Chatting with CEO of Metropole, Michael Yardney, we will follow his journey to success - starting from a joint investment at the age of 21 - and how he learnt the importance of cash flow, the property cycles first-hand and to explore and develop your investment. Uncover the multi millionaire's humble beginnings in business at a Melbourne restaurant called ‘Metropole’ and learn that you don’t have to do it all on your own.
As one of Australia’s leading property advisors Yardney will provide his nuggets of wisdom, fresh from his wealth of experience, on everything from the intriguing evolvement of the Australian market to the importance of being cautious when getting into bed with other professionals.
Michael Yardney is known as one of Australia’s leading experts in wealth creation through property. He shares what his passions are.
Interestingly, one of my passions is the psychology of success and wealth creation. I've been voted Australia's leading property investment adviser four times in the last six years. I'm an author of eight books - five of them have been best sellers.
As the CEO of Metropole Property Strategists, he shares what a typical day in his life looks like.
I've been involved in over $2 billion worth of property transactions and through our property management department, we're managing $1.5 million worth of our clients’ assets. But I'm not a theorist, I'm actually still involved in real estate. I'm currently involved in four property developers personally to keep in the long term and I'm an active property investor myself.
I've gotten to the point where now I'm the conductor of an orchestra and I have a lot of people working for us. We’ve got close to 50 people in the team in three offices - Melbourne Sydney and Brisbane. I enjoy running the business side of things, but I'm very much involved in the marketing, in doing the research and the overall big picture strategy. And I spend quite a bit of my day writing, doing podcasts and speaking to the media about my thoughts on real estate matters.
Yardney describes himself as a long term player in the property investor game and also likes to add value to his portfolio, taking the time to develop his properties.
Over the years, how I do things has changed. But today I'm a long term investor but I love adding value. So I'm currently involved in four medium density developments, duplexes of four-bedroom townhouses in good upper-class, middle-range suburbs of Melbourne that I'm going to keep as a long term investment. So I've always got a few small developments on the go that slowly but surely keep adding to my property portfolio.
So who is Michael Yardney? Expressing an interest in wealth creation from a very young age, he owned that seeing his friends’ parents acquire wealth via property investing was fascinating. As he got older, he endeavoured to find out more about how they did it.
I came to Australia at the age of three. I had migrant parents. They were both hard workers and as I grew up I saw that a lot of my friends’ parents were wealthy. They had businesses, they had cars, they went on holidays, they all seem to own real estate. So my friends’ parents - in fact, happened to be my parents’ friends - were much wealthier. My parents didn't have their own home until I was much older. We lived with my grandmother; they both worked hard. They saved up a little bit to go on Christmas holidays. We never went anywhere fancy, my parents didn't have their own car till much later on in life also.
And I sort of figured that these other people were becoming wealthy through real estate, or that's how I saw it in my eyes as a young kid. I decided I wanted to get involved in real estate as well. So I spoke to them, I learned from them, I modelled them. Because it wasn't the books, there wasn't the Internet. So I decided I wanted to become wealthy - I wanted to become an estate agent. So while other people wanted to be an astronaut or a fireman, I thought it was the estate agents who were wealthy. I didn't understand that just because they drive fancy cars, they weren't wealthy at all. It was the people who owned the real estate that was wealthy.
He moved to Australia with his family when he was a child and expresses how growing up within a non-wealthy family taught him important values.
Initially, I was born in Haifa, Israel. My mother was from Vienna, Austria. My father’s from Czechoslovakia and they escaped Hitler and made it to Palestine. My father was in the British army and so, therefore, we were able to migrate to Australia and became Australian citizens very quickly.
I came at the age of three in 1956, so I didn't know the language. English wasn't my second language even, I knew Hebrew and German. So I went to India and my early memories were of tears as I sort of didn't understand what was going on. But I soon learned that children learn very, very quickly. And I guess I knew no different. I didn't realise we were poor till I guess in my teens when I never went without anything and my parents taught me lots of good values. But we didn't have the trappings of what I saw as wealth and as a child, I wanted it all.
Prior to getting started in property investing, Yardney worked throughout the university in order to support himself.
I actually worked during the school holidays and Christmas holidays in various jobs. For many years I actually worked in the storeroom at Portmans over the school holidays, the ladies fashion store as well, just to get pocket money because again we weren't particularly wealthy. So I had to work my way through.
