0:02

G'day folks . Now , steven Covey

0:04

once talked about begin with

0:07

the end in mind , and you know , Bryce

0:09

and I are constantly talking about plan

0:11

to become what you plan to become , and

0:13

that leads to the whole conversation around

0:16

. Well , once you build this wealth through

0:18

property investing , how do you exit or

0:20

do you exit ? And so that's what this

0:22

episode is about . We're going back into

0:24

our back catalog and we're looking at all

0:27

the information . Our foundations are

0:29

still exactly the same back in 2015

0:31

as they are to today . So in this episode

0:33

, we're winding back the catalog and

0:36

we're talking about buying and selling , and

0:38

we're also talking about buying and holding and

0:40

the different ways in which you can exit

0:42

the property investment market . So I hope

0:45

you enjoy it in terms of listening to us

0:47

way back when and you get those

0:49

fundamental takeaways as you critically

0:51

need for building wealth and success . So

0:53

remember knowledge and powering , but only

0:56

if you act on it .

0:58

Alright , folks , you're on the property couch , you're inside as

1:00

guide to property investing . I'm Bryce Holdaway

1:02

, cohost of Location Location Location Australia

1:05

on Fox sells lifestyle channel , and he is

1:07

Ben Kingsley , the chair of the property investment professionals

1:09

of Australia and also the current property

1:11

investment advisor of the year . Hello , mates

1:13

, how are you Good ? How about there you go Very , very

1:15

well , thanks . We talked last week about the fact

1:18

that we're going to talk about exit strategy .

1:20

Yes , we did . But more importantly

1:22

, I saw the new money magazines out this week

1:24

and there's my

1:27

mate who's put together a fantastic

1:29

article on how to create a

1:31

passive income 55,000

1:33

a year , debt free . So check

1:35

it out . In the Money Magazine it's got some great

1:37

stories of case studies . So

1:39

we did three case studies .

1:41

Yeah , three case studies . Our good friends at the Money

1:43

Magazine , fesr Hoss , has asked us to contribute

1:45

, and you say me writing the article . I think it was a team

1:47

effort . Well , yeah but your words . I

1:50

wrote the words surrounding the strategy and

1:52

ultimately it's a story about exit

1:54

strategy . So it leads into what

1:56

we're talking about today . But I wanted

1:59

to start off by saying that and I've mentioned

2:01

this before on the podcast that really , for

2:03

me , I had a mate who was

2:05

when I was 18 , bought an investment property . I

2:07

asked him why did he do it ? And

2:09

he kind of said , well , because my dad told me I'll

2:11

get some tax back and it's going to grow up in value

2:14

and I can sell it and I can make some money . And

2:16

it's like , wow , you know , that's interesting

2:18

. What can you tell me more ? And he goes well , I can't actually

2:20

tell you much more , because my dad told me what to do and

2:22

you probably need to have a chat with him . So it

2:25

wasn't I can't remember exactly when , but it wasn't that

2:27

much longer . I was studying at uni to do

2:29

accounting and I was watching

2:31

. You know , as all good uni students do , at lunchtime

2:33

they're at home watching television rather than studying

2:35

. And the Ray Martin show came on in

2:37

Jan Summers , who I haven't met yet and I would

2:39

love to meet . She was up

2:41

on the white board scratching around some

2:44

numbers , talking about buying investment properties , how

2:46

the tenant and the tax man can pay most , if not all , of your

2:48

bills , and at some point in the future you can sell these

2:50

properties and you got some cash . And that was actually

2:52

the catalyst to why I actually

2:54

got involved in property investment in the first place

2:56

. But it's not the only exit strategy

2:59

and since I've been doing this for the last 16

3:01

years , there's been some evolution of different strategies

3:03

one that I've learned very much from you and

3:06

then another one that I've learned from some other mentors

3:08

before , but we got lost to talk about today

3:11

, mate . So where do you want to kick it off ?

