The PROPERTY DOCTORS, Sydney Australia Novak Properties

EP. 1430 What top veteran property investors are doing in today’s market

• Mark Novak, Michael Burgio • Season 30 • Episode 1430

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Ever wondered what happens to property investors after decades in the game? Our fascinating deep-dive reveals how the strategy and focus of veteran property investors dramatically shifts as they age, creating a blueprint of what your own investment journey might look like over time.

The magic number appears to be 40. Around this age, we're seeing a fundamental pivot in investment psychology. Younger investors happily chase capital growth, sacrificing immediate returns for the promise of future equity. They're working, earning good money, and can afford to wait. But something changes when investors hit their 40s and beyond – suddenly, it's all about cash flow.

"I want cash now," becomes the new mantra. After accumulating substantial equity across multiple properties, senior investors face a stark realization: what good is three million dollars in assets if it only generates $90,000 yearly while a comparable commercial portfolio might deliver $200,000? This awakening drives a wholesale shift toward cash-generating investments that can fund their lifestyle rather than just building more paper wealth.

But this transition comes with serious challenges. Many veteran investors find themselves trapped in what we call "mortgage prison" – unable to refinance loans they've held for years because lending standards have tightened dramatically. Even more concerning is the crushing burden of land tax, with some investors facing annual bills of $100,000-$300,000 – a cost that simply didn't exist at this scale when they began investing decades ago.

These pressures are reshaping investment strategies among the most experienced property buyers. Commercial properties, multi-income assets, and strategic downsizing are all becoming increasingly common as these savvy veterans adapt to changing economic conditions and life stages. If you're building your own property portfolio, understanding this evolution could save you years of misdirected strategy and help you anticipate the inevitable pivot in your own investment journey.

Speaker 1:

Ladies and gentlemen, investors have changed their appetite. We're definitely seeing the advanced investor do things they've never done before. Stay tuned, we're going to tell you about investing today in property, what the seniors are doing. I'm the ringleader so I can rock Karate Chop.

Speaker 2:

Good morning everyone. Welcome to Morning Minutes Myself, Michael Bergio, Mark Novak. Episode 1430 what are top veteran property investors doing in today's market? We always hear about first homebuyers getting into the market. Nearly a lot of the policies are steered towards them. A lot of the talk is steered towards the younger people, which rightfully so. We know that's where a lot of wealth creation has been very successful for the older generation. So we want to encourage and educate people to get in the market, but we don't often hear what are the older investors doing? What are the people who have been investing for 30, 40 years doing with their property? Is it the same to what the young 20-year-old is doing? Is it different? Mark, take us away Like first, what age are we talking about with the older investor and maybe how many properties? What are we talking about?

Speaker 1:

Look 40, 40 upwards. I'd say 40, 50, 60, more 50, 60. I think their appetite normally when they get to about 75 tends to sort of wane a little bit. I noticed with our old clients. You know they won't be buying stuff, you know at that age. But what's definitely happened is every single and these are clients to answer your question you know upwards of five properties.

Speaker 1:

They've had an appetite their whole life. They've worked and most of them worked really bloody hard. None of them are. None of them are like geez, it was lucky that I bought back then that they've fought, they've worked hard. They've got to this position. They've got two things on the mind transition of wealth. Obviously we know what the kids gonna do, but the main thing is the whole world of the way they used to invest in the 70s and 80s is completely different now. It's completely different. So the stuff they were buying when you and I were growing up, michael, when I was growing up, is completely different to the stuff they're buying today. As they get older, their appetites change and as policies have changed land tax, things like that their appetites changed.

Speaker 2:

And as policies have changed land tax, things like that their appetites definitely, definitely changed a lot yeah, and I think when people hear someone's got five properties they think, oh, that doesn't apply to me, they're like a ceo of a fortune 500 company, but it's. It's not the case like if you're looking at your, your parents, where they bought, may have bought the house 40 years ago and then nearly every 10 years they've bought an extra property and they've only been on a school teacher salary, nothing, it hasn't.

Speaker 2:

It hasn't been anything that it's not. It's very common around the northern beaches to see a family with at least three to five properties and I think, um, the big difference between the younger purchaser and the the older is the younger. When you're at your highest capacity for working income, you will forego a rental income on an asset that will have great capital growth. You see a lot of younger purchases by residential over commercial because your capital growth tends to be a lot larger and while you've got the higher income in your 20s, 30s and 40s, you're happy to be just paying off that loan, having the capital growth that that will be double, triple in 30 odd years. But I think the key shift is when you're, say, over 50, you don't really necessarily care if the property is going to double in 10 or 20 years.

Speaker 2:

You go I want cash now.

Speaker 2:

I've worked my whole life, um being very diligent with my spending to pay off these debts and I want to enjoy the money. I don't want to have three million dollars tied up in assets and be cash poor. But I also want to stay in property because if I'm going to live for another 20, 30 years, there's still a lot of growth that I can leave the kids and they're just not wired to switch off the income, the value or the property ownership. So that's where we see a lot of older, especially with now, land tax going like through the roof. Where I know in Narraweena, if you have a house that's like your second investment property, nearly the land tax would eat away the whole income for that asset and if that's what you're trying to live off now, it doesn't really serve you well to be holding that asset. So we're seeing a lot of older investors getting into commercial assets with higher rental returns or assets with multiple incomes on the one property. I think that has been a key shift yeah, I think there's this.

