INVESTING INSIGHTS WITH RIGHT PROPERTY GROUP: The cost of money – can you service your debt?

Sadly, rising house prices, subdued income growth and unmanageable household debt have led the Australian Prudential Regulation Authority (APRA) to cool Australia’s hot property market by clamping down on interest-only loans and tightening investor lending.

In the latest episode of Investing Insights, the team from Right Property Group partner up with host Phil Tarrant to explain what this means for buyers, what it takes to be financially responsible, as well as their thoughts on the ‘speculative investor’ and why some people shouldn’t be investing at all.

For more information on these changes, tune in to the latest episode of Investing Insights!

Full transcript

Phil Tarrant: Well, good day everyone. It's Phil Tarrant here. Thanks for joining us for our monthly education series, Investing Insights with Right Property Group. For those of you who are new to this podcast, it's a monthly initiative that we do in conjunction with our friends at the Right Property Group and I've got their two directors in the studio, Steve Waters and Victor Kumar. How are you going guys?

Steve Waters: Good. Well, mate. Yourself?

Phil Tarrant: Good. It's been an interesting couple of weeks in the world of property investing and mortgages. If you haven't been aware or you haven't been keeping up with the news, APRA's sort of making some noise at the moment around mortgage lending. Particularly high LVR stuff and interest only stuff that's having an impact on investors.

For those of you who, sort of, follow the growth of my public portfolio, you'll know that the Right Property Group work closely with me as my advisor agents to find me the best properties that suit my needs and my portfolio growth over the years. This podcast is very much a way in which we can step away from a lot of the stuff that we do on the Smart Property Investment Show, where we talk to investors, and we can actually get down and dirty into the strategy of investing property. And the many and myriad tips, traps, tricks that you can find along the way.

What I wanted to do today, considering some of the noise coming out of APRA and overall noise particularly as we come up to the federal budget soon around trying to make housing more affordable, is have a chat with the guys and just really get their insights on the market as it is right now. But importantly, and something which I know is very highly connected to the way these guys invest and advise, is around responsible investing.

By responsible investing, I mean being responsible for your own investment strategy, being responsible for your own investment results, being responsible for your own financing. I find that a lot of investors are quick to blame other people if things aren't working out for them. My position on this is that, you can have the best advisors in the world, but you need to be able to put your hands up and make your own decisions, and be confident and comfortable in your own decision making.

So, I preface that with what APRA is saying right now. And Steve, you've had a good look at some of the communication coming out of APRA.

Steve Waters: Yeah.

Phil Tarrant: In particular, they put out a bit of an open letter to ADI. So, an ADI is an Authorised Deposit-Taking Institution. Which means they have savings accounts, really. Where they're trying to get the banks to curb lending to investors. The purpose of that is to hopefully take a little heat out of the market, and we'll talk about the market right now. If you've been keeping connected with what's going on in property markets ... The Australian economy, there's a lot of noise around the rampant growth of Australia's property markets.

I think a lot of people get confused thinking that properties firing all over the place in Australia. And everyone's becoming a bazillionaire out of property in Australia right now. But when you look a lot closer, some markets are performing quite well. You look at Sydney, keeps its sort of ongoing growth. But, there's a lot about the markets in Australia right now, which are hurting.

Steve Waters: There is, and I think, there in itself is the problem. People are tending to benchmark every single one of their potential results, and every other state or suburb against Sydney and Melbourne. Because, realistically, there is really only two markets that are out performing the average, and that is Sydney and Melbourne.

There are markets on the west coast, such as Perth, that is rapidly decreasing. Northern Territory, Adelaide's steady, Canberra's going all right, all the ACT's going all right. Yeah.

Not every market is Brisbane and Melbourne with these recent APRA changes. Which, in my opinion, are long overdue. Be it I'm not sure of every single one of the potential change is the right way to go, but they will deem to think so. I think they're long overdue. We do need a change, we need some steadiness within the market, and that all starts around the lending.

Phil Tarrant: And we've been investing with you guys for quite some time. I remember from very early days, when I was a young investor looking to build a portfolio and build a portfolio quickly, you guys were always conscious of making sure I applied my own brakes along the way. I was quite bullish initially, and wanted to move quite fast. You guys were pretty influential in shaping my view towards growing a responsible portfolio. Where I wanted to go hard really quickly and you're like, "Well, you need to slow down. Find your feet. Get your confidence. Understand the markets, understand the game."

