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Media watch response to 60 Minutes: http://www.abc.net.au/mediawatch/episodes/60-minutes-property/10300068
Hey everyone, Boz here from Open Core for today’s property wealth wad. A shout out to Pete from Perth, hey Pete. This is a specific request for Pete and I imagine it’s probably a specific request from a lot of people indirectly because this is in direct response to the recent Sixty Minutes program that was around market’s going to be crashing by 40%.
Now Pete has hit on one of my personal missions if you like and that is to make sure that Australians make educated decisions. One of my big bug bears is the white noise and the sensationalist media and the lack of accountability for creating an emotional story just to get people to watch a TV program so this is going out to all of you.
The reason it makes me so passionate, I get so fired up about it is because the newspapers and the news are where most people get their information and for whatever reason whatever they read and whatever they hear they deem to be 100% factual. Nothing could be further from the truth, tune in for the next five minutes, I’ll set the record straight and I’ll help you get your understanding up to speed and start that journey on what really drives the fundamentals with the property market and why so often these sensationalists headlines of 40% drops never actually turn out to come to fruition.
Do markets fluctuate? Absolutely. Do you see price drops from time to time? Absolutely. Do you see 40% crashing and the fear of God being put into everyone with valid reason? Absolutely not. We’ll go through it. Okay, so a few key points that we’re going to cover off today, what is white noise? White noise is affectively emotionally driven journalism to create headlines that either boost you up and create heightened emotion and excitement, property markets booming, jump in before you miss out, etc, etc or it’ riddled with fear, house prices are going to crash by 40%, you better sell everything that you’ve got or you’re going to be destitute so on and so on and so on.
It makes for a really boring article to say that the Australian property market is quite balanced at the moment, supply is meeting demand and interest rates are pretty steady so the sun will come up tomorrow and we just continue on as has been, no-one would read that. Okay, so we understand why this happens, let’s take it with a grain of salt and understand why they’re trying to elicit that response and understand that the facts are not necessarily what’s being portrayed.
The reason why I get so passionate about this is because white noise is the biggest thing that holds people back from actually being successful. Give you a couple of examples of that, the crystal ball is out there. Shout to out to Steve King whose an economist from Sydney, Harry Dent whose basically a book writer under the guise of an economist from the United States. Both of them between 2010 and 2014 amongst others made various predictions that the Australian property market, particularly Sydney was massively overpriced, it was in a bubble, they made predictions about drops of 40 to 60% etc, etc, etc,
Now Harry Dent was recently interviewed because he’s writing a new book, funny how they want to get some air time but the key point was this, he was asked specifically by another property commentator, very experienced one that you made a prediction a few years ago that the Sydney market would drop by 60%, since then it’s actually grown by over 70%, you were 130% out. What do you say to the people that actually sold their assets on the base of your advice? And you know what his answer was? “I was wrong.”
Well, I can tell you right now, eight to nine hundred thousand dollars worth of difference makes a massive impact to a lot of Australians just by him creating a headline and having zero accountability.
This is why we get so passionate about it, guys it can make a massive difference, take everything that you’re hearing with a grain of salt and understand no-one had got a crystal ball, I haven’t got a crystal ball but let me ask you this. If you bought a property in Sydney, if you live in Sydney, if you bought a property in Sydney 30 years ago how would that be going for you? If you live in Melbourne and you bought a property in Melbourne, for example, 30 years ago would you be happy with that financial result? Of course you would but just remember in that timeframe we’ve had a global financial crisis, we’ve had September 11, we’ve had the age of financial crisis where share markets dropped 60%, we’ve had negative gearing removed and we’ve also had the recession that we had to have.
There are five really big headline world events white noise reasons not to buy property. We’re not in it to make money in the next two weeks. Be smart about where you buy and take a long term approach and over the long term you will get results. That leads onto buying smart. Now, two of the main experts that were interviewed in the Sixty Minutes piece, Martin North and also Louis Christopher have actually both come out recently and qualified their comments to say that those interviews were as long as 45 minutes and very selective pieces of those interviews were taken out of context in line with our predictions. We include a link to the Media Watch piece, Media Watch on ABC program, video that really qualifies a lot of that and can be quite educational so check in the copy below, we’ll include the link to that program.
