Episode 179 | Listener Q&A: Unit Market, Capital Growth & Airbnb | Host Special

We get back to more of your questions!
We can’t get enough of your questions. We cover a lot in this episode from the current state of the unit market through to how limited title can impact a property’s sale. We appreciate your questions and enjoy doing these episodes. If you have property related questions or want to test a scenario we would love to hear from you.

QUESTIONS:

1. “Units down but what about premium units outside of CBD but within 10k radius ? This includes Art Deco units, on larger blocks with smaller divisions for each lot. will we see growth in this market and why are analysts still treating units in high rise CBD the same as all other units despite massive differences in the land area involved for owners of lots, size of room, ornate ceilings, quality I.e double brick etc? Should owners of these properties ignore the analysts talking about units altogether?”

2. “Just listened to your 1st Feb 2021 listener q&a. Surprised by your answer Chris about how to retire from property. Based on what you outlined, if you have enough equity, you would be better to go for yield rather than capital growth. Targeting better more expensive houses with more growth potential but have lower yield just means more time to build up the offset account to completely offset the loan amount and delay retirement. Targeting capital growth would just to be for something to leave the kids. I reckon you could devote a whole episode to this as it is what a lot property people push is financially free through property but does not work if you need to save the full cost of the property you purchase. Sounds like an elephant to me”

3. “Fan of the show, not a question but I have a data point on the limited title. The limited title does lower the price. My first 2 choices were limited title but I couldn't get the loan for it. Ended up going for 50-100k less than my offer. So I think the strategy works by definition. i.e. reducing a number of qualified buyers will on average lower the price. This was in the middle of covid so results may vary. 18 epsom road zetland - 1,165,000 70 rose st chippendale - 1,575,000”

4. “Hi guys, Love the pod! Probably more of a question to Chris. I'm a potential 1st home buyer (on the northern beaches of Sydney) and would like to try and get an understanding on how much are people willing to borrow to get into the market? I was always told don't go higher than 3 or 4 times your annual household income but with the market going crazy at the moment I realise we are going to have to go a lot higher. I understand you can’t give personal advice – But it would be nice to know (on average) what you are currently seeing for 1st home buyers and just in general. I think we might need to go up to 5.5x to get something decent. I also know its not the greatest metric to use in this low rate environment.”

5. “Chris and you keep referring to “ppl on good income”. What is considered a good income, let’s say for Sydney? What’s a reference baseline? Eg. if you are looking at a $1M property then $100K is considered a good income? Assuming 80% lvr.”

6. “Also, what are your thoughts on buying a property in a holiday spot specifically to rent out on Airbnb? Or buying something that could be either tenanted long term OR rented on Airbnb? Also Veronica.. ..you talk a lot about buying a quality asset. Could you please tell us exactly what that means? What are your criteria? Thanks for the podcast, really enjoyable and educational.”

7. “Demand is soaring in capital cities.... demographically-speaking, WHO ARE these people who have flooded into these property markets post-COVID? Where are they finding the huge deposits and servicing mortgages that are now multiples larger for the same properties just a few years ago (even months ago) Where were these people before and why the rush into property now? How are they protected against even small rate rises in the future and are we setting ourselves up for a big correction? A real one this time? What will be the fallout from this?”

RELEVANT EPISODES:
Episode 168 | Listener Q&A: How to buy your first investment property
Episode 162 | Houses vs Apartments
Episode 161 | Listener Q&A: Building your own home, retiring on property & sustainable properties?

HOST LINKS:

Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: https://linktr.ee/veronicamorgan

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

Send in your questions to: questions@theelephantintheroom.com.au

EPISODE TRANSCRIPT:
Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…
This episode was recorded in May, 2021.

Veronica Morgan: In this episode, we're answering some of your questions. We'll be covering the unit market are all inner city units on the nose. Have we got it wrong about capital growth in an age where nobody expects to pay off their big home loans? What's the deal with borrowing for limited title houses at the moment, what multiple of income is safe for a first home buyer to borrow and what is a good income for buying a home in Sydney buying and holiday areas for short term rental and who is actually buying in the cities at the moment.

Veronica Morgan: Welcome to the elephant in the room. This is the podcast where we love to talk about the big things in property that never usually get talked about. I'm Veronica Morgan, real estate agent buyer's agent co-host of Foxtel's location, location, location, Australia, and author of auction ready.

Chris Bates: And I'm Chris Bates mortgage broker. Before we get started, I need to let you know that nothing we say on here can be taken as personal advice. We always recommend you engage the services of a professional.

Veronica Morgan: Don't forget that you can access the transcript for this episode on the website, as well as download our free, full or poor customer report, which experts can you trust to get it right? The elephant in the room.com did I? You,

Veronica Morgan: Our first question is from Safier and it's all about units, and she said, units are down, but what about premium units outside the CBD, but within the 10 K radius, this includes art deco units on larger blocks with smaller divisions for each lot. Will we see growth in this market? And why are analysts still treating units in high rise CBD the same as all other units, despite massive differences in land area involved for owners of lot size of room, ornate ceilings, quality, exact tra, et cetera, should owners of these properties, ignore the analysts, talking about units all together. This is one of my bug bears. What about you, Chris?