Steve Waters: Yeah.

Phil Tarrant: Victor, this is something... You must have hundred, if not thousands, of clients over the years. Do you find that most investors come into the market, if they're new to it, really bullish and want to be rich overnight through property investment? And I wasn't that person always...but these are people with a very different paradigm about what property investment is going to do for them.

Not everyone wins in property investment, do they?

Victor Kumar: No, they don't. To go back to your comment, Phil, you started as a young investor. You've graced ... You've aged gracefully.

Phil Tarrant: I have, haven't I? No stress portfolio.

Steve Waters: No, no stress portfolio.

Victor Kumar: Yeah, that's right. There's... The portfolio's not pretty-

Phil Tarrant: I'm like a fine wine, aren't I?

Steve Waters: Mouldy. Mouldy.

Victor Kumar: Most people, when they start investing or they look at investing, they are usually inspired by a young, good result story. Especially now, with the advent of social media. They try and emulate that quick result, but what they don't see is behind the scenes what has happened. There would have been education behind the scenes. There would have been some mistakes behind the scenes that people don't talk about openly.

As you know Steve and I really openly talk about our mistakes. They try and get on to a running start without addressing the fundamentals. And the fundamentals of property investing is really simple. If you can't afford it, don't buy it. So, you need to take into account changes in terms of interest rights. Changes in terms of life events. Employment, and all those sort of things. And forward predict that when you're investing in properties, so that you're not ending up trying to play catch up in a market that's rapidly moving.

A lot of people are jumping into Sydney, as an example right now. Where the yields are rapidly diminishing, the prices are still on an upward trajectory, and it will become unaffordable as soon as you have one or two interest rate rises. So, people come in with dollar signs in their eyes and thinking that it'll all pan out, we'll find a way of holding on to the property. Or they don't even address the negative side of investing, and only address the positive side and think that everything will pan out. That's when they get caught out.

So, we have... With every property cycle, we have measures put in place. Whether it is by the government. Whether it is by the lenders, themselves. Sometimes they are to capitalise on the market itself, and sometimes they are to curb the market. So if you go back to the last cycle, in New South Wales, we had those vendor taxing brought in.

Phil Tarrant: Yeah.

Victor Kumar: Yeah. That was a way of both capitalising and curbing the market, and curb the market it did. With APRA, they've started this, so called, curbing the market since 2014. It's been a long process. We're in 2017 now, and adding more and more measures in place. In my opinion, to prevent what happened in the last cycle, where we ended up starting to see 106 per cent loans back then as an LVR on a single property, so it wasn't leaning against the equity of another property. A lot of those people, when the interest rates started going up, they paid the ultimate price in either losing their homes, or losing their credit rating because they couldn't keep up with the repayments.

When you're investing, you need to be responsible about it. You need to understand that things won't be rosy all the time.

Steve Waters: I think you've hit the nail on the head Victor. This is just history repeating itself with a few different tweaks to it really and it's all starting from the lending. So, the last cycle we had the low doc loan. So, it was, "How much money do you want? Sign here, press hard," and there it is.

This is a little bit the same, being that money was pretty easy to get. Over the last couple of years, we had the 95 per cent loan, interest only. Plenty of 90's around. I think, for the banks to come out and say, "Look, you know, we're responsible lenders"...

I'm not going to bash the banks, but for them to say, "We're responsible lenders, we really want to be looking out for you." For a lot of people the horses bolted. They should have been doing this some time ago.

All that aside though, this isn't a doom and gloom scenario. I think this is... It's a necessary step from APRA, or from the banks. It's a necessary step that will slow the markets down and perhaps, I suppose, get rid of the peripheral investor that as you said earlier on...

Victor Kumar: The speculators.

Steve Waters: The speculative investor...

Phil Tarrant: People that probably shouldn't be investing.

Steve Waters: Shouldn't be investing. Yeah, the cash flow's too tight, whatever it may be. They've got that whole FOMO scenario, where they just think, "Well property's the flavour of... Let's just jump in. Throw a dart, hit a map and we'll buy there. As long as it's Sydney."

Victor Kumar: So, these are the investors that are playing catch up.

Steve Waters: Well, these are the ones that... Yeah. Yeah, and I think it also really ties in with this whole adage that property investing is a passive investment vehicle, and it is the furthest thing from the truth. So, if you're right up to speed with your portfolio and you're continually working on it, you'd be well aware that the lending changes are going to happen months ago.

