Latest / The Follio Property Podcast / The Best Tax Strategy For Property Investment | ft. Nathan Hood

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The Best Tax Strategy For Property Investment | ft. Nathan Hood · The Follio Property Podcast

• 0:00
  What's your advice for first-time investors, property investors? Investment strategy is a lot easier because there's no emotion. I'm like, 40 grand. How old were you? I was 24. And then what happened? I was like, I'm the smartest guy alive. Where do you see property in comparison to those other markets like shares, equities? I've bought quite a few properties through Lockheed. Most of those I never even saw. Correct, which concerns me at times. A lot of trust in me.
• 0:23
  Best purchase you made? Best purchase. Biggest mistake? Oh, jeez. Time in the market is more important than timing the market. Do you call bullshit? Bullshit.
• 0:35
  You're listening to the Folio Property Podcast. I'm Rhys Beddell. I'm here each week with my co-host, Lachlan Delahunty, to unpack property strategy and the steps to scale up your portfolio. If you're enjoying the podcast, do us a favor, hit like, hit subscribe, and leave a comment so we can help grow the channel, get more amazing guests like the man sitting next to us today, back for round two.
• 0:59
  Won't give him a big wrap up like we did last time. I think we'll just keep it. Nathan Hood from Carbon Group. Welcome back, Nathan. Thank you. Good to be back. My name's Hider Mann. The audience loved it. So we had to get you back. It's a great feeling. Everyone loves tax. Well, Locker did say on the end of the last episode, I had to keep cutting him off because I think he could have kept going and going and going. And we did want to get you back again because we wanted to actually talk more on your personal story.
• 1:22
  referencing that, but also from mistakes that maybe you've made on the journey from a tax perspective would be quite interesting too. Well, that's it. I think our job here is to see how we can build out portfolios and there is more than one way. We're very clear about that. So it'd be interesting to see your journey where it started through the lens of an accountant, how that's led your property making decision. Yeah, nice. Where's the start? What was your first property? My first property. So my first property was my main residence. It was in Maringaroo.
• 1:54
  Didn't really have enough for a deposit, which meant that I was definitely willing to have a punt. And it was the tail end of the 2007 boom. So I bought it in 06. I remember buying it. First property I walked into, I'm like, I like this property, I'm gonna buy it. People are like, don't buy the first property you go into. Went to four more, went that first one was way better. Bought that, by the time it settled, I think it had gone up maybe 10%. The agents like, I could put it back on the market. I'm like, 40 grand.
• 2:22
  How old were you? I was 24. 24, yeah. 40 grand when you're 24. That's a lot of pub money. And that was the peak period of the boom in Perth, right? So by the time 28 came along, I'm sure it would have been much more than 40 grand. Yeah, so I bought in March 06 and then I bought into my first business in December that year and we had it revalued and it went from 290 to 380.
• 2:51
  in that little window. I was like, I'm the smartest guy alive. Yeah. And then I think it didn't move. I am a pro investor in a rising market. Everyone's an investor. You go to the barbershop and he's like, you've got to invest in Mangaroo. Yep. Yep. And then what happened?
• 3:05
  And then it didn't move for the next 15 years. And that's, I think that's important, right? Because in a rising market, which we're experiencing at the moment, locally in Perth, but also clients in Queensland and Adelaide, they've all gone through, you know, micro booms, I'd say. Everyone, and you'd say you're in the accounting world, right? All your clients. It's funny that the sentiment of people's confidence in just being so definite on property advice.
• 3:32
  Yeah, everyone becomes a genius very quickly when things are good. And it's interesting watching. So as an accountant, we talk about property a lot in how it fits with different clients, whether it's commercial for their business or investment or their own residence. And when the market's been soft for quite a while, everyone becomes very anti-property.
• 3:54
  And then after maybe two or so years of positive times, everyone's back in again. And they're all up and about. The opposite to, you know, the great big greedy when others are fearful and fearful when others are greedy. It's the opposite. It's a herd mentality. Correct. They just feel like it'll keep going up forever and they rush to make purchases. And we definitely saw that in 2007. Do you think we're in that in 2026? The sentiment has definitely changed.
