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The Trio decided to celebrate Bastille Day by giving this listener a pseudo name; Amelie. Our listener sent through a multitude of great questions and the trio decided to circle in on Amalie’s challenge for this episode. Amelie* is in her mid-twenties and she co-owns a property with her brother in Sydney’s west. She’s a good saver, has a good job and she is keen to purchase her second property. She has a few ideas, but her brother has very different thoughts. With such an important person in her life creating a bit of a debate, Amelie wonders if she should reconsider her original plans. From units versus houses, to market timing, first homeowner grants, alternative cities and co-ownership, she has quite a few variables that her brother has challenged her with. Amelie puts her conundrum to the Trio and asks for some help.

The Trio broke Amelie’s questions into seven main segments;

1. Timing the market vs timing the market.
Dave’s general rule is “buy when you’re ready.” It is very difficult to time the market, and lost time can be costly.
The clear steps that Amalie needs to initially take hinge on getting great, specialised advice. After all, we don’t even know what Amelie’s borrowing capacity is as this stage.

Cate asks, “Where do you want to live? And how quickly do you want to get there? Are you happy renting/living at home for now?”

Mike suggests that Henri is “trying to get a bit too fancy with timing cycles.”

2. House versus unit.
Although the twenty-year price history demonstrates that median house price growth has outperformed median unit price growth, Dave points out that this is general data only, and there are markets within markets. Unit buyers need to be cognisant of the negative impact of buying new, along with the associated strata costs.

Capital growth is directly linked to a high Land to Asset Ratio, and it’s integral that investors give their portfolio the best chance of high performance by noting this important ratio.

Other special attributes, particularly for units in Sydney include;
- views/vista
- quality street
- great suburb
- boutique block
- scarce, older style block

Dave also notes that Sydney in particular is quite different to other cities when it comes to apartments because Sydney offers the highest proportion of apartments and units in the nation.

Cate has concerns about Amelie’s affordability comment. She focuses on the need for thorough due diligence to avoid surprise costs and cashflow threats. Cate also sheds light on the challenges that borrowers face when co-borrowing, particularly in relation to ‘joint and several’ borrowing.

Mike shares concerns about Amelie’s safety net ideal and he discusses the risks that could impact family relationships when cashflow gets tight and parents are asked to help financially.

3. Buying in the city you live in.
Dave talks about the difference between buying in a familiar city, versus buying in the city where you ultimately plan to live. Gaining a foothold in the market where you wish to live is a great risk mitigation strateg. Hedging against another location underperforming is the path that Dave is going down.

Cate needs to see Amelie’s borrowing capacity before she can agree with Dave’s approach. If Amelie’s borrowing capacity is too insufficient for a quality Sydney property, she may well be better placed to consider alternative cities.

The Trio all agree that timeline is an important consideration for Amelie.

4. Outer-ring
As Cate points out, investors will get a different result in an outer ring and the negatives include;
- tougher socio-economic demographics
- the threat of low scarcity and surrounding house and land package areas

And Cate suggests that contrasting an inner- or middle-ring location within a nearby regional city against the Sydney outer-ring options is a valuable exercise. Dave shares some of the merits of such an approach too. Tune in to find out why this could be a great alternative.

5. Rental yield.
This consideration is driven by current cashflow requirements, future acquisition projections and Amelie’s ability to increase her income over time. Rental yield can’t be overlooked, otherwise the risk of an unplanned sale (or co-ownership) will rear it’s head.

6. First home buyer schemes.
Sometimes saving $30,000 now is very valuable for a buyer, but for someone like Amelie who has good savings on hand, the scheme may cost Amelie far more than the $30,000 of upfront savings.

The Trio talk about the false economy that is sometimes represented in the quest for pocketing the grants or discounts.

“It’s a bonus, not a driver”, says Cate about the opportunity cost.

7. Buy and hold versus selling earlier.
The Trio unanimously agree that Amalie’s brother’s recommendation in relation to selling is not the best advice for her situation.

Dave talks about the importance of understanding how she can use equity to leverage and get into her next property.


And our gold nuggets……

Cate Bakos’s gold nugget: Cate draws on her client experience over the years and notes that many have ultimately unwound their co-owned property structures with family members. This is due to a combination of joint and several lending restrictions and changing personal plans.

Mike Mortlock’s gold nugget: Mike congratulates Amelie but he implores her to think about where she wants to live and to develop a good strategy that incorporates her principle place of residence.

Dave Johnston’s gold nugget: suggests that Amalie needs to figure out her price point with a strategic mortgage broker and then consider how her next purchase fits within her property plan.

Show notes: https://www.propertytrio.com.au/wp-admin/post.php?post=490&action=edit