S2E13 - Should You Buy New Or Established? (Part 1)

[00:00:00]

Imti: In part one, we talk through the bigger picture when it comes down to the new versus established property decision for first time property investors. For a lot of people who land on new, that opens up another kettle of fish when it comes down to how do they actually pick a new build property, and specifically a location that's gonna perform well for them over the long term.

Because what we're gonna see moving forward is a lot of social media and a lot of hype around every new build performing extremely well, and we wanted to put this together as a next step for someone who has decided they may need to look at a new property, but they're unsure of what to do, how to vet a location, and how to move forward with confidence. So to guide you through that process, we're gonna break it down into four parts: what good looks like in practice for a new build and looking at a location, how to research it, so how to shortlist areas and separate the [00:01:00] headlines from what the data actually supports, what to watch for, so red flags that a lot of people will be facing moving forward and how to identify them and move past them, and then how to pressure test the whole decision-making process so you can actually move forward with confidence.

This isn't about how to identify, the best location in all of Australia or getting sidetracked around cashflow. It's really just about an easy step-by-step fundamental frame that you can use when looking at purchasing a new property. Pete, you're gonna be leading a lot of this episode because this is very much what you do day-to-day in the buyer's agency space.

What does good look like in practice in this situation for someone looking to buy a new investment property?

Pete: This is something I've always recommended to clients, so it's not something that we've really changed because of these negative gearing changes, but it's to buy in the established pockets.

Imti: Mm-hmm.

Pete: So think your middle [00:02:00] ring suburbs where we've got developers, they're doing micro developments, so they might be buying 800 square meters of land, and they might subdivide it off into two, three, four properties. When you look around those areas, they've got the schools, they've got the public transport, the shopping centers, everything's there.

It's established. The other side to that is also in these suburbs, the government does unlock land. So think about areas where there might be old schools or, uh, large industrial sites or something like that, where the government's gone, "Right, we can build some houses there." Again, it's an established pocket.

So that is really the only areas where I'd be considering for my clients. Now, that will change the property type.

Imti: Yep.

Pete: So it won't always be a house. It might be a townhouse- Mm ... it might be a unit. But if we combine these locations, they're locations where people want to live, they have lived for years, and they're going to continue to want to live because the amenities are there, closer to the CBDs or the major regional towns as well, 'cause we are targeting that middle ring.

Imti: Yeah. And I think for anyone listening to this episode, if you can take anything out of this entire [00:03:00] episode, it's that location is still key. It's still the underlying decision-maker that's gonna drive performance. And I noticed there, Pete, you didn't actually mention new estates. Why is that?

Pete: Well, these are, what I would call dead zones, and again, it's no offense to owner-occupiers or anything like that.

Effectively, that's what they're made for. They're made for the affordable entry for homeowners to get into the market. Now, the reason I haven't mentioned them was because they're normally on the outskirts of the capital cities and also the major regional towns as well- Where what the government does is they'll unlock the land, they're gonna be brand new suburbs and estates.

There's no schools, there's no public transport, there's literally nothing around except for new housing construction. That's it. So effectively it's not a very nice place to live, but also super high supply. High supply from new properties coming to market, so valuations won't stack up for quite an extended period of time, but also the rentals will continue to fall too because, again, there's a supply issue.

Imti: If we were to summarise that, [00:04:00] what good looks like is what good already is at the moment. It's just about identifying opportunities for new builds in those markets.

Pete: Yeah. Nothing's changed. Fundamentals are still there. The other side of that is making sure it's a reputable builder as well. If you're gonna go down this process, building's not easy. It's not something that I would ever do for myself because I know the headaches involved, and I've heard the stories, but again, this is about people who, or investors who need the negative gearing benefits, or they just feel more comfortable having them, making sure you've got the reputable builder.

Imti: We'll put the building aspect to the side because I know that that's a massive deep dive that we can pull apart.

Pete: Mm.

Imti: Bringing it back down to the areas, how would you approach research? So you're across the table from someone who's looking to buy their first investment property, and they go, "Pete, how do I actually pick the right area to invest in?"

Pete: Nothing changes. We actually would approach it in the exact same manner as we would for a client who's looking for established, because like I said, we [00:05:00] are looking in the established pockets. So nothing would change. We'd understand what the budgets are, the requirements around that, and then we would go out and identify the top five to six locations.

And then within that, we would then try and search for the micro-developments that I talked about before to try and secure a property in that manner. Because at the end of the day, these areas have 20 years of data. If we look at the new estates and the greenfields there is no data.

Imti: There might be data for one or two years, but you can't make a $800,000 decision based on one or two years of data which is inaccurate in itself because it's a new suburb, so the data's not gonna be a true reflection of what's actually happening. So yeah, it'd be no different.

