Daniel Walsh is a property buyer’s agent and founder of Your Property Your Wealth. He has years and years of experience in helping his clients on how to successfully buy a house and properties and build their portfolios in the smartest way possible. We are lucky enough to have him share some of his expert advice and knowledge with us on how we can improve our property investing.
Join us as we dive into today’s topic of Overcoming The Fear of Buying Property. Walsh talks about a couple that he worked with and helped overcome their initial fear of jumping into property investing. We find out more about what their initial fear was and how he helped them overcome that obstacle, the process that he was able to help them with and their reaction after buying their first property, and much much more!
– Daniel Walsh
Inside this episode we are diving into the topic of overcoming fear of buying property and we hear about a particular couple that Walsh has worked with and learn about their experience.
This couple were Sydney based. They were in their mid-thirties. They both were, well, she actually worked as a social worker and he ran his own business. So just a sort of a small business that he ran for, I think he was about five years into his business at that point. And they lived in Sydney. They bought their own family home, their principal place of residence and they had just gone or experienced the Sydney boom. So this couple, I guess they had their two children, they had some good steady income coming in. They’ve had some equity in their property. So they’d had a bit of equity there and they started thinking about, you know, property investment. We’ve got some equity, should we be using that equity to invest in property but I guess one of the biggest fears that stopped them from doing this was they didn’t know firstly how to even invest or where to even invest. They were quite scared of doing it wrong or going about it the wrong way and, you know, maybe having bad tenants.
So they were quite fearful of investing because they just didn’t know too much about it and they weren’t really educated with investment or they didn’t really know anyone that had invested themselves and were successful. So they’re a little bit scared at that point. But they did know at that point that they wanted to invest and they needed to invest because they were in their mid-thirties. And they still had, you know, a good 25 years, 30 years left ahead until they retired. So they wanted to invest as early as possible. But they had to overcome some of those fears that they inherited from maybe family members or friends.
Walsh talks to us about how they were able to overcome their fear and how his own situation was able to help them.
The first conversation was, you know, they were looking at my situation and seeing what I had done. So I guess they had looked at that and said, okay, so you’ve built a really large portfolio. How did you do that? So I just had a conversation around how I built my portfolio, how it all worked, how I coped with the debt and how you can actually invest safely. So that was one of the biggest things with them is, you know, they were focusing so much on if we go buy another investment property and that’s going to be $400,000 for the debt, then they just focused on the debit side of things. How are we going to pay that debt back? They weren’t focusing on the rental income. They weren’t focusing on how they could cash flow that property.
It was more so we’re just taking on more debt. And that was stopping them straight away from investing. So we had a conversation around how we could overcome that fear. And one of the things was, you know, making sure that we had a cash buffer. We had some money left aside, you know if something was to go wrong. So a rainy day, you know, if they were to lose their jobs or something was to go wrong with their health or maybe their business slows up a little bit. And I guess that’s a common fear that most people have. You know, what happens when things don’t go right. And for me, I said to him, you know, the way that I do it and the way that I’ve run my portfolio is if I can cash flow my portfolio for say, 6, 12, 18 months and then depending on, you know, how risk-averse you are, the longer you would need obviously to have a cash buffer.
But if you could have that cash buffer, would that put your mind at ease? Would you now be able to invest? And you know, yes, you are taking on maybe another $400,000 with a debt. But what happens if you have $50,000 sitting in a bank account that would be able to cash flow that portfolio for the next 5-10 years? Would that make that a much easier process? Getting into property and having that conversation with them, that’s when they realise that, you know what, debt isn’t scary if you know how to manage debt. So before getting in debt, let’s structurally make sure that we can do this. Set the finance up in a way that you can structurally build a portfolio but also cash flow the portfolio as well. So that you’re already, I guess, foreseeing things that could go wrong in the portfolio, let’s say it had vacancies or you know, like I said, lost jobs and stuff like that. If you could already build that into your contingencies of the portfolio, then all of a sudden it’s not as scary. So that’s sort of how we overcome, I guess, the interim of investing. And that’s when we then started going out there and setting up their finances so that they could invest in their first property.
We find out more about the process and the discussions they had leading up to making their decision to jump into property.
