How to pick a hotspot; Here comes the squeeze!

He’ll be sharing with us the strategies and fundamentals he uses to find under-market-value properties in areas primed for capital growth.

With rental growth in Australia’s major cities expected to stagnate over the coming three years, we talk about what you can do to increase your yield.

And now the banks have effectively been unshackled from the RBA’s cash rate, we ask what inevitable rate rises mean for property investors.

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In each episode, the Smart Property Investment team and its special guests will break down what's happening in the world of property investment, how it affects everyday property investors and how they can take advantage of it.

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Transcript:

Andy Scott: Hello. It's The Smart Property Investment Show. Coming up in this episode, everybody breathe in, here comes the squeeze. Banks say ‘whatevs’ to the RBA and as 2016 kicks off we're all climbing aboard the New Year ‘Hot Spot Boom’ Bus. All this and more in this episode of The Smart Property Investment Show.

Hello and welcome to The Smart Property Investment Show where we speculate, meditate, and pontificate on all things property investment. My name, of course, is Andy Scott. I am an investor and the publisher here at Smart Property Investment. I'm joined, as always, by fellow investor and managing editor of the title Mr. Phil Tarrant. Hello Phil, how are you?

Phil Tarrant: I'm very well, thanks Andy. You mate?

Andy Scott: I'm alright mate. I'm alright. You looking forward to an exciting 2016?

Phil Tarrant: I'm fired up mate, pumped.

Andy Scott: Yeah, you're really sounding it mate. I've got to say that.

Phil Tarrant: Energy levels are at a high today.

Andy Scott: Our special guest this week is the founder of the wHeregroup, Mr. Todd Hunter. Hello Todd.

Todd Hunter: Hey, how you doing?

Andy Scott: I'm very well mate. Thanks for joining us today. How has the week been? How has the new year started?

Todd Hunter: It's been hectic, very, very busy. As it is always

Andy Scott: Good, well it's probably keeping you out of trouble. I suspect on the streets, given what you do. wHeregroup, you guys have been around for, I think it's about 13 years now, isn't it?

Todd Hunter: Just cracked 13 a couple of weeks ago.

Andy Scott: Congratulations mate. For those that don't know specifically, what is it that you guys do there exactly?

Todd Hunter: We're a buyer’s agency service. We're out there purchasing investment properties for clients. Very different probably from a lot of the other companies out there where it sort of follows me and my investing in where I'm buying properties for people. While I'm there picking up deals for myself, we pick up deals for the clients as well.

Andy Scott: How many properties do you reckon you've bought for clients over the years?

Todd Hunter: Haven't really counted but it'd be in that 3,000 to 4,000 mark.

Andy Scott: That's a lot of bricks and mortar. A lot of bricks and mortar. Well mate, then you sound pretty qualified to come and talk with me an Phil. Without any further ado, let's get cracking with the first story.

This is ‘Investors to face a three-year squeeze’. This comes off a story from some figures that came out from CoreLogic RP Data figures the other week, talking about Australia's rental growth over the past 12 months. Even though Sydney and Melbourne have shown pretty good figures, the rates across the country are set to stagnate over the next two to three years. There's a quote from Cameron Kusher here at RP Data CoreLogic, it says" Sydney and Melbourne, which have seen the largest ramp up in new housing supply and investor activity over the recent years continue to record rental rises over the past year. However, each city is seeing a slowing in the pace of rental growth relative to 12 months ago."

Todd, first off I suppose yield, is something that is important for many investors. I suppose one of the key points of investing is you don't want to be dropping in loads of money every day, every week, every month to your portfolio to keep it going. If you're an investor that needs a lot yield and you're feeling the squeeze like this, what are your options?

Todd Hunter: I guess it depends on whether you've purchased already or looking to invest. If you're looking to invest then you should be avoiding these places where the rents are looking to decrease. If you already own in these areas there's probably not a real lot that you can do. You might be able to do a bit of a cosmetic renovation to help keep rents where they are or maybe slightly increase them. In these cities like Sydney and Melbourne, which is very generic – we're talking about, sort of two capital cities here where there's lots of markets within those markets. You've seen prices that have increased significantly. You've seen lots of new housing stock come onto the market and that all puts pressure on rents.

Andy Scott: Phil, Todd mentioned potentially doing a cosmetic reno for a property. We did a renovation on a property once, over the course of a weekend. First of, refresh our memory, did it get the rents up for us?

