Property Hub - Investment Insights & Inspiration - Realty Talk: Misconceptions of Auction + Property Population Impacts + Property Data Direction + Positive Cash Flow

Episode Date: February 4, 2023

We kick off another big year with a big show that’s powered by big Property ‘P’s! Show founder Kevin Turner kicks things off by completing our 8-part special Auction summer series with Cate Bakos by revealing common misconceptions about auctions. Pete Wargent then joins Bushy Martin to uncover the impacts that strong population growth is going to have on the future of property. Mickael Roger from Prop Hero then cuts through our inbuilt bias and ‘gut feel’ guesses by utilizing Prop Heroes sophisticated AI to unveil the property threats & opportunities in the times ahead. And to end the show on a high, legendary investor and author of his new best seller “Money Magnet”, Steve McKnight joins us to reveal cash flow positive property benefits and opportunities.    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 another big year with another big Realty Talk show here on your property Hub and we start the year with some great news. Following on from the success of the Property Hub that combines Realty Talk and the long-form Get Invested podcast, our partnership with National Award-winning podcast of the year network DM Media that's attracted more than

520,000 listeners and 1.2 million monthly downloads via the Nova network has now been taken to the next level as we quite proudly join Southern Cross Austereo's listener platform who we believe are the most innovative and successful players in the Australian digital audio space which means more benefits, more industry-leading guests and better shows for you as a loyal Property Hub follower. This further strengthens the Property Hub's position as your go-to home for property investment insights, inspirational stories from Australia's top property experts, leaders and analysts. I'm your anchor, Bushy Martin from Know How Property Finance, and this week's show gets the year underway with an absolute all-star collection of industry-leading

guests. Show founder Kevin Turner kicks things off by completing our eight-part special auction summer series with buyers agent Kate Bakos by revealing common misconceptions about auctions. Pete Wargent then joins me to uncover the impacts that rapidly rising population growth is going to have on the future of property and the opportunities that this is going to create. Buyers agent Michael Roger then cuts through our inbuilt bias and gut-filled guesses by utilising Prop Hero's sophisticated AI to unveil the property threats and opportunities in the days ahead. And to end the show on a high, legendary investor and author of his new bestseller money magnate, Steve McKnight, joins us to reveal cashflow positive property benefits

and opportunities. Now, before we get into it, make sure you don't miss another episode of Realty Talk by subscribing to the Property Hub on your favorite podcast player, where you'll 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 some absolute treasure trove of property gold to share, so let's get underway. Hello once again. In this series, we're talking all about auctions, and I'm joined by someone who's very skilled, knows all about auctions. Kate Bacos is a buyer's agent,

KateBacos.com.au if you want to get more information about what Kate does. But you know, one of the things that struck me is that many people, and I'm an agent, so I've had to talk to sellers and buyers about buying a property or selling a property at auction. There are a number of misconceptions, a number of myths about auction and how it works. Kate Bacos is joining me to dispel just a few of those. make you feel more comfortable if you have to get along and bid at an auction in the next couple of weeks or in fact if you're looking at selling your property by auction. Kate, welcome to the show and

thanks for your time again. G'day Kevin, it's great to be here. Kate, what have you found are some of the more common misconceptions that you'd just like to talk about now? Yeah, a lot of people assume that when you go to auction you're bidding unconditionally. Now you are bidding without a three-day cooling off. We all know that. In the various states, that changes a little bit, but no cooling off in Victoria for three days either side of a public auction. But it doesn't mean that you are bidding unconditionally if you've asked special permission and been granted some conditions. Now, it is rare, and they're probably not likely to agree to something like a finance clause or a building and pest inspection clause, but there might be other little conditions

that you've asked for, such as if you're an investor, being allowed to use the photos to advertise it prior to settlement for rental and being able to run some people through before you settle. Or it might be something like moving in earlier before settlement on what we call a license agreement if you're wanting to inhabit the property before you settle. So there are all kinds of little conditions that aren't uncommon for vendors and agents and vendor solicitors to agree to. So it doesn't mean that you can't have conditions, it just means that you have to pre-organise them and get permission. That's one of the first ones. Yeah, and even the settlement time can be varied as well, can't it, Kate? Doesn't it have to be 30 or 45 days? That's right. So when

the auctioneer stands at the front and says whatever days are on offer, we often hear 30, 60, 90. That doesn't mean that you're bound to slotting into one of those three. You can pre-arrange any settlement date that you can agree on before the auction. And the same goes for the deposit. you might not have a checkbook a lot of younger buyers don't carry around checkbooks and so they might be familiar with an EFT or they might wish to put down a small holding deposit then go to the bank on Monday and sort out the balance or for some buyers who don't have 10% on hand they might be granted a special request where they can just proceed with 5% so everything is negotiable we just have to remember that we can't negotiate on Saturday we do have to get ourselves in

