Episode 161 | Listener Q&A: Building your own home, retiring on property & sustainable properties? | Host Special

We answer your questions about how to retire on property and building your own home.
In our firth Q&A host special, Veronica and Chris jump into your questions! What to look for in the land before you buy? Can you retire with just investment properties? Is buying and building your own home a good idea? How do you know if you’re buying the top end of a suburb? High strata cost, what are you paying for? Is there a new incentive to buy sustainable properties? 

Questions:

1. “Are there any things a buyer should look for in land besides location and size? If it slopes? Do all new properties decrease in value after build?”
   

2. “How does buying your own land and building vs house and land packages, and renovation of established?”
   

3. “Is there a viable option to retire without selling down or without killing the geese that lay the golden eggs? How does one do it before the age of 60 without super and just via property, and without selling down half or most of the properties to get there. I guess that's an episode I'd love to listen to?”
   

4. “One of the things I would like to hear your views upon is how do you evaluate / research when you are, say buying a market leader property in a suburb ?”
   

5. “I’ve noticed when I look in the lower north shore that a lot of properties have high strata, I’ve heard councils are starting to audit strata run buildings to confirm they are up to fire code etc?”
   

6. “Do sustainable properties receive a premium on the potential property value? ie: is there any analysis on buyers being willing to pay more for a sustainable product?”

RELEVANT EPISODES:
Episode 127 | Q&A 3
Episode 99| Archi Blox
Episode 98 | Q&A 2

HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: info@gooddeeds.com.au

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

Send in your questions to: questions@theelephantintheroom.com.au

EPISODE TRANSCRIPT: 

Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…

This episode was recorded in January 2021.

Veronica Morgan:

In this episode, we're answering some of your questions. We'll be covering what you need to look into when buying land to build a home on what not to forget when you're building a property portfolio to retire on things, to consider when buying a home and the top price bracket for an area, reasons why some apartment buildings have to impose special levies and whether property buyers will pay more for sustainable homes.

Veronica Morgan:

Welcome to the elephant in the room. This is the podcast where we love to talk about the big things in property that never usually get talked about. I'm Veronica Morgan, real estate agent buyer's agent co-host of Foxtel's location, location, location, Australia, and author of auction ready.

Chris Bates:

And I'm Chris Bates mortgage broker. Before we get started, I need to let you know that nothing we say on here can be taken as personal advice. We always recommend you engage in the services of a professional. Don't forget that you can access the transcript for this episode on the website, as well as download our free, full or forecast to report, which experts can you trust to get it right? The elephant in the room.com did I? You

Veronica Morgan:

Okay. Our first question is from Mitchell and here it is my questions in relation to buying land and building a new home. Are there any things a ABAR should look for in land besides location and size? If it slopes question Mark, do all new properties decrease in value after build over to you. Chris, what do you think?

Chris Bates:

Thank you for the question Mitchell. It's a very interesting one where if you have been listening to this podcast for some time, you obviously can see that we're massive fans of established property. Very scarce land and houses with a bit of character that had got scarcity to them, but sometimes, you know, clients will want to consider making their own home. And in sometimes it can be a great idea. And I think where it's not a great idea is when you buying land, it's not scarce such as, you know, a new house and land package in the fringes or even those sort of infill sites, you know, they are quite common where it used to be something. And then all of a sudden there's 500 new homes in the middle ring suburb. I think they're a bit dangerous as well. So I guess it's the scarcity of the land that really matters if you're going to go down a new home, because you want to make sure that over time that land goes up because the house itself is probably going to depreciate, even if it is a nice looking house, most of the times, you know, everything ages with time fashions, et cetera.

Veronica Morgan:

Well, that's the thing. There is an element of fashion when it comes to architecture and things go through cycles or styles, go through cycles. And certainly in the nineties, think about all those glass bricks and angled rooms that are so unfashionable now. And before that the nineties, sorry, the eighties split-level homes, which are actually starting to come into fashion again. And you know, so there's a whole periods of time where, you know, it is you buy sort of devalues, not just because buildings depreciate, but because of the fashion element. And like you say, the scarcity of character homes, then they sort of come into their own Victorian cottages, for instance, in water and cottages. Well, you can't build them anymore. And they sort of, I think there'll be going to be in fashion forever, really because they're sort of vintage really the things to consider to a development restrictions and what you can build on the land.

Veronica Morgan:

So if you're buying a house and land package, well, the scarcity is issue, same, same, same little boxes on a hillside, you know, all that sort of stuff. It's a problem. But if you're buying a block of land in an area that's established where it's sort of one block in a, in a street that somehow has been subdivided off a big block, or potentially you're buying a house to knock down and rebuild. So you've got to look at well, what is the rest of the suburb doing? And is it going to look like a mishmash? And is that going to impact on prices on term? Because, you know, Willoughby's an example, Willoughby's a suburb where some of the suburb is conservation. And so it's got streets of beautiful, you know, period facades, and that really adds value. And then you've got other parts of the suburb where you can knock down houses and you can build under complying development, which means that it's cheaper to build, but long term, the value of the asset is not going to be as high.

Veronica Morgan:

Because as I said before, you, you know, buildings date and they get out of fashion and sometime ago will buying house in Strathfield. And it was interesting because there were a lot of knock-down rebuilds there and some had been architecturally designed and others had been, you know, the big sort of expensive, but project homes and on the same sort of size block of land, similar size home, similar location, you would see a million dollar difference between the architectural style home and the project home. So over time, that sort of gap between, you know, what you put on it between you know, a good decision or a more expensive decision, obviously. And, and you know, more of a, a budget type build that gap can actually translate into much less capital growth. And so you're not really maximizing the value of the land that you built the property on. Yeah.

Chris Bates:

It's an interesting point around Stratford and Olivia, I mean, we've got some clients that are doing quite big rhinos and definitely knock downs as well. And yeah, I always like to check in and they say, Oh, you know, planning, the da is going to go in and we should have it in a couple of months. And then I'll touch base a couple months later. And they said, Oh, we're hitting problems. You know, neighbor issues, counsel being picky. And you know, it's like trying to buy a good property. If it's hard to buy, it's actually a good sign. And so it's hard to get your sort of development approval. It's hard to get your renovation through. It's good because it bond, it does protect neighbors. Once you've got the problem, you've done your rent, I doing things that are going to impact your property or change the whole feel of the suburb.

