20 Nov Women look differently at property investment
Have you ever wondered why the rich keep getting richer and the gap between the rich and the poor keeps widening? Michael Yardney addressees that topic in the show and tells us about his new book as well.
Tax time can be confusing for many property investors, but getting sorted is simply a matter of following some basic rules and getting the right advice. I talk to Brad Beer about that and he gives us 7 simple rules.
A few weeks ago I read an email I had received from Tiffany who suggested that we were neglecting the fairer sex and that we need some more female perspective in the show. So Tiffany joins me today and has an excellent suggestion and an invitation to join a special group – more about that later.
Did you know that 1 in 5 property transactions are currently delayed due to error? I didn’t and what’s more, these errors can cause delays of up to 1 year. There is a solution and we tell you about it today.
We do know that when it comes to buying a property first impressions count. Well now we know how much it counts because Jodi Walker and her team at Secret Agent have revealed the results of a fascinating survey they have conducted and we will even be able to give you a link to the report (The Secret Agent Report November 2015 Symmetry).
We get answers to a number of your questions from Chan & Naylor’s Ken Raiss to do with lines of credit, GST and Capital Gains tax on vacant land and transferring equity from a principal place of residence into a trust.
Kevin: We’re always looking for ways to get the most out of our investment property. I’m going to talk now to Brad Beer from BMT Tax Depreciation. That’s always a great way to do it as we head toward Christmas, Brad, isn’t it?
Brad: Absolutely. We all need more money at Christmas, so yes.
Kevin: What are some of the ways that we actually get more money out?
Brad: I still see people all the time people who haven’t really got depreciation sorted out properly. There are a lot of things that you can claim on an investment properly, and most of them you have a receipt for. You pay your interest, you get information from the bank about the interest you’ve paid, etc. Depreciation is one that often gets missed, because you don’t see depreciation happening and you don’t get a bill for it.
Kevin: I think one of the common mistakes I see, too, is that a lot of investors think that you can only get depreciation on a new property, but we know that’s not right.
Brad: Absolutely. A new property gets the most, and near new gets a lot, but the thing I like to say is you’re never too old. An old property still gets depreciation. It doesn’t get as much because the age does impact on some things, but it’s always worth asking the question to see if on your particular property there may be any deductions there for you.
Kevin: With the advent of the Internet and a lot more people working from home, does that offer up other opportunities to claim depreciation from a home office, as well?
Brad: Depreciation is claimable on any investment property, so any property that you rent out to tenants is an investment property, obviously. But when you operate a business from home, or even rent part of your home out, then part of your home is potentially becoming an investment property for the use of business. Therefore, a percentage of the depreciation that you would claim might be claimable in that situation.
It’s good to work out with your accountant the other expenses that may be able to be claimed then, but depreciation is also one of those that you can quite often get some claims from if you’re using it for that purpose.
Kevin: Another thing I wonder, too, is that quite often we buy properties in different times of the year. Do we have to wait for a full year to claim depreciation?
Brad: No. Settling some time in the middle of June and you may only have a couple of weeks of time that’s available to rent but, even if it hasn’t actually been rented, as long as it’s for the purposes of rental and available to rent, that depreciation still applies.
The rules mean that some of these things are actually quite high claims in the first year, because it’s the same whether you’ve owned it for a couple of weeks or the whole year. It’s always good to make sure if you are settling just before the end of the financial year, your partial year is there.
The other thing is if you do live in the property and then decide to move out of it for a period of time, you don’t always move on the 30th of June, do you? So there should be some depreciation available on that partial year that it’s rented out – absolutely.
Kevin: Something you touched on earlier in our chat was making sure you get some good professional advice. I have seen where classifying a plant or equipment asset incorrectly can actually negatively impact your deductions.
Brad: Absolutely. The correct advice is to have your accountant work out the whole of your claims in relation to your investment property. We specialists work in depreciation only and really identifying those items and costing them up properly so we’re not in trouble with the ATO, and also making sure we identify those items so you get to claim them quicker. We know what the items are. We know how to cost them properly for the purposes of depreciation, so you get the most deductions out of that property.
