Q&A session with Paul Glossop – more questions answered! - September 2017

By Demii Kalavritinos 18 September 2017 | 1 minute read

Have you been waiting to hear your question on the podcast? In this episode of The Smart Property Investment Show, we bring in buyer’s agent Paul Glossop to give you answers!

Paul Glossop, Pure Property Investment

Tune in as he and host Phil Tarrant discuss everything from the right program to keep track of your property without going into depreciation, how to decide where to buy and which investment property is right for you, how to identify opportunities, and how you can educate yourself about the interstate market.

You’ll hear all of this and much, much more in this episode of The Smart Property Investment Show! 


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

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] for more insights!

Suburbs mentioned in this episode:

St Claire
North Brisbane
Western Sydney
Mount Pritchard
Logan Shire
Fortitude Valley


Related articles on interest:

McGrath says Sydney won’t be subject to 40% correction
Perth’s rental yields falling, capital growth outlook still strong
Things to consider before investing in a regional town 
Median prices or values – which is more important?

About the author

Announcer: Welcome to the Smart Property Investment show with your host Phil Tarrant.

Phil: Okay everyone it's Phil Tarrant here, welcome to the Smart Property Investment show. I am your host and we're doing one of our Q&A sessions. These are hotly anticipated and we get plenty of questions and today, I'm going to run through three of them with our guest, who I've brought in to help me navigate some of these issues. If we don't get to your questions today, I do apologise, we will do. They come in thick and fast and we've plucked out three, which we think are probably going to be the most relevant to our listeners.

            So if you have some questions for us and if there's any particular person you'd like me to get into the studio to help answer them, please contact the team [email protected] You can also post them on our Facebook page, LinkedIn or Twitter, and we will get to them.

            But today, to help me answer some of these burning questions in property investment, and hopefully add some value, so you can go out and be a better property investor, I have Paul Glossop in the studio. He is from Pure Property Investment. Welcome back.

Paul: Thanks for having me Phil, good to be back mate.

Phil: So people enjoyed our chat last time you come on, which was about a month or so ago, and go and check it out. Our last Q&A episode where we went through a number of different issues, and it was quite an interesting Q&A, because it pretty much just gears us up, gives us a talking point to address some of these issues.

Paul: Exactly.

Phil: And what I find with the questions coming in, there's often a lot of commonality between them, so the questions that we're addressing, often, a lot of the questions that everyone wants to ask, but they think they're so simple, they don't need to ask them, or they're too scared to ask them. So if you're one of those people, don't worry about it, send them in and we'll get to them.

            So our first question Paul, from Jillian. Jillian says what is the best programme / way to track your incomings and outgoings to see if your property is on track and positive / negative, without taking depreciation into account? Pretty common question. Number one, how do you administer your portfolio, and then number two, how can you use that information to determine whether or not you're doing a good job as a property investor? Paul, what do you do?

Paul: Personally, and we do this with clients, probably I'd say certain people have different needs and wants and I think that comes down to certain people want to track it, pre-tax, post-tax, to the finite and some people are a little bit more probably, "I want to know the top line, so I can manage my back-end finances" Personally, I'm quite simple. I have an Excel spreadsheet and if I'm looking at pre-tax, which I personally always like to understand pre-tax. Post-tax is for my accountant to tell me and I don't factor that into my equations on a running basis.

            Pre-tax, when we're looking at a property both in the acquisition phase, you always want to factor in every cent that it's going to cost, to get that property into your ownership. So that's everything from your deposit, to your mortgage, to your lender's mortgage insurance if it applies, to your stamp duty, to your building and pest inspection. to your conveyances cost. There's a list of probably seven or eight there, that you want to make sure you're factoring in and get those understanding, because some of those you'll have to pay cash for, while others you can capitalise and also layer onto your mortgage.

            But if we're talking about ongoings, it's not that difficult really, for anyone who is at all somewhat spreadsheet savvy or even Googling Excel, is that there is very basic formulas you can put into a spreadsheet, which will give you the running costs on a property. So for instance, if you know what your mortgage is going to be and you know what your interest rate is, whether principal and interest or interest only, you can punch that in into a simple formula, it'll tell you your weekly, monthly and annual running costs. You'll know what your insurances are, so you just put that in and capitalise that over an annual basis.

