The benefits of financial planning and how it can boost your portfolio

By Demii Kalavritinos 08 January 2018 | 1 minute read

Max Pagnin, financial planner and investor, joins Phillip Tarrant to discuss the benefits financial planning can have on your portfolio, his own portfolio and how his background has shaped how he views the property market.

Max Pagnin, financial planner and investor

The investor shares his property journey, explaining how his portfolio came to be as well as wealth creation and diversification of assets.

They also discuss why the expectation of “getting right overnight” can have a negative impact on your journey, Max’s plans for his portfolio in the future and his recommendations to investors who are considering hiring a financial planner.

You will also find out his methods to his ‘madness’, the fundamentals driving increasing price and how to find a property savvy financial planner.


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About the author

Announcer: Welcome to the smart property investment show, with your host, Phil Tarrant.

Phil Tarrant: Good day everyone, it's Phil Tarrant, I'm the host of the Smart Property Investment show, thanks for joining us. It always feels as though I do the same introduction each time. Maybe I've got to mix it up next year, what do you reckon? Yeah, Adam's our producer here. Anyway, new thing for 2018. But, always like to be thinking about the next year, so I'm sure you are as a property investor as well. So, hope you have a good break over Christmas and New Year's.

            Interesting chat today. So, I've done a few back to back podcasts recently for Smart Property Investments show. Obviously, as a company, we shut down over the Christmas period for a week or so, so I've got to get quite a few in the bag. And I'm often quite conscious about whether or not it gets a bit repetitive, so if it has been, I'm sorry. I don't think it is. No, it's not, it's pretty good? Adam says it's alright. We might get Adam on here one day, what do you reckon? You talk about your property portfolio? Yeah, should do it.

            So, planning 2018. I've obviously been spending quite a lot of time with my team recently looking at 2018 and what we are going to do. We had a pretty reasonable 2017, in terms of securing properties. If you've been tuning into the Smart Property Investment show when we do our own portfolio update, you would have heard this year that we've secured a property in Kingston. Go and listen to that particular podcast. But we also have done a series of podcasts around one of our most recent purchases, and that was a block of five units up in Lawnton, which is near Petrie, or quite close to the new Sunshine Coast University precinct. So that should be a good one. It was a good buy for us, and we'll just sit on that property for a while and there's an upside potential for it.

            But, lots of moving parts of our portfolio and as we go down this path and we secure other assets, you know this whole wealth crashing journey is something which we, at a point in time, hopefully we can crystallise and realise with a nice comfortable retirement. That's the reason why most people invest in property. But, I think a lot of people get confused with that, as well. Once they sort of get going and all the different types of assets that they have, in terms of creating wealth and how they go about making sure that they're making the right decisions. And a lot of people use a financial planner to help out with that.

            So I thought I'd get a financial planner on the show today, who's also a property investor. So, hopefully, he can speak with a voice of reason and sensibility, often I give financial planners a hard time because most of them don't touch property, and we'll have a chat about that. But I guess on the show also I really want to chat about his property portfolio and his journey getting there. But while I've got him in the studio, we'll talk about sort of this more holistic wealth creation, and diversification of assets and protection, and all this sort of stuff. So, Max Pagnin, Punyin, how that go? Max Punyin?

Max Pagnin:  Yeah, Punyin is how it's pronounced in Italian, but Pagnin for everyone else is fine.

Phil Tarrant: Pagnin, is that the Aussie way?

Max Pagnin:  That's the Aussie way, yeah.

Phil Tarrant: Max Pagnin.

Max Pagnin:  I won't tell you my real name in Italian, because no one can pronounce it.

Phil Tarrant: Come on, what is it?

Max Pagnin:  Oh, you really want to know?

Phil Tarrant: Yeah, go on.

Max Pagnin:  Okay, it's Massimiliano.

Phil Tarrant: Massimiliano.

Max Pagnin:  Maximilian, but Max for short. But no one can pronounce it, so that's why I got school teachers in former school, Max will do.

Phil Tarrant: So, Max, you're a financial planner, and also a property investor.

Max Pagnin:  I am indeed, yes.

Phil Tarrant: So, we're going to cover sort of both those things today.

Max Pagnin:  Yeah, no worries.

Phil Tarrant: So, you can cover that.

Max Pagnin:  Yep.

Phil Tarrant: So, what sort of generation, or strain, Italian generation are you, sort of first generation, second generation?

Max Pagnin:  I actually am an import. I was born there, in 1971. I'm giving away my age, now.

Phil Tarrant: So, you're true blue Italian?

Max Pagnin:  True blue Aussie now. But, no I came out when I was two and a half with my parents via a big boat, when it was legal in those days. So, yeah, we did it the right way and they can't get rid of me now.

Phil Tarrant: Where in Italy did you say you were from?

Max Pagnin:  Part of the Italy, not far from Venice. So, I was born about half an hour from Venice, and the major city that I live nearest is a place called Padua, they've got a really good university. Great little city if you ever get a chance to get there one day.

Phil Tarrant: Oh, yeah. I've been in Venice before. I drove down from Austria once. Down through the mountains there, I can't remember what they're called. Long time ago.

Max Pagnin:  Yeah, beautiful part of the world.

Phil Tarrant: It is, it's cool. What brought your family out here? What was the rationale for sort of jumping on the boat and heading out over?

Max Pagnin:  Yeah, obviously like a lot of migrants back in the day, just for a better life. Opportunities that obviously Australia back in the '70's there was lots of talk about land down under, and what was available for migrants, in terms of work opportunities. So they thought they'd try a new experience in life, and they've been here ever since.

Phil Tarrant: So, it worked out then?

