Subscribe
Share
Share
Embed
Welcome to Finance Fundamentals: Property, Business, and Beyond – your ultimate guide to mastering the essentials of finance. Hosted by Todd Franzway, this podcast dives deep into key topics like mortgages, investment basics, cash flow management, asset finance, and business lending. Whether you're a seasoned investor or just embarking on your financial journey, join us to explore the fundamentals that drive success in property, business, and beyond. Let's unlock the secrets to financial empowerment together!
[00:00:00] Welcome to Finance Fundamentals, Property, Business, and Beyond, your go to podcast for mastering the essentials of finance. I'm Todd Fransway, and throughout this series, we'll explore crucial topics such as mortgages, investment basics, Cash Flow, Asset Finance and Business Lending. Whether you're a seasoned investor or just starting your financial journey, join us as we explore the fundamentals that drive success in property, business and beyond.
Let's unlock the secrets to financial empowerment together. Hello and welcome back to Finance Fundamentals Podcast. I'm your host, Adam Bell. And today, again, Todd Fransway's with us, a specialist in mortgage broking for property investors. Now in this episode, we're going to unravel the financial intricacies of property investing, starting with the crucial first [00:01:00] two pillars that we did speak about in episode number one.
Now they are understanding your numbers and setting clear goals. Todd, it's great to have you here to shed light. on what investors might need to know when getting started or growing their investment portfolio. Hi, it's good to be here again, Adam. It's, yeah, always good. Fantastic. Okay. So we did cover off that you've got a four pillar system that you, you work to, and, we're going to look at the first one now.
So understanding your, your numbers now, first of all, I do want to know, what numbers are we talking about? Yeah, okay, so there's a whole heap of numbers when it comes to investing in property. So, it starts generally with a deposit, it's a borrowing capacity, but then it gets a bit more intricate with cash flow and stuff like that for each individual.
So, yeah, there's a fair few things to, Okay, so let's start with borrowing capacity then. How does [00:02:00] that work? What is someone's borrowing capacity? How do you work it out? Yeah, well, you don't particularly work it out too much yourself. It's based on, the lender's criteria. And, the bank's all assess people very differently.
So some, probably more favorable in terms of, investing, than others. So it's realistically how much you can afford to borrow based on your overall family income versus expenses out. Sure. Okay. So the next thing is equity. Finding out how much equity you've got in a property. How does, how do investors go about doing that?
Yeah, so, so that's well there's equity in say their existing, perhaps owner occupied property or existing investment properties that they can access to help grow their portfolio, but really simply it is the gap between the value of the property and the mortgage. on the property. That's basically the gap between those two is their equity position.
And how do they determine that? Do you have to get a bank into [00:03:00] value? Who does the valuing? How does that work? Yeah, well, we'll start with, online valuations. There's some pretty rich data available that gives us pretty accurate estimates of people's, property values up front now. If we're doing anything, finance wise with the property, more often than not, a valuer We'll go out and value the property.
Yeah. Okay. So they're the two primary things you need to know as a starting point. So if someone comes to you and doesn't know that you'll work through that process with them as a starting point. Oh yeah, for sure. That's exactly right. It will determine whether they can do anything or not do anything really.
Right, okay, so really that's the key thing to sort of tick off and say, right, we've got a place to, we've got something to work with here. The numbers stack up. Yeah. Versus, no, we're not quite there, but I'm sure you then are able to help someone who's not quite there to put a plan in place to get there.
Yeah, there's often, levers. That people can pull to, get themselves into the position to invest should they want to. Yeah, [00:04:00] absolutely. Okay. So it comes back to knowing your numbers first too. One or the other, let's be able to move ahead and put a plan together or let's put a plan together to get you to that place.
Yep. Correct. Excellent. Okay. So, all right, let's talk through what once you've determined those two things, someone is in a place to be able to do something with you. What are the next sort of. numbers that you start to, to look at. Well then the next thing is depending on the equity they have, how aggressive do they want to be?
How much are we going to use as a deposit on their purchase? And that'll often bring up a discussion around lenders mortgage insurance, whether they're looking to you know, maximize their equity and get fairly aggressive and get as many properties as they want or stay a bit more conservative.
Not have the cost of LMI and use a bit more equity. But it's, it's generally a little bit safer, a bit more conservative. Okay. So I've heard, heard about mortgage insurance before. It's a 10 percent or 20 percent deposit [00:05:00] thing. Yeah. It, yeah, put simply, that's a whole nother topic in a way, very quickly.
If you don't have a 20 percent deposit to put towards your purchase, you can on an investment. Generally borrow up to 90 percent of the value of the property, but you do pay, a premium. And that's basically the lender insuring the overall mortgage because there's some extra risk attached to it.
