Diversification Of Properties With Pete Wargent

We’re chatting with Pete Wargent – business owner, entrepreneur, financial educator and property analyst. We will find out more about Wargent’s background, what he does in his line of work and how his first property investing experience brought him to Bondi in Sydney.

Tune in to find out more about the projects he’s been working on, such as the Money For Life Seminar coming up, as well as how he grew and diversified his property portfolio to nine properties across London and Sydney.

Over recent years partly through just the growth in Sydney and London markets, we've managed to get our loan-to-value ratio down to below 30%. - Pete Wargent

So what does Wargent do in any given day?

Truthfully, I probably spend half the day at the beach but I do work intensively during the day as well. I have two kids so in fairness, I work quite a bit in the evenings when they are asleep. So I write detailed reports, monthly research reports for hedge funds as market insights and key trade themes. But also there’s property buyer’s agency work, largely for investors and high net worth clients. I also have my own development project that’s about to kick off, which is the biggest I’ve taken on to date. The next big thing I’m doing is a live event that I’m producing in Sydney to teach financial education, that’s called the Money For Life Seminar on October 7, so keep an eye out for that.

He tells us more about the core project that he’s working on in Brisbane.

We’re building a house. It’s an arts and crafts style home, a four and a half acre block. So we’ve just been through the approvals process over the last couple of months, so that’s the next big thing that’s kicking off. I’ve also just picked up a nice little renovator’s project in Brisbane, in New Farm.

With so many roles and responsibilities to consider, Wargent is an investor at heart.

The media often struggles with what to call me, it depends on the project. But I’m an entrepreneur and the owner of several businesses, so I’m a property analyst. I’m also an educator and published author and I also have a buyer’s agency, but I would call myself an investor, first and foremost.

Growing up in the UK, Wargent tells us about his formative years and how his family constantly moved around the country.

I was born, as you can hear, in England in a city called Sheffield. My dad was a social worker. Sheffield is quite well known as a university city today, but back then it was a depressed big city because of the closure of the Sheffield’s steel works. Then there was the famous miner’s strike on South Yorkshire coalfields. My dad ran a hostel, or a halfway house for young offenders, so we lived right there in the inner city neighbourhoods which was a pretty lively sort of a place as you can imagine. Then later, my parents bought a house out in the Sheffield suburbs, that’s where I grew up. They moved around quite a bit after that, which I didn’t really like at the time, but it did give me some useful skills as you learn to be comfortable with all different types of people.

Due to the nature of his father’s work, Wargent moved and changed schools often.

From my dad’s work, they’d call it a probation officer in the UK, you probably call it a social worker or similar in Australia. So to some extent you go where the work is and certainly in the early parts of your career, that tends to be areas where there are social problems so I lived in some interesting places. And as a result of that, I went to a few different schools as well.

I did all of my schooling in the UK. I had a bit of a mixed education – I just went to a general comprehensive high school to start with, but then towards the end of my schooling I ended up going to a grammar school which was a bit of an eye opener because there were some very intelligent people at grammar schools, so I had a bit of catching up to do. I actually went to uni in Sheffield itself – the University of Sheffield is quite well regarded, a big uni, and I learned some useful stuff which I then went on in my professional career to be a chartered accountant.

Beginning his professional career as an accountant in the UK, Wargent then moved to Australia.

In London, it’s a similar dynamic in the UK as there has been in Australia in recent years, in that many of the jobs are centrally located. So even though I would have a preference to actually stay in Sheffield to train as a CA and then go on to work for one of the big four accounting firms, realistically like many graduates I was going to be headed to London. So I did my three years of CA training in the West End of London, which is a great place to work and when I qualified, I subsequently ended up moving to Sydney.

I got around a bit, because I had a year in Australia as a backpacker, but then when I was 27 I became a permanent resident of Australia on the old points test which is less popular today. More people subsequently came in on 457 visas, but there used to be a skill matching test and being a CA was quite high on the occupations in demand back then.

The decision to come to Sydney was based on a sporting passion for him, before he realised it’s potential as a place to live.

