Leverage Equity: The Real Engine Behind 1 to 20+ - Pt 1

Episode 14: Leveraging Equity – The Engine Behind Property Wealth

In this episode of the TFS Wealth Cast, we dive deep into one of the most powerful and often misunderstood strategies in property investing: leveraging equity.

Premu breaks down why equity isn’t just a tool, but the engine behind building a scalable property portfolio. From real-life examples of growing from one property to multiple assets, to practical frameworks on when and how to access equity, this episode delivers a clear roadmap for turning existing assets into future opportunities.

We cover:

• How to structure and use equity the right way
• The compounding effect of smart property investing
• Interest-only vs principal & interest strategies
• How offset accounts can accelerate your growth
• When to refinance and how to time equity release
• Why LMI isn’t always a bad thing and how it can fast-track your portfolio

Whether you’re sitting on untapped equity or already investing, this episode will help you think differently about your next move and how to build momentum in your property journey.

💡 Plus: Learn the exact first steps to take this week if you want to turn your home equity into your next investment.

Any information discussed or provided in this podcast is general advice and has been provided without taking account of your objectives, financial situation or needs, you should consider the appropriateness of this advice before acting on it. If this general advice relates to acquiring a financial product, you should obtain a Product Disclosure Statement before deciding to acquire the product.

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Transcript

SPEAKER_02 0:17

Hi guys and welcome to another episode of the TFS Worthcast Podcast. And our last podcast, the two-part series podcast where we had Sonali and promo it was uh the reception was extremely positive, and then we had uh most of our viewers and some of our clients reach out to promo Sonali and tell them you guys need to do more two-part series. So, because of that, this is the first episode of another two-part series, followed by another two two-part series that we've got planned. So, in total, we're gonna have another six episodes coming out, right? Uh, so without any further ado, let's kick things off. And to start off this series, we have Pramu here today. And uh the topic Pramu, what is this topic that we're gonna talk about today?

SPEAKER_03 1:05

We're gonna talk about uh uh leveraging your equity in the correct way, like uh um how to structure it and how to enable yourself to become successful, yeah.

SPEAKER_02 1:20

And this was a question that was asked from you by quite a few people, right?

SPEAKER_03 1:25

Number of people, in fact, yeah. So a few people I met during the weekend as well asked about you know, why don't you why don't you talk us through a bit more in detail?

SPEAKER_02 1:35

So here we are. Done. And let's let's jump straight to it, Pramu. Uh so first question, right? And I want to start at the top level. Yeah, leveraging your equity. Now you've described it as the engine behind your portfolio growth, not an engine, the engine, right? Yeah, now that's a big call. So, what is it? And why does it hold that title for you personally?

SPEAKER_03 2:05

See, I was oh myself and Sonali, we were fortunate enough for our first property to give us a good amount of equity. Now, that equity we were smart enough at that particular point, even though we were very young people, we were smart enough to invest it in the correct way. We could have easily used it for many other things that we'd have loved to. But uh, I'm glad the two of us sat down together, did those numbers, yeah, and uh obviously uh uh using whatever the experience we gained from the first property to buy the second property, yeah, and invest it in the correct way that enable us to reuse those equity into our investment property going forward. Yeah. So it is the engine. It is the engine. It's like if you have the right engine, you can travel many kilometers, right? If your engine is about to break down, you're gonna be stuck.

SPEAKER_02 3:18

So the engine. The engine. And then the engine also, so how good your engine also comes down to not just the manufacturer and the reliability, but you're maintaining that engine. Oh you use it too. Yeah.

unknown 3:32

Right.

SPEAKER_02 3:33

Right?

SPEAKER_03 3:33

Because I mean if you talk about vehicles, you know, at what what point we're gonna change from first gear to second gear, third, fourth, you know, how when to cruise.

SPEAKER_02 3:43

Yeah, so so so even even even uh using uh leveraging equity, it comes down to a proper financial structure and how you maintain your repayments and whatnot. So there's a lot of uh afterthought that goes into that as well. Absolutely. Like like like buying a vehicle and the maintenance that goes into maintaining a vehicle. Exactly. How you look after it, yeah.

SPEAKER_03 4:05

Right. Like you said, how you maintain it, how you how you use it, that is also important. Yeah, I mean you will be able to maintain it every month if you use it in the wrong way. 100%, yeah. Right. And that's gonna cost you. Yeah. So uh it's a combination, and and equity is exactly that. Uh, where where to invest and and and what point to invest and how much to invest is also very important. 100%.

SPEAKER_01 4:35

Yeah.

SPEAKER_02 4:36

So so on the topic of leveraging equity, let's go to your let's go to the first property that you bought by leveraging your equity. So basically the second property you bought uh in Australia, right? By accessing the equity built up from your first property. So from that property, not just conceptually, but in practice, what did that actually look like? You know, walk us through it.

SPEAKER_03 5:00

Yeah, so in the previous podcast, we did mention our we made in our first property, we made $165,000. Okay. Now, obviously, we sold it, we got the money, we didn't pay tax to it. So CGT exempt. We went and invested some of that money to our uh property number two, which is also became a PPR, principal place of we bought it lower than we bought our first property. You're lucky, right? Some can call lucky, but it's about finding that right property and the right time came. That was that was the luck. If some some says yeah, luck didn't find you, you found luck. Yeah, see that's the difference. So we could have easily spent all of $165,000 there. Yeah, uh, as far as I remember, we didn't do that. We we were we we used about I think we used about hundred, hundred about hundred, two hundred and forty thousand dollars in in in in that range. Okay. So we always had a bit of buffer. Uh so we built the house. We obviously bought it cheaper. Uh we built it in in the way that gives us instant liquidity as well. Um, I think you know the the the shape of the block enables us to buy it cheaper. The odd shape, odd shape, odd shape blocks, yeah. And uh what we built on it and how how we utilize that particular.

