Managing director of Property Mastermind, Bob Andersen is also the co-author of Residential Real Estate Development: A Practical Guide for Beginners to Experts. Involved in over $1 billion worth of projects throughout his career, Anderson will share his journey with us on how he got started and how you can get into property development without any money!
Discover how a boy from Brissie began humble beginnings as a jack-of-all-trades man before an untimely accident forced him to make a change. From there, Anderson will discuss how he got into property development and the mentor who showed him the ropes.
With a vast amount of experience in development, Anderson keeps the passion alive by educating others about it as well.
I'm a property developer and I also teach people how to do successful development. So I've sort of worked two sides of the fence I guess - I've been a property developer for probably longer than I'd like to admit, a little bit over three decades now and I’m still going. But the passion is still there, so why wouldn’t you keep doing it?
Definitely. I'm actually interested now if you could share with me just a little bit about how you keep that passion going because three decades is a long time!
Well I'll be honest with you, in regards to money it does produce great returns and I've never found anything at least legal - not that I’ve looked that much at illegal - but I’ve never seen anything that makes this much money. So that's always a driver, I mean there's a lot more to life than money, but it is consistently good. But also when you're doing development, you really do one development that's exactly the same as another. So there's always little twists and turns and different types of projects, different types of properties you can do and they all have their own challenges and different types, different sizes, different localities, all those sorts of things. So there’s plenty of variety.
And the other thing is that about nine years ago I got involved in the education side as well, so I don't just do property development, I teach it. And it's opened up a whole new world for me as well. I meet a lot of great people doing that and I get a lot of job satisfaction. And I'm the person that needs to be busy, I'm not a workaholic but I like to keep busy, I like to have a bit of excitement, a bit of variety, a bit of adrenaline in my life and I find that between doing property development and teaching a lot of people about it, it satisfies all that for me. And as a result, I keep doing it.
Any given day for him is split between these two avenues - working on projects and focusing on educating people on his area of expertise.
On any one day, I’ll be pushing any projects forward that I happen to be working on because property development it's really a matter of managing people and managing processes. And because most people - architects, town planners, whatever they happen to be, their equally integral within the process. So we're always pushing the process forward because time is money, as it is in anything. And so every day we're trying to progress and push things forward, keep on top of situations, keep people accountable for their work and so there's always pushing forward on that.
And also part of my day would be on the education side as well; it could be anything from updating some of the content from our course, it could be even talking to people in my mentoring program about projects they’re working on. So that's the sort of thing I talked about before, about the variety which I like and need and which keeps me excited and keeps me going. So yeah, it's anything I'm working on, from projects to working with people and that's great.
Although born and bred in Brisbane, Anderson has worked across Australia in a number of different markets and localities. As to his education, he never considered himself an academic.
Look I did the normal school system, interestingly enough I was in the Catholic school system which like when you look back at it is quite funny. Like the first four years of my life, I went in an only Catholic system as my mum was a Catholic. I was taught by nuns and that was interesting and then, later on, I went to an all-boys school to finish my education up to Year 12 before I went to uni as well in a private school. And that was great, although I have to say scholastically I was OK, I was really at school for the sport, to be honest. It was a very strong sporting school and I think most of my efforts were put in there and with the energy, I had leftover, I put into academics and that's the same as lots of people.
I did move on after secondary school; I had a crack at university, that's about all I did. I chose a stream or a course that to this day, I still don't understand why I did it, to be honest. I was reasonably good at physics and chemistry and somebody got in my ear and sort of pushed me in the direction of either pharmacy or chemistry or something in the there, so I took on a degree in industrial chemistry, would you believe. But there wasn't much of a career education really when I went through school, not like there is now, and I just gravitated there and ended up at university studying organic chemistry and analytical chemistry, maths, physics.
The issue lay in a lack of passion for the subject. Despite withdrawing from the university, now his university-qualified peers are working for him.
The problem was I had no passion for it at all, I was just sort of led in that direction. And I didn't know myself all that well, I mean only just coming out of school often at that age you’re always trying to find our feet and who we are and how we fit into the world. I didn't realise it at the time but I did later, that if I don’t have a real passion for something I lose interest really fast, as I did there. So I lost interest in it and didn't like studying, I didn't study very well and come August in year one, it was pretty obvious what was going to happen by
November, I was going to fail. But finally, I did the next best thing; I left. So I can happily say I never failed university.
I withdrew myself from university with the inevitable, got out and I’ve never been back to tertiary education, which is fine. I didn't have to. Ironically these days, I often make a bit of a joke about it, a lot of the people that are a lot smarter than me went onto university and got degrees in architecture and engineering and town planning and construction, management degrees and all sorts of stuff. They all work for me now.
However, it was a long road before he could get to this point. Feeling lost and unsure of what he wanted to do, he then worked for his father for some time before entering the public service.
