How do we pay off the portfolio debt: what’s the endgame?
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How do we pay off the portfolio debt: what’s the endgame?

By Tamikah Bretzke

What happens once you’ve reached the end of your investment journey, and what steps can you take to successfully retire your debt and benefit from your wealth-creation efforts?

In this episode of Investing Insights, the team from Right Property Group partner with Phil Tarrant to reveal everything you need to know about reaching your investment endgame, the options available to you, as well as how best to control your assets to ensure you’re getting the most from your property portfolio.

You’ll also hear insight into changing market conditions, the importance of goal setting, why property investment is not a “set and forget” venture and why the smart property investor will stay in touch with their portfolio to ensure they’re on the right track for long-term success.

Tune in now to hear all of this and more, in this episode of Investing Insights!

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

Did you like this episode? Show your support by rating us on iTunes (Investing Insights) and by liking and following Right Property Group and Smart Property Investment on social media: Facebook, Twitter and LinkedIn. If you have any questions about what you heard today or any topics of interest you have in mind, feel free to email [email protected] or [email protected] for more.

Suburbs mentioned in this episode:

Sydney

Previous episodes of Investing Insights:

Mastering the fine art of manufacturing equity
Do you have a plan? Advisers’ tips on future-proofing your investment portfolio

The cost of money – can you service your debt?
Don’t ask, don’t get: advisors’ tips and tricks to property negotiation 
Why a balanced portfolio is key to investment success 
Units v houses: what you need to consider

 

Full transcript

Phil Tarrant: G’day everyone. Phil Tarrant here. Welcome to Investing Insights with the Right Property Group. I'm joined by my regular co-hosts from Right Property Group directors, Steve Waters and Victor Kumar. How’s it going, guys?

Steve Waters: Good, Phil.

Victor Kumar: Well, mate, how it going?

Phil Tarrant: Alright. How's all the property? You guys on the line? You guys excited about the current marketplace, you nervous, you got concerns, reservations? Or you pretty bullish? Steve?

Steve Waters: I'm excited, to be honest, without sounding like a bit of a cliché. Look, the environment that we're in at the moment is something that we've been saying that is going to happen and should happen for probably the last 18 months, and from a strategist's and buyer's agency point of view what it does is it actually gives a small choice, because it gets rid of the pop up experts, so to speak. They're out of the market, and it gives us investors more choice, so we're pretty excited about it. At the end of the day, there is a lot of scare mongering going on, but let's be real, money's still cheap. We're just being used to cheaper. Dangerously cheap, so to speak. So, it's all good!

Victor Kumar: Yeah, this scenario has been here before as well, it's just dressed up differently this time round with this cycle.

Phil Tarrant: You've been here before?

Victor Kumar: Yeah, absolutely.

Phil Tarrant: How long have you guys been doing this?

Steve Waters: 2000.

Phil Tarrant:  Since 2000. Okay, so...

Steve Waters: Few market places all over Australia, but once again, I just really think that people are pulled ahead in a little bit. This is normality.

Victor Kumar: The sky's not falling in.

Steve Waters: Yeah. It's not bad at all.

Phil Tarrant: So, the doom and gloom merchant. So, my question for you is, is it always a good time to buy property?

Steve Waters: It is always a good time to buy property if you have the fundamentals in place, and part of that is finance, more so than ever now, and that you have your risk mitigation in place. And the numbers work, absolutely.

Phil Tarrant: So you guys are out there. You're seeing what other option is popping up now for good or better buys, and what was in previously, how do you measure that?

Steve Waters: I don't think, there's certainly not more property on the market. What there is, is there are more days on market. So, the craze, and this has been going on at the market, especially in Sydney, in the outer areas, perhaps the Western corridors, and a bit North and South. Certainly the craze, and this is going on at the Brisbane market as well, which is good. And by days on market I mean, instead of something selling in three days, or before it even reaches the general public, we've usually got 15 to 20 days now, which is reasonable, as long as it's priced well. And we can press a little harder in terms of negotiation. Whether it be on the dollar amount, or if it's terms in conditions. Which is, once again, finance, longer cool off periods, longer finance courses, or helps.

