The use of a buyers’ agents to help you find and negotiate the best property purchase is growing in popularity but in today’s show 2 industry experts voice their concerns about some aspects of qualifications or should I say lack of qualifications and they explain how to protect your interests.
With so many properties on the market for sale – over 350,000 in fact – it goes without saying that many will not be investment grade or worthwhile having in your portfolio. Michael Yardney tells us the 5 types of properties the banks don’t like and the extra 12 he avoids as well. We won’t tell what to buy but we certainly will tell you what NOT to buy.
Michael Matusik turns the spotlight on a South East Queensland market offering bonus returns right now.
A leading NSW agent has some advice for a listener about auction bidding tactics used by some auctioneers.
Finally today I am going to share a great story with you about a young person who overcame some very big obstacles to develop an impressive property portfolio. If Steven’s story does not inspire you then nothing will.
Transcripts
Michael Yardney
Kevin: At any given time, there could be well over 350,000 properties for sale in Australia, but they’re not all good investment-grade properties. We are now going to look at, not necessarily which ones to buy, but which ones not to buy because Michael Yardney is my guest from Metropole Property Strategist. Michael, I’ve heard you say that you actually made more money by not buying properties.
Michael: Right Kevin, Good morning. It’s really the fact that not all properties are investment-grade. In fact, in my opinion, less than five percent are. I think it’s actually worth considering what to avoid.
Kevin: Yeah, I agree with you. Is it a matter of looking at which ones the banks don’t like?
Michael: That’s a really good place to start Kevin. There are certain properties the banks don’t seem to like, and against which they’re going to loan a lower loan to value ratio, meaning you’re going to fork up more of your own deposit. More importantly, if the bank’s aware of these, rather than you think you know better than the banks, take it as a warning sign Kevin, and consider looking elsewhere.
Kevin: How many are there, and what are they Michael?
Michael: Kevin, first of all, they don’t like properties that appeal to a limited resale market or a limited tenant market. These would include service departments. I know these come with a perceived security of having a business operator running them and a slightly higher cash flow, but they’ve got a limited resale market, since it’s only investors that are going to buy them. That cuts out 70 percent of the purchasers, in other words owner occupiers. The other group that the banks aren’t as keen on is Department of Defense Housing accommodation. While these definitely have the security of long leases and ongoing maintenance, looked after by the Department of Defense, they again have a limited resale market.
Banks don’t like smaller units. They usually like units that have got at least 50 square meters of living space, not including balconies and car parking. They don’t like studio apartments or student accommodation. The other thing that banks don’t like are the very large off the plan developments. They’re worried about what they call a concentration risk, where they’ve got too much of a risk in the one development. That’s the first group of properties I’d be avoiding Kevin, the ones that the banks don’t like.
Kevin: What are the other ones?
Michael: The other things I look for are, I try to avoid properties that are out of place. I only buy properties that fit in with the overall character of the neighborhood. Kevin, while I love terrace houses, the property happens to be the only terrace in a street full of bungalows I’d look elsewhere. I’d buy property that’s consistent with its landscape.
Kevin: What about the location in the street?
Michael: Kevin, it’s not just the street. You’ve got to be at the right end of the street. You’ve got to be not too close to the main roads or to industrial or other complexes. Choose livable streets, but actually buy the right property in the right location in the street.
Kevin: Knowing you as I do Michael, I know you do your due diligence extremely well, things like encumbrances on title and other issues with the title?
Michael: I check the title for easements, for covenants, for overlays to constrict my capacity of future extensions or rebuilding. You know Kevin, that I love adding value through renovations particularly through development. I look at that. I also look at other titles that banks don’t like as well. Particularly when you’re looking at older apartments, there are things such as company share titles, or stratum not strata titles, the banks aren’t so keen on.
Kevin: What about body corporate Michael? Are you weary of those?
Michael: We buy apartments for our clients a lot in Metropole. Personally, I don’t own any individual apartments anymore. I own a whole block of apartments, but when we buy an individual apartment. I actually carefully peruse the last few owners corporation meetings. Are there any issues with the building? Are there any excessive expenses planned? Have they set up a sinking fund to handle future repairs? That’s the sort of thing that you should look at because if there are problems with the owners corporation, just steer clear.
