Inspire & Inform Show – Episode 4

Welcome to Episode 4 of The Inspire & Inform Show where it is our mission to help you to build a better future together. This week Andrew & Colin upack the key elements required to succesful property investment – Spoiler alert – They are not what you think! We will also share Andrew’s “lightbulb” moment when he realised that property was the right vehicle to build his better future!

Please see below for the full transcript of this video

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Transcript:

Andrew 0:10
Good To Go

Colin 0:11
Hello, everybody. Welcome to the Inspire & Inform episode number four on the 24th of June. I’m so excited to have my friend, colleague, my confidante as well. Andrew Koleda, who’s joining us tonight. Someone I have a lot of respect for in that he’s always truthful to himself.

We were just talking to developer this week and Andrew certainly knows the questions that we need to ask to ensure that we take on well researched properties. So, there is no BS with Andrew.

He will be presenting and really unpacking the elements of what would require to be a successful property investor in the Australian, I guess, economy, there is not many investors around and Andrew will kind of go through a little bit of that statistic. And why why is it so hard for people to achieve success in the Australian property sector. And then we’re going to be unpacking also the 2 key attributes to building a successful property portfolio. And, and what I am really excited about which I will also have a little bit of a chat about is the is the little secret weapon that a lot of property investors ultilise to continue to build their property portfolio. Excited to hear that So, let’s, let’s let’s have Andrew on board, Andrew, welcome.

Andrew 1:48
Yeah. Thank you. Thank you. And, yeah, first time Inspire Inform hits YouTube. So we’re upgrading and trying to reach out to a few more people

But just building on what Colin was saying, and Colin’s introduction, you know, just before we came on board tonight, and this sort of flows into what we’re going to talk about tonight, but just before coming live, I got a call from a client that I, you know, been dealing with for a number of years now, to be honest. And I remember when I first I first met him, he was sharing with me some of the challenges that he was having around, I guess, getting his finances in order for his first property, first investment property. And at the time, I sort of shared with him some of the things that I’m going to be talking about tonight, coincidently, and the one thing and where this really ties into what it takes to become a successful property investor. At the time a couple of years ago, he he made the commitment, this is what I want, and I’m going to do what I need to to get myself in a position to be able to take action towards my better future.

And it’s so rewarding to get a call from him and saying, hey, look, I think, since we had that conversation, I stuck with what we spoke about. And now I think I’m in a position to actually do something. And I’m really looking forward to talking to him over the next few weeks. So I guess that’s a really great story. And that was literally only a couple of minutes before going live. And it really ties into, you know, what it takes to be a successful investor. You know, he set out he’s what he wanted to achieve. He knew what actually needed to take, and he simply just took the action. And so that’s a really rewarding story for today.

But I wanted to sort of, just let me grab that. Yeah, I wanted to talk about, I guess, set the scene a little bit and talk about, I guess, the context of property investment in Australia. And I guess Australia as a country really has an affinity, a love for property, the great Australian dream is very much alive to buy and own your own home. And I guess there’s a little bit of a perception out there that, you know, I think over the last federal election, they were talking about removing negative gearing and I think there’s a bit of a public perception out there that there’s a hell of a lot of property investors, every man and his dog and people taking advantage of negative gearing and all these sorts of things. So I wanted to set the scene a little bit and share with some data that I got from the ATO. And talking about, I guess, the percentage of the Australian population that is actually property investors.