Chris Bates: I mean, I think most people should ignore the, of us talking about collective data really? Cause it's a bit pointless. You buy one property in the suburb on a street. I mean, Sophia I'd be, you know, absolutely ignoring what's happening to the unit market because if you own one of these or are you thinking about buying these types of apartments, you got to, I guess, assess it based on that opportunity in particular, rather than what the stats are saying. I guess my overall observation, you sound like, you know what you're doing, to be honest, you going for smaller blocks in, you know, more probably premium suburbs. And ideally you're looking at areas where they're not building a lot of other apartments or if they are, they're very expensive, you know, tired it downsizes and avoiding areas where there's lots of high-rises and that's not just in the CBD, there's lots of pockets over say Sydney and Melbourne, where there lots of high density.

Chris Bates: It doesn't even have to be 10 levels. It could be six levels. And you know, you're saying that sort of, kind of get aside. Yeah, absolutely. Those performance will have performed historically, you know, very well compared to the new properties and will continue to perform well compared to those tents. What we saw as a client, I guess in the last boom is, you know, 2012 to say 2014, a lot of people could still afford houses, you know, pockets like the inner west, for example, but a lot of places sort of ran on young couples and families. And so they were looking at that exact type of apartment. And you were speaking about Sophia that sort of bigger older apartment in sort of premium areas. But once you know, twenties, 18 2019, the cool-down sort of happened. Everyone got cold feet and then 2019, they went back to buying houses and they got too expensive and they went to buy apartments.

Chris Bates: But last year was a really interesting year. A lot of young families who traditionally would have bought these, these apartments, you spoke about, went to regional areas and they went and bought in central coast, Wollongong bar and blue mountains, et cetera. But we've seen a complete flip in 2021 and those people would have, or thinking about those locations and now back buying those exact apartments, you spoke about Sophia because they can't afford houses and they don't want to do the commute and they want to live in lifestyle location. So they're not building any more of them. And as Sydney population grows, long-term, they're going to be a real big part of the, what people aspire to are these sort of apartments in premium areas. So yeah, absolutely great investments, especially if in those topic blocks she's talking about. I agree.

Veronica Morgan: I think that there was a little bit of a blip in the market, which was an opportunity for those buyers of those apartments and they were negatively impacted. And I think that that correlates what you're talking about there, that the buyers that would normally have looked at them took off, got out of Sydney. But also you got to realize there were very few investors buying at that time as well. So they, they're not looking at that stock either. And investors are starting to reenter the market now. And that's, that's a, a very, you know, for a smart investor, one is not trying to buy investor stock. These are, can offer make very, very good investment properties. So I think that that will change. And we certainly, this year have seen prices rebound of that type of property. You're talking about there Sophia and we seen competition really ramp up.

Veronica Morgan: So I think there was a bit of an opportunity there and it's, you're absolutely right. It's one of my big bug bears that, you know, when you look at aggregate data for anything with regards to property that is problematic, but particularly with apartments, because you have such diversity of stock in different areas then and there's also such diversity in terms of return and in terms of growth rates. So therefore, you know, all market data hides big losses in some areas and also hides better, better performance in other areas. So you really do have to get down on a granular level, look at your local areas. But like Chris said, I think that you are, if you've got the sense of what a quality property is, so stick to your guns, absolutely

Chris Bates: Investors are there's because of the price point compared to the houses, houses are out of reach for a lot of investors because they can't borrow it and maybe they don't want to spend that amount on an investment property. And so apartments are, you know, especially in Sydney, I think Melbourne is a different if we're talking about this I'm not as confident on apartments down there, but yeah, the apartments sort of the investors coming back, but also Sophie I'd really encourage you to look if you're thinking about buying, you know, encouraged to make sure the apartment also appeals to downsize as if you can, and downsizes are a massive market and they usually cashed up and I want to stay in premium areas cause their friends and their networks and the things I like to do are in those areas. And so yeah, they, they need options and, you know, nice big older apartments, ideally not too many stairs are great options

Veronica Morgan: Scarcity as well. And that's a wonderful thing about those art deco apartments is that they can't build them anymore because they were built, you know, come out to a hundred years ago and that's a style that is not replicated now. Okay. We've got another question here from Rob just listened to our 1st of February, 2021 listener Q and a surprised by your answer, Chris, about how to retire from property. This is a bit of a convoluted question based on what you outlined. If you have enough equity, you would be better to go for yield rather than capital growth, targeting better, more expensive houses, be more growth potential, but have lower yield just means more time to boot up the offset account to completely offset the loan amount and delay retirement targeting capital growth would just be for something to leave the kids. I reckon you could devote a whole episode to this as a whole lot of property people push is financial freedom through property, but it does not work. If you need to say the full cost of the property or purchase. I suspect the answer to this lies in not buying ridiculously expensive properties as investments. Would you agree?

Chris Bates: Potentially? I think, you know, I'd rather if, as long as it's not sacrificing the capital growth and buying something cheaper, just so I can feel like I've got a cheaper property, but ultimately buying on a Porsche, although hang

Veronica Morgan: On a minute. Do you, do you remember your answer that last Q and a, because I remember it, it surprised me basically what you, what you put together was put forward was like, if you basically just kept borrowing and never actually repaid debt, you can, you can afford to retire and live off property, which I don't think you really advocate for. I think that was the answer to a different question.

