Phil Tarrant: Welcome to the Smart Property Investment Show. Phil Tarrant here. I’m the editor of Smart Property Investment and your host of the podcast. Thanks for tuning in. We’re going to go today and do a bit of a Q and A session. We did this a couple of months ago. I can’t remember which episode it was, but it’s probably number 30, mid-30s. Go and check it out. Really popular stuff, so we’re getting plenty of people writing in asking questions at the moment and what we’re trying to do is put a whole bunch together, aggregate them, and then get someone into the studio to help us answer them, or a couple of people into the studio to help us answer them. The questions range from absolutely anything you can imagine when it comes to buying property.
This week, I’ve asked two people to come into help me out. I’ve got Tim Neary here, who is the editor of Real Estate Business, one of our brands here at Momentum Media, that is for Australia’s residential property agents. How are you doing, Tim?
Tim Neary: Good, Phil, thank you. Big fan of the show. Thanks for having me back.
Phil Tarrant: Yeah, mate, yeah. You know, you kicked off these a couple of episodes ago and we’re getting you back, so you’re not doing too bad a job.
Tim Neary: Yeah. That or I need more practice.
Phil Tarrant: Mate, you need more practice, because it’s going to be a tough one. We’ve got some pretty curly questions coming in.
Tim Neary: I see that, Phil.
Phil Tarrant: Tim will be coming from the perspective of the way in which real estate agents work. That’ll be a really good blended approach to complement our other guest, Todd Hunter from the wHeregroup. How you going, mate?
Todd Hunter: Good, good, yeah.
Phil Tarrant: Welcome back.
Todd Hunter: Thank you.
Phil Tarrant: Todd was on one of our really early podcast, and he’s a good friend of Momentum Media and we work quite closely with him on some of our other stuff as well, but Todd, by and large, is a buyer’s agent, but he’s also very capable in the mortgage broker space. Good summary?
Todd Hunter: Yeah. Pretty much.
Phil Tarrant: Are you more buyer’s agent than mortgage broker or more mortgage broker than buyer’s agent?
Todd Hunter: More buyer’s agent than mortgage broker, yeah.
Phil Tarrant: And typically, you work pretty hard with your buyer’s agency clients to help on the finance side?
Todd Hunter: Most definitely, yes.
Phil Tarrant: On the buyer’s agent side, just off air, we’re having a chat about poker, and Todd’s a bit of a fan of it and enjoys the studying the craft of poker and some of the nuances of it. We were just having a chat about tells, so when you’re playing poker, how you can read people, not verbally, but what they do or what they do with their actions or their hands, et cetera. I was just thinking, Todd, your job, essentially, as a buyer’s agent is negotiation. Do you find yourself using those poker skills when you’re dealing with real estate agents haggling for property?
Todd Hunter: In a way.
Phil Tarrant: This is completely off-the-cuff, by the way.
Todd Hunter: You’re always sort of looking for little advantages here and there, and I guess, you sort of — you do find yourself doing that a little bit. Because, you know, once you sort of learn that craft, you’re looking at that all the time so, you know, it’s — you do and some agents give it away quite easily. Other agents do okay.
Phil Tarrant: By an agent giving it away quite easily, like, what are two or three things you can spot when you know an agent might not be telling you exactly what the expected price is or whether or not there’s any other bidders on a property?
Todd Hunter: You can call their bluff if you say there is other buyers on a bid. The “ums” and “ahs” are always a good one. That’s an easy tell, it’s like they just “oh, uh, mm, ah, mm,” that’s just, you know, they’re BSing straight away. Sometimes they say “we’ve got other buyers, we’ll come back to you shortly,” and things like that, you go “no, no you don’t, because the property’s sat here for the last six weeks, nothing’s happened on it, and now all of a sudden, you’ve got three buyers? No, I think you’re telling lies.”
Phil Tarrant: All right.
Todd Hunter: Yeah.
Phil Tarrant: Spot it, there you go. Tip for property investors, start playing poker and make sure you take your mates to the cleaners so you learn the craft so you can best buy property.
Tim Neary: That’s a good also for our estate agents out there. Just look the guy in the eye, look the buyer in the eye and just tell the truth and give it to them straight.