3:12

I think before we start with the

3:14

exit ideas or the concepts

3:17

in terms of how we get out there . One

3:19

thing that's really important with anything

3:21

you do I mean property investing is a business . So

3:23

as a business , you got to say to yourself okay

3:25

, well , I need a business plan , and

3:28

obviously that's a property wealth plan , and

3:30

then I need to basically work out , as part of that

3:32

business , what's my short , medium and long term

3:34

goals ? Okay so , and how do they align

3:36

to my personal goals and the values of me

3:38

as an individual ? So we've covered off on that

3:41

, you know , in earlier podcasts . So

3:43

, if we start with the end goal in mind , it's

3:45

plan to become what you plan to become . And I remember

3:47

, probably when I was 28

3:50

, 29 , and I was just recently

3:52

engaged and getting serious

3:54

about things and had already a few properties behind

3:57

me and I was trying to work out how

3:59

the hell , how many more do I need before

4:01

it becomes enough ? Because we're about to start a family

4:03

, you know . And then we wanted to work out

4:05

what we wanted to do with those kids , in terms of how

4:07

many we were going to have , whether we're going to

4:09

put them through school , and so if I'm

4:11

going to go off and spend another $500,000

4:14

or $750,000 on buying the

4:16

property . I've got to work out that I can hold

4:18

it for the medium and long term . So you know that

4:20

was the origins of the simulator software that was

4:22

built and etc . Etc , etc . And

4:25

so coming back to the point of the

4:27

end game , what was fascinated

4:30

about when I actually built this simulator was one of

4:32

our business partners , michael Pope , as you know , was

4:34

that I only needed one more property

4:36

to have $160,000

4:39

passive income in retirement by

4:41

the age of 50 . So that was a real

4:43

oh great . Don't need to have 15

4:45

, 20 , you know these types of numbers . I

4:48

was just looking at capital growth properties sensibly

4:50

bought over time . Now , not everyone's circumstances

4:53

are different . We said that sometimes we've got to buy more

4:55

and sometimes we've got to chase a bit more yield

4:57

because cash flows are a bit tighter . But that's

4:59

where that origins come from . So and

5:02

I was with the client last week and

5:04

sitting down doing a plan for him and he said

5:06

so what's the end game , what's the ? You know , he

5:09

wanted to know the outcome at the end , which I

5:11

thought was good , because most people don't think like

5:13

that . So I said I'm going to do a podcast

5:15

on that just to explain to them that

5:18

there are several options . So do

5:20

you want to start off with ?

5:21

you know the first one that I came

5:23

across when I first started getting involved

5:25

in property investment advising commercially

5:28

was seven properties in seven years . That's

5:30

the classic , isn't it ? That was the plan and

5:32

at the time it was like , oh , that sounded pretty good

5:34

. The idea of getting more than one property was daunting . But

5:36

why seven in seven ? And it was ultimately

5:38

because the doubling cycle , if it

5:40

was a 10% growth , would double every seven years . So

5:43

the idea was , when you got to year eight

5:45

, you would live off the equity

5:47

in property one , you know , and you live off the

5:49

equity in property two and become this rotating

5:51

cycle . But what , ultimately

5:53

? The challenge with that at the time was everyone was

5:56

doing models of sure , that's okay

5:58

, it can work on paper in terms of equity , but what about

6:00

in terms of the bank lending the money , the servicing ? So

6:02

that was the often challenge .

6:04

And that's why I think you see a lot of operators

6:07

out there and commentators talk

6:09

about that they have to chase your yield properties

6:11

because you know they hit borrowing

6:14

power limits , and I don't necessarily

6:17

agree with that concept . I mean , the reason

6:19

why they're doing that is because it sounds like everyone

6:21

can do it , because if the property is cash flow positive , well

6:23

, just keep buying them Like Monopoly . Everything

6:26

you land on your buy . You know that type thing

6:28

and that's not necessarily the case for

6:30

everyone . There's professional people out there

6:32

on really good incomes and from that

6:34

point of view it would be silly for them

6:36

to be buying these cash flow positive properties

6:38

, because usually they're in areas where there's

6:41

a little bit more maintenance that needs to come . The

6:43

tenants aren't necessarily the greatest . There's

6:45

a lot more volatility in that particular market . So

6:48

again , it's a classic case of horses

6:50

for courses . And so you know , I remember

6:52

hearing a very prominent tax

6:55

advisor of the day you know this is

6:57

going back probably some 12 , 15 years ago

6:59

talking about the new paradigm

7:01

of equity , and this is one of the extra

7:03

strategy guys , which is , you know , living

7:05

off equity . So that's basically saying

7:07

build up this portfolio and

7:10

the value of the properties is going to

7:12

increase quicker than

7:14

what you're servicing the debt . So don't even worry

7:16

in some case about paying the debt down . And

7:18

then , once you build a million dollars in equity , if

7:20

you've got these magical lines of credit

7:23

, then you'd be able to live off that . And and

7:25

you know they're talking about the benefits of that being

7:27

tax free because effectively you're

7:29

using borrowed money and you got interest on

7:31

interest . So that was that was an interesting

7:33

one at that time , and that was when no docs and low

7:36

doc loans were flying around everywhere . Well

7:38

, guess what happens when everyone does that ? It's called a

7:40

GFC . You know where people

7:42

live beyond their means and we're starting to see

7:44

more and more leverage into the property space

7:46

in Australia and that's a little concerning for

7:48

me . You know , not everyone can invest in

7:51

property and if we have 50 or 60% the

7:53

population doing it , well , we're going to have a bit

7:55

of a problem . We're going to have no on to rent our properties and

7:57

we're going to have a correction in terms of value

8:00

because we see this price above coming through .

