468 | Why Don’t We Start with Property First and the Hidden Power of Building a Moat

What else are we going to cover ?

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 free lifestyle design app , as well as bestselling authors of the armchair guide to Property Investing . And make money simple again .

But before we go there , Ben , you and I have been on a little mission to see if we can get our episodes plus or minus an hour , Ben so very rarely minus Around an hour , around an hour . Around an hour and I reckon we've done pretty well on that , to be honest . But we've got a .

I've got some feedback on my Instagram from Francis Rivera , who's been a long time listener of this podcast and a great supporter , and this is the message . Hey , bryce , I hope you're well . I just wanted to throw in my two cents worth , as I missed out on the poll you said would be on socials .

Yours and Ben's wisdom guide is so valuable to so many of us it cannot be contained in one hour episodes . If I can't listen to an entire episode on the way to work , I just pick up where I left off on the commute home and even on the commute back to work the next day , if need be . Thanks again for all that you do , ben .

So it's fair to say that there's probably two camps of listeners , ben the ones that are quite happy for us to riff away until we run out of words , and there's probably some others who go hang on . I've got some competing things that I want to put in my earbuds and maybe can you do it around an hour . So there's no hard and fast rule here , ben .

There is one rule you can't be too long . You can only be too boring . So if we avoid being too boring , we take feedback from our audience around that . But the stick is spoken and everyone knows that she's the boss around here . So she said can you guys aim for an hour Ben ?

Imagine you just went around collecting $200 , giving your money to the rich and trying to stay out of jail . That's how most people live their life . Isn't that worth reflecting on ? Fair enough . Well , because I sort of thought okay , well , how many investors have we got in the country , and how many property investors ?

It's fair to say that that's a reasonable anecdote for life , Ben .

Well , if you're sick of playing monopoly without buying any assets or investments to generate income , listen to the last statement that comes out of Ben's mouth at the end of every single podcast we've done from the last eight years . Did you say that back in 2015 ? I don't think you did , Ben .

Then we said education versus regulation , and then we started the first of our four pillars , which was cash flow management . Today , we're going to go and finish the loop on the four pillars of master . We're going to talk about the final three and some of the concepts that came out of that , ben .

So the challenge for you and the challenge for me is to hear these concepts , try and remember what we said and see if we can bring it as up to date as we possibly can for 2023 for our listeners , ben . So , the first one was episode Well . The first one we'll chat today concept we'll chat about today is the second pillar , which is borrowing power , Ben .

Now , we spoke about this for the first time back on the 19th of March 2015 , a fair while ago , and here's some of the concepts we talked about it being a game of finance , we talked about glass ceilings , we covered borrowing options and we talked about lending priorities or the tiers of priorities , which we'll go through shortly , ben .

But we recently had a conversation with one of our audience , ben , who is going to become part of our summer series , and she said to us at the time she goes I remember you boys talking about the fact that property is a game of finance , and I took that on board .

So we've gone from cash flow management working out how many of these properties you actually need , making sure you've got a buffer in place to now going all right , let's go and buy some real estate . It's not where you go next , ben . The next place you go is borrowing power .

We did see some throttling around the market share in which a bank could grow their investment lending you know , interest only lending at some point there .

But we've really gone through the whole gamut of throttling done by APRA and we now currently you know , obviously , at this time of recording in November of 2023 , the biggest throttle we have on top of us right now is the 3% buffer rate and what we've noticed in terms of how much people can borrow .

You're probably at least 30% , maybe even in some cases , 35% , from the typical household in terms of the least amount of borrowing capacity you now have based on . You know what's changed in terms of cash rate movements , but also this additional buffer .

So , if we go back in terms of how we used to assess lending , we used to assess it with a 2% sort of assessment rate . Now that has been changed to a 3% rate . And if you think about the Council of Financial Regulators , which is the RBA , the Treasury and also APRA .

It's very clear when you look at the inflation data that's currently being presented , that property is causing some of the inflation , whether it be through the higher rents that are being charged , but also property from existing property that doesn't get into calculations for inflation .

But what does happen is that any new property that's being bought , in terms of the cost of those materials to make up some of the inflation story there , and properties about from my recollections , about 20% to 25% of the overall basket of goods that make up the CPI .

So why don't the banks want all of us going out and buying more investment properties , especially the new ones ? It's because it's inflationary .

So , even though it's ridiculous to think that from a lending point of view , that you're getting assessment rates at 10% and mark my words , you're seeing now the slowing down of the economy , the slowing down in spending , the hearing more about the mortgage stresses and all of that that are going on there's literally no logical sense that would say that interest

rates will get to 10% or even 9% , or even 8% , for that matter . It's just simply not possible . But we know why they're doing it there . You know it's another tapping of the breaks mechanism that APRA and the regulators have got . So unfortunately , we're not going to see any change of that soon .

But what we do know and this if you just picked up the podcast , you haven't been listening for a while and you are in mortgage prison or mortgage jail , whatever you want to call it . There has been some significant movements in regards to lenders using reduced serviceability rates to refinance existing debt .

So , please , please , reach out to your investments , have your mortgage broker . That is a situation that you find yourself in because you're paying too high an interest rate . You do have to jump through a lot of hoops to be able to refinance , but it they are definitely making concessions for that , whereas new borrowings they're not making those concessions .

