1 00:00:11,880 --> 00:00:15,000 Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm 2 00:00:15,080 --> 00:00:18,880 Speaker 1: James Kirkby, the web editor at The Australian. Welcome aboard everybody. 3 00:00:19,360 --> 00:00:22,160 Speaker 1: I think if you are a property investor, or, if 4 00:00:22,200 --> 00:00:25,240 Speaker 1: you aspire to be a property investor, or, even if 5 00:00:25,280 --> 00:00:30,159 Speaker 1: you are a veteran property investor, I expect one of 6 00:00:30,160 --> 00:00:33,840 Speaker 1: the most difficult things with property is because it's illiquid, right, 7 00:00:33,880 --> 00:00:36,760 Speaker 1: because you can't sell a bit of it. You can't 8 00:00:36,800 --> 00:00:40,519 Speaker 1: sell ten thousand dollars worth of property. Most people, most 9 00:00:40,560 --> 00:00:44,199 Speaker 1: of the time, really don't know how their property is 10 00:00:44,320 --> 00:00:47,440 Speaker 1: faring until the day they sell it. So they buy it, 11 00:00:47,479 --> 00:00:49,159 Speaker 1: they hold it for ten years, they sell it, and 12 00:00:49,159 --> 00:00:50,760 Speaker 1: then they look back and they go, okay, well that 13 00:00:50,800 --> 00:00:54,440 Speaker 1: worked out. It's so much paranum. But that really isn't 14 00:00:54,560 --> 00:00:58,040 Speaker 1: quite good enough. In recent times, I've met so many 15 00:00:58,080 --> 00:01:05,880 Speaker 1: people who have been disappointed with certain property investments, specifically 16 00:01:05,920 --> 00:01:10,039 Speaker 1: in the city apartments Indian major cities, which haven't really 17 00:01:10,080 --> 00:01:12,640 Speaker 1: worked out, or certainly haven't worked out as well as 18 00:01:12,640 --> 00:01:14,440 Speaker 1: they were told they were going to work out. Because 19 00:01:14,440 --> 00:01:16,520 Speaker 1: once upon a time everyone was told, hey, by property, 20 00:01:16,560 --> 00:01:19,120 Speaker 1: it doubles every ten years, we'll all be fine. That 21 00:01:19,319 --> 00:01:20,920 Speaker 1: is not the case. That hasn't been the case for 22 00:01:20,920 --> 00:01:24,240 Speaker 1: a while. My friends very good, but it's not that good. 23 00:01:24,319 --> 00:01:27,360 Speaker 1: And all property is local. So I'm going to talk 24 00:01:27,400 --> 00:01:31,160 Speaker 1: today about this issue and some other key issues that 25 00:01:31,240 --> 00:01:34,640 Speaker 1: are emerging. We've seen a spike in interest only lending. 26 00:01:34,680 --> 00:01:37,280 Speaker 1: What's that about now? I assume that the interest rate 27 00:01:37,520 --> 00:01:42,080 Speaker 1: cuts are on the long fingers, shall we say, because 28 00:01:42,520 --> 00:01:45,319 Speaker 1: don't you know, there's now economist saying I wouldn't be 29 00:01:45,360 --> 00:01:48,600 Speaker 1: waiting until early next year for interest rate because they 30 00:01:48,640 --> 00:01:51,320 Speaker 1: may never come with the election of Trump, by the way, 31 00:01:51,360 --> 00:01:53,600 Speaker 1: our Trump. Of course, we're going to deal with Trump 32 00:01:53,600 --> 00:01:56,120 Speaker 1: and what's happening in markets. We will do that on 33 00:01:56,280 --> 00:02:00,640 Speaker 1: this Thursday's show. Look out for that now to help 34 00:02:00,680 --> 00:02:03,440 Speaker 1: me to guide me through the issues I just waid 35 00:02:03,520 --> 00:02:06,240 Speaker 1: for you there on Property Investment is a regular on 36 00:02:06,320 --> 00:02:09,840 Speaker 1: the show and a regular contribution to the Australian. Stuart 37 00:02:10,080 --> 00:02:13,240 Speaker 1: Weams of the pro Solution Private Clients Group. How are you, Stuart. 38 00:02:14,280 --> 00:02:16,320 Speaker 2: I'm really well, James, and thanks for having me back 39 00:02:16,360 --> 00:02:16,800 Speaker 2: on again. 40 00:02:17,040 --> 00:02:21,200 Speaker 1: Sure the audience would fondly remember you standing for me 41 00:02:21,240 --> 00:02:23,800 Speaker 1: when I was on holidays, which now seemed like a 42 00:02:23,880 --> 00:02:28,960 Speaker 1: long time ago. Even though to come back in early October. 43 00:02:29,000 --> 00:02:30,440 Speaker 1: But you know, that's life. 44 00:02:30,480 --> 00:02:33,760 Speaker 2: I suppose I feel far more comfortable being the guests 45 00:02:33,840 --> 00:02:35,079 Speaker 2: than the host, that's for sure. 46 00:02:35,280 --> 00:02:37,480 Speaker 1: Do you. One of the things you often mentioned to me, 47 00:02:37,520 --> 00:02:40,360 Speaker 1: and I want you to just sort of explain it 48 00:02:40,400 --> 00:02:43,680 Speaker 1: and discuss it with our listeners today is internal rate 49 00:02:43,720 --> 00:02:46,639 Speaker 1: of return. So I mentioned it at the start. The 50 00:02:46,720 --> 00:02:50,880 Speaker 1: professional investors, they've got this running tap, if you like, 51 00:02:50,919 --> 00:02:54,080 Speaker 1: on their investments called internal rate of return, these BC 52 00:02:54,280 --> 00:02:57,600 Speaker 1: funds and private equity funds. Yes, that's for ten years, 53 00:02:57,639 --> 00:03:01,560 Speaker 1: but they don't sit there unfolded hoping it will all 54 00:03:01,600 --> 00:03:05,239 Speaker 1: work out. They keep a running tab on their investments 55 00:03:05,400 --> 00:03:07,880 Speaker 1: in trying to rate of a chain. Tell us how 56 00:03:07,960 --> 00:03:11,359 Speaker 1: an investor, potential investor can do that in property. 57 00:03:11,680 --> 00:03:15,160 Speaker 2: And it's really important to understand how an internal rate 58 00:03:15,240 --> 00:03:18,280 Speaker 2: of return behaves, James, and I'd say that particularly for 59 00:03:18,360 --> 00:03:21,760 Speaker 2: property investors, because property investors are borrowing money and then 60 00:03:21,800 --> 00:03:24,200 Speaker 2: their service in the loan and then the hopefully gets there. 61 00:03:24,360 --> 00:03:26,720 Speaker 1: First of all, what does it actually mean? What's the 62 00:03:26,760 --> 00:03:29,079 Speaker 1: difference between my return and my internal rate. 63 00:03:28,919 --> 00:03:31,840 Speaker 2: Of Internal rate of return is the return that you 64 00:03:31,919 --> 00:03:36,080 Speaker 2: receive back from the or taking into account the amount 65 00:03:36,160 --> 00:03:40,280 Speaker 2: you've contributed to an investment over many years. And if 66 00:03:40,320 --> 00:03:44,000 Speaker 2: I draw an analogy, say between say a forestry investment. 