Why Leverage Beats Saving Every Time

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Rob's free offer: Anyone who comes through the show gets an initial consult at no cost, no obligation: https://calendly.com/rob-millennialwealth/initial-meeting

$200,000 in shares that grows 10% makes you $20,000. That same $200,000 as a deposit on a million-dollar property makes you $100,000. Same money, same year, five times the result.

That's leverage — and it's the single biggest thing separating the people who get there from the people who keep saving and wondering why they haven't.

But leverage isn't a free lunch. Borrow wrong, or borrow for the wrong reason, and the same engine that builds wealth can bury you.

Alex sits down with Rob Creaton — financial planner, founder of Millennial Wealth, and ex-army — to work through where property and borrowed money actually belong inside a financial plan. Rob doesn't pick a tribe. He works in both property and equities, and he's blunt about what each one is good at.

In this episode:

• Where to park money for the kids (and the 47% tax trap most parents don't know about)
• Why leveraged assets compound faster, explained without the jargon
• How much risk one investment property actually carries
• The insurance gap that shows up in almost every leveraged portfolio
• Why you probably don't need 30 properties to hit your goal
• Rent-vesting — what it really is, and why it stacks up for ADF members and city renters
• Interest-only vs principal and interest, in a changing negative gearing landscape
• Offset vs invest: the return-on-investment maths, side by side
• Timing your borrowing capacity around daycare fees, school years and income changes
• When to stop chasing the dragon

Rob's take on goals-first planning is the thread running through all of it: figure out what you actually want, then work out which investment gets you there. Not the other way around.

Rob's free offer: Anyone who comes through the show gets an initial consult at no cost, no obligation.

📍 millennialwealth.com.au | Instagram @millennialwealthau

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Transcript

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Save it or make it?

Alex 0:00

Most Aussies are trying to figure out how to save. Kind of this idea that you need to earn a ticket to be able to start creating wealth. And I get it. Saving, it feels safe. Responsible even, but it's the slow road, right? And most people don't realize how slow until it's just too late to do much about it. Here's the thing nobody tells you. Property isn't where you park money or throw commitments towards. It's not a savings account with a roof. It's actually an engine. And the cool thing is the engine runs on the bank's money, not yours. So 200 grand in a share market, have a good year, up 10%. You've made 20 grand. Same 200,000 as a deposit or a million dollar property. Well, that 10% is actually $100,000. Same money, same year, five times the result though. And that's not a trick. It's leverage. And it's the biggest thing separating the people who get there from the people who keep saving and wondering why they're not. Biden, look, this really matters. Leverage isn't a free lunch. Borrow wrong or borrow for the wrong reason, and that same engine that builds you wealth, well, it can bury you. So today we're answering the question that every single client eventually asks. Do I save it or do I make it? Where does property actually sit in a financial plan? Why leverage compounds faster than anything else you can legally get your hands on? And what rent vesting really is, and the one that everyone fights about pay down the mortgage or invest. Now, to do that properly, I needed someone who lives in both worlds, property and shares, and just doesn't pick a tribe. Rob Creeden, financial planner, founder of Millennial Wealth, ex-AME, and one of the sharpest people I know on turning borrowed money into a life that you actually chose. Let's get into it.

SPEAKER_00 2:07

You got a real Mustang, not a uh a fake four-wheel drive one.

Alex 2:10

Yeah, well, I'm a 90s child that was bullied, so I know who I am. Yeah. Let's get going. Great.

Welcome to Finance, But Neat

Alex 2:19

Cool. G'day everyone. Welcome to Finance But Neat, the home of getting that perfect little bit of clarity at the end of a Wii DRAM and then only getting ready to forget it about 12 seconds later and losing that lucidity. That's always the fleeting memories. I'm like, that's the perfect idea. And yeah, it just goes. Gone. Uh, how are you, Rob? I'm fantastic, mate. Yeah. Thanks for having me. Appreciate it. Pleasure. Good thing. Mate, you were early. So um always. Yeah, that was a bit of a bit of files running around. Like, oh my goodness. And then uh had plenty to do. So thank you for your patience. Um I'd love to just kick off right with uh a barbecue chat. Yeah, yeah, sure. For yourself and anyone who doesn't know, we've got a segment where we just go through things that Bindy mainly hears, or uh one of our teams suggests that they have hear

Barbecue Chat: where do you put the kids' money?

Alex 3:16

a question on the weekend at a barbecue. Uh I have not contributed many because I just don't listen to others. Or you just can't get a barbecue. I'm just waiting for opportunities to speak. So yeah, that's my bad. Uh, which is why I host the guest podcast. Great hosting. So, mate, uh, question today, or the wondering thought was someone was wondering where to put money for their kids. The grandparents gave them some cash uh not to touch it, but to just put it in a savings account. The grandparents said, Hey, chuck it in an offset account. Uh sorry, no, they said chuck it in a turn deposit. Oh yeah. Uh Bindy was like, Why would you do that? Yeah. Uh I think we're all Dollar Mike kids in the room. Yeah, 100%. Yeah. I've still got my original account. Yes. Still my everyday account. Yep. Yep. Uh yeah, me too. Yep. Not my everyday account because I joined my finances with my wife. Uh more on that later. I have a wife. Some of us don't. Uh sorry. I'm on my worst behaviour today. Uh, but the grandparents just that wanted to turn deposit, parents wanted to put it in into uh an offset account. Just a bit of confusion around where to actually put that cash. Where's the best place to say? Because we are conditioned, like we just joked around about putting it into an offset account.

SPEAKER_00 4:36

Absolutely, absolutely. And it's a really great question, and something that I'm seeing a lot more in the last couple of years, because people have become more aware of, you know, well, if it's hard to buy a house now, how hard is it going to

The 47% tax trap for under-18s

SPEAKER_00 4:48

be for our child? And so a lot of people are looking at ways that they can save money, and yeah, look, certainly a savings account or return deposit isn't going to be the best place for it just purely because of obviously the time value of money and inflation and it's not really going to grow that much. And the second biggest consideration there is tax. And a lot of people don't actually look at this, but once a kid is under 18, starts earning it's over like 400 bucks, accountants can correct me on that, 400 bucks a year, they start getting slugged with the highest marginal tax rates.

SPEAKER_02 5:19

Wow.

SPEAKER_00 5:20

And so yeah.

SPEAKER_02 5:22

Yeah.

SPEAKER_00 5:23

Yeah. And so if you've got a a you know, savings account or a turn deposit and look at the start, it's not going to matter too much because it's not going to be very big, but if it grows over time and they're earning some decent interest. That's only 10 grand on a 4% interest rate. Correct. Exactly. So that's one big thing. And then the second thing is if you hold it in the parent's name, well, obviously they've got a cop tax.

SPEAKER_02 5:43

Yeah.

SPEAKER_00 5:43

So there are these really cool things that have existed for years, but they just come

Investment bonds explained

SPEAKER_00 5:48

back into fashion now, I guess you could call it, is investment bonds. And they're concessionally taxed investments. If you hold it over 10 years, meet all the rules, no tax. So no CGT, no tax on transfers. Um it's a really great investment vehicle. They're internally taxed at a corporate tax rate while they're being held.

Alex 6:10

So two questions. Yes. Uh what is the highest possible marginal tax rate you mentioned earlier? What is actually that? 45% plus 2% medical levy. So 47%. So you're losing on a hundred bucks, $47. Correct. Yeah. Yeah. Not ideal. Yeah. Yeah. So that's like if you're putting $400 in, that's almost $50, $400 to get that threshold. You're losing half of that to tax if you're under 18. Absolutely. Wow, that's incredible. Awesome. And then uh the corporate tax levy.

SPEAKER_00 6:42

Yep. So it is 30% for companies that are generating that passive income rather than traded income like small businesses. So yeah, 30%.

Alex 6:53

And so an investment bond, you said, if we're investing that into a uh like that's invested in the child's name, not in the mum and dad's name.

SPEAKER_00 7:05

So how it works is the policy or the bond is taken out in the parent's name and the child is listed as like the the beneficiary, essentially. Yeah. Um, and then what happens is is when you get to the point in time where you want to transfer that investment to the child, you can just transfer it over to them in a simple change of ownership. Yeah. Effectively. Um, and at that point in time, as long as you hold it over 10 years, there's no um CTT event on that transfer. Yeah. Which is really, really great if you want to hold that asset for a really long period of time, right? So with the changes in the budget, this is something that's becoming a bit more popular as well, too.

