Episode Details

Today, we answer some of your common questions.

Questions like…How should your property investment strategy change given the current circumstances?

Should you still be focusing on capital growth for your investments?

How do you transition from the capital growth stage to the cash flow stage for your investments?

We'll also talk about those 40-year spreadsheets and property strategy plans. Do they work, or is there a more effective property strategy plan?

People also want to know about how much of a financial buffer they need or whether diversification is the right move for them.

These are all good questions, and hopefully, my conversation with Kate Forbes will bring you some clarity.

Q&A with Kate Forbes

How has Metropole changed what they buy given the current circumstances?

It hasn't.

When you invest in property there are three major factors deciding where you buy and the type of property you buy:

1. Your budget – and that is usually determined by the banks
2. The location - we are not prepared to compromise on this because location will do 80% of the heavy lifting of your property
3. The property you purchase. – It has to be the right type of property, one that's going to outperform the averages with regard to capital growth.

We don't change our strategies, which are long-term plans, due to the short-term fluctuations of the economy or property markets.

Why should I focus on capital growth over cash flow? Especially now when there is likely to be lower capital growth?

Despite what you'd like to believe, you just can't live off the rents of your property.

In my mind the only way to become financially independent through property is to first grow a substantial asset base (by owning high-growth properties) and then transition to the next stage – the cash flow stage – by lowering your loan to value ratios. In other words, reducing your debt, but not paying it off completely.

Remember the 3 stages of wealth creation I've mentioned before

1. The asset growth – this requires leverage
2. Transitioning to lower LVR - where you slowly pay down your debt
3. Living off the Cash Machine of your property portfolio

How are you going to repay all your loans before you retire?

An ideal situation would be to own a mixture of growth and income-producing assets that looks a little like this:

• You would own your own home with no debt against it
• You'd have a substantial superannuation fund which should be delivering you a regular income
• You would own a multimillion-dollar property portfolio which is no longer negatively geared and, if it does have debt against it, the LVR would be such that the portfolio generates income. This would not need to be a lot of income but needs to be sufficient so that your property portfolio is not draining your cash flow.

I know many financial planners suggest you should go into retirement with no debt at all, but in my mind entering retirement with a conservative amount of leverage works well for those investors who have set themselves up correctly.

These investors often live off their superannuation assets and income for the first 10- 15 years of their retirement allowing their property portfolio to once again double in value which allows their already low loan to value ratio to fall even further enabling their property portfolio to spin off even more cash flow.

Others achieve their cash flow in retirement through the dividends from shares or from the positive cash flow of commercial property investments.

So how do I transition to the cash flow phase of my investing?

Grow your portfolio at a slower pace

• • Once you've grown a substantial asset base, one option is to slow down the pace at which you grow your property portfolio