James Dawson Transcript

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PART 1

James Dawson:
I can remember someone saying to me once you know a 20 dollar can of paint can make you thousands of dollars and that stuck in my head, it’s still in my head actually. But it’s true you know.

Tyrone Shum:
This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

I’m Tyrone Shum and in this episode we’re speaking with long time commercial property investor James Dawson. Going into details about his investing journey we’ll discover how he built a portfolio in a time where owning more than one property was almost unheard of, how he became a millionaire at such a young age, and much much more!

Dealing with property for more than half of his life, Dawson is no stranger to the investing world…

James Dawson:
My name is James Dawson and I am 61 years old. Live in Byron Bay and I’ve been a property investor now actually for about 42 years I guess it was about 18.

So a long time in the market.

Tyrone Shum:
Dawson shares that despite still being active in the property world,  his daily life is quite laid back…

James Dawson:
Most days actually now is I start my day with the surf and usually I’m in the water by about seven thirty in the morning and have the surf then water goes Byron here for an hour or so and then have a coffee or smoothie and I come back and I are still very active in business I’ve just bought a shopping center. So I’m rebranding now at the moment and also I have my commercial property course so I generally spend maybe two or three hours in the office every day and go to farm properties here side by side just at the back of Byron. So do a lot of fiddling around on the farm and designing things and planting trees and doing all that sort of really good stuff.

Tyrone Shum:
Having been in the game for so long, Dawson also delves a little into what area of the market he works in and how exactly he got started in it…

James Dawson:
I guess like most people or unless I started in residential I was a real estate agent. When I was very young I had some property that I was buying selling renovating and also was a partner in a real estate firm when I was about 24 years old in Newcastle and I actually got the idea that negative gearing wasn’t for me because at the time the interest rates when I bought my first group properties were over 17 percent believe it or not now and yeah. But I was still actually making the deals work surprisingly by you know by selling or renting and and I had quite a neat portfolio even by the time I was 23 years old and I was working for a firm in Newcastle very old real estate company and one of my old bosses there was actually made a partner of that firm when I was 24 and I was the youngest partner in the history of the firm so that was there was an nice I guess thing although it was extremely hard work and I must admit I was working six days a week it felt like.

Tyrone Shum:
And the conversation that led him to realise that buying negatively geared properties wasn’t the right strategy for him…

James Dawson:
One of my older partners in the firm who was about to retire, I was chatting to him one day used to be looking at his huge book of properties that he had and we’re talking about negative gearing and he decided to put it into my head. He said you just should never buy a property unless it’s positive cash flow based on 100 percent of the cost. Now that was sort of unheard of thing. He was including legal fees and stamp duty the whole bit. And I said Well where do you find them. And he said well you know I’ve got a combination of commercial and residential and I just continue to look until I find one that’s going to do that and I won’t buy and this that happened so it sort of switched a light on for me that was completely counter to what everyone else was doing and pretty much the last 40 years I’ve done exactly what he said.

Tyrone Shum:
Thinking back to his childhood, Dawson talks about where he grew up…

James Dawson:
Grew up in Newcastle and actually got into property.

I actually when I went to high school in Sydney I went to Knox private school in Sydney and back. So you know my high school years and then actually went back to Newcastle after that but actually Newcastle, Sydney always switched the light on for me cause I thought I’m gonna own some property in Sydney you know I just felt that sort of slightly different big city vibe I guess that Newcastle didn’t have and it took me a little while but then I started buying properties in Kings Cross, Potts Point, Bondi,

Those sort of areas.

Tyrone Shum:
Prior to buying properties, Dawson explains that he did work in another field…

James Dawson:
I had a job actually I did like an engineering apprenticeship because I actually didn’t quite know what I was going to do and always been pretty good with my hands and you know building things and stuff. So I did an engineering apprenticeship which really didn’t suit me so that only lasted a few years after school felt like a lifetime as these things do you know when you leave school and then and then got straight into real estate and I mean I remember actually it was a very difficult market it was probably one of those first sort of downturn markets, you know the late was probably 1980s or something like that. Interest rates are very high and I walked into a couple of real estate agents to get a job. Two of them said no and the third one said yes. So that’s how that’s how that happened and yeah that started to give me the background and I’ve just never looked back from property since then.

Tyrone Shum:
And how long he eventually ended up being in the real estate property career for..

James Dawson:
I’ve been in real estate essentially since- I actually worked in real estate save for about 21 years old my first investment property I bought when I was about 19 just just turned 19. My first commercial property I bought at 24 so 61 now do the maths a lot.

So it’s been about 40, 40 odd years now.

Tyrone Shum:
Having gotten started at property at such a young age, Dawson tells us whether or not he had any family who influenced him to go into property…

James Dawson:
My grandfather was a stock and station agent in Hardan and Young in the NSW country area and you know he was a estate agent stock and station agent as well you sold stock, so sold land. And he unfortunately passed away before I was born. But my mother had a really keen interest in property and and she did have few properties. And certainly that was always an influence because even when I was young we’d be going around checking out houses and I always remember one of my friends saying you know is it against the law to own more than one house?

People used to say [that] but I can remember my mum having several properties and some apartments and things and and that certainly gave me that bargain I can remember as you know started do some renovations on some and then I actually became very keen on on that idea of improving property and I saw how easy it was to increase the value of properties as well before it was you know anything was on television of course and all that. So that to me or I can remember someone saying to me once you know a 20 dollar can of paint can make you thousands of dollars and that stuck in my head, it’s still in my head actually. But it’s true you know.

So it’s just those basic things of old presentation but also providing a product to someone that is a good product at a reasonable price. There’s things that I’ve always sort of stood by and certainly it certainly has paid off over my career.

