In the first episode of the Barker Wealth Podcast, I sit down with Rich Harvey, founder and CEO of Propertybuyer and a buyer’s agent for 25 years. Over 40 minutes we compare how wealth gets built in bricks and mortar versus a diversified portfolio, and where the two meet.
Prefer to listen? The episode is also on Spotify.
In this episode
- Why sub-2% rental yields and “dead equity” are a problem for property-heavy portfolios
- Where the property correction is up to, and the signals Rich watches at auction
- Herd mentality, and why no one rings a bell at the bottom of the market
- Liquidity, diversification and building a multi-asset portfolio
- What changes when you qualify as a wholesale investor, and the risks that come with it
- Family home vs super, and upsizing in a falling market
- Due diligence on private investments
- Property or shares for the next five years: where each of us lands
If the conversation raises questions about your own mix of property and other assets, see our investments or book a strategy call at barkerwealth.com.au. For property buying, visit Propertybuyer.
Chapters
0:00 Teaser
0:52 Welcome to the Barker Wealth Podcast
1:35 A philosophical quote to start
2:58 What Barker Wealth and Propertybuyer do
3:56 The yield problem with residential property
8:08 Diversification and the property correction
11:20 The investment market mood and liquidity
12:37 Investing a deposit before a correction
14:40 Herd mentality and timing the bottom
16:42 Policy changes and market signals
18:39 Wholesale investor access
21:01 The most common mistake high earners make
22:12 Family home vs super
24:18 Upsizing in a falling market
26:16 A systematic approach over emotion
28:50 What a good portfolio review looks like
30:01 Developers, new builds and off the plan
32:42 Risk and due diligence
35:12 Best investment you’ve ever made
37:53 Property or shares for the next five years?
40:26 How to get in touch
Full transcript
Lightly edited for readability: filler words and cross-talk removed.
Welcome to the Barker Wealth Podcast (0:52)
Joshua: G’day, welcome to the first iteration of the Barker Wealth Podcast. I’m joined today by Rich Harvey, who is the CEO and founder 25 years ago of Propertybuyer, one of Australia’s leading property buying companies. At Barker Wealth, we pride ourselves on partnering with some of the best industry experts to manage your entire wealth. So whether it’s buying a property or looking to manage your existing portfolio, we work in different areas, but we service the same sort of clients. Thanks for joining me today, Rich.
A philosophical quote to start (1:35)
Rich: So Josh, I’ve got a little tradition. I’m gonna throw you a curly philosophical quote and just love your reaction to it, and today’s thought is from a guy called Les Brown who says, “Too many of us are not living our dreams because we’re living our fears.” What do you take from that quote?
Joshua: I think it’s interesting, like with us two here today, we’ve both sort of gone on our journeys at different times. And I think the best thing you can take away from that is sometimes it’s best just to jump in. You know, you started your business 25 years ago. I’ve, you know, just gotten started on my journey, with my own wealth management firm now. And, you know, even organising this podcast, we’ve been chatting for a bit over a year now, but this came together pretty late last night. And we’re both probably pretty busy people, and we just said, “Yep, let’s do it tomorrow.”
Rich: It’s gonna be a great conversation. It’s gonna be no scripted answers here, right?
Joshua: That’s it. That’s it. So I think that’s a good lesson. I think that’s the type of person you need to be. You can always be more organised. You can always be more prepared. But you just need to get started sometimes. That’s the most important part.
Rich: I love it. You got the Nike thing, just do it. Just jump in, mate. I love it.
Joshua: That’s it.
Rich: Look, for me, it’s just looking fear in the eyes and just saying, “Stuff it, I’m gonna have a crack anyway.” You know? Like us Aussies, I love the fact that we can have a go, you know? Whether it’s property, shares or doing a sporting event or something, we all really have a go. So that’s my philosophy. So quick question for our audiences, in one sentence, who do you work with and what problem do you solve for them?
What Barker Wealth and Propertybuyer do (2:58)
Joshua: We work with investors that have worked very hard their whole life. They’ve also worked very strategically in building their wealth, whether that’s through property or accumulating shares over the years. And I think they come to us looking to level up their portfolio. So we can offer a lot of different things outside of what they’re currently doing and what they can currently access. And it does get to a point where you kinda need that helping hand anyway. What about Propertybuyer? How would you describe it?
