Episode #71 How to build a $7 Million Property Portfolio from scratch

In this edition of the Property Buyer podcast, hosted by Rich Harvey, CEO of Propertybuyer.com.au, guest Jeremy Inazzelli, a founding partner of KHI Accounting Group, discusses strategies for building a successful property portfolio. Jeremy emphasizes the importance of quality over quantity in property investments, the necessity of understanding financing, and the power of leveraging equity. He suggests that early action on investment opportunities, such as adding a granny flat or conducting renovations, can significantly enhance a portfolio's value. Additionally, Jeremy highlights the need to plan for the future, considering factors like family planning and career trajectory, and the potential for pivoting investment strategies as one approaches retirement. He also underscores the value of understanding money's depreciation over time and the consistent appreciation of properties, advising that money saved is better invested in assets to keep pace with inflation.

• The podcast focuses on residential and commercial real estate in Australia.
• It offers expert interviews, market trends, insights, and practical tips.
• The target audience includes home buyers, property investors, commercial buyers, developers, and those curious about the property market.
• The goal is to share knowledge, strategies, and experience to help listeners achieve their property goals.

"Welcome to the Property Buyer podcast, where we explore the world of residential and commercial real estate to help you make better decisions about buying, selling or investing in all types of property."

The quote introduces the podcast's purpose and scope, emphasizing its role as a guide in real estate decisions.

• Jeremy Inazzelli is a founding partner of KHI Accounting Group.
• He is a successful property investor who uses investment strategies and tax-effective structures.
• Jeremy is passionate about helping investors grow wealth and prepare for retirement.

"Jeremy Inazzelli is a founding partner of KHI accounting Group."

The quote introduces the guest, highlighting his professional background and expertise in property investment.

• The podcast has a tradition of asking guests for a "thought of the week."
• The quote from Johann Wolfgang van Goethe emphasizes the importance of action.
• Jeremy agrees and shares his motto: Dream it, believe it, act on it.
• He stresses the importance of execution and learning from others' experiences.

"Whatever you can do or dream, you can begin it. Boldness has genius, power and magic in it."

This quote serves as a motivational thought that encourages individuals to take bold steps towards realizing their dreams.

"It's all well and good to have the great plan in your mind, but you've got to find a way to execute it."

Jeremy emphasizes the importance of turning plans into actions to achieve goals.

• Jeremy started his career in accounting and was inspired by high net worth individuals who invested in property.
• He attended seminars and learned from others' experiences, which motivated him to start investing.
• He initially focused on quantity over quality in his property portfolio, which led to challenges.

"Seeing these people actually do it was enough motivation for me to start learning about it."

Jeremy's motivation for property investment was sparked by observing successful investors in action.

• Jeremy realized that focusing on the number of properties rather than their quality was a mistake.
• He experienced high repair costs and poor tenant situations with lower-quality properties.
• This realization led him to shift his focus to acquiring better quality properties with potential for growth.

"I was buying cheap property at the time, just for the sake of getting a number."

Jeremy reflects on his initial strategy of prioritizing the number of properties over their quality, which he later identified as a mistake.

• Jeremy learned that the costs of maintaining low-quality properties could negate potential capital growth.
• He advises that investors should focus on the quality and potential of properties rather than just increasing the number of holdings.
• The shift from quantity to quality helped Jeremy refine his investment strategy.

"The biggest lesson that I learned was, Jeremy, property investing isn't just about a number of properties. It's also about the quality of properties that you're purchasing as well."

This quote summarizes the key lesson Jeremy learned about prioritizing property quality over quantity in an investment portfolio.

• Investors often fail to include the cost of borrowing for deposits in their forecasts.
• Jeremy emphasizes the importance of treating property investment like a business and knowing the numbers.
• He recommends monthly reconciliations of property portfolios to manage and plan future investments effectively.

"People not knowing their numbers is where I see the biggest mistake, and then that doesn't give you the plan to move forward."

