The Property Trio Cate Bakos, David Johnston and Mike Mortlock

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This ep is crafted around two excellent listener questions that hinge around mortgage strategy. But before the trio jump into the questions, they share their market updates.

Land tax reforms (and other 'fruity' ideas) are the topic of conversation for many Victorian investors, and Cate talks through the changes with Mike and Dave. She touches on some of the challenges that Victorian property owners have faced through the pandemic and she also considers some of the negative implications of the new changes. Cate wonders whether the direct impact on renters will result in segmentation due to the vulnerability of cash-flow neutral investors.

Dave ponders the impact of this tax change on the Victorian market, and holds concerns that the unintended consequences could the exacerbate the existing rental problems in the state. With supply issues at record lows and such tight vacancy rates, Dave fears that this will just make the problem worse.

Mike asks Dave and Cate a left-field question, "as land tax increases state revenue in one state, federal government tax revenue decreases. How does our Federal Government feel about this?"

Our first listener question is sent to us by Emily, who asks the Trio about converting her home loan to an interest only loan product once her offset account is working at full capacity. Dave's rationale for recommending interest only is intriguing, but it's important to note that this information is not designed as a 'one size fits all' solution.

Investors need to have a plan, understand their options and remain focused on the long term goals when it comes to stepping-stone properties. Accidental investing is not necessarily a great outcome if the property is not a suitable long-term asset to hold as an investment.

Some of the key benefits of an interest only loan as outlined by Dave include;
More interest to claim once the property becomes an investment propertyBuilding up savings more rapidly, and in turn these savings can be used to pay more for a future home and will reduce the debt balance on the non-deductable loan.The big unknowns, according to Dave are; "most people don't understand the strategy, and we also can't be certain that the home will eventually be an investment property down the track."

Dave's sagely explanation of this common dilemma is gold for our listeners, and many investors benefit from this approach when a stepping-stone property is no longer personally used and a future home acquisition is on the agenda.

The Trio remember the old days when lenders offered much longer interest-only periods to investors, and they compare the differences now that today's investors face, particularly when it comes to loan amortisation.

Our second question comes to us from another fabulous listener, Marco, who asks a great question about the use of equity, as opposed to applying higher loan to value ratios, (LVRs) and paying for Lender's Mortgage Insurance.

"Is LMI the devil, or should we consider holding onto that cash as a buffer?" asks Mike.

Dave distils some of the important details when it comes to mortgage insurance and LVRs, pointing out how tax deductions are optimised, and savings are maximised in tandem. Cate adds some questions that are important for investors to ask themselves; understanding how much time remains to achieve the investment goals, what incomes they'll potentially earn in the future, how long they wish to work for, what the short-term economic cost impact is, and what is in their plan.

Life throws up curveballs, but one eye-opening aspect that Dave touches on...

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This ep was about FOBBABO, an acronym Cate made up years ago.

She coined this phrase a while back when buyers started having second thoughts after an ideal property came along. This episode is dedicated to the trick buyers often play on themselves… some of the reasons why, things that amplify FOBBABO, why it can be dangerous, and ways to tackle it when it happens to you.

Dave hosts this exciting episode and explores with Mike and Cate some of the other psychological challenges buyers face, from FOMO (Fear of Missing Out), to 'the winner's curse', an segment that Dave, Cate and Pete covered back in episode 94.

Dave asks Cate to share how FOBBABO usually manifests and becomes obvious to a buyer’s agent, and Cate also sheds light on the pro's and cons of FOBBABO, which market cycles it usually strikes in, and why the media can be quite unhelpful for those who are struggling with this fear.

Dave also challenges Cate to delve into some of the painful lessons that FOBBABO can create, and the trio speak about the difference between our most recent property downturn and previous downturns.

Dave shares his insights on the impact of inflationary pressures, rising interest rates and in particular, diminished borrowing capacity for many buyers as a result of the rate hikes. This time, FOBBABO presents even more dire risks for some buyers... tune in to find out more!

The trio talk about some of the ways that buyers can limit the negative impacts FOBBABO can cause and Cate talks listeners through her 'reverse search engine' exersise. This not only helps give perspective for buyers who are feeling the threat of FOBBABO, but also enables them to construct a clear feasibility study that highlights not just the likely types of eligible properties, but their frequency of sale also; an essential element to note for anyone who is concerned about a moving market.

The trio share eight tips to ward off the chances of FOBBABO biting... check out our show notes.

And... our gold nuggets!

Mike Mortlock's gold nugget is all about buyers making sure they have their brief nailed down. The reverse search engine exercise caught Mike's attention and he encourages our listeners to utilise this tool when it comes time to circle in on their purchase plans.

Cate Bakos's gold nugget relates to the importance of taking action. Buyers have to be informed to be prepared to pull the trigger.... but once they have made the decision to buy, they just have to go for it!