Kevin: Michael, in the earlier group of properties that you said the banks don’t like, you mentioned some like studio apartments and student accommodation. They come without car-park typically. Does that therefore mean that could be a problem?
Michael: Kevin in our society, as transport is becoming more and more important, and infrastructure and roads aren’t working as well, I think absence of parking, while one may save you some money, it’s always going to limit your apartment’s appeal, not only to tenants, but to future purchases, future homeowners, future investors. I wouldn’t be buying a property without a car-park Kevin.
Kevin: What about location on the block, and even some of those main road locations Michael?
Michael: Kevin, it’s not just the property. It’s actually how it’s situated, which way it’s facing. I’d avoid apartments with some of the optimal positions in blocks. You know what I mean, overlooking the car-park, situated near the waste bins. Yes, you’re right Kevin, I don’t like main roads. Sure, people live everywhere, but when the market slows, secondary properties are much harder to sell and fall in value first. I would be avoiding main roads as well.
Kevin: What are some of the issues for you Michael?
Michael: I don’t like properties that have got rental guarantees. Remember, the cost of your rental guarantee is usually built into the property, so a lot of the new and off-the-plan properties are only able to be sold because the vendor or the developer is putting an incentive there. It’s not uncommon for the rent to drop once the rental guarantee period expires, so I’d avoid those. I’d also avoid holiday homes or holiday apartments. Kevin, I’m not saying don’t buy yourself a holiday home. What I’m suggesting though is don’t pretend they make good investments. Of course, I don’t like buying in mining towns. These markets tend to have little market depth from owner occupiers, and at the moment, while all the investors are running away from those, they’re very volatile and best avoided.
Kevin: What do you think about NRAS properties Michael?
Michael: Kevin, it was a federal government initiative designed to tackle un affordability through trying to provide affordable housing. I don’t know anyone who has actually made any extra money out of it. I know the banks were wary of it. I think the whole scheme is being abandoned. You’re right Kevin, that’s another one I’d avoid.
Kevin: NRAS is an abbreviation for national rental affordability scheme. Michael, so the bottom line in this, the lessons for you?
Michael: The lessons are if you want to own the sort of property that’s going to outperform the averages, you need to own the sort of property that’s going to appeal to a wide demographic of owner occupiers. It’s really owner occupies who make up the bulk of purchases. They tend to buy emotionally. They tend to pay higher prices. They’ll push up the value of properties that are similar to yours, making your property worth more. To top it off, these are some of the properties that the banks like anyway. They’re going to lend you 80, even today 90, and sometimes 95 percent of the value of that property. That’s interesting, isn’t it?
Kevin: That is really interesting. The thing that I find interesting about that is that sometimes the amount the banks will lend you has got nothing to do with you personally or your portfolio. It’s more the property that you’re looking at buying.
Michael: If they think it’s a good investment, maybe it’s something to consider.
Kevin: Indeed. Michael Yardney from Metropole Properties Strategists. Check Michael’s sponsored channel out too at Real Estate Talk, lots of extra great content you can pick up there, at the website www.realestatetalk.com.au Michael, thanks for your time.
Michael: My pleasure Kevin.
Brett Hunter
Kevin Turner: A question that’s been sent in now by Bala and the questions is “I have a question about the obligation of the auctioneer in New South Wales to disclose if the property is on the market. I attended an auction recently where the auctioneer stated that the property will be sold but that they’ll not be disclosing if it’s on the market and that is if the reserve has been reached. I can understand the strategy behind this presumably to gain momentum for active bidding from the outset rather than wait until the end of the bidders to enter the Process once it’s on the market. Is there anything stopping me asking the question just the same and if asked, are they legally obliged to reply.”
Well, let’s find out. Brett Hunter is the principal of a leading New South Wales agency Raine and Horne at Terrigal, Avoca Beach and joins me. Brett, what’s the situation there?
Brett Hunter: It’s a very good question and it’s a question as an auctioneer that I get asked probably every second or third auction, “Are you going to be announcing the properties on the market?” My response, and most good auctioneers will have already addressed that question in their preamble, so they’ll be saying “I will be calling it on the market or I will not.” It’s their discretion to call it on the market in the middle of the auction or not so even if he were to pose and ask that question in the middle of the auction, the auctioneer has the right to say “I’ve already addressed that and I will not be announcing whether or not it is on the market.”
