27 Nov Advice to help you get ahead – Chris Gray
Buyers Agent and Host of ‘Your Property Empire’ on Sky News Business, Chris Gray, answers Mark’s question about not being able to get ahead despite the fact that he is saving like mad. Chris has some sound advice and great suggestions.
Kevin: I have a question we’ll answer now from Mark. Mark sent this in during the week: “I’m struggling to get a start at property investing. I’ve been saving like mad, and I have $15,000 ready to go – not enough. I don’t seem to be able to get ahead. My sister and her boyfriend are in a similar position. Together, we have $40,000 saved, or will have early next year. We want to buy something together. Any advice?”
Mark, probably tons of advice. I’m going to turn to Chris Gray, who is a buyer’s agent, also a host of Your Property Empire on Sky News Business every Monday at 9:00 from YourEmpire.com.au.
Chris, thanks for joining me.
Chris: My pleasure. Thanks for having me.
Kevin: Let’s see if we can tackle this for Mark. What would be your advice?
Chris: It’s tough for young people these days. You need such a large amount of money to get in. But on the positive side, it’s so much easier now than I reckon it was 20 years ago, because we have so much education, the market is more sophisticated. So, if people are thinking it’s tough, look, it was actually tougher before.
But I have a few thoughts for him. One of the great things that I’m a fan of is LMI, which stands for lender’s mortgage insurance. Basically, what that means is if you want to borrow more than 80%, the banks are going to charge you a premium, like an insurance policy. It doesn’t cover you, it actually covers them, but it basically means that you might be able to get away with a 5% deposit rather than the normal 20%.
Now, a classic bank or mortgage broker will say, “No, don’t spend that because it could cost you another $10,000 or $20,000,” but in my mind, if you can get into the market one or two years earlier, or you can buy yourself a $500,000 or $600,000 property rather than $200,000 or $300,000 property, sure, it might cost us $10,000 or $20,000 but you might make $30,000 or $40,000 off the back. So, I think it’s not a false economy spending that; it’s actually a really good economy.
Kevin: That’s good advice, because that could be the difference between getting into the market and not getting in, Chris.
Chris: It is. It makes the biggest difference. We actually covered this at the Property Expo fairly recently, and it’s not really the difference between maybe buying in at $500,000 now or at $600,000 in a few years’ time, it’s actually in 30 years’ time when you’ve had an extra couple of years and it’s almost the $2 million then going to $3 million that makes a difference, not the $500,000 to $600,000.
Kevin: What a great piece of advice.
Chris: I think property investing is all about time in the market. So, as long as you can be in for 20 years rather than 15, that’s where the money is rather than trying to time the ups and downs.
Kevin: What else would you say to Mark?
Chris: One of the other things – I think Joe Hockey said this and I don’t think it went down well – is go and get another job, and even get four or five jobs. There are plenty of property experts out there who have done multiple jobs in their time. You don’t have to do it for the rest of your life, but it’s a bit of a sacrifice.
If you want to get that property, sure, do another two or three jobs. It’s not going to be great – you’re going to have to miss out on drinking down at the pub with your mates – but in the years to come, then it’s going to be worth it.
My story is I worked twice as hard in my 20s to 30s, and then pretty much from my 30s and 40s on, I’ve had a pretty relaxed life because I sacrificed so much in the early days.
Some other great ones: parents’ equity. I got a parental guarantee when I was a lot younger. It’s not a handout; it’s them really just guaranteeing that you can make the higher mortgage repayments and having it as a backup. That doesn’t even cost you or your parents any money.
Then the other thing is to look for other co-workers. He already said he could maybe join a partnership with his sister and boyfriend; they haven’t got too much money, but they have a bit. But maybe there are some other people you work with who have maybe got a big deposit but maybe they haven’t got an income, or they haven’t got an ability to go and search for the property and do all the renovations or something.
Joint ventures is all about looking at what you have and then seeing what you’re missing, and trying to find someone who has the opposite – that they have what you want but they haven’t got the opportunity to maybe go look at the properties.
Kevin: Yes, so doing it as a bit of a team. What are some of the cautions with joining in with someone like that, Chris?
Chris: I’m always a fan of “If you can do it 100% yourself, do it yourself.” Don’t do a joint venture on purpose, because then you’re reliant on someone else and they can let you down. So, when you are going to do one – I still think it’s better to have half a property than no property – look for the worst case situation and then work out what you do in that. And the worst-case scenario is you’re not speaking to the other person, you’re the other side of the world.
