464 | Using SMSFs to Avoid Getting Stuck on Your Next Property!

And Ben Kingsley , chair of Property Investors Council of Australia and a back-to-back winner of the Property Investment Advisor of the Year Award , and both are partners of the multi-award winning Empower Well , co-creators of more the Freelifestyle Design Act , as well as bestselling authors of the Armchair Guide to Property Investing and Make Money Simple Again .

Stay tuned as they bring you the Insiders Guide to Property Finance and Money Management .

Ah , it was good fun .

Well , let's have a little listen and then you let me know if you think I'm on board or not . Alright , let's cut to this little clip I found for you Off you go , the floor is yours .

So we've got a lot of people who say to us sure , love the book , we'd like to dive a little deeper into the case studies at the end of the book . So we've in fact , done that so that you can actually bathe in that and spend a fair bit of time and seeing the nuances and all those sorts of things . So we are launching that upcoming .

So , for those of you who really want to , for those of you who've read the book , I think this is for you For those of you who haven't read the book , it's actually a quick way for you to get up to speed super fast on how to retire on $2,000 a week .

But what I want to do , ben , is , if you want to leave a review , you'll notice , a couple of weeks ago we read out a review and it wasn't even glowing . It was telling us that we needed to pick up our socks as well . So if you leave a review during the week and we read it out , in the next couple of episodes .

We're going to give you a free copy , ben , if we read it out on the podcast of that course that's coming up . So , folks , let us know what you think . Leave us some details . We do read them . Constructive criticism is welcome . Any feedback you want to give , we certainly be up for that .

All you need to do is on your phone there'll be a little section that you can write a review and let us know what you think and our wishes .

You can leave your details there , we'll reach out to you , and I did the shout out last week , we're going to do it this week . We want to hear from the ladies as well . So , guys , pretty good to put your hands up . We want to hear from the ladies and we will share some incredible stories over the summer series . So we've got a big show today , ben .

We've got more questions from our people , from our community , from our podcast community , and they're going to have great questions . They're great , they're really really good . So stick around for that , folks . My mindset , I'm going to think today . I'm just sort of going and reliving some of the thoughts . You know , you and I caught up during the week .

Ben , you asked me how the Tony Robbins event went and there was lots of awesome takeaways . So one of the takeaways I want to share today with our community is the three principles of mastery which he shared . I think we've done that a fair bit ourselves . Personally , ben . Some of our community got to do it too . But the first one is modeling . Right .

So you got to model someone who's already achieved what you want . So clearly , that's the hope that we have on this podcast . If you want to achieve 2000 bucks a week in passive income , hopefully you can model us .

If you want to learn how to build high rise apartments or you want to learn how to subdivide and renovate townhouses and all those sorts of stuff , we're probably not the podcast for you .

But if you want to know how to do a passive income of $2000 per week with two or three investment properties and do it in a conservative way , hopefully we can model that . So number one is modeling . Number two is total immersion and I think that really , if you are a binge listener of our podcast , you've done a version of that .

That's total immersion , where you've just hearing the concepts , hearing us say it each week , talking it through . So we were in UPW for 50 hours over four days , ben . It was intense . You never knew what the breaks were , you never knew when it was going to start . The big tone turned up about an hour and a half later on day one .

I never let us know what was going on . We were totally immersed in this experience and I think it was really right for us to get some of the concepts that we were trying to master as well . So number one is modeling . Number two is total immersion . Number three is spaced repetition Right , so coming back and revisiting .

Once you've been in that , okay , I've copied someone that I want . I've actually gone into this immersive experience and now I've got to keep checking in on a regular basis to actually have that repetition of work .

So I think about that with our clients , right , and I go okay , well , they're working with an advisor , so they've got those check-in points that happen in the review stage and they come back and see if they're on track . There's also we've got some courses that people can do the same thing as well .

So , and I guess if I've reflected on how that's worked for me , I'm sure you can reflect on how that's worked for you . Some would say you're going into total immersion this week with your mates to watch the Grand Final again , ben , to enjoy that experience . So , folks , just have a think about those three things .

If you're trying to master something , whether it's guitar lessons , whether it's polo playing , whether it's property investing those three things , what you need , model someone who's actually achieved what you already want . Go totally immersed into what they've achieved so that you can actually create an environment where it starts to rub off on you .

And then the third one is spaced repetition . Have those opportunities , once you move out of that immersive experience , that you're tapping back into it to make sure that you revisit some of the concepts , so that you can go from just basic understanding to making sure that you master the process along the way . So there you go , ben .

That's one of the reflections . Nice one , mate . Love it , love it , love it , love it . Alright , let's go into our first question today , ben , and starts a little provocative . Ben , property owners are evil , or is that true ? Let's have a little listen to the question that Boyd poses around that today .

They're always scrutinized property investors as they're the evil people in the world trying to screw over all the poor , which I can agree to an extent . I would say . My partner and I are very ethical and morally driven . We feel like and we are looking to invest next year in struggling to sort of decide whether we actually want to .

Because of those reasons , we feel we still will , because , a , we want to better our lives and our future , but also I don't think we're going to be those type of people that will squeeze every bit of money out of everyone and a bunch of other reasons .

