Simon Loo is a very successful property buyer’s agent and director of the buyer’s agency, House Finder. He has gained a wealth of knowledge through the many, many years of experience he has built up and he is generous enough to share some of that knowledge with us and provide some expert advice and strategies in the midst of the COVID-19 global pandemic.
Join us in this episode of Invest Like A Pro as we dive into the topic of overcoming your fears during the COVID-19 pandemic. We discuss the impact that the pandemic has had on the property market from Loo’s perspective, the best way to mitigate risk during this time, reminding us that property is a long term play and that you always need to have that end goal in mind, and much much more!
We jump right in and Loo shares with us some of the conversations he has had with his clients about the COVID-19 pandemic.
I think it's more pertinent than ever before. I think previous to COVID-19 there was just a lot of—most property investors would just have an expectation that their properties would be rented, would find great long term tenants, or all they'd have to focus on is vacancy rates and things like that. But I think deeper into that, that this whole pandemic that we've gotten into, the more we are seeing articles of the rental market really taking a massive hit, people reducing rent significantly—especially certain types of properties.
So, the conversations I'm having a lot of at the moment with my current clients and past clients are, you know, what they should be doing and what they should be looking for in property or in their own portfolio to ensure that it will be relatively securely tenanted in the long term. Even if there are vacancies, even if they're in between tenants, I guess, it just comes down to mitigating a lot of risks which is more important than ever.
We find out the best ways for us to mitigate risks in light of the pandemic and some of the biggest fears of a property investor.
The biggest risk is not being able to find a tenant. Having a very long vacancy period in any property investors portfolio is extremely frustrating. And it gets to a point where it's a downright scary experience. You know, if you're just paying mortgage repayments, if you're just paying council rates and all these expenses, and you're not getting any income from that property, you know, it really does put a lot of stress on your finances. You know, even if you are fully employed and all that type of stuff as well. So, that's probably the first fear.
The second fear is getting bad tenants, you know. They sign on, and they don't pay rents, which I have noticed in specific areas. That has been a little bit more frequent, you know. Since this whole COVID-19 thing happened, there's been a lot of measures put in place from the government. To stop landlords from exercising their rights that they could have previously, if tenants were, you know, to just stop paying rent.
Well, I mean, eventually as a landlord, you can take action depending on what state you are in. There's certain timeframes that you can. But it's so long that it's, again, just a very frustrating and stressful experience. If a tenant decides not to pay rent, you know, up to six months, you basically can do nothing. So, a few of the ways that I try to, you know, mitigate a lot of this type of risk, you know.
I guess it's no secret that I've always had a focus on buying investment properties that are in more affordable housing areas in major capital cities. So, we're not talking like, you know, it's very blue-chip houses in a city type of area. But the focus has always been in areas where it's just your typical sort of an average income, you know, middle ring kind of suburb.
And I think that the main point that we have to focus on is the way that investors see property is different from what the majority of Australians see property as, which is at the end of the day, a place to live in for themselves, for their family. And whether you know, obviously notwithstanding massive catastrophic events, housing will always be first and foremost considered as an essential item for people to live in.
So, the type of properties that will always be in demand are what I would consider affordable housing, you know. You've got your three-, four-bedroom house that's in a major city and that's in proximity to shops, schools, parks, and transport. It may not be right near the city, but it's within a distance of traveling, you know, to various aspects of that particular city.
In times like these it can be as simple as having affordable housing to mitigate the risk of long vacancies.
Even in my own portfolio, you know, I've had a few vacancies in recent weeks and legitimate vacancies where tenants had to leave. And I had to find new tenants. That kind of stuff is still significantly in demand from a rental perspective. You know, you're getting a lot of people now that are unfortunately exposed to some pretty bad financial situations personally. And previously they might be renting or they might be living in a ‘nicer property in a city’. But because of unseen circumstances, they're having to move back into more sort of affordable options. So, that's one side of the demographic. The other side is, you know, for the people that are maybe moving out of home—or for, maybe, like a young family that's new to the state or starting out, they're also looking at these kinds of more affordable options.
I guess at the end of the day, there will be consistent demand for houses that are affordable, you know—houses that are clean, safe, they're tidy; they can house a family. I think that's also a very important factor: to find properties where young families with kids or for any family with kids can safely live in. So, you know, I feel like if there is more of a focus for investors to focus on this type of product it will mitigate a lot of the risks of having tenancy issues down the track.
Loo provides us with a tip on the type of property that he believes is always in high demand.
That's always the bottom line. And whatever your goals are with property, it's 99% going to be a very long term exercise. You know, usually when you buy a property, you're holding onto it for at least five years, usually around 10 years—and a lot can happen in 10 years. You'll have ups and downs with the economy. You'll have, you know, unforeseen circumstances—like this pandemic happening, high interest rates, low interest rates, personal circumstances, you know.
