On this episode of The Smart Property Investment Show host Phil Tarrant is back in the studio with wHeregroup founder Todd Hunter to answer more questions from SPI Show listeners.
Worried about passing on too much debt to your family? Unable to work out what insurance you should be taking out for your portfolio? The SPI Show team answer your questions.
All this and much, much more on this episode of The Smart Property Investment Show.
Tune in now!
Phil Tarrant: Good day and welcome to the Smart Property Investment Show. It's Phil Tarrant here. I'm the editor of Smart Property Investment. I'm also the host of the podcast. Thanks for tuning in. I appreciate you listening in to us, hopefully with the purpose of trying to increase your knowledge around investing and becoming a better investor. That's what we try and do. It's how we try and help out.
Today's podcast is very much geared towards covering of some of those key issues that our listeners are having. We offer the opportunity at the end of every podcast to write in to ask us questions, if it's about the Smart Property Investment portfolio, or just investing in property in general. We like to, in these podcasts, we try and do them sort of every couple of months or so. We get a lot more questions than what we do have time to answer them, so if we haven't responded to you at all, we do apologise. We'll try to get there eventually. Today we have chosen three questions that we've had in from our listeners to try and tick off. I've asked two people to join me to help me out with this.
I've got Tim Neary in the studio. He's the editor of a sister brand which is Smart Property Investments, Real Estate Business. How are you going Tim?
Tim Neary: Good, Phil. Thanks for having me on the show. Love the show. Thanks, again.
Phil Tarrant: Good one, mate. Tim looks after one of our big brands here at Momentum Media, which looks after residential sales agents, called Real Estate Business. Very popular. Includes the Top 100 Agents, which shows the best agents in Australia.
I've also got Todd Hunter in the studio from the wHeregroup. Todd, how are you going, man?
Todd Hunter: Yeah, good. Thanks for having me.
Phil Tarrant: People wrote in saying that they didn't mind you on the podcast last time around answering questions so we thought we'd invite you back.
Todd Hunter: Thanks. So the audience invited me back, not you?
Phil Tarrant: Not me. Watch it mate. Just one little error and you're gone. Punted. I'll get someone in here that knows what they're talking about.
Todd Hunter: I've got the readers' choice award, have I?
Phil Tarrant: Maybe. Todd today, Todd's a buyer's agent, who's based in Sydney, but buys right across Australia. If you ask him where he's buying, and I do it every single time I see him, he tells me to get stuffed. Have you anything for us at all? Anything at all?
Todd Hunter: We spoke here about a year ago and I did say Canberra was the place to be, and now you're just watching all the growth come through on Canberra right now. There's still a few deals down there.
Phil Tarrant: You're not out of Canberra yet?
Todd Hunter: I'm not out of Canberra, no. I'll give you that. I'm still in there. We've bought lots down there and still continuing as much as we can. I think it's a really good opportunity. I think the incomes are great down there and there's a lot of things happening.
Phil Tarrant: What are you picking up? What sort of assets down there? Just all in sundry or is there anything that you're really looking at? Come on, give me something.
Todd Hunter: I've got two locations down there. One area is, a lot of them are three bed, one bath, renovated home. The other area is more unique 2008 built homes, three bed, one bath or three bed, two bath style.
Phil Tarrant: We're talking the secondary market of these? People bought them new and these are the guys who are up-sizing probably, or downsizing them?
Todd Hunter: Either that or just selling their investment properties, yeah.
Phil Tarrant: You don't really know if you're buying off investors or owner-occupied?
Todd Hunter: I buy off both.
Phil Tarrant: Off both?
Todd Hunter: Yeah.
Phil Tarrant: Doesn't really matter?
Todd Hunter: No. I just buy wherever I can get a good deal.
Phil Tarrant: What's a good deal down in Canberra mean?
Todd Hunter: Mostly it's probably were under the 420, 430 mark, sub that is good. The effects of what they did in Gungahlin and before the townhouses and units that went through a few years ago, and there was a high vacancy rate in the ACT is all gone now. The vacancy rates are really low and the yields have come back really strong. It's very promising.
Phil Tarrant: These are all late 90s are they? Or early 2000 builds, did you say?