Victor Kumar: And just to go further on that, certainly the values aren't coming back. It's not that the properties are starting to devalue. It's just that there are less buyers at the market that can qualify for finance, and therefore the frenzy is going out of the market, and you're still paying for properties that are what they're worth, as opposed to in, say, a year ago, where people were paying money hand of a fist just to get into the market. And that's what's really changed. So, instead of getting 40 people in an open home, the agents are probably getting 14 people in an open house.

Steve Waters: Well, they're having to work, they're not selling themselves, which is good. But there are, having said all of that, there is certain parts of the market that perhaps have come back, and rightly so, because they were overvalued to begin with because of the stupidity of the craziness in the market. Off the plans, so they're looking to settle off the plans in the immediate future. So you got to start thinking about Plan B, especially if it's perhaps in an area that has come back a little bit. And the same with house and land packages in you're an investor. So, we're talking about investors here more so than homeowners, because as we all know, investor finance is tightening every single day, whether that me in terms of serviceability or all the oppositions, so you need to have that mitigation in place, or a Plan B. Which is what you should always have, anyway.

Phil Tarrant: So, to summarise, greater power is being packed into the hand of the buyer.

Steve Waters: Of the buyer, absolutely.

Phil Tarrant: Okay, so, in East Upper markets, investors always say it's very neat, you could to it every single day, but for your investor in a market looking to buy right now, is there anything particular they should be keeping in mind? Just push harder potentially, or look at how else you can structure deals?

Victor Kumar: Well, the first thing is that you need to make sure that you're absolutely qualified for finance. Just because the bank said two months ago that finance would be not an issue doesn't mean that finance won't be an issue two months later. So, that's the very first thing that you need to do. And then, of course, push a little harder in terms of pricing. Maybe start a little bit lower, or put different terms on the contracts. Because you've got less competition, less people competing for the same property, because realistically there are less buyers that are assertive as someone that's finance ready.

Phil Tarrant: Good tips. A big focus of the series of podcasts we'll be doing for the "Investing Insights" with Right Property Group, Victor, is being around the acquisition phase property. So we'll be very focused, and if you haven't looked through some of the episodes that we've done in the past, they're very much about how, where, what to buy. We haven't really touched too much on how you accumulate this property portfolio that hopefully is delivering good cash and capital growth. But we haven't really focused on the endgame, so when do you stop, and why do you stop, and what happens after that. So, I really want to just pick your brain today, and Steve's brain today on this. You work with a lot of clients, and you work quite intimately with them in the acquisition phase. But have you had many clients get to the end of their property investment journey and say, "Okay, that's enough for me, let's plan for that." How does that work?

Victor Kumar: Yeah, it does, and it comes back right to the beginning where we've set out our goal, and we've gone out to acquire the properties to achieve the goals, and along the way we've corrected the cash flow by either stopping from buying or adding a secondary dwelling or buying a particular type of property, whether it is to boost our equity or to boost our cash flow. And then there comes a point in time where you need to seriously sit down and say, "Okay, do we stop now? And where is this all leading to?" Because it can be very addictive, and what you'll find is that you think that "Okay, I have to buy another property now, because it's been a quarter, six months, it's been a year", for some of the more addicted ones, "been a week".

But there comes a point in time where you actually need to physically sit down and work out: where's this all heading to, and actually correct it to the market, address it in terms of your end goals, and change strategies, or implement the head on strategies to actually start either consolidating, which I mean in terms of cash flow, or to actually look at paying all of the loans down, so that you are actually getting to your end income. And a lot of people actually lose sight of that, and they get caught up in the frenzy of buying, and they're forever buying, and you hit retirement age, and you still got massive debt around you, or you've made a few mistakes, because you then start becoming a little bit too bulletproof in your opinion, and start buying the wrong types of properties, or start speculating, because you had several wins in a row. And it's really important to actually step back and really look at things.

Phil Tarrant: So, a big part with the end game is that, and we've spoken about it in the past, it's about goal setting from the absolute get-go. So, building a portfolio with an end game in mind, and I think one of the traps that people fall into is that they just organically end up with a property investment portfolio, and they haven't put too much thought into what they choose, or plan to do with that in the future. So, it comes back to building a portfolio from the start which is always with the view of the end game in mind. I know from experience, obviously, that properties and my goals have changed quite a lot since when I started, because you do more, you get more comfort, you understand the market, so your overall goal post keeps changing-

Victor Kumar: Because the education changes.

Phil Tarrant: Because the education changing. So, how do you balance these?

