Property Hub - Investment Insights & Inspiration - Realty Talk: Magnets, Metrics and Millions

Episode Date: December 3, 2022

This week's show is all about magnets, metrics and millions as a cast of industry leaders give you the low down! If you want to make, manage and multiply your money to make a difference then you need to become a money magnet, and the living legend Steve McKnight joins us to show you how, following the release of his next best selling book. Success in property development revolves around the key metrics of your feasibility study because it matters what you measure, so Tom Pettifer from Palise Property joins us to unpack them. What’s the difference between gross yield and net yield and why does it matter? Jeremy Iannuzzelli from KHI Accountants sheds the light on their critical impact on your investment decisions. The Federal Government recently announced 1 Million new homes in the mini-budget, but not all experts are convinced this is going to address the housing crisis so Pete Wargent from Buyers Buyers reveals his read of the impact. RealtyTalk is part of the Property Hub podcast channel, your home for property investment insights, inspiration, and stories from Australia’s top property experts, investors, leaders, and analysts. Subscribe now to get every RealtyTalk episode delivered to you each week for free, and also get full access to Get Invested, the leading podcast for Australians who want to unlock their full ‘self, health, and wealth’ potential and get inspired by the stories of investors, founders, and entrepreneurs. Subscribe to RealtyTalk on the Property Hub channel: Apple Podcasts | Spotify | Google Podcasts | Email Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast network DM Media. Business and partnership enquiries: [e-mail] omnystudio.com/listener for privacy information.

Welcome to Realty Talk, the show that brings together the country's most authoritative and respected property experts. Follow us on all the socials and subscribe for updates and exclusive offers. Realty Talk is powered by realty.com.au, connecting buyers, sellers and agents differently. Hi and welcome to the Property Hub's flagship show, Realty Talk, your home for property investment insights, inspiration and stories from Australia's top property experts, leaders and analysts, which is done in collaboration with Apiro Marketing and DM Media, Australia's largest independent podcast network as part of Nova FM. I'm Bushy Martin from KnowHow Property

Finance and we've got a very special show you installed for you this week that's full of magnets, metrics and millions. To kick things off, we're joined by a very special guest, the living legend, Steve McKnight, who's just released his next bestseller called Money Magnet, how to attract and keep a fortune that counts. And you'll definitely want to buy a copy after he whets your appetite today. Success in property development revolves around the key metrics of your feasibility study, because it matters what you measure. So Tom Pettifer from Polici property helps you to unpack them. What's the difference between gross yield and net yield and why does it matter? Property specialist accountant Jeremy Yiannouzeli, and I'm not

going to get that wrong, I'm going to have another go, Jeremy Yiannouzeli from KHI Chartered Accountants sheds much more needed light on their critical impact on your investment decisions and your property performance. And to round out the show, the federal government recently announced 1 million new homes in the mini budget, but not all experts are convinced that this is actually going to address the current housing crisis. So leading property analyst Pete Wargent from Buyers Buyers reveals his read of the impacts. And my dog agrees. So before we get into it, make sure you don't miss another episode of Realty Talk by subscribing to Nova FM's Property Hub on your favourite podcast player. We'll also get two powerful episodes of both Realty Talk

as well as the Get Invested podcast delivered to you each and every week. And make sure you also sign up on the realty.com.au homepage, where you'll also get a free copy of my award-winning book, Get Invested, just for making the effort. We've got a heap of property gold to share, so let's get underway. Do you want to make, manage and multiply your money to become financially empowered and then make your money count by using it to create a living legacy for yourself, your family and others? Well, if you do, then you're in the perfect place because today is a very special day

here in Realty Talk as we're privileged and honoured to host a very special guest who's had a massive impact on improving property opportunities and the lives of a multitude of Australians, including yours truly. His first book, From Nor to 130 Properties in Three and a Half Years, has sold more than 200,000 copies. And its sequel, From 0 to 260 Plus Properties in 7 Years, was also a number one bestseller. And he's continued to create a number of books, training programs, and websites that have positively impacted the lives of millions around the world. If you haven't guessed already, we're talking about the man and the living legend, Steve McKnight. And in his quest to shift our sights from success to significance,

he's just released his next bestseller Money Magnet how to attract and keep a fortune that counts which shares all the important lessons and insights that he's gleaned from his decades at the front line of personal wealth creation from the things he's witnessed as a chartered accountant advising clients spanning mums and dads through to millionaire business owners along with his personal experience building a family fortune buying and selling hundreds of properties along with his experience in professional funds management where he's looked after more than $100 million of other people's money. Now, I could go on for half an hour talking about the legacy you've already left, but to dig into the money magnet,