Todd Hunter: Yeah.
Tim Neary: That’s what they want.
Phil Tarrant: We speak a lot about the auctioneer process or the buying process from an investor point of view to an agent, and so you chat a lot about what you do, Tim, is the need for transparency. The good agents, the guys who play with an absolute straight bat, they’re able to give you good news and they’re able to give you bad news.
Tim Neary: Spot on.
Phil Tarrant: They’re the good operators.
Tim Neary: Yeah.
Phil Tarrant: That’s what you should be looking for there. Anyway, we deviate. We don’t have any questions today about how to deal with agents, but, so what happens with these is that we do a podcast every single week and we must get, you know, so many emails after every single podcast asking questions specifically about what the podcast was, but also just generic questions about property investing. I’ve tried to get a bit of a flavor here today. We’re going to go about 20-odd minutes to chat these through. I’ve pulled out three really good questions which I think give a good breadth of stuff we can talk about relevant to all investors.
The first one, Todd, I’m going to aim this one at you, it’s from Thor Wedden, and his question is, I’ll summarize, I want to read these out, but I’ll summarize. Thor’s been in the game for a little while. He’s bought quite a few — he’s got a principle place of residence, I believe, and also a couple investment properties. He’s got 2.2 million is the valuation of his portfolio and he’s got about 1.6 million in debt against it. Now, his question, he feels as though he’s maxed out in terms of his capacity to keep growing his portfolio. By maxed out, he’s probably referring to the fact that banks won’t lend him any more money. We don’t know any particulars about how much — what his income is. We don’t know any of this topic details, but I think if we can have a quick chat around this particular issue about what do you do when the bank says that you can’t borrow anymore.
I’ll preface this, as well, is that we’re not here to give advice to anyone. We’re just going to have a chat about these things. We don’t understand everyone’s own individual circumstances or situations. This is just, really, a chat about us about what we think might be the case, but for anyone listening who might be in this situation or any other similar situation with what we chat about today, this is just general advice. I highly recommend you speak to a financial professional, whether it’s your financial planner, accountant, buyer’s agent, mortgage broker, and you want to get the right information.
Todd, what do you do when you’re maxed out by the bank?
Todd Hunter: Well, it looks as though part of the issue here is he’s talking about his LVR being at 76%, and anything over 80% then incurs mortgage insurance. It doesn’t mention too much about the servicing side of things, whether he can actually physically borrow more money or be able to repay more money, so I’ll assume he’s talking sort of more the LVR side. Couple of options. You can value add onto the portfolio that you already have. When I say that in ways of doing some cosmetic renovations to increase the value of the properties, who then will allow you to actually sort of borrow against that. If they’re already sort of neat and tidy and there’s not much value add to be done, then you do have that option of going into that mortgage insurance territory. If it’s for investment purposes, it can be capitalized and it is a tax deduction, too, but you would want to have your structures done correctly to minimize that mortgage insurance so that — to keep it to a minimum. Sort of make it worthwhile and the property’s still profitable. There’s two options there that can be done.
Phil Tarrant: It’s a tough one because he’s got valuation 2.2, 1.6 million debt, so he’s got 600 grand in equity there. That’s quite a lot of money that as an investor, I’d be looking to gain access to to keep building the portfolio. What can you do if your serviceability is an issue? Obviously, there’s equity there, but it’s whether or not a lender or lenders deem that he’s able to repay a mortgage based on higher debt levels. How can you increase your serviceability capacity?
Todd Hunter: You need to be — you really need to be sort of — yeah, if you can increase rents through, again, through value adding. You could do — if you had some spare money, you could do value add to the property, renovate, and then increase rents is one way, so that it increases your income. The other way is that you really need to be shopping around lender-wise. There is a vast difference now between all of the lenders on the market in who can do what, who will actually allow you. On the same exact figures, one client could actually sort of, you know, borrow $100,000 less with one bank from the other bank. I think you’d really need to be sort of searching that mortgage market, seeing who’s offering what. If there is that value add option to renovate to increase rents, then yeah, look at that as well.
