As entrepreneurs, we’re often immersed in areas that focus on growth and profitability. However, amidst the hustle and bustle of business, it’s easy to overlook the value of diversifying wealth beyond your business.
In this episode, I unpack some of the biggest takeaways from my conversation with Chris Gray in episode 84 – Elevating Wealth through Intelligent Property Investment with Chris Gray.
As a property investment expert, Chris shares stories that highlight the transformative power of embracing property investing as a means to build wealth outside your business. Some of the concepts he discussed really made a significant impact on how I see and understand the game of finance.
In our conversation, I learned the importance of seeking advice from the right professionals, buying the average in a median area, and the benefits of rentvesting compared to directly purchasing a property.
Unlocking new financial dimensions demands embracing new strategies to diversify wealth even outside the business. Join me as we draw valuable lessons from Chris Gray and adopt his wealth-building wisdom.
IN THIS EPISODE, YOU’LL FIND OUT…
- Understanding the game of finance (01:27)
- The importance of mortgage brokers and accountants (04:43)
- Why it’s recommended to buy the average median in an area (07:42)
- The power of rentvesting (10:15)
QUOTES
“The decisions you make can drastically change how much you are left with and what you have the ability to compound and grow.” -Carl Taylor
“Don’t believe your own thoughts, or what other people have told you. Go and see a professional to find out the truth and the actual facts.” -Carl Taylor
RESOURCES
Entrepreneurs Rising episode 084: Property Investment As A Wealth Building Strategy with Chris Gray
https://www.yourempire.com.au/
WHERE YOU CAN FIND CARL TAYLOR
Automation Agency
CarlTaylor.com.au
LinkedIn
Facebook
Twitter
TRANSCRIPTION
Carl Taylor (0:00):
Lessons from my conversation with Chris Gray.
Carl Taylor (00:16):
Hey, everyone, I’m Carl Taylor. And thanks for tuning in to entrepreneurs rising. This is the show where we help you rise the tide of all entrepreneurs, yourself and others. And in particular, I’m really personally passionate about helping you build a business that can work without you doesn’t rely on you, and ultimately, build your wealth through your business, but also outside of your business.
You know, I’ve been in business now for over 20 something years, 23 years, I think. And in that time, you know, I’ve made a lot of money in business, but I didn’t always know to also make money out of the business. And because I’ve learned that lesson, I want to share it with you so that you can build wealth both inside and outside the business, and really, ultimately create this financial freedom and security for yourself, for your family. And for others.
Today’s episode is a debrief of the last episode I did where I interviewed Chris Gray, who is a renowned property investor and buyer’s agent in Australia in particular, but he’s helped people all around the world, we had a really great conversation. If you are interested in property investing, I highly encourage you go and listen to the entire episode. So go back and listen to that.
But this episode is going to be my unpack of some of my biggest takeaways, it’s in no way encapsulating everything that was covered. It’s the key things that stood out to me that I really resonated with, and I want to share those with you.
Carl Taylor (01:32):
So the first thing is that it really comes down to something we’ve talked about on this podcast before that it really is a game of finance. And he gives us a really great example of thinking differently about how to access, equity and even income to pay for your lifestyle in a way that most people wouldn’t think of doing. And so he gave an example that, you know, if you’ve got a property, and it goes up in value, and you’re able to then access $200,000 in equity, so you can go and refinance the property and access $200,000. And even if you’re paying a higher interest than the normal, let’s say you’re paying a 10% interest rate on that 200,000.
So that’s 20 grand a year, you could take out $100,000, you could take that 200,000, you could take 100,000 of that 200 And go and live on it, use it for whatever you want, lifestyle costs, holidays, whatever you could do that now, make sure that what I’m sharing with you in this episode, and in our last episode is not financial advice. This is theoretical, general concepts.
This is not me saying you should go and do this. Okay, make sure you seek your own financial advice, the percentages and the way you would do this, if you were going to do it, it’s going to be unique to you. So you need to get personal advice to see what makes sense.