Rich: So for me, if I can nut it down into one sentence, it’s really to help people make better property decisions. Really simply. I looked around 25 years ago and saw people were making stupid decisions buying off-the-plan crap, getting ripped off on the Gold Coast with high-rise apartments, and paying commissions they shouldn’t be paying. And I thought, “There’s gotta be a better way. People are just going in blindly and making bad decisions.” So we help home buyers, prestige buyers, commercial buyers, residential investors, and developers find sites, but all on the buying side. Never the selling side.
The yield problem with residential property (3:56)
Rich: So that’s essentially what we do. So Josh, a couple of questions. We wanna talk about this sort of yield issue with housing and how the yield may not be worth it. You’ve said many clients holding residential property are yielding under 2%. Walk us through why that bothers you as a portfolio manager.
Joshua: Well, I wouldn’t say it bothers me too much, but I guess fundamentally at the same time it does. I would say it’s a little bit more client driven, that sort of frustration or that sort of concern. And I think for those clients it’s also an age, life cycle focused decision. So, you know, clients are coming to us with a portfolio, and then also with a lot of residential investment property, sometimes commercial too, held directly. And as they get on in the years, maybe close to retirement or already retired, they’re putting those property investments up for debate in terms of what we can do for them. And a lot of the portfolios we’re structuring are very high yield, to align with the life cycle the client’s at. And they’ve done really well from a capital growth point of view, and I think that’s a pretty big part of the decision-making. You know, 15, 20 years they’ve held these properties. They’ve reduced the debt on them, for the most part. And now it’s like, “Okay, what’s this million dollars paying me in my bank account to fund my retirement?”
Rich: I think when we were talking on the email, it was like, if you’ve got a $2.5 million asset, right, and you’ve got stacks of equity, but it’s only giving you a 2%, even 2.5% gross yield, for me it’s just dead equity. It’s just a really inefficient use of capital, right? So Josh, after the 2026 budget with all the crazy tax changes that came through federally back in May, at what point does investment property stop earning its place in a portfolio?
Joshua: Well, I think when the yield’s not there, the growth needs to be there. And that’s been the story over the past many years now. And that’s coming into question. You know, we’ve seen home prices come off. So it’s also a factor of, okay, well, what else can I put that into? We’ve got a range of investments that are not just speculative companies. You’re investing in real assets. It can be funds where you own the business, you own the building and the land that’s underneath it as well. So yeah, I think it becomes a real inflection point when, okay, well, it’s not growing, but what else can I do with it that’s just as safe as that property?
Rich: The opportunity cost is really what you’re saying. I mean, I’m an economist by training. I love the word opportunity cost. But I always say to people, if you’ve got a bunch of capital, it’s like a tree, right? Where do you plant it? Where’s it gonna grow the most? Versus putting it somewhere it’s not gonna get the food and water it needs to grow.
Joshua: Exactly.
Rich: So Josh, what does investing in shares and a share portfolio give clients that property can’t? Give us the pitch for the share portfolio, if you like.
Joshua: It’s interesting. We specialise in providing multi-asset portfolios. So shares are a big part of that. And I think the US is really dominant at the moment in terms of attractiveness and performance in its share market. That’s been a bit of a story over the last 10 years as well, so it’s not just a more recent saga with AI. But I think diversification is the big one. Being able to diversify across different asset classes and different regions. You can get your US exposure, your European exposure, your emerging markets, as well as local ASX shares, which have their benefits as well. So it’s really just broadening that diversification. Effort is another thing. When I bought my first property, it was the week before my wedding, so that was super stressful. There were contract exchanges going on, inspections, deposits that needed to be transferred. So I remember thinking after that, “I’m just going back to clicking a button on a screen for a little while.” But that’s, I guess, the big value add you guys can bring someone: the time and effort, and obviously the expertise behind it as well.
Diversification and the property correction (8:08)
Joshua: How are you seeing things at the moment in terms of diversification, but also just the property market?
Rich: Oh, well, the property market’s going through quite a correction at the moment. Since the May budget, there was a rush of people trying to get properties into their self-managed super funds. But since then, in established property, the investors have gone to ground. The really smart ones are out there buying and finding amazing opportunities. So it’s just an incredibly good time to buy, to be frank. But in terms of diversification, you can diversify within the property market. You wouldn’t buy 15 apartments in Melbourne, for example, or 10 houses in Brisbane. You want to diversify across different markets, different states for land tax. So when you’re structuring a property portfolio, it’s really important to get good advice on what your overall goals and objectives are, whether it’s a growth focus at the early stage of your career in property, or whether, as you’re getting into your 50s and 60s, you really wanna rebalance that portfolio to get greater yield. Selling down some of the debt, minimising your exposure, and just holding onto the asset and keeping it a cash cow.
