Blog

Nearly half of Australia’s 25 million-strong population is currently under stay-at-home orders, with restrictions in place in Greater Sydney and Victoria. But despite the lockdown, the property market has remained relatively buoyant in our two largest cities.

Take Sydney’s auction results, for example.

CoreLogic reports that while auction withdrawal rates increased for the week ending 18 July, the preliminary clearance rate held steady at 77.1% – only slightly lower than the five-year average of 77.2%.

In Melbourne, it’s a similar story.

And if recent history is anything to go by, buyer activity will ramp up once restrictions ease.  

How the market reacted to past lockdowns

When lockdowns first hit last year, many experts predicted property prices would fall by as much as 32%. These forecasts weren’t just wrong – they were spectacularly wrong.  

Home values dropped just 2.1% from peak to trough in 2020, before accelerating 12.2% through the first six months of 2021, according to CoreLogic.

And one of the main reasons why the market has boomed rather than crashed comes down to supply and demand.

Both buyers and sellers sit on the sidelines 

During previous lockdowns, both buyers and sellers stepped back from the market. For example, according to CoreLogic, between March and April 2020:

• Sales volumes fell 33.9% across the country
• New listings added to the market in April 2020 declined by 44.7%

So while home-buying takes a hit during lockdowns, listing activity does too – balancing out any impact on prices.

However, once lockdown ends, demand surges. Property transactions don’t just resume where they left off, there’s also pent-up demand to contend with.

CoreLogic estimates there were 582,900 property sales nationwide in the 2020-21 financial year. That’s the highest annual sales volume since February 2004 and 28% more than the decade average annual volume of 455,346.

What’s more, listing volumes haven’t been able to keep up – pushing up prices.

In June, total listings across Australia sat at 139,897 – significantly lower than the previous five-year average of 201,442.

Get a running start on your finances

Winter is traditionally a slow time for the property market. So there’s a good chance of an even stronger spring this year than normal, thanks to the pent-up demand and low supply discussed above.

You don’t want the market to run away from you. So take advantage of the current lockdown to get your finances in order by working with a good broker. They can help you:

• Work out your borrowing power
• Compare all your lending options
• Get pre-approval on your home loan

This can put you in pole position when lockdown is over – so you can strike when the iron is hot.

What’s more, home loan turnaround times have been painfully slow this year, as the banks have been dealing with a significant volume of applications. So if you dally too long on readying your finances, you might find yourself still in the queue when the market gets competitive again.  

Want to get your finances ready? Schedule a no-obligation consultation with Alex to find out how we can help you with your home loan.

any people say experience is the best teacher. And you have to be prepared to make mistakes in life so you can learn. The problem is, making mistakes in property investment can be very costly – whether that’s buying the wrong property at the wrong price or taking on too much debt.  

The good news is that property investment is a popular way of building wealth in Australia. So there are plenty of inspiring investor stories out there with takeaways you can use from their success. 

Take our director, Alex Veljancevski’s story, for instance. Alongside being a multi-award winning mortgage broker, Alex is also a successful investor with eight income-generating properties in his portfolio.

According to Australian Taxation Office statistics, only 0.9% of property investors have six or more investment properties. So how did Alex do it?

How Alex started his wealth-building journey 

Alex’s story begins in 2006 when he was just 16. After spotting a gap in the market, he established an online electronics business which quickly became profitable.

Three years later, he’d saved up enough money to put down a 20% deposit on his first investment property. However, Alex was now a full-time university student with a part-time job. So he needed to find a property as close to cashflow positive as possible. After doing his research, he found a three-bedroom apartment in the Sydney suburb of Liverpool, for $342,500.  

The rent was $400 per week– giving him a rental yield of 6%. As the rent covered his principal-and-interest home loan repayments, he was only out of pocket for the utilities, council and strata bills.

Thanks to the strong rental yield and the ongoing success of his online business, Alex was able to buy his second investment property just six months later. This was a three-bed penthouse apartment in the same complex, priced at $361,000.

How Alex grew his portfolio from two properties to eight

In 2014, the two Liverpool properties were valued at $600,000 and $650,000 respectively. Alex refinanced the properties so he could access this increased equity, and add to his burgeoning portfolio. 

However, the Sydney property market was now in a sustained upswing. This meant rental yields had dropped as values shot up. So Alex decided to look further afield. He eventually settled on the Moreton Bay and Logan regions in south-east Queensland, as both areas boasted low vacancy rates and high rental yields. 

Alex bought six freestanding properties ranging from $260,000 to $370,000.

