17 Apr Can finance brokers really get a better deal? | How’s 2015 going to pan out for you? | When to use Title Insurance | Property selection in an oversupplied market
In this week’s show Andrew Mirams answers a question “Can they really get a better deal in this environment?”
As we head into the second quarter of 2015, Michael Yardney shares a series of questions designed to help you evaluate and glean the lessons and meaning of the year so far to help you clarify your direction and your plan so that you make any needed course corrections.
Here is a staggering stat for you… we’re going to have 4.3 million more households in Australia by 2036! How will that impact your property portfolio? Pete Wargent has been looking into this for us.
Have you heard of Title Insurance? Conveyancing expert Garth Brown tells us about this little known gem that could save you in the future.
Michael Cooney from Hodges joins us to talk about how to sell a very unique property with limited interested buyers and Greville Pabst touches on the topic of how oversupply of apartments makes area selection critical.
Kevin: I received an email from Joseph that was quite interesting. I want to put the question to Andrew Mirams from Intuitive Finance. He joins us.
Good day, Andrew.
Andrew: Good day, Kevin. How are you?
Kevin: Good, mate. I’ve sent this through to you, but I’ll just quickly read it out. “Is it really worth my while using a broker? I’ve heard you talk about using brokers, but I have a good relationship with my bank manager. Surely that will be enough for me. Do brokers actually get me a better deal?”
There you go. I think I know what you’re going to say, but let’s have it anyway.
Andrew: It’s funny, you didn’t ring the bank manager for that advice. Thanks, Joseph, for your question. I think it is a really good question. The thing with anything in relation to this is getting experts in their fields to surround you. That’s the real key. Whether it be a mortgage broker or an accountant, it doesn’t really matter. Get experts in their fields to surround you if you’re trying to build a property portfolio or whatever it is that you’re doing.
Why should you use a mortgage broker? A bank manager’s job, for example, is to manage the bank, look after the cash, look after deposits, look after accounts as well as the loans and the lending side – anything ranging from a $5000 personal loan for a car up to a commercial loan. They’re probably what we would call generalists, whereas mortgage brokers specifically work in just the field of the asset finance, actually trying to get home and investment loans.
I think when you have a specialist rather than a generalist working for you, you’ll always get a far better outcome. That’s the first thing, as a comparison. The online market is coming on leaps and bounds, and there are all sorts of online specials out there. But when you sign on for just the low rate, do you really know what you’re getting? A mortgage broker can give you that advice.
Kevin: Let me ask you, if I may, in your normal day-to-day workings, how many lenders do you have access to?
Andrew: We have access to just over 30 lenders and well in excess of 500 products. Again, your bank manager, if they work for ABC or XYZ bank, they’re going to have just their product range, and they’re not going to be able to do all things for all people. That’s the other thing. What one bank may or may not do, we can find another one that will certainly be able to assist clients.
Kevin: Let me ask you this other question, too, that’s been asked of me from time to time about brokers. How do I know that the broker is actually giving me something that’s best for me, not just pushing me to something that’s going to give him a higher income?
Andrew: Yes, because brokers traditionally get paid a commission from the lenders. Every broker by law has to disclose what their commission is, and we openly advocate clients asking us why we’ve recommended that structural price or that lender to them. I have no problems advocating, and any decent broker won’t have any problems in disclosing the whys, the hows, and the comparisons in how a broker got to that decision.
The other thing, like I was saying before, Kevin, is we’re the experts in our field. We have access to the best packages, we can analyze the best prices, we can get access to funds, but also experts in our field – and I specifically work closely with investors and things like that – means we know where the best structures are, and we know how to set clients up to help them buy an investment property, or buy their second or third, or grow their portfolio, and try to grow their wealth through property.
Kevin: Andrew, does it depend on the person as to where you’ll put them, or is it more about what they’re looking at buying? In other words, I might be a homeowner but I’m also an investor; will my home loan have different benefits to it over the investor loan?
