Folks, we’ve always said that property is a game of finance rather than of bricks and mortar, and today’s massive Q&A episode explores this fundamental concept.
Tune in to hear us break down our strategy of $2k a week in retirement, how to maximise your liquidity and why some investors choose commercial over residential.
It’s an episode that will have you listening to it on repeat, give it a listen now folks 😊
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LISTEN TO THE FIRST 20 EPISODES HERE >>
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FREE MASTERCLASS:
- How to Build a Property Portfolio and Retire on $2,000 a week >>
FREE BEST-SELLING BOOKS:
- The Armchair Guide to Property Investing
- Make Money Simple Again
FIND US HERE:
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Folks, we’ve always said that property is a game of finance rather than of bricks and mortar, and today’s massive Q&A episode explores this fundamental concept.
Tune in to hear us break down our strategy of $2k a week in retirement, how to maximise your liquidity and why some investors choose commercial over residential.
It’s an episode that will have you listening to it on repeat, give it a listen now folks 😊
Free Stuff Mentioned
LISTEN TO THE FIRST 20 EPISODES HERE >>
MOORR MONEY MANAGEMENT APP:
👉 Apple: https://apple.co/3ioICGW
👉 Google Play: https://bit.ly/3OT86bW
👉 Web platform: https://www.moorr.com.au/
FREE MASTERCLASS:
- How to Build a Property Portfolio and Retire on $2,000 a week >>
FREE BEST-SELLING BOOKS:
- The Armchair Guide to Property Investing
- Make Money Simple Again
FIND US HERE:
- Website
- Instagram
- Facebook
- Youtube
All right, folks, welcome back to the Property Couch Podcast and have we got an amazing episode for you? This week we're covering your questions that you've asked us to cover, and today we talk about the all-important $2,000 per week. Ben, does that mean we have to pay for tax out of that and all the ongoing costs Stick around? Because we cover that. And we also talk to the question around if I've got a loan that is fully offset, does that mean I still have to make repayments? We cover that too. What else, ben?
Speaker 2:Bryce. We're also circling back for the conversation around residential versus commercial and investment returns and the pros and cons of commercial real estate. And finally, in what's making property news we're going to look at some of the new growing solutions that is trying to tackle the housing affordability challenge we have in this country. So hang around to what's Making Property News to learn more of a couple of those ideas and solutions.
Speaker 1:New solutions for housing affordability.
Speaker 3:Folks, you've got to check that out, let's rip into the show back-to-back winner of the Property Investment Advisor of the Year Award, and both are partners of the multi-award winning Empower Wealth, co-creators of MORE, the free lifestyle design app, as well as best-selling authors of the Armchair Guide to Property Investing and Make Money Simple Again. Stay tuned as they bring you the insider's guide to property finance and money management.
Speaker 1:All right folks, welcome back to the Property Couch Podcast, and at this point I normally throw to you to see how you're going, ben, but I'm a little concerned about you, mate. I just want to know if you're okay. You're sitting at Owen 3 and likely Owen 4. So I just didn't want to give you a random handoff when you're probably feeling not so good today.
Speaker 2:Well, I think what's exacerbating your inquiry from my end is you're back on the wagon, mate, because Frio basically haven't lost.
Speaker 1:Yet Frio's doing Frio, giving up big leads, and then we chase them. And so yeah, full value with the Frio membership. Maybe the belly's full.
Speaker 2:Maybe the belly's full at the moment, and and you know? But at the end of the day we'll hopefully the hunger will come back and we'll do a little bit better. It's a long season, though it's a long season, but well, um, I was a little I was a little concerned about you, so what I've done is I've um.
Speaker 1:We've got a tpc listener who's um reached out and um I I haven't vetted this at all, ben, so I'm just letting you know I'm I'm hoping it's, it's positive and it's reinforcing for you. So let's have a little listen to um. Darren spencer's left us a message for you, ben sure, sure happy to listen to darren.
Speaker 4:Hopefully this cheers you up you know bryce darren here long time, uh, podcast listener, in fact your. Your podcast is the the first podcast I ever started listening, to been listening from the start Also a long time Empower Wealth client first time. Speak piper, though I'm a couple of months behind on the podcast at the moment, but I must admit Ben seems to be getting a little bit ahead of himself with the Collingwood banter Thought. I'd pass on an interesting fun fact regarding Collingwood, and that is in 2011,. Collingwood had a great year. They only lost three games for the entire season. Might be worth checking out the three games they lost. Use it at your discretion. Thanks for all the great work you guys do. We'll look forward to listening to more podcasts. Cheers.
Speaker 1:All right, ben. So I thought Darren was going to be a little more supportive of you than that because, as I said, I've gone fully blind into this. I wasn't aware that he probably went there. But hang on, hang on, stig. Oh, stig's heard this message. She's just handed me something. Okay, hang on, stig. Oh, stig's heard this message. She's just handed me something. Okay, all right, looks like Stig's actually done the research, ben, so this is helpful. So let's have a look. In that season in 2011, you won by 75, right round one. Next week, you won by 87. Week after that, you won by 28. Okay, Then 71, then then 30, then 48, oh, and then it looks like you've lost by three points.
Speaker 1:So okay, game, okay yep then the next week 43 points. You win 52, 57, 88. This is looking pretty good, ben yeah, and you go back down to a six point win, get a bit nervous back up to 41 points. Then against north melbourne you do 117 point win, ben. Then thank you for this, stiggy, I appreciate it. This is good. Intel 19, you win, then you're 54. Then 74. Then against Port Adelaide, ben, 138 points, you win by Solid, win that one. This is looking like a fabulous season.
Speaker 1:And then 19, then 18, then 80. Hang, hang on. What's that? Last, last, last match of the round you lost by 96 after having a season like that. That's all right I remember.
Speaker 2:I don't know what happened, so what happens in?
Speaker 1:the finals that matter. So in the qualifying final you win by 20, ben. Yes. And then in the preliminary final you win by three. I think I was against hawthorne, ben. Yeah, great game, I was there that night. But then in the grand final it says you lost by 38 points. So, um, mate, so you did only lose three games at all. Oh, and I was just handed me another note, ben. Um, it looks like you lost to geelong in all three of those games I cannot believe. It mate so um, I'm.
Speaker 1:I thought darren was here to um to make you feel better, but it appears that Darren's a Geelong supporter. So sorry, mate, if I had known what was being set up there, I probably wouldn't have done that, because I know you're feeling pretty bad at 0-3, likely 0-4 this week. So my apologies, mate, I didn't mean that.
