S2E3 - Interest Rate Hikes, CGT Rumours, and Analysis Paralysis: How Potential Investors Can Look Beyond The Headlines

imti: [00:00:00] If you've been listening to the news lately, there are a few headlines that are stopping first time investors in their tracks. The main two being interest rate hikes and changes in taxes that are being proposed for property investors. But, are they valid concerns or are they just click bait headlines?

Today we're gonna unpack how interest rate hikes and CGT changes may impact investors and what you should do moving forward. Let's dive on interest rate hikes first. Skyee, what are the negative consequences, the bad things that you're seeing in your world, speaking to landlords every single day on the back of these rate increases.

Skye: I'm already hearing murmurings from landlords when we're at rent review stage, so obviously it's not just interest rates that have gone up, everything's gone up, but this is just the icing on the cake for a lot of landlords going, well, we're back in that cycle again. There were 13 interest rate rises, is that right?

imti: Mm-hmm.

Skye: Landlords didn't do 13 rent increases. But [00:01:00] on top of everything else that has increased, I'm seeing that might be a trend coming forward.

imti: So that's, putting yourself in the shoes of a current landlord, it's, can I afford my repayments? What do I need to do? What needs to change?

Are you seeing that translating into rents going up at the moment? Or do you see that actually becoming rents going up? Because like you touched on the last time, there was a whole bunch of rate rises. Yes, rents went up, but they also didn't go up, thirteen times.

Skye: No, no. The thing is we're still at a ceiling in South Australia particularly.

I think there's a lot of property managers who are going to be cautioning landlords against doing that because it's part of the overall bigger picture. What I have seen in the last six months is if the rent does increase too much tenants will simply move out. Now they have choice now that they haven't had previously. So I want to caution landlords against going, oh, rate's going up, so my rent needs to match that. That's not the strategy that should be played.

imti: Well, that's the thing, right? Even though cashflow [00:02:00] wise it might become a little bit more difficult for them, what's worse is having a property vacant for a longer period of time, right?

Yeah. And so for a new investor looking to get into the market, they might see, oh, their knee jerk reaction might be, oh, rates have gone up. I need to increase my rent. But what you're saying is that could actually result in their property being vacant for an extended period of time.

Skye: Yeah, well, even one week of vacancy, that's 2% of your annual revenue. Let alone the wear and tear damage it causes to your property. Having churn of tenants in a property, you are always in a better position to retain your tenant. And that might look like no rent increase.

imti: Mm-hmm.

Skye: Depending on the area, because there is plenty of supply for some tenants.

imti: Mm-hmm. Tell me more about that.

Skye: It's in probably the far north and the far south, which is where we've seen a lot of investors purchase recently, right?

imti: Mm.

Skye: Because particularly interstate, that presents a pretty good deal. But whenever I'm considering a rent review, what else is on the market.

There was one client that I made the suggestion that we were going [00:03:00] to increase the rent by $10 a week. 'cause we have these conversations three, four months ahead of the end of the tenancy. Mm-hmm. By the time the landlords came back to me with the instruction and then I opened that conversation with the tenants, there'd been a surplus of stock in the area and it was cheaper for them by $50 a week to move out and go rent somewhere else.

So we were then scrambling going, well actually we shouldn't be doing an increase because, if anything, you should be doing a decrease because of this surplus of stock. We ended up doing no increase. Tenant stayed. Happy days.

imti: Mm-hmm.

Skye: That's how quickly it can change in the space of a couple of months.

imti: Yeah. And I think that really puts the listener in the frame of what it's like to actually own your first investment property, right? Is that when repayments go up, your first instinct is, where do I get that cash grab from?

Skye: Mm.

imti: How do we bridge that gap?

Skye: Yep.

imti: And I think, Pete, it's probably a good way to loop you into the chat. You're on the side of the transaction where you're helping people get into the market, right? You're helping that first time investor purchase that property. What are the steps [00:04:00] that you're taking with them in terms of strategy to prepare them for when rates go up? Because I think the important thing to recap, and we know this from our personal experiences of a decade plus of doing this, is that rates go up, rates go down, rates stay the same. And there's probably from COVID up until now, so like the last five years, anyone who's really looked at the market, they either know 2% interest rates, or they know 13 rate increases. They don't actually understand what the normal environment is around, yeah, there's a bit of fluctuation up, there's a bit of fluctuation down. The world isn't actually always ending when the property market's going. So through the lens of that and what interest rate patterns really do look like and setting up that first time investor for success, Pete, how do you go about planning for when rate rises happen with clients?