Alex 7:45

I that is wild. So this is actually a question um about investing in your kids' names, which we weren't planning at all today. Yeah, it's a question I've actually heard people ask others very, very often. So it's fascinating to hear that as an answer because that's the first time I've heard that answer that way. There you go. Which is awesome. Thank you. Yeah, that's great. Uh like that were genuine. Like, I was like, wow, all right. Um because I think quite often it's you know, uh we'll get into this more later, but it's about whether I can save or make money. Yeah, like that's kind of the tension, right? And the math is gonna math. Like, are you are you looking to save or make four or three percent, whatever that is? I've no idea what dollar mites is. Are you looking to uh save six percent on your home loan now, six oh nine, roughly six one four, whatever that might be? Um and you're like, oh well, you know, I uh save probably if you do the math properly, like that's something where you're gonna go, well, three bucks of interest or six bucks of interest, uh, you know, earning three dollars worth of interest, saving

Offsets, term deposits and the old MISA account

Alex 8:50

six bucks of interest. Which one do you want to do? You want to save six six bucks, that's probably gonna make more sense. Offset accounts, if you look at our our parents, you know, 20 years ago, they weren't around. Like you had a miser. Have you heard of a miser?

SPEAKER_00 9:03

I've had it.

Alex 9:04

Yeah, a mortgage interest saver account, Bindi. Yep. Uh, and so I think the miser account was around, but it was a very weak product, and it was actually very hard to access. Like everyone kind of had it, and I know internally uh uh you were banking in this time, Bindi, if you can jump in, but it it was something that had to be switched on for people. Yeah, and there was a lot of rules about it as well, like you had to have a minimum balance or a minimum withdrawal or something like that. Yeah, and then I think on fixed you could have it on fixed rates, but you only saved interest on like 10% or something bizarrely.

SPEAKER_03 9:35

So I think it was the first $10,000 you could offset, but beyond that, no.

Alex 9:42

Yeah, cool. So it's a very interesting product of like offsets that grandparents kind of don't understand. And the default uh working in branch land for many years is lock it down in a TD and you know, term deposit. Sorry, I know Anna will go, what's a TD? You didn't explain that, but that'll be another video. Uh but lock it down in term deposit for you know, you've got your Thursday pension day fun day, rock up to the branch and with your little passbook. Uh and this is nostalgic, but I hated these days at the time. And you your game of that day was do I choose three, six, or nine months, four or twelve, whatever, you know, is tracking my like compounding the interest, or am I drawing out the like all these different things? It's so much more to it than just simply that. Yeah, absolutely. Yeah, that's that's an incredible perspective. But it kind of brings me to what I want to talk today about today. I think part of the concept that we've got uh when we spoke about what we wanted to talk

Where leverage sits in a financial plan

Alex 10:42

about on the podcast was how leverage can be the engine to your your whole investment wealth strategy. And yeah, uh I have uh just loved seeing kind of some of the plans come out of clients that we've worked with together and how you're approaching it. And I think for me, what I'd love to understand today is uh where exactly does leverage and property sit when you're creating someone's financial plan and looking forward to creating wealth with them.

SPEAKER_00 11:09

Yep, yep, for sure. All right, do you want to jump straight in and yeah? All right, sweet as. Um, yeah, so long story short, like when I look at leverage, it can be a really great tool, especially for your accumulator style um clients or age demographic. And when I'm talking about that, you know, usually your mid to late 20s, 30s, even 40s, probably once I get in your 50s, that's when we start looking at potentially winding it back a little bit. But those early stage, it can be super powerful in terms of compounding your wealth. So it's always a discussion that I'm having with pretty much every single client that I come across in what we do in terms of assessing whether we can use leverage in their plan to get them where they want to be at a much faster rate than what they would if we were just investing simple money that we've saved. Because leverage is essentially it's using someone else's money, and realistically, it's using the bank's money nine times out of ten. And you know, I'm always of the opinion that why use all of our own money if we can use someone else's, um, as long as it's affordable, of course. Um, and that's where you come in, right? Yep. But it's really just about yeah, how can we bring up that timeline a little bit rather than waiting until putting all our money in the bank, paying off our mortgage, waiting to 60, 65, retiring, and then you know, off we go. How do we bring that timeline forward? And and for most clients that I'm talking to, they don't want to work to 60. Like that's just not a thing anymore. They want to not even retire young, but have the flexibility to know that if they just decide one day, you know what, I want to cut my working hours back to two days a week, I can do that because I'm in the financial position to be able to do that, and that's where leverage can be a really powerful tool in building our assets a lot faster to get us to that point sooner, yeah.

Alex 13:03

Basically, so uh look, there's so much gold in there. One of the things I find quite fascinating, and you touched on it around deteriorating or not, like lessening need for leverage as you get into your 50s. Um, so I just first this is breaking the fourth wall because we don't believe in any other four walls apart from your house. Uh this is the first time we've had the mic stands in this location, and I was like, I need to move my water because I won't be able to reach it. Yeah, I just saw you trying to awkwardly went under. It's a work in progress. We needed a newer office. Um, but no, I I think it's interesting considering the like your business,

Winding leverage back in your 50s

Alex 13:47

millennial wealth. Yeah, and one of the things that I love so much about how you operate with millennials is you'll get a millennial no matter what stage they are. And you do a lot with people who aren't millennials, but it doesn't matter where millennials are in that kind of stage, you will find a way to work with them and and support them. But I see a lot of people, you know, Gen X in their 50s boomers as well, where they're like, I've got 10 years, I've just got to go 10 years, and I've got to take the risk and I've got to do it. And so I'm just interested to see like what your thoughts are if someone comes to you, they're 52, they're seeing the property market, a little bit of FOMO's kicking, kicking in, going, the only way I'm gonna retire at 60 or 70 is if I can just get a property and ride the capital growth for the next 10-20 years. Are you still got backing leverage at that discussion, or are you having a broader discussion?

SPEAKER_00 14:38

It definitely is a broader discussion, and often I'll start at what their actual goal is that they're trying to achieve. And so let's just say, look, Rob, I want to retire at 62 with $60,000 a year of income,

Working backwards from the actual goal

SPEAKER_00 14:50

and you know, that's what I need, but then their current position, they've only got like 200 grand and super and no property, and that's it. Then we go, well, look, we've got a lot of work to do to get you to where you need to be. So these are probably the options we need to consider, and that's where that discussion around leverage and property comes into it. Um, because they if they want to achieve that goal, they're gonna have to take on a little bit of risk and go really hard to get to that position. Yeah, or we sometimes reframe and talk, well, okay, maybe we can't achieve that at 62. Would you be willing to work till 65? And we can get you there with potentially a lower level of risk, right?

SPEAKER_02 15:29

Yeah.

SPEAKER_00 15:30

Um, so it's really around that conversation and goals is everything for us when we have that conversation with clients about what they want to achieve and sort of actually testing that whether it can actually be achievable, yeah, then what are we gonna have to do to get them to that point? Because look, as a financial planner, and you know, I feel most planners are like this is if I can take less risk to get someone to where they need to be, that's exactly exactly what I'll do. Yeah, so I'll never take more risks than what we need, but there are times when yeah, we have to go really, really hard to get them to where they want to be.

Alex 16:03

How much risk? So if you have four or five hundred grand on your home, you've got a couple kids, one and a half incomes, you know, kind of household, that's an average. Yeah, it's

How risky is one investment property?

Alex 16:15

pretty normal. Uh, and reasonable balance, no other debt, healthy cash flow, but the perception I always feel like is when people are buying a home to live in, they they can afford more than what the bank says they can afford. Yeah. When they're trying to buy an investment property, they can afford less than what the bank says they can afford. It's a common thing. How how much risk is it to buy one investment property in that kind of stage? Like, are you going into high risk, moderate risk, meh? Oh, look, I mean like individual.

