Simon Pressley is the owner of Propertyology, a market Leading Research in Brisbane and winner of several awards in the property investor space, revolutionising the way in which ordinary Australians invest in property. You’ll follow his journey from banking to business, discover the surprising research behind the best areas to buy in and the science that supports the real estate.
Find out how Pressley determined what Australian property investors needed in order to kick-start his service, the lesson he learned on the subject of water views, why economics has a close correlation with property and how Sydneysiders can tap into more affordable markets across the country.
Firstly, was there anything holding Pressley back from initially investing in property?
We all have to have the financial capacity to invest of course, if you own assets and your only way of getting financial capacity is the equity you can't really control what markets will do. So the only other way to get any sort of equity is to save, accumulate enough cash savings. For everybody, you're going to go through periods of life where you want to invest but don't have the capacity; but probably the biggest constraint was not of probability because now I own a corporate business, but for the everyday Australian the biggest constraint is mindset and it's not challenging the status quo - it’s the inability to even think that where you live in your neighbourhood but where you invest should have nothing to do with where you live.
So don't put geographical constraints on yourself. For example, let's talk about Sydney; Australia's biggest city which has now had four consecutive months of small price declines, there’s probably lots of Sydney residents going, ‘Oh, I'd love to invest but the market is terrible, so it's not a good time,’ or, ‘Definitely it's not a good time to be investing in Sydney.’ But how's that relevant? I mean how many places do you want? There are 25 million people to live in a country with 10 million dwellings, I would agree that about 20% of those it's not a good time to invest in Sydney. There are a few other locations that probably aren't a good time to invest in as well.
But it's the mindset of understanding that a neighbourhood is one thing, but your market in Australia. We try to coach our clients around mindset by using some analogies with shares. Let's say instead of having $200,000 as it were underground or whatever to use as a deposit, with a bank loan to buy a property somewhere. Let's say we had the same amount of money, $100-$200,000, but we deferred shares over the property. And let's say Tyrone this was your money and you worked for Commonwealth Bank - does that mean that you have to buy $100,000 worth of Commonwealth Bank shares? No. So what are your choices, what could you do as a share investor with your $100,000?
Diversify into multiple companies, if you want to have a diversified portfolio.
Absolutely. And that's what astute share investors do, they say, ‘I've got an amount of capital’ - in this case, we'll keep using $100,000 - and they will say, ‘Look I've got the Australian Stock Exchange, I think it might be something like 50-100 companies or something like that.’ And they’ll say, ‘Look, I want to put 20% into financial services stocks and 30% into technology stocks, 10% into mining stocks,’ and so on and so on. So they’ll allocate that way and then they'll go, ‘OK, now of the 20% that I want to put in the banking stocks, let's put 5% into CBA and let's put 7% into Westpac or whatever,’ and they're not going to guess with that either, they're going to spend some time understanding and analysing the fundamentals of Commonwealth Bank stocks versus ANZ stocks because there are going to be different positives and negatives with each of those.
But what does a property investor do with the same $100,000? They’re a creature of habit, they’ll say, ‘I live in Sydney, there's a suburb over here, there’s a suburb over there.’ The key to making a good decision to get anything starts with reviewing 100% of your options - 100% of your options as an astute investor is the whole stock exchange, 100% of your options as a property investor is this massive country called Australia. So with property, your home is your home and that's a personal and largely an emotional decision. As an investor, it's a financial instrument - disregard the features and benefits. It's irrelevant whether you do live there, whether you would live there because that's not the objective. The objective is to make money. To see it as a commodity - an investor sees property as shelter, the biggest driver of demand for shelter will be employment-related and enforceability-related, so think like that.
Enter Propertyology - they are able to help investors locate the right property and ensure everything runs smoothly, even in a situation where the investor wishes to diversify interstate.
It sounds easy in theory - the process I've described is very pragmatic, numbers-based and economic-based to pick a location. But then how do you find that individual property if you're that person I described earlier; you live in Sydney and you follow the Propertyology process and your research then led you to say, Hobart, how do you then find the right individual property in Hobart when you live in Sydney? And that's one of the challenges of why a business such as Propertyology ever existed until 10 years ago because there are things you need to do there that really require a physical presence in that location. So yes, there are challenges for everyday people to do that, even if they want to try and be a DIY researcher but that's part of our service, that's what we do.
Although Pressley didn’t have a specific mentor in his journey, he says it’s important to gauge whether the person who is providing you with advice has your best interests at heart.
