Borrow My Brain - Adam

Hello and welcome to Borrow My Brain. Now, before we move on to today's caller, I just wanted to give you a little bit of an update on Jack's situation. Jack is still doing his research. He's definitely looking at those suburbs in Melbourne and getting a little bit more knowledge and getting the alerts through. So he knows what's coming onto the market. But he's hanging out for that inheritance so he can push the button and purchase something. So we look forward to hearing about Jack's purchase in the future. Now, today, I get to talk to Adam. Now, this is something I have never done before. Adam has purchased a block of land and he is going to build a property. So it is a new build, but he's torn between the luxe version or the pretty good version of the two building designs that he has been looking at. So I apply my demographic mindset and investor grade mindset to look at maybe what one would actually suit the typical market when it comes time to rent or sell the property. So this is something I haven't done before. It is new. It was a bit of a stretch of my brain, I have to admit, but I'm pretty sure that you'll enjoy it. So now let's have a chat to Adam. Okay. Today I have Adam with me. And Adam, you sent me, well, let's just say a bit of an essay and you asked to borrow my brain. I'm going to throw it over to you. Tell me, where are you at the moment and how can I help?

So I'm 33. I managed to save up a 20% deposit because I didn't want to pay any of the lmi. I'm based in the Southern Highlands on a farm where I work as well in the family business. I'm a first home buyer. I've read a heap of your resources and I'm at the stage now where I've just recently purchased a block in the Southern Highlands as well. And I'm looking to build in the next three months.

Great. Ideally, first home buyer, are we talking about this property is the forever home or is it a stepping stone or is it a buy, keep for a while and then sell or upgrade or turn everything?

I mean, even, even that is not set in stone yet. I know. I mean, it has to be your principal place of residence. But as you've said, you know, as a number, another property experts have said, you know, you need to look at this principal place of residence as part of your overall investment strategy. So the idea, I mean, I was fortunate enough that my brother's a buyer's agent. So I was able to get the block of land for $15,000 cheaper than what's advertised by going through the developer directly. My parents have bought next door, he's bought two places down.

So there's a collective. Really? Well, right.

No, for them it's investments. For them it's investments. I mean, this is his 20th investment, so he's very aggressive in that sense. And he's three years younger, but yeah, so that's, that's the situation. So then he's built with a particular builder that I won't name in the past and they've built well. And for the same reason, going in with that collective buying power, that bargaining chip, the three of us were going to build with the same builder, the same design, just changing the facade a little bit of the layout and the features, so to speak. Yeah, so the idea was manufacturing that equity on the way in, keeping, you know, not over capitalizing on the build based on median house prices in the area. And then in one to two years looking at refinancing it and going again or, you know, speaking to someone such as yourself that, you know, has a different strategy altogether. Yeah, that's, that's basically, that's basically where I'm at.

Perfect. Okay, so you're going to stretch me today when you're using my brain because assessing, assessing new builds is not something that I do. So hey, we get to learn to do it together. So first and foremost I just want to give everyone a bit of an idea of where we are. So I'm just on the digital dot map here and I'm just going to zoom in. So what I'm doing is I'm looking here. We're down at Mossvales. That's right.

Yeah, that's it.

So south of Sydney where we're coming in from the coast, shore, harbour. Wollongong's about here. So let's just check out Mossvale. So we have a look over here at the 10 year capital growth. We're between 3 to 3.9%. We've got a couple of areas that have got higher growth. The 5 percenters and the 7 percenters, Erema, etc. Which higher price point. Now according to SQM Research's latest data, we're talking about a median price around 654. So this gives us a bit of an idea. So just tell me what was the land value and the expected price of the build that you're looking at?

So 260,000 for the block of land. It was advertised for 275 to 300, the build itself. So I've narrowed it down to two builders and it'll be between 290,000 and 315,000.

Okay, so 275, did you say 260 for the land? Two hundred and sixty, because you got the discount as well.

And then yeah, for the house, It'll be between 290 and 315.

