Hello, and welcome to The Australian's Money Puzzle podcast.

I'm James Kirby.

Welcome aboard everybody.

Are you one of the investors behind the surge and investor borrowing?

It's running at its quickest pace in a decade.

I want to examine a few things today.

My guest firmly believes now that interstate investing is the norm now, which is interesting.

She's a bit skeptical about the not so much skeptical, but suspicious.

Maybe that lift in investor activity conceals perhaps quite a number of rent investors.

Okay, that's sort of subset, if you like, of people who wouldn't necessarily afford investment property, but their first property becomes an investment property, which they hope then allows them to buy the house they want to buy.

We've had Stuart Ween to talk about that on the show before.

She's also got something to say about the new and fairly controversial dictat from the ATO on holiday homes which wait to hear this, Wait you hear this.

If you haven't heard this already, wait to hear this.

Unless you conform to the letter on some new draft rulings of the ATO, they will dictate when you can rent out the property and you must, you will be compelled mandatory to rent the property at certain weekends Easter, Christmas, whatever is the big weekend in your part of the country.

Not everyone is gonna like that, I can tell you pretty fast.

My guest is Anissa Cavello of the Eida Eda Property Group.

How are you a Nissa?

Well, thank you, James, thank you so much for having me again.

Oh good to have you on again.

We will hold back on the holiday home thing for the moment, but we will deal with it momentarily, folks, except to say it's interesting, but not everybody has one, not everybody wants one.

You would think that that was the case reading these draft rulings.

First and foremost, I want to ask you about the two things.

First of all, you're talking about interstate investing becoming the norm.

So traditionally people didn't buy interested investors just didn't do it.

Is that right?

Well, very rarely.

It was really the realm of people that had much higher So a lot of people think that property investors.

Not a lot, but there are those, including the government.

I think that real estate investors are is the realm of the very wealthy.

I think we're realizing more and more through media that in fact it's the middle class Australian that is largely investing in, relying on leveraging into property to have a decent retirement.

And so we originally it was more of those high end investors that would look into state because they had big portfolios and they had much larger research capabilities or the ability to engage people like us.

I think that's changed enormously because of social media, because we're becoming much more investor savvy, and I think the middle class investor has got a lot more available to them in terms of research now.

Yeah, the distribution of research, free research, so I can look at not just the house around the corner, but I can look at any street, at any state, and I can find out a hell of a lot without sort of leaving my desk.

Yeah, that's interesting now one of the things that people are really interested in.

And I can see from correspondence that this is so the lift in investor lending, which is now running at its fastest pace in a decade from a slow start.

I might add, but tell me the rent investors, tell me what you think is happening there, and I might be wrong, But I doubt they're investing interested, but you could.

Tell me, uh no, they are.

They are absolutely not as much because there are a lot of people that we try to teach people that are property.

There's two reasons to buy property, to either enjoy it or money out of it.

But not everybody can get their mind around that, and so the idea of knowing that you may be able to move into it in the future provides a bit of comfort.

But where most people can afford to buy as a first home buyer, even with five percent down, in fact almost more so because you're borrowing so much of the value of the property, the areas that they can afford to actually a service alone tend to be areas that they don't necessarily want to live in, particularly if they're looking for capital growth.

So many rent I would say that of the first home buyers that we work with, more than eighty percent would become rent vestors now.

Right, okay, And they typically they are living tell me if I'm wrong.

Typically they're living in the inner city and buying in the inner city or are they buying the last time you're on the show, you were quite enthusiastic about sort of Ulter Sebbs basically that most people rarely mention where are you on that now?

Very much so.

So still the same James where we talk to, but it's not just us.

I think there are a lot of people that have realized through their own research online that they cannot afford a growth investment, for example, a home on a piece of land in the inner urban regions of the city that they live in, and so they either have to purchase an apartment, and there is a lot of information about apartment purchases now.

Unless you're one of the lucky people that can afford a very expensive apartment or townhouse, you're most unlikely to get a lot of growth.

And if you want capital growth, then you'll be avoiding assets like apartments and townhouses unless you're in the minions.

Unless you're buying a scarce apartment or a really scarce townhouse, even then there's a lot of risk.