Joshua: And are you seeing many of those properties we’re hypothetically talking about, the ones paying less than 2% yield, come across your desk?
Rich: Yes. We’re doing portfolio reviews for a lot of our clients right now. And one of the recommendations I’m making is, look, if this property’s only giving you 3% gross or less, think about maybe selling or recycling the equity into another asset. A lot of dead equity’s sitting out there, and it bugs me, right? Because people could be actually making more wealth, and they’re sitting on a goldmine. They don’t realise it.
Joshua: Interesting. And I guess if someone comes to you with that $1.5 million place that’s only yielding them 2%, what would be the advantage of keeping it anyway?
Rich: I guess the only reason to keep it is if you can leverage it into something else. Property has a distinct advantage over shares in the amount of leverage you can get, and leverage you can sleep at night with. Share markets can be more volatile. Property markets, yes, they go down, but not with massive drops. Like the GFC, you saw shares drop terribly, right? So if someone’s got a $1.5 million apartment yielding 2%, the only case for keeping it would be how do you leverage that asset without selling it? How do you recycle that equity? Maybe it’s to buy another property, or a development site, or a mini project. Or maybe one day you wanna move into it. It’s a personal reason. But leverage really does cut both ways. It lets you control a much larger asset with a smaller deposit, and it’s why property has built so much wealth in this country. But the real problem for me isn’t so much whether it’s shares or property, it’s poor asset selection. If you choose a poor share or a poor property, it’s gonna underperform. Choose a good share, choose a good property, it’s gonna perform. And make sure you get the right advice to get that in your portfolio. For me, I’m rebalancing my own portfolio. I’m looking at things like rooming houses where I can get 7 to 10% net yields, which is better than commercial rates, with the safety of residential. So there are opportunities out there to rebalance your portfolio and get really strong yields in property.
Joshua: I think we can both agree on the yield aspect. It’s important, especially in times like this where you might be waiting a bit longer for that capital growth to come through anyway.
The investment market mood and liquidity (11:20)
Rich: Exactly. So Josh, I wanna ask you some questions about the mood of the investment market. Since the budget we’ve seen a lot of people sitting on the sidelines, really confused about the tax changes and going, “You know what? I’m just gonna sit back, wait and see if the dust settles, then make my next investment decision.” You’ve offered to invest for clients while they wait to buy. How do you structure money that’s earmarked for a deposit in, say, 12 or 24 months? How do you do that short-term investing and protect their money?
Joshua: One of the big things we manage for clients is the liquidity profile. Whether that’s on your entire wealth or with a specific goal in mind, like being able to liquidate when you find a really good place, as an investment or as a home for your family. So it’s really about managing that liquidity profile. For a lot of our clients, we want a good portion of the portfolio in liquid assets. But when we’re doing longer-term assets, it’s about understanding them and educating clients that the investment may take a bit longer than initially thought. So yeah, we make sure we’re comfortable with the liquidity profile of the entire portfolio at any one time.
Investing a deposit before a correction (12:37)
Rich: Got it. So what’s the risk of investing a deposit in a market and then needing it after a correction? Let’s say you’ve invested some money and the market’s taken a downturn. Have they just gotta ride it out? How do you manage that?
Joshua: Well, I’d say you have to be really careful with where you invest it. Right now we’ve got equity markets humming along nicely in the US, and relatively high here in Australia. So if you’re putting money you’re gonna need into an entire share portfolio, there’s every chance it swings around 10 or 20% before then. The same goes when you’re trying to plan your retirement. With the cash rate probably looking likely to go above 5% in the near future, and a pretty similar thing in the US right now where government debt is paying quite attractive levels, you can go slightly down the risk curve into instruments linked to those key cash rates. A lot of funds will target 3%, 4% or 5% plus the RBA cash rate. Each of those increments is a dramatically different risk profile. It doesn’t sound like it, but it certainly is when you look underneath. We’ve made a pretty big shift this year into income-paying strategies linked to the RBA cash rate. Those assets are a lot less volatile. You get your regular income, and their value doesn’t move around as much as shares. So you have to be careful where you put it, and I think you really need to look at some of those income-paying streams anyway. With property at the moment, a lot of people are just sitting on their hands and waiting. What are some of the risks that come with sitting on the sidelines?