I was just more wondering how you would answer that sort of question if someone said that to you because , and if there's any other reasons why which would maybe help us in our journey , other people in a journey that are sort of up in the arms about it . Thank you very much for your time .

Obviously I was aspiring , I wanted to make sure that my future aspiration and where I sat in that future was basically going to be self-determined . So I just set about looking for ways to be able to build out investments and being in a position where I didn't have to worry about money . Now , does that make me a bad person ?

Well , I'll let others judge that , but in terms of the sort of way in which I want anyone who's thinking about investing in property , there's always helpful when you put some context around that , and the easiest way I put context around investing in property is it's been around for millennia , like in terms of as we move from caves and into a you know ,

biologically moved into society living . Ultimately , you needed , you know , for those cities or towns to move into cities . You needed that change to occur and you needed inns and you needed sort of you know , places where people could have short-term accommodation and then move into medium to longer-term before they eventually settled into that society .

So societies and cities have been built on this concept of providing accommodation for those people who are transient , moving in or who choose to have flexibility as part of their life . I think what's happening is the narrative is being stolen by some who are trying to change that narrative into that we're greedy .

Now , if that is the context , then the simple answer I have is so does that make the Marriott group , intercontinental Group , sheraton's , hilton's , all of those other you know hotel and accommodation providers you know , who predominantly have their money going offshore internationally in terms of the profits ? Are they also doing the wrong thing ?

I mean , you know , if we go back to the AFL Grand Final , how could you get all of those international visitors coming here if there wasn't accommodation provided for them ? So I just think it's really narrow-minded when people think this way , and I , you know .

Ultimately , you know , if we want some form of egalitarian society , I think we've got to be realistic about what that looks like in terms of you know where we're sort of saying equal rights and equal opportunities .

Well , the reality is , depending on which household you actually get born into , no household is even or equal , and I want everyone to think about in this great country of ours that there is still a massive opportunity for where you're able to be self-made .

So , irrespective of the circumstances that would deliver it up to you , I'm a strong believer in the fact that if you get educated , work really hard and smart and immerse yourself , like what Bryce was saying , into the subject matter area , you can turn your situation around and , rather than being a victim , you can actually change the story in the course of your

life doing that . So I'm still a believer in that . Yes , is it harder for some to get into the property market in terms of these higher values and bigger deposits that you need to make ? The answer to that is yes , but it's definitely not impossible . I mean , there is so much opportunity to be able to get into the property market .

You've just got to understand what opportunities are in front of you .

Because here's the bit where you hear a lot of the media , and then you said , even friends and colleagues always scrutinize property investors as the evil people . I want to lean in on the friends and colleagues , bit , ben , because they're the people that are immediately around our world . Right , because the media is obviously out there .

But it's those friends and colleagues . And here's a simple truth that I've observed been that people want the people around you , really want you to do well , but as long as it's just not better than them right , so so whenever you go .

So whenever you go and learn a new skill or you go and spend your time like I did in four days in the room with people who want to grow , everyone goes home and all of a sudden , their friends , they want , they want you to have a good time , but they just want to make sure you don't go too far ahead of them , right ?

So how was that sort of personal development thing that you did , right ?

So I think , if we're all , if we're all conscious of the fact that people around us really want us to do well , but just not better than them , and they're not sometimes consciously not even thinking that sometimes their opinions can be projections of fear or envy or whatever on you , so they might not have the those that people want you to do as well as

possible , as long as it's not better than them . So that's our baseline point . And then , secondly , if you , if you have a spectrum of people that are in the world trying to make a better life for themselves , at one end you've got fully altruistic people , full of integrity , and at the other end you've got people who are just 110% only in it for themselves .

But along that spectrum you can still actually self fund what you're doing , because we're you know it's a Ben's point If you , if you , if you listen to the , to the message that we've talked on this podcast over a long period of time , it's usually us saying you need to probably get two or three of these investment properties .

You never hear us say get 10 plus . You never hear us say here who dies with the most property wins ?

You never hear us have the equivalent of me and Ben going out and because we both like fishing , so the two of us go out for a day of fishing and we just catch and catch , and catch and catch and just keep putting fishing the boat for the reason just as we want to catch them . Versus how much do we actually need to feed our family ?

Let's take some fish for Ben's family , let's take a few fish for my family , and actually we've got a few neighbors that we know love fish , so let's take a few for them as well , so we can share it around . But the rest , we catch them and we throw them back . We catch them and we throw them back .

So if we use that analogy , that's the same thing that we want to do here with building wealth . How much do you need to fund your own retirement In our case two or three and then have a baseline of ethics around that . Don't be a slumlord .

If you've got the opportunity to contribute to your tenants , if they're , if you could put the rent up 150 bucks a week rent , but you only put it up 30 bucks . All the things that Greg B spoke about last week in the podcast form the baseline .

So , and the alternative is okay if you don't do anything here , boyd , the alternative is you totally lose control at a time when you don't want to lose control . When you're a bit older you're a bit in a lot of cases you're a bit lower on energy and you've got less of a runway to recover , and the pension is something that you do not want to rely on .

You want that to be a safety net , not be the goal in and of itself . So to Ben's point , with a whole lot of those economic reasons why you can positively contribute .

I would always just remember that people are always going to have opinion about what you want to do and generally speaking , it's a projection based on their own beliefs and generally it's going to be on the fact that we don't mind how good your life is as long as it doesn't get any better than mine .

