Whether buying in a rising or declining market you want to reduce your risk when investing in property. Here are 4 proven ways to reduce your risk when investing in property.
Free Strategy Session – https://onproperty.com.au/session/
Suburb Research Course – https://onproperty.com.au/suburb/
0:00 – Introduction
1:05 – The market we are currently in
1:47 – Property goes through cycles, as do all markets
2:45 – #1: Invest in the right market cycle
3:58 – A great tool for learning which market is in which cycle
5:28 – Ryan’s moving back to Sydney 🙁
6:09 – Another great market report to look at
8:22 – 3 practical ways to reduce your risk at a property level
9:47 – #2: Invest for long term capital growth
11:47 – Taking a longer term view
13:15 – #3: Invest for positive cash flow
14:45 – Life risks you need to take into account
17:45 – You have to work hard to get a property with BOTH positive cash flow and capital growth
18:20 – #4: Invest for manufactured growth
20:26 – You can get both equity growth and/or cash flow growth opportunities
22:05 – By reducing your risk you’re also maximising your chance of a good return
23:10 – Special offer to help you create a strategy that reduces your risk
24:08 – The risks of not investing
25:00 – Have a 15-20 year plan
27:41 – What are you going to do with this advice?
Resources Mentioned in this Video
Suburb Research Course – https://onproperty.com.au/suburb/
First Time Property Investor’s Guide To Financial Freedom – https://www.youtube.com/watch?v=aaJ1DGaeTQY&list=PLHQSDRgRmOaj1LKGXskOA5a_6ye_JXxM_
When investing in property, whether you’re in a growth market or in a more stable or declining market, you’re going to want to reduce your risk as much as possible because obviously we don’t want downside when we’re investing. So in this episode we want to talk about the four ways to reduce your risk when investing in property. Hi, I’m Ryan from on property.com data. You helping you achieve financial freedom. I’m joined by buyers agent Ben Everingham from pumped on property. Ben has helped his clients by about $350, million dollars worth of property and is extremely risk adverse almost too much.
The advice I would give you maybe just add a bit of risk onto that. Yeah, I like yet and I don’t like risk too much. I think my accountant said it best when he said, you know, the clients that he’s gotten his books, I am by far the lowest risk client that he has and if it was him with the amount of money that event in the last few years, he would be. I’m buying up right now. His exact words. I’m like, Nah man, I’m just paying off debt
and I think as well, given the market that would kindly in looking at the way that Sydney has declined and that Melbourne’s reached peak and market is Melbourne centric funding yet and started declining according to Herron, todd white now. Okay. So looking at the risk profile of the market, um, I think this is a very important topic to cover that when you’re investing, obviously we want to look at the upside and we want to look at how to achieve financial freedom, but then we also want to look at both how to minimize our downside risk as well as how to handle. If a downside does happen, how are we going to invest in such a way that that’s not going to send us bankrupt? Because as we know, markets go in cycles, property goes up, properties go down, but if you can weather that storm longterm, yeah,
can achieve success. The hardest thing that I’ve had to personally stomach in the last 10 years learning as an investor because I started to buy basically in the GFC in Australia, are effectively. So the market’s sentiment was significantly worse than it feels right now and what I’ve had to acknowledge and accept is that property, like share stocks, crypto gulled businesses go through cycles and a part of every cycle is an upside phase. Part of every cycle is a downside phase and a lot of people just bury their heads in the sand like they’ve done in Sydney and Melbourne. You know, how many years, three, three and a half years of recorded video footage. Have I been saying stop buying Sydney and Melbourne. It is going to peak in 2017. It’s like, but people continue to buy it because Australians love whipping in backing that winter. And I just feel like it’s so clear to people that understand this stuff, how to time markets, but it is, you know, it was probably the first of the four things would. That is the
first of the four, which is timing the market. And often one of the best times to buy is when sentiment is down and when the market’s down, it’s the only time to buy here. Really sophisticated patient investor. Where you were saying that a lot of the people
you’re talking to now, given that market sentiment is kind of down, the sophisticated investors have come out of the woodwork and then now looking at the property market again where they had disappeared over the last year when the market was running hot. It’s so weird. Like I never thought about it until we were just chatting off camera. Like obviously in a business where I talked to a thousand investors a year. I get people that are just starting out to people that are worth tens of millions of dollars start thing and we get to help them at their different stage and for the last 18 months a lot of these sophisticated investors that are in four, six, 10, 12 properties just weren’t contacting us anymore because the market in Sydney and Melbourne riding so hot and in the last couple of months I’ve noticed all of our clients are very, very sophisticated coming back into the market.