            If you've got strata, you can calculate that. Things like your council rates, water rates, very simple to put in there and then you look at what is your rent. And your rent is what it is, you might factor in a vacancy of two weeks, four weeks, per year, and then you might factor in 1% running costs. You can do it in a simple spreadsheet, which effectively will give you a number at the end of every year to say this is how much that property will either make you or cost you on a weekly, monthly and annual basis, and you can put in some parameters.

            Other than that, if you're going to go and subscribe to a couple, I know Summer Soft, Summer Software out there does some very good software technology, which you can subscribe to., it's a paid subscription. I know the guys at Empower Wealth have their own money smarts programme and it's not that I get paid by them, and I think they do some very good work, but they've got some good software out there that they can utilise for their clients. And there's also some really good free apps out there are. I know Money Brilliance, a good one for people to understand their money going in, going out, and there's numerous other ones if you Google it.

            But personally, I'm a software, sorry, a software, I'm an Excel guy, but there is other ways out there if you want to pay someone to do it, and also if you want to get really nitty-gritty, I mean, ultimately, there's bookkeepers who will do it for you as well.

Phil: Yeah it is and I'd also add, Destiny's Margaret Lomas's business has another good software programme as well, and you've got to work out, Jillian, what works for you, and Paul's an Excel guy. I'm an Excel guy, I quite like to work out all the ratios and formulas myself because it makes me think about how I can look at my portfolio and if you haven't tuned into it, I recorded a podcast with my buyer's agent back on the 31st of August, so go and check it out. It'll be on the feed, wherever you're listening to this. Have a listen to that one because I actually have a chat about how I look at my portfolio, so as Paul was saying, you got to think of your portfolio as a business.

            So you have income, you make money, then you have expenses, which cost you and at the end of it, you're either going to have a positive or a negative figure. But there's a whole bunch of other ways you can look at whether or not your portfolio is performing the way you would like to perform it. And I spoke about in that podcast, the number of different yields that I would use to look at something. Now, the normal way you would look at a yield on a property would be how much did it cost me? $200,000, and how much do I get as a weekly rent and that will give me a year perspective. That's one way you can look at it.

            Another way that I look at it is I say, "How much does the property cost me and how much did it cost me to acquire that asset?" Buyers, agents, fees, stamp duty, legals, pest and buildings, and then use that as a yield. And that's the yield I typically look at, as in the cost to establish the asset, not what the actual thing costs in itself.

            Then there's another way you can look at it, as your return on investment, return on capital budgeting, traditional cash returns. So there's a number of different ways that you can have a look at whether or not your portfolio performing the way it is, and my recommendation, Jillian, would be you got to know your numbers. So if you know your numbers, review your portfolio as often as possible, think creatively about whether or not this portfolio is working for you.

            Now, disclaimer obviously, we're just having a general chat here, Paul, we don't know Jillian's specific details, we don't know what her goals are in properly investing, we don't know what sort of income she generates, we don't know her family situation, we don't know any of these sort of stuff, right? But the way you assess your portfolio needs to be based on what you're trying to achieve as a property investor.

            Now, if you're making a huge income and you've got ready cash available, you can probably cover a negative cash flow period, if you're in an acquisition phase. On the other hand, a lot of people invest in property and you don't need to be wealthy to have a huge, huge income to invest in property. Might be redlining a little bit more, so therefore, cash flows got to be a lot more relevant, and it's going to be central to the management of that portfolio.

            So a little bit of a generic answer to that, but to your point Paul, it's about making something that works for you and if you can get that and something that you understand ... if you don't understand it, get away from it straight away. Something that you can manage yourself and if you need some help, look, get a good accountant.

Paul: Absolutely, one thing from our side, I think, we try to give as much free education around that side as possible. I know on our website and yours as well, Phil, we have a lot of calculators and the intention of those calculators is to understand how to ... people to both understand establishing a loan, all the way through to things like capital gains taxes and everything else that goes with it. Now they're more automatically derived, so you can play with them a bit.

