Latest / The Follio Property Podcast / Labor’s Tax Changes Are Pushing Property Investors to Rethink Their Next $100k | Equity Mates Warn

Transcript

Labor’s Tax Changes Are Pushing Property Investors to Rethink Their Next $100k | Equity Mates Warn · The Follio Property Podcast

• 0:00
  As property has become more expensive and I guess more of a pipe dream for people, we are seeing the demand for leveraged products increase.
• 0:07
  There's no regulation there, right?
• 0:09
  You do have people that are, you know, almost giving advice on things that they shouldn't be even talking about.
• 0:14
  And you can get your ticket from a cereal box and be a, you know, property expert the next.
• 0:18
  It's a grow up in mind.
• 0:19
  ASIC can't do anything until the property and Bitcoin get regulated.
• 0:23
  Right now it's wild west.
• 0:25
  It's such an interesting mindset that people are willing to take out a mortgage of up to 90%.
• 0:31
  95%.
• 0:32
  95%.
• 0:33
  Like grind week on week, month on month to pay that off.
• 0:37
  Then look at taking out a hundred grand and putting it into the stock market and the risk that they associate with that versus putting all chips in one basket.
• 0:46
  If you really wanted to go for it and get the same level of leverage that you get in property, you...
• 0:52
  You're listening to the Folio Property Podcast, the number one property podcast.
• 0:58
  My name is Rhys Bettle and I'm here each week with my co-host Lachlan De La Hunty.
• 1:01
  We've got the number one investing podcast and the OGs in this space.
• 1:05
  And as Lachlan was trying to embarrass me earlier in the green room, some earlier heroes of mine in the podcast space.
• 1:13
  Welcome to the Folio Property Podcast, Bryce and Wren from the Equity Mates.
• 1:17
  Thanks for having us, Rhys.
• 1:18
  It's a lot of fun.
• 1:19
  Thank you.
• 1:20
  Well, we might be number one in investing, but we don't have a green room.
• 1:23
  So you guys do better than us.
• 1:26
  Well, yeah, I think that's been a nice addition in the Sydney studio, actually.
• 1:29
  We have enjoyed the green room.
• 1:31
  But no, I thought we were keen to get you on because not necessarily property related, but we'll obviously touch on property.
• 1:37
  I know you guys dabble with it a little bit yourself as well, but...
• 1:40
  It was probably more on the education side of things as well and the self-education.
• 1:44
  We're in the self-education space to a certain extent as well with the podcast and there's a lot of podcasts out there from property, investing.
• 1:52
  There's a lot of bad advice as well, a lot of Spruka behavior as well.
• 1:55
  So I thought it'd be good to kind of pick your brain on when you got in to the space and where you've seen it from there and where it is now.
• 2:02
  Well, we can start at the beginning if you want.
• 2:04
  How long have you got?
• 2:06
  No, so I guess just who is Equitymates?
• 2:09
  So we are now one of the largest providers of financial education in Australia.
• 2:13
  We reach about a million Australians a month now across our channels.
• 2:18
  But it didn't start that way.
• 2:19
  It started with Alec and I 10 years ago, both with a passion for investing or wanting to become better investors, I should say.
• 2:27
  We
• 2:27
  were no by, by no way professionals.
• 2:30
  Um, we'd just got grad jobs.
• 2:32
  I was working at Woolies.
• 2:33
  Alec was working at Coles and, uh,
• 2:37
  We were both passionate about investing.
• 2:38
  And so we were listening to content that was based overseas.
• 2:40
  There was nothing for Australian investors.
• 2:42
  And we decided, hey, let's just record our own journey as we learn to invest so that we can go out and speak to fund managers, CEOs, and become better investors ourselves, sort of a scratch your own itch.
• 2:54
  And so at that point in time, as you said, it was sort of OG Australian podcasting.
• 3:00
  It was easy for us to say we're the biggest investing podcast in Australia because we were the only investing podcast in Australia.
• 3:06
  Yeah.
• 3:08
  And so we just sat down in our share house, put a microphone in the middle of the table and decided let's just try and talk about what value investing is.
• 3:15
  And that was the very first episode.
• 3:17
  And we just stuck at it.
• 3:20
  We had corporate jobs for five years before we quit and went full time.
• 3:23
  And so it was never anything that...
• 3:26
  was meant to be a business and it was never anything that we're trying to make money from it was just something that we were on our own journey and it turns out there's hundreds of thousands and or millions of Australians out there who were in a similar position wanting to learn themselves take a DIY approach feeling locked out from the big bad world of investing and finance and we happen to make it accessible and entertaining and here we are yeah
• 3:51
  And how have you seen the space change, I guess, from when you first started?
• 3:56
  It sounds like from what you were doing there, where you were sharing the microphone in the share house, there wasn't much out there at that particular stage.
• 4:05
  But as it sort of progressed and you've seen your channel growing, you've seen people come in there, come into the industry.
• 4:10
  How have you seen?
• 4:11
  Has it been for the positive or have there been some, like we speak about on our podcast all the time, spruikers, property spruikers, anything like that from your perspective as well?
• 4:21
  I mean, I think on net it's been positive.
• 4:23
  Like the amount of free education that's available to people is amazing.
• 4:28
  But you're right.
• 4:28
  It's like harder to navigate who's legit, who's not, who's trying to sell a product or got an agenda.
• 4:35
  And I think that requires like self-educating about how you self-educate and, you know, how you navigate this world.
• 4:43
  But in terms of how it's changed, like when we started, it was audio only.
• 4:48
  Now every big podcast is video.
• 4:51
  Like you look around the studio and it's lights, it's cameras, it's everything.
