Australia and United States Differences in Property Market Investment
Lindsay Stewart is the founder and global operations manager of Star Dynamic Property Investments. He has been investing in properties in Australia for nearly 15 years and moved into the US market about 6 years ago. Star Dynamic aim to help their clients get into the US market and provide the analysis on how to get into that market safely.
Join us as we delve into Lindsay Stewart’s journey from his beginnings in rural New South Wales, how his job with Holden helped him realise what his real aspirations were, how he was able to jump into the US market after starting his property market investment journey in Australia, the biggest differences he found between the two countries in relation to the property industry and so much more!
I run a property investment business here in Australia, a property investment company called Star Dynamic Property Investments. I’m the founder I guess, and also I call myself the global operations manager. I guess I handle all the operations throughout our global investing.
As part of his business, he is always trying to help his clients every single day.
I guess our goal is that we try to help Australian investors get safely into the US market. So day to day I do a lot of the operational side of things, so there’s a lot of dealing with all the purchases, the renovations and things like that that we’re doing on properties. Dealing with clients as well on a one on one basis, prospects, new clients, things like that.
It is one thing to be able to invest in the Australian property market successfully, on the other hand, why did Stewart jump into the US market as well?
We’ve been property investors in Australia for probably coming up to 15 years. We do some developments and things like that. I love attending seminars and things like that from other investors, some of the big names, just to see what strategies they’re using, keep your ideas fresh. I stumbled across a seminar back in 2013 actually that they were talking about the US market, investing in property and in tax lanes and I had no idea what a tax lane was. But it interested me, so I thought I better find out, underpinned by real estate. So I thought I’ll find out what that’s all about. I did some investigation at that stage into the US market and actually it fascinated me. So I thought it’d be an interesting opportunity. We had most of our money at the time tied up in a couple of developments here in Australia. The low buy-in in the US sort of interested me at the time. I sort of went over, had a bit of a look and jumped in.
As a young man with such large aspirations, we learn about where he grew up.
I was born in Sydney actually quite a few years ago, I won’t say how many. Raised in northern New South Wales, in the country on the New England tablelands up there. Absolutely loved it. I was dragged kicking and screaming at about 15 years of age down to Melbourne. I’ve been in Melbourne ever since never did really go back. The work and all that sort of stuff held me here.
We find out about where Stewart went to school.
All my primary school was in New South Wales and the first couple of years of high school and then I finished off the rest of my high school here in Melbourne.
He thought he had an idea of what he wanted to do as a teenager but sometimes nothing goes according to plan.
I always had a bit of an interest in computers and tech. I went on and did a degree in computer science at RMIT. I spent about 18 months working as a computer analyst, a systems analyst. I hated every minute of it and never went back. Then pretty much spent most of my working career than in logistics and purchasing actually, something completely different and nothing to do with my training, but I sort of had a bit of an affinity for logistics. I was working for Greater Union at the time and village installing cinemas and then moved on and did 16 years at Holden here in Melbourne at the head office. I was their input vehicle logistics manager for 12 years there. Importing all the vehicles from overseas and distributing them out through dealerships here in Australia, which I loved the job. We were doing our part-time investing at the same time and then I started this company actually in 2016 part-time while still working at Holden. Then when I finished up at Holden at the end of 2017, I’ve been running this business full time ever since.
Stewart had an idea of what he liked but was not sure of what industry was the best suited for him until he found it.
Logistics was something I was enjoying and it had become my sort of career path. I was finishing up at Village and I saw an ad come up at Holden and I’ve been a massive Holden fan my whole life. Loved that they had supercars, all that sort of stuff and literally thought to myself, ‘Hey, how cool would it be to work for Holden?’ So I applied not knowing that two interviews later and a test, I ended up getting the job and was a shift supervisor in the warehouse for a couple of years and then worked my way up into purchasing and then up into logistics.
Working at Holden allowed Stewart to realise where he felt his skills were put to best use.
We all have a comfort zone, I suppose. Operationally is where I can fall into operational and I know how to deal with that very easily. I enjoy it. I mean the cut and thrust of operations, it’s never boring. There’s always something happening. It’s always different. That’s the sort of thing I really did enjoy, have done for most of my life. I’ve always been one to try and make sure, I mean we spend a lot of time at work, so you want to make sure that you enjoy what you do and if you don’t, I’ve always been one to say, well I need to leave here if I’m not enjoying it and find something that I do enjoy. So I think that’s something that I’ve always been good at. It’s something that I’ve always sort of fell into pretty easily. The property investing side of things though has always been a passion of mine. It was a passion of my father’s too. So that’s probably where I got that from. I started late, I must admit in the years, but at the end of the day, better late than never. So between operational and the cut and thrust of the deals and negotiation in property, I love it. I love it.
Stewart was influenced by his father but he did not realise it during his teenage years.
My dad was an entrepreneur, I guess you’d call him all his life. He never worked for anybody. He owned, I don’t know how many businesses, I remember when I was born he owned a Greyhound Stud Farm in Western Sydney. Prior to that, he owned three hospitals in Sydney. He was a second-hand dealer for many, many years, a state jeweler. He drove taxis, anything that he could do basically to earn money and that he could see. Then of course when he was getting into some good businesses and earning good money, he was investing that into the property. So I remember even when we moved down here to Melbourne, he bought the house that we lived in and then within about three years he’d bought four other properties in various areas of Melbourne just as investment properties. It was just something he loved doing. I was probably too young at the time, sort of 15, 16, 20 to really understand what he was doing, why he was doing it, even asking questions about it. I’d never really asked any questions. I just knew he did it.
