Going from broker to investment specialist

Forget the mums and dads; property investors are still the engine of Australia’s housing market. MPA asked the top brokers in the space how they do business.

Considering the importance of property investors to the housing market, it’s surprising how little brokers talk about them.

We all know and celebrate the mum and dad broker, the niche medical specialist, and the one-stop shop for the local community, but the area that Australia’s top brokers are almost all heavily involved in is the investor market.

Moreover, the language surrounding investors has taken a negative turn in recent months. In December, APRA wrote to lenders warning them it’d be “paying particular attention” to high LVRs, interest-only loans, and affordability tests. Indeed, any investment lending portfolio growing at more than 10% annually would trigger further action from regulators.

Therefore lenders aren’t so keen to talk about or be associated with investor lending, compared to in previous years. But that doesn’t mean they’ve stopped lending, or that investor lending is an area brokers should be wary of. Dealing with investor clients is quite different to how it’s portrayed in the mainstream media, and we hope this article will help you decide whether it’s right for your business.

A natural diversification play Meet the Specialists
Servicing investor clients is a natural diversification play, according to John Manciameli of Sydney brokerage Hunterwood Solutions. In fact, he believes it’s the most obvious diversification strategy of all. “Property and finance go hand in hand … it makes me laugh when I hear everyone talking about diversifying their businesses, when the reality is there’s a tremendous opportunity for very little effort to be earning quite a sizeable amount of income by simply referring qualified clients who are ready to go.”

Being an investor specialist, for Manciameli, is about taking the education of the client, a core
part of the broker’s role, to a whole new level.

“I’m stepping up beyond the average broker who says, ‘Yes, you can do better on your home loan’,” Manciameli says.

“That’s easy. What I’m trying to do is get clients to use the equity in a way that can better serve their needs down the track.”

Manciameli, like many investor specialists, started out as a personal investor, alongside his day job as a mortgage broker. Increasingly, he began to feel that his clients were buying in the wrong places, and while he could arrange them a suitable loan, he felt that wasn’t good enough. He brought together a team of specialists to create a brokerage, Hunterwood Solutions, that could provide almost all the services a brokerage needed – accounting, market research, financial planning – in-house. Now he’s setting up a training program for brokers, dubbed Slipstream, to help them specialise in investor clients.

Brokers and brokerages
The Manciameli example is important because it shows that adapting for investor clients is about the brokerage, not the broker. While Manciameli’s personal interest in investment drove the creation of Hunterwood, personal experiences shouldn’t be relied on, cautions Property Investment Professionals of Australia (PIPA) chief Ben Kingsley.

Reactions to Pressure“Where we have concerns with some brokers in the property investment industry,” says Kingsley, “is where they might have gone out and bought a couple of properties themselves and done alright, so all of a sudden they’re a so-called expert and they’ve got one strategy which they advise to clients. The best advisers tailor a solution, as opposed to writing a script.”

Mortgage Choice chief Michael Russell voiced a somewhat more straightforward opinion on the subject of specialisation, back in February: “You wouldn’t want your dentist to check your prostate,” he said. Kingsley, himself a broker, is on a mission to professionalise and build trust in the property investment space by enforcing minimum standards for PIPA-accredited professionals. He says brokers should only provide advice in areas they are qualified in, namely cash flow and credit. “If they’re going to step out of those boundaries with regard to giving property investment advice, we’d like to see them formally qualified to do that. So undertake a course like the QPIA [Qualified Property Investment Adviser], or a university course.”

To ensure the brokerage is only giving advice that it is qualified to provide, Hunterwood Solutions has a number of specialists who refer to each other as required. As well as ensuring high-quality advice, it also helps deal with conflict-of-interest problems, Manciameli explains. “What we don’t want to be seeing is someone who’s giving advice on how to buy and where to buy and so forth; at that point you’re stepping over the line, and it’s a conflict of interest … it is still in-house, but what you’re doing is you’re outsourcing the expertise.”

In the modern investor-focused brokerage, Manciameli claims, the broker’s role is as gatekeeper, similar to the GP’s role in healthcare: they have the initial contact with the client and refer to other specialists within and beyond the brokerage, depending on the client’s particular situation.

Brokerages and networksInvestor Lending Slowdown
First you need to get clients. To find out how, MPA spoke to the Australian Lending and Investment Centre (ALIC), the current AMA Brokerage of the Year and MPA’s No. 1 Independent Brokerage 2014. Based in Melbourne, ALIC focuses on investor clients, and this strategy has paid off handsomely.

While ALIC was only formed in 2009, it drew on previously established referral networks, managing director Jason Back explains. “Mark [Davis] was positioning his brand within the investment market for the previous 10 years. By working tirelessly with only the best buyers’ advocates, financial planners and accountants, they were able to position ALIC from day one as a specialist in the investor market.”

