WEBVTT - Property investing for passive income 0:00:01.560 --> 0:00:03.760 Welcome to How Do They Afford That, the podcast that 0:00:03.800 --> 0:00:07.360 peaks into the financial lives of everyday Australians. I'm Michael Thompson. 0:00:07.400 --> 0:00:09.040 I'm an author and the co host of the business 0:00:09.080 --> 0:00:12.639 news podcast Fear and Greed. As always, I'm with Canna Campbell, 0:00:12.680 --> 0:00:15.360 financial planner and founder of Sugar Mumer TV, the financial 0:00:15.360 --> 0:00:19.840 literacy platform covering YouTube and podcasts obviously like this one 0:00:19.880 --> 0:00:23.440 on Instagram, and threads and TikTok and books like our 0:00:23.520 --> 0:00:27.840 upcoming book, Twelve Months to Financial Freedom. Hello, Canna, good morning, 0:00:27.840 --> 0:00:31.920 how are you. I'm going very well. A very topical 0:00:32.479 --> 0:00:38.360 episode today property investing, which has changed a little bit 0:00:38.400 --> 0:00:42.879 this year, Hasn't it just a wee bit When people 0:00:43.440 --> 0:00:48.400 talk about property investing in Australia, the conversation has always 0:00:48.960 --> 0:00:51.839 gone towards negative gearing, just because it's been such a 0:00:51.920 --> 0:00:56.520 key part of that landscape. Right, It's not the case anymore, 0:00:56.560 --> 0:00:59.360 it's not the case that that is the first thing 0:00:59.560 --> 0:01:03.640 that you think. Now the landscape for property investment in 0:01:03.680 --> 0:01:09.679 Australia has changed. So today I want to talk to you, obviously, 0:01:09.680 --> 0:01:12.760 that's why we're in the studio together to get an 0:01:12.800 --> 0:01:17.480 idea basically of how you can still make property investing 0:01:17.800 --> 0:01:21.559 work for you, and I suspect got a little hunch 0:01:22.040 --> 0:01:24.040 that it might have something to do with passive income 0:01:24.920 --> 0:01:29.280 rather than the negative gearing and the tax incentives. We 0:01:29.360 --> 0:01:32.480 love our passive income, we certainly do. Okay, let's get 0:01:32.520 --> 0:01:35.400 into it. And of course this is not financial advice, 0:01:35.600 --> 0:01:38.399 no one whatsoever. So if you hear something here that 0:01:38.440 --> 0:01:40.399 you go, okay, all right, that makes a lot of 0:01:40.400 --> 0:01:42.679 sense to me, and I'll look into that. Speak to 0:01:42.720 --> 0:01:45.320 a professional, Go and see a financial planner who can 0:01:45.319 --> 0:01:48.720 give you some advice that is tailored to your circumstances. 0:01:49.400 --> 0:01:54.800 Property investing, is it still a valid way to build 0:01:55.040 --> 0:01:56.720 wealth in Australia? 0:01:57.640 --> 0:01:58.440 I believe so. 0:01:59.120 --> 0:02:00.400 Yeah. 0:02:00.480 --> 0:02:04.480 The way that you do it is most important, not 0:02:04.520 --> 0:02:07.000 necessarily that it you know, it's property or not. It's 0:02:07.000 --> 0:02:08.960 not a black and white question. I think the strategy, 0:02:09.320 --> 0:02:13.679 the approach, the ultimate goal has now changed with the 0:02:13.720 --> 0:02:14.440 federal budget. 0:02:14.760 --> 0:02:21.160 Okay. As far as maybe let's deal with negative gearing, okay, first, okay, yeah, 0:02:21.200 --> 0:02:26.320 because it's not completely off the table, is it maybe 0:02:26.360 --> 0:02:32.560 explained to us how negative gearing worked previously, because it's 0:02:32.639 --> 0:02:33.640 it still does exist. 0:02:34.040 --> 0:02:38.280 Okay, So negative gearing is essentially where holding an investment 0:02:38.320 --> 0:02:40.960 asset costs you. So say I go and buy a 0:02:41.000 --> 0:02:44.840 million dollar investment property, and I receive, say fifty thousand 0:02:44.880 --> 0:02:48.160 dollars a year in rent, but I'm paying out seventy 0:02:48.200 --> 0:02:51.840 thousand dollars a year in interest, is technically costing me 0:02:51.960 --> 0:02:55.160 twenty thousand dollars. Now, previously, you know, if I had 0:02:55.200 --> 0:02:57.560 bought that property prior to budget Night, I'd be able 0:02:57.600 --> 0:03:01.720 to claim the twenty thousand