 Recently, I have heard a lot of people saying that they were going to hold off until the interest rates rise and house proces soften.
To me, this is an expensive gamble. Firstly, the gambler is betting against the natural movement of the market. Markets generally move upwards over time and have done in Australia for many years. Many factors influence a market to rise or fall over time but it’s normally a combination of factors working together to have an effect. Normally one factor of influence in isolation won’t have too much effect on the market. In the 6 year period from 2002 to 2008 there were 22 increases in the interest rate from 6.5% to 9.5%. During this time, 6 out of the 8 capital cities doubled in price. Perth having increased 147%. Admittedly, way more than it could handle but the fact still stands that interest rate rises have shown to have less effect in the past than the media would have you believe. Sometimes it’s not as cut and dry as noting a citing a direct correlation between rate rises and house prices. Human emotion comes into play, which translates into market sentiment. As well as affordability, which is the relationship between income, cost of debt and the current price of houses in a market. The WA market is at an incredibly high level of affordability at the moment, with the median house price at around $527,000 (REIWA) compared to Sydney at $1.39m. Our average wages are slightly higher than in Sydney which paints a picture of the disparity of affordability between the two cities. Predicting the market is a complex beast with many layers affecting the outcome. But I always advise my clients to stick with the fundamentals. Long term investing can be boring and the common sayings such as ‘time in the market rather than timing the market’ will always ring true in the long term.
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 Why go halvesies buying a property with your mate when the government will pay for 40% of it?
Is this a solution? Maybe? Probably not. But who knows. I don’t think the government even knows how this could pan out. Are they buying votes or is this a genuine solution to a growing problem of lack of affordable housing? What I do know is, that when the government messes with the economy with schemes like this, it can backfire. Think the building grants; the government throws some money at the building industry and all of the vacant land is snapped up. Builders become too busy, prices rise exponentially, builders go bust, people are stuck with blocks of land and can’t build their houses, people have built houses that are now worth less than what they have paid for them when they are handed the keys. This isn’t all to do with the grants but it certainly hasn’t helped the situation. This is such an interesting drawcard by the labor party, which has so many layers to explore. Personally, the government owning a 40% stake in the the property market and where that could end in 10-20 years, (50%, 80% ownership?) has a slight smell of communism in a pretty dress.  We were programmed to save money from a young age. In primary school we were given a little piggy bank to collect our coins ‘for a rainy day’.
We were taught how to save money, not how to make money. This saving mind set has been taken with us into adulthood. We constantly find ways to save our money, Woolworths points, fuel vouchers, EOFY sales. We are taught how to minimise tax, not how to create wealth. School doesn’t teach you how to make money. We pull all the strings to reduce how much we pay in tax. We pay our accountant to minimise tax but we never pay anyone to teach us how to create income. What happens when we minimise our tax? We pay less tax right? Great! But now the bank won’t lend us money because our income is low. We have cut out our ability to MAKE money because we were too busy SAVING money. I’m going to teach you three wise words that the face on the US $100 note, Benjamin Franklin, taught me: Money Makes Money. We borrow money from a lender, invest in assets using leverage and wait for the assets to grow in value and produce an income so we don’t have to work for it. To borrow money we need to prove to the bank that we have a strong income. Much to my accountant’s disappointment, I don’t try very hard to minimise my income through tax deductions. I pay more tax, but now I can purchase that property that has since grown 30% in value. I’m not saying go out there and pay notax, but if you are in the accumulation phase of your property journey, then talk to your broker, your accountant and your buyer’s agent about what you want to achieve financially and align your finances to allow you to achieve your goals. You see, money makes money. To become financially free you need a money making mindset, not a money saving mindset.  I often hear on property forums or general market commentary about people advising not to invest Perth as it is a boom or bust town, too reliant on iron ore.