Chris Bates:

You know, when I client trying to buy a new townhouse up in the central coast just recently, and there's not that many new townhouses up there cause developers haven't gone there because, you know, it takes, didn't think they could sell the stock a couple of years ago. So this person would maybe a bit of foresight this developer it's probably going to do quite well out of it because he's beat the market. But in five years time, if he's been able to sell well, those townhouses, the whole street will be townhouses because developers would be like, is it way to make money here? And so you just gotta be really careful when you're doing a build that, you know, things can really change over time. So if you can do a knockdown rebuild really easily, well that means the neighbor can do it. And you just, aren't in control of that. You just don't know what's going to happen.

Veronica Morgan:

I think you also asked a question about, you know, if it slopes for instance, and certainly level sites with easy access, you know, for builders to bring materials in, et cetera, et cetera, you know, they're always going to be cheaper to build on than say a sloping slot site or a site with lots of rock or not enough rock actually, cause you need rock to, to for your foundation. So, so there's, there's a lot of aspects to the build costs other than just simply, you know, putting a house on a block of land. And there's obviously the hidden costs of, of approvals and various searches and various, you know, deposits to council, et cetera, et cetera, et cetera. So, and, and you can get some fixed price contracts and, and some cost plus, and this there's a whole world out there that needs to be considered.

Veronica Morgan:

I think too, that it does lead into a question from Rebecca that we got by Facebook. I know from listening to your podcast for the last couple of years, established winds over house and land packages, but can we explore the case of PPR or principal place of residence? How does buying your own land, a building versus house and land packages and renovation of established. And it does, it does very much depend on the location and what you can afford. And I think what you said there about, you know, if it's easy to develop, then that's a warning sign. It exactly is a very, very good point. So you know, food for thought there. And I get also the thing too, that I notice is that when the market does get difficult, people do start turning to the idea of knocking down and rebuilding or trying to buy land and build as an easier solution. And sort of interesting when you think building is easier than buying established, it sort of somewhat says a lot of market conditions, but it does. It is something that I think a lot of buyers turn to thinking that that's going to be easier than trying to find the, you know, in inverted commas the perfect time.

Chris Bates:

Yeah. I think you've got to be really careful when you're trying to do how land package, you know, it's very rare that you're going to, from an investment point of view, buy something, that's a great investment, you know, because it has to be on a very scarce location that just doesn't really exist. We had a client looking at one just a couple of weeks ago where it was a 2000 square meter block and they kind of said, well, it's got to be scarce. There's many, 2000 square meter blocks around here. And I said, well, just go on the satellite, you know, Google maps and just have a look at all that land. Who's to say that they don't all become 2000 square meter blocks if they sell. And so, you know, you might think that you're buying something scarce, but it might not be in the future.

Chris Bates:

I think if you, if you're talking about the other two options, so doing a renovation of an established you know, we probably think that's probably the best option because if you're buying something that's established as if it's got a frontage, that's got character to it that can't be replicated. And then you renovate out the back, that's nice and modern. Over time, the front won't Hage, if anything, it becomes more desirable over time, but if you do it and knock down rebuild, just because of those sorts of fashion trends you know, they do age really fast unless they're pretty special, but also to do it, I sort of knocked down rebuild. It's actually quite difficult from a finance point of view. We've got a client at the moment, you know, saying, Oh, we don't think we can find what we want. We're just going to do a knock down rebuild.

Chris Bates:

And the reality is they can't do it because the deposit you need is a lot larger than the deposit. You need to buy something and then rent it, well, buy something. And then renovate. The reason is that banks a lot of banks don't want to do construction loans over 80% LVRs and even if they do some will you have two things that two problems that you'll get down the line, the first problem you'll find is that building costs will be a lot more than you expect. I mean, you've just done a build Veronica, I'm doing a pretty big landscaping renovation at the moment. And I was laughing when you were talking about digging. I didn't have a clue how much digging that was going to be required and the access problem that we're facing, but we're getting through it.

Chris Bates:

But yeah, that was not in the budget, you know? And so the bill costs especially when the market's hot builders you want to work with the good ones. You want to build a nice house, right? You don't want to be left in the lurch halfway through a build or them to collapse or et cetera. So even if you pick a good builder, when, when they're busy and they're locking work in six, 12 months in a, in a box, are they gonna throw a little number down on the contract? Are they going to throw a big number and hope you take it? And what we've seen is building costs rise dramatically over the last five years. Is that what you're saying, Veronica?

Veronica Morgan:

Yeah. What you're saying is absolutely correct. It was funny. They did sort of seem to slow down a little probably, and very nicely for me, right. When I actually signed with my builder, you know, and the architect had said to me, look, this is the first time in quite some time where I've got builders calling me asking if we've got something for them to tender on. And, but that was short lived because then of course, you know, I literally, that was a nine month build and I moved in just before a lockdown. And then now with COVID they're, they're so ridiculously busy that they've actually got contracts signed out 12 months now. And so no one's knocking on the doors asking if they can quiet, you know, if they contend to. So there is, there was a little tiny area, there were opportunity to step in, but it seems to be that that door has closed, but you're absolutely right.

Veronica Morgan:

And, you know, the builders also will pick and choose the sorts of jobs that they want and that fit best in their in type ability. And they will quite accordingly, you know, they'll quite high if they don't want you to be honest with it that way. And this is one of the reasons why people do go for house and land packages, or they do go for project builders because, you know, that's, that's a, it's a factory effectively. It's a, it's a, you know, very much a process and, and you know, they've, you know, the, the it's, it's the economies of scales and the whole bit, so it's a totally different exercise building a house in that way than it is to do what I did, which was actually to do pretty much knock down, rebuild, retaining through walls. But you know, using an architect, et cetera, et cetera. So they're, they're very, very different beasts, if you like.

