Real Estate Talk |

Highlights from this week:

How to get increased buying power

Parents forced to fashion their property to help the kids

Why negative gearing MUST remain

The areas that are set to boom because the city is unaffordable

Changes to investor benefits from the Federal Budget

Kids stay at home longer – how to cope

Transcripts:

How the Budget changed the investment landscape – Brad Beer

Kevin:  Investing in property with a friend, a partner, or a colleague is called co-ownership. Brings with it a lot of benefits. What about depreciation reports, though? To maybe enlighten us a bit more on this, Brad Beer from BMT Tax Depreciation joins us.

G’day, Brad. Thank you, and welcome to the show.

Brad:  Hi, Kevin. Great to be here as always.

Kevin:  Mate, what can you explain about purchasing a property with another partner and how it’s going to affect both owners’ claims?

Brad:  Simplistically, what we want to do is do things correctly to start with. Secondly, if you actually do it correctly in the early years of owning the property, with co-ownership, you actually get a few more deductions sometimes.

The premise of why that is really about at the moment, if we do a depreciation schedule for a property, we put a cost and a value on items, and then we apply some tax rules to get deductions. A lot of items that are plant and equipment items that are worth a lower amount of money actually have some rules to make it simple and they get written off quicker.

But when two, three, or however many people actually own a property together, then what the legislation allows is that you actually split the value of the asset first and then you apply the tax rules.

If we do it properly, we end up with items that are worth a lesser value for your ownership, because you only own a percentage of the property, we apply some tax rules, and we actually get some better deductions in the early years of ownership, as opposed to taking what a normal report would be and just splitting the deduction by your percentage of ownership.

Kevin:  Does it matter how many owners there are, Brad?

Brad:  No, not at all. And it becomes different depending on the percentage of ownerships as well. If it’s two people, 50/50, fine. When there’s a 10% owner, then that 10% owner, most of their ownership in these items is actually quite small and gets written off quite quickly. So, one, two, or 15 owners, it all gets split based on your percentage of ownership.

Kevin:  What if I buy a property now and then maybe bring someone else in at a later stage? How do I step through that process in terms of depreciation?

Brad:  When you buy the property, you’ve applied some of those tax rules to what you’ve purchased at the start. Then you continue with what you do, and it doesn’t get reset at that point. The other owner comes in. They’d need to come in and split some of those things, but we can facilitate that when that is the case.

Kevin:  There are obviously great benefits in doing this, defraying the costs, but you’ve given us an idea there on some additional taxation benefits.

Can I take you in another direction – a question without notice? The Budget came down this week. Brad, have you had a chance to look at its impact on property investors, particularly in relation to depreciation?

Brad:  Yes, absolutely. It was a bit surprising. They’ve actually messed with some of the rules, which they don’t do very often.

I guess the important thing to start with: anyone who has bought something or exchanged a contract prior to the Budget night, there is no change. You do exactly what you were going to do in the past. If you already own a property you’re depreciating, you continue on, you do exactly what you’re doing. If you replace something in your property, you start claiming that new item as depreciation into the future.

What they are changing is for people who are going into the future.

Highlights from this week:

The reasons why Brisbane can’t match the growth happening in Sydney and Melbourne

The properties that should held for a long time and the ones that should not be

The areas that are set to boom and why

What you can a...

Highlights from this week:

How things have changed when it comes to getting on with a bank.

How buyers and sellers are benefitting from third party sites.

Is there such a thing as ‘capital loss’ as well as ‘capital gain’ and what are the benefi...

Highlights from this week:

Why buyers are terrified about auction

What can be done to make property more affordable?

It looks easy to make money from property developing - but is it really?

How to find the best deal

Making a good living from property in both the long and short term

Why ‘hot spots’ are not worth chasing

Transcripts:

Why buyers are terrified about auction – Cate Bakos

Kevin:  An interesting survey released this week actually from REBAA, which stands for Real Estate Buyers Agents Association of Australia. Buyer’s agents all around Australia are members of that organization and they monitor and help buyer’s agents work better with their clients.

