In today’s show we talk with Michael Beresford, the Senior Investment Consultant and Executive Director at Open Wealth Creation, a part of Open Corporation. Michael has been helping people build property portfolios for many years and he talks about how a lack of a finance strategy has held many investors back.
Kevin: My next guest is Michael Beresford. Michael is the Senior Investment Consultant and Executive Director at Open Wealth Creation, a part of Open Corporation. They’ve been helping people build property portfolios for decades – $4 billion worth, in fact, and over 7000 properties in their portfolios.
Michael has personally guided his clients in acquiring over $100 million worth of investment property using the same strategies that he has used to develop his own portfolio.
Hi, Michael. Thanks for your time.
Michael: No worries at all, Kevin. It’s good to talk to you.
Kevin: In your experience that I mentioned about how many people you’ve helped, you must have seen a few lessons along the way?
Michael: Lots of them. What we teach our clients is what we’ve done ourselves, so unfortunately, most of the mistakes have been made by us to start with.
Kevin: I suppose we’re all in that boat, that’s for sure. Can you just answer one question for me: what do you think it is that holds most people back from getting their second or even third property?
Michael: I’d have to put that down to two key things, Kevin. The first is an understanding of why a plan and a strategy to be able to get more than one property is important. But assuming that you have that motivation and that clarity, by far the key point would be not having finance set up in the right way.
What I mean by that is having a set up where you typically go back to the bank you feel you have a relationship with, but that results in having too many eggs in the one basket. The bank has all of the control, and it doesn’t allow you the flexibility to be able to pull the equity out when you want it and need it to be able to get the next property and so on.
Kevin: You’re talking there about cross-collateralization?
Michael: Yes, it’s a hard one to say, isn’t it? That’s exactly right.
Kevin: Is that the biggest mistake you think people make with their finance?
Michael: By far, yes. It just comes down to control, because if the bank has the control, then they can be overly conservative on valuations, they can restrict LVRs, and they’ll try to get you into a fixed interest rate that’s very expensive to break. All of those scenarios basically end up with the bank holding all of the cards and not giving you any flexibility to control that process.
Kevin: One of the most common questions that I’m asked is: who should I take advice from?
How do you know when you’re dealing with a good property advisor?
Michael: If I use my own experience, like anything in life, I take advice from people that are doing it themselves. Then it’s not second-hand information, it’s not theory; it’s actual experience. The best way to be able to avoid mistakes you might encounter is to learn from people who have made them already.
Kevin: Just getting back to finance for a moment, finance can be daunting. If someone is struggling with that, where do you think they should start?
Michael: That’s a great question. The first step that anyone needs to take is to actually understand their position. The calculators the banks use are forever changing, so what might have been the situation three or four months ago might be very different compared with today. So always understand your borrowing capacity as the first step. Unless you can actually understand what you can borrow, there’s no point in looking at properties or starting to implement a strategy if you don’t know what you can get from the bank to start with.
Kevin: How important do you think it is for people to monitor interest rates?
Michael: Definitely important, because the lower the interest rate, typically the more it helps your borrowing capacity. It’s very important from that perspective. But the banks love to market their products based on a low rate, and one of the big key things to avoid is focusing too much on interest rates.
I’m not saying you want to have an expensive loan product – it needs to be within reason – but ensuring that you’re taking a structural focus – i.e. having different properties with different banks and avoiding cross-collateralization – is going to be far more effective in the big picture of your portfolio than saving 0.1% or 0.2% here and there.
Kevin: Good advice. Michael, I want to thank you for your time. Thank you for being with us, and I look forward to talking to you again soon.
Michael: You’re welcome, Kevin. Thanks for having me.