21 Feb Stop reading the headlines – Cate Bakos
Property investing is long term, and for some investors as they approach the latter stages of their working life, rental return may become a more important focus. Watching the news and worrying about median house price declines is not going to be healthy for an investor who has amassed a portfolio to enable them to retire early on the rents. Cate Bakos tells us why she believes we should stop reading the news about property.
Kevin: Sometimes I think it’s important when you buy an investment property to stop reading the headlines, because they seem to change every single day. You could get yourself into a bit of a panic, thinking that maybe you bought the wrong property at the wrong time in the wrong location. It’s a strategy called buy and forget, buy and hold. If you do your groundwork and your due diligence well enough at the start, you should be prepared to hold on.
Kevin: Cate Bakos joins me. Cate is a buyer’s agent. Cate, I want to talk to you about this. Is that a sound piece of advice, do you think?
Cate: It is a sound piece of advice, providing your strategy is buy and hold, and you nailed that in your introduction, Kevin.
Kevin: So is it a matter of knowing your why? Is that too broad, Cate?
Cate: No, I love this. It’s all about understanding your long-term strategy, and that particularly relates to your debt retirement strategy. And when I say that, there’s really three common ways that people can approach debt retirement with their property portfolio. Some people will amass capital growth properties with the plan to sell off one or two towards the end and reduce all of the debt. Other people will buy what we call a balanced portfolio that will organically reduce itself, thanks to rising rents and popping all of the money that they’re saving into an offset account and diligently managing that debt reduction until they hit retirement. And then some others will amass equity and live off that and go to their grave with a large amount of debt and let their executor deal with all of that.
Cate: But I guess if the middle one is you and you’re looking at having a portfolio that organically pays itself down and then delivers you a rental return into your retirement as your income, then does it really matter what a property’s value is throughout your holding period, if you know that you’ve picked the right property?
Kevin: Yeah, I think sometimes people look at property investing a bit like share investing, where you do actually follow the market, don’t you, on a daily basis?
Kevin: Sometimes on an hourly basis, to see what’s happening with your portfolio.
Cate: That’s exactly right.
Kevin: But it is next to impossible to plot the property’s value because by the time you come to sell it, you’re in a totally different market.
Cate: You’re absolutely right. Share trading and property investing are so vastly different and property trading is almost impossible, just as you mentioned, because the buying and selling costs are quite prohibitive anyway. And I guess the closest type of property investing that involves trading that I can think of is flipping. And so I’m not talking about flipping when I talk about values, because obviously, if someone is a flipper, so someone who’s buying property and quickly renovating it and adding value and selling it for profit, then they will be looking at the value all the time and biting their nails when a change occurs.
Cate: But if your property portfolio is long-term and you’re planning on holding that all the way through to retirement, we’re probably talking about decades for people. Then looking at the blips on the growth charts is not a wise move. You’ve actually got to look at other metrics that will provide your income into retirement, such as the rental terms and the condition of the property and the type of tenant who’s living in it. I think they should really become a keen focus for anyone who is a long-term buying home investor.
Kevin: Just picking up on your comment about flipping, even with flipping, it can take you anything up to three months, if you’re really quick, because by the time you look at maybe a four-week settlement, a bit of renovation time, then some marketing time, you are looking at about three months. I’ve heard of people doing it much quicker, but gee, even the quick ones can take anything like from four to six weeks. That’s a long time.
Cate: Absolutely a long time. And anyone who has undertaken a significant renovation that involves council or planning, they would definitely laugh at the suggestion of a short, quick turnaround, because it just doesn’t work like that. And then you’re looking at also the cost of each transaction, so the purchase costs are not just your your stamp duty, but you’ve got legal fees as well. And then you’re managing a renovation. You’re paying trades. You’re dealing with delays. You’re dealing with all of the overruns that any investor who’s renovating deals with.
Cate: And then when you’re selling it, you’re dealing with the selling costs, as you mentioned, the marketing and the advertising. And then you’ve got the tax implications. And if you’re flipping and you’re doing it on a regular basis, it does become something that the tax office would consider a business activity. And so you’ve got all kinds of things to think about when that becomes your strategy. And I’m not suggesting that it’s not a good one, but it’s certainly not my bag at all. I think there’s a lot of risk involved in that.
Kevin: Yeah, I’ve always been very concerned with our almost obsession with what’s happening with median prices, as if that’s an indicator of what the market, if there is such a thing as “the market”, is doing. I mean, it really is a lot of nonsense.
Cate: Yes, it is.
Kevin: I mean, each property is unique. There is no one market and median prices are really not an indication of value. They’re just an indication of where people are buying, in terms of price range.
Cate: You’re absolutely right. Yeah, it’s just the middle data point in a vast array of data. And if you’ve got an area that’s eclectic, so you actually have different housing styles and sizes, then the median house price is not a great indicator, and particularly if you’re having an ebb and flow with your sales volumes. You might see a drastic change in median house price reported data when you’re having a larger number of sales of a particular genre of property. And then you’ve got a quarter that exhibits different sales. It’s a really flimsy piece of data to rely on.
Kevin: It is indeed. So our advice to you is buy and then forget the news. Don’t worry about the news. Hey, Cate, great talking to you. Thank you so much for your time. Cate Bakos is a buyer’s agent. Catebakos.com.au. Thanks, Cate.
Cate: Thanks, Kevin. Talk to you soon.