EPI 004 | Property is an awesome investment!

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In this episode we talk about:

  • Real estate development
  • How to make sure you are getting the best rental returns – rental appraisals
  • Reasons why we think that property is an awesome investment

Den also speaks with David Silver from Financial Services Partners in Melbourne.

Property is an awesome investment! – Podcast Episode 4

Introduction:
This is Everyday Property Investing episode 4.  The show empowering everyday people to create wealth and achieve financial freedom, so get on board!  Everyone can be a property investor.  It just takes a little knowledge, a little support and some action. So get started with us today!Welcome

Den: Hi and welcome! I’m Den and I’m looking forward to bringing you episode 4 of our everyday property investing podcast series. I’m here with Kaz, and we’re here to help you develop your knowledge and ours, and to share our experiences within our little everyday property investing community. How’s it going Kaz?

Kaz: Hey Den, I’m great! What are we talking about today?

Den: Well, on today’s episode we’ll be talking about why we invested in property, and also what other investment types there are on the market.

Kaz: And in our quick tip we’ll give you a little secret on how to maximize your returns.

What’s News
Den: Now, it’s time for our What’s News segment. Kaz, what’s been going on with you since our last episode?

Kaz: Well Den, I went along to that property development course I was telling you about. It was a very, very action-packed day. It was a full day. The whole thing went from nine in the morning or so until five in the afternoon. And it’s probably about eighty people there – it was a big, big day! We learned a lot about the whole property investment process, from go to wo. It was a high-level-ish I guess, where I still had a few questions left over at the end of the day. But it was enough to make me know that I no longer have that fear of “all property development; big scary thing that I know nothing about.” In fact, I felt really quite comfortable and confident at the end of it that I could go and do this. And that was kind of the jist of the whole day was, you can do this, anyone can do this. So it was really good.

Den: So I remember last time we talked about how I have this fear of developing and I have this fear of commercial property. And I have all these fears when it comes to property investing. But so you’re saying a course like that is a great opportunity to maybe get rid of some of those fears?

Kaz: Absolutely. You know, when I look back on the day I think how you know, probably they didn’t share anything earth shattering, or, gosh we’ve never heard of that that’s amazing. It really was just common sense but it was just a detailed enough walk-through of the process that all those big scary unknowns really went away. And so I came out of it thinking we, anyone could do this, and I’m going to give this crack. So, I’ve actually even taken a bit of action…

Den: What had you done?

Kaz: I’m really excited! We’ve got property that ah, has got quite a big backyard that’s on a corner block, and I’ve always wanted at the back of my mind if it was possible that we could subdivide and build on the back of that block. And so I have contacted a drafting company in the area where this property is situated, and I’ve also contacted the local council to get a copy of the plans of the house. And, we’re just waiting on getting in the plans and then I’m going to send them in to the drafting company and they’re going to assess them, because they’ve got really good knowledge of the local planning regulations. They’re going to assess whether it is likely that we would be able to do anything with that block. So it’s pretty exciting.
Den: Fantastic!
Kaz: What about you Den, what’s up?

Den: Well, as you may recall last time we got together, we were looking at selling our property. So part of the thing when you sell your property or part of your task is to get people to go in and have a look. And, we had three real estate agents go through and they prepare these reports and I interviewed them, I felt like I was a job interviewer. And I was interviewing real estate agents, and the interesting thing was all three of them came back to me and said, “Den, you realize that the rent you’ve been receiving on this property should have gone up significantly in the last year.” So I found out that we were losing about a $100 a week, in rent…

Kaz: Awhh… No!

Den: Right. In one property. Because we have an agent who’s fantastic and who make sure they stay in touch with us, and I do everything right but they are actually not an expert in the area where the property is. And in this specific area, this little pocket, properties have gone up, rents have gone up out of sight. So we found that out too late, and what it’s reminded me of is that it’s really important to make sure you keep on track of what you’re in to doing and how it’s going. So our incident this week was not only about dealing with trying to sell a property, but also finding out that we’ve probably lost a little bit of money. Now, it’s a $100 a week, and it maybe for a year, so maybe $5,000, and some people might say that’s not a lot of money but for me that’s a lot of money. As we’ve said we’re not millionaires – we’re doing this because we want security. And I’m just a school teacher and $5,000 – that’s a lot of school teaching for me. So, I was a bit disappointed in that but now you know, what you can do is you can start having a look at either putting your rent up or, (the increase in value) is something you can use to help you to sell a property.

Kaz: Great advice, Den.

Feature Segment

Kaz: Now, feature segment today, we’re going to be talking about why you should invest in property. And we’ll do that by talking about WHY we invest in property. So Den, tell us why is it that you invest in property as your main investment vehicle?