Chris Bates: The answer was, you know, how do you sort of, you know, build how do you do it? And I was giving an announcer, if you wanted to do it, this is what you would do, whether people should follow. That is another story. And this is in, there is actually a strategy there that you could employ if you sort of think about it. And I mean, ultimately the thing you should always be focused on is what is your net wealth in that property? And absolutely you shouldn't be targeting gills. You should be targeting long-term sustainable capital growth and buying properties that are high, super scarce, but also suit people were earning great money and you also have got money. So if your property suits them and there's not enough of them and they're not going to build any more of them, really, you're just giving it time.

Chris Bates: So I would always want to own those. I mean, you don't actually have to build up enough cash to offset that loan, but you know, if you borrow a million dollars in 2021 and you retire in 2040, well, that million dollars, isn't the same as a million dollars today. So inflation, all right. A lot of that loan off for you brands will rise dramatically over that 20 years. So that property was potentially negatively. Kid would definitely be Postlight, it'd be positively geared in 20 years. Then you can add in, maybe you save a portion of that amount in an offset account. So you don't actually have to fully offset your loan. Don't have to get to retirement with your properties all paid off. I think that's a bit of a myth. What you wanted to have though, is an amount in the offset account, plus potentially your home paid off, plus your amount in super plus, you've got maybe some share portfolio as well.

Chris Bates: So what you're doing is you're opening up buckets of money that you can potentially sell down. And at some times you may make a decision to live off your offset account because the investment markets isn't a good time to sell. And so you just ate away at some of that money built up enough that sometimes you sell your shares. You know, if you got some ASX shares at the moment or some tech shares, you may say, you know what, let's just take some of our profits or you might take money out of super, you know, because, but you also it's in shares a lot of the time as well. So you might just take the minimum amount of new pension, but ultimately you want to be building out multiple pots. And I think a part that most people miss out is they don't try to build up the money in an offset account.

Chris Bates: And one of the tricks you can do is when you are in your fifties and you're in your sixties, you can be very smart around how you structure your loans and release equity on your portfolio, depending on what you're earning in your incomes and just release the equity pre retirement. And I'm not saying this is what some people should do, but it is something you can do. You know, there are strategies around it. You know, retirement planning is actually really complex because you know, we all live different lives and Volvo different domains to get there. So there's not a one size fits all. And you've just got to really sort of say, well, look, ultimately, what sort of life do I want to live? How can I build up as many pots of money to help me live that life? Especially if I may not live just to I'm 85, I might at the time 95 or my health health problems or whatever. So yeah, it's not assigning, you should do this. It's just, there are ways to do it if you sort of get, and that's the

Veronica Morgan: Thing there, isn't it, it's just getting clever with debt, but the capital growth is your safety net really isn't it? Absolutely.

Chris Bates: You know, and that's whether you want you lucky, you might get to retirement and say, look, I bought a property and I've got heaps of capital Grove, heaps of equity in it, but I have to anyway, I'm going to get that as you selling down. And that wouldn't be a bad thing. You know, you're in retirement, you know, you're maybe not earning too much money on paper, your incomes from super, and yes, you got to pay for the capital gains tax, but you haven't got an income. So, you know, that's going to lower the amount of capital gains tax and you might have two properties. Ideally, you know, that's one of the problems with just having one investment properties. You it's, unless you can get access to that equity, you might have to sell it. And then you get out of the market. So if you had to sell one of your properties at 75, that would release a hell of a lot of cash that would maybe last you to the next decade or something. But the goal of these, which what the question was originally, it was how do you keep holding the properties longer term? And so what you've got to do is get creative on how you get access to different liquidity, different cash. And so the fall is always, you sell your property, but that's not the idea you want to hold that for as long as possible. No,

Veronica Morgan: Our third question, isn't really a question, but I'll have a question at the end of it for you. Okay. So it's from now apologies for pronunciation. Yay, choosier or YouTube fan of the show, not a question, but I have a data point on limited title. So limited title in new south Wales is a form of Torrens title. So basically just a history lesson before there was such thing as Torrens title, which is the way the form of ownership of property. There was this thing called old system's title, right? And the limitation on some properties is still there because what it means is that the boundaries haven't been properly submitted to the land titles office to correctly establish exactly where the extent of that property lie. Right? And so there's quite a few of them still existing in, in the older areas, certainly in where my office is in bar.

Veronica Morgan: May we come across it a lot recently bid on a property in Redfern with limited Todd or another one in Darlington and other one in Paddington. So they're all over the place, but recently they've become an issue for borrowers. This is where I'll get to you with the question I've got for you, Chris. But what chewer is saying is limited. Total does lower the price. He's his or her, sorry, their first two choices were limited title, but couldn't get alone, ended up going for 50 to a hundred K less than his offer. So thinking he thinks the strategy works by definition, that is reducing the number of qualified buyers will on average, lower the price, which we know that this was in the middle of COVID. So results may be very, he's got property in Zetland and one in Chippendale, both of which he thinks they're comparable and both show, if you did a two, a hundred K lesser sell price, right?

Veronica Morgan: So this is an issue that's come up and you and I have spoken about this off our fair Chris, because we've had some mutual clients that, you know, I've been questioned as to whether they can borrow our limited title property. And I've also got some other clients that aren't your clients that need to bridge because they don't want to sell their home before they buy their upgrade property. And they, whoever their finance with is not allowing them to buy limited title. So this is something that has really only become an issue very recent times. So can you sort of shed any light on why that's the case, Chris?

