1 00:00:16,079 --> 00:00:19,680 Speaker 1: Hello and welcome to The Australian's Money Puzzle podcast. I'm 2 00:00:19,760 --> 00:00:23,360 Speaker 1: James Kirby, the Worth editor at The Australian. Welcome aboard 3 00:00:23,400 --> 00:00:31,280 Speaker 1: everybody you are interested in property investment in any fashion 4 00:00:31,400 --> 00:00:36,000 Speaker 1: or even the basic challenge of owning your own home, 5 00:00:36,440 --> 00:00:40,200 Speaker 1: you should know that really the outstanding issue in property 6 00:00:40,560 --> 00:00:44,879 Speaker 1: for property investors just now is not a demand or 7 00:00:45,080 --> 00:00:49,479 Speaker 1: setting up property or finding a property, or even price, 8 00:00:49,640 --> 00:00:52,040 Speaker 1: because the prices are coming along very nicely. Thank you. 9 00:00:52,280 --> 00:00:57,320 Speaker 1: Seventeen months are consecutive price growth in Australia. I mean, 10 00:00:57,320 --> 00:01:01,040 Speaker 1: it's absolutely tremendous market. The issue for everyone right now 11 00:01:01,160 --> 00:01:05,679 Speaker 1: is what you might call holding costs. It's costs that 12 00:01:06,040 --> 00:01:09,520 Speaker 1: as an investor. It's the costs that you are facing 13 00:01:09,720 --> 00:01:12,959 Speaker 1: as a homeowner. This week, I just did some work 14 00:01:13,120 --> 00:01:16,600 Speaker 1: already this week on this really interesting dimension of the 15 00:01:16,600 --> 00:01:20,120 Speaker 1: market for people are extending their mortgages. Something like one 16 00:01:20,200 --> 00:01:22,480 Speaker 1: in ten people are now pushing out their mortgages. Right, 17 00:01:22,600 --> 00:01:26,000 Speaker 1: so you are strapped basically with the price of the mortgage. 18 00:01:26,000 --> 00:01:28,040 Speaker 1: How do they make against me? Where this extra money 19 00:01:28,120 --> 00:01:30,720 Speaker 1: comes from? It it's signed away. It's an old fashioned way. 20 00:01:30,959 --> 00:01:34,119 Speaker 1: You add five years to your mortgage certainly you cut 21 00:01:34,160 --> 00:01:37,039 Speaker 1: your mortgage bill, buy one hundred and eighty dollars a 22 00:01:37,040 --> 00:01:39,880 Speaker 1: month or so, but guess what your mortgage costs about 23 00:01:39,920 --> 00:01:42,319 Speaker 1: one hundred and forty thousand more. You literally pay one 24 00:01:42,360 --> 00:01:44,280 Speaker 1: hundred and forty thousand at more to the bank over 25 00:01:44,319 --> 00:01:46,640 Speaker 1: the ford period of time. That's the average mortgage on 26 00:01:46,680 --> 00:01:51,080 Speaker 1: the average home in Australia. Very interesting development this week. Similarly, 27 00:01:51,120 --> 00:01:55,400 Speaker 1: on the investment side, the colding costs. My guest today 28 00:01:55,400 --> 00:01:57,040 Speaker 1: has done some work on this. I'm going to talk 29 00:01:57,080 --> 00:02:00,360 Speaker 1: about it and in essence, but here is the governed 30 00:02:00,440 --> 00:02:04,480 Speaker 1: is that the holding costs of property, of managing property 31 00:02:04,520 --> 00:02:08,520 Speaker 1: have really risen quite substantially in recent times, largely on 32 00:02:08,600 --> 00:02:11,600 Speaker 1: the back of higher interest rates, to which is of 33 00:02:11,680 --> 00:02:14,359 Speaker 1: course the defining feature of our market. 34 00:02:14,040 --> 00:02:14,600 Speaker 2: At the moment. 35 00:02:14,800 --> 00:02:17,800 Speaker 1: My guest is a regular on the Show's Stuart Wems. 36 00:02:17,840 --> 00:02:20,960 Speaker 1: He's an advisor of course, it's a mortgage broker, it's 37 00:02:20,960 --> 00:02:24,320 Speaker 1: a property yet but author and indeed podcast to host 38 00:02:24,400 --> 00:02:27,720 Speaker 1: himself of the invest of Belief podcast or Warrior Stuart. 39 00:02:28,240 --> 00:02:31,320 Speaker 3: I'm really well, James, always enjoy our chance. I'm particularly 40 00:02:31,520 --> 00:02:33,360 Speaker 3: excited to talk about holding costs. 41 00:02:33,560 --> 00:02:33,720 Speaker 2: Well. 42 00:02:33,760 --> 00:02:35,920 Speaker 1: I noticed you are because you've just been writing about them, 43 00:02:35,919 --> 00:02:38,200 Speaker 1: and you know, and I know, if you write a 44 00:02:38,240 --> 00:02:40,520 Speaker 1: piece that's something, then you really know it for a 45 00:02:40,560 --> 00:02:44,080 Speaker 1: while at least. Yeah, that's right, and I wanted to 46 00:02:44,160 --> 00:02:46,520 Speaker 1: just talk to you about that. Were you aware that 47 00:02:46,600 --> 00:02:49,600 Speaker 1: people are doing this, extending their mortgages as I's say, 48 00:02:49,639 --> 00:02:52,240 Speaker 1: one in ten doing it at the moment that that 49 00:02:52,320 --> 00:02:54,080 Speaker 1: number is going to rise and rise. We were you 50 00:02:54,120 --> 00:02:55,720 Speaker 1: aware that was happening, you know. 51 00:02:55,760 --> 00:02:58,320 Speaker 3: James thinking about it more, I reckon it would be 52 00:02:58,400 --> 00:03:02,040 Speaker 3: a lot more than ten percent, because every time you refinance, 53 00:03:02,600 --> 00:03:06,200 Speaker 3: almost always your mortgage term is reset back to thirty years. 54 00:03:07,040 --> 00:03:09,280 Speaker 3: So if we think about it, a lot of people, 55 00:03:09,720 --> 00:03:13,040 Speaker 3: in fact, everyone that refinances, and the average life of 56 00:03:13,080 --> 00:03:15,840 Speaker 3: the loan I haven't seen the most recent data, but 57 00:03:15,840 --> 00:03:19,560 Speaker 3: it's three to five years. You know, typically people refinance 58 00:03:19,600 --> 00:03:23,040 Speaker 3: every three to five years, so people are resetting their 59 00:03:23,200 --> 00:03:27,480 Speaker 3: loan term. Everyone that refinances is resetting their loan term. 60 00:03:27,639 --> 00:03:30,920 Speaker 3: Whether they realize they're doing it or not is another question, 61 00:03:31,000 --> 00:03:33,360 Speaker 3: but it happens as a matter of course when you 62 00:03:33,400 --> 00:03:37,200 Speaker 3: do refinance. Of course, we've experienced a lot of rate 63 00:03:37,280 --> 00:03:40,400 Speaker 3: increases over the last couple of years. So one solution 64 00:03:40,680 --> 00:03:45,880 Speaker 3: to managing the higher cost of repayment is to reset 65 00:03:45,920 --> 00:03:47,440 Speaker 3: the loan term. Now, it's not going to make a 66 00:03:47,440 --> 00:03:50,640 Speaker 3: big difference if the loan is relatively new, so it 67 00:03:50,680 --> 00:03:52,960 Speaker 3: was only set up a couple of years ago. But 68 00:03:53,000 --> 00:03:55,160 Speaker 3: if your loan was set up ten years ago and 69 00:03:55,240 --> 00:03:58,960 Speaker 3: so the remaining term is twenty years, well resetting it 70 00:03:59,040 --> 00:04:02,720 Speaker 3: back to thirty years is going to reduce your repayments 71 00:04:02,760 --> 00:04:05,000 Speaker 3: at a cost. As you've alluded to James, you know, 72 00:04:05,080 --> 00:04:08,280 Speaker 3: the longer you take to your home loan. But I 73 00:04:08,280 --> 00:04:11,920 Speaker 3: guess there's another element here as well. Is one is 74 00:04:12,120 --> 00:04:14,920 Speaker 3: trying to set your repayments at the minimum, just to 75 00:04:14,920 --> 00:04:17,560 Speaker 3: give you yourself a bit of headroom, a bit of safety, 76 00:04:18,040 --> 00:04:20,919 Speaker 3: whilst you still might intend to make extra repayments. So 77 00:04:20,960 --> 00:04:23,360 Speaker 3: it's still possible to keep the repayment amount the same, 78 00:04:23,440 --> 00:04:26,400 Speaker 3: but just try and reduce to the minimum repayment to 79 00:04:26,440 --> 00:04:29,880 Speaker 3: give yourself some flexibility maybe in the months where you 80 00:04:29,920 --> 00:04:32,360 Speaker 3: know incomes a little bit lower, expenses are a little 81 00:04:32,400 --> 00:04:33,000 Speaker 3: bit higher. 82 00:04:33,560 --> 00:04:35,040 Speaker 1: Well, then I came in to you and I said, 83 00:04:35,200 --> 00:04:36,680 Speaker 1: and this is even I'm just on the whole room. 84 00:04:36,760 --> 00:04:40,680 Speaker 1: If I said to you, we are absolutely caught. The 85 00:04:40,720 --> 00:04:43,880 Speaker 1: reate rises have really caught us. My mortgage is very large. 86 00:04:44,600 --> 00:04:48,240 Speaker 1: I've got to find some extra cash somewhere. Someone said 87 00:04:48,240 --> 00:04:50,719 Speaker 1: to me, I can cut one hundred needy up after 88 00:04:50,839 --> 00:04:53,200 Speaker 1: my mortgage a month cash. I'd probably have to make 89 00:04:53,200 --> 00:04:55,799 Speaker 1: two hundred and fifty a month to be able to 90 00:04:55,839 --> 00:04:57,560 Speaker 1: find the one hundred needy to pay, if you know 91 00:04:57,600 --> 00:04:59,839 Speaker 1: what I mean? What would you say to them? Would 92 00:04:59,839 --> 00:05:02,480 Speaker 1: you sa say, look, on balance, it's a good idea. 93 00:05:02,560 --> 00:05:05,640 Speaker 1: Would you said, never do that? What would your instinctive 94 00:05:05,680 --> 00:05:06,160 Speaker 1: advice be? 95 00:05:06,800 --> 00:05:09,680 Speaker 3: First question that jumps into my mind, James, is have 96 00:05:09,800 --> 00:05:12,760 Speaker 3: they overborrowed? Is this just a band aid solution? Are 97 00:05:12,800 --> 00:05:15,080 Speaker 3: we just kicking the can down the road, or do 98 00:05:15,120 --> 00:05:17,040 Speaker 3: we have a bigger problem here. That's the first thing 99 00:05:17,040 --> 00:05:20,400 Speaker 3: that I would want to ascertain. It might be that 100 00:05:20,520 --> 00:05:24,279 Speaker 3: it could be a temporary change in their situation. So 101 00:05:24,920 --> 00:05:27,599 Speaker 3: one of the spouses is on maternity or paternity leave 102 00:05:27,880 --> 00:05:29,760 Speaker 3: or something like that, and they just need to get 103 00:05:29,800 --> 00:05:32,920 Speaker 3: through this sort of very difficult period of time. And 104 00:05:33,080 --> 00:05:35,040 Speaker 3: if we feel like it's temporary, it could be a 105 00:05:35,080 --> 00:05:39,040 Speaker 3: great solution. But if we look at the numbers and 106 00:05:39,160 --> 00:05:42,880 Speaker 3: we decide, well, look, you probably over extended yourself, then 107 00:05:42,880 --> 00:05:44,920 Speaker 3: we probably need to have a deeper conversation. Now, we 108 00:05:44,960 --> 00:05:48,279 Speaker 3: could extend the loan term as an initial step, but 109 00:05:48,320 --> 00:05:51,839 Speaker 3: we really need to have another solution, which probably is 110 00:05:51,880 --> 00:05:54,360 Speaker 3: going to be one that means sort of changing their 111 00:05:54,360 --> 00:05:56,279 Speaker 3: home and changing their mortgage at some point. 