My dad had a spray painting panel beating business at the time and during high school, I used to work for him. I learnt at an early age actually how to panel beat cars and paint cars, as my dad was a great worker, he had a very strong work ethic. But like so many people, he just exchanged time for money. And the only way my dad could ever earn more money was to consume more time. He only ever had the skills that are basically a panel beater and a spray painter and actually, he was also a mechanic, so he actually had three trades, would you believe. But as a result, he worked very hard, worked very long hours to educate his kids and put them through private schools. You know he had a very strong work ethic, very strong family ethic.
So, as a result, I used to work with him, on weekends when I was going to uni, the same thing, I worked for him when I didn't have lectures. But when I left, I thought, ‘Well I've got to get into the workforce now.’ And would you believe I went and joined the public service? I just wanted to chill out, I thought, ‘I've had enough. I’ve had so many years of education, I just want to chill out.’ And I had a few wasted years - not that there's anything wrong with people that work in public service, of course, we need them, we need good people there. It's just I wasn't the right sort of person for those sorts of roles. And because I was starting to realise that I had an entrepreneurial spirit, I had a business spirit, I wanted to do things and it took me a little while admittedly, because of the culture that was there it took me a little while to actually realise that I needed to be out of there and what I was going to do.
Unbeknownst to him, this was the path that would lead Anderson to think about property.
Interestingly enough, the public service department I worked for they were a public service department that actually generated a lot of income and a lot of public service departments don't actually generate income, they provide a service and they do. But this particular service, I can tell you is SGIA state government insurance office and some called these days actually chopped themselves up. But in those days, I used to head a division or a whole department that used to trade shares and they also had an area in there that was involved in property.
And because of the huge amounts of cash they generated in the insurance business, they used to reinvest a lot of their funds in big investments, big property investments, city buildings, big hotels and that. And they also would put money with big developers developments and that sort of thing, so I had some exposure to that and that really got me thinking about business. And it's a fair trading part of it although that was interesting, mainly the property and I thought, ‘Yeah, I can see myself going there,’ but I didn't quite know how to do it.
Knowing he had to get out of public service, he then started up a couple of quick cash businesses.
When I started, this is where the entrepreneurial spirit is really coming out, I was still in the public service and I had to do something on the weekends to make more money, so I actually took on window cleaning and I’d never cleaned a window in my life. But I went to a cleaning company that sold equipment and I said, ‘I want to buy window cleaning equipment. I want everything you’ve got here for cleaning windows, but I need you to show me how to do it.’ And they did it. And the guy took me out the front of the shop, taught me how to clean a window and I bought everything and put some flyers up and got some stuff printed off because this was all before the internet. I did a letterbox drops around the areas that had high rise buildings and all of a sudden, I got more work than I could handle.
It was on weekends where I was cleaning windows and I started to take days off work when I was a little bit naughty. But I did and all of a sudden, on a weekend I made more money than I made a week in my day job. So I tossed the day job in. And that was when I started up a lawn mowing business, I got my dad’s mower and my dad’s trailer and I put some ads in the paper; before you know it I was rushed with lawns because in Queensland in summer, lawns grow every five minutes. And so I quickly brought a trailer and a mower and I’m mowing lawns during the day, I'm doing windows on weekends and I thought, ‘Wait a minute! What about the night hours? I need to do something there,’ and then I went and did a bread run in the early hours of the morning.
Utilising all the hours in his day eventually became too much for him - and this was the wake-up call which was necessary for him to move forward.
I had three businesses, I had heaps of cash flowing everywhere, but I wasn't getting much sleep. And it all came unstuck, because one night after my mate’s 21st very late, I was actually quite sober at the time strangely and on my way home at 20 past 4, it all caught up with me and I went to sleep before I got home. I went to sleep behind the wheel and I hit a bridge head-on and made quite a mess of myself and the police arrived and thought I was dead.
But what that did, it changed my life it was the best thing that ever happened to me, because what it did it put me on my back and it gave me time to slow down and think about my life and where I was going. Those three businesses all came to an end because they totally relied on me exchanging time for money personally. And I couldn't mow any lawns, I couldn't clean any windows and I couldn't deliver bread, so there I was.
After feeling sorry for myself for several months and some operations, I started to think about my life, what I was doing and I suddenly started changing my diet, I was reading a lot of health books. I got onto Paul Bragg, I didn't turn into a vegetarian but I suppose I was a part-time vegetarian and I cut my meat back, I didn't change my diet. I started to read a few of the old books, some of the old great ones like Think and Grow Rich, Rich Dad Poor Dad was later on, but I just decided, ‘Property is it. What am I going to do?’ And so when I was well enough and I got off crutches - I was on crutches for a year - I decided to head to the Gold Coast and make my fortune.
Moving to the Gold Coast, Anderson then followed the property route until he inevitably discovered developing.