67 00:03:44,080 --> 00:03:46,080 Speaker 2: Let's say I want to grow some trees and then 68 00:03:46,280 --> 00:03:50,040 Speaker 2: harvest those trees. And let's pretend that when I first 69 00:03:50,040 --> 00:03:53,120 Speaker 2: buy the land and the trees to plant on that land, 70 00:03:53,520 --> 00:03:56,720 Speaker 2: I borrow the full cost of that acquisition that cost. 71 00:03:56,840 --> 00:03:59,040 Speaker 2: But of course those trees are going to take twenty 72 00:03:59,080 --> 00:04:01,080 Speaker 2: years to grow, and over that time, I'm going to 73 00:04:01,160 --> 00:04:03,040 Speaker 2: have to service the interest on the loan that I 74 00:04:03,160 --> 00:04:05,600 Speaker 2: used to buy the land and the trees. The tree 75 00:04:05,680 --> 00:04:07,640 Speaker 2: is going to be water and care and so forth, 76 00:04:07,640 --> 00:04:09,960 Speaker 2: and I'm going to have to contribute to that, and 77 00:04:10,000 --> 00:04:13,920 Speaker 2: that'll be my contribution. Because I've borrowed the initial cost, 78 00:04:14,000 --> 00:04:15,680 Speaker 2: I haven't put any of my own money in, but 79 00:04:15,840 --> 00:04:18,359 Speaker 2: I'm putting my own money in each year over the 80 00:04:18,360 --> 00:04:21,320 Speaker 2: next twenty years. In twenty years time, I'm going to 81 00:04:21,360 --> 00:04:24,240 Speaker 2: harvest those trees and hopefully then sell the timber l 82 00:04:24,320 --> 00:04:25,920 Speaker 2: whatever I might want to do, and that will be 83 00:04:25,960 --> 00:04:29,120 Speaker 2: my return. If I'm putting in ten thousand dollars a 84 00:04:29,200 --> 00:04:31,760 Speaker 2: year for the next twenty years, two hundred thousand dollars, 85 00:04:32,400 --> 00:04:34,640 Speaker 2: what return am I going to earn on that two 86 00:04:34,760 --> 00:04:37,760 Speaker 2: hundred thousand dollars that I've drip drip fed in over 87 00:04:37,760 --> 00:04:40,479 Speaker 2: the last twenty years, and that'll be the capital at 88 00:04:40,520 --> 00:04:43,000 Speaker 2: the end of the day. An internal rate of return 89 00:04:43,279 --> 00:04:47,760 Speaker 2: expresses that as a percentage and annualize compounding percentage. And 90 00:04:47,800 --> 00:04:52,080 Speaker 2: the reason that's important, James, is because if I'm investing 91 00:04:52,120 --> 00:04:55,080 Speaker 2: in forestry, or if I'm investing in an investment property 92 00:04:55,440 --> 00:04:58,279 Speaker 2: and it's costing me ten twenty thirty thousand dollars a year, 93 00:04:58,839 --> 00:05:01,080 Speaker 2: the question I need to be asking myself is what 94 00:05:01,160 --> 00:05:03,919 Speaker 2: return will I earn and is there something better that 95 00:05:03,920 --> 00:05:06,159 Speaker 2: I can do with that money. So if I'm getting 96 00:05:06,200 --> 00:05:10,400 Speaker 2: a fifteen percent after tax return from investing in property, fantastic, 97 00:05:10,440 --> 00:05:12,719 Speaker 2: that's probably better than super It's probably better than the 98 00:05:12,720 --> 00:05:17,080 Speaker 2: share market. But if I'm earning something substantially less than that, 99 00:05:17,360 --> 00:05:19,359 Speaker 2: then I might want to be thinking about have I 100 00:05:19,400 --> 00:05:22,400 Speaker 2: chosen the right property, Am I managing that property well? 101 00:05:22,520 --> 00:05:25,279 Speaker 2: Or should I in fact invest in a different asset class. 102 00:05:25,480 --> 00:05:28,880 Speaker 1: And speaking as I mentioned at the Stark, people who 103 00:05:28,880 --> 00:05:32,000 Speaker 1: are disappointed but property investments when they finally sell them, 104 00:05:32,000 --> 00:05:36,839 Speaker 1: maybe if they did this exercise earlier, they wouldn't get 105 00:05:36,880 --> 00:05:42,200 Speaker 1: such a disappointing outcome because it's similarly for the investor. 106 00:05:42,240 --> 00:05:44,680 Speaker 1: The investor says, oh, well, the yield you know everyone's 107 00:05:44,680 --> 00:05:46,760 Speaker 1: talking about rens goes to the roof. But as it 108 00:05:46,800 --> 00:05:49,239 Speaker 1: turns out, my yield there's only three or four percent, 109 00:05:50,760 --> 00:05:54,880 Speaker 1: and my costs my oldest six or seven percent, and 110 00:05:54,920 --> 00:05:58,120 Speaker 1: I have all the costs on top of that. So 111 00:05:58,160 --> 00:06:05,680 Speaker 1: I'm absolutely tendent upont the price of this apartment being 112 00:06:05,800 --> 00:06:09,160 Speaker 1: much higher when I sell it. So let's take that example. 113 00:06:09,200 --> 00:06:12,440 Speaker 1: Then here's the investor. It got this apartment. I got 114 00:06:12,440 --> 00:06:14,400 Speaker 1: to use an apartment because I think it's probably the 115 00:06:14,480 --> 00:06:18,480 Speaker 1: ideally proxy here got an apartment, cut it for three 116 00:06:18,560 --> 00:06:20,120 Speaker 1: or four years. The idea was to hold it for 117 00:06:20,200 --> 00:06:24,120 Speaker 1: ten years. How would they do the entire later to 118 00:06:24,200 --> 00:06:26,520 Speaker 1: turn exercise on that. 119 00:06:28,480 --> 00:06:31,240 Speaker 2: Look, you got to spreadsheet it and use the calculator. 120 00:06:31,400 --> 00:06:34,920 Speaker 2: I don't think people investors necessarily need to do that 121 00:06:34,960 --> 00:06:38,920 Speaker 2: calculation themselves. Their advisors probably should, but they don't necessarily 122 00:06:38,920 --> 00:06:41,200 Speaker 2: need it. They just need to understand the relationship. And 123 00:06:41,240 --> 00:06:44,680 Speaker 2: maybe I can give you some examples between say a 124 00:06:44,760 --> 00:06:48,840 Speaker 2: high income low growth property and a low income high 125 00:06:48,839 --> 00:06:52,599 Speaker 2: growth property, so the complete reverse. And let's assume that 126 00:06:52,640 --> 00:06:55,240 Speaker 2: we get a nine percent total return, it's really just 127 00:06:55,440 --> 00:06:58,560 Speaker 2: the makeup of income and growth that equals that nine percent. 128 00:06:59,080 --> 00:07:02,520 Speaker 2: And so the low income property is yielding one and 129 00:07:02,520 --> 00:07:05,400 Speaker 2: a half percent growths rental income terrible yield, that's not 130 00:07:05,560 --> 00:07:09,280 Speaker 2: very much, and seven and a half percent growth, and 131 00:07:09,320 --> 00:07:12,720 Speaker 2: the high income property six percent income three percent growth. 