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Personal Wealth Building Tips For Entrepreneurs (Episode 45)

Goose McGrath and his partner run a company called Dashdot, a property investment advisory firm that is 100% committed to finding and acquiring cash flow positive properties, in high growth areas, with value add potential. 

Their methodology is called The Holy Trinity and it is at the heart of everything they do. Goose’s journey to entrepreneurship was not an easy one. After life hardships and a failed business, he battled with a drug and alcohol addiction. It was at his lowest point that he found love and started a personal quest to achieve greater levels of wealth, stability, and fulfillment in his life.

Goose has learned to make personal wealth building a priority, because the more choices you have in life, the more you can impact others.

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What you will learn 

  • Why you should apply the 3 key pillars (The Holy Trinity) of positive cash flow, high growth regions, and adding value when buying an investment property. 
  • The driving forces of affordability, lifestyle, and infrastructure in the real estate market
  • The impact on property from lower volumes of international travel
  • Why you should maximise control for your investments
  • The importance of getting clear about your property investment goals before buying (or even looking)
  • How to apply the Apex progression framework of Foundation, Acceleration, and Legacy
  • The importance of starting slow and simple in the foundation phase with 1-3 properties
  • The acceleration phase of adding value with the value add of cosmetic renovation, buying under market value, building granny flats, and subdivision 
  • The final legacy step and the next level of complexity 
  • How to remove the emotion when buying property 
  • When you should exit a property investment
  • The importance of having 3-4 exit strategies

Transcript

Jeff Bullas: Welcome to the Jeff Bullas Show. Today, I have a gentleman with the fun name of Goose McGrath, now Goose has a company called Dash Dot, which is a property investment company. And they use a lot of data to help people get to their goals five to six times faster than they normally would. So the methodology he uses is called the Holy Trinity, which has religious overtones as we know. I don't know if he's a Holy man or not, but you never know, we'll find that out. So he's had a lot of hardships and failed businesses. He's battled drug and alcohol addiction and it was his love for pot that he found love and started a personal quest to achieve greater levels of wealth, and stability, and fulfillment in his life. That must really involves that he met a lovely lady I would say, as part of that journey. Goose has learned to make personal wealth building a priority because the more choices you have in life, the more you can impact others. So welcome to the show.

Goose McGrath: It's an absolute pleasure. What an intro? Appreciate that.

Jeff Bullas: So Goose I'm going to go straight to the question that I am very curious about. It's got nothing to do with property why are you called Goose?

Goose McGrath: You know what? Everyone starts at... Okay, so my real name is Glenn McGrath. Anyone in Australia listening to this is probably going to know what that name is. So it's the cricket legend. I grew up in a small country town, and we're a type of country town where you had to play footy and cricket for the local team and be third generation local to be considered local. I was a first generation. I didn't play footy and cricket at all and all that stuff. But Glenn McGrath just was like who is Glenn McGrath... the whole thing. It began about when I was 14, it's quite a long and in-depth story but it began about when I was 14, a couple of things happening and one of my mates just stuck me with the tag of Goose and it stuck ever since.

Goose McGrath: It stuck through multiple businesses, multiple industries, multiple... It has stayed with me since I was 14 and it's quite interesting because at one point a couple of years ago, actually when we were starting this business we were going into the real estate sector. And I thought, oh, real estate, geez. Maybe it's time I grow up. Maybe it's time I get serious. So I actually tried to drop the Goose, so I set up my email address as [email protected] and all of this stuff and it lasted about two weeks. And in fact, I even had my old man get stuck into me because he was like, "What are you trying to do? You're trying to be someone that you're not." So here we are. It stuck and it works. And it's good from a personal brand perspective. People don't forget it.

Jeff Bullas: Absolutely. It's very unforgettable and for our international listeners, if you don't know the famous Australian personality Glenn McGrath whose nickname is Goose, isn't it? I think on the field, I think he's called Goose.

Goose McGrath: Pigeon. Pigeon.

Jeff Bullas: Pigeon. So you've got a variation of it, okay. And for those international listeners that don't live in India, Australia, Caribbean, or England, we play a strange game over here called cricket. Goes for five days and quite often there's no result. So work that out and I'm not going to even try and explain it. So it's great to have you. So Goose, tell us a little bit about, I suppose I'm intrigued by your investment strategy, which you've called the Holy Trinity, but before we get into that, what got you into a property investment business and help others to increase their wealth more rapidly?

Goose McGrath: Well, it's all kind of one and the same. It's all wound in together. Those two things are not disconnected. So if we wind back a few years for myself, I was running a company in the event sector. So we were running, organizing music and arts festivals all over the world, I had companies in three different continents. It was busy, but I was working. I had no idea how to run a business for profitably. We were very busy all the time. So I was working 100 hours a week roughly like a lot of people say that stuff, but for most of the year, that was the case. So I was working around about 80 to 100 hours a week. I was pretty burnt out. I had taken to drugs and alcohol to cope with the stress and the burnout and all of that stuff.

