Podcast 94: Tax shock and giving loans some credit

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It’s a bit of a Budget special on Flat Chat this week, if only because we are talking about money.

Specifically we are discussing the personal taxes that you probably didn’t even know you are supposed to pay when your strata scheme starts making a profit. 

And we’ll discuss where to get dough when your strata schemes needs a lot of it in a hurry.

To which end, we have a chat with Paul Morton, CEO of our long-time sponsors Lannock Finance.

Along the way we’ll touch on

  • why the Australian Tax Office would rather treat you as an individual than a member of a corporation
  • how it can cost more in real terms to pay cash up front rather than get a loan
  • why footballers aren’t working as hard as they once did
  • what happens when the instructor knows your name in the gym and
  • how potential purchasers are viewing properties in these viral days.

You can hear all that by clicking on the play button below. 

Listening is by far the best way to enjoy the pod, but if you aren’t a podder, you can read the transcript of this episode a little further down this page.

However, be warned, it was transcribed by a computer in America – “strata loan” becomes “straddle on” – then edited by an irritable Scot .

We caught most of what was lost in translation, but grammar is one of the first things to go in informal chats, quickly followed by logical progression. 

Even so, somehow it  all comes together. Enjoy!

Transcribed: Flat Chat 94

Money, Money Money

Jimmy  00:00

This week we’re talking about money

Sue  00:02

Good subject.

Jimmy  00:04

Well, talking about it doesn’t mean we have it. That’s wishful thinking.  Specifically it’s mainly about tax and a column I wrote for the Fin Review this weekend, which I think is going to cause a bit of a stir.

Sue

Oh, how unusual that you’re being controversial.  

Jimmy

No, I just can’t help myself. People say I’m a troublemaker. I like to think of myself as a problem solver.

Sue  00:31

Or disrupter, I suppose suddenly becomes more respectable.

Jimmy

But you know, a problem solver,  to the person who is the problem, is a troublemaker. It’s all relative.

And we will be talking to Paul Morton of Lannock Finance, about some of the ins and outs of borrowing money, because we had those stories about the building that borrowed money to do the upgrade.

I’m Jimmy Thomson.

Sue

I’m Sue Williams

Jimmy

And this is the Flat Chat Wrap.

Donald the Dodger

Jimmy  01:15

It’s very hard to make tax interesting. I’ve discovered.

Sue  01:19

It is, unless it’s a tax rebate,

Jimmy  01:22

Or unless you’re telling people they are about to get taxed for something you didn’t even know you were liable for

Sue  01:30

Tax is actually a bit more sexy at the moment, isn’t it? Because I think we’ve all been fascinated by the stories about Donald Trump only paying $750 in tax. Suddenly, tax seems so much more interesting than it did before.

Jimmy  01:44

But he is a is an icon of the new morality that exists. You know, when we were growing up, basically, there was good and bad. And there were things that you were supposed to do. And, and you did mostly, and over the years that has evolved into what can I get away with?

He’s spoken about getting away with tax and not having to serve in the army. We should call him Donald the Dodger. Because he’s a draft Dodger, and he’s a tax Dodger. And now he’s could be a Covid Dodger. That remains to be seen.  But he’s a mask Dodger.

Tax Factor

Sue  02:31

Jimmy, that’s not what we’re talking about. In the old days, we always said the two things you can’t get away with are death and taxes. Yeah, but you can actually get away with taxes. Yes. And possibly you can get away with death sometimes.

Jimmy  02:44

Well, you might delay it.

Sue  02:46

Okay.

Jimmy  02:48

Unless the people that you owe money to decide that they don’t want you to get away with it. This weekend in the Fin Review I wrote a column prompted by the story I did the previous week, which was prompted by story you did about a building in Bondi that sold common property to finance an upgrade of the whole building?

And I said at the end of that story, there may be a tax implication here. I thought, well, I can’t just leave that hanging there. Bit of a cliffhanger. So I investigated a bit, or went on Google. That’s just what we do for investigation these days. And discovered that if a building makes a profit on anything, pretty much, is due to pay tax, which makes sense. But what a lot of people don’t realize is that that tax has to be declared by the individual owners. Every single one of them, because the tax department, the Australian Tax Office, had to kind of look at the whole strata area.

And there’s technical terms for this, which I don’t know. And they wouldn’t mean much to anybody if I did know them. But basically, what it comes down to is that some states regard owners corporations or bodies corporate as corporations, and in some states, they regard them as groups of owners with mutual interest. 