Tyrone Shum:
Buying his first property at 19, Dawson takes us back to the events that led up to that very first purchase…

James Dawson:
I was just chatting with someone about that the other day but that property was in Chintan Street in Islington in Newcastle. From memory I think it might have been 33 Chintan street. It’s probably still there and that I can remember my mum saying to me I’d saved up a few thousand dollars from the job that I had and and in those days you used to have to go down and visit the real estate and in Newcastle those days if the house is vacant they would just give you the keys to go round and have a look. It was quite an unusual thing I can even remember the name of the real estate agent that was Ross Richardson and co in Beaumont Street Hamilton in Newcastle and and chinch in St Islington was just up the road and I went round to this property and I can remember the agent saying to me I think they had sixteen thousand dollars on this house and he said look you’ll get it for 13000 or something. And you know silly me at the time I probably should have gone in at ten. But anyway I paid 30 and and promptly got in there on the weekends and painted it up and ah you know it was interesting then there was no big hardware stores like we have now like Bunnings and all that. So you know everything had to be bought it might at 10 or the sort of funny building hardware which they always looked at you strangely if you weren’t a builder. And so I remember renting that property out I.

I think my job income at the time was 70 dollars sorry 200 dollars a week and I remember the agent saying milk you’ll get forty five dollars a week rent for that house something like that. But I ended up getting seventy five dollars a week for the house. So I can remember what the return worked out to be but you know the interest rate is quite high. So it would seem to be managing myself but because I paid it that all up within about 12 or 18 months it was about 18 months. I got Richardson the agents back there and they said all that’s worth thirty three thousand dollars now something like that. And that was I guess I was about 20 and 21 nearly 21 years old to be like that pushing late 20s late it’s like 20 miles in my years and I decided to sell it and take the profit out plus my original deposit and I bought another little property which I did the same thing and then I bought I was about 23 and a half I bought a block of apartments. Believe it or not can’t buy one but yeah I know LEDs number one. Beach Street Newcastle and was overlooking the Newcastle ocean bars in the surf and it was very run down but it was one hundred fifteen thousand dollars for five apartments.

Tyrone Shum:
And I guess put this in perspective hundred fifteen thousand dollars. There was a lot more money right. Is it the equivalent of like a million dollars or something like that.

James Dawson:
Well you could you could buy that was in Newcastle etcetera and a beautiful ocean view from there probably very very rundown. But for example I remember at that time in the same street you could buy a small two bedroom terraced house for about 35 36 thousand dollars so all I could think was in my mind I’m getting five properties in one for 115 [thousand] albeit I had to renovate. And so I thought wow this is sort of buying bulk and I remember thinking that I had to work out that I had to get eleven hundred dollars I think in rent out of this property. I think I’m sure that was a week but there was five apartments and I actually that’s right the rents were about 150 dollars a week something like that Tyrone on each apartment. You know going back to 1980, 1980s or something now but it was it all worked it all strung together. But I was still supporting that property. You know I by that stage I’d started to move into real estate and and I was earning pretty reasonable money for my age and certainly gone up from 200 dollars a week that I was earning before but I was working hard on the weekends to renovate the properties, but I was also kicking kicking the tin so to speak to make the payments on on the property as well.

Tyrone Shum:
Coming up after the break we will delve further into Dawson’s property investing journey to find out more about his first commercial purchase….

James Dawson:
I got in there was it cleaned the windows. It was an old butcher shop I hosted out. I remember my boss said okay put an ad in the Newcastle Morning Herald put a sign on the window, there’s no Internet. We worked out what the rents were by comparing to the other shops in the street and quite quickly I got a tenant on a five year lease.

Tyrone Shum:
How his worst investing moment turned out….

James Dawson:
One of my worst investments ever although most people wouldn’t probably think so is one of the sort of house home properties that I bought in Byron Bay a huge a hundred acre property in the hinterland.

Tyrone Shum:
The moment he realised property could change his life forever….

James Dawson:
I think one of the best moments I can remember. I’m not quite sure how old I was. I actually when I was 37 I moved to Byron Bay. I just I just basically came up here to buy a house to renovate and I remember driving out and thinking, well there’s actually no need for me to work…

Tyrone Shum:
And that’s next. I’m Tyrone Shum and you’re listening to Property Investory.

Able to reinvest the profits he made to build up his portfolio, Dawson explains that it was through meeting others in property that he eventually got to make his first commercial purchase…

James Dawson:
Any one of my friends that was in the same business and there was probably only two or three friends that were close enough to talk about all the money situation.

Now back then of course it’s very difficult to find mentors. There was no social media, there was no Internet. So you know you’d run into people and say, “Oh yes I’ve heard you got a few properties” and most people just thought as I mentioned before it was illegal to own more than one. It’s the strangest things. People used to say.

But I remember one guy whose name was Jeff and he was doing the similar thing to me he was buying selling renovating trying to keep some and taking a profit on others and he went to an auction and bought a small shop over in Carrington in Newcastle. Carrington’s a bit of a working class suburb and then sort of came to me in a bit of a panic saying look I’ve bought too much you know I’ve taken this one on, I shouldn’t have bought it I have no idea what to do with it because it’s a shop. And so I went and had a look at it and then I spoke to my old boss at the real estate age still working for and he said that if you can buy that for pretty much what he paid for at auction it was about 30 grand. It was the same price as a house basically why and he said, “Look that’s that’s probably going to show you about eight or 10 percent return on that it was it was double what you would get for a house.” And so he helped me work it out in the first big take-away from that deal was that I didn’t have to renovate it. I got in there was it cleaned the windows. It was an old butcher shop I hosted out. I remember my boss said okay put an ad in the Newcastle Morning Herald put a sign on the window, there’s no Internet. We worked out what the rents were by comparing to the other shops in the street and quite quickly I got a tenant on a five year lease. A guy that was going to make little woodwork things at the back and sell them at the front and he was in there for a very long time.

