Hi, Owen Davis here again from Leifield Real Estate and here this time with an accountant, Jeff Banks, Welcome, I've known Jeff for a while.
Your being an accountant for a long time, I'll let you say how long? Way too long. But Jeff's worked with a lot of property investors over his time, and so I wanted to get him on to giving a, give us his experience and a bit of commentary.
So, Jeff, maybe you start off just telling us a bit about yourself and your your history with being an accountant and working with property investors. Yes.
Thanks, Owen. We start off a practice called Banks Consultancy, and we ran the tag line, not your ordinary accountants. Now, that meant that we went that little bit extra. We did a lot more stuff for clients than what you would think that maybe the normal compliance probably ended. Yeah, but we got very seriously into what the clients wanted to do and particularly with property and that manifest itself in, you know, speaking from stage, doing a lot of that sort of stuff, particularly walking around not just the investment but the structure of the investment, looking to, looking to make sure that the light at the end of the tunnel, you didn't end up being a freight train coming to run you over.
Right. For me, that's really important. One of the things I hate in property investment is negative gearing for negative gearing. Yeah. And just making sure that clients understand that-- it's good as a bonus, but it shouldn't be the main, right? Exactly, Because if you're in investments simply for the tax refund, you're not doing it right. The ultimate goal just isn't there. And looking at, yes, I can have a short term gain, but if I don't have the long term outcome. There's no point. Why should I invest money into things that don't give me that big return? Yeah. So that's one of the things from looking to speak to multitudes of people from stage and what have you sitting there and captivating them with ideas of tax problems and all that. Yes, that's easy.
I can do that. I can scare the crap out of people. But it's not. That's not what an accountant should be doing. Yeah. An accountant should be a partner, a solid partner in your business, if that's what we're talking about. To make sure you get to your goals and work until you stand on stage.
And you say to people, like I said, I did this the other day. I was on a stage with about 500 people and those in the audience who didn't have an accountant. You know, two thirds of the people in the room didn't put up their head.
Wow. And that's a scary concept. Well, actually, that's a good question. And you came to mind for me.
Why? What do you advise that people should ask when they're looking for an accountant, when they're a property investor? Oh excellent question. How should they interview an accountant?
First thing they should not do is ask how much money you're going to give me back. Right.
Is the worst way to start a relationship with an accountant, because if you want someone to work with you, you want them to work towards here, not here. Right. So we talk about the long term goal. We talk about why are we investing, why suggests that we're investing, so that we end up writing off into the sunset in the manner in which we want to become accustomed.
And if property is the way we want to get it, like planning the wedding instead of- oh sorry. Planning the marriage instead of just the wedding.
Exactly right. And we just need to make sure that the whole thing works. Yes. We can set up things today to make us get a refund. Closing a case had the client the other day came to me on a half a million dollar salary.
Yeah. I've got to have a negatively geared property. I've got to have a negatively geared property. Right. And I said to him, why? And that's the first question. Your accountant should always ask you, why do you want to do this? So I'd say yes. Or your financial planner, for that matter. So he wanted to put in place a regime for his three girls so that he could sell the properties off and send them to university. OK, good plan. Yeah. But he thought, okay, I do only negative if it's only negatively geared. He wasn't going to make a profit yet. It might not necessarily make.
But if he was going to make the property was true, if he was truly investing, then he was going to have a profit. So short term, yes, I was going to get a refund each time I sold one of those properties. Capital gain at $500,000 taxable income. Significant tax bill. Yes.
And I said to him, look, so let's start with the goal in line, with the goal in line. And if the accountant starts with that, you'll have a much better plan, I can say to him, okay, I want your written, on paper that you're not gonna scream like a stuck pig when I hand you the capital gains tax bills.
Looked at me blankly and said, Well, hang on. What do you mean? I said, Well, if we set up a discretionary trust for those girls, put the properties in there. Yes, we won't get to take the negatively in the short term. But when it comes time for them to sell the property for the university fees, are they going to be earning an income?