Goose McGrath: And when you spend 10 to 15 years on the road and doing music and arts festivals, you develop some pretty bad habits and it gets pretty entrenched. That obviously didn't go very well and then I met my partner, Gabby, which you kind of touched on earlier. And at that point I was like, "Hang on a second I've got to sort this out, otherwise I'm going to just be driving myself into an early grave. I need to try and sort out my health, sort out business, sort out life." And so we were a young couple, we didn't know anything about property and we thought, "Hey, what's the solution to hopefully being able to eventually work less and enjoy more freedom." And the natural thing is that people tend to gravitate towards real estate towards properties.

Goose McGrath: So armed with the knowledge that property doubles every seven years, which is the only piece of information that we thought was true. We just thought, great, let's just go out and buy a property. So we ended up buying the wrong property in the wrong place at the wrong time. Now, property doesn't double every seven years and it turns out we should have done a little bit more research. Now, and the cool thing about that whole experience, aside from the fact that it cost us a lot of money was that it was a real catalyst for change. Because for me, we worked out quite quickly after we'd bought it, that was a bad move. Which set the wheels in motion for myself to go, "Hang on a second, hang on. Obviously people succeed in this how is it that they succeed?"

Goose McGrath: And that started a whole process of learning, exploration, discovery and I started going, okay, well... Here's what happened is we bought a property that right before the market dipped in Melbourne in 2017, 2018. And so I pretty much lost money straight away. Now I thought, well, what would the ideal property look like if we want it to be able to get work less and do all that good stuff? What would the ideal property look like? How would it perform? And it'd be cashflow positive. So to produce more income than it uses, it would be in a good growth area. So the values went up not down and would be sustainable and all of that stuff. Plus, have the ability to to able to control the outcomes so add value to it.

Goose McGrath: Now, that adding value can be a multitude of different things. It could be things like cosmetic reno or subdivision or whatever. But some way that even if politics, the economy, if everything went sideways some way you could get in there and still control the outcome so you wouldn't be left with your pants down. And that was the basis. So I thought if we could find that property, geez, that'd be awesome. Wouldn't it? But of course that's what, if everyone could find those kind of properties everyone would. So I went out to prove or disprove whether or not it was possible and that was it. That was the hypothesis. I wanted to know could this be done? And then that evolved and evolved and evolved and along the way, we built out some pretty advanced research methodologies trying to prove or disprove the theory. And we found that we actually could find those kind of properties.

Goose McGrath: Along the way we went, we'd gone from don't really know anything about property to all of a sudden, we know a hell of a lot about property. And I started thinking, well, imagine how many other people out there who are in a similar position to me, who want a better life, who wants more freedom choice and abundance and all that good stuff. Imagine how many of those people are out there about to make a mistake just like I did, and maybe we can help some of them. So we literally, we just went, "You know what? Let's just see if we can go and help some people." And then that snowballed and then here we are, running our business now.

Jeff Bullas: Great. So we're living in very interesting times and we'll get into the Holy Trinity next, but in fact, maybe we should just go to the Holy Trinity straight away, I think just tell us a little bit how that framework works to help people buy properties. And then I want to have a little bit of a look at what's happening in property markets now. Every property markets around the world all differ to a point. But tell us about the Holy Trinity and what that methodology is and why it works?

Goose McGrath: Totally. So as I mentioned the kind of process what I set out to prove or disprove was could you buy properties that are cashflow positive and in a good growth area and with the ability to add value to them? So that was the hypothesis and that formed the basis of the Holy Trinity, which is those three factors, cashflow positive, higher growth, value add potential. Now, what we decided was that if you could only buy those types of properties that would be not only the safest way, but also the fastest way for you to build wealth. Now, the reason for that is if you've got properties that are increasing value, so you got good growth, plus they can also liquidate their own debt so they can cover all of their own debt and expenses plus produce a surplus income. You're going to be able to then use that equity without it becoming heavily negatively geared and without it suddenly becoming a cashflow liability to buy more properties and go again.

Goose McGrath: So a lot of people like 90% of property investors get stuck at two properties. And the reason they get stuck at two properties is because they're typically buy properties that are negatively geared, which means that it costs more money to hold them than they produce. Which results in the fact that it corrodes their borrowing capacity, which means that in a very short amount of time, typically one to two properties, they get stuck and they can't buy anymore properties. Now, that's fine because it's not a numbers game. It's not like, "Hey, he with the most houses, dies with the most houses wins." I don't believe that ideology, but it's really about what is the outcome we're trying to achieve.

Goose McGrath: Now, I've spoken with literally thousands of property investors over the last few years and every single one of them wants the same thing. Every single one, they want to be able to do what they want when they want with who they want. So they want more freedom. And that typically comes from having enough cashflow to be able to support what they want to do. The ability to work, but most people don't want to just not work, but it's work by choice. It's, have more freedom and more time that comes from cashflow. So that's the whole basis of the methodology is finding those three, using the combined power of all of those elements working together to allow you to go a bit quicker and to achieve the outcomes a lot sooner.

