Introduction to Buying Your First Home
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Welcome to the Buying Your First Home podcast, your personal guide through the Australian housing market. Here we tackle the big questions and the small details that come up when buying your first home.
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From financial prep to finding the right neighbourhood, we're here to ensure that you've got all the knowledge at your fingertips.
Predicting Market Movements
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So let's take the first step towards unlocking the door to your new home.
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How are you able to predict the market movements in not only March 2020? Again, in 2022, the headlines were saying fixed rate mortgage shock. Everyone was waiting for another downturn and you were saying it was going to
Historical Analysis and Groupthink
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go the other way. How does that happen?
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Twice. Step one to it is not being guilty of the same thing that everyone else is guilty to, but copy markets that's participating in GroupSeek. I sort of stumbled across many years ago now, back in the days of the GFC, that there's not a single human anywhere who's ever studied Australian real estate history.
Debunking Property Market Myths
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And therefore, if you don't know the truth about what's happened in the past with all locations in Australia, and more importantly, why it happened, how can anyone expect to have half a chance to understand what might happen in the future? We've purchased all the evidence and I've spent a big chunk of my professional life studying what I call the cause and effect of things.
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Because we live in property and we are an emotional beast at the end of the day, Jayden, people believe a lot of stuff and that group think we're all believing the same thing, so they therefore think that they're true.
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But if you don't know the evidence, you don't that it's not true. for example, everyone thinks that population growth is this really big, powerful force on property markets and that's what the demand is. It's
Impact of Negative Events on Markets
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not. the The evidence says that. They think supply is all about what the construction sector does.
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It's not. They associate negative events with negative property market performance. For example, they feel that rising interest rates, because that's not a good thing, they feel that it's impossible for property prices to rise. When in fact Australian history is littered with some of the biggest booms during rising interest rates. Instead of focusing on why are interest rates rising, which is why property prices rise, they focus on rising interest rates is bad for household budgets, that can't be as good thing.
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They hear national national disasters, bushfires and floods. And because we all live in a community, they project themselves in those communities that are suffering from a bushfire or flood and think, oh, that's bad.
Local vs National Market Trends
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That can't do a good thing to a property market when it's actually not going to have any impact whatsoever on that property market. And last but not least, there's all these big scary terms, bubble, mortgage cliff.
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And in the digital world, when millions of people say that same scary term over and over again, people start to believe that there's something really nasty around the corner without actually looking at what are the things that influence property markets and what are they likely to cause. Then looking forward, even in a time when people worrying about resource dropping off, you forecast the recent Perth boom.
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And even you're talking about the Melbourne downtown. was looking your website like a couple of years before it actually happened. You're obviously looking at these different factors, different data sources that other people are overlooking. But what are some of your forecasts moving forward then in 2025 and and beyond we So our annual market outlook report, which we release every year on New Year's Eve, we did it a bit different this year. I didn't want to be like everyone else and just say this is what will probably happen in each of the eight capital cities because every single month there's a few companies that produce data on what's happened in those eight capital cities and it's teaching people to be ignorant.
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We've got 400 individual townships, of which 140 of them have a population of 15,000 or more. So we're a massive country, diverse country. So this year our report, it'll be too long a report if i said this is what will happen to each of those 400 locations. But we did comment on each of the 25 larger cities.
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And ah most Australians wouldn't even know what those 25 largest cities are. But so what we predict that 20 out of 25 of our largest cities will produce growth this
Population and Economic Factors in Market Growth
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year. Now that growth could be as small as 1% in some locations, so that that could be in the 20s or even as high as 30%. But 20 out of the 25 largest, I think that's a big statement for people to make, that 2025 is going to be another strong year broadly for property markets.
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The five locations that we think will lose value They're not going to crash. There'll be mild declines. But unfortunately, the two biggest cities in Australia, Sydney and Melbourne, are two of the five that we think will lose value this year.
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And all of the media live in Sydney or Melbourne. So the national commentary, anticipate throughout 2025, will be talking about downturns and property values declined again.
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And it will be very easy, unless people make a conscious effort to remember this conversation that we're having, that we are a big country and the commentary each month will be heavily influenced by those two cities.
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we look at the last five years, Jayden, those 140 locations that have population 15,000 more,
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118 out 140 saw a capital growth rate of somewhere between 50% five zeros and 115% in just five years. What what happened in those in that five year period?
