Property Hub - Investment Insights & Inspiration - Get Invested: Mike Mortlock on appreciating depreciation as the secret to affordability

Episode Date: April 1, 2021

How can investors hold on to properties through a full lifecycle and beyond, without burning a massive hole in their pockets and a big cost to lifestyle? A major contributor to ongoing affordability is depreciation. Tax depreciation is a tax deduction claimed for the natural wear and tear of an income-producing building over time. And it’s generally the second biggest tax deduction for property investors, after loan interest. Joining the show to talk about this is Mike Mortlock, an industry leader in tax depreciation and managing director of MCG Quantity Surveyors, Australia’s fastest growing QS firm and one of Australia’s top 100 fastest growing companies. As you’ll hear during today’s lively and entertaining discussion, Mike has worked as an expert depreciation consultant for a number of major companies over the years including McDonald’s, Canberra Airport, Hilton Hotels, Stockland and many more.  He has helped thousands of residential and commercial property investors maximise their tax depreciation deductions and the cash flow of their investments. And Mike is also a sought after speaker and media commentator, regularly featured in the Australian Financial Review, realestate.com.au, news.com.au, Australian Property Investor and many other publications.  Mike has a wealth of knowledge and a passion for maximising depreciation entitlements – while not a ‘sexy’ subject it is as important to investors as the air we breathe. He is also the host of the Geared For Growth Property Investing Podcast, of which I have had the privilege of joining him as a guest recently. There’s some really important learnings for property investors in this podcast. Mike and I chat about: - What are the biggest mistakes that investors make around property and depreciation and how you can avoid them? - Why do many investors get their first purchase wrong?  - And what impact does this have on achieving your long term goals? - Mike talks about why your average investor isn’t really nailing it  - We go into why depreciation deductions are critical to maximising and maintaining your portfolio Mike’s unique position across the national property market enables him to share his insights on: - What have we’ve learned from COVID and what should we be doing about it?  - How COVID has affected our thinking and actions and how this will impact on how we live and where we live moving forward, along with how this will then affect property values and markets long term - Mike covers what he see’s as the key risks to our economy and property - And he shares some great thoughts on what impact the proposed changes to lending law legislation, stamp duty changes and the opening of international borders will have on property moving forward. And this is just the tip of the iceberg. And Mike & MCG aren’t just depreciation specialists – as a result of their unique position in collecting and collating property data for investors over the years, they’ve recently released their 1000 Assets Report which is a four year study of Australian investor behaviour, which is fascinating reading. Here are a couple of highlights from the report to whet your appetite: Australian residential real estate is a $6.7 trillion industry. That’s almost $1 trillion dollars more than the combined value of Australian superannuation ($2.9 trillion), the stock market ($2 trillion) and commercial real estate ($1 trillion). Best of all, residential real estate is robust. Over 51 per cent of the nation’s household wealth is held in Australia’s 10.3 million dwellings, and we buy and sell almost 400,000 properties each year with a total value nearing $250 billion. And interestingly, In round figures, approximately only 2.2 million Australians own an investment property – which is less than 10 percent of the population. Of these investor figures, the vast majority of over 70 per cent own just one property. And those with two properties make up another 20 per cent – so over 90% of property investors own no more than two properties - and I’m sure that a lot of this has to do with the ongoing cash flow affordability of holding property long term. MCG’s research also indicated that as many as one in four become investors simply because they retain one home when it comes time to move to another. This means that despite perceptions to the contrary, property investment isn’t dominated by the nation’s upper echelon of wealth holders – far from it. Most property investors are typical hard working Mum and Dad Australians like you and me, and many could be classed as ‘accidental investors’ who keep and rent an existing property when they buy another one. And Mike has very generously offered free copies of the report to listeners of Get Invested, so if you want to get your hands on one, just click here: https://www.mcgqs.com.au/bushy/ After you enjoy this engaging and entertaining interview, you’ll be inspired to level up as a property investor. And now continues to be a rare window of opportunity to take advantage of once in 20 year conditions. But what next?  Come and join Bushy Martin as he takes investors to new heights with his unique KnowHow Property Freedom Flight program, where he’ll personally guide you through his proven process for property investment success.  To book your ticket or find out more, click here:  https://knowhowproperty.com.au/freedom-fighters Mike's book recommendation: Shoe Dog by Phil Knight Get Invested is the podcast dedicated to time poor professionals who want to work less and live more. Join Bushy Martin, one of Australia’s top 10 property specialists, as he and his influential guests share know-how on the ways investing in property can unlock the life you always dreamed about and secure your financial future. Remember to subscribe on your favourite podcast player, and if you're enjoying the show please leave us a review. Find out more about Get Invested here https://bushymartin.com.au/get-invested-podcast/  Want to connect with Bushy? Get in touch here https://bushymartin.com.au/contact/  This show is produced by Apiro Media - http://apiropodcasts.comSee omnystudio.com/listener for privacy information.

You know, new property is fantastic. So from a depreciation point of view, you know, I won't go so far as to say new is always better. But traditionally, that's the case, right? New property is better for depreciation because of the changes that came on the 9th of May 2017, where you can only claim the plant and equipment deductions if you're either buying a brand new or you're putting in the new asset in an old property. So certainly the incentives are there to purchase new property. So depreciation, I feel like its job is to take some of that cash flow pressure off the property. And you're correct to say that, you know, pre and post depreciation, we could be talking about a negatively geared or a positively geared property. And one of the worst things that I think investors can do is be forced into a position where they need to sell because the ongoing costs are such that they can't hold on to that property. That's a disastrous situation to be in. Welcome to the Get Invested podcast, where we share great conversations with experts from all walks of life to uncover their secret know-how and where they invest their time, their skills, and their money, and the benefits that this has created. you see the truth is that everyone invests every minute every day we're investing our time our

skills our energy and our money in something some of us are investing consciously some unconsciously sometimes for good sometimes for bad sometimes for no impact get invested will help you to start living by design not by default i'm going to help you to make it happen not let it happen. You'll hear the top tips on how you can live with conscious intent so that you can live more, work less, and leave a living legacy by investing now. Listen to the show to discover the top tips on how to get started, make the most of your investment journey, and ultimately to be living your dream, not someone else's. More episodes can be found on iTunes or at bushymartin.com.au forward slash getinvested. Thanks for listening, and now let's get invested.

Hi Freedom Fighters If you own an investment property are you frustrated that it's all costing you too much more than you thought and you're worried you won't be able to afford to keep the property long term or if you're thinking about investing in property are you concerned that it's all going to cost you too much and it'll eat up your salary and your savings and really crimp your lifestyle So how can you make investment property affordable

and be able to hold it long-term while it increases in value without having to live on a diet of toast and two-minute noodles in the meantime? The answer all revolves around clever structuring of your cash flow affordability. And it's a critical thing that very few property investors spend any time thinking about or even trying to work out properly. Most would-be investors just look at the rent coming in and the loan repayments going out to determine if their property is affordable. But this basic and misleading approach misses the real magic in successful property investment.

I think it's the major reason that over 50% of first-time investors sell their property within the first five years, because they haven't thought closely enough about the strategies and structures that are required to minimise the ongoing cost of holding their property while it increases in value. Now if you've been listening to me for any length of time, you'll know that I believe that true sustainable success in anything is a minimum of a 15 year journey, particularly in property, where you need to hold a property for at least this long to go through a full property cycle and enjoy the capital growth that then ensues.

So the key and often forgotten question that most investors fail to ask is, how do I make my investment property affordable to hold in year 1, 2, 3, 5, 10, 15 and beyond without burning a massive hole in my pocket and limiting my lifestyle in the meantime? And it's no surprise, given today's guest, that a big contributor to ongoing affordability is depreciation. So what is depreciation? Well, as you'll hear from today's depreciation expert, tax depreciation is a tax deduction claimed for the natural wear and tear

of an income-producing building over time. And it's generally the second biggest tax deduction for property investors after loan interest. Now, depreciation is essentially a tax-free kick. you get to claim a cost that you haven't actually incurred or paid against your taxable income. And while it's not the reason to invest in property tax depreciation is certainly a significant way to improve the cash flow affordability of your property.

