My Heroin Junky Neighbours

Hi Scott,

The other day I was at my local playground pushing my kids on a swing while two blokes shot up heroin less than five metres from the gate entrance. This sort of behaviour is pretty common in my area (median house price is over $1 million). Actually, it’s pretty common everywhere these days. Did you know Australia has the highest use of meth per capita in the world?

We live in a zombie country where we are becoming desensitised to erratic crazy people. Well, we got a wake-up call last night. At about 7.30pm, I opened the electric gate just a smidge to take the dog to the park across the road. I came back 10 minutes later and found my wife hiding behind the couch. When she saw me she just broke out crying. A meth user had been banging on the front door, then entered through the gate and banged on the kitchen window. Thank god they turned around and left. The babies were asleep in the next room.

Do you have any advice on how the average Aussie can feel more secure in their homes, without breaking the bank? I’ve always been put off by security cameras, which need an electrician. We were very grateful for our landlord’s installing an electric gate last year. We just feel we need more in these crazy times.

Leo

Hey Leo

I have security cameras plastered around my farm.

Still, it doesn’t make me feel any safer … it just allows me to share video footage of foxes ripping the heads off my chickens with my Dad, who likes viewing these things. “Shame”, he says, nodding his head.

Leo, you’re renting, so just move to a safer suburb when your lease is up. Any increase in rent will be easily offset by not fearing for your family’s safety.

Oh, and one more thing.  

The only people that like living around junkies are drug dealers, and I’m sure things really are as bad as you say. Still, your general comments about the state of the nation remind me a bit of the ‘old traveller fable’:

A traveller approached a wise man sitting at the edge of a village and asked him, “What are the people like in this village?”

To which the wise man responded, “What were the people like in the last village you visited?”

The traveller frowned. “Oh, they were selfish, rude, and drug addicts.”

The wise man nodded and said: “You’ll find the same kind of people here.”

In other words, what you look for you’ll see.

Good luck on the search for somewhere safer, and less paranoia-inducing.

Scott.

Here’s one for the renters

You always hear some real estate rooster crowing about how smart they were when they bought a joint in 2018 for $480,000, and then flipped it three years later for $1.3 million.
 
Renters hate those guys.
 
So, just for kicks, let’s look at life on the other side of the ledger.
 
Specifically, an apartment in 883 Collins Street, Melbourne, that’s just been put under offer this week.
 
Our story starts around 10 years ago, in 2015:

You’re sitting on the couch watching this new show called Married At First Sight, while simultaneously doom scrolling on realestate.com.au, when you see a sexy inner city property with the headline:
 
“Waterfront Elegance Meets Modern Convenience.”
 
Tap.
 
It’s a brand-new, waterfront, two-bedroom, two-bathroom, one-carpark luxury apartment in Melbourne’s Docklands. The building is like a resort. It has an indoor heated pool, state-of-the-art gym, yoga room, and even a residents’ lounge.
 
“Ooh, fancy”, as my mother would say.

The real estate agent assures you it will have strong rental returns, and touts the stamp duty and depreciation benefits of buying a new build off the plan. So you pony up and purchase the apartment for $860,000.
 
Cut to today.
 
Nearly 10 years have passed since you purchased the property … has it been a good buy?

Well, luckily for you, it’s been a pretty good 10 years to own a property:
 
For much of the past decade, interest rates have sat at some of the lowest levels in history.
 
Plus, we were hit with a fully fledged rental crisis in which landlords jacked their rents up, up, up.
 
Okay, so what’s it worth today?
 
(Bearing in mind that 10 years ago you paid $860,000, so it would need to be worth at least $1.1 million just to keep up with inflation.)
 
Well, this apartment has sat for months on realestate.com.au under the headline “urgent sale”.
 
And last week it went ‘under offer’ … for a price guide of $630,000 to $650,000.
 
That’s a shocking $210,000 loss over 10 years.
 
Yet it gets worse.
 
That loss is before you factor in inflation, body corporate fees, council rates, land tax, maintenance, agent’s selling commission, and of course 10 years of interest on your loan.
 
Look, I have no idea who actually owns this particular property, or the full story behind it. Yet what I do know is this is not an isolated case. Research house CoreLogic has identified 65 areas (mainly in inner-city Sydney and Melbourne) where prices today are still below the record highs from the 2010s. “Vendors are willing to sell at a loss … but buyers aren’t interested”, says CoreLogic.
 
Now, guess who the real winner is in our scenario?
 
It’s the renter!
 
They’ve enjoyed 10 years of downward dogging in the yoga room and paddling about in that fancy heated pool, plus they’ve even had a plumber on speed dial to unclog the dunny.
 
Now that is what you call “Waterfront Elegance Meets Modern Convenience”.
 
Tread Your Own Path! 