Goose McGrath: So there are all kinds of methods of doing it, and many are they're negatively geared. A “Buy and hope” kind of strategy and it typically takes about 30 years and then doesn't actually deliver the outcome anyway. Because if you've only bought two properties and they're negatively geared, they're probably not going to produce, even if you pay them off over the next 30 years and you held them debt free, they're probably not going to produce as much income as you might desire to have that true freedom go up to it. So you sort of end up with the worst of both worlds. You have a cashflow liability along the way that doesn't give you the outcome. Now, using the Holy Trinity we can actually help people to do that instead of five to 10 years, which has 300 to 600% faster.

Jeff Bullas: Right. So the Holy Trinity, again, just summarize it for our listeners.

Goose McGrath: Cash Flow positive properties in high growth areas with value add potential.

Jeff Bullas: Great. I love that. So we're living in very interesting times in terms of people who have run away from the cities. They're not empty, but a lot of people have left to go to regional areas, and decide "Well, we need to work remotely. We can't work in these high-rise offices because of COVID." So as people dashed to places like in Australia, Byron Bay, they've gone to Blueys Beach, North of Sydney, they've gone to Newcastle, they're gone to all sorts of places, they have gone South and I'm sure that's happening in places like the United States as well. They've gone to warmer places because I can work remotely like people left New York City, but there's a lot of people who have not be able to left New York City to work in places they would love to live in. What are some of the underlying trends you think that COVID has created that people need to be aware of?

Goose McGrath: Yeah. It's a really interesting topic. We call that the exodus to an affordable lifestyle. So there's three major things that are underpinning the property market at the moment and will continue to do so for the next probably 12 months or so potentially even longer. It is affordability, lifestyle and infrastructure. So there's unprecedented levels of infrastructure spending and also fast-tracking of infrastructure projects, and that is impacting people's lifestyle as well. So if you imagine let's just say the median house price in Sydney is a million bucks. It's actually a bit more, but let's say it's a million dollars. If you own a million dollar home in Sydney and you could get an equivalent or better home somewhere else, closer to the beach with less... In a nicer environment, it doesn't even need to be the beach because we're seeing the trend go inwards as well. It can be in a country area, in a rural area, and you could exchange that property for something that's bigger with a bigger backyard, with a better lifestyle, good community, cleaner air, all of that stuff for $300,000.

Goose McGrath: All of a sudden that frees up a lot of available capital and reduces your cash expenses on your debt. So what that actually does is creates a compound effect where people all of a sudden are significantly wealthier in the fact that they have way more disposable income. So there's that affordability piece which is really playing out. Because people can earn their dollars in their work from ultimately wherever they want in a lot of cases. We've become a much more remote-based world, which is awesome. And to be honest, that's how we built our business from the get-go was to build a remote business. And so it's really awesome just see this stuff playing out. So you've got affordability and then you've got lifestyle. People are choosing to live in places where they can have a better lifestyle. They're choosing to live in places where the cost of living is cheaper and places that are well connected by infrastructure. Because just looking for a place where properties are cheap it doesn't make... That's not where people are going. People are going where there's good connectivity. What are the road links? What are the rail links? What are the road and rail links that are coming? What about air? How can I get to places? How do I still feel connected with the world outside of the internet? So all of these factors play a huge role, and that's really what's driving the property markets.

Goose McGrath: There's something else I want to touch on though, because what you said was everyone's leaving the cities. The thing is that's always been happening. This is not a new thing. People have been moving out of Sydney and Melbourne enmasse every year, that's part of the natural flow of population. It doesn't just constantly fill up. So Sydney and Melbourne have roughly on any given normal year, non-COVID kind of year would have 20 to 40,000 people move out of the cities every year. The thing is though, the thing that's changed is that when people migrate internationally, they typically migrate, not always but the majority migrate, into Melbourne or Sydney. So what happens is they act like reservoirs, where you've got these outside flows of people coming in, filling up the reservoirs and the attrition rate, either people moving out of the cities have just been slower than the inflow rate. Now, the inflow is being turned off and the attrition rate has gone up a little bit more, but not heaps more, it's just gone up a bit more and that's what's changing the dynamics of those two cities. So it's two factors that are playing out there.

Jeff Bullas: Yeah. For example, Australia, especially in a city Sydney a lot of people might be aware of is like my city's got a lot of apartments and also we've had a lot of overseas students and Chinese, for example, and Indians have come in and they want apartments to live in. So some areas like people want bigger houses, they want to move to regional, they want to spend less and more freedom in terms of more capital in their hands, more cash available. But some of the apartments there's a lot of apartments seem to be coming on the market in Sydney and I'm sure that's happening in Melbourne as well.

Goose McGrath: Yeah, absolutely.

Jeff Bullas: So what are your thoughts on apartments versus houses?

Goose McGrath: Houses all the way.

