Episode 14 Cash Flow Versus Capital. The Complete Transcript

www.creativerealestate.com.au Episode 14 Cash Flow Versus Capital The Complete Transcript www.creativerealestate.com.au 1

Rick Otton, welcome back to Creative Real Estate! Benny, Benny, here we are another week! This is where we talk about our street-smart secrets to real estate wealth. Now we ve got a really good podcast today. We re going to talk about cashflow versus capital growth. My God, isn t that one that comes up and down! But we like to talk about it in this light, we say, Cash now, or cash later? Cash later? OK. That s exactly right. And you know where I want my cash! Now. I want my cash now. And you know why, because how many people have waited for the cash later, and it never arrived? Never arrived. And they re actually paying cash out to get the cash later. Now, I ll tell you what yeah! And I like cash now, that cash now, I mean, that s it! I suppose it s all in? 2

Well, yeah. It falls in, in the back pocket, and you can go and do something. Go out to dinner tonight. And think about all the people who ve hung in there for the capital growth, and either it hasn t happened, or something s happened to them. And because something s happened to them, they ve never even got the capital gain. That s right. I like the choice now, I like the ability to make decisions now, based on money that s coming in now. I like to be able to decide on a Tuesday afternoon if I m going to go and have lunch at a café with my wife, or something like that. Yeah, that s right. But let s go back a little bit, and let s go because we know that the whole world out there goes, Capital growth, capital growth, capital growth! Buy, hold, never sell. And I think you know that s funny and I think if we go back in past history, there are some trends that we could follow that could support that methodology. That s right. 3

The only problem is, Benny, the whole world went off a cliff in about June-July, 2008, and it hasn t really come back. Yeah, I think, though, Rick, I mean, looking at the methodology that does support that system. Uh-uh..it has been in place, you know, for some time now. And it has worked for a little bit of time. But clearly it s not sustainable, and it s not going to last forever. Well, you know what, people talk about this property doubling in what, eight or nine years? But you realize it s only been since 1972. Yes. How do they guess how long it took for a property to double in value in Australia prior to 1972 38 years! 38 years. 38 years. To double it. Yeah, so we ll give it 38 years to double, right. So if we jumped in in 1972, they started doubling in eight or nine years. And I ll tell you why, because the baby boomer generation after the war started forming families. 4

Ah-hah! So 1987-1989 were the two crisis years, with the biggest demand on monetary policy around the world. That s why interest rates went so high, as everybody s forming up families and buying more houses, refrigerators, cars, and all that sort of stuff, right? Mmmm. So inflation skyrockets? Now the baby boomer eggs are getting old, you know, and we re sort of spending less. So this whole doubling every nine years of course, you know, with the world crisis that s sort of happened, it s also changing. So I think it s important to acknowledge that some people made plenty of money out of that system over the years. Yep..and there s plenty of people that have done it. Now. And that s not to say it was a bad system. The question is, is it the right system To use for now? for now, knowing where the world s going? 5

And what s brought this topic to light today is, I ve been reading the news a bit, and getting some magazines out of the news agency. And I ve found that just about nine out of ten magazines on property investing are talking about positive cashflow properties. And a lot of the topics are, you know, the top places in the country to find positive cashflow properties. Hey, let me stop you right there. Why do you think the magazines themselves are now screaming headlines themselves, Positive Cashflow Properties? Because they know themselves that there is that this old system of buy-hold capital growth is not going to work for the next step and moving forward. Correct. Correct. So that s why they have come in with a new marketing position of Cashflow, cashflow. And they ve come in on the new marketing position, too. It s because they can no longer themselves make money out of the old system, and they want all their subscribers to follow and buy their property. Well, yeah, no one s going to listen. If they re going to try to sell articles on massive capital growth, then no one s going to buy that off the news stand, because I think the whole world s realized those days are gone. But there s something that you were about to say, and I interrupted you, because you were saying they re on they ve got one bit right, which is let s all get in to the cashflow. But what do you think is wrong with what they re saying? 6

