26 Oct 4 step process to success – Phillipe Brach
Philippe Brach is the author of a book called Property Wealth in Any Market and it details the process of property investing success. We talk to Phillipe about his four-step process.
Kevin: I introduced a topic a couple of weeks ago on the show with our guest who is my next guest, Philippe Brach from Multifocus Properties & Finance and also the author of the great book Property Wealth in Any Market. We talked about that rule of 72.
Hi, Philippe. How are you?
Philippe: I’m good, Kevin. Thank you.
Kevin: I love that rule, teaching kids about compounding. So, go back and have a listen to that. We broadcast that a couple of weeks ago. Just go up into the search panel at Real Estate Talk, put in Philippe’s name, and all of his interviews will come up.
Philippe, I want to talk to you about the bones of your book. It’s all about the process of property investing success, and you give us a four-step process. I know we can’t cover it in a matter of minutes, but can you just give us a bit of an overview, please?
Philippe: Certainly. The four steps are fairly logical. In fact, the first step is more a phase, if you want. When people are going on the property investment journey, there are a certain number of things you do in a certain order.
The very first thing you need to do is go into what we call the planning phase, which is the very first phase, which is where an investor or a would-be investor actually educates themselves to understand how it works.
Education in terms of understanding the numbers is paramount because, to me, investing in property is not really about property; it’s about making money and creating for wealth. For that, you need to understand how the numbers work. It’s a numbers game.
The planning phase is really the crucial one because it will dictate how you’re going to invest, how far, how fast, etc., and also help you set up your targets.
The second phase is what we call the accumulation phase. Once you understand how property works and you’re comfortable with the numbers and you’re ready, you have your deposit, you have your borrowing capacity sorted out, then you go into the accumulation phase where you actually execute the plan and the strategy, which is if your target is five or six properties, to start accumulating them.
The speed at which you accumulate them will be sorted out in the planning stage, and so you start buying and accumulating these properties. Every time you buy one, you look at where you’re going to get the deposit from – is it equity from the previous property, or is it savings, etc. – and you build up your portfolio.
Then you go into the third phase, once you’ve achieved your goal, and that is the best phase of all. It’s called the transition phase, and it’s where you do absolutely nothing. You just stop buying, and you let capital growth do its magic and actually build up wealth for you.
During that phase, if you can, some investors start paying down their debt because they’ve repaid their home loans so they have no more non-tax deductible debt, so they start repaying their investment then.
And then when you get to phase four, which is the drawdown phase, it’s when you finally decide to retire and you need to start looking at the income stream for you once you’ve retired.
The drawdown phase can be in three parts. The first part is if you’ve paid down your loans enough to create positive cash flow that is sufficient for your needs, then that’s it; you just continue doing that. You might want, from time to time, to sell one property because until you sell a property, you can’t cash in the equity you’ve built up in there. As you grow older, you sell one property from time to time and use the cash to do whatever you want.
The other option you can have is to sell the whole portfolio. So, go to the other extreme: sell the whole portfolio and put it in the bank. If you have a portfolio with about $2 million worth of equity, sell the whole lot, pay the tax man something, probably $500,000, and then put the rest in the bank, earn interest and just live off that.
Then the most probable way of drawing down your wealth is by doing a combination, a hybrid between the two methods I’ve just highlighted, and that is to sell some of your properties to pay the debt off on some of the others until such time as you create enough income stream for you to live on, and then also that will still leave part of your portfolio exposed to capital growth.
Then the same thing: as you grow older, if you’re left with three or four properties, at some point you decide to sell one because then you can cash something in and go on a massive cruise around the world or help your kids get into property.
Kevin: That last phase you talked about there, it would seem to me to be very appealing to be able to sell down some of it to reduce that debt but hold to some of those properties to enjoy that capital growth. Not that you’d want to gear against it, but it’s compounding the whole time, Philippe.
Philippe: It certainly is, and that’s the secret of it, the compounding. If you start early enough and you build a substantial portfolio, then it’s so much better and you have so many opportunities to do what you want. Having a bit of money is actually giving you choices, and it’s great to be in that position.
Kevin: It makes a lot of sense, and there’s a lot more information about that four-step process inside Philippe’s book, Property Wealth in Any Market. That’s quite freely available at most book shops.
Actually, I saw a post that you put up recently when you said it’s nice to be in good company. I think your book was right beside one by Richard Branson.
Philippe: Yes, that’s correct. It was a bit of a fluke because, obviously, my name starts with B-R-A and Branson’s as well, so when people put it in alphabetical order on the shelf, invariably, I’m next to him and always get that joke saying “Who is this guy next to Philippe?”
Kevin: Yes, that’s right. Google it. You’ll find it. It’s written by Philippe Brach. It’s called Property Wealth in Any Market.
Philippe, great talking to you, and thank you so much for your time.
Philippe: No problem. Thanks very much, Kevin.