Mike Mortlock: Hi and welcome back to Geared for Growth. This week, we have a great interview with Christine Williams, the Principal of Smarter Property Investing. Christine bought her first property at 18 years of age, is a property investment specialist with mortgage and accounting qualifications. We have a great chat to her about some simple yet innovative concepts such as sleep test and cash buffers and also the 10 mistakes property investors make. Here's Christine. Christine Williams, thanks very much for joining us.
Christine: Thank you, Mike, for having me, I appreciate it.
Mike Mortlock: Excellent, now you've got quite a few runs on the board with property experience, you've been in the game for over three decades. You're a licenced real estate agent with accounting and mortgage broking qualifications, you bought your first property at the ripe young age of 18 and you're the Principal of Smarter Property Investing. What have I left out Christine?
Christine: Oh, thank you Mike for taking the time and effort to research me. Actually, I currently write for a couple of magazines, I write for Ripe House, the Frontier. Last year I was quite successfully nominated with Finder.Com in the innovative area and I went up against Optus ME Bank and the CBA Bank. Unfortunately, I didn't win the category, ME Bank took it all, however I felt quite proud to feel that my business and my information was actually in line with such esteemed larger organisations.
Mike Mortlock: Yeah, they're big competitors, aren't they?
Christine: They were yes, they were. Little ole me coming from Melbourne, but that's it. The other qualification I have, which is something very new is PIAA, it's Property Investment Advisory Association, I'm a member of that. Where I actually can advise on property and, my assistants out there would know as of the first of July, last year ... solicitors, accountants, mortgage brokers, financial planners are not allowed to give advice on property, but with my accreditation I can and it sort of sets me apart in the field of just listening to people's opinion and people taking their advisor's opinions when it comes to investing property, It's not my opinion, it's actually advice that I give. I feel quite proud to hold that accreditation and I also feel quite proud that there's not many females in Australia that hold that accreditation apart from finally being 200 of us anyway.
Mike Mortlock: Yeah wow.
Christine: That's really just come out of, as you said, three decades of trial and error, living life, making mistakes, finding out what those bumps were, making sure they didn’t turn into mountains and working through and learning as I went along.
Mike Mortlock: Yeah.
Christine: I think that's really where it all came from.
Mike Mortlock: It's funny, we chat to seasoned property investors all the time and even some of the ones that have got some dizzying results, so to say, I've made mistakes, I've learned a lot of things along the way. There's a lot to be learned from people who've made those mistakes, isn't it? Then perhaps not repeating them yourself.
Christine: Definitely and I think when you make a mistake it's how you handle it and yes, of course, you kick yourself and might, When in actual fact, you didn't know, because you didn't know or you didn't have access to the information or you perhaps might've been led down a garden path. I think making mistakes is probably the successes of the business, because you know not to make it again and you quite openly say where you've made those mistakes. I have to tell you, depreciation and not having any depreciation scheduled was one of them. Passing it onto my tribe and my clients and my family, my friends and so that they don't make the same mistakes.
Mike Mortlock: We're looking forward to leveraging off some of those mistakes over the next few minutes Christine. Let's start at the beginning, you bought your first property at the age of 18 and you cite that as a key time in your investing life. What was important for you at that time?
Christine: At the particular time, nothing more than young married woman, starting off, had their own home, when I first got married and together with the husband paying it off very quickly, because that's what you had to do. You owned your own home, have a family, then you work until you're 65 and then eventually you live off your pension. In hindsight of course, it was an excellent decision. The bad decisions that followed it was that we were fortunate to sell in boom, from a $15,000 investment it was sold less than ten years later or ten years later at 136,000.
Mike Mortlock: Wow.
Christine: That was in the seventies. Then, of course, with those extra funds, we just went and built a bigger house, as you did and then you did that again and you just built a bigger house, because it was all about the great Australian dream. I suppose the lesson in that was understanding that property was making money to get you something bigger and better but I didn't really understand it was making real money.
Mike Mortlock: Yes.
Christine: It wasn't until I became divorced and suddenly single and had to start out again. I came out with, after paying out debt and mortgages and private school fees, I came out with $15,000 and I had to start again. I suppose it was renting with two kids. It was around that time with my accounting diploma that the penny dropped about, "I can make money out of property." This didn't necessarily have to be a home because I actually settled with the renting. That took a long psychological acceptance.
