How To Replace Your Income Through Property Investing (Ep271)
Replacing your income through property so you achieve financial freedom is a great goal. Today I talk with Ben Everingham about how a shift in his mindset helped him leave full time employment and live the life he wanted to live.
Hey Guys, Ryan here from onproperty.com.au, your daily dose of property education and inspiration. And today I have back with me Ben Everingham from pumpedonproperty.com who’s a buyer’s agent and successful property investor himself. We’re going to be talking today about Ben’s thoughts on how to achieve financial freedom through property investing and how he actually achieved it himself.
— Start of Interview —
Ryan: So, hey Ben! And thanks for coming on today.
Ben: Good day Ryan! Thanks a lot to have me back. Good day guys! Great to see you again!
Ryan: Now, Ben’s going through a really interesting journey in terms of financial freedom through property and I’ve been grateful to be a part of that. First, I want to go back Ben and talk about when you started investing, what was your original goal and what were your thoughts about achieving financial freedom through property?
Ben: I had two goals. My goal for property was to create $100,000 per year passive income and my goal for my business was to – for some crazy reason, replace my income by 4 times while I was still at work and after I’ve replaced it by 4 times I’d leave full time employment.
Ryan: So you wanted a business that you’re running on the side to generate 4 times your income and you wanted $100,000 from property in order to leave your employment and consider yourself financially free, is that right?
Ben: Yeah, it sounds even crazy now that you’re saying it back to me. But yeah, that was my original goal.
Ryan: And look, I think this is something that a lot of people get tripped up on is they think about investing in property and they think about financial freedom. They think this big dream figure like, what do I eventually want to have with my life. I want to be earning $200,000, $300,000, $400,000 a year, be driving the Ferrari. And they think about this in terms of their property investing and I think it stops a lot of people from actually getting started because they like, “Well, that’s actually pretty unachievable.”
So talk us through like what changed for you? Because now you’re technically financially free and you did leave employment without getting that 4x from your business and stuff that you wanted. Like so what happened for you and what change did you have to look at financial freedom through property differently?
Ben: My journey towards financial freedom actually started about 4.5 years ago. So, 4.5 years ago I decided to run a marathon with my friends. We ran the Melbourne marathon and for anyone that’s ever run long distances in a row, with an active mind it’s absolutely boring, it’s —-. And so I started listening to some audio programs from Jim Rohn and from Anthony Robins and Dennis Waitley, and those old school motivational, wealth-creation type guys. They were talking about their stories and one of them had a story of replacing their income by 4 times before they actually left full-time employment. And I just sort of, for some stupid reason, put that figure in my head and that that’s what I had to do as well as my goal.
And so, that was actually you Ryan, again, that I had a sit down with you and you talked about your business and basically just put me on the spot and said, “Why’d you have to replace your income while you’re working by four times? Why can’t you just replace it right now which you’ve done and leave work?” In my mind I’ve never even thought of that, that was a possibility until you actually said it again, as stupid as that sounds. So you’re probably the instigator there for me to think that it’s possible to leave full-time employment. And then obviously as soon as I did leave full-time employment, I got a 100% focus on investing in the business, I did get to achieve those sorts of numbers that we’re speaking about before anyway. But I would never have been able to do that if I was working full-time for someone else.
Ryan: So the cool thing is that once you did leave, you had all the time you needed to grow your business and to grow your investing and to get to that point. And for people who have been following me for a long period of time, I was earning 6 figures. I was in a high end sales role selling pharmaceuticals, had an $8 million a year budget. I was making good money and then my business on the side was making about $1000 a month passive income. And then I decided to leave my high-paying job in order to go and work full time in my business like earning way less than what you can live off. So I took a big step out there and I took a very different approach. I took a big risk there. But I was happy to go back to work if I had to.
So, my favorite thing when looking at property and looking at achieving financial freedom is actually looking at income replacement and looking at what do you earn now. Are you happy? Are you surviving on that sort of money? In most cases, people, they’re not exactly completely satisfied but they’re living off that money, they’re living a pretty good life. And I say to people why not set that as your financial goal. Is that what you ended up moving towards or was yours something different to that? Do you want to talk us through some numbers?