Pete: Yeah, so we gotta make sure we're building in our cash flow buffers. What we look at is if we are looking at interest rates, we normally do at least 0.5 or 1% maybe, [00:05:00] depending on which lender we're using. So we'd probably be sitting at about 6.5% in terms of our cashflow, even though they might be getting 5.5%. So we sit down with clients and work through their budgets and what we always recommend is having at least six months, six months of cashflow budget to fund the investment property. And that will capture things like your interest rate rises, your repairs and your maintenance, vacancy periods, which is what Skye touched on. And that will just get them through to the next stage because as we know, interest rates increase, they decrease. But to be honest, a 0.25% is really neither here nor there.

imti: Mm-hmm.

Pete: It's not really gonna impact too much from a cashflow point of view, but to help our clients sleep at night, it's about setting up those budgets so that when there's an interest rate rise, they're not gonna care. They're just gonna see, obviously, a higher repayment coming out every month, but they know that

Skye: they're prepared for that.

Pete: Yeah, yeah.

Skye: Do you think a lot of your clients do have that six months? 'cause I'm talking to them about having one to two months for different reasons. Do you think a lot of them do?

Pete: Yeah, we work with 'em pretty [00:06:00] closely, so we work with the broker as well, and we make sure that it's there

Skye: and not overspending.

Pete: Yeah. So we're always holding back a component of their deposit. So let's say they've got 150 grand to spend. We're not gonna put all that into a property. We're gonna hold back at least 20 grand. Keep that in their bank account. Lowers their repayments if they've got interest only. Whether they actually hold onto that and don't spend that, I guess that's on them. But the idea is that it sits there as if they don't even have that money. It's just there for worst case scenario, particularly when these rates do increase, because when we find these rate increases happening, people get really negative, the media starts to talk, people will panic sell, and by the time you pay your stamp duty, then you're paying your selling agent to sell the property as well.

Skye: It's not

Pete: worth it

You're not making any money. Yeah. Paying your capital gains tax. There's just no money in the end. So it's really about having the cashflow buffer, at least six months, and then that will allow you to continue to hold the property and you'll forget about it pretty quickly.

Skye: Mm.

imti: And I think the funny thing in there is that because Pete, you and I, and Skye, I know you're the same with when you're guiding your [00:07:00] landlords. We're probably a bit more conservative risk wise. And so, funnily enough, we've probably lost business because we've told people that they need three to six months worth of cash savings in the bank, or a run rate for that savings buffer in the bank.

But I think the common theme there is the cash flow component, whether you're a landlord or whether you're about to enter the market, it's about accepting it as a fact of reality, right? It's going to happen. So will you be okay when it happens? And if your repayments do go up 1% and you need to panic sell, you just probably shouldn't buy. You're probably better off looking at shares as an option or something alternate to property because property is always gonna have that fluctuation. And Pete, you hit on a really good point there in terms of going to sleep at night. The best property investment strategies all come down to being able to do that, right?

Pete: A hundred percent. Yeah. And it's also operating like a business too, [00:08:00] so you just gotta make sure it's just doing its thing in the backend and you don't have to think about it. And one way to do that is to have your cashflow buffers. And I got some numbers actually that I'll quickly share before we move on to the next one.

' cause I think it kind of puts it into perspective of how little these things actually matter. Now from a borrowing capacity, it might be a bit different, but from a repayment point of view, 0.25% on a 700k loan is only about 1800 bucks extra a year.

imti: Mm-hmm.

Pete: Which is $34 a week. So it's not a lot, especially if you have your cashflow buffers in place, you can absorb that technically for the next, what, five, 10 years and not have to worry about it. Now obviously rates do fluctuate, but that's just a really rough example of A, that you shouldn't really be too concerned. But B, if you have your cashflow buffers, you're just not gonna care.

imti: I mean, if your strategy is that tight, that $1,700 a year breaks it. You don't have a strategy.