You'd have been speaking to the right people. In that particular case, it'd be your broker looking to adjust your rates, maybe even fixing some. Being involved in your own portfolio as opposed to just sitting back and saying, "Well, look, time will take care of itself, I just know it's going to go up," and not look after the fundamental, which is cash flow, which is what it's all about with lending.

Victor Kumar: Yeah, and so if you explore that a bit more Steve, a good portfolio is adjusted to the market conditions. Also, forward predicting what's going to happen in the market. Not necessarily in terms of where the economy's going to be, or where the property prices are going to be, but what's going to happen in your life and, also, things like the APRA changes.

So, it may be that you actually stop buying that particular type of property that's going to add more and more negative cash flow to your portfolio. Readjust the portfolio, bring forward a few constructions or subdivisions if those are the types of properties that are tucked away in the last cycle in your portfolio. To then make yourself more attractive to the bank, and, also, make yourself a bit more immune to what's going to happen in terms of lending changes.

Phil Tarrant: Let's have just a real quick look, before we move on, about what these APRA recommendations are. Steve, you touched on one. It's around sort of... It's a cash flow situation, but serviceability assessment.

I spoke with my broker the other day, and money might be 4 per cent right now, you can get it. But, in terms of your ability to surface a debt...

Steve Waters: Yeah.

Phil Tarrant: Lenders are looking at your serviceability at, sort of, 7 per cent on principal and interest as well. Which is really impacting the amount of money that investors can get, and I don't have much of a problem with that. It just means that, if you're going down this path, you'll get a nice fat buffer if your circumstances change.

Responsible investing, that's sort of okay.

What APRA's really trying to do is probably to take that peripheral part of the market out, just curbing interest only lending from 40 per cent of new lending to about 30 per cent of new lending within banks, or ADI's, or loan books.

So, it's really just curbing the number of loans they're putting out on an interest only basis. Now, you need to remember, also, a lot of people frame interest only lending as only relevant to investors. I think one of the key issues is that a lot of people have their principal place of residences...

Steve Waters: Residences as interest only.

Phil Tarrant: As interest only. Which doesn't make a lot of sense. It depends if you're trying to ramp up a portfolio, and drive hard, and obviously this is just general information. Some people might switch to interest only. But, I think most banks and APRA will be saying, "Well, why do you really need to have interest only on your principal place of residence."

So, that's another thing as well, they're trying to slow down the interest on lending. They're also trying to slow down LVR's above 80 per cent. So, anything between 80 per cent and 100 per cent you obviously need to pay lenders mortgage insurance, on which insures the lender, in case you default.

APRA's pretty much going, "Is there a good justification on why you're borrowing above 80 per cent?" So, it means that you're putting 20 per cent of the money in, the bank's putting 80 per cent of the money. If you're putting 10 per cent of the money in, the bank's putting 90 per cent of the money in.

Why is that the case? How is it going to influence your ability to service that debt?

So, these are just a handful of the recommendations APRA's putting in place. Obviously, a little while ago, they said that they wanted banks to limit their lending to investors, the growth in their loan book under 10 per cent. Most banks really adhere to that, but let's be frank: when you look at the value of most Australian banks it's in their balance sheet. It's their mortgage book.

Steve Waters: That's how they make their money, right?

Phil Tarrant: Lenders want to lend money, you know, that's what they do. They've got to deliver the shareholders. You'll find that most lenders will red line that 10 per cent growth – it'll be 9.999 per cent. You will see lenders often just putting in different conditions and clauses. If they're going to close to that line, they'll sort of slow down a bit. One major bank stopped doing, I think it was, top ups on investor loans for a year at a time.

Steve Waters: Yep.

Phil Tarrant: So, there's a lot of mechanisms that banks can use to try and keep connected or adhere to these APRA requirements. Because the banks don't want additional oversight, but they'll play the game according to APRA. My position on this is that, what APRA's saying makes a lot of sense to me personally.

Steve Waters: Absolutely.

Phil Tarrant: It makes a lot of sense. If you're looking to borrow money, and at 4% you're struggling to pay your mortgage, you probably shouldn't be investing.

Steve Waters: You probably shouldn't be doing it.