Ben: Yeah, definitely so. As I said back, the original goal was $100,000 per year just through property investing not including business or other investment class income. But what I actually did after speaking with you a year ago or so was I sat down and actually did a budget of how much it would cost me to be financially free right now. That figure for me, I’ve got a higher cost of living just because I earn a number of properties. And I think that figure was roughly a $100,000 per week to keep my head above water and to give myself and my partner about a $100 per week fun money.
And so after doing that, pretty quickly I realized that financial freedom for me meant replacing my basic living costs, which was about $50,000 Australian dollars per year. And as soon as I identified that, I realized that I was already 3/4 of the way there. And after looking at some strategies from some other successful investors, I found a way to redraw some equity in my portfolio to subsidize that extra $12,500 that I needed per year. And so it was a bit of a realization for me that should I actually in my mind I am already financially independent. I’m not living off millions and millions of dollars per year but I was able to leave full-time employment and pursue my passion which has been exceptional for us and enabled us to do so many things that we couldn’t have done without it.
Ryan: And so because of the goal that you have set, you are actually financially free but you just didn’t know it. So it took a reset of your mind to say, “Hold on, I am financially free. If I draw some equity and do some credit finance there. Then I can go on to spend more time on what you’re passionate about and income-generating sort of things.” And I think one other thing that people get stuck on about is, Okay I’m going to invest on property, I’m going to achieve financial freedom and then that’s it. I’m just going to stop, and I’m going to go and sit on a beach in Fiji or wherever it maybe and just doing nothing. But then they don’t think about the fact that, especially people who are unhappy in their job at the moment, when can I get to the point where I can quit my job? And I can go into property investing fulltime? And once you leave your employment you find that you have a lot of creativity, you have a lot of time to actually invest in things that are going to generate you an income and the income-generation doesn’t stop after you finish your employment.
So talk us through when you quit your job, what happened after that? And what have you been doing to create income and to grow your portfolio and stuff like that?
Ben: So I finished up employment earning about $50,000 Australian dollars passive income through net passive income before tax from my property portfolio. As many people would know from having seen my portfolio, it’s highly geared towards brand new properties and so there’s a fair bit of depreciation and other benefits that are right off there as well. So I was making about $50,000 a year passive income on top of my wage through my portfolio and then I’m also earning about $20,000 to $30,000 a month at a time through my business as well outside of my wage. So when I had the opportunity to jump full-time off wages, obviously it took a couple of months to get some momentum but my business has obviously now completely replaced my income that I was receiving through work by roughly 4 times now so I’ve achieved that goal but saying that, I’m working 2.5 to 3 days per week and getting to spend so much more time with my family.
We just did a 10-day trip down to Sydney, which was really good, completely dived into that market and checked it out, so I would never have had the opportunity to do that. I get to look after paper that I’m working with a lot more and from an investment perspective, now that I’m constantly active in the marketplace, I have the time, invest fulltime basically, finding so many opportunities that are under market value or off market listings and things like that for myself. Which again is putting myself for my family until stronger and stronger financial position maybe. So it’s completely revolutionized our life.
Ryan: So you’re saying that investing in property now, like for people who don’t know, if they want to see your portfolio, they can get that at pumpedonproperty.com, can’t they?
Ben: So I just jump on the about page, and you can see not all the properties we bought are there but there’s a few and I should get back in there and update it when I have the time.
Ryan: Yeah but for people who don’t know, Ben actually runs a buyer’s agency and helps people invest in property and focuses specifically on investment properties. And so you’re talking about running your business now and being in the market fulltime as a buyer’s agent and also for yourself. You’re actually finding it easier to find good investment deals than when you were employed, is that correct?
Ben: Yeah, like you don’t get much change at the end of the week from working 50 to 60 hours and same with yourself, I came from that big business, corporate background. And so now that I have the time, all the day a week to focus on searching properties for myself, it’s incredible what’s out there when you get that little bit of extra time. And it’s not so much the listings that are on the market, it’s more those, once you start building relationships in a certain suburb where the agent calls you up and says this is coming on and the numbers were just the sort of ones that you jump on and make you bet your money on straightaway.