SPEAKER_00 16:48

We it's it's very individualistic. You're trying to sit on the fence. I am trying to sit on the fence. I'm like, my favourite response is it depends. Um it does definitely depend. Like uh look, like as advisors, we put property as an investment into the the growth basket, right? So anytime we're dealing with growth investments, we always say they're higher risk than deposits or cash or bonds or things like that. Um, but in that particular scenario, one investment property isn't too much of a big financial risk, in my opinion, overall. It's when you start trying to get more and more and more and more and more, two, three, four, five, if you don't need to necessarily, and you know, just because you can do it when you should, um, that's where you can start running into trouble. And where I find a lot of these people are, I guess, exposed as well to a lot of the time is, and we might get into this later, is they get the leverage, they buy the property, but then they don't look at their insurance and they don't have income protection. So if you can't work, what's gonna happen? And nine times out of ten, they're like, uh I don't know, yeah, like that's not ideal. So it's really

The insurance gap nobody plans for

SPEAKER_00 17:55

making sure that we've got all the right structures in place so that the risk is as low as possible, essentially.

Alex 18:00

Yeah. What and look that that's a fascinating kind of discussion, to an aside, because I think uh the first person to find out, I'm sure I've said this in the podcast, the first person uh to find out that Anna and I were pregnant was not a good not only a good friend, but it was our financial advisor because we were literally uh who you know, we were literally reviewing our insurances at the time. Like it was literally a discussion. We've gone through a giant IVF uh journey and gotten to this point where we were just like, hey, we've got to update this insurance, we've got to keep moving forward with our life. You know, uh, I don't like the idea of just surviving through infertility, we're gonna take steps to manage our finances, we are earning good income, let's protect our insurance, take this stuff. And as we started on that process, hilariously, we got pregnant. Yeah, um, but it was a legitimate call because I was like, I called him up and I was like, mate, I I I now am going to have uh four people as that's right. Uh to financially supply like provide for if anything happens to me. And I I don't think that is a conversation that enough people actually have as a household. And it's uh like this is this is very off topic, but like just quickly, because I know this is something you nail quite often with your clients, millennials especially, how easy is it to work in the affordability of income protection, life insurance, all that kind of stuff? Very easy.

SPEAKER_00 19:30

Yeah. Because life, ticket and income protection, we can fund from superannuation for starters. So I would say to anybody out there listening, like, you don't have an excuse not to have it. Because if you've got a pseudo balance, you can afford it. Like it's as simple as that.

Alex 19:42

Yeah. And I think I put in a tiny extra month. I just didn't like the idea of my balances getting deteriorated. Yeah.

SPEAKER_00 19:48

So I put a tiny little bit extra in each fortnight just to that's the thing, you can do that, and then if you've got enough cash flow, you can even hold some policies personally because like income protection, you get tax deduction for that too. So there's lots of ways to cut it, but it can be very affordable for sure. I think we have I think mine, a little bit of my income protection is paid for personally to make it just easier to get out in case it's a split policy because with superannuation laws you have to meet a certain definition of disablement, and if the policy is 100% held in super, then sometimes it doesn't pay. Whereas if you split it in a superlink arrangement like that is, then it's a lot easier to access. So that's just one of the many complexities of insurance.

Alex 20:29

Yeah, I've got so many questions, but we're gonna go down a rabbit hole. Yeah, this is a whole nother podcast. This is a whole nother podcast. That's another barbecue chat, actually. Um if a client comes to you on the

What happens when property is off the table

Alex 20:40

the question I mentioned earlier, yeah, before you tangented. Sorry. Um but you mentioned kind of like the clients who are looking at property being a risk are the ones who aren't looking at insurances. Uh, when a client comes to you that doesn't want to include property as like a I guess a core pillar of their strategy or even a pillar of the strategy, what are the ramifications of that?

SPEAKER_00 21:03

Yeah, look, it's a good question. Um, because as an advisor, like I'm not biased either way. Like I know a lot of advisors, and you'll see a lot of stuff in social media out there, you know, people that are like, I only recommend people invest in shares. I only recommend people invest in property. Um, there are definitely some people that do both, and I'm one of those where you know I think both asset classes are fantastic, both have their pros and cons. Um, the biggest differentiator with property versus shares, uh, and we've discussed this previously, is just the amount of leverage you can gain and the size of the asset that you can control. And often how I position this with most clients is I'll go, well, look, if you have $200,000 to invest, let's say, and we invest that $200,000 in shares, yeah, that goes up 10% one year. Effectively, we've made $20,000 on on paper, right?

SPEAKER_02 21:55

Yeah.

SPEAKER_00 21:55

We could take that $200,000 though, use it as a deposit for an investment property. Borrow the other 80% of the money for the bank, or even more in a lot of cases, and then have a million dollar asset. And if that goes up 10%, that's $100,000. And so often I go back to the go, what would you rather? $100,000 or $20,000? And look, obviously, we're taking all the costs out of the equation, and that's something that we need to do to see if it actually stacks up. But often when I'm talking to people, I just want to highlight that main difference and go, look, if we go down the property route, the chances of you reaching your goals is probably gonna be a lot sooner than if we completely take this asset class off the table or altogether.

Alex 22:37

Yeah. What um yeah, uh because I think everyone's got goals playing conservative games with paying off your own home and just kind of sitting there in the in

Timing your borrowing capacity windows

Alex 22:49

the comfort of cash flow. Yeah. Is something that feels very good. Yes. Like it's a very, you know, risk-adverse kind of it's almost a trope of risk adversity. Uh but it's not necessarily the best way to steward that that cash flow. And uh I've been toying around with this idea of when are the best times to invest from a borrowing capacity perspective. Yeah. And so one of the things that I was looking at, and this is very personal, right? Yeah, yeah. One of the things that I've been looking at is um double income, no kids, obvious. You've got the cash flow, yeah, but the only thing you've got to consider is decreasing income in the future and increasing expenses, right? That's something to do. Uh in my mind, I'd probably go, that's future Alex's problem. I've I've literally found a way through every expense windfall in my entire life. I'm sure I could have gone through that as well. Yeah. Uh the next time is when daycare fees disappear. So we're losing 24 grand worth of fees next year. Um, and that's with the kindy subsidy this year, so it's more expensive last year, and I get the maximum discount with two kids in at the same time. So, like other families are obviously hemorrhaging. Yeah. The so that's kind of like losing that, you've got cash flow, and I I would say most people are getting to that in their 30s or 40s. Yeah, like usually, yeah. Yeah, that's kind of where you're at. The next thing is, you know, kind of like you've got your kids in primary school, yeah. Generally a lower cost if you're in private school, or you know, no cost if you're in state school. Uh moving then to your your uh post-high school is that borrowing capacity because high school comes with a lot of costs, a lot of time, sucked up with school sports, like there's just a lot of commitments, and maybe we'll get Bindy to talk to that and poor decisions she's the expert. Uh but the the big kind of thing there is there's so much going on in overwhelm. Millennials, I think, if they don't take care of having again the double income, yeah, no, no kids, you're waiting till you're either late forties or fifties to get into the investment market. And back to our discussion earlier about that timing.

SPEAKER_00 25:04

Yeah, it's massive. Absolutely, and and yeah, I'm always saying that with clients or respective clients, the sooner you can start, the better, the sooner we can get the right structures in place, the better. Because often when I'm meeting clients

The four financial foundations

SPEAKER_00 25:16

for the first time, I talk through, you know, without going too deep into it, I've got what I call my financial foundations, and essentially that's like four pillars that we sort of work in, and it's like cash flow. Too many pillars, man. Oh no, too many pillars, cash flow protection, uh investment, and retirement. And the idea behind that is if we can nail all those and get all the systems and structured right across all four of those pillars, it's gonna set us up so well for any sort of life changes that we have over the next, you know, 15, 20, 30 years. And super, super important. And yeah, absolutely, as you said, like if you could come in and start working with us when you're a dual-income no kids, when you're sort of I wouldn't say at the peak of your powers, but like it's probably when you've got the most surplus cash flow for the next 20 years, effectively, depending on what what life sort of throws at you. You know, if you can get a head start then, it's gonna make the world a difference.

