INVESTING INSIGHTS WITH RIGHT PROPERTY GROUP: Why due diligence is key in a rising market
The property market is flourishing across the country, with a case of FOMO, coupled with undersupply, sending prices nor...
What science is there behind researching a new market and finding the right property for you? The team explores the stages of looking for the right investment property and the steps to consider before buying.
In the final episode of Investing Insights Series One, the team from Right Property Group, Steve Waters and Victor Kumar, discuss the changes to their portfolio in the last twelve months, the impact financial constraints, negative gearing, and taxation has had on them.
For more insight, tune in now to hear all of this and much, much more in this episode of Investing Insights!
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Previous episodes of Investing Insights:
Keeping a finder on the pulse of your portfolio
How do we pay off the portfolio debt: what's the endgame?
Mastering the fine art of manufacturing equity
Do you have a plan? Advisers’ tips on future-proofing your investment portfolio
Don’t ask, don’t get: advisors’ tips and tricks to property negotiation
Speaker 1: Welcome to Investing Insights partnered by Right Property Group. This is your host Phil Tarrant.
Phil Tarrant: Good day everyone. It's Phil Tarrant here, thanks for joining us on our next instalment of Investing Insights with The Right Property Group. I have my regular co-hosts in the podcast studio, Steve Waters and Victor Kumar. How you going guys?
Steve Waters: Yeah, well mate. How are you.
Victor Kumar: Good thanks.
Phil Tarrant: The market.
Steve Waters: The market.
Victor Kumar: The market.
Phil Tarrant: How do you feel about the market, Steve? We talk pretty much every other day, it feels like? I speak to you more, at the moment, than my wife, and that concerns me and alarms me.
Steve Waters: Why don't you just put that out a little further, huh?
Phil Tarrant: I know. But it's what a good buyer's agent does, keeps connected and communicated.
Steve Waters: Sure it is.
Phil Tarrant: We're buying at the moment, through you guys, and we often speak about the market and markets are changing. We're in an interesting part of the cycle right now where some markets are good, some markets are bad, some markets are indifferent. Perth, coming back, I'm led to believe.
Steve Waters: According to the media.
Phil Tarrant: According to the media. Fake news.
Steve Waters: Possibly.
Phil Tarrant: Perhaps. Sydney's done and dusted, Brisbane's the place to be, allegedly and ...
Steve Waters: Parts of, yeah, parts of.
Phil Tarrant: I'm still reading stories about the crisis of Australian debt where every Australian owes $2 for every $1 they make every single year, so. It's doom and gloom, the sky's falling in.
Steve Waters: Scary numbers, right? Not much has changed in the market other than the obvious regions of over supply, which we've all been banging on about for the last eighteen months, and they've now come to fruition. I think the big key to the market at, the moment is all around finance. If we take the obvious fundamentals away and what have you. Finance is the driving factor here. The lack of serviceability, perhaps, for some investors, being able to perpetuate onto the next property, or whether it be to release equity, whatever it is. What we also find, is with the increasing interest rates and the rising prices, we have that double effect of lowering yields or cashflow. Which is, essentially, what enables us to hold onto the property.
Having said all of that, there are some good markets still in metropolitan areas around Australia that are showing yields of 6% to 7% gross of course. When the cost of your money is, what? Now average about 5% if we're going to be a little negative, or conservative. 5% is still cheap money. The biggest thing that we see in the media at the moment, and perhaps with the unsophisticated investor, is that the panic is around rising interest rates. Let's be fair here, it was only two years ago, or there abouts, that we'd group hug, high-five if we got 5% or 4.99. Now that we're back at that, because we were used to 4.1, and what have you. Yeah, there's a little bit of panic there. For us it's still cheap money, on a longterm average 5% is still cheap, yeah.
Phil Tarrant: So the question for you, Victor, is it a good time to be investing in property
Victor Kumar: Yes and no. If you are right on the redline in terms of servicing the loan, so you're pushing yourself to get into a property, and you're relying on the interest rates to be stable. The rates to be consistent for you to be able to hold onto the property, and the lender you've chosen is the only lender you could ever qualify with, I think you should take some timeout. In these sorts of markets that's when the bargains start coming out. That's when there's a lot more flexibility in terms of what you can negotiate. For someone that's better prepared, and well prepared, and well connected, this is the market to invest in.
Steve Waters: Well that's the key, isn't it? Being well prepared. Even if you're in that consolidation phase, you still what to be prepared for the, "what if's", and just in case you need to pounce. What was interesting, I saw on the news the other day that there is zero now, or zero 400,000 and below.