order and organise any variations to what's on offer prior to the auction. And we need to understand that the agent will probably want the vendor and the vendor solicitor to agree to this and solicitor's offices close at five o'clock, we all know that. So we need to get our ducks in a row and organise variations well before the end of Friday. And I think we need to understand too that when we do ask for special conditions that if they're granted it because it's a level playing ground they also have to be made available to other bidders as well Kate? That's a really interesting question and it's come up many times before in the past in some states that that is the fact in Victoria we don't need it to be announced what the variations are we just need it to be

announce that there might be others in the crowd who have alternate terms. They can't reasonably reject someone having matching terms, but it doesn't necessarily have to be announced in your state. If a bidder under those circumstances, and this is a question without notice, if a bidder were to say, well, what are those conditions? Are we allowed to know? Should they be disclosed? Yeah, I believe they should. And I think it would be very unlikely that an agent wouldn't come forward in the crowd and talk one-on-one with that person bearing in mind the auction is probably rolling so they're not about to stop the auction to to debrief someone on someone else's arrangements but if if it means that they'll encourage another bidder i would confidently say that most agents

would say if you need those um those variations too let's talk about it but sometimes when we have asked for variations we've been requested to deliver some proof that we're a reliable bidder. So for example, if it's a 5% deposit down, the agent may say that the vendor's willing to consider your request, but they'd really like to see your pre-approval letter or something like that. So in a situation where you've provided evidence to back up your request, it might not be on offer to someone else and the agent might simply say, I'm sorry, it's too late notice. Yeah, that's a very good point. Can I just swing the table a bit and get away from buyers and talk about sellers in a moment. One of the popular misconceptions that I've found over the years

is that many sellers believe if they go to auction, they just have to take whatever's offered to them on the day. You know, there is a reserve. Maybe you could just quickly talk us through the reserve process. How firm is that? And, you know, what rights does the seller have to refuse an offer during auction a seller is is bound to state their reserve before the auction starts and they may wish to move that reserve so bring it down at the halftime show as we call it so if they haven't hit reserve and the agents will go inside for that mid-auction debrief and then come out they have the right to move their reserve but if they don't hit reserve at auction, they're not bound to take the best offer. It's their property and it's their rules.

They can hold out for a new buyer to come into the mix, or they can hold out for the highest bidder to be prepared to increase their offer. Now, their willingness to accept an offer will be based on two things. Firstly, their own current set of circumstances. So if they have to sell and they've got time pressure, they'll probably be more amenable to a disappointing offer. and also the agent's recommendations in light of the market situation. So if we're in a really strong seller's market and they've had a disappointing auction outcome, the agent might say, this was a bit of a surprise,

we're disappointed for you, but in the face of the market that we're dealing with, we recommend that you hold out because we think we can find another buyer or we can work with this current buyer and get you a better offer. Now, if it's a really tough market though, the agent might say, look, we've got it wrong and what we thought was there isn't there. And we're pretty confident that this might be the best offer you could get.

So when it's a collaborative conversation and the agent's providing the vendor with market sentiment and their own thoughts on the campaign, it really is up to the vendor. Well spoken, Kate. Thank you so much. There's so much for us to learn and we could talk to you for hours, but we're out of time for now.

Kate Bacos is a buyer's agent. You can reach her at her website, katebacos.com.au. Kate, thanks again for your time. It's been a blast. Thank you so much. 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. After a lengthy period of closed international borders, population growth hasn't been in the news much of late.

So you may be interested to learn that Australia's population clock has just ticked over 26 million. and as the nation is now enjoying full employment with a genuine skill shortage on top of the fact that COVID's reinforced that our great nation is one of the best and safest places to live and work around the world immigration growth is right back on the agenda so to dig into likely population growth and its impact on property we're joined by one of Realty Talk's most popular regulars Pete Wargent from Buyers Buyers who's one of the country's leaders buying a leading buyers agents he's a finance and real estate expert a multiple published

author and an all-round property and investment guru so welcome back to the show thanks Bushy what an intro yeah great to be on as always yeah thanks mate interesting subject giving what's about to occur so sort of set the scene how much does Australia's population grow naturally every year and what are the key drivers that contribute to that yeah it's interesting it's a bit counterintuitive because a lot of people used to talk years ago about population shrinking as the baby boomer generation faded away or moved on. But in Australia's case, that's nowhere near the case. It's actually very different because we've run a very large migration program, particularly through the mining boom years, but also over the past decade as well. We've actually