SPEAKER_02 6:41

Yeah, and if anyone wants to uh sorry to cut in, but if anyone wants to know the benefits of buying an odd shape block, uh go check out the last episode that we did with Sonali, but she goes into detail the benefits of buying an odd shape block. Yeah.

SPEAKER_03 6:56

Yeah, yeah, yeah. So so I mean, in our case, we we ended up buying first property, it was an odd shape block, second property was an odd shape block. Some might call you an odd guy.

SPEAKER_02 7:06

Yeah, I think a lot of people call me an odd guy. Well, that's why you stand out, you know. I like it. Yeah.

SPEAKER_03 7:20

Hate is gonna hate. Um, so again, investing in the right amount of money, keeping a buffer to make sure that your uh, you know, you you have a buffer if the interest rate goes up to make the repayments, or you have you have leftover money during the construction. If the construction takes a bit more than what you anticipated, you have enough money to pay your mortgage repayments as well as your uh rental. So by the way, we were renting while while the house was built. So investing it in that way enabled us to find we have generated instant equity in that property. So the moment we went or moved into the house, yeah, our next move was not to furnish it in a way that a lot of people ended up furnishing it and they're going over the budget to furnish it. We didn't want to do that, we just stick to some of the essentials and the rest of it we'll take care of as we go. Yeah. But when we we uh instantly accessed the equity from the bank and kept it to invest. So again, we were ready. That's when the first investment came into equation, an apartment in Foot Square. Numbers add up. Yeah, you put it. I remember me and Sonali, or more than me, Sonali is putting it into the next cell, saying, okay, that's the monthly repayment, that's the rental income. Given this a brand new property as well, this is the depreciation amount we can utilize. So approximately your net income or our net income is X amount. Yeah, then when you put that into the spreadsheet, you'll see, okay, right now my or both our uh net income is let's say, hypothetically speaking, $150,000, and because of the apartment, it is $170,000. It's just making more money. Yeah, so what are you gonna do with it? Plan a holiday, go and have fun. No, save, put it against uh your offset, so you will start more you will start saving more money from your cash flow. Right. That savings you can again go and invest in another property.

SPEAKER_02 9:49

So it basically creates a compound a compounding uh scenario.

SPEAKER_03 9:55

It's a snowball effect if you're gonna be able to do it. Snowball effect, yeah, yeah. So if you if you invest it in the right property, it'll actually help you to save more when buying the next one and buy the next one sooner. Yeah, no part of keeping it in your account, do what? Right, go and invest in another property too. Exactly. So we were we were lesser focused, right? We were we were lesser focused in terms of our uh uh property journey. We we always knew that we want to go down the path of investing in property. Uh Sonali did invest in in shares and and certain managed funds as well, by the way. Okay, but we didn't go uh and put all our money there, right?

SPEAKER_02 10:46

So whatever the because you wanted something tangible, something I mean, I like property, I can you know you like to touch it and feel it, and yeah, I do I do like those kind of things, yeah. Right. So let's just talk more about this, you know, this compounding effect of equity. So yeah, uh because this is a this is the big part, I think. Most people intellectually understand, but don't visit really feel until they see it in real numbers, right? Now, can you walk us through the progression property one to property five? Now I know we touched on this uh on the last episode, right? But I want to talk more more along the lines of numbers. Yeah, right. Let's let's keep the emotional uh bits and pieces away. Let's let's let's be straightforward with the numbers, of course, right? So the journey from property one to property five, the numbers.

SPEAKER_03 11:41

So simple. So now we we have obviously the property one, this the second property, let's call it number one. Yeah, this first one we sold, number one, invested in apartment. Um our net income has gone up because of that, too, thanks to depreciation and tax deductions, and good rental income, by the way. It's not it's it's very close to the CBD. Um that ended up giving us in about one year later, or sorry, about one and a half years later, that ended up giving us about another uh hundred thousand dollars of equity, which means you know, if if you don't want to pay lender's mortgage insurance, that's an eighty thousand dollars you can access. But we were okay to pay lender's mortgage insurance. Yeah, we access $90,000 up to up to 90%. So that's $90K. At the same time, my property number one, the house I'm living, is also going up. That probably by another $150K. Yeah, that gives me another $135,000. Now all of a sudden I'm I'm at $135 plus $90,000, $225,000 of equity for me to use. Right? That's when Sonali said, okay, calm down. I get excited. Things like that happen. Okay, now what can we do? Yeah, uh, you know, there are so many options out there. And she said, okay, calm down. Let's see, let's strategize this a little bit more. We went down the path of not using the equity. Yeah. We actually start used our self-managed, we created a self-managed superfund. We used that money, that whatever we had, not a lot. Buying a commercial property for my business.

SPEAKER_02 13:34

Oh, so the third property you bought was actually a commercial property.

SPEAKER_03 13:37

Commercial property. Okay. So under the self-managed superfund, uh, we we we bought it in the self-managed superfund and we've rented out to our business. So where where did you buy the that was in St. Kilda? We still have that office. Oh, okay. 430 number one, Queen's Road. In St. Kilda Towers.

SPEAKER_02 13:53

Um then pretty sick view, yeah. That's a beautiful view. Yeah, when the Formula One Grand Prix comes, you you've got front row seats.

