Have you been waiting to hear your question on the podcast? In this episode of The Smart Property Investment Show, we bring in managing director of Propertyology, Simon Pressley, to give you answers!
Tune in as he and host Phil Tarrant discuss everything from how to pick the right buyer’s agent to suit your own needs, how to balance your time effectively as an investor, as well as the things you should do versus what your property manager should do and how confident you should be when using a buyer’s agent from another state.
You’ll hear all of this and much, much more in this episode of The Smart Property Investment Show!
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: Facebook, Twitter 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!
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Announcer: Welcome to the Smart Property Investment Show with your host Phil Tarrant.
Phil Tarrant: Good day everyone, it's Phil Tarrant here. I'm the host of the Smart Property Investment Show. Thanks for joining us today. We have a Q and A session, something which is really popular with our listeners, so we try and do one of these every month, or every second month. We get a lot of questions coming in from all of our listeners who just really want to stress test what they're doing and get some greater insights in it, or got some specific questions around, not only our portfolio, but some of the comments made by our guests, whether they're property experts or also just property investors themselves who are trying to create wealth through property.
So what we like to do is aggregate them all together and then just pick through them and come up with some very different questions that we can answer live on air, and what I typically do is draw on my network of people that work within the property investment space that we work with on a regular basis, buyer's agents, accountants, data providers, mortgage brokers who we know and respect their advice and we get them to come on the show. Today I've asked Simon Pressley into the studio, he's the MD of Propertyology, you might have heard him beforehand. Simon, how are you going?
Simon Pressley: Very well Phil, thanks for having us on.
Phil Tarrant: Thanks for coming in. So you're on Your Money, Your Call tonight on Margaret's show?
Simon Pressley: That's correct, yeah, Sky 602.
Phil Tarrant: Sky 602. I was there last Monday night, so hopefully our listeners are listening to it. I never put the videos up on our website, do you?
Simon Pressley: No. Maybe once years ago, but no.
Phil Tarrant: Yeah. I've got to start doing more of that, but Simon's one of the regular guests on that show, amongst myself and some of the other people you hear on the Smart Property Investment Show. So I have a lot of confidence to bring him into the studio to help me out with listener questions. Are you ready for this Simon? Are we all good to go?
Simon Pressley: Absolutely. Fire away.
Phil Tarrant: Before we start, you come in from Brisbane?
Simon Pressley: Brisbane, yeah. The office is in Brisbane, but our market's all over Australia.
Phil Tarrant: It is, and I think we're going to touch on that in one of these questions where someone's asked as about buying interstate and stuff, but what's going on in Brissy at the moment, while I've got you? Any exciting good market?
Simon Pressley: Nothing's changed in Brisbane for probably a good five years. Just chugging along with the choke barely out. Some really good underlying fundamentals, but Brisbane is yet to see any significant growth, and there's still pockets that have actually receded a little bit from a price point of view, so not a terrible market to invest in, but not a really buoyant one either.
Phil Tarrant: Last time we got together, we spoke quite a lot about some of the markets you were looking at in regional Australia, which you reckon are going pretty good.
Simon Pressley: Look, we've been on the ... We're neither for or against capital cities or regional Australia, they're just a term at the end of the day, but we've been following parts of regional Australia for a good couple of years now, and in fact the locations we're investing in today, more of them will be regional locations than capital cities. I think that's going to continue for a few years yet.
Phil Tarrant: We'll see how we go. Simon's quite prolific in the information he provides to investors, so I'll give him a quick plug. Propertyology.com.au, is that where-
Simon Pressley: Thank you very much.
Phil Tarrant: There's plenty of stuff there, so go and check it out. I read it and I use it. So anyway, to the questions. First one is from ... I don't have a name, so I'll just make it up, it's Ben. Ben says, 'Thanks for the wonderful podcast. I've learned a lot by listening while I commute.' Cool. 'My question is, in the show there were several investors having portfolios of over 30 properties, sometimes even 100 properties. I wonder how they manage such a large portfolio? I have one investment property and find it constantly needs my attention despite having a property manager, e.g. approving maintenance, reviewing statements, filing tax, etc. Looking forward to your answer.' Okay, Simon, the question is, how do you manage a whole bunch of properties?
