: will get one. So, I mean, that's a bit of
8:51
Speaker 2: a shock for borrowers who had thirteen rate interest rate
8:56
Speaker 2: rises between sort of May twenty two and a year
8:59
Speaker 2: or so ago, and those thirteen rises pushed it. On
9:02
Speaker 2: a six hundred thousand mortgage, it pushed the repayments up
9:05
Speaker 2: from two and a half thousand dollars to almost four
9:08
Speaker 2: thousand dollars a month, So it was three nine to
9:11
Speaker 2: eighty four. Now that's come down with our rate cats
9:14
Speaker 2: this year to three thousand, seven hundred and nine dollars
9:17
Speaker 2: a month.
9:18
Speaker 1: It's still not two and a half grand. So it
9:20
Speaker 1: was to a half ground before they started, right, So
9:22
Speaker 1: we're talking on an average six hundred.
9:23
Speaker 2: Thousand, six hundred thousand dollars Loane, Yeah, that's right, And.
9:26
Speaker 1: So it was before the interest strates started to climb upwards.
9:30
Speaker 1: It was roughly about two and a half thousand dollars
9:32
Speaker 1: for the repayment at four, pick it at four and
9:35
Speaker 1: that pretty much under three seven.
9:37
Speaker 2: Yeah, so yeah, a long way to go, but we
9:39
Speaker 2: just don't know. And the issue is with inflation. I
9:43
Speaker 2: think the key for whether the Reserve Band does act
9:47
Speaker 2: on Melbourne Cup Day will be I think we've got
9:48
Speaker 2: some inflation, the official inflation data out and quarterly stuff
9:52
Speaker 2: comes down I think later when they lead up to
9:54
Speaker 2: that meeting.
9:55
Speaker 1: But also they will be keeping a keen eye on
9:57
Speaker 1: what's happening in the housing market, won't they, Because the
10:00
Speaker 1: Reserve Bank can only do so much. There is inflation.
10:03
Speaker 1: They are trying to keep within its target bound two
10:04
Speaker 1: to three percent. They really don't want to have property
10:08
Speaker 1: markets hit a bubble. And there's all of this commentary
10:11
Speaker 1: the last couple of weeks that this expanded first home
10:14
Speaker 1: by a scheme is going to bring forward demand. It's
10:18
Speaker 1: going to put people into that first home buy market
10:22
Speaker 1: and for those people who desperately want to own their
10:24
Speaker 1: own home as they should, they want to sort of
10:26
Speaker 1: jump in there. But they're jumping in as investors can
10:29
Speaker 1: see what might happen from this first home by a
10:32
Speaker 1: scheme that is, prices will go up, and there's a
10:34
Speaker 1: bit of a frenzy on at the moment. And the last
10:36
Speaker 1: thing the RBA wants to go and do is cut
10:38
Speaker 1: interest rates to then feed this.
10:40
Speaker 2: Yes, yeah, that's right. They're really sort of stuck because
10:44
Speaker 2: the issues with soaring house prices. The two big issues
10:47
Speaker 2: that we see behind the strugg house price growth is
10:51
Speaker 2: lack of building enough supply and there's not enough houses
10:56
Speaker 2: being built for the people here. And we keep bringing
10:58
Speaker 2: in a lot more hundreds of thousands of new people
11:00
Speaker 2: every year, which is even exacerbating that. Now immigration, it's great,
11:04
Speaker 2: it's great to be in a multicultural sort of country,
11:06
Speaker 2: but you've sort of got to build the roofs over
11:08
Speaker 2: the heads of the people that are coming in. Otherwise,
11:11
Speaker 2: what happens is not enough supply for the rising demand
11:14
Speaker 2: out there, and that pushes that prices.
11:16
Speaker 1: Which the governor pointed out right Michelle Bullerker is that's
11:19
Speaker 1: going to be no meaningful impact on the supply front
11:22
Speaker 1: from all of these government policies. RBA governor is saying, actually,
11:26
Speaker 1: there's going to be no meaningful impact on supply and
11:29
Speaker 1: we are throwing more demand at the situation. As you said,
11:33
Speaker 1: immigration numbers, plus we're going to stimulate the first home
11:36
Speaker 1: buy out market. But here's what I reckon. I reckon
11:39
Speaker 1: that the politicians know it and they don't mind it.
