Ask AI
Help Center
How can we help? 👋
All Categories
Strategy
Brief Creation, Returns and Research.

Brief Creation, Returns and Research.

This article offers insights into effective brief creation, handling returns, and conducting research efficiently.

FAQs

FAQ - Brief Creation

I have a budget of 1.2M and I’m not sure if I should split it up into one purchase or two, what would you recommend? (Assuming no foundation properties)
  • Due to the large budget, we have choices for what we can buy
  • We want to avoid the extremes, we don’t want to have ten properties as that means more unnecessary work to look after all of them, but we also don’t want to purchase properties that are too expensive and don’t give us a good yield
  • Foundation v Momentum
      1. So as you saw in the video Arjun sent to you prior to the call, we have three categories of properties - foundation, momentum and passive
        1. Foundation properties are usually more comfortable for people starting their portfolio to build confidence, while momentum properties are slightly cheaper and typically a second phase of investing
        2. Foundation properties allow you to gain confidence in investing, with a larger-priced asset typically in the major capital city markets or large satellite cities, to give you peace of mind knowing you have assets working in a major market
        3. Foundation assets allow our big upfront capital to be put into an asset to compound, reducing the complexity of managing multiple assets and giving you confidence in the assets you’re starting with
        4. Momentum properties have slightly better yields and cheaper price points and also allow you to diversify your portfolio into more markets
        5. As much as we would love to charge you double the fee, we want you to make the choice and not feel pressured
        6. The more traditional path is to purchase foundation properties and then we have the rest of your journey to move to momentum properties, this naturally happens as we go on the journey with our borrowing capacity progressively being restricted, but we also see some investors just go straight to momentum assets
        7. Is this what you feel comfortable with?
  • There also isn’t a big difference in borrowing capacity, when we compare two $600k assets to a $1.2m asset, there’s about a $300 difference in rent. Lenders don’t take all of that rent, only 80% of the income so that gives you a difference of about $75k in borrowing capacity, which won’t allow us to get into another asset
  • Then we have the freedom of looking at multiple markets and options that are best for you
  • Regarding splitting up capital we can do it two ways
      1. A hard rule of splitting the budget into specific price points
      1. A soft rule of being a bit more flexible, with purchase varying ~100k from our price point and then adjusting the budget for our next purchase, ensuring we hit the maximum borrowing capacity and get the highest amount of capital working in the market
The cashflows look really bad as I’m using equity and basically lending at a 105% LVR?
  • What you have to understand is that you’re making money by signing three pieces of paper. One to pull out equity, one to get a new loan and one to sign the contract of sale
  • Then you get a huge asset, growing in value which will be cash flow positive in the future, so there has to be some cons right?
  • That’s the cashflow at the start, it is higher but we end up with an asset growing in rents, growing in equity and fully tax deductible interest. Over time this will ease the expenses and be worth it in the end
How does an asset within SMSF differ to an asset in our personal name?
  • Within SMSF, there are certain restrictions that are placed when we borrow money to purchase property, this arrangement is called a Limited Recourse Borrowing Arrangement (LRBA).
  • In this arrangement, borrowers are not allowed to borrow funds to develop or renovate properties
  • Thus what we target as an asset is a low-maintenance property that needs little work, something we can just rent out straight away or with minimal work
  • We also want a really strong growth asset that will provide us with a strong capital return, as within Super, the environment is quite favourable in terms of tax
  • So it does make it a lot more viable to potentially sell after a growth cycle, and then redeploy the funds into another strong asset later down the line
  • Aside from being low maintenance, most of the other aspects are the same!
How many clients do you have, won’t I be waiting at the back of a line?
  • The list is constantly changing in numbers and we don’t have a large amount over overlapping briefs
  • Many investors will be looking into different cities, renovation requirements, rental yields and strategies and these all allow us to have minimal overlap in briefs
  • This Is why I provided you an estimated time range that considers all factors. Your brief, market supply and our client base.
  • In the event there is a property that matches two briefs, then it will naturally go to the client who has been searching for longer to be fair to all our clients
