Using A Mortgage Payment Calculator To Budget With David Fleming

David Fleming is a mortgage broker and property investment financial expert as well as co-founder of Equity Resource Proprietary Limited. He has been in the property investment industry for over 20 years. With that wealth of knowledge behind him, he helps his clients implement strategies that can save them money within their budget to pay off their mortgage faster. 

Join us as we delve into David Fleming’s background and his upbringing in New Zealand, what his time spent in the United States was like, how he got his start in the property investing industry, how he is able to help his clients with their budget, a story about a situation that nearly ended in disaster, and much more in this episode of Property Investory!

If you sat down and figured out what you end up with out of your gross pay, I think most people will be very disturbed after they see what they give the government and what they give to the banks. -David Fleming

David Fleming has been in the financial side of property investing for over 20 years and he shares with us what his day to day activities encompasses.       

I’ve been in the mortgage and property investment financial services industry for around 22 years. I originally started working for a couple of companies and I just wasn’t terribly happy with the way they went about finding the properties, the value of the properties and how they treated their clients. I was at a mature age at that point, I was in my fifties and really didn’t want to start my own business. I was just happy working for another company and letting them do all the back room work for me. However, I couldn’t find somebody that I was satisfied with. So I then branched out and started our own company, which was called Equity Resource PTY LTD. Over the years since the year 2000 we’ve had hundreds of clients who have happily come through us to get their mortgages set up or to actually purchase investment properties.        

We learn about how his company helps clients when it comes to investing.       

On any given day, we talk to existing customers to find out how they’ve been treated by the lender that we’ve referred them to or if they have any ongoing or future needs that we may need to sit down and have a discussion about to be able to help them out with that. Also we talk to people about investing properties because we find in today’s Australia people are paying too much tax and they’re paying too much money to the banks. And what we try to do is set up a strategy that’s going to help them pay off their mortgages faster. And also a strategy whereby they can acquire investment property or properties for the future retirement will that enables them to reduce the taxes that they pay to the Australian Government. Now when you look at today’s mortgages, banks have got them all set up that favours themselves.  

In other words, if you take out a 30 year mortgage, it takes you approximately 11-14 years to get to what is called the halfway mark if you make the minimum contractual payments. What I mean by the halfway mark is half the payment goes to you, half the payment goes to the bank. Prior to that, the mortgage payment is front end loaded in the bank’s favour. So you are paying approximately over the first 11-14 years, 75% of that monetary payments going into bank. The issue with that is on average, and we’re not saying anybody specific, but on the average throughout Australia, Australians refinance their mortgage every 5-7 years. Well, if you sit down and think about that for a moment, you’ll know that the banks are getting a huge amount of money out of the mortgagor and that’s you, the person who has taken out the mortgage and over the years you may have three, four different mortgages. 

You might up-size, you might upgrade, you might refinance your renovations and start that mortgage over and over again. So therefore people are on that constant slippery slope of having the mortgage in the way of them progressing through to some kind of wealth creation or wealth accumulation throughout their lifetime. That’s why 63% of Australians end up on government assistance when they retire, which is a pretty sad story. Simply because they’re on that slippery slope all their life trying to satisfy the lender or the bank and paying off the mortgage. So we look to help them set up a strategy to pay that mortgage off faster. And the way you want to do that is by purchasing an investment property. But the investment property needs to be properly structured. In Australia today, over 80% of people who buy investment properties only buy one investment property, even though their initial goal was to get three, four, five, six put together by the time they retire, they never get past that first one. And that’s usually because they don’t understand how to structure a proper effective investment property structure to help them pay off their mortgage if it’s a home mortgage. Also how to reduce the liability or commitment they have on their investment properties so they create more equity, which enables them to step into the second and eventually the third and fourth investment property.         

Fleming talks about how to create more equity for clients and how that inspired him to start this company many years ago.      

You can create a foundation of equity for yourself. Yes, you will get capital growth, investment properties or buying properties is all about time in, not timing. So the longer you hold onto that property, the more chances you have of getting capital growth. Then why just wait around for capital growth because sometimes the property market can be quite a static or intermittent in regards to getting capital growth. But we look for high performance, high economic development areas with low vacancy rates that push the values of properties up, but they also get good rental yield. So at the moment in Sydney, the rental yields on property is pretty terrible. It’s round our 3.4-3.8%. If you look to selected areas and say Queensland or Brisbane, you can get anywhere from 5-7% rental yields. Those kinds of yields increase your positive cash flow on a property.   

