S2E18 - You've Invested For 10 Years... Now What?

[00:00:00] Imti: ​You've invested for 10 years. Now what? This is the point a lot of first-time property investors don't think about when they start their journey, and it's a crossroads that they underestimate. Say you've built a residential portfolio, whether that's one, two, three properties, and now you're thinking, " What next?"

You've built the equity. Do I keep going? Do I consolidate? Do I sell? Do I look at commercial property shares? What's next step that you need to make to hit your financial freedom? Today's episode's gonna be a little bit different. Skye has no idea what we're about to go into, and I'm doing a live cross-examination of Pete, who's at the exact crossroads we're talking about.

So Pete started his investing journey almost a decade ago, and he's at a key crossroads where he's facing this exact same dilemma, and I thought it'd be really, really good to unpack live bit of Pete's background, the crossroads that he's facing, and what things look like next, because it's a very unique lens where Pete's actually in the industry.

And for anyone listening, you'll be surprised about the feelings, the anxieties, and some of the risks that may or may not have registered, but also some of the problems that he's run into along the way. So let's jump into it. Pete, can you give us a little bit of background as to, what's the journey been like to date portfolio-wise, and where are you sitting, and what's the decision that you're trying to make right now?

[00:01:27] Pete: Yeah, sure. So like we said, started almost a decade ago, and pretty much have been buying property every year since.

[00:01:33] Imti: Mm-hmm.

[00:01:33] Pete: accumulated eight properties.

[00:01:35] Imti: Mm-hmm.

[00:01:35] Pete: And have sold two down. I'm at the point now where I've gone through the whole refinance structure with yourself, pulled out some money.

[00:01:41] Imti: Mm-hmm.

[00:01:42] Pete: And looking at the next steps. And the realisation that, I always knew this was the case, but residential property doesn't produce cashflow.

[00:01:49] Imti: Mm-hmm.

[00:01:50] Pete: Quality residential property will cost you money.

[00:01:52] Skye: That's a line right there.

[00:01:53] Pete: Yeah.

[00:01:53] Skye: Mm. Yeah, that I think a lot of investors don't even understand.

[00:01:56] Pete: Yep. It has to, right? if you're buying in quality locations, it's going to, unless you're not refinancing.

[00:02:01] Skye: Mm.

[00:02:01] Pete: Well, again, what people forget, and it's something I never even thought about too, is when you're refinancing, you're topping up your loan. So your mortgage is continuing to go up with the value of the property. So you're never really getting ahead financially from a cashflow point of view. But obviously the growth has been awesome.

[00:02:16] Imti: Mm-hmm.

[00:02:17] Pete: And I'm in a really, really good position, but now I'm transitioning into the cashflow play now.

[00:02:21] Imti: Mm-hmm.

[00:02:22] Pete: Where I don't really wanna be taking on properties which are going to continue to cost 20, 30 grand a year.

[00:02:28] Skye: More liabilities.

[00:02:28] Pete: Yeah, more and more liabilities, because you can only take so much.

[00:02:32] Imti: Yep.

[00:02:32] Skye: Mm-hmm.

[00:02:32] Pete: And it does get to that point where you build up enough equity, you build up enough of a portfolio value, you see the value and you're like, "Oh, shit, I'm almost done. I could sell everything down and ... But then what? What am I gonna put it into?"

Mm. And that's where I'm at now. I don't necessarily want to sell down, but I wanna set up the next structures for that consolidation period in the reasonable foreseeable future.

[00:02:53] Imti: Mm-hmm. And for you, you weren't 100% sure as to what direction to go in, right? Because something that I actually wanna quickly go through that we didn't talk about before we pressed record is that you are looking at commercial property as the route, for example, but before you hit that, you almost ended up doing more resi thinking that you weren't in a position of enough, right?

Which is funny, because a lot of the time when we're talking to clients-

[00:03:20] Pete: Mm

[00:03:20] Imti: ... it's you've gotta understand what your figure is where you're like, "You know what, that's the asset base that I want, and then I'm happy, I'm done." And you almost fell into the trap of going, "No, I need more,"

[00:03:32] Pete: yeah. When the shoe's on the other foot, it's quite the experience where, yeah, you questioned me. You said, "Well, how much do I want? How much do I need?" And all these questions that we ask clients, and I just assumed I needed more.

[00:03:41] Imti: Mm.

[00:03:41] Pete: But that's, that's the trap, though. It happens to everybody.

[00:03:44] Imti: Yeah.

[00:03:45] Pete: And the problem at the moment is you see all the property experts online, and they talk about accumulating, accumulating, and they probably have gone to that point too, but they just continue to accumulate and not actually think about where they wanna stop or what they want.

[00:03:57] Imti: Mm.

[00:03:57] Pete: And why they started. Yeah. Because the goalposts keep moving, but life's short, and, you do need to figure out where you wanna go when you get to the point that I'm at.

[00:04:05] Imti: And I think it was just about putting the question to you, right?

[00:04:08] Pete: Yep.

[00:04:08] Imti: Even when you're in this space, you fall into those human psychological traps

'cause you're just like, "Oh, I need to do more," or, " I need to progress", and the idea of consolidating almost feels like a step backwards or pivoting somewhere else.

[00:04:21] Pete: It's almost like you're failing. even me selling the properties that I've already sold, I hated that feeling. And we've talked about in a previous podcast the two reasons I sold them, they were legitimate reasons.