But to the point of mastery , that's the sort of knowledge you need , right ?

So , when you are thinking about borrowing power , there's lots of different elements associated with that , but one of them is knowing the players in the game and how it works , and how serviceability calculators works and and how having personal loans and car repayments and credit card limits and all that really do affect the amount that you can borrow .

You know is part of the mastery . If you don't know it , you don't want to learn it , then you , you tap on the shoulder of an investment savvy mortgage broker to be able to get that information out there and present those options to you .

You'll always get two camps having a barbecue conversation around that , but we've always said that the central empire in this is is the amount of leverage that you can get against the assets so you can control bigger assets .

And so if you don't get the leverage right because if you're building a portfolio , it's generally for most people it's not about buying one investment property , although statistically that's what most people do . We've touched on that it's not about buying one investment property . It's usually about you know up to four right and ideally two or three .

So if you get it wrong , there's a whole bunch of glass ceilings that'll wait you right , because you may be able to borrow money on paper , but the actual institution may have someone in credit who's a human being , who may be having a decision that day to say that you can't borrow , which is why we've always suggested that and we'll talk about this shortly .

But it's not just about getting a borrowing capacity , and I think that's probably the number one rookie mistake that all property investors get . Well , probably the number one rookie mistake , ben , is shopping around on interest rates .

The number two mistake is just being satisfied only with the here and now around a borrowing capacity , because , largely speaking , it's about maneuvering to have a look at what the around the corner . The next move needs to be to be made . So we talked about in this episode back in 2015, .

We talked about the analogy of finance being like a game of chess , and I played chess with my two boys and I'm always trying to set up the move to try and trap them at some stage , and it's not until later .

I realize they've been doing the same to me and I'm getting pants on it , but the important thing here is , if you were to stack all of your lending with one particular institution , that may provide ease and comfort and straightforwardness .

They might cross some security early days , but what you might find is then , if you have a broader look at your portfolio , you might qualify for more lending across the market , but within one particular lender , they may place a handbrake on you .

So it's all about getting the strategic pieces right , because finance for property is not just about getting a loan to transact and get in . It's about making sure there's enough left over for an adequate buffer .

It's also making sure that you've got leverage availability where you can release equity so that you can use that as a deposit to buy another property rather than having to stump up the cash . The game that we're playing is all about retiring out the debt .

So you're going to borrow the money , but you need to have a plan on how , over time , you're going to amortize that debt down to ideally zero . And then there's going to be some conversations around what type of interest that you want to pay , based on what is the most optimal .

Is it interest only because it maximizes your tax advantage , or is it P&I , because the cheaper rate combined with some other factors mean that , despite interest only being on paper , the best thing for you to do , you might consider doing P&I . So this is why we said it is a pillar of mastery , because it's not just about a loan contract .

It gives you a lump sum to settle on the property . There is so many things that come as part of the discussion .

We've even seen the ASIC take the Westpac Banking Corporation to court to pay a $35 million fine because of responsible lending breaches , only to find that decision reversed by the judge because ultimately , in the situation presented , the judge was sort of saying it's common sense that people adjust their spending expectations to allow them to accommodate for their mortgage

. So we talk about the tiers of priorities . People prioritize interest rates first , they prioritize the capacity and then the strategy . It's the wrong way around . Strategy leads everything . Strategy is what Bryce was just been talking about .

So strategy is things like who's going to value the property on behalf of the lender and what happens if one valuer gives you a $50,000 better valuation than another property and you've got $30,000 of additional equity that you can now release and that's a meaningful number in terms of the type of asset where you're going to buy that next asset as part of that

location . Bryce also mentioned to you about cross-securitization and to avoid that at all costs . We also talked about splitting your lending , hedging your bets in terms of being able to diversify your lending risk in terms of one lender , they might have an all-money's clause associated with their borrowing arrangements .

You've got all of those factors that are just the starting point in terms of what you think about from strategy , and then they influence that capacity . We know that when you look over 40-odd different lenders that the amount of borrowing capacity can be significantly different between different lenders . We know that some lenders will take 80% of rental income .

Some lenders will only take 60% . Some banks will now lend 95% plus LMI for investment purchases . Now that's ebbed and flowed over the journey in terms of a lot of people moving away or a lot of banks and lenders moving away from lending to investors greater than 90% loan to value ratio .

We've seen the introduction of SMERF lending sort of self-managed super funds , in terms of the lending arrangements there and the conservative nature of an LMI and the pricing . Now we're seeing some really super competitive pricing in that SMSF space , up to 80% lending as well . There's a lot more comfort around that residential story .

This is why strategy always leads the way in terms of then borrowing sensibly to that highest price point being borrowed and then look at interest rates . Then make sure you're at the pointy end of the price bus . We're not saying disregard it at all , because it's meaningful . That adds to cash flow .

To Bryce's point , controlling the bigger amount of property and sensibly doing that with sensible leverage and sensible debt is the story . That's why there's that natural crossover between borrowing power and cash flow management .

You would have heard us in 2015 talk about our assessment rates in terms of when we do our planning work for our clients 7.25% long-term interest rates , 7.25% , if anyone goes well , that's a bit high . When interest rates were down , when the cash rate was at 1% and you could get borrowings at 2% , 2.5% , everyone's going well , that's not fair .

