Rethink Investing

Why Brisbane property is set for great capital growth

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Over the last 10 years, Brisbane has suffered the GFC and floods. As a result, prices are now extremely affordable for a capital city. The Brisbane market has some of the best growth prospects nationwide, so let’s explore why this market is set to take the gold medal for capital growth.

Increasing population
Since the GFC, net migration levels have been very poor for Queensland. However, net interstate migration to Queensland has tripled over the last three years. Interstate migration to Queensland fell to a low of 5,753 in 2014, increasing to 11,581 in 2016 and 15,716 in 2017.

The majority of these people are moving from Brisbane, the Sunshine Coast and the Gold Coast. This increase in migration levels is due to housing affordability compared to other states, improving employment markets and the lifestyle factors that come with those two factors.

 

Infrastructure
There is a surge of major development and infrastructure projects currently underway in Brisbane, to the sum of $12 billion.

Examples of these major projects are:

Queens Wharf ($3 billion) – Comprising of 1,000 hotel rooms across five hotels, a residential precinct of 2,000 units, a 100-metre sky deck, 50 bars and restaurants and a pedestrian bridge connection to Southbank. This will completely reshape the Brisbane’s river CBD precinct.
Cross River Rail ($5.4 billion) – The project will deliver a 10.2-kilometre rail link from Dutton Park to Bowen Hills, with 5.9 kilometres of tunnel under the Brisbane River and CBD, connecting to both northern and southern rail networks in and out of the CBD.
Brisbane Quarter ($1 billion) – This project is a mixed-use precinct incorporating office, retail, hotel and residential uses.
Brisbane Live ($2 billion) – A new entertainment precinct located on top of the Roma Street rail interchange hub. Facilities include a $450 million, 17,000-seat arena along with multiplex cinemas, an amphitheatre and proposed commercial, residential and hotel towers.

 

Jobs growth
Last year was one of the strongest years for job growth in Brisbane’s history. In the last 12 months, Brisbane’s jobs growth has increased by 7.6 percent. As a result, unemployment has fallen across the board to 5.5 percent.

Recent jobs growth has been driven by Queensland’s service industries. While the resources sector has cut 22,000 jobs over the past two years, four other industries each created more jobs than were lost in the resource sector over that period: health, education, professional services and accommodation and food services (which is closely related to tourism).

 

Affordability
The median dwelling across Brisbane cost 6.3 times higher than the median household income. As a comparison, Sydney was ranked the second worst most unaffordable market in the world. House prices are a whopping 13 times higher than the median household income.

These factors are significant for Brisbane’s capital growth prospects over the coming years. Well-located houses (not units) are expected to be some of the best performing sub-markets in Australian real estate.

Where else but Queensland!

‘Lessons Learnt from a Property Strategist’

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Steve Palise // 31 Years // Constitution Hill, Sydney

As an Engineer by trade, I always had a fascination with numbers. At the time, I thought working hard and being good at my job meant I would earn big dollars and get to live the life I wanted. After a few years into my career, I started to realise that even though the job provided me with a good income, I would have to continue in this field for the next twenty years with only two days off per week (the weekend). I didn’t hate my job, but I did want the flexibility to work on my terms and not someone else’s. So it got me thinking…

Around 2012, stories in media began circulating about how some young investors were building property portfolios and in turn, creating passive incomes. It was at this time that I decided that investing in property was the direction I was going to take to reach my personal financial freedom.

So hence, I began my investing journey without really knowing what I was doing with the goal to obtain a passive income of $100k. I never cared to become ridiculously wealthy, I just wanted the flexibility to travel enjoy “life” whenever I wanted.

In 2012, I purchased my first property in Blacktown, Sydney’s western suburbs. It cost me $230,000 and was neutrally geared. I was working in the Northern Beaches at the time and had many colleagues scoff and laugh at the idea that I was buying a property that “far” out west and for “that much money”. At the time, there was an ability to leverage much higher than nowadays, and I secured a 95% loan. So, with just my $20,000 in savings, I entered the property market. Growing up in Sydney’s western suburbs gave me comfort thinking that I knew the area. This meant that I knew where the schools, transport, and what other properties were being sold for on realestate.com.au with little knowledge that these factors were not crucial in regards to property investing!


My first property purchase in 2012. Blacktown, Sydney

By sheer luck I timed the market perfectly and had equity growing at a rapid rate. I used this equity to buy a few high cashflow properties in regional towns such as Cairns and Forster. Although great for my cashflow and building my passive income, they just did not perform as well as my Blacktown property. At this point I realised that I needed to build my base portfolio on growth as a primary objective without purely chasing the highest yielding properties I could find. For that reason, my last three purchases have been in capital cities.