The Tax Office, they don’t like to have different rules for different people or different states. So they said, well, we’re going to treat them as groups of owners because even though you cannot (get money out), it’s really hard in New South Wales to get money back from the owners corporation. It requires a unanimous vote to get any money like an overspend on levies, whatever to get it repaid, which you’re never going to get because the person sitting in the tiniest flat in the building, thinking about the person in the penthouse goes Oh, okay, I could get my $50 back but then I would lose the benefit of their $5,000 I’m going to vote no.

So the tax office said, well, if it came to the point where that building was sold, then everybody would get money back proportionate to the unit entitlements. So we’re going to treat everybody as individuals. What that means is, although you income from levies is not considered taxable, just about everything else is.

Sue  05:26

Wow. So that makes it pretty unworkable. Because if your building gets any income from any source, and lots of building, say, in Sydney, lots of tall buildings have phone towers on the roof.

Jimmy  05:38

Yep, that’s very good. That’s a specific example.

Sue  05:41

So they get income from Telstra or Optus or any phone companies. So that means even though the building gets the money, the owners are going to be taxed on the money that they’re receiving.

Jimmy  05:52

Yes. Or they should be. They’re supposed to declare it … we are supposed to declare it all owners. Iit’s not as hard as it sounds, because basically, you have your accounts done every year, you know, before the AGM, and there will be a profit and loss thing.

And instead of the owners Corporation paying tax for the profit and loss, and what should happen is if the building is has any income, that income should be basically laid out, as part of your end of year levies. Your last levy statement should say last year, you earned 215 895ths worth of this income, which you should declare on your tax?

I don’t think anybody does.

Sue  06:43

No, I’ve never heard any of anybody doing that. But yeah, you’re quite right. Actually, it’s not so unworkable. After all.

Jimmy  06:50

But funnily enough, people are not clamouring to do it. (laughs).

Sue  06:55

And you kind of think only if the tax office suddenly started thinking this is an unexplored area, let’s concentrate on this, that they’d actually look at it. And yeah, we’d end up all being having to pay some money.

Jimmy  07:09

Then everyone else is  hating me for drawing attention to it. But, look, it was only in the Financial Review. So it’s not as if people from the tax office would read that publication.

Sue  07:16

So does that the income that you get from, you know, from strata, that would include all the cell phone towers, but say, if you had a very green building, and you were selling electricity back to the grid, so you’re getting income from that that would be one income, wouldn’t it?. And I think you mentioned fines.

Jimmy  07:35

Fines are specifically mentioned in the tax office ruling, which if anybody goes on the website this week, I’ll have the story there, all about this, with the link to that ruling. But they basically say, yeah, fines, because that’s not mutual income. If you’re renting a car spaces, a lot of strata schemes rather than selling spare common property, car spaces to owners, they will give them long term leases on those car spaces.

It may be that the owners corporation is putting in a tax return and declaring this stuff. But it’s very common for owners corporations to put their money in non interest-bearing accounts, because the cost of putting in a full tax return is often more than the benefit and interest, especially nowadays.

So it’s been quite common for owners corporations not to earn money on interest, which is would be taxable, again, they got to put in a tax return, but they put in a new mill income tax return because otherwise, they have to go through all GST and all that stuff.

Now, if there is anybody listening to this, who’s in charge of the finances of their strata scheme, they could be going, Oh, we, you know, we rent car spaces or something like that. Or we rent the storage spaces, or the 7-11 store on the ground floor is actually our property and we get income from that.

I know of a building in Sydney that has an apartment that the owners Corporation owns. I think they may be that we’re going to have a resident manager at some point. And they let they get the income from that.

That is taxable, but not to the owners Corporation; it should be declared by the owners. And it’s probably not going to make that much difference. But you could see a scenario where somebody has calculated their tax and their income to minute degrees so that they can get maximum benefit before they start losing benefits but this can actually tip people over.

I remember many, many years ago when I was at university one of my friends got a summer job. And he arranged it all through his dad’s tax. And this is the British tax system. So he was getting paid by his father and his father was getting paid by his son’s employer, and they had it all worked out, and it was all fine. And then the union on that workplace got a wage raise that was backdated for six months. And it bumps the father into a whole new tax bracket and cost thousands of pounds.

Sue  10:37

He would have been better off just giving you some more extra pocket money or something.

