Episode 8: Listener Q&A Unveiled - Navigating Australian Real Estate: Land Tax, Investments, and Property Insights

In this episode of 'Q&A Unveiled,' we delve into the intricate world of Australian real estate, answering thought-provoking questions from our dedicated listener, Nathan Wilson.

This episode aims to unravel the complexities surrounding land tax variations across different Australian states, investment strategies, and profound property insights.

**Episode Highlights**

Decoding Land Tax Disparities:
Buyfair Property Group Director, Matt Ellul unpacks the nuances of land tax in various Australian states. From Queensland and Victoria to Western Australia, listeners will gain a comprehensive understanding of how these tax variations influence property investment decisions.

Strategic Investment Avenues:
Delving deeper, the podcast explores the optimal areas for investment and the reasons behind these choices. Whether it's the bustling urban landscapes or the promising regional territories, our experts weigh the pros and cons, guiding listeners like Nathan through the maze of investment options.

Property Investment Wisdom:
Offering invaluable insights, the episode covers essential knowledge for budding and seasoned property investors. From market trends to emerging opportunities, listeners will benefit from a wealth of information to navigate the ever-evolving property investment landscape.

Join us as we empower Nathan and our audience with the knowledge needed to make informed decisions in the dynamic realm of Australian real estate. 'Q&A Unveiled' peels back the layers of complexity, transforming perplexity into understanding.

*Disclaimer:
The podcast aims to provide informational content and should not be considered as professional financial or legal advice. Listeners are encouraged to consult with experts before making investment decisions.*

Transcript

Speaker 1 (00:01):

Welcome to the Property Now Podcast, where we talk all things property, investment and new homes with your host Matt eol. Speaker 2 (00:09):

Yes, there's bad debt. Yes, there's good debt. The good debt is not bad. It will never send you broke. Ever rich people rely on debt to expand because without debt it's pretty hard to expand. It's almost impossible. Speaker 1 (00:20):

If you want to learn more about what's happening in the market and how to benefit from property investment, then go no further. We dig deep as to why our sector is a key to building financial security and safety for your family. Never before has it been more important to understand the playing field than now. Speaker 2 (00:39):

And I would say this, this is probably going to raise some eyebrows with some people, but your family home is not an asset. It is a liability. It's taking money out of your pocket from a cashflow position. Speaker 1 (00:49):

So let's get on with the show. Happy listening and we'll see you on the other side. Speaker 2 (00:53):