When I settled with that and understanding that property could make money, that's when I really started investing and that's when I really started making mistakes. It was, "Read that fantastic book and follow that book and you'll be on your way." But it wasn't as easy as that, it was actually finding that right investment and working the systems, taxation system, accounting system, property cycle system. So many words, so much new terminology that I learnt along the way, now it's second nature and just a normal language to me. I'm finding when I'm working with my tribe and my clients it's teaching them the basics, that's what I learnt along the way. Successes with commercial property but a mistake with commercial property because I didn't realise that if you use commercial property as security, you had to pay commercial interest rates. It was at that time I decided to become a mortgage broker.
I thought to myself, No, I need to understand how, I understood leverage with money and banks. I understood that but I needed to know how to work the system better to suit me and my cashflow. Commercial property, as much as it ended up being a success was very much a mistake in the beginning. Yes, it's been making mistakes but learning from those mistakes and turning those mistakes into very big successes along the way.
Mike Mortlock: I'm guessing that a lot of it had to do with mindset as well. You mention the idea that you buy a home, you pay it off and if you decide you want to up-size because you did well out of the property, then you do that. I guess it's a mindset that comes from a different generation that borrowing money was maybe a necessary evil, that it's something that you should certainly avoid. How did that attitude get passed down to yourself from your parents? How did seeing them struggle financially affect your investing trajectory?
Christine: Yes, it's a very good question. Unfortunately, my parents didn't end up with a home until after I got married. Yes, they did struggle but what I learnt from my parents was if you work, money will come in and my mindset was the way to make money was to, well I left school when I was 15 and I had to go back to school and that's where I went back to school, night school and got my accounting diploma.
I thought the only way you could make money was by getting a better job, bettering yourself in career, educating yourself in career and so then for you would go up the career ladder and you would earn more money. Through that and through accounting and understanding my parents always worked but they didn't necessarily get anywhere. Factory workers, they didn't really get anywhere, it was always my belief that it was your career. Along the career path I realised that I had access to information. One of the first things I started to understand, once, I was comfortable with debt, You are right, it's a mindset. You think when you owe the bank money you're indebted to them, but in actual fact I understood true accounting. There was good debt and bad debt.
Mike Mortlock: Yes.
Christine: Bad debt was just paying off your own home. Good debt was actually leveraging that debt to buy assets, that assets would appreciate and they would either appreciate in equity or they would appreciate so much that when you sold you actually had cash and you've made a lot more than what you could actually save. Appreciating assets, good debt, bad debt. Good debt and leveraging from the bank and the bank becoming your friend. Yes, that's a part of the strategy that once I understood it and the light bulb went on, it was just no stopping me after that. I'm very comfortable with good debt.
Mike Mortlock: Yep, fantastic. Now you've got a new book that's coming out, which I want to touch on a little bit later. The title, Suddenly Single, leads me into the next question, obviously you did find yourself being suddenly single and raising two teenaged daughters. I guess you mentioned that you were determined to not see them struggle in life. Was that a big driver for you in pushing yourself to get the qualifications and to learn what it takes to be a successful investor?
Christine: Oh, definitely, Mike yes, definitely. When I talk to my clients and my tribe, before anyone evens decides to invest I think they need to understand their "why," why they're doing it, because it's the why that keep you on track. People tend to say, "Oh, it's about making money," or it's just about accumulating so many houses and all this sort of stuff. No, it's not.
I had learnt through becoming suddenly single it becomes the why. The why was I didn't want my girls to have the childhood that I had, although it was happy, it wasn't financial. I didn't want my girls to have the same childhood, so It was very important to me to make sure that I did have a home for them. Along the way I started to understand that I could have both.
If I parked my money correctly and if I invested wisely, I could end up with both. Today I can sit here and tell you I have both. I have a property portfolio and I also have a home and I've remarried. Through my own children and my step children, who are all adults now, and there are grandchildren on the scene. I've taught them the lessons that I've learned and we are encouraging them and they are doing very well with investing in the property market themselves.
It really came out of desperation and accepting that there were ways to do this and still feeling comfortable about being in debt and being able to sleep. I talk about the sleep test, there are people out there that don't sleep now because they have a mortgage and they wonder how they can only pay their mortgage and why would you have a second, third, or fourth mortgage if you're going to have investment properties. Really once you understand the system and if you can sleep three nights in a row after you've made the decision, it's right for you.
Mike Mortlock: Yeah.
Christine: If you can't sleep, you haven't passed the sleep test so don't do it, you need to look for another avenue.
Mike Mortlock: It does sound very deceptively simple, I guess there need not be anything more to it really. If it's something that you're innately comfortable with then you're going to sleep okay at night, I see there's definite merit in that. What keeps you going today, Christine?