Jimmy  10:42

So the point no, you never you can be certain. Tax is such a strange beast. Yeah, that’s the bad news if your building is earning anything beyond the levies, from towers and the building or letting common property, or even getting fines.  You’re up for tax on a proportion of that. And strictly speaking, your strata manager should be letting you know what that is.

Sue  11:09

Pretty interesting.

Jimmy  11:10

And everybody’s going to hate me even more, because the strata managers will be saying, Oh, you now have a Schedule B charge for us working out what your taxes should be.

After this, we’re going to talk to Paul Morton of Lannock Finance about borrowing money for strata schemes, and why we do it, when we do it and how we do it. That’s after this.

Strata Loans

Jimmy  11:42

We’ve ran a couple of stories recently about buildings that have sold off common property to finance upgrades. And in I think the three cases we know of all of them have been financed by strata loans from Lannock Finance,

Sue  12:00

Partly by that, but also but with a percentage of special levies as well, because I think most buildings do kind of a bit of a mix of everything.

Jimmy  12:09

Which is a whole other issue, because some people can’t pay special levies, and some people don’t want to pay the interest on strata loans. Anyway, we thought we’d get Paul Morton, CEO of Lannock, online on zoom to talk about that. And it’s coming up now.

The Loan Arranger

12:26

Jimmy  12:33

We’ve been talking and writing a lot about these buildings that have been doing the renewal process or redevelopment. I can never remember which one is which, where they basically sell some of the common property to finance fixing up the building. Yeah, and I know that Lannock has been involved in several of these.

I thought we’d be good to catch up for people for whom the whole concept of strata loans might be a bit alien. So first of all, at what stage should strata owners strata committees investigate the possibility of strata loans?

Paul  13:12

Look, this is probably one of the most important things and the answer is really obvious. It’s really simple. Right at the very beginning, at the very start of stuff. I mean, you wouldn’t be looking for a new home and chose choose the home and it’s whatever it’s going to cost. Oh, how are we going to pay for this? So right at the beginning is the place to go.

Jimmy  13:34

And can ordinary non committee members contact you to investigate these possibilities?

Paul 13:41

Not only can they but they do. So yes, go talk to whoever either wants to be the champion in the situation. And a lot of things start to do require a champion, then someone has to pick up the ball or whatever the metaphor is going to be and run with it. Somebody has to do it and we will talk to them.

Sue  14:02

And what’s the difference between a loan and say a line of credit?

Paul  14:07

Look, if you’re a regulator or a bank, this can get very arcane and legal and tricky. So we don’t want to go there. But simply put a loan is the money you’ve borrowed in order to fund whatever assets that you’re thinking about a line of credit, usually is the ability to be able to borrow the money. So one’s actual borrowing and one’s that glint in your eye, I guess, is the simplest way of putting it.

Jimmy  14:32

If somebody was to come to you and say, we’ve got a project, we think it’s going to cost somewhere between, let’s say, $100,000 and $150,000. But we’re not sure which, can we get a line of credit? Would that be an appropriate avenue then? Or would you say no, you’ve got to kind of fix how much you’re going to be spending

Paul  14:52

Look, mostly when people come to us. They don’t know what it’s going to be? It’s at the beginning of the process. Or even not even near the end of the process, unless you’ve got a fixed price contract, it is sometimes not even then you don’t know how much things are going to cost. So we always tend to deal with a range, saying, well, if you think it’s going to be about $200k to $220,000. Now, let’s give you the estimates of what things would mean. If for say, $200k, $225k and $250,000. But you can work out what the implications are going to be under the different scenarios.  Things don’t always work out exactly as you plan them. So thinking of a few different scenarios is a good idea.

Sue  15:41

Is there a limit on the amount schemes can borrow.

Paul  15:44

There is and there will be a bit depends who you talk to how they work it out. Some lender just have a maximum amount that they’ll lend. And for some of them, oddly enough, it turns out to be two and a half million dollars.

Sue  15:58

It’s quite a lot.

Paul  16:01

Well, that’s the funny thing. in finance, it’s a lot if you’ve got a block of 10 units, and they’re worth a million each, then two and a half million dollars, that sort of might be normal. If you’ve got a block 100, and they’re worth $2 million each, then two and a half million dollars out of 200 million is really quite small by comparison. 

