Property planning and your next purchase – critical considerations and why modelling financial outcomes is vital to success (Ep.92)

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In this week’s episode, Dave, Cate and Pete take you through:

Peeling back the onion to determine the pathway forward. The Property Planner shares the layers of steps to be taken and decisions to be made to come to the right outcome for your next property decision and your long-term portfolio plan. The key is to understand that investment decisions are intertwined with your lifestyle and family choices.
Achieving clarity for your long-term goals and your next decision. Keep your binoculars and magnifying glass handy as you go through the journey of seeing your long-term goals with clarity and focusing in detail on your next decision. The pathway in between may change as you go through life, but having one eye on the end outcome and one on the next step will help you get there.
Hold or fold? The trio discuss the considerations, emotions and cognitive bias that factor in to making decisions about property you already own. What holds people back from making these decisions and why might you keep a property that is not performing?
Timing a property divestment. The Property Professor shares key tax considerations to be mindful of when putting together your divestment strategy.
Selling property – two sides of the coin. Understanding whether a property you own is top quality is only one side of the coin. The other side is understanding what you will be able to achieve by selling and is paramount to making successful property decisions.
Planning for the flexibility stage of life. As we’re working for longer, it’s more common now to scale back work, rather than stop abruptly. You’ve still got investment decisions to be made post-retirement, you may not be on the same retirement timeline as your partner and your debt consolidation and divestment strategy need to take that into account.
Modelling your next property decision. The best way to make an informed decision is to fully understand the different options available. The Property Planner shares the key components and moving pieces that need to be considered when determining the strategy for your next decision, including mortgage structure, loan to value ratios, money goals, cash flow considerations, price point and buffers.
Lifestyle v investment. Whether your next decision should be lifestyle v investment is a conundrum faced by many. Modelling scenarios can help you understand the full picture, including how the purchase will impact future decisions, to determine what is the right step for you.
Modelling capital growth. The trio share the key growth rates to use when modelling out the projected performance of your investments. It’s better to be conservative and experience a happy surprise on the upside.
And of course, our “gold nuggets”

Market insights

Business confidence reaches decade highs. According to the NAB monthly business survey, business confidence rose further in February to reach 16 index points, its highest level since early 2010. Whilst we’re still not on the other side of the pandemic, it shows the human psyche of bouncing back from difficult circumstances, and also demonstrates the power of social proof to build confidence.
GDP growth revised up by the OECD. The forecast for GDP growth has been upgraded from 3.2% to 4.5%, which puts Australia on the top of the Covid-19 ladder for the strongest bounce-back economy for 2021.
Properties in the top quartile show outstanding growth. According to CoreLogic, properties in the top quartile of value are growing at the fastest rate. Historically, other downturns and recessions have demonstrated that top quartile properties drop fastest in the downturn and rise the quickest in an upturn.
Price as a function of supply and demand. The Property Professor shares insights that draw a correlation between new finance commitments compared with total listings to paint the picture of supply and demand driving value growth.
What’s driving the market in Ballarat? Renters are opting to purchase as mortgages are now more affordable than ever. Facing rents of 4.5% versus 2.0% for a mortgage is an opportunity many locals are taking advantage of.

Resources:

Show notes:

Peeling back the onion
All of our lives are a journey, we all have an onion to peel back as we’re trying to figure out our pathway forward. Our home, lifestyle and investment decisions are so intertwined with our lifestyle and family choices. The property plan, is a journey, it is peeling back the onion. Go through a number of steps to come to the right outcomes for their next property decisions, but also for their long-term portfolio plan.
The layers of the onion:
- What would we like our retirement to look like/flexibility stage of life.
- What does your long-term home look like? Couples can have different perspectives – what we prioritise, where we want to live, what do we want for our family, where to send them to school. They are the outer layer of peeling back the onion.
The onion layers you wish you could peel and throw away
- Not re-visiting and re-adjusting goals as you go through life
- Looking too far ahead – purchased the family home in Hobart years ago. We thought about the end goal and didn’t think about the journey there. It wasn’t viable and we haven’t lived there. We could have bought something different if we weren’t emotional about it.
The binoculars and the magnifying glass
Get clarity on your long-term goal
Looking through the magnifying glass for your next decision
Then there’s a bit of a map/journey in between – and that may change and adjust as life changes and adjusts
Hold v sell analysis
Sunk Cost fallacy: this can be a real liability if you’ve purchased a dud property. Don’t hold onto a bad decision against all logic to protect your ego. If it is right to offload an asset, then have the courage to do so.
Analyse each property – 40 components of the dwelling and 40 components of the location. The education from a detailed 20 page review of the suburb, location and dwelling of up to three existing properties.
Are the properties quality? Anything holding them back, will holding or selling help achieve the long-term goals?
How to achieve flexibility with your lifestyle and employment – scaling back work, divestment strategy, consolidation.
What are some of the key things that hold people back from making this decision?
One member of a couple is driving the investment choices, they’re trying to do the right thing. It’s a bit of a hit, if you’ve made a poor choice. It’s tough and maybe even embarrassing to take. It’s a tricky conversation and all part of the education journey.
If the property has been held for long enough, it may have become neutrally or positively geared and there’s less incentive to sell off, if it is producing a positive income.
Timing a divestment
When selling an investment property, 30th of June is the important date. If you’ve got property to sell, you probably want to sell them in different financial years.
Date of contract, not the date of settlement.
Selling the property is one side of a coin, the other side of the coin is ‘what is that going to allow you to do’? Eg
- Will you get cash?
- How will your borrowing capacity change?
- How does it impact your cash flow or money goals?
- Does it allow you to purchase your investment property, your long-term home?
- You need to do the modelling so you know what you can do after you sell the home
Flexibility with your lifestyle
How to achieve flexibility with your lifestyle and employment – scaling back work, divestment strategy, consolidation.
We see people working for longer, but scaling back the work. Rather than old fashioned work full time to just suddenly stop.
You’ve still got investment decisions to be making post-retirement
Consolidation – getting rid of debt on the way or after retirement, connected with divestment strategy.
Next property decision modelling
Get clarity around the right price point, mortgage structure, loan to value ratios, money goals, how much cash available, net monthly surplus.
What does it look like if you make the leap into the long-term home v an investment property. How does that impact the decision that comes after that?
Capital growth modelling
Gross return capped at 8% (that is capital growth and yield) – even if the property has performed better than that. Then factor in that the property will only be rented out for 48 weeks of the year, higher interest rates and holding costs at 1 or 1.5% of the value of the property.
Shares modelling done the same, so that there’s no bias between the two.
Shares can grow at a higher rate, but there’s more volatility.
What drove us to do this?
Couldn’t believe there was a whole financial planning industry but no property planning, and there was no where you could go to get independent property advice.
Pulling all facets together – buyers advocacy, financial planning and mortgage broking.

David Johnston- The Property Planner’s Golden nugget: when you’re thinking about your next property decision, ask yourself if you are really clear on the financial outcomes? Do you know your existing cash flow, then do you understand what your cash flow will be after you purchase a property, how that purchase will impact your future property decisions, what will your loan to value ratios be, how much do you need to contribute and how will it impact your ability to buy the future long-term home?

Peter Koulizos – The Property Professor’s Golden nugget: when you are planning, you need to keep in mind the primary goal. What are you trying to achieve? Get you and your significant other on the same pathway. Your goals may change over your life, keep revisiting the primary goal.