14 Apr What to look for when investing in the USA + Melbourne’s population set to double in 30 years
Highlights from this week:
- What do investors need to be aware of if they want to invest in the USA property market?
- Should investors travel to the location to see property before buying overseas?
- The biggest decision you will have to make when buying a property.
- Why a ‘renovate and sell’ strategy does not always return well
- The bean counter for Australasia’s richest man speaks out about negative gearing
- How will Melbourne cope with a skyrocketing population growth and what opportunities will emerge in the next 30+ years
- The designs that have influenced how we build Aussie houses
What to watch out for when investing in the USA – Reed Goossens
Kevin: One of the common questions I’m asked through the show is whether or not it’s wise to invest overseas, and no doubt in that conversation, we’ll always talk about the U.S.A. market – a very hot market in recent times. I am going to talk now to my next guest, Reed Goossens, who is an expert in this field, buying in the U.S.A., and has a website called RSNPropertyGroup.com. I will give you that website again a little bit later if you want to know a little bit more about it. He joins me.
Reed, thank you very much for spending some time with us today.
Reed: Thanks a lot, Kevin. Good day. It’s great to be here on this show.
Kevin: I just wanted to know what investors need to be aware of if they want to invest in the U.S.A. property market?
Reed: As International investors, the biggest thing you need to be aware of is obviously the way in which you structure deals in the United States. Being educated on your deal structure, being educated on how you can get your capital into the U.S.A. market, and just being aware that you can’t just walk over there and start buying properties left, right, and center at the flip of a switch. There’s some back-end stuff that needs to happen before investing.
But by and large, the international investors come to the United States for a couple of reasons. That’s capital preservation – they look to get their money out of the particular country that they are in – and they look for a good yield. The U.S.A. offers both those things, and it’s a stable government. And, also having the investment in the green buck. The American dollar is very, very enticing for many international investors from across the globe.
Kevin: I do want to ask you about a lot of that back-end stuff before we finish this interview, but at the top level, are there any areas or types of properties to avoid if you are looking at investing in the U.S.A. market?
Reed: When I first moved there, as you know and probably as a lot of your listeners know, there were the turnkey $50,000 to $100,000 properties that on paper could earn $600 or $700 a month. Those types of properties, I would definitely steer clear off. Turnkey in general, if you your listeners aren’t aware of it, the profits are stripped out once you as an investor get that turnkey property.
So, trying to make sure you’re understanding what you’re buying and understanding the numbers behind what you are buying. Just because it’s on paper and it looks good on paper, it might not necessarily mean how it reflects when you are actually operating the property.
Word of caution is if you are looking at any turnkey properties in the United States, then don’t get blindsided by the fact that something is worth $50,000 all in and you can rent it out for $700 a month and think you’ll get a cash flow of $300 to $400 dollars a month. Just take it with a pinch of salt and make sure you understand what you are buying and understand all the associated costs with running that property, particularly from far off, from abroad.
Kevin: Yes, you can’t beat getting your boots on the ground. For that reason, do you think investors should travel to the States to see properties before they buy?
Reed: 100%. I always, always recommend my investors, whether they are investing with me or if they just have questions or if they are investing with someone else, get to the United States, get some boots on the ground, get a feel for what you are investing in. And then you’ll be making a more educated decision.
Kevin: Let’s talk about loans and financing. Are Aussie lenders warm to the prospect of investing in the U.S.A. or do we need to get to an American lender?
Reed: I haven’t come across any banks in Australia that will lend. HSBC does have a program for high-net-worth individuals where they can leverage existing portfolios in their country of origin – i.e. Australia – but that has to be worth I think it’s about $1 million. The average investor going to United States will probably buy their properties all cash or they’ll invest with a partner on the ground who can get leverage, which is what RSN Property Group does.
But in general, you also could do some other lending but the interest rates are a typically little bit higher, and that’s from private individuals who will probably lend you between 7% and 8%, maybe 60% loan-to-value on a property. Again, there are not a lot of options there for international investors, but if people are interested, the options that are available, I can definitely talk to them offline if they want to reach out.
Kevin: And we will give you the website again in just a moment to do just that.