132 00:07:12,760 --> 00:07:15,120 Speaker 2: And let's compare those two because it's important to not 133 00:07:15,120 --> 00:07:18,000 Speaker 2: only look at the intern rate of return, but actually 134 00:07:18,040 --> 00:07:20,000 Speaker 2: the dollars at the end of the day as well. 135 00:07:20,680 --> 00:07:23,560 Speaker 2: So in both those scenarios, the internal rate of return 136 00:07:23,720 --> 00:07:26,400 Speaker 2: for the low income properties ten and a half percent 137 00:07:26,840 --> 00:07:28,520 Speaker 2: if I hold it for thirty years, sal it and 138 00:07:28,520 --> 00:07:32,760 Speaker 2: walk away. That's after tax. The high income property six 139 00:07:32,800 --> 00:07:35,840 Speaker 2: percent income, three percent growth. Intern rate of return is 140 00:07:36,360 --> 00:07:39,679 Speaker 2: eleven percent, so pretty similar, but just a little bit more. 141 00:07:39,960 --> 00:07:42,239 Speaker 2: And the reason for that is that high income property 142 00:07:42,240 --> 00:07:45,320 Speaker 2: it's producing a very high income, so my contribution is 143 00:07:45,360 --> 00:07:48,320 Speaker 2: a lot less. The property starts to in fact earn 144 00:07:48,600 --> 00:07:52,080 Speaker 2: a positive income after twelve or thirteen years, and if 145 00:07:52,080 --> 00:07:54,160 Speaker 2: I'm holding that property for thirty years, then most of 146 00:07:54,200 --> 00:07:56,760 Speaker 2: the time it's giving me income. And that's why the 147 00:07:56,760 --> 00:07:59,360 Speaker 2: intern rate of return is so great. But when we 148 00:07:59,440 --> 00:08:03,200 Speaker 2: look at the actual dollar value return in thirty years 149 00:08:03,200 --> 00:08:05,520 Speaker 2: time when we go and sell that property. The high 150 00:08:05,600 --> 00:08:08,320 Speaker 2: income property is going to put about half a million, 151 00:08:08,400 --> 00:08:10,640 Speaker 2: five hundred and twenty thousand dollars in my bank in 152 00:08:10,680 --> 00:08:13,680 Speaker 2: today's dollars. Okay, so that's not a bad injection. 153 00:08:13,720 --> 00:08:15,080 Speaker 1: What are you vesting these estimates on. 154 00:08:16,240 --> 00:08:20,280 Speaker 2: The income and growth so the total historical averages, yeah, 155 00:08:20,320 --> 00:08:24,239 Speaker 2: exactly right, yep, ok. Whereas the low income, high growth 156 00:08:24,240 --> 00:08:28,000 Speaker 2: property is going to put two point eight million dollars 157 00:08:28,000 --> 00:08:30,680 Speaker 2: in my bank account in thirty years in today's dollars. Now, 158 00:08:30,720 --> 00:08:34,040 Speaker 2: two point eight million dollars, James, would be enough for 159 00:08:34,120 --> 00:08:36,680 Speaker 2: anyone to run a perpetual portfolio. So that is that 160 00:08:36,760 --> 00:08:41,440 Speaker 2: they could have a very enjoyable and comfortable retirement. So 161 00:08:41,559 --> 00:08:45,000 Speaker 2: sometimes as property investors, we when we go and buy 162 00:08:45,040 --> 00:08:47,280 Speaker 2: a property, what we want to do is trying to 163 00:08:47,320 --> 00:08:51,600 Speaker 2: balance between income and growth. But the reality is that's 164 00:08:51,640 --> 00:08:55,920 Speaker 2: the wrong approach. You're actually leaving you're actually foregoing too 165 00:08:55,960 --> 00:08:59,040 Speaker 2: much in terms of return by doing that. What you 166 00:08:59,040 --> 00:09:02,600 Speaker 2: should do, what property investors should do, is do property 167 00:09:02,600 --> 00:09:06,319 Speaker 2: invest in two steps. At the acquisition stage, obsess about 168 00:09:06,360 --> 00:09:09,199 Speaker 2: capital growth because that's the time when that's going to 169 00:09:09,240 --> 00:09:11,480 Speaker 2: be locked in. It's going to be what type of property, 170 00:09:11,920 --> 00:09:14,600 Speaker 2: what sort of land value component, where is that land? 171 00:09:14,640 --> 00:09:17,800 Speaker 2: How much land do you have? All those things are factual, 172 00:09:17,840 --> 00:09:19,560 Speaker 2: they'll be locked in when you buy it. There's not 173 00:09:19,640 --> 00:09:22,760 Speaker 2: much you can do to change the outcomes after you've 174 00:09:22,800 --> 00:09:26,720 Speaker 2: purchased it. But after you've purchased your property, forget about 175 00:09:26,760 --> 00:09:30,120 Speaker 2: growth because you've already locked that in. Start obsessing about 176 00:09:30,120 --> 00:09:34,240 Speaker 2: holding costs. Can we make cosmetic improvements to the property 177 00:09:34,240 --> 00:09:36,680 Speaker 2: to increase its rental yield? How do I minimize my 178 00:09:36,760 --> 00:09:40,960 Speaker 2: interest costs? Am I maximizing my tax benefits my negative gearing? 179 00:09:41,480 --> 00:09:45,720 Speaker 2: Because the outcome is I bought this property, I hope 180 00:09:45,720 --> 00:09:48,439 Speaker 2: that I'm going to achieve a six or seven percent 181 00:09:48,679 --> 00:09:51,720 Speaker 2: average compounding capital growth rate over a very long period 182 00:09:51,760 --> 00:09:53,079 Speaker 2: of time. You're not going to get that every year, 183 00:09:53,080 --> 00:09:57,240 Speaker 2: but over multi decade periods. And so now my goal 184 00:09:57,440 --> 00:10:00,240 Speaker 2: is to limit the amount I have to actually best 185 00:10:00,320 --> 00:10:03,440 Speaker 2: in this asset, which is you're holding costs, and that's 186 00:10:03,480 --> 00:10:06,120 Speaker 2: where the focus should be. The mistake of a lot 187 00:10:06,120 --> 00:10:09,560 Speaker 2: of people make is that they try to even out 188 00:10:09,600 --> 00:10:12,480 Speaker 2: those two elements when they buy the property, both yield 189 00:10:12,679 --> 00:10:16,080 Speaker 2: and growth, and the result of that is that they 190 00:10:16,240 --> 00:10:20,000 Speaker 2: end up either really compromising in terms of performance and 191 00:10:20,120 --> 00:10:21,760 Speaker 2: outcome financial outcomes. 192 00:10:21,840 --> 00:10:24,560 Speaker 1: Let's take a break. When we come back, we're going 193 00:10:24,640 --> 00:10:27,640 Speaker 1: to tell the listeners the nature of these properties and 194 00:10:27,720 --> 00:10:42,400 Speaker 1: where they might be. Back in a moment. Hello, Welcome 195 00:10:42,400 --> 00:10:45,680 Speaker 1: back to the Australians Money Puzzle podcast. I'm James Cabbin. 