The Purposeful Investor

From Deposit Roadblocks to Smart Pathways into the Property Market

• Aden Wilkins & David Andrew • Season 3 • Episode 3

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We unpack how families can help first-home buyers enter the market without risking retirement, and why honest conversations plus clear numbers beat media noise. Practical steps include guarantors, 5% deposit schemes, rentvesting, and legal safeguards for gifts.

• social pressure and silence blocking helpful family talks
• role of the mortgage broker as long-term advisor
• apartments and location as smarter first steps
• four family help paths: guarantor, gift, silent stake, co-borrow
• using splits, offsets, and timelines to remove guarantees
• 5% deposit schemes and avoiding lenders’ mortgage insurance
• rentvesting to boost borrowing capacity
• legal protection for gifts and fairness across siblings
• savings incentives, living at home, and granny flats
• career trajectory, buffers, and repayment resilience

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The Purposeful Investor Podcast is a public service provided for Australian investors wanting to make smart decisions with their money, avoid costly mistakes, look after the people they care about, and, have a great life!

We draw on over 30 years of experience from David Andrew and the Capital Partners team.

For more information on Capital Partners' award winning team, visit capital-partners.com.au.

Have a question? Email us ask@capital-partners.com.au.

This episode provides general advice only. We do not consider your personal circumstances when we share this information. Always refer to your financial adviser for advice about your personal circumstances.

Capital Partners Consulting Pty Ltd AFSL 227148 trading as Capital Partners Private Wealth Advisers ABN 27 086 670 788.

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Aden:

Hello and welcome to the Purposeful Investor Podcast. I'm your host, Aiden Wilkins. Join us as we delve into what it takes to make smart financial decisions, provide for the people you care about, and uncover what it means to be living your best life. Follow and subscribe so you never miss an episode. Welcome back to another episode of the Purposeful Investor Podcast. Today we're going to be discussing something that has probably been the most topical point of conversation, I think, around Australian households in the last year. We're going to be talking about the property market and more specifically, how can you help the younger generation into the property market? We've had these conversations in client meetings. It's been all over the news. And joining me in the studio to talk about it is Michael Killiner, Director of Tusk Finance. Michael, welcome to the podcast.

Michael:

Thanks for having me. Thanks, David. Thanks, Aiden.

Aden:

And also David Andrew, our founder here at Capital Partners. David, welcome. Thank you, Aiden. It's always a pleasure. So as all of our listeners know, we like to start off the podcast with a little win of the week. So that's something that's happened in the past week. You can reflect back on that was a little win. So seeing as you're our guest, Michael, why don't you start off with your little win?

Michael:

Yeah, thanks, Aiden. I tried to go quite deep on this and then I realized you can keep these things quite simple. I sat with my three-year-old through a full 2020 Scorchers game last night, and it was pure bliss and joy. I walked out with her, and the look that she gave me after the cricket was something I'll never forget. So that is absolutely my win of the week.

Aden:

I love it. And teaching her to watch the cricket early, that is that's tactical fatherhood as well.

David:

Does she have an aspiration to play 2020 cricket? I hope so. I hope so.

Michael:

I I tried with our six-year-old, and she has let me down and doesn't have any interest in it whatsoever. Uh, so I'm slowly conditioning our three-year-old as my last resort. Love it. Dave, what about you?

David:

What was your little win? I'm gonna take that as a little win. I have not turned the television on this morning, and it just happens today is the final day of the final test, and we've got a five-day test, and it's gonna be a cliffhanger. I'm gonna take that as my little win for this week, is we've actually had a real test match, a contested five-day test match, which bring it on. May there be many more of them.

Aden:

Love it. Uh, I'm gonna use a little bit of a it's a little bit old now, but so just before we broke for the Christmas break, every year here at Capital Partners, we do our annual stealing Santa. And I was reminded of it because we're up in the break room now. It's a great way to sort of tease out a little bit of banter. You always see who's a little bit more competitive and have a few laughs, and it's a it's a good tradition that we've done for many years now. And I'm um, yeah, that was a good little win. So to the topic at hand, so we're talking about a con a topic that has been pretty much a constant throughout client meetings, particularly for those who have adult children or grandchildren. And it's this idea of how do I help them into the property market or how do I how do I first get into the property market? And I most of our listeners will know how difficult and how I guess how contested it is out there. But Dave, can you tell me why I guess you wanted to really discuss this during today's podcast?