Hello and welcome to the Property Now Podcast. I am your host Al, and it's a pleasure to be back. It's been a bit of a while, so I do apologise. I know that I haven't released a episode for probably eight weeks now. I would think things have been crazy. It's been a busy time, which is great, but I have let the ball slip on the podcast and I've had a few people reach out and say, what's going on? So here we are. We're back and it feels really good. We've got an interesting episode today. We've got some questions from a key listener who's reached out to me and said, Matty, come on mate. What's going on? When are we going to get the next episode? I've got stuff I want to learn about. So I've said Righto. Hit me up with a bunch of questions and we'll see if we can give you some answers that hopefully make some sense and help you.
(01:40)
So this episode is dedicated to Nathan Dogger Wilson. Thank you for following the show from the start, mate. It's greatly appreciated. And yeah, we've had some really quality feedback from listeners, which is really nice to hear. This is an educational show. We're not trying to sell anything, so hopefully the education that you get from this is helping you is helping you learn. So where are we? So we're on the 6th of November that I'm recording this. Hopefully we'll release it within a week and we are in an interesting time and space in the property world of Australia. It is definitely encouraging to see the RBA leave rates on hold for four months now at 4.1%. Unfortunately, we have got the inflation figures in from last month and they were higher than expected. So the release which will come out prior to this episode being launched is going to cause some, well, there's a lot of intrigue around what they're going to do.
(02:39)
I'm hoping that they stick fat with their current trend of keeping things on hold and not punishing the homeowner, but we'll have to see. We'll have to wait and see. We know that inflation is something that they love to jump onto and charge people more with their mortgage rates, but in saying that confidence sentiment is increasing considerably, we are seeing really good opportunities in the market and there is no doubt whatsoever coming from someone who speaks with property investors every day. There is no doubt whatsoever that people are feeling more comfortable, more confident, and they're feeling more willing to act and be active. So that's really encouraging. It makes my life easier and more enjoyable because when markets are very flat and slow and stagnant and not really turning over a, it's a lot of hard work for not many outcomes, and B, it gets a little bit boring.
(03:33)
We're here to help people acquire properties and that's what we're here to do and I've always sucked by the case of property, the best time to buy property is yesterday. So we always see it when the market is flat, it means there's generally good opportunities available for you to acquire. Be greedy when others are scared and be scared when others greedy is a quote that I really like. I can't remember who said it. I think it was Warren Buffett. Anyway, so we have a bunch of questions and I'm going to put myself on the spot a little bit and Nathan sent these through last night. I'm just going to really try and answer them to the best of my ability with the resources that I have access to within my head. Hopefully that's still valuable and I really want to encourage anyone who's listening to this episode, please shoot through questions.
(04:18)
If you've got questions around property investment topics or even just property in general and you want to learn and there's questions that you want to ask, please do send them through my email. My personal or professional email is Matt MA t@bayfairproperty.com au. So please send it through. I would love to answer questions to the best of my ability. If not, I can put you in contact with people who can answer them. So let's get going. Let's get cracking into Nathan's questions and in no particular order he's mentioned. But the first question, it's a doozy and I really do need to provide a disclaimer and state that I'm not an accountant, I'm not a financial planner, so I need to be clear with that. So any information that I provide is general in nature. So the first question is any tax considerations for individual states when investing?
(05:04)
I think Queensland potentially is changing or adding a property tax. So obviously each state has different tax thresholds when it comes to land tax and different rates that they charge. The majority of our business that we conduct is within Victoria. We're based in Victoria. So the land tax rules in Victoria are something that I do understand a little bit better than other states, but I believe what you're referring to with Queensland, we do sell a reasonable amount in Queensland too, is that they have changed the way that they assess the tax free threshold on land. I believe that their tax free threshold is on $600,000, so you're only taxed on land that you own as an investment and generally if it's under $600,000 in value in Queensland, you don't get taxed I believe. Don't quote me on that, but I'm pretty sure that's accurate. What's happening now is that people generally diversify to different states so they don't get taxed higher amounts in different states, but Queensland have changed the rules a little bit and what they're doing is they're basically assessing people's land holdings across the country.
(06:09)