196 00:10:45,760 --> 00:10:50,160 Speaker 1: I'm talking to Stewart Wims of the Full Solution Favorite 197 00:10:50,240 --> 00:10:52,880 Speaker 1: Dim script. Now, if you recall first part of the show, 198 00:10:52,920 --> 00:10:58,000 Speaker 1: we talked about this very important issue for the investor 199 00:10:59,400 --> 00:11:02,959 Speaker 1: and the the attraction if you like, of strong income 200 00:11:04,600 --> 00:11:09,280 Speaker 1: yield on your property, which translates very simply as high rents. Okay, 201 00:11:09,320 --> 00:11:13,280 Speaker 1: that the rent that the rents are high as a proportion, 202 00:11:13,440 --> 00:11:15,800 Speaker 1: that is, of the price you'll property and you have 203 00:11:15,840 --> 00:11:21,160 Speaker 1: a strong renting yeed. Traditionally, the place where you found 204 00:11:21,520 --> 00:11:25,280 Speaker 1: high rental yields was in the regions and basically the 205 00:11:25,280 --> 00:11:27,160 Speaker 1: deal was in the center of the city you had 206 00:11:27,240 --> 00:11:32,760 Speaker 1: low rents, that is, low rental yields rental yields, and 207 00:11:32,880 --> 00:11:35,000 Speaker 1: in the bushelly in the regional towns and at the 208 00:11:35,120 --> 00:11:38,120 Speaker 1: very fringes perhaps of the cities you had higher yields 209 00:11:38,160 --> 00:11:41,839 Speaker 1: and you couldn't expect such price growth. That was the deal? 210 00:11:43,000 --> 00:11:45,880 Speaker 1: Is that the deal still, Stuart? Where do we get 211 00:11:45,880 --> 00:11:47,480 Speaker 1: these high yield properties? Yeah? 212 00:11:47,720 --> 00:11:52,199 Speaker 2: But COVID skewed the data a little bit, James. It's 213 00:11:52,240 --> 00:11:54,480 Speaker 2: good the data around property a little bit, and I 214 00:11:54,520 --> 00:11:58,800 Speaker 2: think what it's doing is inviting investors to make mistakes. 215 00:11:59,160 --> 00:12:01,360 Speaker 2: And the mistake is that what if I'm going to 216 00:12:01,400 --> 00:12:03,080 Speaker 2: go and buy a property, I need to think about, 217 00:12:03,240 --> 00:12:06,559 Speaker 2: on average over a very long period of time. I'm 218 00:12:06,600 --> 00:12:09,920 Speaker 2: talking hopefully multi decades, what will my average returns be? 219 00:12:10,720 --> 00:12:14,280 Speaker 2: And you can't always use most recent returns as an 220 00:12:14,320 --> 00:12:16,800 Speaker 2: indicator for that. So I've seen a lot of buyers 221 00:12:16,880 --> 00:12:20,600 Speaker 2: agents online saying, look, we're buying this property. Not only 222 00:12:20,720 --> 00:12:23,280 Speaker 2: is it yielding, giving us a good yield four or 223 00:12:23,320 --> 00:12:25,680 Speaker 2: five percent, whatever it might be, but look at the 224 00:12:25,679 --> 00:12:29,120 Speaker 2: growth over the last five years, and that's fantastic. When 225 00:12:29,120 --> 00:12:30,960 Speaker 2: you add the yield and the growth, you might end 226 00:12:31,000 --> 00:12:32,840 Speaker 2: up with a total return of twelve percent. But do 227 00:12:32,880 --> 00:12:34,679 Speaker 2: you really think you're going to get twelve percent from 228 00:12:34,720 --> 00:12:37,720 Speaker 2: that asset over a thirty year period, because that's a 229 00:12:37,800 --> 00:12:41,960 Speaker 2: pretty ambitious assumption. I think the answer is it's unlikely. 230 00:12:42,800 --> 00:12:45,880 Speaker 2: And typically you're either going to you're going to need 231 00:12:45,920 --> 00:12:48,160 Speaker 2: to make a compromise. Are you going to compromise on 232 00:12:48,200 --> 00:12:51,800 Speaker 2: income or you compromise on growth. It's one or the other. 233 00:12:52,320 --> 00:12:54,240 Speaker 2: And ironically, if you look at the internal rate of 234 00:12:54,240 --> 00:12:58,400 Speaker 2: return calculations, even if you can find a balance between both, 235 00:12:58,640 --> 00:13:01,480 Speaker 2: that's an inferior outcome on the internal rate of return 236 00:13:01,559 --> 00:13:05,360 Speaker 2: perspective because you're actually not getting one or the other. Really, So. 237 00:13:07,160 --> 00:13:09,280 Speaker 1: Are you saying you should go boots and all into 238 00:13:09,360 --> 00:13:12,920 Speaker 1: one or the other. That you should seek knowingly as 239 00:13:13,000 --> 00:13:15,480 Speaker 1: the extent that you can ever know, But the extent 240 00:13:15,559 --> 00:13:18,480 Speaker 1: that you can know and you do your homework, that 241 00:13:18,600 --> 00:13:20,560 Speaker 1: you should know what you're buying, that this is a 242 00:13:20,559 --> 00:13:22,920 Speaker 1: capital growth property and I know the yielder is low, 243 00:13:23,280 --> 00:13:25,440 Speaker 1: or this is a yield property and I know the 244 00:13:25,440 --> 00:13:27,959 Speaker 1: capital growth will be modest, But look at this yield 245 00:13:28,080 --> 00:13:30,520 Speaker 1: in my dollars today. This is really working out for me. 246 00:13:31,760 --> 00:13:33,920 Speaker 2: If you can achieve an average return of seven point 247 00:13:33,960 --> 00:13:37,040 Speaker 2: two percent over thirty years, your property will be sick 248 00:13:37,120 --> 00:13:39,920 Speaker 2: worth six times than what it is today. There's no 249 00:13:40,360 --> 00:13:45,000 Speaker 2: easier way to make money than compounding capital growth. It's 250 00:13:45,160 --> 00:13:48,960 Speaker 2: always going to beat the income yield, almost irrespective of 251 00:13:49,000 --> 00:13:53,160 Speaker 2: what that asset costs you. Within reality, the outcome is 252 00:13:53,160 --> 00:13:55,000 Speaker 2: going to be great. The outcome is going to be 253 00:13:55,000 --> 00:13:56,120 Speaker 2: a comfortable retirement. 254 00:13:56,280 --> 00:13:58,359 Speaker 1: Where are these properties geographically? 