Pete: You shouldn't be doing it.

imti: No. And I think from the borrowing capacity perspective, you're probably looking at 20 to 30 grand lost in borrowing capacity as those rates increase by [00:09:00] 0.25%.And it's a conversation we're having a lot at the moment where, certainty always beats uncertainty. I was talking to a first time investor client last week and they were tossing up as to whether they want to get into the market now or whether they don't because of the rate rise. Their borrowing capacity was very touch and go. We looked at it and they could probably purchase for about 600 grand, right. If there was another rate increase, because of their deposit, because of how tight their borrowing capacity was already, it was knocking them down to below 550. And Pete, as you would know, that's actually a big difference

Skye: at that price point.

imti: it's huge and we were able to model it and they went, oh yeah, we're fine if rates go up. Our borrowing capacity just sucks. It goes backwards. And so it was a conversation around, well, if you've got the savings in the bank, you've got the certainty right now.

And if rates go up another 1%, if you're gonna hold for the next 10 years, does it really matter? Um,

Skye: That's probably the key point. You need to look at this as a 10 year situation.

imti: Despite what the [00:10:00] headlines and everything will tell you, you know, let's not get in for 12 months, make a quick buck, and then get out. That's a rant for another day around the math and the economics around that. But it is a long-term game. And I think it's probably a good chance to segue into positive consequences of the rate increase. Now if you're listening to this, you might be thinking, aren't rate rises just bad. I've just been taught to, understand them as evil and there's nothing good that ever comes from them. And that's what mainstream media will have you believe, that everything is doom and gloom when rates go up. But there is actually some good things to come of it. One of those things is the feeling that probably a lot of people have listening to this right now. The anxiety, the stress around repayments going up, that translates into buyer behavior, and I'm not gonna say they all disappear, but the ones that are a little bit nervous drop off the radar.

And what that means is that if you're looking at, purchasing a property and there's, you know, 10 people who would've gone to have a look at it 12 months ago or put in offers that number might drop to six or seven [00:11:00] now. And that in itself just gives you a competitive advantage straight out of the gate.

Pete, I know you wanted to touch on clients that you've worked with in a rate surging environment. So when the 13 rate rises happened and the results that they actually had that were positive because they kind of just grit their teeth, they trusted the plan and they went with it. Right?

Pete: Yeah. I mean, a lot of clients who bought two years ago, they're up 150, 200 grand in terms of equity growth just by purchasing a property during the heights of, what were they, six and a half percent

imti: Mm.

Pete: Or even during that rate hike cycle, where it was every single. Was it every four weeks they meet?

imti: Yeah, yeah,

Pete: yeah, back then. So every four weeks we were seeing hikes pretty much every month.

imti: Mm-hmm.

Pete: Was it 13 month in a row?

imti: Yeah.

Pete: Was that something like that?

imti: It was, it was a blood bath.

Pete: Yeah.

imti: We were almost six and a half, 7% with prime lenders.

Pete: Yeah.

imti: And we had clients taking out loans at 9% because they did the math that made sense and they just went with it. But to anyone listening, they'd be like nine percent's absolutely bonkers. Right? [00:12:00] You'd lose your mind to do that. Yeah. But to use your example, Pete, I mean, if you end up paying, let's say 30 grand extra a year in interest, but you're up a hundred at the end of the year, you're up 70.

Pete: Yeah.

imti: You're not down 30.

Pete: Yeah, exactly. And really the reality is it was probably closer to 200 over the two years. So let's say you're paying extra 30, 40 grand interest over that two year period. You're still up 150 grand and you're not gonna say no to that. I mean, that's basically a salary.

75k a year is a pretty good salary for just buying a property and funding it, running it like a business and yeah, sleeping well at night.

imti: Mm-hmm.

Skye: And that was my story though, that I was trying to purchase as they're going up. And I think the reality is if I hadn't have gritted my teeth, I would struggle to get in now. And I think this current wave, I don't think we'll see 13 again, but it's gonna be the same scenario of people sit on the fence and go, oh, we'll just wait. You might just price yourself out.

imti: Well, that's the thing. I know personally the three of us, retrospectively, we all bought during a higher rate or [00:13:00] rate surge environment, right?

