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HOW TO LIVE THE

LIFE OF A PROPERTY
MULTI-MILLIONAIRE
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ABOUT THE AUTHOR

Michael Yardney

is Australia’s leading expert in the psychology of

success and wealth creation.

Michael is a #1 bestselling author of 8 books and

frequently challenges traditional finance advice with
innovative ideas on property investment, personal
finance and wealth creation.

His wisdom stems from his personal experience

and from mentoring over 2,000 business people,
investors and entrepreneurs over the last decade
and over the years Michael has probably educated
more successful property investors than anyone else
in Australia.

Michael is Australia’s most trusted property Michael also writes regular columns for Yahoo
commentator and his opinions are frequently Finance, Smart Company, Your Investment Property
quoted in the media. He has been featured in all Magazine, New Zealand Property Investor Magazine
major newspapers, finance and property magazines and Your Mortgage.
throughout Australia and in his regular segments on
Sky TV as well as on commercial radio. He was recently once again voted Australia’s leading
property investment advisor – that’s the fifth time he
has won a similar award in the last seven years.

MICHAEL YARDNEY HAS BEEN FEATURED IN:

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PROPERTY INVESTORS AREN’T REALLY AFTER

PROPERTIES, ARE THEY?

They are looking for the financial freedom that owning a I don’t know if the government of the day will allow
property portfolio will give them. negative gearing or not. I really have no idea what
interest rates are going to be then. Will you still be able
So in this special report I want to help you understand the to negatively gear properties or borrow in your self
end game – how you convert the high-growth assets you managed superfund? Will there be capital gains tax
have accumulated as a property investor, into your Cash exemptions if you plan to sell some properties to release
Machine to give your financial freedom. funds?

If, like many readers of this report, your retirement is 10 No one knows what the banks’ lending policies will be or
to 15 years away, let’s get a few things clear... whether they’ll allow you to have interest only loans or
whether you’ll have to pay down principal.
The rules have changed considerably since I wrote the
first edition of my best selling book – «How To Grow a And we don’t know how they’ll assess your serviceability
Multi-Million Dollar Property Portfolio» – in your spare which will affect your ongoing borrowing capacity.
time, and recommended my Living Off Equity Strategy.
More restrictive lending criteria since the Global Financial But what I do know is that if between now and then
Crisis means that while this still strategy works for a few you grow a substantial asset base (a multi-million dollar
high net worth property investors, it’s likely to be difficult property portfolio plus your superannuation) you’ll have
for many investors to use this strategy moving forward. choices.

And it’s likely there will be many more changes moving And along the way you’ll have to formulate a debt
forward. reduction strategy, because holding a significant amount
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of debt in retirement is not advisable. The further away your retirement, the easier this will be
to achieve because the capital growth of your properties
While there’s no exact formula, the end game I’d like over time will lower the overall LVR of your portfolio.
to see is that you own your own home with no debt If however your planning to retire in the next 5 to 10
against it as well as a portfolio of investment grade years, unless you’ve already got a significant property
properties with an Loan to Value Ratio (LVR) of less than portfolio or significant funds in your superannuation,
40% as well as some income producing assets such as it’s almost impossible that you’ll be able to live off your
shares or managed funds which might be held in your property portfolio.
superannuation fund.
Which leads to the question….

HOW MUCH INCOME DO YOU WANT?

When I ask clients how much income they think they will Also it’s probable that you’ll want to holiday more often
need to fund retirement almost everyone says “$100,000 or pursue certain hobbies or pastimes that you don’t
per year after tax”. Yet when asked how they had arrived currently. And unfortunately, there will be medical and
at that figure, there is rarely any real thought put to it. other expenses you’re not having to pay today.

To work out how much money you will need you should While it’s difficult to accurately assess your life expectancy
start with how much you spend today on living expenses as it will probably be impacted by medical technologies
and make some adjustments from there. It’s likely that and treatments that haven’t even been discovered yet,
you will have fewer mouths to feed once your kids leave many Australians will live well into their 80’s or 90’s,
home – but don’t count on that. Adult children still seem meaning you’re likely to have to fund 25 years or more of
to get themselves into trouble and needing help. living expenses in your retirement phase.

