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First Time Property Investor is for Australians who want to invest in property but feel stuck between too much information, conflicting advice, and the fear of getting it wrong. Get honest conversations, practical insights, and clear strategy to help you avoid costly mistakes and move forward with confidence.
Hosted by: Imtiyaz Rather from Hack Mortgages, Pete Theodorou from Mindset Property and Skye Taylor from Taylored Property. You get get the full picture from Mortgage Broking, Buyers Agency and Property Management.
Want to connect with us? ➜ https://linktr.ee/ftpi.pod
[00:00:00]
Imti: After the budget changes, this question got more practical for first-time property investors. If you're going to buy, does established still stack up, or do you need to start looking at a new build instead?
To make that easier for you to think through, we're gonna walk through five things today that will help you make that decision. The changes that were in the most recent federal budget that are proposed, timing of your strategy, your borrowing, cashflow, and your risk position. Going through these five things, you'll be able to work out which path is more likely to suit your position and whether you should be looking at new or established for your first investment property.
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Imti: Let's start at the start. Pete, what actually changed, and why is it making people rethink this?
Pete: There's a lot of headlines in the media at the moment around negative gearing, particularly that it's disappeared.
But it's not really the case, it's just changed. So what's happened is you can still claim negative gearing every single year for brand-new properties. But what's changed is on the established [00:01:00] side. So you're no longer able to claim negative gearing benefits on a yearly basis. Instead, it's actually accumulated- and you get to see that benefit when you sell the property. I don't wanna get into that now, 'cause it gets a little bit complicated. But Imti, you did a really good budget breakdown episode mid-May.
Imti: Mm-hmm.
Pete: So if anyone wants to know further details on that, definitely check that out. But these changes have basically got investors a bit scared around their cashflow. They're now having to reassess their cashflow position because they're not gonna get the tax break from negative gearing on the established properties-
Imti: Mm-hmm
Pete: ... going forward.
Imti: Yeah. If you could just give us a simple example, what were those benefits like for someone? Let's say I have a property that's negatively geared at the moment, and come tax time, what would negative gearing do to my cashflow position?
Pete: Let's say, for example, it costs you $10,000 to hold the property. So your expenses are $10,000 more than the rental income. You could claim that $10,000 as a tax deduction, and let's assume it's at a 30% tax rate. You'd get $3,000 back every [00:02:00] single year at tax.
Imti: Sure. So that would make a property easier to hold over the long term year to year, right?
Pete: Yeah, that's right. Yeah, particularly when you accumulate it over three or four years, that three grand actually starts to really snowball.
Imti: And that cashflow impact is really what would be driving a lot of this new- new versus established decision-making, right?
Pete: Yeah, that's right
Imti: The second part of that would be capital gains tax discount, right? So that's also proposed to be changed. How does that fall into this picture along with negative gearing?
Pete: Look, I think the changes to CGT aren't as big as what everyone's talking about. It's just going to, an indexation form of calculation. Again, check the budget breakdown. But what it's doing is it's just adding to the negative sentiment at the moment. If people actually break down CGT differences, it's not significant. It's not that game-changing. Yeah. It's just a negative sentiment at the moment.
Imti: Yeah. We've got a full breakdown and forecast in the budget episode, but the key decision point here with new versus established is that [00:03:00] with new property, investors are getting the choice, whether they keep the indexation method or whether they keep the 50% capital gains tax discount. What that does is it gives them more flexibility when they sell as to how it's taxed. Long story short, you could make more money and pay less tax if a new build performs better. Between those two things, the cashflow at the start and then the sale at the end, and the third part of it, which we'll get into a little bit later, but the borrowing capacity of it all is really gonna drive these decisions, and it's why we're in the situation of, well, for first-time property investors, is it new or is it established?
Skye, what I would love to know from your perspective is what does this change about how each property type behaves while you're holding it? What do these changes actually do for a prospective landlord for a new build versus an established build?
Skye: Mm. I think consistently landlords have, while not thrilled with a, say, $2,000 [00:04:00] maintenance bill for something, they've gone, "Oh, well, that's okay. We'll claim it in the tax," which grandfathering, right, still a thing, but I think there'll be a lot more reluctance for landlords to be spending money on their established properties due to the cashflow changes,
Imti: Especially for a new property investor who'd be coming in, they wouldn't benefit from that if they bought an established property, right?.
