Highlights from this week:
How to look at your investment as a business
How to get into property with little or no cash
Do women make better property investment decisions?
What will happen to property after the boom?
How do real estate agents set values?
Transcripts: Leave your emotions at the front door – Cate Bakos Kevin: Buying property is all about, well, I guess it’s a lot about emotion. It’s also, if you’re an investor, you need to look at it as a business, which in some cases, means taking out the emotion of investing. But how much of a trap is it if you do get caught up in that, especially first-time investors, I guess?
Joining me to talk about this, Cate Bakos, who is a buyer’s agent out of Melbourne from CateBakos.com.au.
Good morning, Cate. Thanks for your time.
Cate: Good morning, Kevin. It’s lovely to be on the show.
Kevin: Have you seen that as problem, particularly for first-time investors?
Cate: Every day. Every time I talk to someone, there’s been usually a little bit of a need to reprogram them at the start if there’s emotion slipping into the picture.
Kevin: How do they demonstrate that? What do they say to you for the alarm bells to go off?
Cate: As soon as they start overlaying criteria that’s not financial-related. For example, they might tell me where they want to be or what sort of attributes they want the property to have. I need to ask them whether this is purely an investment decision or if there’s a potential for dual purpose? So, in other words, that difficult project where someone says “I want an investment but I might want to live in it.”
From there, we really have to work out whether there’s a short-term need for them to live in it and whether it does need to suit them personally in their lifestyle, or whether they’re just hedging their bets, which is what a lot of people do. Whether they’re deliberate about it or whether it’s just in the background, they want to think that there’s some logic and some sense to what’s otherwise an investment.
Kevin: Yes, they apply those personal standards to it. I guess this also happens a lot with renovators where they try to renovate a property to suit their lifestyle as opposed to what the market should be dictating.
Cate: Absolutely. You always have to look at what the target buyer or the target tenant will value in a particular area for a particular dwelling type. And as soon as you get that wrong, you can devalue the property or you can make a bad decision or buy a property that will under-perform what you could have targeted if you got it right.
Kevin: What are some of the things that a buyer or an investor should be looking at to determine the type of property that’s going to appeal in a particular marketplace? What are some of those trends, Cate?
Cate: The first thing that everyone wants to go for is capital growth, and that should be right up there. But I think the criteria that’s even more important than capital growth is making sure the cash flows will suit you, because if you take on a property that is too cash flow negative for your own budget, you will find that you can’t afford to hold it, so there’s no sense in doing it.
We still want to target something that will deliver capital growth but it needs to deliver the right kind of rent, and we need to make sure that the rental vacancy rate in the area is attractive to an investor. There’s no point going for a dwelling that will be difficult to rent and will have extended vacancy periods.
Then the second-last criteria is understanding the target tenant and the demographic in the area and making sure that you’re happy and comfortable with that demographic. And then the final one is taking into account any other property that you have in your portfolio and trying to be a little bit diverse with your decisions so that you’re not planting all of your eggs in one basket.
Kevin: Is it a mistake for buyers, particularly when they’re working with a buyer’s agent, to become too defined in the type of property they’re looking for? The first couple of standards you gave us there were all about the marketplace, its performance, and the finance. So, if you went armed with those two steps and then worked with a buyer’s agent to help you identify the type of property, Cate?
Cate: Yes, that’s absolutely right. Once I’ve defined the type of property and the areas that offer that, it does become a bit of a black-and-white approach, and a good buyer’s agent will challenge a buyer that has some firm ideas in their mind that aren’t linked to any financial logic.
For example, if I have someone who’s telling me they want to stick to a particular set of suburbs because it’s close to their home and they know them, I will challenge them on that. And in a lot of cases, that could be the wrong suburb for them.
The same goes for particular elements of a property that they think are appealing to them. There’s no point going through something with a large garden or something with an elaborate dining area if the target tenant doesn’t want to look after a garden or dines out all the time.
Kevin: When you take on those sort of responsibilities, those large gardens, you actually add a whole new layer of expense to your investment property, as well, Cate, don’t you?
Cate: Absolutely. That’s so true.
Kevin: I guess it could be highlighted, if you were to go into a marketplace, say near a university as an example, the style of property that’s going to appeal to a university student is not one that’s going to appeal to a family.
Cate: Absolutely, and you also have to recognize when you’re going to areas where the families are the dominant tenant type, because if you’re an area that’s just young professionals or couples, then you need to reflect that.
Kevin: Yes, wonderful stuff. Cate Bakos always makes a lot of sense, a buyer’s agent from Melbourne. Her website is CateBakos.com.au.
Thanks for your time, Cate.
Cate: Thank you, Kevin.
No cash – no problem! – Nhan Nguyen Kevin: So, you’d like to get into property, but the problem is you don’t have the money to do it. Well, how do you go about doing that? There could be an answer for you. Nhan Nguyen from AdvancedPropertyStrategies.com has spoken to us on a number of occasions about getting into the market, how you get in, what are the opportunities?