So investment land holdings across the country and they will assess it at the country or at the value that people hold land across Australia from an investment standpoint, they will only tax you at a rate based on how much you own in Queensland and I dunno exactly what that is, but this is where they've changed their laws. It's quite intelligent if you ask me. It's also very cheeky, but governments are no doubt trying to recap a lot of lost money from the Covid pandemic, and this is one of the ways that they're doing that. So Victoria have also done, it's a bit different with how Victoria have done it. So generally the tax threshold for land ownership from an investment standpoint of Victoria's 300,000, they are now charging flat fee of $500 for land holdings between 50 to a hundred thousand and I believe above.
(07:01)
So it's a flat surcharge that they're going to charge, which is going to bring in a lot of revenue for them. And then Victoria, new South Wales are actually the most expensive states to my knowledge. Northern Territories the only state that doesn't charge land tax I believe, but there's a different rate. So how it works in Victoria, I believe it's from 300 to 500 or 300 to 600,000 in value. You get charged about 350 to $400 and then it's a percentage of the amount that's above that 300 to $600,000 range. So I think it's point something, 0.2%. So you might have a 300,000 or a $500,000 block, which will charge you $375 plus a small percentage of the amount that's above 300. It's something that you need to keep in mind, and yes, it does make a difference to your bottom line and investment's all about dollars and cents.
(07:53)
So we want to be mindful of this when we invest. Other things to keep in mind with that is stamp duty. Obviously different states have different stamp duty rules and percentages. For example, Victoria's quite a lot, it's about 4% of the purchase price. If you go to WA for example, I believe it's about 2%, maybe two and a half percent or something like that. And you've got to keep in mind that land values from a price point are lower in different states than others. So Victorian New South Wales, as we know, price of land in those areas are generally higher, so it does bring in more land tax and does bring in more stamp duty when you're purchasing these things. All really good stuff to keep in mind and a really good question to start off with. Thanks for throwing me a doozy. Hopefully I got some good points across with the answer.
(08:35)
Next question. I actually really love this question. I've been putting a lot of time and effort into creating a new range of property options that will tick off both components of this question and that question is capital growth or rental income. I love this question. It's a really valid question and something that we really need to consider across a number of different elements. Obviously the first element that I would always say is let's have a look at your position first. We will never advise someone on what kind of property strategy they should be going for without fully understanding their position, mainly from a financial standpoint and then also from a strategical standpoint, what is it that you are trying to achieve and how are we going to get you to achieving that as soon as we possibly can? The general traditional approach is to acquire properties that will increase in value from a capital growth standpoint.
(09:28)
That is where we generally see the largest returns in property. Obviously there's different ways that we can assess areas to understand what kind of capital growth outcomes we can try and expect. Obviously we can never predict the future. We can use historical data to assess areas and we can assess data that's available to us in the present time. And there's also a future forecasted data such as population growths, investment in infrastructure, and also the availability of land. I mean generally supply and demands. The key component that we use to assess areas, that's a tricky one. The reason that I've put a lot of time into generating new range of properties is because what we have seen for a long time now is if you look at Melbourne and Sydney for example, they're the fastest growing capital growth regions in the country because the most amount of people move to them.
(10:19)
That's one of the main reasons that that's the case. But generally the rental income is quite low partly because of how expensive property is here. So what we've done, for example is generate or design properties that are able to be enhanced from an income standpoint. So maximising the potential of a property and that might be that we design it in a way that we can house multiple tenants under the one roof and generate a much stronger rental income than a traditional property would provide for us. Now if we put that property into a growth area that we believe is going to grow in value over a period of time, generally we operate with a seven to 12 year doubling effect, then we have an asset that is being looked after much better from a cashflow standpoint because I think cashflow is absolutely critical. Debt will never send you broke, but cashflow will.
(11:07)
If you don't have the cashflow to hold an asset, then you're going to be in trouble, especially if you lose your job or something happens to and you can't work for a while, God forbid it does happen. We need to be able to hold these assets as long as possible. We actually sell properties such as NDIS, which is National Disability Investment Scheme, where the government funds the majority of the income on the property and we do these multi live homes that we've designed as well where essentially a tenant will get access to their own individual apartment under the roof of a traditional home. It's very cool. Tenants need it. We've got one of the worst rental crisis that we've had for a very long time in Australia. Our vacancy rates sit at about 0.7% to 1% across the country. It's about 0.6% In WA I believe.
(11:51)
