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Property Investment Strategies Australia Explained: Discover YOUR Strategy - YouTube
Channel: Kent Cliffe
[0]
property investment strategies so i've
[1]
been in the industry over a decade ago
[3]
and then i left and then i came back and
[5]
what i started to see is there's a whole
[6]
range of gurus or advisors
[8]
that were over complicating the simple
[10]
advice around property investment
[12]
strategies
[13]
because they wanted to either sell a
[14]
service or a product and by doing that
[16]
you make things complicated
[17]
people think it's all too hard and they
[18]
end up just throwing money to solve the
[20]
problem
[21]
whereas property investing is pretty
[23]
simple all the strategies are pretty
[24]
simple so in this video what i wanted to
[26]
do is go through all the different
[27]
property investment strategies at a
[29]
simple level that work in australia
[31]
so that you guys can have a clear
[32]
understanding of the pros cons in my
[34]
opinion
[34]
so that when you make a decision about
[36]
what property investing strategy you
[38]
would consider
[39]
you know exactly what they are and what
[41]
would be suitable for
[43]
you so let's get into property investing
[45]
strategies
[46]
first things first is i need to cover my
[48]
back side and this is not any form of
[49]
financial advice
[51]
this is simply a general discussion on
[53]
property investing
[54]
if you need financial advice which is
[56]
specific to your particular situation
[58]
you need to go and speak to a financial
[60]
advisor or an accountant and they will
[62]
be able to point you in the right
[63]
direction
[64]
and for that reason by going past this
[66]
point in the video you agree to be bound
[68]
by the terms and conditions which have
[70]
been linked
[71]
in the description section of this video
[73]
which state that this is not
[74]
any form of financial advice firstly you
[77]
might have seen in my beginner's guide
[78]
to property investing my discussion
[80]
around the different stages in life for
[82]
each different property investor the
[84]
first
[84]
type of property investor is the early
[86]
stage investor effectively under 20
[88]
you have low assets you have low income
[90]
but you have the world ahead of you
[92]
now my four bits of advice for this
[94]
particular investor
[96]
is build life experience and enjoy
[98]
yourself two is
[99]
up skill so you can maximize your income
[101]
earning potential number three
[103]
is to educate yourself financially so
[106]
you
[106]
know where or how to build assets once
[109]
you have them
[110]
and finally it's to sort your stuff out
[112]
up front so that
[114]
you can skip having to sort all your
[116]
other investment things out
[118]
when you are ready to invest the next
[120]
investor is a dink and this is someone
[122]
20 to 30 there's two incomes
[124]
they generally have a high disposal
[126]
income they have a low asset base but
[127]
they do
[128]
have a lot of time despite working hard
[130]
in your careers at this point in your
[131]
life because you don't have kids you do
[133]
have a lot of time
[134]
this particular investor would be more
[136]
suitable to an active investment
[138]
strategy where they use their high
[139]
disposable income plus their time
[141]
to turn into property investment so
[143]
active property investment strategies
[145]
might be
[145]
suitable the third stage is the
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dependent stage effectively
[149]
you have higher income but your
[150]
disposable income's lower because you
[152]
have some assets that are costing you
[154]
and also you have dependents
[155]
your asset base is growing a little bit
[158]
and your time is much
[159]
less so in this particular stage of your
[162]
investing career you should focus on
[163]
growth because you still have a long
[164]
term horizon but you should focus on
[167]
passive growth or what i like to call
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smart growth
[170]
because you don't have a huge amount of
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time commitment and you have a reduced
[174]
level of disposable income the next is
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peak earnings and this is effectively
[177]
when your kids
[178]
move out you have a high disposable
[180]
income a high income your asset base is
[182]
growing and what you're doing is you're
[183]
transitioning your growth assets into
[185]
your income producing assets so you can
[186]
substitute your high wage
[188]
for a passive income stream the final is
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a legacy stage where you transition from
[192]
growth assets to cash flow assets and
[194]
effectively
[195]
you are living off a passive income
[197]
anything left over
[198]
can go to your kids depending on if you
[201]
like them
[202]
now i made that joke in the last video
[203]
as well and
