Expert: Sam Gordon – Rentvesting, Equity Recycling & what is going on with Aussie property?

Bryce: [00:00:31] Welcome to Equity Mates Investing, a podcast where we explore what's possible in the world of investing. If you've just joined us for the first time, a huge welcome. My name is Bryce and today we're talking all things property. We're revisiting the concept of rent vesting. We're looking at what equity recycling is, and then we've got a general market update from an expert property investor to chat throughout. As always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:00:54] I'm very good, Bryce. I'm very excited for this episode. We don't often dip our toe in the property water, but we do love keeping our finger on the pulse.

Bryce: [00:01:06] Well, particularly now that we're in property. 

Alec: [00:01:09] Yeah, yeah, I think we've always been interested in knowing what's going on. It just takes different bears. 

Bryce: [00:01:15] Different? Yeah. It's a different lens. 

Alec: [00:01:17] Yeah, yeah, yeah. But we've had this expert on the show a couple of times before he's come back fast becoming our correspondent from the world of the property investor. It is Sam Gordon. He's the director of Australian Property Scout, which is an investment buyers agency service helping people source quality in which is an investment buyers agency service helping people source quality investment properties right across Australia. He also co-hosts the Scouting Australia podcast. And he's been a great resource to keep us updated with what's going on on the other side of the fence. 

Bryce: [00:01:54] Yeah, I always learn a lot from Sam. He always gets us quite enthused about the opportunities that exist in finding cash deals or growth deals in regional areas in Australia. So look, I think there's an opportunity if you're sitting there thinking, this episode isn't for me because, you know, properties are too expensive. The concepts that we cover today really do highlight how there are strategies available to get into property without needing huge deposits to get into capital cities. 

Alec: [00:02:24] Yeah. I wish I knew about the concept of rent vesting when I first started my, like, first full time job. It would have definitely changed the way I thought about investing generally.

Bryce: [00:02:38] Yeah, well, we'll cover that all with Sam as, we will also be covering property at our live event here in Sydney in five days time. Tickets are selling fast. So, we're in the final few days. We're going live with the Ask an Advisor concept, and we're bringing in Glen Hare from Fox and Hare, one of Australia's leading financial advisors, to give you the chance to ask him any money or investing question that you want based budgeting, property investing, superannuation, you name it, you can ask it. So don't miss this opportunity to get access to leading financial advisors. Tickets are on sale. We're going in five days. 

Alec: [00:03:17] Can't wait. It's going to be so good. If you want to secure your ticket, head to Equity mates.com/events. The link will also be in the show notes. With that said, a final thank you to Australian Property Scou t for making this episode possible. Let's get to it.

Bryce: [00:03:31] Let's go. Sam, welcome to Equity Mates. 

Sam: [00:03:37] Boys. Good to be back. Thanks for having me.

Bryce: [00:03:39] Always a pleasure. So we've got a lot of new audiences, with this in 2024. So before we kick off, can you just introduce yourself and give us a bit of background on your journey in property so far? 

Sam: [00:03:50] Yeah. For sure. So, I started my journey. It's going on 15 years ago now. So I bought my first property at 19, pretty much was, was a labourer, just kind of trying to work and find my way in the world and what I wanted to do. And I knew property was going to be my thing. I read very, very early on, about Harry Triguboff, who at the time had about 3000 apartments. I think he's got about 6000 now. He's obviously the CEO and director of Meriton. And his story really, really inspired me to try and want to do something big with property. After buying that first property at 19, I got bitten by the bug through renovations and renovated that property. And it was a chance encounter at the dentist of reading a, reading a property investment mag and literally reading the scene for about ten minutes. Ask Dennis if I could take it home with me. And the rest is history. I read up and consumed as much content as I could back then. Magazines were the big thing. Podcasts went around really back then. So magazines were the big thing, consumed as much content as I could, and really just built up my portfolio, you know, in the ensuing years off the back of that. So I was an investor of the year in 2020. I think I had about 30 odd properties at the time. Fast forward today, a 54 property portfolio with 70 plus rentals off the back of that as well. And yeah, I'm actually just one buyer's agent of the year as well. So, yeah, man. Just like that's the journey. You know, I just absolutely love property. Live, breathe. It happens every single day, day in, day out. So, yeah, I'm a massive property fanatic. And now I get to help people build their own portfolios as a day job. So it's cool. 

Alec: [00:05:25] So, yeah. You founded Australian Property Scout. That's where you won this year. So big congratulations there.

Sam: [00:05:32] Thank you, mate.

Alec: [00:05:33] And we've had you on the podcast, a couple of times. And you've, you, I guess, opened our eyes to rent vesting. I still remember, the first half of the first episode, we were very excited about the concept. 

Bryce: [00:05:45] And then we went.

Alec: [00:05:54] But we thought it would be a good chance to revisit rent vesting. And then we also get heaps of questions about equity recycling. So we want to ask our resident property expert, what the goal is there. And then finally, we want to talk about just what's happening in property in 2024 where the market is going. Interest rates, all the good stuff that people love. 