Typically we sat down with them for a night and I sat down with them for about an hour and a half, maybe two hours, and sort of went over some of the fears that they had. You know, once we rationalise those fears and work out, you know, okay, this isn’t as scary as we thought. And we had a look at the finances where we could go in terms of building the portfolio and saying, okay, you do have scope to be able to build a property portfolio. You’ve got the equity, you’ve got the income, we’ve got the contingency plan. You know, there’s not really too much left in terms of holding you back. You know, now it’s just about, you have to jump into the first one, you’re going to have to experience it. And then from there you’ll build your confidence as well.
So, and not only that, I guess they came from a place where they thought they were doing it all on their own. So once they came to me and we talked to them and we have a full team, obviously that was going to help them out. They felt at ease at that point that they had professionals holding their hand from start to finish. They didn’t know how they’re going to set the finances up. They didn’t know how or where they were going to purchase or even why they’re going to purchase that property. They didn’t even know what price point they were going to purchase it for. They didn’t have any pest and building connections or soliciting connections. So because they didn’t have that infrastructure or the team in place, they were really stuck straight away.
So once we could I guess, tell them that here’s the team and this is how we’re going to do things. We put it out there on paper. We built that plan with them. That’s when they started to really understand that, you know what, this isn’t that scary. As long as we have this team that’s done it before, then we can overcome those fears as well. So we really started, I guess from there, from that one conversation, it went from that to going straight into the final stage and structuring their finances, releasing the equity. And then, you know, obviously getting the pre-approval ready for their first investment.
There are always going to be challenges that you need to overcome in order to achieve your goals and we learn about some of the obstacles the couple faced when buying property.
I mean always with finance, there’s always some sort of hiccup with the banks I think these days, you know, and that is one thing that deters a lot of people, the finance side of things is always going to be difficult. And I do pre-warn anyone, you know, building a portfolio is not easy. You know, if it was easy everyone would do it. So you’ve really got to understand that it’s not going to be easy, but it’s going to be worthwhile. And that’s probably the biggest thing, even when I built my portfolio and I told my clients like it doesn’t matter if you have a $10 million portfolio or a $1 million portfolio, it’s never easy throughout the entire journey. You’re going to have to overcome little obstacles and it might be little things like you know, changing banks so that you can get finance and things like that and you might have to change over where your repayments come out of and maybe cut up some credit cards and stuff like that.
That’s always going to be there. It’s just about now let’s figure out what those hurdles are and we just jump one hurdle at a time. Don’t look at it as a massive big process. Let’s just look at each stage as it comes. So let’s just go into the finance stage and get the finances set up correctly, and then we’ll start thinking about the area after that. Now, once we get the area down pat, we know where we want to invest, we know what we’re looking for, then we go out there and we go out there to look for a property. We purchased that property. Now let’s go to the next step. Okay, we’ve got to get the pest and building. So you’ve got to really break the whole process down so you don’t become overwhelmed. And realise that there’s always going to be little hurdles that you have to jump. You’ve just got to make sure you have the right team to be able to help you jump those.
People can maybe set up a team, but is it the right team? Have they used that team before? And I know from the early days of when I started nearly a decade ago, it was filtering out to find, you know, you can find a broker or a finance broker. But can you find the right finance broker for you? And that was, you know, the biggest thing in my learning was working with a team over time that had already created success in their avenue that they were going down. So whether that’s a property manager or whether that’s a finance broker or an accountant or a lawyer, finding those people and then bringing them all together to be part of your team to be able to help you succeed in property.
How long was that period just to sort of paint the picture? How long did that take in terms of maybe weeks or months?
It depends obviously on the complexity of what you’ve got to do in terms of refinancing, but in this scenario, it was fairly straightforward. We just had to extract the equity out of the home. We had to have that as a split loan. So we knew what we were going to be dealing with in terms of deposit size. And then from there just going out there and getting the pre-approval. So I think the time of collecting all the information, lodging for the pre-approval, it was probably around that sort of four to five-week mark before it was all set up, ready to go. And then we could go out there and obviously start looking for different areas and properties.