112 00:05:57,080 --> 00:06:00,360 Speaker 1: Right, I'm actually keep you a very little to do. 113 00:06:00,520 --> 00:06:04,400 Speaker 1: That's good. Imagine given the choice, it's always easy to 114 00:06:04,480 --> 00:06:06,200 Speaker 1: kick the can down the world, isn't it the. 115 00:06:06,160 --> 00:06:08,640 Speaker 2: Office of the need gratification. As we said, it's always 116 00:06:08,720 --> 00:06:09,520 Speaker 2: easy to do that. 117 00:06:10,000 --> 00:06:12,359 Speaker 3: Yeah, and I think you know it goes to a 118 00:06:12,400 --> 00:06:15,480 Speaker 3: wider investment strategy question is do they need to have 119 00:06:15,600 --> 00:06:18,000 Speaker 3: zero home loan by the time they get into retirement 120 00:06:18,600 --> 00:06:22,359 Speaker 3: or is a downsizing strategy in their situation. Okay, so 121 00:06:22,839 --> 00:06:25,240 Speaker 3: if people can make friends with that, if they say, look, 122 00:06:25,279 --> 00:06:28,000 Speaker 3: we understand extending the mortgage is going to mean that 123 00:06:28,000 --> 00:06:30,240 Speaker 3: we're going to pay more interest, and by the time 124 00:06:30,240 --> 00:06:32,920 Speaker 3: we get to age sixty or sixty five, whatever their 125 00:06:32,960 --> 00:06:35,800 Speaker 3: retirement age target is, we're going to have a home 126 00:06:35,839 --> 00:06:38,279 Speaker 3: loan and that means we're going to have to downsize 127 00:06:38,360 --> 00:06:41,200 Speaker 3: in order to extinguish that home loan. If they can 128 00:06:41,240 --> 00:06:44,279 Speaker 3: make friends with that, chances are the capital growth will 129 00:06:44,320 --> 00:06:46,640 Speaker 3: more than offset the interest cost, you know, if they've 130 00:06:47,160 --> 00:06:50,080 Speaker 3: and particularly from an after attack spasis, so they're probably 131 00:06:50,160 --> 00:06:54,240 Speaker 3: better off to do that as a general observation, but 132 00:06:54,320 --> 00:06:56,760 Speaker 3: they just need to make friends with That is our strategy. 133 00:06:56,839 --> 00:06:59,520 Speaker 3: That's the consequence of doing this, is that we know 134 00:06:59,680 --> 00:07:02,760 Speaker 3: we need to Dawn's eye at some point in the future. 135 00:07:03,240 --> 00:07:05,039 Speaker 1: That's really good, that's a really good answer, and it 136 00:07:05,080 --> 00:07:08,480 Speaker 1: really cuts to this. Let's just before we talk about investors, 137 00:07:08,760 --> 00:07:11,080 Speaker 1: just to finish on that. So then the present says, okay, 138 00:07:11,160 --> 00:07:13,840 Speaker 1: let's listen. I know, I know I'm up for another 139 00:07:13,840 --> 00:07:15,760 Speaker 1: one hundred and forty thousand that I have to pay 140 00:07:15,760 --> 00:07:18,160 Speaker 1: the bank, or the bank must be paid in the 141 00:07:18,200 --> 00:07:19,120 Speaker 1: fullness of time. 142 00:07:19,520 --> 00:07:20,200 Speaker 2: And I know I'm. 143 00:07:20,120 --> 00:07:23,560 Speaker 1: Pushing tomorrow's problems away from today, but I must do it. 144 00:07:24,160 --> 00:07:26,040 Speaker 1: And you say, okay, well you must do it on 145 00:07:26,040 --> 00:07:29,680 Speaker 1: the basis that when the time comes, it's a family 146 00:07:29,920 --> 00:07:32,640 Speaker 1: home you've got, you must sell it. It's not like 147 00:07:32,760 --> 00:07:35,680 Speaker 1: you could decide to sell it and move somewhere smaller. 148 00:07:35,680 --> 00:07:38,120 Speaker 1: Even I have to move somewhere smaller to pay off 149 00:07:38,120 --> 00:07:40,280 Speaker 1: the mortgage. If you want a mortgage, be retirement, which 150 00:07:40,560 --> 00:07:43,240 Speaker 1: which on the show has regularly come up as a 151 00:07:43,280 --> 00:07:45,720 Speaker 1: sort of a basically a rock bottle. If you want 152 00:07:45,760 --> 00:07:47,600 Speaker 1: to build wealth, you absolutely got to get rid of 153 00:07:47,600 --> 00:07:50,680 Speaker 1: that mortgage. So here's a million dollar question. In your 154 00:07:50,720 --> 00:07:53,240 Speaker 1: experience with people downsides, do they really save that much 155 00:07:53,320 --> 00:07:55,640 Speaker 1: if they're just buying a townhouse around the corner from 156 00:07:55,680 --> 00:07:58,360 Speaker 1: the from the family home. It seems to me that 157 00:07:58,400 --> 00:08:00,520 Speaker 1: they cost more or less the same as those colsors 158 00:08:00,520 --> 00:08:03,240 Speaker 1: and money stow ups to people set they don't say. 159 00:08:03,160 --> 00:08:05,280 Speaker 2: So, is there a proper way to do it? 160 00:08:05,800 --> 00:08:09,400 Speaker 3: In my experience, the answer is yes. They downsize to 161 00:08:09,480 --> 00:08:13,040 Speaker 3: achieve their goal, which is to repay the home loan. Essentially, 162 00:08:13,360 --> 00:08:16,120 Speaker 3: if that's your strategy, you've got to work out, you know, 163 00:08:16,120 --> 00:08:17,800 Speaker 3: how much cash and I'm going to walk away with 164 00:08:18,000 --> 00:08:20,720 Speaker 3: after repaying that mortgage. That's my budget. So you have 165 00:08:20,800 --> 00:08:23,840 Speaker 3: to make it work. And in the situations that I've 166 00:08:23,840 --> 00:08:26,200 Speaker 3: helped clients with, we have made it work and it's 167 00:08:27,000 --> 00:08:30,280 Speaker 3: been fine. It hasn't created any problems. The thing that 168 00:08:30,320 --> 00:08:32,520 Speaker 3: I would counsel and encourage people to do is just 169 00:08:32,600 --> 00:08:35,640 Speaker 3: make friends with maybe the worst case scenario, which is 170 00:08:36,120 --> 00:08:38,720 Speaker 3: I'm going to have to make some compromises in terms 171 00:08:38,760 --> 00:08:43,079 Speaker 3: of accommodation size, and if you can make friends with that. Now, 172 00:08:43,120 --> 00:08:45,720 Speaker 3: it might not necessarily in that way. You know, maybe 173 00:08:45,760 --> 00:08:47,680 Speaker 3: you're in your cash flows a lot different. Your income 174 00:08:47,800 --> 00:08:50,400 Speaker 3: might end up being different, interest rates might end up 175 00:08:50,400 --> 00:08:53,360 Speaker 3: being lower, maybe the property growth is better. There's a 176 00:08:53,360 --> 00:08:55,880 Speaker 3: lot that can change over a period of time, you know. 177 00:08:56,200 --> 00:08:58,160 Speaker 3: But if we can make friends with what is the 178 00:08:58,160 --> 00:09:01,640 Speaker 3: worst case scenario, well, and then if it turns out better, 179 00:09:01,800 --> 00:09:03,000 Speaker 3: that's all icing on the cake. 180 00:09:03,559 --> 00:09:07,040 Speaker 1: So people can they down size of the same horse 181 00:09:07,120 --> 00:09:09,080 Speaker 1: could and save money. 182 00:09:08,880 --> 00:09:11,880 Speaker 3: Well, they can only if they can make friends with 183 00:09:12,000 --> 00:09:15,720 Speaker 3: smaller accommodation eyes. So we're going from a family home 184 00:09:15,840 --> 00:09:19,360 Speaker 3: to a two bedroom townhouse for example, you know, that's 185 00:09:19,400 --> 00:09:22,280 Speaker 3: what you need, that's what you need to do. And look, 186 00:09:22,320 --> 00:09:24,920 Speaker 3: most people at that age and stage of life actually 187 00:09:24,960 --> 00:09:27,120 Speaker 3: want that. Kids and moved out of home. They don't 188 00:09:27,160 --> 00:09:29,480 Speaker 3: need a four bedroom home. They're sick of doing the 189 00:09:29,520 --> 00:09:32,240 Speaker 3: garden on weekends, you know those they don't need a 190 00:09:32,320 --> 00:09:36,280 Speaker 3: forwarding bar because that's right. Yeah, yeah, So that typically 191 00:09:36,320 --> 00:09:40,200 Speaker 3: sort of suits their lifestyle decisions or situation as well. 192 00:09:40,920 --> 00:09:42,600 Speaker 3: But they just have to make friends with that. 193 00:09:43,200 --> 00:09:43,920 Speaker 2: Very interesting. 194 00:09:43,960 --> 00:09:46,760 Speaker 1: Now let's just flick on to the investor. Quite a 195 00:09:46,840 --> 00:09:50,080 Speaker 1: different story here, But you tell us first of all, 196 00:09:50,679 --> 00:09:52,880 Speaker 1: that essential conclusion you came to when you did the 197 00:09:52,920 --> 00:09:55,640 Speaker 1: deep dive on the figures about holding caston and to 198 00:09:55,720 --> 00:09:58,640 Speaker 1: the extent of which they're resent for the average investor. 