Alex 26:09

There's some pretty uh I was just trying to find a quote that I saw recently. Um there's some pretty interesting stats around the compounding nature

Super, compounding and forced savings

Alex 26:20

of what it looks like in 40 years' time if you invest consistently in your 20s and 30s. Like that is so overpowered. It's insane. It's and I was doing uh we all say we're doing research, but I was chatting to AI. Yeah. Whenever someone says I've done my own research, yeah, it's gone from being on 8chan or 4chan or whatever, or Reddit, to now, oh, you're chatting to Claudia. Oh goodness. Um, but no, the the the wild thing, I think, for me has been looking at that kind of milestone, compounding nature, and then looking back at people who are in their 50s and 60s, you know, our parents' age, uh, where they were kind of like I think super got introduced in the 90s or late 90s, yeah. And then it was like only 3%, I think, when it first came out. It's very low. And then 9% for years, and now we're at 12%, thank goodness. Uh, because you're how old are you? 34. 34, so young. Uh yeah younger than you. We're all hey, you and I are the two youngest in the room, so it's all sorry, Bendy. Uh it's only a month. Oh goodness. Um, and so where where I think it's really interesting is that FOMO or that fear of not having enough kicks in much harder for uh you know, kind of Gen X's despite having some of the greatest growth periods in the best environment, but yeah, let's not get into that. But it like everyone wants to be forced to save, no one wants to actually save, and that's what super does. Yeah, exactly. It's force savings. Yeah, it's uh I I love that, but I need force savings. Uh I thought my wife would be that for me. She's not. Um so it's uh yeah, there's a lot of stuff there. Yeah. Um yeah, so so we get the four savings from super. Gen X is in that kind of 50s range where they didn't have the foundation that we are going to get. Like I I went into the workforce in 2009 post-GFC, and I was putting most of my income into super because someone at my office told me to take advantage of the council stuff, right? Um, and that's giving me an incr insane balance. I actually don't know many people my age who have the as similar balance as me, which I I'm very thankful for, pure luck, to be honest, not myself. Um, this is me as a 16, 17, 18, 19 year old. I just didn't give work my TFN because I was like, I love getting uh savings at the end of each year. We don't need the cash. I love I

High-LVR lending and the Henrys

Alex 29:10

love the four savings. Um yeah, and like I think kind of having that foundation, then in you know mid-30s, we have got probably 1.7% of an income in our household with the two kids, and it's fascinating to then go, hey, I can take 200 grand and I can go chuck it, get a asset 800 to a million, roughly, maybe near 250, but I can take that 200 grand getting crazy leverage. And what other asset class allows us to do 80 to and as a physio, so we can get a physio LMI waiver to 90%.

SPEAKER_00 29:49

Yeah, like it's wild, and that's the point I like to drive home with a lot of people is that I I still find that amazing, right? That in Australia, obviously, like it's the only asset class that you can leverage so high, and and even in some cases you'd know better than me. Like, I've seen obviously if you're like a doctor or something, like you can get like no 95, like no LMI, like crazy high stuff, like it's unreal. Um, and yeah, like look, and there's gonna be people out there that go, oh, but you can borrow to buy shares, and yeah, you absolutely can, and it's sometimes a strategy we utilise, but you can only go so high on the LVR, and it's definitely not 90%, and there's a lot more risks that come with that that you have to be aware of that it makes it a lot different and a lot more riskier, I'd say, than property investment.

Alex 30:35

So yeah, what yeah, and and the I mean, just on the doctor's point, like you can go to 95% with a few banks now. I think there's two or three just off the top of my head, if not more. Um, and then the only compromises sometimes the banks don't price that as aggressively. Yeah, okay. And so the first homeowners guarantee is actually kind of ruined that yeah a little bit because uh they're looking at 80 really they're just going, we don't need this business above 80%. Yeah, we just don't need it, so we're not gonna make it the most attractive. Whereas like five, six years ago they were just hungry for that sort of business. Handing that out, yeah. Yeah, and it's uh like it's crazy because uh not like I don't know why those people in particular sometimes get those discounts. Like they're just high income earners, they're Henry's well.

SPEAKER_00 31:24

That's the thing that they are high-income earners, and and look, don't be wrong, look, and any doctors that are listening, don't take this the wrong way. Doctors, very, very smart people, very good at the job. But very similar to family lawyers with this butt go. Yeah, but sorry, Candace, sorry Candace. Yeah, I hope Candace isn't listening. Um, but they're you know, they're they're really good at what they do, but doesn't mean they're good at managing finances. So, you know, the fact that they could get like 95% like LVRs and the banks were just handing them out like it was going out of fashion, is like, yeah, maybe not the best group of people to give that to, but I mean it's just high income, right? Backslide.

Alex 31:59

Yeah, and like uh you can I I think the reality is that people largely in Australia, not overseas, if you can stay away from credit cards and you can stay away from crazy car loans, yeah, you can kind of get yourself out of trouble. You can you can kind of figure it out a little bit. So I I think there is an element of hey, if we invest opportunity, the the cost for us as a lender is giving them the opportunity and taking a little bit more risk early on and leveraging a little bit higher, and what is 10 to 15 grand of LMI and da da da, let that compound. We've got someone who's going to keep going into this and they are going to keep out-earning a little bit of silliness early on, right?

SPEAKER_00 32:45

Exactly. And I mean at the end of the day, the bank just sells the house anyway if you default. So I mean they know they're gonna get their money back somehow, so yeah, yeah, spin around about like that. Yeah.

Alex 32:55

Yeah, and I mean the way property goes in Australia. Yeah, exactly. Like, regardless of recent recent issues is you know, supply and demand, capitalism is still there. So there, like what back to the earlier comment, like what is the risk of buying investment properties when you have de-risked the rest of your life? And I would say that the way lending policies are built in Australia or designed in Australia, it's you're decenttivised to go and get credit cards and car loans. Yeah. And those two things on your balance sheet contribute heavily to your borrowing capacity being lower. Yeah, and then at the flip side, it's you know, uh like on the flip side of that, where we're then looking is well, if you don't have that, you kind of have a lot more surplus cash flow. Yeah. You're just looking at needs versus wants at that stage. And generally when you're under financial stress, uh what's the judge ruling? I think you stop drinking uh Shiraz and Brosso Shiraz and and Wagyu steak for dinner when you're under financial stress, and it's like, man, you need to chat to more Aussies if you think that, Mr. Judge. Uh no, it's swimming lessons that's the real issue. Man. They're expensive. Oh, dude. I want to know, man. Yeah. Let's have that call. No. Oh goodness. I spent seven hours on the weekend building a bunk bed. Oh nice. Yeah, so yeah, there's a thing called air tasker. You can um get people to come do that for you. Bindy, you have a mic. Oh goodness. Um, why does leverage compound

Why leveraged assets compound faster

Alex 34:36

fast, like leveraged assets compound faster? Like, what is the math behind the math of that working? Because we take 200 grand, we buy an investment, like, why does that work work better?

SPEAKER_00 34:47

Yeah. I mean, look, it's pretty simple in my brain, um, but maybe not so simple for some people. All right. Yeah, like look, to be fair though, like it's just like it's simple maths, realistically, end of the day, right? Like, if I've got something that's worth a million dollars, it goes up 10% one year, it's 1.1. So now I've got $1.1 million asset. If that asset goes up 10% another year, that's an additional $110,000, if my maths is correct. And it's just like a I sort of say it's like a snowball, not that we get much snow in Queensland, but it's like a snowball rolling down a hill, right? Yeah, it picks up speed, gets bigger and bigger and bigger and bigger. And and essentially the way compounding works is the bigger the asset gets, the next time the return happens, basically, it's gonna grow bigger again and again and again and again. And that's why that time um invested is so important because the longer we have to be invested, the bigger it's gonna grow. And we often talk about this with clients. I like to talk about it with um just things like shares because it's easy to understand, but like I always say to people, it's the hardest thing to get to your first $100,000 in your portfolio, and that's probably what's gonna take the longest. But once you get into that six-figure territory, it just exhilarates that much faster, and you find that if you crack seven figures, the acceleration is even more rapid post that. And so that's sort of the same with property, right? And again, back to my scenario about 200,000 in shares or 200,000 as a property deposit, like it's just gonna accelerate that much faster.