And then that allows you to maybe take the excess cash flow, after tax benefits, and channel it back into your own home mortgage and pay that off sooner. Because with your own home mortgage, you’re paying for that with your after tax dollars and therefore you need to get rid of that mortgage as soon as possible. So our advice to our customers is to try to kick this stuff [inaudible] mortgage in the first 5-6 years. That minimises the amount of interest that you will end up paying the bank and you’re putting more of your money back in your own pocket.        

Fleming has had a very interesting upbringing and his journey did not start here in Australia.       

I actually grew up in New Zealand, in the Waikato and Auckland area. And then I came to Australia in around about 1967-68 if my memory serves me well. Then I worked in a variety of jobs. I actually left Australia for a while and worked in the United States for about 14 years, I got into what’s called the alternative energy business, which was residential and solar hot water. Residential [inaudible] and also wind turbine machines and cogeneration machines for very large buildings. Over there in the United States when they build a huge building, they actually put a cogeneration machine in the basement, which pretty much makes the building self-sufficient. When I came back to Australia back in 1996, I was a little homesick, so I was looking to get into a similar type industry, but at that point in Australia, it hadn’t progressed that far.   

There were a few companies around selling solar hot water, but that wasn’t really of interest to me. And so I kind of actually flummoxed around for a couple of years and then eventually somebody told me about negative gearing. So I decided to have a look at that. I got quite excited to see what that could do for the individual. However, when I got into the industry, I got a little bit concerned. There were companies out there selling overpriced properties. We’re talking back in 1997-98 when you know, you look to Queensland, like I think they called them the White Shoe Brigade. But all of that eventually got cleaned out by the authorities. And as I said a little bit earlier, I really wasn’t looking to start another company and take on that responsibility, but as things worked out I couldn’t find one that I would settle down and be comfortable and happy with. So I just thought I’d just start to run a business from that point on.        

He grew up in New Zealand and tells us where he went to school.      

Went to primary school there and went to college there. And that was pretty much it.        

What did you study at college?      

Academics.        

We hear a little bit more about what Fleming studied in college over in New Zealand before he transitioned to Australia.       

That’s really accounting and learning about debits and things of that nature, which at the time wasn’t that really exciting to me, but persevered and understood a little bit about that. So it probably stood me in good stead later in life.        

With an accounting background from his study at college, did Fleming decide to jump right into that area of work?      

I went into different jobs and mainly in the promotional field, sales field. That was probably where I learned my entrepreneurial skills.        

What kind of sales roles did you do?      

Various ones, selling photocopiers and things of that nature.        

Fleming had numerous roles in sales and he explains other occupations that he had undertaken before he set off on his property investing journey.      

In the United States, as I mentioned, I got into the alternate energy field of selling solar hot water, solar voltaic cells, cogeneration machines and wind turbines. And at that point I learned that in the United States they were getting huge tax benefits for those kinds of things. And I could see that people could reduce their taxes quite substantially by investing in those types of things. And I was also a little bit into the commercial field where I could see that people were actually earning, not in reducing their taxes, but they were earning income off that type of equipment. And that’s when I came back to Australia. I wanted to see if I could get involved in something similar but couldn’t really find anything that advanced in Australia. As far as solar was concerned, you could buy a solar hot water heater for your roof but there was already no tax incentives attached to that. And of course the only income you’re going to earn from that, which might be saving a little bit on your energy bill.  

Then eventually I got introduced to negative gearing, which was something that sparked me off right away because here you had a product that not only could you earn income off, but you could reduce your taxes quite substantially. And as I found out that, you know, if you go back to 1965, the average Australian worked 88 days a year for the government. These days it’s around about half the year of all your money that you earn goes to the government. And that means that not only your income tax, but all the hidden taxes, like excise tax, luxury tax, road tax, GST. What about road tolls?        

Using A Mortgage Payment Calculator To Budget

There are many hidden costs that you do not realise that you are paying for at the time but Fleming reiterates the importance of understanding your budget.  

For the first time, you know, 11-14 years, you’re toiling away. You’re toiling away giving your money to the government, giving the money to the bank. And very few people actually sit down and do a budget, a proper budget. But if you sat down and figured out what you end up with out of your gross pay, I think most people will be very disturbed after they see what they give the government and what they give to the banks. Therefore, you need to sit down with somebody who’s knowledgeable in these matters. I’ll put myself forward quite readily, to work out what it is you can do to put a strategy together to try and fight back on these fronts. And start allowing yourself or preparing for yourself some kind of strategy that’s going to start getting you ahead.        

After being in the United States for 14 years, he talks about some of the circumstances that led to his return to Australia.       