How different is the loan and purchasing process from what we’re used to here?
Reed: Look, it’s pretty similar – with different names for different things. You have a title company that is involved, making sure that the background on the property, there’s nothing owed on the property, there are no liens against the property, making sure that is all clear.
You do the same sort of things. You have to get building inspections. The bank will inspect if everything is all clear. You get a clean title, you go to the closing table, you close the property, the transfer of title, the deed is into your name, the bank brings the funding to the table if you’re getting bank financing, and then off you go. You’re off to the races in terms of having a lots of new assets that will either cash flow for you or you’re using it for a particular tax haven or capital preservation.
So, very similar because it is a Western country, obviously very similar to Australia. And again, there are slight nuances, but in general, it’s the same sort of process.
Kevin: Being the same sort of process, could you do it with an Australian solicitor, or should you use an American solicitor.
Reed: No, always use your American solicitors, just because of the state laws. They vary from state to state, so if you’re buying something in Texas, there might be slightly different state laws compared to if you are buying in, say, California. I always recommend to try to get an attorney who is boots on the ground in that particular state, who is very knowledgeable about those state laws.
Kevin: When we get into an investment property in the States, as an example, what rights can be made about having the property maintained and well managed?
Reed: There are couple of options there. You can get a third-party property manager, which is good. They are usually doing a very good job, but you also have to remember what they’re getting paid – going back to that turnkey property model. If they’re only getting any 5% or 6% on your gross income, they may not prioritize your property as highly as something else.
But if you’re partnering with someone who is boots on the ground in that market, that is probably the best option to do, or have someone who is part of your team who can go past the property and make sure things are running smoothly every now and then, so that you get a peace of mind.
Kevin: What are the standard fees for managing a property?
Reed: It depends. If you’re in the single-family market, probably 7% to 8% of the gross income. If you are in the commercial space, large multi family, which is what I’m in, you’re probably looking at more than 3.5% to 4%, but you’re talking about 100 plus units there.
Kevin: The website is RSNPropertyGroup.com. No doubt, there is a lot of information there for you if you want to find out a bit more. But Just before I let you go, Reed, can you please tell us if there are any research tools that you’d recommend an investor could use to help them understand a bit more about the American market?
Reed: Yes. In general, there are couple of great property reports that are being released by CBRE, which is one of the big commercial firms. In terms of your specific market wherever you’re investing, try to get your hands on one of their market reports. It’s pretty easy. If you Google “CBRE market reports,” they will come up with a bunch of options. You can type in whatever market you are investing in, whether it be California or Texas or whatever it might be.
There is also REIS.com. That’s another good source of market information boiled down to help the investor, whether you be a local investor in the United States or an international investor looking to invest in the United States, just to digest a little bit better. They talk about population growth, job growth, and GDP growth, and they’re the factors you want to consider when investing in any market in the United States.
Kevin: Yes, it’s a very strong analytic company, I think, REIS, isn’t it?
So those two websites: REIS and CBRE. Is that Coldwell Banker Real Estate?
Kevin: And, of course, you can go to Reed’s website, RSNPropertyGroup.com.
Reed, thank you so much. It’s an interesting subject, one that we shouldn’t ignore. I appreciate you giving your time to explain it in a lot more detail. Thanks, mate.
Reed: Thanks a lot, Kevin. Have a great day.
Should the Government dump negative gearing? – Allan Mason
Kevin: My next guest is Allan Mason. Allan is from Encore Accounting. We’re going to talk about negative gearing. I can hear you almost groan, Allan, at the thought of “Oh, goodness, doesn’t everyone know about negative gearing?” But there is such a lot of talk about it, and I want to try and dig a little bit deeper with you, just to understand what it’s about and whether it’s a good or a bad thing.
Firstly, Allan, thank you for joining us on this show.
Allan: That’s great, thank you. Thanks, Kevin. My pleasure.
Kevin: Allan, tell me what is negative gearing?
Allan: Basically, negative gearing is where the word negative means that you’re losing money, and you’re losing money in the first few years of ownership, so your operating costs or your costs of running the property – interest, depreciation, agent’s fees, maybe a few repairs – exceed the rent that you receive, so it’s negative.