David:

Yeah, I I know we had Michael on as a guest last year and that this topic got touched on, but it was one of a broader number of topics than I thought. This really warranted a deep dive. And um, you know, I'm 60, as our most of our listeners, regular listeners know. And um, so this is a really hot topic for, you know, the two questions are how do I help my kids get into the property market? And are you retired yet? Um for 60-year-olds. It's drives me crazy. Um, the second one does. Anyway, um, I I guess what I've observed over the last 12 months firsthand with with clients and friends is is that um there's lots of parents who would really like to help their kids, but they're not really sure how. And they don't want to raid their super and they don't want to borrow money against their own home to do this and so on. Um, and then there are kids who would love to get into the property market, but don't really want to open up the conversation with mum and dad because they don't really know how mum and dad are going to respond to it. I guess I I I don't know for sure, but I guess they're probably feeling as though they don't want to appear entitled, a sense of, oh, well mum, I have an expectation that mum and dad are going to help me. And so it's almost like you've got this standoff where you've got one generation kind of wanting to help but not really knowing how. And then you've got the other side of the equation needing the help and really wanting to get into the property market, but not really knowing how to have the conversation. So I wonder, Michael, whether this is actually a communication problem at some level rather than a financial problem, right?

Michael:

Absolutely. I would I would actually throw a third part in the mix and a social pressure from friends, particularly. And a lot of the issues I see actually come from and stem from that aspect because the friends don't discuss how they bought the property. So friends generally talk about them buying their first home, but they don't explain how generally. And so you've got a lot of these first home buyers that want to do it, their friends have done it, they don't know how to talk to their mum and dad or family, and they're in this abyss where they don't really know who to talk to and who to have an open conversation with. So I think that social pressure from friends is also that third part.

David:

Well, I reckon that would be true of the parent generation too. Because uh it doesn't really get talked about that much. I guess if you if someone asked directly, oh, did you help your kids with a deposit on the house? They'd probably they wouldn't lie. They'd say, Oh yeah, yeah, we we helped a bit or something like that. But it's not something you're gonna go and go sprouting on about, is it? Absolutely, yeah. Yeah, and so I just wonder how we can help people, help our listeners. And I guess this is cool, this podcast episode, because it it it speaks to our clients and their children. So there's lots of people who can benefit from this information.

Michael:

And as as you've touched on so many times, both of you, it starts with a conversation, and the easiest way to have the conversation is through a third party, which is exactly what this channel is. So you have such a strong audience within this within this space, and this is the start of the conversation, and these are some of the questions you should ask each other as a family unit, because uh capital partners are so strong on family. And so, how do you have that conversation? What questions should you ask? What should you expect from that conversation? And how can you actually do it? Because I know there's a lot of fear-mongering around buying property, but I see so many people do it. And so if I can see so many people do it, is it actually that hard? And is it actually something to be scared or fearful of? Or if you put some plan in place as a family unit, is it actually achievable within 12 to 24 months? And the answer is yes.

David:

Yeah. It reminds me, Aiden, of a an earlier conversation we had around the whole concept of being rich versus being wealthy. And I think the vast majority of our clients do live wealthy lives in the sense that it's not about counting how much money they've got. You know, if they had, if they've got enough, if they know that they're going to be okay, then they'd much rather help their kids get a foot, a positive foot in life, a step up in life, whether that's through property or education or anything else. Um, and I think it'd be useful for us today to talk through some of the ways, because because I think the natural thing is, oh, well, I need to find $100,000 to give to my kids to. And that's not true, right? You've there's all sorts of different ways to approach this problem. It's it's not a matter of rating your super or taking a second mortgage so that you can help your kids out. There's lots of different ways that this can be done.

Aden:

Yeah, and I think on that as well, Dave, I think it'd be useful, Michael, for you to go through what a mortgage broker actually does. Because I think even just talking to lots of clients, kids, clients even, and then people in the broader community, there's not there's not a great sense of what they actually do. And I I know because my dad was a mortgage broker, so I sort of understand that role. But I think, Michael, because you're almost this quite often the first trusted professional that people are talking with when they're about to go down this journey, it'd be useful for you to actually start off by saying, Yep, what you actually do and how that process starts off before we actually get into the the granule of what are the different options.

