Latest / The Follio Property Podcast / How To Increase Your Borrowing Capacity, in 2025| ft. Michael Killiner

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How To Increase Your Borrowing Capacity, in 2025| ft. Michael Killiner · The Follio Property Podcast

• 0:00
  That's your job. I'm coming to you. Tell me how I can lend. And you back that decision. WA or Perth especially has been so lazy around their finance clauses. Tell me. How do I get more debt? Do you marry the property, not the debt? Not all banks will have the same valuation on a property. Full valuation, $725,000 and the other one's $550,000. Same property.
• 0:18
  how dare you? I've been doing this for 30 years and you're trying to tell me how to do my job. And I'm like, yeah, I am. What debt recycling is and how you use that to your advantage. Your new debt is now 700,000 and you have a separate loan of 100,000. And I go to a doctor and then they go, what have I got? Ah, well, I can't really, can't really, it could be something, but I can't, I'm not going to put that in writing.
• 0:39
  You're listening to the Folio Property Podcast. I'm Rhys Bertel and I'm here each week with my co-host, Lachlan De La Hunty. If you're enjoying the podcast, do us a favor, hit like, subscribe and leave a comment so we continue to grow this channel and bring you amazing guests like the man with us today. Introducing Michael Killenup, founder and director of Tusk Finance.
• 1:01
  host of the Backyard Property Podcast. Welcome, Michael. Thanks, mate. It's a pleasure to be here. I love what you guys are doing. First time in the studio before for you? I just recorded in here. Now, we've been wanting to get you on for a while, actually, because we're starting to get a lot of comments.
• 1:17
  in their social channels, asking for financial advice, which we obviously aren't the men to be giving. I want to really understand probably from an investment standpoint as well, questions around structuring. So it's great to have you in today. But I thought we'd just start with the news that broke last week, another RBA announcement. Any surprises from your end? No. Well, the last...
• 1:41
  RBA meeting, it was a guaranteed rate cut and it didn't happen. So it was almost a guaranteed, guaranteed outcome. Are you surprised it's not 50 bips? I'm surprised it's not 50. I'm more surprised that all of the banks are passing on the full rate cut. That's what I'm surprised by. Okay. Yeah. I would have thought they might have held back some of that ammo. Yeah. Okay. So they're going all in on it? Yeah. Okay. That's good. And do you think we're going to see a golden question we're going to ask for the last week? Is there more in the tank?
• 2:08
  Yeah, there definitely is this year. Yeah, there definitely is. We're talking a bit earlier about it in the inflation data. That really has come back a hell of a lot. And so... They've got two levers to pull, right? Rates go up, rates go down. And if inflation's falling like a rock and there's no signs of that slowing, then they're going to have to cut rates.
• 2:27
  Absolutely, and the historical average sits around 5% as a home loan anyway. So I'd expect that's where we'll end up come 2026. So where will most home loans end up now based on last week's cut? Yeah, so if you're an Oc, you should sit on occupied, so it's your own home loan, you should be sitting around 2.3, sorry, 5.3. So 2.3, I'll take that. Yeah, I'll take that. That's going back to P.E. 5.3 and then investment, you're sort of sitting around 5.6 now.
• 2:54
  Okay, 5.3, 5.6, that's good, it's sharp. And you're foreseen by Christmas time, we could see those rates get closer to 5. Yeah, heard it here first. And we see it from a property side when we get these rate cuts.
• 3:08
  it's already, the sentiment in the market already builds up and it already starts getting quite busy. Do you find the same thing from a finance side of things or people getting pre-approvals? Is that speed up before the announcements or they're kind of the key to getting them through the door quicker? Not really, because nothing really changes after the rate cut. Obviously you can borrow that little bit more. So for a standard loan, you're looking at 2% above what you can borrow already. And from an existing,
• 3:37
  homeowner, they're only saving 70, 120 bucks a month. So there isn't massive differences in the numbers. Compounding that over three or four rate cycles, then you start to see a difference. Yeah. Yeah. So we look at from where we started, from the, I suppose, the pinnacle of rates, what's the difference now in August 2025? Yeah.
• 3:58
  Yeah, so if you're looking at the start of the year, you've got an increase of borrowing capacity by 6%. It's expensive, big, a million bucks. That's $60,000 that's going back into the market. Yeah, but it's 6% and it's confidence. So you add both of those two things together and an already inflated market with low stock and...