It was mainly through cricket originally, I played cricket in the UK. One of my team-mates was actually the current England captain Alastair Cook and we had a lot of overseas players from Waverley in Sydney. So we had a number of overs over the years and they encouraged me to come and give grade cricket a try. So I initially went to Sydney purely for cricket, but then the longer I stayed in Sydney the more I realised how much it had to offer as a city.

Although there was no influence from his parents to invest into property, he did realise the impact of it through his passion in cricket.

So my parents were, and are, socialists. They’re very left wing, public sector type of people – so they would never have invested in property, or shares for that matter and they still vote for the Socialist Party even today in their 70s. So interest in property came from elsewhere for me. That said, I was very interested in numbers and I certainly did notice how Mum and Dad always seemed to pay more every time they moved home which as I mentioned, was very often for us.

Then when I started playing cricket as a youngster in adult cricket teams, a few of the guys I knew made chunks of money in property which was a bit of a lightbulb moment for me. By contrast my wife is from a farming family, so she was always well on board with the idea of land ownership and reinvesting those gains for the future.

Initially more interested in investing in shares, Wargent was swayed to invest in property and set out to purchase his first property in the Eastern suburbs of Sydney.

Pretty much as soon as I came to Sydney, I got straight into investing in the property market there. My wife was already a property investor in the UK. I was initially much more interested in the share market, because of my job as a chartered accountant, as that involved writing annual reports for listed companies so I intuitively felt more inclined towards fundamental analysis listed companies. But I’d seen some of the results that my wife had already achieved from investment property, which comfortably outstripped anything I’d ever done – so that showed me how to get the extra leverage you could use in property to accelerate your results.

So the first property I bought in Sydney was in Bondi, which I still have today, I’ve never sold that property. Obviously a location like that in the eastern suburbs have been strong performers over time.

It was a 100 square metre apartment, quite close to the train station in Bondi Junction. It was something that I learned from London, that as the density of cities increases the demand for properties that are close to train links that can get you straight to the heart of the city, they do become increasingly sought-after over time. That’s something I’ve always tried to stick with when investing in property – transport links particularly to the CBD.

I think the idea was largely for investment, but I think as you may remember back then there were a number of first homeowner incentives around, so I bought that property and lived in it for a year. And in fact that was something that we repeated over and over again. We bought several properties in Sydney, lived in them initially for a year, then rented them out and moved on to the next. Not a conventional way for people to build a portfolio necessarily, but I think that’s something that is becoming more and more common in cities like London and Sydney, where people just can’t afford the property that they want to live in, so they have to find another way.

Being employed at one of the major accounting firms, Wargent and his wife were able to substantially fund the growth of their investment portfolio quite quickly.

I was working, I was actually at Deloitte, which is one of the the big four accounting firms, I ended up as a director at Deloitte. My wife is actually also a director at Deloitte, so you can imagine the funding we had in those careers. But we were, I suppose, relatively fortunate in that we were both higher rate taxpayers at a very young age, around about 26-27, so I guess you could call that good or bad depending on your perspective. But I think particularly in Australia you find that people who pay substantial amounts of tax are drawn towards investment property and I think that was a factor for us, certainly.

After building his equity for some time, he was able to start his own businesses.

I had a couple of years in the industry when I was in my early 30s, so like a lot of Australians ended up working in the mining sector at that time because wages were substantially higher than what you could achieve in other industries. I also did a year and a half at the listed healthcare company that was taken over by one of the big listed. I had a few years there in my early 30s, but I reached a point when I was 33 where with a bit of luck, the London and Sydney markets had been pretty kind to us – the share markets too – and reached a point where I felt as though we’d build enough equity that I should start looking at building my own businesses in areas that interested me more.

Like a lot of people, you tend to start out with what you’re most familiar with and as an investor, I figured that I could share those experiences through buyer’s agency-type work. So that was set in there as an initial revenue stream for me. We had a buyer’s agency set up in London initially as well as in Sydney and those offices are still running, and subsequently I’ve opened a Brisbane office as well.

But since then, I’ve also set up an advisory business, where there’s definitely a different angle that’s writing research reports for the big institutional investors, which is lucrative work but it’s also high pressure. The other business I’ve got that I mentioned is that we have got a financial education company and we’re putting on a seminar in Sydney in the first week of October.

With this in mind, Wargent’s property portfolio has grown substantially in value over time within the London and Sydney markets.

