Demolishing and Building: David Woo Formula for Investment Return
Meet David Woo, a chartered accountant in private practice specialising in accounting and tax, in particular, advising on property-related matters in regards to tax, and successful property investor. Born and raised in Hong Kong, he came from a middle-class family before moving to Australia, where he made the switch in his career from science to accounting, completing a Master of Commerce. After university, he applied for a job at the firm Richard A. Bobb and got the role and eventually became a partner of the firm.
In this episode of Property Investory, find out why their accounting firm focuses on property and why David Woo thinks property is so powerful and what it can do for your life. Also, we will be delving into his surprising first property where the house he was demolishing had to be taken away on a truck, his journey of property investments after that, from one in Queensland to another in NSW, his worst investing moment and much, much more!
First off, Woo tells us a bit about what he does and what a typical day for him looks like.
I’m a chartered accountant in private practice. Basically I have a practice in the Sydney CBD, accounting and tax. I’ve got two business partners, been in practice since 1997 so the 20 odd years. While we do a lot of tax return work, my expertise and favourite are in tax planning as advisory, especially in the property related matters relating to tax.
A typical day starts with going back to the office, I read a financial review and that’s very important because I need to price on what’s happening in the financial world. And even though I’m an accountant, I need to broaden my knowledge and view on all aspects of financial matters. And then I obviously hit the email and then see whether there’s an email that I need to attend to urgently. And then I followed my plan and I’ve got a day list, so what you need to do etcetera, the night before I list down what is needed to be done and go to look at the job lists, review some of the jobs. As I told you before, I’m looking at tax returns, so I’m getting that out of the way.
And then I spend the other part of the day, I’m looking at how to make sure that clients are being serviced. I have, just so you know, I’m not sure whether you’ve heard about it, the red activity, blue activity and black activities. So red activities are those that’s basically not really productive, like looking at administration; blue are the ones that is actually charging the client by reviewing files, et cetera, and blank activities are those that’s basically marketing to train staff and then to make sure that we have planning placed to bring a new client and then to generate these. I spent a lot of time doing that sort of black activities.
In regards to this colour system Woo uses for dividing up his tasks, he tells us where he learned it from and a little more about it.
I learned it from somewhere else. Yeah. It’s actually not originally from me. I have to pay credit to those, I don’t know who, who invented it, but then look at it. A lot of us, these are the main three main activity, the one that is generating your income instantly, which is the blue, but one that is not general income, such as the overhead, the chit-chatting, the one that is potentially generating income in the future, black activity. So depending on how you focus on those—a lot of people just focus on the blue one, which is good generating income instantly—but then you have to look at the plan, where you can get some income in the future.
That’s so true. And at the end of the day, if you don’t focus on the black activities as well too, you won’t have any future activity. So absolutely. So crucial. It’s really interesting. I have something similar in that in this colour system, but I followed the red light traffic kind of colours, red, yellow, and green. So yeah, but I do it sort of back on a task level, but that, that’s very fascinating. I really admire what you’ve created there. So that’s, you’re very, very methodical and everything’s planned out.
Woo goes on to tell us about his upbringing, what he did after high school, and when he immigrated to Australia.
I was born in Hong Kong and then raised up there and then typical middle-class family, and my parents, they are businessmen doing something exportation. So in a way we are, we are a family of six and I’m the eldest one. I’ve got two brothers and one younger sister. So we are quite lucky because we are from our start we are, we are being looked after by the parents, have a good education. I mean and then we have a lot of good clothing and then a good living environment. We can’t say that we’re very rich, but we’re middle class, typical Hong Kong people. And then I study science in my high school and then I wanted to go into the medicine to study doctor but I failed my university entrance exam.
So I couldn’t get into medicine, into science. And then after graduating an AT3, I am studying master degree and doing some research work in Hong Kong and at the time. And then the family, my father planned to migrate over here because of at that time they have the problem with 1987 China taking over Hong Kong. So my parents were always afraid of that political situation. So he applied for migration and we got the visa, the van visa, and then we migrated here in 1986. And then the once I’m in Australia, I wanted to continue my science work, but then not much opportunity there. So I switched into accounting and a bit hobby, a big change.
Although most of Woo’s family decided to stay in Australia, not all of them did.
Well, my parents stay obviously because of the business connection is just that for us we have to come over here to study and then now all my brothers and sisters, they are here. But my parents are still in Hong Kong. They prefer the way of life over there; all of me and my brothers and sister, they are all citizens. But my parents, they’re still holding permanent resident visas only because they didn’t spend enough time there to get their citizenship.
With the current situation in Hong Kong with the Chinese government, Woo tells us as to whether his parents are considering moving elsewhere.
It’s mixed feelings. Obviously they wanted to stay because of the connections and the relatives there and the language. And then on the other hand there comes a point where the protests in Hong Kong are getting more severe and things affecting not only the day-to-day of ordinary people, so they are seriously thinking of coming over here to do stay for good.
