First Home Buyer to Investor | House Hunting This Spring? | 5 property investing lessons | Cross-Collateralisation – a fatal investor mistake? | Property Managers

First Home Buyer to Investor | House Hunting This Spring? | 5 property investing lessons | Cross-Collateralisation – a fatal investor mistake? | Property Managers

 

First Home Buyer to investor, upsize, downsize and finally retirement. It is a journey but like with very journey you must know the destination before you set out.

Michael Yardney gives us the five property investing lessons you never want to forget.

As we prepare to enter Spring – one of the busiest real estate times of the year – we take stock of the market and give you an insight as to the market conditions, level of stock availability and how not to pay too much.

Louis Christopher from SQM Research says the measures taken by APRA in slowing investor demand are now having an impact on the market and it is likely the measures will slow the rate of dwelling price inflation recorded, rather than create a price correction.

Andrew Mirams – our finance expert – says the tighter banking restrictions are even further evidence that cross-collateralisation is a fatal investor mistake. He explains how and why it should be fixed.

If you need a new property manager, want to change property managers or would just like to compare your current manager to alternative managers there is a new website that will help you do that. I will tell you about the site that will service investors nationwide.

 

Transcripts:

Louis Christopher

Kevin:  Louis Christopher from SQM Research says the measures taken by APRA in slowing investor demand are now having an impact on the market, and it’s likely the measures will slow the rate of dwelling price inflation recorded rather than create price correction. He joins us.

Louis, I wonder if you’d just explain a little bit more about your thinking behind that?

Louis:  Sure, Kevin. We know that what APRA has done via the major banks has had an impact upon the market. We know this because we are seeing in our stats – for example, the total listings number jump in July, which is a pretty abnormal time for that to happen – and we know through reports on the ground of mortgage brokers and real estate agents stating that a number of their potential buyers and borrowers have decided to leave the marketplace.

We think there is a bearing there, but it’s very difficult to work out at this stage what the magnitude of this is going to be on the housing market, how much of an impact this is actually going to be on the housing market. We need to see more information come through. It’s very early days yet.

The two major factors are that, number one, property investors need to put up more money as a deposit or as equity in order to secure the investment property, to get the loan to get the investment property, and two, interest rates have gone up for property investors. Historically, of course, we know whenever those two events have occurred it has slowed the market.

I think those measures on the top of it will continue to slow the market, but I don’t think it will create a major correction. When it comes to the actual interest rate increase, it’s effectively come out at about 25 basis points, or a quarter of a percent, which in itself shouldn’t create a correction in marketplace. We need to see higher interest rates than that.

Secondly, of course, this is just one element of the market. Obviously, first-home buyers and owner-occupiers are still there, and indeed, the banks have actually loosened the purse strings a little for first-home buyers. While they’ve actually announced a rate rise effectively for property investors, they’ve lowered interest rates for first-home buyers.

Kevin:  I was really interested in your latest set of figures, too, to notice that the Melbourne listing numbers have actually fallen. It was interesting that the same day you released that, we noticed that the prices in Melbourne had increased. Is there anything you can draw from that?

Louis:  Overall, Melbourne has definitely recorded an improving property market where we’ve definitely noticed more activity except for this month. As it’s gone by, listings have actually started trending down, so it’s becoming increasingly a seller’s market.

But I don’t think Melbourne is an actual state of a total property boom, not like what we’ve been seeing in Sydney. The price growth rates have been hovering around the 8% to 10% mark per annum for Melbourne, whereas Sydney has been doing 15% to 20%. Definitely, Melbourne has been picking up.

Also know, too, the Reserve Bank of Australia, in its most recent update on monetary policy, left out the city of Melbourne in terms of discussing the housing boom. Whereas before, they were including Sydney and Melbourne, they now only just said Sydney.

Kevin:  Is that because they’re not sure what’s happening in Melbourne?

Louis:  I think so. I think that’s the case. Calling it like it is, Kevin, Melbourne historically has been very difficult to call the numbers. Usually you see very inconsistent data coming out of the city of Melbourne when it comes to housing market information.