Kevin: Are all quantity surveyors the same?
Brad: A traditional quantity surveyor measures and estimates construction costs of buildings. Effectively, we’re brick counters. We count bricks and tell you how much they should cost. Depreciation is a specialist part of quantity surveying. You need to be the quantity surveyor to estimate the construction costs, but then you need a separate set of tax-related depreciation-related skills to make sure you’re getting the most out of those properties.
We all know how to estimate construction costs, but [4:22 inaudible] especially to work with the accountant properly and value things up for the purposes of getting all the deductions out of the properties.
Kevin: It’s always good talking to you Brad Beer. Brad, of course, from BMT Tax Depreciation, one of our supporters. You can get all the links you need to contact those guys through our website, RealEstateTalk.com.au.
Brad, thanks for your time.
Brad: Thanks, Kevin. Great to chat, as always.
Kevin: A very interesting question in the show that we’re going to answer now for Brad. Brad, thank you very much for your question. Brad’s question is:
“I have a finance-related question specifically about the intricacies of lines of credit. All of the articles I find say that you should get a line of credit, but none really drill down any deeper into the intricacies of using one.
“I understand that you would use your line of credit for investing costs such as a deposit on a new property or the levies or rates for a property. My uncertainty is whether I am then able to climb the interest charged on the line of credit.
“To make it more complicated” – thanks for doing that, Brad – “what if you were to pay your investment loans off using this line of credit? Surely then you couldn’t claim the interest on your line of credit as well as your investment mortgage because that would be double-dipping, right?”
Well, let’s get an answer for you, Brad, because joining is Ken Raiss, our expert in all of these matters from Chan & Naylor.
Good day, Ken.
Ken: Hi, Kevin, and hi, listeners.
Kevin: Just answering Brad’s question there, would you like to dive in and give us a bit more information, too, about lines of credit?
Ken: Okay. Lines of credit or an equity loan – different people call it different things – that’s when you go to your bank and actually ask to borrow against that equity that you have built up in your property. The equity is that difference between the market value and the debt.
A lot of our clients use that line of credit for two principal reasons. The first, as you were saying, Brad, is to have that amount of money available to pay deposits if they want to buy a property or to pay any of the ongoing expenses of owning that property if their cash flow isn’t enough. If you’re using it for investment purposes, such as the deposit or the costs, then the interest is deductible. The tax office looks at the purpose of the loan. If you borrowed the money for investment, then it’s deductible.
The other reason people use a line of credit is what I’ll term a buffer. A buffer, again, is a line of funds available to you in case something goes wrong with that property and you can’t fund the repayments. You could lose your job, interest rates go up, the tenant leaves, etc. Again, in all those instances, the interest would be tax-deductible because the purpose for investment.
The second part of your question is very interesting, which was, “Can I pay off the debt using the line of credit, and is that money tax deductible?” In simple terms, the answer is actually yes because what you’re doing is substituting your original bank loan – because you’re paying off debt. That would have been a loan from a bank. You’re now paying off that bank debt and substituting it with the debt from that line of credit.
It’s the same as if you would have refinanced and gone to a different bank. Because you’re using it for investment purposes, the interest on that would be tax-deductible.
Kevin: That’s certainly good news. I’m sure Brad’s going to be pleased to hear that, Ken. Well done. It’s a great question, and what we’re going to do, Ken, is give Brad a 12-month subscription to Australian Property Investor magazine for that question. It’s outstanding.
Ken: A very good question.
Kevin: Hey Brad, we’ll be in touch with you. We’ll get your mailing address and we’ll make sure that you get the next in the series of Australian Property Investor magazine. We give one or two of those away every week for our questions. I think we’ve given two away this week, but you can join in the fun, too, and who knows? We might choose you as one of those as well. Just send your questions in through the website or directly to me, Kevin@RealEstateTalk.com.au.
By the way, too, if you are already a subscriber to Australian Property Investor magazine, we’ll extend your existing subscription by a further 12 months at no charge. So there you go. Go to it.
