Author: casey

Investor borrowings falls 28.60% in the last 12 months.

According to the Australian Bureau of Statistics investor borrowings fell 28.60% in the last 12 months to April 2023.

This will no doubt create further pressure on both vacancy rates and rental income growth.

Investors are providing the stock that renters so desperately need.

Less investors = Less stock.

Less stock = Scarcity

The combination of Australia being a country with low levels of social housing, less new buildings being built and investors decreasing will continue to put pressure on the current rental crisis.

Those investors who continue to take action right now are going to reap the rewards separating themselves from the herd.

Do you have any questions? Or you want to discuss the opportunity of working together to help you secure a high quality investment property? Reach out today.

https://tayloredpropertywealth.com.au/contact/

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Buyer demand 15% higher than the year before in the combined capital cities.

Notably higher than the levels in the boom only a couple of years ago.

May 23 seeing an increase to buyer demand of 3.1%.

PropTrack highlighted that this is most likely due to:

• Rising property prices
• High net overseas migration
• Low unemployment and rising wages
• Small new proeprties being listed
• Rental markets highly competitive

Right now we are seeing increasing demand, however the flip side is that we have listings levels in many capitals lower than 12 months ago and well below the 5 year averages.

We can help… feel free to reach out to Taylored Property Wealth.

High demand + low supply = Scarcity

Scarcity = Growth

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There is an extreme misconception within Australia that Landlords are greedy evil money hungry people.

Are landlords really the ‘evil beasts’ that some people believe them to be? In this blog we will break down some statistics that put things into perspective. We’ll also discuss a couple of important factors that should be focused on within Australia to improve the current rental crisis.

Property Investors / Landlords

Only 8% of the Australian population are landlords. Now, let’s take a look at some statistics on these landlords within Australia.

Below is a breakdown on the percentage of landlords and how many properties they own according to the Australian Taxation Office. Of the 8% of the Australian population who are landlords:

• 71.5% of investors hold one investment property
• 18.0% of investors hold two investment properties
• 9.7% of investors hold 3,4 or 5 investment properties
• 0.8% of investors hold 6 or more properties

This data showcases that most Australian landlords hold just one investment property. Less than 30% of investors hold two or more investment properties. This indicates that that majority of landlords in Australia are everyday Australian’s and are the mum and dad investors.

This is fundamentally one of the reasons why there is a rental crisis right now. We don’t have enough individuals supplying investment properties.

If we want to have more properties available for rent, we need to increase this 8% of the Australian population who are investment property owners.

We also need to educate more investors around making sound investment property decisions. This will mean that more investors get investing right and purchase more investment properties. This will add more supply to the property market, and increasing the number of investors that own more than one investment property.

Here at Taylored Property Wealth, we are passionate about helping and educating as many Australians as possible to increase this 8% of the population who are landlords. This will help renters/tenants and will help create more abundant futures for those investors.

Public Housing

Let’s break down the statistics on the percentage of dwellings that the Government provides to Australians.

The 2021 census identified that there were 348,018 social housing dwellings or 3.80% of the Australian property market, making Australia one of the countries with the lowest percentage of social housing. Many European countries have social housing well above 10% of their property market, for example, Netherlands at 29.1%, Austria, Northern Ireland and Scotland at 24% and Denmark at 21%.

Source: Ahuri

This is why we have a massive rental crisis occurring. We fundamentally have a massive supply issue. This is why we have historically low vacancy rates and it’s not going to improve anytime soon with what the future looks like.

As an investor or an aspiring investor, this should get you excited. Separating yourself from the pack and being courageous enough to be the minority will 100% pay massive dividends to you in the future!

Why do I say that the rental crisis is not going to improve? There are two factors:

Factor 1 – International migration to Australia

 It is projected that 650,000 to 700,000 people will move to Australia in the next two years and they all need somewhere to live.

This is going to see a massive increase in demand, creating continued pressure. This will put pressure on rental properties that already have massive amounts of pressure due to the low supply.

Factor 2 – Low levels of construction

 Due to the massive challenges in the construction space over the last few years there is less construction occurring. Builders and Developers have gone bankrupt. (massive risk if you’re looking to buy brand new). Or Builders and Developers have delayed construction as their margins are not viable due to inflation and material shortages.

As per the ABS, building activity and the number of dwellings commenced is reducing. Total dwelling commencements fell 6.7% to 41,374 dwellings. New private sector house commencements fell 2.3% to 28,330 dwellings. New private sector other residential commencements fell 16.5% to 12,053 dwellings.