Todd Hunter: In one area they're the 2006, 2008, and other location they're probably the early 90s but been renovated, so nice new kitchens, bathrooms, et cetera, in there.
Phil Tarrant: I'm not doing what we said we'd do, but I'm quite interested in this. You're now buying up in Brizzy and stuff is-
Todd Hunter: Sounds like it's coming.
Phil Tarrant: This is a generic question. But if you're buying up in Brizzy, there's some major things you see in all houses of a particular vintage, you know you've got keep an eye out for pests and stuff, or some of the builder issues that you have out there. Is there anything in particular in Canberra that you need to watch out for? Is the level of construction when they were built, these properties late '90s or into the 2008, 2009, by in large, were they reasonably well built or is there any sort of fundamental problems that you need to look at? Is there big pest issues at all, or-
Todd Hunter: No, you don't tend to find the termite issues are anywhere near as bad because of the cold weather. The construction's fine, there's no issues there. But you do need to watch the pre '88 built homes, such as when a company called Mr. Fluffy was around and they do have free inspection programmes. Mr. Fluffy was the in-fill insulation for your home and the issue was pre '88 there was asbestos. If that company did it, there was asbestos in-fill. They've already demolished, I believe it's about a 1000 homes in the ACT which the government will back at market level. Which was nice, it put pressure because there was a 1000 homes-
Phil Tarrant: Families-
Todd Hunter: On the market. That needed, that had to go and get another home. So that was good, but there will be still more that are out there that haven't been found yet. You don't probably want to go that pre '88.
Phil Tarrant: Good mate, that's really good. Thanks. He's not going to tell me off air, so don't worry. But you know, Todd's a good buyer's agent and you find that ... I think last time we had you on this show we had a bit of a poker analogy and I'll use one right now that Todd keeps his cards very close to his chest.
Anyway, let's move on. Our first question is from Latecia Towers and Latecia has written into us. Loves the podcast, so thank you, appreciate that. Latecia's 42, has eight properties. She bought her first one at 19 years old after starting to save my pocket money from the age of four to “buy a house”. Always been a passionate property investor, it looks like, Latecia. "My question is: When is time to stop buying? I currently have an LVR of 57%." That's a loan to value ratio of 57% so that's debt against the value of her portfolio and no servicing issues means she can afford to pay it with plenty of dollars left over every month. "But I'm looking at the fact that my daughter will have to handle all these assets when I'm not here and is that fair to put that onto the kids?"
I appreciate your thoughts, well I reckon your kid's a pretty lucky person.
Todd Hunter: Absolutely. And LVR of 57 is very, very neat. That's nice. That's where you want to be and below. I think that sub 60 mark, when you get a good portfolio, is you do not want to be over 60% once you start to build sort of eight or anywhere bigger than that.
Phil Tarrant: If she doesn't do anything from now, so from here she goes, "I don't want to buy anything else and 42, she's still young, got another 25 years left of work in her. She didn't want to retire. What would happen to that LVR over the next 20 years?
Todd Hunter: It would continue to go down, but the other thing is the yield or the rents would continue to increase, and if she continued to work at paying that debt down, you would find that maybe at that stage that there really would be no debt or very, very little debt and Latecia, I wouldn't worry about handing the burden over to the children because I think it'll be very most welcome for them to get that.
Phil Tarrant: A nice generational asset. How can you pay down debt on an investment property loan, Todd?
Todd Hunter: You can either have an off-set account which you can build the money up against an off-set account. Or you can just physically put the money straight onto the loan. If you work or are self-employed, and any excess on the rent that comes in, you can continue to keep putting that onto the loan to reduce the balance.
Phil Tarrant: A lot of people get interest only loans, at a point in time when you are building an investment property and you want to start thinking about what is my out. What are the outs? Well the outs is, you want the portfolio to be unencumbered with any debt. The ways you can do that is to pay down the principal of the loan, so it's not interest only, you pay down then principal which means you need to switch to a principal and interest only loan at some point in time?
Todd Hunter: No, you don't need to. No, you can leave it as interest only and still put the money onto the loan. It just means that contractually you're only obliged to make the interest repayments, but if you had another 100 dollars a week and want to put that onto the principal, you're more than welcome to do so.
Tim Neary: And that would reduce the capital?
Todd Hunter: That would reduce the capital, well the balance, yeah.