Yes, it’s true that Perth was swept up in the largest historical iron ore boom we have seen. As the boom slowed down, we saw the longest period of negative property price growth in history. This was an unusual event and one that we hope to never see again. Looking historically at 60 years of Perth property price data (REWA) we’ve only seen 5 isolated years of negative growth before the boom of 2008. The worst year being 1961 of around -5%, then 1972, 1979, 1982 and 1991 all seeing less than 5% of negative growth. Each of these periods were followed by solid periods of sustained capital growth, with 8 of those years being 20% or above and back in 1975, more than 40%. None were followed by long periods of negative growth. If you look at the 10 year average price growth data over this 60 year period, the 10 year averages have been steady around 8-12% until things went a little crazy from 2004 and then of course we saw the correction from 2014 to 2019. As always with statistical data you need to look further back than recent memory to get a true understanding of a market. While all eyes are on the east coast with their historical record growth over the past few years, we need to look where the next opportunities are. As the worlds greatest investor Warren Buffet once said “be fearful when others are greedy, and greedy when others are fearful”  When was the last time you held a $50 note in your hand? Unless you are renovating and paying your tradies cash, then probably quite a while ago.
These days, it’s just a digital number in your online bank account that goes up and down. Down when you spend it, up when you work for it. The up part is directly proportional to the amount of time and energy you put into your job. So, you could say money is a measurement of energy, right? That’s exactly what it is to me, a measurement of energy. You can create ‘money traps’ to harness that energy and put it to use. Like you would a solar panel to harvest the suns energy or a wind turbine to catch the winds energy. Property is one perfect example of a money trap. Once you set up a great investment property then it produces ‘energy’ without you having to spend any energy. That energy grows over time and increases exponentially. Once you have accumulated enough energy from your money trap, you can use it for whatever you choose. If you harness enough energy, then this is where the real power of the energy comes to life. This is where you can begin to have the power to change people’s lives, starting with your own. Imagine the feeling of walking into a children’s cancer ward and paying for the end of life wishes for all of the children in that ward. Or having enough money to build a new school for a village in a 3rd world country. This has been a dream of mine since travelling the world and visiting remote surfing destinations like the one in the photo above. Were you told as a child that: Money is the root of all evil Money doesn’t grow on trees You have to work hard for your money? Then if you still repeat these words and hold onto these stories as your money mantra, then this is a money block and by holding onto this belief you will never be able to create enough money to build freedom for your family or pass on a legacy to your children. These beliefs are a clear misunderstanding of how money works and is a belief centered around fear. You will never hear a philanthropist say ‘money is the root of all evil’ as they hand over millions of dollars to their favourite charity. I mean, if you wake up every single day and pull yourself early out of bed to go to work and spend your entire day working, every weekday, for 46 weeks a year for 40 straight years, then you do place money at the top of your priorities list. So, your new ‘money story’ is: Money can empower me to create freedom for myself, my family and anyone who I choose to help and share this energy with. Your decisions can break the beliefs that the amount of money you earn is directly proportional to the amount of time and energy you put into a job. Create some money traps. If property interests you, then learn about property, understand how it can benefit your future and start the journey to set yourself up to be free from having to work for your money. As I always say, making money from property is a long term process, the best time to start is now, the second best time is tomorrow.  Wow, this market has definitely stepped up a gear since the end of winter!
