Property Hub - Investment Insights & Inspiration - Property WEALTH (4/7) - A: Approach

Starting point is 00:00:00 Welcome to Get Invested, the leading weekly podcast to help you unlock your full potential and enjoy your version of sustainable success that lies at the intersection of your three elves, yourself, your health, and your wealth. I'm your host and guide, Bushy Martin, and each week we go deep, sharing great conversations with proven experts in all walks of life, including the best investors, property experts, analysts, leaders, founders, sports stars and health gurus to uncover their secret know-how on where they invest their time, their skills and their money and the benefits that this creates. To help you find out what it takes to break free from the grind and discover your flavour of

Starting point is 00:00:45 freedom, to create your freedom formula. You see, the truth is that everyone invests. Every second of every minute of 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, and sometimes for no impact. Get Invested will help you 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 live your legacy by investing now. You'll enjoy the stories and secrets of high performers who invest for success in every aspect of their lives and discover the top tips on how

Starting point is 00:01:32 to get started, how to make the most of your investment journey, and ultimately, to be living your dream, not someone else's. As you engage in each episode, you'll glean the information, inspiration, and implementation that you need to get empowered and get invested in imagining and actioning the life that you've always dreamed about. And Get Invested is proudly part of Property Hub, your home for property investment insights and inspiration. Make sure you subscribe now on your favourite podcast player to get every episode of Get Invested and Realty Talk,

Starting point is 00:02:08 which is Australia's leading and longest-running online property show that's full of red-hot property investment news and insights direct from all of the industry leaders and influencers. You can also connect with me personally and join the Get Invested community of fellow Freedom Fighters at bushymartin.com.au or on knowhowproperty.com.au. Now, let's get invested. Hi Freedom Fighters. What investment strategy do you need to adopt? Do you go for capital growth or focus on cash flow?

Starting point is 00:02:44 Do you buy homes or units, apartments and townhouses? These are often all confusing questions unless you're crystal clear on what and how you need to invest to achieve your ideal lifestyle goals. And that's what we're going to unpack today in your AFA approach stage of your property wealth revolution. In the last three sessions, we've helped you to get clear on how you want to live, you know how much this lifestyle costs, you've calculated your freedom numbers to determine how much property you need to invest in now to bridge the gap between where you are and where you want to be, and you've worked through your bare facts to determine how much property you're actually able to acquire and how much it'll cost you to hold. Bringing this all together, you're now

Starting point is 00:03:37 ready to finalize your investment strategy or what we prefer to call your strategy gps which is what we're going to cover today we prefer to call it a gps and not a roadmap because a roadmap is a fixed route but our goals needs and circumstances all change and evolve over time so a gps guidance system is better to direct us to our end destination as our position shifts and takes and we take different courses. So all that you need to do now is quantify how you're going to bridge the gap. Now, when I talk about strategy, I'm not just talking about your property investment strategy. I'm talking about getting clear on your lifestyle strategy and your finance strategy first so that your property investment strategy falls out of this and is aimed at

Starting point is 00:04:29 achieving your lifestyle goals based on your financial capacity because property is just the vehicle to help you get you from where you are to where you want to be. But a strategy is of no value unless it's easily actioned. In the corporate arena, we've all experienced countless strategies that end up in voluminous reports as thick as the Bible that do nothing but collect dust on a shelf after they've been written. As a time-poor, career-focused hard worker, you need a wealth-building investment strategy that is simple to understand, easy to implement,

Starting point is 00:05:07 safe and affordable, and time-effective. That is, it needs very little of your time to make it happen or to monitor its ongoing performance. Any investment strategy that doesn't satisfy these basic criteria is doomed to failure. Over the years, my wife and I have seen countless professionally prepared financial plans and statements of financial position that are as thick as the yellow pages and might as well have been written in a foreign language.

