The Rentvesting Podcast: For Gen X and Y Property

The Rentvesting Podcast: For Gen X and Y Property

Australia

If you're a property owner, investor or looking to get into the market this Podcast will help cut through the hype, look at the facts and draw on decades of experience to help you make smarter property decisions. The Rentvesting Podcast is for Gen X and Y Property Investors. If you’re a property owner, investor or looking to get into the market The Rentvesting Podcast will help cut through the hype, look at the facts and draw on decades of experience to help you make smarter property decisions. Each week Red & Co Director, and Award Winning Finance Broker Jayden Vecchio will unpack the facts behind the property market, explain what’s really going & where the market is heading. Are you ready to make better property decisions and learn to live where you want, but invest where you can afford?

Episodes

How one Aussie Millennial Has Grown Over $335,907 in Net Assets & His Financial Independence Hacks  

This week we've got Matt the Aussie FIREbug (Financial Independents Retire Early) teaching us a few things about his road to financial independence. He's going to take us through rapid saving strategies, his financial independence journey and ETFs and break down these in further detail.  

 

About Matt - The Aussie Firebug

My name is Matt - the Aussie Firebug, I've got a website AussieFireBug.com which is dedicated to my journey of financial independence which stands for Financial Independents Retire Early. I'm currently 28 years old and I work in IT. I started working when I was 22 after finishing university and growing up I had an Italian father, who was very thrifty and I was always very good with my money.

I struggled as I'd save all this money for no reason, then I'd blow it on something like clothes. Then I got a full-time job, and it was then that I realised there should be more to life. I was out of the house for about 10 - 12 hours a day working Monday to Friday each week and I wasn't used to that. I thought is this going to be my life for the next 40 years with four weeks off and a couple of sick days? I liked my job but I really struggled to adopt this lifestyle. So I worked that year, and then I bought an investment property right before the first home buyers grant finished. But I didn't really want it, I just did it because it's what you do. It wasn't until after a couple of years when I discovered the whole financial independence. I bought the property in 2012, and in 2013, I was thinking - I've got this asset, a lot of debt to my name, I better figure out what I'm doing. My initial path to lead me to financial

I liked my job but I really struggled to adopt this lifestyle. So I worked that year, and then I bought an investment property right before the first home buyers grant finished. But I didn't really want it, I just did it because it's what you do. It wasn't until after a couple of years when I discovered the whole financial independence. I bought the property in 2012, and in 2013, I was thinking - I've got this asset, a lot of debt to my name, I better figure out what I'm doing. My initial path to lead me to financial

My initial path to lead me to financial independence was through property investing. I realised you can buy an asset and generate income from it.

Keep buying things that are assets, which generate an income.

I read a lot of finance books and then I stumbled across Mr Money Moustache about a guy who's an engineer and retired from full-time work at 29.

His post - the formula to financial independence is a really good post and he goes through ETFs and what he invests in. I ended up buying my third property and I was slowing understanding diversification.

I realised I was heavily weighted in just Australian property and if there ever was a bust, it'd go badly for me. This last year I've been concentrating on exchange-traded funds - a blend of shares wrapped in a package.  I've been investing heavily in ETF's lately, there are pros and cons in each asset class.

I hope to get to a point where I track my expenses religiously. I think that's the most important part of the whole journey. You have to know. I post my net worth every month and when I get to a certain number hopefully my assets are generating an income.

 

Savings - if it doesn't get measured it doesn't get managed.

Aim to save 25% but with the fire piece generally, it's trying to strive to save more than 50% of your income.

 

You hit 74% of your income last year, what are some tips?

The main reason I could do 74% was due to living with my parents in the last half of that financial year. I was only paying rent for 6 months of that time. I'm about to release my new post, about how much I spent in this financial year and it won't be anything near that good. There's no rule. It's all about how quickly you want to escape the rat race. I always tell people, track your expenses! If you track them and look and how much money you're spending on things and you'll start to realise how much money you're wasting. You need to start plugging the holes.

You can do the hardcore way with a spreadsheet. Or you can use Pocketbook which is an Australia software company and it categorises your transactions which you can create graphs and things with. It allows you to drill down where you're spending your money.

Track your expenses and this will help you improve. It takes discipline and you've really got to want it to do it. Especially if you're on the path of independence you've got to want it bad!

I always think about whenever I want something I always mull it over for a few days at least. If we want to buy something we weigh it up and look at it as this purchase will delay the date for when we can quit our jobs.

 

  Let's talk ETFs, practically, how do you invest in them?

So basically, you need a broker. You cannot get around not using a broker and this cost is what funds the whole system. The cheapest you can find is $10 for every 20,000. How it works is that you buy packs of ETFs of around about $5 - $10k at a time. You could buy low-cost ETFs but then you'd be hit with a brokerage fee. So it's best to buy them in big amounts so that the percentage of the brokerage cost is an acceptable amount.

I run a three ETF split, so I buy VAS which are the top 300 companies on the ASX, and the best thing about these is that they're all Australian companies and you get franked dividends where basically when you're distributed dividends you get more. In the global share market, Australia only makes up 2% while America makes up almost half of it. Due to this, the whole reason and power behind ETFs is diversification for not a lot of money. If you wanted to diversify them same in property it would cost you a lot and you'd need a lot of properties. But then an ETF you can easily diversify and spread your money across a bunch of asset classes and businesses, which is sort of what your super does. Some supers invest in ETF's themselves.

Then I do VTFs which is the US market - top 300 biggest companies again. Then the other one is the VEU which is the entire world excluding the US. So between those three ETFs I've got most of the markets and countries covered. The theory behind it is if you buy stock in a few different companies, then you're safer. Property is one asset in one location, whether ETFs are reaching so many markets.

If you would like to learn more about Matt, read his blog here.

Property Expert Michael Matusik Talks 3 Areas Tipped to Grow That Most Investors Haven't Heard of!  

In this week's episode, we've got Michael Matusik, property expert! Michael's had almost three decades of experience. We talk property outlook, look at the Brisbane market, and the wider South East Queensland market along with interest rates and where they're headed. Finishing off with how investors can protect themselves from spruikers, with a special treat at the end.

If you enjoyed this episode make sure you leave a review on iTunes and say hey to us on Facebook!

 

Property outlook - there's always a lot happening in the market, let's start with Brisbane?

