INSIDE COMMERCIAL PROPERTY: The 101 of buying commercial property through an SMSF
On the latest episode of Inside Commercial Property with Rethink Investing, hosts Phil Tarrant and Scott O’Neill talk ...
Have you been waiting to hear your question on the podcast? In this episode of The Smart Property Investment Show, managing director of Propertyology, Simon Pressley is here to give you the answers!
Listen now as he and host Phil Tarrant discuss everything from attracting buyers to your property listing, to the risks and advantages associated with a regional property investment, and even advice offer some advice for low income earners wanting to get a foot in the door of property investment.
Plus Simon has some predictions on the best performing investment markets in the coming 5 years based on recent property trends.
You’ll hear all of this and much, much more in this episode of The Smart Property Investment Show!
If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: Facebook, Twitter and LinkedIn. If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!
RELATED AREAS OF INTEREST:
Announcer: Welcome to the Smart Property Investment Show, with your host, Phil Tarrant.
Phil Tarrant: Hello, everyone, it's Phil Tarrant, here. Thanks for tuning into the Smart Property Investment Show. We have today, something which is always anticipated, we try and do it once a month, a big Q & A session. Where we create and curate all the feedback that we get. And I do thank everyone for sending in all those questions to the [email protected] And you can use that if you want to get in touch with us. But, we get lots of questions and we like to sort of pull them into themes so we can actually have a discussion around them.
Today, I'm joined by someone who is very well versed to help me out, to navigate our way through these questions. Simon Presley, who's the MD of Propertyology. Simon, welcome back to the show.
Simon Pressley: Always good to have a chat, Phil.
Phil Tarrant: I know you do like a Q and A session with us and we'll try and keep on track. But, often I generally find we navigate our way away from it
Simon Pressley: But, it's easy to happen isn't it?
Phil Tarrant: It's all deeply connected. But, Simon's a good friend of Smart Property Business and we get him on the podcast, as often as possible, when he's in town. You're not based in Sydney, are you? Where we record this from.
Simon Pressley: I'm based in Brisbane, but the in-laws,
Phil Tarrant: You're applying a lot, aren't you?
Simon Pressley: I'm applying a bit in analysed markets all over country. Capital cities, regions, we do a bit of travel.
Phil Tarrant: Yeah, so one of the questions I always get, and the liberty of being the host, I'm gonna ask a question-
Simon Pressley: You got a question already?
Phil Tarrant: Yeah. It's connected, but I often who say; whether you're a buyer's agent based in Sydney, or Brisbane, or Melbourne, do you need to be using a buyer's agent that's in the place where you want to buy? I'd go, "No." But, I'm going to let you answer that.
Simon Pressley: Yeah, look, it's a good question and the answer is both a yes and a no, I think. If you're a homeowner and you're looking for a buyer's agent, I, absolutely. That's a great service. Most valuable asset that you might put your money into, rather than be batting against the LJ Hooker's or Ray White’s of the world. Engage a buyer's agent and they should be local. And there's a different skill to help someone buy the family home, compared to help someone invest.
There are buyer's agents who help someone invest in the market of the city where the buyer's agent has an office. And then, there are research companies, which is propertyology, who have a buyer's agent service with it. But, you still need to have quality assurance in place to find the right property on the right street and to help the due diligence. You don't have to have an office in the town to be able to do those things.
As long as you do them. So, that your hard-earned investment dollar is protected. Fine. But, how you do it doesn't matter, as long as you do it.
Phil Tarrant: Mm-hmm (affirmative)
That makes sense. So, do you need to use a buyer's agent that's based where you want to buy? The answer is yes and no.
If you're buying a house to live in, as in your family home. And you know where you want to live and all the reasons why you want to live there. It's pretty much a, "Hey, I need a five bedroom house with the pool and a backyard that's flat. And I need a little 'granny-flat" so my mother-in-law could live in it, etc, etc."
Then it's good to get someone who actually knows that particular suburb intimately and is based there. Whereas, it's a bit chicken and egg. If it's an investment, it's not about, "Hey I want to buy a property in this place." It's about, "I want to find the best investment possible for my particular strategy. And the point I’m at in my portfolio and that can be anywhere.
Simon Pressley: Yeah, I think people need to distinguish there's a big difference between knowing your neighbourhood and knowing markets.