SPEAKER_03 14:02

Absolutely, absolutely. So that enabled to have an asset for ourselves under our super superannuation. Yeah. Because I was self-employed, yeah, that made sense. Gave us a bit more tax deductions as well because of that. Right. So company can start paying a bit more. Uh company can start paying towards the uh not towards a loan, it's like a rent, but it actually goes to your super. So you know, you you you have good you're building good assets that way. It's a smart way of tax mitigation. So that's our third property. Yeah. Now remember we had about 225,000 to use in equity with that. Right. So that would have been what 20s, 20s, 2016 or 2015, 2016. So 2014 we bought the apartment, 2015 we bought the uh commercial property. Yeah. Um, and then we were holding the money. Um, what to do? But again, we're getting good benefits, we are saving again. Equity is there, you're not using it, it's there. Not paying any interest to it at the moment. So then the COVID-19, that's the time. Um, that's why I said in my previous episode as well, or previous podcast, we were ready to go. Yeah, we were ready to go locked and loaded, ammunition full.

SPEAKER_02 15:41

Yeah, just needed to just needed a target, and then boom, boom, bang.

SPEAKER_03 15:45

Yeah, right. So um we bought a property in base water, just just at the uh uh COVID-19. I I think it was locked down, yeah. As far as I can remember, yeah, it was locked down. Can't even go and see the property because it was fully locked down. So it was online, taking a look, click Google View, see the street, all right, click land, just go and buy it. Number four, and then we spent about I think we we spent only about a hundred thousand dollars to buy that, okay, including the stamp duty. Yeah, still have about good hundred and twenty-five thousand dollars left. By that time, the the government also got intervened and started giving all these incentives, so my property started giving me more equity, instant equity, instant equity, interest rates came down, so borrowing capacity went up. Right, yeah, another hundred thousand dollars, another hundred thousand dollars, accessing equity, buying. We bought Ballarat. We bought actually we bought two in Barat. Um first one was so good that you had to buy two because it is going up, right? Going up in value, it's really good. Two in Barat.

SPEAKER_02 17:17

Um it's like a buy one, get one free deal. Getting cools, yeah. Half price, it's not it's not buy one, it's buy one, get one free. Morwell. Um you you bought a property Morwell as well? Morwell as well, and you still own that property? I still own it. Um beautiful, beautiful place.

SPEAKER_03 17:34

Morel's doing quite well. Yep. Oh, yeah. Yeah. And um, I think I bought something else. Waragal? No. I was looking at Warrigal, yeah, but then I found Mobile. Yeah, yeah, yeah. It was cheaper for me to buy Morwell, big bigger land, and a big got a bigger, decent sized house. Yeah. Well, you like it big, so yeah.

unknown 17:54

Yeah.

SPEAKER_03 17:56

Right? So, so good rental income. That when I, you know, with the big numbers, that is what it is, Vishy. Yeah. Right? So my borrowing is, yes, I'm borrowing. I mean, of course I'm borrowing 100% plus equity plus another lending. But my rental income is so good. That it cancels out the mortgage. Probably basically pays for itself and then so certain times like COVID-19 when the government reduces their interest rate. Yeah. Why?

SPEAKER_02 18:30

So, and also when now when the rates went down, did you lock any of your properties on fixed rates?

SPEAKER_03 18:37

Or I had I had my I think I had my foot square apartment locked in at 4.39% fixed for three years. Yeah.

SPEAKER_02 18:47

Are you someone who likes fixed rates uh this is going a bit a bit away from the topic, but are you someone who likes fixing rates or do you just like to stick with the variable rates?

SPEAKER_03 19:00

I like fixing because it it gives me it gives me a specific time frame. Helps you plan much easier. No, I mean to be honest with you, Vishy, if you have done your planning before fixing, yeah, that fixed period you can really implement.

SPEAKER_02 19:19

So the current market, right now, with everything that's going on in the world, yeah, you know, Trump and Iran and the Strait of Homes and oil prices going up and people are panically. They're scared. They're scared like most of our customers now. They're scared to buy property, thinking the market's gonna crash, right? And interest rates are going up. Yeah. So in a market like this, is it a smart idea to fix or should customers just I mean, yeah, absolutely.

SPEAKER_03 19:45

So if you think that rates can go up further, yeah. I mean, NAB increased the rates today again. There you go. Yeah, fix rates. If the rates are gonna go up, if if we are in that stage, why not fix it? What I'm explaining to you, if the rates are going up, yeah, think about it fixing it at a at a point. Yes, the reason you're not fixing because you might think it might go down. Yeah, what I always say it, what I always say to a lot of people is if you can do your numbers, you can afford $2,000 a month repayment while you're having a rent of $1,800. That means just $200 out. Fix it.

SPEAKER_02 20:35

Yeah, because it's not the full amount going out of pocket, it's just that difference, right? Fix it. Don't be greedy for $20. Yeah.

SPEAKER_03 20:43

Because you never know how it'll turn out.

SPEAKER_01 20:46

Yeah.

SPEAKER_03 20:46

Right? Because you never know exactly. You might be ended up paying $50 more than $100, so $150. So if there's an opportunity to fix it, fix it. But make sure you've done your numbers right. What are you gonna do within that time?

SPEAKER_02 20:58

So, to any of our customers, you know, tuning into this episode, if they're worried about uh the future of rates, you know, given the current market and and they're thinking, oh, maybe I should fix it, they should talk to us and get some options.