Max Pagnin:  Yeah, it worked out. Yeah. The parents tried to go back when I was fourteen to try and live there, but, yeah, once you've been here for seven years it's hard to go back. And a lot of the old Italians have a view of how it used to be, and then when they try to go back, it's totally changed. Yeah, and they just love it here. Great place for a holiday, and has a fantastic culture and history, but yeah, I definitely call Australia home, and wouldn't want to be anywhere else.

Phil Tarrant: And do you sort of identify as being an Aussie but you've just got a bit of Italian?

Max Pagnin:  Okay, so this will give you the crux of where I identify myself. We had, as you're probably aware, a few years ago there was the world cup where Italy was playing Australia.

Phil Tarrant: Yeah.

Max Pagnin:  In that second round, and up until that world cup I was always following Italy, because Australia never made it. So I was getting up very early in the morning and watching the games with my dad. Now that particularly world cup we were playing against Italy, and it was my brother, myself and my dad watching the game. Now he was obviously barracking for Italy and my brother and I barracking for Australia. So, yeah, I do identify more with Australia, if I had to choose, but the-

Phil Tarrant: So you've got all the benefits of being Italian. Good coffee, good food, good wine.

Max Pagnin:  Good food, exactly. And pasta, that's right. Happy days.

Phil Tarrant: What's a, I guess broad sweeping statement, but what's sort of the Italian, how would you compare the Italian attitude to money and wealth creation, versus the Australian attitude to money and wealth creation? Is it different?

Max Pagnin:  Yeah, look I mean I've obviously known a lot of Italian families over the years, and a lot of them-

Phil Tarrant: I know you guys like cash, better.

Max Pagnin:  Cash is good. Cash is king. I know, we both work with Munzurul closely, and he doesn't like cash too much, but definitely cash is king. But also, there's a big focus on property. That's always been that way. I mean, you have a look at the big Italian families to the West, where I live, and there's a lot of-

Phil Tarrant: There's concrete everything. That's what there is there.

Max Pagnin:  Yeah, concrete everything. Build what you can. But a lot of them they bought these old little farm houses.

Phil Tarrant: Oh the market gardens.

Max Pagnin:  Yeah, market gardens and they're worth millions.

Phil Tarrant: You guys have killed it, yeah.

Max Pagnin:  Unfortunately, my parents didn't buy anything like that, but obviously property's been a big focus of wealth creation for the old Italian families. And I think that will continue to be passed on to the next generation. My mum's been a mad property investor as well.

Phil Tarrant: Oh, really.

Max Pagnin:  And so I've taken that onboard, and run with it as well.

Phil Tarrant: Oh, I've had a lot of Italian mates over the years and a lot happy people, really, the Italians. It's always good.

Max Pagnin:  Well, we like to be positive. There's too many negative things out there. I've always seen the glass half full. And yeah, you've got to try and battle on as much as possible when things don't go your way. And, yeah, there's always tomorrow and there's always a better day ahead.

Phil Tarrant: That's cool. Good attitude. So, should it be the same with creating wealth through property? Always another day, always going to be better ahead.

Max Pagnin:  Exactly. When your tenant causes a bit of damage or you lose a tenant, don't worry, that can all be sorted out. Fortunately, I haven't had too many horror stories like that.

Phil Tarrant: Well, let's have a chat about it then. So, you're a property investor. When did you get going? What's the back story of you and your property?

Max Pagnin:  Going back a few years now, probably early 2000, and I probably don't want to admit this too freely, but I did a course with a gentleman called Henry Kay.

Phil Tarrant: Oh really.

Max Pagnin:  Which we all know. For those that don't know him, or a bit younger in generation, you can Google him and there's a few negative comments about him.

Phil Tarrant: Not the most popular man.

Max Pagnin:  No, not the most popular man. He did a few courses at the time, which partook in, and I guess in hindsight that was a good launch into sort of learning about property and getting my feet dipping in the water and having a go. And, yeah, bought a property at the time in Karumba in Queensland, it's one of the suburbs in Brisbane, with my, now, ex-wife, and then subsequently we bought a little property in Tazi, in her name at the time. And then we sold the Karumba property to buy our first home, which is in Wattle Grove, and that was in 2004. The marriage didn't work out after about 10 years, but as a breakdown of all that, I took over the Wattle Grove property in Sydney, and she held the one in Tazi.

            The one in Wattle Grove had a greater debt on it, so I was able to manage that debt, she kept the other one, which was positive cashflow. I subsequently sold that a few years later, to cash it out, which possibly I cashed out a bit too early in the Sydney market, but the point of that one is that it did take a 10 years before it actually made money.

            So there was, everyone thinks, and this is a story for everyone that's listening now, property is not a short term game. It's a long term investment, as with anything, whether we're talking about shares or whatever, you can't expect to make money in one or two years. I mean, it's possible, you can get lucky if you buy at the right time, but realistically you have to hold it for the long term.

Phil Tarrant: So there shouldn't be an expectation that you're going to get rich over night investing in property.

Max Pagnin:  Exactly right. And that was a key, that actual house I bought in 2004.

Phil Tarrant: So, whereabouts is Wattle Grove, sorry, just for our listeners.

Max Pagnin:  Wattle Grove is out near, not far, Hammondville, Holsworthy, the army base, near there.

Phil Tarrant: So, it's Liverpool, sort of way.

Max Pagnin:  Yeah, just, yeah, exactly right. It's just off the M5 there, it's in a good spot. Good location. So it's had some really good growth the last few years. But for about six, seven, eight years from when we first bought it, it actually didn't do anything. In fact the first couple of years it was worth less, probably about 30, 40 grand less than what we paid for it. There was, it wasn't right at the peak when we bought it, it was actually just a bit after, so probably, yeah, similarities to the market today. We bought as the market was coming down, but there was still a bit left in the downturn.