• 4:54
  The big change we saw over the years was early days.
• 4:58
  It was just like hobbyists.
• 4:59
  It was people like us who didn't have a media background.
• 5:02
  Then in COVID, all the finance brands woke up to podcasting and we saw like Magellan, the ASX, like every fund manager out there decided we're going to start a podcast.
• 5:13
  And so we had this wave of competition from like the finance industry.
• 5:17
  And then I reckon maybe like a year later, all the media companies were like, hey, that's where the audience is.
• 5:21
  And then it was like.
• 5:22
  nine and the AFR and everyone was making podcasts so it's got like a lot more professional the standards are bigger but I still think the audience just want to hear from people like you guys or people like us just like people that are relatable people that are figuring it out that are on the journey um and so here we are 10 years later
• 5:41
  And like in terms of we were saying this off air and we thought, let's hold it and actually wait for the podcast.
• 5:47
  But we're talking around that advice standpoint and that's probably what we've seen in the property industry where there's a fine line because there's no regulation there, right?
• 5:57
  You do have people that are almost giving advice on things that they shouldn't be even talking about.
• 6:03
  But you guys mentioned obviously you need an AFSL license to give out any sort of information.
• 6:09
  Like how...
• 6:10
  Has that been a hindrance or has that been quite helpful, I guess, in terms of an industry space?
• 6:15
  I mean, it grinds my gears, to be honest, that you guys, well, not you guys particularly, but in property, I could say to you the best thing that you can do for your financial future is buy that house on the corner for a million bucks.
• 6:28
  Yeah, and borrow 95% of money.
• 6:31
  And borrow as much as you can.
• 6:32
  Yeah, and leverage on it.
• 6:33
  And I don't know anything else about your financial situation, but that's the best thing that you can do.
• 6:38
  And you can walk away and there's no ramification for the advice that you've given there.
• 6:45
  Yet on the other side, Ren and I can't sit here and say, one of the best things that you can do over the long term to build wealth is buy a well-diversified exchange-traded fund that has 8,000 companies globally that is low-cost, well-diversified, and that has, through the test of time, done incredibly well.
• 7:06
  We can't say that.
• 7:08
  because of the rules and regulations that fall in the industry that we're in.
• 7:12
  We should be clear.
• 7:13
  We can say that because we have a financial services license.
• 7:15
  Yes.
• 7:16
  But yeah, yeah, yeah.
• 7:17
  But there are farms.
• 7:17
  We couldn't say that.
• 7:18
  We couldn't say that, yes.
• 7:20
  And so early days, we got an asset.
• 7:23
  We called us up and pretty much said, guys,
• 7:26
  Well, it was everyone in the space.
• 7:28
  It was a time through COVID where a lot of these sharks were starting to come out and do the Instagram links where sign up to my service and pay me $200 a month and I'll give you stock tips and all that sort of stuff.
• 7:39
  I don't know if you remember, they called him the wolf of the ASX or something like that.
• 7:43
  Yeah, ASX wolf or something.
• 7:45
  ASX wolf.
• 7:45
  He was driving around in Lambos and whatnot.
• 7:47
  Anyway, he was the poster boy of what not to do.
• 7:50
  There's a few property guys like that.
• 7:54
  And so ASIC actually rounded up all of what they called finfluences, people who had profiles through social media and online and were seen to be giving financial advice.
• 8:04
  And in most part, were giving sensible financial advice, in inverted commas, rounded us all up, put us on a big call and said, you don't all get a license, you're all going to go to jail, effectively.
• 8:17
  We need to do that in the property.
• 8:18
  The jail might be a bit of mayo.
• 8:21
  So it scared everyone and everyone inevitably went and got licences.
• 8:25
  We went and got our own licence.
• 8:26
  A lot of the creators who are still in the space today went and got licences underneath other licensees.
• 8:32
  But it is, you know, it costs money to do it and then you sort of there are regulations and rules that you have to comply with and then we kind of sit here and it is frustrating to see that
• 8:44
  you can do a lot of damage on the other side or in other asset classes.
• 8:47
  Crypto is another one that doesn't have regulation.
• 8:51
  There's no regulation around that.
• 8:52
  So you have these spruikers and these sharks out there taking advantage.
• 8:56
  Is there any trends, right?
• 8:58
  So everything you're saying there is kind of what we've probably seen in the property industry maybe nine months ago.
• 9:06
  There was a big influx of these influencers.
• 9:08
  Yeah.
• 9:10
  pitching potential trust structures that then the government's then removed and you know the government's then come out of back of the budget which i'd love to get your opinion on the from a share perspective as well but we're starting to see a bit more clamped down in and you know myself and lachlan are pretty passionate about there needs to be regulation in the in the property space is there anything you're noticing with maybe this wave i know you
• 9:31
  You obviously still keep your ear to the ground of the property market.
• 9:33
  Anything that you've noticed, I guess, in the last 12 months in Australia where you had some similarities when you were having those conversations with ASIC sort of six, seven years ago?
• 9:42
  I mean, not that we've seen.
• 9:45
  I think like ASIC can't do anything until the property and Bitcoin and the like get regulated as financial assets or whatever it is.
• 9:55
  Then they can fall under the- Financial products.
• 9:56
  Yeah.
• 9:57
  Yeah.
• 9:58
  So I think right now it's pretty, it's wild west.
• 10:01
  Because that's the distinction.
• 10:03
  We're talking about financial products on our show.
• 10:06
  Property is not seen as a financial product yet.
• 10:09
  It's the largest investment for 90% of the population.
• 10:12
  There's no regulation around that.
• 10:14
  How crazy is that?
• 10:15
  And you can get your ticket from a cereal box and be a PT one day and then a property expert the next to grow up a mind.
