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Empower Wealth Blog post by Empower Wealth

How To Master The Pillars in Pandemic Times

This podcast was recorded at 10am on Thursday, 9th April 2020.
You can listen to it on iTunes, Spotify or Google Podcast

There are 10 Asset Selection Tips, 5 Borrowing Power Tips, 5 Cashflow Management Tips and 4 Defence Tips shared in this post. To help you identify them quickly, we’ve broken down to separate sections.

Bryce:   Alright folks! Welcome back to The Property Couch. Ben, welcome back to you.

Ben:       G’day mate? How are we?

Bryce:   Very good. Hey mate, what a difference four weeks made. I was saying this when I was chatting with Nerida, we had a series on our podcast where we’ve been talking about what impact this pandemic will have. But mate, I’m interested to see how are you coping with this isolation? How is that changing your worldview?

Ben:       Oh, it’s not changing a lot in terms of where I’m at and what I’m thinking about is the market and all those things. I’m not trying to be stubborn about that but what I’m basically saying is I’ve got a longterm view and on I’m saying to those people who have an opportunity to do something, please do something. I’ve always said let’s have a look at where we are in a couple of years from now right? So I take a similar view in regards to that as well.

Bryce:   I was kinda… which is good mate but I’m going for the goss. You know, how’s it going in the Kingsley manor? How’s life treating you there? Because if I’m being honest, clearly I’m already working from home a little bit in normal life. But when you’re approaching week four of working from home, I’d be lying if I didn’t say sometimes, the thought of working from home with my two young boys running around in the background is… I’ve got this poll running in my head. So it’s… do I want to do another day with that or do I want to poke my own eyes with a sharp stick? And sometimes, I got to be honest, it’s 50/50. But I want to send a shout out to my beautiful wife who is coping incredibly well under the circumstances where I would not have the same grace. And I’m sure Jane is the same for you.

Ben:       Yeah, so I’m not doing it. As you know, I’m coming into the office regularly as there are essential things that we need to do for our business. Loan documents are still arriving and that need to be dispatched and a few other things. As you know, we are still open.

So I’m probably one day a week from home at the moment. And that’s probably about the level on a couple of points. One is yes, I’ve got two very active boys that want to continue to keep interrupting me. But the other point is also the internet for us. The wifi is being a little bit challenging at home. I get very frustrated when technology doesn’t work. Whereas the wifi in the office is actually a little easier and because I’m not in the city, I can literally get into a car, park at the back of our office, walk up a set of stairs and there are two other people in the building of a 600 square meter building. It’s pretty relative. I mean, I’m going to spend some time in the car. I’m not going out and socialising or anything like that. I’m social distancing as they say. So no, I’m holding up alright.

Bryce:   Good to see you’re doing it for the team. Doing the essential service, making sure that we’re not worried.

Ben:       Sorry, I thought we were talking property!

Bryce:   Mate, I’m happy to get your insights at anytime but what I do want to say is, just to round out that point cause I know chatting with your wife Jane, Andrea and I… we don’t like our kids consuming too much technology. But even some of the best mentors in that space, they’ve even been going out on their socials to say that that’s been happening to them as well. So folks, my kids have been watching more television, more movies than they ever had before. If you’re giving yourself a hard time, just take a breather. And props to all the main care givers out there with children who are in Victoria.

Ben:       Plenty of good docos out there, plenty of good movies with good moral outcomes.

Bryce:   You’ve got to do what you gotta do folks. My kids have watched more movies than they have in normal times right now. And particularly given we are going to play the long game because in Victoria and New South Wales, I’m almost certain they’ve declared that term two is a school from home.

Ben:       Definitely in Victoria. New South Wales are still umming and ahhing about it, but I suspect they’ll get there.

Bryce:   So keep the pace. For those of you that are affected by that, you are doing a terrific job. The last little thing I want to talk about is… And I don’t necessarily want to be in the nanny state spot, but Easter this weekend Ben. And we are doing a good job at flattening the curve in this country. Let’s be frank, we could stuff it up this weekend if we don’t keep doing what we’re doing.

Ben:       #StayAtHome.

Bryce:   Yeah. And it’s almost like we can get a little complacent, right? But if we want our normal life back sooner and we want to go on holidays and we want to see our family at Christmas. And I’m just a normal guy and I don’t want to be a preacher here other than to say, we’re doing so well. Let’s not stuff it up because if you want your life back sooner, you might need to pass on your normal Easter weekend festivities. Don’t worry about the person next door. For the benefit of you getting your life back quicker, let’s do that. I must admit I’m like everyone. At the thought of not busting out on the Easter weekend is a challenge. But there you go folks. A community service announcement there.

Let’s do our bit and let’s make sure we do what we can to keep the curve flat.

We’ve never heard of flattening the curve until four weeks ago now, who doesn’t know what flattening the curve means?! It’s just unbelievable. So there you go. Hey Ben, my mindset minute theme came from a very wise man aka it was actually you, Ben. You flicked it over to me.

You said Albert Einstein said, “In the middle of difficulty lies opportunity.”

How did that come up and got in your radar? Where were you poking around for that to register for you?

Ben:       Oh, I’m doing a lot of reading at the moment. And it was just in one of the articles that I read. In these times, you get to work on yourself and on your business a little bit more, which is good because there is another side. We will get through this. I was just reading a particular article on how you approach this in terms of rallying the troops and leadership and so forth. And that just popped up.

Bryce:   I like it. It’s appropriate for these times in the middle of difficulty, there is opportunity. That was Albert Einstein. For those on the community who don’t know, I live down on the surf coast here in Victoria. Down in Torquay and there is a creek down in Torquay. It’s called Spring Creek. Ben, I don’t know how well you know your geography on Torquay, but it’s the Creek that leads into the ocean down at the Torquay surf.

I was walking while getting some exercise the other night and there’s a boardwalk that walks across the creek. And I happen to notice that the water level of the creek was really low. And the reason it went up on my radar it because it feels like only about a week ago when the Creek seemed like it was abnormally high. So it wasn’t an equilibrium. So I’m walking along and I’m thinking, “You know what, I actually think there’s an analogy here with this Creek as to what we’re experiencing in the property market.” Because you’ve got a scenario where the water level is so low. It was so noticeable to me that it was low. That’s kind of, symbolically what we’re experiencing. The property market, the activity’s low, the amount of listings are low and in a lot of cases our buyers agents team are picking up properties at prices that are below the watermark prior to the coronavirus event.

But it’s interesting. I’m sitting there going, wouldn’t it be really awesome to be actually standing on this boardwalk cause it goes over the Creek, to watch the water when it flushes back in? Cause it’s not normal. The water will come back in and it will return back up to equilibrium. That’s a good thing for our listeners to think about when they just cannot get their head around this pandemic, unemployment and property market. Hopefully that’ll help land that that’s exactly what we think of.

I was asked the question a lot during the week on,

“Do you think the property market will go up?”

And the other side of this, and I think it will go up because the only way for that creek level to go back to the same level as it always has been is for the water level to go up. And I think it’s the same with property. Even if you are actually in this cocoon at the moment where the property market are a bit softer, they will essentially return back to at the very least equilibrium. And then if you overlay that to the fact that listings is low leading into it and on the other side because of this event, listings will probably be even lower.

It’s hard to imagine that by the end of this year, that you haven’t seen some real positive activity in the property market given that we were heavily under supplied. And if you rewind a few episodes back (Ep.276 | COVID-19 & Property Outlook) and you see how many people are moving to this country, who will aspire to buy home ownership. It’s very, very difficult. It’s difficult to state a case for the fact that it won’t return back to equilibrium. And in some cases in some markets, if you know the science behind property selection, there’ll be some pent up demand that might even see those prices go a little bit north. Get the water level a bit higher Ben, then equilibrium. So folks hopefully that landed for you.

Ben:       Can I summarise that please? Cause I love that analogy. When in history that property prices never gone up over the long term Bryce? If we’re talking about all types of events such as Spanish Flu right through to GFC, did property prices gone backwards and stayed backwards forever?