So these people are looking to buy a home and they have to look outside the inner urban sort of centers, and so they either go to and I have a number of clients that have actually moved for a year to get the first homeowners grant to get the five percent down deal.

They've actually moved to Geelong for a year and then moved back.

One of my clients actually moved her family to Bendigo and she would actually commute because she didn't want to take a daughter out of high school, but it was the only way that she could afford a first time So they're moving regionally and living in it for twelve months.

If they need the first time owners grant with the intention of it becoming a rental property, not with the intention of staying in it, or if they're lucky enough to have access to enough to posit and not have to use the first time owners grant, then they're moving straight into rent vesting.

Okay, So that a couple of things there.

That the universally five percent home deposit ability, it's one year, you've got count rented for a year.

That's the only restriction.

There are other restrictions, so there's a number of different schemes that all sort of blend into each other.

Obviously, you've got the state based grant, so I put ten thousand dollars in Victoria.

I think it's more in some other states for first time buyers.

And then in order to qualify for the five percent with no al ami.

But also the other part to this qualifying for the five percent scheme, I can't remember what that one is, but that's a federal scheme.

The first home buyer deposit scheme, federal scheme.

We're talking about it.

President, it's up and running.

Just this is for listeners, just to catch up with you.

Yes, yes, thank you, thank you, James, thank you for that.

So that scaim.

The other good thing about it is that even though you're going to ninety five percent and you're not paying ALAMAI, you're not paying the usual much higher interest rate.

So if you and I went and bought a property and borrowed ninety five percent, we'd be hit with ALAMAI.

We'd also have huge interest rates because the bank is taking so.

Much frea sarier.

And this's an LMI, of course, being the mortgage insurance that you must pay.

And if you don't have a twenty percent deposit.

Yeah, yes, that's exactly right to protect the banks in the event that you default, because they're very at risk now.

So so you asked what the qualifying requirements are.

One is to live in the property for a period of time.

The other thing, though, is that you haven't owned a property before, and so you can't.

You still have to be a proper first time buyer, and you are not supposed to have owned a property as an investor because it's not in the spirit of the scheme.

Okay, whereas the cash money the first time buys grants generally allow you to be eligible for the grant whether you've earned a property as an investor or not, as long as you haven't lived you much.

Right, that's the big.

All, right, what's doing?

And on the rent vestors, which you see as a heart growing area, So you're telling me that they are in the market.

They are classified as investors, so they're part of this bump if you like, this lift up cycle in property investing we're seeing now in the residential market, and would explain the heat in some prices and that they are prepared to buy not just in their own town but in other towns wherever they can get the property they need.

One thing I want to ask just about looking across at that group and the rent vestors, they must be struggling at the entry level because the entry level is the hottest part of the market.

We saw the toutality figures during the week which said that the monthly growth in the housing market is running faster in the entry level than any other level of the market.

So that's no good for investors, is it.

Well, it's no good for first home buyers either, which was the whole ecs of the scheme, right.

So whenever you have such an incredible benefit, if you want to perceive it as that, because you know, I've got issues with the ninety five percent, it doesn't necessarily get around the serviceability issues that a lot of clients have.

But if you many of you pour you know, basically petrol on the market and a part of the market, you're going to get prices increasing.

So for many home buyers, first time buys and investors, yes, the market is getting more expensive, and it's happening pretty quickly, we have seen.

So we look at both purchasing existing properties, new properties, building properties.

We do a raft of things.

But when we were turning up to open for inspections in some of these growth areas, you know, six months ago, we would walk straight in, we'd be one of the only people there, and we'd be able to take a week or two to make an offer, whereas now there's a lot of people at these affordable open friends, if we make an offer twenty four hours later, it's generally sold.

And is that do you think that's directly related to the universal five percent scheme?

Absolutely, because the areas that we invest in mainly and that we focus on mainly are these affordable areas.

Because they're more affordable, You've always got a much larger market that can afford it.

So where there are issues, economic issues and crises, etc.

You'll find that affordable part of the market doesn't have as experience as much volatility because people have to live somewhere.

You know, it's usually the discretionary investments, all those really high end investments that people don't have to live in that will experience major volatility.

So what do you say to the investor or whatever they are, re investor, traditional investor who wants to get into the market.

They know there's good prospects, there are no rates have stabilized, but they also know that this end, the entry level end, is overcrowded.