Michael:

That's great. That's a great place to start because a mortgage broker in in general and in essence is to facilitate a loan. So facilitate a buyer to get a loan to purchase a property. That's what the role is in its really specific form. It's so much more than that. It's so much more and it's and it's become a real advisor role and a lifelong advisor role as well, because so many circumstances change over time. And going back to your point around when do you engage, as soon as the conversation starts, because you don't know your numbers generally. And if you don't know your numbers, you don't know what you're actually trying to save for and how much you need to save. And then once you specify what those amounts are, then it becomes so much clearer. So, yeah, a broker in its essence is facilitating a loan process. When do you start the conversation? As soon as you're thinking about buying a property, because then a broker is involved in firstly working out borrowing capacity, working out the right weight and how you can do it. But then it becomes a role of providing someone confidence to take action, clarity on what needs to be done, because they're the hardest parts. It's just it's it's a really big moment in someone's life that they don't really know who to turn to, and and you end up being that person that no one actually makes a decision, which sometimes is a bit cumbersome. But they they don't want to make a decision without you being involved in that conversation because you are so much a part of that that journey towards a property.

Aden:

And I think it's important as well that you're you're actually acting on behalf of the person buying the property, the buyer, you're the one in the corner to say, hey, if you want to do this, these are the parameters, this is how we're gonna do it, these are the different options, um, and giving so much counsel in that space.

Michael:

Yeah, absolutely, because there's a generally a selling agent involved for the sellers. Kids generally don't take advice from their parents in most of the cases. So who do they turn to other than their friends? And and you become that person that's that's a trusted advisor that now legally has to work in their best interest anyway. Uh, and then you're looking across the board at what type of loan they're getting, what type of product. It's it's such uh overwhelming process if you don't have someone in your corner.

David:

Yeah. So I think there's also a shift going on right now. Um, and that I'm gonna add a third thing, and that's what sort of property. Because there's this expectation that people are gonna buy a house, and you know, ideally people want to buy a house, I guess. I'm I'm speaking hypothetically here, but on a 700 square meter block, and then for then it becomes a you know a 350 square meter subdivided block. But what I'm now seeing is younger people starting to buy apartments, and and that makes, and I think there's a bit of a stigma, there it has the potential to be a bit of a stigma around that because everyone says, Oh, buy the land, buy the land, buy the land. But Aidan, you've just done this, you've bought your first property and it's and it's an apartment. Good on you. Um, but when Robbie and I were between houses recently, we stayed in a couple of Airbnbs that were 1950s, 1960s, two-bedroom apartments. And I tell you, they're amazing. But driving past from the street, I'd look at that and say, I don't think I'd want to live there. But high ceilings, um, you know, fresh coat of paint, yes, there's no lifts, it's a walk up apart. You know what I mean? But those sorts of properties, even in good suburbs, I imagine, Michael, are still very accessible. So there's lots of sort of preconceived ideas and mindsets around stopping people when in fact changing your view of what sort of property you're happy with can make a huge difference as well.

Michael:

Absolutely love that. I I recently had a first home buyer's they bought in Wembley 550, a 550, two-bedroom, one-bathroom, old apartment. Yeah. What a fantastic place to live as a first home buyer. And you haven't broken the back.

David:

And I bet it had nine foot ceilings, right? It did. It's also upstairs, which which is okay.

Aden:

So yeah, yeah, yeah. I think that talks to the point around starting the conversation. And when I was actually going through the process of right, this is what I'm thinking about. For me, one of the non-negotiables was I want to live in a certain radius of suburbs. I don't want to go further from that. It needs to be close to work, near good amenities, have good cafe, bars, strips, still close to the beach. So it's like, all right, you filter out from that and you go, well, I don't want to break the bank. And you're sort of you're working through all these different things. And it's it's not necessarily a hard thing to do, but you have to sit down and take the time to go through that process. And then you get to a point where, okay, well, if these are sort of the things I'm looking for in the non-negotiables, what does that property look like and what are the areas? And I think that's such an important part of it, rather than just leaping in and sort of going all scattergun everywhere. You've actually got to take the time to think of what's important to you and how you're seeing yourself living life in the next three to five years. And we've talked about, yeah, financially as well, but it's also around like what's the lifestyle you want to live over that time. It's both a lifestyle and a financial decision. Um, so that's what I found really useful in going through the process.

David:

Well, something I observe with our kids' friends is that in your 30s, mid mid mid, so late 20s, I should say, late 20s, especially if you're single, you actually haven't got time to be maintaining a garden and doing all that stuff. So it's not, it's it's actually not going to work out the way you think because it's really hard to fit all this stuff in. Definitely.