We try to have a diversified portfolio but one of the things with property is you tend to get a bit top-heavy in the property market, because of the leverage you use. We have nine properties in our portfolio, mainly based in Sydney and London and I guess we’re trying to re-balance our portfolio towards shares and business. But the good thing that we have managed to achieve over recent years, partly through just the growth in those Sydney and London markets, is we’ve managed to get our loan-to-value ratio down to below 30% which has been very helpful for us, in terms of serviceability.

For those who may not know, Wargent explains what top-heavy means in relation to investments.

So if you went to a financial planner or financial adviser today, they would generally quite rightly suggest that you would diversify your portfolio. So you would have money in cash, you’d have some money in the share market, potentially by your superannuation and also outside your super, you would also have your home and for some people an investment property and your own business. That would be a diversified portfolio.

The thing with the property is let’s say for example, the first property that I bought on my own without any buying jointly with my wife cost $500 000. Now $500 000 is a lot of money and definitely was more than I had invested in the share market at that time. So therefore, your exposure to the property market tends to be greater because of the money that you borrow. So when I say top-heavy, that really means that the gross value of your assets exposed to the property market can be quite a lot higher than your share market equivalent exposure. So it’s not necessarily what would be recommended by a financial adviser, because the extra leverage that you use in property also comes with high risks in some circumstances.

Having successfully diversified his investments, he points out that not placing all of your eggs in one basket is beneficial in the long term.

I think in an ideal world, you would have a great broadly diversified portfolio to minimise the risks because all asset classes have summer and winter seasons and good and bad times.

One of the ways for people who are purely interested in property – and I do get that some people just have a preference for one asset class or another – one of the things that we tried to do was to have diversification across the portfolio. So not just in Sydney, but we also invest in Victoria and Brisbane, but also in different countries as well and different types of property. But I suppose in an ideal world you wouldn’t have too much exposure to one asset class, you’d be broadly spread.

Through his investment journey, Wargent has both gained and lost money. However, this in turn has taught him to invest only in quality assets.

Like a lot of Australians during the mining boom, made quite a lot of money on some quite speculative mining stocks – probably also like a lot of people felt a bit smarter than I actually was. So yeah, made some good money in mining and gas exploration companies, some of which had never made a profit. And then of course the mining boom peaked and they lost it all again.

Now I suppose Tony Robbins would say there are no mistakes, there are only lessons or successes and I think some good stuff did come out of that, because I came away with a resolution to invest only in assets that I would never have to sell if I didn’t want to, even if I lived to be 110. Certainly at that time when the mining boom was really taking off there was a lot of focus on share prices, not too much focus on the fundamentals. So the lesson that I took away from that – and it was painful seeing profits wiped out – is to invest in quality assets for the long term.

Whilst travelling was what made everything fall into place for him, Wargent says it allowed him to set achievable goals and clarify what he wanted from his life.

When I finished my last full time job, I spent some time traveling and during that period maybe I just needed the space to get away from a busy career to get some clarity on what was it that I wanted to achieve and how I was going to achieve it. And what I really wanted to do with my life. So that gave me the space to set some goals, to then start a business, then build it up and then reinvest the profits in shares and property. So that was the key a-ha moment, when I took the time away from working 50-60 hours a week in a full time job, just to spend some time actually setting some real goals.

Setting goals into motion is not always an easy feat to accomplish – Wargent has learned to inspire himself through reading a book written by Tony Robbins.

There’s a great book by Tony Robbins called Awaken the Giant Within. I’d read that book a couple of dozen times probably and it’s a great book that I go back to regularly, in terms of just assessing where you are in various stages of your life – looking back five years and seeing what you have and haven’t achieved, then looking forward five years and setting some goals that you can reach. It’s such a good book. Robbins assimilates a lot of ideas, but it really just helps you to set some goals and be relentlessly positive in your quest to achieve them and also in how to deal with the disappointments, because there will be some.

Buying in the Australian Property Market With Pete Wargent

When he first started his property investing journey, a lack of self belief initially held Wargent back from becoming successful.