We did adjust appropriately in terms of putting a 2% to 3% buffer in for the short term . Our longer-term models always reverted to that range of 6.5% to 7.25% . Has that served our customers well ? Well , we hope so .

We hope that by doing that and being conservative enough , they're not part of the group of people who are now selling their investment properties because cash flow is too tight .

They will be able to retain that property and in five years to a decade time from now , because we think in decades not even in years that they're going to be in a far better financial position and they wouldn't have had that recycle cost and those replacement costs in terms of getting back into the market .

If that's not enough evidence for you in terms of what Bryce said at the start of the show , that ultimately has anything changed ? Not really .

People are playing around with the mechanisms in terms of the capacity , but from a fundamental mastery pillar , borrowing power still remains at that pinnacle of the four pillars that you need to be thinking about when it comes to a game of finance , to be able to control those properties over a longer period of time .

The difference between what the bank or financial institution has to offer and the difference of what the market has to offer here's where the bonus points live . We introduced this concept then back in 19th of March 2015 . It was the concept of the investment savvy mortgage broker To help with that . There's a couple of analogies here .

First of all , it's like when you go to a broker . It's like going to a general GP doctor versus the need to test the general practitioner . They see a whole range of things come through their practice that they need to be general understanding across them all .

Some days they might have a concentration of one thing , the next day they might have a concentration of others , but in generally speaking , it's across the board . Versus the anaesthetist their job's very clear then .

Make sure you stay breathing when you are under anesthetic so that whoever's performing something on you can get the job done , but you make sure you breathe along the way . It's a very specific lane that we do . Why is that analogy relevant ?

Because investment savvy mortgage brokers are actually pulling together deals for investors as the majority of the work they do In some cases 100% , but high 80% to 100% in that range is where they are doing it . You become good at it , you niche at it , you get the nuance .

You're talking to the business development manager , the banks and working at the little 1% . That experience that you get to see what this particular client's doing that has some similar circumstances to you , but a little nuance that's different . That they get to see that and you get the benefit of that .

Like an anaesthetist who's specializing , like a gazelle-like focus . That's what they do . The second part of an investment savvy mortgage broker , which I've already spoken to , is the chess game Playing bits to make sure the move is being thought of in advance .

The third thing they're thinking is when you go to buy a suit for a wedding , if you're a lawyer , for your day job , whatever that is , you can actually go and get one off the shelf bin .

Or you can actually go and go to a tailor who's going to get the tape measure out and they're going to measure all of your main points for them to then send it off to their tailors to make sure that when it comes back to you it fits like a glove , whereas the one that comes off the shelf has some loose parts in loose areas because they have to cater

for the average around that . I think that's where we really rammed at home about the bonus points in this particular episode . Ben , that broker's better than bank in our view , but investment savvy mortgage broker is a better fit for your team if you're going to do multiple properties than a generalist mortgage broker .

People are asking me what do you think separates yourself ? I said well , if I in Sharpen's iron and we've got 15 brokers who are doing all of that work day in , day out that specialize in this particular space , the knowledge transfer that goes on between 40 lenders and over a thousand different lending products , it's just hard to beat .

It's hard to beat that exchange of knowledge that's going on in that concentrated team . So I think that's something that we always need to think about when we're looking at that . In fact , I actually asked the manager of the team , ben , what sort of years of experience do we have ? And I think he came back .

I'm trying to remember now , but I think it was about 238 years of experience . It went to sum up all the people in the team in terms of who in the broking and lending space . So just an incredible and I'm hoping I've got that number correctly , but I'm pretty confident it was over 200 . Plus or minus , ben .

Yeah , plus or minus , it was over 200 years of experience . So that just gives you an idea . Right In terms of so , when someone else says no , when your bank says no , when maybe even your other broker that you've been using for a time says no , that shouldn't automatically be a no all the time .

And I know we're going to have a gain on summer series Someone who was told no and they just didn't accept it and they ultimately shopped around and got themselves into a better position to find a lending specialist who got the job done and you'll hear the fruits of their labor also exposed in the summer series coming up .

So it just gives you an idea that borrowing power , you have to master it If you don't have the time to learn it . To master it , you need to build someone in your team who's going to be able to do that for you .

The third one , ben , which was the next episode that we did it was way back on the 27th of March 2015 . It was the third pillar , which is asset selection . So we talked about why we don't start with property first . We talked about the telescope and the microscope Excuse me and we talked about what type of asset to buy .

So there is a very , very important reason why we're talking about this third , ben . It's because most people talk about asset selection first Back then , and now , with podcasts and people acquiring more information .

It's probably not as relevant now today as it was back then , but we found at the time people were coming to us and talking to us about being on realestatecom or domain at the time and just saying I found a property I like and it was the first part of the narrative and we're saying that led to the property investing .

Property investing is a process , not an event . But here , third , is a very deliberate part of our strategy , ben .

So what you buy here new versus old how you go about that process , how you look for that owner-occupier appeal , how you think about all of the ways in which you're making decisions about how the marketplace is going to behave , informs that view , and so we've always built this sort of . That's why we have the classic practicality test and that substitution .

