S2E4 - The Top 20 Questions First-Time Investors Are Asking ChatGPT

[00:00:00]

Imti: All right, so we're gonna speed run the top 20 questions we've gotten from first time property investors. The challenge for all of us is going to be trying to keep our answers at 60 seconds or less. So let's jump right into it. Question one. I'll throw to you, Pete, should I buy an investment property now or wait?

Pete: The answer to that's always now, depending on what your financial circumstances are, but if you've been given the go ahead by the mortgage broker, then I definitely think buying now is the appropriate option to do because at the end of the day, most markets are increasing. So if you could buy something today for 700,000, it's probably gonna cost you 750, $800,000 by the end of the year. You'll probably be priced outta the market where you want to buy in, and you're just delaying that disappointment as well. 'cause you'll get to the end of the year wishing that you bought at the beginning of the year.

Imti: Mm-hmm. Think you hit the nail on the head.

Skye: Alright. Number two, Skye, is negative gearing worth it for me?

Depends on your individual circumstances, but that shouldn't be the only reason you buy a property. So generally, when I'm [00:01:00] speaking with landlords, the aim should always be capital growth and long-term hold.

Imti: Mm-hmm.

Skye: Negative gearing is a little bonus. It's not why we buy a property.

Imti: Mm-hmm. So invest to make money, not save tax.

Skye: Correct. Because also we want to make money, not lose money.

Imti: Yeah. That's the dream, right. Number three. Probably one for me. How much can I borrow for an investment property right now? Very broad question. Get it all the time, funnily enough. The answer is, it depends. But it doesn't just depend on your income and expenses, which is what a lot of people boil it down to. It can also depend on the property that you're buying. So the amount of rent that you're getting in, how the bank views that rent, 'cause they'll treat it differently depending on the type of property it is. And the more interesting part of that is the banks themselves. You've got first, second, and third tier lenders. You could have the same client and they could borrow $300,000 more across a different lender. The answer is, [00:02:00] it depends, but it doesn't only depend on your salary and your expenses.

Number four, Pete, can I use equity in my home to buy an investment property?

Pete: Well, it comes down to borrowing capacity, doesn't it? If you can borrow the money, if you've got the income levels to support it, you can. And I guess a general rule of thumb is normally the banks will lend you up to 80% of the property value.

Imti: Mm-hmm.

Pete: So I could run some quick calcs just really quickly, but let's say you've got a million dollar property, it's outright, you don't have any debt on it. Technically you could borrow up to 80% of the value, which is $800,000. So you could take that out. Buy a couple of investment properties, but it does come down to your income. So it depends on what the broker says, to be honest.

Imti: Mm-hmm. So can you? Yes, if you can service the debt. Should you? It depends. Have the conversation. Little bit of an extra pro tip there. Some lenders will let you go up to 90% now, which not a lot of people know, without having to pay LMI. So there's a little bit extra there.

[00:03:00] Number five. Interest only versus principal and interest, what's better for an investment loan? I'm gonna throw that one to Skye because I know that you would talk to your landlords about their cashflow.

Skye: Mm. I feel like we'd all have an opinion on this.

Imti: Looks like we got 60 seconds three ways, let's go.

Skye: Okay. I think principle and interest in the first instance, unless circumstances change and you temporarily switch to interest only in order to retain the asset and survive otherwise you won't pay down the debt.

Imti: Mm-hmm. So Skye, you're saying P and I, and then roll over to IO if you have to, Pete?

Skye: Yeah,

Pete: Probably the opposite. Start with IO. Try and have some good cash flow, but only if you're gonna save that portion that you would be paying towards the principal. So it depends on your money management, but if you're good with it, you'd put that extra money you're saving into your offset account and it will pretty much be almost net neutral, essentially.

Skye: Okay.

Pete: Yeah. By the end of it,

Skye: So same, same, but different strategy.

Pete: Yeah, that's right.

Skye: Yeah. Which is relying on someone to actually be good at managing their money, which, what percentage of people are [00:04:00] managing their money?

Imti: Look, some people are good, some people are not so good.

Skye: Yeah.

Imti: Having a team to hold you accountable helps with that. My answer to that is, it depends. IO is very good for retention and holding long-term and not stressing. P and I would be the go-to if you need to increase your equity position quicker. So if you're borrowing at 95% LVR, if you're using a parental guarantor, if you're going over 90%, you want to go P and I to drive those repayments down. So you build up that equity and then restructure to IO after. But between the three of us, the consensus is, it depends.

Skye: Speak to the expert. Yeah.

Imti: Yes. Have a conversation. Number six, Skye, I'm gonna throw this one to you as well. What are the real weekly slash monthly costs of owning an investment property?

Skye: I think it's more than just paying your property management fees. None of the costs occur weekly. They're unexpected, usually, as Pete can [00:05:00] attest to. So it's about, as much as you might have a savings buffer for say, rate rises. I always recommend having a repairs buffer. But if you are looking at a long-term buy hold strategy, you should also be budgeting for future capital work. It's not just about repairing the property, you need to actually be putting money back into it. So if you wanna spread that out across the term of the holding, is that not a weekly, monthly, annual cost?

Imti: Hmm. It's like putting money into a savings account, but it's a savings account for your property.

Skye: Correct. 'Cause otherwise, if people aren't reinvesting in the property, they want to go exit in 10 years and they've gotta come up with 20k 'cause they haven't spent a cent on the property in that time.

Imti: Mm-hmm. So if we were to put together, and Pete, I'm gonna put you on the spot for this one, if we put together a quickfire list of expenses that someone needs to think about when they're holding an investment property. We've got loan repayments, property management fees, insurance. What else would you add to that list?

Pete: Yeah, probably council [00:06:00] rates. Water rates. Land tax. Yeah. A lot of the council and government charges would probably be the extra component there.

Imti: Mm-hmm.

Pete: Yeah.

Imti: I know that it's thrown around as a rule, quote unquote. But do you think 1% of the property's value to budget for capital works is probably a safe estimate or do you think it's overcooking it?