8:03

I think the challenge is that most people know

8:06

that they I always say a goal without

8:08

a date is just a dream , right ? So people have

8:10

this dream of financial

8:12

freedom of some sorts , and but

8:15

I often wonder if people really think

8:17

about what that means . Does it ? Because it doesn't necessarily

8:19

mean the guy standing

8:21

provocatively on the front of his Ferrari

8:24

with a personal jet behind you know that

8:26

that's ultimately what sells

8:28

the sizzle , but correct the end of the day . Tim Ferriss

8:31

is one of my favorite authors . He writes

8:33

a blog you know that I bang on about him

8:35

and he wrote a book called the four hour workweek and he talks

8:37

about that . It's

8:39

all about being experienced rich and

8:42

time rich , and that's actually what you're

8:44

doing it for , not so you can impress your mates

8:46

. You got 1000 properties and I remember

8:48

one of the clients that I was dealing with she

8:50

had hundreds . That's not

8:52

true , actually she had scores of properties and

8:55

I remember just looking at me going I wish I could

8:57

just sell them and hold three or four really good ones . So

8:59

ultimately it's about . it's not about puffing

9:01

your chest out saying , hey look , how many properties I've

9:03

got . It's about how much value do I have , and

9:05

then the end goal is how much income

9:08

can I pull from it so that I can go and

9:10

get as many experiences in life that I can and

9:12

buy back as much of my time as I can

9:14

? And I think if you can get the investor to

9:16

remember why they're doing it , then

9:19

we can focus on what we're actually doing , because I've

9:21

evolved . The Jan summers by and sell

9:23

down was my initial introduction . I've been

9:25

doing this 16 years intensely . So it's hard enough

9:27

for people who not doing it all day , every

9:29

day , just starting out . And then it was the debt

9:31

servicing debt the seven properties in seven years .

9:33

And then I've got to hand it to you .

9:34

When I first met you , you

9:37

said that you don't need to have a big

9:39

swag of properties . It's all about optimal

9:41

finance strategy , buying the right properties

9:44

and retiring the debt so you can have the passive

9:46

income and property you make , because there wasn't that many people at the

9:48

time doing it . It's now more popular now because you're

9:50

making it more popular , but at the time it was more

9:52

about the debt servicing debt scenario

9:54

.

10:27

Yeah , and I mean the reason

10:29

why everyone hooks

10:32

in on the idea of 20 properties , because

10:34

people automatically think that they're more

10:36

successful because they got more . But

10:39

I mean , during the DFC I could have

10:41

got my credit card out which had a $10,000

10:43

limit on it and I could have bought 45 properties

10:45

in Detroit on my credit

10:47

card . Now , bearing in

10:49

mind there probably wouldn't have been any copper left in them and they

10:51

probably would have had a few broken windows and so forth . And

10:54

my favorite line , which a friend of mine once said to

10:56

me , and also the chalk outline

10:58

of people who they've scraped off the street

11:00

. But the point being is that

11:03

that's the challenge you've got out there in terms

11:05

of that's the perception so they're trying to

11:07

create , like the Ferraris and the

11:09

yachts and all that type of thing . They're trying to tap

11:11

into everyone's psyche about selling the

11:13

sizzle , when in reality and

11:16

what what we're about is bringing

11:18

it back to core values . What's

11:20

fulfillment for you and in

11:23

usually in life , because you can't take the money

11:25

with you it's about experiences

11:27

and having the time to have those experiences

11:30

, and they can be different for different people . They can be

11:32

about , you know , living vicariously

11:34

through your kids and giving them the

11:36

best opportunities . It can be about the best

11:38

health treatment for for a family

11:41

member . It can be about we're

11:43

not having kids and we want to sit on

11:45

the QE to and have a private butler

11:47

for the next six months , going around the world and opening

11:49

up our you know , working up to a new destination

11:52

every couple of days . Whatever

11:54

floats your boats , good money's just

11:56

a means to an end to do that . So that's

11:58

the big point around . You know why we

12:01

actually do what we do , and there's nothing

12:03

more fulfilling in the work that we do to

12:06

change people's lives Is it great .