If you were to talk about an outlook, imagine the property clock. 12pm is the peak of the market, when things are really hot and property is selling fast, time on market is low. Then 6pm is not a good time, at the bottom of the market where things get stuck, 3pm is a downturn where things are slowing down and price falls then finally 9pm is a recovering phase. Brisbane is currently in the recovery phase, it's showing time on market contracting, the driver behind that is interstate investing, but one of the things different to this cycle is the strengths of it, it's not as strong as it once was in the past and that's to do with employment growth, which isn't as high.

We have good affordability, it's better than Sydney and Melbourne but not as good as it once was. There is some constraint on the ability for locals to pay. It should remain in a recovery phase for the next 12 to 18 months maybe a bit longer.

 

So you're seeing an increased driver from investors in Sydney and Melbourne coming to Brisbane?

Some of the drivers for the southern investors is the promise they've been told as to what will happen. There has been a past trend where Sydney and Melbourne actually improve and you see how prices of houses and apartments improve in South East Queensland at the same time. This time they're not as strong, but they've been promised this growth. The next thing is affordability as $900k doesn't get you much in Sydney, but in Brisbane, $450k buys you a two bed and two bath townhouse in the Ipswich and Moreton Bay areas. So investors realise they can buy two properties for the price of one and the yields are at 4 - 6% whereas in Sydney they're at about 2%. In many cases, in Brisbane people are looking to purchase for a yield rather than anything else.

  Something that gets a bit glossed over is wider South East Queensland, let's talk about Ipswich.  What's the outlook for that?

A couple of important things, when we look at regional markets - we break South East Queensland in up to 10 to 12 areas. Just like the West in both Sydney and Melbourne - Ipswich will become something like Parramatta. It is merging to be like Parramatta and one of the major drivers behind people investing in Ipswich are jobs - it's likely to create a lot more jobs in the future due to where industrial land is created along with its proximity. It is between Brisbane and the Gold Coast and is a funnel through to Regional QLD with areas that have minimal resources. It's got pretty good road and railway infrastructure too.

There are some issues with traffic but they're not as bad as Sydney or Melbourne. So Ipswich is expected to create a lot of new jobs, which will be local. People living and renting there won't need to commute to Brisbane for work. It's a major growth market in terms of population and land supply, anyone buying there needs to take a longer-term view.

You can buy house and land packages for under $400k, some cases under $300k. Sometimes you can buy quite well for older homes. Some of them might be 50+ years old, and new estates that are certain products can be great value. By that, I mean multigenerational homes where two generations can live on the same property.

A multigenerational home is when homes have the back with its own kitchen and bathroom area, and it might be a four bedroom with two kitchens. That allows the market to have several tenants and on resale that an owner-occupier is likely to buy it as it allows the mother-in-law or adult child to live with them. One in five households in Australia is multigenerational. So buying something like that is a wiser thing to do in those outer lying areas. Developers are starting to deliver this type of product and they show 7-8% yields.

 

What about Logan? Any opportunities moving forward?

Logan is an opportunity market as well, there's a lot of new land supply and the underlying demand for Logan isn't as strong. Its employment generation opportunities are limited. Investing in Logan you may have a government tenant, if you have the mindset that money is money and you're buying at a certain price point and profile, then this sort of market might have some appeal. There's upside in both markets, probably Logan is more cyclical looking forward and will bounce around. Whether Ipswich will be more steady.

 

What about multigenerational housing - where are other opportunities for this?

One of the things that is frustrating in Australia is that there isn't one uniform housing policy to do with compromised housing and allowing/encouraging more people to share homes either by that multigenerational model or duplexes.

The reason I emphasise this is because it may change. What you can do in Logan and even the Sunshine Coast, you can't do in Brisbane. The Building code is restrictive.

Right now there are opportunities on the Sunshine Coast - north of the Maroochy River where there's no land supply left.

It is forecasted that people will go back to what they used to do where lots of people live in one house due to wages not going up and cost of living expenses rising. So this is one market, then you've got is larger families and a change in overseas migration mix. You could say there are two types of tenants in this category, and for the multigenerational Australia - these types of homes are undersupplied for the amount of demand. So for investors, there is one where the demand is likely to exceed the supply in 5 - 10 years, which will confirm price growth on these.

 

For investors, costs are an important piece of the equation. So let's talk about interest rates?

I believe that interest rates will rise, we use a yield curve to predict it and at the moment a 0.5% difference between the two is a neutral policy. Go back 20 years you can see where interest rates fell, and at the moment it would indicate that interest rates are likely to rise. This may sound funny as we've just mentioned people having to spend more and retail getting tougher but it's to do with the cost of money and if the US continue to rise and Australia doesn't change, we will get a drop in the dollar and that will cause a spike. So, to keep things in equal we will see interest rates maybe in the next year or two rise.

Something my partner and I have done in the past is that we've always had a mindset that we may have to pay 50% more interest in a 5-year window. If you'repaying 4.5 - 5.5% you need to think you could be paying 6.5 - 7.5% in the future. We 're at the bottom of the cycle with interest rates. So plan ahead.

 

 

Back on interstate investors buying in South East Queensland, one thing I have seen - is where interstate investors come to Queensland and think it's cheap to buy a house and land package in Logan.  What are some ways our rentvestors can protect themselves from buying something just because it seems cheap and not necessarily a good investment?

This is really important. It's about the composition of the pricing rather than the price difference. First Sydney is over inflated, so the differences are huge.  So aside from the culture and lifestyle differences, the first thing to look at is rent - I would be hesitant to buy anything that is lower the 4 - 5% yield, but check for yourself. Don't listen to what the agents say, check on Domain or RealEstate. Look at the vacancy rate and what it's done over time.

The rental market is fluid, it can change month to month and just because you got an appraisal two months ago it can change quickly. Traditionally around June/July and at the beginning of the year, there isn't as much to rent. This is to do with student movements and other variables, so then there can be a tightness in the market and the rent return looks good.

SQM Research does a good job and gives you access to a free database over time to see how the stock has changed on the market.

 

About Matusik - Market Report Outlook

My firm is a small firm and I largely focus on Queensland and some degree Sydney and Melbourne. I give project and development advice. We break Brisbane City Council up into different areas and also have a capital cities outlook report.