            And the other part too, I think is your accountant. People underestimate not just your accountant, but if your accountant is not doing it and when I say not doing it, at the end of every financial year, or on every quarter when you touch base with him or however often you do, they should ... and you want that accountant, if you're focused on property, you want your accountant to really give you advice on how you can look to change or maximise your cash flow or look at your next investment, how that's going to layer into your established portfolio. And that's something that really should be an ongoing discussion.

            I think if you're doing this by yourself, typically, you don't know what you don't know, hence the question. But if you've got other people that can layer in this opportunity and this insight, it makes you so much more well powered and geared towards getting a better outcome and becoming a better investor, as the intention this podcast is.

Phil: Absolutely, Jillian, if you want to contact myself or the team here, [email protected] Contact us offline and happy to have a chat with you and pass you on to someone if you'd need some help in this regards. But let's move on Paul to the next question, from Salah. Salah writes, "Hi Phil, love your podcast and the valuable experiences that are shared are priceless." You'd think I wrote this, wouldn't you? I do appreciate the feedback. "I've been listening to a few property podcasts, however your podcast, Paul, seems to grab 100% of my attention every time."

Paul: There you go. Did you say my particular podcast?

Phil: No, my podcast.

Paul: Oh, fair enough.

Phil: "I have a good understanding of construction and a feel for the city market," Salah writes. "I'm 31 years old and only started my investment journey last year. I purchased a three-bedroom house in St. Clair on an 800 square metre per corner block with a great future development potential, at least I think so. So St. Clair is out western, southern Sydney towards Penrith, in between Blacktown on the M4 motorway. I'm now looking at interstate investments in Queensland or Victoria. The two main suburbs that I am researching are Kingston in Queensland and Melton in Victoria. I know you have purchased in Kingston recently, however, I wanted to know if you have any experience in the Melton market and what your thoughts are on how it compares to Kingston. Any tips would be greatly appreciated."

            Paul, every time we do a Q&A session like this, we get this, "Should I buy here or there?" So whether it's Kingston versus Melton or its St. Clair versus Mount Pritchard, etc. What does it all come back to?

Paul: Comes back down to your objectives, your goals and your budget and ultimately, I think it needs to come down to understanding what are you trying to achieve? And it's the same boring old question, before we go into any of it. And looking at that, I'd say top-line, if that was bought last year in St. Clair, knowing how that St. Clair market has performed over the last 12 months, it's probably, it's definitely slowed, compared to probably the 2013 to 2015 timeframe, where you probably saw 15 to 20% year-on-year growth, and it probably went up 50% in that two year time frame, compounded. Whereas last year, you're probably talking, depending on the property type, 6 to 10% maybe, and I think it's slowed since and will continue to slow, as per a lot of that Western Sydney market, personally.

            But if you look at where is next and if I look at Kingston versus potentially Melton, I'll talk about Melton personally, which is a western ... for those who don't know, is a western suburbs corridor of the Greater Melbourne market. Probably somewhere close to halfway between Ballarat and Melbourne CBD. I would look at that as a market personally, I actually know a couple of investors who probably got in that house and land stuff that's gone on out there over the last five years, and anyone who's familiar with Melton will know that there is a lot of green fields, and there's a lot of off the plan house and lands that have been sold and will continue to be sold, because there is just a lot of space.


            Now, the recent census data was shown probably the last couple of months that population growth will continue and it will continue to push out there, however, I don't see potentially, personally a big cap on how the supply can be limited in that market, close to the main infrastructures, to really build strong, long-term capital growth, as opposed to if I were to look at other markets, which might be slightly more dense.

            Now, it's not saying it's not going to perform, because I know from what I know about Melton, it has actually had a good run the last couple years and I think it will continue to have a good steady run over the next few years, but that market for me, I think is going to have some distinct probably caps, as far as how much demand it can continue to sustain, compared to how much supply is going to come to that market.

            Phil, you're the the purchaser of Kingston. I've bought a number of properties in and around that market over the last couple years personally, but I'll throw it to you. What's your thoughts on Kingston?

