How To Invest in a Tumultuous Market
In a tumultuous time like the current Australian property market how can you invest even when you may not see that excessive short term capital growth.
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0:00 – Introduction
1:10 – Different parts of Australia grow at different rates
3:48 – “Australia declining” is isolated to just a couple of markets at the moment
6:36 – A strategy that works even in a difficult market
10:04 – The last time we got this buying opportunity was during the global financial crisis
11:15 – A long term vision allows you to take advantage of the times when sentiment is down
11:58 – Why cash flow is so important
14:00 – What makes this strategy lower risk?
15:58 – Having a longer-term perspective on your investments
18:15 – Are you unsure whether or not to invest in the current market?
19:51 – The 2 Properties to Financial Freedom Strategy
In a tumultuous time like it is in the current Australian property market where Sydney and Melbourne has been on the decline. How can you invest in such a way that you can still have success even if you may not see that excessive short term capital growth in the next one or two years? Hi, I’m Ryan from on property, helping you achieve financial freedom. Today I’m joined by Ben Everingham buys agent from pumped on property. How’s it going today, Ben? Hey Ryan, how are you doing? Very good. So obviously the market is different to what it was maybe four or five years ago where you could buy anything thing in Sydney or Melbourne and have massive success through the capital growth that occurred there. We’re seeing Sydney and Melbourne go backwards. We were also seeing some other capital cities like Darwin’s struggling as well as well. As you know, Brisbane has been slow over the last 10 years. In this episode we want to talk about how you can invest in a tumultuous market. Those both picking the right areas to invest in that at the right stage of the cycle, which I’ll get you to talk about then. And then also having a strategy that can work even effectively in a market that might go down a little bit in the short term.
Hmm. That’s an interesting concept because as we talked about off camera, there’s just so much more than one big picture like yes, Sydney and did extremely well over the last five to six years and over the last year and a half they haven’t done well or they’ve been declining. But the reality is there’s all of these other sub markets in Australia like yeah, Queensland’s with Brisbane, Sunshine coast, Gold Coast, you canvass, you’re Hobart’s your Adelaide’s, which you know, according to the core logic data as well as the Herron, Todd white data are in a very, very different stage of their growth cycle than somewhere like Sydney and Melbourne. Meaning that even while the city in Melbourne may decline, those markets still have some potential, particularly once we move through this tricky lending period that we’re in right now. Yeah. So
I know that you and a lot of your clients and stuff are focusing on southeast Queensland at the moment. Do you want to touch a bit about timing your markets and talk more about how, you know, Australia doesn’t move just as a whole. We’re not everywhere is not declining. Like Brisbane didn’t go backwards last year, did it?
No. So Brisbane didn’t do anything meaningful, but it didn’t go backwards either end and do anything meaningful, you know, according to any, there’s couple of different data sources. But one of them said Brisbane last year as a city did 0% growth. So nothing other people said it did two to 3% growth. Again, depending on whose data you’re looking at. But yeah,
when it comes to picking your market cycles, what sort of thing do you look for and what stands out to you about southeast Queensland? Um, that leads you to look in that area versus avoiding somewhere like Sydney or Melbourne at the moment.
Yeah. So at any time, you know, anybody’s thinking about investing, you go, you know, very, very high level. First you look at what’s going on in Australia and you can do that by looking at things like that. Herron, Todd white report and getting an idea of where Sydney, Newcastle, Wollongong Arad where Melbourne, Ballarat, Bendigo, you know, sunshine coast, Gold Coast, Brisbane. And
just stop you there. Just so people know, there is a free report that Herron Todd white put out once a month called the heron Todd white month in review report. And so if you just go into Google and type HTW month in review report, that will come up and you can see where on the property clock they are predicting that different areas are. So to tell you if areas are likely in a declining market or maybe they’ve Pete or if areas are kind of bottomed out or they’re maybe in that growth stage, which is obviously going to be more likely where you want to invest.
