In this episode Shum allows the listeners to take a peek behind the curtain into his childhood and property investment journey. Wonder no more as he shares his familial influences, how he became interested in property, and how he applied that interest to become the property podcast host with the most! From picking up soil to picking up properties, you’ll hear what started it all and what he’s learnt along the way. Kulkarni also shares her insights along the way, as the dream team breaks down his path to success.

Timestamps:
01:35 | Oh How The Tables Have Turned
04:24 | Diving Right In
06:54 | Mixing It Up
09:53 | A Costly Mistake
13:25 | The Nitty Gritty
20:20 | Cash and Capital
22:54 | The Wealth Creation Game
26:12 | The Dependency Dependency
30:50 | The Secret Is…
34:19 | Widen Your Pond
41:52 | Impact Your Tribe
47:31 | The Be-All And End-All Isn’t What You Think

Resources and Links:

[00:13:25] So let's talk a little bit about you, Tyrone. You've sort of obviously entered and exited the market a few times. Would you be open to sharing what have you got in play at the moment? What investments do you actually hold?

This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

 

I’m Tyrone Shum and in this special episode I’m sharing the details of my own property journey, with Salena Kulkarni joining me to offer her insights and wisdom. While exact figures have been edited out for privacy reasons, you’ll hear how and when my interest in property developed, starting with a family inspiration and a simple solitary property that kicked it all off.

Tyrone Shum:   

This episode is a little bit different as I’m the one on the hot seat and I’m so honoured to have Salena Kulkarni interview me. 

Salena Kulkarni:   

[00:01:35] You don't often share much about your own investing journey. We get little bits of pieces of stories in different episodes that you share. But could you talk a little bit about what is the journey as an adult investor? What does that look like for you? And maybe, if you started investing at a younger age, what's worked for you? What hasn't? What led you to become so passionate about property?

Tyrone Shum:   

[00:02:00] I think where I would probably want to start firstly, is where I started at a very young age to look at, say, I've been sort of like an entrepreneur in business. And that was greatly influenced by my parents. Because my parents were running businesses from as soon as they landed in Australia, since I was born, they have been running businesses all their lives. So that influenced me thinking, 'Okay, business is the way to go because that's you build a bit of wealth, and then from there be able to invest that into property.' 

 

[00:02:34] Now, my father wasn't really that passionate about property, but he was passionate about doing and buying a home and renovating it and owning a property. And I think that was where I got engaged in learning more about that side. Because as young age now, I think back at it— and I don't think this was probably even legal, it's almost like child slavery— to help out with the renovations! I think at a young age of about 12 or 13 years old, my father got me involved in helping with the renovations around the house. So it might be as simple as maybe just picking up the soil at the front, when we're done the landscaping at the back and wheeling it around in the wheelbarrow. That's hard work. I never forget that. 

 

[00:03:16] Or helping him drill some holes and holding some of the hammers and the tools and punching into the wall. So we can put things in and do things up, even just helping with simple painting. I was very much involved at a very young age. And my father is a very, very hands on type person. But what I didn't know was that what he was doing was every time he was actually renovating the house that we lived in, is actually adding value. And every time we moved, and I can't say that we moved too often, we probably went from maybe every seven to eight years, we stayed in one place and then moved. So that's pretty much it on average what most people do. 

[00:03:51] Anyway, every time we did, we moved into a bigger house and a bigger house and bigger house and I would think, 'Wow, how's Dad afford to be able to do that?' And it was a combination of the cash flow from his business, and then also too from the renovations that he's did with the house. 

[00:04:04] And I clearly remember that the place that we lived in when I was going to high school, we purchased the house around about say, from memory, it was about $880,000. And that was a good 20 years ago. 

Salena Kulkarni:  

[00:04:22] That would have been a lot of money. 

Tyrone Shum:   

[00:04:24] It was. It was a lot of money. It was a very, very nice place that we lived in. And I didn't know at that young age, I just thought, 'Dad sends me to private school, and buys my car', all that kind of stuff that you kind of take for granted, because that's what your parents do. And so I was very, very lucky in that sense. And I always reflect back and go, always grateful that my father looked after us in that sense. Because he worked really hard, ran a business for more than 20 plus years. And I also was involved in the business to help him. 

[00:04:54] And what I did notice was that as soon as we bought that place, the first thing he did was he got straight into renovating it. I'm thinking, 'Okay, Dad, just hold tight, let's just settle in a little bit, for at least a year or two so we can sort of get comfortable.' But no, he went straight in. 

[00:05:08] And pretty much after about a couple of years with the business cash flow, and his house renovations and all that, he turned it into a very, very nice property there. And many years later, we got valued and it sold for [REDACTED], so you can see the value of just increasing value. Not only just an increase in the market of capital growth, but also just a renovation. And the funny thing, which was really surprising for us was literally a year later, the people that bought it off for us sold for $3.7 million, so it was in a rising market.