Summary

 In summary, we must really start to focus on encouraging landlords. Landlords create a small percentage of the population offering the supply that we desperately need, and the Government are offering an even smaller amount of supply.

We need to truly understand the fundamental issues going on and actively looking to improve these. We need to be more open minded as a country and understand that landlords are not ‘evil beasts’. Rather, we need to start looking at landlords as Knights in shining amor as they are helping to provide housing supply, making a positive impact on the current rental crisis.

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Yes, you heard it right!

You must leverage other peoples money to get into as much debt as possible.

We have been conditioned that debt is a bad thing, and yes some debt certainly is a bad thing.

If you haven’t bought any true assets, and you’ve borrowed money to purchase a boat, a caravan or a brand new car that you really didn’t need this is bad debt and isn’t a good thing.

A true asset provides you with income and appreciates in value over time.

Now back to leveraging good debt.

You’re probably thinking that your owner occupied property is good debt.

In reality this is still bad debt, it’s not generating you income and it’s actually costing you money every week and all expenses are not a tax deduction due to not creating income.

Focusing solely on paying down your owner occupied debt is not going to help you build wealth.

Sure into retirement you’ll own your home outright but this will still leave you relying on the pension into retirement.

This means you must get your hands on as much good debt as possible.

Leveraging other people’s money(the banks) to purchase the largest wealth base you can is key.

You are increasing your wealth base through good debt that is generating income and growing in value over time.

But what about all that debt?

Inflation will devalue your debt over time, that debt level will be worth less tomorrow then it is today.

The exactly the same as your cash sitting in the bank will be worth less tomorrow than it is today.

Again another reason why you need to use this cash as a deposit and leverage other peoples money to purchase income generating assets.

Play the game and stop losing to inflation.

Now these assets that you purchase if done correctly will appreciate strongly in value over time.

What that means is that even holding this debt as interest only and not paying this down will still increase your overall loan to valuation ratio.

This will decrease your risk level over time as your properties increase in value.

The banks will view this the same way and overtime you’ll be able to obtain interest rate discounts, only improving your cashflow over time in combination with rental income growth on your income generating assets.

If you’re truly committed to improving your financial future you must get comfortable with good debt.

Good debt will catapult you forward.

Bad debt will catapult you backwards.

The choice is yours.

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The RBA has held the official interest rate for the month of April at 3.6%!

Inflation has now peaked in December 2022 and reduced back in the previous two months with February’s data as per the ABS sitting at 6.8%.

This means light is at the end of the tunnel for this rate rise cycle!

What does this mean? 

What we will now see in the market place is a lot of the herd flooding back to the market that have been sitting on the fence.

This means that the more people who come back to the market the more people that you’ll be competing with as a purchaser.

Majority of the herd have been acting in fear and for those with strong mindsets and the long term vision they have been taking advantage of the opportunity and continuing to take action.

There is not much of this buying window before you’re competing with far more people.

If you have been thinking of investing and you want to take action, reach out today and we’ll organize a 20 minute discovery call.

We can see if there is an opportunity to work together to help you achieve your long term goals.

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Today we are breaking down what just 3 investment property purchases can look like in a 15 year period from the first purchase. This is not a super aggressive strategy and is something that a lot of everyday Australian’s can achieve.

To keep things simply we have used cash deposit for each of these purchases. The powerful thing is that you can access equity to leverage far more purchases then this scenario has factored.

We have used a conservative 5% yearly capital growth amount and also a 3% annual rental income growth amount. Remember that if you are getting these purchases right, purchasing in areas primed for growth the capital growth and rental income growth will increase at a more rapid rate then these scenarios.

At the end of these scenarios we will break down the passive income amounts, the gross rental yield on the portfolio, the current LVR position(without paying any debt down) and some strategy at this point within the portfolio.

Foundational Property purchase 1

Property was purchased for $500,000 with a 10% cash deposit plus costs.

$450,000 loan held Interest only over the 15 year period, average rate of 5.00% IO.

5% capital growth rate on average over the 15 year period.

At time of purchase the property generated a gross yield of 5% or $480 a week.

3% rental income growth on average over the 15 year period.

Capital growth rate of 5% over 15 year period.

Rental income growth of 3% over a 15-year period.

Numbers after 15 years

Property value now: $1,039,464. $539,464 increase.

$450,000 loan held Interest only over the 15 year period, average rate of 5.00% IO.