WON’T MY SUPER BE ENOUGH TO FUND RETIREMENT?

All working Australians contribute a portion of their The problem with relying on superannuation is that the
income to superannuation and many hope this will see Government can (and does) change the laws and move
them through their golden years. However, for most the goal posts. They decide when and how you can
people, super will not be enough to fund the kind of access the funds in your super. I don’t know about you,
comfortable lifestyle they’re aiming for. This will of course but I’m not comfortable with putting my retirement plans
depend on your superannuation balance and the type of in the hands of the Government.
lifestyle you hope to enjoy.
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HOW MANY PROPERTIES DO YOU NEED TO RETIRE?

If you’re wondering how many properties you would Why do I say this? Because I’d rather own one Westfield
need to quit your day job and live comfortably the simple Shopping Centre than 50 secondary properties in
answer is … It Depends. regional Australia.

OK that’s not what you wanted to hear, but in fact it’s the
wrong question to ask. It doesn’t really matter how many
properties you own. What is more important is the value
of your asset base and how hard your money works for
you.

HOW WILL YOU LIVE OFF YOUR PROPERTY PORTFOLIO?

While investors know they want their properties to built a Cash Machine by growing a substantial asset base
replace their income, I’ve found most don’t actually think of high growth properties, and other income producing
about how they’ll actually achieve financial freedom. assets and then lowering their loan to value ratios so
Many just think that they’ll live off their rental income, they can transition into the next phase of their lives.
yet I rarely see this happen. It’s just too hard to grow a
portfolio of cash flow positive properties to a sufficient
size to replace your income.

On the other hand, the wealthy investors I deal with have

WHY CAN’T I JUST LIVE OFF THE RENT?

Here’s why … live off the rent, you’ll probably need to own your home
outright (without a mortgage) and at least $6 million
Let’s say you want an annual after-tax income of worth of properties with no mortgage to get that
$100,000. How are you going to achieve that? How many $100,000 after-tax income.
properties do you need?

If your plan is to eventually pay down your debt and

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DON’T BELIEVE ME?

The average gross yield for well located properties in When you do the sums you’ll see that you needed an
Australia’s capital cities is around 3%. income portfolio worth around $5 to $6 million to give
you of an income $100,000 a year after outgoings and
This means if you own $1 million worth of property tax.
with no debt (you’ve paid off all the mortgages), you will
receive around $30,000 rent each year. But you’ll still Remember that’s $5-6 million worth of property and no
have to pay rates, land tax, agents commissions and mortgage debt, otherwise your cash flow will be lower.
repairs leaving you with less than $25,000. And then you’ll And as I said, you’ll also need to own your own home with
have to pay tax on this income. no debt against it. And those figures are in today’s dollar
value.

LET ME ASK YOU A QUESTION …

Will you ever be able to save $6 million? Yet others don’t buy the right assets to get sufficient
capital growth. Fact is, you can’t expect to invest in
Will you ever build a portfolio of that size on a few dollars average properties (non investment grade assets) and
a week positive cash flow from your rentals? expect above average returns. Therefore, if you are going
to invest you better make sure that you invest in the
In my mind the only way to become financially highest quality properties you can find. And this means
independent through property is to first grow a properties that grow at above average rates of return.
substantial asset base (by owning high-growth properties) Capital growth must be your main focus. Everything else
and then transition to the next stage – the cash flow stage is a distant second.
– by lowering your loan to value ratios. In other words,
reducing your debt, but not paying it off completely. Remember… there are 3 stages of wealth creation:

Maybe now you can see why most property investors fail 1 Asset growth – this requires leverage
to build a sufficiently large property portfolio to be able 2 Transitioning to lower LVR - where you slowly pay
to live off its fruits. down your debt

3 Living off the Cash Machine of your property portfolio

Many start too late in life, they don’t take advantage of
their peak income earning years to trap spare cash and
invest it. Others don’t stay in the market long enough. It
takes 20 and more likely 30 years to allow capital growth
to build a large enough asset base.
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CAN’T I JUST BUY HIGH YIELDING RESIDENTIAL INVESTMENTS?

