#ASKDOM Q&A Session, Thursday 4th of June

Hi there and welcome to ASKDOM for the week. For those of you joining us for the first time, this is a live stream Q and A. What we usually do is take questions from our state of play sessions during the week, and I’ll answer them live. But don’t forget while we’re streaming leave all your questions. Go to the comment section now and ask questions. Some people are so polite they wait for me to invite them and any more questions at the end, and then they miss out. Start typing now AND we’ll just come to them as we go. I’ve got one from Jenny here. Jenny said, “what advice do you give to have that human touch and rapport with staff and still be seen as the leader and an authority figure?” Great question, Jenny. For me, I’m Quoting John Maxwell here, it’s not me, but John Maxwell, who’s written a lot of books on leadership.

He said, “he who thinks he leads but has no followers is just going for a walk.” I think the best thing that you can do, and I assume you’re talking about especially in a post COVID world and running businesses, people are very unsettled at the moment. They’re uncertain. They’re coming back to work in phases and in shifts, and they don’t know what the future holds. There’s been a lot of change, a lot of disruptive change and we don’t like change as human beings. People are unsettled. A leader is almost like a teacher in a classroom where the kids are a bit antsy. The easiest way to make someone do something isn’t by just sheer force of will. There are some leaders who lead by title. So a plaque on their door that says, I’m the leader. And yes, people will follow you because of your title, because they have to, and they might lose their job, but they won’t really want to and they won’t respect you.

The best way to get people to do something is to make them want to do it. There’s a famous story. I’m going way back now, Andrew Carnegie. He was in the industrial era. He was one of those billionaires and he said to his sister who had two sons. His nephews, they went off to college and they wouldn’t write to her and she was like, Woe is me. I’m their mother and they’re just ignoring me. How do I get them to write to me? And he said, well, I’ll get them to write to me. And she said, how can you do that? You’re an absentee uncle that they’ve met twice in their life. If they won’t to their own mother, then they’re not going to write to you. And he said, guarantee, I’ll have a bet.

They’ll write to me within a week. And so he wrote to them and he said, my beautiful nephews, I haven’t taken enough interest in you, but I’m so proud of you and what you’ve become. Two boys off at college and as a small token and gesture to acknowledge everything you’ve done, I’ve enclosed $5 in this letter. And quick as a wink, they wrote back and said, Oh, Uncle so lovely thank you so much but I think you forgot to enclose the $5. He just had the right bait on the hook to get people to respond. Same for you. I’m not suggesting you bribe staff or anything but the best way to get someone to do something is to make them want to do it. Leadership 101 there and especially important now in time of COVID.

Joanne has asked, “if I was to look at getting finance in the near future to purchase a home, but I have some money owing on a credit card yet I may also have enough cash for a deposit, could I roll the credit card debt into part of the home loan finance so I would pay less interest on the credit card debt?” Yep. That is definitely one strategy, Joanne. There’s probably a lot more that you can do. Have to understand more about your situation, but in the description section up there you’ll see a link. If you can just feel in that link and we’ll get in contact and take it offline. But just to give you an example, like credit card debt, you may have heard it or read it in headlines in the last week and parliamentary debates, it’s a big deal that credit card companies are charging people 20% interest when people are doing it tough. Lenders are actually really, really negotiable about that sort of debt.

That’s what they call unsecured debt. Secure debt is debt where there’s an asset set against it. A mortgage debt, for example, is secured by a house or a car loan is secured by the actual car itself. But credit card debt is just a contract. It’s just a promise to pay. That’s what they call unsecured. That’s why the interest rate is much higher. You’re paying 20% on a credit card versus 2% on a home loan because the bank has security. It’s not a risk for them as great as a card because they can take the house. Banks realize their exposure because we’re actually in a recession now. Josh Frydenberg came out yesterday and answered her media questions and said, yep, this is a recession. We’re having a recession. Banks know that in recessions, first debt to go is unsecured debt because people will stop paying mortgages last.

They’ll stop paying credit cards when they have to tighten their belts and things get really difficult. My point being that in our debt management team, we see a lot of this. For example, in a team meeting this morning, we had one $68,000 credit card settled for $16,000. You could probably do both. In other words, you could get their payout, we could reduce it, negotiate, go hard in with the credit card lender and get the mortgage refinance and pay them out for just cents on the dollar. Probably a dual approach there, but they’re definitely doing at the moment on unsecured debt and with the secure debt as well, interest rates should have a two in front of them right now.