[205]
for that reason you should subscribe to
[207]
my channel because i
[208]
reuse jokes and let's get on to the
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clickbait part which is the property
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investment strategies
[213]
as i mentioned in previous videos there
[215]
is two
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parent categories of investing there is
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active and there is passive
[220]
then under the active and passive phase
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there's a growth focus and a cash flow
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focus
[225]
so the first strategy is the active
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investment stage on the growth side and
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this is to do with
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flipping property effectively it's about
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trading in property or basically buying
[234]
property and then reselling it at a
[235]
higher rate
[236]
at a later point in the cycle a term
[238]
which is commonly thrown around in u.s
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property which is worth touching on is
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wholesaling property
[243]
which doesn't work in australia because
[244]
there's high transaction costs of
[246]
purchasing so when you're trading on
[247]
property in australia like renovating
[249]
and selling and
[249]
developing and selling and subdividing
[250]
and selling you need to significantly
[252]
improve the assets value just to cover
[254]
the transaction costs
[255]
this particular property investment
[257]
strategy is suitable for the dinks or
[258]
peak earnings now on the dink side it's
[260]
suitable for them because they have a
[262]
high disposable income they have time to
[263]
commit to these strategies
[265]
and ultimately they can amplify their
[267]
asset base or grow their asset base
[268]
quicker
[269]
which they can churn into cash flow at a
[271]
later stage the other good thing with
[273]
dinks and this strategy is they can hold
[275]
some of the assets and sell some of the
[276]
assets
[277]
now in the assets they hold because they
[278]
might have completed a development or a
[280]
subdivision
[281]
the actual rental return is higher so
[283]
not only are they getting the growth
[284]
factor of increasing the assets value
[286]
they're also getting better cash flow
[288]
which will help them service further
[289]
debt
[290]
and grow their portfolio faster then i
[292]
skip a stage and go into peak earnings
[294]
the reason why peak earnings would use
[296]
this active strategy is they can
[298]
maximize the return on their total
[300]
portfolio so as they've accumulated
[301]
growth assets
[302]
they can then start developing or being
[304]
actively involved in those assets and
[306]
then selling them off
[307]
and then using the proceeds of those
[308]
returns to either pay down debt or
[310]
invest into other cash flow
[312]
investments remembering most growth
[313]
assets is a field house on a big block
[316]
now if you are a peak earner effectively
[318]
you might be getting a one to two
[319]
percent net yield on that old
[321]
house if you whack all four villas all
[324]
of a sudden your income return goes from
[326]
one to two percent to four to six
[327]
percent
[328]
and then you can sell two of those
[329]
villas to effectively pay the debt down
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on the other two
[331]
and off the residual you're effectively
[333]
doubling your holding cash flow
[335]
and reducing your debt by using the
[337]
property development strategy
[338]
and the reason why i've skipped active
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growth investment for the dependent
[341]
stage
[342]
is for capital preservation let me
[344]
explain to you this
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if you're a dink you have a high income
[347]
you have a lot of time in your hands and
[348]
you also have a long investment term
[351]
if you make a mistake in the active
[352]
investment stage you can ride out the
[354]
investment cycle and you should be okay
[357]
if you are a peak earner you have a
[359]
massive asset base
[361]
and also you have a high income so if
[362]
you make a mistake the actual drawdown
[364]
over your entire portfolio
[366]
is quite small whereas if you're in that
[368]
mid stage or the dependent stage you
[369]
have a lower disposable income
[371]
you have some assets to lose and you
[373]
have a shorter investment term
[374]
it's better not taking those risks until
[376]
you have a lot of spare
[377]
gun powder at your capacity the next
[380]
method is the active property investment
[382]
cash flow focus so this is things like
[384]
airbnb
[385]