Steve Waters: Look, the way that we put things together as an investor, myself and Vic, and the types of properties we buy allow us to have that flexibility as our lives change, as our situations change, as the price and money changes, the whole environment changes. But the types of properties we have, which have relatively good cash flow, they're affordable, weak and move with the market. And our end goal, or when we decide to perhaps cash out of a particular area, whether it be a good market or bad market, the property type allows us to do that. So, if we come all the way back to the beginning, and I've said it before, the goal is actually identifying what sort of strategy and what your limits are. And then, of course, it's the property type, which ties in with the goal, is about the cash it derives for you at the end of the day. Because that's what you live on. You don't live on equity, you live on cash flow. So, you need to have a very clear plan, and we talked about that in the earlier podcasts on how to get there.

Victor Kumar: And one other thing I keep reiterating to my clients is that you got to divorce the two, the equity and the cash flow. Equity is wealth, but cash flow is lifestyle. And we want the lifestyle. The wealth can happen in the background. So, the focus should always be to free up the cash flow from the portfolio so it comes directly to you. Now, obviously, that's not going to happen overnight, and you may have glitches along the way, such as the GFC, which if you are prepared for it and stuck to the fundamentals-

Steve Waters: It's a hugely profitable time.

Victor Kumar: Absolutely. So, it just needs to be fluid with where the market is, where your life is, and certainly coming back and reviewing your goals over and over again to keep it relevant. Because you could have started out with stars in your eyes and say, "I want to earn $250,000 dollars out of my portfolio." But five years down the track, it might not be relevant anymore. It could be that you've started a business and therefore cash flow is no longer an issue, or the other side of it is, you could have brought forward your retirement and therefore the $250k is no longer relevant, you want to get to, say, $100k, to fund your early retirement in that sense. And I say the word retirement in inverted commas, of course, because each person's definition of retirement is very different.

Phil Tarrant: And this is a challenge, everyone's circumstances is very different. My view with property investment and, we speak about this a lot on this podcast, is, why do you invest in property? You invest in property for wealth creation. There's a lot of benefits with it, also, it's good fun, it's challenging, all sort of stuff, but why do you invest in property and do it? You do it to make some money, right, but going to your point, equity-

Victor Kumar: And it's a hobby.

Phil Tarrant: Yeah. Equity is wealth, and cash flow is lifestyle. So, you want to be out of balance as you accumulate property, a lifestyle which you enjoy, but with the creation of wealth over time. So, people's end games is always going to be very different. So, we're speaking about, say, at a point in time you choose, "I want to be retired now." Which means I don't want to work, but need money to live. So, my property investment portfolio should be generating me income so I can live. So, when you get to your end game, what are the options about what to do? So, you can either sell down your whole portfolio and get cashed up and travel the world, you can sell off some of it and pay down your debt, so you have down mortgage whatsoever, or you might want to be completely debt free, so you have an asset which you can pass on to your children and your children's children and create generational wealth. So, balancing what to do with this in your end game is quite a personal thing.

Victor Kumar: Very much so. And one person's view on that would be very different to someone else. The reality, and this is something I need to flag well up front, is that when you do sell a property, it is a tax event, so you got to pay tax. So you got to plan that. And also, when you're selling a property, you're also selling all of the future capital gains with it. So you can't take that lightly. Nothing beats holding the property long-term, because over a period of time, any property that you've bought that ticks all the fundamental boxes will become cash positive and will become quite equity rich. So, one of the fundamental ways of getting to your end game is to actually hold a property long-term, and making sure that it's not costing you an arm and a leg to hold it long-term. And you're able to weather the changes in finance, changes in the market, changes in your lifestyle along the way as well.

And one of the things that I do, and Steve does, is we sit down with our clients and we correct the portfolio along the way to cater for this, so that we're always looking forward towards the end as to when the cash flow is neutral, or positive, or the loans are fully paid out. But we use milestones. A good example would be, if we have set up a negative cash flow tolerance of, say, $500,000 dollars a week in the portfolio, when it reaches $450 dollars or $500 dollars, we need to actually stop buying, let it consulate, let time do its magic. Or find a way of boosting the cash flow, whether it is via regular rent reviews, whether it's by restructuring your loans, whether it is by doing a secondary dwelling to neutralise the negative cash flow, so finding the $500 dollars extra per week within the portfolio, and you've then got a stable portfolio, a stable platform form where you can look forward and say, "Okay, what do I do next?"