• 10:23
  We're in a time of-
• 10:24
  Plenty of uncertainty and our listeners are very much pro-property investors, but even in the property space, it's meant to be the most certain market.
• 10:31
  The property prices only ever go one direction, up.
• 10:34
  Well, here in Sydney, as we recall this, it's not to be true.
• 10:38
  Where is the landscape in the equity market, share market?
• 10:42
  A lot of people out there are like, where can they put their money at the moment?
• 10:45
  to reduce their risk because naturally you want to put it somewhere to hedge against inflation, but everyone's fearful.
• 10:51
  Are we in this AI bubble that's about to pop?
• 10:53
  Can you talk us through some of the headline, I guess, comments or the noise that we're seeing at the moment?
• 10:59
  Yeah, well, let's start with inflation hedges because shares over the long term, great hedge against inflation.
• 11:06
  We've got some long term numbers in our back pocket to talk to.
• 11:09
  There was a study, it was called Triumph of the Optimist.
• 11:12
  It looked at 101 years of share market returns from 1900 to 2000 inclusive.
• 11:19
  And after inflation, Aussie shares delivered 7.5% a year after inflation.
• 11:25
  Zoom out further, the San Francisco Fed have done a study 145 years, 1870 to 2015.
• 11:31
  Aussie shares delivered 7.81% after inflation.
• 11:35
  So if you're looking for an inflation hedge, there's not much better than a well-diversified ASX ETF or a global shares ETF.
• 11:44
  I mean, property has also been a good inflation hedge.
• 11:46
  I will say, though, in that San Francisco Fed survey, 145 years of data, property did underperform shares.
• 11:54
  About 6.5% a year for property, 7.81% for shares, both after inflation.
• 11:59
  So both good after inflation returns.
• 12:02
  The comeback when it comes to property is, yeah, but you can get 90% leverage.
• 12:07
  And that is the argument, right?
• 12:08
  I've had a few debates over the time and had to speak on the property side.
• 12:12
  And golden rule is diversification, right?
• 12:14
  Have property, have cash, have some shares.
• 12:17
  And I'm allowed to say that without a license.
• 12:19
  You guys probably can't.
• 12:20
  But where is the equation there?
• 12:22
  Like how do you actually leverage shares?
• 12:24
  And is it something you do or don't recommend as a way to invest?
• 12:32
  So the way that leverage in the stock market is developing, I think, it's in a really good way.
• 12:38
  So traditionally, you would have to go out and take out a margin loan.
• 12:43
  So similar to a mortgage, but without principal and interest repayments.
• 12:48
  And if your LVR fell to a certain level, the bank would call you up and say, hey, guys, you either need to sell some of your stock to get your LVR back up or you need to put more money in.
• 12:57
  So often seen as a bit sort of a risky way to get leverage in the stock market.
• 13:03
  Then came along ETFs, exchange-traded funds, and the old way of leveraging exchange-traded funds was through underlying derivatives and futures markets.
• 13:13
  And so over the long term, these products aren't great because they reset daily and anyway, they're not great for the long term.
• 13:21
  But what we're seeing now is a new evolution of ETFs
• 13:24
  leverage in exchange traded funds that are much more moderately geared where they have between 40 and 60 percent gearing and studies show that there's sort of like this efficient frontier where up to a certain point and leverage of maybe one and a half times or 1.3 to 1.5 is sort of like a really nice level of gearing for long-term share market investing and so these
• 13:54
  the top 200 asx companies at sort of 1.5 gearing um same with the s p 500
• 14:01
  And that for us is a really effective way of getting leverage in the stock market because it's managed by the ETF issuer.
• 14:08
  I'm not actually going to the bank, taking out loans myself.
• 14:12
  You're taking a mortgage off them essentially.
• 14:14
  Yeah, the ETF provider is actually going out.
• 14:18
  They're borrowing the money and they are then constructing the products themselves.
• 14:23
  So I'm never having to deal with interest payments and the bank calling me and saying, go small money.
• 14:31
  The downside is that like if you really wanted to go for it and get the same level of leverage that you get in property, you just can't do it through these products.
• 14:39
  But for good sensible long-term investing, they are a very effective way of getting leverage.
• 14:45
  We should say the end of that efficient frontier because there are products that give you like two times, three times.
• 14:51
  And in the US, there's even products that are four times leverage, but they fall over the edge of that efficient frontier.
• 14:57
  And over the long term, when you back test them, their returns are actually worse.
• 15:01
  And it's because the way the structures work, it's like.
• 15:04
  because they're so leveraged every fall, they then reset and then need to grow more to get back to even.
• 15:11
  So yeah, if you're chasing the highest returns possible, you might get burnt.
• 15:16
  But it's, it's interesting.
• 15:17
  We are seeing more as property has become more expensive and,
• 15:22
  And I guess more of a pipe dream for people.
• 15:24
  We are seeing the demand for leveraged products increase, I would say, amongst the community.
• 15:29
  Like, it's such an interesting mindset that people are willing to, you know, take out a mortgage of up to 90%.
• 15:36
  95%.
• 15:36
  95%.
• 15:37
  And like, grind.
• 15:42
  week on week, month on month to pay that off and then look at taking out $100,000 and putting it into the stock market.
• 15:49
  And the risk that they associate with that versus putting all chips in one basket is just crazy to me.
• 15:56
  What I'm trying to say is that...
• 15:58
  I think as more people are sort of priced out looking to leverage into the stock market, we hope that products evolve in a way that we can kind of get the same level of leverage but that we can get in property.
• 16:10
  Because it makes sense, right?
