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The Finance Show With Joe
Why should finance be boring? Joseph and Michael cut through the jargon by talking property, money, and entrepreneurship with real stories, laughs, and special guests.
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The Finance Show With Joe
Where Australia's Property Debt Really Is & How Debt Can Be Good
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Damien joins us in this episode, the longest-standing member of It's Simple Finance, who stumbled into the world of brokering after an unexpected encounter at a wedding.
With Damien, we explore Sydney's wealthiest suburbs to uncover the concept of "good debt" and how strategic financial planning with accountants can maximize tax efficiency and bolster property portfolios.
Shifting our lens to the broader economic landscape, we ponder the Reserve Bank of Australia's potential interest rate decisions, particularly given the festive season's approach. Reflecting on the property boom of 2020-2021, we voice concerns about the current inflationary pressures and their impact on consumer spending. Tune in to hear our take on these pressing economic issues and the potential shifts in consumer behaviour as Australians navigate this complex financial terrain.
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DISCLAIMER This podcast contains general financial information only. That means the information does not take into account your objectives, financial situation, or needs. Because of that, you should consider if the information is appropriate to you and your needs before acting on it.
Welcome to the Finance Show with Joe. He's Joe. I'm just some schmo and we have a very special guest today, Damien.
Speaker 2So I've got to bring out a little bit of my Western Sydney cuss right now, because we've got a very, very special guest on here. What's?
Speaker 3up, cuss how you doing Good.
Speaker 2Cuss yourself. Longest tenured member of it's Simple. Currently. Welcome to the show. Pleasure to be here, boys. How are we going Waiting to have you on here for a long time? Just tell the audience of our 15 listeners just exactly how you came around to becoming a member of it's Simple. It's a pretty funny story.
Speaker 3So it all happened last year, in about, I want to say, june, when it was good old Michael Mankin's wedding. I met Joey that night and the first thing he said to me is nice to meet you. When are you joining? It's Simple, and I was like, oh, okay, and I was like, oh okay, look man, I'm going to Europe. But when I get back, like let's have a serious conversation about it, came back, spoke to Joey and Michael again and I was off to the races in October. And here we are a year later.
Speaker 2So what made you so interested in becoming a broker? I?
Speaker 3always wanted to find a job where, at the forefront of everything, it's helping people. So I did dive into a couple other industries. I looked at recruitment and things like that. Didn't really work out but I found myself in the bank. So I was at Westpac Corporate Lending for about two years, saw the ins and outs of the industry, how it all worked for about two years. Saw the ins and outs of the industry, how it all worked, how us as people in the bank can actually benefit people. But then I was introduced to the idea of brokering and loans and mortgages and it kind of infused both of the two into one. So obviously, making good money obviously is always a forefront, because making good money means more possibilities in life and your opportunities open up and secondly, being able to help people. Giving that phone call to a customer when you tell them the loan has settled is one of the best feelings in the world. So I just want to keep cranking that and see how many more we can settle and where we can take it.
Speaker 2So take us through the brokering process. Take us through getting somebody conditionally approved, getting somebody formally approved, getting somebody to actually settle. There's an attraction to that. I want to say there's a dopamine effect when each level is surpassed. Would you agree with me?
Speaker 3It's a long journey. So, like, obviously, a lot of brokers like to say it's a customer journey. Right, you get them through the front door first. These are people that you might not ever have spoken to before, they might not be friends or family, right, they're just an individual that has come to you because they have a goal in mind and they want to get something done. And then that's when the real process starts. You start getting the docs. The docs might take a while. You start massaging that deal a bit. You've got to let them know that, look, you can be comfortable with me, we're going to get this done for you.
Speaker 3There's a lot of hurdles across the way. Sometimes it might not be the client, it's actually the lender asking for specific things. There's a lot of back and forth, sometimes depending on who we're going to and submitting the deal with. Sometimes there's frustrations and stuff. But at the end of it, just at that tunnel, you can see the glimmer of a little bit of light and you know you're almost there. So now you're at a conditional. So now you're going back to the customer again. Hey, I need this, that, et cetera. Why do you need this? Why do you need that? We need it for the lender. We're almost there. Then you get the unconditional and it's like, okay, cool, we're waiting on a valuation. Now Valuation comes in strong. That's when you get a bit excited, because now all you're waiting for is that settlement date and then from there it's just a green light Through your experience, you've been exposed to a lot of debt.