Pete: Fundamentals, checking the data points that we need to, and yeah, you should be sweet.

Imti: When you say checking the data- What would be the highest leverage, most important data points that you run every single client's brief through to make sure that the area stacks up?

Pete: We look at over 80 metrics, but if I keep it really high level, we've got demand, supply, and infrastructure projects or development, so we have to [00:06:00] make sure that demand is outweighing supply.

A couple of metrics that come to mind are days on market. The time it takes to sell a property from being listed. We don't wanna see that trend going up because it means properties are taking longer to sell. there's less competition in the market and more room for buyers to negotiate, so prices will fall.

Imti: Mm-hmm.

Pete: The other side of the demand equation from a rental side is the vacancy rate. That pretty much reflects the percentage of properties currently listed for rent within the suburb. We don't want that to be above 2% where possible. Again, we wanna see that declining. And if we were to look at new suburbs, what you would see, I can almost guarantee, is days on market trending up because there's such a high level of supply coming in and vacancy rates going up as well.

And then from the supply side, you wanna see less listings coming to market again, that's the shrinking of supply on that side.

Imti: And Skye, in your world, would you add anything in terms of the important metrics or data points to look at from a supply or demand perspective?

Mm.

Skye: Yeah. We've talked before about not trusting a rental appraisal, [00:07:00] firstly. If there is one, get a second from someone not involved in the transaction. But I've always said, go have a look on realestate.com, what's currently available. Anything over five in that one suburb, you've got a oversupply issue.

Imti: As in five vacant rentals?

Skye: Five vacant rentals, yeah.

Imti: Yep.

Skye: Yeah. In these, newer communities, depending on the time, you could have upwards of 15, 20 properties available for rent, and then you're just competing on price.

Pete: I've seen 80, 90, 100 in some areas-

Skye: Yeah

Pete: particularly in Melbourne, yeah.

Skye: Yeah. Mm. Melbourne's a whole other- challenge. And so I think it's about monitoring that at least over a period of a couple of months because again, I see investors looking at 700 per week in rent. Are they actually getting it?

You need to monitor it to see how long is that actually staying on there and chatting to, people on the ground- because the advertised price in rentals is very rarely the actual reality.

Imti: Yeah, I think that's a great point, and for anyone who's been listening for a little while, you know that we're a big fan of the map view on [00:08:00] realestate.com.au, because it actually helps you visualise what's happening. You can see how many properties are for sale in the one street, or how many properties are for rent in one pocket of a suburb, and it'll help you really understand the supply and demand at a suburb level without needing to jump into some complicated database that 9 out of 10 people wouldn't actually understand.

Pete, you touched on infrastructure. That is one of the key points when it comes down to researching. What would you be looking at from an infrastructure perspective?

Pete: We just wanna see stuff happening on the ground. It could be things like hospital upgrades, school upgrades, upgrades to the roads to get in and out of these locations as well, so it's continuing to gentrify.

Anything that the government's spending money on, basically. 'cause what you'll find in the newer estates, there is no infrastructure spend. Mm. And all it is is on new housing. People don't wanna get mixed up with what infrastructure spend means. We're talking non-residential spending here, not residential developments.

Imti: Yeah.

Pete: Yeah.

Imti: So if I was to [00:09:00] simplify that, 'cause people can look for infrastructure spending online.

Pete: Yeah.

Imti: ChatGPT will tell you whatever you want now, just make sure you fact-check it before-

Pete: Yeah

Imti: ... trusting it.

But council websites are probably a really good source of truth. But what you mean there is that not all infrastructure spending is the same because, let's say, putting in pipes and electricity lines- Mm ... for a new development qualifies as infrastructure spend, right?

Pete: Correct, yeah.

Imti: Whereas-

Skye: They could leave off sewerage, right?

Imti: Yeah. And that's where, for example, one council might be spending $5 million on infrastructure, and it's just laying pipework, and another council might be spending $5 million on infrastructure, and it's actually upgrading a hospital.

Pete: Yeah. Creating jobs.

Imti: And those two spends are very different, right?

Pete: Yeah. Very.

Imti: And if someone wanted to go the extra step of actually diving into that, how would they do that? How would they actually identify if it was residential infrastructure spend for a new development verse value adds for people in the area?

Pete: [00:10:00] Yeah. Well, like I talked about before, it'd be, council websites, government websites as well. Federal government's always talking about the money they're laying out into these new projects. But also, I think it's called Profile ID is pretty good, or Rentplan. Mm. They're pretty good data sources which are free, which draw on the council websites, and they show things like, construction spend.

They also show things like building approvals as well, in the greenfield estates, you'll see building approvals just absolutely skyrocket- Mm ... on the graph, over the last couple of years, so that's a really good source as well.

Imti: And what would- High building approvals indicate for any area?