Phil Tarrant: Yeah it did. I think we were able to – the property Andy's referring to is a two-bedroom ground-floor unit in Mount Druitt, on Luxford Road which is just opposite Westfield. We set ourselves a challenge where we gave ourselves a budget of $15,000 to renovate a property in a weekend. Sort of Friday, Saturday, and Sunday. I think we lifted the rent post-renovation by about $40 a week – which as a percentage of the actual rent, which was at something like $250, it's a considerable increase. The reason why we renovated that property wasn't primarily to increase the rent of it. It was to increase the capital value of the property and that's what it all comes down to. Yes, there was an upside in terms of rent which means holding that property is cheaper but the overall premise in driving that renovation was to make the property worth more. Money that we could extract.

Andy Scott: If you need yields across your portfolio is there anything that you look to do? I know you've got your team around you as well that you talk to. Is there anything with those guys that you think about doing? Is there anything that you've – we know Todd quite well. Anything you know that Todd does with his guys?

Phil Tarrant: I think, and Todd can probably give it a lot of the strategy around what I've done here and articulate that in the right terms. When we look at our portfolio sometimes I want it to be as close to neutral as possible. We invest in trust structures which has some additional costs and all this sort of stuff. When I look at our portfolio, if I find that the income that it’s generating versus the debt that it's carrying and it's dropping me toward a negative position, it influences the strategy that I put in place in terms of the next properties that I will purchase. I'm always looking for capital growth, it's a fundamental foundation of all property investing. It might change the type of property that I buy next. If I'm looking for a yielding property to look at equalising my portfolio, that might change the sort of thing that I'll buy or whether or not I'll do a renovation or something else. I imagine there's a principle around this. Investors that chase yield over capital growth is dangerous and a lot of investors have chased yield into mining towns and have been hurt as a result of it.

Properties which were bought for way over the price that they were valued are now sitting empty with no one in there. Strategy, which is based around yield, strategy which is based around taxation, strategies which you hear a lot of the spruikers talk about are very, very, very dangerous things. Strategy for me in property is about buying places that are going to go up in value.

Andy Scott: Todd, has Phil sort of hit the nail on the head there to a certain degree? The main goal that you need to aim for if you’re investing in property is not yield, it's not quick returns, it's not anything of those things that Phil mentioned, it's really about you've got to try and buy something that's under-market value. You've got to try but it in an area where you hope that not only that value is going to go up but the whole area is going to go up. That's where you make your money. That's where you make your capital gains. That's where you can get equity. That's where you can start rolling things out and doing other things as well?

Todd Hunter: Yes and no. It depends on what phase in investing you're at. If you’re in accumulation stage then definitely. You can't keep accumulating without the growth that's there but you also need a nice balance of yield there to be able to afford to service on the next level of debt that you're doing. Then you can look at people within who own their home, who don't have a home debt, who are buying property now to create a passive income. In all honesty they don't really care that much about the capital growth. They're actually looking for the income side of things. Not in the high-risk strategy like the mining towns, and the Gladstones , and things like that. It's getting a good yield in a good safe area that the rents will continue to keep increasing. Investors in self-managed super funds do the same sort of thing. There are different strategies and in that accumulation phase, most definitely, you are looking for a balance with a good yield but you're definitely looking for that capital growth.

Phil Tarrant: This is all very cyclical. I've bought a lot of properties out in the western suburbs four or five years ago and I think you're about there at the same time. Back then there wasn't a lot of investors in the market. Probably prices were a lot less than what they are right now. We started buying out there. I think we got into the market at a good time. We probably could have got in there a little bit earlier and did a lot better out of it. I've found, in looking at this story Andy that we're discussing, over the last two years a lot of the yields, a lot of the rents I've been receiving on those properties have been dropping because there's been an influx of investors in the market. Everyone's out there chasing good capital growth out there.

So what's happened is that yield is about supply and demand. If there's more properties available to the marketplace, therefore there's not as much pressure on rents and therefore they're going to stabilise or go down. What I've found and we flagged this two or three years ago in the western suburbs of Sydney, that our rents are going to drop and they're going to stay that way for quite some time.

Considering what's been happening in the market over the last two or three months with the new APRA requirements, that's slowed a lot of investor lending which has put some brakes on price growths in property across the capital cities. We can probably sit, and wait, and think there's going to be a little bit more pressure moving forward on rents in those areas so we should see an uptick in rents moving forward. But that's going to take time to play out. If you're an investor, Todd, and you're in a situation where you need to increase rent it's very difficult to do that because it's market dependent. It's not what you think it should be.

