Smart Property Investment's Phil Tarrant and his financial team have built an impressive 11-property portfolio worth $1.8 million over a period of half a decade, yielding a staggering 49 per cent of compounding return through the years, and all it took was $1,000 out of his pockets every month.
Property investors now ask: Is that the power of leverage or is that the power of buying the right properties? Is that the power of the right strategy? Is that the power of the right structure? What exactly drove Phil to success?
The team's resident accountant Munzurul Khan spilled the details on managing the multiple-property portfolio and creating wealth through property investment:
How did the portfolio reach this cash flow position?
Munzurul Khan: I think the answer is a combination of all of the above (right leverage, buying the right properties, right strategy, right structure), and perhaps a couple more as well.
So, definitely it's the power of leverage. It's the compounding effect. I'll probably dare suggest that even [with] the compounding rate of 49 per cent, if we look forward now, in about five years or ten years’ time ... that that will drop—just how the numbers work. But, you could still say, because you would have growth on growth and growth and growth as well, you would have that snowball effect, and with that snowball effect, you would see the compounding effect.
It also comes back with the strategy as well. The strategy, in the sense that ... when you bought it, as you bought it, in the right market in the right cycle.
I say [this] very often: You don't need to buy ... once-in-a-lifetime sort of property every other week. You just consistently purchase the market value of the property at the market price and let the market do its things over a period of time, as long as you buy it right in the first place.
What are some of Phil's selection criteria when buying properties?
Munzurul Khan: [He] looked into an area where there is a little bit of café culture, suburban area, but not too far, so it's not a regional area. Infrastructure was there, the population was there, the growth was there. The demand was there as well, and more importantly, the rental return was there of the demand.
How did diversification contribute to the success of his journey?
Munzurul Khan: [His] couple initial properties ... the gross return [was around] 6, 6.5, 7 per cent. If you consider it now, under the current market value, I'd probably dare suggest they would be hardly around 4 per cent or below ... of the gross return.
So, exactly the same property, if you were to buy it today, or if you look for it in about five to seven years, your growth is not going to be in the same pro rata as the growth you achieved in New South Wales. That's exactly the reason why [he] bought it for a period of time, and then [he] moved outside New South Wales, as well, [to] replicate that process in the right market.
By doing that, what [he] has also achieved in longer period of time is ... this diversification.
As it is, while you have the cycle of the market, each estate is arguably a little bit on a different cycle. One argues that as New South Wales matured, one argues that as Queensland is still growing a bit, one argues that Melbourne is probably in the middle. But if you have a combination of all of those, you would see that, at some point of time, some market is moving.
So, you have New South Wales, you have Queensland, you have Victoria as well—now you're reaching into that bit of diversification. Quite a bit of strategy, right?
How would you define the "right structure" that helped Phil succeed?
Munzurul Khan: The structure, of course, it comes in as well ... because of [his] protection. It's good ... having all those investments and everything else, but if we can't protect it, then there is no use. So, it's the shorter period of time as well as the longer term that [he has] considered.
Tune in to The Smart Property Investment Show's special episode on Phil Tarrant's 11-property portfolio to know more about the realities of managing a large portfolio and some worst-case "what if?" scenarios.