It's Election Time! Chris Gray from Your Empire has some great tips for you.
Could it be Bargain Time?
The 2022 Federal Election is looming large, the most common questions Chris is asked is,
"Should the upcoming election change my property investing strategy?"
There are many different stages to the property clock;
Stage 1 'fence sitting' – a time when buyers and sellers do absolutely nothing. One of the best examples of a fence-sitting period is when there's an election on the horizon – have you noticed a lot of fence-sitting recently?
The question you have to ask then should be… is it a good time to be fence-sitting, or could it be an opportunity that everyone else is missing?
Furthermore, will the election result make a difference at all?
Consumer sentiment?
Most people make everyday decisions that aren't based on logical facts and figures. The majority of people make decisions based on emotions. When consumer sentiment is down, no one wants to make a decision when nobody else it. It's good to recognise this and perhaps reconsider your thought process and how you make decisions and have an open mind, rather than following what everyone else is doing.
The contrarian viewpoint
Consumers are known to operate in a herd mentality as they have social proof they are making the right decision if their colleagues, friends, and family are taking similar actions.
However, if you are purchasing when everyone else is buying, it's tough to stand out from the crowd and get exceptional deals.
Professional investors are known for being contrarian and going against the herd as they realise that if they buy when no one else is, they will get more choices for a lesser price.
Important lesson: Never invest solely for tax
Before the previous federal election, one of the most significant differences (in policies relating to property) between our two major parties was the proposed changes to negative gearing. Labor had indicated that they would remove negative gearing benefits for second-hand properties.
Did this concern me? No. Why?
Labor first needed to win the election (which at the time seemed a foregone conclusion)... yet they did not.
Secondly, they needed to make the agreed changes... and politicians aren't best known for doing what they promise (sometimes I make outrageous statements, I know).
Thirdly, I never invest in the promise of tax benefits. Any tax benefits should be viewed as a bonus rather than part of the foundation of the deal. We never know when "out of the blue" a change to the tax law regarding property may occur. Plan accordingly.
Invest for the long term
I came to Australia in 1997 and bought my first property here in 1999, which was a 2 bedroom unit with parking and views in Coogee. I paid $360k (the current value is, surprise, surprise, and significantly more). At the time, Everyone was fence-sitting as they thought the market would crash after the Olympics. Do you remember that?
Since then, we've had several fence-sitting elections, and we also had a fence-sitting Global Financial Crisis (which is when I bought half of my current portfolio).
If you're investing in property for 10, 20, 30, 40+ years, then there's going to be a myriad of property cycles, and things always seem to pop up. Just remember the laws of supply and demand often override any temporary changes.
What if you were waiting for the government to decide on property investing?
Every year, property tax debates come up, and significant changes to things such as negative gearing haven't happened yet. Lucky I didn't wait 20 years to buy in Coogee based on legislation that could "possibly" be introduced.
I don't think my investment property in Coogee will plummet to $360k anytime soon, do you? I'm glad I dared to be different, and despite what everyone else was saying, I took the step to purchase my first property.
Negative gearing hasn't been talked about as much before this federal election, though that doesn't mean it (or other property-related changes) aren't on the table for either major party.
Make a decision based on the numbers.
I'm a former accountant; therefore, it's easier for me than most to think objectively about a property, I don't have a head full of emotion (they teach you that at university).
Let's look at an elementary example with very rough numbers (feel free to play around with these numbers for yourself).
Property Value: $1,000,000
Mortgage: ($1,050,000)
Equity: ($50,000)
LVR (Loan to Value Ratio): 105%
Rent per year [3%]: $30,000
Mortgage per year [3%]: ($31,500) - interest only
Other expenses [1%]: ($10,000)
Cashflow - before tax [1.15%]: ($11,500)
While a 1% rise in interest rates will cause you more trouble as that equates to over $10,000 per annum, and that's pretty likely in time. If we get up to a level many have seen before, eg an interest rate of 7%, you will be paying another $42,000!
The questions you should ask yourself include;
When considering whether to act on a property purchase now, you need to think in numbers so you can pounce on opportunities. If people are cautious about buying property until after the election, this could be your opportunity to snag a 5-10% discount while others are sitting on the fence.
In this case:
5% = $50,000
10% = $100,000
Concentrate on what you can control
Personally, I don't spend much time listening to politicians even though I'm in the media. I prefer to get my information from:
Being on the ground
Reading from specific experts that I know don't have hidden agendas
Looking at the actual numbers
I also know that I can't control the outcome of significant decisions.
For that reason:
I get on with investing
I concentrate on increasing my income and serviceability so that banks lend me more money
I focus on knowing the market so that I can buy better properties and increase their value
Who knows what the future will bring and what's around the corner? In the meantime, I will carry on with life (and investing) as usual.
That doesn't mean ignoring what's going on or what could happen. You can never specifically plan for something like, say, a global pandemic. You can, however, plan smart for any unforeseen circumstances through things like a cash buffer and insurance.
For now...
Emotion says sit on the fence and wait till everyone jumps in. Logic says buy now when no one else is. It's your choice. Imagine yourself in ten years, and think about how you should have played it.
Chris Gray THE EXPATRIATE Property Portfolio Specialist.
PS. We've recently secured some cracking deals for existing clients and would love to share some opportunities with you. You'll never see some of these properties even make it to the open market and the only way you can see them is if you have a buyer's agent with pre-existing relationships. If you want to find out what you can get access to, click here to arrange a chat and see where we can help.
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