Passive income the affordability curse

Karl FitzgeraldCommentary, Multimedia4 Comments


Renegade Economists show 303

As broadcast on 3CR on Wednesday 21.08.13.

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Karl Fitzgerald: Property spruikers, spruikers, spruikers. Today we go into the heart of the battle zone, into one of the biggest property spruiking seminars in Australia. One of 15 tour stops for Dymphna Boholt.

Dymphna Boholt: Hey guys, my name’s Dymphna Boholt, and I’m here to invite you to a full one day of training that I’ve got coming up very close to you. Why is this going to be important to you? Well let me tell you what I’m going to cover and why I’d love you to be there. I’d love to meet you and love you to be part of the journey with me. Here’s what we do. First of all, I’m going to talk about how the ownership of property has become so important, and how you need to own your properties, not just for now but for tax reasons, so when something goes against you, someone’s not going to take it away from you. It’s a big problem in this country and it’s getting bigger, and I really want to stress that. And I really want to teach everybody how they can start to grow a significant portfolio safely and keep it. Keep it as a legacy. Keep it as a portfolio that will live on long after you’re dead and gone. So the kids have got it, the grandkids have got it. Something really creating that long family trust fund. But how do you do that? That’s a long way out in the future. So what I’m going to do in this one-day event is I’m going to cover some economic stuff. I’m going to tell you about hot spots around Australia. I’m going to tell you about where our economy is at right now, and what we need to be doing right here right now to change your life.

KF: Alright, this is Renegade Economist Karl Fitzgerald signing in from a property spruikers event: I love real estate, being conducted by Dymphna Boholt who is one of Australia’s leading property proponents. She’s traveling Australia at the moment doing a national tour. There’s some 400 people at this seminar today. It’s fast paced, it’s full of facts and it’s all about pushing real estate higher and higher as the ponzi game rolls on.

Spend $5,000 on her investment material, and she’ll guarantee you’ll earn 10 times that within the next 12 months or your money back. Amazing! Discretionary trusts are the vehicle to protect your assets – that is the key. What are some of the other things? You’ve got to have a bucket company set up. You’ve got to have each property you own set up with its own trust and its own company structure above that and then a bucket company, which is the parent holding account. There’s piggy bank trusts involved. She has buzzwords for everything. But the big one this morning was all about superannuation. “It’s our last remaining tax haven”. She said, “with self managed super funds, now you can borrow via your super entity”. You only pay 15 cents in the dollar on income earned there in your pre-retirement phase period. And your capital gains tax at 10%, but when you’re in that pension phase, no income tax, no capital gains tax. You only need 20% deposit to buy the house, “so dip into you super and do it” was the sort of vibe coming through. It’s all about passive income. “What changed my life was passive income”, she said. It’s all about risk analysis, reverse feasibilities, fear of success. Can you do it?

Some of the other buzzwords coming through were ‘chunk deals’. It’s all about buying big blocks of land, subdividing and cleaning up. Some people she’s quoting are making $100,000 in just 3 or 4 months. There’s something else she calls a grid variance analysis, which is one of her big plays, looking at location, location I dare say. Are you a serious investor or are you a BBQ investor? You’ve got to be in the know.

Phenomenal, sitting in the room with 400 people hearing about all of these examples of how people are buying real estate at prices that match the rental incomes. This is the trick she’s saying. Don’t negative gear by spending more than what the property can actually deliver to you in income. That is sensible. That will help keep a lid on this bubble. But what she’s really saying is buy regional. Buy regionally! That’s where you get these large blocks of land. You can have these chunk deals and earn some quick cash. Alright, let’s go back to the seminar now. We’ve got another 2 or 3 hours. We’re going to be hearing about some of the theories Phil Anderson and Fred Harrison talk about, W. D. Gann. Essentially pulling some of the Georgist knowledgebase I talk about, of the business cycles; real estate cycles and using that to make easy money. So everyone is in it to win it. It’s all about passive income and setting that up in 18 months. So I will report back after this session.

DB: Imagine whatever you earn now, whether it’s $40,000 a year,
$60,000 a year, $100,000, $200,000, whatever! Whatever you earn now, imagine earning that same amount of money, but passively. What’s passive income? Passive income is about having that money coming into you regardless of whether you get out of bed or not. Regardless of whether you go to work, regardless of whether you pick up a pencil, regardless of whether you do anything. It’s passive. It comes in from income. Now I’m about real estate, I’m not about shares; I’m not going to talk about anything else. It’s about real estate. So real estate income that comes into you over and above all of the expenses related to that property. And you’ve still got some left over. So you’ve got rent coming in, you pay the interest on your mortgage, you pay your rates, you pay your insurance, you pay someone to manage it, you pay some repairs and maintenance, and you’ve still got some left over. And that some left over, imagine if that’s 100 dollars a week. That’s $5,000 a year. That’s $5,000 a year you never have to get out of bed for again forever. You never have to earn that money again, and you know what?