Yardney began venturing into property investing at a young age. He says that due to a lack of information, he was forced to learn from his mistakes and to teach himself how to succeed with his investments.
Interestingly when I was 21 I bought my first investment property - I actually went halves with my parents. So around the early 1970s, we borrowed $2 000 (because I did some jobs, I worked my way through school and through university) and I had the half from a deposit on a property in Large Street, South Cawfield that we went halves with - cost $18 000. We got $12/week rent and I took a 30-year mortgage because we had no idea how we were going to make money out of it.
Again in those days, there wasn't any information about where to buy, what to buy. There was no computers or internet, no research data. So I made all the mistakes. I bought the right near where we lived. I bought a street away from me where my school was. I bought my comfort zone; I bought where the shopping local shopping centre was where my mum went shopping because that's all I knew and what we could buy. Interestingly it was the time Gough Whitlam came into power in Australia and inflation was rampant - 17% inflation - and all of a sudden this property that we bought went up in value a lot. So much so that I was able to borrow against it a couple of years later to buy another property.
The worst thing that can happen to a beginning investor is to get it right the first time because you think you're smart.
I just wish I knew what I was doing. If it was nothing at all to do with that, it was dumb luck. And then I bought a second one and in a few years later I got married and I made one of my first mistakes. I sold my properties. So I sold that $18 000 property to my parents. I sold it for my half share of $32 000 and it had gone up that much. Again very high inflationary times in the early 1970s. So I sold it about 6 years later. Interestingly I bought it back from my mother in 2002 for half of... I bought the whole lot from her for $256 000, I have since built two townhouses on it is, worth about $1 million each. I still have my first investment property with a big gap in the middle. It was worth $18 000 then and they're worth about $2 million today.
During the property boom in the 1980s, he made some courageous decisions which catapulted him towards investing in commercial and industrial properties. While he believes he got lucky, he says that any mistakes he made taught him the importance of cash flow and cycles.
One of my early properties I knew the concept of renovation, I thought it would be a good way to do things and I tried to do my first renovation myself. Nobody told me that you actually could open up the ears to get ventilation when you paint a place. So the first thing I painted properly, I actually got quite sick and made myself unwell. But it has added value to the property. And when I eventually got married and had to sell a couple of those investments to buy our first home - again not understanding the concept of refinancing and moving on - I ended up with just a house and over time, using my cash flow and some savings, I got involved in property investment again. I knew nothing about cycles, knew nothing about when the right time to buy was, or even that some areas performed better than others. That lesson came to me a lot later.
But I bought a couple of investments and then in the early 1980s, I got involved in property development. I was in my thirties and had a couple of business partners and we got together and were very, very brave. I did some things that if it wasn't a property boom at the time I would have gone broke. But a property boom covers up lots of mistakes, so we were buying properties to pull down and buy townhouses or occasionally houses in the middle ring suburbs and it actually worked okay because prices went up. But one time I looked back and thought, ‘Hey, if I just actually held on to that land and hadn't done anything, I would have made as much.’ It was just a property boom that covered me up.
Then in the late 80s, I got involved in some very brave property developments, did a couple of subdivisions. I did the renovation of inner-city building in Melbourne and again carried away a very strong property boom early in the late 1980s, that came to a very abrupt end in the early 90s when we had the recession. Unfortunately during that time, a number of my friends and colleagues went broke because interest rates went from 10 and 12% - we were happy paying 10% interest in those days - to 17, 18% and things ground to a halt.
So the bank said to me, ‘Sell up,’ as I said, ‘To who?’ Because they wanted to pay down some of our debts and there was no one buying. We owned a lot of industrial property at that moment. So one of my early mistakes was getting involved in commercial and industrial property, where values dropped considerably as interest rates went up. Fortunately, I had cash flow because these properties were leased, so I was always able to repay the banks and so they chased people who were not repaying them more than me.
But the early 90s was my first experience, even though it was 20 years into investing already, of the importance of cash flow and the importance of cycles. And I thought at that time the importance of counter-cyclical investing - even though it changed my tune on that too. So as a few of my friends went broke I thought, ‘But by the grace of God go I.’ So it's made me a much more cautious investor personally and for our clients.
Starting with his company, he shares with us the interesting reason behind the name, with its humble beginnings as a restaurant in Melbourne.