Yeah, and I’ve been following that now for about four and a half years every month. And it is relatively consistent. So, you know, when we, when we look at the media headlines, Australia, property prices might be declining, but the reality is it’s sort of isolated to a couple of markets right now. Now over the next year or something, it might have a drag effect on other markets because you know, when sentiment gets negative, you know, people start freaking out everywhere. But the reality is that within each of those markets, you know, like anybody that started to look at Sydney in 2012 for example, if you had looked at your history, you’d know that Sydney had been flat, literally no growth for the nine years before that. And so Sydney goes through that phase of no growth, then it goes through rapid growth. Um, other markets in Australia have been flat like a Brisbane or a southeast Queensland now for the last 10 years. And if you look at the history, you know, all the reports on what could potentially happen up here, the next sort of six to seven years look really exciting to me.
Yup. So I guess the first step to take when you’re in a tumultuous market where you’re not sure what’s happening is to really look at the different areas within the country and then decide which areas are more likely to experience growth or which areas are actually less likely to decline. So somewhere like Brisbane that didn’t have the rapid run up that Sydney and Melbourne had, and that is still quite low and area where wages in Brisbane actually tend to be, I think on average higher than wages in Melbourne, even though housing is way more affordable. So looking at areas like that and seeing that, okay, Brisbane both has more potential for growth in this time of the market because it stayed flat. But also if it does have that drag on effect from the effects of Sydney and Melbourne, it’s probably going to be less intense just because it hasn’t had that extreme runup. It doesn’t have that lack of affordability. That’s a near Melbourne house. So in a tumultuous Mafia where you’re not sure what’s going to happen, choosing the correct area to invest in, it’s going to be more important than any other time of the year. Like four years ago, five years ago, it didn’t matter as much. It was less risky to invest in whatever market that you wanted to.
Mm. And if you had invested five years ago and Sydney, you would have made 80% minus what it’s come down by, where five years ago you had an invested in Brisbane between then and now you would have made, you know, 5% growth. So like you said, you know, uh, Sydney or Melbourne, if you look at from a data perspective, you know, wages might be 12% higher in Sydney than Brisbane right now, but property prices have gone up by 80% in one market versus 5% in another. And you know, they’re the types of things that I start looking for personally when you try to navigate your way through a market place like this, where not everything is going to rise equally or at the same time.
Yup. And what we want to talk about now is a strategy where you don’t necessarily need that quick market growth in order to have success as a strategy where you can invest in a difficult market, even potentially have success in a market that might go backwards a little bit. Probably ideally not a market that’s going to severely declined. Um, but something that might go backwards a little bit and you can still have success, but yeah, something where you can invest for the long term that you can have a pretty good chance of achieving financial freedom if things go to plan. But you don’t need that rapid success. Like if you invested in Brisbane five years ago versus Sydney show, you would have missed out on that growth, but you would still be on target to achieve financial freedom within 15, 20, maybe 25 years. So let’s have a chat about that strategy now where we’re looking at that long term growth and also looking at cashflow.
Yeah. So obviously you know when you’re taking your account, your timing and you take into account the fact that you’re going to get longterm growth by being in good areas. But if you take those off the table, the type of strategy that I have for my portfolio now is one of extremely, extremely good cashflow with the intention, you know, with your help to effectively use the excess income from that portfolio to pay down debt. So that over as you said, like a 10 1520 year period, I can own a couple of properties outright and those couple of properties can be like an insurance policy for my future or a passive income stream. If I decide that I don’t want to work anymore, I want to volunteer or whatever I decide to do in my future. And I really like that it takes a lot of the pressure off, you know, hitting the gold rush and puts more emphasis on, on battling control of my destiny and that regardless of market conditions, I can get financially free, which is huge.
Yeah. And so I think step one to this process, well we talked about with tumultuous markets, you want to time your cycles if you can, but realistically the most important step I think for this strategy is to actually buy an asset that is going to have good, solid, longterm potential, good solid, long term demand, good solid, long term growth. So we’re not talking about mining towns or anything like that that could potentially, and then boss, we’re talking about major metropolitan areas that we know that over the next 10 years, 15 2025 years, there’s going to be people, if you buy a house in those markets, there’s going to be people there that are going to want to rent that house. And ideally we want to buy in suburbs and in areas that are going to, I guess grow more than the average of that city.