Starting point is 00:05:35 They leave would-be investors confused, concerned, and daunted by their meaningless, incomprehensible complexity. The result? Nothing actually happens. Unfortunately, the majority of investment advisors, whether they're specialty executives, equities, foreign exchange, property, antiques, or art, are quick to cloak simple concepts in complex conundrums, coated in created jargonese, in order to scare investors away from doing anything themselves, and so justifying both the existence and the expense of these self-professed

Starting point is 00:06:12 expert intermediaries. As I've said before, property investment isn't rock and science, and it isn't sexy, but you just need to stick to a few time-proven approaches, which include, firstly, play the long game. Play a safe, conservative, long-term investment game through adopting a minimum 15-year investment horizon. Secondly, go for growth. Focus on affordable growth initially. Don't be distracted by small cashflow plays. Thirdly, allocate your assets effectively. Secure the right vehicle in the right place that fits your affordability. Fourthly, make head, not heart decisions. If the numbers don't work, walk away. Invest using Excel, not your emotions. And don't let feelings get in the way of rational investment decisions.

Starting point is 00:07:04 Number five, make it happen, then let it happen. Run hard early to secure the right assets. and then sit back and let time and capital growth work their magic. Successful investing is boring. The more you play with it, the less you stay with it. Or, as mum used to tell me in my teens, stop playing with it or it'll drop off. Number six, redevelop, rent, reinvest and repeat accumulation. Buy or develop to manufacture immediate value,

Starting point is 00:07:38 rent and hold long-term, and then utilise the accumulated equity growth in existing properties to fund the addition of extra properties. Number seven, specify before you diversify. Focus on the highest growth accumulation asset, e.g. property, to create your nest egg before protecting it by diversifying across asset classes during your cashflow preservation.

Starting point is 00:08:01 If you diversify your small starting capital rates across different investments too early, you won't own enough of anything to make an impact. So you won't lose much, but you're unlikely to gain much either. due to the loss of leverage and the flattening impact of small swings and roundabouts. This is what I call premature diversification. Number eight, trust the process and stay the course.

Starting point is 00:08:27 Develop mental toughness and persistence. Be financially, emotionally and mentally prepared to persistently ride out the inevitable market value fluctuations and downturns. Ignore the growing barrage of sensationalist fear-mongering market media noise by turning off the TV and throwing away the newspaper. You won't believe how much happier you'll feel because bad news, ignorance, is truly bliss. And finally, number nine,

Starting point is 00:08:54 engage a proven independent specialist team. Don't reinvent the wheel or create a second investment job. Instead, stick to your knitting and let proven independent experts earn their keep and grow your wealth using tried and tested techniques so that your portfolio grows by remote control while you continue to build your career and your reputation.

Starting point is 00:09:15 If you want to create the freedom of choice to have the time to do what you want whenever you want, the time-monitored and proven income-for-life investment growth strategy I'm about to outline is all you need. To sum up this strategy in one sentence, you just need to use as little of your own money to secure as big an asset base as you can as quickly as you can and make it as affordable as you can

Starting point is 00:09:37 and then get out of the way and let time, the tenant, the tax office and capital appreciation grow your wealth and replace your income so you can continue to build your career and focus on family while your team of experts makes it all happen for you. This is the essence of creating the ultimate freedom of choice and time release vehicle to do what you want when you want by building a parallel property portfolio by remote control. Now when you say it like this it sounds simple doesn't it surprise surprise the strategy is simple however it's the degree of careful and exacting implementation of all the required interconnecting cogs that will either make your investments run like clockwork or grind to a screeching hold if

Starting point is 00:10:22 something is left out or assembled in the wrong fashion this is similar to the difference between a long-lasting self-winding handmade swisscrafted timepiece versus a battery-operated two bob watch that gives up the ghost in about two months' time. For most people, the roadmap is simple. To sustain your quality of life long-term, you need to replace your earned work income with passive investment income by accumulating high-growth income-producing assets

Starting point is 00:10:50 and then converting your capital to cash flow via ongoing tax-effective income streams when you decide to stop or reduce work. The key focus here is growth first, then cash flow. So this is where the concept of the wealth by stealth strategy comes into play. It's made up of five growth phases that I call activate, accumulate, accelerate, amalgamate, and then liberate. Breaking these down, the first activate stage, which can take anywhere from one to five years, is about saving and establishing your initial investment equity deposit.