Tyrone Shum:
While this was one of the best moments in his investing career, Dawson adds that there was a moment that trumped this one…

James Dawson:
The second huge thing that happened which completely changed my investing life really was that after about probably about eight or nine months I thought okay I wouldn’t mind getting this value done and see if it’s increased and I’ve got the bank value around there and he measured it up check the ran did all the numbers and frankly a few days later and said your value in the property is about one hundred thousand dollars and I nearly fell off my chair you know because nothing had ever happened like that, I spent nothing on the property and he said, James you know I said how does that all work and he goes will the rent the value of commercial properties pretty much based on the rent. He said you’re getting this you’re getting the right rent for the area you’ve got a good lease and that’s what it’s worth. So I mean believe I probably did buy the property a little bit under you know perhaps the market value maybe it was worth forty or fifty thousand I don’t know but it just really turned the light on and that made me decide that even though I still had my residential properties because when I was living in rural out there I straightaway wanted to get more of them in and actually at that time the Sydney market was quite down. So then I launched myself into the Sydney market.

Tyrone Shum:
With this purchase marking the start of his commercial investing days, Dawson shares how much his portfolio has grown since then and what he’s learnt along the way…

James Dawson:
Am on my hundred and third deal at the moment.

I think if you’ve talked to anyone in property and you’re probably the same.

There’s always properties we wish we kept and it’s just a very good point to bring up because you know when you don’t have anyone to talk to as a mentor you know you’re making your own decisions and I can remember talking to people some of my friends that say spend all their money on new car whereas I was by three storey building in Potts Point you know and driving a pretty ordinary old car. But I mean I learnt so much because for example I bought a building in Potts Point I think I paid $300000 or painted it up it was two apartments above the shops down below. And then within a couple of years the market had moved and the property had more than doubled in value. Now it would be a bit like someone saying to me now look you know if you sell this today you’re going to pocket two million dollars. That was the sort of level of money we were talking about you know. You know I could have bought three or four new Bentleys the. So I thought okay wow you know someone’s waving that sort of money in front of me I’m going to sell it but silly me I didn’t realise that I could have potentially strata titled that property into three three parts and then just sold one part and kept the other two.

Tyrone Shum:
After realising the potential and various ways that deal could have gone, Dawson explains why he decided that networking with other property investors should be his new priority…

James Dawson:
Every year all of these deals that I bought in Sydney started to teach me these lessons and of course whilst I was getting you know obviously quite wealthy I think I was a millionaire by the time I was thirty one or two which was it was different being a millionaire then now I think.

I must admit I didn’t feel like it made any difference at all. Just when you’re interested in what you’re doing you know you just keep going. But yes I let all these things you know that I thought wow I need to you know get in touch with more people that are doing what I’m doing and being relatively young it wasn’t the easiest thing.

Tyrone Shum:
On another note and thinking about his other purchases, Dawson explains the story behind what he believes was perhaps his worst investing moment…

James Dawson:
I think probably you know sometimes your worst investment can turn out to be your best investment but I mean at the moment I’ve got right now I’ve got 27 tenants and you know probably my, one of my worst investments ever although most people wouldn’t probably think so is one of the sort of house home properties that I bought in Byron Bay. Huge a hundred acre property in the hinterland. Mark Borus is my next door neighbor on that property, I still own it. You know and look fantastic property but at the time I think you know I stretch myself and there was probably a little bit of ego involved in getting it. I’ve had it for 20 something years but I sometimes think well I would have been better off just by a shopping center then rather than that big property you know. But of course now you know we’ve got the Hemsworth effect here in Byro so everything’s going up heaps and that doesn’t matter anymore.

Tyrone Shum:
Admittedly turning into one of his better investing decisions in the end he also explains the takeaway he learnt from buying an acreage over the “typical” first home…

James Dawson:
That was a very very tightly held market year but because market changes here too you only have rural property and suddenly you can subdivide which I have them and you build other houses and things but you know I think that’s a big point I was chatting to someone the other day and we were talking about the concept of not buy our home first but by a cash flow positive investment property first is actually could make more sense. People using whatever deposit they saved up for a home you know yeah yeah it’s just another concept another way of looking at it.

Tyrone Shum:
With all turning well with his Byron Bay property, Dawson takes us back to the moment that changed his whole outlook on life and property, this life changing moment being one he believes that everyone can experience if they try…

James Dawson:
I think one of the best moments I can remember. I’m not quite sure how old I was. I actually when I was 37 I moved to Byron Bay. I just I just basically came up here to buy a house to renovate and I remember driving out and thinking Well there’s actually no need for me to work. I can’t remember the actual rental amount but whatever I was earning over and above all my repayments was way more than an average wage and but that is an interesting experience to have at that age because I think most people would think wow that’s fantastic. You know just thinking you’re just going to come up and live off your rental property and service and it certainly was for about two years and I renovated a beautiful house and then bought some other property but of course you get I’ve got very bored and then yeah. And of course you’ve got no one to play with you can help your friends are at work. You know so. And then I felt it’s something I felt that you know could potentially become a little bit isolated just doing nothing. So then I started again basically and you know done a lot of property deals in Byron and own backpackers and all sorts of things so all that sort of stuff kept me engaged but just that little moment of thinking well you know we don’t actually have to work and also my bank manager saying to me Well we don’t need to ask you what you do for a living anymore James it’s all in your numbers you know. So you know they can. And I think that’s a big thing you know people say positive cash flow and you know what is a genuine positive cash flow amount. Some people say it’s 50 dollars a week. But yeah to my mind you know you’re really sort of want to be pushing towards you know maybe you know to get rolling is sort of five six hundred or thousand dollars worth of genuine positive cash flow something that’s going to really change your life you know and I think if you’re aiming and it’s it’s absolutely possible with even a small amount of deals or even one deal in commercial but you know you just need to focus on that because I think a lot of people just don’t believe it can happen and it puts it simply very possible.

PART 2

James Dawson:
I do realise that you know wealth is a two edged sword and I don’t believe that you need to be extremely wealthy to have a great lifestyle and that’s something I’ve really in the last five years that’s really been bought out to me.