Yearly interest only repayments: $22,512

Gross yield now on intial purchase price: 7.77%

Yearly rental income amount: $39,896

Cash surplus: $17,384    

LVR:43% – Although the debt hasn’t been paid down the LVR has dramatically dropped due to the increase in property value.

Foundational Property purchase 2(purchased one year after the first property)

Property was purchased for $450,000 with a 10% cash deposit plus costs.

5% capital growth rate on average over the 14 year period.

At time of purchase the property generated a gross yield of 5% or $432 a week.

3% rental income growth on average over the 14 year period.

Capital growth rate of 5% over 14 year period.

Rental income growth of 3% over a 14-year period.

Numbers after 14 years (due to one year after first purchase)

Property value now: $890,969. $440,969 increase.

$405,000 loan held Interest only over the 15 year period, average rate of 5.00% IO.

Yearly interest only repayments: $20,256

Gross yield now on intial purchase price: 7.54%

Yearly rental income amount: $33,956

Cash surplus: $13,700    

LVR:45% – Although the debt hasn’t been paid down the LVR has dramatically dropped due to the increase in property value

Foundational Property purchase 3(purchased two years after the first property)

• Property was purchased for $500,000 with a 10% cash deposit plus costs.
• 5% capital growth rate on average over the 13 year period.
• At time of purchase the property generated a gross yield of 4.5% or $432 a week.
• 3% rental income growth on average over the 13 year period.

Capital growth rate of 5% over 13 year period.

Rental income growth of 3% over a 14-year period.

Numbers after 13 years (due to two years after first purchase)

• Property value now: $942,825. $442.825 increase.
• $450,000 loan held Interest only over the 15 year period, average rate of 5.00% IO.
• Yearly interest only repayments: $22,512
• Gross yield now on intial purchase price: 7.43%
• Yearly rental income amount: $32,968
• Cash surplus: $10,456
• LVR:47% – Although the debt hasn’t been paid down the LVR has dramatically dropped due to the increase in property value

Portfolio Numbers overall

• Total portfolio Value: $2,873,258
• Total rental income: $106,820
• Total debt value: $1,305,000
• Total Gross Rental Yield on the portfolio based on original purchase prices: 7.58%
• Total portfolio LVR position: 45%

Factors for strategy:

• Over time the portfolio will become positive cashflow, you can then funnel these funds back into either paying some of the current debt down, or hold funds in an offset account which will mean you save interest and ultimately helps pay down more debt. This requires discipline and delayed gratification! This will only improve the cashflow at the end of the 15-year period
• Utilize your yearly tax returns to go straight back onto paying down the debt. This will help reduce some of the debt without using your surplus cash. This requires discipline and delayed gratification! This will only improve the cashflow at the end of the 15-year period
• Use your surplus cash to help pay down existing debt or hold in the offset account. This is surplus cash from your employment. This will be powerful in combination with the surplus cash from the portfolio. This requires discipline and delayed gratification! This will only improve the cashflow at the end of the 15-year period
• You can then sell one of these properties within the portfolio, using the profits to help pay down the debt on the remaining two properties you hold, again creating the portfolio to be more positive cashflow

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By Casey Taylor | Buyers Agent

The Queensland Government are at it again.

This time speaking of introducing a cap to the rental increases on properties in QLD.

Less than 12 months ago they tried to introduce additional taxes for QLD, which were not passed.

Introducing this is going to only create more problems and scare off investors.

Less investors, less supply, less homes for renters.

The issue with this idea is that it’s not addressing the root cause of the problem.

It’s like going to the doctor because you have high blood pressure, and they give you a tablet to mask the symptoms but don’t look at why you have high blood pressure in the first place.

What is the issue?

It’s simply a supply issue.

This is what needs to be solved and today the suggestions I have will be left field and what makes many people loose their marbles.

It is harder for property investors to purchase an investment property due to APRA restrictions that have been introduced. This means there are less investors/landlords and that means there is less available stock.

This is one factor why vacancies are at all time lows and we currently have a rental crisis.

How can this be fixed?

It’s important to note that only 2.05 million Australian’s are property investors, or 8% of the population, and 71% of those investors hold just one property.

The more investors we have, the more stock that is supplied and renters will find it easier to obtain a rental.

Maybe investor interest rates need to fall in line with owner occupied rates, so renters don’t end up paying for this additional cashflow costs of investors.

Maybe APRA need to lift the restriction on the percentage of investors within a financial institutions portfolio/book.

If we make it easier for investors, there will be more landlords, more landlords will mean more rentals for renters.

The Government needs to focus on providing solutions for further housing, and not leaving this up to private landlords.

