Latest / The Follio Property Podcast / My Exact Plan To Overcome the Negative Gearing/CGT Changes | Post Budget Strategy 2026

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My Exact Plan To Overcome the Negative Gearing/CGT Changes | Post Budget Strategy 2026 · The Follio Property Podcast

• 0:00
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• 0:56
  We'll limit negative gearing for residential property to new builds. Australia's property market remains in flux following the Stateful budget. You may lose 20 to 30% of your serviceability on the back of negative gearing alone. I've been in hibernation, as you know, for the last two weeks going through that policy in detail. Essentially what the government has done is give free marketing to these spruikers. First time investors had dropped 15, 20% and they were probably relying on these negative gearing benefits and maybe not sophisticated enough to look at outside opportunities. ...
• 1:24
  Our first-time investors are going to be the more vulnerable bunch to some of these spruiks out there at the moment, these house and land package spruikers with the outer suburbs. They're one step away from making a huge mistake, and they're more vulnerable now than they've ever been because of what just happened a fortnight ago. Do not get sucked into that trap.
• 1:41
  The gap between the rich and the poor inevitably get greater. And now having done the research, I'm actually excited about the opportunities. There is a far better strategy for you as an investor. Talk to me about what do you think from a strategy standpoint you see being super effective post-budget. So when we...
• 2:00
  You're listening to the Folio Property Podcast, the number one property podcast in Australia. I'm Rhys Bettle and I'm here each week with my co-host Lachlan Delahunty. Lachlan, new intro there. We are the number one property podcast in Australia and we haven't been singing about it. Well, thanks for everyone. We're there because of our listeners, so hopefully we're adding some value to your daily drive. Continue to support us and hopefully we'll stay number one. Absolutely. And make sure you hit subscribe too. We are pumping out a lot of content at the moment because there is a lot going on. So if you don't want to miss anything from us over the next couple of weeks,
• 2:30
  We are pumping out a lot of content, Rhys, and we don't want to overload you. So two episodes a week is our new format. For those that are subscribed, we will have additional content. We're putting in an extra episode a week as of next week, but that's only going to go to our subscribers. So if you do want that content, please hit subscribe and we'll get that out to you specifically.
• 2:49
  Hey guys, quick thing to share. If you're serious about investing in Australian property right now, you need to see what we put together. It's called the National Investment Report, and it's our brand new monthly deep dive into exactly where the market is moving, what the data is saying, and what the smart investors are looking at right now. You can get the first access completely free. Just scan the QR code on the screen right now, or click in the link below to fill out the form.
• 3:13
  All right, let's talk about a few things today, but I think we've spent a busy couple of weeks for the podcast, the industry, you know, mum and dad investors in Australia. But I think we're now at the point where we see the opportunities and we know the opportunities, the strategies we've already been implementing. But I thought everyone's been asking for it in the comments. A lot of people are asking for advice at the moment. But what's been your take over the last couple of weeks, Lachlan?
• 3:36
  It's a line in the sand moment, Rhys. Listening to a lot of commentary, there's a lot of opinions, and there's so much negativity, and I've had enough. I've been in hibernation, as you know, for the last two weeks, going through that policy in detail. Listening to industry experts, I'll never suggest that I have all the answers, so it's always good to understand what other people think, what they fear, and where they see opportunity, accountants, financial planners, people in other countries, in terms of how they've dealt with this. And we've been dealt a hand.
• 4:05
  We can't change it. I wish we had the voice where we could change it, but we can't change it. And now having done the research, I'm actually excited about the opportunity. So I think it has just become far more complicated. There's no doubt about that. But I think the opportunity for more sophisticated investors or those that seek advice,
• 4:23
  has just got significantly greater. I think there's going to be the gap between the rich and the poor will inevitably get greater. And as our job is to inform our listeners and property investors to get on the right side of that equation. So let's dive into it. It's interesting you say that as well from... Because I...
• 4:38
  You didn't even have access to this data. I raised it with you yesterday. But we have this folio sentiment index, which when people download our investment report, they fill in some details with our current clients. We ask them some questions and it helps us understand where the sentiment is from an investor standpoint. And the stats were compelling. And I'll plug to download the investment report because you'll see these stats in the report.