The funny thing about passive income in real estate is that it actually increases in value. So if it’s $5,000 this year, chances are it will be $5,400 next year. Might be $6,000 the next year, might be $7,000. You turn around in 5 years time or 10 years time, and its $20,000, $30,000. Passive! That’s after paying all of the expenses. Now that money comes in regardless of what else you do.

But that’s just one property. Imagine if you’ve got two of them, or 3 of them, or 4 of them. Imagine if it’s not just $5,000 income by $25,000 in passive income. For some of you, you’re getting uncomfortable. For some of you you’re not really getting this, you’re going, “Ahh that’s not possible, they don’t exist. Not in Australia… We’re one of the most expensive countries in the world because that’s what the media tells us”.

Well listen to this media, there’s plenty of good property around. There’s plenty of passive income, around but you need to be educated. You need to be looking at certain types of property, certain styles of investing. And you need to be doing this in a calculated, logistic fashion. To a business plan that works for you. And remember that your business plan is going to be different from the guy sitting next to you, because he’s got a different personality. He’s got a different amount of money starting with, he’s a different person, he’s got different dreams, goals, and aspirations to you. So I’ll teach you how to do that business plan for yourself. I’ll teach you how to go on a journey to make that happen for you.

KF: Well I’m exhausted. It’s about 4.45pm on a Tuesday and this seminar has been going on since 9am this morning and is still going until 6pm tonight. Just walked out hearing how some 24 year olds in 3 years, with no income, now have 16 properties and $350,000 a year in passive income. And let’s all jump on the bandwagon. This afternoon’s session went through some interesting economic elements. It really had a strong understanding of the role land rents and incomes play. And I suppose a lot of what Dymphna Boholt said did have some sensibility about it. She was not into spending over and above what the local incomes could meet. She was about buying properties below their market value and turning them into a passive income. Primarily by buying dodgy old houses on big blocks of land that were near new rail lines or university developments or good looking parks. So all of the things I always talk about here.

Instead of coming at it from an ethical frontier, and realising that increase of value could be financing all of government. It’s about, as long as government is going to permit this to go on, you most while get it and live the good life. So it was interesting to a number of graphs presented by Philip Anderson, you’ve heard on the show a number of times. Fred Harrison again, the 18-year land cycle that was featured quite heavily as a justification to jump into the market now. Now it’s onwards and upwards for China and India to grow its 7-9% growth rates over the next 5-10 years Dymphna says. And even Philip Soos was referenced with his gross government debt to GDP graph there.

Interesting – leading exports: iron ore, coal, gas and education. No discussion about how climate change might influence those leading export markets. Big look at the Pilbara, and the talk about the construction phase dropping off in 2014, is to be taken up by all of the workers that will be in the region working operationally. Fair call there. Interestingly, she said the Pilbara has a GDP that’s greater than 120 countries on this planet. So she’s staying that one section of Australia has a GDP that’s greater than 2/3’s of the nations on this planet. But yet, we the people are not allowed to share in that wealth unless we have some capital to already buy into the share market, or what she’s saying, buy into the property market.

It was interesting looking at her nation wide housing analysis. Brisbane was the pick of the bunch, but really her overriding theme was to go regional. Speculators haven’t really picked the eyes out of it as much, was the impression I got. But when you look at how rents have been rising in regional areas, they’ve been growing faster than that in the capital cities. So through all of her analysis, there was no discussion of the realities of the overall incomes of Australians, and how we’re going to be able to afford that $400,000 mortgage on current growth rates. So I was left scratching my head there. Darwin was another big boom city to come, with all of the gas developments there. And who knows, this crazy special export zone that Kevin Rudd has pilfered from Gina Rinehart, one of Australia’s wealthiest people’s playbook. So maybe that’s the place to buy. So interesting that these sorts of events go on. There’s 400 people here, most of them realising that, ‘look, this is what the government is encouraging. So get into it.’ And in a way, I really can’t blame them. But Gee-Whiz, I’d really love to see those sorts of people at an event we were holding.

DB: Some of you were never really given yourself the opportunity to think about what’s possible.

KF: And there we go. Some recordings I snuck outside to comment on yesterday’s big seminar. What do you say, what do you do when personal self interests comes at the expense of the community. I suppose that’s the general vibe I’m trying to get across there. And what I’m always talking about those who own the earth have a huge advantage over anyone who is trying to run a business or earn a wage. And essentially that was what the tax system was originally designed to do. I always say that tax is the white mans word for sharing.

Unfortunately, our tax system has become so distorted and government spending looking after vested interests has become so unrepresentative of the common interest that many people are fuming at where their tax money goes. That’s what’s leading the right wing to reduce the size of government. They believe that the free market can deliver for all, but we believe that we do not have a free market: that there is no free market on this planet because of these very advantages.