short-term leading room leading
[387]
basically anything
[389]
that you are trying to drive a rental
[391]
income in excess
[392]
of the normal rent you would receive on
[395]
the property if you were just to rent it
[396]
out
[397]
now this strategy is great for the
[398]
dependent stage because you have a lower
[400]
disposable income and by increasing your
[402]
cash flow
[403]
this increases your borrowing capacity
[405]
or free cash flow to make further
[407]
investments
[408]
ultimately if for example you go from
[410]
two incomes down to one
[411]
that secondary income provides its own
[413]
the right structure or by the right
[414]
person
[415]
can be offset by the extra cash flow you
[417]
make from
[418]
say an airbnb or a room let type of
[420]
property
[421]
now let's talk about passive property
[422]
investment remembering you purchase a
[424]
property
[425]
you have growth you revalue it you draw
[426]
out the equity you buy another property
[428]
or
[428]
you purchase a property you have rental
[430]
income the rental income grows you save
[432]
a deposit
[433]
and then you purchase another property
[435]
or you could have a combination of both
[436]
where you get some savings
[438]
and some equity that's effectively
[440]
passive investing now let me run through
[442]
an example which i've got here on my
[443]
phone
[444]
effectively let's just assume you have
[446]
150 000 income
[448]
you're saving a roughly about 15 income
[451]
and on top of that nine percent is going
[452]
to superannuation every year
[455]
9.5 the first one is easy say for
[458]
example you buy a 400 000
[459]
property effectively for a deposit you
[461]
would need about 25 percent of the
[462]
property's value
[463]
20 for the deposit for the loan and 5 to
[466]
cover the cost
[467]
this could be reduced down to about 15
[469]
percent or even more if you pay
[470]
willing to pay more lmi we can assume
[472]
that this property would generate about
[474]
a 25
[475]
gross income and 25 of the
[478]
property's income would go to expenses
[481]
so effectively you're only getting 75
[483]
of the 4 then the financing costs on the
[486]
debt component would be around
[488]
3 of how much borrowings you have after
[490]
all of this the property would be
[492]
positive cash for about 1
[494]
500 every year so you are now saving
[497]
15 000 every year plus 1
[501]
500 of positive cash flow this alone
[504]
would take about six
[506]
years to gain a deposit well that's not
[508]
the case let's just say that the
[509]
property goes up every year at six
[511]
percent
[511]
this means that in three years the
[513]
property's expected value is about four
[515]
hundred and seventy five thousand
[517]
dollars you can often borrow up to 80
[519]
of the property's value in terms of a
[521]
cash out facility to work this out it's
[524]
475 thousand dollars times 80 percent
[527]
less the existing loan which is about
[529]
320 000
[531]
this leaves you with about sixty
[533]
thousand dollars of drawable equity
[535]
sixty one thousand dollars of drawable
[537]
equity plus fifty thousand dollars of
[539]
saving
[539]
means you have about a hundred and ten
[541]
thousand dollars of liquid
[543]
assets which can go towards the deposit
[546]
of purchasing
[547]
the next property you need to also
[548]
remember that property values are
[549]
probably escalated from 400 to 475
[552]
000 so to purchase a 475 000
[556]
property you need a 25 deposit this
[559]
would be about 120 000 meaning after all
[562]
this
[563]
at some point between the three to four
[564]
year mark provided all our assumptions
[566]
are correct
[567]
you would be in a position to buy
[569]
another property
[570]
and from here what you can then do is
[573]
draw a net worth chart
[574]
up and to the right to infinity well
[577]
that is not the case
[579]
actually what happens every time you go
[580]
for a loan is the bank looks at your
[582]
equity position and also your servicing
[584]
position
[585]
as you purchase more properties the bank
[587]
tends to discount your rent and put in a
[589]
buffer for interest so each property you
[591]
buy
[591]
effectively reduces your servicing power
[594]
and at some point
[596]
you will not service for future debt
[598]
there are a range of good things
[599]
a smart broker can do to help mitigate
[601]
this such as separate legal entities
[604]
and making sure you're not cross
[605]
collateralized but ultimately it comes
[608]
down to a property investment strategy
[610]
and that is
[610]
when you need to shift remembering i
[613]
said before property investment is not
[614]
about one particular strategy
[616]
it basically needs to suit your
[618]
particular situation or stage in life
[621]
so what you would need to consider as
[622]
your servicing starts to get capped out
[624]
is to focus more and more on cash flow
[626]
types of property
[628]
and because i've spoken so much about
[629]
growth property what
[631]
actually makes a growth property well in
[633]