Salena Kulkarni:   

[00:05:42] That would have been crazy money back then.

Tyrone Shum:   

[00:05:44] It was huge. So that's kind of where part of the journey started. But at that same time, because I saw that was happening in the property market. I also was wanting to learn more. And that's why I reached out to Steve McKnight and joined his results programme. And at that point in time, I thought, 'Okay, why not, I'll just learn from an expert like him who's bought, like, over hundreds of properties.' And where I got started was sort of the positive cash flow strategy that I initially went down that path. And I thought, 'I'll buy a few of those and see how we go.' 

[00:06:12] So I just started and that's where my first property purchase was. A simple $100,000 property that generated a positive cash flow of about 10% return per annum. So that was a really good start. But the thing I didn't know, and this is what I didn't realise until many, many years later was that I bought that one as positive cash flow. And you have to keep buying more and more of these to be able to do it. Because in those kind of areas, you don't get capital growth. And sadly, say, after about five years of holding onto that property, I sold it again, and didn't make any capital growth on it. But obviously, with the cash flow, that was positive cash flow, so it did pay off some of the loan and I was able to use those funds. So that was an interesting one. 

[00:06:54] And that was also a mixed commercial. Residential on top, and commercial on the bottom as well, too. So that gave me insight into what it's like to get into a mixed property, I guess you can say. And at that same time, I was pursuing more for cash flow, because I was looking for passive income where I don't have to go to full time work and also run my business on the side. 

[00:06:57] And I started doing what we call just subletting. Renting a property locally around where we lived. And ideally, like a four or five bedroom house. And then I basically sublet it out to students around the area, because that was more of a student target. And in a very short period of time, within about six months or so, I managed to pick up about five rentals, and then sublet them all out. And it was generating for me an additional, say, $500 [or] $600 extra a week. Which was pretty good for a kid at uni, so I was happy with that. 

[00:07:47] So that's where my journey really started. But this is the thing I didn't realise. And I wish I learnt this earlier as well, too. And that's where I guess these are some of the learning lessons, was the power of capital growth. And it's only many, many years later when I started speaking to a few of my other colleagues and friends. Because I got out of the market after a few of those, because I just let them hold. And we went and purchased our own principal place of residence, which we still hold, which is great. And we turned that one into investment property. 

[00:08:15] But at that point in time, I didn't know too much about capital growth in Sydney, nor do I know much about it in Melbourne, Victoria. And when I purchased our principal place of residence, within about, say, 2011 to 2014, that's when I started seeing a lot of capital growth in that property. And that's when it really hit me, it struck me. And that was kind of like an aha moment, going, 'Wow, I can actually make a lot more money just by buying a property, holding it, and then get in the market where you can get capital growth without having to do too much work in it.' 

[00:08:46] And that's when I realised, 'Hold on, there's actually more to it than just buying a property, renovating it, getting cash flow from it. It's actually the power of wealth building.' So during that time, that's when I bumped into a few other people who were just buying lots and lots of properties up in Queensland, out in the south east of Queensland, down in Logan, and Woodside and a lot of those places. I know a guy who has a portfolio of, like, 20 properties up there, and were getting really positive cash flow. And there's also been capital growth. 

[00:09:18] And that's when I jumped in and we realised, 'Okay, this is probably an opportunity to be able to learn more about building a property portfolio that I could actually grow it and build that asset base.' So yeah, that's kind of where I started, I guess, in that side of things. And as they enough to kind of matured more looking at a combination of both, trying to get a property that has capital growth, but also at the same time gives enough cash flow from the rental income to be able to cover its expenses. Because the last thing I want to do is buy a property where every month I've got to put extra money in it and hoping that capital growth.' 

[00:09:53] And when I look back at it, this is more upon reflection on my father's property journey. Because he had purchased properties in Sydney that were really, really good properties, they were really well located. Like, he bought one down at King Street Wharf. But the timing of it was wrong. He bought it at the top of the market. And unfortunately, that particular property, he sold also at the wrong time. And I realised how important that was. Unfortunately he lost about $200,000 from that purchase, because he bought it at the peak of the market and sold it at the wrong time. And imagine if he had actually held on to it for more than 10 years, he'd definitely be making two or three times over. 