I thought you go to the Gold Coast to make your fortune, I didn't realise that a lot of people go there to lose it. So you know, that young guy, full of ambition, full of energy, 10 foot tall and bulletproof and doesn't even know what he doesn't know. It's a dangerous combination. But I was out of the public service and I was down there. I had a look around and I knew the property was where it was at and I had a look at all the different aspects that I could about the property, I knew all those real estate people sell it, builders build it and that's a bit different. But it didn't take me too long to work out that it was the developers who appeared to make the money.
Now certainly agents and good marketers make good money and we know builders make money, but it seemed to be the developers as far as I could work out. There was a mate of my dad's who was a builder and a developer, he was both, and he gave me some good basic knowledge and some good advice to kick me off and that got me going. But I didn't know how to get into property development, there wasn't any direct path, not like there is now. Well firstly, no internet - if you wanted to find out anything you went to a library. I had a look around at courses; there was no uni courses, no TAFE courses, the closest thing you do is be a property valuer.
I had a look at that and did that for a couple of months, but I could see that wasn't going to get anywhere and I said, ‘Well look, I can get a foot in the market somehow.’ So I took on a job at a real estate agency that was selling land vacantly and they had four subdivisions they were marketing just at the back of the Gold Coast. And I got myself a job there and that lift gave me a foot into the market. So there I was selling land to people who were then building houses and then I was selling land to builders, who would build houses and then I would sell the houses.
Becoming entrenched in sales and gaining a better understanding of property gave him the confidence to follow what he was passionate about.
I was actually OK at selling - I’d never sold anything before, but I seemed to be OK at it. And I feel that being in real estate sales naturally pushed me out there. I realised that the successful ones are fairly bold, they're good communicators and there’s a saying in real estate, ‘The salesman that follow up gets the sale.’ So it was always following up on people, people you've seen, people you've shown the property to, keep following up on them and that sort of thing and that got me out of my comfort zone a bit. But it's like anything, you just incrementally get out of your comfort zone and before you know it what was uncomfortable becomes mundane.
And I did that and I could sell them and so on and started making good money, but the passion was still in the development side. But fortunately, in this role, I was meeting property developers because we were selling these subdivisions. So I got to talk to them and I got to have a look at subdivisions being built and I got to talk to people like the planners and the civil engineers who do a lot of the design and that sort of thing. And that just sparked my passion even more and I started to learn some things off these people as well. They were very kind and very generous with their time because they could see the passion in me, I think.
Anderson’s property investing journey, however, didn’t begin until after he had already become a developer.
I became a property developer before I became an investor. You can do it that way, you don't have to do it the other way around. I became an investor a bit later when I started to keep the properties that I actually developed because as a developer you can get them at lower costs. But I have a watershed moment actually and I still talk about it or talk about it to my students, because it was something... you know sometimes in your life, something happens. It could be a chance meeting with somebody, it could just be a sentence somebody says that just turns your lights on - and this is something I call a watershed moment.
About a month before, a fellow had come into the office and prior to this bought a parcel of land through our office. He’d gone away and got a development approval to subdivide it into four lots. And for whatever reason, he decided when he got the development approval that he wasn’t just going to sell it, he wasn’t going to go on and develop it. So he came in and listed with our office, he listed it with one of the other salespeople in our office. About a month later, this Sunday morning, his name was Tony. I remember him - not that I'd know, but he seemed to be an attractive looking guy, sort of medium length wavy hair, drives a good car, dressed well and I thought you know he's a pretty successful guy. I mean that's just the way I summed him up at the time; well-spoken, well presented, seemed to have a bit of money.
And he came in this Sunday morning and he said, ‘G’ day Bob,’ I said, ‘Hey, I've seen you here.’ He said, ‘Look have you got any takers for my block of land yet?’ And I said, ‘No Tony, I haven’t.’ But I made a statement and this is the sentence that changed my life, I said, ‘You know what? I would love to develop that land, I'd love to buy that block of land and develop those four lots, I just don't have enough money.’ And he said, ‘Really?’ and he started asking me ‘Where did this development thing come from? You're here selling land, why do you want to be a developer? Where did all this come from?’
He then started to tell him about his accident and how it had led him to the real estate world and his passion for property.
We talked for about 20 minutes with him asking all sorts of things about myself, even private things you know. At the end of it he said, ‘I'm going to help you realise your dream. I'm going to actually make it possible for you to do that development.’ And I said, ‘Well that's great Tony, but as I said I don't have enough money.’ He said, ‘Bob, you don't need enough money.’ This is when I first learned it, he said, ‘You don't have to have the money; there are ways and means of doing things,’ and he said, ‘I'm going to show you.’ He did actually and he did what is commonly called - and it’s a strategy I even teach - it’s a strategy of doing property developments without any money, it’s called a vendor finance deal - he actually showed me how to do it and only as a developer we'd only be trying to show a landowner to do. He showed me.