Chris Bates:

Yeah. Some clients look at these modular homes as well, where I'm sure some people get very excited when we had we had RQ blocks on last year. There's one of the modular homes, sort of pro bill. It's another one. There's heaps of these modular homes. Unfortunately, the banks don't like them in terms of the way they do finance. They can't control the risk. And so a lot of people think, well, we'll just do a modular home, but unfortunately you probably won't be able to get financed unless you're a cash buyer. The other issue people have with building and doing knockdowns is really the end valuation valuations sort of the thorn in our side, I guess, as a business, we you know, when clients have got a property in, they're looking to upgrade, they want to do a bridging loan, or they want to do a refinance.

Chris Bates:

We always cross our fingers when we order the valuation. And most of the time we're disappointed because values have no incentive to, you know, be aggressive or be they'll always take the more conservative route because there's just no incentive for them. And we're always going to be frustrated with the valuation. So when you do a build, you think I buy it for a million, I'll spend 500, it will be worth 1.5. You'll find that the value will be a bit conservative and valued at 1.4 or 1.35, and then it stuffs up your whole plan. You can't get a construction loan. Now you've got an un-renovated and knocked down house that you can't rent. And things can get messy quite quickly. You build costs, shoot up et cetera. So just, we've got to be really aware of the risks. Whereas a renovation, I guess, ideally you can live in it a few years. There's by, well, there's a bit of growth. You can save some money and then you can go and get a construction loan. And if you don't get it, then you can still live in the property. You're not sort of stitching yourself up.

Veronica Morgan:

I just gotta make sure that the property by to renovate is worth renovating. Now we got another question here. We got a question from David. He says, ease of property, investment enough to retire off properly. You want to understand the end game of retiring purely off property, but not necessarily any other investments. So he wants to know, is it possible? And living off the equity has gone. The way of the Dodo weed prudent lending is a viable option to retire without selling down or without killing the goose that laid the golden eggs CLI implementable solutions is what's missing on this topic. It's all very theoretical out there. So perhaps pick a number like a hundred thousand. How does one do it before the age of 60 without super and just fire property and without selling down half or most of the properties to get there. So what do you think on that one cruise?

Chris Bates:

So being a financial planner for so many years, this is, you know, putting spreadsheets together, forecasting, trying to figure out how to do these sort of things. I've done more than once. And it's definitely possible, but you can't just come to a mortgage broker or a financial planner in your fifties and say, I want to retire in five years. How do I do it? These take, you know, decades of constantly carefully managing your portfolio and carefully managing your debt. And you've got to have that mindset from the start. So what you've ideally got to do is when you purchase property is, is try to keep the debt on that property as high as you can. And the way that you do that is potentially you borrow on interest only, or you borrow on principal and interest and then refinance every one or two years to keep extending your payments.

Chris Bates:

You use offset accounts. And ideally when you get to retirement, you've got an enormous amount in offset accounts and you still own the property. And so you get to retirement and you've say, let's say you got $3 million of property and you've got $1.5 million in offset accounts. Now, in that situation, you can live off the rent because it's fully offset. But if you need to sort of get access to cash, because it's not enough for your income, then you can just use the money in the offset account. Now, the key thing is when you get to your fifties, at some point, you're not going to be able to do refinance again, because banks are going to be saying, you're getting too close to retirement. Some banks will still do it in the sixties. And what you want to do is try to get the longest line term.

Chris Bates:

You can, as late as you can in life. So you're 55 or 58, you get a 30 year loan, which still does happen. And so then you can live off that offset. You don't have to pay your loans down et cetera, but reality is, you know, if you only got property, you should be really have super. I mean, if, even if you're a business owner, you know, it's a great opportunity to put money into super, if you're working, you should be putting money, you have money in super. So I, I can't see why you wouldn't have super, unless you've just moved here from overseas or something. And so really that, your other option, you can sell assets, not ideal, leave off your offset account, live off your super, and then when you run out of money there's a one final option, which is reverse mortgages. And now reverse mortgages are being not a big part of the mortgage market. You know, it's, it's been quite difficult. We responsible lending, et cetera, which is rightly so sometimes where responsible lending may change in 2021. And if it does reverse mortgages would be a product that I could see come to market a lot more. And then you could potentially live off a reverse mortgage without selling your properties. So that's kind of the overall strategy. It's carefully managing debt and living off offset accounts.

Veronica Morgan:

Let me get this right. It sounds, it sounds a bit risky to me. So this, the, this would hinge on you really buying quality assets, right. And because what you'd be doing, you're saying, so say you started off with property for 400,000 and you would have put in your $80,000 deposit. And then, you know, you get some equity buildup in that. And obviously, hopefully you've got good income because you have to support the borrowing over time. And then you just basically put, put interest and then everything else goes into the offset and then you buy another one and, and then same deal. So effectively you've only ever put in $80,000. Right. And so everything then goes into, yeah. And then when you retire, you go write big fat off skit, offset account, hopefully. And you've got all the debt that you've originally got basically still sitting there. And you would just basically recycling the money through the offset account and, and draining that. And then hoping that when you get to the point where you've run out of that money, you can then go to the bank and say, look, there's enough equity. Now I want to reverse mortgage. Now I'm going to borrow against the equity game. So effectively what you're saying is that you basically only ever spend $80,000 on an entire property portfolio under that circumstance in your entire,

Chris Bates:

You have to say ridiculously high, but you have to say ridiculous. If you don't put money in the offset and you're not. So it's, it's an offset against is only risky. If you know, what matters is your net loan? So I'm, I'm happy to have $3 million of lions. If I've got a million dollars in the offset, my net loan is 2 million. So what you're really doing is yes, you're taking out more loans, but you're, you're what you're still doing. The hard yards, you're still saving. You still paying off your loans, but instead of paying off your three principal and interest and trying to get to retirement with the properties paid off, which is what a lot of people say, buy four properties, sell to have two paying rent. To me that doesn't make sense. I'd rather have four properties through retirement, not be paying off the two for good properties, keep growing and then live off the offset accounts.

Chris Bates:

And so you do need to, you do need to have good income because you need to be able to and not be able to always refinance. And so you can't just be, you know otherwise you won't be able to get your interest only again, otherwise you won't be able to extend your line to and you've got to be great at saving. You've gotta be committed to growing your offset account as hard as you can. There is an opportunity cost here as well, because if you are putting money in offset accounts against loans, it does reduce your borrowing capacity for what you could do for further investing. But you know, ultimately I think that's it. If the strategy is to retire with, you know, and live off the offset account, that to me achieving your goals as well. So it's not about just trying to buy as much as you can. Sometimes it's about your other goals and leave a debt

Veronica Morgan:

For all year you're offspring, or they can just sell off everything and then just tighten it up when you go on.