We learn about the circumstances that Stewart found himself in when purchasing his first home and how they started his interest in property market investment.
My first purchase and I guess the way a lot of people start is the same. I actually bought a property off my father. He was looking to sell, I was looking for a house at the time. I was actually just married and was looking for a property to live in. I thought, well, it’d be a good opportunity, had a bit of a look at it. It was a good area. So we thought we’ll buy that. So I bought that as my first property purchase and then, as I think I mentioned to you, I sort of started late in investing. I had that property for probably six to eight years or more before I bought a second. Then at that stage it was really, the equity had grown in the property I had and I was starting to do some seminars and things like that and start learning how property market investment works. It was something I wanted to get into, always had done, just never really took that leap. Never really decided that I would do it. It was always a ‘going to’. Eventually at one point I sort of thought, well, it’s either now or never. So I bought an investment property and then slowly but surely we sort of grew from there.
Stewart has been able to build a strong portfolio over the years and he provides us with more details.
I mean in Australia we’ve probably had over the past sort of 10-12 years 14-15 properties at various stages. We’re not very heavily invested in Australia at the moment as far as rentals go, buying and holding. It’s not something I’ve done a lot of here in the last sort of 10 years. Particularly now we’ve been so heavy in the US market. We have a townhouse development we’re doing at the moment in Toowoomba, 4 townhouses putting onto the site out there. We have a house in land development package we’re doing in northern New South Wales, actually not far from where I grew up and that was part of what attracted me to that opportunity albeit rural it was something that was pretty close to my heart because I grew up in the area and we’ve got 22 house land packages just there that we’re in the middle of at the moment.
So they’re sort of the things that we’ve been doing. We had some student accommodation units here in Melbourne. We’ve done a couple of other townhouse developments here in Melbourne and that was sort of the market that we were looking at doing a lot of work in. I sort of liked the development idea rather than being a landlord. That was probably not something, I had done that once or twice and wasn’t really a big fan of that. I love the cash flow side of things, I love the cut and thrust of the deals. So buying properties and just sort of sitting on them isn’t something I’ve done a lot of. In the US side of things, look, I think we’re probably up to around about 112-113 purchases, something like that, over the past sort of four or five years. The vast majority of that has been the last 18 months-2 years.
There will be times when things don’t always go your way and it took some time for Stewart to properly understand the way of thinking in the US in relation to the property.
Everything is definitely not all smooth sailing in property market investment. It never is and you’ve kind of got to prepare for that. I guess at the end of the day, if I was to suggest to look at the numbers without your heart, try and be objective about your decisions, I probably wouldn’t have bought the block that we’ve developed in rural New South Wales. Rural developments are very difficult and we’ve had a lot of challenges with that one. So that one’s caused me quite a number of sleepless nights. The US is probably an interesting one too. We’ve had some really great deals go on over there and we’ve had some really interesting deals for want of a better word. I mean, my first two deals I did in the US were terrible.
I was essentially using an Australian mindset in the US market, which was just not working. I bought a property, the first property I bought was in an area in Michigan, a very, very good area. You try and buy the best property, sorry, the worst property in the best street. So I found one of the best growth areas in Michigan and then bought one of the most rundown properties I could find on a large block. My Plan, of course, was similar to what I do here in Australia. I subdivided the block fix up the house on one side and build another on the other. Little did I know of course in the US they’re not at all interested in the subdivision, the city or the councils were not even slightly interested. Then I found out that to build the house on the other side, even if I could get subdivided, it’s going to cost me more than it’s worth and then trying to fix up the house on the other side there was too much work in it and I was over-capitalising dramatically. So I had myself in a bit of a spot there. So I managed to sell the property with not a great deal of loss and that was probably about a four to six month period where nothing went right. But I tried again and made a couple more mistakes but eventually sort of started to iron out some strategies that did work.
I think one of the biggest issues, and particularly in the Midwest of the US where there’s quite a lot of property deals you can get now, not talking about the coastal markets, not Los Angeles or New York or Seattle or any of those. But in the Midwest, the biggest difference between us and them is that in Australia the biggest asset you have here is land, I’ve never been a big advocate for units in Australia, I don’t buy units particularly, don’t get me wrong, I’ll build them but I won’t invest in a unit because in a unit you’re not getting any land and the appreciation or the growth that we have here in Australia is essentially in the land, the value of the land. We have a very limited amount of supply of land that people want and 80% of our population or something like that, I’m not going to quote figures, live on the fairly narrow strip on the east coast of Australia and no disrespect to our west cousins.
I love Perth and I love Adelaide but at the end of the day, Melbourne, Sydney, Brisbane and that strip along there is where everybody seems to want to be and because it’s such a small amount of land, it’s so very expensive. The demand for it is still growing, which means the price is going to continue going up. The US, on the other hand, is the complete reverse in that they use their entire continent, which is a similar size to Australia, but they’re spread out throughout the entire continent. So land anywhere in the Midwest is very plentiful. There’s plenty of it and the demand for it is quite low. Therefore the prices are very cheap. That’s really one of the main differences between investing in Australia and investing in the Midwest of the US. So when I go to a council, what they call the city over there and try and tell them I want to put more properties on small blocks.
They say no, they’re not interested. Land is not something that is an asset. People talk about land banking in the states, that’s very difficult to do. You can buy a block of land, an acre block for $4,000 US dollars and in 20 years time it’s still worth $4,000 US dollars. It doesn’t go up in price. If you bought an acre block in Sydney for any price in 20 years time, it’d be triple, quadruple times the price. That’s the main difference between the US and Australia.
