There are a lot of moving parts when it comes to the decision of whether to buy an apartment or a house.
Firstly, not having a garden or a large costly house to maintain can save on costs. Although this can be offset by high strata fees which you would normally pay to maintain a pool, gym or lift.
Many investors get caught out by the facilities an apartment has to offer but don’t consider the ongoing costs of strata fees.
Apartments can offer a higher rental income in comparison to the value of the asset which can be attractive to a first time investor. Higher rental yields can keep your head above water and may be the saving grace if you come into financial hardship and need to decide between holding and selling. But all costs need to be considered to understand the true net income.
Location. Purchasing an apartment gives you the ability to get into a more expensive area where you may not be able to afford a house. Maybe a beach suburb or inner city suburb where the rental demand is high would typically be difficult for the average investor to purchase a house in gives the opportunity to capitalise on the location by purchasing an apartment in a prime area.
Considering supply and demand. When a new apartment building is constructed this adds a lot of supply to the market. Sometimes too much supply which can affect the values of surrounding apartments.
Check the pipeline of building approvals, is there a lot of land in the area zoned for units that developers can possibly turn into apartment blocks?
When buying a brand new apartment you are paying for the materials at a brand new price, which the builder has made his margin on and the developer has also made their profit on. From day one, the building starts to depreciate in value.
Ultimately, you need to consider your strategy. Most investors are focused on capital growth and the evidence is clear that houses achieve greater capital growth over time.
This is due to the old adage that land appreciates in value, where buildings depreciate in value.
In conclusion, if you decide to invest in an apartment then buy in a prime suburb in a prime location. Don’t buy a new apartment. Consider future supply.
Look for small buildings with under 20 units in the block that have character with a high demand and low vacancy rate and a high proportion of owner occupiers. Look for some sort of wow factor, views and courtyards are always winners.
Hit me up if you have any questions or need some advice on the next step in your investment journey.
RBA: Predicting a 30% House Price Increase?
The Reserve Bank of Australia has forecast that house prices could jump by 30% over the next 3 years if the current low interest rates remain.
This prediction comes for an RBA report released under the Freedom of Information request putting the effect of ongoing low interest rates under the microscope.
What is the basis for this? It’s pretty simple economics.
Low interest rates equals low cost of debt, meaning that it’s cheaper to hold assets, causing an increased demand in assets, which in turn causes prices increases.
That’s the basics of it, although it gets more complicated than that. Many forces need to combine to create the perfect storm including market sentiment, which tops my list of why assets climb in value.
Have a look at Bitcoin. When people trust the market and believe that prices will rise, the prices sky rocket having a self fulfilling effect. When people lose trust in the market, the bottom falls out and values crash by up to 90% historically.
This is an extreme case to demonstrate the point but the same effect happens with real estate although to much less of an extreme. One of the main reasons being is that It’s difficult and costly to liquidate property, people tend to hold through the flat spots if they can afford it, which creates stability in the market.
You hear these boom/bust predictions all the time - boom suburb, hotspot, prices doubling in 5 years, prices crashing, housing collapse. To me it’s just noise to distract you from your ultimate goal.
According to the RBA using 30 years of data house prices increase over time at an average rate of 7.25% P.A. (although this trend is decreasing). If I can capitalise on a 30% price increase, then great, that will help me when my portfolio stagnates after the growth period but over a long period of time it all averages out.
You need to be in it for the long game.
If you gamble on short term games you are playing in the high risk arena and you could get burnt. Buy with a 15-20+ year outlook and the the odds will move with you.
If you play by the rules and take the correct steps, it’s difficult to fail.
Educate, work out your ‘why’, master your finances, formulate a strategy, build a team of professionals, research and accumulate the right properties, consolidate your portfolio and retire with freedom.
‘Book a Chat’ on my website or DM me if you need help with any of these steps or formulating a strategy. Hapy to answer any questions, I am here to help you achieve your goals.
One word. Leverage.
The reason I believe real estate can be the quickest way to generate wealth, is because the banks are willing to lend us up to 80-90% of the total asset value.
That's how confident they are in the safety of this asset class.