Steve joins us now. So welcome to Realty Talks, Steve. G'day, Bushy. Is this being recorded? Because I'd love to play it back to my mum. She'd be so proud. I would have thought, it's such an honour to be here. I'm such a fan of all the work you do. hello listeners hello viewers let's let's get into it i can't wait absolutely mate i'd be very excited to to get you on the show today and and really excited about uh your new book money magnet which i've had the pleasure of reading so for those that that haven't got their head around it yet mate what what are the key messages and who's it best suited for uh yeah well money magnet is in many ways a prequel to the first book that i wrote not to 130 properties in three

and a half years because Bushy what I found was that people were coming to me and they're like oh we need to make money we've got this investing crisis that we're we've got a great need for money for and and I was teaching them well invest this way or invest that way and you'll be able to to multiply your money and then that it struck me as odd that people would then say oh we've done well but we need to keep doing well I'm like what are you talking about and it's this notion of earning a lot, but also a lot of money slipping through our fingers. And it got me thinking, well, maybe people don't have the basics down pat because they didn't have a rich uncle or a rich auntie or rich parents or anyone in their family who taught them the basics of what's needed to not

only make money, but to keep money. And then perhaps where this book is a little bit different again is that because I am financially free, I have been able to attract and keep a fortune that is a significant sum of money i then go on in this book and talk about how you can use your money to make your life count by investing in things of significance so in terms of key messages i've got three for you the first one is that just be very careful you don't leave your financial future to chance it doesn't have to be left to chance and in fact if you leave it to chance there's a high chance that things will go wrong. Make it a matter of choice. The second thing I'd say is if you want to attract and keep more wealth, then seek and acquire the skills needed

to do so. A lot of people think they can sit cross-legged on the floor and sing Kumbaya all day long and a giant bag of money is going to land in their lap. Well, amen to that if that happens to you. But in my world, that's never happened. It's amazing, though, the more skilled you are at attracting and keeping money the more money you'll accumulate i don't know who taught you how to drive bushy uh was my uh good mother and father mate your dear old mom and your dear old dad now i reckon i'm going out on a limb here but i reckon your dear old mom and your dear old dad did the best they could do but just as they would have passed on some good habits they would have also passed on some bad habits and maybe you even at the time didn't know they were bad habits

and so it is with money. The strongest influences in our life when it comes to money are our parents and it's highly likely that they've imparted some good things but it's also highly likely that they've imparted some bad habits as well and so here's an aha moment to ponder upon. It's likely that the highest level of financial achievement you'll get in your life is what your parents were able to achieve. And if you want to go higher and beyond that, you need to find someone who's got additional skills than what your parents had to retrain you to change your glass ceiling. And that's what Money Magnet's about. Money Magnet is about the things that I've learned, as you said in the intro over a couple of decades, about how to attract and keep money that works.

And then the third thing I'd say is that not only do you need to attract and accumulate wealth, I mean, that's great. That's the score on the scoreboard. And for some people, how much money they've got feeds into how successful they think they are. Well, in my world, which is shaped by my Christian faith, it's not just about treasure on earth. It's about treasure in heaven. And this notion that if you want your life to be of significance, then invest in significant things. and that's about putting your money to work so that you can help partner good causes and fund them to bring light into the world and and to be an agent for good so that's what this book's really about how to count your money and how to make your money count yeah absolutely love it steve

you've sort of touched on a couple of these already but what mistakes do you see investors keep making over time well uh you know these mistakes are these things that i think are inherited once again primarily from parents and i've pondered this bushy and i do talk about a little bit in the book normally our parents say to us you'll be happy in life if you get a good job find a good partner and buy a good house yeah and so we are we are programmed to right i'll do my best at school to get a good job i'll do my best to find a partner marry them maybe procreate get some little pitter patter of little feet going and then i'll buy me house and i'll pay it off now these three pillars of australian society are they actually working because if 75 percent of

people retire needing the pension then that means seven or eight out of ten people earn their whole lives but can't support themselves without government assistance when they're no longer swapping their time for money maybe there's something that's not quite right with that picture and so if your major asset becomes the home that you live in then the problem you may end up with is you might end up with a house in retirement, but no income. And so you're what I call the wealthy poor. You're actually poor because you can qualify for the pension, but you've got wealth tied up in assets that you can't access. And so the biggest mistake I think is following the program that you've been given without knowing you've been programmed and ending

up in an outcome by sort of no other design other than just letting life play out, what I call a lack of focus. Now, it doesn't have to be that way. You can shift your focus and concentrate on something different, but you can't follow what everyone else has done. Otherwise, you'll get what everyone else has got. The second thing I'd say, and this is really a question around investing, is that people get caught up in the, tell me where to invest, the hot suburb, the hot property the hot strategy and I think that's that's what I call out asset investing whereas I'm an outcome investor what I look at is and what I say to people is work on the outcome that you want and then buy assets that fit into that rather than buying assets that you hope are going to work

because if you put the outcome first then the assets that you buy are likely to achieve that outcome the third thing I'd say quickly is making decisions based on opinion rather than fact so many people don't know how to do the due diligence on an investment that they rely on well-meaning other people telling them what to do real estate agent family friends bank manager etc you need to be able to read the investment for yourself and then the last thing i'd say is that people who rely on the market rather than their own skills see when you rely on the market if the market goes against you, you're losing money. I've made the majority of my wealth in down markets and buying problems and selling solutions. They're the keys to my success.

