Property Hub - Investment Insights & Inspiration - Realty Talk Vault: Futurerent Funding Benefits

Episode Date: January 4, 2023

We bring you another classic Realty Talk episode from the vault, which was originally published on November 9, 2021, but is still just as relevant today. If you’re a property investor who’s unable to grow your portfolio quickly due to the inability to access equity easily, fast and affordably, then you’re going to love part 2 of Bushy’s chat with Godfrey Dinh who expands on the benefits of new innovative funding solution Futurerent and crunches the numbers. 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.

Greetings and welcome. Now, traditionally, one of the biggest challenges that many property investors face is the inability to grow their portfolio quickly due to the inability to access equity easily, fast and affordably. But all this has changed with the recent introduction of an innovative funding solution called Future Rent. So in part two of our special feature on this equity access alternative, we're joined by the CEO, Godfrey Dinh, to outline how property investors can actually use FutureRent. So welcome back to the show, Godfrey. Thanks again for having me. Great to be here. Awesome. Now, Godfrey, what are the main uses for how FutureRent clients actually use their

upfront rent? So it's really all about wealth creation, or that's the vast, vast majority. So a couple of categories in there. So renovations is a big on people renovating not just their investment property but also often their own principal place of residence because when you think about it that ties into their overall picture as well and ties into their valuation their financing strategy and a whole range of things so in addition to renovation they're buying additional properties and within that obviously there's a spectrum again so we're helping you know not just investors who are buying additional properties in their portfolio but also even for instance the baker mum and dad who you know more

and more are helping out the next generation buying their first homes then people for instance who are rent investors who might have you know one investment property but don't yet own their own home and they're able to get two years worth of rent up front on their property to has a deposit to buy their first home so that's all within the sort of realm of you know investing in property then also investing outside of property into things like small business you know if any of your listeners are sort of small business owners and they've dealt with small business lending they would have found it to probably be very very expensive and difficult as well and that's an area that we're you know doing more and more in obviously tied to just

the investment property but giving people that you know that income up front so they can invest in their business and then investing in things like the share market where you know we're a better alternative to dealing with say a margin or something like that it's super volatile super expensive and you know if you're lucky enough to have an investment property why shouldn't you be able to just get your rent up front use that instead um so um so yeah the vast vast majority wealth creation there's a small percentage in there that's sort of more to do with cash flow and that's understandable because obviously owning an investment property ties up such a big chunk of equity that that can make it hard to manage your personal finances and your personal

budget um so you know a small portion is um is just helping people with the day-to-day um bigger expenses yeah i love it so so quite a broad range of opportunity there so can you give us an example of a recent client who's used future rent godfrey yeah so for example uh we had darren who um he uh actually lives in canberra he's got an investment property in the northern suburbs of darwin a place called ala and that area um i think you know he didn't did well a couple of things that he i think he did well in terms of time to the um the renovation works that he did to the property so um that area is sort of going through like a bit of an increase in rents um but he really capitalised on it by bringing the property up to the market, right? And I think that's happening

in a lot of areas where we've had, you know, some phenomenal rental growth in some areas where we traditionally wouldn't have seen. But often the property needs a little bit of a lift to be able to get the tenant that's going to pay that premium rental. So in his example, you know, the rent was say $500 a week. He spent $25,000 on a renter, just some really cosmetic stuff, and managed to get the rent up to $800 a week, which is an extra $15,000 a year. Now that's like a 60 something percent return on on investment in terms of the money spent on the renter. Most commonly, obviously, it's you know, that's a terrific example. But most commonly, it's less we most commonly say have someone spending say 20 000 on a reno and getting an extra 100 to 200 bucks a week but

that's 20 to 50 percent you know per annum on the actual cash invested and in addition to that you've got the increase in the value of the property which can often help you then you know maybe refinance and play like you know more broadly with your investment or your financing strategy so um so yeah but that's that's i think a pretty good example very good example so um how do you think future rent is used most effectively then well i think it's all about um someone's overall financing strategy um and you know as an example at the moment there are some really low fixed rates right where people can sometimes pay half a percent to a percent less on a fixed rate compared to a variable rate yeah and you know you if you do the math that's maybe on say a five hundred