Pete: Oh, I'd probably double it.

Imti: Okay.

Pete: Yeah, it depends on the type of property though, if you're buying an older property, then you should double it.

Skye: Mm-hmm.

Pete: You're buying a property built within the last 10 years, then two percent's probably a bit overkill.

Imti: Mm-hmm.

Pete: So it really comes down to the property type, but I personally do 2%.

Imti: Mm-hmm. Number seven, Skye. What rent will I realistically get and how do I check?

Skye: Hmm You check what's currently on the market right now. Look at it as a tenant, if I have $650 a week to spend, what are my options in this particular area, whether it's south, west, whatever. And how does that property compare to what is currently there? That is the only way.

Imti: Mm-hmm.

Skye: And I will always advise people not to aim for a ceiling [00:07:00] price of rent. Not to do it too cheap. We want that middle point because good tenants will not overpay rent. They no longer have to.

Imti: Bringing it back to, how do I check? If I was looking to understand how much my investment property would actually rent out for, what would I do?

Would I go to realestate.com, what steps would I take?

Skye: Yep. Any of the online portals, but keeping in mind that what you might see on an online portal, just because it's advertised, you, don't know how long it's been sitting there. It could have been sitting there for five or more weeks and they're just asking way too much money. So you really have to look closely at it, obviously speaking to a property manager, but there are some agents who will buy your business by telling you that you can get a thousand dollars a week and there's no hope of that ever happening. So use both to try and find that middle ground.

Imti: Mm-hmm. I'm gonna throw in a little bit of a bonus question as a yes no. Should you trust a rental appraisal from a sales agent who's selling a property?

Skye: I wouldn't wholeheartedly trust it. Do your own research. Buyer [00:08:00] beware.

Imti: Buyer beware. Very, very good point. Number eight, I think I'll take this one. How much of a deposit do I need for an investment property? General rule of thumb, I will tell a client the minimum that they need is 12% plus costs.So that's to account for 12% deposit, lender's mortgage insurance, and then potentially an extra 3% for stamp duty costs, et cetera. So 15% ballpark would be my starting point, and then I would also add three to six months as a buffer on top of that as well. If you're listening to this and going, why isn't it a 20% deposit? And why am I paying lender's mortgage insurance? The benefits, and again, this is a strategy that people are using with guidance from a team. It's not me saying go out and pay LMI recklessly, but at the moment, in the right market, paying lenders mortgage insurance will get you a better return than saving for a 20% deposit. Because by the time you save for [00:09:00] a 20% deposit, you're probably 12 to 24 months out of the market that you wanted to buy in. Pete, would you say that that's pretty spot on based on what you're saying?

Pete: Yeah, a hundred percent. Couldn't have said it better myself.

Imti: Cool. Number nine, Pete, what can I claim on tax for an investment property? Well, generally it's anything involved in maintaining and operating the property. So think about your repair bills, council rates, all that kind of stuff. I won't get into it in too much detail, speak to an accountant, but one rule of thumb that I do tell clients is, just be mindful of anything that you spend after purchase before it's actually been, I think it's advertised for rent, not necessarily rented, but advertised for rent. You can't claim an immediate deduction for that, so if you've gone and done carpet,

Skye: So don't settle on the property and renovate it at that point.

Pete: Well, expecting that you're gonna get that tax back immediately. You gotta claim it in another way, as a cost base later on. But yeah, so anything upfront before it's tenanted for the first time, you own it. You can't claim that as an immediate deduction.

Skye: Can I add a bonus to that?

Imti: Mm-hmm.

Skye: Yeah, you can [00:10:00] get very creative here though. If you are seeking to do this around the tenants. So you put the tenants in, it might look like a rent credit while the painting's getting done. It might look like a discount in some way to incentivise them to put up with that inconvenience and you get to claim it on tax.

Imti: But I'd put to you that most property managers wouldn't know that or be able to instruct you in doing that, right?

Skye: Correct.

Imti: So it'd be about having one that really understands the

Skye: understands investment

Imti: market.

Skye: Correct.

Imti: Because I didn't even know that. So that's news to me. On the tax thing, I'm gonna throw in a extra question. As a buyer's agent, from your experience, are your fees tax deductible? From what

Pete: I have been told, yes, but not until you sell the property.

Skye: Yeah. So it comes off of the CGT, right?

Pete: Yeah, the cost base. So basically the cost base is made up of everything prior, which if you did all those renovations before it was rented, that would get lumped in. But yeah, the buyer's agent fee generally gets lumped in with your stamp duty costs at the start, and you can claim it later on. So let's say, [00:11:00] stamp duty and buyer's agent fee is 50 grand. And you've made a 200 grand profit. When you sell it, basically the 50 grand comes off the 200. So you only pay tax on the 150.

Imti: Mm-hmm. So what I'm hearing is that getting a buyer's agent kind of makes sense. If you want that

Skye: basically free right?

Pete: Increase your tax deductions.

Imti: Yeah, basically free for all the people who approach everything and, oh, I'd saved money on tax and I didn't spend anything. Number 10, I'll throw it over to either of you. Do I need a depreciation schedule and is it worth paying for? I wonder about your scenario because like yes, you get the tax back, but doesn't that change your cost base when you sell?

Pete: It gets added back to the cost base. So

Skye: yeah,

Pete: it's a good way to manage cash flow

Skye: if you need it,

Pete: but you're gonna pay it back later on.

Skye: Yeah.

Imti: Mm-hmm.

Pete: So I think you should get it. It comes down to the property though. If you bought a recently built property, a hundred percent, some people are getting like eight, nine grand tax deductions from that. But again, you just gotta be mindful, you do have to pay it back later. But from my point of view, I'd much rather have that money now 'cause then I can reinvest that into another property or [00:12:00] whatever I might want to do, as long as you're doing the right thing with the money. Then it makes sense.

Skye: See, that's an interesting take on it.

Pete: Yeah.

Skye: That I wouldn't have thought. 'cause I've got one landlord who opted not to do it because to her she was like, that's a debt hanging over my head, I don't want that.

