Ed Chan from Chan & Naylor stumps up to answer some questions about land tax from Charlotte.
I ask Margaret Lomas about the fairness or otherwise of the compensation you get from Government if your land is resumed and what can you do if you are not happy? Margaret tells us about her personal family experience in this area.
A very successful investor and property renovator, Jane Slack-Smith is our feature guest this week. Jane talks about her early memories of growing up in a family of renters. How she initially trained as a mining engineer but started out as a rentvestor and how she built her portfolio.
This market just continually surprises, doesn’t it? You look at the growth in Sydney and Melbourne, and there were so many predictions at that start of the year that it just wouldn’t continue, but it has. How do you get on in this kind of market? What do you do? How do you get in there? Michael Yardney answers those questions and more.
Patrick Bright has some thoughts on how tough it really is for first time buyers and he has some hard advice.
Transcripts:
Resumed properties are under valued – Margaret Lomas
Kevin: I was interested to read a story recently – actually, it came out of the ABC – about a property owner in New South Wales not being fairly compensated for resumption of land, whether that’s for some kind of development. We hear about these stories quite often. Government is very quick, of course, to come out and say, “Oh, no, we fairly compensate them.” I want to talk to Margaret Lomas about this from Destiny Financial Solutions.
Hi, Margaret?
Margaret: Hi, there. How are you going?
Kevin: Well, thank you. I know this is a particular bee in your bonnet. Have you struck this on a number of occasions, Margaret?
Margaret: I’ve actually had personal experience with this a long time ago when my father owned a business. He had had that business for a good 30 or 35 years, employed about 20 or 25 people, and owned the land and premises in which that business operated. So the business rented it back from him and my mom.
As he was getting up closer to retirement– I think he would have been about 58 or 59 at the time– the decision was made to put a main road right through his land. Initially the main road was going to go in front of his land, which would have given him an advantage in business. But they decided that they would shift that main road a little bit, and it ended up going straight through his land.
Now, what they actually did was the amount of money that they offered him to resume his property was some half of what it was really worth. He at the time had an independent valuer who stated what it was really worth.
What the government actually said to him at the time and I remember it so clearly was that that’s fine, he could fight them in court if he wanted to, but what they would do is hold it up in court for 10 years anyway and at the end of the day, he probably wouldn’t win. So he could either shut up and take the money or he could try and not take the money, in which case they would put the road there anyway and force him out.
Now, to me that’s bullying. What ended up happening to my dad was because he had all of these people working for him, he felt committed to them, he actually moved to rented premises at the time. He couldn’t afford to rent something in as good a position as what he previously had, and within two years, the whole business was in liquidation.
Kevin: As you say, that’s straight up bullying. There’s no question of that.
Margaret: It’s bullying. So 60-years-old and he basically came out of a 35-year-old business with nothing because of those tactics. He had nothing to sell because one by one, he had to let the employees go. He couldn’t get the passing trade that he used to get. No one could find him anymore. He was in the back streets, instead of close to a good road. So it’s very sad.
But, unfortunately, the government does whatever the government wants to do. When they use bullying tactics like that where they say, “Well, you know, do what you like, but at the end of the day, we’re going to do it because it’s the law that we’re allowed to resume land, and you can fight us for fair compensation, but it’s going to take you 10 years.” A lot of people don’t have the heart for that kind of legal action.
Kevin: In this particular case in New South Wales – and I know we have lots of instances all around Australia about this – this was in connection with the NorthConnex Road Project. Homeowners along there accused the New South Wales government of lowballing them on prices. The key points from the story where the legal team says that the government is hiring top-end lawyers to defend its acquisitions. So you’re up against the big hitters, aren’t you?
Margaret: Yes.
Kevin: It’s going to cost you a lot of money.
Margaret: Oh, yes.
Kevin: And they have a history of actually offering around about one-third of the true market value of the land. Now, these are current, and I know that what you were talking about your dad was they offered him even a lot less than that.
Margaret: The thing is I think what they didn’t bargain for when they were first deciding and planning on WestConnex – which has obviously been in the pipeline for such a long time – was the sudden and increasing value of property in Sydney. So that made it even worse.
They may have been offering initially, maybe, 60 or 70% of the value. But in the end because land had sky-rocketed around them before they got the chance to make the offers, suddenly, they find themselves with a potential bill way, way bigger than they thought that would then have actually thrown the cost of the project out by billions. The thing is it’s cheaper for them to hire the top-end lawyers to fight it than it is to pay the money.
Kevin: What would be your advice, Margaret, to anyone who’s facing this?
