Philippe Brach built his career in corporate finance, but it’s his passion for property investing – or, more accurately, the opportunity that it provides to grow wealth – that drives him today.
“When I first settled in Australia 20 years ago – I was still in corporate finance then – I looked at real estate and how the numbers worked. It was an absolute no-brainer for me to start investing in property. I invested in shares as well, but property became an obsession!” he says.
“I perceived it as a much safer asset class, and the opportunities to leverage with property versus shares is very different. I began talking to my colleagues at work and I realised that a lot of them could afford to invest in property but they didn’t do it because they didn’t understand the potential and how the numbers worked.”
Sensing an opportunity to meet a need in the market, Philippe decided to set up hisown business. It was also an opportunity to merge work with his hobby – a perfect mid-life crisis! How many people are able to do this?
A MATTER OF INTEREST
You must focus on the repayment of your non-deductible debt, such as your credit card, personal loan and PPOR loan, because it costs you more to hold. This is because:
» Every $1 of interest paid on your non-deductible debt actually costs you $1.
» Every $1 of interest paid on an investment loan actually costs you between 53c and 65c, depending on your tax bracket.
Therefore your repayment priorities should be:
1. Credit cards and personal loans first.
2. PPOR loan second.
3. Investment loans last.
To achieve this:
1. Aim to hold your investment properties in interest-only loans until your non-deductible debts are all paid off.
2. Once your home is paid off (or if you rent) and you only have tax deductible loans, then repay the investment debt!
A significant milestone in Philippe’s business has been the recent publication of his book, Creating Property Wealth in any Market. “It has propelled the business to the next level and encouraged a whole new group of people to consider investing in property, and to come to us for advice and guidance,” he says.
The book has been so well received that only four months after publication a second print run was needed. “Investors want clear, concise information – with no clutter or fluff – that they can relate to when they are considering their future, investments and financial security, and that’s what we aim to provide,” Philippe says.
“I’m really pleased with the outcome because what motivated me to write the book was my desire to communicate my approach to property, as I want investors to be knowledgeable and comfortable with their journey into property investment. They need to be able to sleep at night, and so do I!”
Philippe was recently approached by a married couple in their 40s who live in regional Victoria, and who had bought his book in a local bookstore.
“The husband called me and said the book had resonated with him, that it was easy to understand and full of common sense ideas. They already owned two investment properties plus their home in the same general location, but they didn’t have a long-term strategy,” he says.
“After reading the book, they realised very quickly that having three properties in the same area was not a great risk management policy and they wanted to move forward in a more structured manner. They flew in to attend an educational seminar I held in Sydney, and we met the following day and formulated a long-term plan. They have since invested in one further property in NSW and we are working towards their next opportunity.”
“I wanted to do something totally different by operating in a way that is factual and logical. As a starting point, I work out what the boundaries of a strategy are – such as borrowing capacity, availability of a deposit/equity – and then work within these constraints to consider options and establish a plan going forward,” he says.
“Once clarity of vision has been achieved, we then flesh out its implementation, which also includes risk management considerations.”
What separates Philippe from the rest is his approach. While he guides potential investors towards good-quality prospective properties, this is the final step in the process, rather than being the beginning of the conversation. This is because, in his view, successful property investing “has to be driven by the numbers”.
“When investing in property, capital growth is the name of the game, and the key is to invest in growth-performing properties”
“When investing in property, capital growth is the name of the game, and the key is to invest in growth-performing properties,” Philippe explains.
“However, it would be foolish to ignore cash flow considerations. In today’s market a property that delivers 4.5% to 5% yield should be cash flow positive or neutral in most cases. However, if interest rates climb to, say, 7%, then that same property might be $100 cash flow negative. This is not a problem in itself, but if you are looking at building a portfolio of properties how would you cope if you had five properties costing you $500 a week in aggregate? You need answers to these types of questions.”
Overall, his approach addresses considerations such as: How much of your own funds do you have to put in? How much will it cost while you own the property? How much will you make when you sell it? What is your ownership timeline and when do you plan to retire?
“Essentially, we look at the numbers first, and then once we have a clear idea of the whole situation, we find property to deliver what we have been discussing.”
Planning ahead and factoring in various scenarios is all part of the risk mitigation process, which forms a big part of the service Philippe and his team provide. They also use research analysts and employ mortgage brokers, to ensure they deliver a comprehensive and professional service.
“Structuring finances properly for an investor is also paramount.
“A strategy that works for one person won’t necessarily work for another”
It maximises cash flow, optimises deductions and ensures maximum flexibility for the future when refinancing or selling.
It also needs to be adapted to the personal circumstances of the investor. A strategy that works for one person won’t necessarily work for another,” Philippe says.
“A young married couple with no children but who want a family one day, and want to buy a house – well, they’re in a very different position to senior executives in their 40s with children at private school. Their financial situations are poles apart, so the approach and strategy will differ for each. For us, it’s a question of understanding the investor first, creating a plan customised to their situation, and then delivering on that.”
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