Sam: [00:06:14] Perfect, man. Let's do it.

Alec: [00:06:15] Let's start with rent vesting. And for people who are new to the concept, what is it? 

Sam: [00:06:21] So reinvesting in a nutshell is, is renting where you want to live or renting instead of owning and then using the additional serviceability that you have from renting instead of owning to then go and invest. So essentially you're renting at the same time that you're investing. And so often, if people make the decision to buy where they want to live, it's a very, very expensive thing, right? Because obviously where you want to live is typically somewhere quite nice. And the cost to live there is very expensive. When you conversely look at how much rents are in the area compared to that, that compared to that mortgage cost, it's typically a significantly smaller amount. The caveat on this is if you're in an area that might be in the sub $1 million bracket, because a lot of a lot of locations in Australia, if you're talking six, seven, $900,000, something like that, your rent's quite similar as a dollar value, maybe six, seven, $900 a week. The ratio doesn't really work so much on that, and it still works, but the serviceability isn't huge. But when you start talking about like a one and a half, $2 million plus sort of market, the rental rates in those areas are so small compared to what the mortgage cost is per week, per month. But there's a huge imbalance. And like for, for most capital cities now, that's kind of like a nice place to live in in most capital cities around that price point. So that additional left over essentially borrowing capacity or serviceability left over from renting in those areas as opposed to buying there, leaves a lot of additional borrowing to then be able to go out and build a portfolio. 

Alec: [00:07:42] Yeah, yeah. So, you know, in Sydney your mortgage repayments might be a grand a week and you might be renting for 500-600 a week. Yeah. And you can use that difference to then invest somewhere else. You were saying earlier you actually ran the numbers to give us a worked example. 

Sam: [00:07:58] I did mean I sold. Yeah, I did it this morning because we were kind of when we talked about it last time, I never really brought the equation. We were just talking about the, you know, I guess the idea of it, I ran it on an average $2 million home in Sydney. Right. And the average rental rate in most of those markets in Sydney. 

Alec: [00:08:13] It's crazy that that's an average these days. 

Sam: [00:08:15] I mean, the median house price, which takes obviously all the way up to Penrith and Campbelltown and all the rest sort of stuff as well, like the obviously a little bit more blue collar markets out there. The average median house price in Sydney is like one, almost 1.2 mil now, you know, including those sorts of markets. So, the really interesting thing, and the way that I like to look at it is, for the most part, people can't really afford mortgage wise to live where they really want to live. So most of this sacrifice is buying to the max of what they can buy. But it's not their ultimate home. That was not their ultimate home, in my opinion. I wouldn't be going and buying that house. I'd be trying to invest. That would allow me to get in there with profits of the additional amount, instead of not even being able to buy it and buying something lacklustre. So running the numbers on a $2 million home, which in the same area, I was doing a bit of research, typically renting for about 1000 or 1200 bucks a week. If you were to buy that $2 million home at an 80% OVR, at a 20% deposit, which most people like to do for 1 to $400,000 Deposit plus Closing. So you're probably in for about four or 50 odd sort of money once you take stamp duty and everything into the equation as well. If you do run that, a 6.5% interest rate surrounds about $2,500 a week at the moment. Plus, if it was a unit, you got strata, you got council rates. You've obviously got your insurances and maintenance, all that sort of stuff that you have to pay as the actual owner of that property. You're looking at about two and a half grand a week just in the mortgage. So the extra stuff, you're probably looking in the high twos, maybe you clip three grand, a week over, over the course is seeing in exchange of renting, which might be $1000 or $1200 a week. So you literally you're more than double, if not two and a half, going close to three times when it comes to actually ownership of that property compared to what it would cost to rent it. I learnt this very early in myself when I started running scenarios on, in the house that I was living in because I moved out at 19 and I bought my first home and I never rented until I was 28. Outshine the serviceability difference. And that was the light bulb moment for me to start reinvesting instead of, instead of owning my own home. 

Bryce: [00:10:11] I guess what we should say here as well? Firstly, you don't actually own a principal place of residence, do you? 

Sam: [00:10:15] I don't, not anymore. Yeah.

Bryce: [00:10:16] You've just. 

Alec: [00:10:17] Practising what you preach. 

Bryce: [00:10:18] Practising what you preach. That's investing that investing your way to. I can't wait to see what you finally buy. I mean it is gonna be epic. 

Sam: [00:10:27] The crazy in case levelling up, right? You keep changing what you want, especially as your portfolio gets bigger and you make more and more. It changes your mindset of what you actually can afford to own as well. So no longer is it like a 1 1/2 mill in the burbs, it starts going off a bit and then a bit more and a bit more. 100%.

Bryce: [00:10:44] I think what we should carry here as well is when you're thinking about this rent vesting approach, you're not saying, I'm going to, you know, live in Double Bay and then rent a Vest in Woollahra. You're actually then looking at and what you help people do is actually find property with good yield and good return, in that 5 to 6 to $700,000 bracket where you can actually afford to get into the property. 