So in economic terms , you talk about it from a substitution . So if I can't afford this , what's the next alternative thing that I can buy ? And then you've got to try and bring that back into the human nature story and that human behavior story .

And I was saying to you earlier around , ultimately , in terms of social activity and what we spend our money on , is all about envy and I've referred to it as the veblen effect , which is the very , very high envy play in that sort of luxury area , and I've argued the point that really exclusive properties have that veblen effect in respect of the higher that

they are , the scarcer that they are , the more people who are mega rich , mega wealthy , want to buy those particular things . But it does flow down into this whole concept of economic activity , human interest and human behavior , and so this idea of property is one of our favorite pastimes .

We love showing it off , we love looking at it and we have envy and with that envy drives further aspiration to live in a location or have a sea view or ocean view , or have park views , or being in an area that's got all of the amenity and the living and lifestyle elements to take . That hasn't changed .

Now what has changed and what is a little bit interesting in terms of what we've observed since 2015 , that there has been a divergence between units and houses or more , more flight to the scarcity of land , predominantly outside of Sydney .

So Sydney , you could argue , has kept up their end of the bargain because of its sheer density and obviously the attraction to being closer to the most beautiful harbor in the world is definitely , and the beaches along the coastline there has made that story where certain locations , where great scarcity of apartments and accessibility not being able to build out or

that view to be built out , also has high scarcity and that that has seen those particular properties perform very , very well .

But more broadly speaking , what we have seen in terms of the vast increases of apartment building that's going on , that hasn't created that substitution effect because we've just got oversupply in those particular areas and that's why apartments per se haven't performed so well over that time .

Now , how far that divergence gets before people start seeing apartments as attractive again , it's impossible to think more broadly and generally speaking that they'll get so much of a divergence that the people will just disregard living in apartments , because a lot of the people arriving into Australia have come from high density location and apartment living could be

something that they would comfortably reside in . So I don't think that divergence can get too much further .

But it's the underlying land value where the true success story is , and it's and the evolution of what we've been talking about is the productive use of that land is also going to come into play over the decades in terms of because ultimately it's the land value that appreciates as opposed to the improvements on the land as well .

So hopefully that sort of puts you I summarise that into a conceptual way that hopefully people can take away that and sort of start to think about that .

So we want you to take the telescope view and actually be looking from 30,000 feet down at the country of Australia and sort of thinking , okay , well , what is the best state that I should be considering right now , based on economic activity , human issues and human behaviour , and then zero in on particular suburbs and then streets and then finally get to the

property . Because we coined this term , ben location does 80% of the heavy lifting . It's now said very much across the landscape in the investment world , which is great that it's catching on , but location does do 80% of the heavy lifting .

It allowed us to send the message to our audience to say , hey , listen , the main game here is to not be looking at the portals , at real estate . The main game here is to be getting very familiar where the land value is valued the most , where people will want to be in those suburbs , and then they will choose the properties based on what they can afford .

So that was very , very important . And then we introduced the concept of the buyer's decision quadrant , ben , the buyer's decision quadrant and this is really , really important for anyone who's going out to look at property . It certainly helps when I was talking to people on the show , ben , to help them get the headspace right .

But there's really four areas that you need to think about when you're buying real estate , and one of them , at the very least , you'll need to compromise , unless you are blessed with unlimited money , which most people aren't , ben . But if you're unlimited money , this probably doesn't apply to you .

But if you do have a limited amount of money , it's price , location , size of the land , quality of the dwelling . So for a lot of people in the top left corner of the quadrant , price is generally fixed right , particularly given lending challenges right now every time interest rates go up . So price is fixed .

On the right-hand side is location , and they don't call the television shows property , property , property , australia , ben , they call it location , location , location , australia . So that goes without saying that people often punch in a suburb first when they go into these portals so they can see what's available in the location of choice .

So it's at the top of quadrant , left-hand side price . Right-hand side is location . Now , if we go to the bottom of the quadrant , on the right-hand side is the size of the land and on the left-hand side is the quality of the dwelling .

So the best way to summarize the size of the land is the aspiration in Australia for a long period of time is to have a quarter acre block in a great location with a detached house surrounded by a garden with a hills hoist . That's the iconic great Australian dream , ben .

But summarized , can I get my own detached house with a bit of space so I can have a garden right ? And then over time , as densities increased and affordability has changed , that quarter acre block has become a 650 . It's become a 500 . It's become a 400 . In some parts of inner parts , inner urban on the East Coast in particular , they can get to 100 , 110 .

So there's smaller bits of land . And then , once you run out of the size for the land , for the house , you then move to different dwelling types , whether that's a townhouse , whether that's a unit or a villa , whether it's an apartment . But that's the bottom right-hand corner with the size of the land .

And then on the left let's say you cannot compromise on price , you will not compromise on location . You are fixed on the fact that you will buy a house , no matter what . Well then , the only place to go is the quality of the dwelling , and that means you can't get the shiny taps and all the latest fixtures and fittings that's in the property .

You might need to get a renovator or a detonate property , because all the other three are fixed . You then have to start from a place where , okay , the things that I cannot change are the location and the land . The things that I can change is the dwelling on top of it .

So , whatever I can afford now , I will put myself , put my roots in , and over time I may not be able to add value to that property bin . But that is the decision quadrant that most people need to go through when they're talking about the C word in real estate , and that C word is compromise .