Kevin:  And listings around the rest of the country – apart from Hobart, where there was a just very small fall month to month – they’re holding pretty well?

Louis:  They are. It was still an abnormal month in the sense that normally you see subdued listings activity just before springtime, but this month we recorded increases for all cities except for Hobart. That was a little abnormal, and just goes back to the point about whether the APRA initiatives are actually having an impact upon the market.

Kevin:  Louis, do you think that APRA’s decision, then, to apply those changes across the country is the correct one?

Louis:  I don’t. I think this is one of the failings of what APRA is doing. Macro-prudential tools have the opportunity to be very tactical in the sense that you can focus them very geographically. You can set policy, for example, just for the city of Sydney if you wanted to, but they’re not doing that.

They have basically left it up to the banks to decide how they’re going to meet their overall criteria, and what the banks are doing is applying policy changes basically everywhere. They’re not just focusing on Sydney; they’re doing it across the board.

I’m not so sure whether that’s something that the RBA wants to see. This is all about trying to contain the boom in Sydney, not trying to contain a national housing boom, of which there isn’t any.

Kevin:  Well, Louis, I guess it’s just a matter of wait and see. Thank you for joining us. Louis Christopher from SQM Research.

Thanks for your time, Louis.

Louis:  Thanks, Kevin.

Andrew Mirams

Kevin:  According to our finance expert Andrew Mirams, from Intuitive Finance, now more than ever, with all the tightening of the rules by APRA, it’s more important that you consider whether or not you should have all of your properties cross-collateralized. Andrew joins us.

Andrew, you’re expressing some concern about this, and this is highlighting that?

Andrew:  Yes, it is, Kevin. Firstly, thanks for having me.

We’re seeing the constant and ongoing debate about cross-collateralization and things like that. Whereas you have some people advocating it’s okay, we’re certainly an advocate of not having it.

At the moment, with the tightening of the rules, we’ve had a couple of clients contact us – who weren’t original clients – saying, “I’ve got all my loans linked, and my properties are linked at one lender. What can you do for us?”

We’re just finding that when standards tighten and things like that happen, there’s certainly a case that having all your eggs in one basket is not the best thing for us. People need to be aware, and if they do have that situation, they need to start looking at taking some action.

Kevin:  What can they do if they are in that situation, Andrew?

Andrew:  The first thing is now more than ever, when the rules are tightening and thing are getting harder, is to seek professional advice. Certainly, what we do here at Intuitive Finance is specialize in the investor market. Find someone who can help to review your portfolio and see what you’ve actually got in place. Then from there what can be done, talking about if there are lenders still out there that will give access to funds, and trying to unwind it.

It doesn’t necessarily mean throwing the baby out with the bath water. You don’t have to completely up stumps and move lenders. You can still retain your relationship with your lender. It’s just a restructure within.

There are a few things you need to do, but certainly the first and the most important thing is seeking advice. The problem with seeking advice, Kevin, is when interest rates are low and times are good, people tend to get very complacent. Probably, it’s been still a thing that people haven’t addressed in the good times we’ve just had, but hopefully that won’t leave people short if we’re about to experience a little bit of tougher times with our lenders and APRA and the regulations that they’re wanting to enforce.

Kevin:  I guess this is a time to be proactive as opposed to reactive – in other words, not waiting for the banks to come to you, but get on the front foot and do something about it now?

Andrew:  No doubt. Absolutely. As with anything, you would much rather be in the driver’s seat than being towed around. I think the more proactive and the sooner you address some of the things if there are some potential issues, the better.

Kevin:  One of the things that I wanted to revisit is we did a special video podcast recently, and at the conclusion of that, I asked you how people can make themselves more attractive to the banks. How can we do that?

Andrew:  The golden rule there was make sure you don’t cross-collateralize or have your loans linked. The second thing we talked about was making sure you’re seeking professional advice and getting a great team around you.

Make sure you have more than one lender. If you’re a portfolio investor, and you’re starting to grow your portfolio, you don’t necessarily want all to be interlinked all to one bank. It doesn’t even matter if you have all your loans not crossed, but having all your lending at one bank means that they still have the power. In times when it’s a little bit tougher to get access to funds, being an existing customer is a little bit easier than being a new customer.