255 00:13:58,520 --> 00:14:01,480 Speaker 2: If you want to take an approach where you've got 256 00:14:01,520 --> 00:14:04,839 Speaker 2: the highest probability of earning seven point two percent or more, 257 00:14:05,280 --> 00:14:08,439 Speaker 2: then you really need to think about scarcity and scarcity 258 00:14:08,440 --> 00:14:10,720 Speaker 2: and demand, and you want to be in an area 259 00:14:10,800 --> 00:14:15,920 Speaker 2: where demand. The potential buyers their capacity isn't directly linked 260 00:14:15,960 --> 00:14:19,200 Speaker 2: to their household income. They've got other sources of wealth 261 00:14:19,800 --> 00:14:23,400 Speaker 2: and then supply in terms of scarcity in terms of 262 00:14:23,440 --> 00:14:26,480 Speaker 2: supply as well. So this is really blue chip. Blue 263 00:14:26,520 --> 00:14:29,880 Speaker 2: chip suburbs are going to have the fundamentals that are 264 00:14:29,880 --> 00:14:32,000 Speaker 2: going to drive higher and higher growth, And we can 265 00:14:32,040 --> 00:14:34,840 Speaker 2: talk about density and all those sorts of things. All 266 00:14:34,880 --> 00:14:38,160 Speaker 2: these things add to the scarcity of these sorts of assets. 267 00:14:38,960 --> 00:14:44,440 Speaker 1: So it's not necessarily regional non metropolitan property residential. 268 00:14:45,320 --> 00:14:47,520 Speaker 2: Well, if you invest in a regional location, you've got 269 00:14:47,520 --> 00:14:50,280 Speaker 2: to ask yourself what haircut am I going to take 270 00:14:50,280 --> 00:14:53,760 Speaker 2: on capital growth and what's the opportunity cost of that. Now, 271 00:14:53,760 --> 00:14:56,680 Speaker 2: it's quite possible to buy in a regional location that 272 00:14:57,600 --> 00:15:00,960 Speaker 2: is well established but by a really good area in 273 00:15:01,000 --> 00:15:04,360 Speaker 2: that regional location, in that regional town, buy in the 274 00:15:04,400 --> 00:15:07,960 Speaker 2: best street possibly or something that is very sought after. 275 00:15:09,040 --> 00:15:12,920 Speaker 2: So you can still apply this methodology to regional areas 276 00:15:12,960 --> 00:15:15,080 Speaker 2: as well. But essentially what you're trying to do is 277 00:15:15,320 --> 00:15:17,960 Speaker 2: not by the diamond, but by the pink diamond, by 278 00:15:17,960 --> 00:15:21,000 Speaker 2: the asset in the street that's always going to be 279 00:15:21,040 --> 00:15:24,400 Speaker 2: in demand, and that way, the people that can afford 280 00:15:24,480 --> 00:15:26,680 Speaker 2: to buy into that area will continue to push those 281 00:15:26,720 --> 00:15:28,160 Speaker 2: prices forward. 282 00:15:28,360 --> 00:15:32,120 Speaker 1: Terrific. Okay, Now, one other things I wanted to talk 283 00:15:32,160 --> 00:15:35,080 Speaker 1: to you about since I've got you this week is 284 00:15:35,880 --> 00:15:37,720 Speaker 1: you and I both noticed we didn't get a chance 285 00:15:37,720 --> 00:15:40,120 Speaker 1: to talk about this, but in covering the bank results, 286 00:15:40,160 --> 00:15:44,479 Speaker 1: I noticed that the interest only loans as a percentage 287 00:15:44,520 --> 00:15:47,520 Speaker 1: of the book, if you like, in National Australia Bank, 288 00:15:47,520 --> 00:15:49,760 Speaker 1: which is just happened to be the bank result I 289 00:15:49,800 --> 00:15:54,840 Speaker 1: was looking at, had popped higher. And it struck me that, 290 00:15:54,960 --> 00:16:00,080 Speaker 1: of course, when investors are very confident operating markets, they 291 00:16:01,200 --> 00:16:04,920 Speaker 1: will invest, and they will invest interest only, and more importantly, 292 00:16:05,000 --> 00:16:08,600 Speaker 1: banks will handle over interest only loans. They've been slow 293 00:16:08,680 --> 00:16:11,480 Speaker 1: to do it for some years, the clearly starting to 294 00:16:11,520 --> 00:16:13,880 Speaker 1: do it again. What do you make of that. 295 00:16:15,800 --> 00:16:19,680 Speaker 2: I think it's probably more borrower led than a reflection 296 00:16:19,840 --> 00:16:23,440 Speaker 2: of credit policy. James. A couple of years ago, obviously, 297 00:16:23,600 --> 00:16:26,080 Speaker 2: interest rates are really low, and at that time, a 298 00:16:26,120 --> 00:16:30,080 Speaker 2: lot of investors, certainly in our experience and our business, 299 00:16:30,160 --> 00:16:32,200 Speaker 2: a lot of investors said, given interest rates, I can 300 00:16:32,280 --> 00:16:35,320 Speaker 2: fix for two years at two percent. Sorry, interest rates 301 00:16:35,320 --> 00:16:37,920 Speaker 2: are so low, I may as well start repaying some principle, 302 00:16:38,160 --> 00:16:40,680 Speaker 2: And so a lot of investors went over to principal 303 00:16:40,720 --> 00:16:45,280 Speaker 2: interest repayments on those low fixed rates. Obviously, the fixed 304 00:16:45,360 --> 00:16:48,720 Speaker 2: rates of most of them have matured expired, and now 305 00:16:48,760 --> 00:16:53,240 Speaker 2: they're realizing that because interest rates have significantly increased, of 306 00:16:53,280 --> 00:16:56,480 Speaker 2: course the dollar value repayment is much higher, and so 307 00:16:56,560 --> 00:16:59,640 Speaker 2: a lot more clients are speaking to us about going 308 00:16:59,640 --> 00:17:04,040 Speaker 2: back to interest only repayments now that interest rates at 309 00:17:04,080 --> 00:17:09,119 Speaker 2: a much higher setting. I think credit policy is loosened slightly, 310 00:17:09,280 --> 00:17:12,080 Speaker 2: but I don't think that's the reason for the increase 311 00:17:12,119 --> 00:17:13,280 Speaker 2: in interest only lending. 312 00:17:14,160 --> 00:17:18,040 Speaker 1: And i'll interest only do you have a set position 313 00:17:18,119 --> 00:17:20,960 Speaker 1: on it, or is it case by case basis. 314 00:17:22,480 --> 00:17:25,320 Speaker 2: I think if you're in acquisition stage, so you're young, 315 00:17:25,680 --> 00:17:29,680 Speaker 2: many years away from retirement, then your goal probably is 316 00:17:29,720 --> 00:17:33,040 Speaker 2: to acquire as many growth assets as possible, and having 317 00:17:33,119 --> 00:17:36,800 Speaker 2: interest only setting will probably help you do that. If 318 00:17:36,840 --> 00:17:40,160 Speaker 2: you've already established a good asset base and it's really 319 00:17:40,160 --> 00:17:45,879 Speaker 2: about consolidating, then in that situation sometimes principal interests makes sense. Personally, 320 00:17:45,960 --> 00:17:48,600 Speaker 2: I've always been interested, only more recently I've had a 321 00:17:48,640 --> 00:17:51,560 Speaker 2: few loans flick over to principal interests. I'm pretty comfortable 322 00:17:51,560 --> 00:17:54,280 Speaker 2: with that. It helps me build a bit of equity 323 00:17:54,320 --> 00:17:57,040 Speaker 2: in the property as well. So it just really depends 324 00:17:57,119 --> 00:17:59,320 Speaker 2: as your stage of life, I think is the key one. 325 00:17:59,320 --> 