How to sell Melbourne homes and investment properties well
The time to sell a home or investment property eventually arrives. The objective is to achieve the greatest sale price subject to a suitable campaign budget, all completed with the least stress possible.
Stuart Wemyss (on left), Director of ProSolution Private Clients and Jarrod McCabe, Director of Wakelin Property Advisory discuss how to achieve the best result.
Please watch the entire video above (or read transcript below). Alternatively, jump to the questions that most interest you, based on the table. Closed captions can be turned off or on using the CC button in the right hand corner of the video.
- Good afternoon, everyone. My name is Stuart Wemyss, Director of ProSolution Private Clients. And joining me this afternoon is Jarrod McCabe, Director of Wakelin Property Advisory. Welcome, Jarrod.
(from 2mins 15 secs)
- First thing is, asking a lot of questions. You need to get a clear understanding as to why you're selling in the first instance. So what are the main reasons for it. Obviously the type of property too and what are you trying to achieve out of selling this property? Is there other objectives that you need to meet? Perhaps as Stuart mentioned, if you looking to upgrade or downsize a property, perhaps if it's an investment and you're looking to look at alternative investment arrangements or if you're coming to a retirement stage of life, there might be needs to do that. So asking a lot of questions and getting a clear plan in place as to what the reason for selling is and then making sure that you're going to be able to maximise the sale of that property by setting up a clear plan to organise that.
- Yeah, sure, so if for example, a bit of question without notice, if I in my plan, include the divesting of a property, but over say, the next five years, does that mean I should sell today?
- That's a good point. No, not necessarily. I mean, that's when you need to then start looking at the property specifically. And we'll get to that, more details around that as the webinar continues. But you do need to look at okay, well, these are going to be the best time to sell this type of property. What are the key features of that property? And when is that going to be most maximised? So for instance, the time to sell perhaps a beach house, down on one of the peninsulas around Melbourne, might not necessarily be the time that you would sell a family home in Melbourne. For varying reasons.
- So you wanna be strategic.
- Yep, yeah.
- Well, this is obviously only applicable if it's an investment property naturally or home other than your principal place of residence. So it could be a beach house, as Jarrod mentioned. The first thing to take note of is that the capital gains tax event. So what will crystallise your liability is based on contract date, not settlement date. So that's an important thing to think about, particularly if you're selling pretty close to the end of the financial year, 'cause you don't necessarily wanna sign a contract to sell in June, for example, because that means that your capital gain happens in June in that financial year, even though you might not receive, the settlement funds until the following financial year. So signing the contract, delaying that sale to July, for example, gives you probably another 12 months to pay the capital gains tax liability. You obviously need to think about the difference in your individual taxable income. If you're the owner or owners of the property asset and how that might change over time. So again, if you're nearing retirement, then it might be better to delay selling the property if it's appropriate to do so given all the other considerations. So that your taxable income is a lot lower, because obviously, that the net capital gain goes into your individual tax return and it's taxed at the marginal individual tax rates. And the other factors, to be really careful with is to make sure you've included all the costs in your costs base. So if you've engaged an investment property advisor or a buyer's agent to acquire the asset initially, don't forget to include those costs, for example, they could have been 10 or more years ago. So appreciate it's difficult to rely on memory. But you wanna make sure that you've included all the cost to acquire that asset and all the costs to sell that asset, in order to reduce the potential capital gain, you've gotta think about depreciation, its impact on your cost base as well. Finally, if you use a tax agent, potentially you've gotten till between March and May, the following calendar year, following the end of the financial year, so somewhere between nine and 11 months, before you actually need to pay for the tax. So using a registered tax agent to load your deal with your tax return, will sort of buy you a little bit of more time before you have to give that or donate that money to the ATO.
- It could very well be, but again, it comes back to the point earlier around the type of property that you've got and obviously the market dynamics now typically, spring is generally seen as a great time to be selling property, there's a lot of activity around the market, we come out of a fairly dormant winter. But the thing that people need to bear in mind too, is that the supply during the springtime is quite often at its absolute peak. So if you're in a sector of the market that might have a large amount of stock coming on, then it might be consideration, are there other times of the year where my property might reflect better and not have the same level of competition that I'll get through the heart of the spring market. Obviously, the market at the moment with the the lack of supply that we're seeing, is meaning that there are some actually some good opportunities to be selling it present. But then there are other factors that you need to take into account. So for instance, as we speak, the AFL Grand Final approaches this Saturday, which is now obviously a long weekend too but the market goes fairly dormant over this long weekend. So it can be an interruption to a campaign that perhaps you don't want to have. We then got a clear run through all of October, which is typically when through the spring market we'll see a lot of Super Saturdays, but then you get the Melbourne Cup Carnival as well as interruptions there. So those are the sorts of things that need to be taken into account. So looking at that demand and supply consideration, I've got a slide that will put up and have a look at just so that we can go through a few of those characteristics. On the left hand side, you'll see that prices fell in the first half of the year by around 4%. So Melbourne values overall from the peak of November 2017 and down around 11% altogether. But then we've seen the recovery, it started to begin in June. And it was quite slow at first, but it's certainly accelerated the recovery, we've hit September mark and there's been a hell of a lot more stock coming online. And but the demand is certainly continued to meet with that at the moment. So our expectations are that the Melbourne market is certainly going to claw back the losses of the first half of the year and more than likely actually end higher than what the year started. That's not to say that it will recover from its absolute peak. But it will certainly be higher than what we started in 2019. If you look at the right hand chart. We start to look at the supply and the demand dynamics that have been driving that recovery. So the first if you look at the bar side of things first. The two blue bars show that the volume of auctions in winter 2019 was actually 28% lower than winter 2018. And if we compare the yellow bars with the actual schedule auctions for spring 2019, with what happened in spring 2018, we can see that volumes are down 14%. So this reduced supply combined with the improved buyer numbers that we've been seeing, has really pushed that auction clearance right from the average of around 57% for winter and early spring of 2018 to 72% now. Now and in winter 2019 at around and now they're around 76% as we move into the spring, so that clearance right, it really gives you an indication of what the demand and supply factors have been of recent times. So yeah, it's showing you that the market is actually moving quite well and quite favourable, which was not what was expected earlier in the year. We were certainly very much in a buyers market through the bulk of 2018 and in the first half of 2019. But we've switched and switched fairly quickly back into a seller's market with clearance rates consistently being above the 70% mark, if they drop back below 70%, which is every chance that will as we move into that heavily supplied October and into even perhaps November, that would be still indicate more of a balanced market than a buyer's market. So I still think that there's probably good times for the remainder of the year. But you do need to be conscious of some of those other factors when you are considering selling.