Todd Hunter: Absolutely, it is. You're already on that roller coaster. You're stuck on that ride already now. In that western Sydney, you've got newer land releases. You've got investors who are paying an absolute premium for new house and land packages and then because so many are coming on the market they're realising that they can't get the yields that they were getting so they will reduce the yields. That puts that rental dollar now back in the bracket towards where some other people have already bought established properties that are there and tenants are saying, ‘Well do I go to a house that's five, six, eight, 10 years’ old and pay so and so dollars? Or I can actually get almost the same, or exactly the same on a brand new house.’ They're attracted definitely to the brand new house. There might be another suburb or two further out but they're willing to do that for a brand new property.

The other factor that's come into the western Sydney side of things also is the granny flat phenomenon that's gone through where there's thousands of these granny flats being put in place. Although it's a different price point, it is still taking another tenant out of the market place and making it harder to achieve those yields.

There's a few factors. We are in a Sydney climate right now where we're seeing property prices are starting to cool off now. We've had a fantastic run for three years but we still have very low interest rates. You've got a cooling market and low interest rates, so it's uncharted waters where we are right now. I haven't seen that in all the time I've been investing. What that means is that the house and land package companies are still building. Where normally when you see markets cool off it's because interest rates are high and then these developers aren’t building the new stuff that's out there. At the moment they're still building new stock and that's why you're seeing these yields at four per cent and below in certain areas.

Andy Scott: I think that we should make the point as well, we've spoken very much about western Sydney just there, but as we've always said there's markets within markets all over the country. You see this on a micro level and all over the country these sort of things are having an impact. It's something that I think wherever you're investing you've got to be aware of it. You've got to be looking around. You've got to see what it's like. I think that moves us on to something else that's effecting everybody. Todd it's interesting that you sort of subconsciously mentioned it and Phil you did as well. Todd, I know you're a mortgage broker as well so you've probably got some great insight in this.

‘Investors need to brace for great rises in 2016’.

This isn't necessarily the RBA are necessarily going to put the rates up. Top economist Andrew Wilson from Domain Group. He's the senior economist there. I suppose, he uses the phrase that APRA have ‘opened the door’ for the banks. Banks are like vampires, once you invite them into you're room that’s it, you're powerless against them. With the APRA stuff, what he goes on to suggest is that because of, in effect the banks have been able to de-couple, what they're required to do with their lending rates, to what the RBA do. They're in a position where they don't really have to wait anymore. It's already happened a couple of times already. Banks are in the process to do it.

There's a lot of stuff going on about banks needing to raise their capital on their books and all sorts of heavy economy stuff that isn't necessarily relevant for a lot of investors. The salient point is: rates are probably going to go up for most borrowers. What does that, as an investor, what does that mean? We've just said yields are going down and now we're saying that interest rates are going up. Is there a perfect storm of trouble brewing here? Todd?

Todd Hunter: The whole thing about the rates going up, it's funny. If you look at over the time, we've seen these rates go up a couple of times. A few weeks later, the banks are offering bigger discounts off the interest rates. All you need to do is ask. Five, six years ago when we were talking about mortgages and you'd get a home loan you'd get a 0.7 per cent discount off of your loan. Now you're looking at 1.3, 1.4 per cnet discount off the standard variable rate. The whole philosophy, from what I see, is the banks putting the interest rates up, is that they're putting it up
and everybody's rates go up and then out of that, there's probably only about 20 per cent of people who will actually contest that rate and go back and say to the bank that they’re with, ‘No, I'm not happy with that. I want a bigger discount’. The banks very quickly oblige because they don't want to lose your business. For the 80 per cent who just took the rate rise, the banks are making more profit off of it. I think it's a whole bunch of huff. If you’re out there and you want a good rate, there are still very sharp interest rates that are out there even though they've supposedly put them up.

Phil Tarrant: I think there is a real misconception amongst your average Australian borrower that banks don't want to lend money. It's like the are banks putting interest rates up because they don't want to lend money anymore, they're worried about property markets, they're worried about cycles, this, that and the other. That's a massive misconception, isn't it? Banks want business, banks are hungry to lend borrowers money. That's how they make their money. If you look at a bank’s balance sheet most of the value in it, most of the profit generated or revenue and profit generated, in terms of their businesses, is mortgage lending. They want to lend money. They want to lend as much as possible and therefore there’s that competitiveness between them. They don't want to lose your business number one. Number two they want to try to pick up as much business as possible. You as a mortgage broker must see that time and time again. The aggressiveness of banks to win business, to win borrower business, and that's an evolving isn't it? Getting more?