Sam: [00:11:06] Yeah. And obviously yields are so like they're quite decent at that sort of price point as well, which allows it to service itself to a decent level. For example, if you were to rent there for a thousand bucks a week inside Double Bay then go and invest in, well in Lira, the ratio, the yields are probably almost the same. So you might as well just own in Double Bay. Right. But if you were to go off and it's also the wrong point in the cycle in my opinion to be buying there right now as well. So if instead you were to go off into a different capital city, that might be lower in its cycle. So it hasn't had as much growth in the last ten years, five, ten years. And then obviously yielding a stronger low point in the cycle can negotiate a better price and you've got more room for growth. You could build your wealth much more substantially down that avenue than trying to go and buy a blue chip property that has got a terrible year is going to bleed you anyway, so it's definitely a much better formula for success on that side. 

Alec: [00:11:56] Yeah. So we have a friend who lives in Darwin. He was saying that there's a property there that gets $400 a week rent and is selling for $200,000. 

Sam: [00:12:09] There you go. 

Alec: [00:12:10] So that's a 10% rental sales. Yeah. So like, that's I guess the comparison to someone, you know, listening in Brisbane, Sydney or Melbourne. So if people are conceptualising what this looks like it's like you know renting wherever you're living and buying that $200,000 place with maybe a 20 or $40,000 deposit rather than a 400,000 deposit and servicing a 160 grand mortgage rather than a $1.6 million mortgage. 

Sam: [00:12:47] Well, the rent services, the mortgage as well, right? So the subprime mortgage plus surplus. And I think that's a big thing. A lot of people are missing the equation because it's not like I can go and buy $2 million worth of primary residence, that's all I can do from investing. The investing can go so much further because you have that rental income coming in as well. So that's the real sweetener in this whole scenario here as you build it out, is if you build the portfolio out correctly, your actual cost or your running costs of this thing should be next to zero. Initially, it might be a little bit, as you build it out and, you know, as yields grow and you might build some different deals in there as well from a cash flow perspective, but you can definitely build a portfolio that takes care of itself. And then the growth comes through. And obviously that's where you can make a serious profit. 

Bryce: [00:13:28] So if you're someone who's not interested in growing a 54 property portfolio. But has the, you know is in a position to service a loan but perhaps not in the area that they want right now. Yeah. How does this strategy help people actually get to that point in, in buying a principal place of residence in that, you know, favourite suburb. 

Sam: [00:13:51] Yeah, man, this is the biggest thing I love about it because when I look at what I could afford back in the day, I could afford like maybe seven, $800,000 property at most. But you accumulate, let's say, 1- $2 million worth of property and it goes through a decent cycle of saying to 510, even just in my opinion, underperforming, underperforming in ten years that 2 million doubles to 4 million. And then that's your profit. Like from that end, all of a sudden I was only able to buy a $700,000 property. And yes, there's growth across the board. Right. But now I've just banked $2 million plus whatever I put into it that I can come out. And yes, you pay a little bit of tax a bit, capital gains tax exemptions and whatnot are obviously within Australia. If you own a property for over 12 months, there's a lot of different things we can, you know, profit and you break them down, sell them in different years. So you profit. You can minimise your tax in a pretty effective way. All of a sudden, my $7 or $800,000 primary residence I was going to be out of by. I now combine the two mills , you know, and actually take that in as profit, maybe in the three mills as profit. It's a completely different house, completely different area, you know, and ultimately it's probably what you really want. So I think there's like a lot of the time there's like multiple ways of looking at rent vesting. And some people want to do it purely to be able to get themselves into their primary residence. And so you might go out there and build a foundation of investments and depending on your income level, maybe you go towards two $3 million worth of growth properties and that's all you go in for game plan of 5 to 7 years to be able to sell all these down, hopefully a portfolio or the aim is the portfolio maybe to double or go close to doubling, sell them off, clear your debt and then you have that massive chunk profit to then roll into a primary residence, and you might pay that up with $1 million worth of borrowing and your three mil profit with a with $1 million worth of borrowing. And all of a sudden you're into a 4 million primary residence. And obviously it takes time to go through. But that literally could be like $2 million worth of exposure in the market. For properties at 500 or 3 mill is five properties at 600. It's a very sort of replicated sort of thing. And you can do it in any sort of deposit amount as well. So if you have a smaller amount of deposit, just enter a lower price point of the market a lot of the time you lower price point Michael, also have stronger yields. So if you've got a low deposit, you might be a lower income earner that retains your serviceability and allows you to kind of keep moving forward in getting into the next one as well. So it's always different. And some people do it purely to build out of passive income, and then some people will do it as a hybrid. But I've got a lot of people that like they realise the value in rent vesting or, you know, two, three, $4 million homes and what that would actually rent for. Yeah. a $4 million home might only rent for 1500, maybe two grand a week. Right. They might be able to build out a portfolio that gives them 250,000 per annum net passive in the next ten, 15 years. Right. And when they do that out, they might assign 100,000 of that 250 to go towards rent for the rest of the time. And the cool thing is obviously your CPI, like rent, is very closely tied to inflation. So as values and as rents and everything else climbs, so do your rents, which continues to be able to pay for your mortgage. And plus the 150 K passive income on the side as well. So we have a lot of people that are kind of building in different ways. They want to go purely for the primary residence. Some purely want to go for the lifestyle, passive income play and probably majority build for both that build for primary residence. But at the end I want to do passive income first, build the portfolio that can carry through the next ten, 15 years. And then at the end I'll buy those parameters. And I've got passive income too. So it's always relevant to everyone's goals. Everyone's different. 