I started the company Metropole Properties as my family trust and it goes way back to 1979. And it was named after a restaurant in Melbourne, called the ‘Metropole’. So that's how it got the name. I still have that company. I've been a director of it ever since, but the company that deals with clients in - there's a Metropole Properties Melbourne, Metropole Property Sydney and Brisbane, so there's a number of companies in the Metropol group - but yes that goes way back there and was when my friend and my solicitor at the time Michael said, ‘Would you like to be my business partner? Let's do some developments together.’ And that was at a restaurant called the Metropole.
That's a very interesting story. So a restaurant turned into property development. I like that story!
And I have survived it and that restaurant is actually still there but it's changed names 15 times.
Well, at least you’ve outlived that restaurant, which is good. What kind of restaurant was it? What type of food?
I can't remember, it was in High Street, Armidale there in Melbourne. Now a burger place.
Through trial and error, through learning from others and through implementing partnerships, Yardney attained his knowledge of the property investment scene.
I made a lot of mistakes. I studied, and learned, but basically from books and speaking to people and I had a couple of mentors. One of the things I learned along the way is, rather than try and do it yourself and learning yourself, to learn from other people. So this partnership that I had with my friend - his name was Michael - also we actually buddied up with a couple of people: one was an architect, one was already a reasonably serious developer. And so we had a nice group of people who had various skills that helped us.
But again, I made so many mistakes that as I said, were covered up by the rising prices of a property boom. It was actually easier those days, there was less regulation. We got builders to do the building and it seemed to work. One of our biggest projects was an industrial subdivision where we bought a farm - very brave, very stupid people in Bayswater in Melbourne. We bought this big farm, subdivided into 30 blocks of industrial land. We sold it all off the plan in those days in the late 1980s. Then went to the bank and said, ‘Here's a farm we're settling on in six months. Here’s a fixed-price contract from the engineers to build the roads and put all the services in, here’s 32 contracts of sale. Would you please lend us the money?’ We never figured what would happen if we hadn't sold those and how we could have got caught and got ourselves into trouble.
The excitement of youth and getting involved in things and fortunately got away with it. Learnt so many lessons that now make me a much more cautious developer and help our clients. We're still involved currently as our project management services with 52 developments for clients. We're still doing it and Bryce Yardney my son, today is taking over that and he is running the projects division after my previous business partner, Gavin Taylor who is an architect by degree just retired a few months ago.
These issues he had throughout his journey could have been a detriment to his success.
It took a six-month settlement and all of a sudden - I'd never done one little road subdivision. I found a firm of architects, of engineers and town planners who designed the roads, designed all the drainage chutes. We didn't know what was involved and then they outsourced it to a couple of contractors and got us some quotes, but we actually did that in the wrong order. We hadn't done the feasibility before and if we had not done it, if we hadn't been lucky and the sums didn't stack up as well as they did, we could have gone broke.
So we bought our land and then thought, ‘Well, what’re we going to do with it afterwards?’ rather than the other way around of, ‘OK. Before I commit to this large sum of money, what are my costs? What are my outlays? What are my risks? What's potentially going to go wrong? Will the bank even lend me money?’ That's what you have to do today.
He reminisces to time as a young man, where he learned the hard way that not everything that glitters is gold.
In my reasonably early days, I was scammed by somebody who tried to get me involved in a gold mine. What happened was one of my friends invested some money in a gold mine and this person told him how he could make lots of money. And I said to Brian my friend at the time, ‘Don't be stupid. Oh, why would you do that? Why would he need your -’ It was $5 000 those days, which today would probably be equivalent to a $100 000. And it was a lot of money.
So the end result was I sat down with him. This guy came in my living room and he pulled off a nugget of gold out of his pocket and explained to me that I could have this as well. And he showed me these plans. It sounded very impressive. Asian Pacific Development Corporation was actually a mine. Asian Pacific mines, I should say. And the end result was I gave him my money as well and he scammed a whole lot of people. He used it to buy himself cars and helicopters and jeeps and things like that. None of it went to re-develop this mine in Weatherburn, in Ballarat in Victoria.
So it was a couple of lessons out of that. First of all, not everything that glitters is gold. Do your homework and due diligence carefully. There is no get rich quick schemes and it was a blow to my ego of a young guy in his 20s, thinking I was so smart getting involved in this big company with a fancy name. So it was a humbling experience, which has remained with me since to teach me that, as I said not everything that glitters is gold. Be careful who you get associated with.
