Inspire & Inform Show

Inspire & Inform Show – Episode 6

In episode 6 of the Inspire & Inform Show Andrew & Colin be sharing & unpacking the 5 ways to build wealth available to all of us including Saving, Superannuation, Business, Shares & Property. We will also comparing how effective they are to delivering the passive income we need to be able to live the lifestyle we deserve once we finish working.

Please see below for the full transcript of this video

Transcript:

Colin 0:09
Hello, and Good evening, everybody. We want to thank you for joining us this evening for our sixth episode of Inspire and Inform. Tonight I’m joined by Andrew, again, to discuss really the five main ways to replace your income and really a discussion about which is the right way for you to be very open. Andrew put this presentation together just today just based on a few things we’ve chatted about. And I’m very excited to be able to discuss this. But tonight it’ll be largely driven by Andrew. Andrew is really one of our key team members at Inspire Realty and I love him because he’s got just the, the brains of of someone who really goes into depth and detail about about investment modalities and looking at the property investment as a whole. So I’m very excited. Please welcome Andrew, to the show. Andrew, thank you for joining us tonight. And I’m looking forward to your sharing tonight.

Andrew 1:14
Thanks very much, Colin. It’s an interesting topic I picked tonight. And I think, you know, I guess I guess with a lot of people feeling the impacts of COVID-19. We’ve had some more outbreaks in in Victoria over the past few days and changes to lockdown, lockdown laws and restrictions to movement. I think a lot of people have used this time or hopefully they’ve used this time to reflect on I guess, and take stock of where they are in their journey, and what steps and what actions that they need to take or want to take towards building a better future for themselves and one of the one of the lessons out of out of COVID-19, particularly with the rising unemployment rate we’re seeing in Australia and the amount of people on JobKeeper & JobSeeker is the concept of I guess, giving a bit of a I guess I view it as really a snapshot as to tackling the question of where does the income come for us to support our lifestyle, once we decide to finish working? and it’s obviously been thrust upon many people, and many people don’t have too many choices, and they at the moment, and they’re required to take advantage of the government assistance that’s available to them. But I think it’s can also be viewed through that lens of, well, you know, what am I doing in order to have the ability to suddenly switch off work and if I ever encounter another situation like COVID-19 in the future. What am I going to be able to do? Am I going to be able to maintain that lifestyle? So I really wanted to tackle that question.

Andrew 3:09
And to be fair, with a lot of variations in between, there’s really five main ways for people to be able to build up the asset base that’s going to be able to deliver them the passive income that they’re looking to maintain their lifestyle and I wanted to really dive into those those methods or ways to build up a capital base and really compare them against each other and just share you share with you some of the insights and some of the reasons ultimately, in my own personal circumstances, that I chose to use property investment as the vehicle for me to do exactly what I’m going to be sharing tonight. But just wanted to put a very quick disclaimer out there, there’s no one way to do it. Every every person is going to have different scenarios, but and different ways and methodologies in order to achieve the same objective. But for the vast majority of people in order to replace their income or or live off passive income, or whichever way that you want to say it, one of the key of the most common ingredients is to build up that capital base and the ways to do that we’re going to cover cover in tonight’s presentation.

Andrew 4:34
So what are we going to do? Well, we’re going to cover what’s actually required. Because just like any journey in life, and one of the most important things that you need to do is begin with the end in mind. I know I’ve spoken about that over and over again in past sessions, but it really is critical. So and we’re going to tackle the the common common mindset around wealth that, hey, well, what I need to do is I need to tighten up the purse strings and focus on saving money in order to be able to have some money to live off and use for lifestyle. So we’ll tackle that. That’s method number one, method number two. In Australia, we’re very blessed to have a superannuation system in place where we’re making compulsory contributions into our superannuation in an effort to provide for us in retirement and not have to rely on the aged pension. So we look at that and explore that as a method towards building up that capital base to provide for our futures. And then the three main ways that people build up that capital base outside of super is, is either through building a business and we’ll have a look at some of the pros and cons and some of the challenges associated with that, and I will share some of my own personal experiences in business.