Yeah, I love it. And that's a really good segue into getting you to share your tips for attracting money by making, managing and multiplying it, as you say, to build wealth and make our wealth count. Well, let's look at them in turn. The first one when it comes to making money is I'd say you've got to maximize your time. The easiest way to make money is to sell your time. And so you want to get the highest return on your time that you possibly can. And that's about finding a problem you can solve that not many other people are solving, and that people have money to solve that problem. My daughter at the moment, for instance, my 17-year-old daughter, she said, Dad, I want to study paramedicine. I'm interested in paramedicine. And I said, well, that's

interesting. Whenever you hear me say, well, that's interesting, you know I'm about to tell you something different to what you expect, because that's my usual lead-in introduction to that's interesting, however, or but. So yeah, well, that's interesting, Alyssa. I wonder, though, have you looked at how easy it is to get a job in paramedicine? And it's very hard to get a job, and there's a very high turnover rate. So I said to her, it's great that you're going to study something you're interested in but have you considered and then when you hear me say have you considered have you considered adding nursing to that because if you add nursing to paramedicine now you've got an unusual skill set that will open up more career opportunities and also ensure that

when you work an hour you'll you'll get paid at a higher rate yeah some people will be saying steve why are you telling your kids to get a job i think the best way that anyone can learn the uh the joy of financial freedom is to have a job to start off with you'll never feel free unless you feel trapped to begin with good call the second thing i'd say is around the the managing side of it is people are usually pretty poor at managing their money they make a fortune they spend a month to spend a fortune so this concept of managing money here's the best tip i can give you find a compelling reason to save if you don't have a reason for saving there'll always be a good reason for spending and we get so focused on the reasons for spending oh this sales on or oh i can spend my

money oh i'll feel better if i just buy that if you don't have something else which is bigger and better than your reason for spending you'll spend and so coming up with this this this compelling reason for saving is is important now sometimes people come up with a compelling reason to save which is spending i'm saving for uh that that that no no no no you can't do that that's that's not going to work you need to you need to save for investing or save for reserves or whatever might be yeah multiplying real simple increase your skills so you can increase the amount of your return without taking on high risk normally the bigger the return the bigger the risk but in order to take on that risk if you increase your skill you can mitigate that risk that's what i've

been able to do by investing overseas for instance in new zealand in the united states yeah and then the bit about making your money count is just a quote i would say from jesus not turning this into an evangelical event but to whom much is given much is required now shrouds don't have pockets mate you've heard the saying before and sometimes people think that well i'm going to die and leave money to my children is that really setting them up for success because if they haven't earned that money they may not appreciate that money and although you might while you're alive think you're setting your kids up for success i've seen money spoil lots of people so i would say if you've got much then do much use your money to be a blessing unto others

while you're alive and then let you the best thing you can pass on to your kids is not a hand out in the form of money but a hand up in terms of the skills that will carry them through life to be able to attract and keep a fortune and the final thing I'd say is don't just count your money like I've been indicating make your money count don't just sit it in a bank account use it and gain the blessing of significance by blessing others yeah beautifully summed up mate look I could sit here and listen to you for hours but really I encourage those to get out and grab the book so i really want to thank you for sharing your insights with us today steve and thanks for your time on the show today you're very welcome bushy thank you steve well if you want to hear

more from steve make sure you have a listen to our recent deep dive two-part conversation on get invested that you can hear on novafm.com.au forward slash podcast forward slash property hub or wherever you listen to podcasts and if you're serious about living a lasting legacy that'll make a positive dent on the world and the lives of others, make sure you grab a copy of Steve's latest bestseller, Money Magnet, that you can get now on moneymagnet.au, where you'll also find a whole bunch of bonuses that I've just been having a look at. Or you can get your copy from all good bookstores and probably a few bad ones as well. So keep tuning into the Property Hub's Realty Talk. You'll go to Trusted Voice for all things property. Property deductions can save you

thousands of dollars each year to make sure you maximise deductions, you need to work with the most experienced quantity surveyor in the country. BMT Tax Depreciation is the leading specialist in the industry. They've completed over 700,000 tax deduction schedules for residential investment and commercial properties Australia-wide. BMT guarantee to find double your fee in the first full financial year deductions. Call BMT on 1300 728 726 today for an obligation free quote. With property values in many areas experiencing a flatline period following the artificial COVID catalyst, many investors are turning to property development as a way to manufacture equity. And the key to success with property developments is to ensure that you've built out all of the

