How property market sentiment has shifted

The Victorian-based duo share their thoughts on the federal budget, which was delivered on Tuesday, 6 October, discuss current market sentiment when it comes to efforts made for economic recovery, and highlight what trends they expect to play out going forward.

If you like this episode, show your support by rating us or leaving a review on Apple Podcasts and by following Smart Property Investment on social media: Facebook, Twitter and LinkedIn.

If you would like to get in touch with our team, email [email protected] for more insights.

TRANSCRIPT:

Welcome to the Smart Property Investment Show with your host, Phil Tarrant. Hi everyone, how are you going? Thanks for joining us on the podcast today as we navigate property and property investment in what is a contested environment, contested some would say because of COVID-19, contested some would say because of a lot of the uncertainty in the market right now, and contested some would say because of a lack of certainty of what the future looks like. And we will operate within this domain. And the best investors I know are happy to operate in that grayness. They're not too concerned about not always knowing the answers, but they're driven and connected with making sure that their strategy is on the money at any given time. We're recording this the day after budget. I don't want that to dominate our conversation today, but it's a nice timestamp for us. I'm reading heaps of stuff coming out around what was good about the budget, what was bad about the budget. So I want to kick off with that today. Just have a bit of a narrative in the studio with me, walking him back, regular guest, Cam McClellan and Matt Lewison. They're both directors of OpenCorp. Gentlemen, how are you going? You're still locked up? Yeah, very well, Phil. Yeah, Victorians. So we're still locked up. So we were all Victorians one point in time and the fingers started pointing, but sitting at home, mate, just waiting for the opening up to happen. Nice one. And Matt, I can see your dog just moving into the background now. I might need to go and get my dog as well so we can... Yeah, keep me company in the home office.

But yeah, look, I think life's moving on and I think we've got some exciting times ahead. And I think the budget that obviously was announced yesterday by Josh Frydenberg had some really interesting things, probably some surprises. I watched one of the bank's briefings last night and they even noted some surprise at some of the policies. But I think a lot of it we've seen coming fairly slowly and really focused on jobs growth, small to medium businesses, getting consumers back out, spending money and having confidence. I think it ticks a lot of those boxes, maybe some missed opportunities to maybe address energy policy and tax transformation, but I think it's a pretty safe and reliable budget. Yeah, I agree with you. And you're always going to get criticism around budgets. So people are going to think it's the best thing in the world, or there's always people coming out of the block saying, well, you didn't focus on this particular thing. I think it was very clear from the government and the treasurer that the way we can get the economy back on track is getting people into jobs. The real unemployment rate is a lot higher of what is marketed right now. It's a whole bunch of people who just gave up at some point in time. So what I'm trying to get my heads around, and you're probably seeing it in your own business, Cam, is whether there's got to be this discrimination now, you actually get a rebate from the government for hiring young Australians under 35. That's a tough one. Can you see job adverts coming up saying, hey, if you're under 35 and you don't currently have a job, come and join? Yeah, no over 35s. There's no chance I'll do that, mate. I'm in my mid-40s. I'm feeling at the wrong end of the stick on that one. But no, I can't imagine the fair work really taking to that one kindly. So no, I think that was a bit of a mismark on that one. Yeah, every business is going to turn into a contiki to it now. But anyway, that's what a lot of people do, though. Before they actually get in a property investment, they go and do their time. I don't know if you guys did out of the country and when you're early 20s, sort of getting that out of your system. So you come back and be responsible and start investing in property.