- And it's interesting to note, I mean, as you said that percentage terms of volume. And I mentioned that on number of properties listed.
- Yes, yeah, where as you look at the volume in terms of dollar value of property sales on any particular weekend, which I think's bumping around about so 300 350 or 330, I think actually last weekend in Melbourne. And I know that you know really buoyant market it is closed billion dollars and property can sell every weekend. So it kind of shows if the numbers that obviously the volume in terms of dollar value sales, maybe a third or a quarter of what could very well been a very, very buoyant market. But volume numbers are down, you know, somewhere between 15 and 20%. It shows that potentially, that reading into that, I'm right, to say that the high end of the market is really absent?
- And a lot of that higher end market can be far more susceptible to those changes, they can hold on to properties because you can see such a drastic change in value, in fairly short space of time, because there's a limited demand for that type of property. The other side of things, too, is that you do see a lot of that higher end sector of the market transact off market. So it doesn't necessarily get the publicity that you might get with the standard auction campaign, which is more common in a property in a city like Melbourne, between 400,000 and probably $2 million, maybe up to $3 million. But once you get an excess of that there starts to be alternate ways to transact or to advertise that type of property and then sell it.
- Yeah, sure.
- Yeah, it sounds like a pretty benign question. Really, Jarrod, maybe it's the way that you asked it. But of course, you know, if we've got debt associated with a property, we sell that property. And obviously, if that debt was previously tax deductible, then it becomes non-deductible once we sell the property. 'Cause there's no more connection with earning an accessible income. The one provisor with that is that if we have residual debt, so if we sell the property for less than what we owe, in respect to that property, any residual debt still retains it's tax deductible nature. But really what I was getting at with this question is a way of, I guess, navigating the current restrictions in terms of borrowing capacity and certainly been well documented that the banks have made a number of changes to borrowing capacity as tightened dramatically and certainly the line approval process has. Westpac interestingly made a move yesterday to reduce their benchmark interest rate. Again, that's not really big news, I don't think because Westpac's borrowing capacity compared to the other lenders was always a little bit tighter. So they're probably just trying to keep up with the market more than anything else. But I suspect we'll see some loosening. However, one option, I guess, if you divest, you know, selling of a property is to retain the loan that you've used to originally purchase that property. And the way that you would do that is that you would just moves the security of that loan. So if you had an investment property, for example and it had an investment loan and you've got a home that has a lot of equity in or no home loan whatsoever, you could just move the security of that investment property loan across to your home. Then go and sell the property and you keep all the sale proceeds. Then you can park those all proceeds in that loan, but you don't repay the loan, particularly interest only, you can just reduce its balance to maybe $1,000 or something, So you keep the loan open. And it preserves a loan for you to use it for future uses. And that would be very valuable, I guess, for people that if the situation has changed and as a result of the tightening credit, if they couldn't otherwise, get that loan, again, as a new loan through a new application, it's a way of preserving their borrowing capacity and maintaining full control over those funds. So it's not for everyone, you wanna be careful about how you swap the securities and the timing associated with doing that and preserving any tax deductible nature of debt and those sorts of things. But don't initially think that, hey, I'm selling this property. And when I do, that loan is gonna disappear. And I've then got to go and find or make an application for a brand new loan. Has that been something that's been a bit more commonplace in the past couple of years, just given how difficult it can be to get loans? Is what that's brought that about?
- Yeah, absolutely it's something we thinking a lot closer, about more regularly. Because in the past, what you can borrow and what you should borrow has always been different. You know, what you can borrow, it's always been well in excess of what should borrow. But today we meet with some clients and we say, look, you're very comfortable. You're comfortable borrowing capacity here, but the bank's borrowing capacity is here. So because there's not a lot of common sense showing these days with particularly in regards to living expenses and what's discretionary and what's non-discretionary items. I read recently, a really good comment. For example, if you're spending and going out for dinner, two nights a week, isn't that really good evidence of surplus cash flow, you know that the fact that you could afford to do that and still pay all your bills? Doesn't that demonstrate surplus cash, right, anyway. So sometimes we've got to help clients with a bit of a strategy on how to maximise and at least preserve existing debt.