Andrew 6:10
Next one along is a probably an age old debate, to be honest, should I invest in shares? Or should I invest in property, and we’ll look at again, some of the pros and cons of both and sort of people will get a really good understanding around what might be the right vehicle, but they’re really the five main ways that people use to build up a capital base saving superannuation, building a business investing in shares and investing in property. Now that now there are quite a few. There are some other ways that people have chosen and have done that. But for the average Joe Blow Australian, that’s probably the five main methods that are available.

Andrew 6:53
We’re going to be using a consistent case study to try and really put these methods out against each other. So I’m going to assume that in our case study, we have $100,000 worth of capital available to us, we’re going to assume that each of the methods of investment give us a 7% capital growth. And for the purposes of tonight, we’re simply going to park the conversation around yields. Yield from property investment, or dividends from shares the cash flow component, and we’re going to really hone in and focus in on the capital growth side of things. And of course, we’re going to be talking about some things, taxation and returns and for those of you that don’t like numbers, they may be a few spreadsheets in there tonight. I’m a big fan of spreadsheets that really helps me to understand and tell a story to myself and really get a good comprehension about what’s going on. So the information we’re going to be sharing with you is general in nature doesn’t constitute financial advice as we really don’t have a good understanding about everyone that’s watchings personal circumstances.

Colin 8:09
I think also Andrew, I think it’s worth noting, noting that these are all the different methods, predominately the four that we’re going to be talking about, just to reiterate your point about replacing your income. Sometimes I label that as retirement. So whatever that means for you, it’s just the vehicle that will help you to build a wealth to replace your your income or whatever you’re earning to be able to maintain the lifestyle. It’s worth noting that it’s good to diversify I mean I have investments in all those different areas in my super obviously running a business within Inspire Realty. You know, with the super I’m investing in shares, and obviously got a portfolio of properties. So it just may mean that you invest a little bit heavier on one depending on what your situation and circumstances but I’d like to be able to say hey, You know, you can invest in all of them. And you can invest in all of them to diversify, you just got to know what the risk versus the rewards are, and what works best for your situation.

Andrew 9:10
Correct. Hundred percent and again, I’m I’m a big, well, within my own portfolio, I do have diversification in both business, shares, shares and property investment. So, and I’ll share some of those insights tonight.

Andrew 9:27
But again, going back to beginning with the end in mind, this is a this is a sheet that we’ve shared in, in previous sessions. So what does it mean if we want to try and achieve $100,000 worth of passive income? Well, again, I’ll make the point that it’s not really about $100,000 worth of money or pure dollars and cents coming in. It’s really about the spending power of that hundred thousand dollars, so at sometime in the future, we want to be able to buy the equivalent of what we could buy with $100,000 cash today at some stage in the future. So what that means is we really need to adjust for inflation because the value of what you can buy for the same dollar amount diminishes over time. So in this case, we’ve adjusted for inflation at 3%. And I’ve assumed that I can return on my capital base 5% return which is a little even a little bit more conservative than some of the other assumptions that we’re going to be using in tonight’s examples of 7%. But what does that mean? Well, it means that we don’t need $100,000 coming in and passive income in 20 years time, we need $180,000 coming in and at 5% return on our equity with that means we need about $3.6 million worth of net equity in 20 years time to achieve $100,000. That’s quite a large number. A lot of people look at numbers like that. And they say, well, that’s just impossible. And using, I guess the first method of trying to achieve passive income for your retirement or when you decide to stop working, that means that we would need to save $180,000 every year after tax for the next 20 years. Now, this is the point that most people that don’t really haven’t really explored any other methods towards achieving this. Well, let’s call it an audacious goal because it really is. think oh, my goodness, I could never do that. And I might as well give up. So I guess the moral of the story is, if you’re looking to have the ability to replace your income, probably going to be fairly hard to save your way there. I don’t know too many people that can save 180 K a year, every year after tax.

Andrew 12:08
So moving on to, I guess method number two, the super and or the age pension. If you choose not to undertake any of these methods and simply rely on the government to support your lifestyle, once you decide to stop working, or once you’re of age, the maximum amount for a couple is about $35,000 per annum. Now, I don’t know about any of you listening out there, but for me after working so hard for 20 30, 40 years of my life, I think that I deserve a little bit more than that coming in to support my lifestyle once I decide to finish working. And the situation’s even worse for singles $23,000 per year, so it’s not too much of a lifestyle. It’s not too many trips overseas that you’re going to be able to live with that kind of money.