Margaret: Unfortunately, I don’t have any good news for anybody, because the only option… there’s a couple of legal options. To me there could be potentially some misleading and deceptive conduct here. It depends on what the initial discussions were. If the government is say, “We’re going to get you fair-market value,” and you can conclusively prove that it hasn’t been fair-market value, then, technically, you might have a misleading and deceptive conduct case on your hand – in which case, the Department of Fair Trading will take that on for you at no cost to you. But how far you’ll get with that is another thing.
Outside of that: hiring your own lawyer. But, you know, it costs a lot of money to be in court, and the government will absolutely take their time over it. They don’t care how much money they spend.
To be honest, it isn’t worth your while to try to get fair-market value. Even if you think it’s the right thing to do, there’s very little you can do. The law does state that resumption of land is a legal process, and when you buy your property, there is fine print in that contract that states that at any time, the government can resume your land.
Even though they say they’ll pay fair-market value, I think you can forget about that ever happening. The best advice I can give you is to just make sure that you don’t buy somewhere where potentially there could be a main highway going through.
Kevin: Yes. Reminds me of that wonderful movie The Castle. While that was a great movie, there are obviously lots of similarities around Australia of that actually happening.
Margaret: Absolutely. I think the unfortunate thing about that movie – as fun as it was to watch – is that in real life, it wouldn’t happen that way. In real life, they wouldn’t win that case. In real life, the runway would have gone through their house and they would have received probably a third of its value then, as well.
Kevin: Yes, it’s a terrible story. Maybe you might be suffering from that; we’d like to hear from you.
Margaret, I want to thank you very much for your time. Now, we’re into the summer season of your great show on Sky TV, as well.
Margaret: I’m so excited because you’ve agreed to do a new segment for me at the top of the show, which is going to be great. It’s all about property investing – I guess, tips and tricks and all that kind of stuff. You’re going to use all of your expertise and experience from all those many years in real estate to provide a new top for the show for me, which is going to be great fun.
Kevin: I’m really excited about it. So thank you for asking me. It’s a privilege, and I look forward to working with you on that, as well.
Margaret: Fantastic.
Kevin: That’s on Sky 602, isn’t it?
Margaret: Absolutely. All weekend.
Kevin: Margaret Lomas from Destiny Financial Solutions. Thank you so much. I look forward to talking to you again soon. Thanks, Margaret.
Margaret: Thank you.
Land tax explained – Ed Chan
Kevin: Thank you for your questions. Keep them coming in the time; they’re very, very welcome, of course. Just do it through the website. Go to RealEstateTalk.com.au. There’s an “Ask Our Experts” question panel in there. Just put your question in.
We got one from Charlotte in New South Wales, and I’m going to defer in a moment to Ed Chan from Chan & Naylor to answer this one. Thank you for your question, Charlotte. Charlotte has a few questions on how tax is calculated. Don’t we all, Charlotte? “How much do I have to pay? Do I have to pay land tax on my principal place of residence, and should I take this into account when I buy an investment property?”
Ed Chan joins me from Chan & Naylor.
Good morning, Ed. Nice to have you on the show, too.
Ed: Thanks, Kevin. Nice to be here.
Kevin: Let’s answer Charlotte’s questions. There are a number of questions in there. What do you want to tackle first?
Ed: Probably the question around land tax is a good one.
Kevin: It varies from state to state, doesn’t it, Ed?
Ed: Yes, it does. You can go into the Office of State Revenue’s website for each of the states, and you’ll have all of the different rules and the rates and so forth. But generally speaking, the home that you live in is exempt, so you don’t have to pay any land tax on that. However, if you rented that home out and put a tenant in it, then it becomes subject to land tax, so you have to be careful when you rent it out. Some people think that they’re living in their home, they rent it out, and it’s still exempt from land tax.
Some people also confuse the exemption from capital gains tax, which is a six-year exemption. If you moved out of your house and rented it out and then you moved back in, it’s still exempt from capital gains tax but it’s not exempt from land tax. As soon as you rent it out, it’s then subject to land tax.
Kevin: How much time do you have in-between having it as your principal place of residence and then when you decide to put a tenant in there, how much time do you have to let them know that that’s the case?
Ed: It’s immediate. As soon as a tenant moves in, it’s then subject to land tax immediately. It’s all based on self-assessment, so you have to volunteer it. In other words, you have to fill in an application form. You can download that from the Office of State Revenue.
Kevin: I imagine if you don’t do that, you’re going to be in for a fine as well if they catch up with you.
Ed: Yes. Because it’s self-assessment, people think that “I’ll just get away with it and not pay it,” but you get caught when they do an audit. They do audits every now and then and they send questions that you have to answer.