Tyrone Shum:
This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

I’m Tyrone Shum and in this episode we’re continuing the conversation with James Dawson to learn about his commercial investing strategies, why trusting your instincts is important and why he believes wealth and happiness can be obtained easily without massive figures in the bank.

Delving into the benefits of commercial investing, Dawson introduces us to the world of commercial property and how it works…

James Dawson:
Essentially you know commercial properties anything that you do is obviously in the right zone to be commercial property. But anything that a business can be operated in could be anything from an industrial shed, retail shops offices, you know perhaps lifestyle style properties could be classed as commercial as well like sort of hotels, motels (etc.). But primarily investors in commercial property are focused on retail office and industrial, and it’s one of the biggest benefits about it compared to say residential is that there’s basically no emotion involved when you’re looking at purchasing a commercial property because it’s all based on the numbers so just like that first all property bought the values pretty much based on the rental income. So if you can determine that a property has the correct rental income for what it is and the location you can quite quickly and this is without even looking at the property determine the value of it or at least determine if the asking price is a reasonable one. And from that you can also determine the cash flow that that may produce very, very quickly.

Tyrone Shum:
He adds that the lack of emotional connection needed to buy these commercial properties is what makes it easier to get great returns on your investment…

James Dawson:
I think you know it isn’t rocket science. I was chatting to my brother who just bought a property in Bathurst and look he’s got his loan from ING, four point two percent. The property is returning eight and a half percent net so of course net means after outgoings. So after the rates and management all that stuff is paid. All he has to pays is mortgage out of that 8 percent so that one deal. He’s done it. I mean at one point eight million property but it’s %70000 a year cash flow positive.

And he’s used – And that’s based on 100 percent on and so I always get a question when I mention that 100 per cent finance Tyrer and so I’ll just qualify that yeah. That’s using you know some say 30 percent deposit from an equity loan on his home and the balance from say a bank like ING on an interest only loan. So effectively 100 percent finance it might be two slightly different interest rates but very easy to work out your cash flow positive amount from from just using those numbers.

Tyrone Shum:
But what exactly is the difference between residential and commercial investments?

James Dawson:
I think that the prime difference is that the the commercial investment is driven by a lease. So you’ve got a number of factors that can really tie your investment to the lease. Now one of the major ones is in let’s say you’ve got you’re looking at a property that’s got a hair salon in it for example. Now if that hair salons been in that property for a while it built up a certain amount of goodwill by being in that location. They’ve probably spent quite a lot of money on a fit out in that property and they’re making their livelihood from their property so they want to have a long lease so they want to sign it three or five or even a 10 year lease. So that’s a huge difference you know a five year lease for example over say six or 12 month lease that you may have with the residential property. Obviously a big difference but not only that the leases in commercial do favor the landlord. They’re almost as strong as a mortgage document extremely powerful document if something goes wrong. It’s very easy to pull up the clause in the lease and work out how to resolve the issue. Also they have generally a fixed either a fixed percentage increase per annum or something that runs with consumer price index very clear lay out of who pays for what. Quite often the tenants pay all the outgoings when they’re presented with the bills. So you rent and then the outgoings paid by them and also clear rules about the tenant perhaps having to repaint the property every four or five years which is obviously enhancing the value of your property.

But one of the big differences I find is that a residential invests that generally gets quite emotionally involved you know they’ll they’ll go and lend. I’ve been all guilty of this I’d be guilty of myself. You know we go look at a property and we think wow what an amazing kitchen or bathroom or how I could live here in this apartment and and I often hear people I had a friend a border apartment in Potts Point recently and he said Oh I can I could live there and I said, Are you ever going to? You live in Byron Bay. No probably probably not. And you think well you know there it is. He’s just going to rent that out for years. And if he did want to live in it he has to pay for it anyway.

Yeah. So that’s a big difference and I find lucky we have a lot of property that they think initially. Oh that’d be great. I might live in that but they never ever live in it so it’s just something that got to own and maintain that a lot of the investment.

Tyrone Shum:
Talking about the lack of commercial investors despite these many benefits, Dawson explains what he thinks holds people back from investing into commercial spaces…

James Dawson:
One of them is that people think it’s just too expensive to get into. Now if anyone gets online after this interview they’ll see it and you discount a real commercialdot.com don’t you. One of the major sites for example you’ll see that you can buy an office in Melbourne for $150 000 you could buy a storage shed for forty thousand dollars. You know that’s as that’s a very, very low starting point I challenge anyone to a residential property for that amount. I actually saw a complete freestanding building in Tasmania the other day in a long lease with some land a hundred and thirty five thousand dollars. You could, you could build more on that property so it can be a very low starting point but people don’t believe that they think that you have to be a multimillionaire to get in to commercial property. One of the other big things is that people think that finance is very difficult and in actual fact in the last 12 months what we’ve noticed is that finances become very much easier for commercial than residential because we don’t have that APRA effect. And if you talk to your broker or a good commercial broker that is or your bank manager you’ll find out quite quickly that commercial loans are sort of unrestricted as compared to residential and the banks can do a lot more creative things with commercial loans and they can do with a normal residential investment loan.

Tyrone Shum:
With property vacancy being another issue that holds investors back from buying commercial properties, Dawson explains that this issue is heavily dependant on where you buy…

James Dawson:
I think the third thing why people worry about commercial property is that someone’s always told a story about a property being vacant and in a naturally that could be an issue and an obviously is a fear. But you know what I say to people is okay you know drive down to the normal shops you go to and you go to the hairdresser the cafe those sorts of things and when you start opening your eyes to it you’ll see these busy little hearts that are always full or there might be one vacancy for a few months or so something like that was getting refitted but they’re always full.

Other areas you may go to you might see four or five vacant shops which don’t buy in those areas. It’s very simple.

It’s about focusing on the right areas to get to now. These can be strong regional areas so it could be inner city areas areas or the city itself.