Alec: [00:17:09] So yeah, it's something I wish I had known about when I got my first post uni job and it was like property. Seemed like such a far away goal and thinking about needing enough for a deposit and all of that, and then also just feeling like every year I was falling further and further behind where I needed to be to buy that property. Whereas if I had changed my mindset, if I'd known about this and had been like, what can I get now? And let's just do it and service like a 150 grand mortgage? It would have just changed. I would have changed the way I invested may not have invested in the stock market. 

Sam: [00:17:51] I mean I think this is the thing when I look back on my journey and I didn't I don't really know, understand stocks that much because I didn't put the time into I found that magazine at 19 and that was my like, I just gave myself a bachelor's in property, right? But if it had never worked, maybe I would have gone into share trading or something like stocks. But man, I think like the ability for someone like me as a low income earner, I didn't have much of a deposit. And I know you wanna talk about recycling equity in a second, but like, that's where that leverage, that leverage point because it's such a low income earner, that leverage point of being able to strip equity back out and go and buy another deal. That was a game changer for me in being able to continue to scour the portfolio. 

Alec: [00:18:26] Well, let's let's move to equity recycling. And I'll put my head up and say, when we first started getting these questions through, contact@equitymates.com I hadn't heard the term before. Like I, I'm not a property guy. I've only recently bought, but, you know, pretty green to all of this. So for people like me, what is it? 

Sam: [00:18:46] So you understand the concept of leverage and leveraging. Right. So the beautiful part of this thing is it really is just leveraging as much as, you know, as much as you can, but leveraging and continuing to leverage. Okay. So the easiest way to look at it is let's say if you had 100,000 and you put that 100 grand out in the stock market, your return is directly involved with the amount that you put in. Yeah. Rising property, obviously it's based off a leveraged return. So my return isn't 100,000. One part of it is, but my return actually comes off the let's say I do a 20% deposit on a $400,000 property plus closing. So that's a hundred grand, but I get the gross on 100 grand. I get the gross on the 400 grand property, or if I leverage it and I go to a $500,000 property with a 10-12% deposit, pay a bit of mortgage insurance, then I stretch and my asset is now worth 500,000. I get the growth in the 500 grand asset. Not on that, not on a 100,000. It is 100,000. 

Alec: [00:19:41] But it's for people who are more attuned to the stock market. This is the difference between return on equity, which is the money you put into the deal, and then return on assets, which is like what the asset is earning. 

Sam: [00:19:51] Yeah, yeah. So I mean, you look at that scenario, if you could make 5% on the way to that deal, which we typically do every single deal or more for our clients, I mean like 5% on this plus plus a say 15% growth, right? You pick a market really well, which for the last 4 or 5 years we've averaged 20% plus every year. Right. But if you just went the 15% return plus a 5% on the way, that's 20% on your $400,000 property. That's 80,000 in one of your 500 grand assets. It's 100 grand in that time frame, right? 100 grand on 100,000 in your 100% cash on cash in that first year. Now, the idea of recycling equity is then being able to go back in and okay, well now we have valuations is used. The 500 gram property is a bit cleaner. With that $500,000, it's gone up by 20%. We've got a bank of about 600,000 that allows you to pull out that difference. So essentially take a new equity release mortgage and take that loan up and release the difference between the new valuation and the old valuation. So essentially being able to increase the old loan to the new loan and pull out that new cash.

Alec: [00:20:52] So if I can summarise it, you buy a house with a 20% deposit, so your LVR is 80%, and then the house grows in value. And so your LVR comes down and it might be at 60%. Then you basically take another mortgage out to push your LVR back out to that 80%.

Sam: [00:21:11] See kind of keeping it at that 80 or 88 however you want to run it over. And that's when it really starts to compound. Right? Because your initial $100,000 investment, now you're pulling out and actually putting in another deal and allowing and then having multiple exposure in the market. And then again, you go another six, 12 months, you're able to kind of essentially revaluing them again, pull those loans back up to, as I say, 80, 88% of that new valuation. Pull that out, go into another deal. 

Alec: [00:21:37] So I am a property investor or I'm an owner occupier. I've got a mortgage. I've been paying it down. I guess my choice is to continue to pay off that mortgage and continue to make it smaller and smaller. Yeah. Or I, make the mortgage bigger, I guess, in some ways. And pull the equity out and buy another property. How do I think through that decision? And what are some of the factors that make me think one is right and one is wrong? 