Den: Good question, good question. Actually, probably because it was the first thing I started investing in. And I started investing in property because it was maybe the easiest thing to learn about. As I’ve said, I’ve made a lot of mistakes and I did a lot of things wrong but I think, it was something I could learn about, it was something I felt more comfortable with. And I also had this feeling that can paid to shares, property wasn’t the thing that I was going to lose a lot of money on. It might be something that I could make not as much money as well. But I wasn’t going to lose money. So I had the feeling that bricks and mortar are more secure. So you have the options, I suppose, and if I have a look, there are probably five options for, for investment; there’s shares, there’s managed funds, savings accounts, superannuation property. Now, shares as I say, they likely to go up and down. You may have the opportunity to make more money. And probably, shares are something I be interested in investing in at some stage because I do believe in making sure you spread your portfolio a little bit so you don’t want to have all your eggs in one basket. And we’ll talk at some stage about how you can invest quite heavily in property but still keep that level of spread in your investments. Shares to me, it was very expert knowledge. You needed to really know specifics, you needed to do a lot of reading. There was a great deal of risk. So I’ve felt shares were a little bit scary. Managed funds: they are funds where you invest in a group or they will maybe invest in money for you. They will invest in property for you or invest in shares for you, or invest in a certain industry for you. And, the appeal of managed funds to me is that you can invest a small amount of money. The problem for me though, is there’s a middleman who’s making the money. And as feel as though, if I’m investing in managed funds I may be doing okay myself but the middleman is certainly doing well. He’s the winner here not me. So I’ve stayed away from managed funds little bit. Savings account frankly, are very secure but they don’t give a great return. So I stayed away from savings accounts and term deposits. I know in the recent global financial crisis, it was your savings accounts and your term deposits that made money but I think that’s more of an exception in the rule. The other one is superannuation. Superannuation in Australia is fantastic, I think. It gives you the opportunity to make a lot of money  – when you’re sixty-five. I’d like to consider that I’m capable of reaping the rewards of my good investing before I retire. So, really for me, there was a reason to not invest in every other type of investment, but I really did not have a reason to not invest in property. I thought it was secure, I thought you could get good returns, I thought it was something you could educate yourself in. And so, in that way I thought well property is something that I could have a go at. What about you Kaz, why did you invest in property rather than one of the other four?

Kaz: My reasons are pretty similar to yours I think, Den. I like property because it’s real. You could drive past it, and you could look at it and you take a photo of it. You could put all your photos of all your properties up your fridge and go, “Look at all the things I own – it’s great!” But shares you don’t get much these days, you used to get a piece of paper when you bought shares, you don’t even get that now I think you get an email. So, it just doesn’t seem…you don’t get that same sense of achievement looking at your email as you do with pictures of your houses. So I like it cause it’s real, it’s tangible. You could make improvements to the value of it that’s a really important one, I reckon, because it’s hard to have control if you buy shares you know. How do you influence the value of those shares? It’s really hard to make any difference there unless you’re someone involved in the company. But with property you can make improvements that improve the value of it. You know you can renovate it; you can develop it. You can also sorts of things that really make you know, make big gains on that property’s value.

Den: Even just painting a property can increase its value or it can certainly increase its rent.

Kaz: Absolutely, yep! Paint, carpet, doorknobs, light fittings…

Den: It’s amazing, is it, it’s amazing.

Kaz: Yeah, and even a cosmetic reno(vation) can really do that. The other thing was, as you said it’s easy to understand. Know I’ve looked at share trading as well and share investing. I’ve read a few books but every time I’ve gone to take the plunge, I’ve always felt like I don’t, I just don’t know enough. And it is expert knowledge. You’ve really got to have some time, to monitor, to research it, to know what you’re doing it, and I just don’t feel that I’ve got that at the moment. So that’s just something I’ve really stayed away from. And the other ones managed funds, superannuation. I’ve always felt little bit like you that, it’s like investing in shares but giving someone else a cut, and I just feel like I’m not in control of it. That’s just not going to do it for me. The savings account like you said, not a lot of money in that, not a lot of return in that. Very safe, but… So that’s the reason I’m into property. It’s real, you can do things with it, it’s easy to understand and it is more forgiving. The share market can be volatile but properties are a lot more forgiving. You don’t hear somebody’s property values just dropped 100% overnight.

Den: Yeah, I think it’s very unusual that property will just go bust.

Kaz: Exactly, so yeah they are all good reasons.

Interview

Kaz: Now we’ve got something special for you on today’s episode: An interview with David Silver from Financial Services Partners in Melbourne. I’m going to hand over to Den. The sound quality changes little bit here because they’re speaking over Skype, which is recorded. But they did capture some great information. So stay with us and have a listen to Den speaking with David Silver.

Den: I’m here with David Silver form Financial Services Partners in Melbourne. Dave, how you’re going?

David: I’m well, Den, how are you?

Den: Very well. Thanks for joining us. Now I’ve got a few questions to ask you? So I was wondering if you could jump straight into it please!

David: Not a problem.

Den: Okay, first of all, what exactly does a financial adviser do?