Ken, I want to thank you because you’re always available for us. We really do appreciate it. You give us some great advice, and our advice to you is to always make sure that you deal with Chan & Naylor.
Ken, thanks for your time.
Ken: Thank you, Kevin, and thank you, listeners.
Kevin: It’s a fascinating study, you know. When you look at the rich around the world, they just keep getting richer. Is there anything really wrong with that? Why does it happen?
Michael: Kevin, I’ve been studying this – I guess – for the last 25 years and more intently over the last 10 years as I’ve mentored over 2000 very successful entrepreneurs, business people, and property investors.
I’ve noticed that it actually has nothing to do with their background or education; it has a lot to do with their habits, the way they think about money, they way they act about money, and what they do.
Having studied it for a long time, I’ve actually put it all together in my latest book, “The Guide to Getting Rich.”
The good news is that the majority of wealthy people in Australia actually didn’t start off that way. They weren’t born with a silver spoon in their mouth. I think most people can become wealthy in this country.
Kevin: I suppose that would be interesting, then, to have a look at what you would see as the common traits, Michael?
Michael: The common traits of successful investors, business people, entrepreneurs, rich people are they think in a particular way. It’s interesting, and I don’t want to sound arrogant, but after having spent so much time studying people, I think after sitting down and spending five or ten minutes with somebody, I can actually come to a conclusion about how wealthy they are, or are going to be, because of the way they think, which leads them to act in different ways.
Kevin, the other thing is they have habits – what I’d call “success habits” – that separate rich people from the average people. In Australia, one of the big things that separates rich from wealthy people is also property.
In fact, all around the world, the wealthy invest in real estate.
Kevin: It would be very handy for us to know what we can learn from that, Michael. What can we learn?
Michael: You can learn that if you don’t change, nothing else in the world is going to change. But if you change, your life and your wealth can change. I believe if you took all the money in the world and distributed it evenly, within five or seven years, it would be back in the same proportions again. I bet you’ve heard that, Kevin?
Kevin: I have, and there’s another interesting point that you and I have talked about off-air on many occasions, and that is that I think really clever people, people who become rich, are very good at working out where they can best spend their time.
Michael: That’s right, Kevin.
But what they’ve also learned is to get mentors and models to change their thinking.
For most of us, we’re taught by what I’d call “unwealthy” people – in other words, our parents, teachers, or friends, who aren’t wealthy.
Do you think the conversation around James Packer’s kitchen table was different to the table when you and I grew up? Those people have a head start, but you can start hanging around other people. You can start doing things differently.
Kevin, when I learned this concept of modeling other people, and understanding how they think, what they do to become the way they are – whether it’s with regard to health, fitness, business, or wealth – then you can actually fast-track things. It’s arrogant to think you can start from scratch and learn how to do it yourself, Kevin.
Kevin: If it were easy everyone would be doing it. Another thing I’m fascinated with, Michael, is that gap between the rich and the poor. I know it’s a terrible term, but is that getting wider?
Michael: I understand your concept of poor. Fortunately in Australia we’re the wealthiest country in the world, so our poor are still richer than the rich in many other countries. Kevin, we also know that true wealth has nothing to do with how much money you have or how many properties you have.
But if we’re allowed to talk about money for a moment, in Australia, the gap is getting wider. The rich are getting richer, and it’s happened even more so post the Global Financial Crisis all around the world. Fortunately in Australia, the gap between the rich and the poor is smaller than any other OECD country.
My thoughts are if you want to change your financial circumstances, you actually have to hang around the right people, learn the habits of the rich, and change some ways of thinking. We’ve been taught that money doesn’t grow on trees and rich people are greedy.
The habits of successful people are that they learn, they educate themselves, they have different ways of thinking, they spend time looking after their personal health, they spend time on good relationships. They invest in themselves first, and then the rest seems to happen, Kevin.
Kevin: Excellent. I suppose a good place to start if you’re interested in reading a little bit more about this is to get a copy of Michael’s latest book, “The Guide to Getting Rich.”
How do we get that, Michael?
Michael: There’s the website GuideToGettingRich.com, which is a really good place to start. It’s really the byproduct of my study over the last 10 years of the 2000 people I’ve mentored to see what the differences are.