Herd mentality and timing the bottom (14:40)
Rich: I see it all the time. I call it the herd mentality, right? I’ve been a buyer’s agent 25 years, started in 2001. And I remember during the GFC, people just went underground. They stopped buying properties for a while and went, “Oh, the market’s crashing. I don’t wanna catch a falling knife.” At the moment, consumer sentiment is probably the lowest it’s been in over a decade, down in the low 80s on the Westpac-Melbourne Institute survey. The danger of sitting out of the market for so long is that everyone else sits out too. Nothing happens. But then the minute interest rates top out… I think we’re gonna have our interest rate rise on Melbourne Cup day, because we saw inflation figures today at 4.1% annually. So whether it’s early or midway through next year, who knows, right? No one rings a bell at the bottom of the market. No one says, “Hey, the 3rd of March 2027, that’s the bottom,” or, “The bottom was the 20th of December last year.” No one knows. But the problem is everyone follows the herd. Everyone’s sitting back now, and then when people think, “Actually, now’s a good time,” everyone else thinks the same thing and they all rush in. So instead of no one at the auction, you’ve got five, six or seven people. And instead of me thinking, “I’m gonna get this property for a song,” suddenly it starts to bid up again. So the danger of staying out too long is you miss that buying window, and those windows don’t hang around for long. Most property corrections last six to nine months. This one’s probably about 9 to 12 months, max. Then it will start to recalibrate. What’s happening at the moment though, Josh, is demand is being wound up like a spring. We’re undersupplied in property in Australia, it’s getting harder for developers to build, and not enough supply’s coming on. The minute we start to hear of rate cuts, whooshka, the market, I believe, will take off again.
Joshua: There are a couple of things you mentioned that you’re looking for in that shift, and I think that’s what I’m most interested in: how do you know when it turns? With investments it’s a bit easier, the way I view it. You can see those changes happen.
Rich: You’ve got your little candle diagrams.
Joshua: Yeah, on the side of the charts, right? Sometimes it just tells you, and sometimes it’s that easy.
Policy changes and market signals (16:42)
Joshua: But with the herd mentality, you guys are very much boots-on-the-ground property buyers, as I understand it. And then obviously there’s the interest rate story. What are your thoughts on any changes that might come from policy? Do you think anything will shift there, or certain scenarios that could really spark a change?
Rich: Well, if we look at the New Zealand example, right? It took about three years for them to unwind the tax changes there. They did a similar thing to Australia: banned or limited negative gearing. Rents went through the roof, public housing was overwhelmed, and they reversed the decision. I think the same thing will probably happen here, depending on which party gets in. Whether the Coalition actually gets its act together and forms government again, or some other conglomeration of parties changes it. Or Labor might reverse its own decision at some point, which has happened before, right? So I think some sensible policy will eventually come through. But you asked about signals. What do I look for in a turning market? I look at the number of people at open houses. I look at the number of active bidders at auction: not just the clearance rate, the actual volume of bidders. I look at the vendor discounting rate, because at the moment we can get incredible discounts for our clients, 15 or 20% on some recent deals. It’s incredible. We’ve got memories like elephants, right? And we’re beating the agents at their own game at the moment. We love it. So I look for those kinds of signals. The volume of transactions is very low, and when it starts to tick up, there’s a sense of confidence again in the property market. These things don’t appear in the data for three to six months. That’s why you only see the bottom of the market in the rear-view mirror. No one will tell you when it’s gonna be. So, I’ve got some questions for you. Let’s talk about moving up the wealth scale, what I call the $2 million inflection point. We’re using the word inflection a lot today. What changes financially when a family moves into the $2 million investing bracket?
Wholesale investor access (18:39)
Rich: What’s the psychology shift? What happens there?
Joshua: It’s happened for a lot of people. House prices have been a key driver, but that $2 million number has also slowly been eaten away by inflation. So there’s a real inflection point when investors hit that mark. What it does is open up wholesale investments to everyday mums and dads. I think at the moment about 30% of the country actually qualifies as a wholesale investor, and that number’s only set to increase, barring any government policy changes. So it opens up a whole new world of investments. Previously you’d jump onto your broker account and buy and sell some lithium stock your friend told you about at a barbecue. All of a sudden you can invest in private markets. That’s not without its dangers in terms of risk. And that’s where you need to upgrade your systems. You probably need to work with a wealth adviser, because there’s a lot more that comes with private market investments: understanding what the underlying asset is, understanding the manager, the key risks, where your money’s held. All these little intricate things that, because of the wholesale classification, don’t necessarily need to be disclosed the way an ASX stock’s are.