Alex 36:19

So yeah, so if you're if you're doing a debt recycling strategy, um and there's an undertone just around the tax, which I'll touch on in a second, but if we just go debt recycling strategy, 200

Interest-only vs P&I under changing rules

Alex 36:31

grand into shares, yeah, you hit that six figure straight away. Yes, but 200,000 into property, you're gonna hit that six figure much, much quicker. Exactly. Um, but you've just got the interest uh bill kind of associated with that. Yeah. Uh does going interest only, a little bit of a tax question here, going interest only decrease? Because I've I've heard a couple different uh theories around this, right? Um let's go because there's two oh man, this is such a big question now. All right. Right now. Well, yeah, it would be. Uh well, just no, like it there's there's two different answers you've got, right? Because you've got the grandfathered policies and the new policies around negative gearing. So interest only. I've had a couple of conversations in the last couple weeks of people wanting to go interest only on their home loans for investment properties because of the new rules. Yep. So they don't want to pay it down. Uh a couple medical professionals, so there's the doctor angle. Um so they're kind of going, we're gonna keep our debt at this level. Uh we've got our property here, it's gonna keep like this, and debt is always gonna stay that, and we're never gonna pay it down, but they can negatively gear that debt against their income, not just against the property's income. Yeah. What like is that weakening the argument for property with the negative gearing, or is it just like so individual? Yeah, I think it's so individualistic. Gotta plan it out, yeah.

SPEAKER_00 38:00

Got to plan it out. I I mean, like, historically, the take that we always used to have I some as a financial advisor under the old rules was that maximise your good debt, your tax-deductible debt, minimize your bad debt, which is a home loan debt. And so, yeah, the theory was that we'd put all the investment assets on interest only and funnel as much cash flow as we could to the the owner-occupied debt just to get that down as quickly as possible. But obviously, since these proposed changes, and they are still proposed, um, that sort of changed that a little bit to go sorry, just to jump in, we will preface where we're recording this in June.

Alex 38:36

Yes. So that's right. Yeah, if if I've just played a little uh dub on top, the laws have changed.

SPEAKER_00 38:43

Yeah, that's right. Exactly. So things are stuff in the air, but yeah, I'll even like recently we're having conversations with clients about deciding whether you know, maybe we should go principal and interest on an investment asset now to pay that debt down faster, get it to the point where it's more um neutrally geared or positively geared. But then on the other hand, some people go, Well, you know, I'd still rather knock down my home loan first than go to the investments. It's a case-by-case basis, as well as straight in.

Alex 39:12

This is probably the only area I do this. I just want to eat my cake. Yeah. Like on just like P and I on everything, let's get rid of all the debt. Yeah. I get, yeah. I get all the arguments of like, let's just Yeah, I don't I don't mind PI on investment properties.

SPEAKER_00 39:30

I think sometimes it can make a lot of sense. Such a little buy-in. And that's right, because if you actually look at the numbers and you'd see it more than me, but even when I run it, sometimes I'm like, the principal of the loan reports actually isn't that much. Yeah.

Alex 39:42

Well, it depends on the lender that you look at, but sometimes the interest rates are so much higher that on like on interest only, yeah. Exactly. That when you start to factor in the differences and you look at the difference now to get the buy-in to start reducing the principal, and you look at that impact in 10 years and the interest that you save, it's massive. Like it's crazy high. And so I'm I quite often wonder purely from a broking perspective and an interest perspective, well, if I if I have this difference here that might be $400 a month difference, $100 a week, what difference is that actually going to make on my my principal place of residence, my PBOR? And how is the principal and interest P and I to interest only IO, like how is the P and I to IO going to change those figures? And can I like is $400 on this lower, especially with negative gearing? Yeah, is this $400 on my uh uh lower interest rate on my home going to make a significant difference, or is that going to make a huge invest uh huge difference on a property that may have higher CGT long term than my own home? So, like it's it's such an individual thing. These are just me wondering personally on my own finances, not giving people advice at all. But I just wonder these things, and I think the advice that you give is so tailored to everyone individually that it really is a discussion to have. 100% is probably the answer. Absolutely. So what is you kind of answered this, but just to kind of clarify 200 grand in shares, 200 grand into investing into a property, leverage, you're just getting to that million faster. That's kind of the mass that you're saying in terms of uh 10-year kind of side-by-side comparison.

SPEAKER_00 41:28

Correct. Yeah. I mean, and and look, of of course, the costs had and the cash flows had to be factored in, and another argument that people often have is like, well, if I have a portfolio of shares, like the cost to operate that aren't really much at all. Whereas if I've got a property, obviously there's 7% management fee. You've got bigger outgoings.

Alex 41:46

Yeah.

SPEAKER_00 41:46

But as long as you understand that and you're happy to absorb that, and that then that comes down to the buying piece of buying the right property, which I certainly don't do. That's where buyers agents um to do that for us is finding that right asset that ticks all the boxes, that's going to be affordable for cash flow, and it all makes sense.

SPEAKER_02 42:02

So yeah.

Alex 42:04

Yeah, and it's um it's somewhat reassuring at the moment to see buyers agents still sticking with what it works asset class-wise in their world. It's cool to see that they're not

Do you just keep borrowing more?

Alex 42:15

all jumping ship to new builds and actually going, yeah, this actually still works. Um yeah, which is uh fascinating. Yeah, for sure. So if we go, alright, property, central piece of the the pie, uh we're going into leverage. The scenario we talked about, 200 to a million, it doesn't quite work, don't at me. Uh I just can't be bothered to say a million like 983,000 every time to actually make it work. Um what uh what does it mean to kind of go, hey, do I just keep borrowing more and more and more? Is that is that kind of like is that what people are going? Well, I just I don't have a retirement, I'd love to retire before 60, but I just want to make as much as I can. So I'm just gonna keep trying to find ways to borrow more and more and more, Jack Henderson.

SPEAKER_00 43:12

Um, yeah, look, it's an interesting question, and and again, like it all comes back to goals. And I like over the last 10 years when I've been meeting with people, I don't think I've ever had someone come and talk to me where their goal explicitly was I want to make as much money as humanly possible in the shortest amount of time, and I don't care how I do it or how much risk I have to take to get there. I I've never had someone come to me ask that.

Alex 43:39

It's always very structured in terms of That's because your clients aren't single 23 year old men at the GPO or whatever a club on Saturday night. They're realistic for starting.

SPEAKER_00 43:49

Yes. And it's like for a lot of people, they they don't need that. And so I think we're and don't not throwing shade at any other property people or anything like I don't want to call anyone out, I don't want to get added or Cancelled. Um, but anyway, we can talk about that another time. Um, you're a very wise man. Yeah. Like it's like you don't need to have a portfolio of 30 properties to achieve your goal. I can pretty much guarantee for 99% of people listening to achieve the goal that you want to achieve in terms of financial freedom and financial independence, you don't need to own 30 properties. Probably not what you need personally. Maybe two will get the job done. And so that's where it's coming back to the initial discussions and also the financial modelling about all right, if we want to achieve this, we buy one property year one, another property year three, maybe another one year five, and then that gets that gets us to where we want to be, and we have to take a ton of risk. Um, whereas, yeah, a lot of people on social media, and look, I get it, like they're pushing their own services, right? Of course they want people to buy 30 properties because that means that they're gonna make more money, makes sense, but just you don't necessarily have to do that, right? Like it's not it's not the be all end all, basically. Yeah, yeah.

Alex 45:00

I uh I was listening to Victor Frankel's Meeting of Man book the other day. I don't know if you've heard of it. Uh

Goals first, investments second

Alex 45:11

and it starts off with a quote from Nitske about uh those who care less about how, or those who care more about why care less about how.

SPEAKER_00 45:21

Okay.

Alex 45:22

And I think Simon who's a really nice guy who's uh meaning of why or finding your why. Um I don't know. Uh great book. Like just focusing on the why. And I think in your world it's the the goals, the you know, what is the goal? Actually helps feed in that plan of where does leverage make sense. Exactly. It's not just an endless pursuit of leverage. You then start to kind of fill in the gaps about your exit strategy, how do we get out of this debt? Um what are the goals that we're kind of focusing on over the next five to seven years? Uh and I I just think that's such a a big thing because if you go leverage gets me there faster, and that is your whole core concept, you're probably gonna miss the journey a little bit as well and kind of just have that end in mind. Yeah. Um, but you've got to be focused on your why. And I don't think to kind of undertone that, I don't think anyone's rocking up to financial planners going, uh, I don't really care about the why. I just I care about compounding, compounding max wealth, all that kind of stuff. It's like, okay, actually I'm getting this money, how do I actually manage Stuart and maximise the opportunity? Exactly. Well, yeah.