Victor Kumar: In Sydney.
Steve Waters: Properties in the Sydney basin. Which I find amazing, because it's been rapid growth. I think they'll be a period of very little growth, so we can get those averages, so to speak. I still think it's amazing that it wasn't too long ago. Well, if we even take your property, Phil, say one of the Mount Druitt units. What was that? 200,000 or 180 or something like that, and look at it now. It's actually one of those very few properties under 400,000.
Phil Tarrant: Yeah, but it goes back to the time in the market, rather than time in the market. It's not what I want to chat to you guys today about. I'd book ended my comments to you guys around the market, because property investment is a game of time, rather than a game of chance.
Victor Kumar: Pretty deep Phil.
Phil Tarrant: It is. I can get deep, I can get in touch with my deeper side. I've just come off the back of a surf trip, so I'm really ...
Victor Kumar: Back in touch with nature?
Phil Tarrant: Got my yin and yang sorted out at the moment. I'm thinking with a lot more clarity. We're going through a period of growth in our portfolio after a bit of a.... You can listen to it on The Smart Property Investment Show where I chat to Steve about it. I've been thinking a lot about managing my portfolio lately, and we touched on it in some previous podcasts about ... And to your point, and this is something that I've always thought you've explained well, is that a lot of people get carried away thinking that property's a passive investment. You guys are the first to say, "Hang on a second, property's not a passive investment." If you really want to grow, if you want to create wealth through property, you need to be hands on. Managing your portfolio is critical for anyone who wants to build a portfolio of multiple properties. A lot of people, I think, when they think about managing their portfolio they think about property managers, and making sure the hot water systems working, or I've got to replace some locks, or whatever. Managing a portfolio is something very different, isn't it Steve?
Steve Waters: Far more than that. I think, just coming back to the comment where property's not passive, I think the only passive part of property is probably it's growth. That's, of course, if you don't do the renovations and force equity. That, I suppose, could be passive, but certainly the cashflow management is not. That's where it's a hands on approach, and you've got to be involved. That's everywhere from, as you mentioned Phil, managing your property manager, because they have a role to play. Through to insurance, through to your brokers, or your financiers. There's a lot involved. Victor likes to sit down on a Sunday night, because he's got nothing else better to do, and plan out his next week.
Phil Tarrant: He's a property weirdo. Isn't that right?
Steve Waters: He adjusts his cashflow there, whereas I'm probably not that pedantic. I like to do it every month, but I suppose that's because we're in the market everyday doing everybody else's reviews and management.
Phil Tarrant: On that basis then, I'm one of the biggest advocates of surrounding yourself with people who can do stuff better than yourself. I use you guys to buy my properties, and I've got a little broker and I've got an accountant. I look to outsource part of the management of my portfolio, because the people I work with are good at what they do, and I don't have a lot of time. You would always fundamentally say back to me, "You're responsible for managing your portfolio. You shouldn't expect other people to manage it." Let's touch on that quickly. Do you think a lot of people get that wrong? They think that's someone else's job if I pay them?
Steve Waters: Probably the biggest example of that would be a property manager. You pay your 7% or 8% and you expect stuff to be done, and be done on time, and that you don't have to remind them. You need to understand that property management is, if not the hardest, it would be the second hardest job in terms of property. They are constantly busy, and they rely upon a lot of systems and procedures, and also ...
Victor Kumar: Ever changing goalposts.
Steve Waters: Yeah, and rules and regulations. Some things do get missed, and they require a lot of direction from the landlord. Unfortunately some novice landlords just think, "Well, I'm paying them, you make that decision." A really good example of that would be, they find a new tenant for you, and they've checked them so to speak, and done the P&L, or the assets and liabilities. 99% of the time the property manager will come back to you as a landlord and say, "The decision is yours." That's where you need to be involved, you need to be involved in the increase or the decrease of your rent.
Phil Tarrant: Should you be prompting the property management to do that? Or they should come to you do it?
Steve Waters: In a theoretical world, no you should wait for them to come to you, because that's what they do. They're in the market every day, but I think that's a bit of a cop out. If you want to be invested in your own business, then you should be monitoring it on a monthly basis at the very least to see what the market's doing. Not just in terms of value, but in terms of cashflow being the rent. If you haven't got enough time to talk to your property managers, well then more fool you.
Phil Tarrant: Victor, how do you know if you're not managing your portfolio very well?
