Calculating Property Rental Yield for your Wealth Creation
Peter Mastroianni, the brain behind The Buyer’s Guide and Loans Only, will take us on his 13 year-long property journey to date, uncover how his childhood had an unforeseen impact on what he would be when he grew up and how he generates wealth with calculating rental yield strategy.
We’ll get a snapshot of a day in Mastroianni’s life, walk through some of the property stumbles he’s had throughout his experience as a property investor, break down the great Australian dream into what it has become today (rent-vesting) and learn how to turn your debt into a wealth creation tool.
My name is Peter Mastroianni , I work in property investment finance, I co-founded a business by the name of Loans Only. I’ve published a couple of books and I also championed at the rent-vesting cause through rentvesting.com.au, which is largely a content publishing platform for next-generation investors and we also offer a property mentoring service through that platform as well.
So what does Mastroianni do in any given day?
Talk! I’m on the phone a lot, whether it’s engaging pieces like this or talking with clients or with banks or referral partners, I guess that probably takes up the bulk of my time. I do spend a bit of time working on content creation pieces, again for the rent-vesting podcast and articles and things of that nature. And if I’m lucky I get to fit in some planning and strategy for the business growth over the long term as well.
Growing up in Queensland where he is now based, he studied at the schools and university there before making his foray into the financing industry.
So I went to a school called Villanova which is in Brisbane’s south and I went to uni and studied finance, Banking and Finance at QUT.
After uni, I had aspirations of actually becoming a financial planner and I was, for about 15 minutes or so. I didn’t quite like the environment though – it was probably my first kind of real job and it involved a lot of cold calling at the time. And this is many years ago now – this is in the early 2000s – and actually getting people to come into the office and try to sell them insurance, which is not really what I had envisaged financial planning to be. I know the industry has changed substantially, but after that short period I moved into different sales and marketing type roles and I spent a bit of time working in outplacement services with a global recruitment agency, which was a good job it paid very well at the time.
It was probably that income that allowed me to invest in property on the side, which I was fortunate enough to do well out of. And from there I moved on to establish my own businesses. So I run the Loans Only business with a couple of others and also through rentvesting.com.au.
Mastroianni has had an interest in property investing from a young age, influenced in particular by his grandfather.
Dad has always had a real keen interest in the area and we often talk shop about developments or transactions that we know of taking place. But I guess one of the probably more influential people was probably my grandfather. I have an Italian heritage so my Nono would take me up on a Friday late afternoon when I was about four or five years old, we would go and collect the rent and we would stop off at a couple of places and he would encourage me to knock on the door and put my hand out to receive the cash. And that really left a lasting impression on me. I thought, ‘How good is it? You turn up to someone’s house, you knock on their door, you get paid, you go, you get ice cream and a play at the park afterwards…’ So I was only four, extremely naive I guess. But if someone had ever asked me what it was that I wanted to be when I grew up, I would always say that I wanted to be a landlord. So I guess that is an impression that has lasted with me through the years.
The first investment property Mastroianni bought was a ‘buy and sell’ move, which in his current wisdom he also looks back on as a naive one.
So I was fortunate enough to buy a property in my early 20s, it was located on Brisbane’s south side in a suburb called Mt Gravatt, it was a four-bedroom home. At the time when I bought the place, it was $143,500, so amazingly cheap considering where property prices are today. Anyway I bought that place, I did a little renovation on it and in my infinite wisdom at the time I decided to sell it – and I did sell it. I can’t remember the exact price but at the time it was around $260,000 so I left that transaction and I had $100,000 odd in the bank, which I thought was amazing.
But in hindsight selling that property was probably a bit of a dumb move at the time, because I didn’t have an appreciation that it wasn’t my expertise in renovation or anything of that nature. Just that the market had moved pretty significantly in that time, so the next house that I bought was incidentally not in the same suburb and it was a like for like property that I had sold. But no, I bought it for more than the last property that I had purchased, so my debt position was actually higher than the first property I had actually bought. So that was probably a lesson that I learned early on because you make your money when you buy not when you’re selling and it’s a ‘hold’ thing for the long term. So that’s how it all started.
So how did he come to the realisation that ‘buying and holding’ was a more effective strategy?