The point being is that will markets crash by 40%? Two key points to understand, there is not one property market in Australia. The Sydney market has seen five years of substantial growth. Every cycle in Australia’s history is after there’s a major growth phase there is a slight correction and then things stabilize so this is just history repeating itself, just like the headlines but it never crashes by that amount. I’m sure if you’d bought an asset in Sydney five years ago that had gone up 70% and it took a five to 10% correction, you’re still 60% in front, you’ve done pretty well.
The whole point being is buy smart and understand that what’s being talked about with respect to Sydney at the moment is not representative of every market across Australia, there are different markets across Australia and there are even different markets within Sydney for example. The different asset classes basically work differently because of the nature of supply and demand and that’s really gets to understanding what drives growth which are the fundamentals.
Number one, buy smart. Don’t buy at the top of the market because growth has happened for the last four or five years and you think the good times are going to last forever. Be smart, buy where the growth is yet to happen and take advantage of that growth as it occurs, that’s the first point. The second point is understand the number one dynamic that drives price growth in anything, supply and demand. What’s the population growth? Where are the people going? Where do we have under supply of housing? Pretty basic. If there is a bunch of apartments being built in one particular area and there’s not demand to fill that supply you will see price drops, for example, Dock Lands in Melbourne. Where you have a lack of available supply, a real shortage and you have above average demand you will see price growth so just be smart about where you buy and understand the fundamentals of supply and demand.
A third point, everyone likes to talk about in the media how much debt we have in Australia. Now that’s a really sexy headline because prices have gone up consistently over time so naturally there’s going to be more debt as people buy houses as a gross number but what a lot of people don’t realize is that the loan to value ratio across all of Australia is under 30% so really ask yourself if you had a house worth a million dollars and you had a mortgage of $300,000 on that how much of a risk does that pose to
foreclosures and so on. In any market at any time there will be a select few people that over extend, borrow more than what they can afford, want to lead the blue ship lifestyle, don’t have their buffers in place, they’re the people that unfortunately this story is being used as being representative of across the Australian population, it’s just not the case.
So understand the fundamentals, keep everything in perspective and around perspective let’s understand what it requires to be successful. Success with investing in particular is about mindset, that’s why I’m talking about this, that’s why I’m doing a video about it. I hope that this is helping keeping you focused on the things that matter, not on a headline that’s unsubstantiated and is looking to a crystal ball. You probably heard of Warren Buffet, he’s a pretty successful guy, he’s been in the top five most wealthy people on the planet for as long as I can remember. One of Warren’s sayings is this, “Be greedy when people are fearful and fearful when people are greedy.” That’s exactly what I’m talking about here, don’t follow the pack and just do something because everyone else is doing it, that’s when the red flags should be going off.
I wouldn’t have bought in Sydney 12 months ago, okay but at times like this when there is a lot of negativity around and that’s going to be taking people out of the market therein lies opportunity for you to be able to acquire wealth, take a long term view, ensure your buffers are in place and ensure the holding costs are not straining your lifestyle so that you can hold this property long term and you’re not forced into financial hardship. There we go guys, Sixty Minutes did their best to create a bunch of fear, hopefully this video’s helped bring things back into perspective and understand the fundamentals. Look forward to seeing you next time and if you’ve got any comments or anything that you want to know about in particular please leave those comments below.
There’s a graph that shows those comments from all those economists I talked about, we’ll flash that up so you can see just what house prices have done and specifically where those comments were made so you can understand the long term effect and make sure that you’re not making rash decisions based on media headlines. We’ll see you next time.
2 things you might think have nothing in common, are actually very much alike.
Boz takes you through why changing the recipe is not a good idea.
What does grans Spag Bol and property investing have in common? |Property WOD | Ep. 277 | - YouTube
Hey everyone, Boz here from OpenCorp for this week’s Property Wealth WOD. Now we’ve actually got a bit of a continuation here. So as you know at OpenCorp we love to take questions from people, because guaranteed what they’re thinking is probably what 90% of everyone else out there is thinking as well. This one comes from Shane. Shane, thanks mate for your question about client night, not long ago. It’s basically an extension to what we did last week, where we were talking about the importance of buying under the median house price. So click in the link below to see last week’s W.O.D, and then this is an extension of that.
I’ve just reconstructed the diagram here that we went through last week. So basically really quick recap, here’s the most expensive property in a suburb, there’s the least expensive property in a suburb, here’s the median value, which is actually the middle value, where you have half of the sales below the median and half of the sales above the median in terms of price. Now the example we were talking about last week was a suburb in Melbourne where we have been placing some clients into, two to three years ago, and the current median house price for four bedroom properties in that area is $730,000.