Skye: So much teeth gritting. Yeah.

imti: Yeah. It wasn't pretty. But looking back on it, we're all very glad that we did it. And I think that's where we're lucky, where we've gotten the battle scars and we can guide clients through that, yes, it's a little bit scary, but it's less scary

Skye: Did it matter?

imti: If you manage the cash flow, the savings buffers? People don't realise that, you know, we can do things like, for example, first time investor clients at the moment going guarantor is really popular. So instead of putting, their 60, 70 grand that they've got aside into their first investment property, we're actually going, well, you got a parent who will go guarantor. Why don't we leave the 60 grand in an offset? So you've got savings in the bank and you buy it with all the debt. And a lot of people don't realise that they can do that. They come into it and the situation in their mind is, oh, I'm gonna put every dollar that I have into this property and I'm not gonna have a savings buffer.

But there's ways around it that we can go, well, even if they don't have the three to six month [00:14:00] worth of cash sitting in the bank, there's creative things that we can do on our side of the fence to actually create that buffer for them. Or we run rate the buffer and we go, well, if after purchase you can save two to three grand a month, then you'll be able to actually save that buffer, let's say three, four months after purchase and you'll be fine.

And so it's a situation where they look at it and they understand, oh, like I don't have it now, but I will have it and it'll be okay. Long story short, for the interest rate hikes, I think it's a real situation of just cashflow. It's stress testing your buffers, understanding if you've got cash in the bank and that if there is one or two rate rises and that makes you nervous about your strategy or going into buy, you need to have a conversation with someone who's a professional to game plan that out, 'cause those fears might be unfounded. Or, your budget's too tight, and [00:15:00] it isn't the time for you to make a decision. And I think on the positive side of the fence, if you're able to grit your teeth a little bit, be a little bit brave, have that risk management strategy in place, you could potentially get into the market before things tick up again.

So that's interest rates. Let's talk about the second big headline at the moment, which is tax changes. There's rumors floating around that the capital gains tax discount might be changed. For someone listening to this and just wondering what in the world is a capital gains tax, Pete, can you break down what CGT is and why it's appealing for property investors?

Pete: Yeah, for sure. So capital gains tax comes into effect when you've held the property for more than 12 months, and basically after that period, any gain that you do make, only 50% of that is going to be taxed. So let's say you make $200,000 in terms of what you paid for the property compared to what you sold it for. If you've held it for longer than 12 months, you're only taxed on half of that, which is about the a hundred thousand dollars gain. [00:16:00] Now, this is not uncommon for the CGT tax discount to come into play from the political level.

imti: Mm-hmm.

Pete: A couple of years ago, Labor tried to do the same thing. They got absolutely annihilated in the election. Nobody wanted the change. So I guess what I'm trying to say is this happens quite regularly. It is what it is. There's always gonna be possible tax changes and there's a couple of other tax changes where governments have tried to change or they have changed and it's had no impact on property whatsoever.

In fact, it's had the opposite effect to what the government wanted. So that's the capital gains tax discount. What I'm finding with my clients is they are starting to question whether property is the right direction. Mm-hmm. For them. Mm-hmm. Not necessarily because they actually understand what CGT discount is and the implications from that.

Just because it's in the media though, because it's such a negative limelight in the media and when you really break it down, they're not actually going to abolish it if it does actually come into effect. What they're saying is they might reduce that capital gains tax [00:17:00] discount from 50% to 25%.

So going back to my example, before you make a $200,000 gain, it basically means that $150,000 of that will be subject to tax. Not a big difference. And it's something that I personally wouldn't be too concerned about if I was investing in property

Skye: Still making money. Right.

Pete: Still. Yeah, exactly.

Yeah, exactly. You're still making money

Skye: Didn't make a loss.

Pete: Yeah, well, if you buy, right. But yeah.

Skye: Mm-hmm.

Pete: Unless you buy like off the plan apartments or something like that, you never make any money. But yeah, it's not something to be too wrapped up in.

Skye: Mm-hmm.