Pete: Uh, it's just a lot of supply coming in. So when we're talking building approvals from a residential point of view, we're talking high supply. Yeah.

Imti: Mm-hmm. So if you were looking at the information as a first-time property investor, to simplify it- Be running the other way. Yeah. High building approvals equals bad, equals run. Because there's a lot of stock that's about to hit the market in that area.

Pete: Yeah. And they probably haven't hit too. That's also the thing. Mm-hmm. It's things that have been approved that haven't been built yet.

Imti: Yes.

Pete: So you gotta be careful on that one as well.

Imti: And that's the second layer of it, right? Because if you're [00:11:00] looking at realestate.com, you can see what's available for sale now. If you look at building approvals, there might be five times the amount of properties about to come to the market- Yeah ... in the next 12 to 24 months that you have no idea about, because the building approval figure would actually be the indicator.

Pete: Yep.

Imti: The extra research thread I wanted to pull at and put to you was what about population growth? We hear a lot about migration and population growth and how that impacts property prices and suburbs, and if we're focusing on established suburbs, how do those flow in the context of looking for the right area?

Pete: Look, a lot of people think, a high level of population growth is gonna lead to high property prices.

Imti: Now it can to some extent, but this is where the building approvals come in, because you can find the data online where I just mentioned, 'cause you can look at the council level as well, but if the location has a high level of building approvals, let's say they've got another hundred thousand new homes coming in according to the building approvals over the [00:12:00] next three years, and then they've got, an extra 100,000 people moving to the area, well, demand's gonna meet supply in that instance.

Yep.

Pete: So that's where people need to get very, careful, just because you're seeing some of these locations again in these newer suburbs and new estates, population growth is huge.

Imti: Mm-hmm.

Pete: And that's how the marketing spruikers and the real estate agents and developers are selling them, is this area's gonna grow because it's gonna be all these people coming in. But what they haven't told is the other side of the equation, which is the supply side, that it's just gonna get eaten up by all the building approvals anyway, so there's not gonna be much price growth.

Imti: Yeah.

Pete: If anything, it will probably come backwards.

Imti: Yeah. Because it ends up equaling out, right?

Pete: Yeah, that's right.

Imti: Over the long term.

Pete: Yeah.

Imti: That's where the population growth aspect and the migration aspect in particular is When we look at, for example, skilled migration and us bringing in, let's say, doctors, engineers, all of those high-level professionals who will want owner-occupier grade properties, they're gonna wanna live close to their jobs.

And that comes back to your point around the importance [00:13:00] of solid infrastructure, like hospitals, like schools, like the roads, because that's the areas that these people are gonna move into, and those are the areas that are already tight on supply, right?

Pete: That's why these micro developments within these more established pockets is so important because these higher skilled people are gonna move there. It's got all the amenities, they're upgrading hospitals already. It's got everything there. And when you look at those areas, and if population is set to increase in those areas, well, supply is so constrained because they're already established. That's when you can see price growth increasing. Mm-hmm. Does that make sense?

Imti: Yeah.

Pete: Yeah.

Imti: It makes plenty of sense, The long, long short of it is, is that the research process actually doesn't change. It's the type of build that you look for that's gonna perform, which is probably a great segue into what to watch out for, or the red flags that people might have pop up. In your mind, what are some things that if you saw straight away, you would be, " [00:14:00] No, not on, red flag, put it in the bin"?

Pete: Yeah, it's pretty much the opposite to what we just talked about. It's buying in the outer locations of the major capitals and major regional towns where the building approvals are just skyrocketing. Vacancy rates are sitting well above that 2% mark. I've seen some sit 50, 60% vacancy. It's huge, so anything like that, I would just run far away from.

Imti: In terms of how these get marketed moving forward, 'cause we're gonna hear a lot of noise in the new build space and a lot of people, buyer's agents in particular, and please don't give me a weird look, Pete. they're gonna start talking about new builds more often, right? And we've spoken about it before. We've all had developers offer us

20, 30, $40,000 to essentially pre-sell development stock to our clients. What do you think is gonna happen now with these changes, considering that was already the situation? And then how does someone who is getting all this marketing messaging actually identify [00:15:00] what's good and what's bad?

Pete: If we strip it right back to who's coming to you-

Imti: ...

Pete: to offer you this service. So if you're not paying them, that to me is a massive red flag.

And there's plenty of that where developers and buyer's agents, that's what they're selling to clients.

They're selling these properties and the client's not paying them, so they're getting a cut from the developer. Or in some instance, I have heard where they do get paid by the client as well, but anyway. Hmm. That's another story . So yeah, where's the source of funds, going from the client to whoever is offering this service, and if there is no direct payment, then that's a big red flag.

Imti: I think a real pain point for them to watch out for in that situation is the biggest appeal is going to be the price of some of these properties put in front of them, right?

