Season 2 - Episode 3 Understanding Property Investment finance with Chris Fuentes (founder of Sentient Finance)

Welcome to Season 2, Episode 3 of the Property Now Podcast with our special guest Chris Fuentes. 

Chris is the founder and owner of Sentient Finance, a company specializing in financial services and investment strategies. With a background in business and finance, Chris brings a wealth of knowledge to the podcast.

Hosted by the Managing Director of BuyFair Property Group (Matt Ellul) In this episode, Chris dives into topics such as;

1. Monetary policy
2. Business
3. Property investment finance
4 .Property investment

Expect candid discussions, expert insights, and a fresh take on the ever-changing Australian property scene.

To learn more about BuyFair Property Group, you can visit our website at www.buyfairproperty.com.au 

To learn more about Matt Ellul, you can view his LinkedIn profile with 30,000+ followers below. 
https://www.linkedin.com/in/matt-ellul-%F0%9F%8F%A1%F0%9F%A4%9D%F0%9F%86%99-364458a0/

Transcript

Speaker 1 (00:01):

Welcome to the Property Now Podcast, where we talk all things property, investment, and new homes with your host Matt Ol. 

Speaker 2 (00:09):

Yes, there's bad debt. Yes, there's good debt. The good debt is not bad. It will never send you broke. Ever rich people rely on debt to expand because without debt it's pretty hard to expand. It's almost impossible. 

Speaker 1 (00:20):

If you want to learn more about what's happening in the market and how to benefit from property investment, then go no further. We dig deep as to why our sector is a key to building financial security and safety for your family. Never before has it been more important to understand the playing field than now. 

Speaker 2 (00:39):

And I would say this, this is probably going to raise some eyebrows with some people, but your family home is not an asset. It's a liability. It's taking money out of your pocket from a cashflow position. 

Speaker 1 (00:49):

So let's get on with the show. Happy listening and we'll see you on the other side. 

Speaker 2 (00:54):

Hello, hello and welcome to the Property Now Podcast. I'm your host, Matt aal, and I am very glad to welcome our special guest today, Chris Fuentes. 

Speaker 3 (01:04):

Thanks for having me. Yeah, 

Speaker 2 (01:05):

Welcome mate. It's good to have you on board. 

Speaker 3 (01:07):

It's good to be on board. 

Speaker 2 (01:09):

You've got the full production. This is our new studio. We're going to do a bit of work with it and touch it up a little bit, but you've got the exposed brick, all of the cameras, the lighting, the audio, 

Speaker 3 (01:20):

It's looking gorgeous. 

Speaker 2 (01:21):

We put on the celebrity touch for you, mate, so it's good to have you on board. 

Speaker 3 (01:26):

Greatly appreciate it. No, thank you very much and I do love the space. It is quite nice. 

Speaker 2 (01:30):

Yeah, it's good. So we wanted to start improving the podcast's production quality a little bit. So thank you for all of the supporters that we've had today. I think this is about episode 15 now, and the numbers just keep increasing, increasing and I think it's the listeners that drive me to get more of these done because I often get calls and emails saying, Hey, hey, what's going on? When's the next one? You've taken a bit long with this one, so a bit more consistency, but we're getting there. So good to have you on board, mate. Thank you, Chris. I've brought Chris on board today because we work quite closely with Chris and he's really a whiz as far as it comes to, or when it comes to finance and understanding money and money is a very important thing, especially in today's world. 

Speaker 3 (02:19):

It is, and it's getting very expensive in today's world as well and a little bit more restrictive at the moment. It is. We'll see what happens with monetary policy after the RBAs meeting. 

Speaker 2 (02:30):

Yeah, well I think it just came out. It's stayed on hold and we can talk about that in a minute, but tell us a bit about yourself, mate. I'll give you a real quick introduction. Chris runs a company called Sentient Finance for about three, three and a half years. Been with NAB before that for 10 or 11 years, pretty much your whole adult life, correct. Just telling us a funny story, but why don't you tell us a little bit about your experience, mate and you as a person and so that our listeners can get a bit of feel for who you are. 

Speaker 3 (03:00):

Thank you very much. Yeah, so I started with the NAB at the age of 17 after graduating in year 12, graduated in October, started in the NAB in December, and I had a very good roles. Yeah, yeah. As I was telling you before, my parents gave me a false promise that if I did well in year 12 I got a gap year and I was rewarded with being told if you don't go to uni and get a job, you're out of the house. So I went to home cooked meals. Yeah, that's right. I went to uni and I got a job in the NAB, so I actually studied psychology, which is quite interesting and I think it's quite broad in terms of whatever job you do, but I left with four subjects to go. I had a real passion for finance, so started as a teller, went into credit cards, went into home lending, bluffed my way into a credit manager role in home lending, which I ended up having Using 

Speaker 2 (03:51):

Your psychology experience. 

Speaker 3 (03:53):

Yeah, that's right. I ended up becoming a facilitator in that role, so that was quite good in teaching others how to do the job. Then went across to business credit after that went across to senior associate role managing high net worth clients in the business banking space. So footings of sort of 20 to 30 million in debt transitioned across. Then from there to a manager of an insolvency business banking team, which gave me a really good understanding of not only the sales end, but how do we manage clients, their expectations and what needs to occur when things don't go. And I had 12 credit managers working under me at that stage, transitioned across to a senior business banking manager. So I was the responsible manager then for those 20 to 30 mil footing sort of clientele. And then from there went into senior BDM in commercial at the NAB and took a retrenchment package. After I took the package, I made a phone call to one of my clients who was a recruiter and said, Hey, this is how much money I need. This is what my skills are, can I get a job? He said, yep, you want one? And I said, no, I'm going to become self-employed, but I just wanted to double check. I forget a job. 

Speaker 2 (05:00):

There's that psychology degree or mostly a degree coming through again as well. 

Speaker 3 (05:05):

Yeah, that's right. So I ended up landing in this. I've been in the space for three and a bit years now, and it's been quite fruitful. I mean, it's, as you'd know, running your own business, it's extremely challenging. Some days are a little bit harder than others, but it truly is a roller coaster and going up is very hard, but when you get to come down that rollercoaster, that's where you really get to enjoy all of the funds. Yeah, 

Speaker 2 (05:32):

I think I have a fond respect for people who start their own business, and especially for ones that have lasted at least past that first two year period, which you are in because it's something like 90% of businesses fail in the first two years, and then 90% of that 10% that survives fails in the next two years or the next year. So anyone who's still going after three years made and showing up has my respect. 