• 4:19
  That's what it is, right? That sentiment breathes confidence into the market. And I think we've seen it before, the week before the lead up, the week before the rate cut. It was in Perth locally, there was a 0.5% increase in market value. And I think a lot of that's just the sentiment taking out that forecasting the rate cut, the futures had already backed it in. And then obviously, true to form, rates come down. If anything, the most powerful thing out of a rate cut is the confidence element, the sentiment that puts back into the market.
• 4:47
  Absolutely. And we were just talking earlier about that runway that it has for the Perth property market. It's quite impressive. It is. Shall we dive in? No, but let's have a look because that is a good point. And runway data, runway data is something we talk about a lot in our office because the runway data that we track at PropStack gives us a look into the market and forecasting how much potential growth left in any market. And again, it's only a forecast.
• 5:11
  forecasts aren't always correct. But when you look at the affordability runway in any market, let's use Perth as an example, at, so where were rates two weeks ago? 5.5.
• 5:24
  Okay, let's put it in there, 5.5. Runway data on Perth at that point in time, we had it sitting at 56% for houses. So we believe Perth has potentially 56% growth left in the market based on the historical data. And for units, it sits at 96%. Where are we going to be at, you know, for the best part, for rates today? Yeah, 5.25 now.
• 5:46
  5.25, trying to work around the mic here. So sitting at that for houses now, that's increased the runway to 65% for houses and 106.5% for units. So it's a significant increase on the runway. And people at home are like, what's this runway bullshit? What the runway is, is the affordability index runway. The affordability index runway. So the average wage consumed by the average mortgage based on its historical ceiling. Yeah.
• 6:11
  So for Perth, the historical ceilings for houses is 58%. So once your mortgage, 58% of your mortgage is paying off, so 58% of your wage is paying off your mortgage, that is the historical ceiling. We hit that in 2007. So what we're saying at the moment, based on where the rates are at 5.2 and the current incomes and the current median house prices, to hit that historical ceiling...
• 6:35
  For houses, they would have to increase by now 64%, which we're seeing go straight into the market. Does that surprise you? No, it doesn't surprise me at all. And I think there's confidence because anyone that's bought in the last five years especially, they've built up value in their home, known as equity. And so they've got the ability to withdraw that and then go and deploy that. And they generally will deploy that in the market they know.
• 7:00
  And that's not, I haven't brought this up in 15 episodes, I reckon, but the serviceability buffer that lenders have baked in as well. Do you see that getting reduced now? Like we're in a market and it has been, they're filtered with this buffer in the past as well.
• 7:15
  Now we've had confidence that we are in a decreasing rate environment. What are you hearing? You're an expert on the ground here. Any talk or are banks or lenders already reducing some of that serviceability buffer? Because that would increase the affordability runway even further.
• 7:32
  Yeah, so I guess dumbing it down for anyone, the serviceability buffer is the banks will add 3% to the current interest rate. And so that's generally what they'll add. Now, there are other banks or lenders that will only add 2%. And so when we're talking about borrowing capacity, the choice of lender is really important. What they have done is just tweak different policies because all banks act differently for different applications. And so they may change a lever over here where they can add...
• 8:01
  board rental income of the housemate, or they might remove HECs from your borrowing capacity. So I don't think the assessment rate will change. I think you would just find creative ways of banks to implement calculations. So banks are gonna get more confident in a falling rate environment to be a bit more creative. Be creative gives more debt. More debt means- They wanna increase their loan book at the end of the day, so they'll filter with what levers they can that can drive more business in as well.
• 8:29
  You could see it going the other way as well. If they start getting too much of it, they'll start to pull back on some of their risk appetite. But they just change their policy. These policies just turn on and off because the banks have the right to do that. But one bank does it and then another bank will copy, similar to what Commonwealth has done with NAB and their HEX repayments. So it's quite fascinating. And what's your opinion? We've been talking a lot about rates here, but rate versus solution-based lending or structured lending, what's the most important thing do you see there?
• 8:59
  you know, you're brought up or when you first have your conversations with the banks or even maybe your first mortgage broker, it's very much who's got the cheapest rate, what's their payments, but that's not always the best solution for clients. Where do you sit with that?
