| Episode: | E136 |
| Show Title: | How to get the most out of Investing in Property |
| Cast: | Aaron Horne, John McGregor, & Patrick Berry |
| Show Length: | 19 minutes 53 seconds |
Join the Property Pod team once again, as they help provide some advice on How to get the most out of Investing in Property; whether it is here in Hobart or whether it’s a good idea to look broader out of your own backyard.
John covers 5 main points to think about when getting into the Investment Property Space- from getting a Property Health Check to talking to a Broker about the structure of your loans- this is one not to miss.
EPISODE TRANSCRIPT
Patrick
There are things that you can do that set yourself up today for future opportunities. That’s a matter of just talking to brokers and, you know, to people to find out what opportunities are there really, isn’t it?
John
Yeah.
Aaron
All right, guys. Welcome back to The Property Pod, your weekly engagement into real estate here in the Hobart marketplace. I’m your host, Aaron Horne, and it gives me great pleasure to be here in my footy colours as you can tell. Really good.
Patrick
Mate.
Aaron
Footy Edition 40 edition by day. Yeah, I’m here with the boys. You say that man Mack proudly wearing the red and black sash and then Pat over there is in his blue and yellow eagles colours. We sit firmly at the bottom.
John
Of the ladder. Yeah, we don’t need to talk about.
Aaron
It the way if our teams have not played in quite some time.
Patrick
Colours.
John
And the best names on.
Patrick
I as I’m going through all my different teams just outside of football as well and I realised all of those.
Patrick
Suck. So I was like nope can’t let that that’s.
Aaron
Well I’ve been watching this. I know you’ve been watching it too Alice. Welcome to Wrexham Show with Ryan Reynolds McElhenney they suck as well but Wrexham that’s right.
Patrick
Yeah. Like I do I got my F1 one. No Riccardo sucks at that. Says I won’t put in at all.
Patrick
It’s like he goes.
John
Through the box, throw it over your shoulder.
Patrick
I just can’t pick a team this year.
Aaron
Look, I will say in in podcast world with Friends of the Pod, I was cheering on the Lions on Friday night to be like, Come on, let’s get Simon’s team into the big dance.
Patrick
CHEERING him on. Mike Mainly because that community’s been here every week. He’s flying to the game wherever it was.
Aaron
My that guy loves his lions as much as he loves property. He’s a is a go getter.
John
Well, I know, Larry, speaking of teams as well, but he goes for Colton. But his wife Helen made him wear the Sydney jersey this morning.
Patrick
I did see him decked.
Patrick
Out in Sydney, which made me love.
John
Blue. He said, happy wife, happy life. I don’t think he’s using that as an excuse.
Aaron
Yes, I lucked out. Me and Sarah, we we both go for the bombers, so we hit on that.
John
What happens if the boy chooses a different direction? Mate.
Patrick
We’ve talked about this. You know, follow my lead and brainwash. He’s charged.
Patrick
As the ideal pack.
Aaron
That Pat told Parker that what you want to go for Collingwood for Diamond.
Patrick
Was right if they want to go for Collingwood. And I was like, no one lives in my house. That goes for any team but West Coast. And at the end of do that Doug has.
John
Inside he’s the stick with that little red and white little stink toe in the end of it. You know, when you see those kids in the cartoons of the walking away as it’s leaving the house, they’ve got this oh.
Aaron
Yeah I like their little temper.
John
That’s it. You’ve got, you’ve already prepped one with Parker with black and one on it. So every time he talks about it it’s like, mate, well, is this the direction you.
Patrick
Want to go? I was working the theory. If you want to go for Collingwood, you might as well live outside.
Patrick
Oh what’s been Oxfam.
Aaron
Stuff on that about that. All right. Well we got to talk real time and we’re excited about footy and the grand final. Who do we think is going to win? We’ll just throw it out there. Our production plan. Who’s playing it? You don’t.
Patrick
Know. Yeah, it’s still wrong with it.
John
Didn’t what? Didn’t Buddy say he’s going to give it one more season after this one.
Aaron
Two Saudis happily signed on to Sydney for one more year, so a nice grand final week sign on is always good to show a sign of confidence that they’re going to.