Everyone should be readjusting and if you haven’t looked at your loans this year, you should be doing that as well, because it’s just a whole different landscape now post COVID. There in the comments section as well as in the description section there on your screen, there’s a link. If you give us your details and we can see you’ve done that Joanne. We’ll contact you and there’s a lot you can do. A lot of options that’ll put you in a much better position financially.

Rebecca’s asked us, “in Victoria, how do you find a property the banks are selling below market value? Is there something or somewhere to look? We had to sell our house a few years ago for a number of reason. And we’ve been renting. I’d really liked to be able to buy a home again.” Yes. So there are a few things that you do, and these are matters of public record. That’s what I teach in the real estate rescue program. But what’s quite big in Victoria are sheriff sales.

That’s where the bank comes and sells up a home for other debt. Maybe not first mortgagee debt like bank debt, but it may be judgment debt. If a creditor or a credit card or something has gone to court and got a judgment, or it may be non-payment of rates or outgoings on the property, strata, levies, that sort of thing. So there are distress sales in sheriff lists in Victoria, as well as mortgagee lists. When the bank actually goes to court to repossess a property. Obviously there’s nuances and there’s a lot to know about what it means.

Just because someone’s in a court list, doesn’t mean that their house is on the market or they necessarily want to sell, but they may value especially in a market like this, an off-market buyer because they won’t have to pay an agent and they won’t have to go to the trouble of listing and marketing and all sorts of things. They may really want a quick sale ahead of the sheriff or the bank or whoever it is that’s chasing them. There’s so much that can be done there. Again, I’d suggest fill in at the link in the description or the comments section, and we can send you more information to arm yourself, knowledge is power, about what’s possible. It’s a rising tide at the moment in this market.

Emmanuel’s asked, “Hey Dom love your videos. I’m a first home buyer in Melbourne. If the government doubles the first homeowners grant or introduces another attractive stimulus next financial year, do you still expect property prices to fall in Melbourne?” Yeah. Great question. I don’t have a crystal ball about the property market, but I can see what’s happening day to day. I can see as initiatives are announced what is coming into play and I listen and read a lot like what the big economists are saying for the major bank.

As you can imagine, the banks have a lot tied up, especially in residential real estate. The mortgages in Australia, in residential real estate account, are equivalent of 80% of our GDP as a country. 80% of what Australia earns is the same as what’s tied up in mortgage debt in Australia. It’s a massive market and banks watch meticulously what happens to the property market, as do governments because we as a nation store most of our wealth in the private sector in property. We’re more likely to have money or wealth as equity in property than cash in the bank or shares or invested anywhere else. What happens with property prices affects our economy. If I have a house worth 500,000 and I’m feeling pretty good and property prices slide and suddenly my house is only worth 400,000. I feel like I’ve lost a hundred thousand dollars and then I feel poorer.

And when I feel poor I don’t spend cause I’ve got no confidence in myself, in the economy and I’m just watching my pennies. It means if no one spends, then there’s no economic activity. Our economy doesn’t grow, there’s fewer jobs and everyone hurts. It all contracts. Property is definitely a point that all the big players, that everyone in the nation watches. As well as people wanting to buy homes at the coalface. The big end of town is watching what’s happening in property. I’ll talk more about this on our 402, but as we’ve seen, they’ve brought in a new stimulus package. Josh Frydenberg, our treasurer came out yesterday and said, yep, we’re going to have a recession. We’ve already contracted for the March quarter. Remember, we only just went into lockdown for this COVID thing at the end of March.

End of this month, we’ll be at the end of the June quarter. A recession is technically two consecutive quarters of negative growth. And Josh Frydenberg said, yeah, we’re definitely going to have that come the end of June. He actually said, it’s going to be a lot worse. He said, the figures are going to be a lot more severe than what we’ve seen for March. March contraction, the March quarter was only 0.3%. Our economy shrank 0.3%. They’re now saying, look, we’re looking at like eight or 9% in the June quarter. The damage is all going to flow through in this next quarter. And they’ve said, one of the things that’s really important is that people stay confident. The reserve bank governor said it on Tuesday, so he came out and made his interest rate decision.

