There are 3 main stages to property investing. We look at them in detail and give tips on how to make the most of each stage.
Interviewer: There are three major stages of a property investor’s life cycle if they’re aiming for financial freedom. The first stage is accumulation where you’re accumulating properties and growing your portfolio. Then you’re consolidating your portfolio and adding value. And then, you get to enjoy it and live the lifestyle, which is the third part.
So today I have with me Ben [Averingham 00:00:19], my [advisation 00:00:20] of choice from Panton Property. And we’re going to go through these three different stages and what you can look at doing in these stages to help you be more successful with your property investment. So, hey Ben! Thanks for coming on today.
Ben: Thank you. As flaky as it sounds I’m actually pumped and excited about this episode. This is cool stuff for me.
Interviewer: Yeah, well this is an exciting topic. I love mapping it out more step-by-step approach to actually achieving financial freedom rather than…I guess what we usually talk about, which is have your goal, what’s the next step towards that goal…but that’s as far as we get…so it’d be fun to map out the journey and I know you’ve been through this journey yourself or are still going through it, and so you’ll be able to provide people with a lot of insight into things that they can do.
We’re assuming with this episode that your goal is financial freedom, and that will look different for different people, but generally that means a set amount of income per year coming in passively through your property investments.
So we’re not talking about having a billion dollars in the bank or even having 10 million dollars in the bank, we’re talking about getting to the point where you’ve got more income coming in than you’re actually spending in expenses so you can live indefinitely. You can play golf. You can go to the beach. You can do whatever without having to work. So I just wanted to set that at the start so people know what we’re talking about.
Obviously, to achieve financial freedom through property and to get to the third stage, which is lifestyle, you first got to get some properties, right?
Ben: Yeah. A lot of people just want the lifestyle, myself included, but there’s a price that has to go through unfortunately before that.
Interviewer: Yeah, so stage number one is the accumulation phase. So, if you want to talk us through that then.
Ben: Yeah so the accumulation phase is where 90% of the hard work is going to be. The way that I think about accumulation for me personally when I was doing it…and I’ve just gone through my first accumulation and consolidation phase and I’m back to accumulation again…I think about accumulation like a massive plane trying to take off a runway and it takes a huge amount of energy to get off the ground, but once it’s in the air it’s just minor tweaks to actually get to where you want to be. It’s a lot easier.
The accumulation phase is really where you get confident at identifying the right type of property.
You get your strategy in place, and then once that stuff’s done you just stop thinking about it and you just, like your email the other day that you sent out to me and some other people that subscribe to you, you just get on with your shit and focus on doing stuff instead of talking about doing stuff, planning to do stuff, or just planning because you enjoy planning and never actually starting anything.
Interviewer: Yeah, because the strategy, and setting your strategy, and thinking about how you’re going to invest is really exciting but really it’s not that that’s going to move you forward. The goal is to create a strategy…have a goal, create a strategy, set that strategy, and then just start doing the work.
That’s going to move you towards your goal. So we will always talk about…you have your strategy, what’s the next property to get you towards that…but really the accumulation phase is going to be multiple properties and so it does make sense to actually map that out…how many properties are you going to need to buy, what are they going to look at, et cetera…before you start purchasing.
But, what sort of properties do you think people should look at in the accumulation phase?
Ben: If you want to do this as quickly as possible…and as quickly as possible in my mind-
Interviewer: So like six months?
Ben: -if you’re very aggressive…Yeah-
Interviewer: Three weeks?
Ben: By quick, I mean 10 to 20 years. People are probably just like I’m never listening to this dude again.
Interviewer: But quick 10 years is a good time frame. To achieve financial freedom in 10 years, and then you’ve got the rest of your life to live and not worry about it…that’s pretty good.
Ben: Without going insane and taking on a huge amount of risk, 10 years would be really aggressive, fifteen years is super achievable in my mind. And we’re talking about replacing your current income, so again, that depends…the activity you need to do is dependent on your income or your expectations for passive income in the future. Fifty grand is obviously going to be a hell of a lot easier to replace than three hundred grand and I know there’s people earning both on this video right now.
Interviewer: Yeah. One of the big things that I want to say about the accumulation phase is often when people will go buying a property, they’re just looking at the property as it stands now, and they might be thinking “oh yeah the market’s going to grow and how much can I make by buying this property and getting growth in the market.”