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The first two years, population declined. Australia has not seen population decline since more than a century ago, way back in World War I. So that was the start of the five-year period were talking about.
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And the end of that same five-year period was the sharpest rise in the ah RBA cash rate since the ah RBA was founded back in the nineteen sixty s So two so-called big doom and gloom events that happened in that five-year window that yet we had almost all of the country, their house price increased by between 50 115%.
00:05:56
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Which kind of begs the question, I've seen it thrown around a lot, and even younger people are saying, how is this sustainable? How can house prices, I saw an article posted the other day, buy a house in Brisbane for $600,000, and now it's over a million dollars like over that period almost in some of the inner city suburbs.
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How is that sustainable? How is that possibly going to keep going if migration drops off? You made a point before that that doesn't matter as much. What's going to keep that going? Population growth has very, very little influence on property prices. That's not an opinion. That's like generations of facts that confirm population growth has very little influence.
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Melbourne has just had its two biggest years ever in Melbourne's 200-year history of overseas migration. And yet, not just the last two years, the last seven years, Melbourne's median house price is only 3% more today than seven years ago.
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Population, though, always has a very, very big influence. How long it last for? Property market performance is always a relationship at an individual town or city level. It's always a relationship between the number of active buyers,
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and what properties are actually available to purchase. but Even if there is a smaller than normal number of active buyers, if there's a lot less than normal properties available for them to purchase, that's going to create pressure, that's going to create intense competition, that's going to force property
Local Economies and Job Growth
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prices up. And that's what's happened, not in all locations, but in large parts them over the last five years, and will probably continue in many of them for some time yet. Where does buyer confidence come from?
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Some people are just naturally more confident than others, but an individual doesn't influence the property market. It's a critical mass of of human activity that influences property markets. And if you've got a strong local economy, it's largely irrelevant what Australia's economy is doing because you and I can't buy the Australian Property Index. It doesn't exist.
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what What we can invest in is real estate in City X or City Y. So if the economy of City X is strong, confidence generally in that location will also be strong.
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Who buys property? It's hard for someone who's never bought property before and is on ah on an average wage and doing their best to save it a deposit to get in the market. But first-time buyers in ah in a typical year only represent 20% buyers.
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If the other 80% of buyers, if they've got the financial resources available, so access to equity, stable jobs to raise a deposit, either through cash or through equity, conservative debt,
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They'll buy property, whether it's because they want to upgrade their home to something nicer or something bigger, or whether they want to invest in their future. So they'll do that if they've got confidence in the economy of the city that they live in. yeah what What are some of the things that influence my take on property markets when I'm forecasting?
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Bar none, local economic conditions has the biggest influence. We have a look at the last five years. Believe it or not, but Australia created 1.7 million jobs just in that five-year
Understanding Recessions
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So when the negative Nevels and the Nancys were focusing on JobKeeper and population declining and all these scary things, mortgage cliff was the big term, issus right interest rates rising.
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We're creating lots of jobs which made household incomes more solid than what they were before COVID. Which takes to the next question. Last year, there started to be talk of recessions.
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We're slipping into slower growth as an economy and even that's potentially going prompt the Reserve Bank to move. But one of your articles said that historically, Australian property has risen during recessions, that seems counterintuitive. So how does that work and how could that happen in the future? Yeah, does, but does it seem counterintuitive? Again, if people focus on the word, which is what people generally do. Mortgage cliff, it's a term. Bubble, it's a term, but it's negative term.
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Bushfire, yeah, but who's it actually affecting? how does it actually affect property markets? Recession, it's a term. Not many people understand it because in Australia, we don't have recessions very often.
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But the one in the 27 million people in this country who has actually studied Australian real estate history knows that in in past recessions, many individual towns and cities, their local economy is still strong.
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While Australia's one big collective might have been in a technical recession, that doesn't mean that the economy of each of those 400 individual townships was bleak.
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What is a recession? It's a term given to describe something where it's ah where its economy has had two consecutive quarters where it didn't grow.
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six months have a think about forget economies because most people aren't economists think about a business big or small a business that has six month period where it doesn't create a profit doesn't mean it's a bad business at all it means it's had a lean period but if it's a if it's been around for a while and and it's backed by solid financial resources it will identify why have we had this six month lean period and what have we got to do to get better so think of an economy like that We actually had a recession in the very first year of COVID, in the year 2020.