What do you say, I'd say there's still opportunity because you don't necessarily have an option.

I mean, how we advise somebody that's got a million dollars to invest versus five hundred is different and what you got is what you've got, right, So you have to make it work.

But as I've been saying for many years in property, for the twelve years I've now been focused on it, just what are you waiting for getting?

Because it will get to a point where the base level is unaffordable for most Australians.

And if we look at other economies, there are many First world economies where people will never own a home their generation.

Right, we are moving that way and I think we believe that should never happen in Australia, but it will.

Yeah, I don't have any argument with the sort of principles you're outlying there.

I want to ask you one thing you've mentioned, and I wanted to pick up on it.

You kind of lumped townhouses in with apartments there.

I would have thought that they were closer to houses in their price patterns and opportunity.

No, they're different to apartments.

But a lot of the apartment the townhouses that I'm talking about that are still entry level, so we're still talking about under a million dollars and a build like quasi apartments right there.

Fixters and fittings are basic.

You know, the rooms.

They're sort of called a townhouse, but it's almost an apartment.

So it's about the quality and the price point that we're talking about.

James doesn't allow to go into these sort of really high and beautiful townhouses.

The other thing that if you think about it, if you have got if you've decided to purchase an investment or a house to live in or a property to live in, you will always favor a property that allows you to do what you want to it in the future, and a townhouse has got a lot of limitation.

Still okay, but what about the argument that it is at least land capture as opposed to an apartment, and you can't do much with them, but you could do more than you could do with an apartment.

Not much, you could do something more.

Yeah, I think, Look, I have seen apartments and townhouses perform at that entry level very similarly.

I don't say rate them, but I think when you're talking about, you know, a former five million dollar development complex in a bright And or a TURECT, that's probably a very different thing because you know, they make their scarcity value about them.

But no, I would otherwise from an investment grade entry level perspective.

I would put them pretty much together.

And you would apply these concepts nationwide in every city.

I think longer term, yes, a shorter term.

We've seen apartments and townhouses perform in states where they hadn't performed for twenty years all of a sudden rise and value because of affordability, and you know interstag migration, et cetera.

So it has it doesn't apply necessarily for the short term.

A lot of my rules are very long term rules, right, which is what we've seen in over fifty years.

So in the short term you might Newcastle, for example, apartments have had an incredible surge, but are they at their peak and what will they do for the next twenty years.

So some of these markets that are not your growth focused markets can perform.

If you time them right, you could make a lot of money in the short term.

But if your time them badly, you've got ten years before you'll get any capital price or before you recover.

Right, Okay, all property being local, folks, I suppose there's the message there, And as Anisa says, there are, of course, there are opportunities in certain places at certain times.

But the point she's making I suppose are kind of universal and long term for all property in all places.

Okay, very good.

I really want to talk to you about the ato's Little holiday Cloud.

We'll be back in a moment.

Hello, Welcome back to the Australians Money Puzzle podcast.

It's James Kirby here with Anissa Cavallo of the IDA Property Group.

EDA Property Group, regular on the show.

Always good to talk to.

It's the time of the year, Anissa, where people think about holiday homes.

Every spring people talk about holiday homes.

Every November December, everyone tries to sell their holiday home because that's the time people start to fantasize about them.

We won't go into the whole thing because there is actually a show on our archives.

If you want to learn how to buy holiday home, I've done one.

You can just search for that.

But here's something that everyone should know if you are looking at the property market as an investor, and if you are considering holiday homes in that so that you may be thinking of investing in one, renting it then ultimately perhaps getting control of it yourself once you've paid it down.

I've got some bad news for you.

The holiday home owners soon could be denied tax deductions for their mortgage, interest rate costs and all other costs from July one next year.

Wait to hear this unless they make their properties available for rent on popular holidays such as Easter and Christmas.

This is from the ATO draft guidance that deductions will be Discillebert if the property is seen to be mainly for personal use.

Whoosh, what are they up to?

Tell us?

What do you think they're up to?

Oh?

Well, I mean I think, as I've said offline, it's interesting because we don't have any other income where we are prescribed, we're told when we need to earn that income in order for it to be considered a deduction for tax purposes.

Right, interesting even in I mean, let's even put shares to one side.