Rich: There are more risks there, and you need to manage them, but there’s probably a smorgasbord of opportunities out there. And you’re gonna help people decide which ones are appropriate for their risk profile.
Joshua: Exactly. And it does come with a liquidity premium as well. Private markets have typically outperformed public markets. In Europe, that gap’s actually about 5% per annum at the moment. In the US, because of the performance of some of the Mag Seven stocks, that’s diminished, but historically it has been the case. And we’re seeing a lot of private equity companies buying out ASX companies, so there are fewer options on the ASX now because they’ve been taken over by private equity firms. So it’s a world that’s getting larger and larger. That’s our speciality: working with really good quality managers, and educating clients who maybe haven’t had exposure to that in the past.
The most common mistake high earners make (21:01)
Rich: Excellent. You work with a lot of high-net-worth clients. What’s the most common mistake you see high income earners make in their wealth building?
Joshua: It might not necessarily be common, but it’s something I see a lot: working with the wrong people on your investments. I’ve definitely seen a lot of horror stories. When you’re starting to earn good money in that high income bracket, you start to work with a lot of different people, and a lot more people are interested in you as a demographic. At the same time, you’re still learning in your investment journey, ’cause you’re just starting to make money. It’s like, “Okay, well, what do I do with it?” And I’ve seen instances where working with the wrong firm or the wrong adviser is what sets you back the most. It also really sets back your psyche. It makes you less trusting, and then you take on less risk over the years, which really hurts your performance long term. So it’s a tricky one to navigate, of course. But happy to share a lot more detail on that at a different time.
Family home vs super (22:12)
Rich: Awesome. We’ll do some more stories. So I wanna ask you about the family home versus investments versus super. How should wealthy people think about building wealth through the family home versus putting wealth into super?
Joshua: The family home is a difficult one to advise on because it’s so personal. It’s a lot more circumstance and emotion driven. You want the house for your family, you want your kids to go to a particular school. Those are more the driving decisions. Funnily enough, it’s still probably one of the best places to get a return on investment after tax.
Rich: Capital gains tax free.
Joshua: With all of the incentives, it’s still something that’s untouched, and for whatever their word’s worth, it’s gonna remain untouched. I had a client who purchased his family home in 2019. It wasn’t an investment, it was somewhere for him and his kids to live. He bought it for about $4 million and lived there for a few years. He wasn’t planning on selling, wasn’t looking at it as an investment, and received an offer of $8 million to buy it.
Rich: How good’s that?
Joshua: So he up and moved out and rented in the next suburb over with his family. Sometimes you really have to make those decisions from an investment point of view, ’cause it’s just too hard to say no. But it is a difficult one, and you’ve gotta do what you need to do for your family. That’s probably the most important part. Then anything else, you can look to reinvest. The earlier you can get onto that, the better the habits you create, and just constantly invest. That’s probably the biggest thing I’ve learnt from my older clients: they’ve had time on their side, and they did the right things early.
Rich: I think it’s really important since the budget, now that the home is capital gains tax free, to look at your home as a wealth building machine. Because it does have that capital gains tax status. People sometimes think of the home as all about lifestyle. Well, it is, but it’s also about building wealth, and you’ve gotta be very strategic about where you buy and why you buy, and spend some time doing research around that.
Upsizing in a falling market (24:18)
Joshua: One thing that’s maybe a bit more personal to me, but happening a lot, is upsizing right now in this market. Especially because the upper end of the market is peeling off a lot more than the entry level. And obviously, with a growing family, it’s something you need to do, rather than waiting for the best timing. Are you seeing a lot of that at the moment?
Rich: I think it’s a great time to upsize, honestly. In a falling market, the changeover costs are much lower, so it’s incredible if you can get a property at a discount now. You won’t make as much on the sale. Let’s say you’re upgrading from a $2 million property to a $4 million property, and there’s a 10% discount. You lose $200K on your sale, but you gain $400K on the purchase. So net, you’re ahead. That’s what people forget. They think, “I’m gonna lose money on the sale, therefore I won’t sell.” But think about the asset you’re buying, and how in demand it would be in a hot market. I’ve seen it go 25% over reserve. So it’s a really good time to think about upsizing, particularly in the blue-chip, high-value suburbs.