[00:04:30] Imti: Mm-hmm.

[00:04:30] Pete: But I still can't get past the fact that I sold them and still feel defeated about it even though it was actually a good move.

[00:04:37] Imti: Yeah. So for anyone listening, this psychological dilemma happens at every level that you're at, no matter your expertise level, which is why we're always just like you need to have a team of non-yes people around you who will actually challenge you.

Let's move into the consolidation and restructure of it all quickly. we'll do a full breakdown on this another time. But- You weren't actually always my client, right?

[00:05:01] Pete: No. Until recently. Technically, I mean, we've been working together for a few years now.

[00:05:05] Imti: Yeah.

[00:05:05] Pete: But now that I've done the refi, I am your client.

[00:05:07] Imti: Yeah. What, I guess, bottleneck did you run into? What was the problem that you faced that you needed actual proper unpacking with? 'Cause obviously, you're very good at what you do. You're able to drive a lot of that yourself, but what was the issue that you ran into?

[00:05:19] Pete: Uh, the advice, the structuring advice. I'm smart enough to know what I've done over the last six or seven years, and the broker I was working with previously, I wasn't entirely happy with how it was set up, but it was just-

[00:05:30] Imti: It got you to where you were though, right?

[00:05:31] Pete: It got me to where I was and I knew the risks I was taking.

I knew it could be better.

[00:05:35] Imti: Mm-hmm.

[00:05:35] Pete: I just didn't have the mental capacity to just switch or talk to someone else Cause I, kinda knew what was going on. So a lot of my properties were cross-collateralised.

[00:05:43] Imti: Mm-hmm.

[00:05:43] Pete: And I'm sure we have talked about that on the podcast, but they were crossed.

they've all rolled over to principal and interest as well, and one in particular was quite a high rate at the time. I think it was 8.5%. So I was just stuck in that loop of P&I repayments, cross-collateralised, and, didn't really have many options, to be honest. I didn't think I could actually unwind it.

[00:06:03] Imti: The other dilemma in there as well is that you weren't self-employed during this period, right?

[00:06:07] Pete: Yes. That also stuffed it up a little bit, but, yeah, that made it even more difficult as well to unwind, yeah.

[00:06:11] Skye: Mm-hmm. That's why I'm not your client yet- ... ' Cause of all the hoops I've gotta jump through- as a self-employed, lending, it's just yuck.

[00:06:18] Imti: and that's why I haven't refinanced my own loan since I've started my own business, right? Because I'm like, "Oh, well, I'm, I'm happy-

[00:06:23] Skye: So you're not even your own client ...

[00:06:24] Imti: not even my own client." but there comes a point where, it is doable, it does make sense when you're at a certain business maturity level.

Or alternatively, actually, for Pete, we explored using Alt-Doc and deliberately ramping the rate up-

[00:06:39] Pete: Mm

[00:06:39] Imti: ... which sounds crazy to a lot of people. But I came back to you and went, "Hey, we can restructure your portfolio and get you cash out that you never thought that you could, but you're gonna have to eat an extra 1.2% on your portfolio."

[00:06:52] Pete: Mm-hmm

[00:06:52] Imti: What made you say yes to that? 'Cause most people listening to this would be like, "Why would I deliberately take on a higher rate?"

[00:06:58] Pete: I just wanted the cash out. Look, I understand the whole scenario, I know that a major bank was never gonna take me based on the scenarios at the moment, and I knew we probably had to go alt doc after you mentioned that.

And knowing what that cash out can do-

[00:07:09] Imti: Mm-hmm ...

[00:07:10] Pete: at the time I had a plan for it-

[00:07:11] Imti: Mm-hmm ...

[00:07:12] Pete: knowing what that can turn into-

[00:07:13] Imti: Mm-hmm ...

[00:07:14] Pete: just completely outweighs saving a percent-

[00:07:17] Imti: Yeah ...

[00:07:17] Pete: on interest rate on the portfolio.

[00:07:19] Imti: For someone listening to this who wants a little bit more context, it was access to $600,000 more capital. Which wouldn't have happened in any other way.

[00:07:28] Pete: Yeah. 600 grand lands in the bank account, but just to quickly say, people just gotta realise you're paying interest on that. 7.5% or 8% on that money.

[00:07:37] Imti: Yep.

[00:07:37] Pete: So it may sound great, but it's costing me money.

[00:07:39] Imti: Mm.

[00:07:39] Pete: I've got it in a high interest savings account, but it's still costing me money.

[00:07:42] Imti: Yeah. While you try and make this decision.

[00:07:44] Pete: Yes. Yeah.

[00:07:44] Skye: And you really don't like that, do you?

[00:07:46] Pete: No, I can't stand it, but it's something people forget, right?

Yeah. And they're like, "Oh, I've got all this money from a cash out refinance."

[00:07:51] Skye: Mm.

[00:07:51] Pete: But just gotta remember, you're paying interest on that.

[00:07:53] Skye: Mm.

[00:07:53] Pete: It's not free money.

[00:07:54] Imti: Yeah. the other thing is that people will hear percentage go up, but they won't actually realise your absolute cash flow position at the end of the month got better-

[00:08:01] Pete: Mm

[00:08:01] Imti: because of the restructure that we did.

