Highlights from this week:

 

How to protect your portfolio in a relationship break up
The pros and cons of the Victorian Government’s affordability scheme
How some auction buyers are paying more than they need to without even knowing it is happening
Perfecting the ‘dud property’ detector
What could be halting your portfolio growth and why it’s not your fault
Perfecting your auction bidding strategy
Traps for young players starting out

 

Transcripts:
Traps for young players starting out - Shannon Davis
Kevin:  Shannon Davis from Metropole Property Strategists joins me. We talk about the restrictions that the banks are currently putting on lenders is probably one of the biggest concerns for property investors right now.
Shannon, as I read it, the banks are really toughening up, looking at where they’re lending, how big their books are going be. In fact, in some cases, some of the banks are saying they just simply won’t lend any more to property investors.
Shannon:  Yes. I was recently talking to an investor client of ours, and they got asked for a letter from his in-laws that they could live rent-free in their house in order for the loan to go through. That was the extent of how much. And this person was well capitalized and on dual income, so they’re really tightening it up. In some areas, it’s been referred to as an APRA-type boom in that the tightening up actually has the wrong effect on prices and making the demand even more.
Kevin:  Yes. There’re going to be a lot of very nervous developers, I would think, hearing the stories that I’m hearing out of places like Cairns where the banks are having their own valuations prior to settlement and they’re coming in so much under the purchase price.
Shannon:   It definitely makes it hard to complete if you have to afford an extra $20,000, $30,000, $40,000, $50,000 to make the settlement occur. There will be people walking away from deposits, I would think.
Kevin:  Shannon, I want to talk to you now about the common mistakes you see investors make in this market, and it probably changes because of some of the things we’re talking about – the way the banks are reacting, what APRA is doing and so on. But what are some of the common mistakes you see investors make?
Shannon:  I think people like to beat their chest in trying to have a quantity approach and try and buy ten properties, but what you’ll see is maybe those ten properties will be worth $3.7 million and the investor only has like $400,000 of equity in that portfolio.
Kevin:  Very high risk, isn’t it?
Shannon:  Yes, high risk. It’s not about how many properties you own; it’s that difference between the net debt and the market value, which gives you your equity, is what you’re worth.
Kevin:  Because without that equity you can’t gear either, can you?
Shannon:  You can’t buy again. You can’t extend your portfolio. It’s the difference, really, between a fast-moving portfolio and a slow-moving one. There are people who have used up their borrowing capacity with non-investment-grade properties and are just stuck in the mud, for want of a better term.
Kevin:  You must see a number of those? To help them out of it, they have to really sell down, get out of those bad properties?
Shannon:  And sometimes can’t afford to sell. There’s no market there or they owe more than what it’s worth now.
Kevin:  They need to make a loss, don’t they?
Shannon:  Definitely, and they can’t afford to crystalize that loss.
Kevin:  Wow.
Shannon:  That’s a real sad part. They would have been better off doing nothing than investing.
That’s where we get it wrong. We think that property is always going to go up, that each property is very much the same…
Kevin:  Well, they do if you buy well.
Shannon:  They do if you buy well, but there are going to be times in the market where we’re not booming and there are going to be times where we go sideways, and there can even be