It was probably just the moment of looking at my bank statements and looking at my debt on the first property, what it was and then thinking that it was amazing that I had made this profit on that property. But then buying the second one and my debt had increased significantly more! So I think that was just the realisation at that moment, just to be more mindful, or perhaps plan ahead, on what you actually intend to do with your transactions rather than working on a knee-jerk reaction because sometimes the profit is in the long term.
After purchasing his first two properties Mastroianni began rentvesting before the term ‘rentvesting’ was even developed.
Largely I’ve held property that I’ve bought. More recently I’ve moved into doing some small development work, namely around subdivisions just on the property that I’ve held and realised its potential to do something with those sites. But that’s been in the more recent years – so through my 20s I largely flat shared, I worked full time. I like to think that I had a good lifestyle as well and did things that went overseas. I enjoyed social time with my mates and me largely rent-vested; so I didn’t know that I had a rent-vesting strategy at the time. But that’s largely what I did through my 20s until I started moving into my own business and into mortgage broking, concentrating a lot more on finance and working with retail and sophisticated clients, looking at the strategies that they’re implementing in their own wealth plans. So there’s been a few a-ha moments with working with clients in looking at what they’re doing and how to replicate that perhaps in my own strategy.
To define what the modern terminology of rentvesting is, you only have to look at how the market has dramatically evolved over the years to know that it makes sense, now more than ever.
It’s renting and investing – so rent where you would prefer to live and invest where you can afford. My belief is that the traditional homeownership model is outdated. There’s this very commonly held belief that is indoctrinated within us that you need to do well in school, go to university, get a good job, buy a house, get married, have kids and surround it with a white picket fence and stay there for the next 25-30 years and pay off your mortgage; then you’re going to be in a secure and comfortable position. And that may have worked for a period of time, but the property market in our society has changed fundamentally within the last 15 or fewer years. I truly believe that that model is outdated and one of the reasons why I believe it’s outdated is because affordability has obviously become such an issue within markets like Sydney and Melbourne and Brisbane to a lesser extent, so forth.
The reason why it’s broken is that your home as an asset doesn’t actually generate income. So you’re completely reliant on the capital growth of that asset in order to do well over the long term, so you become a bit of a slave to your mortgage in that you’re reliant on your income to meet your commitments – your mortgage commitments and your bills and your lifestyle. You have a so-called asset that isn’t generating an income, and an asset should generate income and capital growth. So if you flip that model around and you rent where you prefer to live, yes you’ve got that rental expense, but you can invest in other affordable areas, you can claim the tax benefits that are associated through that avenue and the asset also generates income. So the income that it’s generating largely takes care of those commitments. That’s how you go about building wealth, rather than attaching yourself to a mortgage and committing to that debt for the next 25-30 years. It doesn’t make sense with the way the property market has shifted in the last less than 15 years.
To demonstrate the benefits of rentvesting in comparison with buying your own home, Mastroianni breaks it down.
So if we could speak very rough numbers in generalistic terms, because everyone’s situation is obviously going to be different, I know that the average income is around $80,000 odd gross. So in the hand, that would equate to about $60-63,000 odd per year. So let’s say that $60,000 equates to about $1,000-$1,200 that you have in hand each week. That money can go to your bills, your lifestyle, your walking around money, whatever it may be. If you’re a homeowner It would also go to your mortgage.
If you flip that and you know your mortgage commitments become your rental expense and you used the money to invest, you would also receive that additional rental income from that purchase as well be that $300, $400, $500 or whatever it may be on a weekly basis. You would also have some depreciation benefits if you bought a newer type of dwelling perhaps and there could also be some negative gearing had backs that you would receive from that investment. So whilst in some instances it may be positively geared in terms of receiving some additional income each week, in most cases, it’s probably negatively geared in that there’s a little bit of an out of the pocket expense. But that can sometimes be taken care of at the end of the year once you do your tax returns and you realise those benefits through the taxation advantages that you can receive.
That’s really good you’ve actually shared that because it kind of breaks down and sort of breaks that myth that owning a home is like the great Australian dream.
