Speaker 1: Hi. I'm Julianne Sprague, Wealth editor at The Australian. I'm
Speaker 1: filling in for James Kirby today, who is on a
Speaker 1: very well deserved break and today we want to get
Speaker 1: stuck into how you can pick the right spot for
Speaker 1: an investment property. You might want to buy an investment
Speaker 1: property or add to your existing portfolio, but how do
Speaker 1: you get the spot that will deliver you the maximum return.
Speaker 1: You might think that there's a city that you want
Speaker 1: to invest in, maybe it's a city that you live in,
Speaker 1: but how do you get the right suburb the best suburb.
Speaker 1: My guest today is Ben Kingsley. So Ben is the
Speaker 1: chair of the Property Investors Council of Australia and he
Speaker 1: has more than twenty five years of investing experience advising
Speaker 1: people in property markets. He's also the co author of
Speaker 1: two books with his fellow empower Wealth business partner Bryce Holdaway,
Speaker 1: and together they host the Property Couch podcast. But today
Speaker 1: Ben Kingsley is joining us right here on the Money
Speaker 1: Puzzle to share his top property investing tips. Ben, thank
Speaker 1: you so much for joining us on the Money Puzzle.
Speaker 2: Delighted to be here, Julianne.
Speaker 1: We wanted to have a chat to you because you've
Speaker 1: got a lot of experience in this area. All of
Speaker 1: the stories we are putting together at the moment appointing
Speaker 1: to property growth over the next twelve months. It just
Speaker 1: seems that things have aligned, the property prices will go up,
Speaker 1: but not all property markets are created equal, and within
Speaker 1: those there are little subsections. So I want to ask you, Ben,
Speaker 1: how do you determine where is the best place to
Speaker 1: buy an investment property? What are the fundamentals you look to?
Speaker 2: Yeah, so how long have we got? But we'll start
Speaker 2: with the big ones. So absolutely there are markets within markets.
Speaker 3: That is proven to be true that different property cycles
Speaker 3: can occur in different markets, and there are different reasons
Speaker 3: behind why those particular activities happen. So we break it
Speaker 3: down into if you think about short term usually what
Speaker 3: you're talking about there is the sentiment, and you're also
Speaker 3: looking at demand and supply, so you're looking at certain
Speaker 3: variables that will determine, you know, whether a market is
Speaker 3: in balance, in equilibrium, or whether it's out of balance.
Speaker 3: And of course you know in terms of a shortage
Speaker 3: of supply does put pressure on capital growth over time.
Speaker 3: So supply is the enemy of capital growth is often
Speaker 3: what you would say, and so when you're thinking about
Speaker 3: it in the short term, you're looking for those variables,
Speaker 3: so things like auction clearance rates, days.
Speaker 2: On market, stock on market, and if your.
Speaker 3: Days on market is coming down, that means that there's
Speaker 3: obviously a.
Speaker 2: Body of demand that's there.
Speaker 3: And so and then on the supply side, you're looking
Speaker 3: at things like what is the you know, the future
Speaker 3: building approvals and what commencement have started, and so then
Speaker 3: you start to think about, you know, those markets in
Speaker 3: terms of well, if I've got a lot of vacant
Speaker 3: land around me, then potentially there is risk that there
Speaker 3: will be future over supply and that might taper my
Speaker 3: future capital growth. So short term, it's very much a
Speaker 3: story of supply and demand and looking for those markets
Speaker 3: where you know there might be an inbalance between.
Speaker 2: Supply and demand.
Speaker 3: And then over the medium to longer term, it's absolutely
Speaker 3: got everything to do with economic activity. And so what
Speaker 3: I mean by that is the economic activity is going
Speaker 3: to drive that population story.
Speaker 2: So if you think about a thriving city that needs.
Speaker 3: Workers, those workers will arrive that would put pressure on
Speaker 3: housing both from a rental point of view, but also
Speaker 3: potentially from a future purchasing point of view. And so
Speaker 3: that's why we see the capital growth in our major
Speaker 3: capital centers usually performing quite strongly during times of economic
Speaker 3: growth and strong population growth into those centers, and of
Speaker 3: course we see the reverse when you know, if you're
Speaker 3: as old as I am, you will know that during
Speaker 3: the sort of John Kurrent era, and we had some
Speaker 3: failures in Melbourne in terms of the economic situation, we
Speaker 3: had a lot of debt and the economy wasn't performing
Speaker 3: very well and we see a lot of migration up
Speaker 3: into Queensland, and the property markets suffered quite considerably during
Speaker 3: that time because you know, we also had pyramid building
Speaker 3: society and some banks failing, so it wasn't a good time.
Speaker 3: So we do know that if there's no jobs here,
Speaker 3: we're not going to necessarily move that population here, and
Speaker 3: that's not necessarily going to then bode well for that
Speaker 3: population story and that demand story.
Speaker 1: If we look at the information at the moment, though,
Speaker 1: it does seem we have a supply issue. There's just
Speaker 1: not enough supply of housing across the country that's fed
Speaker 1: into things. You know, we had thirteen interest rate rises
Speaker 1: and property prices didn't fall as a result, it didn't
Speaker 1: do what typically property markets have done. And now we're
Speaker 1: in an easy cycle again, given how much property markets
Speaker 1: have risen and how much they are anticipated to keep going.
Speaker 1: What are the risks though for investors? How do you
Speaker 1: make sure you're not sort of getting caught out here
Speaker 1: and you're buying right at the top.
Speaker 3: That is a great question, and let's unpack. You know,
Speaker 3: traditionally you are right, higher interest rate thirteen rate rises,
Speaker 3: you would normally see a correction in the market. But
Speaker 3: what we also saw during that time was the immigration program,
Speaker 3: which delivered over sort of six hundred and seven hundred
Speaker 3: thousand people, and over the sort of last two or
Speaker 3: three years, we've got a minion extra people in this country.
Speaker 3: So that along with record low unemployment or record high employment,
Speaker 3: also meant that people could continue on with making their
Speaker 3: plans for their lives, so buying their homes and so forth.
Speaker 3: So that's why we can sort of say, okay, we
Speaker 3: can make a case as to why property didn't normally
Speaker 3: do what it normally does.
Speaker 2: If those arrivals.
Speaker 3: Didn't come, and if unemployment had risen higher, then we
Speaker 3: wouldn't have seen any sort of price growth during that
Speaker 3: higher cost of doing business when it comes to the.
Speaker 2: Mortgages we have on our properties.
Speaker 3: So let's talk about today and what's going to be
Speaker 3: the catalyst for that growth. So there's a couple of
Speaker 3: things that are going to go on, and I want
Speaker 3: to talk on the investor side.
Speaker 2: We are seeing a lot of.
Speaker 3: Animal spirits in the investment space at the moment, and
Speaker 3: those animal spirits are potentially getting ahead of themselves in terms.
Speaker 2: Of buying in the affordable quartile.
Speaker 3: So the bottom twenty five percent of properties are very
Speaker 3: attractive to obviously first home buyers, but they're also very
Speaker 3: attractive at the moment to investors, and investors are certainly
Speaker 3: looking for that sort of classic recantile home that might
Speaker 3: be an existing property.
Speaker 2: Because back to your.