[00:08:02] Pete: That's right. Yeah. So we went from P&I to interest only.

[00:08:04] Imti: Yeah. And we were able to restructure it all to optimise your cash flow and give you that cash, which then led you to, after we got past the, "You don't need more residential property, you're actually in a really good position"- Commercial property.

[00:08:17] Pete: Hmm.

[00:08:17] Imti: Now, why were you leaning towards commercial property?

[00:08:21] Pete: just cash flow, the net yield. So if people don't know commercial, they don't realise that you quote the net yield, and the net yield just basically means, let's say you buy something for a million bucks, it's a 6% net yield.

That's 60 grand rent that you're gonna pretty much collect, aside from maybe the property management fee.

[00:08:37] Imti: Mm-hmm.

[00:08:38] Pete: But the rest of it is pretty much covered by the tenant, as opposed to residential, where you get your 60 grand, you pay the property manager, you pay the council rates, you pay the insurances, you pay-

[00:08:48] Skye: Pay the repairs

[00:08:49] Pete: repair. You pay for everything else, and that net yield is really 3%.

[00:08:53] Imti: 4%.

[00:08:53] Pete: Yeah, exactly.

[00:08:54] Imti: Yep.

[00:08:54] Pete: So really it was a cash flow play.

[00:08:56] Imti: Skye, quickly pivoting to you, going through this thought process, is there anything that pops to mind from a commercial property perspective? For Pete, the attraction's cash flow, right?

[00:09:07] Skye: Mm. The biggest thing that I find, and I have these conversations all the time, obviously it's a larger buy-in. .

so you're using up more of that capital.

[00:09:15] Imti: Mm-hmm.

[00:09:16] Skye: But it's the vacancy. You might be looking at four weeks vacancy in resi, but you might be looking at a year or more-

[00:09:21] Imti: Mm-hmm ...

[00:09:22] Skye: in commercial, depending on what you buy, and depending on your potential tenant.

[00:09:26] Imti: Yeah.

[00:09:27] Skye: if you're buying something really niche, double that. And just the bigger complexities of the relationships that you're dealing with.

[00:09:32] Imti: Yeah, and that's a really great call-out that we will touch on in more detail because that probably punched Pete in the face a little bit as well when we talked about the lease side of it all.

not to say that he didn't think about it, but we'll get there in a second. So The next stage of this journey, Pete, was actually the plan was always to do commercial. It was, okay, resi's done. You're gonna look at commercial for that high yield that you talked about. We've got the cash out from your residential portfolio, and we're looking at getting a lease doc commercial loan.

So for anyone listening who doesn't know what a lease doc loan is, really, really simplified version, the bank will exclude all of your other debts and will use the rent for serviceability for the purchase of a commercial property. What that involves is just having a big deposit.

[00:10:16] Skye: I didn't even know that.

[00:10:17] Imti: Yeah. I-

[00:10:17] Pete: it's so good. Yeah. But, so dangerous at the same time. Talking to-

[00:10:20] Skye: Yeah.

[00:10:20] Pete: Yeah.

[00:10:21] Imti: I think, I think Pete's head almost fell off when I started walking him through it-

[00:10:24] Pete: Yeah

[00:10:24] Imti: ... for the first time. but to make it work, really you need to be able to put in, a 35% deposit for it to be, economical.

[00:10:30] Skye: I thought it was anyway in commercial. I didn't think your LVRs could go higher than that.

[00:10:34] Imti: no, you can go up to 80.

Mm.

Some will do 85.

[00:10:36] Skye: Oh.

[00:10:36] Imti: You shouldn't, but-

[00:10:37] Skye: Okay

[00:10:38] Imti: ... it's doable. We cashed out the portfolio. We were looking at lease doc options. You were looking at, how do you acquire this commercial property?

Talk us through what that decision-making process or the thoughts or feelings you went through at that stage of the journey.

[00:10:52] Pete: Yeah, so I guess it was as we were talking about it,know, we're talking about vacancy, and it's okay, yeah, I know that there's a vacancy, but you gotta factor that in.

So is the net yield really 6%? Probably not.

[00:11:01] Imti: Mm.

[00:11:01] Pete: it depends on the tenant and all that, but really I think you gotta realistically put it back to 5%-

[00:11:06] Imti: Mm-hmm ...

[00:11:06] Pete: if you're buying something at a 6%, because you gotta factor in the vacancy. It was that realisation. But then it was also the realisation of needing cash at bank, which again, I already knew, but it's another buffer you need to have.

[00:11:16] Imti: Mm.

[00:11:16] Pete: So it's making sure I've got that. So the 600 continues to shrink a little bit, where it's not going all in on the 600. It's, making sure you're retaining part of that money for that higher risk, and it's not necessarily having to save a couple of months' worth like you do in resi. It's probably making sure you've got at least-

[00:11:33] Imti: At least a year

[00:11:33] Pete: yeah, at least 12 months there-

[00:11:34] Imti: Mm

[00:11:34] Pete: ... to cover the mortgage repayments and then possible vacancy.

[00:11:37] Imti: Mm-hmm.

[00:11:38] Pete: But then also from a lease doc line point of view, it's complicated because it depends on the tenant.

[00:11:43] Imti: Mm-hmm.

[00:11:44] Pete: So as much it is, selecting commercial properties, making sure you're getting into the right location, you're picking the right type of the commercial property, you gotta make sure the tenant and the business is actually stable as well.

