Brick to the Future: Property Investment Show

In this episode, OpenCorp CEO Cam McLellan and Director Allister Lewison delve delve into the differences between investing in premium (blue-chip) areas and more affordable (growth) suburbs, with an emphasis on portfolio growth and wealth creation.

Key points include:
Entry Price and Borrowing Capacity: Blue-chip properties require higher entry prices, which limits growth potential as they are more expensive and often yield lower rental returns. Growth suburbs offer more affordable entry points, making it easier for investors to buy multiple properties.
Cash Flow and Holding Costs: Investing in blue-chip areas typically results in higher holding costs, which can negatively affect cash flow. Growth suburbs, on the other hand, allow investors to hold more assets for less out-of-pocket costs due to lower entry prices and higher rent-to-purchase ratios.
Emotional Attachment: Many first-time investors make emotional decisions by purchasing properties in areas they are familiar with or emotionally attached to, often leading to less favourable financial outcomes. A more strategic approach involves purchasing properties based on financial fundamentals.
Leveraging the System: TIPS: Experienced investors understand how to navigate the financial system, particularly through understanding valuations. Properties in growth areas, bought strategically under the median house price, tend to be valued comparatively to their greater counterparts, where this can lead to greater equity growth over time.
Market Cycles: In a market driven by affordability and supply-demand dynamics, growth suburbs consistently outperform blue-chip areas. Blue-chip properties may see short bursts of high growth during favourable economic conditions, but growth suburbs tend to provide greater, long-term capital appreciation.
Data-Driven Decisions: At OpenCorp we have over 20 years of client data that consistently shows that investing in growth suburbs delivers superior returns compared to blue-chip areas, with clients outperforming the market by significant margins.

The conclusion is that while blue-chip properties may seem appealing due to their prestige and location, they often underperform compared to well-chosen growth suburb properties in terms of portfolio scalability and wealth creation.

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In today's episode Cam & Al cover an in-depth discussion on negative gearing in Australia, focusing on its impact on property investors and the housing market.
Definition and Basic Concept: Negative gearing is a tax offset where investors deduct property losses from their taxable income, reducing tax liability. It’s commonly used by average Australians earning around $87,000.
Rationale for Negative Gearing: Negative gearing helps investors by having tenants, the government (via tax breaks), and the investor collectively cover the costs, making property investment more accessible, especially for first-time investors.
Historical Context and Political Debates: Previous attempts to remove negative gearing (e.g., 1987) led to rent hikes and investor sell-offs. The policy was reinstated due to the adverse impact on renters and the housing market. Politicians often debate negative gearing near elections, with concerns over housing affordability versus investor benefits.
Housing Supply Crisis: Australia faces a housing supply shortfall, worsened by high immigration and insufficient new housing construction (27% below the 10-year average). Negative gearing is seen as supporting housing availability by incentivizing investments in rental properties.
Proposed Policy Adjustments: One proposed change is to allow negative gearing only for new builds, thereby increasing housing supply. This could balance the need for affordable housing with economic growth while avoiding the creation of ghettos or segregated low-income areas, as seen in the U.S.
Economic Implications: Immigration is crucial for economic growth, but it raises housing demand. Increasing construction could offset this demand, but high property taxes (up to 43% on home costs) hinder affordability. Reducing taxes could make housing more affordable without eliminating negative gearing.

Future Policy Speculation: The likelihood of abolishing negative gearing is low due to past political backlash. The discussion speculates on the government’s strategic use of this topic to gain votes, despite a low probability of actual reform.

Negative gearing as an essential tool for maintaining a balanced housing market, where its modification, rather than elimination, could address both investor and social needs.

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Cam McLellan and Michael 'Boz' Beresford are directors of OpenCorp, Australia's leading property investment specialists.
In this episode, Cam and Boz get back to basics in what is the second of a three-part 'mini-series' focusing on what's involved in building the foundations of a high-performing property portfolio.
(Click here to listen to Part 1 of building the foundations of a high-performing property portfolio).
A critical part of successful investing is setting up your team. This includes getting professionals onboard who can fill some or all of the following roles:

• Mortgage broker
• Property adviser
• Conveyancer
• Accountant
• Financial planner
• Insurance broker

"Whoever you might need in your team, that's your team," says Boz.
Each specialist will have a specific role to play, so make sure you engage professionals who are competent in their area of expertise.
For example, it's best not to use a 'garden variety' mortgage broker whose experience is confined to writing home loans.
"A mortgage broker that understands investment structures is probably the most important asset to your team", says Boz.
According to Cam and Boz, your team is there to support you on your investment journey, to help you move forward with confidence, so it's critical to get it right.
(Click here to listen to Part 1 of building the foundations of a high-performing property portfolio).