Sam: [00:22:02] I think the biggest thing would take into account your cash flows and your actual ability to take on that additional debt. If you've got the ability to take on the additional debt for one, it is tax deductible because you're going to use it for investment purposes. So if you pull out $100,000, currently just right to, let's say 6.5%, six and a half grand a year to take that out. 

Alec: [00:22:19] And the thing to stress, that is your repayments on a mortgage for your primary place of residence, not tax deductible, but as an investor they are taxed. 

Sam: [00:22:27] Yeah. So just be that, say 100 grand in this example that you'd pull out that's fully tax deductible because you purely use it for the investment purposes. But as I say, you go out there and put it in the marketplace and get that return, or even if you fell a little bit short and you instead of the 80 or 100,000, you hit 65,000 to 10x return on the six, 6 and a half dollars worth of additional repayment, you obviously have to pay for pulling that money out as well, but I think the really cool thing as well is, is like, not only is it a ten x return on the six and a half grand in interest every year, but you can write that off and everything associated with that property as well. You can write it all off. So it's not even six and a half. It might come out at four off the tax or something like that. So that's a massive return. And the beautiful part of it is being able to compound that and leverage back out of it and continue this recycling equity, a way of building a portfolio. And leverage really is a property investor's best friend and his biggest asset. If you don't utilise leverage, probably like I remember, I was always a person who'd go buy a property and they'd be so proud because they then focus on paying it off. And I'm not talking about a primary residence. That obviously is a massive achievement. I'm talking about an investment. But when you're an investment, you want to accumulate as much as you can before you worry about consolidation and debt reduction, because the amount of money you have in the marketplace is a direct correlation to how much you're going to make back as well. So if you're focusing on paying it down, it takes you ten years to pay it down. Well done. But someone else who, maybe didn't even perform as well with that first singular asset. They could have had half the growth as you had, but they're going to be in a better off position because of that leverage return that leverage growth on initial capital. 

Bryce: [00:23:55] So how often are you getting your properties valued? 

Sam: [00:23:57] I value mine every six months.

Bryce: [00:23:58] Every six months. 

Sam: [00:23:59] Yeah. So I obviously my portfolio is a little bit different. Right. So it's quite large. So when I go through it, it also takes ages to get everything done for it. So when I do it, I revalue everything. I don't always strip all the equity out of it. A lot of the time I actually won't, but I'll revalue everything, see what might have a fair bit of surplus. I'm at the point now where I build secondary dwellings and I build things like that in cash. I'll do big renovations in cash. And if, like, a little cheapy comes up, there needs to be renovation. And maybe it's not the right deal to give to a client. I might buy that in cash and then renovate it. And then when it comes around every six months, reveal all that stuff and pull that cash back out. So it's like that is continue working capital for me. But for most of my clients, they'll still revalue every six months because if there's equity that they can release and then get into another deal, you know, if we're buying in the correct markets, you're just massively going to outperform that on that front. And rents have been growing really strongly. So even though you're taking on more debt by pulling it out because the rental growth has been so strong, it's more than covering the additional repayments anyway of pulling that extra equity out. 

Bryce: [00:25:00] And this is the you can you don't have to put it in the property. You can put it in the stocks as well. So you just need to do the maths to make sure it works. 

Sam: [00:25:12] And it's all diversity right. 

Bryce: [00:25:14] Any investment. 

Sam: [00:25:15] Yeah. So it's all what you want to do. And if you really know the stock market you really want to go ham in that. But maybe build out a 1 1/2 half million dollar asset base in property. You literally could put, let's say put the 100 in and then recycle it out in 12 months. Put in that 100 that you might make back into another one, and then again, and then it may be in a two year window. You might have the ability to actually pool the initial 100,000 back out, and either put it back in the primary residence and pay that 100 grand off, or put it into the share market however you want to roll, however you want to do with it. But then you've got that $1.5 million asset base that's going to keep growing for you, and you've leveraged it. And what I love about this is if you pulled that initial 100 grand back out and did pay the primary residence off, where's your exposure? Like, you actually don't have any money in the deals. You've pulled it out and you've paid that initial loan back off. So it's essentially like an infinite return on whatever you can make on that front as well. And that's what I love in that sense, is I look at how the size of the portfolio I built, making an ordinary like for the first ten years of my portfolio, probably, yeah, first ten years, but my first 15 years of my working life, I was making an average of driving income or substantially less, especially when I started. I look at the size of the portfolio that I built in that time frame. It all came from leverage and understanding how to work it. And then when I was a bit tight on serviceability, putting the right cashflow ideas in. So it's all being strategic with it, but it all comes down to that leverage piece and being able to keep pulling it from that front and then building it correctly. 

Bryce: [00:26:38] We've had an advisor on the show who spoke about it with their clients. They will pull it out, put it in stock that is like high yield, and then use the income from that to keep paying down the principal residence, and then just keep recycling that to almost speed up the rate payment on any principal residence. And it's pretty much.

Sam: [00:26:56] Just that going out to the front, you're pretty much that on steroids because you got leverage. And leverage is the game changer. 