So investing in Brisbane for example, we want, we want to pick areas that we see having the most potential for growth for whatever reason, but we are very adamant that we want that long term sustainable growth. So I just want to get that into people’s minds that when they’re investing for the long term, so often we just focus on hotspots with no idea of what’s driving the growth of that hotspot that we just want that short term growth over a two year period. We kind of want to flip the script here and say let’s not worry so much about the next one or two years. Yes, we want to time the cycles and invest well, but we want to think about the next 20 years. And that’s just a very different attitude to have and you’re going to invest and look at properties through a very different lens than if you’re just looking for the next two years or five years.
You know, the last time we got this type of buying opportunity was back in the global financial crises. Um, where, you know, there are a lot of people that were fearful at that time. There are a lot of people that were sitting around and not doing too much at that time waiting to see. There are a lot of people that lost jobs or lost their ability to run their businesses at that time. You know, this stage of the cycle that we’re in now is, you know, I don’t think it’d be anywhere near as severe, severe as that, but property prices when they go up dramatically also have to, you know, moderate themselves back down to a meaningful place where they can be affordable or at least stable for a period of time. And I think it’s really, really important to remember that that you know, you can buy when everybody else is that the best time to buy in Sydney would have been sorta 2012 when a lot of people were still sitting on their hands as opposed to 2015 or 16 which means yes, you’ve still got some growth, but you caught caught that growth in the middle and now it’s declining as opposed to buying in 2012 and riding the wave up, which you know, I’m a buyer.
That regardless of market conditions takes advantage of negative sentiment personally.
And I think that having that, having that long term vision and that longterm goal allows you to buy and what you see is a good area when the market isn’t doing anything crazy. Whereas a lot of the people who invested in 2015 2016 saw the market going up and ability to make a quick buck. And so they jumped in and they wouldn’t have invested in 2012 because they weren’t quite as sure on their strategy. But if you assure on your strategy can allow you to take advantage of those times when sentiment might be a little bit down because you know that long term this is going to deliver and then you can catch that next wave but you’re not so worried about whether that next wave hits tomorrow or there hits in two years or three years or five years. Um, yeah. So I guess the idea here is that we invest in good solid areas, but we also invest in properties that have good cashflow as well, that ideally cashflow neutral, meaning that the expenses that are going out, you’re receiving enough income to pay them or cashflow positive where you receiving more income than you have expenses going out.
So do you want to talk about why cash flow is so important and how it’s can actually pay off these properties and help you achieve financial freedom?
You know, cash flow is so important for peace of mind and in a tumultuous market. I think the strategy should always be low risk and as you said, high quality. And so lower risk means purchasing properties in creating properties that don’t just cover the mortgage, but they also covered the principle components of the mortgage, which means you’re paying down debt without using your own cash and pay all the holding costs associated with the property as well. So from that security perspective, one night’s me sleep a lot better at night too. I’m actively working away at the debt for the entire length of the line, which over time can really shorten that. You know, period that the loan is going to run for. I think it is absolutely vital one for security to, as as, as a safety net for your future. And three more than anything else.
Why would you go out right now and buy a million dollar property in Sydney or Melbourne, which you can rent for five or 600 bucks a week when you can go buy a house and put a granny flat on it for $500,000 in Brisbane and get yourself 700 bucks a week in rent. You know, just from a longterm perspective, knowing that you’re gonna want to own one asset outright, you’re going to still have to pay off that new, we know the property to get your 600 bucks away, give cash flow, where in reality you could pass the same $500,000 asset and get much, much, much better cashflow and the 700 bucks a week. And we know today it’s 700 bucks, but in 15 years with average inflation, we’re talking about a thousand bucks a week just from that one deal.