We learn about the moment when Stewart come to the realisation that he was on the right track in the US.
It was soon after my second purchase in the US that I thought to myself, and that didn’t go very well either, I thought, well, if I really want to do this, I need to find out what does work in the US and how to go about doing this. So I went back and I started doing some training over there and having a look at the strategies that people were using. Then I started emulating some of that. Then I bought one of them, I think the fourth or fifth property that I did buy, someone had mentioned to me that the area was quite good. I was still in Michigan, I guess Michigan was an area I focused on early in my days because especially at this point I was still working full time.
But as working for Holden, which of course was owned by General Motors and I had been to Detroit a couple of times, the head office General Motors in the US. So when I was looking for somewhere to invest in the States I knew a little bit about the Detroit market, probably about a couple of percent and nothing about the rest. So that was why I was drawn to that and when I was over there for Holden, at one point I was talking to a couple of colleagues of mine who were investors there and they were mentioning this area. It was a real up and coming area and I was doing a bit of research and stumbled across this property that was in really bad condition. I thought this might be a good opportunity, it was in a pretty good street, the area was pretty nice, very tree-lined, all your sort of fancy terms. Property needed a lot of work.
But in the end, I bought it, started getting the renovations done on the property, had a few things go wrong, started to learn on what to look for when I was buying these properties. The renovation took me around six months where normally I try to do them in about three to four so it was a little bit longer. But in that period the market had grown significantly. So when I originally thought, like I bought this property for about $40,000, I spent about $50,000 on it and I thought I could sell for around about $120,000 but the market had grown so significantly that there were plenty of properties in the area now selling for $160,000-$170,000 which was fantastic. So I put this on the market and was able to sell it in about two weeks for $155,000 US dollars, which basically was about a 50 or 60% return on my investment in six months. It was at that point I thought, it really dawned on me that this strategy could really work. Buying houses, fixing them up, and then selling them was something from that point on that I started doing and have been doing ever since.
Splitting his time between work and business must have meant that Stewart was on a very busy schedule.
It was a side hustle as such and it wasn’t easy. I mean to start with, I was just doing property at a time. So I buy a property, renovate the property, either tenant or sell it and if I was tenanting it, I would be selling it as an investment property and then move on and then do another. I was probably looking at doing, occasionally I could squeeze three in a year. This was back in 2014 through 2015. In 2016 was where it probably started to build on me. My wife is a training consultant in SAP. A colleague of her’s come up and said they’d been trying to buy some rental properties in the States for quite some time and not having any luck and wanting to know if we could help them because they knew that we worked over there and I said sure we can. We knew a fair few people over there now and knew a lot of realtors, property managers, that sort of thing.
We found a couple of properties for them that they bought and then they referred about six or seven other people and next thing I know I’m getting phone calls saying, ‘Hey, can you help us buy property?’ That was sort of when the light bulb came on, I thought, well hell, maybe there’s actually a market here in Australia to help people and firstly teach people that the US market is an option because I didn’t know it was even an option prior to this seminar I went to. Secondly maybe helping people do it and that’s when I actually started the business. So then I literally had a business on the side while still working full time as well. That was tough for about two years. That was a lot of work, we were probably doing, I was probably doing my 40 or 50 hours a week for work.
I was in a good spot in as much as at Holden. I had been in the business in the same job now for probably 4-5 years. Knew my job really well. So I could probably, rather than where I was doing 50 to 60 hours a week earlier, I was probably only doing 45-50 hours at Holden and enabling me to do another 10 to 20 part-time with the US market. I could do a fair bit at night and I could do a fair bit in the early hours of the morning because of course, you know, at six o’clock in the morning for me it was four o’clock in the afternoon in the US so I’d sort of get up around about five in the morning. I’d do two or three hours, I’d go to work, maybe answer a couple of emails at lunchtime and then when I’d come home I could work from around eight or nine o’clock at night or right through until sort of midnight and then start again the next day.
How was Stewart able to juggle all of his properties in the US when he is still living in Australia?
I have been over the last sort of five or six years, I would go to the US and still do go quite regularly. But nowadays, to be honest, when I go, it’s really managing relationships more so than anything else. Back in those days, I was lucky enough to get that opportunity at the time because I was working for Holden and visiting the US maybe once or I think there was one year I did twice for holidays because I had to go to General Motors. It gave me the opportunity to be able to take a couple of weeks annual leave while I was over there and actually do some work on my property while I was there and then I’d come back. I did that once or twice. I did that in 2013.
I did that in 2014. I was able to go twice in 2015. While I was there I’d take a bit of time off and build my real estate portfolio and business at the same time. From 2016 onwards I was taking my own trips over there. I’d just take leave from work for three or four weeks and go over there. I had long service leave up my sleeve. I was using that and traveling over to the US and building the network to people and that sort of stuff while I was there. So I would go about twice a year and still do go about two to three times a year at the moment. Basically building my network, building relationships with the people we use and checking out properties and that sort of thing as well.
In order to maintain his business, Stewart explains the importance of having a really strong team around him to support him.
Where I started was actually a realtor or a real estate agent here in Australia. They call them realtors in the US. A realtor was my first, you know, I reached out and I was trying to find someone who could help me find properties. Stuff that I could look to purchase and would help negotiate for me on those properties. It’s difficult to do that from here. So a realtor was probably my first one. I went through about 10 realtors as I was trying to find a good one and I did find a good one and I still use her to this day. That was back in 2013. So I guess she was pivotal because then once I started finding properties, then she was able to give me some referrals to property managers to be able to get tenants.