SPEAKER_03 21:12

Yeah, fix it. I mean, if it's for one year or two years, it doesn't matter, fix it. Because if it's what's the worst case, rates come down, right? Just losing now twenty dollars, thirty dollars a month. But if the rates go up, if it goes up, the amount of money that you may lose also needs to if you don't fix your rates now, it's gonna break your bank if the rates go up. You're gonna consider both sides. Exactly. But for me, it's always about if the rates make sense and if it aligns with my cash flow, if it aligns with my plans, what I'm what I need to do during that time, yeah, I'll fix it. I rather have a fixed payment for a certain time than a variable payment for a certain time. Yeah. Because I can easily plan, I can easily come up with different different strategies during those times. It's because you're a man. The plan, you know. I mean, of course, everybody should have should have a plan, exactly.

SPEAKER_02 22:04

But hey guys, look, not everyone has time to have a plan for their finances, so that's why you need a team like TFS. So talk to us and we'll get you guys a tailored plan. Anyways, moving on to the next question, Prabhu. Now you mentioned interest-only loans just now. Let's go there. Interest only versus principal and interest. During the accumulation phase, what's the actual strategy? And when does it make sense to use each?

SPEAKER_03 22:33

Interest only. For all your investment interest only. See, as I always as I always say, Vishy.

SPEAKER_02 22:40

Preach promo.

SPEAKER_03 22:43

See, tax-deductible debts and non-tax-deductible debt. Learn what it is, first of all.

SPEAKER_00 22:51

Yeah.

SPEAKER_03 22:52

Right? Yes, a lot of people are talking about tax-deductible debt and non-tax-deductible debt. But then how many of uh how many of new customers had come to come to us paying principal and interest for their investment property? Why? I just don't understand. Because they can that money they can utilize it somewhere else. Correct. They can actually pay down the house that they are. So you know your your principal place of residence. Principal place of residence. So you're you're you're doubling down, or you're putting extra money to your house, which again you have an ability to access again to go and invest. So always principle and interest for your house. Right? That is not even financial planning, that's just very simple stuff. Pay down non-tax deductible debt sooner, then get to the tax deductible debt if you must. But for me, personally, I'll keep all my investment properties interest only, much as I can. With the end of the day, I'm not planning on going living in there. Just investment, making, you know, giving capital growth, giving me equity to go and uh invest in other properties or other different kinds of assets. So it always interest only, the minimum amount I need to pay for it, I'll pay.

SPEAKER_02 24:16

And so okay, you you you like to keep your investment properties interest only. And is there a certain period of time that you like to hold uh these properties like a set number of years you would hold an investment property before you decide to sell it? Or how how when do you figure that out?

SPEAKER_03 24:34

Of course, you you you you you have a you have a timeline for anything and everything in in your life. The circle of life, yeah. Right? So I have heard a lot of property gurus in are keeping don't sell your properties or sell your properties in two years, three years term. Both options are good, by the way. Right? Yeah you need to understand whether it applies to you 100%. This is also life advice, right? It's simple as that.

SPEAKER_00 25:08

Yeah, right.

SPEAKER_03 25:10

For me personally, I like brand new properties because it gives me more depreciation. So I will hold them bare minimum of seven years. I will never ever sell a brand new property I buy less than seven. Why seven specifically? Because the most depreciation in a brand new property comes in year number one to year number seven. Ah, okay. Right? But again, year number 10, year number 12, you're still having depreciation, but not to the level that you having from year one to year seven. Yeah. Right. Work it out. I mean, I've I've sold a property after seven years. Eighth year I sold it. Yeah. Because it gave me everything I needed. Plus capital growth too. Yeah. So thank you, sir. Yes, I have to pay CGT for that. But again, that's okay. It has given me enough. It's done its part. It's done. It's done. So so there are certain milestones you will come in your uh property portfolio journey that you may need to sell off one of one or two investment properties to release that equity towards whatever the reason.

SPEAKER_02 26:25

Yeah.

SPEAKER_03 26:26

Right. So measure exactly what why you're selling, how much you're getting, what are the things you gotta pay, pay back to the government. Yeah, see if it makes sense, then make the decision.

SPEAKER_02 26:43

So on that topic, Pramun now, one another another strategy that uh invest property investors such as yourself, Fansonali, what you guys like to a finance strategy that you guys like to utilize uh offset accounts, right? So, because you mentioned them earlier, using an offset account as an equity staging area. Can you explain that properly? Because I think offset accounts are one of those things people know exist, yeah, but they don't fully understand how powerful offset. Everybody wants it. Yeah, it's like you know, it's like when you're when you're in school, it's like the popular girl girl school, everyone wants her, but yeah, no one knows how to get her. Yeah, except that one guy. Yeah, it's like so yeah, offset accounts.

SPEAKER_03 27:36

See, offset accounts can work many different ways. I can't speak or I can't give you financial advice here, but I can tell you what I did. Yeah. Um, me and Sanaali, what when we took our equity out, until we use it, we keep it against that equity loan account. It's not going to my everyday PPR account, by the way. Okay. Okay, so a lot of people make this mistake. They take the equity out, then they start paying interest to the investment loan, but they take the money out and park it uh in their uh uh home loan account. Thinking that you will get tax deductions. No, sir, you won't get it. Yes, you your intention is to invest, but you haven't invested yet. So I will always keep that money against my investment loan until I use it, so I don't pay interest rate. So I don't claim anything until I go and invest. The other offset account is where I have extra cash, such as you know, your you have savings after your net income, you have more extra savings. Now that is after your tax. That always parks in the offset account against your house, against your home loan. Right. So the ways to use offset, you also need to know when to and what money to offset to. A lot of people offset everything in the wrong offset accounts. Yeah. Right. So uh, me and Sanali, we never did that. If it's an investment equity, we take an L from against one of the investment properties and put it in an offset. We will put it in the offset until we use it against that investment loan.

