Key To Long Term Success in Property

VIDEO – Stay Positive: Why Positive Cashflow Is The Key To Long Term Success in Property

Stay Positive: Why Positive Cashflow Is The Key To Long Term Success in Property'

Goose: 00:02 Hi Guys, today we're going to talk to you about positive cashflow. So, there's a bunch of reasons we think that positive cash flow is a really, really, really super important part of anyone's investment strategy. And there's obviously a lot of discussion at the moment around on potential changes to negative gearing policies and what that might mean, um, there's a lot of discussion around that. A lot of commentary in the media. And we're not going to get stuck too far into that. We're going to focus on the positives because we very positive people.
Gabi: 00:28 We are positive people.
Goose: 00:29 Yay! So, first things we want to address are assets versus liabilities. So, in a situation where you have a negatively geared asset, not only does it sound negative, um, but that's essentially an asset you're going to have to spend money on every year in order to maintain.
Goose: 00:47 So, on a basic level, when you're considering assets versus liabilities, an asset should be making you money. So, an example of a liability could either be a car that you've got or even your own home. You know, if that's something that's taking money out of your pocket every year, it's a liability. Now, there's good liabilities and bad liabilities. There's good debt, bad debt - we should all know that by now. But when you're thinking about your investment strategy, if you can create, or if you can purchase an asset which is going to put money, ~cash~, into your pocket week on week, year on year, you've got not only the ability to self support the asset, but it's going to help your overall financial position.
Gabi: 01:35 Particularly if you're interested in purchasing multiple properties, if you've got something that's eating into your cashflow every week, essentially, it's gonna really hurt your ability to leapfrog into the next one. Oh, absolutely. Which kind of leads into the next point about...
Goose: 01:52 Yeah! So, look, some of the biggest concerns that people have got, um, with property is, uh, finance, um, risk, uh, all of these kinds of things. So let's address some of that stuff. So fine finance, finances, that finance is a hot topic for everyone. The biggest, the biggest things that are holding people back in advancing their portfolio is generally, um, how.. Isn't it risky? How do I de-risk? How do I de-risk my strategy? Um oh oh, I'm not sure how to get finance, stuff like that. Now, let's just touch on a finance component for a moment. Now if you, let's say your household income is $100,000 and you've already bought a property - fantastic, good on ya. Um, if that property is costing you money every year, that's going to eat into your serviceable income, your financial, like, the amount of money the bank is going to lend you.
Goose: 02:38 So, if you have an asset which is going to put money into your pocket, if it can self service all of it's own expenses and all of its own debt, and put money into your pocket. That's going to increase your serviceability. That's going to increase your ability to get finance. So, when you go to recycle, say, recycle the equity out of one property into your next property purchase, if you can prove that Property One is already self supporting and putting cash into your pocket and then when you go to buy Asset Number Two, that is also, on paper at least, self supporting. If you get a rental appraisal or something like that, and it shows its self supporting, and it's going to put more cash in your pocket. Guess what? The bank will lend you money. It's that simple. You're probably getting more income than you're spending and if you can, if you can get your purchase the right asset, you can have the equity to support it, you should be able to recycle that through.
Gabi: 03:30 Because from a lender's perspective, it's essentially a risk game, right? So if you've got an asset that you can prove is going to make money... They're going to lend you the money, nine times out of 10.
Goose: 03:43 Yeah. Now, that's obviously not, you know, we're not financial advisors so don't take ours as financial advice. That's the basic concept. You know, if you're increasing your serviceable income, then you're increasing your borrowing capacity and your ability to get finance for the next property purchase.
Goose: 03:59 So, that then comes back into the next point, which is about passive, about passive income. So, most people we've talked to, who have an interest in investing in property, you know, we're always trying to ask the why, what's the reason? What's the purpose? And most people want freedom, financial freedom. They want, to build a legacy... And they want to, you know, fund their retirement, um, all that kind of stuff. So that all comes down to having a passive income stream. Now, when you're thinking about that-- yes, yes. Capital Growth and compounding growth, uh, in a, in a real estate asset is super important. Um, but you also want to be able to supplement your income, not only for what we just discussed, serviceability and finance, but also long term to be able to fund, your fund, your retirement phase. So, that's, that's an important, massive step in creating a passive income stream and creating that financial freedom that most people are, are, are after a long time.
Gabi: 04:56 Yeah. Particularly if, like I touched on earlier, if you are interested in in multiple, multiple properties or even just one, just one more. Um, a lot, a lot of reasons behind that is to have a better lifestyle. Um, which yeah, it just, it comes back to your why. So why, why would you invest in an asset that isn't actually an asset? It's a liability that takes away your, your ability to become basically become the person you want to be and live the lifestyle you want to live. It just doesn't, it just doesn't make sense.
Goose: 05:31 Absolutely. Look, there's a time and a place for having a negatively geared property in your portfolio. So it's not a, never say never. There's a never say.. Like that's a very kind of closed mindset to have on it. However, for most people who are seeking to grow a portfolio that he's going to achieve their long term financial goals, it doesn't make financial sense. And there's a reason that most property investors get tapped out at one or two investment properties. And that's because they haven't allowed themselves the ability to create, an additional serviceable income, and so they get tapped out on finance. That's one of the biggest things: "I can't get finance". But if you can create, if you can manufacture your own additional passive income, your additional serviceability, then you're going to manufacture your ability to borrow more money and grow your portfolio.