But also, when you try to sell your house, the purchaser generally wants a land tax clearance because unlike other taxes, land tax goes with the property. If I bought a house and there’s land tax owing on it, then I take responsibility for that outstanding land tax liability.
Kevin: Wow. I imagine that’s a search the solicitor would have to do prior to settlement. Wouldn’t that be the case?
Ed: Yes, that’s the general way to do it. You get your solicitor or your conveyancer and they generally should ask for a land tax clearance on the land as part of their job, their due diligence, if you like. It’s important when you’re doing this that they do that for you, otherwise you could potentially inherit a large land tax liability.
Kevin: I suppose as the portfolio grows, too, it’s a good idea to search around to other states to spread that land tax liability around a bit.
Ed: Yes, that’s the other issue. Land tax is calculated at a particular point in time, but then once you’ve reached a threshold… And each state has a different threshold, and I won’t cover all of the states, but just generally, for example, in New South Wales, it’s around $482,000 in land value – that’s the unimproved value of the land. So it doesn’t include the property or the building that’s on there. The Valuer General will generally provide an estimate of the unimproved value of the land. That’s $485,000 in New South Wales.
In Queensland, for example, it’s $600,000 before you need to pay any land tax. In Victoria, it’s around $250,000 before you need to pay land tax. Again, it’s all in their website, so you can go in there and check it out for yourself.
Kevin: It doesn’t adjust to each year, either. As values go up, land tax is not adjusted every year, so there’s almost a bit of a creep-in there, isn’t there?
Ed: Yes, there is, although it depends on the state. A lot of the states don’t do it every year, so it could be several years before they bump the value up. When they bump the value up, they adjust the land tax.
One important point I’d better make is that when you buy a property, it’s all based on self-assessment, so they won’t automatically send you a bill for your land tax. It’s on a volunteer basis. It’s called self-assessment, not volunteer. Self-assessment is probably a better term.
You go into their site and you fill out a form. It’s an initial return. You send that initial return into the Office of State Revenue. They then assess the land, and if you’re under the threshold, they’ll send you a new assessment. If it’s over, they’ll calculate it and they’ll then send you a bill.
However, once you’ve done that, generally, in most estates, they’ll send it to you every year, so you won’t have to worry about it. It’s the first one that you have to really worry about.
Kevin: Ed, great talking to you. Thank you very much. You’ve answered all of those questions. Charlotte, the last part of your question, you said, “Should you take it into account when you buy an investment property?” Of course, you should; I think anyone would advise you of that.
Ed Chan has been my guest from Chan & Naylor. Ed, thanks for your time.
Ed: Thanks, Kevin, and thanks for your question, Charlotte.
Wear out the shoe leather – Patrick Bright
Kevin: Patrick Bright joins me. Patrick is an author and also a buyer’s agent with EPS Property Search. I want to talk to Patrick about first-home buyers, because there is a lot of complaining in the market at present about just how unaffordable it is for them. I want to find out if that’s for real. I want to get his take on it, and also he has some great advice, too, on how you can become a property owner as a first-time buyer. He joins me.
Good day, Patrick, how are you going?
Patrick: Good morning, Kevin.
Kevin: Good to be talking to you again, mate. Thank you very much. Patrick, as I said, is from EPS Property Search. Patrick, do you very often have to help first-time buyers get into a property?
Patrick: Yes, these are part of the client base that we help. It’s not the biggest chunk. You have to understand first-home buyers really only represent about 10% to 15% of the marketplace at any time, anyway, and that floats up a little bit. Obviously it fluctuates at different times when governments put incentives on the table, and then when things are taken away, obviously, that drops a little bit.
Kevin: I sometimes wonder, buying a property is a big decision, it’s a big commitment. The fears around that for first-time buyers, what are they and how real are they, Patrick?
Patrick: Well, first off, they’re nervous. The number one thing, like anybody, and definitely first-time buyers as well, is buying something and overpaying. That’s a big concern; people don’t want to overpay.
Kevin: Is that their biggest concern?
Patrick: I find that. A lot of people come to me saying, “I don’t want to overpay, I don’t know how much to pay.” Particularly, dealing with auctions, there’s no price guidance or limited pricing information around that, so that frustrates people a lot. They just don’t know where to start. They’re fearful of being out-negotiated, and they should be, because they’re going to be. You’re not going to beat a seasoned professional.
Kevin: Overpaying being the biggest one, what can they do to overcome that? Obviously do some research, but where do they go to do that, Patrick?
Patrick: Basically, shoe leather is what you have to work through, which is exactly what a buyer’s agent does. Just do what we do. You have to go and inspect properties. You have to be educated – as you said, research. Inform yourself about the market. You can’t just rely on data reports. For instance, you can’t just go and buy one for $50 off the Net or get one handed to you and go, “Oh yeah, that works.”