One thing to keep in mind is if you're looking at spending money on a property, do your own research!

This report includes our unique twelve benchmark indicators that define the state of supply and demand in each city.  There is a clear logic behind our forecasts. In other words, you’ll find everything you need to know to assess those markets and to understand what’s really going on.

The report can be purchased here. Listeners will be able to purchase the report for $99+GST, down from the normal $175+GST by using the code REDANDCO – and download immediately.
The $300k Mistake This Young Property Investor Made  

In this week's episode, the spotlight is turned with Kevin Turner interviews Jayden Vecchio.

 

Kevin:  By way of introduction, my next guest is Jayden Vecchio. Jayden is the director of a company called Red & Co. They specialize in finance, rentals, sales, and development management.

 

The reason I want to talk to Jayden and I’m really keen to get his backstory is because he is a young investor. In his very early 30s, he already has five properties and he says he’s well on his way to having 15 properties in his portfolio over the next five years.

 

Jayden, thank you very much for joining us in the show. I’m really keen to talk to you about what you’re doing now and where you see it going in the future. Give me your backstory. Where did it all come from? What’s your experience?

 

Jayden:  Thanks for having me, Kevin. I started working with a couple of big banks when I was straight out of university, in 2007–08, around the time the GFC was starting to bite, which was an interesting time.

 

I got to learn a lot of the background of how the banks work in terms of securitization, the mortgage market. I worked my way through to private and commercial banking, where I was dealing with moms and dads and investors and learned a lot of the good things you need to do and the bad things that happen in the banks, unfortunately. Then I used that as a bit of a platform to start my own business, Red & Co, about four years ago with two other business partners.

 

Like you said, these days we’re basically an all-in-one property solution for people who are looking at buying, investing, developing, and selling. So it’s all been one big progression.

 

Kevin:  You were recognized in 2016 as the FBAA Commercial Finance Broker of the Year, and that wouldn’t have come too easily, I would imagine. FBAA being Finance Brokers Association of Australia; is that correct?

 

Jayden:  Yes, that’s right. That was quite exciting, because they’re obviously a national organization, and it was good to be recognized for the work that I’ve done over the last couple of years, especially in the development finance markets across Brisbane, which a lot of the listeners would see the cranes and the things in the sky.

 

I’m helping funding some pretty big projects across that – over a hundred townhouses in some cases – and then in the commercial finance markets, we’ve funded a shopping center down in Ballina, one in Yeronga, and then even a couple of office towers down Coronation Drive for some fun.

 

It’s not like traditional mortgage broking, which is good, because I get to see lots of different structures and things, and the good, the bad, and sometimes the ugly, and trying to help people through that.

  Kevin:  No doubt you learn a lot from that, too. Let’s talk about your own experiences. Interesting when you did communicate with me first, you said you’ve made probably all the mistakes. I’d question that; I think I’ve made a few mistakes that you haven’t made. But that’s the best way to learn, isn’t it?

 

Jayden:  It definitely is, because I know it makes a big difference when you can sit down with someone and look them in the eyes having been in that situation. Or if they’re trying to grow aggressively and want to grow a portfolio, which a lot of young people these days are aspiring to do, it’s good taking a step back and saying, “Well, just because we’re at historically low interest rates, doesn’t mean it’s always going to be that way, and you have to remember you have to have a bit in the tank in reserve, because otherwise, you can get caught out.”

 

Kevin:  Tell me about some of the mistakes you’ve made. I am going to ask you a question to round this out about if you were to go back and do it all again, what would you do differently? I guess it’s going to be couched in terms of some of the mistakes you’re going to tell us about now, but I believe that, like most of us, you stretched yourself financially as well at some stage. Did you?

 

Jayden:  Yes, I bought my first unit in Sydney. I was living down there in 2009, and within 12 months of owning it, I was hooked. I knew I was going to be this property mogul, I was going to own these properties. I was ready to go at it, hammer and tongs.

 

Within that 12 months, my first property had a bit of equity gain, and meanwhile, saving up and trying to buy another property. In early 2010, I’d saved up enough and bought another property in the same suburb, in Alexandria in Sydney.

 

It was just a small, 50-square-meter unit. If you imagine a rectangle, you cut it in half and you fit a bedroom and lounge room and stuff in it, that was basically it. There wasn’t much to it, but I thought there was some scope there to do a bit of renovation, some cosmetic stuff, tart it up a bit, and potentially either rent it out and keep it, or flip it and make a budget.

 

What I didn’t realize was around that time in early 2010 was when the RBA was actually on an interest rate increasing cycle, so the rates went up in March by 25 basis points, in April, then also in May, and the expectation was the rates were going to keep rising.

 

So for me as this young property investor who just settled on my second investment property, hadn’t quite rented out my first investment property, I was trying to cash flow this, and all the while, trying to renovate the second place in Alexandria. I was painting, I was doing the carpet, and I hadn’t really set out a budget. I hadn’t prepared myself. I didn’t really know how. I thought I could do it and manage it and make it work.

 

Within the first month of just trying to paint the place, I didn’t realize the first mistake I made was the ceilings were made out of this Vermiculite stuff. It almost looks like a popcorn ceiling. So instead of using a couple of liters of paint, it ended up using three times the amount of paint. It blew out my timeframes, my budgets, all the while the interest rates across both my properties were going up and up and up.

 

It literally felt like a noose around my neck, to the point where I was in the place and it was starting to get winter, it was cold, I was sleeping in the place I was painting on my yoga mat in a sleeping bag, and I actually had to use the oven as a heater to keep me warm at night because I had to use my money towards the repayments.

 

It was a very low point and very uncomfortable, because I stretched myself financially. I’d basically borrowed 100% to purchase that second property, and I didn’t have a lot of savings behind me.

 

I obviously didn’t do a budget, didn’t think about the cash flow and worst-case scenario, so it’s definitely something that when I sit down with anyone now on the finance side – and our business definitely looks at this – you have to look beyond what the rates are today and what the situation is today: what’s the worst case and where they’re going to?

 

Kevin:  A great lesson, isn’t it, to plan for the worst-case scenario, because just listening to that story, those two properties you just talked about in themselves probably very good properties. No doubt you sold those, but if you’d held onto those, what sort of position would you have been in today if you had a better plan and a strategy?