11:42
Speaker 1: Because did you see the results of the News poll
11:45
Speaker 1: so out on Monday, and it shows more Australians want
11:49
Speaker 1: house prices to increase over the next three years compared
11:52
Speaker 1: to staying the same or decreasing. Now, that is because
11:57
Speaker 1: there's a hell of a lot of us that have homes.
12:00
Speaker 1: We feel better about it when home prices rise. And
12:05
Speaker 1: what governments tend to do is and if they can
12:08
Speaker 1: be seen to be helping first home buyers but it
12:10
Speaker 1: helps everyone else out in the market too, well, then
12:14
Speaker 1: hey why not.
12:15
Speaker 2: Yeah, So if they see it as a win win,
12:17
Speaker 2: you're right, it's.
12:19
Speaker 1: I've got to be honest and say, it's just all
12:21
Speaker 1: it's going to do is the house prices go up.
12:23
Speaker 1: The person selling that home wins because the house price
12:26
Speaker 1: went up. Yes, the government can pat themselves on the
12:28
Speaker 1: back and say they help first home buyers get in,
12:30
Speaker 1: but very quickly that incentive got eroded away and it
12:34
Speaker 1: was actually the existing property owner that gets the wire share.
12:37
Speaker 2: Of that benefit, and those first home buyers have got
12:39
Speaker 2: even bigger mortgages to pay off over the life of
12:42
Speaker 2: the loan, while the existing occupies and the existing investors
12:47
Speaker 2: have just got ossets have just gone up further in value.
12:49
Speaker 2: So yeah, exactly right. It's little unfortunate, isn't it that
12:55
Speaker 2: if we just see these this focus on grabbing votes
12:59
Speaker 2: more so, and it is dressed up at something, Oh,
13:02
Speaker 2: we're looking after the first home buyer, but we're actually
13:04
Speaker 2: making it more expensive for the third home buyer, and
13:07
Speaker 2: they've got much bigger mortgages to pay off. And no,
13:10
Speaker 2: they don't have their twenty percent deposit. Really, they're only
13:13
Speaker 2: having to deal with a five percent deposit.
13:15
Speaker 1: So no, so begs the question what happens with tax
13:17
Speaker 1: phase if this all turns Yeah, yeah, you know, if
13:20
Speaker 1: the market sort of if there is a bubble that
13:21
Speaker 1: some expects are warning that there is a potential bubble
13:24
Speaker 1: forming in that lower end of the market. So if
13:26
Speaker 1: it all ends in tears, if we've got lots of
13:28
Speaker 1: people sitting there on negative equity, the government's guaranteeing schemes,
13:32
Speaker 1: you can see the risks. Yes, yeah, exactly, Okay, right
13:36
Speaker 1: plenty to unpack. Anthony. You also details your investment property portfolio.
13:42
Speaker 1: So on the one hand, we have an incentive scheme
13:45
Speaker 1: now for first home buyers to get into the market.
13:48
Speaker 1: Those first home buyers are competing with investors in the
13:51
Speaker 1: market because all the signs point to property right prices
13:55
Speaker 1: going up over the next twelve to twenty four months.
13:58
Speaker 1: When we come back, I want to have a chat
14:00
Speaker 1: to you about your strategy, how you got into investment properties,
14:03
Speaker 1: how you didn't hand over a single cent to do so,
14:06
Speaker 1: but some of the risks involved and what investors in
14:09
Speaker 1: particular need to be mindful of. We'll have that chat
14:11
Speaker 1: when they come back. Well, welcome back to the Money Puzzle.
14:23
Speaker 1: I'm your host, Julianne Sprague, filling in for James Kirby,
14:27
Speaker 1: who is on leave. Back with you next week, though
14:30
Speaker 1: we can't wait to have him back. In the meantime,
14:32
Speaker 1: we are chatting property with wealth reporter at The Australian,
14:36
Speaker 1: Anthony Keane. We've had a chat about the mortgage wars
14:40
Speaker 1: that have sparked off the back of the government's expanded
14:44
Speaker 1: home by a scheme. We want to have a chat
14:46
Speaker 1: though about investment properties. If you want to set up
14:48
Speaker 1: an investment property portfolio, how you can go about it.
14:52
Speaker 1: Anthony recently wrote a piece for The Australian and it
14:55
Speaker 1: detailed his journey how he got an investment property portfolio
14:59
Speaker 1: and he did it or without handing over a single cent.