I’m seeing frenzied home opens, offers WAY above asking, one property had 30 offers. Another selling in the $900’s sold for around $1.25m So how do you buy in this market? The first step is acceptance. Understand that it’s a hot market and try not to get frustrated. Frustration leads to irrational decisions. Keep a clear head and don’t get rattled. You need to build relationships with the selling agents. Contact them regularly so you are at the top of their mind when a property gets listed. Find out whether the seller would consider an early offer. Presenting your offer midweek may allow you to potentially close the deal before the 1st home open if the offer is at the right price. Which leads me to my next point. Accept that you may need to pay above asking price. You want to be slightly ahead of the market rather than constantly chasing it and end up paying more after you have reached the “I surrender, I’ll pay anything!!” stage. Trust me this stage exists and I’ve seen it plenty of times recently. Lets say you paid $10,000 over in February this year. Well the value of your property would be well and truly above that now and you saved yourself the pain of searching for months on end. Be available. You need to be ready to pounce when the opportunities arise. Jump in your car and go and inspect during the week and try and close the deal. You need to have your finger on the pulse. Work your conditions. What are the sellers needs, do they want to rent back? Maybe a long settlement? Dig for these pieces of information. And finally, have your finances in order. See your broker and get pre-approval. Strong finance means a strong offer. Searching for a house in this market can be a time consuming and draining process. Reach out if you want some advice, always happy to chat  If your goal is financial freedom, then the straight answer is…More than one. Owning only one property that you live in is potentially slowing your journey. I’ll explain why. Let’s say ‘John and Mary’ currently live in a $700,000 house and have a goal to work hard and upgrade to the neighbouring suburb and buy a house worth around $1000,000. The market moves 20% and their house goes up in value, they’re feeling pretty good right? But realistically everything else around them has gone up in value at the same rate. This is called inflation. Now their $700,000 house has gone up to $840,000 and the house they planned to upgrade to in 5 years time, has gone from $1M to $1.2M. So the upgrade gap has widened from $300k to $360k. Effectively, John and Mary have moved $60k further away from their goal. So how do we stop falling behind inflation? To move closer to your goal, you need to outpace or ‘outsmart’ the market. Accumulate carefully selected property assets that increase in value to bridge the gap between where you are now financially and where you want to be financially. Understand that your home is not an income producing asset. To repay your home debt requires your time and labour. If you stop working every single day to pay down your debt, then eventually you will have to sell your home because no one else will pay it off for you. That sounds like a treadmill to me. So how can you plan to get off the treadmill? Have a tenant that runs the race for you paying down your debt while your asset increases in value. Then, rinse and repeat. So what’s the next step? You need a defined goal, a defined plan and strategy to achieve that goal and a professional team to help you implement the plan. That’s the short of it. But there’s more detail. As I always say, property is a long term game so the best time is to start now. If you’re interested in learning more about how owning an investment property can help you achieve your goals, then feel free to reach out for a chat at anytimeHow many properties do I need to own? If your goal is financial freedom, then the straight answer is…More than one. Owning only one property that you live in is potentially slowing your journey. I’ll explain why. Let’s say ‘John and Mary’ currently live in a $700,000 house and have a goal to work hard and upgrade to the neighbouring suburb and buy a house worth around $1000,000. The market moves 20% and their house goes up in value, they’re feeling pretty good right? But realistically everything else around them has gone up in value at the same rate. This is called inflation. Now their $700,000 house has gone up to $840,000 and the house they planned to upgrade to in 5 years time, has gone from $1M to $1.2M. So the upgrade gap has widened from $300k to $360k. Effectively, John and Mary have moved $60k further away from their goal. So how do we stop falling behind inflation? To move closer to your goal, you need to outpace or ‘outsmart’ the market. Accumulate carefully selected property assets that increase in value to bridge the gap between where you are now financially and where you want to be financially. Understand that your home is not an income producing asset. To repay your home debt requires your time and labour. If you stop working every single day to pay down your debt, then eventually you will have to sell your home because no one else will pay it off for you. That sounds like a treadmill to me. So how can you plan to get off the treadmill? Have a tenant that runs the race for you paying down your debt while your asset increases in value. Then, rinse and repeat. So what’s the next step? You need a defined goal, a defined plan and strategy to achieve that goal and a professional team to help you implement the plan. That’s the short of it. But there’s more detail. As I always say, property is a long term game so the best time is to start now. If you’re interested in learning more about how owning an investment property can help you achieve your goals, then feel free to reach out for a chat at anytime 
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AuthorWritten by Adam Nyeholt Archives
October 2021
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