[00:10:33] But then he bought another property that was in Birkenhead Point, which is not far from that area, close to city. Buying at the right time, it made more than $200,000. When he sold both those properties it kind of balanced out at the end of day. But it goes to show how important it is to actually time going into the market as sort of a good time. And, like, as an example right now, this current market that we're in, from my experience, I've been through three booms already in my lifetime. And this is not the best time to be buying any property at all. It's a good opportunity to be waiting and watching and ride the wave if you've got property to hold on to, if you need to refinance, or if you're looking to think about selling, this is the perfect time to do that. But looking at buying properties, too high of a market to be in. So anyway, I've learnt a lot being in the market now for that long.

Salena Kulkarni:   

[00:11:19] Yeah, I think there's some really interesting reflections in what you've shared. I think the only... maybe if I was gonna be devil's advocate, I think there's always opportunities in every market. So I don't want to discourage people from buying if they're at the stage of the journey, where as you said, they need to build capital. I think there's always opportunities regardless of the market situation. And I'm probably less of a believer in timing and more of a believer of buying the right assets at the right time. 

 

[00:11:53] And so in a really frothy— I think we were going down rabbit holes here— but I think in a really frothy market, like the one that we're in right now, you do have to be super careful that you don't chase the market, and you don't invest from a place of FOMO. But I think if you take a different approach to the approach that everybody else is taking, there are still amazing opportunities to be found. But you have to be more measured and grounded about it. 

[00:12:23] I talk to a lot of people who are investing from a place of, 'I've got to get on, because I'm going to miss out on the market boom.' But I do agree with you, it is a time to be cautious and careful. But there are always good opportunities. It's more a function of how much time and energy are you prepared to put in to find those? But I've massively digressed.

Tyrone Shum:   

[00:12:50] It's actually a very good point that you've raised there. Because I probably should say it's probably timing in certain markets such as Sydney, and Victoria and Melbourne, and so forth, it's probably quite challenging to be able to find that. Because I speak to a lot of developers and they're saying it's just hard to be able to find a good block right now to be able to develop one because the price of property is too hard and it just doesn't stack up. 

 

[00:13:10] But then again, there are other opportunities that I'm in. Alternate investments at the moment. And also in different states, there are fantastic opportunities. So I probably should have phrased it, saying that it depends on the market and exactly what you've said. So I totally, totally agree with you on that side.

Salena Kulkarni:   

[00:13:25] So let's talk a little bit about you, Tyrone. You've sort of obviously entered and exited the market a few times. Would you be open to sharing what have you got in play at the moment? What investments do you actually hold?

Tyrone Shum:   

[00:13:41] At the moment, I've got two investment properties that I've got. That is one in New South Wales and the other one's in Victoria. One was initially our principal place of residence. And that's how we kind of got started in the market. And I guess due to a few circumstances, and also knowing the property market, we had to move out of that particular property. And we just went out and started renting. 

[00:14:06] And it was interesting, because the timing was kind of right for us to do something like that. Because as we had a growing family, I realised the townhouse that we bought was just a pretty large townhouse or three bedroom townhouse. I was initially thinking myself, we could actually have our family and raise everything in there. But as we grew out, and we're in now a four bedroom house, and it's still not big enough for all the stuff that we have! Especially kids running around in this age, you kind of realise, gosh, actually timing was good to actually take that step and move somewhere else to something a bit larger. And so we kept on to that. And that one has substantial capital growth in it. So that's been great in the market of Sydney. When we first purchased it till now, then we've got another one.

Salena Kulkarni:   

[00:15:07] Okay, and you purchased that many years ago, by the sounds of it?

Tyrone Shum:   

[00:15:11] We purchased it for [REDACTED] for that. So honestly, I could have paid that off but I decided not to, because I'd looked at it and I spoke to the accountant saying, ‘Look, it make sense just to pay interest on it, and then just continue to roll over and put basically the funds that you accumulate in it in an offset account.’ Which it does offset at the moment. I remember when I first purchased it, because I went in with a low doc loan because my income at that point in time didn’t show that I had enough to be able to get a full doc. So it was an initial struggle. And I remember that the monthly repayments was about [REDACTED] per month. And I thought that wasn't too bad to think. But now it's down to, like, [REDACTED] a month. I'm like, 'Wow.' 

Salena Kulkarni:   

[00:15:57] So I'm guessing that one actually puts money in your pocket these days?

Tyrone Shum:  

[00:16:00] Every year I'm paying tax on it. Bugger!

Salena Kulkarni:   

[00:16:04] Oh, well. A good problem to have.

  

[00:16:06] What about your property in Vic? Tell me about that. What's that worth? What's the debt?

Tyrone Shum:   

[00:16:11] That's a mixed residential commercial. That one there, I believe it's worth [REDACTED] based on roughly at the moment, I'm just waiting for the valuation to come back. But I suspect it is. Because when we purchased it at [REDACTED], it's increased its value of rental yield up to 10% already. And the market around there should usually yield about 7%. So we're commercial, as you know. We just base it on that kind of figure. So I adjusted it, and I'm thinking it's probably worth around that [REDACTED] based on the rental yield currently. And it's fully tenanted. 