I got married over there and I got divorced over there. And so at the end of the day there were no children, but I guess I got a little homesick from my family, they had all moved from New Zealand to Australia. At the end of the day I thought, well, if I’m going to live the rest of my life out, I’d actually prefer to do it in Australia.        

When did Fleming decide to finally return to Australia?       

Around about 1986.        

Fleming was running another business of his own before his property investment company  but was greatly impacted by forces out of his control.      

I was actually involved in the sale of Phillips language courses and then I actually got into the clothing business. I actually had my own company and we were selling promotional clothing and corporate uniforms. However, that kind of slowly petered out on its own because the government of the day, which was Bob Hawke and Paul Keating, they decided to take the tariffs off the imports on clothing, which when I was in the business, you could, you can make a reasonable profit margin. But once they took those tariffs off, slowly but surely all the profit went out of manufacturing clothing here in Australia. Especially the corporate uniforms and promotional clothing, like polo shirts and logos and all that kind of stuff. And then all of a sudden your profit margin just wasn’t there anymore. You couldn’t just stay in the business doing that. So that’s when I started looking around for something else and that’s when I came across negative gearing in the late nineties.        

Once his former business slowly broke down, he learnt about property and had some ideas that he thought could help a lot of people.       

I worked for somebody else for about two years and learnt about property. And as I say, I just got slowly disillusioned with what was being presented to customers and clients. I just thought, this can be done a whole lot better and that we can work with quality builders and developers and be able to present properties that; one of the big issues with with investment properties is if you buy an overpriced property. And a lot of people are finding that in Sydney at the moment. Even with buying their own homes they bought at the height of the property market and all of a sudden $100,000, it’s gone off the value of the property that they bought.  

That’s hard to come back from. Our issue is, we’ve sold properties in Victoria, Sydney, Newcastle, Brisbane, Townsville, Cairns. And all of those properties are performing very, very well because we took the time and energy to search out those areas and look for stuff that’s going to give the customer, first of all, a property at real market value. It’s in a strong growth area, has got a low vacancy rate. So there’s always a steady supply of tenants to choose from and that’s got high rental yields. That ensures that at the end of the day they’re not having to take that 50, 100 or $120 out of their pocket every week to support the property.        

Fleming delves into how he actually started his property investing journey and what some of the key factors were in him making that decision.       

I really got involved in the property industry around about 1997, so I’d already been back here for about 11 years. I was oblivious to negative gearing at that time. And it was around about that time when somebody told me this is how it works. And I went, that’s very interesting. I need to know more. So I then started looking for companies that might be involved in the industry. I started talking to them and eventually got hired by one. But I wasn’t happy with what they were doing. And then I found another one, initially he seemed like ‘Mr righteous’, and my clients were doing very well, making great property purchases, but I think he got a little bit greedy. And then I got a bit unhappy with some of the practices that were going on and some of the valuations that were coming in on the properties and I decided there really wasn’t any other way out of this other than to do it myself. So I aligned associations with companies like Winter, Lendlease, Rayovac, Stockland. We then started putting property portfolios together. We have clients that bought back in the Olympic Village, which is Newington, back in 2000. We had clients that we bought property in the forum at St Leonards. That’s the big new building on top of the railway station there. And we actually tried to sell three bedroom penthouse apartments back then for $560,000.      

We couldn’t find any buyers for that. We sold lots of one and two bedrooms, but we couldn’t find anybody to buy the three bedrooms, you know what they’re worth now?

Probably close to $2 million.        

Sometimes the most valuable thing when it comes to property investment is time.       

It comes back to its timing and it’s finding the right locations. Now based on our experience, we have a huge network of contacts throughout the country. Whether that be in any state in Australia, New South Wales, Queensland, Victoria, South Australia even Darwin and in West Australia as well as Tasmania. And what we do is we look for properties that are quality, that value up. But more importantly that are in growth areas, population growth, economic growth, have low vacancy rates and high rental yields. And that’s what we look for because we like to see that people can get into property, that after tax benefits, they’re actually getting a positive cash flow every week that they can channel their money back into the home mortgage. And then with other mortgage strategies that we tell our clients about, they can then channel their resources into reducing that home mortgage as fast as possible.        

Fleming explains how important it is to know what you are getting into and knowledge of your own budget before investing in property.       

That’s why what we discussed a little bit earlier, that 80% of the people that buy an investment property never get to the second one. Because they can’t afford it.  

Because they’re struggling to hold onto the one they bought and they still got this home mortgage around their necks that they are paying for with their after tax dollars. 