Schooling in Hong Kong for Woo was a little different from how schools operate in Australia.
At the time, back in my days, they have actually 13 years. So six years is primary school. And in high school, we had called it form one to form seven. So seven plus six is thirteen. So form one to form six is equal here currently to year seven to year 12 here. And then form seven, which they would call a pre-matriculation school year, that’s preparing you for the university. So that means we have for seven years of high school. So the system in Hong Kong is very much very spoon-feeding so that it’s just a lot of focus on academics, not much as diverse broad-based teaching as in Australia, and every people just doing a lot of study work, tuition and just want to get into the elite university, Hong Kong and Chinese university, at the time, the only two universities which are famous were just Chinese university and Hong Kong university. A lot of people spent a lot of time and the effort in trying to get into those prestigious universities.
When he was in Hong Kong, Woo did work a little, before he came to Australia and decided to pursue further studies.
Yeah, I work a little bit in my father’s company to help him out. For import-export training. When I was young I had always had an intention to succeed and my families, to help them out. But then I find it to be quite difficult because my interest is not in that area. After studying my master in Hong Kong, which is also the science, I just have the opportunity to come over here to explore, to see what opportunities are open to me and then I find science, and then you can either to go to research or you go to do teaching work. And at the time, not much not that many opportunities. So I look at around, okay, so I may as well do a master’s degree in commerce, which is a degree that not require any commerce first degree.
So if you have a science background, you can still do a Master of Commerce to give you some knowledge into the accounting and business world. So it is only a two-year course at UNSW, Master of Commerce. So I did that in 87, 88. So I find that to be quite interesting in the areas of, I chose to account because obviously accounting is the basic everything. So once you know accounting, then you can branch into a lot of areas, more numbers and finance and what have you.
Whilst he was studying, Woo decided not to obtain a part-time job because of the mindset he grew up with.
At the time, I was full-time study and then I am with hindsight would have been better if I get some job opportunity but then being from Hong Kong, the mindset is okay, study, study, study. And then you can find a job. So we, we don’t have the mentality of doing a part-time job and doing the part-time study. Also, my background is relatively comfortable and then we don’t need to work to get a living. But that’s good and bad because obviously that means I don’t have the exposure of getting some real-life experience in work, which is totally different from what you learn at school in uni.
He tells us a bit about where he lived with his siblings when he first moved to Australia.
We are living in one house together. And then obviously basically when we migrated here, we don’t know everybody, so my father bought a house, me and my uncle in the Southern area in Blakehurst near Huntsville. So we all live together in one house and then it was a very big house so a lot of things to look after the cleaning, do a lot of stuff. And then obviously in Hong Kong, we have some people to help in Hong Kong. We have domestic helper. In Australia, obviously everything have to be done by ourselves. So that’s one of the reasons why my parents didn’t want to come over here in the first place.
Yes, I can understand why. My wife’s cousin’s are over in Hong Kong still. And they’ve been living in Hong Kong for a long time actually. They retired in Hong Kong intentionally for that because they’re originally from Malaysia and he was one of the CEOs of one of the large big banks actually over in Asia, and when he travelled and so forth, there was a lot of time that he was in Hong Kong because I think he was an ex-pat there. And then, in the end, he just ended up staying in Hong Kong for a while and then after that, he decided to settle in Malaysia. But the same thing in Malaysia, they also have Filipino maids as well too, or helpers. And it’s very hard to sort of leave from that lifestyle when everything’s all done and helpers for years. So I can see why it’s quite a good lifestyle, but it becomes quite costly if anything like that was to happen in Australia as such because they’ve got all these different regulations and rules behind that stuff. Fascinating, that’s very fascinating.
Woo walks us through the process by which he arrived at his current place of employment.
After my studies actually I went back to Hong Kong to work for six months to join a big accounting firm called Price of the House. And then after six months, I think I can’t stand the pressure in Hong Kong and actually wanted to come back to Australia. So I just came back in…luckily I got a job in a small accounting firm in closeness. So I joined them and for I think one a bit year. And then unfortunately at the time, we experienced the recession we had to have in 91. So my firm said look they can’t retain me because obviously they have got to downsize and because of the recession, not much work. So I was asked to leave and then I spent about a few months with our work and then after that, I have enabled to apply for a job in my current firm, which is Richard A. Bobb. I think that was in August 1991. And at the time obviously it was quite difficult to find a job. So I said if there’s an opportunity, might as well grab it. And since August 1991 and until now I became part of the firm Richard A. Bobb. I become the partner in 1997.
When the firm first started, it was about three partners and 12 staff, and not much, as Woo tells us, has changed since then.
Actually, the firm was started by the founding partner, who founded the firm in 1982. So when I joined in 1991, they’re already quite a decent size, and when I joined in 1991, I worked six years and then until 1997 and become admitted as a partner. We still have some three partners now and then the firm is probably around the same size, about 10 staff. So we’ve been moving a few times. When we first joined a firm, we were in Castlerow Street and then we moved to an O’Connell Street, a bigger firm, I think the size of this in 2003, and then in 2008, when the GFC hit, we have to downsize and move over here to our current location in Hunter street where we are here since April for a good 11 years.
