{"id":12299,"date":"2017-06-20T03:00:43","date_gmt":"2017-06-19T17:00:43","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=12299"},"modified":"2017-06-20T03:00:43","modified_gmt":"2017-06-19T17:00:43","slug":"get-your-gearing-right-michael-yardney","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/get-your-gearing-right-michael-yardney\/","title":{"rendered":"Get your gearing right \u2013 Michael Yardney"},"content":{"rendered":"<p>What\u2019s the correct level of gearing at this time in the property cycle?\u00a0\u00a0 <a href=\"http:\/\/realestatetalk.com.au\/featured-channel\/michael-yardney\/\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>Michael Yardney<\/strong><\/a> says it depends what your strategy is.\u00a0 He explains.<br \/>\n<strong>Transcript:<\/strong><br \/>\n<b>Kevin:<\/b>\u00a0 What\u2019s the correct level of gearing at this time in the property cycle? Let\u2019s have a look at that. Michael Yardney joins me from Metropole Property Strategists.<br \/>\nGearing your way up the property ladder, Michael. How much gearing is sensible at this time?<br \/>\n<b>Michael:<\/b>\u00a0 Kevin, it\u2019s a good question at a time when interest rates are starting to creep up and people are wondering how they\u2019re going to cope. Let\u2019s talk of some big picture principles first, if we could.<br \/>\nIt depends what your strategy is. Some people are interested in cash flow-positive properties. My strategy is strong capital growth. Firstly, that will influence your gearing levels because if you\u2019re hoping for positive cash flow, you either have to buy secondary properties with better return or lower your loan-to-value ratios.<br \/>\nBut Kevin, when you start off, we all need money. Unless you win the lottery, none of us have a big windfall that you can actually invest with without any borrowing. I think beginners really have to just accept the fact that they start with as low a deposit as they can.<br \/>\nThere are still some banks lending at 90% loan-to-value ratio where you\u2019re putting 10% down, but the majority of the time, you have to put in 20% and borrow 80%, and even if you don\u2019t have that financial buffer we talk about, I guess the first step is to get in the market, and to do that, you usually have to borrow as much as you can, Kevin.<br \/>\n<b>Kevin:<\/b>\u00a0 Michael, what about midway up the ladder? Does that strategy change?<br \/>\n<b>Michael:<\/b>\u00a0 Yes.\u00a0 I think as you start to build your portfolio, you now have to take fewer risks and start securing your assets by giving yourself slightly lower loan-to-value ratios and putting some money aside in those cash flow buffers, whether it\u2019s in your offset account or in some other form, like a line of credit.<br \/>\nThe concept is to keep something there for the rainy day. But still, if you\u2019re at the asset growth stage of your investment career, you are going to have to stick to an 80% or so loan-to-value ratio.<br \/>\n<b>Kevin:<\/b>\u00a0 What about when you reach the top, Michael?<br \/>\n<b>Michael:<\/b>\u00a0 When you get to the next level, your aim is to start living off of your property investments. I believe in living off of equity; other people talk about living off of your cash flow. Either way, your job is to lower your loan-to-value ratios so that you can slowly transition from one stage to the next.<br \/>\n<b>K<\/b>e<b>vin:\u00a0\u00a0<\/b>Michael, how do you make that transition?<br \/>\n<b>Michael:<\/b>\u00a0 It doesn\u2019t happen overnight. Some people say sell a property. There are people saying to buy ten properties and at the end, sell five and keep five without any debt. It doesn\u2019t work because when you sell the properties, you pay capital gains tax, you pay agents\u2019 costs, and you only have about 20% equity in your property anyway because you have a loan against it. So, you don\u2019t end up being debt-free that way.<br \/>\nThe way I would propose it is just don\u2019t do anything; basically let your properties grow in value and your loan-to-value ratios slowly drop as the properties increase in value and you don\u2019t take on more loans. Or you can add some value to the property by doing renovations or development and getting better cash flow that way.<br \/>\nNow, I\u2019m not allowed to give superannuation advice, but I know some people take some money out of their super when they retire \u2013 and that can be in a tax-free environment \u2013 and pay off some of their debt, again lowering their loan-to-value ratios.<br \/>\nLook, sometimes you do have to sell a property to get out some extra equity to lower some debt. Another thing people can do as they transition to that stage where they\u2019re now going to live off of the cash flow of their properties, Kevin, is to add some commercial properties to their portfolio.<br \/>\nCommercial real estate has higher yields but lower growth, so it\u2019s inappropriate to do it too early in your investment journey, but near the end, that makes a good adjunct to your capital growth properties, Kevin.<br \/>\n<b>Kevin:<\/b>\u00a0 Well said, Michael. Thank you very much, and some very sound advice there.<br \/>\nMichael Yardney, of course, from Metropole Property Strategists. Thanks, Michael.<br \/>\n<b>Michael:<\/b>\u00a0 My pleasure, Kevin.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What\u2019s the correct level of gearing at this time in the property cycle?\u00a0\u00a0 Michael Yardney says it depends what your strategy is.\u00a0 He explains. Transcript: Kevin:\u00a0 What\u2019s the correct level of gearing at this time in the property cycle? Let\u2019s have a look at that&#8230;.<\/p>\n","protected":false},"author":176692471,"featured_media":12303,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[34,10,11,13,36,25],"tags":[101],"class_list":["post-12299","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance-topic","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-property-investment-topic","category-sponsored-channels","tag-podcast"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Get your gearing right \u2013 Michael Yardney - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/get-your-gearing-right-michael-yardney\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Get your gearing right \u2013 Michael Yardney - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"What\u2019s the correct level of gearing at this time in the property cycle?\u00a0\u00a0 Michael Yardney says it depends what your strategy is.\u00a0 He explains. 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