Phil Tarrant: If you're five years interest only, and you just paid down the principal component of it, so you're only paying interest on what's left, at a point in time you'll need to get another loan once that five years expires. Would that be a point in time when, if your plan was to drive down the principal of the loan, is that when you would convert to a P&I?
Todd Hunter: If you're comfortable with those repayments and those numbers are there, then most definitely. Or, you may not have to refinance if you're still on competitive interest rates, you may just stay with that lender and it will just convert back to principal and interest. If it's comfortable then just continue that on.
Phil Tarrant: If you have a redraw facility associated with that loan, that means if you need that cash, you can pull the principal back out, is that correct?
Todd Hunter: Yes.
Phil Tarrant: Okay. The other thing to do is have an off-set. You off-set the principal component of your loan with cash that you have sitting in an adjacent account. If you have a 200,000 dollar interest only loan and you have 200,000 in an off-set account, essentially you are going to pay zero dollars interest on it. If you put that money into the principal, it's a lot harder to take that out unless you have a redraw facility, but if you keep the money in an off-set it means that your liquid safe. You need that cash at any point in time, for whatever reason, you've got it. Or if you choose to start buying property again, you've got the cash.
Todd Hunter: Correct.
Phil Tarrant: So the question here is when is enough enough? Pretty much. There's ways in which if you want to, Latecia, pass on this property investment portfolio and income and to your children, which isn't a bad thing, you need to start driving that down. What it comes to, whether or not you should keep buying or whether you should start doing, is going to completely depend on what you want to achieve.
Todd Hunter: I think she's answered her own question, for the whole reason that she's asking when's enough, enough? I think enough is enough now. If you're questioning do I need to buy anymore? You've actually got a nice income coming in per month that you could continue that in reducing that debt to increase that income. 8 properties is ample, if they're unencumbered, to retire on and the children can take over. You really don't need a portfolio any bigger than that.
Tim Neary: As you said, that's a good sweet spot as well, that 57% LVR is the 60% is that the mark that you like to look for?
Todd Hunter: I look to be at that level. Yeah, I like to be ... My own portfolio sits at about 55, 56 at the moment. That's where I am very comfortable at and I want to continue that down. In my own investing plan, with my portfolio, I will have to sell some of my properties to pay off existing investment debt, but it looks here from Latecia, that she may not have to do that if she continues to keep working for the next 20 years. I think that you'd be very close if not have those properties paid off.
Tim Neary: I think she's in good shape.
Todd Hunter: Very good shape.
Phil Tarrant: One of the ... People ask me all the time why I invest in properties. There's a number of reasons why do it. It's great to be able to talk about on the podcast and smartpropertyinvestment.com.au, but that's not the primary reason, but it's a really nice byproduct. Obviously we want to create wealth through property and people go, "What does that mean?".
I think for me, property investment is that it allows you to have a choice at some point in time. If I choose to be retired, I can be. If I choose I want to keep working and doing what I want to do, it allows me to have that choice. I think that Latecia's in a situation where a portfolio at 57%, eight properties, you know you're going to have probably some reasonable equity in that portfolio.
Now, if that allows you to have a choice to spend more times with your kids and stop working as much, that's a good thing. It all comes down to what you're trying to achieve and for a lot of people, it's about spending more time with loved ones and if property allows you to do that, brilliant. You can pass it on, they can have a bit of luck as well.
Todd Hunter: It will get at a point over the next 20 years that those properties will need a little uplift and some new carpet or a new oven and things like that. So there will be a little bit of upkeep with those properties, but as long as you keep them nice and the rent's will increase, I think the eight you've got is enough.
Phil Tarrant: Stop if you want to stop. Keep going if you want to go. Only you can really sort that out Latecia, but speak to an accountant. If you want to do some planning around what you require for retirement, if there's a big number that you need or want to live comfortably or live the life that you want to live, that could probably give you some guidance in how to establish what those goals are. But it pretty much comes down to you and you've got to run those numbers and work out what you want in life.
Let's move on. Pete Sharman. Pete writes in to us, love's the podcast, good. "I'm about to sell my property portfolio and I'm keen to find a good buyer's agent. Can you recommend any good ones?" Well, we've got a buyer's agent on the show today.