John
Win and to put it on Sydney this time round, see what happens.
Patrick
Sydney’s my mum’s teams. I suppose I better support them.
Aaron
Yeah, well, I better go for Geelong just because.
John
Someone.
Aaron
Thinks I want to go next week. I want to be like we’ll be barcode it all right so footy that’s all that, that’s why we’re in these colours but we want to talk investment again we just kind of I mentioned in a, in a previous episode that I recorded your investment seminar which we were going to pass along to the people that wanted to find out a bit more about it.
Aaron
Yeah.
John
Yeah.
Aaron
It didn’t work that well.
John
We were trying, we were.
Aaron
Trying.
John
First crack at it. You must we.
Aaron
Will look at like we said, the the podcast started lean and main and now we’re in here. So we’ll, we’ll work on that for the next seminar and, and put a bit more preparation into preparing. But I thought we could cover off on a few of the points that were in your presentation, just a bit more in depth.
Aaron
We kind of talked about the experience of how it all went, but yeah, I thought we could go into kind of your five key attributes or things that came out of the in the investment seminar. So do you want to kind of start us off, J-Mac, with what are we going to get knowing your numbers? Is that what we’re going to do first?
John
And we obviously we summarise it. So there was some tangible takeaways that people could, you know, deep dive into later. But I mean, the problem with with too much information is you end up in analysis paralysis and you don’t actually do anything about it. So we summarised it. You know, our focus was the five things you could do tomorrow.
John
Yeah. That puts you down which direction to go. So the five were know your numbers, do some property health checks, get access to cash, talk to someone about your structure and you know, should you buy and so what to do. So the first one was, you know, if you’re in a position now, especially with interest rates rising, the first thing is really understand with your portfolio, who is it?
John
How is that going to have an effect? And that’s understanding, you know, having a deeper understanding of your numbers rather than just casually going, money is coming in, money’s going out. Yeah. And then with that said, is it when you when you’re understanding in numbers, if you if you’re owning a property at the minute, well, okay, the interest rates will have an effect if you’ve got a mortgage.
John
So how does that affect your return month in, month out? So what we’re talking about with return is that’s your yield. So gross yield, which is talking about if you’re the annual rent divided by the purchase price, that’s your gross yield. But the next one is unit yield, which is after you’ve taken out all your expenses, that’s what you get paid in your pocket.
Aaron
Okay.
John
So where we said if you know, if you’re analysing a price where you purchase price will have an effect on. GROSS So when it comes to calculating year, your gross unit yield within then course maintenance costs can be potentially going out. You know, what’s your agent fees like? What’s the maintenance that needs to be attended to your property?
John
And you know, lastly as well, you know, moving forward, is it with your existing investment property, what’s the growth potential? Because if you’ve even with the one that me and my partner have at the moment, with the with the unit, I’m really I’m actually thinking about do we keep it? Do we move it on? We’ll keep it because we’ve got spoiler.
Patrick
Alert because.
John
That is my decision, because you don’t have families moving into it. But in many ways, I could absolutely make the case that financially it’s probably a better move for us to move that capital out of that property because it is negatively geared and, you know, they’re not going to be paying market rate. So for investment perspective, it’s not we’re not doing it as a numbers play.
John
It’s really just almost subsidising family to go into that property, right? Yep.
Patrick
So so so you’re saying the key thing when we talk about yield, I guess, is to make sure it stacks up against other properties in the same area.
John
Yeah, good point.
Patrick
So I like, you know, you can look on realestate.com.au or our website or any of the other 50 data websites out there. And you can actually see Glenorchy what its average rental yield is and that number you want to see if you are above that or below that all or how far apart from it.
John
That’s a good point and for two reasons. We you know, there is a time where we at the moment we’re saying we needed to do price adjustments for but for rentals now as well. And that can be, as you know, more competition comes at the market or tenants aren’t moving sideways. So and the other thing, too, is that it’s really good for people.