            So, I don't know what the future holds, in terms of the Sydney market, but if I go back and look at my own experience then, there was still a bit more of a dip to go, and we possibly could have held out and bought something at a bit more value, had we known what was around the corner. But as we said, no one's got a crystal ball.

Phil Tarrant: No.

Max Pagnin:  But the point is, 10 year timeframe, we made some money in the end, but otherwise, it would have been a struggle to make money if I had to sell it after three or four years.

Phil Tarrant: Okay. So you sold the Wattle Grove property and got some cash.

Max Pagnin:  Got some cash, yeah. Before I did that I bought my first property, I saved up a little bit of money and bought one in Minto. Basically, that one was end of 2012 I put the deposit down, and didn't settle until January 2013. So that was just when the Sydney market, there was some green shirts in the Sydney market where people were starting to get a little bit excited about it. But, still quite early stages. But my reasoning behind that, I guess I always put my financial planning hat on. The property I bought for 327, and renting at the time 380.

Phil Tarrant: So that would have been like a three bedroom house, four bedroom house.

Max Pagnin:  Three bedroom house, yeah. Yeah, on a good sized block, yeah, at 560 odd square metres.

Phil Tarrant: So the minnow-

Max Pagnin:  Minnow, yeah. Minnow.

Phil Tarrant: Sorry, you can see I'm from the western suburbs, Minto, it's near Ingleburn, Campbelltown way. So sort of west Sydney. Campbelltown fairly seems, it's a quiet sort of satellite hub, sort of a suburb.

Max Pagnin:  Exactly. And back in the day it wasn't, when I bought it, it was only a few years ago, it had a bit of a reputation behind it.

Phil Tarrant: Well, you had the riots out there, didn't you.

Max Pagnin:  That's right, there were a few riots a few years before that. So, it didn't have the best of reputations and a lot of people possibly would not have bought there. But my logic said to me, if I can buy it for 327 at the time, and rent for 380. To me, even if there was no growth, and like I said, no one had a crystal ball to know what the Sydney market was going to do. But even if there was no growth, the cashflow looked after it, so I didn't have to pay out of my pocket. And that to me was important at the time.

Phil Tarrant: Do you still have the property?

Max Pagnin:  I still do.

Phil Tarrant: And what's it like now. I reckon you've probably done pretty well out of it.

Max Pagnin:  Yeah, I had a bit of a look the other day, probably about 620, would be a minimum. It might be a bit more, but that's being conservative.

Phil Tarrant: You nearly doubled your money in ...

Max Pagnin:  Yeah, four years or so.

Phil Tarrant: Four years.

Max Pagnin:  So, pretty happy days with that one.

Phil Tarrant: And this is the message for our listeners. Don't always expect this to be happening.

Max Pagnin:  Exactly right.

Phil Tarrant: That's the luck bit. Well, it's good planning, good buying, good research, good all the other stuff, but there's a sprinkling of luck in there as well, right?

Max Pagnin:  Absolutely. But like I was saying, I didn't know what was going to be happening with the Sydney market, because before then it hadn't done any, we all know it hadn't done anything for so many years. But my logic said, well worst case scenario, even if it doesn't do anything for another five years, it's not impacting my lifestyle, it's not going to cost me a lot of money to hold that property, because the cashflow was so good.

            But if you have a look in terms of the rental return, I was getting 380 a week rent, and now I'm getting only $400 a week, so it's only gone up $20 in terms of the rent, but it's been quite substantial. Would I buy that property now as an investment? No.

Phil Tarrant: Probably not.

Max Pagnin:  Because for 620-

Phil Tarrant: The yield ain’t great.

Max Pagnin:  Exactly right. So it's all about the right time, when you buy these things. And for me, I always try to look at cashflow as well. Not purely cashflow, you want growth, but you have to take-

Phil Tarrant: You need cashflow, because that's the scenario. You need to hold onto these things, but what you're seeing there is a story of markets as well. So, when you bought it was, what 380 a month, sorry a week, and now it's 400. So it's gone up.

Max Pagnin:  $20 in rent. That's it. It's nothing.

Phil Tarrant: And I would say, probably one of the reasons why, there's a lot of reasons why, but one of the reasons why would be I think a lot of investors probably having gone to that market, therefore there's probably a lot of rental properties out there, which probably puts pressure on rents, because supply and demand.

Max Pagnin:  Exactly right.

Phil Tarrant: Simply supply and demand. There's more properties out there for people to rent, that means that there's not upwards pressure on prices to secure them. That's the story.

Max Pagnin:  Absolutely. Exactly right.

Phil Tarrant: But it's a growth play. So you've got the capital growth, which is what you want as a property investor, but the yield's still okay because you bought at the right time.

Max Pagnin:  100%. And I did subsequently take some money out to invest in another property, so that capital growth did allow me to do that, which was fantastic.

Phil Tarrant: Okay. So you've drawn equity out and done some more. So okay, after you're Minto property, where did you go?

Max Pagnin:  Yeah, so I bought a little cheapy in Oberon. And people are thinking, well why would you buy in Oberon?

Phil Tarrant: Most people don't know where Oberon is.

Max Pagnin:  Yeah, so for those who don't know where Oberon is, it's as you're going to Jenolan Caves. For those who know, around Sydney, most people have been to Jenolan Caves at least once in their lives.

Phil Tarrant: Orange?