Speaker 3 (05:59):

Thank you. No, and likewise, it's incredible. I get to watch all the business owners grow and I get to watch these journeys as they unfold. There's such a breadth of experience that I get to draw out of my clientele. So I'm in quite a fortunate position where I get to really learn from others' mistakes and I get to share some of my own experience at the same time. 

Speaker 2 (06:23):

It's a good quote, people say to learn from your mistakes, but I say it's better to learn from other people's mistakes if you 

Speaker 3 (06:29):

Can. Absolutely. Absolutely cost. 

Speaker 2 (06:31):

I don't say that, but that's what I've heard and I agree with it does. I think I picked up on that one a bit too late in life. I went on a mistake making spree, but it still pays off as well. I just went the long way around. 

Speaker 3 (06:45):

It does. And as we talked about before, those mistakes bring upskilling. So as long as you're learning and you're growing out of those mistakes that they lighten as you go and you become more mature and a much better person 

Speaker 2 (06:57):

For it. It's a really good point, mate. I think what we were talking about earlier is about how whenever we venture into a business or investing in property or sourcing fine, whatever it is that you're trying to do, you might be a wannabe professional sports person. It's like there's a lot of failures along the way, but along with those failures comes a lot of upskilling and then eventually it pays off and all of these upskilling have just built up. So you're actually a totally different person. 

Speaker 3 (07:26):

You're just banking in the credits for when they finally pay off. Yeah, it's just perseverance. 

Speaker 2 (07:31):

I love my boxing and we're in camp to compete soon, and there's a few new guys in our latest camp and they did their first rounds of sparring recently, and I just gave 'em a little pat on the back and I said, you've got your first rounds in the bank, boys. Well done. Yeah. So that's something that they'll, did 

Speaker 3 (07:47):

They turn up for the second one? 

Speaker 2 (07:48):

Second soon? Find out. There's more sparring in this Saturday, so we'll see 

Speaker 3 (07:52):

If they all come 

Speaker 2 (07:53):

Back. Yeah, I think one that I sparred in the first round probably won't come back. That's all right. 

Speaker 3 (08:00):

That's when you learn the job isn't for you. Yeah. 

Speaker 2 (08:02):

Yeah, it's a tough one. It's what I love about it. It's a good challenge. So you grow. Yeah. 

Speaker 3 (08:07):

Fantastic. 

Speaker 2 (08:08):

So tell us about Sentient Finance. You've about three years in now as we've just mentioned. What is it? What do you do? So 

Speaker 3 (08:16):

The business is tailored towards the self-employed market. Not to say that we don't have a good healthy clientele base of PAYG or employed clients, but we really noticed that there is a significant gap in the self-employed market and people's ability to understand a profit and loss and balance sheet, and also how to restructure that profit and loss and balance sheet as well, because there's a lot of people think that just because a business is profitable, that cashflow is good, and that's not always the case. Cash repays debt and profit doesn't, and it's a really hard lesson to get across the table for some people as well. So when I was designing the business, we specifically wanted to take over the self-employed market, and the reason for that is there is such a large amount of self-employed people and young entrepreneurs and people trying to make it in the market now, but there's not a lot of tools and good equipment in the market and good knowledge bases in the market for people to be able to really take off where they really need to be. 

Speaker 3 (09:23):

And a lot of people jump in blind with good ambition and good hope, and unfortunately that's not always the recipe for success. So with that in mind, we started approaching a lot of businesses and I did my traditional thing, I was a career banker, so I'm not afraid to door knock. There's a lot of door knocking at the start walking up and down. My business is in Richmond. So we started door knocking in Richmond and Abbotsford and these places. We started gaining more and more clients hell out of this. And as we've sort of grown and progressed the word spread. So at the moment we look at everything from trade import finance to funding invoices and debtors to funding floor stock and inventory through floor plan finance. We do a lot of self-managed super fund lending, a lot of NDIS stuff with yourself, property investment, commercial development. 

Speaker 3 (10:14):

We work with a lot of professional services. Two years ago I was fortunate enough to present at the accounting expo in Melbourne, and that boated really nicely because accountants are very good partners for a finance broker, not only from a referral source, but an ability to actually work on a client's finance together gets a much better outcome than an accountant referring somebody to a broker and then not being involved in that transaction because the difference between putting debt into a company and putting the debt into a trust if you're buying an asset can be a 50% CGT discount when you sell because companies' 

Speaker 2 (10:57):

Capital gains tax for people that get the acronym, no, that's fine, but 

Speaker 3 (11:03):

There's a really big spread. So we've got clients who come and they say, I want to buy a property in a company. And we say to them, have a good think about it. Let us speak to your accountant. We speak to the accountant, we say, Hey, this is what we're thinking. What are your thoughts? And we can actually have a much more structured, streamlined approach to things and clients don't have to pay for things twice the amount of times I see clients come in and they've bought an asset in a particular entity, and I'm asking them, why did that happen? I just thought it was the right thing to do. Well now we've got to unwind that structure. And I have a real example right now where a client wants to pull one out of a company, put it into a trust, and we're trying to get a waiver for a stamp duty of a couple of hundred thousand out of the state revenue office. Good luck with that. I don't think we're going to get to waiver luck, but nothing ventured nothing. So it's quite an expensive activity and they're transitioning towards retirement now. So if they don't bite the bullet now with the property growth over the next 10, 15 years when they're ready to retire, the problem's going to be a lot worse because I don't have the crystal ball, but trajectory in Australia says property growth will continue on an upward trend. 

Speaker 2 (12:15):

So that's probably in Melbourne. 

Speaker 3 (12:17):

Yeah, yeah, yeah. The property is in Melbourne. It's actually in St Kilda. So yeah, we'll see how it lands. But yeah, that's a little bit about what we do. So really it's anything commercial business, a lot of residential lending, and then we do equipment and asset finance on the side, which is anything from a car to a yellow good to a fit out. We talking about a fit out of a gym just yesterday, we've got a fit out of a Pilate studio that we did last 

Speaker 2 (12:44):

Week. Why? You're good shape, mate. You've got the fitness clients as well. 