• 5:00
  But experienced investors, their confidence level in terms of a time to buy increased from 42% to 78%. That's in the last week, right? That's post-budget. And that's over 250 people have completed that. So it's a large pool to look at this information. First time investors had dropped 15%, 20%. As you could probably imagine, cash flow is going to be king and they were probably relying on these negative gearing benefits and...
• 5:24
  maybe not sophisticated enough to look at outside opportunities. Mum and dad investors, that's like one to two properties. Not much has changed. So really compelling data there to show that experienced investors are probably, you know, licking their lips in some sense and seeing some good opportunities out there now.
• 5:40
  Everyone wants to buy in the dip. I think this dip is going to be extremely short-lived, but it's making sure the strategy's right for you. And I've had a lot of calls, friends, family, listeners, past clients. I've seen so many different angles to this, and all I can encourage is those that have met with us in the last...
• 6:00
  four weeks, the strategy will likely remain the same because our advisors have been informed on what the best strategies are for particular clients. But for those that haven't met with us or those that are making knee-jerk reactions, I've seen some extremely reactive activity in terms of selling, buying, trying to restructure. And some of the things I'm seeing concerns me, Rhys. So
• 6:23
  Post budget, make sure you catch up, if it's not us, someone that you trust in the industry that can give you informed advice around structuring because again, it's just got a lot more complicated and before you do anything that could be detrimental because when you say structuring, your serviceability has changed significantly. You may lose 20% to 30% of your serviceability on the back of negative gearing alone but there's ways where you can minimize that loss and completely remove it altogether through restructuring.
• 6:52
  It's just understanding all these finite details which are going to make a massive ... If you're talking 30%, if your borrowing capacity is a million dollars, we're talking that we could increase that potentially up to 1.3. That makes it very compelling argument in terms of what you can and can't buy. There's little tweaks across your portfolio. If you have multiple properties, those minor tweaks across the portfolio can have a compounding impact on the makeup of your strategy and portfolio.
• 7:16
  It's interesting. I was having a chat with our head of advisory yesterday afternoon on the drive home just to see how his conversations have been. And he had four portfolio reviews that day and all four, there was some form of restructuring where that in terms of the, you know, from a financial side of things, also some strategic advice on where they can make the moves moving forward. And all four needed that sort of strategy and advice to be able to move forward.
• 7:40
  Yeah, and that's going to become more common. Like I said, one thing about this policy, whether you like it or hate it, it just got more complicated, which is fine if you plan ahead. So that planning, preparation, restructuring, understanding your tax implications, it is the most important thing in your portfolio post-budget.
• 7:59
  So preparation's everything now. So let's have a look. Let's understand your situation. Let's review it in depth. And then we can make a call because what you may have been selling pre-budget, you may look to hold longer term because of the tax benefits that you're going to get grandfathering. But if it's compromised assets, CD, E grade asset, well, then we have to look at the risk versus reward in terms of...
• 8:22
  the tax benefit you get versus the asset quality that you've got in your portfolio. So it's just, like I said, I can't stress enough. It is more complicated, but that's fine. You're just going to need more help, which is unfortunate. Most mum and dad investors for the last 50 years, the best thing about Australia, it's been relatively easy. For the last 30, 40 years in Australia, you can DIY your property portfolio.
• 8:45
  it's just going to become much harder. And not that we're trying to spruik our services necessarily, it's really around, yes, a property specialist is probably the first place to start, but it's also your accountant, your investment broker, your team around you is so important just to get everything right. But let's talk about some strategies, Rhys. Obviously, the game has changed and therefore the strategy has changed. And this is, again, there's no more negativity.
• 9:12
  These are the cards we've been dealt and we're going to play the hand. And I do think that the upside on some of the opportunities that having digested this information, researched it, I think the opportunity is bigger than it's ever been.
• 9:25
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• 10:25
  Talk to me about what do you think from a strategy standpoint you see being super effective post-budget? So when we break down, obviously, we've got different segments of clients that we meet with. But when you look at the investors we meet with, resale clients, we've got about 14 different segments of clients that we typically meet with. That could be business owners, first-time investors, rent investors, mum and dad investors, very sophisticated, high net worth portfolio builders, those with extremely established portfolios, 100, 200 mil.