Victor Kumar: The first thing is, if you start losing sight of the numbers. In other words, what your property's rented for, whether the tenant is up-to-date, where your interest rate's at, all the sort of stuff. Then you start to lose control of the portfolio, because then you're flying blind.
That's one of the things that I find quite common is that when you talk to most investors, and you ask them what their interest rates are, or what rent they're getting, they're probably quoting something that's three, four, maybe six months old in terms of the information. If you've got that wrong then it starts unravelling, and it starts unravelling rather rapidly. Especially in this market that's changing where you'd want to keep a tenant on, that's a good paying tenant, because your rents are starting to ease out a bit, because of where the market is right now. It's purely a cyclical thing.
If you lost a tenant today there's likelihood that you'd be ... Depending on the area, depending on the condition of the property, and so forth, and depending on how good the property manager is, and how proactive they are. That you'd be vacant for two, three weeks. It could be all prevented if you had a finger on the pulse. If the tenant had asked for something mundane, you actually granted that, but not getting into a habit of granting everything that the tenant asked for.
Steve Waters: I think the problem is that people get lost within their own portfolios. Those that do take notice I suppose, or are involved, you get lost, because you're always looking at your own figures. It really does pay dividends to get someone outside of that to dig in there for you. A really good example is, I look at Victor's portfolio, he'll look at mine, and then we start to tweak and give advice on each other's portfolio, even though that's what we do every day. More amazing is how many people actually don't review their scenario, or their position on a constant basis. I'm not even talking annually, I'm talking a couple of times a year.
Phil Tarrant: I'd put my hands up and say, what you were just talking about, Victor, I sometimes feel like I fall into that boat, right?
Victor Kumar: It's hard to catch up once you've let it go.
Phil Tarrant: It's hard to catch up, and I generally need a bit of a prompt to get back in there and sort it out. You've just done that for me, so I've got to ... You know. Now my portfolio's fine, right? It's cool, and there's mechanisms for it to keep doing what it's doing, alright. If you put a gun against my head and said, "What's your rent on all your different properties?" I probably couldn't tell you. I'd probably there abouts know. I'm always first say, "You've got to know your numbers." I should know how much all my properties are, whether or not they've got tenants in there.
Steve Waters: That's always a good start.
Phil Tarrant: It is. To be fair, two weeks later, and I've not known that one of them was vacant, and I've gone, "What's going on?" Who's fault is that? It's obviously my fault.
Steve Waters: Ultimately it's your fault.
Phil Tarrant: Yeah, it's my fault.
Steve Waters: Doesn't matter whether the property manager has told you or not, you should have noticed there's no income coming in. This is one of the things that we encourage all our clients to do. We supply Portfolio Tracker, which essentially is a Google doc. It's with you all the time, it's on your smartphone, it's on your computer. Whenever anyone asks you these questions, whether it be your financier, your accountant, it is there with you. You don't have to go home and then email, it is there with you. That way you can stay on top of things.
The other thing which we find is really, really important, and at most people miss, is dates. The dates when things expire. Such as, in today's ...
Phil Tarrant: Insurance.
Steve Waters: Insurance is huge. There's a client that we have around Christmas every year, about three of four of their policies start to lapse and we need to chase them.
Phil Tarrant: Would this person ... work within the media?
Steve Waters: Mr. Tarrant. That's right. What were you called the other day on Fox? Mr. Tar-aren't.
Phil Tarrant: Mr. Tar-aren't.
Steve Waters: Tar-aren't.
Phil Tarrant: It's the Italian version of Tarrant.
Steve Waters: One of the dates that we often see people missing, and especially in today's market, is when they're interest only terms expire. I've sat with a few clients recently where their expiry date is within six months. They need to giddy-up now and start organising, going forward.
Phil Tarrant: If you're proactive and go back to bank now, and say, "Hey look, I want to extend my interest only term for another three or four years." They'll go ...
Victor Kumar: You've got a greater chance.
Phil Tarrant: You've got a greater chance. If that expires, and it reverts straight to a P&I, at a higher rate.
Steve Waters: Correct. This is where people don't take responsibility for their own investment. These sorts of things ...
Phil Tarrant: That's your brokers job, isn't it?
Steve Waters: No. Well yeah, potentially, but it's your job, it's your asset, it's your life, it's your money, it's your call. I think if people took a bigger responsibility, they'd be in a far better financial position. A year out is when you should start looking at these things. When does your lease expire? As an example, and giving two months notice, whether the tenant should go, or increase the rent, or resign them, whatever it may be. When does your insurance, as we talked about a little earlier on, and what's the current rates?