SPEAKER_02 29:32

So you access the uh equity and you put it in an offset against that property?

SPEAKER_03 29:38

Against that particular loan that we've taken. So let's say, let's say, hypothetically speaking, not hypothetical, I'll give you a good exact example. Foot square property, we took $80,000 out as an example, right? So we took it as variable interest only, $80,000. That loan, I put $80,000 against that particular $80,000 loan. Not at my home loan.

SPEAKER_02 30:05

Yeah. So you don't don't put it on your principal place of residence? Okay.

SPEAKER_03 30:10

For what?

SPEAKER_02 30:10

Yeah.

SPEAKER_03 30:12

Because moment you moment you're not offsetting that $80,000, you're paying interest to this to that, but you're not getting any return out of it. Some people can argue, say, no, I'm getting a return out of my, you know, I'm I'm offsetting my home loan. Yeah. Just you're paying low interest to your home loan. You're paying high interest to your investment. So technically you're not getting a return.

SPEAKER_02 30:36

Yeah, so since since you're paying high interest on your investment property, right? What uh what what if people, like you said, they access equity to pay down their uh principal price of residence, then they access that back and they take a uh redraw or cash out from their principal price of residence, the rate is still lower. Isn't that like uh no no what's your purpose of accessing your equity?

SPEAKER_03 31:06

To buy something else. What? Another property. Investment property? Yeah, yeah. So that's an investment loan. So your rate is higher. Even though you are getting it from your own house.

SPEAKER_02 31:18

So it's the same thing essentially. Essentially. Whether whichever property they actually have.

SPEAKER_03 31:22

So that's how we started. Yeah. We took the money from our first home and invested in the food square property. But until we used it, we kept it against that investment loan. Yeah. Right? So it's a high interest, by the way. It's not low. Like, yeah. Whenever you're paying principal and interest, your rates are lower. That's where a lot of people, I think that's where a lot of people misunderstand this whole game.

SPEAKER_02 31:50

Confused. Yeah, yeah. Yeah. That that also that also comes down to there's a lot of, like you said, there's a lot of gurus online, you know, sharing videos. Yeah. Uh like today I saw uh some video on Instagram where this guy was talking complete. Like the question I asked you now. Yeah. Access equity from your investment, put it in your principal place of residence, access that, buy another property, and then you just certify. Yeah. What is it, right?

SPEAKER_03 32:18

Why would you access again whoever it is? Why would you access invest equity from your investment property and put it to the owner occupied property to do what? Do what again?

SPEAKER_02 32:28

To reduce your yeah, but then your and then he's accessing that back to buy another investment property. Yeah, just basically double.

SPEAKER_03 32:35

You're just you're just ex you're just expensing for nothing. Pretty sure that person doesn't know how the cash flow works.

SPEAKER_02 32:45

So speaking of offset and redraw, now these are two uh strategies that a lot of people get confused again. Yeah, what do you prefer from an offset and a redraw? You utilize both.

SPEAKER_03 32:59

Yeah. I mean, for my own occupied property, I might put it in redraw. Yeah. Investments always offset if I until I use it. Until I use it. Yeah.

SPEAKER_02 33:11

Um you don't have a preference? No.

unknown 33:15

Okay.

SPEAKER_02 33:16

All right, Pramo. Since you said everything's about timing, yeah. Like the time you are Sonali out. You know, let's talk about. So, you know, when it comes down to strategic timing, yeah. You said it before, you know, that knowing when to refinance and release equity is and is as important as knowing how. So, what signals do you look for? What's your decision framework? What makes you you know look look at you know the equity you built up and you tick and like okay, I need to access it now.

SPEAKER_03 33:57

Moment there is equity built up that I can go and buy another investment property or replicate what I have done before, yeah, I access it. It can be even fifty thousand dollars.

SPEAKER_02 34:13

Okay, so so on that, on that, right? Yeah what is the is the what is the minimum uh required level of equity that you look at before you think, okay, I can use this now.

SPEAKER_03 34:26

What can you buy with $20,000? Do you can you buy a property with $20,000?

SPEAKER_02 34:31

No, please don't. You can't, yeah.

SPEAKER_03 34:34

Unless not even a first home buyer can these days, you know? You can't. So when you look at the bare minimum figures, you have to factor your stamp duty. Yeah, you have to factor your lawyer fees, you have to factor your bank fees, council fees, right? And your bare minimum deposit. Yeah. So in this current market, you're looking at about 80,000 upwards, my opinion. Yeah, yeah. For good properties.

SPEAKER_02 35:02

Yeah. So so so you would say to elaborate a bit more on that, right? When it comes to LVR and your contribution, do you want to always stick to anything more than 20%, or would you even go uh lower than that? Would you go to LMI territory? Borrow. So you would pay LMI?

SPEAKER_03 35:23

Absolutely, it's a tax-deductible fee.

SPEAKER_02 35:26

Yeah, so that's the thing. Like, you know, a lot of people get scared when they're like, oh, I don't want to pay LMI. Why? And you said it with so much confidence. Why? This guy's crazy.

SPEAKER_03 35:35

It's a it's it's it's a it's uh it's a cost you pay, which you you can deduct.

SPEAKER_02 35:42

Yeah, so you're saying, you know, if you get a really good opportunity, just use LMI.

SPEAKER_03 35:49

If the bank is giving you money, don't ask questions, take the money.

SPEAKER_02 35:53

That's a really good point. I think we should uh you know reiterate.