Ryan: While we’re talking about that and talking about the suburbs, let’s talk a bit about your strategy at the moment because I know you’re focusing specifically on certain suburbs that you’ve highlighted as hotspots or areas that you would like to invest in yourself. Can you talk us a bit through what strategy are you using now because we have done a video in the past and I’ll link it up as to your early journey and stuff like that and what you call your Frankenstein house in San Remo and that. So, I’ll link up to that so people can check that out if they want to hear more about your earlier story. How things have hold, what are you looking at now as your investment strategy for yourself and for the people that you’re helping out?
Ben: So basically my strategy for myself is the same strategy that I’ve talked to other people about. It’s pretty simple. Like I’ve changed, from anyone who knows my portfolio, I’ve sort of flicked a few properties for profit and things like that. Now my strategy’s changed to long term buy-and-hold, so it’s a combination of capital growth and long way cash flow. So basically I look for properties under that $450,000 to $500,000 mark. At the moment, within 15 km of Brisbane CBD, there’s also a couple of spots on Gold Coast and Sunshine Coast along with North Brisbane that I’ve invested in but it’s more around properties that’ll perform more in the marketplace in the next 4 to 5 years. It’s what I’m particularly interested in right now. I’m still always looking for properties – I like finding like the rough gem, property that 90% of other buyers won’t touch because it looks like rubbish right now. So we’ll jump in there, do a quick cosmetic renovation and that’s a super easy way for anybody to jump in the market and make some easy money or at least increase the property’s value to market value but they could get it a bit cheaper.
So the strategy is basically buy-and-hold, accumulate quality properties in quality areas, areas with historically high growth rates. That’s something a lot of investors often do not look for, so look at the 10-year, 20-year, 30-year growth rates in a suburb. And that’s probably the number 1 particular future performance of a suburb particularly if there’s been no growth recorded in the suburb over a 10-year period or under historic growth rates. I think that’s really an easy way.
Ryan: So do you look for properties that have had high growth rates over an extended period or do you look for properties that haven’t had that growth yet and might potentially grow. And then how do you find out that long growth rate? Because I know how to find out up to 5 years but beyond that..
Ben: Historic growth rates are available through RP data and residex and that go back massive, massive amounts of time but you can pretty easily access 10 to 20-year growth rates. So what I’ll look at is 20-year growth rate historically and then compare it to the previous 5 or 10 years and generally a lot of the areas that we’re looking at in Brisbane at the moment have had really poor growth over the last 10 years, between 1% and 3% per year on average. So, that’s a bit of an indicator for me that you can never expect the market to continue to perform how it has in the past in terms of doubling in value every 7 to 10 years. But if an area for me is going to perform at roughly 4% growth per year on average for the next 10 years, that’s the sort of property that I’m interested in buying myself at the moment and helping other people buy if they’re interested as well.
Ryan: Okay, cool.
Ben: So, just simple properties that tick those basic boxes.
Ryan: Yeah. So you’ve actually achieved the point where you’ve become financially free and you’ve removed yourself from your employment and I guess your main source of income there, you’ve built a business on the side. But for other people, who were to become financially free, let’s say, from their property portfolio, and then leave their employment but wanting to continue to grow their portfolio, is that actually a possibility or do you know if lending gets really difficult once you leave your job? Do you know how that sort of works and what your sort of needs actually keep growing? Because I know a lot of people are scared of actually leaving their jobs if their portfolio is not performing high enough because they feel like they wouldn’t be able to borrow again and grow their portfolio and just be stuck in that position?
Ben: That’s a really good point. Pray that the global financial crises, if you have left employment and you can continue to find positively geared properties like the ones you find for people each month on On Property Plus – type thing. You could’ve built an endless portfolio or something like Steve McKnight did with 300-properties-over-7-years type of thing. But these days, if you don’t have income, no matter how much your portfolio is worth or generating, you’re still not going to stack up serviceability-wise. So I’d say if your dream is to continue to build your portfolio, continue to work or start your own business and if you’ve built a portfolio that set that stage where you can walk away from everything, just build a portfolio right so that it’s going to continue to look after you without you being dependent on any future source of income.