Chris Bates: Well, well, you know, all I can talk about is when clients come to us and say, do you want to buy this type of property with limited title? And we just check with bank credit. I mean, I'm not sure exactly why there's people can't afford to get finance. There might be some banks out there, but when we did one with RNG a couple of years ago, that was the middle title, no problems. They just had to do a sort of survey report sort of after settlement. So it wasn't a big deal. And we did one today and just literally NAB that when I no problems with it. So you a base, a prize that it's an issue across lots of banks or there's, you know, if NAB will do it. So that's probably more likely most of the big four do it. And I've heard of CBA having a proxy. Maybe I won't do it. Yeah, maybe, but then you got an app Nevin, CBI credit policies, very similar. So if you can get approved for a line of CBI, you know, unless you got, you know, the very similar credit policies, so you should be able to get approved at Nat.

Veronica Morgan: Interesting though. I mean, in terms of the evidence that he's bringing, putting forward to say that, well, this means that prices are reduced. I actually would dispute that. And the reason I dispute that is because some buyers, in fact, many buyers and agents who have correlated this thought have no idea if they don't check with their broker first and get their broker, look at the contract first. And if they're not using a lawyer that does a lot of property, then they will potentially have zero idea that their bank might have an issue with it. And then they won't find out until they get into the settlement period. And, and so when this first came up in our office and we're talking maybe about six months ago now I got quite excited. I was, whoa, there's an opportunity here. Cause I'm thinking along the lines of this, you know, these properties are gonna, there's going to be buyers that fall off the last minute, not going to auction on these properties.

Veronica Morgan: And they're going to be, think they're financing, not going to be there. And we're going to be able to clean up and get some opportunities. So I started this, this whole thing. Right, right. Let's look specifically, everything's on the market that we think is any good. Let's see if it's limited title. And if so, we're going to talk to our investors about it. But very quickly after talking to agents realize that most buyers are not, they wouldn't have the finest. And then there was some Perry moments for some buyers in the settlement period where they had to actually get these, these surveys done and you're ready to submit to land titles offer. So to alleviate the banks concerns. But you're saying that you're just not coming up against it much.

Chris Bates: I would say only a small portion of properties that have this. And when we've checked, it's always been fine. I mean, it's like buying small apartments that people sell. You can't get mines, this small pumps. We can, there's just a handful of lenders. That'll want to do it. Whether you qualify those lenders, you know, is it much cheaper because of that potentially because there's less demand for that type of property. I wouldn't want to buy it, but I don't know whether limited title is something that would stop me buying a property or we can fix it. That's the one good thing

Veronica Morgan: You can't make it a 42 square meter apartment, any bigger, right. But you can actually, you buy that property. And we've had various indications that it's roundabout, the $5,000 mark to get the right type of survey drawn up and have it submitted to the land titles office and get that limitation taken off the title. That's something that I would just recommend that anybody buys limited title. If you find yourself owning limited title at the moment, that's what I'd be recommending you do.

Chris Bates: Absolutely. I mean, it's no negative to that. I mean, yes, 5,000, but I'm sure that it just creates a lot, any issues that might pop up with, you know, through settlement and you just don't want to, when someone's hot on your property, you don't want them to be stopping to question their emotions. And if they stopping and questioning and giving it a dial to, to figure out where they can get limited toddle, that's potentially going to cool them down and they might go and look at another property and you might miss them. And so it's like, you know, tidying up your car for, you know, selling it, you know, you get rid of all that. You make sure it's tidy and it's ready to go. So someone has an idea out it's assignments presenting a property for. So that would, to me would be a no brainer in terms of presenting your property, facades, getting rid of something to actually admit a title.

Chris Bates: So, yeah, I don't, I mean, yeah. Is there a strategy sort of right. And going around, looking at limited tile and China make us map outside good luck. And you're going to be trying to find properties and limited titles. I don't think you're going to be able to deliver on that strategy because I just don't think there's enough properties and there's enough profit to make it a worthwhile strategy because ultimately the profit comes through the top of property longer term, have some how long someone holds that rather than maybe a time there's not enough

Veronica Morgan: Buyers that are impacted by it. I think that's probably more the point. And, and secondly, is that if you are impacted by that, I mean, if, if that is something to check on the contract, that's on the title search, it's not hard to find out. And I would be running that past your broker just in case it does impact on you. But generally speaking, there's not the opportunity out there that, that I was all excited about.

Chris Bates: Yeah, absolutely. When you're doing a learn. So one of our loan sort of scorecards that we put together, you know, because a lot of clients that the lodging things and they're going to tight time. And so what we do is give them clarity on whether we think it's gonna have any problems with the pre-approval now banks aren't declining lines like that was happening in 2018, where they were declining line to no reason. And literally there was frustrating. We were like going, that does not make sense, does not match credit policy. And they're like, no, we don't want them as customers. And that was, that was literally happening in 2018. That does not happen anymore. If you fit credit policy, they will approve your loan. Part of that sort of scorecard that we do is we say, have you got other options at other banks? And for some people there's actually no other options, especially that someone like ex-pats, there's very little lending for ex-pats, but some people were the S there's plenty of options. And so whenever you're sort of looking at a top a property that might be a little bit smaller apartment, maybe it's company title, you know, limited title, just run it past. Cause it probably lots of other options, maybe not at the bank you pre-approved up

