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Property Investment for Beginners AUSTRALIA (Guide to Buying a Rental Property) - YouTube

Channel: Kent Cliffe

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hi guys in today's video i'm going to

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talk about the bare

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basics of investing in property in

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australia now if you go online and check

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out all the blogs and read all the

[8]

commentators you'll get quite quickly

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confused

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by all the conflicting information and

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advice whether you go for cash flow or

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growth or a new property or an old

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property or

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regional or local and all that stuff's

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very good but

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ultimately ultimately all those people

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are writing blogs because they're trying

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to either sell a property or a service

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and in this video what i wanted to do is

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none of that i just wanted to give you

[30]

the fundamental principles

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on the bare basics of property investing

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once you have this information nailed

[37]

you'll then be able to work out who you

[38]

need to turn to and what you need to do

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in order to make a smart property

[42]

investment decision so

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in this video i'm going to talk

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specifically about what you need to do

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upfront before even considering a

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property investment

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followed by exactly what you need to do

[52]

in order to pick a property investment

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strategy

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and finally once you have the basics

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nailed going out and taking the next

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steps

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and what that should look like so let's

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get into it

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first things first is i need to cover my

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backside and this is not any form of

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financial advice

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this is simply a general discussion on

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property investing

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if you need financial advice which is

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specific to your particular situation

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you need to go and speak to a financial

[76]

advisor or an accountant and they will

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be able to point you in the right

[79]

direction

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and for that reason by going past this

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point in the video you agree to be bound

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by the terms and conditions which have

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been linked

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in the description section of this video

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which state that this is not

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any form of financial advice i think

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it's important you know my background

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that you know i'm legit firstly i've

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been in the property industry over a

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decade

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i've won the reia australian buyer's

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agent of the year three years in a row

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which has led me to be the youngest

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inductee into the reia institute's hall

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of fame

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since then i've been working with family

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officers in the property space for the

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last three years so i know how the one

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percent

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invest but most importantly i have

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bought subdivided developed

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renovated properties in my own capacity

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to grow my own portfolio

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to where now i receive a passive income

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now i'm not super rich and that is not

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to brag

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but it's just simply to give you an

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understanding that i have

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some runs on the board when giving this

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advice

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and i started this youtube channel as a

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passion project you'll notice that there

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no expensive courses being sold and no

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marketing fluff it is effectively an

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area where i give

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genuine advice to anyone who wants to

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get ahead financially

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you've probably read this in a whole

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range of other financial blogs but step

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one is getting your

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together and what does it actually look

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like the first thing you need to do

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is work out a budget of your monthly

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living expenses and the reason for that

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is if you don't know your free cash flow

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or your savings rate

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you will not know how much money you can

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tip into a property investment

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then it is responsible to pay off any

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higher interest debt for example if you

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have a property investment

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that's going up at say six or eight

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percent every year before tax

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and you have a credit card or a car loan

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that's costing you 15

[180]

before tax when you model it out over

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the long term it's better off paying off

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the higher interest debt

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which will give you free cash flow that

[188]

you can then put into property investing

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once you're putting money aside all the

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financial blogs will then

[193]

tell you to put aside an emergency fund

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and in particular with property

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investment this

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is very important because the costs of

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property investing and emergency repairs

[202]

can be quite lumpy so to have that

[204]

emergency fund is not only good for your

[205]

own personal financial circumstances

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it is important if you are considering

[210]

buying a property these first things can

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all be done by yourself but then it's

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important to get your partner involved

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and to map

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out exactly what your big ticket life

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expenses are

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or impacts to free cash flow these are

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things such as weddings

[223]

kids going down to one income and going

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back to school and the reason for this

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is that all these things

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impact your ability to service debt as

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well as

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borrow for future property purchases the

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next one's quite boring but to be

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brutally honest

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if you can't sort out your stuff with

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your other investments you

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are never and i mean never going to be a

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great property investor so

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make sure you're maximizing your super

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in your savings and you know where your

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other investments such as shares are at

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you know your net worth because by

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throwing another property into the mix

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and having subpar investment returns and

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all your other investments

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isn't going to necessarily build your