Imti: Mm-hmm.

Pete: Yeah.

Skye: But if you're then smart with it.

Pete: Yeah.

Imti: Well the longer that you hold, the less you worry about it being subtracted off the cost base.

Skye: True.

Imti: But when it comes down to the depreciation schedules, I would say getting them done is worth it. That doesn't mean that you need to claim the deduction.

Skye: Mm.

Imti: You can just speak to your accountant about whether it's best to claim the deduction, but at least you know both scenarios. So whether it's worth it or whether it's not, but at least you've got the schedule there. And Skye, I am not sure if you're seeing this often, but for newer properties that are selling that were investments, some pretty switched on investment buyers. They actually want the original depreciation schedule as well.

Skye: Mm-hmm. And I think if you are considering doing one, most companies won't actually do the report if the savings aren't [00:13:00] worth it.

Imti: Mm-hmm.

Skye: There is one large company who will do it anyway and take your money. I won't name who, but very large depreciation company.

Imti: If you wanna know DM Skye on Instagram she'll tell ya.

Skye: Don't go with them. But in terms of when you go to sell the property, it can be useful because they can then benefit off of those depreciations depending at what point. That's occurred.

Imti: Mm-hmm. And to your point, there is a few really good they're called quantity surveyors. The people who do depreciation schedules, there is some good ones out there that won't charge you if the deductions aren't worth more than their fees.

Skye: Correct.

Imti: Um, again,

Skye: that's the one you want

Imti: Not sponsored. If you guys wanna pay us to name drop you, feel free to hit us up. Mm-hmm. Number 11. Pete, the million dollar question you'll get every single day, where should I buy my investment property?

Pete: Oh, that's a, it's a tough one.

Skye: It's not a 60 second answer.

Imti: No, it's a very loaded 60 second question, but realistically, how often do the three of us have conversations where everyone's just like, you don't have a magic [00:14:00] answer for me straight away?

Pete: No, that's exactly right. I guess I could break it down how I would approach a client. I guess it comes down to, if they've already got a portfolio, what that looks like.

If you already own a property in Adelaide, it's probably more wise to buy,

Skye: diversify,

Pete: diversify, go interstate. That way you're balancing out your risks because not all markets grow at the same time. Comes down to cash flow as well. Yeah, it really comes down to the strategy. So ultimately what the portfolio looks like now, how big they want to grow the portfolio, and the cash flow component too. Throwing numbers around now, but in Adelaide you can't get a 5% yield for a house.

Imti: Mm-hmm.

Pete: But you can get that interstate

Imti: Yep.

Pete: Which is gonna help your cash flow and it will help you scale, a lot quicker as well.

So,

Skye: mm.

Pete: Yeah. It really comes down to individual strategies, but also people's biases as well do come into effect, which you have to go through and work through. But at the end of the day, comes down to the strategy

Imti: Skye. I feel like you're about to jump off your chair, is there something you wanna add.

Skye: Yeah, because we touched on it earlier and we've spoken about it many times. Like, you can go buy in the north and on paper it looks really attractive, right? But what you are getting is a bigger risk. There's an oversupply [00:15:00] factor. You're getting a perhaps not as ideal tenant compared to if you're in a blue chip suburb.

So the where is really the the smallest part of the component.

Imti: Mm-hmm.

Skye: As opposed to what the overall picture is.

Pete: Yeah.

Skye: Because for example, say the north, six months ago was looking quite good on paper. That's why all the eastern investors were coming here and buying there.

Pete: Yeah.

Imti: Mm-hmm.

Skye: But they don't understand.

Pete: Yeah.

Imti: Mm-hmm.

Pete: And that's why it comes down to strategy. But if that's what's gonna get people in, and this is what I say to clients, you know, we could go into Melbourne or Hobart for example, but if you're not gonna actually execute on the decision, then we're gonna buy something in Adelaide instead

Skye: To make it happen.

Pete: Because it's gotta happen. Like it's better to be in than not in, as long as you're in a solid market, like the north is still gonna grow.

Skye: I'm not saying the north is wrong.

Pete: Yeah, exactly. Just has headaches with it,

Skye: but, yes

Pete: longer tenancy,

Skye: understanding that.

Pete: Yeah, yeah, for sure. Yeah.

Imti: But that's the thing, right? The North also has a big locality bias where people in Adelaide, rightly or wrongly, they'll just be like, oh, I don't wanna buy in the north, whereas someone from Sydney would look at the demographic [00:16:00] factors around the north, the government spending, all of those things that are happening and treat it as a pure investment and go, yeah, of course I'd put my money there. And I think that that's where, where should I buy my first investment property really comes down to the strategy, but also the psychology behind it.

Skye: Mm-hmm.

Which you said Yeah.

Imti: It's emotional and logical. It's not just logical. The other thing that I would probably add to where should I buy my first investment property is if you are coming to one of us with a location, so you're on your property journey and you're like, oh, I've heard Gracemere in Queensland is really, really popular at the moment, you're probably six to 12 months behind the boat.

Skye: Mm.

Imti: I know from personal experience, working with Pete and doing mutual clients, you are getting in and out of areas 12 months before. There's different waves, there's different strategies, but in general, everything that you hear on, I guess social media

Skye: If you're hearing about a place.

Imti: You're hearing It's too late. It's too late. Yeah. But. Definitely comes down to strategy. So speak to your team, map out your strategy, and then your strategy [00:17:00] will tell you where you should buy.

Pete: Yeah. And your team should give you options as well.

Imti: Mm-hmm.

Pete: We give options. I know some teams don't.

They'll just be like, no, you've gotta buy here in this suburb and this street.

Skye: Mm. That's a good point.

Imti: Yeah.

Pete: You want options

Imti: because they don't tell you they also own the development company,

Pete: or they're just putting all their same clients into one area to

Imti: artificially raised the market.

Skye: Yeah.