The 2021 census identified that Australia had $348,018 social housing dwellings or 3.8%. Australia being one of the countries with extremely low social housing. England in 2018 having 17% social housing.

Source: Ahuri

We have massive amounts of international migration right now and they need somewhere to live. They will either need somewhere to rent, or they will purchase a property.

Due to current inflation many developers are holding off on projects due to their margins not being beneficial. Or constructions have massive delays, or builders going bankrupt (massive risk if you’re looking at house and land). This influences building approvals.

As per the ABS, total units approved is down 8.4% over the last year and private sector houses is down 12%. This is going to continue to put pressure on established areas.

This is because demand is increasing (international migration) and supply is decreasing (reduction in building approvals).

Source: ABS

As an investor, if you can continue to purchase investment properties it’s going to be positive news for you.

Due to the lack of supply and scarcity you’ll see capital growth and rental income growth.

For renters the Government must change their thinking, and educate the population accordingly as to how some of these measures will positively affect renters for the better.

Need help buying in Brisbane?  CLICK HERE ➡️ Buyers Agent Brisbane

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Why residential Australian property as your foundational properties?

When looking to build a property portfolio, one of the first things you might ask yourself is.. What should I purchase? Should I purchase a residential or commercial property? Should I purchase an Airbnb short term rental?

Everyone has an opinion and everyone has their own strategies and way of doing things. Some people have higher risk tolerances than others. Some prioritize cashflow over capital growth and vice versa.

Today we are going to talk about residential Australian property and why residential property is a great low risk option to start your foundational portfolio.

According to billionaire Andrew Carnegie, 90% of all millionaires achieved becoming a millionaire through investing in real estate.

Majority of Australian’s Wealth is held in Residential Property

 With majority of Australian’s wealth held in property, and the big 4 banks making majority of their profits from lending money to borrowers purchasing residential property, it is far more resilient and less volatile than commercial, industrial property. Don’t get me wrong, there will be corrections and stagnations when you hold a property for the long term.

This is where your mindset is crucial, understanding it’s a long-term game and that the combined capital cities as per Core Logic have increased 453.1% over the last 30 years. As soon as you have this long-term approach it’s an absolute no brainer, right?

Residential Property is lower risk!

 When starting out in property 95% of people want to take a low risk approach. Residential property is always going to be in demand with humans living on this planet. In Australia, with a growing population, and not enough property being built this means property is scarce, therefore you have low vacancy periods with less time that you don’t have rental income coming in.

We can look at the major banks within Australia to understand this risk. They are happy to leverage up to 90% to 95% of the value of residential property. This is factoring in their risk profile, they understand that long term residential property increases.

Whereas to purchase a commercial property, for example, you may need a deposit of around 20-40%. This is factoring in the bank’s risk profile again, as they understand that commercial property is higher risk. From both a capital growth and rental perspective. How would you deal with having a property sitting there vacant for 1 month? 3 months? 6 months or a year? This can happen when purchasing a commercial property.

Residential Property is less volatile!

 Property markets correct, this is a natural part of the cycle. Always has, and always will be. It’s not possible for a market to constantly be on the up, peaks and troughs are natural and you must understand this. To be a sophisticated investor you MUST understand this, this will ensure you stick around and not freak out and off load a property. Long term buy and hold is extremely important.

Property isn’t like shares where once there is negative sentiment you can just pull that asset and sell it straight away. Selling a property is a long process, you might invite a couple of selling agents to complete an appraisal, decide on an agent to sell your property. This typically includes marketing the property, completing open homes, signing a contract and then settlement typically takes around 6 weeks.

This whole process can take months and because of that you don’t have a massive amount of people exiting all at once.

Residential Property is a necessity.

 As long as there are humans on earth, residential property will be a must. Everyone needs somewhere to live, and that means there will always be demand for residential property.

With massive amounts of overseas migration to Australia, and construction costs not keeping up to the requirement, land will become scarcer. Higher demand, lower supply and this leads to one thing and one thing only. Growth!

Growth is performance! As an investor, performance is freedom, working less each week and retiring earlier!

Residential Australian property is the initial pillars to build your portfolio. Once you build up a substantial residential portfolio you can diversify into additional assets with higher risk.

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Mainstream media are at it again with another sensationalist headline.

The “fixed rate cliff”… Sounds scary, right?

Let’s really break this down, and not just create a headline to create doom and gloom and get some click bait.

We are coming off a historic low cash rate of 0.10%. This dropped to this level in November 2020.