What if two clients have the same brief?
  • We usually still can purchase within the 2-4 month timeframe
  • In the rare scenario where two clients have the same brief, we wait for the client that signed up first to complete their purchase and then move on to the next
  • All purchases tick the boxes of our due diligence, your requirements and only present approved properties to one client at a time
  • We operate on a first in first out model and we only present a property to one client at a time and not making it a frenzy to many in our own client base, hence why there probably won’t be many shared in the first month of our search
Why should I consider a second wind market?
  • In the first phase of a second wind market, you’re picking them up before a run similar to an early adopter, at a time where yields are rapidly increasing and growth is coming but might require patience (12-18 months) but we have opportunity to purchase below market value
  • In the second phase of a second wind market, there is intense heat in the market and the run can be quite prominent in terms of growth
  • However, both hotspot and second wind growth can last from 2-7 years, we have seen many times where second wind markets last just as long such as Brisbane from its hotspot growth in 2020 and second wind growth in 2023 and Sydney in its hotspot growth from 2013-2017 and second wind growth in 2020-2022
  • We currently see this as some of the higher-priced markets have been the weakest in the past few years
  • We have seen these markets have long term averages higher than average and we expect the length of the growth cycle to be healthy like Brisbane and Gold Coast
  • Once these interest rates change, these areas will be the ones more comfortable to hold and people will flock there
  • If they have properties already, also talk to the benefits of diversity, and the concept of ‘portfolio construction’
  • MELBOURNE + REGIONAL VICTORIA 2024
  • These markets have seen growth (regionals not VIC), but we are seeing a buyer's market now which we believe is emerging into a new cycle
  • We can see the yields rapidly growing, vacancies remaining low, which leads to price growth and as more investors become aware of this and interest rates come down, confidence will emerge
      1. Especially in Victoria, CommSec recently released a report stating VIC has had strong economic growth with a recovery in play
  • Although yields may be lower, we can see that they are rapidly rising and what we need to consider is that the yield on purchase will increase and your 3.6% yield will quickly grow to 4% with prices stabilising
      1. This is an especially good yield in Melbourne, basically yields closing in on Adelaide and Brisbane in Melbournes outer areas which is unheard of
      1. Show the actual per week difference between a 0.25% yield increase, considering tax and showing it’s only $x per week, then show how interest rates are making the big difference in cash flow
  • We see the cycle position outweighing the rental growth per week
  • This played out in Queensland with the additional insurance costs and in Perth with mining, prices stayed flat, vacancies dropped and the cycle played out
  • An example of this is the Sydney market from 2013 to 2017, half the loans were investment loans, yields were even lower and investor finance peaked but prices doubled
So which market should I target?
  • Going through all the options, we can target another early growth market just as before, if it’s an early adopter it could take a bit of time to see that price pressure reflecting on prices
  • Or we have our hotspot markets which are seeing immediate price growth with the high price pressure in the market
  • With second winds, they are also a great option as we get the opportunity to diversify, while they may have slightly lower yields, when considering the costs that are higher in other markets they’re not that significant you might be looking at a couple extra coffees per week
      1. Also, we’re seeing strong rental pressure in second wind markets so it’s important to look at what rent will be in the future, not just now at a point in time
      1. We also have negotiation upside in these cooler markets, where we can pick up an immediate capital gain
  • Overall these are all great markets with good potential, we can keep our options open and evaluate on a case-by-case basis?
Can you break your due diligence rules and purchase a property with a pool?
  • Technically we can as long as it’s approved by you and you understand the following
      1. There is typically a lower pool of renters that rent places with pools, this will reduce your tenant demand and reflect on the rent and yield you receive
      1. Pool maintenance is an expense on top that we can’t forecast as we don’t have experience with them
      1. In the event we have to sell the property, some investors and owner occupiers will also avoid your place due to the pool which would flow on to having less competition and sales price suffering
  • If you are fine with all of that, we can review properties with pools for you