Michael:

If we focus on the numbers as well, as you as you mentioned there, Aiden, 600,000 is the same amount of money regardless of what you buy, but you get a different product in a different area. Yeah. And so location is the one thing you cannot change in a property. You can't pick something up and move it. So for these buyers, if they're buying something for 600,000, yes, they could buy a two-bedroom apartment in Wembley, or they could go to Ellenbrook and they could buy a townhouse. And they've just made the decision, well, we're happy to move in closer because proximity to the city is more important. But until you know how much you can spend, you just don't know where you can buy. You're just hypothetically working out areas you want to live in. You work out your exact number, you work out then location, and it then becomes quite simple.

Aden:

Yeah. So we talked about having the conversation initially, which I think, as we've all alluded to, is the most important first step. But let's go a little bit of a hypothetical. So we've got Joe Blogg's client wants to help out Jim Blogg's um son. So what are the different options? It's in terms of we've talked about you don't need to just save up, have $100,000 spare. What are the different levers at your disposal?

Michael:

There's four clear ways that I see this being done. The the first is a guarantor, and I can touch on that in more in more detail. And it's where you're as a family member or parent providing your home or a property as the deposit in inverted commons.

David:

So really you're providing security. You're using your existing property with equity in it to provide a guarantee over your son's property where they don't have the equity.

Michael:

That's correct. Yeah. And it doesn't necessarily have to be your property in terms of your home. It could be an investment property, which is becoming more and more common. So you don't even need to involve the family home. And that's just where the value of the property is high enough in comparison to the loan, where there's there's value there that can be used as a deposit, similar to if you wanted to buy an investment property with that particular property. So that's that's one way. Another way is a gift where you are providing a gift to that um that that son in that case. And David, I know you've got some strong points on that particular part, which I think we cover off in a second. Uh the third way I see a lot now is a silent investor, where they're not actually a borrower, but they're purchasing a portion of the property. So they might buy 30, 40% of the value with their own money, and they're effectively having that as an investment, another vehicle. And then the fourth is actually being a borrower. And I saw this work really well in a case in Sydney where property prices are ridiculous, to put it lightly. And the fan and the and the family bought 10% of the property and was a borrower because we needed the the parents' income as well. The reason why 10% is crucial is because now the the um young couple have enough uh income to purchase that 10%. And the 10% is so crucial because now they're only paying stamp duty on 10%, not 40, 50% stamp duty, which on a $3 million property is significant. So the percentage of ownership is really crucial in those cases. But they're the four ways that I generally see families help. The most recent way I've seen is where a family is buying in a family trust and it's a corporate entity. And obviously we can go into a bit more detail there, but then they're changing the directorship of that corporate entity to the child. And so they're not paying stamp duty with that change, obviously, very much around accounting and legal um implications.

David:

But I have seen that recently, which is quite creative and another way that's so essentially, essentially, that would have to have been a for all other intents and purposes, that would have to have been a dormant trust. So it didn't have any other assets, so they were able to transfer the control of the company, not the ownership of the company, the control of the company. Yeah. Okay, that makes sense. You'd also change the power of appointment of the trust so that they actually control it. The downside of that, I guess, I guess it depends on the um overarching motivation. If that's the only way you could do it, that would be a good way to do it. But I suspect the challenge with that is they lose, because it's owned by a trust, they lose their um primary residence CGT exemption. Exactly. Exactly.

Michael:

And it's not something that I've seen before, but I've recently seen it, and that's why I thought it was worth mentioning.

David:

Yeah, yeah, yeah.

Aden:

Definitely. So it's interesting to note the thing that I take away from that is there's no one size fits all. There's there's different options and there's different levers. And that's why, like you touched on right at the start, Dave, have the conversation initially so you can see which way is going to work best for the family or the circumstances. Because it's not just okay, you've got to save a 20% deposit or you've got to gift them a 20% deposit and then go there. There's actually so many more nuances that you can work through.

David:

And you know, your guarantor strategy or the guarantor strategy, Mike, is great, I think, because with property prices doing what they've doing, they've done, very few people my age who have owned their property forever and they've been diligent in paying it off, would not have enough equity in the property to be able to extend, you know, a $100,000 guarantee to their children. No, that's a very achievable, that's a very achievable strategy. Okay. From a parent's point of view, they need to think about it. You know, is my child a bit of a no-hoper? Which I don't know, I use those words reluctantly, but I guess for some people that might be true. Um, but but if you're confident that the adult children are going to play the game and they're going to be responsible and they're going to pay the because the reality is they've still got a stonking big mortgage, right? They've got to show up and be responsible and do the right thing to get that loan paid down on schedule.

