Chapter 1: What is the main topic discussed in this episode?
it's the real estate podcast brought to you by ray white the largest real estate and property group in australasia and welcome to another episode of the real estate podcast available on iheart radio and also spotify and apple podcasts or wherever you get your podcast from it is a friday the weekend is almost here june the 10th for 2022
Coming up on this Friday, very shortly, we're talking with Rich Harvey and talking about building a professional team who will help guide you through the many layers of buying property and helping you build that all-important portfolio. If you're celebrating your birthday today, you're celebrating it with Elizabeth Hurley, who's turning 57.
And in the history books, it was on this day back in 1977 that Apple Computers shipped its first Apple. It was called the Apple II. It's the main centre forecast with propertybuyer.com.au. Let's have a look at your weather around Australia. First to Sydney, good morning to you. Expecting a fine one and a high of 17 degrees. Expecting some showers again in Melbourne.
The mercury getting up to 14 degrees. Brisbane, sunny with 18 is your high. And in Perth, expecting showers with a possibility of a storm. And your expected high today is 22 degrees. And in the wake of the RBA cash rate rise, the Commonwealth Bank has forecast Australia's economy will see a drastic slowdown in the next 12 months.
They say the RBA now appears to be first and foremost inflation fighters. And they go on to say the objective of the economy, prosperity and welfare of the Australian people has taken a back seat to their desire to drop the rate of inflation.
ComBank went on to say that they expect consumer spending to be dramatically reduced due to higher interest rates and that consumer confidence is already in deeply pessimistic territory and and they do not see that changing and turning around any time soon. Commonwealth Bank says its fear right now is that the Reserve Bank is going too hard and too fast.
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Chapter 2: Why is building a team of property advisors essential?
And this morning, we're going to be looking at your pathway for getting into the property market, including risky exposure for your own personal finances. You know, fortunately, in 2022, there are specialists who can help you navigate through some of the more complex decision making and help you fine tune whatever your goals might be when it comes to the property market and your investing in it.
But probably the hardest challenge in minimising your risks is how you select advisors who will guide you in the right direction with honesty, authenticity and the ability to listen and understand fully what it is that you're hoping to achieve. And to help explore this topic, as always, on a Friday morning, we have Rich Harvey, CEO and founder of propertybuyer.com.au joining us.
Good morning, Rich. You've got to love these short weeks, but a bit of a clobbering week with the interest rate rise. Yeah, good morning, Craig. Yes, it's been a very tumultuous week on financial markets with the Reserve Bank hiking cash rate up by 0.5%.
Yeah, so we're looking at trusted advisors this morning to help people minimize risk and why it is worthwhile building a team of advisors as compared to doing it on your own. Yeah, well, look, I think trying to do anything on your own is always fraught with risk. You know, if you're trying to repair your own car or do your own tax, you possibly could do it, but you won't do a very good job.
So I think it's really important to reach out to others and not be the smartest person in the room. It's really important for people to understand there are some really, really smart advisors out there and you don't know what you don't know. So it's really important you get advisors that have what I call your best interests at heart. And that's a really important thing.
You mentioned about authenticity in your introduction, Craig, and that's a critical factor. You've got to be able to connect and trust the advice of your advisor. But there's certainly quite a number of people, Craig, you need to have on that property team if you're going to achieve your goals.
And I think probably a really important takeaway on that is once you build your team, you will just keep using that team. So let's have a look at the key advisors you will need to have on your team.
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Chapter 3: What role does a mortgage broker play in property investment?
Look, firstly, Craig, you can't go shopping for property unless you've got finance. Unless you've won lotto and got stacks of cash, you're going to typically need to borrow money from a bank. And the best advisor to help you with that is a mortgage broker. Now, not just an ordinary mortgage broker, but one that particularly understands property investments.
They're going to find the best possible loan that suits your individual circumstances. And one of the mistakes that people make in choosing brokers is just going with a broker that gets them the lowest interest rate. Sure, interest rates are a critical factor. You do want to pay the lowest rate, but it's not about the lowest rate. It's about your actual total borrowing capacity.