The part they ve got wrong is, they re trying to transfer their old system.of capital growth and use the same system to make cashflow. And the only way they can do that is by buying a property in the middle of the desert. And so what they re doing is, they re getting everybody to stop investing in the city, and they re going and investing in mining towns and regional areas, one-industry towns, you know, abattoir towns, all that sort of stuff. Well, you know why, because they ve locked themselves in to this process of well, they ve got to go to the bank, put down 80 percent down, put a 20 percent deposit, and let s look at the rents compared to the payments on the 80 percent, right? Where can we do that, make a positive cashflow?11km s west of woop woop! And the reason they re getting that is because these towns have workers in them who quite often fly in and fly out. Two weeks on, two weeks off, that type of stuff. Now, what s that mean with those guys is, they don t want to buy a house around there. But they re all earning super-sized incomes. 7

Super-sized incomes. So what s happening with those super-sized incomes is, they re happy to spend a larger amount of it on rent and not buy there, because let s face it, what s the incentive to buy in a tiny little mining town? Correct. I mean, who wants to go down to the local club (like they obviously have done) and say, Hey, how would you like to come and live in Humpy, in the middle of nowhere? That s just not that exciting to anybody. So they re prepared to pay the big rents for the short period of time, for the contract that they re in there. And where people get make it all messy is, they re going, I ve got this positive cashflow property. But here s the problem what happens when something runs out, or the contract stops..or when what America is full of towns like these, ghost towns. Well, this is it. What happens when all the gold s been dug up? Yep. What happens when there is no more gold, and everyone packs up and goes, and you ve got this house in the tumbleweed in flying past. What happens then? 8

So we ve got a formula, so we re not saying so we re on board on the cashflow thing, you know, because we like the idea of cashflow. Now it gives me choice to do what I want to do. See here s the thing, I can t go and eat on capital growth. No. I think it s interesting how people come in and sit down with me and they go, We re asset-rich and cash-poor. And they re sitting in a coffee shop and they can t afford their own noodle. Yes..because they ve got all this capital growth, a city of houses, but they can t pay for a soft drink, do you know what I mean which is sort of funny! (Laughter) Yeah, it s funny when we drive through the suburbs and there are all these bite marks on the houses! (Laughing) So here s the point you ve got this cashflow stuff, but the formula is wrong. The formula was yesterday s formula, which is, Well, what would my rent be, and what s my bank payment, and I ll put down 20 percent. And then they re trying to talk that into the cashflow. 9

And they re trying to talk yield, and you know, good investment, and all this kind of thing. And once again, when they re talking about cashflow, this is the common thing. When I went through all the figures laid out in the recent magazine, I read about all this. The cashflow in there wasn t all that exciting. It s kind of like, Okay, I m a property investor, I m in the game. I can t keep buying in the same areas because I m losing money. I ll buy one here because I m a property investor and I have to keep buying. Yep. So if I buy one there, now they might get I mean, some of these returns they re getting 50 bucks a week..and all that kind of stuff. And I d rather get an extra newspaper round, or something, than. And you know, they talk about these returns that are so low. And you re thinking, now let s face it wow! I mean, yeah, you mean, that s it? That s it? But you see from the perspective of they ve always been so badly negatively geared, that looks like such a turnaround change. 10

It does. And I think what I found with a lot of these investors is, a lot of them are happy just to be neutrally geared. They think a neutrally geared investment is great, and one that looks after itself. Right. So for them to get, say, their 50 bucks a week, they re like, Wow! 50 bucks a week. All of a sudden I m not 800 dollars a month negative, I m getting some money! I think we ve got the country with us right now, who are probably listening. And you know, when I do talks and I say, Put up your hands if you think the old system s still around. And tell me if you think it s all changed. And 80 percent of any room will now say that it s a new rulebook, totally new rulebook. Forget the old rules of doubling every eight or nine years. It s all gone. I mean, let s face it, in Australia it s what, ten years to buy a house? The rest of the world it s two and a half years of average earnings, so that s all finished. What we should be doing now is saying, OK. If we all agree it s all about cashflow, then it should be, where do we maximize the cashflow? That s right. And I don t think it s where you buy the property, Benny. I think it s how you buy the property. I totally agree, Rick. And one thing that I put on my checklist if I m going to look at a property and I think that it could be the right one is, If my tenant leaves, I want to know that I ve got a line of them to come in the next day. 11

