Free Stuff  

• Leave us a Q for our next Q&A Day! Reach out to Bryce on Instagram or through our SpeakPipe. (And get a free Start & Build course (Valued at $497 if your Q is featured!)  

• One Spot Left in our 2024/25 Summer Series!
  Help us inspire others by coming onto the couch and sharing your journey towards financial peace! We’ve got one spot left, folks. Share your story here >>  

• Graphs from Ben’s “What’s Making Property News”: Victoria rentals fast declining! 
• Guests & Episodes Mentioned: 
  • 501 | Noel Whittaker: Super, Shares & Why He Sold Most of His Properties! 
• Want Episode 515 slides + our 3-part Negative Gearing video series? Just fill out the form below, and we’ll send them straight to your inbox!
  First Name *
  Last Name *
  Email *
  Tick this box to sign up for marketing and other free materials such as videos, calculators, reports and more – you can unsubscribe at any time.
  Download Now

Questions We Answer

Q1) Thoughts on Noel Whittaker’s Path from Jye

Thoughts on Noel knocking property as an investment when that’s your whole philosophy? (and our whole retirement plan 😬)

Q2) Regulatory limitations for borrowing capacity assessment from Ash

Hi guys, love the show. Thanks for all of the great information and value you provide to the community.

My question is on dealing with regulatory limitations around income when being assessed by lenders for borrowing capacity. I currently own 4 investment properties, and I’m in the process of looking to purchase a 5th.

All of the existing properties have done well with appreciation since they were purchased, so I have about $200,000 of available equity. And the properties in the area that I’m looking at are around the $500,000 to $600,000 mark. So I’m theoretically well covered from a deposit perspective.

My employment income is around $220,000 a year gross. And the investment properties that I have, are returning between 7.0-8.0% yield, against their current value.

Other than the investment properties, I don’t have any additional lending or personal loans, and our primary place of residence is provided by my employer. So our family living expenses, for myself, my wife, and our 3 daughters, are relatively low and we have a reasonably well managed budget that we track.

However, when being assessed for my borrowing capacity by my lender for this next property, I was informed that the restrictions imposed following the royal commission, meant that the lender was only allowed to assess the investment properties as having a maximum of 6% yield each, which results in hundreds of dollars a week, not being able to be included within my available income.

That’s on top of the 3% buffer which is also applied to current interest rates for affordability assessment.

All this to say, that my borrowing capacity based on my “income” is well short of the available equity that I have, despite the fact that all of my existing properties are currently cashflow positive.

While I’m confident I’ll be able to arrange my finances to purchase this 5th property, I don’t see an obvious pathway for being able to purchase any more. Short of waiting for further significant increases in the property values and their assessed yields. If you’re able to offer any guidance as to the best way to navigate an imposed affordability constraint, that would be much appreciated

I’d also be really interested in your take on how some people seem to be able to purchase 30, 50, or 100 properties (if you believe the claims on their social media pages and book covers) without running into this constraint.

It would seem that even with cash flow-producing properties, they would surely be running into the same regulatory limitations on income assessment with the 6% yield limit.

Or is there a strategy that I’m completely missing?

Kind regards,
Ash

Q3) Why Australia loves and hates negative gearing from Jim 

Hi Ben and Bryce! 

I’m a big fan of your work and the podcast. Your focus on empowering the community with knowledge about the property industry and sound financial management skills is fantastic. 

Ben, a shout-out also to the very important work PIPA is doing—couldn’t agree more that the property investment industry needs regulation as soon as possible. So, on to my question (or rather, a topic I’d love to hear more about on an episode): negative gearing. 

As a property investor in Australia, I’m going to say something controversial – negative gearing needs to go. I believe it’s a counterproductive policy, but please hear me out, because there’s an important context to this that merits some discussion from experts like yourselves. 

As a starting point, no one should be investing in an asset that consistently costs them money, relying on PI tax offsets and the hope of a future capital gain that may never materialise. 

I’ve heard the justification that negative gearing is just like any other business where investors should be able to offset financing costs, but in my view this logic is flawed.

In a typical business, debt is used to acquire assets that generate positive cash flow and can be paid off. No business willingly takes on significant debt with the expectation of enduring ongoing cash flow losses in the hopes of one day realising a capital gain. 

If someone approached a stock portfolio this way, we’d call it speculative and reckless – so why should property investment be any different? 

Negative gearing is also a global outlier. In most (but admittedly not all) other countries, property investors do not expect or accept being cash flow negative. Yet in Australia, this has become normalised. 