Speaker 2And when I say you've been exposed to a lot of debt, when you're at Westpac Corporate specifically, you were dealing with clients like Amazon, coles, woolworths Group. What levels of debt were you seeing with those groups?
Speaker 3We're seeing facilities of over 100 mil, usually minimum per customer. Coles will draw down a loan for a facility 300 mil one day. It's paid out the next day.
Speaker 3So they're only leasing it for a day, right? Amazon had rotating facilities per month where we're lending out this amount, x amount of money. The amounts of interest you were seeing on the loan were insane, right? So the same amount of interest that a customer is paying over the lifetime of 30 years, these major corporations are paying within days. The playing field is so different. Right, by coming into the home loan industry, people are dealing with loans over the course of 30 years, right? So it's like figuring out how to how to manage that debt and with saying debt, this is good debt, right? Yeah, so when you get a home home loan, you're creating a long-term future for yourself and you also. You can use that debt to leverage, cash out equity, build your portfolio. Right? Everyone wants freedom at the end of the day, and if you do it correctly, you leverage the debt correctly and you're making enough money to service a loan, there's chances that you might end up with five to 10 properties within a very short span.
Speaker 2The property market in Australia. We've talked about this at length, but it always seems to be growing, regardless of the small lulls that Victoria is currently going through. Even New South Wales. New South Wales is dipping at the moment in quite a few areas, but what I've noticed is debt is necessary. You could do everything on your own. You're not going to grow at the rate that you want to, but when you can utilize debt and you can utilize it effectively, that is when you can truly start to see possibility in your life. So I want to go back to what you said about Kohl's and Amazon. You know they would get $100 million facility, $300 million facility, and pay it off in a couple of days, and then you're also able to see how businesses are able to grow and maintain their staff, their bonuses, their you know, the high corporate structure. Am I correct in saying?
Speaker 3that, yeah, correct. So sometimes you look at the numbers, right. For example, I want to bring up calls, and this is all public information. Um, they had a statistic put out there that, on average, per australian calls were making about $56 profit per Australian, and I think it was 2022, they had a reported revenue of about $40.7 billion Jesus In revenue in a year. So you can imagine how much money they're making right and how much is in circulation, even at the corporate level, you could see how debts are good in order to be able to grow.
Speaker 2That kind of leads us to our topic of the day. You know the areas with the highest amount of debt in Australia, and this is household debt. I'm not talking about corporate debt corporates, all that kind of stuff.
Speaker 2These are specifically the suburbs. So in the eastern suburbs we have Double Bay coming in first with 3.7 mil, bellevue Hill coming in second with 3.6 mil, darling Point with 3.5, dover Heights with 3.3 mil and then Rose Bay with 2.5 mil. Now what do we notice about all of those areas Wealthy as suburbs? They are the highest net worth areas in Australia. Yeah, you know, per capita. It's just known. That's where all the doctors live, that's where all the judges live, okay.
Speaker 1We talk about this. I've said it time and time again you drive through Double.
Exploring Sydney's Wealthiest Suburbs
Speaker 2Bay. It's where all the judges live. Okay, we talk about this. I've said it time and time again.
Speaker 2You drive through Double Bay, bellevue Hill, all those areas, there's not a single speed camera in sight. And the specific reason for that, you know, there's certain people that are sitting in certain places that just kind of make sure you know what. We're not going to put a speed camera or a safety camera here, we're going to make sure it's over an edge cliff. And if you drive through edge cliff, there's actually two. I don't know if you guys know that, but there's two safety cameras, one after the other. But the second you get to that I think it's called Mages Bay Road, yep correct as soon as you get there.
Speaker 1there's nothing there. They do a credit check when you get in.
Speaker 2Then we got the northern parts of Sydneyney, so palm beach 3.4 mil, mossman 3.2 mil, kiribilli 2.7 mil, c4 2.1 mil, and then manly is 2.1 manly shocks me, not like shocks me, shocks me, I'm just shocked it's in the top five.
Speaker 1I know manly is expensive, but damn manly almost feels like a different country.
Speaker 3But right so far away I think you can get to melbourne quicker than you can get to manly right.
Speaker 2Alison and I did a staycation in Manly and I could see Centrepoint from the hotel. I could see it but I did not feel like I was in Sydney. I didn't see a single person I knew okay, that is a weird feeling for a guy that's got so many cousins, so many friends you know, so many clients Not one person I knew I saw over the four days I was in Manly. It was the strangest feel and it feels very European.