Phil: I like Kingston, I bought there.

Paul: Tell me why you bought there because I'm always curious to know from your side of things, why and how.

Phil: You know why I bought there? My buyer's agent told me to.

Paul: Because you were told?

Phil: Yeah, that's a bit glib bit I'm very pro buyer's advocate and I've been working with with my buyer's advocate since the start of purchasing a portfolio and I use a buyer's agent for a whole bunch of different reasons. Number one is that they can do the job so much better than I can. And you Paul, you're a buyer's agent as well and I'm sure you hear this a lot. Number two, I'm time-poor. I'm happy to pay for advice if it gives me greater bandwidth and scope to go over my portfolio quicker, and number three, and probably very importantly, is that I think that investors who use a buyer's agent versus investors that don't use a buyer's agents, they're highly advantaged because I wouldn't want to be out there buying by myself, up against professional guys like yourself, who know the market inside-out.

            So why did I buy in Kingston? Because my buyer's agent told me to do so, and obviously, the product that we purchased, it was consistent with our strategy and our strategy used to buy under market value property. So identifying opportunities where we can get an asset for cheaper than what the asset is worth on the market, and there's typically reasons why and something with a bit of an X-factor to us. So something that we can use to either manufacturer equity over time or manufacturer yield and the property that was secured in Kingston very much reflected that.

            Now, I did a podcast on this back on 27th of July, so go and have a listen to it, Salah, and it'll give you a good idea about why we decided to invest in Kingston. Now, we've already got some other assets within that area, it's Kingston, Logan shire. We paid a little bit more for this than what we normally would pay for in Logan space, we've bought townhouses out Logan way for sub-200k, probably three years ago. Whether or not they still exist, Paul, do they? Can you still get them?

Paul: Tough. They're getting tougher. And you probably look a little bit further out towards that Ipswich market and you can probably still grab something under that 200k in that townhouse market, but yeah, they're getting tougher by the day and those markets are moving and there's definitely a lot of growth in the population space and good yields still.

Phil: Yeah, so the place we bought in Kingston was very much traditional sort of Queensland with a top floor, they've been filled in at the bottom. It had, I think it was about five bedrooms or so, but probably-

Paul: Not legal some of them.

Phil: Not legal stuff, so the bottom was essentially storage, right? But lots of prospects for growth over time and a lot of the Kingston space that's proximity to the Brisbane CBD. Transport links, rail, all the infrastructures there. We paid just north of $300,000 for that property. It delivers a really good yield and you know what? At a point in time, we can do stuff with it, so we're happy about it, but it goes back to the fundamentals.

            Kingston versus Melton, to your point Paul, about Melton, its proximity to the Melbourne CBD. It's probably a little bit further away than what Kingston would be. But it's greenfield stuff out there, right? Why buying in Melton ... what is going to put positive price pressure on property in Melton versus the same thing in Kingston? Now, can't build too many more houses in Kingston, there's no space left, right? So knock down, rebuild stuff and is there a market for that? Maybe. But out Melton, there's a lot of new development stuff. If they keep building property, what's it going to do to the values?

Paul: Yeah, and I think personally, that's one thing I'd say, if you're going to look at areas such as Melton, where they're probably going to have more green fields, where the population growth will push in and fill in over time.

Phil: It'll get there eventually.

Paul: But the properties which will ideally perform better are the properties which have the X-factor, which have potentially a larger block, which have something that can be subdivided, maybe closer to the older infrastructure. That's what I'd be looking at, as opposed to probably looking at more of the fringe stuff, that will no doubt be superseded by something that looks very similar, only 200 metres away and consistently keep going, as that population growth keeps sustaining. But if you're closer to where the rail is, you're closer where the hospitals are, the schools, the infrastructure, the transport, you will no doubt see a historic uplift, as compared to those even 500 to a kilometre, 1.5 kilometres further out.