Colin 13:03
Can I just say, Can I just say though Andrew, in Australia, the the ASFA records that for a single person, we need about easily $40,000 to live fairly comfortably in Australia in Sydney anyway.

Andrew 13:20
Tht’s assuming you’ve got your house paid off.

Colin 13:22
Exactly. So I’ve just worked out very quickly while you were talking the max age pension for couples being 35,000. That just works out to be about $670 a week and two people. That’s not a lot to live on. Just worth noting.

Andrew 13:37
Yeah. And then the other. The other point of that is, obviously as a generation or the timeframe that we are in, we’re going through a little bit of a generational shift. The baby boomers are in their retirement phase at the moment. And for those of them that haven’t really planned for their futures like what we’re talking about tonight, I think that’s going to put a massive strain on government resources to be able to continue to provide an age pension at this level. So for those of you that are out there and haven’t really taken action or may have put in place a plan for your future, don’t rely on the age pension being there at all. Because at some point, particularly, you know, as as the baby boomers start to draw down on this, it may not be around.

Colin 14:27
That’s right.

Andrew 14:28
And then superannuation, the average superannuation on retirement for males is about 270,000. And for females, probably due to, I guess, rearing child or children is about $157,000 per annum. So, you know, that was that four or five years? As a society due to medical advances etc. we’re living longer than we ever had before. So that’s not many years of retirement money that’s available to us through our super. And one of the reasons behind this, and I just really wanted to unpack this, and I’m going to give you a case study on this is depending on you know, I guess most Australians super is tied up into the share market. And so depending on how frequently the the fund is actually trading, your your superannuation and the amount of fees that you pay each year, it really does have a significant impact on the actual returns that you’re getting. Even though within superannuation, you’re in a lower tax environment, and we really have a look at what that actually looks like. So I’ve put together a bit of an example here, again, I’m sticking with the 7% capital growth rate. And I had a look up today and some of the statistics said that the average management costs is about 1.1% of your total super balance per annum. And also including this, as I mentioned, we’re in a lower tax environment within super. So if we’re realizing the gains that we’re making every year, so that means that we’re not holding our shared trades for more than 12 months, because of obviously changing markets, etc, which we really don’t have too much control of as the average consumer, we put that in the hands of the fund that we have our super in. We may be realizing the gains that we’re making each year, and therefore we’re going to have to pay tax on them. So to give an example of what that what that looks like. So let’s

Colin 16:46
Can I just pause you there for a second, it’s worth noting, I’ve read in the news just very quickly today, the nation’s largest Superfund Australian Super they they manage about 180 billion dollars worth of Australian’s Super. Do you know what the return on the last financial year is? Just have a guess?

Andrew 17:05
No idea

Colin 17:05
0.52%?

Andrew 17:07
Wow.

Colin 17:09
Yeah, because it’s just been averaged out with the latest COVID hit. 0.52% Can you imagine? So it’s just worth Yeah.

Andrew 17:19
You losing money. You’re losing money there because you’re not keeping even keeping up with inflation.

Colin 17:25
That’s right. Andrew, that very rich for now, but we’ll go with that.

Andrew 17:31
Yeah, well, no, we’ve got to make it got to make it fair for everyone. But then the other point, just just to sort of extend a little bit further on what you were saying Colin was that because of nothing against any of the industry funds out there, but really by by allowing the industry fund to manage your retirement money if you’re putting all your eggs in the super basket, you’re really delegating control and responsibility to somebody else, and I am a big advocate of taking control of your own future.

Andrew 18:06
But going back to this example, so let’s say we’ve got $100,000 in our superannuation, and we’re not making any contributions to try and I guess highlight the point here, if we make our 7% return, that means in year one, we make $7,000. But we’ve got to pay a 1.1% management fee, so we have to deduct their 1100 dollars, our profit 5900 we need to pay tax on that at 15%. If we’ve traded if we’re not holding our shares and within our portfolio 885. So we make about $5,000 gain And the same situation goes down. As you can see, our profit is increasing and that’s because of the power of compounding. So we’re compounding our returns. But the challenge is we’re taking off every year, our management fees and our tax and that reduces the impact of the compounding effect. So that means over 20 years, we end up with with about $266,000 from our hundred thousand dollar investment. And we’ll see in full in other examples, how much of an impact that actually makes.