It is. Don’t get me wrong, rent-vesting isn’t for everyone and I know that it’s not going to be suitable for some people that want to settle and establish roots in an area. But from a broader sense, it gives you a lot of flexibility and provides a lot of lifestyle benefits and also it’s a great way to generate real wealth in your life.
One of the worst investing moments he experienced in his journey trapped him in a corner.
It’s pretty simple, I overcapitalise. I took on too much debt – at the time I didn’t necessarily realise that was the case – but certainly living through that period of my life, it really hurt and it’s probably a hard lesson that I have learned. It was actually buying a property that I lived in, so it was a home at the time. I bought a nice flat in a suburb of St Lucia which was on the Brisbane River, it was kind of a lifestyle commitment that I had envisaged, this beautiful place that I was going to create. I did that and I probably made the mistake of over capitalising on a renovation so I sunk a small fortune into that property to I guess dress it up to the way that I wanted. Which was great, it was a great bach pad at the time but I overcommitted and the body corporate also decided that we’re going to do a lift upgrade, that they were going to paint the building, they were also going to update the balustrades. So my body corporate commitments more than doubled on a quarterly basis.
Then on top of that, I had some periods of vacancy through some other property that I held and the bills kept on coming in. And it was a real struggle because I essentially invested myself into a corner and kind of trapped myself into a job at the time that I didn’t particularly like, but I really needed to hold it because I needed that income to come into it to manage my commitments. I guess that was another moment where I realised that probably wasn’t the best way to approach things at the time. So that was a big mistake that I certainly made. I did end up selling the place and I did OK out of it, but I made some big mistakes on that purchase.
To avoid this happening, Mastroianni advises that you create a buffer of cash flow for yourself so that you can be prepared for the worst-case scenario.
From a lending perspective, a lot of talks is around serviceability assessments and the bank will lend you $1 million, or you could service a $1 million loan, or whatever it may be. So there’s a point of being able to service a loan and there’s a point of being able to actually afford it. Whilst mortgage brokers and banks and all the rest of it will factor in a buffer or sensitise a rate – and sensitisation rate is normally 2-3% more than what the actual rate is that there’s a good buffer in it.
But you need to be mindful that stuff happens, that the boiler collapses, or the air conditioning breaks, or there are vacancies in your property or that bonus that you were hoping for doesn’t come through at work and stuff happens. So I think it’s just particularly if you’re focused on becoming a property investor and growing a portfolio, it’s cash flow. Cash flow is just such an important lifeblood and having a real appreciation of where that money is coming in and actually managing those commitments in advance, is super important or else you find yourself like in my position. You can’t afford to get by because you’ve overcapitalised or overcommitted, which is not a good place to be because you end up resenting something that you intended to love.
So where did everything fall into place for Mastroianni? He says it’s all about managing his debt.
The a-ha moment is around debt and understanding how to structure that debt and I guess the a-ha moment is probably more so come in more recent years, in terms of focusing more on property finance and in investment lending and looking at my own structures and how my clients are also structuring their platforms. And realising that there is a lot of simplicity to the structure as well, you don’t have to overcomplicate things. But it’s important to have a good amount of flexibility and the cheapest rate doesn’t necessarily mean that it’s going to be the most suitable or affordable product to actually be placed in. I think it’s important to realise that it’s not about the short term game, it’s about how much interest you can actually save over the life of the loan, rather than trying to chase 25 base points of a discount.
So that’s probably been my a-ha moment in realising that yes, it is a lot about finding the right property and buying it at the right price, but it’s more about financing that asset and being able to continue to leverage your position to grow that portfolio. Because debt is a very powerful wealth creation tool when managed correctly and I guess that’s my a-ha moment that I realised in more recent years.
While not focusing on the size of his portfolio, his understanding of finance has enabled him to build his wealth using a more fluid means.
I have a couple of properties and I have another property that I’m working on a subdivision at the moment and there’s another dwelling that will be built on that; I’m more than likely to offload that. My focus is never to grow a portfolio of 10 or 20 or 50 properties, I don’t have the time or the interest to do that. But I am very much focused on buying properties that I can hold for the long term, or they do have development potential in them. That’s probably more so where my interest lies from a financing side of things.