Andy Scott: As well, Todd, you're a broker. You mentioned only 20 per cent of people actually ask anything. Does having a broker help to do that as an investor? Do you need a broker? If you don't have one right now, are these the sort of conditions where you should be going, ‘You know what, I should probably bloody find one and get them to go to work for me?’

Todd Hunter: Absolutely. I think you're crazy if you don't have one.

Andy Scott: Said the mortgage broker.

Todd Hunter: And my number is – if you're walking into a branch and you're talking to a bank teller that simply just earns a wage each week and doesn't really care whether you're on the best rate or not and doesn't know what the other competitors are, etc., then you're really doing yourself just. A broker is supposed to be out there finding you the best deal out there and negotiating on those rates. Don't settle for what the card says. There's a rate out there, we're going to go out there and we're going to ask for a bigger discount.

Andy Scott: Phil, you love a deal. Have you been hassling your broker recently?

Phil Tarrant: Yeah, most days actually. I keep a pretty close eye on my interest rate and if I see any fluctuations upwards I'm straight on the phone to him saying, ‘What's going on here?’ The banks have recently been moving out of cycle, interest rates have been quite steady for some time now. Is there talk about a rate rise on the horizon? I'm not some macro-economic specialist and I can't really give my views and interpretations on whether the rates are going to go up or down. I don't think they're going to go down. Are they going to stabilise for quite some time? Yeah, I think into the New Year, yes. When it comes to an interest rate on a mortgage, I go back to basic fundamentals and that is I can't control whether or not rates are going to go up or down. What I can control is my ability to pay my mortgage. What I can control is my ability to take on more debt, or reduce my debt.

People who are struggling in the market place right now, people who are concerned about interest rates going up and how that might influence their household finances, their relationships – there's a lot things that flow on from pressure with debt – should be looking at their ability to service this debt and whether or not there is any other opinions available to them. Those options are negotiate on your interest rate and if your banks aren't willing to do so, look at shifting lenders. There are some cost associated with that sometimes depending what your LVRs are. Look to control those things that you can control. Keep educated, keep informed about what's going on in the market place, speak to your broker. I would hate to borrow without having a broker because I don't want to deal directly with banks, they're a nightmare.

Andy Scott: I think you make some good points there Phil but I think you make some missteps about saying only focus on things that you can control. There are lots of things that you can control but you may not realise. I can control where the next suburbs are going to be, that are going to go up in price. You know how I can control that? I pay attention to where the next hot spots are going to be.

I've already had someone today, it's 2016, straight out of the gate, we know where the next thing is. I know you all think Sydney’s gone, Sydney’s not gone at all. It's only just starting. I'm paraphrasing a little bit. Doug Driscoll, he's the CEO of Starr Real Estate. He points to the fact that there's a lot of mergers going, council mergers going through in Sydney at the moment.

I think we've got about 45 councils, I think they're moving it down to 23. Mike Baird recently announced he's going to bulldoze this through and push it through. The bottom line is a bit of postcode envy is the suggestion. Areas that previously were perhaps not part of Woollahra Council are now going to be part of Woollahra Council. Oh, hello, there's a fancy postcode. Prices go up.

Todd, I know you've been away for the last week or so, going shopping, so I know you're a man that looks for the next hotspot. Where have you been?

Todd Hunter: I've been in Queensland.

Andy Scott: Specifically, where have you been?

Todd Hunter: Queensland.

Andy Scott: Okay.

Phil Tarrant: Andy, you remember this is the bloat that pretty much bought up all of Ipswich about three years ago.

Todd Hunter: Yeah. I bought a lot in Ipswich. More towards the Springfield Lakes, Springfield, Redbank Plains region, that side.

Phil Tarrant: Springfield's good. I’ve got a property up there. Springfield killed it.

Andy Scott: Okay, so it wasn't there. Basically, I've got all the suburbs of Queensland here. We're just going to reverse engineer it.

Jokes aside, Todd. Obviously, as you said yourself, you're always looking to – part of the way that you do your business is that you look to buy in areas and places that you think are going to be good and then by definition you see lots of properties there and you extend that to your clients. I'm not going to ask you, I'm not going to run you too hard to tell us where you're buying, probably because I think your scared because I think you don’t want to tell us.