Skye: Yeah, exactly. Whereas obviously your holding costs are gonna be a lot less with a brand-new build-
Imti: Mm-hmm ...
Skye: in terms of the ongoing repairs and maintenance but with that, we talk about buffers and that you need to be prepared for this, but as things change, I think that will have an impact on how landlords behave when it comes to maintaining their properties-
Imti: Mm
Skye: overall. That's essentially my thoughts around it.
Imti: And do you think that will result in landlords being more cautious around making repair calls, for example?
Skye: Mm. Yes, absolutely. Unfortunately, over the last few years, a 40% increase in labor and materials, costs are higher than ever before.
Imti: Mm-hmm.
Skye: And the constant conversation is, "How much?" [00:05:00] I'm like, "This is actually the cheapest price I've given you ' cause I've already got two other quotes and they're more expensive." And that was before the changes, so there's still that education process around what things actually do cost-
Imti: Mm
Skye: to maintain.
Imti: So with that in mind, Skye, for the newer property investor, what they would need to be across now is actually how much cash they've got in the bank for repairs and how much cashflow buffer they have, and that's even more important.
Skye: Mm.
Imti: And so if the cashflow's tight, they're probably less likely to be suited to buying an established property with these changes.
Skye: Yeah.
Imti: Because even current landlords rely on these changes right now to write off the losses.
Skye: Yeah, absolutely. Yeah. Because most people aren't set up with their investments the way they should be, the way that we encourage our clients to be.
Imti: Mm-hmm.
Skye: So they're usually tight at the start.
Imti: Yeah, that's a great recap of the changes and how a first-time property investor should be thinking about them at a high level.
---
Imti: Now let's move into step two of this decision-making framework, which is all about [00:06:00] timing. Before you compare property types, you need to be really honest about your timeframe. How long are you looking to invest for, or how long can you actually invest for? And when are you expecting to see returns from your property investment? That's gonna change significantly with these changes that are rolled in. Pete, why does hold period need to come into this before everything else?
Pete: Well, it just comes down to the fact that the days of fast money are gone. We're coming out of markets that have pretty much doubled in the last five, six years.
Imti: Mm.
Pete: And given the affordability constraints and everything going on, I just can't see a majority of these markets doing another double in the next five.
Skye: Mm.
Pete: Which means we're gonna return to the long-term average of Australian property price growth- which is around 7% a year.
Imti: Yeah.
Pete: But before we get there, it's probably not gonna be 7% though. No. So there is a bit of pain to go for the next 12, 24 months. So the days of quick money's gone, which is why hold periods are, are so important, particularly when we're looking at new builds because we are paying a premium.
And this is what I'm saying [00:07:00] to my clients, "If you want to buy a new property for negative gearing, you need to pay a premium," and that premium is buying the new build, paying more than what the replacement cost is, and essentially running the risk of new properties continuing to come into the market, so are gonna cause a supply issue there, and you're not going to be able to sell that property for more than what you paid probably within the last couple of years.
Skye: Mm.
Imti: Mm-hmm.
Pete: You're gonna run into a lot of risk there if you're looking to try and flip these new build properties. Even established now, but let's park that. If you're looking to flip a new build property, you're probably going to lose money.
Imti: Mm-hmm.
Pete: Particularly when you factor in 20 to 30 grand a year to hold these properties at the current interest rates.
Imti: Yeah. I might be oversimplifying it, but- Let's say someone wanted to invest in property for five years. With these changes, they're probably more likely to get a stronger result with an established property, whereas with a longer timeframe, they might need to wait 7 to 10 years. Would that be fair in terms of how you're going to be approaching it, Pete?
Pete: Yeah, definitely. 'Cause don't forget, we've got stamp [00:08:00] duty we've gotta pay, the holding costs we've gotta pay, and if the asset's not growing, and we've paid a premium, and if the asset's not going to grow much, yeah, you're looking at three, four, five, six years, seven years depending on the area you're buying, until you actually might be able to see a result. As opposed to established, where you can buy them below replacement value. There's amazing buying right now in the established market.
Imti: Mm-hmm.
Pete: It's crazy. I've never seen so many price guides fall and agents start to call. And that's just Yeah ... it's great buying. And it's just a lull. It will change.
Imti: Yeah.