Phil Tarrant: Mm-hmm (affirmative), okay.
Simon Pressley: If we're talking the family home; that's a personal thing, it's an emotional thing, and you need to enjoy it. And that's knowing your neighbourhood. But, if you want to invest; where you live, where you go to school: has got nothing to do with it.
It would be like a shared investor saying, "I work for CBA, so I'm going to buy CBA share." No, I don't think that way about the whole stock exchange. So to a property investor, your whole stock exchange is, eight states and territories five-hundred and fifty city councils.
A buyer's agent is not going to help you pick the right one of those. A buyer's agent will help you find a good property and negotiate a good price.
But first, how do you find the market? Which market do you start the search in? That we need a research company to do that. And, That's us and a couple of others
Phil Tarrant: Yeah.
So is it big news for an internet buyer agent and, probably, strategist and a research company?
Simon Pressley: Absolutely!
Phil Tarrant: Okay.
Simon Pressley: Yep.
Phil Tarrant: Alright, well that's my first question.
Simon Pressley: Yeah! Good!
Phil Tarrant: Let's get into the real questions. And as you know, for those that tune in to our Q and A sessions, I keep this really raw and I've literally been handed these questions by one of our team. About a minute before we've come on air. So, I'm reading this for the first time and the reason why I do that is that you get raw and authentic responses from me straight off the bat, and also Simon.
First question is, and what they've done here, and I'm looking through it. I'm gonna actually start videoing these podcasts so you can actually see what happens behind the scenes. But, I've got a really detailed question to start with and then they've put together some curated stuff for some other questions which are a little bit shorter. We can probably get through them a little bit quicker.
But, first questions says, "Hi Phil, love the show. I've been an avid listener for well over a year now. Always plenty of brains," thank you very much. By the way, this is by Dean Thomas. Dean, thanks for writing in. Dean says, "I have a question for your next Q and A show which was prompted by a recent show with one of the buyers agents where you mentioned that you're "rentvesting" in quotation marks. I'm also in the same boat; renting in the hills district with a young family and I have two investment properties in Brisbane, valued at about 1.15 million.
Like most people, I very much regret not starting my property investment journey ten or twenty years ago. And now, I'm in my early forties, my wife and I have a bit of catching up to do. So, investing where we see value and future capital growth is the path we've chosen."
Okay, alright Dean. This is where we get to the question.
"We're fortunate enough to have decent incomes and earn a combined circa three-hundred thousand dollars is good money. The current investment probably is going to cost about two hundred bucks a month before any tax. Benefits for both of them. So, we have plenty of serviceability to purchase more investment properties, which we plan on doing.
So the question is: What is a "rentvestors" endgame?
Rent forever and live off equity or rental income? Or settle down and purchase a principal place of residence? What is the right time for you to purchase a principal place of residence. PPOR.
Thanks in advance for any insight you brought."
Alright then, good question. So what Dean's chatting about, I had a conversation around, I hate the term but, I'll use it, "rentvesting". I think it's a stupid term, but anyway, so, I invest as an investor where I should be investing. And that's got the best fundamentals for capital growth and yield and all the `stuff that we always talk about.
Where I want to live, I actually rent there. I live in a nice place and I can't see myself moving at any point in time. A point in time if they come up for sale, I might buy them. But, it would cost me a lot of money and it wouldn't be a good investment.
Do you hear of this sort of scenario a lot? Is it a bad scenario, good scenario? Or, depends on who you are and what you are, and what you do, and what your longterm games are.
Simon Pressley: It's just so popular, isn't it? Fill the "rentvesting". I mean, its always been around. It's someone-
Phil Tarrant: Coined it.
Simon Pressley: Gave it a term.
Phil Tarrant: Worst term ever, by the way.
Simon Pressley: But, at least we know what we're talking about. People do it for different reasons. I mean, propertyology's helped, for example; young people who live in an expensive city like Sydney. They can't afford to buy here, but they still want to live here or work here. And plenty more affordable places are in Australia. So, they'll do as you're doing. There are others. We've helped people who work in the Defence Force, for example. So, they know that every two or three years they're going to be transferred. And that's the career path they've chosen. They're often provided accomodation everywhere they move.
So, they earn their money working in Australia's military and whatever they can save they invest around the country. We help them do that.