Now what Shane’s question was is, I won’t disclose the amount, but let’s just call it $400,000 for example, he said, “If you had a lump sum of $400,000, what would you do with it?” This question was posed to Al, Cam, Matt, and me. Basically it’s all about staying the course and following the strategy. So I’m sure some of you that have been following OpenCorp for a while will have heard my analogy about grandma’s bolognese, she spent 25 years perfecting it, just don’t mess with the recipe, follow the recipe. We’ve been investing for 25 years, this is the formula that works and this is why.
So when we look in this particular suburb the temptation, because of the lump sum of money or borrowing capacity that we have, is to buy a more expensive property because we feel we’ll get better growth on it. The tendency to spend what we’ve got capacity for is how we work, but actually that can be the worst thing that can happen. So in essence what we want to be doing is sticking to the strategy and still buying properties under the median house price. The reason for that is because we want to be able to be building a portfolio to take advantage of compound growth, which is growth on top of growth on top of growth. So in essence if that $400,000 was able to cover three deposit and costs on $600,000 properties, compared to one to two $900,000 properties the asset value that we’ve got is still the same but the outcome from a growth perspective is far different.
This is what I mean. In order for us to be able to build a portfolio we need to be compared to more expensive properties, which we are if we buy at this price point because the median is well above our purchase price. So valuers will give us equity uplift because we are being compared to superior properties than ours. However, if we’re buying the most expensive property in the area or close to it, just because we can, the valuations are going to be compared down, closer towards the median. So where one is giving us equity in spades, one is not.
So the whole purpose of today’s W.O.D is to really help emphasize, don’t mess with grandma’s bolognese. Follow the recipe, do what’s working once, and if you have got the capacity to be able to do more, do more of these, rather than this just because you can. The outcomes will be far better. Hopefully that’s been helpful. Pick your strategy, stick to it, follow what works. It’s a proven process and we’ll see you next time.
With almost 20 years in property, 10 investment properties and a principal place of residence, Michael Beresford seems to have figured out the formula – so much so that across every property that he owns there are a number of striking similarities.
This common tax tip could get you $1,000’s back in tax…but make you poor in the process.
Is a little money back at tax time worth making you poor in the long run?
Drive the worst car your ego can handle | Property WOD | Ep.275 | - YouTube
Hey everyone, Boz from OpenCorp here. For this week’s wealth WOD …
Now, it’s not long after tax time. We’re into the new financial year, and one thing that I’m hearing a lot from people that we’re talking to of late is some of the tax advice that they’ve been given once they get their tax return back. So they’ve done their tax return, they’re paying a lot in tax, and some of the tax guidance is around how they can reduce the amount of tax that they’re paying.
Now unfortunately, quite often, a lot of this tax advice that we hear is around buying specifically cars, ’cause the tax benefit can be pretty good. But, it’s about understanding depreciating assets versus appreciating assets. Depreciating assets drop in value, appreciating assets rise in value. I’ll map it out for you.
Let’s say that the tax advice that you received was to buy a car for $60,000 because you could reduce your tax. Now, because a car is a depreciating asset, in two to three years that car might be only worth $35,000. So if I just said to you, on face value, you could buy something worth 60 grand, and in a two to three-year period it’s dropped in value to $35,000, will that sound like a smart investment? Absolutely not.
But it’s okay. Wait. There’s a set of steak knives, because what you can actually do is you can get some tax benefit by claiming this car. Having this car and claiming some tax benefit, you might get $10,000 back. Does that make it any better? Still doesn’t make it any better because what you’ve done is you’ve spent $60,000, and even though you’ve got $10,000 back, that only brings you up effectively to assets worth $45,000, therefore you’ve lost 15 grand or 25% of the value of this investment. So actually, you’re better off not getting this tax benefit, paying more tax, because then you’re still in front.
What would be really smart, however, is what if you got this tax back in your pocket in a more effective way? And instead of buying depreciating assets that drop in value, what if the arrow went this way and you’re actually able to put this tax benefit towards assets that appreciated in value?
So there we have it, guys. Be really discerning about some of the tax advice that you’re receiving. Just put a filter on what you’re hearing, and most importantly make sure that it’s not just about getting some tax back, because you’re only getting tax back on money you’ve spent already, so you want to make sure that any assets that you’re buying to get tax back go up in value rather than drop in value.
Finance management 101. Appreciating assets versus depreciating assets. Invest in the former, you’ll go pretty well. We’ll see you next time.