They don’t do that with shares or gold. This is because they see property as a secure long term investment.
If I want to buy a $1,000,000 house, the bank is willing to lend me $800,000 of the cost. This is tax free money!
If I had to work for $800,000 I’d need to earn around $1.3 million to pay for the taxes and this would take me years.
Instead, I only need to stump up $200k of my own money or better still, use the equity from another property.
This is why 3 out of the top 10 richest Australian’s have made their money from property.
Because they use leverage.
The same tools that created wealth for these guys are available to every Australian.
It’s not rocket science but it does take careful thought and skill.
These are the key points to being a successful investor:
- Educate yourself
- Create a clear goal
- Form a strategy
- Build a team to help you achieve your goals
88% of Australian property investors get stuck on their first investment property, mainly due to not taking the correct steps.
Remember that property is a get rich slowly game.
Historically, real estate has been a stable and safe investment class.
Since 1974 Perth has seen steady growth over the years with only a couple of periods of retractions in price. These events are part of a normal market cycle and as you can see in the graph above supplied by REIWA, our last significant price correction was in 1989.
Following that event we saw steady to strong growth until 2008. We all know the story of flat to negative growth from that point.
Using history as a guide we know that after recessions we enter a period of strong growth.
I believe we are now entering that period which will be magnified by our extended period of price retraction since 2014/15.
Prices are now severely depressed and we are now entering a new cycle of growth with strong fundamentals including record low interest rates, high government spending and an improving economy.
All indicators are pointing towards a strong recovery during 2021 and beyond.
Desirable school catchments have historically been a clear emotional driver for property price growth nationwide.
Parents jostling for box seat to be included in school catchment zones creates demand which in turn, push up house prices.
The evidence is clear that proximity to schools are a major influence when buyers are considering to purchase their family home.
Investors wanting to capitalise on potential growth should keep an eye on suburbs within a desirable school catchment. Especially those suburbs that have a lower price point or are situated in overlapping catchment zones.
Top Perth schools such as Willetton SHS, Rossmoyne SHS, Churchlands Grammar and Hale School have been strong performers historically and have shown reslience in the downturn.
According to the Domain '2020 School Zones Report' Perth school zones featured in the national combined capital cities top ten performers with Como Primary School zone seeing a 36% increase to a median of $901,750.
Here at Rise Property Buyers, we undertake an alalysis of school catchments as one of the many factors that influence our decision on property selection when purchasing for our investors.
Feel free to contact us if you are considering a purchase whether it be for investment or your dream home.
The King of Cashflow
Commercial property, is the king of cashflow positive property investment.
For me, without a doubt it sits right on the top.
For most, it’s the scary beast in the property investment cupboard that they know nothing about.
It’s like commercial agents are speaking another language, cap rates, triple net leases, gross yield, net yield.
This is where the opportunity begins. Most people are focusing on bricks and mortar residential assets, leaving space and opportunity in the commercial world.
Though this is changing at a fast rate as people are cottoning onto the high rental yields and long long leases offered by this asset class.
Let’s look at some example numbers:
Location: South East QLD
Lease: 5 years
Purchase price: $750,000
Loan $525,000 (70% LVR)
Interest rate: 3.5%
Net Yield: 7.2%
Passive income after all loan repayments: $27,750/yr or $533/wk clear in your pocket.
Why I like commercial property:
What’s not to like about it?
Well, with everything there is risk.
If you are interested in supercharging your passive income,
Book a chat with me on our website!
What is a Buyer’s Agent?
A buyer’s agent (BA) is a licensed professional agent that is paid by the buyer to research, source, analyse, evaluate and negotiate the purchase of a home or investment property for a prospective buyer. A BA is always working in representing the clients best interest 100% throughout the entire purchase process.
A good BA should offer a wealth of purchasing experience and have a solid history of successful property investment. They have intimate suburb and market knowledge and understand the pitfalls involved with purchasing. Acting as a neutral buffer between buyer and seller, they remain emotionally detached when assessing or negotiating on a property.