Pete: It won't dramatically increase or anything like that. We won't see 20% increases, but the market will return to some form of normality. But if you've gotten in at the right time on an established property, you'll be making money within the next two years, as opposed to the new build where it will take a lot longer.
Imti: Long and the short of it is that if you've got a shorter timeframe, you should probably be leaning more towards established, whereas if you have a longer timeframe, new might make a little bit more sense. Or if cashflow-wise, which we'll cover in a little bit, you need to go new, you need to be prepared to hold for longer, otherwise you might not want [00:09:00] to do this at all.
Pete: Yeah. As long as you buy in the right location.
Imti: Yes. Well, we do have a full location breakdown teed up for the next episode around identifying areas for new builds in particular, because that's gonna be a massive blind spot for a lot of people. Keeping the ball rolling with the timing aspect, Skye, what makes a shorter timeframe a problem in this situation?
Skye: Well, I mean, Pete kind of covered it, but I think it's two things. One, if you are working on a shorter timeframe- Obviously the liquidity of a new build is going to be more of a challenge than an established property, generally. But also your returns. If you have a shorter timeframe to work with, you need to be prepared that you may not be getting the return that you think across that five-year period. For a new build you're going to have lower costs, but you're not going to see potentially as high a return from a yield perspective.
Whereas with established you may get the yield, but you've got higher [00:10:00] costs. So if you're only looking at this as a short-term flip, the new builds are the risk. Mm-hmm. Where established is more likely to be a safer bet.
Imti: Yeah. Between what the two of you have shared is that from a timing perspective, for a first-time property investor, if you're looking to make quick money, you just shouldn't invest in property anymore. Yeah. Because you're not gonna make anything in 12 to 24 months. Especially right now with, to your point, Pete, really good buying out there usually means that there's not a huge growth spike coming. And really what it's about is understanding that you're probably in this for a minimum 5 years, ideally 10 years, and that needs to dictate part of your decision-making
Pete: Yeah, and can I just quickly add as well, like, when people are buying established, I think at the moment people are scared of property prices falling.
But at the end of the day, you gotta hold it for the long term. Mm. So if you're getting in now and maybe prices come back, it's not a big deal.
Skye: Mm.
Pete: The market will return and it will come back in force and return to normality quite quickly. You just gotta get in. There's never been a better time. People just need [00:11:00] to be conscious of that and not be scared that prices may come back a little bit.
Imti: Mm.
Pete: It's not gonna be a significant fall though.
Imti: Yeah. It's a long-term game. And it's a weird analogy, but I use it with clients sometimes, think of investing in property like a baby. When a kid is six months old, learning to crawl, scrapes their knee, when they're seven years old, they don't look back and go, "Oh, I scraped my knee six and a half years ago." Mm. "I know how to walk."
Pete: Yeah.
Imti: And to that point, it's about just being able to ride those little dips and those obstacles that happen.
Pete: Mm.
Imti: Because when you look back, you really won't care that there was a dip in the market for three months seven years down the line.
Pete: Yeah, it's a little blip.
Yeah.
Skye:
---
Imti: So we've covered timing and we've covered changes. I wanted to jump into the third part of this, which is actually first time property investors' borrowing position and lending position now that these changes have come into place.
Skye, Pete, is there anything that you wanna ask that you think your clients would be interested in?
Pete: We've got a few on the go at the moment, and a lot of it is looking at people's borrowing capacities. What [00:12:00] we had budget-wise a couple of weeks ago, we no longer have.
Imti: Yep.
Pete: So maybe just talking the listeners through that.
Imti: Sure. So when lenders look at investment lending, there's a few levers that they use when they're assessing applications.
I won't bore anyone to death with 99 points of policy, but negative gearing is a big component for a lot of investment lending, because what banks will do is that they will look at your negative gearing benefit and apply it to your position. What that means for the person borrowing the funds is that they get access to more money.
So traditionally, if you were on the same income and you were looking at buying an owner-occupier property versus buying an investment property, because with the investment property we could factor in the rental income and the negative gearing benefit, there was usually a 40 to 50% difference in borrowing capacity between the two situations, which is why rent-vesting was so popular and is so popular, is because you can get access to more money and invest in the right areas that grow.