Speaker 3 (12:47):

I'm sitting on the chair writing the credits. This is my muscly fingers. 

Speaker 2 (12:53):

Yeah, look, I think he makes some really good points as far as, and it's really how we run our business too. And me and Chris work together with clients, mutual clients, but I think having an army, a team around you of people that know what they're talking about within their own fields of expertise is so important and can make such a big difference, especially to your long-term outcomes. Because things like what you just mentioned, buying something in a certain asset structure as compared to something different or buying it in your personal name as opposed to your business can make a seriously, seriously different outcome if it's not done properly. There's no ignorance, there's bliss when it comes to money and investing. It's very much have people around you and if it costs you a little bit and it's going to hurt a little bit in the short term, I can almost guarantee you that over the long term it will pay off. 

Speaker 3 (13:41):

Yeah. Well, I think most people can resonate with this. If you've ventured into the workforce, I'm sure you've seen your employer pay for something cheap and then doesn't work and you have to pay for it again and get it done correctly. So I'm a big believer in letting the people around me do what they're good at and I'm quite willing to pay. And I always encourage clients to pay for that experience as well because where you don't jump into that, you end up paying for the same thing two times, three times, and it can be more expensive to unwind it the second time than it would've been to just pay for a little bit extra in the first thing. It's 

Speaker 2 (14:18):

Called cost versus price. That's exactly, there's a price, but there's a cost. 

Speaker 3 (14:22):

That's exactly right. 

Speaker 2 (14:23):

The price tag's different to what the cost can be. So yeah, 

Speaker 3 (14:26):

Spot on. And I think it's really daunting for some clients when they first step in into this realm because a lot of people are sort of flying by the seat of their pants, but when we're winding back, oh, why are you not collecting from your customers within the allotted timeframes? A lot of clients think, oh, it's great to pay my suppliers day one. Well, your suppliers gave you a 14 day term and you wonder why you've got no cash. You've got redundant inventory sitting on that. We're not selling on sale. Why are we not clearing inventory to at least draw some of our cash back off the shelf? Because these are all the little things that people don't understand and they don't understand that these are simple cashflow triggers that they can pull on and they can have really, really big effects. I mean, if anyone's interested, NAB on their website have a small business power of one tool. So if you do have a small business and you want to go in there and plug in, what is the impact of collecting on my debtors three days faster, you plug your figures in and it will show you the change in cashflow to your business just by collecting your money on average three days faster. And then on the flip side, we've got a lot of good tools on our website as well around the residential space. Yeah, good 

Speaker 2 (15:40):

Tools. Yeah, I was just going to say just quickly, it's actually that cost versus price analogies actually how we named by Fair Property Group. And it was based around buying great properties at fair prices as opposed to buying fair properties at great prices. So it might seem great to be buying a fair property at a great price at the start, but long term it doesn't pay off. But when you buy a great property at a fair price point where it pays off, 

Speaker 3 (16:09):

It does. And we really see that through some of the work that you do with the customers as well. I mean it's quite refreshing and nice to see some analysis and work that's gone into forecasting what those yields would look like and forecasting what the costs and returns would look like to clients. I think there is a bit of a gap sometimes in the property market where some people are more interested in doing the sale than a long-term outcome. And if you do the right thing by a customer or anybody in life at the start of a transaction, you can guarantee that person will always keep you in the back of their mind and likely be a repeat clientele of yours. Whereas if you're in the game for a short dollar, 

Speaker 2 (16:52):

I think that's why so many businesses do fail, or partly why so many businesses do fail in that first two year period because they don't have clients coming back referring people, telling people that they know about their business and we get a fair bit of business from you and we're very grateful for that, but we know that we earn that too because your clients are happy and you are more comfortable to go speak with these guys. 

Speaker 3 (17:15):

Exactly right. And I think it's just watching people do the right thing by each other. And I'm very grateful, as I've mentioned, my clients have spoken highly of yourself in the business, and it's just a general business principle that I like to live by. I say to a lot of people, I like to sleep comfortable at night and comfort for me is knowing that I can hold my head high after a long day of what I've done. And I've never had to worry once about looking over my shoulder thinking, oh gosh, did I do the wrong thing? Have I done 

Speaker 2 (17:45):

The 

Speaker 3 (17:45):

Right or wrong thing? Did I advise that person incorrectly in my fate? That's not a thing that ever had to worry or stress about. 

Speaker 2 (17:51):

Well, it is a big thing. It's like we are responsible for providing advice on very important things. So it is the same for me and our business. I take it very seriously. We advise, I advise a lot of friends as well, people that come to me and say, Hey, I'm thinking about doing this. What do you reckon? And that feedback and advice is important because it's their financial future. It 

Speaker 3 (18:12):

Is. And if you treat everyone like a family or a friend and take that level of care and responsibility, I think it really builds a good platform for a longevity in a business because those people are your advocates. I know social media and advertising goes such a long way, and in the day and age that we live in, it goes such a long way, but you are designing a 15, 20, 30 year strategy or a generational wealth strategy. We're advising on how to get that structure correct from a funding perspective to be able to achieve that. So it does have a long-term effect on people's livelihoods and I think there's a lot of people like yourself who take it seriously. And then I see the other side of the coin where we might see some players in the market who perhaps aren't quite as serious as the long-term future of some of these people, but that's why we get to pick who we work 

Speaker 2 (19:04):

With. Exactly. Exactly. He knows his stuff, listen to him. So let's talk about money at the moment. Let's talk about what's happening in the world of money today. Everyone listening. Well, most people listening, I'm generalising, but I think we all know that there's some key things happening at the moment. Money is expensive. Well, especially in comparison to what we're used to. Cost of living is very high, accessing funding is challenging. Turnaround times of banks and whatnot is something that we're dealing with on a day-to-day basis. What are you seeing just high level, what are you seeing as someone on the ground? 