Michael:

Um that's a brilliant approach. It is, especially when you put a time frame on it. And so what I've seen work really well, two parts, is you split the loan so you can clearly see which part is for the guarantee and which part is then for you as the child or kids to maintain ongoing. And therefore, your primary focus is to pay down that limited guarantee, which is fantastic, because then you add a time frame and you say, How long will it take us to pay that loan down whilst the property price increases, which is a compounding effect of paying it down and increasing. And all of a sudden, as soon as you can remove the guarantor, it's just a form that's signed and they're gone. And so I generally see this happening within three to five years. The Perth market has gone on a ridiculous run in the last uh 24 months. And so anyone that was a guarantor 12 months ago has been removed, which is quite remarkable. But that's the reality because this the conversation needs to be around time frame and how do we remove them? And the other part is it's a limited guarantee to the to the amount that's being used as the deposit. And so the the parent isn't liable for that full debt in most cases. So let's focus, as you said, on that 100,000. How do we pay that off? How how do we incentivize? Maybe we don't move into that property in the first 12 months, we rent it out, we make our own repayments, plus use the rent, and all of a sudden the property price increases, rental coming in, payment going out, a few sacrifices, and the guarantor's gone, which is exactly what I do with my parents.

David:

Yeah. So in terms of proportion, how common is the guarantee strategy versus the gift strategy where parents literally write out a check for or a loan? Let's call it a loan rather than a gift. Um, they write out a check for $100,000 or $200,000 as a deposit with no real intention of ever getting the money back. How common is that versus the guarantee strategy that you've put forward?

Michael:

I would say five years ago, it was 80 to 90% were guarantors because of the property price. And so paying uh having a loan of 100% of the value of the property was was somewhat okay because of the property value. And rates were probably lower then, right? Well, definitely in 2021, 22. Prior to that, it was about the same. What I've seen recently in the last two years, as property prices increased, parents are more willing to put money towards the purchase to allow that to happen. So now I'm seeing it at 50-50 and almost verging on 60-40. So 60% having funds from family and 40% being used as a guarantor because the borrowing capacity becomes the issue. And now they actually can't borrow that 800,000 because of the income. Whereas they could borrow 700 and there's the and there's that 100,000 gifts or whatever it might be.

David:

So so it's changed. A lot of it is borrowing capacity as well because of their income. Yeah, that makes sense. So, how often then, with those gifts, how often are you seeing it become an issue where the parents are saying, look, I'd really like to take this capital from a bloodline point of view to make sure that that capital value doesn't get lost to a de facto partner?

Michael:

It's the concern of every parent that I speak with. Right. Absolutely. And and it all comes down to advice. And you just need the right advisors in your room. You you need capital partners, you need a legal representative in that conversation because it it's so crucial as to how to structure this. From a lending perspective, we can make it work, but how do you ensure that everyone is protected? That's something that I can't help with, but you absolutely need to have that conversation.

David:

Yeah. Yeah. Seems to me too, there are some other ways that parents are able to help their kids. Well, an interesting story. Um I had a client who had been very clear that they were not gonna, he was not gonna help his kids get into the property market. Um and I and I think his mindset, this is going back years now, his mindset was, well, I've done I've done the best I can about my kids. I've given them a very good education, I've helped them with their university fees. Um, and by any measure, that's a that's a pretty good start in life, right? Um, but what what happened subsequently was that their financial resources um I guess outstripped their needs. You know, the their the value of their property went up, the value of their super's gone up a lot. Um, he's chosen to keep working for a little while. So he said, well, we've actually got capacity to do this now. So one of the children was already married, had a home, and so he said, Look, giving them X dollars would really change their life. That's amazing. Um, but I'm really concerned about my other one of my other children who I don't see having a savings habit. I don't really want to mention the fact that this opportunity is available. And I said to him, Well, if I may, I'm just gonna challenge that idea because if you create an incentive, incentives are very powerful in human behavior. You create an incentive and you say, Well, once you've saved, I'm just gonna make these numbers up, $30,000 between you and your partner, and that they're and you're living at home. So you should be able to save quite a lot of money living under our roof, once you've saved that amount of money, then this will become available. So I think there's two things there. One is the incentive, and I I don't think anyone really wants to try and manipulate their adult children, but giving giving people a nudge is a very powerful thing in human behaviour. And the second thing that I did this came up inadvertently in that story was the idea that having adult children living with you can be enormously beneficial for them in not having to pay rent while they're saving for the deposit.