Jeremy identifies a common mistake where investors do not closely track their financials, hindering their ability to plan and make informed decisions.

• Jeremy advises understanding the desired outcome and working backward to create a plan.
• Consulting with mortgage brokers early on is crucial to align borrowing capacity with investment goals.
• He warns against analysis paralysis and suggests finding a personal path with the help of professionals.

"I probably pay more emphasis to the lending strategy early on in your portfolio."

Jeremy emphasizes the importance of having a solid lending strategy from the beginning to support the growth of a property portfolio.

• Stephen Covey's principle of beginning with the end in mind applied to investment goals.
• For a goal of $200k passive income, approximately $5 million of unencumbered property needed.
• Importance of assembling the right team: accountant, buyer's agent, mortgage broker.
• Emphasis on avoiding analysis paralysis and choosing a strategy to move forward.

"Begin with the end in mind, so if your end goal is literally, you know, 200k worth of passive income, yeah, you're going to need to be pretty close to $5 million worth of unencumbered property to deliver that."

This quote highlights the concept of setting clear financial goals and understanding the scale of investment required to achieve them.

• Different stages in the investment journey: novice, intermediate, and advanced.
• Importance of starting with stable, low-maintenance properties for beginners.
• Avoiding negative experiences with problematic properties.
• Gradual progression towards more complex investments.

"For people that are starting in the portfolio journey, you need to be looking at your really good cookie cutter properties that are going to have low maintenance, give you that really good taste and flavor into the investment journey."

This quote emphasizes the need for beginners to start with simple, reliable investments to gain experience and confidence.

• Analogy of learning to walk before running in investment strategies.
• Suggestion to acquire residential properties before exploring commercial options due to vacancy risks.
• Importance of understanding the basics before engaging in more sophisticated investment strategies.

"You've got to learn to walk before you run. You know, I mean, you're at a stage now where you can do quite advanced type of strategies and investments."

This quote underscores the necessity of mastering fundamental investment principles before attempting more complex and potentially riskier strategies.

• Criteria for choosing an investment area include council friendliness and processing times.
• Consideration of macro and micro factors: population growth, job availability, and gentrification.
• Identifying the target market for the property and ensuring the investment matches their expectations.

"Location for me is very important. Now, one of the first criteria that I look at when I'm choosing an area is how easy it is to get things through council."

This quote stresses the significance of location and local government efficiency as pivotal factors in the investment decision-making process.

• Evolution of investment preferences towards properties with an 'x factor.'
• Early investments in houses and townhouses, later transitioning to properties with value-add potential.
• Encouragement for investors to seek properties where they can actively create additional value.

"So earlier on, it was a mix of houses and townhouses. Rich, and I found that as, again, I evolved. I wanted more x factor."

This quote reflects the speaker's personal growth in investment strategy, highlighting a shift towards properties with greater potential for value enhancement.

• Discussion of a successful investment in a Greenfield area with substantial returns.
• Acknowledgment of the role of market timing and luck in investment success.
• The strategy of selling at market peaks and reinvesting the proceeds into new deals.

"The overall cost was about 900 grand to build the duplex in the land and then two years later sold the whole thing for nearly $2 million."

This quote illustrates a specific example of a highly successful investment, emphasizing the importance of timing and understanding market dynamics.

• Challenges and strategies for financing a growing property portfolio.
• Use of trusts and a mix of commercial and residential properties to balance cash flow.
• Willingness to sell and reinvest to optimize the portfolio and achieve financial goals.

"So financing, it's always been a tricky thing for me. So as my income's grown in my profession, that has helped the right structuring has helped me quite a bit as well."

This quote discusses the complexities of financing multiple properties and the role of income growth and strategic structuring in managing a large investment portfolio.

• Discusses the importance of increasing personal income to service property investments.
• Emphasizes holding properties rather than selling quickly.
• Highlights the strategy of trading properties to recycle equity into better opportunities.
• Mentions having a mix of residential and commercial properties to improve cash flow.
• Advises on looking at the real value of properties and what the market desires.