What we don't want to basically see is a society that just expects that they're entitled to certain things , and so from our point of view , that is that self-determination , and we have been consistent in this podcast pretty much from the first 20 episodes . If it is to be , it's up to me and ultimately we're trying to provide that education for you .

You know that immersion that we've been talking about , those actions , the modeling of the behaviors , all that education piece to basically put you in a position to say , well , I now want to be able to go on , execute on this , and I'll only take a couple of properties that should be enough , plus my super or whatever , and I will be fair and reasonable with my

tenants in terms of their expectations and hopefully they'll have quiet and safe enjoyment of those properties Over time , that wealth will be built up for me and my family and that will be able to provide opportunities and experience for those . I think if we lose sight of that and we just think that everyone has equal rights to everything .

You know , people get lazy and ultimately that's not what we want to see in our society over this , over the course of the next 20 , 50 , 100 years and so forth , because your society will continue to keep fragmenting .

And yeah , you know , some of the greatest joy we have in the work that we do with our clients is helping the nurses , the teachers , the police officers , the fire is the ambos , the public servants , the social workers who are doing all of the great work that they do and the purpose for work that they do .

But they're also saying to themselves that the income that they're earning , which is modest , average , is not necessarily going to be enough to provide them with , you know , enjoyment in retirement , and so , by getting one or two investments and being able to have those as a business to the side because that's what it is You're a small business owner , you know ,

small business owners 2.2 million of us have invested hundreds of billions of dollars in providing accommodation across Australia and I don't want to lose sight of that , because the moment we do , and then we expect government to provide that accommodation or we expect big business to provide that accommodation , the small business owner , which is the property investor ,

misses out . So I think there's enough in what we're putting forward to sort of say I think it's fair and reasonable for me to look at my family and to look at you know what I want to be able to provide for them and go about working hard and smart and planning to become what I plan to become .

To Ben's point there about small business owners , I don't look at my local fish and chip operator or the small , the cafe or the small business all around me . I don't look at them as evil people because they're trying to get ahead and they're taking the risks and trying to provide for their family .

So it appears from your question that it's that this is the first time that you're considering property investing .

What I would say to you is , once you've taken the plunge , once you've actually invested in the market , and then you've actually seen the real risks and the extra , I guess , responsibility that you're taking on , hopefully you'll see what we see from the insider's view on what it's like to be a property investor , that you're adding value and if you stay true to

your values around wanting to make sure that you don't take advantage of people , you'll be one of the great landlords in this country that's providing rental accommodation for people that need it . So have a . Have a listen to last week's episode again , if you've missed that , and have a listen to what we read out with Greg B .

That'll give you an insight into someone who's taking action , investing in property , but also doing it in an ethical way that I think that you will feel comfortable with . So , all right , good question , boyd . Thank you , hopefully that's helped . Let us know folks if you see it any any other way on socials .

Let us know if there's any feedback we can give to Boyd in an upcoming episode that you found helpful for you if you were feeling the same way . Next question is from Milland and it's a question regarding buying property through self-managed superfund . Let's have a little listen to the question now .

So if you're taking advice on buying properties through SMSF from a podcast , I would heavily caution you against that , because you shouldn't do that . So hopefully , what we're gonna discuss today will give you some conversation starters to have with the people that you've surrounded yourself with who can provide you the advice on this , ben .

But SMSF , ben , what are your thoughts ?

They realized that households will keep spending and there won't be any money left over , so they set up a structure where money was basically shaved off from your wages and put into a super fund . Now , in terms of a self managed super fund , as opposed to going into a retailer industry fund , you now have the ability to set up your own fund .

Now , as part of setting up your own fund , you're gonna have up to six members of that fund , and what was introduced several years back was this ability to potentially borrow money associated with the self managed super fund , and that's obviously introduced this ability to have leverage and that's called limited recourse borrowing arrangements .

And it's really key to understand what's basically going on here in terms of the members , the contributors and the trustees of the self managed super fund .

In terms of setting up to actually borrow money to buy residential property this is direct residential property you'll need to obviously have a relationship with the lender , they will need to take the security of the asset and you need to be able to run this through what's known as a holding trust .

Okay , so , where the title is held in that holding trust by the trustee and in terms of the limited recourse borrowing arrangements , that's structured up between the asset and also the self managed super fund . So mortgage repayments will still come out of the contributions that are going into the self managed super fund and that's effectively the arrangement .

And so effectively the fund itself isn't borrowing , but through a structure , through this holding trust , and it's different the slight tweaks in each state and territory , so you must get specific advice in this area . So we are again saying we're sharing general knowledge here .

This is not a recommendation to invest inside a self managed super fund , but that's the fundamental . So then you start thinking about well , what are the pros versus , what are the cons of being able to buy inside a self managed super fund ?

Well , the first one is you can obviously use borrowed funds and that can help with accelerating the returns that you're getting through the fund over time . It allows for a portion of diversification . So in most cases , any type of super fund will have a portion of cash , shares , bonds , managed funds as their primary investment vehicles .

So this now introduces the ability to have direct residential property , and so that's an important one . The other thing that I did mention before about the tax treatments now we've seen and I've been on record , and Bryce has been on record that you cannot guarantee that the governments won't continue to keep tweaking the tax legislation when it comes to super .