Jeff Bullas: Right. Okay. Well, you have a lot more control too, don't you? Because you have to deal with strata. So control is very, very important. So what are some of the hotspots that come to mind from your research that you'd be looking at, if you were going to invest in Australian real estate currently?

Goose McGrath: Yeah. It's a good question. So just touch on that houses versus apartments thing, there's nothing intrinsically wrong with apartments. Me and my partner are very much firmly cemented the fact that we're apartment dwellers. We've tried living in houses with backyards and doing the whole like and it's like we don't use the backyards and you've got to like weed and it's like, oh just like, I'd rather just have an apartment with a balcony or something like that for me. So apartments definitely have their place from a lifestyle perspective. So now to that degree, that's often what drives a lot of places. So for example, owning a... Kind of say apartments don't get much capital growth, but that's not always true. If you look at apartments in somewhere like Bondi where I am, they have a good history of getting good capital growth so you can't just exchange those two ideas.

Goose McGrath: However, the control is a big one and also if you were to compare a house on land versus an apartment in the same place that would grow at different rates, that's a fact. So if you had a house in Bondi versus an apartment in Bondi, they're going to grow at different rates, which is not just different totals, but different rates, which is really interesting. So if you can apply that logic elsewhere you've got a couple of factors there control, you've got different growth rates and all that stuff, because the value is ultimately in the land. Now, apartments can be good for yield because a lot of people think, yeah, yeah houses are great, but they don't produce as much yield or income relative to the cost. So the thinking then for us, it's like okay, how can we find houses that produce significant yields which are cashflow positive.

Goose McGrath: So, which is a big deciding factor in why we focus on detached houses. You've got more control, you've got more land value, and you're going to have a better growth rate than a comparable apartment in the same area, so there's that. Now, in terms of where to buy, that's a really interesting question. I always refer to when to buy, because as you said a moment ago that the property markets all around the world are different, but it's not even just around the world it's even within Australia and even within Australia's within localities. So for example, within Sydney, there's many, many, many, many different markets that are all doing very, very, very different things. So you've actually got to look at it from multiple levels.

Goose McGrath: Now, the way that we do our research is I'm going to switch this around for a second... The way that most people go about trying to find and buy a property is they go great I want to buy an investment property. And then they start looking for properties, that kind of make sense, right? You guys start looking for houses. That's the last thing that people should do and this is the mistake that most people make. They go, "Great, I want to buy an investment property so what kind of investment property do I want?" Let's say I want to buy a house here. Great. I'm going to go start looking for houses. And the problem with doing that is you're essentially fishing in a pond of roughly about a quarter of a million potential houses on the market at any given point in time. So you've got to take a different approach to identify the where and the when simultaneously.

Goose McGrath: The way we do it is we look at fully macro, so at the national level like what's happening international trade, all of that kind of stuff. What are the impacts on the national economy? Break it down by state and go, okay, well within Australia, where is the money flowing? Like where is it going? Why? Where are people moving and why? What's actually happening? An interesting fact is that interstate migration actually is double the volume of international migration. So there's 400,000 people that are coming to Australia every year in a normal year, there're 800,000 people moving internally. So interstate migration is actually a bigger driver of property markets and international migration, which is really, really interesting. So we want to look at where people are moving and why, and break that down and break that down and break that down.

Goose McGrath: Now, once you get down to sort of like a few investible suburbs you've then, which could be up about 1,500 investible suburbs at any given point in time, investment grade you've then got to go, okay, but where are they in their market cycle? Now, markets don't move in circles like a cycle. They actually move kind of more like a set of steps they go up and then they go sideways and then they go up and then they go sideways. So what we want to do is we want to position ourselves at right before the property markets go up so you can get in before they get hot. Because you asked for like, where are the hotspots at the moment? The problem with that thinking is that you're then looking for what is the current hotspot. So you're saying, where is everyone? Where's everyone buying? And then all of a sudden, you rush there like everyone else and then all of a sudden you're competing with everyone else. And guess what? It's harder to get good deals, the prices are going up, the yields are going down and you like fighting amongst the rest of the pigeons.

Goose McGrath: What we want to do? Is we want to go, okay, where is demand going? Now, one of the best things I ever heard about business was making money in business is easy, just work out where demand is going, stand in front of it and open your wallet. And we try and do the same kind of thing. So we go, well, where is demand moving? What are the market? What are all the leading indicators say? How do we position ourselves right at the precipice before the market shift? And then as soon as it starts getting too hot, that's when we exit.

Goose McGrath: So we call that the Goldilocks zone. You don't want to be in there too early, you don't want to be in there too early when the market's still cool and it's going to be going sideways for another couple of years and it's not really growing and anything like that. That's when it's too cool. You also don't want to be there when there's multi offers on properties and all of these kind of stuff. And you're starting to fight against all the other buyers. You want to be right in that sweet spot where it's not too cool, not too hot.

