Mm.

So in your mindset, you have two options here.

Sit back and don't do anything or try and maybe increase the yields and not really shave off much and think you're doing something better, but you're not, or take action and go either at that level or beyond that temporarily as long as you've got the buffers and watch when that number does come back around over the years ahead.

Suddenly the equivalent of what it would take someone to hold four properties in that future state is the one today.

That's the pain, but the upside is you now have a fast track to getting that second, third, fourth-

Mm

... before the future happens, and the idea is that this is that window before the future happens, and there's a whole bunch of other data sets I've even got here that extend beyond cashflow, but that's my understanding of cashflow where I see this happening.

And if you can hold out that period, you can go through the pain, and you know that 2,500 to 3K is the pain in this environment, and changing the rents and yields won't make that much of a difference.

So once, um, a client has acquired a couple of properties, if it's three to five, you know, as you said, when does the optimization phase actually start and what does that look like?

Yeah, so optimization phase happens throughout the journey, but there is also intended times where it happens much more.

So when it's happening throughout, it's many conversations on strategy with their accountant to discuss structure.

So that's one.

The second thing is we're also looking at gearing positions, whether the cash flow is stronger or weaker in this property.

And then if the appetite of that customer during the acquisition phase is, "Let's buy this place," and I can see in advance, I know there's carpets to be done, there's a bathroom coming up in the next five years, there's taps, handles, blinds, maybe a new range hood, a lick of paint.

All of these things are strategic optimization phase things.

Mm.

Mm-hmm

... that means that that doesn't simply go away overnight.

That's a track record.

So when you know housing's gonna remain undersupplied, and that track record won't be met, don't think of it from the perspective of, like, these policies are magically gonna be the silver bullet that works for more supply, because there are reasons why there hasn't been the supply levels hit.

And I know supply and performance are two different parts, but it's important to understand what happens when they're trying to boost supply and they don't solve the core of it, which is the taxes that sit in the property-

Mm.

Because they don't like the look and feel of all the properties.

They also, as an investor, is looking at the sale and going, "Wait, you're telling me there's not this excited investor that bought this like I was because, um, they're not getting everything that I was getting?" So all of these things will come into the mix, whereas if you flip that on established property, two-thirds plus of many of these pockets were people just buying for shelter and actually don't care of these tax policies.

of course um

yeah and then in 2028 in july you'll notice a difference which is obviously you're not getting a tax return as juicy as you'd like it to and it sits there for when you sell so you've got to think to yourself and go situationally um for someone it still works because this decision is being made they're buying this dip they're buying this opportunity but for most it doesn't and it's kind of like the stats in business in australia you know 96 of small businesses in australia turn turn over less than two million dollars so you know you you can come up with certain numbers and why they don't work like 99 000 of negative cash flow but there is a small percentage of people it works for and so this is one of those situations where if you're looking at this in no way it doesn't make sense to have 98 000 of negative cash flow on any property But when you look at the $1.85 million buying opportunity for something that likely could have been 2.2 to 2.3 at peak, or even 2.1 if you're trying to be a little bit more sensible and you don't get the deal of the century, that's hundreds of thousands of growth opportunity.

And the thing is, metrics are what we call moment in time metrics.

Interest rates is a moment in time.

Rents are a moment in time.

It's just what they are today that our eyes deceive us with.

If you went forward and you saw the inflation coming back to normal, long term interest rates of four and a half, 5% for the consumer coming back to life, and then you still saw this at full no money down deal with equity loan used, that cash flow halves.

Like this is if the play works and you can afford it, just keep, keep going down that road.

of course um

yeah and then in 2028 in july you'll notice a difference which is obviously you're not getting a tax return as juicy as you'd like it to and it sits there for when you sell so you've got to think to yourself and go situationally um for someone it still works because this decision is being made they're buying this dip they're buying this opportunity but for most it doesn't and it's kind of like the stats in business in australia you know 96 of small businesses in australia turn turn over less than two million dollars so you know you you can come up with certain numbers and why they don't work like 99 000 of negative cash flow but there is a small percentage of people it works for and so this is one of those situations where if you're looking at this in no way it doesn't make sense to have 98 000 of negative cash flow on any property But when you look at the $1.85 million buying opportunity for something that likely could have been 2.2 to 2.3 at peak, or even 2.1 if you're trying to be a little bit more sensible and you don't get the deal of the century, that's hundreds of thousands of growth opportunity.

And the thing is, metrics are what we call moment in time metrics.

Interest rates is a moment in time.

Rents are a moment in time.

It's just what they are today that our eyes deceive us with.

If you went forward and you saw the inflation coming back to normal, long term interest rates of four and a half, 5% for the consumer coming back to life, and then you still saw this at full no money down deal with equity loan used, that cash flow halves.

Like this is if the play works and you can afford it, just keep, keep going down that road.

What do you think? You go first, mate.

Oh, look, I think he's just trying to be relevant.

Just trying to be relevant.

