While Osborne’s property journey sprouts, Garth’s is well underway. In this episode he delves into the importance of making informed decisions and sticking with them, even if they don’t turn out the way you hoped. We’ll also hear about diversification, the wage growth debate, and some uni friends who doubled their money with one sale— but was it enough?

Timestamps:
00:06 | Suddenly: Wild Equity Appears. It’s Very Effective!
02:48 | Calming Commercial Qualms
09:34 | Dangerous Avenues
11:56 | We Need Wage Growth, Now
16:40 | Keep Your Eyes Open
19:45 | Hold Up
24:14 | Paving New Paths
28:47 | From Little Seeds

Resources and Links:

Transcript:
Tim Garth:

[00:13:37] About eight years ago, the property market doubled on the [Central] Coast. So a $250,000 house was worth $500,000. I had some friends who had help from a family member to purchase a house. They were at uni. So they did extremely well. They bought a house, they flipped it, and they sold it for double. 

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 episode we’re back with Dan Osborne and Tim Garth, also known as CATS Accountants or, after dark, Two Drunk Accountants. In this episode we discuss money, mindset, and mentors, dive into Garth’s property journey, and the two podcountants give their thoughts on their local Central Coast property market. 

Tyrone Shum:
While Osborne and Garth are essentially carbon copies in many ways, they’re perched on different rungs of the property ladder— for now. Garth’s property journey started in 2017, which he credits to his wife and her forward-thinking and driven mindset.  Thanks to her wise ways, they’re already sitting at $300,000 equity in a scorching coastal market.

Tim Garth:   

[00:00:06] My wife, she’s a year older than me. She started her career when she was 21. And she's just so driven. And she's a saver. So she was a large part of us buying a house five years ago. 

[00:00:20] On the Central Coast I'd say, maybe seven to eight years ago, you could buy a house for, like, $200,000. And it was a pretty decent house in a good location. That doubled about, I'd say, six years ago, and then it kept going up. 

  

[00:00:38] When we bought our house, we felt like we were buying in a massive peak. Some people like potentially even like, Dan, for example, was like, 'I'm just gonna wait for it to maybe just come down a little bit, then I'm gonna buy'. Which it did do, for a couple of years! It came down maybe 10%. 

 

[00:00:54] We bought our house for $700,000 in 2017. And I'd say conservatively, it's worth over $1 million now, with no changes to it. So that then led to some interesting things for me last year, during lockdown. I was sitting in my house, wondering what I should do with myself, and started looking into investing in property myself, using the equity that I'd gained in my house. So that was interesting. 

 

[00:01:29] I didn't end up going through that. Because I came back to the fact that I've actually got a large investment, which I need to focus on right now, which is buying the business. And for me, a lot of it was around 15 to 20 year calculations on if I bought a property, say, like, an apartment in Melbourne, or a property that I could turn into a duplex in Queensland, I saw that there was a lot of good reasoning to do that. That in 15 years time, it'll help me pay down my residential loan, which is potentially in half the time that I would otherwise pay it down. 

  

[00:02:07] But then I realised I need to continue putting my time and investment into the property. And actually, that may mean I could pay down my loan in eight years instead of 15. So for me, it's been something of great interest. And we've seen some good benefit from property, just from, like, my family. Mum and Dad bought this property in Wyong that we're sitting in today, and they structured that in their Self Managed Super Fund. Which is an area that I love for clients. When they can run their business out of a commercial property that's held in the Self Managed Super Fund, I think that works beautifully.

Tyrone Shum:  

[00:02:48] Delve a little bit more into that actually, that's a very good point that you raised. And a lot of clients, investors are here do that. I know a few already that had purchased a commercial property that they own in a Self Managed Super Fund, run their business in it and collect rent from it as well. So let's delve a little bit more into that. 

Tim Garth:   

[00:03:14] I think as long as you know— again, this is coming back to your why, your purpose, and your plan— so as long as you have a good idea of what your plan is, then buying a commercial property in your super fund could be a fantastic idea. 

 

[00:03:31] Because people in business generally do end up needing space. They could be selling things, they could be selling online, so [a] warehouse, they could need a shopfront, they might need foot traffic, whatever it may be. 