Yardney also says that the real estate business is a slow method of acquiring wealth and to trust your gut instincts.
Have recently been throwing out old copies of Australian Property Investor magazine - this is the magazine recently gone broke - and I've had all these copies way back for the last 17-18 years. And there's I've been throwing them out I've actually been just reading through and seeing who's been around and who isn't, who's still there. And I've been dealing with the public now since about the year 2000 and there are two or three other people who are still around from that time. I was noticing the ads in the magazines of who's come and who's gone. The ideas they've shared, the stories that have gone on. And it's interesting that there have been lots of interesting characters in this industry. And so I guess one of the lessons I've learned is, again not everything that glitters is gold. Don't believe everything that people tell you. Do your own careful due diligence and realise the fact that real estate business investing in general, is a slow way to get wealthy. Wealth is the transfer of money from the impatient to the patient.
The realisation that he didn’t have to undertake everything alone was a pivotal moment in Yardney’s property investment journey. He recognised how important it was to have a mentor and continue to grow and learn more over time.
I think the biggest a-ha moment I had was when I realised that I didn't have to do everything myself. My father taught me to learn from my mistakes. And I think when I first started, I tried to do everything myself for one of two reasons. First of all, because I was cheap and I didn't want to pay for other people. And I guess I couldn't afford it. But the other was to try and learn. And it's just very hard and very demoralising to do that. But when I recognised that other people before me have actually done it and achieved it - I think I learned the concept of modelling and mentoring from Tony Robbins many years ago when I went to one of his seminars - and it taught me the importance of mentors. I clearly remember the concept that he did, what's called a firewall. And people go there and walk over the hot coals. And I thought I'm not stupid. I'm not going to do that. I'm going to watch everybody else do it now. Just sit back. But interestingly I did do it and I learned that if you can not pay attention to concentrate on the hot coals below you, but actually look at the green grass ahead of you, you can get through anything.
So I learned from many mentors - people I pay, people whose books I’ve read, people who have seminars I've been to - that if I stand on their shoulders, I can see a lot further.
I've done some of my best thinking and got some of my best ideas from my mentors rather than from myself, that has taken me investing to a whole new level. And I still have mentors. I still have business coaches. I still have people who I pay, I still belong to parties it's a mastermind group because I'm still wanting to keep growing.
With so many years of experience himself, he says that the mentorship he seeks is similar to that of an athlete. He asks his mentors to keep him accountable for his actions and to help him out where he needs it.
An interesting question that people ask me is, ‘How come if you are very wealthy and you own more properties than your mentors, would you use them?’ But the example I use is the top tennis players, the top golfers. They all have coaches who actually don't necessarily play better than them, but look at their blind spots. I asked my mentors to look at my blind spots to keep me accountable to have transformational conversations with me.
So while I am better in some areas, I'm actually not as good in other areas. So while I have strict discipline in a lot of my business things and my writing, for example, I don't have discipline in my health. You know, I'm overweight. Even just before our chat today, there was somebody giving some chocolate bars in the kitchen here - from one of those charities you know, they collect for the fundraiser. Everyone else bought one chocolate bar.
I bought three.
Maybe he focuses it in other areas of my life, like maybe looking after my health or things like that instead. So there are always people I can still learn from. And I think that if I ever forget that, I'm going to stop growing. It's a lesson that you will find from the most successful people. They want to keep growing, they want to keep learning. So I set aside time to do this. And some of them nowadays with the Internet - it's so much easier to have mentors and mastermind groups and speak with people around the world.
Yardney has found mentors in various different ways, acknowledging that as time goes by his mentors change in accordance with his needs. Now he is excited about exploring and learning from those who are following his own mentorship program, as he is able to learn from them as well.
I have a business coach and I've had business coaches for 15 years. I pay over $100 000 dollars a year for business coaching. And interestingly I see that as an investment, not as an expense. I wouldn't have been able to grow my business to the level it is without having somebody like that there. I have others in areas that I'm interested in, like marketing. One of my great mentors in other areas or mastermind groups is Tom Corley who's in the United States - he's very like-minded. I've just written a book together with him, so it's through other people and over time the mentors and the coaches I've had have changed. After a few years, I've outgrown them or things have changed. So the people I'm hanging around with today and the people that are helping me today are different from the people who helped me five years ago.