00:18:02,600 Speaker 1: Well, and do remember, folks, the interest only assuming a 326 00:18:02,640 --> 00:18:05,040 Speaker 1: bank will give you one. The issue is that your 327 00:18:05,080 --> 00:18:08,200 Speaker 1: loan doesn't go down, so you're paying that interest every 328 00:18:08,280 --> 00:18:10,720 Speaker 1: year the years pass, and your loan on the fourth 329 00:18:10,800 --> 00:18:13,119 Speaker 1: years as big as the loan as big as on 330 00:18:13,200 --> 00:18:15,879 Speaker 1: the first year. Why do you inflation? Of course, a 331 00:18:15,920 --> 00:18:18,920 Speaker 1: little bit of inflation would help help that situation, Stuart, 332 00:18:19,359 --> 00:18:22,440 Speaker 1: it's not a problem when you are in that situation, 333 00:18:22,640 --> 00:18:25,840 Speaker 1: particularly if you fixed and you can't fix on interest 334 00:18:25,920 --> 00:18:28,439 Speaker 1: only loans as well. This probably isn't the climate to 335 00:18:28,480 --> 00:18:32,000 Speaker 1: do it, but just making that point that you can. Okay, 336 00:18:32,080 --> 00:18:41,240 Speaker 1: let's have a break and we do some questions. Hello, 337 00:18:41,320 --> 00:18:44,400 Speaker 1: Welcome back to The Australian's Money Puzzled podcast, and I'm 338 00:18:44,480 --> 00:18:48,480 Speaker 1: James Kirby talking to Stuart Weems. Our first question this 339 00:18:48,520 --> 00:18:51,560 Speaker 1: week is from Paul. He says, I believe most people 340 00:18:52,040 --> 00:18:55,119 Speaker 1: are happy for our taxes to be spent on helping 341 00:18:55,160 --> 00:18:59,240 Speaker 1: the true battlers into social housing. We've all heard, however, 342 00:18:59,560 --> 00:19:03,840 Speaker 1: about the occasional social housing occupants who trash their property. 343 00:19:05,240 --> 00:19:07,919 Speaker 1: What guarantees will governments give to the voting public that 344 00:19:08,000 --> 00:19:13,320 Speaker 1: such problems will be quickly and effectively handled. Okay, that's interesting, Paul. 345 00:19:14,160 --> 00:19:16,680 Speaker 1: One of the things I think I think many people 346 00:19:16,720 --> 00:19:20,879 Speaker 1: would would would be on broadly in principle. Agree with 347 00:19:20,920 --> 00:19:24,960 Speaker 1: you there that social housing is needed, it has a place, 348 00:19:25,200 --> 00:19:29,840 Speaker 1: and it's important. And not only that, but not much 349 00:19:29,880 --> 00:19:32,280 Speaker 1: housing was built for many years in many of the 350 00:19:32,359 --> 00:19:36,360 Speaker 1: key cities under both labor and liberal administrations, so they're 351 00:19:36,400 --> 00:19:40,080 Speaker 1: catching up now. It's also true the statistics show that 352 00:19:40,080 --> 00:19:44,400 Speaker 1: that their maintenance levels are higher, and they have that issue. 353 00:19:44,480 --> 00:19:46,199 Speaker 1: I think that I don't think you can change that 354 00:19:46,280 --> 00:19:48,280 Speaker 1: issue in any substantial where you probably just have to 355 00:19:49,240 --> 00:19:51,399 Speaker 1: take it into your numbers and allow that though I 356 00:19:51,440 --> 00:19:54,240 Speaker 1: think that's all they can do. They can they can 357 00:19:54,760 --> 00:19:58,239 Speaker 1: note then numbers are higher and issues such as as 358 00:19:58,320 --> 00:20:01,200 Speaker 1: damage to property is higher at that level of the market. 359 00:20:01,240 --> 00:20:02,760 Speaker 1: To take it as a truth if you like of 360 00:20:02,800 --> 00:20:05,560 Speaker 1: that market and you work as best you can around it. 361 00:20:06,440 --> 00:20:08,280 Speaker 1: And obviously, if I'm an investment point of view, if 362 00:20:08,680 --> 00:20:11,080 Speaker 1: it's the case that such housing has been put before 363 00:20:11,160 --> 00:20:13,720 Speaker 1: private investors, they would allow for that. I think to 364 00:20:13,800 --> 00:20:15,520 Speaker 1: add to that, Stuart. 365 00:20:15,840 --> 00:20:19,440 Speaker 2: My only observation is that state governments are very keen 366 00:20:19,600 --> 00:20:23,440 Speaker 2: to ensure that private landlords have maintained very high standards 367 00:20:23,440 --> 00:20:27,000 Speaker 2: with their rental properties. But it doesn't seem like states 368 00:20:27,040 --> 00:20:30,320 Speaker 2: do the same with public housing. And I think perhaps 369 00:20:30,320 --> 00:20:32,480 Speaker 2: the rules should apply to the government just as much 370 00:20:32,520 --> 00:20:35,160 Speaker 2: as they do private investors. Not really related to the question, 371 00:20:35,240 --> 00:20:37,280 Speaker 2: but I thought i'd like to mention anyway. 372 00:20:37,680 --> 00:20:40,840 Speaker 1: You totally chocked down in Yeah, okay, all right, and 373 00:20:41,680 --> 00:20:43,600 Speaker 1: can you see this? Would you actually read the first 374 00:20:43,600 --> 00:20:44,240 Speaker 1: one from Dan? 375 00:20:44,560 --> 00:20:47,760 Speaker 2: From Dan? Yeah, definitely. Dan Wright's one of my relatives 376 00:20:47,840 --> 00:20:50,480 Speaker 2: is sixty five years old, no debt, lives the full 377 00:20:50,560 --> 00:20:53,560 Speaker 2: life of travel, but does not own their own home, 378 00:20:54,119 --> 00:20:56,240 Speaker 2: and they have a super balance of one point sixty 379 00:20:56,280 --> 00:20:59,639 Speaker 2: five million dollars. What should they consider, for example, should 380 00:20:59,640 --> 00:21:02,560 Speaker 2: they buy a small property? What do you think, James. 