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Chapter 1: What are the myths surrounding Australian property prices?
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Welcome to the Australian Finance Podcast, a podcast for people who want to learn more about their personal finances and get the most from their money. This series is hosted by Kate Campbell from HowToMoney and Owen Raskovich from Rask Finance.
The Australian Finance Podcast is provided for educational purposes only. The information is general in nature and does not take into account your needs, goals or objectives. What that means is the information does not apply to you specifically. So consider getting the advice of a licensed and trusted professional before acting on the information.
Kate, welcome to the eighth episode of the Australian Finance Podcast. Hi, Owen. What are we talking about today?
Well, today we're going to dive into this topic of property investing, owning for lifestyle reasons and real estate investment trusts, which are another way to gain exposure to the Australian and global property and infrastructure market.
Cool. So everyone should be familiar with property. The great Australian dream. That's it. It is. And we've talked about this in passing a little bit. And just off air a moment ago, we were saying that this may be a slightly longer episode, but we expect to be relevant to everyone.
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Chapter 2: How can you save for a house deposit effectively?
They're buying a family home. They're buying their first apartment just so they have somewhere to live or they're buying it as an investment and they're planning on renting it out to someone else.
Okay.
That's the thing, right? You can use it in almost any different way, shape or form. There's no right or wrong answer necessarily, I guess. It depends on what you want from it. One of the things that we've become used to in Australia is, I would say, pretty good performance from property as an investment, but also from a homeowner's perspective.
You talk to most baby boomers or people approaching or in retirement and property has become probably their biggest asset. And I think... There are a few reasons which we'll touch on in a minute, but that can potentially lead people astray in terms of what their, I suppose, their preconceptions are before they approach property, whether they're buyers, whether they're investors, et cetera.
So I think it's important that we discuss that. Yeah, I think, you know, from a lifestyle perspective, obviously, we all have to live somewhere. Yeah. And in some respects, that can be dictated by property prices. So, you hear the arguments that, you know, negative gear is ruining the property market for first-time buyers or baby boomers did this, two millennials did that.
And it's just, there's a bit of tit for tat.
Yeah.
as we'll probably talk about, may not necessarily be as black and white.
And there's a lot of suburbs now that young people are just completely outpriced of, so having to move further and further out.
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Chapter 3: What are the risks of buying property off the plan?
But if you just bought the same, you spent that deposit and bought the same amount in shares, well, no one would care.
That's right. No one would notice. You wouldn't write about it on Facebook.
Yeah, you're not going to go, I just bought $80,000 of an index fund. But everyone's really on your side when you buy property. So it can seem like that is the best way to go just because society sort of dictates that's a great thing to do.
Yeah, and we talked about this off-air that often because property has performed so well for people who perhaps aren't necessarily financially literate, so what I mean is they don't necessarily understand how shares work. They don't understand how any of the other types of investments work.
yet property has done so well for them, the first thing they tell their kids is go and buy a property because that works. You know, sample size of one, it's worked for me, so therefore you should go and do it. And yes, it has worked, but there are reasons why that may not necessarily be the most appropriate thing for them to do.
And I think a lot of people really like property because it's something – it's easier to understand and you can actually touch it. You can stand on that piece of ground, land, and you can touch the house and it's there. Whereas some of the other types of investing, you're never going to be able to touch your share.
Well, that's it. Unless you truly – I'd say the one argument against that is that if you have shares in a company, some people perceive them to be like ideas and things on a computer screen. But if you think about like I own shares in Apple, for example, and I can touch my Mac, I can touch my iPhone. You can't say this is a terrible podcast, but I'm touching these things right now.
And the company that I own shares in builds part of this. But anyway, I digress. That's just another thing for another time. But you're right. If you don't understand how those things work, then you can go up and you can take your hammer and you can put on your weatherboard on your shack that you just bought and you can make improvements. You can see it. You can smell it.
If it's depending on the place, you can smell it. The house comes alive for you. So it's not necessarily all investing and it's not necessarily all about money and it's not necessarily all about lifestyle. It's like the combination. So tell me, Kate, if you are buying a house – Where would you put money if you're trying to save?