[00:13:00] With these changes, what's gonna happen is that what we're seeing with most of the lenders right now already, about 10 to 12 lenders have already made this change, they're no longer gonna apply negative gearing benefits to existing properties. So for a first-time property investor, if they're struggling with borrowing capacity, for example, but their cash flow position is really strong and they've got cash in the bank, they might need to explore a new build to get access to the money that they need.
The opposite to that is that a lot of people who maybe they haven't invested yet, but they spoke to a broker six months ago or 12 months ago about their borrowing capacity, it's very likely that their borrowing capacity now has dropped about 30%. So they need to have a new conversation with their broker and understand whether they need to go new for borrowing capacity perspective or they still can go established. That's the biggest borrowing capacity impact when it comes down to these changes at the [00:14:00] moment
Skye: You touched on rentvesting before, Imti. Do you think it's still a viable option with these changes?
Imti: I think it is. I think people are gonna have to be more careful about it, because the trap that a lot of people are gonna fall into is that they'll go, "Oh, I'll just rentvest, but I'll get a new build."
And they'll underestimate all the risks associated with a new build and that whole market in itself-
Skye: Mm ...
Imti: which we've kinda covered. Is it still viable? Yes. Do I think it's going to be utilised as much? Probably no, 'cause it's not as easy to access. But do I think it's still a great investment strategy?
When you look at the changes, if you've got a long-term view in mind, it still outperforms leaving cash in the bank. So-
Skye: Mm
Imti: ... I still think it's extremely viable, but I think it'll slow down the amount of people who are rentvesting.
Skye: Mm.
Imti: Especially the amount of people who are nervous about going into a new build or construction lending.
Skye: Mm. And what's their concerns with construction lending?
Imti: That's a great question, Skye. [00:15:00] With construction lending, there's a few moving parts, but the main ones really boil down to less lenders do construction lending.
The serviceability assessments for construction lending are different, and I can't really break them down without having a client in front of us because it's very individual. And then the other component of that is actually the stress and the headaches of managing a new build
Skye: Mm.
Imti: As well. We've all seen it between all of our clients who have been exposed to newer builds.
Things like dealing with builders, progress payments, no rent coming in for 12 months while the build's getting finalised.
Skye: While you're making payments.
Imti: Yeah, while you're making repayments on a loan. All of that stuff is extremely stressful and complicated. And the combination of construction lending being more restrictive, but also just the whole rigmarole of dealing with a construction process is gonna put off a lot of people.
Pete: Everyone I speak to who's built say they'll never build again.
Skye: Mm-hmm.
Imti: Yeah.
Pete: Like never. They just don't wanna do it again.
Imti: Mm-hmm.
Pete: I've never heard anyone say they had a good process.
Imti: That's the thing, and we could probably unpack it in another [00:16:00] episode, but if you're going into a build experience expecting it to be amazing because the builder's telling you that it's gonna be great, it's probably not.
Pete: It's not. Too many variables. It's not the builder's fault either.
Imti: No.
Pete: There's just too much going on.
Imti: That's when it comes down to, if you manage your expectations, you have extra cash buffers in the bank, to the point of construction lending as well, there's a lot of out of contract items that people don't realise, like your landscaping-
Pete: Mm
Imti: like your driveway, that aren't in a lot of build contracts. Which cost a lot, and then you end up out of pocket with cash to pay for it.
Pete: Yeah.
Imti: And people don't realise that unless they're working with a broker who can get out of contract items included in their loan, which a lot of people end up getting stung with.
Pete: That's why you see so many new builds without concreting around them.
Imti: Yeah.
Pete: Because they just can't afford to do it.
Imti: Exactly.
Pete: They probably assumed it was part of the process, but it wasn't.
Skye: No landscaping.
Pete: Yeah, or no landscaping. Yeah.
Skye: Constant.
Pete: Yeah.
Imti: Two shrubs and no driveway.
Skye: No. Yeah . Actually, another one is no window furnishings. People get caught out on-
Pete: Yeah
Skye: all the time.
Imti: All of those little things will put off a lot of [00:17:00] rentvestors from wanting to do a new build in the first place. So even if they can borrow the money, they won't want to 'cause they don't wanna deal with the headaches, which is another reason why having the right team who can guide them through it is gonna become even more critical. That's also just gonna become an overarching theme in general, is that property investment has gotten more complex, and unless you're willing to dedicate all your time to understanding everything, the likelihood of someone succeeding on their own and driving the whole process by themselves, in my eyes, becomes a massive risk.