Phil Tarrant: I'm quite cyclical in my attention to detail in our portfolio. We haven't got a massive portfolio, but it's not a small portfolio either. There's quite a lot of moving parts. Properties all over Australia, et cetera, et cetera. I know that when I start to feel a little bit less connected with my portfolio, which I do right now, Victor, by the way, and you've just prompted me there, sort some stuff out, right? I know it's quite quick to be able to get reconnected with my portfolio. If I spent half a day I could sort it out, right? I could tweak all those things. I'm back into it, I know what's going on, I know there's any pressure points, I know whatever. The way I manage my portfolio, I've got someone I work quite closely with here who has got a system for telling me when there's problems. Victor, you manage your portfolio a very similar way. You're not the guy whose making sure bills are paid.
Victor Kumar: No I don't.
Phil Tarrant: Someone does that for you. You've got a relationship with someone who knows what information you need in order for you to be connected with your portfolio, and that works for you.
Victor Kumar: That does. One of the things that you'll find is, a good property portfolio, it's really easy to lose connection with it, because it doesn't feel like a cashflow drain. When it is not a cashflow drain you tend not focus on it. Only when it starts hurting that most people refocus on their portfolio, and by that time it's too late.
Steve Waters: We often say, "If you're not feeling it, it's dangerous." If you're not feeling it, as you just said Vic, it's out of sight out of mind. If you were having to skimp around and scrounge around for every dollar, then you'd be well on top of your portfolio. Unfortunately, you're often a victim of your own good portfolio.
Phil Tarrant: Well this is it you know, and again, I purchased a property probably a month or so ago. It was probably two months ago. I was helping out with it up in Kalinga, and it needed a bit of work done to it. I think the mortgage on it was 1,300 bucks a month or something or other. I went, "I've got to get this sorted out." I was doing so many other things that it sit there and probably didn't work as fast as it should have done for me to get to a point where it could get rented out, which has just happened now. I probably carried that property for two months now without any income on it. I actually went, "$2,000. That hurts a bit." But, it didn't hurt so much that I jumped to it really, really quickly. That's a ...
Steve Waters: But you would of.
Phil Tarrant: Yeah. That's not good.
Steve Waters: No, it's not.
Phil Tarrant: That's not good on my behalf, and that should have been a really big signal to me to sort this stuff out. I think I eventually went, "Shit. I've got to sort this out." It is actually starting to hurt a bit, right? It's a really good motivator to keep it on. How do you strike that balance though to ... I know in business, I work the best when I'm under the pump, right?
Steve Waters: Well this is it, right? We're all in business, and we've all got property portfolios. Often when you've got deadlines and you need to achieve stuff, that's when your best work happens. When things are peculating, they're ticking over, well it is out of sight.
Phil Tarrant: You become complacent. Lazy.
Steve Waters: You become complacent.
Victor Kumar: Cruise mode.
Steve Waters: That's what our scope is. That's what our job is with our clients. We regularly do reviews on them, we like to do them every quarter in a perfect world, where we sit down and we go through the numbers. We tweak the portfolio on what we should do now, three months, six months, 12 months. We're adjusting the cashflow, we're adjusting their timing. It also gives us a very clear direction on what, when and where it should be next. Whether that be consolidating, whether that be buying again in 12 months, or what actions we need to do now to perhaps release equity in six months. What we got to do now to get that result in six months. How do we adjust service ability by perhaps using some of the equity to pay out a car loan. Speak to your broker though, and your financial advisor, so that your serviceability is a little more enhanced, or put rents up. Whatever it may be.
If you're not connected to your portfolio, as you put it, that closely. It's not just the now that's hurting you, it's actually what's going to happen in six months. It's what's going to happen in 12 months.
Phil Tarrant: Things can snowball, and snowball quickly.
Steve Waters: Very quickly, very quickly. If you go back, go back to the worst time that any of us have experienced, with the GFC. I don't know of anybody that really lost their portfolios or any property from a lack of equity.
Victor Kumar: Negative equity.
Steve Waters: It was from a lack of cashflow, and that's why it's so important. We often talk about controlling your cashflow, is about the next important thing behind oxygen. You just need it.
Phil Tarrant: This might be a bit of a generalisation, but imagine, you guys work with investors right across Australia. Over the years I've worked with you guys, we've anecdotally spoke about the type of people. Engineers are a particular sort of beast, and then you might be doing work with doctors who see the world a little bit differently. People are all wide, slightly different, right? If I was going to generalise, you would probably have people who are mad property investors, who are every single day living and breathing property, then you've got people who ... I would probably fall more into the vail of just someone who wants to create wealth through property, and just expects it to happen.
