Property Investing 101

Popularity of Property Investing

Jeremy opens by explaining that property appeals to him because it's intuitive: as a human being, he understands what makes a place livable in a way he never felt confident assessing shares or crypto. Damien agrees, valuing property's tangibility, and notes his own experience with shares and crypto wasn't as positive. Both point to property's stability as a major draw: unlike a share that can go to zero, real estate rarely does, aside from rare cases like town closures. Damien shares that a past experience with an aggressive share portfolio, where a couple of holdings went bust, reinforced for him how comparatively safer property tends to be, which is also part of why banks are willing to lend heavily against it as collateral.

They also discuss diversification, noting property offers a different asset class from shares, and that most people's superannuation is already invested in the share market, so adding property provides balance. Both agree that owning a large number of properties (10, 20, 30) isn't realistic or necessary for most Australians, and that the right amount depends on individual income and circumstances.

Jeremy highlights the greater control investors have with property compared to shares, since it's possible to renovate, subdivide, or add value directly, options that don't exist with a shareholding beyond an insignificant vote at an AGM. He also points to leverage as a key benefit: putting down a smaller deposit (say $120,000 including costs) to control a $500,000 asset means that even modest capital growth translates into a very high return relative to the amount actually invested. He describes this as far more powerful than reducing tax alone through strategies like negative gearing, noting that saving some tax by claiming a loss still results in a net loss overall, just a smaller one.

Benchmark and Outperformance

Jeremy explains that it's comparatively easy to outperform the benchmark growth rate in real estate versus in the share market. In shares, one investor buys while another sells, so the market's average outperformance (alpha) trends toward zero. In real estate, investors aren't competing purely against other investors, since owner-occupiers outnumber investors roughly two to one in most markets and often make decisions based on lifestyle rather than pure financial logic, creating opportunities for investors to buy well. He references analysis by Luke Metcalfe of Microburbs, which found that over roughly the last 30 years, investment properties have actually underperformed owner-occupied properties in terms of capital growth, likely because investors have pursued yield too aggressively at the expense of growth. Jeremy notes the long-term average Australian property growth rate has been around 6% per annum over the past decade.

What Property Investing Involves

Damien shares that for most clients, the primary goal is a mix of growth and yield, often accumulating and holding property into retirement, while some clients aim to retire earlier and may need to sell down assets to do so. Everyone's approach differs based on personal goals, but the underlying aim is typically financial stability, whether that means replacing salary income with rental income or having a safety net to fall back on if a job is lost. Jeremy shares an anecdote about being told by a lender that he was "too rent reliant," which he found ironic given the security that income represented.

Key Terms and Concepts

The hosts run through foundational terminology for beginners:

• Capital Growth: the increase in a property's value over time. If a $500,000 property is worth $700,000 three years later, that's $200,000 in capital growth.
• Rental Yield: rental income expressed as a percentage of the property's value. For example, $25,000 in annual rent on a $500,000 property is a 5% yield.
• Positive Cash Flow: when rental income exceeds property expenses (management fees, maintenance, council rates, interest), leaving a surplus. Jeremy notes it's a good position to be in, though tax still applies to the surplus, and it's not as common as investors might hope, with many prioritising growth over immediate cash flow.
• Leverage: using a relatively small deposit (say $120,000, including purchase costs) to control a much larger asset ($500,000), so that growth in the property's value delivers an outsized return relative to the amount actually invested.
• Equity: the property's value minus the outstanding mortgage. If a $500,000 property with a $400,000 mortgage grows to $700,000, equity increases from $100,000 to $300,000.
• Depreciation: the decline in value of the building structure over time (distinct from land, which appreciates), which can be claimed against taxable income. Jeremy cautions that claiming depreciation reduces a loss, it doesn't eliminate it, and marketing that frames depreciation benefits as making a property "cost nothing" should be treated with caution.
• Interest-Only Loans: loan structures where only interest is paid for a period, freeing up cash flow as a buffer, often paired with an offset account (savings linked to the loan that reduce the interest charged) as opposed to principal-and-interest loans, which pay down the loan balance over time as well.
• Strata (Body Corporate): the shared ownership and management structure for units or complexes, where owners collectively fund costs like lift upgrades, cleaning, or landscaping through body corporate fees.
• Stamp Duty: a one-off state tax paid at the time of property purchase.
• Land Tax: a state-based tax calculated on land value, generally more relevant to investors holding multiple properties within the same state.
• Due Diligence: pre-purchase research.
• Off-the-Plan: purchasing a property before it's been built, based on plans alone. Damien shares an example of a Green Square, New South Wales property purchased off-the-plan around 2016 for roughly $1.1 million, completed around 2019, and resold recently for about $50,000 less than the original purchase price, illustrating the risk involved.
• Council Rates: ongoing charges paid to local council, varying by council area.

Is Property Investing Right for Everyone?

Jeremy notes that not everyone can or should invest in property, since if everyone did, vacancy rates would spike. He identifies cash flow as the central issue: an investor who can't sustain holding a property risks being forced to sell at a poor time. Damien adds that financial stability extends to lifestyle and saving habits; someone who isn't currently saving anything will find a property purchase puts significant pressure on them, whereas someone with an established savings habit is better positioned. Job security and income stability also matter significantly, since redundancy risk affects the ability to hold through a downturn.

Assessing Risk Tolerance and Interest

Both agree property investing suits relatively risk-averse investors well given its comparative stability, though it also requires patience, since wealth generally builds over a long timeframe rather than quickly. Jeremy notes that research skills and effort matter, and that investors should be honest with themselves about how much research they're willing to do versus relying on outside expertise. Damien admits he was never especially passionate about real estate for its own sake, it was simply an effective vehicle for building financial security. Both note that liquidity is a real trade-off, since money in property isn't as readily accessible as cash or shares, and that should factor into personal planning.

Avoiding Bad Advice

Damien and Jeremy discuss the risk of self-proclaimed experts, noting that, like any industry, there are well-meaning professionals who genuinely don't know as much as they think, and a smaller minority who are simply self-interested. Jeremy shares that despite having significant experience (close to a dozen properties at the time), he was still misled by someone whose actual track record turned out to be poor, despite seeming credible. Their suggested approach is to consult multiple firms and compare whether their advice aligns or conflicts, and to ask plenty of questions rather than accepting claims at face value.

Financial Preparation

Damien reflects that in his early, more aggressive property-buying phase, his focus was largely on maximising available equity and finding the most generous lender, a mistake he's since learned from. Both recommend having a clear plan and goals in place, and working with a mortgage broker who can provide proper guidance, rather than pursuing purchases reactively.

How Property Fits Into Overall Financial Strategy

Jeremy frames property as a strong foundation for long-term financial security, particularly heading into retirement, noting that even starting later in life (such as around age 55) with a decade-long horizon can still be worthwhile given Australia's long-term track record as a strong place to live and invest. Damien adds that buying a solid, good-quality property on a larger block matters more than cosmetic appeal, since cosmetic issues can be fixed later.

Damien shares a recent example of a friend who purchased an off-the-plan property that underperformed the national average, yet is still financially better off overall simply for having been in the market at all over that period, illustrating that even underperforming exposure to property can outperform staying out of the market entirely. Jeremy agrees, comparing it to being on the train, even in the cheapest seats, rather than chasing after it.

Closing Thoughts

Damien and Jeremy close by reiterating that getting started is the hardest and most important step, and that having a clear plan and personal goals in place, paired with a willingness to ask questions when seeking professional advice, puts investors in the best position going forward.