What's the overall sort of attitude, tempo at the moment, Cam? We haven't spoken for about a month or so. It's starting to relax a little bit there in Victoria around lockdowns and there is a pathway out. What's the word on the street? How are people feeling? Yeah, I think people are fairly optimistic at this point in time. We had the first lockdown. We came out of that. I think this one has been probably a bit more annoying and grinding for families, though. Schools have obviously done a lot better job this time. So people are now thinking a bit more about the future rather than just homeschooling their kids. But as far as the property market goes, I've seen a lot of boards come up. And I'd like to sense the local area by talking to, you know, we're obviously walking the streets and talking to local parents in local areas. And that's about the best soundbite I can get on people, how they're finding and watching the boards go up around the area. So I think the real estate agents are starting to anticipate the back end of this is coming very soon. There's a lot of pent up demand, as Matt calls it, the elastic band effect. But we've already seen some really good price increases in the affordable area. The more affluent areas are still struggling a bit, both in rental and pricing. But that was expected at the start of this. And obviously, the apartment market got bashed. But, you know, 80% of the people living in apartments, besides education style housing, immigrants, when they first come across for the first two years, which you probably talked about, Tim Lawless, obviously, we spend a fair bit of time with Tim going through those sort of numbers, and people move into the apartment market and then move out of it. Well, that's got belted around a bit. But that affordable housing's fared pretty well. So we're looking to some good things over the coming months. And I'll tell you what, I just need to get out and move further than my 5Ks at the moment. Well, it doesn't sound too far away. And I think they're already talking about opening up the borders with New Zealand and people are travelling. And the Treasurer alluded to this last night, that essentially, it's going to be two economies, there's Melbourne or Victoria, and then it's the rest of Australia.

So I think everyone's highly encouraged to get Victoria back in action. It's good to see real estate transactions now. There was a fair bit of lobbying done to get the government to open up the business of real estate. And that's absolutely critical. But you guys buy right across the nation, don't you? Yeah, we do. Matt heads up our acquisitions analytics team. So Matt can probably talk a bit more on the ground about what sort of volumes are happening in different areas, Melbourne included. Matt, what do you reckon? Yeah, I mean, it's one of the great things being a property investor, isn't it? You can be a lot more mobile than an owner-occupier and invest across borders. So we're always keeping our eyes on different markets and actively involved in all of them. We're definitely seeing Brisbane, Perth at the moment, a lot of demand, particularly in that land market, if there's titled stock, if people can secure something that they can build on and take advantage of the HomeBuilder grant at the moment. That's obviously had a big impact that's inflating the land prices fairly rapidly. And we're also seeing, even in Melbourne, and it's incredible having watched it again in Perth and Brisbane in June, when their lockdowns ended, and they obviously felt a lot freer through their economies. And the sales volume just went bang overnight. I think Brisbane's sales rate for land went up by 400%. Housing sales started to pick up as well. But in Melbourne, we've had now about 8-months locked in our houses or close to without being able to do inspections of properties. And on the weekend, it was the first weekend of doing inspections by appointment in Melbourne. There's properties that we've been keeping our eye on and actually negotiating on in the last couple of months as prices have sort of crept down a little bit in some of the established houses we've been trying to work towards for our fund. But they had 16 groups through on the weekend. It's amazing how quickly it's just starting to turn around now that people can inspect properties. And we think that probably heading into Christmas, it's not going to be a huge auction season, particularly for Melbourne, as people who need to get their houses ready for sale just aren't going to have time. We can't have tradings through houses until late October. So we'll probably miss the November market. But I suspect coming into early next year, that means there's going to be a lot of buyers in the market having competed for not as many properties. And hopefully that carries some momentum into next year when more properties start to come to market. It's interesting, guys, that the key narrative that you see in any media and smart property investment, I would say he's pulled in with it. It's always around acquisition of properties. So where is the best place to buy? How to do it? Who's the most effective? Why buy there now? Why buy there yesterday? It is very much a mainstay of media commentary and it's what everyone gets obsessed with. But I think often property investors, and sometimes I sort of lose connection with this about why you are actually building a property portfolio. And for most of it's wealth creation. So at a point in time, we want to realise that wealth, which means you need to exit in some capacity. So we don't talk enough about that on the Smart Property Investment Show. So one of the sort of key outcomes of today's chat is I really want to get a real inside view on how that works and the strategies and tactics that are most effective. We're just going to get a break beforehand. We'll be back in a moment.