I’ve never been fearful of investing, that’s always something that’s come relatively easily. And the same for my wife, I think because of a farming family background and the understanding of compounding growth. But obviously I did have limitations on success, as everyone does, I think more related to personal beliefs, probably listening too much to advice from people who haven’t really achieved what I wanted to and certainly worrying too much about what other people think.

As anyone who knows me, they will testify that I have plenty of limitations. I think for me it was it was largely this self belief thing and a lack of self belief can also become self-fulfilling. If you don’t believe that you’re worth the charging people for your services and your time and if you don’t believe that you are going to build a big investment portfolio, to some extent that can just become a self-fulfilling prophecy. And also I think if you spend too much time worrying about what other people are perceiving of you and about what you’re doing, you’re not focusing enough on achieving the goals you should be setting for yourself.

.So how did he overcome this obstacle to success?

You really try to build on your successes and learn from the mistakes and like everyone, I made plenty of mistakes. But I think the real key to success is to see mistakes or disappointments as learning opportunities rather than as a reason to give up, because the fact is that everyone will have good and bad results. So the real key to success is how you respond to those disappointments.

Attributing Michael Yardney as a leader in the Australian property market as a significant inspiration for him, Wargent believes emulating successful people has helped him achieve success himself.

The old quote that ‘leaders are readers’ – I’ve read stacks and stacks of books over the years quite obsessively in the early years. If you’re looking specifically at Australian property, Michael Yardney has always been a tremendous influence on me. I think that success leaves clues, so if you can find somebody who has achieved what you want to achieve then modelling and following their journey and even ways you can improve upon their journey, is such a powerful technique. So if you can find successful people, observe their demeanour and their habits and just learn and learn and learn, that is really the path to success.

In learning from Yardney there have been many wonderful things he has helped him with, such as how to deal with negative responses from others.

There are so many things I could talk about, wonderful things that Michael has really helped me with. As I have been more exposed to media, negative responses from not just the random public but also friends, family and how people just deal with the negative side of public exposure. Michael has been so good in explaining how initially that can feel hurtful. But the second and third time it happens is slightly less hurtful, then over time you become more comfortable with your own public persona. But also just not to waste as much time worrying about what other people think. More specifically in terms of the property market, well I learnt a lot in London about the dynamics of a more mature city but obviously Australia has different nuances, different tax rules, different strategies that do and don’t work – that kind of advice is priceless. And that’s why people starting out would be well advised to seek some help from industry experts, because there’s so much to learn and inevitably if you try and do everything yourself you’ll make a lot of mistakes.

For those just starting out in the property market, Wargent gives some valuable advice on where to begin.

I think common sense really should dictate. If you’re going to invest in property, don’t look at new fads or new ideas, try and stick to the tried and tested and look at locations that have got a long track record of delivering results over several cycles not just as a one-off. A more speculative approach can be fraught with risk and obviously beginners find it more difficult to deal with the difficult outcomes.

In addition, the best advice he has ever received is to focus on yourself and your own goals.

The best advice I’ve ever received – and probably from more than one source – is not to waste too much time worrying about what other people think, because it’s beyond your control. You’ll never get everybody to like you or what you’re doing. So instead, turn it back to yourself and set some goals, set some fulfilling and exciting goals and concentrate on working towards them and just really concentrate on your own gain.

A firm believer in the tried and tested buy and hold strategy, Wargent shares the foundations of what he has done to achieve success from using this method of investing.

I would call myself a macro investor, certainly an accumulator – I’ve never sold a property. So everything I’ve ever bought I’ve still got. I’m a long term, capital city investor. I do do some renovations and projects, but the main game is just that I buy and never sell, which means that the market does a lot of heavy lifting for you.

So to pick the right cities to invest in in the first place, that’s the macro stuff and as I mentioned, the London and Sydney markets have been very kind to me over the years. But other than that, I also do try to look for opportunities in some markets that are close to the capital cities when sentiment is low. I can give you some examples: The London commuter belt in some areas, property prices after the financial crisis crashed by a third. So I bought there even though people were still arguing that it’s unaffordable to some people and there was some serious opportunities there around 2009. A more Australian-based example, I bought a place in Geelong West in 2014 when everyone was saying, ‘The last one to leave Geelong should turn out the lights and Geelong’s going to be the new Detroit,’ and so on. And I think Geelong will now have a good run on the back of Melbourne’s surging market.