Speaker 2:No, no, it's all good. I went to that grand final and we were 21 points up midway through the uh, the second quarter, and the chant went around the g calling and uh, yeah, that that that inspired and they basically kicked away. Yep, I do remember that day very uh fondly not all right, darren.
Speaker 1:Well, um, darren I I. I really did think you're going to look after ben at that point. But um, anyway, mate, so so just 0-3, likely 0-4. Who would have thought both grand finalists would be 0-3 or 0-4? I agree.
Speaker 2:And to Darren's point, we're probably going to get the too old and too slow soon coming through as Geelong get after their grand final win.
Speaker 1:Yeah, yeah, ah, very good. So, mate, I just wanted to just get in before you got in, because I know you would have wanted to move on. Hey, my Mindset Minute theme today, ben, is I was listening to Dave Ramsey on a podcast recently and he is a guy who's a Titan over in the States and he's well and truly either love him or you hate him, right? There is blogs online that say that he's a and truly, either love him or you hate him, right. There is there is blogs online that say that he's a numpty and there's blogs online that say that he's a messiah, right, so it depends on where you're at, but he, he, um, he.
Speaker 1:What he's learned over multiple decades of helping people get out of debt and build wealth is is this. This was his quote. I thought the way to fix everything was with the maths, but maths treats the the symptom, not the problem. We did come to understand it's a behavior problem Personal finances, 80% behavior, 20% head knowledge. I've said that 8 million times over 30 years. The problem with my money is the person in the mirror. If I can get him to behave, he can be skinny and rich. Knowing how to do a budget is different from actually doing a budget. Knowing how to live on less than you make is different from actually doing it. Knowing not to eat six donuts is different from actually not eating the donuts. So quote unquote there, ben, and I thought if someone's been in the game for 30 years doing cold face work, hearing from folks who are struggling with their money, there's always the saying that you think history repeats itself. It's not. People repeat themselves. And so he's seeing these patterns of behavior that people are repeating over and over and over again. So I think lives transformed is the fruit of his work. He has this debt free scream that he does on his program, and I just wanted to reinforce to our community that the difference between the people who are successful and the ones who aren't are generally the people that have solved the stuff.
Speaker 1:To quote him in the mirror, rather than what's the mechanics, what's the next thing, what's the next hotspot, what's the next property purchase I should make, it's actually just being able to realize that the biggest derailer for any wealth creation plan is generally you. It's generally you because, if you actually look under the bonnet on what we're talking about, ben, there is some sophistication to our modeling because there's a lot of moving parts and we'll talk to that shortly, but the mechanics aren't that difficult. Once you get the sophistication to create the roadmap, it's pay down your home, continue to contribute to super, buy two or three investment properties and retire on the discretionary passive cashflow that comes off these properties right. So just ponder on that today, folks, as you go into this long weekend, if you're listening to this as we release, because maths treats the symptom, not the problem. We thought the way to fix everything was the maths.
Speaker 1:Ben, I think it's a good reflection for you because if you go back to our early episodes of this podcast, we spent a lot of time in our enthusiasm to help people with the next tactic and the next framework and the next idea. But we've certainly matured and mellowed over the journey of doing this. Now in our ninth year, where we've kind of distilled it down to if you take action, you're probably going to be successful, and if you don't take action, you probably won't to. If you take action, you're probably going to be successful, and if you don't take action you probably won't. And then, once you've taken action, if you do some simple behaviors, once you've taken action, you'll probably be successful versus probably won't.
Speaker 2:It really isn't that complicated, is it? No, it's not, and I think you know if we wanted to get you know sort of naming words around what that looks like and action words. We're talking about discipline and consistency around that discipline that they're you know like, and that's why we spend more time on mindset these days than we do potentially on the technical, because the technical, to your point, we've, we've solved that. We solved that years ago with the simulators and all of that. So we've, we've known the math for a long, long time and we spend more and more of our time just basically talking about consistency. And how do you build those habits and behaviors and those muscle memories? You know, in our recent episode we talked about the importance of tracking progress, you know, and that is building that habit and behavior and building up that discipline.
Speaker 2:Because you also then know, and you know the reason why we built Wealth Clock and Wealth Speed speed was all about. You know that. Don't worry about the math. We've solved that math for you, right? You know very technical math. There's lots of moving parts in that, but we've dialed it down to one gauge, which is your wealth speed, and then all you need to remember is make it go faster. But it's the behavioral stuff in behind that. That's the important stuff, which is well, okay. Well, how do I make it go faster? Spend less than you earn. Look at your essential versus your discretionary spending and then trap the surplus and put that money to work for you, and the longer it's working for you, the power of time and compound will supercharge your wealth speed, and so that's why we've got all the sub gauges that are also built into it, so you can then start to diagnose basically where the opportunity lives, and that's why we built the more platform to take away all the math problems.
Speaker 2:So let us do the calculations for you. Let's just give you the insights. Now. You do have to do a little bit of work in terms of in other words, you're not going to be able to get fit if you sit on the couch and eat those donuts, those six donuts that Dave Ramsey talks about. But if you just do a little bit of commitment in terms of putting your numbers in there and think about what you're going to spend over the next 12 months, and have a system and a process which takes less than 10 minutes a month called money smarts, then ultimately you're going to be able to do that. So we'll keep putting that message forward, bryce, probably in the next 200 plus episodes. That we do because it's important. It isn't rocket science. Let us do the math for you. You just worry about the behavioral stuff.
Speaker 1:So to Ben's point where, if you go to morecomau, m-o-o-r-r, if you're new to the community or just started listening to our podcast, you can go there. You can actually download an app that will help you uh put the action into place and uh, help you with the behaviors. Because there's a couple things there's the, there's the more app that supports it, and then there's the money smart system that underpins it, and that money smart system, um to to his quote before, knowing how to do a budget is actually, um, um is different from actually doing a budget. Knowing that you need to live on less than you make is different from actually doing it. We've actually systematized that so that there's little habits called a seven-day float. If you get into the rhythm of the seven-day float, we've actually systematized. And then we can go to James Clear. You don't rise and fall to the level of your goals, you rise and fall to the level of your systems. So we've actually given you that baseline so that you can actually do some of these things. And they're all free folks. So just go to morem00.comau, go and check that out.