Welcome back, everyone. Phil Tarrant, Smart Property Investment. Hope you're well with Cam McKellen and Matt Lewisson, Directors at OpenCorp. They're back in the studio. We're chatting authoring property. Cam, why do people forget about exiting property? I think it's the age old thing. Back in the day before Ubers, Phil, I used to give the analogy to clients and I use this, that when you jump in a taxi, you don't just jump in and randomly drive around the place. You tell the taxi driver exactly where you want to end up. And by pinpointing where you want to end up, you get there. People go into property investing and I see so much talk about property investing, but there's no specific point and financial goal that people want to get to. So really investing is about setting, and the same with business. Create a process that gives you a measured outcome. And if you don't do that, your business is just blowing in the wind. Property investing is a business. So what we train people to do is get really specific on the timeframe and the amount they want in the future and work backwards from there. At the moment, and why I thought it was probably poignant to talk about Nexus Strategies, we've been operating since 2005, we're incorporated. We've got a lot of clients transitioning to carefree living is what we call it rather than retirement. So depending on their lifestyle, it's really about their goals. But it's really timely because Matt and his brother Al built a portfolio early days, which I think is a really good example to talk about. And they're selling out of that portfolio for their own reason now. But funnily enough, Al and I also built a property portfolio over the last couple of decades. We've got our own individual portfolios and I'm hanging on to mine for decades to come. But Al and I built a portfolio together. We had 24 residential properties and a number of commercial properties in that portfolio. And we built that over, we had businesses together. So we bought the commercial and then moved office and bought the commercial again, and then just kept tacking on resi properties as the commercial properties went up a bit. We grabbed the equity out and diversified and built that portfolio. We're actually, well, the business partners were also brother-in-laws. So kids are cousins. Now we didn't want to get to the stage of that portfolio. We were handing it across to our kids and saying, here you go, the seven kids between the two families, you guys go and work out how you're going to split this up between you. So Al and I thought, well, we'll divest out of that portfolio now while we're going to pay less tax and pull the money into our own and go and do our own thing. So we thought it's really poignant. I'm getting people that really understand to pinpoint, because there is a lot of discussion about exit strategy or buying property, but when it comes to what happens down the track with property, no one can really crystallise it. So we thought we'd try and get really pinpointed for you today. Yeah, that's good. And this is where structure is so important. And a lot of people forget about structure at the front end. And when you end up with a portfolio with 24 properties and some commercial properties in there, it can be a headache.

Was the basis of your decision to divest the portfolio, that particular portfolio, was it around the mechanics of doing it later on in life if you left it to other people? Or was it more around the sort of philosophy of wealth transfer to your kids? It was both. The portfolio is probably set up right. That one's in a trust structure. So a joint corporate structure in the trust, corporate trustee that owns the properties or individual trusts which own shares within that. So it could have been handed across to the seven kids to manage without much of a tax implication. Then you've got seven kids fighting over what the hell to do with this portfolio. So it's much easier for us to individually break it up now. And then it comes down to the strategy we're using around it is really just working out how to minimise the tax through the process of divesting out of it. So well, actually, funnily enough, we probably, I don't know how else looking through the sales of that, but we're probably into about eight sales through that currently. And we've got a large portion of those properties in Brisbane at the moment. So we've actually put a hold on selling any more of them. We're going to hold for a couple more years and we'll wait for the breezy market to kick a bit more because it looks like there's a bit of blue sky for Brisbane. So it'll be divested out over the next couple of years. We'll try and milk a little bit more out of that portfolio before we pull out of it. So that's plan one. And it's funny, Phil, because you talk about the focus that people have on entering on buying and trying to buy well. And obviously if you buy well, you might save five grand on the purchase and yet people will haggle over five or 10,000 and think it's the end of the world if they pay a dollar too much. But at the back end, you sell at the wrong time and you miss out on a year's growth and you're missing out on $50,000 or $100,000 if you sell too early or if you've got the wrong structure. And that's, I guess, where a lot of people lose sight of the bigger picture and they focus on, I guess, what's that saying? Tight with the pennies, loose with the pounds. They're focused on the wrong end of the bargain instead of the back end where most of the wealth is actually created through the holding period, which can be a decade long. And then obviously the sell-down period, if that's your strategy. And I guess there's five different strategies that we've mapped out for what we call, as Cam said, transitioning to carefree living rather than exiting because they're not all on exit. But yeah, that's just as critical, if not more so. You mentioned, Matt, there's a number of different segments or stages through investing. Do you want to just outline those because I think that's important. You made a good point. Yeah. Okay. So we see it as four phases. So you've got the education phase where you're just trying to learn as much as you can because you shouldn't be into the market unless you really know what you're doing and you've got a plan. There's the acquisition phase. So buying as many properties as you can afford to hold as quickly as you can. And then the most important phase is the hold phase, which is just sitting and doing nothing. So you're collecting rent, you're operating the property, but you're not necessarily trying to grow your portfolio. That's so critical now because banks are pretty much capping people out at a certain limit. Go back a decade or two and you could just keep growing your portfolio and there'd be a bank who would lend you money to buy another property. It's not the case anymore with the transparency in the banking system. So you've got a limited number of properties you can actually buy with the finance. Then you need to hold them so that your equity is going up and the debt's either staying there or going down. And then the last phase, the fourth phase, which is the transition phase, which is turning your equity into something that you can use. Because again, one of the old strategies that say as an exit is milk the equity, just keep refinancing it, draw down on the equity that you've created and spend tax-free money. That's all really good if the bank will lend you money. But if you're moving into a phase where you're actually no longer earning an income or you don't want to have to keep working, bank's not going to keep just bumping up your loan amount, giving you a redraw facilities to go and spend money on your holidays. So that whole period is absolutely critical for creating the equity that you need to then be able to have a great lifestyle after that.

