Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirkby, the web editor at The Australian. Welcome aboard everybody.
Speaker 1: I think if you are a property investor, or, if
Speaker 1: you aspire to be a property investor, or, even if
Speaker 1: you are a veteran property investor, I expect one of
Speaker 1: the most difficult things with property is because it's illiquid, right,
Speaker 1: because you can't sell a bit of it. You can't
Speaker 1: sell ten thousand dollars worth of property. Most people, most
Speaker 1: of the time, really don't know how their property is
Speaker 1: faring until the day they sell it. So they buy it,
Speaker 1: they hold it for ten years, they sell it, and
Speaker 1: then they look back and they go, okay, well that
Speaker 1: worked out. It's so much paranum. But that really isn't
Speaker 1: quite good enough. In recent times, I've met so many
Speaker 1: people who have been disappointed with certain property investments, specifically
Speaker 1: in the city apartments Indian major cities, which haven't really
Speaker 1: worked out, or certainly haven't worked out as well as
Speaker 1: they were told they were going to work out. Because
Speaker 1: once upon a time everyone was told, hey, by property,
Speaker 1: it doubles every ten years, we'll all be fine. That
Speaker 1: is not the case. That hasn't been the case for
Speaker 1: a while. My friends very good, but it's not that good.
Speaker 1: And all property is local. So I'm going to talk
Speaker 1: today about this issue and some other key issues that
Speaker 1: are emerging. We've seen a spike in interest only lending.
Speaker 1: What's that about now? I assume that the interest rate
Speaker 1: cuts are on the long fingers, shall we say, because
Speaker 1: don't you know, there's now economist saying I wouldn't be
Speaker 1: waiting until early next year for interest rate because they
Speaker 1: may never come with the election of Trump, by the way,
Speaker 1: our Trump. Of course, we're going to deal with Trump
Speaker 1: and what's happening in markets. We will do that on
Speaker 1: this Thursday's show. Look out for that now to help
Speaker 1: me to guide me through the issues I just waid
Speaker 1: for you there on Property Investment is a regular on
Speaker 1: the show and a regular contribution to the Australian. Stuart
Speaker 1: Weams of the pro Solution Private Clients Group. How are you, Stuart.
Speaker 2: I'm really well, James, and thanks for having me back
Speaker 2: on again.
Speaker 1: Sure the audience would fondly remember you standing for me
Speaker 1: when I was on holidays, which now seemed like a
Speaker 1: long time ago. Even though to come back in early October.
Speaker 1: But you know, that's life.
Speaker 2: I suppose I feel far more comfortable being the guests
Speaker 2: than the host, that's for sure.
Speaker 1: Do you. One of the things you often mentioned to me,
Speaker 1: and I want you to just sort of explain it
Speaker 1: and discuss it with our listeners today is internal rate
Speaker 1: of return. So I mentioned it at the start. The
Speaker 1: professional investors, they've got this running tap, if you like,
Speaker 1: on their investments called internal rate of return, these BC
Speaker 1: funds and private equity funds. Yes, that's for ten years,
Speaker 1: but they don't sit there unfolded hoping it will all
Speaker 1: work out. They keep a running tab on their investments
Speaker 1: in trying to rate of a chain. Tell us how
Speaker 1: an investor, potential investor can do that in property.
Speaker 2: And it's really important to understand how an internal rate
Speaker 2: of return behaves, James, and I'd say that particularly for
Speaker 2: property investors, because property investors are borrowing money and then
Speaker 2: their service in the loan and then the hopefully gets there.
Speaker 1: First of all, what does it actually mean? What's the
Speaker 1: difference between my return and my internal rate.
Speaker 2: Of Internal rate of return is the return that you
Speaker 2: receive back from the or taking into account the amount
Speaker 2: you've contributed to an investment over many years. And if
Speaker 2: I draw an analogy, say between say a forestry investment.
Speaker 2: Let's say I want to grow some trees and then
Speaker 2: harvest those trees. And let's pretend that when I first
Speaker 2: buy the land and the trees to plant on that land,
Speaker 2: I borrow the full cost of that acquisition that cost.