Salena Kulkarni:   

[00:17:00] And have you got any other bits and pieces in play? Like with your own alternative type stuff?

Tyrone Shum:  

[00:17:14] On average, the ones that I've been getting is returning between 25 to 30%. Let's say 30% per annum is the highest. So I'd probably be conservative and just say on average, it's about 25%. Just to factor in time in and time out of the market for those ones.

Salena Kulkarni:    

[00:17:56] I think that gives me a pretty good picture of what you have. I think what would be really useful is to just talk a little bit about what is it you're trying to achieve. Like, I'd love to know a bit about what is the dream outcome from an investment point of view look like for you? Is it about holding a certain volume of properties? Is it about a cash outcome? Is it about getting to a certain net worth? What are your aspirations?

Tyrone Shum:   

[00:18:26] For me, it's not really a certain amount of properties and stuff. Because initially, when I first were delving into properties, I thought, ‘Fantastic, it will be great to have, like, 100 properties.’ But after interviewing so many investors and so forth, it's not about the amount of properties to hold, it's actually what is the actual amount that will give you a lifestyle that you'd be comfortable to live with. 

  

[00:19:24] A very comfortable lifestyle, I think I'd be looking at between $200,000 to $300,000 a year. And that is really my ultimate goal. So if I can look at generating income, passive income per year of say, $300,000 comfortably from my investments, whether it be in the portfolio, or whether it be from alternative investments, I'll be very, very comfortable. Extremely comfortable. And that would allow me to be able to spend my time doing other things I really want to do, whether it be spending more time with my family, or doing some of the really interesting techie stuff that I want to get into for helping the environment and generating clean energy or green kind of projects, because that's stuff I'm really passionate about. I just want to see massive changes for our planet, because we're going in the wrong direction unfortunately at the moment, and we need to make some substantial changes. So yeah, that's my passion project down the track.

Coming up after the break, Kulkarni demonstrates how money and time intersect...

[00:22:54] So I thought this would be a useful exercise, not just for your benefit, but for anyone listening. The way that I see the wealth creation game, typically for most people, if this is money, and this is time. 

We discuss her favourite game, well-known amongst many listeners...

[00:28:54] I call that part one of the game. Part two of the game, we'll call this part two, is change the trajectory of the income. 

We delve deeper into the strategy I’m pursuing at this point in time.

[00:33:20] I think the game that you're playing with the alternative space at the moment is incredibly lucrative, but requires a high degree of activity from you. 

And that’s next. I’m Tyrone Shum and you’re listening to Property Investory.

So we’re back! Salena is looking to delve deeper into my current plan.

Salena Kulkarni:   

[00:20:20] A lot of people I speak to, they've got clarity about the number, but not necessarily what would come after that. So that's actually a really important piece. Tell me, what is your current plan to get you to that point? And when do you think you're going to get there? Because you've obviously got some capital to play with. You've got some cash free and clear, which is recycling through your current model and access to alternative strategies. Is your game plan really clear? Or are you being a bit more organic about it?

Tyrone Shum:   

[00:20:56] To be honest, it's more organic at this point in time, hence the reason why I'm talking to you.

Salena Kulkarni:   

[00:21:00] That's great.

Tyrone Shum:   

[00:21:03] It's just very fortunate that I was able to meet some really great people through the podcast. So it allowed me to be able to come across a lot of these opportunities. Because when I first read Rich Dad, Poor Dad, one of the things he was saying about was build passive income. And it's always been embedded in my head for a long, long time. But the question was, where do you find these type of passive incomes? Because he was talking examples in there, just very basic examples that he was getting year on year 10% return. And I was looking everywhere for them. I couldn't find them at the bank, I couldn't find them in Super funds, I couldn't find them anywhere. 

 

[00:21:36] And obviously, through property, we could do it. But that was through capital growth. And sometimes you just can't access that growth, or that capital very quickly, because sometimes it takes 10 years or so for that to happen. Whereas what I've now discovered is that there are lots of different opportunities out there through alternative investments to be able to access that return in a short period of time. Rather than have to wait 10 years, I could probably access it within say 12 months or so. And then allow me to compound that much quicker. 

[00:22:06] So very fortunate in the last two years, the funds that I've been doing, the funds I've just mentioned there, have been because of the compounding effect that's happened so quickly. And also through the business that I've generated a lot more cash, or cash flow. And so I could actually just reinvest it. And that's what I've been doing. And that's been sort of the strategies. Whatever positive cash flow they have, or excess cash I have in the business, I've just been constantly reinvesting it to compound it much faster.