Phil Tarrant: You probably shouldn't be investing. These are the type of people that I think they're trying to take out of the market. The idea is that without those people in the market, it's going to take a little bit of pressure on supply. Because there's not going to be more people buying properties, and therefore it should, hopefully, slow down the market a little bit.

But then again...

Steve Waters: Which is what we want, which is what we want. As sophisticated investors, we want this market to be steady. We don't want the peaks and troughs. We certainly don't want Sydney, even though it's nice owning property in Sydney, to have the results. It does play with the subconscious and really the averages, at the end of the day.

Phil Tarrant: Those guys see a lot of opportunity with less investors in the marketplace-

Steve Waters: I would love it, you know, everyone go away. It would be awesome. It's just not a fact of life.

On something about APRA and 80 per cent LVR, everything... Like, a lot of this is smoke and mirrors from APRA and from the banks, because most investors will draw in equity from their principal place of residence. Let's say it is at 20 per cent. Effectively, it's 100 per cent borrowings across the portfolio. Although reading these statements and looking at them and comprehending them, it is still a little bit of smoke and mirrors via the banks at the end of the day.

I think bigger deposits, and if it's genuine savings, that's a different story, and that's not a bad thing at all. I think the biggest key here is the cost of money. So, it's the rate, the interest rate, 'cause you're not going to lose your portfolio over lack of equity or declining equity. It'll always be about cash flow.

Phil Tarrant: I was actually chatting with someone this morning about mortgage lending and the rampant growth in property price. We had a clearance rate in Sydney last week in 80 plus per cent, right?

Steve Waters: Yeah.

Phil Tarrant: With some properties going a couple of hundred thousand dollars over the reserve, right? I said to this, it was a mate of mine, and I said, "For every $100,000 over that you might spend, at 4 per cent interest only, that's $4,000 a year."

So, if you spend another $100,000 over and above what you expected, it's only costing you $4,000 a year to hold that extra $100,000 out. This is one of the points, right, money is cheap and therefore... It'll be all right it's only four grand, but if that property's going up in value at whatever, it's not an issue at all. The issue is when money gets more expensive.

Victor Kumar: That's right.

Steve Waters: Exactly. When it gets to 6 per cent, or whatever it may be, but the reserve banks ... Well, we're not going to get into the whole economics debate, but the reserve banks were a problem in terms of lifting rates, the economy's not that strong, jobs growth, what have you. So, it's up to the banks, and that's one of their major labours. Then the labours will be passed on from the banks down to the investor.

And, once again, it's not about that we look forward to this. We've been saying it going to happen for the last...

Victor Kumar: For years.

Steve Waters: Yeah, for the last couple of years. For us, it's happy days. This is what we've been waiting for.

Phil Tarrant: So my thoughts are around, and we're coining this term "responsible investing". A lot of people frame responsible investing by what the rules are and what they can get away with.

Steve Waters: Yeah.

Phil Tarrant: Right? My thought of this is that, it should be the other way. You should be setting your own rules. Obviously there are parameters for which you can invest in a bank, or set policy, to influence how much you can borrow. But, you shouldn't be borrowing as much as you possibly can because the bank's willing to give it to you. You should be investing within your means, based on a strategy of what you want to achieve over time.

I think this is…chicken and the egg, or whatever analogy you want to use.

Steve Waters: Absolutely. One of those things is to be liquid. Liquid all the time. Have your buffers in place, because you're a stronger applicant to the banks. At the end of the day, it's all about risk for them. So the less risky you are, the better the applicant you are. Potentially if you follow that all the way through, you'll get the money, whereas others won't.

Phil Tarrant: So, Victor, let's take on this term, being a responsible investor. If there was three or four things to be a responsible investor that you should be framing your goal setting, framing your portfolio growth, framing your strategy around. What would be those things?

Victor Kumar: First, and foremost, is don't try and play catch up. Don't try and compete with someone else who's got two more properties than you, or who has just bought eight properties and you both started together. You've got different set of circumstances, you've got different things happening in your life. So, that's the first and foremost thing that you need to look at.

The second thing is that, at the end of the day, just like Steve said, it comes back to cash flow. If you are able to afford to hold on to the portfolio, that's what would be the key thing in terms of building the portfolio. So, you would potentially buy properties where you can add that extra cash flow, or by doing a subdivision, or granny flat, or a greater renovation for capitalising on the increased rentals. If you've got your portfolio based that way, and you cross different state, not having all your properties in the one state, so that you are off different market cycles, you can play one state against the other in terms of how you finance and what you do with your properties.