Christine: I love what I do, one of the things I talk about in my sessions and my seminars when present to people is where do you want to sit on, what I call, "The Wealth Pyramid." Do you want to work for the rest of your life and end up on a pension or do you want to work for the rest of your life and portion some of your savings into investments to give you a lifestyle of independent wealth?
What drives me is when I'm working with clients and I can see the light bulb, I can see that second, that thought, the look on their face, and they go, "Yep. I really understand this. I get this." They know that they're making a decision that they're comfortable with. That's what drives me, I suppose that's what helped me build Smarter Property Investing. It came out of helping family and friends and eventually thinking there is a strategy here and why not share it? As a female, it's just something that I do, you sit me down with a cup of coffee and I just keep talking and I just share a little bit of my story. More importantly, if I can do this, anyone can do it if they really put their mind to it.
Mike Mortlock: Getting back to that thread of mistakes and you've obviously highlight the fact that you've made a number of them and you can help people to avoid them. You've got an e-book where you cite the ten mistakes that residential property investors make. Let's get back into the nuts and bolts of property. Are you happy to run through some of those with us?
Christine: Of course.
Mike Mortlock: Now you've got an e-book we might be able to share with some of that as well, it'll go into some detail. Yeah, kick us off.
Christine: Ten mistakes. The first mistake people, not the first mistake, but one of the mistakes people tend to think is that they think that they have to do this on their own and they don't seek the right advice. You need a team around you, you definitely need an accountant and a solicitor, in some cases you need a financial planner, you definitely need a depreciation specialist, a Quantity Surveyor.
It's all to do with numbers. That can be a big mistake by not having a team, by being in fear of feeling that you have to pay consulting fees. I learnt at a very very young age that you need to seek the right advice. It's also important to make sure that you're very comfortable with those advisors, because unless you're prepared to, what I say, is completely undress in front of these advisors, how could they possibly get you the advice that you need? That's a very very big tip. Another tip is really understand your numbers.
It's all very well to say that you've got a mortgage and I can afford it, unfortunately some people they book up interest free furniture and holidays and goodness knows what, and they forget that they've got school fees or the kids have got lots of after school curriculum activities. They forget that, you've really got to know your numbers, be honest with yourself. It is okay to enjoy life, it is okay to go out to dinner, it is okay to go on holidays, it is okay to meet girlfriends and friends for coffee, it is okay to let the kids have parties and things.
You've still got to have lifestyle balanced while still investing. That's another big mistake, people just don't understand the numbers. Another mistake I find is that people oh so often want to buy the house next door. They just want to buy the house next door or on the street because they have done so exceptionally well. They may have purchased their property at one point and they've been living there for ten years. It may have doubled. If not, it may have only gone up 70%. They go, "Wow, my property's done so great. I think I should buy the property next door because I can watch the grass grow, watch the grass being mowed and I could make sure that the tenants are going to look after it. If anything breaks down I can nick in there and fix it."
Mike Mortlock: Yep.
Christine: No, big mistake. That would have to be one of the biggest mistakes. It's an investment property, it's a business, it’s not going there every day and looking at it because it'll do your head in.
Mike Mortlock: Is that something that you find you have to overcome with your clients is to get them to move away from the emotional part of the investment?
Christine: Definitely! I suppose that's the core of that mistake, because you are so emotionally attached to your own home people who invest in their first property, they treat it exactly the same or they give it the same emotional thought process. That's the no. To become an investment property, to grow an investment property portfolio it's a business. You're actually starting a business.
We've got our employees out there, it's the people that pay them, it's their responsibility for the business. If you're about to become a property advisor you're actually becoming a business owner and your business is building a property portfolio and gaining out of that. The emotion has to be taken out of it and that's why you need to know the numbers. It's about numbers, it's about capital growth, return on your investment, and why you're actually doing it.
Why are you accumulating these properties? Are you accumulating it to liquidate and have cash to put in your super? Are you accumulating the legacy for your children? Are you accumulating for that world trip? You've got to understand why you're doing it because the accumulation stage is where we accumulate because of what we're doing but it's the exit strategy as to why we've done it.
I think when we go to buy an investment property we need to know why we're buying it and we should be thinking about selling it. If we needed to sell it tomorrow, we bought it today and we needed to sell it tomorrow, how quickly can we do that? What's the exit strategy? I'm very focused on not allowing my clients to make those mistakes and don't buy the property next door. Nine times out of ten you're paying for someone else's gain and you're not going to sleep because you're going to be so worried about the lawn not being mowed, where it's not your responsibility.
Mike Mortlock: It's a blessing and a curse being able to see it out the window, isn't it?