 

Jayden:  It’s one of those ones where I started out with a plan and I was going to stick to the plan until I got to that point where it was just unmanageable. It was very stressful, and you’re quite right, I ended up having to sell them.

 

But I actually saw the first apartment I bought in Sydney, in Alexandria for about $340,000 in 2009 recently sold for over $600,000, so it has doubled.

 

Kevin:  That probably would have been about what you lost on that deal anyway, wouldn’t it?

 

Jayden:  It’s one of those things where you just have to look forward. There’s no point looking back on that and what you could have done, but it’s worth taking those lessons in and working on it going forward.

 

Kevin:  That’s part of the university of hard knocks, isn’t it? I think the thing about it too – and no doubt you’ve done this – is that you learn from those experiences and you take them into your next deal. No doubt, you’re a lot smarter now. You tell me you have five properties. Whereabouts are they?

 

Jayden:  They’re all in Queensland, actually. I think that’s more a case of Sydney, the prices have gone up. Also living in Brisbane, it’s good to know the market intimately. In Sydney, I was quite fortunate that I had some friends and people who knew the areas and helped me give me a bit of a leg up investing.

 

I think it can be hard when you’re investing to save unless you have that guidance, and I like now being able to if you need to go fix something, I can go fix it, and having a bit more control over that.

 

They’re all within five to eight kilometers of Brisbane CBD, a mix of houses and a few apartments.

 

Kevin:  Over the next five years, your plan is to add another 10 properties to build it up to 15, which is what you mentioned to me in your note. Will any of those be interstate? Will you branch out and go interstate again, or will you still continue to buy in Queensland?

 

Jayden:  I think if the conditions are right and it makes sense, I potentially will. But to me at the moment, living and working here, the focus is mostly on Queensland.

 

I think it’s important in any portfolio – that’s one thing I have learned – is having diversification, because like in Queensland a few years ago, if there’s a bit of a mining downturn, that can lead to broader impacts on the economy in the local area. So it’s always good being hedged again

7 Tips to Increase your Borrowing Capacity by over $139,000!  

In this week's episode, we're going through how to increase your borrowing capacity. People struggle to get loans initially, and it's only becoming harder because APRA is tightening lending requirements. This is really just, how much people can take out and we'll go through seven practical tips.

This is all simple stuff and whether you're looking at buying in the short term, or medium to long term this will affect building your wealth and your property journey.

If you like this episode, make sure you tell your friends!

 

Tip 1: Reduce credit cards and don't get debt because it seems like a good idea at the time! A lot of people think that they need to get a credit card for credit history when this is actually wrong. At the moment they've only got negative credit reporting. It's more about having a good credit file, you don't need to establish history.

Reduce any credit card owing you have. If you've got a $10,000 credit limit this will reduce your borrowing capacity by $40,000. So essentially, four times the credit impact. Even if you have no debt owing on the $10,000 credit card - it will still be assessed as if the whole thing is debt, as the assumption is that you could go to the casino and spend that whole $10,000.

  Tip 2: Clean up your unsecured debts   Secured loans - a mortgage is a secured loan because the bank can sell it if something happens. An unsecured loan is a credit card because there's no collateral or security against it.   You can go to the bank and they'll give you $15,000 to have a holiday, but you will pay huge rates aginst that and it will affect your borrowing capacity. If you default on the $15,000 holiday loan the bank will have a hard time getting its money back.   Even a small car loan will affect this. Just $500 a month ends up decreasing your borrowing capacity by over $80,000. It's amazing how those small things do add up and can affect your ability to grow a portfolio.   There's good debt and bad debt, and car loans like that should be paid as quickly as possible so that they don't affect your borrowing capacity. If you've got an existing property, you could look at debt consolidation, where you increase your home loan to add your car loan onto it. The trap here is that the extra $10,000 they keep for 30 years so the interest costs are higher. Speak to a broker about this before doing it!     Tip 3: Sort out your paperwork

As a mortgage broker, I see how bad people are with paperwork, but this is so important! You need to have your group certificates, rates notices, pay slips etc. all ready to go. It's amazing how disorganised people are with this. Get your paperwork in check because this can affect your borrowing capacity. So go through a pre-approval process first so that you don't need to waste time when you're ready.

Get your paperwork in check because this can affect your borrowing capacity. So go through a pre-approval process first so that you don't need to waste time when you're ready to move forward with things.

No one likes paperwork but unfortunately, it is necessary. If the bank is lending you $500,000+ a few pieces of paper are necessary!

 

 

Tip 4: Shop around for deals between banks

You need to look after yourself, which means ensuring that you're getting the best rate. If you want to get into investing, look at different lenders and deals because these small differences can really hold you back.

There are two things that make a difference.

 

How much the bank will lend you

If you've got a combined income of $85,000 - between lenders there can be an $139,000 difference between them. So doing your research can make a huge difference.


Now, this isn’t just limited to home loan rates because, surprisingly, different banks can potentially increase your borrowing capacity. If you have a look at the scenario we have put together below for 2 adults, no kids and a combined annual income of $85,000. There is over $139,000 difference in how much Lender A and Lender G will lend the couple!

Lender A          $465,900

Lender B          $456,438

Lender C          $427,258

Lender D          $411,000

Lender E          $399,508

Lender F          $361,459

Lender G          $326,516

 

Lenders mortgage insurance 

There can be a huge difference again between banks. For example between them, there could be a $6,000 difference on how much insurance you pay the bank. This is compounded over 30 years equates to almost $30,000 over 30 years, four times the amount. LMI is a good tool if you need it, but if you are going to do it make sure you find the best rate. 

 

Tip 5: If you have split loans with someone else, show how you are sharing them

If you have owned property with friends or family members in the past you may own 50% of the property. Therefore, you own 50% of the home loan associated but in the eyes of some banks, you are considered wholly liable for the debt even though you only own 50% of the property.

Fairly or unfairly, they assume you need to make 100% of the loan repayments but are only entitled to 50% of the rent. This can severely decrease your borrowing capacity.

 

 

Tip 6: Consider extending your loan

Again, this is situational. If you can extend the term of your home loan is it really a good idea?

Pro - extending the term of the loan means you can borrow more with fewer repayments each month

Con - more interest because it's a longer period

 

This is something to seek advice on and proceed with caution.