The larger the portfolio, the tougher and the slower it moves. That’s probably the biggest thing you know, that I’ve learned. Because the larger you build that portfolio, you build up the confidence and you build up the expertise as you build your portfolio and you need that because it does become slower, you move slower as you get bigger. But like I said, in the early days you can move around and you can get loans and you can do different things fairly simply. But when you have, you know, 8, 10 properties, it’s a lot harder to be able to collect all that information ready for the banks and put your case forward to be able to get another loan. But I guess at the end of the day, you also are growing with your portfolio as well in terms of expertise.
After getting themselves into a position where they were ready to buy, we learn about the next stages of their journey.
Firstly we actually show them all the information on different locations that we’re investing at that point. So again, it’s not coming down to an emotional side of why, you know, we don’t want to buy in our backyard, we don’t want to buy just because we know the area or we’re emotionally attached to the area. What we want to do is really break it down and say, where is the growth going? What’s happening? And we’ve got to look at that Australia wide. So it’s not just looking at it from, you know, one state perspective or the state that you live in. But okay, where are all the states at? And then let’s break that down and now let’s look within that state, where are the growth locations and what are we looking for in that property as well?
Is it the yield? Is it the capital growth? Is it a balance? So looking at that, what we did was obviously send different area reports that we do, you know, I guess very in-depth reporting systems. And when we asked the 10 key data questions and why these areas are going to grow. So what we’re doing is painting a picture on what’s happening with that area and what’s going to happen with the area in the future. We had a little sit down where we’ve showed the different areas that we could invest in. At that point in time, we did select Victoria, we knew that Victoria was moving quite rapidly and we wanted to capture that growth because we knew that over the next sort of 18 months we’re going to have significant growth in the portfolio from day one, you know, just purchasing, right?
And then making sure that we purchase in a growth location. So we set up to purchase in Victoria and that’s when obviously I went out there and purchased them there. Their first property, we actually lost the first property. So I think it was the very first property we presented them at went about 30,000 or $40,000 over what we had valued that property at. So, you know, they were a little bit disheartened at the start. Obviously, you know, you’ve lost a property and it’s the first property that they will be emotionally charged from that. And it was sort of, you know, let’s bring it back down to earth. It all comes to the numbers. We will win some and lose some. But we’ve got to make sure we get the right deal. Then it was only about two or three weeks later and we ended up purchasing, I guess the right property that came along. We paid $379,000 for that property. It was a house on like a 750 square metre block on a corner block. It was a three-bedroom, two-bath, two-car garage. It was sort of that older style home, maybe about 25, 30-year-old home. But it was a nice solid home and a nice big block, corner block. So it was a really good steady investment for them.
We find out more about the property they purchased and discuss why it was the right property for their portfolio.
It was coming down to what sort of yield we were chasing and we wanted to sort of balance the yield out with the capital growth. So we know that we wanted to chase the capital growth. We were going to have to sacrifice a little bit on yield, but we didn’t want to sacrifice the yield so much that it was, you know, highly negatively geared or anything like that. So we wanted to sort of balance it out for them. Now in terms of choosing the property, we knew that in the area that what was in demand at that time was houses. We wanted to buy a nice sized block for them. We wanted to buy something that also because it was their first investment that they didn’t have to heavily renovate or anything like that. But something where you could potentially add some value down the track to it.
But you know, you could just stick a tenant in there from day one and it didn’t really need anything. So it was a nice sort of steady investment where they didn’t have any maintenance issues, they didn’t have anything they really had to outlay which, you know, sometimes can discourage some people, at least when they’re new to investing and they do not sort of understanding that side of things. So we wanted to make sure that it was just a really nice, easy flowing investment property for them, but also at the right price. You know, we wanted that sort of under $400,000 price. They wanted something they could, I guess, get into their first property but not be in $500,000 worth of debt for the first one. They wanted to just sort of, I guess ease into it, you know, in the $300,000 range was what was going to suit them.
At that time, they only had their own home. Their debt wasn’t that large. I mean we possibly could have borrowed about $1 million dollars. I think it was at that point, you know, it was quite, quite high. But we didn’t need that much. Obviously we went in there with a pre-approval, I think it’s about $450,000 with the aim of spending between sort of that 350,000 to $450,000. You know, we wanted to balance that yield out as well. So it was sort of, I guess, you know, we went in there with a 12% deposit on the first one as well, so we didn’t extract too much equity out of their own home. We capitalised the lender’s mortgage insurance onto the loan as well. And obviously, you know, it just means that they didn’t have to put 20% down, a lot larger deposit. And again, that can sometimes bring back more emotions that they’re putting more money into it. You know, rather than just using, say, a 12% deposit, we can actually split a few different deposits up with building more properties in their portfolio over time.
