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The Big Story: Investors add property to their portfolios

Investors are swarming the property market in record numbers - so what do brokers need to know when working with these clients?

Video transcript below:

Donna Sawyer, Australian Broker News TV
Donna Sawyer:
 Hi, I am Donna Sawyer and you are watching the Big Story on Australian Broker News TV.

Investors are swarming the property market in record numbers.  That’s according to the latest AFG data which shows mortgage volumes are at their highest levels in over 2 years with investors taking the lion’s share of the market.  David Brell, Managing Director of Smartmove Professional Mortgage Advisors says the trend has been emerging gradually over the past six months.
David Brell, Smartmove
David Brell:  It’s been gradual, more than sudden.  I know the AFG index says it’s been a big increase.  But I think there is a lag effect, but I think this has been probably over the six month period and it’s also fallen into the November month.
Daniel O’Brien, PFS Financial Services
Daniel O’Brien:  We have noticed a number, the numbers increase but the actual percentage of overall business is about the same.
Justin Doobov, Intelligent Finance
Justin Doobov:  From our side the growth has actually come in the last six months from people looking to upgrade their properties, because they found if they buy property at a higher price bracket there is a massive discount.  So most of the growth has been spurred by that.
Donna Sawyer: So what do brokers need to know when working with investor clients?  Justin Doobov, Managing Director of Intelligent Finance says understanding negative gearing is key.  
Justin Doobov:  They need to get an understanding of what negative gearing is and how to buy an investment property and all the ins and outs of owning an investment property.  It’s amazing how many brokers and advisors don’t actually own a property themselves or an investment property.  So they are sort of giving an advice from a text book perspective, they don’t actually understand it from a practical perspective so my advice would be, “go and buy an investment property yourself, I think you will be a better advisor on advising other people how to do it”.
Donna Sawyer:  He says brokers need to take a different approach with investors.  
Justin Doobov:  Well both parties are very savvy and they have all done their homework beforehand. I think it’s important to realise that investors are generally looking at it from a numbers perspective. Where people are looking to buy a property to live in, are looking at it more from an emotional perspective.  So just because you get on someone from a friendly perspective and you can talk about how nice the backyard is, investor doesn’t care about that, “I want to see what the numbers, what the costs are, what the return is, what their out-of-pocket expenses are per month”.  So you need to take a different approach and look at it more so from a numbers perspective as opposed from an emotional sale.
Donna Sawyer:  Daniel O’Brien, Director at PFS Financial Services says brokers can attract investors business by educating their existing client base about using self managed super funds to purchase property as well as offering updated valuations on properties.
Daniel O’Brien:  Raising awareness of the option of self managed super fund loans that it is here and it is available, so I think that’s a big opportunity going forward.  Probably other opportunities is just keeping in contact with existing clients, maybe doing updated valuations on their existing properties, just to see if there is any available equity there to maybe go and buy property no.2 or 3.
Donna Sawyer: David Brell of Smartmove says by looking at the big picture, brokers can help investors achieve their long term goals.
David Brell:  Probably the main thing to do is just sit down with that particular investor and talk about their overall strategy for the next 10 – 15 years, find out what they want to do and go through the education piece with them, so sit down and explain how structuring their lending in this particular way will help them down the track.  So you know just simple things, not [cross gradualising] the securities, you know, interest only versus P and I, a professional package, bringing all the lending under one lender or even just looking at multiple lenders.  So I think it’s probably the education piece and sitting down with them and going through everything in absolute detail over the longer term.
Donna Sawyer: For more on property investing and other industry headlines, click around the Australian Broker News website.  I am Donna Sawyer and I will see you again next week with the Big Story.