Pete: Yeah.

Imti: Because when these developers put these greenfield estates in front of clients, they're often significantly cheaper than these micro developments, and they're houses, and they've got big backyards.

It ticks all the boxes that most property investors think a good investment makes. Yeah. So [00:16:00] how does someone navigate that? Because when the decision is, " Oh, this property is a three-bedroom house and it's 150 grand cheaper," verse, "Oh, this is a townhouse, there's no backyard, and I'm paying a extra 150 grand," how does someone actually make the right decision in that situation?

Pete: it's a tough one 'cause it always comes down to people's budget, but I actually think, and this doesn't help everybody at the table, but sometimes it's best not to make the decision and pass on it-

Imti: Mm-hmm

Pete: ... altogether. I actually genuinely think some of these locations that people are buying into, they are better just to keep their money in the bank.

Mm. Chuck it in the share market or something like that because they're not gonna make any money.

Imti: 100%.

Pete: that's ... Yeah, I don't know if that's the answer you're looking for-

Imti: No

Pete: ... but literally that's it.

Imti: I think that's spot on. If anyone's interested, we've got a bit of a horror story two-parter about a client who did go through this process and they were negative equity straight out of the door, $150,000 loss pretty much on day one.

Pete: Yeah, by signing the paper.

Imti: By signing a contract, and that's gonna be [00:17:00] happening more often now, is that people are gonna feel like that these are can't miss opportunities and they're significantly cheaper than, let's say, a townhouse, and they'll be signing on the dotted line. Skye, is there anything that you would add in terms of, what to watch out for when someone's going through this journey of vetting a new build?

Skye: Absolutely. I call them cookie cutters, but too much identical supply. with a new build, and I always caution people, you want something that's a little bit different, because generally in these estates they all look exactly the same. And when I say different, maybe it's a third living area, maybe it's four bedrooms versus three.

Stay well away from a single carport if you can, because it all just reduces the demand for the property. And when there are multiple properties online, if yours is exactly the same as the one on the other side of the road, there's just no chance to not only rent it, but actually get a reasonable return.

So you wanna find something different.

Pete: Yeah.

Imti: Mm-hmm.

Skye: If you're going to explore [00:18:00] that path, once you've passed the location check, if you're actually looking at the type of property-

Imti: Mm-hmm

Skye: ... if it's a new build, it needs to be just something a little bit different. And I actually spoke about it a few months ago, I think, where the landlords had actually upgraded, they'd gone stone benchtops, hanging pendant lights.

Those properties performed amazingly well in those estates that we're talking about-

Imti: Yeah, yeah ...

Skye: because there's something a little bit different-

Imti: Mm

Skye: ... and it's not a cheap, nasty build.

Imti: Yeah. And that's the thing, right? We're not saying all new release estates are bad.

Skye: Mm.

Imti: There are some that will perform decently well.

Pete: Mm.

Imti: And if you can't afford in, inner ring, in a micro development-

Skye: Yeah

Imti: ... that'll be your option. To your point, Skye, it's a catch 22 'cause in those situations there's what's called investor build packages

Skye: Mm.

Imti: And it's all just this cheap-

Skye: Just assumed to be cheap flooring ...

Imti: shit that lasts forever.

Skye: Yeah.

Imti: and that's how they get investors into those markets, is that they go, " Yeah, we can make it 50 grand cheaper by giving you cheaper flooring, cheaper benchtops. There's only a single carport." [00:19:00]

Skye: Mm.

Imti: Whereas

Skye: no one thinks about the flow on effect.

Imti: Yes.

Skye: Once it's actually built, no one wants that property.

So looking at it, reverse engineering, okay, what would my tenant want to live here? Yeah. That's where they upgraded the cooktop to a 900 mil-

Imti: Mm

Skye: ... versus your 600, small changes. Yes, it cost them more initially, but it saved them so much more down the track. And that results in more stable tenancies too, because people want to live there.

Imti: Mm-hmm. Well that's the thing. When you're in a block of 100 houses that are very, very similar- When they all go up to be rented out, it's the one that has the double garage, the one that has the alfresco, the one that has the 900 mil bench tops that people will go to first.

Skye: Yep.

Imti: And they'll pay more for it.

Skye: Yep, and they'll stay longer 'cause they're happy. 'Cause they're not looking, "Oh, well, this exact same property just popped up for rent-

Imti: Mm-hmm

Skye: ... and it's 50 bucks cheaper." They're not looking at that 'cause they're happy 'cause they've got those extras.

Imti: Yeah, 100%. And Pete, to your side of the fence, when you're looking at investment purchases for your clients, it's all about owner-occupier [00:20:00] appeal, right?

Pete: Yeah.

Imti: And All those features flow into owner-occupier appeal, right?