And it’s kind of Nice to say that like there’s a difference between sentiment and severe Dan side and people need to understand the difference there. So great tool for you guys, if you haven’t checked it out already, is the Herron Todd white month in review report which will show you a property clock and we’ll show you a basically an estimate of where in the cycle current markets are, so we’ll show you where Sydney and Melbourne is, Brisbane Cetera and so choosing a market that has gone through or that is on the property clock where it’s at the bottom or is in a rising market. That’s generally better than buying something that’s at the peak of market or that’s currently in a declining market. The problem with most investors think about anyone that’s been buying however for the last three years, Sydney or Melbourne is way love to back a winner and we look at short.
It’s called performance bias in investing and we look at the short term performance of the market going up and we think that that’s going to be the future and that’s the past. But the reality is when you start looking at the longterm data, you realize that Sydney, Melbourne, and Brisbane have all over a 50 period, done roughly the same amount of growth. And so when Sydney and Melbourne had gone up 100 percent in 10 years and Brisbane’s not gone up by 25 percent, it kind of makes one market look significantly more interesting to me than potentially the other two, for example. So because Brisbane hasn’t had that intense growth and the hour reduction, it’s in a state where it’s more affordable to live in Brisbane compared to Sydney and Melbourne, which is why more people are moving to southeast Queensland than anywhere else in Australia right now in terms of Bazi.
So it’s just a mass migration. People are being forced north because it’s so expensive to live for some people down there. Yeah, well I’m actually about to move back to Sydney and you are doing there. I’m doing the reversal and and looking at what I can get up here versus what I can get down in Sydney is. It’s depressing. Let’s just impressing hasn’t talked to you about this. It’s very depressing. Moving from a really nice house into maybe a two bedroom unit or something like that with three kids at the same price is not super exciting. But yeah, choosing the right market cycle and choosing
the right market that’s in it’s right timing is going to reduce your risk there than biomarker that’s overheated or something like that.
So that Herron, todd white reports are really cool resource. There’s also the call logic, 10 minute Australian housing market update, which you can get via video each month. You can just subscribe, waking, jump on Youtube and type in core logic Margaret report. And it’s just a really nice way of really quickly digesting information to give you an idea. Yeah. You know, there’s not ever a great time to buy. Like if there was a great time, I suppose it would be at the very bottom of every global recession. Um, and if you’re interested in that sort of stuff, you can read Philando [inaudible] work for Fred Harrison’s. But the reality is, you know, I’ll look at newspaper articles from like 1988 from like 2007 and it’s like, you know, property prices can’t get any more expensive than ever going to be worth anything more. The whole world’s falling on its head.
The dotcom boom, the crypto and crash feels very similar for anyone that knows their history. Like it’s pretty clear to say like these types of events continually unfolded roundabout, so certain stages of the cycle, but you know, most of us don’t now a history or don’t do that research or don’t look at the updates. And so when the media scares the shit out of us, we stopped doing stuff and then when it all feels good again, which is the wrong time, Dubai, we all start doing stuff again and I wish I could like I wish I could download like some of the things that I’ve learned into every investor’s head or I could like talk to the best investors in the world and download what they’ve learned to understand that patients and timing at everything and to buy when others are scared into, you know, be shit scared when others are being, you know, really great.
And neither of us have a crystal ball and I’m guessing you don’t have a crystal ball either. That tells you exactly what the property market’s going to do. So when you are investing, your are taking a level of risks. So that’s what we’re talking about, reducing risks, not removing it entirely. And so choosing a property, uh, choosing a market that’s in the right cycle can also help you in terms of macro cycles. So let’s say you’re choosing a market that’s on the rise versus one that’s in decline, but then something happens to the entire Australian housing market. If you’ve chosen your right market, then your reduction is likely going to be less than if you’ve chosen a market that was waiting over, heated to begin with. So even though your downside risk can be lowered by doing that, the next three tips are going to be even more practical than that.