Imti: Funny story there, bit of a side tangent, but I'll go on it anyway. Recently had a valuation report come back from a valuer in Shepton. And this wasn't one of our clients thankfully. But the comments on the valuation report from the valuer were essentially, the property had gone on to sale for 600 grand. Valuer came back and it was like I'm only valuing it at 550. Valuation shortfall, people's biggest nightmare. But the comments from the valuer were, high volume of interstate buyers inflating the market, and so I can't sign off on it being worth 600 grand.

Pete: Yep. Happening in other markets too. Far North Queensland. Horsham is another one that I heard about the other day.

Imti: Mm-hmm.

Pete: None of these our clients, but yeah. The valuation shortfalls are definitely there [00:18:00] now.

Imti: Mm-hmm. And again, it comes down to should I buy, is it correct with your strategy? Are you working with someone who's not just loading the one suburb in one area? Mm. Because we're seeing the actual consequences of that now.

Let's roll to 13. That's where we are. House versus apartment versus townhouse. What's best for a first investment? Throw to you, Pete, but I'm pretty sure we just covered it in the last question, right?

Skye: Mm.

Pete: Yeah. Comes down to strategy. Personal preference, house. But again, if they've got a 600k budget, they want a capital city, probably gonna be a unit or townhouse.

Imti: I was gonna say, I've made killings on townies. I'm a big townhouse fan.

Pete: Yeah. Yeah, you are.

Imti: Because for my own risk tolerance, I like a little bit more cash flow in a more central location. So a townhouse kind of ticks both of those boxes. I know I won't have the same growth as a house, but from a holding it and going to sleep at night perspective, I do love a townhouse. I think all of us would be in agreeance that an apartment would only be the choice 1% of the [00:19:00] time, and it'll be a very rare apartment that ticked that box though.

Skye: Absolutely.

Pete: The old red brick apartments, no elevators.

Imti: Mm-hmm.

Pete: They're the style that I, I like.

Skye: Multi-storey.

Pete: Yep, yep. Walking up the stairs,

Imti: no lifts.

Pete: Yep.

Imti: Yeah. Red brick walk up.

Skye: Mm-hmm. I just look at that and go, that would be an absolute nightmare to move into.

Imti: Good thing you're not moving into it then.

Skye: No.

Pete: It's an investment.

Imti: See, that's what,

Skye: but no, but from the tenant's perspective, oh.

Imti: But if you were buying it, and if you're a first time investor

Skye: mm-hmm.

Imti: If you went, oh, it'd be a nightmare to live there. You'd turn down such a good opportunity.

Skye: Yes, exactly.

Pete: They're often in the best location too.

Skye: Mm-hmm.

Pete: Always like centrally located.

Skye: Yeah. Because they need to be high density living.

Pete: Yeah.

Imti: Well it's 'cause they got built first, right?

Pete: Yeah, exactly.

Imti: Yeah. Like

Pete: took prime land,

Imti: they, yeah, they took prime land and they took prime locations. But with apartments, definitely tread carefully.

1. Skye. How do I know if I'm overpaying for a property?

Skye: Ooh. I actually don't believe in overpaying for a property.

Imti: Okay. Controversial take. Go on.

Skye: And I say that that my first investment I [00:20:00] believed I overpaid for, but you hold it long enough, it's irrelevant.

Imti: Mm-hmm.

Skye: The market forgives you

Imti: if you buy a ride.

Skye: What do you mean?

Imti: If you pick good property, good location, good bones.

Skye: I did none of those things. Yeah. No, no.

That's why we say I overpaid and I had to wait 13, 14 years for that to fix itself.

Imti: Mm-hmm.

Skye: Because I did all the things wrong. I was also 18, 19 years old. So yeah. But

Imti: 10, 10 years ago,

Skye: again, like I wasn't buying property.

Oh, cute. I saw that one. I wasn't buying property to sell it four years later.

Imti: No. It was always a long term thing, right? Yeah. What you're saying is philosophically you don't think that you can overpay if you're holding

Skye: no

Imti: for a long enough time.

Skye: I have seen more people miss out on hundreds of thousands of dollars over five grand.

I go, that's insane.

Imti: Mm-hmm.

Skye: It's just irrelevant over the scheme of the time that you're going to hold the property.

Imti: Mm-hmm.

Skye: Are you really ever overpaying?

Imti: So that's philosophically, which I [00:21:00] don't disagree with.

Skye: I wanna know Pete's take.

Imti: Pete as a buyer's agent, one of your key roles is to protect your clients from overpaying. Falling into traps like emotional bidding and fear-based tactics. Through that lens, how do you know if you're potentially overpaying? Or do you take a more structured and data led approach?

Pete: Yeah, more of a structured and data led approach. I mean, at the end of the day, we try to make sure our clients don't overpay and they're paying at least the fair value for the property. And the only way to do that is to check recent sales. So we normally pick three to four recent sales within 500 meters of the property. Then we formulate our price range from that. And it's from low, medium to high. Where, high, we're probably just over that slight overpaying mark. But that's normally 'cause we're buying in solid markets where they are moving and properties that sold three months ago. It's just about realising that you're probably gonna have to spend an extra 10, 15 grand to secure the property today.

Imti: Mm-hmm.

Pete: And now that will look like overpaying.

Skye: Yes.

Pete: But it's technically not. It just hasn't flowed through yet.

Skye: That's [00:22:00] what I'm gonna get.

Pete: And it's not reflective. Yeah.

Skye: He just explained it so much better, but yes.

Imti: So you're both still on the same page though?

Pete: Yes.

Imti: Actually it reminds me of a story for a mutual client that we had, Pete, where you actually made a friend at the auction.

'cause you got a pat on the back telling you that you overpaid for a property.

Pete: Yeah.

Imti: I think that whole scenario would be beneficial to quickly just give the listener a speed run as to the approach, the decision making process that you went through and how you landed on the numbers for that client.

Because this property went to auction. The listing guide was criminally low, huge crowd turned out, and you basically just went in there and seal the deal.

Pete: Yeah. Yeah. It was good. And I did get the pat on the back. That was quite funny. And he had a paddle too, so he was keen to bid.

