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This is a Momentum Media production. Nerd alert! Property nerds. The home for data-driven property investors, where we uncover Australia's hot and cold markets, latest headlines and trends. G'day everyone.
Welcome to another episode of the Property Nerds podcast. And today we're doing something different. We're at the studio here. Got the blue light and the TV, the brand of the Property Nerds. It's all popping off.
But today we've got something even more exciting than just a bunch of cool mics, headphones and studios. We've got another joining us on the show as a host. So as you know, for those who've been following the podcast for some time, my name is Arjun Paliwal. I'm the founder at InvestorKit Buyers Agency. And my wife, Lee, she was prior looking after Hills Finance and working with us here on the Property Nerds podcast show.
And so we had property and finance all come together. Now, during that time, I welcomed little Ruby to the family. So beautiful little Ruby. She turns one actually next week. So time is flying.
And during that time, Lee made the decision to go, look, I'd love to be a full-time mom. And I'm really, really excited for her. Very happy that she's also doing that. And it's definitely been a blessing. But during that time, I became a loner on the show.
It was just me, myself and I, and trying to record some content for you all who tune in to share what I see in the data, share what I see out there in the headlines. And during that time, we connected with the broker that we were closest with at InvestorKit. And our clients raving fans for this person and their team. And yeah, from all sorts, complicated loans, expanding and scaling portfolios from five to 10, resi and commercial. We just had a lot of good momentum together.
And that was really special. And so I thought, hey, we want to keep the property and finance theme alive at InvestorKit and at the Property Nerds podcast. And that was really important because we got loads of messages going, guys, can we have some finance info back again? Can we have some finance insights back again? And I'm like, yes, yes, yes, coming soon.
And we have that today. So I'd like to welcome my new co-host. And the eggs still match, by the way. So for those who remember the eggs, the brown and white egg, I'm still the brown egg and we've got another egg with me. So my fellow egg, Jack, welcome to the show, mate.
Thanks for the kind words, mate. It's funny, man, because I actually, how I first got to speak to you was through this podcast. It was about three years ago. I don't know if you remember, but I put an inquiry and you were releasing something where you'd put in a postcode or a suburb and it would just give you all the data. I heard the podcast, logged on, put my details in to get access and you called me.
I felt like a celebrity was calling me. I was like, couldn't believe it. But yeah, since then, it doesn't feel like that long ago, but started sending you business. And since then, we've just been leaps and bounds, mate. Yeah, it's been a special last three years, mate, just seeing firstly, you go from strength to strength.
Our clients together share a very special journey. And I think that's really important for me in what we do as a buyer's agency. When we help so many families, it's about not just us, it's about building the right team. And when you build the right team around someone, you get to see the good finance professionals, the not so good, the ones that had the clients delay their finance clause extended multiple times, those that couldn't help someone get a loan through when they were clearly in the capacity and a position to, and you see it all in my space. So to be able to isolate one person who I see as an absolute standout in comparison to the hundreds, and then not only have you work closely with our clients, but to get your ass off the couch and go, mate, come and join us on the show and you accept it.
I was humbled on that as well, man. So welcome to the show. But for those who don't know you, obviously I'm raving fan of you, how you do business, how you help people, the family's lives that you transformed. I mean, those who don't know you, Jack, tell us a little bit about yourself, the business you're from, just so people can get to know you better. Yeah, so when we first started working together, it was at a different business, but about a year ago now, which is pretty crazy, I started 4acre Financial.
And mate, it's been going very well and that's due to your support largely. So thank you for that. But I think, yeah, I started off as a broker about 2018 and yeah, at the new business, 4acre Financial, we're just mainly focusing on building a team because I find that being the owner of the business, the people under you kind of follow your lead and they know that I really care about every single deal that goes through. So everyone in the business is the same and that's just how we do things. But yeah, I think in the last three years is really when I've started dealing mostly with investors.
So over 90% of our clients are investors and the ones that aren't investors would become investors because they're so confident. That's a really important point because when people are growing a portfolio, people don't recognize that brokers aren't all built the same, right? Like you go at it and look at Australia's data, almost more than three quarters, almost three quarters, sorry, of Australian houses are owner occupied. So it's likely that the majority of financial professionals are dealing with owner occupiers. And we've got a lot of people that come through to us and say, look, we've had a broker, but we just don't get the vibe that they know investments.