Starting point is 00:11:26 You can access available equity in your home or save a minimum of 10% to 20% of your income and invest initially in low-cost, high-growth share index funds or similar to grow your investment savings from zero to somewhere between a minimum of $100,000 up to about $250,000. This is about implementing the kick-ass auto saver system I discussed in an earlier session so that you have enough savings or available equity in your home to deposit on your first property. and this is often the hardest part because it's the start that stops most people. The bank of mum and dad often comes to the rescue here by taking out a small equity loan themselves against the home as a gifted deposit to their children which is much better and far less risky than pursuing a family guarantee loan that effectively puts the parents home at risk if things go belly up. Again, feel free to talk to a savvy mortgage broker if you want to learn more about this. The next accumulate and accelerate stages, which take 15 to 20 years or more, are about taking your

Starting point is 00:12:33 equity and or savings deposit and buying or building high growth rental homes using borrowed funds to significantly leverage up your investment asset base and fast track the quantum of your net growth by between three and a half right up to 10 times. Then comes the final amalgamate, liberate and remunerate stages where in the five year or so lead up to your stop work or work reduction date, you collaborate with your golden circle team of your property specialist accountant, financial planner and independent property strategist and mortgage broker to rationalise your high growth net worth portfolio into a tax effective ongoing cash flow income stream. In simple terms, as a time-poor hard worker, and depending on your current net worth, you need to invest in either the highest growth or the highest cash flow vehicles that are the lowest cost, most affordable, safest, simplest, and easiest assets.

Starting point is 00:13:30 In this context, the rental properties in our portfolio are nothing more than money boxes in the shape of houses, and we have no emotional attachment to them. It's all about the numbers. so how do you decide whether to pursue a high growth investment strategy or a cash flow strategy all you need to do is circle back to your freedom number discussed in freedom formula session two if your current investments are not forecast to achieve your nest egg number then you need to go for growth but if your current investments are forecast to meet or exceed your required nest egg number, then you need to focus on cash flow investments. Let's illustrate this. Returning to the freighted numbers example we outlined in the W for Y session, if your ideal lifestyle income

Starting point is 00:14:18 is $120,000, then your income-producing nest egg number is $2.4 million based on a 5% net return. In other words, you need to create $2.4 million in income-producing assets to generate $120,000 a year in ongoing income. So if your current income producing assets, excluding the family home, are projected to fall short of the $2.4 million or more over your break-free investment timeline, then you need to invest in growth properties. But if your current assets are projected to exceed the $2.4 million nest egg number, then your next investment needs to focus on maximising cash flow. So returning to our example in session two, assuming you have $200,000 in super, $30,000 in savings and about $5,000 in shares, giving you a current total of $235,000

Starting point is 00:15:09 in investments, over the next 20 years based on average historic growth rates, you're likely to end up with a nest egg of about $791,000 that may only generate an ongoing passive income of approximately $39,600 a year based on this 5% net return. This means that your income-producing nest egg is over $1.6 million short of where it needs to be in 20 years time, which means you're about $567,000 short today once inflation is deducted, which equates to about one growth home. So you need to adopt a high capital growth focused investment strategy. Conversely, if your current assets were projected to reach or exceed the $2.4 million mark, then your next investment property would need to focus primarily on maximum cash flow.