Investors or people sometimes run into situations themselves where they might have a bit of a rough patch. Maybe they have a bit of unemployment or maybe a health issue, health scare potentially. So, I think risk mitigation is so important, like now more than ever. And it's been a big focus for me.
And my clients nowadays really focus on characteristics. I mean, we talked a little bit about the type of properties, which are affordable housing. But the characteristics of these properties as well [are] coming into play. And in general terms, you do need a property that appeals to as many people as possible. You know, like a property that might appeal to the wider range of demographic would be like a three- or four-bedroom house with a decent-sized yard. It might be very low maintenance. It might be very safe, a very typical layout, nothing too flashy, nothing too odd.
In Queensland in particular, there's obviously the difference between high-set and low-set houses. High-sets basically is a single-storey house but on stilts. Those are less in demand from a rental perspective than your typical sort of low-set three-, four-bedroom brick house. Because if you have a house that needs stairs to get in then get out, you're cutting out a significant amount of potential tenants that may have some disabilities—or, you know, maybe they just don't like stairs.
Building a portfolio with properties that appeal to a wider demographic is important in getting through a difficult period.
With my portfolio as well, the ability of having these affordable houses, this is obviously when the buying price is generally a bit cheaper compared to your more empty city areas. So, over the long term, it allows an investor to spread their portfolio over a larger quantity of assets rather than, you know, having a lot of debt tied to just one or two inner city houses. Because if one of those houses [has] become vacant or both become vacant, then you're really in a sticky situation. So, I think that's also, I guess, in many ways, proving to be a bit of a lifeline. Just having, you know, these properties that are appealing to the majority of tenants, you're in decent areas in capital cities that they're priced to a certain point, not super expensive.
And if you've got a few of them, then it becomes like a bit of a self-fulfilling portfolio where, you know, even if you have like one or two properties that are going through a bit of a rough patch, you've got a bunch of other properties that might be doing well enough to absorb some of those costs, if that makes sense.
I feel like if you get these things right, it really helps investors not be exposed to too much potential pain, I guess, in the coming months, in the coming years, even depending on how this pandemic plays out. Another controversial point that I've actually noticed down on the ground when it comes to tenancies, the stereotypical bad tenants can prove to be your best, especially in times of crises.
We hear an interesting story about one of Loo’s tenants and why you shouldn’t judge a book by its cover.
I've got a single mum tenant in one of my properties who was struggling to find a home for herself and a couple of kids that she has. So, I decided to take her on because, you know, at the time she was employed, she wasn't on TICA, which is a database for bad tenants. She came back with some really good references. And she was extremely grateful that I took her on because clearly she had been rejected by a few other properties based on her single-mom status or stereotype that a lot of landlords associate with as being not a reliable tenant. But the other thing is, she was actually receiving Centrelink benefits, rent assistance. And that rent assistance paid my rent or paid her rent completely.
So, as a landlord, her rent was basically coming directly from Centerlink into my bank account. Now I know for a fact that, you know, this particular tenant did lose her job. And I think she's kind of on the new job at the moment. But, you know, regardless of whether she's in between jobs or not, my rent as a landlord is still secure because it's coming directly from Centrelink. And, you know, it's unnecessary for her to try and negotiate a lower rent—or, you know, even if she chooses not to pay rent like it doesn't really affect her, if that makes sense.
So, I guess what I'm trying to say is, you know, a lot of the negative stigma that a lot of people have with tenants and with certain types of properties can actually prove to be the best kinds of investment—especially when there's trouble, you know, when there's a lot of uncertainty in the market.
When you are looking for tenants you need to ensure that you approve the right people in the end.
I think a lot of character and analysis comes into play. And an offshoot of that is having an extremely good property manager as part of your team. So, you know, typically when you have a house for rent, obviously you do an open home. And the type of people that come through, you know, you never want to judge a book by its cover.
But at least when you're having a chat to them physically and looking into their eyes and having a conversation about the situation and what they're after and all that kind of stuff, you get a gauge to some degree on the situation or the genuineness of a particular person that's looking to rent a property.
Now, I think if it was, let's say, two able-bodied mates, you know, the mid-20s that are on Centrelink. I think maybe that's a little bit different to have, you know, like a single struggling mum with three kids that's looking for something safe to live in. Everyone's got different situations. Obviously, if there's two able-bodied friends or brothers that have been unsettling for a very long time, then they may not be the most genuine of characters—because, I mean, we're in a pretty bad economic situation at the moment.
People can't find jobs, but you kind of have to question, ‘Okay, are you guys actively looking? When was the last time you had a job?’ All those kinds of factors are super important. Now, I'm not suggesting every single mum with three kids out there is genuine and struggling, and they're not all angels doing the right thing. But look, I guess what I'm trying to say, there's always going to be a risk, you know, with any tenant in any property.
I think it's our job as investors to minimise that risk as much as possible.