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Chapter 4: How does emotional attachment influence property buying decisions?
And his in-laws said, you should put your money in Bitcoin so that you can save your deposit faster. And this was like 2017, right? This is when Bitcoin was like $20,000. And it's now who knows what, but it's a lot less. $3,000? Yeah, so crazy, right?
And you think about that and the reason why we say put it in a savings account or return deposit and not put it in shares, put it in an ETF is because of this thing, volatility. And you don't want to be risking the money that you have put aside for your lifestyle, which is saving for the house. You don't want to put that in something that could just get sliced in half.
And the reality is that even though shares and all these other things do well over a very long period of time, If you were to zoom in to what it looks like on a day-to-day, month-to-month or year-to-year basis, the share market is actually incredibly risky.
So even though we say this is part ownership of Apple if we touch our Apple iPhone or whatever, Apple shares could be 5% higher today than they were yesterday. They could be 10% lower. That's just the share market. So you don't want to be putting your $5,000 or $10,000 that you saved in that, right?
Yeah.
And the other thing, the other story I wanted to bring up is we touched on LMI, which is Lenders Mortgage Insurance, in one of the episodes. Was that the debt?
Yeah, I think so.
Debt episode, yeah. And we talked about it and I said it's one of the riskiest things you don't have to pay. And I had a friend of mine who's pretty knowledgeable about property and they said, LMI is all right because you can get in the market sooner because if the market's getting away from you, the property market, you think prices are getting away from me.
Prices in the suburb that I want to buy in are going up 10% but my savings accounts are only getting 2%. I'm never going to get in. They say, well, maybe you can use LMI to get in the market sooner and then you can capture some of that growth. That's true. We often get FOMO, the fear of missing out.
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Chapter 5: What factors should you consider when investing in property?
That's right. A lot of time. And it's a lot of money you're putting on the line. So you want to make sure you're really financially prepared for this.
For sure. And it's a good habit to get into, saving money, right? That's what you've got to do. So we are, I just coined this, but a solutions podcast, not a problems podcast. We don't just identify all the problems with the world. We actually give you some solutions.
Yeah.
So if you are saving for a house, what are maybe some of the things that you might consider to get that deposit quicker? Yeah.
Yeah, so some people do choose to get a second job or make some extra income on the side and put that money solely. Yeah, side hustle, take up some extra shifts if they're working a shift job and put that money solely into their house deposit account.
And a lot of people do have a separate bank account just for that house deposit so they can really see the value going up and keep track of it that way.
Yeah.
Yeah, that's a really good one, I think. Side hustle. I've said before that I'd love to get a job at Bunnings on a Saturday and work, but I have no skills in any sort of trade. So, like, it wouldn't work.
I think they hire high school students. You're probably right.
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Chapter 6: How can you enter the property market with minimal funds?
And this is something I'm sure we'll lecture on a few times throughout the series is that There's a reason that we go to school at the beginning of our lives is because that's when we want to learn the most because then our knowledge compounds over time and we can then become more employable and we can become smarter as time goes on.
I mean, in today's workforce, it's lifelong learning. You've always got to be upskilling and improving yourself nowadays.
That's right. And if you can do little things now to get ahead and get a promotion, you'll probably find that savings come to you a lot sooner, a lot quicker. So the other thing is, before we run this section off, is just sometimes you don't have to buy a property straight away. People in your life, a lot of times people have said to me, have you bought a house? Have you bought a house?
I think I was, and this is going to show my age, so I apologize for everyone. I think I was around about 24, I'm going to say, and I had maybe $80,000 saved up, maybe.
So you're all ready to buy that house.
I could have bought a house, right? I remember, I was telling someone the other day, I could have used that money and I could have gone and bought, in the middle of nowhere, because this is the type of person I am, in the middle of nowhere, I could have gone and bought like 150 acres of bushland.
With a rabbit hutch.
With a rabbit hutch, yeah. Maybe, they'd probably just be wild rabbits living in the ground, but...
the idea that that was how I would spend my money and people were like no no no you'd use that and buy a house buy a house in the suburb and all the rest of it and I was like nah you know what at the end of time I didn't go ahead with any of that and I ended up just keeping my money invested in shares and
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Chapter 7: What are the roles of real estate agents and mortgage brokers?