Colin 19:18
Wow. And this is at a 7% growth rate?

Andrew 19:20
7% growth rate. So the average rule of thumb is you know Colin is that if something grows at at 7%, it doubles every 10 years. And so if we took out the management costs and and and the taxation out of that, this scenario, we should have ended up with $400,000 over a 20 year period.

Colin 19:43
Thank you for that, Andrew.

Andrew 19:44
No probs. So what about building a business? So a lot of you may have heard, I guess the failure rate or more than half or more than 50% of businesses fail within the first five years. And there’s a number of reasons for that, which I’m not going to unpack in this session. But one of the things I really wanted to share with everyone is is some work with that was done by Robert Kiyosaki who’s famous for his cashflow quadrant. And the reason why I’m so passionate about sharing this point is it’ssomething that I’ve had experience about myself. So when I was starting out in business, many years ago now, I very much had the mindset that building up a business asset was my path towards financial freedom to gain this passive income that is available to provide for my future. And so prior to starting up a business, I started out as an employee, and then I went out and I was self employed. And the reason why those two the the employee and the self employed are on the left hand side of the quadrant is that your income that you earn is completely derived by the amount of hours you’ve worked. Basically, you’re trading time for money. And to make that transition across to the right hand side of the quadrant in business in particular, and we’ll talk about investing later. It’s very difficult to remove yourself from the business. And that’s why a lot of people start on the left hand side of the quadrant, particularly in business, they become self employed. They say, I don’t want to answer to anyone, they’re all gung ho. But what I realized is it’s very difficult to turn it into trading time for money into an asset that provides passive income to become a business owner. And so at one stage, I had a golf and a courier business and I was working so hard to keep on growing and growing those businesses. But I realized as soon as I stopped working, the income stopped. So for me, my decision was to was that business wasn’t going to be that vehicle for m business. It was on the cash flow side, which I would need to put money into the investment side, which we’ll get into now.

Colin 22:16
Yeah. Andrew, it’s also worth noting that I’ve also started as an employee and I’ve become a business owner thinking that my business could run itself and replace my income. But little did I know that it takes a lot of effort, time, blood, sweat and tears, employment ups and downs, and sometimes many mistakes, to transition from A to B and I’m still on that journey and can’t say I’m fully a business owner where it’s self perpetuates. But I think the idea here is that you’re as an employee, exchanging time for money is is limited. So you’ve got to get your money to work a little bit smarter for you, which is where the self employed and rather the investor side of things would come in really handy because as an employee and self employed you really exchanging time for money, like you said, Andrew, and it’s only limited. So it’s about seeing how you can transition into the right side of the quadrant, which is what Robert Kiyosaki is very much reporting.

Andrew 23:12
Correct. And for me, I found it a little bit easier to try and transition across to the investor side as opposed to the business side. So what about shares speaking of the investor side, so I did a little bit of research and I wanted to get a really good understanding about what is actually the size of the Australian stock market. So as you can see, here, or maybe it’s a little bit hard to read, but the Australian stock market value overall, every single stock within the ASX is valued at about 1.3 trillion dollars. Now once you start going from millions to trillions, the the amount is zeros it becomes a little bit mind boggling. But to put that into some sort of context, the US stick market is valued at about $26.1 trillion dollars. So Australia is the Australian stock market is tiny compared to the US. And it’s interesting that share trading mindset. A lot of the literature that is out there around wealth and money creation, because of the size and the population of the US versus Australia is quite often very US centric. And that means it focuses quite a lot around Stocks and Share trading. But the interesting side of things is if we compare it to Australia, the residential property market is valued at about 7.2 trillion. So it’s about a good four or five times the size of the Australian share market Australia’s Australians definitely have an affinity love affair with with property. It’s very much part of the strains psyche And isn’t one of the reasons that property has got such a good track record in terms of capital growth in Australia. But the other point I really wanted to make around the share market and I was just sharing this with Colin before we came on air. And I didn’t actually know this. But I did some research about how much of that share market is actually traded each day. That’s about $5.6 billion of shares are traded each day on the Australian stock market. But what does that really mean? And that’s where this whole conversation took me a little while and I had to get the calculator out to put that in context of the billions and trillions. But what that means is, on average, the Australian stock markets open about every 260 days out of 365 each year. So that means on average, the entire Australian stock market turns over once every year is traded around. So there’s a lot of, I guess, volatility and liquidity within the Australian stock market. And then you compare that against property, which you can see on the right hand side of the screen here, probably about an average annual turnover of only 6.5%. And we’ll get into some of the reasons why that is. But what that what I really take out of that is the stock market has a very high liquidity, high volatility because lots of trade going going along, and it’s highly, and it’s very transparent. You can look up and I do I’m guilty of doing this myself, looking up your share portfolio every minute of the day, to see what it is. And then when there’s a shift, it’s really transparent. It’s right in front of your eyes. It’s reported on the nightly news, and it’s very easy to get shaky and forget why you made that investment in the first place. And it’s very easy to hit the hit the sell button, and that’s why a lot of people struggled to use share trading as the vehicle towards wealth.