But I’ve simplified the numbers here just while we’re talking about it. So let’s say you’ve taken 200 grand equity out of your property, you take 100,000 of that, and you go and live on it, you put $20,000 aside to pay for the interest, the 20 Grand interest, you take 20,000.
So you got 100 grand you can spend, you’ve taken another 20 to put aside to pay for the interest. And then you’ve still got about $80,000 that you can go and invest, you can go and buy another property, or you can put it in the share market or you can do other things with that 80,000 to continue to grow and compound value.
But here’s the thing, when you’ve done that, instead of selling the property, you’ve been able to access 200,000. And you haven’t had to pay real estate costs for selling the property, you haven’t had to pay the taxes on selling the property, and you still own the asset, which is going to continue to compound over time, because you haven’t sold the property either.
So it’s a great way that you can access the money. Now, if you compare that to as a business owner, if you were to take $200,000 out of your business and pay it to yourself, you’re going to pay at least in Australia, you’re probably looking at around about 50% of tax being paid. So you could end up paying close to $100,000 in tax on that 200,000.
So you take the same 200,000 out of your business as opposed to a property and you get $100,000 to live on. And then the other 100,000 goes to the taxman, when he put it like that, when he put it like that, it was just like, Whoa, yeah, like there’s no extra $80,000 to invest with. It’s just I’m just gonna live on it, and the tax man gets the rest of it.
Now, talk to a financial adviser talk to an accountant. I’m not saying this is the right strategy, or that you should go and do this, but just understand the math of it to be able to ask the right questions to your advisors to see if this could be applicable to you if you have properties with equity in them.
So it’s really about understanding it is a game of finance and you know, the decisions you make can drastically change how much you are left with and what you have the ability to compound and grow.
Carl Taylor (04:38):
So understanding that the game of finance the second thing that I really liked that we talked about, he gave the idea of you should talk to a mortgage broker First, your accountant second, especially as business owners, I shared a story on the podcast about how when I was 22 I think it was I met with a mortgage broker. And at the time I wasn’t paying myself a salary through the business.
I was just taking some profits and so I wasn’t an employee on the books and anyways, it’s She basically said to me, you need to stop paying yourself a salary. And it’s gonna be really hard for you to borrow.
So I took her advice, I started paying myself a salary from then on, I’ve never, never stopped. But I never over the coming decades, I never went and spoke to another mortgage broker again, because I believe what she said, I’d be really hard to borrow. And I believe the story, the banks wouldn’t lend me any money.
When I finally decided to get into property a couple of years back, and I went and saw a mortgage broker, I was surprised at how much I actually could borrow. So one of the biggest things that I would encourage you, if you’re in that space, we’re going well, the banks aren’t going to lend me any money.
Don’t believe your own thoughts. Don’t believe what other people have told you go and see a professional to find out the truth, the actual facts. And then more importantly, here’s what Chris was saying is talk to the mortgage broker and go, Well, how much do I need to be able to show to be able to buy a property for x?
So let’s say it’s for $2 million, I want to buy a $2 million property, how much do I need to be able to show to the banks for me to be able to borrow this, and they’ll give you a figure of well, you need to be earning around XML. Great.
Now what you can do is you go to your accountant, and you say, Hey, I know that typically you think success is minimizing my tax, I actually want to buy a property. And so I need you to maximize my tax that I’m paying so that I can show that I’ve this amount of money, because I want to be able to buy a property. So you found out the amount for the mortgage event.
Now you’ve got something to go to the accountant with and say, Well, I want to buy a property and I need to be able to show X amount of money. And then the accountant can give advice around how the best structure and how to do that for you. But as he pointed out, even if you paid $100,000, more in tax, because of the way it’s going to be set up.
But you might pay $100,000 more in tax that year. But if you’re able to then take that money and go, let’s say you’re buying a $2 million property, and it’s able to go up by 50 to 100 grand, in one year, you paid 100 grand in tax, but in your first year of owning the asset, you’ve actually gained that back in equity at least.