not got a top heavy population our immigration program has largely been focused on 18 to 30 year olds including myself you know people coming in on skilled visas so we actually have many more births than deaths in australia to the extent that the population naturally grows by about 150 000 per annum and it's also a very strong demographic pyramid we're not top heavy at all we've got lots of young skilled migrants who want to come here and the fertility rate was down a bit for a while but it bounced back last year maybe a derivative of the pandemic who knows but yeah generally speaking look about 150,000 per annum the population grows anyway and that's before you think about all of that migration coming in. Yeah interesting so putting in context

then what's the recent federal budget projecting in terms of overseas migration so the skilled um or the permanent visa program has been increased to a record high so we used to have 160 000 per annum um we're now uh the the migration cap has been lifted to 195 000 per annum we've also got temporary visas things like international students working holiday makers we've got um other visa classes as well and also visitors so there's a lot of different moving parts if you look at net overseas migration in the budget well it's a record high as far as the projections go out to the end of the horizon about 235 000 per annum every year but historically we've always underestimated immigration into australia at least until the pandemic so i wouldn't be at

all surprised if you see record high population growth over the next four or five years Yeah, interesting. You've covered up on the temporary visa component already. So what impact is all of this going to have on property? And in that context, what locations and types of properties are likely to be most affected, do you think, Pete? Yeah, well, the temporary visa thing is very interesting. Before the pandemic, we had about 2.3 million temporary visa holders.

And then there was an enormous drop. A lot of people just disappeared. We weren't getting the new people coming in, international students working holiday makers all of this has shown up um largely in a shortage of available labor so if you go to cafes or retail outlets you can see adverts everywhere we need staff i went to a place in malula bar recently advertising for a head chef and waitresses and people to work on the counter you know just in one one outlet so that's now changing people are coming back into the country um about 503 000 is the year-on-year increase so the rebound has been

massive um and in fact if you just exclude the visitor visas which are down a bit we're actually back to record highs so um this is going to from a housing market perspective is going to show up in particularly in rental markets because new arrivals into australia they don't arrive and buy property on day one yeah thinking myself when i arrived as a young backpacker the first thing you do is look for somewhere to rent so we're going to see a rental shortage in fact we're already seeing that and increasingly so in sydney and melbourne yeah yeah no that's good so flowing on beyond that and let's let's jump a couple of years down the track once they've into jobs and they're putting some money away and they're starting to look at property yeah it might be

too early to tell but any thoughts on the sorts of types of property and locations that are going of benefit from that influx yeah i think um look it's granular in new south wales um the premier perita has passed um after many years of talking about it stamp duty reform for first-time buyers so up to the 1.5 million dollar price point in new south wales um first-time buyers from 16th january will be able to opt to not pay stamp duty and instead pay an annual land tax effectively or property tax um so just for the sake of round numbers a million dollar purchase you used to hand over forty thousand dollars of stamp duty now you can opt to pay a couple of thousand dollars per annum as an annual tax and the research shows most first-time buyers will go for that option

it's like the old marshmallow test um and that will actually bring a lot of demand into the housing market in new south wales but underneath the 1.5 million dollar cap yes there might be a bit of a two-speed market going on over the next year or two yeah yeah that makes complete sense so uh given all that uh in your from your perspective what and where will be best investment opportunities that arise out of this place do you think well there's been a definite shift in terms of um how and where people live over the past two or three years for obvious reasons um i think a lot of the locations i think um generally speaking the demographers tend to agree the regional markets that will benefit the most are often those that are within the gravitational

pull of the capital cities so people might not be in the office five days a week anymore but if they're going to need to be in one or two days they still want to be within 90 minutes two hours of the capital cities yeah so straight away you can think of the sorts of cities that applies to It's Toowoomba, Gold Coast, down in Victoria, you would know places like Geelong and Bendigo and Ballarat. New South Wales has its own peri-urban locations, Wollongong, Central Coast and so on. And so I think a lot of the opportunities will be there. Prices have come off a bit in some cases as interest rates have increased. Generally speaking, good houses, good blocks of land, close to the amenities.

You know, there's the sorts of properties that tend to do well with the high land to asset ratio. Yeah, perfectly said, mate. Look, really appreciate you taking the time to share these insights with us again today, Pete. And thanks again for your time on the show today. Always a pleasure. Thanks, Bushy. Thanks, mate. Well, as you've just heard, a tsunami of population growth is rapidly heading towards us as we currently sit in the doldrums of the upcoming property storm.