There's one other group of mentors that probably don't realise they are. And that happens to be the people in my mentorship program. For over a decade now, I've run a 12-month mentorship program. I actually think you can find out about it at michaelyardney.com.au and I've run over 2 000 people through this 12-month mentorship program. And I learn from all of them. I learn things to do and things not to do and I probably haven't given them enough credit to actually say thank you, because you've heard it said before, I'm sure that as a teacher you learn a lot as well.
Michael Yardney’s 6-Stranded Approach To Finding The Best Properties on the Market
When he made his first investment into property, Yardney’s way of thinking held him back. He's come to believe that in developing his mindset and making the time and effort to invest in his headspace is of the utmost importance.
When I first invested in property I had a desire, I had a drive, I had a dream. So, therefore, I believed that I had the right mindset at the time. The trouble is that you’re not born knowing how to do money, you learn that from the people around you and your early mentors tend to be in general your parents. So your learning and the conditioning you have as a child will only get you that far. So it did get me to a certain level, but unless I changed what I call my wealth operating system the way I think, feel and deal with the money I wouldn't have got to the level I am today.
I believe if you took all the money in the world and distributed it evenly, it would be back in the same proportions again in four or five years time. Would you agree with that?
I mean it’s the old story, the people who win the lottery and all of a sudden they lose it after five or six years time. So if you suddenly become wealthy. or you get an inheritance, or you get a bonus and you don't grow to the level of your wealth you're more likely to lose it.
So I had the initial mindset to get to a particular level, but I didn't recognise the importance of that. I didn't know any of that sort of stuff. It was only later on in life when I was introduced to the concept of personal development, that you can't outgrow it - you can't become wealthier than your personal growth. But the fact is that you can change and you can do things differently and you can learn.
So one of my only mentors was Jim Rowan and somebody who I never met personally, but I bought his tapes and I listened to this master teach me about how to become a better person, how to learn to grow into a bigger, wealthier person by thinking and doing things differently. So my mindset still grows and still changes - once a year for five days, I get together with 50 people at wealth retreat on the Gold Coast and most of those people are already out of the rat race - very high net worth, wealthy individuals, business people and entrepreneurs. We spend four or five days talking about how to become wealthy and while an element of it is about tax, finances, structures and property, a huge portion of it is headspaces, mindset for every year. I personally also go through up-scaling and upgrading the way I think about things because I want to keep growing.
So how do you keep growing? Yardney explains that to change and implement your own wealth operating system requires assimilating ‘rich habits’.
We all have a way of thinking about things and nobody wants to think illogically. So what average people do is very different from the way wealthy people do this and that's why the rich keep getting richer. It's because of their money habits. In fact, my last book Rich Habits Poor Habits with Tom Corley is now a best seller internationally, it’s doing really well in America and in the UK as well. And Tom, who is a CPA, spent five years studying 50 wealthy people and 183 poor people and working out what their habits were. Similarly, I've gone through teaching over 2 000 people over the last decade in my mentorship program.
We actually worked out that the wealthy people don't have anything different to invest in - either businesses or shares or property. So they don't do different things, they just do things in a certain way. They think in a certain way and they have more rich habits. Early in life, they have money habits that get them there, including delayed gratification, learning to save and invest and then build an asset base.
You'll find that wealthy people hang around other people who are wealthy also. I'm sure you've heard it said that you become like the five people you hang around the most. So if you hang around whingers, complainers and people who don't save and spend all their money, you're likely to be like them. How to get started early is educate yourself about financial fluency and get some mentors to drag you up with them, to become like them.
Australia is one of the wealthiest countries in the world. So why is it that many people never get out of the rat race?
At all of my seminars, I actually ask, ‘Hands up anyone who's got, multimillionaire parents?’ And occasionally you'll find somebody who puts their hands up and I say, ‘Don't you think that the conversations around their kitchen table were different to the conversations around my kitchen table, where my parents used to argue every month when the budget didn't meet and there wasn't enough money to pay the bills?’ So that made me angry about money, that made me resentful for what was going on. And so I rebelled, while my sister is the opposite. She's actually become very much like my parents and very concerned about money and very conservative. So different people respond to those things early in the piece.