So you got to cash it, I guess in paying the tax, but you’ve also had a gain in equity of about the same amount in one year. And then every year, you’ve got compounding growth over the coming decades that you hold that asset, you’re in a better financial position long term, if you do that, then if you were just to go minimize my tax, I don’t want to pay that extra 100,000 in tax, and that stops you from being able to buy the asset.
So really important, talk the mortgage broker first then come to the account and just understand that opportunity cost if you and your accountant focus on reducing tax, rather than buying assets, it’s really going to hold you back and slow you down.
Carl Taylor (07:30):
The other thing I liked is his approach on property is very much buying the average median in the area. So he for example in in Australia, he talks about if you’re in Sydney that might be buying a $1.5 million apartment.
So he’s not about Auntie units, and you only buy houses, he’s like, you buy the median that most people can afford in that area. So as I said, in Sydney, that might be a $1.5 million apartment, whereas in Melbourne, that’d be more likely to be a townhouse in Brisbane, it might be a three bedroom house Perth, it might be a five bedroom house. Because in the areas, you’re going to what that median is and what most people are able to buy so that you know that you can rent it out well. And if you need it to sell, you’re selling to the bulk of people, he gave the example like, you know, if you go and buy yourself a $6 million property, there’s far less people buying that, it’s going to be harder to rent out.
Typically when you rent it out, you’re not going to earn the same amount in rental yield. So you’re kind of going for whatever the median of the area’s, that’s his approach, which I thought was interesting, I’d never heard it put that way. He also pointed out that most people don’t want to live in the CBD. But they do want to live within those 1520 K’s from it. And so your yields will be lower in those areas.
So you won’t necessarily get you know, positive cash flow, which doesn’t really exist in Australia. It we did for a little period while the interest rates were so low, there were positive cash flow, but I think you would really struggle to find positive cash flow. It’s not in major regional areas with minimal capital growth.
But he’s you’re going to have these lower yields, but your capital growth will be a lot higher if you’re within those 20 ks of the CBD but not actually in the CBD was his tip and advice. And I guess that was another interesting take for Chris that I took away was he thinks of capital growth and the cash flow from the property as kind of all the same. So for me, typically I go, Well, this is how much cash flow I’m getting. And this is capital growth.
And the capital growth to me is a phantom income that I don’t realize unless I access it through equity, like I don’t really get to realize that as an income source. So it’s kind of a phantom income. That’s not realized until either the property sold or I draw on it through equity. Whereas for him, he thinks of the cash flow coming from the property and the capital growth is all just the income of the property.
And he cares more about cash. So be that accessing the equity in turning it into cash through borrowings or the cash flow itself from the net cash leftover from the property itself. So he’s focused on cash, but he he’s looking at the total income from a property which I think is an interesting take, too.
Carl Taylor (09:54):
We also talked a bit about rent vesting, I’m a rent investor, I rent where I live, and I invest in other property you It’s becoming more popular. But I don’t think it’s talked about enough. There seems to be this stigma that, at least in Australia, the idea of you say you’re a renter, instantly, people seem to assume that you’re poor or not necessarily poor, but you’re not financially well off. The idea that you can be a renter and a landlord, at the same time doesn’t seem to fully compute to a lot of people. But he talked in a really great way, this is a man, Chris is a man with over $25 million worth of property himself, and he rents. And he explained it this way. And I’ve never heard it explained this way.
And I really liked this. He says, say you want to live in a $5 million property? Well, on a $5 million property, you’re probably going to pay one to 2% of the value in rent. So let’s say that’s 100 grand in rent.
And so instead of buying a $5 million property, what if you take that same borrowing capacity to buy to borrow 5 million, right, so we’re talking as if you could afford to buy 5 million, I hope you can. But you know, we’re just what replace these numbers with what you could afford to buy.
So let’s say I want to go and buy a $5 million property, I can go and buy that. And you know, then I’m going to have stamp duty costs, I’m gonna have Strada potentially, depending on where I’m buying, like, I’m gonna have all these costs to own this property, I’m going to have a be paying, at least at the moment, at the time of recording, where in June 2023, the interest rates are probably going to be around 7% on that $5 million property now, or I can rent a $5 million property, and I’m going to be paying one to 2% of the value of that property.