People’s lifestyles change. They have more kids. They get a raise. And then all of a sudden, mum says, “Well, we need to upgrade the house. We got more kids. We’re getting more money. The next door neighbors moved six months ago. They live over in that other suburb where I’d like to be.”        

There are experts out there who are a great help if you’re looking to purchase property.      

That’s where the help of a financial advisor comes in who’s got the experience in the marketplace. Not only the experience in the marketplace, but also the repercussions from what actions you take out today financially, how that’s going to affect you down the road.        

Fleming shares a story with us about a time that he almost led his clients to a catastrophic loss and the learning experience he gained out of it.       

I think probably what you’ve got to watch out for is, and everybody’s just settled to this. We all want to make a quick buck. So we look at trying to, either buy ourselves or steer our clients into buying into a boom area. Now, fortunately for us, we escaped this, but we came so close to a calamity with maybe four or five of our clients. We were promoting Moranbah up in Queensland and that’s a mining town.   

It’s up there by Chinchilla and Emerald and it’s a mining town and they were having a lottery on blocks of land up there through the council and our clients could have purchased, I can’t remember what the block of land was for. It was around about 300,000-$400,000. And we had about four clients that we put lottery applications in for on various blocks of land. I think there was about maybe two to three blocks per client that we were bidding on and to see what would happen. And fortunately none of the clients won the bid. Because by the time you put the house on there, I think the total cost was around about 600,000-$700,000. They were getting $1,000+ a week rent, once the house was completed. And then eventually the value of those houses went up. But we never looked at what might happen tomorrow and eventually what happened tomorrow was the bottom fell out of the mining industry. And I think you can buy those houses for 200,000-$300,000.   

So that was a scary moment that made me reflect very seriously on the fundamentals of what a successful investment property should look like.        

In contrast with his near miss, he tells us about the moment he felt that everything had come together.       

We have Townsville, for example. We have clients who purchased there, four bedroom, two bath, double remote lock up garage on a nice block. It went from 500-700 square metres for $249,000.

Initially when we got in there, no one else knew about Townsville. But Townsville’s had its ups and downs since then. What’s his name, Clive Palmer, with his nickel works and so forth. Kind of put a lot of people out of work there. But you know, all the clients that we have in Townsville, some of them may have sold their properties by now, but others have still got their properties and holding on and doing okay. And on those $249,000 properties, I don’t know exactly what rent they’re getting at the moment. But I would say that getting in the vicinity of 450-$480 a week rent. That’s not a bad deal when you look back on that.

Same thing with Cairns. We got in there many years ago and then we also got caught up with all of the hype with Tony Fung and his Aquis casino that was going to go in there. But the government gave him such a hard time. He backed off and that was a situation there. But you know, Cairns is up there, out of sight, out of mind with most people. They just don’t realise how low the vacancy rate up there is, what kind of rental returns they’re getting. And they’re doing pretty good. So that’s another area of interest. A big area of interest at the moment is Brisbane itself. The projections are that by 2022 the capital growth in Brisbane is expected to be around about 20% between now and then. And you can get very affordable properties and you can get anywhere from 5-7% rental yields on those. And the other glimmer on the horizon for Brisbane is they’re going after the 2030 Olympics, just had the Commonwealth Games on the Gold Coast, which did wonders for property prices there and the stability of that area. And so there’s these big things happening up there.        

Such a strong predicted growth in Brisbane even came as a shock to Fleming.       

It’s unusual because they are a steady plodder.

Brisbane doesn’t fluctuate like Melbourne or Sydney. It’s just a steady plodder. They get a few percentage growth points each year, but there’s been a lot of infrastructure going in there. They’ve got the new Queen’s Wharf Casino that’s under construction. That’s about a 2-$3 billion development. They got their second international runway going in at the airport. They got all kinds of underground railway systems going in, transportation systems. That’s an area of great interest and up there we offer clients anywhere from apartments to townhouses to house and land packages. We cover the full spectrum of property.

Strategies That Can Help You Improve Your Budget With David Fleming

We learn about some of the strategies that Fleming likes to utilise to help his clients purchase the right investment properties.      

One of the initial strategies that was touted back in those early days was a line of credit. And a line of credit was originated by Citibank in Australia. A lot of people won’t remember, but back in 1988 Paul Keating, who was a treasurer in the Labor government at the time, deregulated the financial markets in Australia. Commonwealth Bank used to be owned by the government and the financial markets were tightly regulated. So he lifted all those regulations and all of a sudden you had all these international banks come into Australia, Chase Manhattan, Citibank, ING Bank. I’ve even forgotten half of the ones that did come here who are no longer here. Citibank had been given orders to close up shop and go back to New York. So they said, just give us a couple more months. So they invented this product called a line of credit now.   