I Can’t Sleep. I Can’t Eat. I’m a Walking, Shaking Mess.

Hi Scott,
 
I can’t sleep. I can’t eat. I’m a walking, shaking mess. We put our home up for sale in the first week of March for $1.25 million, on the advice of our agent. (At the time I thought it was on the high side, but I didn’t say anything.) It’s been eight months now and we haven’t got a single offer! Our agent has gone missing in action, and we don’t even have open-for-inspections anymore. My husband, on the other hand, is cool as a cucumber. He’s sure someone will come along and buy it. I’m climbing the walls, not just because we’re up for thousands of dollars in selling costs regardless of whether we sell or not (!), but because we’re stuck in limbo. I want to move interstate to start our new life (and my new job!) but we can’t do anything until this bloody place is sold. What should we do?
 
Wendy
 
Hi Wendy
 
I can feel your stress through my computer screen!
 
My wife says that I am too blunt, but she’s currently overseas, so I’m going to say what I damn well please:
 
Your asking price is too high.
 
If you haven’t sold your home within six weeks of listing (let alone eight months!) you have one of three options:
 
First, you can take it off the market and wait till prices recover.
 
Second, you can rent it out for a period of time.
 
Third, you can meet with your agent and discuss aggressively lowering the price so you can attract a number of bidders, and let them sort out what the market value is.
 
Which one does your head tell you is the best option?
 
Remember, it’s very likely you’ll be buying and selling in the same market. In other words, if you sell your home for less than you expect, chances are you’ll buy your next home for less than you expect.
 
The stress you’re feeling comes from a lack of control. Waiting and hoping isn’t a strategy that will work in this market. You need to take action!
 
Good luck!

-Scott.

What’s in store for property prices

Let’s take out the crystal ball and see what’s in store for property prices.
 
Nationally, they continue to creep higher – they’re up a very respectable 6.7% this year.
 
Yet it’s also clear that the market is losing steam, especially in the tinsel-towns of Sydney and Melbourne, where there are currently more homes for sale than at any time in the past five years.
 
Why?
 
“Owners struggling with mortgages at the moment are thinking, ‘I’d better get out and take advantage of relatively high prices’,” AMP chief economist Shane Oliver was quoted in the news as saying.
 
I think that makes sense.
 
But hold your handbags!. Another expert, Louis Christopher from SQM Research, predicted this week that prices could boom 10% nationally next year if we get a rate cut (or two) early next year.
 
I also think that makes sense (especially in Perth and Brisbane, where there’s a lack of supply).
 
So the question then becomes: how likely is it that homeowners will get some ‘relief’ from high rates?
 
Well, in January economists were almost unanimous that we’d get a rate cut this year.
 
Didn’t happen.
 
And now they’re equally unanimous that we’ll get rate cuts next year.
 
Tik. Tok.
 
Perhaps that’s why Treasurer Dr Jim Chalmers describes current interest rates as being “stubbornly high”.
 
Interesting. So Jim is suggesting that interest rates are behaving much like my three-year-old does when I won’t buy him a Big M at the local Romsey IGA. He collapses on the floor and starts howling like a wolf, and then goes limp as a jellyfish when I try to pick him up.
 
Now that is stubborn.
 
So, let’s zoom out and take a look at the historical chart.

From this perspective, current rates don’t look ‘stubborn’ – or particularly high –  to me.
 
The truth is that interest rates movements are as unpredictable as my three-year-old. (Just ask the former Reserve Bank Governer Philip Lowe, who famously shanked his ‘lower for longer’ forecast … despite the fact that he was the one who set the rates!).
 
Look, despite the crazy amount of airtime we give economists and experts, history has proven that they’re actually no better at picking the longer-term movements of interest rates than a dart-throwing monkey.
 
So here’s my advice:
 
Don’t be stubborn, and don’t listen to experts (including me!). If you’re making buying or selling decisions, you need to deal with the facts in front of you.
 
And that goes for you too, Jim. I know you’re hanging out for a 10% pop in prices before the election in May, but you can’t count on it!
 
Tread Your Own Path!

The no diet, no exercise plan

Imagine you have a friend who is morbidly obese.

They come to you and confess: “I can’t keep living like this, I’ve decided to take action.”
 
Then they explain their plan:
 
“There are two things I will not do: diet or exercise.
 
“However, I’ve been researching on the internet and I’ve come up with two amazing solutions: first, I’m going to drink 100ml of castor oil each night, which an ad I read promises will ‘burn my fat like a blowtorch’. And I’ve also bought some electrode pulsing pads that I saw on The Morning Show. All I have to do is stick one to each of my butt cheeks and they simulate running a marathon, all while I sit on the couch and watch Larry on the telly.”
 
