Chris Gray and Finn Kelly Talk Liquidity in Property Investing

Chris Gray and Finn Kelly Talk Liquidity in Property Investing


So can we talk about one thing which I know
you’ve had some experience with these, the effects of liquidity in portfolios and even
that example that you said before about oh just go buy another property. There’s some other things that you need to
make sure you have, the means to be able to fund that property, the interest payments
factored in the interest rate rises, how do you approach liquidity management? Sure so in the good old days, this is pre
GFC in 2008 you could get a load off or a no top loan so you literally and then could
be Mickey Mouse you take a box and say I can borrow 80% and that’s the good old days, unfortunately
they’re long gone now. So the main thing is is banks want serviceability. So even if you have a million dollar paid
off property, they’re not going to lend you a cent unless you actually earn some money. So for this 28 year old then she might have
200 grand worth of equity but unless she’s got a job she’s not gonna be able to pull
it out. So typically I’ll try and refinance maybe
every six to twelve months, pull the equity out and then split it between having it as
a buffer to help cash flow with negative gearing because quite often you’re negative geared,
having money to reinvest in more properties to build a portfolio and then spend money
for me. And my job as an investor now is buying the
property, renovating, managing it, that’s easy that’s the last 5%. Once you’ve got a few properties your job
as a property investor is getting money from the bank. And it’s doing beg, boring or stealing, obviously
not stealing and doing everything above the law but it’s, you need to understand the banks,
you got to get the best brokers and you’ve got to do whatever it takes. So if you need five jobs, go get five jobs. Yep. If you need to declare more income, so self-employed
people, ideally you want to pay the least amount of tax so you put all your expenses
through hopefully all legitimate, stuff like that but you want to minimise tax. As an investor now I’m almost maximising tax
because I need to higher incomes and sure I might pay more tax but even if I pay another
one hundred or two hundred in tax, if I can make another million from my properties, it’s
worth it. So accountants and our parents were always
telling us to get rich by saving money, now it’s all about the net return you get. Mm-hmm. So pay another 200 grand in tax, make an extra
million, your net is eight hundred. Or pay another twenty grand in tax, make another
100 on another property, and you have 80. So whatever your numbers are, that’s just
zeros at the end. And I think obviously that was quite technical
and there was a lot of numbers but with Chris I know- That’s why you need a coach. Yeah you do. You need a Wealth Enhancers coach to take
you step by step through it. You do and also, that was a lot of foresight
by you like you you anticipated what was occurring, it was a sort of a year in process wasn’t
it and I see one of the biggest costs to people’s net wealth is selling investments at the wrong
time and one of the causes of that is actually liquidity and we always have this saying about
property is like you can’t sell down a bathroom if you need some money like it’s it’s a chunky
exercise and where is the biggest expenses? It’s actually on the transaction side and
that’s why you don’t sell any properties is it? Sure, so a lot of people say oh the taxes
in property are ridiculous, all right there’s the land tax and the selling class or the
capital gains but I actually think that as property investors were actually pretty lucky. Hmm. Because sure we pay five per cent cost when
we go in for stamp duty and legals, we might pay a bit of land tax but the land tax is
actually even at one point six percent or something it’s only about half a percent of
the property value so on a million dollar property, it’s only five grand, to bring in
your estate and stuff, which is the biggest cost is your interest which could be 40 or
50 grand but it’s only because you write a check for it that people get emotional over
it and to think and so if you pull it out a buffer it doesn’t really matter. But if I make a million dollars on my property
and I can refinance it, I pay compound interest at four or five percent, that’s better than
paying 50 percent tax or 25 percent capital gains, so I think it’s probably investors
we were actually really lucky as long as you don’t sell. Definitely and I think so Chris knows the
property market better than anyone, he has a lot of opportunities, but he’s not going
out and buying ten properties every year are you, because you want to actually be able
to manage it within your lifestyle and you know that all right you want to be able to
take a month off and come to Aspen or something like that and by having that stress of too
much mortgage debt can actually influence your lifestyle and we see that a lot of time
with our generation, they suddenly, they go and buy this big property and they’re all
excited and then three years later they’re like, I actually don’t like this job anymore,
I want to go to a smaller job and they can’t, because they stressed out and that’s where
you’ve got to buy within your means. Yeah it’s all about balance and look I’m an
ex accountant so I know my numbers, so again is if you’re not, that’s when you need coaches
and accountants and other people to do it to work those number so I’m very spot on with
my numbers. But look it’s a balance, you’ve got to reward
yourself. So even at 24 they’re not going to buy a second
hand Porsche out of the proceeds but rather than sell the property and buy the Porsche,
I kept the property and that’s gone from 80 to 100, might afford the Porsche, but now
it’s gone from 100 to four or five hundred. Yep. So you’ve got to keep the assets but yeah,
knowing your numbers and look some years you might buy two or three and then you don’t
buy anything for two or three years because it’s part of the cycle. Yep. But it’s, keep pushing yourself and then in
the old, in the early days rather you’d be at 80% financed, now I’m trying to get down
to 60 or 50 so because interest rates could be eight to ten percent. Yeah. And that was your question before. Yeah. Is they are so low, there’s only one way they
can go and I don’t know if it’s gonna take a year or ten years but I know they’re gonna
go up. You do and I think we have a very short-term
memory that about interest rates like they’ve been 17% in the past like do the numbers on
your mortgage and go, what would happen if it went to five ten percent? It’s a massive difference. So in my book, the Effortless Empire, so we
were about to, we kind of reordered about ten thousand copies every year and I thought
this year do I want to move the interest rate down to four or five? And I thought no, in the book I have it at
7, 8 and 9 percent as an average best case, worst case scenario, it still works at seven
eight and nine percent. So rather than get the skeptics saying Oh
Chris is working at 4 or 5, I leave it in my book at 7, 8 and 9. Definitely.

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