Other lenders will work out of dollars per lot maximum. So for example, it might be $25,000 per lot. So your block of 10 can only borrow $250,000, no matter how much it might be worth. Others have a thing they called it levy shock. So they’ll work it out in terms of what change is going to make to your levies, and they don’t want it to be too much.

The way we work at Lannock is that we’re talking about what’s called an LVR  – a loan to value ratio – a percentage of the total value of the property.

Jimmy

What’s the biggest and smallest loans that you’ve ever given?

Paul 

Uh, it’d be lovely if we could give them wouldn’t it? Yeah, that’d be fantastic. So the smallest amount we’ve lent I think, is $6,000. Or maybe $7000. The largest amount we’ve lent is about $40 million and everywhere in between.

Jimmy  17:13

Wow. I mean, that’s just mind boggling figures for most people in strata, I think. But I guess if it’s the project’s big enough, and the buildings big enough, then it makes sense.

Paul  17:25

And it comes down to that point of, you know, what is it in context? If you’re fixing the roof, and it costs $100,000? Well, that’s sort of one thing about it. But if you’ve got 100 roofs to fix, it is this notion of, you’re not actually doing this just on your own behalf. No one single owner who says, I’ve borrowed $10 million. I’m part of a group of 50 owners, and as a group we’ve borrowed $10 million, is a very different notion.

Sue  17:57

So it turns out not to be enough to complete the work, you know, people spend $10 million, and then realize that they really did need 15 million. And that’s kind of a bit beyond what your original scenario was.

Paul  18:12

Yeah, that’s a distressing thing that happens because it’s a surprise, and people don’t like surprises. So it comes back to the planning and thinking about things from the beginning.

There are always three ways to fund anything in strata, you can have a small number of levies over a long period of time, which is a capital budget, a capital fund, probably not appropriate what we’re talking about here.

And you can have a special levy or you can borrow. So I think the circumstances here, consider whether a special levy or borrowing or a mix of those two is the best way out of that situation, and probably worthwhile talking to your lender upfront and ask the very same question.

Well, if we do borrow $10 million, and we need 15, where can you know, can you provide the other 5 million? That’s a good question to ask at the front?

Jimmy  19:01

As far as I can recall, there’s no mention of strata loans in the legislation at the moment. If it is mentioned, it’s in passing. What’s the situation with strata schemes is a simple majority that’s required to even ask for a loan?

Paul  19:18

Or this is possibly the worst question to try and answer in a podcast, but let’s have a go. It’s different in every state and territory, right. And even within the state and territory, it can be different.

For example, in Queensland, there are four (strata) modules. So it’s different in those modules, typically, and this is a gross generalization for the country.

But typically, the decision to borrow is like almost every other decision in strata. It’s a simple majority of 50% of the valid votes at a valid general meeting, right.

But sometimes the work that’s being done might require a special resolution. And then in those cases, it depends. It’s a bit odd. Sometimes the decision as to how to fund it is still a simple majority. And occasionally, it’s a special majority.

But in your particular jurisdiction and your particular type of strata scheme, it’s something to talk with the strata manager, and if necessary, your lawyer about.  Or perhaps do the really shocking thing and go and read the legislation for yourself, because it is quite readable. It’s not a document, we don’t need people to interpret it for us.

Sue  20:31

So when you’re talking about the different ways you you can have to fund work? What’s the advantage, then if a strata loan compared to a special levy?

Paul 20:39

Ah, gosh, where do I begin on this one, because this one, again, is one of the really important questions. Let’s just compare the special levy and the strata loan and forget about the capital funding for the moment.

The answer is that it’s always going to be different for different groups of owners, there is no one size fits all. And remember, there’s a mix of the two that you can have as well. But the thing about a special levy is it’s there, and it’s immediate, it happens and you must pay it.

And compared to the levies required to service a loan, you know, it’s a large thing, you know, it might be $10,000, or 5000, or maybe even $100,000, which you must find right then.

I sort of compare it with a bit like Christmas, no one sits around in November, December thinking, I don’t have enough cash for the kids Christmas presents, we’re going to move Christmas into February this year.

Instead we borrow through a credit card, for example, we have Christmas, and then we pay the loans back over that period. So what debt is really good at doing is managing cash flows, right. And similarly, if you see like, for example, if you’re looking at your capital budget a few years ahead, and in year three, there’s a big expense for the lift in years for there’s a big expense for the air conditioner.

In year five, there’s a big expense for the roof, or whatever they happen to be.