Christine: Exactly. Another big mistake I find landlords make, they don't understand that their property manager should become their best friend. Your property manager, although you are paying them a fee and once again, they're a part of your team. They're looking after your half a million dollar asset so give them the range to allow them to do that and advise you on the particular tenants or what you should be doing, listen to these people. They're pretty basic mistakes. Those are mistakes that the majority of investment property owners make all the time. I see it time and time again.
Mike Mortlock: Now I want to talk about the types of properties that you favour. Obviously, you're a residential advocate, but what sort of properties do you look for?
Christine: Myself personally, I have a diversified property portfolio in those dwellings, Okay, but that really depends on the client. As much as I talk about this being a business and don't listen, well take advice from advisors but don't listen to uncle Tom at the barbecue or the relation that tells you that you should never invest in property and they've never done it in the first place anyway.
The type of property has to sit well with you. This is your business, this is your reason for doing it. If you're a person that loves apartments, but doesn't want to have the thought process of making sure that they have to have the lawn mowed and responsibility for gardening for their tenants, that's okay. You might be a person who can't stand apartments and you only want house and land packages because you don't want apartments, that's okay. You might be the person that is happy to have a diversified property portfolio and have apartments, house, and land, and townhouses. That's okay.
You have to understand that because it's your decision, I still work with what is comfortable with the client. There is no right or wrong in anything I've just said. It's just what you're more comfortable with. Once we do that and once we understand where that comfort level is, we then go back and work with the numbers, work with the sleep test, work with the different type of properties.
I do explain to my clients though, a diversified property portfolio can help in many ways because we have many different types of demographics, we have families with children, we have single adults that have chosen to be single, we have, unfortunately, divorced parents that want to share properties for their kids. We have an ageing population, we have demographics whereby they're transient employees such as paramedics and nurses and so forth they go from different states and different hospitals and so forth. We have so many different demographics, we have so many different types of dwellings that will suit these demographics.
I get my clients to understand that that's why a one bedroom apartment can still be a very good investment in your property portfolio for a particular demographic. Just as much as a four bedroom, two bathroom home can be very important in your property portfolio as well. There's not one size fits all, it's what suits the client’s comfortability level and what actually suits their numbers.
Mike Mortlock: I guess there's a bit of a compromise between you don't want them to be overly emotional but they've still got to be able to get their head around it. They've got to be able to sleep at night and they may have some pre-conceived ideas about what is a good property and what's not. You're enabling them to have that level of comfort but not be overly emotional to the detriment of say, the growth potential of the property, is that fair to say?
Christine: Yes, most definitely. It is, at the end of the day, it is their decision but I help them work through the emotional, I actually help them work through the cloud, the fog. There's a lot of fog out there and I get them to push the fog away and make a decision. It is their decision but I help them understand that by making that decision, they've made that decision that they're comfortable with knowing that it really is around the numbers.
Mike Mortlock: Yeah. If they're really desperately interested in a one-bedroom apartment, I guess your way of working with that is to say, "Okay, that can be a great investment but we've now got to focus on the location, because one-bedroom apartments will be in demand for, perhaps, capital cities, but not so great for performance wise in, let's say, Tamworth."
Christine: Definitely. Yes, I've got an apartment in Tamworth. Yes, Mike definitely. When they choose a particular dwelling, I then go into research mode and I then start talking about the ten macro or micro indicators as to why I would choose that particular dwelling in that particular area for that particular reason. Yes, we can start off with the dwelling type and then I hone down as to whether or not it is a good investment or a bad investment and why.
Mike Mortlock: How important is the location and what specifically do you look for when you're looking at a particular region?
Christine: In my sessions, I talk about, well I ask people to put their hand up and say, "Has anyone in this room ever rented?" Nine times out of ten, nine people out of ten put their hands up. I ask the people who have never rented, the people who have their hands up, are they any different to you or I? No, they're not aliens.
What I'm talking about there is when you're an investor, you should really be looking at what tenants want. When you're purchasing a property, you as an individual, what do you expect around you? What do you need on an everyday basis? It has to do with amenities and facilities and what those would be. Obviously, if you've got children, schools. If you don't have a car, obviously public transport. If you do have a car, what are the motorways like? Shopping centres, doctors, hospitals, sporting grounds, community things.
What is important to me about location is when we're talking about the particular type of demographics for that particular type of dwelling, are we making sure that they're going to be comfortable in their surroundings and they have access or walking access to the things that they want every day. Someone who is living in a one-bedroom apartment most likely wants the café lifestyle. They want to walk downstairs and see people and grab their coffee and or something a quick meal. People who are living in a four bedroom, two-bathroom house most likely have children, so they want access to sporting facilities, shopping centres, and schools.