Sure. So in looking at all of this, then, what we talked a little bit in our first episode about, people out there potentially having this equity, in their home that they maybe don't realize that they've gotten how to use it. If there's anyone out there listening, that's something that the very first thing you do is really get in there, work it out, and, then look at what they're able to do.
What about interest rates and rental yields? Are they numbers you need to take into consideration in all of this? Yeah, definitely. Rental yield is a good indicator, as to what kind of return you getting or potentially going to get on an [00:06:00] investment property, and It will be, a good tool to work out whether it's a viable, investment or not.
Not the only thing to look at, but it is a pretty good indicator. Okay. And what about, in terms of serviceability of loans? What sort of numbers do you need to, I've seen online calculators and things. How do you go about working out, what, level of loan you can service. I guess that, that's probably opening up quite a complicated.
Really, I would, say, talk to a really good mortgage broker. Right. Because that, they'll have the expertise to work out what's actually real and what's not really in your numbers. Right. Because we often get people that have done online calculations, and then come to see us. And If you're interested in any of the other things that we've talked about, you can find them on our website at www.
sciencetoday. org. au. And that's it for today. worked out some of their expenses, et cetera. So sure. [00:07:00] Sure. So if I'm, what I'm hearing here is really, you know, in terms of knowing your numbers, come along, see you ask what you need to know in terms of getting the data and you can work pretty much with them to work out all of these numbers and then put a plan together.
Yeah, that, that's exactly right. It's putting a plan together, that works for the individuals cause everyone's got their own Risk profile in terms of how conservative or aggressive they'd like to be. We delve into that, somewhat just to get an understanding, which then helps us work out the numbers in terms of which, which direction do we go.
And then I guess the other thing too, that, we talk about borrowing capacity and how much the banks will lend you, and yield and all these things, but it, it doesn't. None of them really reflect, what's the cash flow of the family, what's the budget, what does that look like?
And that, that's another thing that's, that I feel is really important. Is that, no one's left short and we want to make sure that it's [00:08:00] matching lifestyle to the numbers. Yeah, that's exactly right. Yeah, probably not looked at enough and why some people fall into trouble and at times potentially.
Yeah, sure. Look, such valuable information. But, look, that probably leads us a good lead into, your second, pillar of property investing, which is, setting clear goals. Thanks. Now why is it so crucial for property investors to set and have, you know, clear goals and what they want to achieve?
Yeah, depending on their goal will depend on which direction they really should take, in the investment field. So, there's lots of people will look and talk about cash flow positive properties versus negative gearing and, they achieve different things in a way. So. Typically a cashflow positive property may have limited upside for growth.
So generally speaking, and it's not always the case, but, uh, and then say a negatively geared property, will cost them [00:09:00] money to run every single month, but generally has a higher upside or potential upside for capital growth. So much to talk about. And so sometimes, people will want to balance it out and not just have one strategy into a combination and have some positive cash flow to offset the cost of running a negative geared property.
Some people just stick purely to positive cash flow. Because that's the end goal is cashflow. Yep. So, whereas others want a big lump sum and so capital growth is more their thing. Sure. So really what you want to achieve right at the end, you need to sort of reverse engineer it from there. From the start.
Yeah. So I see why sitting down with someone like yourself who understands this, you know, Intricately, to work out what you are trying to achieve and then putting a plan together is, is so important. Well, yeah, I, I think so more so than, so, cause we have seen some people just rush out and buy an investment property in the same suburb that they live in for the sake of getting one, you know, and, [00:10:00] it's not always the best.
Sure. Now this is your second pillar. I want to relate it back to one, should you know your numbers before setting your goals or should, is there an order that you should be doing these two, the goals versus knowing your numbers or is it just something you do all at once? Well, I think it's a bit of a holistic view.
You know, I don't think you do one, take a breath and then do number two. It's just looking at things holistically. to then create the steps forward. I mean, this maybe is, you know, how long is a piece of string, but what are some realistic goals for some first time property investors? Well, realistically, I think a first time property investor, we want to make sure that their cash flow is as they would like it to be.
I mean, obviously there's a, a commitment or a, a price to pay for investing in property. We just want to make sure that, first time particularly they understand that the running [00:11:00] costs of the property is probably the biggest thing. It's easy to go, what's the mortgage repayments, what's the rent.
But you know, if you buy something perhaps with body corporate attached in a unit complex. There's a fair bit of cost that can arise that might not be factored in. Sure. You know, insurances, rates, property management fees, all those kind of things we need to factor. Or even how old the property is and the amount of maintenance that you're going to have coming up.