- It's really about taking your time to get everything right. And as the key with everything in terms of wealth creation, it's very much about planning, as I'm sure you know and setting everything up in a very meaningful way and done in the proper manner. So I've got another graph or slide to show you here, just to try and illustrate the purpose of planning and making sure that everything's done in organised and coordinated manner. So if you look at the plan, it gives you a bit of an idea, if it's not easy to read, you'll certainly be able to get a copy of this after today's webinar. But first and foremost is to do a bit of homework on your property and the value of your property as to where you see things sitting. And what properties that might be in competition to yours are selling for. And what perhaps some of the key features that are being emphasised during those campaigns. Now, the key once you've been want a bit of a feel for where you think value sits, it's about engaging with local estate agents and focusing on agents that have got a proven track record with this type of property. And well executed results within that market. Once you're comfortable with that and you've got you feel like you've interviewed two or three, you've selected the one that you feel is most appropriate, in conjunction with the agent, what we typically do, when we're working on our vendor advisory services to start at the end and work backwards. So pick the ideal time as to when you would like to auction this property. And what are the reasons for that? So depending on the type of property that it is, what are some of the other factors that might be coming up in regards to public holidays, school holidays, those sorts of things that might interrupt your campaign and then work your way backwards. So the standard auction campaign, if that's the method of sale that you're going to work with, it goes for three and a half weeks or four Saturdays with the auction date, being the fourth Saturday. You made a week or two to have photos done and be able to review those photos with ad copy before that, you'll then need to be able to prepare the works and things if there's work that needs to be done to the property. So depending on what's involved with that, whether it's just painting and carpeting or whether there's more significant works, whether it's renovating kitchens or bathrooms, those sorts of things. So how long are those works going to take in the lead up to being able to have the property ready for photos. Sourcing tradies, is it going to be easy. Are we looking at trying to carry the works out during January and therefore perhaps they're not readily available to be able to do those works. And then obviously deciding on those work. So if you work backwards, you then set yourself up to know how much time you're going to need in order to prepare yourself for the sale. And once you get back to that point, there might be other factors that come into play. So as we said earlier, if it's an investment property and you have a tenant in place, what's the current situation with that tenancy? Are they on a month to month lease? Do they have a small amount of time remaining on that lease? Or is there a large amount of fixed term and so then you might need to allow that time to elapse before you can actually put the property, vacate the property. Depending on where you are. How much notice you'll need to give the tenant, to then be able to start to carry out your work. So there's a lot of planning that will need to go in place, particularly if you do have an investment property. If it's your own home, obviously, you'll be able to do things in on an as needed basis and as time progresses. But you do need to put a lot of planning into get to that ideal end result. And there'll obviously be discussions with people such as yourself, Stuart to to look at the cash flow considerations around if the property is going to be vacant over that period of time as from an investment point of view, what planning do you need to do around being able to make repayments on loans, that sort of thing, it's most of the time with an investment property. But sometimes, if people perhaps have young children, they don't really wanna go through the stress of having to live in a home, keep it tidy and clean through a four week auction campaign. So I might choose to move out of the property over that period of time. So there are other financial considerations to make in that regard to, so planning is absolutely key with when setting this up, and making sure that you pick the right time of the year to sell that property. And if you've got some flexibility around that. So if you don't have urgency around, perhaps we've already sold, we need, sorry, we've already purchased we need to sell soon or that we don't need you mentioned earlier about capital gains tax considerations, we don't need to have this money, we would prefer to have it actually in the next financial year, well, then that gives you something a bit more flexibility as well. So where possible, setting things up as for the medium term is always preferable.
- Yeah, makes sense. Makes a lot of sense.
- Yeah sure before we get to that, Jarrod, if you just remind if you do have questions, certainly take the opportunity to type them in. And if the difficult ones, Jarrod will be more than happy to answer them. So the downsizer contributions were introduced as a way I guess, to help people get more money into superannuation. And they work if you've owned, if you go and sell your home. And particularly obviously, this is going to be in a retirement scenario or close to a retirement scenario. So you've own your family home, you've owned that for more than 10 years, you then have an opportunity to take $300, 000 each, so you and the co-owner, so your spouse or de facto and contribute those monies into super. And it's gonna really help those people, I guess that are in a downsize scenario where they will crystallise some surplus cash from their home. And that allows them to preserve that in what is a very tax effective environment, in fact, zero tax currently in retirement. So it's something to take into account, particularly in a low interest rate environment as well. So I mean, people might opt to retain a little bit of debt, a conservative level of debt, for, say, the next five years, because I think it's probably foreseeable that interest rates gonna be lower for that period of time, at least that period of time, and meanwhile, boost their superannuation savings, it's almost a perfect storm where this new rule comes into place. And we're in a very low interest rate environment, it's at least worth having some consideration. Now that doesn't go into what's called a non-concessional contribution cap. For most people, that's $100,000 a year. So it might be possible to actually contribute more than the $300,000 each, but something certainly worthy of consideration and something that we've come across over the last couple of months a few times with clients thinking about this. And if you, you know, are selling a home and it is at the upper end of the market, as Jarrod said, if there's not a lot of other stock to compete with, it might be a really good thing to consider. So you need to get advice, because there is about 10 or so different conditions to be eligible to make those contributions. And you need to do it within 90 days of settling on the house and so forth to certainly make sure you've got enough runway to make those decisions and have those conversations, but I thought it was worth mentioning, I should say, I'm not a big fan of building a strategy around the downsizing of a home. 'Cause quite often people, they might downsize in accommodation size, for example, but doesn't necessarily translate to a commensurate downsizing of accommodation value. And that's the whole point, right? We're trying to invest and build super and invest in other assets. So that we do have the flexibility to remain in the family home for as long as we choose to do so. But anyway.
- Was quite common with downsizing. We say that obviously as well, that you might downsize physically from the improvements yet, but you're actually upsizing in terms of the location, some people might choose to move from an outer suburb in a larger family home into a small terrace house in a inner city area. So the land value is gonna be a lot stronger, even though the improvements might not be. The other side of things is that quite often when you downsize, you might have been in a family home that perhaps hasn't had any work done toward for 15 or 20 years. And you wanna downsize into something that's nice and brand new, shiny and clean. those factors there too. So yeah, there's I agree with all that.