That actually originated in Australia and they put that out on the market. Then people started, as Aussies are quite ingenious, figuring out ways to use that line of credit to their own advantage. And one of them was that you are allowed to capitalise the interest in the line of credit. So you get a line of credit and you would then buy an investment property and the interest payments, instead of coming out of your bank account, just capitalise back into line of credit. That means all the cash flow from your investment property and your paycheck and so forth could then go into your mortgage, your home mortgage and help pay it off faster. But then the ATO stepped in and they put up a huge court case. Now, they never actually proved the fact that that was illegal to do that. But they just made a decree that they were going to go after you if you do that. But they never actually proved the case but who’s going to go up against the ATO?

They’ve just said, we’re going to come after you if you do that. So you would have to take it all the way to the high court and you know, $50 million later. We saw what happened with Paul Hogan. He had a few bucks and it cost him 9-$10 million to do it. To win his case.

In order to get your balance sheet under control, Fleming urges you to stay aware of your budget and figure out how much you can afford to put towards your mortgage.       

The average Aussie isn’t going to do that. So from there you can still get a line of credit however it’s not so popular anymore. And then from there it morphed into what’s called an offset account. That’s how an offset account came about because the popularity of line of credit waned. And so they come up with another product. Because if you go to the United States, the funny thing there is all the savings and loans and the banks and so forth. When you go in there, they offer you a free clock or a free this or free that to take your mortgage over here. Now it’s product features, cash back offers by the banks and so forth for you to refinance to them. So there are ways to use offset accounts to your advantage. Just little bits and pieces of techniques that you can use, strategies you can use to pay that mortgage off faster.     

And what we do is we sit down with clients and work out what their budgets are, what they’re spending their money on, helping them get a little bit of focused awareness where the cash flow is. See if there’s any extra they can pull out of their budget to put into the home loan. Because at the end of the day, with all these different techniques and strategies, four, five, six, seven years down the road the dividends are immense because we’re dealing with compound interest and banks understand compound interest very well. That’s why they set up that amortisation table over 30 years. That takes you 11-14 years to get to the halfway mark with you mortgage repayments. Half is theirs and half is yours, prior to that, it’s mostly the bank’s. But it’s learning how to discipline yourself to reduce that mortgage balance to the point where you get to a point in your life where you start looking at financial freedom and that’s what everybody dreams and aspires to. And that’s what we try to help people with.        

It is not as easy to get a mortgage these days, that is why you need to learn about some of the subtleties that go into taking out a mortgage.       

Your contribution to it in those first 11-14 years is minimal towards your balance. So therefore the interest continues to compound and accumulate. And the other thing with banks, it’s the greatest business in the world. Where have you heard of any other business that can just willy nilly charge your loan account and start charging you interest on day one? Most people I deal with get the 7 day, 14 day, one month invoice. They’ll take your annual fee or any other fees straight out of your mortgage account and they’ll start charging you interest on it from day one.    

So mortgage holders need to understand these little subtleties and work with somebody who can point out to them where they can make improvements in their financial lifestyles to better combat the banks. The banks are there, not for you, you’re just a number. I mean, years ago people used to know the bank managers, used to sit down with them. The bank manager knew your family and if there was a little bit of flexibility in what you’re doing, they would make allowance for that. That doesn’t happen anymore. It’s all done on a computer screen and a lot of these credit assessors and so forth are now offshore in countries like the Philippines, Bangladesh, India for example, where English is not necessarily their first language. And that’s why it’s so hard to get a mortgage these days because you’ve now also got the National Consumer Credit Protection Act, which is all about responsible lending. And you know, they want to know when you go for a mortgage these days, they want to know what kind of sauce you’re putting on your pie.        

The banks are going to greater lengths than ever before to ensure that consumers can afford to pay back their mortgage.       

They are from the regulatory authorities who are also justifying their own existence. Pardon me for saying that. I mean years ago, well not so long ago, we used to have to be responsible for our own actions, but it seems the government now is trying to take over that responsibility like a nanny.       

Fleming delves into all the different factors that can impact you when you’re trying to pay back your mortgage.      