Salena Kulkarni:   

[00:22:32] Would it be okay if I share my screen with you, Tyrone, I'd love to show you a couple of things. Let's see if this works. Before my iPad dies, as well, I noticed it’s only 12%. So I've been taking notes as we speak.

[00:22:54] So I thought this would be a useful exercise, not just for your benefit, but for anyone listening. The way that I see the wealth creation game, typically for most people, if this is money, and this is time. And let's imagine this is when you start work. What happens is most people come into the workforce, whether it's their own business or otherwise. And they kind of intellectually understand, like, I should be building assets. 

[00:23:23] So what happens is they go away, and they hope that sometime in the future— and I use this word very loosely— but at retirement, I say retirement, but most entrepreneurs think of retirement as a dirty word. At some point in the future, they'll have what I call a nest egg of some variety, so some capital. 

 

[00:23:45] Now, the journey to get to there, often people are prepared to tolerate negative cash flow when they first start out. And if we do a blue line here, let's say the blue line represents living expenses. So your blue line is your living expenses are gonna go up gradually every year. Now, as I said, what happens when we first get into investing, we're okay to tolerate negative return. That's pretty commonplace. And what we're hoping for is that by the time we reach some point in time, retirement, and I should point out, even though I use the word loosely, it's like when you get to choose whether you work or not. This could be age 30, this could be age 40, this could be age 65, whatever it is. The hope is that the pink line, which represents the cash flow coming off your investments is at least equal to your living expenses. That's the hope. 

[00:24:47] The dream, of course, is this. The dream is this. The dream is that your assets are generating way more income than you actually need. The reality, unfortunately, that I've witnessed after 12 years of working with hundreds and hundreds of investors is this. Where the income coming off your asset base is less than what you need to live. 

[00:25:14] Now the unfortunate sad part about that is that if you're in the situation where you have a negative gap, the only alternative that these people have— and I've seen it time and time, again— is to sell down those assets. So they start to sell down those assets. And I don't want to be grim about this. But let's imagine this represents death. The hope becomes this: I really hope that I end up with enough capital to last me for the years that I live. 

 

[00:25:47] The unfortunate part, or fortunate, is you don't know when you're going to die. So what these people who have that negative thing hope is that before they die, there's still something left for them to leave behind. And unfortunately, one of the reasons I think Australians and New Zealanders are not getting wealthier is because they get to a point where they have to eat the cow is. You've heard me use that expression. 

[00:26:12] Unfortunately, the reality looks like this, and I'll call this dependency dependency, where you basically run out of assets and capital before you die, and then you end up having to rely on your kids or the government or whoever. The flip side to this, though, is that if you were in that lucky territory of having enough income coming off your investments when you decide to retire, as long as you can stay above that line, and let's imagine from this point in time, you decide, well, I'm not going to hustle as hard. I'm just gonna, maybe reduce the intensity of my investing efforts, and maybe the trajectory of those assets is less steep from that point. The big takeaway that I want people to understand is that this here, this is where legacy lives. If you can maintain an investment asset base. 

[00:27:09] So the goal of the game that I play is how do you structure in a way that makes it so much easier for the recipients of your wealth in the future to actually keep it going? To not leave them in a situation where I've heard about many people investing $10 million properties in the eastern suburbs of Sydney. And they've got no choice but to sell because they can't afford the rates, and they need the money. So if I think about the role of alternative, and this is where it gets very sexy. Let's imagine this is today. And I'll just take these out for now. Let's say that this represents today.And this represents plus five years from today. 

[00:27:58] The goal that I'm trying to have with people is: Everybody recognises the three parts to the game. And you and I have talked about this before. The first part of the game, let's do this in purple, is I need to build some capital. And so you've done that piece, you've already built the capital. The second part of the game, which I think is the piece that most investors are not aware of, is that if you're at this point in time here, the goal of alternative is to do this. That's the goal.

Tyrone Shum:   

[00:28:34] Well, what I'm seeing is phenomenal. And if people are listening to this, you've got to hop on and watch this video.

Salena Kulkarni:   

[00:28:42] So just to be clear, and I know you understand this Tyrone, this part of the game is build capital. You can't avoid that piece. And that's part one of the game, I call that part one of the game. Part two of the game, we'll call this part two, is change the trajectory of the income. 

[00:29:08] So let's do this. Instead of waiting 20 [or] 30 years for those two lines that intersect organically, let's change things and make them intersect quicker. And then the third part of the game is this. It could take any shape that you want. But it's this. This is part three of the game. Part three of the game. When you look at this, I just think how awesome would it be to put yourself in a situation where you are owning an investment portfolio which is generating more income than you need to live well before retirement age.