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Hosts:

• Cam McLellan, CEO of OpenCorp
• Michael Beresford, Director of Investment Services

Episode Overview:
In this episode, Cam McLellan and Michael Beresford tackle the buzzword "hotspots" in the property market. They uncover what really makes an area a hotspot and discuss the reliability of hotspots for long-term property growth. The conversation offers a deep dive into why chasing hotspots might not be the best strategy for smart investors.

Key Points Discussed:

1. Definition of Hotspots:
   • Areas that have seen rapid growth, often due to media hype or vested interests.
   • Created by high demand and reduced supply, leading to rapid price increases.
   • Developers may manipulate the market by drip feeding land to keep pressure on supply.
2. Reliability of Hotspots:
   • Buying in a hotspot often means paying an inflated price.
   • Smart investors aim to buy for value, not hype.
3. Countercyclical Investing:
   • Investing in areas before they become hotspots to maximise growth potential.
   • Clients of OpenCorp have enjoyed $254K+ more than the average property investment property thanks to our property selections.
4. Market Cycles:
   • Property markets typically have cycles of growth, correction, and stagnation.
   • Investors often buy at the top of the market due to confidence built from previous growth, only to face corrections and stagnation.
5. Smart Investment Strategies:
   • Avoid emotional decisions and hotspots driven by hype.
   • Use a proven, research-based process to identify growth corridors with planned infrastructure and limited land supply.
6. Importance of Expert Guidance:
   • Having a coach or mentor to guide through the investment process.
   • Formulating clear goals and strategies to achieve long-term financial success.

Summary:

• Hotspots: Often overhyped and can lead to buying at inflated prices.
• Smart Investing: Focus on areas with planned infrastructure and limited supply before they become hotspots.
• Expert Guidance: Seek mentors like OpenCorp to navigate the property market strategically.

Additional Resources:

• For a comprehensive guide on property investment and choosing the right mentor, get a copy of "My Four-Year-Old the Property Investor" by Cam McLellan. Get your copy here: https://opencorp.com.au/books/my-four-year-old-the-property-investor/

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Instagram: @OpenCorp

Introduction

Welcome to Brick to the future, your go-to source for property investment insights and strategies.

In this episode, we'll delve into the ever-evolving property market and explore the factors driving property prices and investment trends.

Join us as we dissect key market dynamics and debunk some common misconceptions.

Impact of COVID-19 on the Property Market

Discussion of the unique challenges and opportunities presented by COVID-19.

Emphasis on the accuracy of predictions made during the pandemic, with property prices dropping up to 30%.

The role of media in shaping perceptions and the need to critically evaluate information.

Section 2: Investment Strategies and the "MAP Process"

Introduction to the MAP Process for property investment.

Explanation of how many investors overlook market fundamentals and focus solely on local areas. Emphasize the importance of looking beyond one's local area and understanding individual financial goals.

Four Fundamental Factors Driving the Property Market

Overview of the four key factors influencing property prices: supply and demand, affordability, interest rates, and population growth.

Discussion on how these factors can vary by location and impact property prices differently.

Insights into why understanding these factors is crucial for successful property investment.

The Role of Clearance Rates in Assessing Market Health

Explanation of how clearance rates are reported in the media as indicators of the housing market. Clarification that clearance rates reflect sentiment and confidence more than supply and demand. The importance of considering other factors beyond clearance rates when assessing market health.

Regional Variations in the Property Market

Highlighting regional differences in property markets, with a focus on major cities like Sydney, Melbourne, Brisbane, and Perth. Acknowledging that each area has its unique dynamics affecting supply, demand, and pricing. The significance of understanding local market conditions for informed investment decisions.

Rental Market Dynamics and Vacancy Rates

Discussion on the rental market and media portrayals of people moving to regional areas.

Mention of the actual shift being less dramatic than perceived.

The role of vacancy rates in understanding rental price growth and investor opportunities.

Dwelling Approvals and Supply Constraints

Explanation of how dwelling approvals for apartments have been decreasing, leading to supply shortages in major cities. The impact of this shortage on property prices and investment opportunities. The importance of monitoring dwelling approvals as part of investment strategy.

Population Growth and Housing Demand

Highlighting Australia's high population growth, driven by factors like net overseas migration.

Explanation of how population growth generates demand for housing and influences market dynamics. Insights into how demographic shifts affect investment decisions.

Changing Property Ownership Trends

Acknowledgment of changing trends in property ownership, with younger generations less inclined to buy property early. Emphasis on lifestyle choices and property investment as alternatives to traditional homeownership. Discussion on how these trends impact investment strategies and market behaviour.

Conclusion

Wrapping up the episode with a summary of key takeaways and actionable insights.

Encouragement to stay informed, critically evaluate media reports, and consider market fundamentals when navigating the

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