We've helped some babyboomers as the kids moved out of home. They've got this big house with only mom and dad living in it. And they realise that there might be sort of fifty-five years of age, ten years left in the workforce. All they have left is a little bit of super. And the family home.
So some babyboomers have actually sold the family home, cleared the mortgage. If it's a couple living in Sydney, they might hand out, let's say eight-hundred thousand dollars cash in the bank. They then rent where they want to live as you've described your doing, Phil. And then they use the eight-hundred grand, introduce some debt and buy three or four investment properties around the country.
So, there's lots of different reasons for doing it. Dean's question about does someone ever buy their principal place of residence. The good thing there's no rules to life.
Phil Tarrant: Mm-hmm (affirmative)
Simon Pressley: Maybe for some. Some maybe never.
Phil Tarrant: Yeah.
Simon Pressley: And when? I think for most people they would sort of see themselves some point in time buying a family home. But, there's no deadline on when you need to do it.
I guess the longer you can put it off,
Phil Tarrant: Mm-hmm (affirmative)
Simon Pressley: The more you can invest and get your money's worth out.
Phil Tarrant: Yeah, and I've been in this really good point. The way that I view this is: I live really near where I work.
Simon Pressley: Yeah.
Phil Tarrant: It's downhill on the way home. It takes me ten minutes on my way home, just about fifteen minutes on the way to work. I'm really close to live really close. I don't want to commute. I don't want to deal with it, all that sort of stuff. And that's a positive. And I've got a young family, so I can nip home whenever I need to and all that sort of stuff which is cool.
Works for me.
But, my view is that, so outside of the livability for me to rent where I live and I invest where I should be investing as an investor. For me, comes down to utility of money. So, rather than having money sitting in a bank account, waiting for me to buy my principal place of residence, which I will at some point. I don't know where I'm gonna live so, that's the reason. Probably where I am.
So, rather than that money sitting in bank account, getting at best two percent interest, so for every hundred thousand dollars, you get two grand. You pay a tax on it. At maximum tax rate. I'm getting utile with my money. So, I prefer to pock that in property and amplify its benefit.
Simon Pressley: Absolutely.
Phil Tarrant: Multiple times, I haven't yet done the math but, I reckon if I compared investing a hundred-thousand dollars in savings, getting two thousand dollars a year in return on it. Versus, that same hundred thousand dollars as a deposit for a property somewhere. I reckon I'm getting a lot more than two thousand dollars return on it.
In terms of equity gain, but then there's also tax benefits as so share it with us. Well I'll say; the question around when you should buy your principal place of residence is going to come down to what's right for you, I think.
Simon Pressley: When you're ready to settle down
Phil Tarrant: When you're ready! Yeah! And it might be family pressure. I think a lot people like the comfort and safety in knowing they're not going to get booted out rental property at any point and they can raise a family. It is very emotional.
I'd like to think I'm a sophisticated investor like you are. And you work with a lot sophisticated investors so I'm quite happy with the risk and reward of renting or leaving the place that might not be forever or might change quickly. Versus, the wealth I can create investing in properties.
Simon Pressley: It's funny, growing up there's always been this stigma attached to rent money's dead money.
I mean, complete load of hogwash, Really. For anyone that's actually crunched the numbers. But, for generations, that's what everyone said. No one ever questioned it. So, everyone sorta thought, "I gotta get a job, I gotta save a deposit, I gotta buy a house." Because that's just what you gotta do.
And that's what mom and dad did. But, the thing is, if people actually, even if they didn't do the math. Just have a look at all those generations before them who have done that. Most of them are going to be relying on a tax fund. So a tax payer funded aged pensions. So, how'd that work out for them?
Along the way, investors have actually looked over their shoulder at what previous generations have ended up with. When the rich, the retirement years, and go, "Oh, I want something better than that."
Phil Tarrant: Yeah, and that's okay!
Simon Pressley: That's okay! They've got to do something different. And "rentvesting" is not for everybody, but, it's largely a number's game.
Phil Tarrant: It is a number's game.
Simon Pressley: I mean, ten million properties in Australia. It would be an absolute miracle if the best property you could buy just happens to be the one you want to live in. Absolute miracle.
Phil Tarrant: Mm-hmm (affirmative)-
It's really a tough one. So, taking all the emotion aside as well. If you are thinking about buying a family home, you need to sort of think. Yes, it's emotional. Yes, it needs to have a nice garden, a pool, and a place you can drink wine and stuff. And I often have this conversation with people buying their home to live in.