12:07

It's like the book the Millionaire Next Door . I mean , when you read

12:10

that book , it's the people who

12:12

are the Millionaire Next Door are the people that you generally

12:14

wouldn't suspect , because they're not driving the flash

12:16

car , they've got the standard A

12:18

to B car . They just know that they're accumulating

12:21

assets . And for me , the idea of wealth and it's different

12:23

for everyone is being able to make sure I've got a roof

12:25

over my children , my children's head , and

12:28

then being able to just go off and travel

12:30

at my leisure . I don't want a big boat , I don't

12:33

want a big jet , but again

12:35

, that's . That's that's . People have got different things

12:37

, but the point being is , ultimately I

12:39

think it's really important when someone comes into this

12:41

business and we talk to them they've got four

12:43

expense categories their discretionary spend , their

12:45

bills , their loan payments . And

12:47

the fourth one escapes me .

12:49

Just general spending . So discretionary bills

12:51

, fixed payments and

12:53

you know lifestyle .

12:55

So we always say to them how much passive income do

12:57

you want to

12:59

to fund a lifestyle ? And they go with

13:02

no reference . They go 150,000

13:04

, because it actually sounds . It

13:06

actually sounds like that's what they want . But then

13:08

when we unpack it and we say do you know if you didn't actually

13:11

have a mortgage on your home and

13:13

you could retire all the debt on the investment

13:15

properties , the two expense categories that

13:17

are left suggest you only need $75,000

13:20

in today's money to actually

13:22

not change your lifestyle at all . And if

13:24

you try and just buffered that up a bit because if you

13:26

weren't going to work every day you'd need to go on

13:28

an extra holiday or , you know , go over to Tasman

13:30

, so you need to give it a bit of a premium and

13:33

they're quite surprised at how little in

13:35

today's dollars they actually need

13:37

to achieve a lifestyle that doesn't

13:39

see them compromising at

13:41

all , which is what the general sort

13:43

of super or pension plan is looking like .

13:45

Such a such an important message . I'm going to go

13:47

over what Bryce just said again because I wanted

13:50

to drill into you . When you do

13:52

your bills and your spending and

13:54

that spending can be essential and discretionary

13:56

you total those two together

13:58

. You take out any debts that

14:00

you're servicing because hopefully down the track we'll

14:03

have them paid out . In addition to

14:05

that , if you've got a couple of kids that

14:07

make up that cost base , factor

14:10

them out as well , because at the end of the day they're going to leave the

14:12

nest . Work out what that number

14:14

is . Ask yourself if that's the

14:16

, if that's the type of lifestyle that you want

14:18

to lead and in some cases some people

14:20

live very nicely now then bang

14:23

, there's your baseline , there's your point of no

14:25

return . And then if you want a little bit more

14:27

on top of that , well , let's get to work

14:30

. So it's either get to work to meet that

14:32

minimum requirement or let's get

14:34

to work to . To our perform and

14:36

in our Soviet is 75 , but they want to chase

14:38

maybe 100 . And that's a massive

14:41

number . $100,000 in passive

14:43

income in life says you got $2 million at

14:46

earning 5% . So they're

14:48

big numbers and that is another great segue

14:50

back in to the points that we want to talk about

14:52

, which is the exit strategy . So I'll

14:55

lead off whilst you have a cough , and

14:59

so the first one is

15:01

usually the question we ask is

15:03

what's the legacy

15:06

? Do you want to pass on a legacy to the next

15:08

generations ? Have you been fortunate

15:10

enough where you may have received an inheritance

15:12

and you want to leave that legacy ? Or

15:14

that classic conversation about catching

15:17

me a fish and I can eat for the day

15:19

? Teach me how to fish and I can eat

15:21

for a lifetime ? Well , that's legacy

15:24

is about that . It's about sort of giving them a baseline

15:26

on which they can then improve that journey

15:28

and take the next generation through

15:30

. So legacy is what we

15:32

call a byhold , which means that the

15:34

focus is on trying to retire

15:37

the debt completely out and

15:39

live with those properties indefinitely

15:42

and not even sell them . So

15:44

this is no sell down . This is the Nirvana

15:46

strategy in my view , because it's basically

15:48

we're debt free , we've got the passive income

15:50

coming in off the properties and when we die

15:53

, we bequeath those assets . So there is a better

15:55

tax outcome than what we would incur

15:58

if we were selling them prior to passing

16:00

away . So from that point of view , that's

16:03

a really big one .

16:04

And in terms of for you , would that be fair

16:06

to say ? In my experience , watching you build

16:08

plans , that's your default position . You're trying to do that

16:10

first .