 

[00:03:45] And anyone who's moved into a commercial space knows that fitting out a shop is not cheap. That is a timely and costly task. So it's a shame when, three years later, the lease ends, and they move out. Because they've either not seen eye to eye with the landlord, which we've seen a lot of over the last few years with COVID, unfortunately. Or maybe they've outgrown it, or maybe business isn't doing so well. I don't know— there's a number of reasons why they may be changing. 

 

[00:04:18] But they've just wasted that investment. Because now the owner of that property is going to inherit that fitout. Which for some businesses is several hundred thousand dollars. So without even looking at tax consequences there, there's a huge advantage to owning the property that your business works out of. Because everything you put into improving that property [remains] with you. 

  

[00:04:41] But then on the flip side of that, Self Managed Super Funds, or just Super, is concessionally taxed, so there's a huge advantage there. It's a separate entity in its own right. So it's protecting an asset and it also means that it is legally possible to charge rent at a market rate to the business. Which means you're saving tax because you're getting income out of your business into the Super Fund world, which is only taxed at 15%. 

  

[00:05:07] So that's in the life of the journey. Then it's going to help you because you've got more cash in there. So you can get deposits, which you may not otherwise have access to as a business owner. And when you retire, that is when it really comes to fruition. Because depending on the value of the property and how much other money you have in Super, that property could potentially be sold tax free. 

  

[00:05:33] So the capital gain could be completely disregarded at that point, which is pretty powerful. Or you can keep earning the rent, also tax free if you're retired. 

Dan Osborne:   

[00:05:46] I think one of the main advantages, apart from everything Tim's just said, which is huge— tax free capital gain on an investment when you go to retire is amazing— is one of the rules with the Self Managed Super Fund is you can't rent a residential property to yourself or a family member. 

  

[00:06:05] So people might be thinking, 'Oh, I should do this with my house', or, 'I should do it with an investment property and rent it to my child at a cheap rate'— you're not actually not allowed to do that. 

  

[00:06:15] But you are allowed to rent it to your business. So you can rent a commercial property to your business. So that way, that is that connection between you're putting rent in, you're not wasting the rent you're paying to someone else, it's still going to you. And you'll be able to run your business and you add in the value and then it's very tax concessional. 

  

[00:06:36] Again, it still doesn't stop it if that property is no good and goes down in value, then you're still gonna face that same problem. So it still needs to be a good investment. And it needs to work in with your broader strategy. But if you're gonna own a commercial property for your business, it's a very tax effective way to do it.

Tim Garth:   

[00:06:54] If you understand your why and your plan, it could be definitely a worthwhile thing to do. You just need to understand once it's in Super, you can't take it out until you retire. So that's the one downside. And the reality is, some of us may not live to that age, unfortunately. So there's also an element of what you need now, and what you're going to use now.

Tyrone Shum:  

While Self Managed Super Funds have their pros and cons, one of the most obvious cons is that there are barriers to access it. 

Dan Osborne:   

[00:07:52] You can't use the equity in another property, you've got to buy it. You also need a larger deposit if you're going to borrow, because Super funds actually aren't allowed to borrow money, but you do it through a way where you've got to set up a separate entity that holds the limited recourse loan. More cost to set it up and…

Tim Garth:   

[00:08:09] The administration of the Super fund each year... 

Dan Osborne:   

[00:08:11] ... It costs money to maintain all of that. So you need, usually, at least a 30% deposit. And it's going to be [an] ongoing cost to maintain it. But in saying that, if the investment ends up being a good investment, and you keep renting it from your business, then it can be quite tax effective.

Tim Garth:   

[00:08:29] And you can have six members in a Self Managed Super Fund as well. So rolling all those balances together could get you to that point where you have $300,000 to $500,000 to use to buy a property.

Tyrone Shum:   

Osborne and Garth have helped many investors in both residential and commercial markets. Among all the good, they’ve also witnessed worst case scenarios due to people making mistakes, and so they’ve picked up a lot of lessons along the way.

Dan Osborne:   

[00:09:34] Not going into any specific story, but [I see] some of the broad, dangerous avenues that I see people go down occasionally. The first one is when they're 100% all in on one type of investment. So, if their portfolio is just, 'I'm just going to loan money to buy this property and only keep using the equity to buy more and more property, but that's the only thing I'm doing ever'— sometimes I worry about that, because all eggs in one basket is never a great idea.