John
You know, I think the majority of our clients actually want to look after the tenants and they’re not sitting there trying to get squeeze every dollar out of their property. They like that. Well, they’ve been a good tenant. We want to give back to them. But sometimes, too, if you haven’t had, you know, a price increase over a long, long period of time, you’re the difference between the market value and the actual rental price is way, way, way too far away.
John
So if all of a sudden you do a jump of 100 bucks a week, that’s a huge difference. The current, and it may or may not be able to afford it. And it may be really hard to argue that case if you’re trying to keep that tenant in.
Patrick
Another flipside to not keeping up with market value as well as if your circumstances change, you do need to sell and it’s not at market value. It makes it harder for another investor to decide this is a good property for me to consider buying.
John
That’s it. And the other thing when it comes to knowing your numbers is actually your time frames. Understand, remember where your lease is actually ending. You know, we’ve got a client the moment who wants to move off one or two of his properties. And I said, Well, look it, we’d been doing updates constantly in the year prior. He’s like, No, no, that’s fine.
John
No, that’s fine. And so then he signs on a 14 month licence is now want to sell it and like make like no it’s not, we can’t get your market value.
Aaron
So he should have come and spoke to you before restarting the lease just to be like is this a good move or not? Like if he’s got someone like yourself in his corner would have made sense to be like I provided this piece of advice. This is not the move that I would make on the right yields.
John
If this is what you’re intending to do, we can’t make those changes. So I think in that sense, he you know, from his perspective, he was more so just looking at, well, how much is the house worth? Who cares what’s going on elsewhere? He’s just he’s he’s had his capital growth now. Yeah, unfortunately. Is it now the way it’s positioned is that we’re going to lose a lot of market value if we’re going to sell it, because it’s, you know, under market in terms of its rental price and also to the lease leases, 14 months for, you know, for with it in the position too.
John
So the buyer for that is.
Aaron
Is a much smaller pool of buyer than someone that’s only going to an investor, not to someone that wants to be an owner occupier, etc.. All this yield stuff we’re kind of going over know your next point here is about a property health check. I feel like we’re kind of angling towards that. Can you kind of explain what you mean by like get a property health check?
Aaron
It sounds like this guy, if he got a property health check before signing this lease. Yeah, might be helpful.
John
Well, the ironic ironically, too, is that always providing it for him as part of our investor service. Now, the way I look at it, Health Check, is that you’re assessing your current market value for sale. And then secondly too, is it what could be done to increase both the value from a rental and selling perspective, which is, you know, essential maintenance items or even work that could enhance its value?
John
So that’s really all that’s that’s as simple as that, because then with the property health check, the person can understand how much equity they’ve got available, should they move that asset.
Patrick
On and what advantages there are to, you know, renovating the kitchen versus not renovating the kitchen?
John
That’s exactly because.
Patrick
You know, if they’re buying the investment property for a few years, they probably get the opportunity to claim a lot of that back through tax write offs. So it may be better for them to renovate the kitchen before selling the property because then they can get that money back, plus get a better sale result at the end of it potentially.
John
That’s it. And because even with those health checks, we’re going to be talking about timing. So if their leases are running during this time, okay, when they look into sale next year, maybe we offer the tenant a 14 month lease because you know, you’re going to be wanting to sell in next summer.
Patrick
So making sure you hit the vacant property at the best time of year.
John
That’s exactly right. Yeah.
Patrick
You don’t be hitting middle of December and then having that Christmas New Year period where you can’t do anything with the property.
John
John
So we’re seeing a transition market now still is a good time. What does that actually physically mean? Are you hearing all the news? How does it actually bear out if you’re two listed property for sale today and how does that affect you moving sideways?
Patrick
You’ve also got the option as well is that if you don’t own investment properties, getting a health check on your own place, you might unlock capital value you didn’t know you had that. It allows you to buy your first investment property. It’s that foot in the door to be able to to get into the investment marketplace.
Aaron
Okay. So is this like trying to like unlock how much cash is available to yourself? So like you can find out where you sit. So when I purchased my property was worth so much, but the equity that I’ve built in it.
