Ep1: My Personal Journey to Financial Freedom

Victor Lagos: 0:03

Welcome to the Debt to Financial Freedom podcast. I’m your host, Victor Lagos, and the founder of Lagos Financial. I’ve been in the finance and lending industry for 16 years, and I’ve personally made financial mistakes and learn from them. I started this podcast to share stories and lessons on my own journey, and to share insights that may help others on their journey. And I interviewed people that I’ve connected with that share the same values and mission to help others create financial freedom. My goal this podcast is to share raw, honest, transparent and helpful stories that you can relate to, and inspires you to take control of your finances, and only have debt that brings you closer to financial freedom. Everything on this podcast is general in nature. And for education purposes only. None of your personal objectives, financial situation or needs has been taken into consideration, I highly recommend you seek personal financial, legal taxation and credit advice before you take any action on what has been heard on this podcast. Welcome to Episode One of the debt to financial freedom podcast. I’m your host, Victor loggers. In today’s episode, I really just want to share my story, why I started this podcast, what brought me to where I am now in my own financial journey, and how I can really help people to learn more about managing their money. So that can create financial freedom, coming from debt and using debt to really help them financially and not so they don’t get stuck, basically, my story. So look, this is this is an interesting one, because my story is a long one. But I want to try to make sense of it for you guys. So that way you get where I’m coming from. And you can see that if there’s something that you relate to, it might help you on your journey. So some of this I haven’t shared publicly. So it’s it’s a little bit a little bit difficult. But I think it’s important that people who hear the truth and transparencies, I’m going to share that. So first and foremost, we’re not taught taught at school, how to manage money. Financial literacy is not a part of our curriculum. And there’s many reasons why that is. For me, personally, I wasn’t good with money. And my mom wasn’t good with money, she was into debt, my dad was probably pretty good. He was a business owner, and he was able to save money. So he was a saver, and my mom was a spender. And she would spend on credit cuts. And to give you a bit of cultural context, I’m half Filipina, and I’m half Chilean or Chilean, South American. So my mom’s side, the Filipina side, a lot of them, you know, God bless them. They care about the family, they want to help. But what happens is they end up using credit to help their family with the intent to pay back later. Same as my mom. But the problem is with credit card debt is that it can quickly spiral out of control. And that happened in credit habits over the years. At one point that I’m aware of, she was in about $120,000 worth of credit card debt. And that’s that’s a hard thing for for anyone to get into that position. And along the way, she made some other financial mistakes along with my my dad, which then meant that long story short, they’re now in their 70s. They’re renting, and they’re on the pension and they have no money to their name. Another key reason for that is I didn’t have good help. So they didn’t have actual advice from people that genuinely cared about helping them create that financial freedom. And people that I guess follow through and what they said, and I really want to help you guys out there that want to create that freedom. You want it to buy property potentially. And you just want to know real advice and you want real stories, things that are actually going to help you to get there. So I can share what I’ve learned, because as I mentioned when I was 18 So when I was younger, I got into debt when I was 18. I took out a personal loan straightaway, the bank gave me a $12,000 loan to buy a car and to take a holiday. Within a few months they refinance that it got up to 18 It was very easy to get personal debt and too easy. And many people are in that same position. I took control of that when I as I started to work in finance when I was 19. And I started to pay that debt back. But I Old habits die hard. The debt didn’t get paid back that quickly, sorry, got paid back. And then I accumulated it again. So I was 18. And I had all this debt. And as I progressed through the financial career, took out more money, took out more debt, had a car loan, I eventually bought property. But that property I bought it was my parents helped me buy that. And they had to sell their home to help me buy that. And the reason they they had to sell the home is because they ended up investing in a property that they were sold. The dream of financial freedom. And that dream was, you know, retiring early. It was, you know, looking after your family. It was, you know, passive income, but it was an off the plan property. And when you buy off the plan, there’s a lot of risks involved. And they didn’t know what those risks were. I didn’t either I was still younger, I was working at the bank at the time. But in hindsight, I know what happened. Because the loan wasn’t structured correctly, it was a property that was overinflated. So there was, the person that they were sold the property by actually took advantage of them, told them that it was the right investment, but it was actually overpriced. So that meant that firstly, it wasn’t going up in value, it was actually overpriced. And over time, it actually went backwards. And because it went backwards, they ended up having to sell the house less than what they bought it for, and less than what was going on the mortgage. So they still owed $20,000 After they sell the property. And they were both defaulted. So they weren’t able to ever borrow again. And to add to that they contributed $100,000 deposit from their home to buy it in the first place. So as I said to you before, the now retired, they’ve got no money to their name. I’m on a mission now. I’m on a mission to teach this what what to do and what not to do. So people don’t end up in that position. It’s it’s a hard thing to say that, I’m very fortunate because