Speaker 3 (19:48):

Yep. So it's quite interesting the standpoint that a lot of banks are taking at the moment. As you may or may not have heard this week, inflation remained flat in Australia and inflation is a really key driver in what happens. Sorry, the cash rate stayed flat. Inflation's actually trickling up a little bit, and inflation is the key driver of the cash rate. So when Michelle Bullock and the RBA made their announcement earlier this week that they were keeping the cash rate flat, there was a lot of commentary around the fact that they are looking to potentially increase that cash rate. And that's on the back of that rising inflation piece. And at the moment where we're seeing a lot of pressure is in the fuel sector, there's a 

Speaker 2 (20:32):

$2 50 a litre I paid the other day, 

Speaker 3 (20:35):

And that's broadly driven from some of the things that are happening overseas at the moment. So we saw some countries have a go at seeding clouds and we saw how well that turned out with the whole town flooding in Dubai. We've also got pressures from Ukraine and Russia and a few other bits and pieces that are creating pressure on that. So that may continue to cause that inflationary pressure to rise. We've also got America who we're a big importer from their inflation rise. So the Fed announced what they were doing with their cash prior to Australia and because their inflation rate increased, a lot of the Fed and the economists changed their outlook that interest rates weren't coming down this year and they actually changed the outlook to now 2025. Whereas if you take all the economists back three, four months ago in the next month or two, we should be expecting rate cuts. That's no longer a realistic landscape that we live in at the moment. It was 

Speaker 2 (21:36):

A big thing for people at the start of the year too. I remember talking to peers in my space and the outlook or likelihood of interest rate cuts was very high. A lot of confidence around that. And I read the updates yesterday and the day before on the monetary policies and yeah, it's a little bit disappointing, but it is what it is. We've got to expect the unexpected in this world. It 

Speaker 3 (22:00):

Is. It's very challenging and I think the cost of interest pressure is quite interesting because we still do have a small bubble of clients who are coming off that as fixed rate terms as well. And I think some of these clients will be greatly impacted when they have a debt rolling off two or 3% and that's now diverting to six, 6.5%. The jump is quite significant and they think that that's going to have a longer term flow and effect in terms of what we're seeing from banks. Banks, banks are not, look, they're not overly ambitious in terms of lending out cash on higher risk transactions at the moment. And medium risk transactions we're still getting a little bit of pushback on as well in terms of policy, A policy is a set of guides and rules that mitigate risk for how a bank lends traditionally as a broker, and I would hope other brokers are doing this as well, where something makes common sense and you can mitigate risk, you overcome that policy, you get policy waivers and you can progress transactions. 

Speaker 3 (23:14):

Banks are no longer really willing to entertain those policy waivers. And when we're finding the most pressure is the big four. So the big four are becoming the most conservative. And then you've got your second and third tier players in the market and there's a couple of lenders in that second and third tier market who are pricing very fairly, but they're also letting us play the game a little bit in terms of policy, how we waive policy. I had a really good experience with a bank in particular that just looks healthcare workers and emergency service workers. And we had a nurse who was going through nursing school for the last three years. She's just come out of nursing into practical training. She's got a couple more months to go before she becomes a registered nurse. Her income's now doubled, but she's only had double that income for four months. 

Speaker 3 (24:05):

We went into this particular lender and we'd already gone to two of the majors and got knocked back. I thought, I'll try this one, put 'em in straightaway. Credit we're like, this makes sense. We know the industry, this is what we target towards. We definitely can do a transaction. We ended up landing a really good one there. So the majors are getting a little bit tighter in terms of policy and it is really about having a lot of lenders on panel. We've got over 30 lenders on panel, so we have a good opportunity to be able to spread it in terms of commercial debt funding. Commercial debt funding is quite interesting. So I think it always has been that. Yeah, it's getting more and more interesting. So during covid, our treasurer decided to a corporations act for a period of time and the Corporations Act is what all companies are governed by. 

Speaker 3 (24:58):

So directors have a set of very long set of rules that they need to adhere by, and I don't think a lot of people have read them, but they're there. And basically one of the principles is you weren't allowed to trade while insolvent as a measure of your balance sheet. A lot of companies did trade insolvent and got a lot of advice from potentially their accountants, bookkeepers, or other people to not pay the A TO and to use that cash to carry their business through the period of covid. Well, we're now a few years on the backend of Covid and compared to the atos now started pursuing all of this debt. So in the small business segment at the moment, and I'm not including corporates here, this is small business, the A TO is pursuing 34 billion in arrears now because they're pursuing 34 billion in arrears compared to this time last year, insolvency is up 133%. 

Speaker 3 (25:55):

So banks are really tightening up on the commercial side of things in respect to where clients do have a TO debt, there's a lot less willingness to restructure that. There's a lot less willingness to give out further terms or extend debt unless the banks already got skin in the game. And by that I mean they have to help the client trade out or there's going to be a loss event. You're really seeing that they're starting to pull back in there. But in saying that, there are still some pretty good opportunities. I mean a lot of banks are now pursuing the investment debt. They're looking for lower geared stuff, they'll price on lower geared transactions and by lower geared, I mean lower loan to value ratio stuff. If you are below 60, 70% at the moment and you're not asking for pretty aggressive discounts on your lending, you really need to be asking for them because you are the most bankable customer in the economy at the moment. So if you're less than 70% and your interest rate isn't 6.14% or lower, then you have got a bad deal. 

Speaker 2 (27:02):

And that just means that you're putting 30% plus deposit towards the asset and then lending 60 to 70% from the bank. But 

Speaker 3 (27:10):

It's even through earning the equity and I mean taking on a new transaction, we work with a lot of customers who use equity out of an existing property to leverage the next purchase. And whilst that's completely fine, sometimes there can be a balance between do we leverage all of the equity to change the prices and yields overall, or do we potentially buy a second asset for 800 rather than a million and we can win on interest rates overall because a really good gearing level, I think if you can get to it, is 60 to 70%. But it's how do you get there? And that's for people around our age. I mean as you're starting to head towards retirement, the whole reason people bought these assets is yes a for the capital appreciation so that they can sell it and et cetera, et cetera. But if you haven't lived in it for a period of time and you want to sell that asset and you've held it for a very long time, often you've got capital gains tax applicable to that sale. 