Yeah, and I think what makes this lower risk when you have the cashflow is that you have a strategy to eventually have this property completely paid off and then whatever extra cashflow it spins off after that goes into your pocket because it’s positive cashflow because you’re paying the interest as well as some principal on the property using the rental income that’s coming in. That property is effectively paying itself off and so whether the market grows or whether the market declines short term, you still have that longterm strategy that eventually this property is going to pay itself off. I’ll own it outright and then whatever money coming in is then going to go into my pocket. So this makes it a lower risk strategy in a tumultuous market or in a more difficult market because if you’re positive cashflow and the market does go back a little bit, you’re still paying off the of that property will effectively the tenants are paying off the principal of the property for you and you know that in 15 2025 years, that property is going to be paid off and the chance of the market declining for the next 25 years straight if you buy, if you buy properly, if you buy in the right area in some way, that’s always going to be rented somewhere.
That’s always going to be in demand. The chance of that happening is extremely, extremely slim. So that’s how you kind of lower your risk in this time is that that cash flow really gives you a buffer that you’re making money, even if the market is declining in terms of cashflow and you’re paying that property off so you’re not so much worried about how much equity do I have in this property at this moment in time. Or even I know people in Sydney and Melbourne in negative equity situations now if they sold, they would actually have to fork out money in order to pay off the rest of their loan. So even if you were to enter into neck negative equity for a time, which I wish upon no one, if you still have that positive cash flow, you can still afford to service that loan until the market does bounce back.
United thing I love about having a longer term perspective. I read an incredible article by call logic yesterday in mill in Australia’s capital cities over the last 20 years, the average growth in property prices was 230% so that’s well over 10% per annum on average. I the last 20 years in Australia across the combined capital cities, which is insane. If you and I are super conservative and let’s say instead of looking at 10% growth per year, which is what has been the Australian average now
crossing achieved 230% over 10 years, I mean over 20 years. That’s not 10% per year. Cause obviously you’re going to get cumulative growth. So
correct. It’s an average return over time and as you said, it’s compounding. Yeah,
I’ve heard that 10% figure might not be accurate. I just want to, okay, Hashtag disclaimer on that line. I think I’m as guilty plea, but effectively the properties have tripled in value over the last 20 years or 213
and it looks like this as well. Like it doesn’t look like a nice linear growth day though. That’s the thing with property. But if we were just super, super conservative and said that all you’re going to get per annum on whatever you buy today, Sydney, Melbourne, Brisbane, et Cetera is a 4.8% growth rate on average per annum on the original figure. You know, we’re talking about doubling your money every 15 years. Now even in the shocking market that Brisbane’s had over the last 10 years, the 20 year growth rate has still been over 6% per annum. Um, you know, it’s just, it’s super conservative to not assume that the gains in society and income rises and extra population and efficiencies that we get out of technology won’t up being straight back in the land values. And I get excited about that
and I think that’s probably a topic for another video, which is how when wealth does increase in society, when Australia does increase in its GDP and stuff like that, um, then often that extra world does go back into the land of the area as well. So that’s kind of some high level concept but a really cool one that we’ll touch on in another video. But yeah, we hope that this has kind of helped you guys out there. Cause I know a lot of people, I get a lot of emails from people that are really unsure at this point in time. They, they had the money to invest, they want to invest. But they don’t exactly know how to invest given the current market and they didn’t have a strategy that is going to work in the current market. I think it’s really important if you’re going to go out there and invest definitely in these market conditions, you need a strategy that’s going to work whether the market grows or whether the market does go backwards or stay stable for the next couple of years. You want something that’s going to work. You want something that’s going to deliver you your financial goals without needing to, you know, strike lucky or find the perfect hotspot or anything like that.
Yeah, I completely agree with you. It’s kind of an all weather strategy that capitalizes on long term growth but makes them most of current market conditions and gives you that incredible cash flow that I think most of us should be looking for at least beginning to set ourselves up for in the future.
Yeah, and this strategy does obviously have, it’s worse. Every property has its risks. But generally with this strategy, the worst cashflow position you’re going to be in is in the beginning when you first purchased the property. Because over time, if you’re buying in an area that is growing over time and you’ve got inflation happening as well, so the value of money is going down, uh, eventually you’ll rents will tend to go up and as your rents go up, your cashflow improves, which allows you to put more money into your offset account or paying off the loan, allows you to pay it off faster or build up that buffer fund. And so over time your cashflow tends to improve. So let’s just quickly before we close off touch on what we’ve been calling the two properties to financial freedom strategy, which is where you purchase two properties and in order to get the cash flow that we’ve been talking about today, you actually build a granny flat on each of those properties. So do you want to highlight that then?