Alec: [00:27:02] Yeah. Now, you said, it was all about, you know, you've grown this portfolio all by the equity, recycling and the structure of the deal. And it is also helped the Australian property market has ripped for the last 15 years. If we assume, like when you're thinking about this, I assume you should also like stress tests, like different levels of growth and stuff like that. So so you mentioned one part of it considering this is right for you. What's your cash flow like. Can you service the debt. And that's like huge table stuff. How do you think about the overall property market and the risk of, you know, falling or it just just being flat for a while, like how do you think about the different scenarios and how that would change rent vesting as a strategy? 

Sam: [00:27:47] Yeah, I always look at that very closely, man. It's something I take massively into because obviously when we're investing for clients, I'm gonna, I'm, we're constantly picking the correct areas to go and put clients in for continued growth. Something I've always seen and there's multiple charts of this out there as well. But if you look at the last 50 years in property, when some was bottoming out or going through a trough like most areas will trough, normally ten years, then I go through rapid growth in a in typically a 3 to 4 year window, and then they might peak out and trough off for another ten years. It's funny when you say it's been on a gripping run for the last 15 years, right? But if you look at like 2003, 2013, Sydney did nothing. And then from 2013 to now it has been on a great run. But it finished in 2017. Covid kicked it back into gear to have another run, but it finished off that four year run and it had been flat for ten years. If you look at a lot of markets like Brisbane, Adelaide, Perth, they did nothing for like 10 to 12 years, some of them 14 years before they started again. Either at the start of Adelaide started just before Covid, Brisbane started with Covid, southeast Queensland got smashed off the back of Covid, started kind of more when Covid was wrapping up. So they all move in different cycles and so it's understanding where they are. And cycles in cycles is a funny term because it kind of sounds like, oh well it's clockwork right? It's going to happen all the time. It's definitely not clockwork. But what happens is when in market troughs for 10 to 15 years, it becomes affordable again because everything keeps increasing in value. But a lot of times the property prices will actually come off over that time frame. You look at Sydney from 2003 to 2013 values You actually buy a house cheaper in 2012 2013 than you could in 2003. Values were lower and so like you look at that, but everyone's making you know, money does increase and wages increase in Sydney and all the rest of it. So it all comes down to like a relative affordability part with this stuff as well. So it's been on a ripping run for the last, you know, however many years Sydney and Melbourne and stuff came off 21-22. I hadn't done too much sort of since then as well. So it's like it's always moving at different points. You know, I mean, but you look at other markets and there's other markets in Australia the last two years, 30% a year for the last two, three years as well, some of the smaller capital. So it's all about understanding where there actually is value in the market. And that's one of the big things, man, like a lot of people these days say, oh, Sydney's king. Because Sydney had an amazing ten years, I wouldn't be putting my money in Sydney because I had an amazing ten years. It's due, it's probably not so much a correction, but it's due a lull period, you know, and a bit of a plateau. And we're seeing that the caveat on all of this at the moment is stock being so tight. And two stock really loosens up and building starts becoming massive and migration eases. That's what's keeping such a floor under the market. And so pushing it so hard as well.

Alec: [00:30:21] Well let's put a pin in that because I want to talk about the market generally. And I imagine the availability of stock and population growth is going to be central to that conversation. 

Sam: [00:30:34] Too early and so young for it.

Alec: [00:30:36] Let's turn to it. And I guess let's start generally, what the hell is going on with property in 2024? 