- We approach it very much around the agent rather than the agency. So people quite often look and say who are the big agencies in my area? I'll go and speak to one of those agencies and I'll find one of their agents there. Very much when we look at it, approach it more from a who's going to be the best individual agent in those areas. And that might be, there might be two or three from the one agency. But it might be that you need to get two or three different agents from different agencies around and interview them on an individual basis to get a clear understanding as to what their level of expertise is in that space. And so it's really important to understand that this person might be a fantastic agent, but are they the right agent to sell this type of property? So they might, for instance, be fantastic at selling family homes in that location. But are they the right person to sell a villa unit in that location? So understanding where their expertise is, where they've got the greatest level of contact with buyers and who they're interacting with on a regular basis, so that they potentially got ready made buyers once you start your campaign to introduce to that property. So there's a lot of questions that I would ask and that we do ask, particularly if you're approaching an agent for the first time. So things such as: what would be your preferred method of sale for my property and why? So should I be selling at auction? Should I be selling via pure private sale? So should all be doing expressions of interest? Should I look at off market sales? What should I use and what would be the reason that I would go down that path? Obviously, what's my property worth? But what have you sold that similar to my property in recent times that justifies that so that I can see what sort of level of competition you've seen in that space? Has it been strong? Has it been weak? Was there a depth of buyers? Were the inspections well received? What were the activity spaces in those sales that you've had in recent times? If you do go down the private sale path, for instance, what's the average number of days on market before the property is sold? Particularly if you're looking at something that's, you know, in a sector of the market that's in heavy supply, so if it's a high-rise sector, where there's a lot of choice from a buyers point of view and more than likely you would be looking at selling that via private sale? What's been that and now, it's not just because it's a short level of days on market doesn't necessarily mean that's the right person either, because perhaps I haven't been pitching the price at the right level and then solid quickly, because the price has been to attractive to the buyers. You can ask one question, but just because you get what you might perceive to be the right answer doesn't mean that there's not follow up questions that you could potentially be asking. And another consideration that you might make prior to selecting your agent, is whether you would get an independent assessment of that property, whether it be by a property advisor or valuer, someone who might be able to give you this is where current market value sits for this property, which then gives you if, particularly if you're not all that confident and you haven't been up to date with what the markets been doing in that sector in recent times, it will give you a bit more confidence as to okay, well, I can then compare that to the two or three proposals that I've had put forward to me.
- You said, you know, find two to three agents that fit the bill and kind of interview them and ask those questions, how do you go about finding the two three in the area that are worthy of consideration?
- Again there can be a lot of foot work in that, you can go and attend a number of open for inspections, look at what other properties and with real estate websites that are really available to all us these days, that would be the starting point. And looking at it, again, plucking a type of property, we've got a 1950s apartment in a suburb like Hawthorn, I would be looking at and it's a two bedroom apartment, I will be putting in a range of property values into to the search engine and discovering what are the properties for sale in and around that area, you can look at the sold tab for that as well. So there's ways to pick up who's been selling what in those areas. And that that's a good starting point. The other is to look to discuss with friends, family, other people who may have actually sold recently and how they found it. Have they found they've had good experiences, bad experiences, has it been indifferent. And that can be used as a starting point too. I wouldn't be going to two more than two or three different agents, I'll be doing the homework to get up to that point where I've then got two or three to interview. If you start interviewing five six seven agents, you'll go insane.
- That's too many agents to talk to. I guess a referral from someone in the industry probably, again, question with that note, it's probably holds a bit of water. I mean, I know how industries are relatively small, so you know who operates in them. And if someone comes to me and says, oh, I went and saw this financial planner or I spoke to this mortgage broker or whenever, I'm not always but often you might have a bit of background to now look that they are fine or no no. You just wouldn't ever speak to them.
- And there's a lot of independent people around that you can speak to now. And sometimes it might be a case of you might have a friend who's in the real estate industry in a different suburb. So that there's not that same, I guess influence. Yeah, so if you've got someone that you know, in Moonee Ponds, but you're selling who's a real estate agent in that area, but you're selling something over in the eastern suburbs. I've been looking to these two or three people to sell my property. Do you have any thoughts, feedback on them? And they may well, they may not. But there's plenty of independent other sources around that you could go to to ask those opinions as well.
- Good, good.
- Okay, so bridging finance is appropriate or applicable when you want to buy before you sell. Which is a very common thing, I guess, if you think from a practical perspective, if you're upgrading or changing your family home, particularly if you've got children, particularly younger children, it can be like herding cats to try and move houses. It's not a it's not necessarily an enjoyable experience. So if you're then able to go and buy something and then put your house on the market after you've purchased it, then that's going to be better from a practical perspective. But also, it's arguably gonna be better from a financial perspective as well, because then you know, you don't have to rush it on any time pressure you know, for someone home today, I've got and it's a 90 day settlement period. I've got 90 days to find a new property; 90 days to find and settle on a new property. So you are under a bit of time pressure there and you might be forced to compromise. So bridging finance will then be appropriate in a situation, we need to settle and pay for the new property before you've sold your property. Now note most banks will give you somewhere between three and 12 months in order to do that. Now, I probably wouldn't recommend a client go to a bank that's only gonna give them three months, obviously, the longer the better. So I would normally recommend a bank that's gonna allow you at least 12 months; enough time up your sleeve, to be able to go and sell that property. There's no, typically, no additional fees or higher interest rates or anything like that. The bank will just really look at what they think you'll sell your property for they'll knock 10% off that just to be conservative. And then just make sure and they have a look at what you've purchased for and make sure the end debt is achievable, so that you can comfortably service the end debt. That you can still service the peak debt. So holding both properties at interest only, so that's achievable and you have, enough buffers in place and so forth. And then if you tick all those boxes, it's that easy to get bridging finance, I say that facetiously because nothing's really that easy. With respect to getting finance anymore. You wanna be really conservative. And I would say go through the whole process that Jarrod's just talked about to really make sure you're really comfortable that you've got a realistic value of what you think you'll sell your existing home for, because I find that people tend to have an emotional attachment and have an over optimistic idea of what their home is worth. So be really, really realistic, if not conservative and also understand the amount of time it might take to sell that property too and again be realistic with that. So whilst we've got 12 months or we might have 12 months to sell, you wanna make sure that you're well, well within that timeframe. The alternate way to bridging finance is to approach the bank and tell them that you've bought an investment property which practically can be a good solution. So if I've got my home today and I go out and buy a new home and for whatever reason I can't sell my home or I'm not comfortable with the sales price, you know, I think I'm taking too much of a hair cut, I can go and put a tenant in that new property and leave it as an investment property a year, for example and then try and sell my home a year later. Sometimes that's a good way to structure your finance, because then you're under no compulsion to sell, at least you've got it up your sleeve. Oh look, I'll take this price, because I wanted just be rid of one of those properties and reduce my debt or the market has changed. So I don't want to sell my home at a discount, I'd rather put a tenant in the new property, and I'll continue to reside in my current property. And at least I've got time up my sleeve to make those decisions. So there's a couple of ways to attack it. Again, you wanna make sure you've got enough time and runway to make those decisions to line up finance. And essentially what I want to try and do with my clients is just give them the most amount of flexibility. So they can get as much time as they need to go and find the property that they're really comfortable with; that they're not under any compulsion to rush that decision and then also be able to sell their property when they want to sell it rather than when the bank or the market is telling them to sell it
- Dictating that buy or sell first can quite often be dependent upon the type of property that they wanted to buy. So we've had this discussion with a couple of mutual clients recently, whereby, if you're looking to buy a property that is quite unusual, then you might need to be prepared to buy it first and sell second. Because that property might take a little while before it becomes readily available. Whereas if you're looking to buy something that is quite readily available, is highly likely will come up fairly quickly. Well then you'll be more confident in doing the sales process first.
