19 Feb Fundamental truth about successful investing + Lifestyle trends and properties
First up in the show today we answer a question from Wayne. He asks Brad Beer if claiming depreciation on an investment property will lower the value of the house in the eyes of the ATO.
With more investors turning to renovation of some of their existing portfolio as a way to grow their portfolio because of recent lending restrictions, we catch up with Jane Slack-Smith to get some tips.
Demographer Mark McCrindle takes us through some of the lifestyle trends and their impact on where and how we live and the obvious impact on property.
Clever investors learn a lot from the mistakes of others and what they do to succeed. They also learn from their own mistakes and while they don’t dwell on them, they use them to grow. Michael Yardney tells us about some of the things he would have done differently.
Shannon Davis talks about the belief that it is all about “location, location, location”. He says it is a basic fundamental truth about successful investing.
Chris Gray from Sky TV tells us that his strategy is boring but beautiful. He says that there is a big downside for many Australians who would follow his example.
Kevin: We’re going to answer a question now that came in from Wayne Mundy from Toowoomba. Thanks for the question, too, Wayne. Joining me to answer is Brad Beer from BMT Tax Depreciation.
Good day, Brad.
Brad: Hi, Kevin.
Kevin: Good to be talking to you again. I’ll just quickly read Wayne’s e-mail. “I’m only just starting out in my real estate journey and have heaps of questions, but one main one that I have is will claiming depreciation on an investment house lower the value of the house in the ATO’s eyes and is there an increase in capital gains tax when it’s sold? I’d appreciate your insight into this matter.”
What have you got to say about that one, mate?
Brad: Firstly, Wayne is reading and learning a lot, which is really impressive. That’s great. If you’re starting out in your real estate and investing journey, it’s always good to do that. The depreciation that you do claim, yes, has an impact on some of the capital gains tax you do pay at the end. Capital gains tax is a tax you pay if you sell at some point and the claims that you make on some of the depreciation will have some effect on how much capital gains tax you do pay.
The thing is that when you make depreciation claims or claims against the capital allowances on your property on the way through owning it, you get to put the cash in your pocket straight away and you get to make those deductions at your full marginal rate.
If or when you do actually sell the property, yes, you’ll pay capital gains tax and it will be an increased capital gains tax based on some of those claims, but you’ll pay capital gains tax at half of your marginal tax rate at the time when you sell the property.
The thing that really happens when you do calculate those two numbers is that you end up paying some additional capital gains tax but it’s less than deductions in the money that you probably put in your pocket otherwise really normally.
I’ve run some case studies on that in the past – probably good to get on it and read or I can provide that if you ever want them – on what happens if I am in this situation, what do the numbers look like? Your numbers will be different to the case studies, but you get an understanding of what the numbers do mean and exactly how the numbers are calculated by having a look at some case studies. Absolutely.
Kevin: Brad, if anyone listening wants to get hold of those case studies, how can they contact you or how can they access those?
Brad: Look, in our Maverick newsletter on the web site, they’ll be available. If not, feel free to e-mail myself or the office at bmtqs.com.au, and we’ll be happy to oblige.
Kevin: Wonderful. Are you noticing, Brad, that more and more people are staring to understand the depreciation message and doing depreciation schedules on their properties?
Brad: It’s almost like our whole business is almost an education business for investors on depreciation. I actually spend more time educating than anything else about what depreciation means and what the numbers are.
I think depreciation is an important part of investing. It’s not the reason you buy certain properties, but it is something you need to understand. It really comes down to you should crunch your numbers on properties before you buy them. You should know what will it cost pre- and post-tax for me to own this particular property? What does it mean for me to have it?
Also, understanding some of the implications when you do sell a property of what the capital gains tax implications are is a good thing to do. So any number crunching and knowledge you have before you invest in a property is fantastic, and I’m glad to see that’s happening.
I’m still shocked all the time by the amount of investors I speak to who probably don’t understand the necessities of things like depreciation on the way through, but yes, definitely in my 17 years, they’re way better than they were when I started.
Kevin: Indeed. There’s a lot more information, too, about Brad and his team at BMT Tax Depreciation on our web site, RealEstateTalk.com.au. Just click on the link there, you’ll see all that information.