FAQ - Returns and research

Between hot spots and second-wind markets, which is likely to deliver more growth over the next 5 & 10 years?

Standardised response:

There’s no formula that predicts exact growth long-term. What we can do with high confidence is forecast the next 12 months. Growth cycles in markets, whether three, five, seven, or ten years, only continue growing when the fundamentals are evident: low supply, strong activity, price momentum, and market confidence. When these are present, growth continues.

For example, Tasmania saw a growth cycle from 2015 for about seven years. Sydney had a five-year cycle from 2012 to 2017. Some cycles last two or three years, others eight or more, depending on the fundamentals.

We focus on identifying those fundamentals and using them to forecast the next 12 months with high accuracy and certainty. Longer-term, we monitor markets constantly to see how conditions change.

Specifically with hotspot and second-wind markets, both are expected to grow healthily. Diversifying into both makes sense because even if one market is slowing while another is accelerating, overall growth can be similar. For instance, one market could go up by 5%, 7%, 10%, 12% while another moves by 10%, 12%, 7%, 5% but they both achieve strong cumulative growth.

Your portfolio would benefit from including the mentioned locations. Both markets show strong 12-month forecasts. Once you secure one property, we review annually and explore diversifying into the other. History shows that markets often continue growing beyond what many people predict: Perth, Brisbane, Townsville, Hobart, and Adelaide have all outperformed many publicly expressed expectations.

The three certainties we can offer:

  • Growth cycles exist because fundamentals exist.
  • We can give a high-confidence 12-month forecast.
  • Once you acquire a property, ongoing monitoring allows diversification and captures continued growth.

Based on your portfolio and budget, these areas make the most sense for your next investment.