What most people tend to do is, when they hit that threshold, first of all they haven't identified the threshold, so therefore they wake up and say, "Okay, my lifestyle is being impacted because of my properties." And then they have to sell down. So they haven't thought it out through, in that sense, and that's in my opinion one of the prime reasons why a lot of investors, they start out really well, but they haven't played the full game, and it's important to last the full game.

Steve Waters: If we talk about it now, going back to our earlier comments about how the environment's changed, more specifically what the finance environment is, there are going to be a whole heap of investors out there that are going to be in a world of pain in the next couple of months, all the way up to maybe a couple of years whereas – a really good example is, they come off their interest only terms into P&I service, purely because they haven't done their projections correctly to begin with. You had it done in a 3.99 per cent rate of interest only. They haven't through, projected that that's not normality, and it will roll over into principal and interest, and the cost of money will go up, and they haven't had a threshold to begin with, they didn't establish a threshold to begin with. So, they're going to be in a world of pain, and as investors that have actually taken care of business and have made those future predictions, they might be picking up some property at a discounted rate, all things being fair and equal.

So, we're talking about on one hand to retire the debt by create a portfolio, keep half, sell half, is probably the easiest way, but that happens over a long period of time, and there's nothing wrong with a long period of time. Or there is other ways where you can make perhaps a little bit more involved, should we say, in trying to retire debt. Now, we use this term retire debt because from myself and for Vic, the best asset that you can have is one with no debt. That way you are in full control. Now, there are some strategies out there, and some investors out there and advisors that say, look, that's okay, as long as it's in boundaries of cash flow and, as Vic said, your income will go up over 10, 20, 30 years, and if the debt stays relevantly the same, well, then you're in a positive scenario. There is nothing wrong with that strategy, it's just not our strategy. Our strategy is actually about some point in time retiring the debt, because as I said, you're in full control.

Victor Kumar: And not having to wait the 30, 40 years.

Steve Waters: Yeah, so the other way is -

Phil Tarrant: So you can manufacture the retirement, is that...?

Steve Waters: Manufacture, correct.

Phil Tarrant: So, a couple of terms that you were using here which our listeners might not be familiar with, and I'll get back to retiring debt, but to your point beforehand, Victor, can you explain to our listeners, you said that all properties will become cash positive in a point in time. Can you just explain that to me?

Victor Kumar: Sure, I'll just use my very first property that I bought. So, I bought in Currans Hill, which is a suburb in the county of Camden in New South Wales, and that was my first owner occupied property that I bought at $437,000, 3 bedroom house, brick veneer, it was about 15 years old at that time. And I bought that in 1998. I moved out of the house in 2006, and rented it out. It got $285 dollars a week rent, at that time, its value was $350. So, I'd say I had done well. Instinctively, I'd chosen well, because I was a migrant, and I wanted to be close to infrastructure and all that sort of stuff. So, things that we look for normally in an investment property, so it worked out by default. Now, today, that property is worth $600k. My rent on that, currently it's vacant, and I'm asking 430 dollars a week just to get a tenant in really quickly. The market rent there is $450, Steve's laughing, because I had to drop 20 dollars. So, the market rent is 450. If we assume $450, and we assume the original debt of a $137,000 dollars, that's massively positive cash flow in its own right. But that's because 18-odd years have gone by, and the property has gone through two property cycles at the very least.

And that's the secret. You got to hold the property through at least one property cycle for it to mature before you start seeing the true rewards of your labour.

Steve Waters: And that's only if you buy right.

Victor Kumar: Yeah, that's right.

Steve Waters: Could be two cycles if you've bought it incorrectly, or at the top of the market.

Victor Kumar: Yeah. And that's what I mean by it becoming cash positive over a period of time. And as Steve said, you buy it well to begin with, buy it in the right areas that are investment great areas, and making sure that there's infrastructure going, there's increasing population, it is, depending on the property cycle, within the metropolitan area or a centre of influence. And just then hold it for longterm.

Steve Waters: And we've spoken in some of the previous podcasts what those fundamentals are, so make sure if you haven't, check them out. So, just to pick you up from one of your terminology you've used, retiring debt. This means that you don't have debt on the property. That you've paid it out, your whole title, or at the very least you might have a dollar, as an example, but have a massive offset or line or credit or wage roll, so you got equity within that asset. Because that's important as well.