SPEAKER_00 46:43

And I think it's sort of one of those things where like I think often think back to earlier in my career, and you know, I was so focused on what's the right investment, what's gonna be the best investment, what's gonna make the most money, what's gonna do this. But as you develop as an advisor and over time, you you definitely learn that it's really asking what are the goals first, yeah, and then figuring out what are the actual investments that we need to achieve the goals rather than the other way around. And I think that's where a lot of like people who don't play this space get it wrong, is they're always looking for what's gonna be the best investment, what's gonna be get me the best return, always looking for that magic solution, but you should really figure out what your goal is actually first, yeah, and then we can figure out what investment is gonna be suitable.

Alex 47:24

Yeah, there's a I I love that comment because I think in health, finances, in a lot of our areas, it's always about optimization. Yeah, we we constantly hear like what's the optimal thing to

Optimal vs what you actually want

Alex 47:36

do. Yes, and we forget to just take a step back and go, actually, what do I want? Exactly, that's the biggest part. Like, you know, I could do a physical regimen that is the most optimal thing of getting me as healthy as I can, lifting, sprinting, whatever. But I'm actually looking, yeah, looks yeah, yep. Um, if Alex Watson cared about looks maxing, it would be a scary world. That would be a scary world. Oh my goodness. Uh gosh. Uh yeah. I don't think I could live with my wife if that's how I cared about things. She would mock me relentlessly. Um, but I think like for me, it's actually like, hey, I I want to do a core physical things well every day. Yeah, uh, I want it to be easy to buy clothes that fit me. That's a big thing. Like, it's yeah. Uh if I have any fat, I'm a weird body shape and it's annoying. Whole nother conversation. But I one of the things I love to do is long runs. Yeah. And I I'm at a time of life where I haven't got as much time to go do a 20k run on the weekend. I want to do 50k ultras. And so I'm actually in that maintenance phase of just doing like physically, it's not CrossFit, it's not optimal, it's not this, but it's just I enjoy doing it. Yeah. And I think the same thing with investments. Like, you can be in a position where everyone goes buy 10 investment properties with all your cash flow that's spare, look after every cent, all interest only, pay rent vest, like you create this bizarre optimum portfolio management thing, and you just lose sight of why you're actually doing it. Exactly.

SPEAKER_00 49:08

Exactly. And I'm really big on when we're planning finances with people is making sure that they can still enjoy their life now. It is really, really important, is balancing the future you versus the current you because I hate seeing people, you know, if they've been your financial planner in the past and the planner's literally taken every dollar of their surplus cash flow and allocated it to strategies, because then it means that your current lifestyle is going to suck, basically. Like you're not going to be able to go on holidays, you're not going to be able to take the family out for dinner because you're just running the cash flow that tight. So I always like to budget in a bit of extra surplus and go, look, this is yours, still do what you want with that. I don't care. Look, it might mean we get to our goal one year later, but at least it means that if you get hit by a bus tomorrow, uh you sort of made the most out of the time that you had, right?

Alex 49:59

So and then balancing that with like statistically, you're gonna make it to your 80s. Yeah, exactly. So like don't go full YOLO. Yeah, exactly.

SPEAKER_00 50:06

Don't go too crazy.

Alex 50:06

We're not saying spend all your money, yeah, but just having a balance. Yeah. Um, when do you stop chasing the dragon then when it comes to property investment?

SPEAKER_00 50:15

Look, good question, really good question. I I mean, I I think when you when you're in a position where you have met your objectives, um, look for some

When do you stop chasing the dragon?

SPEAKER_00 50:26

people, that may never happen because they may constantly change their objectives and have a constant moving target. And that's fine. Um, but for me, it's really when you get to the point where you've got in financial planning land, when you've got sufficient passive income coming in that you could flick the switch off work tomorrow and you'd be comfortable for the rest of your life. Yeah. That's the point at which you should stop. I mean, I'm not telling anyone how to live their lives if you want to have 50 properties and be my guest, but I just feel like the more complicated you make it, the I don't know, your life's just gonna be miserable, basically. Yeah.

Alex 51:03

And I think, and this is all a whole nother conversation we've got planned in the next month or so around commercial property. Like it's really interesting to see at the moment a lot of people who've been investing for 10 years

Where commercial property fits

Alex 51:14

accumulated five to seven properties making that switch to this is really hard to manage. Yeah, let's go invest into some commercial three to four mil, some really great tenants, three, you know, like really great tenants in those like big box, tilt slab, low maintenance, outgoings all paid for. You start to see why those are really attractive because you've used the leverage to get the capital growth, you've turned it into income. So it's fascinating for you to kind of give that perspective. Yeah, for sure. Um you mentioned kind of the cash flow excess earlier. There's a lot more that you can do with home equity than just leverage 200 grand into property, right? So we've talked about shares a little bit, um, you know, manage funds, all that kind of stuff, which leave that to the expert. I've tried investing myself. Uh, I think I just ended up trying to gamble and failed abysmally on penny stocks. Uh I didn't quite understand what I was doing, but I only had it was only five. I was playing around five grand. It wasn't the end of the world. Yeah, yeah, yeah, yeah, yeah. Yeah. I will never have an SMSF that I manage investing into shares. Like it's just that's it's not my world. It's dangerous. It's not my world. It's like uh massive tangent uh as I was trying to get it back on track. Hormozy um uh had a conversation with Dave Ramsey. Dave Ramsey is a property guy in the US, uh, he's a don't have any debt guy, don't listen to him uh in the US. Um but he's heavily invested into property, it's a very different property market. You can do it without leverage over there if you've got a couple hundred grand. So yeah, right. Um but they were talking about how they invest and both like worth hundreds of millions of dollars. Uh, individuals, it was really interesting because Dave's like, I I got my property license the day before I got my real estate license, I think, is what he says. So he's been property his whole life, his dad was in property, loves property, and he's now gone bigger commercial properties because it's just the scale makes sense. And Hormosy's like, well, when we had our buyout event and I made hundreds of millions of dollars, everyone's like, go buy these commercial, and he's like, I just don't understand it. I'm familiar with property or with businesses, I know how to scale, grow, sell businesses. Let's keep doing that. But quite often, like as just lay people, like I I was always scared a little bit about property because the I didn't understand the capital growth aspect, and I saw Queensland not growing. Yeah, I didn't understand the strategy around how it all works. Where like there's so much more options that people uh just going, well, we want capital growth, we want property, we're familiar with that. That's the playbook we had, maybe not anymore. What other options have they got to use that equity?

SPEAKER_00 53:48

Yeah, so the most common secondary option that we look at is equities, and whether that's managed funds, exchange traded funds, or direct shares, um, purely because very

Equities: diversification and liquidity

SPEAKER_00 53:59

similar to property in terms of the characteristics, you get capital growth and you can get income. So instead of getting rental income, you get dividends or distributions, which is basically profits that companies pay to shareholders. Um, and then when the share price or the unit price of the investment goes up, you get capital growth. So operates very similar. Um, the thing that is interesting about those types of investments, though, is you can get a lot more diversification and less concentration risk. So, how I sort of frame that is if I buy one property as my investment in Nunda, that's my entire exposure is to that one asset in the one location in the one state in the one suburb. If I buy into a managed fund portfolio, I literally get access to hundreds of different individual companies across different sectors, across different geographies. It's wild how far you can spread your money around. And the idea behind that is quite simply, right? It's the old saying, don't put all the eggs in one basket, is if one company does bad and the rest do good, then it'll sort of balance out and you'll be okay. Um, so that's one of the benefits. Um, the secondary thing is liquidity as well, too. So when I mean that, it's the ability to be able to sell something and turn it into cash quickly. And with equities, whether it's shares, managed funds, ETFs, you can sell those, convert those to cash. You can sell portions. So I could go, oh look, I need $10,000, let's sell it down, etc. Obviously, property, can't sell a brick off my home. I mean, probably could, arguably. But marketplace is a wonderful thing. Yeah, that's right. You'd be surprised about what you can sell. Copper, actually, that's a good one. Um, but I guess what I'm trying to say is that if I want to turn my property into cash, it might take a bit more time. Yeah. And I've got to sell the whole thing.

Alex 55:49

Good to get an agent in. You can they're well, you need to do this to maximise it, you've got to then clear out all your stuff because they want it pretty much vacant to stay too. That's right. Yeah. There's there's a lot of moving parts, right?