Speaker 3Manly. Yeah, it does, yeah, definitely it does.
Speaker 2Then we've got the Western suburbs Hunters Hill, 2.4 mil, enfield, 1.9 mil, marsfield, marsfield, marsfield, marsfield, 1.2 mil, dromoyne is 1.2 mil. And then Haberfield is $1 million. And lastly, let's round out with South Sydney. South Sydney, san Susie, $1 million, cronulla, $900k. Oatley, $880,000. Kyle Bay $850,000. And then Caring Bar $820,000.
Speaker 1I'm surprised the South has far less debt than the rest of Sydney.
Speaker 2Basically, the South is disconnected to the rest of Sydney, so you don't have motorways to get in and out of the south like you do with western Sydney. Western Sydney, you've got the M4, you've got the M8, you've got so many different ways you can get anywhere from western Sydney in.
Speaker 2Sydney yeah, to Sydney CBD, but the southern part of Sydney. Like I live in the southern part of Sydney, I live in Illawarra. Thankfully I live closer to Patstow way to get to the CBD. But people that live in Cronulla if you live in Cronulla, getting out of Cronulla takes 25 minutes. They're um nasty suburbs. Once you live there you don't essentially leave there.
Speaker 1Yeah, I always thought the eastern suburbs were similar to the south and like it was a little island. I know it's like literally geographically closer, but I it's so like there's no public transport or anything and when you're in the city it just feels like you want public transport at at least for me, because I hate driving but the eastern suburbs you can.
Speaker 2at night you can get an Uber 15 minutes during the CBD.
Speaker 1That's true.
Speaker 2During the day you can't. But like you know my in-laws, they love Coogee. They always ask beg me and Alison, let's go to Coogee, let's go to Coogee. Yeah, getting there during the is hell on earth. But at night, you know, when I want to leave Coogee, it actually takes me five minutes to get out of Coogee. Cronulla is different Cronulla no matter what, just to get out of the suburb Cronulla. It might be 20 minutes during the day because there's so much traffic, but even at night it's still 10 minutes, 10, 15 minutes. There's so many lights before you even hit carrying bar.
Speaker 1Is there only like in two ways out, or something it's?
Speaker 2essentially like that. One thing I want to dial back to is out of these 20 suburbs, what have we noticed most? They are affluent. They are the most affluent suburbs in Sydney.
Speaker 1Maybe we're missing Castle Hill here, or one of those Like the hills and stuff.
Speaker 2Yeah, but there's 20 suburbs right here that you look at it and you think to yourself this is where the wealthiest actually live, this is where you have all your doctors, this is where you have physicians Cronulla right now, 400 square meter block. Okay, Knockdown, rebuild two mil. I'm not even talking about a brand new house, I'm talking about a knockdown rebuild For 400 square meters. You're not able to do a development site at 400 square meters. You can't put a duplex on it. This is just for somebody to knock down, build their dream home and go play golf at the private golf course down there. And that's what these suburbs bring. And it brings me to my point. The most amount of debt exists in the most affluent suburbs, and that's because they have good debt. Previously, Damien, we were talking about using good debt. What have these individuals done? They've paired up with an accountant to be able to create structures. Would you agree or disagree?
Speaker 3with me. They're the ones that have access to your financials, right, so they're always able to see how you can reduce the amount of tax you're paying. Usually, an accountant will tell you hey, you're paying X amount of tax. Let's get you an investment property because you have the income there to source it. I have a mortgage broker that can help you with getting finance. Let's build your portfolio a little bit, as we can see, like a third of the market, it's 800K minimum mortgage in Australia. Now, right, and with that also coming is obviously there were rates rising for a long time, I believe I truly believe in about February March they should be going down. There's a lot of people that maxed out, and what we're seeing as well in terms of statistics is that one in seven people that have a mortgage will actually look to sell their property by February March if the rates don't go down, because they actually can't afford to live anymore.
Speaker 1Yeah, I saw that. It's like they need repayments reduced by like 500 bucks, or that's it they're selling it's crazy.
Speaker 2Definitely they're selling. It's crazy. It's crazy to me that the US has just had two rate drops and we held, we held, so they dropped 0.5 and then another 0.25. That's correct. They're trying to re-stimulate their market.