And it's not just about lenders, it's strategy. You've got to understand strategy. You've got to understand trust structures. You've got to understand SMSF because if you don't understand the full picture, you're not going to be able to give the right strategy that's individual to that client. And they know that, they're talking to you, they're not stupid.
They know if you know what you're talking about and yeah, I find that for us, when they do come, they very rarely leave. Like people have their own reasons, people, they have close people that they get referrals from, but we find that we've got a really good business and yeah, it's going really well. Very happy. Yeah, and I think one thing just to like make one final note on this all is that when I've seen your team in action, one of the biggest things I've seen is that, yes, you talked about the whole holistic part of SMSF, commercial, residential, helping from all sorts, but like there's no, this is a hard no. Like there's always, there's a way.
And what I mean by that is like, people sometimes treat mortgage finances, no, declined, approved. And you don't look at it that way. You're like, hey, I can make it work here. Or if you have this change, we can make it work in the future. It's like just solution driven.
Where did you get that from? What's made you feel like that stood out about you and your team a lot? Cause it's very solution driven. Yeah, well, I find it very hard to say no to a deal. Very, very hard to say no to a deal.
Almost, I don't think I've ever said no to a deal because- It's like, give me a crack. Yeah, well, even when, and a lot of brokers, they put it in the too hard basket and they just say, nah, it's, you know, it can't be done. And we actually get, cause you guys don't send all your leads over. You know, you have people that you work with, you encourage people to use their existing professionals cause it's a team that they've got. And I actually like that.
But every now and again, there'll be someone that's bought a property and they're in the finance clause and they're a week out and their broker stuffed it up and we get a call and say, oh, so-and-so, we've got a week. You're my emergency line. Like if someone calls me and goes, Arjun, I know I'm meant to have this approved by now, but my broker has, I'm like, I've got the Batmobile, what do you call it? The Batman's phone, the red phone. I've got that ready.
Just stop doing it on Friday afternoon, bro. Just don't make Friday afternoons any more stressful than they need to be. But, you know, we have to get from, within a week, we have to fully onboard investors that have, you know, multi-property portfolios and turn around a solution and a formal approval within that timeframe and try to find out what the issue was with their previous broker. And you find that during that process, towards the end, we're like, so have you spoke to the broker? Have they told you what happened?
Why it was declined? What the mistake was? I think a lot of them are just too ashamed to admit the mistake that they made until we've actually picked it up and go, okay, this is very obviously what happened and why it's failed. And this is why it has to go and get done this way. And, you know, very rarely we get a scenario like that and we can't do it, which just goes to show that not all brokers are created equal.
I agree. Well said, well said. Now, that's you on the finance front. What about you outside of finance? I mean, people know me from the You know, even though they get a slightly better deal, they've got no cash left.
So they're not comfortable to do it. All it takes is one air con. They're like, oh, what's wrong here? And then they'll reduce the purchase price and get a suboptimal property potentially. So if you just go the 97% LVR option, you've got 20K left over.
Immediately, that's a good buffer against the house. And you still get that higher purchase price and the right property. So it's not for everyone, but man, it could be a very good option for a lot of people. That's a good point. Now with interest rates where they are and the prediction for many to come down, how much do you feel that will impact the borrowing out there?
Because you see capacities day in, day out, like 1%, 2% rate drops. Things can move pretty quick, just like when they did in the 2021 period where things came down or even just leading up to COVID, even pre-COVID, rates were falling down pretty quickly. Yeah, but if you look at all the predictions, and you mentioned that in the white paper, that most of the banks are expecting a 1% drop over 2025, which is good. That's really good. I don't know if that's super quick.
I know it'll feel quick, but it's definitely not the knee jerk that we saw during the end of COVID where they started increasing month on month. That was very stressful for us and a lot of people. But 1%, a quarter percent drop every quarter, I think that's a really good outcome for a lot of people. And that's going to open up borrowing capacities by a lot. Yeah, but you don't know if it's going to be one rate drop every quarter.
You never know what's going to happen in the world. You don't know if it's like 0. 25 or 0. 5 sometimes. It could be different.