The board of the reserve bank gives reasons for that. One of the things that they said we’re in the most severe downturn since the 1930s. That’s what Phillip Lowe, the governor said. And he said it is going to get worse. And he said what will impact how quickly we recover as a nation is the level of confidence of consumers and businesses. They also measured consumer figures and consumer confidence and the Australian Bureau statistics and treasury pours over that data. What they found is we’re spending less. We’re contracting because people lack confidence and they call it the wealth effect. You don’t feel wealthy when property prices go down. The federal government have come out today and Josh Frydenberg and Scott Morrison have said, okay, we’re going to have a home builders package that basically supports property and building and [inaudible] about September.

That’s the same time that the job keeper and the stimulus packages, job seeker end as well. We’re going to fall off a cliff around them. And they said if we can keep the building and construction industry alive, we can prop up the property market. What that will also mean is that all those jobs that sort of oscillate around property, like real estate agents and that sort of thing, they’ll all be boosted as well. They’ve got great interest in supporting property in Australia because property is the backbone of the economy effectively. What they’ve announced is a fourth stimulus package now, the home builder package where they will give a government grant of $25,000 to those who build a new home or do a significant renovation. What’s significant? They say over 150,000 and it has to be with a builder, a licensed builder because the idea is that it’s jobs for builders and tradies and apprentices and all of that to keep people in jobs.

Yes, I do believe that the property market will be propped up, but overlaying all that, yes, there is a recession, the powers that be, like the governor or of the reserve bank and the treasury can’t get any higher than that when it comes to the Australian economy. They’ve basically said, yes, it’s going to be bad. It’s going to be severe, like the great depression. And they’ve said what we need to do is have further stimulus beyond job keeper. Job keeper and job seeker were literally handouts. They call it helicopter money. So from the great depression, they learned their lesson. In the great depression the government didn’t intervene, they just stood back. That contraction went on for like 10 years and what they should have done Keynesian economists came in later and said, you know what we should have done?

The government should have spent. Even if they had to fly helicopters from the sky and drop money on people. If people have money to spend, it will help the wheels of the economy turn. We saw that the global financial crisis didn’t we? Because Kevin Rudd gave out money for covered outdoor learning annexes to be built in public schools and pink bats in roofs and all that sort of stuff. What we’re seeing now is the same sort of thing. We had handouts and job keeper and job seeker. Now they’re still keeping the pipeline of money flowing, but they’re trying to direct it rather than people just getting their job keeper and going out and getting a tattoo or buying a television or whatever where they can’t predict where that’s going to go. They’re putting it into certain industries. If there’s a building grant of $25,000, then that will support the property market which will then support the wealth effect. If people’s house prices hold up, they’ll continue to spend money. It’s just about us feeling confident and the confidence will be a self fulfilling prophecy and create more jobs.

So Matt has asked us, “Hi, Dom at eight minutes, 48 into your presentation, you said worse than the Great Depression. Did you in fact mean the Great Depression or the GFC?” Thanks, Matt. I always love a details person to pull me up. I’m not sure what presentation that was, but I would say I would have meant the Great Depression. We’ve not seen data like this ever since records were kept. The governor of the reserve bank has said, this is as bad as the 1930s. The great depression was bad.

They call it in America, they call it the Great Recession. Here we call it the GFC. The global financial crisis was bad too, but Australia didn’t feel it. We actually didn’t have a recession here in the global financial crisis. We still had consecutive growth each quarter. We didn’t have two quarters of negative growth because we had mining to support us. We had immigration. So our housing markets stood up. Prices didn’t fall because we had foreign investment and immigrants coming here and buying up properties. This is a little bit of a different animal this time round, because we don’t have for our property market, we don’t have immigration with borders closed the way that we did. It’s going to affect demand and stimulus packages like this home builder package is going to flow into supply.

Sarah has asked, “is there a database or website to view these properties?” I think you’re meaning Sarah, distressed properties. And yes, it’s different in each state and there’s different sources. They call it the Holy grail of properties. But what it really amounts to is motivated sellers. People who are probably time poor, want to move quickly. There’s an opportunity cost in not selling now. They’ll meet the market and they’d love to sell it probably off-market. They’re traditionally mortgagee situations, liquidations, bankruptcies, deceased estates, divorce situations, as well as those sheriffs sales one. They all appear as a matter of public record, different in every state, but in court lists and other lists, government gazettes and that sort of thing. Houses being sold for non-payment of rates or that sort of thing, or council rates, [inaudible 00:00:18:15]. At the end of the day though, what it will mean is that it there’s not critical mass now.