Imti: Yeah.

Pete: Just didn't give him the chance. Uh, what's the word? Like, Short man syndrome. Is that, is that, is that what you say?

Skye: Yeah, that's a thing.

Pete: Yeah. That's a thing.

Skye: Yeah.

Pete: So yeah.

Imti: Yeah.

Pete: That's another story for another day, but

Skye: there's another way of describing it but we'll go with yours,

Pete: yeah, we'll go with mine. The guide was 780, [00:23:00] so mm-hmm. Anyone who has been around price guides for a while for auctions, knows that there's a reserve price, which is normally 10% above what the price guide is, which basically means they're not gonna sell for anything less.

Imti: Mm-hmm.

Pete: On the day, normally. So from 780 add the 10%, you're already at 850. So we'd looked at comparable sales in the area and there was nothing that was selling under a million, really, in that area. So we basically had a budget and we were working the numbers out right before the auction Imti. We were willing to go up to what, 975, 980

Imti: 980.

Pete: Yeah,

Imti: It was raining. We were huddled under a pergola with a laptop looking at numbers. It was a scene.

Pete: It was good. It was good. Obviously that kind of flowed into people seeing us looking at numbers.

Skye: The theatrics of it.

Pete: Yeah, the theatrics of it. 'cause we were all underneath the cardboard and it was about 20 odd people there. Would've been a lot more though.

Imti: Mm-hmm.

Pete: Had it been a nice sunny day, that low price guide would've attracted a crowd of at least 50.

Skye: Mm-hmm.

Pete: I would've thought. But we came out swinging. So the first bid was 850, so remember the guide was 780 and we came out at 850. So of [00:24:00] the 10 registered there, it only came down to, yeah, me and somebody else. And I could tell the other guy that was bidding was definitely overstretching

Imti: Mm-hmm.

Pete: Himself, because I think he came out with a couple of quick bids. But when we get towards the end, so we paid what, 935 for it. Probably at the 900 mark is where he really started to slow down. So that would've been his cap. And I guess to bring it all back, the way that we did that was looking at comparable sales, knowing that realistically, and even you ran a val on it too.

Imti: Yep.

Pete: In your internal systems, we could go up to 980 and be comfortable and know that we're not overpaying.

Imti: Yep.

Skye: Mm-hmm.

Pete: And since then, there's been nothing that's been comparable to that property.

Imti: There's been nothing under a mill.

Pete: Nothing under a mill. Yeah. So this is, for context Prospect in Adelaide, which is only what? Three kilometers from the city?

Skye: Mm-hmm.

Pete: And what I was telling the client, when these come up, you just gotta go for it because,

Skye: so it looks like you're overpaid.

Pete: Yes.

Skye: Because everyone else on wanted to pay in the eights, right?

Pete: Yeah. Yep. A lot of them would've been gunning for something.

Yeah, probably at the 850 mark. Yeah. 'cause yeah, 850, maybe just under nine

Skye: because they've added the 10% and gone, oh, that's in our budget. Happy days. [00:25:00] Which is what the agent was aiming for.

Pete: Yep.

Skye: But they probably hoped there was a few more of you at the above the 850. I feel like if they're listening to this, they're gonna be spewing.

'cause there was more money there.

Pete: Oh, definitely. If we went a private treaty sale,

Skye: yeah.

Pete: We would've paid more. Because we could see the value of what it was.

Skye: That's an interesting topic for another day.

Pete: Yeah, yeah. Auction versus private treaty.

Imti: Yeah, we'll keep that in the chamber. The only thing that I would add in terms of overpaying and how do I know I'm overpaying is coming from the side of the fence where I'm working with people with their budgets and their financial situation. You know you are overpaying when the monthly repayments make you feel sick.

Pete: Mm

Skye: mm

Imti: Subjectively, how much the property's worth doesn't matter. If you get a bargain property, but you can't go to sleep at night, you've overpaid. Number 15. Oh, this one could go to either of you. What should I check before making an offer on an investment property?

Let's do a round robin. Let's all just pick one thing.

Pete: I'll go first on this one.

Imti: Yep. Let's all pick one.

Pete: Uh, the contract.

Imti: Okay.

Pete: So contract and disclosure documents, depending on the state you're in, but that's what I would be checking for [00:26:00] and. I'd be giving it to a conveyancer. I won't even comment on everything else. A conveyancer should really look at that and identify the key risks within that contract so that you know all of that before you make an offer.

Imti: Mm-hmm. Cool. Contract.

Pete: What would you check, Imti?

Imti: What would I check? For me, naturally the finance guy is gonna say finance approval. But I would check how quickly you could get finance approved on that property because that can change based on what properties you're putting offers in on. An example of that would be if a property can get a desktop valuation versus an in-person valuation done. We had a client in Tasmania two weeks ago. The in-person valuation took eight days 'cause it was in Launceston and there's only apparently two valuers who work down there.

That property, because it was eight days to do a valuation, we needed a 14 or 21 day finance clause. If the property can be just marked off by a desktop valve, which is a valuation done on a computer, almost instantaneously, your finance timeline shrinks. So what should you check before [00:27:00] making an offer on investment property?

See how quickly your broker can get finance approved. 'cause it could be the difference between you being successful and you being unsuccessful.

Skye: Hmm. Interesting. Change your strategy if you know that, right?

Imti: Mm-hmm.

Skye: I was gonna say. Check the building, but I think I've said before, building inspectors are not regulated, so you need to actually check your building inspector before you get one. Not just because Tom down the road said that he used this guy, and that's great. Actually find out from experts

Imti: or the sales agent has gone use this guy. He's great,

Skye: but I kinda feel like there's two, like you need to look at how are the rentals performing in the area?

Imti: Mm-hmm.

Skye: How many are on the market?

Imti: Ooh, that's a good one.

Pete: The real estate map view is the best for that.

Skye: Yeah.

Imti: Yeah.

Skye: If there's 30 plus properties on the market, you're not getting the return you think you are.

Imti: Pete, what's the map view?