It could be a knee jerk the other way. You never know. So yeah, it looks good, but from a borrowing capacity point of view, when the lenders started increasing their rates every month, I think they started to see a lot of the market share going to non-bank lenders due to borrowing power constraints. And what we saw as a result of that was a lot of lenders loosening their policy and simplifying their assessment to really open up what people can borrow. So now I think they wanted that market share back, and they weren't getting as much lending, so they were able to take on more risks.
So they started increasing the percentages of rental income they can use or simplifying their assessment on bonus commission over time and just being really generous with how much that allowed to borrow because of that. It's a constant war, isn't it? They're competing. All those banks are competing. The smart ones are.
There are some banks that you'd be surprised that they're just not competing at all, and there's a few banks that are really focusing on the broker channel. Obviously, the amount of broker-originated loans are massively increasing, and most banks in the broker channels are really on that and really trying to grow that. But other banks, you just think, are you guys even trying to get business? But yeah, I think it's kind of balanced out because of all the rate increases. I think now we're seeing a lot of major bank lending and second tier, but good prime lending rather than a lot of non-bank lending, whereas I saw during all those rate increases, there was a lot of non-bank lending just due to the fact that they weren't ready for how significant the increases were going to be.
And now the big banks want to claw back that business, right? So competition is good. It's already happened, mate, honestly. Since the last rate increase, it's been about a year. So even kind of before that, but in the last 12 months, mate, it's happened.
The lenders have opened up their policy. They're quite happy to lend, and most deals are still with those prime lenders. And that's actually a really good point you raised because what people don't recognize is that you don't have to wait for interest rates for finance to change, right? Like people think it's like, oh, interest rates down, then I'll be better. Like I always encourage people to keep the finger on the pulse.
You know, we get our clients to keep checking in with you because when they keep checking with you and your team, it's like, hey, this bank's now changed something. That bank's now changed something. You raise a good point of that because over the last 12 months, even though interest rates technically haven't dropped, we've seen the fighting as if they're dropping already. Fixed rates coming lower. Some people, policies changing, things like that.
Man, a great example is, you know, three or four years ago, you could probably say one or two lenders will take one-year financials. Today, I could probably name you close to 10. So what's one-year financials for those who are new to it? Well, a self-employed customer, you know, generally, historically, you'd need two years of financials. Okay, like tax returns.
Yeah, tax returns, company tax returns, individual tax returns, company financials or trust tax returns. You know, historically, most people would assume you'd need two years, right? But, man, recently, it started happening over the last two years, but in the last year especially, there are so many lenders that are offering that one year in isolation financials. And, you know, technically, you can do 2024 tax return right now, but you can still use 2023 tax returns, which is, you know, almost a year and a half ago. And you can use that for your borrowing power all the way up until March next year.
Right, so if someone's listening to that, they should think of two things, right? Firstly, the one year could be looked at from the year 2023. So if that year is looking solid and that's there, you don't have to wait to lodge this year's tax returns. You can use that. Secondly, if you're having some big growth as a business owner and this financial year, June ending, is gone like really, really well for you, you could lodge the returns for that and isolate just that one year and get your servicing up.
It's especially good for people that are in their second year of business because in their first year, obviously, you've got a lot of expenses. Yeah, it's tough, man. And then in your second year, you obviously do a lot better, hopefully, than your first year. And that's just another way that those major lenders are trying to take the market share back because there's a lot of low-doc options out there. There's a lot of alt-doc options out there.
So yeah, they want more market share. So yeah, there's a lot of one-year financial options out there. Mate, the fight is on. The fight is on amongst the banks. So I know you had a couple of questions for me on this report.
So for anyone tuning in and whether you're driving in the car, listening to this podcast, and you're wanting to go, look, I want to grab a copy of this report that we're talking through today, just a reminder, it's investikit. com. au. It's totally free, and it's called 10 Cities That Will Benefit From Rate Cuts The Most. It just dropped literally this week.
And if you're listening to it in the recording, maybe, yeah, still this week because we're releasing this pretty soon on the podcast. But this particular report, we might go through maybe three cities tops. So that's me doing my seven for you to find out in the report. Go get yourself a copy. It's totally free, by the way.
But you had a few questions because you checked out this report. What are your thoughts? Yeah, so when I was reading the report, I noticed that you provided a lot of context prior to giving those 10 cities. So I want to go into a bit of the context of what you provided. So in the introduction, I'll read directly from it.