Tim Garth:   

[00:10:07] 100%.

Dan Osborne:   

[00:10:11] I do worry about that. People recently, particularly they've seen the growth in the market. And they assume that, 'Well, that's always gonna happen. We're gonna see another 20% [or] 30% this year, and then again, and then again. So I'm going to borrow so much money and do it'. 

 

[00:10:27] But interest rates are at an all time low. They're only going to go up. The cost of repayments are only going to go up. It's likely [that] in some markets, prices might go down a little bit. Certainly not down 30% or anything, but most major banks are predicting a small, if not just stagnate, a small dip. 

 

[00:10:45] If you're holding them for a long term, that doesn't matter as much, because over time you would assume they're going to continue to go up. But if people are in it for short term gains, and they just put it all in, I worry about the risk of that. And we haven't seen the payoff of that yet, because it's happened so recently. But I'm interested to see what that looks like in a few years’ time with some clients. 

  

[00:11:11] But the other funny thing I find is targeting investments purely for the tax advantages. So what I'm talking about here is negative gearing. The amount of times I've had a client come to me and say, 'I want to get a negative geared property'. And you say, 'Why?' [They say] 'It's gonna save all this tax, it's a great investment, I think. Why wouldn't you rather an investment that not only makes money, but also increases in value? That makes more sense to me than just saving some tax'. 

  

[00:11:44] So targeting investments purely for the tax savings is never a good idea. You should always try and target them for growth and return. It seems smarter to me.

Tim Garth:   

[00:11:56] Totally agree. I've never seen anyone too badly burnt from investing in property. I guess we do lose sight of the fact that we all think properties are just doubling these days. Anyone who had a property, it's worth double now. 

  

[00:12:16] I do see people who've bought in different places like, say, for example, Coffs Harbour. The recent increase in the market has just seen them be able to sell it for the amount that they bought it [for]. And for them, it's been a stressful experience. I think it's at a resort, so they've had a lot of politics involved. And so yeah, they couldn't wait to get out of that one. 

 

[00:12:43] But also, I think, as accountants, we see a lot of people's income. I can't say I've seen many people's income increase that drastically. Last year and the year before, potentially they artificially increased because of grants and subsidies. 

  

[00:13:03] A learning for me is that wage growth needs to happen. I've been saying this for a while. I'm no economist or anything, but the way that house prices have grown, as opposed to wage growth, is not sustainable. So I'm hoping that wages catch up a bit. 

  

[00:13:20] And I do have that in the back of my mind as an employer of people as well. Because they need to earn more, to borrow more, to buy more expensive houses. There's a lot of interesting things there. 

  

[00:13:37] About eight years ago, the property market doubled on the [Central] Coast. So a $250,000 house was worth $500,000. I had some friends who had help from a family member to purchase a house. They were at uni. So they did extremely well. They bought a house, they flipped it, and they sold it for double. Which at the time was amazing. 

 

[00:14:01] But now I actually think, 'Had they kept that, they would have made like four or five times [that amount]'. So there's a few lessons there around just hanging on to investments. And you do really need to do your research on what investment and what areas are going to be right for you. And once you commit, I think it really has to be a 10 to 20 year journey with property. That's probably what I'd plan. And if it happens to come off in two years, then well done.

Dan Osborne:   

[00:14:36] The transaction costs are so high with property. It's not like shares where it's $10 brokerage, it's tens of thousands of dollars to buy a property and to sell a property. So it takes time in normal worlds— not in the past year, but in the previous 10— it takes time for you to recoup that. And then also grow. 

  

[00:15:01] A lot of people assume that because of what they've seen, they're suddenly property gurus. And they're not. They're just a guy who happened to own a house at the right time. And so I think careful long term consideration is needed. 

Tim Garth:   

[00:15:16] I think just expectations. You're in this for the long haul, if you're doing it. And then yeah, just perhaps like having exit strategies or diversification. So choose different markets. Whether that be, like, for example, Melbourne and Brisbane. Maybe buy a property in each of those places, as opposed to property worth the culmination of those two properties in one location. Yeah, so those are a couple of the things that we've learnt.

