The Tomato Tip

This blog comes all the way from sunny Hanoi in Vietnam, a beautiful place I’ve chosen to recharge my batteries in with my family during the summer break. Arriving in a new country comes with its surprises and the little tips I’ve picked up from locals during my stay has reminded me of some of the valuable tips I learnt in my earlier days as a property investor. 

The tiny things that we learn along the way shape us and increase our productivity, reduce our risk and help deliver us a better overall experience.

Navigating the streets in busy Vietnamese capital cities is not too dissimilar from other bustling South East Asian countries. Remembering that cars drive on the right side of the road is one safety tip, but also appreciating that it takes careful courage to step out, walk slowly and at constant pace through traffic while motorbikes whiz around you is the secret to actually crossing a street.

As we say to our daughter, “commit, walk slowly and with purpose.”

Other little tips, such as avoiding drinking the local water, recognising harmful snakes from benign, little non-harmful ones while trekking, using salt on sour fruits to make them palatable, establishing the fair market rate for a crafted handbag and managing currency conversion are regular discussion items between travellers.

It was a little piece of advice I received in a cooking class from a Vietnamese chef that made me wonder, what interesting little snippets do I offer clients along the journey that make a subtle, but special difference for them in their property investing journey?

I was tackling Hanoi spring rolls, a dish I’ve tried out many times before with mixed results. The sheets of rice are crisp and easily break when handled, yet when dunked in water they always fall apart. My spring rolls have often been multi-layered in a desperate attempt to hold them together, but once they are too thick, the impact of the thick shell in the fryer lets the spring roll texture and taste down. 

My chef’s tip? Lay the sheet of dry, thin rice paper flat on the bench, cut a tomato in half and wipe the tomato quickly over the sheet. 

This ridiculously easy tip made a huge difference to my spring roll efforts.

Easy? Yes. 

Common knowledge for a foreigner who doesn’t often make spring rolls? No.

This tomato trick got me thinking about the various tips and ideas we often share with clients that they weren’t previously aware of, even those who have held property portfolios for years.

One relates to zoning or title type. Buyers often ask why a particular property is selling at such a discount. Sometimes, if it’s too good to be true, it really is. Most first home buyers with deposit size limitations could risk losing their deposit if they proceed with a purchase of either a commercial or industrial zoned dwelling, (or a Stratum or Company Share title). The dwelling can look like a residential dwelling, feel like a residential dwelling, and even be surrounded by residentially zoned properties, but if it is not in a residential zone, it could spell trouble. 

So, how DO they establish the zoning? They can either refer to the contract of sale, or conduct a basic lookup on a public portal like landchecker. Once the address has been inputted, the zoning, (and other relevant information about the property) is shown.

Likewise, to determine the title type of a unit that may not yet be strata subdivided, the title particulars will clearly show if a Company Share arrangement is in place. To avoid the risk of missing this important detail, a legal review is a must. Mortgage insurers will generally not accept this type of title, so for any buyer with less than a 20% deposit contemplating a unit purchase, being cognisant of this risk is paramount.

When it comes to calculating gross rental yield, a useful rule of thumb I like to use is my “5.2%” rule. It’s quite easy. A gross rental return is 5.2% when the weekly rent equates to the purchase price by a factor of 1,000. For example, a $500,000 property yielding $500pw represents a 5.2% yield.  We can roughly estimate similar yields by keeping this peg in the ground.

One of my favourite little tips though that always holds me in great stead relates to likely outgoings for units. As soon as a block exceeds three storeys, a lift is mandatory. Lifts equate to greater cost, ongoing maintenance and likely hint that other expensive additions such as pools, gyms, and concierge may feature in the block. Being mindful of the things that can add up on the ‘outgoings’ ledger is essential for any property investor.

Attractive rents are whittled away by expensive maintenance costs.

And lastly – a valuable tip I learned as a broker relates to Loan to Value Ratio, (LVR), and the potential for increased lender scrutiny. A borrower with a firm 20% deposit on hand, (in addition to stamp duty) has a less challenging path in front of them when applying for credit. Lending policy generally hinges around this magic ratio; 80% borrowing. An 80% LVR applicant will be more likely to purchase without the need for a full physical valuation, more likely to avoid the requirement of showing a solid record of genuine savings, and less likely to face challenging risk-ratings. They will potentially be eligible for sharper rates and stronger loan benefits.

On the flipside, as Buyer’s Agents, we need to be aware of the heightened risks a client of ours could face if they have limited savings and are facing a high-LVR situation.

There are plenty of valuable little tips out there, and just like the tomato tip, we enjoy sharing snippets of education with buyers in our travels.