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Monthly Archives June 2018

Every day there are stories in the press about whether we are in a property boom or bust, making the case for one or the other supported by a lot of confusing analysis on debt to income ratios, price to yield ratios and many other facts.

Interest rate cycles come and go. Negative gearing tax concession and first home buyers’ policies come and go. Apartment development booms and busts come and go. And there will be ups and downs in the short-term property market. But the long-term investment thesis for Melbourne property (especially with high land content), looks sound for as long as population growth continues. So will growth continue?

About a decade ago, I was the Parliamentary Secretary to Premiers Bracks and Brumby. On the first day of Office, when any new Government gets elected, they are greeted by the Public Service with a briefing on the ‘state’ of the State. And every incoming Government gets the same speech. It goes something like this:

“Congratulations, Premier and Ministers on your election. As the Public Service we are here to faithfully carry out your promises to the electorate without fear or favour. If we may, however, just make one thing clear … the entire Victorian economy is geared around population growth and housing construction. So, if you don’t want to create chaos and you want to get re-elected, please don’t mess with that. Are we clear? Good then, how else can we help? …”

That’s why I am confident, regardless of who wins the State election in November, that population growth is likely to continue. And that is why I personally continue to be a long-term investor in Melbourne property.

Fact: 126,000 people moved to Melbourne last year. Yes, just last year. And about that many will move here again this year. And next. That’s 1 ¼ MCG’s worth of new residents. But as they say about land “they ain’t making any more of it”.  

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Management Consultants are first taught one crucial thing: be clear about which numbers matter and which ones don’t. This was certainly my first experience while working for McKinsey.

‘What’s a big number and what’s a small number? Let’s fix the big ones first.’ And so, while we will all be prudent about minding every cent, it is important to see where the biggest impact lies, enabling us to focus our greatest attention there.

Let’s imagine you have an investment property worth $600,000 and are getting $500 pw rent – a fairly regular situation. Here are some typical numbers in your financial equation that you should consider.

What can we learn from this quick summary? Two things are immediately apparent:
1. The single most important decision you can make is to buy the right property, in the right location, with the right land content, to maximise your capital gain; and

2. Once having made the purchase decision, the next most important decisions are made by your Property Manager: ‘Managing to minimise vacancy and maintenance costs’ (typical total $3,000 – 7,000 p.a.).

That’s why focusing on the price your Property Management Agency charges -each 1% of fees is only worth $310 in this example- is FAR LESS IMPORTANT than choosing a good Property Manager – which is worth 10 – 20 times as much to you.

And that’s why we offer a Guaranteed Rent product, to smooth out your vacancy costs – typically your single greatest cost in a year. No other Property Manager offers this. Contact Andrew Drake on 0428 064 846 for more information.

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