And so there are three things that we’ve kind of hopped on and talked about a lot in the past and it’s really just the best way to invest. And that’s the look for properties where you’re going to get good longterm capital growth. So you’re in good stable areas that have that long term demand your properties with cashflow, which can help see you through so many difficult times. And then properties where you can actually manufacture growth. So what you want to do when you’re investing is to actually have multiple to make money and also not getting the position where you can’t afford the property and you have to sell out at a loss or sell out before you get the growth you want. Because a lot of the downside risk in a property can be managed with good cash flow. If you’ve got good cash flow that covers your mortgage through good times and bad.
The downside risk is there’ll be a flat period of time, you know, like anyone that bought in Brisbane for the last 10 years and hasn’t seen growth. Um, you know, if you had good cash flow during that period of time, we might’ve been able to stomach holding it, um, versus, you know, people that might be for. So for the next couple of years, because interest rates rise a little bit because they lose a job or something like that that are on a property that’s costing them five or 600 bucks a week. How’d, you know? They’re the types of people that can come on staff really, really quickly, so let’s go into detail into those three things. The first one is choosing the right area to invest in to get that good solid longterm capital growth, and so this is something that we both have done a lot of. I’ve got a course on it.
You obviously do it with all of your clients, identifying those highest quality suburbs that are set for growth in an area so you’ve already chosen the right market based on timing. Now choosing the right suburb within that market is key to both maximize your future growth as well as minimize your risk as well. So if you’re buying a good quality suburb that has good at longterm potential growth, then you’re less likely to go backward and exactly like you know, and it’s not rocket science needs areas like we’re talking the quality pockets of, you know, whichever markets at the right time of Sydney, Melbourne and Brisbane, closer to the city. Nice big blocks of land in the premium areas of the suburb where people want to live in suburbs where there is nice high income and low percentages of renters with really strong demand for rentals in that suburb as well, so it kind of again cuts down or buffers you against some of that downside risk associated with whatever else you’re doing and we’ve done many videos on exactly how to research suburbs so we won’t go into full detail here because that’ll take hours, but I’ll leave the links to that in the description down below.
Or if you want a more in depth course where you can learn how to do that. Then go to [inaudible] dot com dot EU suburb and you can check out that course and go through. Some of our research is all about comparing suburbs to each other to understand what the best suburbs in the area are and you have to look at a variety of indicators to do that. Home ownership percentage of renters, vacancy rates. We can go on and on about the different things, but buying the right suburbs is going to be key. So key to reducing your risks because if you buy in a suburb that is overpriced or that doesn’t have demand that people won’t want to live there long term, then that’s just going to increase your risk. I think something you mentioned that so important, just then about reducing the downside or longterm risk associated
with the property is just taking a longer term view. Like I’ve said to you this before off camera, I do not even look at the performance of my properties anymore because I just don’t care. Like I know that I’m investing in the right areas for the next 15 to 20 years and I truly believe that Sydney, Melbourne, and Brisbane all have the potential to do at least four point eight percent a year for the next 15 and because wages have sat flat, but property prices have skyrocketed. What was an eight percent return on a property when it was much more affordable per year can still be achieved with the leverage in property. If I’m only getting a four percent return that my property prices so much more expensive compared to the average wage, I’m still getting great great gains from a capital perspective long term and a lot of investors, you know, might’ve moved out of poverty because they’re like, well, it’s not going to double every seven years anymore. That’s cool. When like the average salary was, you know, two times the payoff the property outright, but now that it’s 10 times in Sydney, you don’t need a property doubles every seven years to achieve an amazing financial result in the future. You just need to own a piece of that property, acknowledged that it’s a longterm strategy and then hold it through the shitty and the good times and recognize that it is all going to be fine.
