How this property investor grew his portfolio
For the past six years, Smart Property Investment’s Phil Tarrant has worked hard with his financial team to continue growing his property portfolio, which is currently valued at more than $6 million—with total debt of $3.9 million and an equity position of $2.4 million.
The property investor talks about the different stages of property investment journey with his accountant Munzurul Khan, and how they plan to carefully transition to more sophisticated strategies over time:
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What is your ultimate goal in this property investment journey?
Phil Tarrant: Our goal is quite aggressive—to grow this portfolio.
Munzurul Khan: We, as investors, would like… our portfolio to be positive cash flow without even taking the tax into our account… Why would we like to do that? Because we would like to see that as our retirement goal. That's our passive income which subsidises our retirement objective.
Are you close to achieving that goal?
Munzurul Khan: Well, it's costing us about 18 grand [a year to hold the portfolio] if I'm just purely looking [at] it from a cash flow side of it. The reason why it is costing us 18 grand and the reason why we are comfortable that it is costing us 18 grand is because we still are arguably at the beginning of our investment cycle—it's not a matured investment yet.
How will you describe the so-called acquisition stage in property investment?
Munzurul Khan: [Phil], being in [this journey] for six years... is in the acquisition stage, where you're buying properties more and more...It's the capital growth of the asset that is purchasing as such.
Will you stay in the same stage much longer?
Munzurul Khan: The approach could be that, perhaps, the acquisition is still continuous to… a great extent… The portfolio has done very, very, very well, but… there is plenty of equity. There's plenty of possible ideas and, I suppose, age bracket is with you, as well.
What would be the next step in your plan of action?
Munzurul Khan: There would be a point of time that we say, "Well, we take a little bit of a step back." We say that, "Well, how do we utilise some of the potential of the existing properties that we already have?" That's always been [Phil’s] plan—we will go into the game first and then, once we are into the game and we've got lots of toys… then we will find out how do we better utilise a particular toy.
Can you still acquire while the journey goes on to the “maturation phase” or “consolidation stage”?
Munzurul Khan: Acquisition continues, but at the same time, what would be worthwhile is to visit some of the properties that you purchased… in the early years and say, "What are the additional possibilities that we have?" We discussed some of the properties that, perhaps, we can potentially subdivide… We discussed whether there is any property that we can consider to have a granny flat… We discussed one or two of the properties that you've got potential to demolition build [or] multiple dwelling.
What would be your advice for property investors transitioning to the “consolidation stage”?
Munzurul Khan: [The consolidation stage is what] all investors grew into… [but] we need to do it rather carefully, so we need to do it from both angle[s].
Number one: It's not purely building a granny flat for the sake of building a granny flat. Do you have a market for it in that particular area? [Determine] whether the asset value justifies [the action]. Say, if you're spending about 125 grand… is your overall asset increasing by, give or take, 125 thousand? [Meanwhile]... subdivision or… construction after [the] demolition of some properties are [for] capital growth.
Phil Tarrant: There will be a point in time when we say, "The acquisition in part is now okay. Let's concentrate on the cash flow component of it." That's based on serviceability or how much we can afford to tip into this portfolio. There's a whole bunch of moving parts. That's going to be very different for every single investor out there. You should be speaking to your accountant and having these very frank conversations with it.
How will your previous assets play roles in the growth of your portfolio?
Phil Tarrant: The opportunity that we have with this portfolio is… because of the assets we're buying, we're keeping our powder dry in terms of having the flexibility to improve our cost position at a point when we're ready to do it. You've got to look at that within the prism—we want to keep growing this portfolio as well and keep acquiring properties.
Tune in to Phil Tarrant and Munzurul Khan’s episode on The Smart Property Investment Show to know how to avoid mistakes by getting the “simple things right,” how your accountant can help with the growth of your portfolio, and the best ways to reach your retirement goal.
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