Speaker 3 (28:07):

So you're going to lose a big chunk of whatever you've earned in terms of equity. But a lot of other people buy 'em for their passive income into retirement. So if you're not repaying debt and you're not making that conscious effort to reduce debt, you're not going to have that passive income stream into retirement. And that's why I think some of the assets that you work on are quite fruitful. And in particular the NDIS opportunities that are out there at the moment, that is really an interesting investment because it does help you get debt. It can help you clear debt very fast and it can help you get that passive income stream that we all need into retirement. Because I don't know the longevity of Centrelink, I don't think it can be sustainable, but who know now it might have to be sustainable because the government's now talking about letting first home buyers rip out their super to buy a home. 

Speaker 2 (28:57):

Yeah. It's why I've put together that department, which is the multi live range. And it's because I think nowadays cash is not so much as king as far as cashflow is king. We see people purchasing investments and it's just not making sense because it's costing them so much to hold the asset. Will it go up in value? Most likely, yes. But if it doesn't, you've just lost a lot of money. And even if it does, how long can you hold it for to get to that point because it's costing you so much to manage. So when we've got an asset putting money into our pocket, it's so much easier to hold. We don't need to sell it if we don't need to sell it, we don't need to pay taxes, we don't need to do these kind of things. That's correct. It's a different way of investing in today's world in my opinion, and I think we should all be aware of it. 

Speaker 3 (29:43):

Yeah, absolutely. I mean, it's just imperative these days because look, I know there's been a lot of people who've made it quite successful in highly leveraged assets, but there's also a lot of people who've crashed and burned in highly leveraged assets. So I always find it interesting when I talk see these property developers and especially on things like Instagram, TikTok, et cetera, or they're the young investor and they've bought the 30 properties that buy 30 or what have you. And a little bit of that is skill, and there's a lot of that in luck because there's a 

Speaker 2 (30:21):

Bit of BS in there as well. In a lot of 

Speaker 3 (30:23):

Situations I think there is as well. 

Speaker 2 (30:25):

But 

Speaker 3 (30:26):

In the market that we're in right now, you can't buy three properties a year. It's not feasible if you don't have the equity or the cashflow, you can't do it. They talk about having rent that outweighs the assessment of the bank so that you can buy it in separate entities and buy one at a time. It's not fair. The interest rate on an investment loan is around six and a half plus up to seven and a half on conforming loans. So 

Speaker 2 (30:54):

Traditional rental yields are about three and a half to 4% in Melbourne to give people an idea 

Speaker 3 (31:00):

Where you've got your debt set at 80 or 90%, it doesn't match up. You're constantly putting your hand into your pocket to replenish that loan and you're never feeling like you're really getting ahead on that asset. And a lot of those clients have structured those as an interest only loan, which means they're not repaying the loan. They're completely and wholly and solely dependent on that property going up in value. So they can either sell it for a profit, 

Speaker 2 (31:29):

There's no forced equity. 

Speaker 3 (31:30):

No, that's exactly right. And so you look at what holding costs are on some of these assets versus what they'll sell for in five years potentially. And you think, is it a worthwhile, is it a worthwhile venture? 

Speaker 2 (31:46):

Another reason why this multi live or high income properties are so important is because also people aren't buying or accessing enough assets. So when they go to the bank after they've bought their first two investments or whatever it is, the bank will quite often go, well, sorry, you're actually tapped out. That's it. We can't borrow you anymore. But if they've got assets that are increasing their income, it's much easier for the bank to go, okay, well you've got positively geared assets, they're supporting you. We are comfortable to let you keep expanding. 

Speaker 3 (32:16):

Absolutely. Absolutely. And different banks will spring up at different times at different level of appetite, and especially in the area with the co-living and the NDIS, there's certain players in the market and some of them do it quite well. Some of them are a little bit more challenging than others to deal with, but they all have their place in the market's. 

Speaker 2 (32:37):

Why I think it's so important to work with the broker as opposed to working directly with the bank. No offence to the banks, but the broker's going to go to work to you to find different opportunities and products that could suit whilst the bank's just going to work for what they have access to all they can do. I mean, you worked at nab, you know what it's like. Yeah, 

Speaker 3 (32:55):

Absolutely. It was quite refreshing coming out of the bank and not having to shove one bank down everybody's throat and tell them that we're the best. This is why you should do business with us. It's quite a third party approach that I have now because I get to look back and think, well, what is the best? And we're in a price market and banks tend to want to talk about their service, but the level of service is it's on a relatively even playing field across most lenders. There's only a couple of outliers in terms of service, but interest rates are fundamentally what drives clients' decisions these days. And I think if a consumer's got the cheapest capital that they can gain access to in internet banking, majority of consumers these days are quite satisfied with that. We still have a pool of clients who do need that branch network, but the shift in the banking space has really transitioned. And so I get to go out and I get to be competitive and I make all the banks quote, and we put everyone up against each other and we're quite happy to be transparent and say, well, you're in the top three. This is the price that your competitors 

Speaker 2 (34:05):

Have given. Well, it makes a difference. You want you does it 

Speaker 3 (34:06):

Absolutely not. We're not driven by that. We're driven by an outcome for a client and knowing that we've been able to achieve what's right for them, and every six months we do a quick review, we'll put the pricing in for the client. If they get a discount, we get to share that good news. If they don't, they get a check-in phone call anyway. We say 

Speaker 2 (34:25):

We tried. Sorry, we tried. 

Speaker 3 (34:26):

Yeah. But yeah, competition for that really good stuff's still increasing. So if you are somebody out there who does have good equity and you're not asking your lender or you're not speaking with your broker around what is out there in terms of your rate, and it's been a period of at least 12 months, I would strongly urge you to pursue, 

Speaker 2 (34:45):

Here's your man, reach out 

Speaker 3 (34:46):

To more than I'm going to come to Sentient Finance anytime. We are happy to take anybody and everybody, but just as a general rule as well, I mean if you're not interested in working with a broker, you really should be reviewing your utility services, your insurance services, and your debt services every year because these things in life are needs. It's part, a house is kind of a want, but it's not. I mean, it is really a need. Everyone needs a hot roof over their head, so you should be reviewing those need costs every year if you can. And if you're not doing that, you are paying for something that you might not be getting the full benefit 

Speaker 2 (35:24):

Out of. I think any saving in today's climate is important. 