One of the most important things anybody can do to begin with is to have a goal. You’ve got to have a goal. But then you have to be realistic about what are your existing resources. So the next step is to do a budget because you need to become aware of what’s happening with your cash flow. And it’s like when you buy a certain type of car, let’s say, you’ve never owned a Hyundai iX35 before, whatever they call them. And you go down to the showroom and you buy one and there you go. You drive out of the showroom onto the street and you’ve been driving around for half an hour. You realise there’s a lot of these cars around. All of a sudden you become aware of a similar type of product. 

Psychologists call that focused awareness. Now what happens to us when we grow up, we go to school. Then we get involved socially with our peers and so forth. And everybody’s trying to keep up with the Joneses. We want to be with the latest trends. We don’t want to be a square or a nerd or anything like that. So we go along with what everybody else is doing and we just spend our money willy nilly and then we meet somebody. We start getting serious. You’ve got to save up for a deposit on the house. And then we get enough to get that house. We get into it and we take on a mortgage payment and then we get on that slippery slope. And of course, along comes all kinds of new trends, computers, television sets. The kids want this, the kids want that. Maybe you want to send the kids to a private school or a better school. All of a sudden there’s not a lot left at the end of the month. And the old adage is, if you’ve ever read that book, ‘The Richest Man In Babylon’ by George S. Clason. The adage in there is you pay yourself first. But how many people do that? Not too many.

What their philosophy is, because they are brought up to be responsible. You’ve got to pay your bills. So I’m going to pay everybody else first and if I’ve got anything left over I will then put some money into savings. 

He talks to us about the benefits that you can receive later on down the line if you remained focused on keeping a healthy budget.       

Well, there’s never usually much left over at the end of the month. So what they say is pay yourself first and then manage your lifestyle around what’s left. That’s the philosophy we use with our clients. We’re not saying that you should short change yourself or live on bread and rice or anything of that nature. All we’re saying is that you need to get a focused awareness on what’s happening to your money. It’s not how much money you make, it’s how much money you keep. And you need to have a financial management plan put in place to help you do that. Once you’ve got control of your finances, also deal with your confidence. You’ve heard of people trying to buy an investment property and they never go in because, ‘What if I don’t find a tenant? What if I lose my job? What if I have a tenant from hell?’ One of the Hells Angels could move in there.    

Your place could end up a little bit less than new. So that can stop a lot of people. However, if you’ve got strong control and good management skills over your cash flow and your money, then those other concerns become less of a concern. Because there are strategies to help combat any of those anyway. The point is you need to put a strategy in place that is managing your cash flow or building up your confidence. Knowing at the end of the day, you’re always going to have the resources to be pushing yourself ahead so that when you do reach that magic mark of 65 or 67 years of age, you’re not dependent on the government. If you are working it’s because you want to, not because you have to. 

But the sadness is, in Australia today at retirement age, 1% will be wealthy, 3% will be financially independent. There’s a whole percentage in there that will still have to work. 29% will have passed away, gone into another world, and 63% of them end up on government assistance. That’s pretty sad.

You want your later years in life to be your greatest and in order to reach that goal you need to use strategies that can help you pay off your mortgage faster and more efficiently.        

Because you’re living on subsistence cash flow and your retirement years should be golden. You should be able to do the things you want to do if you want to travel. If you’ve got hobbies you want to indulge yourself in. All of those things really become a little bit of a stretch when you’re living on Centrelink money.    

So the strategy is, going back to what you originally asked, is learning a skill on how to manage your money. Once you learn how to manage your money and that you know where your money’s going to go every month. We help our clients with that of course. Then you get a little bit more confidence and you can reach out and maybe buy your first property and if that property is correctly structured, it’s got the correct fundamentals to be a successful investment property. Then you will hopefully be getting additional cash flow from that. That will then further enhance your ability to pay off your current mortgage because that’s the key. That’s the key to wealth creation is getting rid of that home mortgage or cutting it down to a size where it’s really manageable. Other than that, you’re paying all your money to the government. You’re paying all that money to the bank. I mean you are going to constantly struggle to get ahead.        

Fleming delves into how many people find themselves trapped paying off a property and how you can avoid it.      

When I say struggling, that might be a little bit harsh, but they’re just kind of treading water. It’s not really going anywhere. And they hang on for years and years and years because they had dreams and aspirations of getting that second, third property. But they can never see the clear light of day to be able to do that because their responsibilities don’t really change that much. Because you imagine, you get a mortgage, let’s say you buy a $700,000 home, you get a mortgage of $500,000.