How? Well let me give you a very quick example. Let's say you spend $500,000 on an investment property. Now, if it's an old property where tax depreciation no longer applies, then it's likely that the property is going to cost you several hundred dollars a week once all of the costs associated with buying and holding the property are taken into account. However, if you spend the same $500,000 on a new-build investment property or a just-built property or undertake significant renovations and upgrades on an existing property after you purchase it,

it's not uncommon to be able to take advantage of anywhere between $30,000 to $50,000 a year of claimable deductions, including substantial depreciation for the building, fixtures and fittings, particularly over the first 10 years. Now, when applied to your income, this can keep anywhere from $8,000 to $12,000 a year of your hard-earned money in your pocket, rather than going to the tax office. so here's the secret source that we've adopted to maximise the ongoing cash flow affordability of our investment properties we've bought, just built or built new properties

using tenants in common provisions to slant the ownership in favour of the higher income earner we've got depreciation schedules done by quantity surveyors who specialise in them because technically normal accountants aren't qualified to prepare tax depreciation schedule reports and then we've employed an accountant to orchestrate withholding tax variations to get the extra $8,000 to $12,000 incrementally in our pays

rather than wait until the end of the year to get a lump sum tax return. Now this winning combination puts an extra $150 up to $230 odd dollars a week back in our pocket and creates a positive cash flow property. In other words, the just built or new built property will put money in your pocket every week whereas an old existing property is sucking several hundred dollars a week out of your pocket. And this cash flow positive surplus

can then be ploughed into paying off your home loan years earlier and save you hundreds of thousands in loan interest payments. So it's the integrated combination of clever tactics like this and a myriad of others because the devil is always in the details that can transform a negatively geared high-cost and high-stress investment property into a positive cash flow, no-stress asset that effectively costs you nothing while it's growing in value

and it doesn't impact on your savings, your lifestyle and anything else along the journey. And one of the best quality surveyors who specialises in producing quality tax depreciation schedules is today's guest, Mike Mortlock and his company MCG Quality Surveyors. Mike's an industry leader in tax depreciation and MCG Quality Surveyors is Australia's fastest growing QS firm and one of Australia's top 100 fastest growing companies. As you'll hear during today's lively and entertaining discussion, Mike has worked as

an expert depreciation consultant, advising and helping a number of major companies over the years including McDonald's, Canberra Airport, Hilton Hotels, Stockland and many more. He's helped thousands of residential and commercial property investors like you and me maximise their tax depreciation deductions and the cash flow of their investments. And Mike is also a sought after speaker and media commentator. He's regularly featured in the Australian Financial Review, realestate.com.au, news.com.au, the Australian Property Investor and many other publications. As a specialist in tax depreciation, Mike has a wealth of knowledge and a passion for maximising depreciation entitlements. The poor bugger, because to me

it's about as exciting as watching paint dry, but it's as important to investors as the air we breathe. Now it's Mike's passion for this that results in outstanding results for MCG's clients. Now, Mike is also the host of the Geared for Growth Property Investing Podcast, which I've had the privilege of joining him as a guest recently. Like me, Mike's also a keen sportsman, although unlike me, he's gone a long way further and he's represented Australia as an elite amateur triathlete. So listen out for that. It's a great story during our chat today.

so there's some really important learnings for property investors in our conversation and Mike and I chat about things like what are the biggest mistakes that investors make around property and depreciation and how you can avoid them how many investors get their first purchase wrong and what impact this has on you achieving your long-term goals he talks about why your average investor isn't really nailing it. And of course, we go into why depreciation deductions are critical to maximising and maintaining your portfolio. But more than that, Mike's unique position across the national property market enables him to share his insights on what we've learned from COVID and what we should be doing about it. We delve into how COVID has affected our thinking and actions and

how this will impact on how we live and where we live moving forward, along with how this will then affect property values and markets long term. He covers what he sees as the key risk to our economy and property. And he shares some great thoughts on what impact the proposed changes to the lending law legislation, stamp duty changes and the eventual opening of international borders will have on property moving forward. And this is just the tip of the iceberg. And Mike and MCG aren't just depreciation specialists. As a result of their unique position in collecting and collating property data for investors over the years, they've recently released their 1,000 Assets Report,

which is a four-year study of Australian investor behaviour, which is really fascinating reading. Here's a couple of highlights from the report just to whet your appetite. Australian residential real estate is a $6.7 trillion industry, And that's almost $1 trillion more than the combined value of Australian superannuation, the stock market, and commercial real estate combined. Best of all, residential real estate is proven to be very robust. Over 51% of the nation's household wealth is held in Australia's 10.3 million dwellings.

and collectively we buy and sell almost 400,000 properties each year with a total sales value nearing $250 billion. And interestingly, in round figures, approximately only 2.2 million Australians own an investment property which is less than 10% of the population. Now of these investment figures, the vast majority of over 70% just own one property and those with two properties make up a further 20% or so.

So over 90% of property investors own no more than two properties. Now I'm sure that a lot of this has to do with the ongoing cash flow affordability of holding property long term. Now MCG's research also indicated that as many as one in four become investors simply because they retain one home

when it comes to move to another. This means that despite perceptions of the contrary, property investment isn't dominated by the nation's upper echelon of wealth holders. Actually, far from it. Most property investors are typical hard-working mum and dad and career-minded Australians like you and me. And many could be classed as accidental investors

who keep and rent an existing property when they buy another one. Now, there's some absolute gold in the trends that are revealed in this report and they're going to be of great interest to anyone who's serious about investing in property or already has investment properties as it's going to help to inform you

on the trends and what this means to investors moving forward. And Mike has very generously offered free copies to listeners that can get invested. So if you want to get your hands on one, Just go to www.mcgqs.com.au forward slash bushy or click on the link in the show notes to get ahead of the pack. Now, I'm confident that after you enjoy this engaging and entertaining interview,

you'll be inspired to level up as a property investor. And now continues to be a rare window of opportunity to take advantage of once in 20 year property conditions. But what next? Well, come and join me as I take investors to new heights with our unique KnowHow Property Freedom Flight Program, where I'll personally guide you live through our proven process for property investment success.

To book your ticket or to find out more, I've added the direct link to the show notes at knowhowproperty.com.au forward slash strategy forward slash freedom flight program or just jump onto our website knowhowproperty.com.au and you'll find it there. And now, enjoy this great chat and have a good laugh with the enigmatic Mike Portlock. Hi Freedom Fighters. Now, good quality property is currently going gangbusters around the

country, which is providing very fertile turf for property investors. Unfortunately, however, many investors focus all their energy on the cost of the property without spending enough energy on how to structure the right type of property for ongoing sustainable affordability which can make or break your success. In other words, they tend to focus just on the property rather than the investment strategy and structure. So to deep dive into this and other related topics, during this current quite rare window of opportunity in property, I'm joined by like-minded and highly respected property commentator with a similar quirky sense of humor to me, Mike Mortlock. He's the MD of MCG Quality Surveyors and the host of the

popular Geared for Growth podcast. So welcome and let's get invested, Mike. Thanks very much for having me. It's a real honor, Bushy. I'm a big fan. Likewise, mate. I had a real blast joining you on the Geared for Growth podcast recently and didn't realise just how similar we are and our crazy outlooks on life. But, mate, for those listeners who don't know who you are, can you start by just giving us a rundown on who you are, what you do, and most importantly, why you do what you do? Yeah, look, as per the intro, I'm Mike Mordluck,

Managing Director of MCG Quantity Surveyors. Outside of that, I'm kind of a weird data-obsessed bloke with a cheap haircut. And while I do it, it's one of those weird things. You know, you don't stand up in kindergarten and say, when I grow up, I want to be a quantity surveyor. I have said that to people, and they didn't realize that I was joking. I guess that's probably an indication of how weird they think I am. I actually wanted to be a fighter pilot.

So when that dream didn't come true for me, I thought quantity surveying was the next best thing. Somehow, you know, it's like you aim for the stars and you land in, I don't know, Chuka. but but i like i i am very passionate about property and investing and and i and i love what i do because i think there's enough interesting nuance to getting the best possible result for clients uh and i just i don't know i guess i i just have a have a lot of fun and since starting uh the business with my business partner in 2011 it's kind of like you know the

keys to the asylum were handed to the inmates and we're just we're just having a blast i love your analogies mate well let's what i'd love to do is uh get you to take me and the listeners on your journey so far and focus on where you've invested your time energy and money where it's got you to and how it's landed you back to what you're doing now and i'd love you to go back as far back as you are comfortable and then talk us through so we understand the successes and the challenges that you've had along the way. Yeah. Well, in vitro, I developed most of my time to absorbing nutrients through the placenta.

Is that too far, Bush? Well, it's good to hear you had a good nutritional start anyway, mate. I did, yeah. I had all the food groups covered. Yeah, look, sorry, I'll be more sensible from here on in, I promise. Don't, don't. I don't know what, you just bring it out in me, we just have too much fun. Look, I was born in Penrith, I'm not proud of it, moved to country New South Wales when