It's more about the demographic as to what is in the location that that demographic wants to live in as to what I'm talking about. That comes under the ten macro or micro indicators, anywhere from demographics, infrastructure, transport, and employment hubs sectors. We don't want to be driving an hour and a half to where we're working and all that sort of stuff as well. Location is very important but the location is not just the thing that is the beginning and the end, it's actually got to do with the demographics that are going to live in that location as well.
Mike Mortlock: Yeah, if we take one step higher up, assuming that we're looking at two different locations maybe in two different states. They both have the same sort of proximity to amenities, schools, transport and that sort of thing. How do you look at a particular region over another when it comes to things like the supply of houses and apartments, the employment growth, the population growth and that sort of thing?
Christine: Something pretty basic from that could be, there's a whole research and there's a whole formula and there's a lot of things I would look at. A tip for your listeners would be if they are considering a location and that location has ticked all the boxes and then they're thinking about a particular type of dwelling, I.e. either apartments or a townhouse or a house and land. My tip varies to ring half a dozen property managers, don't call the real estate agents because they're there to sell. A property manager, their job is to actually look after the investment properties for landlords.
A property manager will tell you whether or not the dwellings in that area in oversupply or under supply. If they're in under supply, it means that they've got a list of people waiting to be housed in that area. If it's in oversupply, they haven't got anyone in the books. If it's in over supply, why is it in oversupply? It could be a lot of developments have just hit the market and people want to live in something new rather than old. It could be that a major piece of infrastructure has started there, it could be road work, it could be new schools, it could be a new shopping centre or whatever.
Your property manager is and will have a wealth of information for you that people haven't even considered. It's worthwhile speaking to two or three in the area that you're thinking about and actually get their take on the area, it will help you make a decision.
Mike Mortlock: I think that's a great tip. I'm imagining that property managers would be quite forthcoming with that information and obviously there's a chance for them to pick up the management as well. You find them generally easy to chat to?
Christine: Definitely! Understand they're also assessing you as a landlord because they don't want to take on landlords that aren't prepared to work with them and make sure that the property's maintained. Understand that it's a two-way street but it's a very good exercise.
Mike Mortlock: Yeah, I think that's fantastic advice. I want to talk about your strategy about holding properties for the long term. You say that's a pretty important thing to do rather than say finding a boom location and flipping a property in a short time frame. Why is that part of your strategy, the long term holding of property?
Christine: It's a very good question and when I do talk about my strategies, I'm very open and say, "I'm a buy and hold girl." I have bought and sold property but I'm nine times out of ten a buy and hold girl. The reason why I say that is because I actually work with the three T's, I call it the tenant, taxman, and time. Time is where you actually start accumulating real wealth.
Yes, you can buy a property today, renovate it, pretend that you're on the block and get it done in twelve weeks and sell it and make money, whether or not that be tens or hundreds of thousands of dollars. You might want to do that, I have renovated and I don't want to do it anymore. You might be very comfortable with that. When I'm working with my clients I'm a buy and hold. It's more specifically because that's where I believe the real wealth is accumulated. Time is where real wealth accumulates.
That's why we've got property cycles. Those property cycles are at different points in every different suburb in every different state in Australia. As you're accumulating and building your investment property portfolio, you then have the opportunity that when you do go to sell, if you intend to sell, you don't have to sell in a down market, you can be selling in a higher market. There's a reason for me, there's lots of reasons to have a diversified property portfolio, it's about buying when in the right cycle, property cycle and selling in the right property cycle.
Holding it for a minimum of ten years, I'm a minimum of ten-year girl, holding it for a minimum of ten years allows you the opportunity to pick and choose what you do with it down the path. Yes, that's my reason and that's what I'm comfortable with.
Mike Mortlock: Now you mentioned also that in your e-book you refer to buying quantity over quality as being a mistake. Does that mean that you're a blue-chip sort of gal as well?
Christine: Yes, I would. I have watched and listened and listened to people and I do know people that have got multiple twenty plus properties. Then when I look at the value of their property portfolio, it could be the same value as someone who's got perhaps five properties. Although those properties are giving them excellent cash flow, they're not giving them capital growth.
I'm a numbers girl and cashflow is king, and cashflow is the thing that helps you accumulate and keep on buying. If you're just getting cashflow from a property and you're not building wealth, you can't get equity. Equity is one of the things that help you leverage with the bank. Quantity may not necessarily be the right balance in your property portfolio rather than quality. When you say blue chip, people might be thinking obviously she's talking about blue chip suburbs. No, not necessarily, actually not necessarily, definitely not. What it is, it's about the quality of the product, the dwelling.
