Dimitri Taylor is a big picture guy. Sure, he is an investment property specialist but finance goals come first and the actual properties come a very distant second. We chat with him about his philosophy, freeing yourself from debt and much more.
Mike: Welcome to Geared for Growth. This week we’re chatting with Dimitri Taylor from Investment Property Specialist. We have a chat about his first investment property and his background as an accountant and commercial property expert and also chat about his philosophy and his initiative approaches to financing debt and structuring debt and also goal setting around investing, investing in property and freeing yourself from debt. Here is Dimitri. Dimitri Taylor, welcome to Geared For Growth.
Dimitri: Thanks Mike, I’m happy to be here.
Mike: Awesome, now if you wouldn’t mind just kicking us off, who are you and what do you do?
Dimitri: Dimitri Taylor, investment property specialist. The concept behind my business started when I saw a lot of people investing without really knowing what they’re doing and there’s a lot of people in the industry that shoehorn them into a product so fit the product to the client rather than, sorry, the client to the product rather than the other way around. I’m a bespoke business that has no stock, doesn’t carry anything, I just find properties for clients but I also am able to do finance as well and I’ve got some unique funding strategies mostly around debt reduction so that’s what I do mate.
Mike: I am really excited to have a chat about these initiative finance strategies and I’m pretty impressed by an investment property specialist without any stock to sell, now that is an interesting thing in itself. If we can start at the beginning, what posters were on your wall as a youngster Dimitri?
Dimitri: Oh wow, okay, I had a full length like a six foot six poster of Dr. J, Julius Irving, NBA superstar back in the early seventies and he used to live behind my bedroom door because from the age of about seven I started playing basketball in the under eight’s and I don’t think there was a day between the age of seven and 20 where I didn’t touch a basketball every day, at least just to touch it so I was fanatical about it so yes, Dr. J and then, so very sporting orientated, Terry Danaher as I got into my early teens, big Essendon fan and then this one’s a bit off the mark with those ones but Duran Duran. I’m not sure how they got in there, that was the first record I ever bought, 12 inch of Duran Duran, they were stuck on the wall, they just snuck in there.
Mike: We’ve got a good insight into you and quite an eclectic mix there Dimitri.
Dimitri: Yes, yes, exactly, that’s right, diversity is my middle name.
Mike: Excellent, we’ll certainly get into that I’m sure. What about property? What was your first investment and how did you get into property in general?
Dimitri: My first investment was a house in Melbourne out in the suburbs. Very little research done about it, I guess I was a novice myself and I was working a corporate career back then. That was in 1998 so coming up to 20 years ago I guess, 18 years. What got me into property? What got me interested at least was seeing my parents go through the pain of losing everything and they did that because they didn’t put too much aside, they put everything into their business and they had a good business, it was going well until one day when it wasn’t and that was in the recession we had to have, early nineties and it was so sudden, no-one saw it coming for death, for our business I’m talking about not the recession. Everything was going swimmingly well and we just kind of thought it would continue and it didn’t, one major contract fell over we didn’t get paid then we couldn’t pay others.
I guess it really struck with me the importance of doing something more with our money rather than just putting it into making a living, but it took me a while to put that into fruition like any young man I was 20 at that time and then I started working, I got into the corporate mould and I was spending everything I made and then some like a lot of people do. Got to about 26, 27 and thought oh shit, excuse the language, I’m just about to fall into the same trap that my parents did and that’s when I really kind of, I guess, switched my mindset and I was an accountant at the time too so I had no excuse, so I started planning.
I absolutely should have but you know interestingly enough even accountants don’t get taught that at that young age, you learn that through experience. That’s when I started putting a plan into action and I was working in an organisation that used to pay bonuses which was great but the first two I got I just blew on holiday or whatever else I needed at the time and then I thought the next one or two I get I’m going to put that aside and use that to buy my first property and that’s what I did and so from there on I guess I haven’t looked back.
Mike: Is that allowed? Aren’t bonuses meant to be for Ferrari’s and holiday and that sort of thing?
Dimitri: You’d hope so, if they’re big enough Ferrari for sure but when you’re in the accounting sphere they’re enough to help you get that deposit especially back in the day when 10% was more than enough but yeah, look, I wish I could have blown it all on Ferrari’s. The next best thing for someone who is not getting the $200,000 bonuses is a great holiday or a nice car.