I was two, not by myself obviously, and yeah, grew up in the country, like we lived on 10 acres which to me was was huge right to to a farmer it's like you know have a go son um you know you're on a postage stamp um and and you know I dedicated a lot of my time to to to nature and just getting out and about and you know I love spending time with animals and and building stuff and and then it was music was sort of the first passion for me so I started learning the piano and ended up ditching that for the guitar um my first guitar teacher lived around the corner and he just happened to be a virtuoso living in this two horse uh town and i think he was probably 11 at the time um and i would have been maybe six but as an 11 year old he was very very

accomplished it was kind of a weird thing awesome i mean and then yeah i guess in in school um i just sort of soaked everything up there are a couple of times you know as a youngster i was very into reading about you know animals and all sorts of things like that and there was a there was a moment uh that sort of stuck with me i was watching uh it was like a trivia show and they asked a question um you know what is this animal and there was a picture and i knew it was a tree kangaroo and i sort of yelled that out and my parents looked at me like who is this freak because you know you don't hear a lot about tree kangaroos um and and i think i just became obsessed with with knowledge and maybe just to be of show-off know-it-all sort of thing but

from there i invested just anything i could get my hands on and being interested in music i kind of thought well maybe like i'll be some sort of genius composer i didn't realize that you had to be a genius um but but i studied people that were you know hoping that it would that wear off um and as a as an adult i guess um or an adolescence i i dedicated a lot of time in you know still with music and got into scuba diving which which was beautiful and then um endurance scuba diving in country victoria in country in south wales mate that uh sinkholes and dams or no by that time i had moved to uh caves beach so i did a lot of work under swansea bridge which um sounds seedy but it's actually a beautiful place because it gets to a good odd 12 meters and you've got the

warmth of the lake so you get some tropical fish and it's close to the ocean so you get some pelagics it's uh yeah beautiful down there and then i got into um got into triathlon so invest a lot of time in endurance sports and and training and then you know when it came to professionally it was just learning as much as i could from everybody pulling everything apart you know questioning the way things are done to try and figure out ways that it could be done better and um yeah i i'm like i'm a philomath i i just i'm a lifelong learner and i think you know the moment you stop learning you're sort of giving up on life i'll be i'll be learning on my deathbed hopefully yeah and that's where i think you and i are very similar i've uh interesting i i've just

well when i say just the last three or four years i've gone back to learning piano because uh i just loved it. I'd played drums and guitar and whatnot for years, and I'm a shocker if in a karaoke bar I don't even need a drink to grab a microphone. So that gives you a fair indication. But what I'd love to do is circle back a little bit there, because there's a couple of things I wouldn't mind drilling into, because I think it sort of says a lot about your approach and clearly underlined by that love of learning. But let's talk about the music thing to start off with uh because you know not everyone is attracted to music but what was the uh the sort of attraction to you initially playing piano and then then going to guitar can

you remember that far back yeah look i'm not really sure it was a bit of a surprise to my family i had a grandfather that was musical but no one in my immediate family was really interested uh in music my mother was uh probably the main influence she was she's quite a bohemian sort of woman of the time i guess she was a ballet teacher and she learned um to play the guitar um she's sort of since given it up but she introduced us to all sorts of different uh music and and things like that and i would say that that's probably where the the passion really started and there's sort of a you know i'm very similar you're very interested in in the uh well i didn't do triathlons because i just wasn't uh fit enough at that stage i'd love

to understand the attraction for triathlons to you mate what what was it that sort of got you into that very grueling sport that requires a lot of endurance a lot of persistence and a lot of pain i think um i think the the pain is a is a is a big part of it i think to be successful at triathlon i wasn't terribly successful but um i think you've got to have a a relationship with pain that is difficult for people that don't have it to understand you you've got to kind of enjoy it um and you've got to sort of uh find ways to to be able to sort of put it to the side and to park it. And I think it really is a challenge to be able to go through that pain. And it gives you a sense of achievement. If you can go out and have a big, hard day, then everything else becomes a

little bit easier by virtue of that. And I think what I really enjoyed is the sort of the planning and the testing and measuring and the process. So it's not dissimilar to investing in property or building a business you've got to have a rough plan of what you're going to do you've got to measure the success and you've got to make changes along the way to it to to adjust the plan and be sort of flexible with it but you've also got to be disciplined and committed and stick with it and i think it taught me a lot about uh business and about life and about achieving goals that i didn't realize it was going to and it started for me in in just losing weight so i was always quite um lean and fit and healthy until i was in my early 20s and then i ballooned out like a

champion um had a great time until i didn't and um yeah just just started uh doing it to lose weight and i think training for an event or losing weight these are these are things that i would recommend to everyone i mean if you're fit and lean i wouldn't recommend you know getting to a 30 bmi just for the process um perhaps it'd be better for you to sign up to a half marathon or something like that but i i think there's there's something to be learned in in in pushing yourself to do something that can't be done without dedicated effort and determination i think the habits that builds that impact on on your whole life but also the sense of self-belief and confidence that comes out of achieving that can spur you on to bigger and better things so where you know how old were

when you were doing triathlons, mate, in the early 20s, did you say? Yeah, I probably would have started in the mid-20s. I can remember I went to a work Christmas party and I heard that one of the lady's husbands had done one and I sort of hit him up, which would have looked funny because I think at the time I was about 114 kilograms. And I said, you know, how does this all work? You know, how do you sign up?

Can anyone do it? Blah, blah, blah. And then I just went and did one. And I think my family sort of laughed at me like, what is this? Like, you're not even old enough for a midlife crisis. And I think I came like 237th, and then I came like 120th the next year, and then I came 60th, and then I came second. And I thought, okay, this is something in this. You know, you get a little bit of a success, and it spurs you on a little bit.

Now, I know you're very humble, mate, but I think you actually represented Australia as an amateur triathlete, didn't you? Yeah, as an amateur. So I never gifted enough to even consider being a pro. But, yeah, I snuck in on the national team. I qualified in 19th, and they took 20 Australians in my age group and got to race in London. And that was an amazing experience. I had an absolute blast. And, of course, there was a lot more training and dedication that went into that.

I went from my 114 kilos down to 75, which hurts. Like I'm 86 now and, you know, I'm in okay shape. To be 75 is a lot of deprivation. Another thing I wouldn't recommend, but that's also taught me a lot as well, just the discipline and the dedication to be able to do that. Yeah, and the resilience and the perseverance that comes out of that as well. I think I've often said, Mike, that sustainable success is the intersection of yourself, which is what's between your ears, your health, which is the habits and the rituals that you develop.

And then and only then have you developed the perseverance, skills and discipline to be successful in your wealth and investment. So it sounds like those early lessons that you were playing, and music's no different either by the way, You know, to play, I said to someone the other day, the average piano piece that I'm learning has got somewhere between 16,000 and 20,000 notes. Yeah. And I just wear it down.

I wear it down bar by bar to get to the point where I can play it without having to think about it. Yeah. And that takes a long time, but the discipline and that sort of persistence that goes with that, while it's a great escape for me mentally, i know that it's adding to the disciplines that i'm then applying day to day to what i'm doing in my investment and what we're doing in the business and i'm i'm guessing that you'd be the

same yeah and the bar by bar i think is a really clever way to do it because otherwise you look at the sheet music and it's insurmountable from from the off right and the the triathlon equivalent for people that are doing the long distance stuff like iron man often it's like aid station to aid station so normally every two or three k's they'll be you know drinks and gels and a couple of snake lollies and that sort of stuff a lot of people say i've just got to walk i've just got to run to the next aid station and if you've been training for a marathon everyone can run two or three k's but it's just stringing those together and you and if you don't break them up it's too much to think about yeah how do you something i'd love to delve into is that you must get to a point in in

every race where your body is screaming at you saying enough i can't go on that's it i'm done i'm i'm about to expire what are you thinking and feeling at that time that allows you to go on mate can you can you take yourself back there for me yeah i i think like why didn't i take up darts um that's a thought that i have a lot you know like because i could be there stood you know like a schooner in hand um you know for balance i'm sure that's why they do it um but i it comes with practice because like especially in the long distance triathlons um you know if if you're if you're training to have you know an 8 10 12 16 day uh 16 hour day out you you've done a lot of that work in training and i think that that really toughens you and and builds you up like um a lot

of people say oh you know you should train together i i'd mostly train by myself because i wanted to build that resilience and toughness yeah i think the um the the best example of that which is way beyond what i'm capable of is is a guy that won the hawaii ironman um seven times he used to sit on his indoor bike trainer and stare at a piece of a4 white paper because he thought that if he could do that then cycling through the lava fields would be an exciting day out you know and that that's that's beyond what i'm capable of that's next level stuff right but if you can do all of that in training then on the day it's a little bit easier to do to to live with that because you've already had those voices telling you to quit over and over again and i

think um i think you realize that um your brain sends out ideas and they're not always correct i And this has happened to me outside of triathlon because I set very high standards for myself. I thought, you know, if I hadn't written a novel by the time that I was 30, I was, you know, hopeless. Or if I hadn't composed a symphony by, you know, 18, then I'll never be considered a genius and all this sort of stuff. And your brain sends these ideas and it's up to you to decide whether that's reasonable or not, right? and I've stopped listening to my brain because it came up with all these suggestions of ridiculous things I should have done.

And your brain also will send these things to say, look, you've got to pack this in. This is awful. We are on fire. We're burning. We're dying. And you can kind of go, all right, well, yeah, great suggestion. Thanks for that.

I'll take that on board. But right now, like, I'm in control and we're getting to at least the next aid station. Love it, love it. So calming the internal chatter and ignoring some of the internal chatter, which is a skill in itself because I sense that you and I might be a little bit similar in that we get lost in our heads. And things like triathlons and music, they're actually quite solitary.

I love to climb into the cave and go into the deep resources of a very twisted mind. and those sorts of activities that you're talking about, allow yourself to do that without being called a hermit or a recluse. Is that something that you're naturally attracted to, to create space where you can sort of think deeply? Yeah, I absolutely love it and I've always been that way. I am an introvert.

It surprises a lot of people to hear that because I guess, you know, running a business and in many instances being the face of the business, you kind of have to be out there and doing the interviews and videos and that sort of stuff. But that's all learn skills for me. In my own time, I like to sort of hide away and disappear. And going for the long runs, I really find super therapeutic and I just have all my best ideas.