• 10:54
  So there's a variety and each particular client has a different strategy. But let's break it down for simplicity down to sort of three key phases. Your first time investor, your rent investor, phase one. Your mum and dad investor, phase two. And your more sophisticated investor, phase three. So the three different strategies, we're going to discuss those in sort of more detail today.
• 11:13
  Okay, let's kickstart it with a first-time investor strategy or there's going to be a few different but the main opportunity we're seeing in the market. Talk to me through that one. So cash flow is king. The government have made it harder for this demographic. That's been publicly scrutinized but the reality is we have to deal with the reality that you don't get the negative gearing benefit and it's going to hurt your serviceability. So it's harder for these first-time investors. Your rent-vestor strategy is
• 11:38
  to A, get into the market, but to cash flow the assets. If you're only on 70, 80, 90K a year, you can't take a cash burn. So how do we get assets, stepping stone assets, to get you into better quality assets, being larger assets,
• 11:53
  homes or more established homes, we are looking at sort of wholesale units. And this is where they're going to be positively geared. And entry point is anywhere from sort of $300,000 up to $600,000, whereby replacement cost is significantly higher than the value you're buying the unit for. And the cash flow is positive, net positive from day one.
• 12:18
  Talk to me through, you're saying wholesale here. What do you mean by wholesale? Wholesale is when you buy an established block of units. So for instance, us as a group at Folio, we'll go and buy in one line, meaning we buy the entire complex, 10 units, at a discount to what those units would sell for individually. We buy, we've just bought one recently in Melbourne, Rees, whereby we bought a complex of $3 million, had 10 units in that complex and we bought a complex of $3 million.
• 12:45
  but the retail value of those individual units, so the wholesale value there, if you break that down, easy math, $3 million divided by 10, it's $300,000 per unit. We were able to skewer them for individual clients in our business. So the retail value of those units are $370 or $380. So there's a dramatic discount we're getting by buying the entire complex. If our individual clients were then to take it back to market, they would likely expect that
• 13:12
  $370 or $380 for those particular assets. And the upside is they're renting for $450 a week, so they're positively geared from day one. And the replacement cost on those is $450 to $500. So what I mean by replacement cost...
• 13:28
  If someone was going to knock that building down and build exactly what was there, the cost on that in today's terms is likely closer to $500,000. You're not building a complex of that size and scenario under $3 million less land value, which is $2 million.
• 13:44
  So it's the replacement cost on those units are in fact $500,000. So we're able to secure it at $300,000. So there's $200,000 perceived uplift in terms of what we've purchased it for versus what it would cost to replace that asset. So that's really important. And that's where we see the opportunity in that entry level asset for our property.
• 14:05
  Rentvestors, our first-time investors, and certainly, you know, we both bought one each in that particular complex, Rhys. If we see good upside, there's certainly a place for that in more sophisticated portfolios. Are first-time investors going to be the more vulnerable bunch to some of these investors?
• 14:22
  spruiks out there at the moment. You know, we've spoken on the podcast about some of these house and land package specialists in the outer suburbs going to be really targeting these types of clients. The shared accommodation, your dual turnkey, what's your opinion on those types of assets? Do you like, you've historically said these are high risk assets and speculative. Is that still the case post-budget?
• 14:42
  Definitely the most vulnerable cohort are these type of investors. Essentially, what the government has done is give free marketing to these spruikers and be really careful, Rhys. So twofold when I talk about these house and land package areas. The first is replacement cost. A lot of these house and land packages are above replacement cost of what established stock is selling for in the area. So that's the first thing to look out for. And what I mean by that, they'll be spruiking in places like Melton, Melton East, the Wild West of Victoria is a really good example.
• 15:12
  where they'll be spruiking these things that we can get 7% returns in terms of your rental yield and your entry point is going to be $650,000. You're going to get depreciation benefits, you're going to get negative gearing benefits and you're going to get capital gains benefits. Problem there, if it's positively geared, well, you don't get any negative gearing. You'll be paying tax because it's positively geared.
• 15:32
  Secondly, that property in Melton East that you're packaging up for $650,000, established product that's two or three-year-old is selling in the 500s, 500 meters to a K away. So you are paying a premium above what it costs to replace that asset. So that's another big no. And then the third piece is you don't have an end buyer for that asset because albeit you get the capital gain benefit.