Woo explains why downsizing for businesses occurs due to events like the recession and GFC.
At a time in 1991, the famous Paul Keating basically saying, okay, we have to have the recession. So at the time, there was a lot of business activity, they have to shrink because obviously our business relies on the client’s activity, the client and business activity. The more they have, the more we’ll will be able to handle the tax return accounting work. So a lot of them they just either just re-train, then some of them close down. So that’s why they don’t need their accountant and then they don’t need a lot of other tax work. So that’s why we have these…if we don’t have that work we need to sort of reduce our staff level as well and overhead as well.
So we have to reduce the size of the office and the same as the GFC, it is very much the same. GFC was worse than the recession, a lot of business actually—we witness a lot of them—have to retrain their staff. Especially in our, in our firm, a lot of us are our clients, our property base, so developers and investors. So if the property affected like a lot of the people that cannot build and sell their property, so they’ll affect a lot of their business.
He tells us about the cycles a firm like theirs go through overtime when it comes to the number of clients they have.
The clients visibly disappear and then either they reduce in the volume and then at the time when we moved to O’Connell it was quite good because that’s the reason why we moved from Castlerow to O’Connell street, that was between 2000 and 2003, a decent, booming period. Obviously, as you know, at the time, it was probably was going up, a lot of people buy-off-plan and then et cetera. You may have to share another story later on in the podcast and put that in, might as well. And then since 2003, four and five, again, building up or the way until 2007 and eight, then we hit the GFC. So it’s in the cycle.
There is a reason why their accounting firm focuses on property, which Woo tells us.
Selected as founding partners is Bob, he’s Lebanese, so he’s got a lot of Lebanese client to start with and he founded the firm. So a lot of Lebanese as you know, they are into the building game. So we still have a lot of our clients, my current client is also Lebanese. And then we still have other clients as well which is in the building game. Like we have Greek clients, we have Italian clients, but the main source of client to start with are the Lebanese clients and then they allow the building constructions and then property investment and hands-out firm, most of the clientele, they are properly focused.
For Woo, his parents had an impact on him getting into property, and he also tells us a bit about why he thinks property is so powerful.
It’s probably been the main game in Hong Kong because of the Hong Kong background. Hong Kong is a very tiny place and there are a lot of people, so property becomes a very scarce commodity. So a lot of people, because of our family history. I mean, obviously business is one of the things my father and mother worked very hard at when they were young, and then based on this manufacturing and then the import-export business, once they’ve got them generally a little bit more income then they put money into property. And you see it will grow substantially. When you have a good property portfolio, it grows so rapid and so fast that you can’t even earn that sort of money. That’s your lifetime. So that’s what started my interest in property because obviously how much time you’ve got, you’ve got maximum, you got 24 hours a day. Even if you work 24 hours to earn your income, it cannot compare with the scale that a property can afford you. You can have one property, two properties, and let it grow and let the income compound. And that’s why the property in business is so powerful.
Yeah, I totally agree. And especially in Hong Kong, the price of the property over there, it’s just the units are so high.
Hong Kong is a bit unrealistic.
That’s very true. To give listeners maybe a perspective, how much would you say on average just a two-bedroom unit is worth now in Hong Kong? Say in comparison.
Depends on the location, I suppose. If you’re in a good location, a two-bedroom unit in Australian dollars. We are looking at one, one five, $2 million.
Yeah, that’s what I heard as well. And it’s fascinating because like…
And the size is small. Don’t think about the size, here it might be 80-90 square metres, in Hong Kong, the two-bedroom unit we’re looking at 50, 60 square meter max.
That’s what I hear as well. You don’t get very much there. And that’s probably why I think a lot of people, especially from Hong Kong and China prefer sort of to purchase property in Australia because you get land; for that kind of money, if you sold up your units, however many you have, you could easily buy yourself, many, many houses here.
Yeah. So after the Hong Kong experience, obviously when they come over here, we’re looking at the property here as well. So then I become exposed to some people’s investments. Okay, cool. I mean a property investment is not bad. So my parents start investing in property. And then I also personally start looking at investing in property.
Woo’s first property was quite a surprising one and gave him great experience when it came to property investing.
First of all, it is my home here in Australia obviously. It was near my father’s place, so we bought a rundown property and we actually built our own back in 1992. It was quite a daunting experience because we have to…we had no experience, we had to rely on the builder that’s referred to us, actually, the builder is also the builder who sold the property to my parents. We bought a property, a rundown and then we have to demolish it. And at the time we didn’t demolish it. This a situation where people want to buy a property. It was a cheap property with a weather-boarded roof. And then what happened, I don’t know that term, but then they actually literally come to move the whole property on a big truck and moved it away. I believe the problem is not that big.
I didn’t realise it was still possible in Sydney. I know they do in Queensland a lot, but none in Sydney.