You often find that once everyone has become convinced that something is a bad investment, then that is either at the bottom of the market or somewhere close to it. And a good example might be Brisbane apartments – the looming oversupply became really obvious a few years ago. Now everyone’s on board with that. Because of that, some bargains are now starting to appear, certainly in some markets. So I recently bought a place just up the road from where I live in New Farm, we have cracking views in two directions. And the bottom isn’t yet in the Brisbane apartment market, but in places like New Farm where there is no new supply it’s getting pretty close to the bottom for the right properties, like townhouses. So there’ll be some more opportunities there in 2018, I’m sure.

In terms of renovations, property with the potential to add value is preferred – such as the most recent purchase in New Farm.

I try to buy stuff that I can add value to. I think to some extent if you’re buying an apartment, there’s a bit of a limit there on what you can do. But the projects I’m currently undertaking is a new build from scratch so there’s obviously more value to be added there.

But even if you’re buying an apartment, if you can buy something that’s a little bit dated, a little bit out of favour. The one I’ve recently picked up in New Farm probably needs $35,000 spending on it, but hopefully you would add more value over time through those renovations and also get the rental price up over time.

It’s a 1970s block which I quite like is that solidly built, unlike some of the older ones. But I also like the size – 100 square metre apartments are good because a lot of the new stock being built in places like Newstead and Port Stu Valley are often 80 square metres or often much less. So something with a decent amount of size, but value add type of stuff is new kitchen, new bathroom, air conditioning in particular in Queensland, new carpets and a repaint. Those are the type of cosmetic renovations that you can do. The old rule of thumb used to be that you spend a dollar and you try to add $1.50 or $2 of value. Might be difficult to do in the current market, but certainly at over time there’s some upside there I think.

When physically undertaking these renovations, Wargent prefers to hire tradespeople to add value to his properties for him.

I think I’m a firm believer in stick to your knitting and do what you’re good at. My talent, if I have a talent, is market research, disseminating information and diving into the data. I don’t think I’ve got much talent for painting.

On this note, when analysing the market and determining which properties to buy for clients there are many different types of things he needs to consider.

I do different types of research. Research for buyer’s agency clients is much more based around trying to find suburbs and property types that have got a long and proven track record of delivering capital growth.

Brisbane’s a great example: a lot of people have said that the Brisbane market has underperformed, disappointing results, but take a look at what’s happened to house prices in places like New Farm and Teneriffe. Been really racing along in many cases and that’s where as a buyer’s agent and a property analyst, you can hopefully add some value because what gets quoted in the media is necessarily a general average or a median price. In Brisbane, obviously those results have been dragged down by the oversupply of inner city apartments.

So certainly looking at data, you’re looking at trying to find areas where there is a scarcity of land and a high demand for it. Some of that is just real common sense but joining into the data can certainly help to some extent. But I also do research for hedge funds internationally, which is a different type of approach because most foreign investors of that nature in Australia are more interested in trends, in construction, lending standards, the banks and looking at the market more for opportunities on the short side. So that’s more in depth and you’re looking at a different set of data for that.

So why the interest in numbers and research?

People often ask me and wonder, ‘Where do I find the time to write a blog everyday?’ And I suppose having been asked that question a lot, it caused me to think about it. The answer I came up with is that I think if you didn’t enjoy analysing information, trying to find the story in the numbers, you just literally would not do it. It would so quickly become a chore and you would stop after one or two blog posts. So I’ve been writing a daily log for years now and the answer I came up with is that I simply must enjoy that process.

So today for example, the ABS replaced the wage prices figures and I can’t wait to get my teeth into those and just find out what is the story, where a wage is growing, is the Sydney market picking up, is Perth still struggling? I think if you didn’t enjoy the process, you just wouldn’t do it.

In his line of work, Wargent has spoken briefly about encountering negative reviews from others. So how does he cut through all of this and get on with it?