Andrew 27:06
But the other problem is, I guess we’re talking about beginning with the end in mind, we started out with an objective of having a $3.8 million capital base. And it’s very difficult and because of that volatility quite risky in some, unless you really know what you’re doing, and I’m not saying it’s impossible, and there’s plenty of people and plenty of people I know out there that have done this, but to use leverage when it comes to share trading, because most people are not starting out with quite as such a large capital base. They’re making small bets, maybe 10,000 here, 5000 there. And regardless of the returns in terms of percentage that they’re getting, it’s very difficult for them to be able to achieve the the amount of wealth or build that capital base up to a level without leverage. That’s going to be able to provide for their future. And also going back to this chart here in terms of the volatility side, you know, 5,10 percent swings in short periods of time, or 20% swings or 40% swings, is is is well, I wouldn’t say it happens every day. But there’s quite a, there’s that volatility, and it really makes you question yourself and this is one of the exercises I’m doing. I you know, just to share on my personal side, I have all my superannuation invested into shares, which I which I proactively manage and on my personal side, I’m heavily invested in property. But one of the challenges that I’m setting myself is to overcome this mindset as I see these large swings particularly now this at this time through COVID-19 to remind myself, okay, well this is why I made that made the trade and this is why I what I’m looking to do and I have to hop and forcing myself to hold on. Amidst all this volatility, but the average Joe Blow, I think that’s, you know, throws a lot of challenges.

Colin 29:07
It’s funny, Andrew, I actually had a client that asked me today and not today yesterday. And she said to me, Well, Collin, I’d love to diversify my portfolio a little bit, she saved up a little bit of money. Now, she goes, What can I allocate a little bit of that into shares? And what what would that mean? Mainly because she wanted a sense of autonomy with the amount of money that she can trade. So it’s, you know, she, she has, she feels like you want to have a little bit more control over the shares. And I made the point that shares a bit like property does grow in the long term if you buy the right shares, but you don’t really get to, you know, if you wanted to trade that every day, that’s more of an active involvement versus a passive investment. So I think that’s, that’s where there’s a slight difference. So talking about shares, you are making small bets, but you’re also actively involved in it if you wanted to trade and have some sort of autonomy. Share trading.

Andrew 30:02
Yeah, exactly. I think I think we’re going to go a little bit over tonight, but I think this is good stuff. So let’s keep going. Okay, so what does that what does that look like? It’s actually interesting. It’s quite a similar scenario to the superannuation side. So again, we’re starting out with $100,000 worth of shares. And like most investors, a lot of people that would invest with $100,000 are taught the value of diversification. So let’s say this this share investor splitted into 10 different stocks and they are trading at around maybe once a year. So each time you actually trade there’s a couple of things happen. Number one, there’s some costs to trading and so you have to pay some fees, some brokerage fees, so let’s assume each trade cost you $30. And also when you realize any profits that you make, you need to pay tax on that particular profit. But this time we’re outside of Super. So we’re paying PAYG tax. So I’ve just taken a middle ground I’ve said, let’s look at the 32 and a half percent tax bracket. So let’s have a quick look at what that situation might look like. So again, hundred thousand dollars invested again a 7% capital gains $7,000. Our trading costs $300 because we’ve traded 10 times, and we make $6,700 profit got to pay 32 and a half percent tax on our profit. So we make four and a half thousand. So again, fast forwarding that 20 years and one thing to keep in mind we’re assuming everything keeps absolutely constant like clockwork in a linear fashion every year. never happens like that in reality, but this is designed to prove a point we end up with $245,000 after 20 years.