You know, I've solved the world's problems four or five times over by the time I get back. I forget it all, but, you know, I enjoy it. And just some of the weird stuff that you think about, I always try and get back and jot some things down. Often it's business improvement or it's kind of introspective about life or the way that I'm living it, all that sort of stuff. You know, I love that kind of soul-searching stuff.

Yeah, you and me both. You and me both. And it's pretty rare these days, mate. So that's probably why there's a level of comfort straight away between you because I think we actually look at the world in a very similar fashion. Mate, sort of obviously in parallel with what you're doing with music and the triathlons, et cetera, you're doing something work-wise. And I know you adorn the streets at some stage busking,

but I'd love you to sort of take us through that journey and then how that sort of ended up at some point steering you down the QS path. Yeah, that's going to be a difficult bridge to build busking to tax depreciation expert. I think like the busking was, I don't know, I think it might have been my mother encouraging me to have a crack at that.

Obviously, I was young and wanted money. I think I started somewhere between the ages of 9 and 11. I can remember mum coming with me to the council to get a license to busk, and that was sort of a weird experience. I think I might have been the only person ever to have gone in to request a license. You know, doing it by the book, that helped me in later life because we do a lot of work that the ATO is very interested in, so it's good to dot the I's, you know.

We spoke to, I can remember there was a jeweler, and we spoke to them and said, is it okay if I sit out the front and busk? And, yeah, I just kind of used to bash away for 30, 40 minutes. My fingers used to hurt because I had a steel string guitar after more than that. So I never really did more than 45 minutes. But what I did is I created a little book,

which the modern equivalent is Excel, which I spend a ridiculous amount of time in each day. And I wrote down the date, the amount of time that I was playing and the money that I earned because I think I was trying to save up for a Gray Nicholas cricket bat. And then I decided to sort of index it up to 60-minute intervals and work out what my hourly rate was. And then I spoke to the old man and asked him how much he got paid.

And that was an awkward conversation when he realised that his 9- or 11-year-old son was on a higher hourly rate than him. um but but the issue was that is that i could only work for 40 minutes and i had to pack it in so that wasn't really sustainable but i also had um that sort of you know i was i was the young sort of cute kid maybe not cute but you know like you you garner a little bit more cash that's my best advice to the youngsters you uh you'll never be as cute as you are now so milk it while you can yeah and you know what cute the definition of cute is though don't you it's ugly but interesting because i've been called cute in the past and i yeah i delved into it and that's what i was

told i was like okay that's not quite how i was picturing it but that's all good that makes sense but i think it was just novel i think i i looked i probably played better than i looked like i should be able to at that age and that that was enough if i did it today i'd probably just get hate mail well what really intrigues me about that is not the playing so because there is a for an introvert to have the courage to stand on a straight corner and play that would have been confronting i'm absolutely sure uh but what's more intriguing for me there is the fact that a 12 year old had a book that was working out calculating your hourly rate now i don't know too many 12 year olds that would even have the book yet alone think about doing

the calculations uh where does that that's clearly there's a there's an attention to detail and and i want to really almost uh re-engineer stuff to understand it is that something that's permeated right through your life do you think i think so that that was probably yeah that was probably that rubicon moment where i realized that i was i was becoming weird and there might not have been any way back um i'm i'm certainly that way i mean right now at the moment we're we're launching our own um rental loss index and i'm just like i'm having a ball just crunching the numbers and and and and you know creating the the variables that help us to come to hopefully something that is of use to to property investors around the country so that's always been the case how that

um how that connected me to becoming a quantity surveyor i'm not sure but certainly those skills are valuable if you do a personality profile of your average um quantity surveyor they're all going to be roughly similar they're people that are have a high attention to detail they are quite uh introverted people and you know very obsessive and many on what what people would call the spectrum um i've never been i've never been tested on that and i'll probably keep it that way just because i might be terrified by the results but you've just described though is also the some of the key ingredients to becoming a good investor that high attention to detail the almost the nature of really trying to sniff out the opportunity uh or and the disciplines and the

the inquisitive curious nature that goes with all that they're all quite rare qualities but but certainly in the very few very good investors I've come across all possess those sorts of qualities. What's your thoughts around that? I think you're right. I've got a few buyer's agent friends that have PhDs in unrelated disciplines. They're not property disciplines, but they've had a past life of science and that sort of thing, and they become amazing researchers

and great buyers agents because of their – just that sort of – of course, the academic training, but just the way that the brain becomes wired to get to that sort of level in research or postgraduate study. Yeah, I completely agree with that. It's something that I'm sort of bridging into this a little bit, but I don't know about your experience, but I've found in the years that we've been helping investors that most of them spend way too much time just focusing

on the property without all of the background analysis and details required and not really thinking about the strategy or the structure that needs to go to it to produce a really good investment. What's been your experience with that? Yeah, absolutely. And I've sort of said that on my podcast a couple of times. I came up with the idea, and this is probably me sort of channeling my mother where she used to say, you know, you can eat your lollies, but you've got to have your veggies first. I think the property is the lolly, right, because that's the fun thing.

It's like, okay, now we're going shopping. Oh, there's this house. There's that house. We're going to buy that. Or even hot spots can become the lolly because people get sucked into that. Oh, this is the boom region. But the veggies is the why, the strategy, the how. So, like, what do you want to get to?

Which types of properties would help you do that? What are the numbers got to look like? What am I actually trying to achieve? They're the veggies and I don't think that is necessarily as fun and I don't think that's why people eat their metaphorical property research vegetables. I think that's why, you know, there's a, you know, our belt buckles are increasing across the world, right? Because we want the lollies, we want the fun, easy, instant gratification stuff.

Dead right. And I'm not going to go on a tangent there because you've just touched on a hobby horse of mine around that instant iPhone everything world that basically means that our patience and persistence muscles have died on the vine. But I want to switch into your definition of sustainable success. How would you define it

and how are you going about achieving it for yourself? Yeah, look, I think it's a work in progress for me. There were times where I guess if I looked at myself now from being, say, a five-year-old kid, I would say that I'd made it, right? You know, we had a bit of a talk before where when we reached a major milestone in our business, I bought a sports car and I kind of sat there in the car thinking, you know, you're just a little freckled weird kid from Yerong Creek. like what are you doing in this what are you doing in this car and at that moment I kind of thought this is this is crazy but it depends what you want out of life I'm always kind of looking to the next challenge and and that is is great for for business and for investing it's not necessarily great um for your own well-being but to me success is is now becoming a little bit more about freedom

and flexibility, the ability to go on some weird side project or tangent or the ability to just disappear for a certain period of time. So that's what I guess I'm working towards. I wouldn't say that I'm sort of so financially independent that I wouldn't have to keep working in some capacity and I want to be able to get to that position where I can make that decision rather than be sort of forced into it,

even though I'm having a great time and I'm enjoying it. So I think sustainable success is heading towards whatever your definition of success is in a way that doesn't try and kill you. And I've definitely felt like me searching for success has tried to kill me a few times. And that might just be working too many hours or, you know, not being able to get the sort of health, family, work, life balance. um that was a long-winded answer um bushy but hopefully there's some there's some marrow in there yeah tell me on that journey that you've and because our definition of success or mine has it's changed over time uh you know i've gone down the typical route of almost chasing money for the sake of money and then realizing that time's the greatest asset and then all i've done

now is worked out how much is enough to give me the lifestyle we want and then all we need to do is have assets that are generating that for me and then I can spend time on the stuff I love, which is like talking to people like you on the podcast and writing books and doing the other gear. What about you, mate? Have there been any major challenges that you've been confronted with in your journey so far

and what were they and how did you overcome them and what impact did that have on your thinking from that point onwards? yeah look um i guess uh the probably the the biggest challenge for me was growing up with uh with an an autoimmune issue which was was sort of labeled as chronic fatigue which is like a bucket for lots of things that couldn't necessarily be defined so that that kind of derailed my late uh Well, I guess my whole teen's fairly well. So I missed a chunk of school.

I kind of, you know, I had one of those things that is a bit ineffable, a bit hard to understand what's going on. And, you know, I had some extended family members just kind of thinking that I was lazy and a malingerer. I kind of knew the truth. But the psychological baggage of that is that now it kind of drives me that I've still got that voice in my head and I kind of use that to my advantage. You know, there's people thinking that, you know, I wouldn't amount to much or I was a little bit lazy. And, you know, I'm just giving them the middle finger every day.

I turn up and hustle and kick goals. So that, I guess, is the first really major big hurdle that I had that I've been able to get past and turn into a positive. But in real terms, I'm a middle-aged white dude, right? I live a pretty privileged existence. I've had it pretty easy. Yeah, you make it sound like that. We must have been brothers from another mother because I had exactly the same challenges. chronic asthma which is actually an autoimmune deficiency and also suffer Hashimoto's

which has chronic fatigue as the the obvious symptom what I'd like about what you've just said there is and it became its own challenge for me I don't think I would be who I am and what I'm doing now if it wasn't for the fact that I had to overcome and live with and manage the impact that autoimmune and the inflammation stuff that flows from that has had. Has it been similar for you? I think so. And I'd probably put like the weight loss thing in the mix as well.