• 4:22
  People are... Going into 26, we're in 25. I've skipped a year there. Financial is. Yes. Everybody is pro-property. There's a lot more discussion around how do I get into my next property and so it's a lot more enjoyable. How far we're into this is hard. It's very difficult to see the market softening with housing shortages and with the number of properties on the market.
• 4:42
  but all good things come to an end. It's just a matter of when and being able to make sure you don't overcommit towards that tail end and to make sure you don't overstretch your personal
• 4:54
  situation, because if prices stabilise and start to come back, but you're comfortable, then nothing really changes. It's just a headline figure really, but it's how does it complement the rest of your strategy. And so after that first property, you know, for those at home, you're not just an accountant, you're an avid investor, not just in property, but other asset classes as well.
• 5:15
  Where does property sit for you? Where's that journey taking you? And where do you see property in comparison to those other markets like shares, equities, those sorts of things? Business, investing in business, crypto? So I invest in- There's nothing that you don't touch, Nate, so it's a really good conversation. I try to touch a little bit of all investments, but everything's got to have a purpose.
• 5:34
  So we're in this to make money. And typical, the headline figure being the value is really just a headline figure. We're really in it to know how is this going to contribute to the income that I'm able to generate as a passive return at whatever point in time that is for us. So at the beginning of your journey,
• 5:57
  most of your incomes from working, whether that's wages or whether that's business. And over time, you wanna transition that to the investments generating that same level of income that you want. And so whether that's property, whether that's shares, they all deliver some sort of income. And then you've got your side investments, whether it's speculative shares or crypto, they're there to just get capital value so that you can take that capital value and inject it into something that's gonna give you a yield.
• 6:25
  So then, and this is important, because when we talk about portfolios, we talk about the life cycle and typically everyone has a different story how they got into property. Yours was, I just want to buy a property, walked in the first one and said, I want to buy it. I'm sure you didn't have a retirement strategy at 24. No. But with all the clients, and you've seen thousands of clients over the years, what's the common trends? Is it trying to get to that goal of retirement where property is generating me a yield?
• 6:50
  Yeah, so I view it all as two separate lines. So I've got my personal line, so the quality of living that I want. So that's my personal place of residence. It's a bucket where that becomes very emotional and that's what you want to live. That's where I want to be. It's ticking the boxes for where I am in life and I always want to be improving that. So I've got an end goal in mind that I want to eventually get to and how does this give me the building blocks to get to the next one? So my own story, the first property,
• 7:19
  Gave me the foundations to then go shopping for the next. I like to have my next house already purchased years before I'm ready to live there. Landlocking the location? Landlocking the location. Spoke about that in a previous episode, actually, yeah. Also knowing where I'm running towards. It gives me the energy and the fuel to run super hard in business because I know it's getting me to a location that I'm not yet living in, but it exists. It's real. I know the house. I've been through the house. I've been through the house.
• 7:49
  I know as soon as I can sell the current property and owe a certain amount of money that I'm comfortable with having as non-deductible debt, I can then trigger that and move in. So that gives me the energy that I need. That's interesting. So you actually purchase it prior to moving in. And I have seen this done where it sort of…
• 8:08
  you'll upgrade, but you'll rent it out for the first time. Rent it out, get whatever tax benefits I can, and we touched on this. Because if it's an upgrade of property, therefore the rent's going to be significantly higher, but also probably the negative gearing's going to be great. So you're going to get all those benefits, but you're not going to give yourself the self-gratification of moving into that dream home, even though you've bought it, so you're paying today's prices, not two years' prices, until you feel comfortable and that's... Yeah, correct. So I don't want to buy something that I can afford today.