What kind of returns can we expect?
  • From our previous results, we have outperformed the market for the past three years by at least 29% and upto 49%
  • Early adopter - Most extended growth as it’s early in its growth cycle with the least indicators, as it has the least indicators that means not everything is exactly lining up but it’s moving in that direction and naturally, that means it has less heat and might take a bit of time to have strong performance, we would see the performance at slightly below average or average relative to the market (3-6%)
  • Hotspot - Hot market and high competition meaning strong growth guaranteed, but also means that we’re likely to miss out a few times before we secure one. All indicators showing strong signs so we would have above average performance (6%-12%+)
  • Second wind - Another round of growth after the hotspot period, can happen multiple times after a growth cycle, and has the tendency to not be as long, but not always the case. Examples of this are Sydney in 2020 and Brisbane now in 2023, big lengthy second wind market that potentially are outperforming hotspot markets. Above average performance (6%-12%+)
  • In your portfolio planning tool we used conservative growth rates to get you to your goal, 5% p.a. With our research it’s expected to outperform this mark over the years ahead
  • Growth cycles can last for a very long period and it’s not an exact science
      1. Hobart started in 2016 and went until mid-2022, while everyone said it would be over after three years
      1. Melbourne/Sydney grew from 2013 to 2017
      1. Adelaide and Brisbane have started in 2020 and we still see strong growth ahead
What research do we do to determine our approved areas?
  • We have our research split into four categories
      1. Cycle stage (Market categorisation document)
      1. Forecasting - Using AI, data and statistical analysis on the variables that create price growth
      1. Pressure analysis based on static data (Macro Research Reports)
      1. Trend analysis - Manual interpretation of the data trends
How do you decide on the suburbs that are approved?
  • To answer this question we have to start from the top of how we do our analysis
  • It’s extremely rare that a city has long-term overperformers or underperformers, once an area is more desirable, it’s price gets factored into history
      1. e.g. East side of sydney will always be more expensive and at a higher price point
      1. Once this is factored in as superior, the growth rates do not separate and we’ve seen this from our research
      1. Thus they don’t outperform by much of a margin, when we’re talking 10-20 years
  • Therefore we look for short-term variance in price quartiles that are shifting, which is where we can outperform in short-medium price growth
      1. In Melbourne, we can see that premium market have recovered a bit more
      1. Lower clusters are still recovering a bit
      1. We usually see this in the start of a growth cycle, high price moves first, then ripples out
      1. Bit of a reverse effect in the Perth, ADL and Brissy boom but that was unique, but hasn’t been the case in Melb
  • Then we look at filtering price points and decent yields, where we see the areas that we eliminate because prices and yields are inversely correlated
      1. We typically set a min 4% yield to ensure we can sustainably grow a portfolio, but stretching this to a low of 3.6% for Melb because we can see strong rental growth and yield on purchase probably hitting 4% after not long
  • Then looking at the SA3s we assess the core metrics
      1. Where are sales volumes picking up - sign of demand
      1. Speed to sell - DOM - not a huge factor in early adopters, usually more in hotspot markets, increase shows a buyers market
      1. Inventory - typical for early adopters to have higher inventory at the more affordable markets - people are unsure on the city, earlier in cycle so more stock available, people are a bit more doubtful on the outer areas because they are skeptical on the city as a whole so they feel they should go to the nicer areas
        1. But eliminate outliers because we can e.g. Melton high inventory, high building approvals, high DOM, high vacancy, everything is just pointing in a bad direction
        2. But exception might be Wyndham and Cardinia, high yields, Wyndham has inventory above 4, but it’s decreasing faster and DOM is increasing but less discounting is happening, vacancy rates close to 1 than 2, and rents increasing at 17% which is very high (yield growth with prices still stabilising) and then have listing declining
        3. So it might not be the best but it’s still looking good - likely just to take longer in growth
  • We do overlay this on our machine learning forecasts
  • Then lastly we do satellite reviews of the area, local due diligence with contacts in the area, then checking we have statistically reliable data
  • And then for the suburbs we look at making sure the trends are going the right way, but usually the data can be a bit more volatile on suburbs so it’s only if one variable is way off
  • Due diligence knocking out 95-98% of properties in these approved areas
  • WRAP UP WITH RECOMMENDED AREAS IF REQUIRED FOR THE CLIENT WHO NEEDS TO BE ADVISED
Why don’t you buy new houses?
  • When considering new vs existing builds for property, an important factor is the land-to-asset ratio
  • Capital growth occurs on the land and not the property, so when you buy a new property, you are largely paying for the property
  • As an example:
      1. New property for $500k - Land value: 150k - Building value: 350k
      1. Existing property for $500k - Land value: 350k - Building value: 150k
      1. At a 5% return, the existing property would increase by $10k more in the first year, and this difference would increase at a compound rate
      1. This far exceeds any grant or maintenance cost that you may incur
  • The other big factor is that new houses are typically in development areas with huge incoming supply
Isn’t it concerning with so much available land and building approvals?
  • We've researched thoroughly on available land and building approvals and how that affects future performance and have found that as an isolated metric, it doesn't harm future capital growth.
  • When we consider available land and new supply, the reality is that the new builds are all priced relatively with their smaller block sizes, build costs, etc. Price is all factored into these areas and properties so it doesn’t just drop the prices of the other properties in the area.
  • When we look at supply, we look at it holistically, with existing rental supply, existing established supply for sale and new build supply
  • For example, established for sale supply which is existing houses in that suburb can be so low (which is the case here) that new builds cannot shift that number
  • The issue is more about purchasing new properties in these areas, where we see weak price growth because of the money you’re putting into the build, so it’s an asset selection risk rather than a location risk
  • We have to make sure we analyse markets holistically rather than looking at one variable. Similarly, it’s like how we can’t say just because interest rates rise that property prices will fall, clearly that hasn’t happened and it’s too simplistic in logic to rationalise it that way
How do we consider the level of amenities (schools, public transport, shopping, parks)?
  • From our research, these factors don’t have an impact on capital growth. More just a bonus, only bus stops being too close to the property are rejected