Max Pagnin:  Yeah, you're going towards Lithgow, so you pass the Blue Mountains, Mount Victoria, and you're heading down the big hill and as you're heading towards Lithgow, there's a turnoff to the left, Jenolan Caves. And Oberon-

Phil Tarrant: Just there.

Max Pagnin:  Yeah. So it's probably, from here, probably from Sydney, so probably a good, well I'd say two and a half hours probably to get there. Maybe three, depending on how fast you drive. Nice little country town, it's nothing flash, but I bought a little cheapy for 185, and it was renting at the time for 260. So I bought that for cashflow. Not expecting much in terms of growth, to be honest. I thought if it grew by 10 or 20 grand, over five or six years, I'd be happy with that. But it's-

Phil Tarrant: So you just parked your money for a newer place.

Max Pagnin:  Yeah, exactly right. But once again, call it luck, or otherwise, I mean that's probably worth today about 250, that's what the local agent said it would be worth.

Phil Tarrant: How did you even find it? Did you just go to or something and search by cheapest properties?

Max Pagnin:  Pretty much, yeah.

Phil Tarrant: Okay.

Max Pagnin:  Pretty much, because I didn't have a lot of money left over after I bought Minto. I had a little bit of savings, and I thought, well what do I do with that, I wasn't buy back into the city market, cause it had already started to sort of move up a little bit, and I didn't have enough to get it back into another property in Sydney. And I just thought, I looked going further west, and I thought, Oberon. I'd been out that way, and I knew the town, and I just thought, wonder what a property costs out there.

Phil Tarrant: Is it a house?

Max Pagnin:  It's a house, yeah.

Phil Tarrant: Alright. And what sort of land size.

Max Pagnin:  That one's about 1200 square metres.

Phil Tarrant: A big lot. Are you quite close to the town?

Max Pagnin:  Yeah, yeah, you could walk to the main part of town, it's literally, like a, probably three or four minute walk, and-

Phil Tarrant: Just like a fibre house, or brick house?

Max Pagnin:  It's a cladded home.

Phil Tarrant: Cladded home.

Max Pagnin:  Yeah, little cheapy. It's nothing flash inside, but it's comfortable. The previous owner had put a nice new garage and a little, I think he used to play music. He had a little soundproof studio out the back of it.

Phil Tarrant: There you go.

Max Pagnin:  Yeah, and it's got a lane behind it, so I inquired recently. I could potentially put a second dwelling on there, and straddle tie it to the property, so yeah.

Phil Tarrant: Cool.

Max Pagnin:  So, something to do for the future, potentially.

Phil Tarrant: Good.

Max Pagnin:  So, like I said, it's done alright. Bought it for 185, currently worth about 250. And renting for now 270. Rent's only gone up $10 since then. So, once again, rents haven't really kept up with the price growth there.

Phil Tarrant: So after Oberon, where did you go.

Max Pagnin:  So then I bought, like I said, that's when I sold the previous Wattle Grove home that I had, and I bought a couple of properties in Queensland, because obviously that was the talk of that's the place to be. And I bought one in the northern suburbs of Queensland, a place called Burpengary. Just did a bit of my own research there and bought something there, a three bedroom house, for just under nearly 294,000.

Phil Tarrant: Okay.

Max Pagnin:  And that's currently renting at the moment for 340 a week, and I'll be honest, the rent hasn't gone up there since at all. There's been a lot of people buying rental properties there so the rent hasn't gone up at all.

Phil Tarrant: Same dynamic as what we were talking about at Minto.

Max Pagnin:  Exactly. So, but it's sort of, at that price point it's paying for itself, which is the main thing. Like I said, once again, it wasn't impacting my cashflow in any way, which is good. And that's done quite well I would say, that's conservatively now worth about 345 if I had to value it today.

Phil Tarrant: Cool.

Max Pagnin:  So, yeah, there's been price growth there as well. And at the same time, I had some money left over. This is probably the one I'm most pleased about. It was just before Christmas, it would be in 2014, I did I Google search, not Google, a search on the broader Brisbane area, and I'd put in my search criteria, properties over 5,000 square metres in land. And this property popped up in a suburb called Ellen Grove, and I don't know if you know the area, but it's next to Forest Lake. Most people have heard of Forest Lake in the Brisbane market.

            And if you have a look at it from an aerial point of view, all the properties are 2.6 acre lots, and the property I bought was an older style property, so a very basic fibre home, nothing flash at all, but the agent had two contracts on it fall through. It was just before Christmas, it was a decease estate as well, also there was a bit of-

Phil Tarrant: Argy bargy?

Max Pagnin:  Yeah, yeah, but the family members were keen to get rid of it. And I offered a low ball price, under land value actually. The land value at the time was 620, we negotiated, I picked it up at the end for 583. So, it was a pretty good buy at the time, and it's in an area they zoned what they call emerging communities, so it's actually earmarked for future development, and in fact, if you have a look at that suburb there are some of the streets just adjoining the Forest Lake development. They are actually already have developed some house and land packages.

Phil Tarrant: So this is a land banking play.

Max Pagnin:  Land banking play, correct, yeah. But very poor cashflow. Very poor cashflow. So, 583 I paid for it, and I'm getting 350 a week rent. Plus land tax and all that. That one there, I'll be honest costs me to hold, well I think when I did the numbers, it's about 15 grand a year.

Phil Tarrant: 15 grand a year to hold it?

Max Pagnin:  15 grand a year just to hold it, yeah. So it's not the best cashflow for that one.

Phil Tarrant: However, do you think at some point in time some developer will knock on your door and say-

Max Pagnin:  Yeah.

Phil Tarrant: Yeah.