Speaker 1:So very, very, very good, hey, um, we've got some q a stuff here today, ben loving it, and the first question is from, uh, chantelle, um, and she reached out to me via instagram, ben, so it's actually a new way that you can reach out to me. So what I did is I went to the magic of google because I've got this audio within my um dms and then I don't know how to pull it out, ben. So now I actually do know how to pull it out because, thankfully, google showed me how to do that, spoke to our team here and we've now pulled it out so we can have a little listen to it. But what it does is it uncovers another opportunity for people to reach out and give us a question, ben. So, because normally we say, go to thepropertycouchcomau and there's a little speak pipe button and you can press that button and leave us a message. I still want to encourage you to do that, ben, and we're going to go through some of those today, but Chantelle has pioneered new territory here, right? So I check my Instagram, ben. If you want to reach out to me, you can send me a message on Instagram. I'll get it. If you send me a message on LinkedIn, you send me a message on Facebook. You send me a message on Twitter, you'll probably hear crickets right, but if you do it on Instagram, I'll definitely come back to you.
Speaker 1:So let's have a little listen to the question that Chantel had. Now. It's a follow-up from last week's episode, ben with Billy. Remember our Billy? Up from last week's episode, ben with billy. Remember our um, yeah, billy, he was a single dad. She had a question around that which I think we're going to, we're going to unpack today, which will help with some foundational information for all of our community. But, um, yeah, she, she said thanks for the case studies last week and billy actually reached out to amanda during the week and he was really excited um to to hear um last week's episode and said it was going to provide him with the uh, with the, the guidance along the way to remind him of what his north star is. He's probably going to listen to it a couple of times, which is really good. But let's have a little listen to the question here from chantelle good morning, bryce.
Speaker 7:Just wanted to say a massive thank you for all the amazing work you do. I've learned so much listening to you. I just was actually listening to your latest podcast about Billy and all the other case studies. I just had a quick question getting my head around retirement phase. So if Billy is retiring on $2,000 a week, so 104 grand a year, so he's going to be earning money for the rest of his life, which is incredible. But you're also still having to pay tax for the rest of your life. So I'm just wondering, once you're in pension phase, what's the strategy around earning income, because the properties are obviously underneath his name. So I'm just trying to get my head around the long-term goal and the strategies behind that. I don't know if you've explained that before. If you have, please point me to your podcast and I'll have a listen to it. But yeah, any info would be fantastic and keep up the great work.
Speaker 1:Hey, ben, this is such a foundational question, right, and to Chantel's question, if you've explained that before, point me to your podcast. We can actually point to a number of podcasts where we've covered that, but because it's such a foundational, important, querying question that we want to make sure that it lands for everyone, we're definitely going to have another swing at it today and hopefully add more layers to any explanation we've given in the past. Ben, because our flagship on our book is 2,000 a week. The theme of this podcast is how you get 2,000 a week, so it's really, really important that we lift the veil here, mate.
Speaker 2:Yeah, it is, and I'm happy to keep repeating this to make sure that everyone can understand basically all the moving parts. So when we decided to talk about the $2,000 a week in passive income, a lot of people, in terms of how we position that, was to just talk around sort of a rule of thumb, which was build up around $2,000 a week in rental income, subject to all of the costs you have associated with that, and that will give you passive income of that $2,000 a week. So that is just sort of a foundation idea that we've put forward, both in principle and then what we've been talking about on the pod. Now, of course, we run an advisory business and, in terms of the next level of sophistication that we put in terms of overlaying, that does allow us to answer Chantel and many questions we have around how do we retire dead in retirement? How do we live? In terms of how do we cover off all of the other ongoing expenses such as taxes and all of those types of things as well. So let me see if I can explain this with one go, all right things as well. So let me see if I can explain this with one go, all right.
Speaker 2:What happens when you build a sophisticated model. You know all of that math that we were talking about before. There is an incredible amount of moving parts In our models. We have around 43 variables and it does around sort of 230,000 calculations for every variable, because we measure cash flow movement every month over the next 50 or so years. Now, what we do in terms of when we think about working out expenditure, we work out expenditure both from an ongoing point of view and we also work out any ad hoc expenditure and we're able to place that right throughout the course of living. So that's where you work out those one-off expenditures and those ongoing expenses. We also have indexation building there to accommodate for inflation, and we also have holding costs and occupancy costs and all of those other things that we've talked about.
Speaker 2:So really, what we're doing when we're building out a model is we're optimising for your situation to try and get you the best return that you can, safely, by also having liquidity in a buffer. Now, when it comes to the design of when you want to retire and when you can retire and how much you want to retire on, remember we talk about the four levers income, expenditure, time and target. So once we have a rough idea of income, sorry, a time and target, which, in this example, is the $2,000 a week. What we're doing is we're saying, okay, here let's draw the line when we turn off your working or exertion income, what income is being generated from your investments? And so we turn the $2,000 a week in passive income into $2,000 a week in discretionary spending.
Speaker 2:Now this is where it gets super exciting at that point, because when we do that, what a lot of people don't realise and this is the beauty of doing the models right and this is why it's so popular and so many people come and get property plans from us is because they go well, what does it factor in, does it? You know, out of that $104,000 a year, do I have to pay the taxes? To Chantal's question what about if I've got other commitments and other costs? What about if I've still got an existing mortgage? What about if I've still got an existing mortgage? What about if I've got all of those? What if I'm still paying rent? And guess what?
Speaker 2:We factor the $2,000 a week external of all those other commitments. So land tax, 1.5%, maintenance costs on the property, that's all ingested into that story, mortgages and ingesters into that story, mortgages and ingestors into that story. Rents and any other costs are in and the $2,000 is external of that. So, effectively, what we're giving you is $2,000 a week to leave your lifestyle by design, to build and create those memories and make that money being enjoyable for you. Being rich is not enjoyable. Having experience with loved ones and friends and building memories is priceless, and so that's what our models do. So it's definitely going from what we talk about here on the pod, from amateur to expert, in terms of, okay, we want to create $2,000 a week in passive income from those investments Well, that's baseline.
Speaker 2:But then you accelerate that into a sophisticated professional advice service and then we take it to the next level in terms of doing that work.