Nhan, I know you’ve done a number of seminars and you’ve trained a lot of people all around Australia about getting into the market when they have a shortfall of cash. Hello, and welcome to the show.
Nhan: Thanks, Kevin. Thanks for having me.
Kevin: Now, tell me about some of these strategies. How can we do it?
Nhan: When I started out, I bought my first property and I ran out of money, so I had to figure out a strategy on how to buy more property. This was back in the early 2000s. I had $4000 saved, I maxed out my credit card, and bought a property for under $100,000 when you could do that in early 2000. And the strategies I came up with, there were two actually.
One was the typical joint venture strategy. I like to call this the money partner strategy. You basically find someone to put up all the cash and all the funding. So, you might find a deal. Let’s say you’re out there, you’re talking about agents, doing market research, going to open homes, putting in offers, and you may not have enough cash or enough borrowing to do a project. This is one way you can do it. You find a money partner who funds everything.
One of my first money partners was a guy named Simon. He worked for an airline, and he earned about $65,000 a year. Back in 2000, that was a substantial amount, and he could borrow significantly. Another partner I had for the last few years was a guy named Dr. Lee. He’s a cosmetic doctor, owns medical centers, has substantial income, substantial serviceability, substantial cash, and he funded approximately $2 million of my projects back in the early 2000s. That’s really one way you can do it.
Another way you can do it, and this really depends on if you can borrow or not. I call this getting the cash partner only whereby if you can borrow… Let’s say a property is $500,000, you can borrow $400,000 from the bank. You have that serviceability, you have that capability, but you may not have all the cash.
So, the other opportunity is to find a partner who just tips in the cash for, let’s say, the deposit, stamp duty if you’re doing a development, if you’re doing a renovation, those particular costs. Effectively, the bank is putting up 80% of the purchase price, the investor puts up the balance of the purchase price, and the investor puts up the rest of the required funds as well.
Kevin: I imagine with all of these things, you have fairly solid agreements that you go into with these people. Because it’s a joint venture, it could quite easily go wrong, Nhan.
Nhan: Yes, absolutely. Look, I’m giving you just the broad strokes and the bigger picture, that 30-second summary of how you can do it. There are many sophisticated instruments you can use, whether it’s unit trusts, joint venture agreements, shareholders agreements. And I do suggest definitely talk to your accountant, definitely talk to your solicitors and finance brokers, actually.
Those three key parties are very, very important just because each has their own requirements, and there is an overlap. Sometimes the advice you get from your accountant might conflict or not address some of the issues that are required by your finance broker.
So, definitely talk to some professionals about that, but that’s just a concept on how to do that. I know it’s very easy, especially in this APRA environment, you can run out of deposit very quickly. After two or three loans, you can run out of servicing very quickly. You have to prepare yourself for the future, especially if you want to ongoingly do deals.
Kevin: That first strategy you mentioned to us in this chat where you obviously had the expertise and you wanted to find people who were probably too busy to do it themselves but wanted to get involved in it, that’s a matter of what you bring to the table and what they bring to the table, isn’t it?
Nhan: Yes, absolutely. For some of you, you might be starting out and you might think “Gee, I don’t have much skill or much knowledge,” but what you do have is you may have time. You may have to be able to fulfill on doing market research for a particular investor, and the investor may not have the time or the interest or the geographical location. He or she might be close to town. He or she might want to be looking at a property out of town in a particular suburb, in a particular zoning, with a particular development opportunity or development factor.
So, you really want to talk to other potential time-poor, cash-rich with a lot of disposable income so that you can create opportunities for yourself, as well.
Kevin: There are always opportunities out there, that’s for sure, just if you need to go looking for them.
Nhan Nguyen has been my guest. Nhan is from AdvancedPropertyStrategies.com and a very clever man. Nhan, thanks very much for your time.
Nhan: Thanks, Kevin. I really appreciate it.
Women power in property – Vanessa Jones Kevin: When it comes to property, men have a higher tendency to gamble and are more easily manipulated while women are usually extra cautious, seeking low-risk, long-term sustainable capital growth. They are not my words – I’m a male; I guess I agree with that – but that’s according to Risk-Wise Property Review. Vanessa Jones from Risk-Wise joins me.
You’re a woman; you’d have to agree with that, Vanessa, wouldn’t you?
Vanessa: As a woman, I can absolutely say yes.
Kevin: Yes, good on you.
Vanessa: Research has shown that men have a significantly higher tendency to gamble and they’re more easily manipulated by marketing ploys. This is also the case with property; it’s no exception. Risk-Wise Property Review has found that property marketers often use enticements by appealing to men’s visual senses.
I’m not sure if many people know this, but there is a common practice of female models being hired to stand at professional salespeople’s booths at property expos. And this actually increases traffic to the booths by about 50% to 100%.
Kevin: Wow.
Vanessa: Yes, it’s a lot. With a similar increase in the rate of high quality sales leads, so they convert them, which is really interesting. Examples of such transactions are units and high-rise buildings in Brisbane, for example, that carry a high level of risk and deliver poor and often negative capital growth.
Kevin: And they use women to sell those. I guess the men are sort of
Comentarios