I’ve been able to learn and get out of that structure. In the last 12 months, my wife and I, we we’ve bought two investment properties, both of them have done really well. And they’re doing very well. Before that, I was able to save money, and pay back that pay for our wedding pay for our honeymoon. And it’s led us to where we are right now I’ve got my business and that’s growing. So there’s a few fundamental pieces to that, that I want to share. And I’ll go into detail in future episodes. But it really just starts with, you know, clarity, looking at how do you spend your money? How do you manage that money. And there’s a really, really cool cool saying I like and that is, there’s two ways to create a small fortune, one of them is to spend less than you earn and invest the difference. And the second one is to provide something of value that other people are willing to pay for. So if you can do a bit of both, that’s when you can create a greater fortune. And then if you just break that down a little bit further and say, spend less than you earn and invest the difference. So many people spend more than what they earn, because they’ve got access to credit cards, they’ve got access to overdrafts, they’ve got Buy now pay later options. So you really just have to get to the point where you know exactly what you spend, so that you can invest the difference. And then you use the power of leverage. And leverage is something that you can use to buy property. And if you’re buying property well, and you’re looking in, you’re researching, you’re knowing the location that where it’s gonna grow, you’re looking at the numbers, you remove all emotions. That’s when there’s so much potential to create that financial freedom, you’re able to then create recurring income. So if any of you guys have ever read the book, Rich Dad, Poor Dad, that book was an inspiration to me, because it really talks about building your assets and reducing your liabilities. And it’s about understanding what is an asset. So many people think that your house, your home is an asset, to an extent it is. But it’s also a liability because it’s costing you money, you’re having to put money aside every single month to pay down that debt to live. It’s not tax deductible, and it’s not income generating. Whereas when you invest into income generating assets, like businesses or property, you’re getting the tax deductions and you’re and you’re getting the capital growth and you’re getting the recurring income or passive income streams. So that’s what I like about that book really talks about increasing your assets and reducing your liabilities. So liabilities is debt. This podcast is called debt to financial freedom for a reason. It’s about understanding debt and how to use that debt to create financial freedom and get rid of the bad debts and stuff that pulling you away from financial freedom. So when we talk about property, some of you might think, I want to I want to make money on property. I know someone that invested in Sydney, and the prices have gone berserk in the last few years. And it’s true, but many of them have just flicked it, they were just in the market. And it just, it went up, because that was a time of the current cycle. But if you deal with strategy work with the right people, and you look at other markets, you can get into a more affordable position. And you could do potentially something what’s called rent vesting, that’s what I do, my wife and I rent festers. What that means is we rent where we can afford, sorry, we rent where we want to live, and we buy where we can afford based on strategy. And something that’s more realistic. So we get to live in the eastern suburbs of Sydney, while we invest in other markets into state, we own two properties, one in Tasmania, the other one in Adelaide, and both of them are positive cash flow. And I’ll explain a little bit more in detail of what that actually means. So let’s consider for a moment, if you’re an investor, and you invest in you want to buy a business, but let’s say you want to buy a business, and you raise capital to buy that business and investor comes down, let’s just say hypothetically, they they pay 80%, and you put 20% down, that investor will most likely want to get 80% back on their investment, right? Oh, they want to own 80% of that business, because they put down 80%. Right makes sense. And you get 20%? Well, you got to look at property in a similar manner. Because property is like a business. It has income, it has expenses, it has assets, and liabilities. So the asset being the value of the property, the liability being the loan, the mortgage, and the income being the rent, every expense related to that property is tax deductible. The tax office actually says that you can claim everything on an investment property, like it’s a business, and you don’t even need an ABN. So I know people that have got 15 properties, and they don’t have an ABN. It’s all under the name, you know. But the point is, if you treat it like a business, you can grow it substantially. And more importantly, you use the power of leverage, and you use other people’s money, the saying OPM stands for other people’s money. So I’ll break that down for you. So for example, you buy that you buy a property, you’ve got $100,000, if you didn’t use leverage, and you put that in the bank, you might get say, three and a half percent a year at the moment. So at the end of 12 months, you will make three and a half $1,000. If you don’t take that money out, then you can compound that over time. So the power of compounding comes in. So at the end of year one, you’ve got 103,500. And then you start to get a return on that the year after, right. But your return will only ever be on 100,000. So what you do is you actually go to the bank and say, look, here’s 100,000, I want to buy a property for 500,000. So then the bank will then give you 400,000 to buy the property. The bank doesn’t say I want to take you know, profit of that when you sell that property, or I want to take some of the income you generate. All they care about is interest in fees. And the interest is tax deductible. So the face, right, and the other thing is, the tax office says that you can claim all the expenses on this property. So now you’re getting tax deductions, you’re