• 9:12
  Well, it's the only question that people know what to ask. It's the same as real estate agents saying, do you have a pre-approval? What does that even mean? So I still get that a lot. What's the best interest rate? Well, what's your position? Are you self-employed? Do you have casual income? Do you have contract income? So I think interest rate is definitely important, but the most important is whether the bank will give you the money.
• 9:35
  Because then the rate and the fees don't matter after that. So I think, yeah, rate's definitely important. I think it also depends on what your goals are, because if your goals are growth and buying more properties, then you're less inclined to worry about the interest rate because it's more around... How do I get more debt? How do I get more debt? How do I get higher valuations? What bank is doing a different assessment rate? So I think depending on your goals will depend on what's more important.
• 10:00
  And I think people probably, that's a really good question for those listening to ask their broker. And we always go back to the goals, but if you are looking to expand a portfolio, we talk about often on the podcast, you do need to take on more debt, otherwise you can't buy property, right? So you need to get more comfortable with debt. Question that I ask my bank or broker is,
• 10:20
  Often, I exhaust my debt limits, and then I go, there's got to be a way, find a way. And it's funny, they always find a solution. What do you see as really creative ways? Because a lot of people listening probably want to get access to more property, want to expand their portfolio, but their brokers had a bit of a look and said, you capped out. Well, that's a shit answer. So tell me, how do I get more debt? Trust lending.
• 10:40
  It's obviously really hot on everyone's tongues at the moment. So definitely trust-leading. Choice of bank. I think choice of bank is so crucial. And if you're looking at all the lenders on your panel, it's saying who can look at income differently. Will they take 100% of rental income or will they take only 80%? So I think they're the two. The really simple levers is reduce your liabilities. The credit card limit, they don't care whether you're paying your credit card off every month.
• 11:07
  So the credit card limit will reduce your income by five times that limit. So your credit card limit is $10,000, $50,000 off your borrowing capacity. That's right away. Reduce that. Easy fix. Away you go. There's a really good one with NAB at the moment where it's the HEX. If your HEX balance is under $20,000, they don't include that in servicing.
• 11:26
  And so for someone I was doing today, that's an extra 90 grand in borrowing capacity. It's massive. It's enormous. It's completely, you can miss the market completely by having that extra or get in. Yeah. And so if we dial back to the other two, the trust lending and the choice of bank, as we said, the assessment rates generally 3%.
• 11:45
  What most second tier lenders will do is they'll only add 2%. The beauty of that is it gets you in because you marry the property, not the debt. The debt can be fluid and flexible. And so after 12 months, there's now only a 1% buffer for the majors. Get in 12 months with a second tier. After 12 months, you've made your payments.
• 12:07
  Go to your big bank if you really want to. That's a really good point because people think like second year, third year, it's dirty, it's dirty debt. I don't want to go down that path. But you're right, you're not married to that bank for the next 30 years. It's a means to get you into the market and then you can recycle that to one of the majors in this market, recycle the equity out and away you go.
• 12:25
  Absolutely. And the funny question you get asked is, what's their viability as a bank? They're lending you the money, not the other way around. So if they go under, it's not okay. It's okay with me. And those second-tier lenders, they're funded – who do you think they're funded by? The big banks anyway. So it all kind of comes full circle as far as the second-tier is concerned. What about – you said there the credit card, that's pretty –
• 12:50
  pretty big numbers when you're taught that getting a credit card helps your credit profile and, you know, to help build up that good credit rating. I think that was sponsored by Amos. It fooled me because I think I definitely was doing that before the points sort of came in. But, yeah.
• 13:06
  That's a pretty powerful figure to understand five times the limit is what it reduces your capacity. Yeah, most couples have 10 grand credit card each. That's 100K of glory capacity. Straight away off your capacity. Yeah. And you're in the market competing at home, opens, missing about 20 or 30 grand. Yeah. You're what? That debt. You've got 90K of serviceability. You've just bought that property and saved yourself.
• 13:24
  100 grand a month later. Absolutely. Or are those meaningless points that valuable? I guess you're just weighing up what's important. You're just spending more money. That's why I got rid of buying because I was just finding out I had no budget at all, at all. Just trying to get that cheaper flight. I guess if we dial back to trust lending, because we know that that's really hot at the moment and I think there's some really important features within that. Firstly, this is general, so accounting and tax strategy is important.