I didn't realise at the time, I got to know him, he was a very sophisticated property person on the Gold Coast and he used to amalgamate development sites along the beach at Broad Beach, Surfers Paradise and Main Beach. So he was very fine with property development using call options, vendor finance, joint ventures, all those sorts of things. And later on, I said, ‘Why did you do it for me?’ and he said, ‘You know what, once I really got talking to you I saw you as I was fifteen years earlier. Young, full of energy, 10 foot tall, dangerous.’ He said, ‘You remind me just of me and I actually had somebody fifteen years ago who actually stepped in and helped me. And I made a pact with that person that I would do the same when the opportunity arose.’ And that opportunity arose when he heard me make that one sentence that changed my life.
After this mentor walked him through the ins and outs of becoming a developer, Anderson learned now to undertake property developments without any money. From there, he continued to pay it forward by educating other people to do the same.
He showed me how to do it, true to his word, he took me to his bank manager who helped me organise the finance. I paid him for half the land at the beginning, the 80% loan that I got to the bank, the other 30% I had leftover was enough for me to develop sites with. So basically I had no money and I just used the land of security, paid Tony half at the beginning and half when I'd sold the lots and so I put no money into that deal and did extremely well - and that changed my life. It showed me how you could do property developments even if you don't have money if you're smart and you’ve got some sort of strategy behind it.
But it also instilled something in me: it gave me a seed which only came out later on when I also started for other people and showed them how to do things. It was almost like a payback I suppose, you could call it.
Pay it forward.
Pay it forward, it is and I didn't just do it with one person. Tony's mentor did it to him and Tony did it for me - I do it for hundreds of people these days because that's my life and that's what I do.
The worst moment in his journey was having to learn about market cycles and differentiating markets. This he learned the hard way.
It was still when I was very young, still learning and not really having anybody to really learn off. As I said, no courses, no uni courses; nobody was teaching property development, nobody was on the stage talking about it, back in those old days we learned by trial and error - and a fair bit of error! And what I didn't fully understand was markets and market cycles, property cycles. I had a good run on the Gold Coast for a little while there, I was doing OK. I didn't realise how cyclical property markets can be, but also how massively cyclical a market like the Gold Coast can be.
I don’t think it comes as news to anybody that the Gold Coast had some very big highs and some big lows and a lot of that's got to do with the fact that a lot of it is driven by tourism, the hospitality industry. And when the tourism industry is going well, the hospitality industry is going well, there are buildings being built and builders get busy and all those service industries that work of that are doing well. But when it doesn't, it just falls into a hole and there’s always big oversupplies and it's always done that it doesn't have a big industry base behind it, other than mostly tourism. It's gotten a bit better over the years, but it still has those highs and lows. Back in those days, it was massives highs and massive lows and I didn't realise.
And so I'd done a subdivision, fortunately not too big a one, and all of a sudden I just hit the wall and I couldn't sell it, I was incurring debt, it was very hard. Nobody wants to buy vacant land. What I ended up doing is I realised that there was still some sales if you had completed houses and the prices had come back. But I realised if I just sat there I’d just bleed to death, I’d just go out the back door and because of a highly competitive sporting background in my earlier days, the thought of giving up, I just couldn't fathom that and knew I couldn’t do it, couldn't rollover.
So after he scraped together what he could through borrowing money from friends and family, Anderson started to do some small spec houses one at a time. This took him two and a half years.
But I slowly built houses on the land and sold them and actually, because the market was flat and had to sell them cheaper, at least I was getting rid of the land and I was breaking even on the build and getting out of the land at a virtually not much profit. But it got me out of it eventually and I learned a big lesson - and the lesson I learned is have a look at property cycles, get to understand them a bit better, particularly places like the Gold Coast - and we've seen some terrible things happen in mining towns and that sort of thing. What I didn't realise at the time, there are two markets in places like the Gold Coast as well; there’s actually a normal market and there’s a tourism market.
I didn't understand that at the time, I didn't understand property cycles. So now that I am a lot more understanding of that sort of thing - and not just property cycles, but markets within markets, as in micro markets in cities and how different types of product can be in supply or undersupply in the same city close to each other. I learnt a lot since then and the road became a lot less rocky. But that was my first big wake-up, that I was travelling so well I thought, ‘Why isn’t everybody doing this? I must just be extra smart,’ and it was a bit of a pullback for me. But it's good, it was a good lesson. I made some mistakes I've never made sense; as I've said my road became a lot easier after that.
How You Can Attract Money Like A Magnet - Prioritising Education and Getting to Know Your Local Market with Bob Anderson
Upon learning that he could make good money as a developer with no money down Anderson discovered it was an eye-opener. This is something that he feels was also a drawback.