Because some people buy it and then I still remember it was very early morning because they had to do it when the road is clear, no traffic or stun and then the whole thing moved away in a big truck and moved away. So instead of the demolishing it the whole house we moved it away and we started planning and building. That’s why I got to experience I think to buy land and build, you have to have the instant equity because obviously we look around to look at buying houses, but then the prices, it’s much more expensive than the one that we spent, obviously depends on how much money we would we pay to spend the whole or how good your finishes are. But then I still believe this first property experience give me some good insight into to buy and build compared to just buying finished products. That was my first property exposure.
It’s in Blakehurst.
That’s a really, really good area down there.
Yeah, that’s right. Yeah, wanted to be near my father’s place. And then obviously because that’s my first home, so we spent a lot of time, but then it’s not an easy job, we called all the owner-builders or we have to do a lot of stuff and then we have to keep the builders doing the job. We have to keep chasing them. Do a lot of running around, choosing the material and this one, a lot of hard work. Yeah, on the builder.
So how long did that process take from start to finish?
About 12 months.
But that’s a reasonable amount of time.
A reasonable amount of time.
The delay is basically from the neighbour because the plans have to go over the council and then they don’t like this, they don’t like that. And then also afterwards we needed to build a fence in the front and then also get some objections from the neighbour. So I mean, that’s the only delay, otherwise, the process is great and the builder is good. I mean, he worked hard for us and then et cetera. I mean 12 months is not too bad in the scheme of things.
Is that still your current home or have you…?
Yes, it is.
Woo goes on to tell us whether he has been holding his properties as he did with his first one or buying and selling.
A bit of both. That’s the actually my father after he migrated here, he purchased some units in Hurstville, and at the time it was quite good. We had the intention of holding it for long-term, then my father is that type of person who when he see property he wanted to realize it. So, and then unfortunately at that time we sold all the property, I think I’d remember at a time when we bought in 1992 and when we sold, we sold in 1997. At a decent profit, but then obviously with hindsight you could have kept it until today. Ah, it will be much different and it’s just a different ballgame.
Oh yeah, of course. I mean Hurstville properties, even just a unit down there close to a mill or even mill. It’s crazy.
He takes us through a journey of other property investments that he’s done, from one in Queensland to another in NSW.
After my home obviously and then I’m looking at buying a property, we bought the property in Queensland at the time. I don’t know whether you remember, probably you’re too young, there’s a company called Young and Colt. They promise to throw you up there, inspect the property and then if it’s all good, then they’ll sign a contract. I remember still, it was a townhouse in Runaway Bay in the Gold Coast. So yeah, me and my wife were up there and then sounds good. And then we bought it and now with obviously with a bank loan, and then we held it for five years at the time and because of the distance, we couldn’t look after it because obviously it’s in the state. So we have sold it and that’s my second venture into property.
And then we also purchased one property in Bankstown also around that time. And then also we held it for four or five years and then we sold it. I think it’s mainly because at the time the return is not that good and then we want to use the money for other purposes. And then my third attempt was in Rockdale; at the time it was actually the market on the move up. It was 2002, and my real estate agent friend bought one their off-the-plan and I said, well if he buys one there, it can’t be wrong. It was in Rockdale Princes highway. It was quite good. And then we, I hold for, I think around eight years, 2002 and then we went through the GFC in 2008 and then I have to sell in 2010 because obviously financial situations, so I’ve got to realize it. I’ve got to move on. So but again, in hindsight, if we were able to hold onto that to now, it was a one-bedroom one study unit, I bought it for 350 off-the-plan and sold it for 360. It’s pretty even now. How can you buy it in Rockdale now?
Woo tells us more about his worst investing moment, which was the Rockdale property, and elaborates on why he purchased and sold it.
That is absolutely the worst one. It is actually…I think the lesson to learn is basically buying off-the-plan is okay and you buy on a rising market is okay, but then I suppose when bad times come, when bad times hit, I think you have to have the holding power, you have to have to put determination and mindset to say, look, this is your original purchase, what is your purpose for it? Is it a long-term investment or just buy and freak, and I suppose it depends on whether you really have to sell. And with hindsight, I don’t have to sell, but at the time all factors pointed you better sell and move on. So actually at the time if I could refinance, and then it would have been better off by not selling.
The reason why I purchase is that I still think I’m this property for the long term, it’s a good investment. So plus the agent at a time he said it is a good purchase and obviously I basically, because he got experience in the area and then I think they shouldn’t be too bad and really for long-term. And then actually it was a good unit. I get good rent and then it was an architecture and then the finish was good And then the one-bedroom size is good, there’s a balcony overlooking the Rockdale plaza and you can see the aeroplane coming up and down. So I think it’s a good buy. But as to why I needed to sell, I think at a time I look at, because it was at the end of the year, and then also the cash flow probably maybe a little bit challenging.