dollars off my tax as 0:03:01.760 --> 0:03:06.160 a deduction. Going forward, if I bought that after budget Night, 0:03:06.280 --> 0:03:08.840 I wouldn't be able to claim that off my tax, 0:03:08.880 --> 0:03:13.040 assuming it's not a new build, and even going forward 0:03:13.040 --> 0:03:17.000 with the new builds, it's actually quarantined to the rental income, 0:03:17.000 --> 0:03:20.520 so you can only actually offset that negative like cashow 0:03:20.560 --> 0:03:22.919 negative against other rental income. You can't use it to 0:03:22.960 --> 0:03:25.840 take off as a deduction off, say your salary. So 0:03:26.800 --> 0:03:30.239 it's a significant change in the landscape and also the 0:03:30.320 --> 0:03:31.640 terms and conditions of the game. 0:03:31.919 --> 0:03:35.320 Yeah, okay, and I think for the purposes of this conversation, 0:03:35.440 --> 0:03:38.040 we'll just look at kind of how it works from 0:03:38.120 --> 0:03:42.280 now on one rather than those who already hold investment properties, 0:03:42.360 --> 0:03:46.040 because the way that negative gearing works is largely unchanged 0:03:46.080 --> 0:03:48.920 for those who have already been in the system prior 0:03:49.000 --> 0:03:51.360 to the changes being introduced by the budget. 0:03:51.440 --> 0:03:53.120 And that's really important because I think a lot of 0:03:53.120 --> 0:03:55.760 headlines obviously are confusing people. So I've even had people 0:03:55.800 --> 0:03:57.480 reach out to me and say, oh, do I need 0:03:57.520 --> 0:04:00.440 to sell my negatively geared property right now because these rules. 0:04:00.480 --> 0:04:03.320 I'm like, well, hang on. Obviously not advice, but you 0:04:03.360 --> 0:04:05.320 can still keep going with what you've got in place 0:04:05.360 --> 0:04:08.040 prior to budget night. So people do need to understand 0:04:08.280 --> 0:04:10.560 how these rules impact them, and some people it doesn't 0:04:10.560 --> 0:04:11.240 impact them at all. 0:04:11.440 --> 0:04:15.760 Okay, So that means there are obviously loopholes and exemptions here, 0:04:15.920 --> 0:04:18.920 and they are really related to new properties. 0:04:18.800 --> 0:04:21.640 New builds, so you know, a new apartment, a new townhouse, 0:04:22.440 --> 0:04:26.559 you know, a new house. So it's it's a really 0:04:26.600 --> 0:04:29.160 interesting time because you think, you know, when do I 0:04:29.240 --> 0:04:32.400 look at something that's brand new, it's often really really expensive. 0:04:32.400 --> 0:04:34.760 And this is what worries me is that you know, 0:04:35.000 --> 0:04:36.720 perhaps people are going to be overpaying just to be 0:04:36.800 --> 0:04:39.919 able to access that negative gearing benefit, which is the 0:04:39.960 --> 0:04:42.640 worst reason to make an investment decision purely based on 0:04:42.640 --> 0:04:45.960 the tax But you know it is it is a 0:04:45.960 --> 0:04:47.880 bit of a red herring in this. 0:04:48.279 --> 0:04:50.960 That's actually that is a really really good point. The 0:04:51.000 --> 0:04:53.919 fact that I mentioned at the start of the show 0:04:53.960 --> 0:04:56.240 that as soon as we talk property investing, everyone just 0:04:56.320 --> 0:04:59.120 jumps straight to kind of negative gearing that there is 0:04:59.160 --> 0:05:02.760 this tax benefit. But it doesn't matter whether we're having 0:05:02.800 --> 0:05:07.640 this conversation ten years ago or now. Really the goal 0:05:07.720 --> 0:05:12.240 should be further ahead than the immediate tax incentives now, right, 0:05:12.480 --> 0:05:14.800 If you are investing in property, you should be looking 0:05:15.240 --> 0:05:18.840 ahead to the future value of that property, to the 0:05:19.160 --> 0:05:21.080 rent that that's going to bring in, and the potential 0:05:21.120 --> 0:05:22.360 for passive income. 0:05:22.320 --> 0:05:25.640 The opportunity for long term capital growth, and how it's 0:05:25.640 --> 0:05:28.040 going to work towards your goals. That's really, you know 0:05:28.120 --> 0:05:29.279 what's most important here. 0:05:29.400 --> 0:05:32.039 All right, let's get into the passive income side of this. 0:05:32.839 --> 0:05:37.440 When people say passive income through property, what are we 0:05:37.480 --> 0:05:38.359 actually talking about? 