You might get a little bit of capital growth in your home. Now it’s worth maybe 850,000-$900,000. You’ve got enough equity there now to go and buy an investment property without taking any money out of your pocket. You can cross securitize the two properties, which means that you can borrow a 105-110% of what it costs you to get into the investment property such as stamp duty and all that kind of stuff. So you get that property but you don’t really learn how to do it properly and maybe you’re paying an extra 50, 60, $80 whatever it is, $100 a week out of your pocket to support that property in the hopes that in the future that you’re going to get some capital growth. And then as time goes by, the rents will go up and eventually you might get into positive cash flow territory. And then along comes the first and second, third child. You need a bigger house, so you go and refinance your mortgage and you start that 30 year term all over again and maybe on a slightly bigger mortgage.     

Learning to manage your finances is key. Critical point number one, learning the strategies and techniques to help you accelerate the reduction in your existing home mortgage. And also when you did get an investment property, it makes sure that you understand the fundamentals of buying a successful one.        

The rates at the moment are advantageous for buyers but Fleming warns us that they are not going to stay there forever and you need to prepare for when they go back up.       

We establish these lifestyles around the money coming in and it’s very hard for us to get out of comfort zones. Take a look at the current market. You can get a mortgage today at 2.99%. And the other good news is you’ve got banks now, I saw it the other day, a five year fixed rate at very low threes, like 3.19%. Now, when you see those kinds of rates being promoted by the banks, you know that interest rates are going to be low for a long time.

 Well, that’s not good for a healthy economy. A healthy economy should have 7.5-8% interest rates because there’s two sides to the coin. You’ve got people with mortgages, you’ve got retirees out there trying to get a return on their investment and some of these poor people are trying to exist on 1.5, 2, 2.5% returns. Where they usually are getting 7, 8, 9, 10% on the returns. But anyway, that’s a whole other story. My point is this, you’ve got two generations now that don’t know what 7.5-8% mortgages are. What’s going to happen to those people when mortgage rates go up? Are they going to be able to adjust their lifestyles?

A lot of them are not going to because they’ve built their whole lifestyle, all their little creature comforts and all that kind of stuff around the cash flow that’s available to them.        

There is always an element of risk when you invest in property but there are mentors and coaches out there that can help you understand what is and isn’t possible.       

This is a huge opportunity for anybody that wants to take advantage of it.

Why don’t you figure out that your mortgage is costing you 6-7%. That’s easier said than done. Hence you’ve got to sit with somebody who can mentor you on how to structure a budget properly and how to keep track of that budget. Have somebody hold you accountable, which is what we do, to what you commit to doing. The reward is huge down the road, but if you just let each day slip by and you live in that complacent vacuum of your comfort zone, we’re going to take care of this first and we’ll get to that. Then we’re going to take care of that and then we’ll get to it now. There’s one other thing we’re going to take care of then we’ll get to it. So that’s why you need a coach or a mentor to sit down with you and go through those things and work out what you can and cannot do. But with the ultimate goal in mind that you’re trying to improve your situation and it’s all good for you and your family. And then you can start making some real traction and make some real progress to go ahead because eventually you’re going to end up in the world of financial independence. 

That’s what it’s all about. And it’s understanding the fundamentals of finances, finance, management, cash flow, home mortgages, investment properties. Investment properties are a huge opportunity for people in Australia to minimise their taxes. Back in 1991 they put Kerry Packer before the Senate committee and they said, “Mr Packer, do you deliberately avoid paying taxes?” He said, “Well, yeah,” he said, “I reduce my taxes. Any Australian who doesn’t, they used to have his head read. Why would I give my money to you lot?”        

There are many experts out there that Fleming suggests you visit that can help you save more money.       

It’s just having somebody who can show you what the guidelines are and what the legal guidelines are. They can show you what are the most productive things that you can do based on your current resources so you get to keep more of your money for your benefit as opposed to giving it to all these other money-hungry centres such as the ATO and also the banks.        

Fleming tells us about some of the people that he has learnt from and have helped him achieve his goals.       

I’ve got an existing partner here at the moment who was originally the head of international computer security for PricewaterhouseCoopers & Lybrand. And they actually transferred him from Lausanne, Switzerland and he came out here working for them and then actually his job, besides the computer security part of it, cause he’s a real whiz on computers and we’re going back 20 years now when Google was hardly even heard of, and these big accounting companies that have small partnership groups that look after specific types of businesses, whether that be electricians or whether it be earth moving contractors or garage owners etc. So they would specialise in a specific type of business. So his job was to go in there and help them upgrade all their administration systems, their computer systems, etc. 