I think both of those experiences of sort of coming out the other side of those situations which are very suboptimal has built a lot of resilience and I think a lot of appreciation and gratitude when I get a moment to sort of sit and reflect. So, yeah, definitely character building and I think, you know, these are just the things that life throws at people and when we're talking about challenges, I guess at the time it might have felt terrible for the both of us but in real terms there's lots of people

that are, you know, doing it a lot worse and I guess it's just up to you what you're able to do with it um can you turn around and make it into a positive or is it something that's going to sort of define you um forever and yeah hopefully most people are able to turn that around and use that as fuel yeah totally great but let's jump into the future for a minute i want you to sort of paint a picture of what your ideal lifestyle looks like you may be living it right now for i know but uh just paint it out for us in terms you know perfect day week year where are you what are you doing who with and then then we'll dive into what have you invested in or are investing in or will invest in to make and sustain that uh great question you're really

forcing me to be introspective uh and i haven't had a long run for a while so this is kind of the same so so thank you i i just hope somebody out there finds this interesting i'm worried that my mum will have switched off by now um is that is that code for you telling me that this is a painful discussion no i guess you just don't um i mean maybe you do but this i don't tend to think about this stuff too often and i and i think one ought to um and especially sort of speaks to the lollies and the vegetables things these are kind of the vegetables of life right to think about or what is the good life, you know, the ancient sort of philosophical idea and how should it be lived.

Look, I think what I hope to be doing in the future is to just have that ultimate choice, to be able to spend time with my family, to be able to travel. I'm quite passionate about getting back into the scuba diving. I'd love to qualify for the Hawaii Ironman World Champs at some weird age, like the sort of 70-plus age category. There was a gentleman that I saw doing it at age 82, and that was hugely inspirational for me.

I probably won't live that long, but I'd love to think I could do that. And I'd also like to do something positive as well. My wife, she's a real animal lover, environmentalist, We're pretty passionate about hopefully in the future being able to purchase some land that's important to various species like koalas and just kind of put a bit of a stopper on any development in those areas. It sounds a bit weird to come from a quantity surveyor who works with development and construction all the time, but there are areas for that that don't necessarily wipe out species that will never be seen again. So I'd like to do something positive, but I'm having fun now, and I guess, you know, if it gets to the point where I make a lot of money, then I think I'm probably more likely than the average person to give it away.

Maybe not like Twiggy Forrest, but, I mean, you'd think if I had a billion dollars, like, I can make $500 million work, right? Like, as I said before, I dress like a bum. I drink a little bit of Shiraz, but, you know, I won't spend much more than about $37 on a bottle as a treat. So I don't need much to work with. Yeah, and I often ask this question about clients. How much is enough for you? Because once you work out how much is enough,

then all you need to do is generate passive income from either your business or your investments, and that's job done. Time's back in your hands. You can start to make a difference in those things you've just described. And that's what I love about your... Yeah, you haven't shared that number for you? I mean, you don't have to,

but have you got a sense for how much is enough? What's your ideal lifestyle cost to you? You've got a feel for what that looks like? Yeah, look, this is embarrassing to admit, but I've listened to you and I love the terms that you've come up with, like the freedom numbers, but I'm still trying to work it out myself. I mean, there was a time where there were some people interested

in buying our business and I was never interested in selling it but I was just kind of thinking, gee, I wonder what it would take and what I decided was that it would have to be sort of like walk-away money, you know, like I disappear into the sunset with my 10-gallon hat and at that time I guess I thought it would be around about 5 million bucks because, you know, I've still got plenty of work years. So you've got to figure that out, right? If you want to retire early, you've got to sort of figure out,

well, what am I going to do and what does that cost? So I'm still sort of working that out. But honestly, like, I think if I'm, you know, if I've got $100,000, $150,000 a year in retirement, that's more than enough to have fun and flexibility and do the stuff that I want to do and more as a bonus. and if it's a lot more than that, then hopefully we can do some positive things with it.

Yeah, I'd share a similar view. And that's interesting you mentioned the 5 mil number because at a 5% return, that's 250 grand a year and that gives you a... With the things you were talking about, being able to travel the world, keep fit with the Ironman stuff, do some meaningful gear in relation to preserving some species

on some acreage, That's the sort of number you need to achieve all that. So I think your thinking is pretty close to the mark there, mate. Well, that's good to hear. Mate, let's sort of jump into the world of property that you and I both have a big passion for. You know, we've just come through an interesting year, which I think there's a lot of fear driven by the media,

but the reality has been very different. And as we emerge from that now, There's some pretty exciting opportunities on the horizon. I'd love you to share your observations, really, because what's great about QS is that you get to deal with the mum and dad investors and some larger groups as a consequence of that in crunching the numbers when you do the depreciation schedules. What's your read, and given the tentacles that you reach out to

through the press and the work you're doing talking to players in the industry through your podcast, what do you think are the learnings that we can take away from what was a pretty interesting year last year and what impact do you think that's going to have on how we live, where we live and its then flow on effect into property values and property markets? Yeah, good question and I think the answers to this are still evolving in some respects. There's a lot of talk about, oh, we're all going to bugger off to the regions. And I think I don't see that as being the case,

but I think that the CBD will not go back to exactly what it was. I think people are going, you know, if you take Sydney, for example, the CBD offices, a lot of people are moving into places like Surrey Hills, so they're still in the city, but the soul of those little outer city suburbs has just got a bit more to offer than the CBD. So we're definitely seeing a lot of market activity. I mean, it's crazy.

And I think that the legacy of this is this may be one of the biggest shakeups to the property industry and perhaps one of the biggest opportunities for investors in their lifetime. I mean, we've got even real estate agents with their own listings saying, this is crazy. It's not worth that much, right? And that takes a lot for them to say. And I think what's unusual about this is there are a lot of forced experiments because of what happened because of the lockdowns and that sort of thing. So some of the positive things about that is that we've reconsidered how much we need to meet with people and what can be done with Zoom, you know, and there are weird unintended consequences like reduction in carbon emissions, for example. And I used to hear about my father-in-law, you know, flying to Brisbane every week for a meeting, and I always kind of thought, like, why? Like, you don't physically have to be in person.

And there have been a lot of big companies that offered workplace flexibility, and for a lot of people that means that they're not wasted in the commuting time. They're able to have a bit more flexibility at home. They're able to visit or be with their loved ones a little bit more. So I think that's really a positive thing. For property, I think we're going to find that houses are going to be in much more demand. I think the regions that are within an hour or two's commute of the city will be huge beneficiaries rather than the more satellite regions. regions they'll still be popular with the domestic tourism and there'll be definitely people that have got the workplace flexibility to completely bugger off to places like orange and and work

from there but for a lot of people we'll still need to be going back into the offices so if we're talking uh new south wales you know places like the central coast or wollongong or newcastle will be beneficiaries um that would be probably geelong and um always get the bees mixed up bendigo or Ballarat, whichever's the closer one. These are the sorts of areas that I think will do well. Yeah, and it's because they offer the still proximity to the CBD. It's within an hour either by car or train, and yet they've got the critical mass there.

And the lifestyle benefits with the technology is going to enable them to live and work in a much more pleasant environment. So I tend to agree with you. I think there will be a bit of a pullback though. There's a little bit of knee-jerk stuff that's occurred and it's a movement from renters into buyers because it's been much easier for them to do that.

I think design-wise, you know, we're definitely going to see and we're already seeing it, you know, rooms at the front of the house becoming permanent offices that might have been something else in the past. So there's some definite opportunities there. And you've sort of already mentioned the agents, you know, making comments around craziness and that the market's, you know, good quality properties in tightly held areas, it's, you know,

it is going nuts. And you and I have been talking about this for months in terms of the ramp up. Putting on your telescope and looking at the sort of short to medium to long term, what do you think is going to continue to happen with property values around the country as you see it? There's a lot of people saying that this sort of can't last forever, but I think they're the same people that said,

oh, Sydney will never have a median price of over a million dollars. It's just a psychological barrier that can't be passed. And I think we've definitely smashed that notion with what was the press the other day saying, 60 suburbs are going to be over $3 million median. We also kind of thought, all right, well, Sydney is capped because of the income-to-asset price ratio. You know, people are paying 20 times what they earn each year to purchase a property, so that's got to slow it down.

And that hasn't had the impact that a lot of people have said. And I think the big thing that wasn't necessarily considered was the intergenerational wealth that's being passed. So I think the property market has got a bit more to go, at least another 12 months. When COVID hit, our knee-jerk reaction was to build a bit of a war chest so that we saw the household savings ratio go up. Then when we realised that, okay, well, maybe it's not as bad as we thought, we've saved all this money, what are we going to do? Well, you couldn't really spend it. You couldn't go on your overseas holidays. You couldn't go out to dinner too much or you shouldn't have gone out to dinner too much.

and then what we did is we spent a lot of time sitting around the house and looking at the place and going you know what I really hate this place and so we spent a lot of money on on renovations and we've seen that in the data and I think a lot of people have sat there and they've looked at it and they thought like I don't yeah I don't like this place I want another place I've spent so much time here I've I've come to notice its flaws and I think that's definitely been the case just with life in general, we've had a bit more time to reflect and think about what's important. And I think for a lot of people, they're wanting a little bit more flexibility and space to breathe and a better balance with work and life. But I think the property market's going to keep going.