There might be a one or two or three even basis points difference between the different lenders. But if you could borrow, say, an extra $100,000 or $200,000 with a different lender that that broker has got you in the door to, that can make a huge difference to your overall portfolio.
And there's a lot of other factors to consider with the borrowing arrangements, the fees and charges, loan-to-value ratio, cross-collateralization. A mortgage broker will be able to assess all the different loan products out there. Make sure your broker has accreditation, not just with the big four banks, but with a range of secondary lenders as well. Make sure they're a member of the MFAA.
and understand that they're going to work in your best interest and not just churn you because they get fees. Yeah, so important, the mortgage broker. Okay, let's have a look at another key part of the puzzle in terms of building this team, which is a financial advisor. Look, a financial advisor is really critical as well.
They're going to help you with that overall roadmap to help you with your goals. A financial advisor can give you a much more holistic picture for your roadmap to achieve a comfortable retirement. So they'll be giving you advice on insurances, life insurance and trauma insurance.
They'll be looking at your share portfolio, particularly your self-managed super fund or your super fund if you don't have a self-managed one. They're not going to be miracle workers. But what they will do, they will help you to protect your nest egg.
And I think a lot of people are very unaware that the ability to keep earning an income, even if you have an accident or you're sick, is absolutely critical. I didn't realize how important it was till I had kids. And I suddenly thought, gosh, if I can't work, how's my family going to survive? How are we going to be able to afford our mortgage?
So I quickly got an advisor to help me with all those kind of things. So when you're choosing an advisor as well, particularly in the financial planning sector, it's really important that they have the right accreditations. Again, unfortunately, with the Royal Commission into financial planning, they've actually made it harder to get financial advice.
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Chapter 4: How can financial advisors help with property investment goals?
They've also got an excellent reputation in the industry. They've got to have a great network of agents to find off-market properties with. They've got to understand how to crunch the numbers on investment properties, particularly what to look for in a rental property, what to look for for the drivers of capital growth.
And obviously, they need to be members of the Real Estate Buyers Agent Association. I was the president of that for a number of years, and they should also be a member of the Real Estate Institute in the state that they're working in. and preferably also a member of PIPA, the Property Investment Professionals Association. So all of those organisations have a strict code of ethics.
But the key thing, I think, Craig, to look for, as you said in your introduction, it's about trust and authenticity. Do you trust this person to achieve your goals? But Trying to buy a property on your own generally takes most people over 12 months.
By the time they understand a local market, start to get to know it, and then start searching for properties, which takes a considerable amount of time to work out what the rental is they should get. If they outsource that function to a buyer's agent, they'll speed up that process and they'll be having a property in around one to two months in their portfolio.
So it makes it a heck of a lot easier and they'll get a much better result. And another really important one to get onto that list is a solicitor slash conveyancer. We can certainly recommend Sam Saad, who's a friend of the podcast. Yeah, great. Look, he's actually my lawyer as well. He's brilliant. I didn't know you had him on the podcast, but he does a great job.
You definitely need a great lawyer or conveyancer that understands the conveyancing process. And they're going to protect you, particularly before you sign that contract, for any special conditions or any adverse conditions in the contract that may impact how the purchase works. So you want to be looking for things like covenants and easements, the settlement period, the default interest rate.
So you've got to have a good solicitor that will pick all those up, negotiate that with the vendor solicitor, and really be in your corner. And also just take care of all the pre-settlement matters and just be attentive. But you do need someone who's available and not going to be tied up in court matters all day.
It's really important that you have a solicitor or conveyance that can act with speed because like we saw during the boom period, sometimes you would miss a deal by a couple of hours if you were late. So it's really important you've got an effective and proactive solicitor. And of course, the numbers, the number crunches. We've got to make sure we've got a really good accountant, don't we?
