This transcript was generated automatically and may contain small errors.
Welcome to another episode of the Property Nerds podcast. I'm here with Adrian, our senior portfolio strategist and investigator, and also Jack from 4Acre Financial. We're going to go into what makes a winning strategy. Everyone asks us about, hey, what sort of strategy I should be building for my portfolio? What should I consider?
When instead, people keep making these mistakes of the property and isolating everything to do with that rather than thinking broader than that. So we want to take a step back in this episode to go, what makes a winning strategy? What are all the components you should consider? And we'll even at the end of the podcast talk about when you shouldn't buy property. So stay tuned to the end for that one.
Let's get into the episode. Nerd alert! Property Nerds, the home for data-driven property investors, where we uncover Australia's hot and cold markets, latest headlines and trends. So guys, we're talking strategy today, and I'd love to say it's a sexy word, but it's not really. I think it is.
You think it is? Thanks, Jack. I was just trying to see if I could get Adrian just to get worked up to go, it's not sexy, you're talking strategy. But Adrian, I mean, I know there's many people out there who don't know what strategy even is. People use the word loosely, and they assume that that's a strategy that they're thinking of, but maybe it's not.
Could you maybe give some light to what actually is a strategy when it comes to property investing? Yeah, 100%. I think it can be a bit of a fluffy term that a lot of people throw in, and they don't exactly know what it is. But I think it can be quite complicated, but in its simplest form, it really is just about a sequence of steps that you're taking and following a framework to get you from your current position, where you are now, to your actual goal. And that's all it would really be when it comes to strategy.
There's a lot of aspects which we can sort of dig into later on of what composes the strategy, but largely it really is just those steps and the sequence of where we're going or how we get to where we're going. See, that's the key thing that many people get wrong. It's like they don't recognize that it's that simple. A sequence of steps from where we are to where we're going. You know what isn't a strategy?
It's positive cash flow. That's an outcome, right? It's not a strategy. It's like if you want positive properties as part of your portfolio, that could be a strategy tactic, but it's not the strategy. What kind of things do you hear on your journey?
Because you build many strategies for clients or build portfolio strategies. What are some things where you're like, yeah, that's not a strategy. That isn't what it is. Yeah, it's exactly what you said. I think what you've mentioned is positive cash flow or high cash flow or purchase in Perth.
That's usually when it comes to the acquisition side of things, they're thinking about the actual purchase rather than taking a step back and reviewing it overall from that overall picture of your finances, what aligns with your risk tolerance, everything like that as that overarching strategy rather than really honing in on that one purchase that they're making. Yeah, now you talked about finance. So we're going to come back to Mr. Mortgage Freeman over here. Jack, finance, talk to me about how finance plays a part in strategy.
Now, what I mean by that is we know that property is a game of finance. What do people often not consider when it comes to finance and strategy in a portfolio? Well, I think that oftentimes what stops people from moving forward is finance. So finance is what's going to allow you to scale the portfolio and continue pushing ahead. I would say that I feel like accounting is, there's a bottomless pit of strategies in accounting.
Like once you get to, as an investor, once you get to a higher level and you've got multiple properties, you start looking at trusts and SMSF, all the different strategies that are involved in that is where you can really push ahead in the finance. So when that kind of merges in, like the accounting strategies merges in with the finance strategies, that's when someone can really start to push beyond what they thought they could. But it's not right for everyone, but yeah, I think it's pretty important to, once you get to those multiple property type portfolios, you start looking at those different sort of accounting strategies that you can work with your accountant on because that works really well with a broker who knows what they're doing on that side. So when it comes to people actually incorporating finance, what are some of the mistakes you see people make? They've built out a plan of how many properties they want.
They feel like this is the strategy that they've built to get from A to B on their portfolio and they're set. Like this is how I'm going to get there. Where does that goal turn into a reality versus that's a dream now because you're not considering these things in finance? It's weird, man. Like a lot of people, you get some different contrasts of people.
Like some people would just get held back by fears. They're like, oh, there's something going on in the world and I'm just going to like wait a little bit. And then you get other people that are just being irresponsibly aggressive. Like they're just whatever it takes. Like I don't care if I have to buy a shack, like a two bedroom shack for $100,000.
I want another property, you know? So you get a lot of different types of people. But I mean, sometimes, man, I get some investors that like they're about to get their third property. They're like, look, I'm thinking I want to buy a car, but I need a car loan. And I'm like, what are you talking about?
Yeah, so that's one way to break that financing. Yeah, you want to stop borrowing money, get a car loan or get an evaded lease. What's the differences like? Because I want to like help people visualize that. If you're talking car loans, credit cards, these types of things, obviously they're big blockers on people's finance strategies and building up a portfolio.
How bad is it? Like what does it, like what's a calculation look like? It's pretty bad. Like it's, well, if you're getting an $80,000 car loan, right? It's on a five year term.
Like it's different if you just get an $80,000 split on your house equity. That's a 30 year term. That's really minuscule for what it does to your overall borrowing power. But you've also got an offset facility attached to that as well. Whereas like on a car loan or an evaded lease, you're just paying the full interest over the term and you can't offset it with extra money.
Like, so if you tie it in with your home loan product, it's actually not that bad. Yeah, but massive credit card limits typically become a roadblock. And it's not that it's necessarily a roadblock. It just reduces your lender options and pushes you to the back of the line in terms of like what lenders are available to you, which paying a higher rate and running out of lender options is, yeah, definitely going to hold you back. Well, I mean, if I'm just doing back of the napkin math, if you've got a car and it's like an $80,000 loan, five year term, and you've got a mortgage and a 30 year term, the difference is six times, right?
Meaning, are we saying that an $80,000 car loan is the same as like a $480,000 home loan? Can it, is it kind of like work like that? Is it close to those numbers? Yeah, yeah. I mean, you've also got a high interest rate on a car loan than you have on a mortgage a lot of times.
So that comes into it. It's even worse, honestly. Yeah, it's even worse. I always say to people, like they say, they want to go buy a car. I was like, okay, you want to buy a car?
Would you pay cash for it? It's like, oh, I can't afford it. I was like, well, you can't afford it. Well, you know what car you can afford? Yeah.
My Pajero that we got for $1,000. And like people think like, Arj, that Pajero must have been you in your early days. No, man. Like that Pajero was like just five years ago, four years ago. I can't tell you how much I miss my 2009 Mitsubishi Lancer manual.
It's got like 200,000 Ks on it. I can't believe I sold that car. You know, that's what I drive right now, right? Well, this is the person that, hence why you're the senior strategist, not just strategist, the senior, because you don't make silly mistakes in cars. I let my wife talk me into getting a family car.
I want to get my little runaround car back, you know? But I always say to people, if you can't justify spending cash on a brand new car, then don't buy it. Why would you? Because you're still, if you get a loan for it, you're still paying that much for the car. Like it's still coming out of your position, but then you're paying interest on it.
So like it just, yeah, once you put it to people like that, they typically make better decisions. So it's nasty when you essentially pivot from the investment growth and the investment lending to other types along the way. Enjoying the show? At 4Acre Financial, we believe property is a game of finance and we're here to help you win it. Whether you're still building a portfolio or looking to formulate your exit strategy, our tailored mortgage strategies are designed to simplify your journey and supercharge your confidence.
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