Phil: So let's have a real quick chat about house and land packages. So we often speak about off the plan purchases and off the plan is typically geared towards apartments. So someone will build a big development and you will get the opportunity to buy in at X price, and in two years’ time when the thing is built, hopefully the thing is worth X plus whatever, right? House and land is a little bit different. You commit to the purchase of the land and then you are involved in the development of the asset on that, so you're responsible for building that property.

            Obviously, a builder does it for you and sometimes it's done in groups, sometimes it's done individually, but do you pay a premium as the person who originates the purchase of that land and the build of the property? Are you paying over the odds? Because builders have got to get paid, right? So it's like when you buy a brand new car, when you drive it out of the showroom, it drops in value by X straight away. Does the same happen with house and lands?

Paul: Yeah, it's a very good question and I think you've just uncovered a couple of things. I could talk about this for hours, personally, because there's definitely pros. And just because personally, we don't do the new or off the plan stock and we don't work in that space, doesn't mean there's not opportunities in that market and people haven't made money. But what I'd probably touch on is what you touched on very obviously, right there is, ultimately, unless you're buying a property from the person who's selling it directly, there is someone else in there who's not working as a charity, as an NGO. They are essentially making money out of you or out of the vendor, and that ultimately gets layered onto the purchase price.

            So whether that's going to be a marketing company, whether that's going to be a builder, whether it's going to be a sales agent. Someone's making a wedge, whether it be a commission or a flat fee. So as close as you can get to the person who technically owns that property or is going to be able to provide you with that, without those margins in there, the better you're going to get to understanding how close you paid to probably the cheapest price possible. But also, know what else has sold in those markets.

            But you're exactly right, for me, the reason why it's so much harder to find good value off the plan or house and land packages is the fact that there truly is more people making money out of the transaction, as opposed to a buyer and a seller. So for me, if you're fundamentally going look at buying property in general, that is something that I'd always map out, saying who makes money out of this? The less people who are in that pool, usually, the less you're going to pay.

Phil: With a building of a house and land type situation, if you buy in the right area, it's got the right fundamentals, the right growth metrics, you know what? You'll probably do pretty well out of it. And even though you might pay a little bit over the odds, it's the price to play, right? So you could get advantage from that, but the point I would make on what Paul said is that, you need to know what those things are, in order to make that decision. So you need to have full disclosure about who's making money somewhere. If you don't know and it's a little bit grey and you think there's sort of commissions under hand, you should know that information, because otherwise, that's not the right way.

            So what you should do is go and check out PIPA. PIPA is the association for property investment professionals and they have a strict code of conduct around this type of thing. If there is a commission, that's okay, but you should know about it, so you can make that educated decision. So go to that PIPA site and just Google it and there's a lot of information around it and I know guys like yourself Paul, who's a member and a lot of other people within the sector. It's important stuff.

Paul: Absolutely and I'll touch on that very quickly too Phil, because you talked about these people making money, but there is ways to make money and there is ways to lose money on off the plan. I'll give you two examples from two discussions with two separate clients or potential colleagues, that I had in the last two days, one of which bought off the plan in Barangaroo, just across the way from where we are, in inner-city Sydney right now.

            About two years ago, they paid just close to a million dollars for a one-bedroom unit, which is now worth about 30% more than that, which is astronomical, but it is right in the thick of where it's going to be happening for the next 50 years of our existence. And you can see some really tight supply opportunities within that market, because there is a very captive, high-net-worth audience just close by.

            And I'll explain that compared to another property that I actually, on the way here to speak about this podcast, another person who's quite close to me and is one of my professional peers, it's just about to realise a property. They have just got off the plan in Fortitude Valley and it's a two-bedroom apartment there, which was a third the price, purchase price, but they're staring down the barrel of a valuation on the construction certificate in about two weeks’ time.

            It's going at 50k short of what they put their deposit on two years ago on this particular property and it comes down to supply. There has been more supply that's come to that market in inner west and inner north Brisbane, that has ultimately just sapped up where the demand is. So this property that ideally, you would have bought off the plan, it goes up exponential, is the complete opposite, because there's been the best part of 25% of all apartment stock come to the market in Brisbane over the last two years. And two different markets, similar intention and two completely different outcomes. You got to know the data.