No. Therefore, the capital gain we can distribute. Because we have discretionary powers of the trust, distributed out to someone who's got a much lower income. Yeah, and the tax impact is much less. Ergo, I have more money for my girls. Yeah. For the university education sitting and thinking long term, you know, as opposed to the short term. Yeah. And that's the sort of thing you should be talking to your accountant about. Why am I doing this?
All right. Thank you. Very good points. Now, the market at the moment, and especially here in Sydney, it's quite up and down.
I'm not sure if anyone can hear, but there's lots of construction going on in the background. Right here. Yeah, there is a bit.
So hopefully we don't pick up too much of it. But yes, there's still lots of construction going on. But what's with your experience have been through these ups and downs in the property market and more.
What's your take on where we are at the moment?
At the moment in Sydney, obviously, we're playing the game and we're probably getting towards the bottom of the market at this particular point, yeah. But with all investment, research is the key. It's all about knowing what you want. And if you're looking for something short term, you shouldn't be in Sydney. If you're looking for something long term, maybe Sydney is the answer.
You know, it will come back. There is nothing surer. If you look at the statistics over time. So you've seen this many times before. Absolutely. Yeah. Now back in, back in the late 80s. Yeah. We bought a house out of the overdraft. Yeah. For $240,000 because I'm not sure whether your
People remember interest rates of percent. It was actually cheaper to buy the house out of the overdraft than it was to get a home loan. And we sold that 18 months later, nearly three times what we bought it for.
And where do you think the economy is at the moment? Because there's many people saying that, especially with the credit crunch we were going through, possibly put us into a recession.
I Know, I tend to agree with that. I think things are going to tighten up. I think the banks doing fiscal policy for the government and for the Reserve Bank themselves without reference back to the Reserve Bank, all the government policy. And yes, I think, I think this tightening up we're seeing at the moment is only going to get tighter.
And the proposed negative gearing changes that the Labour Party, who at this stage is now possibly winning the federal election a few weeks time. What's your take on that?
I think I actually not a Labour voter, but I think that particular policy is a good one. I don't think personally that taking taking the loss of getting a refund for it now in an investment strategy is not actually the right way to go. I actually think that policy has merit. I don't agree with it, but it has merit.
Right. Okay. So the distinction between the brand new properties and the older properties, the changes to the depreciation rules that they went through.
Not so long ago. It's really not that much of the job done. Most of the job. Exactly. If so, the little tweaks that there they're really doing aren't really going to make.
No, not in the short term, not in the short term. And given that we have had very little retrospective taxation over the years. Bottom of the harbour was the one thing that got really savage, but that at the end of the day, that was never, ever tax playing. It was just to see a tax evasion. Yeah. Governments tend to just do things going forward. So we've got to play with the rules as they are today. Yeah. And then if rules change and we look at our structure, we look at the way we're doing things and we make the changes accordingly.
That's the other thing we need to do. Structure is never, ever set and forget. Structure is, you know, you look at each transaction and that's what I think. Being an accountant and being like a solid partner in a person's business and investing is a business, don't get me wrong. We talk about investment. We talk about people in business. At the end of the day, it's all about making money. And if we're not considering keeping as much money as possible, then we're not doing the right thing of getting to our goal as fast as what we possibly should be. And I think a lot of people move away from asking accounts because they think they only do one thing and that's doing the taxes. That's not right. A good accountant works with people to get to their goals. All right. Well that might be a good point to end on, so.
Thank you very much. Joe, from all unless you've got any other rad gems that you'd like to share of the Owen. If there's one thing, the takeaway from here is your accountant should be a solid partner in whatever you do. May it be a business or investment. All right. Thank you, Jeff. And if people wanted to reach out to you. Where's the best place that they can find you. On our. In our office, probably 0 2 8 4 0 4 6 7 0 0 or. All right, [email protected]
All right. There you go. And for everyone listening on the podcast or seeing us on YouTube or any of the other social media. If you have any further questions, please reach out to us. And all topics for future interviews. Please let us know.