Phil Tarrant: If he’s been buying properties in his own name only based on his serviceability, he could potentially join forces — I don’t know if he has a wife or a partner who they can bring them into the serviceability equation, whether he can join forces with someone else and co-invest. That can help with serviceability, or this sort of works, doesn’t it?
Todd Hunter: Yeah, it can. Yes, there’s options there for that, as well.
Tim Neary: There’s options to form a company or a trust like that and bring in other partners? Would there be value in that?
Todd Hunter: There is. There’s more tax issues in buying company structures, though, as well.
Tim Neary: It gets complicated?
Todd Hunter: Yeah, it’s — I’m not a fan of it, personally, outside of the self-managed superfund area, but because obviously, with a company, there’s a flat rate of 30% tax on capital gains tax. It’s pretty much the highest that there is. If you start bringing trusts into it, then you have land tax issues, as well, or potential land tax issues. There’s some advice that needs to be gotten around that before you would do it, you can certainly still go into it as tenants in common if you’re going to buy with a friend or a family member. That could be done, there could certainly —
It could increase Thor’s borrowing to keep going. You’d have to be careful a little bit for the person you’re bringing in, too, because when they want to go buy something potentially on their own, the lenders then look at 100% debt against the property that they own half of, only 50% rent. You’ve got to play it fair on both sides.
Phil Tarrant: It can influence everyone’s serviceability —
Todd Hunter: Yeah.
Phil Tarrant: — situation. What you can do, Thor if you need more money mate, go and ask your boss for a pay rise. It’s a way to increase your serviceability. Another thing you can do is just wait. You know, if you want four or five years, your equity position’s going to be very different as well, and potentially your serviceability will change as well if you can keep rents increasing in line with the market and at the same time running in conjunction with that look at how else you can generate more income.
Thanks, Thor, I appreciate the question.
There’s a question here from John Ferguson, and John, I’d like to start by saying thanks for such a detailed question. What I might I do, if you don’t mind, John, we’ll get in contact with you, I’d like to put this up on the smartpropertyinvestment.com. Just so people can see your thought process around how you framed this particular question. I’m going to have to summarize this really quickly.
Essentially, what John is doing, and Tim, I know you’ve looked at this as well, what he’s doing, he’s really, it’s a bit of a philosophical question about we talk a lot about property investing and creating wealth, but he’s going “okay, well, what is the endgame?”
Phil Tarrant: How would you summarize John’s sort of letter that he sent in to us?
Tim Neary: Exactly right, I mean, he’s saying it’s a lot in property investing, but how does one property invest take that to the end and how do you retire on your property investment? You know, what — there’s an income that you want to get from it, so how do you get to that income?
Phil Tarrant: Yeah.
Tim Neary: How do you become a full-time property investor?
Phil Tarrant: A full-time property investor, and a lot of it is around goal-setting. It’s interesting. The key point for me from this note that John has sent in was he essentially asks, there’s two ways you can create wealth, right? One is to build a business and sell it, so build a business with some value.
Tim Neary: Yep.
Phil Tarrant: And sell it. Another way to do it is to essentially build a property portfolio, which by and large is a business. You need to think of investing property like a business. It’s all about numbers, it’s not about the emotion. Two ways that you can go about creating long-term wealth for the future and potentially a nice retirement. My view on this is that a lot of people like to invest in property, and Todd, you speak to investors every single day who are clients of yours who listen to podcasts like this and read some of the stuff that you put together and the idea of wealth creation through property is quite a sexy, attractive thing, right?
Todd Hunter: Definitely.
Phil Tarrant: For me, and I look at my sort of sphere of influence, and I’ve got mates who are self-employed, and I’ve got mates who are PAYG, they have jobs. For a lot of people who just have a job, investing in property is, it’s like an empowerment that really only a business owner can have. You’re in charge of your own destiny if you invest in property. People who have a job and they’ve just got to work nine to five every single day, whether it’s a, you know, a hardcore job or something which is not, investing in property actually allows them to be a business owner and allows them to make decisions which are going to influence their long-term prosperity and how they go through life. For many people, it gives them a reason, as well, outside of just living.