16:10

Oh look , yes , Now there's

16:12

always an exception to the rule , and the classic exception

16:15

to the rule is I actually don't have a

16:17

family . You know we've decided not to have

16:19

kids and so we

16:21

don't need to pass that on . You know

16:23

I'm a single person and

16:25

you know I've never married and I basically

16:28

just want that money to see me out . So I want

16:30

the best medical treatment , I want to see the

16:32

world , I want to do those things . So it's

16:34

a sell down strategy , which is the perfect

16:36

segue in the second one .

16:37

Yeah well , the sell down strategy , as I said , that's the chance

16:40

someone's one that I saw . I'm less . I'm

16:42

less liking this one because it's selling

16:44

the goose that laid the gold neck , but

16:46

, like you say , someone who ? I mean

16:48

it's like getting rid of the cow and not having the milk forever

16:50

. So but for some people , like you say

16:52

, in certain circumstances that works . But

16:54

for me , the sell down , because you're

16:57

paying capital gains tax , you're paying

16:59

agents fees , you don't really want to necessarily

17:01

give away any of your hard work , and my first

17:04

property mentor said to me you

17:06

should never , ever sell . Now

17:08

I've adjusted that slightly to hardly

17:11

ever sell , because there are some circumstances where

17:13

you should , and generally only if it means that you

17:15

can get into a better position . But

17:17

generally speaking , the idea of selling

17:19

is not my preferred method

17:21

at all . So it's probably that it's probably number three in order about

17:24

three exit strategies today . For now , correct

17:26

.

17:26

So let's say we get to our retirement

17:28

age , or our model show , or your model

17:31

show that you get to retirement age of

17:33

60 , and there's still $400,000

17:36

in debt left . Well , you've turned off

17:38

your your wage , you've turned off your income

17:40

and now you've got to try and see if the properties can handle

17:42

all of that debt . In some cases

17:45

maybe they can't , so the

17:47

sell down might be triggered as

17:49

soon as you get access to your super . How long is

17:51

that super going to last you ? And we use

17:54

a rough rule of thumb here and it's just a very

17:56

rough . But as soon as we get to $100,000

17:59

of liquidity in

18:01

assets or income , we then trigger

18:03

a sale of a property . So let's say we have bought

18:05

four or five properties and

18:08

we've worked out that even when we

18:10

retire , we're still not servicing

18:12

the debt because we haven't generated

18:14

enough . Because our models say if you want $100,000

18:17

, it automatically gives you $100,000 discretionary

18:19

income and then it also captures

18:21

the holding costs , so that looking

18:24

after the property . And if there's not enough

18:26

there , what happens is we start to see our bank balance

18:28

go down . So selling down one

18:31

of those properties , still keeping four

18:33

, means we get a big

18:35

payday . Yep , sure , we pay capital gains

18:37

but we get a big payday , and that that might then

18:40

be enough to have the debt either paid

18:42

out or they might . In some cases it might be

18:44

two , but you've still got a legacy . So

18:46

so , for the listeners , a really important

18:48

point here is if you're trying to do this strategy

18:51

, make sure that you factor

18:53

in that you can hold every property for

18:55

a minimum of 10 years . Okay , so

18:57

I'm going on a bit of a tangent here , but

18:59

the idea is , if you're trying to buy a property

19:02

and and hold it for

19:04

three or four years , you'll lose money , usually unless

19:06

you're really elite at timing the market

19:09

. So you know , 10 years just

19:11

gives the property enough time to breathe . I've talked

19:13

about , you know , my fine wine concept before

19:15

.

19:16

So that's your version of short term

19:18

. Property is 10 years .

19:19

It is . It is my version of

19:21

medium term is 15 to

19:23

25 years and and my terminology

19:25

of long term is indefinite . So

19:28

that's the sort of message there . So there

19:30

may be a portion of sell down , but

19:32

it's not necessarily sell down the whole lot

19:34

. And in some , with some clients that we've built

19:36

these models for , because at the end of the day , I mean I've

19:39

built over I think about $700

19:41

million worth of property models for clients . So

19:43

from that point of view it's I've got a fair , a fairly

19:46

good idea of how many you know how

19:49

different clients and again about tailored solutions

19:51

. So that's where we go with

19:53

it . So sell down could be a possibility

19:56

, but again , we would normally do it only

19:58

if we had to . So it's a great point you made before

20:00

.

20:00

So , therefore , legacies number one , where

20:02

you hold everything and then , if necessary , you

20:04

do some sell down , correct , what

20:06

about ? What are your views on live

20:09

off ?