Certainly, just looking at making sure you have your right debt structures in place. What I mean by that is actually using your equity, making sure – if you’re an investor – you have a line of credit and a buffer set up, so that if things do get a bit tougher and your tenant moves out, you’re not actually having to fund it from your own income, that there are actual structures in place to help you and see you through.

The final thing, I think, is in low interest rates and when things are going well, we still get access to personal debt, credit cards, and personal loans, and in times when you’re looking to access funds, if the credit rules are a little bit tougher, now’s the time to look at eliminating those or certainly reducing them.

Those are a few tips that I think can help people.

Kevin:  And very good tips, too. Thanks for your timely warning as well. Andrew Mirams from Intuitive Finance who you can see as a regular contributor on RealEstateTalk.com.au, of course, or through his website, IntuitiveFinance.com.au.

Andrew, once again, thanks for your time.

Andrew:  My pleasure, Kevin. Thank you.

Michael Yardney

Kevin:  Wise investors know that you can always be learning lessons. You have to look back sometimes to learn the lessons of the past. With our property markets now in a more mature stage of the cycle, it seems appropriate that we should reflect back and look at some of those lessons that we’ve learned over the last few years.

There’s no better person to talk to about that than Michael Yardney from Metropole Property Strategists. No doubt you’ve been looking a bit in the rear vision mirror, Michael?

Michael:  Yes I have, Kevin. I have learned a number of lessons along the way. Wouldn’t it be nice to have known then what we know today?

Kevin:  Yes, it would be. What’s the first lesson?

Michael:  I guess the first lesson is that neither booms nor busts last forever. During the boom stage of the property cycle, everyone is optimistic – they expect the good times to last forever – just like we lose our confidence in the downturn stage.

Currently, despite all the mixed messages in the media, people are still reasonably optimistic. It’s just a thing that psychologists call recency bias. When you have lots of good news – like we’ve been having in the property markets, particularly in Melbourne and Sydney, for example – you feel good.

The other thing that tricks our minds is something called confirmation bias – you actually look for information to confirm your predetermined decision that the market is doing really well, and you tend to neglect the other bits.

The lesson is take advantage of property cycles as they occur, but be ready for the downturn. Be covered because this too shall pass.

Kevin:  Lesson number two?

Michael:  There’s always going to be doomsayers. As long as I’ve been investing – it’s over 40 years now – I remember people saying that property prices are too high and the market is going to bust. Fear is a powerful emotion, and the media use it to grab our attention. Sadly, some people miss out on opportunities to develop their own financial freedom because they listen to the messages of those who want to deflate our financial dreams.

Yes, be cautious of this stage of the property cycle, but don’t let fear take hold of your decisions.

Kevin:  Good. Lesson number three?

Michael:  Follow a system. Therefore, don’t let emotions – and fear is one of them, as is greed – drive your investment decisions.

To take the emotion out of it, get a system rather than speculate. This may be boring but it’s profitable. Almost anyone can make money after the boom conditions of the last couple of years, but many investors without a system found themselves in financial trouble when the market turned down last time around.

I remember Warren Buffett clearly saying you find out who is swimming naked when the tide goes out. Kevin, the tide is going to go out in the future, so those who follow a system are less likely to be caught when conditions change.

Kevin:  Those people who do follow a system, Michael, have you noticed they’re the sorts of people who treat it like a business?

Michael:  Clearly, they do, but they have a reason why the want to invest. In my opinion, it should be for capital growth, but everybody is in a different stage in their financial journey, so some want to invest for cash flow. But they should be investing rather than speculating.

I’m seeing a lot of people currently fearing that they’re missing out, so they’re looking for the get-rich-quick, the fast money. They’re looking to bypass the banks, they’re looking to do things in a way that isn’t going to work, I guess.

Another of Warren Buffett’s good sayings to remember at this time is “Wealth is a transfer of money from the impatient to the patient.”