Bryce:   They haven’t. But what has happened in those events is the water level dropped temporarily and then it returned back to equilibrium. And in a lot of cases the water level actually went higher and higher, which is your point.

Ben:       That’s exactly right. At some point property prices will be higher. So you’re trying to compete in a marketplace that has either lots of competition or a little competition. And if you’re in a position, then you know what my view is. Now, I’ve got a little message Bryce and I’m putting my PICA hat on if I can. We’ve got a webinar next Wednesday night. We have got a property manager, a property expert at Queensland who’s going to basically be talking about what’s happening in the property market on our PICA webinar. You’ll be able to get access as a PICA member and if you’re not a member yet, you can join on PICA’s website. So, and there’ll be a link in the show notes in terms of the details. Next Wednesday, the 15th of April at 7:00 PM. We’ll give you a description in terms of what we’ll be talking about in regards to that as well. So we’re just gonna have, you know, a different set of eyes, a different perspective. Kieran Clair, one of our board members, he’s going to lead that conversation and talk about what sort of happening up in the Queensland market. And also what’s changing up there. So check it out. The details again are in the show notes. I just thought I’d get that little public announcement out there if I could.

Bryce:   I can’t wait to check it out. Hey, what was interesting then is I saw Stiggy sort of circling around and she was putting notes under your nose and eyes for stuff. And it reminded me of a story. One of my mates who lives in Torquay and he’s gone, “Tell me a bit about Ivise. What is she like because you know, she won’t ever come onto the podcast and she’s always all…” She was about to walk out the door then and she’s just come back with the hands on hips. And this is a perfect way to describe cause he goes… Yeah, we’ll both go this side of the table. So he said to me, “Is she really quiet?” And I can’t remember the words, but is she sort of meek and mild, and I said, “Mate… Make no mistake.”

Ben:       100%!

Bryce:   She is just a delight to work with. Just for the community who’s listening to this, who’s listened to us for some time and so they know about Ivise or the Stig right? I ranked number three in the studio and if you’re wondering who ranks number one, it’s not you Ben. So meek and mild Ivise is… Before we pressed play, she had steam coming out of her ears cause we were taking a little bit too long to get started.

Ben:       And how’s that intro? Longest intro ever!

Bryce:   I know because we’ve been nervous. We’re trying to recover.

Ben:       We love her!

Bryce:   We love her, but we just wanna send the message out there. Don’t worry if anyone’s concerned about poor Stiggy, you’ve got nothing to worry about. She’s good. She straightened this up. Okay. So today what we thought we’d do is unpack our four foundational pillars on this podcast, the A.B.C.D. So we thought we’d do is we’d revisit mastering the pillars in pandemic time.

Sounds good. We’re going to go through the A, B, C, D and talk about how that may have impacts on us right now. Let’s kick it off with the A, which is the Asset Selection.

ASSET SELECTION

Asset Selection Tip No.1 : Do not chase bargains.

It is the cornerstone of the message that we’ve been having now for almost 300 episodes on the podcast, to make sure that you pick the right asset. So the core message here of the ABCD through pandemic times is the fundamentals do not change. They do not change during a pandemic. They do not change during a Collingwood premiership. They do not change during a Swine Flu. They do not change versus the Spanish Flu back then. They do not change the principles. I know you’re trying to jump in and I cannot believe I’m even giving you that run up for the car. Why would I even say that? But Ben, the fundamentals do not change. What were you going to say?

Ben:       They don’t Bryce and well, you couldn’t refer to a Freeo Premiership could ya? That’s all. 😂 So anyway, they do not change Bryce…

Bryce:   That was unprovoked. I gave you a lap and that was unprovoked. So DO NOT chase bargains. We don’t recommend you chase bargains when there isn’t a pandemic.

We don’t recommend that you chase bargains during a pandemic. We do not recommend at the end of a pandemic that you chase bargains. Do not chase bargains. They are bargains for a reason.

I’ve said it before, when you go to the shopping center and there is a table that lines out in the middle of the store and you went, “Wow, that is my favorite color jeans! I cannot believe they are on Sale!” You grab them and you realize they’re not in your size then because the most popular sizes are never a bargain. It’s the ones that can’t move are the ones that are a bargain. And so Ben, do not buy bargains or junk stock in any situation and in any circumstance.

Ben:       You know, having done this for a long time, it’s really important because sometimes when you see a medium-high density property and the developer goes broke. They liquidate the stock, you can sometimes go, “Well, geez… That’s actually, that’s pretty cheap. That’s pretty tempting. It’s $250,000 less than the asking price. It’s basically almost a third cheaper than what they were selling those off the plan for. Do I….” And a lot of people ring us up to ask us this. The answer is no.

You simply do not touch junk stock no matter how good it’s being offered, even at distress stock.

There’s a reason for that usually in terms of why that is the case. Please, please don’t touch the rubbish that’s going to be out there in spade over this next six month period.

Asset Selection Tip No.2 : Tweak your approach to renting the property

Bryce:   Junk stock folks. Stay clear of it. The second thing that you need to do in the Asset Selection is you need to tweak your approach to renting the property differently. Look for quality and proactive property managers. Those that are technology savvy and ideally investment savvy. This is what we’re doing to prepare our clients Ben, cause we help our clients interview all of the property managers since we don’t have property management in house. So we go out and find the best. And we don’t get seduced by brochure talk Ben, we actually look under the bonnet and find those who’ve got the best processes and the best follow up.

Now, what we’ve been extra looking forward to, and some of our more proactive property managers had been reaching out to us saying,

“Look, this is what we are doing. We understand that the biggest anxiety a property investor will have in pandemic times is how will they get a rent? How will they get a tenant to secure their rent if we go into a lockdown?”

So they’ve been proactive. They’re front footing that and they’re having the conversations nice and early. RealEstate.com.au has got a feature where you can get the videos on your smartphone. They can easily upload that for a virtual walk through.

Ben:       We were talking to our great friends who do that virtual touring, the camera’s guys. Remember we had them on? The boys from Phoria on the podcast? They are booming. Flat out! Cause they do virtual tours and they do rendering of those virtual tours and maps. It’s the new age of selling right?

Bryce:   That’s what you need. Because real estate is still going to transact. And the property managers still need to put food on their table, so they’ll still be doing their job even though there are challenges around real estate agents and their job. But ultimately you need to have a proactive property manager who is front footing, looking around the corner, having a look over the horizon to make sure that they can give a sense of peace to the investor around tenanting. So approach to renting needs to be different.

Asset Selection Tip No.3 : Vacant and/or tenanted properties might be an advantage. So is engaging a Buyers Agent.

Another thing is vacant and/or tenanted properties are an advantage because you can get better access to seeing them prior to settlement with the owner. Occupiers are being a little more cautious around letting folks through. Not to say that owner occupied properties are off the radar. But just a little tip to say that vacant and/or tenanted properties are making it a little bit more straight forward.

Ben:       Well, I reckon that’s a good segue into how the market is responding to these challenges and this health crisis. Yes, they don’t want hoards of people coming through a property. So as an owner occupier, what I want is a genuine buyer and this applies to other owner occupiers as well which then snowballed in a big way.

We’ve never seen any time in the market in the 25 years we’ve been doing this, where there has been more contact to buyers agents and off-market activity or what we would call just quiet activity.

Stuff are going on but not in the public domain or open because in a public open, everyone can get through, which means the neighbours, all the sticky beakers and all are coming in. Now, they are just letting genuine buyers through and selling agents are calling buyers agents across the country saying, “You got any buyers for me? Cause I’ve got a good property and I’m looking for a solution for that particular one.” And then, if they then telling that owner occupier, these are legit buyers, they’ve all been pre-approved with the lending and they’re coming through. Then all of a sudden, it’s going to be well managed and all of that hygiene that needs to go on in terms of showing people through.

So you’re absolutely right. It’s easier when you’ve got a vacant property so you can get through those properties. It’s easier. If they’re tenants in place and if they are more flexible, they are still going to protect the tenants. And that is why it’s more of a phone relationship type environment at the moment.

