Record household debt and mortgage stress create a unique opportunity for property investors

Dominique Grubisa
Dominique Grubisa

Published 8:56 am 12 Sep 2019

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Record levels of debt, slow wage growth and a tight credit market mean ever greater numbers of Australians are falling behind on their mortgage. It’s a great opportunity for savvy investors to snap up discounted property, while potentially helping out homeowners facing foreclosure. DG Institute Founder and CEO Dominique Grubisa explains more.

With official interest rates at record low levels, you would think that most homeowners in Australia would be sitting pretty. After all, the typical mortgage holder is now on an annual variable rate of under five percent – almost nothing compared to the whopping 17 percent people paid back in the 1980s.

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But take a look in any Australian street or suburb and you’ll find the reverse is true. Huge numbers of mortgage holders are doing it tough. Levels of mortgage stress are at record highs, with more than a million householders struggling to meet their repayments. The number of ‘problem home loans’, where the mortgage holder is seriously behind on repayments, is at its highest point since the Global Financial Crisis. An estimated 400,000 Australian homes have slipped into negative equity, meaning the loan value is higher than the sale price of the property.

A mortgage stress ‘heat map’ recently produced by consultancy firm Digital Finance Analytics shows pockets of extreme stress across all Australian capitals. In Sydney, people are having significant problems in the south and south-west, in particular. In Melbourne, similar pockets can be found in the south-east and western suburbs, while in Brisbane such properties can be found in the west.

Mortgage stress trends
Source: Digital Finance Analytics

A perfect economic storm

So, if interest rates aren’t to blame for these conditions, what is? The answer is a complex array of economic factors – a perfect storm – that has eroded the ability of many homeowners to pay their bills.

One of these factors is slow wages growth. The salary the average Australian is taking home each week simply hasn’t kept pace with inflation, meaning people effectively have less money in their pocket to cover basic costs like mortgage repayments, utilities and food. With less disposable income, Australians are less able to spend excess cash in shops, which in turn slows the economy.

At the same time, Australians have placed themselves into record levels of debt, with no sign of the trend abating. Meanwhile, tightened credit markets following the Banking Royal Commission mean that many people who took out five-year interest-only home loans are being forced to refinance with more arduous interest-and-principal loans. Many can’t bear the additional costs.

Huge numbers of discounted properties

The outcome of all these factors is a surge in the number of discounted properties coming onto the Australian market. Some estimates suggest the number of such ‘distressed properties’ has grown by almost 30 percent since last year, with an additional 10,000 homes in this category now being sold. Many more distressed homes are at the pre-market phase, with owners still struggling to work out how to avoid going bust.

The situation presents an enormous opportunity for smart investors to step in and make significant profits. And not only can they build wealth for themselves, but with the right approach they can help those about to lose their houses walk away with dignity and potentially some cash in their pocket.

How to profit

The term ‘distressed’ property typically refers to a situation where the owner of a piece of real estate feels forced to make a rapid and potentially under-market-value sale due to various pressures. These can include economic challenges and an inability to meet mortgage payments, legal problems, divorce situations where both parties want to quickly move on, and deceased estates. 

Entrepreneurs can generate significant profits by buying such properties under market value, adding value through the right renovations and cosmetic changes, and reselling to a target market.

It’s important to note that buying and selling discounted property needn’t mean taking advantage of those in distress. In many cases, being offered the chance to quickly sell the property gives the homeowners a lifeline that means they can walk away without the bank seizing control of their asset. The entrepreneur is effectively a ‘white knight’ that offers an easier way out.

What’s more, many DG Institute graduates work hard to make their distressed acquisitions win-win situations, often sharing profits with the distressed homeowner. There are many cases of graduates partnering up with mortgage holders to create amazing deals.

Take the case of DG Institute graduate Marika, who identified a distressed South Australian property, negotiated a deal with the debt-ridden owner, and renovated the house. By turning it into a beautiful family home, she got a great sale price, and both she and the distressed vendor walked away with tens of thousands of dollars in their pockets. 

It’s a great example of every cloud having a silver lining and how smart people can make money in any climate.


Distressed Property


Good Debt Vs Bad Debt With Dominique Grubisa - DG Institute

DOMINIQUE GRUBISA
Lawyer, Asset Protection Specialist and Property Educator

Dominique Grubisa is a practising legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at info@dginstitute.com.au


This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.

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    "We bought a distressed property, which was a hoarders home, in NSW.  In 8 weeks we have stripped it, overhauled in with a new kitchen and flooring. It will be a 14-week turnaround with a projected profit of $90k the most learnings i’ve had is my self-confidence. The emotional intelligence I’ve gained is what’s most […]"

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