0:05:38.640 --> 0:05:41.080 Typically it's the rent. So if you have an investment 0:05:41.120 --> 0:05:43.880 property that's a residential investment property, you know they're paying rent. 0:05:43.920 --> 0:05:46.760 You know, if you say have land like you know 0:05:46.920 --> 0:05:49.200 for adjustment, which means you put cattle on it, and 0:05:49.480 --> 0:05:52.000 you know a farmer might pay to rent that land, 0:05:52.040 --> 0:05:54.359 you know, that's obviously an income stream. It might be 0:05:54.480 --> 0:05:58.200 like a commercial property might be an industrial property. You know, 0:05:58.400 --> 0:06:00.680 it's all comes to you in rent. The more rench 0:06:00.720 --> 0:06:02.440 you receive, the more passive income you're receiving. 0:06:03.279 --> 0:06:06.880 All right, what is it then that makes a property 0:06:07.320 --> 0:06:12.440 good for income for passive income rather than growth? And 0:06:12.480 --> 0:06:14.599 I suppose I don't know why I'm necessarily doing it 0:06:14.640 --> 0:06:16.800 as an either all because it doesn't need to be 0:06:17.839 --> 0:06:19.640 an either or you can have a property that is 0:06:19.640 --> 0:06:22.040 going to increase in value over time as well as 0:06:22.080 --> 0:06:24.240 being good for passive income, But what are the features 0:06:24.360 --> 0:06:27.440 of a property that's going to potentially deliver you that 0:06:27.560 --> 0:06:29.039 passive revenue stream? 0:06:29.080 --> 0:06:31.080 So this is I think something that people really do 0:06:31.240 --> 0:06:34.559 underestimate or overlook. Perhaps if you're going to be buying 0:06:34.560 --> 0:06:38.480 an investment property, you want consistency. You know, you want 0:06:38.680 --> 0:06:41.880 a long term tenant in between tenants, particularly if it's 0:06:41.920 --> 0:06:43.880 a bad time of the year, say Christmas time, Easter, 0:06:44.000 --> 0:06:46.760 school holidays, or you know, if it's out of season, 0:06:46.800 --> 0:06:48.840 like it's you know, a seasonal spot and it's winter 0:06:48.880 --> 0:06:51.400 time and you don't have people there, that can really 0:06:51.440 --> 0:06:54.760 be really, really detrimental. The other thing is is obviously 0:06:54.800 --> 0:06:58.360 making sure that you're getting that rental increase happening. Now. 0:06:58.400 --> 0:07:00.520 I know this is a bit of a source bo 0:07:00.560 --> 0:07:03.000 because obviously people are renting annoyed with rents going up. 0:07:03.040 --> 0:07:05.719 It's frustrating. But you know, if the value of the 0:07:05.720 --> 0:07:08.599 property is going up, well will the rent go up 0:07:08.640 --> 0:07:13.080 with it consistently over time? The reason why I say 0:07:13.120 --> 0:07:14.720 that there is a you know, there are people out 0:07:14.720 --> 0:07:17.800 there who have a property or properties and the rent 0:07:17.840 --> 0:07:20.280 hasn't actually increased with the value of the property. And 0:07:20.280 --> 0:07:22.560 that's why some people is actually cheaper to rent than 0:07:22.600 --> 0:07:25.640 it is to go and buy that property. So those 0:07:25.640 --> 0:07:27.520 are the sorts of things that you take into consideration. 0:07:27.560 --> 0:07:30.720 There's also you know, the holding cost of property as 0:07:30.720 --> 0:07:34.960 well that do actually eat into the actual gross income 0:07:35.000 --> 0:07:38.680 that you receive. So all those outgoing expenses like the strata, 0:07:38.840 --> 0:07:41.560 the insurance, you know, the property manager if you have one, 0:07:41.560 --> 0:07:44.040 the wear and tear, and of course you know the interest. 