Walsh explains the process that happens after you have purchased a property and signed the contract.
Obviously that’s when everything starts pretty much from there. That’s why you get to the point where you go, I finally purchased the property and then all of a sudden the journey really starts from there. You’ve got to sign a lot of different things. So obviously we went in, we signed all the contracts up. So firstly you’ve got to make sure you’re reviewing the contracts. So we had solicitors review the contracts. Made sure that our guys knew exactly what they were in for when they’re getting into that property, you know, is there any easements on the property, is there anything that is going to inhibit our property or hurt that property going forward? So we need to know everything about that property before we sign on the dotted line. So they go through all of that with you.
They signed on the dotted line and then from there it was you know, let’s go out there and get the pest and building done and make sure that everything is sound with the property, instructional sound at the property. Thankfully everything was, you know, I think there was pretty much next to nothing on the property. It was a very tidy property. It was an older lady that lived in that property. So it was a nice, well looked after property. But we went in there, signed them up to the pest and building. From there we’re working in the background on the finance. So you know, things don’t stop there. You’re always working on something. So we’re working with the finance, getting the rental statements to make sure that we can get the finance all approved.
And then once the finance is approved and the pest and building is all done, we then go unconditional with the property. So you go unconditional with the property and then it’s making sure that you’ve done all the checks. And getting ready for the settlement. So obviously make sure you’ve got the funds available, you’re putting them in the trust account to the solicitors and putting everything across. At the same time you’re doing that, you’re also making sure that you’ve signed up to your property manager, your property manager knows what’s going on when the property is going to settle and the keys are going to handover. How to get a tenant and again that comes down to making sure you have a really good property manager and the property manager’s sort of setting everything up in the background. They’re going to collect the keys for you.
They’re going to go out there and get photos. If they need to have the property, they’re going to list that and make sure they can get the tenant for you. And we always make sure that we can try and get into that property a little bit earlier before it settles. So instead of waiting for settlement, which is what a lot of people do, they wait for settlement and then they start that process of I need that property manager, I need this. And then all of a sudden they’ve got four weeks, five weeks worth of vacancies. What we’re doing is let’s get everything done so that when it comes time to settle, we’ve lined up a tenant, we’re ready to go, the finance is done, it’s all settled, the house settles, and then the tenant moves in from there.
It is important to try and get ahead of the game even before the property has been settled and start working on finding tenants.
If we can get in there and get two open homes done two weeks before settlement, it just means that we’re two weeks ahead of the ballgame or when we settle that property. And more often than not, you know, probably about 95% of cases we’ve already rented that property before that property settles. Just means that it’s a very smooth transition for the clients to be able to get rental income from day one instead of having to wait, you know, two, three weeks for a tenant. And also that’s emotionally draining as well. You know, if they’ve got to wait another month for a tenant, you know, they’re starting to get a bit more anxious about it. Whereas if they’re going into the settlement knowing they’ve got a tenant it just makes everything much smoother. They’re going to get paid from day one and they’ve got no vacancies.
Walsh talks us through how they were able to figure out how much they could get on rental returns.
Before we even purchased the property, we would actually have our property managers go through that property with us and we make sure that, you know, they’ve already conducted a rental analysis to make sure that we know what it’s going to rent for before we even purchase the property. Because before you purchase the property, you want to know your numbers backwards. You want to know what’s the worst-case scenario, what’s the best-case scenario? How much is this going to cash flow? Is it going to be cash-flow positive, cash flow neutral or cash flow negative? Because at that point that’s going to determine what type of investment you’re going into. So you need to know the numbers. And the biggest mistake that I see is people, they go into a property and then all of a sudden the real estate agent starts to tell them what they can rent the property for.
And often that’s an inflated number. So that you know, it attracts them to buy the property. So what we want to do is make sure that we’re getting the property managers in there. They can see the condition of a property, they know what other properties are renting for, and they can give a real accurate rental appraisal based on that. So we know within sort of 5 to $10 exactly what that property is going to rent for instead of being out by 30 or $40 because the real estate agents told us that it’s going to rent for an extra 50 bucks.