Yes you can! Last year the best-yielding area in Australia Don’t try and fight the trends. Residential real estate is
was the Queensland mining town of Blackwater, where a high growth relatively low-yield investment. After all
there was an average rental return of 11.8 per cent for a expenses, your net yield may be less than 3%. But when
median price house worth $120,000. you consider the capital growth you’ll achieve from a well
located ”investment grade” property, the overall returns
But I wouldn’t invest in a mining town – would you? are very good, especially in todays low interest rate
environment.
I’d rather put my money into a well-located property in
a gentrifying inner or middle ring suburb of our three And as this capital growth is not taxed unless you
big capital cities where there are multiple growth drivers sell your property (and why would you do that?) this
including economic growth, jobs growth, population enables you to reinvest your capital to generate higher
growth and infrastructure spending. And I would look compounding returns. On the other hand, rental income
for a suburb which has a large percentage of owner is taxed, leaving less to be reinvested.
occupiers who are earning higher wages so that they can This means for investors in the asset accumulation stage
afford to and are prepared to buy houses in this location. of their journey, the more capital growth you achieve
(even at the cost of lower rental income) the more wealth
Sure these locations will provide lower rental yields, you will accumulate in the long term.
but they will have low vacancy rates, more stability of
property values and stronger long-term capital growth When investors eventually transition to the cash flow
potential. stage of their journey, adding higher yielding commercial
properties to their portfolio makes sense.
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BUT HOW ARE YOU GOING

TO REPAY ALL YOUR LOANS BEFORE YOU RETIRE?

Once you’ve built a substantial asset base, you’ll need to With that in mind, and ideal situation to be in is to own a
start thinking about lowering your debt levels, but it all mixture of growth and income producing assets that look
begins long before that – you have to have a plan. a little like this:
You would own your own home with no debt against it
One of the critical parts of successful investment is
having a strategy – a strategy for property purchases, a You’d have a substantial superannuation fund which

strategy for asset protection, a finance strategy and now should be delivering you regular income

I’m explaining that you also need an exit strategy and to You would own a multi million dollar property
know how you’re going to repay your debt before you portfolio which is no longer negatively geared and, if it
retire. does have debt against it, the LVR would be such that
the portfolio generates income. This would not need
Just to be clear you don’t need to fully pay off all your to be a lot of income, but needs to be sufficient so that
debt before you retire but, considering current lending your property portfolio is not draining your cash flow.
practices, you must assume that the banks won’t be
comfortable extending you further debt in retirement I know many financial planners suggest you should

unless you can prove serviceability. go into retirement with no debt at all, but in my mind
entering retirement with a conservative amount of

The banks won’t just keep lending you more money leverage works well for those investors who have set

because you have equity, like they did in the past. You’ll themselves up correctly.

need to prove serviceability which could come from your

rental income (meaning you’ll need a very low loan to These investors often live off their superannuation assets

value ratio) or from dividends from your share portfolio. and income for the first 10- 15 years of their retirement
allowing their property portfolio to once again double in

Since your ability to service debt will be very dependent value which allows their already low loan to value ratio to

upon interest rates at the time, it will therefore be fall even further enabling their property portfolio to spin

important to go into your retirement years with a level off even more cash flow.

of debt that is easily manageable, and which would not

choke you financially if interest rates rise. Others achieve their cash flow in retirement through the
dividends from shares or from the positive cash flow of
commercial property investments.
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SO HOW DO I TRANSITION
TO THE CASH FLOW PHASE OF MY INVESTING?