numbers on paper before you even consider buying a property. I'm talking, of course, about the critical nature of your development feasibility study, or FISO. But what are the key metrics and how can you apply them when it comes to making go or no-go decisions on a potential development deal? Well, to help you with this, we're joined again by Duplex and Developments Manager, Tom Pettifer, from leading commercial and residential buyers agency, policy property so welcome back to the show tom thanks very much for having me bushy tom great subject here because there is a lot of increased interest in in this area given what's happening with property conditions around the country so to kick things off what are the key

metrics to assess when putting together a development feasibility yes certainly there's a there's a range of metrics but some of the key ones that i like to focus on and you probably obviously want to always focus on development margin or cost that's the big one the magical 20% And that's very well, that's a very important factor. But there are a couple of others I'd like to assess, and I could touch on some of the key metrics today. But, yeah, so in addition to that metric, I'd like to look at the return on equity or your cash-on-cash return.

And then also I'd like to look at that on an annualised basis because it gives you perspective. It brings opportunity costs into the equation as well. I'd like to look at the developer's equity contribution. So just to ensure exactly how much cash or equity is needed to complete a deal um if you ever speak to you know a range of developers or even you know you hear some horror stories it's always about a mum and dad investor and it's their horror stories because they they get mid-project and they can't complete it and then it becomes what would seem

a lucrative opportunity now becomes a nightmare they can potentially try to save it by um sourcing funds to complete the deal or sometimes they have to on sale and and then it inevitably will be at a loss because of the transaction costs involved. So it's a really big one to get right, the developer's equity contribution, paying the whole cash or equity contribution required from start to completion of the deal, and also the residual value of the land. That's really, it comes down to at the buying stage.

So I can touch on each of them if you like, Bushy, so one by one. Yeah, just quickly go through and if you've got time, Tom, that'd be great. Yeah, certainly. Thank you. Yeah, so your return on total development costs, So that's when you factor in all the costs associated with the deal. That just shows the overall profitability.

So regardless of whatever finance method you see, that really gives you satisfaction that there's sufficient margin in the deal. So that's really a high-level yes or no. The return on equity, that's ultimately finance dependent. So when you perform a feasibility, you really need to know from the outset what is the product you're going to see because the return on equity is highly determined by that whether it's a 65% lend on the end value whether it's a 80% LVR on just the hard costs it can have a huge impact on on the the profit against cash injected so that's

a big one and then obviously that on an annualized basis we need to consider that over time so if if the project it might be a 30% development deal and it gives you a great return on cash but it's over four years well then we've got to bring that back and annualize it but a factor in time if it's over a long period as well it's really an internal rate of return calculation but that really factors in opportunity cost so it really gives you a comparison it compares apples of apples how much am i how hard is my equity working for me the developer's equity contribution now that's again finance dependent it basically would be dependent on the finance that you seek but it's it's it's we're encapsulating everything that the developer need to contribute from start

completion of the project so it's a really big one one that's often overlooked and the timing of that as well is important to ensure that you've got that right and then the residual value of the land i really like this one here because that this is the one you need to know from the start it's no point accepting an offer put an offer down on the property and then once it's already settled then working out it's not feasible so you need to know this right from the very start and you can actually get a better you can negotiate a better deal if you clearly know your risk margin let's say you want a 15% or 20% target development margin, then you've already done your sums.

You've already known what the build cost, what every single cost associated with this, built-in contingency buffers. You already know exactly what your finance costs are going to be. Therefore, we can reverse engineer and work out exactly what you need to pay for that land. It's a very simple equation. If the vendor isn't willing to accept what we know the land's worth,

then it's a no. But it's really knowing that from the start. It's absolutely critical. Well, if you don't know that from the start, you know, you could potentially be getting into a dud project or an unprofitable project without even realising because it's very easy just on the back of an envelope to go, okay, this stacks up. You've really got to go through the steps and complete a detailed

physio before you can find that out. Yeah, no, that's really good grounding there, mate, and you've picked the eyes out of the key things to think about. Why do we need to know the key metrics and how to apply them when deciding to accept or reject a deal then? yeah well look like i mentioned they all can't be looked at in isolation but we need to have a handle on them because again there's when we need to consider between alternative options we need to really have a base metric so we can compare apples to apples so we know exactly

like why are we accepting that deal you know we can look say it's a hundred thousand profit in it well is that enough what does it actually give you in terms of development marginal cost what's it giving you return on equity it might be a two million dollar deal and you're only making a hundred thousand dollars well that's the equity's not working hard for you so it's just it's really just standardizing things so you can look at it and compare against alternatives and and really make an informed decision about whether you accept or reject the project yeah brilliantly said now you've touched on this already in relation to the importance of the residential value of land but why is knowing that calculation important and and how can it assist with actually negotiating

on the price yes certainly so it's it's definitely like once you know that you need to go into negotiations with that information at hand you've already done your sum so a detailed feasibility needs to be done beforehand before you're prepared to place an offer once you know that that you're going to you're going to be able to accept that you're going to be able to negotiate a better price on that project so it's and it's about really not just being hopeful you've got to be realistic and conservative in your assumptions so build costs are going up so I'd be inclined to put you know five to ten percent contingency buffers and building factors unforeseen factors into your feasibility and then once that happens and then you can still receive the target