It’s a bit tricky when you start your own business because generally you need to use tax returns to service a loan, but there’s a lot of ways around that. Any good financial planner, accountant or mortgage broker would be able to help you get a load off loan within about 6 to 12 months of starting a business so it’s not a make-or-break type thing if that’s what you’re thinking you’re doing.
Ryan: Yeah, I was talking to a mortgage broker the other day who was saying that someone is out there who will take 1 year financial into account rather than looking at 2 but obviously people need to speak with a mortgage broker about that one.
So basically in the current situation, it’s pretty difficult to get a loan unless you have employment or if you have your own business on the side. So the passive income that comes in from the property portfolio, the banks aren’t happy with that or they don’t look at that. And I know you’re not a mortgage broker or a financial adviser so obviously this can’t be financial advice or anything like that. But can you shed any light for people on that situation? Do they just exclude that completely or what do they take into account?
Ben: In my situation, I’d definitely take into account that extra money that I’m making from my property portfolio as serviceability because I’m only earning $50,000 a year through my portfolio. Based on the amount of debt that I currently have, the fact that if it was only that $50,000 that I’m looking at then there’s no chance from there that I’d be able to go back to the banks and continue to move forward without additional income. But for example, if somebody had a $100,000 or $200,000 of passive income coming in through per year through their portfolio, there’d be the potential for the banks to consider that completely differently to how they’d consider me at the moment. And that’s got to do with loan value ratios on your property, current interest rates at the time or what the banks, setting the median. So at the moment the banks are still considering how much money you can service based on the 7% interest rate. It has nothing to do with the right serviceable value at the moment between 4% and 5%, in terms on the way they’re doing the numbers.
Ryan: Well, next thing, if someone is either earning the same 50, 60 grand a year passive income but they own properties that are fully paid off so they don’t have any debt at all, will their serviceability and their ability to get a loan can be very different from someone who has a million or two in debt?
Ryan: So it really does depend on someone’s personal financial situation and so I guess the lesson from that is, just because you’re financially free doesn’t mean you should leave your employment. That could be a good opportunity for you but you should speak to a financial adviser, speak to your mortgage broker and see down the track that if I did leave, if I did want to grow my portfolio, what sort of situation am I going to be in? So before you make any drastic decisions, get advice and know well how this is going to look down the track. What are my plans for the future?
Ben: Yeah, I’d love to add something to that actually. I was text messaging a good mate of mine I went to school with over the weekend and he’s on a ridiculously good salary package like earning over $300,000 per year. He’s just bought his second property and he was asking me how we’ve done what we’ve done and I sent him a simple question back. And he asked what strategy he should use and I said the strategy doesn’t really matter. What matters is do you love what you’re doing in your day job? And if you love what you do for work, there’s absolutely no reason why your strategy can’t be more along the slow burn-and-buy-and-hold type of property and just wait for that wealth accumulation. I think the people where income replacement really works for is people like myself. And a lot of other people, there are a lot of my friends who didn’t love what they did fulltime in their day jobs and maybe that’s not because of the work they’re doing, it was just because their nature is go out and work for themselves or go do something else. And so that’s a huge one.
If you’re enjoying what you do, then your strategy can be completely different. But if you don’t enjoy what you do, income replacement in the shortest period of time is definitely worth consideration. So you can jump, as Ryan and I both do, invest in property and love it and I could sit on a couch if I wanted to all day. But now I’m out there helping people and finding my passion which is property investing is my full time job as well. It’s not like you just stop working and you just start doing exactly what you want to do on a day-to-day basis.
Ryan: Yeah. And I think I know that for myself when I left my employment that even though I was working 50 to 60-hour weeks, there’s still a lot of time after you’re working in the night so whatever. But I just felt like it sucked all my creativity because I put so much into my job into what I did that I just felt exhausted at the end of the day. And mentally I just had nothing to give to my websites, nothing to give to my business. And I found that after I left, I still work like a standard week, like 36 to 40 hours a week…
Ben: Me too.