• 16:11
  If some of these property spruikers we're seeing will go to a first-time investor and they'll get all the money they've got.
• 16:18
  call it 50 grand and then take out a 90, 95% loan to go and buy one investment property in a regional location in the middle of nowhere and banking on that population growth versus being able to get access to debt and invest in the best 200 companies in Australia and say, probably back the best 200 companies in Australia to do okay compared to a regional market in the middle of central Queensland that is so dependent on mining and only population of 15,000 people.
• 16:44
  It doesn't make much sense when you're comparing the risk appetite on each.
• 16:48
  But just so our listeners understand that leverage piece there.
• 16:51
  So if I'm buying, I've got $100,000 I want to invest into a leverage stock, I'm giving it to one of these funds who are then going to go buy a product and they're taking out one, two, three times debt on the money that they're raising as capital.
• 17:05
  Yeah, it's less complicated than that.
• 17:08
  It's like these products already exist and they're in the same way that you can just buy like BHP or Commonwealth Bank on the share market.
• 17:14
  There are these ETFs which trade like shares do.
• 17:18
  And there would be like an ASX 200 ETF and then an ASX 200 1.5 times geared and then an ASX 200 three times geared.
• 17:26
  And you just take your $100,000 in your example and you just buy whichever one you want.
• 17:30
  And then the products are already geared and they'll...
• 17:32
  they've already set up the borrowing.
• 17:35
  And so you just buy the product like you would any other share.
• 17:38
  And then the returns are magnified, obviously.
• 17:40
  Yeah, based on your gear.
• 17:41
  And the losses are magnified as well.
• 17:43
  Yeah, yeah, yeah.
• 17:44
  And I think we'll see more of a movement to that space because with the budget, which we'll talk about in a moment, the ability to negative gear, rent vest in was a really good strategy when I started my journey, right?
• 17:54
  So you guys were sitting in a share house trying to learn about where to invest, what to invest in.
• 17:59
  I was equally in a share house renting with a bunch of mates, but I was able to buy a property where I wasn't living and pay nothing when I was renting and I could get the negative gear and it enabled me to be able to pay for that property.
• 18:10
  That's now gone.
• 18:10
  The rent-vesting strategy is gone.
• 18:12
  Do you reckon it's dead?
• 18:13
  Unless we see a coalition government reverse it, which is the only likely outcome for it to be reversed.
• 18:17
  I can't see a way in which it comes back.
• 18:19
  But that was a stepping stone asset for most people to get in and then that for me enabled me then to buy my first primary place for residence.
• 18:28
  That strategy is gone.
• 18:29
  So do you see this now and you see there could be quite a shift that
• 18:33
  Now those first-time investors that want to still buy a home one day, I'm sure, or want to get into a property, now need another vehicle.
• 18:39
  And some of these leveraged ETFs could be a possibility or are you seeing a bit of a shift towards?
• 18:44
  We're definitely seeing the shift.
• 18:45
  And it makes sense, but there's like one very important caveat that I think we should be clear about.
• 18:50
  It's shares are a long-term asset.
• 18:53
  And if you're on that journey and you want to buy in the next five years, say, you probably shouldn't be in the share market.
• 19:00
  You definitely shouldn't be in leveraged products in the share market.
• 19:03
  And it's just because there is a chance that you lose 40% of your investment.
• 19:07
  You need to be able to ride out the volatility.
• 19:11
  So, yeah, what we do say is if you're in that share house, you've been saving, you've got 50 grand and you want to put it to work in the coming years, probably just put it in a high interest savings account.
• 19:23
  Yeah.
• 19:23
  Lachlan was alluding it there with the budget, but, you know, we've – well, budget was three or four months ago now, and a lot of our attention obviously on the property market, you know, that's getting a lot of the media attention because of Australia's love of property.
• 19:37
  But in your world, like what's been sort of the aftermath of the back of the budget and have you noticed a change?
• 19:44
  And even just from maybe the analytics from your podcast, I guess.
• 19:46
  I was going to say, yeah, great content.
• 19:47
  Yeah.
• 19:48
  I mean, you guys would have seen it as well.
• 19:52
  Sure, yeah.
• 19:53
  The numbers just shot up.
• 19:55
  Yeah, yeah, it's crazy.
• 19:57
  I mean, what's changed for us?
• 19:59
  I mean, obviously, it was a time where, you know, a lot of our audience was sort of, I wouldn't say freaking out is the right word, but everyone was trying to make sense of like what does this mean for, you know, I've just bought a house, what does that mean?
• 20:11
  Or I've just signed an investment property, what's that going to mean?
• 20:13
  Or should I now be buying more dividend income instead of looking for capital growth?
• 20:18
  you know, is the mix going to change?
• 20:19
  But as things sort of settled down and we actually, we got some advisors in and kind of went through just looking at, you know, long-term returns and, and actually running some numbers on what is this actually going to mean for, you know, growth investing versus if I was to chase high yield dividend investing, if I was to just continue in property investing, um,
• 20:41
  What came out of all of that was at the end of the day, the same philosophy and principles applied that it did before the budget, which is nothing beats just buying good quality assets and holding them for the long term.
• 20:51
  Like at the end of the day, that really came through in all of the sort of modeling that we did with these advisors.
• 20:58
  And so I guess it's sort of reassuring in a way for us that you don't have to be too cute with all of this.
• 21:04
  And luckily, we're not sort of property guys.
• 21:06
  It probably has more of an impact for what you guys are doing than us because we can still...
• 21:10
  negatively gear an ETF portfolio if we wanted to and, and the like.
• 21:15
  So yeah.
• 21:17
  Now you can, who knows there might be another change.