Kevin: Well, you can, but just how reliable are they?
Patrick: Well, that’s the thing. You can get that – you’re right – but they’re limited. They’re “name, rank, serial number.” Those reports don’t tell you the size of the block, or if it’s a house, for instance, they don’t tell you if the house is at the front or the back of the block. They’ll tell you the size, but they don’t know the shape of the block.
Is it slopey? Does it have an outlook? Is it private in the backyard. What’s the floor plan like? Okay, it’s four-bed, two-bath, but is it renovated, partly unrenovated, fully renovated? The room sizes, what are they like? What’s the floor plan? Does it flow? Can you fix it?
These things aren’t available on those reports, so you have to be physically out there, looking at these properties, and understanding… In the same street, we see properties that are four-bed, two-bath in the same street with a 30% difference in value – because the different side of the street, different aspect, different natural light coming in, different shape of the block, different view and privacy. All these things factor in a little bit, but it adds up to a lot.
Kevin: One of the things that worries me a lot is, one of the major banks currently advertising an app that they have that purports that you can simply go in and just hold it up in front of the real estate agent and get an accurate price indication about a property. Now, I sometimes worry about those, for the very reasons you’ve just outlined there – that it’s a lot more complex than just having an app that just pumps up a figure.
Patrick: Completely. Everybody, they’re just meat. They’re just meeting the need that people out there who want to know everything instantly, everything, and information.
Kevin: But they’re not accurate. That’s the thing that worries me.
Patrick: They’re not accurate at all. It’s not accurate at all. There has even been plenty of research. Look at this: you get three or four sales agents coming in to assess your home, and they’ll be 20% apart – and they’ve looked at it.
Kevin: Yes, but you get valuers in, the same thing will happen.
Patrick: Oh, plenty of times. I’ve had valuers come in on a property… I actually to refinanced a couple of my properties recently, and I had a valuation on it, and I thought, “That’s a big light. That’s a bit mean on the valuation. I know the market.” So, I went back to the bank, and said, “Look, I want a new valuer to come out from a different firm.” He came out and there was a 10% uplift variance in that valuation. And I went with the higher valuation; I was allowed to, which you are. And that was fair. I just thought the guy was being 10% light when he valued it, and I asked for another one.
These professionals are doing it day in and day out. So, at the very least, at the very least, you have to be out there looking at dozens and dozens of properties, over weeks. You can see, easily, a dozen on a Saturday. If you commit to two months, eight weeks, not a long time, you’ll get through the best part of a hundred properties. You’ll be as informed as anybody about the value of the type and style of property that you’re looking to buy. And this goes for not just first-time buyers, for everybody.
Kevin: For everyone, yes.
Patrick: And, particularly if you’re buying in a suburb or an area that you’ve never lived in before because you’ll discover things about it. Go on and have dinner there, go on and eat at the cafés there.
Another thing I say to people is “What’ the traffic like?” if it’s in an area where there’s a bit of traffic. Particularly in Sydney, we have to factor that in. What I’ve said to people is if you’re not sure about an area, you need to drive there for a week, in the morning, as if you would be leaving for work, and do that route to work to know it. Or do the public transport. Do that, and even going home.
If a property doesn’t have parking on it, like you just mentioned before, that’s a huge negative – no parking – and I understand why that’s on the top of the list. People go, “Oh, it’s okay.” because we have three-bed, two-bath, terraces in Paddington that sell for $3 million, $4 million with no parking. So if people say parking is not an issue, I say, “Go and park there when you would normally be trying to parking of an evening coming home, and see how happy you are.”
Kevin: Mate, we’re out of time, Patrick. Got to go, but, thank you very much, mate. Good talking to you.
Patrick: Pleasure, as always.
Rentvestor develops a portfolio – Jane Slack-Smith
Kevin: Our featured guest this week is Jane Slack-Smith.
Hi, Jane.
Jane: Hi, Kevin.
Kevin: I want to talk to you about your journey. We’ve spoken to you about many things about investing in property and more recently – and we’ll talk about it, too – The Ultimate Guide to Renovation. While we’ll talk about that in our chat, I want to get to know you a little bit better, Jane, and I want to know about your property journey because you came from a background that I wouldn’t have thought would ideally lead you into property.
Jane: Yes, I have had an interesting journey. That’s for sure.
Kevin: Tell me about it. Where did it all start? What was your first property, and how did you get into it?
Jane: I am a farm girl from Dubbo. My father was a farmer and worked on someone’s farm and managed that. Really, my parents were always hard workers and they always rented a farmhouse. It always came with the job.