Bryce:   It’s a relationship environment at the moment. And I’m really proud of the fact that Veronica and I were part of increasing the profile of buyers agents through Relocation Relocation back in the time and then it was Location Location Location Australia. That was a phase that I was proud to be a part of. But I think there’s a second phase where all of us buyer’s agents as an industry will have an unprecedented opportunity to increase our profile. And this includes some of the amazing buyers agents we’ve had on this podcast and not just our own.

Because the value that they can provide is, you know, when the tide goes out, you can see who’s been swimming naked to a certain extent. That analogy applies to now when something like this changes and the tide moves along. It’s the buyer’s agents who are professional, who’ve experienced, who have seen this before. They’re the folks that’ll actually make sure that you don’t compromise on property, but they’ll also navigate through some of the nuances that are only unique to this time as well. So I think you’re right, there’s clearly a big opportunity for Buyers Agents to show their value.

Ben:       And on the owner occupier side too. I mean, you know, as someone who’s an owner occupier, I want someone to hold my hand because I’m not seeing it. And we talked about this before, I’m not seeing it live. I’m not seeing the level of demand going through the property because it’s very hard to measure that. The properties that are being sold at the moment, a lot of them are rubbish.

Quality stock is not necessarily making it onto the platforms and on the search portals, they’re being sold off market.

So I think it is a really important time, if you are a buyer to have a conversation with a good buyer’s agent across the country because that’ll give you some insights in terms of the value that they bring. I suspect their value proposition in this market is amazing at the moment.

(Note: If you don’t have a buyers agent or are keen to engage one, Empower Wealth offers a Free Initial and No-Obligation Consultation. Just fill in the form below and we’ll arrange for one of our team members to reach out. Or click here to learn more about our free consultation)

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Asset Selection Tip No.4 : Don’t expect a premium rent.

Bryce:   The other thing is to don’t expect a premium rent at the moment. It’s better to aim for a bit lower and be conservative with your expectations and getting a tenant and look to look to get a rental increases later on. If you can command a premium because of the property that you’ve got, look to readjust on the other side of this event.

Having a tenant at the moment is more important than getting a premium tenant.

Asset Selection Tip No.5 : Be mindful of the ugly ducklings.

And as a subsection of that, just be mindful of properties that probably need a bit of work… We have bought properties that have an opportunity. The ugly duckling for example. There’s something that you can turn apples into Apple Pie, even if it’s just a small makeover in the kitchen and the bathroom. But be mindful of bathrooms that are sixties vintage and seventies vintage and kitchens that are the same. Because that would mean that that sort of property is more likely to stay on longer. You need to be factoring in that the potential that you’re buying it for still exists, but it will translate into the rental market at the time. So just be prepared for that and understand that it may take a little bit longer to let.

Asset Selection Tip No.6 : Competition still exists for investment-grade properties.

Competition will remain for a quality property but just not in the same levels as it was a month ago. Investment grade properties, A-grade properties… Only a month ago when we had money cheap, we had lots of activity in the market, we had low listings and we had people just flying out from that recovery from pre-election. There was just so much activity that it was not unusual to see reserves being blown. It was not unusual to see three or four hard bids right up till the last bid when it just left the last two and then you had underbidder. There was lots of competition.

But right now, competition for good properties still remains. Even if it’s down to two. We’re very rarely as a buying team are still buying assets that is without competition. And the only time we are getting on without competition is when we’re getting an off market listing where the agents are bit towy and they’ve rung us to get the deal done and then, we can we can apply leverage.

Ben:       I had that on my list Bryce and I’d just said don’t expect good stock to go without competition. It’s real. And I’ve said this before in other downturn markets, but this one in particular, if you are in a financial position to upsize, this is an amazing time if you’re an owner occupier wanting to upsize right now. Of course, like everything you’re going to say, “Yeah, that’s well and good, but we’re looking and there’s not much great stock out there.”

And that’s because, well maybe not everyone’s putting this stock on the market. So if you’re prepared to do the legwork and you don’t want the buyer’s agent to do it, do the ringing around. Ring all the best agents in the area that you know that you can buy in.

And if you are in a financial position where you can not only upsize but keep the existing property that you’ve got because you put the money in the offset and turn that into an investment property, I’ll tell you what, this is financially transformational if you’re able to pull that off.

So I know we will be talking plenty to the percentage of population who haven’t managed their money well over the coming days and months and weeks and years. But in terms of those, this is the reward for effort. If you have the ability to borrow that money and have a nice buffer and you can get that bigger home in that better location… Well man, I’d be hustling.

Bryce:   You’re not talking theory Ben. You bought your Kingsley Manor in the GFC. One of our buyer’s agents, he had just bought his beautiful family home at the peak of the pandemic hysteria he bought and bought very, very well. So it’s not just a theory, Ben.

Ben:       Well, I’ll give you an idea and I’m happy to disclose the numbers. So the property that I bought is a 1927 Cal bungalow in original condition. It was a two bedroom property. Had the classic lien at the back and it was solid as a rock. It’s on about 700 square meters of dirt. And it overlooks a park. And it passed in at auction two and a half weeks prior for $1,000,050, and I paid $913,000 for it.

The OnTheHouse.com.au platform shot me an email only this week and said it was worth around $2.2 million. Just to give you an idea, right? That’s not just about me. It’s to provide context to what we’re saying here. Now, from basically 2009 to where we are today, that’s roughly what they think it’s worth. And they still only see it as a two to three bedroom house. It’s been renovated. It’s a different property now.

And this is what I’m saying, I mean everyone might say, “Well, you know, you sound like you’re spruiking a bit here, Ben.” But the reality is I practice what I preach. I put my money where my mouth is. I am buying right now in Brisbane. I am buying right now. So if everyone wants to say, “You’re doing this for self-purpose.” No I’m not. I’m basically saying to you that I see an opportunity here and I’ll backup my professional judgment. This is not gambling. This is an educated guess in terms of where I see the marketplace going.

Bryce:   Yeah, I bought my new family home in October last year and I wish I was buying it now. Maybe I might have gone in a little bit early.

Ben:       But it’s what we say to everyone. You buy when you’re able to afford it.

Bryce:   Yes, it’s a 10, 15 year decision Ben.

Ben:       Correct!

When your cashflow allow, when you’ve done all your prep, whether it’s good or bad, the best time to buy is only when you can afford it.

So I just thought if you are looking to upsize and you can retain the other property, in other words you’ve got a financial buffer that will allow you to hold onto that for six months. You might want to sell it eventually, but if you can get over the line, it’s a great time to be out there as an owner occupier at the moment.

Bryce:   That’s a good segue into what the GFC taught us. I’ve said this before on the podcast. I was living on the Gold Coast and Brisbane, between the two during the GFC. And I didn’t see many A-grade properties up for sale but I saw heaps of C-Grades and what I did see a lot is “For Sale” sign next to, “For Sale” sign next to “For Sale” sign in medium high density properties.

So again, those people that were buying the right properties at the time got through it. If the water level in Spring Creek dropped on their home, it was only a balance sheet item. It wasn’t a big issue cause right now what’s important is profit and loss and our balance sheet. Even in the share market, if your balance sheet drops a little bit. If you’re still playing the long game, that’s fine. It’s about managing your cashflow. Having been through the GFC, watching what that meant, remembering the conversations that people were having and now looking back as if people are sort of saying, “Well, I’m not sure what anxiety I was worried about at the time but that’d been well and truly erased by history.”

So competition will remain for quality properties and that’s important and as Ben said, it’s a really, really, really good time to upsize. And you were chatting before we hit the record button Ben, particularly if you can keep the existing property as an investment property.

Asset Selection Tip No.7 : Reconsider your commercial property investments and/or short-term letting strategy

Ben:       Yeah and I’ve got one more in terms of… We have special guests on this podcast who talk about commercial properties or we’ve talked about holiday letting and different types of things. And they are absolute options for everyone to consider in terms of risk profile and what they want to do. But what we’ve always been pretty consistent about is that we’ve always liked residential property because it’s a dwelling. It’s somewhere where people need to reside as opposed to a business asset or something that’s short term rental.