0:07:44.080 --> 0:07:45.880 So there's all these sort of come into play. But 0:07:45.920 --> 0:07:49.880 the two key most important things is consistency and an 0:07:50.040 --> 0:07:53.960 increase like long term growth of that rental income. You know, 0:07:54.040 --> 0:07:56.360 I take that example of that million dollar property, what 0:07:56.400 --> 0:07:58.520 if ten years later I'm still only getting you know, 0:07:58.600 --> 0:08:01.960 fifty thousand dollars a year in re That's not an 0:08:01.960 --> 0:08:04.600 efficient use of your money, is it, No, especially when 0:08:04.640 --> 0:08:07.320 I can to put that million dollars it's maybe grown 0:08:07.360 --> 0:08:08.880 a vale. Yes, And that does come into it. If 0:08:08.880 --> 0:08:11.760 we're purely talking income here, it's kind of an important 0:08:11.760 --> 0:08:13.360 factor that you need to be paying attention to. 0:08:14.000 --> 0:08:18.720 Okay, when I was talking before about negative gearing, that 0:08:18.880 --> 0:08:24.480 is almost an immediate benefit, right, you see, it's a 0:08:24.560 --> 0:08:27.360 tax incentive, and that's going to benefit you within the 0:08:27.400 --> 0:08:33.320 next kind of twelve months. Right. Can property genuinely produce 0:08:34.400 --> 0:08:38.000 meaningful income early on? Or are we talking here when 0:08:38.040 --> 0:08:42.160 we're talking about passive income. It's more of a long game, right, 0:08:43.080 --> 0:08:45.439 So it's not this is something that you need to 0:08:45.520 --> 0:08:49.120 kind of look, this is a future play. Is that 0:08:49.120 --> 0:08:50.400 that's fair to say? 0:08:50.920 --> 0:08:55.560 Yes? You know, with these these changes, it changes the 0:08:55.679 --> 0:08:58.720 approach and it is going to change our behavior around 0:08:58.880 --> 0:09:01.839 investing in property, you know, because of course you know, 0:09:01.880 --> 0:09:03.600 things like capital games, tax as well, and then of 0:09:03.600 --> 0:09:06.400 course all the stamp duty, all the expenses of getting 0:09:06.440 --> 0:09:08.840 into the market. This is no longer a market where 0:09:08.880 --> 0:09:11.320 you're sort of jumping in and out of property obviously 0:09:11.320 --> 0:09:13.400 with the exception of a principal place of residence, you know, 0:09:13.600 --> 0:09:15.520 But for an investment point of view, no, this is 0:09:15.640 --> 0:09:20.320 very much now long term buy and hold because you know, 0:09:20.520 --> 0:09:23.040 especially if you buy a property initially, you can still 0:09:23.080 --> 0:09:27.160 technically negatively gear it. No one's stopping you from doing that. However, 0:09:27.200 --> 0:09:28.840 the banks have come out and said, obviously they're going 0:09:28.880 --> 0:09:31.000 to be a lot stricter now going forward with negatively 0:09:31.000 --> 0:09:34.200 gear properties. But just the only thing is you can't 0:09:34.240 --> 0:09:37.600 claim that twenty thousand dollars loss they use that example 0:09:37.679 --> 0:09:39.520 off your tax. You just have to wear it. So 0:09:39.520 --> 0:09:42.959 it's not efficient anymore. And there will be some people 0:09:43.000 --> 0:09:46.240 who don't care that still works for them. They don't 0:09:46.480 --> 0:09:48.199 they're not worried because it's all part of a long 0:09:48.280 --> 0:09:51.600 term play. So it still will exist, but it's going 0:09:51.640 --> 0:09:54.520 to be used and approached very very differently, all right. 0:09:55.000 --> 0:09:57.920 I think what I'm what I'm also trying to get 0:09:57.920 --> 0:10:01.000 at is that this is almost a mindset change, right, 0:10:01.080 --> 0:10:03.679 that this is not something that you are doing as 0:10:03.760 --> 0:10:07.800 a short term strategy, but it is going to be 0:10:07.880 --> 0:10:10.240 something that you are going to reap the rewards of 0:10:10.760 --> 0:10:14.400 further down the track. Where is that tipping point between 0:10:15.240 --> 0:10:18.440 a property that has been essentially negatively geared or you 0:10:18.520 --> 0:10:21.320 might be losing money on it because the amount that 0:10:21.320 --> 0:10:24.480 you're paying to the bank in interest is more than 0:10:24.480 --> 0:10:27.920 what you are bringing in in rent. When does that 0:10:27.960 --> 0:10:31.040 then flip to become positively geared, when you actually start 0:10:31.080 --> 0:10:35.640 to create revenue and actually start to generate passive income 0:10:35.720 --> 0:10:36.600 from that property. 