Speaker 2: But of course those trees are going to take twenty
Speaker 2: years to grow, and over that time, I'm going to
Speaker 2: have to service the interest on the loan that I
Speaker 2: used to buy the land and the trees. The tree
Speaker 2: is going to be water and care and so forth,
Speaker 2: and I'm going to have to contribute to that, and
Speaker 2: that'll be my contribution. Because I've borrowed the initial cost,
Speaker 2: I haven't put any of my own money in, but
Speaker 2: I'm putting my own money in each year over the
Speaker 2: next twenty years. In twenty years time, I'm going to
Speaker 2: harvest those trees and hopefully then sell the timber l
Speaker 2: whatever I might want to do, and that will be
Speaker 2: my return. If I'm putting in ten thousand dollars a
Speaker 2: year for the next twenty years, two hundred thousand dollars,
Speaker 2: what return am I going to earn on that two
Speaker 2: hundred thousand dollars that I've drip drip fed in over
Speaker 2: the last twenty years, and that'll be the capital at
Speaker 2: the end of the day. An internal rate of return
Speaker 2: expresses that as a percentage and annualize compounding percentage. And
Speaker 2: the reason that's important, James, is because if I'm investing
Speaker 2: in forestry, or if I'm investing in an investment property
Speaker 2: and it's costing me ten twenty thirty thousand dollars a year,
Speaker 2: the question I need to be asking myself is what
Speaker 2: return will I earn and is there something better that
Speaker 2: I can do with that money. So if I'm getting
Speaker 2: a fifteen percent after tax return from investing in property, fantastic,
Speaker 2: that's probably better than super It's probably better than the
Speaker 2: share market. But if I'm earning something substantially less than that,
Speaker 2: then I might want to be thinking about have I
Speaker 2: chosen the right property, Am I managing that property well?
Speaker 2: Or should I in fact invest in a different asset class.
Speaker 1: And speaking as I mentioned at the Stark, people who
Speaker 1: are disappointed but property investments when they finally sell them,
Speaker 1: maybe if they did this exercise earlier, they wouldn't get
Speaker 1: such a disappointing outcome because it's similarly for the investor.
Speaker 1: The investor says, oh, well, the yield you know everyone's
Speaker 1: talking about rens goes to the roof. But as it
Speaker 1: turns out, my yield there's only three or four percent,
Speaker 1: and my costs my oldest six or seven percent, and
Speaker 1: I have all the costs on top of that. So
Speaker 1: I'm absolutely tendent upont the price of this apartment being
Speaker 1: much higher when I sell it. So let's take that example.
Speaker 1: Then here's the investor. It got this apartment. I got
Speaker 1: to use an apartment because I think it's probably the
Speaker 1: ideally proxy here got an apartment, cut it for three
Speaker 1: or four years. The idea was to hold it for
Speaker 1: ten years. How would they do the entire later to
Speaker 1: turn exercise on that.
Speaker 2: Look, you got to spreadsheet it and use the calculator.
Speaker 2: I don't think people investors necessarily need to do that
Speaker 2: calculation themselves. Their advisors probably should, but they don't necessarily
Speaker 2: need it. They just need to understand the relationship. And
Speaker 2: maybe I can give you some examples between say a
Speaker 2: high income low growth property and a low income high
Speaker 2: growth property, so the complete reverse. And let's assume that
Speaker 2: we get a nine percent total return, it's really just
Speaker 2: the makeup of income and growth that equals that nine percent.
Speaker 2: And so the low income property is yielding one and
Speaker 2: a half percent growths rental income terrible yield, that's not
Speaker 2: very much, and seven and a half percent growth, and
Speaker 2: the high income property six percent income three percent growth.
Speaker 2: And let's compare those two because it's important to not
Speaker 2: only look at the intern rate of return, but actually
Speaker 2: the dollars at the end of the day as well.
Speaker 2: So in both those scenarios, the internal rate of return
Speaker 2: for the low income properties ten and a half percent
Speaker 2: if I hold it for thirty years, sal it and
Speaker 2: walk away. That's after tax. The high income property six
Speaker 2: percent income, three percent growth. Intern rate of return is
Speaker 2: eleven percent, so pretty similar, but just a little bit more.
Speaker 2: And the reason for that is that high income property
Speaker 2: it's producing a very high income, so my contribution is
Speaker 2: a lot less. The property starts to in fact earn
Speaker 2: a positive income after twelve or thirteen years, and if
Speaker 2: I'm holding that property for thirty years, then most of
Speaker 2: the time it's giving me income. And that's why the
Speaker 2: intern rate of return is so great. But when we
Speaker 2: look at the actual dollar value return in thirty years
Speaker 2: time when we go and sell that property. The high
Speaker 2: income property is going to put about half a million,
Speaker 2: five hundred and twenty thousand dollars in my bank in
Speaker 2: today's dollars. Okay, so that's not a bad injection.