Maybe, yeah. I think our minds, our monkey brains are also susceptible to different biases. And one of the ones that we have is recency bias. Recency bias is the idea that because it's happened recently that it's going to happen again and that's the commonly accepted truth. Since the 1990s, in the early 1990s, Australian property prices have gone through the roof. Literally, it's been crazy.
It's the longest time on record that anywhere in the world that a country has gone without a recession. And so if you think about that, you'd probably say that we're the exception, not the rule. Yeah.
And unless we have some sort of, like Australia's pretty awesome, let's be honest, but unless we have some sort of, I don't know, some magic wand that's been waved over us that says that we're going to go on forever and prices are going to keep going the way they are, you know, there's a very good chance that it's not going to happen.
And the simple laws of mathematics would tell us that every seven years, if probably doubled every seven years, we would be well out of the market. We would have been out of the market many years ago. No one would be buying houses because it's just not possible because all the other things that we do with our money can't sustain that.
We often talk about things like a time recession, which is effectively, instead of prices falling, because in Australia we have a good amount of population growth, instead of prices falling, house prices might just stay flat for a while. Mm-hmm. And it could be five years. That's right. It doesn't have to be forever. It could be five years. It could be three years.
So this belief, and this comes back to that mindset again, is that property doubles every seven years is probably not the right one to carry with you through life. There are a few studies done in the US, and one of them was by Professor Robert Schiller, who did a study going back over 100 years.
And he did it not just in the US, worldwide, and found that, in actual fact, property prices barely grow above inflation. So that's that cost of living. Yeah. And the only reason necessarily why they probably would is supply-demand imbalance and it's a structural supply-demand imbalance.
We have that in Australia, so you could maybe expect house prices to go a little bit more than that, but definitely not to double every seven years.
And there's many areas in Australia where when people have bought properties where there was mining boons and things, they've dramatically gone backwards.
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Chapter 8: What are the benefits of Real Estate Investment Trusts (REITs)?
Okay. We got through that one. Kate, what are the three typical options someone would have if they're buying a house or a home, I should say?
Yeah, so sort of in options you've got apartments, houses and units. And they're quite different in themselves because when you have a house, you've usually got a piece of land as well. When you're buying an apartment, you're sort of fractional owner of a bit of the land, but it's really the body corporate. What's a body corporate? So, sometimes they can be a bit of a pain.
I've had a few horror stories from colleagues, but if you're in an apartment block with a thousand apartments, then someone has to make decisions on when renovations are made, when painting's done. And usually each apartment owner will pay a set fee, whether that be $1,000, $10,000 to the body corporate each year to pay for those common costs.
And new apartments with pools and everything, the body corporate fee has to pay for those, the pools, the cleaning, everything like that. And then sometimes it can be run by an external company who take a fee for collecting the cash and administering the body corporate. Or it might be run by the, if it's sometimes a smaller apartment block, the tenants. So they'll have a body corporate.
Okay.
I think we should just say that outside of Victoria, these are often called strata. Okay. Strata titles and strata apartments and all the rest of it. So in Victoria, we call it a body cop. I have experience with these types of organizations and they're not – Pretty, for example, our apartment got broken into a few weeks ago and we don't have cameras where this was broken into.
This is a common area. This is like a, I shouldn't say our apartment, but like our storage facility. Yeah. And a fair few thousand dollars worth of stuff is stolen. And it turns out that there are about five other thefts over the last month.
and they've all been lodged with police but there are still no cameras there because what's happened is no one in the building wants to have a meeting with the body corp who's an independent company and say can we put in security cameras and the body corp doesn't want to do that because it costs money yeah right and so you have this issue where we have a apartment where we're not necessarily sure that our belongings are safe yeah and it's almost like we're powerless against that so
Obviously, there's some issues there that people need to consider. And one thing that I get a lot is people go, I'm going to buy a house in XYZ suburb. Oh, look, I can't afford a house in XYZ suburb. Therefore, I'll buy an apartment somewhere else. And it's kind of like it's a concession that they've made. They've gone, okay, well, we'll just go and buy an apartment.
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