Speaker 3 (35:28):

Absolutely. Because I don't see Australians going backwards in lifestyle anytime soon. And that's why I'm quite concerned in terms of inflationary pressures broadly, is because nobody's slowed down and I think the cost will start to hit everybody soon. I don't know if you've noticed, but there's a couple of coffee shops who've started putting their prices up. Now 

Speaker 2 (35:51):

I've actually noticed 'em putting their prices down recently. Really's really nice. But yeah, I've seen the ones putting 'em up as well. 

Speaker 3 (35:57):

Well, a cup of coffee should be around six, $7, but is a consumer willing to pay to maintain the margin that they had a few years ago? That cup of coffee should be six or $7 insane. But these small businesses are sacrificing margin management for foot traffic. And so something's got to give either that business eventually will have to give because they're eroding their margins or they have to put their price up. Consumers have to accept that price and consumers have to come and meet the market and pay for that coffee. So it's really interesting, and I'm quite interested to see where the consumer market goes in the future, especially with more payday lenders popping up, zip pay, afterpay, these are psychological lenders. They were introduced into the market because they give you your sugar hit quick, and by the time you've got your sugar hit and that sugar hits worn off, you've still got 4, 6, 8 instalments, whatever they charge on to pay. But you're looking for the next thing on your afternoon and 

Speaker 2 (36:56):

You need an afternoon nap, you've crashed. Well, 

Speaker 3 (36:58):

That's exactly right. And then you're looking online thinking, well, what's the next little item that I can buy? Because it's like a line of credit. Whereas labour is probably not a term some young people have heard before, probably haven't, is when you used to go into somewhere like Meyer or David Jones and you'd see this jacket that you liked and the jacket was $400 and you didn't have $400. So you might go into Meyer's once a week and you give the person $50 once a week and on that past instalment of $50, they bring out your $400 jacket and you get to put that thing on, 

Speaker 2 (37:33):

Which is now on sale for 170. Yeah, that's 

Speaker 3 (37:35):

Right. It's a stitch up on the backend. But 

Speaker 2 (37:38):

Screw you, Maya. Yeah, had 

Speaker 3 (37:39):

To work towards it. And so it was a different psychological mindset for consumers back then because they had had to achieve that outcome. Whereas now you get the outcome and then you're forever working to be able to achieve the backend of it. And it diminishes bankability in some instances. For a lot of young consumers who want to do a personal loan or you want to buy a car loan, the banks score you in a number of ways. Most banks have a tiering system, whether it's tier 1, 2, 3 or a B, C or if they've got special names for their tiering. They all have a tiering process. And a lot of it's driven off whether you are renting or living with your parents or you're owning with a mortgage, whether you are with payday lenders, how many inquiries you've had with payday lenders, how long, and then they look at things like employment, length of employment, type of employment. There's a few scoring things. They're 

Speaker 2 (38:31):

Looking at habits, aren't they? 

Speaker 3 (38:32):

They're really starting to look at habits. So if you're a consumer who's continuing to use these things, 

Speaker 2 (38:37):

Gambling, drinking, 

Speaker 3 (38:39):

It's all coming into it these days. So it's important to understand where you sit before you apply for lending because there's nothing to say that you can't change that behaviour or you can't step back to achieve other goals, which is, if I'm doing Afterpay now, but I want to buy a house, do I need these items? Are these wants or is this a need? And I think often enough we're not sitting back and thinking, well, most of the stuff we buy is a want. Most of it. 

Speaker 2 (39:07):

We're a society of a need, for instance, gratification. And it's the ones that are able to prolong that I see doing better, not needing the result. Now we all want it, but it's just understanding the difference between the two and doing what's needed to get to that longer term outcome. 

Speaker 3 (39:29):

Absolutely. And I think with the government taking their stand that they have at the moment, the government's got a lot of great initiatives, disability support, mental health support. We've got a lot of segments in the market that we give great support for. But in terms of actual consumer education and consumer finance education support, it broadly doesn't exist today. These things don't exist. People don't tell you how to set yourself up to be prepared to take on credit. People don't tell you what's involved in that. 

Speaker 2 (39:57):

Another topic in itself, 

Speaker 3 (39:58):

Absolutely. But it's a real really large gap in Australia. I don't dunno how many of you watching today would've spoken about coming out of school and how to apply for Centrelink at school, how to apply for rental assistance. What does contributing to your super do? I'm sure there's a lot of people on here who don't know what the first home saver scheme through your super fund is, but there are ways to contribute additional funds to your super, grow that balance, grow the compounding interest balance, and have a pool of funds that you've forced yourself to save, but you can't access to buy a first home. And this is very different to the new initiative that the government's talking about, about just being able to rip super out. This is about your own additional contributions that you've consciously made for the goal of purchasing a home. 

Speaker 2 (40:48):

I've seen the recent stats on superannuation a couple of days ago. I can't quote exactly what they were, but average and median superannuation balances in Australia at age 60 and 70 compared to what's required to live a comfortable life site lifecycle, according to Assa, very, very far behind where they need to be. And people aren't aware of this. They think that, oh, we've got our super, we've got our support coming in once we retire and everything's going to be okay. There's a pension, these kind of things. But what people don't realise, and this is what we educate on, is that we're one of the fastest ageing populations in the world. We've got many people. The amount of workers compared to pensioners now is substantially lower than what it used to be, and we're living a lot longer. So what that means is pressure on the government to be able to afford paying for people that are in their elderly years. They need that support, but it's becoming harder and harder for the government, which means that US individuals need to be more responsible for supporting ourselves. And education is a big part of that too. People just don't know how to do it. 