Simon Pressley: I don't find it that hard. I think the hardest and most time-consuming thing is deciding where to invest and what property to buy, that's not a chore for Propertyology because it's the core business doing it every day, but for a DIY investor that's the most time consuming bit. Once you've got that property though, there's very little time allocated to it. You can't totally ignore it, but I mean if you've got a property manager, that's going to take care of all of your tenant issues. In my personal experience, it may be two times a year that I get a maintenance request from my property manager, but they're not big jobs, they're not big decisions, so I don't actually find it that time consuming.
Phil Tarrant: So I guess the question to ask then is that if your one investment property is a headache, and it's taking you lots of time to manage, you're doing something wrong.
Simon Pressley: Or you're spending too much time worrying about something that's not there, I'm not quite sure.
Phil Tarrant: Fair enough.
Simon Pressley: Over analysing, potentially.
Phil Tarrant: Yeah, interesting one. My recommendation ... What did I call him? Ben. Did we say Ben?
Simon Pressley: Yeah, we said Ben.
Phil Tarrant: Being a made up name, that should be on there, but it's not. My comments around this would be ... I'd view it the way I saw it is that why are you spending so long on this property? There must be something wrong with it or you're over analysing it, to your point, and perhaps putting way too much effort and emphasis on spending your time doing something when you probably don't really need to do it. So if you get the right people in place to help you manage your portfolio, and that is a good property manager, you're talking about filing tax, so that's definitely an accounting side of things.
Simon Pressley: Which you're going to have to do if you're not an investor anyway, so it's a few extra forms you've got to get together for your accountant at the end of the financial year.
Phil Tarrant: So the question is, Simon, you work with a lot of investors who have large portfolios, so what have you seen the best guys do in terms of going from five to 10 properties to 20 properties in terms of managing? Are they spreadsheet type people, or they use other software? How does it work?
Simon Pressley: Look, spreadsheets are probably the easiest, most user friendly, we've all got access to spreadsheets, whether you set it up one spreadsheet per property, some might do. If you really love your formulas, you can have cells from one spreadsheet feeding into data of something else, but it's not that hard really. I mean, at the end of the day, we all should have a laptop, something simple, create a folder on your laptop, call it One Smith Street, or Townsville, or Sydney, or wherever your property is, and drag all your PDFs and all your documents into that. That's a really simple thing. End of financial year, you just put that on a USB and give it to your accountant.
Phil Tarrant: Let them sort it out.
Simon Pressley: Let them sort it out.
Phil Tarrant: That's good.
Simon Pressley: It's not that hard, as I said earlier. Like, there might be two maintenance requests on average per year. The average tenant will stay in a property for say 12 months, so you've got a decision to make on what rent to charge, and do I renew it for this tenant or do we get a new one?
Phil Tarrant: Yeah.
Simon Pressley: There's not that much more really.
Phil Tarrant: Maybe for this guy, rethink, or girl, rethink how you're managing it, and ask some other investors to see how they're doing it as well. Good that you've written in and asked the question, you're obviously concerned about it, so you're talking about reviewing a statement here. You've got to make sure that the money you should be receiving, you've received. It should really just be a quick check of your statement from your property manager and having a look and make sure the money's landed in your account less their fees or anything maintenance wise.
Simon Pressley: Yeah, and I think the property manager is key to this, as an investor, they're worth every cent that they charge you. Right throughout Australia, you're talking somewhere between maybe 7.5% and 9.5% that they collect of your rent, which isn't a lot at the end of the day, and they're managing all the headaches with tenants. I sort of ... And you have a good relationship with your property manager. I see them as an employee, if you like, treat them with respect, they're working for you. You don't like when someone talks nastily to you, or demanding, so treat them respect, be curtesy, say thank you. They don't get many thanks, they often just get complaints and criticism.