So the percentage of Australian property investors that own one to two investment properties outside their family home is 7.4% of the Australian population. Now it’s really up to your perspective whether this is a small or a large number. But where the data really gets a little bit interesting is when we look at the change in that percentage. If we go and look at people that have four or more investment properties, and the number really jumps down to 0.32%. So it’s a massive gap between the people that own maybe one or two investment properties outside their family home to four or more. And why I really picked that four or more is a lot of people that we speak to on a daily basis is really talking about what they see as far as their financial freedom or what their financial future is or what sort of income that they want to live on, and use property as the vehicle to get there. For a lot of people the numbers these days, is they’re going to need to target four or more investment properties. So there’s a massive gap between people that get started, and people that continue going and get the job done in order to achieve their longer term dreams. And I really think that that begs the question, why is that gap so large? And I guess there’s a lot of reasons there. And with so much media hype out there, there’s a lot of people think the reasons are very much ingrained in the technicalities of property investing. What’s the best LVR? Should I buy property, a positive cash flow property? Should I buy? I guess in regional areas in Metro, all the technical details is now the right time in the property cycle. And the interesting thing is, from my own personal experience, is whilst these things are important to know and get on top of when you’re actually ready to take action. They’re not the most important things.

The two key attributes that I want to talk about tonight, begin with building the right team around you. As a property investor, it’s very difficult to achieve big goals or big dreams or big aspirations around things like financial freedom, whatever that may mean to you without having the right team around you because it’s a long and lonesome journey. And just like anything worthwhile in life, there’s going to be challenges along the way anything worthwhile in life is not easy. And it’s when those challenges, hurdles, the corona viruses the GFC’s is the removal of negative gearing, whatever life throws at you and, you know, over the course of a 10, 15, 20 plus year property investment journey, you can bet your bottom dollar there’s going to be another Coronavirus likething there’s going to be another challenge that’s presented and where people don’t have the right team, they go, Oh, well, look, I should probably should invest in property, they go out and buy investment property, maybe in the same suburb that they grew up in, or some of their familiar with, or whenever these challenges are actually presented this is where we find they falter. And I think that’s one of the key reasons why there’s such a dramatic gap in the number of people that own one to two properties, versus four or more properties.

So who are the right team that you need to build around you? Well, there’s a number of people that you’re going to need along your journey. A mortgage broker. Yes, sure, you can go and apply for finance directly from a bank. But a mortgage broker is someone that’s going to look at your entire situation, not only for today, but where you’re looking to get in the future and put in place the right lending strategy that’s going to suit your needs, but also give you the same flexibility. I had to build out your portfolio if that happens to be your aspiration, for example, in my own portfolio at the moment, because I’m in an acquisition or growth phase, I have a lot of my loans and I’ve been advised by my mortgage broker to put my loans onto interest only. And the reason being is that allows me to put my cash flow into a potentially acquiring more assets in the near future.

You’re going to need a solicitor or conveyancer to be able to facilitate your property transactions and make sure that any contracts that you’re signing and any properties that you purchase, there’s no Gremlins in any of the clauses and make sure the efficient transfer of title happens. You need to find a good solicitor but not only but one that specifically focuses on property

And the same is very much true with accountants. You know, I’ve been blessed across across my, I guess journey in property in helping other people to achieve their goals. I’ve spoken and done a lot of presentations to accounting groups. And I remember in my very first presentation, I was very, very nervous because I was thinking to myself, Oh, my goodness, what could I possibly teach these people that have spent their lives focusing on accounting and money about wealth. And the interesting thing that I discovered along that that journey when I did that presentation was that when it comes to personal wealth creation, a lot of accountants out there, don’t really understand their knowledge in that space that personal wealth, space is very limited, not not saying every account, but you really need to focus on building into your team, an accountant that specializes in the property space. Yeah.

Same is true with financial planners. financial planners, historically have been fairly focused around their advice due to, I guess there are some restrictions with the way that the licensing works with financial planners around stocks. And again, I’m not saying every single financial planner is the same, but that you need to make sure that a lot of their clients in terms of the insurances that they’re recommending to you and the different structures and planning they’re putting in place for you. They have a lot of experience in the property space, if property is your chosen vehicle towards your wealth.

A property strategist. It was very interesting prior to partnering with Colin in terms of Inspire Realty I went out there in the marketplace, because I wanted to transition into the buyer’s agent space. And I was very shocked, I didn’t really understand the difference between a buyer’s agent and a property strategist. And so a buyer’s agent. And not all buyer’s agents are the same, but some to both. But a buyer’s agent tends to have a conversation with you. Okay, well, what do you want to buy? Okay, I’ll go out and find it for you. And that’s very different to a property strategist who’s going to be able to sit down, get an understanding of where you’re at where you want to be, and help you put in place the property plan over the long term towards achieving that goal.