1. Grow your portfolio at a slower 4. Use part of your Super or savings

pace to pay off debt

Once you’ve grown a substantial asset base, one option is When you reach the official age you may, if your advisor
to slow down the pace at which you grow your property believes it’s appropriate for your circumstances, choose
portfolio. to sell some assets in your Self Managed Super Fund
(SMSF), which under current legislation would not attract
In other words, rather than refinancing and buying more capital gains tax and then distribute the proceeds tax-free
properties as the value of your properties increase just sit to help pay off debt outside the SMSF.
tight and allow your Loan to Value ratio to progressively
fall as the value of your loans becomes a smaller
proportion of the total value of your property holdings. 5. Redevelop a property or two to
With lower levels of borrowings, your properties would repay debt
start generating positive cash flow and passive income
that you could then use to enjoy your lifestyle. It’s possible that one of your investment properties has
unrealised redevelopment potential. You can develop
2. Convert to a principal and interest this property, make a profit selling the new dwellings and
repay some of your debts, or even better – you could
loan
keep the new units and enjoy the rental income from two
or three properties on the allotment where previously
In the asset accumulation stage of your investment
there was only one.
journey your borrowings should be interest only loans
if economically possible, thus lowering your monthly
payments, allowing you to borrow more and accumulate 6. Sell a property or two and repay
surplus funds in an offset account. debt

As you transition to the cash flow phase of your investing, You know I prefer to hold properties for the long term,
you could convert some of your loans to principal and but the purpose of owning these properties is to give you
interest, allowing your tenants to slowly pay off your the lifestyle you want. This means sometimes the right
mortgages, thereby putting you in a stronger cash thing to do is sell off one or two investments and use the
flow position. Remember that while paying interest proceeds to reduce your portfolio debt and increase your
on investment loans is tax-deductible, paying off the cash flow.
principal portion of the loan is not. However, this is a
common strategy investors use to reduce their debt and It will be important to consider the impact of capital gains
increase their cash flow. tax (CGT) from the proceeds of your sale, but this could
be avoided if you own the property in an SMSF and it is
sold while you are in pension phase.
3. Investing in commercial properties
However, my favourite strategy is living off the
Different to residential real estate, commercial properties
increasing equity of my property portfolio. This allows
tend to have strong cash flow but less capital growth (this
me to retain my high-growth assets, avoid having to pay
is linked to the rent increases which tend to be linked
CGT and essentially, have my cake and eat it too. Let me
to the CPI.) So adding commercial properties to your
explain this concept in more detail …
portfolio once you already have a strong asset base may
be appropriate for you.
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HERE’S HOW IT WORKS:

Fast forward 15 years and imagine you own your same size portfolio with no debt.
own home plus $5 million of well-located investment
properties. You could then go to the bank and explain that you’ve got
a self-funding portfolio that isn’t reliant on your income
If you had a typical 80% Loan to Value Ratio (LVR), you and in fact, provides surplus cash for serviceability. You
would be highly negatively geared. On the other hand, would also have your other income producing assets
if you had no debt against your property portfolio you (shares etc) to bolster your serviceability.
would have significant positive cash flow, but would
forego the benefits of leverage. You would then ask for an extra $100,000 loan, so you
increase your LVR slightly. The good news is that because
Somewhere in the middle, maybe at 40% LVR, your it’s a loan you don’t have to pay tax on this money
property portfolio would be self-funding. And if you because it’s not income. But you would have to pay
lower your LVR further you’ll have sufficient cash flow to interest, which would not be tax deductible if you use the
prove serviceability to the banks. money for your living expenses.

If you think about it, it will be much easier to amass a $5 This means after the interest payments you’re left with
million property portfolio with $2 million of debt than the around $95,000 to live on.

CRUNCH THE NUMBERS…

At the end of the year, you’ve “eaten up” your $100,000; your properties have grown in value.
but in a good year, your $5 million property portfolio
would increase in value by say $400,000. In an average Sure you’ve used up the $100,000 you borrowed, but
year it will have increased in value by $300,000 and in because your portfolio has risen in value, along with
a bad year it may have only gone up by $150,000 or rents, your LVR is less at the end of the year than the
$200,000. beginning, so you finish off the year richer than you
began it. You truly have a Cash Machine, and then you
Of course, your rents will also have increased because can do this over and over again.