Lessons learned. One of my capital city investments. Eagleby, Brisbane

Since joining Rethink Investing, I have personally been involved in over 400 property transactions. I have seen the full spectrum of clients; ones that have 10+ property portfolios to those buying their first investment. Here are some of the lessons I’ve learned:

GENERAL LESSONS
– Knowing a property market is more than knowing how much properties sell for on realestate.com.au or where the local shopping centre is.
– Buying near the beach or water are not historically the best performing assets (although will be stable).
– The property market is cyclic. Previous growth is not an indication of future growth.
– Don’t buy with emotions or because it would be a “nice place to live”. You wouldn’t buy shares because the company has a nice company culture or a nice logo.
– Avoid areas of oversupply like the plague.
– Off the plan purchases and medium/high-density apartments do not perform as well as houses.
– Many people would love to be a ‘developer’. Property development is a tough game with long hours and mountains of paperwork. Even experienced investors get burnt tackling these – leave it to the experts!
– Numbers speak. Look at the stats and the return on investment. Making $400k on an $800k purchase is not as impressive as making $200k on a $200k investment (although the $400k person will boast more and is why there is the whole argument about negative gearing).
– Your parents, broker, financial advisor and friends are not the best people to listen to for property advice.
– Don’t be afraid to admit you aren’t the expert, seek them out and don’t be afraid to ask for help.

PLANNING LESSONS
– Find a great broker and keep them. In the past I was very naive and thought “how hard can getting a loan be?”. I repeatedly see clients who are struggling to progress their portfolio due to poorly structured loans and lenders.
– Always base investing on the numbers. Numbers are not only related to cash flow, they should include vacancy rates, median house prices, population growth, median household incomes, suburb migration, infrastructure spending etc.
– Always be mindful of your cash flow – most of my client’s borrowing power is what stops their progression (even more important with today’s tighter lending).
Know your risk profile. An 18-year-old should not be buying the same types of properties as a 40-year-old with three kids.
– Mitigate as much risk as possible. Run all scenarios on your portfolio – increased interest rates, property prices dropping, unexpected vacancy, unexpected maintenance bills, etc.
– No matter how many podcasts and books you have read you will still make mistakes when investing. Find a mentor or a reputable buyers agency.

Understand what stage you are at with investing! 

Plan what you are trying to achieve!

Understand the exit strategy!

 

WHERE TO INVEST
– Affordability will be king!
– Properties in Sydney and Melbourne are the most unaffordable today than they have ever been in history (it is expected that these markets will stay reasonably flat for the next 3-5 years).
– The moving markets in the medium term will be major cities and properties in Tasmania and Queensland.  Stick to Hobart, Launceston, Brisbane and Gold Coast.
– Most importantly, enjoy investing!

It’s a long game so why not have some fun while doing it?

 

Steve Palise
Senior Property Strategist
info@rethinkinvesting.com.au
1300 965 551

 

How to Invest in Commercial Real Estate 

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Tip 1: Look for long leases. A three, five or 10-year lease, with an option to renew. Long lease = more security!

Tip 2: Make sure the location is viable. For example, if you’re buying a café, it needs to be in an area that gets consistent foot traffic without an oversupply of competitors.

Tip 3: Understand the commercial property market drivers. Make sure the tenant is in a high demand industry, as this is essential for growth. For example, you wouldn’t want to buy a Blockbuster store when there was evidence that the industry was being replaced by Netflix. Buying into a growth industry can lower the chance of a vacancy, for instance, medical and fast food industries are on the rise.

Tip 4: Understand local demographics. As certain segments of the population move to different locations, new opportunities arise. For example, If there is an increasing median age of the people in a suburb, there is more demand for medical-based businesses.

Tip 5: Diversify. I personally have preferred to buy multiple cheaper commercial properties as opposed to buying one high-value property. For example, three properties totalling $1,000,000 gives you a lot more lease security compared to only relying on one tenant for one $1,000,000 property. There is also the argument that smaller commercial properties with lower rent expectations are easier to fill compared to large expensive commercial properties.

Tip 6: Understand how long it would take to find a new tenant if your current one leaves. The best way I have found to work this out is by checking ‘first listing’ to ‘first listed’ dates on online real estate portals. For example, if you were looking at a 250m2 warehouse, you would need to check how long it has taken to fill a warehouse between 200-300m2. If the average is below three months, the risk is not great.

Understanding each of these tips is essential to succeeding in commercial property investing. When you get it right, the returns can far exceed even the best residential returns.