And then he would go back and check on them in 3-4 months and see how the new systems were betting in and what he found out, that after all that work that he put in with each little group, they’d just gone back to what they were originally doing. So he got frustrated and we accidentally came together at a specific point in time. We got talking and decided to start Equity Resource Proprietary Limited. But he’s been a wealth of knowledge to show me how to handle money because between him and his dad, they own huge apartment complexes in Switzerland, etc. And he eventually became a financial planner and he’s now retired and doesn’t have to work. So I learned quite a bit from him about managing, budgeting, how to manage your money, etc. And of course, beyond that, all the research and my experience with different clients, a little bit of trial and error here and there. So I’ve now got to this point where I have a very clear picture of what people should be doing.     

The property market goes through ebbs and flows, so you need to do your research on what is happening in the market before you buy.       

I don’t have any specific book. Maybe I should write one, but I’m not sure I’ve got the enthusiasm to do that or even the time to do that. Look, it’s really about being keen to get ahead financially. I think you’ve got to kind of turn that key in your head, it’s like somebody quitting smoking one day. They eventually do it. Prior to that, they’d give up hundreds of times, but without great success. But eventually they turned that key in their head, this is what I’ve got to do. So any research you can do online and there’s plenty of resources online that people can go to. But then again, you have to hold your own counsel because you’re going to come across a lot of hype on the Internet, a lot of self promoters, etc.   

But for example, look for tips on how to manage your money, how to pay your mortgage off faster. And also tips on what are the fundamentals of a successful investment property. And basically those fundamentals for an investment property is you need to be in an area that’s got good economic growth, good population growth. Those are pretty basic stuff. And that you can see a little bit of a track record that you’re not in the peak of the market. Cause that’s a big trap. A lot of people, they go to dinner parties and so forth and all the friends are buying investment properties. And that’s the trend amongst that social group. And then eventually they jump in. Which many people did right at the death here, back a couple of years ago here in Sydney.      

And all of a sudden the property values are going back 100,000-$160,000, which the media get hold of and a lot of negativity is expounded about that. But you’ve got to take into consideration the property market has gone back about 50-80%. But in the meantime, the current boom that went up around about 56%. So those that got in early did very well. So it’s kind of understanding those market swings and movements. That’s why I was mentioning Brisbane a little bit earlier. It’s the right time to buy in Brisbane. I mean, you can get properties up there, even in the outer areas now you can get townhouses and stuff like that that are getting 5-7% rental yield for 350,000-$380,000, three bedrooms, two car garage, all that kind of stuff.  

Will you get a lot of capital growth on that? No, not necessarily, but might be a good starter point for others. But there’s also inner city suburbs and things like that where you can get townhouses or apartments and even some house and land packages for a very good price with very good rental yield. So it’s really a matter of understanding what your financials are, how well you’re managing your finances, having somebody show you how to put a financial strategy together that’s going to work for you. If you’re on a $65,000 income, you may not think you can afford an investment property. Well, that’s not necessarily true because there’s properties out there that you can afford. And of course, it also depends on what your current liability loaders, as far as car loans, personal loans, credit card balances, and the size of the mortgage you’ve got, all of that has to be taken into consideration.        

A little bit of luck can go a long way but Fleming talks to us about the importance of hard work and preparation that can provide you opportunities.       

I think you do have a little bit of luck, but I think it’s more, what’s that old saying? A genius is 99% perspiration and 1% inspiration.   

I mean you have to take responsibility for yourself. Whereas in this world today, more and more that’s getting stripped away from us. You know, we get this given to us, we get that given to us. I mean you see the home loan market at the moment and they want to make sure that nothing slips through the cracks. Which to a certain extent there is some genuine concern there because interest rates are very low. We were talking about the millennials and not knowing about 7-7.5% interest rates. What happens to those people when those interest rates go back up, which they must do eventually, to 7.5-8%. Once the world economy recovers and all the politicians get their acts together the world economy will come back overall, holistically. Things will be turning over again and as wages go up goods get bought, prices get higher, inflation goes up, and then eventually interest rates go up. It’s just a normal cycle that the world economy goes through. It’s a fair way off yet and there’s a great opportunity at the moment for those people who want to knuckle down and create wealth for themselves because I don’t think you’ll ever see another opportunity like this in your lifetime.     

Interest rates are low. You can work out strategies and pay down your debt, acquire more property, pay that debt down, acquire more property. And so the cycle goes on until eventually you’re self sufficient.        

He lets us know the best way to contact him if you want to talk to him further.      

If you want to talk to me directly, probably my mobile which is 0408 677 196 or via Master Mortgage Broker Sydney

This episode was produced by Andrew Faleafaga with narrations and interviews conducted by Tyrone Shum.

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