SPEAKER_03 35:57

Yeah, because don't be afraid of LMI. Don't. I mean, when you whenever you have an opportunity to borrow um 90% or 95%, do it. But make sure that debt you're borrowing is tax deductible. Moment you go and borrow at your peak or maximum amount when it's not tax deductible, it's a sinking ship. Right now you you have to pay it down. Yeah, but investment loans, why who who has told people to pay down for investment loans? Why? It's it's a it's a as I said before, it's an engine. As well as your equity is an engine, how to use it properly, your investment property is also an engine. It generates benefits for you to have extra uh uh uh or higher net income for your household. So when you have an opportunity to borrow uh 90% for an investment property, go and borrow it. Yes, if you you may have to pay lenders' mortgage insurance. Again, you're not paying from your pocket, you're using the equity to pay that. When you use your equity to pay that, you take the tax deductions back from the government. Make sure you get the right investment property to do it. Now, look, these are the things. Now, whoever listeners who are listening to this doesn't mean these strategies apply to every single property. Please don't go and just do it without proper guidance.

SPEAKER_02 37:36

And if you want proper guidance, ladies and gentlemen, come to TFS, you know, tomorrow financial solutions. We have a team of individuals led by two individuals who've done it for themselves and they've trained the team we have. So speak to us. Yeah, that was a call.

SPEAKER_03 37:50

Call whatever you want to call it. Yes, we are biased. That's a little biased. A little ad lip, you know. That's good, Davishi. We are biased because the company TFS is not made uh uh just to have fun with it. Yeah, it's made with passion, it's made with experience, and we want to pass on the same experience to our customers.

SPEAKER_02 38:12

It's a knowledge and that you guys have gained through experience over a decade uh in the industry, right? Yeah, right.

SPEAKER_03 38:19

So don't waste your time, just come to TFS.

SPEAKER_02 38:23

There you go. So all right, I have a bit of a controversial question. Controversial. We love controversial. Enjoy a glass of whiskey. What better questions to ask? Vichy98, you want to follow him? TikTok, Instagram, you know, he's he's a ladies' man, apparently. So let's talk about refinance, right? Now, does a refinance structure make struct uh make sense beyond just accessing equity?

SPEAKER_03 39:00

Good question. So example. Okay, here you go. So let's say um my mobile property. Valuation is high, I can access about $100,000 equity. I'm paying interest rate, let's say I'm paying 6.2% interest only rate. One bank is offering me 5.80% interest uh only rate, and also giving me $100,000, absolutely, I will refinance the loan, take the loan to that bank, take that $100K.

SPEAKER_02 39:38

Yeah, right.

SPEAKER_03 39:40

Because what it does is because I'm paying lower interest, it increases my investment borrowing capacity. Uh yes. Right. Which means I have a better chance of going to the market and buy or replicate something like that. Yeah. That'll do the same thing for me in the coming years.

SPEAKER_02 40:01

Now, now, what's some advice you have on that note to rate hunting customers? Like you said, okay, a customer who's on a 6.8% rate. Yeah, they want to refinance to get it down to 6.5%.

SPEAKER_03 40:13

Yeah.

SPEAKER_02 40:14

Smart move.

SPEAKER_03 40:17

When you consider the when you when you have an opportunity to pay a lower rate and increase your borrowing capacity to borrow and buy an investment property, do it. Okay. Even for that three basis point. So why not? What about the cost involved? Yeah, see, now we are getting into nitty-gritty of cost analysis of refinancing. You have to put that into your Nexcel sheet and see whether it makes sense. Yeah. And if it doesn't make sense, you also need to understand how long does this transaction doesn't make sense. Yeah. Is it for six months or is it for 12 months? And what can I do within six months and what can I do in 12 months? Yeah. That also needs to be answered. Yeah. Right. So my experience, I have refinanced from one bank to another bank to a higher rate too. To a higher rate? Yeah, absolutely. Because that banks give me extra money to go and invest. You will how, how, how, um, I'm with you. See the assessment-wise, certain banks have different ways of assessing you. Oh, the valuation. Not particularly. Okay. Right. Just because the other bank has a higher interest rate, they may not ask too many questions, or they may not, they, they, they, they won't assess you the same way the other bank assesses you. So because of that, they give you extra money.

SPEAKER_00 41:39

Yeah.

SPEAKER_03 41:40

I have done that in my in my property journey. Me and Sanali has done that many times. Uh, whoever gives us the opportunity to go and buy is secure that investment property, if it's a higher rate, yeah, take this one and give me that money. Yeah.

SPEAKER_02 41:55

Because you can borrow more with even though it's a higher rate. Yeah. Awesome. All right, Pro. So, you know, when it comes to uh valuations, now you mentioned you know, valuations come in conservatively. Let's go deeper on that. You know, are there legitimate ways to maximize your properties valuation before refinancing? What actually works? Now you just mentioned one, you know, you you've switched to banks with higher rates because the assessing uh gives you more value is not as strict and it gives you more borrowing. Yeah. So what are other ways like that?

SPEAKER_03 42:33

See, valuation-wise, we see now this is what I'm just about to say, it's it's applies to certain types of certain groups of investors who has five properties in their portfolio. Yeah. Pick the property you want to value and access your investment. Don't just willy-nilly go and value all the properties and hope for the best.

SPEAKER_01 43:00

Yeah.

SPEAKER_03 43:01

Right. You should know which markets are doing well, what property is giving you more rental income as well. And at the same time, where you're going to be investing this money too. Because that also comes into because it's not always about valuation, it's it's always valuation and borrowing capacity together. It's like husband and wife. Yeah. Right? Comes together whether you like it or not.

SPEAKER_02 43:27

Because they like it.