15:01
Speaker 1: And I love these types of strategies. I don't like
15:05
Speaker 1: handing over a single cent. Well, you know, it depends
15:09
Speaker 1: what it's for. I'll be perfectly honest. I do ask
15:11
Speaker 1: my husband. I can hand over many cents for many things.
15:15
Speaker 1: But let's talk about how Anthony did this with investment property.
15:18
Speaker 1: Is Anthony, let's have a chat about how you got
15:20
Speaker 1: your first investment property? Why did you want to get
15:24
Speaker 1: an investment property? Before we start getting into the strategy.
15:26
Speaker 2: Okay, why And bear in mind this was twenty twenty
15:29
Speaker 2: twenty twenty five years ago, so it was a while ago,
15:32
Speaker 2: but it still works today. I had read, as many
15:37
Speaker 2: people did, the best selling by Robert Kiyosaki, Rich Dad,
15:40
Speaker 2: Poor Dad, which was basically just about using leave read
15:45
Speaker 2: using other people's money, taking calculated risks, building wealth, because
15:50
Speaker 2: no one's going to build it for you if you
15:53
Speaker 2: don't take proactive steps in improving your life financially.
15:58
Speaker 1: Did you have kids at this point, like the rich
15:59
Speaker 1: dad poor thing when you're looking for books about fatherhood
16:02
Speaker 1: and this is what you stumbled.
16:03
Speaker 2: Upoint No, I no, this was probably a coupul of
16:06
Speaker 2: years before the kids came along. And I think that
16:10
Speaker 2: I would have been a lot more aggressive if we
16:14
Speaker 2: didn't have children. I think when the children came along,
16:17
Speaker 2: you just with your borrowing strategies, you're a lot more
16:19
Speaker 2: conservative than you could otherwise be because you're not only
16:23
Speaker 2: risking your part livelihood, but you're risking the kid's future
16:27
Speaker 2: if it all goes belly up. So I think that yeah,
16:31
Speaker 2: once the kids came along, we settled down a little bit.
16:33
Speaker 2: Original plans to buy a property every few years sort
16:37
Speaker 2: of got extended a little bit. And also it depended.
16:40
Speaker 2: It depends on the growth of the property. I mean,
16:42
Speaker 2: the key thing when buying real estate without handing over
16:46
Speaker 2: cent is to have your own home, and you don't
16:48
Speaker 2: have to have it paid off. You've just got to
16:49
Speaker 2: have your own home with equity in it, and enough
16:52
Speaker 2: equity to allow you to borrow against that equity. Is
16:56
Speaker 2: a difference between the value of the home and what
16:58
Speaker 2: you are on the mortgage.
17:00
Speaker 1: But let's talk about that point. So, okay, this strategy
17:02
Speaker 1: works that not handing over a cent is you have
17:04
Speaker 1: your own home, So you've bought your own home, and
17:07
Speaker 1: let's like, for argument sake, so you've diligently be paying
17:09
Speaker 1: more than the minimum repayment for your mortgage. Every case
17:13
Speaker 1: will be different, and we should stress that we're not
17:15
Speaker 1: providing financial advice in this podcast. We are just talking
17:18
Speaker 1: about different tips and strategies and things we've seen in
17:20
Speaker 1: the market. But is for you in particular, and based
17:24
Speaker 1: on the reading that you have done, is there sort
17:26
Speaker 1: of a level of equity where you feel that this
17:28
Speaker 1: is the time that you can go and I want
17:30
Speaker 1: to say double down, but where you can go and
17:32
Speaker 1: take all more debt.
17:34
Speaker 2: I think it's at least sort of I mean, for me,
17:37
Speaker 2: it was more having at least sort of thirty percent
17:40
Speaker 2: equity in the home because obviously you're borrowing. And just
17:45
Speaker 2: like we spoke earlier about like that the first home
17:49
Speaker 2: buy is traditionally you buy a lower you have a
17:52
Speaker 2: twenty percent deposit for it. Instead of paying cash for
17:56
Speaker 2: an investment property, you're using the equity that you've got
18:00
Speaker 2: in your own home. So let's say, and we'll use
18:03
Speaker 2: really around numbers and median house prices heading up towards
18:05
Speaker 2: a million. Now, unfortunately they were nowhere near that when
18:08
Speaker 2: I've started twenty odd years ago. But if you've got
18:11
Speaker 2: a million dollar house and you've got say forty percent
18:16
Speaker 2: equity in that, so you've that means your loan might
18:20
Speaker 2: be six hundred thousand dollars, and then you bought another
18:22
Speaker 2: million dollar house on that, just paying for the whole amount.