• 21:21
  But yeah, I think from our point of view, it's sort of like,
• 21:26
  What we're trying to achieve over the long term and how we talk about investing and how we talk about what you should think about buying, that really hasn't changed.
• 21:35
  Yeah.
• 21:36
  I think we've seen a general negative sentiment around the Australian economy.
• 21:41
  I think the number of questions we've got around, should we even be investing in Australia?
• 21:45
  Should we be investing overseas?
• 21:47
  Has definitely picked up.
• 21:49
  And, you know, that's helped with overseas markets absolutely ripping on the back of this AI trade and Australia kind of lagging a little bit.
• 21:55
  We've also seen a massive uptick in questions around debt recycling and pulling equity out of property and deploying it in the share market.
• 22:03
  So that's certainly people are just like looking for alternative strategies, you know, where are the tax savings still in the system?
• 22:10
  Yeah.
• 22:11
  But yeah, like I think it will net-net probably push a few people, more people towards shares.
• 22:20
  But I think, you know, if we talk about the policy itself, the one thing that it kind of grinds our gears, like I don't know what you guys think, and I know we're in a property space, but like we thought property prices were kind of getting ridiculous.
• 22:31
  Like as multiples of income, they were getting out of control.
• 22:35
  Something needed to change.
• 22:36
  But the flat tax across everything,
• 22:40
  it kind of dulled the effect that they were probably hoping to have on the property market because it's just made every asset sort of less attractive, at least with the capital gains tax.
• 22:51
  Forget the negative gearing for one second, but just the capital gains side of things.
• 22:54
  It just made everything equally less attractive.
• 22:56
  And we worry...
• 22:58
  Not so much about share market investors, but particularly about startups and that next generation of Aussie companies.
• 23:06
  And, you know, founders that have the big exit, they'll be fine.
• 23:08
  But like people who might go and work at startups and choose to like give up the corporate paycheck and chase the startup dream, they're going to be worse off.
• 23:15
  And so I think there's going to be like second and third order effects that we're only going to see over time.
• 23:19
  But I think most of them will probably be negative.
• 23:23
  I mean, from what you guys said there as well, it's like similar fundamentals to how we look at property as well where, you know, you are looking at that longer term growth and the more blue chip assets.
• 23:34
  And from a property standpoint, it's something that myself and Lachlan talk about all the time.
• 23:38
  And from what you're saying there from the share market, it's still the same thing.
• 23:40
  It's quality over some of the quantity in the market as well.
• 23:43
  Yeah, I think that's the same with every asset class.
• 23:45
  Like you get a few fixed income guys in here and they'll be saying blue chip bonds is the way to go.
• 23:50
  Like it's, yeah.
• 23:52
  Is there anything that's come like off the back of the budget?
• 23:55
  We had a guest in earlier today who was very big on the commercial property standpoint and that has –
• 24:02
  That is now the hottest ticket in town in terms of an investment class perspective.
• 24:06
  Is there anything like that in the share market where there's been a variation where you're seeing a large influx of A, opportunity or B, demand?
• 24:17
  The question is around yield.
• 24:18
  And so it's like you get these ETFs that are set up to spit out higher yield than if you were to just buy ASX 200 or whatnot.
• 24:27
  And obviously the reasoning being if I can get, you know, more of my return in income than capital growth, then I'm going to be less affected by this change in capital gains.
• 24:37
  So that's been probably the biggest shift I would say, but there hasn't really been like a new, well, I wouldn't say asset class, but nothing like commercial property where it sort of doesn't apply, if that makes sense.
• 24:50
  Because I think that's why commercial property is so attractive right now because you can, all the old rules still apply.
• 24:56
  Yeah.
• 24:57
  So, yeah, it's probably yield.
• 24:59
  People are just trying to think about how their total return is made up between income and growth.
• 25:05
  But as I said before, when you look at the numbers and historically, and not to say everything continues this way, but the NASDAQ.
• 25:12
  You know, NASDAQ 100 over the last 20 years has pumped out, I think, 19.3% per year, 20 years.
• 25:19
  So, like… Does that concern you?
• 25:21
  Like, we talk about property prices have been overinflated.
• 25:24
  The way we track that in our world is the affordability index, right?
• 25:27
  And you're absolutely right.
• 25:28
  Before the budget, every macro market, with the exception of Perth and Darwin, were at or well above their affordability ceiling.
• 25:35
  Sydney was 10% above where it's ever been before.
• 25:39
  So in hindsight, it's always easy to call that that was clearly unaffordable.
• 25:42
  Are you seeing that in the American markets now with this AI bubble and everyone's saying it's going to burst at some stage?
• 25:50
  It hasn't yet.
• 25:50
  I think like it, what, when a boom becomes a bubble is art, not science, like, like calling that.
• 25:58
  I think there's no doubt that at some point this AI trade will lose some of its hate.
• 26:05
  I think the really interesting thing, if you dig into it, it's different to previous bubbles where if we compare it to the internet bubble of the late nineties that kind of crashed in 2000, 2001, that was a, just a pure hype bubble.
• 26:19
  Like the companies that were getting bid up weren't making money.
• 26:24
  The metric that they were judging themselves on is internet traffic.
• 26:28
  And there was this theory, which in hindsight wasn't true, that internet traffic is doubling every hundred days.
• 26:33
  And all these internet stocks were going to the moon.
• 26:36
  People woke up, realized that they were all about to run out of money and it crashed.
• 26:39
  Like in hindsight, that's an easy bubble to sort of see and to say, okay, like you shouldn't have bought them.
• 26:45
  The weird thing about this bubble is the companies that are most bubbly are making a shitload of money.
• 26:51
  The best example of this is the South Korean companies, SK Hynix and Samsung.