Or at his discretion he could say “Yes we are, we are above the reserve and we’re selling for keeps now.” Either way he will be using it in the best interest of the vendor. That’s probably the key element because one of the seven points of a public auction is to ensure that the auctioneer as sole arbiter makes every decision in the best interest of the vendor. In doing so he can make any decision that’s in the best interest of the vendor, including announcing if it’s on the market or not.
Now you mentioned bidder momentum at the auction, if there is good bidder momentum, there is no necessity to pump it higher by announcing that it is on the market. The second thing to consider is the reserve itself, similar to a vendor bid can be used as part of the kick bag of tools that a vendor has to encourage further bidding. So if it does stall, the auctioneer again making a decision in the best interest of the vendor, has the opportunity to say “It’s now on the market”, or “we’re very close”, or “one more bid will get us there” and these sorts of things to encourage further bidding. Again similar to the vendor bid the reserve can also be used to encourage further bidding.
Kevin Turner: I guess the bottom line here is there is no obligation on the auctioneer when and even if they announce it’s on the market until they feel it’s the right time in the auction process, Brett. Is that correct?
Brett Hunter: Yes, that’s correct.
Kevin Turner: Okay. Have you, does your game plan change from auction to auction? Would I learn anything from you by coming to watch one of your auctions, are they all the same?
Brett Hunter: That’s a good question. One of my encouragements for new buyers is to attend auctions first just as a witness, just to watch it and learn how the auctioneer calls it, first, second then final, with selling all of these sorts of phrases that an auctioneer will use similar from one auction to the next.
What’s different about every auction is the buyers and how they participate in the auction so the bidding momentum, the strategies that are employed by each of the bidders, these things will change. But really the auctioneer himself or herself will probably run through a fairly much, a comfortable formula for them so that they can give confidence to those that are bidding. This is proceeding in a manner and a formula that allows people to bid with confidence and I’m not going to surprise you by shutting it down quickly, I will get to the first, the second, the third and final quite regularly to be sure people understand that we are selling, we’re selling for keeps. That gives the buyers the confidence to be able to bid.
Kevin Turner: Leading agent from Raine and Horne, Terrigal, Avoca Beach, Brett Hunter. Brett, thank you very much for your time.
Brett Hunter: Most welcome.
Michael Matusik
Kevin Turner: Michael Matusik, who is a regular on our show has just launched his new website. You must have a look at it, it’s a huge amount of information on there. Just go to matusik.com.au, this is m-a-t-u-s-i-k. Michael joins me. Good morning Michael.
Michael Matusik: Hi, how are you?
Kevin Turner: Good mate. Congratulations on the new site. I was particularly enthralled with the market outlooks that you’ve got there. I think Brisbane, Gold Coast, I know, it’s growing all the time, Sunshine Coast to Toowoomba Gladstone are the ones that I can see straight away. But you’re building another one for the Ipswich market.
Michael Matusik: Yeah, we intend to do one every fortnight or so. Focusing on those areas that I think are often not looked at, so not Brisbane, Gold Coast, Brisbane, Sydney, Melbourne but those areas which we know which is largely Queensland and really down a small area, we’ll be covering quite a few of those in the future.
Kevin Turner: Good. What are you learning about the Ipswich market that you can pass on to us?
Michael Matusik: Ipswich is quite well positioned in one, its cycle. There is a cycle and in these reports we have long term evidence of that. A range of indicators. It’s just entered a recovery. It is being spoken about a lot, particularly in blogs and conversations and even presentations across Australia, especially Sydney and Melbourne, as those investors are looking for better yields and cheaper property. So Ipswich is in that spotlight so to speak.
Kevin Turner: Has it got much to do with affordability market?
Michael Matusik: Everything to do with affordability. That’s one of the things that there is a connection between Ipswich and Parramatta a believe. I’m a Parramatta boy, I grew up there. I’ve lived there for a long time but I see similarities between the two. I must confess, I do own Ipswich investment properties. I’m a little biased. But trying to look through that the average price for a property in Ipswich, house or a townhouse type thing is about three hundred thousand dollars. It returns five to five and a half percent in terms of gross rental yield. That’s attractive.