• 8:36
  because I'm only gonna be upset with that tomorrow when I could afford slightly higher. So this gives me the ability to stretch a few years into the future what I can't afford yet, but I can with the benefits that come with the negative gearing and the rental income. And then I get to wait for the market to lift on my property
• 8:53
  to our transact on that, use those proceeds to pay down the one that I'm moving into, and then I can use those proceeds to go shopping for my next family home. So that's been my family home strategy. So you stretch yourself, stretch yourself hard, and then rent it out, get all the benefits, depreciation, negative gearing, and the motivation that I want to live there, but I'm going to have to run out of business in life.
• 9:19
  to get myself an opportunity to be able to afford that. So then the debt, when you do move in, is more comfortable. Is more comfortable. It's not at potentially 105% LVR, might not be at 90% LVR. Where do we feel comfortable? Yeah, so I've always kind of used about a 500,000 figure.
• 9:34
  So if I've got less than $500,000 as non-deductible debt, that's something I can maintain fairly comfortably and I want to transition more of my debt to investments so that you do get the deductions. Okay, so the house is upgrading and probably significantly in terms of value, but your debt figure on that home- Stays to stay. Stays to stay. Interesting. And how did you come up with your strategy?
• 9:56
  It's interesting. I've never really heard someone talk about that as a consistent strategy for land banking, kind of giving that motivation to get into that principal place. You've obviously, you know, avid investor, you've obviously been buying investment properties through that transition as well. How do you, do you set yourself a goal or a timeline? How's that difference between your personal strategy now and your investment strategy?
• 10:17
  So they don't overlap. So the house was always the house. The primary residence is worth its weight in gold by being able to transact tax-free on some of these assets is really important and part of the journey. And the investment strategy is a lot easier because there's no emotion. I mean, accounted by trade, everything's numbers on a page. I've bought quite a few properties through Lockie. Most of those I never even saw. Correct, which concern me at times. A lot of trust in me.
• 10:47
  He walked around with his camera. I saw him a few times in the mirror. I was like, this looks real. But the numbers just need to stack up. So I'm not living there. Anything I feel about the property is biased to myself. It doesn't change the fact that Lockie thinks it's an attractive property from a capital uplift or a rental uplift.
• 11:05
  I'm only going to bring different sets of emotions to that that aren't relevant to that transaction. So if you've got somebody that can help, that's what investments are for. Like, oh, I love the share market, but I have people that specialize in this that I bounce ideas around. So I'll come up with a strategy. These are what I'm thinking for these reasons and get their opinion as to why I'm right or wrong.
• 11:25
  And then I get to make the decision, okay, well, yes, that's confirmed that these seven of the 10 are good purchases. Do I still want to do the other three? One, I want to because I've got a soft spot for that asset and the other two I won't because I missed something obvious that's obvious for them because they get to specialise in it. Yeah, key words there, I guess, is you just separate the emotion from the investment. And this is where, like, if you convert your home,
• 11:51
  that you've done all the bits of love to. So you've put the nice light fittings in and you've made the gardens all nice. And then you turn it into a rental property, all those things go away. The things that the next person that's buying it as their home is going to pay a premium for gets lost during that rental window. And the longer it is a rental, the more you can walk into a property and say, this is an ex-rental. Yeah, exactly. And that emotional appeal, which drives the values, becomes a little bit dormant.
• 12:17
  So I typically use that window and historically it's been about three years where I've held the property. I use that time to do all those bits, the little renovations, the extra bits of kind of love to the property that are going to either attract the husband or the wife. So you know, the typical rule of thumb, the husband likes the places that he put his toys in, the garage, the shed, the man cave, the wife likes different areas, the kitchen, the
• 12:42
  So you make all them kind of look the part and you attract the family groups that are willing to pay a premium for something that they emotionally connect to. And then by getting that premium, that gets me closer to moving into my next house by trying to maintain that kind of 500 grand cap. It's always been my...
