#ASKDOM Q&A Session, Thursday 28th of May
Hi again, hopefully you can hear me now, the perils of being live. So here we are again on our Ask Dom for the week where we’ve taken your questions, your most burning questions from our state of plays, and we’re going to now answer them live. And if you’re out there and you’ve got questions, now’s the time to start typing in the comments section so that I can answer them here. There’s a slight delay with live stream. So if you’re waiting for the end, for a big invitation, I’d probably would’ve have signed off before you’ve got that. So, I’m just going to take them as they come, start them rolling now.
So we’ve got [Actor] who said, can anyone buy distress property as a first home? I have no knowledge about real estate and all suggestions would be appreciated. Distress property can be for any purpose. Really, it’s all about buying under market, so getting a good deal basically. And the reason you do that as with any negotiation is time duress, someone who wants to sell quickly. I define distress as just a really motivated seller. They may be motivated because of legal reasons, for example, mortgagee situation or bankruptcy or insolvency issues, or if it’s not financial, there may be other life issues. They need the money.
Sometimes someone’s going into a nursing home, they need to sell quickly. Sometimes investors, it’s an opportunity cost. They’ll really lower the price to meet the market because they need the money elsewhere. So, it doesn’t really matter. I teach you, and I assume the question, Actor, is about real estate rescue to cast a wide net for on and off market properties where the seller is really, really motivated. And what you’re doing is you’re finding a good deal.
Most people have their criteria. They kind of do it in reverse. They say, “Well, I want a house in this street, in this suburb, let’s see what’s available.” And the market tells them what they can get for their money and their budget because they’re looking in an area. So distressed, you may be challenged if it’s your first time and you want it in a certain street or in a certain area. The smaller your search, the harder it may be to find something under market. But the idea with distressed property, you can have it for any purpose. To buy and hold for the longterm, to live in now. Many of our students buy and sell just to flip and make a cash flow from property. It doesn’t matter. The essence of it is that you’re identifying a deal where because of the seller’s circumstance, they’re very negotiated, very motivated to meet the market and you’re buying under market. So yes, to answer that question, it can be your first home.
Benny has asked about mortgage delinquencies and what’s included there. Does it include mortgages that have been suspended for six months? No, that won’t appear. So when we’re talking about delinquent mortgages, it’s where … so two areas, what Benny’s asking I believe is about the six month freeze that banks have given. Some banks have given three months, other banks have said six months, but basically, they’ve said you don’t have to pay your mortgage for three months or six months if you’re in hardship or some other COVID related issue. So, they’ve given people an effective holiday.
Now, of course, they have taken the interest and capitalized it, so they’ve added it to the loan, but at the end of the day, that is not delinquent debt. So, that is still on track. So what Scott Morrison has said about that and the Australian Banking Association, hardship due to COVID and those holidays on loans cannot be marked on your credit file as being delinquent and it cannot affect your credit score. And it cannot be … banks don’t have to class that as delinquent or impaired debt. In other words, past 30 days due or 90 days due or whatever. So, that’s just totally off the grid where they’re measuring loan impairment. They’re only looking at people who were not paying for whatever reason separate from these loan holidays.
And the ones, if you’re talking about real estate rescue that people are looking at, they’re the ones in the legal system. So in court list because the banks have already moved to repossess them. So they’re a lot further along the way. You have to miss a lot of repayments and there’s a lot of notices that go out. So, it’s a longer burn and a longer period from the first missed payment to actually hitting a court where the bank is going for an order to actually change the locks on a house. That can be like a year in the making.
Robert’s asked, hi Dom. St. George Bank offered me 2.29% if I go with a fixed rate. I’m currently on 3.04% variable. Should I take it if it looks like we might not go to a lower rate? So yeah, there’s always a toss up between fixed and variable. So, I know I’ve been caught short by this before. You’re going to want to fix if you think interest rates the next move is up. And when rates are at an all time low, and what’s happening now is fixed is lower than variable. And fixing is great when rates are low and stay low and you can’t get any better. The people who get in trouble when they fix like me is when you fix at 7% because rates are at eight and a half percent so you think you’re doing great.