Pete: Because as well, what I say to my clients is, no one's going in buying property, worrying about the CGT discount. It's just gonna be a moment in time, and then everything will kind of just adjust back to the norm and people will just buy property and invest in property and, it will just be like normal practice. So yeah, that's the CGT discount. And it's not something I'd be too concerned about.

Skye: Well, I don't know if this is a bit off topic, but I had a conversation with a landlord who was basically saying, 'cause his capital gain is quite [00:18:00] large.

Pete: Mm.

Skye: That he would just take a sabbatical from work. Therefore he is in a lower tax bracket and therefore we get around that actual issue.

imti: Yeah, it's what accountants get paid the big bucks for, right? It's tax planning.

Skye: But is that not what, people will potentially look to different, avenues to try and avoid it because no one wants to pay more tax than we have to. But short of what I saw is people just wouldn't sell. So it's actually going to increase more pressure on the market ' cause they'd be holding their properties for longer.

imti: Let's double down on that. The government's hoping that it would trigger more people to sell and less people to invest in property. What you are saying Skye, is that by reducing the discount, people are gonna be more likely to hold on to get the gain that they would've gotten in the first place with the discount.

Skye: I think they're rethinking the exit strategy. Do we even need an exit strategy? Is there a way we can hang onto it? I've had multiple conversations with landlords who were considering selling in the latter half of last year. [00:19:00] They're now opting to hold. Maybe wait for a new government, I don't know.

imti: I was gonna say if they were gonna sell and they're worried about the changes they probably should have sold yesterday.

Skye: It's around what they had initially planned on, while they're not making the CGT decision as part of it, it's definitely a factor.

imti: Mm-hmm.

Skye: And the government's all talking about improving life for tenants and increasing housing supply, and I just think this will have the opposite effect, just personally.

imti: Yeah, and I think that your example of people holding on longer that have multiple properties who have been around for a little while, they'll always find a way to minimize their tax because they've got the resources to do it. You know, they've got the expensive accountants, the structures, the tax planning, the ability to take a sabbatical to drop their income for 12 months. I think for the first time property investor, it almost shouldn't register to them as something to consider or not.

Skye: Because they're just getting started.

imti: They're just getting started and also, in my experience, the choice is very [00:20:00] often, do I invest in property or do I do nothing? I don't know if it's the same for you guys, but it's not often I have a conversation with a client who's like, I'm contemplating investing in property, shares a business or getting another job. The decision for them is I'm contemplating investing in property, end of.

Skye: Mm.

Pete: It's the asset class rather than the tax implications.

imti: Yeah, and the tax implications. Even if CGT was changed, you still got the negative gearing benefits, depreciation, there's a whole bunch of stuff that's still gonna be baked in there that is still gonna be beneficial to people who are investing in property property and incentivize them to do it. But to your points, if you're paying tax, you're making money. That's it in a nutshell, right? And the alternate to that is, well, if you didn't invest and you did nothing different because you are worried about CGT changes impacting your returns,

Skye: You haven't made any money.

imti: Yeah. You've been taxed zero. On zero.

Skye: On zero.

imti: So then what are we worried about here?

Skye: Mm.

imti: And the long tail [00:21:00] implications of what the government wants in terms of housing supply and stuff like that, and driving prices down, because house prices are outrageous at the moment, and cost of living is a real pressure. And we've talked about it before, it's all supply driven. So what are we doing here? Like, if we wanna fix the pricing issue, it's how do we incentivize supply? Not how do we tax a gain. But I think for the first timer, who's sitting on the sideline, feeling a little bit anxious going, oh, interest rate rises, capital gains taxes. Should I sit this one out? Should I not make a decision? Should I give property a miss? Understand that, and I'm mean no offense by this. You are not a special snowflake in the sense that everyone's feeling that way. And so if everyone's feeling that way, a lot of people aren't taking action. And so that's the thing that you've gotta make peace with in your head. And that is a really good transition to something that I wanted to talk about around decision making. [00:22:00] Because at the end of the day, we're talking about what's stopping first time investors, right? The interest rate hikes might stop them. Tax changes might stop them, but at the end of the day, all of this is info and it all boils down to analysis paralysis and having too much information or constantly seeking out information because you feel like you don't have enough info to make a decision. Pete. What are your thoughts in terms of how analysis paralysis impacts the first time in investor?