Andrew: Yes, it can. You certainly want to make sure that you’re trying to repay your home loan as quick as you can, because it’s not giving you a tax advantage, versus an investment loan that gives you a tax advantage, where there’s no need to. Having your offset account attached to your home loan and not your investment loan is obviously a major priority, and just little things like that.
There are specialists in all different areas. There are brokers – like in any profession – who are both really good at what they and are so-so at what they do, so finding the right broker within a mortgage broker also can be an effort. But again, word of mouth and networks are great ways to start.
Kevin: This is the man we recommend, Andrew Mirams, and you can contact him through our website, of course, RealEstateTalk.com.au. There is a button there, and, in fact, Andrew has his own featured channel where he puts a lot of his audios and videos, as well.
Andrew, I want to say thanks for your time and support. It’s always great talking to you, mate. Thank you.
Andrew: My pleasure, Kevin. Have a great day.
Kevin: It’s been fairly well known and very widely reported that over the next 25 years, into 2036, the population of Australia is projected to soar by more than 10 million heads, or 45%, from 22.3 million to around 32.4 million. Staggering figures, but Pete Wargent from AllenWargent buyer’s agent says that he believes it may be a touch on the low side. He joins me.
Pete: Hi, Kevin.
Kevin: Pretty staggering figures, but you believe they could be on the low side?
Pete: Yes. The ABS recently released its household and family projections, as you referenced there, through to 2036. Around the same time, the Treasury also released its inter-generational report, which shows population assumptions right out to the middle of the century, expecting a population of just shy of 40 million by that time.
I think the key thing to look at, though, is the trend in the assumptions. Over the last four inter-generational reports, each time the immigration assumptions have increased from 90,000 per annum to 110,000, to 180,000, and finally to 215,000. But even these figures, if you look at these benchmarked against the Department of Immigration, they do look to be on the low side and imply that the rate of immigration as a percentage of the population is actually going to fall, which seems quite unrealistic.
At the end of the day, lower immigration would result in slower economic growth, an aging population, and a lower tax take. For those three reasons, I think that you’ll find the immigration rate in the future is pretty high.
Kevin: Some interesting things that I wanted to discuss with you are the outcome of some of these figures and not the least of which the impact on our property market but also the impact on what houses we’re going to be living in the future, which raises another question. In your piece, you talk about lone households. What do you mean by that and what impact is that going to have?
Pete: By 2036, the ABS projects most of us will still live in family households. There will be a huge increase in the number of childless couples, 46% increase, a 47% increase in family households, but the biggest increase of all is expected to be in lone households – from 2.1 million today to 3.8 million. That’s an enormous increase.
This is really a function of two things. Firstly, it’s a function of an aging population. Sadly, more of us are going to outlive our partners, and secondly, it’s related to household wealth. Despite all the doom and gloom that’s reported in the media about falling iron ore prices and so on, record household wealth is recorded in the December quarter. Share markets are at close to seven-year highs, house prices are rising. In short, in a country without punitive inheritance taxes, more people can afford to live alone and therefore more people will choose to do so.
Kevin: What do you see is the impact on the property markets of this shift?
Pete: For one thing, we’re going to need a greater number of dwellings to house an equivalent level of the population, simply because those figures imply a fall in the average household size. I think it will obviously result in a huge demand for medium-density housing, but I think investors need to be wary of a high-rise housing glut. The latest building approvals figures from the ABS suggested that we’re approving high-rise unit blocks at an unprecedented rate, so therefore if I was an investor today, I’d be looking to steer clear of those.
Kevin: What are some of the winner and loser type markets? We’re hearing about a massive oversupply, particularly in the unit market in Melbourne. Is that translating right around the country?
Pete: The number of households projected through to 2036, the biggest number of households required will actually be in Melbourne. Therefore, although there may be an oversupply around the Docklands area, it may only be a short-term thing. The number of required households projected for Melbourne is 938,000 – which is a vast number – through to 2036.
Sydney, will be just behind at 820,000, and the other two markets that are projected to need the greatest number of households are Perth and Brisbane at 698,000 and 519,000 respectively.