Now, I m not that confident that in some of these small towns I could have a line of people to come in the next day. Correct. We recently had a situation where there was a bit of a hiccup in the economy. And all of a sudden, you don t know yeah, one of the students was telling me when they re selling out of these mining towns, they re not necessarily coming back in. Uh-huh. So all of a sudden you re not going to find any tenants coming in, because they re going out. Now, another mining town might be where they re going to. Yes. But your problem is, your house is in that old mining town where everybody no longer wants to be, because once everybody packs up tools and leaves, you ve got nothing. Well, I ll tell you something interesting. I spoke to a couple of sellers during the week who had bought these places in mining towns. And something that was almost frightful to me was where I was talking to these sellers, and I said, OK. Tell me about the house. Well, it s 12

two-bedroom, it s this, cost me this much. I said, Oh, that s pretty cheap for a house like that. So I said, Well, what size land does it sit on? Oh, there s no land. It s just like this unit thing on common land that they don t own. And then they rent it out and receive positive cashflow. So I m like, Wow! So what happens when, you know, like they go, and if everybody s going, they ve got this unit thing on land that you don t own the land..but what happens then? OK. So let s talk about how where you can still have positive cashflow properties, but without going to the middle of nowhere. Well, let s even better, one step further have positive cashflow properties in the middle of nowhere, with expenses that you don t even have to pay for anyway, like you don t have to pay any rates, water, and all that sort of stuff so imagine that! No management hassles, all the rest of it. One of the other things I ll tell you what I have seen, all right? I see a lot of people going to, say, the United States to have positive cashflow properties. But what they do, they forget about all the expenses associated with it flying over there, immigration, tax returns. Right. So a lot of all the head-on costs will wipe out the positive cashflow there. 13

Well, let s look at your buying side of it. Firstly we ve covered this in previous podcasts we can come in, a seller s loan is already in place. And we just say, Well, look, we ll just make payments on that property until the payments stop, and..that s it. And how long can we do that for? Look, and I had a fantastic one, where the seller let the rentage property for five years, which was in a market rental. Now, what I was able to do, I made massive profit on that by turning it around and letting somebody make the payments to me based on the fact that they were buying it, do you read me? Yes. Now, they were making payments to me based on the fact that they were buying it. But I m making payments to the seller based on the fact that I m renting it from the seller. Now at the end of the day, when I had to pay him off in five years, well the guy that was buying it of me had to buy it off me in five years. So we both had the same action done. But I made massive positive cashflow, you know, in the eastern suburbs of Sydney. And people go, Well, how did you do that? 14

It was all about the thinking behind it, which was basically saying to the seller, I ll give you what you want. But let me just pay rent on it, but I ll give you the price of what you want. In five years had to write the check, turned around to the next guy and said, Mate, the payments on this price are about three to four times what the rent was massive cashflow, but I m right there in the eastern suburbs. So what you re basically saying, Rick, is that it s not what you buy, it s how you buy it. It s how you buy it and how you structure it and how you put it together. And if you decide that it s got a cashflow, what you can t do is go to the library and pull up an old book on real estate, because all that s going to have all of the old systems prior to the global financial crisis, which, by the way, hasn t gone away. Yes. It s still with us. It ll linger around for another ten years. Right. So you can t be using old systems for what I call today s new world. It s a new world, and you can t be using old systems anymore. OK. So, look, let s back up. So we re saying in a ring of 15 kilometers around the city. 15