She was able to give me referrals to some home inspection agents. I could get the properties inspected, she gave me some referrals on some contractors I could start using. That’s sort of where it’s sort of built up. As far as key personnel, I think a contractor, a good contract team is critical. Particularly if you’re looking at doing renovations, you need to be able to have a contract team that you can rely on that are going to turn up. That are going to do the work to a good standard. You’re not there so that makes it hard but you need someone on the ground who is your sort of boots on the ground and who can play that third party for you. I actually found the realtors were quite good in that respect, particularly if you made it worth their while, I mean, of course, you’d get her commissions for selling me home.
She’d also get commissions when I sold the house afterward I’d sell it through her, but then I’d also pay her in between and she’d send one of her team out to the house to make sure that the contractors were there. She’d send one of her team out, take some videos for me to make sure that the work was being done and we could look at the standard and that sort of thing. That’s how I really started as an investor. That was the way I got going and there were a few little key points that I started to learn and needed to make sure I sort of double checked everything and dotted the I’s and cross the t’s and made sure that I went through all my due diligence and made sure that things were working.
Even when you have a solid team in place, it is beneficial to continue to add strong members into that team.
Later on, of course, I now have an operations manager who works in the US. I’ve got two of them, one in Michigan and one in Texas. I’ve got an acquisitions manager, I’ve got transactional coordinators. I’ve got a team that works for me exclusively now but back in those days, I had no problem. I guess what it is the problem, in the US particularly, there is a real abundance mindset whereas I find here in Australia we have this, a bit of a scarcity mindset. Everyone here in Australia, everyone, and I’ve found this even in my property development here, it’s all about what’s the cheapest you can get. How can you negotiate the other party down as low as possible so you can get the best deal and in the US it’s a little different? There seems to be this mindset where everyone can have a share, there’s plenty of profit to go around and if I paid someone a percentage, you know, 10% of the profit to help me manage a deal, you’d be surprised how much they’ve put into that.
Really for 10% of the profit that was cheap, that was really cheap. So cutting people in on some of the deals I was doing, they were the boots on the ground for me so they could actually do some of the work and some of the administration of it all was where I learned really quickly that this was a way that I could expand and yet be here and not have to travel. It would cost me 10 grand to go to the states and back in two or three weeks.
Lindsay Stewart’s Expert Strategies To Use When Investing In The US Property Market
Stewart shares with us more details on he helps his clients purchase property in the US.
Essentially what we do, as I probably mentioned earlier in the piece, is we help people try and navigate the US market without sort of falling into the pitfalls of the scams I guess or of international investing. There’s a number of different ways, we have a number of different service levels depending on what the person’s interested in. Anything from coaching and training. If they’re interested in getting in, we can provide support and training and let them know what to look for, what not to look for, the red flags to look out for, all that sort of stuff. On the other hand, we have a lot of people who come through who don’t have a lot of time and to be honest with you, are not particularly interested in learning how to invest.
They just want it done for them and we can do the whole thing for them. We can find the properties, close the properties, renovate the properties, sell the properties and just hand over the return. So we have a whole range of services in between. Some people already have properties over there, which actually you caught us at a good time. We’re just about to launch a new program called, ‘Our Investors In A Circle’, which is like a membership program where we network or anyone who’s interested in US property or already invested in US property together and we’re doing workshops and training courses and all that sort of thing with just a monthly subscription. People that are generating joint ventures together and all that sort of stuff in the US market and of course we’ve got all that coaching and training available. So that can be a really good thing to [inaudible] again, all the details are on our website.
Stewart was struggling to purchase the right properties in the US. So he needed to build a relationship with a realtor in the US that he could trust while he was still in Australia. He explains how he did this.
I actually did online. I knew nothing about the US apart from the fact that I was working for a US company. I didn’t know anybody in the US. Nobody that I knew had relatives or friends in the US so I literally got online and I was looking up agents in the area and trying to look at the top agents and I’d be ringing them and most of them were hanging up on me. A couple of them thought it must be a scam. What was this guy from Australia ringing wanting to buy property? It was surprising. I probably made 20 or 30 phone calls to be able to get three or four agents that actually would want to deal with me, funnily enough. Then secondly could fairly quickly weed out that a few of those, we don’t know.
They’re all talk, they’d say they’d do things and never come through or I’d never heard back from them or I’d be constantly chasing them up. It was literally just that I ended up with two agents who were sort of actively doing things for me, but one particularly seemed to be really, really good at what she did. That’s sort of where it all started and then of course when I went over there next time, I deliberately made sure that I took her out to lunch and had a chat and met face to face and had a talk with her. From there, once you actually do meet these people, you’d be surprised how quickly the relationship can change and then they’re more than happy to do anything for you. Provided of course you’ve got to make it worth their while.
I mean, I was using her to purchase properties, I was using her to sell property, so she was getting commissions. But at the end of the day, she was still very, very happy to help out anywhere I needed her. That relationship then built after that. Now, having said that, if you, or if anybody was interested in doing it and they know people in the US who know realtors or something, referral is probably one of the best ways you can get those relationships started because the individual will feel a lot more comfortable if they’ve been referred to you rather than if you’re just ringing them out of the blue. There’s always that cautiousness, ‘Is this real?’ Whereas if you’re referred, that doesn’t really come into the decision.
He has purchased more than 100 properties in the US and he tells us about the strategies that have helped him to succeed in the US market.