And by relevance, it's just you grab hot topics and you try to be controversial about them.

And he's just started that thinking.

Look, I was...

At the end of the day, I just think that if you have, and I said in the last episode, that is not a way to live.

Like how are you managing expectations? How are you still delivering for clients in this kind of environment? Absolutely.

Mm.

That's for the financial planners and all to discuss.

But the third thing here is that you might be either stuck or have one more left at max.

Now, when you come to buying one more property, it's important to understand the cashflow in the current environment.

The cashflow in the current environment, even if you buy a 650K to 700K property, which by the way is cheaper than the two values of the properties you currently have.

Even with a 4% rental yield, and maybe you tweak that up to 4.2, 4.5, and push that up higher, you're gonna need to make sure that you're able to hold a negative cashflow on interest only, 'cause it's likely that you're gonna use equity to fund the debt in full, which means a 106 or 107% loan-to-value ratio.

It's gonna be neg- negative cashflow between 2,500 and 3K per month.

Mm

And, and, and as much as you grew up in an environment that caused that, surely there's been times where you've been tempted not to.

Yeah, yeah.

It's a really, it's a really important question.

So firstly, uh, I think it comes back down to...

So have I had the moment? Uh, the short answer is no, it hasn't.

And the reason why I can just comfortably say that is 'cause there are things that people do it for, and if I actually look at the simple answer to it, it's like, what is a good day to someone, and what is winning to someone? And if that definition to someone is, "I want every toy in the world, I wanna go to every place, I want all of these things, and I wanna do this, and I wanna, you know, live life to the fullest," or whatever they use just to, like, normalize that, there usually is so much I built into that, that there's so much h- of, like, distance, how far you can take that, that everything along the way in pursuit of that can sometimes mean nothing.

Yeah.

Okay, now you get one layer removed, which might be Australia's version of that person.

I don't know what to do.'" What would your advice be for someone in that situation?

For someone there, look, anything in investing I believe comes down to a checklist.

Like, and this is what the savviest investors do.

They look at life with checklists.

They look at business with checklists because if you do, that is you systemizing these wealth creation components.

Like, at the end of the day, when you're looking at growing wealth, it shouldn't be guesswork.

It should be a system.

Mm.

What do you say about that?

Yeah, I think the key thing that is in that statement is at the moment.

And so one of the biggest mistakes people make in their portfolio is what's called moment in time metrics analysis.

So moment in time.

And so what they're doing right now is a classic example of the moment in time analysis.

So to give you some context here, If we go back to the times where people spoke about 17, 16% interest rates that they had, that was a moment in their life at the time.

But if someone had a 100K home back in St. Mary's in 1990s, which was possible back then, believe it or not, in the early hundreds, you fast forward to today, those homes are worth $1.5 million in that suburb in the western suburbs of Sydney.

Would love to know what advice would you give to 20-year-olds today, especially as they're building their portfolio, investing and their careers?

... now you've started to answer that question indirectly, but would you mind diving a bit deeper into that?

It's such a common thing.

Firstly, successful businesses are often one of four things, or a combination of the four.

It's rising revenue, rising impact, and that impact is to your team and to your clients, rising profits, or rising value.

So these four things here, if you gift wrap it, that's also time and efficiency.

So these five things are what many accountants are looking to create, and they keep creating that.

But what ends up happening is just like a stock market portfolio or a property investor's portfolio, the ones that would stand or achieve the most are also ones that are diversified in nature too.

What are some of the lessons that accountants should be gleaning, uh, from your experiences, from some of the work you've been doing with clients?

Yeah

... that are now in, uh, impacted in a certain way, and then let's just say the shares aren't.

Remember the property journey here in Australia, w- a- and I wanna take people back to even before any of this tax stuff.

I wanna go back years and years and years and years.

The government essentially shook hands with the mum and dad Australian to say, "Look, we kind of don't want to invest in building all these rental housing and, you know, be responsible for the construction in this country.

And frankly, we probably don't even want to or want to start investing in a lot of social housing.

Um, I want to give you the floor for what a property em- pla- investing playbook actually looks like now to you.

Absolutely.

Yeah.

And so unfortunately, property market researchers as well cannot, on every three to five segment say, every three to five-minute segment say, "Oh look, this is happening in Dubbo." Because remember, there's also eyeballs and ears and thoughts that maybe don't have time to get to Dubbo or don't have an audience in Dubbo just yet to the size that they do in Sydney and Melbourne.

So there's national thought whenever we're talking interest rates, markets, where we're thinking it's all national, all this.

And so I feel like whatever the time we're in right now and where our future is going, the difference between where you are today and the tool you're using, being property, to get to a goal you have in life is really the micro decision you make and the number of micro decisions you make, not the macro, not the country, not the economy, not the dark cloud, not the good cloud, nothing.

It is gonna be the micro decision you make and the frequency of good micro decisions you make.

And so that is the biggest thing when I think of people making these future-based decisions that they've really got to lock in on.

Mm

...