Yeah, and it’s very difficult to do that when you’re in a negative cashflow position. So you’re the only negative cashflow position where you’re paying money out of your own pocket every single month to keep that property of float and then the market goes backwards. Then you’re going to be watching it, going to be hating that because you’re losing money, but if you’re in a positive cashflow situation, because rents and prices of property aren’t exactly aligned because prices are property, do we relied heavily on borrowing capacity and how much people can borrow and the cost of borrowing. Whereas rents rely more directly with how much people earn. Um, they’re not exactly always in line. So if you can be in a situation where your positive cash flow or even got to the point where you are, where you have, you’ve reduced your debt, so you’re positive cash flow, then you can see out those times and you’re still making money. Even though the value of the asset has gone down. You’re still making money every single month through positive cash flow
and you can see yourself through that period and it might not be like this crazy positive cashflow that you can leave your job on or cut down at work. You know, that will come in the future when you end up paying off the debt on the properties outright. What we’re talking about is just being able to hold through a shitty time or a time in your life when you lose your job or a time when interest rates rise quicker than you think they might have, and all of those things are in inevitable. Like if you know enough about your history, the only thing I know about markets is anything can happen, so never write off something. You know what I mean?
Well, and the thing is, we’ve only talked about risk in terms of market risk, but there’s also risks in terms of life risks and things that can happen in your life. Ben mentioned them. If you lose your job, for example, and you can no longer afford to pay your properties, that’s a risk that you need to take into account that your income might not always be what it is. And so to invest in a property that has positive cashflow, well, you’re effectively taking that risk off the table because the property can pay for itself. There’s always the risk of, um, you know, relationships breaking up or things happening to family members that can affect your life. There’s so many personal risks as well that don’t really get talked about, but if you’re in a negatively geared situation, one of those personal things happen and you need cash.
Then if a property is bleeding you dry, you’re going to need to sell that in order to live and to get by. But if that property is actually an income producing asset, like I have income producing assets in terms of my online businesses and when things get tough, that’s like, well I could sell them and liquidates and cash, but they’re income producing and that kind of funding our lives through this hard time. So what’s the point in getting rid of it? I’ll just see this through and then they’ll continue to do that. So that can be. Yeah. Another way to think about risk and solutions.
Speed. Where have. I love this concept of cashflow. Like I’ve, I’ve personally never held a property that costs me money wait to week, which wasn’t my choice, which wasn’t my choice. Like obviously my own homes cost me money. Um, I’ve had investment properties where I’ve had businesses in them and therefore I’m not getting cashflow or I built houses and granny flats and so during that construction phase on obviously negative cashflow, but everything that I try and own should provide me with a surplus when I’m paying principal plus interest, then you know, I’m fortunate that I’ve always put down slightly larger deposits of 20 percent. So it has really helped balance out cash flow. I’ve also had a personal preference towards newer style property in recent years because of the tax benefits of holding it but not at the expensive. The cashflow and the capital gains and the ability to add value.
It’s just been a nice to have, not unnecessary to have. And I think, you know, that’s one thing that always gives me security about my portfolio and my future is regardless of what happens today, we can always pivot. If you’ve got three to six months to make a decision, cashflow was then you can always fix most problems in your life. But if you don’t have that breathing space, you know, that’s where you can really come on stock. And that’s why positive cashflow portfolio I liked Ryan’s been talking about for five years is so important, particularly in times like this in Sydney and Melbourne. If you had a property that you bought five years ago for 600 k and build a granny flat on it for 120 grand and you’re getting a thousand bucks a week today in rent and you still have 700,000 bucks on the property, happy days. But if you bought a property last year worth a million bucks, that’s only running for 500 today. That’s a tough position to be in. Especially if the value of the property is going down and to get capital growth and positive cashflow isn’t easy and you can’t
just go out and buy any property to get that. It takes diligence. It takes research and you may need to create the cashflow through building something like a granny flat or doing a renovation in order to get it. But if you choose not to settle for one or the other, but you choose to find the property that can deliver both, then you’re going to reduce your risk. So it’s like that research time and investing into that and making sure you’re making the right decision in the beginning will reduce your risk so they’re not everywhere, but they are out there and that leads us to the last point, point number four, and that’s a property where you have the opportunity to manufacture growth. So this can be done in a number of different ways. Manufacturing growth can be as simple as buying property under market value. So you’re creating growth by the fact that the property is worth more than you bought it for.