Kevin: We might put a link to that on our homepage at Real Estate Talk, Michael.
Michael: That would be very kind, thank you Kevin.
Kevin: We’ll do that. Just go have a look for it on the homepage, you’ll find it there somewhere. I don’t quite know where it’s going to be. You’ll find it by the time you get to this.
Michael: My pleasure, Kevin.
Kevin: I was staggered to read the other day that one in five property transactions are currently delayed due to an error. In some cases, these errors can cause delays of up to one year, causing a lot of unnecessary stress to consumers trying to buy or sell a property.
Property transactions are one of the last major financial transactions to become digital. Most rely on two agents meeting face-to-face to exchange checks and other important documents. However, it is expected that 85% of settlements will move online by 2019.
This is all due to the introduction of some e-conveyancing software at Property Exchange Australia. Brisbane-based GlobalX Legal Solutions is a major sponsor of this. They’re pretty much at the heart of the change. I’m talking now to the Chief Executive for GlobalX Legal Solutions, Peter Maloney.
Peter, thank you very much for your time.
Peter: Good morning, Kevin. Thanks for having us on.
Kevin: Peter, what does this actually mean to the industry? Firstly, let’s go back. I mentioned that there are about one in five property transactions currently delayed, and we talked about worse-case scenario of up to a year. What’s the average delay?
Peter: That’s right. A recent study conducted by PricewaterhouseCoopers and PEXA revealed that approximately one in five property transactions were delayed. There’s a whole range of reasons for why property transactions are delayed. There could be errors in documentation, there could be insufficient settlement funds, or either of those parties just may not be ready to settle on the predetermined date and time.
Kevin: But what is the average delay? What are you experiencing?
Peter: On our side, because we’re obviously one of the largest property settlement agents in Australia, normally, most failed settlements are resolved within the following week.
Kevin: Does it vary state to state?
Peter: No. That would be the standard across the entire country.
Kevin: Tell me about the costs associated with these changes in converting it all across to an e-transaction.
Peter: The costs are largely in the transition from paper-based conveyancing through to electronic conveyancing. The costs are largely borne by the practitioner, not so much the consumer. The costs involved are around the transaction costs for lodgment of documents with the land registry and lodgment of documents that will enable financial settlement to take place.
For the practitioners – it’s quite open and public information – the cost of a property settlement on a single title transfer is $106.
Kevin: Is this being supported by the practitioners? Are they encouraging this?
Peter: Undoubtedly so, Kevin. We’ve just wrapped up a series of workshops all around the country. They were attended by somewhere between 150 to 200 people in every state. The practitioners have moved past the requirement for the sales spin or the cycle of what is PEXA, and they’re now firmly into the educative stage. Approximately 15% of all practitioners are already signed on, and I think as of the last count last month, there’s been about $2 billion of property transactions already flowing through the PEXA platform.
Kevin: The system is already working, so why will it take until 2019 to get it fully introduced?
Peter: Look. It is transitional. It does require all parties to a property transfer to be a subscriber of the PEXA platform. That’s not only the solicitor acting on behalf of both the buyer and the solicitor acting on behalf of the seller, but it also requires the financial institution – so the incoming mortgagee and the outgoing mortgagee – to be subscribers of PEXA at the same time.
Like anything, this process is a network effect. It requires the adaptation of the system across the broad network, and that’s just going to take a couple of years for it to take effect.
Kevin: When this does come into full effect, will both the paper and electronic conveyancing still be available?
Peter: Yes, they will. That’s probably the most important thing for all buyers and sellers to know. The way property is settled in Australia will continue to have a hybrid offering of both manual settlements processes, which is in place today, and the electronic processes.
It’s important also that some of the property settlements that occur don’t fit the electronic model, so there are some exclusions under the electronic model that won’t take effect.
Kevin: What about verification and identity checks? I guess, as always, the difficulty when you go online with any of these things is that you’re exposing yourself to a lot of unscrupulous people.
Peter: That’s right, Kevin. Verification of identity is new to the process of conducting a property transfer, but it is also one of the greatest safeguards in the process.