18:26
Speaker 2: And then you've got the too, you've got like two
18:29
Speaker 2: million dollars of property and you've got one point one
18:33
Speaker 2: point well I say one point four, Yeah, so basically
18:36
Speaker 2: have four hundred equity, but then that's divided between two houses,
18:38
Speaker 2: so that you've got twenty percent equity in that total
18:41
Speaker 2: in each of those houses. So you're still total portfolio
18:45
Speaker 2: is still better than that that twenty percent mark. So yeah,
18:49
Speaker 2: so does that make sense?
18:51
Speaker 1: It makes sense. So if you've got like it's a
18:55
Speaker 1: minimum of thirty percent equity, and we say that because
18:58
Speaker 1: you have to be alive the fact that markets may
19:01
Speaker 1: not keep going up, they may go the other way around,
19:04
Speaker 1: and you don't want to be caught.
19:06
Speaker 2: That's exactly right, And markets can fall, and we've seen that.
19:09
Speaker 2: We've seen that in some markets in Australia, and I
19:13
Speaker 2: think in the past I did. I believe I would
19:15
Speaker 2: have paid lenders mortgage insurance for one of my mortgages,
19:18
Speaker 2: previous mortgages in the past. Now it's sort of you
19:21
Speaker 2: avoid that, but I pay that in the past. It's
19:24
Speaker 2: become a lot more expensive as house prices have gone
19:28
Speaker 2: up as well in the last decade or so, so
19:31
Speaker 2: you might want As if we said earlier, it really
19:34
Speaker 2: depends on the amount that you've got and also what
19:37
Speaker 2: you're comfortable with. You've got to be comfortable on taking
19:40
Speaker 2: on debt, You've got to be comfortable with the property
19:43
Speaker 2: investments that you may go nowhere for ten years, and
19:47
Speaker 2: I've written that out. I've had nine or ten years
19:49
Speaker 2: where I've effectively been paying interest on a loan with
19:53
Speaker 2: the help of tenants, paying off off, paying interest towards that,
19:57
Speaker 2: but zero capital growth for a decade. But then after
20:01
Speaker 2: that decade, as we've seen in quite a few states
20:03
Speaker 2: in the last five year five or so years, house
20:06
Speaker 2: price is double. I've always said, you've only got to
20:08
Speaker 2: really ride your real estate through two booms and then
20:13
Speaker 2: you're set for the rest of your life. The first
20:15
Speaker 2: one can get you very comfortable and gives you a
20:17
Speaker 2: position to expand more by another investment property or two.
20:21
Speaker 2: And the second one. When you've got those multiple properties
20:24
Speaker 2: and they're all increasing in value over that sort of
20:27
Speaker 2: boom period, that's how you that's how you grow the
20:31
Speaker 2: real wealth from real estate.
20:33
Speaker 1: And do you use the same metrics. So if you've
20:35
Speaker 1: got the first so you put your to on the water,
20:37
Speaker 1: get your first investment property, and then wait for thirty
20:40
Speaker 1: percent equity on that investment property and then go again,
20:44
Speaker 1: how do you build.
20:45
Speaker 2: A pretty much and I know it, and I know
20:47
Speaker 2: it was probably more specifically for me, it's probably simple.
20:50
Speaker 2: If you say, you've got sort of a forty percent
20:53
Speaker 2: to start with, so you've got it because they're obviously
20:56
Speaker 2: you're you. Really it's you working with your lenders a
21:01
Speaker 2: lot because they're the one. Yeah, and look, I think
21:07
Speaker 2: that's very good. The one thing you don't want to
21:09
Speaker 2: do is pay a way to say I'm going to
21:11
Speaker 2: not buy an investment property until I've paid my own
21:14
Speaker 2: home off, because that's twenty years. You are potentially sitting
21:18
Speaker 2: out of the market where you've only got one price
21:22
Speaker 2: one house price, it's rising in value. So when you
21:24
Speaker 2: have multipler going up, every investment property owner in or
21:29
Speaker 2: even in every property owner in states like wa Queensland,
21:32
Speaker 2: South Australia, in the last five or so years since
21:35
Speaker 2: the pandemic has seen maybe ninety hundred percent growth in
21:38
Speaker 2: their house. So if you've got one one medium house
21:42
Speaker 2: that was five hundred thousand worth, say five hundred thousand
21:44
Speaker 2: dollars in those states five years ago, it's now up
21:48
Speaker 2: towards heading up towards a minion, you've made close to
21:50
Speaker 2: half a million. If you had another investment property then
21:53
Speaker 2: at the same time, then you've made double that. You've
21:55
Speaker 2: had two investment properties, you've made you've just multiplied your gain.