So they are continually looking for ways that's politically palatable to take more tax from us , and so we're seeing now the current government's looking at a $3 million cap in which they will start to tax at a 30% tax rate as opposed to 15% .

But right now , if you're thinking about entry level here , the attractions here are it's a 15% tax rate on income and that obviously includes rent . And then in terms of when you're in , that's , in the accumulation phase , when you turn your fund into a pension phase , if you're under that $3 million range , then any sort of income generated is tax free .

Now , if you're listening to this , in five years time I'll probably question that . I suspect there'll be more changes , but that's the attraction in terms of what that looks like . There are lots of technicalities , and I'm sure Bryce will mention a few of those when we start talking about the cons .

So there's that you clearly got limited liquidity when you've got property versus other more liquid assets like shares . You can't equity release . If you want to renovate the property , you've got to have cash . You can't borrow . For those sorts of things interest rates are higher . So basically you're locked into a super environment and all those associated rules .

So therefore there's a bit of concentration risk , as well as what Ben said earlier about the setup and ongoing costs , right . So there are definitely pros of having property in your super fund , right , and largely , if you've maxed out in your own name , keeping momentum going in an asset that you believe in is an ideal place to keep going .

But what we've observed is it can be a spruke as paradise as well , because people use that as a way to get you to buy the wrong asset . So everything we've talked about on this podcast the spruke has often had the right information from a strategic outlook , but it's when they execute on the asset that it's let down .

So that's no different when you come into the super environment as well . So the asset is super important , right , and there is a couple of ways that you can think about it . If you are more advantageous to have higher income in the super fund because of the tax environment , that's one thing to think about what type of asset you buy .

The other one is if you have a combination of property and stocks and shares and bonds within the super fund .

If you have one good quality asset and you hold it for long enough and it sort of doubles or better in value based on how long you have it , what you can do is you can reach the retirement age , have liquidity through the cash and the shares that you have , and at some point you might wanna be in a position to sell the property , which , in an environment

like the current super rules , means that selling in a super environment versus selling in your own name , has some serious benefits to you , because you can then have the cash , maybe invest that into stocks or shares , a fund that's paying good yields and also having tax imputation credits .

That mean the combination of the income and the imputation credits could mean that the cash flow that you have in your super fund in retirement might be superior to what you would do in your own name . So there is a hell of a lot that you need to think about when considering whether or not you would put property in a super fund At headline level .

There's a lot of amazing benefits from doing that , but it really always comes down to the same thing , because when you're buying it in your own name and when you're buying it in a super fund , it is the same game , just different rules .

And if you've got to understand the nuance of those different rules and how they apply to you and what you're trying to achieve in terms of the cash flow requirements that you're trying to get in retirement , that make all the difference here Same game , different rules , and those different rules is the reason why you need to get an advisor to help you with this .

Now , there's a good reason for that is one obviously , our investment committee and how we look at treating people's money . We're very conservative about how we treat people's money . Now , some of the big things that are really important to understand is that as the trustee of the fund , you're in total control . Total responsibility is on your shoulders .

Now you can outsource some of the administrative work , but ultimately , the fund and the decisions that are made in the fund are the responsibility of you as the trustee , and there are serious consequences and serious financial penalties if you are non-compliant inside your self-managed super fund situation .

So we take the conservative approach to our clients where we say we potentially want to get the two to three properties that we mentioned before . Usually we're using personal names in a lot of cases in terms of doing that .

Now , if you've been able to demonstrate over the five or seven years that we've been working with you , that you're competent in managing those properties , you're competent in your financial literacy , you're demonstrating good administrative services using a more platform , showing us evidence that you this would be something that you could handle .

And then you also understand that there's a minimum requirement in terms of the amount that the fund needs to have to make it worthwhile for you .

You need to understand that there is a very cost , heavy cost burden in terms of running your own fund , including , you know , obviously , all of the trusts and companies that you may be setting up , the holding trusts , et cetera , and then the annual tax auditing that goes on with that .

If you pass all of those criterias and you're saying to Bryce's point about I want to continue to keep building out the opportunity for me and my family it's only then that , in our considered view , is that we would start to open up the dialogue around that particular conversation .

So we are talking about people who are potentially in their 40s , you know , and have in excess of $200 or $250,000 inside that fund as a minimum starting point around that . Now , there are always exceptions to the rule .

If you're you know , highly qualified , if you study in this area and you think that you know you're demonstrating those competencies as part of that , then you might be sort of an exception to that rule . But there's a general idea in terms of the approach that we take . We're very careful when we're handling other people's money .

It's different , I suppose , when it's our own money and we're willing to assess judgment of risk and reward and just how much is at risk at any one time . But certainly when it's other people's money , that's the type of approach that you would want a professional advisor to have with you . So back to Bryce's point about the spruces .

They're just trying to sell you something that they've got to sell , which is whether it be the self-managed super fund , but it's more the big commissions that they're gonna make on the house and land package or the off the plan property that they're trying to qualify for , because maybe your personal circumstances don't allow that to happen .

So be wary of those types of people . So it is a journey . Investing is a journey . Building up that knowledge base , building up you know that competency levels over 10 , 15 , 20 years is the sensible way to go about it . So you're not gonna be missing out . If you're thinking you're in your early 30s and you wanna set up a self-managed .