So about 100 grand is rent for me to rent that 5 million or property. So far less than even an interest only loan would cost me on that property, I can live there and rent it. And I mean, a $5 million property, I could then go and take my $5 million borrowing capacity.
And I go and buy five $1 million properties. And those $5 million properties because they’re more in the median of where I’ve bought, I can rent them out for around, let’s say 4%. So I’m getting $40,000, gross income per property. So 40,000, times five. So I’ve got five of these properties give me 40,000, that’s 200,000 in gross rental.
So I’m paying 100,000 in rent to live in a $5 million property, I’ve gone and bought a $5 million property. So I still have $5 million worth of property in my portfolio, but I got five of them. And I’m getting $200,000 in gross income for those 5 million.
While I’m renting a $5 million house for $100,000 of my cash flow instantly that starts to show now you might start to go Oh, but there’s all these other costs, you got mortgage payments, he says, Well, if you owned your $5 million property to you would have mortgage payments, you’d be paying like that five to 7% interest as opposed to 2% Rent anyway. So you’d be paying all this extra money to own that property.
Plus, you’d have repairs and maintenance anyway, just like you’d have some repair and maintenance costs, potentially on your five of these million dollar properties. The difference here is you’ve got five of these assets, and you’re living in a lifestyle with a far less actual cash cost to you.
So he explained that where he lives, he’s in a full floor penthouse apartment in darling point of Sydney, and his rent is less, his rent is less than the strata Levy. So if you’re not familiar with what a strata is, if you live in like a building, which has multiple units, typically you pay a strata, this is a company that kind of manages the whole building, and you pay a share of looking after the whole building, not just your unit.
And so we’re he’s living in this fourth floor, very expensive, beautiful apartment. And he rents it. And his rent is less than what the owners pay, just to pay for strata of the building, let alone you know, they’re if they’ve got financing, renting and all interests and all of that.
So there’s real power in rent vesting, I’ve done it, I do it, but I’d never really heard him explain it in the way of, well, if you’re renting a $2 million property, you want to then go and have $2 million worth of property out there, in the more medium price point hadn’t heard it explained in that way.
So I really liked that. So if you want to learn more about Chris, he’s got some great books, you can find them at your empire.com to you, I do recommend downloading these books. I’ve requested them and started reading them. And there’s really good stuff. I do recommend going back and listening to the full episode. If you haven’t already.
Go and listen to the episode, see what pops for you. What takeaways and as always, seek your own advice. Please don’t just listen to our podcasts and go yep, I’m going to do exactly what Kyle said. Always, always take it in as information, discern for yourself, seek external advice and take the action that feels right and aligned for you. I am not here saying you should do this.
All I’m here is to introduce concepts ideas and get you thinking differently. So if you want to learn more about this, I definitely recommend you check out Chris and his team over at your empire.com to read his books.
If you want to choose to work with him or other buyer’s agents. I’ve personally not used him as a buyer’s agent. So I’m not endorsing him as a buyer’s agent from my own experience, but I do find his content and the way he thinks extremely fascinating, which is why we had him on the show if there’s someone that you know that you think we should interview as well.
I’d love to hear from you go to rising dot show and you can use the contact link there to reach out and say, hey, I want to come on the podcast or, Hey, I know this person, I think you should get them on the podcast, they’d be perfectly aligned. So I’d love to hear from anyone who wants to come on the show or you think would be a good guest. And until I see you next keep up the journey
Outro (15:15):
You’ve been listening to Entrepreneurs Rising. Thank you, dear listener for tuning in. I appreciate your time and look forward to connecting in future episodes if you would like show notes or any resources from today’s episode, you can find them at rising.show rising.show you can find the show notes for this episode and all other episodes as well as links to socials and or the ability to reach out and connect with me make your suggestions for future episodes. Until next time, keep up the journey.
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