Speaker 3: Point earlier, Julianne, in terms of this shortage of accommodation,
Speaker 3: since twenty nineteen, the cost of build a home has
Speaker 3: basically gone up almost fifty percent being able to provide
Speaker 3: new stock. So there's been a lot of pressure on
Speaker 3: the existing stock market, and that's why we're seeing the
Speaker 3: best performing market at the moment is that bottom twenty
Speaker 3: five percent. The percentage price growth that we're seeing in
Speaker 3: those areas are outstripping what we would call the middle
Speaker 3: tier suburbs and certainly what we might judge as the
Speaker 3: prime or the blue chip suburbs in our inner city
Speaker 3: areas in most capital cities with the exemption of the Act,
Speaker 3: which is performing in a more natural way because unfortunately
Speaker 3: that they policy settings are very anti investment at the moment,
Speaker 3: so they're not getting that investment activity. All the other
Speaker 3: states and territories are enjoying that, but they're certainly not.
Speaker 1: We'll get to that lower end of the market soon.
Speaker 1: I do want to get your thoughts on what might
Speaker 1: happen in that area given the expanded first home buyers
Speaker 1: scheme from the federal government. But can we talk about
Speaker 1: how you identify different areas of a market you've chosen
Speaker 1: So say, we published a story recently in The Australian
Speaker 1: where there are a couple of experts that tipped Perth
Speaker 1: or Southeast Queensland as a sure bet for investors over
Speaker 1: the next twelve months. They are still bullish on Melbourne,
Speaker 1: but there are all the taxes and all the other
Speaker 1: things going there. So to say, if you want a
Speaker 1: sure thing pers or Southeast Queensland. Now say if you
Speaker 1: take that proposition, go, Okay, I'm feeling good about either
Speaker 1: of those markets. How do you then zone in and
Speaker 1: go which area of that particular market should I be
Speaker 1: buying in? Because not all suburbs are created equal.
Speaker 3: Yeah, great question. So what we would then start to
Speaker 3: do is as we go through the macro down into
Speaker 3: the micro, we're starting to then analyze the data that
Speaker 3: we're collecting, and we usually collect that at the suburb level,
Speaker 3: so we're able to get quite a lot of rich
Speaker 3: data at the suburb level around those some of those
Speaker 3: variables that we were talking before about. So we think
Speaker 3: along the lines of auction clearance rates. If it's a
Speaker 3: heavily concentrated auction market, they're not so good if it's
Speaker 3: not a high concentration of auctions happening in that area.
Speaker 1: So just to drop in on that bit, but say,
Speaker 1: if you're going for auction clearance rates, what am I
Speaker 1: looking for? What exactly should I zone in on?
Speaker 3: Yes, So if it is a high area where you
Speaker 3: do get lots of auctions and the clearance rate is
Speaker 3: above seventy percent and moving into five eighty percent, that's
Speaker 3: giving you an immediate market signal in that area. That
Speaker 3: there's more buyers than there are sellers, and so that
Speaker 3: is becoming a selling market and so that's going to put.
Speaker 2: Pressure on prices. So if there is you know, four.
Speaker 3: Or five people or even six, seven, eight people competing
Speaker 3: at auction, you're really clear in terms of you've got
Speaker 3: a really strong signal that that's a market that's under
Speaker 3: pressure in terms of demand, and so that's going to
Speaker 3: potentially force prices higher as more of those people decide
Speaker 3: that they want to get into that location.
Speaker 1: And then a market like Perth that doesn't really have auctions,
Speaker 1: is it a matter of do you sort of sort
Speaker 1: of rock up to some home opens and to see
Speaker 1: how many people are trying to get in?
Speaker 3: That's right, I mean, certainly that's another indicator in terms
Speaker 3: of as you so you know, we don't know that
Speaker 3: if we're if we're doing our research, you know, the
Speaker 3: in our offices as opposed to being in the field.
Speaker 3: The first things we start to look at is things
Speaker 3: like stock on market and then days on market, So
Speaker 3: how long is it taking for those properties to sell
Speaker 3: over time? And if we're seeing the trend coming down,
Speaker 3: and then we then go out and do our field research,
Speaker 3: and yes, to your point. We attend some of those opens,
Speaker 3: we will start to see the number of people going
Speaker 3: through those particular properties. Then we're also tracking things like
Speaker 3: number of offers, number of contracts that are being issued
Speaker 3: on that particular property. So we're starting to get that
Speaker 3: those signals, and those signals are stronger than the general
Speaker 3: noise that we might see in other areas. And then
Speaker 3: what you then do is you munge all of that
Speaker 3: data together and you give certain wetings.
Speaker 2: To some of those variables. So this is the demand
Speaker 2: supply score or demand supply ratio. So you know, you might.
Speaker 3: Measure eight, ten, twelve, fifteen variables and you're putting all
Speaker 3: those together and you've got you've got a belief around.
Speaker 3: You know, if it is a high auction market and
Speaker 3: you know where most properties are sold by auction, and
Speaker 3: you're seeing those high things, you'll give a.
Speaker 2: Higher weighting to that score.
Speaker 3: We score every property in Australia out of one hundred
Speaker 3: and so if we basically then see high scores.
Speaker 2: Then we know that there is an imbalance in that market.
Speaker 3: And then we go and validate that out in the
Speaker 3: field to the research that we were just talking about,
Speaker 3: which is how many people turned up to the open
Speaker 3: for inspections, what number of contracts were issued, And we
Speaker 3: know we're going to be in a competitive market, but
Speaker 3: we're also then confident in that competitive market that the
Speaker 3: level of demand, you know, in terms of the depth
Speaker 3: of that demand is strong enough. And so that's that
Speaker 3: supply demand story. Then we've got to lift our eyes
Speaker 3: back to the question you asked earlier around say Southeast
Speaker 3: Queensland and Western Australia, namely Perth, but even some of
Speaker 3: the commutable areas of inter Perth they're also under good review.
Speaker 3: Because that's when I come back to the whole story
Speaker 3: about economic activity. You know, if you've got a strong
Speaker 3: economy and that strong economy is driving the migration of
Speaker 3: people into that market, then that's when you're going to
Speaker 3: have longevity in regards.
Speaker 2: To your investment returns.
Speaker 3: And you mentioned really earlier when we started recording around
Speaker 3: this idea is how do you know that's going to
Speaker 3: be sustainable? Well, that's the whole you know, that's one
Speaker 3: of the great messages I want the community to take
Speaker 3: away today. If that's all been driven by investors and
Speaker 3: investors only and there's no fundamentals underneath that then you're
Speaker 3: going to be exposed and there's going to be risk
Speaker 3: that you will be potentially buying at the top of
Speaker 3: market and you may experience a downturn in property prices.
Speaker 3: So you need to understand the short term drivers, which
Speaker 3: is the supply demand and that economic stuff, and then
Speaker 3: make sure that the economy is still strong, because if
Speaker 3: it is going to be artificially inflated by investors who
Speaker 3: are ill experienced, or they're being coached by enthusiastic buyers
Speaker 3: agents who really don't know what they're doing, and they're
Speaker 3: taking you into these regional markets or some of these
Speaker 3: types of markets, you do run the risk of basically
Speaker 3: buying into a dud market that will show its face
Speaker 3: as the tide goes out over the next five years.
Speaker 1: I'll ask you about buyers agents in the Sex But
Speaker 1: just further on that, are you talking about the economy
Speaker 1: for the state or the city in question. Say you've
Speaker 1: decided it's Southeast Queensland or state it's Perth, and you're
Speaker 1: happy about the profile for the next whatever it might
Speaker 1: be five to ten years. I can imagine I wouldn't
Speaker 1: be the only person to think this, that you go
Speaker 1: into a suburb and it's running hot, and I would
Speaker 1: look left and right that there's some suburbs sort of
Speaker 1: around the fringe and they look better value to me.
Speaker 1: But what do I need to be careful about.
Speaker 2: Well, let's also introduce another concept which I think is
Speaker 2: a really important concept, and that is investors in residential
Speaker 2: property shouldn't be the price maker, they should be the
Speaker 2: price taker. So ultimately, what you're looking for there is
Speaker 2: that the fundamentals are grounded in owner occupiers wanting to
Speaker 2: live there. If you don't have that, again.