22:00
Speaker 2: And the thing is with investment property loans, your you
22:06
Speaker 2: often do them interest only at least for the first
22:08
Speaker 2: five or ten years, so it's lower payments. You've also
22:10
Speaker 2: got tenants that will help you cover the mortgage of payments.
22:15
Speaker 2: A lot of property investors found it really tough in
22:18
Speaker 2: sort of since that April May twenty twenty two when
22:21
Speaker 2: we had those thirteen rate rises, because they weren't putting
22:24
Speaker 2: as we sort of saw before. How much the monthly
22:27
Speaker 2: your payments got up landlords of what we're putting out rants,
22:30
Speaker 2: but nowhere near at that sort of rate, not a
22:33
Speaker 2: I mean, repayments went up sixty percent in a couple
22:35
Speaker 2: of years, and I don't think you would have.
22:38
Speaker 1: Been as well as the equity component as well as
22:41
Speaker 1: making sure you've got a good enough buffer before you
22:44
Speaker 1: go in and jump into an investment properly. I mean
22:47
Speaker 1: you must be having to work out some numbers year
22:49
Speaker 1: to work out should interest rates rise by I don't know,
22:52
Speaker 1: look to be fair, if I was doing it, I'm
22:54
Speaker 1: not sure I would have put thirteen in the model.
22:57
Speaker 1: But at least if you in for some.
22:59
Speaker 2: Yes, that's right overstretch. Well, what we have with lenders
23:03
Speaker 2: are automatically putting it into their model at a three
23:08
Speaker 2: percent higher interest rate than what you're currently paying. So
23:13
Speaker 2: if you're currently paying five and a half percent, which
23:16
Speaker 2: is around the rate sort of today for a loan investment,
23:18
Speaker 2: moans might be a bit closer to six, but that's
23:20
Speaker 2: eight and a half nine percent. The lender's factoring in
23:24
Speaker 2: that you can afford to pay. They won't lend you
23:27
Speaker 2: the money otherwise, so and they've become tougher.
23:31
Speaker 1: I know you say that, but I remember it wasn't
23:34
Speaker 1: this property. Maybe it's property. I remember being told by
23:37
Speaker 1: our broker how much money we could buy a property for,
23:40
Speaker 1: and I laughed at this particular broker's face. I so
23:43
Speaker 1: you've got to be joking me. How on earth? I
23:47
Speaker 1: know what my position is, I know what my financial
23:49
Speaker 1: position is. How on earth does the bank think they
23:51
Speaker 1: can loan me that much money? Is it? This particular
23:54
Speaker 1: institution just wants to know that you have. It was
23:56
Speaker 1: something like twenty dollars in your bank account the end
23:58
Speaker 1: of the week. They aren't really care that you're going
24:02
Speaker 1: to have to eat boiled rice for dinner every night. Yes,
24:05
Speaker 1: I just feel I get where you're coming from.
24:07
Speaker 2: Bo.
24:07
Speaker 1: I feel like i'd want to add different numbers to
24:09
Speaker 1: what the banks are saying. And I reckon, Anthony, I reckon.
24:13
Speaker 1: I'm not the only person to have sort of had
24:16
Speaker 1: a couple of issues with the strategy. And it's not
24:18
Speaker 1: that I don't believe that what you're doing is right
24:20
Speaker 1: and sound, and I wish that I had perhaps done
24:23
Speaker 1: something similar, maybe ten, ten, fifteen years ago. But a
24:28
Speaker 1: few readers had some questions about this, including about tenants.
24:33
Speaker 1: There's all these other things that you've got to navigate.
24:36
Speaker 1: When we come back, I'm going to put some of
24:37
Speaker 1: those comments to you and see whether you thought about
24:40
Speaker 1: this before you bought the investment properties, or maybe what
24:43
Speaker 1: you experience has been it should been a landlord, what
24:46
Speaker 1: it's like being a landlord in Australia. We will have
24:50
Speaker 1: that chat when we come back. Welcome back to the
24:56
Speaker 1: money Puzzle. I am Julian Sprague, Welsh Editor The Australian.