And then suddenly there’s a recession or some unforeseen event and the 7% rate that you got and you’re stuck with for three years, rates suddenly fall to three and 4%. So you’re paying double the interest and you’re stuck with it. And of course, that’s a between, because what the bank then says, “Okay, yeah, we’ll take you off the fixed rate and you can have the lower 3%, 4% rates, but we’re losing on that because we said, we factored into our books and accounts that you would pay us 7% for three years.” So then, they’ll charge you a break cost to come off that and onto a normal or a lower loan.
So in answer to that question, banks can only cut so far. So 2.29%,like something with a two in front of it is unheard of. Even if, even if, and it is a big if the reserve bank do end up dropping rates to 0%, the bank is unlikely to pass that on because they’ve got to make some sort of margins. And the interest rate we pay the banks is always going to be more than what they pay people on term deposits. So, there has to be some yield and some disparity there. So, I can’t ever imagine interest rates, even if we have zero or negative rates, which is really unlikely in Australia. But even if we had that, it’s not like you only be paying 1% to the bank. So, the disparity between the variable rate and the fixed rate is a little under 1% for you. I don’t see it as a big risk to lock it in now. You might want to lock it in for a year and see what happens, but I don’t see interest rates that you pay on your mortgage ever being like 1% or anything. It’s pretty low now.
Chris has asked, is the asset protection trusts set up legal in Australia? Yes, it is. So to answer that question, I think you’re talking about master wealth control. So will the master wealth control system protect your wealth in Australia? And the answer to that is yes. So what it’s doing is in effect turning you into a man of straw. So if I ask you this question a different way, if you’ve got a mortgage on a property and you owe the bank $500,000 and the property is worth $500,000, what is the equity? What is your wealth in the property? It’s nothing. So if someone comes to chase you to take your property to get equity, there’s none there. And that’s what the asset protection system is doing. It’s turning you into a man of straw with nothing so that there is nothing for anyone to get.
So Genevieve has asked us, how do I know when to buy? I’m not sure whether to buy now, because what if the market falls further? Yeah, great question, Genevieve. They never ring a bell at the bottom of the market, do they? To say, “Okay, here it is. It’s not going any lower. So everyone, now’s the time to buy.” That’s why some people do really well in real estate and some people, other people buy at the top of the market before it falls. I think what we’ve seen in the Australian market over time and since records were kept, though, we haven’t ever had a whole scale wholesale fall. Like if you look at Europe and the US, if we look at, for example, what was the GFC, property prices fell 20, 30, 40%. In terms of the Australian market, it didn’t crash and burn like that. So we generally will fall 10% also.
And that’s what CoreLogic have predicted and that’s what the big economists and the banks are predicting, a mild downturn. I mean, 10% is still a lot in the property market, but if you’re trying to pick the bottom of the market, and I’ve seen people do that, they generally do nothing. So they sit on the sidelines and they say, “I’ll wait, I’ll wait. It’s going to go lower. It’s going to go lower.” And then it goes up and then they kick themselves that they miss their opportunity. And of course, generally that it also depends on your strategy. So are you buying to hold? Are you building a portfolio that you’re just going to keep and does it really matter? Now if you’re buying now, what’s it going to look like in 10 years or 20 years’ time? And any … if you buy in the current market in 20 years, longer term, it’s going to go up anyway.
What I would be more interested in looking at then is trends. And the smart money usually goes in when things go from bad to less bad, which tends to be where we are now it seems. Things were really bad. People were really afraid and now we’re coming out of lockdown. The numbers are good. And I’ll talk about that more on our 402, but the Australian Bureau of Statistics and APRA and everyone’s saying things are getting better and things are going from bad to less bad. So consumers are more confident. People are out there spending, and people may be coming back into the property market. And people who’ve been holding off selling because they thought there was blood on the streets, actually listing their properties for sale. So, there’s more stock available.
