Understanding Property Investment
Bernadette Janson spoke to John Lindeman, who has been in the property investment business for a long time and has a wealth of knowledge on the subject. This has made him one of Australia’s leading property market analysts, renowned as the property market researcher that experts go to for all their Australian housing market insights.
John is a popular contributor to property-related media, such as Your Investment Property magazine, Michael Yardney’s Property Update, Kevin Turner’s Real Estate Talk, and Alan Kohler’s Eureka Report. To add to this, John also published a landmark, bestselling book for property investors: Mastering the Australian Housing Market.
How John Lindeman Started In Property Investment
John’s journey in Property Investment began with the first house he bought in Hawthorne in Melbourne when he was very young. The plan was to renovate the property, which he did; when he sold it four years later, the value had doubled.
“And I thought, wow! This is great. Property investing is the way to go. We’ll do it again.”
~ John Lindeman
So, they bought another house, this time in Manton and did the same thing. And four years later, they sold the house when they decided to move back to Sydney, John’s hometown. This time, though, the house had lost value instead of the property making money.
“And I thought, well, I really don’t understand the property market at all.”
~ John Lindeman
John knew buying a property, renovating, and selling it could be a profitable venture, and he had been lucky that his first property had made him money. So, he started reading everything he could to learn about property investing.
John attended boot camps and workshops. But no one could tell him how the housing market worked and how investors could be sure to get the best results from property investing. So finding the answers became a quest that John has been following for the last twenty years.
He worked for the Australian Bureau of Statistics for five years, followed by being the head of property research for Residex for another five years. And then, John set up his own company to explain how the housing market works and how to get the best results from property investing.
John Lindeman Advocates Education to Help Choose The Best Investment Properties
John says good education is the key to success in the world of property investment. If you don’t understand the housing market, you may end up losing money. So, consider spending time and money learning how the housing market works in your area before purchasing property.
The Journey Of Property Investment
John follows his own philosophies in property investment. He believes that property investing is a journey. And it all begins with your first property.
You have to get growth out of the property. That begins with borrowing as much money as you can safely loan, relying on the growth in the market to deliver the gain on the money you’ve borrowed. So you’re making money on the borrowed money.
That is how you get a foothold in the market and the ability to grow and buy more properties over time. And then, slowly, over time, you move from capital growth to developing a good cash flow. John said:
“What you do in that journey is you start off with good growth potential, and then you move over time to buying properties in areas that have got really good cash flow.”
That is where John finds himself now. He has a significant portfolio of properties that deliver good cash flow, allowing him to continue what he loves, writing about the market and doing blogs and podcasts.
Should You Be Seeking Out Property Hotspots?
Is there such as thing as a “property hotspot”? Should you seek out such areas, or is it an old-fashioned concept? Bernadette asked John to weigh in on this topic.
There are two differing views on the property market:
- It’s all about time in the market: You buy a property, hang on it for ten years, and it should double in value.
- It’s all about timing: You can do better by buying in an area where the growth is about to occur and then selling when that growth has ended.
John follows both schools of thinking. He says that if you are after growth, then timing is essential, but if you are after cash flow, there are areas in Australia that will consistently deliver. So, there is no need to shop around and chase property hotspots.
Is It Worthwhile To Invest In Negative-Geared Properties?
Negative gearing is a measure that helps you save tax, but there are two problems with this strategy:
- You lose money while holding the property, so you are going backwards, even if the property’s value increases.
- It prevents growth at the start of your property investment journey. If you buy negatively geared properties, you can quickly exhaust your borrowing capacity. For example, you buy one property and then a second one. When you return to the bank for the third property, you are told you’ve exhausted your borrowing capacity. That means you’re at the end of your journey, and haven’t got halfway there.
“So I always say: positive gearing is still gearing. It just means you’re making more than what it costs you to hold a property…It’s essential that when you invest in property that as a minimum, the property should be neutrally geared. And it’s better if they are actually positively geared.”
~ John Lindeman
Unfortunately, many women we work with face financial difficulties. To solve their problem, they will go to an event and buy a property that is not labelled as being negatively geared, even though it is. The result is years of financial struggles.
Using Rent Vesting To Begin Your Property Investment Journey
Rent vesting is an excellent way for people to start their property investment journey, and John runs a mentoring program for people wanting to use it as a strategy. He says they have a lot of younger people using rent vesting so they can live in the area they want to live in and invest in a property in an area with massive growth potential with positive cash flow.
“Because you simply can’t buy a property in Sydney or Melbourne or even Brisbane that’s delivering positive cash flow. It’s just not possible. The yields are much too low. And so if you buy a property in a regional market, for example, that’s got a lot of growth potential, it’s much more affordable.”
~ John Lindeman
In some regional markets, you can buy a property for $300,000 that could double in value over the next few years. So, suddenly you’ve got a toehold in the market that will enable you to buy the property you want to live in in the future.
The Current State Of The Housing Market
Nobody knows what is happening with the property market at the moment. The last two years of the pandemic have shaken it up and created a lot of uncertainty. In addition, lockdowns and international and state border closures mean people have not been moving around as much as usual.