Pete: So when you're on realestate.com type in the suburb, and instead of seeing it as a list, you can click the map function.

Imti: Mm-hmm.

Pete: And all the red dots appear. So if you see a hundred red dots within one or two suburbs, then you know you're gonna have quite a long vacancy. And you're probably not gonna be [00:28:00] able to really increase rates.

Skye: You won't get that top rate

Pete: over time. Yeah,

Skye: because there's choice.

Pete: But again, they're normally newer pockets. That might suit somebody. An investor might prefer that because it's a newer property, lower risk, lower maintenance, they're happy to have lower rental returns, longer vacancy periods. That's the trade off.

Skye: As long as they understand.

Pete: Correct. Yeah.

Skye: It's a lower rental return because of that.

Imti: Mm-hmm.

Skye: I find a lot of people don't get that.

Pete: Yep.

Imti: Yeah. They'll think that the market rain will be 600 to 650 but, 650' s in a suburb where there's two vacant properties.

Pete: Mm.

Skye: Correct.

Imti: And 600 is there's 40 vacant properties.

Skye: Yes. Check your exact suburb. What is available.

Imti: Mm-hmm. Awesome. I love the map for you. 16. What are the biggest red flags in a strata report?

Skye: I got this one.

Imti: Go

Pete: for it.

Imti: Go. You're about to fall off your chair.

Skye: No one reads them! Just read it, please.

Imti: If they do, they don't read them well.

Skye: Oh, they don't. I was only speaking to someone a couple weeks ago that she was really mad at the sales agent because the sales agent didn't tell her about some upcoming repairs. I'm like, that's not the sales agent's job.

Imti: Yeah. Spoiler alert. Sales agent is not gonna [00:29:00] tell you about upcoming repairs.

Skye: It's also not their job. That's yours, babe. As the buyer. But that's pretty much what you're looking for, right? Is you're looking for what planned expenditures are coming up for the group. If you are buying within a strata and, behaviors, is there endless meeting conversations around neighbour in unit 10 is a jerk, what's happening in that group? You need to just read the minutes.

Imti: Mm-hmm. If you're moving in, does your dog need to be approved when they're getting voted in?

Skye: And how much is it going to cost you

Imti: and how much is it going to cost?

Skye: Because, uh,

Imti: because someone's been through this recently.

Skye: What did that cost? I think it cost me similar, but 370?

Imti: Yeah moved into a new place recently.

Skye: 300 plus

Imti: Humphrey, my beautiful groodle needed to go to some sort of tribal council to get approved.

Skye: Mm-hmm.

Imti: And it cost me $375. Basically an application fee to get

Skye: to get the pet approved.

Imti: To get him assessed

Skye: and the extent of the works by the strata company is to send an email to the owners.

Imti: Yeah. Yeah. One email,

Skye: it's daylight robbery.

Imti: Mm-hmm.

Skye: It is actually ludicrous.

Imti: So you're saying biggest red flags is [00:30:00] actually just, reading them, understanding them.

Skye: Yeah.

Imti: Pete, have you got an example of a red flag that you've caught in a strata report?

Pete: Yeah, when there's not enough information in there. like I, I like a nice meaty strata report, so I like to see a lot of information on the minutes. Not only does it break down the minutes from the past two meetings, it has all the financials as well. So making sure the financials stack up.

Skye: That should be standard, right?

Pete: Yeah. Yeah. It's in there. But sometimes people don't check that, oh, actually there's no money in the sinking fund, or,

Skye: which is like 80% of strata groups, right?

Pete: Yeah, exactly.

Skye: There's no money.

Pete: Exactly. Yeah. But just checking stuff like that. But at the end of the day, that's the conveyancer's responsibility. Now, a good conveyancer will actually look through it and make sure you understand that.

Skye: Hmm.

Pete: A standard conveyancer though, will not do that. They'll just say,

Skye: unless you ask them, right?

Pete: Unless you ask.

Skye: You've gotta be asking that question.

Pete: And probably pay a fee for it too. But a good conveyancer. We've got a good conveyancer that we refer to, here in Adelaide and other states. They will actually have a look and provide the advice. But yeah, for me, if it's quite short, so there's not a lot of info in the minutes, that means they're often hiding stuff because obviously [00:31:00] if they're putting it on record, one of 'em goes to sell the

unit. Might attract a lower price if there's a lot of maintenance. So,

Skye: mm-hmm.

Pete: I like to see a nice thick report, just to see what's going on and then you can make the assessment from there.

Imti: A hundred percent. Yeah, and I think it comes down to your comment, Pete, around not all conveyancers are created equal, right?

Pete: Mm-hmm. Yeah.

Imti: Yeah. I've got a classic example that's sitting top of mind for a client of mine who was looking at buying their first home actually, and in the strata report. It was like 200 pages. It was a big chunky boy. It was an apartment building. The fireproofing was noncompliant.

Pete: I've seen that too. Yeah.

Skye: Endlessly

Imti: Non-compliant fire cladding. And thankfully the building owner had sued the builders. And they'd actually gotten a judgment in their favour to have those works repaired. And they already had quotes. They had money in the sinking fund. They had everything ready to go to actually repair this non-compliant cladding, but the conveyancer didn't actually flag it at [00:32:00] all as a point with the client. The only reason why it got flagged is we identified it when we went to get finance approval with the lender, and the lender turned around and was like, oh,

Skye: what's this?

Imti: It's noncompliant cladding. We're not approving loan

Pete: lender read it.

Skye: Mm-hmm.

Imti: Yeah, the lender

Skye: impressive,

Imti: right?

Skye: Mm-hmm.

