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

Transcript of the discussion:

Speaker	Audio
Tony	Welcome, I’m 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 I’ve been investing myself personally for 16 years now so I have a lot of experience there. I built up my property portfolio and now it’s 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 buyer’s 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. They’re two different things out there. So if you’re looking for a property, a buyer’s agent can be a good investment.
Luke	Definitely. That’s what we find. There’s 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 you’re hoping it’s not the case because you’re hoping those values will increase
Luke	Exactly and that’s why we’re buying there right now.
Tony	Yes, well its one reason. The other reason is that you’re really keen on the rental returns you’re 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. We’re 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 let’s 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. It’s not interest, it’s rent of course. But in the areas you’re 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 you’re paying on the mortgage. Otherwise you’re in what’s 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 you’d have to be almost guaranteed that you’re going to get you know, massive amounts of growth. But there’s no guarantees when you’re investing.
Tony	That’s right. So that’s why you’re positive in return and you’re positive in growth. That’s your two positives. Now when you’re 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 that’s a little bit newer so they don’t have the ongoing maintenance, the ongoing calls and emails. Then there’s 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 they’re 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 you’re probably looking at a rental return somewhere between $260 and $280 a week. So it’s 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 we’re 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, you’re either a passive investor- just want put your money in and set and forget or you’re more activist investor because there’s a bit more money in being an activist investor.
Luke	That’s right. I agree with that at the basic summary of that but there’s 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 there’s 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. We’re seeing that the wages are not that much lower than what you get in Sydney as opposed to Brisbane. There’s circumstances where it’s 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	That’s at the moment, things change. You keep an eye on the market and when things change you adjust.
Luke	That’s right, there’s a whole list of other things. There’s job growth going on there; there’s 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. That’s 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 there’s a cap on rentals. A family can afford maybe $600 a week, and that’s. So you have to buy properties which are affordable by a big proportion of the population.
Luke	That’s right.
Tony	That’s a very important thing. And you don’t stray too far out of major metropolitan areas, do you?
Luke	I think that’s where the risk comes in, in terms of what’s a regional centre going do. Yes there’s 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 what’s 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 people’s lives they don’t want the extra headaches and things like properties halving in price overnight like we’ve 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	That’s right that’s an area of the market, it’s not risky as opposed to regional. We’re looking at where’s the lowest risk for people to invest right now.
Tony	And of course you charge a fee a flat fee don’t you?
Luke	We do. We charge a flat fee of $8,800 for the purchase of properties through our buyer’s agency and that’s on per deal that we work on.
Tony	Yes, and you register, pay the money and there’s a selection of properties presented.
Luke	That’s right. We do an initial engagement, so that they have money put down so that we know they’re 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 that’s terms or price and work on a deal that will suit them.
Tony	And for sure you’ll do better in terms of your negotiating price reduction or either price reduction or terms. You’ll do much better than what you’ll charge.
Luke	Yeah absolutely and we’re going in, we’re finding off market deals that don’t 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 what’s going to work for that particular buyer who’s coming through. But yes we’re 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 they’ve got a sale.
Luke	That’s right.
Tony	As opposed to somebody off the street that they’re never quite sure
Luke	That’s right and it’s if you look at any of these types of businesses out there it’s about developing those relationships and that’s what works for us and that’s why we can get really good deals for clients.
Tony	Well it’s been great chatting with you Luke.
Luke	Been fantastic Tony.
Tony	Thank for the information and that’s 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 Luke’s details. Thank you and goodbye.
Luke	Thank you