- Yeah and also, you know, if we're advising client, we're gonna be conservative on the sell price. So if you're buyer capacity is quite tight, selling first and really crystallising know exactly how much cash you walk away with allows us to be a little bit more aggressive with the budget. You know, we're not gonna be conservative with the sale process.
- It's always worst case scenario, isn't it? If we're looking at a sale value of a property of between 500 and 550, well, then it's worth 500. We want to get 550. We think we have a chance to get 550. But do your numbers on 500.
- Yeah, yeah, yeah, perfect. Again, if you've got questions, certainly take the opportunity to type them into the chat box, which is on the right hand side or underneath the video and we'll get the get to them in a second. Jarrod, another question for you.
-Let's talk about deciding the level and manner of cosmetic work. How do you know what is the right amount? And I'm assuming this is relating to property not botox and other things you get up to! Other things you get up to.
- You're always a comedian. Look, it's an interesting question. And I'd probably look at it more on the basis of rather than how much is too much, it's more about what's gonna be beneficial to that property. So where does a lot of the value in this property sit? So if it's for instance, a home whereby there's a lot of value in the land and minimal in the improvements, then a lot of cosmetic work is probably not going to be all that beneficial. Because you may will be pitching it at someone who's potentially going to do a significant renovation on this property, knock it over, put townhouses on it, that sort of thing. So understanding where value sits with your property is really important before you start to determine what sort of cosmetic work you do. But if you've got a home whereby there's a large amount of value in the improvements and less selling the land or even if it's an apartment, then you need to have those improvements presenting really well and maximised. We look at it on a cost basis to an extent. And the general rule of thumb is that whatever you're going to spend on that property, if you're not going to get at least double that back, then I would have serious reservations around whether you should do that work. So to make sure that it's going to be of great benefit to you. Because if you're going to go and spend $50,000 and only increase the value of your property by $50,000, then really I would have great reservations around carrying out that work. So it's understanding where you're gonna get greatest bang for buck around doing those sorts of work. So things like paint, carpet, window furnishings and light fittings quite often really good things. But even in some of your older style properties that might have original kitchens, bathrooms and things in them. It can be as simple as in a bathroom, resurfacing the bath and all of a sudden that can make a massive difference. New taps, there's a lot of products around now where you can paint tiles which can make that finish off really well. In a kitchen you can with some of the old timber cabins, you can paint with a nice gloss finish, paint change the door handles, all of a sudden you've got what feels to be a fairly modern, newish kitchen bathroom with minimal expense now if someone then wants to come in and pull that kitchen or bathroom out. At least they'll have had to compete against others that weren't going to do that to buy your property. And if they didn't want to do run to do that, well, then that's on them.
- Yep, yep and in terms of doing that work and in particular, if you're not willing to do that yourself, how do you go about doing that? Do you ask the managing agent or the people that do that sort of thing.
- There's there's a number of companies around project management type companies, my first port of call would be to go and speak to the agent that you've engaged to sell your property, because they'll have tradesmen readily available to be able to do that work at fairly short notice. So particularly if you've got some fairly tight time constraints around selling a property, those agents are going to have very strong relationships with the tradesmen that they use. And they'll be able to call in favours when necessary to get that work done in a fairly timely manner. Which is really important.
- Yep, yep.
- Yeah, I mean, there's lots of considerations and a lot of them can be really unique to an individual's financial circumstances. So it's hard for me to give a really broad brush answer to this question, I guess some of the things that I would think about would also be appropriate if you would say divesting of an investment property and you want then to reinvest in other property. So for example, if you decided that a property wasn't performing, it was a dud property, you want to get rid of it and put your money into a new property, you have a similar consideration in terms of how much do you spend and I guess both with the home and the investment property, my first thought would be quality is key. I would much rather put all my eggs in one awesome quality basket, than spread my eggs across three or four different average or two or three, four different average quality baskets. Consider the budget thoroughly. And I know it sounds good flavouring. But really the high you can level up in terms of quality, the more it's going to pay dividends to you in the long run. So someone's divesting of property that was a dud asset for half a million dollars, for example, well probably part of, you know, part of that is gonna be asset selection problems, it's a wrong property, wrong location, whatever, that generated that result. But we don't wanna repeat the same mistakes. So we don't now buy another half a million dollar property. What I'd be talking to them about is saying, well why don't we get something slightly better quality, something that's gonna have more scarcity value, that's gonna drive or at least have a lower risk and arguably better capital growth in the long run. So I'll be educating that client about maybe spending a little bit more on this next investment. So they don't risk making another mistake again. And the same with a home, you know, a home, we buy a home for lots of different reasons other than finance, you know, there's a little lifestyle considerations and so forth. However, a home particularly if you look at, you know, the generation of baby boomers, a home can accidentally be your best investment, not only best investment, the best tax free investment as well. So try and educate clients about thinking very, very carefully about what location what type of property. And sometimes, you know, there's that saying, if you're trying to chase two rabbits, you catch neither. So we don't want to risk doing that. But if we can try and tick both those boxes, which isn't always achievable, but often is.