You know, there's going to be a lot of difference between a five year old property versus a 20 year old property, isn't there? That is correct. And that's another thing that people often don't think about or overlook when they're looking at investment properties, in a older regional area with a good rent return, you know, there is higher running costs there.
So all these things you've got to take into consideration, but look, coming back to it again, it's such a great reason to have someone like yourself, you know, in their corner to be able to talk through and have you considered this? Have you considered that? Because I gather you see this a lot with, with [00:12:00] your clients that they come to you with a A set idea and what they think they know about the holistic, you know, what they're looking at, but, haven't considered things that you know all about.
Yeah, that, that's right. It's really, good to be able to help direct people, I think is the, the thing because, often we do have people, come to see us and they're, Oh, I hadn't thought of that. I hadn't thought of that. And often they'll change, what they were initially thinking, and go down a different path, and.
You know, potentially a better path for them, but they might not have seen that otherwise. Sure. Do you find that you get a lot of clients coming to you, yeah, and, and their whole, you know, we're talking about goal setting here, they have a goal, but yeah, once they've seen you, it just literally changes direction based on you giving them the information they need?
Look, it can, but then, you know, on the flip side, there, there's, some really good education out there also, and people come to us fairly well educated, and, and it's, they, they appreciate the sounding board and, it's like, [00:13:00] okay, that's affirmed, I'll keep going, it doesn't always change, but, it's good to be able to provide that help.
Sure. Okay. And I guess in all of this too, knowing your numbers, setting your goals, that's when you sit down and decide what sort of property you're going after, whether it be a unit, a house, what area, all of that. These two things set up the basis for then deciding what to do. Yeah, that's right. By the time you've done that, you've got a pretty good guide.
Because you know, you, yeah, houses, units like that, they're two very big. You know, different investments, and. Yeah, so by the time you've done all that, you've worked out how much are the running costs etc. and, whether a body corporate's for you and, you know, there's things outside of cost as well, you know, you buy in a body corporate and you don't have full control over your investment, all the other owners in the complex have a say etc.,
But it's not to say you can't achieve some really good results either, so it's just a consideration, one of many. [00:14:00] Look, one key learning I'm getting out of chatting with you today is my mindset is probably like a lot of listeners out there. Well, hang on. No, a mortgage broker is once I've decided I'm buying a property, I go find the property and now I need to find a bank to lend me some money.
Now I need to go see a property, a mortgage broker. What I'm getting today is no, come, come and see us at the very start of the process. And, maybe we'll be able to find a far better way than. You know, in a far more, something that matches your goals and we'll get a better return than what you thought you were getting yourself.
And yeah, we will get the loan. We'll get the right loan, but to match the right strategy. That's right. We'd always encourage people to contact us early in the process. They may or may not need this information. We're happy to help and, you know, You'll probably find there's a whole lot of mortgage brokers that are much bigger skillset than just finding the right mortgage.
I mean particularly if they've been around a little while, they've been dealing in property, this is you know. And you're there to [00:15:00] help them get the, find the right deal and get the best return and ultimately Yeah, well that's, that's right. We want to see people win, and help them that's genuinely what our business is about.
So, absolutely. Yeah. Thanks Todd for breaking down the financial fundamentals that every property investor really needs to grasp to get the best result, which is what we're actually here for and what we want to achieve. So for, look, for those of you looking to delve deeper or get started on your property investment journey, do reach out to.
To Todd, he's ready to, to have a chat with you, find out where you're at and, and put some, some plans in place. So links are in the description there where you can find him and to reach out, email, et cetera. But look, for more details, please join us again next time for another episode where I think we're going to break down the next two pillars.
Yeah. The next two of the four. So, that's right. So. Fantastic, mate. Look, thanks for joining us and, look forward to chatting to you [00:16:00] again. Yeah, thanks, Adam. It was fun, almost as much fun as setting up some, uh, investment strategies. Well done. Yeah, thank you. Thank you for joining me today for Finance Fundamentals, Property, Business and Beyond.
We hope you've gained valuable insights into the complex world of finance and discovered some valuable nuggets to take with you. Remember the information provided in this podcast is general in nature and may not be suitable for everyone's financial needs.
It's crucial to assess whether information aligns with your individual circumstances before taking any action. If you found the podcast helpful, we'd greatly appreciate a five star review on your favourite podcast platform, and even better, sharing it with others who might benefit. Also, don't hesitate to send any questions you have via the link provided.
Stay informed, stay empowered, and until next time, make wise financial decisions for a brighter [00:17:00] future.