In terms of regional markets, it’s mainly a Queensland thing. The property markets that are expected to grow would be the Gulf Coast, Sunshine Coast, and also Mackay, Townsville, and Rockhampton. But New South Wales and Victoria’s regional markets are generally projected to be a slower-growing area.
Kevin: That’s one other point, but we are out of time right now, Pete. I’m wondering whether next week we can come back and we have a look at those two different markets – the capital cities versus the regions – in light of what you just told us.
Pete Wargent will come back again next week. Pete, thanks very much for your time.
Pete: My pleasure, Kevin.
Kevin: We’re well and truly into 2015, now and we’re heading in to the second quarter of the year, well and truly. Is this a good time to assess your portfolio? What are some of the questions you need to ask yourself? That’s the question I put to our genius when it comes to this sort of thing, Michael Yardney from Metropole Property Strategists.
Michael: Hello, Kevin.
Kevin: Have you been called a genius recently?
Michael: Actually, it’s a long time. I think my mother is probably the only other one who’s ever called me a genius.
Kevin: Oh, well. We think you are. We love having you in the show. Michael, what are the key questions you find we should be asking ourselves now to evaluate what we’re doing?
Michael: I think it’s a good time – you’re right. I think one of the questions you should ask yourself is “What is it that I set out to do and accomplish in 2015?” Now be honest with yourself and where do you stand on those? How’s it going, Kevin?
Kevin: Is it best when all these are written down, Michael, so you can assess them better?
Michael: It makes much more sense to have set some written goals, Kevin – you’re right.
Kevin: It’s really about the reasons behind it all, isn’t it?
Michael: That’s right. The same question I ask myself is “What are the deeper reasons why I set out to accomplish these goals, and are they still important to me – if that’s the case, the reasons still matter the same – or if not, why not?” Then what I’d be saying is do you want to adjust the goals for the rest of the year? Are they still appropriate for you? Are they still meaningful?
Another question I ask myself is what do you like best about what’s going on so far in the first three or four months of the year? What are you proudest of? What are your victories? What are you grateful for? It’s always good to be grateful for what you’ve achieved.
Kevin: The thing I love about what you just said then is that we can be very negative on ourselves; it’s always good to look at the pluses, as well, Michael, to get a bit of a balance into what we’re doing.
Michael: We live in such a lucky country. We have people around us who love us. We’re in a great position. You have to start with an attitude of gratitude every day.
Kevin: I like that very much so. Yes.
Michael: The next question I ask myself “What are the key lessons I’ve learned in the first three months?” What are the hardest of those for us to listen to, and what are we going to do with the insights that we’ve learned from those lessons – the things that worked and the things that haven’t worked?
Kevin: Once you’ve been through and assessed that – we’ll get back to writing some of this down – is this a good time to evaluate your plan?
Michael: It is. It’s a good time to write them down again – “Okay, here are my goals for the rest of the year” – and then you actually have to share them with somebody, with your spouse or your significant other, and with your mastermind team. You actually have to share it, because the real power and juice in life comes from the relationships we have with other people.
Kevin: Just tell me a little bit about that peer group, too, Michael.
Michael: I think it’s really important, Kevin. You’ve probably heard it said that you are the average of the five people around you. If you’re a fit person, very likely your best friends are going to also be cyclists or runners or fit people or people you meet in the gym. If you’re financially successful, your peer group is going to be important. Your net wealth will very likely be the average of the five closest friends you have.
It’s been said that your level of wealth is likely to be relate to them, so maybe it’s not a bad time to look at your peer group.
Kevin: Michael, just to build on that, why does the peer group matter so much?
Michael: I always look at a couple of reasons, Kevin. Firstly, your peer group’s attitude, beliefs, and behaviors, they’re contagious. This impacts on the way you think, your ability to spot and take advantage of opportunities, and your behaviors as you go after – or interestingly, as you don’t go after – your financial goals. If your mates pooh-pooh you and make fun of you and say you shouldn’t do it and you’re greedy, you actually don’t go after your financial goals. That makes a difference.
