Why investing in properties outside of super is good for your long-term goals
Hello, it’s Scott Trevethan here from Scott Partners. I recently had the pleasure of interviewing Tim Boyle from Finalytics Financial. In this interview, we discover why it can be a really good option for businesspeople who are renting commercial premises to instead purchase it within their super and then look at the super within that investment.
Direct Mobile Number 04-0171-5032
SCOTT: Welcome to the Small Business Heroes show, where we talk about everything to help your small business grow and prosper. I’m your host, Scott Trevethan, and today I’m talking to Tim Boyle.
Tim Boyle has a chartered accounting and financial background. After working in corporate life, he began his own consulting business and really enjoyed helping business owners secure their financial future. Going into mortgage broking was a bit of an evolution for him, bringing his financial skills together with a real passion for helping people to secure their and their family’s future. Once he understood what a really good and proactive mortgage broker can do and help people, he knew it was right for him.
He established his own business, Finalytics Financial, and works with residential property owners and investors. His two main niches are, first, home buyers, for whom he published an award-wining book last year called Escape the Rental Trap, and property investors, where he sits with them and helps develop a 10-year plan to enable them to create a great income and asset base outside their superannuation. He’s passionate about education and servicing clients, and produces a fantastic monthly newsletter, as well as several guides addressing key issues facing prospective buyers and investors.
Tim Boyle, welcome to the Small Business Heroes show.
TIM: Hello, Scott. Great to be here. Thank you.
SCOTT: Tim, I’ve just told everyone a little bit about yourself. Can you tell us a little bit more detail about what you do?
TIM: Yeah, sure. Look, commonly known as a mortgage broker, but we like to think of ourselves as a little bit wider than that. We are really credit advisors, and the role that we play, or that I play in the business, is really to sit down with prospective clients and really understand what their objectives are, way beyond just getting a cheap mortgage.
So often we take a step back, or two steps back, and really look, where do we want to be in 5, 10 years down the track? Because property is a long-term game, and it just frustrates me that some of my industry colleagues in the banks are always just looking at the next mortgage. Whereas you’ve got to take a far more “where do you want to be?”, objective point of view and work back from there. And then we design the right credit product for that particular client given their situation, and importantly, where they would like to be further down the track.
SCOTT: That’s great, Tim. What sort of clients do you typically work with?
TIM: It’s interesting, actually, Scott. I started out in this game, as many of us do, with our existing networks, our peers from previous backgrounds. A lot of my first clients were from the corporate world, which was my background. So a lot of them are obviously a little bit more my age group than many others that are a lot younger; they’re experienced property investors. So I’ve got quite a pool of what I would call quite large, long-term clients.
But since then, my real passion, I guess, has been to help people and their families to move from being tenants to homeowners. Hence the reason for me chunking off this big piece of work, which is to write the book I did 18 months ago now for first home buyers. Because from a qualitative point of view, it’s just fantastic to be able to help people move from being a tenant to being a property owner. I am so passionate that that’s the right route for most people that it’s just fantastic to be able to help them.
Having said that, it’s a bit of a barbell, because at the other end I do have my experienced property investors as well. Often they’re people, maybe Baby Boomers or a little bit younger, 40s, 50s, who’ve still got half an eye on retirement, but they look at their superannuation balances and think, “Gee, when are we going to get there?” And they’re right. The government’s not going to bail us out; we surely know that. So it’s up to ourselves to be able to build an income and an asset base outside of super. I was going to say “I think” property is the best way to do that, but I actually know it is. And I can speak for that from firsthand experience. It’s just the only way, to be honest, to be able to leverage safely and have a good chance of building up an asset investment base.
SCOTT: Sure. We’ve got a lot of clients, and I’m sure a lot of the people watching this today are small business owners who are looking at getting into their first property. What sort of advice have you got for them in terms of the things that the banks are looking for, being self-employed?
TIM: Yeah, great question, actually. I have to say, that’s where my accounting background has really helped me a lot, because the first thing I do with a small business owner is get their business financials. Unfortunately, if you’re dealing with a bank or some brokers, they might just look at the P&L and say, “That’s my income.” But we know, you know better than I do from an accountant’s point of view, we can add back and strip out things. So we’ve really got to pull apart the accounts of the business and present the best case for that client to the bank. That’s really something that takes a lot of experience, and a fair chunk of accounting knowledge comes in handy.
I’ve got some great cases of that on my plate right now, actually, where I literally am meeting one of the banks on Monday to take them through my case that I put together for a particular client. In this example, he’s got a few small businesses, and I basically consolidated his accounts and added back, and I think it’s a lot better position than what it might first look like on paper.
SCOTT: Is there a number of years of profitable trading that they need, or is it more a case of just presenting the financial reports that are going to be received favorably by a credit department?
TIM: Yeah, the longer your track record, the better. There’s no question about that. Don’t be put off by the rigid rules of the banks, either, especially the big banks. Again, that’s one thing that I’m very passionate about, because I use – in fact, now I think it’s 26 different lenders that I’ve used in the last 12 months. At least 24. The second tier and even the third tier lenders can be far more flexible in their rules than the big four – which astonishingly still have 80% of the market, which just blows my mind, because the rules are rigid and I think a lot of people get deterred by saying, “You’ve got to be in business two years, you’ve got to have this in your financials,” etc. If you can get a broker who can pull it apart and present the case in a slightly different way, I’m not saying there’s always a deal that can be done, but there’s a lot better chance of it.
I have a client right now, and there was no way the bank – and I won’t say what bank he was with – they almost laughed him out the door. And he came to me, and we managed to get him a line. He’s paying 9% on that line. So it’s chunky. But prior to that, he’d been doing a lot of financing on his credit cards, his bank was refusing him any more credit, and we got a proper mortgage. In 12 months’ time, as his financials and his business improve – which they are – we’ll go back and get him a more commercial rate.