Phil Tarrant: Yeah. Fair points. Good luck. Next question. So this is a long one, so bear with me. It says, 'Hi Phil. My name is Martin and I'm 31 and recently started planning my entry into the property market. I had always imagined saving up and buying a two bedroom apartment in Bondi where I currently rent and love living. However, over the last months, your podcast has opened my eyes to what appears to be a smarter investment in targeted area of capital growth and higher rental yield. I've particularly enjoyed your conversations or discussions with Steve Waters and Simon Pressley,' look at that, he even names you, 'About their insights into the market, and I'm also mindful of your advice of hiring a buyer's agent to give you an advantage. My question is whether you could recommend the best way to find the right buyer's agents for me? I grew up in Penrith and have local knowledge of Sydney's west and east. I have $140,000 cash saved. I have a fairly good freelance income at around $140,000 a year gross. I have access to half a million dollars parental gift to help me get into my own place. However, if I was to start investing in other markets, I would be on my own with my own savings, $140,000.
My second question is, is a $500,000 gift worth taking advantage of, even if it means investing long term in a flattening market in Bondi? My own inkling is that I should go it alone for two years with one or two small investments in targeted areas, and hopefully be back in the financial position to take advantage of the parental support to buy a place to live in Bondi. Thanks for any insights you can give, Phil. I really appreciate the transparency of your podcast.' Cool. Alright, Martin, complicated question.
Simon Pressley: Lots too that, isn't there?
Phil Tarrant: Yeah. I'm trying to work out this $500,000 parental gift, and whether or not that's only accessible if you invest in Bondi? So, did you take that?
Simon Pressley: Yeah, there seems to be two figures there, isn't there? There's $140,000 cash that Martin's saved, which is a fantastic achievement in itself. Well done Martin, and there's $500,000 gift from his parents, but my-
Phil Tarrant: Looks like it's conditional, that he's got to buy in Bondi to get it.
Simon Pressley: Yeah. When I read this question, I'm sensing, and this is quite common, I'm sensing that we're mixing investment versus personal considerations here.
Phil Tarrant: Okay, good point.
Simon Pressley: Both are important, but they are completely different mindsets that are required. Let's not confuse knowing our neighbourhood, where I live and where I've grown up, with knowing a market, they are two completely different things. We need to have an investor mindset and see property as a financial instrument. To use an analogy, it would be like a share investor confusing saying I bank with Commonwealth Bank, so therefore I know the company, and I'm going to invest in shares in the Commonwealth Bank. It's irrelevant whether you bank there or not. A stockbroker will tell you there's a lot of things you need to know about whether that's a good stock, and I'd say the same about property markets. Living there means you know the social amenities, and the busy roads, and that sort of stuff, but that's largely irrelevant if the outlook of that broader city is not particularly good. So there's two different mindsets required there.
Phil Tarrant: Yeah, so 31 years old, so not young, not old. Likes to live in Bondi, so probably likes the hustle and bustle and the social life of living in Bondi. Cool place to live in your 20s and 30s, even your 40s or later, but obviously likes the vibe of Bondi. Got $140,000 saved. It's not going to get you a lot in Bondi, is it?
Simon Pressley: No.
Phil Tarrant: Today's market. It'd be all in, right? That you'd drop $140,000 in there on a 90% lend and that'd be it. You probably wouldn't be moving for a little while I'd imagine.
Simon Pressley: No, look my general advice to Martin, all big decisions, plan with the end in mind. Whether it's the family home or investing, as I said earlier, they're different decisions. So what is the end in mind? I'm assuming you're contemplating investing in property because years down the track, you don't want to be strapped to a government funded pension which isn't going to provide much of a lifestyle. So is buying a property in, in this case, Bondi, going to help you do that? And that will be based wholly and solely on your personal requirements and emotion and those still are very important things, or is taking a critical look at this massive country called Australia where there's a lot more opportunities, is that better for you?