As I said, there was a big learning and that was that you could make good money as a property developer, which I could identify so I wanted to go there. But you could actually do it with little or no money of your own, so that was an eye-opener. And would you believe, the next deal I did was a different strategy where I made quite good money out of putting no money into that deal as well? So I was pretty hot to trot after my first year - and needless to say because you know I wasn't 10 foot tall and bulletproof - or should we know I was three metres tall and bulletproof.
And my sister’s boyfriend at the time, my sister Lorraine had a boyfriend called Keith. Keith was an earthmover and Keith had a bit of money from his earthmoving and he said, ‘You did pretty well, hey Bob?’ and I said, ‘Yeah, I did pretty well. I’m pretty smart.’ Well, we know the truth now. And he said, ‘Bob look, I’ve got some money. Do you think maybe you could find a deal and I’ll put some money in and we’ll do it together?’ I said, ‘Yeah OK, I'll do that,’ and I did and I found another deal. Keith and I did it, Keith put the money in, he put the equity in and borrowed the rest from the bank and he did another deal. I call that a joint venture with the money partner these days; or an equity partner.
It's a very common strategy that I use and my students use. Then I've done two property developments, made some seriously good money and I haven't put five cents of my own money up yet. So that gave me the passion, but as I said I sort of pushed on and then there was a change in the market which I mentioned just previously. And so that was sort of what I needed to straighten me up a bit. So yeah, I got a little bit too gung-ho, a little bit too big. You know I still didn't have the knowledge base behind me, I had no education and no one to hold my hand, no one to ring up and ask questions to and that sort of thing.
To become more educated on the development process, he sought out professional people such as town planners who taught him valuable information about yields and feasibility.
There was no TAFE courses and no uni courses. I'll be honest, I have mentored some people who've gone through uni courses and they’re great for getting a job in the big companies, you know Mirvac and Lendlease. But as far as actually being really street smart and using a lot of creative stuff to make a lot of money, they really don't teach a thing. But is there's a place for everything and if people that want to just go and work for a property development company on a reasonably good salary, then go and get a degree in property development; but none of that was around then.
So it was a fair bit of trial and error. But I met a couple of good professional people as I said, a town planner and I was selling subdivisions mainly for about the first four years, that’s all I did. I didn't build any buildings, any townhouses, for about four years. So I got to understand some cost things and how to do a cost subdivisions and he had to calculate the yield, which is how many yields a block of land could produce and I got to understand feasibility. I learned therefore how to do the numbers, which is critically important, got to make sure it makes a profit. And because of my marketing background, I understood that, so I was building up this skill set as well. Because as a developer, I wear quite a few hats and I was managing the process. So I was building a team of people and I was learning the learning process to a point where you become quite proficient at it. You know, the dangerous part of my career was pretty much over.
As Anderson was doing subdivisions - which takes time, like any other property venture - where did he get the cash flow to sustain his lifestyle?
I kept the real estate job going for it for a little while until I finished that second project, the one I did with my sister's boyfriend. So I had quite a bit of cash, I don't know what the present-day equivalent would be, but it would be at least the equivalent of a nice new house probably maybe half a million? I don't know what the equivalent would be these days. So that certainly sustained me for a while and well I got to a point where I could pull natural profits out. But what else I soon realised is that some of the projects that I was doing, I was using what we call commercial finance where I was actually able to pay myself a project management fee on my own projects. So I could draw a basic wage - a reasonable wage actually - on the way through the development, as being the project manager of the development; that was being the developer, a developer can be a project manager. In fact, most developers project manages their own projects.
But when using commercial finance, you can pay yourself also. So I had a good little earn on the way through, plus I had some capital behind me which I could use as my equity. The bank will give you the 75% or 80% you need, but you’ve got to put some money in yourself and that's sort of my profits with what I rolled back into that was a little bit to get me through. And then I started living off what I had, more than enough to live off my project management fees. Quite a good lifestyle living off them!
Books that he used to condition his mindset included those such as Think and Grow Rich and Secrets of the Millionaire Mind.
Some of the old favourites of course, as I said back in the early days, Think and Grow Rich and Rich Dad Poor Dad. One that probably gave me a bit of a shift in mindset, I mean always entrepreneurial, I was brave, but you’ve got to remember that I was brought up in a very middle-class family. As I said my dad was a panel beater and he worked often spray painted fixed cars on weekends to earn extra money to give his kids a good life and school holidays and put them through good schools and all that sort of stuff. So I didn't get any real investment learning from him, so it was either going to come from people I knew or books.
But it was T. Harv Eker’s book, Secrets of the Millionaire Mind. Great book, which actually made me realise a bit more about mindset. I think I was part of the way there. I didn't have a problem with wealth or money, I didn't feel guilty about the sort of money I was making and I was making pretty reasonable money, but just that whole book really set the tone for me about how wealthy people think differently from average people in so many ways. I can’t remember now, there's probably about 20 different extracts that he goes through about what analysing a wealthy, successful mindset. But the sort of view and how they view things and that the unsuccessful person views something this way it's often with a lack sort of mentality, while the other one has a growth or abundant or a surplus sort of mentality. And it was quite interesting, that was probably the book that changed my mindset more than any other in fact.