Chris Bates:

Exactly. Yeah. The other thing is you don't want to pay capital gains tax. So, you know, let's say you bought a property at 40 and you're 65 and you go off, I don't really want to sell it. And then give 5% of that gains at 65. I'd rather give that 25% gains when I'm 80 and get that extra 15 years of gains in that property. And you can pick and choose when you sell, because you go, well, I might sell this when I'm 72, because the market's super hot. You're not just going to get to retirement, sell it all and just live off. Yeah.

Veronica Morgan:

And then it's actually a really good point because the thing is that, you know, if you're looking at your property portfolio, she mean you've got a few properties and, and, and, you know, shaming, one of those as a principal place of residence and the rest are investments, then, you know, we sort of think, Oh, we've got X amount of equity, you know, they're worth X take off, you know, what I, and, and the rest is equity, but in reality that equity, you either government sort of quarter of it. So it's not really, Oh, I forget. I've forgotten that myself, you know, like, and then if I had to remind myself that that's not really mine, I can't really factor that into my, and my thoughts about, you know, whatever my wealth is. And, and, you know, I've had this conversation with before, as well as at the banks on, I think they factor that in, when they look at it as equity against further borrowings, do they, do they look at that as a liability?

Chris Bates:

No, no. That's one of the benefits of investing in property. If you can let's say you buy a property at a million dollars and it goes to $2 million and it's all big numbers for it because some people, but it's, yeah, it's easy to talk this way. Then that probably has gone up a million dollars on paper. You've made a million dollars, but you can go back to a bank and retrieval $800,000 of that and reinvest that money and make more money. And you still haven't paid any capital gains tax. You do that with shares and you want to, you can't really ivory draw like that, but then potentially if you do so you're not going to want to sell it. It's not that easy. And so the good thing about property is you only pay capital gains tax when you sell, which could be 30, 40 years down the line. So the government's waiting a long time to get the money from you.

Veronica Morgan:

Yeah. But you also get access to that money in terms of being able to borrow against it. So you're borrowing what you owe the government, which is quite fascinating really, but anyway, that's a different topic altogether. Now, our third, sorry, it's actually a fourth question is from edit. Now, one of the things I would like to hear your view upon is how do you evaluate or research when you are say buying a market leader property in a suburb, especially if the price has been driven up, not because it's a larger block than average the house, presumably however, due to renovation carried in recent years. So he says comparable sales and not helpful in future potential valuation is a bit tricky considering this as a top five or 10 percentile and not the median for the suburb. Is there anything in particular the bars should consider?

Chris Bates:

I guess the market leader is a funny thing, is that moderately, they've just gone price selling today, or is it a true market leader? Like it might be a market later, which is kind of what he's alluding to there. It's not a larger block, but it's just a really nice Renner. I mean, for me, I think in five years time or 10 years' time, is that a market leader? Wouldn't I, the rhinos age, there's always nicer renos now. Hampton styles no longer fi cool in 2030, is it the most beautiful frontage on a tree lawn street with a North facing backyard with an amazing outlook and opposite of park and et cetera, et cetera. And there's only five of those in the suburbs. That to me is a market leader. And so if you're going to stretch for anything and it's hard to value those because, you know, they just never come on. I mean, you can look at a hundred properties in a suburb, but you can never buy a hundred properties. You maybe buy five, it's highly unlikely. They're going to be the best five in the suburbs. It's more likely to be the lower end or the good properties just don't transact anywhere near as much as the poor properties.

Veronica Morgan:

It's very, very true. One thing I would say though, and in many, many suburbs, this is the case where established suburbs, where the way their family suburbs. So there were, the blocks are bigger and the homes are typically bigger. And so what actually happens is that a family renovates a home not to sell, but to live in for 20 years. And so when they come on the market, it's usually they are dated. And so anybody buying in, usually it looks at it and say, Oh, you know, I have to do this, these nice and blah, blah, blah, a new kitchen, knock out walls, blah blah. So there'd be a level of renovation expected every now and then, and it's unfortunate, but there might be a divorce or there might be a relocation to state or something like that. That actually brings one of these homes onto the market that was never intended.

Veronica Morgan:

You know, it was not renovated with an intention to sell, but circumstances have brought it onto the market and they can sell at a premium purely because buyers in that area, they want that family home for 20 years. And if they can avoid having to do that full Reno on something that's 20 years dated, you know, by 20 years, then there is a premium that, that buyers will often pay for that sort of property. So it does come down to, you know, who the, the buyer pool, if you're looking at the top five or 10% on a suburb, it's not necessarily because that probably is the best one in the suburb is purely because that if those properties existed, they'd all be very well sought after and be expensive, but they just don't change hands, you know? And so that's one of the reasons why people might think this is the top five or 10 percentile, but in reality, it's just, it's just scarcity and that's a different type of scarcity. It's when, when a recent renovation, you know, it might be worth it.

Chris Bates:

Yeah. I guess it's just, I guess what ant is kind of saying here, as well as the, what should I be paying for this property? Let's say it's a good assets. So well done rent out. It's one of those ones that posts, and maybe it was a divorce story. Right. They've done the Renta. The rhino was too stressful potentially, and that's, what's caused the divorce. I'm sure that's happened before. And yeah. And so at that stage there, what, what would you actually pay for this right now? I mean, if you put it down to some, like breaking it up, I mean, you've got the land, you know, that'd be a good start, really what's that land worth try to figure out what that rent would cost.

Veronica Morgan:

It's really difficult to work out what land is worth, and these are stuff. And if I had one of our teams working on at the moment and we've just been having that debate this morning, it's a very, very hard thing to price. So I be looking at, you know, recent sales of similar size or all the other homes on a similar size block of land and factoring in what each one would cost.