I see a lot of people doing that, that’s where most people spend their money rather than thinking about their future. It’s interesting, I tell this story quite a bit but if I look back and if I went back a few early years, even once I started investing if I’d just put a bit more effort in when I had that money back then I would be exponentially better off now and that’s what I think the case that everyone needs to understand that I deal with when they’re looking to invest, if you start at 40 chances are, it’s better than never but it’s very late in terms of getting yourself set up in the right way.
Mike: We’re going to get into all of that for sure. Let’s quickly go back to your property that you bought 17 or 18 years ago back in Melbourne, you still hold that property, is that right?
Dimitri: I still hold that. Yeah, a bit sentimental, jewel in the crown, it’s needing a bit of work at the moment, needs to be painted, mostly painted, the interior is pretty well finished and nice. It’s been my workhorse, that property, I bought it at the right time, I bought it in the right place even though it was partially by accident back then, I didn’t have the processes that I go through now.
It was just in the perfect cross hairs of growth in a Melbourne suburb. It had proposed freeway extension which has now been built, it had train station two k’s away, private hospital that’s now been extended three or four times less than a kilometre away. It had all the things that I now look for but back then I didn’t so I was just lucky, I must admit that but that one’s been my workhorse that funded my next two or three and I’ve just kept that one in the background, it’s a beautiful cash cow now, it just sits there earning money for me.
Mike: How important do you think it is to get the first investment right? Obviously that one there was a bit of luck involved in it for you but you mentioned if you could go back you’d be able to see expediential results if you’d just got in a little bit earlier, is that first investment property crucial to your future and is the reason why people aren’t owning 10 or 15 properties in general because they’re getting that first one wrong do you think?
Dimitri: Yeah, I think there’s an element of that for sure. The first one is, and again it depends on everyone’s individual circumstances but if you look at the average of the person, people that I deal with then they’re not earning huge amounts of money, it’s a stepping stone that is needed to launch them into the next and the next and then next and if you don’t get that right then you can’t take the next step so it is really important to do that research right, get the right area that is going to experience a bit of growth over the next two to three years to at least enable you to get the next property. It’s really when you get two under your belt, two investments plus your home for example, that’s really when like a snowball effect kicks in and everything starts to flow that little bit easier but that first one absolutely Mike, I think it’s the most crucial one for sure and that’s why choosing the right location, the right property then becomes paramount in that first property.
Mike: You started out flipping properties back in the beginning, is that right?
Dimitri: After I bought that one in Melbourne then I used that to help me flip a few, that’s right. I did three like that, they were apartments and literally I just did kitchen and bathrooms, I didn’t really do much else it was very cosmetic in the rest of them, but I made sure the kitchen was really slick and nice and the bathroom looked really tidy because in my experience back then in particular those were the things that sold. I still think they’re the things that sell and add value so I did three of those and I did a lot of the work myself, learnt a lot of lessons one of which was I probably never want to do that again if I’m working full time.
That was a valuable lesson, it took a lot of time and effort, a lot of energy, a lot of weekends, a lot of mistakes, late nights, bruises, all the works and I didn’t have a trade background so I had to really learn a lot or pay a bit extra to get people in for the specialty type work. It was a valuable lesson, it was a good experience.
I just warn people if you’re thinking of doing that make sure you know your estimates because it’s all about the buy when it comes to flipping, making sure you get that buy price at a rate that’s well below the market of what you perceive your renovated product is going to be and then the only way to understand that is to know your costs, know how much it’s going to cost you to do all the different components that you may need to do in any property and also factor in your time because time is money. A lot of people will say yeah, yeah, we made $20,000 over six months but they didn’t put a dollar in for their own time but they got paid 20,000 for six months, it makes the renovation that little bit less valuable when you factor that in and you’ve got to allow for that.
Mike: Yeah, for sure. Now, just getting back to your background as well Dimitri, obviously you’re an accountant so we know that’s where you get your rocket roaring personality from, you also spent, you did a little bit of work in commercial property management and I find that interesting in terms of what that taught you about site selection and construction management and that sort of thing, how did that help you in your journey to where you are today?