Okay, so Cam, with you then, are you in this transition strategy right now, this sort of transition mode? So you've held these properties for a period of time and now you're transitioning, how are you sort of doing asset selection, what the sell and when? And you said a process or part of this would be reviewed towards to make it as tax effective as possible. So who's helping you out with that stuff? Yes, I've got a bookkeeper and then I've got an external accounting firm and we run this internally, the same thing for clients, but basically we run a standard spreadsheet, all the costs of the property, work out the tax position, you know, GST positions, if they're some of the newer ones. But yeah, it's literally done, it's all figures, it's all financial, it's not emotional, it's very straightforward as far as the way we're doing it. And then what we can do over the top of that financial model, then it just comes into our intuitive research into which market may have the growth over the next coming years and do we want to hang on to it. And Alan and I aren't going anywhere fast and our kids are all pretty young, so if we had to hold the remainders for another three, four, five years, it's not going to kill us gentlemen, the thing's positive. So we'll try and milk the Brisbane market as best we can over the coming short years, which we seem fairly bullish about. But once we've got that growth out of it, then we'll divest out of it. And the old saying, which Alan, Matt's dad, Steve, who's still my property mentor, he taught us early days when he does a lot of small development, still does to keep himself amused that he's 70-year-old now. But he said, as long as you're still in the market, so you might sell one, move the money, grab the tax and the profit and put it back into the market. As long as you don't pull it out of the market and hold it in your bank account, if you're looking for growth, you're not going to miss out of it by being back in the market. So Alan and I will sell out of that, whatever point of time it is, we're not going to sit that money in the bank. We'll go and invest it in our own individual portfolios and grow those for the remaining couple of decades that we want to grow wealth. So you're leveraging the utility of that equity to transition that wealth somewhere else, which is easy to manage and has a, I guess, there's a state planning compartment associated with that. Yeah, correct. So I've got a number of different trusts I've also created. Not that I'll tell my kids this until they're older and smart enough to comprehend it and they feel like they've done enough work themselves, but I've got individual trusts set up for each of them. So as a stop arguments within the family, I've got four trusts set up. So I've put a property in each one of those at the point that they're smart enough to manage that. They might be in their thirties, forties, might never give it to them if they end up being ice addicts, who knows. But the whole concept of teaching people about doing some work themselves. I like the concept of giving your kids enough that they can kickstart them, but it's not enough that they don't have to do anything at all. So guiding them on that sense. So if I could give them a leg up with one property, but ensure that they understand the basics of investing and can leverage that one property when the time is right to build it themselves, that'll stop four kids fighting over one trust by breaking it into four. That makes sense. And are you going to give them those properties unencumbered with any debt? It's going to be free for us? There's debt on at the moment. The percentage of debt will be minimal. I'll run those interest only. They'll probably have modern day debt now on them, which will be pretty minimal down the track.