199 00:09:58,880 --> 00:10:01,199 Speaker 3: So the idea came out a lot of conversations I've 200 00:10:01,240 --> 00:10:04,400 Speaker 3: been having with investors and obviously been invested myself. I've 201 00:10:04,440 --> 00:10:07,440 Speaker 3: noticed over the last four years, so let's say, really, 202 00:10:07,480 --> 00:10:11,160 Speaker 3: since the beginning of the pandemic, we're all being conditioned 203 00:10:11,200 --> 00:10:15,280 Speaker 3: to understand that, you know, costs have increased substantially, and 204 00:10:15,320 --> 00:10:17,679 Speaker 3: sometimes these things creep up on us. Right, we have 205 00:10:17,760 --> 00:10:21,439 Speaker 3: one year of very high inflation, and then inflation started 206 00:10:21,440 --> 00:10:24,120 Speaker 3: to come down a little bit. We might fool ourselves 207 00:10:24,160 --> 00:10:27,760 Speaker 3: into thinking, oh, well, actually things are normalizing. Not really, 208 00:10:27,880 --> 00:10:30,319 Speaker 3: prices are never going to go backwards, that the new 209 00:10:30,360 --> 00:10:32,719 Speaker 3: cost is the new cost. And so I had a 210 00:10:32,800 --> 00:10:35,720 Speaker 3: look at some of these things across some clients and 211 00:10:35,760 --> 00:10:38,800 Speaker 3: my own properties. Council rates over the last four years 212 00:10:38,880 --> 00:10:42,720 Speaker 3: up about thirty percent, Insurance up about twenty percent, general 213 00:10:42,760 --> 00:10:46,760 Speaker 3: cpis up about seventeen percent over that time. Land tax 214 00:10:46,880 --> 00:10:50,200 Speaker 3: so since the start of twenty twenty, interest rates are 215 00:10:50,400 --> 00:10:52,880 Speaker 3: sort of doubled over that time. You know, variable rates 216 00:10:52,920 --> 00:10:55,440 Speaker 3: might have been circued three three and a half percent, 217 00:10:55,480 --> 00:10:56,959 Speaker 3: then our so six six and a half. 218 00:10:56,800 --> 00:10:58,559 Speaker 1: Percent, seven percent, that's the big one. 219 00:10:58,559 --> 00:11:03,920 Speaker 3: Now that's the big one. Yeah, So so naturally it's natural, 220 00:11:03,920 --> 00:11:06,720 Speaker 3: I think for property investors, think all these costs, arising, 221 00:11:06,840 --> 00:11:09,160 Speaker 3: compliance costs. You got to pay your property manager a 222 00:11:09,160 --> 00:11:11,760 Speaker 3: little bit more because they're doing a lot more work 223 00:11:11,800 --> 00:11:14,040 Speaker 3: today for their money than they were ten years ago. 224 00:11:15,040 --> 00:11:17,520 Speaker 3: And so it's natural think, you know, how does that 225 00:11:17,640 --> 00:11:20,439 Speaker 3: impact my investment returns? Is it worth hanging on to 226 00:11:20,559 --> 00:11:22,920 Speaker 3: these properties? You know, if I haven't seen the growth, 227 00:11:23,320 --> 00:11:27,240 Speaker 3: particularly in Melbourne and Sydney, they're underperforming the other cities, 228 00:11:27,240 --> 00:11:29,200 Speaker 3: I should say, it's naturally ask, you know, is it 229 00:11:29,240 --> 00:11:32,000 Speaker 3: worthwhile to hang on to this? And so I thought, 230 00:11:31,920 --> 00:11:35,880 Speaker 3: let's do an analysis on this financial analysis and my 231 00:11:36,000 --> 00:11:39,600 Speaker 3: gut feeling was that the holding costs would have a 232 00:11:39,679 --> 00:11:44,120 Speaker 3: material impact on investing in property. That was that was 233 00:11:44,160 --> 00:11:46,480 Speaker 3: my initial feeling going in before I did the numbers. 234 00:11:46,880 --> 00:11:49,160 Speaker 3: The answer is it doesn't. It doesn't really have much 235 00:11:49,160 --> 00:11:53,200 Speaker 3: of an impact at all. And that the two factors, 236 00:11:53,200 --> 00:11:56,440 Speaker 3: the two most important factors. The first one is capital growth. 237 00:11:56,640 --> 00:11:59,480 Speaker 3: You know, how much will your property grow over long term. 238 00:12:00,080 --> 00:12:02,679 Speaker 3: Second one is interest rates. They're the only two that 239 00:12:02,720 --> 00:12:08,040 Speaker 3: are quite sensitive to investment returns. Everything else isn't very 240 00:12:08,080 --> 00:12:12,240 Speaker 3: sensitive to your investment returns. And the approach that I 241 00:12:12,280 --> 00:12:14,520 Speaker 3: looked at James was looking at it what's called an 242 00:12:14,520 --> 00:12:17,840 Speaker 3: internal rate of return. And so just to explain it 243 00:12:17,880 --> 00:12:22,240 Speaker 3: quite simply obviously, is when we invest in property, typically 244 00:12:22,280 --> 00:12:25,640 Speaker 3: most investors go and borrow to do that. So there's 245 00:12:25,640 --> 00:12:29,000 Speaker 3: not an initial capital outlay because we're borrowing that the 246 00:12:29,000 --> 00:12:31,960 Speaker 3: purchase price plus the costs and so forth. But what 247 00:12:32,000 --> 00:12:34,520 Speaker 3: we do have to contribute from our own pocket is 248 00:12:34,559 --> 00:12:37,280 Speaker 3: the are the holding costs, you know, the shortfall between 249 00:12:37,480 --> 00:12:40,239 Speaker 3: the rent after expenses and the loan repayments. 250 00:12:40,720 --> 00:12:43,480 Speaker 2: The monthly costs would be like or they're on in costs. 251 00:12:43,520 --> 00:12:47,320 Speaker 3: Yeah, exactly right. So that's our contribution towards the investment. 252 00:12:47,320 --> 00:12:50,440 Speaker 3: That's our cash contribution. Let's say that costs us after 253 00:12:50,520 --> 00:12:53,200 Speaker 3: tax twenty thousand dollars a year. So if we hold 254 00:12:53,240 --> 00:12:57,160 Speaker 3: that property for ten years, we're put in two hundred thousand, 255 00:12:57,559 --> 00:13:00,520 Speaker 3: or twenty years four hundred thousand dollars. So if I've 256 00:13:00,520 --> 00:13:03,240 Speaker 3: contributed four hundred thousand dollars over twenty years, what is 257 00:13:03,280 --> 00:13:06,000 Speaker 3: my return. And so what we can then work out is, 258 00:13:06,040 --> 00:13:08,160 Speaker 3: if we sold the property in twenty years time, we 259 00:13:08,280 --> 00:13:12,000 Speaker 3: paid capital gains, tax, selling costs, repaid the loan, et cetera. 260 00:13:12,640 --> 00:13:17,520 Speaker 3: What percentage return did I achieve by investing and when 261 00:13:17,640 --> 00:13:21,880 Speaker 3: expenses were they used to be but pre pandemic about 262 00:13:21,920 --> 00:13:24,920 Speaker 3: twenty five percent of gross rental income. So if your 263 00:13:25,480 --> 00:13:28,720 Speaker 3: property was generating thirty thousand dollars or let's say forty 264 00:13:28,760 --> 00:13:31,439 Speaker 3: thousand dollars to make the math simple, your expenses are 265 00:13:31,440 --> 00:13:33,280 Speaker 3: going to be about ten thousand dollars a year. These 266 00:13:33,320 --> 00:13:37,640 Speaker 3: are the things like maintenance, managing, cost insurance, you know, 267 00:13:37,880 --> 00:13:41,320 Speaker 3: these sorts of things. So when they were twenty five percent, 268 00:13:41,559 --> 00:13:43,840 Speaker 3: my internal rate of return. If I held the property 269 00:13:43,840 --> 00:13:47,880 Speaker 3: for twenty years achieved seven percent growth and the average 270 00:13:47,920 --> 00:13:51,120 Speaker 3: interest rate was six and a half percent, my internal 271 00:13:51,160 --> 00:13:53,719 Speaker 3: rate of return is thirteen and a half percent. So 272 00:13:53,760 --> 00:13:56,200 Speaker 3: that means that because I've been putting in twenty thousand 273 00:13:56,240 --> 00:13:59,079 Speaker 3: dollars a year, I've essentially earned on that twenty thousand 274 00:13:59,120 --> 00:14:01,559 Speaker 3: dollars thirty and a half percent, which I think everyone 275 00:14:01,600 --> 00:14:06,320 Speaker 3: would agree is really good and compares favorably against other 276 00:14:06,360 --> 00:14:10,040 Speaker 3: alternatives such as making additional super contributions or investing in 277 00:14:10,080 --> 00:14:13,760 Speaker 3: the share market, you're probably not going to achieve thirteen 278 00:14:13,760 --> 00:14:15,880 Speaker 3: and a half percent. Now, it's going to be clear, 279 00:14:15,960 --> 00:14:18,559 Speaker 3: it's not about property. It's about gearing. That's why we've 280 00:14:18,600 --> 00:14:21,440 Speaker 3: got the thirteen half percent. It's not because property is 281 00:14:21,480 --> 00:14:25,640 Speaker 3: so fantastic. It's because we borrowed the entire capital contribution 282 00:14:25,680 --> 00:14:28,640 Speaker 3: at the beginning. So if I change those numbers and 283 00:14:28,720 --> 00:14:31,640 Speaker 3: instead of assuming twenty five percent for costs, I assume 284 00:14:31,720 --> 00:14:34,280 Speaker 3: thirty five percent for costs. So that's what it is now. 285 00:14:34,800 --> 00:14:37,520 Speaker 3: About thirty five percent of grocery engel income should cover 286 00:14:37,560 --> 00:14:41,200 Speaker 3: your costs excluding land tax and excluding interest. Well, the 287 00:14:41,280 --> 00:14:43,840 Speaker 3: internal rate of return drops from thirteen half percent to 288 00:14:43,880 --> 00:14:47,120 Speaker 3: twelve point eight percent, so it's point eight of a percent, 289 00:14:47,600 --> 00:14:50,720 Speaker 3: which isn't I mean, it's reasonable, I think, but it's 290 00:14:50,760 --> 00:14:53,880 Speaker 3: still worthwhile. Right, borrowing to invest in property is still 291 00:14:53,920 --> 00:14:59,320 Speaker 3: worthwhile despite the higher costs. And this analysis just proved 292 00:14:59,320 --> 00:15:01,840 Speaker 3: to me yet again that it's all about capital growth. 