This isn’t new, there’s always been mortgage stress. There’s always been distressed properties. There are always deceased estates. What’s going to change now is come September, a lot of people who have had loan holidays and a lot of people who haven’t had to pay their mortgage because of COVID and people who have been receiving job keeper even though they may have lost their jobs, they’ve got a government, either the job keeper or the job seeker package, which is basically double the Center link benefits. They haven’t felt the pain yet. But for example, 600,000 jobs were lost in the month of April. All of that pain hasn’t hit the system yet and won’t for a few months until the stimulus packages run out and it’s all over and it’s business as usual. That’s when the economic pain and the tsunami is going to hit and there’ll be a lot more distressed properties out there.

Nina has asked, “what are your thoughts on the $25,000 renovation grant?” Yeah, it depends what you’re wanting to do with it. It has to be a significant renovation so it’s no good for people doing little flips and people doing it themselves. We have a lot of people in our community flipping houses. We even got a course on flipping houses, but they’re making between 40 to say a hundred thousand dollars per flip, and they’re doing it in about three months in and out. They’re purposely targeting a property for renovation, getting in, getting out in a three month period and doing a lot of the renovation themselves. Or at least project managing it and getting trades in. Those renovations, those little bread and butter renovations usually cost them between 30 to $50,000. The renovation grant that they’ve announced today, it has to be for a significant renovation, over $150,000.

It has to be with a licensed builder. So you have to actually have a building contract and it can’t be some relative. It has to be an arms length builder. It would have to be significant work. But yeah, it does include bathrooms, kitchens, that sort of thing. The house value at the time you undertake your renovation has to be under $1.5 million. It also means tested in the sense that to claim it as a couple, you can’t earn a combined income of more than $200,000 a year and as an individual, $125,000 a year. There’s limitations on it. Probably no good for flippers. Good for the economy. Definitely good for the housing market, good for jobs and employment in a really big sector in the economy and good if you’re wanting to do a significant renovation, but it can’t be an investment property. It has to be your home. And great if you’re wanting to build a house to live in. Obviously that will come off the build cost.

Amanda has said, “Hi Dom, people talking about the real recession will soon start as job keeper payment stops. Will the share market crash as well?” Share market seems to be like the canary in the coal mine from my understanding and watching. Whenever there is uncertainty, the share market is a really good indicator and it seems to be forward looking. It’s the Canary in the coal mine. In other words, it’s the first sign of some sort of uncertainty or fear. Share Market’s Jesse Livermore, great investor in the 1920s said, markets respond. They act on emotion and they respond to us as human beings or are us as animal spirits. And they respond to fear, hope, ignorance, and greed.

I think the share market reacts to shocks and they actually have a volatility index where they measure reactions in the share market. Things like lockdown and the COVID virus becoming worse in March, that sent the share market just gyrating and the volatility index. It measures the jumps both up and down, the distance between the changes in the share market shows that we’re all afraid or excited or whatever our emotions are. But this job keeper ending is quite predictable. That is already probably priced in to share markets. The delayed effects, the rear view mirror is always going to be the property market because property is not very liquid.

Unlike shares everyone, doesn’t run for the exits and sell their property that same day. It happens much slower. At the moment, there’s kind of a standoff. No one’s really selling, no one’s really buying. There’s just been very little in terms of transactions for property. It’s starting to loosen up now and people are starting to sell and buy, but there’s a standoff in the sense that buyers are expecting bargains right now and sellers aren’t willing to give them. To answer that question, long story short, the share market will react to short-term news and revelations more so than something that it sees coming, like the end of job keeper in September.

Tom says, “I’m terrified that I’m going to go bankrupt once my mortgage holiday ends, how can I prepare? How do I cope after I lost everything?” That’s a really good question. A lot of people are like that. Can I ask you Tom, feel in that form. I’ll take this offline and cover that with you. What really is happening is at the end of the day, you’re just afraid because of the unknown and uncertainty. If you know what to expect and face the worst, but know that there’s always options. There’s actually a big upside and there’s a lot that you can do. You actually don’t have to start paying your loan when job keeper ends or when your mortgage holiday ends. There’s a lot more you can do and we can help you with that. You can still negotiate.