• 15:58
  The next buyer does not. So who are you going to sell it to? Because no one typically wants to live as an own occupier in a ghetto that's 90% occupied by renters. They don't take care of the properties, the street appeal, that's where you go out there and there's cars, you know.
• 16:16
  bricks under the tires and we know the story. So do not get sucked into that trap. There is a far better strategy for you as an investor through buying assets well under replacement cost where there is high yield in A-grade blue chip localities and that's key. You don't ever compromise on location and the strategy we're discussing, Rhys, this wholesale unit strategy protects the client
• 16:40
  and they're buying in locations where we'd both want to live and where rents are going to rise dramatically because the number of investment properties in that area is going to be withdrawn because established properties are going to become difficult for people to buy and land bank. So rents in these areas are going to rise, and we forecast that house prices will continue to rise at a point at or above replacement costs. That's what history tells us. When a market goes through a
• 17:06
  Typically, it will start significantly under replacement cost, then it will rise well above replacement cost, and then it will go through a resetting event. So areas where we can buy well under replacement costs, often a couple hundred thousand dollars under replacement cost, become really good assets, particularly when there's strong cash flow.
• 17:24
  And this is the really important message because the last two weeks, my inbox has blown up from Melbourne developers pitching all these areas. And we actually 12, 15 months ago went out and did a tour just to see what these areas were like and do some of the analysis when we were looking at the replacement costs. And
• 17:40
  you know, we were firm with our decision on why we wouldn't touch these areas, but my inbox has been blown up. So I imagine I've had a mortgage broker reach out to me two days ago as well and showing me emails from clients that are trying to get into these packages in these outer suburbs as well. So I'd
• 17:58
  They're going to sound fantastic. They're going to look way too good to be true. These guys are fantastic salespeople. That's what they are. And, you know, they look super appealing on face value. We're talking 7%, 8% returns on yield. We're talking double-digit growth forecasting. We're talking all lies, smokes and mirrors. There's no infrastructure. They'll spruik that. The government is spending hundreds of thousands of dollars. Victorian government doesn't have a lot of money, so they won't be doing that.
• 18:24
  They're talking false returns. Yeah, you're going to get an 8% return on your rental, not when there's 90% of that entire suburb is also competing to attract renters because they're all investment properties. So it's just anything that looks too good to be true, likely is. So just don't look through rose-colored glasses. Get advice outside the spruik of themselves.
• 18:45
  They're going to corner you. They're going to get you to make a really quick decision and try to tie you down in a build that's going to take two and a half years in an area that you do not want to be investing in. All right, let's go on to the next cohort of investors, which is the mum and dad investor. So we're talking anywhere from one investment property to probably two is the norm when you look at the stats that we see out there from the investor stats. What's the best play for them right now?
• 19:09
  Are they the typical client you'd say have a review because their structuring is probably they haven't had a sophisticated team around them up until this point. So maybe they have assets that are positively geared that could be negatively geared. What's your biggest advice for a mum and dad invested generally? I think these particular clients, Rhys, need the most amount of advice right now because their next decision is really important. How they structure it, how they restructure it, what they hold, what they sell, what they buy.
• 19:36
  It's they're one step away from making a huge mistake and they're more vulnerable now than they've ever been because of what just happened a fortnight ago. So the strategy has changed and it's become, again, I don't want to get referring to it, it's more complicated. So what we're looking at for these particular clients is what we've done for selective clients in the past.
• 19:56
  is around development. And the reason we haven't done it at scale is because it is more complicated. And like in any development, you do take on increased inherent risk, but then you get disproportional amount of returns because of that risk. Okay, Lachlan, you've been speaking about this syndication method. What's some of the key reasons why and why these numbers work for an investor?
• 20:19
  The old strategy of this race was to sit and hold. The cash burn significant because these type of assets are predominantly land value. So the rent's only $450 a week. So the cash burn, unfortunately, post-budget would be close to $30,000 of which I was getting half of that back pre-budget. Now I don't. So holding this asset for $30,000 a year becomes unfavorable because it's going to smash my service ability and puts a lot of pressure on the capital growth.