Okay, great. So the thing that you're trying to do. So when we talk around the trident strategy, buy below the market, add value, add my techniques through renovation or create equity. And then being a good growth area. So if we try to apply this to new builds in new developments, it's often difficult. But what you've already indicated is you've bought below the market. By being able to get that $15,000 off, which is essentially a saving in your pocket for the land, you've used the bargaining chip of having the three properties being purchased at once. So built at once. So you've got another discount there. And when you talked about manufacturing equity and potentially refinancing in a couple of years, that's essentially like the renovation strategy in the sense of you're making money out of thin air. So the concept here around a house and land build is that it would cost you more to buy it complete than going through all the pain yourself in actually doing it yourself. But what often happens with first home buyers and I thank you mum, I saw your note to say thank you mum, for referring you, you're a hero in this household to the first time buyer show. What often happens with the people who start buying the house and land is that all of a sudden it's the wish list. So it's the, oh, it'd be nice to have a media room and how about the, you know. And so we keep adding things on and where you kind of created that equity position of saying, well, the median house price is 645 and I'm buying for 585. The gap in between is the money that I've made by doing this. They then let scope creep come into the property. So you're doing all the right things from a growth point of view. I think it's really interesting to look at this Mossvale and the Southern Highlands area, because from a long term point of view, we're thinking that you're buying, you're young, so you're buying for the long term in the sense that this could be an investment or it could just be a stepping Stone for you to refinance or sell in a few years and take that equity. But we think long term, you know, we know that and you've lived in the area that Berrima, the Southern Highlands, you know, that's kind of like the weekend escape for the people in the city. So we know that there has been pricing pressure on the long term in that area and now that if we apply the short term kind of circumstances, we're in the middle of the COVID crisis. You know, people are talking about, well, I've done remote working for so long, why can't I continue this? Maybe I can live in Kiama and you know, I could commute once every two weeks to work. So I think these areas are going to see a little bit of some pricing pressure where we've got people starting to think that, but the reality is they're going to have to sell first usually to then move to these places. So we're talking about a timeframe of at least a year where we might see that bump. So it's nice to consider there could be a bump in the the area and the growth. But long term it has had some good growth. But you know, when I'm looking at 3.9% as a growth potential, it's not something that is going to be the only thing in your portfolio that's going to, you know, make you rich and be able to retire. We'd be looking at trying to get you something in the future for that next purchase of like maybe the 5 or 6% growth that could actually get you a total portfolio. So as a stepping stone with all of the putting the trident strategy on top of a house and land package, we can actually almost make this fit. So I'm feeling a bit comfortable about this now. One of your questions was also around the you didn't want to over capitalize and you were going to try to choose between two designs. So I brought up the two designs we can have a look at. But I thought also what I might do is we just get a little bit of and I'm just going to share this screen again, a little bit of a connection also to what is happening in the area itself. So I'm just going to pull up the Suburb selector software now. This is a little trick for those of you who have access to the location masterclass. What I've done is because of the data that has come out or the data that's available for the Suburb Selector software from SQM Research, if there's not enough statistical data, I Get rid of the areas. So when I look at all the cities, I've got the major capital cities and I've got some of the regional significant ones. So Wollongong is close by. And let's just go, well, we know 650 is around the median. We're happy to go below that and we're happy to go a little above that. And to get to Mossvale, I'm going to say I'm happy to look at any suburb within 200km of Wollongong, which kind of just gets me, you know, from Wollongong over here to the Mossvale. So it's kind of like a workaround now if I come down here because I just want to get a feeling for the investability, what we're looking at. So we're going to look at Mossvale here. I'm assuming that there's going to be a lot of suburbs or towns and areas that are a lot more expensive in the area. So where we got barrel, you know, all of these areas, nice areas. So what I'm looking at here is the percentage of renters. So one of the ways that I try to minimize the cost of the, the risk potential is making sure we have 28 to 30% renters, which is typically the percentage of renters across all of Australia. So we're almost there, 27.6%. So this is. Okay, so there's some renters in the area as well. The number of properties sold, this gives me some confidence, some rental yield, 3.58%. So this is all good. But what I'm really trying to get here is just going to find out what that typical property looks like like so that we can be confident that you know what most people want. So this indicates three bedroom is the most typical and the vacancy rate is below 3%. So that means that when you put the property up for rent and it's a typical property, it will sell. Now what would concern me here is I think the properties that you're looking at correct me if I'm wrong. They're four bedroom. Is that right?

Yes.

So what I would do in this instance is I'd go and clarify all the information. So let's just pull up the census data and let's look at Mosfet. Because often what can happen is that you are looking at the information and you're actually getting the typical property is three bedroom, but it might be by a couple of percent. Four bedroom is still really a property that people are after. Now remember, this is 2016 data too. So it could have changed over a period of time. So I'm just going to look at the screen over here. So I just want to get a feel for what is the typical property that people are after. So we've got mum, dad without kids is they're not mums and dads if they don't have kids. So couple without kids.

I get you. I know what you're saying.

