Apr 21, 2022
Hosted by Jonathan Preston and please note everything discussed here is done so for entertainment purposes only i've not taken into account your personal circumstances nor your risk profile so you should seek professional advice before making any investment decisions so what i wanted to talk a bit about today are some of the other ways you could look to potentially find value in today's market and one of these is by looking at properties that can typically only be purchased in cash um and so some people you know consider these assets to be uninvestable but personally i think that's not quite accurate because they do exist and often the rental yields and prices are low because of the inability to borrow against these um that being said you know the asset still exists it still generates you know potential income and all that and so i'm going to elaborate a bit further around how some of these assets that may require an outright purchase may still be valuable in your portfolio so what i see is that um you know people often buy these assets in cash not through like genuine cash that they've literally saved up for years what they're actually doing is they're releasing equity against other investment properties they own um so for example you know they might have a loan that's at 50 lvr maybe they'll take it up to 80 ovr use that equity and then use that to buy the property or something like that so basically a lot of the you know the actual purchases that are done cash i believe there is actually lending that is actually standing behind behind this that you don't actually see from the outset and so if we go through some concrete examples of properties that typically do require either very tricky finance or in some cases people you know may just be securing these in cash to get it off the market asap you need to get a good price um so a notable one that i saw uh i think was about six months ago down south um southern highlands region and it was a half completed house and so that one you know is a bit of an interesting one i don't know if it ended up being bought in cash or not but it was a very hot market and it was in a very good area and there was a lot of interest and so i suspect you know this is a transaction where someone who stepped in knowing they had liquidity to complete the transaction regardless of finance was able to jump in probably take this off market and then you know on completion you know that's probably going to be worth hundreds of thousands more based on what i've been seeing down in that region there so that's a live example that i saw um say six months ago um another one that we do see a lot of are very small studios these tend to be you know the sort of 20 square meter little shoebox ones that you often see in the eastern suburbs or um some of the inner areas across the country but generally they're very small apartments um and in some cases you can finance these with banks at like an ad or vr but um in some cases you know people can't service with big bank calculators anymore um and sometimes these properties they they're missing stuff like it might have like a shared laundry and stuff like that so studios sometimes they can be financed but sometimes you will find opportunities where it's very hard to finance it and it practically becomes a cash purchase um another example of one i saw was regional land this was um categorized as cat four so like as regional as you can get vacant land that was in wa um i came across this a few months ago and it had no sewerage or any of the services connected and so that one actually couldn't be um lent against at least with the lenders that i discussed it with there might be some someone in the country but this was discussed with a lender that's pretty flexible on properties and they didn't want that so um the um the people that bought that one in cash another example that you might have seen people uh talk about on forums and stuff over the years are properties that have been destroyed or potentially they've been burned down or maybe there's squatters in there or hoarders that are in there um something like that where there's basically like some kind of ongoing issue and that the house is not in a very presentable condition at this moment um and so you know there may be some value where if you're willing to you know go through the issues and suffer the pain of having to deal with all those problems that you might be able to unlock some value whereas you know someone who wants to buy an owner orchid or wants it to be their easy first you know investment and have a renter in paying from day one you know it may not suit that kind of person it may be more suited to someone you know with a higher risk profile who's willing to um you know take on that kind of project another example is uh service departments um uh often the ones that are locked into rental pools those tend to be hardest to finance um basically it's where they often have like an on-site management office and um basically that on-site manager they'll like manage the block sort of a little bit similarly to strata except it's locked into that rental pool and um often these are set up for like holiday rentals so it's through those groups where um you know you book like the service apartment hotel thing for a couple of days and it has those facilities um how those work you often get like a high promised amount of rent but then there's like a high expense um management cost that they put in there as well and so that's one part bit and then the other part of it is that because they get locked into these rental pools they typically can't be just um occupied you know as a normal property until it passes this lock-in period and so that can cause financing issues as well and so again a lot of these fall into i think the category where people are using minimal financing alternative financing or they're just buying them outright and and these are i think quite an illiquid area uh and there probably is some value in service departments um that is not being explored by many people so that might be a pathway for for some people another one that is interesting which we actually come across um increasingly often