Yeah. So an example might be in the next couple of years, you take the first step of that strategy, which is buying a home. And the concept is super simple. You buy the two houses, you add the two granny flats, you might buy one home for $400,000 for example, in Brisbane, you might buy the second home for $420,000 each of those properties in an ideal market with conditions as they are right now, which is a under supply of property up here, might rent for you know, 370 to 400 bucks a week. So even the houses on their own have quite good rent returns. And then you’d come in and you build a granny flat on the back of each of properties for about $120,000 for the granny flat. And you get on the flip side of that, somewhere between about 280 and $300 a week in extra rent return from the granny flat. So you spend 400 plus 120,000 on the granny flat for $520,000 of total spend. Obviously you’ve only put your 10 or your 20% deposit down to the bait. The bank’s funded the rest. You’re getting that, you know, 660 to $700 a week rent return, which you know is a really nice position to be in, particularly after you’ve paid a bit of a cash flow and equity deposit as well.
Yup. And so that’s kind of the basic strategy that we’re implementing with clients at the moment is buying those high quality properties in the high quality areas. But they have the potential to build the granny flat because to get positive cashflow. And I used to have a service where I would find positive cash flow properties all over Australia. Positive cash flow properties are really easy to find in regional markets and smaller towns. But in this tumultuous time, you know, regional areas can grow a lot faster than metro markets, but they can also decline a lot faster as well. And so being able to invest in metro markets where it’s going to be more stable, but also being able to generate that cashflow I see as a really positive thing and it really great longterm strategy for the future because also for each property you buy, you actually have two incomes from those properties.
And so if the person in the house moves out, your income doesn’t drop to zero because you still got the granny flat rented until you’re able to rent out the house again. So having two of those properties, having four incomes that really diversifies your income pool as well, which in that good cashflow position, which allows you to pay off the properties longterm. And it’s really interesting to see that even if the market didn’t grow, even if we didn’t have inflation, so rents never went up. If you’re in a positive cashflow position, you could effectively pay that property off over 25 years. And then the rental income after you pay your management fees and maintenance and cancer rates and things like that, whatever’s left, maybe 70 to 80% of the rental income will then go into your pocket. And you could still achieve financial freedom. Even like worst case scenario, we didn’t get any growth so it’s a pretty thing.
Concept pro is he set up a foundation and then if people want to continue on from there by chasing, you know when Sydney and Melbourne become good again, they can leverage off those properties back into those markets and chase the negatively geared high growth assets again or what you’ve got to remember is that over 50 years Brisbane has actually outperformed Sydney and Melbourne in terms of average growth rates and so you know, we’re not just taking cashflow and that’s already taken off the top. We’re also getting that longterm growth as well. Yeah, exactly.
We hope this has helped you guys out there in the current market to think about whether or not you want to jump into the market, whether you want to stay on the sidelines, but if you do want to jump in, hopefully this gives you something to think about when it comes to strategy and investing in a way where you have less downside risk and more potential upside as well, which was all we’re about. We want you to achieve financial freedom. We don’t want you to go bankrupt on the process to doing that. So the lower risk for us, we think the better and an ability to invest in such a simple way is quite achievable for the average person. So if you’re out there and you’re interested in investing in this strategy, but you want a little more one on one help, you want someone to talk about your situation, where you’re at, where you want to be, and what your next steps are.
How to get there. Ben and the team over at pumped on property, a offering free strategy sessions to you guys where you can jump on the phone, you can get clear on what strategy’s going to suit you and what’s your next steps in order to start acquiring these properties and move towards financial freedom. So if you’ve got a on-property dot com dot a u, you can go ahead and read about that and book a session over there. Thanks so much for coming on today, Ben. Really appreciate it. All right guys, that’s it from us today. Go to on property.com dot. EU book, one of those free sessions if you’re interested. Otherwise, we wish you the absolute best in your property investment journey and until next time, stay positive.