Phil Tarrant: Okay, so let's go through the ways you can do it, you can temporarily retire debt by having an offset against it, so it means that you don't pay any interest on it?

Steve Waters: Correct, but if you're going to go that path to retire debt, but have the offset, that's probably not the best product to have. You probably want a wageroll or something along that line of credit. And not across every property, we just want to do it to give you enough liquidity.

Phil Tarrant: So, how else can you retire debts, so not have debt on a property?

Steve Waters: Well, we've talked about time in the market, maybe two, three, four, five cycles, whatever it may be, so that you actually create a portfolio big enough to reach your income goal.

Victor Kumar: Which sort of answers the question when is the right time to buy property? Last year.

Steve Waters: Last year, or the year before. 2000. But manufacture, so our last podcast episode was about manufacturing equity, I think, off memory. You can actually do what we call chunk deals, which is essentially manufacturing equity, but on a larger scale, so hopefully when it comes time to retire your debt and you want to use this method, you've got a bit of experience behind you. You say you can renovate, you can subdivide, or you've got the team to do it for you, and perhaps even develop. Now, I'm not talking rows of townhouses or units, because that's a little bit too far. If we go back to some of the recent larger equity purchases that we’ve done – so there was a small block of units that we purchased in the Western corridor of Sydney, probably five or six years back now, and we strata subdivided them. That made one massive equity on the way in, plus the growth was there.

Now, that's all we ever did. We could sell those, take the profit and then throw it against one of the other mortgages we had to be in an unencumbered position or 30 per cent LVR, or do a renovation. Like, a big renovation. And sometimes, it's not a matter of, let's do the renovation today, let's look for the product today, or the property today or do the renovation, because it may not be there. It's about actually timing the market. I mean, earlier on you or I said, Vic, it was actually a fantastic time to make money. It wasn't because property was necessarily cheap. Even though it was. It was because things were more negotiable. We might add money on the way in, so we were doing blocks of units, and townhouses, and half burned-down properties, and termite damage properties, which we love, as a side note. But we were able to manufacture massive equity instantly via smart renovations, because there's always a buyer at the right price on finished product, so to speak.

So, creating these chunks of money, obviously net chunks of money, because there's tax involved, and what, a tax event as Victor called it, we can then throw that against lines of credit, offsets, redraws, whatever it may be, to reduce the LVR, therefore improve the cashflow to a point that we were comfortable with. Whatever that may have been at the time. It's about being patient. It's about having the flexibility within your portfolio and your cashflow and liquidity to be able to take advantages of those events when they arrive.

Phil Tarrant: So, Victor, what's your thoughts on, can you retire debt by paying off your loan, principal and interest, or it just takes way too long for you to get there?

Victor Kumar: Yeah, it takes way too long. Because if you look at, and if you Google this, how principle and interest work, usually, when you take out a loan, the first five years of that principle and interest loan you're paying more off the interest than the principle component anyway. It's only after the 15th year onwards that you're really on a … That's right. You start making a significant dent in the principle amount. So, it takes way too much time. And you could do this a lot faster, although it is a lot more inefficient in that sense, by doing the chunk deals. Inefficient in the sense that yes, you could have paid tax along the way, but don't lose the sight of the fact that you are only paying tax because you're making money. And this is what gets lost on people. That "I can't sell a property," or "I can't do a buyer renovator sell or do a construction because I don't want to pay too much tax." The ways of minimising tax get advice upfront to minimise the tax legally, and, you know, if you make money, so you're paying tax. That's how the world goes around.

Phil Tarrant: So, this all sounds really complicated, we're talking about a lot of different concepts and theories. When you're planning for an endgame, you obviously want to have people planning for retirement, and you want a nice retirement. So, what is the best way to work out? How do I go about doing this? Is it about having a number, a dollar value that you want to comfortably retire, a passive income, should that be your benchmark, and build your strategy around that number?