Interesting stat, Bondi is something we hear a lot because we're talking emotion. Who doesn't love the beach and cafes and all that sort of stuff? But official statistics, the 15 year period since the turn of this current century, place called Narrabri, which many people haven't even heard of, inland northern New South Wales, its total return on investment was quite a bit better than Bondi, but yet everyone's heard of Bondi and they're like, "Geez I would want to live there, so what a great investment," but in a rural community like Narrabri, you actually would have made significantly more money.
Phil Tarrant: Dollar for dollar return on investment.
Simon Pressley: Dollar for dollar, yeah. Dollar for dollar. So there is a big difference between demand and desire. They both start with D, but desire is something that we have an emotional connection and, "Geez, I would really want that," and we get that feeling as a property person when you go to a house that you like, or a location that you like, you're on holidays, for example, but demand is completely different. The reality is, plenty of people want to live in Bondi, but not many do because they can't afford it, or they don't actually work near there.
Phil Tarrant: You can have your cake and eat it as well. You can still live there and rent there and invest somewhere else. This is what Martin's talking about. I always typically try and find a point to do a real quick disclaimer, Simon, in these things as well, just to remind Martin and the rest of the questions that we're just answering these in general sort of ... General information only, so make sure you chat to your relevant financial professional, whether it's your broker, accountant, financial planner, etc., when making any buying decisions or investment decisions, but that's not a cop out to say that we're not going to give any information to Martin.
So the way I'd see this, Martin, is that I'd agree with you and your head space around seeking advice from people who do this for a living, and you've spoken about two very good buyer's agents here, Simon and Steve Waters, so I guess the question is, if he wants to go down that path, Simon, and you deal with a lot of clients who seek your services as a buyer's agent, how do you choose a good buyer's agent? Like, people will choose you because they like your strategies and the way you deal with people, etc., and other people will choose other buyer's agents, what do you need to tick off to get it right?
Simon Pressley: Firstly, stick to someone who does investing as their core business. Right Property Group, and Power Wealth, and Propertyology, to the best of my knowledge, they're the only three genuine property investment only businesses in Australia. That's not to say other buyer's agents aren't good, or aren't professional, or anything like that, but we maintain that it requires a completely different set of skills to help someone make an investment decision as opposed to working with whether they like pink or blue on the bedroom wall for their family home. By and large, buyer's agents throughout Australia, they'll be helping someone with a family home in the morning, and helping someone buy an investment property in the afternoon, but they're focusing on where they live and where their office is. As an investor, you've missed the fundamental and most important question there, where in Australia is the right place to invest? You've made that decision based on where you live or where your buyer's agent's office is.
So those three companies I've mentioned there, including Propertyology, we specialise just in investing, but spend a lot of time with us. We're all going to have different business models, you do need to have that connection, and the only way to get that is lots of dialogue, lots of emails, don't rush in. One thing common to all of us, none of us have got a crystal ball, there's things that will change in the world every single day. All a professional can do, including medical professionals, they can draw on their experiences, and they're trying to join up all the dots and say, "When I join these together, this picture in the future looks positive or negative," that's all you can do.
Phil Tarrant: Yeah. You've got to trust their advice, and a good buyer's agent's worth his weight in gold, and I guess, echoing what Simon said, you've got to get on as well. To be a good client for a buyer's agent, you need to be completely open and transparent. So don't go hiding things that you don't want someone to know because they're not going to be able to give you the advice you need in order to make the right investment decisions, so if there's debt that you've got that you don't want to tell people about, you've got to be open, and clear, and everything, on this because to get a full wholistic value out of using a buyer's agent, you've got to be open and bare and let them know what's going on.
Simon Pressley: Yeah, and look, I'd say share your fears and your concerns, whether you're a first time investor or you're an experienced investor, that's probably one of the easiest ways for both parties to get comfortable with each other. If there's something you're particularly concerned about, and Martin said here that he's a first time investor, so he may have more concerns than someone who's done it a few times. You know, Martin's touched here on how do you invest in a location you don't live in? Share that with the professionals. If there's particular locations that you've got some interest in from some DIY research, share that with these professional bodies that you're talking with. It's a good opportunity for them to respond. They might sort of say, "That's not a bad location and this is why I feel that way," or, "I wouldn't invest there because of these things." That gives the consumer an opportunity to form their own opinion as to what the level of skill is.