And also at the time, everything is going down. And then back in the GFC, the property get hit big-time and I had been through that, a lot of property have been dropping, so the fear is, it will drop further. So that is the reason why I sell, obviously two things. Cash flow and the fear that it’s going to drop further. But that’s actually I suppose not enough information at the time for me to make a good decision. I could have done a bit better research and then don’t just following every people, not only me and even my parents, but they also sell their home in 2009 at the time. Obviously at a good price, but in hindsight, I could’ve held onto it.
I think that that’s all about hindsight and I guess we all learn from those lessons because now that we look back and go, oh, wow, as you said, the property is long-term. It’s a long-term investment, but sometimes circumstances, as you said, cash flow wasn’t easy to maintain, then you have to make that decision. And now I can relate to that because my parents had properties in Birkenhead Point and also in Sydney CBD as well. And timing-wise they sell it at the wrong times because one was at a loss and one was at a profit. So it ended up balancing, but imagine, I’m thinking if they bought, held on to both of them, gosh, the property that they now are worth twice as much as what they bought. I think they bought it for about 300,000 back then and now it’s worth over a mil. It’s painful because I would’ve said to them, give it to me instead.
So I always call my dad. I mean, okay, some people sell because they want to realise property, but then once you realise property, what do want to do with the money unless you really put that into a property. But if that’s the case, why sell, increase transaction costs and stamp duty and whatever. So, unless it is a switching of the portfolio like you switch from one area to another area or you switch or you’re recycling or you’re just selling the old one to a new one, or you switch from residential to commercial, the property is a long-term game. And then at the end of the day, I mean, it doesn’t depend on how many properties you’ve got, it depends on how long you hold onto it.
Excellent Structuring of Your Portfolio: Investment Return with David Woo
Having previously told us about his worst investing moment, Woo now tells us about one of his best investing moments, where various components necessary for investing seemed to align.
It has to be a reason, the purchase. Obviously I’ve shared with you before I recently purchased some land in Fontan, Hunter Valley area. So that’s with the intention to build a duplex and to sell. So that has taken some research work. And then obviously research is very important. You have to do a lot of homework. And with the help of professionals, like teamwork, like experts and also we have the guts able to make a decision and to take calculated risk. So all this happened because obviously, it started in July when I started to look at refinancing my home loan, and then I basically have the opportunity to get help from the finance expert and get some cash out from the refinance. And then obviously have the ability to look around or put in the team and then at the time getting a home loan and then we have always been talking about this for a long time and he has given me this opportunity.
And then we went up to Hunter a few times and then actually this plot of land is not the ones that we had planned to look at, but certainly, at the time the agents say okay, this is available and it just comes out, and I look at it and just fell in love with it straight away because it is a quantum block. It’s good for duplex and then I just make the decision to acquire it. I guess the lesson learned is you have got to have a lot of things aligned. Like the research, you are helped by the team, professionals who are experts in what they do, and the timing, the finance, and ability to make the decision at the same time. And now land has been acquired, settled and now is in the process of making a plan to council for the duplex to be built. So I’m quite happy with this one.
He goes on to explain a little more about the piece of land he bought on which he is planning to build a duplex and why it was such a good choice and investment.
The land I purchased is quite good. In terms of pricing, it’s about 241 for a block of 600 square metres. And the good thing about this is it’s a corner block and can build duplex, and it’s a fixed price contract, no variation, but the builder, and the bill is along the 580 mark, I think, all up, including cost, it’s looking at around the 800 marks. So I’m planning to look at the duplex. So do some research and you’re looking at selling the duplex at 460-480 mark. So roughly in the gross term, you’re looking at about 120-150 uplift in the sale. So I believe duplex is good obviously because in terms of affordability if it’s holding land, you’re looking at more towards the about a 500,000 mark. Yeah. So for an entry buyer, 460-480 will be more affordable. So that’s why I pitch at that level.
When asked whether he wants to hold onto one or two titles after the completion of the duplex, Woo informs us it will depend on the situation.
It will be on two titles because a duplex is already on two titles. So I can either hold onto one, it depends on circumstances. It depends on whether I want to, I can hold on to that land for long-term investment. Because if you look at the rent, I was told that you are looking at around the 5% yield. So it’s not too bad if I want to hold on. And then well it depends on circumstances because if I use this as a security to put in next if the banks allow, I may as well call and do that and then you know, keep on building a portfolio and so depends on the situation.
Woo tells us about what he plans on doing in regards to building his portfolio, of which there are two parts.
Obviously, as I mentioned before, and then hard lessons learned, the property is supposed to be purchased for long-term hold and all things being equal unless there’s some disaster, that’s different. So that’s the first point. And the second point is I try to diversify into an area where you want to create equity instead of waiting for equity to come. So that’s why I venture into this, buy land and build a project. So basically I can create equity upfront. And also I may look into a different part, I’m looking to diversify into non-residential, like a commercial or industrial area where obviously that was vacation is a key in investments, whether it’s in property or in other asset classes. So we need to diversify. So I’m looking in that in-depth as well.