One of the things that’s going to happen in Ipswich is I don’t believe there’ll be lots of price growth into the future. There’s a lot of land supply. It captures probably about twenty five percent of the land supply in southeast Queensland. There will be a lot and already is, infrastructure. There will be a lot of employment. I think forty odd percent of the industrial land available for development is in the Ipswich area. That’s out of southeast Queensland. You’re going to see a lot of growth. You’re going to see strong rental demand and I think investors there should be looking for buying property that yields quite well rather than looking at capital growth. The supply lines are quite high and therefore, you’re probably not going to see really strong capital growth but you’re going to see strong demand for property and strong rental demand.
Kevin Turner: When your market outlook for Ipswich comes out, what can we expect to see in that report?
Michael Matusik: That report will cover the cycle in detail. Then it will cover what to buy, what’s likely to happen next and what prices to pay. Not trying to sell a few reports here, essentially what we’re finding is that duel income property is quite attractive so that’s a duplex or the like. Yields are often over six percent and it caters to the demographics that are emerging in the city. When we do these outlook reports, we spend a lot of time on who lives in the property, what they’ll pay a premium for and what type of work they do so the property suits their storage needs and so forth.
Kevin Turner: Look out for it, it’s M-a-t-u-s-i-k .com.au under the market outlook area and that will be a report coming up on Ipswitch. Michael, thank you very much for your time.
Michael Matusik: Thank you and thanks for the opportunity to talk about the site.
Jacques Parker
Kevin Turner: I thought I’d like to mention to you if you’re a buyer of real estate and you’re using buyer’s agents, Australia’s largest professional body of buyer’s agents is urging consumers to make sure their buyer’s agency is licensed and wholly independent, particularly when buying interstate property.
I want to find a little bit more about this, so I’m speaking to the president of REBAA, the Real Estate Buyer’s Association of Australia, Jacque Parker. Jacque, I just assumed that all buyer’s agents were licensed.
Jacque Parker: Yes. Unfortunately Kevin, most consumers do assume that. However we have received a notification from potential purchases that there are people that are calling themselves buyer’s agents out there that aren’t actually licensed.
Kevin Turner: Jacque, I was staggered when I looked at the qualifications that are required to become a buyer’s agent, or should I say the lack of qualifications. In western Australia, there is no licensing requirement.
Jacque Parker: It is a problem because we don’t have nationally licensing. We have different laws in each state. You do need to make sure that anyone that you’re dealing with in a capacity that’s handling real estate is experienced as well, not just licensed. I think that’s important. If they are looking in another state for you, they may well be licensed in one state but not in the state that they’re looking for you. You need to be aware that that’s a risk that you’re taking as a consumer getting someone that’s not licensed in that particular state to act on your behalf, whether selling or buying real estate.
It’s important, I think, that people check credentials of anyone that they’re using in a buyer’s agency to make sure that they do have the right license or the right certificate appropriate to that state.
Kevin Turner: Jacque, you say that buyers should ask their prospective agents are they exclusive buyer’s agents, what does that mean?
Jacque Parker: Basically, they should be asking the question are they accepting a fee from any other parties in the transactions besides the purchaser. Some buyer’s agents- particularly there have been one or two in Queensland- have actually been, what we call, double dipping, taking a fee from the selling agent’s commission and also charging the buyer. In some cases they just take a fee from the vendors agent commissions.
That’s hardly impartial. That’s a clear conflict of interest when that’s occurring because effectively they’re representing the vendor, they’re not working for the purchaser. A true exclusive buyers agent will charge a fee to the buyer and the buyer is the only one that is charged a fee and that they’re receiving money from.
Kevin Turner: Jacque Parker, president of REBAA. Thank you very much for your time.
Jacque Parker: My pleasure Kevin.
Ben Kingsley
Kevin: I want to take this subject one step further. I’m talking now to the chair of PIPA, which is the Property Investments Professionals of Australia, Ben Kingsley. He’s also from Empower Wealth. Ben, thank you for your time. I wanted to ask you specifically about what seems to me to be a lack of uniformity with licensing across Australia when it comes to buyer’s agents.