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We also started a property boom before we got to the halfway mark of 2020. Before that, Australia had a period, 12 years it was, where we had three recessions in a 12-year period of time.
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remember the 70s, 80s and 90s. But we had inflation at about 10% every single year. We've had Australians moaning and groaning for an inflation rate of 6% for about 18 months.
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More than previous generations, they had 10% every year for about three decades. And the combined capital city median house price increased fivefold with three recessions.
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So it's just a term. It doesn't mean that there aren't pockets somewhere that are struggling because recession means that an economy hasn't grown. But never, ever, ever put a big, big blanket over this thing that's called Australian property market because it doesn't exist.
Investment Advice and Strategies
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Which is interesting because not a week goes by, and we obviously help a lot homebuyers and investors, not a week goes by where... There's not an article saying there's going to be a downturn in the housing market. Growth is down. CoreLogic recently reported ah downturn in housing market. I'll include a link below. People often ask and and freak out because it's like, well, is is now a bad time to buy? Are you buying at the top of the market right now?
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Or is it an opportunity? What do you say to people? It depends. What's your motivation for buying? If you are looking to buy because it's your first home or if you're looking to buy a principal place of residence that residents that you want to be bigger or nicer, do it.
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no matter what the market's doing, because the primary benefit of buying that is to satisfy your lifestyle. Do it. If you're looking to invest, the intelligent thing to do there is completely disregard wherever it is that you live.
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See yourself as a borderless investor, so be open-minded to the best opportunities all over Australia. The smart property investors, in some ways, have a mindset a bit like a share investor.
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The share investor, doesn't matter that they might work for a bank, they're looking for companies that doesn't matter what industry sector those companies are are in, they're identifying companies that have a good potential future performance. A property investor needs to have that mindset as well.
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Now, more than a century of evidence, no matter what crap's happening in the world, I can promise you that there's always lots of locations every single year that have a good outlook. But it won't be the same locations in its era, right? If you can afford to invest now or next year or the year after...
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If you don't invest in your future, and no one else is going to do it for you. So do it. Disregard the negative commentary because it will always be there. And go about a structured way of finding out who's got the best track record, who's got the best intel in this space.
00:13:58
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take as long as you need to gain confidence in working with them and then move forward Gusto. Because I did notice on your website, there was a case study you had there of a few clients you've helped recently where a lot of your clients tend to be multiple property investors, it looks like. If someone just comes to you off the street says, Simon, want you to me find a property.
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What's the process look like? Are you looking at if it's capital gains, cash flow? How does how does that work? It's a question related to investment strategy. yeah Cash flow is important, but anyone who invests with the primary objective of chasing cash flow, property is not something that you should be even contemplating.
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Because property has a lot more expenses attached to it than shares. Shares, there is no expense attached to it. unless of course you are borrowing money to purchase a ah share portfolio. But almost always the property investor is borrowing money to purchase a property.
Role of Interest Rates
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So um you want you won't derive cash flow from investing. The longer you hold your property, you'll get closer, um you'll eventually get to the point where the rental income in a typical year exceeds the expenses.
00:15:05
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But for the first time, probably 10 years, depends what the interest rates are. when When interest rates are like what they are now, it's quite likely to be 10 years before the rental income in ah in a financial year and is equal to or a little bit more than the expenses. The reason for investing and the and the most intelligent strategy for people to have is identifying assets for potential for growth. So if Jaden and Simon both bought a property somewhere in Australia today, and let's imagine we both paid 700 grand for it, and Jaden, your property in 10 years' time had doubled in value, but my property had gone from 700 grand to a million, okay, we both made quite a bit of money, but you've made a lot more money than me, and you're going to enjoy a much better quality retirement lifestyle than what I will.
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So the goal is to know that what's the purpose of investing? Why am i doing this in the first place? It's to have a better quality lifestyle in the future. Capital growth will will make the biggest contribution to that, not cash flow.
00:16:05
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Cash flow, it's important that we're responsible with it. But you shouldn't make the decision in regards to what town or city you invest in or what individual property you buy based on, for example, and having a higher yield than something else. Because there's always a reason why that higher yield is there compared to something else.