Goose: 06:15 So, then then you've got to think about risk in your portfolio and de-risking. That's a big thing for us, is finding ways to mitigate the risk in your property portfolio selection. So we think about that in multiple ways and we look at what are the, what are the multiple exit strategies but also just sticking with positive, uh, positive cash flow and positive gearing. So if you have an asset which can self support its own debt and its own expenses and put money in your pocket every year, that is a massive why to de-risk your liabilities. Now, what happens if you lose your job? What happens if you get sick? What happens if there's a family emergency? What happens if something happens to your standardized income stream and revenue source, right? If you have a liability in your portfolio. So that is an asset which is costing you money, that liability is going to become.. that is a risk, you know? And that's, that to me, is scary. So de-risking is about going, okay, well if I wanted to buy a property, how can I buy it and not.. And even if everything was to fall apart in my life, would it still be okay and would it still make money? Right? So finding stuff that can self support and that puts cash straight back in your pocket is a great way of de risking your strategy. Uh, we then overlay that with even more strategies in a general sense. So we look for value-adde strategies, ways to manufacture equity, ways to manufacture more cashflow and ways to buy under-value. Because all of these having multiple strategies in your port, in any asset selection is going to allow you to de risk, but also leverage even more financial return, uh, over the longterm.
Goose: 07:50 So, and that that actually kind of leads into the next point. It's about maximizing returns. Now there is something to be said about prioritizing capital gains over cashflow. Um, however, in our view it doesn't the, the re the 'risk-reward' doesn't pay off because obviously as we've just discussed, having a liability in your, in your portfolio doesn't allow for any of life's natural changes and that becomes a liability risk and also taps out your serviceability. So if you can balance and get positive good growth and that comes down to economics selection and all of that, all of the other fundamental components that make up good asset selection. But then if you can overlay that with having positive cash flow, then you are going to get growth and the compounding internal rate of return of adding cash to, to the mix. So you're essentially to think about it, a stocks and shares component, you're getting a high dividend payout as well as high growth. And that's kind of the, that's kind of the, the best way that we can see to have a risk averse way to really maximize your internal rate of return.
Gabi: 08:52 Yeah. For sure.
Goose: 08:53 So the other thing I wanted to get all, want to get a woo for a second and talk about positivity in a general sense. So when you're talking like 'Oh, negatively geared, um, you know, negative cashflow, negative, negative, negative'. Now I am a firm believer that um, yeah, what you put out is what you get back. Now I even just saying any words negative, negative gearing, it just instantly it feels down. But if you talk about positive cashflow, positive gearing, positive, positive, positive, that it's going to set the time for, for the rest of the structure of your wealth creation plan. Because wealth isn't just about cash. Wealth is about a holistic view to your life improvement. And that comes down to mindset, money, health or family relationships, everything like that. So the more that you can bring positivity and stuff that is going to make you joyous and happy and smile, which let's be honest, putting cash in your pocket every week is going to help. That's a definitely a massive way to, to help leverage your financial investment choices into a holistic wealth mindset that is going to bring more happiness into your life. And I think that's, that's really important.
Gabi: 10:05 I mean, it's hard. It's hard when you're, when you're interested in investment of any sort and you want to be very, very data driven, we're data driven as well. We research the hell out of all of this. Um, but definitely the positive mindset is such a huge thing that always, always helps make better, make better data driven decisions. Um, because if you are, if you're thinking, okay, how can I improve, how can we just get better rather than focusing on what you could lose or how it could goes wrong. It's just, there's no, there's no negative result from that.
Goose: 10:41 Yep - 100%. So lets talk about practicalities for a second. So a lot of people think that cash flow positive properties, um, you can only get them in small regional towns where there is no economy and no growth and it's really high risk and all of that kind of stuff. And absolutely, as I always say, if you want to hide, if you want a high yielding property, go to a place like Broken Hill or even further go in the outback, it'll be about 14% yield. You'll have a great time. Wonderful. However, um, that we're talking about de risking the portfolio strategy, that is high risk because it's not supported by other economic factors that are going to give you longterm stability in your asset selection. So when we're talking about positive cashflow, we are talking about positive cashflow in economically stable environments. So that could either be, you know, uh, relatively close to major capital centers or within major regional centres.
Goose: 11:30 So when you start applying, I start applying that, you know, we, we're not talking, it's not a pure cashflow strategy. It's about having a cashflow as a key component to a high performance property strategy. And by high performance property, we're talking about positive cash flow, high growth we're looking at, we're looking for areas that are going to see consistent long term economic supported growth over the long term. Not the short or medium term, but over the long term. You've got good stability there. Um, but obviously we're looking for stuff that we, where we're trying to time the market and get 15% to 25% growth in the first 18 months, which is massive. And that comes down to research and strategy. And then we're looking for stuff like value add strategies where you can, where you can apply in a, in a future, at a future time frame that's suitable to you. You can apply more leverage to your portfolio by adding a subdivision or doing cosmetic renovation or doing, uh, adding a granny thought of doing a boarding house conversion. So when you start layering these components, positive cash flow, good growth and a value add strategy, you suddenly start to, to realize assets which are not only going to self support, they're going to self perpetuate. And they're also going to radically, radically change your wealth position for you and your family and build your legacy and build the future you want, you know, in the time you want. Um, and it's about bolting all those mechanisms together in a, in a safe, and let's be honest, exciting way.
Goose: 12:55 So, anyway! If you want to chat to us about that, we're up for chatting about it. So all you need to do is, there'll be a little link...
Gabi: 13:00 We do love chatting about it.
Goose: 13:02 So there'll be a link, there'll be some, there'll be some way to connect, it'll either be like book a call with one of us, or, um, or jump in on a strategy session. But we'd love to talk to you about it. So let's do it. Let's stay positive. Let's dream bigger. Let's get high performance property. Let's make it happen. And let's live our absolute best lives.
Gabi: 13:18 Thanks guys!

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