Shownotes here: https://www.propertytrio.com.au/2023/05/22/ep-206-mastering-the-art-of-property-decision-making-and-conquering-the-fear-of-buying-before-a-better-option/

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Mike opens his first official Market Update episode and kicks off the conversation with the Federal Government's budget night announcements. Notably, the trio talk about the impact on the property market, in particular the measures that are proposed to ease the cost of living and the government's approach to tackle the rental crisis.

The Trio ponder the complexities of long lead time and expensive building costs when it comes to targeting the new supply side of the equation, and Cate points out the contrasts between this particular budget night and past budget nights.

Dave discusses the Build to Rent sector and the challenges that this initiative poses for the government, and he sheds light on the management trust withholding tax changes and the impact that this proposed easing will have on investment in the sector. Cate's word of caution about this type of investment category with controlled rents is an interesting one for pragmatic investors to consider.

The initiative that the Trio all agree is a good one is the First Home Buyer shared equity scheme. Opening up the offering to those who have previously owned a home more than ten years prior, and allowing siblings and friends to co-purchase is a significant change to what was already a good offering.

"It's much harder these days to buy a property as a single", says Dave, and this opportunity will make a positive difference for a lot of Australians, (including permanent residents) who are keen to get a foot on the property ladder. Cate particularly likes this initiative for several reasons, including the fact that it is less likely to segment the market and result in a dual speed rate of growth for first homebuyer stock vs all other stock.

The side impacts that could increase house prices in specific areas include parental leave changes, (as household incomes grow), and green energy infrastructure upgrades in our existing steel manufacturing locations.

Moving into our April Market Update... As Dave points out, Sydney is the "absolute standout", but other capital cities are also rebounding. Low listings, record new arrivals and a general stabilisation of rate increases are the current tailwinds behind the property market.

Cate speaks about listing volumes and the drivers that influence them. Currently, vendor participation is low, and buyers are pouncing onto 'old stock', which is in turn eroding 'all stock'. Negative media sentiment and data lag are likely drivers of the current low listing rates. "Until vendors have confidence that the market isn't horrible, vendors are going to sit on their hands", says Cate. And she also shares her concerns about a particularly quiet winter; something that will be difficult for buyers, especially in the cooler climate cities.

Dave also comments about something important: listing activity is also low because owner tenure is extended. People are holding their properties for longer.

The trio focus their attention on the Westpac Consumer Sentiment Index and debate some of the drivers and changes that are noteworthy forward indicators for our housing market. New loan commitments are interesting, and according to Mike, "the refinancing goldrush has become a hallmark of 2023". Dave discusses a rebound he's seeing; both owner-occupier financing group and the investor financing groups have grown in size. First home buyers have grown by 15%; possibly amplified by the NSW stamp duty changes.

The annual change in rents for houses continues to challenge several markets, but the change in unit rents is quite shocking for tenants in the affected cities and regions. But why...

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Welcome to The Property Trio!

Formerly The Property Planner, Buyer and Professor, we've rebranded!

The trio ponder the RBA rate increase decision. Cate points out that while the rate of inflation is reducing, the inflation figure is still "a million miles" above the target band, (in Mike's words), and our regulators are doing what they can to slow down the rising cost of goods and services; particularly the latter, as Dave points out. Despite the fact that the decision was not what the majority of economists anticipated, we still have some short-term pain to go, in an effort to thwart long-term pain.

Will Mike's prediction be correct? A lumpy return to growth for the property market? Only time will tell. Cate harks back to the market sentiment index and the indicators that we need to look out for.

Heading into episode 204, our second instalment on the various ways that buyers can purchase.

Family loans are a common helping hand in today's market. Family assistance is not restricted to just parents, but often financial assistance comes from parent(s).

Dave digests the difference between a genuine gift vs a loan. A loan will impact the borrower's serviceability when receiving a portion of the funds from a parent in the form of a loan, and lenders usually apply a thirty year loan term to the portion that is funded by a family member. A gift, however doesn't impact borrowing capacity adversely, yet it requires a few important steps to satisfy the lender, as Dave explains. Genuine savings is a major focus for banks, and Dave sheds light on this hurdle for our listeners and has valuable advice that may come as a surprise.

Security guarantee, (also known as Family Pledge) is another common way that parents can assist their children on the property journey and Cate talks through some of the benefits and intricacies of such an arrangement. Dave talks through the pro's and con's of this interesting loan product, and shares a great example about a first home buyer client who has $200,000 saved, and is borrowing 106% of the purchase price with the assistance of a parental security guarantee.

As Cate suggests, for this particular client, their ability to preserve their cash savings for renovations will enable them to target a renovation project; something that most first homebuyers don't have a viable chance at embarking on. How can children relieve their parents of the obligation to provide security? The trio ponder the likely ways that this can occur. And how can parents help children when they have multiple kids?