I guess earlier I was very much focused around achieving a really cheap interest rate and trying to lock in terms. But that created a pretty rigid structure for me, so my structure is now more so based around line of credit facilities and leveraging the equity or using the available equity in those properties, in order to cash that out to fund other investments or other developments that I’m interested in.
Being able to generate equity, then pull equity out to use as a potential deposit for his next property is something that provides Mastroianni with the flexibility he needs to continue investing in property.
It just gives me that flexibility to keep on moving. I think one thing that I’ve witnessed in working with property investors, is the ones that are doing really well, they’re ready to strike while the iron is hot to make those opportunistic purchases. I think you want to be as ready as often as you can, to get into those opportunities to really maximise the potential at the front end of the purchase not when you’re actually selling the property. Which is harder to do at the moment because of restrictions and what the banks are doing and the changes that they’re making around investment lending. So I’m a pretty big advocate of trying to have a lot of flexibility in your structure.
In turn, this flexibility creates more options.
People don’t go looking for a loan. I don’t go looking for a loan. No one goes looking for a loan – you look for a property to begin with and then it’s kind of like, ‘Oh shit. Now I’ve got to try and find a way of financing this because it’s a really good opportunity.’ But if you have an understanding that you need to have the finance in place to be ready to go then when that opportunity presents itself, you’ll be better in the long run for doing so.
Throughout his property journey, continuing to set personal goals for himself has motivated his all-important ‘why.’
The property’s been very good to me. But I see it more as a way of developing personally and professionally. I like working, I don’t have this raisin denture of retiring at the beach and drinking pina Coladas. Whilst that’s cool to do, I don’t have that particular interest. I think it’s about growing personally and trying to achieve more than what you actually think you can, whether that is buying multiple properties or whether that’s growing a business or whatever and investing in what you may be interested in, I think that’s probably what inspires me to do what I do.
Rentvesting: What, Why And Who Is It For With Peter Mastroianni
Inspiration from others altered Mastroianni’s mindset around his property investing as well as his priorities of collaboration over success as he got older, but what was holding him back at the start of his career?
Probably just myself and where I was at that time in my life. I was probably more interested in going out and going overseas and travelling and doing what I thought was radical things at the time.
So I didn’t really have a strong commitment to investing at the time. I wish I did but I didn’t.
But I guess it’s probably individuals that I met probably when I was around 26, 27, 28 that have been quite influential on my life and the way that I think about things and I approach things that probably made an impact for what I’ve gone on to actually do. And like I said I don’t strive to have that 20 or 50 property portfolio but I do strive to try and stretch myself professionally and give back and collaborate with others because I know that the rule of reciprocity will come back and hopefully shower lots of goodwill on that as well.
His focus on his mindset has allowed Mastroianni to realise his own potential and change his way of thinking.
You don’t realize what your actual potential is until you start focusing your attention on it. And you know you’ll gravitate to what you’re thinking about. So you know if you can actually catch yourself in thought as silly as that sounds. But you’ll realize how much rubbish can sometimes actually go through your head and how that impacts what appears or manifests within your life. So if you are able to grasp that you know you can really realize your potential I believe anyway.
Mastroianni’s first mentor not only played a key role at the beginning of Mastroianni’s investing career but was distinctive in his own life.
So a job at the time my boss who was a good guy said We can either pay you your bonus or you can have coaching and we’ll pay for your coaching and I decided to take the coaching. I don’t know why at the time but I decided that that’s what I wanted to do. And I’m very fortunate to have made that decision. I was introduced to a man called Colin and I would meet with him for two hours on a Friday afternoon and we did so for an extended period of time and it was the time of the week that I most looked forward to. So he was an interesting guy.
He was I think at the time he might have been around my dad’s age so he was in his early or late 50s early 60s or so. But had lived a pretty interesting life. He used his university at the time I think from memory. He had studied architecture and received a bursary to go study overseas but he used that money to go to Burma and he became a monk. And he lived as a monk for many years then went to India on a yoga retreat and met a woman then decided that he was going to give up the robes.
Then he went back to Melbourne. I know this sounds extreme but this is his life and he got married and had kids and ended up working in the Big Four and moved into property development himself and then got divorced, you know almost lost it all and so forth.