[00:11:57] Skye: This is my biggest thing-

[00:11:58] Pete: Yeah

[00:11:58] Skye: ... right? Because a residential house-

[00:12:00] Pete: Mm

[00:12:01] Skye: people always need somewhere to live.

[00:12:02] Pete: Yep.

[00:12:03] Imti: Yeah.

[00:12:03] Skye: Super safe. how many businesses have we seen go under just-

[00:12:06] Pete: Yes

[00:12:06] Skye: ... in the last month?

[00:12:07] Pete: Mm-hmm. Yeah.

[00:12:08] Skye: Big businesses.

[00:12:08] Pete: And that's a good point, 'cause that also

[00:12:10] Skye: can play it- And, and they can look really good. Yeah. Yeah. On paper. All right. So put on paper, they probably look amazing.

[00:12:14] Imti: Yeah.

[00:12:14] Skye: You do your due diligence, and we've seen some pretty shocking business foldings-

[00:12:18] Pete: Mm.

[00:12:19] Imti: Mm

[00:12:19] Skye: ... of late.

Yeah. and that's something that you're then back in that vacancy pool, even if you had a great tenant.

[00:12:26] Pete: Correct. Yeah. And then that was the realisation too is the business could be great on paper, or it might not be good, so how do you make sure you're looking and how are you making sure the tenant is actually good? How do you trust the sales agent? It's just a different ball game.

[00:12:37] Imti: Yeah.

[00:12:37] Pete: It really is. It's not the same as resi. It is completely different. Anyone who says it is the same... They've never done it themselves.

[00:12:42] Skye: Mm.

[00:12:43] Imti: The key thing that I wanna harp on is that you mentioned having a year's worth of cash in the bank, for example. The biggest risk or concern that I know that we've all got at the moment is that everyone's getting pushed into commercial property as potentially their first investment. Which is why I thought it was really important for us to have this conversation, because you're in a position where you were like, " Okay, I'm willing to sell a property-

[00:13:03] Pete: Yeah

[00:13:03] Imti: ... and use up my cash in the bank if needed to maintain this commercial property."

[00:13:08] Pete: Yeah.

[00:13:08] Imti: And most people, first and foremost, don't have-

[00:13:11] Skye: Mm. A spare property

[00:13:13] Imti: ... equity sitting in a property to make that decision.

[00:13:15] Pete: Mm.

[00:13:15] Imti: Or the cash in a bank, right?

[00:13:17] Pete: Yeah, and that's the thing. We went through the risks, right? yeah, okay, there's vacancy and all this other stuff that goes with it.

[00:13:21] Imti: Mm-hmm.

[00:13:22] Pete: I'll have the cash 'cause I also have the cash from the other properties I've sold-

[00:13:25] Imti: Mm

[00:13:25] Pete: that I've been waiting to do something with-

[00:13:28] Imti: Yeah

[00:13:28] Pete: ... as well. So I'm gonna be pretty cashed up, which is a great position to be.

[00:13:31] Imti: Mm.

[00:13:31] Pete: Or I could sell a property. So as long as I nail down the commercial purchase and get a high-quality one-

[00:13:36] Imti: Mm-hmm ...

[00:13:37] Pete: which I'm going to anyway, the risk is pretty small for me-

[00:13:40] Imti: Mm-hmm

[00:13:41] Pete: personally.

[00:13:41] Skye: Mm.

[00:13:41] Pete: And also, what's my LVR? It's, 60, 50% still on the portfolio. Like, We didn't max out that cash out. Yeah. So we didn't go back up to 80, 90%. I think it probably sits around 50 to 60%.

[00:13:51] Imti: Mm-hmm.

[00:13:52] Pete: So, the LVR's very strong as well, and that's what I wanna flag as well. It's just if it's your first deal and you're leveraging up to 80, 90%, I think it's just too high risk.

[00:14:00] Imti: Mm-hmm. And this is coming from someone who's in the industry, right?

[00:14:03] Pete: Yeah.

[00:14:03] Imti: So, when it's a mum and dad investor getting pushed towards commercial property as a first property and they don't have the buffers in place, that's, where we get really, really nervous.

[00:14:11] Pete: Mm.

[00:14:11] Imti: there was probably a few other things that through the process, for lack of a better way of putting it, I became a thorn in your side a little bit, right?

[00:14:20] Pete: Yeah.

[00:14:20] Imti: there was consistent challenging through the journey even while we were looking at this.

one of the biggest things that I really pushed back on you was what's the actual goal?

what are we doing here? And doesn't need to be more complicated than it is. And during this process, what a lot of people may or may not realise is that when you're looking at a commercial property purchase at, let's say, 1.5 mil, A, anything under a mil, you're potentially looking at a lot of volatile tenant risk.

B, yes, the leases are longer. they could be five years with options to extend for, another five and another five, and yes, that sounds great on paper, but if that business goes in liquidation, that lease doesn't mean anything. And so yes, you might have a 15-year lease, but now, oh, the business has gone into liquidation.

We've had an economic downturn. inflation's high at the moment. Businesses aren't doing well. Oh, you've got a vacant property for 12 to 18 months, and you've bought it interstate, so you can't move your own business into it and try and take advantage of it that way. But the other part of it was the fees and the establishment and the acquisition costs, right?