Kevin:  That would align with your fourth lesson, wouldn’t it, about the get rich quick schemes?

Michael:  Yes, it is. Only recently ASIC jumped down on a number of what they call “property spruikers.” There are some promoters out there who are promising unrealistic expectations, unrealistic returns. Remember, if it’s too good to be true, it probably is – or it’s at least definitely worth exploring more before you jump in.

Kevin:  In fact, on that point, we spoke to Ben Kingsley from PIPA about that on the show just last week.

Lesson number five, Michael?

Michael:  It’s actually about property. That’s what we’re involved in. But I hear people getting involved for depreciation, or for tax benefits, or for negative gearing. Really, what you have to understand is don’t look at these glamorous financial or tax strategies; smart investors buy well-located assets that are going to be in strong demand by a wide range of – generally – owner-occupiers.

In order words, to me, a good investment property is one that owner-occupiers always want, not one that tenants or investors are looking for. Then, buy that sort of property and hold it for the long term. That’s likely to help you build your financial wealth, like a lot of others have.

So, despite being at a mature stage of the cycle, I know a lot of people who are today looking back very happily, having bought in 2007 and 2008 before the market slowed down then, or in 2002 or 2003 when, again, we had the peak of the market and things slowed down. They bought well-located properties, were able to ride the cycle, and today are sitting back looking very happy.

Kevin:  Very good, Michael. It’s always good talking to you. You can catch up with Michael, of course, at his blog site: PropertyUpdate.com.au

Thanks, Michael.

Michael:  My pleasure, Kevin.

 

Cate Bakos

Kevin:   It’s quite timely that we should be talking right now to Cate Bakos, who is a buyer’s agent out of Melbourne, talking about what’s going to happen as we enter into spring. This is the last Saturday, of course, before spring, and it’s a great time of year and a tremendous time to be out looking for property.

Cate Bakos joins me. Hi, Cate.

Cate:  Hi, Kevin. How are you doing?

Kevin:   I’m well, thank you. Happy almost-spring to you.

Cate:  Yeah, almost. We’re just about there.

Kevin:   Tell me about what’s happening with stock levels. Does it change as we move from winter into spring?

Cate:  Yes, it sure does. The sheer number of listing alerts that are coming through on anyone’s search engine alerts should be demonstrating that.

We’ve had a reasonably tough winter. We have a stock shortage and, obviously, buyers who are out there feeling that they’re hard-pressed to buy and get good value at the moment. But as we come into spring, our relative number of buyers to properties is dropping, and that’s advantageous for buyers, because obviously, it’s diluting the buyer pool. Perhaps that will take some of the heat off some of those crazy sales results we’ve seen through July and August.

Kevin:   They did surprise me – particularly out of Sydney and Melbourne – when we’re supposed to be going through not so much a lean time but one of the slowest times of the year. But it just seemed to gather pace and continue going.

Cate:  That’s right. It’s a combination of sentiment. We’ve had a lot of media talk about records and crazy results. I think a lot of people have been feeling that if they don’t do something now, the market will get even further away from their fingertips. So we’ve seen some really desperate moves and some big stretches on the part of some of the buyers out there.

I don’t think that that’s actually the case this coming spring. I think they can not necessarily relax but look forward to enjoying a little bit of ease on the pace of the market and the competition.

Kevin:   How would you describe the market at present? Is this a buyer’s market or a seller’s market?

Cate:  It’s still most definitely a seller’s market, and our auction clearance rates indicate that.

Kevin:   Any signs that that may change as we get further in towards the end of the year?

Cate:  I don’t believe that we will see a buyer’s market this year, Kevin – I don’t even think that we’ll see it in the next year – but I think we’ll see not quite an intense seller’s market. I think things will ease a little bit. I anticipate that our auction clearance rates may even get below 75 and even touch 70, certainly for certain segments of the market.

I know that you’ve also addressed the APRA changes and how that’s affecting parts of the market. We might well see typical investor stock — for example, apartments and townhouses — ease off a little bit, but I think that houses will still be going relatively strong. I just think that buyers are in for a little bit of a pleasant surprise compared to some of the hardships that they’ve faced over the last couple of months.