.for example, you re saying we ll find positive cashflow properties if we buy it the right way. It s how we structure it, yeah. OK. Now, think about this. Let s just say most people who I d say rent out a property now a lot of people who are renting out properties right now, Benny, the actual reason why they re renting out is because they can t sell them. They can t sell them for the price they want for them, so they ve decided to concede and rent it. Now, it s not that hard or not that big a leap to say to people, Look, I ll tell you what, I ll pay you the price you want for the property quite often people will say, if I can t get the price I want I ll rent it. So I ll just say, Look, I ll rent it while I m getting you the price you want! I ll do both things I ll be your tenant and your buyer. And I ll rent it while I get the price you want. And while I m doing that, I ve sub-rented it to somebody else, or sub-leased it. Somebody else is covering the rent. I m saying, Listen, why don t you buy this thing for me for the going price? You ve got five years to make payments to me, and then just sort of, you know, re-finance it or take me out, or sell 16

it or cash it or pay me off then. The payment they re making me coming in is substantially higher than the payment I ve got going out. And the other think I like about it, Benny, is that I don t have any bank loans. That s really the clincher for me, Rick..because I don t get bank loans any more, and I stopped doing that some years ago, because I just found the amount of transactions I can be involved in without having to get bank loans are a whole lot greater than they are if I ve got to sit down and fill in all the forms. Ah, and there are so many forms they use these days! Oh, those forms! They form you to death! And you know what, in actual fact, if they re not going to approve you for the loan, you know they actually don t tell you that. They just give you another form. They do. And they keep asking for more and more information. And they think with so many forms, you ll just go away! 17

And they form you to death! Yeah, you do you just disappear. You fall off the iceberg. You re gone! Yeah, you re out! Well, what their strategy is, is to make you go, Oh, I m sick of this process. I m going to go and try another bank. That s it. Then they ll say, No, no, because everybody s worried that you won t be able to get you know, discriminative, not giving you the loan or whatever, right? That s it. So, you know, you go on somewhere else. So that sort of makes sense. So anyway, look, getting back to, It s not what you buy, it s how you buy it. Let s drill down on that for a second. So the way we buy it is, we re not getting bank loans, we re not paying stamp duty, and we re not having to take 20 percent deposit out of our bank. Well, we prefer not to, yeah. And it s just all about how you operate it. Can I ask you to interrupt, because this is really quite interesting? Because we are talking about positive cashflow today. Now, I don t know if you remember this, but a couple of weeks ago we talked about a 10-10 strategy. 18

We did. Right. I told the listeners that I paid the sellers 10 percent more for the property over ten years. And I think I told them about a 400 thousand dollar property I did. And I think the concept that we were getting across to people was, if I pay the seller what he wants and I add 10 percent to it, I can make payments over ten years. And if I work out what the payments are, it s about one third of what I would have paid for that house, as opposed to financing it over thirty years. Over thirty years, yes. See what I m saying? OK. It was interesting because I was talking to you on the podcast, you know, and for the concept example I said, you know, 400 went to 440 over ten years, about 68 hundred a month, or whatever it was. And one of the viewers or I m sorry, one of the listeners contacted me and said, Actually it s about three and a half grand a month, which it is. It s actually about three and a half grand a month, and it s actually negatively geared, like that wouldn t positively gear. Because the point of that exercise was, on a 10-10, when you re ready to sell it, that s 7 percent over 30 years. Your cashflow, or where you make the money, is that last 20 years that it s all free and clear. Correct. So you are actually negatively geared. So just for the person who or for those people who are listening for 10-10 if you do a 10-10, you ll probably be negatively geared for the first ten years, because that strategy is designed to give you that last 20 years of cashflow. 19

Yes. So sometimes when we talk about our cashflow strategies, it s not straight-up where the cashflow is. It s just how we ve designed it and positioned it, you know. That s right, yeah. But if you ve done enough transactions that are bringing in positive cashflow, you can put a couple 10-10 s. Well, that s it, yeah, correct. in your back pocket. It s going to offset it. Absolutely, and then that looks after I mean, 20 years of all the money coming in with nothing going out is pretty good. It s pretty special, isn t it? And you don t have to change your friends, because once you start telling them you re doing that, they ll wonder how you do it, and. They ll say, Well, really? Yeah, really? Do you really do that? Is that possible? (Laughing) 20