Speaker 1: What are you vesting these estimates on.
Speaker 2: The income and growth so the total historical averages, yeah,
Speaker 2: exactly right, yep, ok. Whereas the low income, high growth
Speaker 2: property is going to put two point eight million dollars
Speaker 2: in my bank account in thirty years in today's dollars. Now,
Speaker 2: two point eight million dollars, James, would be enough for
Speaker 2: anyone to run a perpetual portfolio. So that is that
Speaker 2: they could have a very enjoyable and comfortable retirement. So
Speaker 2: sometimes as property investors, we when we go and buy
Speaker 2: a property, what we want to do is trying to
Speaker 2: balance between income and growth. But the reality is that's
Speaker 2: the wrong approach. You're actually leaving you're actually foregoing too
Speaker 2: much in terms of return by doing that. What you
Speaker 2: should do, what property investors should do, is do property
Speaker 2: invest in two steps. At the acquisition stage, obsess about
Speaker 2: capital growth because that's the time when that's going to
Speaker 2: be locked in. It's going to be what type of property,
Speaker 2: what sort of land value component, where is that land?
Speaker 2: How much land do you have? All those things are factual,
Speaker 2: they'll be locked in when you buy it. There's not
Speaker 2: much you can do to change the outcomes after you've
Speaker 2: purchased it. But after you've purchased your property, forget about
Speaker 2: growth because you've already locked that in. Start obsessing about
Speaker 2: holding costs. Can we make cosmetic improvements to the property
Speaker 2: to increase its rental yield? How do I minimize my
Speaker 2: interest costs? Am I maximizing my tax benefits my negative gearing?
Speaker 2: Because the outcome is I bought this property, I hope
Speaker 2: that I'm going to achieve a six or seven percent
Speaker 2: average compounding capital growth rate over a very long period
Speaker 2: of time. You're not going to get that every year,
Speaker 2: but over multi decade periods. And so now my goal
Speaker 2: is to limit the amount I have to actually best
Speaker 2: in this asset, which is you're holding costs, and that's
Speaker 2: where the focus should be. The mistake of a lot
Speaker 2: of people make is that they try to even out
Speaker 2: those two elements when they buy the property, both yield
Speaker 2: and growth, and the result of that is that they
Speaker 2: end up either really compromising in terms of performance and
Speaker 2: outcome financial outcomes.
Speaker 1: Let's take a break. When we come back, we're going
Speaker 1: to tell the listeners the nature of these properties and
Speaker 1: where they might be. Back in a moment. Hello, Welcome
Speaker 1: back to the Australians Money Puzzle podcast. I'm James Cabbin.
Speaker 1: I'm talking to Stewart Wims of the Full Solution Favorite
Speaker 1: Dim script. Now, if you recall first part of the show,
Speaker 1: we talked about this very important issue for the investor
Speaker 1: and the the attraction if you like, of strong income
Speaker 1: yield on your property, which translates very simply as high rents. Okay,
Speaker 1: that the rent that the rents are high as a proportion,
Speaker 1: that is, of the price you'll property and you have
Speaker 1: a strong renting yeed. Traditionally, the place where you found
Speaker 1: high rental yields was in the regions and basically the
Speaker 1: deal was in the center of the city you had
Speaker 1: low rents, that is, low rental yields rental yields, and
Speaker 1: in the bushelly in the regional towns and at the
Speaker 1: very fringes perhaps of the cities you had higher yields
Speaker 1: and you couldn't expect such price growth. That was the deal?
Speaker 1: Is that the deal still, Stuart? Where do we get
Speaker 1: these high yield properties? Yeah?
Speaker 2: But COVID skewed the data a little bit, James. It's
Speaker 2: good the data around property a little bit, and I
Speaker 2: think what it's doing is inviting investors to make mistakes.
Speaker 2: And the mistake is that what if I'm going to
Speaker 2: go and buy a property, I need to think about,
Speaker 2: on average over a very long period of time. I'm
Speaker 2: talking hopefully multi decades, what will my average returns be?