And for those of you who have the foresight and still have the means, there's going to be some great investment opportunities in the days ahead. So if you're looking for a great quality information to better inform your property journey, jump on buyersbuyers.com.au now where Pete's national network of buyers agents can help you secure your next property

for a highly competitive price. Stay tuned for more on your property hub's trusted voice for all things property 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 KnowHow 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. KnowHow has helped over 1,900 homeowners and investors secure more than $800 million 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 To say that property is a complex, dynamic and constantly variable asset class is a massive understatement. Yet many try to oversimplify property's complexity into rough linear models to make big dollar decisions. Or worse still, just rely on gut feel. So it's no wonder that most misread this situation and don't achieve the results that they're actually looking for. The media's straight line extrapolation

of rising interest rates causing property values to fall is a good current example. It's just not that simple. So how do you overcome our inbuilt biases and our emotional responses to better understand what's really happening with property conditions in order to make much better informed property decisions?

Well, you need to turn to the exciting world of artificial intelligence that can quickly and easily interrogate multitudes of data and volumes of variables, and PropHero's buyers agents are leading this charge. So to share what the data is actually saying about what's really happening with property conditions around the country, we're joined by the co-founder of PropHero, Michael Roger. So welcome back to RealtyTalk, Michael. Thanks, great to be here. Great to see you again.

Now, Michael, just to kick things off, what data does PropHero use to help determine current and future property conditions? So look, quick background about me, Bouchy. So before Prop Hero, I spent over 10 years in the data and AI world, most recently at McKinsey, where I was leading their AI practice. And we launched Prop Hero with the absolute certainty that data and artificial intelligence are going to completely transform the real estate industry.

So at Prop Hero, we track over 15,000 suburbs in Australia. We have over 200 variables, over 1 billion data points that we are using that are both backward and forward looking. And to give you an idea, right, so like some of the more advanced thing that we look at, we look at the impact of leading indicators for macroeconomics and population growth, how this impacts future capital gains, how gentrification, how you can find early signs of gentrification, how you can also use climate change data to identify which areas you really don't want to invest and which area you really want to invest so yeah over 200 variables and multiple variations of these variables over 1 billion data points and yeah and that's how we identify our top areas and

top properties to buy yeah it's certainly turning into a science that's giving you relative data that's current and that's certainly been missing for the industry for a long while so so tell us what's your data telling you in relation to what's really happening in the property market right now so uh i think four uh main insights abushi number one is that yes the market the market is going down on average but not everywhere and as a fact last quarter over 40 percent of suburbs went up No one talks about it, right? But 40% of suburbs went up last quarter, right? Including our workforce.

Number two is that there is a massive supply issue in Australia right now. Vacancies are at an all-time low at 0.8%. In Adelaide, where we've been buying for the past nine months, it's 0.2%. There is just not enough properties and too many people. And it's even more now with new bills going down because of inflation and immigration starting again so massive supply constraints leaning to my third point which is something completely new in the market is how rents are going to the roof in some areas in most of our hours i checked on average the rents in areas where we bought increased by 19

percent over the past 12 months 19 that's almost three times the rate of inflation and the issue that of course many uh terrible challenges for the people living there right and i think this has been pushed by many things lack of supply rba rates as well that have put that has put massive pressure on landlords and so that's like a big thing also a massive opportunity for smart investors right because in a world of inflation some markets will significantly underperform and mechanically some markets will significantly outperform inflation which is what we are seeing right now the first thing we are seeing in the data is that climate change is already affecting property prices in australia and i don't think we really speak about it i know that bushy we talked

about it one year ago and i was thinking hey you know like this is what we're seeing now it's a fact right it is a fact property market is being affected by climate change you know so with both i don't know dozens and dozens of properties around the country actually probably hundreds 0% have been affected by floods, droughts, or bushfires. Not because of luck, just because we actually check for this risk. And I think that soon, Austrian investors will realize that it will only get worse and some areas will become unlivable. And it means that no tenants, no one to buy your property,

insurance prices going to the roof. And so people will just flee these areas. on the contrary on the flip side if you find the right areas you will find this perfect location that is not too much affected by climate change and this is not like prospective in the future 5 10 20 years this is happening today and this is a fact now i 100 agree with you we're currently on the hunt for property ourselves and and one of the underlying criteria is areas that aren't going to be affected by climate change so 100 and you make a really good point around the 40 percent of areas that are increasing in value and this is the the big issue when the mainstream media