[00:15:22] Pete: Mm.

[00:15:22] Imti: 'Cause we were looking at... Once I came back to you and we modeled it all, it was about $100,000 worth of fees, right?

[00:15:28] Pete: Yeah. Well, you got your stamp duty in there as well, so yeah.

[00:15:30] Imti: Mm-hmm.

[00:15:31] Pete: Yep.

[00:15:31] Imti: That's something that people also underestimate with commercial is things like drawing up the lease, the due diligence, the having the lawyers review everything. If you're using a buyer's agent, that could be costing you, what?

[00:15:42] Pete: 30 plus.

[00:15:43] Imti: Yeah. Then the application fees with the lender.

[00:15:47] Pete: Yeah.

[00:15:47] Imti: Then, yes, your commercial broker does make money on the deal as well. everyone gets a clip, and you need to actually factor that in to your total cost base, right?

[00:15:55] Pete: Mm-hmm.

[00:15:55] Imti: So then when I was being a thorn in your side, it was about, Pete, if this is what you wanna hit, this quote-unquote passive number that you want coming in by the time you're 40, does the commercial property actually serve you if 100k is getting eaten up at day one and you're losing that? And so funnily enough for your mortgage broker and lending strategist to push back on you on, I started talking to you about shares. And for anyone listening to this, it was purely an educational conversation. I'm not a financial advisor, and I didn't tell Pete what to do. And the main aspect around that is that historically shares have a better return than residential property.

But residential property is a great wealth builder because you can use debt, which we've covered previously. So shares might make 8%, property might make 7%, but, because you can use debt, you earn more money doing property for most early stage investors. For you, Pete, when I brought up shares as an alternative, what was your initial reaction?

[00:16:54] Pete: Oh, it was no. cause I've always been pro-property, and that's ego talking. So, also putting the ego aside-

[00:17:00] Imti: Mm-hmm

[00:17:00] Pete: ... on this whole scenario as well is what I've had to do. but yeah, no, it was pretty much an immediate no.

[00:17:04] Imti: Mm-hmm. Why?

[00:17:05] Skye: I feel like that's-

[00:17:06] Pete: Exactly what I just told ya ... Ego. Ego-

[00:17:08] Imti: Just ego?

[00:17:08] Pete: Yeah, cultural ego. or didn't really know enough about shares.

[00:17:12] Imti: Mm-hmm.

[00:17:12] Pete: how it all operated, I can admit it was probably ego.

[00:17:15] Imti: Mm-hmm.

[00:17:15] Pete: yeah.

[00:17:15] Imti: Because it was just all about property's the wealth building engine, it's what I know. I've got-

[00:17:21] Pete: The value of the- ...

[00:17:21] Imti: results in it before ...

[00:17:21] Pete: value of the portfolio, blah, blah, blah, all that stuff.

[00:17:24] Imti: Yeah.

[00:17:24] Pete: All that ego stuff and status stuff. And everyone gets it, though.

[00:17:28] Imti: Mm-hmm.

[00:17:28] Pete: anyone who says they don't care about the value of their portfolio and all that is lying.

[00:17:32] Imti: And I think for you, I drew on my own personal experience, right?

Hmm. Where I've done the multiple property thing, and then have actually consolidated a little bit more on my personal wealth building strategies split between maximising my super, which is all share driven, property outside in terms of a blue chip long-term hold, and then the business-

[00:17:52] Pete: Hmm

[00:17:52] Imti: ... right? And the reason why I flagged that with you was the $100,000 and the fact that you had the money there from leverage, so you could actually leverage into shares, right?

[00:18:05] Pete: Yeah, yeah. Which I've been so against for so long.

[00:18:07] Imti: Mm.

[00:18:07] Pete: But again, as we step through my risk profile, it's pretty low risk-

[00:18:12] Imti: Mm-hmm ...

[00:18:12] Pete: because of the situation I'm in.

[00:18:13] Imti: Yeah.

[00:18:14] Pete: I'm not a big believer in leveraging shares.

[00:18:15] Imti: Yep.

[00:18:16] Pete: I still am not, but if you're in a good position-

[00:18:18] Imti: Hmm ...

[00:18:18] Pete: it makes sense.

[00:18:19] Imti: No tenant risk.

[00:18:21] Pete: Yeah.

[00:18:21] Imti: Historically a better return. A lot lower maintenance.

[00:18:24] Pete: Hmm.

[00:18:25] Imti: Less of a headache.

[00:18:26] Pete: Yep.

[00:18:26] Imti: And you're not burning $100,000 in fees-

[00:18:30] Pete: Yeah

[00:18:30] Imti: ... from day one, right?

[00:18:31] Pete: Yeah.

[00:18:31] Imti: And we did some crude Excel modeling between the two of us. What got you to where you wanted to get to quickest?

[00:18:38] Pete: Yeah, it's interesting. It was a difficult one, but shares would have got me there quicker or does get me there quicker, but the leverage game is still relevant in commercial.

[00:18:49] Imti: Mm-hmm.

[00:18:49] Pete: Yeah, that's where I've landed.

[00:18:51] Imti: Again, bringing it back to that decision of what's enough, right?

[00:18:53] Pete: Mm.