Ben: You’re right, Kevin. There was the COAG, which is basically the counsel to try and uniform these types of things that tried to look at uniformity amongst real estate agents. They fit a working together, and they’ve actually abandoned that project, which is really disappointing from a property investment perspective. When you’re talking about buyer’s agents and the roles that they play, it’s an absolutely critical role in the negotiations to secure the property on behalf of their investor clients. What we’re seeing is some buyer’s agents who may be licensed in one state and looking to work in other states. That’s obviously in breach of the licensing act in that state, so it’s concerning for us.
Kevin: I could imagine it would be because I’m looking at your charter, and it says that you have formed to represent and raise the professional standards of all operators involved in property investment. It seems to me there’s a wide gap there in terms of protection for consumers.
Ben: Yeah, another example of regulation not sort of catching up with the times. We’re seeing not only consumers being unprotected through just no regulation in terms of property investment advice, but this is another of example whereby people are sort of touting to be buyer’s agents and may not be licensed to do so. Or secondly, they’re operating outside their jurisdiction. It’s a real concern for us, Kevin.
Kevin: Is this something that your organization is trying to fix?
Ben: REBAA is the peak association for buyer’s agents. We obviously have buyer’s agents as part of our association membership. It’s very clear for our buyer’s agents that it’s important that they understand that they must be licensed to operate in each state. If they’re going outside of their current hometown and their looking to help clients invest into [interstate 00:02:12] locations, they must be licensed to do so in those areas. We are reminding our members of that.
Kevin: What would be your message to consumers who are looking at using buyer’s agents? How can they check that they’re going to be looked after properly?
Ben: I think it’s an important message to say buyer’s agents play an important role just like mortgage brokers and accountants. They have a specialized skill, and their skill is to potentially locate and negotiate and secure that property on the terms that are beneficial to the consumer who’s engaged them, just like a property investment advisor. Some buyer’s agents are looking to be property investment advisors. I’d also make sure that they’ve got qualifications in those areas to do so. Consumers just need to remind themselves when they’re dealing with professionals, just simply ask them what sort of qualifications do you have and are you licensed to operate in each state or which state are you licensed to operate in.
Kevin: Very good advice; Ben Kingsley who is the chair of PIPA, Property Investment Professionals of Australia. Thank you very much for your time.
Ben: Pleasure, Kevin.
Steven Ryan
Kevin Turner: I had the pleasure of meeting my next guest when I had a chat to him about his feature article in Australian Property Investor Magazine, which is out right now. I wanted to bring him into this show and have a bit more of a chat to him as well, Steven Ryan turned a very negative event into a very positive outcome and consequently went on to build a really nice property portfolio. You can read his full story in the latest edition of API Magazine, but he joins me on the show. Steven, thank you for your time.
Steven Ryan: Good day Kevin, it’s nice to speak to you again. How are you, mate?
Kevin Turner: Yeah I’m very well, thank you my friend. Let’s talk about your journey. When was it that you … At a very young age you decided that you wanted to get into property. Why was that? What made you make that decision?
Steven Ryan: Yeah. I guess it was a combination of 2 things. I had a short stint in the hospital and spent a year not being able to do too much physical activity there, so I had to kind of an introspective year or so there when I was around 18, and just decided in that time that I really wanted to make a good go of life, because you only live once and it can end pretty quickly. Three years after that, my parents divorced and didn’t really have too many assets to their name after that. I realized after a lifetime of hard work that despite the fact that they’d really put in the work and stuff, they hadn’t really ended up with too much. They got themselves into a not great financial position, so I got to the point where I realized that I wanted to make sure that I set myself up, and then try and help a lot of other people to do the same thing.
Kevin Turner: Pretty much from ground zero really, wasn’t it? How did you get started?
Steven Ryan: Yeah. Well I had been renting in Sydney for about 4, 5, 6 years, somewhere like that. I’d been thinking about investing for a little while. I got notice from a real estate agent that I was going to need to vacate my rental. I’d been saving a deposit, I wasn’t quite there yet. In passing I was talking to my Dad one evening, and mentioned that I was moving out, it’s a shame that it wasn’t a few months later, I’d be able to buy something. He said he’d happily spot me the difference in the deposit if I needed it. From there I went on a mad hunt to try and find something. It was pretty quick from there.