Speaker 1Doesn't America's property market work completely different to ours, though?
Speaker 2It's very different over there. So they've got the population, yeah, but they've got a lot of flyover states. So, yeah, but they've got a lot of flyover states. So a city like Chicago, that's expensive, right, it's expensive in the CBD, like all CBDs, yeah, okay. But when you go to the outer suburbs, everything stays flat I'm not saying stays flat, you know, for a year and then spikes. It's consistently staying flat. And they invest in property for the rental return.
Speaker 2So I had a cousin turn to me and he goes to me oh so, like you've got an investment property? I go yeah, yeah, I do. This is back in 2018. And he goes oh so, what are your repayments? I told him my repayments and then he goes oh, what's what's your rental? And he goes how are you making money? And I go what do you mean? And he goes and I'm like cool, like that's $3,600 a year. And he's like but like, how do you guys make money? I don't understand it and I go well, the way that we make money is on the capital gain. We don't make money on the rental. What's the rental yield in Sydney? 2%, 3?, 2%, 3, yeah, 3% if we're lucky. But over there their yield is anywhere between 8 to 10.
Speaker 1And that's just because property, like in general, is cheaper there, like on average.
Speaker 2I think the average house price back in 2020 was $415,000.
Speaker 1That's insane. I know what was that like $800-ish in Aussie dollars.
Speaker 2No, $415,000 would be $670,000 Australian dollars. Okay, where are you going to get $600,000? What are you going to buy in Sydney for $670,000?
Speaker 3No, you're not, Unless it's an apartment in some random suburb that's not close to the CBD at all, or right away. No, Oran Park is even more valued than that you want to talk about Oran Park, all right, the apartments there go for a minimum of 900K.
Speaker 1Really Damn the properties there go for about 1.3 mil.
Speaker 3It's the fastest growing LGA in Australia, I'm pretty sure.
Speaker 1Well done in that Camden way yeah.
Speaker 3Orrin.
Speaker 2Park specifically, and then I think we're talking. What's the one that starts with G? Right next to it, Gregory Hills.
Speaker 1Gregory Hills as well. My cousin bought a place there.
Speaker 2Yeah, so that area there is all growing and it's all booming because of the new airport. But then you've got areas like Westmead where I've got clients that bought an apartment for 900K and now it's valued at 800. Yeah, so there's certain parts of Sydney that perform well in the apartment market and then there's certain parts that don't. But even those apartments, the expectation is because we have a low supply of development approval. They're going to expect to go up after the interest rates drop and the reason is more people are going to have borrowing capacity Right now everyone. Why is Perth growing like crazy? Because that's all people in Australia can afford. Exactly, house and land package over there last year was 500K, now you're lucky to go 800.
Speaker 2Yeah, very, very different market. It's spiked up like crazy, but it doesn't always perform like that. The only reason why people are still buying there is because it's like oh okay, I could still make my money work for me over there In Sydney, in Victoria. Victoria brought in all those investor laws. It's very, very different. Once the borrowing capacity comes back, those properties are going to spike in value.
Speaker 2And to go back to our original point when it comes to America and stuff, they've got New York, san Francisco and parts of Los Angeles. I'm not going to say all of Los Angeles, parts of Los Angeles that perform that well. The rest of Los Angeles, nobody's buying a place in Compton for a million dollars. Nobody's going to South Central LA and expecting to pay that much. No, like there are certain parts of Los Angeles that don't perform well. San Fran looks like Melbourne, genuinely same climate as Melbourne. Parts of Seattle because Seattle has a good climate as well 5% of the time, but it's got a good city and a good infrastructure that performs really well. Chicago, same thing, where there's major city hubs, they perform well, but it doesn't perform well like Sydney does. Even New York doesn't climb as fast as Sydney does. Go try and buy a place in Barangaroo. I could guarantee you per square foot I'm not saying per square metre per square foot it is worth more than the best places in Manhattan. I know we segued massively, massively from that that's fascinating Okay.
Speaker 2We segued massively from our original point. You know of the debt levels in America and why they've dropped their interest rates they need to re-stimulate the market and we need to re-stimulate the market in Australia. So I do want to ask you, damien, do you think they're going to drop the interest rates in February? Yeah, I think they will, and why do you?