development margin and the residual value of the land still stacks up well then then that's an easy decision to accept it or not if not it's a great leverage tool to then go back to the vendor and say well look I'd love to buy this property but I can't make any money at this level it needs to be here and then it just takes the stress out of the deal because you've got the upper hand yeah you've quantified the exercise so they can see it in front of them so i know i love that mate so should we always be targeting the deal with the highest margin on total cost or do we need to consider it in terms of time as well given some of the comments you've made already yeah exactly you've hit the nail on the head there it's um it's it's it's while it is important um

You can't just look at a total development margin or cost deal and say, yeah, that's the one for me. You've got to factor in time. If it's going to take three or four years, well, then it needs to be annualised and then compared against apples for apples so you know exactly how hard your deal is working for you. You could have a 25% to 30% development margin on cost deal,

but, you know, there's unforeseen issues, civil works take too long, there's stormwater issues and the project blows out. While there's still a healthy margin, you've got to factor that time. a nice little 15 to 18 annualized over over a year can sometimes be a very viable risk-free option than a large more complex project as well so um not to say that either of them have their merits but um it just needs to be assessed yeah and very well so and that time aspect is is often

the one that's overlooked they look at the big cherries but if you know as you've said if it's spread over four years and that 35 percent more like six or seven percent if you look on an annual basis that it puts a bit of a measuring stick on the comparability between one deal and another so look mate I as always I want to thank you for sharing these insights Tom and thanks again for your time on the show today. Thanks very much Bushy it's great to be here. Thanks Tom well as you can hear and see there's a lot more to property development than meets the eye and completing an in-depth feasibility study that focuses on the key metrics will be critical to your success right from the outset. So if this has captured your attention and you want to know more,

reach out to Tom on the Policy Property team at policyproperty.com. That's policyproperty.com. Stay with us for more of the property up here on Realty Talk. Successful property investment is a game of finance. Do you have the right team and the right game plan realty talk is brought to you by know how property more than mortgage brokers bushy martin and his team of investment architects set you up with a sustainable strategy structured to lower your costs tax risk and stress while increasing your capacity for growth know how has helped over 1900 homeowners and investors secure more than 800 million dollars in property wealth. So get set to live more, work less and live your legacy. Want to know how to invest in

your freedom? Visit knowhowproperty.com.au. There's an old saying in business and investment circles that revenue is vanity, profit is sanity and cash flow is reality. And if you've been involved in property or investing for any length of time, you'll have heard constant references to rental yields, gross yields, net yields, and a long list of associated terms. But what do they really mean? How do you calculate them? And how do they influence your investment decisions? To shed some light on this very important subject, we're joined by specialist property accountant, Jeremy Young-Nuzelli from KHI Chartered Accountants. So welcome to Realty Talk, Jeremy. Thank you, Bushy. And we're getting closer with that last name every time we go on,

mate. That was almost a perfect one. I'll give it a nine out of 10. Good. I'm getting there, mate. I'm determined to get to 10. I'll give you that Italian twang very soon, mate. That's it, mate. You need to feed me a bit more pasta and some vino, mate, and I'll be right there with you. But let's rip into it. Can you sort of start by defining, for those who don't know, the difference between gross yield and net yield, please, mate? Beautiful. Yeah. So this topic's now coming up quite a bit, obviously, with interest rates starting to increase and liquidity starting to tight. banks playing around with the way that they calculate borrowing capacity, yield becomes very important. And as you mentioned prior and just before, cash flow is reality and how to

calculate cash flow is so important. So we'll go to gross yield and what it means. So gross yield, and we'll typically talk about yield on purchase as opposed to yield on loan or yield on other things, but gross yield is the gross rent. So the total income that the property receives without any expenses being taken out of it divided by the property's price so for those people you know talking about net or sorry gross weekly income and we'll take $500 a week for example we'll times that $500 by 52 weeks and that will give us what our gross rent is on the property throughout the whole financial year so in this particular case would be $26,000 a year gross rent no expenses taken out. Now, if we've bought a $500,000 property, we'll divide that $26,000 by the

cost base of the property, for example, 500 grand. Now, you can get very technical and start to add solicitor's cost into the purchase and stamp duty into the purchase, but they're more transactional costs. We don't really like to say that's part of the asset, although it is part of the cost base. But on that example, that $500 a week over 52 weeks, 26 grand a year divided by the cost base of 500k of the purchase price of the property that's our 5.2 return gross so as an investor we hear about that hundred dollars a week for every hundred thousand dollars we spend coming back to around about a five percent gross yield it comes out to be about a 5.2 but who counts the 0.2 these days net yield net yield is very different net yield is what say a high level