Do the maths like an investor. Lot's of people say, say in Sydney, You're not going to get much change out of a million dollars to buy a house, right? So say, I buy a house, Let's use an example and see where it goes, like the ponds right, new train line all this sort of stuff. Really, really popular. Spend a million dollars on a house out there and we'll get to numbers cause I don't know where this is gonna go Simon.
Spend a million dollars on that. So you're going to need a couple hundred thousand dollars as a deposit. So, eighteen percent, two-hundred grand, plus a stamp duty. Probably another forty, fifty maybe? Fifty. If you use a buyer's agent, it might cost you another sorta ten grand. On your stamp duty. Sorry, all your legal stuff. You're in for a lot of money.
Say you drop; two-fifty, two-sixty on that, right? That's a chunk of cash you're putting to an investment. Now, if that property, and you're paying a debt on it, principal in interest, principal place of residence. You might get an interest rate of four percent. So, if every hundred thousand dollars in debt. That's four thousand dollars in a thing. For every hundred-thousand dollars in debt, you're paying how much in interest? Four percent. Four-thousand bucks.
Simon Pressley: Mm-hmm (affirmative)
Phil Tarrant: Yeah, that's right. So, extrapolate that out multiple times
Phil Tarrant: It gets big, right? So, if you're holding this property for this period of time and it's not going up in value as fast as the debt you're paying on it, it's probably not a good investment.
Simon Pressley: And none of those cost you, including your interest a tax deductible? If you bought that same property, not that you would, but, if bought the same property in an investment, all those costs are tax deductible.
Phil Tarrant: So, a lot of people love this idea of having a family home. But, they go backwards financially by holding it because it doesn't go up in value, and therefore, at a point in time when you choose to sell it, you can't realise any equity gains out of it.
And it's potentially a cash flow burden.
Simon Pressley: The biggest catch with the "rentvesting" is the capital gains tax, obviously. Buy the family home, you sell it ten, fifteen, twenty years later. You profit, you profit. You pay your agent's commission, the rest is yours.
But, if you bought that property as an investment, there's capital gains tax. So, Dean's question there, that that's a consideration at some point down the tracks. As he's starting to consider to buy the principal place of residence. Where's that initial deposit money come from?
But, there's no law that says that you ever have to sell a property. You only pay capital gain tax, if you sell. Now, sometimes, to do what you want to do. It might be the only way to do that is to sell one or more properties. But, there might be other ways to achieve what you want to achieve using equity. Everyone's circumstances are different.
Phil Tarrant: And there's benefits. So, if you are a "rentvestor", you want to be renting in places, I imagine the primary goal of a property investment is that the thing goes up in value and costs you as little as possible to hold through good yields. Right, so, you park your money in investment properties, you can build them up, you can draw the money down and use that as the deposit.
Equity and if you've bought well, you can potentially get your properties at highly percent on that base as for your investment properties.
Lots of moving parts so
Simon Pressley: Meaty question!
Phil Tarrant: It is! What do you suggest? What should Dean do to help him make this decision, Simon?
Simon Pressley: I think each house holds, the world around them will answer that question. I don't know if Dean's got, he says he got a couple of kids. You know what age they are, job wise, that sort of stuff. But, there will come a point of time when you just have that light bulb moment and go, "This is it, we're ready to settle down. I know we want to live in this particular city, in this style of dwelling for forever and a day." Sorta thing.
When you get to that point, and that's probably more a feeling than anything else, you need to think about, "Well how will I fund that?"
Phil Tarrant: Yeah, and a lot of people like the idea of retiring in a home or a house that has no debt on it for a security. Probably a major retirement goal for most people.
Simon Pressley: Yeah
Phil Tarrant: And most financial plans you see will probably say, "Well that's what you want, right?"
At a point in time you'll make a decision. Until then, keep chasing those investment properties.
Thanks for writing in, Dean. Really detailed, and If you have any additional questions around that, contact the same email. My editor is: smartpropertinvestment.com.AU. I'd be happy to look it over. Simon as well if he wants to give you any more details.
Next question. Shorter one and one probably for you, I imagine.
Simon, if selling in a regional market, what are the best ways to reduce days on market of a property. Okay, that's quite a big question.(laughs)
Simon Pressley: It's an interesting question.