293 00:15:01,880 --> 00:15:05,120 Speaker 3: It's our assumption. So I've made assumption seven percent over 294 00:15:05,160 --> 00:15:07,680 Speaker 3: the long term, which is really the meeting house price 295 00:15:07,800 --> 00:15:10,760 Speaker 3: return over the last four decades in Australia. So it's 296 00:15:10,800 --> 00:15:13,920 Speaker 3: not I think it's a reasonable assumption. That's the key 297 00:15:14,000 --> 00:15:18,040 Speaker 3: number here is buy a property that over many decades, 298 00:15:18,120 --> 00:15:21,200 Speaker 3: not the next twelve months or the next five years, 299 00:15:21,240 --> 00:15:24,640 Speaker 3: over many decades is going to generate a really good 300 00:15:24,680 --> 00:15:25,400 Speaker 3: quality return. 301 00:15:25,800 --> 00:15:28,360 Speaker 1: And part of your messaging is that this fed all 302 00:15:28,400 --> 00:15:33,080 Speaker 1: of our obsessions with costs and taxes, et cetera, and 303 00:15:33,120 --> 00:15:36,320 Speaker 1: they have increased. It's the interest rates that really is 304 00:15:36,360 --> 00:15:39,600 Speaker 1: the variable. It's the key variable, and so a drop 305 00:15:39,600 --> 00:15:41,960 Speaker 1: an interest rates from here would be very very useful, 306 00:15:42,360 --> 00:15:45,560 Speaker 1: obvious said for on that basis in terms of everything, 307 00:15:45,600 --> 00:15:48,320 Speaker 1: in terms of all your numbers, including your entirement method return, 308 00:15:48,640 --> 00:15:52,320 Speaker 1: it's the key number to watch. Okay, that's very very interesting. 309 00:15:52,360 --> 00:15:55,240 Speaker 1: And also you mentioned a couple of things there above 310 00:15:55,440 --> 00:16:00,760 Speaker 1: the sheer scale of inflationary costs on the invent and 311 00:16:00,800 --> 00:16:04,600 Speaker 1: how much things had how much things had lifted over 312 00:16:04,640 --> 00:16:06,840 Speaker 1: the period. Did you say that the curis of CPI 313 00:16:07,000 --> 00:16:09,840 Speaker 1: was seventeen percent over four years. 314 00:16:10,160 --> 00:16:13,320 Speaker 3: Yep, And that's just general CPI and we know things 315 00:16:13,360 --> 00:16:15,600 Speaker 3: have increased a lot more than that. James. 316 00:16:15,680 --> 00:16:18,840 Speaker 1: Yeah, yeah, But that's why the other thing that you 317 00:16:19,520 --> 00:16:21,920 Speaker 1: a partially capital or the other key feature, I'm sure 318 00:16:21,920 --> 00:16:26,600 Speaker 1: our listeners think about is rent and off set into 319 00:16:26,640 --> 00:16:30,120 Speaker 1: some degree there was higher costs that you mentioned. What 320 00:16:30,240 --> 00:16:34,360 Speaker 1: was the rent increase, what was the rental income increase 321 00:16:34,440 --> 00:16:36,040 Speaker 1: over that same four years. 322 00:16:36,880 --> 00:16:40,360 Speaker 3: Thirty two percent. But insurance is up twenty counsel rates 323 00:16:40,440 --> 00:16:44,320 Speaker 3: up thirty again, interest which will be you know, probably 324 00:16:44,400 --> 00:16:47,760 Speaker 3: ninety percent of your holding costs has doubled over that time. 325 00:16:47,920 --> 00:16:51,120 Speaker 3: So investors are still worse off. They haven't passed on 326 00:16:51,160 --> 00:16:55,040 Speaker 3: the full cost increases onto renters. But I think the 327 00:16:55,080 --> 00:16:57,760 Speaker 3: other thing I would say is the starting point four 328 00:16:57,840 --> 00:17:00,680 Speaker 3: years ago, pre pandemic. The starting point in strates were 329 00:17:00,840 --> 00:17:04,480 Speaker 3: relatively low, like they were below long long term average. 330 00:17:05,600 --> 00:17:08,119 Speaker 1: There were the lowest said bind for a generation or whatever. 331 00:17:08,320 --> 00:17:11,119 Speaker 1: So fork, it's clear obviously inflection and costs are a 332 00:17:11,200 --> 00:17:14,679 Speaker 1: RIF factor for investors. It is clear that they have 333 00:17:14,840 --> 00:17:17,040 Speaker 1: gone up, and you're holding costs as an investor have 334 00:17:17,240 --> 00:17:19,920 Speaker 1: gone up. The key message from Stewart's for it was 335 00:17:19,960 --> 00:17:23,280 Speaker 1: that to vary, but it really matters this interest rates. 336 00:17:23,680 --> 00:17:26,000 Speaker 1: It's more than all virtually all the others put together, 337 00:17:26,080 --> 00:17:27,000 Speaker 1: doesn't it. 338 00:17:27,520 --> 00:17:30,840 Speaker 3: Capital growth is the number one. Capital growth and then 339 00:17:30,880 --> 00:17:33,720 Speaker 3: interest rates. Now we can't alter interest rates. We have 340 00:17:33,840 --> 00:17:36,800 Speaker 3: to wear price takers there, we can't impact that. We 341 00:17:37,119 --> 00:17:40,080 Speaker 3: can try and impact capital growth by you know, first 342 00:17:40,280 --> 00:17:42,359 Speaker 3: making sure we buy a high quality property at the 343 00:17:42,400 --> 00:17:46,440 Speaker 3: beginning and then potentially, you know, looking ways to improve 344 00:17:46,480 --> 00:17:49,320 Speaker 3: its value over time. So that's the one that I 345 00:17:49,320 --> 00:17:52,080 Speaker 3: would be focusing on as an investor, and if I'm 346 00:17:52,119 --> 00:17:55,200 Speaker 3: a new investor, that's probably the best lesson I can 347 00:17:55,280 --> 00:17:57,800 Speaker 3: learn today before I actually buy the properties to realize 348 00:17:57,840 --> 00:18:01,200 Speaker 3: I need to buy something today. So in thirty is time, 349 00:18:01,280 --> 00:18:04,280 Speaker 3: the average growth rate is being above a seven or 350 00:18:04,280 --> 00:18:05,200 Speaker 3: above seven per. 351 00:18:05,720 --> 00:18:09,000 Speaker 1: And as you say, they're doing comfortably above that or 352 00:18:09,040 --> 00:18:11,400 Speaker 1: as my old friend the property developer always used to say, 353 00:18:11,400 --> 00:18:14,360 Speaker 1: you make your profit when you buy. Okay, we take 354 00:18:14,359 --> 00:18:28,800 Speaker 1: your break and we'd be back at the moment. Hello 355 00:18:28,840 --> 00:18:31,920 Speaker 1: and welcome back to The Australian's Money Puzzle podcast James 356 00:18:32,000 --> 00:18:35,760 Speaker 1: Kirby with Stuart Williams on the show today, Regular guest, 357 00:18:36,359 --> 00:18:37,920 Speaker 1: there was one other thing I wanted to talk to 358 00:18:37,920 --> 00:18:38,640 Speaker 1: you about before we. 359 00:18:38,600 --> 00:18:39,960 Speaker 2: Go to questions, Stuart. 360 00:18:40,520 --> 00:18:42,280 Speaker 1: When we stand back from it over a long period 361 00:18:42,320 --> 00:18:44,520 Speaker 1: of time, three things really matter. What was the property 362 00:18:44,600 --> 00:18:48,280 Speaker 1: you bought, what was the interest rate you paid, and 363 00:18:48,320 --> 00:18:52,600 Speaker 1: what was the capital growth you got? And we just 364 00:18:52,600 --> 00:18:54,639 Speaker 1: said at the start of the show, seventeen months in 365 00:18:54,680 --> 00:18:58,080 Speaker 1: a row now of consecutive price increases eight or nine 366 00:18:58,080 --> 00:19:03,360 Speaker 1: percent last twelve months and be forecasters, which is never 367 00:19:03,440 --> 00:19:06,639 Speaker 1: an easy task. But the core caster see two to 368 00:19:06,800 --> 00:19:10,919 Speaker 1: five percent growth bist calendar year. That's hot off the 369 00:19:10,920 --> 00:19:14,520 Speaker 1: press from prop Track this week. Two to five percent 370 00:19:14,560 --> 00:19:18,439 Speaker 1: growth this calendar year. That seems a little bit on 371 00:19:18,480 --> 00:19:19,520 Speaker 1: the low side to me. 372 00:19:20,280 --> 00:19:23,400 Speaker 3: What do you think, Well, that's that's national right, two 373 00:19:23,400 --> 00:19:24,040 Speaker 3: to five per. 374 00:19:24,440 --> 00:19:25,879 Speaker 2: National dwelling value. 375 00:19:26,119 --> 00:19:28,239 Speaker 1: I mean it's all averages, okay, but we know that 376 00:19:28,280 --> 00:19:31,600 Speaker 1: inflation's four, right, inflation's four, and they're saying property is 377 00:19:31,640 --> 00:19:33,600 Speaker 1: two to five. Well, if it's on the wrong side 378 00:19:33,640 --> 00:19:35,600 Speaker 1: of four, no one's making any money. 379 00:19:35,800 --> 00:19:36,680 Speaker 2: Yeah. 380 00:19:36,840 --> 00:19:39,480 Speaker 3: Well, they're probably been pulled back by Sydney and Melbourne 381 00:19:39,520 --> 00:19:43,560 Speaker 3: because if you look at CBA's forecasts, they forecast this 382 00:19:44,480 --> 00:19:48,359 Speaker 3: calendy year and next for Brisbane, Adelaide and Perth to 383 00:19:48,400 --> 00:19:54,280 Speaker 3: be the standout capital cities and Melbourne and Sydney to underperform. 384 00:19:55,440 --> 00:19:58,120 Speaker 3: And if it's a weighted average, which it probably is 385 00:19:58,200 --> 00:20:01,440 Speaker 3: given the meeting house price is in Melbourne and Sydney, well, 386 00:20:01,520 --> 00:20:05,399 Speaker 3: certainly Sydney are much higher. Then the relative underperformance pulls 387 00:20:05,440 --> 00:20:09,560 Speaker 3: those figures back. I would say, I would say fore casters. 388 00:20:09,720 --> 00:20:12,480 Speaker 3: Would Buffett say, forecasters will fill your ears, but never 389 00:20:12,520 --> 00:20:16,760 Speaker 3: your pockets. And I would say, look, as someone that's 390 00:20:16,800 --> 00:20:19,480 Speaker 3: been in this space for a couple of decades, I 391 00:20:19,520 --> 00:20:24,000 Speaker 3: would say that the banks and most economists have been 392 00:20:24,359 --> 00:20:30,920 Speaker 3: absolutely terrible at forecasting property price movements, to the point where, really, 393 00:20:30,920 --> 00:20:33,680 Speaker 3: when I read a forecast, I think to myself, Okay, well, 394 00:20:33,680 --> 00:20:36,080 Speaker 3: I know it's not going to be that. They're probably 395 00:20:36,080 --> 00:20:39,240 Speaker 3: good at forecasting what's not going to happen. So and 396 00:20:39,280 --> 00:20:41,040 Speaker 3: the other thing I would say is who cares? 