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wealth it's just going to add complexity

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and make it harder for you to sort this

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other stuff out later

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so sort it out up front and then go out

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and purchase a property

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so then i want to bring your partner

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back into this and you both

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you both need to work together on

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establishing firstly some goals

[272]

in terms of where you want to get to

[273]

with property investing and secondly

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clearly understand the impacts that

[278]

property investing will have to your

[279]

current lifestyle such as going out less

[282]

or going on fewer holidays and while

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while you're both there you may as well

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hit the subscribe button because

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ultimately two subscribers is better

[291]

than one

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so go down there and click subscribe so

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just go down there and click

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subscribe i've kind of touched it before

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with other assets but effectively you

[299]

need to work out how much liquid equity

[301]

you have

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effectively this is selling shares or

[304]

other investments as well as cash

[306]

savings ultimately you need to work out

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how much you have available in terms of

[310]

a war chest

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in order to fund the property purchase

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some of it will come from debt

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but in terms of the deposit you need to

[316]

know exactly where that is coming from

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at this point it would be irresponsible

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for me to say don't speak to a financial

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planner and i'm not going to say that go

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and have a chat to

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a financial planner because even though

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they can't give you specific

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property investment advice they can give

[331]

you advice around other investments and

[332]

tax strategies that may help you become

[334]

a property investor sooner

[337]

in terms of estate planning and

[338]

insurance look speak to a good financial

[341]

advisor because ultimately they'll match

[343]

the level of cover that you get

[345]

based on the amount of dependence and

[346]

debt which you have there's a lot of

[348]

resources online

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so use that and find a good financial

[351]

planner and let them know your strategy

[353]

with property

[354]

we're getting closer to buying a

[355]

property so please please don't turn off

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the video the next person to speak to is

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a finance broker

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the finance broker will discuss two

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things firstly they'll talk about

[364]

servicing which is your ability

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to pay the interest and the loan and

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this includes a rent you'll receive on a

[369]

property as well as your wages

[370]

and the second one is your deposit which

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is effectively your liquid

[374]

assets or the cash that you have saved

[377]

in order to fund the purchase of

[378]

property plus the cost of

[380]

buying it from this meeting the finance

[382]

broker or bank will be able to tell you

[384]

the maximum amount of debt which you can

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borrow based on your current wage and a

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hypothetical scenario around rent

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i would encourage you then to go back to

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the finance broker or bank and

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suggest that they run a range of

[394]

hypothetical scenarios so for example

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instead of saying i want to buy a

[398]

million dollars and buy one property

[400]

how about we look at buying three

[401]

properties with three hundred thousand

[403]

dollars

[404]

and also two properties at five hundred

[406]

thousand dollars a savvy broker or bank

[408]

would then be able to put in their

[410]

calculator the hypothetical types of

[412]

rent which you will need to receive

[414]

in order to achieve that level of debt

[416]

and this will give you a better

[417]

understanding of what type of portfolio

[419]

you can craft

[420]

based on your borrowing capacity if you

[423]

want to take one

[424]

thing from this entire video that would

[426]

be to avoid

[428]

sell side advice and there are a couple

[430]

of different layers to it but simply

[432]

if the property that is being

[433]

recommended to you is brand new or less

[436]

than a year old

[437]

they are more than likely getting

[438]

commission to sell you the property

[440]

i don't care what story they tell you

[442]

where they've got it for distressed

[443]

developer

[444]

whether they've got all these government

[445]

tax incentives whether the property

[447]

stacks up 100

[449]

whether they are the most successful

[450]

investor in the world and that is how

[452]

they do it whether they provide you a

[453]

200 page report

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or whether it is just absolutely perfect

[457]

and you need to buy it right now

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if it's brand new and you're a novice

[460]

investor just walk away

[462]

the other layers is selling agents

[464]

obviously get paid to sell a property so

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if they're telling you it's a great