So we're probably going to see those locations fringe locations doing better from a short-term capital growth point of view . But here's the thing , and this is what I always say to people when they say well , does that mean that they're a better investment ? Well , remember your bank dollars . You don't bank percentages .

But the other part about that story is and then what happens then when they become unaffordable ? Do they keep growing and they go ? Well , what do you mean ? I said well , what happens to them ? Do they keep growing and they go ? Probably , well , maybe , maybe not . I said well , how do they keep growing ?

The only way that they can keep growing is if the better houses in the better locations and the better land goes up in value . Ah , of course , ripple effect . So you know . So , yep , short term stuff , you can definitely go out there in time buying in those particular locations , but if you're thinking in decades .

You really all you want to do is get the best land in the scarcest location that everyone wants to live in , and the reasons behind that comes back to human interest , human behavior and envy , you know , is the big driver there . And you know , with these days , with social media , it's not really social media , it's social envy .

You know that is a massive driver for the way in which people are going to make their decisions , unfortunately , you know , I recently done a trip overseas , to Bali and the .

You know I went to one of those big mega beach clubs you know , the biggest beach club in the world and most famous , and it was like you take a shirt off and show you calling with tax . No , mate , I made sure , I made sure I had the long sleeve , you know , sort of you know sun , sun cover on .

In terms of the rashie , yeah , you'd have fit right in with the millennials oh . God , talk about the envy and all the sort of people showing off . They're showing off their off Unbelievable . So , yeah , I said no worries there about who's going to keep spending money and who's going to try and keep up with the Joneses .

This generation is going to be far worse than our generation or even the baby booms before it . So talk about putting pressure on .

You know , if I want to look successful and I want you know , I want everyone to envy me , mate they're being driven by this in the way in which they're learning about social media , and so I have supreme confidence that property prices are going to get going up , because , remember the other thing that we also talked about is , as an investor , we want to be a

price taker , not a price maker , and owner occupies by with their hearts , that are by with their heads . So , whilst envy still remains one of the core drivers for life , it's not about greed , you know . As Charlie Munger said , it is about envy , and so , whilst that still remains a thing , I don't think that's going to change anytime soon .

Whilst you know , the next two or three millennia of generations are coming through , I think land values and property prices are going to go all right .

Now , populations and affordability have meant that , obviously that you're moving further out , which is fine . But to your to your point , there's the short term . Energy that's going in some of the more affordable locations further out is being dictated to by interest rates because there is a price point and a borrowing capacity point .

That means a lot of people are hitting ceilings at the moment on borrowing capacity . So a lot of people are all playing in the same price point , which is meaning that they're just looking around the country and going well , where can I spend my money as an investor ?

But over time , as interest rates come back off again , that will mean that some of the fundamentals that we've always talked about that still reset , revert back to the mean over a longer period of time .

Once interest rates start coming off , you'll see , to your point , the stuff that is more desirable and people want to be in there because of all the infrastructure elements . People will reset and go back there , which will mean that the longer time horizons will reward the people that continue to play with the fundamentals .

So I am saying that some of those areas where affordable are good opportunities .

So I'm not saying that that's not the case , but I think I'm just trying to double click on your point where it always starts from the most desirable parts first , over a long enough time horizon , and show interest rates are meaning that there's that concentration , but that won't be the case all the time .

So if your strategy is that you've got only an option to get onto the property ladder doing it this way , terrific , and we'll fully support that . Like it's not necessarily the way that would be .

But if you're a time poor professional with good double household incomes , then if you're coming to us , we're going to keep buying you quality properties in these locations where we're thinking in decades , not thinking in years .

But if you're cash flows tight and you need a deposit slow , then we're going to also make a strategy for you to be able to execute on that as well .

But the vast majority of those clients they want hassle free , passive , they want to run a passive small business and they don't want to have too many troubles and usually that you don't get too many troubles in those better areas .

That an average property in a good location is better than a good property in an average location . And Ben said this just a different way , but quite what we said , our own rockypies buy with their heart , not their calculators , which is what the investors do . So beautiful , there you go , folks . So pillar number three was asset selection .

So pillar number four , ben , this was episode six of our podcast back catalog , back on the second of April 2015, . We talked about defense . So we talked about what the most important asset is , why you need to build a moat around your investment property and the components to defense .

But it's fair to say , ben , that the defense mastery pillar is the poor cousin pillar . People don't love this pillar . It's a bit boring , there's nothing sexy about it , say poor old defense pillar , but it's really . The most important asset is the investor themselves , because without the investor , everything comes crashing down .

So it's kind of important that we get this right . It's the most neglected one , it's the most boring one , but arguably the most important one , because if you , as the investor , are the most important asset in this whole wealth building journey , chances are , if you neglect this , you neglected at your peril . So , ben building a moat , help us out .

What does that mean ?

But it wasn't always the case , bryce , and you know our target wasn't always at the level that we've adjusted our plan as per . You know what I've explained on the podcast before in terms of my situation .

So the message here is really simple that whilst you're in accumulation phase to Bryce's point , you're going to be the one producing the millions of dollars of income if you're working full time .