Phil Tarrant: Yeah, it's really good advice, and I'm just looking at this question again, Simon, and something that's just underlined here from Martin, it says, 'I have access to a $500,000 parental gift to help me get into my own place.' I think get into my own place is to live in a house, not an investment property. Martin, I'd be looking to educate your parents saying, "Hey look, how about if I still get that same amount of money, but just let me live in Bondi where I want to live and enjoy my life," and, to your point, there's better potentially investible locations or assets outside of Bondi where, for that same $500,000, it might get you into multiple markets that are all going to go up in value. So at a point in time when you're ready to 'get your own place,' and it might be you find somebody you want to settle down with, or however else you want to play it, then you've got all that equity in other properties that you can still use to get yourself into your own place as well. So it looks like there's some family politics going on.
Simon Pressley: Especially given what Sydney's been through, you know?
Phil Tarrant: Absolutely.
Simon Pressley: Look, we called it a couple of months ago, and I'll say it again on record, I think Sydney's growth cycle is well and truly over, and I'm going to reiterate, I haven't got a crystal ball, none of us do, but I wouldn't be surprised if Sydney stays flat for several years now. So is that the time that you want to be sinking $500,000 capital into one asset? I wouldn't be doing that if it was my $500,000.
Phil Tarrant: Fair enough. Also noticed underlined here is that, 'I have a fairly good freelance income, $1400,000.' So, freelance income, lenders look at that differently than a-
Simon Pressley: Yeah, they do.
Phil Tarrant: So it might be a little bit harder to get-
Simon Pressley: It's a good income but-
Phil Tarrant: It's a good income.
Simon Pressley: How a lender will view that reliability is different.
Phil Tarrant: Yeah, it gets tough, but anyway, good luck Martin. The two people who you've mentioned in this question, give them a call. I'm sure you're happy to speak to Martin, aren't you Simon?
Simon Pressley: Absolutely, yeah.
Phil Tarrant: Okay, nice one. Next question. Question number three, 'I listen to Phil's podcast every day,' that's cool. Thank you, 'and I just have one question please. I know he uses the Right Property Group for his purchases, they are based in Sydney, so how confident should one be about using a buyer's agent from another state? I also listen to The Property Couch' it's the who's who of name dropping here today, isn't it? 'I also listen to The Property Couch with Bryce Holdaway, Ben Kingsley,' for those of you who don't know, they're from Empower Wealth, 'So I'm thinking about engaging them for a purchase in Brisbane, though they don't have anyone on the ground so to speak. I'm just confused as to whether I should be engaging a professional locally. I know it wouldn't be commercially viable for a company to keep flying their employees interstate looking at properties, so I'm a bit confused. Any information you have would be gratefully appreciated.' Okay, well another good outfit, Bryce and Ben from Empower Wealth. I guess to summarise the question it's, does your buyer's agent need to be located in the areas where you're looking to buy in order to be a good buyer's agent? You're going to say no.
Simon Pressley: Absolutely. I mean, our business wouldn't exist if I said yes. Our office is in Brisbane, our market's all over Australia, that includes eight capital cities and literally hundreds of regional locations. It is a good question, a common question that Paul raises, because I think as investors, when we're thinking about professional companies to help us do that, we're thinking too much about the Ray White's, L.J. Hooker's of the world who have an office and sell property. Now, you couldn't do that, you couldn't run a business like that without being based in, not just that city, but in that part of town. Whereas, buying a property, you don't actually need ... And we're living proof of that, you don't need to have an office set up in that location, but you do need to have lots of checks and balances in place to investigate and get really comfortable with the various due diligence that you need to do on any property. So in our case, the most important decision is the town or city. Well, you don't get that information from driving around the town or city, you get that from understanding things to do with the supply and the demand side, so we do that from our office in Brisbane.