20:10

equity , yeah . So again

20:12

, this was a concept that came out pre

20:14

GFC . We talked about it earlier . There's

20:17

some positives around the fact that you're

20:19

living off basically

20:21

lines of credit , so they're you know their limits that

20:24

you've established before you retire

20:26

. So you've gone to the bank and basically

20:28

lined up all these limits and you can live off

20:30

that and technically that's tax free , with a combination

20:32

of super and everything else . It's

20:35

a living . You can do it . But

20:37

in reality I'm you know , my default

20:39

position is I want to try and see these people hold onto

20:42

these assets as long as they can . So from

20:44

that point of view it's available to you and it's

20:47

an option that some people may consider . The

20:50

other option is the reverse mortgage

20:52

, and I should also

20:54

point out that when we do simulated

20:56

models , this is about

20:59

retiring with no

21:01

, so self-funding retirement . So

21:03

it just means there's absolutely no pension

21:05

. So we don't factor in any pensions

21:07

or any support from any other one . Else People

21:10

come into us to get a plan done and they're

21:12

looking to sort of say well , you know , don't

21:14

rely on pensions . If there's a pension

21:16

, that's gonna come in and it will . So if your asset base

21:18

drops significantly , you'll be able to get eligibility

21:21

for a pension , but in terms of the models we

21:23

built , no , we're trying to say this is

21:25

self-funding retirement , which I think what

21:27

every Australian should aspire to . Is

21:29

that self-funding retirement ? So

21:33

we've got the lines of credit , or living off equity

21:35

. The other one is reverse

21:37

mortgages . So reverse mortgages wanna

21:39

tell the viewers about ?

21:40

it . Well , you're the finest guy , so I think it's gonna be

21:42

short and technical for you .

21:44

So reverse mortgage is a simple concept whereby

21:46

we go to a lender and

21:48

we basically say here I've got a $500,000

21:52

house , it's got zero mortgage

21:54

against it , so it's unencumbered . But

21:57

I'm cash flow poor and being cash

21:59

flow poor , I'm saying to a lender , can

22:01

you give me an income streamed

22:04

from that property ? So what's happening is

22:06

they can release it as a lump sum

22:08

or they can release it as a partial income

22:10

every month and

22:13

then the owner just leaves off that . So asset

22:15

rich , cash flow poor type person . So

22:17

we saw again pre-GFC , this

22:19

was gathering momentum and , with an aging population

22:22

which have a lot of their Australian

22:24

assets are all caught in property just on $6

22:27

trillion . Now , latest data

22:29

out of RP data , core logic $6

22:32

trillion worth of value is in

22:34

our family homes , the residential property across

22:36

Australia , which is phenomenal . So

22:39

reverse mortgage is exactly that where

22:41

you're talking about gaining

22:44

some of that cash whilst holding onto the asset . Now

22:46

what happens at the end ? It's really important

22:48

to understand . Reverse mortgages had some headwinds

22:50

in the fact that when they're signing it over

22:53

or signing the mortgage documents , the

22:55

family members , ie the ones who are potentially

22:57

going to be bequeathed these assets have

22:59

to sign off because , you know , last thing

23:02

you want to do is a will , contest it and so forth

23:04

. Now , early on , reverse

23:06

mortgages were right up to 60 , 80%

23:08

of the value of the home . So once

23:11

the vendor passed away

23:13

, the asset was sold and what was ever

23:15

left over was passed on to whoever and

23:17

the debt was paid out . Because when you're doing a reverse

23:19

mortgage you're getting interest on interest . So

23:21

you're taking the money out that's borrowed money and you're

23:24

incurring interest , and then that interest is

23:26

adding to the balance which is incurring interest

23:29

. So it's interest on interest . So a

23:31

lot of people don't like that concept . So

23:34

that hasn't been as successful as what people

23:36

think . But there's something else that's brewing that

23:38

we think will come into play in the next few years .