SPEAKER_03 43:33

So so right. Um you you you you you have to pick that property. You have to pick the property. See, as an example, let's say um I have a property, let's say we have a property in in uh uh what can I pick? Wanturner. Right? Valuations are going up. Right. And and uh um food scray hasn't moved that much in terms of valuation. So I'm not gonna waste my time of refinancing food scray and paying unnecessary money. I'll probably value I'll probably I'll definitely value my one-turn once and access the money from there.

SPEAKER_02 44:22

Yeah, because the food scray wants an apartment and it hasn't no markets, different types of markets.

SPEAKER_03 44:30

Food scray has given me a lot of opportunities. Yeah, he's enabled me to be even come here, right? That that eighty thousand dollars that gave me enabled me to go and invest that money and that investment gave me another 500, you know? Yeah, so you have to pick the property now. A property that that's why I said this is for certain types of investors. Investors who are in that five properties onwards, they understand what properties are doing well, what what market they they they they they have a good idea about their investments, so but for the people who are coming towards that, seek professional advice. You have to get that advice, speak to real estate agent, right? Real estate agent might tell you how much it is, right? And then do the valuation to see how you want to do it. Yeah, right. If the real estate agent says, oh, the valuation, you know, your current market value is this, and you I mean you're smart enough to work out how much it is, right? Value versus your borrowing, yeah, up to 80% how much you can access, how up to 90% how much you can access. You you're smart enough to work that. Yeah, so if it's worthwhile, as I said before, if you're if you're getting above eighty thousand dollars, you're in business.

SPEAKER_02 46:13

Clear? Yeah, screw it, just do it, you know. So, all right, Pramud. Um another controversial one, right? You know we love our controversy. So now you've said, and I've heard you say this in other contexts, that paying LMI can actually accelerate portfolio growth. Now you've said it on this podcast as well, so you can't say you haven't said it. We can always rewrite. So that's why why does that seem to fly in the face of uh everything most people are told about LMI? You know, uh, I mean, uh people are like, oh, I don't want to pay LMI, and then people are like, oh, you should avoid paying LMI. If you if you have to pay LMI, then maybe you shouldn't buy this property, you know. So now I need you to make a case, bro. Why do you say no? If it's a good opportunity, pay LMI. So I'll give you an example.

SPEAKER_03 47:10

Yeah, access equity access. Right? Now you access that equity also by paying LMI. About let's say about 10k 10% off roughly just under because you get net of 100k. Then you go and invest that money into an investment property. Why do you have to go and invest all of the hundred thousand dollars when you can invest $70,000 and pay another $10K of LMI because the bank is giving you that money? So how much you have $30,000 left. Yeah. What can you do with $30,000? Not much in terms of you can't go and buy another investment property with it. But that $30,000 can actually give you, let's say you're buying an established property that needed a bit of TLC. Tender loving care. I was trying to find TLC, yeah. It's not the group, not the not the not that. So what if you can use the $30,000 to do some slight renovation to increase your uh uh rental income of the of that property? Yeah, right. Yes, you might buy a an old old old house that hasn't been looked after, bathroom looks crappy. Put a new bathroom, yeah. People don't want to pay market rent for a property like that, but by using 30k or 20k or 25k, put a new toilet seat in there. Bang. Now all of a sudden you are in play. But you did not pay a lot of money to buy the house because it is in the bad condition. Right? You renovated it. You gotta be smart. Acquisition has to be done it in a correct way. If you're buying not good looking or bathrooms are pretty bad, don't pay the top top dollar. Yeah, negotiate it down, right? But then use that 30k or 20k to renovate it and get the top dollar as your rent. Yeah. So if it enables you to do it well after paying two two lenders' mortgage insurance, why won't you do it? Flip side, you got $100,000. Yes, you let's say you don't pay lender's mortgage insurance, right? Yeah, let's say your valuation is a million, your first property valuation is a million, you have uh uh a loan of $600,000 or $700,000 up to 80% you borrow, which means you get $100,000, no lender's mortgage insurance being paid, right? Yeah, you go and put that $100,000 into an investment property, which is let's say $400,000 because you have to leave some money towards the uh stamp duty, right? Look at the opportunity that you have missed. You could have easily borrowed another extra $100,000, right? And you could have easily gone borrow or buy a property if you have the means to borrow, which is the borrowing capacity. You could have easily instead of buying a $400,000 small place that is only gonna generate you about $400 per week rent, you could have easily borrowed or bought a property and borrowed the money and earned seven or hundred seven hundred dollars above per week rent property. Which one matches some cash flow perspective if you do your numbers right? Yeah, makes sense. Makes sense, right?

SPEAKER_02 50:57

So sometimes is another ad lib, plays and gentlemen. If you want to know your borrowing capacity, talk to us and uh we'll do a free assessment. You know, we have an in-house team and we do it in-house. So before it goes to banks, your credit score will not be affected. It's all done in-house, and we will also get back to you with not just one, not just two, but uh three options that we think are best for you. So we'll compare three different lenders, compare uh their rates and other offerings that suit you. Easy. Yeah, that's how we do it at TFS, you know. Every day, that's what we breathe. All right, Pramo. So uh I guess it's time.

SPEAKER_03 51:44

You know, it's uh I think we covered up to what uh I think we covered about uh about six properties actually. Yeah, we covered up to six properties.

SPEAKER_02 51:54

Oh, we're not done. This is the last one. Okay, yeah, it's it's the big one. Yeah, you know, last question.

SPEAKER_01 51:58

Okay, there we go.

SPEAKER_02 51:59

And I want this to be really actionable. So someone is listening right now, they own their home, they've got equity in their home. Maybe they've had the equity for a couple of years now, and they've never accessed their equity promo. Never. And they've never thought about using it. What is the very first step they should take this week?