In the real world, we tend to want to say, let’s bring one of those forward. And let’s cut one of those down a bit. And let’s move the other one back, if your best view is that those things are going to happen in years, three, four, and five, or your advisors best view is that’s when they’re going to happen. That’s when they’re going to happen.

And moving them around isn’t actually a very efficient way of dealing with things.  Debt is always a better way of dealing with that. Another one with a special levy is that, particularly if it’s, if it’s on the hefty side, if you have some owners who can’t pay it, then that proportion they haven’t paid is going to be the proportion that you’re short, when it comes to paying the builder tend to get a bit stroppy about that.

So that’s a difficult thing. And the other one, is always to look at your cost of funds, and particularly your after tax cost of funds. So working out that and for many people, borrowing by the strata corporation is actually more effective for them. But as I said, it depends on the situation.

Sue  23:09

So should we look at it, like we’d have a personal mortgage over a property. So if I wanted to do a bathroom renovation, I didn’t have enough money, I could add it onto my own personal mortgage to do the renovation, my property would improve in value, hopefully, if it went well. And in the end, I’d come out ahead.

Paul  23:27

I wish I’d said that.

Jimmy  23:30

So the answer is yes.

Paul  23:32

Yes, yes. But that’s perhaps so you’ve given the really practical example. Let’s talk about it in a slightly more theoretical way. You don’t have an asset without having funded it in some way. And it’s pretty rare that you have a liability without an asset being associated with it.

So you know, no one runs off to a dinner party and says, Oh, God, you know, what’s wrong with me? I’ve got this huge mortgage.  They go to the dinner party saying, hey, life is fantastic. We’ve just bought this new house. And the subtext is, oh, well, we’ve chosen to fund it with, you know, 20%, equity, and 80% debt and the equity we got partly from Sharon’s mum, and wherever it all came from.

And it’s a similar thing in any consideration of strata. It’s not the issue of, Hey, we have a big sinking fund, or Hey, we have a big debt or whatever it might be. It’s, these are the assets we’re going to need to finance and sometimes the asset is restoring the value to something like repairing and maintaining. But these are the assets we’re going to need to finance in our situation, what’s the best way to fund them? What mix of the levy types that are available that we’re going to use, and what’s the cost of those?

Jimmy  24:48

One of the issues that comes up a lot, certainly people right into Flat Chat is you’ll get a group of people who know they’ve got to fund repairs or whatever. And some people want to put in a special levy but others can’t afford that special levy, especially if it’s a substantial amount. So they want to go for a strata loan.

But there are other people who say, I don’t need to go for Australia loan, and I don’t want to be paying any interest because I’ve got the cash in the bank, I could pay this or find some other way of financing it. So I’d rather go for a special levy.

Unfortunately, certainly in New South Wales, the law is that everybody has to do the same thing. You either have a loan, or you have a special Levy, you can’t split that. Can you see any prospect of the law being changed, on that?

Paul  25:39

I haven’t spoken to legislators specifically on this item. But I think the chances are so low as to be nil. And I think there’s a good reason for that. Which is, again, it’s putting in context. So you’ve mentioned something which is unpalatable. Some people who want a strata loan and others want to pay up front, and could the law be changed so that we could both have our way?

That sounds attractive. But then you’ve got to look at what are the attributes, the pros and cons of having the law changed. So it could be the other way. One of them is complexity. And I think strata is already complex enough, we don’t want to have any more.

The next one is uncertainty. And I think strata is already uncertain enough, we don’t want to increase that. The other one would be fairness, it is actually really difficult on a group basis to work out exactly how much interest for example, is due o the loan and how people should pay it.

And what happens is, for example, you’ve paid your levy, one day too late or one day too early, and all of those sorts of things. So I think the simple thing of, I’d pay up front, and it’s got rid of it, can turn out to be very unfair.

What happens in a situation we’ve been talking about if the work we thought was going to be 10 million turns out to be 15 million, the person who’s paid the levy up front thinks they’re done with it. Yeah, but actually, there needs to be more, it does lead to a hornet’s nest and a Pandora’s box, sorry to add two metaphors to the conversation. But the tricky thing is, if you’re one of the owners who would prefer to pay up front, there are several ways to think about it.

One is to think this is actually politics. I really want that asset part of the equation. No, I’d like the roof fixed, or I’d like to put a swimming pool in the backyard, whatever the project is, but the group of people that I mean, I can’t get what I want, if I insist that it is paid for upfront, because I’m in a community and the community has other needs and wants and financial situations.