Max Pagnin:  Absolutely.

Phil Tarrant: What do you think you'll be able to get for the land at a point of time when that sprawl sort of hits it, and then that's the next sort of house and land package area?

Max Pagnin:  Yeah, well, look, I mean, I could-

Phil Tarrant: 5,000 square metres?

Max Pagnin:  2.6 acres, so it's about 10 and a half square metres, I think.

Phil Tarrant: Yeah, that's big.

Max Pagnin:  Yeah, it's not bad. It does have a little creek running through it, which will limit what I can do, but it's only a small creek, so-

Phil Tarrant: Yeah, they turn it into little lakes these days, and it helps with the beautification of the place. That's a bonus.

Max Pagnin:  Yeah, yeah. Exactly. No, that's right. So, that's it. So, yeah, I'm looking at that as a long term, but there are- probably I'd say in three to four years I reckon there would have been a lot of development, it's already starting to happen, and I reckon I can get some good coin from it.

Phil Tarrant: So, that's your retirement plan there, is it?

Max Pagnin:  Pretty much, yeah. Yeah, pretty much.

Phil Tarrant: So, you're paying 15,000 bucks a year now to hold it.

Max Pagnin:  It's actually a bit going up with the land taxes, probably closer to 17,000, yeah. So that's nearly 18,000 a year to hold that one.

Phil Tarrant: So, why are you paying land tax on it? Because you're above the threshold on it, obviously.

Max Pagnin:  Yeah, because of the size of the land, cause the land itself is now worth 720, and obviously with the house, probably, I had an agent told me last year, I could get 750, probably possibly, let's say 750, probably in today's market. But, yeah, I don't know what it might be worth in three or four year's time, if everything else is being developed around it. I think I'll be okay.

Phil Tarrant: It's just a waiting game isn't it. But you need to be able to understand that the holding cost of a property is not just the mortgage, it's the land tax. The land tax is probably the biggest part of that.

Max Pagnin:  Yeah, absolutely, exactly right. The land tax is considerable there, and obviously, just the fact that the rent's so low, and all the other costs. But that really then put a big of constraint in terms of what I could do, because obviously that impacted the cashflow on the other properties. So I then had to look at what could do, or where could I buy to try and find something that had a really good cashflow. And that led me to my next property purchase. Which, people are going to think, why would he buy there, but I actually bought a property in a place called Weipa in far north Queensland.

Phil Tarrant: Okay.

Max Pagnin:  Which is actually a mining town. Normally, I would recommend clients do not buy in mining towns, and there's valid reasons for that. The reason I bought in Weipa, the company that's got the head lease there and is running bauxite mine, is Rio Tinto.

Phil Tarrant: Okay.

Max Pagnin:  And before I bought there, they had announced a three billion dollar expansion into another mine, so that's definitely going ahead, they've already started construction there. So for me that underpins the community effect for at least 15 to 20 years, if not more, because they've got to recoup the money, the investment on that mine. So, it's not like they're going to close down in three or four years, but even if I own it for seven, eight or 10 years and even get my money back, but that one there is bringing in, in terms of cashflow, I would say at least ten and a half thousand dollars a year, so that's really helped bring back some cash that I needed.

Phil Tarrant: So positive cashflow.

Max Pagnin:  Positive cashflow.

Phil Tarrant: So you're renting it out for?

Max Pagnin:  580 a week.

Phil Tarrant: Okay.

Max Pagnin:  And I paid 350.

Phil Tarrant: Okay.

Max Pagnin:  It's just a little three bedroom, you'd call it a villa.

Phil Tarrant: Yeah, okay. So that's a cashflow play to help offset the loss that you're banking on these properties up in-

Max Pagnin:  Correct, on the other one with the 2.6 acres. So, that's the reason I bought it. I'm not buying it for capital growth, I didn't go in with that in mind. If it grows, if it's worth a bit more in five, six, seven years, then so be it, but even if I just get my money back, I'm happy with that, cause it's giving me that ten and a half grand.

Phil Tarrant: So that's really like investing in shares for the purpose of a dividend to complete your savings.

Max Pagnin:  Exactly.

Phil Tarrant: Same logic, right. The shares might not go up in value, but you're still receiving a dividend off it.

Max Pagnin:  Exactly right. I mean there's certain shares, I mean Telestra is one that comes to mind, where you know there's been a few ups and downs in terms of the share price, but generally speaking, not a good investment from capital growth, but traditionally has paid a great dividend, and a lot of investors have obviously taken that dividend and done other things with it. Yeah, so similar for that, there was purpose, there was a method in the madness, and that's the reason why I bought up there.

Phil Tarrant: Do you think we could go backwards though. So a lot of people have invested in mining towns, one of the classics is Port Hedland, over in WA, and properties that were worth $200,000 in three years time or four years time are worth like just south of a million bucks, right. A huge, just because of the level of mining going investment going in during that construction phase in the mines, and now they're back down to where they should've been, right.

Max Pagnin:  Correct.

Phil Tarrant: And a lot of people have lost their livelihoods as a result of it. Is that thing, did you buy that before any sort of increase or spike because of this mining investment coming up?

Max Pagnin:  No, there was no spike as such, as a result of that announcement, so to me it's like there is some local demand for people that work there.

Phil Tarrant: Yeah. So that is the price of the property, irrespective of any sort of mining that's going on.

Max Pagnin:  Correct. I didn't pay overs for it, I didn't pay more than it needed to be. In fact, I got a bit of a- we negotiated a slight discount on the asking price.

Phil Tarrant: Okay. Cool.