So a lot of us have had poor education about money, the system doesn't teach you, the schools don't teach you, different cultures, different religions handle money differently also. So why most people don't get out of the rat race is they don't know how to - they've got bad habits, they've got bad money habits. And that's the basis of Rich Habits Poor Habits, where we all have empowering beliefs, empowering habits and disempowering habits. So we're driving around with one foot on the brake and one foot on the accelerator and what you think about the most, you become.
If you continuously think about the poor money habits, you're not going to become wealthy. So the first step is to recognise what's not working, then you've got to recognise those disempowering habits - such as spending more than you earn, gambling, wasting time on Facebook and Twitter, rather than educating yourself and not looking after your health or not getting a steady income. So you replace one by one - slowly, you can't do it all at once - the disempowering habits with empowering habits. And this is so important because just like we learned from our parents, many of the people listening to this podcast will be parents or are parents. We talk about mentors - we are the best mentors for our kids and we will be their mentors for most of their life, most of those formative years. So this is such an important lesson for us, as adults and as parents and grandparents.
Talking about his personal finance book Rich Habits Poor Habits, he explains what sets it apart from other books on the market.
So if I wanted to find a marriage counsellor - and my marriage is very happy, I'm only suggesting it as an example - then I would want somebody, not just who's written the book, but somebody who is happy in their marriage, lived together for a long time and is blissfully comfortable. You’ve actually got to get it from people who've actually done it.
So what Rich Habits Poor Habits has done and also my Guide To Getting Rich, is actually not just outline the special money education that the wealthy have got that the average person doesn't have, but more importantly it gives a blueprint of what you should do by people who have actually done it. The results are that over the years, I personally have educated more successful investors than anyone else in Australia and I've been involved in over $2 billion worth of transactions for clients, I must have picked up something along the way!
My first book was How To Grow A Multi-Million Dollar Property Portfolio in Your Spare Time. That was written in 2006 and it's become a classic on most investors’ bookshelves. It's one of the most sold books in Australian property history and last year it had the 10th-anniversary edition.
I also wrote a book on All You Need To Know About Buying and Selling Your Home. There's been one that's just out of print recently that we're doing again, on What Every Property Investor Needs To Know About Finance, Tax and the Law and when I first started this I thought, ‘How much more can you write about the property?’ And then I wrote the Rules of Property, which was different all over again! It's interesting, it successfully is a book about money, shares, personal finance. But I've always wanted to write something on the psychology of success and Rich Habits Poor Habits was only last week written up in Forbes magazine as being a top book as well - so that's why it's going gangbusters in the US. You can find out all about these at michaelyardneybooks.com.au.
Yardney’s inspiration to write these books was to give back to the community and create a better world for future generations.
I believe that once you get to a particular level, it's an obligation to give something back. So I ruined the first half of my life chasing money and chasing the wrong thing because I was angry and cross because of my childhood. When I actually found a useful purpose for money, such as contribution and giving back - we run a charity ball, Pam my wife and I are running another one next year that will be the third charity ball - giving back to charity and the community is important.
And giving back the things I've learned, because I'm coming from an abundant mind space, having learned the fact that I'm wealthy doesn't stop other people from doing it. And rather than dragging people down to the lowest common denominator, I believe if we can make everyone wealthier and make more money go round it's going to make the world a better place for my children and grandchildren. So I believe it's my obligation to teach people.
When creating financial freedom it is vital to develop a strategy. However, with such an abundance of information, it is difficult to gauge what steps to implement. Yardney explains the nuts and bolts of his own property investment strategy.
My property investment strategy has changed over the years. To be honest I didn't have a strategy when I started; I bought close to where I lived, close to where I went to school - I knew no better, no different. Then I started getting all this information and research which suddenly became available and it was very useful. But today I think investors play with too much potential research. There are too many things going on, it's hard to get perspective.
So when you get all the information on the Internet and magazines, it talks about what’s happened in the past. I'm now looking at what's going on in the future and since I've done that, it's changed my investment results and those of my clients considerably. And what I'm looking at is what is probably going to be in continual strong demand in the future which has so much to do with demographics. I'm very comfortable that Australian property values are going to keep increasing for two main reasons: number one has to do with population growth, and number two has to do with demographics. Property values increase because there are more people wanting them - and it's not just population growth but household formation - but you also need people who can afford to live there.