Dan Osborne:   

[00:15:43] A few of the things we've seen and a few things we're worried about. 

Coming up after the break, we dive into decisions and how it can cost you more in the end to not make one at all…

Tim Garth:   

[00:18:27] I made an informed decision. And I'll live with that. 

They essentially pitch The Real Accountants of the Central Coast, but without the drama…

[00:26:09] We did set out to try and be different. And to try and really flip it on its head. 

They take the time to get into an argument with their former selves.

Dan Osborne:   

[00:30:54] And that Tim would have said, 'Shut up, Tim.’

[00:30:58] ‘You're wasting my time! I've got stuff to do!’

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

Tyrone Shum:  

For Garth, his aha moment came to him in 2021, when he was about to invest in property. While he had set it up so he would be in a better place in 15 years, his goal was to cut that timeframe down.

Tim Garth:   

[00:16:40] I was definitely setting myself up to be in a better place in 15 years. No doubt I was going to be in a better place. But when I really looked back on what I wanted to get from those investments, I wanted to be in a better place in seven years. 

  

[00:17:00] So it wasn't going to be right for me. Because if the market for some reason doesn't grow like it has been. And in seven years, it's worth the same or perhaps even less than what I invested in a property in say, Melbourne and Brisbane, I would have been disappointed. 

 

[00:17:19] And I would have been in a worse position than I could have been if I had done nothing. So for me, I was going in eyes wide open with that one, wanting something sooner, and knowing my expectations. Whereas if I was ready for that 15 year journey, and I didn't have the business investment, and I was just on wages, and I was happy with my lifestyle as it was, then I reckon I would have pulled the trigger on it for sure.

Tyrone Shum:   

While it’s easy emotionally to look at a property and see how it checks all the boxes, not even these podcountants have a crystal ball to see how it could play out in the future.

Tim Garth:   

[00:18:27] I made an informed decision. And I'll live with that. In eight years, I may rue that massively, because Brisbane houses will probably be worth double or triple. But I made an informed decision. And hopefully, also, the business has progressed and is worth more, and I paid off my home loan anyway, because that's the ultimate goal. 

 

[00:18:51] I think doing nothing out of either ignorance to the options available to you or through just sheer being busy or not looking into it is a choice. I think that's a choice. And you need to recognise that if you have done nothing previously, then that is a decision that you've made, unfortunately. 

 

[00:19:20] It's never too late to get started if you're unhappy with that decision. If you're umming and ahhing right now, that's not to say you have to decide to invest in something. But you either need to decide not to do it or to do it. You can't just be lazy or do nothing, hoping that it's all going to work out. Make an informed decision and live with it.

Dan Osborne:   

[00:19:45] Your aha is almost identical to my aha but for completely different reasons. The previous 10 years I hadn't been in a position to buy. No one would have lent us a cent. So two years ago, that changed, and our financial position was much better. I'm like, 'Great, let's get this deposit going'. We did. We went and did everything right, we got our pre-approval, we went, 'All right, let's go do it'. And then suddenly, the market just went insane. 

 

[00:20:22] And as much as we tried to buy a house, we couldn't. We'd offered many, we even got one, it fell through. A whole bunch of nonsense. And that was quite stressful. Extremely stressful, because we wanted in, but no matter how hard we tried, for the houses that we wanted to live in. Because a house to live in is a very different choice to a house to invest in. So we couldn't get what we wanted. 

  

[00:20:48] And so partway through, towards the end of last year, I had a similar moment where I sat down and said, like, 'No, wait, why am I doing this? Let's just sit back again. I'm stressed. Just think about what's my long term goal here? What am I trying to do?' 

 

[00:21:02] And I think that really was an aha moment. It was a take a step back, look at the big picture and try and figure out: What is the plan? Why are you doing it in this moment? Why are you not doing it in this moment? Had I wished I had rent vested five years earlier, and bought a crappy apartment somewhere that was $200,000 that maybe I could have scrounged from somewhere? Yeah.

Tim Garth:   

[00:21:27] Hindsight is 20/20. 

Dan Osborne:   

[00:21:29] Exactly. 

Tim Garth:   

[00:21:29] And coming out of high school and working to buy a business... 