And I just want to interrupt on that. Sorry, but hot tip, there’s going to be some amazing deals over the next two years. Like for smart people, this is a once in a 10 year buying opportunity coming out right now to buy under market value. Fuck yeah. Absolute deals around right now, if you know what you’re looking for and why are there so many deals around now because the 70 to 80 percent of people that are influenced by the media that don’t free thank uh, sitting on the sidelines right now. We’re sophisticated investors like you. And I am using this as an opportunity to go, okay, this looks interesting whether it’s building that business, whether it’s buying more assets. It is a really, really, really interesting time when a lot of people are sitting on their hands because they feel like this, like the earth is going to stop revolving around the sun just because prices have dropped by seven percent in Sydney and five percent in Melbourne. And they can’t differentiate the stage of the cycle because they don’t know the history well enough to, you know, we don’t have a crystal ball, but I don’t think it’s going to be anywhere near as bad as what the media is promoting it today. And if it is that bad, then if you’ve got some equity or some cash, you know, it’s going to be buying seasons mandarin better to buy.
Um, so you can manufacture growth by buying under market value or you can manufacture growth through things like renovation. So that could be as simple as a small cosmetic renovation where you spruce up the internals of the property, some paints and fresh carpet, uh, improving the kitchen and bathroom. That can really help to increase the value of a property. It could be moving internal walls to change your property from a three bed, two, a four bedroom property at not a huge amount of costs or it could be as extreme as doing addition to the property or building a granny flat as well, so manufacturing growth can be both in equity growth or it can be growth in terms of the cashflow, so something like a granny flat at this point in time, granny flats don’t tend to add equity to a property from what we’ve seen, but they definitely add cashflow which can be a massive form of growth and put you in a really good cashflow position so you can look at both equity growth and cash flow growth opportunities for our property. And again, it’s about finding the right property when you buy it that has those opportunities. So rather than buying a property and then looking for the opportunities after find those opportunities first and buy a property with those. Okay,
so powerful because if you think about your granny flat example, like in South Australia, Wy, Queensland, where you can legally do this right now, New South Wales, you might go and spend $120,000 on your granny flat in almost all instances, depending on the marketplace, you’re going to get somewhere between 200 and 500 bucks a week in rent. Like worst case scenario, you’re getting close to a 10 percent return. Best case scenario, you’re getting significant upside over 20 percent return. They’re like, that’s where can you find that in the property market, you can’t find that anywhere. It’s very difficult if it exists at all and you know, if you’re more of an investor like I am, that doesn’t necessarily want to go in and get my hands dirty because I want that Secu are lower maintenance investment upfront, you know, by with that upside and then maybe 12 months, six months, five years, 10 years later down the line, you come back to it and look at that stuff because it doesn’t all have to be done in day one. It’s just nice to have those aces up your sleeve if the market forces you to pull them out. Yeah,
and so then you have the four different ways you can reduce your risk when investing. We’re not saying this because we think the market’s going to crash. We’re saying this because whether the market’s good or whether the market’s bad, you should be doing these things anyway. You should be reducing your risk and it just so happens that these four things that reduce your risk also maximize your potential upsides. So by choosing a market that’s at the right cycle of the property cycle, it’s about choosing the right market by choosing the right area and the right property within that area. By choosing a property that’s going to get you cash flow or that you can create cash flow and by manufacturing growth, you both reducing your risk and maximizing your chance of return. So it should be done in every and any market. You should be looking for these things and not settling for anything less.
No, I love that man. Like as you said, there’s upside, there’s downside. Who Cares? Just have a strategy and execute your strategy and know that it’s not gonna happen overnight, but it will dramatically change your future if you’re smart today.