His clients had overcome their initial fear of buying property and he tells us what their reactions were shortly after that period.
They didn’t even have any keys in their hands and everything went straight to the property managers. Everything got handled by us and them. I remember talking to them as soon as it settled and they said, it feels like I haven’t purchased a property. They said, it doesn’t feel real. And I said, it doesn’t, and that that’s the thing when you’re purchasing property and you’re doing it the right way, it shouldn’t be a difficult process. This shouldn’t be very hard. You shouldn’t be going backwards and forwards and you know, doing all this stuff. Once you do settle the property, it should be like, okay, that’s all I have to do and the property managers should be doing the work from there. You know, you’ve got to have the property managers make sure that you set up everything correctly.
So we make sure that the rates are going through the property managers and they’re paying all the bills, and maintenance is going through them and you know, it’s taking all the load off the client to have to pay all these or make sure that, you know, everything’s coming in right. That’s what the property managers are there for. So they really take care of all of that for you. And I guess from there it was about, I think it was about two or three months later. And I always, you know, have a chat with them and say, you know, now the process is over. You know, in this case, we were looking to purchase multiple properties. It’s just, let’s get over the first one, let’s get that first one done. And about three to four months later, they gave me a call.
They go, Daniel, I’ve noticed the properties have all gone up around there and I said, houses around that area are growing and they’re doing quite nicely at the moment and they felt more confident from that because it was like, okay, this is actually working. So they wanted to get back into purchasing the next one. So again, let’s go through the process from the start. Let’s go back. Let’s get the finance done. We’d already extracted the equity from the first property from their principal place of residence. So that was already set up. So the second time around, things were a lot easier. We just had to go back and get a pre-approval. So it wasn’t as difficult to go back the second time. And it was around that sort of two-week mark before we got the pre-approval and we’re ready to go out there and purchase a second property.
They had purchased their first property and overcome their fear, so now it was time to move on and buy their next property.
When we looked at the first property, when you’re building a property portfolio, you shouldn’t be looking at isolating one property from another. You should be looking at the total portfolio. So what we did was obviously on the first property, that first property was around $1,200 a year negative. So it wasn’t positive cash flow, but what we were chasing was the growth. In the first year, we had about 20% growth. So it did what we expected and it was a little bit negative. So on the second one when we went to purchase the second property, let’s go to Brisbane. Let’s purchase a property with a bit of cash flow and that will offset the other properties so that your total portfolio is neutral, meaning that it’s just not going to cost you anything to hold that property portfolio, but you’re going to have two solid assets growing to be able to leverage from in the future.
So it was sort of building that foundation portfolio. So we bought the next property for $407,000 in Brisbane. That property was a little bit different. It was more the intermediate sort of property for an investor. So I guess they’re at the next stage at that point. And we purchased a four-bed, two bath, a double garage with two separate living spaces. So when we chose that property, what we noticed was two living spaces were in demand in the area. And the four bedrooms obviously for a family. So we specifically sought out that type of property with the two living spaces. So there’ll be, I guess more in demand for a rental side of things, but it would be also in demand if you were to ever settle that property as well.
Walsh delves into how he decides on the difficulty of each property and why he wanted to go up a level with his clients.
The first one was, there was nothing to do with the property. It was literally just put a tenant in there, set and forget. And that was it. Now the second property that we walked through had the potential, it was only about sort of 13 or 14 years old. So it wasn’t a very old property. But it was still when you walked through, it was a grubby looking house. It needed paint, it needed the carpets. I think we need to change the toilets as well. They looked a bit old and not that great. And so that was sort of, I guess more on an emotional side to be looking at the property more from a data perspective and looking at it from a numbers perspective, I guess more so and say, okay, we can now look for a property and understand that this doesn’t look good now, but maybe with a small renovation we can actually uplift the property. It created a bit more value or a bit more equity out of the property and then put a tenant in there. So we had to do a little bit of work before we actually put the tenant into this property. So that was sort of the more intermediate wasn’t just a set and forget, but we actually had to do a little bit of work.
With the first property in the portfolio, he talks us through the process of looking for the next one and the criteria he had laid out.
