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Buying Investment Property #1 Tony Cordato discusses property investment strategies with Luke Moroney
 

Transcript of video:

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Tony

Welcome, Iím Tony Cordato property lawyer. Today I have the privilege of having a chat with Luke Moroney. Welcome Luke

Luke

Thanks Tony. Thanks for having me.

Tony

Luke is a property buyer. Luke loves looking at properties, Luke likes finding little gems of properties for people who need some help in buying properties or want some help in buying properties. So tell us about yourself Luke.

Luke

Well Iíve been investing myself personally for 16 years now so I have a lot of experience there. I built up my property portfolio and now itís all about helping other people. So we help people as buyers agents, we typically focus with the investor market and we look for affordable properties that people can look at for cash-flow and or growth so they can build their wealth.

Tony

So a buyerís agent just looks after a buyer?

Luke

Correct

Tony

A real estate agent looks after the seller who of course pays the real estate agent commission for the sale. Theyíre two different things out there. So if youíre looking for a property, a buyerís agent can be a good investment.

Luke

Definitely. Thatís what we find. Thereís a lot of value in what we do and what we can create for clients.

Tony

So Luke, you specialise in investment properties. Investment properties that are in a certain price range.

Luke

Yes typically that price range, most our clients are buying is probably between $250,000 to $450,000 for houses. Our typical focus is in the 15 to 35 kilometre range outside of Brisbane.

Tony

So at moment, Brisbane offers houses between $250,000 and $450,000

Luke

That might not be the case in 3 or 5 years time

Tony

Well actually youíre hoping itís not the case because youíre hoping those values will increase

Luke

Exactly and thatís why weíre buying there right now.

Tony

Yes, well its one reason. The other reason is that youíre really keen on the rental returns youíre getting from those kinds of investments.

Luke

Yeah I guess a lot of people from Sydney might be watching this. What we call a gross yield on a property might be between 2 and 3 percent in Sydney. Weíre finding that in Brisbane, in the outer suburbs of Brisbane, we can get somewhere between 5 and 8 percent of gross yield on a property.

Tony

Yes, so letís just work that one through. Like if you put your money in a term deposit you get 2 percent interest. If you put your money in your standard Sydney house you might get 3 per cent. Itís not interest, itís rent of course. But in the areas youíre looking at in Brisbane you put your money in and you might get 5 percent as a rent or interest equivalent and 8 per cent.

Tony

Yes, so your return, I mean in simple terms, your return on property has to cover the interest youíre paying on the mortgage. Otherwise youíre in whatís called negative gearing territory.

Luke

Exactly

Tony

Now you can do negative gearing at the moment of course and it can make sense for a short time, but you know the winds of change are blowing against negative gearing.

Luke

They certainly are!

Tony

Not only politically but also just economically, why would you want to go to work and subsidise somebody renting your property

Luke

Yes youíd have to be almost guaranteed that youíre going to get you know, massive amounts of growth. But thereís no guarantees when youíre investing.

Tony

Thatís right. So thatís why youíre positive in return and youíre positive in growth. Thatís your two positives. Now when youíre looking at a property what do you prefer, what style of property do you prefer? Do you prefer houses, townhouses, home units?

Luke

Each particular client as their own requirements when it comes to their investing and their strategy and their mindset. We really need to dig a little deep and find out who they are. Are they able to do a renovation on an older property that requires ongoing maintenance on it. The strategy for that particular person is to buy something thatís a little bit newer so they donít have the ongoing maintenance, the ongoing calls and emails.

Then thereís another type of investor who might want this is the future for them. They want to get involved in property investing they want to make this a path for their life as opposed to someone who sort of sets and forgets and so they might want to get involved in a little like of renovations and a little bit of repairs or in a granny flat development. Then maybe further on, do a development themselves.

It will be a little bit horses for courses in terms of clients. If theyíre looking at a high cash flow play this could be a townhouse might be 2 bedroom. You are probably looking in the market at somewhere between $160 and $180 thousand right now and youíre probably looking at a rental return somewhere between $260 and $280 a week. So itís a very good cash flow.