Speaker 2:So that allows $2,000 a week to be at your discretion in terms of what you spend it at Now over time. If you continue to keep spending that and we're eating into the capital provision, then what we can also do is look at the investment portfolio and we can potentially sell down one of those assets to create some more liquidity, which will buy us more time, and we normally trigger that when we've got around $100,000 in reserve capital, and so that just gives you some idea. Now, obviously, the beautiful models when we've got strong income throughout your working and exertion and accumulation phase is, in some cases we don't actually have to sell anything down, and in reality and this is one of my favourite parts, bryce when you're sitting in front of a client, you actually tell them that they can have a pay rise for the next, every year for the rest of their lives. Like so it moves on from the two thousand dollars a week in spending you get.
Speaker 2:You get two thousand dollars now you can make it up two and a half thousand. Now you can make it three thousand dollars a week now you can make it three. That's the power of compound and all of that money working for you once you build the model. So every household's different and it's always a case by case, and not everyone wants $2,000. Some people want more, some people want less. But that just gives you some idea about planning to become what you plan to become and making the invisible visible, which then gives you the confidence to hopefully take action.
Speaker 1:So let's summarize that, ben. So if the amount of money that someone spends on their food, on their discretionary lattes, the holidays, all of their bills, all of that over a year comes to $104,000, and they've still got to pay tax and they've still got to pay off the loans and they've still got to service the investment properties that has been factored in, factored in. So, folks, the nirvana is, the nirvana plan, is this that you're in a position, personally, where you can actually get to that scenario where the debt is retired, the portfolio continues to grow and you have the choice of the legacy that you want to do, passing it through the generations. That's the nirvana. But some people can't do that, ben. Some people have made choices in their life up until the point where they take action, which suggests that they might be carrying debt in retirement. Or they may have made choices in their life up until the point of deciding they want to take action, which means that they actually do have to sell down in retirement, right? So there's a spectrum depending on where we find the person in their life's journey, based on what the decisions they've made up until the point that they want to make a decision.
Speaker 1:But I guess the universal goal here that we're aiming for and it's a great reinforcing question from Chantel, depending on pronunciation is you are quarantining an amount of cash flow that is flowing into your seven-day float. So what it's saying is putting the money into your debit card that you use for seven-day float at the run rate of $2,000 a week or $8,000 a month, or over the year it's $104,000. So I reckon it's a really foundational, important question and I reckon it's a question that we get a lot and I reckon going forward we'll still get the question a lot, but we've clearly put a flag in the sand to say that is the goal that we're aiming for with the plans that we're doing. Again, some people recently we did a plan where it was 160,000 for the year. So you do the maths and that's 3,000 a week.
Speaker 1:So some people can have ambition to only have 1,000 a week or 500 a week, whatever it is, but just to get cut through and to get interested, but largely a cut through message for us, which originated from you and I talking to I think I was chatting at an expo and she said the biggest cover we've ever had was how to retire on a thousand bucks a week. And me, being an idiot, said, oh well, we can do that, we can make it two and a half thousand dollars a week. And she went, really. And then I went, yep, so then this is like a decade ago.
Speaker 1:And then we built that out and then it became two and a half. It became the second highest selling cover for the money magazine with that. So we figured all right, well, clearly the market is interested in that as a hook to get their interest. And then we made it $2,000 because it's easy to say Everyone can get it, it's achievable for a lot of people. But that's the origin and hopefully that's clarified some points for folks that it's free cash flow for you to use to spend.
Speaker 2:Correct. And if you haven't already got the Armchair Guide to Property Investing the book, then you can get it for free. All you've got to do is go to thearmchairguidecomau and effectively put your details in there. You just need to pay for the postage. We'll give you the book for free. And there's all of the case studies in the back of the book that are using this approach and further Bryce. We also have done some case studies in terms of recording those and updating those to last year. So where do they find that?
Speaker 1:information. Well, if they just go where you said, ben, armchairguidecomau, there'll be an opportunity for them to get access to that. But, as you say, $9.95 for us to post the book out, we'll send you the book out for free, which is normally $30. So it's a pretty good deal, ben. So for people. But to your point, you go straight to the back. You see the case studies in Chapter 10. And then, as you say, there's an opportunity, if people want, to get access to the video version of those case studies, fully up to date as of tax law, law and everything as well. So, um, chantelle, great question. Thank you for sending that through um, and again, I want to encourage anyone who wants to reach out and leave some messages via instagram your, your own instagram, anyway, miles will leave as a message.
Speaker 1:Hey, the next question here is from amber ben. Um, amber has actually been on the podcast before. She was a summer series guest back on episode 370. She's got a question about what happens when our primary account matches the value of our loan on our principal place of residence. Let's have a little question. Let's have a little listen to Amber's question now.
Speaker 5:Hi Ben and Bryce. My name is Amber, love the podcast and have been listening for many years now. My husband and I currently have one investment property and our PPR, and we're looking at buying a second investment property next year. We use the Money Smart system and the More app and we have a property investment plan which Joel prepared for us. We're currently filling up our primary account with our surplus income, which offsets the loan on our PPR. My question is what happens when our primary account matches the value of the loan on our PPR? For us, that's likely to happen in the next few years. Does the bank continue to deduct monthly amounts paying down the principal of the loan? I'm just a bit confused at this point, as I want to give effect to the principles you talk about in your books and podcasts, but I'm also nervous that the buffer that we've built up will slowly get eaten away as we pay down the loan on our PPR. Thanks so much.
Speaker 1:Ben the buffer being eaten away.