"So firstly, you said your income increased. So that's one tip I say to people, keep improving your skills, keep improving what value you have as a person, because you can't just always close the door on the boss and go, property investing, you need it, you need a regular income in order to be able to service your properties."

• The quote emphasizes the importance of personal income growth to support property investment.

"Secondly, you said holding your property, some people are too quick to pull the trigger. But secondly, thirdly, you also said you trade some and that's great. You're recycling your equity into a bigger and better opportunity."

• The quote highlights strategies for managing a property portfolio, including holding onto properties and trading up to maximize equity and opportunities.

"You got a mix of resin commercial and that really helps you to cash flow your whole portfolio."

• The quote points out the benefit of diversifying property investments between residential and commercial to balance cash flow.

• Discusses the significance of understanding the finance spectrum and structuring investments properly.
• Suggests utilizing the right structures, such as trusts, for favorable bank treatment.
• Explains the importance of learning how to finance deals and work with banks.

"The art is not sometimes necessarily just buying the property, it's learning how to finance the deal."

• The quote suggests that the skill in property investment often lies in securing financing rather than the purchase itself.

"If you can get the properties into the right structure...there are some banks which do favor the way that some investment properties act within certain structures, like trusts."

• The quote discusses the advantages of using proper investment structures to obtain favorable financing from banks.

• Highlights the importance of planning around windows of opportunity, such as periods of high income.
• Advises being conscious of future family planning and its impact on borrowing capacity.
• Emphasizes treating borrowing capacity as a valuable resource and using it strategically.

"If you know that you've got a window of opportunity, your income is absolutely fantastic because you've worked three jobs consecutively for the last year, then you've got to make the best possible outcome that you can with inside that time frame."

• The quote advises taking advantage of periods with high income to improve borrowing capacity for property investment.

"Being very aware about your borrowing capacity and what looks, what the world looks like for you in two years ahead is important because that's where you start your planning."

• The quote stresses the need for foresight in financial planning, particularly regarding borrowing capacity and life changes.

• Discusses the concept of using "yesterday's money" to invest in "tomorrow's assets."
• Explains that while property values and rents may increase over time, fixed debt does not.
• Highlights the impact of inflation on money's buying power and the importance of investing in assets.

"If you have $200,000 debt today and you only pay interest for the next ten years, what will that debt be in ten years...the debt would be only 200 grand."

• The quote illustrates the idea that fixed debt remains the same over time, while asset values are likely to increase.

"If you can use yesterday's money and invest that in tomorrow's assets, you multiply that by, obviously, a significant amount of time."

• The quote explains the strategy of leveraging debt to invest in appreciating assets over a long period.

• Discusses the potential of the Victorian market for property investment due to its pre-COVID value and population growth.
• Advises on considering negative cash flow and longer-term capital growth when investing.

"I actually feel the best market to be in...would be the victorian market."

• The quote expresses a belief that the Victorian market presents a good investment opportunity, given current conditions and future growth prospects.

• The conversation hints at tax considerations for property investors but does not provide specific tips before the transcript ends.

"Yeah, so it changes from time to time. So depending which market you're in and interest rates a..."

• The quote suggests that tax strategies can vary depending on market conditions and interest rates, but it does not conclude with specific advice.

(Note: The transcript ends abruptly without completing the last point on tax tips, and hence the notes on this theme are incomplete.)

• Interest rates have risen above COVID-19 pandemic rates but are not the highest historically.
• The speaker's first property had an interest rate with an eight in front, considered cheap at the time.
• Current rates are much higher compared to the last few years.

"My first property I purchased, there was an eight in front of my interest rate, and that was cheap at the time. But at the moment, the rates are higher, much higher compared to what we've seen in the last couple of years."

• The quote highlights that while current interest rates are high, they have been higher in the past, suggesting a historical perspective on market fluctuations.