Dimitri: Yes, it was commercial development so we would build small to medium shopping centres. Yeah, look, it was really about the analysis, it was absolutely crucial and I think that’s what taught me what I need to know for sure. We would spend a lot of time and effort on demographics back then because it was retail based the catchment area was important to understand, where is a retail centre going to draw from, how many people are there, what’s the growth prospects of that area looking at councils, looking at their plans?
It taught me all of those aspects, it also taught me to look at just the general infrastructure around it, retail centres need good traffic flow, good accessibility, some depending on where you are need public transport, others just need the good road so yeah, really taught me the importance of research especially when I saw how much time we spent researching every single project, that really bought it home that it’s not just important, it’s essential, there’s nothing else that matters more than getting that research right.
Mike: Awesome, now I know that you do commercial property development projects for your clients and obviously asset selection is a key part of what you do but I wanted to get more into the philosophical side of things which is maybe a surprise for listeners of the podcast, we’re as deep as a kiddie pool normally. One thing you’ve described yourself as is a freedom fighter and I recently heard you talk about a couple who had a mortgage on their property and after 10 years the balance of the mortgage was not quite heading in the right direction, can you tell that story and give us a bit of an idea about the importance and philosophy of what you do in terms of minimising the debt and increasing that cashflow and asset base?
Dimitri: Yeah, it’s such an important thing in this day and age especially with finance tightening for anyone whose serious about taking control and getting ahead by investing. I don’t think you can get by unless you’re earning a fantastic amount of income, for the average investor you can’t really take the third and fourth step up the rung without a good debt reduction strategy, a good finance strategy around you so that story really caught my attention and that’s why I share it because it’s such a common theme, I’ve met more than those people that are experiencing the same thing. It’s really just about understanding what it means when we spend our money. A lot of people think that budgeting is horrible and I get that, I understand that but so is ending up in that situation where your debt’s going up and you’re borrowing money to live, for spending, for recurring spending, not to invest.
That’s where it came from, it started from seeing clients in that situation who weren’t given good advice, they would go for a refinance, take out more money but they were never shown the impact that would have, how much interest they would pay over the life of that loan or how they would ever pay it off if they kept doing that.
One of the things I find really important is that educational process to do that but also setting people up with the right type of strategy to do it as well so part of my process has been putting together a coaching or money management, I don’t like that word coaching but just helping people getting back in control of their money. I’ve always believed that philosophically we always try to focus on saving but then if you don’t save everyone’s like oh, I’ll do that next month so saving is a bit like a chore where spending is easy, right? Everyone can spend money.
Mike: I’m an expert as it turns out.
Dimitri: Everyone I know is an expert so it’s great, probably one person in 1,000 would say they’re better savers than spenders. What I like to do is turn the focus on spending and if you always focus on what you spend rather than how much you can save you can control it much more and what I’ve found is that people end up with much more money either paid off their loan or sitting in their offset account towards a higher goal, a better purpose. Yeah, it’s a true philosophical change to focus on, not on how much we can save but on what do we need to spend and that’s really been where the philosophy has changed for me.
Mike: Investors, I guess, didn’t exist a long time ago in residential property and we were told that the best thing you can do is work hard and pay off your debt because debt is a bad thing and then you’ll be free from that and that’s the goal of working life then we learnt that debt was a vehicle and we can use debt to invest and we can amplify the returns so where is debt a positive thing and where is it a negative thing?
Dimitri: I definitely look at debt as a positive thing, but debt is positive when it’s being used to take you towards your goals, right? If you goal is just to own your own home and you want to sit in it once you retire and never go anywhere else then focus on just paying down that home, that’s fine but that’s not where most people live, how they want to live and how they want to spend their time as they get older and retire so debt is useful when it’s earning you income, when it’s earning you income or has potential to create wealth creation or capital gain in the future. That’s where I see debt as useful unfortunately most people take out debt to fund lifestyle and that’s where it’s the most destructive and that’s where people get themselves in trouble, the $50,000 car loan and the $10,000 personal loan to go on a holiday for example so it’s really about just understanding where you want to be in 10, 15 or 20 years and then every time you look at taking out debt you ask is that going to get me closer or further away from where I want to be.