Okay, so what I’ve just described is like both of the major parties’ policies on tackling housing affordability.
 
The fact is that neither Labor nor the Coalition wants to do anything that will cause house prices to fall … and become more affordable.
 
Why not?
 
Well, think of it from a politician’s point of view: a third of voters own their own home outright, another third are paying their home off, while the final third rent. In other words, the overwhelming majority of voters want to see their homes rise in value.
 
So that means that politicians need to play a game of legislative limbo and come up with pole-dancing property policies that really don’t achieve anything.

 And the closest match to those pulsating electrode pads has to be the Government’s signature housing policy, the Help to Buy Scheme, which encourages low-income earners with just a 2% deposit to buy a home. Now I don’t need your vote, so I’ll tell you this is a dumb idea: broke people shouldn’t buy homes.
 
So I know what you’re thinking …  
 
You’re thinking it’s easy for me to take potshots at obese people, and politicians (or both, hello Clive Palmer!), yet it’s much harder to come up with anything constructive myself.  
 
So let me give it a go.
 
The biggest losers from our housing dumpster fire, ironically, are not voters.
 
It’s Aussie kids.
 
Specifically, more than 76,000 Aussie children under the age of 18 who sought help from homelessness services in 2022–23. Almost 16,000 of these kids were alone – unaccompanied by a parent or caregiver. The other 60,000 kids sought help with their family, according to Homelessness Australia.
 
Know this: the long-term trauma of a childhood spent without a stable roof over your head, of constantly moving schools, and   absorbing the impact of Mum or Dad being constantly stressed about where they will live, is real and it’s long lasting.
 
Now this is something the Government can fix … but again, politically, it’s not really a vote-winner.
 
Many years ago politicians decided it was a better vote-grabber to give tax breaks to investors to provide private rentals, rather than build more public housing.
 
It hasn’t worked.
 
Who’s going to vote for the people who don’t get a vote?
 
Tread Your Own Path!

My Real Estate Agent is a Rogue

Hi Scott,
 
We had a terrible 2022, starting with listing our apartment for sale in May – right at the time interest rates went up in record succession. It ultimately resulted in our agent pulling all sorts of manoeuvres to get us to drop our price. We didn’t take the bait, and he delisted our property, meaning we lost the upfront marketing costs of $7,000. Two complaints to Consumer Affairs to no avail, so we lost that money. I’ve taken it really badly – it’s been a big confidence hit, not to mention the daily guilt I feel for putting my family in this situation. What can I do to get some of this money back? How are consumers able to hold businesses accountable when there are no consequences for unethical behaviour?
 
Linda
 
Hi Linda,
 
It’s a hard one.
 
So perhaps the agent got you on the books by touting an unrealistically high price … and then began knocking you down to reality. It happens a lot, especially with numbskull agents.
 
Or maybe it was the fact that you listed your house at the tail end of the Covid property boom and got caught out. From May to January, house prices in capital cities pulled back 8.6%.
 
I know I sound unsympathetic, but you can’t blame your real estate agent for that. His one and only job is to go out and find the highest price the market is prepared to pay.
 
It’s your job to decide whether you’ll accept it. And if you’ve anchored your price 10% higher than the market is prepared to pay, that’s not his fault. I think it would be a hard ask to get a refund on the dough his agency has spent marketing your property to the property portals.
 
Please don’t beat yourself up. This is all part of the emotionally and financially taxing process of selling a property. From here on out, focus on the reason you decided to sell in the first place … and what your next steps are.

Scott.

The Scumbag Landlord

G’day Barefoot,
 
My wife and I are very lucky. We own two investment properties that basically pay for themselves. Trouble is, we live in another state and rent ourselves. If we sold our two rentals we could afford to buy a family home for cash — but we feel obligated to our tenants. Both rentals have long-term tenants and we charge about $50 a week less than market to help them out. If we sold, they’d be out on their own and unlikely to be able to afford to rent anywhere nearby, and their kids would have to change schools and I’d feel like a scumbag capitalist. What should we do to not make two families homeless but get ourselves into our own home?

Brendan
 
Hi Brendan,
 
You sound like the sort of bloke I’d like to have a non-alcoholic beer with.  
 
As a renter yourself you understand just how absolutely bonkers things are right now:
 
The national rental vacancy rate sits at just 0.9%, according to SQM Research. Meanwhile, rents have rocketed up 20.1% in the last 12 months alone!
 
I have never seen anything like it.
 
It’s a terrible situation, and one that I’m glad I don’t have to grapple with … as a renter, or a landlord.
 
After all, my share portfolio doesn’t have feelings (nor does it suffer burst water pipes at 3am), and my dividends just magically appear in my bank account a couple of times a year.  
 
That said, if I were in your shoes I’d sell the properties and buy your own family a home. That’s not because I’m a scumbag capitalist, but because your first responsibility is to your family.
 