Incidentally, my father’s family company has got one property which is non-residential. So it’s commercial property, so getting a good yield. So you’re looking at least 7% yield and obviously, the capital growth may not be as fantastic as residential, but you just have to balance your purpose and your aim, whether you want to go for yield or go for growth, you have had a balanced portfolio. So in the next few years, my aim is to look at the about the field. Like if, if there’s a good opportunity for or buy or hold property, I will look at that and also buy and build equity and also looking at non-residential property.
Woo lets us know what separates successful property developers from those who are less successful, informing us of some of the common strategies developers and investors use to create real wealth.
Most importantly is obviously you’ve got a developer they have…first of all, what is important is the profit you make when you buy or when you sell. So the site selection is, of course, paramount importance because a lot of people are like, okay, buying the site, doesn’t really consider whether any value can be added to it. So most of my successful property clients develop a plan they have to look at. They’re very picky on the site. They don’t overpay and then they value the…if there is a good site, they will put good money on it. And then they know how to add value to that site for property development purposes and that needs knowledge and that need experience and that needs teamwork advice. The same piece of land you may see differently from the other, the one who is successful.
who look at it, they are very creative, they can see, okay, how can you add value to this land? Make it like the geode growth realization to be 5 million instead of 3 million, so to speak. So that’s important. And many of them, they have also have to have the ability to take the risk. And I mean developmentally smart, not a normal game plan to have risks, but they have to take calculated risk and they have to experience, learn from their previous project. And they will take calculated risk to go into a project. I mean, typical client, the return on property development is 30, 30% plus. And then our clients, obviously there will be a situation where you have a lower return. But then in the main, they’re looking at least that one before they make it worthwhile.
Wow, that’s great. That is a very good investment return, especially if you know that out of say, I mean dollars, let’s just take, for example, there’s going to be $300,000 worth of profit. That’s more than a year’s salary for most people.
And then about a client, they actually do the apartment building. Bigger scale instead of just land package. Then they just build an apartment, not even townhouse. An apartment in the 100 and then 150. So that’s the scale that they are doing. Obviously there are a lot of skills, a lot of hard work, a lot of headaches involved in the process.
The importance of a good structure when it comes to investing is what Woo emphasises next, as well as the various aspects of property needed to be examined before one even thinks about buying anything, from tax to risk.
One point I forgot to mention is they also need a good structure to start with obviously. And not only a good land, but they also need a good structure because obviously once you’ve got into a wrong structure, then it’ll be very costly to unravel it. And then you know, it will cost, it will reduce your profits. So a lot of them, they have to plan ahead. So many of the client, the experience before is that they purchase the property in certain such structure in the attempt to seek out advice and then I told them that’s too late because you already purchase it and then it will set. So what is it, before you even contemplate a buy anything, come to have a chat with us and then we can just look at all the issues, the tax, the risk and also how to distribute the profit in a tax-effective way and how to manage whether you’re going to hold or you’re going to sell or how to perpetuate your property to the next generation.
Because obviously property gain or asset, you want to create it. Okay. You want to preserve it. Okay. And then you want to perpetuate because obviously you are here only a certain limited period of time in this world, you can’t bring your property portfolio view when you come to the end of your journey, so you have to pass on to the next generation. So that’s very important. We always…the first question to ask the client before they even start a project is what is your exit strategy. What do you want to do? Because if they have an exit strategy it will affect the different structure, a different way of how to approach the project. So that’s very important. So we are looking at a holistic approach. Then obviously not only looking at just profits, we’re looking at how to distribute that profit, and mind you tax is one thing, but you only pay tax when you have profits. So my suggestion to the client is, okay, you pay the right amount of tax. Okay, but don’t obviously legally we’ve tried to make sure that these the minimum but then paying some tax, it’s good. Okay. Obviously here it’s good for society, good for the government, but we will try our very best to make sure that it is the minimum tax that you are legally allowed to pay.
Woo gives an example of what a good structure can do in terms of profit for investment, as well as what kind of structure is good for passing investments to the next generation.
A typical example is the client bought an investment property in the name of a company. And then obviously they want to buy, hold for long-term, etcetera. And then the question is, obviously you buy in a company, that advantage is when you sell, the company needs to pay tax on the profit and a fed rate, at the moment 30%, the only debt, and then you sell when you hold property for more than 12 months to cover a cover gain tax concession. You can discount your cover gain by 50% when you hold it in structures like individual trust, not in the company. So we do purchasing company, you’ll make a profit, so you make a hundred thousand dollar income again, you need to pay 30,000 in text, whereas if you buy in the trust and individual, when you make 100,000 income, again, the taxable portion is only 50,000. It gives a discount.
That’s only after a year though.
After a year, of course. I’m looking at holding for long-term investment, not for development. And then you hold in the company rather than holding in trust, you probably can not pass the company to the next generation without changing the shares in the company or you have to sell that property in the company to somebody else. Whereas if you buy in the name of a trust, you can pass it to the next generation by changing the control of the trust, but not the ownership. So the property is still in a property trust, still owned by the trust, but when you want it to pass through to the next generation, it’s easy, just change control. There’s no change of ownership. So that way this trust structure is better than that the structure in this example.