Do we consider travel time proximity to work hubs?
  • No, our research shows no correlation to capital growth but we can cater to distance to CBD if that is what you would prefer, just keeping in mind that budget will need to be higher
Do we prioritise low-density council zoning?
  • Yes, for most suburbs, naturally found in regional areas
Do we also look at not being under flight paths?
  • Yes, that’s part of the checks
Is neighbourhood quality usually judged through PM?
  • Usually yes with our contacts, when they do inspections they give feedback on the local area as they have a deep understanding
  • We also have field trips where we visit and understand the neighbourhood
Do we avoid sloping land?
  • Yes, but it depends on the area. If it’s naturally a very slopey area it’s not a hard no. We usually avoid ones with retaining walls due to expenses
Do we avoid T junctions?
  • Yes, we usually reject these
Is dwelling orientation considered at all (north-facing)?
  • No, but we can consider it if the client wants
Do we consider the most popular house type? E.g. 3 beds over 4 in certain suburbs
  • No, we see the same performance for below-median and high-end configurations. However, we never look at 2 bedroom properties, even if it’s a 2 bed plus study
Isn’t this regional town too small and risky?
  • We have a minimum requirement of circa 20k for population size, if it’s commutable to a larger city then we are also okay with it
  • From our research we’re happy with this size in terms of risk
  • We ensure that these cities are diverse in their economy, you could have much larger cities but much less diverse economies like mining towns which are much higher risk
  • The reason why is because we need the data to be statistically significant to look at trends and that’s why we have this requirement, we haven’t seen population size have any correlation with less growth
  • This is because supply and demand is all relative, you can have 10 houses for sale but if 20 people want to buy, prices will rise
How does public housing affect price growth?
  • Public housing doesn’t mean a suburb as a whole won’t perform well, but at a property level we avoid areas that have public housing over 20% to ensure that we have success from the rental campaign
  • Sales also tend to take longer in areas with high public housing which can lead to impacts on pricing
Can I have more information on the city?
  • Position the conversation in a way that the report is the source of truth and all the information required, more information doesn’t mean better results if the information isn’t valuable
  • Report has demographic, economic and future plans are shown by the infrastructure projects
  • Example is forecasted population growth, we’re always way ahead of the forecasts and when we look at population growth as a factor for capital growth, the research shows there is no correlation
What stands out about this suburb/SA3?
  • When we look at suburbs and SA3s, it’s more about when they are good to buy and why we exclude certain suburbs or SA3s
  • There is an equilibrium between suburbs, you can’t have one suburb double and the other one stay the same because people will find value in the other one
  • So what we do is we exclude suburbs/SA3s that are bad, rather than looking for this ‘best suburb or best SA3’ that doesn’t exist
  • Because once an area has suburb has factored in it’s price, it stays that way (Example of Campbelltown being 3x cheaper than Newtown)
  • Firstly we filter by SA3 areas where the rental yields are not decent, that typically removes the inner and middle markets
  • Then we have exclusions of SA3s where there are a huge amount of due diligence detractors, such as Melton in Melbourne where all properties are recently built and it’s basically it’s own region
  • Then we filter further with due diligence like being right on the airport and highly affected natural disasters
  • From there, that’s when we look at SA3 and suburb data to ensure that the trends are moving the right way, such as their vacancy rates, price pressure, so that it’s in line with the greater city
  • So what we’re looking to avoid, are suburbs/SA3s that have issues in their data
  • Examples are huge swings in vacancy rates, or elevated vacancy rates, too low owner occupier rates
  • From there we have our refined list of approved suburbs which will perform well as the broader city performs well, while in some ways experiencing a ‘ripple effect’ at that point of time when we purchase because we’re choosing the suburb when it’s moving in the right direction in line with the rest of the city
These look like cookie cutter houses?
  • There are suburbs all across Australia that have these types of homes
  • What’s important is that we look at the data, high sales volume meaning people like them and there is demand
  • While we can look to trendy suburbs with unique features as something you may like, there are other people who would absolutely hate to live in these places with small room, lots of maintenance, ‘unique or weird’ features
  • Meaning that in every market, there are going to be houses that people view as undesirable such as yourself looking at this house, but another person will be looking at this modern home and see it as a dream home
  • When we compare all these markets, there is no difference in performance because there is local demand for these types of houses, from people who want the big house, modern designs and low maintenance
  • These assets perform just as well because they attract the general public in the area which is what we wait to aim for to maximise appeal, if you were to purchase a small victorian style house here, that would underperform as an outlier that the general public would not be keen on
This property doesn’t have a high land-to-asset ratio, why should I consider this?
  • Land to asset ratio doesn't make a difference from our back testing of data
  • As an example, when we compare the places of the inner city we see that the house takes up almost the entire small block and compare it to an outer acreage where it's all land and the house is worth around 5% of the total value, we can see that the inner areas perform better so we can’t use this blanket rule of more land = better
  • So it's much more about understanding within the local area what is in demand and popular
  • In reality, each area has certain types of popular properties because there is demand
  • When a developer builds a bunch of new houses, they're built because they scoped for underlying demand, realised it was there, and then built the houses
  • It just comes down more to preference, when we compare all these markets, there is no difference in performance because there is local demand for these types of houses, from people who want the big house, modern designs and low maintenance, which comes with smaller land and thus lower land-to-asset ratios
  • These assets perform just as well because they attract the general public in the area which is what we wait to aim for to maximise appeal, if you were to purchase a small victorian style house here on a big block, that would underperform as an outlier that the general public would not be keen on
  • We do however have a limit of 375sqm at the moment, this will probably decrease as time goes on as smaller blocks get more normal with time
  • A consideration is that supply for newer areas do fluctuate a bit more and that causes a bit more wave in price movement, but the long-term outcome is the same
Did this answer your question?
😞
😐
🤩
Contact Us