[00:18:53] Imti: It's facing it again.

facing it with the residential property when you went, "Okay, I'm not gonna do resi again-

[00:18:59] Pete: Mm

[00:18:59] Imti: ... because my portfolio level is actually where I want it to be." Then when it came down to commercial versus shares, it was the same thing again because it's, "Oh, well, with commercial I can use leverage and get a higher quality asset."

[00:19:09] Pete: Mm.

[00:19:10] Imti: Or I can truly consolidate and just-

[00:19:12] Pete: Yes

[00:19:12] Imti: ... park all the money into shares,

[00:19:14] Pete: which was never an option to begin with.

[00:19:16] Imti: It was-

[00:19:16] Pete: Yeah

[00:19:17] Imti: ... something you didn't even think about, right?

[00:19:18] Pete: It was... Yeah, I I'm like, "Oh, that makes sense. That consolidation piece does make sense for...

if you're done done-

[00:19:22] Imti: Mm-hmm

[00:19:23] Pete: ... and you can settle with what you've got, it just makes so much sense to do it, to consolidate down and put into shares.

[00:19:28] Imti: Mm. The other part of this conversation was obviously me not being an authority on shares- Connecting you with financial planners for a conversation, right?

[00:19:36] Pete: Yep. Yep.

[00:19:37] Imti: And what did that experience teach you?

[00:19:39] Pete: Just different perspectives, but also from the overall wealth, piece as well, it's not just property, so-

[00:19:46] Imti: Mm-hmm

[00:19:46] Pete: ... we looked at superannuation.

[00:19:47] Imti: Mm-hmm.

[00:19:48] Pete: And I'm happy to just be transparent, I don't even have any insurance cover in my, superannuation.

[00:19:52] Imti: And it was something I whacked you with a big stick about.

[00:19:54] Pete: Yeah, and- and it's just something I forgot. I had it in my PAYG years ago.

[00:19:58] Imti: Mm-hmm.

[00:19:58] Pete: Which was through the government, so I had the government scheme, and when you're working for government, you have to use their particular super fund. I was also teaching at university, so I had to set up a separate fund.

[00:20:07] Imti: Mm-hmm.

[00:20:08] Pete: So when I,left, government, I pretty much rolled all my super into the other super fund, but I forgot that in that super fund, I didn't tick the insurances because I already had it.

[00:20:18] Imti: Yeah.

[00:20:18] Pete: And I just forgot. For years now, I've just haven't had it, so it was just talking about that and realising how important that is, and how that kind of plays an overall impact into the wealth game as well, that it's not just property.

[00:20:28] Imti: Mm-hmm.

[00:20:28] Pete: You gotta factor in your shares, you gotta factor in your insurances, and that there are other ways to do it.

[00:20:33] Imti: Yeah, 100%, that's where when we're working with clients to build out their property strategies, we're not blind to the other side of the fence because if you're gonna be taking out a mountain more debt, responsibly I need to make sure that you do have risk coverage.

[00:20:46] Pete: Yeah.

[00:20:46] Imti: Or at least you've had that conversation.

[00:20:48] Pete: And for me, just to quickly highlight, I've always been of the opinion, well, if something happens, my family can just sell everything and they'll be okay.

[00:20:55] Imti: Yeah.

[00:20:55] Pete: Didn't think about the fact that there's actually options there where if something does happen, the insurances will help them hold it.

[00:21:01] Imti: ThatThat was a really interesting conversation that you and I had during that process, right?

[00:21:05] Pete: Yeah.

[00:21:05] Imti: your automatic response to me before introducing you to the planners to have a chat to was, " Well, Imti, if I die, everything gets sold and everything gets left to my family anyway".

[00:21:15] Pete: Yeah.

[00:21:15] Imti: And my pushback to that was, "Yeah, well, but if you could leave them everything debt-free and then it compounds forevermore- Which path would you rather them have, but also what headache do you want them to have to deal with when they're already, not to get dark, but, they're already grieving you not being there. Do you also want them dealing with the fact of having to, consolidate-

[00:21:33] Pete: Yeah

[00:21:33] Imti: ... all your assets and all of that sort of stuff.

[00:21:35] Pete: Yeah.

[00:21:36] Imti: And so it took a bit of a morbid twist, but a necessary twist.

[00:21:39] Pete: Yeah, but you gotta be pretty direct, though, with this stuff.

[00:21:41] Imti: 100%.

[00:21:42] Pete: You have to be. I'm for it, and I think you have to be in your position as well.

[00:21:46] Imti: Mm.

[00:21:46] Pete: essentially you're putting me into even more debt, right? Where-

[00:21:49] Imti: Yeah

[00:21:49] Pete: ... and I could tell you probably weren't super comfortable about doing it, 'cause the debt levels are getting pretty high. But again, having that conversation is where you come in.

[00:21:56] Imti: Mm.

[00:21:57] Pete: And you provide that value. 'Cause you'll do the job-

[00:21:59] Imti: Yeah ...

[00:21:59] Pete: but you'll make sure that your client does it safely.

[00:22:01] Imti: Well, that's the thing,I don't wanna toot my own horn, but there's no other way to put it, right? if you just went to Joe Blow on the street who didn't know you from a bar of soap and just went, "Oh, I need a commercial lease doc loan."

[00:22:09] Pete: Mm.

[00:22:09] Imti: A lot of the time they'd just be like, "Yeah, we'll charge you 2%, and we'll get it done for you."

[00:22:12] Pete: Mm.