Colin 31:56
Wow.

Andrew 31:58
So quite a similar scenario to Super. So what about property? So property has a quite a long track record again, we’ve we’ve covered Australia’s love affair or affinity with property. And one of the one of the reasons and you can see on the right hand side has quite a similar trajectory trajectory or graph or in terms of rate of return to the share market. So if we were simply to buy versus share market and, and or a property would probably got a similar rate of return. But that doesn’t really work out that way. And we’ll dive into why. One of the reasons that the property market has a lower volatility to shares so it doesn’t go up and down as much on a daily or weekly basis is that the property market unlike the share market, which is comprised of 100% investors, is actually dominated by owner occupied 70% of the residential properties in Australia are owned by owner occupied not by investors. So in the property market investors are price takers, owner occupiers are price makers. And the beauty of that is owner occupiers, as many of you may know if you’ve gone out there and bought your own home by with their hearts, not their heads. And this is one of the reasons why we don’t see property markets oscillating or having so much volatility compared to the share market. And to sort of double down on that one of the other reasons that we don’t see property having quite as much volatility is that it the transaction costs the cost to buy and sell and trade property is extremely high. You’ve got stamp duty capital gains tax and a whole number of things. And that’s one of the reasons why we see a six and a half percent turnover or transaction rate of the Australian property market versus 100 over the course of the year versus 100% for shares. So this really almost forces the investor to buy and hold over the long term. And the second thing, the next thing is you’re able to leverage your investment. Banks are willing to lend 80, 90% of your investment or the purchase price of the property for you to invest in property. And this really helps the number one amplify the return. But from another perspective, the banks are so fantastic the deal the banks are almost saying, Hey, I’ll take 80- 90% of the of the risk by lending you the money. But you get to keep 100% of the capital gains simply for the price of paying a little bit of interest. So to me, that’s a fantastic deal.

Andrew 34:56
And the most important thing here is the tax, you only pay tax on your capital gains when you sell the property, not every year. And that’s the key difference. But one of the key differences. So let’s have a look in terms of numbers, how that actually impacts our hundred thousand dollar investment that we’ve been using as a case study. And just a reminder, this is not designed to be dollar accurate. It’s designed to demonstrate the point of leverage and compounding over long term investments. And again, when you do see the numbers I’m about to share with you. There’s no one best method for building wealth for yourself to provide for your future. It’s going to be unique to your circumstances. And with any of these. The other important point is that nothing in life comes easy. There’s going to be challenges that are thrown at you along the way. All of these charts make it math and numbers make it look so easy and simple. But the reality is today it’s Coronavirus, tomorrow, there’ll be something else, there always be challenges. And that’s why beginning with the end in mind is so important.

Andrew 36:10
So let’s have a look at the look at the numbers. So again, we’re assuming a 7% capital growth rate, we’re going to buy a property for 500,000, so we put a 20% deposit down, our interest rate that we’re going to assume because obviously, if we’re borrowing money, we’re going to pay interest back to the bank, a 4% interest rate. And also we’re probably going to have some other holding costs rates and strata if we buy an apartment etc. So we’re going to assume that’s 2% of the property value. And again, we’re assuming a tax rate of 32 and a half percent. So we buy our $500,000 property, we borrow $400,000 from the bank, and we have $100,000 in net equity, which is a deposit that we put down. We have to pay interest on our $400,000 that we borrow from the bank. So that’s $16,000 at 4%. Our other holding cost of 2% of the property value $10,000. So we’ve got a cash flow of 26, negative $26,000. It costs us to hold this property, but we’re not paying any tax. So again, that property goes up in value over year 2 535. That’s our 7% gain. We still have some additional holding costs because our 2% percentage goes up a little bit, even though we’re paying the same interest. Again, we pay no tax. So what does it all mean? When it flows down, we end up our property after 20 years growing at 7% is now worth $1.8 million. Our loan is still 400,000 of assume we’re paying interest only, which means we’ve got $1.4 million worth of net equity. But obviously, it’s cost us some money that in order to hold on to this property, over that long term, so it’s cost us $729,000 in interest in holding costs, and again, I haven’t factored in that we’re gaining any rents or anything like that, in this scenario, so the numbers in real life will be a little bit different. But this is designed to demonstrate a point. So on that $1.4 million, we might have to pay we’ll have to pay capital gains tax, but because we’ve held that property over the 20 years, we obviously get some discounts etc, but we only pay that capital gains tax at the end. So when we sell it after 20 years time, not each year. So that means we we end up with about $1.2 million over this time, we would have got some negative gearing benefits. So we actually take use that as a tax deduction. So in costs, we probably spend out of pocket for 492,000. Again, not assuming assuming zero rent coming in So what does that mean after 20 years $767,000. Now, where does that come from? That’s the power of compounding and letting that compound as well as leverage. But it’s particularly with the compounding, it’s not paying tax. It’s not taking any deductions off our our base amount, and only paying tax at the end, couple that with the power of leverage or borrowing, and that is the net result.