For property transactions that are conducted electronically, the practitioner must verify the identity of the buyer or the seller, depending on which party they’re operating on behalf of, and that complements the pre-existing rules that exist in Queensland around verification of identity from the mortgagee perspective.
Around the country, what all land registries have been committed to doing and have successfully rolled out is the alignment between the requirements of the electronic conveyancing platform, and they’ve made that retrospective for the paper process.
So for the consumer, as opposed to having a different process for electronic and a different process for paper based, there’s simply now one process that will require the consumer to have their identity verified prior to being able to transact in the property or to be able to facilitate a transaction electronically.
Kevin: Well, certainly a step in the right direction. Peter, thanks for coming on and telling us about that, and all the best for the future. Peter Maloney from GlobalX Legal Solutions.
Thanks for your time, Peter.
Peter: Great. Thank you, Kevin.
Kevin: I mentioned a couple of weeks ago that I’d received an e-mail from Tiffany, who rightly so hauled me across the coals for not having enough women on the program. We’ve actually taken steps to amend that, and I appreciate any feedback that anyone can tell us about how we can get the programs better.
Tiffany joins me. Hi, Tiffany.
Tiffany: Hi, Kevin. How are you?
Kevin: Wonderful. Thank you for the prompt, too. We actually have a schedule now to make sure that we do get both sexes involved in the show going forward because I think as you rightly pointed out, women do have a different kind of focus, don’t they?
Tiffany: They do. And I think a different way is thinking about investing. It’s just the way that the brain is structured. I work in training, so I work a lot around psychology and understanding how people learn and how they implement activities. It is proven quite widely that women really do learn and actively take investments in different ways.
Kevin: Being a real estate agent, I know that women look at property purchases totally differently from men and their decision making process is also quite different. It’s valuable input.
Now, you’ve made a wonderful offer, which we’re going to talk about in just a moment, but before we do, you mentioned in your e-mail that you work for a large financial institution and that they have a “women in finance” mentoring program. Tell me about that.
Tiffany: Yes. As I said, I work in training, and we really try to support professional development for women working in the organization. What we do is buddy them up with women who are in senior leadership roles to make sure that they have the support that they need to develop and grow professionally so that we’re really supporting them to develop their career.
Kevin: Anything in self-development, we’re really behind. The offer that you made was that you are willing to be a catalyst to maybe put some women together who might be interested in starting some kind of a group. I imagine it probably would be online or something like that, Tiffany?
Tiffany: Yes. I haven’t actually started it up, but it’s really just an idea at this particular point in time. I notice that there isn’t really that support or mentoring for women in property investing. I have a huge passion for it, which is why I’m such a fan of your show.
Kevin: Thank you.
Tiffany: I just thought if anyone is interested, then maybe we could get something started and actually connect women who have very little experience in property investing with women who do have that experience so that that they can have someone support them and hold their hand along the way.
Kevin: Well, maybe we can help facilitate that, too. I’m not quite sure yet how we can do that. Why don’t we just put the call out? If anyone is interested, they can either contact me directly through our website, or to you if you don’t mind. What’s your e-mail address, Tiffany?
Tiffany: Yes, absolutely. I’m more than happy for people to contact me if they’re interested, and we can talk about how this would happen. My e-mail address is TiffanyMuirhead@yahoo.com.au.
Kevin: If you’ve made a note of that, by all means contact Tiffany directly, or you can do it through me, and I’ll just forward it straight on to you, and you can communicate directly with them.
That’ll be a nice way to go. We’ll monitor this, and if there’s a need for us to get together a special program where you might want to talk to a couple of investors, and we might make that broadly available, we’d be very happy to do that, as well.
Tiffany: Thank you.
Tiffany, great talking to you. Congratulations on what you’re doing, too. I know that you’ve just started your journey. You did Michael Yardney’s course in Melbourne, didn’t you?
Tiffany: I did. I was really impressed with Michael’s course in Melbourne. I loved it, and it was a really great way to make some connections, meet some people, and learn a whole heap, as well.