When we decide we're going to start investing in a particular location, we fly there, we're there for over a week, we meet face to face with mayors, town planners, economic development managers, key employers, we study zoning, we study flooding, we study where the undesirables hang around, and we literally drive down every street. So any property that we help someone invest in, hand on heart we can say we've driven past that. Have we been in every single house in that city? No, but when we go to contract on a particular property, there are certain things that we do to check its structural integrity, to check it's low maintenance, to check that the room sizes are adequate. You don't actually need to fly there every time you do that. The principles we follow as a business are what I do myself for my own portfolio, so tried and tested.
Phil Tarrant: Yeah, and the cynic in me, being a cynical journalist, would say that if I'm getting recommended property in the location, one of the handful of locations where someone has an office, I'm probably going to be going, is that really the right place to be investing, fair?
Simon Pressley: Yeah exactly. Yep.
Phil Tarrant: But I am cynical, but yeah I'd agree with you, and I think most of these guys operate in a very similar way to you.
Simon Pressley: I think so.
Phil Tarrant: They're always on the ground, getting the ground truth, actually what's going on. That doesn't mean that you need to be there every single day, but it's about when a buyer's agent is researching a new area that they do have that ground truth and they've been able to match their on the ground insights, personal insights, match with the hard data, which I know guys like yourself scour over every second of every day just picking through every single bit you can imagine. Let's have a quick chat about that. So, for our listeners that are looking for new areas, what would be the five key pieces of data that you'd want to make sure you've covered off, or are using as a tool to help filter a property or an area?
Simon Pressley: Yeah, great question. So we consider every town or city in Australia. We first describe it through an economic profile, so Town X, it's main industries that supports its economy, obviously making something up here, but it might be manufacturing, it might be health education, it might be tourism, whatever it is. What are the main industries that that community relies on most? Then we consider, what's the outlook for those key industries? If we're having this discussion three or four years ago and we're talking about mining as one of those key industries, it might be one to avoid, but that's one key thing.
What are the biggest employers in that location, and what are their plans? Are they looking to reduce the size of their workforce or increase it? Because, at the end of the day, property's shelter. So this is the most important stuff that you won't get from numbers in the back of a magazine. It's really understanding a town or a city through its economic profile. They're the key things from a housing demand side of things, and we must cross reference that to the supply side of things. So that's some really basic numbers like what's the current vacancy rate? How quickly are properties transacting at the moment, but most importantly, what's in the supply pipeline? You won't get that from driving around that city because they haven't been built yet. If you're a big construction company that operates in that particular town or city and you've got hundreds of new apartments or a massive new house and land estate approved, what sort of impact is that going to have on future supply?
Phil Tarrant: There's a lot of moving parts.
Simon Pressley: Lots of moving parts, lots of joining dots.
Phil Tarrant: Yeah, that's just why I get someone to help me out with this sort of stuff. Sorry, that last question by the way was from Paul Glinn, so Paul, hopefully we've helped you out there. Don't get too caught up with the fact that someone needs to have a physical presence in the town or the city that you're buying. You're investing in the process, the knowledge, the capabilities, the researched potential of the buyer's agent, and their ability to identify and also negotiate these properties as well. So there's much more to it. If you can get beyond that mindset of thinking that they need to be located there, I think you'll be opening your mind and you'll be able to have better conversations with potential buyer's agents.
So the fourth one, Sally Tanoto, Sally, I hope I got that right, 'Great podcast, have been religiously listening to every episode since day one.' Thank you Sally. I appreciate that. 'My husband and I have a portfolio of seven properties and it is getting more difficult to manage process administration around them,' this is a bit of a similar question, but it changes. 'Just wondering if you're able to share your process and administration managing your properties in terms of Excel spreadsheet you use, etc., in order to effectively manage the cashflow and keeping track of the parameters around it? I have a pretty good grasp of property jargon i.e. LVR equity, etc. Thank you for sharing. Look forward to improving my process in managing our portfolio.' Thanks Sally.