Veronica Morgan: Right now, Christian from Andrew. Hi guys, love the pod. Love you too, Andrew, probably more of a question to crease a potential first home buyer in the Northern beaches of Sydney. We'd like to try to get an understanding of how much are people willing to borrow to get into the market. I was always told don't go higher than three or four times your annual household income, but with the market going crazy at the moment, I realized we're going to have to go a lot higher. I understand you can't give personal advice, but it would be nice to know on average what you are currently seeing for first home buyers. And just in general, I think we might need to go up to 5.5 times to get something decent. I know it's not the greatest metric to use in this low

Chris Bates: Rate environment. So I made three or four times had been told something, always a manual first-time buyer without trying to join the dots or anything your parents probably said, oh, you know, we never went more than three or four times our annual salary. And you know, maybe it was on one salary and maybe they could have done that. Good luck doing that nowadays, unless you've got a super high salary and you're looking to buy something quite conservative. I mean, most banks will lend six, you know, even up to maybe seven times. Thanks. I get definitely getting nervous in that six to seven range and over seven, a lot of banks won't want to do it. It's just in high-risk lending and Acura is watching the bank. So that's what you can do. Yeah. Pretty comfortable. We'll say somewhere six to seven, are people doing it January?

Chris Bates: We had this conversation with a client today. Everyone wants to be naturally have a smaller mortgage, right? That's just common sense. You know, pay it off faster. Don't have to worry about that. Beat. The repayments are. And so if people can get a smaller mortgage and get into a house and in the location, they want to be in longer term. Amazing. But the frustrating thing is, you know, you want to say, for example, in this situation, Andrew, I bought something in the Northern beaches. You wanted to live in one of the most premium parts of the capital city. And you know, to do that, you know, properties probably aren't priced at three or four times, the average salary, there are a lot higher than that. And so if you're not willing to say compromise on that and spend more money than you're gonna have to change your suburb.

Chris Bates: And that's what most people do is they say, well, actually I'd love to spend smaller mortgage, but I'm not going to get where I want to live. I want to only one life. I want to have a family or whatever it is I'm willing to stretch, especially in hot markets is probably two things. So people will stretch. If a they've been burned in say the last boom or they're missed out, or they've gone through a lot of emotions and they've got a family. So there's a huge emotional drive. They will stretch an elbow or borrow six or seven times the salary, you know, and they'll get clarity and confidence that they're willing to do that maybe it's rates, it's fixing. Maybe they're confident that their future income is going to be higher in the future. They've got other money setback as buffer. So a lot of people aren't borrowing, you know, 90% with no buffer seven times income. That's not as common, probably it's more on that sort of what you say, five, five to sort of six range, but they've also got a buffer leftover at the end of it. And they're fixing, and maybe they've got a bonus and a, and they're confident and there's wage rises in the future. And so it's 5.5 times today, salary. But that doesn't mean if your salary goes up 30, 40%. Well now your metric has now dropped, you know, to say three and a half times. Yeah. That's kind of what they were doing.

Veronica Morgan: If you like what you're hearing here, please share this episode with others, you feel would benefit. And while you're at it, why not leave us an iTunes review five stars, please. Every review helps make it easier for other people to find us and hear what our amazing guests have to say. We love hearing your questions and we're planning more listener Q and a episodes. Please send questions in. You can send them via the website, which is the elephant in the room.com today. You or directly via email two questions@theelephantintheroom.com. Did I, you

Veronica Morgan: Have another question we sort of follows on from this actually via Twitter, Chris and me. So it's drifted to me, Kristen, you keep referring to people on good income. What is considered a good income? Let's say for Sydney, what's a reference baseline. For example, if you're looking at a million dollar property than a hundred thousand dollars is considered a good income, assuming 80% LVR is, what do you think? I mean, cause we do talk about a lot. Actually we do refer to it, but I sort of refer to it, the abstracts, but I know that you're dealing with people's borrowings every day. So how, how, what is the metric for what's a good income when it comes to buying property, particularly in an expensive city? It's

Chris Bates: A tricky question that, I mean, the reality is income, putting my sort of socialist mindset on income. Isn't a fair metric on the work, who do, you know, different industries get paid unproportionate to the amount of effort and the amount of impact they're making society. And that's my sort of real belief. And I think it's not really fair. You know, a nurse gets paid X and then someone who's, you know, et cetera. And so that's the frustrating thing about society teachers. There's lots of things, right? And so, you know, when we say a good income, I think it's really, it's hard because people are doing this some of the best and most important jobs in the world and not earning the income that you've considered say good, you know, it's not fair. All right. So what is a good income? You know, if you look at sort of, sort of stats with the ITO and all that sort of stuff, you know, I guess I think it looks it down and brought it up, but I mean, I only oversee one 50 to 180, you know, it's only maybe two, 300,000 people that are earning that.

Chris Bates: And you know, really when I'm thinking about what properties would I want, I would want that sort of demographic to, to want my property. And that to me is sort of the, the people that, you know, maybe it's one and a lot of them are, you know, maybe one's working part-time or maybe the other part is earning a higher income as well. So when I say incomes, I'm probably referring to the higher upper echelon, maybe the top five, 10% of salaries out there. So they're not sort of people starting out in their careers and maybe on say 80 to say one 2130, which a lot of professional sort of services sort of are probably that next level. So people aren't earning this money in their twenties, generally it's most likely people in that 30 to 45 bracket in a lot of people aren't having that money today, but they will be owning that in say 10 years time with a, you know, investing in their knowledge in there and say, I could industry that also pays well. So I mean, that sort of answers the question, but it is a bit of a social question as well, which is a different point, which I answered