Chris Bates:

Yeah, exactly. Yeah. Trying to get, at least I know that you know, that you're not just paying for something that looks amazing today. That's gonna stack up in the longer term and that's the thing, you know, you might get this amazing lifestyle and it all looks pristine, but everything ages, the fridge, the ovens, everything. So I just be a bit careful buying the market leader. That's done through a renovation. I would only buy the market leader if it's the land. Cause then one day you're going to sell it and it will still be the market leader, your garage. Rate's gotta be faster than just a beautiful renovation that you probably going to have to update again to sell it. So yeah.

Veronica Morgan:

Okay. We've got a question from Michael. He says, he's noticed that when he looks in the lower North shore in Sydney, that a lot of properties have high straddle levies he says, he's, I've heard councils are starting to audit strata, run buildings to confirm they have up to fire code, et cetera. Would it be interested to hear your thoughts on this, including at what point it's okay. I let's say they've done the roof fireproofing and painting. However they have windows and doors left on the list of works. They've planned for the building. This is, this has been an issue. It's interesting. He says isn't in the low, on our shore. It's something that started in the Eastern suburbs probably about 10 years ago, where we started noticing buildings being slapped with fire orders from council and the fire upgrading their fire prevention or protection systems, you know, that can cost, can, can run into the millions, into the millions really expensive work and they have no choice.

Veronica Morgan:

And so quite often you'll see those buildings with high, special levies or particularly if they've had a history of low strata levies, and, and there's two components to levies as the admin. And there's also the, what used to be called the sinking fund. And now it's called the capital works fund. And look in other States it's similar but different names, but same principle and the capital works fund is really that's, what's being built up to maintain and do the larger jobs, you know, that need to be done. Basically, I spoke to a building inspector the other day. He said, the minute a building is built, it starts deteriorating. You know, you know, roofs will need replacing lifts, will REIT need upgrading and replacing windows need replacing doors need replacing. And if you get slapped with a fire order, then you're going to have to probably replace doors with fire at a doors.

Veronica Morgan:

And you're going to have to put, you know, hoses in and et cetera, et cetera, et cetera. So, you know, when, when I see a Strada report and I see that there's nothing noted in sort of building works and well, they haven't spent money on things. I start to worry because that's, that's sitting duck. And one thing, one little, one little tip I'd say is look for the annual fire safety certificate, because if they've been through this process, the council has required them to provide one of these every year and they have to provide it. And so that's great when they don't have one. I always ask the strata manager, where is it? And quite often, even now I get told, Oh, they don't, they're not required to provide one. And I think to myself, well, that's only a matter of time and they haven't been proactive.

Veronica Morgan:

And on the front foot about this, they've probably got no concept of whether they would comply or not. And therefore you've got no concept of what special ed is. You could be hit with if they did get an order placed. And so, you know, so that these are big risks and I always would look in, if they are in the process of doing works, you do want to see a good program of works. You want to see lots of quotes, you want to see a well-documented progress. So you've got a real sense as to how much is outstanding and what the potential cost to you as a buyer is going to be.

Chris Bates:

Yeah. I think Strada is a really interesting when we get clients that are looking at properties and one of the things would say, you know, in that debating over different properties is our, you know, it does have a high stridor and you know, putting the off the plan, high stratas that are for pools and concierge, gyms, et cetera gardens they're high Strider and you're not getting a great asset for it. That money is wasted, but when you talk about more, you know, art deco, more of these sort of smaller blocks, good assets, if they've got a high strata, I always generally think that's potentially a good thing. Because that's that money in harsh strategy, isn't getting lost, it's going into a pool. And I, I guess I would want to know no more Dean, what is that for? Is it for a very clearly documented renovation sort of repair strategy to the building and is the building really nicely kept?

Chris Bates:

And is it all well-documented, for me, I'd much rather pay a bit more than pay a bit less, you know, $1,200 a quarter versus 700 and get a building that's run down. No one's managing it. Things need to be repaired et cetera. So when you sell that property as well you know, if over time it's getting renovated and taking care of more owner-occupiers that want to live in the building, you know, we create a bit of a name and less turnover in the building. So yeah, I I'd personally be focusing rather than what's high be focusing on. Is it a quality asset? Are they taking care of it and not to worry about the high stridor itself? I mean the fire code, et cetera. Yeah, I mean, if that's a risk and it hasn't been talked about or any risks to the building you just gotta be careful with those sort of stratas that aren't taking, doing the due diligence. I guess

Veronica Morgan:

This is the thing they're not taking the managing of the building and the assets seriously. And, and so, you know, we see also there's a number of other that have been legislated in recent years, you know, window Heights, for instance, the ability of a window to open past to the size of a baby's head basically. And so, you know, they, they don't want people falling out of windows and apartment buildings and, and only last week, a four year old fell out of a window and I'm thinking, how the hell can that even happen? But I still go through buildings. And I noticed that the sill height is below a meter, and I know that you can open and you can open those windows wider than a baby's head. So that means that people can fall out of the windows and that's a danger. And that shows to me that that strata management slash owners, corporations are not paying attention balustrades and other ones, if they're less than building code, which I think is a meter high, you know, if they low balanced rates, people can fall over them.

Veronica Morgan:

It's a death, you know, it's a, it's a hazard pool, safety classic cladding, you know, so we've had all these flammable cladding issue. Well, you know, some buildings don't even have a handle as to whether they're clad with flammable cleaning or not. And especially this is another one. So you want evidence that these buildings take this stuff seriously and take managing it seriously. So all of these things, if they ever do get audited or something, God forbid happens like that four year old falling out of the window. Well, I'm surprised there wasn't a lot of mentioned paper about, well, who's responsible for that because you would think that if they're meant to have upgraded that building by now, then someone hasn't been doing that job and there's a liability issue. So it's, and that's aside from the fact that a poor little four year old is either, and I don't know what happened to him, but, you know, he may not be with us anymore ball, or he may be severely injured, you know, and the trauma of, of all that on everybody

Chris Bates:

You're buying these buildings, reality is you can't outsource anything in life. It's your personal responsibility and accountability falls on you. You can't, after you've signed a contract, moved into it. So I looked at the strata port probably should look to that before we moved in and you know, God, this is, you know, no one's really managing it. And then you start to create yourself all these problems. So, you know, do due diligence upfront, know what you're signing up for. And, you know, personally take the risk on someone who's paying a bit more strata, but someone's carefully managing the building. And there's a real good, clear line of action to fix things is a lot less recent, no paperwork.