Sam: [00:30:43] Man, it's still a crazy time. It's a funny thing, man. I just to give a bit of context around this, right? I just went to get a couple of granny's bills. So secondary dwellings built on a couple of properties I have down south of Sydney. The company that I had quoting up on these things, that I built with like many, many years ago, we hadn't heard from in a couple of weeks. This is literally this morning, my assistant sent me a photo and on their website they've had to go into liquidation. They went into administration, one of the biggest builders on the Gold Coast that is known for their elite luxury builds went under, went under like a month or two ago, went under the sun this year in 2024. We're not building anywhere near enough homes, and so many builders are going under because we've got fixed price build contracts that I saw 6-12 months ago, and the price of materials doing increasing the price of labour is still increasing. They can't complete these jobs and actually make a profit. And a lot of time they're losing on them. So in a nutshell, we're not building enough homes and we're not going to build enough homes. It's going to take a fair few years to get this back under control. You've also got migration on a crazy level. All the stuff that we spoke about last time, we got a massive supply deficit. Still, even in a valuable product like our existing product as well, even though it's picked up a little bit, especially in Sydney and Melbourne, stock has picked up. But it's not enough to, it's enough to sate the appetite of the people that are trying to buy. It's not enough to really cause a dip and a big dip in the market. So what we're saying is there are two big cities that if anything, if anything should dip, they should dip and then not really deeply. They're plateauing, right? They're both hovering around zero one on the one over every quarter for the last little bit. When you look at a lot of the other capitals and a lot of the other regions, all those markets are on fire at the moment. They're still doing really well. Affordability, in my opinion, is a huge key in this. They still have room to growth and stock and supply is so tight and the affordability still there. So it's still growing. So if Sydney still had that affordability it would still be growing but sort of cap. Yeah. Right. And so I think this is going to go through and play out for the next 12 months. I think 2024 is actually a great year to position yourself in the market. You're buying the right market, you're still going to make good money. But I think going into 25 and 26, when interest rates start to probably come back down, inflation is almost back in the target band. I don't think they'll cut them straight away. It'll take a little bit of time for that to settle and wash through and whatnot. But I think one side is probably back under control. They'll start cutting rates again because obviously they're quite high at the moment. And start bringing them back into more long term averages is probably around about that 5%, which means we're probably looking at, around about a 1.5% cut. Once all that happens, you still got the huge stock, and supply deficits. You still got massive migration. We're not building enough homes. And then you throw interest rate cuts on top like there's only one way the market's moving, especially if you're buying in the right markets, especially those affordable markets. Because if Stuart the the biggest thing about the affordable markets, it's still got the room to grow debt to income ratios and house average house price income ratios will always cap a market. And that's what's putting that. That's the cap on Sydney and those big cities that are more expensive. So yeah man there's too much opportunity I think that the real opportunity is this year. And I think there's a lot of money to be made in 25, 26. But I think this is the year you set it up. People should be sitting on the sidelines. We've still got people saying, oh, we're going to wait till interest rates get cut. And like, that's when the masses are going to be coming back in. So I think this year there'll be a lot of locations that still produce 20% plus growth this year. I think next year that crazy. In Australia, Arizona is one for Australians already. See I can't exactly. 

Bryce: [00:34:11] Fair call. 

Sam: [00:34:12] But it's it's it's it's a crazy thing to say. We called and I did a podcast. We got our party round. Not this size, obviously not a square equity. Right size. We've got around 40. And we called late last year that I strongly believe a super boom's coming to the Australian housing market. And it's funny because I started talking about it and for the whole episode I was like, it's not going to happen. Like it's not going to go that big. And then we're laying all the things on the table. And then I looked at the data of Sydney and all the properties of iron in Sydney that I bought around 2013, 2014 or before. They all doubled twice in a ten year window. And I'm like, well, realistically that was a super boom. It had 200% growth in that time frame. So it's not like it's not achievable. It all comes down to what the bank lending will let it go to, and where the affordability of that market was now bought really low. In the market sock when I was there, I bought it very cheap. So I achieved higher than average returns. But even the average person that paid market value in those markets still would have probably down 150% growth in a ten year window. And I look at a lot of the markets now that maybe have even done 50, 60 or 70% growth in the last three years. And a lot of those markets are sitting at the same affordability thresholds that Sydney was like halfway through or less. So they've still got so much growth in the tank. And the only thing that stops the boom, in my opinion, is the affordability cap because when trades come back, it'll keep going. It'll obviously increase the affordability cap on one side as well, but it will keep going. But the pressure is going to remain there for the next few years. We need migration. We need the workers. We're not building enough homes and supplies. There's no end in sight for supply to come on more quickly. Because even if we could build enough homes, subdivisions and and and unit developments in town, as soon as I take time, I need to get approved and then get through planning, get through approval. They need to get the funding. They need to build it. By the time someone acquires a site, it's only 2 to 3 years before they start, and then might be for a subdivision, then people are going to build homes on them. We're talking like a minimum of two, if not three for you. Turn around before we can actually bring a lot of products to market. But heaps of builders are going on like it's. Yeah, I mean, look, there's no actual clear end in sight for this thing. I think the clear end in sight will be affordability caps. That is where it will cap out and markets will max out. And I strongly believe that's where those caps will come off the back of that because nothing else is showing promise for slowing the market down. Right. 

Alec: [00:36:27] Yeah. I've been sitting here trying to think like what? What else could it be? And you think like, well, is it government policy? But it's like it's a supply demand challenge at the end of the day. And like the, you know, even if they start changing like tax treatment of, invested properties or, you know, whatever it is like doesn't change that fundamental supply. 

Bryce: [00:36:47] And then we always speak. We've said it multiple times, but any government policy is designed to increase demand. 

Alec: [00:36:53] Yeah yeah yeah, yeah. And the fastest way, the fastest way to lose an election would be to have a policy that cuts house prices 20%. 

Sam: [00:36:59] Yeah, 100% 

Bryce: [00:37:01] Be out of treats, superannuation will probably change over time. Like there's all these things that they'll pull that. 

Alec: [00:37:06] Yeah. Yeah. That's only like oh we've reached affordability limits now you can use your super to pay for that. We do not support that, Sam might.

Sam: [00:37:15] But the other massive thing is, is it a correlation to rents as well. Because rent like rents are all in the same boat as this thing too. So I think it's one of those things, especially if you were to take on the earlier strategy before rent vesting as well. If you are going to rent versus investing, don't, don't sit on the sidelines, you know, if you are going to rent a vest, try and make that money in it. Make your growth and build your wealth in a different market that you can afford to be in and build the wealth there. And then once that market might have peaked out, sell it down, bring it back by that primary residence. If that is the game plan, that's a strategy in what you want to do. I wouldn't be sitting on the sidelines. I think there's a lot of price. Got a little rental growth still to come through in the next couple of years.