The most prominent here and we have let's. Everyone's employed. It's looking good. Unoccupied. All right, so here we have separate houses by far. 85% is definitely the main type of property. But see here, this is what's interesting. So there's 1300 three bedrooms and 1200 four bedrooms. Now this is back in 2016 and as you said, you're in a new development. I assume that most of them are four bedrooms. So this might just change. So this does not now concern me as much as it would if I just took the data and went, wait a second, it's a typical property. Three bedroom. He doesn't have a three bedroom. We're in trouble. Yeah. Okay, so this just lets me kind of validate the information back at the source. Census is the source. Okay, so we're in Mossvale here. We know that the vacancy is okay. The percentage of renters is okay. The four bedroom property is okay. A house is what people want. So what I would do now is I'm just going to jump over here to RP data and I just want to have a feel for what does that Mossvale kind of property look like and what the typical property is. And the other thing I'm going to do is I'm going to go to SQM Research and and I'm just going to pull up their free property data. Let me do this from scratch so you can see it. So I'm going to go to SQM Research, I'm going to look at their sold records. How big is the block that you've got, Adam?

It's the smallest one in the street. It's 540 square meters.

540. Okay, so let's see what I'm going to do here is I'm just going to put Mossvale in because I just want to get a feel for what the typical size is that in sale data that's over the last year. So I can get a feel for, you know, where this property would kind of sit. So 2577. Okay, so let's have a look down here. So we've got a few Selling around. So this is. Where are you 500 and 540. So when we're looking at the properties that have sold, most of them have sold around that 6 to 7, 800. So we're already at 540. We're kind of below the, at the bottom end of where the market is. Yeah. What the typical kind of sales have been in the last 12 months. All right, so what I would then like to do is I just would go through here and I'd say, okay, so let's have a look at the properties that are selling. So you're buying a four bedroom property. We would have a minimum size land. I would go from 5 to 800 because I want to see what has been selling. And to answer your question, am I over capitalizing and what type of property should I be looking at? Because this is going to give me the information that's going to allow me to look at it and say, yeah, well, do we want Caesar Stone or are we going to go with something else? So let's just have a look at this. Over the last six months we've got. Sorry. So this is all the properties that are four bedroom properties on, on this size blocks in the area. And if we look at the sales history over the last six months, let's just get a feel for what properties look like now. Obviously Mossvale is, you know, has an old area and a new area. So we'd be kind of trying to look at, you know, what do the newer type of properties look like. Now, any of these that you would say this is kind of like. Or in the area or streets etc that are in the new development.

What you could do, you could even put in Francis Street. The, the estate's called Darrowby. And it's, it's funny that there's a. Exactly the same house design. The street behind mine is selling for 850,000.

Right.

And that's a four bedroom and it's. Yeah, that's basically the basis of what I'm asking. Because it is a smaller block. Do I make it more luxe? Do I make it more appealing? Like that timeless Southern highlands look, you know, with the landscaping and all the rest of it. Or am I just going to do something a little bit more basic?

So this is kind of. We're looking at this. These areas here. Yep. And if we were looking. So this is the. This has been all new development that's gone on in the area. These ones actually built as yet, the Josephs and the Jarrabis and Endeavours.

Where are we? Francis Street.

I could zoom out a little bit further.

I'm just trying to see my block number. Yeah, because it's northerly faced. There's beautiful undulating hills and mountains and everything in the distance. It's right on top of a hill.

Okay.

Overlooking farming land and what have you. So I think where your little toggle is right now, I think it's looking back down that way.

Okay. And what about these areas over here that look like they've had a bit more of land turned over them? Have they been developed as yet, Joseph? Darrowby and Endeavour. Actually. How about we just. What we'll do is we'll go back here and we'll have a look at the sales history and we'll get rid of Frances Street. So this is a Darrowby. So that's in that new development. Yeah, and Endeavour as well. Okay, so. And Joseph. So this is. So we're seeing that the 700s. 730. 760. Is that Joseph and Endeavour and Darrowby. So let's just pull this up. So this is a 700 square metre and these are 700. So this is kind of the 700 square metre block. And the four bedroom, two bath. So nice floors.

Yes.

I noticed that we've got some nice rain fade panel.

What do you call them in the media room. Yeah, yeah. I'm not sure.

I can't remember. Oh, gosh.

I've just kind of an awkward height though, isn't it?

Yeah, it is really weird. And you know, it's kind of. It's almost like. It's like, you know, council approval. So you can either look over the neighbours. Oh gosh, not Phoenicians. Okay. Mental blank. It will come to me. I've just ordered some from one of my investment properties which is plantation shutters.

There you go.

Okay. All right. So these are. Wow. They've really gone to work with the plantation shutters. Usually just the front of the house. Okay. So they've got those vertical blinds, we've got a bit of landscaping, we've got the home theater. So we have four bedrooms and a home theater here and a home office. So this is quite a significant build. So this would be a bigger house build than what you were looking at on a bigger block.