And so for example, if the developers are currently doing a project and the project is ongoing and at the end, they have to sell off all the projects, but they also want to minimise the amount of I guess taxation things you have to do and you want to distribute back to family and stuff, and take it out to spend the money to do whatever you want because you want to reap the fruits of your labour, structure with something like a company be probably the better option to go down. Is that kind of what you’re sort of leaning towards because the company actually gives you more flexibility to buy and sell?
Not necessarily because obviously it’s a company. You’re talking about tax and the flat tax rate and it’s good and bad because obviously if you look at the top marginal tax rate of individual 7%, companies 30%, then if you have a lot of income and profits, then company will give you an advantage. But that’s only temporary because obviously when you ultimately distribute companies out to get profit up to the shareholder by way of dividends, then you still have to pay the difference between the individual. It’s at the top rate per cent and in the company tax rate. So it depends on a lot of situations. There’s no general rule which is better. But in terms of to sort of legally minimising the profits of a project, the way to do it is obviously a lot of the kinds of use the trust structure because obviously if it has the flexibility of distributing to different entities, if that entity has the tax levels, they can absorb the property with that tax loss, if that’s within the family group.
So if there’s a situation where you’ve got a family with a lot of individual, adult individual debt, not earning a lot of, of income, then you can distribute some of the income from their project to that adult individual so as to lower the overall tax in POS or on a group basis.
19:21 I understand that. That’s really interesting. So I guess what’s interesting is like there’s, there are ways to distribute and I guess got those funds in your profits out to I guess people who you want to pass them on to. But do companies usually say for example, if they made a large profit and they decide, okay, we want to reinvest that money, that profit, do they go out and usually buy more investments within the company so that they can continue to, I guess hold onto those and then as it continues to generate more revenue or passive income from the properties, they just continue to reinvest that back? Is that something that happens from time to time or was that’s just a common thing that happens as well?
Yes, if people wanted to reinvest into the company, they can do that, but then depends on whether they are investing in the same asset class or they want to diversify into different asset class. So say for somebody, big company holding a portfolio of residential property and they want to diversify into commercial. If you use the same company to get a commercial property, then you’ll be mixing the two assets together, like residential and then commercial into one company. Then the risk consideration is if there’s anything happen to the commercial property, the other residential group may be affected because they’re owned by the same structure. So what people usually do is they segregate that and using another company to hold the commercial property. And then use the original company, just focus on the residential property as a way of doing it. So in addition to tax consideration, you’d need to look at the risks and then the risk consideration to see whether it will be risky to do it all in one company. So we usually, our client, they have this special purpose vehicle. So even with development or with a property portfolio, they’ve got one structure or one asset class. So as to quarantine the risk of one asset class affecting either.
Woo lets us know if there is a minimum amount of properties developers or investors need before they start thinking about needing different structures, or if it’s just based on the risk that is involved.
Usually, it depends on the risk involved, and there’s no minimum amount, obviously, you have to have to make it work out to how to structure you the cost consideration. You, have to have certain…maybe as a rule of thumb you do have to have more than three or four properties, then you can consider things like different structures, especially if you have a different class like you know, one residential and one non-residential property.
In terms of mentors, Woo tells us about certain people he has sought advice from over the course of his property journey as well as other sources he seeks advice from.
As a mentor before, but not in the proper journey. It’s in general for personal development. We used to have a group meeting every month to just all the business people to come together to brainstorm, to do mastermind session. But then the mentor has since moved on to overseas so we don’t have that anymore. But in some of the property, I don’t have a mentor as such, but I have people who I seek advice from like the team player, the experts like the finance guy, the property guy. We usually bounce ideas from each other. So because obviously you’re only one mind, so you could have two minds, three minds are always better than one mind. So that’s like, I get me, actually a mindset from a lot of reading. I read a lot of books for personal development and also for wealth creation, etcetera.
So I think it’s important to feed your mind with positive and feed your mind with the lessons and journeys of other successful people.
For Woo, books have played an important part in his property journey, and he tells us about some of his favourites.
I’ve got a lot of books that I read, but then I feel I want to share first of all is called the Richest Man in Babylon. That’s by George Clayson and will give a lot of people some basic idea of what wealth creation is like? Wealth is actually not difficult to create if you know the way to create it. That’s that lesson from dead book. The second book would refer or recommend is called “Think and Grow Rich” by Napoleon Hill.
And that is a game-changer, I tell you. This is a very important and very influential and highly-recommended book that I read because it is a mindset. In this book, Napoleon Hill basically said desire is the starting point of all achievement. Not a hope, not a wish, it’s just a keen pulsating desire, which transcends everything. That’s what I say. That’s his quote. So you have that desire to be rich then that’s more important than anything else. The third book I want give it command is “Slight Edge” by Jeff Olsen. So it says, okay, small steps compound each and every day over time if you pick success. So the journey isn’t how much you get, success is not a result. It happens every day. It doesn’t happen in one day. So that’s a good book to read. So these are the three books I would recommend people to read if they haven’t yet.