- Can be.
- So you know, buy something that is otherwise a pretty good asset from an investment perspective and ticks lots of lifestyle boxes, then it's going to really pay dividends in the long run. The other factors you want to think about is cash flow. So obviously, interest rates are very low at the moment, CBA announce some rate, fixed rate cuts, five year fixed rate cuts this morning. So fixed rates are down, I think it's a reasonable expectation that interest rates will be lower for probably longer. But interest rate expectations can change relatively quickly. And I don't think in fact, I would be counselling anyone to make banking any financial decisions today on the assumption that the interest rates will never increase. So we certainly wanna factor that in. And also then other changes, private school fees, changing job, starting a family, starting a family can be particularly difficult to build wealth through. Because typically your incomes lower and your expenses are higher. So you wanna be thinking about those things in order to set a budget. So both these things create a bit of tension, right, because we on one hand, we want to spend a little bit more to get a better quality asset. On the other hand, we wanna be conservative, if not overextend ourselves and not borrow too much. So it is a bit of an exercise. But they're the kind of two main considerations that I take clients through in developing a budget. But if you can get the right budget and then that translates to getting the right property, there's a lot of success in there. But if you get the budget wrong, maybe you gonna cut yourself out of what otherwise would have been better quality investment for those situation.
- In an ideal world, you would sell it without the tenant in place, primarily because it opens up and gives a lot more flexibility. So depending on how long the tenant may have been in there, the property may need, as we said before, some cosmetic works being done to it, which is quite difficult to do when you have a tenant in place. But also, depending on, the length of time remaining on the lease, whether they are month to month or whether there's a short term or perhaps longer term. It can impact on your campaign in terms of actual buyer interest. So if you've got a fixed term in place, it's got a considerable amount of time remaining on that lease, you could very easily and likely rule out many owner occupiers who aren't gonna be prepared to wait until they're able to move into the property, though they particularly say first time buyers there, it's a very exciting time, they wanna be able to get into that property as quickly as possible. So you're potentially ruling out a lot of buyers. The other thing is that tenants don't always have furniture that suits the property. So they've potentially purchased furniture from a previous property that they've been living in. And so it might not actually fit well in that property. So it can feel congested and you don't get the space that the property perhaps does offer. So that's a bit of a consideration to make as well. And then during the campaign, if you do have a vacant property, it gives the agent a lot more flexibility to be able to come and go as they please. They can take buyers through very quickly, very easily, because they're more than likely have a key to access the property. And they don't need to go and give the tenant 24 hours notice. They can just, if a buyer rings up and says, I'd like to have a look at this property this afternoon, provided the agent is available, they can get out there and do that. So it just gives you a lot more flexibility and a lot more engagement. Now, having said that, there's obviously negatives to this as well. If you do vacate the property and don't have the tenant there, you don't have income coming in. So that can be a consideration. And it's not just the income for the four weeks of the properties on the market, it's the settlement period as well. So if you're then prepared to offer or if a buyer comes in and wants 120 days, that's a considerable amount of time to not be generating an income from that property. So that's something to take into account. It can work having a tenant in place or much preferred if there's only a limited amount of lease or fixed time remaining or if it's month to month. And if the tenants' furniture fits really, really well. So we helped some clients sell a property in East St Kilda earlier this year. And the tenants furniture was fantastic fit really well in the property. It's almost as though it had been styled; there was only a couple of minor touches that we made. They were fantastic in terms of providing accessibility and giving that degree of flexibility to the agents. And it worked really, really well. So it can work. But I would say the norm would be that you would vacate the property.
- And if you've got a tenant under a lease and you want to sell the property and you want to sell on vacant position, how likely are you to be able to break the lease with that tenant.
- Unless you're going to be able to offer some form of incentive. So the tenant may be prepared to move. If you offer them some form of incentives, which you can certainly attempt to do. But if the tenant say no look, I'm really comfortable here. I'm planning to go overseas at the end of this lease, I'm going to stay, then that's well within their rights and they're very much able to do that. So then it comes on to you as the owner, how urgently do I need to sell this property? If it's a matter of no I bought something I have to sell, well, then you might need to take a hit on the price. Hopefully not, if you set things up properly and your home will attract some investors in to continue to take on the lease, then great. But if there is that urgency to sell, then that might be something you need to consider.
- And what about selling to the tenant?
- Well, that's always an option, I would never make it as my priority as the first option. Because more often than not the tenant probably think that I'd be able to pick it up as a bit of a bargain. So unless the tenant, and again, you look at the different options, look at the price, they can obviously be savings made in that regard, because you don't have to pay for marketing and all the other expenses. So there are costs that you could save on, but in a market like we're in at the moment where there's strong demand if you're in that sector, where there's a shortage of supply, you'd be much better off going to the market and suggesting to the tenant where you can compete with everyone else to buy that property.