Andrew 39:33
And compare that to the other two methods without leverage and paying tax as we go. We’re at 240 $250,000 versus $760,000. net after 20 years, it makes a massive difference. And when I saw these numbers and started doing these calculations, myself, that is where I decided property investment was going to be the vehicle for me In order to build my long term wealth, any comments Colin?

Colin 40:07
Yeah, I just wanted to thank you so much for this. I mean, I’ve seen similar graphs like this, but I guess I it’s good to be able to see it as a as a as a big picture, you know, comparing the same rate of return at 7% for shares, superannuation versus property. Some may argue, though, that 7% property growth for the next near future would be a little bit high on the rate of return. So I only encourage you if you wanted to, if you are a little bit more conservative, and you think that’s going to be more of a 5% growth rate, and it’s not going to double every 10 years. We want to be able to show you the situation that pertains to your particular situation as well. Like you said, Andrew, this doesn’t actually count for rent, which I think makes up a big portion of, you know, something you need to really account for in investing in property because that’s an income generating asset, which is what an investment is according to Robert Kiyosaki. So I think I think there’s a lot of things that that are a lot more detailed. And I like how on a very high level, you really showed us and painted a picture that you know, property is a safe investment as long as invested in the long term, it’s less volatile, as you’ve mentioned, and less traded because not only have you got to pay capital gains, but you’re gonna pay agents fees, and the timeframe it takes to sell a property potentially discourages you from having to sell a property. And I and I realized I’ve learned something, you know, 70% of properties are owned by owner occupiers. So, there is less of a, I guess, the emotional reason to have to trade the property if they are predominantly owned by owner occupiers. So thank you so much for that, Andrew, this is absolutely wonderful. Like I said before, you know, if there is a situation and and you want to be a little bit conservative about some of those numbers, we’re happy to sit down with you and and look at that and you know, work out what’s what’s best in your scenario.

Andrew 41:57
Yeah, that’s right. And, you know, again, Its horses for courses, you know, there’s three simple steps to taking action or getting to work towards building a better future for yourself, work out where you’re at where you want to be, put a plan in place, consider building a team around you to help support because not you know, like any professional athletes, they have a support team around them. It’s just like anything that you want to achieve in life. And then finally, take action. It doesn’t matter which path you start out on which path you end up on. The point is, if you don’t take any action at all, you’re never going to get there and there’s never going to be a perfect time. So if you have I guess the message I wanted to finish with I know we’ve gone a little bit over is if you have any questions around property finance, wealth creation, want to run a particular scenario past us or just want a bit more clarification or want to delve into your personal circumstances, whatever it is for you. The whole reason why we started doing these Facebook Lives was to add value to people. So what are two ways that you can do that? Firstly, throw a comment on on Facebook or YouTube or wherever you’re watching this and we will personally respond to you. Or secondly, visit our website at inspirerealty.com, you have the opportunity to schedule a 45 minute strategy session with Colin and myself to go through your personal scenario. And also ask any questions that you want and then some other pretty cool, free resources we put together to really just add value in any way that we possibly can. So thank you so much for listening. Thank you, Colin for letting me speak so so much and holding your tongue I know that’s difficult for you. And, yeah, thanks very much.

Colin 43:55
Thank you, Andrew. Have a good night.

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