Speaker 3: You're giving yourself the risk of well, this has all
Speaker 3: just been in speculative returns because someone picked a hot
Speaker 3: spot and half a dozen buyers agents all agreed and
Speaker 3: they all went in there and artificially inflated the price.
Speaker 3: So it does come back to what you were saying before.
Speaker 3: I'm looking at the economic activity that's happening in that center.
Speaker 3: So if I'm buying in Perth, well, the economy, it's
Speaker 3: the best economy in the country. The government's got very
Speaker 3: low debt in comparison to other states and territories.
Speaker 2: The incomes enjoyed there are the second highest across the country.
Speaker 3: Per capita, and the livability of living in a city
Speaker 3: like Perth is very high. So you've got and you're
Speaker 3: starting to see a stronger diversified economy, and the icing
Speaker 3: on the cake, their cost of electricity through their gas
Speaker 3: and their cost of gas and all of those inputs
Speaker 3: is also at record low levels.
Speaker 1: But it has been boom bust Perth. People were listening
Speaker 1: to this sound. That's all very well and good that
Speaker 1: it sounds good now, but you know.
Speaker 3: Perth's already had a double digit run and it's probably
Speaker 3: moved about thirty or forty percent as is already, and
Speaker 3: then everyone's sort of saying Perth done well. It's still
Speaker 3: performing in the top two. Darwin is the number one
Speaker 3: capital city at the moment, but Perth's a strong second.
Speaker 3: And that's because again they didn't look and lift their eyes.
Speaker 3: These runs can go seventy eighty percent in some cases,
Speaker 3: and that's because the fundamentals are good.
Speaker 2: Whereas if I.
Speaker 3: Take an example of maybe Townsill, Okay, which is a
Speaker 3: regional town, there's no easy to commute down into Brisbane
Speaker 3: for a job. You can't commute there for the day,
Speaker 3: so you've got to then start to say, well, what's
Speaker 3: happening in towns will from an economic perspective, because if
Speaker 3: I've only gone in there because I've been told that
Speaker 3: rents are really high, and so I'll go in there
Speaker 3: and compete against all the other investors who are.
Speaker 2: Going in there, what's the fundamentals.
Speaker 3: Like if you don't have that economic activity, well, where
Speaker 3: are your renters going to come from? And what if
Speaker 3: they don't have the jobs, why are they going to
Speaker 3: stay there? They'll just relocate to another town. So that's
Speaker 3: why it really is critical that you need to understand
Speaker 3: what are those medium to long term drivers to get
Speaker 3: into those markets.
Speaker 2: Now back to Perth, you.
Speaker 3: Were saying, Yep, it's a you know, it's basically a
Speaker 3: one trick pony town being a mining town. All the
Speaker 3: reality is is, you know, that's not necessarily the case.
Speaker 2: We've got the Orchest deal coming in there.
Speaker 3: We've got shipbuilding, we've got industry that's running at a
Speaker 3: competitive advantage compared to the East Coast, and so if
Speaker 3: I'm the multinational and I want to potentially set up there,
Speaker 3: the conditions are better in Perth than they certainly are
Speaker 3: in Melbourne. An ex example in terms of attracting me
Speaker 3: to want to set and make that investment up and
Speaker 3: then to basically bring the jobs into that particular market.
Speaker 3: So now the fundamentals economically for Perth are really sound,
Speaker 3: at least for the next five or ten years.
Speaker 1: For anyone listening, I promise I haven't paid ben to Perth.
Speaker 1: It is my favorite city. It is the city I'm based.
Speaker 2: And I love it and world champion and I live
Speaker 2: in Melbourne.
Speaker 1: We've got to head to a break soon. But I
Speaker 1: do want to get that sense of whether you should
Speaker 1: be looking at the suburbs across that are cheaper or
Speaker 1: if you run the risk. It's our idea of if
Speaker 1: you're buying an investment property you want to maximize your dollar.
Speaker 1: Is there any risk to that or is it actually
Speaker 1: a smart strategy to say this suburb is on fire
Speaker 1: but you just sort of look, you know, I don't
Speaker 1: know as five case circumference or something. What's the metrics
Speaker 1: that you would use.
Speaker 2: At the end of the day.
Speaker 3: The land is what we're trying to hold long term.
Speaker 3: That's where the appreciation happened. It's not in the buildings,
Speaker 3: it's in the land. And so let me introduce you
Speaker 3: to other concepts, which is human interest in human behavior.
Speaker 2: So in some respects, a lot of the land carry status.
Speaker 2: You know.
Speaker 3: One of the interesting things about property in the way
Speaker 3: always say it's why it's owner occupier appeal because they
Speaker 3: buy where their heart's not their heads.
Speaker 2: So the reality is.
Speaker 3: When you find those blue chip locations, that is all
Speaker 3: about my success and showcasing my success. So how do
Speaker 3: we show off, you know, aspiration, We show it off
Speaker 3: in the houses that we own, the cars that we drive,
Speaker 3: the jewelry, et cetera. And so you do have this
Speaker 3: aspirational element of living in the best suburbs around that
Speaker 3: and so ultimately those suburbs come at a premium because
Speaker 3: there's exclusivity, and that's where that land value appreciates over time.
Speaker 3: So if you're in a fortunate position where you can
Speaker 3: potentially buy and hold and investment property in those higher markets,
Speaker 3: you are going to pretendctually see strong the land appreciation
Speaker 3: because ultimately that is all about how humans activate in
Speaker 3: the ecology of their lives and the biology of who
Speaker 3: we are as living in villages. So that is true
Speaker 3: if your budget doesn't allow for that, and the income
Speaker 3: off the rental needs to be an important part of
Speaker 3: sustaining the holding of that property, then you're going to
Speaker 3: move out to the mid tier suburbs or into the
Speaker 3: sort of outer fringes of the market. And that's how
Speaker 3: the land is priced. It's ultimately priced from a ripple
Speaker 3: effect where the most expensive land is located closer in,
Speaker 3: and so it's looking at that land and looking at
Speaker 3: its future productive use in terms of what it can do.
Speaker 3: A single home can potentially be a duplex in the future,
Speaker 3: or it could even be a block of flat or
Speaker 3: some townhousers. So that future productive use of that land
Speaker 3: in that more exclusive area is potentially going to generate
Speaker 3: you a longer term return over the decades. But of course,
Speaker 3: if you want to invest, it's around your budget. So
Speaker 3: if your budget allows you to take you into the
Speaker 3: outer suburbs, then we still want to make sure that
Speaker 3: there's low scarcity in terms of not a lot of
Speaker 3: vacant land around you.
Speaker 1: Okay, good tips, all right, Ben. When we come back
Speaker 1: from the break, we'll have a chat about what you
Speaker 1: think will happen to the market now that the government
Speaker 1: is expanding the first Home Buyer scheme. I'll get your
Speaker 1: top tips where you think the best property investments will
Speaker 1: be over the next year. And also I wouldn't mind
Speaker 1: your thoughts on some of the common mistakes people make
Speaker 1: with property investing. We'll have that chat when we come back.
Speaker 1: Thanks for joining me on the money Puzzle. I'm your
Speaker 1: host Julianne Sprague, a wealth editor at The Australian, filling
Speaker 1: in for James Kirby, who's on a well deserved break.
Speaker 1: I'm chatting with Benett Kingsley, a property expert. You can
Speaker 1: find him at Empower Wealth and at the Property Couch podcast.