I, as I've spoken about at length, I've got a really good team around me, really good buyer's agent, great accountant, mortgage broker, etc. I also have someone I work with really closely here within the corporate business I run, a guy called Michael, and you might have heard him on some podcasts beforehand, who effectively manages the administration around a portfolio, so he does a lot of the work with our property managers to make sure money's going in and out correctly, maintenance is getting scheduled and approved, any issues we have around finding new tenants, he's my point guy in terms of managing that, and that gives me a lot of bandwidth to focus on stuff where I can really add a lot of value, rather than getting bogged down using my time on administration. So that works for me.
It's something that's relatively new, it's only really the last couple of years that I've let go of a lot of that sort of stuff and got someone to do it, and I have some really good tools in place now in terms of him being able and being empowered to make decisions that need to be made, and coming to me for stuff which is a little bit more sensitive that needs my advice and guidance. So I've tried to free myself up so I can concentrate on other things, and building a portfolio primarily, rather than getting bogged down managing the day to day parts of the portfolio. We've got a pretty sophisticated spreadsheet that works for us, which just lists all the different properties in our portfolio. Have a really good summary dashboard that I can look at in any point in time and know what's going on, what the cashflow position is of anything, what the rent is, what the equity position is, and that works for us, but everyone's different. Simon?
Simon Pressley: It is very similar to the first questions, isn't it Phil? I agree, it's hard to beat spreadsheets. We're all going to have different things that we want to calculate and keep an eye on, and that's the good thing about Excel, we can create your own formulas. The time is in setting it up, and then once you plug in the data for the next property, it's there. With my own portfolio I find that it's only really three or four times a year that I go back in and make sure I've done something like, when does that lease expire again? Or, "Geez, that's right, we increased the rent by $10 a week on that one," you know? You're really only doing that a few times a year because there's not that many changing parts once you own that one property, there's not many things you can change.
Phil Tarrant: Just make sure you got the tenant right and that your interest rate is still reasonable.
Simon Pressley: Yeah, interest rate's a good one, if it's gone up or down, or in this current climate it might have gone from say interest only to principal interest. So there's not that many times a year you need to go in and change it, but you really can't beat spreadsheets.
Phil Tarrant: Typically if I'm ... If you looked at my spreadsheet, or when I chat with other investors, the thing that's most important to the investor is typically how they frame it. So if there's a number at the bottom, it might be how much is this costing me every single week to hold, and for some people that'll be a key metric about the serviceability of their portfolio. How can they manage, with a cashflow position, manage to keep this, and where their appetite is, or where the parameters are for them to be taking money out of their back pocket every single week or month to keep growing their portfolio? For some people who are tight, that might be the principle number. Other people it might be an equity position. Other people it might be, how much equity will I have at 90% or 80% should I choose to refinance so I can keep building and growing?
So you'll find that the way you build your portfolio will give you the numbers that you need to have in order to make more informed decisions with your portfolio or sleep and night factor, you know? If you know that your property's negatively geared or it's cashflow neutral, that might help you sleep well at night and be the way you choose to frame your particular spreadsheet, but stuff like LVR equity, all these terms, we talk about them a lot on the Smart Property Investment Show, so go back and listen to them, but managing a portfolio, Simon, what would you say are the five key headline numbers that you probably want to keep an eye on? One would be interest rates, right?
Simon Pressley: Interest rate, because that directly leads to your biggest expense. No matter how many properties you've got, interest will always be your biggest expense. Rental yield.
Phil Tarrant: Okay, so rental yield is?
Simon Pressley: Just take the amount of the gross rent, say $300 a week, $400 a week, whatever it is, multiplied by 52 to give you an annual gross income figure, and whatever that figure is expressed as a percentage of the purchase price is your yield. Share investors refer to it as dividends on their shares, for example. Property investors will use the term yield.
Phil Tarrant: Yield, and it's a bit blunt because I know I calculate the yield on our portfolio in a number of different ways. One would be yield at the time of purchase, one would be current yield, and normally it's just whatever your weekly rent is, times 52, divided by what you paid for it.
Simon Pressley: Correct, yep.