Max Pagnin:  So, yeah, as I said, it was purely just for the income. But it may go up in value, I'm not sure, who knows. If there's enough people, because obviously with a new mine being built, there's going to be a demand for more services, and nurses, doctors and things. Yeah. But as I say, if it doesn't, my fall back position is that it's going to at least, hopefully, give me my money back whenever I sell it, but in the mean time it's giving me that really good cashflow to help offset the negative cashflow from the Ellen Grove property.

Phil Tarrant: So, for at least what we're talking about here, is the insights into a more sophisticated investor, where every property has a purpose, is what we're talking about here. A lot of people just buy property for the sake of buying property that hopefully goes up in value and gives them rent. But you're actually pairing properties, you're strategically acquiring assets to serve a purpose.

Max Pagnin:  Absolutely. And I guess that's maybe my financial planner coming out of me. So when you're looking at a traditional portfolio for a client, with superannuation, or just a pure managed fund investment, you have to look at different types of funds and how they blend well together. You might have a fund that sort of focuses on the big stocks, and you might have a fund that focuses on the smaller stocks, that has a different profile, but yeah, you blend things together and that's sort of the way that I've done my property portfolio investing up to now.

Phil Tarrant: Okay, cool. Great. Okay. So what sort of properties from there?

Max Pagnin:  At that point in time, I also bought one in Tasmania. It was my first venture in Tasmania, which was a place called Midway Point. I bought that for 262 and a half, that would be worth probably 305,000 by now, and I'm getting 335 a week with rent. That actually came with tenants in place. Now there's obviously, yeah, a lot of people know that the Tasmanian market, especially Hobart has done quite well in the last 12 to 18 months.

            So I had been to Tazi and Hobart in particular a number of times over the years. I liked the place, I could see what was happening on the ground there. For those that have been there, if you go to MONA, it's a museum and sort of, I can't remember what it stands for but it's basically like an art museum, but they have some really funky exhibitions there, and sometimes controversial. But, it's a really cool place. It's always busy. And that has brought a lot of interest in terms of tourism to Hobart, but not only that the economy is actually doing quite well.

            So, I did a bit of research and saw what was happening on the ground in terms of the economy, in terms of jobs growth, and-

Phil Tarrant: So, these are looking for the fundamentals, which drive the increase in property prices.

Max Pagnin:  Exactly right. So, yeah, I mean, I'm not expecting the same growth as what I've had in Sydney, but once again, if I look purely from the numbers perspective, I bought it for 262 and a half and getting 335 a week rent, with tenants already in place.

Phil Tarrant: So good yield.

Max Pagnin:  A good yield, yeah.

Phil Tarrant: Good potential for capital growth.

Max Pagnin:  Exactly right, based on the fundamentals there, so that was the first property down there, and then I liked what I saw was happening down there, and I subsequently bought another three properties.

Phil Tarrant: In Tazi? In Hobart?

Max Pagnin:  Yeah, yeah.

Phil Tarrant: Heavy in Hobart.

Max Pagnin:  Heavy in Hobart, but, yeah, it's been a good call, whilst other experts have been talking about the Brisbane market and it hasn't done much in the same time period. I mean, all of my properties there have grown by 10% since I've bought them. And one actually, my second one that I bought down there, it was a cracker of a deal. I bought a two bedroom house that had a granny flat at the back, which I could sort of lease out separately. And that one there, we negotiated at $280,000, but as part of the building inspection, there was a bit of a crack in the granny flat, which was built at a later date, it was a one bedroom dwelling, and the inspector said there was some issues with the footings, and I got an expert report to see how much it would cost to fix, and this bloke said 26 and a half thousand to fix it.

Phil Tarrant: They took it off did they?

Max Pagnin:  Which I think was pretty hefty and they took it off the price. Cause I was actually going overseas for a holiday and I said, well if we don't take it off the price I'm not going to sign up. But it was a deceased estate once again, so they wanted to shift it. So okay, well let's take it off the price. Now that property there-

Phil Tarrant: Did you fix it, or did you just leave it.

Max Pagnin:  Well, no, because I since got another person to have a look at it when I got back from holiday.

Phil Tarrant: Yeah, two grand, don't worry about it. Cash.

Max Pagnin:  Well, no he said six and a half grand, but he even told me, he said, it doesn't need doing straight away. It's nothing pressing, it's not urgent, so I've got tenants in there and they've never complained about anything shifting, so it's not an urgent repair, but something that I'll probably attend to at some point. But that, now that property, if I look at what's happening in the market, that'll be worth, I would say a good 325,000. So, it's done quite well.

Phil Tarrant: Yeah, good.

Max Pagnin:  Yeah, so, in a short period of time, and I was getting 410 a week rent, for the two combined, so once again, health cashflow, good yield, and I've since increased the rent on both of them, so by $10 each, so I'm getting an extra $20 on what I was getting last year. And that's the good thing I like about the Hobart market, is it's got very strong rental yields. Low vacancy rates, from when I last read about it, perhaps the lowest in the country I believe, so yeah, from that point of view, you've got some good fundamentals in place. You've got strong yields, you've got demand for properties, obviously, for those rental properties, and obviously there's also a demand for buyers wanting to buy property to move into.

            And that's where the growth is coming from. Even if it grows for another couple of years, and then it stays stagnant for a while, at least I've still made some money.

Phil Tarrant: It's had some growth.

Max Pagnin:  Because I bought in at the right time, at the right price.

Phil Tarrant: Yeah, interesting portfolio. So, we spoke about, beforehand, every property's got a purpose. There's a reason why you've acquired these things, and obviously there's the immediacy of why you've secured them, but there's also a long term play as well, so you're looking at both.