An interesting part about the survey was it said that 60% of respondents cited overpaying as their number one hurdle facing them when they bid at an auction. I’m not surprised by that. In fact, I would have thought it might have been a little bit higher, but that would come largely from people who are actively bidding at an auction.

Cate Bakos is a buyer’s agent. She works in the Melbourne market and has her own company called Cate Bakos Buyer’s Agency. She joins me to talk about this.

Good morning, Cate. Thank you for your time.

Cate:  Thanks for having me, Kevin. Nice to be back.

Kevin:  I’m talking to you because Melbourne is the home of auction in Australia. That’s the place almost where it was born and where it continues to flourish, and that’s the most popular way for people to buy and sell property.

That 60% figure: what should people be doing, if that’s their biggest concern, to make sure they don’t overpay, Cate?

Cate:  It’s a great question. People often wait until they’re in the heat of the moment and they have a guy yelling at them with a gavel in his hand and a hundred onlookers standing at them, and that’s when they make their critical decisions.

Facing an auction can be quite a nerve-wracking thing for a lot of people, but when you’re there and you have a critical couple of seconds to make a decision, that’s when things can go pear-shaped.

Obviously, people who have been in the market and looking for property have probably attended quite a few auctions and they’ve seen those results where two emotional buyers fight it out. And it’s the auctioneer who’s in control of that situation, not those buyers. They’re the occasions where you see a really strong, crazy result that gets talked about by the neighbors for a long time.

People are terrified of doing that. You do want to buy, and under competitive competitions, you need to be strong, but nobody wants to set the land speed record for a house sale under pressure like that, so it’s a very, very significant fear for plenty of people.

And it’s not just relating to paying too much and doing so in front of a sea of people, it also is all about how they pay for their property if they’ve gone over their designated budget, and also being concerned about what the bank might say, because it is unusual, but there are occurrences where lenders will decide that the buyers have paid too much and the valuation can come in short. So, it’s a serious issue and there are ways to try and mitigate that happening to you.

Kevin:  Overpaying at auction is, as you say, a very real situation – so much so that agents who when they’re selling the auction concept to a seller will say, “Look, if there’s any chance of us getting a premium price, we should take the price offer then take it to auction,” because that competitive bidding brings out that premium price.

Have you got a rough feeling as to how many properties you think would actually achieve a premium because they went to auction, Cate?

Cate:  Absolutely. In the seller’s market where we have auction clearance rates around 80% in Melbourne at the moment, most properties that are mainstream and don’t have issues that are putting off mainstream buyers are going above and beyond where expectations are set.

Technology is coming to the rescue of making properties more affordable in Australia especially for first home buyers.  Greg Dickason from Core Logic tells us about sofi.com.

Transcript:

Kevin:  “Housing affordability” are two words probably on the lips of most people right now – people talking about “How can we make our houses more affordable for Australian property purchasers?” Joining me now to talk about this, Greg Dickason from CoreLogic.

Greg, what sort of products are coming out now that deal with affordability, and what can we do about this?

Greg:  Kevin, I think there are quite a few coming out, especially in the fintech space – and “fintech” stands for “financial technology.” There are a lot of start-ups around the country and from the U.S. that are coming in that are looking at new ways in which they can use financial products that make houses more affordable for us.

Some of those are looking at things like when you’re downsizing, do you need to sell your whole house or can you sell parts of it and rent it back and allow your new starters or first-home buyers to buy a portion of your house, for example? Others are looking at as a first-home buyer, are there new ways in which I can get into the market ready to buy a unit or a house or portions of a house?

There are lots of different technologies coming out there, especially ones that are also looking at credit and how they can actually look at your credit and novel ways in which they can score you as a borrower.

Kevin:  Could you give me some examples of some of these sites that we can have a look at?