Michael:

Yeah, absolutely. And I also am seeing because of the changes within council regulations, parents putting in granny flats in on their property because the land size, generally speaking, is large enough and the council approvals have relaxed. There's a granny flat on the back, kids are living in the granny flat, and therefore there is that separation. There's the however, there's the ability to then save, and parents match what savings are being put away by the kids. It's such a fantastic approach. So I wouldn't mind just the idea.

Aden:

Dialing it back a little bit, Michael. So we've we've talked a little bit about what a guarantor does and what the role is, but can we talk about what the importance of having the guarantor in to get to the 20% mark is? Like so some of our listeners might have heard of the term of lender's mortgage insurance, but what is it? And it because it can add up to quite a bit, right?

Michael:

Lender's mortgage insurance is the fee that you pay the bank to protect them because you don't have a large enough deposit. So it would be like me paying for your private health insurance. There's no benefit to me. You get all the benefit. Uh, however, it's a cost uh that it's burdened by me, I can add it to the loan. If I can avoid it, it'd be best to avoid it. And this is one of the one of the issues I see is raised is around lenders' mortgage insurance because no one really knows the figure and they don't know the costs associated. And so providing someone with two or three different lending scenarios that they sit with their parents and say, okay, if we go with option one, this is what it looks like. If we go with option two, there's mortgage insurance of 25,000. Oh, of course we're going with option one. All right, that's a great conversation starter. How do we do option one? Because now we know what the tangible numbers are. The third part is government schemes. And the government has really worked hard on schemes, rightfully or wrongly, because it's very much focused around demand. But now you need 5% deposit rather than the traditional 20%, and you're not paying mortgage insurance. And that's going back, touching on David's point around is gifting more common? Now it is because if you gift them 5%, they don't even need to touch your property because the government is the guarantor. And there's no mortgage insurance, and they own the property outright in their own name. What a wonderful way to do it. Obviously, it's increased demand, which is subsequently increased prices, and there's the unintended consequences. But yeah, there's, I think it's understanding the scenarios and the numbers when lenders' mortgage insurance is being thrown around because traditionally this still comes up, you need 20% deposit or you pay mortgage insurance. That is just categorically wrong now. There's banks that don't do it, there's government schemes that are involved, and it's just understanding all the different options.

David:

That's so interesting. So, so when I hear from my kids' friends, I can never save enough money for a deposit. That is very unlikely to be true.

Michael:

It is unlikely because if you bought 600,000, you need 30,000 as a deposit. 30,000 is a lot of money. I understand that. But we also need to understand this discipline and sacrifice involved in buying a property. It's not just a rightful passage. And so if you sit there and go, okay, in three years' time, I could go from $0 to saving $30,000. I understand the property market might increase in that in that period, which is where family help can come in. But that's achievable. So for anyone that sits there in front of me and says, I can't do it, I I call them and challenge them on that because that this is not the case. Let's set a plan in place to make this work. And maybe your expectations are too high. Maybe you can't buy your first property in Netherlands. That's okay. That's absolutely okay. Maybe your friends did it, but they've got a different journey. Comparison to the thief of joy. So let's make sure it's looking at your situation.

David:

You know, I chuckled to myself when you told the story about that young couple um buying a two-bedroom. We used to call them flats, but let's call them apartments in Wembley. And um, when I was Aiden's age, all I wanted to do was buy a house in Wembley, and I couldn't afford to buy a house in Wembley. And um, but I absolutely could have afforded to buy a townhouse or something like that. Now I ended up buying a subdivided block south of the river for $89,000. Yeah, true. In 1988, I think it was 89. And mind you, my interest rate was something like 16%. Um but had my mindset been a little bit different, I would have been able to buy in Wembley. I just had to change my mindset around what my preferred property was and had all the amenity of living close to the city. Now, I don't have any regrets around that, but I'm raising it just because it made it triggered me when you said this is what they bought in Wembley. I thought, yeah, that would be such a cool lifestyle.