It s not possible! Now Rick, a lot of people are going to sit here and say, Where do you find these properties? OK, well, where do you find a house like that? Well, great example, retired people. I had a gentleman recently who was retiring, and 475 thousand, he s selling his house for. And I asked him, I said, Simple question why are you selling the house? And he said, Well, obviously, to go into retirement. And I said, What are you going to do with the money? He said, Put it in the bank. I said, Why are you doing that? And he said he wanted an income stream, because he was going in retirement. So he was selling the house for 475 to get an income stream out of the banking system to go into retirement. So the most important thing here wasn t selling the house. The most important thing was to get the maximized income stream that he could get out of the bank, to go into retirement. And it really wasn t that hard a move to say, Well, you know, what s the interest rate you re going to get from the bank? What s the income stream? And what s the tax? Correct. What s the income stream? Because at the end of the day, all I said was, Look, why don t we do this? I ll give you the 475 you want for the house. And I ll also pay you interest on it. I ll pay you, you know, 6 percent interest on the 475. So I m actually buying his house just as if he s the banker. So he goes to see the solicitor. The solicitor gives me the first mortgage, and I m paying that seller 475 at 6 percent. 21

And you re getting the title. Well, that s it. I ve got the title to it, and he s got the first mortgage position, which solicitors can do all day long. Otherwise, if they don t know how to do that, they should be a baker! And he was only going to get three and a half percent interest on his money in the bank. So I mean, he s getting like 55 percent more income stream, because I m paying 6 percent. Now my perspective is this: I would much rather get 100 percent financing from that gentleman at 475 at 6 percent, and making payments direct, while on three or four bits of paper, than paying with a bank, putting 20 percent down. That s right..being liable for bank loans on my credit report. And so, Rick, buying that house, how many forms did you have to fill in? On that one I basically had to do four. Four forms! Four forms! I mean, were they big forms, or small forms? No, no, little forms. 22

Just little forms? Just little forms. Just yeah, little forms didn t turn into big forms. And they re really easy to do. So there wasn t like a, you know. Because they d already been typed out by the solicitors and stuff, and it was like, Sign here, sign here. That s the sign that gives you the keys, and that s the sign. Oh, so you don t actually have to fill in any forms to qualify for the seller financing. No, no, I didn t have to do that. Oh, great! So there s no forms, there s no forms that. No, it s just going to be the solicitor. I ll have the solicitors transfer the thing to me. You just sign the mortgage. I just sign the mortgage. The guy s just taking back the mortgage loan. Now, the one thing we had to agree on is. 23

OK, before we go on. Let s just stop there for the listeners, and let s just clarify Rick s gone and got a mortgage without filling zero application forms in. That s correct. Yeah, and the mortgage was with the seller, who owns the property. So now the title is going to me, I m the owner of the property. And he s, you know, got a first mortgage to protect his interest, are you with me? Yes. So I m making payments on his 475 at 6 percent over 30 years. We only had one issue, and what do you think that was? How he was going to get the money. No. No? Whether he was going to be alive in 30 years. Oh, OK. Now, he looked healthy! 24

But you can t assume things. Well, that s it. So I said, Look, I ll tell you what I ll do. I ll balloon it in ten. There you go. So, once I finish making ten years payments, whatever the outstanding balance is, I ll cut you a check. OK. Now I reckon that in ten years time I ve got to have some equity in this position, in this place, that I can get somebody from somewhere, right? You got it. Ten years. Now, but the great part of it is, he s happy with that. He s got money for ten years. He s got the full retire price for his house. He s got the cashflow coming in. Right! For ten years, OK. Yeah, that s great! For him it s great. And also, he s getting the money at the bank-out which would have been what, only 2 or 3 percent had he tried to cash the thing in. 25