investor will look at when they're really generally trying to work out cash flow so net yield is that gross rent, less all of the occupancy costs of the property, which would include council rates, water rates, insurance, property management fees, potentially repairs and maintenance. Now, a 5.2% gross yield in property by the time you take out the occupancy costs, and generally, net yield doesn't calculate interest because we're looking at what would the net yield be after we've paid off the loan. Generally, you start to see that come down to be 4% net yield or 3% net yield. and that's really what the asset's going to be providing you after the loan's being paid off. So 5.2% is almost like my income that I earn from my employer and then I've got to pay the tax and

then what comes into my back pocket is my net income. Similar to investment property, gross yield is that income from the employer, less that tax which is the occupancy cost gives us our net yield. Unfortunately with investment properties we then pay tax on our net yield so then you've got a net net return which is net after tax but we won't go too much into detail on that tax is unfortunately part of life um they're they're two things an accountant can guarantee you death and taxes everything else is uh is a variable in life but net yield again is gross rent less all the costs associated with maintaining the investment and that gives you the net income available to you to to live essentially yeah and and what's important there is uh it's the money that

actually hits your hip pocket. So and, you know, we're talking about investors who are looking at cash flow, then that becomes a very important parameter. But even for capital growth investors, if we're minimising the shortfall by maximising the net yield, then it's going to help them both in terms of holding the property and potentially adding the portfolio down the track. So love your thoughts on that. So if we if we have a look at that, then why are they important to investors in their decision-making as you see it? Well, it's such an imperative part of the buying process. It is the cashflow and everyone who's investing in property is investing for two things. A, either a cashflow for retirement or B, a capital growth to pursue larger things,

pursue a bigger portfolio. Now, without a good gross yield, without a good net yield, you'll find it very hard, especially in a high interest rate or higher interest rate environment, to continue to hold these properties for two things, either A, the capital growth, or B, the cash flow that you're going to need from a retirement perspective. So during the peak of 2021 and parts of 2022 post-COVID environment, we saw gross yields drop to anywhere between three to three and a half, even 4%. Net yields drop into around about 1.8 to 2.6%. Now, all well and good when interest rates are sub 2% or just a bit above. But now we've started to see higher interest rate come into the market. We've had about 2.75% since they started creeping up in around May.

And what's that done for a lot of properties? Well, anyone who purchased on a three and a half, 4% gross yield, or a two and a half, 3% net yield are now starting to lose a substantial amount of money after they pay their interest. Then you've got to consider things like if property does slightly come down or correct during a higher interest rate environment, what's your net yield look like then potentially on valuation or potentially on cost? And are there better options out there? So it's such an important part. And I would say it's almost 50% of buying the property. 50% of the buy in the property is all to do with the location, the supply and demand factors, the capabilities for growth. And then the second part of buying the property is the cash flow

that this property will generate either A, as I said, for your retirement, or B, to help you hold the property well into the long term. So such an important part, and as I mentioned, 50%, I would believe, of the decision-making process involved in purchasing the property. I 100% agree with you that because you know you would have heard the stats over 50 percent of first-time investors sell the property in the first five years and i'm uh damn sure a lot of that is because they actually haven't sat down and worked out the true cash flow of the property and whether it's going to be affordable uh to hold long term and let's face it if you're forced to live on baked beans and dog food while you hold on to an investment property you're not going to do it for very long

so we're looking at the yields and looking at the cash flow side of the equation is really the blood flow for those that are looking to hold properties in the long term. So I'd love for you to give us a couple more examples of why it's more important than to focus on net yield, rather than gross yield. Yeah, I'll give you some good examples. And beauty of what I do, we've got about 7000 properties that we reconcile in our firm. So I get to see, you know, different case studies on different properties around Australia. But I'll give an example of what I've seen in the past. So clients uh bought up in the northern parts of of queensland units gross yield 16 bushy sounds cracker doesn't it 16 16 gross yields you look at them on face value and you say

can't go wrong we're talking one bedders and studio apartments in in north queensland for about 60 grand 16 gross yield clients sold on a 16 gross yield once you start to actually break down the costs associated with these units now again they're in cyclone cyclone affected areas high insurance premiums high turnover of tenants but we won't take tenants into account this time we'll just look at costs five thousand dollars worth of body corporate fees insurance can't get insurance council rates about two thousand dollars a year water rates fifteen hundred dollars a year property management fees ten percent of the rental income that's what they're charging up there then you've got to factor in a provision of minor repairs and maintenance. Now, this 16% gross

yield, once you paid the property off, you are lucky to get just over 0.5% as a net yield. That's an example where gross and net are very far apart. And what changes that calculation is the denominator. It's the purchase price of the property. Sometimes a 4% net yield on a million dollar property which is 40 grand a year is much better than a four percent net yield on a 100 000 property because people also need to factor in that the kitchen potentially on an 800 000 property costs the same as a 200 000 property the roof may cost the same you know the paint may cost the same but it's it's it's spread across much a much larger denominator so just simply focusing on gross yield sometimes can actually be a detriment to the property