Bearing in mind when we started Propertyology ten years ago, there was no business model like it. So I guess that's why it hadn't had before, so it was physically impossible to have a mentor because there was nothing you could learn from. But that doesn't mean we didn't gather learnings, there's lots of people that have already written lots of reports, not just today but for a long period of time. I just consumed as much information way back then and still now. Some of the stuff at the time of reading, you think that's gospel and that's got to be right, but then it doesn't unfold that way and that's a great way of learning.
So just lots of reading other people's thoughts, or if I did stumble across something - a piece of research or a report where someone forecasted something to happen - explain this is why I think that would be a good decision. I just love proof of anything in life, so I'd then go looking for a different location at a different period of time that to the best of my ability had the same ingredients that this person was describing and did it unfold that way? Yes or no? Now that's probably not sustainable for the everyday Australian to do that stuff, but then that's not their core business either. But with mentors there wasn’t one per se, just I think you learn over time not just from reading one report but when you read lots of things different individuals have read, sometimes after a period of time your opinion about that person might change. You discover a vested interest or a checkered past. Just because someone has got a high profile media or a really big company, that doesn't mean that everything they say or anticipate should be taken as gospel, with anything in life.
However, you also need to recognise that nobody can predict the future - not even Warren Buffett.
And the other thing is we're all speculating, whether it’s property, shares or anything else that we can buy money in anticipation of a better result in the future, we're all speculating. No one has got a crystal ball. Warren Buffett himself, officially the world's most successful investor - obviously share investor - but he can't give himself or any of his clients a guarantee and there's plenty of times you'll expect something to happen and the opposite happens. So it doesn't mean someone’s a crook because they anticipated something and it didn't happen, but there are people out there who do have a vested interest or a tainted past that perhaps shouldn't be trusted, but the general public might not know about that background.
Some resources Pressley consults include those by Jim Collins and Michael Gerber.
I'm going to sound like a nerd and I probably am - most the stuff I read is initial reports and economic stuff, but books... Good To Great is a good business book, The E-Myth is a great, really basic business book. They're not property-related, not financial-related, but I don't mind reading autobiographies just by successful people in general and I love sports, so I've read a number of biographies by successful sportspeople. But there often are some things that are common to their attitude, their work ethic, their passion, their will do whatever is required to become really good at whatever path they choose in life. For some people it might be in my case, Michael Voss is a god, being a Brisbane Lions fan and he’s chosen the AFL path, there are others who've chosen the business path or the Warren Buffet share path, or whatever. I think with all successful people there’s something that they have in their makeup. We’ve all got two arms and two legs at the end of the day, so what do they do better than others?
We all have setbacks, I've had plenty and we mentioned this earlier, that mistakes and setbacks are the biggest learnings. But I don't think humans, in general, appreciate that enough when they're going through it. We all go through them. It might sound a bit sadistic, but when I'm going through a big challenge I have learnt over the years to take the time while I'm in that moment, feeling that pain and how did I get here? What decision did I make? Was it something I did or was it something that I had no control over whatsoever? But what was the cause because I don't want to feel that pain again. So if I can take the time now while I'm feeling it, to identify what one thing or multiple things contributed to it, then I can keep a lookout for those things in the future.
Similarly, with the successes - we need to celebrate our wins in life and take the time while you’re celebrating to think about what's the hard work and what's the tough decisions and what are the sacrifices I made to get to this point because this is a wonderful feeling. I want to get it again. So whether you're looking for that football premiership, or the business success, or the financial success, I think there are some common behaviours there.
If something is that important to not do, then take it upon yourself to not just do it, but do it as well as you can.
What his team at Propertyology can do to help you in your own property investing journey.
Our research will develop enough confidence in a particular location to say, ‘Hey, we think over the course of the next say five to ten years this particular location has the potential to outperform the broader Australian market and we want to help clients take advantage of that.’
The best advice he has ever received is to do a thorough job in whatever he sets out to do.
I like the saying, ‘If it's worth doing, do it well.’ If something is that important to not do, then take it upon yourself to not just do it, but do it as well as you can. In my own personal life things that are important to me, I place a lot of value on professional services. There's probably very few things if anything, there's not a bunch of experts out there somewhere and no one is an expert on eating. But if there is something important enough to me that I just have to do it, then probably the best decision that Simon Pressley can make is finding the best specialist. If I get that right and I have a good relationship with them, that still doesn't give me guarantees but it's certainly significant increases my odds that the net result is going to be closer to what I want than if I become a DIY.
Pressley’s biggest a-ha moment came when he and his team were able to pinpoint the potential growth in specific locations throughout Australia.