And Rick, some people are probably going to be wondering themselves, were you paying him interest-only on this loan, or principal and interest? No, on this particular one, principal and interest. OK. So it s principal/interest. So in actual fact he s getting a little bit of his principal paid to him, so he should have been getting a really good monthly amount that you were giving him. He s getting a great monthly amount. At the end of the day, he was going to be trading now, here s the interesting part: he had it on the market at 475. He hadn t sold it. Right. And my question is, I wonder whether somebody else would have paid him the 475, or whether they would have ended paying 430 or 420..which means he would have got less money anyway. Then that person would have gone back and tried to get a bank loan and tried to put down the 20 percent. I was better off just saying, Mate, I ll pay you the 475. You finance me at, you know what, 6 percent, 30 years, start tomorrow. You ve got your income stream. Because at the end of the day, he s comparing the income stream from me compared to what the income stream would be if he d got the 475 at the bank. 26

But not only that, Rick, from what I m understanding about this transaction, his capital position s better, too, because he is getting the 475 after all. Correct. So he s fifty or sixty grand, maybe, better off. Right..than what he would have been pursuing a cash sale. He s getting all the income, and.. And you know, that type of transaction is very, very easy. So most solicitors can do it. See, they do it with banks all day long, because it s a simple mortgage and title. Yeah, that s it. So it s a really, really straight, clean, simple, easy transaction. So that deal would have taken you 30 minutes to buy. Yep. And now, what did you do with the house once you got it? I had tenants in it. 27

I know you ve got a tenant in it. But for the benefit of the listeners, they d probably like to know what sort of tenant you ve got in there. Well, I ve got a tenant in there who has the option to buy it. Right. So the tenant in there, I m assuming, is paying you more than what you re paying at 6 percent out to the seller? Basically here s what I ve done I ve said to my guy, Listen, do you want to be a tenant or do you want to be a future homeowner? Now, he would prefer to be a future homeowner, because I ve found that not many tenants, given the choice, want to pay dead rent. Right. So he s come in as a future homeowner. And he should be making payments to me based on the fact that he s buying the property. Right. OK. Now, he can buy the property. He doesn t have to buy the property. Got it. Now, the way I ve done it with him is and as you and I both know, we can do these all differently. He can also buy it at four hundred and seventy-five thousand. Right. 28

But he had to give me ten thousand dollars up-front to be in the game. OK. So let s. So just to be in the situation where his rent is going towards buying it, he s got to give me ten thousand up front. OK. So let s recap here. You ve bought this house with zero money in. The seller has given you a first mortgage. You have the title. You re paying him at 6 percent interest, paying him 475. And now you ve put your tenant in who s just paid you ten thousand dollars. That s correct, up front! OK. So you ve got zero invested into the transaction. Nothing. And you ve walked out so far with 10 thousand dollars. Correct. That s very clever. I thought so! That s why I did it that way. Now, the guy might decide to buy it or he might decide and might decide not to renew it. OK. So how long has this. 29

And what I ve found is well, hang on one other thing that I love to do with my rent-to-buy people if my rent-to-buy people decide not to buy it for ten thousand dollars they gave me up-front, I m happy to put that towards any other rent-to-buy property they may want to do with me at some future point. OK. So you might have one on the other side of town. Yeah! They decide to move, and you say, That s all right. We ll just transfer you to that place, and your ten thousand dollars just gets transferred. Now for that reason, people would prefer to pay me even more money, ten or fifteen thousand to get in, because they know they haven t actually lost it. It s always in limbo. So they might say, Look, can I come back in a couple of years time and if I want to buy another property, can I put that money towards that? And I m like, Sure! OK, great! OK. So this person in this house has the option to buy the property. Correct. How long does his option go for, to buy this property? I m assuming you have a conclusion date? 30