Although Anderson didn’t have any one particular mentor who guided him through his property journey, he did meet a professional in the field who made him realise that you can never go broke making a profit.
I did meet a number of successful people along the way and I took a bit from each of them. It's an old saying and in fact, the person that published it should be the first person to say it. Very early in the piece, I met an Italian builder-developer and he is a lovely guy who used to build up apartment blocks. He is like a scaled-down version of Harry Triguboff. Not in size, I don't think you could scale Harry down in size. And he said, ‘You know something, Bob? You never go broke taking a profit.’
And at the time I said, ‘Jeez John, that's a bit stupid because you can go broke making a profit.’ Took me a little while to think about it. I know what he meant now, soon after that I knew what he meant. Sometimes you just try and push too hard for too much and sometimes you're better off taking a good deal or a good profit. And money has a value in time and markets can change and all sorts of stuff. If there's a good profit and it’s looking you in the face and it simply sits there and you can move on, you just take that rather than waiting for the little bit extra you know, you want that little bit extra and anything could happen.
So that's a really good analogy or interesting point to make. So what I'm understanding here, is that if you do see profit there, don't be greedy and just take it. I mean obviously you can maximise it eventually.
I think it's not being greedy, I think you have to set the core. I think some people just get fixated with the number. You know it could be a property they're selling, I mean we see it with people that are selling development sites and I'm not looking at buying it. I met a guy once who wanted $1 million for his site.
That depends on what is around the area as well.
It was probably worth close to a mill, but I made some offers lower. But I came to realise that he just had this number in his mind and it was a million - and that was it. It was the number and I think what did I think honestly, I didn’t talk to him because I wasn’t dealing directly with him, I think he just wanted to be able to tell everybody his friends and relatives, ‘I sold my block of land for a million bucks.’ I don't think he wanted to say, ‘I sold it for $972,000’, he just became fixated on the million. And I mean price is only part of it because there are other things like terms, conditions and time.
So I went the other way and paid the million, but got a long term settlement with a couple of reasonable conditions in there which to me was better than paying $950,000 which is sort of what I was looking at doing initially with a short settlement. And that was just an example of somebody who’s a guy who’s just fixated on that; nothing was going to move him off that number. But when he got it, he didn’t really care if he waited 9 months for it, as long as he got the mill. He’d rather get $1 million in 9 months than get $950,000 in 30 days.
Getting into the nuts and bolts of Anderson’s strategy for development, he has dealt with all three forms of ‘product’.
In terms of properties, there are basically three types of what I call product. So typically, I'd be either developing land as in lots of blocks of land, townhouses or to some degree, apartments. So typically it’d be that. As I said in the first four years of my developing life I was just doing plain subdivisions, selling blocks of land and selling it to people who want to build and selling it to builders. And then as I said, I was forced to actually end up putting houses on it, to get myself out of a sticky situation. So I tend to work capital cities, I don't do a lot of regional and I generally don't do mining towns at all.
Mining towns you know, you've got to be the first in and the first out. I’ve seen plenty of casualties that have got hurt in a mining town. So I tend to look at all the higher growth areas, I tend to do well in the larger cities in smaller capitals, at least larger regional cities or capital cities. At the moment I'm developing in Brisbane and Melbourne and I'm also looking at developing a retirement village, which is something of a specialty of mine in NSW. I'm not tied to locality and I'm not tied to any of three of those products.
However, analysing each of the micro markets in a region and getting to know the localities is important.
So we talk about the Sydney property market, well there’s probably 30 different micro-markets in Sydney and they're all sort of working different cycles, different price points and so forth. If there’s one thing you need to do as a property developer, it's got to know your local market; so you're better off choosing a smaller area, could be one or two council areas, two or three suburbs or whatever it is and become really expert in that area. Really understand land values, understand let's say what a townhouse is worth, how big they are and should they be doing two or three beds, that sort of thing. Really get to understand the local market, that's what you need to do because property developments are pretty local. You can't say, ‘I’ll develop anywhere in Sydney,’ because there are so many markets, you won't understand all of them at the same time. That's a big take, that’s where a lot of people go wrong when they start.
So I do that; I do develop interstate as well and I've got good connections interstate as well that can feed me a lot of that information. So I'm happy to do any of those three and as I said, doing something like a retirement village is pretty special as well, but it's probably not something someone would start off at. A lot of my students, they start off with small projects generally, it could be called a split, it could be turning one block into two blocks, it could be just a small subdivision, it could be dropping another house or perhaps a duplex in the backyard of an existing house, it could be demolishing a house and building another three. Some often they start off with small projects, some start off with slightly bigger ones depending on a couple of things - how much money they’ve got, but not only that they could be using one of the strategies I teach where you can do development with little or no money. In which case, the size is not so relevant.