I think for property investors to consider property investing and building a portfolio as a business is a very sound way to go about it. Once you have that mindset or that context, running a business is hard and it’s difficult. It’s a lot of moving parts. There’s many things you need to worry about and consider as you go down the path of creating wealth through property. What would be your key tips, Todd, sort of two or three key tips for building a portfolio like building a business?
Todd Hunter: It’s a lot of sacrifice. A lot of people sort of aren’t really prepared to put 100% into that sacrifice. It’s, if you want the portfolio and you want to be one of the people who actually can retire on a portfolio, then sacrifice is a huge thing, and it’s, you need to do research, you need to be looking, you need to sacrifice or give up, you know, some of the great holidays or the Foxtel or all these other things that sort of a lot of people aren’t sort of really willing to do.
I think part of what’s talking about in here also is that there’s not selling mentioned in here. You can build a portfolio that’s, you know, substantial and, you know, I think he’s talking about sort of earning $100,000 a year. You need to be working backwards on your numbers. How do I get to that? A bit like a financial plan, they work backwards from your end goal and they put the play in place to get you there. A lot of that is going to entail selling some of your portfolio. If you’ve held it long enough and you’ve made some really good capital growth out of that, you sell this investment, maybe even half of your investment portfolio, and pay out the other half.
At one time or another, the debt has to be repaid, that’s on these properties. It’s there and the less debt that you have getting closer to retirement, the more comfortable you’re going to be, and the more income you’re going to generate on the properties. Selling has to be part of the plan, unless you actually have this, you know, multi-million dollar a year income that’s coming in that you can actually repay this debt quite comfortably, or you know, there’s a huge inheritance coming. Things like that, which yeah, for most people, that’s not reality. Selling has to be part of that plan.
Phil Tarrant: This is about goal-setting really, so if you’re looking to your property portfolio as a vehicle for you to have a comfortable retirement, and we talk about this a lot, it’s important, you need to work out, number one, what does a comfortable retirement look like for you. Then, as you said, working back at what sort of income do you need per year to be able to live the lifestyle that you need. What assets are you going to need at that point in time to realize that income as well? If you’ve got your principle place of residence paid off, that means it’s income that’s coming in that you only need for living expenses and other things.
Goal-setting is absolutely fundamental when it comes to property investing, and from my experience personally, goal-setting has always been part of it, but goals change all the time. You zigzag the whole way through it. I think for people starting off in property investing thinking that this is a way to create long-term wealth, whether it’s long-term wealth for you or it’s a generational asset, you need to start at the absolute beginning with really smart goal setting.
Now, there’s a number of different ways that you can goal-set. I do it with my accountant. It works quite well where, you know, we have these conversations about what sort of income I would like to have at a point in time, and then you look at what assets do you need unencumbered to be able to deliver that stuff to you.
When you get people coming in to see you, Todd, at the wHeregroup, I imagine you’ve got first-time investors and you’ve got guys with big portfolios. Is goal-setting something that’s always on the front of mind of investors, or is it sort of “I want to buy a property, I want to buy a property, then I’ll worry about the goal-setting later.”
Todd Hunter: I think it was the latter. I think, really, I think they just go “yeah.” There’s only a few that really want to have a plan in place prior to knowing exactly what they want to do. Most people just think it’s, you know, that property investing its sexy, it’s fun. You know, or everyone else I know is doing it, so let’s just go and get in there. Then the plan comes in a little bit later on. Okay, so what do we do now? They have time to think about it, as well.
Phil Tarrant: Plans change, as well.
Todd Hunter: Yeah, they do. All the time. It has to be adaptable.
Phil Tarrant: Yeah. We had a young bloke in a couple of podcasts back, Taku?
Todd Hunter: Taku, yeah.
Phil Tarrant: Taku, really good guy, and this guy, Todd, young bloke, 25, 26, 28? Massive goal setter, he’s a salesman, right? Works in sales, so very money-driven. Wants a Bentley or something like that. Really young bloke. His process for goal-setting was really quote sophisticated. You could see he’s educated himself on it, he’s read some books or watched some videos. He wrote down his financial goal. Well, he wrote down his goal every single night the last thing before bed, and every single morning when he woke up, he wrote out his goal on a bit of paper. I said “what were your goals about?” He said “they’re mainly financial.” Young bloke, I don’t think he’s married or anything yet, but it’s about the money for him.