Pete: Yeah, that's it. Yep. And look, we buy in estates that were built 15 years ago, because it just makes sense now.

Skye: Mm.

Pete: 'Cause they're fully built out. They've got the schools, they've got the amenities, they've got access into the CBD. It's all really good. But what we do look for is something that's different, whether it's larger land size, internal finishes-

Skye: Mm

Pete: ... are a bit nicer. I don't like the properties where they're connected on both sides. We won't touch those.

Imti: Mm-hmm.

Pete: And we do look for the three bed, two bath, two living if we can, or the four beds as well, which is the preference, but again, it comes down to price point.

Skye: Yeah.

Pete: So yeah, we look for all those things. So I'm not saying that these areas will never grow. It will take a long time though, and there's no point in buying something for it to not grow for 10 years. Mm. Like, There will come a time where these places are good to invest, but if you're buying now and waiting 10 years and you're holding costs for the 10 years as well for it to not grow-

Imti: Could put your money somewhere else

Pete: it's terribly ... Yeah, exactly right. Yeah.

Imti: Yeah. Comes down to the cost point earlier, right? The baseline packages might be significantly cheaper in these greenfield estates for a three, one and one. But if everyone's buying a three, one and [00:21:00] one no one wants one.

Yeah. and so correct me if I'm wrong, but if someone's looking at a new build in some of these areas, if it's a family driven suburb, the two highest ROI moves is paying extra for a double garage and paying extra for a fourth bedroom, right?

Pete: Yep.

Skye: Mm.

Pete: Yeah, definitely.

Skye: Yep. It's worth it.

Imti: And then if you can stretch the money, a second bathroom.

Skye: Yeah. I think that's pretty much standard these days for a lot of renters.

Imti: One other thing in terms of what to watch out for is that, and we've seen it in real time right now, is the real risk of negative equity from day one. How can someone approach this to avoid that risk?

Pete: Well, it's hard to avoid in these areas.' Cause a lot of people are gonna be in negative equity at the moment anyway if they buy now in even the established areas. Mm. But it's short term, it's temporary.

But if you're buying into these estates, the negative equity's gonna be there long term, which is the concern. Look, the only way you can really navigate it is try and make sure you are paying a fair price upfront. Do your [00:22:00] comparable checks, make sure that there are some comparable sales recently, that stack up to what you're paying. You just don't wanna overpay too much. 'Cause I think at the end of the day, you are gonna overpay.

It's just a matter of how much.

Imti: When you say overpay, what do you mean overpay in context to?

Pete: Well, it's like buying a new car. You're always paying a premium, right? As soon as you drive that car out, it's not worth what you paid. So it's the same thing with a new home, because you could pay whatever you wanna pay for it. Let's say you pay 800 grand for it, but chances are the house next door could go up for sale in a year's time for 750. That's because there's so much incoming supply coming in, and the only people that are really buying these properties are owner-occupiers.

Imti: Yeah.

Pete: There's not gonna be a real incentive for an investor to buy that property secondhand anymore.

Imti: And I think when you boil it down in these areas as well, especially these extremely large developments, is that a lot of people need to get paid on the way down, and there's a lot of steps where businesses need to make [00:23:00] money.

And, from the ground up, it's whoever the developer is or the owner of the land, they need to make money on the subdivision themselves. There's the project marketing company that sells the packages. There's the sales agents employed by those companies. Then there's the builder. Then there's potentially a buyer's agent. Then there's the client.

Pete: Yeah, you're talking six figures in most cases too, and that's the scary thing.

Imti: Hmm.

Pete: You're going to overpay.

Imti: 'Cause everyone needs to get paid-

Pete: Yeah,

there's no way you're not gonna overpay. If you have to buy these areas, it's just trying to reduce... It sounds so stupid, doesn't it? Yeah. But, that's literally the reality.

Imti: Hmm.

and this is where the direction that it's going to head in is the clients that I have that I do connect with buyer's agents at the moment that do need new builds, my brief to those buyer's agents is gonna be, "We need to find something micro.

We need to find a established medium-sized builder, and you need to do your magic in terms of identifying the areas and negotiating and all of that sort of stuff." But it's [00:24:00] almost, and it'll sound crazy to anyone listening to this- You spend less money paying a BA to go out and find that property and secure it for you than you would in negative equity going down the development route on a greenfields

Pete: Yep

Imti: That you didn't actually, quote-unquote, "pay anyone".

Pete: Sickening the amount of money that people are paying these people. How they sell the packages and yeah.

Imti: Pete, when you're navigating this for clients, what are the red flags that you're hearing from agents when they're trying to sell these properties directly versus what you're actually able to overcome when you're negotiating?

Pete: So this is how it normally goes. There's a glossy brochure. Mm-hmm. And within this brochure it will have the average property price- over the last 20, 30 years.