• 20:43
  But look at the numbers. We bought it for $1 million, assuming 7.5% compounding growth. We would sell that particular asset for around $1.7 million, bought for $1 million, holding cost close to $30,000 a year. Over that seven years, gross profit of $650,000, of which the government will almost take half of that. What am I left with? $350,000, less the holding cost of $200,000. My net outcome,
• 21:11
  $150,000 return, which isn't that attractive for the risk of holding that asset over seven years with that level of cash burn, which is killing my serviceability. Compare that to the development approach, syndicated development. We buy the same property for a million dollars at $650,000 per townhouse to build. We're collectively in it for 3.2, which is about $1,080,000 per person.
• 21:36
  So again, at 80% debt, our contribution hasn't changed. It's still $200,000 a contribution. Our sales outcome looks very different. So on those particular assets, we're selling the front for 1.55, the middle for 1.4, and the rear for 1.45. So our net return, individual return on that asset is close to $400,000.
• 21:59
  Now, that's on completion. That's day one for participating in development. Then we get the 7.5% capital growth, which gives us close to a $650,000 return, similar to the previous scenario. But here's the kicker, Reese. In comparison to our historical strategy, our net profit on this after tax is paid is $500,000 compared to $350,000 under the old strategy.
• 22:23
  which is a $350,000 difference in terms of my after-tax outcome. But during that holding period, when you factor in increased rent because it's a newer property, $1,000 a week conservatively, and depreciation, $17,500 a year,
• 22:38
  my annual cash flow on that's close to $25,000 in the green. So what's the difference? There's a $55,000 difference in holding income year on year between the two strategies, which absolutely helps serviceability. And there's a $350,000 after tax benefit by developing newer property without compromising on location. The location fundamentals haven't changed, but the strategy has.
• 23:04
  Okay, some really high-level data points there and some big savings or big cash savings, I guess, on the new strategy as opposed to the old. What's some of the biggest risks with implementing a strategy like this?
• 23:18
  You are, like I said before, if you're locked in for the first 12 months until you get titles. So if you have big plans or things may change in that 12 months, you know, in the old scenario, you could always just sell the property. Here you sort of wet it because you've got, you know, 33% of a larger site race. So your money's going to be tied up for 12 months until titles are issued. But then you've got, you own an individual asset, you've got your own individual title, and you can leverage against that. You can build on that. You can sell that.
• 23:44
  So that's your risk and development risk, right? You're not getting the income for that 12-month period. But the income that you receive once it's completed certainly well and truly covers that period of little to no income. But you're going to have little to no debt during that total period anyway. And obviously, when you do start to build, your debt is progress payment. So you're not paying the full amount of debt from day one.
• 24:07
  You mentioned that the core fundamentals should stay the same, right? Because you can see this being a very popular strategy amongst other developers out there, but they might be pushing stock in compromised areas. What's some of the key things people should be looking at if they are to implement a strategy like this?
• 24:23
  What I like about it is your core strategy of blue chip locations hasn't changed. And it's only further magnified because there's not going to be a lot of investment properties in the area now post-budget because then government doesn't incentivize people to go and hold and land bank assets. So rents are going to skyrocket for these type of assets because there's going to be very few rental properties in these particular blue chip own occupied suburbs.
• 24:45
  So that's a huge tick. You're participating in supply, which the government likes. So your tax benefits are going to be encouraged and supported. But most importantly, why I like this strategy is your cash flow. You're in positive territory, not because it's nice to get money in the pocket each year.
• 25:01
  this is a game of serviceability we speak about on the podcast. Property is a debt game. Banks are going to love an extra $30,000 in your pocket each year. This will allow you not just to expand your portfolio to one or two or three, where most people get sort of hamstrung. This will allow you to build a much larger portfolio under this model.
• 25:20
  Yeah. And then this is, you know, the people you see taking advantage of a syndicate like this, it's the mum and dad investors that maybe have a couple of properties and they're in a good position probably for some uplift on those and want to keep going. This allows you, like you said, you've got the cash flow there, got the tax benefits, you've got the uplift as well.
• 25:37
  Exactly. And you may not have the budget or the risk appetite to do the entire development yourself. That's when we go into the more sophisticated investor. And that's the third call that we'll talk about. But those mum and dads that don't have the expertise, or even if they've got the expertise, may not have the horsepower in terms of serviceability or capital. And do you want to put all your eggs in one basket?