Most of our clients like the idea of potential to put a granny flat or subdivide a property or a renovation. So your property prices are somewhere between the $250,000 and $450,000 price depending on the areas that weíre working on. There is potential to do those developments on those properties because he lower price range outweighs some of the risks involved, and obviously the potential growth is built in there as well.

Tony

Yes, so in summary, youíre either a passive investor- just want put your money in and set and forget or youíre more activist investor because thereís a bit more money in being an activist investor.

Luke

Thatís right. I agree with that at the basic summary of that but thereís a few nuances in there according to individual circumstances, individual likes and dislikes. So we will take them into account as well.

Tony

Oh and just going back, why do you like that price range below $450,000?

Luke

Look, I think in this day and age in this type of market where finance is tight, this is especially important because thereís a lot of affordability issues in Sydney and Melbourne. Many people are starting to look to interstate movements such as such as immigration into places like Brisbane. Weíre seeing that the wages are not that much lower than what you get in Sydney as opposed to Brisbane. Thereís circumstances where itís actually quite affordable for people to live for half the price to buy or to rent in those comparable suburbs when you look at apples for apples.

Tony

Thatís at the moment, things change. You keep an eye on the market and when things change you adjust.

Luke

Thatís right, thereís a whole list of other things. Thereís job growth going on there; thereís a lot of infrastructure projects being put on, and I think it just comes down to price. What can people really afford in Australia. I remember a statistic a few years back was 47% of people in Australia live from pay cheque to pay cheque. Thatís significant, and when you talk about affordability and prices in Sydney going up 70% who can still to afford to live in Sydney.

Tony

And of course thereís a cap on rentals. A family can afford maybe $600 a week, and thatís. So you have to buy properties which are affordable by a big proportion of the population.

Luke

Thatís right.

Tony

Thatís a very important thing. And you donít stray too far out of major metropolitan areas, do you?

Luke

I think thatís where the risk comes in, in terms of whatís a regional centre going do. Yes thereís been growth in many regional centres over the years, are you are going to have a higher risk of tenant vacancies in some of those areas. So I think for the average investor, we want to look at firstly whatís the risk level for them. So getting into investment that provide lower risks firstly, and then secondly, the potential for growth. So you know going through peopleís lives they donít want the extra headaches and things like properties halving in price overnight like weíve seen recently with some of the off-the-plan units in areas of Sydney. So just because of the way things were built. This is dangerous for investors.  

Tony

Too many of them.

Luke

Thatís right thatís an area of the market, itís not risky as opposed to regional. Weíre looking at whereís the lowest risk for people to invest right now.

Tony

And of course you charge a fee a flat fee donít you?

Luke

We do. We charge a flat fee of $8,800 for the purchase of properties through our buyerís agency and thatís on per deal that we work on.

Tony

Yes, and you register, pay the money and thereís a selection of properties presented.

Luke

Thatís right. We do an initial engagement, so that they have money put down so that we know theyíre genuine and want to move forward with the property purchase. We present them with properties. Talk to them about a strategy that they want to adopt and once they select one of those particular properties, then we go forward and negotiate on the property, whether thatís terms or price and work on a deal that will suit them.

Tony

And for sure youíll do better in terms of your negotiating price reduction or either price reduction or terms. Youíll do much better than what youíll charge.

Luke

Yeah absolutely and weíre going in, weíre finding off market deals that donít even hit realeaste.com.au or domain.com.au. And agents are presenting us with deals. And sometimes, the terms exceed the drop in price value so you have to look at whatís going to work for that particular buyer whoís coming through. But yes weíre getting significant discounts on properties.

Tony

Yes because of your relationship with the real estate agents and they know that if you agree to a price theyíve got a sale.

Luke

Thatís right.

Tony

As opposed to somebody off the street that theyíre never quite sure

Luke

Thatís right and itís if you look at any of these types of businesses out there itís about developing those relationships and thatís what works for us and thatís why we can get really good deals for clients.

Tony

Well itís been great chatting with you Luke.

Luke

Been fantastic Tony.

Tony

Thank for the information and thatís it for now. If you want more information go onto my website www.propertyinvestmentlawyer.com.au or email me through the website and I can give you Lukeís details. Thank you and goodbye.

Luke

Thank you


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