Todd Hunter: A buyer's agent.
Phil Tarrant: A buyer's agent on the show, I know, I'm giving you a hard time.That's probably a good question so I'm very proud buyer's agent. I think as a part of, let's call it an A-team, that I have built in my property portfolio, have a very good accountant and mortgage broker, have a very good buyer's agent. I also have a lot of other people who are in property who I talk property a lot about. I wouldn't call them mentors at all, but I'd call them people who have a like minded interest in property and are willing to share that information. And you're one of them Todd you know, it's just to shoot the shit about property. It's good. It expands you horizon and knowledge, but when it comes to buyer agents, my comment around this would be a good buyer's agent is worth their weight in gold. A not so good buyer's agent often is money just thrown away, so you need to understand what a buyer's agent does. Todd, what's a buyer's agent do?
Todd Hunter: Buyer's agent is a representative for you to be able to purchase a property in its most simplest form. What a buyer's agent should be doing is, is getting you into key investing locations that you're dollar figure that you can afford and getting you into a really cheap ground level price so you can create wealth.
Tim Neary: Actually, you know what Phil? A little earlier when we were talking about Canberra and Todd was talking about his experience down there, that was a really good example of what a buyer's agent does. He was just talking through, you weren't thinking about it, you weren't selling it, but anybody listening to that would have just got real good insights into-
Phil Tarrant: Yeah, don't buy properties that were built before this period of time because they're going to have asbestos, they're going to have a lot of problems-
Tim Neary: All of that stuff, all that inside knowledge, absolutely.
Phil Tarrant: It's inside running. To me, there's a couple of things a good buyer's agent does. They give you an inside running so a lot of the places we've bought and probably the same in your portfolio, Todd, never even hit the open market. You get a phone call from a real estate agent who goes, "I've got to shift this really quickly, it's a mortgaging possession or there's been a death or there's been divorce, we need to shift it now. It's this much money." A good buyer's agent would go, "Yup. Immediately, that's X numbers of thousands of dollars under market value, I'll have that property thanks." And then go through the process of doing some due diligence. Buyer's agents get those phone calls. Your typical punter, unless they're doing a lot and invest that, don't get those phone calls. So, they just give you the inside running. They know what a place is worth based on the market because they're in the market all the time.
Todd Hunter: Can make a decision instantaneously.
Phil Tarrant: They know the difference between one street compared to the next street because of the historic work that they've done in those areas. There's a lot of buyer's agents, they can do all that sort of stuff in terms of helping you identify where you should be buying based on your goals, but also they can help you through the whole process of negotiating for property as well.
Making sure that ... It's always good to have a representative on your side I think when it's negotiating. You're not connected emotionally. They can help you establish a price point to which you should be bidding up to in an auction or if you're buying through private treaty and just be your advocate to do that. In my experience, good buyer's agents typically get property a lot cheaper than when you do it yourself and you don't have to spend days and days and days doing it. That's what a good buyer's agent should be doing plus some other stuff and you should check out smartpropertyinvestment.com.au.
We've written a lot about this. Checklists on how to find a good buyer's agent. Look, you can go alone, but if you want to go it alone, you've got to be ready to a shit load of work in order to be able to find the right property that's going to meet your needs. A lot of very good investors completely hands on and do the whole process themselves but it can come down to your bandwidth, your appetite, your view on advice as well. You know what? Todd, is a good buyer's agent receiving a kick back from a developer?
Todd Hunter: No.
Phil Tarrant: You need to understand how buyer's agents get paid as well. And your point was they are your advocate, so if you're shopping for a buyer's agent make sure you actually know how they're getting paid and it should be a fee for service, so you should be paying them a fee to help you do what you want to do. They shouldn't be receiving any type of fee from any agent or any other third-party.
Todd Hunter: 100% agree.
Phil Tarrant: I hope that helps Pete. Go to the site, read a whole bunch of stuff, if you want to contact us it's [email protected] Going to finish this podcast with our last question and it's from Len, I don't know Len's last name but Len's another big listener to the podcast and reader of smartpropertyinvestment.com.au He's asked me details around my broker account and buyer's agent etc., I think we just covered off how to choose people like that. One of Len's key points here is around insurance, Todd. "Another grey area for me is the type of insurance that I should have in place for each investment property. Can you help me out this with? Also mentioned who my insurance provider is, things to pay attention to in comparing insurance coverage would be helpful."