• 13:54
  But the reason people are talking about it is because when a bank does your borrowing capacity,
• 14:00
  If you've got an existing debt within a trust, that can be removed from your personal borrowing capacity, depending on the bank. So all of a sudden, you've got an investment property over here that's- Does it have to be self-servicing though? It does for some cases. Others it doesn't. Talk to me about that. I'm interested. So, well, because if it's owned within a trust that has a corporate trustee, it actually doesn't show on your personal credit report anyway.
• 14:29
  Right, so even if that's not self-fulfilling, I've actually got a negatively geared property in a trust facility. So it doesn't pay for itself because that's the myth around trust lending, right? It needs to be, your rent needs more than cover the mortgage. Otherwise, yeah, and then they can exclude it. But you're saying even if it's negatively geared in some instances. Yeah, with some banks, absolutely. Imagine second tier lenders as well would probably. And top tier lenders too. I think the one thing that people continue to forget about this is that
• 14:59
  most banks won't then include negative gearing within the calculations if it's only within a trust.
• 15:06
  There's a couple that will. So Commonwealth Bank definitely will. AMP definitely will. And so, yes, it's good to buy into trust from a lending perspective, not tax, but lending. However, it may impact- Tax position. Tax position. But if you're trying to get more debt and expand the portfolio and you're at the end of the line, you're at six times debt to income and the bank is saying, there's no more, you broke it, saying there's no more, well, there is that trust option.
• 15:33
  Yeah. There's always creative ways to do it as well. It just depends on your willingness for debt and obviously the people you've got working with you. Yeah. From a, obviously not an accountant, but from a, from a, from a breaking side of things, when should people start looking into trust structures to help increase their capacity?
• 15:49
  purely from a lending perspective, if you're wanting three properties, would be the way that I would be looking at it. And that's personally for me as well. And saying, it's not going to impact, number one, because you should be able to buy that first property. Number two, it is where you'd be thinking about it because the entity that buys it is the long-term entity unless you pay stamp duty again.
• 16:11
  So then number three is then not factoring in number two. And so I'd be saying, do I want to have three properties? If so, maybe buying in a trust. In that second or third purchase. Yep. Because that's interesting because we see a lot of clients that come to us and their structure is all over the place. Like in terms of debt on their principal place versus their investment, maybe they've had the wrong advice in terms of the entity as well. And I think
• 16:39
  there's just a lack of education piece. And especially there is a big difference, is what I tell a lot of people as well, and I'm pretty passionate about. There's a difference between, all mortgage brokers are different. There's gonna be people like yourself who specialize in investment lending and structuring portfolios. And then there's gonna be people that just specialize in your house and land, first time buyer packages. And I think it's trying to get people to understand
• 17:00
  You can go to that broker A initially, but it's important to open your eyes. And once you do start building out a portfolio, you need people to have the actual experience and know how to structure those correctly as well. Yeah, absolutely. But I think there's also that acceptance.
• 17:17
  especially as a broker, when I first started, if someone told me this is how I wanted the loan, I'd say yes, sure. But now you start to go, are you sure that's what your accountant is saying? You call the accountant and they go, no, that's not what I told them. And so all of a sudden you start asking questions, start educating rather than just accepting the position. That's when you start to have some growth. Yeah. You mentioned earlier on the bank valuations. So, you know, we've had a conversation off air and I've got a bit of knowledge myself,
• 17:45
  Not all banks, so just for the viewers and the listeners there, not all banks will have the same valuation on a property. So vastly different. Yeah. But not all values will have the same valuation as well. I've got one at the moment, full valuation, $725K, and the other one's $550K. Same property.
• 18:01
  And when we're talking a licensed value, are two licensed values of Inspect them or are they desktops? Two licensed values. That blows my mind. As a licensed value. Both top tier valuers in Perth. And so that's quite amazing. It's concerning. It is concerning. So I just binned the 550. I think the thing you're touching on is every bank values a property differently. And whether that's via a computer valuation, whether that's via a full valuation, there's a common misconception that the full valuations are conservative. It's done by a valuer.
• 18:31
  we get that as the broker and then we determine whether we use it. But the computer valuations is where the magic is. Yeah, they're pretty bullish at the moment, right? Everyone's talking about, have you seen your CPA Val? Obviously they can turn the taps on, and by the time properties that our clients have purchased, by the time they've settled, they're four or $500,000 in value on the CBA.