Tyrone Shum:
He expands on this, comparing the likelihood of residential and commercial vacancy, and why educating yourself greatly affects the end result of any investment…

James Dawson:
The other point about those vacancies is that I think a lot of residential investors sort of delude themselves a little bit because you know in a 12 month period if they’re lucky they might may have their house or apartment rented for 12 months but quite often a lot of residential investors I talked to say Well look my apartment is vacant at least once every year for probably four or five weeks. So if you had a commercial property for example and you came out of a at a tenancy period say three years and then you decided to pay it up and release it and it was vacant for a couple of months. Well that’s two months out of three years. And so my chance of being properties for 22 years. So it’s you know the difference is quite dramatic when you when you add it up but it really comes down to buying correctly in the first place. But and now the thing is that I of course see why people don’t look a commercial is that it’s we’re bombarded with you know our house it’s negatively geared that’s going to be the best thing for you.

Buy this, buy that or is there spruikers that are actually selling you know house and land packages or apartments off the plan and all these things we get absolutely bombarded and let’s face it they do actually make it quite easy for people to buy. And I think people are sometimes a little bit lazy they don’t want to educate themselves about how to buy property so they are sick I’ll look I’d jump on a plane to Queensland and the guys you know provide the evaluation and everything and of all the property you know and unfortunately that could go terribly wrong.

We’ve all seen it. So you know I think anyone that wants to be an investor really needs to take control, I mean it’s their money.

And I know that you know I’m always very concerned when educators are tried to sell property. That’s one thing I will. I should have stated probably upfront that you know in my education probe we never sell off any poppies for sale. That’s just not what we do. And I know all the good educators in the property game in Australia are the same but there’s always some that always got a great deal at the end of the day.

Tyrone Shum:
Imploring other investors to look into investing outside residential properties, Dawson raises an interesting point on capital growth…

James Dawson:
I did mention it before but my favorite discussion points are you know capital growth. It’s so funny really that you know this has always seemed to be driven home with residential business and people run around hot spotting and trying to find areas that are going up and an all out. And you know it is a bit of a classic situation that I must been over the last 40 years this is probably the fourth time I’ve seen it where you know Sydney went up by 25 percent. Now of course everything is going down by 20 percent and you know scaring the hell out of everyone. So you know what happened to the capital growth there you know. Okay. So but let me just compare a little deal. Let me let me just say touch on you know a comparing say a million dollar commercial property. Let’s say that property you buy a property a million dollars and return in say 8 percent net net into your bank is say eighty five thousand dollars a year. Now just compared say with the same residential property you might buy a luxury apartment in Sydney. You’re probably only going to net maybe 40000 out of that property something like that. Now obviously with that commercial property you’re potentially going to be let’s say just pick a number you’re going to be 30000 year cash flow positive. So and some of them like my brothers deal are way more cash flow positive than that. Now if you put putting that money to the bank each year and just build it up that’s thirty thousand dollars each year within five years you’ve got one hundred fifteen thousand dollars cash sitting in the bank forgetting about any interest benefit you may get by offsetting a loan and then therefore compounding it and so in effect you’ve made a gain of 150000 dollars which is quite substantial over that period of time. Now to me that is the same as capital growth. I mean who carried out the other beauty of that is when you expand upon that point is that people say oh look my house is gone up you know 20 percent. But to get that 20 percent out what do they have to do. They have to sell it or refinance. Now, when they refinance it they’re not going to get the full amount of the capital growth rate. They’re only going to potentially get maybe about 70 percent of that out if doing so 70 percent loan or perhaps 80 percent if they’re doing an 80 percent loan and they’ve got to go through the drama of getting that that money out by refinance into U.S. equity. Whereas an equivalent commercial investor let’s say be making 30 or 40000 positive cash flow a year from an investment, if they want to they can have that money sitting in an account ready to go to any number of things they could be spending that money on their lifestyle. They could be paying down the loan of their property with that money therefore getting the compounding effect. Or they could just be putting that money in a bank account and then using that money at the end of three or five years to go and buy another property and they don’t have to refinance. But even if they did refinance they’d probably pull a bit more out of the property itself. So to my mind cash positive cash flow genuine positive cash flow, is a at least equivalent but I think better than waiting for capital growth.

Tyrone Shum:
Another point Dawson adds is that with commercial properties, it’s easier to add manufactured growth to a commercial property than it is a residential property…

James Dawson:
One more very simple important point is let’s say you buy property – a commercial property – like you buy it for example in Bondi Road or something like that or even a regional centre and you buy that property and then before you buy the property you identify that you might be able to put a dollar an ATM machine in the front window. So if you know, you negotiate with the bank and let’s say you can get around 200 dollars a week for that ATM machine. That’s an instant increase of say ten thousand dollars a year. So if you capitalize that out at the same return rate that that property’s worth you may find that that gives you you know 150 or 200 thousand dollar increase in value straight away. . So that’s manufactured growth, you’ve taken no risk on. Another fantastic example of that is buy property just like my brothers bought empathises on a road that probably maybe has five or ten thousand cars passing a day. He can put a digital sign on that property. There’s plenty of companies to do that you see this electronic digital signs everywhere. It’s another of these eye opening are things that you see and he could potentially get 20 to 30 thousand dollars a year rent from that site. So imagine increasing the rent of your residential property by thirty thousand dollars a year. How are you going to do that. You can’t do that nothing is not possible here. The other fantastic thing which I’ve done several times I’ve just completed one at Bondi with commercial property. There’s a huge difference there. The zoning generally allows much more on that property than you ever get on a residential property of a similar size so my property in Bondi for example is a total size on the block of land of 240 square metres 240 square metres it’s not easy not even as big as my lounge room almost and no not quite that big but on that property because of the zoning I had initially just to shop underneath and an apartment above classic terraced house style shop underneath the apartment above zoning changes. They allowed me to build three more apartments on the back above the car park at the back for now on 240 square metres. I have four apartments and a shop and you can imagine what a block of land in Bondi is worth. You can build three apartments. So that’s why I’ve unlocked in that property in fact my valuation. When that was completed just a month or so ago went from four million to six point three million square.