Yeah, I ve got two years on this. Now, let me tell you what his plan is. His plan is to do some work on this property and improve see, he believes this property because this was a little old man that was in that property. You know, it s been the old carpet s been run-down. He s been there for a long, long time. So this guy actually wants to come in and improve the property and get out, and he thinks he wants to make a quick 50 thousand on it himself. Right. Now, his positioning statement is, he s paid me ten. He wants to make fifty on his ten. He didn t need to get a bank loan. He s essentially dropped in ten to pull out fifty profit, are you with me? OK, got it. Now, his positioning statement is, Why would I want to renovate places or fix places up and get bank loans and go through stamp duty and all that, when I can come along and give you ten grand and I ve got control of the property, fix it up, get in, get out, paint it, put some nice carpets in it, nice beaucoup blinds, go over to the next one, and make fifty grand? He s a happy camper doing that. Sure. OK. So his strategy is to get out in two years. That s his strategy and I think he ll be out a long time before that. 31

OK. But anyhow, two years. I understand. Now, can he go again? Yeah, I ll extend it. Well, I m just thinking out loud, Rick, with something like this. Now, if you were able to finish something like this up in two years, but you ve set it up for ten.. Right..there could just be an opportunity that the seller might decide, a two-year discount, or something like that I m just throwing it out. And look, I ve had a situation before where I ve just sort of said to sellers, Well, look, I ll tell you what, if at the end of the day, if I could clean this up in two years instead of ten.. because I ve had situations happen to me like this before where I ve put people in properties, and because they re more efficient than what they thought, they ve said, Look, you know, we re ready to rock and roll now. Now, I ve just said to sellers quite often, If I could make this thing happen quicker than the ten years, is there a discount that goes along with that? And quite often a lot of sellers and I m like this myself, Ben if I m doing a transaction and someone owes me fifty grand, and they say, Look, at the last minute, I ve got fourty-five now or we go fifty later, I ll take the forty-five now. 32

That s right, yes. So. Go on to the next deal. Go on to the next deal I m able to go on to the next deal. And probably there may be a time when a phone call might come and say, Listen, if I could make this happen now instead of another eight years I ll do either way. : But you know, Is there some sort of a discount if I make it happen earlier? Now, experience says that 99.9 percent of the people will say, Well, look, yeah, heck, I think that d be great if you could make it happen earlier, and how about we say just give me X dollars, whatever. And so some discount gets in built in along there. But that s something that you know, you just find as you go along. But I ve found over the years, I m that way myself. If someone owes me some money, or they re doing something and I m making my profit, and somebody s thinking they re going to pay me the money earlier, the opportunity cost of 33

money, with what I can do with it, I ll take their position and say, Yeah, sure! And I ll shave a few thousand dollars off of it and move on. It s interesting what you said then, Rick. You just said, the opportunity cost of the money. Just elaborate on that for people. Well, the opportunity cost of the money really means, what could that money be doing for you that it s not doing for you because it s tied up somewhere else? In this deal. OK. One of the things that I always look at, I look at the situation right now today, and I ve got some money tied up, and I m thinking, Is that money now working the best way, or is it lazy money? Lazy money means it s not actually making me any money. It s stopped doing anything. It s not doing anything, just sitting there. And a lot of people go right now they ve got investment properties, and they ve got lazy money equity sitting in there, and they re actually now doing their sums and 34

going, This market s not getting any better. I ve got all that lazy money. Is it the best way for them to be using their funds right now, or is there an opportunity of doing something better with some of it? So a lot of people, they go, Guess I ve got money locked up. What I could I do? I could do this with it, that with it, this with it, that with it. And I think that s one of those things where people have to start looking at all the time. And I do. Otherwise, you ve got all sorts of money sitting around that s actually not doing anything. It s not doing anything. But where I see opportunity in this market right now, Rick, is, all these people who have had some capital growth, and they re sitting on these unencumbered debt-free properties. And they want to fund their retirement, or whatever they re doing at the moment. They actually want they want to cross over to the cashflow, see? They do. They want to cross over. They re asset-rich but they re screaming for cashflow. They re screaming for cashflow. Now, what I see with the younger generation is, they ve all got pretty good jobs, and they have the cashflow. But they ve got no assets. And so where I see the opportunity right now is to cross the two over, and be the transaction person crossing the two over. So what I mean by that is, if you ve got 35