thousand dollar loan that's maybe fifty to a hundred thousand dollars worth of savings over the life of that loan yeah um so if you're not planning on selling and you're in the property for the long term um then you're best off sort of you know obviously people's situations and circumstances are different but you're best off you know taking out a long-term capital solution that's the most efficient and affordable and then dealing with your more short-term and investment capital related needs with something like future in and then combining that with your investment strategy is where you really really do well and you know to give you another example we've got a client in say southwest sydney who his whole strategy is around you know buying a house that's

big enough to include like a granny flat on the back and and that'll yield him an extra 350 to $400 a week and then he can recycle that capital using future and to do it again pay for the next deposit fund the next granny flat and just recycle and recycle and you know we've got clients doing that sort of all around Australia and in a lot of areas where there has been that rental growth like you know the central coast and some other areas as well where suddenly that rental growth can translate to an incredible return and an incredible capital extraction, which can allow you to sort of do,

you know, a hell of a lot more than you otherwise could. Yeah, brilliant. So you've touched on this already, but how do your clients think about the return on investment after the cost of future rent then? Yeah, so I think people generally think

about the cost of future rent as just like a fixed amount of rent that they're effectively foregoing, which is maybe say 6% of that rent each year yeah um and that's just the cost of getting the money you know up front but it's allowing them to work that equity a lot harder and make the next move and you know work that rental income harder um so on average say for example if you look at a property and the yield maybe is say three to five percent so say five percent for argument's sake so um so if you you

know to make the numbers easy say it's a hundred dollars right we're giving someone five dollars of that property value or five to ten dollars of that property value if they're getting two years up front yeah um yeah and say we're giving them five dollars um and it's costing them six percent so it's going to cost them 30 cents right on that hundred dollars right and if the property goes up by three dollars in a year they've made 10 times that investment and that's the brilliant thing about property right it's leveraged yeah and if you're gonna you know get a nice hedge against inflation um and even take a really conservative view on capital growth which is really just links to inflation the return on your equity can be really really phenomenal um so i think a lot of

our clients like um you know they they see our cost and they they think about it in those terms and i think about it as well look it's like it's a small percentage of a small percentage and I'm going to make a much larger return overall from, you know, being able to move on with my investment plans and unlock the next investment opportunity. Yeah, and I love that, mate. So to sort of crystallise this for us,

can you sort of run through the numbers on future and then summarise the benefits for us? Yeah, so say, for example, your property is rented for $500 a week. So a year's worth of rent would be $26,000. so you get 26 000 up front yeah so that's instead of you know your tenant would have been paying about two thousand two hundred dollars a month roughly right yeah um so um so instead of getting that two thousand two hundred dollars a month you get 26 000 up front um the cost of that is um

basically 130 a month from the rent which is half a percent of that upfront amount yeah 130 a month comes out of that monthly rent paid by the tenant um and then you know the client or the property investors left with then effectively or they're paying back so they choose a three-year term they're paying back um one-third of the rental income each month to future rent so about 850 dollars to future rent and then they're still getting two-thirds of the rental income less our six percent cost so they're still getting over 60 percent of the rental income or over $1,300 a month in terms of ongoing rent that they get every month.

And for most people, and obviously everyone needs to run their own numbers and work it out, but for a lot of people, that's generally then enough to cover their ongoing expenses, their mortgage, their property expenses, all those sorts of things, but they can use this as a tool to bring forward part of that income so that they can invest. and they can think more deliberately about what the best loan is

for their long-term financial objectives rather than trying to maybe optimise for the wrong thing when they're choosing that financing. Exactly, and preserving the equity for other purposes as well. So it's sort of a double benefit there. So did you summarise the benefits for us? Well, I guess from the client's perspective, you know, compared to dealing with a bank, it's quick, it's easy, it's simple.

it doesn't impact your credit you're not dealing with you're not entering into a loan you're just getting your rent up front and it allows you to to do more with your rental income and to to invest and get more out of your investment property so that's what we're really all about yeah I love it I love the all great ideas have a simplicity about them which which yours certainly does. And the ease of access and the speed with which you can do that is certainly a major advantage as well. So I want to thank you for opening our eyes to this exciting equity access alternative, Godfrey. And thanks again for your time on the show today. Such a pleasure. Thanks a lot, Bushy. Thanks, Godfrey. Well, there you have it. So if you're a property investor who's

stuck in no man's land because you can't access equity in your properties to build your portfolio, or you need funds for other purposes or it's just too hard, time-consuming, expensive to refinance, then reach out to the team at Future Rent at futurerent.com.au. More to come. So keep watching here on Realty Talk.