Phil: You do, so Salah, I know we've sort of deviated a little bit from your question, but I think we've covered that pretty well and some additional information, we've got on to this house and land stuff obviously, because we're talking about Melton. But go in, buyer beware, and there's no excuse these days not to be educated. There's no excuse these days for making the wrong decision because the information is there, if you go and look for it and the most important thing about property and I'm very pro using experts to help you build your portfolio and make the right decision, but the fundamental decision still comes down to you. You need to make and take responsibility for anything you do in property. You can't outsource responsibility.

Paul: Absolutely.

Phil: Next question, final one. Brett is from Sydney, we've probably only got about sort of five minutes, Sam. Yeah, there abouts, Sam our producer here, he's giving me the thumbs up. Brett's question is a little bit longer and I'll try and summarise it where I can, but I always like the first bit of a question it says, "Hi there, I've been listening to your podcast for a few months now and really love your content and help you give young investors like myself an advantage. As such, I thought I would reach out with a question that some investors may have come across." Brett is 23 years old and has two properties in Sydney. His portfolio right now, value of 1.75 million, LVR of 85%, so a little bit on the high side and he's got a yield of 3.5%.

            Brett writes, "I'm fairly new to property investing, having only purchased my first property in 2014." So he's been at it for about three years. "I've always lived in Sydney, which led me to my purchase of my first properties. I know the areas well and like many, have a strategy targeted towards growth than yield. I listened to your podcast before my second purchase, however, I probably would have looked at something with a higher yield to complement my existing property and improve cash flow. I'm at the point now where I would like to improve the cash flow position of my portfolio and I'm looking into alternatives. Number one, a granny flat. Number two, looking at expanding interstate, particularly Brisbane, where yields are much higher."

            Brett's question is, "Number one, what are your opinions on granny flats? Number two, would I be better to purchase another property over building a granny flat, as I can always do this later? And number three, what is the best way to start educating myself about an interstate market, i.e. Brisbane. I've heard a few people mention Logan in the podcast, I would likely seek the advice of a buyer's agent, if I did purchase interstate, but would also like to educate myself as much as possible."

            So this goes back to taking responsibility for your investments, so Brett, that point number three about wanting to educate yourself as much as possible, in parallel with using a buyer's agent, I say that's the right way to be going about it. So you're in a situation right now, you're 23 years old, you're a young guy. I don't know what your serviceability perspective is, whether or not you can actually get any more debt. That's going to depend on your salary but also the performance of your portfolio with an LVR of 85%. You're on the high side, I can see why you're probably looking to improve your yield.

            So Paul, I'll summarise the question, should he put a granny flat on an existing property? And if he can do, I don't know, but should he put a granny flat on an existing property and fix his yield? Or should he look to potentially pigeon pair a property and get something with a much higher yield somewhere else to complement negative cash flow somewhere else? What's your thoughts? Potential problem.

Paul: Firstly, I think to get that kind of exposure in that short period of time is great, ultimately, what I'd probably look at is that 85% LVR for me, in this current lending market is probably the question. I'd say if you haven't spoken to your broker and they haven't given you advice, that's the first discussion. Say, "What can I borrow, if anything?" Because the rest of it will probably be irrelevant, if they say, "Look, unfortunately, if you want to build a granny flat or if you want to buy somewhere else, you're not going to either A, have the cash flow or B, get the money."

            So unless you've got a cash deposit, then probably I'd have that discussion with your broker and figure out where you can stand. Now, let's say hypothetically, you can muster up somewhere in the vicinity of 40 to 50 grand, then I would say that A, that would be the amount of money you'd need to get a construction loan to build a granny flat. Or B, then you'd look at it and from my side, I'd look at that being my scenario to say, "A, can I get the money?" Because the money you're going to need for 100, 130 grand granny flat is going to be around about 40 odd grand cash to get a 70% LVR on a construction loan.

            So if that is the scenario, personally, I'd say then, how does that money best work for you? What is your cash flow like now? Are you negative to the point where you're going backwards? Are your assets going to go up in value over the next five years to allow you to extract equity to reinvest or do you need to focus wholly and solely on not buying anything anymore, switching your loans to maybe a PNI position over the next couple years to get a sharper rate and improve your LVR by paying down.