[00:22:13] Imti: we started this conversation, what? Three, four months ago?

[00:22:15] Pete: Yep.

[00:22:15] Imti: And we're still in the decision-making phase, whereas it could have all been done by now.

[00:22:20] Pete: Yeah, it would have been done by now.

[00:22:22] Imti: But-

[00:22:22] Pete: But it- it's-

[00:22:23] Imti: You probably wouldn't have been happy with the outcome, right?

[00:22:25] Pete: Yeah. No, you know what? It's funny. I would've been happy.

[00:22:28] Imti: Mm.

[00:22:28] Pete: But it wouldn't have been till later I realised, until something happened. Yeah. And I think that's probably the thing that a lot of people miss. They just kinda, oh, I'll worry about it later on.

[00:22:35] Imti: Mm.

[00:22:35] Pete: I would've been rapt that I'd done the deal.

[00:22:37] Imti: Yeah.

[00:22:37] Pete: But that's where I'm gonna be like, "Oh, well, thank God I did."

[00:22:39] Imti: Yeah.

[00:22:40] Pete: But now I'm happy 'cause I know about it, but I guess what I'm trying to say is, at the time, I wouldn't have known any better-

[00:22:44] Imti: Yeah

[00:22:44] Pete: until something happened.

[00:22:45] Imti: Well, yeah, that's it, right? Yeah. you don't hate the rain on a sunny day.

[00:22:48] Pete: Mm.

[00:22:49] Imti: and I think that was really, really important, was for you to have that extra conversation and to look at what that side of the world looked like, because you are looking at putting a significant amount of money in one place.

[00:23:00] Pete: Mm. Yeah, diversification.

[00:23:02] Imti: Mm-hmm.

[00:23:02] Pete: Yep.

[00:23:03] Imti: And that's probably closer to where you've landed, but before we go into that, through your journey, if you were to pluck out three things just going through this whole you've built a portfolio and you're now consolidating, making the next decision- If you were to pick out three gems that you would now share with clients at the very start of their journey, what would they be based off your experiences in the last four months trying to consolidate and go to the next level with your portfolio?

[00:23:34] Pete: Well, number one would be to get the right team. I know, I know it's cliche. We keep talking about it, but it is. I think what I just talked about just then around the realisation around insurances and all that stuff, yeah, having the right team.

[00:23:44] Imti: Mm.

[00:23:44] Pete: you need the right team. Don't just go to the cheapest person or whatever.

You wanna make sure they're all well-connected.

[00:23:49] Imti: Mm-hmm.

[00:23:49] Pete: So, that would be the number one thing. If a client comes to me, I'd be referring them to someone like you straightaway.

[00:23:53] Imti: Mm-hmm.

[00:23:53] Pete: Not based on the loan, but based on all that, extra piece of advice, connecting them in with planners and all that kind of stuff.

[00:23:59] Imti: Something that I will jump in on there is that my business does charge fee for service, which is very, very unpopular in our industry, but it's so, me and my team can spend this time with clients and then tell them not to do something. We're not financially incentivised just to get you the loan done so we get paid.

[00:24:18] Pete: Yeah, I've had a few brokers, and you're the first one I've actually paid

[00:24:21] Imti: Oh. I'll take the compliment

[00:24:22] Pete: But, but, it's good though, 'cause I, I'd never had any of this advice. And it's not like all these insurances and stuff are new. this has been around for years, right?

[00:24:29] Imti: Mm.

[00:24:29] Pete: And I've been building the portfolio for a long time now

[00:24:31] Skye: Yeah, it's not like you know nothing

[00:24:33] Pete: Yeah, yeah

[00:24:34] Imti: No

[00:24:34] Pete: It's never been brought up

[00:24:35] Imti: Yeah.

And fortunately-

[00:24:37] Skye: Mm ...

[00:24:38] Imti: nothing critically went wrong, so the gap was never really exposed, right?

[00:24:41] Pete: Yeah

[00:24:42] Imti: But-

[00:24:42] Pete: But it could have and I just think back, the whole decade would've just been a-

[00:24:44] Imti: A waste?

[00:24:45] Pete: Yeah.

[00:24:45] Imti: Yeah

[00:24:46] Pete: Yeah. I was gonna say something else, but yeah, that's a good way to put it, yeah.

Yeah. It's true, though. It would've just been- We, we can't put the- Yeah ... parental advisory warning on this episode. That's why I paused.

[00:24:50] Imti: Okay. So one would be-

[00:24:51] Pete: Yes

[00:24:53] Imti: the team

[00:24:56] Pete: That would be it, yep

[00:24:57] Imti: What would be

[00:24:58] Pete: the second thing? Ego aside and looking at all options.

[00:25:01] Imti: Mm-hmm.

[00:25:01] Pete: Yeah, not worrying about the total value, but just working out where you wanna be and trying to assess different options.

[00:25:07] Imti: Mm-hmm.

[00:25:07] Pete: And, making sure you actually take the time to think about it.

[00:25:10] Imti: Mm-hmm.

[00:25:11] Pete: Yeah, step through it. from my point of view, I was so set on doing commercial 'cause I wanted cashflow, but then you start thinking about the vacancy risk, and you start thinking about the tenant risk and how volatile it can be. And, even the fact that the value of the commercial property is the value of the lease.

[00:25:24] Imti: Yes.