If you’re still undergoing hardship, you’re not going to lose your house tomorrow and there’s a way out of this. Just need to know more details. There’s a way out of anything. I actually didn’t go bankrupt in my situation. I just had to keep on dancing, treading water and traded my way through it. You can do the same. I’ll share that with you, but just need to know more about your situation. If you fill in the form and then I’ll personally give you my insights and we can formulate an escape route and a plan through this. It’s just a matter of strategy and tactics, and you don’t know what you don’t know until you pull it all apart. Problem solving, I call it.

Gary has said, “when can we expect to see a dip in property prices?” I think most people won’t know what they don’t know. They’re all going to hit the wall en masse in the latter half of this year. That’s what they’re predicting both economically, the economists in the major banks and treasury and the RBA and policy makers are all saying, okay, what happens come September? We bought ourselves some breathing space. March we just got totally blindsided and sent for six over COVID and suddenly inefficient industries or businesses that didn’t have cashflow to tide them over for a few months were shut down, receiver have been called in. People have lost jobs, a lot has happened.

Now the dust has sort of settled and we’ve come through it better than we thought. We’re getting back to normal but the measures that they put in place to help us through this are still disguising the harm in the system I suppose. It’s like we’re on life support. We haven’t started breathing alone and they’re going to turn off the life support in September. That’s where I think a lot of people will have to have a day of reckoning and they’re all going to have to sell houses on mass and banks who have, I suppose, because of PR reasons, they’ve decided that, and the Australian banking association have said, we’ll work with the government. Everyone gets a holiday. We’re still in that breathing space now, but banks aren’t going to wait forever because they’ve got shareholders to answer to. They’re going to have to do something.

They can’t do nothing and defer loans indefinitely for a few years until our economy gets back to normal. And it will be a few years because it happened really quickly. It’s so with any recession, but even more so this time. Within the space of a month jobs were lost, we’ve taken an express elevator to the basement and now we’ve got to climb the stairs slow and steady back to where we were before. It always takes months usually or a year to hit rock bottom and then several years to recover. In the great depression, it was 10 years. They’re predicting into the 2020s, 2022 or so before we’re back to normal. I think buying opportunities will happen from the latter half of this year. October onwards and the recession will probably stretch out into 2021. If you’re wanting to build a property portfolio later this year and next year, there will be a lot of opportunity.

Madeline has said, “should I be worried about the recession and my assets?” Yes. You should in the sense that recessions are like a game of musical chairs and many of us have never lived through one. The last recession we had was 1991. There’s generations that have just never experienced a recession. What will happen is there’s just a finite amount of jobs and the people who get to the chairs first will have the jobs and there’ll be okay in a recession. And then everyone else will just be fighting it out. And there’s finite cash. That’s when people start suing each other. There’s a grab for cash, whichever way they can get it. When we’re all rich and happy and fairly comfortable, we tend to be really nice people to get along with.

When we become more base, our animals side comes out when we’re threatened, or we’ve got our back to the wall, or we’re just we’re out of options. That’s what a lot of people experience in a recession so they’ll go for the finite cash. That means your assets. Definitely a time to get your house in order and to quarantine everything. To ring fence it so that people can’t get through. The most important thing in a recession is not really what you make, but what you keep. Jack Mare had a quote yesterday that I read and he said, this is just about survival right now. The companies that are winning are the ones that are just staying afloat and staying open. This isn’t a time for record profits or hitting it out of the park. This is just a time to stay alive.

And in staying alive, people go to great lengths. When we’re looking at survival, it’s keeping what you have. That seems to be it for the questions today. Last call for questions, but otherwise follow us on Facebook and catch up with me this afternoon at 402. We have our state of play sessions because I’m watching headlines, laws, parliament, what’s changing. 402 today on our state of play, I’ll talk about the recession that’s coming, why it had to happen, what it means and where there’s opportunity in it. Especially for that home builder package where there’s government grants of 25,000 for significant renovations and builds and things like that. But follow us on Facebook if you want to get regular updates and don’t forget, this is for everyone. We want to create a ripple effect where everyone shares the knowledge. Share this with your friends, tag them in the comment section and of course, if you’re watching on YouTube, don’t forget to like us, subscribe and hit the bell so that we can notify you every time we release some new content. For now, stay safe, take care, and let’s catch up today at 402. See you then.

  • DGI Lawyers
  • DGI Accounting
  • DGI Finance
  • DGI Wealth
  • DGI Asset
  • DGI Debt

Get In Touch

DG Institute

Level 22, 31 Market St, Sydney NSW 2000

PO Box Q1868 QVB NSW 1230

P: 1300 658 653