talks about property markets that don't really exist and they rely just on median price exactly what it tends to do is cover the the variables in below that exactly seeing particular precincts and areas are actually going contrary to what the the medium's telling them so really good information there so drawing that all together then michael what what threats and opportunities is your data revealing and and what do we need to be doing about it yeah so uh there is one so i think there are like uh four main threats and and opportunities the first one i don't think you and me can do much about it but it's the rba panicking again and i think that the policy well uh has been like highly stressful for most Australians and I think that what the market needs now is stability

and confidence right and I think that the RBA is like certainly slowing to realize this but I think this is like really needed uh in the country second risk that I see is that what we're seeing now in the market is that you know so we we're not biased again by about anything so we really analyze any property we have seen in our data that on average of the plant properties tend to underperform uh existing properties uh of course you have exceptions everywhere and if you know like the right person you can find a great deal but on average they underperform what we're seeing now is that some developers are under so much pressure that we're seeing some very questionable behaviors and we're seeing some of our clients come to us say hey guys i made this terrible

mistake i bought this for this brand new property and we're having so many issues so one maybe things to people listening to us is just like be extra cautious if you're going this path because we are seeing some really questionable behaviors there we've talked about climate change and uh we are lucky in australia we have the climate council that provides free mapping tools to check scenarios of the impact of climate change on the property markets right so please it's free to use just check online climate change australia it's free to use it's really easy and if you're buying by yourself like it's uh at least some risk reduction that you will find there speaking of opportunities uh in a world of inflation there is a way to win in property and you are going to win

if you find an area that is able to beat inflation and how do you beat your inflation is if you're able to attract the remaining owner occupiers and investors and steal this market share of investors from other areas. And if you have the right demographics and affordability to make your rental yield go up faster than inflation and interest rates, right? And so where we buy now, Bushy is areas with yield above 4%, with rent going at least twice the pace of inflation, but are significantly below the peak. And of course, that are like very, very far from these climate risk areas and what we believe is that if you invest in these areas you are quite significantly likely to outperform the market right and so and that's pretty clear in the data

and actually when you look at the past decades of data it's pretty clear that in times of inflation some property markets actually go up while some others are much less attractive actually keep going down quite significantly yeah that's a very good way there's always opportunity if you know where to look and what to look for so look I really appreciate you sharing these very timely insights with us Michael and thanks again for your time on the show today thanks for that thanks Michael well the evidence is clear here to give yourself a leg up and overcome your own limitations and other other people's best guesses when it comes to making better informed property decisions you need to turn to independent professionals with access to big data algorithms complemented

by a national network of local property experts like Michael and the Prop Hero Buyer's Agents team, which you can find at prophero.com.au. Keep watching the Property Hub's 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 fined residential investors almost $9,000 in first full financial year deductions. Call BMT on 1300 728 726 today for an obligation free quote. Given the COVID catalyst impact on pouring petrol on the fire

of property values across the country over the last couple of years, a lot of investors are questioning whether it's still possible to find positive cash flow properties. So to help you with this, we're joined by Australia's positive cash flow king, whose first best-selling book, From 0 to 130 Properties in 3 1⁄2 Years, set the standard for how to use the power of positive cash flow property so you never have to work again. And he took this to a new level. And this seminal work has positively influenced the impact on the lives of millions of hardworking Aussies over the last 20 years. And if you haven't guessed already, we're talking about the legendary Steve McKnight, and he's just released his next bestseller,

Money Magnum, How to Attract and Keep a Fortune that Counts. So as a multiple bestselling author, a self-made multimillionaire, and generous philanthropist, welcome back to the show, Steve. Thanks, Bushy. Hello, everyone. Steve, I really want to get stuck into this because it's a great and very pertinent subject in the context of what's happening at the moment. So let's start with the obvious question, can you still find positive cashflow properties? And if so, how and where? That's a good question, Bushy. Do you want to start by having a quick chat about what a positive cashflow property is, just in case there's anyone out there who's thinking, what are we talking

about today? So when you buy a piece of real estate, you can make money out of it by going up in value, capital gains, or you can make money out of it if the rent is higher than the expenses. So a positive cash flow property, as opposed to a negative cash flow property, is one where the amount of money that comes in from the rent is greater than the amount of money that goes out from the expenses. And a negative cash flow property is the opposite, one where the expenses are higher than the income and you make a loss. And a question out of the gate that people might be wondering is, well, why would anyone ever want to buy a negative cash flow investment if it makes a loss? And the answer is because some people want to speculate or take the chance that the amount the property goes up in capital gains will be more than the amount that they lose because the expenses are higher than the income.