So if you were , something was to happen to you and you had a medical episode , excuse me , or a medical event or a diagnosis , whatever that looks like , the worst thing that can happen for you from a financial point of view is you have to sell an asset that you've only held on for a short period of time .

So it's like buying a really , really expensive bottle of wine and then opening it up you know , the second year that it's been sitting on the shelf , where you should be waiting 20 years before you drink it . So the view is that there is a cost associated with this and it needs to be factored into how you plan to become what you're planning to come .

The good news is , as you get older and older you will ratchet those down as your wealth base and your asset base and income base continues to keep growing . But it's essential .

I mean , you know , we talk about ensuring a car , we talk about ensuring your property , the improvements on the land , but we are the number one asset inside that household and if something was to go and happen to us or our wives or , you know , best friends or whatever it is that we're in partnership with , those things are material .

So we always would be saying it's sensible . Oh yes , it's boring , but it's sensible to be able to make sure that you've . You're dotting eyes and crossing T's when it comes to making sure you've got that defense mechanism in place .

So , in the case of the moat of defense around the portfolio , it's going to protect three things it's going to protect your assets , it's going to protect your income and it's going to protect your lifestyle . So there's components to this . The first part is if you want to defend your income , let's start talking about your defending your income .

You're going to need to talk to a suitably qualified financial planner . It is the domain of the financial planner then , not the property wealth advisor , not the mortgage broker . It is the domain of your certified , qualified , independent , capable financial planner . Because what they can talk to you about is income protection , which kind of makes sense .

You're protecting your income in the chance that you can no longer earn the income . Trauma , if you have a one-off medical issue , that is a temporarily takes you out of the game , but you need to be covered for that time , and then , or worse , is TPD . It's total and permanent disability .

It's total and permanent disability and , as the name sounds , ben , it's not a short-term taking you out of the income earning game . It is a long-term , forever taking you out of the income earning game Because , remember , the income is the most powerful part of any wealth creation strategy .

Anything you can do to increase your income during the accumulation phase is going to accelerate until the point where your portfolio stands on its own . So , ben , to defend your income , the financial planner to defend your cash flow , and the defense is to have a buffer .

Now for those listeners who put a buffer in place prior to interest rate tightening , they are sitting comfortably now For those listeners who are listening to this and it's a little uncomfortable in their household . First of all , we see you , we hear you , we understand what's going on for you .

If circumstances meant that they had a buffer , ben , they would also be enjoying a bit more peace and quiet right now . So that is why the buffer is your defense towards your cash flows .

And then , obviously , you have a defense towards your assets building insurance , in some cases , contents insurance , but also , importantly , landlords protection insurance , which means that you've got this asset that you are letting someone else use for the quiet , peaceful enjoyment of their life , but in some cases , those people do not do it in a way that is quiet and

peaceful when they attack the asset , and then you can be covered for not only the repair of the asset but also missing rent whilst you have to attend to that . So they're the components .

our money work harder for us . But if we can't keep that cash flow coming in , that income coming in in the short term , then it can fall over , and so it really should be a serious consideration as part of the investment strategy and planning work that you do . And , as I always call it , it's an asset .

So when you're thinking about what you're paying for , here is an asset that hopefully one day you never , ever really get to call upon . So because you think about oh , I'm paying $800 a month , geez , that's a lot of money . I could be putting that on the mortgage .

But here is the deal that $800 a month could be hundreds of thousands of dollars in terms of support and buffer in the event that I have a health issue . So your health is your wealth . So when I'm thinking about it like that , but I never really want to call on those hundreds of thousands of dollars if I don't have to .

But if I do , if I'm roughly one in three Australians by the age of 55 , will experience a diagnosis that will have a serious future consequence if it's not immediately remedied , and all you could be injured in an accident or those types of things , which is also you run the risk of as well .

So it just makes sense that you would be thinking about that , whether it be just for yourself . If you're an individual , sometimes you can sort of argue well , I don't really need it to leave to anyone else , so you might take a higher risk profile there .

But if you've got a partner or you've got kids , it's absolutely critical both of you are insured to make sure that you can provide for the family in the event that one of you are seriously affected by illness or by accident . So it definitely makes sense that you would put that as part of your overall strategy .

That's the aim , and the more and more confidence you have around that , the more and more you can wind down some of your defense .

But in rounding out the mastery pillars here , ben , for our throwback Thursday , I want to plant the analogy in people's mind of a four-legged stool , and so each and every one of those legs creates the stability from which someone can sit on that stool without fear of falling over .

If any of those legs are to remove , ben , some skilled people could actually balance on a four-legged stool with one leg missing , but they would remain vulnerable at all times to any shift and change which would knock the stability of that stool .

So what I would challenge everyone is to see it as a four-legged stool , not a three-legged stool , and , to be honest , the leg that is most neglected , which we've already spoken to , is that defense .

So if you can see that , folks , as the stability is directly proportional to the four legs that you have or the four pillars that you have , then , ultimately , you can set yourself up for a portfolio that allows you , through the accumulation phase , to get to yourself into a position where you retire at the debt over time so that you have that self-funding

portfolio in retirement . And , folks , therein lies the foundation that Ben and I set back in 2015 , which formed the platform for every conversation that we had on the podcast , every guest that we brought on to try and add value to you . But it was . We called it the property investment formula , and the property investment formula with those four pillars .