Kevin: So negative gearing, when we hear about that, we firstly think about property, but negative gearing doesn’t apply only to property, does it?
Allan: Of course. In many, many cases, people buy a share portfolio. To buy that portfolio, they’ll be paying interest on the money. The dividends they receive will not cover the interest that they pay, hence it’ll be a negative.
The reason people look at it is they want a negative so that they can offset their tax. If they’re paying 45, 46 cents in the dollar tax, that negative means – to use a simple example – if they’re losing $1000 a year, they’re getting back $450 in their tax, so their loss is a little bit less.
Kevin: A number of the people that I talk to in this show – commentators and so on – they will actually say, “Look, negative gearing is not a strategy; negative gearing is an outcome.” Can you explain to me and to our audience just what that really means? And where do you stand on that debate?
Allan: Well, it’s an outcome because it’s an outcome for that particular tax year, so that if you’ve lost money on an investment – and we’re talking a trading loss; we’re not talking a capital loss – if you’ve lost money during the year on your rental property, if the rent hasn’t covered the cost of ownership, then you’re obviously getting that back in your tax.
And remember, you don’t pay 100 cents in the dollar tax, so any criticism by governments or by various people about negative gearing, a lot of it is unfounded because while you might get some sort of subsidy, you’re not getting 100% back because nobody pays 100 cents in the dollar tax.
Kevin: There’s been a lot of criticism, of course, about negative gearing, and it’s always aimed at – I use the term in quotes – “greedy” property investors who are gaining all these benefits. Is it really that bad, Allan?
Allan: Definitely not. Most of our clients who own property, they’re just moms and dads just like you and I. They have one or two investment properties, some have more, but they’re certainly not greedy. They’re trying to look after their future retirement, they’re trying to buy assets that they hope by the time they retire will go up in value to a point that it will provide a pension for them, to give them income and not be receiving a pension or be part of the social welfare system.
Certainly, it’s not greedy; it’s just people looking after their own affairs and trying to do the best they can to do that without having to be getting a pension or dipping into Consolidated Revenue.
Kevin: Allan, what are your thoughts about affordability of property? And once again, I know this is a far-reaching conversation we’re trying to distill into a couple of minutes, but what are your thoughts on affordability for property for first-home buyers and so on? Is it all that unaffordable in Australia?
Allan: Well, it’s getting that way. It’s getting harder. But I can tell you that when we look across our client base, there are many, many people who are making a lot of money, who are doing quite well in their business or outside of investments and they are looking for other types of investments to go into. So affordability, yes it’s getting harder, but all that means is there’s more future gain that can be had.
Let’s look at affordability. I can remember that argument 20 years ago. People would say no one can ever afford to buy a house 20 years ago and prices now are three times what they were then, so I sometimes think it’s a bit of a beat-up.
Kevin: Could we also talk then about first-home buyers or home buyers not approaching it as an investment but more buying from the heart? In other words, they’ll go out, they’ll spend more than what they could probably afford, and then when interest rates do increase, they find that they can’t afford to keep up those payments. Are they approaching it the wrong way? Should they in fact develop what I call an investor mindset?
Allan: I’ve always looked at a house as an investment and try to keep the personal side out of it. I know that when you go to live there and it’s going to be something that you’ll own for a long period of time – it would be your family home to bring your children up in – you can’t be silly about it.
You can’t go taking too many loans to the point where if you become unemployed, you can’t meet your commitments. You have to be sensible, you have to be savvy on your own income, how much you’re earning, how much you can afford, and don’t go outside that because the last thing you want is to have to sell if the property market goes down or if you get into a slump. You don’t want to be selling at that point.
You want to be able to hold, and hold to through any ups and downs. There will always be ups and downs, and if you don’t have to sell, if it goes down or there’s some sort of correction, you just wear it out, and you know it’ll come back.
Kevin: I’ve read a little bit about you, your background, Allan. I know that you worked in the early days with Kerry Packer at Consolidated Press. There must have been some great lessons that you picked up from Kerry, because as the richest man in Australia, you would tend to think that he has plenty of cash to spray around, but was he really that prudent?