Shared equity is the next topic that the trio tackle. From state-based to federal initiatives, there are a few options for buyers in today's market who are keen to get a foot on the property ladder.

Mike details the federal scheme and what it means for buyers. "Instead of buying with a friend, you're buying with the government".

Cate asks Dave how owners can get that monkey off their back, touching on the limitations to property improvement activity, buy-back rules and the income thresholds that buyers face in terms of eligibility criteria.

Cate shares her experiences with working alongside clients who have utilised the Victorian state-based shared equity scheme. While it's quite restrictive, (and not for everyone), there is no doubt that it's a special opportunity for those who would have otherwise been precluded from the property market.

Co-ops is the last conversation for...

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Welcome to The Property Trio!

Formerly The Property Planner, Buyer and Professor, we've rebranded!

The trio ponder the current market and share their thoughts on the improving conditions and some of the contradicting economist and media views. Cate highlights some of the reasons why our market has been underpinned, with an uptick of buyer appetite Mike brings perspective to the Silicon Valley bank concerns, citing Peter Costello, our past-treasurer in a recent interview.

Kicking off episode 203.... What are some of the motivations for co-owning property?

Affordability is a significant reason for co-ownership, but as Cate explains, sometimes it's all about bringing someone you love onto the property ladder. Her own real life story about purchasing with her stepson is a great example of a co-ownership success story.

Debt aversion is another common reason, but as the trio uncover later in the show, co-borrowing can have an adverse impact on future borrowing capacity... something to ponder before diving in!

Dave speaks about a sobering reason for co-ownership also. More joint income purchases have made it proportionately harder for singles to enter property ownership though.
"Today, it's much harder for a single to buy a property than it was twenty, thirty, forty years ago", says Dave.

Mike asks Cate to explain the difference between joint ownership and tenants in common; an important concept when it comes to estate planning and tax. And Dave points out that too many people think about 'the now' and not the future. Jumping into a decision without planning and consulting the relevant professionals can cost owners a lot in the long term.

The trio chat about the benefits of pooling resources;
DiversificationReduced cashflow commitmentThe chance to buy a better asset with a stronger budgetGetting into the property market earlierBeing enabled to enter the property market when you'd otherwise have been precluded. For example, complementary financial positions such as a cashflow rich, cash-poor individual combining forces with a cashflow poor, cash-rich individualSome of the issues that are often overlooked though are plentiful too.
When one person has a sudden need to access their capital. Reasons can range from financial distress, new relationships and a desire to buy a home, etc.Lack of agreement about important issues, including the agreement itselfAn inequitable set of responsibilities between each owners and a feeling of dissatisfactionRisks to the relationship/friendshipPrepping for the entity decision is critical, and they must be arranged long before signing a contract.

Mike asks Cate some good questions about the risks of buying at auction without a clear understanding of the entity, and Dave also sheds light on the ability of owners to switch between joint ownership and tenants in common after the property has settled.

Dave touches on just some of the less-considered details that co-owners need to delve into before they embark on the journey, including the exit-strategy, a dispute resolution clause, a financial default plan, and the distribution of profits. Are they paying down the loan with the rental proceeds once the property is cash positive, or are they distributing the funds? So much to think about....

"Once you dig under the surface, there are a lot of things to think about."...

Formerly The Property Planner, Buyer and Professor.

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For this exciting episode, some 200 eps following the original podcaster intro's, Dave and Cate introduce Mike!

They chat all things quantity surveying, but drill into the Novocastrian man behind the microphone... from his dangerous hobbies, to what it was that led him to his career as a 'construction economist'.

Mike's candid demeanour brings something special to the trio, and this particular recording sheds light on Mike's zest for trends, data and the identification of property market drivers. Cate delves into the various facets of quantity surveying that requires Mike's skillsets. This ranges from depreciation schedules, replacement cost estimates for insurance purposes, strata management schedules, among other activity.

We are thrilled to welcome Mike to the show and we look forward to scheduling some great episodes derived from his MCG Quantity Surveying 1,000 Assets Reports. Mike shares some intriguing snippets of data about lost depreciation benefits and the figure is staggering... .tune in to hear the details!

Gold Nuggets:

The Quantity Surveyor, Mike Mortlock: Journalistic bias is something that buyers should keep in perspective. Cognitive bias creeps into our thinking often, and it's important we recognise this when making property decisions.

The Property Planner, David Johnston: Dave suggests that investors who haven't actioned their depreciation schedules need to get in touch with a good Quantity Surveyor to claim their deductions. (As Mike says, "Thanks Dave... the cheque's in the mail!")

Shownotes: https://www.propertytrio.com.au/2023/04/24/ep-202-meet-the-quantity-surveyor-mike-mortlock/