getting money from the bank to help you buy the property. And then you get tenants to live in the property that they’re actually paying for the interest on the loan and the fees. And if you buy well, they’ll also cover all the costs as well, like your maintenance, like council rates, all the running costs, earning insurances, property management fees, you know, water rates. So if you just consider for a moment you ended up getting, you put 100,000 in but now you’re getting a return on investment on 500,000. And you’ve used the bank’s money, the tax office and the tenants to help you buy that. So you know, instead of getting three and a half percent per year and 100,000 Imagine you get three and a half percent on on 500,000. So that’s the main reason that I want to help. That’s the main reason that I’ve started this podcast is to teach people the fundamentals and to interview people that can actually share their insight. Alright, so in this section, I’m going to answer some frequently asked questions or FAQs. As I’m a mortgage broker Finance broker I get asked a lot of questions in this current market, so I’m just going to answer that. Answer some of them. So the first one, should I refinance my home loan? It depends. Is your current loan fixed or is currently variable. A lot of people are currently in a fixed rate, because they were able to get a couple of years ago, sometimes below 2%. If you’re going to expire in the coming months, and there’s a lot of loans that are, then it’s worth understanding, what will that rate be when it changes over but still holding on to it for as long as you can, because, at the moment, variable rates for owner occupiers, 4% and above and for investors, the 5% and above, so you need to be pretty conscious of what you’re going to revert to, what I would recommend is to calculate what your future repayments will be based on today’s rates, and start putting money aside to match that, so that you’re prepared for when the when the loan rolls over. Because fixed rates are even higher. They’re like 6%, potentially, depending on if it’s investor interest only. So if you’re already on variable, definitely time to time to review, just be aware that your borrowing capacity could be affected. So speak to your mortgage broker, get them to run the numbers and see what your borrowing capacity is, and just see what interest rates are on offer. There’s also some Cashback Offers. So at the moment, a few banks are trying to win business. And they’re giving back in two grand three grand four gram has a cash rebate, and said that’s to incentivize you to refinance. So it could be worthwhile to do it. Now. The other thing you can do is potentially stay with the bank that you’re with, if they’re aware that you’re considering leaving, they might offer you something more competitive nine times out of 10, they’re probably not going to match what a new bank will. Because many of you may not know this, but banks have a back book and a front book when it comes to the pricing. So some people call it a loyalty tax. And that means the longer that you’re with the bank, the higher interest rate, even if you’ve made all your payments on time, and then a new customer will get actually a better interest rate a more competitive one. And you think why would they do that? I’ve been loyal to them. It’s they repriced their back book, and then they try to, you know, get better rates or new customers on their front book, because they are aware that people are going to live and then they just bring on new customers. So it’s a structure that exists in Australia, it’s a rare thing. But keep that in mind that you probably are gonna get something better if you did refinance. Next question. What’s my view on increasing interest rates? So at the moment, we’re in, obviously, a strange time we’ve we’ve come out of, you know, we’ve come out of COVID, we’ve come out of a lot of stimulus, there’s a lot of inflation that’s happening in the market. You know, realistically, it’s probably is going to increase in the next few months and into next year. But I don’t believe it’s going to continue. Because the way the economy runs is people spending money, right? They, you know, one man’s expenses, another man’s income, if the, if the interest rates rise so much that people have to for sell everything, because their income isn’t increasing, to be able to afford the loans, then they’re going to stop spending everything. So it’s going to actually impact the economy worse. So I do believe that we will get to a point where they will, they will slow it down and potentially even reduce rates. Of course, I can’t predict that I can’t see into a crystal ball. But you know, if you just go off, you know, if you think about cycles, and if you look at the past and the way, rates have gone up and down, you know, rates aren’t as high as they’ve been in the past right now. And when they were at record lows two or three years ago, that was a very, you know, not, it wasn’t a sustainable amount to stay at sort of 2% interest rate. So right now, I think, you know, five 6% is probably a decent amount to kind of accept as a reality. But we’ll see how things go in the next year. Now, the question I get is, How can I get my home loan approved faster? So that’s, that’s an interesting question, because it all depends on your circumstances, and the paperwork. So if you’re self employed, you’re going to need at least two years of tax returns and financial statements, right. If your ABN has only been registered for a year, it’s going to be a little bit difficult to get a loan, especially from a big bank. So it’s important to get all your ducks in order, get all your paperwork, upfront. banks and lenders will approve your loans. If you provide everything upfront, if you miss things, it’s gonna delay things. So that’s what I would recommend. First and foremost, have all your paperwork, line it all up, send it to your broker and let your broker run the numbers and find the best solution for you. There also are banks that are much faster, that will approve your loan in a day. And there are some that might take a few more days. So you got to weigh up like, you know, what is the reason you want the loan approved faster? Yeah, if it’s to buy a property, then you need to exchange