At the end of the day, at some point in time you've got to stop buying and start paying those loans down. Whether it is through your various exit strategies, which we'll discuss in the later podcasts, or whether it is actually letting time do its magic. Over a period of time, you'll find that your loans are insignificant in terms of the value of the property. Equally importantly, if both in the right areas, where you've got good infrastructure and population growth, your rents continue climbing, which then helps with the cash flow.

Phil Tarrant: So, anecdotally, when you look at your client base, would you say you've instilled that principle of responsibility into all of them, like you have done with me. Where they know that you're a trusted advisor working for them, but it's incumbent on them to be responsible for their own position.

Victor Kumar: That's right.

Phil Tarrant: Would you say that that is a fundamental?

Victor Kumar: It is. It is. Absolutely, it is. A lot of people tend to abdicate that responsibility, and you see that often with the current fear factor of, "I took advice, and it didn't pan out the way it was planned."

That's life if you haven't addressed the fundamentals, which is the affordability and building for a storm, but enjoying the sunshine as they say, so that you are able to weather all the storms that come through. This is a small storm, in a heavily...

Steve Waters: In a teacup.

Victor Kumar: In a teacup, that's right. A heavily leveraged portfolio, right? It comes back to, in the beginning when you're talking about your portfolio, the LVR position overall is around the 70 per cent mark. Which gives you that option to change things around in terms of finance, and self-worth. Part of our process with our clients is, we do a regular review with the portfolio, so that we are planning for these glitches in terms of cash flow.

We are also actively stopping our clients from buying if we feel that they're going way too fast. Now, some of them don't listen and they go on and buy further properties, but we try not to facilitate that. 'Cause, at the end of the day, if you're buying too rapidly and you're not taking into account the negative cash flow that you're going to accumulate. Whether it is negative cash flow in terms of differential between rent and mortgage repayments, or whether it is negative cash flow because of loss of tenants and repairs, and so forth.

They all need to be catered for, and still have money left over, so that we can then live to fight another day.

Phil Tarrant: So, you guys, you're not mortgage lenders, per se. But you work very closely with your clients to ensure that the ability to service their loans puts them in a comfortable situation to help them grow and build their portfolio. So, what APRA is saying is that there should be requirements, and lenders are doing it right now. If money's 4 per cent, but they're looking at your ability to repay debt, at say 7 per cent on a principal and interest only basis.

Victor Kumar: That's a good thing.

Phil Tarrant: Would you say that's a good buffer?

Victor Kumar: Absolutely, yep.

Phil Tarrant: Irrespective of what... Even if you don't use an ADI, they're not affected by these changes, or these recommendations from APRA. Would you say, as a guiding principle, you should be looking at your ability to hold your portfolio at that level?

Victor Kumar: Correct. Absolutely.

Steve Waters: All the time. But I think it's the... The problem that, in a way, as advisors or even as investors and speaking to other investors have, is that it's not so much the mortgage debt that is the problem. It's the auxiliary debts surrounding it, such as the car loans, or the leases, the credit cards, and what have you. Because let's not forget, there at huge rates. Huge.

Just quietly, and as a side note, if the banks really wanted to be responsible...

Victor Kumar: Cut down the credit cards.

Phil Tarrant: Well those credit cards – 21 per cent interest rates.

Steve Waters: It's a joke. Compounding.

Phil Tarrant: People are holding twenty grand debt on a credit card at 21 per cent.

Steve Waters: That's crazy.

Phil Tarrant: It's just ridiculous.

Steve Waters: That's a mortgage.

Phil Tarrant: You could pay a mortgage off with that.

Steve Waters: Yeah, I know, right? So, like, have a look at that, thanks.

I think, at the end of the day, people really need to take responsibility for their own scenario and situation. Advisors, like I said, can provide all the tools, but we can't go to the point of having AVOs out on us for... Saying, "Have you done this? Have you done that? Have you done this?" So, there's got to be that self-responsibility.

Phil Tarrant: All our listeners, right now to this podcast, everyone should just do a quick reality check, I think.

Victor Kumar: Absolutely.

Phil Tarrant: So, where would you start with that? Would you look at that serviceability? What would I need to be paying, as of right now, for my portfolio, if rates went up to 7 per cent?