Speaker 1: Ben is joining me. We're having a chat about how
Speaker 1: you can pick a great place to buy investment property.
Speaker 1: And then we spoke earlier about that lower end of
Speaker 1: the market and how it is quite hot at the moment.
Speaker 1: The federal government's expanding the First Home Buyers Scheme. Today,
Speaker 1: all sorts of measures have been sort of dropped, if
Speaker 1: you like, or widened. More people will have access to
Speaker 1: this scheme. What is it going to do for property markets?
Speaker 3: Look, I'm pleased with the initiative because it will allow
Speaker 3: people to get into the market, but of course it
Speaker 3: falls on the demand side, so that's doing to potentially
Speaker 3: create an additional set of demand for first time buyers
Speaker 3: to get into the market. So the question for us,
Speaker 3: and this is one is really hard to analyze, is
Speaker 3: where is that concentration is. If it's going to be concentrated,
Speaker 3: then that's going to sharpen the data really quickly and
Speaker 3: we're going to see price spikes, you know, as that
Speaker 3: then sort of then becomes the norm in the market.
Speaker 3: My interesting observation here is that because it's lifted the
Speaker 3: entry level price is allowing for people to get into
Speaker 3: the sort of middle tier markets. Hopefully that spread will
Speaker 3: not necessarily see it being such a high concentrated into
Speaker 3: the absolute entry level of the market. So I'm hoping
Speaker 3: it's not going to continue to inflate that price area
Speaker 3: because there's already enough you know, sort of government policy
Speaker 3: that's pushing a lot of people into that potential entry
Speaker 3: level market.
Speaker 2: And I'll give you a couple of examples. We're seeing a.
Speaker 3: Lot of spooking property spooking around setting up trusts and
Speaker 3: buying residential property and trusts, and I'm concerned about that
Speaker 3: heavily because that's also pushing a lot of people into
Speaker 3: those entry level markets. And there's more and more social
Speaker 3: media marketing around that and also setting up self managed
Speaker 3: super funds.
Speaker 1: And why do you think that's flourishing. What's the pitch
Speaker 1: there that's hooking people?
Speaker 3: Well, I'm in You know if you go on to
Speaker 3: social media and you look at the property spookers talking
Speaker 3: about making sixty percent gains in twelve months, and you know,
Speaker 3: there's that human nature that basically drives people in that
Speaker 3: they want to They want to know your investor, you
Speaker 3: want to get that quick win, you know, like I
Speaker 3: want to be bragging about that, almost like a stock pick.
Speaker 2: That's sort of what's happening.
Speaker 3: So I am worried about that, and I've spoken publicly
Speaker 3: about that recently, and so that's already driving people into
Speaker 3: that entry level area. The other thing that's also of
Speaker 3: the interest is appras three percent buffer rate. So that
Speaker 3: puts a throttle on what both investors and owner occupiers
Speaker 3: can borrow. And so that means putting that throttling on
Speaker 3: means that you've got to gain concentration of demand in
Speaker 3: that sort.
Speaker 2: Of bottom quarto of the market.
Speaker 3: And so that in itself is seeing We said it
Speaker 3: earlier in the podcast that that's why that end of
Speaker 3: the market is performing better because unfortunately all the demands
Speaker 3: being pushed into that particular area.
Speaker 1: But do you then think it's overheated that market because
Speaker 1: you're funneling, You're pushing everyone into there. So there's the
Speaker 1: appra measure shore. Now we've got the expanded first home
Speaker 1: bias scheme. If so much demand is funbling, there is
Speaker 1: at risk of a bit of a bubble.
Speaker 3: The short answer that is potentially, and I would say
Speaker 3: in some of the regional towns, I can't support the
Speaker 3: fundamental valuations in terms of what those property prices are
Speaker 3: selling for right now, because you know, the data is
Speaker 3: suggesting that the vast majority of those buyers are investors,
Speaker 3: so they are artificially pushing the market up.
Speaker 2: And I've seen.
Speaker 3: Those markets are a lot more volatile after the end
Speaker 3: of these sort of get rich quick type promotions that
Speaker 3: happen into these particular areas.
Speaker 1: This could be devastating for first home buyers though, couldn't it.
Speaker 1: I mean investors that sort of buyer beware. But we're
Speaker 1: also pulling in first home buyers into this market, and
Speaker 1: they could be in negative equity territory pretty quickly.
Speaker 2: They could, And that's why I'm worried about it.
Speaker 3: That's why I've written to all of the trade associations
Speaker 3: to say, hey, it's all being led by this social
Speaker 3: media marketing push and they're talking about, you know, if
Speaker 3: you can't buy it in your personal name, go on,
Speaker 3: buy two or three in trusts and then buy them
Speaker 3: in yourself many superfund So I've got real problems with that,
Speaker 3: and I've got real problems and the fact that it's
Speaker 3: being generated by mortgage brokers and buy as agents and
Speaker 3: property investment advisors who aren't licensed to give financial product advice,
Speaker 3: which is self managed super funds or trust lending.
Speaker 2: That's a real problem for me.
Speaker 3: And yes, it does have consequences, and the same sort
Speaker 3: of consequences too.
Speaker 2: You know, they're getting on there.
Speaker 3: I've bought my fifth I bought my eighth, I bought
Speaker 3: my tenth property in three years using all of these
Speaker 3: trust structures. That's that's unsustainable to your point around getting
Speaker 3: first home buyers into the market if they're if you know,
Speaker 3: for every ten offers on a property, if nine of
Speaker 3: them are from investors and only one owner occupier, that's
Speaker 3: that's not where we want to be. That's not not
Speaker 3: you know, there's no social contract for investors to have
Speaker 3: that right to be able to do.
Speaker 2: That, and it's going to end badly.
Speaker 3: So I'm trying to get in front of, you know,
Speaker 3: the potential risk here because I'm seeing it as an
Speaker 3: emergent risk. Also for the financial stability of the market
Speaker 3: as well, because at the end of the day, if
Speaker 3: you think about property, property underpins the wealth in this country,
Speaker 3: you know, and so you do then have obviously financial risk.
Speaker 3: And I don't want to be scaring people, but the
Speaker 3: reality here is that we've got some settings that are
Speaker 3: wrong and we need to We need to tighten them
Speaker 3: up in terms of getting easy access to credit for
Speaker 3: trust lending or for self managed super fund lending.
Speaker 2: So we need to tighten that up.
Speaker 3: And we need to get the balance back to the
Speaker 3: seventy thirty seventy percent owner occupy thirty percent investor. If
Speaker 3: we're seeing that move outer kilter, we're going to have
Speaker 3: some problems. And to your point, those first home buyers
Speaker 3: who got in might think great, property price has gone
Speaker 3: up twenty percent, but if they then correct by thirty percent,
Speaker 3: then ultimately they could be in some negative equity area.
Speaker 2: Now.
Speaker 3: First for home buyers, look, they're playing in the decades game.
Speaker 3: They're not necessarily playing in, you know, buyer property and
Speaker 3: turn it into a commodity and trade it, because we
Speaker 3: don't want trading in property either. You know, it's unsustainable
Speaker 3: if we have speculation in residential property. So what I'm
Speaker 3: hoping is that you know, those first home buyers can
Speaker 3: get in the market, can hold onto their property for
Speaker 3: a long period of time, and enjoy some capital growth,
Speaker 3: which will obviously help them in the future as well.
Speaker 1: You think, you think governments need to have a bit
Speaker 1: of a crackdown on those other areas of the market.
Speaker 1: So it's all very well and good to offer these
Speaker 1: incentives and these schemes and do what they can to
Speaker 1: help first home buyers. But if there are these other
Speaker 1: schemes flourishing that it is just sucking in more investors
Speaker 1: that's pushing out first home buyers. That they've got to
Speaker 1: act on that and do that soon.