Speaker 3 (41:54):

Oh, that's correct. And yeah, it's something that, it's the philanthropic side of me that I like to talk about. But my little brother, he's a solicitor and actually did a dual degree in psychology and law, very interesting mix and good guy, interesting thoughts. I like having good chats with him, but it's a philanthropic thing that we've spoken about about one day having our own financial freedom. But we have to create that first to be able to go out and do an initiative like that where we can go out and provide education and we can really wholly solely focus on upskilling because that year nine to year 12 gap, it's such a precious time and they're learning good skills in terms of education with things like English, maths, maybe a bit of macro, micro, it's 

Speaker 2 (42:44):

Scholastic education. It's the basics to get you by and surviving in the community, 

Speaker 3 (42:49):

But how do you write a resume? How do you apply for rental assistance? We're not all in a position where our parents may be able to support us. Maybe not all of us have that backstop to lean on. So yeah, it's something that I think if we don't start addressing education and financing from a foundational level, Australia will continue in its pathway and we'll continue to do what we do. And I think we'll have a lot less predictable economy. But if we had an economy full of people who were finance conscious, they don't have to be finance gurus or geniuses, but if we have a finance conscious economy, we could probably reign things in a lot quicker. We could say, Hey guys, everyone, we need to stop spending a little bit at less. Hey, maybe don't go out and spend $400 on the weekend going out every single bar that you can find in buying every $25 cocktail that you can find. Maybe change your consumer habits. But I think it's very challenging for consumers to come back from a lifestyle, but we'll see where the buck stops 

Speaker 2 (43:57):

Yolo. That's what I hear a lot. You only live once and it's like, ah, who cares? You should be right. It's like, well, yeah. Well just remember though that that YOLO experience is likely going to be 90 plus years, hopefully. And I can tell you right now, you don't want to be 75, 80, 85 with no money to your name and no support behind you because that makes life very difficult. 

Speaker 3 (44:18):

And we don't know where the government's going to be at that stage. We know if the government will be in a position to support the economy at that stage. We don't know if Centrelink, Centrelink might wind back at the moment. Medicare is quite interesting. You look at access to medical professionals and how that landscape's changing and the privatisation of that business now as well, where now the government's having to offer doctors bonuses for using the Medicare system so that there's no gap when you have to see a healthcare professional. But you're already starting to see that gap widening and we're in such a prosperous country. But I think that gaps will start to widen because you can't. I 

Speaker 2 (44:59):

Was at the doctor's yesterday for my daughter's, something simple, but it was fine. But the cost was amazing. We were in there for seven or eight minutes and the cost was incredible. I was like, wow, really? Even with the Medicare gap or payment back, I was like, wow, that's going up. And quickly, 

Speaker 3 (45:15):

It's quite staggering. It's quite staggering. And that's why I just think these are the little schemes they're going to eventually have to wind back. Australia doesn't have perpetual money. We can only dig holes so deep in WA and Queensland before eventually resources will thin out and we have to do more exploration. And Australia's mining cycle is quite lumpy in itself, so we can't be relying on that one key export to carry the rest of the economy. So it's a very interesting stage to be in, but I think it's a good time to also consider taking on these types of challenges. Because I jokingly say to a lot of my clients, I say, look, you're probably buying in the last 10 years, in one of the worst times in the market for debt. Property's still doing its thing, but I say to them, you're going to be so well-trained when all the rubbish finishes from paying at the six, 7% level one day. 

Speaker 3 (46:14):

I dunno when, but we will get down to three, four, 5% eventually again at some point. But I say to my clients, so well-trained learning to live a lifestyle to accommodate a growth strategy. Whereas I do feel in my heart, honestly, for a lot of consumers who bought at the two 3% mark and have had their fixed rates expiring, those who've grown with the variable rates sustaining a little bit better, but we've still got a proportion of the market who's really going to struggle when their mortgage repayments go from 1700 a month to $3,500 a month. Where do you pull that money from? 

Speaker 2 (46:52):

People are living so tightly from a cashflow standpoint, a surplus is very minimal these days for a lot of people. 

Speaker 3 (46:58):

Yeah, it's minuscule and it's a little bit concerning, but I mean, as long as you're doing the right things and you've created a budget for yourself, you are considering before you spend all the time, especially with little things like coffee. Coffee compounds quickly. It's a small, if you're drinking two coffees a day, guilty or two coffees a day at $5 a day on a working week, it adds up, Don. 

Speaker 2 (47:25):

Forget that. That's after tax dollars too. You have to earn seven, $8 to pay that $5. People don't even consider these kind of things. That's 

Speaker 3 (47:33):

Exactly right. They look at that and they think, oh, it is what it is, and we're moving away from cash. So we're moving towards this digital economy where you don't have to open your wallet and see moths fly out. That used to be the thing. You'd get X amount of dollars, you'd have cash in your wallet. You're looking at, should I buy that or should I go for this lunch date? Actually, I probably shouldn't go for that lunch today while it goes back in the pocket. But now it's just tap, tap, tap. And we really lose sight of what we're spending. 

Speaker 2 (48:04):

I'm mindful of time. I want to just pick your brain quickly on these higher income opportunities. So NDIS, national Disability Insurance Scheme. Chris has been writing some loans for clients of ours recently from an NDIS standpoint, and then also multi reliving, which we've renamed and sort of put our own touch on. What do you see as someone behind the scenes organising finance and assessing these opportunities for your clients? What do you see and what do you think of them moving forward as well? 

Speaker 3 (48:36):

Yeah, so I think they're quite interesting opportunities. The adoption in terms of a finance market has not been overly big. But that's not to say because that's not because they're good markets. I mean, different banks have different appetite for different things. We've got major banks who just like to do relatively vanilla transactions. They're looking for that a one client that quick lend and that quick lick. But we do still have a few lenders in the market who lend to these products. So with the NDIS and the co-Living Arrangements, 

Speaker 2 (49:11):

Multi living. Oh, multi 

Speaker 3 (49:12):

Living. The multi living and 

Speaker 2 (49:14):

The NIS. No, we'll cut that out. So 

Speaker 3 (49:16):

With the multi living and the NDIS, we've actually got a couple of lenders who have appetite for these, and it's quite interesting to see the way that they play the game. And it comes back to that loan to value ratio that we were talking about before where they have really good appetite all the way up to 90% loan to value ratio. So talking round numbers, because round numbers are nice and easy to understand, but that effectively means if you're buying for a million dollars, you have to have $100,000 as your deposit. The cost of stamp duty, and the great thing about some of the NDIS ones is they're a construction product. So you're only paying stamp duty on the land value, not on the end value. And then you have to be able to cover a lender risk fee or a credit risk fee. And that whether you are with the NDIS or multi living specialists, or whether you're with any other lender, most lenders over 80% charge mortgage insurance, credit risk fee, self-insurance risk fee, don't care how you dress it up. 