this short video i'll talk about it in a
[635]
general
[635]
sense the first tick box is an
[637]
established property
[638]
because we're focusing on the growth of
[640]
the assets value not growth of the area
[642]
and this is a common misconception that
[644]
most house and land guys will exploit
[646]
they'll talk to you about how much the
[648]
area is growing and how many properties
[649]
are growing in there
[650]
but they're not talking about the price
[651]
appreciation of property established
[653]
properties
[654]
generally appreciate faster than house
[657]
and land packages
[658]
then we look at land value and you want
[659]
to buy as much land value as possible
[661]
because
[662]
land appreciates and buildings
[664]
depreciate effectively
[666]
tenants pay for the improvements and
[668]
this is why new properties
[669]
have higher cash flows whereas older
[672]
properties with
[672]
less building value or improvement value
[675]
get lower rents and have a lower yield
[677]
but they get better growth because they
[679]
have more underlying land value
[680]
then we want to find an affordable
[682]
property and when i say affordable it's
[683]
different to cheap
[684]
cheap is cheap affordable is getting as
[687]
close to the city as possible in an area
[689]
that's gentrifying
[691]
but not going for the cheapest area in
[694]
a city then you want to be able to
[696]
polish it effectively you want something
[697]
you can tidy up renovate subdivide
[699]
or do something where you're driving the
[701]
growth of the property's
[702]
value now people will ask why do i
[705]
always favor growth first over cash flow
[707]
first well
[708]
let me explain to you why firstly i call
[710]
this smart growth effectively
[712]
you're using australia's tax law to your
[714]
advantage in accumulating
[716]
assets and for other smart growth things
[718]
to do
[719]
you should subscribe to this channel so
[722]
go there and
[723]
you know click the subscribe button
[725]
because
[726]
this way you will grow your assets a lot
[728]
quicker
[730]
so let me talk to you about the tax
[731]
situation effectively when you earn an
[733]
income you pay tax at the full marginal
[734]
tax rate
[735]
when you hold an asset and you sell it
[737]
you pay tax base on a capital gains tax
[740]
basis
[741]
now that capital gains tax is based on
[743]
your marginal tax
[744]
rate but if you hold the asset over 12
[746]
months you get a 50
[747]
discount so when you buy a growth asset
[751]
and it's negatively good the deductions
[752]
you're getting and offsetting against
[754]
your wage
[754]
are based on your full marginal tax rate
[757]
then you draw equity on that growth
[759]
asset and that's not tax because you can
[761]
draw out the debt for free in a kind of
[763]
like a tax-free environment
[764]
but when you sell the asset you are
[767]
effectively only paying
[768]
50 capital gains tax based on your
[770]
marginal tax rate so your deductions
[772]
going in are at a dollar
[773]
and the tax you pay on the back end is
[775]
only 50 cents so this is why the tax
[777]
situation works your favor
[778]
and the other good factor is growth upon
[780]
growth upon growth effectively if you
[782]
purchase an asset and it continues to
[783]
grow year on year on year and it's a
[784]
high growth asset
[786]
that will exponentially increase and
[788]
accentuate the longer you hold that
[789]
property investment
[790]
the next is passive cash flow investment
[792]
and this is where you focus on the
[794]
rental return
[795]
of a property investment for cash flow
[797]
investments the measurement commonly
[798]
used is a yield and the yield is
[800]
basically the income divided by the
[801]
assets value or the purchase price
[803]
for residential investments in metro
[805]
areas a good gross yield is around six
[807]
percent
[808]
in regional areas it might be seven to
[810]
eight percent
[811]
noting this is a gross yield so this is
[813]
a total income and this does not take
[815]
into account deducting
[816]
your costs of holding the property in
[818]
the commercial space
[819]
the net yield is often around seven to
[821]
eight percent now the net yield is your
[823]
total yield
[824]
removing all your holding costs common
[826]
strategies used to get cash flow outside
[828]
of just buying a high yield investment
[830]
is granny flats commercial property also
[833]
developing property into new so you get
[835]
a better rental income and renovating
[837]
property to increase a rental income
[839]
and finally who's suitable for this
[840]
particular strategy well this is often
[842]
peak earnings to the legacy phase
[844]
ultimately
[844]
it's as you are transitioning from
[846]
growth assets into cash flow assets
[848]
you want to be considering higher yields
[850]
because effectively when you're in
[851]
retirement and you're substituting your
[853]
wage
[854]
for a passive income it's best to be
[856]
focusing on yield investments because
[858]