I haven’t really changed, we have probably three or four different strategies that we can use. A lot of the properties that we do now are for other investors as well. We help other investors do exactly the same thing that we do and we can manage the whole process for them. So from start to finish, I have to go by a little bit what the investor themselves, what strategies they look at. But having said that, I do help sort of guide them a little bit and do let them know what does and doesn’t work in the US, your buy and hold strategy in the US will work no problem. The cash flow you can get from US properties is, I believe, second to none.
I’ve not seen in any other markets including Australia, outside of the possible commercial property, where you can get cash at 10% net or greater. But that the commercial property in Australia is very, very expensive, you need $1 million-plus to get involved in most commercial properties. So that’s where I think it does work. I still love the idea and I guess it’s because I’m comfortable with it, buying distressed properties and being able to renovate them and do them up. Then, of course, you can either hold onto them and you get a very good cash flow or you can then sell them and get your return and then move on. So that’s the process I use. There’s a couple of other more complex strategies that I do employ nowadays being in the market for quite a long time.
I started using some terms like what you call land contracts. I’ll sell some properties on land contracts, which is essentially in Australia, you’d be looking at vendor financing. I guess it’s where I actually finance the buyer, they pay me a percentage upfront and I tie the rest of it off over a period of five years at say 10%. So there’s a few sort of strategies like that. There are rental homes as well, which is, I can get a tenant in on the basis that they have an option to purchase the property down the track. So there’s a couple of little more technical ones, but you know, I’ve been in the market and I know how to get the best out of those. But they’re the sort of strategies I do use. Your developments and your splitting blocks or split as what we would call here in Australia. That’s the sort of thing where it doesn’t work in the states so we don’t do any of that sort of thing.
We gain some insight into the intricacies of the deals that Stewart purchases in the US market and how he uses them to his advantage.
I bought a property when I was over there last, actually the time before last, I was over there in November last year.
Bought a property for $15,500 in an area in Michigan called Warren. It’s a fairly sort of working-class suburb, a very solid area. There are three or four big factories there. Warren’s probably one of favoured, but it was also, again, probably because of my connection with General Motors. There’s a big General Motors, their Tech Center is based in Warren and they’ve got a very big assembly plant in Warren. So I knew the area pretty well working in the tech center there. So I bought this property for $15,500, cost me $15,000 to renovate the property. It took me about three months. I put a tenant in it. So I go in, I then put a tenant in and he hit the end of January and was getting $750 US dollars per month for rent. Then as soon as the summer came around, we put it up on the market in May and sold it.
So it’s August, so I went through the end of July, so we sold it for $42,500. So I’ve made about $12,500 on the purchase and flip and 750 a month for the last sort of five months in rent on that property. So that was a good little property which was just a small one-bedroom house, funnily enough. Quite a good property to have. I bought another one recently in Garland Street in an area of Detroit, again called Jefferson Chalmers, which is right down on the water, right on Lake St. Clair, great little area. This property, we paid $40,000 for this house. I’m in the process of renovating the property right at the moment. I’ve had the quotes come through and it’s going to cost me about $31,500 to finish the renovation, hoping it’ll be finished within the next two months. Now that property will be worth something around about $100,000 when I’m finished. But more to the point, this particular property is a fantastic rental return. So this is a duplex. So there’s upstairs, it’s two bedrooms and a bathroom and a kitchen and downstairs is two bedrooms, a bathroom, and a kitchen. So we get the tenants upstairs, we’ll get $850 a month for the upstairs unit and will get $850 for the downstairs unit. So $1700 a month. After costs, the net rental return on that property will be $16,000 US dollars a year
Which is a 20% rental return on that property, which is outstanding. Even in the US, I don’t find that very often. Any of these sort of properties if I find them I snatch them as quickly as I can, but they are the ones that I hang on to. Rather than make a 25, 27 or 30% return, if I sell it, I can get 20% year on year just by holding it.
Stewart tells us of some horror stories of some of the houses that he saw in the US and compared it to the types of homes you would see in Australia.
That these properties are not at all like anything you would see in Australia, even the condition. I’ve never seen, I mean, walking through some of these properties when I’m in the States, the first year or so, it was just mind-blowing. I would walk through a property that we’ve just purchased and can’t believe this was tenant occupied. This property had no bathroom. The bathroom was completely gutted, was gone. There were walls, there were rooms where there was no ceiling in the rooms at all. What they call drywall or plasterboard on the walls had been ripped out and someone had broken in and ripped all the wiring out of the walls and they’ve literally just torn all the plasterboard off as they do it. The kitchen, there were no doors on any of the kitchen cupboards.
One of the kitchen benches had fallen and was on quite a slant. You couldn’t put a cap on it. It would just slide straight off. They had a mattress on the floor in one of the living areas. They were sleeping in one of the bedrooms. I think there was a hole in the roof and then the water was leaking in and this property had tenants in it. I was walking through this and I’m thinking people actually lived here and I couldn’t believe it, it was just crazy. We spent, on that particular property, we spent $40,000 to do the renovations and bring it back up to a really nice, livable three-bedroom house. In Australia, we have our high-class properties in Australia, which is your mansions and your waterfronts and that sort of thing.
Most of us would all live in big class properties, very nice solid properties in very good areas. Maybe if you went out to, I don’t know, in Sydney for instance, maybe a fair way out west, you might get to some C class areas. There’s probably a couple here in Melbourne, maybe some rural areas, regional towns would probably have some C class properties. C class is quite popular in the US but the US also has a D class, which is worse again. Then they also have an E class, which would be classified as a ghetto. So the condition of the homes and the difference that we see in the States is chalk and cheese to what you see here in Australia. It’s not the same at all.
Stewart has a particular type of property in mind when he is searching for his next purchase and they aren’t necessarily small projects.