397 00:20:41,800 --> 00:20:44,000 Speaker 1: Well, you said a few minutes ago you're assuming seven percent? 398 00:20:44,080 --> 00:20:44,680 Speaker 2: Great long time? 399 00:20:44,760 --> 00:20:47,159 Speaker 3: Yeah, yeah, And I don't care. I know it's not 400 00:20:47,200 --> 00:20:49,679 Speaker 3: going to happen uniformly. Of course, I know we're going 401 00:20:49,720 --> 00:20:53,359 Speaker 3: to go through periods. Of My research highlights that every 402 00:20:53,400 --> 00:20:56,240 Speaker 3: market moves through a flat period and then a growth period, 403 00:20:56,280 --> 00:20:58,199 Speaker 3: and then another flat period and other growth period, so 404 00:20:58,280 --> 00:21:01,240 Speaker 3: it's two distinct cycles. I know what's going to happen. 405 00:21:01,320 --> 00:21:03,520 Speaker 3: I don't really care. I just want to buy something 406 00:21:03,560 --> 00:21:07,200 Speaker 3: that's above average, better than average, and something that has 407 00:21:07,240 --> 00:21:09,840 Speaker 3: the attributes that are going to continue to push that 408 00:21:09,920 --> 00:21:13,800 Speaker 3: price along over many decades. If I get zero percent 409 00:21:13,880 --> 00:21:16,919 Speaker 3: this year or ten percent, whatever doesn't worry. 410 00:21:16,680 --> 00:21:19,479 Speaker 1: Me, doesn't worry you as long as you can manage 411 00:21:19,480 --> 00:21:22,120 Speaker 1: the volding costs, which is what we were talking about earlier. 412 00:21:22,359 --> 00:21:24,040 Speaker 2: And the key variable on that is rice. 413 00:21:25,200 --> 00:21:27,560 Speaker 1: No one knows, as you say, forecasts, no one knows. 414 00:21:27,720 --> 00:21:30,480 Speaker 1: And it's isn't that amazing that when we started the year, 415 00:21:30,720 --> 00:21:33,320 Speaker 1: those kate to do forecasts were saying that rice would 416 00:21:33,440 --> 00:21:34,399 Speaker 1: drop this year. 417 00:21:34,560 --> 00:21:37,280 Speaker 2: Some people were saying rich would drop several times this year. 418 00:21:37,960 --> 00:21:40,280 Speaker 1: You can't find someone who says rates would drop this 419 00:21:40,359 --> 00:21:43,720 Speaker 1: year anymore. Either're pushing it out to next year. The 420 00:21:43,800 --> 00:21:47,480 Speaker 1: truth is a no one knows. B The nearest thing 421 00:21:47,520 --> 00:21:49,720 Speaker 1: to somebody knowing is how much people are putting on 422 00:21:49,720 --> 00:21:52,520 Speaker 1: the line besting in the money markets. Money markets are 423 00:21:52,560 --> 00:21:55,760 Speaker 1: banging on fifty to fifty. Yeah, So really we're at 424 00:21:55,680 --> 00:21:58,120 Speaker 1: a point where it's it's wide open. Isn't it really 425 00:21:58,520 --> 00:22:01,920 Speaker 1: been aunced about us go in any direction? Possibly do nothing? 426 00:22:02,160 --> 00:22:04,400 Speaker 3: I think the money markets, the money markets have been right. 427 00:22:04,440 --> 00:22:07,399 Speaker 3: The money markets were totally right during COVID, you know, 428 00:22:07,440 --> 00:22:10,200 Speaker 3: even when even when the RBA was saying no we're 429 00:22:10,240 --> 00:22:14,080 Speaker 3: not hiking till twenty twenty four. The money market's still 430 00:22:14,119 --> 00:22:16,800 Speaker 3: baked in these hikes, and it was kind of I 431 00:22:16,840 --> 00:22:18,639 Speaker 3: was puzzled at the time, thinking, well, what does the 432 00:22:18,640 --> 00:22:21,359 Speaker 3: money market now because the person in control is saying 433 00:22:21,760 --> 00:22:24,640 Speaker 3: distinctly we're not hiking. But you know they were right, 434 00:22:25,600 --> 00:22:28,800 Speaker 3: and if you look at them today that they're baking 435 00:22:28,800 --> 00:22:30,200 Speaker 3: another rate increase this year. 436 00:22:30,320 --> 00:22:35,760 Speaker 1: So so so folks followed the money we were to 437 00:22:35,800 --> 00:22:37,760 Speaker 1: the extent that anyone knows anything the few pop who 438 00:22:37,800 --> 00:22:39,560 Speaker 1: are actually putting their money on the line. 439 00:22:39,400 --> 00:22:41,120 Speaker 2: So that could be a really infused this year. 440 00:22:41,680 --> 00:22:47,560 Speaker 1: Who knows except to see that we have now got 441 00:22:47,560 --> 00:22:48,080 Speaker 1: a sort. 442 00:22:47,880 --> 00:22:51,199 Speaker 2: Of not a stable brief output. 443 00:22:51,320 --> 00:22:54,520 Speaker 1: But the prospects are that rece won't move as often 444 00:22:54,560 --> 00:22:57,560 Speaker 1: as they have been moving in obviously they had no 445 00:22:57,680 --> 00:23:01,639 Speaker 1: prety call but up in the last six years and 446 00:23:01,760 --> 00:23:04,960 Speaker 1: hopefully still what we have really is this period quess 447 00:23:05,240 --> 00:23:09,360 Speaker 1: normalized in that REX would be flaked with an advance 448 00:23:09,400 --> 00:23:11,520 Speaker 1: and if we haven't we know the direction. It's going 449 00:23:11,560 --> 00:23:13,600 Speaker 1: to be a quarter of a percent. We're not going 450 00:23:13,640 --> 00:23:16,879 Speaker 1: to get any structural change. And how we do our 451 00:23:16,960 --> 00:23:18,040 Speaker 1: numbers looking out. 452 00:23:18,520 --> 00:23:21,640 Speaker 3: And the silver lining James my gut filling, so obviously 453 00:23:21,640 --> 00:23:25,320 Speaker 3: we need a dune quarter CPI that's going to be 454 00:23:25,320 --> 00:23:28,399 Speaker 3: the deciding factor. My gut feeling is we'll get a 455 00:23:28,480 --> 00:23:31,760 Speaker 3: rate hiking in August, and the silver lining might be 456 00:23:31,800 --> 00:23:34,040 Speaker 3: if we do get a rate hike in August, I 457 00:23:34,040 --> 00:23:37,520 Speaker 3: think that'll be probably enough to pop the balloon. And 458 00:23:37,760 --> 00:23:40,720 Speaker 3: if we do, I think the chances of then getting 459 00:23:40,720 --> 00:23:43,680 Speaker 3: a rate cart early next Yurium are much higher, okay, 460 00:23:43,760 --> 00:23:45,919 Speaker 3: because I think I think they will really scare the market. 461 00:23:46,040 --> 00:23:49,720 Speaker 3: I think that will discretionary spinnings already down. You notice 462 00:23:49,720 --> 00:23:51,879 Speaker 3: that at restaurants, and you can get a seat at 463 00:23:51,880 --> 00:23:55,399 Speaker 3: a restaurant a Saturday night now easily couldn't do that 464 00:23:56,040 --> 00:23:58,960 Speaker 3: even three months ago. So it's a narrow indicator. 465 00:23:59,040 --> 00:24:02,280 Speaker 1: But I reco on the volue, Yeah, yeah, on my son, 466 00:24:02,320 --> 00:24:04,000 Speaker 1: I think they won't do anything I want. 467 00:24:04,040 --> 00:24:06,320 Speaker 2: I don't think they'll do anything from first six months 468 00:24:06,400 --> 00:24:09,000 Speaker 2: or so. But photos O, we're on a titled opinion. 469 00:24:09,240 --> 00:24:11,680 Speaker 1: We'll take short break and we have some really good questions, 470 00:24:11,840 --> 00:24:14,320 Speaker 1: specifically own property and property investments. 471 00:24:14,320 --> 00:24:20,240 Speaker 2: In a minute. 472 00:24:22,640 --> 00:24:26,040 Speaker 1: Hello, Welcome back to the Australian's Money Puzzle podcast. James 473 00:24:26,119 --> 00:24:30,360 Speaker 1: Kirby webs editor in Australian talking to Stuart Willims, who 474 00:24:30,520 --> 00:24:35,760 Speaker 1: is of course a property expert, author, podcaster, contributor to 475 00:24:35,800 --> 00:24:39,280 Speaker 1: the web section of The Australian and on the show today, 476 00:24:39,520 --> 00:24:42,879 Speaker 1: answering all sorts of questions. Okay, we might get you 477 00:24:42,920 --> 00:24:44,720 Speaker 1: to read the first one if you like. 478 00:24:45,320 --> 00:24:50,480 Speaker 3: Absolutely so, Phil asks a property tax question for you. 479 00:24:50,880 --> 00:24:54,040 Speaker 3: I recently bought and rented out my first investment property. 480 00:24:54,320 --> 00:24:57,399 Speaker 3: It's a regular brick bungalow built fifty years ago, costing 481 00:24:57,520 --> 00:25:00,919 Speaker 3: me five hundred and thirty thousand dollars. I'm interested to 482 00:25:00,960 --> 00:25:04,280 Speaker 3: know whether it's worthwhile to consider getting the expense of 483 00:25:04,280 --> 00:25:07,240 Speaker 3: a depreciation schedule, which he expects to pay around five 484 00:25:07,320 --> 00:25:10,800 Speaker 3: hundred dollars for. What are the benefits where the property 485 00:25:10,840 --> 00:25:14,680 Speaker 3: is simple and doesn't have many expensive features? 486 00:25:15,160 --> 00:25:18,280 Speaker 1: Great question, Phil, This has never advised. Everybody's on the 487 00:25:18,280 --> 00:25:21,800 Speaker 1: information and I don't know what you're going to assist, 488 00:25:22,480 --> 00:25:25,800 Speaker 1: but I would say, hey, you've never done an debreciation schedule, 489 00:25:26,600 --> 00:25:29,880 Speaker 1: Spend mine these fever, see what you get first time. 490 00:25:29,960 --> 00:25:30,360 Speaker 2: Anyway. 