Yeah.

And if we go down here to another one of the streets which is. So this is another 700. This is a smaller one, 620. So let's just check that out. Just want to make sure that we're in the right area here. So let's just zoom out. Yep. So this is in that Joseph Collins street here. So you're down here in France's somewhere. So we're in the right development. Okay, so what does this look like? Pendant lights, bench tops. Nice big white kitchen, big flooring. Breakfast bath, bar, eating area, living space. Oh, plantation shutters. Fan. We've got some down lights. We've got air conditioning, more pendants. So dining. Plantation shutters. No, these ones aren't. These are vertical. Horizontal. So standard kind of bathroom. Bathroom. Bathroom, sitting area. Okay, so I wonder if I can get a floor plan here. Doesn't look like it. Oh, yep. Wow. Okay. They're giving me the plans as well. So what do we have here is we've got four bedrooms, 1, 2, 3, 4, master living area. And they've got an extra media room as well. Okay. So we're getting a feel for what the look and feel of the properties in this area are looking like. And we're getting a feel for. So this is on 620 and you're on 540. So it's another hundred square meters less. So we just need to be kind of conscious of that as well.

Yes.

And. Okay, so. And these aren't in that area. All right, so let's have a look at the two styles that you're looking at. This is. Right, the Cilante.

No, it's a Sonata.

Let's have a look. Single story. Solante.

So my brother's going that way. That one that you just saw before. Altona. Parents are going the Hampton next door.

All right, Altona. At least they're not all the same. We're getting close. Sonata, right?

Yes, that's it.

Perfect. So double garage. And let's have a quick little look at this one.

It'd be one large single garage door. I've already asked the real estate agent what's the most popular in the area.

Okay. And we could pick that up, the need for that off the census data. Because what it would tell us is so we can get here about everyone drives. For instance, people, public, people drive. There's a passenger and work full time. Oh, interesting amount. What else have we got here? Okay, this is the. And sometimes you can get some information regarding how many cars. Here it is here. Most people have with really close one to two cars. See that?

Yeah.

All right, so we're looking at one of these. Which one would be. We would be looking at.

It's a four bedroom with media. Media room.

Four bedroom living with a great room. And 1, 2.

It's 23 0.12 squares as well. Oh, they're all Sonata 10s. It's a Sonata 13. Yeah, I think it's 23.08.

Yeah, yeah, yeah. A media room. Okay. Garage. Bedroom. Bedroom. Bedroom. Bedroom. Family living. Alfresco. Kitchen. Media. Okay, so we do have that media component here. Interestingly enough, the media room is bigger than all the bedrooms. Right. 4.3 by 3.5, 3.4 by 3.8. So interesting. Okay, so what else do we have that's here? So this is the property, the fixtures and finishings of it. So images of what it would look like. So we've got the pendant lights, we've got the nice floors, we've got the. This is almost like everything that we look at the other property.

Yes.

Okay, now of the two builds that you're considering, is this the more expensive or the less expensive one?

The less expensive one.

Okay. This is looking very typical of what we just looked at, right? Isn't it?

Yes.

We've got the air conditioning, we've got the plantation shutters, we've got the nice big tiles, feature walls. Okay. So this might be a smaller kitchen. You're probably looking at 600mil. Ovens, etc. Rather than what looked like 90 in their other one. Because this is quite a bit smaller.

Yeah. It cost two. $2,000 to upgrade to the. The 90 mil.

Yeah, I don't. I think this kitchen, the actual space of it looks too small to put that in. Like it would make it look.

Yes.

Dominate. Yeah. Okay. So this, this is looking to me like what we saw when we had a look at the. The new properties that were selling here. Right. So I think this is kind of making me think, okay, so we've got 100 square meters less, but this is kind of the same build. So I'm feeling that this is on par. So let's have a look at the next property. Welcome back. And give me some cash back. Nice. San Marino. Is that it?

Yeah.

So let's just have a look at this floor plan. Okay, so this is Lux.

Yes, it's. And you know, I've walked through it as well. It's. It's just got such a good flow.

Yeah.

And the other thing, Jane, is that because there is that site for. I'm doing a split level option. And so the rear of the house is actually going to have 11 foot ceilings over overlooking that. That view that I was telling you about earlier.

Can this view be built out?

Built out, yeah.

So if I'm looking at. Because I Think what you explained to me was that in Frances down here, this is where you're buying Francis Street.

Yes, Francis Street. Yeah.