Veronica Morgan: Very much so. And I guess we do refer to good incomes in the context of capital growth that we are looking for areas to buy in that are underpinned supported by good incomes, as you say, and the people that own those good incomes want to live there and want to live in the types of properties that we are talking about, which is fundamentally about scarcity and also understanding the drivers and the different characteristics of property of property that people in local markets want. And so I guess it's an investment criteria really isn't it? That rather than us say, you need to be on a good income in order to buy in Sydney and this at these income levels, you know, this is the price point that you can get in at it's more around fundamentally what drives the market and what gives you more security in terms of the long-term asset that you're buying, right? Yeah,

Chris Bates: Exactly. And so income growth as a collective, across a city in a country, you know, you could say that it's zero, right? And it's not much, you know, there's probably the economists would be shouting saying it's actually 1.3%, but there's, there'll be a subset of the population, which isn't fair, which is not what I you know, it's, but there'll be a subset and maybe it's 10 or 20% of that population that have got white dresses and you know, some sectors, for example, tech sectors, I haven't got a big wide drivers, right. And so where are these people moving? And so they might be moving somewhere like you running that wage growth in somewhere like Bauma is probably a lot more than the country's wage growth. And so, and there'll be other pockets. So where are those people moving to? And that's, what's driving that can drive prices over the longer term. So there's more people collectively, maybe aren't any white drivers, but if a subset and learning why draws is which always happens in a capitalist society, where are they moving to? And where are they driving wage rises within any consensus can show this as well. You could see that the wide draws is in a suburb. For example, a lot bowel mine would be higher than say the white draws us as a collective and you can easily find that information.

Veronica Morgan: Now, six questions from Anne, what are your thoughts on buying a property in a holiday spot, specifically to rent out on Airbnb or buying something that could be either tenanted long-term or rent on Airbnb? Referring to me, I talk a lot about buying quality assets. Could you please tell us exactly what that means? What's my criteria. And how about we go with this one? Let's look two parts of this, you know, what's a good asset. What's a quality asset. We'll tackle that first. And then we'll talk about the holiday spot. So I'll say what a quality asset is. And it leads on from what we were just talking about, is that in any area. So you've got to look for areas that have got under the underpinnings of a solid area and they are things like income. They are, they are things like population growth.

Veronica Morgan: They are things like lifestyle, communication, transport, all that sort of stuff. So you find yourself a good area to invest in. Then you've got to actually spend some time understanding the demographic of people that are in that area, the different types of buyer groups. So your first home buyers, you downsizes have young families, your older families, investors, et cetera, et cetera. Where's the good pockets. Where's the not great pockets. And, and then understanding the of property in different price brackets that appeal to the majority of people. So the largest groups. So, and we talk about multiple buyer pools. So we look at properties that will appeal to a first home buyer and a downsizer and an investor, for instance. So a quality asset are those properties that have those characteristics. And there's some general characteristics that we look for such as natural light and not on a main road and aspect and place, but on the block and floor plan and build quality and, and whether it's got period features or not.

Veronica Morgan: And all of those sorts of things, you know, proximity to parks, proximity, to transport without being too close. All of those things are very important, but there are subtle differences that you need to equip yourself with a full understanding of in every particular area that you're looking at buying in. So that's fundamentally what a quality asset is. It's, it's the cherry on top, if you like, because you can go and buy any property in any suburb, but are you buying a good one? And that's really, you got to understand what drives that suburb in that area before you can truly answer that question. Yeah.

Chris Bates: I mean, absolutely. It's a top down approach here. What's the location, then what's the suburb within that location. And then what's the part of that suburb. And then what's the best streets in that suburb. And then what size of that straight and then which, you know, what parts of the, you know, parts of that street could be better than other parts of that straight. Right? And so you're surely that local and then you get to a property level and it could be on the best street in the best side of the street, but it could be an awful property floor plan need a lot of work. It could be dark privacy issues. And so it's, you know, it really is like a top-down, but then you have to get super micro and, you know, usually you're saying no to most properties because there's always something that turns you off massive

Veronica Morgan: Majority is, is no.

Chris Bates: Yeah. And is that something you'd like a car get around that at south icing and it's dark and it's hard to get light in and all those huge one. I think that's, you know, can't change it. If someone's looking over your backyard or something like that, right. Or main road, like the roads are not going to change. I'll do it. Good luck. The

Veronica Morgan: Non spreading bamboo. So in for certain properties, you can actually address the issue around the property, other properties you can't, and that's, that's part of it. It's like, is this something holding this property back that could be addressed? And there's a potential value add there. But I think what, you know, what people sort of think are going to buy the worst house in the best street and you know what, that's often a really, it's a mess. It's a misnomer. I mean, it doesn't necessarily follow that. Just being in the right location means you can, you can do well. And definitely not being on the right street. Can you do well? You can. There's plenty of people that lose money in good suburbs.

Chris Bates: Oh yeah. Especially when they buy and then they sell like potentially if we buy in great suburbs right now, but you might be buying on the busiest road and paying an absolute premium for it. We might have some type of 2018 sort of credit crunch again, or it could be something in the world. And then you have something, a divorce or you need to sell something. And absolutely once you add in 10% of transaction costs and potentially overpaid in a real hot market for a poor asset, those people got smashed in, in good suburbs in 2017 to 2019. And we, you know, we were talking about them at the time. So yeah, absolutely. You've got, it's not just buying go are bought in that side, but whichever one says, I can't lose money in that suburb or I can't lose money.