Kevin: Yes. He’s a good man, and he’s a regular on our show, too. Tiffany, thank you so much for your time. I will be in touch with you, and we’ll monitor this.
Kevin: It’s fantastic. Just contact me, and I’ll pass it on. Thanks, Tiffany.
Tiffany: Thanks, Kevin. Thanks for having me on the show.
Kevin: We do know that when it comes to buying a property, first impressions really do count. Is it all about beauty, general street appeal, and how tidy and well-kept the property looks? How good the property looks from the street, of course, isn’t always an accurate reflection of what it’s going to look like on the inside. In a recent report, Melbourne-based Secret Agent’s Jodi Walker has had a look at what will influence a buyer to pay more, a fascinating study.
Hi, Jodi. How are you?
Jodi: Good. Thanks, Kevin. How are you going?
Kevin: Wonderful. Well, you heard what I said there. How important is first impression to getting a premium price when you’re selling a property?
Jodi: Our research shows that first impressions can have a positive impact on the price of your property, so I would say that they are very important. The façade of a home is what attracts many people to step inside and take a closer look at the property in the first place. Serious buyers may also feel that interior renovations are easier to do than the external façade itself, especially if it needs structural alterations to achieve beauty.
Kevin: Yes. Many people make a decision about whether they’re going to inspect the house just from the street, don’t they? I’ve had buyers in the car who have just said, “No, I’m just not even interested,” and I’ve had to encourage them to get inside.
Jodi: A lot of locals will be walking around and see a pretty house and say, “Oh okay, it’s for sale. I’m going to go have a look,” and then once you’re inside, maybe you’re captured.
Kevin: Yes. One thing I noticed in the report, too, you talked a bit about symmetry. I think we’ve all seen properties that have been very poorly renovated with additions that just don’t fit the overall look of the property or even the era from when the property came. How important is that symmetry?
Jodi: Symmetry is important to an extent because our brains automatically detect this. As humans, we have a natural preference for things that are symmetrical. Research looking into the neurological response to beauty has found that while symmetry alone does not cause something to be beautiful, it is the most important element of an image that is used in determining aesthetic judgment.
In our study looking at mainly period homes around inner-city Melbourne, Secret Agent, rated properties out of ten according to how beautiful the façade was perceived to be, and symmetrical facades were more likely to be reported as beautiful than those that were not. This is consistent with the other behavioral and neurological studies that are discussed further throughout our report.
Kevin: Yes, I find it fascinating that you actually went to rate it. How is that rating done? Was it a very subjective view, or was there some system behind that?
Jodi: No, it was quite subjective. Basically, we rated it out of ten – everyone in the office – and it was just based on the façade alone, how symmetrical it was and how beautiful it was.
Kevin: Your research was very, very detailed, and it’s a great report. We’re going to make it available on our website, too. There will be a link inside the text for the audio from this interview that’ll take you straight to that report. Thanks for making it available, Jodi. It’s a great resource.
Your research was very, very detailed. You looked at individual streets and properties in those streets to gain an understanding about how much more people will pay. What, overall, did you discover?
Jodi: Our research found that in the majority of streets, façades that had a higher than average beauty rating also had a higher than average price per square meter when sold. The opposite was also true whereby streets with lower beauty scores had a lower than average sale price.
Of course, there were exceptions to the trend, with some streets having below-average beauty scores and higher than average sale prices. Other factors are likely to be contributing here. These could be things such as proximity to shops and lifestyle attractions and also the kinds of demographics wanting to live in the area.
Kevin: What I found really interesting – and I think a lot of agents really will, too – is that we’ve always thought the size mattered, but in this case, it’s more about the outward appearance and the style of the property, Jodi.
Jodi: Yes. The size has been accounted for in this study by using the price per square meter rather than just the price alone.
Kevin: Yes, fascinating. I think it’s a great study. As I said, you can pick it up at our website. Jodi, congratulations on your work. Secret Agent, of course, producing some great reports over the year, and it’s always our pleasure to tell you about them.
Jodi Walker, thank you so much for your time.
Jodi: Thanks, Kevin.