Wayne, thank you very much for your e-mail. We’re going to make you the e-mail question of the week and as such, you’re going to win a 12-month subscription to Australian Property Investor magazine. I’ll be in touch with you and we’ll get your details and make sure that you’re in line to give the next one.
By the way, too, if your question is chosen, as was Wayne’s, and you are already a subscriber to API, don’t worry. We will extend your existing subscription by a further 12 months with our compliments and with the compliments of Australian Property Investor magazine.
Wayne, I’ll be in touch and it will be on its way to you.
Brad, always great talking to you, mate. Thank you very much, and we’ll catch you again soon.
Brad: Excellent. Thanks Kevin.
Kevin: It seems to be every week we hear another story about someone tipping that the Australian market is going to crash, just like what happened in America. Let’s get the lowdown on this. I’m going to talk this time to Chris Gray from Your Empire and also the host of Your Property Empire on Sky TV.
Chris, thanks for your time.
Chris: My pleasure.
Kevin: You probably hear this a lot too, don’t you, about the Australian market’s bound to crash? What’s your view?
Chris: We hear a dozen different stories all the time, depending on what part of the cycle we are and who needs to sell a newspaper, a magazine, a book, or a TV show. That’s the thing, unfortunately, with the media. Even though I’m in the media all the time, I actually tell a lot of the viewers, “Don’t listen to the media,” because look, everyone has something to sell, and so you do have to read into these things.
But, look, we’ve been hearing these stories for six or seven years and most of the commentators who know what they’re talking about are saying the main thing is our banks are really robust. You can’t just walk away from a mortgage and hand your keys over the desks; you’re actually liable for it. Simple things like that stops most people from just making silly decisions and taking more speculative property investments.
Kevin: It is a very sweeping statement, and I think to maybe drill down a little bit further into it as well, Chris, there are different markets around Australia and some seem to do better than others. Why is that?
Chris: I think it’s just a mixture of both the geographical location and the price points. A lot of property investors buy close to the main cities where there’s lots of industry supporting it and they buy average priced homes, and they’re typically low risk. Whereas if you buy in areas, say like, mining towns or tourist towns, and you’re buying at, say, a million dollars, when the average property price is $500,000, the chances are it’s going to be more speculative and you’re going to get into trouble.
I’m not really into the shares, but I think a shares equivalent is probably buying a bank stock or a BHP that is seen as nice and consistent and solid versus punting on a dot-com that has no profits and they’re just rating it on a bit of turnover or it’s something really cool.
Kevin: That is a good comparison. Does property investing change as demographics change, as transportation gets better and people are therefore more willing to live further out of these inner city areas, Chris?
Chris: Again, it depends on your strategy. My one I just call a blue-chip long-term buy and hold. I wrote my Empire book in 2008, and each year, we produce about 10,000 hard copies and God knows how many soft copies, but I literally have not changed a word in those seven or eight years. We’ve just reproduced it again. The only thing we’ve changed in there is the examples we used in 2008 were half a million dollars for an average property. Now we’ve changed them to a million, which is property doubling every seven or ten years, which often we talk about.
But not a single other word has been changed in the book, which goes to show that we’ve had GFCs, we’ve had high interest rates, we’ve had low interest rates, we’ve had a whole bunch of things about boom and bust, but not a single word of that strategy has changed. That goes for a lot of other people’s strategies, I think.
Kevin: There are different strategies, aren’t there? Let’s have a look at your strategy. How would you describe it in broad terms?
Chris: It’s boring, but slow and steady wins the race. I buy a property, I wait for 10 to 30 years, each year I look at it, and if it’s risen in value, I pull the equity out and keep repeating. It really is not something for the headlines, so I haven’t doubled my money overnight, I haven’t made a fortune, I haven’t gone from being poor and destitute to being a millionaire overnight, but I’ve consistently made money over the last 22 years. It doesn’t grow every year, but most years it does kind of trickle along and generally it doesn’t go down.
But the downside of that is, for a lot of Australians, my average buy price now is a million bucks. I’m buying in the Coogees, the Bondis, the Kirribillis in Sydney, which most people can’t afford and the negative gearing on that, because I’m only getting about 4% or 4.5% gross rent or 3% or 3.5% net rent, my negative gearing could be minus $10,000 to $20,000 per property.