Phil Tarrant: So, you're selling in a regional market, how do you make sure it doesn't languish on RealEstate.com or Domain.com with no one buying it for a long period of time?
Simon Pressley: What a find interesting about it is why regional market. It's really any market. When you're selling with whether it's capital city or regional, you need to meet the market. That's the key. If for whatever reason you've decided that you need to sell that property, you can want what you want in terms of a sale price, but the market will never pay what the market prepared to pay.
I mean, that's key, is being realistic. Working it out. What is it worth? Not what you want because the buyer doesn't care what you want, what your debt is or anything like that. What is it worth? You can do that yourself and a good agent will help you do it as well.
A good agent will help you determine if there's anything you might do to the property before putting it on the market. It doesn't mean the best and quickest way to sell a property is to always cosmetically improve it and tie it all up. But you need to go through that structure process for your property.
A really good marketing campaign. That's going to depend on where the property is and what's worth. But, whether it's best to sell at via auction, or private treaty or tender. How you promote it. That's really it. Whether it's regional market or capital city market.
Phil Tarrant: To me, this question is a bit loaded. If selling original market, pretty much going it's harder to sell in a regional market
Simon Pressley: It does imply that, doesn’t it?
Phil Tarrant: It does.
Simon Pressley: Doesn't surprise me. So many Australians, perhaps, because you only ever lived in a capital city, have the perception that region means risk. It can.
Phil Tarrant: Well, that's why I said it's probably a question for you, cause I know you are quite agnostic in terms of where you invest in property. You look for the best markets that show the potentiality for growth and all the other fundamental indicators that you need.
I know you do do some work out in Regionals. I'm not talking about the middle of nowhere. A town with four or five properties, we're talking about big regional centres. So, can you paint a picture for me right now of the regional markets? Are they vibrant? Are they attracting people? Is there, job growth, wage growth. And I imagine the response that's gonna be, "It depends where it is," but,
Simon Pressley: It is.
Phil Tarrant: Give us quick snapshots on it.
Simon Pressley: That's a big question.
Look, capital cities and regionals, there's risk in both. There's risk in investing. If you're not prepared to take any risk, don't invest. Put it in a term deposit. I mean,is Australia's fourth biggest city, had three years of decline.
Darwin's probably hasn't been officially described this, but I think is in recession. Capital city. Sydney and Melbourne had price declines in 2011. Well Melbourne had it in 2012, and so did Brisbane.
Anything can go backwards, but I think, I don't what people think about regions that you had like, they think that people are going to run away. I mean, there are dozens, literally dozen of regional markets that these locations are are like one-hundred and fifty to two-hundred years old. And they've got more people that live near city than they had back then.
So, populations still grow.
I’ll say this; in the next three years, if we were to draw a line in the sand today in March 2018, and fast forward three to five years from now, we will see one capital city that's probably performed exceptionally well. And that's the marker that’s hot as now "Hodbart". I reckon the other seven will have done very little over the next three to five years. Some of those might be worth a little bit less in three to five years than what they are today.
The best performed probably markets will be throughout regional Australia. But, there will be some that will have performed poorly. And some will perform exceptionally well.
Phil Tarrant: Alright, I'm gonna hold you on this. Alright, here we go, this is what Journo’s love. Three to five years. You reckon that regional market will perform better than most of the capital city markets. And performing best means: growth as a percentage term of their absolute value.
Simon Pressley: Yep.
Phil Tarrant: Yeah, okay.
Simon Pressley: Yep.
I mean we've heard a lot about building approval, volumes, record, supply. But, I don't think the public have really taken that in. A lot of that is yet to wash through the system.
We do know Sydney's growth cycle is over. It's had seven consecutive months of all-be-it, small but priced declines. That's a trend. That cycle is over.
Melbourne's now had three consecutive months of price declines. Again, small declines, but, I believe that is a trend that will continue.
Phil Tarrant: Did it climb and continue or will it just be neutral growth?
Simon Pressley: Probably more flat.
And I'm not alright when thinking about the two big capital cities are going to crash. Their economies are too strong. But, the supply is significant and there comes a point in time when those who can afford to buy have all done so.
And I think that's where we're at in the two biggest markets.