I think another reason is alone, you’re vulnerable; connected, we are strong. We all have blind spots, we all have limitations, but your peers can help you bridge these gaps, and they’ll often share resources with you to help you make better decisions, better financial choices, Kevin.
I think the other thing is it’s actually a lot more fun to build with other people. It’s hard to do it in isolation. We live in a world that can be isolating, but we are social beings. We build better when we have peers to bounce ideas off, to encourage us, to hold us accountable.
Kevin: That’s a lovely segue, Michael. You’ve given me three great reasons there to mention your Wealth Retreat, which is coming up next month, as well, because it gives that platform, doesn’t it?
Michael: It does, Kevin. I’ve found that when people become very successful in property, in business, as entrepreneurs, when they get to a certain level, they actually don’t have a lot of people to bounce ideas from – you’re right, Kevin – therefore they come to Wealth Retreat to get an instant mastermind group of movers and shakers
They come along and they sit with fifty of their peers, people who are really successful, and with the best faculty I can get together, people like my business coach, Mark Creedon, with Pete Wargent, who’s a regular on this show, who’s an economist – he retired when he was 33, financially independent – with Ken Raiss, with the top property, tax people, share people, and all of a sudden, they create their own mastermind group – people who are there to help them to network. And it’s not just the formal education; it’s the chats you have over lunch, over breakfast. The informal chat is a great way to do it, Kevin.
Kevin: Okay. Tell me a little bit more about how can we get some more detail?
Michael: If you’re interested to come along to Wealth Retreat, go to WealthRetreat.com.au. We’ll get all the information, you’ll find out more about it, and register your interest, and I personally speak with everybody who comes to Wealth Retreat one-on-one to make sure their investment of the five days’ time – and, to be honest, the money – would be worthwhile for them.
Kevin: Wonderful. On that note, Michael, we’ll say thank you.
Michael: Thanks. My pleasure, Kevin.
Kevin: In the past, we’ve talked a reasonable amount about a possibility of over-supply in the Melbourne market, and it particularly relates, a lot of commentators will tell you, to the unit market. I guess that makes selection criteria very, very important for you if you’re looking to buy a unit in Melbourne – and no doubt a lot of people will. And they should, otherwise there’s going to be even more of a problem.
Greville Pabst is a buyer’s agent with WBP Property Group and is also a familiar face on television because he’s one of the judges on The Block. He joins me.
Greville: How are you, Kevin?
Kevin: Good. Greville, what’s your feedback? What are you seeing about apartments in Melbourne? Is there an over-supply?
Greville: The oversupply question is an interesting one. Look, property growth and performance really is based on where the population shifts are. At this point in time, most people are wanting to live close to the CBD, and if you live in the CBD, particularly young people are wanting to live in apartments.
Kevin: Yes. Then that factor has no doubt driven developers to go into a situation where we possibly do have an over-supply, particularly in those capital city areas. It’s not unique just to Melbourne, because we also hear that there could be some over-supply in the Brisbane market, as well.
It makes that selection criteria very important. If you are looking to buy a unit in, say, the inner ring of Melbourne, what would you be looking for specifically?
Greville: There are a couple of things. The first thing that I always look for is scarcity. What I mean by scarcity is I’m looking for an apartment that may be one of 15 or 20, a boutique development. That’s probably the first box that I’d like to tick.
The second one, it has to have a relationship to a lifestyle element, whether that be a café strip, transport, or a school. It has to have that relationship to that amenity. That’s really important.
The third thing is that it really must have a high underlying land value. If it’s in a block of ten, we want it to be sitting on highly valuable land that might be worth $2000, $3000, or $4000 per square meter so that the apartment that you are buying will only share the value of that highly-valuable land with as few other people as possible.
Kevin: I guess the other issue, too, is if you’re looking at an area where there already is a bit of an over-supply, it’s important to know what’s going to be coming up in the future in terms of the suburb zoning.