My mother was a nurse and then became an interior decorator, so we got to see some of the fabulous homesteads and properties around Dubbo, all the way out to Broken Hill and down to Parkes, etc. So we had an opportunity to see these beautiful homes, which always fascinated me and I always thought it would be lovely to be an architect.
But as things were, to go to university and be the first in the family to attend university, I needed a scholarship. I was pretty good at math and science, and to everyone’s extreme shock and horror, I got a scholarship to study mining engineering.
Kevin: How did you fall into that?
Jane: Engineering came up on the math and science background, and I was taught from a very young age that education was a process that allowed you to learn how to learn and then it was up to you how you applied it. So, I wasn’t too caught up on what my degree was going to be; I just knew that the learning mechanism and what I could then apply to future careers was going to be what I could do. I had seen my mother change her career, so I wasn’t afraid of doing that.
My parents always rented, didn’t have their own home, so I’d never had a fear of renting. Later on in life, I became a “rentvestor” for ten years. But for me, I was given the opportunity to go to an exclusive boarding school in Sydney and get that education. I could see how the other half lived.
Engineering was a skill set that I knew fitted me, but more importantly, I got a scholarship. When they rang up and said, “Jane has a scholarship to study mining engineering,” first and foremost, my mum said, “You’ve got the wrong, Jane Slack-Smith,” and the school counselor said, “No girls from here do engineering.” It took a bit of convincing.
I turned up and studied mining engineering, and that first summer, I became the first female to work underground legally in the New South Wales coal mines and the guys went out on strike. It was an interesting experience.
Kevin: Congratulations on achieving that. Have you been able to use any of the skills you learned through that in what you’re doing now?
Jane: Absolutely. I spent the last ten years of that 18-year career as an explosives expert. I was doing risk assessments every day, and I did a thesis on risk assessments at university. I was looking at the consequences and likelihood of something going wrong and how to minimize that risk.
When I met my now husband, Todd, 18 years ago, he had seen someone do amazing property portfolio building in New Zealand, where he was from. And his father was a renovator who used to buy, do up the house, sell the house, and then upgrade the home, so he had really seen that in practice.
Basically, I then pulled my risk assessment skills together and said, “Well, if I only have $45,000, I need to make sure that this really important nest egg that I’ve saved everything for is going to make me money in the future.” So I was really dedicated to understanding the risks and doing the research.
Kevin: That’s a fascinating story. You mentioned earlier about your parents being full-time renters. They rented all of their lives, I think you said. What were the conversations like around the kitchen table? Did it relate to property at all? Where did you learn your skills?
Jane: No. Investment in property was not something that we ever discussed. Because they were doing it tough, there wasn’t a lot of extra money or savings, either. I can still remember when we did have extra money, I would spend it because that was just the way we did things.
I remember at one stage, back in the days of bank cards, my dad saying to my mum, “We’re going to have to be better at these credit cards. I’m cutting up your bank card.” We went into Grace Brothers in Dubbo, and the lady said, “Do you have your bank card?” My mom said, “No, I don’t have it with me at the moment but I memorized the number.”
Kevin: Is that right? And she got away with that?
Jane: Yes. It was back in the seventies. Everyone was friends.
They really worked very, very hard and all of the money went into providing us with a great education, and they made sacrifices for us to do that, for which I’m always grateful. But we didn’t grow up talking about how to invest at all, just how to be the best that we could be at what we wanted to work at.
Kevin: That’s a great start in life, too. Tell me about the first property you ever purchased, whether it was for yourself or as an investment.
Jane: Basically, I knew that we needed a methodology to get this right and research was going to be the key. My boyfriend at the time – he’s now my husband – Todd, he wanted to buy property, as well,
We were based in Melbourne, so we drew a circle around 10K of CBD Melbourne and we put all of the suburbs on the list. Then we wiped out three-quarters of them because we couldn’t afford them, and then we started doing some research on the suburbs that were left. We came down to Carlton, Fitzroy, and Collingwood.
We did amazing research on those three suburbs. We walked the streets, and we’d go to every open home. For every ten properties that we looked at an open home to buy, we’d go to one that was up for rent because we wanted to see what the competition was like as well, which is still a technique I teach my students today. It really gave you some insight into (a) if you wanted to employ that property manager and (b) what kind of quality of fixtures and fittings people were looking for.
We did all of this research, and within three months, we were within 2% to 3% predicting what the auction prices would be. We’d drive up and down this beautiful street in Carlton and we’d say, “One day, our end goal is to have a home here.”