25:01
Speaker 1: I am joined by my colleague Wells reporter Anthony Keane.
25:05
Speaker 1: We're having a chat about his investment property portfolio. Very clever.
25:09
Speaker 1: Anthony started to build a portfolio after reading the book
25:13
Speaker 1: Rich Dad poured ad and decided he had to build
25:15
Speaker 1: wealth for himself. No one was going to get in
25:17
Speaker 1: there and do it for him. Anthony. We've chatted about
25:21
Speaker 1: the equity component. So you got your equity in your
25:23
Speaker 1: own home, go and get the investment portfolio. You now
25:26
Speaker 1: have a few. When you detailed this strategy for The Australian,
25:32
Speaker 1: there was some feedback, lots of people patting on the
25:35
Speaker 1: back done some similar things that there was a few
25:38
Speaker 1: that had not issues. They're just curious. I reckon Anthony
25:43
Speaker 1: about how this really can work in real life now
25:45
Speaker 1: consens the author does not tell some people about when
25:49
Speaker 1: things go wrong. So when it goes bust, for instance,
25:53
Speaker 1: now concess the global financial crisis, that could occur, inflation,
25:58
Speaker 1: interest rate rises. What about Paul keating when the interest
26:02
Speaker 1: rates went to seventeen percent and you get financially stressed.
26:06
Speaker 1: Tenants may damage rented houses and house prices can go backwards.
26:11
Speaker 1: So he's pointing out that while there are benefits to
26:17
Speaker 1: the strategy, and when things are going well, everyone seems
26:20
Speaker 1: to be a genius, but things can go the other way.
26:23
Speaker 1: So did you consider some of these things. Did you
26:24
Speaker 1: think about tenants and what if they don't pay their
26:28
Speaker 1: rent or what if they damage your property? What's your
26:30
Speaker 1: experience been exactly?
26:32
Speaker 2: The old Tenants from Hell is a real worry for
26:35
Speaker 2: a lot of landlords. And I have colleagues who have
26:38
Speaker 2: gone investment and I deliver. It's always a risk, it's
26:42
Speaker 2: always going to happen. To protect yourself against that, you
26:45
Speaker 2: have land ord insurance which covers against damage by tenants.
26:49
Speaker 2: You can't treat an investment property as your own home.
26:52
Speaker 2: If you do get a bad tenant who doesn't pay,
26:55
Speaker 2: or skips through, or damages or cans of room into
26:58
Speaker 2: a drug lab or something. You have insurance to cover
27:01
Speaker 2: that to cover those losses. You treat it as a
27:03
Speaker 2: business asset arms length. You don't worry about it.
27:06
Speaker 1: Have you ever had to use it?
27:08
Speaker 2: No, I've been really fortunate that we haven't, and my
27:12
Speaker 2: strategy personally and it has Others have done much better
27:17
Speaker 2: than I have with different strategies. But I always target
27:20
Speaker 2: to the median price sort of medium price of a
27:24
Speaker 2: housing market in a particular city that you're looking at. Basically,
27:27
Speaker 2: the belief behind that was that's where the vast majority
27:30
Speaker 2: of the properties are and price points and people who
27:32
Speaker 2: can afford that. Colleagues have gone to the really lower
27:35
Speaker 2: end where they will pay. They'll buy multiple properties for
27:38
Speaker 2: half the value of what the medium price is. That's
27:42
Speaker 2: generally more lower socioeconomic areas. Generally you've got more tenant issues. Likewise,
27:48
Speaker 2: others might have bought. Investors might have targeted more expensive
27:52
Speaker 2: real estate, which is great when you get capital growth
27:56
Speaker 2: because you get bigger gains, you've got a bigger starting point,
27:59
Speaker 2: but also after and it's harder because you've been got
28:01
Speaker 2: to stump up more of the of the repayments because
28:05
Speaker 2: the tenants sort of the tenant's rent doesn't cover that.
28:08
Speaker 2: So I found around the medium price has always been
28:10
Speaker 2: quite good. Even with these rate rises we've had in
28:13
Speaker 2: recent years, rents covered a vast majority of your mortgage costs.
28:18
Speaker 2: So the tenants from hell, yes it's a worried, have insurance.