Speaker 3: One hundred percent, Julian, it is. I mean, it's just logical, right,
Speaker 3: Like it might feel great that you're an investor and
Speaker 3: you've just made a quick thirty percent return, but at
Speaker 3: the end of the day, investing in property, you're running
Speaker 3: a private.
Speaker 2: Rental accommodation business.
Speaker 3: And that should be something that you think about that
Speaker 3: you're going to be doing for ten, fifteen, twenty years, right,
Speaker 3: and enjoy the spoils of that long term. If we
Speaker 3: turn property into a speculative asset and it becomes a
Speaker 3: tradable commodity, no politician, no government is going to on
Speaker 3: either side of politics, is going to want to be responsible.
Speaker 2: For robbing the Great Australian dream from people.
Speaker 3: So it's clear to me that the animal spirits that
Speaker 3: we're currently seeing which is driving a lot of this
Speaker 3: price growth at the moment, because if you just look
Speaker 3: at the last quarter of data around investment lending versus
Speaker 3: owner occupied lending, it's clear investment lending is growing at
Speaker 3: three to four times greater than owner occupied lending at
Speaker 3: the moment. What does that tell you about the market mechanisms?
Speaker 3: And APRA is sort of aware of this, they're flagged
Speaker 3: something to say, you know, they may potentially put some
Speaker 3: other macro credential throttles in place, and I'm sort of saying, well,
Speaker 3: here's something that the regulators can do. Just ban trust
Speaker 3: lending and have a look at self managed super funds
Speaker 3: in terms of who's giving the advice. Because the advice
Speaker 3: is being started by the property sprewkers and then ultimately
Speaker 3: then you go off and see your financial planner and
Speaker 3: then they set you up, you know, in your account
Speaker 3: and sets you up. But it's not the traditional way
Speaker 3: in which that should work. It should be if I've
Speaker 3: done my own personal research and I've gone to speak
Speaker 3: to a financial planner or I've gone to speak to
Speaker 3: my accountant to learn about No, it doesn't feel like that.
Speaker 2: What it feels like is, yes, that these.
Speaker 3: Buyers agents, mortgage brokers and property investment advisors who are
Speaker 3: self interest. There's all self interest here, and make no
Speaker 3: mistake about that. And I'm also putting my hand up.
Speaker 3: I run a business in this space, and I've been
Speaker 3: running that business for almost twenty years, so you know,
Speaker 3: I'm talking down you know, a marketplace that obviously I
Speaker 3: get to benefit from. So that's how concerned I am
Speaker 3: about the sustainability of the market. It's just not where
Speaker 3: it needs to be in terms of that particular story.
Speaker 3: So there is an emerging story here and I'm trying
Speaker 3: to get that message out there.
Speaker 1: Then you mentioned a few times about buyers agents, and
Speaker 1: it's coming across our desks quite often to a lot
Speaker 1: of people are using buyers agents. It used to be
Speaker 1: sort of, I don't know, an for very wealthy people,
Speaker 1: and now it seems to be trickling down to all
Speaker 1: facets of the market. Do people need a buyers agent?
Speaker 2: All disclosure. I run a buyers agency business, so.
Speaker 3: As part of our empower wealth business, we have a
Speaker 3: full suite of services including mortgage broken, buyers aid, and
Speaker 3: property advice, et cetera. So I want to make sure
Speaker 3: the public understands that. So what does a buyer's agent do.
Speaker 3: The buyer's agent works on behalf of the buyer to
Speaker 3: effectively find, assess, negotiate and secure the property on behalf
Speaker 3: of their client.
Speaker 2: So they work for the buyer obviously, and they are
Speaker 2: a licensed real estate agent.
Speaker 3: As opposed to the current way in which we potentially
Speaker 3: see the mainstream of real estate agents. They work on
Speaker 3: behalf of the vendor and their job is to obviously
Speaker 3: get the best result for their client.
Speaker 2: So each of the parties are working on behalf of
Speaker 2: their clients to try and get an outcome for those times.
Speaker 3: So that's what they do. There absolutely has been an
Speaker 3: explosion of buyers agents wanting it into the market. I
Speaker 3: mean property, property is our favorite barbecue topic. What and
Speaker 3: if I can go and earn a commission on helping
Speaker 3: someone else buy a property, how.
Speaker 1: I almost might do that in my spare time quite frankly.
Speaker 1: Then it's like it's so I really love watching the
Speaker 1: property watch this stite go to home opens. I'm not
Speaker 1: even in the market to buy home.
Speaker 3: There you go, so and it's being promoted is that
Speaker 3: that it's like a side hustle that you can be
Speaker 3: a buyers agent part time, and so we're worried about
Speaker 3: the quality of buyers agents. You know, they want to
Speaker 3: do the right thing, and so I might refer to
Speaker 3: them as enthusiastic amateurs. They don't really understand that if
Speaker 3: they're doing it for investment, they really probably don't understand
Speaker 3: how financial services work. They certainly aren't a clued up
Speaker 3: in terms of the Regulatory Corporations Act around what you
Speaker 3: can talk about what you can't talk about from.
Speaker 2: An advice point of view.
Speaker 3: So there is definitely a knowledge gap that a lot
Speaker 3: of them have, and that's also leading to potentially bad
Speaker 3: outcomes for their clients if they're buying the wrong investment
Speaker 3: property in the wrong location, if they're not doing their
Speaker 3: due diligence properly, and give you here's a good example.
Speaker 3: We've got interstate buyers agents who will buy a property
Speaker 3: based on what they see on the on the search
Speaker 3: portals and then the video walk.
Speaker 2: Through from the selling agent. So do you think the selling.
Speaker 3: Agent is agent is going to show the structural problems
Speaker 3: or the cracks in the brick work, or the missing
Speaker 3: thing here or the broken thing there. No, they're doing
Speaker 3: a quick walkthrough, and then that buyers agent in a
Speaker 3: state is not sending their own independent well they're not
Speaker 3: turning up That has problems everywhere in terms of conflicts
Speaker 3: of interest and basically outcomes for those customers. So I'm
Speaker 3: worried about again these animal spirits and these enthusiastic amateurs
Speaker 3: who are currently operating in our space.
Speaker 1: It's just on that. So we talked about Person earlier,
Speaker 1: and it is a fantastic place to live. But if
Speaker 1: you're not living in Person, you think that's the market
Speaker 1: I want to go and buy in. It is a
Speaker 1: bit of a distance. It is an airfare. I mean,
Speaker 1: do you recommend people actually going physically look at the
Speaker 1: property themselves or is it about finding a really good
Speaker 1: buyers agent in that area, and then maybe you can
Speaker 1: document what are the red flags want to look out
Speaker 1: for and how to.
Speaker 3: So let's talk about the three types of buyers agents.
Speaker 3: There is the local buyers agent who might be you
Speaker 3: know what they might refer to as their local expert
Speaker 3: in terms of their pocket of the market, similar to
Speaker 3: the way in which is selling agent might operate that way.
Speaker 3: Then you've got what we call the boardless property and
Speaker 3: buyers agent, and so they're helping clients potentially in other states,
Speaker 3: and then they often fly into those locations or they
Speaker 3: have what we refer to as inspectors or spotters on
Speaker 3: the ground.
Speaker 1: Maybe I can do that. Can I be someone's spotter who.
Speaker 2: You can go and walk through properties and inspect them? So, yes,
Speaker 2: that can.