But something that we’ll cover more in the consolidation is that if you actually purchase property now that has potential in the future to do things…so that might be increasing its value through renovation, it might be increasing its cash flow by splitting it up into dual occupancy or putting a granny flat on the back…Buying these properties that have options to increase the cash flow or increase the value in the future will really pay dividends down the line because when you’re focused on the accumulation phase you don’t have a lot of time to be renovating properties or adding heaps of value to your properties…you’re out there buying properties…but down the line you’re going to want to do that, and so it’s good, just when you’re looking at properties, to think “Okay what could I do with this in the future. Does it have potential.”
Ben: That’s actually a really good point. I say this to clients all the time. I need two reasons why you would renovate a property. One, to sell the property. Two, because you cannot borrow any money, you cannot save another deposit. You need to manufacture some growth to release equity for another deposit, for another property. Outside of that, all I would ever do is the maintenance stuff: paint, carpet.
Ben: Because that’s more than enough to get a great tenant in then. People renovate properties because…I don’t know…I used to renovate properties and I’m like…I renovated the property for my own ego so it’d look nice for me and then my tenants trashed it and by the time a valuer came around it was two years later and the value was gone anyway.
Ben: So, if you think about that, in accumulation phase unless you need to renovate because you physically need to keep moving forward, don’t touch the property. Your time in accumulation is actually spent buying stuff, and you made a really good point about when you go into consolidation having property you can add value. If you just want to buy and hold and sit. That’s cool you will achieve financial independence in 20 years because I think being pretty conservative Australian property should over a 20 year period maybe go up by 5% per year, so it will double in value over 20 years, maybe.
But, if you wanted to be a bit more aggressive and do it in 10 or 15 you really have to buy property where, if it’s only going to go up by 5% per year for 10 years, or 50% growth, then you’ve got to find a way to add another 50% of value, and that could be through buying well, as you said, renovations, bedrooms, bathrooms, splitters, granny flats, all of that stuff really helps over time. You’re going to have to be creative to do it in ten years because the market is just not going to do the heavy lifting for you, unless you bought it 74 years ago.
And then every property’s…
Interviewer: Well something to think about as well is that, obviously like the last video where we talked about how analysts got it completely wrong we can’t necessarily predict the market…and if something does happen and the market does stagnate or go backwards having the opportunity to add value, to regain what you’ve lost or to grow your property even if the market’s not growing…is a great thing to have in your back pocket as well.
You don’t really want to buy a property where everything’s been done…well you can, it just depends on your strategy. I think we just prefer having multiple avenues to make money rather than just one being the market going up.
Ben: Yeah, that’s a really valid point because in that year that’s going to come in the next 10 or 20 years or period of years, it’s going to get back…definitely going to go sideways…it’s in that time that you need to access more money, that you definitely want to have a strategy to add 5, 10, 20 percent worth of value through doing some smart stuff.
So, accumulation is a really shitty stage to be in as an investor from my personal experience. It’s super hard work. The banks or your mortgage broker is always telling you to wait, or you’ve got to do this, or you’ve got to do that, because in accumulation phase you’re going to hit your servicing limit, you’re going to hit your ceiling. It’s time consuming…you’ve got to pound the pavement, you’ve got to be spending that time doing the research, looking for properties, it’s…
Interviewer: Talking to real estate agents.
Ben: It’s freaking painful man.
Interviewer: Going to open for inspections. All this sort of stuff.
Ben: Having to work with real estate agents, seriously that’s pain in and of itself regardless of anything else you’ve got to do.
Ben: It’s the hardest time that you’re going to go through but it’s the most important time as well.
Interviewer: So accumulation phase can bleed into consolidation and they can overlap. Most investors go through “Okay I’m accumulating properties,” and you might have a set amount of properties that you need to buy…That’s going to depend on your strategy. It’s going to depend on your goal level of income, how much you think each property’s going to grow, how you’re going to access the money, et cetera.
There’s a lot of aspects that go into how many properties you need to buy, so we’re not going to set an expectation of 10 in 10 years or anything like that. Every investor’s going to be different.
So we’ll go through our accumulation phase where we’re working with the banks, we’re buying properties, et cetera. We’re then moving into consolidation phase where we feel like we have enough properties or almost enough properties that we want to start consolidating this. What does consolidation phase look like?