The average income earner generally can’t afford to hold those and service those with the banks, but I just saw that there’s a lot of Australians with higher incomes who didn’t want to punt. As you can tell, I’m not from Australia, so if you mention most towns around Australia, every Aussie will know what they mean, but I don’t. But I understand the blue chips.
I think sometimes your strategy has got to be dependent on your income, your attitude toward risk, but also what you’d like and what people you hang around.
Kevin: How often do you assess your portfolio, and what do you look for, Chris?
Chris: I don’t really assess it or change it. Most of my knowledge and wealth was built from 22 to 31, and it was all self taught. At 31, I then started going to seminars and reading books and watching TV programs and all that kind of stuff. I’d always look at everyone else’s strategy and see if I can learn from it, see if I changed things, and I dabbled here and there, but pretty much over the last five or six years, I’m not going to say I know everything, but I haven’t heard too many new things that would detract me from what I’m doing.
After a certain point, then you do still keep your eye on things, but I think if something works, carry on repeating it. I know a lot of other more successful investors than me who are buying in regional towns and doing different things and I think, “Hey, that cool. If that works for you, you understand it, that’s what you want to do, that’s where you hang out and you enjoy that stuff, go and do it and maybe make $50 or $100 million and good on you.”
But I’m just comfortable doing what I do because it suites my personality and the hours I want to put in and things like that.
Kevin: Always glad talking to you, Chris Gray, from Your Empire and also host of Your Property Empire on Sky TV.
Chris, thank you so much for your time.
Chris: Thanks for having me.
Kevin: Look, things are always easiest in hindsight, aren’t they? It’s always easy to be able to look back and say, “Well, gee, if only I’d done it that way.” We don’t often have that luxury. In fact, we never have that luxury if you want to look at going forward. If you’re really clever and you look around, there are some people who do it and they’re prepared to share that information with you. You can learn a lot.
I was talking recently to Michael Yardney, who, in fact, has done just that. I want you to listen very carefully because in the next few minutes, Michael is going to tell us some of the things that he probably would focus on a little bit more if he had his time all over again. He joins me.
Michael: Hi, Kevin.
Kevin: Why did you do this exercise? Tell me the background.
Michael: Actually, one of my kids who suddenly took an interest in property – finally – said, “Dad, you’ve been investing for a long time; if you could hop back now 30, 40 years, what would you have liked to know when you started that would make things go differently?”
Kevin: Were there many?
Michael: It was quite a lot. I guess one of the things I’ve realized is that I’ve stopped regretting things in the past. There are still a lot of things I wish I would have known earlier in life. That would have now made me a different or better investor, a more successful person, a wiser person, but you have to go through those experiences. I guess what I am today is an accumulation of all those things I’ve done wrong and those things I’ve done well and I blended together, Kevin.
Kevin: Maybe we could run through a few. I guess the other thing, too, is that you actually become stronger by learning some of these lessons the hard way, don’t you?
Michael: Oh, much better that way. You actually don’t learn as much from your successes. In fact, I think it makes you maybe a little bit more arrogant. You don’t realize what could have gone wrong and how lucky you are.
Kevin: Let’s wind the clock back. What are some of the things that you focused on?
Michael: I think one of the things that changed things forever for me was when I realized I was actually the pilot of my life. I learned that my thoughts lead to my feelings, my feelings lead to my actions, and my actions lead to my results. I learned this from a great book, The Science of Getting Rich by Wallace Wattles. It’s actually meant that my inner world, my thoughts and my feelings, controlled my outer world, my actions and my results.
I guess the turning point was I realized that I was responsible for everything that happened to me, both the good and the bad. I’m not a metaphysical person, Kevin, but I realized when I was the pilot of my life rather than the passenger, I actually acted differently, behaved differently. Even if it wasn’t true, my results are definitely better because I’m responsible for everything I do.
Kevin: How long did it take you to learn that lesson?
Michael: Too many years, Kevin. It took me a little bit longer, because I used to blame everybody. It was everybody else’s fault. No it wasn’t; it was always mine.
Kevin: Yes. Just take responsibility, isn’t it? That’s the message there.
Michael: Very much so.
Kevin: What about the other one?
Michael: I also learned about this thing called the reticular activating system. It’s the thing in the brain that you see everything and your surroundings become the focus of your thoughts. When you buy a new white car, all the sudden you see the white cars on the road everywhere. You’re looking for a new fridge, and all the sudden, ads for the fridges are there. What it means is what you focus on is what you get.