Those who own natural resources, who have convinced the government to privatise what were once natural monopolies, these are the guys who are holding the free exchange of goods and services to ransom. And that’s what we should be targeting.

So, this lady, Dymphna Boholt, is her website. And those radio clips you heard were snapped from her YouTube channel. Apparently she is one of Australia’s leading business related podcasts. And you can see why when you’re flourishing your stories with examples of people making $350,000 in passive income in just 3 years for those 24 year olds. They own 16 properties in just 3 years by using this system of setting up your legal system effectively, having good company structures, having this grid variance analysis, which sounds a lot like location, location.

What she didn’t really mention was buying at the right time. And I still wonder whether this real estate bubble is going to keep kicking on, but that seems to be what the government is supporting at all costs, despite the fact that the Commonwealth Bank of Australia announced, I think, it was an $8 billion half yearly profit recently. And the National Bank of Australia who “take less”, so they say, according to their ‘give more, take less’ slogan – they’re coming up for a $6 billion profit.

Remember the biggest asset segment of their earnings portfolio comes through the mortgage section. And while it’s known as the housing bubble, it’s the land price that goes up. You can check that across all economic analysis. Construction costs have been fairly well static. It’s the land price, the location price that goes up. And so instead of calling it a housing bubble, it should be a land bubble.

Let’s start focusing on what’s really happening here. And the secret to her investment success is buying run down old weatherboard homes, knocking down the house, sub dividing the property and selling it quite quickly for great profit.

As you heard, some of the sentiment, much of what she was saying, I could agree with. I think I probably was a little bit unclear where I said she was matching up the price of property to incomes; I meant the price of property to the rents that could be earned. The income based rents on that property. But she didn’t really look at the average or median income for an area, compared to the property prices that were being asked. And when young people are borrowing some $292,000 on average here in 2013, to buy a property. Oh my goodness!

The message I was getting to, was look, these guys can afford to borrow more. “We can squeeze out more”. There’s more easy money to be snavelled for you and your kind. When you look at the latest 2011 census, more than 10% of households have to surrender above 30% of their income to their landlord. And roughly the same proportion of homebuyers need that slice of income to pay mortgages. In 2006, the median national weekly rent was $190. That jumped 50% to $285, the 2011 census recorded. What Dymphna would be saying is, look at this one, in 2006, 90.7% of house holds had rent payments less than 30% of their income. That fell slightly to 89.6% in 2011. So, perhaps with this global trend towards what I’m fearing of multi generational mortgages, as per Japan. We’ve seen the economic malice over there.

Apparently mainstream economists know better. Banking economists, or real estate based economists know they can squeeze us more. Why? Because renters aren’t protesting. People believe there is no alternative – this is our lot; this is what we’re stuck with. I’m challenging you, please, come to our event, ‘Problems with Property’, on next Monday night, August the 26th at LoopBar in the middle of the city. Just near Parliament station, up at the parliamentary precinct. We’re hoping we’re going to get the masses there because something has to be said about this overarching property mantra. And much of our focus, in the surrounding story to this event has been about negative gearing. You heard Marcus Westbury (Renew Australia) and Joel Pringle from Australian’s for Affordable Housing on the show last week, we talked a lot quite a bit about negative gearing, and there I am going to this Dymphna Boholt, ‘I love real estate’ event yesterday, which was actually titled, ‘ The Great Real Estate Boom Ahead’, and there she was saying, look negative gearing is an old story. Forget it! It’s a trap! So they’ve already moved ahead and just as the mainstream are getting use to this term of negative gearing. So maybe that’s a good thing, we can bounce off that to cull negative gearing and then onto the big one – reinstating the Federal land tax, using that revenue to cut company tax significantly. Cut income tax significantly. I feel that we’d have to really push those two things strongly to get this up. It’s probably a 7-10 year plan to get it up, but when you see what’s going on around the world, when you see the number of foreign investors coming in. You see that we’ve got 104 skyscrapers planned here for Melbourne. And having a look at the last 5-7 years in the large upward trajectory in the supply of apartments in the city. I think there was 800 apartments in the 1980s, and that jumped up to 8,000. And soon we’re going to be banking on some 80,000 apartments in the city.

But of course, what’s happened to prices? Supply goes up and prices are meant to drop off. With all of these extra incentives for investors, for speculators, to step into the market, we are being played as pawns as prices continue to go up, up, up. It’s doing my head in. So there we go! Problems with Property, Monday August 26 at the Loop Bar. Go to our website: And RSVP, and tell us you’re coming.