Joshua: Is that where you’re seeing it more specifically, people moving into those more premium suburbs?
Rich: They’re wanting to move, but there’s still a lack of stock, even in this market. That’s why they’re so tightly held. If you’re trying to buy a house in Vaucluse or Mosman or Manly, they’re really tightly held. Or in premium suburbs like Toorak, South Yarra, or Highgate Hill in Brisbane. Those areas are tight for a reason. That’s why they hold their value so well.
Joshua: I did have a look at the upsize plan on realestate.com.au, and there were two listings in an entire suburb.
Rich: That’s right.
Joshua: That’s why you guys exist.
Rich: That’s right. So Josh, let’s talk about restructuring your portfolio. We’re possibly seeing some people wanting to panic sell in a falling property market. If an investor brings you three properties and a nervous stomach, what’s your review process for them?
A systematic approach over emotion (26:16)
Joshua: I think something we both do a lot is take a systematic approach, rather than being emotional the way a client can be. So a lot of the time it’s a bit of emotional coaching as well, particularly with panic selling. There have been times in equity markets where the share market’s been off 40-odd percent. Fortunately it rebounded pretty quickly. That’s why you need more stringent processes: remain process-driven, take a step back, take the emotion out of it and revert to the numbers. What’s the end goal of the portfolio? Is this in line with that? That’s when we start to make the decision, not because of external factors.
Rich: On the selling side, when do you think it’s appropriate for someone to sell a property and reinvest the proceeds into something that makes more sense?
Joshua: For me and the way I work with my clients, they’re very sophisticated. They’ve built their wealth by being experts in their field, whether it’s growing a business or working throughout their whole career and investing. So it’s not so much about me telling them; it’s about having those fruitful conversations. But the decision point I see is they have to have somewhere better to put it. So offering really quite stable investments that pay a yield and have that look-through to real assets is really important. We’re not speculating on mining stocks or tech stocks or software companies. We’re finding really good quality assets that are often spun out from an institution, or we’re buying alongside an institution with really good quality fund managers. You’ve gotta have that other solution. Clients have made a lot of money through property. If they sell, they might have, say, a million dollars come into their cash account. What can they do with that? They can buy more ASX shares. Maybe they already have a million-dollar portfolio, so now you’re taking that to $2 million. And like we said before, that can easily move around 20%, so you’re talking about a potential $400K swing. The other thing is it’s not paying overly attractive yields. So if you’re getting into the retirement planning phase, it’s not really going to fit the criteria of what you need at that stage of life anyway.
Rich: Very good.
What a good portfolio review looks like (28:50)
Joshua: What does a good portfolio review look like when a client comes to you with multiple properties?
Rich: For me, I’m looking at the performance of the property and what it’s gonna do in the future. So again, it’s looking at the numbers: what’s been the capital growth to date, and what’s its future growth? We look at population, supply, demand for jobs, infrastructure in the area, days on market. A whole lot of metrics. Then we look at the yield and the potential to increase it, and the potential to add value to the property. Is it in a rezoning area? Can you add value or, in time, increase density? Then the other thing we think about is stamp duty and capital gains tax. If you switch out a property, which is very illiquid in many ways, what are the transaction costs of selling and re-buying? ‘Cause you’re gonna lose 4 to 5% each time. So for me, property’s not a flipping kind of thing unless you’re a developer, or in a really quickly rising market. It’s a much harder thing to do. A good portfolio review, a bit like what you say, takes a financial planning perspective. What are their ultimate goals? What stage of life are they at, and what property is fit for purpose going forward?
Developers, new builds and off the plan (30:01)
Joshua: You mentioned developers there. Are you seeing a big shift into new builds, which I guess was the intention of these policy changes?
Rich: Yes, and mostly no. As much as Albanese would have you believe, “We’ve created a beautiful tax system and all the investors are suddenly gonna switch to new,” I started panicking a bit for the uneducated on budget night. Because I thought the spruikers would be out there flogging off-the-plan properties yet again. The problem with a lot of house-and-land packages or apartments is they’re not necessarily in tightly held suburbs. If you buy a property out at Oran Park or in South Western Sydney, it might look brand new, but there’s a plethora of supply down there. Yes, they’ll grow, but at a much slower rate. Look at the Ripley Valley around Ipswich, west of Brisbane: so much land available. You can get a great new property with high depreciation, but will it grow in value? It’s great you can get the tax deduction, but that’s not the reason to buy the property.