0:10:37.000 --> 0:10:40.280 So this is the exciting part. It really boils down 0:10:40.320 --> 0:10:42.640 to you as the investor and your situation and what 0:10:42.679 --> 0:10:45.640 you're capable of doing and what you ultimately want to do. 0:10:46.360 --> 0:10:50.559 So if you have a property it's negatively geared, and 0:10:50.760 --> 0:10:54.200 you can obviously start working on that strategy to pay 0:10:54.240 --> 0:10:57.400 it down yourself. You can start making extra payments to 0:10:57.440 --> 0:10:59.960 create more equity in that loan, pay down the loan 0:11:00.040 --> 0:11:01.800 so that more and more of the rent that's coming 0:11:01.840 --> 0:11:04.480 in isn't just servicing the interest, it's starting to actually 0:11:04.520 --> 0:11:06.280 pay down the principle. That's when we see it say 0:11:06.320 --> 0:11:08.839 it's cash flow positive or at the very least cash 0:11:08.880 --> 0:11:12.079 flow neutral. So that is when the rent coming in 0:11:12.200 --> 0:11:16.160 equals the cost of the interest. So that property that's 0:11:16.160 --> 0:11:18.040 rented out for fifty thousand dollars a year, I start 0:11:18.080 --> 0:11:21.280 slowly chipping away at that million dollar loan. For example, 0:11:21.800 --> 0:11:23.520 You know the cost of that interest is no longer 0:11:23.559 --> 0:11:26.400 seventy thousand dollars, it's say fifty thousand. Is breaking even? 0:11:26.800 --> 0:11:28.680 That is what I'm talking about. He who's been cash 0:11:28.679 --> 0:11:31.240 flow neutral. If I want to make it cash flow positive, 0:11:31.240 --> 0:11:34.360 obviously I need to keep chipping away at that loan. 0:11:34.720 --> 0:11:37.000 Now how long that takes or how much money that's 0:11:37.040 --> 0:11:39.480 going to involve It is obviously boils down to what's 0:11:39.520 --> 0:11:41.760 the size of the loan, what's the interest you're paying, 0:11:41.760 --> 0:11:43.760 what's the terms and conditions. Is it a twenty five 0:11:43.840 --> 0:11:45.320 year loan? Is it a thirty year loan? Is it 0:11:45.360 --> 0:11:47.920 principle an interest? All these sorts of things come in. 0:11:47.960 --> 0:11:50.040 And this is where the big thing with this these 0:11:50.120 --> 0:11:52.840 huge changes is more than ever before, people are going 0:11:52.880 --> 0:11:57.600 to be leaning on financial planners, accountants, and mortgage brokers 0:11:57.640 --> 0:11:59.560 for really good quality advice as to what to do. 0:12:00.040 --> 0:12:01.600 And it's not going to be setting forget. There's going 0:12:01.640 --> 0:12:04.640 to be tweaks and changes to the overall strategy to 0:12:04.640 --> 0:12:06.160 get them to where they want to be. And it's 0:12:06.200 --> 0:12:07.920 going to force people to really look at their goals 0:12:07.920 --> 0:12:09.439 here and a lot of people are going to have 0:12:09.480 --> 0:12:12.360 to adjust their goals to perhaps being now more passive 0:12:12.360 --> 0:12:13.040 income driven. 0:12:13.720 --> 0:12:16.080 Okay, there's a lot more that I want to discuss. 0:12:16.160 --> 0:12:18.960 I want to kind of find out what risks people 0:12:19.120 --> 0:12:22.760 perhaps underestimate, and also a little bit more about the 0:12:22.760 --> 0:12:27.760 potential and who else might be suited to property investing 0:12:27.760 --> 0:12:30.480 in this new world of investing. Back in a moment, 0:12:36.760 --> 0:12:39.640 can we've been talking about property investing for passive income 0:12:39.679 --> 0:12:42.440 now that negative gearing is no longer the feature of 0:12:42.920 --> 0:12:48.520 the investing landscape that it was. Interest only loans you 0:12:48.600 --> 0:12:53.160 mentioned just before about whether you're paying principle plus interest 0:12:53.920 --> 0:12:58.520 on your loan. Interest only loans going to be a 0:12:58.559 --> 0:13:01.760 thing of the past now that there isn't this tax 0:13:01.800 --> 0:13:05.880 incentive really to just be focusing on the interest. 