I think it's 1.1% is the national average. So we don't have enough homes and that's a byproduct of our building numbers dropping considerably. Cost of building and delays in building have put people off building for a while. It's starting to come back now, which is great, and we've got a huge population drive coming into the country. So that puts pressure on availabilities of rental homes and we need to do something about it. So this is one of the things that we've done to contribute towards that. We can provide a home for three or four different tenants, sometimes even up to five or six in one house, as opposed to having to build five or six houses to get five or six tenants accommodation. That's one thing that we can do in short, after a long explanation. Nathan rental income is extremely important. As long as you are buying in an area that you believe has long-term growth potential and you have an income that's going to do justice to your outgoings, then I think a combination is key.
(12:46)
I think the old approach of either one or the other is a bit outdated and I don't believe in it as much as what I used to. So hope that helps areas that have gone through growth and will continue to grow. Look, it's an interesting one. The states have performed well. Most states have performed well this year. Australia has rebounded quite strong in the last 12 months. I think Sydney's capital growth rate for the year to date is about 10.8%, 11% around that kind of Mark Victoria has been quite slow, but I think is very positioned, very well positioned to rebound again quite strong. Western Australia is actually the second fastest growing state from a house value standpoint in the country. It sits at about 10.7%. It's only just behind Sydney for this year and it's the second most affordable city within Australia, only more expensive than Darwin, which is not an area that's accessible to a lot of people.
(13:39)
So it doesn't surprise me. All states have been strong. South Australia has been a real surprise packet. I think the affordability component for South Australia has been a big thing. The gap between South Australia and Victoria from a median house price now is actually nowhere near as big as what it used to be, but I think that that will change. I think that that gap will widen again, and Victoria is a really good area to be considering that coupled with Western Australia, I still think there's plenty of room to grow. It's still on the upward trend in the property cycle according to Heron and Todd White's. Property clock and affordability slashed or combined with strong rental yields is very appealing to investors. We actually sell a lot of property in Western Australia. Stamp duty rates are a lot less, as I mentioned earlier, and it just makes sense.
(14:22)
So my first property that I ever purchased was in Western Australia. I sold property there for 10 years, so I understand it quite well. I think it's a good area to be considering that sort of answers the state by state areas to consider investing in, which is the next question. Look, I always think that Victoria, Sydney, I mean Sydney's one of those regions that just continues to grow and grow in strength and that's so many people want to live there. However, it's really difficult to justify, especially for a mom and dad investor or a beginner investor because it's such a high outlay and such a low rental return. What we're trying to do in Victoria is obviously get you more affordable properties that rent for stronger amounts in high growth areas because that's where you'll see the biggest outcomes for a lot of people that are beginning the investment journey.
(15:08)
We're selling them Western Australia and Queensland, even South Australia a little bit because of those reasons you don't have to buy the best house as your first house. It's more about getting into the market. The best time to enter the market is yesterday and then growing upon that, creating equity in that first one and building upon that to get into more effects of Olympics on prices, Brizzy capital investment may help prices further. Yeah, absolutely. So I don't know the exact stats around this, but what I am aware of is that every city that has hosted the Olympic Games in the last, oh God, I think it's a hundred years, has experienced a substantial housing boom. Every single one. Obviously it draws massive attention, not only from a bums on seats, but eyes on activity. People build a connection. I remember watching the World Cup soccer in France when I was young.
(16:00)
I think it was 1998, and I was just drawn to France as a result because they had the World Cup there and I got to learn all of the cities that they played in, and I know those cities still to this day purely because I played the World Cup soccer game on Xbox or whatever it was back then, and I watched the World Cup and it was just a really good experience. So it's a similar effect with Olympics. Yes, there's huge capital investment. It costs governments massive amounts of capital to invest in these regions to support these games. And yeah, of course that drives people. It drives employment, it drives activity, it drives population and they need new developments, construction, all sorts of things that come with an Olympic games. It's a big event. Obviously it's only hosted every four years, and if you win an Olympic games to your area, it's a massive thing.
(16:48)
That's why it's such a big thing for governments when they pitch, they go above and beyond because it's a huge thing to win and they know that it comes with a lot of tax benefits, a lot of income benefits and capital raising benefits. So yeah, the short answer is yes, we would be very confident that Brizi will be a really good option, especially now for you to benefit in 10 years time or whenever it is. I think it's 2032 that they go that they play out the Olympics. Sorry, I'm reading the next question as I'm still finishing my answer on the first, I'm a man, I'm not good at multitasking. How do you go about buying interstate in relation to should you fly and check out the property and surrounds or hire an agent to check out on your behalf? Also doing building inspector pest reports on houses?