Ultimately, the selling agent is paid by the seller to achieve the highest price out of you - the buyer. Conversely, a BA is part of ’your team’ and represent their client's bests interests when negotiating the lowest price for your property. BA’s are experts in trend analysis and have intimate market knowledge.
They have access to a range of market analysis software and access to market reports from industry leading analysts and professionals. Their established network of agent’s allow access to off market properties not typically available to the average buyer.
According to Statista.com 86% of buyer’s in the USA use a BA to purchase property. The Stats are a lot lower in Australia although this trend is changing as buyer’s begin to realise the value of hiring a professional to represent them in a property transaction.
A good buyer’s agent has the potential to save you well above the fee that they charge during the sourcing and negotiation stage of the process.
What does a Buyer’s Agent offer?
Buyer’s agents save you money:
Property is the the biggest investment most people will ever make, so you shouldn’t be paying more than the property is worth. BA’s are able to identify which properties are worth their price tag and which ones may be over-priced or are likely to sell for more than their guide. They have access to off market opportunities allowing you to be first in on the best properties in a competitive market.
Buyer’s agents are experienced buyer’s:
A BA will navigate you through the complexities and processes from market research to negotiation and settlement. Avoiding the pitfalls that arise through the knowledge gained in years of purchasing experience. A good BA should be a passionate property investor and have the track record of a successful property investment portfolio.
Buyer’s agents avoid you stress:
Be assured that you have someone on your team representing your best interests throughout the entire purchasing process. Purchasing property should be a stress free experience and a BA’s job is to ensure everything runs smoothly through the entire process.
Buyer’s agents know the market:
Having access to multiple research platforms to analyse capital growth potential and rental yield prospects of each city, town or suburb. The ability to filter out 99% of potential investments to and focus on the best property to meet the needs of your goals.
Buyer’s agents save you time:
If you are struggling to find the time to dedicate to trawling the internet and attending home opens all weekend then outsourcing this task may be the best option for you.
BA’s dedicate all of their time in networking and sourcing properties for their clients.
Buyer’s agents are experts in negotiation:
This is a skill acquired through study and practice. A good BA has spent time learning the art of negotiation and has gained experience putting this practice into action numerous times.
The BA acts as a buffer between the buyer and the seller and remains emotionally unattached throughout the entire process. The knowledge and skill at this point has the potential to save the purchasing client more than the fees incurred for the BA’s service.
Why do only 18 percent of investors own two properties and less than 1% own 5 or more?
Why do 50% sell up in the first five years and 92% of those who stay in the game, never get past their second property?
Let's look into some of the reasons why these statistics exists.
1. Buy and Hope
Too many investors adopt the buy and hope strategy, which means buying a property in a certain suburb that is tipped for growth and hoping it goes up in value.
There are many factors that influence capital growth which need to be considered when assessing whether a property should be introduced into your portfolio. Two key points to keep in mind are:
a) Undertaking thorough market and suburb analysis and due diligence.
b) Identifying the potential to increase the capital value of a property through development, renovation, buying under market value or other potential uplift strategies.
2. No Strategic Plan
Identifying your ‘why’ is paramount when working out your long term financial goal. Really getting deep into the reasons why and what you want to achieve is an essential part of this process.
The next step is creating a strategic plan. This will give you a clear pathway to follow and the confidence to safely implement your plan. Each property that you add to your portfolio should bring you one step closer to each your long term goal.
Building a team of experienced professionals around you is critical in the creation and implementation of your strategic plan which will allow you to ultimately achieve what you have set out to do.
3. Lack of Property Investment Education
Most investors haven’t done the hard yards in education prior to purchase. Listening to a couple of podcasts and reading a couple of books isn’t enough education to build upon to efficiently identify which property will outperform others in the long term.Having mentors is key. Experienced investors that have made mistakes in the past can help steer you in the right direction when navigating the selection process and can save you thousands in the long run keeping you in the investment game long term.
Enrolling in mastermind groups, continuous education and employing the help of a professional will help you in avoiding the expensive pitfalls that result in 99% of investors failing to achieve a multiple property portfolio.
4. Not Understanding Finance
Property investment is a game of finance.