Jeff Bullas: There's some great advice in there. So if you engage a client, what are the steps that you take them through to help them invest in property and get a great return within that nine to 10 years that you mentioned before? Take us through those steps.

Goose McGrath: Yeah, it's another great question. So it all kind of starts with what they're trying to achieve. So what I've learned is that there's no value or actually no validity in having a one size fits all approach. So no two people are the same, no two properties are the same, no two goals are the same. You might have some similarities like a lot of people say, "I want $100,000 passive income." That's a pretty common terminology that people use, but everyone's got slightly different reason or value or emotional overlay. So the first step is finding out a bit about who you are and what you're trying to achieve. The second step after that is going "Okay, well, how do we then go from where you are to where you want to be? What is that going to look like?" And start thinking through those strategic steps, because what is going to be the best next step for one person might not be the best next step for another.

Goose McGrath: Now, there is a framework that we use and we call it the Apex Progression. Now, within the apex progression, there's a little bit of room to move but the basic premise is that there's three phases, foundation, acceleration, and legacy. And the foundation phase is typically for people who have got between zero and three properties, who's around four properties. That's where you really need to focus on a certain type of asset that's going to deliver a certain type of result. That's going to be the engine room to fuel the rest of your property portfolio and get you to where you want to go. So with typically higher growth, but less complex value adds and some other kinds of characteristics around that.

Goose McGrath: And then the next phase, once you've got that foundation now, some people might already have two properties and have had plenty of growth and got plenty of equity. And part of it's about emotional fortitude as well. Because if you try and go too fast, too quick, you can end up stressing yourself out and stuffing things up. So the next phase is what we call the acceleration phase. So once you've got the financial and emotional fortitude to be able to take the next step, that's when we start looking at things like subdivisions, granny flats, things that are a little bit more intensive in the value add strategy that can be done to those types of properties. And then once we've again built up a certain level of financial and emotional fortitude throughout that, we can then move on to what we call the legacy phase, which is more complex. Again, which is things like larger deals, typically commercial lending, and a few other different... We might be looking at unit blocks, for example, now there's nothing we wouldn't search for an apartment, but we might look for an apartment block you know there's a very big difference between the two concepts.

Goose McGrath: So that's kind of the general pathway. So the idea is, firstly, work out with that and then work out how we can help them go through that framework to get them to where they want to go. By following that, that's what helps people to get there. After that, once we've defined the strategy, defined where they're going and the pace and the speed and made sure everyone's got it, we've got all the administrative stuff sorted we get cracking and we start searching. So what we do is very hands-on most people don't have the time, skills, inclination to be able to go and do what we do. So we offer a full end to end service, not a course or a coaching, mentoring thing. So now we'll just go and do it for you.

Goose McGrath: So it typically takes about five hours of contact time for our clients. And it takes us about 30 days to 45 days to find the right property based on that strategy. So there's no off-the-shelf stuff. There's no new builds. There's no backhanders with developers there's none of that stuff. Every single search we do is 100 % bespoke based on the individual client needs and based on the best locations at that point in time, because they change. So where we were buying three months ago is different from where we're buying now and it'll be different to where we're buying in three months time. So we've got factor it all of those different components, but typically takes us about 30 to 45 days to identify and to do enough due diligence and then after that we start buying.

Jeff Bullas: Okay, that's some really clever steps, but in a lot of senses it's also common sense. The trouble is that buying houses quite often for people is very emotional. So you really take the emotion out of it by applying data to it to make the right decisions?

Goose McGrath: Yeah.

Jeff Bullas: So another question I have, which I'm sure a lot of our listeners would love to know about, take us through some of the different types of value add that you should be looking for in property. And I know they're going to vary depending on commercial and residential. So what are some of the value adds that you should be looking for?

Goose McGrath: There's less than you might think, and it's going to depend on, again, on your goals. So if your goal is right, I'm just starting out and maybe you've even got two or three or four properties, but if you don't have a lot of capital, you'll be in the first phase, the foundation phase. Foundation phase, the amount of capital you need to be in that phase, so it's getting started is 50,000 to 200,000. So if you're in that like, all right, I've got 50 grand, 100 grand, 150 grand to spend you're probably going to be in the foundation phase. Now, we'll dig into that a little bit more, the fastest way you can go, if you want to go fast and get as many properties as possible in the shortest amount of time, the key value add you need to be looking for is under market value.

Goose McGrath: The problem with buying under market value is it's tricky. All of this is all tricky, so it's not like you can just go, yeah, great. I want one of those. Let's go get one. It's like, you've got to understand how to analyze the market comprehensively enough to go to actually work out are you buying? Like, what are you actually buying at the moment? So that's one value add is under market value. Another value add which would be in the foundation phase would be a cosmetic renovation. Now, a cosmetic renovation is very different to a structural renovation. A lot of people think renovates and they think oh, it's going to be like the block and we're going to be putting in staircases and we're going to add rooms and we're going to do all of this stuff. No. No, no we don't want to do anything like that. Cosmetic renovation is really simple carpet, paint, fixtures, fittings, that's it. Cosmetic renovations can be really good because they're the lowest capital input, highest perceived value. So you can get the average dollar return that you want to get for the money you spend is typically going to be between 1.5 and 3.5. So for every dollar you spend, you're going a $1.50 to $3.50 back. That's the goal. You've got to make sure that that stacks up.