Steve Waters: In the background.
Phil Tarrant: In the background for them, right? You've got two very different types of people. In your experience working with your clients, Victor, maybe one for you. Do most people, because they use a buyer's agent, are typically got their shit in order? How do you have those tough conversations with people going, "Hey, man, this is wrong."
Victor Kumar: It comes back to what the systems and procedures the buyer's agent or the property strategist brings to the table, right? If it's just you want a property, and here's a property, and off you go, then that's different, right? What I find is that most people that are investing they tend to defer to the accountant. The only time they're really looking at their portfolio is during tax time. The accountant then says, depending on when they've bought it, that you've got this much depreciation. Your property's actually costing you X or Y, and it's always sugarcoated in terms of tax and depreciation, and what add backs they've been able to get.
If you manage the portfolio based on how we help our clients manage in the same way we manage our portfolio, it is spending a little bit of time on a regular basis. It doesn't have to be all life consuming, and that's all you do. A little bit of scheduled time, whether it's weekly, fortnightly, monthly. I wouldn't go beyond a month to see, first of all, whether all your properties are rented. If you're getting the rent that's quoted on the statement as the net rent that's coming to your account, that has actually dropped into your account. Whether there's some simple stuff as, you've been invoiced for something twice. You actually need to look at the statements, you need to look at all the paperwork that comes across to you.
Steve Waters: Reconciliation.
Victor Kumar: Yeah that's right.
Steve Waters: At the end of the day, and I think that's where people ...
Victor Kumar: That's were they fall down.
Phil Tarrant: That's the boring stuff though, isn't it?
Steve Waters: It's an hour a month, that's all it takes. I sat with someone yesterday that's got 21 properties. They spend literally an hour a month entering the data into their Portfolio Trackers that we supply, and that's all it takes. If you miss one month, then it's probably a weeks worth.
Phil Tarrant: Let's have a chat about this person, 21 properties, I don't know who they are. That's how they manage a portfolio, and that's sufficient enough for them to realise their investment goals for investing property?
Steve Waters: That hour a month is enough for data entry.
Phil Tarrant: That's just data entry? Okay. How much other time would this person spend on managing their portfolio? In inverted commas. It's a tough one.
Steve Waters: It's funny because things go in cycles. You might have a heavy couple of months on maintenance, but you may not have had anything for three years. You might have a lot of vacancies in one hit, so there's no real standard time, but I would assume in knowing them, I would suggest they'd spend probably 10 hours a month between emails, phone calls. When you've got 21 properties, 10 hours a month is not much in the scheme of things.
Phil Tarrant: It's a pretty good hourly rate, right? If you think about, you've got 21 properties, what value is that going up every single month, divided by your time. It's probably the highest hourly rate you're ever going to get.
Steve Waters: Better than McDonald's.
Phil Tarrant: Better than McDonald's.
Steve Waters: They're what I would call a sophisticated investor. They are fully dialled in to their position, they live it, they breathe it. As well as holding down two full-time jobs, and they enjoy it.
Phil Tarrant: I guess they've covered it, right?
Steve Waters: That's the key, yeah. Then there are a lot of people that have one property or two properties that are just as dialled in, but they obviously don't need as much time. Then there's property investors that just absolutely forget about everything, and at the end of the day it'll be what it'll be, and that's dangerous.
Phil Tarrant: Let's flip this on the head. We're talking about how much time you should spend investing in property. Sorry, investing your time in managing your property. Do you think some people over invest their time in managing? If you've got one or two properties, can you spend too much? Can you overthink your portfolio too much?
Steve Waters: I think you can overthink very easily. That overthinking is usually done before you buy the property. Analysis paralysis as we all know about. You spend so much time researching an area, and then running the numbers, which is all good. The tick, tick, tick, the ABC of what you should do right. Then once you've settled the property, and you've got a few rent checks, or a few paydays and paid the mortgage. It just dwithers away into the back of your mind, and into the back of your life, until you want to reinvest again. Then you start to get this ...
Victor Kumar: Or if there's an issue that comes up.
Steve Waters: Or if an issue comes up, and this is the problem. I truly believe that too many people are reactive to the situation rather than being proactive. I go back to your accountant comment earlier on. Most accountants are a reactive scenario. You're there to do your tax at the end of the financial year and what can we do, rather than what can we do for next year. Very much the same with property.