The most important thing, when you’re talking about this asset liability conundrum that I’ve sort of alluded to, is get the asset, right? Because the asset is the thing, which is going to make a huge difference to your return on investment, your lifestyle, the way you feel about things, all of that sort of stuff.

When it comes to the funding of an asset, although they have different costs, they don’t the costs don’t vary as much as the return on the asset varies. So the first thing is to get your asset right now, is it the $100,000 swimming pool or a $500,000 swimming pool? That’d be a very expensive swimming pool, but you know what I mean.

And is it the contractor who’s going to install the hundred thousand dollar swimming pool for $90,000, or this other one is going to do it for $110,000. I’m very, very big on people thinking about finance, that’s critical. But actually, it’s the asset, which is the main driver of your return on investment. So that sort of gives a bit of context to feel a bit happier about when I’m not going to get my way on how its funded.

Then the second one is, and if I’m in a general meeting, I have to be very careful not to look at it anybody when I say this, I have to look at the floor very studiously a lot of the time, people don’t understand what actually is their own personal cost of funds.

And I think we’ll look I’ve got money sitting in a check account, is paying me half a percent interest or whatever it is, at the moment, I can use that money that’s a lot cheaper than a strata loan, which is true. Some people are in that position. But other people are forgetting the fact that at the end of the month, they’ve got credit card debt, or if there was a special levy, they would have credit card debt. That means their cost of funds is 20%.

Or maybe their cost of funds means they can’t go on that holiday. We’d all like to go on a holiday. Or they can’t buy that new car or they can’t give the money to the kids or whatever it is.

There’s a concept in finance called opportunity cost, which is what’s the next best thing you can do with that cash and a lot of people who have thinking, well, gee, I want to pay up front, are missing he point that their cost of funds is different to what they thought it was. Right? All right for the finance lecture.

Jimmy  30:17

That’s great. That’s why you’re here.

Sue  30:20

So with with personal renovations, that there’s an awful lot of them going on at the moment under COVID. Because I think we’ve all spent a lot more time at home and worked out what’s not quite right about our homes and what we’d like most to improve. Is that true also of buildings? Are they kind of looking inwards and thinking, well, this is a good time to add an extra floor onto the building or add a basement level for car parking or sell off that little storeroom that could make a an apartment that we could sell off and market and make a bit of money on our people? Are people doing that during COVID?

Paul  30:54

Three answers, yes. And no and not enough. The yes part is yes, they are doing that. And we’re not only seeing the inquiries for that those decisions are happening and they’re being implemented. The lockdown in Victoria, we don’t have to say anything. It’s clearly dreadful for everybody, especially if you’re in Victoria. But in other states, people are moving ahead. And I haven’t seen many, or any significant notices of disruption to planned works and things like that.

The no part of it is that completely naturally, when people are seeing their apartments, they’re thinking I need a new carpet, or wouldn’t it be good if this wall was a different color? That’s the first thing for people to think of. But the bathroom renovation idea that you brought up to really applies to the whole of the building. And people take a little bit more time to get used to that?

I mean, if you said to almost anybody, look, here’s $25,000, what’s the biggest bang for the buck you’d get in spending it inside your apartment, and intuitively, people would know and they even intuitively know the cost. I will not I can’t get a kitchen for that. But I get new carpet here. And I’ll do this and that the other there’s my $25,000. And I’ve increased the value of things.

If people can make the next step and think, well, if we all spent $25,000 each or communally on the common property, effectively, usually on the exterior of the building, what would be the increase?

What would be the value for money, the bang for buck, you know, return on investment? How much better would we feel about things? If we had, you know, insert name of your favorite project here? And I think that’s a leap that not all people in Australia have made yet. But certainly it’s happening.

Jimmy  32:52

I think we’ve pretty much covered everything we wanted to talk about, Paul. Thank you. I mean, it’s people don’t realize this is very early on a Sunday morning on the day that the clocks have changed. And I think it’s heroic of you to come on the podcast and talk to us today.

Sue  33:09

Yeah, it’s a really exciting topic, though, isn’t it? You know, buildings are doing so many different things. We’ve got so many old crumbling buildings around and so many of them built in the in the 40s, and 50s, and 60s. And many of those must be looking at strata renewals or, you know, knocked down and rebuild or just selling to developers to redevelop.