Max Pagnin:  Yeah. Exactly. And the ones I've bought in Tazi, especially the last three, that I can add value to them. They're cladded homes, they're actually pretty funky colours. I've got one that's pink, I've got a green one, another green with a different tinge of green.

Phil Tarrant: Max, and his technicolored property portfolio.

Max Pagnin:  Exactly, exactly. But I can, I will be doing that at some stage, getting them repainted to a more modern colour. And that adds value, street appeal and all of that. And the last one I bought down there was in May, I got a bit lucky with that one. It had been fully renovated and I settled, sorry I exchanged just before, like 10 days before the budget announcement, to where they got rid of appreciation, yeah, so I jagged a good deal on that one. And, in terms of, as I said, if you've done a count, I've got about nine properties right this minute. And they cost me in total, this is pretax, $2,300 a year to hold.

Phil Tarrant: Collectively?

Max Pagnin:  Collectively.

Phil Tarrant: So that's based on, one costing you 15,000 bucks to hold.

Max Pagnin:  Yeah, closer to 17,000, 18,000 yeah. And all the others giving mostly positive cashflow. So, $45 a week.

Phil Tarrant: That's net.

Max Pagnin:  That's before tax.

Phil Tarrant: Before tax.

Max Pagnin:  Yeah, when I take depreciation into account, cause I've got depreciation schedules done, which I recommend every property investor gets done.

Phil Tarrant: Absolutely. Go and speak to BMT, they'll sort you out, or Washington Brown.

Max Pagnin:  Yeah, I use GUI Tax,  they looks after me, does, get some good money back on that. Basically, if you take the depreciation into account in the current financial year, I'll be about 15 grand positive cashflow.

Phil Tarrant: That's good.

Max Pagnin:  Yeah, I'm not going to complain

Phil Tarrant: Spoken like a financial planner.

Max Pagnin:  Exactly. As I said, there are clients that focus on the high growth properties, but sometimes you have to be able to hold those properties.

Phil Tarrant: Yeah, well it's a balanced portfolio now. So if you stop doing what you're doing, and just left it, and it was delivering you positive, after the impact or effects of tax at $15,000, if you don't do anything now and just left that portfolio. In 10 years, 20 years time, it would be a very, very different proposition.

Max Pagnin:  Exactly right.

Phil Tarrant: And that's the beauty of long term investment worth crashing through property.

Max Pagnin:  Exactly right. So, I'm, I guess you could call me the property investor's financial planner, because I understand what property investors like to do.

Phil Tarrant: And so, why, and we work with a lot of wealth advisors in our business. We've got big products for Instow, retail funds management, and financial planning, all that sort of stuff, right. But often, financial planers don't touch property, and just the reality of the market. But how do you find yourself a good financial planner who is property savvy. Because most of the time they'll stick you to some shares, or managed funds, or some trees up in Queensland, or- You know what I mean. Why is it that financial planners typically don't chase property?

Max Pagnin:  I think it's more of an industry thing, where it's not a financial practise so it's hard to advise on property and traditionally financial planners have made commissions on investment products, and especially those trees that you're talking about, and those ostriches and emus, and all that sort of fancy stuff. There was some big commissions paid to, at the time-

Phil Tarrant: Oh, I'd go with trees, and I'd just sit there going, what am I doing?

Max Pagnin:  Oh, yeah, shake your head don't you. So, traditionally a lot of planners, because if it's a financial product they can make a fee out of it, they will basically provide that product. And obviously, just in terms of the training we get, we're trained to focus on liquid assets like shares and bonds, etc. that are easy to liquidate. And property's obviously not that kind of investment. You can't sell a bathroom or a bedroom if you need cash out of your portfolio, whereas it's easy to pass a lot of shares.

Phil Tarrant: Chunk out shares.

Max Pagnin:  Exactly. And at the end of the day, look it is a bit of a diversification, whether it be properties. You should have some other assets that are more liquid as well, not just purely property. So I think it is a bit of a balancing act there.

Phil Tarrant: So your recommendation is balance.

Max Pagnin:  Absolutely, yeah. But at the end of the day, if you're looking for a financial planner that you trust, and ask the question, "Do you invest in property? Are you a property investor?" And then you'll soon find out if all they're talking about is shares, and that's all they're wanting to talk or put on the table, then that's not the planner for you.

Phil Tarrant: And is it okay to ask a planner, or a wealth advisor how you get paid? Is that cool?

Max Pagnin:  Of course it is. I would always ask how you get paid.

Phil Tarrant: Yeah.

Max Pagnin:  Yeah. It's a bit like engaging a buyer's agent. You want to know how they get paid, whether they get paid as a fee that they charge you or if the get paid from the commission from the-

Phil Tarrant: Financial seller of the property.

Max Pagnin:  Yeah, if it's a new property say, you should always ask that.

Phil Tarrant: Yeah. And a good financial advisor will be a fee for service type of operator, do you believe?

Max Pagnin:  Yeah, generally, these days, that's the way that the industry's going. Some might still be charging a commission, but generally it's mostly fee for service.

Phil Tarrant: Fee for service. And that is, I'm paying you for your advice.

Max Pagnin:  Exactly.

Phil Tarrant: When you look at my personal wealth situation, without any prejudice-

Max Pagnin:  Product advise.

Phil Tarrant: ... or product preference anywhere else.

Max Pagnin:  Correct.

Phil Tarrant: This is you, this is a solution that meets your needs.

Max Pagnin:  Absolutely, yeah.

Phil Tarrant: Yeah. Based on your appetite for risk, no doubt, based on your assets that you currently have, based on your capacity to earn, based on your age, based on all that sort of stuff.