Allan: Like any business person, he would certainly look at the profit and loss of any particular item projections. If we were going to him with an acquisition of some kind or a proposal, the numbers had to stack up.
And the numbers always have to stack up. In Consolidated Press – and any large company – we would do weekly figures. We would know weekly what our turnover, our expenses, our KPIs were, and if things were trending badly in a particular division, like maybe the snowfields… I remember 60 Minutes was one of our first companies that were involved in. When we started to run that, it was losing money. It was losing money hand over fist, and I think World Series Cricket too was losing money. It’s a case of monitoring it, managing it, making sure that you have enough money to cover all those ups and downs.
Kevin: Yes, great lessons. We’ll get you back to talk a lot more about some of that history, but I wanted to specifically talk to you about negative gearing. You’ve taken us through that quite nicely, Allan, and I want to thank you very much for joining us.
Allan is from a company called Encore Accounting. The website is called EncoreAccounting.com.au.
Allan, thanks for your time.
Allan: Thank you, Kevin.
Melbourne population to surge – Michael Yardney
Kevin: A few weeks ago on the show, I was talking to Nerida Conisbee about what’s happening in Melbourne in terms of the Victorian government there trying to make housing more affordable. Affordability is one of those discussions we’re going to have ongoing.
But look, no doubt, we have to focus on Melbourne, because there’s a lot of activity about what’s happening in the area there in terms of developing new property.
The Plan Melbourne forecast released recently shows an interesting insight as to what’s going to happen in that capital city.
Michael Yardney joins me to talk about that.
Michael, tell me a little bit about Plan Melbourne. What’s on the drawing board, and is it likely to have an impact?
Michael: Kevin, the Victorian government has revisited and revised its Plan Melbourne because the Melbourne population is forecast to grow from 4.5 million to almost 8 million by 2051. In fact, Victoria’s total population will be 10 million.
Now, this is going to create some interesting social and infrastructure challenges. In particular, our network is going to cope with 10 million more trips a day, an increase of up to 80% in the next just over 30 years. And we’re going to have to create another 1.5 million jobs for a changing workforce.
One of the problems is Melbourne has been voted six years in a row as the world’s most liveable city. How is it going to keep that mantle as we grow, Kevin? That’s going to be a challenge.
Kevin: Michael, how many new houses are we going to require?
Michael: The forecast suggests 1.6 million homes, but more importantly, we’re going to need to build the type of property that people want to live in and in the locations they want to live in, because currently we’re building probably too much of the wrong thing – too many new off-the-plan, high-rise blocks in the inner city, and we’re building a lot of new homes in the outer suburbs.
But with all those new trips that are going to be required with the difficulty of our transport infrastructure coping, the challenge is going to be to build a lot of those properties in the middle-ring suburbs.
Kevin: That’ll probably bring about a few objections, Michael, I would have thought.
Michael: Boy, will it, Kevin, because it suggests that 70% of the new dwellings are going to be built in the existing suburbs, and that is going to affect those people we call NIMBYs, those who say, “Yes, I’m happy to have Melbourne grow, but not in my back yard.” We’re seeing already more of those big signs in people’s front gardens from Save Our Suburbs saying things along the lines of “We oppose new development.”
I think we’re going to be in for some interesting times.
But Kevin, the studies show that while Melbourne has grown considerably in the last 30 years, it is actually these rich Baby Boomer NIMBYs forcing the Millennials into the outer suburbs, because they haven’t allowed much development at all.
While a lot of development has occurred in the inner suburbs and the outer suburbs, very little in the leafy green middle ring. But that’s where the good schools are, that’s where the good infrastructure is, that’s where the amenities are, and that’s where all the next generation wants to live.
Kevin: I guess we’re just going to have to get used to a changing environment, aren’t we?
Michael: We are. Interestingly, we are nowhere near as dense as a lot of other big cities, but Melbourne and Sydney are both international capital cities, and there definitely is room for densification.
Let us hope our politicians get the infrastructure right to make our cities remain as livable as they are.
Michael: My pleasure, Kevin.