portfolio and that's why i really say to clients that look yes we've got a gross yield we need to understand the cost that we know of associated with the property there's always the unknown repairs and maintenance but we can only work with what we've got what does that net yield come out to be and in some instances you know i've seen net yields at one and two percent and then i really have to start questioning the client saying look there are much better and again i'm not a financial planner, but I know of much better financial instruments providing a much better rate of return. So really you're just trying to bank on capital growth. Is that what you're after for this property? Once they start hearing that terminology and they start hearing my thought

process, they say, no, we're actually trying to buy this for the cashflow. And that's when you start to consider, well, there might be some better investments or investment properties out there, which might be better suited to what they're trying to achieve. So that's probably one case example. Then I've seen other properties where the gross yield and the net yield is not too far apart. Now, again, a client $1.2 million property rents about $1,100 a week. So gross yield is just under 5%. Pretty good, not bad. The costs of maintaining the property and management fees were quite low. And the net yield was around about 4.4, 4.3%. So it only lost a very small amount due to a substantial lesser amount of costs on holding that property so it's not always going

to be the same calculation it's not always going to be the same spread some properties might have a substantially better net yield on gross and some properties might have a substantially worse net yield on gross it really depends on a the price and b the associated cost with maintaining that property and holding that property over the duration of the time or that year yeah yeah some great examples there. And just listening to your talk there, it becomes absolutely crystal clear that you really need to be getting down to net yields to really understand how that property is going to perform. And it gives you a really good measure to compare one property with another or one property with a different asset class. So a really important measure, mate. And I really

want to thank you for clarifying all this with us today, Jeremy, and thanks for joining us on the show today. Appreciate it, Bushy. Take care. Have a lovely week. Thanks, Jeremy. Well, as you and see if you're serious about optimising the cash flow affordability of your investment properties, you need to be focusing on your net rental yield, not just the gross. And if you're looking for a specialist property accounting team to optimise your property performance through correct tax structures and tax minimisation strategies that are actually in line with your goals and objectives, make sure you reach out to Jeremy and the KHI team at khipartners.com.au. You're watching Realty Talk, your go-to place for all things property.

Property depreciation is the natural wear and tear of a building and its assets. Property investors can claim depreciation as a tax deduction each financial year. Depreciation is a non-cash deduction. This means you don't need to spend any money in order to claim it. On average, BMT tax depreciation find residential investors almost $9,000 in first full financial year deductions. Call BMT on 1300 728 726 today for an obligation-free quote. Now, in recent times, it doesn't matter where you turn,

you keep hearing about the housing and rental crisis that's flowed from the chronic and growing shortage of new housing supply, which is only going to get worse as the floodgates open to a sea of overseas immigrants. So in response to this, the new federal government's recent mini-budget has announced an historic national housing accord which will see one million homes built over five years but not all experts are convinced that this self-proclaimed bold plan is going to be enough

to address the ongoing housing crisis so to dig into what this all really means to you and to property conditions you need to turn to proven performers who have a track record of combining their accumulated wisdom with demonstrated action and there's no one better on this front than and today's regular guest and industry veteran, Pete Warder, one of the country's leading buyers agents. He's a finance and real estate expert, a multiple published author, and an all-round property guru. And I've got to mention that he now spearheads Buyers Buyers, a unique go-to digital marketplace that helps you to find and secure property better and more cost-effectively by connecting you with a national panel of leading buyers agents. So welcome back to the show, Pete.

Thanks, Bushy. It's always disconcerting to be referred to as a veteran of the industry. Those grey hairs must be betraying me, but great to be on as always. Mate, I'm a long way ahead of you there, mate. And I've even got a snow falling off the roof down onto the veranda of the eyebrows, mate. So you've got a long way to go yet. But, mate, I'm really looking forward to jumping into this subject. So let's start by getting you to give us a bit of a rundown on what are the actual details of Labor's budget pledge to build 1 million homes.

yeah so i did um i did a bit of a commentary on on the night of the federal budget um some of the details were leaked up front but we got a bit more texture during the the budget night and the but and in the budget papers um look broadly speaking uh the every budget needs a big headline number and that was um the the labor government will pledge to deliver one million well-located homes between 2024 financial year and 2029 financial year there were some other bits and pieces there um a little bit of uh funding made available over the five-year period to deliver an extra 10 000 affordable homes where this is really moving deck chairs around very small numbers and they're not really going to move the needle um i think the thing is though this is very

reminiscent of the coalition promising a million new jobs over five years that's just what would happen anyway with population growth so although we got a round of applause in parliament and it captured a few headlines it doesn't actually mean a lot and as the treasurer said the private sector or the the market is going to need to deliver the vast bulk of new housing which will require in the end investor input yeah interesting well again to sort of put this in context uh can you give us a bit of feel for how many homes the private sector has built over the last five years yeah so um we've obviously had been through a very unusual couple of years there was a big drop through the pandemic and then we saw the home builder stimulus and everything came back up but