So yeah, I remember that first property I bought, which once again, Matt's dad, Steve grabbed us by the scruff of the neck early days. This is a long, long time ago. And the first property I bought at 80% LVR. And I was sort of freaked out about it and the debt component. And he said, in 10 years, you'll laugh at that debt. And sure enough, the rental yield had gone up enough. And the debt percentage was half, very similar to how our government's going to get out of the debt to GDP issue. We're going to grow the economy rather than pay the debt off. So people freak out about that number as well. But the reality is we're never going to pay it off. We'll just grow the economy. Well, that's a good connection back in with the budget. And what they're saying is the government is borrowing half a trillion bucks or something to get us out of this current situation. However, the debt repayments against that money today will be less than what it was two or three years ago for a much less number because money is so cheap right now. So much like a property investor, they're making hay while they can with cheap money. Yeah. I mean, Matt's economic history buff is probably the best way to put him. Matt, give us some dazzling figures from post-World War II, if you've got a couple there, just to put it in perspective for people, because it makes me laugh when the headlines come out saying we're going to be in this mega debt. I'm going, I hope they spend more. I wish they doubled. Well, I think probably one of the big things that really stood out to me post-World War II was the debt to GDP got up to 120% and they grew the economy to get out. So the ways to get out of high debt for a government is to grow the economy. You can do that by growing exports or you can do it by growing your domestic economy. You can't always grow exports because everyone else is competing for that. So they grew the domestic economy by obviously inflating prices a little bit, easy money, big infrastructure projects, high immigration. Now that's probably the one challenge we've got against us at the moment. We don't have the high immigration, but I think we can all bet reasonably comfortably that once we're past COVID and we've got a vaccine, that'll come back really quickly because there's such a strong need for Australia to have a younger workforce, a broad taxpayer base to cover all of the baby boomers as they're exiting the economy and the jobs market. So yeah, I guess from a property perspective, I think it's probably also really important for property investors listening to the show to not get too focused on the here and now, because as I said earlier, the really key phase of everyone's investment journey is the hold period. So you want to be buying as much property as you can, as quickly as you can, and these periods where it might be a little bit depressed in the market, and it could be depressed for a very, very short time, that could be the best opportunity to get in. And then you've got that hold period when we're all going to benefit from the return of immigration and the growth in the scale of the economy. So anyway, I'm sorry to round circle there. I should pick three bookshelf there, man. I reckon you've got all the biographies of the great economists and treasurers from the years past, but there's a lot of lessons in history. And I think what I took out of this last sort of six or seven months of COVID and how the government has framed the budget is that, you know what, it's all going to be okay. We will get there. It might be a bit of a pain during that period of time, but smart decision making right now can certainly set yourself up financially for the future. And this all comes back to the exit strategy. And I want to pick that apart a bit more. We've just got a break beforehand. Back in a moment.