Goose McGrath: Now, the benefit of doing cosmetic renovations is they typically, we often don't consider like a full-kitchen refix, it's more carpet, paint, fixtures, fittings. It's typically only going to cost you between 10 to $15,000. So the capital outlay is quite low and it can really increase the yield and increase your capital as well, depending on the location. So it's going to depend on the market. So there's the first two is under market value, cosmetic renovation. The next steps, which is where we'd be looking at stuff that it's more in the acceleration phase. And again, you can get a foundational property that has acceleration potential, would be stuff like a subdivision or granny flat potential. They're the two key characteristics in that phase.

Goose McGrath: Now, the reason that they're the two key characteristics in that phase is by the time you get a couple of properties under your belt, you've now say got $200,000 of available equity, your properties have grown. So you've now got this lump of cash and you go, okay, what's next? You can start to do more complex projects. You're going to need to look at your portfolio and say, "Well, where am I going to get stuck next? Am I going to hit my serviceability limit? Or am I going to run out of capital?" So that way you can decide, okay, which lever do I need to pull? Do I need to focus more on cashflow or do I need to focus more on capital? Or do I want to do some mix of the both. Now, that allows you to then decide what types of projects you want to do.

Goose McGrath: Now, you might buy in the foundation phase a property that is yielding at say 6% and in a good growth area and has the ability to be subdivided at a later date. The difference being, you're not going to go back to do that for probably a few years, maybe five or even 10 years once you built up enough financial and emotional fortitude. So, so far we've covered under market value, cosmetic renovation, subdivision, granny flat potential. And then the final one is more for the legacy phase and that's where we start thinking about things like rooming house developments or these kinds of more complex, more capital-intensive projects, which ultimately deliver a really high amount of cash flow, but require a lot of capital to be tied up.

Jeff Bullas: That's very interesting and the value add, certainly something I've done in the past, just going in and it just paint, new carpet and a cheap new kitchen I've done that a couple of times and you can get a kitchen put in pretty quickly and easily and very inexpensively today. The other area that I find quite interesting is lifestyle, otherwise acreage, and then maybe adding a granny flat to it because with very little council requirement, you can put in a 60 square meter, granny flat, that's almost ticked the box. Now, there's another area along with that value add, which I'm finding fascinating, and it's not being done much in Australia but it's being done a lot in the Scandinavian countries is basically pre-built homes. In other words, homes built in a warehouse I mean in a factory transportable, prefabricated homes. Now, in Australia I believe it's only about 5% of the housing market is prefabricated homes.

Jeff Bullas: In the past they've been terrible little just sheds really, but there seems to be a bit of a trend happening in that. The interesting thing in Scandinavia is that they, because weather I think it's part of the challenge of 50% of homes built in Scandinavian countries and especially Sweden I think it is, are prefabricated. So I believe there's maybe an upside then along with that is another trend happening and I just think this is my thoughts at the moment, because I'm looking at value adding and doing some property investment. Now, you can get a prefab home and then we are seeing the rise of technology into that space as well. And you've got solar power, low energy use electrical appliances, and along with that now, we have the cost of batteries going down so off the grid. In other words, you don't need to worry about spending $50,000 to put in a power line from the electricity company. So I'd be interested in your thoughts in the prefab value add area. I don't know if you've done much research on it. And also the, I suppose, off the grid technology that is also intersecting at the moment.

Goose McGrath: Yeah. So I think technology in the property space is really, really interesting. There's a few different things going on like there's the whole build-to-rent space which is really interesting. So particularly large development companies are purpose building properties specifically designed for the rental market. So they're never designed to be a homeowner property and as such, they're building in technology to support that. So for example, remote managed fire alarm systems so you don't have to have someone going around and checking all the smoke detector systems, a whole bunch of other really interesting, smart technology around that's specific to those. Smart technology in general, I think is a really interesting addition to homes. I think it's going to be driving markets a lot more in the future that desirability, it's quite funny because I've got no problem turning a light switch on and off.

Goose McGrath: But I can see in a couple of years walking in the home and saying lights on lights off, or “Google turn the lights off” is going to be much more common. And we're all going to think, "Geez, can you imagine? Remember those old days where we had to hit this thing with our finger?" So I find all of that really, really fascinating. The prefabricated stuff I love. Now, prefabricated I've seen it just in the last few years has become much more common, particularly for granny flats. The way I first started seeing it was in the granny flat providers and it went from here's a box to like here's a beautiful to this looks like a homestead or something, and it's basically clicked together and it gets built in like two days or four days or something it's insane. And the thing is now they've gone from two bedroom granny flats up to four bedroom homes. And it suddenly becomes really, really, really, really interesting because the cost to build and so the cost to do the value add is significantly lower, but you get the same benefit.