- It doesn't have a great deal of an effect, the thing that you probably just need to take into account is, hopefully you've been attending the owners corporation meetings and understanding what they're planning. And if there are works planned, are they going to potentially create levies that might need to then be passed on to a buyer, that might be offputing. Are there works that are planned that might actually benefit the presentation of the property in the next six months. And so perhaps I'll wait until those works are done. And then the property is going to present really well. Perhaps there's going to be some painting down to window frames or carpets replaced in common areas, all of a sudden that lifts the property and that can lift your overall presentation. So those are the sorts of things if you're keeping in touch with your owners corporation, you're attending meetings on a regular basis. If you've got a bit more foresight into when you're going to sell, it might be something and if there's not you mentioned earlier about perhaps I don't need to sell for five years, but I am going to. Then you might want to get on the owners cooperation committee and give it a bit of a rev up over that period of time, put a plan in place to do X, Y and Z over that period so that by the time you're ready to sell, the properties that is at it's peak. And that's to everyone's benefit anyway.
- Yeah, yeah, I guess if you're owner of an apartment, you probably should attend the owners corporation.
- Well you should I mean, that's, again that probably comes back to investing strategies. And when you do buy investment properties or if you're an owner and you in an owners corporation, it's very smart to be going to those if you want to be able to influence and have a say on how the property presents an the works that need to be done. The best way to is to go to all those meetings or at least have someone go on your behalf.
- Might be a good article topic for Richard and his next article on the Financial Review.
- You never know, I think he's addressed that before.
- I see there you go.
- Well, that plan is part of that is working through all of that and all that preparation work that you've hopefully done in the lead up to this, to make sure that you're going to get everything done and lined up in the right manner. And if you've done all that, you've set things up in the correct manner; once the campaign commences, it's a matter of regular communication. So speaking to them multiple times a week, getting reports, giving back to who the people that are inspecting the property, asking questions: what type of buyer dynamics are we attracting? So is that then who you would have expected in the first instance? Or is it a different type of buyer that we perhaps won't necessarily expecting to be buying? Are we getting second inspections? Are we getting contract requests? Are we getting building inspection requests? Is there pushback on the price point? What other feedback are we actually receiving to determine whether or not we're getting numbers through there. Because what you might find is that if you're looking at your online statistics from what the agent will reporting to you in terms of Realestate.com.au, Domain and the other websites. Are we getting a lot of hits on the website, but not necessarily translating to people coming out inspecting the property. Now that might then be is it to do with the photographs, is it to do with the ad copy, is it to do with the price point that we're looking at? So these are things that you can then discuss with the agent. Or why are we getting so many people looking at the property but not coming out inspecting it? Or why are we getting so many people looking at, coming out and inspecting it and then not actually engaging in coming back for a second inspection? Perhaps it's because we're asking too much for the property or what sort of feedback we're getting. So communication is really, really important. And then having a clear understanding as to what your price point is. And so once you come to the day of the auction or once you come to a point of the private sale negotiation of getting an offer presented to you, that you you are then in a position to negotiate strongly and make sure that your agents there to represent you in the best interest. And if you've done the right thing in the lead up, you know that they are strong negotiator because they've shown you and they've given you a clear examples of what they've been able to do it in the past. They represent your best interests going forward.
- And I guess a lot of people's theories that you know, an agency is looking for you to sell it for you for $500,000. In fact, I'll probably get more. And then over the first few weeks of the campaign they end up sort of talking you down, oh, I don't think it's 500, maybe it's closer to 450. And then you feel a bit dudded, you know did they just over pitch their price to get the listing, what would your advice be in respect to that? How do you sort of navigate that?
- I could map that out for you, Stuart on the on how an auction campaign will play out and in terms of that's quite a common thing to happen is that starts off you'll get huge numbers through the first open for inspection. And then expectations will be tampered as the campaign goes along. So again, if you've had multiple parties through the property, sorry, multiple agents through the property, and you've got a clear understanding as to where value sits on your property. And they've provided you with the sales evidence and there's no clear reason why that should have reduced and you should be in a strong position to hold firm and go back and say now look, you told me this. I've had multiple other agents tell me this. I followed all of your instructions in terms of presenting the property, we haven't skimped on marketing, we've done exactly what you suggested. And that's a really important thing to do is not to take shortcuts in that part of things. So make sure that you followed advice within reason; you don't wanna be advertising an agent's brand. You wanna make sure it's advertising your property in the right areas. But if you follow the advice and you've got pure evidence that property is worth what it is, then you're in a strong position to be able to hold firm and that's why doing that legwork in the first instance is really, really important.
- Yep, great, excellent. Got a couple of questions. So we're getting close to the end of our time this afternoon. But Peter and R, I'm assuming R not her real first name, or their real first, just to point that out to you. Anyway, Peter asked, they're both about agents commissions. So Peter asked how acceptable is it to have a sliding commission rate? So that is obviously the better the price, bit of incentive to get a better price? And then R is asking a slightly more vanilla question: how do you get good agents to reduce their commission? If we start with Peter's question around the incentive based commission structure. So it's quite common or not common, but you do see quite regularly where people will request for instance, a flat fee, commission rate of let's just pluck a figure of 2%, up to $500,000. And if you exceed over $500,000, then we will pay you 10% of anything in excess. So something along those lines is a common incentive based scenario. So the risk with that is particularly with the market doing what it's doing at the moment, if you're not really, really confident where the value sits on your property, you can end up paying an agent a hell of a lot more money than what you perhaps needed to. So that the market can start to run away, you might have signed that agreement back in June, preparing for July or for September auction. And then the markets done what it's done. And all of a sudden five to 550, quote, if you get me over 550, you can take 10%, all of a sudden the properties now with 575 to 600,000 And that's not to do with anything that the agents done, it's the market running in your favour. So on we're always very cautious around that. Our feeling is that an agent should be working just as hard for the first 500,000 as I should pay for the last 50,000 to get it over that mark to make sure that they give you the get to the right price at the end of the day. So that's how I would answer Peters question.