So what does he do to start developing a property, no money down?
The most common one that a lot of my students do is called a joint venture. It's a money partner. I keep it pretty simple; let's just say that to do property development, we have to put a certain amount of money down. We call it a deposit - in the inner development it’s what we call equity. We've got to put down, let's say 20 or 25% of our costs. We've got to put that money in first and the bank will lend us the rest the money. It's not much different than buying a house, we pull out a deposit, the bank lends the rest of the money; on development, we've got to put some money down and the bank lends us the rest. So it's really all about where does that initial piece of money come from, that equity, that deposit?
And the good news is, it doesn't have to come from the developer. It could be somebody else who has some money and so their role is to put in that initial amount of money. And then when that's done, then the bank loans the rest. The developer doesn't have to put the money in, it's somebody else's money and there are two ways of structuring that, but that becomes basically a type of joint venture. And that money could be simply a line of credit where they get a high-interest rate, or they could in fact become part of the project where they get a big chunk of the profits as well. So they get their money back at the end and they get a chunk of the profits. So it's a good deal both ways, like any sort of joint venture or anything where you've got two people, it has to be a good win-win for both.
And there are lots of people out there that have money that want more than the few per cent the bank will give you, and you can get some very high returns by putting that capital into property development. They don't have to have the knowledge or anything, they don't have to do any of the work; they just put the money back in. My students you know, I've taught them how to do it. They put in what I call the smart work and they make the deal, they make it happen inside for the development so they get like let's say 50% of profits and put no money at all in. For the investment they might get 50% of the profits, they put in money and get it out and they get it. So it's a win-win. It's a very common strategy, it's the most popular one but plenty of others things depend on it.
Another thing you can do is enter into a joint venture with the landowner.
There are lots of them, yeah, but the beautiful thing is that if people want to get into property development but they don't have much money, it doesn't matter. What you need is knowledge and its two components to do property. You have to have the knowledge to know what you're doing, but you have to have some money. The bank will give you most of it, but not all of it. And I've got a whole range of strategies for how you get the money.
But the money is not the bit that's in short supply, it's the knowledge. And when you get the knowledge, you'll attract money like a magnet - and that's why the strategies are great because they can get people started straight away, they don't have to save other money or equity to do development. In fact, many more students that are doing multiple projects like students doing six-eight projects at a time, $30, $40, $50 million worth of projects at a time. And they don't have even five cents invested in any of those projects and they're just using different creative strategies.
A personal habit which Anderson attributes to his success is the art of prioritising his day.
I’ve probably become really sharp since the beginning and maybe I'm not as sharp as I was, I don't know. You know, getting older, who knows? But I think one of the things I had to do when I first became involved and not just in property development or in selling real estate is look, I think we all have something that maybe we're a little bit weaker than others. And with me it was procrastination. I came to realise it fairly quickly, I would I'd put things off if they were difficult. So what I’d do is I sort of half smart; each day, each morning, I’d make a list of things I wanted to achieve that day. But what I'd do is I'd say, ‘OK, this is easy, I'll do this,’ and I did all the easy stuff first and then really what happens is at the end of the day, I haven't done everything and the only thing left is the hard stuff, the stuff you didn't want to do and so let it go on tomorrow's list.
And so what I wasn't doing, two things: I wasn't prioritising. I should have worked out every morning what is the most important thing in order of priority and do that. It could be the hardest thing I had to do, although I’d make it a priority. The other thing is that I learnt to do that every morning, I learned to do it the evening before. And I’d never go to bed - in fact I still do it - I won't go to bed of an evening unless I’ve planned the next day and all the little things I want to achieve in a day; and ideally, try and timeline them. [00:14:12] It's not a world revelation, it's one of the little things that I think pays dividends.
If Anderson were to meet himself from 10 years ago, he would tell himself to loosen up a bit more!
Probably I might have been quite intense. Probably what I'd say is, ‘Listen, just loosen up a bit Bob, you know to relax.’ As I say, to summarise a bit more, to be very successful in property development I think what it was were just the energy, the adrenaline and everything. And I think as a teenager, you can imagine when you get older you don't know yet but don't say, ‘Oh, it's a joy to work,’ and so you probably like, just to relax, that everything’s alright.
But as far as property development goes, 10 years ago I hadn't quite started my education, my own business and so I was 100% property development. Whereas exactly 10 years ago it was sort of in my mind and I started to organise it. But I suppose what I didn't know 10 years ago is how much I was gonna enjoy it.
It’s like, ‘Well that's good news to tell me!’ Be prepared that you're going to have so much joy in it.
Yeah, I think I would have said to myself, ‘This thing you're working on now, it's going to be your prime advocate. It's going to give you a lot of fulfilment, a lot of happiness, you're going to meet a lot of great people - and get cracking and get it finished, Bob!’ Sooner you do that better.