Yes, this is a Black Swan event. Very hard to predict these types of events, but this is about understanding risk profiling.

And so, I say to those people who have commercial properties, it’s a very difficult time for them. We’ve just seen the government mandate that they’ve got to potentially look at reducing their rents. And we also have seen what’s happened to AirBnB and those types of short term accommodations. A lot of them are pivoting. We’ve seen areas like Byron Bay and all those type of things. They are great cash cows when everything’s going well. They are brilliant cash cows. But you normally substituted it out in regards to capital growth and those types of things around that. And this is another type of event where it makes it a little bit risky.

As long as you understand that, but that’s what I’ve observed. We still don’t know what the government’s going to do in regards to offering a tenant relief. But I suspect with these huge economic programs that they’ve announced, giving households some cashflow, whether it be job seeker or job keeper, that should allow for those rents to be paid. And we are also saying to landlords, which we said before, is negotiate and see if you can do some type of deferral payment to just help anyone out who is having a cash flow across this right now.

Bryce:   There’s always an X factor event. This year, it’s a pandemic. Last year it was the uncertainty around the election. The year before it was APRA dropping the handbrake. There’s always some form of X factor that we don’t know, but that’s why Asset Selection is important because X factors will come up.

Asset Selection Tip No.8 : Sharpen your negotiation tactic to suit this current market

But you’ve got to be able to navigate them. And here’s a couple of things on negotiation tactics. Agents are towy and there’s no doubt about it. They are towy. So we need to take advantage as a buyer of this uncertainty and give the agent certainty but albeit in the favor of the purchaser, right?

The real estate agent is a human being who has a family who needs to put food on their table. They need to transact to survive as well. So our buyers agent team is clearly connected to a lot of agents across the country and they can provide that certainty for them. But at the same time, it also gives us a unique opportunity to put the pressure on the price. Using that spring Creek analogy, we are well and truly doing that.

And where you can, and in some cases you can’t, but where you can, get the settlement date for as long as you can so that you can push forward the need for getting a tenant.

Now, I don’t say that as a blanket rule, because in Queensland it’s standard settlements around 35 days. In New South Wales, they are 42 days and down here at Victoria, it’s 60 to 90 days. Over in Perth, it’s 30. In Adelaide, it’s similar. It’s different around the country, right?

So if you can push it out, go for it. But in some cases you can’t and the listings are low. And if you apply the logic that a lot of people who are thinking about selling their house during this time and now just sitting tight, they’re not doing anything, listings will go even lower. So that means relationships with the agents is really important. Clearly why buyers agents has got an advantage, but it doesn’t mean if you’re a buyer, you cannot get this advantage.

You’ve just got to make yourself known to a lot of agents and make yourself known that you’re a buyer. You’re a cashed up buyer and that you actually have a job that is secure. Because believe it or not, the vendors want to know if the buyer has got a secure job. Particularly there’s conditions in the contract because they don’t really care about getting a contract. They care about getting an unconditional contract. So think about that.

Asset Selection Tip No.9 : Be mindful of media noise on the Property Market

Last one for me and it’s a random selection. Just be mindful of economist predictions. It’s their job to forward look at what’s going on in the economy, but they’re actually making blanket statements about property. They’re not saying a two bedroom, a single fronted period home in Yarraville. They’re not talking about that. And they’re not talking about something in Erskineville and they are not talking about something in Bulimba. They’re not talking about West Perth.

They’re actually just saying property as a market.

You will get a few more economists’ predictions coming through. It’s their job to give you some guidance around that. But bear in mind they are talking about a broad category. They are not talking about specifics.

And hopefully, our longterm community know that there are markets within markets within markets.

Asset Selection Tip No.10 : Eyes on the Prize

And the last thing for me, Ben, around Asset Selection although I said it was the last before… Is to remain focused on the prize. What’s the objective? It’s to get in the market. And in this time it’s under less competition, which is a unique scenario that we find ourselves in so that we can buy quality investment and a great property aka an investment-grade property for the longterm at a fair price. And in some cases that fair price has actually dropped a little lower. And we can pick it up, but look folks, we’re not talking about the B word. We’ll talk about the B and C shortly. But the bargain, we’re not talking about the bargain.

Ben:       No such thing as bargains on quality property.

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BORROWING POWER

Bryce:   Now let’s turn to Borrowing Power. Ben, you have been referred to as that mortgage broker from the political party leader and he the shadow treasurer at the time, Chris Bowen. Given the borrowing power is all about lending Ben, why don’t you kick off some of the things during pandemic times under the pillar of borrowing power?

Ben:       Yeah. So what we know is there is definitely some changes that are going on and some more scrutiny that’s going on from a lending point of view. And it’s being tailored towards the industries that we’ve been talking about for the last couple of months. And that is the discretionary industries, tourism, retail, hospitality, airlines and those types of industries. Our pre-approvals that may have been issued are being reviewed at a second time. So that’s something for beginner players in terms of understanding that. And that’s also leading into QBE Insurance with their lenders mortgage insurance.

Now quickly for new borrowers, lenders mortgage insurance is an insurance policy that the bank asks the borrower to undertake to protect the banks for risking lending you the money, right? It does not protect you. It protects the bank in making sure that they get their money back.

And QBE has come out and said, for people in these industries that we has just refer to, we don’t really have a tolerance to be lending greater than 80% at the moment to those particular borrowers. For those people who are caught up in the worst manner in this health crisis. So they’ve pulled out in that particular space.

On the broader side when it comes to helping first home buyers and people get into a market at the moment is that ANZ have just announced their changes in terms of genuine savings test. Most lenders have a genuine saving test of 3% to 5% that shows that you’re capable of saving the money. Well, ANZ have come out and other lenders have already been doing this, but they are saying, “You know what? Rent? We’ll consider that as genuine savings.” That’s a positive sign in terms of the banks trying to help people who do have secure jobs and are able to do so, but they don’t have a 20% deposit plus costs. Maybe they only have a 15% deposit or something along those lines.

So that’s the sort of technical things that have been going on from a lender side more broadly speaking. What we’ve also seen is the assessment rates which is the floor rate plus the margin which APRA has asked lenders to look at. And that assessment rate has come down a bit, which means borrowing power is up.

However, that doesn’t automatically mean you should go out and get yourself into a position where you are financially at risk because you’ve borrowed too much money. That is just silly.

And we advise against that. But it does mean that potentially your money is going to stretch a little bit further. And hopefully that means that you might be able to get into a marketplace where the location is better. The land values are better and that could potentially set you up for a better capital growth over the longer term. So they are the main fundamentals that we’re saying. I’ve got more to add, but I’ll give it a shot.

Borrowing Power Tip No.1 : Borrow more than you need and negotiate rates with your bank

Bryce:   Well, the thing is, what I’ve done personally is I’ve gone in negotiated rates with the bank. So I’ve rang them up and said, “Hey, look. I don’t want a loan repayment holiday, but I do want to know how sharp you can get your pencil on my rates.” So I’m happy to say that the banks have actually sharpen their rates. But what I’d like to say is I have approached the bank direct, but if I wanted to refinance, I’d want to go back to the investment savvy mortgage broker because I’d want to know what’s the best on offer across the market rather than what’s the best on offer with the bank that I’m currently with.

But sharpen the pencil on your rates and there’s always a principle of borrowing more than you need at anytime, Ben.

So now is more than ever to have those buffers and those reserves so that you can actually keep both eyes closed at night rather than having one open at night time.

Just to recap a couple of things from me. Borrow more than you need and also negotiate rates with your bank. But if you need a refinance, talk to your investments savvy mortgage broker.

Borrowing Power Tip No.2 : Review your lending structure and strategy

Ben:       I also think, as part of the investments savvy mortgage broker and we’re doing this with our clients right now where we’ve got two full time people reviewing our clients loans to potentially get them a better rate. We’re going to the bank and negotiating on behalf of the client so they don’t have to ring them direct. That can also be done through your broker as well. So that’s something important to know.