Okay, what sort of insurance you need on an investment property?
Todd Hunter: Well if it's a house you need house insurance but you also need contents which a lot of people completely miss because they think contents is the lounge and the bed. It's actually not, the contents actually comes down to ovens, stoves, hot water systems, light switches, curtains, carpets, things like that. You definitely need contents. Landlord protection insurance is paramount and they don't have to be together. Your landlord protection insurance can be with one firm and your house and contents can be with another firm. A big thing that we do every year, what I do for my portfolio, is a ring around.
Depending on what tragedies have struck around the country, depending on what insurance companies have been affected by. For instance, if there was a cyclone in Cairns for some reason and one insurance company was heavily affected up there, then you're going to find that their premiums across the whole country are going to be affected. If you're in part of that insurance firm, well then, you're going to affected.
So once a year I like to do a ring around. It's time consuming but I do it and just to make sure that my policies are the best and the sharpest in price, and if they're not, we move.
Tim Neary: Do you haggle with the insurers as well and say-
Todd Hunter: You do. Once you have a few properties you can certainly haggle, yeah, most definitely.
Tim Neary: How many different insurers do you use for your portfolio?
Todd Hunter: Only two.
Phil Tarrant: Okay. Who are they, if you don't mind?
Todd Hunter: It's probably more of a Bec question.
Phil Tarrant: That's a really important point. It's just-
Todd Hunter: Well we're in it together so that's a part of the equation.
Phil Tarrant: But it's largely irrelevant who the provider is, as long as you know that your properties are correctly insured and that the price is competitive, it doesn't really matter too much.
Todd Hunter: She's probably going to laugh when she hears this because I don’t know who they are but I know that she takes care of it for me.
Phil Tarrant: It's also another really good thing about sharing the responsibilities of property portfolio. You can't do everything. Well, once you get to a portfolio which is quite sizable, you've got to start choosing where you can add the most value and I guess there's a couple of different components of running a portfolio and that is, the administration of it and trying to get some cost savings, but also growing it and building it. I imagine your time is best spent on finding the next gem within the Canberra market and then-
Todd Hunter: I allow her to do more of the ... Put the files together for the accountant which-
Phil Tarrant: All the really interesting stuff-
Todd Hunter: And she curses at me every year.
Tim Neary: Last point that you make, Todd, as well though, that you don't have to bundle the insurances together and understand properly what is contents because that could be a cost.
Todd Hunter: Yeah.
Tim Neary: Yeah.
Phil Tarrant: You certainly need to understand if you're buying properties which are apartments or units that the strata is responsible for components of the insurance as well. Make sure you educate yourself around that. Typically the strata, not always, but typically the strata will cover building orientated stuff so if it falls down or the roof gets ripped off in a major storm, they'll cover as part of your strata fees, the building insurance. However, the content is your responsibility. What you'll find, and you need to make sure you check the fine print with all your policies, particularly with the one that your strata has, that, I hear it all the time, that tenants are in bun fights with their strata around whose responsibility it is to pay for certain stuff. That can be a bit of headache so get that squared away and sorted out. Yeah, nice one.
All right, we're out of time. I'm getting thumbs up from Adam, our producer here. I think he's happy that we kept it pretty short. A wink. Todd, thanks man.
Todd Hunter: Thank you.
Phil Tarrant: Yeah, good. Tim, good to see you again.
Tim Neary: Thanks mate.
Phil Tarrant: Remember to tune into smartpropertyinvestment.com.au. I run all the social stuff, twitter, Facebook, Linkedin, you can follow me at twitter on PhillipTarrant if you want to see what I'm up to. Remember to write into us [email protected] And please keep the reviews coming on iTunes, five stars are the best but we need guys who just keep rating the podcast if you like it and when you do it, the more popular it becomes and therefore, the more people we can help out in terms of joining this community around property investing and hopefully making everyone a better property investor which is what our goal is. Really appreciate your participation and get involved. If you want any questions or you want to have a chat with me, get in touch and we'll make sure either get you on the show or get back to you. Thank you for tuning in, we'll see you next week. Bye-bye.