Speaker 2:Let's talk to this point. Yeah, so, amber, this is an excellent question on several fronts because ultimately, this is a liquidity question and the genius of investing in property is about liquidity and it's about managing that liquidity. So, the same way in which we were talking to Chantel's question before about how do we maximise your money to earn more money, what we're doing is we're trying to manage liquidity all the time, and so we can get access to liquidity in several ways. We can obviously get equity out of existing properties, but we can also have this liquidity that you're talking about, which is the amounts in your offset bucket against your principal place of residence. So, of course, if you do have a principal place of residence loan, that's offset by money in an offset account, depending on the type of repayments that you have with your bank. So you can have principal and interest or interest only repayments. Now, through way of example, let's say we've got a $400,000 loan and let's say, fantastically, you've got $400,000 in your offset account. So, all of a sudden, every night remember, offset is calculated each night in terms of the interest saved and then adjusted for on a monthly basis. So let's say you kept that balance perfectly for one whole month at $400,000. So technically, you have no interest to pay at all and that means that if you're on an interest-only loan and there's less justification for that these days with the higher cost for your principal place of residence there's always exceptions to the rule, but on the norm we'd prefer you to have a principal and interest repayment on your owner-occupied home. So that would mean you're still making a commitment. So let's say you've got a 30-year loan, you've got 360 months of repayments that are calculated by the bank to be able to amortise that loan down to zero. But as part of that 360 loan repayments, the vast majority of that in the early days is interest and a very small amount is principal. But until you get down to the final amount where the vast majority is principal and there's only a small amount of interest to pay, so let's come back to the example of 400 and 400. There's only a small amount of interest to pay. So let's come back to the example of 400 and 400. Effectively, if you've got $3,200 of repayments to make, you've made 100% of that as principal repayment. So you are now smashing your mortgage down, so you're going to retire your mortgage significantly quicker. Now some might argue and this is to your point, amber, where you're sitting back going well, if we were to pay that off and basically clear our mortgage on the loan, yes, you would, but you'll also lose access to that $400,000. So that's why liquidity is really important to juggle. Now there's a couple of things I want to add to that. If you're then going over and above that $400,000, you should make sure that your other investment property has an offset against that and you should be starting to fill that bucket. Okay, so run your full bucket against your principal place of residence and then ultimately run that second bucket against your investment property.
Speaker 2:Now, in terms of buying a second investment property, you've got several of buying a second investment property. You've got several considerations to make here. If there's enough available equity, then, and depending on cashflow, you'd potentially borrow 105% against that new property. So you're borrowing the cost of the property, but also the stamp duty that might be attainable to that. So all of a sudden, you've got 105% of borrowings, which makes and the purpose of those borrowings are for investment purposes. So technically, that makes it tax deductible.
Speaker 2:Now, I'm not talking about your personal circumstances there, amber. I can't give you that advice without looking at the information. But, generally speaking, what I'm talking about is statements of fact that if you buy an investment property with all debt, all of that is the primary purpose is investment, so it's all tax deductible. So now let's say there may not be as much equity available to you. In speaking to your investment savvy broker, what you might do is you might say, pay down $50,000 of your owner occupied home loan. Okay, so that means you are using $50,000 of that cash and then you're going to get a new loan split that will release that out as equity as well. So rather than spending your personal dollars, your after-tax dollars, on paying a deposit for that next investment property, you potentially want to recycle that money and then allow that borrowings to be for investment purposes. So there's a bit of moving parts there. It's definitely worth talking to your accountant and, obviously, your investment savvy broker about what options you have available for you, but that's how we might model that story.
Speaker 1:There's a little bit in there. There's a little nuances in there. It sort of demonstrates why you, why you do need an investment savvy mortgage broker, ben, because it's not just a case of retiring out the debt. There's there's loan pollutions and getting getting uh, intent and purpose of the loan um sorted out, which is so that was in a lot of the nuances that you were just describing there which is um for those people who, um, who went. I would suggest you rewind and just listen to that and just really get that to land. It's really important. The other thing to think about, too is, to your point around principle and interest is probably on the spreadsheet makes sense. It also has to be keeping an eye on whether or not you intend to have that current principal place of residence being an investment property in the future, because if it's going to be an investment property in the future, you'd want to. That would be the opportunity cost of paying the higher interest rate so that you can actually quarantine the debt for a future decision, which plays into another bigger picture, ben, that we're always talking about. That it's.
Speaker 1:These decisions don't get made in isolation. We've got to be clear on the chess move. How am I going to checkmate you in three moves time based on the move that I'm making now. And the third thing I want to say is I recently caught up with a mate for lunch and he's new to the property game but new to the property game but he became experienced very quickly, right, so bought six properties in five minutes from COVID forward, right, and it's done super, super well. And so we're catching up for lunch, chatting, we're riffing it, and then I said to him you need to consider this, why don't you consider this?
Speaker 1:And his mind is I could see his mind just like you know that cognitive load when they get these penny drop aha moments. Then he sends me an email and he goes to me. It feels like I'm just playing a game of finance here, right, and how profound is that? Because I showed him how he can release some equity, use that to get the renos. The renos would then increase the yield, increase the depreciation, increase the value, save up. And his mind was blocked.
Speaker 1:But he goes at this point in the game it just feels like property is just a game of finance, isn't it? I'm like, oh, penny drop, like epiphany, because that's what we say and it kind of what Ben said before, what my mate said at lunch. It's just this idea that once you get onto the property ladder, the portfolio build is a game of finance. More than it's a game of bricks and mortar, it is a game of the nuances that Ben described before. It is a game of making sure that we're looking around the corner, looking over the hill, to see what our next moves are, and I think for Amber, hopefully that's helped you that, yep, you will be smashing out the debt. But to Ben's point, there's a couple of little things that you need to do to make sure that, when you buy the second investment property, that it's done in the most tax effective, optimal way as well.
Speaker 2:Yeah, it's all about strategy and structure and that's why understanding future plans and getting a full picture of your story is really valuable for any professional advisor that you're going to talk to. And potentially, considering what those future plans is and getting that professional advisor to help you scratch out that discovery story in terms of what you're trying to achieve is going to be highly valuable to reduce the number of mistakes you're going to make or the circlebacks that work that you have to do again because you didn't do it the first time. So we refer to that as sequencing and making sure that you're thinking about your sequencing and the timing of those events. And then really the game of finance sort of you know must play a role as you're trying to move those pieces on the board.
Speaker 1:Folks, we're going to put a link in the show notes so you can go back and have a listen to Amber and her partner Dan's story back in the summer series, episode 370. Check it out. Thanks for checking back in with us, amber. Lovely to hear from you and hopefully that's cleared up. A common question that we get, ben, for the entire community. These are the questions that we love that you reach out, where it helps more than just a very specific niche question that you have.
Speaker 2:Bryce, just a final point on that, if I can. If you're in a very fortunate position where you've got multiple properties, as per our modelling we always put the offset against the highest cost of debt. So obviously you want to reduce your non-deductible debt first, but then it is all about building passive income. So if you're in a fortunate position where you've got multiple properties, always make sure you've got an offset against your highest interest cost once that offset bucket on the family home is full.
Speaker 1:Yeah, I always think of it. Do you know the image I have of the Google worm, ben, that goes to work every night to go and find out more pages that have been indexed in the last 24 hours? I kind of feel like you have this Google index worm on your portfolio where it's looking around and it's trying to find where the most expensive debt is, and there it is. That's when we put the offset account against that and it finds it. So not the highest loan, it's the highest costing loan, which is good. All right, thank you for that question, amber. Next one is from Stephanie. We've got questions from the ladies today, ben, which is good Question around thoughts on commercial properties. Here it is.
