Very interesting question. I’ll reflect on my own journey when I sort of read something or hear something like that. Whereas my position, I started investing in my mid twenties and at the time Sydney was the market that I found opportunity in, um, as well as Melbourne given where obviously fast forwarding well over a decade from that point where the markets are for someone potentially with a restricted budget, with the intention longterm to come back into Sydney is a few things that I’d look at their probably the couple of the which is a capital growth opportunities be cashflow that’s going to allow you to hold that property and obviously see as the intention is I want to come back to the Sydney market to buy their home. I would look at it to say the question for me is yes, capital growth is, is obviously paramount, but then the other questions that what’s your ability to save? Because if we’ve got a cohort of five, six, seven year timeframe between when you want to get back into Sydney, if you’re going to get put that deposit into a secondary market, whether it be Brisbane, whether it’d be Armadale, whether it be anywhere, you want to be able to make sure that you’re not necessarily restricting your ability to buy back in Sydney as you want to and, Secondly, I’d also want to make sure that part of that plan is to actually be able to retain that investment because if you’re planning to say, I want to invest and then, want to go and effectively pillage and take that money and then put it back into another market where I want to buy my home, chances are you’re not going to achieve either because you’re not going to get the capital growth. You’d expect the cycle you’d really want to be holding through. It’d be, I’d say minimum 10, more like 10, 15 years mindset. However, if you’re not going to give it that time, you probably going to get a restricted amount of growth and always. Our rule of thumb is probably expect about nine percent of your total property value has to go up before you’ve made a penny in property. You’ve got stamp duty, cost entry, costs, exit costs, any kind of capital gains tax until you’ve made between eight and nine percent, you’ve effectively made no money, so I would say that to answer the question, make sure that you have really the right intention here to make sure that part of this investment is to hold it and the numbers are even if that property doesn’t go up in value, that you’re still saving money to come into Sydney, but then secondly, if you’re going to look at assessing markets that those markets are going to fit. Obviously your borrowing capacity, but b, are also going to allow you to continue to save in the background. So somewhat cashflow neutral. Not necessarily been the only focus, but capital growth is also going to be an overall disclaimer aside. That’s the overall achievement that needs to be needs to be hammered in.
Host: Those pitfalls are. Paul: Yeah. I mean long and short of it is the unforeseen. I’m building some properties myself at the moment and going through a whole list of what they deem to be PC items and fixed price contracts not of this fixed price contract so even if you are buying off the plan on a particular fixed contract price, there are so many additional aspects to that that as a first time buyer and/or owner builder you potentially won’t know what the pitfalls are and the additional costs that come into the play. If you look at it on the flipside though from any kind of benefits from buying off the plan or buying new there are certain states and certain development companies who potentially might look at offering things such as stamp duty exemptions or certain discounts on certain aspects of the build cost, so depending on which market you’re buying in there are certain times or certain opportunities where you can actually manufacture a bit of leverage and actually use that to a strength rather than a weakness, but it’s full of certain pitfalls if you’re not aware of what you’re looking for. Host: Just looks like a pretty stressful way to buy given it you know the figures we’re looking at the beginning of this show it’s like units in Baulkham Hills, have gone down 19 percent. I mean if you bought one of those off the plan and then only had it for a couple of years and then it’s gone down by that much you’ve lost a lot of time when you were never even in the unit it was just sort of a line on a piece of paper. Paul: Absolutely and that’s probably the really the biggest risk aspect of that off the plan component is typically off the plant doesn’t mean that two months later you own the property typically it’s somewhere between 12 and 36 months and in that time you’re looking consistently at data trying to think it is my property going up in value? Is it going sideways? Am I going to need to tip in a bigger deposit by settlement time comes around and quite frankly right now probably be bought off the plan in Sydney or Melbourne probably one or two years ago and looking at all three of those things happening at the same time. So definitely buying existing mitigates a lot of those risks because you buy existing products with existing rents existing markets and you can predict those outcomes a lot more specifically.