We were the only firm in Australia that picked Hobart's boom several years ago. [00:26:34] We did a study that took several months. It involved breaking Australia down into the 550 individual local governments that are spread across our eight states and territories. We got the official data of these 550 LGA as we call it, which is the equivalent of the property investors’ stock exchange if you like. So how we view property is every one of those 550 local councils is the equivalent of a company on the stock exchange. I paid tens and tens of thousands of dollars to a big company called ‘Core Logic’ and they gave us a massive file with billions of cells of data. That's obviously costly, but the bigger cost than that is the hundreds and thousands of hours that we spent doing formulas, charts and analyzing it on different spreadsheets.
The property world has always been full of all these myths and theories and investing in properties. It’s a big decision, it's a lot of money. No one's ever going to be able to give us a guarantee but what if we actually put all these theories to the test? What if we got all the evidence and devoted whatever time and resources were required to test all these things. We got all that data for 550 LGA. We took it back to the turn of the century from 1 January 2008 and worked out the average annual capital growth rate for 550 locations over 5 years, it was a long period of time. We got the average rental yield for each of those 550 LGAs added them together to give a total return on investment over that long period of time. We filtered it and ranked them from best performed to worst performed.
Then they studied the outcome of this research and started to question, ‘why?’
When we looked at the best performers, we saw a majority of the names were not the high profile locations that everyone would probably expect to be at the top. It wasn’t Sydney and Melbourne, they were predominantly regional locations that we'd all heard of but it wasn’t the big cities or large population masses. The bottom 10-20 per cent we saw the locations that we thought would be at the top. Greater Sydney is made up of 43 LGAs and zero of those 43 LGA appeared in the top 40 per cent in Australia over that massive period time - zero!
That's very surprising.
In Australia the second biggest city is Melbourne, which is made of 31 LGAs; 27 out of 31 LGAs appeared in the bottom 40 per cent. So let me first say that every location Australia experiences periods of booms and flat periods. The evidence taught us ‘affordability’ was a common denominator amongst the better-performed locations, which directly explains why Australia's two biggest cities were in the bottom 40 per cent and not in the top 10 or 20 before.
It is not just a matter of buying a region because it's cheaper. It was ‘economic development.’ So there were periods throughout the journey where certain industries did well, different regional locations throughout Australia benefited from businesses expanding, infrastructure projects or just job growth in general. That’s proof that when investing, the most valuable information is to try to anticipate which industries are going to perform the best in the future. Which ones are likely to expand and create jobs, wage growth and confidence? With every location in Australia, capital city or non-capital city, what is their economic profile?
The Science Behind Diversification: Simon Pressley on How To Find The Best Spots to Invest In
Through this intense market research, Pressley’s aim was to learn from the patterns made in each particular area.
It's a historical study but the purpose of doing it is to learn from the evidence. It still doesn't give us a guarantee, but it's a lot better than the wrong way, i.e. wives tales. Therefore as a business, we place a lot more value on economic data and industry report than historical property data. It's not that we're not interested in something like a vacancy rate or a change in median property value, but if you think about it, that’s in the past. You can’t make an investment decision in 2018 and say, ‘Please give me the growth that Sydney got from 2013 onwards’ - you can't do that. You've just got to tap into the past and no one can tell us what's in the future. But the most valuable information is trying to anticipate the economic profile of each of Australia's capital cities and non-capital cities. What is that and how is that likely to change?
This project was key to how Propertyology managed to spot the potential growth in Hobart.
I was guilty of labelling Tasmania as an ‘economic basket case’ as it technically went through a recession. The whole country obviously felt the brunt of the GFC, but obviously some cities have suffered more than others. In 2011, eight out of eight capital cities actually declined in value that year, including Sydney. However, Hobart values didn't plummet anymore than I'd say, Brisbane or Adelaide. A broader economy did suffer more and it's not just because of the GFC. They had issues with their forestry industry. They had one state government for 16 years, which is a heck of a long period of time and probably became stale.
We love challenging the status quo. I think too often in the property game there's a stigma associated with certain locations. We took the time to understand why Hobart's property market struggled, what actually drives its economy, breaking it down into the various industries: tourism, advanced manufacturing, its a university city, it's a massive foodie place. There's a science element to it. We started looking at the key employers in Hobart for some of those industries, we read into some reports, proposals and they're all planning new projects and job growth. They're engaging with China, India, they're all trending in the right direction. They're all positive action.
Then they looked at the available supply in Hobart and at the conclusion of their research, they were able to recommend it to clients as a prospective investment.