Now, what will happen come September, October is a whole other kettle of fish. So as Philip Lowe was saying, the governor of the reserve bank spoke today to parliament. And what he said is things may change in September, October when they start to ease job keeper and government stimulus and people who’ve been surviving because of that can’t anymore. So there may be distressed. So it depends on your strategy. If you’re flipping, if you’re buying and selling in the same market in a short space of time, then it doesn’t really matter. In a couple of months, things aren’t going to change with your buy, renovating or flip.
And if you’re buying over the long term and you buy in, when things go from bad to less bad, then over the longer term, you’re always going to grow. Probably the people who suffer in real estate are those that buy at the top of the market and that’s when auction clearance rates are like a week because everybody’s tripping over themselves. Deals are getting snapped up before auction. People are just offering way over market because they’re exuberant. As Jesse Livermore, great investor once said, markets are driven by greed, hope, ignorance, and fear. So you want to get in when the market is driven by fear and that’s where we are now. And to a certain extent, there’s a little bit of ignorance in the sense that we don’t know where it’s going to go, but predictably, once government stimulus tapers off towards the second half of the year, September, then there’s going to be more distress and there’ll be deals to be had and people who need help.
Matthew has asked, can you buy a house and remove the tenant who have an existing lease agreement after settlement? So yeah, that would be as part of the contract. So, that’s really the seller’s problem. So in the contract, and I don’t know what state you’re in Matthew, but for example, New South Wales, a [inaudible] box that says vacant possession. So you’re going to want the property. So your stipulation will be I want vacant possession, or if you’re taking it and you want say an investor, they’re buying it because it’s got tenants on a good amount and they want the yield on the property, they’ll want the tenants to stay. So the lease will form part of the contract.
And yeah, when that lease runs out, if you want the tenants to move out after settlement, then you’re able to do that. I would say, though, if you’re wanting it for yourself, if you’re wanting to renovate and you want the tenants out, then put that on the seller. Say, “Yep, I’ll buy it. I like your price. I like everything. But vacant possession is a term and condition of the contract.” And then the seller, if they like your offer, they may give the tenant some incentive. “Look, we’ll give you an extra 10 grand to move out now and break the lease.” So yeah, just depends on your end game there, Matthew.
Jackie’s asked about asset protection. Is the reversal by the court if a court date is already set, intentional avoidance? I think what you’re asking there, Jackie, is what if there’s already … you’re in trouble now and you’ve got a court date and it’s listed for a hearing and you set up asset protection now. So yeah, we’ll talk about that separately. Maybe that’s something that you want to take offline with us. I’d need to know more about it, but yeah, the idea of it all is it’s set up at a time when your solvent. It’s done for planning and structuring purposes.
And if you’re doing it sort of when creditors are chasing you down, it may be scrutinized later, especially if it’s on the eve of a court hearing or you’ve been sued or something. I’d like to know more about those circumstances. So perhaps if you … We’ll put a link up where you can book an appointment, so dgidm.com.au, just let’s book a strategy session so that we can understand more about that. And people have personal situations, more details may be required. Just book an appointment in the comments section so we can take that further offline. So, we’ll put that up and that’ll come up in the course of this live stream.
So Joan has asked regarding the takeover strategy, how bulletproof is the power of attorney? I saw a video claiming it’s not bulletproof, just making sure. So yeah, the power of attorney, Joan, that’s part of the takeover deed is … and let me explain a takeover. A takeover, for those of you who haven’t heard or haven’t heard of real estate rescue, is a joint venture in effect between you and a homeowner. So let’s say for example, that homeowner has a property. Maybe they don’t have time to sell or interest in selling or maybe they know it’ll fetch a higher price renovated, but they don’t have the skillset to do that. So what is happening is … and takeovers are really good for flippers. So people actually actively flipping property.
Flipping means buying and selling in the short term for profit. So more for cashflow with property. Whereas property investing is more passive. You’re not proactively manufacturing or adding value. So renovators like to buy and sell quickly. But sometimes when you add up the numbers on a deal, it may not work because by the time you pay your stamp duty, it’s eroded any profit. So flippers will generally look. I mean, depending on the state and the city. Flippers in Sydney, for example, can look at making six figures profit on a short term couple of months deal. Whereas other states where property prices are lower, you might be looking at a 40, $50,000 profit, but when you take stamp duty into account, that deal may only yield a $20,000 property and it mightn’t be worth doing.