Speaker 2: And you can't always use most recent returns as an
Speaker 2: indicator for that. So I've seen a lot of buyers
Speaker 2: agents online saying, look, we're buying this property. Not only
Speaker 2: is it yielding, giving us a good yield four or
Speaker 2: five percent, whatever it might be, but look at the
Speaker 2: growth over the last five years, and that's fantastic. When
Speaker 2: you add the yield and the growth, you might end
Speaker 2: up with a total return of twelve percent. But do
Speaker 2: you really think you're going to get twelve percent from
Speaker 2: that asset over a thirty year period, because that's a
Speaker 2: pretty ambitious assumption. I think the answer is it's unlikely.
Speaker 2: And typically you're either going to you're going to need
Speaker 2: to make a compromise. Are you going to compromise on
Speaker 2: income or you compromise on growth. It's one or the other.
Speaker 2: And ironically, if you look at the internal rate of
Speaker 2: return calculations, even if you can find a balance between both,
Speaker 2: that's an inferior outcome on the internal rate of return
Speaker 2: perspective because you're actually not getting one or the other. Really, So.
Speaker 1: Are you saying you should go boots and all into
Speaker 1: one or the other. That you should seek knowingly as
Speaker 1: the extent that you can ever know, But the extent
Speaker 1: that you can know and you do your homework, that
Speaker 1: you should know what you're buying, that this is a
Speaker 1: capital growth property and I know the yielder is low,
Speaker 1: or this is a yield property and I know the
Speaker 1: capital growth will be modest, But look at this yield
Speaker 1: in my dollars today. This is really working out for me.
Speaker 2: If you can achieve an average return of seven point
Speaker 2: two percent over thirty years, your property will be sick
Speaker 2: worth six times than what it is today. There's no
Speaker 2: easier way to make money than compounding capital growth. It's
Speaker 2: always going to beat the income yield, almost irrespective of
Speaker 2: what that asset costs you. Within reality, the outcome is
Speaker 2: going to be great. The outcome is going to be
Speaker 2: a comfortable retirement.
Speaker 1: Where are these properties geographically?
Speaker 2: If you want to take an approach where you've got
Speaker 2: the highest probability of earning seven point two percent or more,
Speaker 2: then you really need to think about scarcity and scarcity
Speaker 2: and demand, and you want to be in an area
Speaker 2: where demand. The potential buyers their capacity isn't directly linked
Speaker 2: to their household income. They've got other sources of wealth
Speaker 2: and then supply in terms of scarcity in terms of
Speaker 2: supply as well. So this is really blue chip. Blue
Speaker 2: chip suburbs are going to have the fundamentals that are
Speaker 2: going to drive higher and higher growth, And we can
Speaker 2: talk about density and all those sorts of things. All
Speaker 2: these things add to the scarcity of these sorts of assets.
Speaker 1: So it's not necessarily regional non metropolitan property residential.
Speaker 2: Well, if you invest in a regional location, you've got
Speaker 2: to ask yourself what haircut am I going to take
Speaker 2: on capital growth and what's the opportunity cost of that. Now,
Speaker 2: it's quite possible to buy in a regional location that
Speaker 2: is well established but by a really good area in
Speaker 2: that regional location, in that regional town, buy in the
Speaker 2: best street possibly or something that is very sought after.
Speaker 2: So you can still apply this methodology to regional areas
Speaker 2: as well. But essentially what you're trying to do is
Speaker 2: not by the diamond, but by the pink diamond, by
Speaker 2: the asset in the street that's always going to be
Speaker 2: in demand, and that way, the people that can afford
Speaker 2: to buy into that area will continue to push those
Speaker 2: prices forward.
Speaker 1: Terrific. Okay, Now, one other things I wanted to talk
Speaker 1: to you about since I've got you this week is
Speaker 1: you and I both noticed we didn't get a chance
Speaker 1: to talk about this, but in covering the bank results,
Speaker 1: I noticed that the interest only loans as a percentage
Speaker 1: of the book, if you like, in National Australia Bank,
Speaker 1: which is just happened to be the bank result I
Speaker 1: was looking at, had popped higher. And it struck me that,
Speaker 1: of course, when investors are very confident operating markets, they
Speaker 1: will invest, and they will invest interest only, and more importantly,
Speaker 1: banks will handle over interest only loans. They've been slow
Speaker 1: to do it for some years, the clearly starting to
Speaker 1: do it again. What do you make of that.