capital appreciation is not as important
[860]
so what does a high-yield investment
[862]
look like well firstly it's often
[863]
located in cheaper areas
[864]
further outside of the cbd because what
[866]
you're trying to do is minimize the
[868]
amount of land value you're paying
[870]
and effectively effectively you're
[871]
trying to maximize the improvements on
[873]
the land
[874]
so that tenants are willing to pay a
[875]
higher rent so this means it's more than
[878]
likely a newer property
[879]
in a cheaper area so these strategies
[881]
give you a pretty clear idea of all the
[883]
different property investment strategies
[885]
that work in australia now i know there
[887]
is a lot more there's lease options
[888]
there's options
[890]
there's recycling debt but commonly a
[892]
lot of these other strategies are
[894]
basically relying on the core
[895]
fundamentals
[897]
and then they're getting repackaged up
[898]
into a program or a course or a service
[900]
and then effectively sold to you
[902]
at an inflated price so that you can be
[904]
told to get rich quick
[905]
and then when it all falls away
[907]
effectively you are no closer to
[909]
financial freedom
[910]
or receiving a passive income than where
[912]
you were before considering the court
[914]
but
[915]
in saying this there is a way to get
[917]
rich quick
[918]
or should i say quicker so the first
[921]
thing you do
[922]
to get rich quicker is to subscribe to
[925]
the channel so
[926]
click the subscribe button because if
[929]
you don't
[929]
i won't tell you the ways to get rich
[932]
quicker
[934]
the first tip is to buy well now if
[937]
you are an active investor you have all
[939]
the transaction costs of purchasing
[940]
property and then selling the property
[942]
whereas if you're a passive investor you
[945]
don't have those transaction costs of
[946]
selling the property
[948]
so if you pay a dollar more than what an
[950]
active investor is willing to pay you
[952]
are still getting an exceptional deal
[954]
because they physically can't make it
[956]
work
[957]
and then you get to collect all the
[958]
upside in buying the property really
[961]
well
[961]
so when you're looking at property
[963]
investment deals what you want to do is
[965]
put your active investor hat on
[967]
and work out what they need to pay for
[968]
the property and if you're a passive
[970]
investor you pay effectively one dollar
[972]
more now i don't practically mean a
[973]
dollar
[974]
but if you're five or ten grand more
[976]
than what an acting investor is willing
[977]
to pay
[978]
you are still buying really well and
[980]
speeding up your wealth accumulation
[982]
process
[983]
the next thing is renovation and i'm not
[985]
talking about getting in a slender
[986]
chamber knocking down walls getting an
[988]
interior designer and staging the
[989]
property that's not the case i'm talking
[991]
about spending
[992]
three percent of the property's value to
[994]
improve
[995]
the property in terms of biggest bang
[997]
for your buck
[998]
this is things like flooring and
[1000]
painting you want to be aiming to get
[1001]
three dollars back in equity for every
[1003]
dollar that you're spending on the
[1004]
property moving along the next thing is
[1006]
subdivision where effectively you can
[1008]
hold the front house
[1009]
split the back and then sell off the
[1011]
back land or sell off the house
[1012]
and use the proceeds to pay down the
[1014]
other and finally there is developing
[1016]
which is good for dinks
[1018]
and people that are in the peak earning
[1020]
capacity of the career because this has
[1022]
a double whammy effect
[1024]
firstly you increase your cash flow
[1025]
because you have a new property that's
[1026]
rentable out
[1027]
secondly you increase your property's
[1029]
value because you get the developed
[1031]
margin
[1032]
and thirdly you can sell off part of the
[1033]
property to pay down debt
[1035]
which ultimately increases your free
[1037]
cash flow because you're not carrying as
[1039]
much borrowing
[1039]
the final strategy is a little bit more
[1041]
passive and that's focusing on rezoning
[1043]
areas
[1043]
so this is considering purchasing a
[1045]
property in area that's single
[1046]
residential that in two
[1047]
three or ten years from now would be
[1049]
zoned for two three or four five units
[1052]
effectively you'll get the extra uplift
[1054]
on your unimproved land value which will
[1056]
help drive capital growth
[1057]
now you know effectively the stages in
[1059]
investing you know
[1060]
passive and active investing you know
[1062]
growth and cash flow investing
[1064]
and also you know how to fast track
[1066]
these strategies to make sure you
[1068]
accumulate your wealth sooner
[1070]
so until you determine the next property
[1073]
investment strategy that you would like
[1075]
to conquer
[1075]
or my next video best of luck and
[1079]
[Music]
[1090]
bye
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