It taught me to set my goals and regularly review them. That way, it keeps you focused on what’s important in your life and helps you take actions that get you closer to where you want to get to and stops you getting as distracted, Kevin.
Kevin: Attitude ranks very highly in all this, too, doesn’t it, Michael?
Michael: It’s that old “Is the glass half empty or glass half full?” story. When things happen in life that we don’t like, we either choose to see them as a problem or as an opportunity of discovering a new solution, but it took me quite a while to discover that if you change your attitude, you actually change your reality. Again, it’s a bit of that thing that the outside world is related to what you’re thinking about, so you have to have a positive attitude in life. You also have to be grateful for what you have, Kevin.
Kevin: Yes. What about give to get, mate?
Michael: As a kid, everyone tells you that there’s much more joy in giving than receiving, but as adults, often we tend to forget that. However, if you want to increase the value of what you receive in life – whether it’s love, whether it’s relationships, whether it’s money, whether it’s business, whether it’s opportunities – you actually have to give, because over time, you only get in proportion to what you give, Kevin.
Kevin: You mentioned earlier about attitude. I sometimes look at people and think they tend to wait for things to happen as opposed to making them happen.
Michael: That’s right. Look, there are three groups of people, I think: those who make things happen, as you say, there are those who watch what’s happening, and there’s another group who sit by and think, “What just happened?”
Kevin: “What the hell happened?”
Michael: I wasn’t going to say that word. Yes, Kevin; you’re right. I’d rather be in the first group. Be on the lookout for opportunities.
Kevin: One way to make sure that you’re ahead of the game all the time, too, Michael. What else have you learned over the years?
Michael: Have you ever heard people say how time flies? It really does. You have to be careful not only how and where you invest your money, but also what you invest your time in. Many years ago, I learned this concept of the Pareto principle, where 80% of the value you receive comes from 20% of the things you do. I think it’s important to be focused on the things that you do that take up your energy to deliver few results and just avoid them, and spend time doing productive activities, Kevin.
Kevin: Right at the start, we talked about the lessons you can learn from other people, and sometimes, the best lessons you can learn are the ones where you stumble over and you make a mistake – as long as you learn from those, Michael.
Michael: Clearly. As I said, I think you learn more from your mistakes and failures than you do from your successes, but in school, we’re taught you have to get it right; you’re not allowed to get it wrong. I’m not suggesting go out and try to make mistakes, but one failure can, with time, create many more successes if you use it right.
Kevin: Michael, rather than agonize over some of the mistakes of the past, do you worry about the future?
Michael: I used to, Kevin, but I realized that most things you worry about never happen. They’re just monsters in your mind. If they do happen, Kevin, they never tend to end up being as bad as you expected. Now when confronted with a challenge, I try to put things in perspective. If something goes wrong, I used think to myself, “What’s the worst that could happen?” Now I think, “What could be the best that could happen?” Kevin, the outcome is most likely to be somewhere in the middle of that, isn’t it?
Kevin: It is indeed, mate. You know another great lesson that I’ve learned? I know you and I have talked about this, too. That is not comparing yourself to others. In other words, make your own way through life.
Michael: Very much so, whether it’s in business or whether it’s in property investments or in any sphere of your life, there will be people who may well have – on the outside – seemed to have achieved more than you, but you don’t really know what’s going on in the inside. Forget about all the other things that people have achieved; become the best you can be, Kevin.
Kevin: Michael, it’s been great talking to you. We’ve covered a lot of territory here, and I guess the one last lesson that I read from you somewhere was to understand that the economy and the investment markets move in cycles.
Michael: I think some quick property lessons that the economy investment markets move in cycles. I think another big lesson I would have liked to learn earlier is to start earlier in life and take advantage of the magic of compounding.
The last big one is there are always some unknown surprises coming. Every year, there’s an X factor, some positive, some negative, so make your plans, but have some contigencies and buffers to see you through.
Kevin: Michael, thank you for sharing those great lessons with us. Look forward to talking again soon.
Michael: Thanks, Kevin.
Kevin: Already we’re hearing more and more investors are starting to turn to renovation in today’s market. Why is that? What’s happening? It’s interesting to note that Jane Slack-Smith is running a special webinar, which I want to tell you about, that deals with this and tells you how you can tap in out of that market, as well.