Speaker 2: I think it's probably more borrower led than a reflection
Speaker 2: of credit policy. James. A couple of years ago, obviously,
Speaker 2: interest rates are really low, and at that time, a
Speaker 2: lot of investors, certainly in our experience and our business,
Speaker 2: a lot of investors said, given interest rates, I can
Speaker 2: fix for two years at two percent. Sorry, interest rates
Speaker 2: are so low, I may as well start repaying some principle,
Speaker 2: And so a lot of investors went over to principal
Speaker 2: interest repayments on those low fixed rates. Obviously, the fixed
Speaker 2: rates of most of them have matured expired, and now
Speaker 2: they're realizing that because interest rates have significantly increased, of
Speaker 2: course the dollar value repayment is much higher, and so
Speaker 2: a lot more clients are speaking to us about going
Speaker 2: back to interest only repayments now that interest rates at
Speaker 2: a much higher setting. I think credit policy is loosened slightly,
Speaker 2: but I don't think that's the reason for the increase
Speaker 2: in interest only lending.
Speaker 1: And i'll interest only do you have a set position
Speaker 1: on it, or is it case by case basis.
Speaker 2: I think if you're in acquisition stage, so you're young,
Speaker 2: many years away from retirement, then your goal probably is
Speaker 2: to acquire as many growth assets as possible, and having
Speaker 2: interest only setting will probably help you do that. If
Speaker 2: you've already established a good asset base and it's really
Speaker 2: about consolidating, then in that situation sometimes principal interests makes sense. Personally,
Speaker 2: I've always been interested, only more recently I've had a
Speaker 2: few loans flick over to principal interests. I'm pretty comfortable
Speaker 2: with that. It helps me build a bit of equity
Speaker 2: in the property as well. So it just really depends
Speaker 2: as your stage of life, I think is the key one.
Speaker 1: Well, and do remember, folks, the interest only assuming a
Speaker 1: bank will give you one. The issue is that your
Speaker 1: loan doesn't go down, so you're paying that interest every
Speaker 1: year the years pass, and your loan on the fourth
Speaker 1: years as big as the loan as big as on
Speaker 1: the first year. Why do you inflation? Of course, a
Speaker 1: little bit of inflation would help help that situation, Stuart,
Speaker 1: it's not a problem when you are in that situation,
Speaker 1: particularly if you fixed and you can't fix on interest
Speaker 1: only loans as well. This probably isn't the climate to
Speaker 1: do it, but just making that point that you can. Okay,
Speaker 1: let's have a break and we do some questions. Hello,
Speaker 1: Welcome back to The Australian's Money Puzzled podcast, and I'm
Speaker 1: James Kirby talking to Stuart Weems. Our first question this
Speaker 1: week is from Paul. He says, I believe most people
Speaker 1: are happy for our taxes to be spent on helping
Speaker 1: the true battlers into social housing. We've all heard, however,
Speaker 1: about the occasional social housing occupants who trash their property.
Speaker 1: What guarantees will governments give to the voting public that
Speaker 1: such problems will be quickly and effectively handled. Okay, that's interesting, Paul.
Speaker 1: One of the things I think I think many people
Speaker 1: would would would be on broadly in principle. Agree with
Speaker 1: you there that social housing is needed, it has a place,
Speaker 1: and it's important. And not only that, but not much
Speaker 1: housing was built for many years in many of the
Speaker 1: key cities under both labor and liberal administrations, so they're
Speaker 1: catching up now. It's also true the statistics show that
Speaker 1: that their maintenance levels are higher, and they have that issue.
Speaker 1: I think that I don't think you can change that
Speaker 1: issue in any substantial where you probably just have to
Speaker 1: take it into your numbers and allow that though I
Speaker 1: think that's all they can do. They can they can
Speaker 1: note then numbers are higher and issues such as as
Speaker 1: damage to property is higher at that level of the market.
Speaker 1: To take it as a truth if you like of
Speaker 1: that market and you work as best you can around it.
Speaker 1: And obviously, if I'm an investment point of view, if
Speaker 1: it's the case that such housing has been put before
Speaker 1: private investors, they would allow for that. I think to
Speaker 1: add to that, Stuart.
Speaker 2: My only observation is that state governments are very keen
Speaker 2: to ensure that private landlords have maintained very high standards
Speaker 2: with their rental properties. But it doesn't seem like states
Speaker 2: do the same with public housing. And I think perhaps
Speaker 2: the rules should apply to the government just as much
Speaker 2: as they do private investors. Not really related to the question,
Speaker 2: but I thought i'd like to mention anyway.
Speaker 1: You totally chocked down in Yeah, okay, all right, and
Speaker 1: can you see this? Would you actually read the first
Speaker 1: one from Dan?