And if we look over the course of time, growth often comes around every seven and twelve years. So those two big capital cities could remain flat for quite some time. Fortunately, their economies are strong, otherwise we could have some significant declines.
You go through the other capital cities; I mean, Brisbane has poked along and barely pulled out since the GFC. Ten percent dwelling price growth in ten years. That's all Brisbane's saying, Australia's third biggest city.
Perth has gone backwards six percent in ten years. I think Perth is flattened.I think Brisbane will continue to just poke along. I think Canberra pretty much the same, Adelaide, pretty much the same. Can't see when Hobart's gonna stop. It will end at some stage, but it's not on the horizon. Could have a good few years left, who knows?
So, that would cover the capital cities, there's not much.
Phil Tarrant: There we go. I was gonna ask you about that. By the way, sorry, Craig, this is your question. Sorry, I didn't mention that beforehand.
So, yeah, sounds a bit loaded. So I wouldn't want anyone to think that original markets are harder to sell properties in because that's not the case. There is properties that sit on markets in Sydney, Brisbane, Melbourne, wherever. For a long time because typically they're either, to your point, they haven't been priced to hit the market, or someone's trying to sell it, that it doesn’t know how to sell it. Or, they got a crap agent who hasn't given you the right advice and the guidance on how to market that property or present it best to sell.
Simon Pressley: I'm not gonna say where, obviously. And the viewers will understand why, I bet. There's a couple of regional markets we're investing in right now. And the property hits the market and it's gone. It has an open market on the weekend and it's gone Monday-Tuesday.
Phil Tarrant: So, not to talk about the locations. I want to ask you off air because I want to know a bit. And then I'll tell everyone, don't worry about it.
What would these markets look like? So, they're not tiny regional towns, then. I'd imagine they have a diversified economic base and maybe some government based jobs there or... Is that pretty much good summary?
Simon Pressley: Yeah!
Look, we don't invest in one industry towns. That's not to say people shouldn't, but, there's obviously, bigger risks in doing and we don't do that.
But, throughout Australia, there are a number of regional cities that actually play the role of a mini capital city. And they service the smaller towns that might have a population of five to ten thousand, but there could be half a dozen or dozen within that region.
Phil Tarrant: So you’re talking regional hubs.
Simon Pressley: Regional hubs. So they’ve got all th essential infrastructure that a capital city has got, They’ve got a diverse economy. It's just a smaller scale of it. And literally, there would be thirty of those locations. They're in every state. But, what they have that big cities don't have; first they have affordable housing. We bought properties that have been in the low two-hundred thousands, to never exceeding five-hundred grand.
I've never bought a property for a client for a dollar more than five-hundred grand.
Most of them have a three in the front
Phil Tarrant: And these are nice joints, right? They'll be sort of relatively new brick homes, three four beds...
Simon Pressley: Sort of thing you live in yourself if you lived in that location. So they got housing affordability. They don't have these record volumes of housing supplies that's been building up for the last four or five years.
They've got different industries. So, when there is a downturn, which happens. Every industry has a downturn at some stage. There are other industries to still provide employment there.
But, we've all heard for a few years now that Australia is Asia's food bowl. That doesn't mean that people should rush in and buy farms. But, thinking about what that term means and specifically what food we are talking about, and where are the jobs? Where are the factories that are processing this food? Where are the abattoirs?
This is really the Asian century. It's not just going to hang around for a year.
There's no farms in capital cities. And we've heard a lot recently about free trade agreements, the TPP, and the enormous boost this is going to give the Australian economy.
Is that going to benefit capital cities, you think? We think not. There's universities that are expanding in parts of regional Australia, which create jobs with that as well.
Not all manufacturing sector is in a downturn. Some of those are expanding. Especially food related stuff.
And tourism is really getting outside the capital cities now. Lots of regional airports are putting money into infrastructure. Lots of the regional airlines are flying direct.
Lot of these places we've invested in for our client. She can fly direct within one hour every day to; Sydney, Melbourne, Brisbane.
Phil Tarrant: Alright, lot of tips there. I'll be getting your Google Maps out, trying to search where these locations with all these indicators. And I can think of a couple straight out of the top of my head.
Simon Pressley: There's lots.
Phil Tarrant: Just in New South Wales, there are some towns that have, a university, yes, has it got infrastructure? Including, hospitals, etc? Yes. Has it got established industries? Yes. Has it got some government-based offices there? Yes. Go and check it out.