So, what a takeover says is that the homeowner puts up the property in a joint venture arrangement. They’re skin in the game is the property, your skin in the game and what you’re doing is you’re taking over, for example, their loan. So you’re making the mortgage repayments, you’re adding value to their property. So you’re expending your money to renovate or whatever. And it’s a joint venture. What the power of attorney does, it’s a power of attorney given for security. So because you’re expending money on the property, you have a power of attorney in registrable form under the powers of attorney act in each state and it’s registered at land titles.
So what it means is that your signature is interchangeable with that of the homeowner. So you effectively can control the property. You can sell the property by signing a contract for sale or a transfer document or whatever the case may be. That’s what a power of attorney given for security in registrable form, registered on the title of the property means. And there’s other documents that go with the takeover. For example, a caveat that’s registered on the title to the property that shows that you’re in control of the equity and it protects the money you’re putting into the deal there.
So John’s asked, how can I repair my credit score if everything there is correct? Yeah. So great question, John. And I think that may be coming from Tuesday where we talked about your credit report. And for those of you who booked appointments for your credit report, John, you may have been one of those people, but what happens is when you get your credit report, you’ll get a certain score, up to 1,200. So it’ll be … so if it’s under 500, you probably won’t get a loan. 1,200 is obviously a perfect credit score. So if your credit score is low, there’s a certain algorithm that credit reporting agents use and certain things pull your credit score down.
So your question, John, is what if it’s all true? There are things that they’re looking at that may be taken out of context. So, we looked the other day and they’re all in code. You probably wouldn’t realize it, but if they’re showing you as having multiple addresses. They just say, “Oh, look, you’re a transient person. You had three addresses in the last two years, so you’re a bad credit risk and we’ll pull it down.” They’re the sort of things that you can correct if you’ve applied. Some people apply online or think that they’re just inquiring and say, “Oh, wouldn’t mind. I wonder if I qualify for this credit card.”
And they’ll just go home and fill in some online questionnaire. That actually goes on your credit report and it shows that you’ve been knocked back for an Amex card or something. And often the computer just doesn’t read those online forms properly. You may have ticked a box that it couldn’t understand so it just automatically declines you. But if you’ve had a decline, then that shows on your credit report and it pulls you down. So yes, credit scores can be cleaned up and credit credit inquiries, defaults, things like changes of address that are pulling you down, can all be repaired.
[Akshay] has said, how would you invest 200,000? Think that’s one we should take offline, Akshay, because I can’t give financial advice. Have to know more about your situation and have to have the right information and the right credentials for that. So if you go to the link there and just book an appointment, we can take that offline and find out more and what’s right for you. There is definitely huge opportunity right now. Money is made in times of change. In times of change, everybody rushes to what’s familiar because it’s scary, so you want certainty. And what’s certain is the past and what’s always worked. The thing with change is that it creates huge opportunity. What works in the past may not work now or there’s better ways of doing it now.
So forewarned is forearmed and the people who make the most money are those who ride the wave of change. When mobile phones came in, if you’re like me, when mobile phones were first invented, I thought “If someone wants me, they can call me. If I’m out and about, I don’t want to take calls, so I’m not going to answer. So what’s the point of these silly mobile phones.” So yeah, at the end of the day, now is the time where there’s so much to do. And kudos, respect if you’re sitting on 200,000 and want to get better yield or do something with it, then there’s massive opportunity and huge range of choice.
Jackie, again, I’ve already chatted. Shout out to your team for looking to help my friend with her matter in timely and professional manner. Hadn’t covered off the timing issue sufficiently. Got it, Jackie. Actually, Rory spoke to me personally about that. So, we’ll take that offline and I’ll address those concerns there.
Jules has said, is there a point where your credit score is good enough or do you have to have a full 1,200 to get the best loans? No, you don’t need a full 1,200. Probably if there’s a line in the sand maybe 800 or so, even 7s is okay. There’s a point about 500 where you probably … anything below 500, you’ll be ignored, but anything closer to the thousand, maybe 800 or so or above, then you’re looking pretty good. And even then, we had a lady the other day in the 700s, just one little thing, bounced her up over 1,000. So yeah, there’s a lot that can be done. And yeah, the closer you are to the thousand, the better the interest rates that you’ll be able to negotiate on loans.