Speaker 2: From Dan? Yeah, definitely. Dan Wright's one of my relatives
Speaker 2: is sixty five years old, no debt, lives the full
Speaker 2: life of travel, but does not own their own home,
Speaker 2: and they have a super balance of one point sixty
Speaker 2: five million dollars. What should they consider, for example, should
Speaker 2: they buy a small property? What do you think, James.
Speaker 1: Well, I would say, if it's the case that they
Speaker 1: have no property whatsoever, this is never advice then, and
Speaker 1: this is information only. But it is the case that
Speaker 1: there is a sixty five year old couple in Australia
Speaker 1: and they have super of what was the number, one
Speaker 1: point sixty five million between them, and they don't own
Speaker 1: their own home. They are asking they are walking into
Speaker 1: the most difficult situation because the entire tax system is
Speaker 1: loaded in favor of the homeowner, and pension access too
Speaker 1: is loaded in favor of the homeowner. And if you
Speaker 1: had one, I'd be very crude about this, But if
Speaker 1: you have one point six million and you spent a
Speaker 1: million on a home, then your access to the pension
Speaker 1: would open up because the home isn't included. But all
Speaker 1: those assets, the one point sixty five that you have
Speaker 1: outlined that your couple own there non property, they are
Speaker 1: every dollar is going to be included in pension access,
Speaker 1: and I could say that you're probably wiped out in
Speaker 1: terms of all the benefits in there. So that's what
Speaker 1: stands out there. Should they buy a home, If they
Speaker 1: don't have a home, they should buy one, I would think. So,
Speaker 1: I mean, I don't want to give individual advice, but
Speaker 1: I would say, in the scenario outlined for any Australian couple,
Speaker 1: then you are walking into higher tax or at least
Speaker 1: less beneficial arrangements as you're older, if you don't own
Speaker 1: your home. But what do you think of that? Sure?
Speaker 2: I was thinking along the same lines James, like, if
Speaker 2: they put a lot of that wealth into the family home,
Speaker 2: they would certainly open themselves up to a part pension
Speaker 2: that have to spend maybe one point three to get
Speaker 2: a full pension. I'm not sure I would do that.
Speaker 2: And then you would say, hang on, you're pulling money
Speaker 2: out of an environment that's tax free. Home is tax free.
Speaker 2: So the only thing I would add to it is
Speaker 2: if I was in their situation, my concern would be longevity,
Speaker 2: risk and security. Having your own home gives you a
Speaker 2: lot of security. So I would buy a property maybe
Speaker 2: somewhere around that million to one point two, and I
Speaker 2: would buy it with an investment lens. I would buy
Speaker 2: an asset that is going to give me good capital
Speaker 2: growth that I also would like to occupy for the
Speaker 2: next ten to twenty years. But if you apply it
Speaker 2: with an investment lens. At least your money is going
Speaker 2: to be working hard for you and the capital any
Speaker 2: capital growth is not going to be taxed. Of course,
Speaker 2: we would be tax free. So that's a pretty good outcome,
Speaker 2: probably just as good as super almost if you buy well.
Speaker 1: And if it looks like your numbers on your income,
Speaker 1: which will fall of course, having spent to buy a
Speaker 1: residential property, a home, that is, as Stewart pointed out,
Speaker 1: you must holistic view allow for the fact that your
Speaker 1: access to the pension suddenly opens up because the home
Speaker 1: is not included. That is one of the great big
Speaker 1: tax shelters in our society, and someone should be aware
Speaker 1: of them and be very I would be very still
Speaker 1: to turn my back on them that way. Okay, Now,
Speaker 1: Billy seeks clarification on the land tax scenario. If you
Speaker 1: choose to vacate your primary place of residence over summer
Speaker 1: and later for another week over easter, and you choose
Speaker 1: to earn an income off Airbnb during those periods, does
Speaker 1: this make you eligible to pay land tax? I don't
Speaker 1: know the answer, but INSTINCTASMI yes, what's the story? Shirt?
Speaker 2: I don't want to add to the negative Victorian economy sentiment.