And that's also particularly so because when it comes to negative gearing, the Australian Taxation Office will give you a tax deduction for the amount of the loss that you make. And so people who are proponents of the negative cash flow strategy, negative gearing strategy, say that here's a way for the tenant and the tax man to buy the property for you. Now, that's all fine. And that is a legitimate, legal way to invest. It's great for some people, but it wasn't great for me. Now, why wasn't it great for me?

The answer to that was I wanted to be free from my accounting job. I used to work as an accountant selling my time for money. And so I asked myself this question before I'd even bought any property, how many negatively geared properties do I have to own in order to be financially free? And that immediately blew up the strategy of negative cash flow because I needed my job more, not less, with each negatively geared property that I bought because I needed to fund the loss out of something and that fund was going to be lost out of my job. so instead I've focused on positive cash flow property as my vehicle to get to financial freedom with every property that I've bought adding a little bit more positive cash flow to eventually getting to the point at age 32 at the time where I no longer had to work for money now how many properties did I have to buy well it was me and my business partner Dave Bradley at the time

and the answer was about 130 and it took us three and a half years to buy it so what a good name for book, from nought to 130 properties in three and a half years. So that kind of answers the question about positive cash flow, negative cash flow in a very simple way. I'm a very simple guy. I like to explain things in simple concepts. So for whom might positive cash flow be suitable? Well, for those people that want to replace their income that they receive from selling their time with another form of income and therefore to get financial freedom continue to work if you want to but not because you have to yeah and that's what i wanted to do i wanted control back over my time now i don't have a ferrari parked in a driveway and i don't have a yacht parked down at the marina

it was never about materialism for me it was about control of my time so i didn't have to work And that might be interesting to know was because my dad worked very hard in the one job for 40 years plus. And I saw my dad give the best years of his life to something he didn't enjoy doing. And I didn't want to do the same thing. Yeah. So can you still buy positive cashflow properties? Absolutely. Any property where the income is higher than the expenses will be positive cashflow. What complicates it is the amount of money that people borrow.

So if you're saying to me, I want to borrow 100% of the purchase price of a property and I want it to be positive cashflow, I would say you'd have about as much chance of that as me waking up with a full head of hair tomorrow. The answer is very little to none. But if you were to say, I want to buy a property and I don't need any debt,

then I'd say, well, the chances are very good that it would be positive cashflow. but you need to learn how to do the numbers and a lot of people don't know how to do the numbers they're a bit afraid of maths or if they've never been taught so if you don't know how to crunch the numbers on a deal then engage an accountant or someone to help you but better still learn how to do it for yourself the problem comes bushy like i said the more you borrow the more interest you've got to pay the more principal you've got to repay and that can push you into negative cashflow situation. Yeah. Yeah. Extremely well said there. Well, if we look at cashflow properties

then in the current context, are there any risks and limitations in looking at opportunity as we stand? Yeah. Well, the biggest danger at the moment is rising interest rates. And if rents aren't going up and interest rates are going up, then the amount of cashflow that you get from your investments being squeezed. And in Australia, we can inoculate ourselves to a certain extent by fixing the interest rate. But then when we come off a fixed interest rate period, we might find that rates have reset to a higher level and our positive cash flows become neutral or negatively geared. So what I say to people and the way that I advocate investing, and I don't know that I hear too many other people talking about investing this way, is use residential property for growth

and then trade or leapfrog it as you build your capital base. And then when you get to a point when you're ready for income, then swap out of residential into commercial because, and ideally debt-free commercial. The commercial properties that I own, I mean, my portfolio today, people might be surprised to learn it's three properties plus a giant investment

in the fund that I run. And those three properties are all commercial properties owned for income. And they bring in more than half a million dollars of net income and they have zero debt on them. So to me, it doesn't matter what happens to interest rates. They can go through the roof

or they can fall through the floor. It makes no difference. So coming back to what can kill your positive cash flow, on an income side, rent's going down or vacancy, no rent at all. Or on the expense side, your expenses going up, interest rates, management fees, holding costs, ownership costs, those kind of things. And then, of course, you've also got the risk of a value slippage.

If prices start going down, then just as all ships float on a rising tide, all ships sink on a falling tide as well. So they're the three things that you have to manage as an investor. Yeah, I love it. So there's often a discussion around cash flow or capital growth. And, you know, there's a lot of commentators who talk about, well, if you buy for cash flow, you're not likely to get that. What's your view on that? Are cash flow properties likely to enjoy capital growth?