• 26:55
  They make memory chips, which are just absolutely in demand for data centers.
• 27:01
  When it comes to stocks, like a common shortcut to valuing a stock is price to earnings ratio.
• 27:07
  And, you know, historically markets kind of trade between like 15 and 20 times earnings.
• 27:13
  SK Hynix right now is trading on four times earnings because it's just making an ungodly amount of money.
• 27:19
  They're making so much money that the engineers at these two companies unionized because they wanted more of the profits.
• 27:25
  And so they both unionized, negotiated with the management, and they're getting like huge bonuses.
• 27:31
  Like $400,000 is like the average bonus at Samsung or something.
• 27:35
  Samsung is still going to have its most profitable year ever.
• 27:37
  And it's trading at four times.
• 27:39
  SK Hynix is trading at four times earnings.
• 27:42
  So this is not a speculative bubble like the Instagram.
• 27:44
  What's Uber for context trading at?
• 27:46
  Uber, oh, probably like 30 or 40.
• 27:48
  Yeah, yeah.
• 27:49
  So like that gives you – SpaceX doesn't – Yeah, yeah, SpaceX would be – Or it's not even profitable.
• 27:54
  It's not profitable.
• 27:55
  Yeah, yeah, yeah.
• 27:56
  So that's to give you context because that is the old rule of thumb, right?
• 27:59
  When these –
• 28:00
  markets are getting overpriced 40, 50 times multiples.
• 28:03
  But at four times, well, they're actually the businesses that are making money.
• 28:06
  So it's not a speculative bubble.
• 28:08
  It's an earnings bubble.
• 28:09
  Like these earnings are inflated.
• 28:11
  They're not sustainable.
• 28:12
  And basically what we've seen is like these cash-rich tech giants, Microsoft, Meta, Alphabet, Amazon, and more recently Oracle, just take all the money that they have in their bank account
• 28:24
  All the money they're making is profit and more recently, as much money as they can borrow and just pump it into data centers.
• 28:30
  And so people in the data center supply chain are making a shitload of money.
• 28:34
  The question we have to ask ourselves is how long does it last?
• 28:38
  But whilst the sun is shining, they're making a hell of a lot of money and a lot of people who are investing in these companies are making a lot of money as well.
• 28:45
  So that's the nuance of this bubble.
• 28:48
  It's a bit different to the other bubble.
• 28:51
  That was just like when psychology turns out.
• 28:54
  It'll go.
• 28:54
  This psychology is definitely in play here, but it's more like when people decide to stop investing in data centers or like China comes out and is like, hey, our AI is just as good, but one-thirtieth of the cost, that's when things maybe turn.
• 29:09
  And we don't know when that's going to be.
• 29:11
  You don't want to miss out.
• 29:12
  Yeah.
• 29:14
  And that's, you know, everyone's been calling for a market correction in property for three years now.
• 29:19
  Yeah.
• 29:19
  And those that haven't participated for the last three years have missed out on a lot of upside.
• 29:23
  Not three years.
• 29:24
  I remember when we started the podcast, like 2017, there was the guys that...
• 29:30
  called the US property bubble back in 2007, 2008.
• 29:34
  They came out here and did a tour of Western Sydney and the AFR wrote about them.
• 29:38
  And they were like, this market is a bubble.
• 29:40
  It's gonna burst, it's gonna burst.
• 29:42
  That was 10 years before the market turned.
• 29:45
  And so you missed out 150% growth.
• 29:48
  Exactly.
• 29:48
  You've had a 20% air cut.
• 29:50
  You're still 130% up, right?
• 29:52
  It's like the same with shares.
• 29:53
  You don't want to be early and calling it.
• 29:55
  Because you miss out on the upside.
• 29:58
  Yeah.
• 29:58
  So there's a lot of commentary in our world now that you stay out of property, it's scary.
• 30:03
  Commercial property probably has a place.
• 30:05
  But bonds now, government bonds are becoming –
• 30:08
  more topical?
• 30:08
  Where do you sit with that as, you know, potential place to park money instead of shares or, you know, what's the conversation that you guys have been having around that?
• 30:17
  Well, I mean, there's no doubt that bonds are certainly back in favour now given interest rates globally are, you know, I wouldn't say they're not record highs, but they're, you know, going up.
• 30:28
  And so the, you know, the safety now, you can park your money in US government bonds
• 30:38
  And that's risk-free, right?
• 30:39
  Unless you're banking on America.
• 30:40
  Yeah.
• 30:41
  And that's the reality.
• 30:42
  Talking about risk, shares carry risk, property carries risk.
• 30:44
  We just had a gentleman on.
• 30:45
  Commercial property carries a lot of risk.
• 30:47
  And for some people, they're only getting 5% returns in commercial property at that.
• 30:51
  So we're talking about risk-free cash.
• 30:52
  Yeah.
• 30:53
  Yeah.
• 30:55
  So that's sort of like your starting point.
• 30:57
  I mean, for us and for the Equitymates community, like long-term investors, it definitely doesn't – well, they don't make up any portion of my portfolio.
• 31:05
  I think there's a small portion of –
• 31:07
  Rens portfolio.
• 31:08
  Not bonds.
• 31:08
  You've got some income.
• 31:11
  But I mean, you know, we've got decades of investing ahead of us and we've been through a couple of market cycles.
• 31:17
  And these are just good periods of time to remind yourself that volatility and market crashes are just like the price of admission in investing and have some cash on the side to take advantage when the bubble does pop and prices do subside.
• 31:31
  But like if you look at the history of the stock market over the years,
• 31:34
  the last 100 years and the wall of worry that it's been able to constantly climb, sure, we'll be able to, you know, if a crash does come, it's going to be a bit painful, but over the long term, the stock market always rises.