Practically, this would look like:

$300,000 loan at 5% over 25 years - $1,753 per month with the total interest payable $226,131

If you, however, looked at extending the loan term to 30 years, it would look like this:

$300,000 loan at 5% over 30 years - $1,610 per month with total interest payable $279,767

 

Tip 7: Save!

Save! Anyone who has been successful in generating a number of properties has great cash flow management. To do that, you've got to have the ability to save money!

If you have more savings in the bank, the bank will lend you more money. The more cash you put towards a property, the more the banks will give you.

The boring stuff is true.

 

 

In summary Reduce your credit card limits! You can do it online or call your bank. Shop around for different banks or get someone else to do it for you. Having more savings, if you've got a bigger deposit you can avoid lenders mortgage insurance. The more you have, the more the bank will lend you. Long term, the banks want to see you at 60 - 70%, if you're too highly geared, you're very susceptible to issues. Try to have them positively geared, as this income is the one thing you can control.

Make sure you are working with a professional mortgage broker like the team at Red & Co to maximise how much you can borrow, and grow your property portfolio in a sustainable way. Also, check out Louis' podcast SelfMadeMil.com.au

AMP Chief Economist Shane Oliver on Opportunities in the Property Market, and where Interest Rates are heading  

In this week's episode, we've got Dr Shane Oliver, chief economist at AMP Capital. Giving us an idea of where the property market is headed and if it's going to crash. Looking at interest rate outlooks, outer cycle bank and interest rate heights, what the implications for property investors are and opportunities for investors, what there is outside of the typical Sydney and Melbourne areas and thinking left field like Perth and beyond. For more info check out The Rentvesting Podcast, and remember to have a try at our Rentvesting Calculator

Taku Ekanayake: The Uber Driving Rentvestor. His top 3 Rentvesting Strategies  

Taku Ekanayake has gone from renting in Sydney to building a property portfolio of over 6 properties. He truly lives the rentvesting philosophy.

In this episode, Taku goes through how he started investing with not a whole lot of money (middle-income salary) and then implemented the rentvesting strategy.

We'll speak about:

How he went from 1 to 4 properties Buying interstate Some cool ideas and tips on ways that you can renovate a property before you own it and get the previous landlord to pay for your interest and expenses.

 

For those who haven't heard of Taku, he's actually not a full-time property investor.  Tell us about yourself:

I'm 28 years old and live in Sydney by myself renting, hence why I'm a rentvestor. I was born in Japan but moved here as a toddler, now I work as a sales professional for an IT consultancy. Eventually, I want to get into property full time, but right now investing is just humming in the background

I started in October 2015, and I managed to progress pretty rapidly through the strategy I adopted.

 

When you started, you were on a middle-income salary and renting a share house in Marrickville. How did you get into the market?

Initially, I was looking for somewhere to live in Sydney, and even prices then were around $500-600k, I was priced out of the market and only had a deposit for half of that.

This was a blessing in disguise.

I read  Robert Kiyosaki’s - Rich Dad Poor Dad which was a game changer for me, I shifted from that 'Australian dream' to making your money work for you and looking for income producing assets. Once I started researching into that space I got fixated on it and taken into a maze. Through that, I found different markets and went interstate.

 

What made you look interstate, what was your criteria?

I know I'm not supposed to be investing purely on how much I can afford, but at the time I wanted to get into the property market and only had saved a deposit and just had to look at the market through that. At the time, I was researching what areas were best suited to me, I wanted something that would look after itself, self-funding with rental income covering expenses.

Melbourne was out of the picture for me, so I looked at Brisbane. It was half the price of Sydney with strong yields and good fundamentals. It hadn't seen significant growth and I liked where it was at in the property cycle.

I was still green at the time, just doing research and networking with investors. I was attending seminars - almost two to three a week, online forums and calling agents.

 

Brisbane is a big market, did you have suburbs you were looking for? Or what was your key way to research?

I did have a high-level criteria, I was looking below $400k and wanted to stick to houses only and I read about the oversupply of apartments.

I was looking at a 15 - 20km radius from the city and various pockets, specifically at which areas were undervalued. Through that, I came across Bracken Ridge, I liked how it was priced, the yields it was presenting and what I could buy for under $400k and still get good land content.

Since then, Bracken Ridge has performed well.

 

I really like the quote you said:

“There are so many different markets in Australia, and over the long term Sydney isn’t the best performing market,” he said. “Over the last 15 years – Sydney, Brisbane and Adelaide have all performed the same.”

 

Moving on from there, you bought another property. Where people get stuck is going from one to two properties. Can you tell us about some of the techniques you used to make this happen?

There's no magic pill, but when I bought the first one that was my sole goal, to get one property. I wasn't looking further ahead at the point. So after I bought that, I used up all of my savings and was back to the drawing board. I thought, I need to save again, working as hard as I can then I picked up a second job, Ubering doing 25 - 30 hours a week on the side. That allowed me to accelerate my savings over the next 13 months. I ended up saving about $35k - $40k just over a year. I also revalued the Bracken Ridge property, which I bought it for $375k and it was revalued for about $60k more.

I also gained capital growth increase, pulled out that equity and then used the cash savings to buy the third property.

Property two and three were in a space of about 6 - 8 weeks and that's when I started to adopt the renovation strategy.

I learnt from my mistakes and I knew there had to be a faster way to manufacture that equity. That's how I came about this strategy.

 

What does renovating a property look like to you?

I aim to invest in the middle to outer ring, so I really don't want to overspend because the return I get on them isn't too much. I only want to spend between 3 - 5% of the purchase price.

If there is an opportunity to add real value, like adding an extra room if the floor plan accommodates, that's a good way to add extra rental income and increase the value.

The renovation strategy:

If a property is untenanted, I will negotiate early access so that I can start the renovations immediately. This is so that there is minimum time between renters, so that it can be filled as soon as possible.

 

What are your plans from here?

I still want to continue buying bread and butter properties. I want to get into commercial too because the rental agreements are long term. The only thing with commercial is that you need 30% minimum deposit, so you want healthy buffers and good equity in order to invest.

 

Two or three tips for people getting into the market?

One of the mistakes I pointed out earlier, was that when I started out (only if you want to keep growing), don't just think about the first property. Think, what's the end goal and work back from it. Draw out a strategy and work around it.