• 18:50
  Yeah, auto valves, which we know in reality is not correct. There's definitely going to be equity there, but not to that level. Talk us to that. Yeah, so CBA turned that tap on about 12 to 18 months ago. Bankwest copied them because they're owned by the same people. Macquarie have now turned that tap on as well. So the banks just turned the tap on like policy. They do that with valuations depending on markets they're in and how much they want to actually expand in that market and their risk profile. There is also a particular bank that for the last five to six years
• 19:18
  You take the core logic valuation, you add 40 to 50K on top of that, and then that's accepted by the bank. And that's a top tier bank. And so you go- Really scientific approach to that, isn't it? Very scientific. Very niche. Yes. Very niche. But I think that's the beauty of a broker, whoever it might be, is going, how do we look at this? But also, don't go past your comfort level for debt.
• 19:42
  I wouldn't be saying borrow more just for the sake of it, but it's understanding what's available in the options. That's- And for those, I'm always looking at creative ways to get more debt. Those auto valves, being able to manipulate the banks to give you favorable valuations to therefore use the equity. Like a great scenario might be, you always want to
• 20:01
  You want to have zero debt on your primary place of residence, but you need to recycle some of the debt. So a creative auto val will enable that to potentially happen. So it's not just about taking on more debt. Those vales actually help you to reshuffle, restructure, so you're better positioned in terms of where your debt is in the market.
• 20:17
  A hundred percent. I couldn't agree more. Yeah. What about like from your perspective, you know, Lachlan's very bullish in terms of, and, you know, educational on this podcast where we really do say you got to take on more debt to grow your wealth and pay off your principal place of debt. But from your perspective in the, you know, from a broking financial side of things, what's some signs that...
• 20:39
  customers coming to you, clients coming to you, and they're maxed out on their borrowing capacity, or you think they're at their absolute limit? The property market rewards action takers and decision makers. And so the reality is if
• 20:53
  If they're in the position that they want to continue that property portfolio, then you're just finding ways of helping them with that. Obviously, there's a duty of care as a broker as well. And it's all well and good to say we can get a higher value or we can get more borrowing over here. But it's making sure that both parties are comfortable if there are two. And you don't want financial stress. But the banks also build in their own buffers that we've spoken about.
• 21:18
  And depending on their age and their ability to increase their income, you might have a doctor that's only just finished their GP, and now they're ready to really ramp up their income. And so I think it's depending on what type of position they're in, what their comfort level is with debt, and then what their goals are. Yeah. What about the asset quality? Will that affect...
• 21:40
  how banks will lend on there? Or you said from a valuation perspective, some can be desktops, they're not really going to go into a lot of that quality. But you gave that example of a vastly different valuation. Does the asset quality from your experience come into play too much from what they're willing to lend? It does bank per bank. Macquarie at the moment have Nolimara listed as a category two property.
• 22:05
  And so that means that they're not going to borrow above 80% or lend above 80% for a property in Olamara. That's just Macquarie. So we don't use Macquarie for property in Olamara. And so I think it just depends on where you go. We've seen that in the past. When the Perth market was struggling, units, apartments were category two, category three. We, on this podcast and in our business, refer to it as A-grade stock, B-grade stock, C-grade stock.
• 22:30
  But depending on what the lenders are looking for and depending on their appetite in the market will depend on how they categorise suburbs or asset types. Yeah, postcodes, how many arrears are in that area, what their risk appetite is in that area. It's exactly that, the asset of A, B or C. Absolutely. Brokers and bankers, you need to be giving your client the best opportunity to buy.
• 22:56
  And I'm not saying this is you personally, but I've had it recently with a few clients that have missed out and come back because the banker and or broker wouldn't allow them to put in a cash offer. And understand a cash offer doesn't mean there's not finance involved. I think this is a big misconception in the market. Agents think a cash offer means they've got $2 million of cash. Even if you had $2 million of cash and it's an investment property, why wouldn't you put debt on it? So it's a real frustration of mine.
• 23:20
  But I presented a bank event maybe two months ago and I got abused by some of these bankers saying, how dare you try to question us for trying to push our clients to go unconditional office. I said, are you serious? I was a fool on biff. I'm like, your client's missed out now for six months because you couldn't get them in a cash position and you've cost them $200,000 or $300,000. So your client's going to be more pissed off at you than they are me. Talk me through this. It's a frustration of mine.