DOES THIS REALLY WORK?

In the old days living off equity was easy. You just had to Needless to say, you can’t achieve this overnight. It takes
go to the bank and get a low doc loan and as long as your time to build a substantial asset base and a comfortable
properties increased in value it was smooth sailing. loan-to-value ratio. But if you take advantage of the magic
of leverage, compounding and time, it happens.
Yes it’s harder today, much harder. But it’s definitely do-
able if you own the right type of property and lower your Of course this strategy depends on the growth in your
LVR to show substantial serviceability to the banks. property portfolio and your ability to ride the property
cycle by having financial buffers in place.
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WILL THE BANKS KEEP LENDING ME MONEY?

Before I answer this, remember that if you follow this At the time of writing banks are cautious and reluctant
model you still are earning income – in fact you’re getting to refinance property portfolios based purely on the
it from a number of sources: prospect of capital growth. What this means is that as
you become an investor you are going to have to lower
1 The Passive Income you receive from the growth in
your Loan to Value ratios (decrease your debt as a
value of your property portfolio. Of course banks
proportion of your portfolio) using one of the strategies
don’t recognise this capital growth as income. They
I’ve mentioned.
want to see wages or rents or dividend income to
cover the mortgage payments. However, the good
And as you do, your property portfolio Cash Machine will
news is you don’t pay tax on this income.
start producing more cash flow. And if you substitute a
commercial property or two for some of your residential
2 Your Rental Income: Remember I suggested that you
properties this will increase your cash flow even more.
lower your loan to value ratio so that your rental
income at least covers your property expenses and
Of course a by-product of not being as highly leveraged
your mortgages? Depending upon your returns, this
is that your asset base will not grow in value as fast,
means your LVR will have to be substantially less
but that’s okay because as investor you are now in the
than 40%.
cash flow stage of your investment life, not the asset
accumulation stage.
3 Share, or dividend or superannuation income.

DO YOU HAVE AN ASSET PROTECTION PLAN?

Remember this strategy depends on the growth in your but there will also be downturns. And while interest rates
property portfolio and your ability to ride the property are low at present, they may rise again - not that I’m
cycle. This means that as you build your asset base, expecting this any time soon.
buying high-growth properties and adding value, you will
need an asset protection plan to see you through the Savvy investors count on the good times but plan for the
highs and lows that you’ll experience. downturns by having an asset protection plan, as well as
a finance and tax strategy to make sure they set up their
After all, over the next ten years we’ll have good times structures in the most efficient way.
and bad. We’ll have periods of strong economic growth,

DON’T GET ME WRONG.

While I’ve just made gaining financial freedom from whom most Australian property investors listen. You’re
property investing sound simple, it’s not easy. going to need to set yourself some goals and follow a
strategy that’s known, proven and trusted.
If you want financial freedom from property investment
to fund your dreams, you’re going to have to do Then you grow your property investment businesses one
something different to what most property investors are property at a time and of course you need to buy the
doing. You’re going to have to listen to different people to right type of properties.
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TIME TO BE HONEST… WHERE ARE YOU HEADED?

If you’re like me you believe you have a future waiting for The following model should bring this home graphically
you, so what is store for you financially? to you, so look at the following graphic and please work
through this exercise with me.
If you think about it, it’s likely to be one of 4 possible
financial outcomes.

How long till you want to reach financial independence? 2 An OK future where you’ll have reasonable income
10 years? 15 years? Maybe longer? and limited choices, and on retirement you’ll
probably have to slowly eat away at your asset base
If you don’t invest wisely you’ll run out of money before and hope you don’t live longer than your income.
you run out of life.
3 A poor future where you’ll still need to keep
working.
Let’s face it… it’s likely you’re facing one of these four
possible financial futures: 4 A crisis future where you hope there will still be a
pension to help you survive.
1 An ideal future where your Cash Machine will pour
out so much money that you’ll have the financial
freedom to choose to work or not. You’ll also have a
sufficiently large asset base to live off the funds that
it is generating and there will be a sufficient surplus
to keep growing your assets so you’ll be able to leave
a legacy.
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Looking at the above graphic, which trajectory are you Sometimes it’s hard to know because at the beginning
on? of the journey the 4 paths look much the same, but the
further along your wealth creation journey you have
travelled the further part the lines become.