David: Well Den, financial planners provide financial solutions for clients. And that can range from anywhere from insurance. That can be a life insurance, income protection insurance and all the way through the superannuation and investment advice. We also provide some taxation advice to our clients so, particularly clients who are relatively high salaries who are looking to reduce their tax burden, we help them with that side of things.

Den: Fantastic. So if I was someone who was interested in getting into property, and lets imagine I had no money saved up so I didn’t know where to start. How would you be able to help me?

David: Well, the first thing you need to do is draw up a budget. So, really you need to see what your capacity to save is, and that involves going into a fairly detailed budget, and looking at your week-to-week expenses, and match that up against your income. Then decide the best way to save up the surplus income so that you can begin saving for a home.

Den: Okay, so if I came in to you and I said look, here’s my ah budget, this is how much I earn, this is how much I spend, what would be next step be?

David: Well, there’s a few ways you can go about it. The best way to save at the moment is through, what’s called a First Home Savings Account. These are becoming more and more popular and it’s been a great initiative by the government, because they’ll put in 17 cents for every dollar that you put into this account. Now, there is a maximum – they’ll put in up to $850 per annum. This is only for people who have not bought their first home yet, so if you put in $5,000 a year, they put in $850 a year and that’s a tax free payment. Now on top of that, the accounts work much the same as a normal bank account, so you get about 5% interest rate at the moment. But the other added bonus is that all the interest is taxed at 15% now that your marginal rate. So that’s really good for higher income earners.

Den: Okay so, so not only do you get a decent rate of interest but you also get a massive tax reduction on that account, is that right?

David: It depends on your marginal rate of tax. So no matter what you’re earning you only pay 15% tax on the interest that you’re in, and the 17% contribution with the government makes is totally free of tax. So that’s where I guess if you put in the $5,000 a year, you get $850 free of tax. And there’s probably not too many other places you can get a guaranteed 17% return at the moment. If you buy a property with another owner, you can actually each have one of these accounts, as long as both of you haven’t owned their first home before. So I guess between two people that means you could be getting up to $1700 tax free. Now, with these accounts you have to have them running for at least four years before you can access the money. So you need to put in a minimum of a thousand dollars on any four individual years before you can access funds to put them into a mortgage.

Den: That’s fantastic. Well Dave thanks very much for sharing that with us and thanks for your time.

David: That’s okay, no problem Den.

Den: Okay I’ve been talking to David Silver from Financial Services Partners.

Quick Tip

Kaz: Okay Den, what’s our Quick Tip for today?Den: Alright our Quick Tip for this episode is to get rent appraisals on your property every six months. I’ve pretty much learned that through my experiences that I talked about at the start of the episode that really, I haven’t been diligent enough getting my rent appraisals. So what I’ve started doing now is I’ve set up my email, so every six months my property managers will get an email from me to say:
what is the rent that I should be getting on this property,
what is the value of my property, and
what can I do that’s easy and shape that could improve them?

Kaz: And you set up an email and…

Den: So I’ve got it set up now so it’s going to go every six months to my property manager. So really I don’t have to think about it. And what I know is that every six months I’m going to get an email back. And it might say, rent hasn’t gone up, the value hasn’t gone up and right now there’s not much you can do, and that’s fine. But the fact is I know that. So for me that’s really important.

Kaz: Great idea Den.

Den: Now, that leads onto the action. Because next week we’re going to be talking about whether you’re ready to take the plunge into your property investing. So this week we’re looking at our finances. What I would like people to do is to – it’s a bit of a difficult exercise – but keep track of every single dollar you spend for one whole week. We’ll be back with another podcast in a couple of weeks. But for this next week, keep track of every single dollar you spend. Write it down or keep it on the spreadsheet or something like that, ‘cause we’ll be using it next episode when we have a look at our finances.

Kaz: Oh, I’ve got a quick tip in relation to the Quick Tip and Action. If you’ve got an iPhone which lots of people do, there’s lots of little aps you can get to do this. So if you carry your iPhone around with you all the time, there’s lots of little free aps where you can just record what you’re spending.

Den: Yeah and if you’re an old fashioned person like me, you might just be able to get a little pad or a little piece of paper, and just write it down and keep it in your pocket or in your bag and you’ll be able to keep track of these things.

Closing
Kaz: Okay, so that’s our show for today and in the next episode you’ll get a great feel for whether you’re ready to buy your first property. We’re going to be having a look at budgets and finances and work out if you’re ready to take the plunge, how exciting! We’ll also be speaking to a new property investor. So if you have any questions for her, let us know. Send as an email at comments@everydaypropertyinvesting.com. We’ll have all of our usual segments including news and tips and don’t forget to get on over to iTunes and subscribe to the podcast. Until then!You’ve been listening to Everyday Property Investing, the show empowering everyday people to create wealth and achieve financial freedom. Please note that this show provided general advice based on personal experiences and is for educational purposes only. We’re not qualified accountants or lawyers or licensed to provide professional financial advice for you. We strongly advise that you employ the services of qualified professionals and seek their advice that is specific to your own personal circumstances.

See you next time!

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