He’s thinking, he wants to be wealthy, this guy, and he’s going down this path of creating himself his own roadmap for doing that, so short-term goal-setting. If you get the short-term goals right, typically the big goals come along. I think the point that we just had was a lot of people move into property investment without that goal-setting. That’s okay if you’re just buying a property because you’re thinking about “yes, it is a vehicle for wealth creation,” but as you get more sophisticated with it, you need to start putting those goals together because that’s going to influence your financing, it’s going to influence where you’re buying properties, it’s going to influence the type of properties you’re buying, whether they’re more capital growth geared or they’re more yield geared.
Can you sort of give some commentary around that at all, Todd? About how goals influence what you do and where you go?
Todd Hunter: There’s a big variance of investors that are out there. I guess it’s what stage that they’re at when they want to start this process, as well. It’s, for some people, like, for the self-employed people out there, a lot of them don’t tend to think about the property investment side because they’re so busy running their businesses. Their whole focus is on getting that business right. Similar, again, most of those self-employed people don’t have much in their superannuation and they hit that early 40s now. “I’ve got no superannuation I’m going to retire in 20 years, I need to do something about it and I need to do something about it fast.”
Phil Tarrant: There’s normally an “oh shit” moment for people.
Todd Hunter: It is, yeah, it most definitely. It’s just, it’s panic stations. “I need to go out and buy ten houses now.” Hang on a minute, just come back a little bit, let’s just, why are we doing this? What plan are we going to have in place? What’s the end goal out of this?” There are things like that sort of have to be in place, but there are a lot of investors who are just, they know that they’re going to just slug away at their home loan, and they’ll just keep paying that off. They just want an investment property or two just to increase their wealth. They don’t want to be, you know, the Richard Bransons or anything like that at all. They just want to be — have a better retirement than, obviously, what they’ve got.
I think there should be more goal-setting sort of in place that’s there. Even if it’s just a basic plan that can be written on the back of an A4 piece of paper and then you can pull that out once a year, have a look at it, and if things change, and a big thing that changes is marriage, children, and upgrade of home. They’re three things that come across all the time, and so, that’s fine. If that happens, good, let’s just adjust the plan, look at that piece of paper, copy part of it that we want to use again and then adjust it and change it again. If it’s there, they should probably look at it.
Tim Neary: That’s real gold, yeah.
Todd Hunter: It is. They’ve got it there and it’s just, it’s in the cupboard. If they want to get it out, they can have a look, and just review it and keep it front of mind.
Tim Neary: Really important what Todd just said there about the three big changes that occur in the plan. What did you say they were? The marriage, kids.
Tim Neary: Kids, and upgrade of home.
When you make that goal, when you set those goals, when you write them down, you anticipate that there’s going to be changes. It’s not going to be set in concrete. I think you referred it to a little bit earlier, Phil, it’s that it zigzags.
Phil Tarrant: Zigzags.
Phil Tarrant: You know, in a business sense, and you try something and do it, it doesn’t work, you move and change again.
Todd Hunter: Yeah.
Tim Neary: It’s like got to be flexible, you’ve got to be light on your feet to do it.
Phil Tarrant: You do, you need to be nimble. You need to be okay with change as well.
Tim Neary: Yeah.
Phil Tarrant: Because a lot of people go “I’m going to do this” and then it doesn’t work out and they get swamped by it or they stop doing it or they, you know, want to curl up in a ball. You know, I like change, it’s cool. You’re still on plan, even if it’s changed, you’re still on plan.
Todd Hunter: You have to be flexible. If you just think about all the mortgage changes that happened over the last 18 months where you had a plan, “I could borrow this many millions of dollars” and now you physically can’t do it, so change has been forced upon you. You’ve got to be able to adapt to do things differently to survive.
Phil Tarrant: I quite like this — and we’ve sort of picked up on some building wealth. You can build a business or you can build a property portfolio, you can do both. If you look at the BRW rich list, you find most people are some industry sector and property. You know, and there’s an old adage that you make your money in business and you park it in property, and that’s a really good way to go about it.