That’s probably again a bit philosophical on it but if people don’t have a clear direction of where they want to be in my experience they often make the wrong decisions with debt whereas when they measure every debt choice that they make along the way against an ultimate goal or at least a general lifestyle then they tend to make better decision so that for me debt is good when you’re using it in a thought through research methodical method that’s leaving you the best chance to make some money either now or in the future.
Mike: Now let’s talk about some of these financial products or these financial strategies that you have, and you mentioned earlier which is something Pete Wargent said on our first podcast if you can spend less than you earn and invest the difference then you’re off to a good start. How does that factor in to the financial product and how does that work with debt on your principal place of residence versus your investment property?
Dimitri: Yeah, this particular product so there’s a product and then a service that I bolt on for those people that need it. The product we talk about is specifically designed for investors and what it does is it helps you transfer legally, it’s got HTR approval, interest, you get a high interest rate on your investment debt and a lower interest rate on your personal debt, your home loan and the aim is specifically to help you pay off and own your own home sooner. The ATO likes people to own their own home so the Australian government wants that to happen and they’ve agreed to facilitate this process where we get a much higher tax-deductible debt, the aim being that that extra deduction is then used to reduce debt on the personal debt that’s non-tax deductible.
In terms of helping people accelerate their path to paying off their home if you can’t find savings anywhere else, if you can’t do what Pete recommended or what I often suggest, spend less than you earn and invest the rest well this is a way, essentially it’s like a pay rise, you’re getting an extra few thousand dollars of tax deductions on your investment property and then it’s about using it wisely and the wisest use is most likely to help pay off the debt on your personal loan. That’s the unique product, you can get your interest rate down as low as two percent depending on the ratio of debt on your investment loan versus your personal loan, it’s an averaging rate and it’s a fantastic product to really help people get ahead for those that have already invested.
That’s what it’s designed for, if you’ve already got that investment your investment rate might be up as high as 5.5 to seven percent, actually I think that caps out I think at 6.2 and your personal debt, your home loan can go down as low as two percent again depending on the average between the two loans.
Mike: Of course, the advantage there is that with your investment properties the interest payments are tax deductible whereas the payments on your home loan whether they’re interest or principle they’re not tax deductible so it makes a little more sense to have those higher rates on the deductible debt, right?
Dimitri: Correct, that’s right and if you look at the average loans you know, 300,000 on your home and maybe 450 on the investment for example it could mean two, three, four thousand dollars depending on your tax rate so yeah, it can be substantial, that’s a good amount of extra money that you can lump into your principle reduction on your home loan.
Mike: Now on top of the difference between the interest rates in the place of residence and the investment there’s also some budgeting services or software that’s part of that, can you run through what that is and how that works?
Dimitri: Yeah, that’s really putting into practise what I was talking about before, the philosophical shift between focusing on your saving and focus on you spending. The product itself enables us to put all of your income into the loan rather than an offset or another account that’s attached to it, it goes straight into the loan so every month you’re paying down principle and the philosophy then extends to one step further which is either minimising or better yet, cutting up your credit cards because credit cards are part of the banks ploy to keep us all tied to them for as long as possible. That’s part of the first step for many people is getting in control of their finances is to get rid of the credit card and then you allocate yourself a spending amount per week based on your essentials.
That’s not to say we don’t want you to live life, this process is about just being aware of where your money’s going so you’re budgeting in necessities, your food, your transport but also some entertainment every week and your job is just to spend that money but then we’re using budgeting software to make sure that that amount plus your utilities and all the other bills you have in life is less than what you earn and then we understand how much you’ve got spare and now we’re going to bring some attention on where are you spending that, where have you been spending that in the past and then where do you need to spend that in the future or could it be better used offsetting your debt. That’s the service that we provide, we call it money management, you get someone who helps you through that every step of the way, gets you set up then you’re in control of your budget and we give you the process that’s going to maximise your debt reduction.
Mike: That sounds suspiciously like accountants taking the fun out of everything Dimitri, so I want to tease that apart if I can and obviously credit cards I’m worried about my Qantas points. Getting back to that software and the budgeting I guess what gets measured gets managed so this will allow you to see where you’re spending money and I’m guessing as well it helps educate the decision where you’re thinking gosh, I really am in medical need of the new OLED flat screen television or they’re probably curved now, I’m not quite up to date but you can actually see yeah, you can have that but this is what happens to the end goal. Is that sort of roughly how it works?