Ben: Can I just take one step back to accumulation really quickly?
Ben: No. No you cannot, we’re done with that bull.
Interviewer: Yeah, no we can’t talk about property. Yeah, go.
Ben: No more accumulation.
Seriously, in accumulation, that is the time to have a budget. That is the time to work on your career as hard as you’re working on your investing so you can increase your income. That’s the time to delay having a baby for 12 months so that you’ve got your wife’s secondary income, which you and I definitely didn’t do because we’re young with heaps of kids.
Interviewer: I did not agree with that. I love my kids. I vote kids young, but anyway.
Ben: I had kids young as well. I had kids in accumulation it’s just taking me a little bit longer to accumulate because we lost income for a period of time. So I’m talking about-
Interviewer: Well when you have dependents…when you’re like me and you go single income with three dependents, plus your wife becomes a dependent because she’s not working.
Ben: Banks don’t want to touch you.
Interviewer: It gets a lot harder.
Ben: So like everything in perspective, obviously you don’t delay everything in your life, you still do your trips, you have your family. But if you could past that stuff, if you’re one of the people at that stage while you’re listening to this then, you know, whatever.
Interviewer: I just derailed your whole argument didn’t I?
Ben: It doesn’t even make sense to me anymore now that you said that.
Interviewer: I just like kids too much man. I don’t mind waiting. I’m not an impulsive person. But I think what you’re trying to say is that’s the time to not cool down, work hard both on your property investing and your career, because you’re going to have limitations with what you can borrow. So, if you’re working on your career, increasing income there…you’re continuing to save deposits, you’re not relying on the properties to go up in value to access to deposits.
Interviewer: It’s just going to be so much easier. Work hard during that period, whether or not you have kids we will leave off to you. It’s a pretty personal decision.
Ben: Everyone on this call is like “Ben hates children.” I love kids sorry.
Interviewer: Yeah you like them. You’re with two kids already, so…
Ben: Yeah it’s cool. With one on the way.
Ben: Yeah, cool. So, when we move into consolidation…that’s the fun stage for me because that’s the time when you go from interest on your loans to, for me, principal and interest, you actually start saving debt on the properties going backwards. You’ve owned the property long enough to have seen a little bit of growth or maybe some really good growth if you’ve picked the market well. It’s that fun stage where you get to be creative and go build a granny flat, and get extra income so that it’s passive or really passive.
You do a renovation and that’s a whole experience and a bit of fun, or maybe it held a lot of pain for you, depending on how you look at it as well.
Ben: That’s the fun stage. That’s when you’ve done the hard work, and now it’s just about reducing debt, putting yourself in a really stable low-risk position. Just sitting and doing a bit of the waiting game but adding value at the same time.
Interviewer: Yeah, and that’s where it really pays off if you bought well in the accumulation phase. When you’re consolidating, now that…let’s say, someone had six properties or something like that…now rather than spending all their time with real estate agents, they can spend time looking at their six properties and say “What are the opportunities in these properties? What do I want to tackle first?” Because you can only do so much at a time.
Maybe you want to renovate to increase value of the property, or maybe you want to increase the cash flow so you can convert to principal and interest, and still be positive cash flow, and money coming into your pocket.
So there’s a lot of opportunities that you can do in consolidation phase to both increase the value of your portfolio as a whole, as well as increase your cash flow and start paying down some of that debt. And man, it feels good to pay down debt, right?
Ben: I absolutely love it. I can’t speak for everyone, because everyone’s got a different strategy, but mine was…I accumulated, I added value, I sold some…to repay some more debt or to buy a better property because you learn as you go through the process too…and too many people hold on to properties that aren’t really serving them over the next 10 years…Now what I’m doing that I’m in the second stage of accumulation slash consolidation, is, I’m not really renovating, I’m just getting them nice enough and maintained…I’m actually going and adding all the granny flats this year and next year.
That’s my plan because two to three hundred bucks a week of additional income per property, when you’re only spending a hundred grand to get that income…
Interviewer: I know, that’s so good bro.
Ben: It’s amazing. Just park that money in the offset account or pay down the debt. Have some lifestyle, whatever it is that you wanted to do. It’s really powerful, and those chunks of extra income really help get you ready for that next stage…whether it’s to buy more or to just eliminate debt.