I also wanted to just clarify one point that we talked about a couple of weeks ago when we had a question in the Q and A episode around guarantees. The Australian government will guarantee $250,000 in savings in a bank account through most banks and lenders. However, I just want to clarify that that is what we call ADI, which are traditional banks and that is an authorised deposit-taking institutions, which means that they can take that money.

(Note: Click here for the List of authorised deposit-taking institutions covered under the Financial Claims Scheme)

So if you’re not with an ADI and you’ve got large sums of cash that you’re storing, I’m just letting you know that it’s $250,000 per individual account. So if there’s a husband and a wife, that’s $500,000 for you if you’re both on that same account. But you need to be on the account name for that particular product to work.

Now I say that in light of… There is no financial risk in our system at the moment.

Nothing is showing up in terms of further liquidity issues globally. It’ll continue to keep playing out. And we are watching what other nations are doing around loan to value ratios and their lending criteria. In the UK, there’s been some changes and the US are making some changes. But in terms of the financial system itself, it’s pretty stable. So it’s highly unlikely, especially when we’re seeing lenders do things like these LMIs and looking at industries and potentially protecting any bad debts and risk for those particular businesses.

The government is also doing a $15 billion backup, which basically protects those others. It’s highly unlikely that we will see a bank or a lender go under during this time. The governments will do what they can. And so will the Reserve Governor and the Board do what they can to protect that. So I don’t think we need to be panicked about that, but I just wanted to clarify that particular point in terms of that it needs to be an authorised deposit-taking institution to have that.

Now, if you were in a fortunate position to have $250,000 in cash, to be honest with you, that money could probably be doing some better returns for you in the short to medium term. Maybe a property or maybe in other markets. So that’s just something that you would want to talk to your professional advisor.

Borrowing Power Tip No.3 : Learn more about the electronic paperwork and settlement process well before your settlement date

Bryce:   Based on your risk profile of course. A couple of things to be mindful of if you have a settlement that’s going through PEXA electronic, what we are seeing is banks having more of an appetite to use DocuSign and electronic signatures. They are doing electronic settlements, which is great.

In Queensland, you need to have the JP witnessing the documents. So you need to be mindful of that and front foot that. One of our solicitors up in Queensland is talking to the Queensland Law Society and we’re feeding back lots of updates for us around what that looks like. Because if you need to engage with someone face to face to get those documents witnessed, we need to proactively manage that which we are doing on behalf of our clients because it’s very difficult to actually get them witnessed if you’re not allowed to actually go and see a JP. So that’s something to keep in mind.

But clearly where there’s paper settlements, that does require proactivity, front foot it, talk to the people, don’t leave it till close to settlement. We are having conversations very early on in the piece regarding that because there is opportunity to buy in that market. You don’t want to lose that opportunity. But we want to make sure that we front foot that. So just flagging that cause that impacts the mortgage document.

Ben:       The bureaucracy of the Queensland Government. Could be better. I’m not going to say anything anymore.

Borrowing Power Tip No.4 : Understand that loan repayment holidays is not a free lunch.

Bryce:   And we’ve obviously talked about other things around borrowing power, loan repayment holidays and all those sorts of things. If you need to access your redraw, all those sorts of things, rewind back to episode 277 on Coronavirus and Property FAQ.

Ben:       But I just think we just need to remind people that it’s interest capitalised, right? And so if you are going to do a repayment holiday, remember that you still have to pay interest on that money. That’ll reset your balance and you’ll have to pay interest on that. So it’s important to understand that.

We also know that lenders have got interesting offers, right? Annual fee waivers. You’ve got refinance cash back offers of thousands of dollars, some up to $4,000. You’ve got LMI discount waivers for certain first home buyers from different lenders.

There’s just a lot of special offers and campaign offers out there to do the shopping as well as to help with your casfhlow. So don’t just consider repayment holiday as your only way out. Think outside the box.

If you want to do the shopping yourself, you can obviously start on the comparison sites and do all that type of stuff, but you can also get your mortgage broker to basically do that shopping for you. The mortgage industry and the financial industry is alive and well and kicking and we are doing an incredible amount of work as are other great mortgage broking houses out there. We’re basically looking at those special offers and potentially saving clients thousands and thousands of dollars, which is a good segue into my final point, Bryce, which is around fixed rates.

Borrowing Power Tip No.5 : Consider if Fixed Loan is a suitable option for your household.

So traditionally it’s always a bit of a gamble, a bit of a guess in terms of whether you should fix your interest rate because when people are normally fixing, then all of a sudden variable rates go down and they’re caught at a higher fixed rate and there are significant break costs.

Now just a quick explanation on what those break costs are. The bank buys a block of money based on the money that they get through the markets, mainly bonds markets, right? And so that’s priced at a certain price point. They then obviously go and put their margin on top of that and sell that as a block of funds. So if the variable rates are going down and the borrower wants to get out of the loan, well the bank is sort of saying, “But I bought this money at a certain price. If you leave me then I’ve got an economic cost here.” So the break costs is used to recover that economic cost compared to what they would normally get. Hence the large break fees if interest rates are going down. There’s usually no break fees if the variable rates are higher or that the bank can actually make a greater margin on you.

So it is an economic cost. It’s not them trying to gouge you. It’s basically the cost of their money.

Well we know Governor Lowe and the Board have said that the three-year bond rate which is the main rate in the market in which other interest rates are set against, they want it at 0.25%. The same as the variable rate. So if you put that together, they’re basically saying that we will do everything we can to keep that rate at that. Banks are buying lots of these funds at the cheapest rate they’ve ever bought and so we’re seeing publicly, the best fixed rate offers that we’ve ever seen in a hundred years of lending.

Those fixed rates are excellent. But also, remember we have an offset account. You can’t usually have an offset against the fixed rate and you normally can’t do extra repayments or it’s capped. Usually it’s $10,000 or $15,000 in additional principal repayments. So what I’m saying to people?

Bryce:   What are you saying Ben?

Ben:       I’m saying hedge Bryce. I’m saying hedge in terms of looking at maybe splitting off 30% or 40% of your money or even higher if you don’t have strong surpluses and that’s where the broker can work out for you on what they think is the best option in terms of your blend.

Because you can have a fixed and a variable under a pro pack with an offset with all of the debit cards for the living and lifestyle which makes it possible for a hedging strategy.

Everything that we’ve talked about in terms of Money SMARTS can be handled for you. So it could be a way in which you could save money because the fixed rates are still better than some of the variable rates out there. Anyone that says, “Well, variable rates could go down further”. Well, that would be a significant shock to the financial system. If the Reserve Governor and the Board decided to drop the cash rate lower than the 0.25%. They are saying materially it does not make sense. And I am not interested in going into zero or negative interest rates as some other countries have done as part of their quantitative easing program. The cash rate is going to stay at 0.25%. And this is a great way in which you can potentially save some money.

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CASHFLOW MANAGEMENT

Bryce:   I like it. Well done in bringing that one home. So let’s pivot. We’ve done Asset Selection. We’ve done Borrowing Power during pandemic times. Let talk about Cashflow Management. Number one…Let’s congratulate those folks who were actually prepared for this moment in time. For those folks who actually have done Cashflow Management in advance of a pandemic.

We honor and take a bow to you. Because that’s the game changer for anyone who doesn’t have anxiety at this point.

Ben:       Smart people doing smart things.

Bryce:   Liquidity has always been king. It’s always been King.

Cashflow Tip No.1 : Get a line of sight on your money.

Ben:       Nothing upsets me more Bryce. As you know, I’m trying to remain calm. But nothing upsets me more. And it’s never been more highlighted that people who live paycheck to paycheck… Now, with the exceptions that there are some people in the community where circumstances have delivered that outcome that they are currently in and they’re not in control of. And so I respectfully acknowledge those people and say that, “This is through no fault of your own.” There is no judgment in terms of those people who are struggling.

But there is very much judgment Bryce…. I’m being very, very judgemental for those people who are living beyond their means and who are basically been spending their money on discretionary items that really don’t bring them happiness at all.