With expertise in subdivisions, he has come to recognise the power of cash flow and how developers have an advantage over the market.
At the time I used to sell everything I developed. Mostly it was vacant land anyway. It took me a little while to realise that as a developer, we've got an enormous advantage over the rest of the market. We've got a huge advantage over all other investors in that we developed property at the real cost, whereas most investors are buying at retail price. I mean certainly, there are some distressed sales sometimes and mortgagees in positions where whatever it is, sometimes you get a great deal but a million people are fighting us. For instance, if a property was worth $700,000, a townhouse was worth $700,000 and was finished, as a developer you’re getting it for what’s probably $450,000. That means we're not paying legal substantially on the acquisition, because we already own it. And we're not paying a commission on the sale, so we're not selling it.
So it's a huge advantage and it's not accidental that property developers have very large property portfolios and the reason they do is that they're getting the property at absolute costs. So as a result, they don't have to keep saving up deposits all the time, as what normal people do. Most people who are buying investments, they need the market to rise so that they can refinance and harvest their equity and put it down and that's not always 100% debt or 105% resource - developers, we just keep using our profit to our deposit.
So we don't have to come up with cash deposits all the time obviously our profits are in and out and you're creating equity as well. It‘s automatically less debt. We'd probably got 75-80% debt, whereas someone else has got a 100% debt or 105% and so they’re generally cash flow neutral, or cash flow positive.
Ultimately, what they have as property developers is the flexibility to decide whether to sell their projects or keep them.
In today's interest rates they bring you the full depreciation, there's minimal to no maintenance and we could do three townhouses and the thing is, what could we do we could keep three, we could sell three, we could keep one and then keep on selling. We've got all this flexibility in terms of how we treat our sales. Even something as simple as a duplex, we could sell two, kick two, sell one, keep one of these three opportunities and the ones we sell gives us cash. We need cash, cash is king.
Cash to fill out our lifestyle, our holidays, our school fees, whatever. That's the ones we sell, we get cash. The ones we keep we can keep with no pain and we keep for the long term. But the beauty is, we've got it at real cost with probably cash flow positive and we can keep that loan as long as we can. It may need some good finance, but I go in and you can keep as many as you can keep, as I say.
And why wouldn’t you keep the properties you’ve worked hard to develop?
It's a proven, great asset class, isn't it? It's got a long history, property goes on forever. But it's a long term play, property, so that's OK. The ones we keep we put aside and the ones that we sell is our cash. The beautiful thing is some people, because having this negative geared world, they're paying the full retail price and probably 105% including legal. It started off in a negative gear and for a lot of investors, very sadly it hurts and it just gets sick of being negative and having to be coming up with the money every month.
And as a result, they've got a couple of days and all they ever see is that's their loss, because as soon as it starts the rents go up and things start to improve. They are encouraged to go and refinance houses and work and you get another one to keep and stay in the pipeline until somewhere near retirement age. The cash out somewhat, then go into positive cash flow. The beautiful thing about getting property so cheap as developers are it’s positive cash flow virtually from day one and we don't have to sell it. So what invariably happens is all the cash we've ever wanted is the ones we sell. The ones that we've kept, we don't have to sell and we've kept them and paid them down over the years because they were never negative in the first place and we got it at raw cost.
For the next five years, Anderson is excited about continuing to do what he loves and balancing his time.
Just keeping it going. I sort of restructured a lot of it as well as to how I promote my products and that sort of thing, loosened up a bit for me. But mostly I just… because I love property so much because I love property development I mean, I do it on my own obviously and that's exciting. But I love getting involved in other people's projects, I mean how good a job’s this? I actually have something that you love doing and do it, but then also to get the added benefit getting involved in helping other people do what you do. It’s exciting. I’m not lying on a beach, I tried it twice I’ve got to tell you - I tried lying on a beach twice, which is another name for pulling the plug and doing the time. That never worked out for me. It’s a lot about balance. I mean you interview a lot of people - and I think it's a lot about life balance isn't it?
Yes and a lot of them say that you've got to get away just to have a bit of time to recharge, when you come back you're refreshed and can look at things from a different perspective. But if you keep doing the grind, you never get away to really think.
I know how to work hard and I know how to relax hard. So yeah, I think I’ve got it worked out after a few years!
If you wish to connect with Anderson to find out more about his strategies or educational resources, you can visit his website.
The simplest way really is to jump onto my website, which is www.propertymastermind.com.au, pretty simple. So there everything about property development, what it means, how you can do it and how I can help you get into it. Change your life, make a lot of money, change your family's life, that's what it's done for me sort of stuff for lots of people. Simply go to the website www.propertymastermind.com.au.
This episode was produced by Andrew Faleafaga with narrations and interviews conducted by Tyrone Shum.