Joshua: No. One of the first pieces of property advice I ever received as a kid was, “Don’t buy off the plan.” I think it was from someone who’d been burnt buying off the plan.
Rich: It can work. I’ve bought off the plan and done exceptionally well out of it. It’s not to say all off the plan is bad, because if we follow that rule, a lot of developments would never get built. We need off-the-plan sales to make them happen. And you can get good discounts from developers who need four or five pre-sales to get a development going. So come in as an early adopter, put in a 5% deposit or use a deposit bond. One time I bought four properties in one year using deposit bonds. Did exceptionally well. I bought about $3 million worth of property in one year, and then I flipped them all on completion and made a stack of money out of it. It was fantastic, right? That was in the days when you could have multiple deposit bonds; now you can’t have as many. It was a bit speculative. I wouldn’t advise everyone do it, but I knew what I was doing and I picked great quality developers. So yeah, it can work. But I think there is generally a mood to move into newer properties, and you’ve just gotta be very selective. We’re doing that for our clients with properties like duplexes, and our rooming house strategy is one I think will be a brilliant strategy for buying brand new, and you get all the depreciation benefits as well.
Joshua: I think the government’s policy shift to encourage new builds was the right one. Unfortunately, it’s had the short-term effect of everyone pulling back, so it hasn’t quite eventuated yet. Policies take time, so it may encourage people to head more into the development side. The other structural issue is we just don’t have enough good quality developers wanting to take on that risk right now, especially ’cause things have slowed. So it’s yet to be determined whether it was a good policy change.
Risk and due diligence (32:42)
Rich: Exactly. So Josh, I wanna talk a bit about risk in your investment strategies. A couple of things. How do you assess risk when you’re recommending an investment? And secondly, what due diligence questions do you ask before you recommend a particular fund or product?
Joshua: It’s quite extensive, and that’s one really large driving factor in why I established my firm and brought my clients over: to offer them a better service. Now I’m very much on the front line with these counterparties and investment managers, so I can really do the due diligence myself and get into the nuts and bolts of how it works. Initially, one really important part is working with really credible operators. There are a lot of ways to determine that, but experience in the investment landscape, particularly here in Sydney while serving clients right across the country, has given me a good foundation. Secondly, you wanna understand where the money sits and what the underlying risks are. Take a credit income fund, for example. What is it invested in? Is it lending to developers doing construction right now? I’ve had instances where the due diligence passed initially, but the story shifted over time. We invested in a private credit fund, again a really reputable name doing all the right things, and they didn’t lose any money. But we went in with their target mandate at about 20 to 30% construction capital, and over the course of the investment, about a year and a bit, that slowly shifted to 80 to 90% of the portfolio under the surface.
Rich: Ooh.
Joshua: So you really need to understand where the money’s going and what the underlying key risk is. And there’s a lot to it. Like I said, these wholesale-only investments have more complicated structures. You almost need to go through them with a legal lens and make sure the unit trust is up to scratch, that you’ve sighted those different things and understand how they actually work. The main thing is: where’s my money going, and how do I get my money back if something goes wrong? Those are the two things we look at from the start. Then we say, “Okay, how well could this go?”
Best investment you’ve ever made (35:12)
Rich: Perfect. Josh, we’re almost at the end of our discussion. Let’s do some wrap-up questions and fire something at each other. I’d love you to tell me, what’s one of the best investment decisions you’ve ever made?
Joshua: Well, it’s only early days for this type of landscape. But I think rolling over into a self-managed super fund and investing it entirely in private equity, at an early stage in life, will be really good in 30 years’ time. What about yourself?
Rich: For me, it was buying an engagement ring and giving it to my wife. That was my best investment, and she’ll love me for this, but it’s true.
Joshua: I’m gonna get in trouble for not saying that one first.
Rich: No, it’s actually true. I think your best investment is in relationships. I’m very proud to have been married 34 years this year. Roz and I met at uni and created a great relationship, and that’s been absolutely life-changing for us both. But in terms of an actual physical asset, a property I bought in the GFC. I bought a block of land on the Northern Beaches, and it’s probably been one of my best performers because it had a little granny flat at the back, so I was getting two incomes right from the word go. I even subdivided a room in the granny flat to make it a two-bedroom flat instead of one. We renovated the house. And now, 20-odd years later, it’s been rezoned for low and mid-rise housing, so I can build four townhouses on it.
Joshua: Oh, right.
Rich: So it’s been fantastic for extracting equity again and again.