Max Pagnin:  Exactly. And everyone's different, because I see clients. I always get asked one of these questions, "So, how much do I need to live on when I retire?" And that's, well how long's a piece of string? Exactly. Cause, I know clients that quite comfortably will live on $35, $45,000 a year, but then I know other clients that if they didn't have a 100 grand coming in every year, they would be struggling. So it depends on lifestyle, and I guess what you're used to.

Phil Tarrant: Yeah, and that's what you should be thinking about when you're looking at wealth creation, As in, what do you want your life to be at a point in time when you choose not to work anymore, or your forced not to work anymore.

Max Pagnin:  Exactly.

Phil Tarrant: And work backwards from there.

Max Pagnin:  Yeah, that's right. You've got to always look at the end game. What are you doing it for. A lot of the people listening to this podcast will be saying, well I'm buying all these properties. So I'd say, well why are you buying them, what's the end game? What do you want to achieve from that portfolio. What's the plan from that portfolio. What's it going to do for you in the future. Because at the end of the day, as you said, retirement is for me, it's not where you must retire by a certain age, but it's having the choice to make that decision. Yeah, I don't want to work anymore, or I might only want to work two days a week, whatever it might be. I want to take six months off a year, it's having those options available to you. But if you don't plan, you're not going to get there.

            So, whether it's shares, or your super, or property, you must have a plan in place for that long term.

Phil Tarrant: Yeah. And when would you, or when do you say to clients you would choose shares over property. It's a big question, but when you look at the growth in the share market over the last 20 years, over the growth in the property market over the last 20 years, most of the wealth, most of the increase in share markets is because of one or two, or a handful of incidences that pushed it way up before they come right down. It's very volatile share trading, is my view, unless you really know what you're doing. If you're in and out, or you're a day trader, you can make a lot of money, and you can lose a lot of money as well. And most Australians, in some capacity have some exposure to the share market because of their superannuation.  Whether it's in a retail or an industry fund.

            I have exposure to the share market because I have a retail fund, which I've spoken about before, I get a woeful return on. Which I'm going to change it into a superfund, but anyway, different conversation. But how do you know, because most Aussies, just don't have the sophistication to invest in shares, I believe.

Max Pagnin:  Exactly, and you're right and most people have exposure to shares via the super, whether they know it or they don't. And the good thing about that type of exposure is the fund managers that manage that money, generally will invest in good quality stocks and good quality companies.

Phil Tarrant: You hope so.

Max Pagnin:  Well, that's right. They're not going to invest in some speculative share that's worth 10 cents that might go up to a dollar, but it might go down to one cent. So at the end of the day it's about the research that they undertake to buy those sorts of shares in companies that, long term, will do well, and at the end of the day, shares, like property is a long term game. But you do, do very well with shares as well. But it does give you that liquidity that property just doesn't give you. And so, as I said, when I see client, okay, what have you got in terms of liquid assets that are still going to grow for you, but if you need to, in the future cash out for any reason, you've got that flexibility. You can move quickly, yeah.

Phil Tarrant: Yeah. Good. Well, so Max, enjoyed the chat.

Max Pagnin:  Yeah, yeah, likewise, yeah. So-

Phil Tarrant: Nice to finally meet you and get you on, let's get you back in and we can probably continue, I know you shared primarily your property portfolio today, so thanks for that. And one of the key learnings I would take from Max's portfolio's construction is the fact that it has been very deliberate about how he's going about doing that. Knowing that some properties are going to deliver great yields and not deliver capital growth, on the other side, some are going to deliver capital growth and not the yield, and also, a couple of long term plays in there. Which you might say is a bit specky, in terms of land banking, and it's costing you quite a lot of money to have that play, but if it comes off you should be sorted.

Max Pagnin:  Yeah, and that's, yeah, that one obviously is speculative but it's balanced out by the other properties, so I've got the cashflow. If I have a look at my overall portfolio, apart from that one with the land banking opportunity, the rest I'm getting a gross yield above 6% for all of them.

Phil Tarrant: Pretty good.

Max Pagnin:  Yeah, on what I've paid, in terms of the year. So it's pretty good.

Phil Tarrant: Nice. We'll get back and also talk about this whole wealth crashing thing, and we haven't really touched on the need for protection as well. And I know a lot of people don't want to think about insurance, and dying and all that sort of stuff. But you need to make sure it's part of a good wealth crashing strategy that you got that stuff as well.

Max Pagnin:  Yeah, absolutely, because a lot of property investors I come across are quite well geared in terms of the loans that they have out there. And they're exposed and if something happens from a position of, even if it's not a death, but it could be an illness or a disability that they're off work for six to 12 months, then that's going to have a significant impact on their cashflow and the ability to keep repayments up on their home, or their property portfolio.

Phil Tarrant: Yeah, things start getting tricky.

Max Pagnin:  Exactly. So you need the right safety nets to make sure that if something happens, you and your family.

Phil Tarrant: And, also, good estate planning as well.

Max Pagnin:  Absolutely.

Phil Tarrant: What happens at some point in time, yeah. We all meet our maker. And so, thanks Max.

Max Pagnin:  Thanks Phil.

Phil Tarrant: Remember to check out today. If you're not receiving our daily morning market intelligence, If you're on the social stuff, just search Smart Property HQ. If you want to chat with us, [email protected] will answer your questions, and please keep those reviews coming on iTunes if you like what we're doing. Just hit five stars, and the team do enjoy the feedback. We'll be back. Until next time, 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.



The benefits of financial planning and how it can boost your portfolio
Max Pagnin, financial planner and investor
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