Goose McGrath: So I think that the whole world is really interesting. We haven't done anything specifically with those kinds of projects, but it's where I would think it's all going. I think it makes so much more sense. And then you've obviously got the solar stuff now, I don't have a huge opinion on solar, but I think we're all in that precipice, as you're going to mention where the technology is getting so much better, that one of the hardest parts about say doing development size, I want to say development size, let's just say small development, let's say buy a house you subdivide the backyard even if you just want to build one other dwelling in the back. You touched on a really interesting point is if the surfaces aren't on the right side of the road, then it can cost you $50,000, $100,000 to try and get the services connected.

Goose McGrath: The problem with just focusing on the power technology part is it doesn't solve all the problems. So you've got the, okay, so if we can have a solar system and do all of that stuff, and that can provide all the needs of the property and you have smart tech, so you mentioned low wattage, low voltage and outlets and all of that kind of stuff. You can actually incorporate smart lighting systems to turn themselves off and really, really get into the whole smart tech space. You then got to think about what about water and waste? Because they're a big one. So sewer lines obviously cost a lot of money to get put into a property as well, but even then going slightly non-tech with that stuff there's other ways you could think about that too.

Goose McGrath: So once upon a time I used to build composting toilets systems. And so there's heaps of really interesting ways that they can be incorporated into building design using that advanced bacterial stuff like that to really compost everything down in a usable way. But councils need to catch up with this stuff, because it's going to be very hard for a council if you put it in the planning permit, they're going to be like, "Hang on. There's no sewer, there's no power. I don't know if we're can approve this." And you're going to have to try and educate a bureaucratic system on the fact that you might not need those things. So I think we're a little way off really that becoming a plug and play solution, but I liked the way that it's going.

Jeff Bullas: Yeah. I find that area quite fascinating and you're right what's happened is we moved from sheds for granny flats to homes with pitched ceilings, nine foot ceilings, double glazing glass all around, they all plugged together. It's a fascinating area and I think there's a lot of potential for it. And of course the challenges our council is keeping up with these trends and that's a real big problem. So let's just be conscious of your time and we've covered the processes and how you operate and then we'll let listeners know how to find you guys. So one thing I think everyone would be curious about is interest rates are so low now, I think it's 10th of 1% reserve bank in Australia, and I think it's not dissimilar I think there's negative interest rates in some countries like Scandinavia and Japan, where you've got to pay the bank to put money in the bank. So-

Goose McGrath: They pay you to take out debt.

Jeff Bullas: Yeah, that's right. So where do you think interest rates are going over the next three to five years? So I'd be interested in your thoughts.

Goose McGrath: I definitely don't think they're going up, put it that way. The question is, will they go down further? I'm confident in the fact that I don't think they're going up in the next, certainly the next three years. The next seven to eight years that's a very different question. That is a very different question. I believe that based on my analysis of the credit cycles and looking into some of that stuff, I think that for the three to five years we're at the absolute best time in history to be in leveraged real estate. In that five to seven year window, though, I would be wanting to leverage a little bit because I think that what will happen is we'll have a credit correction. But for the next one to five years, I think we're in a golden age of affordability. Which is fantastic if you understand that and know the game that you are playing, it's not going to be like this forever. I can't see that happening.

Goose McGrath: So over the next say one to five years, the question is, will it stay where it is or will it go down further? I am not certain about that answer. I don't know whether we'll ever go negative. I think there are other levers the government can pull on an economic level before we go negative. And I think they've rightly ascertained to-date and in public in their position that the negatives outweigh the positives when it comes to going negative interest rates. So I think they're going to stay about the same with marginal changes that are not significant.

Goose McGrath: I certainly don't think that in the next one to five years, we're going to see them start to shoot back up to the levels that we saw even a few years ago, fives and sixes and 7%. I don't think it's going to happen, but again, I would be cautioning people. My genuine and deeply held viewpoint is that right now is an opportunity to spread your footprint. And the reason being, the cost of money is so, so low on top of that, there's about $600 billion of government spending getting pumped into the Australian property market through factors, such as quantity of easing, infrastructure projects, housing stimulus, and all of this stuff. We've got this amazing factor that this driving will and I'm happy to go on record saying it will drive on the biggest property boom that this country has ever seen over the next five years.

Goose McGrath: The problem is we're going to get to about five years and everyone's going to be like, "Oh my God, property only ever goes up." And then more and more and more and more and more people start piling into it and that's when it'll start to overinflate. So my viewpoint is that right now say the next one to three to five years is that we want to get as big a footprint as possible, take that wave up and then slowly de-leverage. Now, you can de-leverage in different ways de-leverage doesn't mean start selling properties. If you've got cash flow positive properties, the tenants are going to be paying down the debt anyway, and you're going to have growth to reduce your loan to value ratio. So if you've bought well, you can go into that next phase of the cycle when we're probably going to have a credit correction, you can go into that safely.