quickly on a contract, it would make sense go to a bank that’s going to prove it faster just to refinance. Realistically, you can’t refinance, unless it’s like two weeks, or three weeks, sometimes before the current bank will actually discharge or actually let you live. So that gives you time anyway, so I do recommend to not just consider the time it’s going to take, but also what, what cost, like how much is it going to save you in terms of the interest rate and the cashback? Now the question is variable versus fixed. So that’s, that question comes down to flexibility and cost. So at the moment, variable rates are cheaper than then fixed rates. So it’s going to be, but they are increasing. So it might, what might happen is that the variable rate will overtake the fixed, but that’s today’s fixed. So if you fix the loan, today, you’re going to be paying higher than variable. But maybe in 234 months, that variable weight will overtake the fixed. And if it does, that’s when you’re going to be in a better position. So you’re taking a bit of a risk upfront to say I want to pay more, and betting that the variable rate will overtake it. So it is, it is something that, you know, if you’re going to do that, I would say maybe have a bit of bit of both, some people will fix some of the loan, and then have another portion variable. The other part I mentioned, which is flexibility. Well, flexibility means that, you know, if you’ve got a variable loan, you can make extra payments, as much as you want, you can put in, you know, $10,000, a lump sum if you sold a car, or if you had a bonus, and there’s no limitation of how much you can pay back. A fixed loan has a limit of about 10,000 per year. So if you pay more than that the bank can charge you break cost, and they can also you lose your fixed rate. So that’s why I mentioned earlier, it’s probably good to have a combination of both some fixed some variable, so you can get some flexibility. And you also can give yourself that certainty for that for that fixed rate. Couple more go through, is now a good time to buy. I think it’s always a good time to buy personally, it’s just about understanding the different markets whereby where you can get an affordable price, I use the buyer’s agent for my last property, I really recommend using a buyer’s agent, because not all buyer’s agents are the same, you need to work with ones that that are genuine that care that are good at what they do that deliver that you can get testimonials from. Because they will then look for property that’s in a market that you can afford based on your borrowing capacity, and where it’s going to get you that rental return. And the capital growth in the short term as well as the long term. Because property is typically a long play. Unless you’re a bit more sophisticated, you got access to more capital, that’s when you do more say developments or renovations and flip property, etc. But usually you’d want to buy and hold. So yes, rates are expensive at the moment, and borrowing capacity is being squeezed. But there are markets where you can buy positive cash flow property. And many of you might be aware that there is a rental shortage. So rental returns are much higher right now. So that means that even with the high rates, the high rental return means that you can afford to cover the mortgage payment with that rent. So definitely good time to buy just, it’s about knowing where to buy. Should I use my equity to buy another property? That’s an that’s a good question. Because that’s exactly what I did. My wife and I, we bought a property in Tasmania, and it went up close to 100,000 in a year. And we extracted the equity and we use that equity as a deposit to buy another property. So what I like about property is that if you buy Well, you don’t have to keep saving up a deposit, you can just get the equity out and then buy another property. So there’s there’s only two ways of getting equity out of your property. One of them is to borrow it, which I just mentioned. And the other one is to sell. The problem with selling is you’ve got costs that you have to cover. So there’s obviously selling agent fees, and there’s capital gains tax, if it’s an investment. And most importantly, once you sell you’re out of the market. So you know if you if you sell to tap in that cash, it’s likely you get out. It’s likely once you’re out you’re you can you can get back into that market. So I think it’s important to think about that if it’s a strong area that’s going to have good long term growth. It would probably make more sense to extract the equity by borrowing it rather than selling. The other thing to consider it is how much equity Do you have? Right? If you’re with one bank, they will order they’ll provide a valuation. And that will tell you what the property is worth and what you can borrow in terms of equity. But another bank may have another valuation, that’s even higher. So it’s always good to talk to your broker to order a few, I usually order about three, sometimes four, and try to get the most possible because it’s subjective, the value of May one value a minor area better than another and think the property is worth more, and that can give you access to more equity. But you do have to think that if you, if you did borrow the equity, it’s going to increase your loan. Because you’re essentially you can potentially borrow 100%, right? So say you bought the property for 500,000, you borrow 80% of that, you know, which is 400,000. And then you had equity of 100 Another property, and you borrow that so now you borrow the full 500,000. So no money down, but your debt is 500,000. So you need to consider like is the rent actually going to be able to cover that? And will it cover it as the rates go up. So it’s always important to have buffers in place. So cash put aside to cover off any of those shortfalls that you have. So talk to your mortgage broker, and they can run the numbers for you and talk to a good buyer’s agent that can help you buy a will. So you don’t end up you know, like my parents. Thanks for listening to today’s episode. If you want to learn more insights about property investing, and using that to help you create financial freedom, subscribe to this channel and follow us on our socials. Tune into our next episode. Season.