Victor Kumar: Yeah, I always advocate that you try and pick a goal that is very close to your gross income, your PAYG income in that sense. Because that's a number that you are, it's tangible to you, you relate with that number. So, it's not something that you've plucked out of the sky to say that, you know, "I want a million dollars." It doesn't work, because we don't connect with it. Yet, if we said, "I want to have $150,000 dollars in cashflow." And that's your current income, that's something you're relating to, and you can then quite comfortable say that, "Okay, I can get to this number by doing XYZ." And X, Y, Z depends on how much capital you got right now, your borrowing capacity, your ability to make decisions, and then that revolves around what the market's doing, what's going to happen in your life, such as, are you going to start a family, or are you going to change jobs along the way, are you going to take step back in terms of income? And all this sort of stuff. So, that needs to get realigned.

Then you need to build a baseline of properties. So that it becomes your cornerstone. And what people tend to do wrong is, they jump in and they start wanting to do the chunk deals or the subdivisions or the developments, the small developments, right from the word go. And these can have a tendency of going wrong if the market goes against you. So, if it takes too long or your trades are taking way to long, or you hit a snag with counsel, then, because you've got a baseline portfolio in place, it can actually rescue you in that sense. Or if a GFC comes along, you've got the cashflow behind you, you've got the asset behind you, so that you're not dependent 100 per cent on the outcome of the property that you're doing right now, if you've got the support behind you. And that's really important that you look at it this way.

And as you're building the portfolio in terms of your baseline, along the way you need to do mini consolidations. One of the mini consolidations is you actually stop buying for a little while. The other is to sit down and do a review, to make sure that you're really dealing with real numbers and not pie in the sky stuff, and you're not fudging the numbers so that it makes you feel good. We do this on a daily basis, and once you've done that, it may be that you need to correct the cashflow before you move any further. So you're resetting, and that could be as simple as building a granny flat on a property that was specifically bought with the future in mind. To say that when my cashflow reaches this level, I will then bring forward this construction, and therefore negate some of the negative cashflow in my portfolio. And the trick is to time that absolutely right, and the timing of that, of course, comes from regular reviews of your portfolio and regular reviews of your goal, and still looking forward, say, at least 18 months, to say, "Okay, where am I going to be in 18 months in terms of lending and liquidity in my portfolio?"

Phil Tarrant:  So, Steve, question for you. How do you stay the course? You start investing in property with a plan to create some passive income and wealth? In the future, embarking on a path and to grow and evolve, your education gets better, you become more sophisticated as an investor. So, there's a lot of things that you can control. But there's also a lot of things that you're just a victim of circumstance, how the market changes. How do you stay on path, but also flexible and nimble enough to change of the market? So you're not swapping and changing strategies, and you see people do this all the time. What's your recommendation for our listeners on just staying true to the course?

Steve Waters: I'm a big believer in hanging around people that are actually buoyant, for want of a word, and are doing what you want to do, or perhaps have done what you want to do.

Phil Tarrant: So don't be the negative, don't hang around negative merchants?

Steve Waters: No. Don't hang around the negative people. Now, that doesn't mean that conservative people are negative. I'm conservative, but I'm certainly not negative. But to be in a position where you can ride the market out, or ride different circumstances within your life, you actually need to be a little bit prepared for that and future proof, which I think was another subject we've done on the podcast. By having the surplus cashflow available, by having liquidity within your asset, so that if things do change, you're not going to be a victim of that point in time by having to sell at the worst possible time, and be a desperate seller.

Victor Kumar: Always have contingencies, always have -

Steve Waters: Always be in the strong position, no matter what the market's doing, and cashflow is king, and liquidity is king.

Phil Tarrant: So it's something you can't control, really.

Steve Waters: You can't control that. You control cashflow behind the right properties, and having the right loan structure, the right entities, having a bit of foresight, because not everything for the rest of your investing life will be good. There are going to be hard times, there are going to be changes in the market. Now is a perfect example of changes in the market, be it all finance – so that is perhaps you're scrambling to get some liquidity now, you may have missed to boat. You should have been doing this six months ago, because all the writing was on the wall, but you chose to roll the dice. And you can't afford to roll the dice with liquidity and cashflow. It's just a dangerous scenario. Sooner or later you will get bitten, and it's just not worth that gamble. And I think, coming back – Victor mentioned something else early on about consolidation. Sometimes, the best way to make money is to actually do nothing. There's a point in time -

Phil Tarrant: I've been through a period where we didn't buy for a couple of years, and it was brilliant on my portfolio. It just went up in value. And deposition didn't change, because we -

Steve Waters: Absolutely, and you don't have to buy all the time. And sometimes, when you get bored and you force the numbers, it's when you actually lose money. So, sometimes, consolidation is actually pretty cool.