Also, I think the comment you made, Todd, around self-employed listeners, a lot of investors are self-employed. They’re so busy running their business they often forget about this longer-term wealth creation. A couple of people I speak to who run their own business, and it’s a really good point, and that’s — some of it’s really, they’ve really only rationalized over the last couple of years about the reason why they are in business. A lot of people, and this is still running on John’s point, a lot of people want to build a business to sell it and make their money. Not all businesses are able to be sold. I think a lot of people don’t really understand or appreciate where the value of a business lies. Often, a business is so reliant on the individual that there’s no real value in it. I’m not going to say most, but a lot of businesses, a large minority of businesses are unsellable.
Phil Tarrant: They’re unsellable, so to work your guts out your whole life to build something that you can hopefully can sell, it’s a very difficult thing to do. I’m thinking about my mate of mine in particular. He’s really rationalized that and now understands that his business is the driver for him to create cash flow to show to a lender that he can service debt. He’s using his vehicle, he’s using his business as a vehicle to generate income, which he’s putting into his property portfolio. His major asset creation vehicle is his property portfolio, but he’s using his business to do it, knowing that at a point in time, his business probably can’t be sold, but it’s going to be largely irrelevant because his property portfolio is going to significantly outweigh any value he’d create in his business. I think that’s a really, really important point.
Todd Hunter: That’s exactly what my business is. It’s my business is there to help me buy more property. That’s what it’s there for. I mean, obviously, we help clients out and that’s fantastic, and that’s actually enjoyable. It’s satisfying to do so, but if you look at the number one core reason of why I actually probably started the business, it was to generate an income so I can buy more houses.
Phil Tarrant: Is that the reason why you did it?
Todd Hunter: Yeah.
Phil Tarrant: I know some of you realize later on, you thought “oh, I’ll do this, it’s great business.” You actually knew from the get go that —
Todd Hunter: Yeah, that’s what I want to do. I want to — how can I buy more property, because I know this is the way I wanted to create wealth, so the business started from there and that was it. It still continues to be that way.
Phil Tarrant: See, that’s very smart because, so you use your business as a vehicle to create wealth through property, but you’ve created the business doing the business that’s going to help you be better at creating wealth through property. That’s very, very smart. Very smart. That means that every single day when you’re working, you’re gaining market knowledge and intelligence for you to do the major thing that is creating a portfolio even better.
Todd Hunter: Yeah. You’re always learning. Always, always learning.
Tim Neary: And not painting yourself into a corner thinking you’re going to sell the business and that’s where the wealth is going to come from. You know what it’s doing as it’s doing it.
Todd Hunter: Yeah.
Tim Neary: Then at one point, it’s just going to —
Todd Hunter: I’d look, if it’s sellable at one stage, then, well, yeah, great, but you don’t rely on that. You know, you just, you’re using the money that you’re creating through, you know, and it doesn’t have to be self-employed. It can be employed, but you’re using that money and to generate better return on that money. You’re always sort of investing.
Phil Tarrant: You know what you’re doing, yeah.
I guess the same applies to people that just get a salary, right?
Todd Hunter: Yeah, it is.
Phil Tarrant: Why are you doing it? Okay, it gives me the — it’s the engine for me to go and buy more property and service more debt. It’s a good interesting point.
Okay, we’re going to have to move on. Last question is from, for this podcast, is from Andrew Hall. Thanks, Andrew, appreciate you getting in touch, mate. Andrew’s in 07, Queensland.
Todd Hunter: Yes.
Phil Tarrant: Which is good. I quite like what Andrew’s put together here, including how he loves the podcast, which is good. We like that. I’ll just quickly summarize. He’s never educated with money and his parents didn’t talk about it at home. You hear a lot about that, people don’t get the financial education. I never got it at home, never spoke about money. Well, the only time they ever spoke about money was because there wasn’t enough of it.
Tim Neary: That’s right.
Phil Tarrant: Even then, it wasn’t spoken about.
Tim Neary: Wasn’t a good conversation.