23:40

Bruce Agreed and I think that

23:42

you talked about control before , and

23:44

I think the challenge with the reverse mortgage

23:47

scenario is you don't have control because

23:49

you're relying on someone else saying yes or no

23:51

, yeah . So , in

23:53

terms of what we talked about before , if

23:56

you can and again it's horses for

23:58

courses , tailored solutions , different for different

24:00

people but the reason that I think that

24:02

what you introduced to me about five

24:04

years ago is Nirvana is because if

24:06

you're controlling your cash and you

24:09

have zero debt , or

24:11

if you've got offset accounts that are equal to your debt , there's

24:13

no one who can change the rules and

24:15

take away what you've worked hard to

24:17

do versus . I always talk about

24:20

the equity

24:22

servicing , the equity model . Generally speaking

24:24

, the people who do it . Well , you know , there's the

24:26

front door , the side door and the back door with the bank , and

24:29

generally those people who build big portfolios

24:31

usually get in the back door . They talk to someone , they

24:33

can see it as a business case , but they're usually the

24:36

exception rather than the rule . And so the challenge I have

24:38

with equity servicing equity

24:40

and , let make no mistake , it works . But

24:43

there's a couple of things . One is that the decisions

24:45

have been taken out of your control because you're really relying

24:47

on a bank manager to say yes or no . And

24:50

the second thing is , ultimately you've

24:52

got to be able to be in a position where this equity

24:56

is usable

24:58

and it can't be taken away from you

25:00

, and if you've got the cash in the bank

25:02

accounts for yourself , in my

25:04

view that's nirvana . And I

25:06

guess , if 73% of all property

25:08

investors stop at one that was my other point if

25:10

73% of all property investors stop at one , the

25:13

debt servicing debt model usually relies on you

25:15

continuing to buy more and more and being comfortable

25:17

with more and more debt and the

25:19

average Australian isn't True , and the

25:22

big elephant in the room here is

25:24

it relies on property values increasing

25:26

.

25:26

So some of these properties that you're buying , usually

25:29

for high yields , have pretty poor capital

25:32

growth stories . So if you

25:34

don't get that growth yet , some

25:36

person came into your home and told you how

25:38

to do this , or you've watched some sort

25:40

of fancy video where they're showing

25:42

you how you buy one a year or whatever , and

25:45

then all of a sudden the assets don't perform and

25:47

the equity's not there , or guess what ? You

25:50

put all your opportunity cost into the one basket

25:52

and by doing that you've just limited your

25:54

opportunity .

25:55

So Let me ask you this question of all the plans

25:57

that you build and what we'd be talking between

25:59

100 and 200 a year .

26:01

Yeah , well , I've probably done now probably almost

26:03

400 plans . Yeah

26:05

, and we average now about 150

26:08

plans a year .

26:09

Of those question without notice doesn't have to be

26:11

specific .

26:11

Yeah .

26:13

With the plan generally around having the principal place

26:15

of residence and paying that off , and then a number of investment

26:17

properties . Generally speaking , how many investment properties

26:19

do you think the average

26:22

person that you build a portfolio for need

26:24

? Four to five maximum

26:26

.

26:26

Four to five , yeah .

26:27

Interesting Some three . Quite

26:29

often they're three . So there you go , listeners , the

26:32

front page of the magazines where you get the

26:35

small percentage of the population who bought seven properties

26:37

in seven minutes or 22 properties in 22

26:39

months is not necessarily

26:41

what you need , because here

26:44

you are building portfolios for real people every

26:46

day and generally speaking , it's five

26:49

and often less .

26:50

Yeah , and that's because what

26:52

you're doing every day is going out and buying

26:54

quality assets . It's

26:56

all well and good to get the planning right

26:58

, but the implementation is absolutely critical

27:01

. So obviously in future podcasts

27:03

, let's talk about that in terms of

27:05

asset selection and really drill down in that , because

27:07

, again , ultimately

27:10

your returns don't come from the interest you pay

27:12

. Good cash flow management's great , but

27:14

it's the return that we're looking for

27:16

from the investment and

27:18

, from my point of view , property is just a vehicle

27:20

for that . So getting the

27:22

science behind the selection and

27:24

the timing of the

27:26

purchase in a particular location is

27:28

absolutely number

27:30

one in terms of what it looks like .

27:33

By investment grade versus investment stock

27:35

. Now there's one other thing you wanna talk about .

27:36

Well , I think you'll just finish off

27:39

with something that will happen in our marketplace

27:41

. As the value of people's

27:44

wealth is caught up in their family homes

27:46

, everyone's looking

27:48

for solutions to get access

27:50

to that . Governments have got

27:52

pressure around their pensions and so forth

27:54

, so we think there will be someone

27:57

that comes out into the marketplace that looks to

27:59

do fractional selling . So what

28:01

I'm talking about there is in a marketplace

28:04

where people can sell 10% of their family

28:06

home or 10% of a property and people

28:08

can buy that and trade that as

28:10

an asset . Now that is a game changer

28:12

and it just means that property

28:15

would have come of age as an investment product

28:17

, and that's a good thing

28:19

, because one it means that that household

28:21

who might be struggling or really

28:23

loves the area that they're in won't have to downsize

28:26

, won't necessarily have to move , but

28:28

knowing they're still in control and

28:30

that people are just basically giving them some cash

28:32

in which they can live on , I just

28:34

see that as being something that will get

28:37

momentum over the course of the next

28:39

10 , 20 years .