They’re the people that need to learn from this. We’ve had almost 30 years of positive economic growth. And to know that all these people are basically saying, “I can’t afford things and all that.”

Bryce:   Tell that story Ben and obviously the clients details are sensitive. But you were talking before about someone who should not be in cash flow challenges?

Ben:       Yes, there are. We are blessed and humbled to be able to look at a lot of household financial stories. And it staggers me and frustrates me when I see a high income earners who basically don’t have any surplus. There’s just, and the frustrating part for me is the realization for them into their future.

They are living a very comfortable life. Bordering on extravagant lifestyle based on those incomes. But the biggest shock to the system for them is going to be around the fact that when they do retire, they will not have the same amount of money to live the lifestyle that they wanted to live. They’ll be working into their 70+ if they want to continue up the so-called lifestyle and the essential things that they think they need.

Our crusade and our mission of The Property Couch is about creating financial transformation and financial peace. And we are blessed that the community are responding to that message and we are seeing thousands, literally tens of thousands of people signing up to the platform, MyWealth Platform, to be able to organize their money and have an insight in their money and financial story. And so for me, that’s the pay it forward moment.

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I know in this area where we should not have judgment, but I think sometimes, from little bit of eyeballing to people to sort of say, that’s unacceptable. If you want a situation to change, you need to change your situation.

And so, if this is not a wake up call for those people who have not taken their money management seriously, who have not organized and got a money management program in place…. I’m eye-balling you right now.

I will happily clap and cheer for you when you get out the other side of number one, getting in charge of your finances. If you don’t do that, then you don’t have an excuse for me. You do not have an excuse for me because you have the time. You’re isolated. You’re at home. You need to get organized and basically work out exactly how much money you have and how long that money will last you for. And if you don’t do that, then don’t whinge to the government. Don’t whinge to me. Don’t whinge to anyone else about your financial affairs. Again, with the exception of those people who through no fault of their own have challenges around their financial story because of their life events or circumstances.

Bryce:   I’m appealing to the community to respond to that message because I was the proxy of that. The look in your eye just then, on behalf of everyone else who had not been doing the right thing made all my knees a bit weak. You changed tone and your eyes narrowed a bit and people can’t see that on a podcast. But you were a strain. When we had this conversation before we push record…

Ben:       I can be animated on this. You can imagine me animated on this where I’m calling people to take action.

Bryce:   So folks, help me out. I was sweating on my seat just then and I’m not even sitting.

Ben:       If I could do it, surely others can.

Bryce:   Money is simple, behavior is hard. Jaemin says, “Insecurity left unchecked leads to madness.” People who were insecure and are used to getting significance out of spending money all the time. About how many times they go to a restaurant every week and about what car they drive. All those search for significance thing that require them to spend money that makes them feel good in the moment but doesn’t make them feel good long-term because they will chase the next high every single day. That is what we’re talking about folks. So again, we’re quarantining the people who are under no fault of their own. They’re in hardship right now and our hearts go out to them. But you’re talking specifically to folks that aren’t.

Ben:       There is no excuse Bryce. No excuse at all, that if you have been working for five years or more, that you don’t have $5,000 in an emergency fund that you shouldn’t call your own. In my view, if I could see everyone, if I could put my financial controllers hat on and if I can walk into that household, I reckon within 10 minutes I could find four or five examples of things that they don’t need. That they’ve been spending money on but has materially not given them any value whatsoever. That if they had their time over again, they wouldn’t spend that money.

Every household can do better. Every household including my household could do better in terms of that.

The freedom you get when you do achieve financial peace is that you can be a little bit more luxurious because you’ve got this base underneath you that just keeps returning you money. And so the hard work’s been done. But I am definitely saying to those people because you know, the millennials who have come through who lived in Australia which has 28 years of positive economic growth and the ability to have dreams and aspirations and move jobs because the jobs market has been pretty buoyant. I’m saying to you, this is your moment to think about your future and your money management future. You get it organised, you get into a habit and it’s life changing. And it will be life changing for you in the next six months, in the next 12 months. But as you go year, year and year, it’s unbelievably peaceful in terms of the comfort you can have around financial wellbeing.

Bryce:   So step number one folks, irrespective of who you are, if you do not have a line of sight on your money, that is step number one. We’ve made it very known to our community. If you are someone who’s listening to us, you’ve only heard us for the last couple of weeks, someone’s referred you to listen to us, we’ve made a resource available to you. If you go to www.MakeMoneySimpleAgain.com.au, we will give you the instruction manual aka our second book in PDF version. You can get it for free so that you can actually go and understand how to be in control of your money in 10 minutes or less.

And not only that, we have a platform which is also free, where you can actually see lots of graphs and lots of pictures if you don’t love numbers. The people who don’t like numbers love it because of that. It’s called MyWealth Portal and you can go to www.ew.moneysmarts.com.auto get access. Step number one, folks. Get line of sight on your money.

Cashflow Tip No.2 : Be absolutely clear of your discretionary vs essential spending.

So part of that as a segue, Ben, is you want to work at how long the current money will last. You want to be able to split up essential versus discretionary. And be very clear on what you think the difference between essential and discretionary is.

Ben:       Essentials are keeping you alive and keeping you healthy. That’s essential. Food, shelter, heating and cooling, utilities. But even then you could ring up and get a discount on your utility bills. You’d be amazed there are government websites that you can go to where you can check your energy program and package.

You can get sharper on your bills. Any type of subscriptions or things that you’re paying for on a weekly, monthly, fortnightly for. They should go.

There is a lot of free information out there. We’ve seen some of the service providers offering free kids programs and all of that. You’ve got iView which is a wealth of great content and then through ABC.

Bryce:   There’s a show on iView that you can watch in isolation at the moment. Just thought of throwing the plug in there. It’s called Escape from The City.

Ben:       Oh, there we go! Good show that one. Yes, Escape from The City is there. So we can definitely start to sharpen what’s essential and what’s discretionary. Be really critical on yourself in terms of what is essential and then what you put in your discretionary column. And you’d be amazed in terms of how much cash you can find. If you don’t have a buffer or if you have credit card debt, you’ll be surprise how quickly you can retire that and get Money FIT.

Cashflow Tip No.3 : PAYG Tax Withholding Variation Form.

Bryce:   I like it. And hey, I’ve talked about it before, but the PAYG Tax Withholding Variation Form. I said it a couple of times of late.

Basically what it is, Ben, is if I was to put my tax return in at the end of the year, and let’s just say the ATO was going to give me $5,200 refund… I can wait until the end of the year. And essentially what I’d be doing is I’d be saying to the Australian Taxation Office, you can have access to my money interest free for 52 weeks and I’ll get it back. Or you can fill in a PAYG Tax Withholding Variation Form.

Don’t do this lightly folks, cause there are penalties if you get it wrong. So you might want to take some guidance on how to fill it in.

But the PAYG Tax Withholding Variation Form says, “Okay, well I’m going to get $5,200 at the end of the year. Why don’t you give me 52 weeks, $100 extra in my pay packet?” So what happens is, the tax office writes a letter to your pay master and they say to your pay master, “Please take less tax out of this particular person’s pay packet to the tune of $100.” So when you get your pay packet, you get an extra $100. That’s going to help you with your Cashflow Management as well.

Ben:       Awesome. So…. Just get organised please. Organise and thrive.

Bryce:   Hey, the ATO also introduce the shortcut method Ben from working from home expenses for the rest of utilities fees. I think it’s about 80 cents per hour? Go and check it out folks. And just remember, interest only has a higher rate but the cashflow commitment is less. So if you’re putting your money into an offset, that starts to compound and become a snowball running down the mountain. You’ll have less commitments but doing the same thing as if you were paying principal and interest repayment. And you’ve got some others as well?

Cashflow Tip No.4 : Speak to a broker or bank on repayments

Ben:       Well, we talked about the Fixed Rates and the Variable Rates and asking your mortgage broker about it. That’s going to help with cashflow.

The other thing that you can also do in terms of a combination of your borrowings and cashflow, rather than doing a repayment holiday, you could reset your mortgage.