Greg:  Absolutely. One of the sites from the U.S. looks at your academic record, Kevin, and from the back of your academic record, they will lend to you. This is before you even have a credit history. That enables people coming out of university, for example, to get credit early and potentially to buy into the housing market very early.

Kevin:  Greg, what’s the name of the website?

Greg:  Kevin, it’s called SoFi, which stands for Social Finance – that’s SoFi.com. It’s really interesting because they have started to really understand their market, which is students or people who have just graduated, and they have lent to them and worked out that they’re much lower credit risks than you’d otherwise think. They’ve started with personal loans but they’ve moved into mortgages. You can expect them to come to Australia soon. They have a large amount of capital to do that.

Kevin:  This I imagine will be a great boost for first-time buyers and particularly students.

Greg:  Absolutely. If you think about it, you may be a hard working student who’s achieved very well but you’re still very much starting out in life. So for somebody like SoFi to come along and say, “Hey, work with us. We’ll lend you money because we trust that your work ethic is going to mean you’re going to be successful in life.” That’s a great start.

Kevin:  Watch out for it. It’s called SoFi.com.

Just while I have you there too, Greg, I’ve quite often heard about the number of bedrooms that are available around Australia or vacant. Is that an opportunity for us to maybe take up some of this accommodation and make it a little bit more affordable?

Greg:  I think that it is, Kevin, and I think that’s where the sharing economy with things like Airbnb but other newer technology platforms are going to make a real difference. There are 27 million bedrooms in Australia, so considering there are 24 million Australians, that means there are three million more bedrooms than there are Australians in our country, never mind the fact that some people share a bedroom. That really opens up do we have a supply problem or do we just have an allocation problem?

Kevin:  I did see a recent survey, and we mentioned it in the show, too. A Trip Advisor survey showed that 67% of travelers plan to stay in a vacation rental in 2016, and this is largely on the back of things like Airbnb.

Highlights from this week:

How you can use the short term let revolution to fund a pension

Finding ‘off market’ property – the pros and cons

A breakthrough in funding for young people

Opportunities to earn extra money from spare rooms and driveways

Young investor talks about the mistakes he has made in the process of building his portfolio of 5 properties

Risks v benefits to letting people into your home essentially from the internet

Creating property wealth in any market

Tips for people who want to rent out their property

 

Transcripts:

A breakthrough in funding for young people – Greg Dickason

Kevin:  “Housing affordability” are two words probably on the lips of most people right now – people talking about “How can we make our houses more affordable for Australian property purchasers?” Joining me now to talk about this, Greg Dickason from CoreLogic.

Greg, what sort of products are coming out now that deal with affordability, and what can we do about this?

Greg:  Kevin, I think there are quite a few coming out, especially in the fintech space – and “fintech” stands for “financial technology.” There are a lot of start-ups around the country and from the U.S. that are coming in that are looking at new ways in which they can use financial products that make houses more affordable for us.

Some of those are looking at things like when you’re downsizing, do you need to sell your whole house or can you sell parts of it and rent it back and allow your new starters or first-home buyers to buy a portion of your house, for example? Others are looking at as a first-home buyer, are there new ways in which I can get into the market ready to buy a unit or a house or portions of a house?

There are lots of different technologies coming out there, especially ones that are also looking at credit and how they can actually look at your credit and novel ways in which they can score you as a borrower.

Kevin:  Could you give me some examples of some of these sites that we can have a look at?

Greg:  Absolutely. One of the sites from the U.S. looks at your academic record, Kevin, and from the back of your academic record, they will lend to you. This is before you even have a credit history. That enables people coming out of university, for example, to get credit early and potentially to buy into the housing market very early.

Kevin:  Greg, what’s the name of the website?

Greg:  Kevin, it’s called SoFi, which stands for Social Finance – that’s SoFi.com. It’s really interesting because they have started to really understand their market, which is students or people who have just graduated, and they have lent to them and worked out that they’re much lower credit risks than you’d otherwise think. They’ve started with personal loans but they’ve moved into mortgages. You can expect them to come to Australia soon. They have a large amount of capital to do that.