are water access only properties and an example of this is russell island in queensland basically it's not far from the mainland it just doesn't have a bridge so you have to um you know get a ferry water access only and that obviously is much less appealing to lenders our prices are accordingly lower they can potentially be financed in some cases but again it is a difficult difficult one to finance one of my friends actually purchased a block of land there i believe a couple years ago and he actually financed it with a personal loan because it couldn't get a mortgage for it at the time so um that's i guess um another live example for you um so you might be looking at some of these properties we've discussed today you might be thinking yuck you know i really don't want to own that kind of property but these might actually play a different role in your portfolio so for example you might start out looking for you know capital growth style properties um or you know maybe or or you might have just bought a large owner occupier or something like that and it's maybe later that you might want to add some of these properties in i mean look you obviously can't from day dot but you know if you don't have the confidence as yet you know you might want to add these in later in your journey to add to cash flow from my personal experience like if you had presented this kind of thing to me at the start of my journey i would have said you know i don't like that you can't finance these and it doesn't seem very investible and it seems like the capital growth upside you know could potentially be capped um and you know you could certainly make those arguments and then you know if i look at it with fresh you know eyes now at my current point of my journey you know i could see the value in owning a bunch of you know these kind of assets um you know that might be a bit sort of wonky or unusual in cases but the idea would be that they would provide additional cash flow and that would you know allow um you know servicing the portfolios debt easier so the assets by themselves might not be the actual driving force of your portfolio is future growth but they might actually provide you with the cash flow to stay in the game and keep growing and another you know way i would say you could look for opportunities at the moment and this follows on from botany example we discussed yesterday i still think there is actually a bit of an example in the highly dense markets with a lot of stock if you were to spend a lot of time to go through all the listings and define who's desperate so for example you know you're effectively offering liquidity where no one else is um and so like where i'm thinking with this is postcodes of say four thousand for brisbane or three thousand for melbourne sorting through all those units for sale and basically working through the list finding out you know where the people are that have been on the market for ages or they're desperate to sell for some other reason or someone who basically just wants a quick transaction and wants to get out quickly and you might then have the pathway to um you know take it to a longer sale or potentially you know maybe it's a buy and hold for you because you got it at the right price or something like that so um you know i think that there is still some value here because um i i just don't know if there are many people sitting down building spreadsheets putting hundreds and hundreds of properties in literally calling every single agent and saying how desperate is your client would you take a you know an unconditional offer at a much lower rate i suspect if you put in the work um you know you will find some and i suspect that's what some of the buyer's agents are actually doing um so look obviously you know what we've discussed today um you know it's not going to be as easy to secure deals like this you know um you know as you're probably not a buyer's agent yourself but look i still believe there is opportunity the market's large it is an illiquid market in general and so there's always you know likely to be opportunities somewhere and i would also mention that in today's market you are still only competing potentially against other small time amateurs so you know your mum and dad investors playing an australian resi by contrast in america you've now got some large fund managers who are getting into the residential property game as well and so they're buying single-family homes renting them out and so you know if they were to enter the market here with that same dynamic i really think that it could make things more challenging um for us sort of mom and dad style investors um not that i'm a parent but uh for for the everyday style investors um you know because if you have these professional investors competing against you you know they've just got so many points of advantage you know they can have buyer's agents on the ground the whole time they've got superior data you know they can um you know have first access i guess you know they can have like notifications from when everything becomes for sale and jump on it immediately so you know they've just got vast resources compared to what the average investor can have and so you know at this point we're still able to compete against um you know generally similar investors but this landscape may change in the coming decades and on that note also i am setting a bit of a personal goal that i want to 10x the podcast so now the new goal is 5 000 episodes that's right 5 000 episodes i don't know whether that's going to take a decade or longer but hey let's start the journey let's work together i hope to work with some of you to build your wealth if you're interested in partnering with the show to become a sponsor i would be interested in hearing from you as i am looking to scale up the show um and as a listener i really appreciate you tuning in as always you make the show and uh and just please note that everything discussed again is done so for entertainment purposes only i've not taken into account your personal circumstances nor your risk profile so you should seek professional advice before making any investment decisions thanks so much for tuning in as always