381 00:21:03,840 --> 00:21:06,160 Speaker 1: Well, I would say, if it's the case that they 382 00:21:06,160 --> 00:21:09,399 Speaker 1: have no property whatsoever, this is never advice then, and 383 00:21:09,520 --> 00:21:12,000 Speaker 1: this is information only. But it is the case that 384 00:21:12,040 --> 00:21:14,840 Speaker 1: there is a sixty five year old couple in Australia 385 00:21:15,000 --> 00:21:19,120 Speaker 1: and they have super of what was the number, one 386 00:21:19,119 --> 00:21:21,360 Speaker 1: point sixty five million between them, and they don't own 387 00:21:21,400 --> 00:21:25,720 Speaker 1: their own home. They are asking they are walking into 388 00:21:25,760 --> 00:21:29,439 Speaker 1: the most difficult situation because the entire tax system is 389 00:21:29,480 --> 00:21:33,200 Speaker 1: loaded in favor of the homeowner, and pension access too 390 00:21:33,600 --> 00:21:35,840 Speaker 1: is loaded in favor of the homeowner. And if you 391 00:21:35,880 --> 00:21:37,879 Speaker 1: had one, I'd be very crude about this, But if 392 00:21:37,880 --> 00:21:39,480 Speaker 1: you have one point six million and you spent a 393 00:21:39,520 --> 00:21:42,800 Speaker 1: million on a home, then your access to the pension 394 00:21:42,800 --> 00:21:46,000 Speaker 1: would open up because the home isn't included. But all 395 00:21:46,040 --> 00:21:48,560 Speaker 1: those assets, the one point sixty five that you have 396 00:21:48,600 --> 00:21:52,280 Speaker 1: outlined that your couple own there non property, they are 397 00:21:52,600 --> 00:21:55,159 Speaker 1: every dollar is going to be included in pension access, 398 00:21:55,160 --> 00:21:57,200 Speaker 1: and I could say that you're probably wiped out in 399 00:21:57,280 --> 00:22:01,199 Speaker 1: terms of all the benefits in there. So that's what 400 00:22:01,440 --> 00:22:04,879 Speaker 1: stands out there. Should they buy a home, If they 401 00:22:04,880 --> 00:22:07,520 Speaker 1: don't have a home, they should buy one, I would think. So, 402 00:22:07,720 --> 00:22:09,720 Speaker 1: I mean, I don't want to give individual advice, but 403 00:22:10,320 --> 00:22:14,440 Speaker 1: I would say, in the scenario outlined for any Australian couple, 404 00:22:14,600 --> 00:22:20,240 Speaker 1: then you are walking into higher tax or at least 405 00:22:20,800 --> 00:22:23,840 Speaker 1: less beneficial arrangements as you're older, if you don't own 406 00:22:23,840 --> 00:22:26,120 Speaker 1: your home. But what do you think of that? Sure? 407 00:22:28,119 --> 00:22:30,720 Speaker 2: I was thinking along the same lines James, like, if 408 00:22:30,720 --> 00:22:34,600 Speaker 2: they put a lot of that wealth into the family home, 409 00:22:35,240 --> 00:22:37,920 Speaker 2: they would certainly open themselves up to a part pension 410 00:22:38,160 --> 00:22:40,160 Speaker 2: that have to spend maybe one point three to get 411 00:22:40,160 --> 00:22:42,600 Speaker 2: a full pension. I'm not sure I would do that. 412 00:22:43,560 --> 00:22:45,520 Speaker 2: And then you would say, hang on, you're pulling money 413 00:22:45,520 --> 00:22:48,720 Speaker 2: out of an environment that's tax free. Home is tax free. 414 00:22:48,760 --> 00:22:50,359 Speaker 2: So the only thing I would add to it is 415 00:22:50,880 --> 00:22:55,200 Speaker 2: if I was in their situation, my concern would be longevity, 416 00:22:55,280 --> 00:22:58,000 Speaker 2: risk and security. Having your own home gives you a 417 00:22:58,000 --> 00:23:01,879 Speaker 2: lot of security. So I would buy a property maybe 418 00:23:01,920 --> 00:23:05,720 Speaker 2: somewhere around that million to one point two, and I 419 00:23:05,760 --> 00:23:08,160 Speaker 2: would buy it with an investment lens. I would buy 420 00:23:08,200 --> 00:23:10,679 Speaker 2: an asset that is going to give me good capital 421 00:23:10,760 --> 00:23:13,399 Speaker 2: growth that I also would like to occupy for the 422 00:23:13,440 --> 00:23:16,199 Speaker 2: next ten to twenty years. But if you apply it 423 00:23:16,200 --> 00:23:18,560 Speaker 2: with an investment lens. At least your money is going 424 00:23:18,560 --> 00:23:21,280 Speaker 2: to be working hard for you and the capital any 425 00:23:21,280 --> 00:23:23,440 Speaker 2: capital growth is not going to be taxed. Of course, 426 00:23:23,480 --> 00:23:26,040 Speaker 2: we would be tax free. So that's a pretty good outcome, 427 00:23:26,240 --> 00:23:29,480 Speaker 2: probably just as good as super almost if you buy well. 428 00:23:29,840 --> 00:23:33,280 Speaker 1: And if it looks like your numbers on your income, 429 00:23:33,320 --> 00:23:37,919 Speaker 1: which will fall of course, having spent to buy a 430 00:23:38,000 --> 00:23:42,520 Speaker 1: residential property, a home, that is, as Stewart pointed out, 431 00:23:42,720 --> 00:23:45,280 Speaker 1: you must holistic view allow for the fact that your 432 00:23:45,320 --> 00:23:49,440 Speaker 1: access to the pension suddenly opens up because the home 433 00:23:49,560 --> 00:23:52,280 Speaker 1: is not included. That is one of the great big 434 00:23:52,560 --> 00:23:57,720 Speaker 1: tax shelters in our society, and someone should be aware 435 00:23:57,760 --> 00:24:00,320 Speaker 1: of them and be very I would be very still 436 00:24:00,359 --> 00:24:03,280 Speaker 1: to turn my back on them that way. Okay, Now, 437 00:24:03,320 --> 00:24:08,600 Speaker 1: Billy seeks clarification on the land tax scenario. If you 438 00:24:08,680 --> 00:24:12,879 Speaker 1: choose to vacate your primary place of residence over summer 439 00:24:13,680 --> 00:24:17,080 Speaker 1: and later for another week over easter, and you choose 440 00:24:17,119 --> 00:24:21,040 Speaker 1: to earn an income off Airbnb during those periods, does 441 00:24:21,119 --> 00:24:25,280 Speaker 1: this make you eligible to pay land tax? I don't 442 00:24:25,359 --> 00:24:30,520 Speaker 1: know the answer, but INSTINCTASMI yes, what's the story? Shirt? 443 00:24:32,560 --> 00:24:36,320 Speaker 2: I don't want to add to the negative Victorian economy sentiment. 444 00:24:36,480 --> 00:24:39,920 Speaker 2: But I'm afraid my answer will I only checked out 445 00:24:39,920 --> 00:24:41,720 Speaker 2: in New South Wales and Queensland. Of course, we don't 446 00:24:41,720 --> 00:24:44,159 Speaker 2: know where Billy's property is located, and there was no 447 00:24:44,240 --> 00:24:47,040 Speaker 2: issues there. You could earn a little bit of income 448 00:24:47,040 --> 00:24:48,520 Speaker 2: as long as you didn't rent the property out for 449 00:24:48,520 --> 00:24:51,000 Speaker 2: more than six months. But you'd have to look at 450 00:24:51,040 --> 00:24:55,480 Speaker 2: your individual state legislation to really check this. Unfortunately, in 451 00:24:55,520 --> 00:24:59,240 Speaker 2: twenty one, Victoria changed the law. You can't earn one 452 00:24:59,359 --> 00:25:03,320 Speaker 2: dollar from your property now. It used to be similar 453 00:25:03,320 --> 00:25:05,080 Speaker 2: to other states. If you're rented out for more than 454 00:25:05,119 --> 00:25:07,680 Speaker 2: six months, it's no longer your primary place of residence 455 00:25:08,040 --> 00:25:11,119 Speaker 2: from a land tax perspective. In Victoria they