Is there any development plans for over here? Like are you going to lose that view? Are we creating an 11 foot ceiling that, you know, window of the views that could be built out in the future?

Possibly.

Okay. All right, so let's just throw that. And what's the price difference between these two properties?

It's about 15,000.

15,000. Okay. All right. So this property here, this is like high end looking. We've got the two kids bedrooms. That's interesting. But this is this kids activity room and a study nook. So, you know, if I was going to go, you know, future, future, everyone's going to want to be able to live at home and work at home and educate at home. This would be an interesting thing I'd consider. It's nice to see linen presses, you know, and extra room. This walking robe associated with the bathroom. I've never seen that before. Interesting. Bedroom Two has no bedroom. The kids have a shared bathroom. There's a toilet associated with the kids room. And just anyone there's a toilet associate. This has to be the master suite. Yeah. So this here can be closed off. And this is their walk in robe. Okay. There you go. Ta da. Explains why we have a walk in robe in the middle of nowhere. And this is here, the laundry that has access outside, I'm assuming, and into the garage.

Yeah.

And this is the split level where you're walking down into the family gourmet kitchen, dining, home theatre and San Fresco. So let's have a look at some of these images. So this definitely looks luxe. So the. Nope. So we've got the main bedroom. Had a little balcony off it as well. Master suite.

It'll. It'll just open onto the. The side access, which. Which isn't much on the block. It's. It's about a meter. Yeah.

So it's quite small. You'll be having quite. This will take up a dominant amount of the land, right? Yeah. And double garage.

Mm.

Big kitchen. Oh, I'm so dilemma'd. Okay.

Yeah, you can see my position now.

Okay. For someone who's never considered or even looked at a new build, it's a whole new experience for me.

Yeah.

And wow, look at that. Now I'm excited. Walking robe. All right. And let's have a look at this. So this is still. Kitchen's bigger. Is that the fridge is outside the kitchen?

Yeah, that's probably in the larger design. The other fridge Sorry. The fridge in the design that I've been offered, it's built into the kitchen area.

Okay. Much better. Okay. I like this big openness. Is this on a small block that'd be similar to the block that you have?

Yeah, yeah.

Okay. Because it's taking up all the room, but they've landscaped it quite nicely to create different living spots and the screening from the people next door because obviously they can check you out. All right. Okay, so.

And that's the. See that design just there?

Yeah.

That was the facade.

Okay, Got it. Yeah. Okay. Dilemma time. So traditionally, if I was going to put my investor hat on for this and say, okay, so you've made first home buyer, you're eligible for the home builder scheme. There's $25,000 there for you. You're not paying any stamps. You do because you're a first time buyer, right?

No, that's right, yeah.

So there's all these benefits where you actually like buying below the market and you're getting all these extra benefits. So. And you've saved 20%, which is fantastic. So when I look at this overall and think, okay, so it's convenient for you. We're not, we're not saying you can buy anywhere in Australia. You know, you're a first home buyer, you live and work within, you know, rural area and you need to be buying within this area you've got into. You've got a lot of cash that's already in your pocket that you've made from this by the savings. If I then look at Mossvale and say, look, Mossvale's made up of new and old, so it's hard to actually put, you know, $645,000 is the median price. But the reality is we know there's million dollar homes there. We need to actually just bring it back to what's the new developments look like. So if we look at the new developments and we look at the typical size blocks in Mossvale, which once again is the new and the old, we are actually seeing the fact that of some of the properties that have sold or are for sale in this new development, they are bigger than the one that you've got. So first of all, you've got a smaller block. So it's, you know, when people start looking for their next home. So it's almost like if you were going to sell this, what are the risks associated with what you've got? You've got a smaller block. So how do you maximize that? Is it land that people are looking for or is it the wow factor of the house. When I look at the larger size blocks and the design that they've got, they've got the media room that both of these kind of builds have for you. They've got the, the four bedrooms that, you know, 2016 census said three, three to four bedrooms is kind of, you know, what people are after. You've got the double kind of garage capacity potential or parking for two cars. So where I would think about this is where can I get the most value? If it's to be honest, $15,000 difference to me seems like. Are you serious? Like, you know, if we were renovating a property and all of a sudden we had to fix a retaining wall, you could drop ten grand without anyone seeing any value for it. Whereas if we look at this design, you know, we've got the beautiful French doors, you've got the outside living, you've got, you know, the beautiful finishes, etc. The design itself though of the more expensive property I find a little quirky with the children's area and the master bedroom and its facilities seem to be a little bit separate like the bathroom and it's kind of like it's got its own little area. So it's like you've got this upstairs area and then yes, the magnificence of the, the living spaces and the 11 foot ceilings and all of those is very attractive. But I would then step back and go, okay, so who would be my typical market if I was going to resell this? So we've already learned that the typical market is a couple without children and we're looking at a design that has the children nook, you know, and the kids activities area. So I'd be looking at that saying, well, you know, arguably if you were going to be buying one of these new home areas and let's just have a look at the census data because one of the reasons that we might find that couples without kids is more prevalent is not that it's got such a young age group. It might because it's such an old age group. So if we have a look at compared to the rest of Australia, we've got, you know, where are we 20. So between 20 and 24 rest Australia is like 6 and a half percent of the population is 4 and a half percent, 25 to 29, 5% compared to 7. So this is now indicating to me that it's an older population. So we're down here at 55 to 60. So this is very clearly now saying that, you know, this is kind of where everyone retires to because it's so beautiful. You know, once you've made your money, you go there and buy the property. So this is how I read the demographics to try to indicate what does that data mean. So. And once again, well, it's 2016 that we're looking at the information, and 2021, we're going to get the next lot of census information. And would it reflect that there's been a significant change. So with those, with that new development area that you've purchased in, is that one of many or is that like the first big development area in.