Just have some patience . You know , investing is about playing the long game well . And so as you build up that competency in that skill set , then that opportunity will potentially prevail to you and then you can have a considered conversation with your partner or with the people that you wanna bring into that particular fund .

But I mean , I have a fund , I've got a couple of properties in the fund and I know , from a compliance and an obligation point of view , it takes a fair bit of work . You know we talk about in the book 10 hours a year , or 10 hours a month a year , I should say , for running a standalone individual property .

This is very much more in terms of the administrative duties that are associated with that . And you've gotta have a good accountant , you've gotta have a good financial planner and you've gotta be working in concert to basically get the best result for yourself .

And you know I've talked about the strategy that I use in terms of getting higher yearning properties and properties that I might be speculating a little bit more on . But that's my journey and I wouldn't recommend that for anyone who hasn't , you know , walked the walk that I've walked on , the journey that I've been on .

To Ben's point , you ideally want to have a couple , just so that you know what it looks like in your own name , but if you are hitting those ceilings it might be something that you consider .

So if you went through with an advisor , you went through the pros and you went through the cons and between the two of you you realized that that's something that you want to do . Here's some experiential advice that I'll give you from buying properties for people in their self-managed super fund .

If I put my buyer's agent hat on here , the name on the contract is very important and quite often in a lot of cases this is state specific .

So if you've gone through to set up the self-managed super fund , you've gone through and you've created the bare trust , you've gone and got that limited recourse borrowing arrangement in place and everything's ready to go .

You will want to stay very close to your advisor and ask them specifically what needs to be included on the contract and it doesn't necessarily cross borders as well , because there's different regimes .

Because if you get that wrong and then you go to the bank and you got a borrowing involved , in some cases you've got to go back and get the contract redone , which means avoiding the one that you've got updating with the new one , which , if you're in a fast paced market , that can be a challenge and in some cases , in some states , that may trigger additional

stamp duty as well . So I cannot be more vehemient around . You've got to make sure , if you're going down that path , that you get the name on the contract , specifically , as it needs to be , to marry up for the lending as provided to you from your advisor .

So if you've got no reference to direct property or residential property , then you're in breach straight away , you basically . So if you then go off and think I'm going to go and buy an investment property that's not documented in terms of the investment strategy as set up by the initial set up of the fund , you can't actually do it .

So you know there's fines , and you know . So that's what I was sort of saying . So I'm intentionally making you scared about this potential opportunity because you need to be advanced . You need to have , you know , that financial literacy and competency that we were talking about before before you entertain something like this .

I had a friend of mine reach out just this week and said can you actually borrow money inside a self-managed superfund ? And I'm like for that particular person , who will probably be listening now I'm sort of saying mate , there's a journey that I need to take you on . This is not something that you're just going to .

You know it's going to be easy to do , and so we want to be very careful about the execution , and I want them to be able to build up their knowledge before they even consider it .

You're going to have an order to check over your approach and if you color outside of the lines , there are serious consequences from doing that , whereas if you do all that outside in your own name , you color outside of the lines . There's a whole bunch of autonomy and freedom that comes from that .

So it is an environment that is because of the fact that you can't touch it until the future . There is a lot of guidelines and rules that need to be obeyed to make sure that everyone doesn't go off doing their own thing .

In fact , the very thing that is a fundamental , I think , a real strength of our country is the fact that we are looking to put some money away for the future , and we don't want to jeopardize that by making silly decisions now or making reckless decisions or even ignorant decisions that you didn't know about .

So that's no good , because the auditors will certainly let you know . Alright , let's go on to the next question , ben . This one is from Kate . This one's a Facebook question , so I'll read it out . But it's the question . It's an age-old question , ben , and I wanted to revisit it because I'll never get tired of telling this particular principle to our community .

But the question is around why do we need owner-occupy appeal ? So let's have a little listen , let's have a little readout of Kate's question . Hi guys love the podcast but I'm struggling to see why you would hunt down properties that have owner-occupy appeal and good long-term capital growth .

If you also advocate to hold the properties for the long-term and never sell If you are never selling them , then why does that matter ? Wouldn't you want to find high-yielding properties and enjoy cash flow now in retirement ? Sorry if this is an ignorant question . Thank you , kate . It is not an ignorant question , ben .

This is a very , very good question that everyone needs to understand this basic , fundamental premise of property investing .

Again come back to this sort of context theme that I'm on in this episode , and that is this there's two fundamental things that you need to consider for yourself , and if I'm also wearing my property advisory hat , these are the two fundamental things that I would be considering if I was to develop a strategy for you and as part of that particular story , and

these are it . Number one , your risk profile . So I want to get a sense of basically what type of appetite you have for debt , how you are looking at managing your money , all of those things , before I then start thinking about strategy . But number two is also your financial means .

Now , we mentioned earlier in terms of some people are very fortunate where they've landed in a house or where they've got lots of wealth . They might have lots of equity . They've got the bank of mum and dad . They've also obtained a really good job and we need to make assessments , and you personally need to make assessments on your financial position .

So the first thing I always think about is what type of income have we got ? What are your plans , both personally and financially ?