Veronica Morgan:

Oh yeah. Look do. Due diligence is so important. And I think one of the big issues is that people just don't know what they don't know. And so therefore they often don't even realize I can check this stuff out. And if I can just check in a little plug for my other podcast, my new podcast, Chris homebuyer Academy with Megan Wells, we've got your first home buyer guide and we're covering a lot of the actual how to buy property in that podcast because people just don't know, you know, you going to these things, your eyes half open and it's, it's not good enough. Like you say, it's our responsibility. And fundamentally the buck stops with us when we're buying something as expensive as a property. That's right. Okay. And our last question from Andrew do sustainable properties receive a premium on the potential property value? I E is there any analysis on buyers who are willing to pay more for sustainable product? Interestingly, it is obvious that consumers are willing to part with more money for an ethical benefit on smaller purchases, such as organic food. However, I have not been able to locate any information that people being willing to adopt this on the larger purchases like property. Now, have you, in your research been able to find anything, Chris?

Chris Bates:

I haven't found too much, but in Melbourne there are a lot of sort of developments that are going down this route. You know, the Nightingale sort of project a lot in those sort of smaller boutique apartments coming, going down this direction. So if they're going down that direction, I think there's obviously a market that's in a certain pocket of Melbourne. That's in one city in Australia, it's not across the whole board. And I imagine that would be the case. You know, certain areas of certain cities would be willing to be more likely to sort of compete if you're doing a renovation. Is there a sort of payback on them? I mean, potentially if you get two buyers that really want that sort of sustainable house and they compete on your property, but if there's any one person who really wants to sustainable sort of is not going to pay anymore.

Chris Bates:

Right. So you do need a, and I guess it's different things. You get different bang for buck, you know, w what a tank that's under the house, but probably won't care about too much because I won't see it, but, you know, solar panels, maybe they will, or maybe it's the materials you're using your renovation or et cetera. So yeah, I do think it's one of those things like, you know, electric cars, I do think it's probably just an early adopters, but it's maybe not the mass market yet. And when the mass market one, then maybe there's you know, if you haven't got a sustainable house, people don't want to, but I think we're some time away from that reality.

Veronica Morgan:

It is a bit of a shame that we, you know, I think I agree. I think we are a fair way away from this. There there's quite a lot of initiatives going on. I know the new South Wales government is actually behind some initiatives, which is around creating the demand from consumers because it's a, it's a very it's a, it's a delicate issue. Okay. And when I say delicate that's because there's a lot of vested interests that are involved in trying to keep a lot of sustainable initiatives out of new buildings. You know, like the, and I don't want to name anybody cause I haven't actually done my research on this, but you know, you can imagine various lobby groups are saying, no, no, no, it's a bad idea to actually legislate, to make it essential that all new housing projects, for instance, have to have solar panels.

Veronica Morgan:

Now, you know, what makes me think as arrow shots of new subdivisions and there's, you know, kilometer after kilometer of roof and not a tree in sight, there's nothing in the way of using all of that roof space for, you know, the, certainly the North facing risks for solar panels. And yet when you see a solar panel on a new subdivision, so this is, this is sort of behind. I think the government is really saying, okay, what we need to do is get consumers to demand it, but that's going to take a long time. And if you remember any technology, you know, I'm thinking back my days at university, learning about marketing, any new technology has got the early adopters and they'll pay a premium for new technology. You know, I remember when CD players were admitted, do you remember that Chris, you probably still in nappies and you know, the first thing, the first CD players, but you pay a fortune for them.

Veronica Morgan:

And then, then they get into mass production and everyone's getting a say they play, I mean, and so on with everything right. And electric cars and on and on. But, but I also, there is a payback period. And so when the cost of production is down, more people will actually put solar panels on their roof because the, the payback period will shrink, you know, as if our power costs continue to rise and the cost of a panel comes down, they'll come a point where it makes sense for more consumers to actually take, you know, make those decisions. But I agree, unfortunately, there's, it's early days when you look at you know, you go into Woolies or Coles and you look in the organic section, if the or even the ugly section, right. In the fruit and veg area, it's still only a small proportion of the whole floor space that they've got dedicated to produce. And, and I think that's sort of pretty much is a good, a you know analogy for what it's like trying to find buyers who are prepared to pay a premium and can afford to pay a premium for a more sustainable product. I would like to think there's a lot more out there and there's a lot more delivered to that market, but it's, it's early days.

Chris Bates:

Yeah. I think if you're renovating a house in an area where that sort of, it's not early days, you know, there are certain pockets that are the S a bit more forward thinking in terms of you know, living more sustainably and climate change. And you know, those communities may be willing to want that because it's seen as desirable and it's a status thing potentially. But yet you're right house and land packages in the fringes, you know, it should be prime where you'd be building that stuff. But a lot of that is the affordability market. Ultimately, if you price your product a bit more expensive, the consumers or say, Oh, well, you know, let's just cut it back. It's FO's time. It's not gone. Go and get the solar panels and the water tank and et cetera, et cetera. Let's just buy something a little bit cheaper. Unfortunately, that's what happened. And the whole market won't move unless someone does it. And if that sells really well, then everyone will have to follow suit. But who's brave enough to do it first. And I've definitely seen some trends in the smaller development space you know, around Brunswick and things like that. There's lots of those sort of sustainable developments.

Veronica Morgan:

You know, there was some arguments that some sustainable features, in fact, probably many now are not that much more expensive if any more expensive than the alternative is the perception that it costs more. And so therefore it's not put in, which is really shocking. And, you know, it's like when I watched war on waste, you know, I love that show and Hey, what happens and why it's necessary, but it's a great show. And you see the, you know, the projects exec from, you know, one of the major supermarkets standing there trying to, trying to justify that the consumers want certain size banana. And I'm like, this is so chicken and the egg, isn't it? I mean, this is the big oligopoly supermarket telling us that we are demanding a certain size banana, but you go, did you, did we start demanding a certain sized banana? Or did you start stocking it? Know what I mean? Like it's like, and then telling us that that's the best size banana. And so how does this all come about? And, and I think, you know, what I love to see is it developers, you know, doing it the other way around actually doing it properly and then telling the consumers that this is what you want, don't you it's just, anyway. Hopefully, I mean, this is, I'd love to see some serious changes.