Patrick
Yeah, it’s a great way to explain that is like, you know, I think, you know, you bought in and you owned 20% of the house and the bank owned 80% of the house. Now you may have only paid back 5% for instance, or even less because the interest is obviously quite high in those early years. Yeah, but what’s happened is in since you bought it, the value of the properties increased.
Patrick
So all of a sudden you no longer just have 20% ownership of the property because it’s increased in value without you paying much back. You now owns a 40% of the property and the bank only owns 60%, even though on paper it looks like you haven’t made any dent at all in your mortgage. You’ve unlocked capital that you could potentially refinance against.
Patrick
Yep. To go buy that next property.
Aaron
Yeah. Yeah. So this is kind of like your third point here with how much cash can you get access to? This is where we’re kind of leading down by it, by having the property health check, you’ve kind of you can find out.
John
Yeah, yeah, yeah. You can understand the unlocked your potential. You could say yep. And obviously now this is about really revisiting your bank and physically getting access to that cash. And cash is nothing but opportunity know a potential opportunity because you may not do anything if you’re happy with it, that’s great. But all of a sudden is it?
John
If that if that money’s available in a new opportunity presents itself, well, then you ready to jump on it? Yeah. Rather than. Hey, look, I’m always on the market. Look, we’ve got a great example, but I’ve just got to go speak to a bank there. And you tend to get two steps out of the gate. And, you.
Patrick
Know, if you’re serious about, you know, trying to get into the marketplace, you know, banks have options like offset accounts where you can actually draw that equity down and have it sitting there. So it doesn’t cause you interest, but it means that you’ve got that there to jump on a property with a deposit like this, there’s things that you can do that set yourself up today for future opportunities.
Patrick
Absolutely. That’s a matter of just talking to brokers and, you know, to people to find out what opportunities are there really, isn’t it?
John
Yeah, yeah. And so I think and I guess the next one I had then was the idea about understanding if you are going to be buying and moving into the next one, is it understand the structure that you’re going to need to and actually have a consideration about you will even as us young, you know, we’re still, you know, just two young blokes.
John
We need to have these we need to understand what that looks like for our future generations and their legacy. So it really is if you haven’t done it and you haven’t updated those things, you know, so you will have.
Patrick
A record for a lot of our kids will be debt.
Patrick
Which is quite good news.
John
And then also too, does that mean you need to take out your insurance policies and all that kind of stuff? So the legacy sort of items, I mean, the other thing with the structure too is that sometimes people might give you advice do you need to buy through a trust or a company? There are the bigger questions as well.
John
But when we’re looking at in terms of structure, we’re looking at your legacy. So your insurances, your your wills and that kind of stuff.
Patrick
So, so basically what you’re saying is, is that make sure that if you go down this path of getting heavily into investment, you know, if something were to happen to you tomorrow, what have you, you’ve got a plan B, C, not leaving your family in the lurch.
John
What’s the exit strategy? Yeah, family gets left with that responsibility. Yeah. And that’s what it’s really about for sure. So I mean that when them 2.5 is it will if you are actually looking to buy and sell well, you know what, which part, which path do you go there now? So I mean, when we talked about to the investors is that, you know, when it comes to the strategy that they’re developing, you don’t have to buy the house in the same neighbourhood.
John
Yep, that’s where we’ve got. So I’m busy on the podcast, for example, where someone like him can help you invest right across Australia. If your strategy doesn’t map Hobart. And one of the young couples that came up to us is they said, said, well, we want yield and a bunch of other little ones. And I said, Well.
Patrick
Realistically that’s not for you.
John
This isn’t the market for you for what you want right now. And there were sort of you could see that the key is turning, thinking, well, maybe we can think differently. Yeah. And we put them in touch with the right people.
Patrick
And that’s really hard, though, because a lot of people still feel today that they need to go inspect the property in person. It needs to be where they live so that they can do drive by past and check on it or know that it’s at arm’s reach and choosing to have an investment property. You know, on the other side of Australia in a remote country town.
Patrick
Yeah. Might freak people out. Yeah. That’s where the best value is to make money.
John
That’s where you.
Patrick
Get where you.