Welcome back, everyone. Phil Tarrant, Cam McLellan, Matt Lewisson. We're chatting all things exit strategy. Now, Matt, we've spoken a fair bit in the past around how to identify the best growth assets for a sort of a buy and a hold strategy. So we're talking about the other side of that here. So towards the end of the hold and when you start sort of transitioning into freeing up cash for whatever use you're going to use it for, Cam's going to put that back into property, but other people might use it for other reasons to support retirement or put it in some sort of other investment vehicle. How important is the research at the back end of the portfolio when you are selling down? Is it as important as at the front end when you're acquiring? Oh, absolutely. And even what you do with your wealth once you've created it is so important. Takes 10 to 20 years to build, I guess, reasonable wealth. And you can lose that in a heartbeat with one bad decision. And I guess it's always going to be very personal. So we always start with the plan first. So what's your goal? For most people, it's not to have a big bucket of cash or a big amount of equity that they're just going to slowly draw from and erode, I guess, because you can erode that faster and who knows what's going to happen with inflation later. I guess from my perspective, I've always just wanted to have income is what I've always focused on. So you want to get to a point, I think a lot of investors I talk to resonate with the same philosophy. They want to get to a point where they've got a sustainable income, where their passive income exceeds their expenses. So whether they work or not, they're saving money even just off the passive income. If you get to that point, then you're wealthy forever. You'll never run out of money. So then it comes down to, well, how much asset do you need to hold? What do you then do with it to get to the point where your income is paying you more, your passive income is paying you more than your expenses? And obviously, the various options you've got there is hold all of your property. So wait for the rents to continue to go up and obviously exceed your repayments so that you also got more positive cashflow. Using the domino effect, which Ken mentioned in his bestselling book, My 4-Year-Old Property Investor, which is essentially to use your positive cashflow and your earnings from your job or your surplus cashflow to pay down one of your loans at a time. Use the extra cashflow you're getting because as you pay that loan off, your cashflow is improving. Using the extra cashflow to pay off the next one and so on. And they start to fall like dominoes faster and faster until you've got no debt. We've talked about milking the equity. We've talked about giving it to the kids. And the last one is transforming your equity. So taking it out of property, which is essentially selling strategically until you get to the point where you maybe have a big bucket of cash and then using that cash to diversify and build a bulletproof portfolio that's going to pay you money rain, hail or shine. Again, that's the big thing for us. And I use the term, I mean, you can be bulletproof, have a bulletproof portfolio without getting rid of all your debt. You look at someone like a Harry Triggerboff who started at 34, built 8 townhouses, sold 4, kept 4. Kind of kept that strategy going all the time. So it's adding value and it's retaining. Now not everybody can do what he did, but his philosophy got him to a point where he can build a building now. He's getting rent from thousands of properties. You get hit by COVID and you lose 18% of your tenants or 80% of your income. He's still not broke. He'll still keep making money faster than most other investors in the country. And yeah, he can ride through any economic shock. And I guess that's the key.

You want to get to the point where if you're near the end of your investment journey and the next COVID or the next, what do they call it? A white swan or black swan event hits us that you're not going to be knocked for six and your strategy will see you through regardless of what happens. Yeah. And a lot of people, I'm quite interested Cam, when your clients, for example, who you work with get to the point where they are at the sort of the latter stage of the twilight years of their property portfolio, when they are going to sell down, do most of them approach it with a sense of joy or reluctance? It can be quite a tough decision to actually go from, hey, I'm no longer acquiring, I'm no longer holding, I'm actually selling down. And it's probably difficult to process sometimes. Yeah. And it's actually, for some of our clients, it's sort of a five-year process. And we start sort of doing some initial discussion and planning to the point where they've achieved what they want to achieve, which is not a bad thing. And Matt's actually doing a number of different models. So in the past, we've done customised X strategies or transition to carefree living. The term will keep punching home because people are different. Some people just want to reduce hours. Some want to totally transition out. Others want to take money out, put it into business for a multitude of different reasons. People want to move out of their portfolio. But we've found that the strategies that Matt talked about there, you know, with selling down debt, domino, living off equity, there's usually a combination of those things. So what Matt, and you can probably give a quick snapshot, Louis, on the modelling that we're creating, which so we are actually for clients is just bolting a couple of option models for them so that they can play with these different models and work out if they take different roads, what's going to get them to where they want to be. And I think by having something that's solid, and like you said before, you can sketch something out on paper. I'm using accountants directly and reshaping the model at the moment. But what Matt's trying to achieve at the moment with his team of analysts and data scientists, they're punching away as well, haven't you Matt? Give us a bit of that. Yeah, without going into too much detail, and you've obviously covered the face of it, like in terms of what people will be able to do with the model. But I think there's an industry standard program called PIA, which a lot of people in the property investment industry use. And it's a fairly steady model, it's great for loading in an asset, or a couple of assets and just seeing what the growth looks like. But it doesn't factor in what your exit strategy looks like. And it doesn't update live with people's, I guess, progress. So what we're building is a very dynamic model that will track people, investors can put in their personal details to be able to see how many properties do they own, what's the value, what's their debt, what's their income, track the future, basically a forecast of that, and then have one of the three, I guess, one of our three preferred exit strategies, and toggle between those to see how much equity do they need to have in order to achieve their goals against any of those three exit strategies, which are really linked to their risk profile and their goals as an investor. So it's a bit of work that's been going into it for the last few months, and hopefully in the next couple of months, we'll wrap it up. It can be pretty demanding on financial analysts at times, because I've seen too many models that have been built by experts that are great, that they use them, but they don't have longevity, and they're not as insightful and user friendly as you'd like them to be. And we really want this to be something that people can have as a tool, that they can really map their portfolios. And I've spent, since I was 18, probably spent a couple of hours every week running models for my portfolio and sort of saying, well, if I make this decision, what happens next? And yeah, I guess trying to pull that into a spot where we can share it with others. It's pretty exciting to think we can have that out there shortly. Yeah, it sounds like a good tool. And to your point, it's constantly with the modelling. It's okay if it works today, but we have to re-engineer it every single time with inputs to make it change. So yeah, let's say, hey, go on with that. That sounds pretty interesting.