Dimitri: That’s exactly how it works Mike, yeah. The idea is not to ever limit anyone it’s not about lifestyle restrictions it’s just about awareness, it’s about understanding and that’s exactly what happens so someone wants to buy it or they want to upgrade their car and they’re looking to spend a certain amount of money that money is never going to not be there for them if they have it of course, if it’s in their loan account but what we add to it is we say yeah, this is what it’s going to change to your monthly repayment, this is what it’s going to change for the total interest you pay at the end, do you still want to do it? Then you’re making an informed decision because most people make that decision without considering that longer term impact, they just look at the specific product or asset they’re buying without considering how it’s going to affect their debt position longer term.
The amount of extra interest that you might pay on your home loan because you’ve put $3,000 to that new wiz-bang TV could offset the value of that TV to you. Everyone’s going to be different of course but it’s just about making sure you’ve considered that when you’ve made that decision. It’s not about restricting fun, no accountants involved in this process just because I am one doesn’t mean I’m bringing that into play, this is purely about … I actually look at it a different way, I think it’s about bringing more fun but into your future because I don’t know anyone if given the choice and myself included like I mentioned before, if I could go back 20 years I would invest a lot more than I did and that’s someone who had a focus on it. I don’t know anyone who’s made even just a small amount of money on investing that wouldn’t give that same answer so I think it’s really just about helping people recognise that but now not in 20 years’ time when it’s too late.
Mike: I think this is all terribly sensible but there’s a few pervasive notions out there, I have perhaps fiscally unsuccessful friend, it will make sense in a second when I tell you the story, whose described credit cards as free money now obviously that’s setting off some alarm bells, I’m sure it’s probably making you nervous at the moment but getting back to that situation where say you own a home and you decide to live off the equity, if the house if always going up in value and your interest rate stays the same I suppose you’re kicking it down the street but people are thinking that one day they’ll pay it off, is that a strategy that can work or is that just really the banks tying into this sort of shackle that encourages us to just keep tightening and maybe redoing the rivets.
Dimitri: A bit of both I think, a bit of both so I think can that strategy work, it can work but you can’t control it, it only works if you had the growth we’ve had over the last 15 years and will we get that in the next 15? We don’t know, right, no-one’s got a crystal ball so it has worked over the last 15 years. If you bought back in the late nineties or early noughties then you probably have a very low mortgage on your home because you probably paid 200,000, 300,000 for it, it might be worth eight or nine hundred now so that person can probably get away with it but if you buy today and you spend six or seven or eight hundred thousand on a home are we certain or do we have any clarity on whether you’ll get that same tripling in value over the next 15 years, well we’re not so for me it doesn’t feel like a strategy that you have any control over and I generally don’t like that, we don’t have any input in it, it’s kind of buy and hope, fingers crossed and maybe it will work for us.
Then at the other side of it is at a certain point in time that debt, if you’re living off debt there’s always a risk that that’s going to be taken away from you, someone might turn off the tap and again for me that’s not a guaranteed or a certain way of life, you’re always going to be living at the whim of the bank or someone else in that situation so yeah, look, it has worked, people have done well from it and got away with it, I think that’s probably the better word for it, they got away with it just because the economy’s charged over the last well, probably 10 years of the early noughties up to probably 2008/9 and since then it’s been fine, well not bad but we don’t know if it’s going to continue. I don’t really like that as a strategy, I’d rather be investing wisely with a view to using that help myself be debt free or have an income that’s going to pay off my debts when I retire.
Mike: With revaluing your property that you own to buy investment properties obviously there are some people that get big cash bonuses and they can throw that straight into a deposit and they can service it well, for a lot of people their first investment property will come by redrawing the increased equity because their home as gone up value, at what point is that a sustainable strategy to do that for a number of properties and where’s the sweet spot where you need to be thinking gosh, I should be paying off the principle place of residence?