Back also believes that having a focus from day one has helped ALIC avoid the hassle of rebranding and unnecessary expenses. “With the focus on meeting the demand of clients for education and advice in property investment and correct debt structuring, rather than chasing the supply of basic mortgages in the market, ALIC has been able to sustainably differentiate itself from the competition,” Back says.

ALIC is not a one-stop shop: it refers out for financial planning, risk analysis, accounting, legal and buyers’ advocates. Having no referral fees, in Back’s opinion, “keeps all parties focused on the needs of the client”. Sitting at the point in the value chain closest to the decision point makes the broker an ideal gateway for a number of services, but also makes them responsible for the quality of services provided, Back notes. “We run a very strong governance protocol over our referral partners, and if they do not meet those standards we will remove them from our panel.”

Networks and lendersThe Investment Clock
Dealing with lenders is another aspect of being an investor specialist. Investor loan applications can present in a variety of different ways, and require lenders to be flexible. That doesn’t necessarily mean switching lenders, Back cautions. It’s about understanding each other. “Before we were able to ‘negotiate’ with some of our banking partners, it was first vital that they understood our business model and the market space in which we operate. But, just as important, we need to understand their appetite for the clients that we service.

“Once we have that mutual understanding,” Back adds, “then it is up to us to deliver the numbers that make significant enough difference to these banks that they would make changes to process and policy.”

It’s also important to work proactively with BDMs, and with those at the senior levels of the third-party channels, Back says, so they’re not stuck in ‘fire-fighting’ roles when things go wrong.

Just as you expect lenders to change to suit your needs, Back explains, you need to change how you do business to suit them. “We focused on what we could do to increase straightthrough processing and reduce the waste; be a better business partner. We did not want to be ‘hard to deal with’.

“It’s not just about moving on to the next one,” Back concludes. “Our solutions are based on the needs of our clients, not just the preference of who we will or won’t work with.”

Regulation and professionalisation
If the property investment sector wants its reputation to improve, those businesses that are doing property investment responsibly need to set out to reform the sector, our experts told MPA.

Kingsley believes PIPA can take the lead. “Currently, the government doesn’t have an appetite for further regulation in the property space, and that’s disappointing from our end,” he says. “Organisations like PIPA have set up to pretty much self-govern the industry, and those members that join us are voting with their feet.”

Brokers can become accredited with PIPA, and the organisation runs advertising campaigns to promote the accreditation to consumers, as well as offering the QPIA investment property qualification.

However, Manciameli believes PIPA can only be so effective. “It’d be nice if we had a body like the MFAA putting on a program for [investment advice;] it really does test you and you really do need to do courses and after your name have an acronym … an MFAA course on investment would help brokers understand negative gearing, Section 221D of the Tax Code, asset-holding structures like trusts … so you really can help the client.”

MPA took these concerns to MFAA CEO Siobhan Hayden. “I agree that the MFAA has a role to play in educating brokers to support their diversification interests,” she responded. “The MFAA is only in its infancy regarding training and development within this sector. We have successfully deployed SMSF training to assist with these product options, and are also soon to deliver the first of three phases of equipment, commercial and asset finance training, to better support traditionally residential brokers with investment lending skills.”

As brokers, you’re probably already servicing a number of investor clients, but being an investor specialist is a different thing entirely. It’s certainly not about being a jack of all trades, nor can the transformation be achieved overnight; it’s about building a diversified brokerage and surrounding that brokerage with a diversified network. With growing professionalisation and regulation by industry associations, the investor proposition is becoming an increasingly viable strategy for established brokers who want to rise to the top.

Affordable suburbs with high growth potential
From our sister title Your Investment Property, some affordable growth suburbs for beginner investors to consider

If you think it’s getting harder to find affordable properties in many cities around Australia, you’re not imagining it.

According to a recent analysis by CoreLogic RP Data, there are indeed fewer properties available for budget-conscious investors, especially those who are targeting the $400,000 price range.

“Twenty years ago, 95.4% of capital city house sales were below $400,000, and only 0.4% of all house sales were above $1 million,” it says.

“In 2014, only 35.3% of sales were below $400,000, and 16.2% were above $1 million.” While there is a big divergence in price points between capital cities, the escalating prices mean there are fewer options for buyers on a low budget.

But fear not. There are still many options for the smart investor on a tight budget. With the help of research guru Jeremy Sheppard, we present in the table below a list of areas where you can still find properties priced below $600,000 that are likely to grow solidly over the near to medium term.

How the suburbs were selected
Demand and supply indicators as well as the property price points were taken into consideration, as well as the other fundamental growth triggers.

Affordability – Only suburbs with a median price below $600,000 were included. Obviously there are many cheap suburbs around Australia, but they don’t necessarily have growth potential.

Demand and supply indicators – These include days on market, stock on market, as well as vacancy rates. The suburbs selected all show low days on market, low vacancy rates and falling stock on market.

Desirability to owner-occupiers – This is represented by a low proportion of renters in the suburb. Homeowners are the ones who are going to push prices up, not investors.

Affordable Suburbs


 

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