Phil Tarrant: He’ll never go on the record, this guy.

Andy Scott: I know.

Phil Tarrant: Give us one, one. One prediction for 2016.

Todd Hunter: If I tell you all you guys where I'm buying, that means you'll be out there buying all the deals I should be getting for me and my clients. I tell you what, I see Canberra as a really good location for the next two years.

Andy Scott: Okay.

Todd Hunter: If that's the tip that you are looking for, ACT is definitely on the rebound. I can tell you why.

Andy Scott: Not necessarily about Canberra. I mean, nice one for saying that. But I think what we'd be interested to hear is, I hear it all the time, a lot of people in property they talk about fundamentals. It's all about the fundamentals. Which is sort of cute but I always find it's a real swerve. What do you mean? Give me a specific. So, without going into your whole methodology, it would be quite good to know when you go out looking for things what two or three things, “before I go to an area” – because I know you travel all over the country – “before I go to an area, it needs to tick these two or three boxes first for me even to look further. If it does that then I go boots on the ground. When I'm boots on the ground then these are a couple of things I look for that either make me go ‘Nah, this has been born out’, or go ‘Yeah, actually there is something more’.” Can you share some of that info with us?

Todd Hunter: There's four fundamentals that I look for.

One is, I only buy houses. I don't do units, townhouses, strata, subdivisions. One’s houses, so that's very easy.

Two is price point. I stick to sort of that first homeowner investor price point which at the moment is up to sort of very early $400,000s. Anything below that is a price point just because of affordability. It lowers risk and it allows you to diversify into different markets and you’re hitting the target audience of potential tenants and potential buyers again when you actually resell that property, be that in two, five, or 20 years’ time. You’re in that sort of price brand. There's two fundamentals.

Third is I'm looking for a dead market. Completely different to what everyone else does who are looking for these hotspots. I'm actually looking for locations that are really good locations that have been dead between three and five years.

Andy Scott: When you say dead, specifically what do you?

Todd Hunter: Dropped in value dramatically. So they've come back in value since their last boom and the market’s been really quiet and is very little or zero activity happening in buying. It means I have no competition. It means I can negotiate really big discounts off the price of the property. Hence, I tend to find them in regions before other people are there. I might hold the properties a little bit longer, but I've bought them for a whole lot less as well. My capital growth is a lot larger without having to do renovations, without having to do much work, if anything at all. I like to do the renovations when I sell the property, if I sell, to make them look brand new and most attractive to the potential purchaser.

The fourth thing I look for, which is something I've been doing over the last few years, since data researchers have come of age and technology has come of age is income-to-debt ratios. It plays a really big part on people's affordability in both rents and ability to buy mortgages.

To give you one tip that I like with Canberra, it now and I'll tell you why, is, where I'm buying, the income-to-debt ratio is running at around 20 per cent. To put that into a numbers term for everybody – if you had $1,000 in your hand as a weekly income, you’re only spending $200 either towards your rent or towards your mortgage.

Now, what that means is we have a great capacity there to increase rents, because it's easily affordable. We have great capacity for property price growth because they can afford more in a mortgage as well. That's a nice thing. When you hit about 33 per cent of your income you start to get to, hmm, you feel it. You know you’re there. You’re like, ‘Yeah, okay, I'm spending a third’. When you hit high 30s to 40 per cent, you can certainly feel it, you need to start thinking about tightening the belt. If you’re at 45 per cent and above or 50 per cent, you're on the verge of going bankrupt. A lot of Sydney is in that capacity right now. There's many suburbs, and Melbourne, I shouldn't leave Melbourne out of this. In that band of what you’re spending. You've got to think, if your spending $500 on a mortgage or on rent and your only earning $1,000, you've still got electricity, fuel, alcohol, entertainment, travel to work, car rego, all these other things that have got to come out of that little remaining amount. It gets really, really tight. The old income-to-debt ratio plays a big factor in where I look to invest now.

Andy Scott: What about you Phil? You are a man – I've heard you band out the phrase ‘fundamentals’ a lot.

Phil Tarrant: Mr. Fundamentals.

Andy Scott: What's your – ‘fun’ being the operative word. Are there any that you specifically like and what do you think about what Todd's said?