Dimitri: Yeah, look, it’s important to probably separate the two. If you’re drawing an equity on your home that additional equity that’s used an investment even though it might be secured initially against the PPR I still classify that as investment debt because it’s earning interest and I think that as long as you have a solid income and your rental properties are good then that strategy can continue based until you hit your debt limit but as long as you’re paying off your PPOR along the way, of course, that goes without, with everything I’m saying today. The sweet spot is going to be unique to every person but what I found I think three to four properties at the moment is a sweet spot for someone whose on an average income, that’s probably going to be at the debt ceiling but for some people it’s one or two because of comfort factor, fear factor, people just don’t want to extend themselves, they’re not comfortable with that, they don’t have that total investor mindset, they know they needed to do it but they’re still hesitant but for me I think three to four is generally my target for most clients who can afford it, as long as it’s sensible lending.
Mike: Now let’s chat about how you work with people if they come to you, they’re saying look, I’m interested in investing in property, maybe they’ve got reasons like they’re paying too much tax or they heard at a barbecue that it was a good idea, what’s the first step that you run through and then how many forks in the road can you go down in terms of what their goal is?
Dimitri: Okay so the first step is I would have a quick look through where they are now, what’s their current financial set up and how much have they got just to know whether it’s even feasible because then there’s not a great deal of point talking about the potential for investing if they can’t physically afford it so a quick run through of where they are financially. As I eluded to earlier the next thing I spend the most time on is why, what’s their motivation, what’s their goal? If it’s tax minimization it’s not the right motivation in my books so, I know a lot of people who come with that scenario, ultimately want something more they just haven’t thought about it or haven’t linked it. For me I spend a lot of time helping people understand why if they haven’t already understood it.
I like to ask the question if you had the exact same amount of income that you earn today but you didn’t have to work for it what would you do tomorrow and what would you do the next day and I find a lot of people don’t actually have a clear vision of what they would do if they didn’t have to go to work every day so that’s where I like to spend a lot of time on because if that’s not a powerful enough motivator, if someone doesn’t have a real emotional connection to what it is they want to do then chances are when the tough decisions need to be made on investing and let’s face it, every investment will require a decision or two along the way and some of them can be a bit tough and some of them can create feelings of fear, you know, where’s the next tenant going to come from, we have to drop rents.
There’s decisions that need to be made, if that motivator behind it for your personal reasons isn’t strong enough then I find that’s where people make the wrong decision, sell up early, lose money, they close out a bad position or get into a bad position to start with but they might cut and run when it wasn’t the right strategy so I spend a lot of time on that, I think that’s crucial. Then I discuss how we do it, how it’s possible for them based on their circumstances, what it would look like, what it would cost. I never talk about a property until all that’s understood and then I discuss what it is they think they would like in a property, what they would look for and then I give them my version of it, a more professional based version of it so we can identify where there’s differences and help them understand why I do what I do versus what they would have done and perhaps if they’re right I’ll happily admit it but I haven’t seen someone be right whose never invested before yet. Yeah, I really focus on their personal situation and their understanding, education so really take them through all the costs, all the structure, the way we set it up, how it’s going to work for them and how it will help them achieve those goals that they just outlined for me. It’s not really until the second meeting that we talk about property.
Mike: Yeah, now you’ve got us all sitting up a little bit straighter in our chairs thinking about what we would do if we got paid to do whatever it is that we liked.
Dimitri: That’s right.
Mike: Let’s say we’ve got this hypothetical goal in mind that we need X amount of million dollars to be able to retire the way that we want to do it what’s the next step? I know all situations are different but let’s say we’ve suggested that property is the best way to go, what’s your next step from there Dimitri? What sort of properties do you buy, what sort of areas and how does the development side weigh into that as well?
Dimitri: Yeah, so I’d focus primarily on you, new house and land or new apartments, very few apartments but mostly house and land. Again it depends on a budget so I try to keep people away from the massive estates, where I live is a great example of that in the Bayside of Brisbane. They’re building something like five or 10,000 new houses over the next three or four years and it really puts a cap on any potential growth but if you’ve got an established house the most someone is going to pay for it is probably a bit less than a brand-new house of the same sort of size and bedroom ratio etc. I think if that’s the first property that’s where a lot of people get capped out and they don’t get that growth they need to do the next property and the next so I really do a search for people based on their budget so first step is really understanding what could they afford as an investment comfortably and then go out and find them a property that’s going to match that.