Tyrone Shum:   

[00:30:02] That sounds so sexy.

Salena Kulkarni:   

[00:30:07] From my observation, you're already playing part two of the game. And in fact, you've already kind of suggested that you're creating way more income than you need to live already. So for all intensive purposes, you've developed that level of financial freedom that most investors don't have. My observation, and if I were to look at your situation from a point of vulnerability, where do I see the vulnerabilities? The vulnerabilities as I see it is you're possibly not as well diversified as potentially I think you could be. 

[00:30:50] And I think the game for you, as you and I both know, is I believe that true wealth and financial freedom is coveted by a few. And it's because they know the ultimate secret is really relationship building. And the reason that people come to you and that people come to me is they want to leverage the value of the networks and trusted relationships that we have. So you are already doing all the right things. 

 

[00:31:24] I think you're going to get to a point very soon, where the flavour of the game will change, and the focus will become more on how do I take the income that I'm getting, and kind of start to focus more on converting those into annuities. Meaning income streams that just run forever, rather than stopping and starting. So right now, you're reasonably active, the sorts of deals that you do require effort, and they come to fruition over and over. So the game for you is now how do I transition into part three of the game? But yeah, I just wanted to share that.

Tyrone Shum:   

[00:32:04] Yeah, it's fantastic. And I can really, really relate to what you've just shown to me. And that's kind of where my knowledge behind it is not as strong in that side. And that's what I would love to be able to generate a little bit more understanding and how that side works. Because now I understand, and I see why some really successful investors built such a large portfolio. 10 [or] 20 [or] 30 properties in their portfolio, because that produces the regular income, or that continuous income. As long as the property manager is looking after properties and tenants in there, that's pretty much long term wealth there. 

[00:32:41] But what I've done, I guess, in my situation is that I've only got very limited amount of properties in there, but I'm using very active, say, alternative strategies to be able to build up even more capital and compounding that faster. But I want to put that back into, essentially, either pay down my portfolio, which will generate... I think I did a quick calculation, it should generate the equivalent actually, of what I'd be earning passively. So if I paid everything down, I should get at least between 10% to 11% of the portfolio's worth. 

Salena Kulkarni:   

[00:33:20] I think the game that you're playing with the alternative space at the moment is incredibly lucrative, but requires a high degree of activity from you. I think the ultimate game, when you move into part three, the kind of ethos that I have, and the people that I work with is, how do you build predictable, sustainable, passive income from a multitude of investments that are both diverse from a strategy point of view, geography, liquidity, that gives you leverage that helps you develop legacy. And so you can sort of start to see why the people that I work with, it's part one of the game, which is build capital, there's no avoiding it. You have to do it. And so I can certainly support people in that part of the game. But the place that I choose to focus on is part two and part three. Because I think that's where I can give the best value and the best ROI to people. 

[00:34:19] So for people who are listening to this, please don't feel that the foray into alternative investments is where you have to begin. It isn't. If I tell you my views on the Australian and investing landscape, property investing market, our appetite for investing is unparalleled. There are opportunities to make fairly substantial amounts of capital growth and ratchet up in net worth. In less than 10 years you could do something meaningful. But it's also the worst in the world. Because there's so many people trying to fish from a very small pond. So at some point, you need to broaden your approach. And you and I both know people, we have mutual contacts who have portfolios in excess of $20 million. And they're on negative $300,000 a year cash flow, because their worldview is that the only way I'm going to hit my goal is if I continue to ratchet up my net worth. 

[00:35:27] And what I'm saying, which is fairly contrarian, is you don't necessarily need a huge net worth. What you need is capital that actually works for you. Even if it's just a small percentage of your capital that works at a reasonable level. Now, a lot of the stuff you're doing, you're chasing deals that offer phenomenal returns, I'm a little bit more old in the tooth and a bit more conservative. So I'm looking for typically eight to 12% net returns. And I'm happy with that. 

[00:35:58] Because I'm in stage three now, which is I've got enough property. I do like to dabble in the odd development. But my focus is how can I take the income that I have, and just converted it into annuity? And so that's part three of the game. So that's kind of what I wanted to share.

Tyrone Shum:   

[00:36:21] That's fantastic. And it kind of opens up my eyes to see and think of it in a different light. Because as I'm at the moment sitting in part two of that stage, I start to think, 'Okay, why would I switch over to get a lower return?' But that's the give or take that I have to do, because then I wouldn't have to be looking at actively looking for those deals, I could just basically just put them in there. And it's passive. And that's, as you said, the annuity. That's where I've got to learn a little bit more. I mean, it sounds simple conceptually.