Phil Tarrant: When I calculate our yields, I normally what we paid for it, plus all the other stuff associated with it, so-
Simon Pressley: Renovations and all that stuff
Phil Tarrant: Buyer's agent's fee, renovations, stamp duty, legals, and stuff, so I do a yield on a total amount rather than what I paid for the stuff, and a lot of people try and fool themselves thinking they get a better yield, but they don't include all the expenses. So anyway, so interest rate, yield, is important. What else is really important?
Simon Pressley: Equity is a key thing. Is the asset growing? It can be really simple to just have a look at whatever that percentage figure is to back of the beer coaster, do I have enough to go again? The biggest ingredient that all ... The most valuable ingredient that all investors have got is time. So as soon as you can afford to invest, that's the right time to invest again. The most important question is not when, but where?
Phil Tarrant: But where? Okay. So if you can afford to invest again, you're better off being in the market than outside of the market if you're thinking about getting in the market?
Simon Pressley: Yeah, absolutely.
Phil Tarrant: Yeah. Procrastination's a key one, right?
Simon Pressley: Yep.
Phil Tarrant: So that equity number can give you a bit of an idea on do you have enough fat to go again by drawing down? And this number around cashflow outlay, whether it's positive or negative, is pretty important as well.
Simon Pressley: It is. Build some stress tests into your spreadsheet as well. For example, with my rent, if I've got a property that's getting say $400 a week rent, I multiply that $400 by 48. I'd be kidding myself if I expect every single year that I'm going to have a tenant paying $400 a week, even if when that property comes out of lease and the vacancy rates might be really low, it might be easier to replace that tenant pretty quickly, but still there's going to be that in between couple of weeks when one tenant moves out and the next one moves in, in a normal sense. So yeah, stress testing with 48 weeks instead of 52. Similarly with interest rates, don't kid yourself and put the really cheap interest rate that the bank offered you to get your business right from the outset. Build in a bit of a buffer of at least half a percent, and for some people, they might require a one and a half percent buffer.
Phil Tarrant: I know the interest only rates have gone up considerably recently. There's a real disparity between principal interest and interest only. One plus percent difference in these things right now.
Simon Pressley: Yeah, having these buffers built in can help the more nervous investor too. When they're just looking at numbers before they work out where am I going to invest? What property am I going to buy? If they've got these numbers in front of them and they have stress tested them, so they've worked out, well geez, what if I don't have a tenant for a month or two? What happens if they do increase interest rates by half a percentage point over the next 12 or 18 months? What happens if I lost my job and it took me three months to find something else? They can use the spreadsheet to stress test those things, and if you've got a positive figure at the end, then you've thought about all of those what ifs and it's like, I'm okay, I'm protected here. You've thought about those what ifs.
Phil Tarrant: Yeah, and I guess the fundamental thing is using your spreadsheet as a tool. It might be nice and pretty and stuff, but why are you doing it? It's got to give you the info you need to do what you need to do.
Simon Pressley: Yep.
Phil Tarrant: Simon, I think we've done pretty well there. That was sort of similar to the first question, but I think we covered off some key points around it. So, I appreciate you joining us.
Simon Pressley: Thanks for having us along.
Phil Tarrant: It's always interesting. Next time you're back in town, let's get you back on and I'm sure there'll be plenty more questions that we can get the guys to stick together for us. So if you've got any questions for myself or Simon, or if you'd like anything answered on the Smart Property Investment Show, email the team and they'll get back to you. We do answer them on air, so thanks everyone for your patience if it's taken a little while to get to them. You can send them to [email protected], the guys will get back to you. We're on all the social stuff, so please have a look for us if you'd like to get your news and info that way, just search Smart Property HQ. If you're not yet receiving our daily news and market intelligence every morning so you're the first to know what's going on in property, smartpropertyinvestment.com.au/subscribe and please keep those reviews coming on iTunes and wherever else you listen to these podcasts, we do appreciate them, and the team does enjoy getting them and knowing that we're doing a good job. So, we'll be back again next time. Until then, 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.
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