The future of Australian housing – Peter Maddison
Kevin: The new season of Grand Designs Australia is opening on Lifestyle. Peter’s back – Peter Maddison who’ll join me in just a moment. Peter’s back with a new series, which starts Thursday week, the 27th. But leading up to that, there’s Kevin McCloud’s Top 10 Grand Designs Australia, which premiers one week before – that’s this April 20th at 8:30 on Foxtel’s Lifestyle. But joining me to talk about the series itself, series seven, who would have thought, Peter?
Peter: Exactly. Hey, Kevin. Very nice of you to have me back on your show. Who would have thought? Eight years ago, I started the damn thing, and it’s been a big part of my life over the last eight years. It’s taken eight years to make seven series, and it’s just gone in a flash, but gee, it’s been a lot of fun.
Kevin: The interesting thing is… And I’ve watched a number of reruns, because they do rerun them, as they do with…
Peter: Occasionally, very occasionally.
Kevin: …All the good ones. They get a chance to have a second stab it. But it’s timeless, Peter. You look at it and you think “Wow, some of the stuff, some of this architecture that I’m seeing here is absolutely timeless.” Is that what you look for in these things?
Peter: I think that’s a product of new, experimental, and inventive architecture. It becomes a period piece in itself. You can’t frame it with another period of architecture, therefore it becomes a hallmark to something that lasts a long time. That just goes with territory of being inventive and creative doing housing the breaks all barriers.
If I look back to the first house we ever did, those seven years ago, Callignee Bushfire House is the first episode that we made and that today still stands up as having a great quality about it that doesn’t date; it still stands on its own two feet. I think that goes with a lot of Australian architecture: it’s inventive and it’s true to its own person.
Kevin: You mention there inventive building systems, design, but what about some of the new materials that come in, does that allow you to expand the creativity of what you do?
Peter: You bet. This season, you’ll see that technology – both the way materials are made and how they’re applied and the skills that surround technology invention, and also the invention of drawing systems in 3D and then machines that can make things in 3D – has broken down a lot of the barriers in terms of what’s possible and what’s not.
This year, for instance, we’re doing a house in Kensington that the outside skin of the house, the outside cladding, is zigzag steel and is all free format. It’s like a woman’s drift doing a pirouette, and that’s how the house appears.
We’re doing another house that’s all made of canvas that’s stretched over the top of the house. The canvas is made over in Manila. We go over and follow that material being made in Manila. It comes back, and there’s this big tensile fabric structure in Queensland.
So materials, the way they’re made, certainly it breaks barriers in terms of what housing can be.
Kevin: I guess material brings in those additional elements, but what about some of the more traditional designs that probably get influenced from overseas or even by people coming in from overseas? Like our iconic Queenslander home as an example. I believe you have an example of that in the series.
Peter: Yes, the first episode, which is on the 27th – which is what you mentioned – of April, the one we open up with, is based on the traditional Queenslander. It’s a house in Hamilton, just in the inner suburbs of Brisbane.
Interestingly, the owners, the two guys who own this house, have a Japanese restaurant in town and they’re heavily into the whole aesthetic city of Japanese architecture, but they wanted a house that related to Brisbane. So they engaged Yo Shimada, who is a Japanese architect, teamed him up with a local architectural practice, Phorm Architecture in Brisbane, and they’ve reinvented what the Queenslander is.
It has a lot of the qualities of the Queenslander but it’s all out of steel, this house, whereas the Queenslander is traditionally all out of timber, but it has a lot of the qualities that make housing relevant in the kind of climate that Brisbane sits.
So it’s a fascinating story of different cultures and invention making a house that relates well to a location. It’s a cracker episode, and we’re leading with that one this year.
Kevin: Fantastic. Of course, we’ve really enjoyed your six series so far, and we’re about to enjoy the seventh one. Kevin McCloud – of course, of the original Grand Designs – is launching the entire series with a top ten. Tell me about that.
Peter: Well, this was lined up some time ago, about a year and a half ago. Foxtel had the idea that it would be great to get us together, because we are good mates and a good way of bonding and bringing the brand and the excitement of the same show being made in a number of countries together.
So they got me over to just out of London at Christmas, a place called Esher. We took a house, a very beautiful mid-century house, and I went over and Kevin selected his ten favorite Aussie episodes. I had them all made onto paper slides, and we had a traditional old-fashioned slide show in this wonderful mid-century house just out of London.