Jane joins me. Hi Jane.
Jane: Hi Kevin.
Kevin: Good. We’ll talk about the webinar coming up in a moment, but firstly, investors turning to renovation: has there been a change in the market, Jane?
Jane: Yes. Look, there has been a change in the market, and I think investors are being really protective of the dollars that they have to spend, and they want to be able to grow their portfolio faster, even though we have seen the fact that some of the lending criteria have made that a little bit more difficult.
Kevin: Do you see that trend continuing, Jane? Is it going to become more difficult for people to get into property?
Jane: I think people who want to get into property are going to be more focused and they’re going to have to really look to where they’re going to invest and spend every dollar wisely. That’s the real change that we’re seeing and why I think renovation is an increasing trend in the market today.
Kevin: One of the things you have to be careful of when you do go into renovation is to make sure that you don’t pay too much or that you actually get the right property if, in fact, you’re going to buy a property to renovate and then turn it over, Jane.
Jane: Absolutely. Renovation is such a wonderful strategy because it allows you to access equity sooner to get back into the market if you need to or can. It allows you to not have to wait on the market and that capital growth that could take five to ten years to create equity for you and it improves your cash flow because it pushes the rent up. There are some wonderful opportunities around renovation, but as you said, you can get it really wrong.
Kevin: You can, and one of the ways you can get it wrong is, obviously, paying too much at the outset, which means you’re probably going to have to hold on to the property longer to let it catch up. Also, the possibility of over-capitalizing, Jane.
Jane: Absolutely. Over-capitalizing on a renovation is one of the greatest risks, but I see one risk that’s a whole lot worse than that and I see people do it time and time again, and that is buying in the wrong location to start with.
Kevin: How do you go about assessing what is the right location?
Jane: I think we have to be more astute than ever, and that means that we have to do more research and we have to be really savvy about where we are investing because not all locations are fit for a renovation.
It’s about looking at things like the disparity between renovated and unrenovated properties within a location, but more so if you’re investing for the long term, it’s about looking at what the capital growth criteria is for that suburb, as well.
Getting the suburb right to start with before you even think about evaluating a property is one of the key things that I really spend a lot of time on.
Kevin: One of the key things is that evaluation process, which for a lot of people, is very difficult, but you, I understand, will be making that easier. That’s what the webinar is all about?
Jane: Absolutely. In actual fact, what I have is if people are putting out properties right on the market at the moment, I’m going to take them live and using just five free websites, go through these properties, assess the location for investment potential and then have a look at the properties as well. It’s going to be really interactive.
Kevin: So we’ll actually see that in the webinar?
Kevin: Okay. That webinar, by the way… Tell me, I think it’s out on the 24th of February? Just a few days away.
Jane: Yes, 8:00 p.m. Eastern Standard Time. The 24th of February. You have a link that people can go and access that. But if they register for it, they can jump on and see me evaluate those properties live.
Kevin: I was particularly excited about this, and that’s why I asked Jane if we could put a reference to that on our website. So go to RealEstateTalk.com.au, have a look for the button there and you’ll see it. It’s on the 24th, it’s on this week, so don’t miss it. You only have a few days to get in there, but the time, again, Jane?
Jane: It’s 8:00 p.m. Eastern Standard Time, daylight savings time.
Kevin: Not real time, that’s plastic time. The 24th of February, that’s this week. Get online, 8:00 p.m., and you can get the link and see all the details at our website RealEstateTalk.com.au. That information will be there for you.
Jane, I want to get you back in a few weeks’ time, too. I’m fascinated by this creating value through renovation, which is a real big trend, and I know that’s what you focus very much on in this webinar, as well. We’ll look forward to having you back on the show a little bit later.
Jane: I look forward to it. Thank you, Kevin.
Kevin: Just a reminder for you, once again, go to the web site RealEstateTalk.com.au, click on the link there you’ll see for that webinar that’s coming up this week on the 24th, 8:00 p.m. Jane Slack-Smith is the host and you can get all that information if you’re looking at doing some renovation.
Kevin: You might recall a couple of weeks ago, I chatted to Mark McCrindle and we were talking about the Urban Living Index. Mark joins me once again.
Good morning, Mark.