Interviewer: Yeah, well consolidation phase might happen over the span of a couple years for someone who’s really aggressive and just wants to renovate, increase the value, sell some, and pay off their debt. Or it might spend 10 years where people are getting…they’re getting some income from their properties so they can work part-time, or they’re continuing to work anyway but they’re paying down debt. They’re feeling really good about how their investments are progressing.
I think I agree with you. That’s the fun stage.Less risk involved because you’re just doing things that you know will add value or increase the income. You’re not buying property that you don’t know what’s going to happen.
Ben: It’s kind of cool as well because your future’s safeguarding yourself. Obviously the property’s grown a little bit, you’re starting to repay debt…the income’s better. You’re creating a recession-proof, or a bubble-proof portfolio in the sense that…yeah the value might go down but hopefully you have a few cards up your sleeve if it does. Worst case scenario [LVR looks 00:15:44] good, you lose a job, the portfolio pays for itself. You can start to create a bit of a buffer against each property of maybe 10 grand so that there’s some money if there’s a really rainy day for a couple years and the worst rainy days in history have lasted four or five years absolute max.
Ben: So it just feels really cool to be in a position where nothing’s going to hurt you too much moving forward.
Interviewer: Yeah, and something that some people might want to do towards the end of their consolidation phase is sell some properties, release the equity in those properties to pay down debt so you can cancel out your debt or get rid of the majority of your debt. A lot of investors like to do that. They go through the accumulation, they’ve got a lot of debt in that period, they consolidate…maybe pay down a bit, add some value, and then they sell properties and take the bulk of that income to pay off debt. So then they end up owning however many properties it is, but they own them outright, there’s no more banks involved or anything like that.
Ben: And the income consolidation, from my personal experiences, a lot of people that will be listening to this that already own their own home…that they’re either half way through accumulation or just about at the start buying more property…Once you go into consolidation, if you’ve still got debt on your own home that’s not tax-deductible that could be a really good time, if you’ve got two or three granny flats giving you 20 to 30 thousand dollars a year in passive income because interest rates are so low, to begin hardcore paying off your own home…letting those properties do what they’re going to do over the next five or ten years, and then you own your own home in ten years because you’ve got all this extra income coming into it. And then, as you said, you sell a couple of those properties to pay off a couple of the really high positive cash flow good growth properties that you still own.
You own your own home, you own a couple of other properties outright…that’s pretty bloody good.
Interviewer: And that’s where we come to phase three, which is the lifestyle phase. Just before we get that, we’ll go back to consolidation phase. Is that how Ben likes to do it? One step forward, one step back?
One of the really cool things about owning property completely outright is…you know I’ve done episodes on the potential property bubble in Australia with Steve Keen, which may or may not happen…We don’t know what’s down the road but one of the cool things about owning property outright is that even if the market crashed and property prices dropped 50%, someone still needs to live in a house and pay rent and stuff like that, so even though your net portfolio might not be worth as much, you can still often generate a significant income enough to support your lifestyle, even after that happens. That’s a really cool risk aversion thing that comes with that sort of strategy.
Ben: Absolutely, and rainy days don’t last forever. Like many things are bad and good…human nature is for things to be better at some point in the future so things do turn around again as well.
Interviewer: Now let’s move on to lifestyle.
Ben: I’ll let you roll with this one mate because you said you’ve got this balance a bit better than me so far.
Interviewer: Well lifestyle is really just you get to the point where…
Interviewer: Oh, hold on my…Can you hear my kids in the background?
Ben: She could not have come at a better time.
Interviewer: Can you show them [inaudible 00:18:51]
Child: [inaudible 00:18:52]
Interviewer: Well lifestyle is just doing the things that make you and make your family happier. Hopefully having a positive impact on the world that obviously looks different for everyone. It’s really interesting when you get to a point where you earn enough money passively through properties, or for me it was through business, that you are now in a situation where you can choose what to do with your lifestyle. I know you’re in a similar situation as well Ben.
It’s kind of a big mental shift. It’s great to have a break at first, and then you’re like “Oh I’m bored what am I doing with my life?” And so you go through that period. But then, you really get to…We’re going traveling in a van, me and my wife and my three kids are going traveling around the east coast of Australia in our van for maybe a month, maybe six months…Lifestyle is just that.