[467]

investment

[468]

their commission comes from selling the

[469]

property anyway and finally with

[471]

financial blogs or blogs around property

[473]

ultimately there's always a gender

[475]

there's always a sales pitch so just

[477]

make sure you are aware of the agenda

[479]

before you commit any further

[481]

the final tip is that it is not all

[484]

about one particular investment strategy

[486]

nor is it about one particular area nor

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is it about one

[490]

particular asset class and if someone

[492]

comes to you and suggests

[493]

that you follow this one simple strategy

[495]

you're guaranteed to be successful in

[497]

terms of property investment

[499]

i would look at it very skeptically in

[501]

my experience

[502]

looking at the more successful property

[504]

investors they don't just stick to one

[505]

asset class they don't just stick to one

[507]

particular investment strategy and they

[509]

don't stick to one area

[510]

what they do is they look at their

[512]

particular situation of time

[513]

based on where they're at and their

[514]

parameters what their goals are and then

[516]

they determine what type of property

[518]

investment or investment suits their

[520]

particular situation

[521]

and they go out and execute it they

[524]

don't just rely on a one-size-fits-all

[526]

approach

[527]

and the final investment tip is that you

[530]

should subscribe to this channel

[531]

because studies have suggested using the

[533]

word because after a request to your

[535]

audience

[536]

increases the likelihood of your

[538]

audience actually subscribing to your

[539]

channel

[540]

so let's get on to the fun stuff what

[542]

are the actual property investment

[544]

strategies

[545]

well what i'm going to tell you is

[546]

basically simplifying an entire industry

[549]

of complications so they can either sell

[551]

you a service or sell your product

[553]

and effectively the way you invest in

[555]

property

[556]

is like any other asset you have to

[558]

think with the end in mind

[560]

so in 15 years from now what would you

[563]

actually need and the answer nine times

[565]

out of ten

[566]

is a form of passive income the next

[569]

question for that is

[570]

how do you actually get a passive income

[572]

in property well effectively you have

[574]

income producing assets how do you get

[577]

income producing assets well there are

[578]

two ways

[579]

you either buy cash flow producing

[581]

assets from day one

[583]

or you purchase growth assets and

[585]

transfer those growth assets into income

[587]

producing assets over time

[589]

so how do you actually get these assets

[591]

will effectively use your wages

[593]

plus the compounding growth of holding

[595]

the assets plus

[596]

value adding to speed up the

[598]

accumulation of those assets

[600]

in order to put you into position you

[602]

can either use growth assets that you

[603]

transfer into cash flow assets

[605]

that leads to a form of passive income

[608]

which

[608]

ultimately as a property investor can

[611]

let you retire

[612]

i did mention cash flow properties but

[614]

then i focused on growth properties and

[616]

people often ask me why can't i just buy

[618]

cash flow properties from day one

[621]

firstly growth and cash flow independent

[624]

of one another

[625]

tenants pay more for improvements and

[627]

improvements depreciate

[628]

whereas growth generally comes from the

[630]

underlying land value

[632]

for example let's talk about two

[633]

extremes firstly we go for the cash flow

[635]

side where you get an industrial

[636]

property or a shared and the net return

[638]

on that is about seven

[639]

to eight percent on your money

[641]

effectively the growth on that asset

[643]

comes from the increase in the rent

[644]

which is about two to three percent

[646]

every year

[647]

on the growth side we focus on a large

[649]

holding of land

[650]

close to the cbd that's effectively

[652]

getting ris rezoned into residential

[655]

now the improvements on that is just

[657]

simply a house so the net return

[659]

on the actual building might only be two

[661]

to three percent on your money or even

[662]

below that

[663]

uh whereas the compounding of growth on

[665]

the increase in the land value might be

[667]

closer to ten percent

[669]

the next thing is taxation so let's just

[671]

say you had a cash flow property and

[672]

every year that's spat out an

[674]

income effectively that income is then

[676]

taxed which forms part of your savings

[677]

which is then used as your deposit for

[679]

your next purchase

[680]

whereas if you have a growth property

[681]

what you do is you draw out the equity

[683]

and the equity is not taxed until you

[685]

sell that asset as a capital gain the

[687]

kicker in the guts under the australian

[689]

tax system is progressive as well on

[691]

income

[692]

effectively meaning if you earn more

[694]

income from a cash flow property

[695]

you are paying a higher rate of tax the

[698]