Phil Tarrant: I think what Todd said makes a lot of sense. We do a hotspot topic every time we do a show, only because Andy loves hotspots. He doesn't really. He likes to take the mickey out of them a little bit. He loves a hotspot.

Andy Scott: I love hot spots.

Phil Tarrant: If you've got a hotspot send it in, smartpropeertyinvestment.com.au. Andy will assess it and give you a verdict. When I talk about hotspots I'm a hot spot cynic. The idea of a hotspot is a good thing but if we're talking about a hotspot it's probably not a hotspot. The fact that you're identifying locations long before anyone's even thinking about, or it's headlines in our publication, or The Sydney Morning Herald, or The Age, or whatever about ‘Here is the hottest, booming place’. If it's in the media it's not a hotspot. It's about those indicators which would indicate whether or not a property is going to go up in value. For you, income-to-debt ratio is one of the indicators that you look for.

There's a whole bunch of other fundamentals which are going to give you some indications on the prospects of growth in a suburb, or a street, or a house moving forward. Population trends is a big one. What's going on, what's the influx of people into a particular area. If there's more people needing houses, what’s the natural thing to happen? Rents are going to go up, houses are going to go up. What's the local councils doing? This original story started of merger between a whole bunch of different councils and stuff. How's that going to influence what happens to prices? Things move on. It's all about fundamentals. The only way you can actually understand fundamentals is to educate yourself and then understanding where you can research and find these fundamentals. Property data. Our website is very robust, it's got a lot of information from RP Data CoreLogic on there. There's also a whole bunch of Census information on there. You need to go out there and find local councils, state governments. The type of information that you need to go and find, and sometimes it’s difficult to obtain, town plans are something which is very good.

The fundamentals comes down to understanding what you need to research and understanding how that relates to your particular strategy and what you’re trying to achieve.

Where I want to go with this Todd, get away from the news and what's happening right now and into a little bit about your story. You've bought a lot of properties for other people. I know you're an investor yourself which is good. I invest in property to create wealth. I imagine you do it for exactly the same reason. Speaking to guys in the property game, which me and Andy do for a living, we always find that most people’s foray into property was pretty bad. Mine was pretty good, because I was smart enough to actually get people to help me out moving forward. Can you tell me a little bit about the first property you purchased. Why did you buy it? Do you still have it now? And what was the prospects for that property?

Todd Hunter: It was basically my parents – my parents owned motorcycle shop, a retail motorcycle shop and that business was purely there to fund their property fetish, really. They made lots of good money out of property. The instilled those qualities into us three kids. Me more so than probably my brother and sister. They taught us about money. Mum's very good with numbers.

So I bought my first place when I was 19. It was just a one-bedroom unit in Cronulla. I bought it as a home. I had already saved up by then a 20 per cent deposit, and the stamp duties, which weren't very much back then. There was no such thing as the first homeowners grant or zero stamp duty back then. It was purely at that stage, it was nice, it was near the water, it was near Cronulla Mall. It was just there. There was no research, no data, except, ‘Yep this is nice, yep I can afford this’. I was very nervous so I was talking to my girlfriend’s father in the negotiations with it. I was back and forth with him. I bought it for a $112,000.

Phil Tarrant: Have you still got it?

Todd Hunter: No, I don't.

Phil Tarrant: What would it be worth if you still had it?

Todd Hunter: I think it would be – I think it would start with a four.

Andy Scott: Okay, that's pretty good.

You started discussing this on pretty much cash flow. Your parents had a successful business, but that provided them with the cash flow to enable them to invest in property. Cash flow is a massive, it's a massive thing for all property investors. The ability to hold debt or hold property and have the capacity to pay that. However you generate that money, whether you’re a self-employed business person, or you get a PAYG. When you speak to your clients is there a sort of understanding of cash flow and how cash flow gives you capacity to secure finance and helps you manage those times where you might not, as investors, you might not be getting rents and stuff?

Is this a concept that most people understand from sort of a newbie perspective? You spoke about how your mum, you had a good conversation or discussion from a very young age about money. I think a lot of people are uneducated about money or they're scared of money. Talking about money is a good thing and understanding cash flow is a good thing. Do you think the investors that come to you, if they're on their first property, do you reckon they've got the sophistication to understand those concepts?