So here's the challenge to you if you've been listening to this , if you've been listening to us for the last eight years , have you got all four pillars in place ? Because chances are that may not be the case for all of you .

And secondly , if you've been listening for the last eight years , ben , and you actually haven't got it out of the starters game , you've probably disappointed about the prices that we could have bought real estate for back in 2015 . But I said it last week with you , ben , we'll say it again , that nothing's going to change in the next eight years .

People are going to reflect in the rear vision mirror and say , gee whiz . It would have been nice to put my name on a few more titles over the journey . So , folks , if you haven't listened to those four foundational pillars , make sure you go and check it out . We've got a time hack for you .

If you go to thepropertycouchcomau forward , slash TPC 20 , as in the property couch TPC 20 . We've actually got a free binge guide that you can actually get the first 20 episodes summarized so that you can get up to speed really , really quickly , ben . But it's kind of nice to go back and go .

The goal for us in doing last week and this week was to go let's just double check that everything's evergreen . That's a tick and let's double check that we've given all of our audience the very latest information here as we record in November 2023 , as it applies to those first six foundational episodes . But it's always fun to have a look in the past .

So we always want to talk to the latest and you know things that are happening in the economy and giving people confidence and knowledge . But if you were to really synthesize down exactly what we've been talking about , it's like you get those four legs of that stool strong and you just let time do the heavy lifting for you and you'll be in good shape .

Here's something that hasn't changed , but since 2015, . It's the human , who has the ability to withstand the negativity that's constantly coming their way and taking action anyway , other people that get to stand here in 2023 . So , hey , listen , I was one of those people that were .

I bought a property in 2015 , I bought a second one in 2018 , and then I bought a third one during a pandemic that no one would have predicted in 2020 . So now I've got three investment properties plus I've got my home . I'm now moving towards debt retirement phase .

That that only happens through the lens and through the action , through taking action , which we're trying to encourage a lot of people to do . So well said , very good , well said . Hey . My life hack today , ben , is a continuation of some concepts that I've been talking to you about , about the lift to 100 secrets of the blue zones .

So I'm still with the Iki Nara people and they have this thing called an Iki guy . Ben , have you come across Iki guy in any way ? There's a book being written on it . I'll tell you what the I went and looked up the book . I haven't read the book , but I had a quick look at the summary of the book .

And basically an Iki guy is some mission or contribution to the world that gives you a sense of purpose .

So then , so , under that definition , the property couch is our Iki guy , because it gives us a mission and a contribution to out the landscape and it also gives us a sense of purpose to give back sharp and what we're doing , learn through teaching , all those sorts of things .

But what was interesting about this group of people who are li so , remember , the goal here is what are the secrets to people that are , on average , higher than anywhere else in the world , getting to live to 100 .

And it was this sense of the people getting together and creating their own Iki guy within , within their village , in their community , right , so they have no word for retirement . So there's no word for retirement because they're keeping their minds and their bodies engaged through having this Iki guy .

And you remember last week , well , a couple of weeks ago , I talked about the Moai , which was where people get together and create that village . So the Moai , which is the group of people in combination with the Iki guy , which is the sense of purpose and the shared vision . Because , if you think about it at the , at the , at the village level .

For these people , the mission is for them all to get together . The contribution to the village is to watch each other's backs and therefore , through , through the power of the community , they then have that sense of purpose . So I really like that , ben , I think .

I think the Iki guy is something that if it comes on more people's radars , they'll get a sense of what that is . So the book summary is this , ben , this four primary elements of an Iki guy . The first element if you could think about this as a Venn diagram so four intersecting circles , ben .

And then the central part of those four intersecting circles is your Iki guy . So the first circle is what you love , ie your passion , right ? The second circle is what does the world actually need ? So that's the mission . The third circle is what are you actually good at , ie your vocation .

And then the fourth circle is what you get paid for , which is your profession . So imagine if you could combine your passion , your mission , your vocation and your profession all together . That intersecting circle becomes your Iki guy . So there you have it , folks , folks who , on average , are more likely to live to 100 .

And the basics of what they need are quite humble , to be honest is around having an Iki guy with no word for retirement . So there's my Life Act today , ben , it's a beauty . Go and check it out and see how you can implement that in your life . So what's making ?

Now , for those of you who don't know much about your politics , usually inside your council levels you do have your political representation , so you do have your sort of labor people , you have your liberal people , you have your greens people and then you also have independence or other party people .

So that's the grassroots sort of area in terms of where politics plays . Well , what we're seeing out of Queensland is that we saw one of their federal members get elected recently on a grassroots campaign of tapping the shoulder of all of the rental people and the younger people inside that sort of inner city Brisbane area .

Max Chandler , I think he said , is the name of the member now who's in federal politics . But a story caught my eye right Because it does look like , you know , federally they've certainly said there's no meaningful reason , there's no evidence-based reason why you do a rental cap or a rental freeze .

It just doesn't make sense , right , economically it would just not make sense . It prolongs a problem that you know that won't then be solved . You take out all the investors or the small business owners . But guess what ? The greens love it and they're still hacking on about it . Because it's a political winner to convince people to vote for them .