Kevin:  This I imagine will be a great boost for first-time buyers and particularly students.

Greg:  Absolutely. If you think about it, you may be a hard working student who’s achieved very well but you’re still very much starting out in life. So for somebody like SoFi to come along and say, “Hey, work with us. We’ll lend you money because we trust that your work ethic is going to mean you’re going to be successful in life.” That’s a great start.

Kevin:  Watch out for it. It’s called SoFi.com.

Just while I have you there too, Greg, I’ve quite often heard about the number of bedrooms that are available around Australia or vacant. Is that an opportunity for us to maybe take up some of this accommodation and make it a little bit more affordable?

Greg:  I think that it is, Kevin, and I think that’s where the sharing economy with things like Airbnb but other newer technology platforms are going to make a real difference. There are 27 million bedrooms in Australia, so considering there are 24 million Australians,

Highlights from this week:

Something that many buyers don’t bother to do that can cost thousands of dollars

Why sellers should do a building inspection

How to sort your finances up front

Negative talk and speculation has a negative impact on the market

Queensland benefits from overpriced Sydney and Melbourne markets

Is there one growth driver that benefits all property markets?

What an agent must tell you about a property before you buy

Avoiding dutch auctions and getting gazumped when buying

 

Transcripts:

Getting your finances sorted - Andrew Crossley

Kevin:  One of the key things you have to do when you’re looking at investing in property is certainly securing your finances. A book I want to tell you about now that’s well worth picking up and reading through before you go down that path. It’s called Property Finance Made Simple, and when you read the book, you’ll see well that’s exactly what it does. It’s written by Andrew Crossley, who is my guest.

Andrew, thank you very much for your time.

Andrew:  Thank you for having me.

Kevin:  Andrew, why did you write this? And tell me about your qualifications to speak on this.

Andrew:  I wrote it because I wanted to help as many people as possible who needed finance to understand how better to get a loan. My first book was more for property investors, and so this time round, I wanted to help upsizers and downsizers and really first-home buyers as well as investors understand how better to improve their chances to get a loan.

Kevin:  One of the things I love about the book, in reading through it quickly, was that you did focus right upfront on housing affordability, which is probably one of the most spoken about terms right now around Australia. Just how affordable is property?

Andrew:  If you look at the national level of things, it is affordable. If you look at purely Sydney, one could say it’s not affordable. Often, too many people are loosely saying there’s an affordability crisis, but using Sydney as a benchmark for the country, which I do think is incorrect. There are many suburbs around Melbourne within 20K… In fact, there are probably 16 suburbs within 20K of Melbourne that are under $600,000.

Kevin:  Just talking about affordability for a moment, there are some alarming reports out in recent times about how many people are probably going to default because interest rates might increase. How do the financiers go about assessing someone’s risk in this area, and what should consumers be doing to make sure that they don’t fall foul of this?

Andrew:  It’s a really good question. Every lender when they take on new debt or give someone a loan, they assess it at a qualifying rate. Normally it is about 7.2% to 8%. So if current rates are 4%, 4.5%, they’ve already determined the borrower can afford the loan if the rates went up to 7.2%.

Of course, the reality could be quite different in a household where someone perhaps could have been a bit liberal with disclosing their living expenses and they may find it tough if rates rise, but lenders have certainly tried to do their job with being compliant in ensuring that if rates do go up at least to 7%, that the person can still afford that debt.

Kevin:  I think there’s a great need here for a lot more education for consumers too to understand that the banks believe it’s important to build the buffer in. While they might do that, they need to explain, I think, to consumers that “Hang on, we have built a buffer in here. We want to make sure that you can afford it at the current rate.” But a lot of consumers go away and think “Oh, this is pretty easy,” then they may over-commit and get up to that level, and then of course, once interest rates do go up, they’re going to be in a lot of strife.

Andrew:  In fact, I’m concerned that over the coming year, there would be a considerable number of people who have over-invested or are over-exposed to the future cost of debt,