491 00:25:31,400 --> 00:25:35,080 Speaker 3: So there's two types of depreciation that you can claim 492 00:25:35,119 --> 00:25:40,520 Speaker 3: on in investment property, a residential investment property, capital works 493 00:25:40,600 --> 00:25:45,520 Speaker 3: or capital allowance Capital works really relate to the actual dwelling, 494 00:25:45,560 --> 00:25:51,080 Speaker 3: the construction itself, the building. Typically, you can depreciate a 495 00:25:51,119 --> 00:25:53,359 Speaker 3: building over forty years, so two and a half percent 496 00:25:53,359 --> 00:25:56,480 Speaker 3: per year straight line over forty years. So if the 497 00:25:56,560 --> 00:26:00,400 Speaker 3: dwelling is older than forty years, chances are there's noreciation 498 00:26:00,560 --> 00:26:02,800 Speaker 3: left because you can get a quantity surveyor and what 499 00:26:02,800 --> 00:26:05,560 Speaker 3: they have to do is estimate the cost, not the 500 00:26:05,600 --> 00:26:09,760 Speaker 3: replacement cost, but the cost it would have taken to 501 00:26:10,040 --> 00:26:12,520 Speaker 3: build or construct that home save in the eighties or 502 00:26:12,520 --> 00:26:13,639 Speaker 3: seventies whenever it was. 503 00:26:14,200 --> 00:26:16,960 Speaker 1: Is it no depreciation on an ongoing business? You even 504 00:26:16,960 --> 00:26:18,200 Speaker 1: did this for a few years old. 505 00:26:18,359 --> 00:26:21,920 Speaker 3: Well that they would argue that the building is fully depreciated. 506 00:26:22,040 --> 00:26:24,760 Speaker 3: You know, the last forty years we've depreciated. So then 507 00:26:24,760 --> 00:26:27,440 Speaker 3: the question is when was it constructed, Was it less 508 00:26:27,480 --> 00:26:30,120 Speaker 3: than forty years ago, Well there might be some depreciation left, 509 00:26:30,320 --> 00:26:35,399 Speaker 3: or was it renovated, extended anything like that over the 510 00:26:35,480 --> 00:26:37,919 Speaker 3: last forty years. If it was, there could be some 511 00:26:38,000 --> 00:26:42,280 Speaker 3: depreciation left. The second one is capital allowances, and this 512 00:26:42,480 --> 00:26:46,240 Speaker 3: changed back in May seventeen in the federal budget in seventeen. 513 00:26:46,840 --> 00:26:51,080 Speaker 3: The capital allowances really relate to things that won't last 514 00:26:51,119 --> 00:26:54,440 Speaker 3: forever and can be removed from the property. Curtains, flooring, 515 00:26:56,280 --> 00:27:00,200 Speaker 3: kitchen appliances. These sorts of things you can own only 516 00:27:00,359 --> 00:27:04,080 Speaker 3: claim unless you own that property before May seventeen. If 517 00:27:04,080 --> 00:27:06,840 Speaker 3: you bought after May seventeen, the only CAUP allowances you 518 00:27:06,840 --> 00:27:09,800 Speaker 3: can claim is what you spend on the property. So again, 519 00:27:09,920 --> 00:27:14,560 Speaker 3: if you have replaced some of these items since you've 520 00:27:14,600 --> 00:27:18,560 Speaker 3: owned it, and if you purchase after May seventeen, then 521 00:27:18,600 --> 00:27:23,440 Speaker 3: there may be some depreciation there. What I would suggest 522 00:27:23,480 --> 00:27:27,159 Speaker 3: to Phil is probably give one of these depreciation report 523 00:27:27,200 --> 00:27:30,240 Speaker 3: providers a call. You can give them the property address. 524 00:27:30,320 --> 00:27:32,400 Speaker 3: They might ask you a few questions about the property 525 00:27:32,720 --> 00:27:35,360 Speaker 3: and they will give you their best estimate of what 526 00:27:35,400 --> 00:27:39,240 Speaker 3: depreciation might be left in terms of annual depreciation, and 527 00:27:39,240 --> 00:27:41,119 Speaker 3: that'll tell you whether it's going to be worthwhile for you. 528 00:27:41,800 --> 00:27:43,639 Speaker 1: Yes, I have found them to be really okay, and 529 00:27:43,680 --> 00:27:46,040 Speaker 1: I can remember one time, on one property I can't 530 00:27:46,040 --> 00:27:49,120 Speaker 1: remember quent flied, they actually said. 531 00:27:48,960 --> 00:27:50,280 Speaker 2: Look, don't get a report. 532 00:27:50,840 --> 00:27:53,440 Speaker 1: They actually said, you know, no, I think in your 533 00:27:53,440 --> 00:27:56,199 Speaker 1: case it said don't bother doing it. So as a 534 00:27:56,240 --> 00:27:59,120 Speaker 1: general observation to all the films out there, check it out, 535 00:27:59,480 --> 00:28:01,680 Speaker 1: see if they think it's worth it. They will give 536 00:28:01,680 --> 00:28:03,000 Speaker 1: you a sort of off the show rest of. 537 00:28:03,040 --> 00:28:03,760 Speaker 2: It pretty fast. 538 00:28:04,480 --> 00:28:07,919 Speaker 1: And if you've never done it before, certainly it's working 539 00:28:08,000 --> 00:28:11,160 Speaker 1: the exploring because you may well find that you've refuge 540 00:28:11,480 --> 00:28:13,800 Speaker 1: if you granted that you use there's a tax deduction 541 00:28:13,920 --> 00:28:18,840 Speaker 1: there if they if they find anything at all, all right, Andrews, 542 00:28:18,840 --> 00:28:22,640 Speaker 1: said James Gerard. James Gerard, our regular guest on the 543 00:28:22,680 --> 00:28:26,200 Speaker 1: show of Financial Advisor dot com dot you, who often 544 00:28:26,240 --> 00:28:29,119 Speaker 1: hosts the show. He recently mentioned that a lot of 545 00:28:29,119 --> 00:28:33,040 Speaker 1: superannuation farthers will do an in speaks, the transfer when 546 00:28:33,119 --> 00:28:36,040 Speaker 1: moving from accumulation to retirement. Is this the most common 547 00:28:36,080 --> 00:28:38,880 Speaker 1: approach I've heard conflicting advice and have been told that 548 00:28:38,920 --> 00:28:42,040 Speaker 1: many funds will rather sell down positions in rebuy as 549 00:28:42,080 --> 00:28:44,880 Speaker 1: part of a move to the retirement phase. And of 550 00:28:44,880 --> 00:28:48,360 Speaker 1: course the other dimension to this is there is property. 551 00:28:49,240 --> 00:28:52,760 Speaker 1: Uh And in CC chancewer first of all, could we 552 00:28:52,840 --> 00:28:56,560 Speaker 1: explained to everybody what an spec chancefer is, Stuart, And 553 00:28:56,880 --> 00:28:59,680 Speaker 1: could you explain whether there's a difference in dealing with 554 00:28:59,800 --> 00:29:05,040 Speaker 1: property or with shares how they're truced. Sure? 555 00:29:05,400 --> 00:29:07,680 Speaker 3: So, in specie transfer, I mean if you're going to 556 00:29:07,760 --> 00:29:12,280 Speaker 3: transfer between two accounts and so most people with superannuation 557 00:29:12,400 --> 00:29:15,200 Speaker 3: would call that a rollover, you know, moving between funds 558 00:29:15,200 --> 00:29:18,360 Speaker 3: for example, or moving from an accumulation account into a 559 00:29:18,400 --> 00:29:21,120 Speaker 3: pension account with the same fund or a different one. 560 00:29:21,760 --> 00:29:23,600 Speaker 3: You can either do that in two ways. You can 561 00:29:23,640 --> 00:29:27,360 Speaker 3: sell all the investments and just transfer the cash, or 562 00:29:27,360 --> 00:29:29,880 Speaker 3: you can keep the investments and just do an off 563 00:29:29,960 --> 00:29:34,120 Speaker 3: market transfer those investments from one account to the next account. 564 00:29:34,320 --> 00:29:37,120 Speaker 3: We call that an in specie transfer because you're not 565 00:29:37,160 --> 00:29:40,480 Speaker 3: exiting the market, you're not changing the underlying investments. All 566 00:29:40,480 --> 00:29:42,680 Speaker 3: you're really doing is moving it from one account to 567 00:29:42,720 --> 00:29:47,840 Speaker 3: the next account. Now, the critical question here is from 568 00:29:47,960 --> 00:29:52,000 Speaker 3: one account to the next account, does the superannuation trustee change, 569 00:29:52,520 --> 00:29:56,400 Speaker 3: Because if the trustee changes, it's a change of beneficial ownership. 570 00:29:56,400 --> 00:29:59,560 Speaker 3: It will trigger tacks. But if the trustee is the same, 571 00:30:00,160 --> 00:30:04,320 Speaker 3: there's no tax. So that's the key question here and 572 00:30:04,400 --> 00:30:07,960 Speaker 3: so and then the second question is what type of 573 00:30:08,000 --> 00:30:11,200 Speaker 3: superfund do you have? Because if it's a unitized superfund, 574 00:30:11,440 --> 00:30:13,880 Speaker 3: like all the industry super funds are bad luck. Your 575 00:30:13,880 --> 00:30:17,000 Speaker 3: tax is taken out every day like they calculate the 576 00:30:17,000 --> 00:30:19,640 Speaker 3: tax on the unrealized gain and subtract it from your account. 577 00:30:19,680 --> 00:30:22,880 Speaker 3: Subtract it from the uniprice essentially, So if you're a 578 00:30:23,120 --> 00:30:25,320 Speaker 3: if you're in an industry fund, this is not going 579 00:30:25,360 --> 00:30:28,200 Speaker 3: to apply this option. But if you're in a wrap 580 00:30:28,240 --> 00:30:32,480 Speaker 3: platform it could apply. And we use Macquarie and net 581 00:30:32,480 --> 00:30:34,560 Speaker 3: Wealth for example. I know that we can do an 582 00:30:34,600 --> 00:30:37,720 Speaker 3: in specie transfer and not trigger capital gains tax. The 583 00:30:37,800 --> 00:30:39,960 Speaker 3: key question, as I said, if you're on a rap platform, 584 00:30:40,120 --> 00:30:42,040 Speaker 3: is work out who the trustee, or ask who is 585 00:30:42,040 --> 00:30:45,040 Speaker 3: the trustee for the superproduct the pension product, I should say, 586 00:30:45,360 --> 00:30:49,680 Speaker 3: versus the accumulation product, and maybe I'll explain what is 587 00:30:49,680 --> 00:30:52,680 Speaker 3: the benefit. Why would you do this? James? Actually, before 588 00:30:52,720 --> 00:30:55,440 Speaker 3: I get there, let's talk about property, because if you've. 589 00:30:55,240 --> 00:30:57,680 Speaker 1: Got yeah, can I just put in a seat on 590 00:30:57,720 --> 00:31:00,760 Speaker 1: the property front. So let's say I have a property 591 00:31:00,840 --> 00:31:02,760 Speaker 1: like field there and he had his he had his 592 00:31:03,200 --> 00:31:05,920 Speaker 1: property in it, this worth fight forty And I said, 593 00:31:05,920 --> 00:31:07,360 Speaker 1: you know what, really I should have had that in 594 00:31:07,440 --> 00:31:11,480 Speaker 1: my super fund. Can I put it in my super fund? 595 00:31:11,520 --> 00:31:14,920 Speaker 1: And does that work done in that same methodology in specie? 