Ryan: I’m flexible on that. Some days I start late because I do swimming with my son. Other days that I start super early and finish early, so I’ve got that flexibility. And so working fulltime, you’re probably still working pretty solid hours as well…
Ryan: But it’s not about financial freedom so you can just relax. Because I think a lot of people would actually get bored doing that. But it’s really financial freedom to be able to push you to one of your passions or to push you to what you want to do. And I think that’s what I really want to get across today and I’ve said that before the interview that I just want people to understand that financial freedom doesn’t have to be a Ferrari in the garage. It doesn’t have to be millions of dollars per year in passive income. It can be income replacement. It can be just freedom of time to do what you want and to do something that brings meaning to you and to your family and make a contribution to the world that you want to make.
And I feel like you are the perfect example of that because you’re now doing what you want and you now have that passion for your job. You haven’t stopped but you’ve got that baseline financial freedom. If everything was to go pear-shaped in your business or you found yourself unemployed or won’t be making any money for some reason, your family’s still supported and like my guess is that for you, that just gives you a lot of security to say well, I’m going to shoot for the stars and try and do something because even if it doesn’t work out, my bills are still paid. Is that correct?
Ben: Yeah, that’s exactly it. Like I’m scared of not being able to pay bills, fear’s a big motivation for me. It definitely works. It definitely gives you that, as you said, flexibility and freedom to pursue what you really want to do as opposed to making decisions based on fear or survival, I suppose.
Ryan: Yeah. And I think it makes a big difference when you’re married as well. Like for me, for my wife, security is a much big issue to her, making sure that bills are paid and stuff like that. And kudos for her for letting me step out when I was earning 6 figures to earning like a thousand dollars a month and working through that and taking that risk. Yeah, for a lot of people who wouldn’t want to take that risk so I think building a baseline in financial freedom is a great result.
So Ben, let’s tell people a bit more about your business, where they can find you because I’ve had a lot of people contact me that I’ve actually sent through to you and that you’ve been able to help out. So tell us about your website, tell us about your buyer’s agency and what you do to help people.
Ben: Yeah, sure. My business is www.pumpedonproperty.com. So in a nutshell, we’re a buyer’s agency that really helps people – first-timers, established investors, buy quality properties in good locations at or below market value. We really specialize in two things. I suppose in a city, all within 15 km of Sydney and Brisbane CBD. And we’re also really good helping people build properties particularly these dual occupancy properties at the moment that are getting 6% to 7% rental yields with the depreciation benefits in good locations. M
y business is really simple and generally, after talking with Ryan a couple of weeks ago, we’ve made the decision to focus on helping about 5 people per month. Really, really get the right outcome in terms of their next property purchase. It’s not just property, we provide strategy assistance and support and basically hold your hand so that you can learn along the way as well as know that you’re getting the right outcome at the end of the day.
Ryan: Cool. And if people want to have free strategy session with you, where should they go to get that?
Ben: And so again, just jump on the website and then hit the contact us box and book your strategy session in. As Ryan has set up meeting with a lot of the guys on OnProperty class community at the moment which is being awesome and we’ll actually help 2 or 3 of those people buy properties this month which is really exciting as well per se getting the right properties at entry level process in some really good suburbs, tips for some growth buy, people are a lot smarter than me at the moment.
Ryan: And if you guys do let Ben know that you came from OnProperty then I will get a referral fee for that as well. You can tell him that. Look I’m not fast and I love working with Ben and personally chose him as my buyer’s agent to recommend. So I love sending people to him regardless but if you do, let him know so I could get a referral fee.
So thank you so much Ben for your time. Thank for a bit of your whole story and that mental shift that you went through and I hope that this kind of clicked something in people’s minds where they can think Okay, maybe the goal is a head set for myself were a little bit lofty and maybe there’s another way that I can achieve what I want. And yeah, awesome.
Ben: Thank you so much Ryan. Thanks a lot guys for your time. Have a good day!
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