Phil Tarrant: What should your accountant be doing ... A good accountant be doing to help you manage your portfolio more effectively?
Victor Kumar: I think it's the other way round. What should you be doing to help yourself with the accountant services. Really, what you should be doing is if you're serious about property investing is, at least have one or two meetings during the financial year with the accountant to see how you're tracking. What you can do to further enhance your portfolio, and also look at fine tuning things, so that you're doing some tax planning along the way. You are programming your acquisition or consolidation, depending on what your tax situation is, what your family situation is. In fact, what your goals are. The accountant can help you with that, along with your broker, along with your strategist.
One of the things we do for clients that hold multiple property portfolios is we have a round table meeting with their accountant, and their broker along with us. So, that we're all on the same page, because like you said earlier, they're all different moving parts. You want to be making sure they're all moving in the same direction, and not pulling against each other. So, that the accountants totally focused on tax minimization, whereas the broker can't get you a loan because you've got aggressive tax minimization happening. All of those things need to work hand-in-hand.
Phil Tarrant: They all need to work together. I've seen it many times where a lot of property investors own their own business, they might be a sole trader, or in a partnership, or PTY, whatever it is, right? Their accountant will look to minimise their tax as much as possible, so they don't show any income. When you take that to a mortgage broker to say, "I'd like to get some money." They'd go, "You're making a loss."
Steve Waters: Pay some tax back.
Phil Tarrant: It's not really like that. It's so important in terms of managing your portfolio that the different pillars talk to each other to actually understand what the strategy is. It's okay to make a profit if it allows you to ...
Steve Waters: It's okay to pay tax.
Phil Tarrant: It's good to pay tax.
Steve Waters: That's what pays for the infrastructure at the end of the day. You can't have it both ways. If you're just starting the journey so to speak, you need to get together with a broker, and with an accountant, and with a strategist if that be the case, and hash out that plan, and hash out the goals over, or what's going be for you for the next six and 12 months. Those that have already got a portfolio, and especially in today's market being driven by finances we talked about earlier on, now is the time to get on top of your scenario, if you're already not. There maybe some pretty good opportunities that come up over the next six to 12 months. If the worst case scenario it isn't and you've prepared yourself with some liquidity, well then happy days. If that's your biggest problem that you've got too much liquidity and you haven't spent it, well ...
Phil Tarrant: The time taken to effectively manage your portfolio is going to depend on where you are within a cycle. Whether you're accumulating property, or you're paying down debt, or whatever. You're probably going to say, Victor, to this question, it depends. Is there a magic equation? If you're paying an accountant to manage the tax component of your property. If you're using a buyer's agent to help you, or a strategist to help you understand your portfolio and in a direction. Is there a magic equation that says, "This is how much money you should spend on managing your portfolio, based on the size of it, or where it is within a cycle." Is this the impossible thing to sort out?
Victor Kumar: It would be an impossible thing to sort out. It'll depend on the type of property, the temperament of the investor to begin with. Whether you're a serial renovator, where you want to renovate something even though it doesn't need renovation.
Phil Tarrant: Does that happen?
Victor Kumar: Yeah it does happen, quite a bit, yeah, all the time.
Phil Tarrant: People watch the block and go, "Oh, yeah, I'm gonna renovate."
Steve Waters: Absolutely.
Victor Kumar: I think the easiest way to manage it, what I do is, I get all of my rentals, regardless of entities, and the accountants hate this. All of the rentals, regardless of entity, dropping into the one bank account, and all of my direct debits starting from that bank account as well, right? I know very quickly there isn't enough money in there, which means that, "Hang on, there's something wrong. One of the tenants hasn't paid, or I've got several repays." If I've not got the finger on the pulse that's a really fail safe way of getting some warning signals. It does not still take away from the fact that you do need to look at the finer details. It's an easy way to manage it, in that sense.
Phil Tarrant: As a bit of time, and you've been investing in property for quite some time, but if you've looked retrospectively on the building on your portfolio. Has there been a time where you've perhaps let it go too far, through not managing it effectively, and paid a penalty for a consequence? Whether it's a missed opportunity cost or a financing issue?
Victor Kumar: In the early years, yeah absolutely. We all get gung-ho and think that property investing is all about buying properties. It's about buying well and managing the properties itself. Yes, you do get swayed that way, especially when the portfolio started getting a little bit bigger. When the brokers that I was using would ask for paperwork, and it'll take you two, three weeks to get all the paperwork together.
Phil Tarrant: I've been there.