And what I found [out] recently part of that is actually taking advantage, I wouldn't say taking advantage, but I guess we're using ‘leverage’—leveraging the generous benefits that the Australian Government has for people that are genuinely struggling. So, you know, I think that has helped me ensure that the cash flow from my properties haven't really been impacted too much. Because these properties that I have, they appeal to the type of people that will forever, you know, need affordable and safe housing at the end of the day.
Nobody saw the global pandemic coming and the impact that it would have. If you are a little fearful at this time, just remind yourself that everything will eventually get back to normal.
This pandemic is actually playing to the fact that housing is more of a necessity than ever before. People need their own spaces, you know, to overcome and minimise the risk of catching COVID-19. Authorities are advising people to stay indoors as much as possible and to keep apart. So, you know, at the end of the day, I feel like this particular pandemic globally, you know, will actually benefit certain property markets.
You know, it might not benefit the super expensive blue-chip type properties because the amount of people that are buying and can't afford those kinds of properties at times, during times of risk, is definitely lower. But I do feel a multitude of the median and the most sort of affordable options there's definitely been a bit of an uptake—especially in the areas that are operating from a business perspective, from a buying perspective. A lot of homeowner-buyer activity at the moment, a lot of owner-occupiers now, you know, looking at these suburbs that, I mean, just because they're affordable, it doesn't mean they're the lowest socio.
It doesn't mean that they're bad areas. You know, they’re just a bit further out—maybe not what a lot of people would prefer in terms of proximity to cities and things like that. We're talking about the 20-kilometre distance. So, it's not like a huge, you know, 5-hour commute or anything like that.
And the other thing is, I feel like a lot of these from what I'm seeing as well, a lot of these owner-occupiers or first-home buyers that are buying a house to live in are also being a little bit more conservative. Previously they might be borrowing to the hills to try and get that property that they really want in a very desirable location. But now, you know, because of the economic risk and potential employment risk as well, you know, even if they can't afford, let's say a million bucks to buy a fancy place to live in, they're opting for more sort of conservative options. And they're maintaining a bit of a buffer from a cash perspective as well. So, they might be, you know, budgeting $700,000 instead as an example. So, I think that's starting to become a little bit more normal as well.
We delve into why Loo thinks that work in the property industry has been busier than ever even during this period of time.
There's a few factors at play currently. I think the government has done a great job in maintaining confidence with the general public, you know—with job care, with JobSeeker, you know, banks deferring mortgage repayments, extremely low interest rates. Even though that's not really a government policy, all of these factors combined has helped maintain a lot of confidence with people who need to enter the property market because they need a house to live in.
Now, pre-COVID, I would say there was probably a 50/50 balance between an investor wanting to buy a property versus an owner-occupier wanting to buy that property. Now, since we're, you know, several months into COVID, I would say that shift is probably more like 20% or 25% investor versus 75% or 80% owner-occupier.
So, there's a lot more owner activity and a lot more first home-buyer activity. On the other hand of the equation is a very limited number of listings that are coming on the market. Definitely a lot less than there would be normally. So, the people that are selling houses at the moment, there's a lot more situations where people have genuine reasons to sell rather than previously where people are thinking, ‘Oh, you know what if I can cash out or make a decent profit, or maybe I'll just test the market and see if there's any potential buyers’ and things like that.
So, we've got a situation where we do have a lot of buyers on the grounds. The shift has been owner-occupiers being propped up by a lot of confidence and also being propped up by a lot of media bashing on the property market because it’s all the doom and gloom, and property prices are going to tank—and all this kind of stuff.
So, you know, there's a lot of owner-occupiers that are out there thinking that they're going to be getting a better deal or a cheap house that they can, you know, buy a house for their family to live in or to grow up in. And then, on the other hand, you've got a limited number of listings as well. So, I think when you marry the two together, you get a situation where there's just a lot of market activity. And it's more apparent in locations where it's not super expensive. You have locations that are, again, more affordable in locations that are more conducive to, you know, meet any income standards and things like that.
You need to be in property for the long haul and understand that there will be bumps along the way, but always have that end goal in mind.
Property is a long-term game, and I think investors will have to remember this. And this is how I advise all my clients that come to me and say, ‘Simon, I want to build a portfolio. I want to have $100,000 dollars of passive income in 10 years’. I go, ‘Okay, cool. That's great. Let's strategise. We can work that out. That's fine’. But 10 years is a long time, you know. Within the 10 years, there's going to be high interest rates. There's going to be different economic policies. There could be, you know, pandemics like what we're experiencing.
So, it's really important not only to focus on growth and advancing towards a goal, but it's also important to ensure that you don't get in too deep. Have measures in place to ensure that if things were to go wrong, you can exit.
Exit strategies are super important. We've discussed this in previous episodes. And also to ensure that your property appeals to lots and lots of tenants and it's rentable, and you're not going to come under any undue stress or risk if that tenant decides to not pay rent, or if they decide to leave, or if you have maintenance issues and things like that.