The potential capital growth in the area and how long will it take to get that? I talk to people about to become a brave investor, you get very brave and you actually start investing in areas that are brand new. Brand new suburbs, brand new master planned areas. To get in on the ground of, what I call, the basin or the ground floor, you have to be very very brave. Nine times out of ten there's not even a shopping centre there, let alone for transport. We know that if you have got your numbers right and you can hold that property you're going to get the best amount of capital growth.
Mike Mortlock: I was just going to say that I guess part of the risk is that there's no growth precedents either if you're getting into a new suburb. That's where you're talking about that bravery?
Christine: Yes. Definitely. Of course, the infrastructure and the master plan of the area will tell you what's happening to the area. Then, of course, an investor might get in, what I call, about the third or fourth floor. People have started to invest in shopping centres being built, schools are coming along, so they’ve missed out on a capital growth but they're going to continue to capital growth. The whole blue-chip thing is knowing that that location is actually going to turn into a very exciting suburb. It's going to take a few years and then you're the one that's gained the capital growth, which is equity, which allows you to buy again to continue to buy. It's all got to do with the numbers.
Mike Mortlock: Yeah, okay. Just getting on to those numbers, you mentioned that cash is king. We're talking about yield there but obviously you're talking about having a portfolio of twenty cashflow positive properties with zero growth is not really part of your strategy either. Does yield factor in any more than really the serviceability of the investment?
Christine: I'm not really sure how to answer that. Yes, yield should always be taken into consideration. This is where it's numbers. When I keep on saying you've got to know your numbers, you've got to know when that property's giving you three to four percent return or that property's giving you five to six percent return. That's a yield on the property. You also need to be comfortable with, when I'm teaching my clients, I get them to be comfortable with a three to five percent capital growth. Now we do know that we seem to be in a boom time in Melbourne and Sydney. We're seeing 20% growth over 12 months. That's an exception to the rule. No one should think that this is going to continue to happen. If you do know your numbers and you're conservative with your numbers, you will be very successful.
If you work your numbers and you know that you want a minimum of four percent yield, that's what you look for knowing that you shouldn't expect any more than a five percent growth. Of course, if we get five percent yield and ten percent growth, it's a bonus. We don't count on that, we certainly don't base figures on that. We're more conservative and then you will end up being more successful. It just happens. You can't predict which ones going to be the most successful.
Mike Mortlock: Yeah. Exactly. You don't necessarily target a magic sweet spot with yield, it really just comes down to the client and whether they've got the capacity to hold on to the property. Let's say it might be a low yield but you see the potential for capital growth as being high and a good fit for that particular client, is that fair to say?
Christine: Yes, it's more about a good fit for the client. It's the numbers and a good fit for the client. I'm also very aware that as much as we talk about cashflow is king, it is about that. I suppose the next tip is things will go wrong and we need to make sure that we just don't, well whatever the bank says we can borrow, we don't go to that maximum for the sake of going to that maximum, we just make sure that we've got a cash buffer in place for when things go wrong. I've heard people say you've got to have three months mortgage repayments.
These are some of the things that are in my book, but it's not just the three months’ worth of mortgage repayments on the investment property, it's actually three months’ worth of your own mortgage repayments plus the investment property, plus rates and so forth. That's the next one of my biggest tips, have a cash buffer. The bank says you can borrow an extra twenty or thirty thousand, please do, keep it in an offset account, please do borrow it because things will go wrong.
You might not have a tenant for two weeks. If you've gone into an investment property and your waiting with basic breath that they pay their rent just so that you can pay the mortgage because you can't afford that, you're in the wrong level of mortgage or you shouldn't have been doing it. Whereas the cash buffer allows you to do that and because there will be a time where you won't have a tenant for a couple of weeks, there will be a time when the rents are due at the same time, there will be a time when the property management fees are being paid and the rates, you might have been out of a job yourself for a month and you can't claim a tax deduction for that month.
The cash buffer is probably the key to knowing your numbers and it is the key to the sleep test.
Mike Mortlock: Yeah. The cash buffer is something that obviously you talk about a lot, It's not something that's a very pervasive idea in the industry or at least not in print. It's obviously a cornerstone of your investing philosophy. Have you seen examples with clients when they've got into trouble by not having the capacity to weather the storm of some of those unforeseen expenses?
