Transcription
[Music] What I'm going to do is I'm going to give you guys a strategy here. I'll use my testimonial example where they owed five hundred thousand dollars. All right, the house is worth over a mill. They put their eleven thousand dollars a month into the house. Their $1000 goes in. They needed $750 a week for food, fuel, and fun to live. All right, and they needed $2,500 for bills, which left $5,500 a month. Times 12 equals $66,000 minus their interest of $21,450 equals $44,550 off their home loan every year. I remember that from this morning. Yeah.
Now, what I'm going to do is I'm going to say we have a lot of equity in the home. So let's go and buy a series of investment properties. Only that a cash flow positive in nature. Okay. Now, each of these investment properties was up to or under $500,000. Okay. Have I got me? Now, how much rent do you think you get on a $500,000 property? We're getting about $650, $680. So in this scenario, I'm just going to say $625 times four equals $2,500. All right.
Now, on your calculator, if I borrow the full purchase price and use the equity, $500,000 debt times three percent per annum, it's a high rate for investment, say it's making a number up, divided by 365. So it's going to equal $15,000 a year. Divided by 365 equals $41 a day. Times 30-day calendar month equals $1,232 in interest-only repayments every month. So don't worry about the formula too much, but does everyone understand if you had an investment loan for $500,000, interest only at three, it's going to cost you $1,232 a month? Does everyone understand that? Cool.
Now, if I'm getting $2,500 in rent and I'm losing $1,232 in interest only, how much money do I make while I sleep each month? Cash money. Yeah. Everyone understand before expenses that are deductible? But let's go back a step. If each of these properties are all earned $2,500 at least, at least, am I now times four earning $10,000 a month while I sleep before expenses and interest? Yes or no? Yes. Good.
Now, you've all been taught to have a rent account or let the property manager keep your money and pay it once a month. That put the two and a half into your fully transactional home loan. So that at the end of every month, instead of five and a half grand when you get your five and a half grand off it, you'd actually have another $10. So you'd have $15,500 sitting in your home loan. Yes or no? Now, I'm using other people's money to reduce my daily non-deductible interest. How smart am I? You're so smart. You're so effing smart. All right. I'm using $10,000 a month of cash flow to reduce interest.
Now, once a month, people go, "But you've got to pay the loan." Okay. $1,232, $1,232, $1,232, $1,232 times four. All right. So $1,232 times four is $4,928. If I'm earning $10,000 while I sleep and have to pay $4,920, am I not making $5,072 to sit in my home loan while I sleep every single month? Yes or no? Who'd like an extra $5,000 a month or $60,000 a year sitting in their home loan for free? Exactly.
So this is why it's important that you're structured correctly. The depreciation, the deductions, the cash flow. Because if I'm in Sydney, most people go to Coogee or Bondi and buy a beautiful apartment for $1.5 million that rents for $500. Then they pay body corporate and strata and maintenance and all that, and they actually pay $20, $30,000 a year, and they think it's about to be negatively geared. It's a fancy word for losing money. Negative. I don't get out of bed for my clients to lose money. All right. Does everyone understand? You need positive cash flow while you wait for capital growth or neutral cash flow. If you invest, you should get a return. You don't buy shares to watch them drop in value. You don't buy houses to watch them drop in value. Does everyone understand this example and why I've called it a waterfall?
Because if we now get $5,500 a month plus the net $5,500 over here and make another $5, now I've got over $10,000 a month on my loan. So I get an extra $60,000 a year off my home loan. Does everyone understand that? So if I can take over in this scenario $44,000 off my home loan and now use other people's money for $60, I can take $104,000 a year off my home loan. And I get more off my home loan using other people's money than I do paying it myself. Tarek and Nicole, what happens if you lose a tenant? Doesn't matter. Landlord's insurance. Landlord's insurance. Hundreds of properties. Landlord's insurance. By the way, for my customers, not from me, not from the seller, not from Stockland, Lend Lease, the builder, the developer. I get Ray White, LJ Hooker, and McGrath. I'm an arrogant little. If you do investing with me, I make the local property manager guarantee your rent for three to four years if you buy through me because I'll give them 30 people in the area or 300 people in the area where wholesale, not retail.