Pete: It just delays the purchase, just to put it simply. Mutual client settled yesterday, three years in the making that one. And look lovely family. But very analytical in the way they approach things. So they'll go down the rabbit holes of going into Google and Reddit and Facebook and all of those kind of news article

imti: Every Tom, Dick and Harry for their opinion.

Pete: Yeah. Family barbecues, all that kind of stuff. And we kind of talked about it before, is the algorithm, right? If you are looking for negative things, you are gonna find negative things.

imti: Mm-hmm.

Pete: So if you're searching for things or reasons [00:23:00] to not invest in property. That's what's gonna come up. And you're gonna get that on your feed on in social media and probably not Google, but Reddit is a big one. But yeah, and I guess that's what delayed them from making the purchase for three years and what's happened in those three years, we've had interest rate rises, interest rate falls. We've had tax changes as well in different states, but I guess, but missed down still. It's in the media. Yeah. Missed out.

Skye: On so much cash.

imti: We did the numbers right. It was what, 350 grand?

Pete: Yeah, so the property we settled on has pretty much gone up by that much since three years ago. Now it's gonna continue to go up, but they really could have made that same purchase three years ago and paid 500, 550 for it back then.

imti: And I think the difference was, it wasn't more information that helped them make the decision. It was understanding two things. One was they finally decided to lean on a team. Instead of doing everything themselves and working with people who do this day in and day out, you can't out research a decade of experience.

Even if you're t trawling [00:24:00] Reddit and Chat GPT seven hours a day every day, you are still gonna be a decade behind.

Skye: Mm.

imti: If someone works in this industry and that's not to say that everyone who works in this industry wants the best for you either. But that's a rant for another day. But having a team, that's the first pillar for me when it comes down to analysis paralysis,

Skye: Listening to your team,

imti: Listening to your team, that's probably, yeah, no, that's the first pillar

Skye: That's the word.

imti: Yeah. Listen to your team. And the second part of that, for me, it's actually decision making framework I used to move from Sydney to Adelaide, funnily enough. So for anyone who's never heard this story before, I'm from Sydney. Don't hate me for it. I moved to Adelaide four years ago now. Peak COVID essentially on a whim. Everyone thought that I was crazy and I was making one of the biggest mistakes in my life. Now it was an exercise that was in a book written by Tim Ferriss. So the Four Hour Work Week. Total bro book, it's pretty much 98% shit, but

Skye: I'm [00:25:00] embarrassed to say I've read it.

imti: Yeah, it's, yeah, yeah, yeah. Put it in the bin. But this one exercise was actually really handy. And it was called Fear Setting. And what it gets you to do is visualise what can go wrong and then put it in painstaking detail. And then if that detail is something that you can stomach, then you can make that decision if the upside's worth it.

So for moving to Adelaide, for it was, okay, I'll be away from friends and family, but I get to experience something new, I'll have financial flexibility, I'll get to tick off something on my to-do list that I've wanted to do forever in terms of living somewhere else. These were all the positive things minus leaving my family. Not a positive. If you're listening to this, I'm sorry. Um, but the fear setting aspect of it was, okay, well if it does go wrong, what do I need to do? Okay, well, I was traveling with my job, so I didn't really need to worry about work. I could have gone back to my job in Sydney because I [00:26:00] was working from home. Yeah, I would've lost a little bit of money from the move, but apart from that, the very worst case scenario was that if I didn't like it, I would just go home.

And when you looked at all the information, everything that I was being bombarded with, it came down to, well, the decision's really high upside. I could do something absolutely amazing and worst case scenario, I just go home. And when you apply that to property and savings buffers and interest rate increases and capital gains tax.

Okay, well let's say capital gains tax discount did change from 50% to 25%. Let's say interest rates did go up 2%. If those things happened, and the worst case scenario was still, oh, I can make my repayments, they're just a little bit more expensive. My lifestyle doesn't change that much, and I can just go to sleep at night. Then that's your decision made.

Skye: Yeah, it's the upsides, the money you can make by holding it.