Greville: Yes. Zoning is very important, and zoning in many capital cities around Australia has changed, particularly in Melbourne, so you need to be aware of those changes.
The demand and supply equation is something that’s been talked about a lot. Just recently – in the last few days – I’ve heard that one of the biggest tower developments, 108 City Road, where there are 1105 apartments, 1000 of them have sold within the last two months. But I suspect that many of those are to overseas buyers.
Kevin: Is there anything other than the fact that they’ve gone to overseas buyers that makes them unique, Greville, in your book?
Greville: It is unique because that particular development is the tallest building in the southern hemisphere. But the other thing – and this is what I think many investors and buyers need to be aware of – is that that particular development does not complete until 2019. The question that I raise is, “What is the market going to be like in 2019? Are you still going to get the same value that you have paid today?”
Kevin: Yes. I guess that’s a big question, too, that maybe some partners have come in on the basis because it’s not going to be completed for such a long period of time, maybe they can punt it and make a profit out of it. But I would have thought those days had well and truly gone, Greville?
Greville: Yes. I don’t truly like to speculate when I buy real estate. To me, one of the best investment decisions that you can make is to buy those vintage apartments – the lower density, the Art Deco, the 1950s/1960s/1970s apartments. Some of those are the best investments that you’ll ever make.
The thing is they have a history of performance, so you’re not speculating. You actually calculate capital growth in arrears over the last 20 to 30 years. The data is now available for you to do that, so there’s no need to speculate when you’re buying investment property today.
Kevin: Greville Pabst, thanks for your time.
Greville: Thanks, Kevin.
Kevin: Have you ever heard of title insurance? According to Garth Brown from Brown & Brown Conveyancers, it’s almost as critical if you’re a purchaser of a property as if you were getting a building report. What is title insurance, and what does it cover? Garth joins us.
Hi, Garth. Thanks for your time.
Garth: Thanks, Kevin. I appreciate the opportunity.
Kevin: Tell me, what is title insurance?
Garth: Title insurance is a type of insurance that protects you after settlement. It’s a once-off premium. It comes in and compensates you for things such as if there’s a problem with a boundary, if there’s an encroachment by the property you own or a neighbor encroaching onto yours.
Also, illegal building structures. If you’ve put up a structure without council approval and after settlement, you’re issued with a letter to demolish or upgrade that, title insurance will come in and compensate you for the loss.
It also protects you from things like fraud on title that could happen after settlement. Also, too, if there are any government proposals later on down the track – like to acquire the land for education or a railway or a road – they will come in and help you out and compensate you for any potential loss or try to help out with negotiation.
It’s a wonderful tool. Life is so short, you just have to make sure you have most of your risks covered, particularly after settlement. That’s when all the song and games start up.
Kevin: It seems to me to be a fairly critical form of insurance. Why isn’t it better known?
Garth: It’s only come out in the Australian market over the last five to eight years. It’s been in America for probably a couple of hundred years now; it’s just migrated over here in the last ten years. This is a wonderful way to protect purchases, and if your conveyancer or solicitor is using it, they’re really up-to-date on the way to protect their clients.
Kevin: I’d imagine that you would be recommending this to all of your clients, but in your experience, how broadly used is it within Australia?
Garth: Particularly in the conveyancing profession with our education seminars that take place, most conveyancers are moving over to using the product.
Kevin: What does it cost?
Garth: The cost is so minimal. For a property in New South Wales that’s under $500,000, you’re looking at $450. If you look at the stamp duty on that, that’s probably about maybe $40,000, so for the sake of $450, it’s really worth the coverage that it offers.
Kevin: This would take into account, I think, things like if you buy a three-bedroom home that’s actually had a masonry wall put down the middle to make it a four-bedroom home, improve its return on investment.