            That's a discussion, I think Phil, you speak a lot about your broker, as well as to a degree, your accountant buyer's agent. But your broker realistically, you want to get that broker to give you some advice on different things that you look at. So granny flats are great, for me, as long as the demand is there. There has to be demand and you want to make sure that not just demand in that local market, but also demand long-term.

            And then secondly, you talked about capital growth, but that capital growth has to be still, for me, the forethought of why you're doing this. Because cash flow can be fixed, but a couple of grand a year is not going to make you any more wealthy over the long term, as opposed to potentially improving that asset will be on what it already sits as, or secondly, getting another asset in a different growth market, but still providing you cash flow.

            So me, I'd always chase capital growth to have a cash flow, but ideally, if you can get both, then that would be what I'd be doing, and then you're looking at opportunity cost. If I've got 40 grand, for me, I look at granny flats unless they are absolutely necessary, they're for me, they're sort of the endgame, because that's when you might want to reduce debt and go into more of a consolidation phase than a cash flow generating phase.

Phil: And I agree with everything Paul says Brett. You've got a couple of moving parts here. Number one is that you're still quite young and you've got two properties already, so you're on the runway and you're taking off. It might be a point right now and I don't know your personal situation or your aptitude towards risk is, but if you're making a shitload of money doing the job that you're doing, and at 23, I doubt you're making that much, but if you are and you've got plenty of ready cash to play with, go out there and chase growth. What do we invest in property? And Paul you touched on this, it creates wealth over time, right? There's no use investing in property for a good yield, if your properties aren't going up. And being in a city market, look, you're probably not going to go too bad there, I think.

            So it's all going to come down to how much extra cash you have, every single month, to be able to cover any negativity in your portfolio. Now, if you're comfortable with that and you've got plenty there and obviously, there is after tax benefits with negative gearing and other stuff, but I like to talk about pre-tax. Do you actually need to start thinking about yield yet? Because if you're in the accumulation phase and you're looking to build a portfolio, often you're not going to be able to turn that into a positive portfolio very quickly, because it takes time for your portfolio to mature.

            So you've got to work out, is that it for you and you're going to be in two properties for the next five years? If that's the case, you've got to be thinking about improving your cash flow position. Maybe it's just going to be as easy as increasing your rents by a little bit, and that might be possible, so if you manage yourself go and do some research, if not, speak to your property manager and hopefully, they should give you some insight into that.

            But it's a tough one Brett, you know, unless we really know what your situation is, it's hard to give any particular recommendations about it. In parts of western Sydney and I think back to 2013, 2014, every single investor was building a granny flat in the back of their property.

Paul: And that's led to oversupply in some places.

Phil: Absolutely. So in many cases, the demand isn't there for granny flats anymore.

Paul: Correct, and that's the key. You're going to drop $130,000 on this build, thinking it's going to give you a 10, 12, 15%. It's all good and well, but unless it's actually going to come to fruition, your vacancy rates, sometimes you're just going to get up sold by someone who develops granny flats, and unfortunately, that's their intention. So understand, is it going to work and is it going to actually, factually give you that cash flow or are you better buying a free-standing house in a market that's going to grow, while still giving you 6, 7, even sometimes 8% plus gross rental yields with low overheads?

Phil: Brett asks here, Paul, how does he go about investing himself, on an interstate market i.e. Brisbane. Listening to podcasts, particularly this one, is a really good start, but Paul, if you want to understand the Brisbane market, I know you do a lot of work up there for your clients, what do you need to know?

Paul: You need to know probably three main things. One, know your flood mapping, which is pretty easy. There's no reason why you shouldn't know your flood mapping. Go on to any local council website and they'll usually be able to drag out a flood map, you've got state flood maps as well. It just gives you a good understanding of where you should and shouldn't be putting your money, because there are some distinct issues with some 1 in 100 year flood events with property.