I offer a unique solution to that as well is that we find a block of land in an established area and match a house to it and build it for them so see the whole thing right through with the aim to give that client some equity upside, right? They buy the land and mark it, it’s realestate.com, we help facilitate the process for them and where they really save on is the planning and approval application for the property. The builders I use have standard designs that are always applicable to different types of blocks so we can save money there and they’re fixed costs so full turn key fixed price, we don’t change the price based on what the market value might be in the area, the clients gets all that upside. That for me has been my real point of difference and that’s what I really focus on because a lot of new house and land building it is really a case of people paying too much and they often go backwards in the first few years rather than going forwards.
Mike: I guess in a way they become the developer in a sense, I mean a developer will purchase some land, they’ll build the townhouses or the house or whatever it is and if market values go up in the area then they’re getting that cream on top but you’re giving that to the client that you’re working with.
Dimitri: That’s exactly right, yeah, yeah so like an armchair developer. I know that term’s been used quite a lot but essentially that’s what it is, you’re only building one house, that’s right and that is the goal because part of my reputation and the builder who I work with, part of that relies on us getting a good deal for the client and not getting them to buy at market so their finished product is at the low market and that way they’re going to get great yield, they get a bit of equity upside straight away so hopefully in a year or two time there’s more equity there for them to use. They’re also in an established area so an area where there isn’t 5,000 homes going in that are going to cap or put a ceiling on prices, in an area that is desirable to live in, has got the flow of people coming to it, is near good schools so we can control that a little bit more for them.
Mike: Typically on a standard block of land in the areas that you’re purchasing and adding the construction value how much under is it coming to what a value would put on and what yields are you seeing typically straight out of the box?
Dimitri: Yields are generally over five percent on that product, they’re up to 5.8, 5.9 depending on the area. The least value I’ve seen is about 20,000 and there has been upwards of 70 or 80,000 once complete, bank val, reval, that much equity straight away. There’s been some fantastic ones but there’s always something, 20,000 is probably the least we’d aim for a client to have on that first, as soon as it’s complete you’ve got 20,000 in the bank.
Mike: Yeah, wow. Is that the go to strategy for yourself or are there other different ways that you go for different people or do you focus on any established properties at all?
Dimitri: I haven’t, no, I can, I still think that especially with the depreciation changes and I know you’ve probably spoken about this ad nauseum but it really changes the equation, it changes the financial equation for people so for first time investors who are a little bit hesitant maybe they’re on the margin and they don’t have a massive amount of cash reserves to be pumping in to a property every week or every month then getting that tax benefit is important but it’s still important to get the right property that’s going to have that potential we just already talked about so no, I haven’t but I think the new for me has been made even more relevant based on all those changes because it does impact quite a bit financially in those first few years, in the cashflow.
Mike: Yeah so just to backtrack on that obviously the plant equipment deductions so carpets, blinds, kitchen appliances, they’re all gone unless you’re buying a brand-new property or you purchase prior to budget night. We’ve got an article that should be live at the time of recording, sorry, I’m not going to plug us for much longer Dimitri but what I found interesting is that we came up with a number of 59% of the depreciation deductions are wiped out in the first year of claim when you don’t have plant and equipment assets so that cashflow difference is a huge difference and of course if you’re building new properties in an established area there’s not a lot of competition, if people are wanting a new house in an area that’s established there’s not going to be that many of them and you’ve got less maintenance and headaches as well so there’s quite a few pieces to the puzzle there, isn’t’ there?
Dimitri: That’s right, that’s exactly right, that’s the whole purpose of that strategy is to continue the benefits of new but combine it with the benefits of being in an established area that should provide a better growth prospect in those first few years.
Mike: What are some of your good news stories with people that you’ve worked with? Have you got some people you can think of that came to you with an idea that they wanted to invest, didn’t really think about what their future might be like if they can retire early and you helped them through a couple of properties?
Dimitri: Yes, definitely, there’s a client, they’re based in Melbourne in fact and they are very similar, they had no idea how to invest, what to do and they were getting, probably early fifties, they both were, and they just were ready to put their money anywhere, they were just going to buy a shack, whatever they could get because they were looking in Melbourne of course. They had a budget of just under 500,000 and as you probably know Mike what you can get for 500,000 in Melbourne is not very much anymore unless you want to be 60 k’s from the city so they were looking at buying something in my opinion would have probably given them a lot of headache, would have required a lot more money to renovate and work on as tenants move through in those first couple of years and it would have cost them a fair bit because cashflow would have been impacted, it wouldn’t have been great.