We've got really low interest rates. Investors haven't really jumped in yet, according to the data. They're still down on where they sort of were in 2018. So that's going to make the market even hotter you know the first home buyers are jumping in I think we're in the middle of a big real estate boom and the only thing that can really stop it is say a huge spike in unemployment and I think we're really past that threat it never it never became as desperate as what we thought the other thing is is intervention so we saw APRA swinging their big hammer and and if lending tightens up that's probably the only thing that i see as really slowing the market down yeah i totally agree with you it's i've always said that the the uh the roller coaster of property values

is driven by access to credit uh because it's a that most people borrow money to to buy property whether by owner occupied or investment uh i guess i'm short term i'm optimistic because with the 1st of March, heralding the softening and relaxation of the lending laws by shifting the responsibility for loans from the banks to the borrower, then if it passes any indication, then there may be some increases in capacity. But you're absolutely right, the risk if we get too sudden a rise is that the government and start putting pressure on the banks to pull the handbrakes on again through APRA and the allied activities.

So it'll be interesting to see just exactly how that pans out. I think the thing that counters that to some degree is that the government and the Reserve Bank, hand in hand, know that they need to encourage ongoing spending and asset growth that comes with that adds to our confidence generally in life and the economy. which will tend to put us on a much more sustainable footing as far as the ongoing economic growth is concerned

and the fact that the government still say that they just won't let housing collapse because it's so important to our own personal wealth and to votes, then I think we've got a safety net underneath property that is going to support it in a low interest rate environment for quite some time yet, would be my opinion. What are your thoughts on that? Yeah, well, I guess the RBA have said the interest rates

will be this low until, like, 2024, which just seems crazy. The Labor Party have recently just dumped their sort of negative gearing and franking credits policies from their next election push was something that I skimmed across the other day. I mean, that was tested twice by Bill Shorten and that kind of failed because I think demonising the investor didn't really work for them where they were talking about, you know, the average investor being a wealthy land baron with a massive portfolio

and the reality isn't the case. It's mostly mum and dad investors and mostly investors that have one property which I know you and I are trying to tweak those numbers a little bit to get a bit more success for the listeners. um but but yeah the property is it's the majority of where our personal wealth lives it's a it's a huge employer i mean for all the talk about you know mining being a big employer a lot of that is public relations spin you know the property market employs a lot more people and yeah it's just very important to our our individual wealth and i think our national identity is very built on you know

owning our own plot as well yeah spot on exactly right you touched on a good point there uh you know we've seen the the home builder uh program and while there's been some criticism of it i think was a masterstroke from several angles because it's done exactly what you've just said it has supported a massive number of trades who make up a big component of the you know the 60 percent of the of employment in australia roughly is with the small and medium-sized business and and a big chunk of that sits in housing and related construction activity so i think the masterstroke there was that it's generated employment for those that need it uh but it's also uh obviously acted as a demand booster particularly for the first home buyers with

all of the combination of incentives that they can grab their hands on i'd be interested in your thoughts though on because it's been been a great thing for the the building industry and new build properties what when that stimulus turns off which is not too far away and it's sort of tapering down a little bit what's your thoughts around the ongoing impact that might have on on new build residential properties yeah look in the data that we've been collecting really since we started we We issued a report last year called our 1,000 Assets Study where rather than being a survey, we looked at what property investors were purchasing

and we're now to the point, from a base of about 34%, we're now to the point that 49.5% of people are buying brand new properties as investments and that speaks to the incentives, right, because on 9 May 2017, the depreciation laws changed to really incentivise buying new. We've got the stamp duty exemptions and the extra bonuses for first home buyers in buying new.

And the government really wanted to stimulate new because that obviously is an employer. It creates more supply. There's housing affordability concerns go into every single election. Now we've got that sort of issue where there's a rental shortage and we do need the investors back in to fill up those gluts. But I think we'll certainly be continued to be incentivised towards new, which is tricky for property investors because there are a lot of risks with new property, especially off-the-plan apartments and things like that. But, you know, tradies are flat out at the moment.

I think with home builder stopping, there's still plenty of demand. There's a lot of people that are trying to do renovations and can't get the trades. And I think that we've talked about an apartment oversupply for a long, long time, but the new supply coming on really has stopped. There's not much coming back. So we will probably get back to a bit more of an equilibrium where there is a requirement for more apartment accommodation to be built, especially if we see the borders opening and international students returning. Yeah, no, good call. Let's delve into the link that we've sort of just touched on between the benefits of depreciation and building

because, as you know and a lot of the listeners are aware, I'm a bit of a contrarian in this regard because I am a very strong supporter of new-build properties in tightly held areas. I'm not talking about, excuse my French, shitbox apartments in the CBD or homes amongst the boondocks in acres and acres of greenfield stuff in the middle of nowhere, not talking about that at all, but a good quality build and a good block and a tightly held location supported by good employment has the benefits

of all of the stuff that the existing properties do, but the depreciation benefits and incentives that we get added to it can turn a negatively geared cash flow into a positively geared cash flow just by using depreciation as a mechanism to assist you doing that, particularly in the first 10 years or so, which is the bulk of the holding period for a buy, build and hold investor. What are your thoughts around all that? Yeah, look, I love tax depreciation, of course.

It's the bread and butter and it's how I pay the bills. But a lot of people will talk to me and they'll say, all right, well, what's the best property to buy for depreciation deductions? And then I then go on to describe the worst investment that you could think of. You know, it's probably one of the apartments that's featuring in our rental loss index in Melbourne City, for example, where landlords are losing over $11,000 a month due to, sorry, $11 million a month collectively due to vacancies, right? So these big apartment complexes

with eight pools and 12 levels of basement and a cinema and 14 gyms, like this is where the best deductions are because you own a percentage of all of those common areas, but these are normally the worst investments. But it's funny when you talk about new, it's almost like you've kind of got to feel like you've got to defend your position but not all new is created equal there's the brand new off departments in melbourne and brisbane

and certain parts of sydney that people would have bought and and really uh really suffered in the last little while but you know a new property in a smaller complex or in a tightly held area as you say that's got some good fundamentals some good local uh employment opportunities you know new property is fantastic so from a depreciation point of view you know i won't go so far as to say new is always better but traditionally that's the case right but i i'm careful because i'm one of those anal annoying analytical people if you take say a brand new project home built for 300 grand you might say oh that will have great deductions and it will but if there's a property bought for two million dollars in um say one of the inner suburbs

of Melbourne that's had a $1.5 million renovation, then it's going to blow the deductions out of the water for the new one, and this place was built in the 1930s. That's a weird niche, but that's just kind of proof that you've got to dig a little bit deeper, but new property is better for depreciation because of the changes that came on the 9th of May 2017, where you can only claim the plant and equipment deductions if you're either buying a brand new or you're putting in the new asset in an old property. So certainly the incentives are there to purchase new property. And interesting you talk about that, you know, the 10-year period.

The hardest time to really hold an investment property is right at the beginning, right? And that's where having those plant and equipment deductions are great because you're bringing a lot of the deductions to the front of that property. And it's hard to hold at the beginning because hopefully your rent goes up over time. If you're paying down your principal, then your repayments are reduced. You might build equity over time. So depreciation, I feel like its job is to take some of that cash flow pressure off the property. And you're correct to say that, you know, pre and post depreciation, we could be talking about a negatively geared or a positively geared property. And one of the worst things that I think investors can do is be forced into a position where they need to sell because the ongoing costs are such that they can't hold on to that property.

That's a disastrous situation to be in. Yeah, the stats, they're a little bit old now, but a couple of years ago, there's some stats that indicated that over 50% of first-time investors sell a property within the first five years. and I'm absolutely sure that's because they haven't thought carefully enough about the ongoing cash flow affordability of holding the property. And while I'm not suggesting for a minute that it's a bit like going to an accountant and saying, how can I pay less tax? Well, a good accountant will say, I'll just charge you more. That'll give you a better tax deduction.

It's exactly the same with depreciation. You don't go and get a property to maximise the depreciation, but if everything else is right, if it's in the right location, it's tightly held, it's the right style of property that people are going to want and is going to be ongoing demand and you've got the demographics that have strong and growing incomes that will support that growth, then underlying that to make that affordability right,

depreciation can be an absolute benefit. And what I should specify here, I'm not a fan of apartments, I'm not a fan of greenfield stuff, but I am a fan of building good quality property in tightly held locations. And then if we sort of underpin that with a strategy that really cash flows the property so it has no impact on salary, savings or lifestyle while you're hanging on to it, then it becomes a much more sustainable thing to achieve the equity growth that you're looking for over the long haul.