Christine: Yes. We'll take the word "clients" out of that because none of my clients don't have that problem but yes, I have seen that with investors, I have seen that investors consistently and continually. Once again, when I'm presenting the analogy that I give there is that we've got a $400,000 property we purchased five years ago, today it's worth $600,000. We've lost our job, we haven't got a tenant, rates are due. What's the first thing you do? Everybody says, "You sell the property, you sell the investment property.
What I show them is that by the time they sell it with all the fees, real estate agent fees which are legal, Capital gains, tax, the variation in the rates, and expenses that are outstanding.
They don't end up coming, they might come out with $100,000 which is great but what they've lost, they've lost an appreciating asset. They hadn't thought about their own mortgage, because in actual fact, their own home was more of a risk than the investment property. They come out with $100,000 and they've lost their appreciating asset. Then they went and got a job couple of weeks later. If they have of had $20,000 or $30,000 sitting in an offset account, they wouldn't have had to of sold, they would of still been able to sleep at night. They would have been able to make a very clear decision about the next job that they were going to take on, they wouldn't have to jump into a job that they didn't want and they wouldn't be worrying about kids and putting food on the plate, all for the sake of an extra $20,000 or $50,000 sitting in an offset account that they borrowed five years ago that was there for bumps in the road.
I'm very very specific with my clients, you don't borrow it to go on a holiday. It's the capital pot of gold for your investment property. I call it cash buffer, It sounds much of today very simple, but it is, it's a very simple idea.
Mike Mortlock: The sleep test, the cash buffer, they are very simple ideas but fantastic advice nonetheless.
Christine: Thank you.
Mike Mortlock: I just wanted to touch on the strategy that you talked about before where you're looking at purchasing in brand new suburbs. I'm guessing that we're talking about house and land packages and things like that. If that is the case, I'd love to hear some advice on how best to purchase that as an investment.
Christine: You've got to be comfortable in doing it. It's not a risk, actually I take that back, any investment is a risk, getting up in the morning is a risk. You've got to be comfortable in knowing what you're doing and you've got to actually understand the research.
If we look at this suburb and we know that our supermarkets, Coles, Safeway, Aldi, are not going to build there. If we know that McDonald's is not coming and if we know that Bunnings aren't coming, it's not the suburb to invest in. If our large organisation retailers aren't prepared to invest themselves in that area, it's not going to grow. If we do know that our large retailers, McDonald's and Bunnings and Coles and Safeway are going to build in that area, we know the people are going to come.
The research model that I use is basically the same research model as there’s. A Safeway or a Coles store, they know that there's going to be 15,000 people within three kilometres of it. 15,000 people need a lot of houses. We know that the suburb is going to do what it's going to do. The other advantage there is build it, they will come. You do need to know who the retailers are that are going to invest in that area as well.
That's a new suburb, but also what we need to understand is that there's a natural increase in capital growth when the population grows. When we look at where we grew up and then we think about when we would have purchased our home, it's generally three to five suburbs away from your parent's home. Then if you have adult children, they generally can get into the market three to five suburbs away from where you originally bought.
If you look at generational population growth and you look where the next generation went to actually buy their home, you actually see that the suburbs grow, and in Melbourne we're very fortunate about that because we've got a lot of flat land. You can actually see how a capital city grows, it grows with generational population growth. Of course, there's population growth in states that are helped by migration and then there's actual migration states population growth as well. People live in Melbourne, they don't like the weather so they move to Queensland. I've been saying to all my Queensland friends myself today, they're all okay after Cyclone Debbie.
Mike Mortlock: Yesterday actually and just snuck out of the airport in time.
Christine: Oh, good. I'm sure you needed an umbrella too. We look at generational population growth and we actually look at migration population growth. These people have to live somewhere, they have to put their heads somewhere in the night time. Yes, I agree with the five, ten, twenty K range in our capital cities but I also agree with the 30, 40, the 60 K range in some capital cities. It's a natural population growth and it's a natural happening there. You get in on the ground floor and then of course you get the biggest capital growth.
Mike Mortlock: You're leveraging off the research departments of massive companies. Bunnings don't go and put a store somewhere as a punt, do they?
Christine: No, they don't, no. The answer to the question is yes. The research companies that I use are the same research companies that these organisations use. We do know, if I know where a Bunnings or a McDonald's or a Coles supermarket is going to be built two years in advance, you know that that area is going to have a population spurge. I'm not suggesting in any shape or form that you have to be in new suburbs all the time, I'm saying that that should be a part of your diversified property portfolio. As I said, I agree with the five, ten, fifteen, twenty K range of most capital cities. Then of course, you should consider 30, 40, and 60 K depending on what that capital city has, depending on the infrastructure, depending on how the municipalities have their town planning sites set out. It's all research and it's all investigation and it's all knowing where to look for this information to see where the next Bunnings or the next McDonald's are going to build, because build them and people come.