We filmed for about 12 hours nonstop. They just let us go, and we were ranting and raving and arguing and arm-wrestling and drawing. We had and a great time, and we just let the cameras go.
I haven’t seen the cut episode, but I believe it’s very good because there’s a genuine engagement with us with the houses we’ve shown so far in Australia, or ten of his favorites. It’s great to relive those episodes, and I think the audience, if they’ve watched the show over the years, will be pleased to see those episodes discussed. I actually went away and did some updates on what’s happened since the shows went to air, so it should be a good episode.
Kevin: It should be fantastic. Were you surprised at some of his selections?
Peter: Not really. He’s got pretty good taste, unfortunately. He’s okay.
Kevin: Would you have chosen the same ten?
Peter: Some of them, I was not so enamored with. Most of them I would agree with. I think he went for variety, a great, great contrast in the house types. Some of them I think are a little bit more predictable than others, but they’re all great episodes.
We’re splitting hairs, really. Of the 65 we’ve made, there are probably ten that I think are very, very good – and other people have as well. A lot of the shows we do end up winning awards in various industries – in the timber industry or steel industry or architectural or interior design industry – so they’re generally high caliber, and not necessarily expensive but just really inventive and creative places that have a relevance to the owners. That’s the key thing.
No, it was great to relive those, and I would agree with most of Kevin’s picks.
Kevin: It’s a great model, isn’t it, the Grand Designs model, the program itself? It’s now aired in number of countries. I think it’s in New Zealand as well as Australia, isn’t it?
Peter: I think it’s sold to 12 countries, Kevin. They must be a bit bored over there, or maybe they find the Australian lifestyle… It wouldn’t be me that’s for sure. Maybe there’s something about our show that works.
I think it’s 12 countries. It goes to are Asia, America, South Africa, Belarus, Denmark, U.K., of course. I don’t know them all. Foxtel sell it on. Yes, it has pretty good engagement around the world.
Kevin: Do you get recognized when you go overseas?
Peter: Well… I went to New Zealand recently and I was trying to get through customs and I got up to the passport counter, and I was stopped by the official, and they stood up. Often I know they’ve worked out I’ve left an orange in the bag. I’m going to go off, and they’re going to find an orange I just should have got rid of at pest control desk.
Instead of that, they said, “I know you,” in their New Zealand accent, and it ended up in a great conversation.
Kevin: It’s wonderful.
Peter: Yes, it’s very nice. Most people have a good reaction to the show. Most people find it compelling viewing and have a good story to tell and remember the details. Yes, that’s rewarding.
Kevin: Peter, I look forward to watching you and Kevin. That’s on the 20th of April, coming up this Thursday, on Foxtel’s Lifestyle, and then the Thursday after, the new series, series seven, for Grand Designs Australia with Peter Maddison will hit the airwaves.
All the best, mate. Great talking to you, and let’s try and not make our next interview for series eight. Let’s make it before then.
Peter: That sounds like a great idea. You know my number?
Kevin: Yes, I’ll get my people to talk to your people.
Peter: Okay. Lovely chatting.
The smart money is on growth rates – Stephen Vick
Kevin: My guest in studio is Steve Vick. Steve is the managing director of Nexus Private Wealth Management. Steve from a financial planner’s perspective, what constitutes good or investment-grade property?
Steve: Investing is really a lesson in mathematics. You might be surprised to know that the difference between, say, 4% growth and 6% growth on a $500,000 property is over half a million dollars in net profit. If I hold a $ 500,000 property for 20 years, if I compare somebody who got a 4% return versus somebody who got a 6% return, the person who got a 6% return would earn more than half a million dollars more than the person who got the 4% return. So, you can see that the growth is incredibly important.
Now another thing that the research tells us is that there is a very high correlation – or relationship – between properties that are close into the capital cities and higher growth rates. So, the closer you come in, generally the higher the growth rate. There are always outliers to that data and you have the hotspots and all that sort of thing, but my firm belief is that property is a long-term hold strategy.