Mark: Good morning, Kevin. Great to be with you.
Kevin: Thanks again for your time. Mark, a very interesting conversation we had a couple of weeks ago on the show about the Urban Living Index. I wanted to come back and discuss that with you again. By the way, we’ll give you the web address for that a little bit later in this chat with Mark.
Just a bit of fun now, Mark. Let’s have a look at some of the lifestyle trends that we’re expecting to see this year, 2016.
Mark: Probably one of those is just how we work. We’re continually seeing changes in our lifestyles. We’ve seen teleworking. People work a bit more from home. People work through technology. We see even the new developments now where you have mixed planning. You have residential nearby to business parks or offices, and of course, retail in the mix of that. People want to work and live and play and connect in a community, in an environment where they don’t separate each of those.
One of the trends we’re predicting for 2016, we call it power working, which is the work equivalent of power napping. Power napping is where you sleep in non-traditional times and places. You just have a quick zap. Power working’s a bit like that. We get people now working more on their commute. They’re working in cafes. They’re working before or after work, sometimes in front of another screen, even unwinding at night. Work is not just a nine to five, you’re at the desk, in the workplace phenomena anymore; it’s changed. With apps and devices and technologies and the expectation of quicker response times from clients, we’re going to see continual changes in what work looks like and where it’s done from.
Kevin: Mark, of course, with so many people concentrated, living on the eastern seaboard in our major capital cities, I guess that type of lifestyle change is going to encourage more people to move into some of those regional areas, which will probably have an impact on prices there, do you think?
Mark: That’s right. We’re certainly seeing growth in the regional market because they’re being priced out of the cities, and the price rises in our capitals have been pretty crazy. People are saying, look, the regions are not isolated anymore. You have great lifestyle. You have excellent affordability. Of course, the technology, the infrastructure out there is fantastic.
You can get out of the rat race of the city, take a bit of a breather on the mortgage, get some pretty nice lifestyle for what you get out of that house from the city, and of course, the kids have some good schools. Again, the cafe lifestyle and the technology, even running a small business working from home, all of that is possible pretty much anywhere in Australia now, not just in the cities alone.
Kevin: Mark is one of the authors of the Urban Living Index, which we mentioned. I might just touch on that if I may. By the way, the website for that is UrbanLivingIndex.com. A great report. Mark, it pretty much focused on Sydney, but one of the interesting points I noticed is that the high density living in Sydney seems to be increasing. If you look at detached housing around Australia, I think the percentages are lower in Sydney. Are more people preferring to live in more high-density areas?
Mark: Yes, that’s correct. There’s this little demographic measure called the center of population of a city, which is the point in the city where in the whole catchment of the city where you have as many people west as east, as many people north as south. Now, in our eastern capitals, that center of population was continually heading west because the urban sprawls were heading further and further west. Interestingly, in Sydney – and we’re going to see the same thing in the Brisbane market – it stopped; it’s not heading further west. That’s because for each new housing development that is taking place in the urban sprawl further out, you have an infield development, a densification development to the east of that center.
It’s interesting that it seems as if the center of population, the sprawl is slowing because people are now opting for those densified living options. That is because of the location. They don’t want to travel further and further into the city or into the lifestyle areas on those motorways or public transport. At some point, it’s so far out that they say, “You know what? I think I’ll opt for a different style of living, a vertical option rather than just that house with the block out the back.”
Kevin: Yes, if you look at the map that’s on the UrbanLivingIndex.com website, if you look at the spread of the population, I wonder what sort of story it tells between that northern part of Sydney up to Newcastle and the southern part going down to Wollongong as to whether we’re going to see in-fill there. You’re right. You can see it looks almost out of proportion moving out toward the west.
Mark: That’s right. In Sydney’s market, we are now seeing growth in the northwest corridor and the southwest corridor. In other words, where they’re putting in some infrastructure, now we have some metro, some rail lines going, both of those arteries, which really had been devoid of some rail, that is creating some great opportunities and some densification there.
Now in Sydney, we have not just the built-up areas within ten or 15 kilometers of the CBD itself, but now 20 or 30 kilometers away from the CBD, you have these hot spots of densification. You have these 10-, 15-, and now on the plans 20-story residential towers that are around these transport hubs, these interchanges, that are obviously a fair way from the city, but because the shopping centers, the transport hubs, the availability of accommodation, and of course, café lifestyle that goes with that, we’re getting a lot more people opting for that sort of living. In a sense, Sydney becomes a city of cities, and we’re going to see that with all of our 2,000,000+ capitals across Australia.