If you would prefer to have an expert to find you a secure commercial asset, please give us a call on 1300 965 551 or email info@rethinkinvesting.com.au

 

Scott O’Neill
Director – Rethink Investing

‘My Investing Story’ By Rob Martin

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Robert Martin // 32 Years // Northern Beaches, Sydney

Property, for me, is an opportunity to increase wealth, but more importantly, a chance to relax in my later years of life. I first entered the property market in 2012, buying into my hometown, Narrabeen. I had saved up all my pennies and embarked on what would be my first step into the property market as an investor. I was very naive when it came to negotiating on property, my skillset being in construction analytics. Soon enough, I found a property that checked all the boxes, close to transport, cafes, schools and more importantly, the beach. It was slightly above my budget but I knew long-term it had great potential, as it appeals to all walks of life. Little did I know Sydney was going to boom like it did. The property’s value has increased from $610,000 in 2012, to a healthy $1.1M (conservatively) today (this includes a 50k renovation funded through cash in 2016/17).


Unit – 2 Bedroom, 1 Bathroom, 2 Garage – Narrabeen

As I sat back and watched Sydney grow, I started to ponder the idea of releasing equity. I few phone calls later, and I found myself in touch with Scott, an old work colleague, who is now the founder of Rethink Investing. I knew Scott was switched on and down to earth (and although he was from the Southern beaches, I decided not to hold that against him!). I learnt about what he’d achieved through his own property strategy and asked questions (for those that know me, that is a lot of questions). I ran my numbers and spoke with friends and family. It stacked up well and made sense. Scott and I began to speak regularly, chatting about the endless opportunities that property holds for a savvy investor.

I was in a good job, earning a relatively good wage and lending was a little easier than present day which allowed me to draw equity and park it in multiple property assets. My criteria was fairly simple, but knowing where to buy was the difficult part. Thankfully I knew Scott. Like many investors, I was nervous, but having done my research, I knew I was making the right decision.

My second purchase was in Redbank Plains, a large block, 1000m2+ and returning a 6%+ yield, the math was simple and the potential was great. The property needed a few minor repairs, but knowing it was a distressed sale and heavily under market, I was happy to make the changes it required. This purchase was $244,000 and it rented for $340pw, giving it a 7%+ gross yield. I was chuffed to say the least. It’s fair to say that I became addicted from this point on.


House – 1055m2 – 3 Bedroom, 1 Bathroom, 4 Garage – Redbank Plains

Going forward, my goal was to replicate the very strategy that Rethink Investing employs today. I drew equity from my properties and rolled it into the next purchase, chasing under market purchase prices, cash flow and future growth. I continued to work closely with Scott, seeking guidance along the way. With Scott’s help, I purchased a further 5 properties following from Redbank Plains in South East Queensland and Tasmania. Each property is positively geared and I have used equity from previous purchases to bankroll my deposits. Lending has become a little tighter for me today but the strategy is still the same – invest and grow!


House – 4 Bedroom, 2 Bathroom, 3 Garage Dual Income – Launceston, Tasmania

As an investor, I see great value in finding properties that need simple repairs. Properties like this are usually heavily reduced within the market and placed in the “too hard” basket. A bit of paint, new flooring, carpet, landscaping to name a few, can go a long way in generating equity and rental appeal. This deters a lot of buyers, but with the right eye and know how (or guidance from Rethink), you can capitalise well from being savvy.

Many investors chase cash-flow solely and this can lead to real boom or bust situations, like many witnessed in mining towns. I look at multiple economy markets, instead of focussing solely on one industry which might go up or down. The areas or suburbs that I invest in must have good population growth, strong infrastructure planning, transport, schools, big commercial (e.g. Westfield, Ikea, Costco) etc. These are but a few measures I use before choosing the right property to purchase.

These days I find myself sitting in Bondi Junction (gazing at the forever sunny Northern Beaches from my window), working with Scott and Mina and the team at Rethink Investing. Given my experience in sales analysis, looking after acquisitions for Rethink is a natural fit. To this day, I have been involved in over 1000 sales. I find properties that I would buy myself, calculating the risks as mentioned above.

I am currently seeking my next investment in South East Queensland closer to the coastal area. Growth has become the main driver for me. I have the cash flow to subsidise a lower yield for the greater benefit in growth. It will be properties like this that will ultimately give me the freedom to buy my dream house in Sydney’s North Shore and relax in my later years. It’s not an overnight strategy, it requires patience and an awful lot of research, I won’t bore you with each and every tool, but to name a few, ABS data, RpData, Cordell, various Council & governments sites etc.

If you’re sitting on the sidelines and wondering if property is for you, a quick call or email is all it takes. I would be more than happy to further share my experience in property investment with you.

The Rethink Investing Team
Own Your Future
info@rethinkinvesting.com.au
1300 965 551

What is your Motivation to Invest in Property?