Veronica Morgan: It's commonly it's commonly said,

Chris Bates: Yeah, yeah. And said buying some with a bank, they know we've had clients do this super successfully, but what they bought is in areas that ultimately the property, what they wanted was what the locals wanted in that city. And they were in the premium end of that market. So maybe walking to the beach or it's a unique property, for example, it could be a property that when you showing it on Airbnb, it just has some type of X factor. And not only do you get a lot more money on Airbnb, you never, you always usually rented out as well. Because when someone's looking at experiences, which is what Airbnb is, they're looking at the properties and go, oh, wow, look at that. I can love to go and stay there. How it could be is that when you manufacture, you could definitely do it through stalling, but it's usually something else that makes people go out well, even though it's not the most beautiful house, I get that experience in view. So if I would always only do it personally, if I'm know I'm going to get ridiculous Airbnb, because it's just always going to be rented because it's always going to be the best property on Airbnb. And a lot of people stuff it up cause they just think I'll buy a place down the south coast and rent on Airbnb, but it's never rent because everyone's always nice at properties to rent and other people are doing it

Veronica Morgan: Yeah. Or becomes a party house, you know, the neighbors because you know, that's really where big groups go because it's not the nicest house.

Chris Bates: Yeah. That's true. So you've got to be really careful with that. You obviously got to be careful who you let it too. And you know, usually a premium man, but even the premium end, you get partying as well as the caught. It doesn't mean parties are not going to happen. So no,

Veronica Morgan: I think, I think the issue is though, and she sort of alluded this same by all buying something that could be either tenanted long-term. And I think the Airbnb thing has actually the weak, the weakness of that, or the vulnerability of that strategy has been exposed by COVID. And that, you know, there was a lot of people really hurting because suddenly there's no income and yeah, sure. You might get high in car and you might get high, high occupancy, et cetera, et cetera. But it's, it's, you know, risk equals dollars, right? So you know, you get higher returns on higher risk and that's that's because you, there is more risk associated with that than having a long-term stable tenant. So I would say that if you got to buy a property in any of these holiday areas, you got to buy it with other things in mind, Airbnb, that's the cherry on top that's that's, you know, that's great.

Veronica Morgan: If you can take advantage of that for a period of time, but it does have to have other fundamentals and it does have to have local demand or you have to be buying it with your own beauty, your own usage of it at some point, otherwise I absolutely would not be buying any property as a matter where it is specifically for short-term rental also because legislation may well turn against you. The local council may, may outlaw it, state governments, you know, still in the process of changing legislation around it, you know? So, so all these things, as I said, equate to risk, I'll be, I'll be very careful about doing it.

Chris Bates: Yeah, absolutely. I mean, I only want to do it if there was a huge return on the yield on the Airbnb, because you had something super special and you don't know these things until you actually get it and test it out. You could get all, you know, you get over excited over confident, but ultimately I would only buy it if the capital value was still likely to rise because buyer pool for that property was liked to increase. So where clients have done really well is they bought in areas that people want to go on holiday to say leaving a capital city. So it could be outskirts of say Melbourne or Sydney, et cetera. So say somewhere where people are likely to go regularly because it's not too far. So it's not down at Merimbula or something or at six hours, it probably one to three hours away, but it's also a fundamentally people would move to, to leave.

Chris Bates: And so people would leave a capital city and move there because they'd be happy to raise a family in that location. And so it's usually got good schools. And if you, if you buying that, then Sydney home buyers are looking at that now, especially with COVID. And so some people could have done really well out of this, if that was smart. And I bought in one of the premium ends of the regional towns that were doing really well on Airbnb and then 2020 sort of lit that regional movement. And now they've got all the capital rise as well, which would have happened on a trickle effect, but you know, 2020 sort of really pushed that forward. So a bit of luck there, you gotta be really careful buying these, you know, but now that that shift has happened and maybe it's going to continue down that path. We just don't know. But a lot of the growth in a lot of these areas has happened very quickly. You just gotta be careful whether you you know, you just missed the boat a little bit there with the majority of the growth. So they're very careful buying for Airbnb. It's usually I make morning lot whenever I hear that the first thing an investor wants to.

Veronica Morgan: Yep. Okay. Our last question is from will demand is soaring in capital cities, demographically speaking, who are these people who have flooded into these property markets post COVID? Where are they falling? The huge deposits and servicing mortgages, and now multiples larger for the same properties. Then just a few years ago, even months ago, where were these people before and why the rushing to property now, how are they protected against even small rate rises in the future? And are we setting ourselves up for a big correction and real a real one this time? What will the fallout be from this? Any ideas

Chris Bates: The question will, and you know, when you look at the results, you're like, how the hell is someone paying that amount for that property? And there's two things. One, yes, they're probably borrowing more than they would have say 12 months ago. I, because they can and be because they've got more confidence to do that because of low rates and low rates drive behavior, which I've said many times in this podcast. And we really saw it when rates went up to 2%, get really long term fixed rates. And so yeah, people are definitely taking on massive mortgages and that's, what's driving prices, but also they've got huge deposits. And so, you know, when you say, where are they finding this, not the first time buyers they're buying in that sort of maybe very few hope, first time buyers buy the high ones more, probably the lower ones where they, they feel comfortable, but they definitely are there, but not many, but it's usually that upgrade.