Jeff Bullas: Okay. So that was the question I was going to ask you, what are a couple of de-leverage strategies... In other words, you leverage the opportunity, but then you've got to be ready to exit and do it before that crash happens. Because it will happen it's just a matter of when. So what are some de-leverage strategies that you'd recommend?

Goose McGrath: A great question. So the premise of the Holy Trinity is not just, "Hey, how do we get higher performing properties?" That's great because everyone wants more performance. It's also how do we mitigate risk? That's a huge thing, it's huge. Like I love going... I'm like any other entrepreneur, I want to go as fast as possible, but I just don't want anything to break. I want to know that everything's going to be okay. So the whole idea is that you've got ways to de-leverage and to de-risk the portfolio built in. So one way to de-leverage if you've bought, let's say you've got a few properties in your portfolio, one way to de-leverage would be to potentially say, "Do a subdivision of the land." Let's just say subdivide the rear backyard. Let's just assume that's part of your portfolio, you could then sell that recapitalize into your portfolio to reduce your debt levels. That's one way of doing it.

Goose McGrath: Other ways of doing it are through the value adds and the value adds will in most often will increase your capital position and decrease your debt to value ratio or loan to value ratio. Aside from that, when you've got tenants that are paying down your own debt for you, i.e it's cashflow positive and every dollar they put in is paying down your own debt. It starts to create a bit of a flywheel effect where all of a sudden they're paying down more debt, which means that your cost of debt goes down even more. So that means that on a percentage basis, they're continuously actually paying a higher amount of debt for you. So that starts to flywheel. If you bought well it'll de-leverage itself over time and a little bit anyway. If you find yourself in a position where you've gone really hard and you haven't paid attention and you haven't thought two, three steps ahead and thought about your second and third order of consequences and what your exit strategies are, because the idea with every property you go into, you want to have two or three or four exit strategies.

Goose McGrath: What happens if the local industry collapses? What can I do? And that's the idea of having value adds. Could I sell it? Could I rent it? Could I subdivide this in a different way? What are the different aspects? And you got to look at that on a per property basis, but let's just say if you didn't think about the first, second and third order of consequences and you get caught up in hubris and you go really, really fast, all of a sudden you go, "Oh my God, I'm a little overexposed here. Help!" That might be an interesting time to start then thinking, well, what are the least performing properties in your portfolio? Not just now, but take that learning lesson and go, "Okay, well, here's where I am, but where is the market going over the next five years?" And if I look to the next five years and don't just think what's performing well now, but what's going to perform in the next five years, de-leverage using potentially your best performing properties.

Goose McGrath: And a really interesting example of that is I think it was back in 2012, if you're in 2012 and you had say a $600,000 budget and you were going great, where should I invest? And you were tossing up between Sydney and Darwin, almost certainly you would have chosen Darwin because at that time, Darwin had outperformed every other city in the country and it was booming and it was going off. So if you had 600 grand, you probably would have gone and thrown your money in Darwin, then you would've got about one more year's worth of growth and then it collapsed and you would've lost heaps of money. Vice versa, in 2012, Sydney had basically done nothing in terms of growth. So people were wondering what was going on. However, if you had thought about where the market is going over the next five years and put your money in Sydney, you would have gotten about 100 % return on investment over the next five years. So that's the idea of going okay, well, where is not just where I am right now, but where is everything going? And that's an interesting thing.

Jeff Bullas: Yeah. Thanks for those tips on de-leveraging. I think it's important because we can go fast, but we can break things and we want to make sure that we don't want to put ourselves in a financial catastrophe. That's really important.

Goose McGrath: Yeah. Just on that, I think that it's the most important thing is to make sure that we do this well. There's no point... Imagine if you spent five, 10 years trying to achieve a level of freedom only to have it all fall apart. I've had businesses fail, I've been broke living on the floor in my office with no money. We don't want to do this kind of stuff. So it's really about how can you get there, but how can you do it in a way that almost no matter what happens, you're going to be okay. That's the best way to think about it.

Jeff Bullas: I think that's a great final tip and I'd like to thank you very much, Goose for sharing your wisdom and experience. It's been fabulous. How can people find Goose McGrath and Dash Dot? What's the best way to contact you guys?

Goose McGrath: Best bet is head to our website, which grossly needs updating, but just go to dashdot.com.au or if you're listening to this you obviously are interested in podcasts we have a podcast too, so you can go check that out. You can go to the investorlab.com.au That's the investorlab.com.au. And yeah we've got a podcast there where we talk about all of these different strategies, how to do it, we've got a whole property and business series. There's loads of free resources and you can reach out there.

Jeff Bullas: Awesome. Thank you very much, Goose it's been an absolute pleasure to have you on the show and look forward to catching up because we're almost neighbors. So thank you very much.

Goose McGrath: My pleasure. Thanks for having me.

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