Kevin: I’ll get you back to talk more about that in some future shows, too, Mark, but I want to thank you for making your time available today. The two websites for Mark are, of course, the UrbanLivingIndex.com website we just mentioned, and there is another one, too, that’s simply called McCrindle.com.au.
Mark, thank you so much for your time.
Mark: You’re very welcome. Thanks, Kevin.
Kevin: There’s a TV show called Location, Location, Location, and you could be excused for thinking that buying a property is all about location. Is that true, or is it just a myth? Let’s try to find out. Shannon Davis joins us from Metropole Property Strategists.
Shannon: Good day, Kevin.
Kevin: You’ve probably heard that, and you’ve probably heard a lot of people come to you and say, “I want to buy in the very best location and get high capital growth and a great return.” Is it possible?
Shannon: It is, and if you’re going to do just one thing, then that would probably be the best advice you could get: just buy the best piece of dirt that you can afford with the best location.
Kevin: So that’s it. You agree with that myth, do you, that it’s all about location?
Shannon: Yes. I would principally put it before all the others. It probably has very little to do with the actual property – the kitchens and the bathrooms and the floorboards and the street appeal. It’s actually more to do with the dirt and the demographics of the area. Location is the one thing we can’t change about the property. We can always cosmetically improve the façade and the condition of the property, but we can never change its location.
Kevin: Just to add to that, quite often a comment I’ve heard is “Oh, if only this property were in Ascot, it would be worth twice as much.” That probably proves that theory that it’s all about location. If that’s the case, Shannon, why then do we get so caught up with all the niceties about the property?
Shannon: I think it’s an emotional buy for a lot of people. When they get into the property, they can’t see past the work or imagine themselves in the property or using it as one of their rentals. It actually does reward those people who can actually have a little bit of vision and see past maybe the ugliness of a property that’s maybe unrenovated but in a great condition. Often, people will be attracted to the bells and whistles of a brand new property that’s further and further out, but the land underneath that property isn’t as valuable.
Kevin: Probably the one major piece of learning that comes out of this myth is that you should put aside the emotion of buying the property. I suppose if you’re buying for an investment, you should therefore treat it like a business.
Shannon: Yes, definitely. Look at its history, the track record of the area, the ups and downs, because all property markets have ups and downs. If it’s for investment, the first rule of investment is not to lose your capital, so you want a nice, safe, and steady return. You don’t want the big pitfalls if there’s a correction.
Often, one way to help protect your property and its value is to be in an area where there are lots of owner-occupiers. For these guys, it’s their home, not their investment, so if there was a downturn or a recession or GFC-type event, they’re going to hold on to their properties because it’s their home.
Kevin: In dispelling a lot of these myths that we’re doing right now in the shows, we’re hearing from a number of people who are saying, “Always buy blue chip. Always buy inner city.” Is it as simple as that in picking the location? What is it that you look for, Shannon?
Shannon: I think not as simple as that. I think there are some areas and streets and parts of suburbs that don’t perform as well. Often it’s visible – it could be too close to a main road, too close to a train station – but sometimes it’s not visible. It might be that there’s pockets of industry that make awkward noises at different times, and you only know that from living there, or it’s had flooded waters in the 2011 or 1974 floods, or there’s a high proportion of social housing that could be a bit of a drag on your capital growth.
It takes a lot of research, and not just saying, “Well, that’s in Ascot. That’s going to be a good property.” Some streets perform and some sections perform better. It’s really local knowledge or thorough research that gives you that edge.
Kevin: So you can’t beat getting on the ground, having a look around and experiencing the property at different times of the day, different environments to see what really is happening in that particular area, in that street.
Shannon: Yes, that’s right. We’re all probably experts on our own little patch of where we live and where we jog and where we play, but to do it on a greater scale, to do it across multiple cities or towns or suburbs, it really does take a huge amount of research or a lot of time in that area.
Kevin: Always great talking to you, Shannon Davis from Metropole Property Strategists.
Shannon, thanks for your time.
Shannon: No worries, Kevin. Any time.