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And almost always that the same reasons that give that bit higher yield will be the thing that will disappoint you over time when 10 years down the track you go, geez, why is my property growing by 20% and I'll keep reading about all these other things that are growing by 60, 70, 80?
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What do you focus on when you bought the property? Did you focus on what makes things drive by 60%, 70%, 80% or do you focus on the here and the now and the cash flow in year one? Interest rates obviously make a ah big impact to this.
00:16:52
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Another article that really liked on your website, Propertyology, I'll include the link below. i was one from a couple of years ago. It was before the interest rates started rising and you were talking about, we suggested property prices could double despite rising interest rates, which in our last video, which I'll include links as well,
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A lot of people didn't really agree with that. And even in 2002, we're saying like it's impossible for the market to go up any more than it had at the time. And obviously, things have panned out that it's still gone up a bit depending on where you're looking. But how do you see interest rates impacting the housing market in the future? There's talk rates could come down.
00:17:26
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What's your sort of view moving forward? and Interest rates are, of course, always important to anyone with a mortgage, yeah owner, occupiers, and investors alike. But what is important is that ah no individual ever allows interest rates to dominate their psyche.
00:17:39
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its It's a fact of life like clouds and sunshine, right? They're always going to be one or the other there. Interest rates will always exist, and sometimes they'll go up, sometimes they'll go down. As someone looking to transact in real estate, just have a ah general common sense opinion of your own about what are the things that the Reserve Bank are focusing on at the moment and is that likely to cause interest rates to increase or decrease for the foreseeable future.
00:18:07
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but What happens next month is irrelevant because no one's buying property for a month.
2025 Market Forecasts
00:18:12
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So for the foreseeable future, the next 12 months, for example, and not just the next 12 months here now in February 2025, at any point in time, but always know that the Reserve Bank, their job is to protect 27 million Australians.
00:18:28
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So when they increase interest rates, as they did throughout 2022 and half of 2023, they did that not because they get enjoyment out of us having to pay higher mortgage payments,
00:18:40
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They did that because they were concerned about inflation and and and I guess their way of getting people with money to exercise caution is to say, but first they say, please slow down, we're concerned you're spending too much money.
00:18:53
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And of course we don't listen, we keep spending money. So they say it again. It's like a parent talking to a child. Say it again and again. Johnny, you're not listening to me. Go to your room. So the Reserve Bank will go, Johnny, I've been telling you, I still don't like these inflation figures.
00:19:08
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Now I'm going to take some action. So I'm going to increase interest rates. It also works in reverse. When the Reserve Bank gets concerned that the economy is softening too much for their lightnings,
00:19:20
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The trigger that they can pull is let's cut interest rates, which essentially puts money back into people's pockets and gives them confidence as well without that without the person actually having to go and get a pay increase.
00:19:33
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Generally speaking, though, interest rates don't do what happened in 2022, 2023.
00:19:39
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Up or down, interest rates don't usually have these really sharp trends. In a typical year, when you go back through 50 years of the RBA history, in a typical year, there's usually one or two adjustments out of the whole 12-month period, and it's usually by 0.25%, right? And how does that impact property market? Not at all.
00:19:59
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What do I think will happen in 2025 with interest rates? I thought there was some chance that they might start to go down in 2024. That didn't happen. I think it's clear we've got a very, very cautious Reserve Bank.
00:20:11
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I think it's highly likely they'll go down this year, but I'm not losing any sleep at all, whether they do it at their first meeting or the second meeting. I wouldn't be surprised, though, if there are multiple cuts this year. So what will that do for property markets? That will give more buyers confidence.
00:20:28
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And for some people, it'll be the difference between getting your loan approved or not. The borrowing capacity of it is obviously important when you're buying a property as an investor or an owner-occupier. A couple of cuts with interest rates means that more people will qualify to get the loan, which means those same people will buy, which means more competition. Our forecast for 2025 for property markets is based on there not being any material change to the RBA cash rate.
00:20:56
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We could be pleasantly surprised and there could be a few cuts, which logically would suggest that our forecast might fall a bit short of what actually happened.
Borderless Investment Mindset
00:21:05
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If you had some insights for investors, what's an insight or something you'd want to impart on them if they're trying navigate and look at buying in the 2025 market?