Structuring your finance - don't just look for the cheapest interest rates, think about other aspects like does this bank have good finance? Do they allow good top ups? If your strategy is to continue to keep growing, you don't want to go to a lender who's going to hold onto your money.

Cash flow is king! Especially if you're building a property portfolio. Keep a close eye on your rental yields because that will help you sustain your expenses and continue to hold on to your property.

Capital growth is why we play this game but cash flow is what keeps us in this game.

Taku is always keen to network with like-minded people, you can reach out to Taku on LinkedIn, Facebook, Instagram and Twitter @TakuEkanayake.

And remember to check out The Rentvesting Calculator, and other Free Rentvestor Tools to help work out if you should Buy a Home, or Rentvest your way to building a portfolio.

Is Rentvesting better than owning a home? We talk Pros, Cons & the Rentvesting Calculator  

With all the recent buzz in the media, and crazy stats from OECD; which has reported that Australia jumped from 29th to the 9th most unaffordable country for housing in just five years. Then Sydney listed as the world's second most unaffordable city, after Hong Kong, it's not hard to think that buying your home is nearly impossible.

Whether you are a first-time investor or if you already own a home, there is no denying property prices are becoming more and more unaffordable across Australia, and the so-called Australian dream is well out of reach.

The problem is, the traditional mindset towards property (pushed into you from young age) is that rent money is dead money, but in today's market this is completely wrong. Rent money should never be thought of as dead money!

Rentvesting is a pretty neat concept that turns traditional property ownership on its head. 

We believe you should be able to live where you want and invest where you can afford. Okay, this sounds great, but what are the financial benefits in rentvesting versus buying your own property?

Is rentvesting better than owning a home? Good question. 

We designed The Rentvesting Calculator to help you look at the numbers, and see what makes sense FINANCIALLY for you based on your income and how much you would pay to buy a home.

So, how does the calculator work?

This calculator uses your individual situation and calculates whether it is better for you to purchase a property or to rent and invest. If you purchase a house, it uses the long-term mortgage repayments and costs of running the property, versus if you were to rent somewhere.

Whichever strategy leaves you with the most surplus income financially - makes more sense to do!

If there is a surplus of income from renting, the calculator assumes that you will direct this into a portfolio of investments each month. For this investment, this is also a margin loan.

Margin loan

A margin loan is a loan that you take out when purchasing investments that aren’t property, such as shares, or managed investments. For example, if you invest $1,000 of your own money into shares such as Telstra shares, you can take out a loan on top of this to buy more Telstra shares. Now you have $2,000 to invest in Telstra shares rather than $1,000.

Through using a loan, you can help ‘leverage or gear’ your investments. Leverage is a term used when referring to doing more with less, in this case borrowing funds now to help the long-term growth of the investment.

When you purchase a property to live in, you naturally experience leverage because you are using a small deposit to purchase an asset of greater value. As the property value grows this leverage helps the overall return on your contributed funds. This is why we decided to include it in the rentvesting strategy.

On any loan, including margin loans there is a thing called a Loan to Value Ratio (LVR). This calculator assumes a margin loan with a LVR of 30%.

What figures do you need?

Your current income: To determine your current taxable income, tax rate and net after-tax income received. What state you live in: To determine stamp duty and settlement costs as these change dramatically between the different states. Your current situation: To determine if you have a second income (and living expenses) compared to if you are single and on the one income. If you were looking to buy, your house budget? Again this works out how much deposit is needed, and how your after-tax income would be affected. If you were to rent, how much would you spend per week? This works out if you were to rent, how much surplus income you would be left over with to invest! Rentvesting in practice

Let’s work with an example, Jill - she lives in Sydney, works full time and is trying to decide if she should buy a property or purchase something as an investment.

Your current income: $150,000 What state you live in: NSW Your current situation: Single If you were looking to buy, your house budget? $1,000,000 (a little shack West of Sydney!) If you were to rent, how much you would spend per week? $500

Then drum roll, we crunch the numbers through The Rentvesting Calculator.

 

Should I rent or should I buy?

For Jill who is on $150,000 living in Sydney, she would have an additional $10,945.71 in AFTER TAX income that she could put towards investing.

The Rentvesting Calculator then assumes she invests this amount monthly after initially investing her deposit of 20%.

Do you make any assumptions around this? 

Our calculator obviously makes a few assumptions, including:

Marginal tax rates for the 2016/17FY. Income Return – 4.2% p.a. Growth return – 3.6% p.a. Principal and Interest Mortgage repayments over 30 years. Home deposit of 20% required. Mortgage interest rate at long-term averages of 7% p.a. Stamp duty state by state Margin loan interest rate at long-term averages of 8% p.a. Property expenses - $2,000 p.a. insurances, $1500 rates p.a. Other ongoing property costs (maintenance, water, etc) 0.5% p.a.

And a few more caveats around these including

This page shows you an approximate idea about your overall cash flow from either buying or renting. This is the financial metric that determines what strategy will leave you with the most after tax income, while also taking into consideration what percentage of your income you would spend on buying a property or renting. Therefore it may be better for some of you to buy or for some of you to rent. The ultimate decision does come back to you on what your priorities are in life, having somewhere to call your own or moving around while being able to build wealth.

It seems easy to use The Rentvesting Calculator!

Yeap, we tried to make it as simple as possible!

*BUDGET SPECIAL* Impact for Rentvestors, Interest Rates, Exchange Rates & Growth  

On this week's episode of the Rentvesting Podcast, we're talking about the budget that's just been released. We're looking at the impact it has on property and how it will influence the wider market. Especially around the Commonwealth releasing more land and helping the supply side.

 

What is the budget?

Every year, the treasurer announces what the budget will be - that is, just the changes to the overall budget. A lot of what has been announced though may not ever actually go ahead, but it's the measures that the government look at, understanding what they're going to be saving on and spending on.

This year is quite an exciting budget if you're in property or investment.

The whole point of the budget is to help get us out of debt and help the economy. There's a lot of assumptions that the government put around the budget, like the inflation target.

 

First home buyers

We spoke about the superannuation system in this episode, and this is the flow on effect. This is the way to use your super as a vehicle to save money and use it towards your deposit. You can do salary sacrifice, which funds into super and saves to a home deposit.