If there were no boundaries with lending capacity anyone could go out and buy as many properties as they like. The bank doesn’t want to take on that risk, so it puts measures in place to assess your situation and cap your limits with borrowing. These limits aren’t always logical so it’s critical to have a basic understanding of these rules so that they don’t negatively impact your borrowing capacity too soon in your investment journey.
An experienced mortgage broker can advise you on these rules and navigate how best to work with them. Brokers are an essential member of your team but they are unable to help you with choosing the pieces of the puzzle that make up the picture of your long term goals and strategy. Not balancing the portfolio between growth and cashflow is an all too common story that trips up many investors on the way to building a solid portfolio.
Property is a long term game, a get rich slowly strategy.
Yes you can use short term gain strategies such as property development or buy and flip, but these are advanced strategies that should only be attempted after years of investment experience or with the help of seasoned professionals. Making the mistake of attempting these strategies too early is a sure fire way to see yourself in the 99% of failed investors category.
Many investors hold a property, see a small gain or even a loss and then bail out of the market only to see it take off a few years later. A property should be held for at least one full property cycle of around 7-10 years, but ideally the plan should be to hold it for the long term 10-20 years plus to experience the true magic of compound growth, which I will get into in another post!
If you made it this far, thanks for reading my thoughts.
If you need any help or advice on your investment journey feel free to book a chat on our website, reach out on email or give me a call.
I’m here to help you guys :)
- West Oz -
How good is W.A!
Perth being the most isolated city in the world has always been a deterrent for potential visitors to our state.
Now it’s isolation is a drawcard with our insulation from Covid-19.
Perth has the cheapest cost of living out of the 5 capitals and has comparatively high wages.
At the moment, Perth property prices are the most affordable in Australia in comparison to our average income.
People are noticing this.
East Coast buyer’s are snapping up properties sight unseen in our beautiful South West where less than $1 million can buy you a lifestyle property on an acreage. In Perth the same amount can see you in affluent suburbs close to good schools, the river, city, transport and the beach.
Sydney and Melbourne cannot compete with these attributes and people are realising the value.
This time is a unique period of opportunity which we will look back upon in years to come. Once the window closes, it doesn’t reopen.
Let’s hope when you look back you are doing so with relief and not regret.
If you want a hassle free buying experience DM me or email at firstname.lastname@example.org
Is the Perth Market going to Crash?
National news networks are coming out with dire predictions about property prices tumbling 20-30% during Covid 19. But the facts remain that all markets have remained resilient.
Let’s not forget that Perth often acts counter cyclically to the East Coast capitals. If you haven’t already noticed, Sydney and Melbourne have both experienced phenomenal growth since 2012 where Perth has continued on a downward trend, caused by rising unemployment and negative internal migration due to the contraction of the mining boom.
Lets have a look at today’s stats:
Stock on Market is the total number of houses for sale at any one time. It’s a clear indicator of supply and demand. During the boom, Perth stock on market dipped to 8,500 compared to 17,250 in Perth’s darkest hour of March 2019. That’s more than twice the number of houses on the market than in 2008! Right now we have 10,379, well below a balanced market number of around 12,000 and continuing on a downward trend.
Our average selling time in Perth is 30 days, well below the 60 days of a balanced market with some suburbs dropping well below this number.
The tightening rental market is a leading indicator of property price growth. When things become difficult to rent and more expensive, people look at the alternative of buying and with historically low interest rates it’s now proving a lot cheaper to buy than rent. Once the rental moratorium lifts in March, landlords will have the opportunity to raise rents further fueling the current rental issue and further driving renters to consider buying.
Properties are regularly receiving multiple offers and selling well above asking price giving investors a chance to finally offload properties they have been holding onto during the downturn. East Coast buyers are seeing the value in the WA market and are purchasing sight unseen. In my personal experience, last week we offered on a property that had 15 offers and finally went under offer for $130,000 above asking price.
I’ll expand more on this particular property in future posts.
It’s a breath of fresh air for home owners who have had to endure the pain of falling asset values for 8 long years.
All I can say is, hold onto your hats people, we are in for a ride!