Yeah, and if you need help creating a strategy that is going to lower your risk and maximize your chance of return than the team over at pumped on property are offering free strategy sessions for you guys so you can get on the phone with one of the team over there. They’ll help talk you through your situation. Where do you want to be? Where you at? Now, how can you get there in a way that suits you, suits your risk profile and suits the way that you want to invest, and then you have some next steps of what you can do to move towards those goals. And then if you decide to work with pumped on property, then that’s great, but otherwise you can go on and do it yourself. So I will leave the links in the description down below, but you can go to on property.com.edu forward slash session.
And you can learn more about that and book a time that suits you over there. I think just getting really clear on your strategy, how you want to invest is just going to help you become more confident to take those steps to invest. As we said, we don’t have a crystal ball or know what’s going to happen. I like to think about investing and thinking about all the scenarios that could happen and protecting myself against that because I know that if people don’t invest often they just blow that money away. So when you’ve got money in an account and you say, well I’m not going to invest because of the risk, you might then eventually take that money and use it to purchase a brand new car. So you’ve blown that money on a new car, which now has a higher insurance payment for it. And so you put yourself in a negative cashflow position and you’ve spent your deposit there. So because it was sitting idle and you wouldn’t invest, it’s now going in a depreciating asset. So sometimes I think, yeah, being able to reduce that risk will help you invest with confidence in any market and also help improve your upside
and just manage your own expectations. You know, nothing’s going to happen in 12 months. Most of the time, nothing happens. Investment wise within first five years, it could be amazing. Maybe hit a gold mine, maybe you don’t. Maybe the market falls out from underneath you, but I promise you in 15 to 20 years, even 10 years, you should be with the high quality long term investment that takes the full boxes. Ryan mentioned before in a much better position yourself and your family than you would be without taking action. And if I hadn’t have taken action and started to buy properties at the end of the JFC and Sydney, I wouldn’t be in this position I am today life. Everybody around him was saying it was the wrong thing to do. The media globally was smashing property and saying things would never recover. You’ve got to remember it was the worst gfc or worse depression event on paper since the Great Depression.
It was that heavy for businesses around the world, um, and it affected the stuff markets in the property markets in a major way when sentiment is really low, sometimes it’s worth taking on board because you know there might be some downside before there’s upside, but you’ve got to know the difference between a major event and a minor mid cycle event and what we’re moving into according to feel in Fred is a mid cycle event, not the full blown catastrophe where the entire world sets itself on fire for a few years before you know, ray corrects and the bad books are balanced back out because you’ve got to remember that you’re sitting here with money in your bank account today. You’ve got super in your bank account probably as well, that the government is forcing. You might have equity in your own home, you may have cash savings on the bank in a major recession event or depression.
Everybody is all in like there’s no money sitting on the sidelines. All of the businesses have buying up assets. All of the banks have led every dollar they can out. All of the governments are over leveraged. There’s just no money there, but the governments in a beautiful position in Australia right now, most Australians are in a great position financially because they’ve been sitting on the sidelines for the last. It might feel new, but most smart people have been doing nothing for 18 months now. You know what I mean? Like it’s just one of those things where there’s just all of this cash sitting outside in private equity funds around the world and governments and businesses waiting to get into the market. As soon as this longest bull run in history and the stuff marketing is over and we’re starting to feel the early shakes of it and we’ll start to see more of that next year and you know, it’s the second half of the cycle went all the monies in that you’ve really got to be aware of and we don’t have a crystal ball. I could be eating my words in five years time, you know, who knows? We’ll never know in five years time.
Yeah, but there’s always risks involved. But doing things to reduce your risk is what we’re all about. And what I’ve always been about is that you want to reduce those risks both in terms of market risks as well as the personal risks that we talked about. So take this advice on board and run with it. Don’t settle for something that doesn’t tick these boxes. Find the best opportunities out there rather than just buying anything. And that should reduce your risk in whatever market. And also hopefully maximize your chance of return. Thanks so much for watching this episode. I hope that it has been extremely helpful. While you’re here, why not go ahead and check out this mini series over there. I’ll link up over there as well as in the description down below when me and ben talk about how to reduce your risk, how to maximize your chance of return, and how to achieve financial freedom through investing in property. So go ahead, check that out. You can also find it at on-property dot com dot EU. And until next time, stay positive.