Supply was already tight. Property values hadn't fallen, they just hadn't grown for several years. The vacancy rates were low, rental yields were still strong. We then looked at the building approval volumes. We've put a lot of value in building approvals because that's the leading indicator of future supply and it was low. If you said, ‘Here's a location. I'm not going to tell you where it is, but here’s all the information about it.’ You would think it was a perfect buying opportunity.
We gave Hobart the Propertyology official green light in very early 2014 when the market was dead flat. The locals themselves would have invested there but we backed their research and their professional judgment about its economy improving over future years. I think in 2014 and 15 combined, we would've bought roughly 50 properties. I can guarantee you that none of those 50 people sought us out and said, ‘Please help us invest in Hobart’. They sought us out saying, ‘We want to invest, we're keen to learn more about what you do and how you can help us.’ After earning their trust and confidence, we recommended Hobart and bought properties.
Going above and beyond to provide investors with the best market research, the Propertyology team travel interstate to get detailed information from local professionals on their particular part of Australia.
We're combining the market research of all of Australia, as we've already described, within an award-winning buyer's agent service. Our office is in Brisbane, we don't have an office in every location throughout Australia - our office is in Brisbane. But from time to time in every single year, our research will develop enough confidence in a particular location to say, ‘Hey, we think over the course of the next say five to ten years this particular location has the potential to outperform the broader Australian property market and we want to help clients take advantage of that.’ So we made a decision as a business on a particular location. I and members of the Propertyology team then physically split, we fly to that location whatever it is, we'll spend a good week there, we will meet with local government officials, councils, town planners, mayors, economic development managers. We eyeball them in their boardroom and we ask them lots of questions about their city, new proposals and new infrastructure so that we can envision how that's likely to change over the next few years.
So we've already decided to invest in the city, but we need only to get another layer of information to determine which parts of the city and then drill down to specific streets that we would or would not invest in. And that's a combination of the fabric of that city as it is today, then overlying proposed changes, how that community is going to change in the foreseeable future. So for example, you might have a low-density suburb today that predominantly houses but there might be zoning changes and in five to ten years it could be full of apartments. Is that going to be good or bad and which part of town is that going to happen in? It might be planning to widen roads or build tunnels, bridges, or new industrial estates.
So how do they determine the best hot spots for property investors?
This information comes from a combination of our daily research from our Brisbane office and also things that are told to us and shared with us face to face from people like the council, chambers of commerce, different industry leaders, that sort of thing. We study things like flooding and petty crime, pockets to avoid, where the vandals hang out, where are the key employment nodes, new shopping centres, those sort of things. And we physically try to get all the streets in a massive, big street map and a couple of different colour highlighters - my team physically colour in every street map before we get back to the office here, to determine whether we would or would not invest in a particular street. So we have that information at our fingertips now that’s from people knowing that city who have been born, bred and lived there their entire life, because for them it's their neighbourhood. But to us, it's something completely different.
In terms of personal habits, Pressley believes that perseverance and not taking things at face value are things that have contributed to his success.
Lots of hard work, perseverance, don't take things for granted, challenge the status quo. There are so many things that we mentioned earlier, the wives tales and things that society constantly drums down our throat that we just take as gospel because everyone's saying it. There's a number of those things that if you actually take the time and study, the evidence can contradict it.
So if he met his past self from ten years ago, what would he say?
What I'd say to myself is, ‘Look we've all got strengths and we've all got weaknesses. Try to be honest with yourself with what your weaknesses are and identify someone who you trust and respect who have complementing strengths in those areas.’ So in my case, I'm a very pragmatic decision-maker, unemotional, but there are a couple of people I've met in life that... I wish that I had my wife by my side who’s got great, really strong emotional intelligence and tapped into her and she would go, ‘You can't trust them.’ I wouldn't have picked those sort of things up.
To connect with Pressley and learn more from him through Propertyology, you can call or visit the website.
Start with our website www.propertyology.com.au. There is lots of free stuff, there is some general information about our services, but there are also lots of blogs and research reports where we won't necessarily go in to make recommendations on a public site about where someone should invest, but we do produce lots of reports so that the general public can form opinions about our insights. They get an understanding about why we think, for example, Sydney might not be a good place to invest in, the things that are going to influence that, or why they should have an open mind to different parts of regional Australia. So people can read those things at their leisure, at no cost and work out for themselves whether we're making some sense and if they feel that we are, just give us a call 1365 40 70 and we’ll go from there.
This episode was produced by Andrew Faleafaga with narrations and interviews conducted by Tyrone Shum.