It says, cash rates in isolation will not bring another property boom across the country, as we can tell from historic data that not all markets move in response to interest rate changes. That's a really, really good point. And not a lot of people know that because there's a lot of people that are sitting on the fence just saying, no, I'm going to wait. I'm going to wait. I'm going to wait.
And I hear that, and I cringe because especially if you're buying through InvestorKit, mate, I've seen some insane growth in just 12 months. And people that have been waiting for that long, the opportunity cost is they wouldn't even be able to comprehend it. Yeah, I mean, that's a really good point you raised. So firstly, that's an important line we write in the introduction because whilst this report centered around 10 cities that are going to actually benefit from rate cuts, it doesn't mean everywhere in Australia benefits from it, right? Because if the theory that interest rates dropping makes property booms, then why did we see markets boom as interest rates have been rising?
Let me name a few cities, Perth, Adelaide, Brisbane, Townsville, Rockhampton, Bunbury, the list goes on, Bundaberg, Toowoomba, all of these cities, Barossa Valley, Mount Gambier, all of these cities have kept booming even as interest rates rocketed up and they've stayed high now. They're still booming. I bought myself a property in Townsville in a suburb called Annandale. As per CoreLogic, Annandale is up 27% over the last 12 months during interest rate highs. So that's really important to note.
When interest rates drop and you think there's going to be this mad frenzy across the media, which there will be by the way, yes, it will impact many cities, but Like that stuff was fairly common, a 600k to 1 mil. But then as the years went on, it's like 400 to 600, 500 to 700. That's for sure impacted the growth rates. Are you reading my notes, mate? Because you float onto my exact next point.
That's crazy. Yeah. Well, obviously with rates coming down, that's going to change the appetite for an investor. It's going to put them in a position where they can borrow, but it's also going to change the strategies. Because a lot of people, you're right, so many people are just focusing on yield.
They just really, really want yield. And that's because there's pressure on them right now, especially if they've got a lot of debt. The more debt you have, the more you notice a quarter percent rate increase. You might not think it's a lot, but if you have a lot of debt, you'll notice it. And that's why a lot of people are starting to ask for yields.
But in a lower interest rate environment, they're not going to be as worried about that. Yeah, fair call. I can remember you made me have memories of 2018 and 4% yields were solid back then. Then all of a sudden, 3-4% yields are like, you know, like right now. But yeah, what that scatterplot showed is all this growth happened in that affordable end over the last two years.
And as we know, that can't stay the same forever. You know, you can't have an affordable end suddenly. You can't have Campbelltown be as pricey as Parramatta, right? Because they have to go through their waves of shifts because people will see value, intrinsic value somewhere else. So I think that's a big thing to look out for.
Over the next two years, we see a big shift in markets as well, that as time goes on and the rates continue to come down, investors will be far more open to different areas' rental yields. That spreads the money. Also, areas that have grown less will feel much more valuable to people because it doesn't feel as pricey and people can borrow more for it. And secondly, thirdly, sorry, is that people who've made a lot of equity, they've made a bunch of equity in the affordable markets. I'll give you an example.
Out of Perth has rocketed 50% to 70% in the last three years in some areas. Inner Perth is about 20% to 40%. Wow. So it's like it's nowhere near as high as out of Perth, which is really fascinating in the last two years. So that's a big 30% gap.
That means someone upsizing over the next few years once interest rates start coming down, if they time things right, they could have a big benefit. Swing out the outside money, come into the inside, and they've got a house in a better location and all that sort of stuff. So yeah, that's a good point to run into. Do a bit of a spiel on the white paper as well about consumer confidence elevation, which that'll obviously come with interest rates decreasing to the masses. But to the property investor, I've already seen that come back.
Honestly, just the mere talk of a rate cut, their confidence is back because they all think that one rate cut is just going to be like, oh, property's booming. And two, it's like, oh, there's a mad rush again. So just the mere talk of it, the savvy investors want to get in before that happens. They should have been doing it six months ago, like I said, because there's still markets that are growing rapidly, and you can still have a piece of that pie. But yeah, I've already noticed just people hearing the word rate cut on the news, they're like, oh, it's coming, and the confidence is back.