I think it's stage three of five.

Okay.

All right.

Okay. So it's. It has been happening for a little while, but not for many, many years, like maybe three years. Okay. So this has all been happening subsequently to the census data that we're using to try to get a feel for what's happening in the area. Okay. So looking at this, this then would say to me that you need, if you're going to use this property for something that's going to be, you'll be able to get a comparable sale data to be able to refinance in the future, or you can rent it out in the future and get the majority of the market and you would be able to rent it faster, reduce your vacancy rates, have the typical type of people who want to rent a property in the area look at this and go, this is me. Then what would be the best property for that? When you're looking One was 17 squares and one was 23 or something, wasn't it?

They're roughly the same. If we're comparing apples to apples, the dimensions are roughly the same.

So they're going to take up the same footprint on the land.

Same footprint.

Okay.

So The San Marino, 12.95 meters wide and 19.5 long. The Sonata, 10.88 meters wide and 21 and a half long.

Okay.

But the rooms, the rooms themselves are roughly on point.

Okay. So I think from, from. If they're going to take up like the same footprint, it's like. So if one was going to be, there's going to be more room for the kids to play out the back and the other one wasn't, then that would be a consideration. I like the idea that for only 15,000 more, you have the split level, larger living space. It's segmented from the, from the sleeping area of the house. It's got the stack of doors that you can open out to get that beautiful view. Like, I think that is A wow factor that if people were going to rent or if they were going to buy, they go, come check out this. And for 15 grand for the same footprint. You know, not being an expert in ever looking at a new house design in my life before, I would try to read the demographics and say, that's really attractive. The weird children's nook and parents room.

I find that is the convert the children's nook to. Sorry, I've lost you.

I've got you here. Yeah, look, just looking at the children's nook, I just, I find it really weird.

You're not a fan?

Not a fan? No, I'm not a fan. And I know that a lot of people are probably watching this going, wow, we could lock the kids away. Fantastic. This is where the Xbox room is and there's a TV recess. I can see all of that. But I'm just, just. It is really niche so there's a bit of a risk to it, you know. So if I look at this, it just, it just looks a bit niche to me. Like you come in and the children have most of this whole space and I like the idea that they can be locked away and they probably like the idea they can be locked away too. But, but I just. Yeah. How does this split level work with the master bedroom.

Steps down.

Okay. So you walk into your little area and then you step down into the master room.

Yeah, yeah. So the master bedroom will have 1112 foot ceilings as well.

Yeah. Okay. And then you've got the home theater and then over here we've got the. So this is definitely more typical. Like when I look at the Sonata and I look at that, you know, the four bedroom. With the media, this is definitely more typical of what we're seeing the 760 sell for, but they have got another 200 square meters of land to them as well. So from a, from a, you know, a point of view of can I get some more value and have more. Wow. I definitely think that the San Marino would be worth that 15,000. Like, you know, the stackers doors will cost five to eight grand kind of thing. So I see the value of that. You can't be built out. I definitely see the value of having that same space as a wow area. My only concerns would be the weird kind of kids area. Stuff like. I don't know if they've got other designs that could allow you to have the back half without the. With a little bit more traditional front half. But I think that people are either going to love it or they're going to hate it. So it is going to be a little decisive or divisive for people.

It could be up to them to come in, come through the house and go, oh, you know, well, we don't have kids. Let's convert this into whatever.