Victor Kumar: I guess, the first question you've got to ask if you're an investor is, do you know your numbers? Right now.

Phil Tarrant: The cash flow?

Victor Kumar: Yeah. So, take the tax benefits away, what is it really costing you to hold your portfolio, right now?

Phil Tarrant: In cash terms.

Victor Kumar: In cash terms.

Steve Waters: Pre-tax, in pre-tax dollars. To answer that question, if rates got to 7 per cent and coming back to what I said earlier about being either a passive investor or not, there is no excuse for you to let your rates get to 7 per cent in today's market. You can quickly fix loans at 5 per cent for the next five years.

Being involved in your own portfolio, it would not get to that stage. In five years’ time, you might come off and they might be 7 per cent. That's the future that no one knows.

Victor Kumar: The place you've got five years to plan for.

Steve Waters: Yeah, in five years, three years, two years fixed terms gives you multiple opportunities and massive amounts of time to rectify life for whatever has gone wrong in that cash flow scenario.

Phil Tarrant: If you have a good performing portfolio that you've bought well... So you've bought property that hopefully you've got an equity gain on the way in or you've manufactured some equity, in terms of being an investor you should always be thinking the "what if" scenarios.

If I had to get out of this, today, if the sky fell in and I had to liquidate and fix my financial position. What would be my net result if I was to liquidate one property, two property, or my whole portfolio, would that get me out of trouble?

I think about this all the time. What is the absolute worst case scenario, and if everything went to shit, would I be okay? Yes, no worries, that's okay.

So, that's part of being a responsible investor.

Steve Waters: I think it is. I'm exactly the same. I run three budgets, whether it be on my portfolio, or my life, or the business, whatever it may be. The top end budget, which is not airy fairy, but let's talk about a portfolio here, but it's where it is. That's the top line budget.

I run a middle budget, whereas if I have a bit of vacancy, then I have this absolute flatbed budget. Worst case scenario, can't get a tenant, rates go up to 10 per cent, and what do I need to do to survive? So, that gives me that sleep at night factor, 'cause if I've got that covered in all scenarios...

Victor Kumar: You can't go wrong.

Steve Waters: Then bring it on, because it'll give me opportunities elsewhere.

Phil Tarrant: What you would need to do in that situation would be, you would need to offload a couple of assets and probably fix your cash position, so you can maintain or hold the rest of the portfolio.

Steve Waters: Correct, it wouldn't get to that stage because I'm involved in my portfolio every day. If I'm not, someone else in the office is, as we talked about before. It's about having the buffers in place and cash is king. We've said it all the time. For the last couple of years, everyone's saying equity, equity, equity. We said no, no, no, cash is king. Have it somewhere, whether it's an offset, redraw, or whatever it may be, but you need to be...

Victor Kumar: Have the money before you need it.

Steve Waters: Always.

Phil Tarrant: Do you think this is getting that? Slowly, but surely?

Steve Waters: No.

Phil Tarrant: Or they're going to be forced into it because the banks...

Steve Waters: I think for a lot of investors... Sorry, no. For some investors, I think it's too late for that. They've utilised every little bit of equity cash, whatever it may be, that they have and if they keep their jobs they might survive. But, there'll be a portion of people that will, unfortunately, suffer and they'll probably suffer hard. I think, and I'm hoping, the majority of investors, with the amount of education that is out there and there is some really good education that is out there that you don't have to pay for, that perhaps they've got themselves in a really good position where they can now perpetuate their portfolio, because others can't.

Phil Tarrant: So, if you feel overexposed right now... If people listening to this are going, "Yeah, that sort of sounds a bit like me. If I just get one thing that falls over, I'm going to be in trouble," Victor?

If you are, sort of, feeling a little bit over-exposed, what should you do?

Victor Kumar: First thing is to do a reality check, so look at all of your mortgages. Talk to a broker, see whether that can be fine-tuned, and protected against any imminent rate rises. Because they will go up.

Phil Tarrant: Yeah, it's going to happen. For sure.

Victor Kumar: That's right, yeah.

The other thing, you need to really look at all of your rents, whether you've put them up. Try and fix it that way. If you really want to take a drastic measure after speaking with an accountant, see whether you need to offload a property or two, so that you can live to fight another day. There's no sense trying to hang on to something that you're just waiting for the inevitable, and then losing a lot at the worst time possible. You might as well just rationalise your portfolio now, so that you can then capitalise and rebuild later down the track.