change it 456 00:25:11,160 --> 00:25:13,280 Speaker 2: in twenty one. So even if you rented out for 457 00:25:13,320 --> 00:25:17,520 Speaker 2: two weeks, bang, you've lost your primary place of residence 458 00:25:17,560 --> 00:25:20,200 Speaker 2: exemption and you'll get a land tax bill and it 459 00:25:20,280 --> 00:25:24,080 Speaker 2: relates to the previous tax year. Right, So the land 460 00:25:24,119 --> 00:25:27,560 Speaker 2: tax years a calendar years, which means if I rent 461 00:25:27,560 --> 00:25:30,760 Speaker 2: out my property my home this year, next year, I'll 462 00:25:30,760 --> 00:25:34,200 Speaker 2: get a land tax bill. Pretty harsh, I. 463 00:25:34,160 --> 00:25:40,280 Speaker 1: Reckon, Yes, yes, so yes, pretty harsh. And of course 464 00:25:40,320 --> 00:25:42,840 Speaker 1: there's this albatarge between the states. Now, where one state 465 00:25:43,000 --> 00:25:46,639 Speaker 1: is clearly the least attractive to invest in fiper image 466 00:25:46,640 --> 00:25:49,880 Speaker 1: is Victoria. And part of the price of that, of course, 467 00:25:49,960 --> 00:25:53,600 Speaker 1: is that in a federation where people can easily choose 468 00:25:53,600 --> 00:25:56,680 Speaker 1: between states, they do. I just I might actually take 469 00:25:56,680 --> 00:25:58,879 Speaker 1: a second on that shore. It with you. One are 470 00:25:58,920 --> 00:26:03,159 Speaker 1: the things we have mentioned this before about Victoria and 471 00:26:03,200 --> 00:26:07,000 Speaker 1: the difficulty being an investor there. And I saw where Moody's, 472 00:26:07,200 --> 00:26:11,359 Speaker 1: the rating agency, had run some numbers on mortgage delinquencies 473 00:26:12,280 --> 00:26:15,040 Speaker 1: and it turns out that Victoria is the highest. Now 474 00:26:15,040 --> 00:26:18,919 Speaker 1: so we have the weakest property growth in Victoria, we 475 00:26:18,960 --> 00:26:22,320 Speaker 1: also have the highest rate of mortgage delinquency. Did they 476 00:26:22,359 --> 00:26:24,119 Speaker 1: tend to go hand in hand that in price the 477 00:26:24,200 --> 00:26:26,920 Speaker 1: start for all mortgage delincouncy goes up. And as an 478 00:26:26,960 --> 00:26:33,480 Speaker 1: investor who could invest anywhere in Australia, do you see 479 00:26:33,520 --> 00:26:36,840 Speaker 1: that as becoming a bargain basement basically or are you 480 00:26:37,080 --> 00:26:39,760 Speaker 1: too worried about the regulation risk in Victoria? 481 00:26:40,000 --> 00:26:43,000 Speaker 2: I mean, delinquencies in area's rates in Australia have been 482 00:26:43,080 --> 00:26:45,479 Speaker 2: They sometimes report there's an uptique, and there certainly has 483 00:26:45,520 --> 00:26:46,439 Speaker 2: been the last couple of. 484 00:26:46,480 --> 00:26:48,000 Speaker 1: Years, and they are very low. I'm just going to 485 00:26:48,000 --> 00:26:50,600 Speaker 1: say that they're they're reasonable, right, but they're going the 486 00:26:50,600 --> 00:26:51,000 Speaker 1: wrong way. 487 00:26:51,200 --> 00:26:54,679 Speaker 2: Yeah, they're very low. Victoria's population growth has been pretty 488 00:26:54,760 --> 00:26:58,239 Speaker 2: ordinary with interstate immigration or migration. I should say it's 489 00:26:58,240 --> 00:27:01,879 Speaker 2: actually turned positive now, which is maybe the green shoot 490 00:27:02,000 --> 00:27:05,320 Speaker 2: sign that the economy, particularly in Victoria, is recovering. The 491 00:27:05,359 --> 00:27:08,720 Speaker 2: shrinking population is not really great for the economy either, 492 00:27:09,480 --> 00:27:12,120 Speaker 2: and then you've had higher interest rates. I don't think 493 00:27:12,240 --> 00:27:14,879 Speaker 2: Victoria is shooting the lights out from that perspective, but 494 00:27:14,920 --> 00:27:16,600 Speaker 2: I think if we take a long term view, which 495 00:27:16,720 --> 00:27:19,840 Speaker 2: we must when we're investing in property, I'm very optimistic 496 00:27:19,840 --> 00:27:23,960 Speaker 2: about Victoria, particularly for a few different reasons. But it's 497 00:27:24,000 --> 00:27:26,920 Speaker 2: going to be a federal issue. The federal government needs 498 00:27:26,960 --> 00:27:29,960 Speaker 2: to solve the Victorian issue in terms of getting the 499 00:27:29,960 --> 00:27:33,600 Speaker 2: economy back on track and getting the dead inline. Otherwise 500 00:27:33,640 --> 00:27:38,000 Speaker 2: it impacts Australia because Victorian's economy is significant contributed to 501 00:27:38,040 --> 00:27:41,440 Speaker 2: the overall GDP in Australia. So it's not only a 502 00:27:41,480 --> 00:27:44,680 Speaker 2: state problem. It is if not already, it will become 503 00:27:44,720 --> 00:27:46,000 Speaker 2: a federal problem as well. 504 00:27:46,119 --> 00:27:48,639 Speaker 1: Okay, very good, and of course as the hold issue 505 00:27:48,680 --> 00:27:50,720 Speaker 1: to state that, but we were put that to one 506 00:27:50,720 --> 00:27:53,639 Speaker 1: side for the moment. Very good, Thank you very much, Stuart. 507 00:27:53,920 --> 00:27:55,840 Speaker 1: Every now and again we should actually stand back on 508 00:27:55,880 --> 00:27:58,280 Speaker 1: the show when look at some of these elementary issues 509 00:27:58,760 --> 00:28:01,400 Speaker 1: as an investor that are at clickable to you wherever 510 00:28:01,480 --> 00:28:04,240 Speaker 1: you are, whatever you're doing. Internal rate of child is 511 00:28:04,280 --> 00:28:06,520 Speaker 1: one of those things. Nice a lot, s Georg Williams 512 00:28:06,520 --> 00:28:08,600 Speaker 1: of pro Solution Private Clients. 513 00:28:09,119 --> 00:28:11,400 Speaker 2: Thanks James fun as always, appreciate it. 514 00:28:11,680 --> 00:28:13,800 Speaker 1: Great to have you on the show. Folks. Let's have 515 00:28:13,880 --> 00:28:18,280 Speaker 1: some emails the Money Puzzle at the Australian dot com 516 00:28:18,320 --> 00:28:26,160 Speaker 1: dot au happy to receive your observations, questions, complaints. Also, 517 00:28:26,680 --> 00:28:28,720 Speaker 1: we would really appreciate it if you would mention the 518 00:28:28,760 --> 00:28:31,359 Speaker 1: show to someone you know. That's that's our that's our 519 00:28:31,400 --> 00:28:35,080 Speaker 1: bit of internal marketing here. And thanks again to our 520 00:28:35,119 --> 00:28:37,480 Speaker 1: producer Liah Samuel Glue. Talk soon.