Looking at the graphic above if you are point 1 it won’t will only get larger. The gap between where you are now
take much to move you up a line or two onto a better and the trajectory you want to be on will never be so
trajectory and towards a better financial future. small – this gap will only get larger- that’s why it’s time to
take action.
However, if you’re at point 2 along your financial journey
it will be much harder to get you to the financial future And if you’re already on your way to an ideal future –
you desire. congratulations. At Metropole our aim is to get you there
faster and safer by initially building you a customised
If you think about it, the difference between the line you Strategic Property Plan and the helping you implement
are on today and the line you want to be on in the future that plan.

HOW CAN METROPOLE HELP YOU?

We have a strategic model that helps our clients achieve:

1. Direction 2. Results 3. Certainty

– a level of clarity about which – wealth producing rates of returns. – without taking the risks that many
steps to take and in which order. investors take.
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When you chat with your Property Strategist at Metropole When you sit with your Property Strategist, please ask
they will work through this model explaining how we: them about the nine accelerators around the outside of
the above model which helps us ensure that you get:
1 Give you deeper insights into the property markets –
taking advantage of the perspective that only comes 1 Wealth producing rates of growth in your asset base.
from being in the market for years and years, as well
2 The security of owning the right assets in the correct
as our detailed research.
structures and having financial buffers to buy you
2 Take a strategic approach to give you clarity on your not only properties, but time.
next steps – this involves finance, asset protection,
3 The lifestyle choices you’re looking for.
estate planning and property strategy to allow you to
grow, protect and pass on your wealth.

3 And we help you implement the Strategic Property

Plan we custom build for you.
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IF YOU’RE LOOKING AT BUYING YOUR NEXT

HOME OR INVESTMENT PROPERTY HERE’S 4
WAYS WE CAN HELP YOU:

While many of the property markets around Australia creating wealth for our clients and we can do
are performing well, correct property selection is even the same for you. Our on the ground teams in
more important than ever, as only selected sectors of the Melbourne, Sydney and Brisbane bring you years of
market are likely to outperform. experience and perspective - that’s something money
just can’t buy. We’ll help you find your next home or
Why not get the independent team of property strategists an investment grade property. Click here to learn
and buyers’ agents at Metropole to help level the playing how we can help you.
field for you?
3 Wealth Advisory
We help our clients grow, protect and pass on their We can provide you with strategic tailored financial
wealth through a range of services including: planning and wealth advice. Click here to learn more
about we can help you.
1 Strategic property advice
Allow us to build a Strategic Property Plan for you 4 Property Management
and your family. Planning is bringing the future into Our stress free property management services help
the present so you can do something about it now! you maximise your property returns. Click here
Click here to learn more to find out why our clients enjoy a vacancy rate
considerably below the market average, our tenants
2 Buyers agency stay an average of 3 years and our properties lease

As Australia’s most trusted buyers’ agents we’ve been 10 days faster than the market average.

involved in over $3.5 Billion worth of transactions

www.metropole.com.au 1300 METROPOLE
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FIND OUT HOW METROPOLE CAN HELP YOU

Please call us on 1300 METROPOLE
Or access www.metropole.com.au

Melbourne: Level 2, 181 Bay Street, Brighton, VIC, 3186

Brisbane: Suite 4, 742 Sandgate Rd Clayfield QLD, 4011
Sydney: Level 4, Edgecliff Centre 203-233 New South Head Rd, Edgecliff, NSW, 2027

Copyright © 2020 | All rights reserved | Published by Metropole Property Strategists

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