I mean, there's no instructions from the ATO on if you're negatively gear shares.

There's absolutely no instruction of what you should buy.

You could buy the You could buy a whole pile of rubbish and they wouldn't mind.

You could buy forty two speculative platinum companies in West Africa and they wouldn't have any observation to make so on negative gearing.

Even is there any other ATO rule in property in this that that tries to dig in here in this way to tell you when and how to rent.

No, No, not at all.

It's very interesting, and I think, as we said, they also they don't tell an overdriver that unless they work on weekends, you cannot You know, it's not considered income for the purposes of tax, right.

I do know, and I'm not an accountant, but I do know that there are guidelines in place to try and ensure that people are only deducting what is relevant to investment, which sounds very reasonable to me at the moment.

The guidelines are loose, but they're looking for something like four to six months of the property's usage being as an investment property.

Otherwise, if you're living in it largely, then you can't claim anything, but you're only allowed to claim for those parts that you used for investment purposes.

So at the moment, as the law stands, it seems extremely reasonable.

Now when and where you decide to rent it out, I think is very prescriptive, and we're getting into a world where what else is that?

What are they going to do next?

What are they going to tell us we need to do next to ian to climb our deductions.

So what do you think it will do?

I mean, do you think, well, just straight up, what is your response to Do you think it's are you surprised?

Do you think it's fair?

Do you think it's outlandish?

I think it's outlandish.

And the way that the laws or the guidelines are actually prescribed, or that they're delivered or is already intent, is already achieving the result.

And for me, it's just a popularity stunt, another way of saying, look what we're doing for holiday makers.

We're trying to make properties more affordable, like the five percent deposits game.

You know, say look what we're doing, But in fact they're making houses more expensive with the five percent deposits game.

So I think for me, it's just another way of getting botes and getting popularity.

Yeah, thing, is this the ato, It's not the othernment.

That's true.

That's true.

Well, that's actually really true.

They can't get motioned in our art, can they.

I'm sure it would be very interesting, be a very interesting call if they had a vote for them, but they are.

I don't need to call I don't need to call the atl for them to say no, this is us ensuring that we are applying the tax laws properly.

We're a tax collector.

We're not trying to achieve anything more than the accurate collection of tax.

Yes, but I don't know whether that will convince people would be convinced about that.

But I mean saying, because one of the it hasn't come in, it's a proposal.

We understand that if you don't make it available at particular times, then you're not eligible for tax deductions.

It would be different if they said that we are going to crack down on people, because of course I might if you've got your property for lease that is deemed being leased, if you can show that you're genuinely trying to lease it out.

So I think cracking down on making sure that people are using the property because you can't have your cake and eat it too.

If you want to hearing, then I think it's important that you are being reasonable and that the property is being used for investment purposes.

But I agree with cracking down and ensuring that people aren't trying to say that the property is rented and it's not and they've got no intention of renting it.

But being scriptive about when you rent it seems it seems very very you know, I don't know, seems what's the word big brought up to me.

Yes, well, I'm thinking of someone.

I mean, of course, if someone's got a gorgeous place and you know, they it's worth ten million, and they put up an ad in the local shop, you know, and make sure no one sees it and say that it's rented.

Yeah, I can see why the ATO wants to crack down.

But if someone actually had a long term strategy, had taken the risk of buying a property, had taken all the risk on board, had done the work, had rented it out on the big weekends to get their cash flow in the early years, and were at the reward phase where they could finally get to this place when they wanted to because they had done all the hard work and risk beforehand.

To be told suddenly, hang on, there's rules when you can't rent it out, I think that will get a lot of people angry.

All right, interesting stuff.

We will be back in the moment.

I've kept I've curated some questions, especially for any talking the moment.

Hello, Welcome back to The Australian's Money Puzzle podcast.

James Kirby with Anisa Caballo Andnissa, I'll allow you thirty seconds no more to tell people what you actually do at Eida Property.

Yeah, okay, So we help people build wealth by investing in property.

So we do help people buy their first times, but our focus is very much helping middle class Australians build wealth using capital price.

Very good.

Gee, that elevator pitch is well honed.

You've done that before.

Very good.