Salena Kulkarni:   

[00:36:58] Let me tell you, building wealth is not rocket science. But it's not easy. It's simple, but it's not easy. And if I were to look at your situation, the dilemma that you have is you're using alternative investments to not only generate strong income, but there's an element of 'Let me just use it to build some capital rapidly' as well. 

[00:37:22] So you've sort of got one foot in each camp. So part of you would be torn by the idea of let me continue to build my capital base. But intellectually, you understand the longer game is about building those cash flow and income streams. So my suggestion is, you've done a fabulous job. And I think, definitely, what your podcast has done has given you access to some really good people. It's certainly as well, I think the lessons would be about distinguishing the wood from the trees. And I think one of the biggest challenges for investors is distinguishing between marketing. And real. What's real? You would be one of the less green people in that regard as well. 

 

[00:38:13] So I think you're doing all the right things to be financially free. I mean, you are, by all intents and purposes, you could be, you could put your feet up tomorrow. But I think the stability in your portfolio could do with a little bit of reinforcement, and just a little bit more of a diversification play. 

 

[00:38:31] But the question that you need to always be asking yourself is: Do I crave time to build a bit more capital? Or do I really just knuckle down and start building those annuities now? And that's always a personal decision. And my role, as I see it, is never to be prescriptive. It's always just to provoke you to think about those sorts of things and ask you the questions which will really help you bring clarity to your actions. 

[00:39:01] Because I think the biggest challenge that most investors have is they invest blindly. They listen to what the media says, they listen to the conversations that go on in the spruiking, and property world that are all about more is better. And whether you're worth $5 million, or $10 million, it's irrelevant if you don't actually have that capital working for you. And far too many investors, in my opinion, carry big fat, lazy pandas. Meaning, high value assets that just sit around and eat and don't do much for you.

Tyrone Shum:   

[00:39:36] Unless you cash it out, it's pretty pointless. It's like, I guess, in the startup world, the tech world. A lot of times they come and look at the company and they say, 'Oh, this company is valued at $100 million.' But ultimately, it's a valuation that isn't true value until they actually sell it to another company to actually cash that up. So you could literally be sitting on a negative cashflow in the business worth $100 million. But that's useless because you think these companies have just started up and generating a valuation of 100 million. But they're constantly saying, 'We're running out of money because we just can't pay our staff down.' 

 

[00:40:15] It's the same issue here is that it's great to have a huge net base. But if you can't access that cash flow to be able to sustain or ultimately pay for a lifestyle to keep living, then what's the point really about building this portfolio? Because ultimately, from my perspective, anyway, I thought I'd be building a portfolio so that way I could actually have financial freedom, have passive income so therefore, I don't have to worry about covering our daily leads. I can focus on other things like giving back, helping people, even to be able to help and help out with my family. And like, when I'm saying, not my immediate family, but my extended family. My parents are going into retirement, and my wife's mum's already in retirement. And unfortunately, just their Super fund alone isn't enough to cover their life. 

[00:41:03] So I'd love to be able to help us. Yeah, it's sad, I mean, from so many different perspectives. And as I said, my family, I grew up in a very middle class family. And my father built up a very great asset base. But looking back at it, reflecting, he's still working, unfortunately. And he's, like, 60 something now, and he's still working full time when he's got such a large asset base. And I just scratched my head, going, 'How does that work?' 

[00:41:31] And that's why I just flipped it on that coin. The income that I'm generating from the alternate investments, and potentially if I sold everything down and paid things off into the portfolio, should be enough to cover and be financially free. 

Salena Kulkarni:   

[00:41:52] Just to point out, there's no right or wrong, Tyrone. There's no, like, one way is the right way. I think that ultimately the exercise in the journey of investing is to decide what is most important to you. And what kind of a provider are you? Are you someone who, like you, has to think about not only providing for yourself, but you've got your family, you've got your parents, you possibly have siblings that haven't done as well as you. 

[00:42:21] And so the journey of... and I use the word loosely, a freedom warrior, is someone who wants to have influence and impact in their tribe. It's not just about the self, getting to a point where you could sip pina coladas all day every day. It's really about what kind of a leader do you want to be with your wealth? 

[00:42:51] And wealth is only one dimension. There's there's many other ways to create legacy and have impact. But if you're talking about wanting to affect climate change, that requires bandwidth, and time and energy. And so not having to worry about your baseline living expenses is part of the journey.

Tyrone Shum:   

[00:43:14] Yeah, totally. Could I also maybe just explore as well, since we've talked a little bit about the goal for me, and I'm just really interested to see. Say as I said, I wanted to achieve a passive income of, say, $300,000, in five years, or whatever it is. I'm trying to figure out what kind of strategies I need to look at to do to be able to change that up. And I know, there's not just one right strategy, but there'll be probably multiple ways we can look at it. Just like I guess we go through the million dollar mixing desk, that opened up my eyes on what was possible, and the different ways we could do it. But what would be, maybe from your point of view, a few ideas that you can implant in my head to have a think about? Because I'm just thinking more and more about it now, how do I achieve that goal?