Chris Bates:

Yeah. And I think it will come because I think you're right. Once that sort of developer does do that. They potentially their neighbors, the other buildings around them, aren't selling as well. And then everyone will stop following suit. So it's just a trend. I think every year building we'll have to get better. You know, there's all the highlights on building issues and to get the trust back with people, we need to get better products. And and then we're going to build a lot over the next couple of decades. And so I think that's the real wire. If you've got an apartment or a building that isn't, well-built, isn't that special. I do think you've gotta be future scared about future supply risk because a lot's going to get built. And I do think the quality is going to improve dramatically over the coming decade.

Veronica Morgan:

I should mention it or that rumbling in the background when you speak Chris's about your landscape is doing all that lovely digging dumping of supplies, just in case anyone was worried about you. Okay, let's see, you've got a Dumbo. Have you got a Dumbo before?

Chris Bates:

It's not so much a Dumbo because it probably is. It's just an unfortunate trend that I do see at the start is sort of in markets picking up when you got that sort of, you know, there has been a bit of a decline in the market. For some reason I'm using the market and I hate using the word the market, but you know that there's a lot of negative press prices are falling, you know, it's maybe 2018 or maybe late 2017 or it's maybe through COVID sort of time as well, market's going to crash. And a lot of people sit on their hands because they want to say certainty, humans love certainty and then process dot Rausing. And then they say that we're just going to park the decision. But then when you sort of go back and ask them you later, and so what are you doing decision?

Chris Bates:

Because prices are rising. They've kind of got confirmation bias now. And they also think that prices can continue to rise. And so they sit on their hands a bit longer. And then ultimately they just completely miss the opportunity because they're trying to time the market rather than focusing on investment fundamentals, buying a scarce asset. And we all know that 2018 was a great time to bond. We also know that early this year was also a really good time to be bonding. So yeah, it's just sort of, kind of, rather than just thinking about trying to read the press and try to pick and time where things are going, focus on investment fundamentals, getting, getting a fair price on a quality asset. And just knowing that time will sort these things out, you know, it's not gonna matter what happens so much in the next two years, you've got a quality asset, you can ride it out. So yeah, be careful trying to time them off with property. Cause it just did a lot of ingrained engagement with the start of the year going over sort of clients we spoke to last year and yeah, there's, there's a handful that kind of are in that sort of predicament now. And they're like work, you know what? You can sit on the sidelines for another year. And I just think that's very sort of dangerous if you trying to sort of just get one grade investment property, for example.

Veronica Morgan:

Okay, great. And then it's been doing this for 20 years now and, and seriously it's every time it's a good opportunity. The amount of people who were the majority fail to take advantage of it, you know, and then, and now it's like, it's that whole idea about sitting on your hands at the beginning of a market when it takes off and it's like, well, you're guaranteeing you're not going to buy ever. You know, if you do that, but you know, it is all about quality assets. You know, quality assets are scarce in good times and bad times, they are hard to buy always. And you know, and this is why I say really, you can't time the market you've got to buy when it's right for you. And it might not be right for you now. And that's fine. So that's got nothing to do with the, market's got to do with you. And if you can't find the right property, it's not the right time to buy you buy when you find the right property and when you're ready. And, and then if you do that, then you just commit to your, your purchase for long-term and it doesn't matter, you know, what goes up, what goes down, you know, the short term variations of the market than him. They don't matter.

Chris Bates:

I think the key thing with that, and the final thing is that when the market does go down to 2018 or even this year, the qualities, properties, similar properties to you, you know, there's not that many of them, it's not like you're in an apartment now and there's apartments getting built and this hits on the market. That's not a great asset. So you would be scared if there was a downtown in the future. It's like, I need to share into a market crash. If it's not a great company, it's not going to hold its value through this downturn. Right. So yeah, if you've got a quality asset, what happens is, is actually less people decide to sell because they go, it's not a great time to sell. And that really buffets you because the supply doesn't hit the market, which is in that whole process. And there's still demand. There's still people desperate to get into those streets in those suburbs. So if someone does decide to sell, there's still usually more buyers than sellers. Because people have been dying to get a quality asset in that suburb.

Veronica Morgan:

That's exactly what I've seen. People lose money in a boom cause they had a crap asset and I've seen people make money in a downturn because they had an excellent asset. And so, you know, that's, that's, it all comes down to asset quality and people are making decisions on what to do with their homes and, and invest in properties based on, you know, cash flows and all that sort of stuff. And I get you're in a situation you're forced to sell because you really cannot hold afford to hold a property. Then that is very, very unfortunate, but a lot of people sit down and do it, make the decisions based on spreadsheets and they absolutely file to consider how good is this asset? Should I keep this one in preference to something else? You know what I mean? So, and I actually an email and in my, in my inbox only this morning about sort of, you know, promote software sort of service, trying to give people the tools to decide whether to sell or hold. And, and I'm like, Oh my God, it just misses the point. It goes into the numbers on its own cannot be considered on their right. Have to be in the context of how good that bloody asset is or isn't anyway, I could rant about that for hours.

Chris Bates:

We got an EMR, I was on the same call with a client today. And you know, he's got three properties and two of them, he knows, you know, from our conversations over the last two or three years, they're just not probably properties. You know, he emailed me over the break and I said, yeah, let's have a chat. And the reality is the conversation is being the same every year. He knows that he's fully aware of it. We make a joke about it. And it's just, he's got to go through the pain. You know, there's never going to be a great time to sell these properties. It's really getting home that they're not great assets. And what it's doing is he's got a bit of capacity left. He probably can afford to buy if he sold them one great property and what he's losing his time by just sitting on it and not dealing with the poor assets. And so yeah, it's, it's definitely an individual sort of situation individual property rather than yet buy or sell or it's you know, you can do it on a computer just type thing that's ever going to happen.