Skye: Mm.
---
Imti: The fourth thing that I wanted us to walk through in terms of this decision-making process is cashflow. It's the most practical part of this whole conversation. What does the property need each month? What do you need to put in every single month to make sure that you can hold it? But it's something that is severely underestimated because people get told that they can borrow a certain amount, and then they also [00:18:00] underestimate the running costs of a property.
So Pete, why is cashflow such a decisive issue in the established versus new space? I know we touched on it before, but with you working with clients now who are gonna be more cashflow sensitive, how does that impact your decision-making when it comes to guiding their strategy?
Pete: Yeah, I think it's a bit of a combination at the moment though. It's the high interest rate environment, inflation, everything going on at the moment is just everyone's hemorrhaging cash.
Imti: Mm-hmm.
Pete: It's also, what escalated or it's a bit more top of mind. Had we had lower interest rates, I don't think this would be a big issue. I don't think people would be jumping up and down about the cashflow side of things.
But what we are looking at for clients is because at the end of the day, it could be five, six grand with depreciation too, which you wouldn't get back anymore.
Imti: Yeah. So depreciation- Like ... gets drawn down. For established properties-
Pete: yeah
Imti: ... it'll get drawn down against the rental income.
Yep. And then can't get applied to someone's actual income. For anyone listening to this, th- that didn't make any [00:19:00] sense because it's a very weird sentence. The May budget episode will walk you through an example.
I think the conversation is just top of mind at the moment because of everything going on.
Pete: We've got inflation, interest rates at almost ... we're at pretty much at a record high over the last five, six, seven-year period, I think. We've pretty much reached the peak we were at-
Imti: Yeah. We've gone- ...
Pete: a couple of years ago ...
Imti: we've gone back to- Yeah ... post 13 rate rise environment.
Pete: Yeah. Yep. So it's all top of mind, right?
But what we're doing with clients at the moment is just looking at the cash flows and projecting it actually over the next 10, 15, 20 years. Because as I touched on at the beginning, negative gearing isn't gone completely. You do start to see the benefits if you sell or if it eventually turns cashflow positive.
But it's mapping that out for clients if we do wanna go down the established path, and most likely reducing their budgets as well.
Imti: Because in that situation, most first time property investors, they are going in with a 12% deposit, right? They're not going in with big deposits, so they are gonna be cashflow negative out of the gate.
Yeah. These changes make it even harder to [00:20:00] hold an established property over the short term during that accumulation stage and Pete, when it comes down to your client base, that's something that you're just having to heavily emphasise now, right?
Pete: Yeah. Yeah, gone are the days where we could, model out a couple of property purchases just due to the borrowing capacity changes. And you're right, not many people have the money to contribute extra, 'cause there's two options. If you wanna go down the established path, it's either reduce your budget and keep your deposit the same amount. Not reduce your deposit in line with the reduced budget.
Still put in the cash you were gonna put in originally, 'cause that will lower the loan. Or you keep the same purchase price and you put more of a deposit in, which 99% of people don't have that opportunity to do.
Skye: Mm.
Pete: It's really looking at that, and then if you buy the right new property, what that looks like modeled out as well.
Imti: 100%. At the moment what we're seeing a lot of is clients who their cashflow might've been a little bit tight, and they had a decent size deposit, and they're very, very fixed on wanting to go established. We're just bringing their purchase price down.
Pete: Yep.
Imti: [00:21:00] And we're just going, "Just go a bigger deposit at a smaller price point, and you won't feel it as much, but you'll still get established. Otherwise, you won't actually hold the property long enough and you'll end up selling it."
Pete: Mm.
Imti: Which is a great segue to Skye for cashflow. I know that we've been saying, cashflow consistently.
In your day-to-day, you're selling property, you're helping landlords. How crucial is managing cashflow?
Skye: Essential. It's everything. So if we're looking at new builds, it's being able to manage the cashflow in order to hold for the long term, which comes back to our timing conversation. In my opinion, generally the new builds are in an area where supply is higher from a rental yield side. So you've gotta also allow for the fact that, yes, your repairs and maintenance budget might be lower, but you'd be looking at a higher vacancy overall year on year, because there's more stock to choose from.