if you if you just rewind the clock one decade so from 2014 to 2019 about 1.1 million homes or dwellings were delivered over five years so in a sense actually a million new homes is actually the bare minimum we're going to need to build to cope with record high population growth which is also predicted by the budget it's also worth remembering we demolish around 25 000 dwellings a year anyway to make way for some of the new stock so like a million homes is a starting point but already we're behind the curve materials costs are high the reserve bank has increased interest rates, new home sales have crashed to lower than where they were at the foot of the pandemic or the nadir of the cycle. So we're already getting behind and we haven't even got to

2024 yet. Well, given all that, how far will the 1 million homes in five years go in relation to solving the nation's housing crisis as you say? Well, it won't in a nutshell. If you look at the The expected population growth, we've got record high permanent migration. The migration cap has been lifted to 195,000. As we've talked about previously, Australia's population grows anyway, naturally, more births than deaths. If you look at sort of the big picture, over the next 10 years, we'll see Australia's population, roughly speaking, it will go from about 26 to 29 million. and so that's a huge amount of demand for new housing and a million new homes well it's a start but it's not really going to solve anything um the government's going to look at some innovative

measures to introduce institutional investment but the returns generally speaking aren't there for institutions um so it'd be interesting to see how this is tackled because at the moment the shortage is bad and getting worse yeah it's uh really interesting i'd be love to hear your thoughts on what other interventions and solutions need to be considered to actually better balance the ongoing housing supply? Well, one of the things that we saw previously, and we mentioned that period from 2014 to 2019, when we did see over a million new dwellings built, but that was largely funded by overseas investors, particularly from mainland China. Well, since that time, we've now introduced stamp duty surcharges. The foreign investors have by and large gone out of

the market uh australians don't generally speaking like to buy new apartments some people do it in their super funds and you know some downsizes quite like having a new build but most of us don't do it because we know the risks are higher um you know almost by definition there's more risk involved in buying something that hasn't been built yet yeah but that's even before you account for the fact that you pay a premium to buy brand new so who's going to supply all the new housing is the big question one way would be to bring in institutions another way would be to remove the surcharges on non-resident investors but at the moment there's not any sign of that happening so it's not entirely clear at this point no it's uh some pretty murky waters ahead uh giving the

population squeeze that's going to put massive additional pressure on the equation mate so uh but uh as always mate uh really want to thank you for your insights on on this subject and And thanks again for your time on the show today, mate. Always a pleasure. Thanks, Bushy. Thanks, Pete. Well, it seems obvious that a million new homes in five years isn't likely to even touch the sides of the growing housing

and rental crisis that's running rampant across the nation. And if governments at all levels are serious about improving the situation, they need to either, one, better incentivise you and me and the private sector to make it worth our while and improve, as well as improve the speed and ease of approvals to develop and build more of the right type of homes, Or two, they need to stop washing their hands of the issue

and pointing the finger at the private sector by stepping back into the ring and getting their hands dirty by funding more and better housing. And it's actually likely to need a combination of the two. So if you're looking for more on this and other current topics of interest, along with a host of property reports

to help you make better informed decisions, jump on buyersbuyers.com.au now. You're enjoying the Property Hub's trusted voice for all things property here on Realty Talk. Now, before I leave you, here's a final thought from me. Before you invest in property, you need to invest in your knowledge. So do yourself a massive favour and go and buy yourself a copy of Steve McKnight's new bestseller, Money Magnet, which you can get now on www.moneymagnet.au, where you'll also find a bunch of free bonuses,

or you can get yourself a copy from all good bookstores. It really is a great read, and I wouldn't be sitting here talking to you today but wasn't for Steve's pearls of wisdom that I gleaned from his first book about 20 years ago. So go and do it now. It's going to give you great food for thought. And that brings us to the close of this week's show. Another big thanks to our special guests,

Steve McKnight, Tom Pettifer, Jeremy Iannuzelli and Pete Wargent. And make sure you don't miss another episode of your trusted voice for all things property by subscribing to Property Hub on your favourite podcast player. now where you'll also get the Get Invested podcast delivered to you each and every week. And make sure you also sign up on the realty.com.au homepage to get a free copy of my award-winning

book, Get Invested. And while you're there, check out one of Australia's most extensive range of properties for sale from over 7,000 agents nationally, where you're even going to find properties that just aren't listed anywhere else. Thanks again to realty.com.au, BMT Tax Appreciation, Appiro Marketing and DM Media for their ongoing support. I'm Bushy Martin from KnowHow Property Finance. Remember that your best investment is always an investment in yourself and I look forward to seeing you again next week. Miss something in this week's show or want to catch up on past shows? Do it anytime at realty.com.au where we connect buyers, sellers and agents differently.