Expert Bust #35 Over-rating Expenses

There’s nothing wrong with trying to reduce expenses, but when an “expert” is focused on them, it makes me wonder if they have any other tricks.

I’ve had a number of people contact me over the years wondering whether they should sell their investment property. Many are apartments that have high body corporate fees. They feel they made a mistake not researching this expense more carefully.

But in every case, the mistake had nothing to do with expenses. Their due diligence let them down with respect to future growth.

Compare paying double the “usual” body corporate fees vs. earning double the “usual” capital growth. One will dock you a few thousand, the other will pocket you tens or even hundreds, of thousands.

But if you’re an expert who doesn’t know how to research for growth, then you’d fall back on what you do know, things like: rent and expenses.

An Example – Canberra
A few years ago I read a blog where the author, who titled themselves as “senior property strategist”, explained the reasons why they don’t recommend their clients invest in Canberra. The reasons they gave were high council rates and land tax. BTW, they had no problem with Melbourne.

A half-mil IP in Canberra would cost about $12k in stamp duty. In Victoria, it’s more than double that.

The yield in Canberra compared to Melbourne is easily enough to cover those additional annual costs.

The only difference then is the capital growth.

Some advisors have suggested that places like Canberra won’t have good growth long-term. But according to Core Logic data dating back to September 1985, Canberra has averaged 8.6%pa while Sydney has only managed 7.8%. This is for houses only.

The Real Estate Institute of Australia data is for a slightly different period, but it also suggests there’s no reason to despise Canberra…

The reason so many professionals bang on about other aspects like expenses, is because they simply don’t know growth.