Pete: From what we're also kinda talking about with clients as well, when they wanna go down this direction of buying these new build properties in [00:22:00] what I call dead zones, which we'll talk about in the next episode, the problem is, is what I'm trying to explain to them, and correct me if I'm wrong, but, when you go and buy these properties, and if you're buying, near the start of the development or where there's lots of development happening around it, the rents you're getting from day one, you're probably not gonna be getting two to three years later.
And it's not an increase- Mm ... it's actually gonna be lower than- Yeah ... what you were getting.
Skye: Yep, and that's the risk with the increase in supply, you need to be prepared for the fact that you'll have higher vacancy, lower yields overall. It's fine over 10 years, but in those early days it's tough to ride out.
In your established areas, it's generally tighter held. You have longer term tenants, less transients, and generally your yield is a lot tighter on that side of it. And what the difference can mean is whether someone can continue to hold. That's the reality here.
And the other thing that people need to consider when it comes to rental yields, with everything happening, my whole opinion has been rents are gonna increase. The only people [00:23:00] losing out here is the tenants. But what that can also look like for an investor, as cost of living increases, I think we will see more arrears, more chance of storms coming, that if an investor's not prepared for that, and your tenant has suddenly lost a job or they're struggling to keep up with the cost of living, you need to be prepared to at least wear that out if they're not paying their rent for six weeks, which is a total reality.
Pete: A good example is right now. So if you bought a couple of months ago, or let's say you bought nine months ago and you need to sell in the next three months, you're probably gonna lose money in these markets.
Skye: Yeah. Yeah. Yeah, and we're having a lot of those conversations, and it's heartbreaking because people are trying to hold on- Mm
but equally tenants are in the same boat. And the, it's gonna create pain if you're not, prepared for the storms.
Imti: And to bring that home, it's... Cash flow is the lifeblood of it all, right? To both of your points, there's lots of variables in terms of how to manage cash flow, where there might be cash flow implications.
But bottom line, [00:24:00] if you're taking on too much debt and you don't know what your property expenses are gonna look like-
Skye: Mm ...
Imti: you're gonna be in a very fragile position, and you'll need to sell, and you'll lose money, not just on negative equity, but stamp duty and all that sort of stuff as well.
So when a first-time property investor is looking at it through the cash flow lens, it can't just be, and this is something that I know, Pete, you and I work really heavily with clients on, it can't just be the sunshine situation, when, the property's rented out and rates are what they're at at the moment and your job is going great and nothing goes wrong.
It actually has to be, okay, what happens if rates go up one and a half percent and your property's vacant for four weeks and you have an air conditioner blow that costs $5,000- Mm ... and one of you loses your job for a short-term period of time? Can your cashflow and your position actually manage that? Which is probably a great transition into part five, which ties it all together.
---
Imti: Risk. It all boils [00:25:00] down to understanding the trade-off or the risk between the two decisions. What are the risks involved with an established property now, and what are the risks and trade-offs for a new build or off-the-plan? So Pete, with these changes in place, what are the main risks that you see with established property?
Pete: That's cashflow. People's cashflow is getting hurt. But also jumping in on Skye's stuff, is the tenant side too, 'cause people aren't going to be as okay with the fact that they have to not get tax back when they pay for these major repair bills. Mm. And I think it's just ingrained in our culture where- everyone around you will say, "Oh, it's okay. It's a tax write-off." Yeah, yeah. Yeah.
I've been in that position where I felt not as bad that I was paying- Yeah ... two grand because I'd get, 300 bucks back. Mm. And I think that's gonna start to play on people's minds now. Tenants are gonna be impacted. So from a tenant risk I think there's gonna be worse repairs. Mm. From a investor standpoint, which is probably what we care about more on this podcast it's just that cashflow is gonna hurt. Mm. And that's gonna spiral with repairs that come with the more [00:26:00] established properties too.
Imti: And on the other side of that, though, what's the upside now? If someone was to go, "Okay, I can stomach all the risks, I still wanna buy established," what's the upside?
Pete: Capital growth.
Skye: Mm-hmm.
Pete: You're gonna get a much quicker uplift on capital growth.
Imti: Yep.
Pete: Like I said, you're buying below replacement value if you're buying in the fundamental areas.
And right now you can buy stuff below price guides- Yep ... which is just crazy, and it's pretty much Australia-wide almost. So yeah, you're good value buying at the moment. Mm. Yes, there's the risk, but I actually think that's quite minimal in terms of the upside that you can now get with established.