Yeah. yeah and depreciation is not an investing strategy it's just a bonus so when people say you know what should i buy for the best deductions i like to shop them because they're on the wrong path it's like the people that go into their account and say i don't want to buy an investment property and they say oh yeah that's great why god because i'm paying too much tax and you kind of think like the next question is like do you even care about capital growth or the yield or how much it's going to cost you and it's like no tax bad me want you know minimize but there is an opportunity there because we get a lot of miners coming to us with exactly that saying bushy how

can i pay less tax my accountant said i've got to get a property at least you can open the conversation to well that's fine but this is what you need really need to be thinking about and this is how it always comes together so while it's it's not not the driving reason that can become a good enough reason to start educating someone on the benefits of building a portfolio that's going to sustain your lifestyle long term yeah mate uh we've touched on a couple of things that there are some changes in the mix and you know new south as you would know the the stamp duty change is starting to flow through or there are love your your take on what impact of any that's going to have on on property generally yeah look um i think that if that is politically successful it will

domino its way across the country i think the states are sitting back just going oh i wonder what happens here and if the government is uh is going to do well on it i i think it's um i think it's probably a good move i i think the restricting the ability for people to get in and out of properties is a bad thing we want people to be able to transact and i think a good example of that is you know the little old ladies that are living in the bigger houses um we want them to be able to downsize and free up that accommodation for the people that actually want it. I think that there's some weird nuances to it where if you elect for it to be, say, an ongoing payment rather than an upfront, then that is inherited with the property.

So there's a few things that I need to understand a little bit more with that. But I think in principle, I think it's a good idea. The states are clever. I think it will end up costing people more over the long term if they hold on to it. But I guess it's just one of those things that you need to weigh up as part of your strategy. But I think it is probably likely to be a net positive

and I think we will see more transaction volumes from it, which is a good thing for the property market because of the people that get fed on those transactions. I'm one of them. So if more people are buying investment properties, then we've got more opportunity to sell depreciation schedules. But outside of that, you've got, you know, property managers, you've got your pest and building, you've got your conveyances.

So, you know, there's a lot of people that are involved in that transaction and that sounds like an economic benefit to the state to me. Yeah, I totally agree, 100% agree. And I think, as you say, for those that are stuck in property and can't move, that opens that opportunity, no doubt about it. Also, I think, depending on which option people take, I've been saying for some years, when they talk about housing affordability,

we have a housing accessibility challenge, not a housing affordability challenge. And one of the accessibility hurdles is the stamp duty, because depending on where you are in the country, it can be anywhere up to 5% on top of the purchase price. Well, if that's suddenly being levelled with a payment over time, then the accessibility issue is going to become a lot better, not only for first-home buyers,

but those that are just looking for change for whatever reason. So, no, it'll be interesting to see how that pans out. Mate, let's sort of drill back to the individual investors for a moment because, you know, you spend a lot of time assisting them with the depreciation schedules you do for them. And you've touched on some of these, but what do you see as the biggest mistakes that particularly first-time investors are making around the property

and as a subset of that, the depreciation approach? Yeah, look, I think outside of depreciation, the biggest mistake people are making is they're getting the first property wrong because the stats are still saying that your average investor owns, you know, 70 or let's say your average investor owns one property, so 72-odd percent of people only own one property. And I think that if you are getting involved in investing in property, you're doing it because you want to fundamentally change your life in the future.

And there's an argument to say that one property is not going to really be enough to do that. So I think people get into property wanting to purchase more than one. And the stats are saying that they're not doing that. And I think it's because we're getting the first one wrong, whether it be not calculating the ongoing costs which you've talked about or or not eating their veggies and chasing the hot spot or the apartment that uncle barry at the barbecue said couldn't lose or you know the the fact that your brother in in mining has said that they've just hit the button on a new well in karatha or i don't even know if karatha has wells but let's say it does you know so you've got to get in there

so i think that's part of the problem and from a depreciation point of view i think the the the thing that people get wrong is that they don't get a depreciation schedule. So to give you a little bit of data, we looked at a thousand residential property investors and we wanted to calculate how many of them had missed deductions. So the way that we did that is we looked at their settlement date for the property compared to the date that they contacted us for a depreciation schedule. And you can back claim two financial years. So we allowed for the fact that people could wait two years to contact us and not really miss out on anything. But we did find that 6.7% of those investors waited so long that they actually left tax on the table,

tax deductions on the table. And 6.7% doesn't sound like a lot, but that's 6.7% of people who came to us eventually right so somehow they figured out that they needed to do it so there's a lot of people out there that just have no idea at all and when you extrapolate that 6.7 percent across the investor population based on the average that these people lost which was 20 grand of deductions which could easily be seven or eight in your pocket it comes to a wonderful clickbait article that the media ran with of $2 billion worth of misdeductions just floating out there in the ether. So that, I think, is a big one that people just don't get it done. And maybe they just don't know that it exists or they don't have the right advice. But the advice is free.

Whether you speak to me or somebody else, no one in the industry is really going to charge you to say, look, I think this property stacks up or it doesn't. It's not worthwhile getting a schedule. So I would encourage people to get that advice. 100% and independent from you because being in the industry, as long as we have anyone that we assist, it's automatic. It's not a choice. Yep.

They get it appreciated. And I must say that the bulk of our investors are investing in a new-build or just-built property. so there's an obvious advantage in doing that. But what I love about services like yourselves is that you make an assessment for that investor to decide whether it's even worth getting the schedule done. And so I guess the important thing to remember here

is just because the property's older doesn't mean it's not worth doing because you've still got the capital component that you can claim over 40-odd years. And if they've done any renovations at all to update the fixtures and fittings, then that starts the clock on depreciation for those elements. So don't think, because the misapprehension that came out of the changes in May 9 a couple of years ago was that, oh, if I've got an existing property, it's not worth even thinking about it.

Well, no, unless your property is over 40 years old, then it's still worth considering because depending on the value of the property, there's still four or five grand's worth of claimables that you can be putting against your tax to keep some of the readies in your pocket, not the ATOs. Exactly. And in my weird niche example of the 1920s, 30s place built in Melbourne, the 40 years really only applies to the original building structure. But if the previous owner has done renovations,

then that's the thing that a lot of people miss. So I came up with three triggers telling you when you need a depreciation schedule. The first one is you buy a brand new property. that's fairly obvious and we've talked about that the second one is you built a property that commenced construction after the 16th of september 1987 because that means the original bones will qualify for deductions even if your plant and equipment doesn't and then the other one is it doesn't match one or two it's not brand new it's not built after 87 but it's been renovated and the magical number is about 40 or 50 grand because if there's 40 000 worth of renovations that you

did last year on a property that i bought today then arguably you're going to get the two and a half percent uh deduction each year so it's a thousand dollars worth of deductions each year so that's about the break-even point where a depreciation schedule is going to be worthwhile on that property if you're renting it out for a couple of years yeah no very well summed up there mate and great for the listeners to hear that because there'll be a lot of them who go oh okay I didn't realise, I'll reach out to MCG and have a chat to you guys about getting a schedule done and keeping their hard-earned in their pocket. I love that.

Mate, sort of bringing things to a close around that then, if you were a mid-30s to mid-40s couple and you had a home with a bit of a home line and a couple hundred grand's worth of equity and a little bit of super and some money in savings, what would you be investing in now and why? Just because I'm a bit mischievous, my immediate thought is crypto. But no, I don't think I'd be investing in crypto. That's a nice thing to play with, with money that you're happy to set on fire. But when it comes to legitimate investing,

I think we've talked about some of the principles that I think are important and where I would be looking. I would be looking for some of those regions that have, you know, affordable price points. So if you have the ability to purchase a couple of properties, then that's great from a diversification point of view rather than one big blue championship one in the city. So those areas that are within a reasonable commute of the city, I would be looking at areas where there are sort of tight supply constraints, so not in areas where big apartment complexes can come up and flood the property with supply or where there's big parcels of land that can be set up into subdivisions. And so, like you talk about those tightly held pockets, and I've always kind of preferred houses over units, but I certainly see a lot of value in townhouses. Our data has shown that townhouses have increased as a purchasing type amongst investors by over 100% over four years, where houses are only up 10% and units have gone down by just under 29%. So townhouses are an opportunity as well. But, yeah, look, I think in an area that's got good-term fundamentals, a broad base of employers and low unemployment and there's just, you know, it's an area that's either gentrifying or there's good quality demand for people wanting to get in there.

Those are the types of areas that I'd be looking at. Yeah, awesome advice. Mate, we're going to switch gears now into what I like to refer as the ambush round, which are just the five quick questions that the listeners love to glean your words of wisdom on. First of those is a hackneyed one that just about every podcast asks, but I'll ask it anyway. What's your favorite quote and why? That's a hard one. I've probably got like three ones that I really like.

The one that probably springs to mind at the moment is, I think, an anonymous quote, and it was, beware the lollipop of mediocrity, lick it once and you suck forever. That's been a guiding sort of quote in my life. I also like, you know, the unexamined life isn't worth living. That's a Socrates one. And I'm a huge Mark Twain fan. So, you know, he's got some absolute crackers. You know, like I didn't attend the wedding, but I sent a nice letter, you know, giving my approval of it. And one good one that I've sort of realized later in life to be very true is that a lie can travel 12 times around the earth while the truth is still getting its pants on.