Speaker 3: And usually they might be say retired or part time
Speaker 3: real estate agents or whatever, you know, former property managers,
Speaker 3: or they could be the property manager that's working on
Speaker 3: behalf of that group. All of those things can be
Speaker 3: true in terms of how they do that. But and
Speaker 3: then of course no property should ever be bought without
Speaker 3: a building and pest inspection, so and now they are
Speaker 3: obviously independent. They will come in and do that building
Speaker 3: and pest inspection. So yes, you will see more and
Speaker 3: more investors who are buying in their mind sight unseen
Speaker 3: in terms of their eyes. But they are absolutely relying
Speaker 3: on quality of the buyers agents to do that due
Speaker 3: diligence work. And so we're concerned about the corners that
Speaker 3: are being cut by certain buyers agents in the market
Speaker 3: at the moment.
Speaker 1: Okay, we are fast running out of time then, and
Speaker 1: I do want to make sure we cover off what
Speaker 1: you think are the top markets for property investing. So
Speaker 1: if you're going to buy an investment property in the
Speaker 1: next let's just say six months, shall we say you're
Speaker 1: in the market, you're on the hunt, you want to
Speaker 1: buy one, where are you buying?
Speaker 3: So at the start of the year I said Darwin
Speaker 3: would be the number one performing market.
Speaker 1: And have you got the stats to hand? Ben, Now
Speaker 1: you got what's darting up about? Is it seventeen percent
Speaker 1: or something? It's definitely I think seventeen percent was the
Speaker 1: stat I heard, which includes rental yield, But anyway, maybe
Speaker 1: it's true.
Speaker 3: No, there's every chance that it's over twenty by the time,
Speaker 3: because what the data you're looking at is lag data.
Speaker 2: So if you actually look at what the rolling three
Speaker 2: month trend is. It's definitely in the twenties plus. Now.
Speaker 3: It's moving very quickly and it's a pretty logical thing.
Speaker 3: There's only about one hundred and twenty to one hundred
Speaker 3: and thirty listed properties in Darwin, the entire market. So
Speaker 3: you talk about that supply demand imbalance.
Speaker 1: Is that why you tipped it at the beginning of
Speaker 1: the year you saw the imbalance or was there some
Speaker 1: other economic activity?
Speaker 2: Yeah, well it's definitely not economic activity.
Speaker 3: Look, you've got a new government in power there, the
Speaker 3: Liberal National Party, and they are very pro business and
Speaker 3: so they're very pro economy. So that was the first
Speaker 3: That was the first cod that needed to go into
Speaker 3: that wheel. Then you start to have a look at
Speaker 3: the yield story. And also there's no land tacks in Darwin,
Speaker 3: so you've got really strong yields. And then the third
Speaker 3: one was it's been dormant for almost fifteen years, right,
Speaker 3: it is again in a boombust. And so off the
Speaker 3: back of that, I've said to people, look, if you're
Speaker 3: going to go into Darwin, you're only going to be
Speaker 3: in that market for maybe five to seven years and
Speaker 3: then you'll probably get out. And then with all of
Speaker 3: this trust lending and self manitude fund lending where they
Speaker 3: really do rely on really high rents. That was the
Speaker 3: final straw, so that one was always going to take off,
Speaker 3: and it's done that.
Speaker 2: So the next one was Perth and Melbourne. I had
Speaker 2: them side by side.
Speaker 3: I really love Perth in the sense that fundamental are
Speaker 3: so good economic activity, so good liveability scores off the charts,
Speaker 3: so you know, job opportunities and all that, so I
Speaker 3: think the economy will run strong, so that one will
Speaker 3: continue to perform well. I had Melbourne in that sort
Speaker 3: of mix through probably more so around sentiment everyone you know,
Speaker 3: Unfortunately a lot.
Speaker 2: Of investors aren't. They aren't doing a lot of research
Speaker 2: on this.
Speaker 3: So if there's a view that it's affordable and that's
Speaker 3: where I need to buy, I'll go down and buy
Speaker 3: in Melbourne. So we're seeing a lot of that borderless
Speaker 3: investing coming into Melbourne.
Speaker 2: So I think it's probably.
Speaker 1: People like myself. Obviously I'm no expert, but when you
Speaker 1: have a look at the charts, Melbourne has deviated from
Speaker 1: Sydney prices in a way that just doesn't seem normal,
Speaker 1: that just can't sustain itself forever. We know that the
Speaker 1: Victorian government has left all the taxes on, so we
Speaker 1: know sort of the background story. But it does seem
Speaker 1: remarkable that Sydney's me in house price can be so
Speaker 1: much moigher than Melbourne.
Speaker 3: Correct especially given obviously now Victoria has just moved over
Speaker 3: seven million people in the state and Melbourne is continued
Speaker 3: to attract its high share of immigration. It's losing a
Speaker 3: small portion of interstate migrants who are probably moving up
Speaker 3: to Southeast Queensland, but that's its superpower. Melbourne's multicultural attraction
Speaker 3: tool is its superpower. But it's underperformed purely off the
Speaker 3: back of the economic performance of the state. It's got
Speaker 3: the highest level of unemployment across the capital cities. It's
Speaker 3: got a debt story that's going to be a massive
Speaker 3: problem for future state government, so that's holding it back.
Speaker 3: But if you think that will be rectified over the
Speaker 3: period of time, the regression to the means should kick
Speaker 3: back in and you'll start to see probably prices move
Speaker 3: high there. The one that surprised me the most has
Speaker 3: probably been Southeast Queensland, namely Brisbane, is that it's had
Speaker 3: a terrific run and that run has been going for
Speaker 3: a good period of time, but the fundamentals and the
Speaker 3: affordability story is now starting to taper that out, but
Speaker 3: it's performing still quite strongly.
Speaker 2: Then I had Adelaide.
Speaker 3: It's had a sort of strong run for five to
Speaker 3: seven years, so I suspect that will settle down and
Speaker 3: there's a good amount of supply that's about to write
Speaker 3: into Adelaide over the next sort of twelve to eighteen months.
Speaker 3: Looking at the forwards, then I had Canberra, more so
Speaker 3: because the labor governor in power and so all of
Speaker 3: the public servants an't going to lose their job, so
Speaker 3: that will keep that sort of population and growth going.
Speaker 3: Then I had Sydney In terms of in that mix,
Speaker 3: Sydney is an interesting one. It's dynamic city, it's our
Speaker 3: financial capital market, it's our international city. There's prestige associated
Speaker 3: with living in but it's still very much unaffordable, so
Speaker 3: from an investment point of view, it's a challenging market
Speaker 3: to get into it. And then finally I had Hobart
Speaker 3: at the bottom of the market. Purely on the back
Speaker 3: of Hobart. In the last results of population growth, it
Speaker 3: had about one hundred and sixty two people increased population growth,
Speaker 3: so it's really stagnating. It needs to get its economy
Speaker 3: working otherwise it'll lose its knowledge base and its youth.
Speaker 2: And if that youth moves out into Victoria or other markets,
Speaker 2: that market's going to be challenged.
Speaker 3: If it's only going to be reliant on retirees moving
Speaker 3: down into that market who don't have the incomes or
Speaker 3: the borrowing powers, price is higher.
Speaker 1: So if you're buying today or sometime over the next
Speaker 1: six months based on that list, is it So Darwin
Speaker 1: is where you're buying.
Speaker 3: Darwin want to be I need to sort of precursor Darwin.
Speaker 3: It's a speculative buy. It's not something that I would
Speaker 3: sit back. So fundamentally, I'm a long term investor, so
Speaker 3: I want to invest for the decades.
Speaker 2: I don't want to trade property.