Dan Osborne:   

[00:21:37] It wasn't possible at that point. So really, I think it's important to sit back at any moment and try and figure out: What's your long term goal? What's your plan? How does this fit in your plan? And what are you trying to achieve? 

[00:21:51] And if what you're looking at, if you're investing in this property, or the share portfolio, or this business, or whatever it is doesn't fit that, then don't do it. But don't regret that you didn't do it. Don't look back. Look forward.

Tim Garth:   

[00:22:06] Be confident with the decision. Even if it's the wrong one, you made the best decision at the time for you. 

 

[00:23:21] I think from our perspective, money brings options, it can bring happiness, but it doesn't always. Set your own goalposts and give yourself a pat on the back when you achieve those. And that could even just be as simple as going for a walk every day, or doing your fitness, or just being happy, whatever makes you happy. 

Tyrone Shum:   

Osborne, our resident rock star accountant, continues to buck trends when it comes to his work. His main mentors will come as no surprise, but when it comes to accounting mentors, he forges his own path.

Dan Osborne:   

[00:24:14] The obvious one for me is my family. My mum, my dad, my brother, all individually bring something completely different to the table. My dad, very logical, very smart, can think long term about, you know, business and decisions and strategy, so he's someone I often turn to when I'm trying to make a decision and I'm just trying to take the emotion out of it. I just want to think, 'What's the most logical thing to do here?' He's always been someone that I've always turned to.

  

[00:24:47] In the accounting front, working here, I've always sort of turned from the idea of a mentor and I don't know why. And I think it's because I don't necessarily always think that others have, or are doing it in the way that I thought that we could. I think that was the thing. 

 

[00:25:13] I think I felt that we had something different and unique to what a lot of other people in the accounting industry were doing. And so I wasn't sure I had anyone to hold up as, 'This is an example of who I want to do work like'. 

 

[00:25:27] So it was probably people and things in other industries, almost, that maybe I was looking forward to. But then also just the way to conduct yourself as a leader of a team. Warren was a good example. Tim's dad was very much someone who would trust his team, and give them responsibility and let them learn the lessons. And I think that's something that I've definitely learnt along the way. But in terms of who do I look up to as a mentor, and who do I try [to] follow? As stuck up as that might sound, I'm just not sure anyone in the industry was doing it the way that I felt I wanted to. 

Tim Garth:   

[00:26:07] I guess actually, that's funny. I totally agree. We did set out to try and be different. And to try and really flip it on its head. And it was around that time when Xero was really forging a path. I guess for us, we did kind of feel like we were making our own thing. 

 

[00:26:26] But I think it's changed since then. Like there's a lot of other accountants. And Xero has built this awesome community. So other accountants trust each other more. Go back five plus years ago, and mostly, you'd say hello and you're like, 'You busy?' And they'd be like, 'Yeah, busy, busier than I've ever been'. And it's like, 'Okay, cool. Good on you. So are we'. That was it. Now we deep dive into each other's businesses and problems. And yeah, we've made some really good relationships with other accountants.

Dan Osborne:   

[00:26:58] I don't think you can discount the lessons learnt from other people's experience[s]. So by not having a mentor, I don't mean that I'm definitely not listening to other people in the industry and hearing what they've got to say, because that's different. I just don't think I hold or we hold any one example. It's more of a community these days where everyone is helping anyone.

Tim Garth:   

[00:27:20] I try to take a page out of different people's books as to how they've done something or their approach, and try [to] bring that perspective into our business. That could be a friend that runs a marketing firm, or there could be something that I learnt from Dad, when I just reflect and think about how the business used to be versus how it is now. 

Dan Osborne:   

[00:27:44] Getting as much information from as many sources as possible has always been the better strategy. 

Tim Garth:   

[00:27:49] Trying to be open to learnings, but also trying to forge our own path. That's been kind of what we've had to do, really. 

Tyrone Shum:    

[028:47] Now, Dan, if say, for example, you were able to stick yourself back in a time machine and meet yourself 10 years ago, what do you [think you] would have said to him?

Dan Osborne:   

[00:28:58] It's a tough one, because the obvious answer is, 'Do everything you can to go buy a place [because] it's going to be bloody hard when you're ready. You've never heard of this thing called COVID-19, but when it happens, it's going to completely screw all of your plans’. That's the obvious answer.