Chris Bates: I said, they've got some other asset that they're purchased maybe five, 10 years ago and that asset's done reasonably well for them. And they've also been quite good at saving. And so lots of clients are going in there with one to 2 million all deposits and it sounds crazy, but the reality is that's true. And so, you know, when they're buying a safe place for say two and a half, 3 million, how's that possible? Well, they're probably only borrowing one and a half probably if not more, less than that, you know, and that's maybe only say four or five times their income or maybe a bit more, but that's really, what's sort of happening it's and why they're doing it now, which is part of the question. What was the rush? Well, low rates were, firstly, there's also pent up demand. You know, there's been a low lot of number of properties on the market for five or six years.

Chris Bates: A lot of people missed out in the 2016, 2017 boom, which they bought a house and in 2018, 19 they said, oh, prices are falling. And then they prices started rising. So we're not going to buy in 2019. Oh no, we've missed it. And then COVID happened and the world's going to crash. And so a lot of people put off that home buying decision to say five years. And you're a lot of people who have had families and got older over that time as well. So this is pent up demand. They all rushed into the markets because they're like, actually the world's not going to collapse. We really need a house. Right. It's a low, why don't we go and do it? And there wasn't enough properties on the market. And it's what process of sort of reason our protected against even small right rises, I'd say yes, even if there was a half a percent to 1% sort of right rise.

Chris Bates: So around three to three and a half, then I think most people would still be okay. Most people are factoring in at least 3% rights in their mind. They're not sort of thinking, right? So we 2% forever. But if rates rose to say 4%, absolutely you would see massive reductions in spending massive reductions to our economy, et cetera. So what would cause rates to rise to 4%, you'd have to argue it's worldwide inflation and that all this money ends up in asset prices in other, not asset prices, but in goods and services and wages and stuff. And that's the real worry that we get this big inflation blow out, but that's been a worry for years. And so is there going to be a real correction? You could wait and you can sit and wait for that, but we can show that people who waited through 2018, 2019, maybe missed all that out. If you waited last year, you missed it again. And so I think it's pretty dangerous waiting on your home because your home is something that you can easily get blown out and you can never get in there. So it's not even a waiting, it's going to get cheaper. You just have to change your strategy because you're waited and it's not coming back to where you want it to.

Veronica Morgan: Yeah. And I think too, one of the other, you know, who are these people and where are they being? I think when they are in lockdown, they really had time to really look at their homes and work out whether they are big enough and whether they are comfortable enough, whether they liked them enough, whether all of that sort of stuff. And I, and I think that, you know, a lot of people have come out saying, you know, if that happens again, I don't want to be locked in that same house, but also I'm now working from home a hell of a lot more than I was. And so as my wife says, my husband says so, you know, and, and because of that, there has been more demand for more space in our homes and more value around that. So, and that's, I think a fundamental driver behind all of this,

Chris Bates: I think also first-time buyers. They haven't been going on their holidays. A lot of people who you know, lots of enjoy life. And so not just going overseas on holidays, even just going out on weekends and no restaurants, et cetera, but we will earn a lot of money where they spend a lot of money and, you know, code was sort of a reset for them. And they said, well, you know what, why don't we really own say out, we've got going on holidays this year. And it was sort of like oh, so we definitely saw a lot of first-time buyers who really just knock, go down and built, you know, quite a lot of cash quite fast because they've really put a focus on it. And then they've gone to parents and said, you know, can you sort of help us? And Hey, parents have helped and they're willing to do it cause they're seeing their house go up. And so you've got this positive feedback loop as well. The media got involved as always. And so that's, what's kind of FOMO and then yeah, that's, what's really driving it. So yeah, Cobra was an interesting idea, except they, we think a lot of people who, you know, may have just put it off three or four years time, really knuckled down and sort of entered the market. Hence why first-time buyers were so high share. Yeah.

Veronica Morgan: So almost accidental saving. It's like, oh God, yeah. A bit of a deposit here. Huh? We should knuckle down and finish the job. That's pretty cool.

Chris Bates: We had a client yesterday, exact same thing, you know? Yeah. She says, she's got a hundred grand the last year, you know, because, and she's literally had cash to be honest. So what she wants to do, but she's not far off. And that's the thing, it's like the behavioral boss that I can't really recall it right now. But when you get closer to your goal, you get more motivated. And so when you're looking at a 200 grand deposit to enter the house and got 30 grand in the bank, well, you just switch off from society. You get out and enjoy yourself and go on holidays because you think it's unattainable. But once that got to a hundred, you thought, wow. If we only had an extra a hundred and we can save X and these are big numbers and it happens inside and you know, even yesterday a client you know, she's so and grading car, she's like, well, look if I have another 30 grand.

Chris Bates: Okay. and she's got to ask her uncle, you know, saying, this is what everyone should do. And now everyone is fortunate enough to do that. But Kashi is like 115. She needs 180. It's only 30. She's asking for she's showed good history. And that's why parents are happy to help a lot of the time times because they say, well, I know you've worked hard for this and I'm just going to help you bridge that gap. They're not providing this big deposit and neither that they haven't even worked for it. So yes, it's sort of that sort of what's happening, changing

Veronica Morgan: World. Well, thank you so much for sending through your questions. As we've promised, we're delivering more of these Q and a episodes, so keep sending them through and we look forward to delivering the next one. Thank

Chris Bates: You so much. I really love answering these questions and we hope you're