Speaker 2: But I'm afraid my answer will I only checked out
Speaker 2: in New South Wales and Queensland. Of course, we don't
Speaker 2: know where Billy's property is located, and there was no
Speaker 2: issues there. You could earn a little bit of income
Speaker 2: as long as you didn't rent the property out for
Speaker 2: more than six months. But you'd have to look at
Speaker 2: your individual state legislation to really check this. Unfortunately, in
Speaker 2: twenty one, Victoria changed the law. You can't earn one
Speaker 2: dollar from your property now. It used to be similar
Speaker 2: to other states. If you're rented out for more than
Speaker 2: six months, it's no longer your primary place of residence
Speaker 2: from a land tax perspective. In Victoria they change it
Speaker 2: in twenty one. So even if you rented out for
Speaker 2: two weeks, bang, you've lost your primary place of residence
Speaker 2: exemption and you'll get a land tax bill and it
Speaker 2: relates to the previous tax year. Right, So the land
Speaker 2: tax years a calendar years, which means if I rent
Speaker 2: out my property my home this year, next year, I'll
Speaker 2: get a land tax bill. Pretty harsh, I.
Speaker 1: Reckon, Yes, yes, so yes, pretty harsh. And of course
Speaker 1: there's this albatarge between the states. Now, where one state
Speaker 1: is clearly the least attractive to invest in fiper image
Speaker 1: is Victoria. And part of the price of that, of course,
Speaker 1: is that in a federation where people can easily choose
Speaker 1: between states, they do. I just I might actually take
Speaker 1: a second on that shore. It with you. One are
Speaker 1: the things we have mentioned this before about Victoria and
Speaker 1: the difficulty being an investor there. And I saw where Moody's,
Speaker 1: the rating agency, had run some numbers on mortgage delinquencies
Speaker 1: and it turns out that Victoria is the highest. Now
Speaker 1: so we have the weakest property growth in Victoria, we
Speaker 1: also have the highest rate of mortgage delinquency. Did they
Speaker 1: tend to go hand in hand that in price the
Speaker 1: start for all mortgage delincouncy goes up. And as an
Speaker 1: investor who could invest anywhere in Australia, do you see
Speaker 1: that as becoming a bargain basement basically or are you
Speaker 1: too worried about the regulation risk in Victoria?
Speaker 2: I mean, delinquencies in area's rates in Australia have been
Speaker 2: They sometimes report there's an uptique, and there certainly has
Speaker 2: been the last couple of.
Speaker 1: Years, and they are very low. I'm just going to
Speaker 1: say that they're they're reasonable, right, but they're going the
Speaker 1: wrong way.
Speaker 2: Yeah, they're very low. Victoria's population growth has been pretty
Speaker 2: ordinary with interstate immigration or migration. I should say it's
Speaker 2: actually turned positive now, which is maybe the green shoot
Speaker 2: sign that the economy, particularly in Victoria, is recovering. The
Speaker 2: shrinking population is not really great for the economy either,
Speaker 2: and then you've had higher interest rates. I don't think
Speaker 2: Victoria is shooting the lights out from that perspective, but
Speaker 2: I think if we take a long term view, which
Speaker 2: we must when we're investing in property, I'm very optimistic
Speaker 2: about Victoria, particularly for a few different reasons. But it's
Speaker 2: going to be a federal issue. The federal government needs
Speaker 2: to solve the Victorian issue in terms of getting the
Speaker 2: economy back on track and getting the dead inline. Otherwise
Speaker 2: it impacts Australia because Victorian's economy is significant contributed to
Speaker 2: the overall GDP in Australia. So it's not only a
Speaker 2: state problem. It is if not already, it will become
Speaker 2: a federal problem as well.
Speaker 1: Okay, very good, and of course as the hold issue
Speaker 1: to state that, but we were put that to one
Speaker 1: side for the moment. Very good, Thank you very much, Stuart.
Speaker 1: Every now and again we should actually stand back on
Speaker 1: the show when look at some of these elementary issues
Speaker 1: as an investor that are at clickable to you wherever
Speaker 1: you are, whatever you're doing. Internal rate of child is
Speaker 1: one of those things. Nice a lot, s Georg Williams
Speaker 1: of pro Solution Private Clients.
Speaker 2: Thanks James fun as always, appreciate it.
Speaker 1: Great to have you on the show. Folks. Let's have
Speaker 1: some emails the Money Puzzle at the Australian dot com
Speaker 1: dot au happy to receive your observations, questions, complaints. Also,
Speaker 1: we would really appreciate it if you would mention the
Speaker 1: show to someone you know. That's that's our that's our
Speaker 1: bit of internal marketing here. And thanks again to our
Speaker 1: producer Liah Samuel Glue. Talk soon.