Fortunately, what happened was a lady put two properties up for the one bill of sale but on two separate titles. Instead of saying $400,000 or $450,000, it went for $900,000, $950,000. The property was passed in, but we had the Residex report that showed us some comparable sales. We had the report on the property that said everything was going to fall down tomorrow. And we went in and started negotiating.
Meanwhile, some [7:56 inaudible] were out there saying, “These people are too young to buy a property; we’ll put $1,000 on their top bid, and let us have it.” To the credit of the real estate agent, they said no, and we negotiated those first two properties for $975,000.
I purchased my side for $425,000 and Todd had his for $450,000, and we did a renovation that cost me $50,000. I got a personal loan of $50,000. And nine months later, that $425,000 property was worth $700,000, so I pulled out equity, moved to Sydney, and did it again, and did it again and did it again. I never used anything more than that first $45,000 to secure property since then.
Kevin: Do you still flip properties, or do you hold them nowadays?
Jane: I never flipped.
Kevin: That first one was a flip, wasn’t it?
Jane: No, I just pulled the equity out.
Kevin: Sorry, I misheard you then. Well done.
Jane: They’re worth maybe $1.5 million or $1.7 million now, those two properties that we purchased for $945,000 11 years ago.
Kevin: That’s a big message – isn’t it? – about buy and hold.
Jane: Absolutely. I was reading an article recently about where we bought subsequent properties in Sydney – Kingsford in the eastern suburbs. When we looked at that area, we could see that Kensington and Randwick and Coogee were all in the $1 million price range. Kingsford, the poor cousin no one wanted to live in, was at $625,000. We went in and negotiated and bought a house there. The median price there is $1.7 million today.
That buy and hold, the growth, and being able to add equity straight away to be able to buy renovation was our technique for all of these properties. Push the rent up to help us pay for the difference between the cost and the income and pull out equity to buy the next property was the strategy the entire period of time.
Kevin: Do you have a mentor? Who guides you?
Jane: Look, I’ve had many mentors over the years. When I started my mortgage broking business, I got a mentor involved then who I still talk to 12 years later, now. But I find that sometimes the learning is right for a person for a couple of years and then I move on to a new mentor, so at the moment, I’m currently working through and interviewing three different people to be my next mentor.
I spent a lot of time in the States – flying backwards and forwards – to learn how to authentically educate people with really valued content, and that was something that back in 2012 with the Your Property Success education, I wanted to do it right and I couldn’t see anyone doing it in Australia, so I found a mentor overseas to learn that. That satisfied for a couple of years and then I moved on to the next mentor.
As you need things, I think you need to upgrade your skills and upgrade the people who are helping you to achieve your next level of what you want to do.
Kevin: Yes, a good mentor or a good coach will tell you the first thing they should want to do is to have their client outgrow them, really. It doesn’t mean that the mentor or the coach is deficient; it just means that you’ve grown, basically.
Jane: Absolutely. They’ve done their job.
I mentor a very small number of people each year, and I tell them, “If you come back for the following year, it means that I haven’t done my job.”
Kevin: That’s very true.
Jane: I think that it’s always important. I was very happy in a corporate role in the mining industry making lots of remember, but I remember I was sitting on the mine site somewhere between Mount Isa and Moranbah – I think I’ve been to every mine site in Australia – and we were waiting for a blast to go off.
These guys were saying to me, “How do you have so many properties?” I’m like, “We’re on the same income; how don’t you?” So I started teaching them the methodology of doing the research. It was at that point that I turned around and thought, “I really wanted to be able to help people buy properties, but I don’t want to be a real estate agent. I want to teach them what to do.”
Back then, in 2005, financial planners couldn’t help and mortgage brokers were the only ones who could actually legally get professionally indemnity insurance to protect their own assets and talk about property. I’ve always been a bit of a different mortgage broker because, for me, it’s about the property rather than the loan and understanding what the goals for the people are. Hence, that’s why the education came along in supporting that journey for them.
Kevin: It’s a bit like “Give them a fish, you’ll feed them for a day; give them a fishing rod and you’ll feed them for life.” Isn’t it?
Jane: Absolutely. I’m a big believer in that, and that’s how I’ve always educated myself, as well.
Kevin: It’s great to be coaching someone or working with someone and then all of a sudden, you see the penny drop and they understand about gearing. That’s really what it’s all about, isn’t it?
Jane: Absolutely. And I still go to courses. I see people stand up there and go, “I’m going to give you the one tip that’s going to make your investment in this course successful for you,” and they’ll talk to something about a tax variation, and you’re like, “What?” Then you realize people don’t know about the fact that they don’t have to wait to be into the financial year to get their tax refund on their property investments; they could get it every paycheck.