somebody with an unencumbered debt-free property, and they want the cashflow, well, why not try and match them up with somebody who doesn t have the big down-payment to get in, but they ve got all the cashflow.. Correct..to provide them income for the rest of their lives. Yeah, we have a whole sea of yuppie people out there who have great jobs, earning a phenomenal amount of money. But they haven t got those deposit bits anywhere, you know? So they ve got incredible ability to pay. So it s a great cashflow as a trade-off for them buying into a position, because they don t have the position. So they re buying into the position the seller wants to sell out. But of course, the seller wants to sell out and have some cashflow, because I remember a great article I read in a British newspaper one day. And it said, What is it about Australians? They re really weird. They have these great houses. They can t afford to put any furniture in them, so if you go to an Australian s house, it ll look great on the outside. Massive houses. No one could afford any furniture except what s been handed down from Grandma for 99 years. But at 65, they sell this massive asset to get their walking stick to go on the Contiki bus tour and do their one trip around at the age of 75, do you know what I mean? Yep. 36

Well, then they come back and crawl in a box. So the thing is, that s changing is their whole thinking is shifting, especially now with the generation going, We ve got these great assets. How do we get the money out? That s it. That s the problem. And see, what I m finding and a lot of people, after listening to our podcasts, will ring up and they ll say, Look, I have a seller. They re interested in doing a deal, but they just want all their cash. And what s the answer to that? Well, everybody wants all their cash! I mean. That s the whole world, isn t it? They want their cashflow, because it s not working for them. Correct. How s it working for them, which it s not. And the other thing is, the only reason why people want all their cash is that they haven t been shown any other way in which they can profit. And they usually want their cash to put somewhere else to make them some income. 37

Correct. And quite often people, because they want instant gratification, when I say I want all my cash, they re prepared to discount the house for cash to get the instant gratification. I d rather to say to a buyer, You know what? I m happy for delayed gratification. I ll take all my money at the full retail price and let you pay me off, but I ll get a lot more money for it than trying to discount it for cash because everybody knows, Ben, when you go the electronics store and you want to buy anything, everybody wants the cash discount. So when you say to people, I m selling a house and I want the cash discount, you re leaving so much money on the table! No, look, you re 100 percent right! And I think there s just mass opportunity right now with all these people wanting the cashflow, and all these other people wanting in. And I just think there s so many ways that if we use a different set of tools that s all it is, a different set of tools, we can be buying properties within 10 kilometers of any major city in Australia, cashflowpositive, day one, just by simply using a different way of thinking, a different toolset, than what s been handed out since World War I. So what we re saying, Rick, is that we don t need to compete with the tumbleweeds when we re having house inspections out in the back boot. Let me reframe it this way: What is a Tumbleweed? (Laughter) Thank you! Rick, thanks for joining us. It s been a really fantastic podcast that we ve done just now. And if anyone has a question on cashflow versus 38

capital growth, or cash now or cash later, they can send it to support@creativerealestate.com.au. We should also mention our Fast Property Training, Rick. Ah, Fast Property Training in Australia is FastPropertyTraining.com.au. And Fast Property Training in the UK is FastPropertyTraining.co.uk All right now, next week we are going to be talking about.. By the way, Fast Property Training, what is it? What is it? Well, it s where you get property training fast! (Laughing) So jump on a Fast Property Training! It s a great forum, because that s where people get all their questions answered that as this. Well, everybody in the industry is there. Correct. It s one big party! In other words, anyone who s doing this stuff is at Fast Property Training. What are we talking about next time? Next week we re talking about the five essential body language patterns to be aware of when you re talking to buyers, sellers, and agents. 39

Wow! Now that will be a first! Because how often have you gone along to talk to somebody, and they re sitting there with their arms crossed, and you re getting all excited because they re actually listening to you! Now, you re listening to all the verbal communication, but you re not listening to the non-verbal communication.. That s it. which makes up mostly the way people communicate anyway. And so in a wrap-up for next week s podcast, and something you told me a couple of years ago, Always believe the body language, never what s coming out of the mouth. Correct. And with that, I ll be seeing you next week there, Benny! See you, Mate! Bye. 40