28:21
Speaker 2: Don't buy stuff in really crappy areas. That's the rule
28:25
Speaker 2: there as far as the rate rise goes that we
28:27
Speaker 2: just had. Yet you can always worry about a seventeen
28:30
Speaker 2: percent interest rates, but we just went up to around
28:33
Speaker 2: sort of four and a half percent in recent years
28:36
Speaker 2: and it almost destroyed like people that was going from
28:39
Speaker 2: that ultra low level. So given that everyone's paying an
28:43
Speaker 2: extra sort of fifteen hundred dollars a month on a
28:45
Speaker 2: typical loan compared to a few years ago, people can
28:49
Speaker 2: only go so far. So you've just got to believe
28:51
Speaker 2: that you've got the finances, and it's really hard if
28:55
Speaker 2: you're on a single income as well. I would imagine
28:58
Speaker 2: that I've interviewed quite a few young invests does that
29:00
Speaker 2: have had a lot of success and they've bought multiple properties.
29:04
Speaker 2: Think good on them. That's excellent. Probably they haven't had
29:07
Speaker 2: kids yet, so they don't have that extra conservative side
29:10
Speaker 2: that comes in. They've often brought in regional areas, but
29:13
Speaker 2: they've done their homework and board in regional areas where
29:15
Speaker 2: prices a cheaper, but there's a potential for growth there
29:19
Speaker 2: because it's just they've got the growth that way. So
29:22
Speaker 2: I don't worry about interest rates going up a lot.
29:27
Speaker 2: But I've been fortunate to be in a duel income
29:29
Speaker 2: sort of household for the last twenty odd years as well.
29:33
Speaker 1: So are you good at picking talents as well? We
29:35
Speaker 1: don't presume you outsourced.
29:36
Speaker 2: Leave it up to the experts. Yeah, Originally I started
29:39
Speaker 2: doing on myself. We would do it our own, we
29:42
Speaker 2: would rent our own. But I think maybe ten to
29:44
Speaker 2: fifteen years ago, just thought, you know what, get a
29:47
Speaker 2: property manager. It's tax deductive border feed that you paid in.
29:50
Speaker 2: They do the screening, they do that, they do everything.
29:52
Speaker 2: If there's an issue, they've got the tradesman on hand.
29:55
Speaker 2: So I was anti property manager for probably five or
29:59
Speaker 2: so years and been pro property manager for fifteen or
30:02
Speaker 2: so years. And there's been issues. We've had one place,
30:05
Speaker 2: it's had multiple plumbing explosions. And I really feel for
30:08
Speaker 2: the tenants, and it was seen bot some dodgy workmanship
30:10
Speaker 2: and the few issues with the property manager there. But
30:13
Speaker 2: it's sort of that's been vastly offset by the capital
30:17
Speaker 2: growth of that place is delivered over the last five
30:19
Speaker 2: or seven years.
30:20
Speaker 1: So this is another component, isn't it that you do
30:23
Speaker 1: want to put some cash away for those events where
30:26
Speaker 1: you have to fix up your property. And I say
30:28
Speaker 1: this is because I have been a landlord at one
30:33
Speaker 1: point in time. I know I don't strike you at
30:35
Speaker 1: the landlord type. But when I moved to Sydney, we
30:40
Speaker 1: rented our place out and we had the most fantastic tenants,
30:44
Speaker 1: but they made our garden really good. When we moved
30:48
Speaker 1: back into the property, I'm thinking I need to get
30:50
Speaker 1: them back in a few months because I've managed to
30:52
Speaker 1: sort of kill it off. But that were terrific. But
30:54
Speaker 1: I do remember within the first few weeks of anning
30:56
Speaker 1: in Sydney that the whole water system blew up, but
30:59
Speaker 1: it just working. There was something else with you. We've
31:01
Speaker 1: never had issues with this property, and then within a
31:04
Speaker 1: few months, all of a sudden, we're out for a
31:06
Speaker 1: few thousand dollars replaced in this sun.
31:08
Speaker 2: And it happens. That's the thing we had. In the
31:11
Speaker 2: last twelve months two years, we've had roofing issues on
31:15
Speaker 2: two a couple of older properties, and I think ten
31:18
Speaker 2: thousand dollars or more per property. We're just fortunate that
31:22
Speaker 2: the kids had just finished school just before then, so
31:25
Speaker 2: we're and the kids. So you're right. When you do
31:29
Speaker 2: invest you've got multiple chances of having issues. Insurance won't
31:35
Speaker 2: cover maintenance and that sort of thing. It will cover
31:37
Speaker 2: damage by tenants, It will probably cover, depending where you are,
31:40
Speaker 2: storm damage or someone driving a car through the living room,
31:43
Speaker 2: that sort of stuff, but it won't cover just leaking
31:46
Speaker 2: roofs that need to be repaired and that sort of thing.