There are a lot of little things that you know that you kind of forget that you know, but when you share those with people and you see that “Oh my gosh, I don’t have to sell my home to pull out equity to buy an investment property,” that kind of “a-ha” moment, I live for those.
Kevin: You have so much to offer, Jane, and I always love talking to you. Just before I let you go, I want to ask you because The Ultimate Guide to Renovation is open. It opened a couple of days ago. Tell me what we can expect to see inside of that.
Jane: This is the complete culmination flagship of everything I’ve learned over the last 15 years of researching about properties. Unlike traditional renovation courses, it’s not all “Hammer and nails” and “Let’s get in and paint.”
It’s a 12-week online course – all video-based and downloadable. We work through the goals and the finance, but the first six modules are all about the importance of the location, because we know that unless people buy in the right place, there’s no point in renovating because you may not make money.
We’ve listened to our community over the last four years that we’ve offered this flagship course and the enrolment is twice a year. They’ve said, “It’s too hard going to 30 different websites and grabbing all of the information you tell us to do.” So I’m really proud to say we’ve just finalized software that we did for our students that allows them to analyze properties by putting in certain criteria and out comes all of the data for the properties across Australia. We’re always perfecting.
Just the private Facebook group, there are hundreds of people in there, the support they give each other, sharing costs on doing deals, putting up properties, and asking questions, it’s just an amazingly supportive group, and I’m really proud of having created it and being part of it. It’s something I’m really proud of.
Kevin: Here we are. The enrolments have opened up a great opportunity for you. Use the link on the home page at Real Estate Talk. That’ll take you straight. You can get all of the details there and you’ll see exactly what Jane has been talking about.
Jane, before I let you go, the bottom line: where do you see property investors go wrong?
Jane: I think it’s not educating themselves upfront. Often, it’s being simplistic with their purchases. “The property around the corner came up for sale, so I bought it,” or someone said that it’s really great to buy in a certain area so they believed that without understanding the research. I always look for multiple pieces of information from multiple parties to establish where to buy.
I have a very large property portfolio today that goes up by over $1 million last year while I was sleeping. I know that people can achieve that. I wrote that book – Two Properties, One Renovation, $1 Million in the Bank – because I know with just two well-placed properties, people can have that degree of freedom.
Understanding the importance of the location and the research, gathering information from as many areas as you can, and listening to podcasts like yours – I’ve been listening to your podcast for years – and you always pick up something, and that quest of always learning and applying that, I think, is probably where people can go right with property investing.
Kevin: Better look at where they go right because there are so many lessons we can learn from that.
Jane, I want to thank you so much. Congratulations on what you’re doing with The Ultimate Guide to Renovation – a reminder to click on that link on the home page at Real Estate Talk and all of the details are there for you – and also, all of your work through Your Property Success, too.
Jane Slack-Smith has been my special guest on the show. Thank you for your time, Jane.
Jane: Thank you.
I am ‘surprised’ by this market – Michael Yardney
Kevin: No doubt about it. This market just continually surprises, doesn’t it? You look at the growth in Sydney and Melbourne, and there were so many predictions at that start of the year that it just wouldn’t continue, but it has. How do you get on in this kind of market? What do you do? How do you get in there? Michael Yardney is going to help us with this question. Michael, of course, is from Metropole Property Strategies and is a regular on our show.
Good day, Michael.
Michael: Hello, Kevin. You’re right; the markets have surprised on the upside, haven’t they?
Kevin: Yes. Are you surprised by it, Michael?
Michael: I didn’t think they would be as strong as this at the beginning of the year. Yes, I am. Again, not every market. While Sydney and Melbourne, in particular, have done well, even those markets are fragmented. But it’s the shortage of stock in the investment-grade sub-segments, plus low interest rates and increasing confidence since the election. We have noticed on the ground, the properties we’re looking at, this type of investment-grade properties have moved up 5% and in some cases, even 10% in the last six months or so.
Kevin: Yes, it’s quite staggering, isn’t it? So what can someone do to get into the market when it’s like this, Michael? What would you recommend?
Michael: What I would recommend not doing is sitting on the sidelines waiting for things to change, to get better, to get easier. It clearly is a seller’s market. If you have the right type of property, there will be multiple dealers at an auction or people looking to buy as private sale. So a good negotiation tactic I’d start with, Kevin, is don’t be smart; a good negotiation is when you win and actually get the property.
I’ve seen people miss out for $2000, for $5000, go to multiple properties and lose out trying to be overly smart, when, in fact, I would be suggesting the best negotiating strategy is when you win.