Oh, totally. Look, the accountant's a critical person on your team. And again, they're a little bit like the financial advisor on the numbers front because they're going to be making sure you've put enough money aside for tax. And it's often the forgotten thing when you're crunching all these numbers is just how much tax you'll need to pay. You've got to register for land tax.
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Chapter 5: What should you look for in a buyer's agent?
They'll help you understand all of the numbers in terms of what you need to pay each year and make sure you're maximising your deductions. And it's really important that you do set aside enough tax and get really good advice and also get advice around what entity or what name to buy the property in.
So typically you buy it in the name of the highest income earner, but there may be situations where it may be appropriate for an investor to buy in a company or a trust structure as well. All right, we are building the team this morning of what you need around you to make some really good financial decisions. We are up to the tax depreciation specialist. Do not forget about this person.
is what we call the hidden cashflow in property investment. It's a great idea to be able to maximize your deductions to get a quantity surveyor or a tax depreciation specialist to inspect your property. These reports will cost somewhere around $500 to $700, depending on the quality.
And they'll go through line by line and look at all of the depreciable items in your investment property from the carpets and the blinds and the fittings and the fixtures. And there's also the building depreciation, which is two and a half percent per annum. And that tax depreciation report, you will then have a registered report.
You give that to your accountant and they plug that into their spreadsheet at the end of the year to maximise your deduction. So there's a bit of a fallacy or a myth around depreciation too, Craig. People think that our older properties don't have any depreciation. That's completely false.
Even though the government a couple of years ago changed the depreciation laws, there's still a large percentage of the property you can still claim depreciation on, particularly if you're doing any kind of renovations. And before you do renovations, you should get what's called a scrapping report. So it's really important to understand the dynamics of how that works.
And a building and pest inspector. We need one of those. Totally. I wouldn't buy a property unless I had a pest and building inspection done on the property. Again, these will cost you around $450 to $600, depending on who you use. Really essential to get one done before you go unconditional on a contract of sale. My guys will probably turn up typically within 24 hours of engagement.
And they'll give you a really thorough assessment of the report to assess if there's any major or minor defects. And that can also be a negotiation tool. If you discover that there's some sort of structural problem or major wide end problem, then you can potentially use that as a negotiation tool.
You know, where about before you bought the property and go back to the owner of the agency, look, there's $30,000 or more worth of damage here. We want that reduced. And you know exactly what you're buying, but you definitely have them on your team. And I guess most people now are starting to realise this requires a bit of thought.
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Chapter 6: Why is having a solicitor or conveyancer important?
We just simply refer them on a goodwill basis. But I'd be looking for someone who's got a good reputation and really significant experience in their area of expertise. I was just thinking about the advisor's fees too versus quality because sometimes people will always go on that cheaper option. So how important is it to focus on advisor's fees versus the quality of their service or advice?
Well, there's a classic line that says, if you think it's expensive to use a professional, try hiring an amateur. So for me, I want to use the best advisor I can, and I'm happy to pay good fees for great service. So don't fall for the fallacy of going for the cheapest service advisor on the block.
Pick one that has got a great track record, you know they're reliable, and someone you connect with, someone you click with, and you really feel that they've got your genuine interest at heart. A couple of years ago, the government brought in for mortgage brokers the best interest tests.
And I think it's a great thing to do because some mortgage brokers were unnecessarily churning people to other lenders just to earn fees. And if you don't need to change lenders, don't change. It's a lot of a headache if you do. But if you can save money, absolutely change.
So I think it's really important to focus on what the outcome of that service and professional service will be rather than just focus on fees. And again, all of their fees will be tax deductible as part of the acquisition process too. Rich Harvey, it is a Friday morning. You have a busy day ahead of you. Thank you once again. Look forward to catching up next week. Enjoy your weekend.
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Chapter 7: How do accountants contribute to property investment success?
Thanks so much, Craig. Have an awesome weekend too. We connect you to the best real estate information across Australia. The Real Estate Podcast.