I used to say, I remember, even as a like a you know, junior reporter or business reporter, if you went into a business you know, and they took a while to explain what they did, you said yourself, I don't know about this business if you can't explain to me very quickly what you do.

The elevator pitch.

Very good, All right, Lisa.

The analysts are talking about new lending rules like we had before, with limits on the investor lending in particular.

I can't believe this is on the cards and we are still talking about redcots.

What do you know now, Lisa, This is never advised.

This is information only.

This is not about the holiday homeless folks, and this is universe and this is everybody.

I think what she's referring to is in the explanation from the banks as to why they've changed their forecasts and that they no longer believe there will be further red cuts.

One of the banks, I don't want to guess which one, one of the big four banks, said that what we are seeing with this rush of investors into the market would under normal circumstance, prompt the RBA to consider macroprudential rules, and they are of course where the RBA says, okay, we won't lift rates, but what we're going to do is we're going to target certain areas and put a cap, for instance, on how many people can do interest only loans and that sort of thing.

Any sense of that in the market turns about that, Anissa.

It was actually when I read that question, I was thinking, I haven't heard of it, so I've got to investigate it further.

But my understanding is, yeah, that it's more a risk mitigation as well, because the banks can't have too much risk on their balance sheets, and so sometimes if we've got huge investment flows, they might need to they're very much at risk of negative gearing, laws changing or you know, things like that.

So my understanding is that it's a naturals risk mitigation tool that the banks must use.

I do agree, while we do not want to tamper with investment in the market, we should be actually really encouraging investors because we need affordable rentals.

And I think that's what they're getting at.

But whether or not that's possible in terms of, you know, the bank taking on so much risk, I'm not sure.

I need to understand a little bit more about it.

Was whatty about ten years ago they did this for the first time when property around very hot, and instead of lifting rates, they're not in rules which the banks had to emit instantly sort of follow.

They literally said to them, you can have this number of interest rate only loans for instance, et cetera.

And that cooled the market, and it did cool the market pretty quickly.

So that's I think on the table if the piece of investor lending we are seeing just now continues through the summer.

See and I think that is from one of the big four banks, As I say, which one I can't recall, Navra Westpac.

All right, Andrew says, after listening to the podcast with Cameron Kusher, I think I've come up with a solution which would work.

Well, this is his solution, folks, This is Andrew's solution about trying to control property prices.

It's currently accepted you can that you can have up to thirty thousand of salary sacrificed into super My idea is to apply this similar number to negative gearing as the maximum amount of tax return a person can put through per year.

So what he's saying is we limit negative gearing, not by property numbers or whatever, but by how much that person, any person could put through each year at thirty thousand, which I expect to some people I think is a little low.

Andrew, but he says, interested to hear your thoughts.

Well, I'm interested to hear the thoughts of a guest.

So, Anissa, what do you think of that sort of thing?

Yes, I don't agree.

You know how, I'm adamantly against tampering with negative negative gearing.

And I wonder why it's always the property industry that's up for question and not all other industries.

You know, we've discussed that, so I think that it's been tabled.

A whole lot of different ideas have been tabled in terms of do we cap how much you can well that you can claim, et cetera.

So there's probably a version of his idea that's out there.

But I just think that if we're tampering with negative gearing, which is a huge part of tax rules and opportunities, why does it just have to be property right?

Why is it applied only to the property industry and industry persecution?

I would say you've got a persecution complex, because that would suggest that you're imagining it all.

Thank you.

I'm glad, I'm not.

I wish I was.

Yeah, no, I don't think you are.

Clearly some property investment areas are in are being targeted.

We know that the show has covered it quite thoroughly that obviously it was very much targeted in Victoria, where there are ten taxes on property.

But interesting in the show today that we see it signs of that sort of disposition at at the federal level, this in particular through the ATO though a narrow channel though it may be, as you said, in this what will they get up to next?

Okay, terrific.

Hey, we might leave it there.

Thank you very much for running out of time.

Lovely to have you on the show again.

Thanks for having me, James, always a pleasure.

Always good to hear from you.

And Issa Cavella the either EDA property group.

Okay, folks, let's have some questions.

Great to have ideas by the way, like Andrew's idea.

Always interested to read out ideas, suggestions, complaints, whatever you got.

Send them in the money puzzle at the Australian dot Com dot au.

Talk you soon.