Todd Hunter: Probably not to the same. Some do and I've got some clients that are very good savers and who understand all those philosophies very well. There are a lot of people now that – it's like everyone likes to have, they get their dog washed and cleaned, they get their car washed, their house gets cleaned, etc. Then they have a mortgage broker for their finances and now they have a buyer’s agent to help them with their property. It's not a bad thing if you’re using the right services. I think that if we don't understand it we just farm it out to somebody else. There's a lot of that that goes on. In relation to the cash flow side of things. I do all of my numbers for my own portfolio at nine per cent. If I can't afford my portfolio at nine per cent, then I don't buy the next property.

Phil Tarrant: This is the thing that you can control. We talked a little bit before about rates going up or down. You can control your capacity to pay that, by the way that you look at your serviceability?

Todd Hunter: Correct.

Phil Tarrant: That's a very important thing.

Todd Hunter: I say that to clients. “You should be looking at this at nine per cent, not at six or six and half.” Six and a half is the average interest rate that we've had over a long-term period. Is it going to get back there? Well, what's the average, say ‘yes’ is the answer to that and probably go beyond at some stage. We haven't seen anything pass eight and three quarters to nine per cent for a very long time. I think I'm fairly well safe guarded by that aspect, by sitting at nine per cent.

Cash flow, yeah, is a definite big thing that you should be looking at. It's a big investment. You need to protect yourself. Going financially bankrupt or crippled is not something that you definitely want to go down that path at all.

Phil Tarrant: It can hurt a lot of people.

Andy Scott: Todd, you spoke there about the first property you ever bought there in Cronulla. You said you bought it for a home?

Todd Hunter: Yes.

Andy Scott: When you first moved in. Obviously 3,001 houses down the track, you've obviously picked up a lot since those early days. I suppose if there was one lesson or one sort of absolute call thing that Todd today would tell Todd of those years ago about property investing, what do you think that would be?

Andy Scott: He's got nothing.

Phil Tarrant: He's shaking his head. When did you work out you wanted to make property a career?

Todd Hunter: I think I was 26.

Phil Tarrant: Ok. What were you doing before that? Before you did property? You were sort of in the game doing stuff?

Todd Hunter: I was a tyre fitter.

Phil Tarrant: Yeah?

Todd Hunter: Yeah. I was racing motorbikes, I was racing jet skis and I knew how to change ties. I was in there helping mum and dad in the shop and dad goes, ‘Go and become a tyre fitter, you know how to change tyres.’ So that's what I did when I left school. I wasn't allowed to go to schoolies. Mum said ‘You’re not going to schoolies, nope, you’re going to get a job, because come January there's going to be 100,000 kids trying to get a job’. She goes ‘If you go now you’re going to beat them by six weeks’.

Phil Tarrant: Good counsel. Having an income helped you get into property and understand property and get immersed within it. From that you learned a lot of key skills, obviously. I guess going back to Andy's question about ‘What would you tell yourself if you could go back in time?’ You're obviously passionate about property. You love property. Whenever we see you we talk about property, amongst other things. Property is what you’re exceptionally good at and you've built a very successful business around it. What are sort of the key tenents about what you do and how you approach either buying your own properties or how you approach buying other people's properties? What is sort of your key tip that you can give our listeners about whether it's getting started in property or becoming an investor with multiple properties – what is your one piece of gem information that we can take away from this and go, ‘I'm going to start doing that’?

Todd Hunter: I look for the complete opposite. I don't have that chic mentality. I look at the places where nobody else does. For me, buying property, making money in property is actually buying it cheap. You can't buy property cheap in a recovering, and a good, or a rising market. You need to go to great places that are just completely dead as part of their property cycle, and buy, and hold, and work from there.

Andy Scott: Todd, we literally could sit around talking all day to you mate. Unfortunately, we've only got so much tape in the tape machine. Mate, I really do appreciate you coming in mate and having a chat with us. Especially so early in the year. That's about all we've got time for for this week. Look, obviously guys, you can find out everything we've been talking about and a lot, lot more at www.smartpropertyinvestment.com.au. If there's anything you want to talk to the team about or me in particular please do drop me an email on [email protected]. It pretty much only remains for me to say Phil, thank you for your time today.

Phil Tarrant: Thanks mate.

Andy Scott: Say goodbye.

Phil Tarrant: Goodbye.

Andy Scott: Todd, thank you for your time today.

Todd Hunter: Thank you. Thanks for inviting me in.

Andy Scott: Say goodbye.

Todd Hunter: Goodbye.

Andy Scott: This is me saying goodbye. Cheers guys. Speak to you next week.