Imti: And this was a non LMI loan, 30% deposit, slam dunk. Easy situation. The lender turned around and went, yeah, it's got noncompliant cladding. We're not lending on it. And it took me going through the strata report, finding out the judgment details, the amount and the sinking fund, and putting together a case study to the lender to go, Hey guys, I understand there's noncompliant cladding, but they've also got one and a half million dollars in the bank to replace it, and it's gone out to tender and they've got three quotes. It's done. And only then did the lender turn around on a credit exception and go, okay, yeah, we'll approve it. But case in point, and the moral of that story is if you are looking at a property that is strata, make sure that you've got a [00:33:00] conveyancer who, if you ask them what are the red flags in the strata report, they can tell you stuff like that. Because different scenario that client goes directly to bank. They get their finance declined, they miss out on the property that they'd been spending seven months looking for, and they go back to square one.

Skye: Or they buy it and those other steps hadn't been done and then suddenly they're out of pocket

Imti: and then the building burns down

Skye: to pay for the new cladding.

Yeah.

Imti: Yeah. Special levy.

Pete: Hmm.

Skye: Special levies. I just paid one.

Imti: Yeah. For anyone playing.

Skye: I knew it was coming though. 'cause I read my minutes

Imti: for anyone playing along at home. Special levy is when your strata goes, we need more money.

Skye: We need more money.

Imti: So we're upping your strata repayments.

Skye: You've gotta pay it and you've got no choice.

Imti: Mm. Yeah. So key thing to look out for. Let's speed run the last few. So, 17. Should I get landlord insurance? And what does it actually cover? Pete, oh, I'm gonna put you on the spot with this one.

Skye: That was my question.

Pete: Yes, definitely need it. And Skye. Jump in if you need to, but it will cover anything that from a landlord point of view. Loss of rent.

Skye: Can we just clarify? It's not actually, it's called landlord's insurance, but it's [00:34:00] tenancy insurance. So a lot of people will go, oh, I've got landlord's insurance because their building insurance is called landlord's insurance.

Imti: Mm-hmm.

Skye: That's not the same thing. Landlord's insurance covers what can go wrong in the tenancy.

Pete: Yeah.

Imti: Yep.

Skye: 'cause your bond won't cover you.

Pete: Yeah. It's an add-on on top of

Skye: please know the difference.

Pete: Yeah.

Skye: And it's a tiny cost.

Imti: Mm-hmm. What does that cost save you?

Skye: Thousands and thousands of dollars because you can have a great tenant, but circumstances change that you just don't see coming.

Imti: Rental arrears, malicious damage

Skye: depends on the policy.

Imti: Yeah.

Skye: Pet damage, it can even be tenant accidental damage. It covers rent for a portion if there is damage to the property. So your building will cover the building.

Imti: Mm-hmm.

Skye: But what about the income that you can't get because the damage is too great.

Imti: Yeah.

Skye: All sorts of things.

Imti: Definitely think they're two halves of a whole.

Skye: Yes.

Imti: And don't assume that just your building insurance will cover you for stuff like that. You need to have building and landlord.

Pete: Yeah. You often have to tick the box as well. All the insurances I've [00:35:00] noticed that I get, I have to tick the box at the end that says add on the loss of rent and all that kind of stuff too.

It's not always just built in when you click landlord insurance.

Skye: Correct. Just because the name of

Pete: That's

Skye: right.

the product is called landlord insurance, doesn't mean you're covered for any of that.

Imti: Long story short, get it

Skye: very passionate about this one.

Imti: Don't be a tightass about it. 18. Skye. How do I choose a good property manager?

Mm.

Skye: Ask all of the questions. A lot of people don't understand how it works and so they just choose the easiest option.

Imti: The

Skye: cheapest. Yeah.

Pete: Yeah,

Imti: yeah. You can say that.

Skye: I was being polite.

Imti: No, no, no.

Pete: Just say it.

Imti: They shop with their wallet 'cause they don't understand the difference.

Skye: Yeah. 'cause they think we all do the same thing.

Imti: Uh-huh

Skye: and it is so far removed from the truth. Every takeover I do from other agencies, there's proof of that. I think you need to understand the process in order to ask the right questions in order to ensure visibility, transparency is coming across. Referrals. Speak to the experts in the industry. Find out who is doing a good job consistently. Look at Google reviews.

Imti: Mm-hmm.

Skye: My goodness. The amount of properties [00:36:00] I've taken on from another agent and I look at their Google reviews, I'm like, I'm just not surprised.

Imti: And Google reviews are easy 'cause people love to hate on a real estate agent or a property manager.

Yeah. So you can see straight away if there's a red flag or not.

Skye: I mean, you will see negative reviews against property managers because the property manager took the tenants bond. You'll see that. But if you can look at it objectively, if you are consistently seeing positive reviews from landlords, chances are they're doing a good job.

Imti: Mm-hmm. Pete, what's a red flag that you would look out for that would put you off using a property manager?

Pete: Red flag. Too cheap. If they're offering 5% or something like that.

Skye: Yeah. It's the same thing as a good tenant, right? Yeah. A good property manager's not doing it too cheap.

Pete: No, they,

Skye: it's a hard job.

Pete: Yeah, it is. Yeah. And often if they're doing it cheap, it means the number of managements they have per property manager. Yeah.

Skye: Volume, often the issue. Yeah. If my standard, for example is eight and they're doing it at five, they need to manage double the number of properties.

Pete: Yeah.

Imti: That's how do you make money Right. Yeah.

Skye: And most agencies don't actually know what it costs them to keep their doors open. So they're just like, oh yeah, we'll do it for [00:37:00] 5% 'cause we played footy together as kids.

Pete: Yeah,

Skye: that's fine. They don't actually understand the mathematics of it, that there is a cost point just to be open.

Imti: So Skye, yours is do your research. Go through Google reviews. Pete, your red flag is too cheap. Yep. Mine is. They don't pick up the phone or get back to you within 24 hours.

Skye: Mm. Pretend to be a tenant.

Imti: Accessibility. Ooh. Yeah.

Skye: Pretend to be a tenant. Call them and see how that plays out for you.

Imti: Mm-hmm. 19. Skye. What happens if my property is vacant? How much of a buffer do I need?

Skye: Depends on the property manager that you choose. I would realistically advise my clients to prepare for two weeks of vacancy a year.

Imti: Mm-hmm.