When you’re in property the work’s not going to stop completely, but you’re not going to have a lot of work. Rental managers still call you every now and then, if you’ve still got some mortgages you’ve got to make sure they’re paid, you’ve got to pay your bills on time as well. But if you follow Ben’s advice, your rental manager will do that for you anyway.
That’s all lifestyle means to me. What does it mean to you?
Ben: I actually watched this amazing thing because part of you and I having access to cool stuff and interesting convos with different people, sharing info is a good thing too.
I’ve told you about this little video I watched the other night by Wayne Dyer called “From Ambition to Meaning.” It really resonated with me and my wife, we just had a massive realization and it was already a part of the path that we’ve been on for the last 12 months because working hard is awesome, earning a bit of income is great, but we’ve got a family. I still care about my friends, my health. I love traveling.
I love starting stuff. I get a buzz from starting something new, whether it’s a reno, a granny flat, a build, or a business. That stuff is part of the enjoyable part of my life that I realized during my accumulation phase I put so much emphasis on money and property and businesses and my jobs that I forgot some of the other parts that are natural to me.
This little video that I watched, it was about an hour and a half, and I highly recommend it for anyone that’s just…looking at a different path before you’ve actually go there, pulled back the curtain and gone…I’m the same person, I’ve just sacrificed all this stuff. It’s kind of like putting meaning in your life now.
He talks about the foundation of life once you’ve got enough to live. Be in service of others and I wish I had known that 10 years ago because I’ve burnt some bridges, hustled a fair bit, did some stuff that I’m not super proud of now, but sort of glad that I did it…it’s got me to this position as well.
Lifestyle to us is really about right time with my family, meaningful, conscious present time, and then all the other cool stuff that just flows out of a good life in a fortunate financial position where we can make some pretty cool choices as well.
Interviewer: There’s a study that shows that more money will make you happy, but only up to a point. The study, I can’t remember when it was done, but it was about 75 grand a year US. So maybe a 100 grand a year Australian or something like that. It makes you happy up to a point, because I remember when I didn’t have much money…how much me and my wife would fight over money and finances.
So, when you get to that point it does make you happy, but after that it doesn’t really make you much happier. For me, I’ve taken a really intentional step to do things that don’t earn me heaps of money. I’m not chasing money, I’m chasing meaning in my life and so we’ll just leave people with that…that hopefully they can get through the accumulation, consolidation, back to accumulation…accumulation, consolidation, lifestyle, so that they can enjoy the property journey while you’re at it.
Yes it’s hard, yes there’s a lot of work that goes into it, but it’s a great challenge and it’s a lot of fun as well…and can lead you to the eventual point of being able to have the lifestyle that you want and do what you want. Doesn’t have to be giant yachts or anything like that…it can just be…
Ben: [inaudible 00:23:17] It’s funny because it can give you a lot of purpose outside of work as well. There’s a lot of people, myself included, that didn’t enjoy the work that I was doing for other people…but I needed to do it to do what I’ve done, and property gave me a bit of a purpose outside of work as well that was like…I’ve got my property business going on, on the side. It’s creating passive income and setting me up.
It’s like every property is another employee, working for me. That was kind of cool that I had that. Then, went to work and learned the skills and did what I had to do to keep the [servicability 00:23:51] up type of thing.
Interviewer: So, wherever you’re at in your journey we wish you the absolute best. If you’re in the accumulation phase and you need some help, then Ben is offering free strategy sessions to on property listeners. If you go to on property dot com dot au forward slash session you can book in a time with Ben, and he’ll talk through…okay, what are your goals, when do you want to achieve financial freedom, what are the steps and what are the kind of properties you need to buy in order to get there…so if that’s something that you need help with, then that’s definitely something I recommend.
Go to onproperty.com.au/session, and then if you are looking for someone to help you buy the right properties in the right areas, then Ben’s a buyer’s agent and on that strategy session you can talk about working together and whether or not it’s a good fit. But thanks so much for coming on today Ben and talking about the three different phases of the property journey. My favorite phase is number three. Which I think will be everyone’s phase as well, but yeah we wish you guys the absolute best in your property journey, and until next time, stay positive.