Phil Tarrant: So what do you do, Victor, when you’ve gone wrong, or you shouldn't really be in a position if you're connected enough to your portfolio?

Victor Kumar: Absolutely, you shouldn't be in the position to begin with. But if it does start unravelling, don't burry your head in the sand. You need to start seeking recommendation or advice of experts. Someone that's been in the market for a few cycles. Not someone that's just come in this cycle, and they'll be able to guide you through that maze. Because a lot of times, the solution is pretty obvious. People panic, and people start selling down because they haven't thought all of the options through. Sometimes it's just as simple as restructuring all the debt, or like I said in the earlier example, just bringing forward a construction to ease out things. Generally, it starts unravelling when you haven't been in touch with the portfolio, you haven't been, you know, it's a set and forget. Property investing is not set and forget.

Steve Waters: It's not passive.

Victor Kumar: Absolutely.

Phil Tarrant: So, just be proactive, take control.

Victor Kumar: Absolutely.

Steve Waters: From the beginning, and, like I've told you about the worst case scenario, dare I say it, a really good example in today's environment would be that if you got to cross secure ties your portfolio to get some liquidity out of it, if that's the worst thing that you've got to do, so be it. Because at least you get to hang on to the portfolio if it's a good portfolio, or well-performing portfolio, and just cashflow and liquidity is a bit of an issue at the moment. Because the trick is longevity. Every strategist will say that it's actually time in the market as well timing the market. So the longer you can control your portfolio, the better off you'll be. And a good example is, look at the JFC. Those sold during the JFC because it wasn't from a lack of equity, it was a lack of cashflow that made them sell. If they had have somehow controlled those properties till today, as long as they're … And we talk about any of the major metro areas, they would've been doubled in value.

Phil Tarrant: Yeah, so I was going to say, how do we summarise this chapter, because we're running out of time, and one would be: Your end game is about controlling property for as long as possible.

Steve Waters: Which gives you choice.

Phil Tarrant: Which gives you choice, and to your point, Victor, if you need to sell property, there is a tax consequence, however you're selling off future capital gains, so you're selling off potential benefits in the future.

Victor Kumar: That's true.

Phil Tarrant: That's a key thing. So, when we're thinking about the end game, I guess we could summarise that everyone's end game is different, everyone's end game is going to be based on what they plan and choose and hope to do at a point when they choose to liquidate or stop buying.

Victor Kumar: And try not to make it exciting once you've got your portfolio in place.

Steve Waters: Keep it boring.

Phil Tarrant: Keep it boring. Anything else to finalise, to finish up with? I think we've probably done a pretty good job with this, actually.

Steve Waters: Gone over time.

Phil Tarrant: Gone over time, but to me, listening to this conversation, there's a lot of moving parts. There's things that you can control, things you can't control, and constraining other things that you can control, but I think, it's beneficial to seek advice from people who are in this game, I think. I'm happy that I don't have to do this myself because there are some people who have been doing this for many, many years before me, you guys included – you're my buyer's agents who give me a lot of advice and insights. So, focus on the endgame, but don't be, I guess, blink it all, or, what do you call it, tunnel vision by just only looking at the end games.

Steve Waters: Stay in touch with your portfolio.

Phil Tarrant: Good. If our listeners need to know more information about you guys, Victor, what do they do, where do they go?

Victor Kumar: They can reach out to us on our Facebook page, Right Property Group, R-I-G-H-T, or send us an email, [email protected]

Phil Tarrant: Brilliant. And don't forget to subscribe to the podcast.

Steve Waters: Yes, it's great, and keep those reviews coming. We do appreciate them. If you have, as Victor said, any topics you'd like us to cover, do get in touch, and we'll consider them for sure.

Phil Tarrant: That's great. Thank you.

Steve Waters: We'll be back next week.

Phil Tarrant: Check out all the other previous podcasts, there's a good series of them right now, and they range from the almost recent one, which was manufacturing equity, which is a great tactic, all the way through to houses vs. units, what is the right type of property.

So, thanks, we'll be back. See ya. Bye bye.

 

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Tamikah Bretzke

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How do we pay off the portfolio debt: what’s the endgame?
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