So I’m not saying anything is doable, but a lot of things are more doable than what initially we might think. Don’t take “no” from one bank to mean “no, there’s nothing out there for you.” There usually is.
SCOTT: A lot of those small business owners would say, especially if they are renting, they’re saying, “You know what? I’m putting all the money that I possibly can into my business and helping build my business, because it’s going to be a fabulous success and I’ll be rich down the track and be able to buy mansions with cash.” What do you say to those guys? Is it good to have bricks and mortars alongside their business?
TIM: Oh, that’s an interesting question, isn’t it? Highly dependent. I think one thing I do, given my business experience, we just make sure that the client’s thinking is sound on that. I’m not saying that you shouldn’t pour money into your business. Believe me, I’ve seen it done and seen it done well, including a couple businesses I’ve had in the past. But it doesn’t hurt to have [inaudible 00:08:30] party to just go through it with you and just ask you those questions.
Often, yes, investing in yourself and investing in your own business might be the right thing to do and to delay the property purchase for a few years. So I’m not answering the question very well because I think it’s just so specific to the individual and their business situation.
SCOTT: Sure. Absolutely, I understand that. You mentioned that you’re passionate about building property portfolios outside of super, and we’ve seen that [inaudible 00:09:00] have been trying to get banks to pull away, and very successfully, trying to get banks to pull away from lending for self-managed super funds. But do you think there’s a place still for business owners to invest in property inside of their self-managed super funds?
TIM: Yeah, I do. What do I generally do? And by the way – and again, personal example – I invest in our self-managed super fund and property as well, and I’ve gone through and done the MFAA, which is our industry body accreditation to be a self-managed super fund advisor for credit. So I do believe in it. What I always advise clients to do, though, is to purchase their first two generally invested properties outside of super. And the reason for that, again, as you know better than I do, once it’s in super it’s really hard to get it out. And you never know what can go wrong in life – again, personal situations that you might need to liquidate that property on fairly short notice. If you’re in super, you’ve got no chance of doing that.
So my advice to people is often to buy the first one or two properties outside of super, and then look at the super within that.
SCOTT: I wholeheartedly agree. I think the ability to use the equity in your property and really leverage off that to borrow, either for your business or for other investments, is severely hampered when it’s sitting inside of a self-managed super fund – which is the only sort of fund that you can have [inaudible 00:10:29]. So I would wholeheartedly concur with that. It’s a great place for certain people; otherwise, yeah. Diplomatic. [laughs]
TIM: I just want to add to that one, Scott. There’s one situation that is really attractive to business owners that I’m surprised it’s not a better known strategy. You will know it. But for business owners who have a self-managed super, or can have one, who are renting commercial premises, it can be a really good option to purchase your premises within your super and rent them to yourself for your business. In a nutshell, what you’re able to then do is to receive that income very favorably from a tax point of view on your super and still have it as a fully deducted expense in your business. That’s a broad overview on that.
SCOTT: Absolutely. Business property needs to be in your self-managed super fund. The only things that we need to be concerned about is just succession planning and liquidating that asset upon sale of the business, or do you keep it. But if you’re a tradesperson or you’ve got a small factory that you work out of, or even an office building, you should absolutely consider putting it into your self-managed super fund. General advice only. [laughs] And then just talk to your financial planner to make sure that that’s applicable for you.
TIM: Yeah, and speak to your accountant.
SCOTT: So Tim, any other advice that you might have for your small business audience in relation to borrowing funds and general investing?
TIM: Yeah, the big thing is that we can overcomplicate these things. I’ve come across many business owners, and they’ve got invoice financing and they’ve got vehicle financing, and there’s a mixture between their private borrowings and their business borrowings and all of that. So I always start from scratch and say, “Look, if we were starting again, let’s make sure we get the right structures.” Really important, obviously from a tax point of view – again, your field – but also from the way that the bank will set those loans up from an interest cost point of view and cash flows and that.
So it does pay to have somebody to really do a bit of an audit on your debt financing that you use in your private and business areas, to make sure that it’s all done properly. Because it does evolve a little bit over time, and generally speaking, you can get into a situation that’s not ideal without looking at that structure every one to two years, I would suggest.
SCOTT: That’s absolutely great advice. Tim, thank you so much for coming on the show today. If people are here listening, thinking, “You know what, I really think I should get some sort of review of the debt that I’ve currently got,” or they’d really like to find out more about finding money for investment or their own home, how can they go about contacting you?
TIM: Yeah, absolutely. Our business name is Finalytics Financial. Email is a great contact for me, but also for listeners, if they’re your network, they can phone me directly on my mobile phone. I’ll give you that twice. It’s 04-0171-5032. That’s 04-0171-5032. And my email is [email protected] Or else they can contact you, Scott, who’ve got my contact as well.
SCOTT: Great. I’ll make sure that those details get put below this video as well. Now, in order to subscribe to your newsletter, just contact you via an email or on the website?
TIM: Yeah, absolutely. Just send me a quick email. I’d like to include everybody that’s listening to this on the list. It’s no charge, and glad to add you on.
SCOTT: I would highly recommend the newsletter – not just news about finance, but also some great recipes as well. I really applaud you for that, Tim. It’s a newsletter that people actually want to read; it’s really, really good. Tim, thank you so much for coming on the Small Business Heroes show.
My name’s Scott Trevethan. I encourage you all to go off to our Facebook page, which is Small Business Heroes. Or you can like our page, which is Scott Partners Pty Ltd. You can go to our website and find out more about what we’re doing at www.ScottPartners.com.au. I’m Scott Trevethan; I’m talking with Tim Boyle, and you’re listening to the Small Business Heroes show. Thank you.