• 13:01
  We talk about that. I often meet with clients and we refer to debt to income because that's really the ratio that the bank works off, right? They will lend you somewhere between five and six of the debt to your current income, right? And that income includes some of the tax benefits we spoke about in our previous episode. It talks about the rental income that we're going to get from the property. So it encapsulates all the income. And something that I guide my clients on is trying to cap your debt on your home and about
• 13:30
  two and a half times your debt to income, maybe three, because then it gives you that two and a half to three to work in your investment space. What do you sort of make of that? Oh, I typically work around a fixed number.
• 13:44
  So, again- Because the bank's only going to give you X amount of dollars, right? Particularly if you pay YG. Correct. So you're going to be limited as to the amount of debt that you can borrow, but I'm very pro-debt. I think debt in modern society is almost a must. So unless you can establish a comfortable relationship with debt- And this is coming from an accountant.
• 14:04
  I'm typically anti-debt in my industry. Everything's pay down the home and be cash flow positive. But I just don't think the way society works now allows you to get ahead unless you have an appetite for debt. Now obviously you've got to cap that debt at an amount that makes you feel uncomfortable because if you aren't comfortable with your debt levels then that affects performance and other things.
• 14:28
  But you start the need to educate and the way to get comfortable with things is being knowledgeable, right? So you get comfort by listening to podcasts or reading books. But I think you're right. I always, you know, conversation with clients, you need to get comfortable with debt as soon as you can if you want to get ahead because you're a time of goals. You're a long way from where you want to be. The only way to get there is taking on more debt.
• 14:51
  And correct. So the only important part to that is being very strategic as to how to transfer debt from a non-deductible environment, being the debt on your primary residence, to being in a deductible environment. Because a million dollars worth of debt at, let's say, a 7% interest figure is $70,000 worth of interest that you're paying every year.
• 15:14
  If you have that in a deductible environment and you're at the highest marginal rate, you're getting back nearly $35,000 of that $70,000 to help you service the rest of the loan. Whereas if that's for your primary residence and it's non-deductible, you don't get any of that back. So if you're only on $150,000, let's say, and you'll take home from that to maybe $115,000, if $70,000 of that's going in interest that you don't get to claim back,
• 15:39
  It makes it very difficult for you to do anything more. You're really just becoming a slave to your mortgage in that scenario. And you're never paying any principal off because you're just scraping the interest. And that's why keeping your debt lower on your primary place of residence like you've done in the past where it's almost delayed gratification where you're buying it.
• 16:00
  your future primary place of residence in advance, knowing that you're gonna get the deductible debt on it because it's an investment property, then it sort of allows you to get ahead in your personal world while you're still getting tax benefits before you're moving into it. It makes a lot of sense. So if it is that million dollars that I would have otherwise had additional in my non-deductible debt,
• 16:23
  effectively that's an additional $35,000 a year, ignoring the extra rental income, et cetera, that I can push down on the loan to help bridge that gap to get it closer to the $500,000 I want. And if you've already locked the place away emotionally, you already own it, and that is your house. You're just not actively living there. So knowing that you've got all those bases covered, you can put in another year or two in the house that you're in because it's real. It's right there. It's not something that might get away from you by the time you go to buy it in the future.
• 16:53
  It's a really good strategy. Two keys out of there was be comfortable with debt and delayed gratification, buying something that you reward yourself with later. Yeah, it's a really interesting strategy. I've not come across that, so it's been good to hear. What about, I want to go back to your first purchase. So you mentioned...
• 17:11
  you had those highs the first couple of years where the market did a lot of the heavy lifting, but then you had the stagnation period. What did you do during that period? Did you- And what did you see clients do? Yeah. Did you buy other properties or is that when you started to look at some of those other asset classes that you mentioned that you- Or other states. Yeah. I was probably a little bit more naive in the property world back then. I-
• 17:35
  Being quite young, I treated that as a learning window. So what is the market doing? What can I learn from this? At the time, Sydney and Melbourne were very cheap. I wish I poured everything into those markets. But I definitely learnt the difference between states. So not all property is the same within one state, but definitely cross borders.
• 17:58
  markets can be very different. So Perth can go through a boom related to mining, whereas the financial markets of Melbourne and Sydney could be in a flat period. So opening your eyes...