The best advice Woo has ever received is a very important one for those to remember who are on property investing journeys themselves.
To get to work with a team to leverage the team skills and expertise. Do not work alone. That’s important because no matter how smart you are, you are limited. You’re not the expert in all areas. So to get advice or other expert and to humble yourself, to take their opinion, okay. There are people who seek advice, but they don’t listen to their advice. They think they are, expert. The trick is to not be humble, to learn from advice.
Woo has some personal mindset habits that he follows that have contributed to his success.
It is belief, belief in something that will come, eventually will be happening. So believe the universe has something in store for you and also have positive thinking. Basically. make sure to see things in a cup half-full way than a cup half-empty way. So we frame your mindset to look at the good thing of everything. Not so much the best in everything. So everything that you look at there, you come across, depends on your mindset, on how you frame it, there’s some positive and negative. Why not look at it in a positive way rather than a negative way; the brain is a very funny organ. It’s just guided by what you’re thinking. If you just think positively, the universe will give you good things. If you keep on thinking in a negative way, “Oh, it doesn’t work, it doesn’t work,” then that’s when things not work. So I’ll guess this is training your brain to have a mindset to look at it positively and then the universe will reward you.
When it comes to what Woo would tell himself ten years ago, his reply is succinct and relays an important piece of advice.
Take action. Don’t procrastinate and take calculated risk.
He also tells us what is most looking forward to on his property journey in the next five years.
Obviously to build equity, to create equity and then to build a portfolio that basically allows passive income to come and in the journey as all we need to look at not only myself, we need to look at in the journey with other professionals, with our clients. To create a wealth ultimately at the end of the day, you need something to rely on, maybe retire and this is the passive income that you can have when you build your property portfolio. Not in one day work and it’s long-term work. But as I said before looking at the lesson from “Slight Edge” who built one brick at a time, do things one day at a time. Then success is daily work.
So small little habits like those little one-percenters you continue to do and as you continue to build that, it leads to great success and it’s so true. It’s just consistency.
Actually, this is the thing, I mean it is easy to do and easy not to do, you remember this is a quote from “Slight Edge” work. Yes, a lot of things, it is so simple because just people just overlook it. It is easy to do this, I think easy to save $100 a week, month or whatever, but also easy to spend a hundred dollars a week. It’s just up to you whether you want to do it on that journey, positive way or do it another way. In accounting terms, it’s both debits, whether you debit a hundred dollars asset or debit a hundred dollars expense, over debit. But it depends on how you choose it.
Woo informs us as to whether he believes success is more due to hard work and intelligence or luck.
I’m thinking luck is a lot of people, they define it as when preparation meets opportunity. So I’ll say at least over 90% is due to hard work, intelligence. And then once you have hard work and intelligence, then you put your preparation and your things together, then once opportunity come, that’s luck. So I’ll say the luck still have probably had a 5 to 10% like for example you’d probably into someone which is totally you haven’t met before and that someone may refer you to a deal. And that maybe luck, but then I still think, but you haven’t got your preparation. You haven’t got your mindset to talk to these people that you bump into. How can you lead to success ultimately? So I still think hard work and intelligence accounts for over 90%.
It depends on how they define luck and what was their perception on and their background. Maybe they have come across a lot of lucky things, the lotto, the horses, the Melbourne cup. So luck is a very loosely used the term. But then I personally had to say, I mean people can, or even like people can create luck. Like a lot of people see that I don’t look for the future, I create my own future, that’s what a lot of people say.
For those who would like to contact Woo, you can do so through the following avenues…
You can reach out to me for my email or through the website, www.richardabobb.com.au or you can just give me a call. We’re always welcome to share my property journey and in terms of wealth creation, it’s very satisfying to see clients with the bright guidance and advice embark onto their property journey and create wealth. And that satisfaction is just beyond money, beyond service fee and beyond everything.
You can call me at my office number, 0 282 236 888.
This episode was produced by Andrew Faleafaga with narrations and interviews conducted by Tyrone Shum.
Frequently Asked Questions:
What is a good investment return?
The average rate of revenue in investment is anything beyond 15%. When determining the price of return many real estate experts agree that a good ROI is usually about 10%, and a great one is 12% or more.
What investments have guaranteed returns?
There are more than a few worthy investments that can qualify as a great return and low risk.
Certificates of Deposit
Money Market Funds
Real Estate Investment Trusts
Barclays’s Aggregate Bond Index Fund
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How does investment return work?
It is normally represented as a rate and is typically used for personal financial judgments, to analyse a business’s profitability or to compare the performance of various investments.
How do you calculate the return on investment?
ROI measures how great an investment is doing and to ensure the value of money in your investment over time. The primary method is: Net Profit / Total Investment * 100 = ROI.