Speaker 6:Bryce and Ben, long time fan of you both and the value you add to this community. My question is around commercial property. So I understand the importance of residential property in building the foundation to a property portfolio, but I've never heard your thoughts on a podcast around commercial property and whether you believe this has a place in an investor's portfolio. Now I understand the risk is higher here. There's larger vacancy periods, more onus on the business leasing the building to perform, as well as higher entry price points, though despite this, I do believe there are some investors. This does suit and would love to hear a segment about your thoughts and any personal experiences you've had with commercial property in the past. Thanks so much. Keep it up.
Speaker 1:Good question, stephanie. We have covered it in the past. We've actually had Scott O'Neill on episode 230 and episode 285. So you can go back and circle back and listen to those. He's an A-grade operator in this space. But we get to talk to the.
Speaker 1:I guess the philosophical view around resi versus commercial Ben, because I think at the heart of this question I always think it's around being comfortable with a different level of sophistication that you have to play at right. So if we always bring it back whenever there's noise, go to the facts, and the facts that we've quoted ad nauseum over the journey is that of the small percentage of property investors who actually invest in property, 73% stop at one. So therefore, the people with any form of meaningful experience in the property investing game and I do that as a blanket state is very minimal, and then when you go to two, it even becomes less. So for us it becomes a philosophical conversation around getting yourself in a position where that can even enter the conversation bin, because if you've gone from zero, investing in property, to jumping into the commercial lane, that is a very, very steep curve.
Speaker 2:Yeah, it is Bryce, and there's a few things there. I mean the great Scott Keck who you know. I've told the story. You know, 20 odd years ago I heard him speak about get $5 million worth of residential property before you even entertain commercial property. And then some 10 years later I hear them saying get $10 million worth of residential property and then you can start entertaining commercial.
Speaker 2:I think the important thing here is that commercial is getting more and more interesting for people who want to go in the business of providing accommodation. So whether that's private personal use accommodation, ie residential, or they want to provide building accommodation for businesses, that is a decision that you want to make. So if you want to be a passive investor, that's less hands-on and more hands-off two or three residential investment properties to Bryce's point most people stop at one is going to serve you very comfortably right, where you can supplement your income and you can live very comfortably in retirement. But there are definitely a lot of people who are getting more sophisticated and as they're getting more sophisticated they understand the game of property is also a game of finance and they get tapped out on resi property a lot quicker than we used to 20 years ago. Right, with all the regulations from APRA and so forth. It's just debt to income ratios. It's just harder to get access to that cash and build 6, 7, 10, 20, 30 properties. So there's a pivot over to commercial. And the reason why there's a pivot over to commercial is the income is definitely higher. Right Now the trade-off is usually the loan-to-value ratios for borrowing point of view are set at 70%, some more aggressive at 80, but you're paying a higher premium for that.
Speaker 2:And then the pros for commercial property is that the tenant pays everything, including the taxes and the land taxes, and so that is true. However, if those businesses go broke, they're paying nothing, and then you've got all of those other challenges. So I suppose it is around the appetite and interest. So, as you build up your sophistication, we have no problems with people exploring commercial. It's just not a wheelhouse that we've decided to play in in terms of giving professional advice in that area.
Speaker 2:Yeah, there are some very, very good operators Scott, steve and all those guys who are playing in that space and I get a chance to talk to them from time to time, and you know there's definitely a growing interest in that particular area and I think that is because that you know we're hearing all this noise around increased holding costs, increased compliance costs, more control for the tenant in residential. So they're maximising that story to convince people to go over into commercial in terms of, well, there's none of that sort of restrictive stuff, everything's on the tenant because it's business to business and they have to cover everything. But the reality still is that you can have extended periods of vacancy rates and you can still have all of those other challenges. But you also think about it politically and you say that, yeah, it's more politically palatable to whack higher land taxes on commercial properties than it is on residential. You know, because ultimately, you know less voters are impacted.
Speaker 2:If you think about the 2.3 million property investors, they still vote in the resi space. So it really is an interesting space and I suspect there's going to be more and more conversations around commercial and there's going to be more and more conversations around blending resi and commercial for those people who want to keep going, who don't want to set any limits on the level of wealth they want to create, but for the vast majority of people that we're trying to help, two or three really good properties held over the decades is going to be wonderful for you. It's going to build a legacy for your kids and it's going to give you a comfortable retirement full of lots of memories and joy and less stress in terms of having vacant properties as part of the business, elevating that, the business that you want to go into if you want to get more serious and be more hands-on when it comes to investing in property.
Speaker 1:So the takeaway there, stephanie, from what Ben just said, is around that $5 million threshold. And Scott Keck for anyone who doesn't know that, we'll put a link in the show notes of the interview that we had with Scott. He's been doing this for 50 years, right? So, ben, if someone's been doing it 20 years plus, they have got my attention. I am all ears. So when you've got 50 years. So, stephanie, the answer is there's lots of reasons why you would consider commercial. There's lots of reasons why you would consider commercial. But our baseline guidance here is getting to a level of sophistication where you feel comfortable with the uncertainties around that.
Speaker 1:Ben, I think it's often ironic that you know the small business owner, that is, the residential property owner, has this perception of being the greedy fat cats driving around in the fast cars with the big suitcase of money. The irony is that that is probably more likely to happen in commercial. Now hear me out, folks. I'm not saying everyone in commercial is that person, but given the nature of when people start to play in the commercial, they usually do have that higher net worth that allows them to withstand the volatility that comes within that space. So therefore, they are probably more likely to be driving around in a European car and going on fancy holidays and living in nice houses, and good on them because they've taken the risk and they've got it. But I just think it's ironic that, typically speaking, in the resi space space it's the small business owner, you know people, who throw out the label mum and dad, investor, but the people just having a swing, who don't you know, quite often still um, uh, checking the car that they drive and diligently working on paying off their home and having modest holidays so that they can actually set themselves up. To chantelle's question that we've got at the very beginning of the show to say, okay, we do have this two thousand dollars worth of discretionary income.