Skye: It's hardly ever going to be that, but if you are prepared for that, it's very rarely more than that with the right agent.

Imti: Okay, cool. Prepare to be vacant for two weeks

Skye: max.

Imti: Pete, I know we had a situation recently where clients had to prepare for a longer vacancy period straight off the bat. How did you go about advising them with having the right buffer? And probably more [00:38:00] importantly, helping them understand that it's actually normal.

Pete: Yeah, so we settled

Imti: end of November?

Pete: End of November. Yeah. Early December. We knew it was gonna be a bit of a painful time period to get a tenant in.

Imti: Mm.

Pete: So we pretty much prepped him for about six week vacancy. They were quite stressed about that, but then when we broke down the numbers. It's not so bad because got a good price on the property, so shouldn't really matter. But yeah, it's really just prepping them and even other clients as well. If it's not tenanted and it's not going to be advertised until you've settled, you gotta factor in at least four weeks minimum.

Imti: Mm-hmm.

Pete: And then it comes down to the property manager too, in terms of when do they actually send out the notices for rent renewal. And then how do they go about advertising if that current tenant is leaving? 'cause ideally you'd wanna start advertising at least four weeks.

Skye: Three.

Pete: Yeah. Three weeks before they are moving out. And then Skye's rule of thumb of two weeks does make sense.

Imti: Mm-hmm. And I think that it all really boils down to our general rule of thumb around cash buffers. Yeah. That if you have three to six months worth of expenses in the bank,

Skye: doesn't matter.

Imti: You're pretty golden around [00:39:00] everything. You don't need to stress about any of this stuff.

Skye: I would say 80% of landlords stress about vacancy though.

Imti: Yeah.

Skye: Hence why it's one of the biggest priorities in what I do is minimising that wherever possible.

Imti: What's that go to sleep factor, right? Can you sleep on it? If you can't, your strategy is probably a bit outta whack.

Skye: Yep.

Pete: One more thing quickly. People get wrapped up on getting the highest rent.

Imti: Mm.

Pete: So they'll want

Skye: Yes.

Pete: 20, 30 bucks. He's got a rental appraisal.

Skye: What was that one that was empty for nearly a year or something.

Pete: Yeah, yeah, that's right. Yeah, I saw one online. Yeah, it was close to eight, nine months. Same rental.

Skye: It doesn't make any sense.

Pete: They never dropped the rental, so obviously those landlords were being quite difficult, but just drop it by 20 bucks a week, then you'll get it rented and you'll see that money back. To me a vacancy period should be the last thing you care about because if you've bought, well, you've got a good property manager.

Skye: Mm-hmm.

Pete: Whether it's vacant for one week or four weeks, shouldn't matter. You got your cash flow buffers in. Just drop the rent by 20 bucks and you'll be fine.

Skye: Which is why I say the amount of rent you receive should be the last thing you care about because 620 or 630 doesn't [00:40:00] really make much difference at the end of the day. But it can be one to two weeks vacancy.

Pete: Yeah.

Skye: Because you've got the price wrong.

Imti: Yeah. And right now the tenant demand for properties, $10, $20 a week difference. They can choose. They've got choice. And if you're at the top end of that and another property is the exact same, they're not clicking on your listing. And that's where it stops.

Pete: Yeah.

Imti: Right. They won't even apply because they're just like, oh, I'll just go for the other 15.

Pete: Exactly.

Imti: That are $20 a week cheaper.

Pete: Yeah,

Skye: a hundred percent.

Imti: Alright. Number 20, who do I need on my property investment team? My answer would be, and funnily enough, 'cause I didn't use one when I first started, but it's one of the first conversations I have with most of my clients is a really good buyer's agent.

And I'm gonna put the emphasis on really good. So someone well vetted doesn't just buy in the one area, doesn't try and just flog you off new stock or anything like that, but someone who does the research, takes the time to understand your strategy and has a custom approach to you. I think I did well. It took a lot of time, a lot of effort.

I made hundreds of thousands of dollars worth of mistakes [00:41:00] and it could have all been avoided if I just made that one decision. So yeah, mine would be a good BA. Pete.

Pete: Yeah, mine would be a property manager. I've had well over 10 now. Some are great, some are not so great. The ones that are great just make a world of difference in terms of that sleep at night factor. Minimal vacancies, repairs are done regularly, when needed. Good condition reports every quarter. And regular updates too. So I know exactly what's going on at the property.

Skye: You're not thinking about it 'cause they're coming to you.

Pete: Exactly. I'm not sitting there wondering, oh, wonder what's happening with that property. 'cause when I get to that point, eventually a big bill will come and I'll be like, well, why didn't we get on top of that? Then the tenant moves out 'cause they're pissed off and all that kind of stuff. So just more headaches. But yeah, a really high quality property manager would be number one for me.

Cool. And Skye?

Skye: The right broker. I've used brokers. I've used banks, and even thinking that I had the right broker, that decision was made on intuition, not research, didn't work out well, and I think the right broker can understand where you wanna go and actually provide [00:42:00] the right product to get you there.

Imti: Only ones that I would quickly add because we're definitely pressed for time and we've definitely gone longer than our 60 seconds per question. An accountant, get one who understands investment properties, ideally someone who invests in property themselves so they understand that not everything is about claiming a tax deduction.

Financial planner, if it suits your profile. Same thing.

Skye: Conveyancer.

Imti: Yep. Conveyance. Insurance broker, so general insurance, 'cause you're gonna need good insurance, good landlord insurance like we touched on, and a life slash income protection insurance broker, which is something that a lot of people don't think about, but it's kind of a mandatory part of our process to make a complimentary introduction to someone because as much as you don't want anything to go wrong when it does go wrong, you wanna make sure the wheels on the bus don't fall out.

But is there anyone that I've missed that either of you would add?

Pete: No, I think you covered 'em all.

Skye: Mm.

Imti: Cool. That'll bring us to a close. If you are listening for the first time, thank you for making it to the end. If your a return, welcome back. And guys, [00:43:00] as always, it's a pleasure catching up.