I might have made that mistake before I'd even owned a property, Bushy. I had a friend come to me one day and say, what do you think about investing in Ballarat? Whatever you do, don't invest in original areas. You'll never get any capital growth. And I was only repeating what someone had told me. I didn't know that to be a fact. That was just what someone had said. And then I talked my friend out of investing in Ballarat.

And then three or four years later, guess where I was buying properties? In the rat, Ballarat. And they went up in value. so I don't believe the mantra that you'll only get capital growth in the city, you won't get it in the country. But I have an entirely different way of viewing capital growth. Can I share it with you? Yeah, absolutely. Because a lot of people buy real estate and hope for capital growth. I buy real estate and expect capital growth. Well, how can you expect capital growth? And the answer is, well, before I buy a property, I think about who's going to buy it off me. And I ask myself

these really important questions why will they pay more for the property than i did on what basis will they pay more and how do i make it appealing for them to buy yeah now people think that houses go up in value houses don't go up in value houses go down in value they depreciate right the only thing that goes up in value is what someone believes that property is worth so if you can sit distant to the asset that goes down in value and think why will someone pay more for it than me how do i use my investing skill to bring something to light that doesn't exist at the moment to increase its value greater than the cost of increasing its value to make a margin then that's how i make my profit so i don't buy a property expecting the market to go up it'd be

great if it does it's gravy on top but I buy for capital growth because I buy problems and sell solutions and use my investing skill to fix things and that to me is the art of investing love it I absolutely love that mate a lot of people when I've some some people have leveled this criticism of me it's you know it's easy for you guys because when you did it all those years ago it was much easier and everything else so I'd love to put this question to you if you were starting out again now, in what, how and where would you invest? It's interesting. There was an article I wrote, which appeared on news.com.au, where they featured me for an interview. And I was reading some of the comments at the bottom of that interview, Bushy, and it was like,

what a pile of rubbish. You're such an entitled boomer. Imagine trying to get started today with interest rates where they are and property prices where they are. And I read that and I thought to myself, what a bunch of bollocks. People are always talking themselves out of things. They're always looking at why they can't do something rather than why they can do something. And it was not easy buying real estate in 1999 when I got started. And how many people, Bushy, do you know who bought 130 properties in three and a half years? Do you think that was easy? There's only one and that's you, mate. And my wife and I, we made some pretty big personal sacrifices while all our friends were out buying homes and moving on to their dream homes. Jules and I, we lived

in a freezing cold borderline slum rental on a main road in the eastern suburbs of melbourne in box hill south it was was not a pretty thing yeah so what i what i would say out of the gate is reassess your expectations everyone always thinks it was easier yesterday and it wasn't every generation has its own challenges to face and today's generation is no different and tomorrows will be no different again but here's what I would say if I was to start out again today I'd ask myself the same questions that I started that I was asking back when I got started it's not a question of where and it's not a question of what to me it's a question of how and a question of why what outcome am I trying to achieve and how can I engage in real estate in a way that's

going to achieve that outcome. And it might be buying apartments in some little regional city in some far off destination. It might be buying and trading properties in Australia. I think the New South Wales change to the way land tax and stamp duty are working is going to provide a great opportunity for people to flip houses, whereas before the cost of stamp duty and transacting real estate limited that so there will be opportunities that will open up that people who can think creative can can take advantage of one of my sayings bushy is that as long as people live in houses you can make money out of real estate and i firmly believe that to be true so what i would do is i would maximize what i did have and minimize what i don't have and so if i've got the

skill to be able to find good deals but i don't have money then i would partner with someone who had money but couldn't find good deals to re-establish my capital base and then what I would do at the end of the day is do what I do today I build up that capital base and I'd move on to commercial property eventually where a dollar of rent is plus outgoings whereas in residential a dollar of rent is including outgoings so I think the smartest people I know play monopoly in real life they start by renting properties four green houses one red hotel start by renting move on into valuating end up in commercial just play monopoly in real life it's worked for me yeah i love that mate and you've got a beautiful way of summing it up in in a fashion

that we we get straight off the bat so i really want to thank you for these awesome insights as always steve and thanks for your generous time again on the show today you're very welcome bushy thanks steve well as steam is famous for saying and he just mentioned it then as long as people live in houses, you can make money in real estate. So it's never about when, because the best time is always now. It's more a question of how and why. To secure properties that make money from day one, because you don't want to be a property buyer who dabbles in investing, you need to be an investor who uses real estate, which is another great quote of yours, Steve. And if you want to enjoy more of Steve's words of wisdom, make sure you have a listen to our recent deep dive two-part

conversation on Get Invested that you can hear now on novahfm.com.au forward slash podcast forward slash property hub or wherever you listen to your 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 also 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 or you can get your copy from all good bookstores. You're enjoying Australia's longest running and most popular property show 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. KnowHow has helped over 1,900 homeowners and investors secure more than $800 million 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. Now, before I leave you, here's a final thought from me. There's been a lot of negative Nelly gloom and doom in the mainstream media about the upcoming mortgage cliff in the months ahead, as the 40% or so of property loan borrowers who fixed their loans at historically low rates during