Steve Waters: I remember those days.
Victor Kumar: As we've come a full circle. If you're applying for a loan right now, most banks would want for all of your facilities if you've got a sizable portfolio. They'll want for all of your facilities, at least for the six months worth of statements. If you haven't got all of your paperwork in order, that's going to take you quite a few weeks to get there.
Phil Tarrant: Actually, I'm doing that right now, and it's a nightmare.
Victor Kumar: How does it feel?
Phil Tarrant: It's a headache.
Steve Waters: That's why I'm a fan of this paperless scenarios or environments. I mentioned earlier on about Portfolio Trackers on Google Drive. All of my statements are in there, everything is in there in case of the scenario that you're in right now Phil. Where the broker's saying, "Give me this, this and this." Unless you're at home or within the office, you're not going to be able to do it. Whereas on the road or flying around, well you can.
Phil Tarrant: It's about always being prepared, not what makes a good investor.
Steve Waters: Absolutely.
Phil Tarrant: Is there certain pressure points, as you grow as a property investor, and the number of properties you acquire. We won't go into that, but just the absolute size, once you get the five properties, does it start getting into a different realm of headache? What are those critical points you reckon?
Steve Waters: Property one, that's the hardest, because it's all new.
Victor Kumar: It's the new baby.
Steve Waters: You're getting used to it, and you're listening to everybody else on how they do it, and you've just got to find your own groove. Property two gets easy. I reckon the next magical milestone in terms of everything, so I'm talking finance, management, head space, pressure, is around about that five mark. I'm just taking an average purchase price here, we're not talking about five $1 million properties, just your average purchase price. I think five's that magic milestone.
Phil Tarrant: Is that where we could all come unravelled, if you don't get that right? If you get past the five.
Victor Kumar: I think it can come on one.
Steve Waters: You need to start as you mean to continue. Does that make sense?
Phil Tarrant: Absolutely. It makes sense.
Steve Waters: If you don't you'll create bad habits.
Phil Tarrant: How do you keep the energy that you had on property number one all the way through to property number 20, 30, 50?
Victor Kumar: Pretty easy I suppose. You're just focusing on a goal, so if you've got your goal sorted out the energy's there. If you're just investing for the sake of investing, yes it becomes the thing that you're doing in the background. Therefore, you lose sight of the detail, you lose sight of the reason as to why you're investing.
Steve Waters: I agree with Vic, the goals a very, very big part of it, but the goals are always changing. For me, especially as your family grows. For me, it's about the instant gratification. I think we've talked about this before, properties often one of these asset vehicles that you can't get instant gratification. I look back retrospectively. I look at what my portfolio has done for me over the last year. Then I break it down to a month, down to a year, down to a day, down to an hour, down to a minute, down to a second. I know that's a little bit creepy, and it's a little bit over the top.
Phil Tarrant: How much money do you make every second, Steve? Come on.
Steve Waters: This month?
Phil Tarrant: Remember there used to be that calculator that went around and said, Rupert Murdoch made this much money in this much time.
Steve Waters: Some of its subjective, obviously, because you're only giving your own valuations on your own portfolio. I think for me to keep the energy, we're very, I suppose, privileged that we surround ourselves with people that are do-ers. When you surround yourself with those people, and vice-versa, you ride off each other's energies and results. It's a very, very good environment to be in.
Phil Tarrant: One of the things, I know we do it occasionally, where we'll look at our portfolios and I'll go, "X property here, Steve. What do you think the valuation is?" I really enjoy it, the valuation game. What's it worth? Generally we're really good, because when we get a bank val against the deemed val, and that's obviously through some science and comparable properties, and the fact that you're in the market all the time. I really enjoy doing that.
Steve Waters: It's good fun, right?
Phil Tarrant: You go, "Oh, really do you reckon it's gone up that much?"
Steve Waters: It's good fun. It's good fun.
Phil Tarrant: It's a nice fun bit about managing your properties, making money, right?
Steve Waters: Well it is, but you can't do it every day, because you won't feel that, "Oh yeah, it's gone up 1,000 bucks this week."
Victor Kumar: You start fudging the numbers too.
Steve Waters: You do, and I think you've got to be real, otherwise you'll be in for a big letdown.
Phil Tarrant: Well you always err on the side of conservative.
Steve Waters: Yeah, well I am conservative.
Phil Tarrant: I reckon that's even harder.
Steve Waters: I'm the negative one, you know.
Phil Tarrant: That's good. That's alright. Managing your property, I think we've done that pretty reasonable justice.