Besides, there are other ways to help struggling people in your community than renting out a few joints slightly below the market rate. You could volunteer at a local food bank, or you could donate money to the Financial Counselling Foundation, who help and fight for some of the most vulnerable people in our community.

Scott.
 

I’ve Been Conned — by My Parents

Dear Scott,

I feel frustrated, confused and taken advantage of. Back when I was just 22 (I am 28 now), my parents could not pay their mortgage and somehow conned me into taking ownership of their house. They promised me money, tax cuts, all the greatness in the world. Stupidly, I said yes and I now have a $500,000 mortgage under my name. They pay for the loan, though they are frequently late, and Mum loves to withdraw from the equity too. I have tried to get my name off the loan but they keep resisting. Worst of all, because I do not live there, I get shafted at tax time. Is there anything I can do?

Zoe

Hi Zoe,

Oh wow.

I’m only getting your side of the story, but let me try and piece together what’s going on:

It sounds like your parents live beyond their means.

And so, to take the pressure off themselves, they decided to make you their landlord … at least on paper.

At which point that pressure transferred onto your shoulders.

So, what should you do?

Well, don’t lose sight of the fact that the most valuable asset in this situation is the relationship you have with your parents.

So your first step is to blame me, the Barefoot Investor.

Tell your parents that you wrote to me and I suggested that you talk to an accountant (one who doesn’t know your parents). Ask the accountant to review the situation and advise what you should do. They may find you have significant equity in the property and you’re getting a great return. Or they may find it’s a money pit and you’d be better off selling (it’s your house, after all!).

Whatever the decision, I’d let your parents know that this is what the accountant has advised. In other words, blame me, blame the accountant, and try to keep your relationship intact.

Scott.

First Home Hell

Barefoot,

I have been saving as much as I can. By mid-year we should have a deposit and could start looking at buying rather than renting. I know your normal advice is to buy a house when you can afford it. But does that still apply when these inflated house prices seem like a bit of a false economy?

Doug

Hi Doug,

I feel for you.

Property prices are getting juiced because of low interest rates.

And the Reserve Bank has said they’ll keep rates at (basically) zero for at least the next three years.

Here’s how this is playing out in the real world.

Greater Bank has a one-year fixed home loan rate of just 1.69%!

The lowest on record.

At the same time, the average rate on a bank savings account, according to Mozo is just 0.18%!

Also the lowest on record.

In other words, right now property prices are at record highs and are rising faster than most people can save. Which is great for people like me who own property, shares or other assets. Yet it’s absolutely horrific for anyone starting from scratch, trying to save and scrounge up a first home deposit.

So, what to do?

Well, there’s all kinds of advice people will try to give you:

Ranging from the practical (save a 20% deposit, take a long view) ...

To the patronising (buy out in Woop Woop and sit on milk crates for a few years) ...

To the pathetic (“I’m 23 and own 75 rental properties, it ain’t that hard if you have a system”).

Yet there are no easy answers.

So instead I want to leave you with this thought:

Interest rates are only going one way from here … up.

I don’t know when. But if you’re taking out a 25-year mortgage, well, chances are you’ll see hikes.

And that’s why I’ve consistently advised people to stick with what works …

Save up a 20% deposit, find a home you’re happy to live in for 10 years, buy it.

Forget about what the market is doing.

Scott.

My ‘Free’ Land Cost Me $140 Grand

Barefoot,

My brother and I — both in our sixties — did a land swap, with no money changing hands. The aim was to facilitate generational change (when we eventually die). Now I have now been hit with a $140,000 capital gains tax bill! Is there anything I can do about it, even though I received no money at all?

Jamie

Hi Jamie,

No, you’re screwed.

Had you spoken to your accountant beforehand, they would have explained that (a) the ATO data-matches everything, (b) capital gains tax (CGT) is triggered when an asset changes hands, and (c) they’ll want their money regardless of whether or not money changed hands.

Yet there is something you can do: talk to your accountant to see if they can arrange a payment plan with the ATO.

Barefoot Sales Spiel

Scott,

I live in the Northern Beaches area of Sydney. The other day, a real estate agent came to my door quoting you saying that house prices are sure to drop in the coming months and now is the time to sell. I instinctively don’t trust salespeople, but is there any truth that you suggested this?

Sam

G’day Sam,

It’s a little twisted sister for my liking.

A few weeks back I wrote about the NAB CEO’s suggestion that people who found themselves in financial difficulty should sell, yet that was him saying it, not me!

In fact, I specifically said “Please don’t misquote me: I am not saying you should sell your home”.

It sounds like the agent is using my name to make a sale (depressingly, that happens quite a bit to me these days).

My advice?

Shut the door in his face.