And then the final one, I believe, and it could be any of these people might qualify as a mentor as well. And if they don’t, potentially you might need to, to look elsewhere. But I’m reminded by the the saying or the quote from Tony Robbins. If you want to be successful, find someone who has achieved the results you want, copy what they do, and you will achieve the same results. So when I’m building out or when I was building out my own property team, I made sure that my mortgage broker, my solicitor, my accountant, my financial planner, and of course my property strategist, were all property investors. Because the easiest path to towards achieving any goal is Tony Robbins says to find someone that’s already done it and follow in their footsteps. So I wasn’t interested in recruiting someone to my team that hadn’t already achieved what I was looking to achieve myself.

Colin, anything you’d like to add to that?

Colin 13:50
You mentioned that 7.4% of Australians own one to two properties outside of their own home. We categorize that as a investment. But when you really think about it, that’s a significant, that’s 90% of our population that own 1-2, that’s already a very small amount, and then you look at four or more, but I’m just interested to understand just just your very quick take. Why is it so important to have? I mean, we’re talking about four. But why is it important to have a portfolio of properties in Australia?

Andrew 14:25
Well, there’s a couple. There’s a couple of reasons. First, the first reason that comes to mind is around diversification. As we know, and we’re well aware in this COVID environment, property markets have cycles. But it’s when we talk about property market cycles. We’re not just talking about the Australian property market. We’re talking about every every market or there’s markets within markets. So New South Wales has its own cycle Queensland has its own cycle and each suburb within there. So it adds a little bit of diversification to your portfolio and basically smooths out the market cycles that you might experience.

But the second reason, we’ll probably cover that to be honest, when we go into and speak about, I guess, goal setting and what that actually means the reason why, but just just just In short, the reason why is most people might have a family goal. And this is very much an average. And there’s lots of variants to this, that might come up come in and say, hey, look, I want to be able to achieve $100,000 worth of passive income. And that will, that’s what financial security means to me. And just on that, just on average, I know if we focus on property only, it takes three to four, three to four to five properties within your portfolio in order to achieve that. And so that’s why I’m particularly focused on on the four or because those are people that have achieved that sort of goal. And and I just wanted to highlight how small that percentage really is.

Colin 16:08
22%.

So it must be very difficult or rather, it’s not easy to build a portfolio. Like your idea of making sure that you have the right team around you. Here’s a fun fact, I used to work with Tony Robbins, and he talks all the time about, I mean, if you look something, you want to make sure that if you want to get what you need, if you want to be fit and healthy and losse fat, you want to find a trainer who has got the results you want. So it’s really, really important for you to really get the right team around you so it’s just not any mortgage broker.

At the very least understands the importance of building a portfolio of has a few properties in fact.

Andrew 16:58
Awesome, thanks. Thanks for that Colin. So moving on. This is this is this, this is where the, the for or moreor will become a little bit apparent. But one of the the second, I guess biggest factor when it comes to property investment success is beginning with the end in mind, really knowing what another way to say it in simple terms is goal setting, really understanding why it is that you’re setting out on this journey because let’s be honest, you know, investing in property or doing any type of investment, it’s not fun, it’s not easy. It’s not convenient. And sometimes you need to make sacrifices in order to achieve your goals and and there’s an opportunity cost. It’s very easy to you know, go and spend your money on a holiday but if you’re going to forego that, well what is it that you’re looking to achieve? Why are you going through all this pain? Why are you holding on to a portfolio for 10 15 20 years, however long it takes to achieve your objective and dealing with all this confusion and the media saying the property markets going to crash by 40%? Why are you going through all this pain? and really need to start with that in the beginning, and work backwards as to putting together a plan in order to achieve that objective.