 

Concessional / pretax

The concessional option you don't pay tax on, so if your base salary is $80k + super you can ask your employer to pay you $10k less (salary sacrifice) and then you only pay tax on the $70k and the other $10k goes towards your super.

On that $10k you would receive in hand $6,550 if you're still earning $80k but if you put it into super it would be $8,500 int your account. Beware though, if you withdraw it you can pay marginal tax rate but there's a 30% offset.

The only catch is, where is your super and where is it invested.

Volatility! If you've invested your super into a high growth, aggressive manner and you're looking to buy a property within 2 -3 years, it's not a good idea to have it in volatile assets. If anyone wants to do this, make sure you're putting this allocation into conservative investments for the short term because you will get an aggressive loss if you do.

Disclaimer: Please seek individual advice.

 

Negative gearing and tax breaks

This one isn't so good for property investors, under new rules, depreciation deductions will only be allowed if investors bought the items themselves. The change will apply to any items purchased after budget night.

How does this affect Rentvestors?

Unless you have the invoice or receipt, you won't be able to claim depreciation.

 

Buying interstate

Claiming negative gearing benefits on interstate properties for inspecting or collecting rent will no longer be allowed.

 

Ghost houses

If a foreign investor has bought a property here and kept it vacant, it's called a ghost house. Now, if it's kept vacant for 6 months or more it will be taxed. It will be at least $5k per annum charge for this, however, information is still limited around this.

Ghost houses can be identified by whether water or electricity has been connected or even just darkness in the evening in certain areas, making you say, where is everyone!?

How does this affect Rentvestors?

This will be good for areas in Sydney and Melbourne which will assist with supply and demand.

 

Record levels of spending on infrastructure

This one is good! The government wants to spend money on growing and improving infrastructure.

New Sydney airport - This will create up to 20k jobs Inland rail link for freight between Melbourne to Brisbane

If you're over 65 and sell your home to downsize and move into a smaller place, you can put $300k each into superannuation as a post-tax contribution. Usually, after 65 and you're not working you can't put funds into your super, but with this change, you can.

How does this affect Rentvestors?

It's going to free up housing stock, due to people being incentivised to downsize which helps to keep the market moving.

 

Incentives for building and development

Increased concession for capital gains tax.

NRAFs - affordability to help people rent properties. If you currently own an investment property, and if it's an affordability housing scheme you can have an additional 10% discount off capital gains tax.

 

Banking

The government has proposed a tax on bank liabilities. This will contribute up to $6 billion over 4 years. This is almost 0.6% which will add to commercial and development loans. This will only affect the big five banks, and unfortunately, this will most likely get passed through to consumers.

How does this affect Rentvestors?

Fixed rates are worth considering, due to rate changes forecasted.

The benefit is, that this will enhance competition because it helps the smaller banks to catch up to the bigger ones.

 

Medicare Levy

Currently, it is 2% of assessable taxable income but the threshold will go up and the medicare levy overall will go up by 0.5%.

How does this affect Rentvestors?

Not massive, but still an additional tax.

 

In summary, it has been a pretty positive outcome: More incentives involved with superannuation and the housing market. The negative gearing side has a few deductions. Ghost housing will be cracked down on. Big infrastructure spends. Incentives for building, developing more social housing. Banks are getting a kick, which could affect consumers. If you've got investment properties, it could be time to look at fixed rates and take a long-term view.

Thank you for listening, we've had some really great reviews lately!

The $13,000 deduction most property investors miss: Depreciation. With Bradley Beer, CEO at BMT Tax Depreciation.  

This week we're talking tax, it would otherwise be a dry episode but we're going to make it fun. It's so important, so we're talking to Bradley Beer from BMT Tax Depreciation.

In this week's episode: What depreciation is How it helps investors How it helps your capital and cash flow long term Common mistakes people make

People forget to get a depreciation report which ultimately cost you money by not claiming deductions.

Depreciation is one of the major things that can help cash flow for Property Investors.

https://www.therentvestingpodcast.com.au/property-depreciation-tax/

Depreciation seems to be an area where people forget about. But what exactly is depreciation tax?

Quite simply, when you've got an investment property, the elements in it wear out like the carpet and items inside. It's like when you have a car and use it for work, you can claim depreciation.

We're buying property for it to increase in value but your carpet is still wearing out. So you can make a claim for this.

It is often missed, however, because it is a non-cash taxed deduction item. Depreciation is wear and tear on the property that happens over time but it is often missed.

 

What does claiming look like for someone who owns an investment property - what would an average depreciation report look like?

The simple thing is that people buy a property with an intent to make money and the depreciation is one of those things from a cash flow element that does make a difference.

Old properties still get some depreciation, but it's always worth asking the question about how much that it might actually be. Deduction depends on your tax rate if you're on a top marginal rate you can get nearly half of it back.

There are some difference in property ages too like if it's built before 1987 you won't get building allowances, so there are questions like that. We, as the agency worry about that though and will tell you if there's enough in the property to make it worthwhile doing it.

The average first-year deduction is about $4,800, while brand new is about $13,000. It changes based on what the property is, but there are always potential deductions and they do mean cash back in your pocket.

 

People speak to different agents and can get confused, so these are some good points. Further to that, how have you seen people maximising depreciation? What can you do as a property investor?

I think one of the important things to start with is to make sure whatever is there, you take advantage of. People don't do this sometimes because they believe they have a good accountant.

The biggest thing that is missed is actually doing it properly in the first place. After that, when you're looking at properties try to get some idea of what makes a difference.

For example, a newer property gets more deductions, then older properties get more back if have newer appliances - like a new hot water system will get more than an older one. You can use our deduction calculator on our website to figure out what sort of deductions can be made.

One of the numbers that need to come in when you're investing is looking at the depreciation deductions. Make sure you know what it will cost you to hold the property before you look at buying.

 

What are some signs of a good operator?

As with anything, if someone's fees are half as much as someone else, then you've got to question if something has been cut out of the process.

One thing we always make sure that is done is inspecting the properties ourselves. We go out and look at the type of assets in the property to put a price on it. Nothing is outsourced, it's done by people getting the maximum deductions out of the property.

That widens to how you estimate the construction costs. We measure and estimate the building then marry that with the tax rules, we also build the software to make sure the tax rules are applied properly. Inspecting the property is important because it's being thorough and not making a guess about it. I think with any type of professional service if you cut corners you can do it cheaply, but in the long run, this will mean you'll probably miss things and end up with fewer deductions.