SPEAKER_03 52:26

Yep. Very first step. Very first step. Look, I can be very commercial here and tell you know, call TFS. No, no, no. Let's let's be let's be let's let's not go there. Let's be promoted. First thing you gotta do. So this is promo after a few shots of whiskey, yeah? All right. First thing you gotta do, yeah, make your mind and access the equity. Stop listening to all these voices around you. Yeah, except your partner. They don't have your equity, yeah, you have your equity. They should only listen to their partner's voice. Yeah, of course. I mean, this is the partner's 50-50 or whatever the percentage is, right? It's it belongs to both of you. So access the equity first. That's your first step. Keep it in the offset account of against that loan. Don't pay, don't pay. You don't need to pay interest for that. Well, first do the first step. Have it ready. Get it there, get yourself prepared. Then you will see opportunities coming. You want professional help, go and seek it. Right? Go to the property market, you want to invest in properties, go to the property market, go and see some properties. Do some simple numbers. I buy this property for this price, how much I pay, my interest repayment, what can I get as a rental income? Am I good to go with it or am I pushing myself? Right. You also, as a second step, understand your maximum borrowing capacity and work out how much you're gonna utilize that borrowing capacity. Yeah, that's your step two. Right? By the time you come to step two, your mindset is already ready to go. Then the third step, it'll happen automatically. You will go to the market, you will seek uh professional help, right? You will you will find the property that works for you, or you or a professional will find the property that will work for your book uh your profile.

SPEAKER_02 54:36

Yeah.

SPEAKER_03 54:39

And you know, a couple of months later, you might have a property. Using your equity, now you are not just a one property owner, you are a you have a portfolio of two properties. Two properties, yeah.

SPEAKER_02 54:55

And look, guys, if you listen to this podcast thus far, you don't need to go speak to anyone else. You come to TFS. All right.

SPEAKER_03 55:05

No, I mean, I mean, they they anybody can speak to anybody, but yeah, make sure you have the right structure in place. 100%. Right? That's the actual truth here. I mean, yes, we mock around sometimes in but we get we have to keep it fun too. 100%, yeah. And we obviously we're gonna be biased about our brand. No, 100%. Uh we're not gonna lie about it. We don't have to lie about it, right? So, but speak, speak whoever you want to speak to, but make sure you have the right structure for yourself. That is the most important part, otherwise, you might see yourself selling that investment property in about a year or two, like year or two years later. Or you might go might end up buying an investment property that's a bad property, very bad property. That that that because you can't just go buy a property anywhere as well. Yeah, I think uh next episode, if you uh once you listen to this, stay tuned to the next episode. So now we'll talk about uh these kind of things and how we avoid on making decisions on on bad properties, right? She's she's she's my uh risk mitigator.

SPEAKER_02 56:13

Exactly. And if you're serious about buying an investment property, uh but you don't have time to do the research or the numbers, you know. I'd like to give a shout out to number eight property group because that team uh of individuals uh they've got some amazing properties and they always do the numbers and the research before they uh load up properties into their portfolio of properties they sell. So yeah, get in touch with TFS and we can hook you guys up with the team at number eight. Absolutely.

SPEAKER_03 56:38

Absolutely. Um yeah, so so um yeah, so when you do the first those two steps, you'll see the third step will happen um easily. Yeah. And that is your experience of property investment. Replicate the same thing to the next one. Third, you know, third, fourth, fifth. Yeah. From the fifth onwards, it's a different strategy altogether. You go from five to number 10, yeah. Then from 10 onwards, the strategy changes significantly too. Right. And 10 to 15, it's you apply those strategies. 15 onwards is another strategy altogether. So these days, I'm um myself and Sonali, we are doing uh a totally uh we're we we are doing certain strategies right now that we would have never thought we would we would be doing. Yeah. And and it's amazing, I can easily say some of those strategies return is less than 12 months, and they are not returns of hundred thousand. We are talking about so peak returns. So you can get there, every person can get there, in my opinion. You just have to have that mindset and patience, patience, and trust the process. Yeah, don't have the poor man's mindset.

SPEAKER_02 58:00

Yeah, there we go. You know, it's like a Pokemon, you know. You've got to go through evolution stages to get to your strongest form.

unknown 58:07

Absolutely.

SPEAKER_02 58:08

Anyways, Prabhu, with that being said, I guess it's time to wrap up. And this episode has in fact been uh I would say a master class, right, in how to leverage equity. We touched on uh a lot of things, yeah, which I cannot even recall. Yeah, I don't I myself am gonna have to.

SPEAKER_03 58:26

No, no, stay no, stay tuned. There is there's gonna be an e-book coming up um for for for all our listeners, and uh we're gonna we're gonna get the uh podcast listeners the first in hand to download the ebook. Yeah. Uh we will we will let you know when it's ready. Oh there you go, guys. Yeah, yeah.

SPEAKER_02 58:44

Stay tuned. All right, and also stay tuned for Sonali's episode next week. Yep, risk mitigation that we go on these strategies. Yeah, and Sonali's black or white, right? She's not gonna sugarcoat things like Pramu does. Yeah, she's gonna tell you you can do it or you can't do it. That's it. Yeah, exactly. All right, with that being said, Pramu, cheers and cheers. Thank you for another episode. No worries. Thank you for tuning in to another episode of the TFS Podcast, where we turn knowledge into action and big goals into real results. Don't forget to like and subscribe and share this episode with someone working towards their next financial steps. Now, with that being said, until next time, keep building.