And so, this is typically this is actually an excerpt of an exercise that we run with our clients talking about some of the big rocks in the jar. Now you can go that when it comes to goal setting. I find you can go very deep into the minutiae and try and plan out every, every moment of your life for the next 30 or 40 years. But really, what it comes down to is is what’s going to make you happy And the answer to that is going to be different for everyone. So I put a couple of examples there sending kids to private schools overseas holiday and new cars, charitable donations, obviously covering your living expenses, and assisting parents. And I think when you’re doing your goal setting whatever it is to you because that, you know, your goals are obviously going to be completely unique to your personal circumstances. It’s very important to align those goals as to how much is this actually going to cost? And I think Colin, maybe you can expand on that a little bit.

Colin 19:37
I like to draw the analogy of visiting a personal trainer recently I visited a personal trainer, and one of the first questions he asked was, what are your goals? What is your objective of coming to me as a personal trainer? Because I don’t know how many of you really enjoy going to the gym. I certainly don’t like going but when when you talk about your goals and beginning with the end in mind. In this instance we are asking the question, what are some of the big rocks in the jar? What are the major priorities, what are the things that are really for you to achieve? 10 years, 15 years, 20 years down the line, it’s very important to know where you want to end up. So that’s your point B, say, and then you work out what your point A and we’re able to then map out how to move from point A to point B.

Similar to personal training. In fact, I’ve actually had, I have a couple of injuries, I broke my ACL. And that is something I needed to tell my personal trainer. This is a situation that I am, I am not very fit and And so then he’s been put together a bit of a plan for me to get from where I am now to where I really want to be. But he’s not able to do that. is not able to do that unless he knows what are my major priorities. What do I ultimately want to do with my fitness.

You know it’s a session that we take you through And it’s very bespoke, so that we have, we help you gain a big understanding or a greater understanding of why is it that you’re investing in properties? Because a lot of people, Property for a lot of people it’s a means to an end. It’s an investment, and throughout that journey you are going to have ups and downs, you’re going to takethe bad the good the ugly with it. But what I find really helps sustain, I’ve got a client, she’s nearly on her fourth property he only started with methree years ago. And as you know, what’s happened in the last month with COVID. You know, I keep having to remind, you just got to remember why you’re doing this. And that’s enough to inspire and motivate her to continue on with the journey, despite the ups and downs because investment is long term journey. Your not going to make money if you put your money in and you pull in short periods of time,

Too many people pull out too quickly. They dont have the sustainability to go through with the entire process. Similar to the gym, right? You know, a lot of people get started in the beginning of the year, they say, yeah, this I want to do, but they don’t have a mentor in that case for or a personal trainer to help them to make sure that they’re consistently satisfying those goals along the way. So that’s what we do with you. But it does begin with the end in mind. And that’s a very important question to ask, we cant help you. If you don’t know what your big rocks are, what are your big priorities, what are what are the things you would love to achieve in your lifetime. And we utilize property as an investment vehicle to build a nest egg of properties that will generate you I suppose that sort of passive income and when it turns over to become passive income in due course, that’s why it’s important to understand what your rocks are. In case you’re wondering, what we mean by big rocks

Andrew 23:05
and and yeah, and just just to echo that in some for some people, it doesn’t necessarily have to be all about yourself. And you notice I’ve got a picture down there that I wanted to share. And I’m very happy to share. Actually one of my big rocks in the jar because I’m actually very excited because I’m about to realize that that big rock in the jar, so that’s, that’s a picture of Naomi, she’s my well, future mother in law. And so she’s, I think she’s 73 now, living in an apartment in Merryland from level three, and 73. She’s got a bit of arthritis in her knee, and honestly, it’s heartbreaking trying to watching her struggle to go up and down the stairs. And honestly, I’m just blessed. I have a property. That’s the In the I purchased as an investment, that’s settling next month, I believe, and I went and inspected it the other day and sent her through some photos, she’s going to be able to move in there. And honestly, that’s going to, to change her life. And that’s just a big reminder about why, you know, I’ve gone through the struggles that I’ve gone through in order to build this portfolio to be able to have the flexibility to be able to do nice things like that. And now I know that it’s not going to impact me too much or make me struggle too much. So that’s just a blessing.