 

[00:29:17] In saying that, I probably wouldn't be in the position I am now having not made all the decisions I've made to this point. So I don't have any regrets. No regrets for me. However, I think the biggest one was [to] start thinking long term earlier. Start thinking about what the next 10 years looks like, what do the next 20 years look like? And start planting little seeds. Plant little seeds early, is I think the advice I would have given myself back then.

Tim Garth:   

[00:29:50] I agree with that. I think possibly just enjoy the moment. Enjoy what you've got. Because I was definitely in a mindset of the harder you work, the more you'll get out. Which isn't necessarily true— hard work is definitely required. You have to work hard. But that doesn't mean 10 [to] 12 hour days. Which I've done, I've been there and done that. And I've learnt that I don't need to do that. Which is definitely a journey. 

 

[00:30:26] I think just enjoying what you have and appreciating your own goals and reaching those. Actually if I reflect, I'm pretty happy with how the 10 years has gone. Just go for it. Do it and enjoy it.

Tyrone Shum:   

[00:30:45] So this is the Tim that you would have said 10 years ago and said these things is like, 'Enjoy your journey'.

Dan Osborne:   

[00:30:54] And that Tim would have said, 'Shut up, Tim.’

[00:30:58] ‘You're wasting my time! I've got stuff to do!’

[00:31:00] ‘I'm trying to get billable hours done today!' 

[00:31:05] And I still need to slow down and stop reaching for the future.

Tyrone Shum:   

[00:31:15] Perhaps for you, Dan, how much of your success do you think has been because of your intelligence, skill and hard work? And how much of it is because of luck?

Dan Osborne:   

[00:31:22] I like this question. I like this question a lot. Because I've actually thought about it a lot. Funnily enough. I really have! This is something I've heard, and I've thought about a fair bit. And we've been making jokes at my own expense here about not having a property while I'm on a property podcast here. 

  

[00:31:45] But the investment that I have made is different. We own a business that's worth far more than anything I would have had as a property, because of the time and investment and the hard work that we've put into that. 

 

[00:31:58] However, I was incredibly lucky to be in the position that I was and to just stumble into this business when I did, because that led to the opportunity. So being particularly smart people, Tim and I, I think it definitely plays a factor. But I'd say it's about 20%. And I'd say luck is the other 80%.

Tim Garth:   

[00:32:20] That's a fair call. 

Dan Osborne:   

[00:32:24] You should always be prepared and work hard for when an opportunity arises. But no matter how hard you work, if that opportunity doesn't arise, it won't happen. 

Tim Garth:   

[00:32:33] I'm going to agree with that. And I'm gonna say you do to some degree, create your own luck through hard work and being open. Having an open mindset.

Dan Osborne:   

[00:32:43] It's more like hard work is the foundation and setting it up, and then luck gets you over that line. Without either, neither of them happen. 

Tim Garth:   

[00:32:55] You've got to recognise the lucky thing when it happens and act upon it. 

Tyrone Shum:   

[00:33:00] And what about you, Tim, what are your thoughts on that question? 

Tim Garth:   

[00:33:04] I agree. Definitely. I mean, I was just lucky, I guess I was born into a family— I always joke [about] my initials. So my name is Timothy Shane Garth. Which [means] my initials backwards are GST. So I was born being an accountant. I don't know, you might look at that as a lucky thing. You might look at that as an unlucky thing. You tell me. If you hadn't asked that question, I would undersell how lucky I was being born into that family, and having the opportunity of the business to, to get into.

Dan Osborne:   

[00:33:41] It takes hard work to capitalise on those opportunities.

Tim Garth:   

[00:33:45] In saying that, there's so many other accounting firms. Perhaps if you worked hard enough, and you built relationships, you could not go into and with a bit of luck, perhaps you could have been their succession plan as well. I think it's 50/50 hard work and luck to have good friends and people around us at the right time.

Dan Osborne:   

[00:34:06] Be prepared for when the lucky opportunities arise. 

Tim Garth:   

[00:34:09] Take your luck when it comes.

Thank you to Dan Osborne and Tim Garth, our guests on this episode of Property Investory.