Speaker 1:Now a couple things for people to contrast. For commercial, as as takeaways, ben's covered some of these, but with resi 10 to 20 deposit, with commercial usually 20 to 35 deposit, the due diligence in in resi is well, it's extensive, but it's really comprehensive. In commercial the yields are usually in resi, you know, between three and six gross, whereas in commercial there can be sort of 5% to 8% net, which is really what is enticing for a lot of folks. Leases in resi between six to 12 months, whereas in commercial 12 months to 30 years plus. And then a couple of things outgoings covered by the owner and resi. Outgoings covered by the tenant in commercial repairs covered by the owner in resi, repairs covered by the tenant in commercial depreciation is usually higher in commercial.
Speaker 1:But here's the kicker bin. So there's a whole range of positives that we just talked about there. Here's. Here's the big um, I guess, caution, um, uh vacancy for uh resi.
Speaker 1:If you bought the right one, ben, can be one. It can be zero to two weeks, right, yep, but in in right. But in commercial it can be a month to two years, and that's probably the risk appetite that you've got to be able to absorb. Hence the reason why Scott Keck says 5 million. Hence the reason why we're saying it's usually higher net worth investors that go into that. It doesn't mean that you have to be high net worth to go into it. No, it doesn't. You can actually go from no investing experience to commercial. It can be done. There is no doubt about that.
Speaker 1:But you know we're conservative, ben. We're trying to guide our community on the way to $2,000 a week full of discretionary cash flow. We want to do that in the most risk mitigated environment that we can. So, therefore, our conclusion is this there is a place for it, in our view, once you've reached a level of portfolio sophistication that allows you to absorb the extra volatility and risk that comes from it. So, stephanie, really great question. We have covered it in the past. We don't cover it a lot, ben, but hopefully today there's a few clarifying things that we can get in this podcast, ben, around what does the 2000 mean? What's our views on the offset buckets, around retiring out debt? And to this one, which is the asset that I should be chasing and when, on our way to getting that passive, discretionary cashflow that we're all designing for our lifestyle by design.
Speaker 2:Yeah, and if you're a little bit more sophisticated and you're considering self-managed super funds and there's definitely some further interest in sort of and if you're a small business owner and you're looking to acquire your own building, self-managed super funds have some pros and cons attached to that as well. So it's absolutely worth talking to your accountant or financial advisor about that type of thing. You've also got to remember that in most superannuation funds, reits real estate investment trusts are absolutely in the blend of the investments that a lot of the industry funds are making. So you are potentially getting exposure into commercial property through those types of investments as well. So it really is about direct control and if you want to sort of run those types of things and the other point to Bryce that Bryce was making some of the better, more durable and what I mean by durable in terms of more attractive commercial properties they're starting in that sort of $3 million to $10 million range, right? So for the typical mum and dad who wants to get started, entry level into resi properties in that sort of 450, 500 range now, whereas you've got to have a significant more amount of wealth and, to Bryce's point, greater risk attached to that, because a lot of the you know the commercial properties that are at that entry level you might get sort of strata offices and a few of those other things. You know that's probably as healthy as buying into an off the plan or house and land package. Risk in our point, you really you know, you've got to be very, very careful of those and especially where you know artificial intelligence and general artificial intelligence is going in terms of the need for office spaces and what's going to happen in that area. We know, you know, across Melbourne CBD at the moment, the 16% vacancy rate. So that in itself is challenging. We're seeing in the US some, you know, some real you know, regrading of even some B and C grade properties and you know, and even some of those A grade properties, in terms of their significant value and rolling over their debt covenants, they're really starting to find that quite challenging over there. So that just tells you that there's a bit of risk in there.
Speaker 2:In terms of living in a, you know I need shelter to live in. That's an essential need. I don't necessarily have an essential need in some businesses that I run In others. Absolutely I do. If I'm selling goods, I need to store those goods in a factory If I'm, you know, repairing cars, I can't do that in my driveway at scale.
Speaker 2:So there's definitely going to be sort of opportunities there. But just be careful about thinking about future trends and what technology is going to do to some of those future trends. About the need for those types of accommodation for commercial purposes, is also something to consider if you want to get a blend is also something to consider if you want to get a blend. Otherwise, you can again go into these organised REITs, into these closely held trusts, and make some investments that way, which has a professional manager who is sourcing the property and then you're getting an income as part of a shareholding or unit trust where you're holding units in that particular trust. So there are other ways to get exposure into commercial without you being directly responsible for it as well.
Speaker 1:So, stephanie, by the nature of the question and the quality of the way you've articulated your question, I dare say this is on your radar. So hopefully that gives you some guidance and some filters and some frameworks for you to hopefully help make that decision. And good luck whatever you do with your portfolio and whether or not you add commercial to your portfolio. So, ben, we want to say thanks to Chantel, amber and, of course, stephanie for those awesome questions. Awesome, we'll hopefully help the community, ben. So everyone who gets their questions included in one of our episodes, ben, gets a free start and build course. The value is $497. So just reach out to us via our team. Please don't reach out via my DMs because it's probably the slowest way for you to get access to your course. Just go to info at thepropertycouchcomau, go to our website and click on the contact there and we will make sure you get access to that. Um, because we want to encourage and folks. I definitely want to hear what your questions are. Um. Dm me. Good to speak, pipe. You can see that we are really trying to find the questions from you that will benefit the entire community um, so that we can all learn together. So, which is great.
Speaker 1:Hey, my life hack today, ben, is obviously for those folks that are celebrating Easter this weekend. It's a big, long weekend to celebrate that part of the religious calendar. For those who aren't celebrating Easter, ben, they might still be sneaking some Easter eggs into their household, but I recently came across that the coloured foil Easter egg wrap is actually recyclable. I probably didn't realise that, ben. I probably said these chocolates usually come with the cardboard and the plastic holders, which can be recycled across Australia, but the aluminium foil is one of the most recyclable products and it saves the most energy if we recycle it, according to the people who know Ben. So it could end up as a can for a soft drink or being aluminium foil, or could end up being an aluminium baseball battle toy.
Speaker 1:So what I'm encouraging as the life hack as we go into this weekend, ben, is scrunch up those foils into. This is the guidance. Scrunch it up into fairly big balls, ben, where there's no chocolate left on it, and then pop them into your yellow recycling bin and we do our community a favour. So there you go, ben. How's that for a themed life hack? Oh, I love it.