When you say a little bit of TLC, I don’t find too many properties that only need a little bit. Most of these properties are now, actually the one I just mentioned in Garland Street with the 20% rental return, that would be what I would call cosmetic repairs. Now it’s going to need a new kitchen, brand new kitchen. The bathroom will need updating. All new flooring, we’re painting the entire property and putting new mechanicals, so new hot water service, new heater furnace in it. All that sort of thing is all being done and that would be what I call cosmetic returns. The majority of the properties I buy are what I would call full renovation. So you’re literally getting the property almost back to the studs and starting again inside.
The challenge of completely gutting a property and flipping it into some that can provide high returns excites Stewart.
I would certainly look at those as well. I find that the opportunity, the ones that need a lot more work is higher. I guess it all comes down to risk profile. A safer investment would be to buy a really nice property in a nice area that only needs a little bit of work. You’ll be able to do that up and then you’d be able to stop a property. Your return on that will be of course a little lower than for instance, if I was to buy a property that was basically gutted and have to start again. Now the risk in that is a little more, when you get in there, do you find that something goes wrong? You have to get your change orders for instance, that come through. You’ve got to do more work than you anticipated, so on and so forth.
But the uplifting inequity on those properties is significantly more than the ones that just need paint and carpet for instance. But having said that, if you can find a good property in a good area that just simply needs a bit of paint, a bit of carpet and a bit of TLC, they’re fantastic deals because you can turn them over in 60 to 90 days. You can be in and out. Even if you only get 15%, let’s say you only get 15 and 20% as a flip, I generally won’t do a flip for less than 20% return. Even if you only get 15%, you can be in and out in 60 days. You can do four or five of those in a year. You turn your money four or five times a year. That’s a very good annual return, 15% a hit rather than one property that you might get a 30% or 35% return from that. If it takes you nine months to do that, you’ve got to look at that annualised. What can you do in a year is what you really want to look at as your return.
There are some difficulties when you’re trying to break through into a foreign market and being able to get financed in another country is one of them.
It’s difficult when you first get involved, without being a citizen and without having a credit rating, it’s very hard to be able to get financed in the US. There is what they call private money or hard money. You can get that but it’s very expensive. You’re sort of looking at 12-15% annualised returns on that money. It does work if you’re looking at renovations, you can possibly buy a property and then you could look at, for instance, financing the renovation costs because you’ll only have that money for three or four months once the renovations are done, the property is sold and you pay it back, but on a longer-term, buying property under those sorts of circumstances really doesn’t make sense. The easiest way that I’ve found here is I would pull a line of credit against the property we had here in Australia at sort of 5%, I guess we’re probably even a bit lower now and then use that money in the US to make that 15-20% and then I’ll tie that back and that’s how I financed myself to start with.
Now that I’ve been operating over there for a number of years, we actually have access to financing, which is great, but not any other investor would probably need to invest for a couple of years. The benefit of course, is that most of the numbers that you’re talking about, you can be in and renovate a property all for less than around about that $100,000 Australian dollars. You can buy properties for $40,000 US and put 20,000-$30,000 into them, so you’re in for around about that 60,000-$70,000 US dollars, which is about that $100,000 Australian Dollars. And then once you sell the property, you get your returns. So for the cost of a deposit here in Australia, you could probably buy and renovate or buy already renovated property that’s giving you a good rental return. So it’s not as hard. You’re not leveraging yourself.
There’s two things to look at. One is you’re not leveraging yourself. So therefore in Australia, the leveraging is handy because if the price of the property goes up, you get the increase on the leveraged amount. In the US you don’t have that. So you’ve got to look pretty flat on your feasibility studies. But having said that, also your risk is a lot less because you don’t owe hundreds of thousands of dollars on these properties. So if the market drops a couple of percent and you lose a couple of thousand dollars or a couple of thousand dollars off market value, you’ve already built 20% equity into the property already. So 2, 3, 4, 5, 10%, even a 10% drop, you’re still well above what it costs you to get in.
Sometimes the exchange rate between the Australian market and the US market can actually be an advantage for you.
The only negative or the only thing you got to bear in mind when opening an account, you actually have to be in the US to open an account. There’s unfortunately no way, I tried for years, there was no way you can open a bank account from here. You actually have to be standing in a branch in the US and there’s quite a few hoops to jump through. So it’s not a simple opportunity to do that. There are ways of building what they call an escrow account or generating an escrow account, which is like a trust account. And there’s a couple of companies that can do similar sort of things for you and hold funds in US dollars and they don’t have any interest, in fact most banks don’t have a lot of interest anyway nowadays, but you know, these escrow accounts are probably ways you could look at doing that at least initially.
Having said that, I always say the exchange rates is all about swings and roundabouts, at the moment the exchange rate, we were looking at around our 67 US cents at the moment for the Australian dollar, which means it’s gonna cost me a little bit more for my next property purchase. But the advantage is of course that 20% return that I’m going to get whatever that is in US dollars also means I’m going to get a little higher for my money in Australian dollars if I do bring it back. It also means that if I’m holding properties on rental then my rental income of $1000 US dollars suddenly becomes, as you say, 1400-$1500 at the moment. If it drops away to 60 cents and then my $1000 probably becomes 1600-$1700.