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For myself, it was the dissatisfaction of working long hours in a job I never had a passion for. Property investing was the only opportunity I could think of that gave me a chance to bring retirement forward. Even if it was only by a few years, it was good enough for me.

Check out these random Facebook posts from my Facebook seven years ago.

It’s funny to look back at these thoughts now, as I forgot how unhappy I was with my work life balance. I grew up with the message; go to university, get a good job and then deal with the decades of work that followed. Although this was all good advice, the punishing length of time required to save enough for retirement via a salary, simply didn’t add up for me. The system as far as I could see, was broken…

Property investing had the power of leveraging what little savings I had at the time to control much a higher value asset that not only grew in value, but also gave me positive cash flow. What job could ever do this? The moment I fully understood this simple equation was the day knew I was going to be an obsessed investor for life!

Eight years after investing in my first property, my wife and I now have the option to never work a day in our lives again.

This is just a quick message to hopefully help at least one person to think bigger and not accept the status quo.

Scott O’Neill

Director – Rethink Investing

What Happens to Brisbane Prices when Sydney Falls?

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Mirror mirror on the wall, tell me which capital city is the best value of them all? Obviously, I don’t have a crystal ball but I predict Sydney prices are looking to stay flat (and some parts will even fall), for the next three to five years. In the meantime, the Brisbane housing market (excluding units) will increase strongly!

You may ask the question, why could Sydney price growth slow? Sydney is by far the most unaffordable and most highly leveraged property market in Australia. There has been a long period of irrational enthusiasm where people have been buying at any cost, led by their fear of missing out. This has resulted in record low rental yields, record high prices, and record high levels of investor and owner occupier debt, making Sydney extremely susceptible to a price correction if there are interest rate hikes. So, as you can see, you can’t blame me for thinking the Sydney market is on the brink of a long period of flat growth or even negative growth!

Let’s explore what could happen to Brisbane once the Sydney market takes the punch:

Investors leave Sydney to Invest in Brisbane – As buyers see stagnating or falling prices in Sydney, confidence will be vacuumed out of the market. Increasing prices was a vital ingredient propping up the Sydney market, as yields are so poor, growth is all this market had to keep investors happy. To find better cash-flow, investor demand will flow into other markets where buyers seek yields and yes – lower prices! Brisbane should take up a high percentage of this investor demand due to its affordability and good yields still available today.

Historic Trends show Brisbane Peaks after a Sydney Boom – Sydney’s last peak finished in 2003, Brisbane’s last peak finished in 2008-10. Graph 1 shows Sydney’s average house prices have only been worth more than 1.8 times the value of the average Brisbane property three times since the 1970’s. After each peak, Brisbane prices have caught up to Sydney’s by more than 20% each occasion within just two years (1980, 1989, 2003 and we predict 2018/19). This next Brisbane growth catch-up on Sydney could be one of the biggest yet, since the average Sydney house is now worth nearly 2.2 times the value of Brisbane’s average house price!

 

 

Sydney Investors Cashing Out – There is no secret that anyone who bought anything in Sydney a few years ago has made a huge profit. Once price growth stops, many investors and some owner occupiers, will see this is the time to cash out and collect their profits. Once they have sold out (creating more supply in the Sydney market), these sellers will look for other places to make their money. Once cashed out, they will inevitably look to reinvest in new markets due to their recent positive experience in Sydney. There is no secret that the media is raving on about Brisbane, which is predicted to be the next hot-spot for investors (excluding the CBD unit market off course). So, there is the potential to make even more money with the right moves outside Sydney.

Mortgage Stress will be Higher in Sydney Compared to Brisbane – Even on a state level, data from research house Digital Finance Analytics, shows that a 0.75% interest rate rise will be far more than severe in terms of mortgage stress in NSW compared to QLD – 4.6 times worse to be exact! This shows QLD will not be affected to the same degree as NSW if rates go up. A less exposed QLD market means more security from potential falls in price (refer to Graph 2).

 

Property Buyer’s want more Affordable Properties – As lending conditions have tightened, getting a loan – especially a large one – has become exponentially harder. This will FORCE many home buyers out of the most expensive markets and into more affordable markets like Brisbane. I believe investors will prefer to still invest in capital cities which again will help Brisbane remain one of the go to destinations for new home purchasing in the next few years. At 12.2 times the average income to buy a house in Sydney, Brisbane is looking like a bargain at only 6.2 times the average income.

So, let’s see if history repeats itself, and Brisbane becomes the next investor haven!! Are you ready for it?

Scott O’Neill

Director – Rethink Investing

Interested in finding out more? Then feel free to email us at info@rethinkinvesting.com.au or call on 1300 965 551.

Don’t wait – own your future!

 

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