• 31:48
  I think the other thing is, like, income is less tax efficient than capital gains even under this new regime.
• 31:53
  Like, a 5% bond yield on a US 10-year treasury becomes, what, 3.5% rough-ruff if the government takes a third in tax.
• 32:00
  If you're on the higher marginal tax rate, it becomes closer to 2.5%.
• 32:04
  You compare that to capital gains where, sure, the government's taking more, but if you're holding it for the long term, you will get that inflation benefit and then you only pay tax when you sell.
• 32:17
  So, yeah, I think people are drifting to income, but every model you run still says focus on growth, focus on capital gains, unless you have an income need, like you're getting closer to retirement or you want your investments to fund a part of your lifestyle or whatever.
• 32:33
  We have seen though a rise in, and you've probably seen as well in private credit and these sort of property funds and whatnot saying they can spit out 12, 15%.
• 32:41
  So,
• 32:43
  That's a scary thought, isn't it?
• 32:44
  Yeah, yeah, yeah.
• 32:45
  That's been a bit hairy.
• 32:46
  Yeah, recently there's been a few wobbles with the property market, but yeah.
• 32:50
  Well, just a little group here in Sydney went under, I mean, what, $3 billion worth of debt.
• 32:56
  So yeah, it is pretty concerning.
• 32:57
  Yeah, yeah, yeah.
• 32:59
  And that's been a massive uplift is the private debt into the property space and that has its own concerns.
• 33:06
  But there's a lot of people out there that everyone refers to.
• 33:08
  I think Warren Buff's carrying one third of his portfolio in cash at the moment.
• 33:11
  Is that-
• 33:12
  Is there any- Is it one third?
• 33:14
  It's like $400 billion.
• 33:15
  Yeah.
• 33:15
  The last time he had this much cash in comparison to his wealth was prior to the GFC.
• 33:20
  Yeah.
• 33:21
  Cash stuff because when inflation's so high, it's just burning a hole in your pocket, right?
• 33:26
  So we talk about hedges against inflation, people saying, but now's a good time to be high in cash.
• 33:30
  They're pretty contradictory, right?
• 33:32
  Yeah.
• 33:32
  Where do you sit with that?
• 33:33
  Yeah.
• 33:34
  I think like just in general, the thing that we've learned, like to go back to where we started, like with self-education, it's like it's so noisy and it's particularly noisy now.
• 33:43
  But I reckon if we dropped back at any point in history, it would be noisy.
• 33:48
  Like to use the Warren Buffett example, like Warren Buffett's dad
• 33:52
  only bought gold because he was so worried about the US dollar and inflation.
• 33:57
  And, you know, think about the returns he missed out on at that time.
• 34:00
  Like it was noisy then, it's noisy now.
• 34:03
  Like good long-term investing principles survive the noise.
• 34:07
  Like buy blue chip assets, hold for the long term, invest regularly.
• 34:11
  Like you're going to be okay.
• 34:13
  It's inflation today.
• 34:14
  It was capital gains six months ago.
• 34:16
  There's going to be something six months from now.
• 34:18
  But like,
• 34:19
  Block out the noise.
• 34:21
  And keep listening to our podcast, but block out the noise.
• 34:24
  Because, yeah, like, I don't know.
• 34:26
  There's always a reason not to invest.
• 34:27
  Exactly.
• 34:28
  It was COVID.
• 34:28
  It was in our world.
• 34:29
  It was, you know, in 2017 it was APRA and in 2020 it was COVID.
• 34:33
  The world was probably going to end.
• 34:35
  Then interest rates were going up.
• 34:37
  Then they were going down, which turned out that was a problem somehow.
• 34:40
  Like there's always a reason.
• 34:42
  not to invest and then you're right you just end up not getting exposed to the markets yeah yeah give you better returns and you know sitting there in cash and inflation eating away at it what do they say pessimists sound smart optimists make money i just think that's so true in any form of investing like it is so easy to come on a podcast and and sound smart about like why not you know it's why something's going to go wrong but you invest in spite of that yeah
• 35:07
  We've been calling out on our podcast and probably what we've seen within the industry where it's almost like the death of the mum and dad property investor where they, you know, from what's happened off the post-budget where they're now, you know, struggling to A, you know, from a negative gearing perspective, be able to service a potential loan or B, the opportunities not quite being there.
• 35:28
  We mentioned analytics, I guess, earlier regarding sort of off the back of the budget.
• 35:32
  Are you seeing like a rise in a certain type of persona from an investment standpoint, from shares perspective?
• 35:39
  I wouldn't say like a certain persona.
• 35:42
  I think across our group, we're growing on like our demo is smack bang, sort of 25 through 44 years old.
• 35:50
  That's like 80% of our audience.
• 35:53
  And we're seeing either sides of those growing as well.
• 35:56
  We're seeing...
• 35:58
  the older demographic tuning in a little bit more, but yeah, there hasn't sort of been a significant change, um, that we've sort of seen, um,
• 36:07
  As I said earlier, I think it's just people now are turning to the stock market more out of what else is just going on in their lives.
• 36:13
  Like they do have free cash flow and they can afford to service a loan, but they can't afford to service a $900,000 loan or buy where they want to buy.
• 36:22
  And so it's like there's this feeling of like I can't just put my money in the bank account.
• 36:26
  I want to stay and...
• 36:28
  have my money working for me and get ahead.
• 36:31
  And so the stock market is incredibly accessible.
• 36:34
  And the, I guess the stigma around you now, these days don't need to know a lot because ETFs are a product that 15 years ago didn't exist.