So you know there’s this huge many opportunities for manufactured growth in commercial that I mean it’s similar to the idea of someone’s putting granny flat or something on the back of a residential property. It’s like that on steroids.

Tyrone Shum:
Coming up after the break we will learn more about James Dawson’s commercial investing strategy…

James Dawson:
You’re going to these deals with ice water in your veins and you know my strategy has been you know just to wait and just follow the mantra.

Tyrone Shum:
The interesting tips he’s learnt along the way…

James Dawson:
One of the things I want to talk about is there’s a tremendous exit strategies that you can develop into these properties and it is a product of zoning and the style of property…

Tyrone Shum:
All that and much much more coming up next. I’m Tyrone Shum and you’re listening to Property Investory.

Moving on from the mindset investors should have when it comes to commercial investing, Dawson talks about his portfolio building and the strategy behind his success…

James Dawson:
Essentially, not rushing, and there’s always a deal out there and I say this but you know sometimes with the residential market people it sort of goes to waste. People think oh it’s all going up a bit of buyer properties are suddenly everyone’s at the auction. Yeah we saw this the last couple of years where you know auctions were going crazy every in a mad panic to buy whereas or all US commercial investors we’re in the background. We only did 90 percent of the population running around to buy residential 10 percent of us are quietly moving around the background buying commercial. And so we’re not in that mad panic. We’re looking at the numbers you know looking at the deals that are presented to us and and then if the deal is right. The other fantastic advantage of commercial is that you can buy a property and take it off the market and have a 30 day lease do due diligence period where you can actually make up your mind on the property and even during that period even though you’ve gone to contract at a price you can have the ability to renegotiate the price and I’ve done that successfully many times where something’s come up and I thought no I need to renegotiate the price otherwise I’m going to pull out of that deal. So you’re going to these deals with ice water in your veins and you know my strategy has been you know just to wait and just follow the mantra. My old boss you know 30 odd years ago [said] I’m just not buying anything unless it was the right deal arm and cash flow positive.

Tyrone Shum:
He shares an example of a time this strategy has worked out for him…

James Dawson:
Recently I bought a 14 shop shopping center that was built in 2013 up north of Brisbane. When I looked at the cost I think at least five million dollars to build this on six 6000 square meters of land. I was watching the deal for a while you know he added on. They were in desperate trouble and he had three tenants out of 14. So most people probably listened to this would think I would have run a mile for laughs. But that’s a separate separate childcare. A building all state of the art least at 2040 long lease and a couple of tenants in their shopping centre. So I was coming back from a surf trip from Noosa and I called in to look at this property and my Swedish mate that I had in the car with me on the surf trip said have you got rocks in your head James why would you buy this. And I said yes but it’s in the middle of this master planned community I don’t know what the guys done wrong but I’m going to investigate it and done something wrong here. So I decided in a nutshell I thought I’ll buy this property but I’ll only buy it based on the existing rents from those three tenants so effectively if I got a deal at the price that I was offering that I would have basically half the shop inside all three quarters of the shopping centre for free. And that’s exactly what I did. The whole lot. A whole lot for two point three million. It was cash flow positive on just on the three rents and then straight away I rebranded it. I shop the rents by almost a third from the asking rents are rebranded the property renamed it got the signage right and straight away at least five shops to plus bitless and 100 thousand dollars a year so that increase the value probably up from two point three to four million or something straight away.

Six months and then I’ve got a couple more tenants. I’ve only got three or four shops left depending on how negotiation goes. Next couple of days. But you know massively cost cash flow positive now.

And I think when it’s fully leased my value irreconcilable be worth five point three million. So not a bad increase but I have spent money you know let’s you it up you’ve got to be prepared to spend money and I have spent money on probably spent you know 250000 dollars in you know rebranding branding, tenants incentives you know putting solar panels on the roof you know offering them free air conditioning that type stuff that’s what you have to do and you know you work a win win situation you tend it out and you know it can absolutely help you and that that gymnasium. They had to have 300 members to open and and they rang me the other day and they said they’ve surpassed 500 pounds and that said it best operate in gym and they were so happy with me they could have kissed me.

Is it like this. Yeah. So no matter.

Tyrone Shum:
He also tells us about the figures and returns this property is yielding…

James Dawson:
This one now I haven’t got my figures right in front of me but at the moment I think with the current tenants I am getting at least net income after outgoings of around to $256 000. I think when it’s fully leased my net income will be pushing over. It’ll be better $330 000 net on an investment say of totally. Yeah totally investment including say stamp duty with say $100000 I think that including stamp duty and the money spent let’s say like two six, two seven something like that.

Yeah so easily you can say it’s a little bit over 10 percent or more than actually probably you.

Tyrone Shum:
Oh yeah yeah absolutely.

James Dawson:
So therefore and it’s another important point is that anyone who might like to hear Tiron is that then it’s actually quite easy for me to work out the value of the property because basically all I do is I would find out from evaluated the time when I want to work out what it’s worth I’d say what is the expected yield that someone would want to get on a shopping center like this when it’s fully leased.

They might tell me at 7 percent for example or 75 percent that’s all you need to do is divide your net rent by that metric so if it’s set for example you divide 330000 by point 07. Yeah and that that’ll give you a number that may be what the value of that property is.

And I just wanted to. Yeah. So I haven’t got my calculator in front of me.