Starting point is 00:16:02 This approach dispels the age-old argument of capital growth versus cash flow. It's not a matter of capital growth or cash flow, it's more a matter of capital growth and then cash flow, or in easy terms, go for growth and then convert to cash flow. So initial value growth that's later converted to cash flow is the key investment concept here. And this growth versus cash flow distinction is important as it guides you on what types of properties that you need to invest in. If you're going for growth, which is where the vast majority of investors are at, then the low risk sweet spot for the highest growth properties with the highest rental and resale demand are existing or new three to four bedroom homes with strong owner-occupier appeal

Starting point is 00:16:50 on blocks of land in tightly held lifestyle areas that are experiencing improvements in infrastructure, industry and incomes. And if you're going for growth, then you need to focus on affordable growth. What does this mean? This means that properties you secure balance what is often referred to as the holy trinity of maximum capital growth, cash flow and value add potential. So how do you balance maximum capital growth with cash flow? It's all about selecting a high growth property where the purchase price, the rental yield, the holding costs, the ownership structure and the tax treatment are carefully modelled to create minimum cash flow neutral outcomes. This affordable growth approach ensures that you're able to last the 15 year plus distance without sacrificing savings, salary or lifestyle while you hold the properties. This means that if your freedom numbers indicate that you need to acquire property assets now

Starting point is 00:17:50 worth $1.3 million to achieve your nest egg number, then you'd be better securing two $650,000 homes than one $1.3 million home, as the price-to-rental yield ratio on the lower-priced homes is more likely allow you to achieve a near cash flow neutral result rather than a significantly negatively geared outcome that could pull hundreds of dollars a week out of your pocket for the single high-priced home where the rental yield is likely to be significantly lower. Purchasing two potential growth homes versus one

Starting point is 00:18:26 also assists in diversifying and reducing your risk. And when I talk about balancing the holy trinity of affordable growth across maximum capital growth, cash flow and value-add, the value add component which is more of a nice to have in tightly in very tight property conditions is about value add potential achieved by three key things firstly buying the property below market value which is now much harder to achieve in high growth potential locations secondly doing low-cost cosmetic renovations that significantly increase the value of the property or thirdly securing a property that has future redevelopment potential by say adding a bedroom or has

Starting point is 00:19:07 subdivision potential. Alternatively to this growth phase, if you're at the stage where your focus is to invest in cash flow, then higher yielding commercial properties or units and townhouses and rental belts with high sustainable rents are a better bet. This is the essence of the capital growth to cash flow curve that I illustrate in detail in my book, The Freedom Formula. It's also important to point out that going for growth and converting to cash flow means that your growth properties will assist you to reach your required nest egg number, but you won't be able to live off the rent from these properties. Once the property values are at the nest egg level,

Starting point is 00:19:47 you need to convert them and transition them progressively into higher yielding cash flow assets. This means a partial sell down of your portfolio, so you can then buy freehold properties with higher rental returns, or put your money into high dividend index funds or similar, or a combination of both. that will then fund your ongoing lifestyle when you stop or reduce work. This combined approach is the essence of what I like to call your income for life strategy. I'll say that again, strategy.

Starting point is 00:20:18 It comprises one overarching income replacement strategy with two important property investment stages. This is a parallel income and wealth approach, which allows you to continue to focus on building your career and optimise your earned income. This fuels your remote-controlled parallel property investments that grow your net wealth to a value where they can then be converted into tax-effective passive income streams that replace your earned income

Starting point is 00:20:45 and your need to have to work, giving you the joy of fulfilment and freedom of your time to do what you want, when you want. Now, I need to reinforce here that I'm not an accountant or financial planner, so anything I've been talking about doesn't constitute financial advice and is only intended as general information. So please consult your accountant or financial advisor to gauge an approach that's best suited to your situation and your risk profile.