Yeah. And do you know what? I think we're going to see a little bit more of this. We're going to see a bit more of the. Well, if we had to work from home, this is a great work from home space. And if you're going to have like the family relaxing area. Now, one of the things that the census data. And let me just have a quick little look at this. The census data, you know, as compared to the rest of Australia, the kids from 5 to 9 and kids from 10 to 12 and kids from 15 to 19, they're actually, there's a lot of kids and there's a lot of old people. There's just not the same kind of middle bit. It's. You want to have. If there was a lot of young children, usually what you will see is that the parents want the kids in the living space with them. If there is that kind of teenage group, then having them in their own space, like the teenage retreat is very attractive. So I think just looking at this from a point of view of how do you compare with the other properties and having a wow factor and compensating with a smaller block and you've got two designs with the both taking up the same footprint, I would tend towards going to the more expensive design.

Okay.

Understanding the risk involved of, you know, having the quirky little spaces. But I think the wow factor will kind of allow people to go, oh, I can, I can deal with that.

And that's my line of thought as well.

Yeah.

Considering the block is so small, you do need that extra wow factor.

Yeah. If the size of the property's footprints were a bit different and the other one had more space to have a backyard feel, I think we might be having a different conversation. But they're both the same space. And, you know, since the Census data in 2016, these developments have come up. And with the potential of people now going, well, I could commute. If you're putting on a, you know, a $750,000 property in two to three years time on the market and saying to people, well, instead of having to buy a $1.3 million house in Sydney that's run down and needs renovation and the, you know, the plumbing doesn't work, you could live here and commute once a Fortnight or whatever. It makes it attractive with the views and the positioning that this block has.

So also the lifestyle factors that you talk a lot about as well, the culture of the Southern Highlands, like it's amazing schools down there and sporting facilities and clubs and what have you. So very arts culture based. It's.

Yeah. And look, I've got a number of mortgage clients who, they do have their base there and you know, they have looked at the different schools and we've kind of been through those conversations and they have, they like the area so much that they have like the holiday house of Jerrygong, like you know, across, across the road basically, so on the beach. And I think that the thing is, is that it is a, it usually is kind of where you would go for a weekend but it now potentially allows some people to consider it not being a weekend of it being their home. From a position of if this was going to be an investment property in the future. I think that anyone who was kind of like, yeah, I'm going to be renting in a development and all the houses are kind of pretty much the same as we just saw. And the block size, they're not really buying on block size, they're buying on livability. And all of a sudden you've got 11 foot ceilings and you've got, you know, little media retreats and you've got stack of, stack of doors that are opening out into a living space that, that makes it a bit different. So it gives it a little edge as well when you're renting it.

Yeah.

And so it may not be that you can get 20, 40, $50 a week extra a week. It might just mean that your property is never vacant when the development are and the next development comes along and people go, oh, I'm going to buy, go and move into the newer development. They're going to look at this one go, well, this one's always going to hold its own. So I would get it, I would try to understand just your risk associated with being built out and you, because you said you're on a heights a bit of a height anyhow, that may, even if they do build across the street or whatever, it may not have an effect, but it's something that I'd consider.

Yeah, well, the next street isn't for what, a hundred meters?

Yeah.

Or so. And if you, yeah, if you look at the actual site for it's quite significant.

Yeah.

And our street, Francis street is right on top of the hill. So hopefully those sight lines will remain.

And just with the Flexibility, you didn't also ask just about interest rates and loans. So what were your thoughts on that?

Just from what I've learned by listening to your podcasts and various other experts, interest only seems to be, you know, the go, especially during construction phase, you know, reduces risk minimization. You know, you've got that additional cash buffer, you got the surplus funds. And my main consideration though is am I going fixed or variable interest only? You know, I'm worried about if I.

Do.

Sell in say three or five years. With the fixed, am I going, you know, and other questions around being fixed, obviously there's an offset. You know, I think that's really, really important.