[00:25:24] Pete: So if there's no tenant, then the property value is, actually a lot less. But then weighing up the risks as well, I'm like, "Well, that's fine. I can stomach a 12-month vacancy, get someone in ideally paying the same rent or higher rent," particularly if you've bought well-

[00:25:37] Imti: Mm-hmm

[00:25:38] Pete: and everything's okay.

[00:25:39] Imti: Yeah.

[00:25:39] Pete: Because I can stomach that risk, 'cause I've got the financial backing to do that. So that would be probably, yeah, number two is assessing all options and not being, too set to go one way.

[00:25:48] Imti: Mm-hmm. What would be the third piece of advice that you would give to a client going through this?

[00:25:52] Pete: Be to not rush the decision.

[00:25:53] Imti: Mm-hmm.

[00:25:54] Pete: The easy thing to do is to actually rush a decision.

[00:25:56] Imti: Mm-hmm.

[00:25:56] Pete: you can easily go out there and, for example, buy any commercial property somewhere, and you've got a commercial property. It's a bit like going out and buying, house and land in the outer fringes of Melbourne-

[00:26:04] Imti: Yeah

[00:26:04] Pete: when there's thousands of options. You going out there and buying it, it's great that you got a property, but it's not really... I don't wanna be brutal here, but it's not really a good achievement.

[00:26:12] Imti: Yeah.

[00:26:12] Pete: Because anyone could just do that if you got the financial capacity to do that.

[00:26:15] Imti: Mm-hmm.

[00:26:15] Pete: But it's just to not rush it and actually step it through. Because from my point of view, and I touched on it already, but if you didn't tell me to take a step back, think about shares, talk to financial planners, insurances and all that, I could have rushed the decision and purchased the commercial property.

[00:26:28] Imti: Mm-hmm.

[00:26:29] Pete: Something could have happened to me over the next one or two years-

[00:26:32] Imti: Yeah ...

[00:26:32] Pete: and that would've been an absolute headache for my, family to deal with because there'd be nothing set up to protect them for what's about to happen in terms of trying to offload things and... Especially with commercial, it's just a different level, right?

[00:26:45] Imti: Yeah.

[00:26:45] Pete: it's not the same as resi. So it's just, yeah, not to rush, take a step back, get the people involved, and really make sure you've set yourself up before you make that decision.

[00:26:53] Imti: Mm-hmm. On that not rushing piece and all the subsequent conversations we had, we can't cover it today, but the tax conversation you and I had around it all-

[00:27:01] Pete: Mm

[00:27:01] Imti: was also really, really interesting. and that also changed what the return looked like on both sides of the fence-

[00:27:08] Pete: Yeah

[00:27:08] Imti: ... when it came down to tax treatment, what sort of investment vehicle would you use? Is it personal name? Is it company? And then, having a conversation with your accountant around the pros and cons of each route-

[00:27:22] Pete: Yeah

[00:27:22] Imti: right? Because going through all of that also then shifted gears, you've gone through the process now of do I do another residential property? No. Do I do another commercial property? No. Yes?

[00:27:35] Pete: No, but yeah.

[00:27:36] Imti: Yeah?

[00:27:36] Pete: Mm.

[00:27:36] Imti: And then with the shares, do I go all in on shares? Logically, yes. Emotionally, no.

[00:27:44] Pete: Mm.

[00:27:44] Imti: And so that's actually the crossroads that you're still at right now, is that you've worked through this framework yourself-

[00:27:52] Pete: Yeah ...

[00:27:53] Imti: and you're still deciding, right?

[00:27:55] Pete: Yeah. It's a hard decision.

[00:27:57] Imti: Mm-hmm.

[00:27:57] Pete: And I've assessed the risk, and it's still a hard decision.

[00:28:00] Imti: Yeah.

[00:28:00] Pete: But I think I'm leaning towards a combination, which is actually a win in my mind because I would never have even thought about it before.

[00:28:07] Imti: Yeah.

[00:28:07] Pete: it would never have even entered my strategy. It would never have even come up to think about shares as a potential option.

[00:28:12] Imti: Mm-hmm. And do you think you're leaning that way because it diversifies your risk?

[00:28:16] Pete: Yeah, but it it helps me hit the goal, right?

[00:28:18] Imti: Mm.

[00:28:18] Pete: And it's also a lower risk. I definitely could still see myself doing a commercial deal, but I could just de-leverage the risk as well by not using all the money and putting some of it into shares and continuing to throw money at shares going forward.

[00:28:30] Imti: Mm-hmm.

[00:28:31] Pete: So, yeah.

[00:28:32] Imti: No, that's a really good place, funnily enough, to wrap us up.

The reason why I wanted to have this conversation with you today was to show the first-time property investor that this dilemma just gets more complex over time, and you don't actually ever feel 100% clarity when it's your portfolio and your position, no matter how experienced you are, even if you're in the industry doing this day to day.

And that you need people around you who are gonna hold you accountable to your goals and challenge you on things, and then make a decision based on that, not just having yes-people around you.

And what we will do is when Pete actually does pull the trigger on his decision we'll do a follow-up to this episode so everyone can actually hear the next part of that decision-making journey, what you ended up doing, and why you ended up doing it

For anyone who has made it to the very end, again, thank you for sticking around with us. Anyone who's listening for the first time, it's been great to have you. And Skye, Pete, I will catch up with you both next week.