What we wanted to do was make sure that it was going to have a good solid rental return. So we paid $407,000 for that property. We also wanted to balance the growth, so we wanted to make sure they had good growth but also had a fairly good rental return as well. So that was renting for, or we could rent that property for $430 per week. And we paid $407,000 for it. Now we did a small cosmetic renovation and I think it was at the $415,000 mark, by the time that we finished the renovation and what that meant was once the renovation was done, it was brand new paint, brand new carpets, brand new toilets. Everything was sort of done, looked really nice and neat and back up to scratch so that we’re going to attract a very good tenant for that property.
So in terms of looking for the property in terms of the criteria that we’re looking for at that point was we wanted something at that point where it was going to be a bit more positive cash flow for them, but also balance out the capital growth. We wanted it to target families. So we wanted the four-bedroom because we knew that was going to be in the most demand. So when we’ll speak into the locals in the area, we’re looking at what people wanted in terms of the tenancy. We wanted to attract those family orientated people and that’s just because we knew that they were going to stay longer in the property and we’re going to have less vacancies over time. So it was just about making sure we’ve got that right property.
We find out how long it took them to not only purchase the property but then to renovate and find a tenant to move in.
The pre-approval took about two weeks, to actually find that property took about four weeks. So we’re looking at sort of six weeks from pre-approval to actually finding the property at that point. And then it took a further six weeks to settle that property. Now with that property, we couldn’t get into that property early, so we actually had to wait for it to settle before we could do the renovation. But we had all the tradesmen lined up, they’d already done their quotes, they were ready to go in there from day one and we painted, carpeted and everything was ready to go within about a week and a half. So it was only a week and a half downtime. And then the following two weeks we ended up renting that property. So we had a lot of interest and obviously came down to making sure that we chose the right tenant as well.
And making sure you have a good property manager that recognises the difference between a bad tenant and good tenant. And you know, maybe you have to go through 5 or 10 applications, but you want to find the right tenants and they’re not going to ruin your house or anything like that. So I would say all up, it was probably about 12 to 14 weeks was the time that we were ready to purchase to the time that it was renovated and then get ready for a tenant.
They have just purchased their second property after overcoming their initial fear to simply buy property. We get an understanding of how they were feeling at this point in their journey.
They thought this was easy. This was easier than they anticipated. So I remember speaking to them and they said, we speak to our friends and family about this, you know, and how easy it is to invest in property. I said, it is easy when you’ve got the right team. Obviously, you know, if you’ve got people that know what they’re doing, you’ve already got the team in the area that you want to work in, then everything becomes a lot easier because you can call on them to be able to do everything for you. So it made it a lot easier. They didn’t have to do too much in terms of they get to go to work, do their daily thing. They had to sign a couple of documents and that was about it. The rest of it really got taken care of for them.
So they were very, I guess, ambitious. Now they’re looking at it and going, okay, I can now build a portfolio. I’ve overcome the barrier of debt. They’re now, you know, not scared to death. They understand how to leverage, they understand what it means to build a property portfolio. So I guess the mental barriers that they had at the start and especially another one were tenants. You know, what happens if I get a bad tenant? What happens if things don’t go right? And now that they’ve sort of got that confidence up. They’ve been in the property market, they’ve got the investment properties that they bought interstate. And they’ve realised that you know what, it’s not really that hard to do. They overcome their fears and now they’re looking to purchase their next property. We’re going through the finance stage to be able to purchase their next investment.
So over a year to a year and a half we’ve bank valued both of those properties and currently, the equity position is $136,000, so they made a $136,000 off those two investment properties with a bit over a year.
We recap on the topic of overcoming the fear of buying property and just how Walsh was able to help his clients get into the property market.
I guess the number one thing in overcoming their fears was obviously the debt and also maybe the tenants and making sure that they can, you know, purchase these properties. But I guess the biggest fear was the debt. So overcoming those fears was rationalising them. So sitting down with a team that’s already done that. So sitting down with somebody that’s already built a portfolio that’s already maybe had to go through all of those fears himself over those years. I’ve already had to overcome those fears myself and I’m able to sit down with these clients and say, here’s how you overcome these fears. This is just more of a mental block or roadblock, but let’s rationalise these fears and then let’s work out a plan to be able to overcome them. Let’s put a cash buffer in place that you know that you can overcome, that the whole fear of debt all of a sudden is not such a big issue.