• 25:58
  No, we wouldn't encourage that. Again, diversification is still important. This is where you can participate in development uplift without being fully exposed to it across your portfolio. Let's kick on that one then. Let's talk about the sophisticated investors. Has the goalpost changed for them post-budget or is the strategy relatively the same post-budget to what it was pre-budget?
• 26:19
  Very similar, but we need to understand their portfolio in depth because anything pre-budget they had in their portfolio, what they hold, keep and sell becomes really, really important because not only do we just look at asset location and asset quality, we have to look at the tax implications of selling that property. So it's just another important point to consider in these portfolios.
• 26:40
  where we are looking now for more sophisticated. And again, these are things that we have done in the past and been huge parts of our client's portfolio. We just haven't spoken about it on mainstream channels like this because it is more complicated. But for sophisticated investors, it's buying wholesale unit blocks and rather participating in individual units by the entire complex at a discount. So that particular example for $3 million is
• 27:04
  It's worth arguably retail rate on that's worth four to four and a half. They can buy it for $3 million and participate in that upside whilst getting really strong cash flow. And likewise with the syndication development, they can buy the entire development site and complete that development themselves without participating with other investors.
• 27:23
  So that's really two avenues where I see sophisticated investors going to. And then beyond that, it's really looking at commercial as a third option for cash flow. But again, commercial is often passive, sit and hold. I think there's better use of capital in being more active in some of these strategies than just sitting, holding and hoping because the government have shown their hand. They're not going to reward that. And the market typically favors more active strategies where people will take on a little bit more risk.
• 27:50
  But again, they get disproportionate returns in that risk.
• 27:54
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  Upfront payment of $45 for three months, $90 for six months or $180 for 12 month plan required, $15 per month equivalent, taxes and fees extra. Initial plan term only greater than 50 gigabytes may slow when network is busy. See terms. So from a first time investor standpoint, it seems it's all about yield, probably more important than ever. The question I would say on that though, just to go back a stage, how important is it to look at the core fundamentals, right? Like are people just going to be out here yield chasing, but actually when you're looking at the long-term companion growth rates of those assets, there's far better options out there.
• 29:12
  Yeah, I'd rather people protect their money and arguably do nothing than go into compromised locations because being behind the eight ball in terms of being in negative equity is far worse and takes so much longer to get out of that. I've been there personally than having neutral equity or no equity.
• 29:27
  Right. So that's really important. You do not want to go backwards to try and go forwards. You're better off doing nothing. So if you are going to go into a compromised location, second guess, maybe sit on your cash, put in the bank and live off the interest until you're more educated or find a strategy that's better suited to you.
• 29:45
  Okay, so first-time investors, cash flow is king. Mum and dad investors starting to look at ways to firstly restructure your portfolio, do a review of a portfolio to see how it is structured. Syndication development is one way. Also active investments through renovations, reconfigurations forms part of that active strategy.
• 30:05
  And then the last one that we talked on, sophisticated investors, Gold Post hasn't changed too much from their perspective. It's still going down maybe some of these wholesale deals that you mentioned and also on some of the larger dev sites going in on their own. Yep. The one topic we haven't spoken about, and we'll save this for when we have Nathan Hood on the podcast in a couple of weeks, is SMSFs. That's a big one that hasn't been touched on the budget.
• 30:29
  We do see a lot of these clients come through our doors pre-budget and I'd imagine that's going to increase post-budget as well. So we're going to have Nathan Horton in a couple of weeks to really go chew the fat on the SMSFs. All right, that was a big episode. I'm sure there's going to be a shed load of questions, but I think it's been important to talk about some of these strategies. We'll go into more depth in later weeks with some of these specific strategies, maybe even do an episode solely on yield and maybe an episode solely on some of these syndicate models.
• 30:57
  If you want that example that Lachlan said, make sure you hit the show notes. We'll have the link in there. For those that were listening on the audio as well, probably a good time to say go back and re-watch it on video if you've got a chance because we'll have up the graphs when Lachlan was talking through that example there. But yeah, I'm looking forward to having Nathan Horton in a couple of weeks to go through the SMSFs as well. You've been listening to Folio Property Podcast.