596 00:31:15,160 --> 00:31:18,560 Speaker 3: No, you can't. You can't transfer residential property into super. 597 00:31:19,120 --> 00:31:23,440 Speaker 1: That's about an investment property. And I didn't buy it 598 00:31:23,440 --> 00:31:25,400 Speaker 1: in super I just said, and I decided I wanted 599 00:31:25,400 --> 00:31:27,080 Speaker 1: to swing it into my super Brook. Is that an 600 00:31:27,080 --> 00:31:30,040 Speaker 1: special transfer? And can I do it in any fund? 601 00:31:30,080 --> 00:31:31,560 Speaker 1: Or is the only self managed Super? 602 00:31:32,200 --> 00:31:34,760 Speaker 3: So I should have used another word. You can't transfer 603 00:31:34,920 --> 00:31:38,840 Speaker 3: a residential investment property into SUPER. You can potentially transfer 604 00:31:38,880 --> 00:31:42,200 Speaker 3: a commercial property into SUPER from your personal name or 605 00:31:42,200 --> 00:31:43,840 Speaker 3: from another entity into your Super. 606 00:31:43,960 --> 00:31:46,720 Speaker 1: So your investment investment property of any description, no I 607 00:31:46,720 --> 00:31:47,360 Speaker 1: can no, no, no. 608 00:31:47,400 --> 00:31:50,040 Speaker 3: Not if it's a residential you can't. I can. 609 00:31:50,160 --> 00:31:51,800 Speaker 1: I can trust for a factor, but I can't trus 610 00:31:51,840 --> 00:31:52,360 Speaker 1: for a house. 611 00:31:52,520 --> 00:31:56,960 Speaker 3: Yes, yes, so they call that business real property. That's 612 00:31:57,040 --> 00:32:00,720 Speaker 3: the definition. In that said, there's a specific exemption for 613 00:32:01,160 --> 00:32:03,480 Speaker 3: business real property. I guess it's to help people that 614 00:32:03,520 --> 00:32:05,240 Speaker 3: are self employed that want to go and buy their 615 00:32:05,320 --> 00:32:08,280 Speaker 3: business premises and so forth. Put it in Super makes 616 00:32:08,280 --> 00:32:10,120 Speaker 3: a bit of sense. But if I've got a normal 617 00:32:10,240 --> 00:32:13,880 Speaker 3: residential investment property, I can't put that into SUPER. I 618 00:32:13,960 --> 00:32:16,480 Speaker 3: can buy it into Super initially, of course, but I 619 00:32:16,560 --> 00:32:17,680 Speaker 3: can't put it into SUPER. 620 00:32:18,080 --> 00:32:19,640 Speaker 1: You can't buy it, but you can't chance there it 621 00:32:19,720 --> 00:32:22,520 Speaker 1: in Oh yeah, it is loaded against us. It really 622 00:32:22,680 --> 00:32:26,040 Speaker 1: is count transferading, Okay, I have to have deeper it 623 00:32:26,440 --> 00:32:32,600 Speaker 1: so in specie just across in general, Andrew, So listenes understand, 624 00:32:32,640 --> 00:32:37,640 Speaker 1: it's the transfer within the supersystem of an asset. And 625 00:32:37,720 --> 00:32:40,240 Speaker 1: what happens is that if you said I have my 626 00:32:40,360 --> 00:32:42,520 Speaker 1: comeback shares and they'll worth one hundred grand of my 627 00:32:42,800 --> 00:32:45,600 Speaker 1: super and I want to move to another farm, then 628 00:32:45,800 --> 00:32:48,000 Speaker 1: they do it in special transfer. Is that if they 629 00:32:48,000 --> 00:32:51,239 Speaker 1: don't sell them, they say there worths we can move 630 00:32:51,280 --> 00:32:53,560 Speaker 1: them across a X because we know they're precise value. 631 00:32:53,640 --> 00:32:56,960 Speaker 3: Is that in the simple part, spot on, and let's 632 00:32:56,960 --> 00:32:59,560 Speaker 3: think about what the benefit is here, James, because it's huge. 633 00:33:00,440 --> 00:33:02,560 Speaker 3: If you bought those if you held those CBA shares, 634 00:33:02,640 --> 00:33:06,320 Speaker 3: Let's assume you bought it at IPO like in the 635 00:33:07,000 --> 00:33:09,120 Speaker 3: in the eighties or something, whether they sold for three 636 00:33:09,160 --> 00:33:11,160 Speaker 3: dollars or five dollars or something like that. With THEE 637 00:33:11,240 --> 00:33:14,480 Speaker 3: hundred yeah, no, there are one hundred, one hundred and thirty. 638 00:33:15,600 --> 00:33:18,400 Speaker 3: If you had a if you moved those assets and 639 00:33:18,520 --> 00:33:20,400 Speaker 3: it was a change of trustee, you're going to be 640 00:33:20,520 --> 00:33:23,520 Speaker 3: taxed in super first on the gain and then that 641 00:33:23,960 --> 00:33:27,200 Speaker 3: money is going to be moved across. Whereas if you don't, 642 00:33:27,400 --> 00:33:29,760 Speaker 3: if you aren't taxed on the in specially transfer, that 643 00:33:30,000 --> 00:33:32,600 Speaker 3: that gain even though you made it many many years ago. 644 00:33:32,640 --> 00:33:37,680 Speaker 3: When you're an accumulation, it disappears right, there's no capital gains. 645 00:33:38,160 --> 00:33:40,880 Speaker 3: So if i'm let's say I'm really I'm thirty years, 646 00:33:40,920 --> 00:33:43,520 Speaker 3: I'd love to be thirty day. If I'm thirty today, 647 00:33:43,560 --> 00:33:45,800 Speaker 3: I'm going to have SUPER for another thirty years. If 648 00:33:45,880 --> 00:33:48,920 Speaker 3: I go and buy an ASEX two hundred index, I 649 00:33:49,000 --> 00:33:51,280 Speaker 3: can potentially buy that index, hold it for the next 650 00:33:51,360 --> 00:33:53,560 Speaker 3: thirty years, not make any changes, which wouldn't be a 651 00:33:53,600 --> 00:33:57,760 Speaker 3: bad idea, by the way, And if I then in 652 00:33:57,880 --> 00:34:02,040 Speaker 3: specie transfer my total gain over that time capital gain. 653 00:34:02,080 --> 00:34:03,360 Speaker 3: Of course, I've been taxed on the income, but the 654 00:34:03,400 --> 00:34:08,040 Speaker 3: capital gain disappears. It's really valuable, particularly if you're if 655 00:34:08,080 --> 00:34:10,520 Speaker 3: you've got a lot of unrealized gains in SUPER, or 656 00:34:10,600 --> 00:34:14,640 Speaker 3: if you're young. But having that flexibility to be able 657 00:34:14,640 --> 00:34:17,520 Speaker 3: to do that in specie transfer and not be taxed 658 00:34:17,600 --> 00:34:19,800 Speaker 3: is very valuable for superannuation investors. 659 00:34:20,000 --> 00:34:23,160 Speaker 1: So keep that in mind, everybody, including Andrews. It is 660 00:34:23,200 --> 00:34:25,640 Speaker 1: a it is a It is a really good methodology. 661 00:34:26,719 --> 00:34:29,759 Speaker 1: On the flip side, make sure that you'll never get 662 00:34:29,880 --> 00:34:32,520 Speaker 1: caught having to pay tax on something you didn't have 663 00:34:32,640 --> 00:34:34,920 Speaker 1: to if it was possible to do in it specy transfer. 664 00:34:35,320 --> 00:34:36,719 Speaker 2: That's the that's the real lesson here. 665 00:34:36,840 --> 00:34:40,600 Speaker 1: Okay, final question from Glenn, who seems to be a 666 00:34:40,760 --> 00:34:42,320 Speaker 1: dad worried about. 667 00:34:42,440 --> 00:34:45,200 Speaker 3: It's son, and he must be a dad from your 668 00:34:45,280 --> 00:34:47,960 Speaker 3: neck of the woods, James. Using the term lad, he 669 00:34:48,080 --> 00:34:49,480 Speaker 3: says my lad and he's. 670 00:34:50,160 --> 00:34:53,399 Speaker 1: Is that the booksell or a Scottish probably. 671 00:34:53,440 --> 00:34:55,799 Speaker 3: My lad and his fiance just managed to reach their 672 00:34:55,840 --> 00:34:59,520 Speaker 3: twenty percent deposit and avoid al ami lender's mortgage insurance. 673 00:34:59,600 --> 00:35:04,839 Speaker 3: Buying first home brilliant since interest rate increases. Like many 674 00:35:04,920 --> 00:35:08,480 Speaker 3: of the generation, they're only just getting buy, my advice 675 00:35:08,680 --> 00:35:10,560 Speaker 3: was to ask for a better interest rate and also 676 00:35:10,600 --> 00:35:15,000 Speaker 3: shop around. But he's saying that existing first home buyers 677 00:35:15,120 --> 00:35:18,399 Speaker 3: with less than twenty percent equity will need to pay 678 00:35:18,480 --> 00:35:23,440 Speaker 3: for lender's mortgage insurance. Essentially, the lender's mortgage insurance government 679 00:35:23,520 --> 00:35:27,320 Speaker 3: guarantee is no longer available to him, and he believes 680 00:35:27,480 --> 00:35:31,120 Speaker 3: it's also not able to transfer if he transfer it 681 00:35:31,160 --> 00:35:31,840 Speaker 3: to another lender. 682 00:35:32,000 --> 00:35:32,520 Speaker 2: Is this true? 683 00:35:33,000 --> 00:35:36,000 Speaker 3: In the meantime, what's the general advice that you have 684 00:35:36,280 --> 00:35:37,600 Speaker 3: for his situation? 685 00:35:38,000 --> 00:35:43,080 Speaker 1: Okay, Well, about the government guarantee scheme, which is what 686 00:35:43,200 --> 00:35:46,160 Speaker 1: it is, so of course you can go in under 687 00:35:46,200 --> 00:35:48,440 Speaker 1: that scheme. You put a deposit down and the government 688 00:35:48,520 --> 00:35:52,040 Speaker 1: will cover up to I think it's fifteen percent of 689 00:35:53,520 --> 00:35:56,040 Speaker 1: your twenty percent, and then you don't have to pay 690 00:35:56,120 --> 00:35:59,080 Speaker 1: under this mortgage insurance, which is something of a well 691 00:35:59,160 --> 00:36:01,120 Speaker 1: it's a debatable the best of times. 692 00:36:01,520 --> 00:36:02,319 Speaker 2: But here's the thing. 