You just made me get some memories then of like, I actually made a mistake on sentiment once in the past. What I mean by that is I didn't realize how important that was as a metric. So I was always looking at supply trends, demand trends, and then I was looking at certain cities that didn't do so well or did so well, and I'm like, why, why not? And questioning myself, and I've come to realize in recent times more than ever, sentiment is very, very, very important. Like I'll give you an example.
In 2022 in Brisbane, rate increase started happening, and there was this little, anyone wants to check this out, just go to like sqmresearch. com. au, free source, great tool there for property listings data. You can click the tab free data, and then you can also just go into type in the area, or you can look for all listings data, I think that's what it's called. And when you click on all total property listings, you click on Brisbane, and you'll see this curve.
2021, 2020 supply comes down heavily. And then rate increases and a bit of sentiment shift in Brisbane, and for that little period, supply went up. Just like boom. It's like people just felt a certain way that things were happening, because Brisbane's economy didn't erupt and explode and go bad just for that little period. But just the thought, the news, the data, the people saying this could happen and that could happen, listings just picked up.
And then you thought that, okay, Brisbane's boom's over, and it feels like it regulated itself, and then all of a sudden, supply came back down again. It's a really weird chart, because usually it's a lot smoother, but that trend was like, and then came back again. And then that was an explanation to me on sentiment, right? But some cities, they're way more sensitive to that sentiment. And I'm still yet to figure out why.
I wonder, like maybe Sydney is like very sensitive from its data points to sentiment trends and shifts. I wonder if it's to do with like maybe how informed finance jobs, you know, big banks, all that stuff. Could be debt levels too, people's thoughts around it all. But something in that sentiment data with Sydney plays a lot more impact there. But I guess the main thing to show in this data from a sentiment perspective is that confidence is boosting, like you said, already, right?
People are already looking at that interest rate that could potentially happen, and people are thinking of it as if it's happening. We're noticing in our client base. Our client base before, even though rates haven't come down, they're starting to open up and be much more open to bigger budgets. We're looking at their data and we're saying, hey, you know, 500 to 700 looks well. And they're all like, I want to be on 700 to one mil if I can.
I'm like, okay, interesting. Talk to me why. He goes, Arjun, rates are going to come down. I'm like, see, like this is interesting to hear them say it back to me, even though we haven't said it to them. They're seeing that rates will come down.
They're seeing that, you know, pricier markets haven't felt the love in recent times, and people are willing to just take that negative cash flow hit a little bit harder for that short period, and hopefully the slingshot comes back alive. So that'll be interesting to see if that actually happens. Yeah, yeah. And just to finalize for me, all the cities that you've recommended, I mean, I'd buy in every one of those cities. That's awesome.
So if you could summarize why specifically you chose these, because I'm sure you're buying in these areas as well. Yeah, look, I mean, actually we're not. We're not buying in all of them. We're buying in some. Some of them you've seen.
Yeah, yeah. So some of them we're not buying in. Some of them we are. This is just what the data says, right? So I think the main couple of reasons for choice was this.
So firstly, we looked at were they sensitive to certain changes in the past? Because there's no point saying a city that boomed during interest rate increases is now going to suddenly double boom because interest rates are declining. Like I know that that could help that city with a bit more finances and give it a bit more extra push, but like those that have had a complete opposite swing have been more important to consider. So if a city, as soon as interest rates started to come up, really started to go the other way, then its sensitivity is higher. And if we look at past events, that's the case as well.
So what we did is we looked at a few things. We looked at the affordability aspect. We looked at the current market pressure. We looked at their rental returns and how the yields might change. We looked at their market cycle as in which cycle position are they in and what could that do when rates shift.
We also look at their historic performance with correlation to cash rate changes. So how has it done when cash rates have moved in the past? Like how has that city reacted? And then from there, we also looked at their affordability trends and started to go, okay, how are each of these cities going to do? So I'll give you one example of one that should be interesting.
The city of Greater Melbourne. I think that's been a hot topic for many people. I didn't want to say it because I didn't want to give it away. Yeah, I'm going to give it away. You know what?
We'll give away three cities. We'll give away three cities today. So the city of Melbourne is an interesting one. Melbourne's property market hasn't been pretty for the last seven years. Pretty poor performance.
If you look at a 10-year data set, it looks decent still. Do you think that's purely from a policy point of view? Because a lot of people would say they blame it on the premier there. Yeah, lots of that has to do with it. It's like a multitude of factors.