But once and just sharing a little bit of our process, once we’ve gone through the goal setting side of things, and actually attach some numbers to it. From there, we can start to work a little bit backwards. So let’s say someone comes in and says hey, we want to as a couple we want to earn $100,000 a year in passive income, and that’s going to allow us to achieve all of our big rocks in our job. Next question that we would ask is, well, how soon do we need to achieve this? And the answer to that is going to be different for everyone. Like it like in most things, investing, the younger that you start, the easier it is. But you know, everything may be possible. So in this scenario, we’ve said, Okay, well, we want to achieve this in 15 years. The next thing that we we think about is we actually shifted away from the number of $100,000 because to be honest, we don’t care about having $100,000 we want $100,000 of spending power, in 15 years time, so this means that we need to adjust for inflation. So the next question that we ask and this is really a pivotal thing for me when I think about property, I said in a previous session, that property to me is really about building up my net equity. At some stage that we can check. That’s basically everything that I own less everything that I owe to the bank.

And basically, at some stage, we can convert that into getting some sort of cash flow return or positive cash flow return, whether that’s in property or another vehicle. But it’s interesting to know in order to achieve $100,000 worth of passive income, assuming a 5% return on equity, which I think is fairly reasonable or palatable to most people, we would need $3.1 million worth of net equity outside our family home in 15 years to do to achieve that. Or the other way to think about it if we don’t invest in property, we don’t invest anywhere else. We would need to save $207,728 and 99 cents every year after tax for the next 15 years every year I don’t know too many people that can do that.

So when I when I was thinking about this, oh my goodness, how am I going to be able to achieve this? Is this even possible? And many of you might be even thinking the same? And the answer to I guess building a plan towards achieving it’s a little bit beyond what we want to talk about what we have time for to talk about tonight. But I wanted to share you an example that I was really an aha moment for me in terms of driving me to go hey, this may actually be possible and, and convince me that it was and when I actually shared this plan with my parents she that they thought I was crazy. They didn’t really get it. They came from very much an older school mindset. You buy something you pay it off debt is bad, and I’m going to share with you tonight, the exact example that I used with them in order to explain why I was setting out on this journey in order to achieve this big, audacious goal that I set for myself.

So this is this is a story about leverage. So I said to them, okay, let’s take two people here. Let’s say let’s pretend person ones you Mom and Dad, I’ll tell it in that context. Let’s say they go out and buy an investment property for $1 million. And mom and dad because you are a little bit further along, obviously, in your journey than me. You have the ability to go out and pay cash, you don’t borrow any money from the bank. And let’s say because you’re a little bit further along in your your property investment journey, you pick a really good property that goes up 7% or 7% capital gains in its first year. So you make 70 thousand dollars. And on top of this because this property is such a good property, people are literally queuing up to rent it. So you’ll get you get, you’re getting a 6% yield or $60,000 a year in rent coming in. Now in this simple example, we’re going to forget about some of the other property costs because this is not designed to be a realistic example. But they make $130,000 in their first year 70,000 capital gains and $60,000 in rent. So on the surface, a pretty good investment.