Pete: Yeah.

imti: It's the upsides and it's really understanding what the [00:27:00] downside is. Whereas I guess for someone who didn't have cash savings, buffers was in a tight spot, salary wise, was stretching their borrowing capacity and taking out too much if they did that exercise and went, oh, like if rates go up 1.5% and

I hate my job, so I leave it one day and my salary goes down 20%. What happens in that scenario? That's the fear, and the answer to that is, I panic sell because I can't afford it anymore. Okay, cool. There's your decision, you can't do it. Don't do it. Look for a better alternative avenue. But I think when it comes down to the analysis paralysis piece, it's not more information that helps you make a decision. It's clarity on consequences and clarity on the upside.

Skye: Hmm. I think we all take that journey with our clients, right? What are the consequences?

imti: Mm-hmm. Yeah, and I mentioned it earlier that we're probably horrible salespeople and lose a lot of deals about it, but we'll talk about the nasty, nitty gritty stuff, because that's the reality of it, when you're looking to [00:28:00] buy an investment property, you're at your most motivated point in the journey. You are your most excited, you're the most ready to go, and so it's very easy for.

Someone who's in the industry who's quote unquote helping you to just go, yeah, yeah, yeah, go do it. You know, you're in a great position, blah, blah, blah. But it takes a lot more to sit you down and go, actually, if it goes tits up, what does it look like? And can you stomach that? And then if you can, cool. It's probably a great decision. Let's rock and roll.

Skye: Mm. I'm thinking about so many times where I've done exactly that and wonder if I've just talked people out of investing in property. But it's about being prepared, right?

imti: Mm.

Skye: If we know what the worst is, nothing can get worse than that.

imti: Yeah.

Skye: Can only get better.

imti: I mean, Pete reminds me of your plumbing bill that you copped the other day, right? it's for,

Skye: Hey, I've seen bigger than that. We've got a $35,000 plumbing bill.

imti: And,

Skye: and again, he's still smiling, still looking at buying another investment property because he's prepared.

Pete: Yeah. All part of the process.

imti: Yeah. But if you didn't have someone who, and for you it was probably [00:29:00] battle scars and learning your own lessons, right? Yeah. And that's probably what you help clients with now, is you can share that story with them and go, yeah, I got a 10 grand plumbing bill.

Pete: Mm.

imti: If that happens to you, do you have to sell the property? 'cause you can't afford it?

Pete: Agree and when everything goes to shit, it happens at that same time, like you'll have one bill and then you'll have something to do in the family or just something will go wrong as well.

Skye: Always.

Pete: And it always hits at once. And I, I don't know, for me, it seems to be every time I'm gonna make a massive decision, whether it's family, business, investing. I get hit with bills, like maintenance bills.

imti: Yep.

Pete: Across the portfolio. But again, cashflow buffers. I looked at that bill and, people could take this the wrong way, but I didn't care. Yeah. Like it hurt, but like

Skye: you were prepared.

Pete: Yeah, I was prepared and I never thought, shit, I gotta sell or anything like that.

Skye: Yeah. You're not taking food off the table to pay that bill.

Pete: No.

imti: You were cranky for a couple of days, but you got over it.

Pete: I was annoyed with the circumstances of it. 'cause it's a very odd situation and one that you just you actually really can't foresee this one, no matter how much you try and kind of break it down, but yeah, it is what it is and you just pay it and move on and you just [00:30:00] slowly top up your savings balance as you go, back to whatever you're comfortable with.

Skye: Mm-hmm.

Pete: And then, yeah, just go again for the next one.

imti: Pete, you just touched on something really awesome that I'm gonna wrap us up on. You pay it and you move on. That is the crux of this whole decision making conversation framework and the things that are stopping first time investors, right?

Is that if you're worried about interest rate hikes and you can't pay it and move on, cool. It's probably not for you. If the capital gains tax thing worries you because you're gonna be paying tax and you can't stomach it, pay it and move on, it's probably not for you. I think the current environment is also presenting an awesome opportunity if you can just pay it and move on.

On that note, I'm gonna wrap us up. As always, thank you both and I look forward to our next chat. Awesome. That was a good one. [00:31:00]