Aden:

One of the other points I want to raise as well, just for our younger listeners to keep in mind when going through this whole purchasing journey, is to really take into consideration what your, I guess, what your career trajectory is. And when I say that in terms of like what is your future earnings capacity going to be, because that can make a big difference in terms of if you know and if you know that you're on this certain trajectory, your earnings are going to increase, and you're really disciplined about not spending those extra pay rises, you can make really great progress around paying off um the home or offsetting the loan or doing things differently. Because I think that's really important if you're gonna go in and buy a property with a smaller deposit, but you know in the back of your mind that you're really set, this is where I'm getting to. I know I've got this trajectory. Um, things can move quite quickly. So it's it's really taking that into consideration and also knowing that if you're really extending yourself, but you're sort of at the top of your career ceiling or you're you're quite close to it, just to be a little bit more mindful. So I think that's a useful um lens to keep in mind when you're actually going through the process process.

Michael:

Yeah, repayments are the most important part for me. How do I ensure that the person I'm helping is going to be comfortable moving forward? And what are their career aspirations? Do they want to move overseas and live in London for two years? Because that would be fantastic. But let's make sure we set aside some money, some buffer that your repayments are covered for those two years. Okay, yes, you can still buy now. I've got someone that's about to move overseas and they just bought their first home, but we've set aside an amount, a buffer that's going to cover their repayments for 12 months. What a wonderful experience that they don't even have to worry about that. They get their rent. So that I absolutely agree with that, and I and it all comes with starting the conversation and understanding what is possible because maybe there's a guarantor and you save, keep your savings in the offset account. So you're reducing the interest and you've got it set aside for a rainy day. You don't you there's you don't have to have that one way of doing it. There's just so many ways we can we can do this.

Aden:

One more uh one that's just come to mind, Michael, um, that I want to ask you about is in terms of when say a couple is going to buy a property, use it instead of buying it as a primary place of residence immediately, buying it as an investment property for say 12 months and renting it out, and what impact does that have on their borrowing capacity?

Michael:

Enormous. It's an enormous difference. And I see that being really common. That is such a common way for kids to enter the market now. And and even Nick, the works of capital partners, did did that. And and what a wonderful way to do it. I I'm I I'm really big on this because it's still understanding the options. I'm not saying you need to buy it as an investment, but this is the option. What difference does it make? You're probably looking at a $150,000 to $300,000 difference in borrowing capacity. The reason being is you have proposed rental income coming in. And generally speaking, is if it's an investment, the interest is tax deductible in the way the banks calculate that. And you we need to make sure you are actually going to rent the property out because all of a sudden you're in a sticky situation if you don't. But it is absolutely an option and it opens the door to so much more in terms of location and value.

David:

But there's no law that says you can't buy an investment property and then six or eight months later. No, I'm serious. Once you've got your head around the repayments and all the rest of it, that you can't then move into it. Like that's that's not an untenable situation, is it? It's very common.

Michael:

I the reason I smiled and laughed is would the bank care? The bank cares if it's within six months because it looks like you've manipulated the numbers to do it.

unknown:

Right.

Michael:

Anything post-six months and you've rented it out for six months. I think you're also bearing in mind any stamp duty concessions because you have to live in it within the first 12 months for a period of six. So the reason why I did uh smirk it a little, Dave, because the way you mentioned and said that is exactly the conversation I have, is saying this is a long-term approach. You marry the property, not the debt. We can change the debt, we can change the loan structures, but we can't change the property. And so maybe you do rent it for six months and then you move in in seven months, and all you're doing is then providing a utility bill to the bank to say, I've moved in, let's change the product to own occupied, let's make sure we can service the loan, obviously. But it's really straightforward.

David:

Or you could just leave it as a uh an investment loan, couldn't you? And take advantage of the additional capability. Like it's you've just moved into the house. Does it matter? I I guess I'm just trying to tease this out because it is a strategy, and I would never want people listening to our podcast to go and do anything wrong. But it seems to me that the bank isn't really going to care so long as they're getting their pay repayments.

Michael:

Well, yeah, residential mortgage is very different to a commercial debt, where a commercial debt can be called upon. Whereas residential, the bank's not coming to knock on your door to say, are you living there? We need to make sure that the the person that's buying understands the repayments and all of that involved. That is just is that's paramount for me. But the way you structure it, as you said, do you move back in? Maybe you're renting out a few rooms, maybe the loan's interest only rather than principal and interest. There's just so many conversations to be had from this. Uh, and I really like that you're diving deeper into it. Interesting.

Aden:

So just to round out the conversation, Michael, given you're almost almost always the first point of call for people when they're actually about to start this journey, like what would your counsel be to both um our listeners who might want to help their children or grandchildren, but also those children. Like, where where should they start if they want to essentially say, yep, this year I want to I want to be at a property owner, I want to get to the place where I think I can be.