Matthew has said is Martin North somebody to listen to? Yeah, there’s always extremes, Matthew. Yeah, Martin North is an economist and he looks at numbers. He’s got a big survey group. And what Martin looks at in his surveys is mortgage stress and distress amongst other things and that’s what I value his input for, especially in the distressed property space. But the extremes are, Martin has quite a bearish view of property as do others like Steven Keen in Australia, and these are media personalities that the media will talk to stories about house price falls and distress. And at the other extreme, are probably Tim Lawless for CoreLogic. And he looks at all the data and mortgage sales and obviously RP Data, keep all, that information.
And then there’s the bank economists. At that end of the spectrum, they’re more conservative about price falls. So, I think we’ve talked about this before. Some say at the low side end, that property prices are going to fall like 40%. At the other end, the bank economist, they’ve said between 10%, if the economy does okay and gets back quickly by next year or the year after, and has sort of a moderate decline. And if it gets really bad like their modeling of the worst case scenario, the big banks have said, and last week it came out in the press.
For example, CBA said the market could fall 30%. That was last week. The latest data is like out today from Philip Lowe, the governor of the reserve bank is things aren’t as bad as what they thought. We’re out of hibernation inside of the six months. People are spending again. People going out using credit cards. Retail has had the biggest bounce back ever. I’ll talk about that more on the 402. So they’re hoping for a speedier recovery, and probably job keeper was too much in the circumstances.
So McHale’s, fast food, commercial properties, good investment, and which one in your opinion, best option and what state? I’m not sure of that question. Sorry. Let me just say that again. So fast food or commercial properties, which one’s the better investment? Both are … well, fast food, one, that’s risen recently, obviously because of the need in lockdown. Will that change now? Will people change their habits? That’s a dilemma I have. It’s funny with change because you can look at it and say, “Oh, okay, live stream’s working. People don’t go out to events because we can’t have more than 100 people. And on the other hand, people are stuck at home. So they’re watching live streams.”
But is that a way for the future? Time will tell. Are people only watching live streams because they’ve got nothing else to do? Once they’re back at work, they’ll be doing other stuff and bars will be open and they’ll be going out, and they’ll want to attend live events again. Similarly, have we all just eaten takeaway because we had to and will takeaway and fast food just evaporate now that we can actually go to a restaurant or a bistro or whatever and have real food? So, was that a flash in the pan like stop gap in an industry in a changing world?
Second question was commercial property. Once again, because people are now saying, “Well, hang on a minute. Are people just staying in the city because that was the old world and offices were in the city? Now that we’ve had to, by necessity, they say necessity is the mother of invention. Now that we have to work from home and we’ve had to do it remotely, are people now going, “Hey, that wasn’t that bad. Let’s move to remoteness. It’ll certainly save a lot of money, commercial office space.” And is commercial office space a thing of the past? Is it like a horse and cart?
It’s hard to know. When every new invention comes along like mobile phones, people say, “Oh, it’s just a toy.” When horses and carts were challenged by the motor vehicle, people said, “Oh, it’s just a rich man’s toy. We’ll never have motor cars. We’ll never lose horses and carts.” So, we’re on the cusp of change right now. It’s hard to predict. We had Bernard Salt speak at a closed elite mentoring event on the weekend. If you don’t know Bernard, he’s a demographer and futurist. And he gave some tips for industries of the future. And yeah, right to that point, he felt that commercial office space wasn’t going to be a thing anymore. He felt that, yeah, the fast food industry is going to be on the rise. He felt that in terms of the way we live our lives will be different.
Bigger blocks of land will be in demand. People won’t want a garden. They’ll want a veggie patch to be sustainable. And a big thing will be the home office now. It won’t just be a little corner of the world, it’ll just be for example, a full-on room and people will be going and buying houses going, “Oh, the home office isn’t big enough. I work from home.” So one business could be renovation and styling and property work around properties.