Tyrone Shum:
While this all seems rather positive from the get go, Dawson warns that there is exit strategies potential investors need to have in place before buying…

James Dawson:
One of the things I want to talk about is there’s a tremendous exit strategies that you can develop into these properties and it is a product of zoning and the style of property so you can imagine with a 14 tenant property that I’ve actually got two buildings there so one building has got the childcare in there now I could easily sell that childcare off separately and I’ve actually got approval for a subdivision to do that. But then if I wanted to get now on 61 so okay let’s say when I hit 70 years old I might say okay I want to start selling some bits off for whatever reason you know to give some money to someone who I don’t know. But you know so it is very very easy to start Tikal those those properties off and it’s very very easy to work out the rent of those strata title or properties. So the value of those strata title properties by doing that same calculation just using the net rent from the property and dividing by the yield or cap rate at the time that people would expect to buy it. So gives you tremendous safety and you can even do this say with a two or three tenants smaller property that someone buys for under half a million you know which is you know you try to if you compare that to say residential strategy we’ve bought a 500000 dollar house compared say two or three shops of 500000. It just doesn’t compare.

There’s no way you could strata those shops up and you could say okay look I’m a little bit worried about my debt level or you know I have another great thing is you might have to business partners in yours and you or greed to take one shop each. Perfect perfect scenario. So. So there’s that fantastic ability of exit strategies there but I’ve recently found out on that shopping side I can put another story on the top so that I could potentially put some officers you know something like that on top if there is a demand I suppose when you buy these properties you know the demand is not there. When you buy the properties for extending them I also that people review your properties every year. You know even their residential. Get someone a private plan to have a look at the zoning. You might be able to put a granny flat in the backyard or you might be able to put villas on that property now and some people sell it properties and only drive part. Two years later someone has put units on it but unfortunately they’ve devastating that.

Tyrone Shum:
Delving into the mindset side of things, Dawson talks about his personal outlook when it comes to property…

James Dawson:
My personal thing was that look, I wasn’t the brightest kid at school. I didn’t actually even get my high school certificate even though I went to private school so you know I really just wanted to make my own way and very early on like probably like most people that are in business for themselves or in any entrepreneurial thing I just felt that I didn’t want a normal job. I felt my time. You know I’ve always had this thing that time is extremely valuable and the only thing stopping you you know controlling your time really is your income. So it’s this whole thing of leverage. So you know rent to me is a fantastic way to leverage your time. You know you get the same as you know in a residential investment you buy the property you get it tidied up and you collect the rent will it’s all money that you’re not earning yourself you know they’re paying you in you you keep taking that difference between the payments and and the income. So that was my mindset that I just really didn’t want to work for a boss. And I’ve always been a little bit of a dreamer so I’ve always got projects in mind and I travel lot every year. We were in Europe three months a year so you know we go boating and stuff in Europe every year so we’re over there a lot and I still run my business. Anything I’m doing I just run from there which is great. So yeah my mindset really has been about balance finding a balance which is not always possible I’m never going to. No one should ever say that their life is completely in balance but you know sometimes I do get very busy with things but mostly I’m running my own show and control exactly what I do with my time which is something that I’m very passionate about.

Tyrone Shum:
And why he’s learnt that the amount of money you have isn’t always reflective of your success or happiness…

James Dawson:
I’m in a lucky position here to be surrounded I guess by some of the world’s wealthiest people. Yet Australia’s wealthiest people here you know just next door and any bar in general I’ve found a Byron’s an interesting place there’s a lot of barefoot millionaires and billionaires and just with I guess the level of property that I’ve been doing some of the properties I’ve sold one to a billionaire. And know it’s just interesting what those guys say you know cause their money needs have effectively disappeared in that you know they don’t need to focus on earning money but you know they have a different problem is that you know they’re needing to run their investments and all that. So that’s that’s. I mean they say to me you’ve got a better life than I have.

James, even though they’ve got their own jet.

Yeah but you know so that’s been very interesting. So I’ve you know I guess I’m in my later stage of my life but you know I do realise that you know wealth is a two edged sword and I don’t believe that you need to be extremely wealthy to have a great lifestyle and that’s something I’ve really in the last five years that’s really been bought out to me. You know someone worth five million dollars net worth could be having a better lifestyle and someone worth a billion and I’ve actually absolutely seen that and experienced some of the issues that some people I know have had just been in management of starvation you know international properties and businesses and things like that. So you know to me it’s this thing of keeping it simple and keeping in balance is not the easiest thing in the world to to get. And I think helped some of those guys in a way say hey well you know maybe you should call back from what you’re doing. Some of them actually are younger than me but you know obviously I’m not I’m not at that level of wealth and I don’t aspire to be at that level well. And I would say that to anyone listening you know you you know you set a goal and your goal might be that you know you want to earn 200000 a year passive income year after tax. So okay all positive cash flow you’re going to pay tax so you might earn 300000 passive income. You know from property to end up to 200 something like that. But you know it is if you can’t live on 200000 dollars a year there’s perhaps something wrong with what you’re doing. You know maybe your lifestyle so I mean of course everyone has got nice cars but things I mean you know we can all do that.

But you know if you if you’re doing that at the wrong time in your life or when you shouldn’t be you know these things are the things that can hold you back. That’s very important to me I guess I’ll probably be inconspicuously wealthy rather than conspicuously but I am very very interested in that.

Tyrone Shum:
Having mentioned a few mentors already Dawson talks about whether or not he sought out help from any particular resources…

James Dawson:
One of the early books that I read was thinking grow rich. You know that that has. And look I probably read that book only probably three times in the last 30 years and I think I’ve got it on a Kindle book recently but that’s a great mindset book and I think you know even though it was written a long long time ago that that’s certainly a you know a good book for mindset. And with regard to property investment books I’ve really enjoyed. Michael Yardley’s books you know I probably even had him on talking but you know he’s had some great practical input that I know people have enjoyed commercial property books I’ve actually written a commercial property book myself. So that’s that’s available on Amazon and on Kindle it’s called a seven day weekend which I know sounds a bit of a tricky name a bit of black over that name but essentially my I mean if you ask me some days I think I’m not sure whether it’s Saturday or Thursday. You know a lot and it’s that bad idea of running your life a little bit like a weekend where some of us might go for a surf on the weekend might do a bit of office work or might do a bit of gardening you know that sort of thing. But that book that I’ve written is it. People do like the book and it does set out. Basically my strategy for it for investing in commercial.