Speaker 3: So if I'm buying in my individual name to run
Speaker 3: my private rental accommodation business, I wouldn't necessarily be jumping
Speaker 3: into Darwin, you know. But if I was buying in
Speaker 3: a self managed super fund where I have better tax arrangements,
Speaker 3: I don't want to give advice to anyone in it.
Speaker 3: Please don't take this as advice. It's not advice. But ultimately,
Speaker 3: you know, Darwin does provide that sort of ability to
Speaker 3: get into the market and then potentially trade out of
Speaker 3: that market at its peak.
Speaker 1: So does that mean if you're doing a long term
Speaker 1: traditional investing its perse second on the list, Perth.
Speaker 3: Melbourne would probably be the markets that I would be
Speaker 3: playing in at the moment, and I'd be looking at
Speaker 3: freestanding houses that have a really good proportion of land
Speaker 3: to asset ratio. So the land needs to be the
Speaker 3: minimum of sixty percent of the value of the overall
Speaker 3: asset that you're buying.
Speaker 1: Okay, good tip to know, Ben. When we come back,
Speaker 1: we've got some readers, readers, We've got some listeners. You
Speaker 1: can tell I'm a newspaper, Janelis, can't you. We've got
Speaker 1: some listeners who have sent through some questions. I'll put
Speaker 1: them to you. And also we just might get that
Speaker 1: one one mistake, one common mistake people make when investing
Speaker 1: in property. We'll have a chat when we come back.
Speaker 1: Thanks for joining me on the money Puzzle. I'm your host.
Speaker 1: Julianne Sprague, Wealth editor at The Australian, filling in for
Speaker 1: James Kirby. Ben Kingsley from Empower Wealth is joining me
Speaker 1: to talk all things at property. We've got some top
Speaker 1: tips so far, We've got some listener questions to get to.
Speaker 1: But first Ben, I just want to get to your
Speaker 1: insights on Is there one thing that you see ze
Speaker 1: happens quite frequently when it comes to property investing. The
Speaker 1: one thing that people get wrong or overlook.
Speaker 3: The tip I'm going to give here is over extending themselves.
Speaker 3: Property investments should be a long term investment, and you're
Speaker 3: taking on debt. What I often see is potentially people
Speaker 3: aren't thinking about their cash flows in the short.
Speaker 2: To medium term. So let me give you an example.
Speaker 3: I buy an investment property and then we decide to
Speaker 3: have a second child or whatever that may look like,
Speaker 3: and all of a sudden, now we're really tight in
Speaker 3: regards to our cash flows, and so I haven't let
Speaker 3: that property breathe enough in terms of mature enough. So
Speaker 3: with my high cost of getting into that particular market
Speaker 3: through stem duty and also the selling costs associated with
Speaker 3: that in the interest that I had over that time,
Speaker 3: a lot of people don't necessarily break even if they're
Speaker 3: held that property for a short period of time. So
Speaker 3: I'm always about make sure you have a plan. Make
Speaker 3: sure you understand what your future cash flow impacts are
Speaker 3: going to be around that plane. Because it's a high
Speaker 3: cost investment property. We're not buying five thousand dollars worth
Speaker 3: of shees heer. We're potentially buying half a million dollar
Speaker 3: towards a million dollar asset. So if we get it wrong,
Speaker 3: it will put us back for years and so it
Speaker 3: really is important to know that we can buy and
Speaker 3: hold and sustain that property for the medium to longer term.
Speaker 1: Okay, we've got some people who are looking at investment
Speaker 1: properties as we speak, Ben and I kid you not.
Speaker 1: We have two questions from two listeners. They're both called Ben.
Speaker 1: I'm chatting to Ben Kingsley, so this should make it
Speaker 1: easy for me not to stuff up people's names. So
Speaker 1: Ben has emailed the show and if you'd like to email,
Speaker 1: you can email the Money Puzzle at the Australian dot
Speaker 1: com dot au. But Ben says, my wife and I
Speaker 1: are thinking of selling our first home, which is now
Speaker 1: an investment property. They purchased it in twenty sixteen and
Speaker 1: has been rented out since twenty twenty one. We want
Speaker 1: to cash out to help knock down their existing mortgage
Speaker 1: and reallo our investments, and we're hoping to use my
Speaker 1: wife's lower income during maternity leave to our advantage for
Speaker 1: capital gains tax. And so Ben says, if we apply
Speaker 1: the six year rule to avoid capital gains tax on
Speaker 1: the sale of our investment property, are we just pushing
Speaker 1: the tax liability down the road to our current home.
Speaker 1: Both have had similar capital gains, saying about two hundred
Speaker 1: and forty thousand in game for the investment property versus
Speaker 1: about two hundred and eighty thousand for the current home.
Speaker 3: Ben Kingsley, these are tax questions, and there's some tax impacts.
Speaker 3: I need to put my hand up and say I'm
Speaker 3: not a tax agent. I'm not a qualified tax agent.
Speaker 3: So I'll talk in statements of fact to sort of
Speaker 3: help being on this particular story. So, yes, it's true
Speaker 3: that if you have owned a property that was your
Speaker 3: principal place of residence from twenty twenty one, I think
Speaker 3: was said you have up to six years in which
Speaker 3: you can declare that your principal place of residence. Now,
Speaker 3: if you're owning two properties and you're in another property,
Speaker 3: that obviously means that capital gain in that second property
Speaker 3: will actually be taxable because you can only ever have
Speaker 3: one principal place of residence at one time, so you
Speaker 3: can only have one exemption at one time. So what
Speaker 3: Ben would need to do is go and speak to
Speaker 3: his trusted accountant and they would need to do the
Speaker 3: math in terms of what has been the gain over
Speaker 3: that period of time versus if they've moved into a
Speaker 3: new owner occupied property, what has been the gain on
Speaker 3: that property over that same period of time, and then
Speaker 3: do the calculation in terms of which is better for
Speaker 3: them in regards to the sale of that asset. Benning
Speaker 3: is also right technically again statement of fact that the
Speaker 3: income that you will learn as a capital income is
Speaker 3: assessed as income for that tax year. So income for
Speaker 3: that tax year then is a calculation. So if your
Speaker 3: wife is on maternity leave, then you have lower income.
Speaker 3: That means that potentially, now it's all based on ownership,
Speaker 3: So if it's a fifty to fifty ownership, that still
Speaker 3: means that Ben can't allocate a higher portion of that
Speaker 3: income again to his wife.
Speaker 2: That's not possible.
Speaker 1: Half of it can go across, that's right.
Speaker 3: And if that means that you know Ben's wife is
Speaker 3: on a lower marginal tax rate at that time, then
Speaker 3: ultimately that could there could be some tax savings there.
Speaker 3: But again, if the intention is all about minimizing your tax,
Speaker 3: be very careful. That's why it's always important to go
Speaker 3: and seek proper tax advice before you take any decisions.
Speaker 1: Ben, it sounds like Ben has he says he has
Speaker 1: got some advice, but he's always keen for more opinions
Speaker 1: than just is there any real benefit to the strategy
Speaker 1: besides getting more cash?
Speaker 3: Now, Yeah, I would always try And you know, if
Speaker 3: I'm in conversations with clients, I'm always looking at what's
Speaker 3: what is our end goal and what's.
Speaker 2: Our lifestyle by design look like?
Speaker 3: And am I putting the big rocks in the jar
Speaker 3: making sure that you know, like, at the end of
Speaker 3: the day, money is important, it is, you know, but
Speaker 3: it doesn't by happiness. And so what are the goals
Speaker 3: that you're trying to achieve and how does the decisions
Speaker 3: that you may compliment those goals? And if you can
Speaker 3: align it that way, you're going to live a more
Speaker 3: meaningful and purposeful life number one. But two, you're then
Speaker 3: going to not necessarily get hung up just on how
Speaker 3: much tax I'm paying or what you know, how much
Speaker 3: money I've got in my bank account.