Imti: Happy looking family on the front.

Pete: Then you got a graph, then you got a big upward trajectory from, I don't know, $100,000 to now whatever the average price is.

Imti: Yep.

Pete: A million bucks.

Imti: And the graph doesn't go down.

Pete: Yeah, no, it just goes directly up linear. The second page is gonna talk about population growth.

Because it's very much a buzzword. So it's gonna talk about everything [00:25:00] around what the population is now in the council or LGA location to what it's going to be once all the developments are done.

The third page will be what's to come.

Imti: Mm-hmm.

Pete: And this is what I find quite entertaining. It's things like schools, shopping centers, it could be recreational centers, medical centers, hospitals. All of these things that are to come, but aren't there yet.

Imti: And

Pete: remember when we talked about before it's why we like the established pockets, is because all these amenities are here.

Imti: Yep.

Pete: The problem is things don't always go to plan, so just because they are planning to do these grand things doesn't mean they're going to be. And doesn't mean it's gonna actually happen in the timeframe they expect them to. So what people are left with is just a construction dead zone where just houses are being built and there's no amenities around it.

From a population point of view it's increased, but there's no real reason to live there. So that's how it kinda gets sold, and then that's how it normally eventuates.

Imti: And how do you help clients navigate those sorts of situations, or do they even see [00:26:00] those situations?

With the way that you guide them through the process?

Pete: No, no. So we don't even deal with anything like that 'cause we don't buy in these locations.

Imti: Mm.

Pete: We have heard stories where clients have said, "Oh, but population's growing in this area, prices have increased, all these things to come."

But then it's just about bringing them back down to reality around why it doesn't make much sense to be doing that right now, and then, yeah, transitioning them into our strategy. But yeah, we don't deal with any of the agents, so we don't see any of that stuff.

Imti: Yeah. And not to really over-simplify it, but looking at the brochure and all the fancy things to come with the infrastructure, if a house that's already approved, let's say, gets built in 12 months, but there's a hospital to come that there's no land cleared for it, and it's just a council approval sitting there, that hospital's 10, 12 years away.

Pete: Yeah, it's ages away. And that's why I said before, is we're buying in these areas, but 10, 15 years later.

Imti: Mm.

Pete: Because everything's there.

Imti: Yeah.

Pete: And it's a great location 10, 15 years later.

Imti: Exactly. So it ties back to it, and that's where for these greenfield suburbs, you really have to be able to [00:27:00] hold and take it for 10 to 15 years to see the upside.

Pete: Yeah. So it's really like a 20-year hold, which is just, yeah, crazy.

Imti: Yeah. Better off just putting your money in ETFs.

Pete: 100%.

Imti: One thing I would encourage my clients to watch out for, and we watch out for them throughout the journey as well, is in a lot of these greenfield developments, there's already agreements in place with who the builder's going to be. And what that creates is a problem around finance, 'cause most lenders want to see the client have choice around the builder, and if the contract's worded that it's obligated to be built by XYZ Build Co., that contract's actually severely frowned upon, and someone's options get severely impacted. The other part of that as well for new property investors is that they'll get encouraged to sign a land contract that has kinda no confirmations as to when the build will start. So the plans might not be finalised yet, council approvals haven't gone through, and it's just [00:28:00] sign up to buy this piece of land and then we'll sort out the build later.

And that creates red flags as well, because some lenders also won't want to lend for land only just for investment purposes. So from a borrowing and financing and structuring perspective, what to watch for is actually the details in the contract.

Skye, is there anything that you would add in terms of what to watch out for?

Skye: in terms of not what to watch out for, probably what someone should do if they are considering it, is getting a property manager involved early, not just to give you feedback around rental demand and what renter profiles might look like in that particular location, but even down to that simple selections discussion. You're generally making those decisions from an owner perspective. Getting feedback and advice from what the renter perspective would be can make a huge amount of difference, 'cause we all know if you're gonna do it, do it before it's completed-

Imti: Mm-hmm

Skye: and so it's just around understanding where you're headed, the reverse [00:29:00] engineering thing, who's going to be living in that property?

You can make some educated guesses, but who better to know than a property manager who's doing it day in, day out.

Imti: And a property manager not attached with the sales agency.

Skye: Correct. Yes. Thank you for clarifying, not associated with the transaction at all. Independent

Imti: Another layer of that is rental guarantees, right?

Skye: Yes.

Imti: It's something that we see that's notorious in this space and used as a sales pitch. What would be your two sentences of advice to someone who is thinking of using a rental guarantee as a reason to buy a property?

Skye: The rental guarantee should be the red flag in itself, right?

because if there is strong enough demand, you shouldn't need to guarantee it.