Veronica Morgan:

Oh, it's mortifying. But I mean, the thing is, and then maybe that's how they bought things in the first place, which is, you know, another, another Dumbo mistake, but, you know, it's it's hard to admit we stuffed up. And the thing is that when we buy, we, we are wired to justify our decisions. You know, when we first buy a property, you know, some people have post-purchase dissonance, but quite often, you know, quickly that'll be replaced with lots of, lots of good justification. We seek positive reinforcement, you know, confirmation bias, all that sort of stuff. And, and we're going, yay. We made a good decision yet. We made a good decision. So we seek that, that information that were reinforced that idea. And, and it's really, really agonizing to be honest, stuffed up and people don't wanna do it. And then, then they'll avoid selling a bad asset because that really confronts that realization. And no one really wants to admit it. So it's a tough one. And I struggle with,

Chris Bates:

I think it should be confident to admit it because you shouldn't feel guilty or, you know, or feel bad or anything. You are making that decision by saying, Oh, the information you were trying to stuff out your own financial future, you were trying to do something that was good for yourself. Fortunately the system is very heavily against you, if you don't know what you're doing. And and you just don't, you just didn't know who didn't know what you didn't know. Right. And so, but now you do know, do you need to forgive yourself and move forward? Yeah, exactly. And so just hiding your head in the sand isn't going to get rid of that guilt

Veronica Morgan:

Totally. Now. one little thing that I have come up with, which is a little bit of a Dumbo, and that is in new South Wales, there's this thing called limited title. And so it's a bit of a Sydney thing and it's really sort of an old established suburbs of Sydney as well. And so what limited title is it before? So most houses in this country, a Torrens title. So it's actually was a invention an Australian invention that got a way of sort of owning ownership of property and to document that ownership and invented in WWI, sorry, South Australia actually, but not that, that really matters. And so when that was invented before that there was a system of ownership called old systems, all systems title. And there's this limitation that is on some properties that hasn't yet been properly converted from old systems.

Veronica Morgan:

And it's not uncommon, you know, in my office in Balmain, certainly when I was a sales agent, it was not uncommon to see a limited title, qualified title, which are two of these sort of aspects of old systems title that need to come off a title. Right. And it's ever been a real bugbear. It's just like, Oh, well, that's just old. That's just old systems. Not that uncommon, but you know, it doesn't mean you can't buy the property. Literally in the last couple of months, it's come up with us with a number of our clients and these limited title properties that the, the banks don't like them. And so I, okay. What, and what limitation is, is that the actual boundaries haven't been sort of verified by the land titles office. So they need a special survey being sent in and, and we've been given some advice that costs about $5,000 to upgrade them to proper Torrens title.

Veronica Morgan:

But people have bought these properties over the years and because they've been able to Bart. So relatively, simply as a mineral problem, they've never really thought about it. They put her on the market to sell. They're not really thought about the agents. Hasn't really thought about it. Buyers don't realize they would, you know, get their broker to do whatever needs to be done. The broker doesn't usually see the front page of the contract till after they've exchanged contracts. So after they actually committed to it, some lawyers at clued up on it, but this is another reason why you need a property lawyer who might actually flag it, or, Hey, did you realize this has limited title banks? Don't really like this. And this is how we came across it through one of our clients. And so what, and then now we started digging and saying, well, what's the story.

Veronica Morgan:

So we know that we can't go for limited title properties for some of our clients. And so it was previously not a problem previously, not a problem. A lot of buyers are not realizing they've got this problem and then they'll go and buy the property and the Lenny discovery during settlement. And so then they might have to get a survey, but that actual title, some banks are saying it needs to be changed. So then that the vendor has to do that. So this is, this has a bit of a Dumbo because it's like, it's a real, it's a real risk for some people, but nearly everybody doesn't know about it.

Chris Bates:

Yeah. It's interesting. We definitely have had clients borrow them in guitar. I remember when he literally failed a couple of years ago and we just go to the survivors report done on it and it was all fine with the bank, but it did create a little bit of a hurdle in that sort of process. And I, it was a very fast deal. It was bought off market and yeah, it was South. I'm not sure we had to settle light or anything like that, but I remember we had a bit of a back and forth with the bank and it was all okay, just recently we had to check for another client and it was okay. With one bank that they'll pre-approve with, but you know, it's not something that is probably that often brokers will say, I think the real Dumbo is probably the seller.

Chris Bates:

They probably also don't realize that the problems they're creating for buyers. And the last thing you do is want to create problems for your buyers. You want buyers to be, if they're hot and they're emotionally interested in your property, the best time to sell to them is when they are in that state. And if they start hitting hurdles like limited to title and they stop, they start to want to it's work it's pain. I don't want to do that where I'll just find another property. It starts to fall out of love with the property. And so I would definitely, if I was selling a limited title, make sure it wasn't because I wouldn't want any problems with my buyers potentially having any issue with finance, even having to ask their bank. For me, that's creating barriers. Yeah.

Veronica Morgan:

Yeah, totally. So this is, you know, with the advice of we're being given is that you know, the vendor would need to actually have the title up writers. So it's more than just providing a survey these days. So, and this is something that, yeah, it's going to be interesting. So what's your space. I've got all excited for a minute. I said, right, that's it. We're just gonna do a bit of a survey and look at any good property around its limited title and are our investors that have got cash, you know, there'll be in the box seat and then they can just spend five grand bringing it up to speed when they bought it. It's not that simple because it'd be different if every buyer found out on the 11th hour, just before going to auction. And then all of a sudden the auctions pile, that would be a fantastic opportunity because the buyers aren't realizing they're still going to auction. So it's after that, they're going to find that's the Dumbo, right? Well, on that note, we're going to say Eddie Austin, please send some more questions through to us. Cause as you can see, we do enjoy having these sort of rumble tumble episodes and, and hitting the nitty gritty of the things that you guys have been wondering about. So thank you for sending through your questions and please send more via the website. Okay.

Chris Bates:

Absolutely. Any questions we'd love to rate them? I think the only other thing I'd love to our listeners to do is sensory. Some potential topics that we haven't covered. We've got some really interesting ones coming out with infrastructure and commercial property and smart homes and all sorts of good things coming. But any topics that you thought that we haven't covered, that we'd love to get a specialist on, to pick their brain.