Phil Tarrant: Wasn’t a good conversation. It looks like Andrew’s been hustling since he was young, he started working at 13 delivering newspapers, then went out to Big W and worked, went to uni, so he entered the — he’s saying he sort of entered the workforce a bit late. I think he was at uni for a while, so enjoying the good times, which is great. Moved into the fitness industry, not what he expected. He realized he’d never retire without some drastic interventions. He says here “my current goal is to listen to all the podcasts by the end of October.” Okay, we’re there, I’m going to challenge you on that. It’s written down there, Andrew.
Todd Hunter: With a pop quiz.
Phil Tarrant: A pop quiz. “Then start talking to people with the idea of buying before July of 2017 if my situation allows.” He’s never had a credit card or a loan, doesn’t read the paper or watch the news. “Podcasts have only been my source of information on this topic.” Okay, good summation. Two questions. Number one was can he come on the show. Absolutely, get in contact, let’s have a chat with you. The main question is around how he builds a team of people to support him. I think Andrew’s thinking the right way from the get go. He’s not going “oh, I’m going to do it all myself and go and become a property millionaire.” He’s actually thinking “who do I need around me to help me achieve my goal?” His goal, pretty much, I can assume is just retirement and he, really a segue for what we were just chatting about, his job is not going to turn him into — is not going to provide the retirement he probably wants, so he now knows that he has to invest in property to help achieve this.
Todd, who do you need to be a good property investor on your side?
Todd Hunter: You need a mortgage broker. You need an accountant. Depending on where you’re buying or each location you’re buying, you need a good property manager. There’s national depreciation schedule companies, which are easy, but to find, you need a good building pest inspector in each location. Buyer’s agent, of course. You know, here I am. Those types of people around you to be able to put the whole transaction together, and knowing sort of, you know, who to use or how to find these people, just to get that right team.
Phil Tarrant: Out of all these people, who’s the key guy? The accountant, would you say? As in, the person who’s going to help you understand your capacity to borrow, or if you had to choose one of those people, who would it be?
Todd Hunter: I think initially, probably just starting off, it’s probably just the mortgage broker side of things. The accounting side, you’ve got to find the right accountant. I tend to find a lot of accountants are all about tax saving. That’s all, that’s their focus. I just want to save you tax. It’s like actually, I want to create wealth, so I don’t mind if I have to pay a bit more tax here and there or do, you know, I don’t want any fancy structures, there’s no need for all that for someone like this who just wants to get out and start property investing. You can do a lot of that just in your own name. Start with the mortgage broker and just see what sort of capacity you can actually — you can borrow at.
Phil Tarrant: The mortgage broker can help you with all that sort of stuff, so your ability to borrow?
Todd Hunter: Yes, to start with that. Then, you know, from there, it’s your buyer’s agent. It’s, if you’re going to use a buyer’s agent, then you need to be talking to several of them. Find out their angle, because they’re all different. If there’s any advice I can give you, it’s they have to be transparent, full disclosure. Ask them how much they charge, how do they earn their money, do they get hidden kickbacks or commissions off anybody at all. If that’s the case, then you really don’t want to be using that sort of person. You want someone with full transparency that you can say “yep, look, you’re charging me a fee for a service, and that’s what you want.”
Then, if your mortgage broker has said look, your price point is, you know, up to 300,000 or if it’s up to 500,000, then you also need to find a buyer’s agent who actually works in that price band that can actually help with what you want to do as well. You know, you should be looking at companies that aren’t just focused where their office is. They don’t just buy properties around where their office is located. They need to be national.
You’ve mentioned here that you’re thinking Brisbane because you’re in Brisbane. I think that you really need to be thinking not like that. You don’t want your first investment property, it doesn’t have to be right near where you live. It can be anywhere. It’s investing. It’s a numbers game.
Tim Neary: We get that a lot. I mean, that’s an important point is that for investing in property, you want to really take the emotion out of it and just run it by the numbers.
Todd Hunter: Yeah, 100%. Most definitely. You know, if you want to go and look at the property, it’s a flight. I mean, you know. Fly to Melbourne or fly to Perth and hire a car and stay overnight. It’s easy if you want to have a look at the property, but it’s whether it’s 5k or 500k away, it’s really irrelevant. It’s investing. It’s numbers.