Yeah, so I managed to get them up into Queensland and they got one of the last properties in Mount Cotton which I think is a great investment, the reason I think it’s that is because I’ve done a fair bit of commercial work out there, there’s a major shopping centre that’s being developed now and I don’t think people quite understand the scope of it but I do because I helped put the plans together so for me that was a bit of insider knowledge that I shared with my clients, they got in there at a good price and I think that area’s going to explode over the next five to 10 years so that’s one of them. There’s another couple that the male was a fair bit older than the woman so he’s in his early sixties but she’s in her late forties, early fifties.
Mike: Nice work if you can get it I guess.
Dimitri: Yeah, it is, it is, yes it’s alright but they really wanted to set her up in case, he wasn’t in great health, he knows he’s getting on a bit, they really wanted to make sure that she was set up correctly so that was about getting them into the right property to start with, they could definitely afford it, their cashflow was great but again, there was so much fear, didn’t understand how they were going to get there, didn’t have a strategy to aggressively pay it off so I put them on that but also they had a fair bit in super not enough to SMSF and my property but I just referred them on to someone whose really going to take care of that for them and I think it was just having someone who was going to put them in the right path, put them in the right direction and give them a clear path to get to where they want to be.
They’ve just taken it from there and they’re really running well with it and smashing their debt as well so they’re probably two quick examples to share but everyone’s different Mike that’s why I don’t carry any stock because I don’t think there’s anything for me to hold onto or to tie down that I can’t find that’s going to be more relevant to each individual person, it’s always an individual search for people.
Mike: It’s a bit of a slippery slope once you start carrying stock, you think really this needs to be moved and then you find yourself saying you’d be the perfect person for this bit of stock and then suddenly you’re thinking gee, I don’t know if it is the right fit and you look at yourself in the mirror and you start to look a little bit more Dorian Grey. I think that’s a positive thing. Look we’ll finish up with some final advice from you but if people have got some questions for you Dimitri about some of these different strategies how do they get in touch with you?
Dimitri: Yeah, happy to answer any questions Mike so email is Dimitri spelt D-I-M-I-T-R-I @dtips.com.au, that’s stands for Dimitri Taylor, investment property specialist, D-T-I-P-S or mobile, ring me any time, 0401924186 always happy to help. My website’s there investmentpropertyspecialist.com.au but you know, all those three avenues I’m sure one of them will get to me.
Mike: Yeah, it sounds like we’ve got that well and truly covered. If we have missed anything that you wanted to cover Dimitri let us know but otherwise if there’s one piece of advice that you can give to property investors what would that be?
Dimitri: I think it’s about research mate, it’s just understanding where you’re buying and why you’re buying it there because identifying the right area is probably the most crucial part of the process and if you don’t do that or you’re not prepared to do that then making sure that you’ve got someone whose looking after your best interests that you’re engaging to do that so just finding the right advisor if you’re not prepared to do this stuff yourself. One of the things I do is I don’t allow my clients to trust me on it, I give them everything I possibly can but I then say this is what I would find I need you to go out and verify.
If a client’s not prepared to do that then they run the risk of either A, they’re potentially going to be holding onto everything I said which means if something that they’re not happy with then I don’t like that pattern, I like them to be fully responsible but I give them all care and all information and everything I can to support that but ultimately it should be their decision and I don’t like anyone who kind of shoehorns or forces people into a property or a product that may not be applicable. I guess I rambled a bit there, sorry about that, what a way to finish but it’s really about empowering people rather than pushing them into a situation they’re not sure of.
Mike: I think that’s fantastic advice and unfortunately, we’ve seen far too many people cajoled into setting up self-managed super funds to buy different products that have been preyed upon so if you’ve got the confidence in what you do and your research and happy for the client to go off into the big bad world and find it for themselves that says a lot about your product and what you do Dimitri. Thank you very much for the advice, it’s been great chatting to you.
Dimitri: Thanks Mike, I appreciate it, thanks for your time.