Show notes – First Home vs Forever Home; Dream Home vs Investment – What are the trade-offs and key considerations? (Ep.181)

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The trio reconvene following Pete’s student field trip and Pete shares some of his learnings from Abu Dhabi and congratulates a past student from “Little Old Adelaide” who is now in a senior role in a an asset management directorship role. Pete’s valuable reminder is that you can achieve anything in this industry when you put your mind to it.
In this week’s episode, Dave, Cate and Pete take you through:

Market updates

  1. Comparing Australian property and Abu Dhabi’s property differences; the UAE have a tight new commercial property market, among other differences, and Pete reminds us that we can’t just look at the income of the people that are working there, but the income of the people that are buying there. We also note that Abu Dhabi workers are expected to attend work in the office, (as opposed to our work from home and hybrid arrangements in Australia), and this has shaped a very different commercial property scene.
  2. NSW first home buyer optional stamp duty is now live! Cate shares this update and notes that the option is eligible only to first home buyers who have purchased sub-$1.5M. Is this initiative a trial for all NSW purchases going forward? Only time will tell, but the trio will note the impact on this segment of the market and stock availability.
  3. Crypto currency risk bounces back onto the market update playlist. Dave brings up the recent FTX crash and reminds our listeners of the highly speculative digital asset market. Founder Sam Bankman Fried, tipped by some as “the next Warren Buffet” lost his entire fortune within days as his crypto empire filed for bankruptcy and he will possibly be indicted on charges for the mismanagement of FTX. Interesting? Scary? Maybe a bit of both.
  4. This may surprise our listeners, but the first home should be selected with investment potential in mind. A first home buyer who is buying a stepping stone property will likely have a limited deposit and lesser income, but it’s essential that they aim to buy a property that will outperform other properties so that they can springboard into their ideal home. Buying close to CBD, amenities or water will help a buyer to achieve “better than average capital growth.
  5. Bigger is better when it comes to land size for the first timer, but location counts for everything. Pete reminds listeners that a small land allotment is fine for the forever home, but he instils his wisdom in this episode when he talks about an important concept; size of land is important, but location of the land is really important for capital growth.
  6. Oldie, but a goodie! How old is too old? Cate and Pete dare to disagree… but the most important tip for listeners is to remember the importance of “land to asset ratio”, the trio’s golden rule. Pete loves his period homes, but Cate points out that a renovation project or a property that the lender’s valuer scrutinises can also present difficult challenges. Buyers need to make sure they can actually settle the property and cover the cost of their renovations; always a tougher quest for a first home buyer who doesn’t yet have equity to borrow.
  7. Leave the luxe listings off the list! Grand kitchens, bespoke bathrooms… Pete takes us through all of the reasons why ‘luxe-ing up’ an investment property is a terrible idea. Ultimately, the cost of the luxe renovations will potentially present an over-capitalisation risk, but at best, an insufficient return on investment. The rental increase that a landlord can anticipate after a significant spend may in fact disappoint them.
  8. Dream home versus investment property – why we need to look at each with such different lenses. “Would I live in this place?” is usually the wrong question for an investor to ask, unless they are representative of the target tenant. Location, land and looks are one of our favourite of Pete’s mantras.
  9. The best pool is someone else’s pool! As Cate often says to her clients, pools come with all kinds of responsibility and maintenance/safety issues. The compliance is enormous, and in the cooler states in particular, pools can be a detractor when it comes to tenant appeal.  Dave’s sagely advice is worth noting, “When it comes to investment property, stick to the things that most people want.”
  10. Are larger dwellings the holy grail for capital growth? Dave explains why targeting 3BR+ properties is a great approach from a macro perspective. There is a reason it is the most popular number of bedrooms in houses across the country and investors should be targeting the kind of property that will have the highest demand. The 3 bedder has only been enhanced , following our lockdowns and subsequent work from home arrangements. Cate rightly points out that on a more micro or nuanced level this macro view isn’t a catch all and reminds the listeners that demographic profiling is so essential when it comes to bedroom count. While she concurs that a larger property is more likely to attract buyers and renters alike in so many suburbs, each of our cities still boast areas that attract cashed up singles and couples.
  11. Is it ok to luxe-up your dream home? Expensive and delicate features should be left for your dream home, not your investment property. Cate tries to coax out a horror story from Pete but he resists!

Gold Nuggets

Peter Koulizos, the ‘Property Professor’s’ Gold Nugget: Pete shares his well-loved pearl of wisdom, “If you’re looking to make money, it’s about location, land and looks!”
David Johnston, the ‘Property Planner’ Gold Nugget: Dave also share a have a plan for the big rock in the jar, (i.e. the family home). This can help investors finding themselves feeling financial pain or scrambling to divest their acquisitions down the track. “If you fail to plan, you plan to fail.”


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