Speaker 2: The bragging rights.
Speaker 3: No one sees those bragging rights in the cemetery like,
Speaker 3: so ultimately live now.
Speaker 2: And make sure you're doing those decisions.
Speaker 3: So it sounds like they're going to build their dream home,
Speaker 3: and if this decision is around selling that property so
Speaker 3: they'll have a better dream home and lower non deductible
Speaker 3: debt on their family home, that's not a bad that's
Speaker 3: not a bad idea.
Speaker 1: Thanks for getting in touch.
Speaker 2: Ben.
Speaker 1: Now to another Ben who has emailed the program and says,
Speaker 1: I have a mate who is starting a side hustle
Speaker 1: of buying a rundown house, fixing it up and flipping
Speaker 1: it in six uch. You would have heard about this
Speaker 1: a lot of Thankingsley with lots of people will go
Speaker 1: get that door upper. I will not lie to you.
Speaker 1: I once tried to convince my husband we should buy
Speaker 1: a house across the road. It a dump, and I
Speaker 1: had all sorts of visions we would become amazing block
Speaker 1: contestants or something.
Speaker 2: You're not alone.
Speaker 1: Thankfully he was the smarter of us too and said
Speaker 1: we're not doing that. Yeah. Anyway, So Ben says, it
Speaker 1: made me wonder if this is actually put into the
Speaker 1: house price statistics. So he's having to think about this.
Speaker 1: Major takes a rundown house, does it up, flips it,
Speaker 1: and obviously the property value has gone up quite a bit.
Speaker 1: So he says, does this then impact property markets? He
Speaker 1: hasn't got much work to do with Mayde reckons this
Speaker 1: is going to fix up the floorboards, fix the garden, repaint,
Speaker 1: clean it anyway, they flip it. I guess Benn's wondering,
Speaker 1: is it a big issue or is it just a
Speaker 1: tiny problem if people are coming into these suburbs doing
Speaker 1: up the market and then you might see property prices
Speaker 1: have jumped.
Speaker 3: Yeah, So he raises a really poignant point around measuring
Speaker 3: median house price.
Speaker 2: Now, a meetian is the midpoint.
Speaker 3: So if you've got five property sales, then you know
Speaker 3: the midpoint is the third sale of those five, right,
Speaker 3: And so that's how the market is reported on through
Speaker 3: totality and through other research area. So if you've got
Speaker 3: a suburb where there's a new development going in a
Speaker 3: thirty year old subdivision that's already there, you will see
Speaker 3: that suburb reporting really strong price growth. But the reality
Speaker 3: is there hasn't really been any price growth at all
Speaker 3: all that's basically happened is the more expensive properties have
Speaker 3: been sold, and so that's artificially manipulating the median price
Speaker 3: in that particular area.
Speaker 1: The older properties would still be worth less. The're not
Speaker 1: going to trade up to those higher prices.
Speaker 3: Right, yes, but over time the land value of those
Speaker 3: older properties would have potentially enjoyed the fact that all
Speaker 3: this extra investment has been put into this new area.
Speaker 3: But it just goes to show you that the susceptibility
Speaker 3: of the data that we work with more generally when
Speaker 3: we're educating people around property is that data is it's
Speaker 3: a good indicator, but it's certainly not a great indicator.
Speaker 3: So that's just one thing we need to understand about
Speaker 3: how we report property data. It's not ideal, but it's
Speaker 3: the mechanisms that we use onto the question of buying
Speaker 3: worshouse in the bestreet and doing it up. I love
Speaker 3: that idea for the first time by I love that
Speaker 3: idea for anyone who's trying to get on the property ladder.
Speaker 3: More broadly, I think it's an excellent way if you
Speaker 3: do your numbers correctly, that you can potentially harvest equity and.
Speaker 2: Bring that property back up to its original quality.
Speaker 3: So I like that in terms of flipping property and
Speaker 3: trading property, there are some costs and challenges around that,
Speaker 3: and in a lot of cases, I think flippers don't
Speaker 3: necessarily do their numbers correctly in their due diligence well,
Speaker 3: and so a lot of them can potentially spend six
Speaker 3: to twelve months and break even and jot it down
Speaker 3: as a learning experience.
Speaker 2: But I would say that the other thing that they
Speaker 2: also need.
Speaker 3: To be aware of, and this is the whole political
Speaker 3: thing that we're getting into here now, is that the
Speaker 3: governments are definitely looking at negative gearing and capital gains
Speaker 3: tax exemptions. Those conversations aren't going away, so that the
Speaker 3: moment you get a fifty percent exemption based on holding
Speaker 3: theirsset for twelve months a longer. So if you're going
Speaker 3: to flipping and you're going to flip that property inside
Speaker 3: six months, then you're paying one hundred percent of your
Speaker 3: marginal tax rate in tax on that particular property in
Speaker 3: terms of the profits that it makes. So you've got
Speaker 3: to then decide whether it's worth going into the business
Speaker 3: of doing this or whether it's you know, this is
Speaker 3: just a one off thing that I'm going to do.
Speaker 2: And that's a game.
Speaker 3: Where I would say, go and speak to your accountant
Speaker 3: about your ideas in this particular space and try and
Speaker 3: get an account And Neo's had some experience in this
Speaker 3: area might also be helpful for you because it sounds sexy.
Speaker 3: You know, when I watched the block and that's all
Speaker 3: summarized into a thirty minute or a sixty minute episode,
Speaker 3: you don't know what's going on in the background.
Speaker 2: You don't know how much work's gone into.
Speaker 3: It, or what cost blowouts they've had and all of
Speaker 3: those profits. I mean, at the end of the day,
Speaker 3: they're selling it to a national audience, so that you know,
Speaker 3: and we've seen you know, there's plenty of articles on
Speaker 3: the research in terms of how all those properties performed
Speaker 3: after that first sale. The reality is that those properties
Speaker 3: were bought at extended prices, and it does they weren't
Speaker 3: really you know, fair market value at that time.
Speaker 1: Well, this will test my husband if he's listening to
Speaker 1: the podcast. Honey, you're right about that one.
Speaker 4: But if it's across the road to your point, Julian,
Speaker 4: I'll just finish off that, like, if you can get
Speaker 4: easy and quick access to it, and you're prepared to
Speaker 4: do elbow grease and that type thing, but take a
Speaker 4: longer term view and then rent that out.
Speaker 2: That could be a sensible thing, right, do you know
Speaker 2: what I mean? Like, like, here's the tips. Paint, do your.
Speaker 3: Flooring, don't do anything structural, and make sure you work
Speaker 3: on a dollar in for two dollars back. And if
Speaker 3: the numbers don't stack up, just off that. Some people
Speaker 3: do a one for three, but I think if it's
Speaker 3: one for two. But be prepared that this is not investing.
Speaker 3: This is active investing. Like it's not passive investing. You're
Speaker 3: going to have to put the elbow grease in because
Speaker 3: if you get too many trades in, there's going to
Speaker 3: be no profit at the end of the end of
Speaker 3: the outcome.
Speaker 1: One dollar in two dollars back. Okay, I'll use That's
Speaker 1: a nice mat truck to use. Ben Kingsley, thank you
Speaker 1: so much for joining us on the Money Puzzle. It's
Speaker 1: been a pleasure.
Speaker 2: Yeah, thank you very much for the opportunity.
Speaker 1: Ben Kingsley from in Power. Well, then you can also
Speaker 1: catch him at the Property Couch podcast. We'll be back
Speaker 1: Friday for another episode of the Money Puzzle.