And then I'm trying to understand effectively what sort of borrowing power that will allow you to be able to do something , because what we're here and what I'm going to be talking about you know as we unpack this particular question is why capital growth is always going to be king in terms of chasing rental yields , but they are limitations .

So , in other words , what I don't want to say to young people , kate , is that this is the only way to have success when it comes to probably investing .

But what I am saying is , if you are limited , where you do have modest income and you do need that rental income because you're also limited by borrowing power , there is still a wonderful way in which you can create wealth over time .

Okay , so don't think that that's not a possibility and that's not a viable strategy for many people , especially some of the younger people who need to get into the market .

So we're seeing more of that in that low entry level price point where they're chasing that and they are forcing a lot of demand in that area and they're also enjoying some strong capital growth .

But on the other hand , if I've got above average or high income , then my strategy and I think to give context to our first 20 episodes of this podcast in power wealth is a business that was originally set up to help time poor professionals who had medium to high income at that time , and so we were buying into those particular strategies and the negative gearing

part of that and looking at long-term capital growth was the decision that we could make for those particular clients . And when I come back to talking about the risk profile , one of the important questions that Bryce or I or any of our advisors would ask .

The question is if we are going to go into some of these lower socio demographic areas and we are looking at the types of tenants who we may be out and I don't want to generalize you because I understand the sensitivity of what I'm talking about .

But do you want a tenant who is battling to pay the rent , who may be in a situation where their circumstances change or whatever , and you get a really challenging tenant , or you get a tenant that's potentially going to damage the property .

Now , a lot of those time poor professionals were happy to forgo potentially chasing multiple properties at that higher yielding area because they just wanted to get a couple of solid assets and manage them over time and basically have less of their important personal time dedicated to running this small business . So that's the context in terms of any investor .

They need to know what pathways are available to them . And then , when you're thinking about those pathways , in the case of a higher income earner , the pathway is potentially that they can use a lot of their surplus income to be able to get into that particular market .

So I think that's an important contextual overlay that's valid for all of the community in terms of the decisions that they need to make when they're effectively planning to become what they plan to become .

So why does it matter is probably the next part of that question , and I think for me it's just all about the numbers , and I've got a simple example here and I'm using Victoria and Melbourne as an illustration and thanks for letting me take the floor , bryce , I'll just run through this one if we can . So what I did is I went back to 1980 .

Okay , and I looked at the median house price rolling 12 month average from 1980 . So that's 42 years and six months up until June 2023 . Now I picked an inner city area of Carlton where obviously you've got a mixture of small side by side semis and you've also got some more lovely Federation Edwardian and some period type homes with owner occupy appeal .

And then I picked an outer suburb area of Craigieburn which would be judged as the mortgage belt , probably could also be judged as working class communities around that particular area . And so the median house pricing Carlton at that time was $48,750 . And the median house pricing Craigieburn was $37,425 . Now that's still a 30% variance between those two price points .

Now let's fast forward until June 2023 . And the median house pricing Carlton now is 1.45 million and the median house pricing Craigieburn is $645,000 . So what we've seen is , in terms of percentage terms , carlton's had 2,874% gain and Craigieburn's had a 1623% gain . So the CAGA , so the annual capital growth return , on Carlton is 7.47 and for Craigieburn is 6.93 .

So that doesn't sound like a lot , but it's that 42 year period . So you're seeing that the gain in terms of the monetary gain for Carlton was $793,000 in value gain over that time period . So you're looking at an enormous amount of gain over that time period compared to Craigieburn . So that's what you're banking Now .

You haven't sold the property , kate , so I understand your point there . But here's the other thing when you look at the median rents , the median rents based on the latest data , we have $785 per week , so $40,820 over Craigieburn sorry , that's Carlton and then Craigieburn $483 per week , which is $25,116 over the year .

So that's a 62.5% improvement in terms of the cash flow , but also comes off that property . Now , again , let me reiterate , that doesn't mean that you should be trying and saving up forever to try and get into those particular markets .

You may need to put your foot on the property ladder in the strategy that you might be talking about , which is entry level , higher yielding to get started in the property market .

But for those people who might be coming in in their late 30s or 40s which is really , you know , the work that we do predominantly with the empower wealth business They've got equity in their current home , they're normally time for double household income professionals , and so we would consider working with them about buying higher value assets .

And for our younger audience , we are now working with them in terms of helping them buy more entry level with a little bit more yield to basically get them started on that journey , to be able to release that . So how do I answer your question around never selling . Why does it matter ?

Well , equity release matters in terms of the ability to be able to get that . And then , obviously , the ultimate amount of money that I'm banking is still higher in the rental side because I've got a higher valued asset which I can charge a higher rent for .

And then , ultimately , I'm building an estate and that is going to be passed down through my legacy into the family and they can then choose to do what they want with it .

They can keep it and build on that if you're building that for your family and your estate planning , or they could potentially be allocated out to family members and if that becomes their principal place of residence , there is no transfer taxes associated with that as well . So there are a lot of reasons why .

When you think about performance of an asset and performance of a location and the ultimate land value that's going to grow over time , we do know that there's a gravitational pull to those bigger cities where you are going to get those overall returns .

So it's an emotional decision why they want to buy the property , whereas investors are purely logical based . Now , it is true that some investors get emotional , but generally speaking it's a calculated decision and this is best on show .