Kevin:   That certainly will be a surprise to a lot of people, and probably a refreshing change, as well. You must have seen a lot of disappointed buyers in recent times — even you — going along to auctions and being outbid.

Cate:  Without a doubt. Trying to secure a property prior to auction is a lot harder. I’ve put a lot of emphasis into chasing off-market opportunities, because my auction success percentage has dropped over this period, as well, and that’s no surprise. It often does in winter, when things are really competitive. But I think buyers are in store for a little bit of a pleasant surprise. I certainly hope so, anyway.

Kevin:   When you’re going to an auction, Cate – just give me a bit of an insight here – you obviously have a figure in your mind. How flexible are you about that, and do you set a limit underneath the figure that you’d go to?

Cate:  I’ll always appraise the property and give the client a really robust understanding of what I think it compares to, and then obviously, you’re overlaying market sentiment. If you’re in a really tough, really strong market, you do have to be prepared for the next sale to break the last record.

Having said that, we always set our maximum price before the auction so that we’re not emotional when we’re doing it, we’re being sensible. I say to everyone if it’s an investment purchase, you don’t want to be breaking records – so maybe being prepared to stretch up to 3% from the top end value of where you think the property sits.

But if it’s an owner-occupier property, we really have to overlay the buyer’s sentiment around that particular property, as well. If it’s a really tough brief and they have very specific criteria, and that property ticks most of the boxes or all of the boxes, then we have to understand what the implication is if we miss out on the property, how much longer they’ll need to stay in the market and what that could do to the values in that segment.

Sometimes buyers will stretch maybe 5%. Generally speaking, I wouldn’t be excited to see someone go beyond 5%, because that is quite a bit stretch, particularly when you’re talking about a house towards maybe $1 million.

We obviously set every limit based on that particular client’s situation and criteria, but yes, as I’ve just said, you do need to be prepared to stretch a little bit in a seller’s market.

Kevin:   Always good talking to you, Cate Bakos. Thank you so much for your time. Cate, of course, an independent buyer’s agent working out of the Melbourne market, Cate Bakos Properties.

Cate, nice talking to you, and we’ll catch you again soon.

Cate:  Thanks so much, Kevin.

 

Tim Godden

Kevin:  If you need a new property manager, maybe you want to have a look around to see if you’re getting the best deal possible, or maybe you’re a little unhappy with your existing property manager and think it’s time to change, how do you go about doing that? There’s a brand new website that’s been set up, and I’m going to talk to the man behind it right now. It’s called Property Management Concierge. They help you go through this process. The man behind it is Tim Godden.

Tim, thanks for your time.

Tim:  No problems, Kevin. Thank you.

Kevin:  Tell me a little bit about your background and why you started Property Management Concierge.

Tim:  I’ve been in real estate for over seven years now, and in that time, I’ve worked with property managers, landlords, and investment property owners. We were servicing a lot of landlords’ properties, and were constantly asked recommendations for other property managers because they either weren’t happy or needed a new manager for their investment property.

Being in property management for a period of time, I really could see the difference between a brilliant property manager – someone who was actively servicing their landlords and trying to get the most out of the properties as possible in the way of financial returns – and comparing that to a property manager who was more just collecting the rent and ensuring that the property is maintained.

There is a really big difference, and that’s where I saw this opportunity to be able to put property investors in touch with brilliant property managers and be able to find them brilliant property managers out in the marketplace.

Kevin:  I talk to you in a moment about how it actually works, but it’s an interesting development. I guess it’s on the back of what we’re seeing in different industries, not just in real estate, but it’s almost like disruption. We’ve seen in recent years the growth in popularity of buyer’s agents as the role of traditional agents had been split between working for the seller, which is traditionally what they do, but there was a need for someone to come in and work specifically with buyers. Is this how the whole thing has eventuated, Tim?

Tim:  Yes. We see ourselves almost like a mortgage broker service. We’re a free service where investment property owners are able to compare offers from a number of property managers. They can even compare what another property manager believes they’ll be able to achieve in rent from their property compared to what the tenants are currently paying.