John
Go. Yeah, exactly. And then the other one too that they also when should we be selling it? And as is always the case for your investment, my question for my clients is, well, what are you going to be doing with that money? Because the and I’ve told the story about my friend who, you know, we convince not to sell because it was going to get taxed to buggery and it would lose all the capital out of his house that he had to draw against.
John
So we went through this process with him. So is it don’t rush to sell because it was another friend of mine. He he sort of so sold with another agent. But when I caught up with him later.
Patrick
He wasn’t much of a friend. No.
John
Because. Because in the end, he got the wrong advice. He worked with someone who wanted the paycheque and not looking out for his future because he went almost like 150 grand on in tax was like maybe she just kept on probably like, oh no. And he’s like, well, you know, in the end he was it was working with the wrong people and they had the wrong incentive for him.
John
Yeah. You know, so I suppose for us when we’re trying to provide that advice, we’re asking, well, look, what’s the best for you both today and ten years from now? And that might from my advice might be not financially beneficial for me because we don’t get a house to sell. But that’s fine because it’s certainly meant a better opportunity for the people that we’re providing advice for.
Aaron
Yeah, 100%.
John
So and that’s the thing when you are looking to buy, sell, I mean, it is good always to revisit the person who you can, you know, trust their advice and actually work with the strategy that you’re hoping to achieve, not just trying to, you know, sell their own personal interests.
Aaron
I think you’ve got here sell if you have a good reason, not reactionary. Like don’t just react to on a whim. Today I’ve decided it’s time to sell again get your probably health techs and these things up.
John
Well and that’s and that’s right because if you are reactionary well you’re not thinking you know you know you’re not future focussed you’re now focussed and I suppose the last point is we are looking to buy. Well there’s always I mean one of the, one of the emails we got back out which is did a health check for one of our clients said, well thanks for that because I reckon we might be looking to buy again when there’s blood in the water.
Patrick
Jeez.
John
It’s it is. Well, if there’s, you know, if he’s thinking there’s going to be great opportunities like that. I mean, you know, for, you know, it’s a bit of a joke, but, you know, that’s the way it works. And that’s that last point was to say, well, buy if the numbers stack up, but with some contingencies in mind.
John
So don’t buy reactionary either, you know. So that’s where if you buy an investment property, if the numbers stack up, you go for it. And that allows for you to maintenance contingencies, your interest rate contingencies, all that kind of stuff. So it’s it was really fun when we, you know, at the end of that wrapping those five points up for our clients because if you follow that strategy that’s watched for it’s repeat every 12 months.
John
Yeah, every 12 months you just go back to your portfolio and you and you’ll always be one step ahead of the game.
Aaron
Yeah. Awesome. Now that’s actually really handy and it’s kind to be a nice to have it distinctly wrapped up in a little bundle which we can pass along to anybody that needs no end to our property but listeners. So yeah, thanks for going over that John, and popping that together. Um, anything else you want to add before the end of the part today?
John
I’m just interested to know what Bomber’s legacy plan is so you can actually care about footy.
Aaron
And tell me about it so I can head back the.
Patrick
Rebuilding job.
Patrick
You rebuild.
Patrick
The buzzworthy.
John
Assets. That’s the.
Patrick
Only way.
Aaron
Not to.
Patrick
Sometimes rebuild for a long time. Yeah, North Melbourne.
Aaron
Oh, they look fine. I’ll say that they’re coming good again next year. So I said.
Patrick
That. Yeah. If they rebuilding.
Aaron
Well, boys good luck with AFL grand final this weekend everyone out there playing and yet footy colours days always a bit of fun in the office thanks for covering up on that J-Mac. We’ll be back next week with even more probably thought. Thanks very much. You may have been listening to the property both recorded and edited by Foreman for Media House in conjunction with Full and Full Property Code.
Disclaimer:
This podcast is general information only and the thoughts of. Views expressed is the opinion of our panel and listeners. Should always then use their own investigation into any topic we discuss to ensure they fully understand their own situation. It does not constitute and should not be relied on as purchasing, selling, financial or investment advice or recommendations expressed or implied. And it should not be used as an invitation to take up any agent or investment services. No investment decision or activity should be undertaken on the basis of this information without first seeking qualified and professional advice.