0:13:06.840 --> 0:13:09.720 Okay, it's a very fluid situation, and the banks seems 0:13:09.720 --> 0:13:13.920 to be bouncing around with their rates, with their rules 0:13:13.920 --> 0:13:17.320 and regulations that they have to adhere to. You know, 0:13:17.480 --> 0:13:19.800 how much you know, there's there's I mean, it's quite complicated, 0:13:19.800 --> 0:13:22.400 it's quite political and economic. But so I won't go 0:13:22.400 --> 0:13:24.480 into too much detail, but it's definitely going to be 0:13:24.559 --> 0:13:26.880 harder to get these types of loans. But it's really 0:13:26.920 --> 0:13:28.520 going to boil down to the rate that you're able 0:13:28.520 --> 0:13:32.240 to secure and what is best for your cash flow situation. 0:13:32.480 --> 0:13:34.800 And there are going to be people who are in 0:13:34.960 --> 0:13:37.800 a situation where actually having interest only does still work 0:13:37.840 --> 0:13:40.040 for them. You know, you can still have an interest 0:13:40.040 --> 0:13:43.040 only loan and still have a cash flow positive property, 0:13:43.160 --> 0:13:47.599 right yeah, okay, so Jim, sure please take take that 0:13:47.720 --> 0:13:51.520 through it, I'd say. We'll say, for example, I have, 0:13:51.679 --> 0:13:53.920 you know, this million dollar investment property, and say I 0:13:53.960 --> 0:13:57.400 have a four hundred thousand dollars loan on that. I'm 0:13:57.440 --> 0:13:59.960 earning fifty thousand dollars a year in rent from the 0:14:00.120 --> 0:14:02.520 million dollar property, but I've only got a four hundred 0:14:02.559 --> 0:14:06.400 thousand dollar loan. So obviously the interest rate on that 0:14:06.400 --> 0:14:08.280 four hundred thousand dollar loan is mostly going to be 0:14:08.320 --> 0:14:12.079 less than what I'm receiving in rent. So therefore it's 0:14:12.080 --> 0:14:14.880 still cash flow positive. And this is why the banks 0:14:14.880 --> 0:14:17.679 will look at it, you know, as they do case 0:14:17.760 --> 0:14:20.040 by case. What is the situation behind this and also 0:14:20.240 --> 0:14:23.440 what's backing that loan? You know, is there a fleet 0:14:23.520 --> 0:14:26.080 of investment properties behind this particular person, you know, or 0:14:26.160 --> 0:14:29.720 is there huge amounts of equity elsewhere you can't just 0:14:29.760 --> 0:14:33.360 put this generic, blank, one size fits all rule. It's 0:14:33.480 --> 0:14:36.680 very circumstantial and situational. And also on that note of 0:14:37.080 --> 0:14:39.760 going interest only, is it still exists because for some 0:14:39.800 --> 0:14:43.960 people in certain situations where maybe they're going through financial 0:14:44.000 --> 0:14:47.000 hardship or they are you know, they're having a family, 0:14:47.480 --> 0:14:49.640 and then the bank approves this, they might say, well, okay, 0:14:49.760 --> 0:14:52.240 to help keep the loans in place, not put you 0:14:52.280 --> 0:14:54.320 in a position where you're forced to sell. You know, 0:14:54.360 --> 0:14:56.240 the numbers stack up to be able to flick you 0:14:56.280 --> 0:14:59.440 to investment only interest only sorry for say a twelve 0:14:59.440 --> 0:15:01.280 month period in most get you through the cash with 0:15:01.320 --> 0:15:01.840 the cash flow. 0:15:01.960 --> 0:15:06.120 Okay. In most cases, though, if you are working towards 0:15:06.200 --> 0:15:11.760 a goal of generating passive income through your investment property, 0:15:12.560 --> 0:15:14.920 most people with that goal are probably going to be 0:15:14.920 --> 0:15:17.080 paying principle and interest, aren't they in order just to 0:15:17.160 --> 0:15:20.000 get that loan down so that eventually the rent that 0:15:20.000 --> 0:15:22.440 they're bringing in exceeds the amount they're paying out an interest. 0:15:22.560 --> 0:15:25.040 Absolutely, you will, you would ideally if that's your goal 0:15:25.320 --> 0:15:28.480 to create that equity, to create that passive income, you 0:15:28.520 --> 0:15:32.920 want that loan coming down. However, this is the other thing. 