Speaker 1:

There's two things there, um, one is that they're never going to tell you, no one's ever going to tell you. These older guys, older girls that are investors, are in a mortgage prison. What that means is, you know, the loan that they had the ability to get when they were 10 years ago or 15 years ago. They can't actually get that loan for that property any longer. It's a legacy loan that they're in. It's probably a little bit higher interest rate and if they went to any other bank, any other bank wouldn't refinance it because responsible lending's changed, open banking's changed. It's much harder to get the loan. So that's different. So that's making them chase cash harder, because the next property they want to make sure is kicking in a shitload of cash. So they're not in a mortgage prison. Um, do you, do you reckon? Do you know what mortgage prison is? Does everyone know what mortgage prison is, or did I? Did I cover that?

Speaker 2:

I think run through, just yeah, run through it okay.

Speaker 1:

So just just to detail what I just said. So some people have got loans at the moment, they own property at the moment. They own property at the moment and if they went to the bank and asked for the same loan for the same property, another bank, all banks would say no. So that means mortgage prison. So they're stuck with the bank that they're with, and the bank that they're with often hikes rates pretty much harder than than the the overall market. So they could be stuck in and alone. They'll never get again, they'll never get to go and refinance and an interest rate that's too high. It's mortgage prison and I think a key yep, yep, sorry.

Speaker 2:

And I think a key thing for the senior investor especially they're trying to make a transition from equity, equity rich properties with great capital growth to a higher yielding asset is they can't leave it too late because, exactly what you just said, it gets a lot harder to get a loan and if you want to be transferring, you may have three million dollars worth of residential assets bringing in ninety thousand dollars a year, and you want to transition that to three million dollars of, say, commercial assets bringing in 200 grand a year.

Speaker 2:

There may be something that you want that's 3.5 and you think, well, surely I can get a loan for 500 grand. When I've got all this cash, it becomes very difficult, especially when you're getting older. So you don't, you don't want to leave it too late because you can get stuck where you and clients say all the time I've been a client of that bank for 50 years and they won't let me do this, I've got all this loyalty yeah, they get very, very upset with it all and also um, there's the, there's a big transition at about 40.

Speaker 1:

Yeah, that looks like this. So what starts happening is that going the right. Now that gather right. What starts happening is your equity starts, um, you know, continue, it continues to grow. Um, you know, continue it continues to grow.

Speaker 1:

But the necessity for that equity is very different. So when these guys are sort of 20, 30, 40, they're chasing equity hard, which is the value in the property growing. They can't spend that money. They're not really concerned with the rent that it brings in because it's sort of pittance. But when it gets to that x factor, when that sort of starts going the opposite, is it about 40. So at about 40, people start going.

Speaker 1:

You know what? Actually I've got more equity than I can spend. Like you know, if I may have a million dollars in equity, but what am I going to do with that? I would like something per week, per day. So then they start laboring less on equity, the property value going up. So they look at asset classes or properties that are not kicking in as much capital growth, but they look at asset classes or properties that are kicking in more cash per week, per year, per month. So that's when you see the investors come to us saying, hey, we just want something with a you know, seven, eight percent return per year, and you go to them that's a if I get your son on that, it may be a shit property. They're like we don't care as long as it kicks in the cash.

Speaker 2:

Yeah and and that's what we see, the the big shift, um, and then that's when it's a good chance for the, the older, the senior investor to help the kids out, sometimes when they're downsizing and they've got access to the cash so you can swap to an asset with a higher rental return. Help the kids or the grandkids out with a deposit as well, so a lot can be done in that transition.

Speaker 1:

Yep, so it's chasing the cash. And then the land tax, michael, you mentioned and really I want to labour on that because these guys are getting, you know, a lot of my clients. It's not unusual for me, in the course of a week, every day, to hear about a client that has a $100,000, $200,000, $300,000 a year land tax bill. So every year they're paying that out to the government. It's crippling and you know, again people go oh yeah, it's good that they've got enough property to, you know, have to pay that. But it's like, yeah, but 20, 30 years ago this thing didn't exist. The land tax thresholds were so much lower, the valuation was so much lower, they weren't cutting checks for two or 300 grand every year.

Speaker 2:

And they had an income and they were working. So it gets a lot tighter when you're not working. Yeah, but yeah, I think it's anything else you want to cover on the seniors.

Speaker 1:

Nah, look, it's real. It's real guys. So if you, if you try, and I think, don't model yourself on what the seniors are doing either, because they've got a different appetite, they're making different moves than what the younger people are doing. So you know, the younger investors are chasing capital growth. The property value go up. That's where the big cash is two to one and they're saving it. And then the older guys are wanting to spend it a little bit more and they're chasing the cash. They want that rent to be huge. So capital growth is not as important because they've sort of built it in already to their lives. They think what do I need more for?

Speaker 2:

Exactly Well said. I think that's enough.

Speaker 1:

Giddy up, have a great day.