Because if you are a renter and your rents are going up and someone's promising you that you know that they're going to keep rents down and do something for you to keep your rents down , you're going to give them a listening ear . So they know that they're on a political winner here .

So what was the very , very concerning story coming out of Brisbane was that the greens are threatening to increase rates so that's the annual rates that we pay on properties by 650% price , but that land 650% increase in rates paid to , obviously or due by the landlords .

And that because if they can't get the state government to act , they can't get the federal government to act they're going down and saying , well , what we can do is enforce this legislation by increasing the rates for landlords who own investment properties in that area . So the small business owners who are owning property , they're running a risk of that .

So they're campaigning on this policy . That says nearly 40% of homes in Queensland capital is occupied by rentals . So again , it's political , politically motivated to allow them to obviously continue to keep growing their base . The biggest problem with it is , like all of these types of things is going to cause unintended consequences .

The logical unintended consequence of such a move is that rents will eventually keep going higher and higher and higher because ultimately more investors will get out of investing in that particular location .

They'll work out that they made a mistake , but they know I mean well , I don't know right , it is the Greens party I probably can't give them their economic ability to run it . I can't give them that latitude that they know what they're doing and they know that this is a means to an end .

I mean , it's a classic case of you got to kill the village to save the village . I'm hoping that they don't take that approach . But my point being here is that they realize that this is the hottest issue of housing affordability and rental affordability in the country at the moment and they're maximizing the political gain on that right now .

So once they then get into power or they win the Lord Mayor's seat or whatever they do , and they try and implement that and then all hell breaks loose and they lose all of these investors , they'll have to change the policy . But guess what ? It's served the purpose .

Remember they got into power and so we just don't want them to get into power , because radical decisions like this have significant consequences that take years to fix and you don't want to have that lack of confidence from an investor's point of view when a technically mom and dad , small business owners or a property investor are spending tens of billions of dollars

of investment creating jobs , creating the critical infrastructure in this particular case , rental accommodation . So it's really dangerous in terms of their political tactician how they're tactically playing this as a real concern for me . So I just wanted to bring that to everyone's attention .

Let's hope that they don't win power at the local government level , because if they do do that , we're in for some very , very interesting times in Queensland .

But I think that summarized best by saying rent is beware , because I think the honeypot of headlines that come around thinking that taking the power away from the poor old property investor , thinking that anything other than the small business owner , that the narrative that we're trying to create here is just it's not a bottomless pit for the landlords .

And again to anyone who's renting or who's hearing this or talking at the barbecue conversations with your friends around this particular topic someone will need to pay and if it's a short-term win , it's only a short-term win .

So I think you know , in summary , ben's trying to say hey , listen , there's a game that's being played over here , which is the game of politics , but the reality of providing roofs over people's heads still remains unchanged .

There is someone who will receive a notice , either via email or via Australia post that sits on their desk , that they need to pay and when they make a decision on when they need to pay that and whether or not , a it's worth staying as a property investor or B what does that mean for the reflection of the rent that I need to charge for the person to use

the space as shelter Will mean that ultimately the renter will end up paying . The landlord won't be able to pass it all on , so they will end up losing . The renter will end up losing because the rents will go up and then the person who is pushing the narrative in this case , ben to your point is someone who's playing a game of politics .

May or may not have won a seat of power , but it won't make an enormous change to the person that they're using to get that . So we get that . A lot of people have different political persuasions who listen to us , and we obviously are very overt in our political persuasions when it comes to the lane of property investing .

But I would say the headline here is renters . Just beware of anything of the honeypot that sounds too good right now to be benefiting renters because someone has got to pay and the poor old landlord won't be able to absorb . Interest rate rises , rate rises , land tax rises , and then no small business owner isn't not going to pass that on .

So why would property investors be any different ? Well said , mike , well said , all right folks . So yeah , I think we've covered a fair bit of ground today , but we have rounded out the first six episodes in a throwback Thursday .

We may come back next year that is , 2024 , ben and come and revisit some of the earlier episodes again , but they are the foundational pillars from which this . We launched this platform back in 2015 .

And we figured it would be a good place for renters to get a little refresher as we go into what is a busy season in people's lives Ben , christmas parties , winding up work and oiling the wheel on the trailers and the tents and all that sort of stuff as they're getting ready to take a well-deserved break off .

It's just nice to remember the fundamentals , but , mate , until next week when we've got a very special guest .

My little tip is to listen to it at one and a half speed Now for those of you that are interested in listening to our EPS 1 episode now . For those of you that are time poor and don't have the option to go back to the beginning , don't worry , because we've got you covered as well .

We've created a binge guide that summarized these foundational episodes into one easy to digest booklet so that you can get up to speed super fast . So go to the show description on whatever device you're listening to now and simply click on the first 20 episodes link to download it straight away .

Oh and , by the way , whilst you're there , you'll find a few extra goodies for you , including a link to download our lifestyle by design app more , the home of Wealthspeed and Wealthcock , and our hugely popular MoneySmartz Money Management System , as well as how to get free copies of our bestselling books Now , just a reminder that anything we cover on this podcast

is not considered to be financial advice , and we certainly recommend that you seek out expert advice tailored to your unique circumstances , and everything we talk about is general in nature . Folks , I want to encourage you again to click on the show description , wherever you are listening , to access all the free goodies we have for you Until next week .