So there are advantages there. If the dollar strengthens again, the advantages are then it’s cheaper to get back involved. It’s not going to cost us as much to buy those properties upfront. But then the disadvantages, your profits can’t quite be as high because of the exchange rate. So it sort of works both ways in that respect. So you do want to monitor your exchange rates. If you had a bank account or have the opportunity to get a bank account in the US I would definitely recommend it because it gives you flexibility. So what happens if you see the exchange strengthened for a while and you don’t think it’s going to hold, then it gives you that opportunity to move that money across that rate. And then you can set it over there and use it down the track and then of course if it drops away then that’s great. You can start bringing some of your sums back as your exchange rate gets more favorable. So it does give you that flexibility to hedge your funds a bit.
There is a drive within Stewart that continues to motivate him to this day and it has helped him achieve his goals.
I’m going to guess at the end of the day, we all want to build up a big business. We all want to have a really good portfolio that’s gonna return us a good passive income. So for me personally, I love generating that passive income so that I can start scaling down. I want to be at the stage in the next sort of four or five years where I don’t need to be working long hours and actively working on a whole number of deals and that sort of thing. I guess what we’re all looking for is that sort of passive income that we can then sit back. And now I think the term passive income can be actually a bit of a misnomer that I don’t believe there’s any such thing as passive income.
I believe you are always going to have to do something to keep maintaining it. And there’s always some sort of management and so on and so forth if you’ve got a property portfolio. As much as people will say it’s all passive income, you still want to manage that portfolio. So there’s still some work involved, but do you have to work 40, 50, 60 hours a week? Probably not and that’s the advantage. I’m at an advantage now that what I do I can do from anywhere in the world. We go on a holiday overseas, I bring my laptop, I can be sitting on a beach in Spain and I can be doing property deals in the US. We can be in Thailand. I can be in the Barossa Valley like I was a couple of months ago, closing on some property deals. There’s no issue there anymore.
I’m not tied to that desk. I’m not tied to any location. And that’s been one of the benefits nowadays though I really get a buzz out of helping people sort of set up similar sorts of standards. The US market is fantastic and I love it. But having said that, there’s a lot of challenges that if you’re not careful, you can really fall in. There’s a lot of traps. Unfortunately after the GFC there was a whole bunch of, I say the word scams, but I don’t know if they’re scams, but there were a lot of people who were trying to capitalise on the market at the time and particularly targeting international investors. And you’ve got to be really, really careful when you’re getting involved in this and you don’t fall into those sorts of traps. And I love trying to help people and help them navigate these pitfalls and make sure that they don’t get into here.
Feedback from people that have come into contact with Stewart’s properties was surprising to him.
Some of the stories from our clients of what they’ve been able to do afterward once we gave them a leg up and they got in, it’s fantastic. And then I had an email from one of my operations managers in Michigan and Detroit was a city that was absolutely in a mess 10 years ago after the GFC. It was bankrupt, It was a terrible place. And you know, he emailed me, in a nutshell, he was saying how blessed he was to be part of all this. And he is literally seeing neighborhoods changing and we’re buying four and five properties in one block and doing them up and making them nice again. And this is making a huge difference to neighborhoods in the States where these neighborhoods, if not careful, we’re heading for that slum area because if all the houses are torn down and destroyed and that happens. And unless someone gets in and helps turn this around, it never will. It’ll never get any better. The ability to see that and we can walk through these properties and I’ve got tenants sending me testimonials, would you believe, of properties saying how great it is to be out in this property. They’ve been looking for good properties, they couldn’t get any to live in. And they’re not even my clients, they just tenants in one of our houses and I just love it.
We delve into the people behind the scenes that have helped him get to where he is today and the impact that had on him.
Quite a few over the years. I mean, my property journey has been littered with mentors, to be honest. I still to this day love seminars and I love listening to what people are doing and how they’re doing it and that sort of thing. I’ve been a student of Tim [inaudible], you’ve probably heard of her in property in Australia for probably 12-15 years now. I still love going to her seminars and hearing what she and some of those students are doing and what they’ve been able to do. And still to this day, I’m part of that environment and the mindset that you can get from that is fantastic. In the US I had to seek out a couple of people. Not probably as familiar here in Australia, but I’ve been over and I’ve met and mentored with a gentleman named Dean Graziosi.
I’ve seen him a few times now. He’s a very, very wealthy property investor in the US and one of his students actually, I’ve been able to deal with very closely now, guy by the name of Matt Larson, he does exactly this. He buys distress properties, does them up and sells them in an area of the US called Iowa and he does around about $35 million worth of deals a year. And then when I found out this I said I need to meet him. So I basically arranged myself a trip over there to knock on his door and meet the guy and then went back and did a seminar with him a couple of months later. He took me through his factory and all the properties that he does. That was fantastic. Learning how he did it. He’s been a real sort of mentor of mine as well and Dean has as well, I’m still in contact with him. Talk about mentor, I did a seminar here in Sydney this year for Mark Bouris and he’s doing mentoring, I just found that mind-blowing and I use a lot of that now. And even the mentoring that I’m getting from his team I’m now developing in my business here and that’s been invaluable for me. So there’s a whole bunch of, I suppose people that have shaped where I am at now that have made a big difference.
Books are an important way of learning new things every single day and we hear Stewart’s best recommendations.
Reading I think is probably one of the key points and I love it. I absolutely love reading and I devour books. So I would recommend anyone to get into reading if you can. There’s some classics, I guess one of my early days, and I still, I’ve probably reread the book now probably five or six times, but it’s a classic for me and there’s a few in the series. Of course it’s Robert Kiyosaki’s, ‘Rich Dad, Poor Dad’. And I think that’s something that if you haven’t read it, you got to read it. It’s something that is a mindset book. It’s probably one of the best that you can get. From a business side of points there’s one recently I’ve read by Michael Masterson called ‘Ready, Fire, Aim’ which I have found to be really, really good from a business standpoint, not directly property investment, but more of a business book. I found that to be invaluable as to how to build your business and essentially, you know, take that step is what the book’s all about. So that’s probably one of the others that I’ve been really big on at the moment.