• 23:45
  I completely agree. I think there's obviously too many brokers in the industry and there's not enough education, but also WA or Perth especially has been so lazy around their finance courses. We've had three week finance courses for so long.
• 24:02
  45% of the people I help are outside of Perth. So I'm looking at all the different, so Darwin you're looking at a 14 day finance call similar to Brizzy. Sydney, you've got five days calling off period and most agents want you to waive the 66W. Therefore it's unconditional.
• 24:19
  Melbourne's very auction focused. And then you start looking around, Adelaide's pretty similar to Queensland. So yeah, I agree that you're talking to bankers or brokers in Perth, and they would freak out at an unconditional offer. They talk to someone. That's your job. I'm coming to you, tell me how much I can lend, and you back that decision. I'm going to auction on Saturday, you tell me how much can I borrow? And if you can't give me that with confidence, I need a new broker or banker.
• 24:42
  Yeah, I completely agree. I absolutely agree. And as I said, I've got two live contracts in Sydney right now, and that's the pressure of the job. But I guess if you're not willing to provide that advice and that execution, then you're probably not the right person for that transaction.
• 24:58
  It blows me away. And it's costing clients so much money, right? Because at the moment, you need to be so competitive with your offers. And when we talk about in the podcast, how do you make a competitive offer? Well, you've got a price, that's one leverage, one lever that you can pull. But you also got terms, another huge lever. And a big part of that is cash offers. You know, people, I reckon they're nearly overstated now. You know, you've got a cash offer.
• 25:20
  We're talking, we picked up on our property last week, we were 50K under the highest offer, purely because we were cash, and we put a building and pest clause, we waived that because we'd done it three or four days before. So we've saved that client $50,000, and if that broker had to turn around and said, nah, look, you're going to have to put a 10-day clause in there.
• 25:37
  they've cost them 50K, but then maybe six weeks out of the market, in this market, it's rising 0.5% a week. That could be a $100,000 difference. So yes, you're an expensive broker if you're not willing to put your advice, your expertise on the table.
• 25:53
  And I go to a doctor and then they go, what have I got? Ah, well, I can't really, it could be something, but I'm not gonna put that in writing. Are you serious? Do your job. There's two reasons why it doesn't happen. One is because brokers are too lazy to submit pre-approvals. And the other is because they're too set in their ways and they don't want to change. And the broking industry especially is,
• 26:15
  built on this 1990 model, and that's slowly shifting away. But the pre-approvals, you've got 50% of banks that will do a fully assessed pre-approval, meaning you're auction ready, or 50% that just give you a piece of paper and doesn't mean anything. And so I think there's obviously conviction in...
• 26:33
  choosing a lender based on a fully assessed pre-approval. And maybe it's that brokers are getting lazy because a pre-approval is probably as much, if not more work than actually just submitting a contract, right, so it's like, well, you know, just put a finance clause in there and, you know, if you get it, you get it, then I'll do the rest of the paperwork. Is that a bit of a mentality in the industry? Absolutely, but most brokers, they're sitting around a kitchen table and they're doing the numbers on themselves. Whereas if you've got a team that can actually do that, then all of a sudden the reliance isn't on them to do it. And so you have the ability
• 27:02
  to lodge more applications. So there's probably 30% of all pre-approvals that actually proceed to a full application. Is that all? Yeah, that's what it stands at. And so I think you're just being realistic that they might not ever buy, but the reality is the ones that do need it. Yeah, exactly. You've got to do the work sometimes. We do a lot of work for clients where you don't get paid for, and that's the nature of the industry. But if they're not in a position, then they're not going to buy in this current market.
• 27:27
  It's a shame I wasn't in the room with you because I would have thought about you. It was baffling. It was like pitchforks out going to hunt me down. How dare you? I've been doing this for 30 years and you're trying to tell me how to do my job. And I'm like, yeah, I am. That's the issue. And your client will be at a different bank. Yeah, I agree. Michael, talk to me about
• 27:43
  Debt recycling. I've seen, you know, for those that want to catch your podcast, Back Out Property Podcast, I know you've touched on this before, but give us a bit of an explanation on what debt recycling is and how you use that to your advantage. Yeah, it sort of wraps up everything we've just been talking about, valuations and...