693 00:36:02,400 --> 00:36:05,239 Speaker 1: You ask if it's transferable, No, it's not. You ask 694 00:36:05,280 --> 00:36:08,280 Speaker 1: if it's not available to him. Well, how it works 695 00:36:08,320 --> 00:36:10,479 Speaker 1: If they have a batch and I think it's something 696 00:36:10,560 --> 00:36:13,160 Speaker 1: in the order of ten to twenty thousand spots in 697 00:36:13,320 --> 00:36:17,600 Speaker 1: that program, and within that they have limits on regions, 698 00:36:18,000 --> 00:36:20,399 Speaker 1: and they have limits on you know, single moms where 699 00:36:20,400 --> 00:36:24,279 Speaker 1: are given a certain quorum of it, so there's only 700 00:36:24,320 --> 00:36:26,400 Speaker 1: so much, and then they close it off each year 701 00:36:26,400 --> 00:36:28,520 Speaker 1: and then they open it again. That's generally how it works. 702 00:36:28,600 --> 00:36:31,400 Speaker 1: So yes, if your sun did miss it, it doesn't 703 00:36:31,440 --> 00:36:32,400 Speaker 1: mean that they would miss. 704 00:36:32,200 --> 00:36:34,479 Speaker 2: It the next time round. But that's how it works. 705 00:36:34,520 --> 00:36:37,560 Speaker 1: It works in there facts. Yeah, that's the scheme. 706 00:36:38,120 --> 00:36:40,440 Speaker 3: Yeah, So I did a bit of research on this, 707 00:36:40,680 --> 00:36:45,239 Speaker 3: and if the gentleman just googles Housing Australia First Home Guarantee, 708 00:36:45,880 --> 00:36:52,200 Speaker 3: you'll find the web page. There is an information guide, 709 00:36:52,400 --> 00:36:55,279 Speaker 3: a PDF information guide on that web page. Actually says, 710 00:36:55,400 --> 00:36:58,960 Speaker 3: you can refinance the loan if you want to, but 711 00:36:59,040 --> 00:37:02,560 Speaker 3: there has to be another participating lender, and there's plenty 712 00:37:02,600 --> 00:37:06,880 Speaker 3: of majors and all the big four on the participation. 713 00:37:06,920 --> 00:37:09,440 Speaker 3: Actually A and Z's the only one that doesn't. But 714 00:37:09,480 --> 00:37:11,760 Speaker 3: there's a whole bunch of other lenders, certainly enough lenders 715 00:37:11,880 --> 00:37:16,719 Speaker 3: in order to shop around, so you can refinance even 716 00:37:16,760 --> 00:37:19,319 Speaker 3: if you still need that government guarantee if it's another 717 00:37:19,360 --> 00:37:22,239 Speaker 3: participating lender. But the other thing, James, is if you 718 00:37:22,360 --> 00:37:24,960 Speaker 3: go and call the bank and ask to speak to retention. 719 00:37:25,239 --> 00:37:27,120 Speaker 3: So what I would be doing is call the bank. 720 00:37:27,800 --> 00:37:29,719 Speaker 3: So i need to speak to retention because I'm just 721 00:37:29,840 --> 00:37:33,120 Speaker 3: about to sign what's called a discharge authority because I'm 722 00:37:33,120 --> 00:37:33,920 Speaker 3: going to refinance. 723 00:37:34,400 --> 00:37:37,080 Speaker 1: Is it part for words, Glen, remember them. Just say 724 00:37:37,080 --> 00:37:39,040 Speaker 1: it once more, Stuart, because it's so parful this. 725 00:37:39,560 --> 00:37:41,760 Speaker 3: Just tell them I'm about to sign a discharge authority. 726 00:37:41,840 --> 00:37:45,200 Speaker 3: It's important to use the right terminology, discharge authority, because 727 00:37:45,239 --> 00:37:47,360 Speaker 3: my mortgage broker is just going to refinance me to 728 00:37:47,440 --> 00:37:49,440 Speaker 3: a new lender. But I just want to speak to retention. 729 00:37:49,760 --> 00:37:52,680 Speaker 3: Every bank has a retention team. I want to speak 730 00:37:52,680 --> 00:37:54,640 Speaker 3: to retention to see if there's anything you can do 731 00:37:54,760 --> 00:37:55,080 Speaker 3: to help. 732 00:37:55,360 --> 00:37:58,239 Speaker 1: Yeah, that is fantastic. I have used that you taught 733 00:37:58,280 --> 00:38:01,759 Speaker 1: me about the years ago. I did it. Then I 734 00:38:01,840 --> 00:38:04,719 Speaker 1: wrote several articles about it. They went crazy online. 735 00:38:05,440 --> 00:38:06,400 Speaker 2: Never forget it, folks. 736 00:38:06,480 --> 00:38:09,279 Speaker 1: It's so good because the process of the other end 737 00:38:09,320 --> 00:38:10,920 Speaker 1: of the cost center just goes, oh my god, this 738 00:38:11,040 --> 00:38:14,960 Speaker 1: present knows what they're talking about, and Morgan's discharged form 739 00:38:15,040 --> 00:38:18,120 Speaker 1: and put me onto a retention Yeah, okay, sorry's interruption. 740 00:38:18,120 --> 00:38:22,280 Speaker 3: And then and then now here's that's okay. Here's the kicker. 741 00:38:23,120 --> 00:38:26,120 Speaker 3: Whether your LVR is loan to value ratio is ninety 742 00:38:26,160 --> 00:38:29,719 Speaker 3: five percent or five percent, there's very little chance of 743 00:38:29,800 --> 00:38:32,800 Speaker 3: retention ever picking that up. And I would bet that 744 00:38:32,920 --> 00:38:35,160 Speaker 3: their systems aren't even good enough to flag that it 745 00:38:35,400 --> 00:38:38,720 Speaker 3: has a government guarantee against it as well. So chances 746 00:38:38,760 --> 00:38:40,480 Speaker 3: are you don't need to worry about it. Chances are 747 00:38:40,520 --> 00:38:43,120 Speaker 3: you can make the call and you can shop around. 748 00:38:43,160 --> 00:38:45,040 Speaker 3: You can find the lowest interest rate. You can call 749 00:38:45,080 --> 00:38:47,200 Speaker 3: your existing bank back and say, hey, I'm going to 750 00:38:47,239 --> 00:38:49,759 Speaker 3: refinance to this institution. I'm just about to sign the 751 00:38:49,800 --> 00:38:54,000 Speaker 3: paperwork walking you do who knows, I don't know. I mean, 752 00:38:54,400 --> 00:38:57,360 Speaker 3: discounts are based on loan value ran and first time buyers. 753 00:38:57,400 --> 00:39:01,080 Speaker 3: Typically they have relatively low loan, which means they're not 754 00:39:01,120 --> 00:39:04,120 Speaker 3: going to get maybe the best discount, but I'm pretty 755 00:39:04,120 --> 00:39:07,000 Speaker 3: sure you'll be offered something and there'll be some interest 756 00:39:07,080 --> 00:39:09,640 Speaker 3: rate saving there. And it's a good it's a good 757 00:39:09,680 --> 00:39:11,799 Speaker 3: thing for people to understand that even if they feel 758 00:39:11,840 --> 00:39:15,000 Speaker 3: like they wouldn't even qualify to refinance. You know, so 759 00:39:15,080 --> 00:39:16,920 Speaker 3: they borrowed two or three years ago and they just 760 00:39:16,960 --> 00:39:19,680 Speaker 3: wouldn't requalify, maybe because the change the situation or anything 761 00:39:19,680 --> 00:39:21,239 Speaker 3: like that. Don't you don't need to worry about that. 762 00:39:21,760 --> 00:39:23,600 Speaker 3: They're not smart enough to pick up to ask the 763 00:39:23,719 --> 00:39:26,120 Speaker 3: question would we approve the loan or would another lender 764 00:39:26,200 --> 00:39:28,720 Speaker 3: approve the right loan? They just want to retain the business. 765 00:39:28,920 --> 00:39:32,239 Speaker 1: They want to retain to business. They don't want their 766 00:39:32,320 --> 00:39:36,279 Speaker 1: book to shrink. It's very simple. August discharge of for 767 00:39:36,560 --> 00:39:38,960 Speaker 1: is he put me through through attention. Don't forget those 768 00:39:39,080 --> 00:39:42,040 Speaker 1: nine folks. They are very very good and I can 769 00:39:42,080 --> 00:39:44,080 Speaker 1: tell you on perst time that their work they work 770 00:39:44,200 --> 00:39:47,399 Speaker 1: for me. Okay, terrific, Hey, thank you very much. Sure 771 00:39:47,520 --> 00:39:50,680 Speaker 1: that was great, very very interesting. Isn't that amazing how 772 00:39:50,760 --> 00:39:53,239 Speaker 1: the property market moves under our feet? And we think 773 00:39:53,280 --> 00:39:55,400 Speaker 1: we're on top of it and then something happens. I 774 00:39:55,480 --> 00:39:58,200 Speaker 1: think today's show really shows that that will issue about 775 00:39:58,200 --> 00:40:00,840 Speaker 1: the mortgage extensions for the if you are a homeowner, 776 00:40:00,920 --> 00:40:02,400 Speaker 1: it's there if you want to do it. If you're 777 00:40:02,440 --> 00:40:04,839 Speaker 1: going to do would have a plan. Keep in mind 778 00:40:04,920 --> 00:40:08,000 Speaker 1: that an investor that you're holding, costs are higher than 779 00:40:08,080 --> 00:40:09,920 Speaker 1: they were a few years ago. The note to ways 780 00:40:09,960 --> 00:40:12,520 Speaker 1: about that inflation has really pushed things up to keep 781 00:40:12,560 --> 00:40:14,600 Speaker 1: bigger his interest rates. That's the one that's going to 782 00:40:14,680 --> 00:40:17,200 Speaker 1: move for your capital growth and interest rates so important. 783 00:40:17,719 --> 00:40:21,800 Speaker 1: And also on that broader issue well re financing, you 784 00:40:21,960 --> 00:40:25,440 Speaker 1: actually have some have the banks have actually become more competitive. 785 00:40:25,480 --> 00:40:27,399 Speaker 1: Believe it or not, it is true that they will 786 00:40:27,560 --> 00:40:29,879 Speaker 1: give you better times if you know how to play 787 00:40:29,960 --> 00:40:32,279 Speaker 1: the game. And part of that is the language which 788 00:40:32,480 --> 00:40:33,440 Speaker 1: we discussed today. 789 00:40:33,680 --> 00:40:35,640 Speaker 2: Terrific Stewart, thanks very much. 790 00:40:35,880 --> 00:40:38,759 Speaker 3: Thanks James fan as always great to talk to you. 791 00:40:38,840 --> 00:40:41,320 Speaker 1: Will have you on again soon and do keep the 792 00:40:41,400 --> 00:40:44,319 Speaker 1: questions coming folks. The Money Puzzle at the Australian dot 793 00:40:44,400 --> 00:40:46,279 Speaker 1: com dot au Ok you soon