Speaker 2:I love it. Lots of energy to create aluminium, or aluminum as they call it in the US. But yeah, that's very true. So, no, I think anything that helps the environment and saves energy has got to be good for everyone. Got to be good, doesn't it, mate? What's making property news? I've got a couple of things to talk about here, bryce, today on what's making property news A bit of an affordability theme.
Speaker 4:I like it.
Speaker 2:So we're obviously, you know property prices are set to continue to grow with the shortage that we've got, so the next couple of years is going to be probably pretty good for property as interest rates start coming down. So necessity is the mother of invention, right? So we've been talking on the pod about a couple of things. In terms of yep, the biggest, most challenging thing to get into the market is saving for that big deposit. So there's definitely some new and interesting ways. So we've talked about some of those ways in which you can save a deposit. So you can also now partner up with a friend, and there's bank products that allow you to have separation in terms of buying properties in a partnership type arrangement where you don't have joint and several liabilities. So there's some products going on in that space. We're seeing shared equity schemes, part of government's incentives, and so that's also good in terms of getting into that particular space. But the one I want to talk about firstly is this thing that is going to evolve and it's going to be just another option in the mix to help people get into accommodation, and that's the story here and that is what's referred to as land leases. So what we're seeing here is, some of the bigger developers are talking about building housing estates and master communities whereby they will retain ownership of the land but you will be able to build your house, the dwelling that you want to live in, on top of that land. Now that naturally means that there will be significantly more affordable to actually hold that property and live in that property, but it does mean that the developer will then start to charge you a lease for the land and then you'll be paying that lease for the land. So there are some real positives to this particular story. If you're thinking about parts of our community who want to downsize and have access to the cash to have a comfortable retirement, don't just want to live off a pension, those downsizing communities can be helpful for them to obviously just pay a rental lease but own the property, and then they can obviously resell that property. For those people looking to get on the property ladder who don't have a significant enough deposit or able to afford a seven or an $800,000 house and land package, this might bring that product down to, say, $400,000.
Speaker 2:So getting onto the property ladder and then ultimately continuing to pay down that debt and that mortgage, because it's going to require more innovation in the lending space. So, by way of example, you can get a car loan which is secured against the car, but you can't get a mortgage that's just secured against property. It's got to be secured against the property and the land. So we know that Max Common from CBA is going to take a look at it in terms of can I get a mortgage that's secured against the shattles, ie the improvements on the land, because that's the financial instruments that we need to build as part of that? You already do it with cars Ben Correct, that's right. So we're doing it with cars Ben Correct, that's right. So we're doing it with cars. And so that's a perfect example of where it's potentially possible.
Speaker 2:So, the way in which I look at it, there are some definitely pros, for this is for owner occupied purposes, not so much great necessarily from an investor point of view. It's very good for the Mervax of this world and those big developers because they potentially can get an annuity revenue off that land and that land will appreciate over time. So that's something there for them to think about. But in terms of you know, will there be a lot of growth in the improvements on the land? That's still subject to debate and to questions around that. So that's where it becomes an interesting. But it's just another solution in the mix where we're saying you know, it's not sensible or advisable to make property values dive, bomb or correct too significantly because there's too many problems with that. One, it's political suicide, but two, it's also you know, the governments, both from council to state to federal, rely so much on the revenues coming off all the taxes, the 40 plus taxes that we all pay when it comes to housing and property, so it's just another one in the mix.
Speaker 2:I then also Bryce, just to finish off, what's making property news? I just want to talk about some data that's been released from our good friends at Domain. Just want to talk about some data that's been released from our good friends at Domain and you'll be able to sort of go to their website and have a look at some of this interesting data and we can see the other way in which you make housing affordable is you actually reduce the land size. So in this particular case we're still saying buy the land, but make the planning regulators reduce the size of the blocks, the minimum size of blocks in which you're able to build a dwelling, put a two-story dwelling on or something like that, to still be able to get your number of bedrooms that you need. And that is naturally been happening, right. So it's definitely something that we're definitely seeing, even in master communities where those lot sizes, you know, the houses are really close to the fence these days. You know there's very little parking in the street. God knows, if you have a fire in one of the streets, how some of those fire trucks are going to get down the streets in some of those master communities because they're squeezing something. But that trend is going to continue. So I just thought it would be interesting to have a look at the data that was released by Domain and it did say you know, here's some trends, right? And it did say you know, here's some trends, right.
Speaker 2:So over the last 10 years, based on land sales of houses, the land size in Perth is 20% less than what it was 10 years ago when properties were selling a decade ago. Melbourne it's 10% less. Adelaide it's 7% less. Sydney it's 4.6% less. Brisbane it's 4.1% less. Hobart it's 3% less. Darwin it's 4.6% less. Brisbane it's 4.1% less. Hobart it's 3% less. Darwin it's 1.4% less.
Speaker 2:And then we've got Canberra, where it's actually been a slight increase because they're you know, mind you, they're running out of land, but some of their house and land packages that they're building are still on that same sort of size.
Speaker 2:But when you start to think about the cities of the future, they do need to be higher density, there's no doubt about that. So we're going to see a trend continuing where that land size gets smaller. And so, from us as investors, what we also just need to remember is the land to asset ratio still needs to stack up From an accumulation point of view and a value point of view. What appreciates in value is ultimately the land and the scarcity and exclusivity of that land that we've talked about over the decades. So that's also true, exclusive, and they're going to command a premium in resale land, especially for those owner-occupiers who are fortunate enough to be able to have the millions and millions of dollars available to them to actually buy that land. So just some food for thought there, and those graphs really tell an interesting story for those people who are watching along on our YouTube channel as well.
Speaker 1:For those watching on YouTube, you can see that. For those of you who aren't, just click on the link to the show notes. You'll be able to direct it back to our webpage and you'll be able to see that graph nice and easily. So, yeah, any opportunities to improve, opportunities for people to be able to get on the property ladder, I think is a good thing. It doesn't have to be your dream home on the first one, Ben, Just get in there, create some equity through paying down that loan and then moving on to a house and land package, maybe on the second step of your and I don't mean house and land as a marketing thing, Ben, just a house that has its own land House with land.
Speaker 1:Yep, house with land. Yeah, so very good, all right, big show. Ben, we've covered a lot. Clearly want to just encourage folks to reach out to us and let us know what your questions are, because we love these questions and being able to cover them. But until next week, ben, you know, hopefully I'm not calling you Owen next week, mate, but until next week.
Speaker 2:Knowledge is empowering, but only if you act on it. See you next week, folks.
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