Mentors are great to learn from by watching how they operate but the words can have just as much of a lasting impression.
Mark Bouris to be honest with you and it was only just this year and I know I was a fair way down the journey when I was able to meet Mark and do a seminar with him a couple of times here in Melbourne and then up in Sydney. But you know, one of the things that he always was a big advocate of and when I was talking to him and actually even Dean Graziosi actually, sorry, when I was in the US said the same thing to me, just do it. You know what I mean? Like we can analyse things and I was a classic and I think I said early in the piece, I was many, many, many years wanting to invest in real estate and never did.
And you know, I was probably 40 years, 42 years of age before I really started to invest in anything. And you know, I could have done that 15 years earlier if I’d actually got out of this paralysis by analysis and stop reading about it, learning about it, thinking it’s a good idea, and actually just did something. And one of the things I talked about and Dean said to me when I was over there in the US last year, in one of Dean Grasiozi’s events and we were talking at the lunch break and he said to me, he was talking about one particular thing. He says, “Well why don’t you do it?” And I said, “Oh, I’m looking at this and I’m looking at this.” And he says, “Yeah, I know you’re looking at it, why don’t you do it?” And I sort of went away after and then the afternoon session I sort of thought, “Hell, he’s right. Why don’t I just do it?” I mean, what’s the worst that can happen, if it doesn’t work, I’ll sell it and start again. If it does work, that’s fantastic. So, you know, I think at the end of the day we can analyse things all we like and we can look at things, but why don’t we just do it?
With so much experience under his belt, Stewart has learned a lot of life lessons over his journey.
If I had to say I had a regret, it’s that I waited so long to start. Because as you say, you either win or you learn and that’s how all the deals work. You either win and get your return or you learn and you move on and you don’t do that again. But you can’t do that if you’re doing nothing.
Even though he has already accomplished so much in his career, there are still so many opportunities in the future that excites him.
The impact that we can have on other people is probably one of the things at the moment that excites me the most. The impact we can have on investors here in Australia by helping them get some really high cash flow properties. The impact we are making at the moment in neighborhoods in the US by bringing these properties back up into really good conditions and to making neighborhoods good again, that sort of impact that we have on others. I think that’s something that is priceless. You can’t put figures on that. I think that’s probably one of the things I’m most passionate about at the moment. I actually feel, to be honest with you, I think that the US is in for a bit of a slowdown coming up soon. I don’t think there’s going to be any sort of GFC two or anything like that, but like every property cycle, they’ve had a fair bit of growth since the GFC as have we.
And you know, we’ve sort of hit a bit of a slow down here in Australia. I think the US is probably due for the same thing. That excites me a bit too because being an investor and being in the market, I want to be able to see those deals that I could probably have got back in 2014-15 with my experience and knowledge now I’m quite excited to see what opportunities will pop up. I know that sounds silly when you say I’m looking for a slowdown in the market that you’re investing in, but I think it does open a hell of a lot of doors and so many opportunities. So That’s probably got me a little bit excited as well but look, I think the impact you have on others has gotta be one of the biggest driving forces nowadays.
How much of your success is due to your skill and intelligence and hard work, and how much of it is because of luck?
I don’t believe in luck to be honest with you. I think we make our own luck. You can find good deals, but at the end of the day, if you’re not open to looking for them or open to seeing them, then you’ll just overlook them. It’s not luck that these things are put in your path or it’s not luck that you can negotiate well. I really think mindset you were saying before, I think your mindset is everything. I really do. What you look at changes depending on how you see things and that’s the most important aspect. I think your skills you can develop, I get that, your mindset you can develop, but you need to be ready and open to actually doing that. You can learn anything you want.
I think in this day and age that we’re in, there are two things at the moment which puts us in a really fantastic position as property investors. The first thing is the Internet is incredible and the tools that we have at our advantage nowadays, being able to look at properties overseas and do due diligence on properties without actually having to drive by them is incredible. The technology that’s available nowadays is amazing and that has opened up a global market for us which is amazing. But the other thing is there’s this real self-learning capability. Back in my day, you went to university to learn things and if the university didn’t do the course well then you couldn’t learn it. The only other way you learned anything was the school of hard knocks. But nowadays you’ve got these people like Dymphna, like Dean Graziosi like Mark Bouris and they’ll have seminars and they’ll have training courses and now it costs $1,000 or $2,000, but at the end of the day, my university degree cost me $40,000 to learn how to make computers and I haven’t made one in 35 years.
So you know, paying $2,000 to Mark Bouris to spend three or four days with him over a few weeks and also have access to his team anytime I want to help me in my business, that’s invaluable. That networking that we got, then the knowledge that you’ve got available that from all these people that have been there done that. It can now teach you how to avoid the pitfalls that we have at the moment. That is gold.
If you want to keep in contact with Stewart and ask him questions he lets us know the best way to do so.
If they’re interested in US investing probably, our website is probably the easiest. We’ve got a lot of information on there for them. There’s even contact details. If they want to contact me, they’re welcome to do so. They can even book a call with me on that website. We’ve got deals out there and examples and case studies and testimonials. There’s a webinar you can do to get a bit of information into the US market, how it works, what strategies work. So our website, www.stardynamic.com.au is probably the best place to start. And then from there they can contact us anytime. I think that’s probably easiest.
This episode was produced by Andrew Faleafaga with narrations and interviews conducted by Tyrone Shum.