SPEAKER_00 56:00

Um, whereas with equities, it's much simpler, much easier to buy and sell, do all sorts of things. I'm not saying it's it's better, it's complementary to a property strategy. I think both need to be done at the same time, ideally, in my view. Um, but that's sort of the other thing we look at. And the cool thing actually about equity investment with leverage as well, too, is we can do some really nice um regular investment plans or dollar cost averaging strategies where rather than taking your full, say, 240 of equity straight away and invest it all at once, you can break it up into little chunks. And then every month we do like 10,000, 10,000, 10,000, 10,000.

Alex 56:36

We go into dollar cost averaging now.

SPEAKER_00 56:37

Well, we can talk about dollar cost averaging if you're wanting whether it is actually detrimental for you or beneficial for you long term. Answer, it depends. Um,

Dollar cost averaging — strategy or sales tactic?

SPEAKER_00 56:46

but that's another cool strategy, and then we can go to debt recycling and that sort of stuff.

Alex 56:50

No, no, I've just I've just got a hot take, which is not based on me actually reading any papers on the topic whatsoever. I think it's uh a sales tactic to make people more comfortable with investing large sums of money. Interesting.

SPEAKER_00 57:02

Well, it is definitely a tactic to make people more comfortable, I'll agree with that.

Alex 57:05

And oftentimes sales is probably unfair, but uh it it does seem that people get more comfortable with the idea of doing it slowly for the first time than just dumping 200 credit into.

SPEAKER_00 57:15

Absolutely. For a lot of first-time investors, that's often what we advocate to for them is to dip their toe in the water and yes, gradually increase it rather than just dumping in a large sum of cash. And there is arguments like there's been research done on it, right, about what's better long term, and I'm pretty sure the research says that dumping all the money in at once, um, yeah, there you go. Research is in this book. Research, dumping it all in at once and letting it ride long term gets you a better long-term outcome. However, for a lot of people, first-time investors, you know, it can back to our conversation, optimal verse. Exactly, versus what's gonna be better for you.

SPEAKER_02 57:52

Yeah.

SPEAKER_00 57:53

Um, and and look, don't get me wrong, like if the market absolutely tanks, I'm not saying you can time markets, no one can. Don't think you can time markets anyone listening out there, you can't, fool's errand. Um, but if it does happen, then you can really take advantage of that dollar cost average invention. That's a story proof for another. Yeah, yeah.

Alex 58:10

Um so someone comes in, they're in a position where maybe they're outside of the, they've still got the childcare fees, right? Yep. Uh they're like, hey, we're two years away from having the borrowing capacity there. We're working on, we've

Using equity while you build capacity

Alex 58:21

got the equity, one pillar we need to borrow money. Borrowing capacity is not quite there. Maybe they can get 200 grand out. You know, we can we can still get negative gearing on a 200 grand being invested with a financial planner and and funds, right? So that's like there's some great places there that are that are available. 100%. What what are you kind of like? Are you saying, hey, let's let's use it until we're in the property window or use it and then try and get into the property window later while keeping that debt recycling equity there? Where depends.

SPEAKER_00 58:52

Yeah, um go back to my favourite saying. Um look, look, yeah, often a lot of times we will use that strategy first as a way to further build up their wealth um and equity, and then when they're ready to go on the property, then we can either yeah liquidate some or all of that portfolio, or ideally, like, look, if we can keep it and get the property at the same time, that that's the ultimate solution. Yeah, but if yeah, if push comes to shove and we have to sell a little bit, then that's fine as well, too. Because look, ideally, I want clients to have both asset classes if we can. I don't want to be one or the other, so definitely a big fan of trying to build people into a position where we can get them that first investment property. Yeah.

Alex 59:32

Um what uh yeah, uh I just think uh there's there's things you can do in the now while you're getting to p opportunities that you can do later on, right? And so um, you know, personally, this side of a financial year without negative gearing, my borrowing capacity is I think we worked out at 376 without you know, without another asset, right? So we can do that for um, I think it goes high enough to get some, but three seventy-six just to cash out equity. Yep. Um looking next side of the financial year, it goes up to 700 just with being self-employed, all this kind of stuff. Crazy. It is um and it's just quite often like, okay, is it a month or three weeks to bridge the gap between these opportunities, or is it two years? What does that look like moving forward? It's really a team discussion, right? It's like, hey, financial planner, here's the idea. Mortgage broker, okay, well, this is where we can execute. And you guys I always find it very close to knowing what people can do. Uh it's a w it's never whenever a financial planner client comes to me like, no, you're nowhere near close to this. Yeah, that's it. Like it's always like, yeah, you can do it. Like, it's just how many, and then we can kind of do the projections a little bit more with you guys. Um if you're in a position, you've got cash, you're looking around Australia, the place you're living is too expensive. And I think uh touching a little bit on your military background, uh, which we haven't gone into, but like just looking at you know, ADF members who uh I was actually in chatting with my uncle who's uh former Rafi. Yep, and like they're in Adelaide now, they've been in Amberley, they've been all over the country. My cousin, like they're moving around constantly. I think he's actually on a ship or America. I don't really he messaged me the other day. I was like, how should I know where you are? I was

Rent-vesting and the ADF advantage

Alex 1:01:21

like, this is wild, and he's uh he's a stallman in the army. I'm just like wow, he travels more than any other army guy I know. Okay, um, but like what is the opportunity for those people who are moving around, maybe living in a place that's too expensive, to get into property?

SPEAKER_00 1:01:38

Yeah, rent vesting. Yeah. Really at the end of the day, that's that's the name of the game. And I mean, people are sort of saying, well, maybe it's not going to be as efficient as what it used to be with the changes, but I mean, putting that aside, I still think it's an awesome strategy. And not even just for people that move around a lot, for people that want to have a really great lifestyle, but also want to get exposure to some growth assets through property at the same time. And often say, like, it's sort of when you look at Brisbane City, for example, like you can go rent an apartment in Brisbane City for 800 bucks to a thousand bucks a week, something like that. If you were to buy one of those, your mortgage repayments would be through the roof, like astronomical. I'm not sure how much they're selling for, but I imagine it wouldn't be cheap. Um, so you know, being able to still have that lifestyle, live centrally close to amenities, do all the things you love doing, but then buy an investment property, maybe someone a little bit further out of town, and it doesn't matter because you don't need to live there yourself, right? As long as there's enough demand for people that want to live there, you're gonna be fine. Um, so yeah, I really love that strategy, and yeah, for especially for people that move a lot for work, like military, for example, um, again, another great strategy for them, and especially for them too, because they get a lot of help with paying their rent on the property they live in. When I was in, you got this thing called rent assistance, and from memory, it almost paid half my rent for me on top of my salary. So, like it's a no-brainer for people in that position to look at a strategy such as rent vesting.

Alex 1:03:08

Yeah, and I think it's uh I think I don't think you get a rent assistance that appears on like a a pay slip anymore. I'm just thinking to one of our clients, but uh you're definitely not paying market rent. No, not at all, not even close. Like, yeah, it was so good. Yeah, there's like we've got friends and clients who uh are living in houses, and even when I was a teenager, I had a mate who um his dad was was a sergeant at uh inaugural, yeah, and they were just in this giant mansion in Aspley with five kids, wife barely worked. I was just like, How are you affording this? This is crazy. This is crazy. So, and it was you know pretty evident that like there was just some assistance coming in ADF. Yeah, absolutely. Fairly sure that wasn't a DHA home.

SPEAKER_00 1:03:58

Yeah, right.

Alex 1:03:58

Fairly sure that wasn't a DHA home.

SPEAKER_00 1:04:00

Just a private rental that, yeah.

Alex 1:04:01

Yeah, that it was then claiming the rent assince. So yeah, probably showing up in those cases if you're outside of DHA housing. But exactly. Uh I think there's some you don't get as many benefits when you're not in DHA though. Yeah.

SPEAKER_00 1:04:14

I don't know, I don't know. I'm not entirely sure. I we can phone a friend. Yeah, I only ever privately rented.

Alex 1:04:19

Joey, if you're listening.

SPEAKER_00 1:04:20

When I was in Tianzal and um basically it was like, yeah, go find whatever house you want and we'll we'll pay a certain amount of the rent. So yeah, there were guys living in like big share houses but really nice houses. Yeah.