Phil Tarrant: I think the important point is for Andrew is that it’s from the outset, the fact that you’re looking to create wealth through property, good big tick. The second thing is that your mindset right now about looking to people to help you be the best investor that you can be is very good. Now, I’ll draw on some of Todd’s comments. There’s a lot of people in the property investment space, and remember, property investment is not legislated or it’s not regulated by government. There’s a lot of stuff and noise happening around that and has been for years, but nothing’s really happening. As you sort of embark down this course of creating wealth through property, you need to understand that not everyone that works within property has your best interests in their best interests, which is an easy way of saying there’s a lot of people who will take you for a ride if they think they can. You need to be very questioning about the type of people who you choose to be a partner in terms of investing in property.
I concur with Todd’s points around absolute transparency with anyone. You need to find out how people are getting paid, if anyone’s getting payment from a developer or any other sort of third party, I’d put my red flags up. If you know about it, it’s okay, but you need absolute transparency from anyone that supports you in this space. Keep doing what you’re doing. My recommendation would be to speak to as many people as possible. This is all about burning the shoe leather in terms of who you choose to support you on this thing.
Accountant, we spoke about it, not all accountants are created equal. There’s some very, very good accountants, but make sure that they are property investors themselves and not just in the game of tax minimization. Going back to an earlier point with business owners, I know a lot of business owners, what they try and do in business is try and turn a very, very small profit or a very small loss because they try and run their personal finances through their business. What that means is that come tax time when your accountant does your tax return, it shows a very, very small profit. A lender’s going to ask what’s going on. You know, you’re not painting yourself as the best borrower possible if you’re not generating profit. Sometimes it’s okay to show profit if it empowers you to be a better property investor, but sort of a bit of detraction from the point.
Andrew, keep going, mate. Keep in contact. Let us know how you’re going. Go and speak to — find yourself a good mortgage broker or just go to a bank directly, but try and speak to a couple of brokers to see what they have to say. Start shopping around for a very good accountant, good buyer’s agent if you want to go down that path. You can do it yourself, but I’m very pro-buyer’s agent. I’m very time poor and I feel as though buyer’s agents can find much better properties than I can, so get around, mate. Keep listening to the podcast. Make sure you’ve listened to all of them by October. I’m going to challenge you on that.
I think we’ve run out of time, guys.
Todd Hunter: Just for Andrew, I think if you just put the hard yards in now, it’ll pay dividends later on.
Phil Tarrant: Good. All right, thanks, Tim.
Tim Neary: Thank you, Phil.
Phil Tarrant: Todd.
Todd Hunter: Thank you.
Phil Tarrant: Let’s get you back again, mate. I’ve got some more questions probably in a month or so for you to answer. Keep them coming, guys. I’m happy to do these type of podcasts. They’re quite easy for us. We can just have a chat about it. As I mentioned beforehand, we can’t get very specific in any advice or recommendations around any of these type of questions. This is just very generic conversation around them. You need to make sure you check in with your financial professional to make sure you’re getting the right advice that you need to make the best property investment decisions.
I hope we’ve helped. There’s some gems in there, particularly for the self-employed guys. That’s a very important point. Understand why you’re investing in property if you are self-employed and where the value lies, and often it’s in your portfolios, not within your business.
Tune in again next week. We’ll be back. Remember to go to smartpropertyinvestment.com.au. We’re also on Facebook and Twitter and LinkedIn. You can follow me on Twitter @phillipTarrant. Can you follow Todd Hunter at Twitter? You’re not on Twitter?
Todd Hunter: Yeah.
Phil Tarrant: What are you? Todd Hunter?
Todd Hunter: You’d think I would know.
Phil Tarrant: There you go. Failed the pop quiz. Didn’t get his pop quiz question. Check out Todd’s business website is?
Todd Hunter: Www.wheregroup.com.au.
Phil Tarrant: Brilliant. Todd also writes a pretty good blog that I read, as well. There’s a lot I like about Todd, but one of the things I do really like about Todd is he’s a frank assessment of the real world of property investment. You know, you’re going to agree with him or not agree with him, but you know what? His blogs are typically pretty entertaining, so make sure you go and check them out.
Thanks for tuning in. We’ll see you again next week. Bye.