Good point, alright. So don't think regional markets are how this whole properties' thing is. It's largely irrelevant. Make sure you present the property the right way and it's priced for the market.
Okay, this is probably gonna be the last one for today, actually. This question is from Leanne. Remember editor at smartpropertinvestment.com.au. The question is: "How could someone get started in property to gain growth with a low income. Apart from the obvious; saving and living minimally? Where can the best gains be achieved with low surface ability."
Okay, interesting question. Let's try to summarise this. The question I put to you Simon is that: do you need to be making a shitload of money to sell to be a really big property investor? Yes or no?
Simon Pressley: No. What you need to get that first property, obviously, is a deposit.
Phil Tarrant: Yeah.
Simon Pressley: And banks, being responsible lenders as they should be, will need to see more than just, you've got fifty to a hundred grand in cash or wherever in bank, that you've actually done something yourself. As opposed to, parents gifting money to you.
So they want to see character, they want to see that you're responsible with your money. And I think, fair enough.
But, that's always going to be the hardest person, especially with one income and a low income. But, until you got that deposit, you can't afford to invest. But, it's interesting. We'd just been talking about regional locations.
Phil Tarrant: Yeah, actually, I'm going to do the next question cause I just looked at it, so that's still on a regional thing.
Simon Pressley: I mean, we have bought properties for clients; two-hundred and twenty, two-hundred and fifty thousand dollars. So, the listeners can do their own math on that to work it out. What sort of deposit do I need? Whether they gonna incur mortgage insurance.
You're not gonna get more affordable than that, and you're not going to get that at any capital city. And when you're buying at the level, really, anything under three-hundred and fifty thousand dollars. Even with a small deposit, with interest rates where they're at, and likely remain this way for many many years, yet.
The cost, the whole might be one to three thousand dollars.
Phil Tarrant: Yeah, a year.
Simon Pressley: A year!
So holding your properties is not hard. The hard thing-
Phil Tarrant: Getting in.
Simon Pressley: Is having that initial deposit.
Phil Tarrant: Yeah, some more recommendation, I completely agree with Simon. My recommendation would be, start living like you've got a property or an investment property and actually understand how to budget effectively so you can satisfy the test that should you have an investment property, you can actually manage it and maintain it. Based on high serviceability as well so don’t be pricing it on 4.5 interest rates.
Think about how you're going to be repaying it at 7 plus percent at principal and interest. And that's sorta factoring in some level or rate rises. If you can that comfortably, number one, it's going help you save a deposit because you're gonna have more cash into your bank at the end of the day. And then number two; when you do make the move to get your own property, you know through experience you can manage and maintain it and not put any pressure on you. Because the last thing you want to do, if you are on a low income, and what is a low income these days? The average is about, what is it? Seventy-five thousand bucks?
Simon Pressley: Yeah.
Phil Tarrant: If you're earning forty, fifty thousand dollars a year, that doesn't stop you from investing in property. You just need to get to a point where you can actually satisfy the lenders, that you can repay a debt, and show them that you can actually save money. So, if you've saved the money and then you're disciplined. And you've got two years of history saying to a lender," Hey look, this is the way I operate right now anyway." They're gonna be quite comfortable to give you that cash.
Simon Pressley: Yeah. The rule of thumb we use with clients inquiry about our services is sixty grand. You really need to have sixty grand cash saved if you're a first time investor. If you've got that, that will be adequate for your deposit, your acquisition costs, and will help you get into a good market.
If you've got that, you will be able to afford the annual holding cost. And typically there might be as I said earlier . Between one and no more than five grand and that's probably including a bit of a buffer in there.
Phil Tarrant: And once you've done that once, once you sort of accumulate a war chest of sixty grand so you can get you your first investment property. Getting your second one is significantly easier if you buy the first one the right way.
So, if you buy well and a property with good capital growth. Then you can realise that at that point in time by drawing down that initial sixty grand as a refinance and go again. And that's a strategy a lot of people use, isn't it?
Simon Pressley: Absolutely, yep.
Phil Tarrant: Good.
Okay! I'm gonna go do this last question cause it seems to be talking about regional areas, Peter, thanks for writing in, mate.
The guy should have probably shuffled this up so it was the one that we spoke about after selling an original market. But, if you are from a regional area from a low income, so it's all connected, and are able to invest in the city areas where capital growth may be better. How do you go about investing in a smaller scale, initially to be able to reach a larger portfolio?