(17:32)
Any difference if it's new or established? I'll answer the last bit first. Yes, there is a difference When you build, the builder will generally provide an inspection. It's usually an independent inspection that comes at each stage of the building progress. There's six of them. You can hire your own. If you're not comfortable with the builder's inspection provider, that's totally fine. It will cost you money. I think it's two or three grand as a guide that will obviously differ in different states. And then your responsibility when buying an established home is on you. You need to put that as a condition in your contract, in your offer and acceptance, a pest inspection or building inspection on an established home, it's generally a bit more affordable. It's just one inspection. Can't quote the price off the top of my head. But yeah, of course it's worth doing, especially if you're buying an older property.
(18:17)
You don't want to be getting yourself into future headaches that you're not aware of. You want to be going into, especially if it's an investment, you want to be going into everything with eyes wide open and understanding of what potential risks there may be with acquiring that property. Now, obviously you take on risks when you invest, it's okay to go in and accept those risks. If you're comfortable with the information that's available at hand, don't sting it. Don't avoid paying you 300 bucks or 400 bucks or whatever the cost is to do it. I'm not sure what that is anymore. Don't avoid paying that amount of money so that you can save some money because in the long run, it can end up costing you a lot more than what it saves you by simply skipping it in the first place. As far as going and checking out different states, different regions, I don't think this is as essential as what it used to be.
(19:09)
Obviously there's so much information available on the internet these days. Even things like Google Maps will give you a fair bit of confidence, can give you a fair bit of confidence if you know what to look for. I mean, obviously we help people acquire properties in different states and my role when explaining the locations and the regions to those clients is to really explain those regions in great detail without actually jumping on a plane and taking people over there. Now, if you've got a want to go over there and see it first and absolutely do it, it's like the pest inspection or the building inspection. Don't skimp that because you're worried about spending a little bit of money. Treat it as an offset and go on a holiday and spend a few days away and go and have a look at the property. It also depends on who you're working with.
(19:52)
If you're buying it yourself or you are working with an agent, how well do you know them? How much do you trust them, how well do they know the areas that they're recommending? But as I said, things that you want to be looking at, the first thing that I do when I assess a region from an investment standpoint is I do go on Google Maps and I work out how much or what position that location is in from what we call greenfield, brownfield or infill. It's called different things in different states with the brand fill and infill. But essentially is it an up and coming area with lots of land that needs to be developed before it's established or is it an infill region that's established and operating at capacity? Essentially, we want to try and time this as well as possible. I'm not going to go into great detail as to how we do that just yet or just in this episode, but that's a really good way to start.
(20:41)
What infrastructure surrounding the area? Is there train stations, is there schools? Is there shopping precincts? Is there medical facilities? What's driving people to that area? Is it blue collar, white collar? Is there enough supporting population growth to that region? Because as I said, population growth is probably the most important component when assessing a property or a region for investment in my opinion, because more people moving to an area creates more competition and that puts pressure on prices both on land and on building or established homes. So what's driving people to it? Often when you see big investments in, could be private, could be government, might be air bases or it might be universities or these kinds of things. These attract not only employment to build them and to operate them, but also it might attract a whole heap of students. It might be overseas students, it might be local students, it might be interstate migration that's occurring because of these activities.
(21:35)
You look at Western Australia, it's got a massive mining presence. So if there's huge mining construction jobs happening, they're going to need people. So there's probably going to be an upward tick in property values for a period of time. Be careful with that one because if an area is reliant on one or two things to drive the growth of it, then if that drops off, then you're in trouble. And that has happened in those regional areas before. So we want to buy in capital growth regions most of the time. So I hope that helps. It's really case by case and personal preference, but if you're working with someone who knows how to explain those regions, as I said, most people that I advise on locations interstate don't go and see them, but it's case by case. What's next? I think we've got a couple more considerations tax wise in buying new houses versus established and other cost considerations like more maintenance, et cetera.
(22:24)