So traditionally, most home buyers have a principal and interest loan because they, they're paying it down. They want to own the home, it's the home forever. And that's the strategy because you're in two minds about whether this is going to be a home for a period of time and then an investment or a home and a sale, and it helps you upgrade, then there's a shorter timeframe to consider. So you've been very diligent in saving a 20% deposit, which is fantastic. So you've got that saving capability that some people don't have. And almost by virtue, principal and interest loan helps them have for savings. But from an investment point of view, normally what you would try to do, especially in this acquisition stage, which is where you are at the moment, is cash is king. And if you can have the cash working for you, even better. So let's just say that you have a $500,000 loan and you have a $50,000 in savings and it's an interest only loan, then essentially they're going to take the 500 minus the 50 and charge you interest on the $450,000. So you're paying a little bit less every month, which keeps the money in your offset, which kind of compounds it as you're putting your pay in there. So there's all those benefits of having an offset against an investment property or your own home and at one stage filling up the offset against the loan. So at any stage, if you really felt you're at risk, you've got 500,000 in cash in 10 years time and $5,500,000 loan, and you just pay it down and it's all done, but you've got the cash just in case you need, in case you lose your job, in case there's a problem, etc. You've got that buffer. So in the acquisition stage, where you'll need to have some cash from the equity growth and the manufactured equity that you've created by all the discounts and grants and things that you've got. From that point of view that you need that money for the next purchase. So whilst you're doing that, paying a little bit off the principal is not going to really help you. And if you think of a 30 year loan, it's not to year 20 when the principal component of your monthly repayment is actually more than the interest. So you're actually paying majority interest for the first 20 years anyhow. So from that point of view, the interest only, and without knowing your full finances, I can't give you complete financial advice. But from the point of view of understanding how to minimise risk, then in actual fact, interest only could help you do that. Now traditionally construction loans are usually interest only during the construction period for exactly the same reasons that you mentioned, which is, you know, they want to help you build up a bit of buffer before you have a property because you should be renting somewhere else whilst you're building a house. Right. So there's that component. Five years interest only is a typical type loan. And I think if you could get the five year interest only, fantastic. Now so let's go to variable versus fixed. So what can happen when you enter into a fixed contract with your loan is that essentially the bank is going to put all of the fixed loans together and sell them to someone at an interest rate. And if you then break that contract with the person who's purchased your loan, essentially then they're going to say, well you know, I bought this at a three, I was earning 3% on this and now the interest rates are so low I don't even be earning 2%, you have to pay me the difference. So that fixed break fee is based on the interest rate of the day, the interest rate that you locked it in at and the time frame that you are through your fixed period. So there can be some risk. So if you think you're going to sell in three years, you wouldn't get a five year fixed. If you think you're going to sell in three years, then a two year fixed could be something that you consider. If you have a fixed loan, you, you can't have an offset. So you can actually have a little bit of both. So let's just say you say there's no way that I'm going to have any cash left over at the end of this. So I start from zero and I can save $20,000 a year. So over the next two years I can say about 40 grand. So you might give it a little bit extra and say I'll have 50,000 that's variable so that you can have the offset against that and I'll have the rest of it that is fixed so that you've got the sleep at night. I'm going to have to pay 2.9%. Yeah. So you can have a little bit of a mix of it. Now the only lender that actually allows you to have offset against a fixed is Adelaide Bank. And what you could do there is just say you had a $500,000 loan, you might have 250 fixed. 250 variable. And at the time the loan is written you have to set up the offset against each of them and you just move the money to the offset that has the interest rate that's the highest at the time associated with the loan. You know you can move so you can be strategic and you know, but I'd like to other things.

Sorry to interrupt. So you're suggesting a 50, 50 or an 80, 20.

It just depends on how much you think. How much do you think you could save in the. So let's just say. So you start with. Let's just say you've got $30,000 in savings now that will left over after you finish building. Yeah. And then you say that you can save $30,000 a year and you're thinking about a two year fixed then 30 in savings, 30 this year, 30 next year. That would let me think that well that's like 90. So how about I make 100,000 variable and the rest would be fixed. And I think what you'll see going forward, you know, it's July 2020 now, going forward into, you know, the next few months you'll see lenders are starting to hurt a bit with the lack of loans. So you're probably going to see some really competitive fixed rates that two to three year fixed that are going to come onto the market with twos in front of them which is going to be really competitive. So I think there's some real benefits there fixing. If you think you're going to have like a huge windfall in the future and you're not going to have anywhere to put your money into like the offset account. If you think you're going to have $100,000 windfall then you know you might keep your variable component, put it up by an extra $100,000. So fixing doesn't suit everyone. But if you're committing to this property for two to three years, then, you know, fixing for the two to three years could work for you. Okay. But just you don't have to have fixed or variable. You can have a little bit of both. And you don't have to have 50. 50. You can make it so suit what your needs are.

Sure.

Excellent. So, do you have any other questions you're going to throw at me?

No, I think we've covered all bases. That was really enlightening. Thank you so much for that, Jane.

Well, you let me learn something, too. Haven't ever looked at new build plans, so it's interesting to look at it and apply some The. Of. Of the concepts of the demographics and what that means and what people are after as well.

Yeah. I might have to get your help renovating the children's nook, by the way.

Send me pictures. We'll have a look. Okay. Well, all the best, Adam. I'm so glad that I could help you. And my brain helped out.

Absolutely. Thank you very much, Shane.