Having Colin as his mentor inspired his outlook and ultimate direction of his investing career.
Speaking with a person that you know had kind of done it all.
It was pretty intriguing to hear his outlook on life and in where you needed to be focusing your attention which you know is something that I’m very mindful of doing so. That individual was I guess pretty pivotal in terms of the direction that I’ve since taken.
That’s great. You kind of got me on the edge of my seat going OK. What happened to this guy now that he died. How did he get into? Coach knew about it. That’s what really is interesting to me at the moment.
My boss at the time had him as a coach and my boss introduced me to Colin and that was you know that was several years ago now. But a lot of that has stayed with me and the practices that he instilled in me. I try to keep up and do that.
Even after having such an impactful mentor, Mastroianni still seeks out guidance to continue developing his investing strategy.
Mainly on property investing side so I work with Luke Harris and Matt Bateman from the Property Mentors down in Melbourne there who do a terrific job. And I’ve learnt a lot about them which has probably shifted my focus in terms of looking at alternative strategies rather than just going out and buying a residential property and sitting on it. There’s you know there’s lots of other cool stuff that you can actually do to generate cash flow and capital growth out there. So they’ve got some unique vehicles for that. But in terms of other business coaches or life coaches, no not at the moment. But having had that experience that I just mentioned you know it’s something that I feel is very important to maintain and there are lots of people out there who say they’re a coach and you know I’m sure they legitimately do a good job. But having that experience it’s kind of I’m choosy in terms of who I want to work with just because it left such an impact on my life.
Why would you recommend to people that they should get a coach as well?
Because you don’t know what you don’t know. Lots of people know enough to be dangerous but which is great and lots of people like to do it themselves and I think you know all the power to you. But working with someone who has excelled at doing what it is that you’re interested in is great to learn from and learning is something that you need to be continuously doing I believe in in your life to grow and if you can partner with someone that has done it well and you would like to emulate, you know go along for the journey with them because it can actually very quickly speed up your results rather than trying to do it the hard way which is you know trying to do it yourself and making lots of mistakes along the way.
The advice of Mastroianni’s first coach, Colin, has stayed with him and continues to inspire him to this day.
Where is your attention at. So that was something that Colin had instilled with me so that was kind of his parting words when our time was up. And it’s like you know if I could just leave with one thing or that the everlasting coach it’s just to be mindful of where your attention is at which is what I mentioned earlier because you know what you end up focusing your attention on is what you create. So if you can direct your attention to what you truly want then it has a funny way of actually showing up in your life.
Mastroianni’s focus on his finances led him to adopt rentvesting as his primary investing strategy.
Look the nuts and bolts of it is pretty simple. As you know I’m a strong advocate of the rentvesting strategy and you know I house shared predominantly through my 20s and I did buy property on the side and I like to think that I had a good lifestyle, holidayed, socialized whatever.
I am married and got kids now and I still keep up that strategy as well because I don’t believe that investing in your property and living in that capacity is a good wealth creation vehicle because it’s expensive. No one takes into account how much money they actually spend on their interest repayments. No one remembers how much money they actually invested into renovations that didn’t actually add any significant value in terms of capital value to the property. No one remembers how much time they invest in mowing the lawn each week they don’t factor that labour into the equation. So I think it’s important to realize that if you want to own your own home then that’s great. You know it’s a really inspiring thing to do but it’s just it’s really expensive.
And just to be mindful of factoring all those things into account otherwise you’ll end up like myself and my mistake that I mentioned earlier about overcapitalizing and –
Having to sell.
Yeah. Yeah. Because you’ve overcommitted yourself. That’s right.
Why do you think people really want to own their own home?
It’s been indoctrinated into our belief system that it’s the right thing to do and legitimately is you know, owning your own home is it’s something aspirational that you should strive to. But I think the important thing to remember is that if you are currently renting you need to be investing. So what it all comes down to in my belief is that people want to create security in their life and they also want comfort. So you could be renting and you could have quite a comfortable lifestyle whatever that may mean to you. But if you actually want to create long term security in your life you need to be investing.
Because of his adoption of the rentvesting strategy, Mastroianni places huge importance of safe saving habits.