Alec: [00:37:51] We keep calling it rent vesting, but I imagine there's a lot of people that started with a primary residence, equity, recycle, pull some equity out and then buy in other markets. You know, buy the $200,000 place in Darwin, which is seriously what I'm considered. 

Sam: [00:38:09] Man, 100%. So there's where you can do it from any avenue. And I think that we're talking about this off air. And we were saying about the fact of it doesn't just need to be the best thing. So exactly. Saying that, like, it definitely doesn't need to just be the rent vesting if you already own a primary residence. And that's where it's not actually it's because we were talking about the pillars. Remember the different pillars in the way I build a portfolio. And rent vesting isn't a key pillar, because if you already own a primary residence, especially if you've got the debt low on it, you don't need to rentvest. You don't need to sell that or rent it or whatever and go and do it. So you can still live in a primary residence. If you bought in Sydney ten years ago, you're probably in an amazing position because your values have probably doubled. You probably got a huge amount of equity there. Your loan's probably quite low. You're probably in literally the most primo position to start a portfolio and equity release 100, 200 grand or whatever. It's all tax deductible. Keep it as a separate loan from your primary residence, and then use that as working capital to start building a portfolio. So it's Yeah, man, it doesn't have to be the rent vesting. But I think the rent vesting is a really strong strategy for anyone that's in the mortgage belt, whether they're earning or not, the mortgage belt of, say, a capital city, just because that ratio is very close.

Alec: [00:39:13] What's the Mortgage belt? Yeah. 

Sam: [00:39:15] So the mortgage belt would be your average Australian asset. Sorry. So any capital city and mortgage belt where that's where I was talking about before of someone who might be, 7 or $800,000 property that might rent for 6 or $700. Right. So it's very close. It's where the majority of people can afford. So in most average Australians it's the mortgage belt of where the average Australians can afford to live. And that's where I kind of learn about this, this easy guy sort of from that in. So it's yeah, man. It's one of those things you want to do. You want to sort of push the avenues as high as you can with this thing if you're going to sit and buy in that, in that sort of avenue. Yeah. You want to try and try and build that portfolio on the side. 

Alec: [00:39:50] Yeah. You say it's about you wanted to push as hard as you can, but for me, it's also a great strategy for people that don't want to push as hard as they can and don't want to be, you know, leveraged up to their eyeballs and, feeling this mortgage stress, trying to pay a mortgage. It's like, this is how you can push it. Not too hard, but still push it. 

Sam: [00:40:08] You need leveraging and you got the rental income coming in. If you got those really good balances of the rent and the and obviously the loans, it is easy enough to hold on. I mean I think that's where it comes down to exactly what you say: being careful with, managing your cash flows, forecasting what can you actually afford a surplus. And if I was maybe in the first 12 months. And so we get some good rental growth. And right. Start coming back. Can I afford $5,000 a year? Negative. On a property or 10,000 a year negative on a portfolio. And if you can afford that, and you can get into the marketplace, and in 12 months or 18 months, rates come back up a cent and rents have gone up ten, 20% as well on your portfolio, then you're in a perfect position to continue to build all that. Man, like you saying sit there and let the thing do its thing. You don't want to take on too much. Yeah. Well, see, I come from a different York.I know that's what it sounds like. I got. I got a check myself right now, but. 

Alec: [00:40:57] You see, it's horses for courses. You know, I'm just going to lay out a different call. 

Sam: [00:41:01] That's cool, that's cool. That's the thing. Everyone's different. Right. So yeah, different people will want to go to at a different pace, in a different level. And exactly same as horses for courses. Some people want to go hard and some people yeah, Italian maybe pull a deal, a trigger on a deal every 12, 24 months, whatever it is. But it'll help you move in the right direction as long as you're buying in the right location. That's made as a biggest thing.

Alec: [00:41:21] Yeah. And unfortunately, Sam doesn't tell us the location. 

Alec: [00:41:26] So if you do want to find locations you can hit Sam up at Australian property scout. Tell him equity mates send you. So he comes back home at some point. 

Bryce: [00:41:34] Do you want to send us an email? And we can connect you direct as well? contact@equitymates.com. Well, Sam, you have always, always leave us a lot to think about.

Alec: [00:41:44] You always get very excited. Yeah, the possibility of investing. 

Sam: [00:41:49] I love it. I can excite you, boys. Can you do a lot of different things yourself? So it's. Yeah, man, it's cool. If you boys take a lot away from it, then the audience does as well. And yeah, my I keep spreading the love about the, the old property investing.

Bryce: [00:42:01] Well, that's australianpropertyscout.com.au. And Sam, it's been a pleasure as always.

Sam: [00:42:05] Likewise, boys. Thanks for having me on.

Alec: [00:42:06] Thank you.