Speaker 3 (50:20):

It's a fee for being over 80% and you're paying that insurance on behalf of the bank to take the risk on you as a customer. It's not an insurance that you pay for yourself, but the appetite out there is phenomenal. So being able to unlock that at 90% can be so powerful because a client might only have $200,000, and I say might only, but that is a substantial amount of cash. But when you're talking about a million dollar purchase, it's perspective. So we might say, okay, you've got 200,000, you actually can't afford to buy this at 80%, but if we put it in at 87%, you put in X amount of dollars, this is the risk fee. We can make that 200,000 work for the purchase opportunity. Now, why would a consumer consider that? Well, when you look at the yields from the multi living and the NDIS that is being returned, yield being income, and the certainty that comes behind some of these contracts once they're in place, it's a no brainer. 

Speaker 3 (51:19):

When you look at that from a risk perspective, appetite out there is very good, but Lending Turnaround is very slow. They really like to, it's like peeling an onion. They peel a layer back, cry a little bit, peel another layer back, cry a little bit more. Good analogy. But there is still appetite. It's just a real grind at the moment. And you could have everything in there day one and submit a perfect application, but it's likely going to be anywhere from two to four weeks. In terms of rates. Rates on these products are on what they call a tiered basis. So they have a 85 to 90 interest rate and 80 to 85 interest rate. They go all the way, generally down to either 50 or 60%, obviously with the 50 and 60% getting the best rates because they represent the lowest risk. But there is a reward system and a tiering system in place as well. 

Speaker 3 (52:12):

So when we're talking about some of these opportunities, the lenders generally will only give a 25 year total loan term rather than a 30 year loan term like they will in some mortgages. But we talk to the client about returning the first couple of years of cashflow if they can back into that debt. The reason for that is they unlock a cheaper interest rate. Their yield organically then increases, and they can use that asset. If they really want to buy another one, they can use the equity that they've earned in to buy another asset. And that's where we're at with a couple of clients at the moment. I mean, we've got one that we've got at the minute. They've bought two of these assets. I've spoken to 'em about the first maybe year or two years returning as much as they can back into these deadlines, and then from there they'll have the opportunity to buy one or potentially two more. So I think from a lender perspective with these types of assets, there is really, really good appetite in terms of being a conforming client or a client that needs to come across. You don't need to have a mortgage already. You do need to have a deposit or a savings base or 

Speaker 2 (53:25):

Super these days 

Speaker 3 (53:26):

Or super. But there's also the clients who do have equity. It doesn't mean you have to rip your loan from the bank that you're with. If you're with one of the major four at the moment and you're on a really Schick interest rate, you can also do an increased loan with that lender to take a bit of the equity out of there and keep it on quite an attractive interest rate and have this as a completely separate vehicle. And you can structure it through a separate legal entity such as a trust. That way it's got its own risk that's been mitigated. And with a trust, you may also then have the opportunity to diversify how you send that income out through your family as a tax minimization strategy. Rather than being a high income earner of maybe 120,000 a year, buying one of these assets that has a gross rent of 150, whatever it might be. 

Speaker 3 (54:19):

And then having this massive tax, you might be able to put it in a trust and say you have a partner who's on home duties and taking care of the children and managing the household, that you may be able to diversify income distributions that way. And that lowers the taxable household income. It improves the net household income. You've got an asset that's still performing and you're working towards something in retirement. So appetite is still quite good. It's just around either budgeting to get to where you need to be or understanding the most effective way if you are there on how to draw that equity out to get that asset. But I'm, yeah, I've spoken to you and said, I really like these, and I think there is phenomenal opportunity because if you look at the segment that we're in, as the population grows, the base of people who need that support from NDIS will organically grow with it. It's not something, unfortunately that's just going to dissipate anytime soon with population growth. Every statistic grows. 

Speaker 2 (55:24):

Yeah. And that's probably the key driver of pricing at the moment within property. And it's becoming harder to get into the market, but for those who are in the market, they're benefiting. So that's why we try and come up with these ways. We're using super, using high income opportunities to get people into the market. They might want to buy their first home, but they can't. They might be able to buy their first investment instead. So let's get you into owning some assets so that you can protect yourself more, build some wealth as opposed to just waiting for that dream home and taking the old school approach of saving a 20% deposit and entering the great Australian dream with your first home. Doesn't need to be. And I think it comes back to education once again as well, but it doesn't need to be that approach. The playing field's changed a bit, so you need to change with it. 

Speaker 3 (56:11):

And I don't think there's anything wrong with buying highly leveraged and buying at that 80, 90% mark and paying those credit risk fees. As long as you've got the mindset that you've got to pay it back down and you've got to start earn back into that equity. And if you're approaching it with that mindset on a longer term growth strategy, I think that's a good strategy. If you're somebody doing that for a one or two year flip, there might be easier ways to make money in one to two years. But if you've got a 10 

Speaker 2 (56:38):

Riskier, yeah, or 

Speaker 3 (56:39):

Absolutely. But if you've got a 10, 15, 20 year strategy buying a house at 90% of its value with debt today, what does that mean in 10 years? 

Speaker 2 (56:49):

That's the beauty of buying properties that you can leverage so high, so hard if you want to. So Chris, mate, it's been an absolute pleasure having you on. You're a wealth of knowledge. I love the way that you explain things. I'm sure that the listeners will enjoy that as well. How do people get in contact with you if they want to utilise your services? Why would you not want to? 

Speaker 3 (57:12):

No thank you. So obviously we're available on all social media platforms, the businesses, sentient Finance, also website, sentient finance.com au. We do have a lot of great tools on there that I would encourage you to use if you're not using already. These are things from budget calculators to additional loan repayment calculators, offset calculators, all these little things that you can use to get ahead that you probably don't know. But feel free to reach out obviously and have a conversation. But I appreciate your time and appreciate you supporting my business and my customers and giving me the time today as 

Speaker 2 (57:45):

Well. Vice versa, mate. I appreciate you introducing clients to us as well. Thank you. That's all for this episode. I hope that you got a lot out of it. As always, be brave. Go above and beyond and back yourself. Thank you. 

Speaker 3 (57:58):

Thanks. 

Speaker 1 (57:59):

Thanks for listening to The Property Now podcast with Matt elo. We hope you learned something valuable and enjoyed the show. Should you wish to reach out to us, you can do so by calling 1 302 8 9 3 2 4. Or you welcome to email matt@hellobayfairproperty.com au and he'll be more than happy to help. However he can. Have a great day.