So they're probably my crackers. There's some absolute gold in all of those, mate, and a couple of those I haven't heard. I like the last one about the lie traveling, mate. That is a – and it's got some real relevance in what's happening in the world right now, mate. There's a massive disparity between fiction and fact, as I'm seeing in just about every area. So, mate, turning to the literary field, because you sound like someone who's extremely well-read, what's a top book you'd recommend the listeners read and why? Yeah, look, I did get, in all fairness,

11 minutes prior notice that you were going to ask me this question. Don't give you time to think about it, mate. Yeah, I know. I've come up with not much. I mean, I really enjoy the works of P.G. Woodhouse. I think it's kind of like it's a beautiful escape for people to go back to sort of another period where everything sort of ended up okay and i and i just think that the the humor is is wonderful um with pg woodhouse

and and and if you haven't heard of of woodhouse it's it's like the the quintessential um butler um jeeves who who looks after this gentleman although the jeeves is called a valet rather than a butler um that's a good one yes exactly um and uh yeah big big fan of anything uh mark twain and then if it if you're talking about business books i really love shoe dog by um phil knight that's the the nike story yeah um and there'll be a there'll be a heap of other ones that i think of just as you hit um hang up on this call so maybe i'll if i think of some more i'll chuck them on a web page because we're going to throw up a forward slash um bushy for people to get some um some of the data that we've got around uh investing so i'll chuck something else

up on there yeah brilliant and the the thousand uh survey that you've done i think there'll be some great juice in there that the listeners would love too because i'm definitely going to hassle for a copy of that myself mate to dig into that um okay this one's uh almost a little bit left field but right up your alley and it sort of plays neatly into the pocket as far as uh what you're doing and how you do it what's the top legal thing that you've done to minimize the tax that you pay? That's a good question. I think from a business point of view, it was moving from personal ownership of a business into a family trust, which obviously enables you to distribute the proceeds of that specific to property. Look, I really think originally when I was investing,

It was making sure that I was doing interest only so I got the maximum deductibility rather than the principal. I've sort of changed the strategy with some investments a little bit in the last little while. But certainly that's been an important thing for me cash flow-wise. And, of course, I've got to say depreciation, right? You know, the depreciation schedules that I've done for myself are absolutely fantastic. I've got to be careful because the ATO probably would be interested to see what a tax depreciation guy does when he owns the property. But what I normally do is I give it to someone else in the office to do so that I can wash my hands of it. But you make a very good point, and depreciation does play, particularly if you're investing in property.

That ongoing cash flow, I just want to reinforce, it can make a world of difference to the ongoing affordability. in the sleep at night factor. If a property is dragging a few hundred dollars out of your pocket, then it does chip away. If you've structured it in such a way that it's either neutralising effectively the property, and as I say, what we do for our clients, we get the depreciation schedule done. If they're employed, we'll get their accountant to do the PAYG, withholding tax variation. If they're self-employed, we'll get the quarterly BASAs altered so that they're getting a chunk of that money back early. Because not only is it going to cash flow the property but we're putting that extra coin earlier into paying down

non-deductible debt so you can pay off the home loan faster save yourself a bucket of interest while you're holding on to a an asset that's growing in value that's not costing an arm and a leg to to have on the journey so there's some simple things that listeners can do to really make a substantial difference to the long-term property experience which you dovetail into beautifully there, mate, with what you do. Talking of investment, what's both the worst and the best piece of investment advice that you've ever received today? I think the worst is just get in. I'm sure people come across this. They're like, oh, don't worry about the interest that you're paying or where you're buying. Just get in

the market, right? So I've made some hasty investments. That's probably the worst advice that i've had and the best advice kind of relates to the the veggies and the lolly stuff um i heard someone say don't put the cart before the horse and and that really is you know the property before um the the strategy so that that's probably the best advice is is that you've you've really got to understand that you know you could i think you even said it yourself on the on the podcast you if if investing in kebabs got you where you wanted to be then you'd be a kebab investor right But property is just the vehicle, so you can't get too emotional about it. You can't start with, you know, what it looks like or where it is.

It's got to be serving your overall purpose. Spot on, absolutely spot on. And looking at it like you do with the XL glasses on is the way you need to look at property. If it's not stacking up on the XL spreadsheet, then what are you buying it for? It's really as simple as that. Switching back into you personally, and we've touched on some of the habits and disciplines that you've built up over the years, but if we look at it right now, what's a personal habit that you think continues to contribute to your ongoing success? I think, like, you'd be very surprised to hear this, Bushy, but I measure a lot of things.

So I wear a garment, which is sort of like the tool of choice for triathletes. um that measures all of my activity um resting heart rate and all that sort of stuff and up until recently i could tell you um exactly what i ate every day the number of calories and all that sort of stuff so that those sorts of habits they annoy spouses um they make it hard for you to attend barbecues and that sort of stuff um not because of the food just because people don't want to hear about it um but that that definitely helps and i always like to have um you know an ongoing sort of rolling 90 day plan here here are the things that i want to do and i really am sort of reviewing that um every day because there are moments you know professionally where you get a

second and you're like oh gosh like i can't remember the last time i had like a free second and then you can waste that going oh what am i supposed to do in this thing and they're like oh i think i was supposed to do that i've always got this list of okay well the number one priority is this so this is kind of what i want to be um focusing on so a a mixture of having some sort of plan and and and commitment to that and being a weird bloke okay well i'm obviously weird bloke as well because i agree with you mate you count better what you don't measure it's a it's an old analogy but it it absolutely works mate and uh unless you've got a a thing that you're measuring something against where are you what are you doing you've got you've got no clue so yeah that's a

that's a cracker final question to close out on mate if I gave you a microphone that spoke to every single one of the 7.7 billion odd people that are currently alive in the world and I gave you a minute to talk what would you say mate yeah this is another tricky one like the notice that you've given me i could spend years thinking about this immediately i turn to mischief and just kind of like think of tapping the microphone saying is this thing on or or or um you know have a conversation with someone on the phone and pretend that i don't know that the microphone is broadcasting to the world you know so i would waste it right i would waste the opportunity um but if i had to get serious i i think i'd probably have to say to a large percentage of

of human beings on earth uh i'm sorry we haven't been able to get this together because there's a lot of people that live in in very extreme circumstances across the country so i'm you know that's a that's a terrible thing for the sort of the people that live a little bit more of a western privileged life i would be saying you know question everything because we've got all these fancy notions about you know what's a great and virtuous life but a lot of it is is a trick and a lot of it is a is a game and i think you know you if you listen to some vintage bill hicks he he's a lot more uh eloquent at talking about it but i think the game and i think the trick is is to working your guts out until retirement and and that's kind of just

what we don't question you know we all value this hard work ethic but i had a an uncle-in-law who worked hard his old life and he sadly died of pancreatic issue like a week before he was about to retire and live in his little dream holiday home. So, I think, you know, life is too short. You only get one go at it and, you know, unless you're a reincarnation person. But even still, you know take life by the horns and and question everything and i think if you think you can't do it then you're right yep yep spot on i think the the underlying message that i've picked up from our conversation today mate is the is the your questioning approach which goes hand in hand with the fact that you're a lifetime learner and if you're always asking questions you're

always wanting to understand why you're always learning something then uh that sets you up for a very interesting life at the very least mate which is probably why you and i are uh often perceived as quirky because we we i'm one of those pains in the ass who just keeps asking why and uh that that's annoying as a four-year-old let alone uh yet someone in their 50s mate so um uh but i I reckon it's a fundamental ingredient to having a long and enjoyable life and you're certainly nailing that, mate. So I really appreciate the time you've spent with us today. For those listeners who do want to reach out and take you up on that offer

of assessing whether their investment properties are worth getting the depreciation schedule, how do they go about that? Yeah, look, if they go to our website, which is mcg, like the cricket ground, then qs for quantity surveyors mcgqs.com.au then they can go to forward slash bushy and if you mess that up and you get to our website then you know there'll be a live chat there'll be a way to get me but um if you go to that website forward slash bushy then we'll put all of the content on there um i'll come up with a better answer for a book hopefully and maybe even to the last one and we'll put some of our data up there as well that i think will be of interest to property investors

Yeah, brilliant, mate. Awesome, mate. Always enjoy talking to you. We share that common interest in what property can do to be helping people enjoy a great lifestyle in this blessed country of Australia. So we're looking forward to having an ongoing dialogue with you, mate, here as a semi-regular on getting invested to do that as markets and conditions change. But really appreciate your time today. It's been a real honour, Bushy. Thanks for having me on.

I hope somebody gets some value out of it somewhere. We'll get a lot of value and a lot of laughs, mate, which is what life's all about, mate. Get on your mind. Talk soon, mate. Thanks for having me. Cheers. Well, Freedom Fighters, how good was that?

To get a summary of all this investment gold in the show notes, just email me on hello at khgroup.com.au. That's H-E-L-L-O at khgroup.com.au or check us out at www.bushymartin.com.au forward slash GetInvested. I look forward to joining you next week for another episode of the GetInvested podcast. So thanks for listening.

And as always, dream as if you live forever and live as if you die tomorrow.