Why? Because the cost of holding property – largely driven by taxes, rates, and other overheads – is extraordinarily high here. And this, in my view, is where the industry needs to be focusing more attention and policy thinking. 

That said, I agree with you that abolishing negative gearing in isolation would cause significant disruption in the already fragile rental market. 

If investors were to exit the market en masse, as many predict they would without negative gearing, the result would be catastrophic. Rental stock would shrink, and rents would surge even further. 

Therein lies the real dilemma: negative gearing has become an essential feature of Australian property investment precisely because of these inflated holding costs. 

You can’t get rid of one without addressing the other. The current structure of property taxation and regulation in Australia has made positive cash flow investment nearly impossible. 

Take the inability of landlords to pass on council rates to tenants, despite tenants being the direct beneficiaries of council services. This issue barely gets a mention – almost as if the industry is suffering from Stockholm Syndrome. 

Another significant factor is the imposition of extremely high state-level land taxes (especially for those investing through a trust). Again, hardly discussed, despite this tax being a major contributor to the unsustainable costs of holding property. 

Meanwhile, negative gearing in isolation is always front and centre in the debate. These issues together are ripe for reform. Unfortunately, state governments are drunk on land tax as a source of revenue and have little incentive to remove it. 

So if negative gearing is to be abolished (and I suspect it will eventually happen), the federal government must step in and reassert control over property taxation and regulation at a national level. 

Reducing holding costs would ease the financial strain on investors and make property investment more viable and cash-flow positive. 

In that scenario, negative gearing would become irrelevant, just as it is in most other countries. Some, including the Green Party, advocate for rent controls to mitigate the potential impact of constrained rental supply if negative gearing were scrapped. 

In other words, why bother addressing holding costs when you can abolish negative gearing and simply prevent landlords from raising rents? 

This might sound attractive to anyone currently locked-out of the property market by high housing costs, but this approach is really akin to trying to catch smoke with your hands and would be a disaster for renters. 

There’s clear evidence from cities like Berlin and Glasgow that rent controls only lead to higher rents at reset points and a tighter rental market overall. 

It would also be deeply unjust to impose such controls after decades of government policies encouraging and incentivising private property investment as the primary solution for rental housing, with governments effectively outsourcing and stepping away from that responsibility themselves.   

Negative gearing is symptomatic of a dysfunctional and inequitable property market. But advocating for its removal or retention without addressing the issue of holding costs is a bit like rearranging the deck chairs on the Titanic – it misses the bigger structural issues threatening the whole shebang. 

What’s needed is a comprehensive overhaul of the property tax system and a rebalancing of investor incentives to align the market with sound economic principles, which will help to protect rental availability and affordability. 

Isn’t this where the industry should be focusing the debate? I’d love to hear your thoughts on this, particularly if you think I’m off base.

 

Timestamps  

• 0:00 – “Negative Gearing Needs to Go”: Have Bryce & Ben Changed Their Mind?   
• 1:25 – Download our Negative Gearing video series slides & one spot left in the 2024/25 Summer Series!  
• 5:22 – Mindset Minute: “This is how most people live their lives”  
• 7:23 – Q1) Thoughts on Noel Whittaker’s Path from Jye   
• 8:40 – Why Ben chooses residential property for building wealth 
• 11:29 – Loss Aversion and how it links to the Pies losing the Grand Final 😉  
• 12:42 – “There’s no single path to the holy grail.”  
• 15:26 – Noel happens to live in a beautiful property in…  
• 17:05 – Ben’s business analogy & Rupert Murdoch’s $150M property  
• 19:59 – Q2) Regulatory limitations for borrowing capacity assessment from Ash 
• 22:57 – Throttling investment properties? The answer in short is 100% yes 
• 26:40 – The 2 big questions for Ash…  
• 31:53 – Envy Sells: Be wary of these  
• 33:38 – Folks, only 1% actually make it!  
• 36:11 – Alternative strategies when regulation limits your borrowing capacity   
• 38:19 – Q3) Why Australia loves and hates negative gearing from Jim   
• 44:14 – The political system WON’T reboot the taxation system  
• 46:09 – The Macro Story: Why are we seeing this?  
• 49:01 – How it helps the lower-income earners   
• 50:05 – Why it’s about finding a balance: From wage to workers 
• 53:53 – “Most people are after power, not legacy.”  
• 55:35 – What is the alternative to negative gearing? 

And… 

• 57:14 – Lifehack: Ask for late check-outs from…caravan parks!? 🕰️ 
• 1:02:04– WMPN: How many properties are available to rent in Victoria?