• 36:46
  And so I think we're just seeing more and more young people turning to the stock market as a
• 36:51
  as a true way of building wealth, sort of, I guess, it hasn't been a way of, or the traditional way of building wealth in Australia, which has always been through property.
• 37:01
  We were in an event yesterday and it was interesting.
• 37:03
  One of the first slides from one of the speakers was the private equities market over the last 20 years versus I think it was the Australian markets and private equities ran up 15%, Australian 7.5% circa.
• 37:18
  Talk me through the private equity market and how people can actually get access to it, whether you believe in it, where the sort of pitfalls are.
• 37:25
  Yeah.
• 37:26
  I mean, it's a theme of our conversation today, but the superpower of private equity is leverage.
• 37:31
  Like the reason that they've been able to deliver such good returns.
• 37:35
  Like, don't get me wrong.
• 37:36
  There are some great private equity operators out there and there are some arguments for like...
• 37:40
  whole ownership and alignment of incentives.
• 37:42
  Talk us through what profit equity is.
• 37:44
  Okay.
• 37:44
  Property equity is, right?
• 37:45
  So, private equity groups, they raise a hell of a lot of money and then they go and do a leverage buyout.
• 37:50
  Well, there's like a lot of different models, but like a key one is they'll go into a leverage buyout of a company.
• 37:56
  So...
• 37:57
  Classic example was Toys R Us.
• 37:59
  Private equity group raises a bit of money.
• 38:01
  That's their kind of deposit to buy Toys R Us.
• 38:04
  They borrow the rest of the money and they put it on Toys R Us' balance sheet.
• 38:08
  They make a shitload of money, turning the company around, selling assets and the like.
• 38:14
  Eventually Toys R Us goes bankrupt.
• 38:16
  But the private equity guys made a lot of money.
• 38:20
  So that's like one model.
• 38:21
  There are other models.
• 38:21
  There's like roll ups where they'll borrow money.
• 38:23
  In that scenario there, who made the money if they were bankrupt?
• 38:25
  It doesn't sound like – Yeah, they find ways to make money.
• 38:28
  Don't worry about it.
• 38:29
  Okay.
• 38:30
  The investor gets – Yeah.
• 38:33
  Or like there's roll-ups where they'll borrow money and then, you know, they'll buy one dentist and then they'll buy another dentist and all of a sudden they'll have a chain of 100 dentists.
• 38:41
  They'll like aggregate all the operations, put new software in, efficiencies.
• 38:47
  So there's all these different private equity models.
• 38:48
  But essentially it's like –
• 38:50
  Rather than the public stock market where you're buying minority shares in businesses, they're going out and buying whole businesses and trying to turn them around and do different things to them.
• 39:01
  And it's been an incredible asset class.
• 39:03
  It's done very well.
• 39:04
  It's hard to access.
• 39:05
  Kind of minimum check sizes at private equity is like $50,000 for smaller funds.
• 39:10
  But like the big guys, the guys that you want to be with, it's like the domain of institutional investors.
• 39:15
  It's millions of dollars.
• 39:17
  But how do Pauline and Jeff get access to it?
• 39:21
  They may not be able to.
• 39:22
  How do they know?
• 39:22
  How many times do you get someone called, hey, I've got a good hedge here.
• 39:26
  There's a good startup we should invest in.
• 39:28
  But it's more pub chat than anything.
• 39:30
  I mean, it's really the domain of sophisticated investors.
• 39:33
  The way that you can access it is the big private equity companies are listed on the stock market.
• 39:39
  So like your Apollos or your Blackstones, KKR, some of the names, their shares are actually listed.
• 39:46
  Their shares don't generally do as well as their funds, but that is an option.
• 39:52
  But I guess I would say like there's a lot of different ways to invest.
• 39:55
  Not all of them are as accessible as others, but there's enough that is accessible in like, you know, the share market or, you know, some of the property stuff that you guys talk about.
• 40:04
  I'm sure it's like, yeah, there's always another asset class that someone will try and sell you a dream on, but you just got to be careful about that.
• 40:11
  The fine print, I guess.
• 40:12
  Yeah.
• 40:12
  Boys, before we get you out, quick fire.
• 40:15
  Where's the best opportunities in the share market?
• 40:17
  Oh, look, I'll be sensible and just say nothing beats a well-diversified global low-cost ETF with a bit of moderate gearing that you can hold in the bottom drawer and just add to every time you're paid over 20, 30, 40 years.
• 40:33
  Just take the 10% return and you'll be fine.
• 40:37
  If I was going to take a bit of a punt...
• 40:39
  Yeah, so start with that as your core.
• 40:42
  If you want a few like little satellite punts on the side, I think right now I know everyone's worried about the AI bubble, but whilst it is going, it's worth thinking about where the opportunities are.
• 40:52
  And that doesn't need to be big tech companies.
• 40:54
  That can be like the supply chains and particularly in Australia, the commodity players, they're winning on the back of it.
• 41:01
  Like BHP and Rio are flying on the back of copper, but there's a lot of smaller mining companies that are in Australia
• 41:08
  that have in-demand metals at the moment.
• 41:10
  So if you want to look here in Australia, Australians love mining stocks.
• 41:14
  There's some AI adjacent stocks there.
• 41:16
  We do like a mining stock in WA.
• 41:18
  Bit of a different podcast today.
• 41:19
  So for those that loved it, please like, subscribe, put in the comments if you want to hear more from other investors out there as well.
• 41:27
  But Bryson Wren from Equity Mates, thanks for joining the Follow Property Podcast.
• 41:31
  Thanks, guys.
• 41:31
  Thanks, guys.
• 41:32
  Appreciate it.
• 41:32
  Cheers.