What’s happening with your home or investment property?

Having invested in property for over 25 years and spending 10 years hosting Your Property Empire on Sky News Business, I’ve learnt not to believe everything you read in the media.

The media has gone into its doom and gloom phase and all properties and markets are being tarred with the same brush but that is definitely not the case as there’s multiple markets, split geographically and by type and price.

There’re some properties with a 100% clearance rate and others not selling for months or even years, giving an average of 50%. Some properties are selling well over reserve and others are being passed in.

No matter what your viewpoint, I think there’s 3 main choices moving ahead.

Strategy 1 – Be a contrarian and buy when everyone else is selling

I bought half my current portfolio in the GFC. Everyone thought I was mad and said, ‘Why would you buy property now and pay the $10-20k cash flow loss for years when there’s no growth on the horizon?’

The reality was though, that I could buy much better property, that ticked all the boxes, at a much better price and without all the competition that was around for the previous few years.

Sure, I had to pay the cash flow loss for a few years but in reality, the market was still rising for those properties by 1-3% each year which more than covered that loss, but it wasn’t enough growth to hit the headlines. And then when the market did recover it literally burst overnight with everyone following the herd mentality. Suddenly you couldn’t buy what you wanted and with everyone else trying to get in at the same time, prices jumped 10-20% overnight.

My golden rule is that I buy when (1) I have the cash to buy and (2) when I have the cash to cover any shortfall for the short term.

If you want to follow this strategy you will

Either have to keep quiet from your friends/colleagues or be prepared for a bit of stick from them as ‘they know best’ and they have a crystal ball to see the future better than anyone else
Be a long-term investor that understands the concept of dollar cost averaging
Realise that there’s no real bargains in blue chip suburbs even in a downturn and it’s still worth paying for quality

Strategy 2- Extract whatever equity you can and invest your cash elsewhere for safe keeping

APRA, the Royal Commission into banking and the lenders themselves have put massive pressure on the serviceability calculators and investors can’t borrow what they could a year or so ago. There’s a very good chance that it’s going to get worse before it gets better. So, what can you do if you’re more of a cautious investor and want to ensure you have cash to cover any losses or future interest rate rises?

If you have an overdraft facility, it often gets renewed every year and lenders have been known to retract the facilities almost overnight. Whilst this is less likely to happen on a mortgage facility, it’s still possible.

One of the tactics I’ve recently used is to fully extend all my facilities and to extract all the equity I can. I’ve then put it on term deposit across multiple banks, so I fall within the government guarantee scheme.

I asked a few financial planners for some advice before doing this and they said I was mad. Why borrow money at 4-5% and invest it at 2% – 2.5% as then I would be losing 2% – 3% per million dollars = $20k – $30k per year? They could invest it for me at 5% – 7% and then I would be making money on it.

This strategy is for someone that thinks things might get tough and they want an insurance policy to cover themselves. If things really do get tough in the economy, then whatever they’ve put me into at 5% – 7% is likely to be affected too and that’s the one time I don’t want to risk my cash. If my cash buffer is my lifeline, that’s when I don’t want any risk at all. So, I’d much rather it costs me $20k per year for almost zero risk then to make $20k and have all my money at risk.

I then went to see some more experienced financial planners as well as a few of my accounting friends that are avid property investors and they concurred – it’s not what the average person would do, but it is what more sophisticated investors would do.

Strategy 3- If you’re that worried then sell

I personally don’t believe in selling property unless you really have to as I do honestly believe that well-chosen property (median priced, blue-chip) will nearly always be worth more tomorrow than it is today, especially if you’re looking over the long term. Often you can extract your profit by refinancing and still get to keep the appreciating asset.

However, I also realise that debt isn’t for everyone and if you can’t sleep at night, it’s not worth the risk. Also, many people can’t refinance their equity out these days. So, we do get the odd client coming to us every year, saying they’ve made a healthy profit on the property we bought them and it’s time for them to sell. My advice to them is always the same and that is:

My suggestion is to keep holding as we believe that property will continue to grow over the long term and you can often extract the equity through refinancing to continue building your portfolio or to put it to other uses

If you do want to sell then your best chance of getting top dollar is to hire the best agent, invest in a good marketing campaign and take it to auction. Depending on how your tenants keep the property, you might want to wait until they exit. A good agent would charge a standard fee of 2% + GST to sell + advertising and auction costs.

The below images are an example of some of our before and after work.

Summary

So as usual, there’s no one single strategy that suits everyone and each person will have a different view on the market and how their personal circumstances for that.

I’d like to reach out and say that I am happy to chat over your current situation any time you want, if you would like my thoughts on what options might be available to you.

If you would like to buy some more property then we can certainly help with that and currently have offices in Sydney, Melbourne and Brisbane.

If you would like to extract what equity you can and sit on your cash, then we can talk you through that.

And if you would like to sell, we can introduce you to the best agents in your area to make sure you get looked after and get some personal service from an agent that will do the right thing by you.

Our skill is in giving you practical ideas that are often completely contrarian to the average person in the market and it all comes from my personal experience with my own portfolio. We don’t think you should just take my word for it though and always recommend you seek professional advice from suitably qualified experts before making any financial decision. Either use the ones that you currently use, or if you don’t think they’re on the right wavelength we can always introduce you to ones that we know think a bit differently.

The Luxury Network members can drop me an email to chris@yourempire.com.au and we can catch up for a coffee, obligation free.

And for some Xmas reading you can also download a copy of my Effortless Empire book for free at www.yourempire.com.au

Your Empire

Your Empire is a Buyers Agency that searches, negotiates and/or renovates homes and investments for professionals who don’t have time, knowledge, or contacts to do it themselves

The CEO of Your Empire is Chris Gray, host of ‘Your Property Empire’ on Sky News Business and previously the real estate judge on Channel 10’s “The Renovators’ and Channel 9’s MyHome TV. He started buying property at the age of 22, retired from full time employment at 31 and now 47, personally owns in excess of $15m of property.

Your Empire can assist you to buy your own home or build your own portfolio of properties almost completely passively. You can be assured of their very high standards and the value they provide as every property they buy is bought based on an independent bank valuation.

For a FREE copy of his latest book, The Effortless Empire: The Time-Poor Professional’s Guide to Building Wealth from Property, go to www.yourempire.com.au