Joshua: It’s gone through a few life cycles, that one, hasn’t it?
Rich: It has, yeah, it’s going into the next life phase. So that’s been great. And Josh, what’s one mistake you’d tell your 30-year-old self to avoid?
Joshua: You don’t need an Amex. You get drawn in by the shiny metal card, and then the fees start to come in and the travel credits aren’t quite as much as you’d like them to be. So that’s one little mistake I could’ve easily avoided. What about yourself?
Rich: Well, going back about 24 years, I gave a lot of my net worth to one particular developer, and unfortunately that developer was a fraud and went under, and I lost a lot of money. I would’ve retired at 40 had I not lost all of that. That was a really big setback. Very difficult. So one message to the audience out there: don’t put all your eggs in one basket. Do your due diligence. Don’t be afraid of investing, but make sure you don’t put over 50% of your net worth into one property or one investment.
Joshua: I think everyone’s got at least one of those stories. I speak to a lot of investors every day, and everyone’s got that one big setback they wish they hadn’t had. But I think the worst thing you can do after that is stop. That’s where it really becomes detrimental to your long-term game. It’s unfortunately very common, and so is working with the wrong people.
Property or shares for the next five years? (37:53)
Rich: That’s right. So last question, to wrap it up: property or shares for the next five years? Which is gonna be your angle?
Joshua: I’d have to say US shares.
Rich: What’s the reason?
Joshua: Being exposed to this technological revolution we’ve got going on, AI, and being in the really good quality AI names is something that will drive the markets higher at the moment. NVIDIA’s the poster child for it. It’s actually trading on one of its lowest PEs at the moment. And whilst the US market is up double digits this year, its PE is actually lower than it was at the start of the year, because these earnings are genuinely coming through. I think one of the most exciting events in the market this year is the Anthropic listing. That’s gone from $1 billion in revenue last year to $16 billion. So these are big multiples. Long term, the number one driver of investment growth in companies is revenue increasing, and these guys are benefiting from that pretty well at the moment. There’ll be maturity in the sector. There’ll be pullbacks, and we’ve seen a bit of that already. Debt comes into question with some of these companies, but it’ll go through those iterations. It’s almost like investing in the internet at that pivotal point. So look abroad, look overseas at the moment, is the main takeaway.
Rich: Very good.
Joshua: What’s your opinion?
Rich: Property versus shares? Well, I’m gonna surprise you. I’m gonna say both. I put the majority of my self-managed super fund into equities rather than property. But I’m a property expert, so I’m completely overweight in property, as you’d expect, because I’m an expert in it. For most people, you gotta have both. Property, because of its leverage, as I’ve said, is just brilliant. Particularly Australian residential property, and don’t just get resi, you can get commercial as well. It’s a great bedrock of wealth. People understand it. And this undersupply situation is just gonna get worse over the next couple of years. So for me, it’s that demand factor: rents are gonna go much higher than inflation. I think rents will rise 5 to 7% per annum over the next five years. So unfortunately for renters out there, it’s gonna be very difficult. It will reach a ceiling, and there’ll be more multi-unit housing and more people sharing. But for me, great quality property, particularly with high yield and high capital growth, is what I’ll be targeting.
Joshua: I think everyone wants to come to Australia. Everyone wants to live here. So I don’t think property’s necessarily gonna do too poorly anyway.
Rich: That’s right. Well, Josh, it’s been an absolute pleasure. Thanks for sharing your wisdom.
How to get in touch (40:26)
Rich: How do people get in contact with you if they want to find out more about your wealth services?
Joshua: The best way to get in contact, or even if you just wanna learn a bit more about what we do, is barkerwealth.com.au.
Rich: Perfect. And for those looking to buy property, it’s propertybuyer.com.au, or 1300 655 615. We’d love to have a chat about a portfolio review or helping you buy your next property. Thanks again for watching. We’d appreciate it if you could like and share the podcast amongst the community. That’s how we get the good message out to help people make better property decisions. I’m Rich Harvey, thanks for watching, and look forward to seeing you again very soon. Bye for now.
This content is intended for general information only and does not constitute personal financial advice. You should consider your own objectives, financial situation and needs before making any investment decisions. Views expressed by guests are their own. Past performance is not a reliable indicator of future performance. Barker Wealth Management Pty Ltd ABN 46 695 875 962, trading as Barker Wealth, holds Australian Financial Services Licence (AFSL) 700297. Your adviser is Joshua Barker (AR 1274752).