final thing

[699]

working on your side for growth focused

[701]

assets is the compounding of

[703]

growth both rents and capital values do

[706]

compound over time but because you're

[708]

using

[708]

leverage and it's a much larger figure

[710]

on the capital value side

[712]

when you get compounding of growth on

[713]

that it is significantly higher than the

[716]

compounding of growth on rents

[718]

if i don't talk about this i'm gonna get

[719]

lots of comments below saying ken what

[721]

about living off equity so let's quickly

[723]

dig

[723]

into that effectively in 15 years time

[725]

you have a very low lvr in your

[727]

portfolio and you either have facilities

[729]

already set

[730]

up or you go to the bank and set up

[731]

facilities where you draw down on some

[733]

of your equity

[734]

and you live off that equity and then

[736]

each year you effectively draw down a

[738]

little bit more of your equity and a

[739]

little bit more of your equity against

[741]

your assets

[742]

ultimately providing your assets are

[743]

growing quicker than the debt you're

[744]

accumulating you will never run out of

[746]

equity that you can draw on

[748]

and here and lies the problem the

[750]

strategy relies on property prices

[752]

always going up

[754]

and the availability of credit since the

[756]

banking royal commission approached

[757]

changes and a whole raft of other things

[759]

credit for professional property

[761]

investors has got a lot harder

[763]

secondly why go to all this effort of

[765]

building a large property portfolio and

[767]

then at the back end you effectively

[769]

erode

[770]

all your assets value and finally

[772]

property prices don't go up

[774]

all the time so for this reason i'm

[776]

going to talk about growth assets in

[778]

early stage investing

[779]

followed by cash flow assets in late

[781]

stage investing

[782]

property investment forks into a range

[785]

of different

[786]

areas but the two parent categories are

[789]

active investment

[790]

and passive investment active investment

[792]

is where you put

[793]

money and time into property investment

[796]

and passive investment is where you put

[798]

almost no time but money into investing

[801]

on the active property investing side

[803]

you have both growth focused and cash

[805]

flow focused the growth focus is things

[807]

such as flipping

[808]

trading on property basically selling a

[811]

property more than what you bought it

[812]

for in a short period of time

[814]

this covers of things such as

[815]

subdivision development renovation

[818]

on the cash flow side of active

[820]

investing

[821]

this is where you derive a higher rental

[823]

return from it by

[825]

adding time into the equation this

[827]

covers things such as airbnb

[829]

short stay and room letting on the

[830]

passive cash flow side

[832]

you're effectively buying a property

[834]

you're holding it for income

[836]

that income you're turning into savings

[838]

that savings is what you're using to

[839]

form your deposit for your next purchase

[842]

again the difference between this and

[843]

active investing is you're not

[845]

committing your time to generating an

[846]

income

[847]

now you have a high level understanding

[849]

of the basic property investment methods

[851]

how do you actually pick one well it is

[853]

super simple what you do

[855]

is you subscribe to this channel because

[857]

by subscribing to this channel

[859]

100 you'll know exactly what property

[862]

investment method

[863]

so go there is suitable for you now

[866]

really what you do is you work out what

[869]

investment strategy

[870]

suits your particular situation which i

[873]

am going to go

[874]

into now firstly you need to work out

[876]

what stage in life

[878]

you are at and generally speaking there

[880]

are five stages in life

[882]

the early stage is when your income poor

[884]

asset poor

[885]

time rich and probably you're more than

[887]

likely under 20 years old

[889]

the next stage in life is dink and

[892]

effectively you've got two incomes your

[893]

income earning potential is increasing

[895]

you've still got limited or no assets

[897]

you're generally in your 20s to 30s

[900]

stage three is the dependent stage and

[902]

effectively your income has grown

[904]

but your disposable income has shrunk

[906]

for two reasons

[907]

firstly you have assets and these assets

[910]

cost money to maintain

[912]

and also you have dependence and

[913]

dependence costs money to maintain

[916]

but the upside is you should have more

[918]

assets by now

[919]

the downside is is you have less time

[922]

stage four is peak earnings and

[924]

effectively this is when the kids start

[926]