Alex 1:04:31

So it's when I was in commercial real estate, there were guys doing that too. Yeah, yeah. They moved into this giant house in uh Red Hill or Paddington. Um and on the ad

The emotional case against renting

Alex 1:04:42

oh gosh. On the ad it said uh no gardening and moved in and it wasn't on the lease, and suddenly they had to garden, and they're like, We don't even know. We don't have a secretur, let alone a mower. But um oh man um and just dying. This is why I need the cough button. Uh is there an emotional hard sell to get people over the line sometimes on rent vesting, though? Yeah, I think they want their space.

SPEAKER_00 1:05:14

Yeah, I think there definitely is, and and look, it's it's probably like it's definitely a parents' era. People saying, like, I want to own the house that I live in, I don't want to rent because it's you know not stable and that sort of thing. And 3M is revolutionized putting up paintings. Yeah. I know, right. I never I don't get the adversion to rent. And like I think it's maybe because I think people of my our parents' era too might have thought, even our grandparents sort of looked down and people that rented as like they're like low socioeconomic almost. Um, when in actual fact a lot of the time they're not. Um so I don't have any problem with anyone that wants to rent, I guess great strategy. Um, but yeah, it's certainly an emotional thing for a lot of people is like they want to it's like the dream home thing, right? The white picket fence lifestyle, you know, you know, your own it's an Australian dream at the end of the day. Realistically, own your own home and you know things are gravy. But I think when you actually run the numbers out, and I do this with clients all the time when we're having this chat, is go, all right, let's buy a home to live in versus re-invest, see where the numbers look. A lot of the time the rent vesting works better for them financially. So yeah, yeah, there's that.

Alex 1:06:18

Yeah, it's um look, it is uh it's something I think where we've been very lucky in Brizzy, especially to get the capital growth we've had. Absolutely. Um without that capital growth, it it kind of wouldn't make sense, and that's not really end in sight. But I think the decision between investing in property and buying an unoccupied home, that's one conversation. The the question between doing nothing and keeping renting is just like it just doesn't make sense from that perspective. Which I had one of those conversations recently. I was like, hey, good luck, like my mortgage is cheaper than your rent right now, and you're saying you're not doing it because the mortgage is going to be more expensive than your rent. Yeah. That's not gonna last 10 years. No, exactly. You're in a cycle there. You need to do something, you can't just not do anything. Yeah, exactly. Um, kind of tying back into the top of the show barbecue chat question, we talked about uh term deposits versus offset. What about offset versus investing? So you're not in an

Offset vs invest: the ROI comparison

Alex 1:07:17

investment property, you might be prepping for the investment property, uh, but you've got some surplus cash flow. Yep. What where does the mass go in terms of paying down, you know, six percent investing into shares or paying into super, getting capital growth that way? Like what's the the arithmetic for that?

SPEAKER_00 1:07:36

Yeah, one of my favourite topics, Alex, and a question I get asked a lot. I actually had a client meeting last night, literally had that exact conversation about whether to invest or pay off the mortgage or put the money in the offset account. So very common. Um look, so from a a numbers point of view, I saw look at it as like a ROR or return on investment, essentially. So for every dollar that I invest or pay off my mortgage, I put into an offset account, what's my return on investment? And let's just say, look, I don't know a broker, so I don't know the average rates, but I'd say at the moment maybe a home loan is like 6.2, 6.3%, something like that. Sound about right. So essentially for every dollar I put into my offset account, I'm earning, or well, you're saving, 6.3%. So that's your rate of return, and because banks calculate interest on a daily basis, um, that's really valuable. Whereas if I take that dollar and invest that money instead, whether it's in my super uh personal share portfolio, something like that, depending on how we invest it, it might earn 7 to 10% per annum. That's not guaranteed though, and we pay tax on the earnings as well, too. So when you look at it from that perspective, guaranteed 6.3% return, or I might get 7 to 10, but I'm gonna lose a bit from tax. Sometimes, for a lot of people, paying money into that offset account to reduce their mortgage a lot faster can make a hell of a lot of sense. Um, oftentimes with clients too, we might do a bit of both. So we might go, look, if we invest you really aggressively, we might get closer to 12% per annum compounded returns. Obviously, there's a risk there, but if you don't want to take on that much risk, we could funnel half your cash flow to your offset account, half to the investment, and then we're hedging our bets, getting the best of both worlds as well. Yeah, it also comes down to goals as well, too, and how far or close you are from retirement as well, as to how much risk we can or want to take on. And sometimes the, you know, what do they say? It's like a bird in the hand is better than two in the bush. Um, taking that bird in the hand, which is the offset account. Welcome to my world coming up with I'm trying to remember all these little analogies and say I love a good analogy. I do too. Um the the bird in the hand of the offset account, effectively, and sometimes just focused on that will get us the result that we need. So therefore, that is the route that we go down.

Alex 1:09:58

Yeah. I'm always fascinated. Uh, because my understanding in the US, for example, where we get a lot of our financial education, yes, interestingly, yeah,

Why the US says shares and we say property

Alex 1:10:09

the share portfolio, like the share market is outperforming property over there. Oh, it the US channel has killed it. Yeah. Like absolute phen it's blown the Australian share market out of the water. Yeah. And so we can hear share, share, share, share, share from a lot of the overseas overseas commentary, all that kind of stuff. And then on here we're hearing property, property, property, and we can get stuck in that analysis or like paralysis. And realistically, we we need to know what the tools that we have available are. Exactly. Um and I like I'm I'm in this world day in and day out. Uh Bindy's been in this world for you know, probably 20 years, uh, with banking and finance and everything. I don't know. Uh she just looked at me, so I'm 16.

SPEAKER_03 1:10:53

Uh I think it's 18.

Alex 1:10:55

18. Close enough. Uh that one month is a big difference. That one month is a big difference.

SPEAKER_03 1:11:03

It's like your fourth staff.

Alex 1:11:06

It's because you've got a mic now to respond. Um but no, it's like uh we don't have the tools, and quite often you're relied upon as an expert in finance to be the expert in finance. And I think this conversation just shows that it's just not like you need a bigger team than you think. 100%. Like uh, you know, between you and Riley, other guests, we've got there's just so much expertise coming on. Yeah. Uh that's not hugely contradictory, but if you chat to three brokers, you're going to get a lot of contradictions. Absolutely. Like, I I guarantee I'm approaching deals very different to most of my mates, yeah, brokers, right? Yep. Um to you know more success. Uh it's co I love competing. I love being competitive. Um but I think to to kind of wrap all this up and kind of give my my neat take. Um I think for me today the message for me was do something. Yes. You have opportunities,

The neat takeaway

Alex 1:12:05

like we talked about borrowing capacity, different stuff, so do something. Uh and then the property is the engine, leverage is the fuel for your wealth creation journey. And so you can do something, but that doesn't mean you have to keep doing it. And so what got you here or what might get you there over the next 10 years doesn't have to be the story until your goals and your why and everything achieving there. Um, so mate, that there's so much gold in there. That was that was awesome. Just the way you communicated some of those ideas was was brilliant. Uh, where can people find you?

SPEAKER_00 1:12:40

Yeah, so a few places. Um TikTok. Yeah, TikTok actually. I'm on TikTok. Alex is on TikTok too, so there you go. Do it do a live stream every now and then, so get around that. Um, look, honestly, like um

Where to find Rob

SPEAKER_00 1:12:52

website millennialwealth.com.au, um Instagram millennial wealthau is where you can find me. And um, yeah, that's probably the easiest.

Alex 1:13:00

We'll uh pop an appointment link in the bio. Yeah, perfect. So uh we'll get that chuckled. Um you've got an offer for clients of mine. I do, yeah. Yep.

SPEAKER_00 1:13:09

Anyone that Alex sends to me or anyone that comes through this means as well, um, initial consult, no cost, no obligation. Sit down for an hour, whether it's in person, on Teams, or over the phone, have a really good chat, get to understand your goals and see where we can add value at all. And um, as I said, no cost and obligation. So all you've got to lose is a bit of your time, basically. Yeah.

Alex 1:13:29

Awesome. Well, I hope you guys got a lot out of today and uh made things just a little bit more neater for your world. We're gonna go into poor decisions uh and uh crack open some whiskey and talk about some bad financial decisions we've made. So check it out. Uh, it's gonna be much shorter than what we've done in the past because some of those conversations have dragged out tremendously. So thanks, Rob. See you in the post show.