Steve Waters: So it's okay to, if you don't have a massive advantage, to retreat now and live to fight another day when your feet are stronger ...

Victor Kumar: Regroup.

Steve Waters: Regroup. Move forward.

Phil Tarrant: And learn.

Victor Kumar: In terms of your earlier comment Steve, with buying properties, properties need to be bought taking to mind your own financial finger print. In the sense that, it needs to match what's happening in your life, right now. Your income, how much negative cash flow you can afford, whether you can afford a prolonged period of vacancy or repairs, or anything like that. They need to be taken into account.

Someone buying, as an example, in Sydney and you're trying to emulate that person, that might not be the right property for you. Because you can't afford the negative cash flow that most Sydney properties bring to the table right now. So, you’re better off buying in another area. Which may be Queensland, could be any of the other states. Where the property market is still going up, and the yield are significantly better and your deposits, especially considering that most lending will go down to 80%, there's less deposits required.

Phil Tarrant: Okay. Really enjoyed the chat. What I would take out of it is it comes back to being responsible for your own portfolio. Don't outsource responsibility. Be aware of your situation all the time.

Victor Kumar: Be proactive.

Phil Tarrant: If you need more information around these APRA recommendations, I highly suggest you speak to your broker. They should know, and if they don't know, find a new broker. It's a bit harsh, but it's fair enough I think. Or go speak to your bank directly, but go to the APRA website yourself. Just Google it. Look at the most recent press releases, and stuff. You'll see this open letter in particular, which was dated 31^st of March.

It'll just give you a bit of an insight into some of the parameters that the banks are having to operate within, and it's just working out how that's going to influence the way in which you can either maintain your portfolio, or continue to invest in ... There's opportunities in every market isn't there, Steve?

Steve Waters: Always.

Phil Tarrant: The more in tune you are with your personal situation, the more in tune you are with the market, the more in tune you are with your ability to borrow, the better you can capitalise on those things.

Steve Waters: One final comment. Everyone be aware, though, as finance is tightening up and that perhaps your pre-approvals are running out, that you shouldn't get FOMO and just jump in and use it, just for the sake of using it.

Phil Tarrant: The asset still needs to stack up...

Steve Waters: Absolutely. So, don't forget the fundamentals of why you invest in property.

Phil Tarrant: You obviously want to buy something that's going to go up in value as quickly as possible, and it's as cheap as possible to hold.

Steve Waters: Absolutely.

Phil Tarrant: That's pretty much the basic fundamentals, isn't it?

Steve Waters: Yeah.

Phil Tarrant: That's good. Thanks guys, I really enjoyed. For our listeners, if you've just found this podcast, thanks for tuning in. There's a whole bunch of other episodes that we've recorded, in depth episodes talking about a lot of the issues in investing in property, and the opportunities. The most recent one was around negotiating property, which is really good, really drawing on these guys' experience negotiating on hundreds and hundreds of properties every single month.

We speak about, also, other episodes. Why a Balanced Portfolio is an Important Factor. Units versus Houses. Goal-setting.

We busted a lot of property myths. We also look at a lot of things that successful property investors don't do. So, go back, look at the other episodes, listen to them.

If you've got any questions on this episode, or any of the other podcasts that we've recorded, email questions at rightpropertygroup.com.au. You can also check the guys out at the same place rightpropertygroup.com.au. You're on all the social stuff, just search Right Property Group.

Any questions, these guys' would be happy to chat with you, just drop them an email and try to take up the time to get them on the phone. They'd be happy to help out. Even if you just need information, it's the best way to go about it. That's probably the most fundamental thing that all responsible investors have, and it's a passion for education. It's a passion for better knowledge of the marketplace, so they can make more informed decisions.

I hope everyone listening to this is a responsible investor. If you're not, start thinking about how you can be better at it, because the world is changing and change has a lot of opportunities in it. If it's going to get tighter to borrow money, that's okay. It's going to take some people out of the marketplace. But for smart, savvy, educated investors, there's a lot of opportunities out there, so go and get them.

Thanks for joining us guys.

Steve Waters: Thank you. We really enjoyed it.

Victor Kumar: Thank you.

Phil Tarrant: We'll see you back again next month on Investing Insights with Right Property Group. Thank you. Bye.

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