Now, we do it on SmartPort Investment Show, and everyone normally talks about in property investment, what went wrong when you're acquiring property, and we all know the numbers. I think 8% of all Australians make some sort of claim against an investment property on their tax returns. So that's a significant percentage, but most of them only own one to two properties. I think there's only 20 odd thousand Australians that own more than six properties. So we're talking about an exit strategy of a larger portfolio. The portfolio you spoke about, Cam, is a significant one, but it's largely irrelevant how many is in the portfolio. You've got to get it right at the front end. So let's have a chat about where people get it wrong at the back end, because you probably don't want to make those mistakes, Cam. Yeah, exactly right. Matt, as far as getting it wrong, the exit strategy we've gone through so far, I know some of the initial way you and Al bought your portfolio has probably got a couple of things you would have changed in it. Yeah, I mean, I think one of the, so we built ours up because it was the first portfolio we had together. We built up to about six properties in it before the GFC. We panicked a little bit in the GFC, admittedly, and it was actually, it wasn't the GFC, it was the interest rates creeping up pre-GFC, which were really starting to bite on our not that portfolio, but the other portfolios we owned individually. So we decided to sell off one of the properties that we'd only finished building 2-years earlier. And so we sold that. GFC hit 2-months later. We thought, oh, how lucky are we? Great move. 2-years later, prices have rebounded and we're 20% higher again. And we're like, well, we gave up hundreds of thousands of dollars by selling that property too early. Now, we would still be selling that property. We still would have sold it out of it as part of our exit strategy for that portfolio. But if we'd held it for that 10-year period, it would have actually made us an extra half a million dollars. So yeah, I think rushing, so not having a sufficient hold period was probably like one big mistake. Responding to, I guess, to perhaps media messaging at the time that was out there, as well as our concern over the interest rates, instead of having a longer term view in that interest rates are not likely to stay up for that long. So yeah, I think that was one of the really big lessons that we learned. And then after that, we were a lot smarter about it as well. We made sure we didn't sell 2 properties in the same year. You're going to pay capital gains tax on your gains. So you don't want to have it all lumping into 1-year. Probably one other lesson that we learned, because that was all set up in our own personal names, because we bought those in 1998, 2000, 2001. We were just starting out. And a couple of years ago, we transferred the properties from ourselves to our wives. And these were all in Victoria. So in Victoria, you can transfer ownership on title using, I think they call it the love and affection exemption, which means that there's no stamp duty for the transfer, which was great. We got some legal advice and some tax advice confirming there was no stamp duty. They forgot to tell us that we paid capital gains tax on the transfer though. So we ended up having to part with a couple of $100,000 in capital gains tax each, when we actually didn't have any money coming from that transfer. It was all obviously cashless transfer. So again, that was a great lesson to learn about getting the structure right at the start, but also making sure that you question every which way, not just about the stamp duty, but also what other taxes might I incur from restructuring this and yeah, I mean, it's money we would have ended up giving up anyway when we eventually sold the assets. But just from a timing perspective, it wasn't ideal to have to part ways with- To reduce those risks, Phil, if you do get that end point right, you can reduce the risks of making those mistakes along by, if you solidify that end point going, whether it is, I want 100k of passive income and work backwards from there. A lot of people that we're dealing with might only need 3 properties, 4 properties to achieve that down the track with the timeframe they've got. But once they understand that it's a long-term game and that they're going to get rich slow, but it might take 15 years, but it will get them to that point when they apply the right exit strategy, then it stops them making change along the way.