 

In summary: If you've had a report done, it's worth reviewing when it was last completed. Making sure you haven't replaced anything (like new carpet) and are potentially missing out on depreciation. If you don't already, make sure you have a report in place. All rentvestors should look at this because you could be leaving money on the table!

If you didn’t mind this episode (or even maybe liked it!), please leave a review for us on iTunes here, and if you’d like a visual guide on how to leave a review, check out these instructions here. Don't forget to check out Louis' new site Self Made Millenials here.

4 INVESTOR TRAPS: Ways to avoid making common rentvesting stuff ups!  

This week we’re talking about behavioral traps that can stop Rentvestors from starting their journey - breaking it down to short term issues, old timers and their prospect theories, when you follow the crowd and the issues around that, and analysis paralysis.

This is all stuff we see every day of the week, so we’re going to break it down into detail. We hope you’ll learn not to take tips from online forums.

Today we’ll be going through four behaviours that will kill your overall investments in life, including:

Myopic risk aversion

Prospect theory

Herd theory

Analysis paralysis

https://www.therentvestingpodcast.com.au/behavioral-traps-rentvestors/ for questions contact us at jayden@therentvestingpodcast.com.au

INVESTOR LOAN CRACKDOWN: What you need to know  

This week we are talking about investment lending. We are looking at why the banks and APRA are tightening down on this. So we thought we’d help you understand how to avoid some of the nasty changes that may be coming.

As always, for the full show overview check out http://www.therentvestingpodcast.com.au/ or contact us at jayden@therentvestingpodcast.com.au 

HOW NOT TO OVERPAY: 5 Negotiating Techniques You Need to Know When Buying Property  

In this week's episode of The Rentvesting Podcast we’ve got a special guest, Anthony Oddo, who is the residential sales director at Red & Co.

Anthony is taking us through some tips on how to avoid overpaying with some awesome negotiation tactics.

In this episode we cover: The agents’ mindset What they look for in people Questions to ask agents for better prices Tips to implement on how to make agents take your offers How to get the best price you can
PROPERTY BUBBLE? IS THE MARKET ABOUT TO CRASH? Where is the market headed, is Australian property in trouble?  

Is the bubble about to burst? Where are Sydney & Melbourne property prices headed?

In this episode we go through:

What a bubble is? How property cycles work and the current figures What the market has done historically Where we think it's moving forward to

As always, for the full show overview check out http://www.therentvestingpodcast.com.au/ or email us at jvecchio@redandco.com.au 

 

Rise of the Robots? Should I use Robo-Advice, ETF's and making money on Managed Funds?  

RISE OF THE ROBOTS!! This week we had a great question about ETF’s and managed funds. We're going to be looking at the pros cons and why you’d choose a managed fund or exchange traded fund. We're also covering the role of robots with our money, robo-advisers and what it entails. Finally, we'll cover what to look for in a financial advisor.

Can You Use Your Super As a House Deposit? What are the pros, cons and issues?  

This week, we get super political, we're talking about taking money out from your superannuation (super). This topic stems from how a lot of Australians are struggling to save for a house deposit, which is where super comes in.

In some cities with house prices are at all time highs and people having trouble saving a house deposit, therefore with money sitting in super there is a desire to access this. So we’re going to delve into whether it’s a good idea or bad idea to access super to pay for your deposit. The Australian Government are speaking about allowing people to access this money to fund their home deposit too.

Got any questions, comments and feeback? Hit us up at http://www.therentvestingpodcast.com.au/ and if you like the podcast please leave a review on Itunes or wherever you get your podcasts from.

How to get wealthy in property, shares and investing with Tony Robbins book Unshakable  

The Rentvesting Podcast is the ultimate property podcast that unpacks the facts and explains what's really going on in property.   It's not timing but time in the market that matters. This week, Jayden's been reading (shock, horror!). He came across a book by Tony Robbins - Unshakeable. In Tony's previous book, he wrote about how after the GFC a lot of people had issues, so he has written another book helping people get around that and get over the fears of what stops from investing and making money.  In this episode we cover: How to be wealthy Getting over your fears The power of compound interest Trying to time the market, diversification.  We're talking about some of the most common mistakes investors make—and how to avoid them.

Should I use the first home buyers grant? Pros, Cons, how people get stuck.  

This week, the Victorian state government have made some changes to the first homeowners grant. This is a question were asked all too often - What is the first home buyers grant and should I get it? For more details check out the website http://www.therentvestingpodcast.com.au/

8 SIGNS A SUBURB IS ABOUT TO BOOM (OR GO BUST!!)  

Hey guys and welcome to this weeks episode of the rentvesting podcast. With auction clearance rates hitting highs of over 2,000 for the year, and clearance rates in excess of 77% how do you know if a suburb is about boom? Any smart investor will know that you make your money when you buy, not when you sell. In property, the key is to buy into a city or suburb that is about to boom, meaning you get in before prices rise and enjoy the wealth that comes from the growth. Unfortunately, it’s a lot easier said than done. If it was easy, everyone would be making a fortune from property. It can be very hard to tell when a suburb is about to boom, but there are a couple of key indicators that you should look out for.

HOW TO MAKE $2.20M PROFIT FROM ONE PROPERTY WITH PETER SWIZTER [REPLAY]  

We've got one from the archives this week, we're talking to Peter Switzer. This has to be one of my favourite interviews of all time, lots of practical tips. This week we’re speaking to Peter Switzer, a published author, host of the Switzer Show on Sky Business News, former university lecturer, property investor, entrepreneur and employer that has over 50 staff throughout his various businesses. He has been involved in the property industry for almost his entire life, in the global financial crisis he bought a young women’s magazine and has helped to grow that too.

HOW DO I WIN IN PROPERTY? WHAT'S HOLDING YOU BACK AND MAKING AUSTRALIAN PROPERTY GREAT AGAIN  

In this week's episode, Louis is speaking about trickle down economics. We saw a few articles about how less than 1 in 10 young Australians think they'll be better off than their parents will be, which was a Deloitte study conducted in 2016. One of the biggest concerns of Millennials is wealth, retirement and getting a job. Today we're talking about: What's holding back the economy and people as individuals What you can do to mitigate it The steps you can take today A few takeaway points

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