Really good question. I've really enjoyed all of your questions. Doggo. Very impressive, mate. One of the main reasons why we are predominantly pro new property is because of the tax advantages that do come with those properties. Predominantly the main way that we achieve a better tax outcome with a new property as opposed to an old property is predominantly through depreciation. When you acquire a house to rent it out, it becomes an income producing asset, which means that it's an investment and generally the value of the house will actually go down in value as it gets older. Okay, it's the land that goes up in value. So as a new property that is a write-off, that's a tax write-off that the government allows you to offset from a tax standpoint and it's much more effective on a newer property than it is on an old property.
(23:11)
Now, you can still claim and depreciations on older properties. It just depends on how well they are. It depends on whether they've had renovations. Generally it's two and a half percent of the structural value. So if you spend $300,000 on a build, then it's two and a half percent of that value, which is what? Seven a half thousand I believe you can offset for 40 years. So you are offsetting the whole value of that new property. Now, that's a massive advantage from a tax standpoint. The end of the year, the end of the financial year, you're generating a tax return that's generally a lot healthier than what will with an older property. You then also have fixtures and fittings. There's diminishing values, different ways to assess it. The way to do this is by getting a depreciation report and then submitting it to your accountant.
(23:56)
We are actually about to release a portfolio software where you can track your property portfolio, which is going to be very cool. I'm excited to release it. But things like curtains, carpets, hot water systems, dishwashers, these kind of things, you can offset generally over about three to eight years. So obviously the newer they are, the more that you can benefit from a tax standpoint in older properties, you're not going to get that benefit. So it does make a big difference. With newer properties, obviously you have the appeal of that new home feel. The newer, the home generally, the more appealing it's going to be to a tenant also to someone that's looking to purchase it. If you need to sell it for any reason. Generally we try and avoid selling the properties, especially if we've got a good cashflow on it. But the older the property, the less leverage you'll get from a tax standpoint and it does add up.
(24:42)
You might have a job that's heavily relying on commissions and you have a poor year. It will put pressure on your ability to hold that asset and that's not what we want. We want to maximise the returns. So new property all the way for me, Nathan, it comes with many advantages, obviously, builder warranties and whatnot. Yes, of course you need to be confident that the builder is in a strong position. That's a tricky one to assess. We actually vet all of our builders before recommending them, quite often seeing their financial statements, which is not something that they'll show the everyday Joe Blow. But yeah, so that's one of the advantages of working with people like ourselves. We want to be very confident and comfortable that you are getting yourself into something that's got every chance of being a really strong outcome. So that's all of the questions that Nathan has asked.
(25:26)
I really, really enjoyed answering them. Hopefully you got some value out of the answers that I provided. As I mentioned earlier in the episode, please shoot through questions. Ideally if you can shoot through a few questions at a time, what I'll do for the next episode or maybe a couple episodes down the track is yeah, I'll go through them and answer them for people. The next episode that we're doing is going to be on our multi live range, which is when I mentioned briefly before, higher income properties, how to achieve higher income on property investments in high growth regions. We have a rent guarantee and a land lease back, which is an interesting benefit that you can take advantage of. We can also now help people use their super to invest in a personal property, which has huge advantages. It does come with terms and conditions like anything else in this world, but something well worth exploring if you've got some super and you want to utilise that super and capitalise on that prior to retiring in what might be 10, 20 or 30 years for you.
(26:23)
And this multi live range also comes with the National Disability Investment Scheme Homes that we are now representing. We have all of the resources and services under the one roof now to assist you in not only assessing whether or not these properties could be a good fit, but also in helping you actually get into one of these properties if you feel comfortable that it's what you want to do. For me, it's been about half an hour, which is a good time, I feel to give your ears a rest from my voice. Hopefully you've enjoyed the show. It feels good to be back. I feel like a disc jockey. Thank you very much for your time. Thank you very much for listening and for people's support of this show. It's been overwhelming the amount of listeners that we've had and the amount of kind gestures and compliments that we've had on the content that's being provided. So all the best as always, be brave. Go above and beyond and back yourself. Investing is a wonderful thing, but obviously it can be a little bit scary. So the more support and resources you can have on your hand or on your side, the more chances of success occurring. So thank you very much. Take care and good luck tipping a winner at the Melbourne Cup, even though this episode will come out after that horse run is race. So thank you very much. Take care. Speaker 1 (27:30):

Thanks for listening to The Property Now podcast with Matt elo. We hope you learned something valuable and enjoyed the show. Should you wish to reach out to us, you can do so by calling 1 302 8 9 3 2 4 or you're welcome to email matt@hellobayfairproperty.com au and he'll be more than happy to help. However he can. Have a great