And ask yourself, do you believe if we had 10,000 renters, protesting twice a year, in each capital city, that we wouldn’t get negative gearing, and these property lurks such as self managed super, on the agenda? What would it take to have 6 hours of your year spent on the streets, and that would at least help you as you’re in your dark, dingy apartment, wondering whether there is actually a place for you on this earth. That is whats needed. We’re just going to have to do it. We’re going to have to protest out in the streets. They don’t listen to our tax submissions, whilst the politicians behind closed doors say, yes, it’s fantastic, you guys talk about the most efficient stuff, but those 12 real estate think tanks and people like Dymphna Boholt, with their huge following are too powerful. And there we have 1.8 million property investors in Australia (according to the ATO) versus the 6.4 million renters. And unfortunately, the 6.4 are hiding under the table, as if there are 20 million investors. So really, we’ve got to realise that people power counts. And we should be having a stronger word on what’s going on. And one person who is really leading the way to correct these unbelievable incentives for those who already have a place on the planet, to extort the market and earn this easy passive income in their sleep. Linda Evangelista eat your heart out, who famously said “I don’t get out of bed for less than $15,000 a day” – that’s what plenty of property spruikers are on the roads to riches enjoying. Well that man is Saul Eslake, and he’s presenting our 122nd annual dinner. It’s on at the Royal Society of Science. Top of LaTrobe and Exhibition St. Beautiful cream building there. A very historical standing there. And really, everything that underlines what I talk about on the Renegade Economist, here on 3CR, is that the science has been pulled from economics, the big important formula of a nation’s GDP being produced by applied labour onto land to make capital, where all three of those factors produce our GDP.

Well before this neo-classical, neo-liberal economics era, back in the 1880s this happened. This is why we’ve been holding this dinner for so long, is that capital hid the value of the earth (represented by land) as a subset of itself. So now when we look at economic policy it’s just capital plus labour produces GDP. From that, our only policy concerns are focused on unemployment and inflation. They don’t give a jack about the price of land, about the rent of land, and that’s why this is such a big issue, because land not only represents the earth, but all of the natural monopolies that have been privatised.

This week Garry Banks gave a presentation on return of the rent seeking society. Presented by the Economic Society of Australia, Victorian branch. And David Richardson from the Australia Institute wrote a very good letter to the AFR saying:

“Banks does not tell the full story on rents. Former Productivity Commission Chairman, Gary Banks performs a useful service in reminding us about the rent seeking economy, by which he refers to those who seek assistance from the government to retain a privileged position. Clearly, Banks had many examples he could have used to illustrate his point, so it’s not surprising he left out some that would be included in a fuller list. For example, the mining industry fought tooth and nail to protect its access to the rents it collects when prices are high. Then there is the Business Council of Australia, which defends the worst monopolies, duopolies and oligopolies in Australia.”

Richardson goes into more detail. It’s quite a good letter. We need to recognise the role that earth has in economics and that these privatised monopolise have.

My name is Karl Fitzgerald, check out our website, and the soon to be revamped Standby for The Boldness coming on up here on 3CR.

4 Comments on “Passive income the affordability curse”

  1. Just attended a dyhmna Boholt seminar and was interested in our feedback. Thanks . Will continue to follow so I can make wise informed decisions and not get caught up in the hype to be a millionaire. Just seeking good honest advice to buy property without the bs .

  2. I have been to Dymphna’s 1 day event and It seems to me that Dymphna at least has a plan to buy property and not to go into it slapdash,She is not selling you properties. She has a different outlook on it, Negative or Positive geared,Strategies to protect assets,Tax Strategies.Residential, Commercial. Financial Strategies, This lady has educated people in one of the most biggest decisions they will ever do in their lifetime, TO BUY PROPERTY I dont know where you can get all of this information from, My parents never knew it and we dont get taught it in school, Therefore we stumble our way through it and think we are doing ok until someone shows us a better way, I thought all of her information was spot on

  3. I agree with Ian’s comments.
    I attended the one day event, Dymphna came across very knowledgeable and genuine in my opinion, all of her strategies are legal and moral. Dymphna shows how anyone can get into real-estate regardless of there current circumstances, but you have to be willing to put in the work which unfortunately most don’t want to do so rather they just sit back and bitch about others who are achieving what they want.

    P.S And yes you have to pay for her education, just like anywhere else, BOOHOO.

  4. She’s certainly knowledgeable and a great presenter, but moral? People earning millions through little more than buying and holding property ‘in the path of development’ hardly strikes as a productive use of capital for society’s benefit. The point is, if the population of Sydney all suddenly left, the price of land would plummet. If they all came back, land prices would rise again. So who is really creating this value? And who is being taxed to fund government? The everyday person, with more and more now excluded from the ‘land game’ due to practices Dymphna and the various property lobbies snazzily promote. I’d rather pay a Land Tax and enjoy zero income, sales and company taxes. Then we’d see the real entrepreneurs – those who produce things we need.

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