When you go to an auction and you see the two people have come to buy the one property and they both set limits and the amount of times you see it on a television show , you see it when you're live that the person who's come , they're emotionally invested in the property , for whatever reason , and they might spend 10 , 15 , $20,000 more , $100,000 more than they

plan to , just because of that emotional investment . As an investor , you effectively want to ride on the coattails of those owner occupiers . So number one emotion versus logic .

Number two is you want to buy properties that banks like , because for most people who are investing in property , they generally need the help of a bank or some financial institution to do that . Now , if you buy a property that banks don't like , you will find that very difficult to buy .

So , for example , if you buy a specialized student accommodation property , quite often these have really good yields . Quite often investors really love them . Quite often they give you a nice cash flow but the banks don't like them because they don't have the broad appeal of the owner-occupier market to resell , so they rate them down .

If you were to invest in a hotel room , same deal . They don't have control over the asset . It's controlled by a larger company . They don't like that . They don't like buying assets that are not standard titles . You might be in a company title , for example . The banks don't like that .

If you buy holiday apartments where you're in a very similar to a hotel , the banks do not like these properties . So there's clues that you get as a property investor . If I want to actually make this easy because if we say that you've got to buy two or three investment properties , you actually require the leverage , you require the bank's cooperation .

So if I first of all go owner-occupier , the heart is invested in it . They're buying from emotion and , generally speaking , the banks like them because there's a bigger pool of people should they need to resell it . That's a tick versus the investors . Ben touched on this very well . But you need to actually accumulate multiple properties .

So you do need to get the growth that comes from having the owner-occupier appeal that allows you to actually get the accumulation of enough assets in your portfolio to take advantage of the compounding that Ben just talked about .

Because if we've got a long enough time horizon , what actually happens is the rent on the cashflow properties get overtaken by the growth properties if you've held it long enough , because as the growth in the property happens , there's drag up from the rent , that finds there's an equilibrium point where the rents are equal and then all of a sudden they exponentially

jump in front . Because , if you think about it , people want to buy positive cashflow properties now , which makes sense , right , who wouldn't want to ? But it might only be 10 bucks a week , which is 500 bucks a year positive , or it might be 20 bucks , which is 1,000 .

So you can see that you have to accumulate a whole heap of these and if you're compromising on growth to get it you have to have multiple , multiple properties just to acquire enough positive cashflow to make it worthwhile that you can actually fund your substitute out your working income for a passive income .

So that is the reason why we've spent a lot of time on this podcast saying that owner-occupier appeal is important . It's an emotional decision . As investors , we want to get stuck in the slipstream and get taken along for the ride . We do not want to be the pioneer .

We want to be the person who follows where the masses are going , and that's owner-occupier appeal . And secondly , banks don't like it .

So if you've got a buy and hold strategy , the number one person that you need to impress , if you have a buy and hold strategy , is the valuer , because what's going to happen is you're going to send the valuer out in one year's time , two years time , three years time , and so can you please revalue that property that I bought back in 2019 or I bought back

in 2016 . Can you revalue that ? Because I want to actually harvest some equity for whatever reason , but let's say it's to buy another investment property .

You want the valuer to come in through the eyes of an owner-occupier and , when they fill in all of their details to provide a valuation that they send off to the bank , you want them to have all of the risk ratings that are in your favor so that there's no restrictions on the amount that the bank will lend you and we go back to my original point of buying

properties that banks like . So if it's the valuer that you're trying to impress and a valuer is a human being who will also be affected by emotion when they see the beautiful tree-lined street and they see the floor plan that really works and they see the fact that lots of people will probably line up and want to buy this .

That actually gives them comfort to give a rating on the valuation that they can send off to the bank . That allows you to achieve what you want to achieve . So this is not an ignorant question , kate . It is a fundamental question that every property investor , in our view , who follows the plan that we believe in , needs to fully understand .

If you do not understand why owner-occupier appeal is a critical element of a property investment portfolio strategy , it is a fundamental piece of the puzzle that you need to understand . So , hopefully , a combination of the real-life anecdotal stuff that Ben just shared around a tale of two suburbs , and also just the human side of what it takes to .

It is an imperfect asset . Property is an imperfect asset . There are inefficiencies that we are looking to exploit through having superior knowledge and superior understanding of the market , and one of those things that you can use to put in your favor is understanding the value of having owner-occupier appeal .

So hopefully that's been of benefit to our community and if you know someone who might benefit from understanding some of those fundamentals around property investment , perhaps you could take a screenshot right now of the cover of the podcast that you're listening to and maybe text it to a friend or put it on social so that they can be the beneficiaries of that as

well . Hey , my life hack today , Ben , is there is a Netflix series that I've been watching with Andrea . That's really good . It's called Live to 100 , Secrets of the Blue Zones . I don't know if you've seen this , but what it does is it studies .

The reason they call blue zones is because they have these sent an above average number of centurions people who live to 100 or more and they go into these places and they try and uncover some of the secrets that people are doing . Have you seen it ?

I'm going to drip feed a few of these throughout the next couple of weeks , but as life hacks , but the first one is Hari Hachi Bu . This is the Okinawa people , hari Hachi Bu , and basically what that means is eight to 80% full . Eight to 80% full . Don't need to go to 100% , go to 80% full . And why does that matter ?