- In terms of R, I would say to you that excuse my voice, I would say to you that agents, a good agent is worth its weight in gold. And if you're pulling back from 2%, back to 1.8%, that 0.2% is not gonna make a hell of a lot of difference. If you've got the right agent, the right agent will more than make up, it's gonna be less than a $5,000 bid at an auction. The right agent will more than get that for you and much more. And you go we mentioned before about different agents within agencies. And that's why when we work on our vendor advisory service, we go to a specific agent at that agency, we don't go to that general agency. They'll be different agents within that agency that will charge different commissions. So the better quality, the higher level, the ones that have got proven track record might charge 2%. But the junior agent might be prepared to do it at one a half percent. And the senior agent will be absolutely worth having on your side.
- Yeah, yeah. I think it's Richard or Paul once said to me that a good agent will be invaluable when things go wrong, too. So you know, if you get a lot of people through the property, there's a lot of interest, you've got a good property, you know, I don't wanna be flagrant, but it will probably sell itself. But if you get a property where it gets passed on, passed in an auction, that a good agent will have a very defined process on how they can extract that.
- And they are expert in that negotiation. That's why we come back to that point we talked about earlier around the understanding of who your agent needs to sell your property. So an agent that does time after time auction, auction, auction, auction auction, he's not necessarily gonna be the best person to sell something for you in a high-rise, because somebody in a high-rise is going to know that market intimately. But he's probably going to be far more versed in private sale negotiation. Whereas someone who particularly say Junior agent, who might have only been in the industry for three four five years, hasn't necessarily had to go through that hard time of negotiating with a with a buyer, which the last 12 to 18 months have certainly sorted out a lot of it has been a lot of turnover in a lot of the the agencies that we deal with, it starts to really make it clear as to who you should and shouldn't be appointing to sell your property.
- Yeah, okay, one last question. Or there might be a couple actually, but Elaine is asking, is selling a very small unit at the bottom of the market, okay to be doing yourself? I think I might know the answer.
- Look Elaine I would say to you that I wouldn't sell myself ever. I would always have an agent engaged to do that for me. Probably in a softer market, with an entry level type property, that's even more of a reason to have an agent representing you. Because there's more likely gonna be less buyers in that sector of the market. And you wanna make sure that you extract every last dollar that you possibly can out of those. And these agents are paid for a reason, they're very good at what they do, if you select the right one. And they're experts in that negotiation side of things, it can be very time consuming to try and sell yourself in terms of organising the marketing and getting the ad copy right, setting up that marketing campaign. And then being ready and available to speak directly with people. And it's a lot easier as an agent, to have that sort of, to be removed from the property and be able to then speak directly with a buyer and give them direct feedback. So what does it do that if you don't do it on a daily basis and if you're speaking directly about your property, most buyers will think oh, you're just saying that because it's your property and you think it's worth more. Whereas an agent can sit back and say no, no, I've sold plenty of these type of property and I've sold plenty of them at this price. And now it's worth that, if you prepared to pay it, we're prepared to discuss. But if you don't, then that's okay, we can move on to something else.
- I think we got one more question just to test your voice.
- [Kevin] This one Jarrod is about synchronisation, Harry would like to know, how easy is it to buy and sell at the same time to avoid renting for a period or taking on the bridging finance that Stewart mentioned earlier?
- That's a really good question. And I guess we spoke about it a little bit earlier. And it's probably a good one for both of us. Because there is a large finance a part about it too. And it sort of comes back to as we said before, your financial position I guess to determine whether or not the capacity is there to actually buy before you sell. But also what are you trying to buy? What type of property are you and you can very well do it. I'm actually in the process of coordinating at the moment some clients that we've just purchased for and we're about to go through the sale process. And that will absolutely be the objective to try and get the sale through and get it to match up settlement wise so that they're not having to play bridging finance for too long. It's the best way to do it is to always start with the first transaction getting as long sale as you possibly can. And it there's a degree of flexibility around what that settlement date is, then you can start to move it around. From finance perspective.
- If your finances were such that you couldn't, you know, that you really needed to sell very close together, then I would be, I'd be conservative, even say sell first and make friends with maybe the worst case scenario of having to rent for a period of time, or live with family, store furniture, it's not something that anyone really look forward to. But it's much better to do that, then put yourself in a position, we end up selling an existing property for $100,000 less than what you think it's intrinsically worth. It'll cost you a whole lot less than hundred thousand dollars go rent a temporary apartment for a period of time. There's not a problem, trying to swing for it and trying to negotiate it. But certainly I wouldn't be recommending working your way into a corner where you absolutely have to do that. And then you're under compulsion to sell a particular property for whatever particular price.
- Then as we said before, it's always work on worst case scenario. So I'm going to spend this on a maximum from a buying perspective. And I'm only going to get this from a selling perspective. But look, if you're going to do the sale first and then you go to do the buy second that what Stewart said then is my first thing to say to clients is if we're going to go down that path and we got to sell first and then buy, make friends with the fact that you are going to have to rent for a period of time We'll do absolutely everything we can to try and match them up. But we don't wanna be buying the wrong property. So don't go into this expecting that it's going to be able to perfectly line up and work well. Because we don't wanna go buy the wrong property just so that you don't have to lease for six months.
- It's really important to go in with your eyes open in that regard.
- And if you do the research, well, typically in seventeen years, I've not had too many problems. Where clients have been stuck out renting for 12 months, because they've had to, often it doesn't happen, but you just wanna be conservative.
- Yeah, absolutely.
- So very conscious of time. On behalf Jarrod myself, thank you very much for listening this afternoon. I hope that's been really valuable. One final favour as I said at the beginning is if you could just hang around when we click stop, a little button will come up for you to take a survey. And if you could just take one minute to provide your responses to that very valuable for us in planning future events. So thank you very much Jarrod.
- Stuart one just one last thing I'll just say if you would like to have a discussion at all around selling, we're more than happy to facilitate that. and discuss the specifics around your property because obviously every property is gonna be different.
- Of course, excellent. Thank you very much and until next time, bye for now.