So Joan’s asked us, can you please explain how real estate rescue works? Is there a cost to join? Yeah, Joan, we had a webinar on that last night. What we might do is we’ll take that offline. I’ll have someone contact you, Joan, because it’s a longer conversation. So it was a one hour webinar on how that program works.
Sarah has asked, I have a credit card debt, which is costing me $580 a month in interest repayments and it’s stopping me getting a loan. I’m able to afford it, but it’s a struggle. It’s not ideal. Is there anything I can do to qualify for a home loan? Yes. In a nutshell, Sarah, yes. Again, probably one to take offline. So again, at that link there, if you click on the link in the comment section and book an appointment, we can look at that and what to do, what that’s about is, and what is happening at the moment. I’ll talk about that more on the 402 today, but lenders are very negotiable in a grab for cash. And there is a window of opportunity now where you can negotiate down debt and get a much better deal on your credit card.
In fact, just today, Philip Lowe, the governor of the reserve bank was … in response to questions in parliament, Jacqui Lambie said it’s disgusting how credit cards charge 20% and what can we do about it and there’s more to do. And he said, yeah, there’s a lot that you can do. And one of the things you can do is you can look at paying it out for cents on the dollar or you can look at a hardship arrangement where they stop the interest, the penalties and the charges. You pay it off over time. So lots of deals to be done.
And yes, it would be affecting your serviceability when it comes to qualifying for a loan. So even if you could qualify, the amount you’d qualify for would be less because they’re taking into account that 580 or whatever a month you’re making in repayments, which is just dead money interest on that credit card. So you’re carrying, I know, the 20 grand of debt or whatever on that card for life. And you’re just making minimum repayments, which is just the interest only component. So, they’d tethered you to that. And, yeah, absolutely, something I’m passionate about. That is a tie you have to break and very doable. So book an appointment there, we’ll take that offline.
VJ has said, I’m with Westpac. I got three months loan holiday and I’ve asked for another three months because I’ve had my work hours cut back and they’ve knocked me back for another three months loan holiday. Is there something I can do? Yeah. So interestingly enough, VJ, most lenders gave six month loan holidays in the big four, but Westpac said, “Look, three months, and then we’ll reassess.” So yes, you can get a loan holiday. Yes, there’s absolutely something that can be done. Again, let’s take it offline if you go that link there. Let’s book a strategy session, but what can be done is under the National Credit Code. It’s eminently possible to get a further extension without affecting your credit score, without affecting anything.
And it’s just … there is a change. It’s kind of like the party’s over, the coronavirus exemption or coronavirus as an excuse for everything is coming to an end. So, APRA have told the banks that they’ve got to be well capitalized because come September, we’re going to fall off a cliff when all the stimulus packages and the job keeper and everything end, and banks are wanting to keep a buffer for loan impairments. So if they can push you back to work, they will. All of the concessions they were giving, first port of call like back in the day and I did foresee this. I said a couple of months ago, they were rubber stamping everything.
In fact, for speed, they were writing to everyone and saying, one of the lenders you don’t even have to ask, we’ve already switched you to interest only, and we’re giving you a holiday and we’re not going to charge you whatever for the next few months. Now, it’s the opposite. They’re saying, “Yeah, we’re going to say no to everything. And you have to really push through that barrier.” So they flipped it and reversed it now because we’ve got this feeling of elation that things are okay. It’s not as bad as we thought. We over-prepared. We feared the worst and now we’re coming back and things are coming back to normal and they’re not as bad as we thought. So there’s a general party vibe that for some of us may not necessarily reflect our reality. So it’s just about challenging the status quo and pushing back to that lender there.
That seems to be it for the questions right now. Thank you for contributing. I love the interactivity, loving the questions, and we’ll catch up on our state of play at 402 later this afternoon. So 402, I’m going to talk about APRA. I’m going to talk about what lenders are doing in terms of holidays and what’s happening with consumer confidence and the economy and how that will affect markets and our wealth journey. So see you then at 402 today. And for those of you who have further questions, you can book a strategy session in the link in the comment section. Talk soon. Have a great day.