Salena Kulkarni:   

[00:44:02] While we're here, let me share my screen with you again, just so you can understand roughly what I'm talking about. One of the questions I often ask people is: How much time do you need to have before you have the freedom to choose whether you work or not? And typically, my goal is to get people to a place of financial freedom within five years. 

[00:44:29] Now, this little calculator is a really basic calculator, but it basically said— and this is the last person's numbers— if I earn $400,000 today, and I went out and I put it into a series of opportunities that would only say a 10% return on average. So you might go into some deals that give you 12% and some that are eight and some that are 15 and some that are 18. But let's say average 10. 

[00:44:53] And then you had a capacity to find dividends in your business of, say, $100,000 every year to boost your investment. You kind of went, 'Look, I don't really need that money for the next five years.' So the first decision is: Can you afford to reinvest for at least five years versus pulling the money off the table? And most people would say, 'Yeah, I could get by for five years.' 

[00:45:14] And so really what this calculator shows is, if you took that money, and you reinvested it every year, by the end of year five, that would be throwing off a $125,000 annuity. If you did it well. There are no other methods out there. And I feel like I've tried it all. I've tried developments and all sorts of different things, flipping properties and buy and holds and all sorts of stuff. 

[00:45:45] And I feel like the the methods around the alternative investment, if you diversify really well, if you work with A grade operators, if you really take the time to make sure that you're the one making the decision, and that the quality of the people that you work with are going to give you access, that's what's going to give you the edge. Then this is just not a complex. And really, and I just want to kind of say, this is just meant to give you a flavour of what's possible. 

[00:46:19] This isn't as lucrative as the stuff that you're doing. But this is more about that transition to 'I don't want to hustle so hard. I want to take on less risk. I'm looking for cash flow.' So this isn't a fit for everyone. And your decision that you need to make, Tyrone, is really about what is important to you right now. And what is your timeline. Have you even considered, I want to be in a position of game over by... five years. That is, for me, the outside. 

[00:46:54] When I work with people, I try and say, 'Look, let's try and get you to where you want to go in five years or less.' But your journey is you're probably sitting on what I would call a minimum viable capital balance. The decision over the next period of time is, do you kind of keep one foot in each camp? Do you sort of continue to allow your capital to build in the background, while also building cash flow and annuities? Or do you kind of just go, 'No I'm done. I've got enough capital. I don't want to do that.' And no one can make that decision for you except for you.

Tyrone Shum:   

[00:47:31] That's definitely giving me some ideas to think about. Because ultimately, what I do want to do is just have these annuities put aside and just not have to worry about it, and they'll be covering all the daily living expenses. And then just focus on whatever extra cash flow to put my time and energy into other projects I want to do. 

 

[00:47:53] What I'm currently doing at the moment is fantastic. And I love what I do. That's why I'm still also working at a university because I'm passionate about what I do there too. So it's just actually just good to have both at this point. But there will be a time when I go, 'Okay, it's going to be too much. I don't have enough time.' And time is the problem at the moment. It's not about the capital, I guess you can say, it's the time to be able to put in.

Salena Kulkarni:   

[00:48:19] I feel, first and foremost, I'm a strategist. And I think that the challenge I face is that when people speak to me, they start with, 'Show me the deals. Can you show me the deals?' And if you think about the exercise that we've shone the light on today with you, I think there are some questions that need to be explored and answered before you worry about what the deals are. 

[00:48:45] And unfortunately, I think our culture has evolved in such a way that we think if we found the right deal that that would solve the problem. But I kind of feel like you've got to think about: What's the game? What game are you playing? What's the strategy? And then worry about the minutiae of what are the deals. 

Tyrone Shum:   

[00:49:06] That's definitely true, what you've said there, and it's made me think as well, too, that I've got to take a step back and work on the strategy a little bit more and then fit the deals in. Because as you know, deal flow for me is not a problem, I can get access to those deals quite easily. And a lot of investors who work with me as well get access to those deals, too. 

[00:49:27] It's now just really consolidating and understanding what this goal is, make it even more succinct, and then put that strategy in place on how to achieve it in, say, the next five years. Probably be less, that's something I need to figure out. That's where my numbers brain, logic thinking, pull that spreadsheet and start punching some numbers in to see what it looks like comes into play. I'm always thinking about in my head. How does this all work?

Thank you to Salena Kulkarni for joining me to discuss my personal investment journey and offering her valuable insights on this special episode of Property Investory.