Like Matt said, selling out because interest rates were high and missing out on those gains. You've got that clear goal that you have to achieve down the track. It stops you making irrational decisions along the way. And because there's so much white noise and so many fluffy dog tails to chase or red balloons, as we call them, so many distractions to take you off your strategy. If you've got that set goal down, then you don't deviate from it, then your exit strategy is going to be a lot more efficient. Yeah. And there's compromise right through any exit strategy. And there is a cost associated with it. I think of the portfolio, the Smart Property Investment Portfolio that I've built with Alex Whitlock, and that's all in trust, right? So it's great for the future, but it makes that property or those properties more expensive to hold through it because say, we've got a lot of properties in New South Wales, we get no land tax exemptions on anything we pay from the first dollar. So if that was all held in our personal names, it'd be a very different outcome than one of these in trust. So there is a price to pay for good structure. Yeah, good structure. And that's a whole other discussion I'm welcome to have with you down the track on trust. And we're not accountants. We have a good team of accountants that work for us full-time and many different accounting firms that work for us. But the advantage of the trust are obviously control, asset protection and income distribution. They're probably the big three, but then you've got things like you lose the possibility of negative gearing, you've got fees. There's a lot of other disadvantages of trust. Losses can be carried forward. So there's lots of different things. And so trust is really powerful for transition to wealth, for protection assets, if you've got business. But for a lot of people, building a small portfolio of property is probably more efficient in your own name and passing it on to the kids when you keel over rather than earlier on. Yeah, that makes a lot of sense. Well, I've really enjoyed the chat, gents. I think we should keep chatting about exit strategies. And Matt, you mentioned, I think, those seven points. Is there any way you got them documented? They were pretty concise. Yes, I know four of them are in my four-year-old, the property investor. I think the last one, which was to transform, is going in the latest amendments. Yeah, I've got an addition too, which I'm trying to pump out before Christmas, Phil. And so to give a pump this week in market, investing in the new normal has gone to print. Oh, there we go. So is this the new normal, is it? That was quick. Exactly right. Exactly. So this is actually a combination, this book of work that Matt and I have been piecing together since 2001. We were handed a pile of notes from his dad and we've been working on basically documenting all the major economic upturns and downturns since then to try and make the uncertainty certain for people, really trying to cut out the media noise and focus on what drives the economy and what drives the property market. And once you understand that, you can make smart investment, safe investment decisions.

But as far as the exit strategies go, I'm happy if someone wants to email me, cam at opencorp.com.au, we can send out a copy of the books for them, or I can potentially put them in the test phase for the exit strategies if they're at that stage of life with Matt's new modelling. That sounds pretty good. And do I got to contact you guys to get a copy of the book? Can I get it at the bookstore or anything? Yeah, so we'll be at all the major bookstores, Amazon, Audible. At the moment we're just taking it, we're doing a pre-release. There's 5,000 books getting sent out a week after next. So I'll sneak you a copy, don't worry about it. I like it, mate. I like to read that stuff and borrow all your ideas and call them my own. No one invented the wheel that I know of. No, it's good. Thanks for sharing that, guys. And again, thanks for joining us on the show. You're both always very open with your advice and recommendations for how people can get a better outcome through property. So thank you very much. Pleasure. It's always good to chat. Remember to check out smartpropertyinvestment.com.au. If you're not yet subscribing to our daily morning newsletter, stay the first to know what's happening in property right across the nation, smartpropertyinvestment.com.au, forward slash subscribe on social media, just find us at Smart Property HQ. We'll see you again next time. Until then, bye-bye.

The information featured in this podcast is general in nature and does not take into consideration your financial situation or individual needs and should not be relied upon. Before making any investment, insurance, tax, property or financial planning decision, you should consult a licensed professional who can advise whether your decision is appropriate for you. Guests appearing on this podcast may have a commercial relationship with the companies mentioned.