But it’s kind of environmentally very sustainable to look at how to renew old buildings, you know, through different ways of adding assets and in improving the building. And you know, structure loans is obviously one way to be able to afford that. So I just think it’s a really exciting topic.

Paul  33:46

I completely agree. My mother in law moved into a new flat a couple of days ago. And we went down to the storage area. And I was amazed here at this flat in a very nice suburb with harbor views, there is a building in what you’d think would be the basement. But actually, it’s two levels above because it’s on the side of a hill.  And it’s the size of one extremely large two or three bedroom apartment just sitting there waiting to be used.

And I think if people look around their common property in the roof space, or in the basement, or whatever, they’ll find a few examples like that. And it is really exciting. And I think if people plan the funding at the beginning, then that’s when they can really get the best outcome.

And look, it’s just like the home and the mortgage. I don’t know anybody who’s bought a home paying cash. Hmm, we’ve always implicitly right at the start of thinking of buying a home, have an idea of what we can afford and how we’re going to pay for it even if we haven’t actually approached the bank. And the first day that we step out looking for an open inspection. The other side of an asset is always a liability and the other side of the liability there’s always an asset. The two go together, and therefore you should think about them together.

Jimmy  35:04

Right? Well, I know people who buy houses with cash, but they’re always just one step ahead of the laws. Probably not a good example. Thank you so much, Paul. It’s great talking to you. And thanks for coming on to the podcast.

Paul  35:19

Thanks very much, Sue. And thanks, Jimmy.

Credit economy

Jimmy  35:23

So you say it’s such a complicated thing. Finance?

Sue  35:26

It’s kind of interesting, though, isn’t it? Because you think I mean, lots of strata schemes are really nervous about borrowing money. But really, we all borrow money from mortgages?  And it’s considered, you know, we don’t think about it twice. Really. We only think about the volume of money.

Jimmy  35:42

Well, you know, everybody’s on to these things, these afterpay things. Yeah, that’s right. So they have created a loophole in the law that says, if you have a payment plan, then it’s neither home purchase, nor is it a credit card. It’s another thing.  Somebody is making a lot of money out of it.

Sue  36:02

So we really are becoming a credit economy. And why shouldn’t strata get into that space as well?

Jimmy  36:08

Yeah,  But I was surprised that Paul, he’s not keen on the idea that they should change the law so that an owners corporation can say, we need X amount of money, we can who wants to pay a special levy, who wants to get a strata loan. 

Okay people who want the special levy, you put it in this bucket, the people who want the strata loan you put it in that bucket, and only you will pay the interest on that loan, or even the repayments.

And of course, strata law doesn’t allow you to do that, because your levies have to be set solely by your unit entitlements. And there’s no other consideration for anything else.

You can go to the tribunal, and say we want to adjust the way levies are paid, and with a specific proposal and say half the people want to pay the special levy and the other half want a loan, so we want these lots to be allowed to pay more on their levies than these other ones. And I don’t know if anybody’s done it, but the provision is certainly they’re in the law.  Okay.  When we come back, we’re going to have our Hey Marthas for this week. That’s after this.

Hey, Martha!

Sue  37:27

And we’re back. Jimmy, what’s your Hey Martha for this week?

Jimmy  37:31

Well, mine is something has got absolutely nothing to do with strata. As you know, I do like football, soccer in some parts of this country. And I was reading, actually, I was listening to a podcast the other day, and they were talking about how in Scotland and think it’s the same in in England. They’re having matches, there’s no crowds.

Britain isn’t such a bad way with COVID. At the moment, I don’t see them opening up anytime soon. So they did a survey. And you probably noticed in most football codes, players were a kind of strap with a thing on the back between the shoulder blades. And that’s transmitting GPS information and heart rates …

Sue  38:15

For the coaches to monitor.

Jimmy  38:18

So they asked the players, you know, how do you feel? You know, you’re playing in front of nobody. And you can actually hear your manager screaming at you, which you can’t usually because of a crowd? Are you working as hard when you’re when you’re playing in front of a crowd?

And the majority of the players said, yeah, there’s no difference. But then they analyzed their activity on the pitch during a game.

And on average, they were running one kilometer less than they did normally. And their work rate was down by about 10%, even though they felt they were running just as fast and as hard and as far. 

But statistically they were able to say no, you, you need that crowd behind you. And you know, you think when you if you’ve been to a big match, and I know you’ve been to several when the winner takes off, down the wing with the ball and the crowd roars, and it gets louder and louder and louder. That must get your adrenaline going, you start running a bit faster than you would.