Kevin Turner: What was your first purchase? Tell us about that.
Steven Ryan: It was a one bedroom apartment in Marrickville, a really nice complex, no common walls. It’s well deep in off the street as well, so it was nice and quiet but really close to transport and stuff as well. That was really just a lifestyle based purchase, I wasn’t thinking investment at that stage, just wanted something that was close and convenient to transport, but not sitting on a main road or anything along those lines.
Kevin Turner: Do you still own that property?
Steven Ryan: I do, yeah. I’m speaking to you from it right now, actually.
Kevin Turner: OK, and from there how long did it take you to decide to get to your next property?
Steven Ryan: It probably would have been about, I think it was three years. I’d started saving some money, and I knew investing was a great thing to be doing, so I started saving pretty much immediately for the second purchase. I worked pretty hard, saved some dollars up there, and spent some time researching. About maybe about a year and a half after I’d made that initial purchase, I’d really just immersed myself online and started talking to the right people, getting advice and input on how to build a portfolio, and how to move forward and stuff. Yeah basically ended up making my first purchase, the first day I could after I got my finance in place and stuff.
Kevin Turner: You did a lot of research there, didn’t you?
Steven Ryan: I did.
Kevin Turner: Hunting around and getting some ideas. How important was that for you? Did it actually save you do you think from making a few mistakes?
Steven Ryan: Oh absolutely, Kevin. I’m pretty analytical in my approach with stuff, so I wanted to make sure that I looked at all the different options and scenarios and stuff. Everything from looking at NRAS properties, which you may have heard of, right through to thinking whether I’m just chasing cash flow or capital. Researched pretty much across the whole country in terms of different locations, trying to see gross drivers there. It turned out after all that work after about 18 months of looking that I realized where I’d actually bought my first place was probably the best place that I could invest again, which got me a big advantage, because being on the ground there and having rented in the same suburb for years prior, I really had a finger on the pulse of what was going on and knew the nice streets. That made my purchasing decision a little easier, when the right place came up I just pounced on it.
Kevin Turner: That was in the same area that you’re in now.
Steven Ryan: Yeah, yeah, very close by, actually. Yeah.
Kevin Turner: What about number three?
Steven Ryan: Similar story, I guess. Same area again. This one was a bit of a difference, though. I had literally purchased my first investment I think it was about four months, something like that, five months prior to the second one. I’d managed to get that first one under value when the market was moving up very quickly. I ordered a reevaluation the day that I could, and I think that was 90 days after settling. I had a pretty nice result from that, which gave me the confidence to move into a second purchase, and conveniently a couple of weeks after that evaluation had come back through, an out of town agent listed a property online which failed to mention some of the major selling points at a particular location, and the photos weren’t great. I sensed a bit of an opportunity and put a conditional offer in on the very first open house and snapped it up later that afternoon. Took it off the market so that it didn’t get to auction.
Kevin Turner: Yeah, the lesson there is that you were ready for it, and you’d done your homework and you were ready to pounce I guess, a great lesson. How big is your portfolio now?
Steven Ryan: At the present, it’s around about the 1.6 million mark, including my principle place of residence. I’m looking at continuing to expand over the next few months and next few years, of course, but I’ve got a pretty solid foundation there now.
Kevin Turner: That’s fantastic, mate. We are out of time unfortunately, but I really appreciate spending this time with you, and full marks to you too for wanting to share the information, you’re experience. I think it’s wonderful you want to help other people.
Steven Ryan: Yeah no, absolutely. A few of my workmates, friends and colleagues and stuff like that, I’m sitting down and helping them build plans to try and replicate the same sort of deal. I know once you’re armed with the knowledge and confidence, it’s a pretty easy process. You just have to put the work in.
Kevin Turner: Indeed. My guest has been Steven Ryan, you can read all about Steven in the latest edition of API Magazine. Steven, thank you so much for your time and all the best for the future, mate.
Steven Ryan: Cheers, Kevin, it was a pleasure talking.