For example, if you’ve got say, 15 years to go on your mortgage, your principal amount of payment and those overall repayments are traditionally higher, reset it back to 20 years or 25 years. Just to get it right in terms of what you can afford to do. Because I’d much prefer you not to take a repayment freeze because it’s just going to be costly.

The fact is, you can reset that to create more money in the household. And remember we’ve got one of our most favorite downloaded report is, “How do you invest in property without impacting the family budget?”

(Note: If you’re interested to download the report, just fill in the form below and we’ll email it to you.)

Free report - How to buy w/o Impact family budget

And that’s the concept. You basically reset your mortgage to a repayment level that you can feel comfortable with. Now remember, you still need trap all the extra surplus and put it in the offset because if you can keep the money in the offset, your repayment will be lower. This reset option is potentially a consideration for people who have negative cashflow because they’ve got some type of credit card debt or personal debt, car loans or whatever. So I think from that point of view, it’s really important to look at different ways in which you can organize your mortgages. And that’s where you also talk to your investments savvy mortgage broker. In fact, every mortgage broker should be able to do that for you.

Cashflow Tip No.5 : Set up Money SMARTS

Bryce:   And also, we’ve talked about setting up your Money SMARTS, which is clearly the umbrella under Cashflow Management. But it also highlights the fact that you don’t ever want to rely on the government. If you’re a casual worker under 12 months right now, you’d be left out.

I’ve met a lot of people in the television industry, who I’m connected with there in the freelance world, they’ve been missed. You don’t want to rely on the government. Now the government’s done a good job to provide stimulus in a time like this, but there are people who are missing out and they will slip through the cracks. So ultimately the bigger picture of Cashflow Management is clearly the government’s there to help stimulate the economy but never rely on the government. You’ve got to own your money management.

Ben:       You have to own it. The government’s there as a safety net and hopefully you should never want to call on it. And if I could give my number one financial tip ever, is that you should never ever rely on someone else to create your financial freedom, ie. the government. The government should only be a safety net. And we’re seeing how they’re offering billions and billions of dollars as the safety net because fiscally, they are reasonably well managed to allow to do that. I still think they spend too much, but that’s where we get to. So be careful and start to look at your money and just sharpen up your attitude, sharppen up your behavior and your action in terms of how you look at money management.

I don’t care if you don’t use our tools, just do it. Just do it with another tool. I don’t care! Anyone, right? Just make it happen.

Bryce:   And make sure that the money you earn is greater than the money you spent. It doesn’t matter whose system you use, just make sure that is the overarching principle.

Ben:       And then, put it to work. Put it to work!

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DEFENCE

Defence Tip No.1 : Do not invest if you’re in a vulnerable industry.

Bryce:   Alright, so we’ve done A, B and C in Pandemic times. Now… defence. So first of all the big defence around is making sure you don’t proceed on investing if you’re in a vulnerable industry. That’s number one. We’ve talked about that a fair bit. But the interesting thing about defence is we’ve enjoyed almost 30 years of positive economic growth, people got complacent. So they thought defence wasn’t necessary, but it is.

I was chatting with our Chief Investment Officer here, Michael Savy around the defence that he’s seeing in the financial planning space and his message was that defence strategy is still important. Income protection insurance does not cover job loss, but it does cover the illness itself. That’s an interesting point and an interesting differentiation to make. So the key is not to cut out all the insurances. The key is to actually review and tweak.

Defence Tip No.2 : Do not outsource the understanding.

Ben:       It’s really simple. We acknowledge and anybody on who is investing that there is always risks.

There is risk in investing. You can lose your capital, you can get yourself into a position where the money that you put in may not be the money that you get returned to you. Acknowledge that, accept that, inform yourself, educate yourself and the biggest form of defence around it. Knowledge is empowering.

I always say to people, make sure that you have an educated understanding. If you’re investing in the share market right now and you haven’t done your due diligence on those companies ie. how much debt have they currently got on their books and what sort of free cashflow is that business generating right now because businesses that are carrying high levels of debt, their share price and their business is vulnerable right now. Especially if they’ve got no revenue coming in right now.

So just because they look cheap compared to what they were six months ago, it doesn’t necessarily mean a good buy. That’s about educating yourself and being informed.

If you were just making a guess because you know a brand or you know a company and again, their shares are cheaper, that’s gamble. That’s gambling.

Get an understanding of their balance sheet. Read their market updates in regards to what their forward projections are of the impact of the Coronavirus on their business. And if they are not giving any forward guidance, that means that they don’t know. And if they don’t know, that means that those businesses are potentially at risk. In terms of industries you could potentially look at industries that are going to rebound? Rather than taking a risk on one particular company, you can also consider index funds that can potentially look after you. So that’s about informing yourself. That’s about educating yourself.

It’s the same sort of thing. I’m not going to respond to a tweet that says property prices is going to drop by 20% because I don’t care. I only care about what’s happening in the property markets that I’m buying in or we’re buying in for our clients or the properties that I hold.

So from that point of view, when you get into the detail about the auction clearance rates… 36%. Worst ever. It’s irrelevant! They’ve only had 89 properties for sale by auction on the weekend. It’s irrelevant. It’s not a market indicator anymore. So get back to the facts and take a deeper dive into and be informed. If we all get informed by the visions that we see around the US and by way of example, the share market in the US is going nuts. They’re now calling it a bull market. Now New York is unfortunately having a shocking casualties and death, right? It’s horrible what’s happening in New York and yet, down in Wall Street, share markets went up about 20% over the last three weeks. So remember, the markets will always look past the current event. We learned that through Michael Savy’s video that we did and what we shared on the podcast. It’s all about education, being informed and getting to the truth.

Because if we look at everything that’s around us, it will affect our behavior cause all we’re getting is negative, negative, negative, negative.

Stay positive. This too shall pass. What does it look like in a year’s time? What does it look like in two years time? What does it look like in 3 years time?

Roger Montgomery said we won’t even be talking about the Coronavirus in three years and I don’t disagree with him. And he is someone who is an expert at studying value investing and an expert in studying the markets. This too shall pass. So my number one tip in defence is be educated because education helps mitigate risk and builds confidence.

(Note: Click here to watch Ben and Michael’s Interview on COVID-19 and Share Market Analysis)

Defence Tip No.3 : Protect your mental health.

Ben:       Kingsley, I need you to fire up. You’re a bit flat today. Last one for me in defence is protecting your mental health. This all comes crashing down.

If you come crashing down, you need to just celebrate some of the smaller wins but also just have some form of vision or something that you’re leading towards in.

I was listening to a podcast recently and they said the average lockdown period during the Spanish flu back in 1918 was 88 days. So making sure that, I know that this isn’t a weekly thing. This is a monthly thing. And I don’t know how many clues Scott Morrison has to give to say that we’re in this for months. Folks, not for weeks right? So you need to protect your mental health. And if that means that you go out and do the gardening, you’re planting tomatoes, you go and buy a board game, that you do a jigsaw puzzle or a coloring book, just something that gives you some form of a vision or some form of direction. Protect your mental health. This is really, really important.

We’ve had a few episodes around mental health. We’ve had a few people on here to talk about that. Go back and listen to our back catalogue. I think Ivise has a put a really, really good playlist together for us on that as well.

(Note: Click here to get access to all the playlists that we’ve curated on the podcast. We called it the Isolate and Chill Playlists Series.)

So folks, I cannot say it anymore.

You need to protect your mental health. You need to walk around, you need to get some exercise, you need to connect with your friends.

You need to, I can’t even remember the name of the app in, but I’ve been introduced to an Apple quickly see if I can find it… It is called House Party. Do you know House Party Ben? No. Do you know Ivise? She gave me a little nod. Of course, being a millennial. So I didn’t know what House Party was 10 days ago but now, let me tell you what I’ve done in House Party. I’ve connected with some friends. We sit there on the couch and we talk and there’s maybe seven or eight of us. It’s just a fancy FaceTime right? But the thing is that, you can play quizzes. You sit there and you play quizzes, right? Have you done this Stiggy? Hey, it’s something I’m teaching you. So it’s just connecting people. We’ve said this before, keep calm and spread a social contagion of connection.