While these Queensland properties had only modest price growth in the initial years, Alex wasn’t worried. He knew from past experience that property is a long-term investment with peaks and troughs.

What’s more, most of his investment properties were cashflow-positive – bringing him in more rental income than they cost to hold. 

Following the recent property boom, Alex had the Queensland properties revalued. All were approximately 30-40% higher than the original purchase price.

The top 7 lessons Alex has learned

 Building a property portfolio is a dream few investors achieve. So what were the key lessons Alex learned along the way?

• Investing in property is a long-term game – so be patient
• It’s almost impossible to time the market – so focus instead on buying when you are in a financially sound position to do so
• Purchase property with strong rental yields – so your holding costs are manageable
• Buy properties in areas with increasing sales activity, and which are close to amenities and infrastructure – so you maximise your chances of capital growth
• Look for suburbs with low vacancy rates and a low supply of rental properties – so you maximise your chances of attracting tenants
• Have a financial safety net for unexpected expenses  – so you can always pay for emergency repairs
• Partner with the right professionals  – so your goals and strategies are aligned from day one

How a good broker can help you build a property portfolio

When you’re a property investor, the support of a good team of professionals is invaluable. And one of the key members of this team should be an expert mortgage broker, ideally with their own investment experience.

That’s because there’s much more to a broker’s job than just comparing interest rates. A good broker will also structure your loans in such a way that they work with, not against, your long-term investment goals.

For example, many lenders prefer it when multiple properties are used as security for an investment loan. This is known as cross-collateralisation and gives the lender greater control over your assets – which is great for the lender but dangerous for you.

A mortgage broker with investment experience like Eventus Financial can make sure all your loans are standalone – rather than linked to properties across your portfolio.

Then there are tax deductions, which you should maximise wherever possible. At Eventus Financial – which has been recognised as one of the best brokers in Sydney – we can work with your accountant to structure your loan in the most tax-efficient way possible. For example, we can create sub-loan accounts allowing your accountant to clearly identify what interest was charged on a particular property.

Schedule a no-obligation consultation with Alex to find out how Eventus Financial can help you with your property investment journey.

When you apply for a home loan, the lender will want to know how much you spend each month on living expenses such as food, transport, insurance and entertainment.

Not because the lender is being nosy. But because:

• It’s a legal requirement under the National Consumer Credit Protection Act 2009
• The lender is being prudent and wants to make sure you can afford to repay the loan

These laws are known as responsible legal obligations and mean your lender must take into account your average monthly living expenses when determining how much you can afford to borrow.

How do lenders calculate your living expenses?

The way lenders assess your living expenses frequently changes.

For example, in 2017, investment banking giant UBS estimated up to 80% of Australian home loans were approved using the household expenditure measure (HEM).

The HEM is a benchmark that estimates how much someone in your location is likely to spend based on several factors, including your income, family size and lifestyle.

However, the problem with benchmarks is they aren’t always an accurate reflection of an individual’s situation. So lenders also:

• Ask you to self-declare your expenditure (and verify this data more closely than they used to)
• Accept whichever number is higher – the HEM benchmark or your personal result

So what’s changing now? 

The LIXI standard  

Many lenders are changing the way they categorise certain living expenses, by not only using the HEM but also something known as the LIXI standard.

Previously, all living expenses fell inside the HEM; now, there are some categories that fall outside. Some of those ‘outside’ categories include:

• Strata and body corporate fees
• Private schooling and tuition fees
• Investment property expenses
• Insurance

The way lenders now assess insurance is a good example of the new environment.

Before the introduction of LIXI, all insurances were lumped together into a big ‘insurance’ category within the HEM. Now, insurances are grouped into two more refined categories outside the HEM:

• Car insurance and home insurance are categorised as ‘general insurance’
• Health insurance and life insurance are categorised as ‘personal insurance’

Why does this matter? 

The reason the move to LIXI matters is because it may affect how much you can borrow.

At least six months before you apply for a loan, it’s important you start keeping a detailed record of all your expenses. That way, lenders can calculate your borrowing power accurately. If you don’t have a proper grasp of your expenses, you might overstate expenses that fall outside the HEM (such as personal insurance), which would reduce your borrowing power.

As an added bonus, keeping a close eye on your living expenses will also help you identify any areas where you can save money.

Looking for the best mortgage broker in Sydney? Eventus Financial is a multi-award winning mortgage broker with over 285 five-star Google reviews. Schedule a no-obligation consultation with Alex to find out how we can help you with your home loan.