• 28:01
  leverage or debt positions. So debt recycling, this is obviously not tax advice. This is purely lending advice. So you've got your existing home loan and you're wanting to buy an investment property or something that an investment that attracts rental yield.
• 28:18
  but you have savings that you want to use towards that. So the debt might be 800,000, and you wanna use 100,000 towards whatever you wanna invest in. You're paying down that 100,000, so now your balance is 700 grand, and you've got 100,000 in redraw. You then go and refinance, or with a new bank or the same bank, your new debt is now 700,000, and you have a separate loan of 100,000. And so you're just splitting your debt
• 28:44
  The way the accountant interprets that is the most important part from a tax perspective. And that's why having the likes of yourselves with a broker and an accountant, everyone needs to be providing their advice. And so debt recycling is purely reducing unoccupied debt whilst increasing investment debt. And just before we let you go, redraw versus offset, what?
• 29:08
  You and me have actually had a conversation about this over a coffee a couple of months ago. And there's some influences out there in your space, the finance space, that are really pushing that redraw versus offspit. What's your opinion and what are the advantages you see in either either?
• 29:23
  It depends on what you're trying to achieve. Yeah. I love an offset account, but a redraw definitely has its place. And so the offset for me, especially for someone that is thinking about turning their existing property into an investment, there is no point in paying down any more of that debt because you may need to use that in future from a tax perspective. So if you are ever thinking about using your property as an investment, the offset account is the
• 29:50
  the best option because you're not paying down the existing debt, but you're reducing the interest on that, that, that property. Redraw also has its place. If you want to be like my mom and dad and possibly yours, where they just want to buy their home and pay it down and never move and never invest. That's also fine. Redraw is great for that because you just keep paying down the debt. There's no account fees for redraw. Redraw.
• 30:13
  And you can see the accessibility of that money there. So gone are the days of getting a check for redraw. So it's definitely got its place. The key thing is both do exactly the same thing. Both reduce the interest in exactly the same way. One is just a transaction account that's linked to the offset. The other is putting money into your home loan. And so it depends on your tax strategy and your future goals.
• 30:37
  I think for most people when they buy a property, they live in it, they're like, this is gonna be us. And in 2025, people change their mind and people are moving in and out of properties more regularly now than ever. So, albeit they don't think it's gonna be an investment, it's probably safer in not all, but some instances where when in doubt, even if you think it's a dream home, have an offset facility because you're right,
• 30:59
  How many accidental investors do you run into? Most investors are accidental investors. Having that offset there has been very, very handy for me personally when I've changed properties three, I literally bought and lived in my dream over the last three years, three different times. Thank God I had an offset facility because two of them are left as investment properties. And now I can pull that cash out, use that to put into the primary place of residence, increase my debt on the investment property which once was my primary place of residence.
• 31:27
  So I think when there's doubt or just if, you know, when in doubt in those scenarios, having an offset certainly saves it. Yeah. I think the beauty of the offset for me is that when you've got a principal and interest product,
• 31:41
  having money in the offset doesn't change your repayment. It just changes the interest that's been added to the loan each month. When it's an interest only product, it directly affects the repayment. So if your debt is 300,000 and it's interest only, and you have 300,000 in the offset, you're not making any repayments at all. So from a cashflow perspective, that's what I want. And so for me personally, our home loan is interest only because we can manipulate our cashflow based on what's in the offset.
• 32:10
  It's horses for courses. I love it because of that. I also love it to take cash out to then invest because you can access the equity, the value in your home, whilst not paying any repayments on it until you use it. Same way you can renovate or do a construction. You've just got access to funds without making payments on it.
• 32:31
  Ended on I Call Bullshit. So, Michael, I know you're well aware of the old segment we had here on the podcast, but the question for you is, Michael, in 2025, it's never been easier to get a mortgage. Fact or fiction, do you call bullshit? I call bullshit. Is it never easier? As in, it's easier than it ever has been. Yes. Yeah, absolutely. It's easier than it ever has been. I'm amazed by this rhetoric that we see in the media to say that you...
• 32:59
  banks aren't lending or whatever it might be. They want business. They want business and they're prepared to lend to you. So yeah, I call bullshit. Thanks for coming, Michael. You're welcome. You've been listening to Folio Property Podcast.