Host: Are you better to try and improve it or just let it go to the lowest bidder. Paul: Yeah it’s a really interesting one because I mean it comes down to where that problem is located in eastern suburbs of Sydney, as much as the capital growth side of things is flattened out vacancy rates are still very low and they have remained low forever and a day. So ultimately my question is what’s the feedback been from your property manager because if that property’s been vacant for more than a month in that market; A it’s priced completely incorrectly or B the property managers probably not giving that feedback that they should either be looking at changing a couple of the potential façade aspects of it air conditioning mod cons. Possibly but it probably comes down to pricing and potentially also feedback from the property manager. I’d be getting on the phone to them very very quickly because to me that shouldn’t be happening. Host: Well let’s say it is an area where vacancy rates are very low and it’s a very in demand area, but they are people who are pretty selective as well incorrectly you know upper echelons and they probably don’t want something that’s falling down around their ears. Paul: Yeah to a degree but you also get a lot of house sharing in those markets and especially for those probably people who are potentially graduates in graduate salaries. So house sharing is quite prevalent is those lower probably lower modern- conned finished properties potentially the ones that do attract those types of tenants which is fine because typically they still treat your property okay and sometimes throwing extra money after a property which still is going to be probably the bottom end of the barrel might not be the best money spent when it comes down to what the end outcome is going to be given those assets are really going to be depreciable either.
Host: What are your tips Paul in tight markets and in one’s where you can be a bit choosier. Paul: I mean if Alex’s is in Hobart is writing it from Hobart for me. Hobart’s auction typically on their annual or weekly rates hovers anywhere between half a dozen to a dozen auctions on a big week and out of that the clearance rates will have a 100 percent to 0 percent. So, it really comes down to a majority of those properties that market typically the higher end properties that do auction in Hobart. So my tip personally in that market is especially now I think where we’re getting closer to the top end of the Hobart market in the Hobart run, is really understand the markets and what you’re wanting to buy what you actually want to buy within those markets try to find the agents who are listing the majority of the properties that you really are keen on and go into their office buy them a coffee and let them know exactly your price point the streets the property types and tell them that you are finance ready. What you’re looking for and hopefully from that point tell them to give you the property or at least access to look at a property before it gets to the market. Avoid these auction conditions at all costs because ultimately auctions are there to benefit the vendor or they’re there to create competition and the job of the buyer to get the best price is to eliminate competition. So that’s what I would personally want to be seeing happen Host: Right. Okay Luke we’ll bring you in on this one now maybe you can expand Alex’s question out too to places where there are more auctions happening around you and what is, what are some good tips to stand out at auction. Luke: Yeah they’re good tips to stand out at auction, is to not buy at auction first of all.
Host: Do you want to start us off on this one, because obviously as somebody who’s actually lived in the property you’ve got a better idea of what needs to be done and what works about what doesn’t work about it and somebody who hasn’t lived in it. Paul: Yeah look absolutely. Straight away I think you’ll be able to see the pros and cons you probably have to do some quick sums of math on what the renovation would cost. For me it comes down to really the fact the matter though is that most properties especially if you’re buying in Sydney. Vaucluse for the freestanding housing market, from my knowledge has dropped a touch over 10 percent in the freestanding housing market last 12 months unit market is about flat. So right away there I’d say that’s unless you’ve got an extremely good margin buying that property I wouldn’t expect that market to be moving anywhere north over the next one, two or three years and the time you flip that property. So I hope your friendship will out last that. But I think for me the JV, the joint venture side I mean the first mention there is that they’ve never flipped the property before. Truly to cut your teeth in something the Vaucluse postcode which would be I would assume quite pricey. I’d like to see them probably look at some scenarios and be a little bit more affordable and low risk and really understand the in’s and out’s and nuances of a joint venture before they start to depart their big money on that type of project.