• PAYG variations allow for a more immediate tax refund throughout the year, improving cash flow.
• Timing expenses correctly, such as repairs before June 30, can lead to quicker tax benefits.
• It's important to act on property improvement opportunities, like building granny flats, without delay due to inflation and cost increases.

"Pyg variation is a great way to get your tax refund throughout the year, as opposed to the end giving you greater cash flow to be able to hold your property during the tougher times."

• This quote emphasizes the benefit of PAYG variation in managing cash flow by receiving tax benefits throughout the year rather than waiting for an annual refund.

• Delaying property improvements or developments can result in higher costs and missed rental income opportunities.
• The speaker observed land bankers going bust during the Global Financial Crisis due to waiting for "golden opportunities" instead of developing land when first acquired.

"So if you've got an opportunity in your property portfolio where you can improve the position, don't wait."

• The quote advises against procrastination in property investment, suggesting immediate action to capitalize on opportunities and avoid financial loss.

• Diversifying into the right structure and having a business plan for properties can lead to substantial long-term tax minimization.
• Investors should consider the property's position over a longer horizon, such as 15 years, rather than focusing solely on short-term benefits.

"If you've got an opportunity to do something, you do it straight away. Probably not a tax tip, but more so a cash flow tip."

• The quote reinforces the importance of immediate action in investment decisions to enhance cash flow.

• Educating clients about superannuation and its potential for tax minimization is crucial.
• Making additional superannuation contributions can be beneficial, with government incentives like the five-year carried forward rule.
• Investing in property through a self-managed super fund can be advantageous due to favorable tax rates on long-term holdings and retirement income.

"One of the best ways to get the best bang for buck in terms of tax minimisation is additional superannuation contributions."

• This quote highlights the tax efficiency of making extra contributions to superannuation as part of a broader investment strategy.

• The amount needed to retire comfortably depends on individual expenses and inflation adjustments.
• A portfolio of around $2.5 million, returning 5% gross income, might be sufficient for a comfortable retirement.
• Understanding what retirement looks like and setting realistic goals are important.

"I think 100 grand in today's money is probably more than enough to retire quite comfortably, depending on your expenses, of course."

• The speaker provides a benchmark for retirement income, acknowledging that individual circumstances and future inflation will affect the amount required.

• It's never too late to start investing in property; investment strategies may shift as people age.
• Older investors might pivot from residential properties to lower-maintenance, cash-flow investments.
• The goal should be to maximize growth before retirement and then focus on assets that provide passive income.

"No, no one's left it too late. There's never an age to stop investing, investing in property or investing in whatever you wish to."

• The quote encourages continued investment regardless of age, with the understanding that investment goals and strategies may evolve over time.

• Regularly evaluating investments based on current value rather than just cost is essential.
• Selling underperforming properties and investing in higher cash-flow assets can improve net income.
• Transitioning from growth-focused to income-focused investments may be necessary at different life stages.

"Simply holding properties for your entire life will get you maybe where you want to be, but you need to always analyze your investment on valuation basis, not just cost basis."

• This quote suggests that a strategic approach to asset management, including potential divestment, is key to maximizing investment returns.

• The value of money decreases over time, while the value of properties generally increases.
• Investing in assets can protect against inflation and potentially exceed it.
• It's important to have cash invested in assets to maintain buying power.

"Money goes down in value and properties go up."

• The speaker summarizes a fundamental investment principle, highlighting the importance of investing in appreciating assets like property over holding cash.

• Seeking professional advice at different life stages is crucial for effective property investment.
• The speaker encourages listeners to build a team and utilize resources like buyer's advocates to make informed decisions.
• Tailoring investment strategies to personal goals and market conditions is advised.

"Well, it all points to getting professional advice around at the various stages of your life. You know, don't try and do it alone."

• The quote advocates for the importance of professional guidance in navigating the complexities of property investment throughout one's life.