Our Portfolio
Phil Tarrant

BLOG: The one critical issue for all investors, and how to fix it

By Phillip Tarrant

No matter if you have one or many properties in your portfolio, there’s one thing that you need to be careful of and keep a good eye on to make sure your portfolio doesn’t go under.

I’m talking, of course, about cash flow.

Without it, everything falls apart, as it allows you to stay in the game. Have you got enough money to pay the bills, first and foremost? And then how will you improve your cash flow position to allow you to accelerate your investing journey (which means buying more properties)? Or if you’re at the other side of the coin, if youre looking to pay down debt or looking to retire your debt, you want to look at cash flow in terms of what you get, so it’s more money in your pocket.

For us it’s about improving the cash position of our portfolio. It’s a good portfolio. I ran through all the numbers in that podcast on the 22nd of January. Cash flow, however, was negative north of $55,000-plus every year before tax, so it costs a little bit to hold this portfolio, but it’s a growing portfolio. Obviously post-tax the numbers look a lot better.

But I’m a pretext man so I look at the cash flow it costs us or how much it costs us to hold this property portfolio. If I can minimise that as much as possible, I’m happy.

Recent recommendations and guidelines put in by APRA try and slow down rampant price growth in the market and, obviously, Sydney and Melbourne have seen significant growth. Other parts of Australia haven’t, and there’s an argument around that but the market has changed a little bit in terms of investor appetite for property.

There have been effects, depending on the market, in slowing down price growth in some markets which are a little bit negative. For us in Smart Property Investment and our portfolio, where we sit right now, we want to improve our cash flow position. We’ve run some numbers and done some science around our portfolio, and we’ve worked out that should we look to shift from variable rates to fixed rates, it would be a bit of work – shave about $25,000 a year off our repayments.

What we can do, and what you can do too, is to obviously pay this money out now so we can obviously cover the cost of holding this portfolio, irrespective of any interest rates. If we do have that cash flow discrepancy there, you’re saying that we can actually use that to go and buy more property. That’s cool.

The two options for us to improve our interest rate position – number one is just go to the lenders and say: “Hey, can we have a cheaper rate based on where we’re sitting right now?” Or number two we go to the lenders and say: “We’ll move from interest-only to fixed, and could we therefore have your fixed rate?”

If lenders don’t budge, and I’m annoyed enough, I can walk and that’s a particular pain in the arse, and the lender knows that.

However, they know there’s going to be a pressure point or a trigger point where there’s hassle and time and effort to refinance with another lender. We’ll get to a point where it’s commercially viable and therefore you do it.

There’s a middle world where you operate and where you’ve got to work out whether it’s easier to stay, negotiate and test the appetite of the lender to keep you as a customer or move on.

It’s an inexact science, and there’s a whole bunch of different reasons why you may or may not do this but that’s what you need to do. If you’re a serious investor, you’ve always got to be chasing cash flow efficiency.

For more on our portfolio, check out our recent update on the Smart Property Investment Show.

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  ["id"]=>
  string(5) "18297"
  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
  ["alias"]=>
  string(72) "mortgages-in-a-tighter-lending-economy-and-why-brisbane-is-a-good-option"
  ["introtext"]=>
  string(255) "

Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

" ["fulltext"]=> string(818) "

To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

    \r\n
  • The pitfalls that he has seen people get into<\/li>\r\n
  • Interest only loans and if that is the way to go<\/li>\r\n
  • How the mortgage division supports the overall business of Rethink Investing<\/li>\r\n<\/ul>","clientImage1":"images\/podcasts\/Son-Pham.jpg","clientUrl1":"https:\/\/rethinkinvesting.com.au\/","clientName2":"OpenCorp","clientDesc2":"

    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

      \r\n
    • Why Brisbane is a good investment option right now<\/li>\r\n
    • How he wants to help clients take advantage of the current market<\/li>\r\n
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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

" ["fulltext"]=> string(2483) "

In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected]tpropertyinvestment.com.au for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1196 (52) {
  ["id"]=>
  string(5) "18287"
  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

" ["fulltext"]=> string(2323) "

Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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