0:15:32.960 --> 0:15:35.560 It's there's a lot more nuances in this than people 0:15:35.720 --> 0:15:38.800 realize from a surface level. There are situations where people 0:15:38.840 --> 0:15:40.760 may not actually be able to be approved for that 0:15:40.800 --> 0:15:44.160 loan on the P and I numbers. They can only 0:15:44.160 --> 0:15:47.400 get approved under interest only. Now, with interest only, Just 0:15:47.440 --> 0:15:49.240 because the bank has put you on an interest only 0:15:49.280 --> 0:15:51.680 doesn't mean you follow that prescription. You can still treat 0:15:51.760 --> 0:15:55.360 that investment loan as a principal and interest loan. So 0:15:55.520 --> 0:15:57.520 even though my interest for payments may be fifty thousand 0:15:57.520 --> 0:15:59.840 dollars a year, I can still chip away at that 0:15:59.880 --> 0:16:01.560 lone you own, make them sixty thousand dollars a year, 0:16:01.600 --> 0:16:04.000 and start bringing that loan down. And that can be 0:16:04.080 --> 0:16:07.920 particularly valuable once your interest only loan terms and conditions 0:16:07.920 --> 0:16:10.480 have expired, because then the bank looks at it go 0:16:10.560 --> 0:16:12.640 will actually you've been behaving in a manner with your 0:16:12.680 --> 0:16:14.840 cash flow in that is actually principal interest. It's a 0:16:14.880 --> 0:16:15.760 very smooth transition. 0:16:16.400 --> 0:16:19.240 It sounds like it is a very good case for 0:16:19.320 --> 0:16:20.960 speaking to a mortgage broker. 0:16:21.160 --> 0:16:24.640 And not just a mortgage broker, an experienced mortgage broker. 0:16:25.320 --> 0:16:29.520 That's really important, Okay in terms of the overall picture 0:16:30.000 --> 0:16:35.680 of property investing. Now, what risks do you think people 0:16:36.640 --> 0:16:42.720 perhaps underestimate because I mean, for so many people, property 0:16:42.880 --> 0:16:46.760 is still the most tangible form of investment. Right. You 0:16:46.800 --> 0:16:50.880 can buy you can buy shares, right, but you're essentially 0:16:50.920 --> 0:16:54.360 owning something on paper, right. You invest in property. You 0:16:54.400 --> 0:16:57.760 can walk down the street and you can touch what 0:16:57.920 --> 0:17:00.840 you have put your hard earned money into. And so 0:17:00.920 --> 0:17:04.840 there is still this upties and to the ego, yeah 0:17:05.119 --> 0:17:08.280 it does, but also a form of security, yeah as well, 0:17:08.280 --> 0:17:13.360 because we can actually physically keep an eye on our investment. 0:17:13.680 --> 0:17:15.840 We can also buy what we know because we know 0:17:15.960 --> 0:17:18.199 certain streets or we know suburbs, and we know the 0:17:18.240 --> 0:17:20.040 banks that loan us the money for and all this 0:17:20.200 --> 0:17:24.480 kind of stuff. Right, But there's risks still here involved 0:17:24.480 --> 0:17:28.440 in it. Are there things that people underestimate? Do you think? 0:17:29.080 --> 0:17:31.199 I think there's a risk of being too tunnel visioned. 0:17:31.280 --> 0:17:34.560 You know, these negative gearing rules are just applying to 0:17:34.880 --> 0:17:39.920 residential property. You can still negatively geared commercial property, industrial property, 0:17:40.080 --> 0:17:43.640 rural property, so you know, you can very get caught 0:17:43.720 --> 0:17:47.000 up in this and think residential property residential property only. 0:17:47.720 --> 0:17:50.480 Of course, then there's the liquidity risk you know of property, 0:17:50.480 --> 0:17:52.560 as we all know, takes time to sell and it's 0:17:52.640 --> 0:17:55.479 very expensive. You've got to pay an illusted agent rather 0:17:55.520 --> 0:17:58.119 a large amount of commission. There's obviously the legal fees, 0:17:58.160 --> 0:18:00.800 bank fees. You know, it very quickly adds up. And 0:18:00.920 --> 0:18:03.439 you know it's if you aren't getting the price that 0:18:03.480 --> 0:18:05.160 you want, perhaps you thought it was worth more than 0:18:05.160 --> 0:18:07.320 what you originally estimated. That can be a bit of 0:18:07.359 --> 0:18:09.040 a root shock. You've got to hold out for that price. 