You’re exactly right; it had eventuated from that. We’re completely obligation-free, and independent, as well, from any of the other agencies, servicing only the best interests of the property owner.

Kevin:  You said it’s a free service to investors, so how are you making your money out of this?

Tim:  We’re paid an industry-standard referral fee from the property management agency. Every property management agency we work with has exactly the same fee, so we have no preference for one or the other. It’s completely independent from any agency, as I said. It’s an industry-standard referral fee for referring them the business, which then allows us to make the service completely free to the property owner.

There’s really nothing to lose from the property owner’s point of view, simply just comparing property managers. Worst case scenario, they find a property manager that is able to gain them more rent for their property.

Kevin:  How unbiased will your referral be based on the fact that it’s the agent who is paying your fee?

Tim:  It’s unbiased because the fee is exactly the same no matter which agency we go to. The industry-standard referral fee, which is one week’s rent. We’ll advise the property owner of what the referral fee would be for each of the agencies. It’s one week’s rent, so depending on what the agency is able to rent the property out for is what our fee will be for that agency.

In a way, it’s in our best interests to find an agency that will be able to achieve the best rest for the landlord, but at the same time, we are completely independent of any agency. We just want to find the best agency for the property investor.

Kevin:  Just tell me how it works from the investor’s point of view. How do they hook into this service, and what can they expect to have happen?

Tim:  They can contact us either by:

  • Phone: our number is 1300 736 538
  • Website: PropertyManagementConcierge.com.au

We can go through a number of short questions with them that then uncover what their expectations are for a property manager and what’s most important to them – whether it’s the communication that’s particularly important – or if they’ve had any bad experiences with property managers in the past.

Once we’ve uncovered that information, we shortlist property managers who are in a particular suburb. What we then do is interview the property managers on behalf of the property investor. We’ll go through a number of questions with the property manager that allow us to make a recommendation to the property owner about which manager we think best suits them and their property.

We’ll even go through the fee structure of the agency, and we are able to negotiate that with the agency, and give a clear comparison to the property owner regarding the fees of each agency. Some agencies charge their fees in different ways. Some may charge for routine inspections, while others don’t charge for those. Just because the management fee may be less doesn’t mean there won’t be other fees elsewhere, so we make a clear comparison of that fee structure, as well.

Kevin:  Tim, once you actually make that appointment with the investor and they have their new property manager, do you then step away and all the contact is between that new rental manager and the investor, or do you stay in the loop?

Tim:  We stay in the loop for the process. Once we’ve been appointed, we’ll make the introduction, but then down the way as they proceed with that manager, we can be in constant contact with the property investor. We will obviously contact them to make sure their experience is as expected, is great, and if they do have any questions – whether it be legislation questions or any questions in relation to the management of their property – we’re always available for them. We’ll also check in with the property manager periodically, just to check that everything is running smoothly for the investor.

Again, this is all a completely free service for the investor. It’s really just about having someone independent and away from the agency look over their property and make sure that everything is running smoothly and as intended.

Kevin:  Tim, all the best with the venture. The website is PropertyManagementConcierge.com.au

My guest has been Tim Godden. Tim, thanks for your time.

Tim:  No problems. Thanks very much, Kevin.

 

Paul Nugent

Kevin:  My guest now is Paul Nugent from Wakelin Property Advisory, who we’ve had the pleasure of speaking to on a number of occasions.

Paul, you’ve been in the industry for a long time. You would have seen that progression from the first-time purchaser or first-home buyer right though to becoming an investor. What are some of the obstacles and challenges you see for people along the way?

Paul:  That’s a really good point, Kevin. What seems to impede a lot of people from either venturing into investment property or from furthering their portfolios tends to be a lot of the white noise that’s always out there in the marketplace and in the broader economic commentary.

Anyone who is prudent is going to take on board what is happening in the broader economy, however a lot of people are easily put off by comments that are made in terms of changes to legislation, waiting for interest rates to fall or to stabilize, or waiting for prices to come back – peripheral issues that really just create doubt in people’s minds.