Starting point is 00:21:12 So to summarise the key take-homes from your A4 approach strategy stage of your property wealth clock revolution, the wealth by stealth income for life approach is all about using as little of your money to secure as big an asset base as you can as quickly as you can and make it as affordable as you can

Starting point is 00:21:31 and then get out of the way and let time, the tenant, the tax office and capital appreciation grow your wealth and replace your income so you can continue to build your career and focus on family while your team of experts makes it all happen for you. And then if you're in the accumulation phase of your journey,

Starting point is 00:21:49 which most of you will be, then your investment strategy is determined simply by forecasting what value your current assets will be worth when you want to reduce or stop work and if this is likely to be below your nest egg number then you need to go for growth whereas if your income producing assets are projected to be above your required nest egg number that can be converted to a tax effective income stream to fund your ideal lifestyle then you need to focus on high yielding cash flow assets and if you're going for growth you then need

Starting point is 00:22:21 to convert your portfolio to cash flow during the amalgamate phase or transition to retirement period with the help of specialist property investment strategists, accountants, finance brokers and financial planners. In simplified property type terms if you're going for growth the sweet spot of demand for affordable value growth properties are the types of properties that the majority of Australians like you and me like to rent or buy which are three to four bedroom homes on blocks of land in tightly held lifestyle areas that everyone wants to live in where the area is experiencing or about to experience the three I's of positive growth being infrastructure, industry and incomes, where the growth drivers are new committed

Starting point is 00:23:02 infrastructure, new diversified growth industries and employment and strong and growing income demographics. Conversely, if you're in the cash flow phase of your investment journey or you're converting your capital growth portfolio to cash flow, then you need to focus on high yielding rental properties that include residential units apartments and townhouses or commercial properties if this all sounds good to you but you're not sure how to complete your freedom numbers forecast your bare facts capacity assessment and your resulting wealth by stealth income for life strategy then feel free to buy a copy of the freedom formula book that will walk you through it or you can join us for a free live freedom formula information session which you can book

Starting point is 00:23:44 your place for in the next round by reaching out to the Know How Property team who can help you prepare your own personal investment strategy by emailing me directly at bushy at knowhowproperty.com.au and if you're still not sure then you can test the waters by getting a free copy of my prequel award-winning book Get Invested by clicking on the links on knowhowproperty.com.au or bushimartin.com.au. Now that you're crystal clear on your why and freedom numbers, you confirmed your capacity to invest via your bare facts assessment, and you've now crafted your resulting personal wealth by stealth income replacement strategy that specifies what type and what value of affordable growth property you can secure, it's now time to assemble and orchestrate

Starting point is 00:24:31 your elite property team, which is what we're going to dive into next in the Elfa Libri session of your property wealth revolution. That's food for thought and stay tuned for more here on Your Property Hubs, Get Invested. Thanks for getting invested. Now, here's three easy ways you can take action to start making it happen, to ensure you build momentum

Starting point is 00:24:57 and start living by design, not default, so that you're following your freedom formula. Firstly, subscribe to this podcast if you haven't already and keep the weekly inspiration coming. Secondly, get a copy of my book, Get Invested, for free and find out what it takes for you to invest in living more and working less. Just visit bushimartin.com.au forward slash books or knowhowproperty.com.au or click on the links in the show notes.

Starting point is 00:25:26 And thirdly, join me and the Get Invested community. Each month I send a free and exclusive email full of practical self-help and wealth wisdom that our current Freedom Fighter subscribers can't wait to get. Just visit bushymartin.com.au, scroll to the bottom of the page and sign up. And there you have it. In three easy steps, you're on your way to dusting off your forgotten dreams and making them a reality.

Starting point is 00:25:52 Get Invested is proudly part of the Property Hub, your home for property investment insights and inspiration. When you subscribe to the show, you get all of your Get Invested episodes along with Realty Talk, Australia's longest running and leading online property show for red-hot property investing news and insights direct from all of the industry leaders and influencers. And finally, feel free to connect with me on Twitter, Facebook, and LinkedIn, as I'd love to hear your feedback, your inspiration, your ideas, and your questions and queries anytime. Thanks for listening. Hear you next week. And as always, dream as if you'll live forever,

Starting point is 00:26:33 and live as if the day's your last.

Property Hub - Investment Insights & Inspiration - Property WEALTH (4/7) - A: Approach

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.