Victor, summarise it for me in three points?
Victor Kumar: In three points.
Steve Waters: Don't steal my points though.
Phil Tarrant: What are the three pillars to being good at managing your property?
Victor Kumar: Don't lose sight of the numbers. Don't lose sight of the reason why you started investing. Keep reevaluating your goals, and making sure that you are looking at the paperwork on a regular basis.
Phil Tarrant: Alright, very succinct. Steve, can you do better than that?
Victor Kumar: Don't steal my points now.
Steve Waters: The pressure. Be involved, be real, and be prepared. There you go.
Victor Kumar: That's a girl scout thing, isn't it?
Steve Waters: With a dib, dib, dib, dob, dob, dob.
Phil Tarrant: You've got 20 cents in your pocket there ready to make a phone call.
Steve Waters: I don't know, you've got all my money.
Phil Tarrant: I want to go back to the way I summarise is, you've got to be connected with your portfolio, right?
Steve Waters: Always.
Phil Tarrant: I ebb and flow. I think everyone does, we're humans. Life catches up with you sometimes, but you need to find a mechanism to somehow shake yourself to make sure you get back in and get involved. Victor, you've prompted me to go and hassle some people this afternoon. Going, "What's going on with this? What's going on with that? Let's have a look at rentals." And stuff like that. I actually get a lot of satisfaction about being organised, I'm a bit weird like that, right? If I feel things drifting away from me, if I can grab it, and pull it back, and feel organised, I get a lot of satisfaction out of that. Makes me feel good. Works for me, good.
Steve Waters: Works for me.
Phil Tarrant: We're nearing the end of the first series of The Investing Insights with Right Property Group. I think we've got two more.
Victor Kumar: Two more to go.
Phil Tarrant: Two more things. We're thinking about something really creative for one of the final ones. We'll make sure that we let everyone know what we're going to do in that regards. I think we're talking about doing a bit of a Q and A session, because we've been at this ... Now this, I think, is the 10th episode of this particular series. I know the questions have been flooding in, because I don't want people to feel frustrated that they've been emailing us, and we haven't got back to them. We have collected them, and the team have really synthesised all the different questions, so we're going to look to do a Q and A session.
If you don't yet, or you haven't yet emailed the guys [email protected] about absolutely anything, please do so because we want to get ... Some of the questions are quite similar, some common themes that keep appearing. Please do write in and let us know what you'd like to have a chat about. We'll have some good fun, we'll do a bit of an extended episode.
Does that work for you Victor?
Victor Kumar: Looking forward to it, sounds good.
Phil Tarrant: Anyone had anything before we sign off?
Steve Waters: Get your staff together, you've got a property to buy.
Phil Tarrant: Keep buying. That's good. Thanks for joining us every one we do appreciate it. Remember to check out rightpropertygroup.com.au if you want to know anymore information about the guys. I've been to some of these as well. You still doing your Tuesday night?
Victor Kumar: Yep. Once a month at Parramatta Rydges.
Steve Waters: Yeah, once a month in Parramatta Rydges. You can see that on our Facebook page or the website, and then once a month in Melbourne as well.
Phil Tarrant: Do you have to register for those, or you just rock up?
Steve Waters: Yeah, but go to the Facebook page or the website, and it'll show you how to do that.
Phil Tarrant: It's all there, okay. No, they're good, I've been on there, they're good.
Steve Waters: Outside I'd have to listen to you guys drone on. What a ... boring stuff.
Phil Tarrant: What I like about it is, a lot of really good investors there who are pretty much the people who we describe today, they're from all walks of life. From people who are passionate investors, some people were knew, or some people were whatever type people.
Steve Waters: It is a safe space. We don't alow developers, or marketing companies, or anyone flogging their stuff in there. It's an open forum. We're pretty relaxed and we get up and we have different subjects. We'll talk about it and just throw questions at us all night, or to the panel that we may have up there.
Phil Tarrant: Yeah, it's good fun.
Steve Waters: Yeah, it's good.
Phil Tarrant: Meet some like minded people. Thanks for coming in guys, appreciate it.
Steve Waters: Thanks mate.
Victor Kumar: Thank you.
Phil Tarrant: We're all back again next month, see ya. Bye.
Speaker 1: The information featured in this podcast is general in nature, and does not take into consideration your financial situation, or individual needs, and should not be relied upon. Before making any investment, insurance, tax, property or financial planning decision, you should consult a licenced professional, who can advise whether your decision is appropriate for you.
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