Imti: The thing is, just to give the listener a really simple example, let's say a 12-month rental guarantee costs a builder or developer, what, 30 grand?

Skye: Yeah.

Imti: Give or take. That's what they've got at risk if it's vacant for the full 12 months.

Skye: Correct.

Imti: 30 grand. If they make $250,000, $300,000 margin on every single build, and they [00:30:00] only have to do that rental guarantee for two out of 10 builds-

Skye: Mm.

Imti: Of course you offer the rental guarantee, right?

Skye: Yeah. Well, if they couldn't convince a sales agent or a buyer's agent to sell the product for them, the rental guarantee will probably do the same thing and may be cheaper and less hassle. But I don't think there's any situation where a rental guarantee would be advised, right?

Pete: No, definitely not.

Skye: Mm. Stay away.

Imti: Yep. Let's bring it home on that. Pete, we've talked about a lot. How would you pressure test a brand-new build, and what would be your step-by-step process if you were to give someone, let's say, five things that they need to do to make sure that they don't get stung through this process?

Pete: So the first step would be around actually how to challenge the brochures that you get, the glossy brochures, and just ask yourself the question, do people actually want to live here?

And it's not do they wanna live here in 10 or 15 years' time, it's do they want to live here now, like today.

In these greenfield estates, it will be no, [00:31:00] because there's no amenities around there. That is number one. I don't think there's anything further than that. It's yes or no.

Imti: But it's also just really obvious in the adjacent suburbs, right?

Pete: Correct. Yeah, yeah.

Imti: 'Cause usually the suburb next to it's still quiet and has no amenities.

Pete: The same thing. Yeah. And if you're surrounded by 'em, then, no one wants to live there. As bad as that sounds, i- it's not a great place to live if you have to travel 15 minutes to get to the shops.

Imti: Here in Australia, in a capital city or a major regional town, it shouldn't take you that long.

Yeah What would be the second thing?

Pete: Established suburb data.

So if you can't find data for the last ... Look, it depends on the sources that you're using, but you can go on the ABS, get some data from there as well. If there's no data for the last 20, 30 years, then it's likely a new location, and it's kinda like if you're looking at shares, right, you're not gonna buy something without any proper historic data. You're not gonna make a big decision on anything. Everyone's gonna do some form of research- before they make a decision so how can you do that if there's no suburb data?

Imti: That's a great example, and unfortunately we see this all the time, right?

Pete: Mm.

Imti: They'll spend more time critiquing buying the next [00:32:00] iPhone- ... that has 20 years' worth of history and demonstrated results than looking at purchasing in a greenfield estate.

Pete: Mm.

Imti: and to your point, if you're looking at investing in shares or any other investment vehicle, you would wanna see that there was performance there for a decent amount of time before you put your money into this decision.

Pete: It's where people get stuck on these brochures, they think all housing is the same.

Imti: Mm.

Pete: So they'll see it and they'll say, "Well, there is data." Yeah. Because houses have grown by 6% every single year across Australia. Yeah, yeah. So it's making sure you're getting the right data set- before you're making a decision.

Imti: Mm-hmm.

Pete: And it has to be about that particular suburb.

Imti: Yeah. Because it's all well and good to say property goes up every seven to 10 years-

Pete: Yeah

Imti: ... but that's not every suburb across Australia.

Pete: No. A lot of them have gone backwards

Imti: So that's two out of the five things, Pete. What would be the third?

Pete: Is there excessive supply coming to the market?

So looking at from a residential point of view now, the development approvals.

So if there's a lot of those coming in, and [00:33:00] again, you might look around and there might not be a lot of houses there yet, but if we've got really, really high development approvals for residential properties, that is a big red flag.

Imti: Mm-hmm.

Pete: So I would be steering clear of those locations, which by nature is going to be these outer fringe suburbs.

Imti: If someone was listening to this and they wanted a free tool to look at these DA approvals, what would you say would be the best way for them to have a look at them?

Pete: Yeah. So you got RentPlan, Profile ID, and the ABS have the statistics as well.

All free ...

Imti: For someone listening to this, a quick screening exercise is actually just having two tabs open, right?

Pete: Yep.

Imti: Having the DA approvals on one tab, having the realestate.com map view open on another tab.

Pete: Correct.

Imti: Yeah.

And then you go, "Well, both of these look horrible. I'm not buying. Full stop."

Pete: Yeah. And when you're on realestate.com too, if you're in a specific suburb, what I find useful is to actually untick surrounding suburbs.

Imti: Mm. Yep.

Pete: Because it's actually quite scary, 'cause people will look at that and be like, "Oh, there's 200 rentals. That's everywhere."

Imti: Mm. Or

Pete: no, there's 400 rentals, but they'll just assume it's everywhere.