Garth: In some parts of Sydney, some people will put a wall inside their bedroom to increase the number of bedrooms in the home and rent them out and increase their yield. One particular person did this to an apartment in the Chatswood area. A purchaser came across and decided to buy the apartment. They got a letter from the council, because the body corporate found out about it, sent a letter, and the council found out about it and wanted to send them a fine.
If this purchaser had taken out title insurance, this would have covered them for the fine. You just don’t really know what you’re getting into, and usually, these things happen after settlement, not prior to settlement.
Kevin: A great point, too, Garth. Thanks for pointing it out to us. It’s called title insurance, and you should be asking your conveyancer about that. My guest this time has been Garth Brown from Brown & Brown Conveyancers.
Garth, thank you so much for your time.
Garth: Thanks, Kevin.
Kevin: Sometimes from time to time, you’re going to need to move something out of your portfolio that might not be performing all that well, and it might not be performing because maybe it’s only limited in terms of its attraction to tenants or even its attraction to buyers. What can you do? Michael Cooney from Hodges in Melbourne has had some experience with this and joins me.
Michael: Well, thanks, Kevin. How are you?
Kevin: Good. Michael, what advice would you have for someone in this position? What should they be doing?
Michael: They have to firstly understand the property they’re trying to sell and its uniqueness. Every property has a unique selling feature. If they’ve had it for a while, it could be something that has a longer term tenancy in it. You have to understand the property, and if they’re going to sell it, they need to find an agent who will understand the property. That’s the first thing. The current owners bought it for a reason or reasons, so it’s very important that the agent knows those reasons, and this will help them understand the buyers who they’re looking for.
Timing is the next point. When is the best time of the year to sell and show the property? Now, now if it’s an average investment, time is probably less critical. At the moment, if we’re going to sell apartments above shops in an area where it’s a bit of a tougher market, what we have to do then is look at “Okay, how are we going to market those? Who’s going to buy it?” and they’re very much a local buyer. I would advise your investors then to choose a local agent. They should be choosing someone local who knows the market, who has sold similar properties, and that’s very important, also.
Kevin: I like the point you made earlier, Michael, too, about understanding the buyer and where they’re going to come from, because that’s certainly going to help with the marketing again, I would imagine, as well.
Michael: I think so. I think if you’re looking at, “Who is going to buy this property? Is it another investment or is it going to be an owner-occupier?” If it’s going to be another investor, are they going to be a local one? Are they going to come from a financial planner? Are they going to be a self-managed super fund?
But if they’re going to be an owner-occupier, if I were the owner of the property, I would be looking to do some research about what you can do. Research “What properties like mine have sold recently, and who has sold them?”
Go to that agent. If they’ve had a successful marketing program, you know how many days it’s been on market, they will have a list of buyers who perhaps missed out on the property, so an off-market sale may be a distinct possibility.
But you also have to look with unique properties at why are they selling now? What’s the reason they’re selling now? Is there a real negative with the property that they need to tell the agent that needs to be overcome?
Kevin: There’s always a reason for a property to be sold, Michael, isn’t there? It could just be that it’s excess in the portfolio and you’re saying you should brief the agent on this?
Michael: I think so. It’s really important that people tell the agent and find an agent who you can sit across the table and have some really open and honest dialogue with. If it’s a distressed situation, tell them, because the right agent will help you. The right agent will help you in every circumstance. The wrong agent won’t.
It’s really important to research, “Okay, I’m going to perhaps rate my agent and see who the number one sales office in the area is, who is the number one salesperson. Does that coincide with who’s selling these types of properties in the marketplace?”
It could be simply that you’re retiring, it’s a pre-CGT (capital gains tax) property, so you’re just ready to liquidate it, or you’re looking to move into another investment. You’re shuffling between funds. There are a number of reasons why you’re selling. Be open with the agent and make sure that person understands exactly what you’re trying to achieve, when you’re trying to achieve it, and how you’re trying to achieve it.
Kevin: Yes, it all makes sense, Michael. Thank you so much for your time, Michael Cooney from Hodges in Melbourne. I appreciate your time, mate. Thank you.
Michael: No worries. Thanks very much.