Again, that's sort of connected with both of them.
Number one: just because you are on a lower income doesn't necessarily mean that you need to be investing in regional areas. But, I think the challenge of this question is that; capital growth is perceived to be better in city areas than regional areas and I think you've dispelled that pretty quickly, haven't you.
Simon Pressley: Yeah, it is a perception, but it's an incorrect perception.
Phil Tarrant: Yeah, so how do you know if a regional market is showing good capital first as a city market? Is it just numbers or is it real ground truth in knowing what's going on?
Simon Pressley: It's some numbers, it's probably not the numbers that the listeners think. It's not changing median property values. It's not vacancy rates, or auction clearance rates.
Well, what we place most of every search emphasise on is economics. It's jobs. It's how we picked Hobart. We started investing there when Tazzy was in recession in 2014. So, that wasn't numbers. That was understanding what makes up Tasmania’s economy. What's the outlook for all those different industries. We felt very confident that that was going to improve. Housing was affordable. Supply was already tight. We backed our professional judgement . We bought and now we got all these clients who got a booming market.
So that's how you pick whether it's capital city or region. Really focus on understanding and economy, which is not easy if you’re not doing it every day. I do it every day, but listeners aren't going to be doing it every day. And then, back your judgement .
So, it's not numbers. Is it tourism? Is it agriculture? Is it manufacturing? Is it healthy? What are the industries that support the economy? What are the key player in that particular location? Are they expanding? Are they contracting?
And all these little dots, is it gonna create a positive picture or a negative picture.
Phil Tarrant: Okay, it's very regional centric, but, I know you're an advocate of the right regional market. So, the message is clear. Don't have blinkers on and think you should only be investing in metropolitan areas. There is a lot of different people, a lot of different strategies. Some bit people solely operate in regional markets and have done very well there.
So, broaden your scope, broaden the way you view markets, and don't have prejudices on particular types of markets because of something you heard from some bloke at a barbecue. ie "That regional properties can go up as high as metropolitan properties," or, "It's harder to sell properties from regional markets."
Yet, it's probably the truth sometimes. But it turns the truth also and in metropolitan and a couple of city markets as well.
Simon Pressley: Capital city or region, every market will go backwards at some point. Every market will have booms at some point, and every market will have average years.
Phil Tarrant: And that's why you need to be a researcher that understand macro and micro economic forces, which determines-
The mind boggles if you're tuning into this the type of research that guys like Simon does at his company. And a handful of some very other good property researchers and strategists in Australia.
Your mind would boggle that the intricacy of the detail they get down to. So, unless you got those skills and capabilities, you are up against people who do do that. And probably buy more effectively than what you are.
I'm gonna get you back on the show, Simon. You touched briefly on what is going on in the different states. It's always really popular. I want to ask you some question around the Hobart market.
Simon Pressley: I would love to!
Phil Tarrant: Has it run its course? Is it too late if you've missed it? Where's the next joint?
I know you're cagey, not gonna give me too many specific locations, but, I think Simon is being very open on the sort of things you need to be looking at if you're investing in regional markets.
One could say, those same principles exist in the capital market, just good investing. So, nice work.
I appreciate your time, Simon
Simon Pressley: Pleasure.
Phil Tarrant: And remember to check out smartpropertinvestment.com.au. If you're not subscribing to Morning Marketing Television, so you're the first to know what is going on on property. You can join all the other smart operation and market receiving this smartpropertinvestment.com.au/subscribe. If you like social media and that’s how you like to get your information. Just search Smart Property HQ on any of the social platforms. We'll be there.
And remember any questions, including, so thanks Dean, Craig, Leanne, and Peter for writing in.
We will get to your questions so please do be patient with us. We do get literally hundreds of these, but, we will get round to them. Keep writing in. The email address to contact is [email protected] or you can tweet us as a direct thing and we'll answer that as well. We'll be back next time. Till then; bye bye.
Announcer: The information featured in this podcast are general in nature and does not take in consideration your financial situation or individual needs.
Before making any investment, insurance, tax, property, or financial planning decision, you should consult a licenced professional who can advise whether your decision is appropriate for you.
Guests appearing on this podcast may have a commercial relationship with the company's mention.