So it's not just buying anywhere but it is where people have got high disposable income. It also has in the short term to do with supply and demand but more importantly, location and the people that live there. So I use a top-down approach because, in my opinion, location does about 80% of the heavy lifting on your property's performance and about 20% of it is the property in that location. So, how is the economy doing? Is it a good time? Sometimes in the economic cycle, you just don't get involved.
The next step is then which [capital cities] are likely to outperform the averages and I believe Sydney and Melbourne have decoupled from the rest of Australia. So the majority of economic growth, the population growth, the wages growth in our capital cities - and in particular two-thirds of jobs being created in Melbourne and Sydney, that's where most of the migrants are going. Queensland comes to a third runner with only 12% of the migrants out of the rest of Australia. So where are the people going to go? Then you actually look at areas that are going to outperform the averages because of the demographics, people who've got higher disposable income. They're the ones who are going to be able to be prepared to pay to push up property values. So we stay away from those areas just as people are moving there.
It's not judging the people, but I'm looking for areas and I'm looking forward to all the new census data that we dig into because you can find that over the last census period, wages went up on average about 16% over the five year period. But in some municipalities wages went up double that. And these are the areas we're looking at because those people have got higher disposable incomes and they can pay more for their houses and be prepared to pay more. So we're drilling down from state to suburb. Within the suburbs, the right streets - some streets are more livable than others. Then within the streets, the right properties and then the right price. And to me, prices down the bottom on purpose because you make your money when you buy the property not by buying it cheaply, but you make it by buying the right property.
Outlined in How to Grow a Multi-Million Dollar Property Portfolio In Your Spare Time, there are six identifying elements involved in choosing the investment-grade property to invest in.
What is an investment-grade property then? I have a six-stranded approach to that:
- First of all, I buy a property that has owner-occupier appeal because I don't want to sell it but the owner-occupiers are going to buy properties similar to that, that push up the value of my properties.
- I like buying properties below their intrinsic value, so I don't want to pay a premium to buy new or off the plan.
- I like properties with a high land-to-asset ratio. I like the high land-to-asset ratio because it's the land that goes up, but that doesn't mean it has to have a lot of lands. I'd rather own a 12th of a block of land in one of the middle suburbs of Melbourne or Sydney under an apartment building, than a whole acre in the outer suburbs.
- I like buying properties with something unique about them.
- I like buying properties in those areas that are going to outperform, as I said the right demographics.
- The last strand of my six-stranded approach is to buy a property where I can add value so that I can manufacture some capital to grow through renovations or development.
When considering adding value to your property, it is important to base it on what you can afford as well as your goals for the future and your risk profile.
With offices in Melbourne, Sydney and Brazil, we’ve got access to every property on the market on the east coast. But we don't sell the property to clients. We sit with them and understand where they are and the property strategists at Metropole often come not from a real estate background, but a financial background. So they understand - they have economics degrees, we have CFAs, we've got CPAs - to actually give it a wealth advisory because that's really what people want when they want the property. They want financial freedom, they want choices, they want the ability to go to work because they want to, not because they have to.
So what we do is we actually take this holistic approach of where they are now, where they want to be in the future, what their risk profile is and then we also see what their budget is. Because while many people want to become a developer, most don't have the financial capacity to. And even if they do, I wouldn't recommend the first property you buy is a development property because I think you've really got to cut your teeth on owning a property - having some ups and downs, having some vacancies, having some problems with the tenants and the property managers - before we get into the deeper issues of property development.
My concept of development is to buy and renovate, or buy, develop, refinance and hold. It's not to sell. You don't make enough money selling it. So you've got to buy in the best location and if you can't afford to buy one that you can develop there, then at least buy an apartment, a townhouse - it doesn’t have to be a big house - which you can renovate down the track or straight away. Because a good renovation gives you a wider appeal to a wider range of tenants. If you get better rents, you get a better socioeconomic group of tenants, you get great depreciation allowances and you manufacture. You get a one-off little boost in capital value.
Speaking of investing within specific Australian capital cities, Yardney has made the observation that due to the services and employment opportunities, there are certain locations which have had more capital growth during this cycle.
Interestingly I just finished a session on Canberra radio, where they asked me about the concept that there were only three places in this property cycle that have had real capital growth - in other words, capital growth beyond inflation.