28:40

Yeah , think of someone who lives in

28:42

Port Melbourne or Middle Park or

28:44

Bulimba or Easton

28:46

, sydney , who have been there since

28:48

the 50s and the 40s , when it wasn't as popular

28:50

to be there , and now , all of a sudden , as you say

28:52

, they're asset rich , cashflow poor , and

28:54

that would just give an opportunity for an investor

28:56

to buy in a blue chip location and give them an opportunity

28:59

to stay in the house that they've lived in for 50 , 60

29:01

, 70 years , which will be good .

29:02

Yeah , and the assets gonna keep appreciating

29:05

too . So it's almost like they may sell 10%

29:07

and that gets them another 10

29:09

or five years , and inside that time the asset's

29:11

growing . So there's not been any real loss , as

29:13

opposed to cashing out of that and thinking they've

29:16

got to sacrifice . So I think there's something in that . So keep

29:18

an eye on that everyone .

29:19

So there you go , listeners . In summary , we think there's three exit strategies

29:21

. I call it the buy and sell , the buy and hold

29:23

with debt , servicing debt and the buy and hold where

29:25

you retire the debt bends called it the buy

29:28

and hold as the legacy , the sell

29:30

down and the live off equity scenario

29:32

. So it'd be interesting for

29:34

people to let us know what their strategies are . Feel free

29:37

to send us a little note via the property

29:39

couchcomau to let us

29:41

know what your exit strategy looks like

29:43

, what it was . Did today's podcast help

29:45

you define that ? Do you need some more information ? Let

29:47

us know so that we can fine tune

29:49

a few of those for future podcasts

29:52

. Now , as I said , as Ben said

29:54

at the top of the podcast , if

29:57

you go to the stands now , the Money Magazine article

29:59

is there on how to create a $55,000

30:01

passive income . It is actually using

30:04

the buy and hold and retire

30:06

debt strategy . So you can see that it actually

30:08

shows you the portfolio that we built for a

30:11

divorcee , a young

30:13

couple well , youngish

30:15

in their 30s with two young kids

30:17

.

30:18

Well , young couple who can afford to get into property and investing

30:20

more to the point , you know .

30:21

And then a rent vesta . We talked about a rent vesta .

30:23

Yeah , yeah , good .

30:24

So we've covered off a few things . Anything else you want to cover off today

30:26

, man ? No man , I'm good , you're very good . So , as

30:28

always , if you can go to our Facebook

30:30

page , go to our Instagram , twitter

30:33

, like us and spread the message

30:35

. Equally , for those of you that did vote for us in

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30:40

Choice Awards , we really thank you for taking the time to do

30:42

that . And again , if anyone has a newsletter

30:44

, electronic newsletter , that they'd like to send

30:46

out a property couch to your list , please do

30:48

so . Send us an email at the property couch . I

30:50

just will give you a newsletter kit that will make

30:53

it really really easy for you To

30:55

run through . So next week we're gonna

30:57

have a bit of fun . There's a Steven

30:59

cubby who's the late . Stephen cubby wrote

31:01

a book called the seven habits of highly effective people

31:03

. There's seven points in there . We're actually

31:05

gonna dissect each and every one of those points

31:08

and how it relates to being seven

31:10

habits of highly effective property investors . So

31:12

can't wait for that one very much looking forward

31:14

to doing that . So I'm Ben , I'm sure you've researched

31:17

, probably all around the world , which way we're gonna sign off

31:19

today .

31:19

I am just so so

31:21

organized German , today

31:23

German today , or our folks , or about to

31:25

sign up .

31:26

It's thanks again to all our listeners . We've

31:28

we've hit 20,000 , in fact in excess

31:31

of 20,000 , downloads , which we're exceptionally

31:33

proud of . We thank you for doing that , I'm thinking , for spreading

31:35

the message . But Until next

31:37

week I'll be the .

31:39

Zen , I'll be the Zen .

31:41

There you go , folks . See you next week . Bye for

31:43

now

31:46

. Hey folks . Bryce , here again . I just wanted to catch you

31:48

real quick before you go . If you're

31:50

new to our community , I want to encourage

31:52

you to listen to our very first 20

31:55

episodes , as the concepts we share in

31:57

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31:59

foundational principles , pillars

32:01

and frameworks that you need to know you

32:04

, to get the best value from our content . Week

32:06

to week on our show , my little

32:08

tip is to listen to it at one and a half

32:10

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go to the show description on whatever device you're

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33:00

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