Well , it puts less stress on your digestive system . It helps these people move and have more energy . It helps them sleep better at night . So I did this , ben , because I must admit , I fell into some .

I've actually always been pretty good with what I eat , and , but I think that COVID derailed a lot of us , ben , and so what I did is I started to eat more than I needed to and snack more than I needed to , and so what I did is I've peeled this back and gone to the Hari Hachi Bu eating to 80% , and it is . It's been good .

It helps me sleep better , it also allows me to wait and see if I leave a little bit of time Once it goes through my system do . I actually get a bit fuller later on anyway , or am I just trying to eat like food's going to run out and it's going to dissolve if I don't eat it in 10 minutes , mate ?

So so I've lost a bit of weight and I'm not someone who has to worry too much about that , but I was developing a few handles where they shouldn't be Ben .

So it's something that I'm a proponent of , and I wonder if some people listening to this might be able to do a bit of Hari Hachi Bu Ben , eat to 80% of what you need to and see what that looks like .

They are starting to get very , very expensive to run , and so we asked the question inside the survey is , when , compared to last year , how much have your holding costs increased ? And 6% of people said less than 10% , 26% of people said between 11 and 25% , 24% between 26 and 40% , 17% said 41 to 60 . And then 6% said 61 to 80 . 5% said 81 to 100 .

9% said greater than 100 . And then there was not applicable . Or you know , 1% said there'd been no increase . So if you add the 26 and the 24 and the 17 , you're in that sort of 76 , sorry , 67 sort of bracket of there's been of between 11 and 60% increases . That's that's , that's material right .

So that's the challenge that we're seeing when it comes to holding costs , and I thought the other one , I thought we'll finish on a positive price , such a positive . Okay . So we're ranking the states from from .

So , from an investor's point of view , which state , in other words , which is the most attractive state based on the rules and regulations and the costs , dam duty and the taxes and charges , which is the best state in Australia to invest in ? So let's count them down from worst to best . Shall we Bryce Drumroll , buddy Drumroll . We have a good one , all right .

The worst state in Australia to invest in residential property is Victoria . Come on , surely not Really . I couldn't believe that that would be the right answer . Coming in at number seven is the Northern Territory . So I need to read into that a little bit more . Right , northern Territory . That's because you know I don't have stamp duty or something .

I don't think I have to remember that . Okay , coming in at number six , the other state we believe is a shocker and you should never invest in is the ACT . Their land tax thresholds , their they've got , obviously , rental caps . So don't waste your money in investing in the ACT people . You will be thoroughly disappointed .

In terms of now in terms of number five , and I think their number has gone up in terms of worst , based on some silly things that they've done recently is Queensland .

Coming in at number three Tassie , Little Tassie . I think we can . I think we can , you know , in terms of punching above their weight down in Tasmania , probably also because it's pretty affordable down there as well . Coming in at number two , and probably the hottest market in the country , as we currently report to you , western Australia .

So decided not to introduce the no grounds of addiction notice because they already had basically falling number of rental property . Well , I tell you , the investor is loving you at the moment and there's plenty of activity in the Western Australian market .

And then coming in at number one , which has been the best performing state in terms of capital growth over the last three to five years Certainly over the last three years is the South Australian Adelaide markets and all of the fringe markets around that .

People have been basically buying up anything around three to four hundred thousand in the fringes , in the regions , anywhere where they can get their hands on property there , and that seems to be that the buzz thing that all of these new millennials are buying . So there you go . South Australia comes in at number one and again they have no tendency reforms .

That are of note and that's probably another good reason why there's a little bit of confidence going into that market as well . But there you go , counting down rankings from worst to best states in Australia to invest .

But my , I'm just I'm just writing a note to our team here , mate , just to expect a few emails from our Northern Territory , our ACT and our TASI friends for what they're about to write in about how you .

We've been doing this for decades and we know that , in the short term , dumb political decisions will eventually be overturned , and then what you will see is opportunity in that particular market , as they realise that they're not getting the tens of billions of dollars in investment that they want and that they desperately need to provide , and so they start providing

incentives . So , yes , you know , obviously that was ingest a bit of fun , but it is serious . Victoria does need to change their legislation . If they don't , it's going to get worse before it gets better in terms of for renters and property owners in this state , but over the longer term , you must have property in Victoria and New South Wales .

Folks , I want to encourage you to go to thepropertycouchcomau . There's a little widget on the front page there . It says speak pipe .

We need to just press one button , put your name in push record , leave a message and you can be a part of our podcast community and get your questions answered as well , and anyone who and they get a start and build calls sorry , just to interrupt . They get a start and build calls right out of my mouth Well spotted , Ben .

So for anyone who gets read out on our podcast , just reach out to our team and we will give you a complimentary copy of our start and build . And anyone who leaves a review , Ben , in the next couple of weeks that we read out , we will give them a complimentary copy of our new course .

So go over to iTunes and Google Play and Spotify and all those places and leave us a review and we'll read them out and so we'll give you a part of you . Give you an opportunity for that as well , which is going to be a river course . I'm super pumped about releasing that to our community shortly . But , mate , we covered a bit today .

Always a pleasure to hang out with you . Enjoy that replay with your mates . Total immersion in the Collingwood replay , mate . But until next week .

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