31:49
Speaker 2: So you do you need to have financial buffers. You
31:51
Speaker 2: need to have an income, you need to have You
31:55
Speaker 2: don't necessarily need to have cash fund sitting away. You
31:58
Speaker 2: literally just have equity that you're that were able to
32:00
Speaker 2: draw on either your existing home or that investment property,
32:04
Speaker 2: or it's just anyone who's got mortgages. I firmly believe
32:08
Speaker 2: doesn't need to just have cash sitting in the bank,
32:10
Speaker 2: as long as you've got the financial firepower to cover
32:13
Speaker 2: those unexpected costs through equity, through a morgage of set
32:16
Speaker 2: account through alone redraw facility. We've drawn back on redraw
32:20
Speaker 2: facilities multiple types to cover various expenses like that.
32:25
Speaker 1: Final one for you. Given what we know about markets
32:29
Speaker 1: at the moment, so things are feeling hot, We've got
32:31
Speaker 1: the expanded first one bias scheme. There are warnings that
32:34
Speaker 1: there is potentially a bubble forming, but there are lots
32:36
Speaker 1: of investors racing in. They can see that there is
32:41
Speaker 1: some money to be made in this market. Would you
32:44
Speaker 1: buy an investment property right now.
32:49
Speaker 2: On the spot, Yes, I would certainly look at it,
32:53
Speaker 2: although the options have dwindled in recent times. I would have.
32:59
Speaker 2: I really wanted to buy in in Wa It would
33:02
Speaker 2: have been fantastic, but missed the boat by a few
33:04
Speaker 2: years there. The prices there have gone bananas, as they
33:07
Speaker 2: have in Queensland, and I've been looking at potentially Melbourne.
33:12
Speaker 2: But the stuff from reading there on all the different
33:15
Speaker 2: taxes and prices struggling there is sort of making me
33:18
Speaker 2: sort of worry a bit. So I and I've written
33:21
Speaker 2: a column about this as well. If I was to
33:22
Speaker 2: buy another one, I would still look towards that neck
33:25
Speaker 2: of the woods, but I would want to be a
33:28
Speaker 2: lot more educated about the potential bit falls and issues
33:31
Speaker 2: that can arise, and taxes and anti investor rules and things.
33:36
Speaker 2: So I really believe you've got to be in the market.
33:39
Speaker 2: You've got to be in there to win it. Firstly,
33:41
Speaker 2: get to your own home. Some people are buying investments first,
33:45
Speaker 2: but you still want to aim for your own home
33:47
Speaker 2: at some time because it is the biggest tax free
33:50
Speaker 2: investment anyone is going to own. No capital gains tax
33:54
Speaker 2: on your own home. It's just that it beats shares,
33:56
Speaker 2: it beats everything from that, and it's a security roof
33:59
Speaker 2: over your head, security of that. So I would look
34:02
Speaker 2: at it, and I will be looking at it in
34:04
Speaker 2: the next six to twelve months. I just don't know
34:06
Speaker 2: how the homework's going to go and whether the numbers
34:09
Speaker 2: will stack up, especially with this new potential first home
34:12
Speaker 2: buyer boom that we are now sort of seeing created
34:15
Speaker 2: by this government.
34:17
Speaker 1: Well, we might check in with you in a few
34:18
Speaker 1: months time see how the mass is going. Anthony Jane,
34:21
Speaker 1: it is always a pleasure. Thank you very much for
34:23
Speaker 1: joining us on the money puzzle.
34:25
Speaker 2: Thanks Julian, And.
34:27
Speaker 1: As Anthony mentioned, he's written a lot about this issue.
34:30
Speaker 1: So if you want to see some of those articles,
34:32
Speaker 1: you can go to the Australian dot com dot au
34:35
Speaker 1: slash Wealth. You can subscribe and get all these insights
34:40
Speaker 1: into Welsh building strategies. And if you want to reach
34:43
Speaker 1: us here at the Money Puzzle you can send us
34:45
Speaker 1: an email The Money Puzzle at the Australian dot com
34:48
Speaker 1: dot au. Thanks very much for listening and we will
34:52
Speaker 1: be back with another episode on Friday, and James Kirby
34:54
Speaker 1: will be back next week. The Plan sh