to move out

[927]

you have effectively maximized your

[928]

income and you probably have more assets

[932]

the final stage is what i like to call

[933]

the legacy stage and this is effectively

[935]

where you bought the growth assets

[937]

you've turned them into cash flow

[938]

you're now currently living off the

[939]

passive income and

[941]

anything that's left over at the back

[943]

end you can effectively pass on to your

[945]

kids

[945]

and that's if you like them it still can

[947]

go to charity

[948]

anyway enough of that depressing stuff i

[950]

can't wait to see how many viewers drop

[952]

off at that point but the next thing you

[953]

need to work hard

[954]

is your competences and i'm going to

[957]

talk about these

[958]

the first confidence is your investment

[959]

term which you kind of already have

[961]

gotten from

[962]

this stage in your investment life the

[964]

next thing is your risk profile and this

[966]

really shouldn't impact too much

[968]

what you do based on the stage of your

[969]

investment life but for example if

[971]

you're a dink and you don't like the

[972]

idea of active investment or the risk

[974]

that's involved in that

[975]

then just transition to the next stage

[977]

which is the smart growth stage of

[979]

investment

[980]

the final competence to talk about is

[982]

your financial literacy and this is a

[983]

layered answer

[984]

firstly if you don't think you're

[986]

educated enough to be a property

[987]

investor yet

[988]

don't do it educate yourself because the

[990]

time you save in terms of educating

[992]

yourself

[993]

will definitely offset the time you take

[996]

to educate yourself

[997]

secondly to that if you don't feel

[999]

comfortable being an active investor

[1001]

and taking on extra responsibility or

[1003]

understanding of the property market

[1004]

then go down the passive route you don't

[1007]

need to be an active investor

[1008]

summing all this up the methods i talked

[1010]

about in terms of active or passive or

[1012]

growth and cash flow are just methods

[1014]

the actual strategy or plan that you

[1017]

make will be dictated by

[1019]

the stage in life you're at the goals

[1022]

that you set

[1023]

the competences that you have and

[1025]

ultimately the path that you take

[1027]

based on the method will be different

[1029]

from each individual investor

[1031]

so now we've ticked a few boxes you've

[1033]

sorted your stuff out you understand the

[1035]

basic methods of property investing you

[1036]

know what stage in life you're in and

[1038]

you understand your competencies

[1039]

so what is effectively next what i'd

[1042]

encourage you to do is go online and

[1044]

work out how to build a property

[1046]

investment plan

[1047]

or a budget cash flow for property

[1049]

investment and the reason why i

[1050]

encourage you to do it online rather

[1052]

than mapping it out for you is

[1053]

effectively the process of going out and

[1054]

researching it

[1055]

will teach you a lot of things about the

[1057]

costs and the assumptions that you have

[1058]

to make

[1059]

the tip that i would give to you is make

[1060]

the first two years in lots of detail

[1062]

the next five years in less detail

[1064]

and the next 10 years in even less

[1066]

detail because ultimately

[1068]

the plan is going to change don't be

[1070]

aggressive on your assumptions

[1071]

look i see online all the time people

[1073]

thinking that the prices are going to go

[1074]

up at 7 to 10

[1076]

every year they are more than likely not

[1078]

going to so use things like six percent

[1080]

in terms of your growth factor and make

[1081]

sure you dial everything back

[1083]

because ultimately if you have a

[1084]

realistic plan and you achieve it that's

[1086]

better than having an optimistic plan

[1088]

and giving up

[1089]

the first cash flow you ever do is going

[1090]

to be wrong the next one you're going to

[1092]

do is probably going to be wrong and the

[1093]

next one you do after that is going to

[1095]

wrong but the whole process of putting

[1097]

together and then

[1098]

tearing them up and rebuilding them is

[1100]

effectively teaching you more and more

[1102]

about

[1102]

considering all the factors of property

[1104]

investment how do you work out how much

[1106]

passive income

[1107]

you need to achieve in order to live off

[1109]

well effectively think about your

[1110]

current income now and if you're

[1111]

comfortable living off that well that's

[1113]

great if you're not add a little bit

[1114]