John explained what has happened since the beginning of the Covid-19 pandemic. Firstly, the government lent itself over a trillion dollars to keep the economy going. And that’s created a housing market boom. As a result, property prices have increased by 20% to 30%. Unfortunately, the growth is at an end now, though.
What’s going to happen next is state and international borders will be reopened, and people will start moving into and around Australia again. Hundreds of thousands of people have been lining up to apply for visas. And they’re all going to flood into our capital cities in the next few years. So John foresees a shortage of rental accommodation in the big cities and in the inner urban areas.
The property market has been hard hit by the lockdowns, with fewer people entering the country willing to do the work in construction most people don’t want to do. As a result, there are fewer labourers and building trades. On top of that, we have seen an increase in building costs and the bush fires wiped out 90% of our softwood, so there is a considerable shortage of building materials.
When you add this all up, the result is the rate of housing development has dropped by 20% in the last year. But the demand for housing will be up by 20% to 30% over the next year. So, John is predicting another property market boom, most likely beginning at the start of next year. It will see rising rents and an influx of property investors.
“Those people who think the property market is headed for a crash, it’s not going to happen. All the numbers are pointing the other way.”
~ John Lindeman
Is Selling A Renovated Property Still Profitable?
The women in our community have found that selling their renovated properties is still profitable. For example, the ladies in Melbourne report being able to buy amazing unrenovated houses at an excellent price. Even though their renovation budgets have to be a bit higher due to the challenges caused by the pandemic, they are getting a very saleable price if they produce a quality renovation.
Renovated properties seem to be maintaining their pricing, even though prices have been settling. John says he has observed several things in this area.
- The recent spate of rate hikes has made investors nervous. As a result, buyers are holding back a bit. But their confidence will return.
- People are very resilient. They get used to the idea of higher rates and learn to work with it.
- The demand will return to the market relatively soon, driving property prices up.
- Now is an excellent time to start looking for property because prices have dropped due to a decrease in demand.
Which Areas Have Better Cash Flow Investment Opportunities?
Certain areas virtually guarantee success if you are starting out in property investment or looking to improve your real estate cash flow, certain areas virtually guarantee success. One such market is the Melbourne CBD unit market. During the pandemic, the city was abandoned, with 90% of the units being empty.
Investors who bought them before the pandemic to turn them into profitable AirBnbs have taken a knock. But, it has allowed other people to get started in the property investment business by purchasing these units at very good prices.
These units are going for less than $400,000, and because people are pouring back into Melbourne, they can start turning a profit from day one. So not only will the cash flow increase, but the prices will also.
“Before the pandemic, the median price of a two-bedroom unit in the CBD in Melbourne was about 90% that of Sydney. Now it’s 50%. So there’s a lot of growth and potential, and the same applies in other areas.”
~ John Lindeman
John says tourist areas are going to boom. So, if you’re looking for cash flow, these are the properties you should be looking for. The coastal holiday markets have a lot of growth potential and high cash flow potential.
There are winners and losers. Investors who bought their properties before we were hit with lockdowns probably paid a lot more for them than they can sell them for now. It is challenging to know what to do. John advises holding on to your properties if you can. The value will rise to the level it was before and may surpass. The bottom line is markets do recover.
John Lindeman’s Top 4 Tips For Starting An Investment Property Portfolio
- Avoid free events where the aim is to sell property. It’s an unregulated market, and there are a lot of wolves in sheep’s clothing out there. They often promise positive cash flow, but all you get is a limited rental guarantee for two years. And when that time is up, you discover there is no rent demand.
- Buy established properties and avoid off-plan units in the current market.
- Purchase properties in areas with something unique to offer, such as regional areas with improved transport connections.
- Look for areas where projects like building a renewable energy scheme will increase the demand for housing.
Maximise Your Renovation Profits
It’s important to research which areas have the best growth potential for renovating. John recommends looking at https://www.realestate.com.au to establish the value of properties in the area you are considering purchasing.
You can compare the prices of two, three, and four-bedroom houses. So, you can see the value you would add if you bought a two-bedroom house and added a bedroom during your renovation. John explained using an example he looked up before the podcast:
“I looked this up just before: the two-bedroom house in Kaumba is $750,000. A three-bedroom is $800,000, but a four-bedroom is $980,000. That means if you buy a two-bedroom house, renovate and convert it into a three-bedroom house, you have increased the potential value by $50,000. But if you bought a three-bedroom and developed it into a four-bedroom house, you’ve increased your profit by more than three times that amount. So you can see the real demand for the type of housing.”
Don’t Waste Your Money Buying Property That Will Not Be Profitable
It pays to understand the property market so that you don’t waste your money buying property that will not be profitable. Stay focused and learn how to analyse the housing market. Get to know the right direction to achieve maximum capital growth and cash flow.
Investing in property is a journey, and when you are strategic about how your journey begins, you can grow your portfolio. Of course, location and timing are crucial aspects that can determine your success or failure, but so is finding the right investment path.
Connect with with John Lindeman at Lindeman Reports.
Our Facebook group is a beautiful place for you to meet like-minded people in the business of property investment and management. It is completely free and growing to include hundreds of savvy renovators who offer the support you need to make your property business a success.