So since the beginning of this cycle, which happened in December 2010 after the last slump in the property market. Canberra radio picked up the fact that I wrote that only Melbourne Sydney and Canberra have had real growth. So in that cycle in this period of time, Melbourne has had 63% growth in value since December 2008 till now. And that's a real growth after inflation. In Sydney it’s 76%, so even though Sydney property values have doubled, if you take away inflation real values have gone up. Canberra’s have gone up 16% and every other state hasn't even kept up with inflation.
And these are figures from Core Logic. So it's not my research it was just my commentary on it that they asked about.
Yardney attributes that being resilient, learning from his mentors’ failures and taking action have helped him to achieve his goals.
I think the habit of reading and learning not just from people's successes, but also from people's failures because you can learn more from those.
But I've learned the concept of when these things do go wrong and I'm only as successful as I am because I've failed so many times, in many ways. In my personal life, in my business life in my investment - even though I haven't made many bad investments in the last 10 years or so - I've learned the concept of having a useful belief. So I used to be a bit of a blamer and a victim and that's a bad habit. That's a poor habit. Rich people take responsibility. And when I learned to not blame others and took responsibility for my actions - become the pilot of my life, not the passenger. So I was in control. I felt much better and I acted and behaved better. So when things went wrong, I was allowed to be miserable for a few minutes and be angry and cross, then I had to come up with a useful belief. What is a useful belief about that? What can I learn from that? To take in the future to move me forward. I think that's one of the biggest lessons I've learned about mindset.
I have had many mentors over the years. I mean the fact is that there are no rich victims in most of those books. The concept of being the pilot of your life rather than the passenger were words I actually learned from one of my mentors, many years ago, called Roger Hamilton who is still around. I've learned a lot of very good things from him. I've been to his courses, I've done some work with him in other ways as well. And I guess he is one of the early people that transformed my life. Christopher Howard, who trained me a lot in ALP in public speaking and in the psychology of success, was a great mentor. Many years ago they were both people whose seminars and courses I attended. Brian Tracy in my early days of selling, Jim Rowe and overseas.
I've learned everything from somebody and I'm not very clever at coming up with original ideas. These other people I've just mentioned have - I think Roger Hamilton's come up with some very clever, unique concepts. So all I've done is I've taken them from other people and blended them together. But most importantly, I used them and took action. So I think that's a big difference between why I'm successful and some people aren't because I've actually taken them, I've had a go and if it hasn't worked I've just got up one more time.
Another excellent learning resource is Yardney’s podcast which he recommends to those who are looking for information on personal finance and investing in property.
I'm most excited about my new podcast that was released. It’s at michaelyardleypodcast.com - and it was something a lot of people said to me, ‘Michael, you've written all these books and you've had a share of another very popular podcast for the last five years. Why don’t you have your own podcast?’ I'm having a lot of fun as I know you are, by actually creating those.
Over the years I've had a blog that has 115 000 subscribers, it goes out every day and all the top Australian property experts are there. But it grew considerably as I changed the property update blogs - www.propertyupdate.com.au - to widening it into the areas of success and money, personal finance. So what started as a property blog, a lot of people who want property want all those other things as well. And so the podcast is not just about property investment, but it's about success and it's about personal finance and money.
But I did a survey and about 2 000 people responded to my survey about what they wanted. The number one thing was property investment information and the number two thing was the mindset and the psychology of success information. Now interestingly didn't surprise me, but it confirmed what the content of my blog my podcast has to be. So it's going to be my thoughts with a few guest experts and some of my mentors and some of my mastermind group. But it's basically going to be my thoughts on property, on success, on wealth and on the mindset of the rich and the habits of the rich.
The other thing that excites me is once or twice a day, I get an email from somebody I've never met who emails me and says, ‘Michael, I picked up one of your books at the airport or read one of your things online, and it's actually helped me. It's made me think differently or I bought a property and it changed my life. Thank you very much,’ That is an amazing moment, that really makes my day.
To find out more from Yardney, you can connect with him through
propertyupdate.com.au is my daily blog. All the property experts like Andrew Wilson, Louis Christopher, Tim Lawless, Cameron Kusher, Pete Wargent and Michael Matusik all write from my blog as they want their information out there. John Lindeman... I've left out a whole lot of people. So it gives me an opportunity to easily share property investment information with lots of people. Under there, there's a subsection Michael Yardney Podcast, or you can just go to michaelyardneypodcast.com and it will tell you all about that as well.