00:21:13
Speaker
Now in every single year, be borderless. That is the most important thing as a property investor. You owe it to yourself, not me or Prime Minister or your mother or your father. You owe it to yourself to do the best you can and control the controllables for your future.
00:21:30
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So now and always, if you can afford to invest in your future, do so. The most important question for investors it is never when. If you can afford to, it's now.
00:21:42
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If you can't, Don't go to the second question. The second question, the most important question is always where? Jade and Simon live in Brisbane. If you're an investor, that doesn't matter. Brisbane's not your property market, it's your hometown.
00:21:56
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Those who are living in Melbourne, It's not a good outlook. But even if it was a good outlook, if you own a family home there, I'm a big advocate of don't place all your eggs in one basket.
00:22:06
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Any existing owner-occupier, if you're listening to this, no matter which individual town or city that you invest in, ah so that that you live in, when you're looking to invest, the first of the 400 locations to cross off your list is your hometown, which is the opposite of the way people think.
00:22:23
Speaker
they They think about shopping centers and schools and parks. Those things don't influence the property markets. Those things are always there. So to influence property markets, properties around them would boom every single year, but of course they don't, right? You've got to go through a process of elimination. If you started with 400 townships across eight states and territories, the easiest one, the first one to knock off, is a town or city that you've got your family home. And you've already got capital in that market.
Importance of Expert Advice
00:22:49
Speaker
Don't put another whole heap of capital in that market because nothing always goes well. So see yourself as borderless, disregard emotional things. Some people like, you know, a beach holiday, for example.
00:23:02
Speaker
The beach is always there, beach doesn't make property markets grow, even though that might make you feel good. So acknowledge that those things exist and engage expertise. People get go and get a loan, they can jump on any website and and do that themselves, but the website doesn't have the skills that a really really talented mortgage broker has and access to all the lenders and the different credit policies.
00:23:23
Speaker
We can Google Dr. Google and research medicine to our heart's content, but you're not a doctor unless you've got the seven-year medical degree, right? So go and get professional advice from the professional medical practitioner.
00:23:35
Speaker
you're going to invest in real estate, seek out the best decision you can make. is who's got the most skill in this space. And I'd agree. The shortcoming of some buyers agents is that they're based in one location. There's buyers agents around Brisbane that only serve Brisbane Metro, for example.
00:23:52
Speaker
The thing I like about your business, Simon, is that it's, like you said, it's borderless. Tell us a bit more about how Propertyology helps investors and and how people can get touch with you. At our core, we buy properties for people. So yes, we are buyers' agents. But but I guess the difference between propertyology and the more generic buyers' agents, don't say that as a criticism, it's just a point of difference with our business model, is why we buy property.
00:24:12
Speaker
So propertyology will never, ever, ever ah accept a fee from anybody to purchase a property where they get any personal use from, otherwise known as the family home or holiday home for some people's case. Our job is to see property as a financial instrument.
00:24:27
Speaker
It's similar mindset to the stockbroker helping the share investor, for example.
Educating on Intelligent Investment
00:24:32
Speaker
So we're the pioneers of that term, boardless investor. Before someone ever signs any forms or pays us any money or anything like that, we invest heavily in their own market education. So we're trying to flush out all the rubbish that they've consumed throughout their life and replace it with good quality stuff so that they are then able to identify the what a really intelligent property investment decision looks like.
00:24:55
Speaker
not Not the emotional thing or not would I like to live there because that doesn't make things grow. It's a very subjective thing. We all live in one of those 400 different townships.
00:25:06
Speaker
different township So we might not want to live in one of them, but there will be other people who are living there. So as a property investor, be mindful that those things exist. like They exist with me as well.
00:25:19
Speaker
But we put barriers up so that we're only allowing good quality intelligence dictate decisions rather than than biases and generalisations and feelings. and And I definitely suggest checking out Simon's website. Just the the quality of content there gives you a bit of a taste for the sort of business that he has and and some of the expertise there because it's definitely, it's a lot more than just regurgitating some of the CoreLogic data like that you see around. It's its original material and it's really insightful. Thank you, Simon, for your time. Appreciate having you on. And if you want to get in touch with Simon, I'll have all the details in the description below.
00:25:54
Speaker
Thanks, guys. Thanks, Jamie. Appreciate the chat.