And if that means that you’re just chipping in a small amount of money on a regular basis into a managed funds or something that’s low risk to start growing a nest egg to continue to leverage off, it’s really important to do. Otherwise, you’ll just find yourself that you are in this trap of a rental cycle and you don’t actually acquire or build anything. So I think it’s really important just to invest and importantly invest with money that you can actually afford to do so with.
It doesn’t have to be in a property you know, in shares or invest in yourself or investing in a business or you know. I just think that it’s very important to build that on the side in order to create that comfort and security in life that we all want and deserve.
Taking the time to appreciate the important things in his life is important to Mastroianni and his success in property.
It’s to I guesswork towards my goals or my choices that I make and that’s largely to be healthy, wealthy, and wise and try to do good in my life and for my wife and for my little girl as well. That’s probably what a habit that I’ve had in terms of just reiterating to myself what’s important then and practising some gratitude because there’s a lot to be thankful for in my life. And you know things can be going up the crapper but there’s always lots of good stuff that’s around you and having an appreciation for that is is something that’s pretty good.
Research and establishing the fundamentals are also key contributors to his success, and what he recommends to newcomer investors.
I would consume as much information as you can bear to put up with. Everyone has a pretty wide view and there are lots of experts out in the market that’ll profess to a certain strategy but that’s great because you know there are lots of ways to approach it. But I think you know if you’re drawn to something you know to keep with it. Otherwise, just keep walking. But it’s good to have a pretty wide view of what’s available. And you know how you can actually build wealth through different strategies in the marketplace but do the fundamentals right which is you know keep on top of your commitments and be mindful of what your cash flow is and get your debt structures correctly and get that established correctly from the get-go. There’s a little bit of work a bit more work involved in that process but it should serve you well in the long term.
So what kind of information does Mastroianni use and how does he stay up to date?
I read lots of blog articles or you know consume a lot of content from the Internet.
It’s largely content around the property. Moreso about what’s actually happening in the market at this point in time in terms of specific geographical areas that are of interest. And what’s happening within the lending market. I don’t get caught up with all the bashing that takes place that you know the doom and gloom because you know that’s there to sell papers but I like to read widely around property and in finance and consume content from a pretty wide variety of sources and that’s largely just because I’ve set up Google alerts around some key terms that I’m interested in.
And whatever comes through on those alerts I’ll have a quick flick through just to just keep up stay with what’s happening and what’s on-trend in the marketplace at the moment.
By using the Internet as his main resource, Mastroianni is able to continue learning and developing as an investor.
Yeah, just really what comes up on the alerts. Domain publishes quite a lot. So they tend to be in the alerts pretty often. And there’s some good content on there. But tends to be a bit generic which is fine. And listen to podcasts.
You know this podcast is a great podcast and there are lots of others that are out there focused around property and investment that are good 20-30 minute pieces that are easily consumed. And if you pick up an idea or two from that you know that there’s time well spent.
So if Mastroianni were to meet his past self from 10 years ago, what would he tell him?
Work harder, work harder and concentrate more on your cash flow and your spending habits and get your lending or your borrowing positions in a better structure.
Looking to the future, Mastroianni’s main source of excitement is the growth of rentvesting.
It’s a trend that that’s rising in popularity and it’s great to be working with so many people that are inspired to take action and create some change in their life by going about and building wealth. It’s you know it’s really inspiring thing to see.
So how can you, the audience get in touch with Mastroianni and learn more about his strategy and success?
you can reach out to me directly through the website so go to loansonly.com.au. There’s a couple of resources on there that can be of interest. If you would like a copy of my book I am currently giving them away for free so I’m happy to post a copy of The Property Investors Buyers Guide. I was quite fortunate that it was listed in Money Magazine earlier this year as a book of the month so it’s meant to be a decent read. So jump onto rentvesting.com.au and go to the free resources. There’s plenty of stuff there to occupy your attention and I’m more than happy to send you a book if that’s going to be of interest.
You can also check out Mastroianni’s own podcast to hear even more.
The podcast is aptly named The Rentvesting Podcast – Rethink, Reinvent, Rentvest and you can also listen to that on rentvesting.com.au.
This episode was produced by Andrew Faleafaga with narrations and interviews conducted by Tyrone Shum.