Sue  39:24

So when I go to the gym every day, if I had a little recording of a crowd cheering me that might really improve my performance.

Jimmy  39:33

But you know, what’s doing that, at the gym? It’s the music. Hmm, the music’s stirring and it’s got a rhythm.  But it’s not just a rhythm. It stirs you up … and having somebody in impossibly tight leotards screaming at you probably helps.

Sue  39:50

Another moment at the gym, most of the gyms around the country that are open, you all have to register and you have to book classes and at the beginning of the class, and they tick your name off if you’re there. So the weird thing is suddenly the instructors in the class suddenly know your name

And so often, even just today when I was doing a body attack class at the gym, the instructor who I’ve never seen before said, Keep going, Sue. Why pick on me? Yeah, obviously, I was the one flailing I suppose.  So I hate that.

But no, usually, when they mentioned your name, most instructors are, you know, trying to kind of encourage you. Yeah, exactly. No, I suppose it does encourage you. Because suddenly people start looking at you. And you think, Oh, God, I better do these burpees a bit better than I was doing them before.

Jimmy  40:44

But you don’t want it somebody saying, “you do all right, for an old fat guy.” That’s not the kind of encouragement you need, even if it’s true. And what’s your Hey Martha this week?

Sue  40:57

Well, mine is much more about property really, because I did a story this week. And I’ve I found it really fascinating. Apparently, a lot more people now are buying apartments sight unseen, right. And a lot of that is because it was very difficult to go out and see apartments.  If you’re from Sydney, and you are buying an apartment in Queensland, obviously you can’t get in there to go and have a look through apartment.

And if you’re buying in Melbourne in different area to where you live, it has been impossible to go and have a look at apartments. So the technology that real estate agents are developing has really improved.

And now they’re putting a lot more pictures on websites are using a lot more pictures in in magazines and newspapers than than ever before. Right. And in the old days, they used to say, well, we just show the good side of an apartment, we won’t show the bad bits. But now they’re showing all of them the good and the bad, because they’re saying we just want to be much more transparent.

So the nature of real estate is kind of changing.  And as well as the the photographs, they’re also doing a lot more kind of drone footage showing people the neighborhood, the location of the house. And so then you can see the possible views and the outlook Hmm. And they’re also having fly throughs and walkthroughs, and virtual viewings and some agents. And now, if you’re really interested in a property, you phone them up, and they’ll take you on a personal tour on FaceTime.

So they are on their mobile phone. And they’ll be saying to you, oh, look, this is the kitchen. And you’ll be saying to them, could you just open the drawers please. And they’ll film the drawers being open. So you can actually see every centimeter of the property now, right?

And people are really responding to that. A lot more people are just saying, Okay, I’m gonna buy a place, and I don’t need to come and physically inspect it. And it’s great, because you know, we’re all short of time.

If you were going to buy an apartment for your family, you’re probably going to look at it. And if it’s local, you’re going looking. But if you’re buying just an investment place, when you buy much more on the yield than you do on an emotional connection to face and you know, why not really. And if you have much more faith in the real estate agent, now you have much more faith in this selling process. It’s great to be able to see an apartment like that. So I thought that was really interesting.

Jimmy  43:16

But generally speaking, the housing market is going down, isn’t it?

Sue  43:20

Yeah, so they’re very keen to innovate, they’re having to work much harder to attract people. Interestingly, in Sydney, there’s a lot more people now going out buying property, whereas in Melbourne, they’ve just eased the ban on Property Inspections, but there’s still very few people going and checking out property.

So you know, Melbourne’s a bit behind Sydney, obviously, in the recovery, because they’ve been locked down for much longer. But um, hopefully we’ll all get back to a much better point. And I mean, obviously waiting for the budget this week and seeing what’s going to happen there and how that’s going to really affect the economy.

Jimmy  43:55

Well, it needs to be affected, for sure. It’s good to talk to you again. It’s a long weekend. But that doesn’t stop Flat Chat.  Flat Chat rolls on relentlessly. And hopefully, we’ll talk again next week, and thank you all for listening. Bye.

Sue

Bye.

One Reply to “Podcast 94: Tax shock and giving loans some credit”

  1. Avatar Jimmy-T says:

    If you want to start a discussion or ask a question about this, log into the Flat Chat Forum (using the link above). More people will read it there and you can more easily keep track of responses.

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