You can see from those numbers that people who try to make their money in the acquisition process or even in the renovation-type process, the numbers that they make are completely insignificant when they compare it to just focusing on very good growth rates.
Kevin: And when you do look at renovation and you look at how much effort and energy and risk has to go into getting that property for what sometimes – by the time you look at the taxes and other things – can be relatively a small amount of money, you have to do it quite a lot during the year to make it even come anywhere near the kind of growth you can get out of a passive well-positioned property that’s going to earn, say, over 20 years, isn’t it?
Steve: Yes, I talk to clients about this all the time, and I hear a lot of experiences. Most people generally say they put the first three renovations down to the experience. It’s like anything; if you become very good at something, then you can add genuine value. But unless you are extremely good at that and you like spending your weekends doing that and you have the capacity to be able to make a couple of mistakes in that area and you love doing that, then that’s fantastic. But if not, you’re perhaps better off using your efforts to do what you do best.
Kevin: It comes down once again to looking at this as a business. If you are going to go into renovation, don’t think you can do it and make a lot of money by being a part-time renovator while you continue with your job. It needs to become a full-time position: this is what you focus on, this is your business.
We talk to Cherie Barber quite often in the show, and she will say you need to look at it as a business. It’s her business, she makes a lot of money out of it, but that’s all she does. Seven days a week, in some cases. I don’t think she works seven days a week, but she’s at it full time.
Steve: A lot of people that I see who make money during renovations, they’ve usually made money because the way they have bought very well in the first place or they’re in a rising market anyway. It usually has very little to do with a brilliant design skills.
Kevin: You’ve done some research into this area about high growth rates, low maintenance, and so on. You know what constitutes a good investment property? Is it about position?
Steve: Certainly, location is incredibly important. We see employment as one of the primary drivers. People don’t want to send an hour or two hours in their car every single day. The RBA has recently put out a paper, and they show that there is a widening gap between the premium that the people would pay to be closer into the CBD. And that gap is getting wider – they say this in their paper – and a lot of that has to do with the aging population.
They can’t afford to look after the quarter acre block anymore. They’re moving into apartments, they’re moving closer in, and they need to be closer in because they need a life. They need to be able to go to restaurants and cafés and theatres, and if they’re more than about 10 minutes out or so, you’re basically living in a cul-de-sac.
They indicate that the Baby Boomers the next 20 years will be one of the primary drivers for why that gap between being further out and closer in will widen over the next 20 years.
Kevin: Is this one of the things you think that will hold the property market back – this lack of infrastructure, not enough tunnels, not enough way to move people around?
Steve: It depends on your perspective. If you’re an investor and you’ve bought well, it won’t hold you back at all. Like Sidney and every other capital city around the world, it will be quite annoying for those people who are forced to leave further out of the city. The services and the amount of time that they have to spend in their car each day is going to get longer, of course. But certainly, it provides also a great opportunity for investors.
Another mistake that I see people making quite often is mistaking growth for capital growth. They might have an area where there’s fantastic infrastructure, there’s a lot of migration, there’s a lot of population growth, but there’s also a lot of supply.
If you go out on the fringes of the city, there’s enough land out there to keep going for the next 50 years or so. They don’t have that restraint of supply, and that keeps capital growth down. Whereas, of course, the closer you come into the CBD, whether it’s apartments or houses, you have a limitation of space available, and that is what drives prices up over time.
Kevin: Just before I let you go, if I could, your take on what the banks are doing to dampen enthusiasm for property investors – driven largely by the fact of what’s happening in Sydney and the fact that they are saying that property is now quite unaffordable. Is this just a Sydney problem?
Steve: Anecdotally, we are hearing from vendors out there that now if raising interest rates and raising serviceability criteria wasn’t enough, now there seems to be anecdote evidence to say that some of the banks are instructing their valuers to lowball valuations depending on whether it’s an investor and an owner-occupier.
Of course, that’s seriously harming some people’s lives. Some people who have gone into contracts a bit on the margin, those people are losing deposits, losing $40,000 or $50,000 if they can’t complete on the a project.
Kevin: Thank you very much for joining us, Steve. Steve Vick was my guest, managing director of the Nexus Private Wealth Management.
Steve: Thanks, so much Kevin.