The cash rate has just moved up again in March 2023 for the 10^th consecutive rate hike with the official cash rate sitting at 3.60%. This means that since May 2022 last year the official cash rate has moved up 3.50%.

Now, this cash rate of 3.60% is still lower than the average from 1990 to 2023 of 3.84%.

These individual borrowers who locked in low fixed rates at the time were receiving a discount on their rate. Locking in historic low rates. This means that for a number of years these borrowers have had surplus cashflow due to the rate discounts. This was more opportunity for the borrowers to save additional money or continue paying their repayments as if they were variable and getting ahead on their mortgage.

Australian Prudential Regulation Authority (APRA) reported about 12 months ago that mortgage holders were 45 months ahead on repayments, up from 32 months prior to Covid. APRA also reported $222 billion was sitting in mortgage offset account at the end of September 2021, up from $174 billion at the start of the pandemic in March 2020.

While Covid was at its peak, many Australians had record high savings. As per the Finder’s Consumer Sentiment Tracker the average Aussie had $39,439 in savings as of August 2022.

Sure, there will be some borrowers that will feel the pinch, but once you look holistically, it’s not the doom and gloom that the mainstream media are pushing.

The cash rate is now 0.50% basis points above the buffer rate lenders were using 12 months ago to assess a borrower’s serviceability.

This, in combination with the fixed rates moving back to variable, will be a positive to get inflation on track and these cash rate rises close to their finish.

As always, remember that not every market in Australia has gone backwards in the last 12 months. There is still massive opportunity to get in and get the results that you’re after.

Have any questions? Reach out below:

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Many Australians believe that they are priced out of the property market, or it is extremely difficult to get into the market. Trying to purchase a property by yourself on a modest income where some areas have a medium house price above 1 million dollars or close to one million dollars can be challenging.

The mindset of some Australians is that purchasing is unachievable where they wish to live, and they’ll never be able to save the deposit to get into the market. Now if you are only looking in your own backyard where prices are high and massive growth has been experienced recently than this might be the case. However, once you start to look nationwide and become open minded the opportunities are endless!

If you can look nationwide, you can find huge opportunity, depending upon what your budget is you can then focus on certain areas within your price range that are primed for capital growth, rental income growth and areas that are higher yielding which help you mitigate interest rates.

Let’s take a look today at a number of different suburbs within NSW that are very unaffordable for first time buyer’s. It’s also important to remember that these suburbs right now are experiencing a correction due to being closer to their borrowing capacity limit.

As interest rate rises occur this will create a further correction as people in these areas are maxed out in their borrowings, this directly impacts prices. Remember that is not the case with all suburbs and more affordable price points are more resilient to rate rises.

Three suburbs within Newcastle NSW median price:

• New Lambton NSW: $953,500 as per Core Logic Jan 23
• Adamstown NSW: $936,900 as per Core Logic Jan 23
• Hamilton NSW: $987,600 as per Core Logic Jan 23

Three suburbs with Sydney median price:

• Penrith NSW: $810,700 as per Core Logic Jan 23
• Mount NSW: Druitt $791,000 as per Core Logic Jan 23
• Quakers NSW: Hill $917,200 as per Core Logic Jan 23

The suburbs that we have provided above are not even the higher, most expensive suburbs within these cities. Yet are massively more expensive and unaffordable them the following examples on areas that we target for clients.

Now let’s compare three suburbs that we invest in for clients:

• Suburb 1 QLD Median price: $511,800 as per Core Logic Jan 23
• Suburb 2 QLD Median price: $429,900 as per Core Logic Jan 23
• Suburb 3 SA Median price: $312,200 as per Core Logic Jan 23

Suddenly looking nationwide, you can see that the median price of a number of the suburbs we target are much more achievable, not to mention that these suburbs are also achieving higher average yields costing you less in the pocket to hold as well!

Entry costs to get in are lower, this means you require a smaller deposit and allows you to get into the market sooner, taking advantage of capital growth and that powerful compounding affect!

Benefits of investing nationwide:

• Targeting a market earlier in its growth cycle
• Targeting a market primed for capital growth.
• Targeting a market primed for rental income growth
• Lower entry costs to get into the market.
• Getting into the market sooner
• Higher gross rental yields.

Don’t be put off if the area that you live in is super expensive and unaffordable. Create the mindset where you are open minded, look at the different options, create solutions which ultimately create opportunity.

If investing nationwide is daunting to you and you don’t have the confidence or experience to implement a purchase interstate, please reach out as we’d love to discuss the opportunity of working together! Contact form below!

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