When I did one of these, I said, “Okay, let’s assume that if we’re not getting on after seven years – i.e. one property cycle – we sell the property. This is how we split the revenue and the capital gains and things like that.”
Kevin: So you set up an exit strategy right at the start.
Chris: Exactly. Even if it’s with mom and dad or with brother and sister, you always do it. You always look at the worst-case scenario.
And then probably the final one, which is a fairly new thing in Australia, is fractional ownership. There are two or three companies that are doing it. There’s DomaCom, BRICKX, and there’s a new one, Covestor, coming out.
These are basically platforms, and their philosophy is say you only have $50,000 and you want to buy in Australia; you’re going to have to buy hundreds if not thousands of kilometers from the capital cities. So, rather than have a dump way out in the middle of nowhere, why not buy 10% of a $500,000 property, or 5% of a $1 million blue-chip property?
The downside of this is no real leverage in it at the moment, so your $50,000 only gets you $50,000 worth of the property, but there might be some leverage later on.
I’m a big fan of this. Maybe some people have maybe $50,000 or $100,000 in super, they’re not really into the share market; I’d rather have 10% of a Bondi $1 million unit than maybe a $100,000 worth of shares.
Kevin: What were those companies that you mentioned with fractional ownership?
Chris: DomaCom, BRICKX, and there’s a new one called Covestor. I think we’ll see more and more of these coming out over time. One of their arguments is to say that if you had $1 million, you’d never put $1 million into one share, so why would you put it into one property? Why not diversify it out a bit?
Kevin: Yes, we’ve spoken to BRICKX, and it is a bit like the stock market, isn’t it? It makes a lot of sense.
Chris: Yes. And look, you still have to find the right properties on those portals. There’s no guarantee that you’re going to be able to sell your percentage straight away, because obviously, there are going to be some costs with that. So it’s not a perfect scenario, but at least it’s a stepping stone.
For a lot of young people, you can’t buy that ideal property in the best location when you’re in your 20s. So, you just need to get into the market or save some money or get into some shares. Do something just to keep yourself moving ahead.
Kevin: And continue to save at the same time. I guess the bottom line here, Chris, the thing that I’m hearing from you is that there are options. It’s never been easy, but it’s probably getting easier. And if you use things like lender’s mortgage insurance, as you suggested, and continue to make those sacrifices, do it now while you’re young.
Chris: Exactly, because it doesn’t get any easier. And when you’re young, you want to go down the pub, you want to go traveling, you want to have the phones and the cars and all that kind of stuff, but there are lots of people who have sacrificed in their 20s and it really does set you up for later in life.
Kevin: Yes, it’s finding likeminded people, too. I guess in a way Mark is a bit fortunate here because I think he said his sister and her boyfriend obviously have a similar mindset, so they’d be the perfect people to do this with.
Chris: It is. And there’s so much information out there, from the TV shows to these kinds of podcasts as well. Sure, it’s still tough to go and get those extra jobs and get the money, but at least you have the knowledge now, whereas we didn’t have that 20 years ago.
Kevin: All good, Chris. Just very quickly before I let you go, how are you feeling about the property market as we enter into 2018?
Chris: Again, it always depends on where you’re invested, but the kind of things that I’m after – which we’ve talked about a lot, the blue chip, inner city, medium price thing – there are a lot less buyers in the market but there are still no properties there. So, we’re still seeing that there are people queuing up for auction.
There was one in Coogee the other day. Someone saw it almost sight unseen the day before and spent $200,000 over, and the property didn’t even have parking. So, people are still uneducated, there’s still massive demand, and so I think prices are going to be steady in that medium-price, inner city-type market. In other parts of Australia, it’s very much dependent on the price point and exactly where it is.
But I still think things are positive. We have low interest rates, there’s still nots of demand, there’s no blood in the streets, so I think things are still going good.
Kevin: Chris, all the best for the festive season. I look forward to talking to you during 2018. You can catch Chris’s great show, it’s on Sky News Business every Monday at 9:00 pm. It’s called Your Property Empire. Or you can contact him through his website, YourEmpire.com.au.
Chris Gray, thank you for your time.
Chris: Many thanks.