            I think two, know your local council zonings, and know what they're looking at doing over the next 5, 10, 15 years, and there's a few distinct markets. You spoke about Logan, North Brisbane, out towards West Brisbane, towards Ipswich. There's a few particular markets along the older infrastructure areas there, which are going to be strong, if you're looking at that lower price point, as far as population growth, infrastructure spends. But know that number, know what's in demand and know where you should be thinking about buying, as opposed to some of the other markets.

            And we've touched on units in the Brisbane market, which have had a very soft couple years and I think will continue to, and the third one for me, is probably understand what your objectives are. I hate hearing that myself say it, but if you don't know then again, people, just don't buy for the sake of buying. It might be better for you to consolidate over the next few years, and the old adage of, "The hardest million to make is your first million," isn't there by coincidence. It really is because most people want to chase it.

            A delayed gratification in property is the hardest thing to get used to, but compound interest and delayed gratification are one in the same, and you need to be prepared to say, you're 23 mate, you've done a lot more than probably 99% of other 23 year olds in your position. So make sure you don't over capitalise to the point where you have to sell unnecessarily, because that is when you'll lose money.

Phil: One of the most positive impacts on the property portfolio is time and I've gone through phases in buying where I buy aggressively, and then I don't do anything for a little while, and those points where I don't do anything for a little while, upwards of over a year, what time can do to your portfolio, if you've bought the right asset, is absolutely amazing. And then you can reflect and then look at what you can do then, about extracting equity and buying again. So it's always a good time to invest in property, if it is the right time to invest in property for your particular circumstances.

            So the question Paul, to you, is educating himself about interstate markets. Yes, a very good idea. He's talking about using a buyer's agent, that's cool. Do you need a buyer's agent to invest interstate?

Paul: No. Not at all. You don't need a buyer's agent to do anything. You don't need an agent to go buy a car, but ultimately, what you've no doubt been a proponent of, Phil, is from a buyer's agents perspective, I think it comes down to how much more do they have up their sleeve, as opposed to what you will, and how long will it take you to get as up to speed, as well as the properties, the contacts, that that other buyer's agent potentially, if they're the right person, will be able to do.

            And on that front, you say, well, "If I'm one person looking to buy one property in one market, how do I," A, go from the top down to look at where and what I should be buying to fit my budget, as opposed to someone who's buying in the vicinity of 2, 4, 5, 10 properties per week and has contacts that you will never ever be able to achieve? You kind of look at it and say, well, if you miss out or if it takes you 6 to 12 months to get to that point, that for me is where I say, "That's the opportunity cost." Unfortunately from that side of things, that's where we see, I guess, a lot of people miss out is, procrastination getting in the way of profit.

Phil: Good point. Yeah, a lot of people are "I'm going to do it, I'm going to do it," as in "I have done it." Don't be a goner bloke. Paul, good, a lot of the Q&As, lots of different concepts there we've spoken about. If you're unfamiliar about some of these things we spoke about like gross rental yield and LVRs and portfolio positions and all this type of stuff, go to smartpropertyinvestment.com.au. We cover all this stuff off all the time.

            Just on that note, if you're not yet subscribed to our morning news and our market intelligence, go to smartpropertyinvestment.com.au/subscribe, so you are the first to know about what's going on in property investment. We're also on Twitter, Facebook, LinkedIn as well. We'll be doing lots of postings. So connect, engage, follow, like us, all this sort of stuff and become part of the community.

            Remember to email us [email protected] if you've got any questions that you'd like answered on the show, and please a favour for me, reviews on iTunes or wherever you're listening to this particular podcast. If you can leave us just a quick note and five stars, I'd really appreciate that, just helps us continue to build this community. And I know the team here really appreciate the good feedback.

            Paul, thanks coming in.

Paul: Thank you for having me again, Phil.

Phil: And we'll see you again next time and for our listeners, thanks for joining us and we'll see you soon. Bye-bye.

Announcer: 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. Guests appearing on this podcast may have a commercial relationship with the companies mentioned.



Q&A session with Paul Glossop – more questions answered! - September 2017
Paul Glossop, Pure Property Investment
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