Kevin:  Everyone has an opinion, don’t they? Everyone’s an expert. Particularly family, I’ve found.

Paul:  I think that’s exactly right. I think it’s those you meet around the barbeque who tend to create the greatest issues for investors. People are waiting for someone to ring the bell and tell them “Now is the time to buy,” or “Don’t buy now; you’d be mad.” Whereas, the reality of life is those who have been very successful buying property as an investment, they listen to others but they rely on their own counsel and they’re not hindered in any way by all this talk. They’re quite focused.

Kevin:  It’s a very general statement I’m going to make right now, but I’m particularly impressed with this young generation and the fact that they do their due diligence but they are also very brave about venturing into this. They don’t have the hesitation, I guess, of becoming a first-time purchaser. I’ve even noticed some of them – and you might have, too – who prefer to buy an investment as their first property, as opposed to a principle place of residence.

Paul:  Yes, most certainly. That seems to sit very well with the younger generation – by that, we’re probably thinking people in their 20s through to early 30s. I think it gives them that security of a foothold in the market, but by buying an investment property, they still have flexibility in terms of lifestyle, careers, travel, and what-have-you. It’s not uncommon at all for first-time buyers to be purchasing an investment property rather than a home.

Kevin:  Let’s talk about that difficult jump from having one investment property to actually buying your second and third. That seems to be a difficult transition for some people.

Paul:  Yes, it is, but I think that’s more a mental block than anything else. What those investors that I know who’ve entered into the marketplace and developed a portfolio over a number of years tend to do is assess their financial position every year. They look at their equity position in terms of what the property they’ve already purchased might be worth, they look at any spare cash flow they might have – whether they have had a pay rise or have a new job – and reassess that affordability.

Even for people where those circumstances don’t change greatly over any given twelve-month period, I’ve noticed that over three to five years, those people are able to invariably come back into the market, make a second purchase, and then repeat the process. So every three to five years, it seems to be that with successful asset selection in the first place, growth seems to allow them to have the equity to be able to move further into the market and acquire more.

Kevin:  That’s interesting. You’re saying that foundation is absolutely critical to get that right.

Paul:  Absolutely, 100%.

Kevin:  What about those who are moving through life, they buy their first property, they might have another investment property, they have a large family home, and then they have to downsize because the family moves away. This is another critical stepping-stone.

Paul:  Absolutely. That’s part of the life cycle of property, and it’s creating opportunities for those who are moving up in the market to buy into family homes.

It is interesting as people are downsizing at a particular point, many of them are buying smaller properties that suit their needs better as the family requirements change, and some of those people are also buying an investment property on the side to have as a form of hedging, I suppose.

Kevin:  I’ve seen a few people move through that stage, where the family have moved away and they have large homes. They’ll actually sell that and think, “I’ll go and live in a unit now,” and find that unit living is not really for them. What advice would you have for people at that stage of their life, Paul?

Paul:   Once again, I think it’s doing your due diligence up front, Kevin, and being aware of what you’re buying into. For most people, when they’re buying a home they can broadly work out what they might enjoy about a given community – what the transport linkages are, who is living next door to them, and what’s going on in the area. But it’s very difficult for people who are buying into a unit to see what that community holds.

What I would often recommend for people who are wanting to make that move is to perhaps retain the family home, go and rent something for six to twelve months and see if you like it.

Kevin:  That’s such good advice. I’ve seen people who have committed to selling the family home because they know it’s no longer going to suit them but rather than jump into a unit, they’ll go and rent to find out, one, if they like that kind of lifestyle and if they like the area that they’re moving into.

Paul:  Absolutely. If you’re making that sort of radical change where you’ve been in one location or home for a number of decades, it’s quite a large move, and you want to make sure that the new spot you’re going to holds the sort of attractions that you need.

Kevin:  Exactly, and that is such good advice, Paul. Thank you very much, Paul Nugent from Wakelin Property Advisory.

Thanks again for your time, Paul.

Paul:  A pleasure. Thank you very much, Kevin.

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Kevin Turner
kevin@realestatetalk.com.au
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