But if you actually untick that, it could very well [00:34:00] be 300 rentals in that suburb. Yeah. I've seen that quite a bit, so that's a little tip there.

Imti: Yeah.

Skye: Or I've seen the perhaps newer suburb next to the other suburb, and there might be two in that particular suburb- Yeah ... and then

300 in the one-

Pete: Correct. And that's-

Skye: ...

two streets over.

Pete: Yeah.

Imti: and I think that's where the map view again has power, right? Because you would jump in and you don't just filter it by the suburb. If you're looking at a three bed, two bath, one car garage house, you filter it by that, toggle it into the map view, and then you've got like for like, right?

Pete: Yeah. That's right

Imti: Cool. Let's say someone has followed these steps and they've gone, "You know what? This area checks out pretty well. I like it." What would be the fourth thing that you would tell them to do?

Pete: We'll be looking at the builder now, so just making sure they are reputable, making sure they've got examples as well, and that you feel comfortable with the process.

And it's kinda what you talked about before as well, making sure you can select the builder. just things like that and really QAing them because there are some really dodgy builders and if you look hard enough, you will find bad [00:35:00] and negative reviews online.

Imti: Yeah.

that's where places like Reddit and things like that are really, really powerful because they're anonymous forums, right?

Pete: Yeah.

Imti: What is notorious in our space is threats of legal action for poor reviews being left online publicly, and what anonymous forums like Reddit, for example, allow people to do is to actually give their true account of what happened and not fear getting sued, because I'm sure the both of you have seen it, is that when a business mysteriously gets a one-star review, oh, it's gone in two weeks time.

Yeah. Usually what happens, unfortunately, is the person who's left that one-star review has actually been sent a threatening letter to remove it.

Pete: Yep.

Imti: And it's a very common play in our space to preserve reputation.

Pete: Check your contracts. Contracts might actually dictate that you can't leave a negative review.

Imti: Mm, that's actually a good one.

Pete: Mm.

Imti: What about the fifth point?

Pete: This is an easy one in my mind. It's who's the future buyer or tenant going to be? If you think about it, when you're [00:36:00] buying into these new greenfield estates, who's the future buyer gonna be? I don't think there is going to be a future buyer after you've bought it.

Imti: Mm.

Pete: Because there's no reason for an investor to buy it now. They may as well just buy the one down the road brand new.

Imti: Yep.

Pete: And the owner occupier is not gonna buy it because they want the grants.

So hopefully that kind of crystallises that, but then when we're looking into, the more micro developments in the middle ring suburbs, who's gonna buy it?

Well, people who are earning good incomes, who wanna be close to the city, who want all the amenities, you've got an abundance in terms of who's actually gonna be a future buyer and renter. You'll never have an issue renting those properties out, and dare I say it, you'll never have an issue selling the properties either.

Imti: That's a really great way to summarise the five key things for someone to look at. But as we've touched on, there's also a whole bunch of other variables, right? So if someone was approaching this, what would actually be the best way for them to do it where they would minimise most of their risk?

Pete: It'd be getting the right people around you. Actually sourcing your own people as well, because [00:37:00] in these types of situations where, again, we're going back to the greenfield estates, all the people are given to you.

Imti: Mm.

Pete: So your first point of call could be the broker, but then the broker will introduce you to the project marketer, developer, whatever they're called.

They'll introduce you to the conveyancer, they'll introduce you to the accountant, to the property manager. That's the stuff you wanna really avoid. You actually wanna build your own team on your own, basically. So you wanna talk to a couple of brokers, talk to a couple of buyer's agents, property managers, conveyancers, and actually start to build out the team that you want.

Imti: 100%. The red flag that we always bring up when it comes down to referrals is if the professional that you're working with doesn't give you multiple options or refuses to work with someone that you want to bring into the picture, because the three of us work together very regularly. We do refer our business to each other, but we also give our clients the option of a secondary opinion or to bring their own expert into the field. That's the sweet spot of team building, right, you do want someone that you trust and someone that they trust. [00:38:00]

Skye: But you're not locked in.

Imti: 100%, but you're not locked in

And I think that's a really good place to put a pin in it and bring us home. Hopefully by listening to this, you've got more confidence going into buying a new build, or at least being able to do the initial screening of a new build and filter out a lot of the noise.

That's what we really wanted to empower you with. This may not help you identify the number one suburb to invest in, but it'll help you knock out the 80% that you definitely shouldn't. As much as these changes have created a whole bunch of headlines around new builds and tax advantages, the fundamentals are still the fundamentals. Nothing's really changed. It's just you now need to be more ruthless about the way that you approach things, and have a more open mind about micro developments and things like townhouses instead of the traditional three bed, one bath house.

Skye, Pete, as [00:39:00] always, thank you, and if you've made it this far, thank you for listening along, and we will catch up with you on the next episode.