COVID progressively jumped to the current variable rates that are now double to triple what they were back then. Now, this may sound scary, but if you're smart enough and proactive enough, now's the time to do something about it by giving yourself a repayment parachute if you haven't done so already. Now don't make the mistake of waiting until your fixed rate expires before considering your options because by then it may just be too late. Now why do I say this? Because you may get caught in a pincer capacity move where you won't be able to do anything but accept the doubling or more of your home loan repayments that your current bank or lender will revert to when your fixed rate expires. This is because your loan buying capacity will have reduced significantly

with each and every past and future interest rate rise, to the point where you may no longer be able to borrow the amount of your current home loan, which means you'll have no choice but to accept your current bank's standard variable rate at the end of your fixed rate period. And this reduced borrowing capacity risk will only get worse if rates continue to rise. Now, as a rough example, on an average $600,000 home loan, for every 1% rise in rates, the average borrower's lending capacity drops by about $100,000. And we've already seen rates rise by over 3%, which means a $300,000 drop in achievable borrowing capacity or the amount that you can actually borrow.

And for those of you living in areas where property values have dropped by up to 8% to 13% since the peak at the end of 2021, like some areas in Sydney and Melbourne, this may also mean that you're now in expensive lenders mortgage insurance territory, where rates, costs and lending restrictions are much higher and tougher. Or worse still, there may be some of you who borrowed the maximum when property prices peaked and now your loan balance may be getting close to being higher than what the property is actually currently worth, which means that you're in negative equity territory and you won't be able to do anything but accept the significant jump in interest rate payments that your current bank then imposes on you. So here's the catch-22 where you're a little bit caught between a rock and a hard place. If you leave it until just before your fixed rate expires, you may no longer have the ability to refinance to a cheaper loan from the 40-odd lenders and over 2,000 different loan

alternatives available from a good finance broker. And if you refinance now while you're still able to, while you won't be hit with big fixed rate break costs because rates have actually increased since you've locked your loan in, your repayments will increase earlier than they need to, but are likely to be a lot less than if you wait until the death knell. So let's look at a quick example. Let's say you've got a $600,000 home loan with the Commonwealth Bank that you fixed in at 2% until the middle of this year. Your principal interest repayments on this are about $2,200 a month. If you wait until your fixed rate expires and you no longer have the borrowing capacity to refinance, then your loan rate will revert to the standard variable rate at that time,

which is currently about 8%. So assuming that rates don't increase further, which they are actually likely to in the short term, your repayments would jump up to $4,400 a month or double your current repayments. But if you refinance now, if you're still able to, you can still secure discounted variable rates from some lenders at around about the 4.75% mark plus some really generous cashback incentives of up to $4,000 from many lenders meaning that your repayments will be about $3,120 a month. Now this is a reduction of $1,280 a month or over $15,000 a year and that's equivalent to a work pay rise of about $22,000 a year once the taxes factored in, just by refinancing now while you can, rather than leaving until later and

running the risk that you can't. So what do you need to do? Well, here's my suggestion. Reach out to your mortgage broker, or if you don't have one, give the team at Know How Property Finance a no-obligation call and get them to run your numbers in order to determine the sweet spot of what's going to be in your best interest based on your personal situation so that you can take the best action at the best time to minimise your costs and your risks. Making that simple call now could save you tens of thousands of dollars. So don't delay, do it today. And remember that the secret to getting ahead is actually getting started. That's more food for thought and that brings us of the close of this week's show.

Another big thanks to our guests, Kate Bakos, Pete Wargent, Michael Roger, and Steve McKnight. And before we go, 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 enjoy the Get Invested podcast delivered to you each and every week.

Thanks again to realty.com.au, BMT Tax Depreciation, Apiro Marketing, and DM Media for their ongoing support. I'm Bushy Martin from KnowHow Property Finance and along with Kevin Turner and the entire Property Hub Realty Talk team, we thank you for getting invested in yourself by investing in us. 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.