0:18:09.080 --> 0:18:12.000 Well may not even get it at all. And you 0:18:12.000 --> 0:18:14.440 know there's the holding costs, which we touched on already. 0:18:15.119 --> 0:18:17.520 There are a lot of risks. You know, we probably 0:18:17.680 --> 0:18:19.560 here all day talking about the risks, and you know, 0:18:19.720 --> 0:18:22.080 being in between tenants, the you know, the wear and 0:18:22.119 --> 0:18:26.560 tear alone, even the special strata levies. You know, I shared, 0:18:26.680 --> 0:18:29.040 I think I've shared with you about what happened Tom 0:18:29.040 --> 0:18:33.320 and I and like I'm talking a significant six figure 0:18:34.240 --> 0:18:37.840 like and not a low six figure like like you'd 0:18:37.920 --> 0:18:39.359 kind of want to bomb it like, And it was 0:18:40.440 --> 0:18:43.560 exceptionally stressful and it still is actually exceptionally stuff because 0:18:43.600 --> 0:18:46.400 the problems are still going, you know, and the apartment 0:18:46.440 --> 0:18:49.719 was unlivable literally had to be deconstructed, like you know, 0:18:49.760 --> 0:18:52.439 and it's as I've said, you know, whenever I go 0:18:52.520 --> 0:18:55.040 for a walk around that area. There are so many 0:18:55.080 --> 0:18:59.600 apartment blocks going through. Now what we went through, scaffolding 0:18:59.640 --> 0:19:01.560 all the way through tenants. Everyone's had to move out 0:19:01.560 --> 0:19:03.600 of the building. You know, we saw what happen with 0:19:03.640 --> 0:19:08.560 that horrendous apartment block in home Bush. You know, you 0:19:08.600 --> 0:19:11.439 know people can say, you know, sell all the clothes. 0:19:11.480 --> 0:19:13.359 In fact, I remember someone saying to me, you should 0:19:13.359 --> 0:19:15.240 sell all the clothes off off your back and just 0:19:15.240 --> 0:19:16.760 just to get into property. It's the only way you 0:19:16.760 --> 0:19:20.760 can make money. That's not true, Like, there are lots 0:19:20.760 --> 0:19:23.280 of ways to make money. Property. Residential property is not 0:19:23.320 --> 0:19:25.800 the be all and end all, and hopefully the blessing 0:19:25.800 --> 0:19:29.000 in disguise behind this, not that I agree with the changes, 0:19:29.040 --> 0:19:30.919 but perhaps is to get people to start looking at 0:19:30.960 --> 0:19:33.040 other asset classes and maybe diversifying more. 0:19:33.240 --> 0:19:41.800 Okay, if someone does want to still explore property investing, though, yeah, 0:19:41.840 --> 0:19:45.000 what is the first step, and particularly with that passive 0:19:45.040 --> 0:19:48.600 income focus right looking towards the future. 0:19:48.480 --> 0:19:51.440 Well, obviously it's to start saving. But I think when 0:19:51.440 --> 0:19:53.960 you once you've started saving, you can actually see all right, 0:19:54.320 --> 0:19:56.520 I'm building, I'm getting there with my deposit. Go and 0:19:56.600 --> 0:19:59.560 speak to a mortgage broker. They will give you a 0:19:59.600 --> 0:20:02.199 really and a good mortgage broker. They will give you 0:20:02.200 --> 0:20:05.080 an idea as to what you can afford and what 0:20:05.119 --> 0:20:07.439 your budget is and what are the mortgage or payments 0:20:07.440 --> 0:20:08.840 going to look like. And you might get them and go, 0:20:08.880 --> 0:20:10.800 oh my good, and there's no way I want that's 0:20:11.160 --> 0:20:13.560 that responsibility or that's going to dent my cash flow 0:20:13.560 --> 0:20:15.680 too much, or I can't maintain any type of lifestyle 0:20:15.720 --> 0:20:18.760 with that responsibility. Having that's really important because then you go, okay, 0:20:18.800 --> 0:20:20.600 I need to either save more or I need to 0:20:20.960 --> 0:20:23.320 you know, maybe the goal of buying property to delay 0:20:23.320 --> 0:20:26.320 it or extend it a little bit. So that's really important. 0:20:26.359 --> 0:20:29.160 Then of course doing your research. You make so much 0:20:29.240 --> 0:20:34.280 of your money when you buy, particularly with property, you know, 0:20:34.280 --> 0:20:36.960 because if you can buy well, of course, then that 0:20:37.359 --> 0:20:40.520