Imti: Yeah. If you can stomach the cashflow of it all, and even if you're pushing it now, just by dropping your purchase price, and then looking at an established at a lower purchase price, you might get the upside of better capital growth. And to your point, we're seeing it with bank valuations at the moment, right?
We've got a client negotiating at the moment who's at probably deal done 620 grand, and multiple bank valuations have come back at 730. Mm.
Pete: Yep. Yep.
Imti: Like, that's massive. That's 10% equity straight out the gate because consumer confidence is so low and the [00:27:00] market is stalling so much, and it's an established property, So moving on to the new build off-the-plan, Skye, I'll start with you. What do you think is the main risks now involved with buying a new build?
Skye: I think the main risks are what we've talked about before, that the vacancy rate is higher with new builds or off-the-plans because, even with ... I see it all the time, usually a particular patch of a development all comes to the market at the same time. So even at your day one, you're competing with a lot of same, same properties
throughout that hold period as supply then increases, it's ... the problem doesn't go away. So your vacancy has to be higher on new build and established. The trade-offs though is that holding cost. If you can see it out for the long term.
I just wanted to circle back though to your established property conversation. 'cause you- Mm-hmm ... prompted me on something. As people feel the cashflow tighten with being comfortable to pay repairs and [00:28:00] maintenance, what I wanna caution investors on is don't do band-aid repairs because you never know what life has in store for you.
Mm. So if you're doing just band-aid repairs and then suddenly your life changes and you need to divest of that asset, you don't wanna then be putting 10, 20k in in order to get rid of it. I don't want people stinging out on repairs during this time while it's difficult- Mm
because it's setting you up for failure if the time comes. The whole point is being liquid if you need to, ' cause you never know what's around the corner. But I see people either won't do the repairs or they'll just do something horrible that it's okay 'cause the tenant's living in it, but if we're selling it, well, we'd fix it up properly. I think we'll see more of that.
Pete: Well, building and pest inspections are a lot more common now. So- Interesting. I had the same conversation yesterday ... you know, that's where this stuff ... Yeah, that's where this comes up.
Skye: People are actually doing them now.
Pete: Yeah. So if you don't do your maintenance-
Skye: Three years ago, good luck getting a property- Yep ... at that point. Mm. So being prepared for what's coming, just don't stinge out on that. But I think with the new builds, obviously you don't have [00:29:00] that part to consider, but things still go wrong in a new build. And it's not something that you want to, ignore, which comes back to your cashflow.
Imti: Yeah. I think it all boils down to that, right?
Skye: Yeah.
Imti: The one last risk that I'd probably touch on from my perspective when it comes down to new build and off-the-plan in particular, is social media now is gonna be absolutely flooded with people flogging off-the-plan brand new garbage. And when I say garbage, I mean from a long-term investment property perspective. That's going to be crucial, you're gonna have to be able to identify what actually is a good investment grade new build.
Because we're gonna see a wave of buyer's agents, property investment advisors, unfortunately even accountants talking about buying all these amazing new off-the-plan properties because the tax savings on them are amazing. And-
Pete: Brokers as well.
Imti: Everyone.
Pete: Everyone's gonna be in on it ...
Imti: because everyone's invested in it.
Pete: Yeah.
Imti: Because a broker, gets paid on a loan balance, [00:30:00] so if the choice for them is, "Oh, we can get you a loan, but it'll have to be a new build," verse, "We can't get you a loan at all," they're gonna steer you towards a new build.
Um-
Pete: Same as a buyer's agent, they're gonna get paid.
Imti: Same as a buyer's agent. And so that's where working with a team that actually creates your strategy from your situation is so crucial, as opposed to working with individuals one-on-one. Because we're gonna see in the industry that new builds are gonna be the best thing since sliced bread, and if you've been listening to this podcast for any period of time, you would know that we're just ingrained in the fundamentals, and that's what drives our decision-making process for clients.
I'm gonna bring us home. It was a really good way to just recap that if you are thinking new verse established, if you can identify where you are in terms of how the changes impact you, what your timing looks like, your borrowing capacity in the new world, and your cashflow position, those will all help you look at the trade-offs in the risk [00:31:00] section, and then you can make a decision.
Skye, Pete, as always, thank you for your time. And if you've made it this far, thank you for listening. and we'll see you in part two