Predicting RBA Interest Rate Changes
Speaker 3think they didn't drop it in November. So my honest opinion around that is we're heading into the festive period of the year, people already know how much they need in terms of expenditure. To drop that now in the eyes of the RBA would be a bad thing, because then people can't really adjust to their spendings right. They don't know how much they need to put aside for something like that. Also, heading into the new year australia day there's a lot of different holidays coming up for australia.
Speaker 3Yeah, february is where we start to see nothing really and it's just before easter, right so everyone gets back into the groove of things people coming back to sydney or wherever they live, they might go on holidays over the shutdown period and things like that.
Speaker 3That's why I believe that RBA will hold it till February, but before Easter comes they need to drop it, because that way more people will enter the market, and this is a positive and negative thing, depending on what side of the scale you're on. If you're a first home buyer and you have the funds ready to go, I'd definitely recommend trying to buy now. Yeah, general advice, general advice for sure. Sure, but the problem is when all these um existing investors get their borrowing capacity up again, they're going to want to pull the trigger and buy another property, yeah, which again prices out the young generation in australia from buying a property, right. So again they get delayed on how they go about getting an investment property because prices will climb. As rates go go down, property prices go up. That's the trade-off and people need to understand that too.
Speaker 2More people enter the market, more people want to buy. You remember 2020, 2021? The boom that was then because interest rates were up 2%. We were seeing apartments, not houses apartments. One day they'll go for $450. A week later they'll go for $500. A week after that they'll go for $520. I still remember. I still remember these one-bedroom apartments in Cogger. That was the trend. Now try and get one for under 600. You can't, but it's extremely interesting. On that note, damien, what do you want to?
Speaker 3finish with Pretty open-ended question, the way I look at it, to any Australians out there who are struggling with rates at the moment. But to any Australians out there who are struggling with rates at the moment, keep in mind that they are going to go down. Although as villainous as they may seem, the RBA something needs to give and I honestly believe it will go down in February and March. This country is one of the greatest places on earth in terms of investing in property and it's almost a guarantee that you're going to get a return on whatever you put in.
Speaker 1I also think that they won't. Why they didn't drop interest rates recently is because the whole reason is to tackle inflation. If you ease the rates right before Christmas, that's consumer spending going right up, that's inflation jumping right up.
Speaker 2I'm going to disagree.
Speaker 1You're the economist, not me.
Speaker 2I always feel like Sydney, oh no, sydney. I've always feel like Australia's late to the party. They're so cautious and they're so just inefficient with their decision-making. You know when the rates were climbing and you know even that extra 0.10,. I still remember when the rates like just they put them up 0.10 and it was unnecessary. The inflation rates we're seeing now are from the effect of three months ago. Okay, like people are used to it, and I have a feeling that come February the inflation rate is going to be so low that it's not going to be. Oh, should we drop interest rates? It's going to be. We need to because the following people are employed over Christmas casual employees, retail. We're going to lose so much this Christmas because people just don't have the money to spend. I'm pretty sure the average savings in Australia dipped from like $10,000 to a few hundred dollars.
Speaker 1Yeah, no, people are burning through all their savings. That's why they're saying they're going to sell up in February if rates don't drop, because they've been using their savings to keep the house.
Consumer Spending Trends and Economic Outlook
Speaker 2I think their rates should have dropped in November. People are used to not spending. I know that for a fact. I see it every day. We have to ask clients their expenses. We know, we know, we see it, we see it on their bank statements, we see it all. Are you spending money? No, absolutely not.
Speaker 1When was the last?
Speaker 2time you went out for a drink, Mark.
Speaker 1It was a birthday so two weeks ago, okay before that Before that? No, it was ages ago, yeah.
Speaker 2It was a wedding.
Speaker 1Again, it was only like large events.
Speaker 2It's not just because Damien, when was the last time you went out for a drink and don't include the work dinner the other night. Mate, I can't even remember so you're going to have hospitality not operating at the level that they should be. They employ a lot of people you're going to have retailers not operating at the level that they should be. You're going to see pain this December and come February if they don't drop the interest rates. Oh my god, I'm going to riot.
Speaker 3I'm just going to be a one man riot at the front of the at the front of the.
Speaker 2RBA down here in Martin Place. And, on that note, this has been the Finance Show with Joe. That's Sam Schmo, that's Damien, I'm Joseph Dalwood, and if you need any help with your finance, whether you're looking to refinance or purchase a home, you can contact us at wwwitsimplecomau.
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