The biggest defence I’m saying is protect your mental health. And I’m not saying to folks as if I have not had some flat times. Because there’s been some moments where I’ve gone oof… But I’ve had strategies to pull out of it. So I’m saying to people, make sure you find out what your strategies are to pull you out of it.

Defence Tip No.4 : Have a cashflow buffer.

Ben:       Yeah, we’re only human so we are going to have moments of difficult days and flat spots. Totally get it. I’ve got a couple to finish off today’s episode. Cashflow Buffer. Why is a cashflow buffer so important? So yes, you’ve got cashflow but we are talking about the emergency buffer. Cashflow buffers buy you time. Yes, they buy you time. And we’ve talked about six months being the minimum and 12 months being very comfortable. And that’s all about your risk profile.

You build up those cashflow buffers and that buys you time and peace of mind.

The risk mitigation we were talking about before around insurances. At these times, most people look at their insurance policies and they potentially look at that as an area where they can get some savings. Please don’t do that. These are assets. These assets that hopefully you will never call upon, but they are mitigating your risk. So whether that’s income protection, life, trauma, TPD, those types of things should be embedded in your cashflow model and in your cashflow plan.

And they should be non-negotiables. For me, they are always essential. So please, please do not cancel your insurance policies.

That said, there might be something in your health policies or something like that, which isn’t applicable to you for your age. So if you’ve got things like optical or something like that and you’re 22 and you’ve got good eyesight, then maybe you can have a look and talk to your insurance companies about saving on that particular thing. Because we are all about defence through risk mitigation. There will always be risk, but we can minimize that through the policies that we’re talking about such as landlord protection policies, those type things. That’s important.

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And my final message for Easter Bryce, is don’t do anything that you’ve been doing on a regular basis for four days. So you know you’re trapped at home, right? But if you’re someone who’s knee deep in work, take some time out. Have a breather, don’t look at the news…

Bryce:   Pack down the two computers that are on the family table.

Ben:       Whack the tent up in the backyard or whatever you’ve got. Just try to do something different because normally we spend Easter out right? We go to the beach house, go to the country. But you can’t do that, right? But just get some time where you’re looking at different stuff. I mean, you know, reset the garage, organise the boxes of crap out the back that you never get to pack up, that Christmas decorations that are being shoved carelessly into a box. Do it.

Bryce:   And involve the kids. They love it, Ben. They love being involved standing side to you. Before the industrial revolution, they’re out in the farm, they’re standing next to you, doing the things that you were doing. So they love doing that.

Hey, my kids put up a sign in the window Ben. They made this this big cardboard sign and Andrea just gave Jack, my oldest, a free reign and he just wrote be happy, right? And then they started getting all this craft and putting this big rainbow and they put some Lego in there and they built something. And the rainbow and the teddies as well there. But here’s the deal, right? One of the neighbors came and put a letter in the in the letterbox and said to the kids, “Boys, well done on your sign. It made my day.” And once we showed the kids the letter, I mean… You should have seen the look on their face. So I want to double down on what you said. I totally agree with that.

Ben:       Four days where you can get your headspace out of COVID-19 and Coronavirus and just spend time with family, board games, whatever it is, do it. It’ll be incredible for your mental health. And it will be incredible for your energy moving forward because we’re going to be indoors for a little while longer.

Bryce:   And Ben, go back, look on YouTube to the prelim final back at Subiaco Oval back in 2013. Arguably the best game that has ever existed where Fremantle knocked off Sydney to advance to their first Grand Final. Just the unrelenting pressure Ben. I just…. I challenge you to go and watch that.

Ben:       Alright, I’ll go and check it out. Have you voted for that in the Fox Footy The 50-50 Best Ever Game? Do that cause they’re going to be playing the best ever games. So hopefully that will make it in there cause..

Bryce:   What do you mean hopefully? It’s the number one game! It should be at the top of the charts. Seriously.

Ben:       89 Grand Final for me is. I still think was the best.

Bryce:   89? Did you win it?

Ben:       No, Hawthorn and Geelong. Ivise liked that one.

Bryce:   Oh yeah. That was actually pretty good. Hey, as a lead into my point on mental health, my life hack comes today from a listener named Jason.

Jason sent us this message. “G’day mate. Hope you’re well Bryce. I love the podcast and have a life hack for you. We’re obviously living in strange times and I’ve personally found it challenging to deal with all the media hype. To escape a little, I’m listening to old episodes of the podcast to remind me of the fundamentals while not hearing the dreaded C word and constant negativity of course” He’s talking about Coronavirus. “It has been a great escape and a valuable reminder to stay the course. Episodes 153 and 154 are great episodes with some golden guests. Anyway, all the best. – Jason.”

Thank you for that and I got to say that I’m actually doing the same. There are podcasts that I listened to and I probably found recently a couple of podcasts on how to navigate through these times. And I went, you know what, I actually need to switch off. So I’ve actually doubled down and gone back, rewind a couple of years. It’s been fascinating to see some of the conversations that people were having back in 2016 and back in 2017 because they stayed points in time. So love it, Jason. Great life hack folks.

I’m going to encourage you to do the same and I’ll tell you what, Stiggy has made it so super simple to do that on our podcast. She and Emma has come up with these wonderful playlists and they are shared in the newsletter that we’ll send out to everyone notifying you about this episode tomorrow morning. It’ll be down the bottom, but for those who are not, you go to… Stigg, can you help me here? www.thepropertycouch.com.au/isolateandchill. Is that right? Yes. That was lucky cause she wasn’t gonna say anything. So I had to remember pretty quickly, so there you go folks. Ben, did you know?

Ben:       Did you know Bryce… I thought I’d just share a little bit of property data for you, but just on the size of properties. So CommSec and the Australian Bureau of Statistics recently released the sizes of our houses and they are changing.

So basically what we saw is the average square metre of a house in Australia has dropped by 1.3%. The standard size of a house in Australia is now 228.9 sqm. I’m just letting you know. We had the biggest houses in the world back in 2001 and so we have seen a decrease in that. In fact, that figure in terms of internal living space brings us back to the same size as back in 2012. So we’ve been coming off of these big sizes. Now, what is interesting is…. Units. What do you think has happened with units market Bryce?

Bryce:   I think they’ve got a little bit bigger Ben, cause we’re going towards that as a trend. You were trying to trip me up weren’t you?

Ben:       Ahh….No I wasn’t.

Bryce:   It used to be.. Jack and Jill went up the hill to fetch a pile of water. Now it’s Jack and Jill went down the lift to fetch a babycino.

Ben:       Very good. So we are definitely seeing an appetite as we get more condensed, more populated cities, more brain centers like Melbourne, Sydney and Brisbane and blah blah blah. So we have increased the per square meter size of the units. And this is the 2018-19 year data. It’s last year so it’s pretty relevant. 128 square meters is the average unit size, which is up 3.2% on the previous year.

It’s also important to note that we’ve always been encouraging our developers out there to build more three and four bedroom apartments. I know they’re less profitable for you. But owner occupier buyers said they need them. So please do that because you will make a lot more people happier. Those who want to live closer in and have all of the spoils and amenities which are closer in. So there you go. Did you know house sizes are getting smaller? Unit sizes are getting bigger.

Bryce:   Very good. I like your did you know segment today. Thank you very much. So just a quick reminder to our folks. For those of you that observe the traditional Easter celebration, I hope you have a great break. For those of you that don’t, I hope you have a great long weekend and let’s let’s just remind ourselves that we all want to get through the other side quicker. So let’s not undo it this weekend. Let’s flatten the curve. So Ben… Happy Easter to you. Stiggy, Happy Easter to you and to our community. Happy Easter or happy long weekend. And until next week, Ben?

Ben:       Knowledge is empowering but only if you act on.

Bryce:   Well said. See you next week folks.

Additional Resources:

Here are the first few episodes when we talked about the ABCD

And of course, we’ve also covered this in our later episodes. If you’re keen to find out which episodes to check out, download The Property Couch’s BingeGuide here!

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