Mike Mortlock: Yeah, exactly. I understand that we're trying to tease out some great tips from you in a very short time frame, there's obviously a lot of different strategies that you have for your clients. If people are wanting to get in touch with you Christine, what's the best way?
Christine: Thank you, Mike I appreciate that. I would love anyone to visit our website. Our website is smarterpropertyinvesting.com.au then you'd like to go in and have a look around, you'll see some testimonials, you'll see some hints and tips, that would be really great.
What I like to do with clients is have a discovery session first. We need to have a discovery session, which takes about 90 minutes. In that time frame, it's all about the potential client, it’s about them, what they would like to achieve in the time frame that they would like to achieve it and why they're doing it. We see whether or not investing in property is a good fit for them. It may or it may not be. If it is, are we a good fit to work with each other? It's a personality thing, I find it that discovery session it's well worth investing 90 minutes of your time to see whether or not this really does suit you.
At that discovery session, I can actually hone in on a strategy once listening to their wants and needs and their dreams and what they want to achieve. It's so I can hone in on the strategy. Not every strategy suits everybody, it's not one size fits all, it's not about putting you on a sausage factory and saying, "This is what you do and that's the next thing that you do." Everyone is different, everyone's reason is different and everyone's process will be different and everyone's emotional level will be different, I actually work with them.
Please do go to the website and go to the discovery session section and if you'd like to book in and say that you've come through MCG, we'll waive the fee. The fee was $97. We'll waive it and we'll just see whether or not if investing in property is you and whether or not we're going to suit each other working with each other. That's all I suggest, I do suggest it's well worth investing 90 minutes of your time to see if this will suit you.
Mike Mortlock: You've got to love that, thanks for that kind offer Christine. Now I want to quickly talk about your new book that's coming out, "Suddenly Single," which is seven smartest steps to design the life you want and discover the key to safe investing. What can readers look forward to in that book?
Christine: Probably an extension of what we talked about today. It is a bit about my story, The first chapter's really a little bit about my story. Then we just get into nuts and bolts of your "why" and how we do that. There's going to be some worksheets in the book, there's going to be some break out areas, there'll be some testimonials in the book from clients. there'll be some figure work, there'll be a couple of exercises that you can do. Then really just asking the question, is this right for you and if it is, investigate it. Yes, that's it. Some tips, the mistakes I've made and successes and how I've overcome the mistakes by creating a successful property portfolio.
Mike Mortlock: Awesome, look out for that. There's always a bit of a delay with our podcast going live but it should be just about the time where that book will be very very close to coming out, if not out. We'll share some links to that as well if we can.
Christine: Oh, thank you Mike.
Mike Mortlock: My pleasure. Before we go I just wanted to see is there one piece of advice that you could impart to property investors or potential property investors, what would that be?
Christine: I think taking the first step and the first step is if you think you can't do this, don't rule yourself out. My youngest client's 23, my oldest client is 68.
Mike Mortlock: Wow.
Christine: 68 and had never invested. If you think you can't, don't stay that way, start asking some questions. Do not ask someone at the barbecue or the Easter barbecues and everything. Do take the time and effort to invest at least a few hours to research whether or not it's right for you. Then at that point, you will then make a decision. It's not about saying you can't, it's not about saying you can, it's about investigating. When I finish my sessions, I bring up 2007. Guys, where were you in 2007? Wow, that ten years went fast, didn't it? It went in the blink of an eyelid. Then I ask, where would you like to be in 2027? Trust me, the last ten years went very quickly, the next ten years are going to go just as fast. We have time. If you're in your twenties of course you've got time. If you're in your forties, yes, you've got time. If you're in your fifties, time is the one asset we can't get back, It's the one commodity that we can't get back. The piece of advice is, ask the question, see whether or not investing in property is something right for you and then make a decision. That would be my piece of advice.
Mike Mortlock: I think that's very sagely Christine. I just want to say thank you very much for your time, it’s been a pleasure.
Christine: Thank you, Mike, I appreciate it. Good luck to all your listeners.
Mike Mortlock: Thanks for joining us.
Christine: Go Depreciation schedules, we love them.
Mike Mortlock: Yeah, we love them of course. Thanks a lot Christine, have a good day.
Christine: Thank you, bye.
Lets get in touch and talk about what you'd like to hear on the show.