Tyrone Shum:
Thinking about the tips he’s been given outside of books, Dawson shares why he believes seeking out help and keeping things simple and unemotional is the best advice he’s ever received…

James Dawson:
It really is about taking the emotion out. And when you’re in you know having some say are a problem with a deal or you know just to probably step back a bit and really try and seek out the knowledge you know so I do have a couple of you know as I mentioned here people that I talk to all the time that are very successful business people and you know it it shouldn’t be a problem for you to pick up the phone and just ask someone what they think. And I think you know I think often too that people ignore in their gut feeling I know it’s probably a slightly airy fairy thing but I’ve certainly learned over the years that sometimes I’ve done something where I’ve gone against what my gut feeling is an maybe putting attended our particular tenet into a property thinking boy know going to be the right people and you know perhaps going against my gut feeling and that has been the wrong thing so I do listen to my sort of inner thoughts about things without going crazy of course. But yeah it might sometimes just cause me to drag my partner mad sometimes cause I think I think sometimes I’m just going to check on that detail with the bank again or I’m just going to check on that detail on the lease. You know so sometimes it’s one of those things where you know you think something pops into your head and you think I just need to recheck that. And quite often that’s been a very telling thing where I’ve picked up something that’s been you know could have been a much bigger problem in the future because if I hadn’t picked it up so um I think you know ask people around. Sometimes you’ve got to ask the right people though you know don’t ask people that have no idea about the subject you know. You know the classic barbecue talk. And I learnt that very early on asking people about property. He had no property. I mean what’s the point of doing that. So you know seek to seek out someone that’s been successful. One thing I found with commercial property investors are that a lot of them are very quiet because nothing much is going on.

They just collect your rents and you know they’re not at barbecues rattling on about tennis dramas. Yeah. So you know you’ve got to seek out the right people so there’s plenty of me cause my own website blogs and all that but there’s other ones available as well. But I think you know someone that’s been in the game for a long time I’m not I’m not trying to blow my own trumpet but you know I do over the years I’ve seen many complex ways of investing and nice and and also people picking up the gauntlet and saying they are an expert at a particular thing and then I think well you’ve only been in the business five years during a full bloom time. So you know that’s not saying that people can’t be successful that period of time but you know I think it’s like asking a mechanic on your car that you know perhaps being a mechanic for six months or someone’s been a mechanic for 40 years looking after luxury cars for example I mean obviously the guys at the 40 years have probably seen every little problem that’s ever going to exist.

Tyrone Shum:
He adds that in the same way, you should also offer advice and use your experience to help other investors as well…

James Dawson:
I’ve seen it all I guess but you know it that just comes from experience and some of the things weren’t the most pleasant things that happened over the years but at least if you’re able to say to someone I mean I said to someone the other day about what he was doing event or finance deal and he was going to do it on a handshake and I said hey woo woo up you know stop right there are going to have you be right just to make sure they don’t make the wrong mistake. Yeah I’ve been something’s are common sense but you know I guess you’re in there in the rush to do a deal. Yeah there’s a tendency particularly in people that are new into the game that you know they perhaps like gloss over things that could potentially cause them a lot of grief and you know set them back a little bit when really you just want to focus on moving forward.

Tyrone Shum:
Following this self reflective process, Dawson tells us what he would have told himself ten years ago…

James Dawson:
I probably would have said buy a larger shopping center I was probably in a relaxed mode then.

So it was sailing all quite nicely and doing what I was doing. But I think there was some deals around then that I really would have liked to have got but I was perhaps a little bit lazy lipped.

So I actually had some properties that I probably should have got out of to move the equity to get into a better situation by way of using the equity better and there is nothing wrong with selling a property to do that. So I was in a situation where I had the properties that I had and some of them were a little bit more intensively managed. I had some back a backpacker’s for example in Byron I had matches in of course but it was something that was interesting but it probably wasn’t for me.

I probably should have jumped out of that a little bit earlier than I did so I think it was assets that are being that you really need to review what you’re doing and sometimes you need to say okay I need to be moving on from that because that’s taking too much time.

Tyrone Shum:
And conversely what he’s most excited for in the next five years of his journey…

James Dawson:
I’ve got lots of little projects on and I’m just about to build another house on my acreage this year. The back of Biren I’ve just recently put a beautiful old boat riverboat on one of my ponds on the property so I’m going to kind of restore that and I’m quite interested in the town a tiny house movement. Believe it or not so I’m going to be building a couple of those just in the next 12 months or so. But you know quite passionate about my my education program as well that’s been a really great thing for me because it’s re-engage me with sort of the grassroots level of investing. So I put a little bit of time into that as well and that’s been really great. You know because it’s got me talking to young investors and things which is really good. So yes I’ve got lots of little projects on either vegetable garden as well and I love surfing and travelling so just continue with more of the same.

Tyrone Shum:
With so much experience and knowledge to offer about the world of commercial investing, Dawson puts his take on whether he believes his success is due to luck or skill…

James Dawson:
I honestly believe you make your own luck. The ability and I think probably many people I guess are successful will say this that you know it’s a great ability to be able to get on with people. And I’ve certainly seen that with people who sometimes should be really successful but they just don’t have that ability or haven’t tried or were unable to get on with people in a general sense I think that’s a very big thing that probably goes back to that look I think and grow rich where you know just the ability to listen to people and talk to people is a big thing from all types of walks of life and so my my view is that you know it’s not due to luck I’m certainly probably not the most intelligent person in the world. And I think sometimes that probably over analyzing things can actually hold people back so you know I’m you know a fairly simple sort of guy so I try to keep things simple and with commercial particularly and residential to an extent you know it’s pretty simple you just need to know the basics and you need to follow those and not not be overly overly emotional about it.

Tyrone Shum:
Thank you to James Dawson, our amazing guest on this episode of Property Investory.

If you want to hear more about his journey, then visit our website at www.propertyinvestory.com.

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