So I come along now, I said to them, mom or dad, I don’t have as much money as you so I have to I might be able to, in this example, put down a 20% deposit on my million dollar property. Because I’m not so far along in my investment journey, I don’t pick pick quite as good of a property as what you selected. So let’s say I get a 5.5% capital gain or a $55,000 capital gain. And because it’s not such a good property as what mom and dad selected, I get a four and a half percent yield or $45,000 a year. And on top of this, I have to go and buy, sorry, borrow $800,000 from the bank in order to buy this property. So I have let’s say I pay a 5% interest rate just to keep the numbers nice and simple. cost me $40,000 a year in interest in order to hold on to this property. So after year one, I make a profit of $60,000. And I said to them, which person would you like to be? Or would you rather be Would you rather be you make 130,000? Or would you rather be me making $60,000 most of them, most people and including my parents would say hey, I’d rather be I’d rather make 130,000 rather than 60,000. But what they’re forgetting in this equation is basically leverage or cash on cash return. If you think about it, how much did mum and dad have to invest in order to make their $130,000 they had to invest their million dollars. I so that worked out to be a return on investment of about 13%. I only invested to 200,000 in order to make my 60,000, which is a return on investment of 30%. And this is, keep in mind, I’ve got a lower capital gain a lower rental yield, I’m still paying my interest bill. And once I unlocked the secret of leverage, this enabled me to feel confident towards embarking and continue on a journey towards achieving my big audacious goals that I set set out for myself in the beginning. So that’s, that’s my example. I wanted to share, anything to add Colin.

Colin 31:55
And that’s a big aha moment for me as well. I mean, people dont realise it’s return on investment it’s an opportunity cost as well. It’s very funny you mentioned today that spoke to me and she said, Look, I my parents are from overseas, and they’re willing to help me to start on my property investment journey. She started University here, and now she’s working in the construction industry she said Colin, I want to build my portfolio. And right now my parents, they are well off, the parents overseas are quite well off. They’re happy to invest quite a lot of money. And she asked me Colin, should I pay cash for the property? Or do you think I should borrow from the banks or lenders to build my portfolio? So without going into too much detail, I said how much your parents lending you and it’s enough to buy a property in Sydney. Let’s put it that way. So I said, you can buy cash, you know and buy one property, or you can split it up. If you can afford to borrow the money, obviously you still need to go and see if you can check in and get your serviceability. You can’t just say I want to, you know, borrow money, you got to make sure that you can borrow the money. But the big aha moment for her was saying, well, that’s interesting. So saying that I can actually leverage and borrow the money, which is good that I think you spoke about last segment, because you’re building your portfolio. And I think just going back to your point, the sooner you build your portfolio, the sooner you’re able to sit on it for the long term. because historically, you know, yes, you have ups and downs. And to be quite frank, I don’t know what COVID is going to do. For the last 40 years probably has doubled every 10 years. I’m not saying you will do that. But the sooner you buy, the sooner you can sit on it and wait 10 to 15 years, but I’d be pretty happy to have two properties. You wait, that doubles up in 15 years, then to have one property fully paid out. That doubles in 15 years. So you just do the math on the numbers and being able to leverage on that really does help you.

Andrew 34:00
Just about to add add to that and say, you know, I don’t remember ever getting a memo when the property market had bought bottomed out telling me that it was a perfect time to buy.

Colin 34:12
That’s right. So you’ll never know the good time. I think, you know, as long as you have this mindset that you’re buying it and holding it for the long term. Do your best to ensure you’re buying a property in well researched why its important to get a mentor and a strategist to work with you. We’re property investors, we’re certainly in the 0.3% of the population that owns four or more properties, so it’s very important to speak to someone have achieved the results that you want to achieve. Just like when I go get a personal trainer, I’m not going to get you know, doesn’t, he’s not as fit, you know, so it’s important to find someone who has got the results. I’d love to give you the opportunity to have a free 45 minute strategy session with us it’s complimentary, gives us an opportunity to really understand where your point A is just to get an idea on where your starting point is. And one of the things really stand id finding out what your big rocks are, what are you doing this? What’s the what are the things and the goals, it’s really going to keep you on track? What’s your why? what’s gonna drive you new on this journey? and utilizing properties as a means to help build your wealth, and to build a better future for yourself and like with Andrew for his family. So visit our site www.inspirerealty.com and you can click on the Get Started link and request for free 45 minute chat and consultation. Certainly more than happy to answer any questions that you may have as well.

Andrew 35:53
Awesome. Thanks very much. Have a good evening, everybody. We’ve gone a little bit over but that’s okay. Thank you. Good night.

Colin 36:03
Good night.