Michael:

I'd find your trusted advisor. I would talk to your friends who have used a mortgage broker. There's so many fantastic mortgage brokers in this country. There's just, and in Perth, in like there's some amazing people that can take you on this journey. And I would find the person that is the most suitable to you, and I'll sit down with them because you need to understand your numbers before you go and speak with your parents, because then you understand the scenarios, you understand the options, and you can have a really open and honest conversation with these are my options. The parents look at it and say, Well, clearly option A is better. And you, as the as the, oh, yes, I believe that too. So, how do we make that work? So it it all starts with finding the right trusted advisor. And I wouldn't be scared of speaking. To a mortgage broker, if you're two years away from doing this or even three years. Even talking to you, David, previously, meeting with Lockie and Tim, that was two years before they purchased their property. That's a long journey that they can have an understanding of what is involved. They then get an idea on what the savings needs to be, they get an idea on the repayments. So they start making those repayments pre-getting the loan. Because we all know from a money, money perspective, if you don't have a number in mind, then you'd never actually know what you're trying to achieve anyway.

David:

Oh, absolutely. But but you know, your your help with Jeremy has been amazing. He's just embarked on a major renovation and extension to his home. And you know, your advice has been what's given him the confidence to go and do that. Now it helps that he's a builder and that he can do things very inexpensively relative to others because he can do a lot of it himself. But having the money sitting in the bank as a drawn loan or a loan that sits there ready to be drawn, as he as he just gives people hum so much confidence. And as Aidan and I keep reminding people, the problem with being human is that we're human. And we all have this desire to say, will we be okay? We are always trying to manage our risks. And so the more people can talk to someone like you, Michael, beforehand, get the information they need, make rational, informed decisions. I think the narrative could change in that the property market is more accessible to people than most people think.

Michael:

I cannot stress the amount of first home buyers I speak with. And I sit down with them for a coffee because it can be really relaxed. It doesn't have to be in a boardroom, it can be really relaxed. And you sit down with them and they say, I really want to buy a property. Okay, where are we up to? I've got about 60,000 in savings. Amazing. Okay. How much income? About 120,000. Wow. Like you're already there. And then all of a sudden, you're providing them with this confidence and you're empowering them to make the decision. They walk away skipping because they're going, I I can actually do this. I've been listening to the media, I've been listening to my friends and who all tell me I cannot do this. And you sit down with someone who can provide some clarity on what can be done. I we sell ourselves so short in this country because of tall poppy syndrome. And the reality is so many people that are listening in your audience can do it, they just don't know it yet. And so many of your listeners that are parents can help, they just don't know it yet. And the beauty about your conversations that you have on this podcast, by the way, my mum is an avid listener. The conversations you're having, it's so important. And yeah, I'm I'm so pleased to be here.

David:

It's awesome. Thank you. Well, what we might do is turn the um some of the notes, our research notes, into a bit of an article that we can put in the show notes. And um we can also put Mike's contact details in the show notes as well, in case um Michael also, for our listeners, runs a fantastic podcast of his own called That Backyard Property Podcast, and um way more successful than ours. He's he's he's something of a something of a star in the podcast world these days, uh Michael. Um, but no, he's doing a brilliant job on that podcast. So uh keep up the good work.

Michael:

Oh the I I get so much inspiration from from you as a team and you uh as an individual, David. What what you do in terms of your curious mind and your ability to to question things and challenge things, and and I I I feel like I'm just following in footsteps because other people have paved the way. No, it's awesome.

Aden:

Lovely, love it. And so as as we've sort of harped on in this podcast today, it all starts with a conversation. So if any of our listeners or um friends or family of our listeners have any questions specifically relating to this, please send them through because we'd be more than happy to help facilitate those conversations. As you all know, we love it when you leave feedback, share it with a friend, share it with someone in your network, and make sure you subscribe so you never miss an episode. Michael, David, thanks for joining me. Always a pleasure. Thanks, team. Thanks for joining us on the Purposeful Investor Podcast. We love being able to share our insight and guidance. If you've enjoyed today's episode, make sure that you subscribe, leave a review, and share it with someone in your community. We encourage all of our listeners to share their questions and ideas that they would like to know more on. You can contact us at ask at capital.com.au. All information in this podcast is general in nature and does not take into account your personal situation or circumstances. Capital Partners Private Wealth operates under the Australian Financial Services Licence 227148. Thanks and see you next time.

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Aden Wilkins

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David Andrew

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