Kevin: I have heard you, though, on a number of occasions say, Michael, “I’ve missed out on that one. We didn’t get it.” You have to have a limit though, don’t you?
Michael: Of course, you do. But I think what’s happening at the moment, we’re experiencing the words over and over again when we go to an auction and we do set a limit and we lose out is that the person who’s bought is somebody who’s missed two or three times at previous weekends and they’re now one of those emotional buyers who are going to buy at any cost.
And no, Kevin, you can’t chase them, so the answer is do you your homework, do your sums, but don’t try and be smart. If an opportunity does come around, be prepared to act quickly. Have a look, make sure you’ve done all your correct due diligence, but if you know what you want and you’ve researched the markets and you have finance approval on your side, when you find the right property, be prepared to make an offer early and a firm offer.
Kevin: Yes, but don’t leave home without a blank check.
Michael: Well, be prepared to make an offer quickly. If it’s going to auction, go there with a realistic figure knowing it’s going to probably be more expensive that you would have spent six months ago and when you look back in 10 years’ time, you’re going to think, “Gee, it was really cheap, wasn’t it?”
Kevin: That’s right. The other thing, too, mate, is you can’t be too cute with your offers, can you, in this market?
Michael: No, I don’t think you can. You should buy unconditionally. Don’t try and be smart and make it subject to finance and building and pest inspection and my wife’s cousin’s approval; in fact, be prepared to buy unconditionally or on one condition. The condition we sometimes use that covers all the others is subject to the purchaser’s solicitor’s approval.
Now, most vendors, most sellers, most estate agents won’t understand the power of that. Because the purchaser’s solicitor – my solicitor – has the right to say, “I don’t approve,” and they can not approve for any type of reason, but it doesn’t sound as intimidating or subject to finance or subject to building and pest inspection.
It’s a simple thing where people say, “Oh, the solicitor is not going to give us a hard time. It’s a good contract.” It’s not only the contract he’s looking at, Kevin.
Kevin: With such a hot market and so many properties selling at auction, what about making an offer before auction, Michael?
Michael: Interestingly despite the hot market and the very high clearance rates, we’re finding a lot of vendors are prepared to sell before auction. There are two times that they’re prepared to do it, Kevin – very often right at the beginning of the campaign, because in their mind they’re going to save $20,000 or so in marketing costs, and they’re also a bit scared about what the end result will be. A lot of people find auctions very emotional.
The other time we’re finding in Melbourne, in particular, three to four days before the auction, three days when the cooling off period is now over and the auction conditions are there, people are prepared to sell rather than take the risk of auction. Of course, you’re not going to nab a bargain doing that, but in fact, I’d much rather my buyer’s agent come on a Monday morning and say, “Hey, there were four other bidders and I’ve actually outbid them and we got a good property,” than saying, “Hey, I got a good bargain because there was no one else at the auction. No one was interested.” I’d wonder “What’s going on? What are we missing out on?”
Kevin: Yes, “Why is it like that?” What about leveraging your relationships, Michael?
Michael: One of the benefits that we have as buyer’s agents is we know the selling agents in the areas where we’re purchasing, which means they’re going to give us a lot of those opportunities really early in the auction campaign, as I said, or off-market opportunities in private sales.
I guess clients come to us about our experience, our knowledge, our relationships. While you can actually get knowledge on the Internet and you can do your homework that way, you actually can’t buy experience, you can’t buy relationships, you can’t buy perspective – and that’s what, I guess, a good buyer’s agent can bring to the party.
And they know how to talk with selling agents and we can sometimes dig deep and find out the vendor’s motivation, which the average buyer can’t, Kevin.
Kevin: Speaking of motivation, too, Michael, price is not always the only motivator, is it?
Michael: No, it’s not, Kevin. Interestingly, we want to understand when sellers are motivated, because we’re not going to take advantage of people, but we will take advantage of the situation and make sure that they get what they want so that we can get what we want.
If somebody is divorced, you’ll often find they’re very, very keen to get out quickly, even if they don’t get the top dollar because they just need to be out of the house. If people have troubles with debt with the banks and they have deadlines to meet, again, sometimes a quick settlement at a lower price will be more important to them than hanging out and the bank taking over. Death is another common motivating factor where people just want to move on. They want to clear the estate. They don’t want all the emotion involved in it.
Interestingly, I’ve found other sellers are sometimes keen to sell to families. They don’t want a developer or somebody to pull down the house – the house that they’ve lived in and the castle that they’ve built and the family has grown up in.
It’s surprising how often money isn’t the main motivator; there are other secondary ones that you have to look at, as well.
Kevin: Indeed. Very wise words. Michael, thank you so much for your time.
Michael: My pleasure, Kevin.