It is actually very difficult when you stop and think about it to write a blog, because if you write about very simplistic stuff then your more advanced readers might see no value in it. But then conversely, if you get really bogged down in the highly technical information then you’re going to alienate readers too. I don’t think there’s an easy answer to that. So what I’ve tried to do is mainly to focus on what I’m interested in and hopefully some readers find it interesting too. I think you can see in my blog analytics that if I write a post that interests a lot of people it might have maybe 4,000-5.000 readers, but some of the other stuff doesn’t get any traction at all. So what you write can’t appeal to everyone, that’s the nature of it.

Wargent began his daily blog in 2011-12 and has remained consistent with it ever since.

I think 2011-12, I wouldn’t have posted much in the early days. But I wrote my first book in 2011 and I posted a bit about it back then. I think in the early days it was just me and the dog that was reading it. Over time I’ve got a nice little database of followers built up and it’s been a great process.

His first book was called Get A Financial Grip, detailing a comprehensive plan for financial freedom.

The idea of that book was partly to talk about the journey that we discussed in our podcast, to explain where I started out and how I felt people could follow a similar path if that’s what they wanted to achieve.

It was well received, at the time it was rated in the Top 10 of finance books in 2012 by Dymocks and Money Magazine. It talked about all the different ways in which you might build a portfolio. But it wasn’t just a property book – it was personal finance, it was out to be a valued investor in the share market and how to be a medium-term trader in the share market, how to invest in index funds and also how you might build a blue chip property portfolio. So there is a number of different angles to it. That came out in June 2012 and at the time, I made some predictions that the Sydney market would be a strong outperformer which got some interesting feedback at the time a number of high profile commentators, shall we say. But look, it’s been a good five years for Sydney property and hopefully the analysis in that book has stood the test of time.

Like anything, you can’t be right about about everything I think certainly the UK stock market has done amazingly well, so I was very happy with that. I think the one thing with the power of hindsight that I would probably just tweak is that the Australian share market index, the healthcare sector has done brilliantly as I expected and the banks have done really well. Resources sector has really struggled since 2012 and that really just reflects when I wrote the book, I think that in 2011 there was a general feeling that the mining boom would just keep on ticking on. In fact what happened is that around about 2012, commodity prices finally started to fall, construction started to fall and a lot of share price valuations really came back after that point in time. I think rereading the book, you look back at BHP with the share price of near $50, it’s nowhere near that today despite being in a slightly different structure.

Many of the principles of his first book still apply in the current market.

Definitely talked about the need for a portfolio approach to investing. One thing is that everybody is an expert in hindsight. But at that time in Australia, interest rates were a lot higher than they are today and that everybody has a seamless analysis that goes back to 2008-9, when it’s being written today and reading the charts from right to left. But the one thing I can say is certainly at the time – around 2008-9 and again in 2011-12, an awful lot of people were predicting the end of the world for Australia’s economy, Australia’s property markets and it still continues today, even a decade on.

Being consistent is a personal habit that Wargent believes has contributed to his ongoing success.

One of the things I started doing years ago now is to just get up at 5:00 in the morning. These days I don’t drink, I exercise daily. I think those little things have become cornerstones for me. I think success in life comes from consistency, results come from consistent habits. Like everyone, I have bad habits too – I drink far too much coffee! But I think if you find out what you love in life and excel at it consistently then the results will come.

As human beings, sometimes we wish that we could turn back time and do things differently. So if Wargent was to meet his past self from 10 years ago, what would he say?

Well firstly, don’t waste time worrying about what other people think. You’ve got no control over it. But secondly, don’t limit yourself because you can achieve anything. Your results are limited only by your own imagination and your own beliefs.

So what is he most excited about today?

I’ve got two kids, as you can probably hear in the background at various points in the podcast. Obviously with my kids, It’s a hugely exciting time. I’ve got a boy and girl which are certainly keeping me busy. I’ve got a building project coming up that I mentioned. It’s going to be a big project, we’ve got 4.5 acres of land to work out what to do with, in terms of garden.

If you wish to connect directly with Wargent, here’s how you can do so.

The best starting place is just go to my blog page, so that’s just my name, petewargent@blogspot.com.

Come to my blog page, you’ve got my email address on there so you can get in contact directly. I’m always interested to hear how people are getting on in their investment

journey, particularly in property and I’m always happy to chat, of course.

This episode was produced by Alex Cooper with narrations and interviews conducted by Tyrone Shum.

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