Michael Knights is a successful real estate expert and owner of Horizon Property Alliance and aligned with NDIS portal funding. He has been in the real estate industry for over 30 years and his business mentors people who want to become small-time property developers and helps them create higher returns and increase their current income.
Come join us as we discuss at what age Knights bought his first house, where his passion for the real estate industry comes from, why he wanted to start investing in property, he tells us the story of how he worked himself too hard and burnt out but how he overcome that and kept moving forward and much, much more on this episode of Property Investory!
Michael Knights has been in the real estate industry for over 30 years and he shares with us on how he helps clients in the niche he works in.
I’m based on the Sunshine Coast in Queensland. I've been in real estate for about 30 years. I've got a business that's called Horizon Property Alliance and it's more about creating a strategy and mentoring and putting together a bit of a plan for people who want to invest in small-time property developments, but mainly focusing on cash flow, positive property investments where they can get a higher return and increase their current passive income. So that’s what I sort of specialise in and coming from a traditional real estate background, this is a lot more exciting and allows people to have a lot more longevity in their investing process.
We discover what a day in the life of Knights looks like and with so many things going on they can be very long days.
I start my day really early, I'm up about five o'clock so I'm off to the gym first thing. I do F45 - it's sort of convenient, get it done - and then I network a little bit at a coffee shop with different builders and developers and those sorts of things. I find it’s important to hang out with the people that you love to do and then I drop the kids to school and I'm at work full-steam, so looking at developments, looking at sites, doing little feasibilities, networking with builders, talking to buyers and investors. I spend most of my time walking and talking with what I’m 100% involved in and then that pretty well takes up my days. So there's lots of follow-ups and there's a lot of stuff to do. Typically when I'm at work I'm 110% and I try and knock off at lunchtime every now and then. Just to go to the gym to refresh and then I'm back into it again. So my days are long but it's not really a job. It's more of a hobby like money we can earn is really, really exciting, but it's more of a passion than anything for me.
We learn about the Knights’ background and where he grew up.
So I was born in Redcliffe and so that was where I went to school and I went to Redcliffe High School. I left school in year 10 but my family is still down there and I left Redcliffe in 2006 to the Sunshine Coast to semi-retire. Redcliffe was where I spent all my childhood basically. It was a good place to be for a young bloke at that time.
Redcliffe is about a half-hour north of Brisbane on a bayside community like a little peninsula surrounded by water. It's about an hour south from the Sunshine Coast and about an hour and a half from the Gold Coast.
After growing up in Redcliffe, he talks to us about why he decided to make the move to the Sunshine Coast.
I had a real estate business for quite a long time in Redcliffe and we put a holiday house in the Alexandra headlands and when we sold the business in 2006 we moved to semi-retire into our holiday house and that's where we are now.
It is hard when you are trying to figure out what you want to do after high school and Knights tried other occupations before deciding on real estate.
I went to TAFE, I wanted to be a builder, but back in the day, it was really difficult to get a job in the building industry. It was a bit of a recession, so I had a lot of different building type jobs but never was lucky enough to get an apprenticeship. So I just was a jack of all trades but a master of none. So I did all sorts of jobs in the building industry. All before I got into real estate.
After working in the building industry for a period of time, how did Knights conclude that he wanted to transition into real estate?
I bought my first house at 20 and always had a passion for property at that level. Then I ended up working for a roofing company as a sales rep and I met a lot of builders through that job there and I started to do real estate part-time and then I eventually got into it full time after about 12 months of part-time just to get an idea of what it was all about. I was actually selling more houses on the weekends than most people were during the week and I decided to leave into a full-time business, it was just, that was my passion. I just loved it because my dad was an agent many years ago before then and I just love real estate. I love the property, I just love the idea of getting involved in that business and having the freedom to work for yourself was what drove me like property development, that sort of stuff. I just loved it with a passion
Knights’ passion for real estate seemed to have begun at an early age from his father and other influences.
In my younger years, he did real estate for about 10 years and until he bought himself a little Seafood business, but he always talked property and he had quite a few properties and we would always go away on holidays and look at properties, etc. I remember one time whilst on the Gold Coast and it was a booming market, I was only about 12 or 13 and I’d see these slick, smooth looking guys selling these units off a plan and we're going through all these display units and I thought, ‘How cool is that?’
At that time the real estate market was booming and people were just lining up and signing up for these properties. I went, wow, they had all these sports cars. I thought that'd be a pretty cool job and sort of got me interested. But in reality, it's definitely not like that. That was back when I was only a real young fellow, but I figured one day I'll get into real estate cause these guys are looking pretty cool. It's a tough gig when you particularly haven't got any experience but I just had a passion for property.
For Knights, there were other motivating factors that inspired him to move into the real estate industry.
It was more about the freedom and I would see real estate agents that would be perceived to have had a really good lifestyle and all, I used to love to travel and have holidays and I could see this as a tool as a lifestyle arrangement. I always wanted to work for myself. So ideally, the lifestyle of a property agent, you have a lot of time in most cases to work for yourself and do your own thing. So there wasn't really any particular one reason why I love property. I just liked it, you know? And I like to communicate with people and I always saw people doing very well in property developments and stuff like that. So I always had an interest in that as even at a young age.
So I can't pinpoint the main reason why other than I just wanted to get involved in that industry. Also working really hard on the tools and all different labouring jobs, et cetera. I thought it would be a good way to get out of the sun and I really love to communicate with people and it sort of went from a sales job in the roofing industry straight into the real estate industry. I just related well, it was sort of like my niche, I just loved it so much. It wasn't really a job for me. I got up every morning and I couldn't wait to start. So I used to get up every morning at six o'clock and do the traditional 100 letterbox drops and then give them a call at six o'clock at night. So for me, it wasn't even a job but just loved it.
Being such an ambitious person, it was only a matter of time before Knights wanted to go out on his own.
I worked for a small franchise. It was a one-man team, husband and wife and I was the only agent in there and agents would come and go. But for me, I ended up with the top agent, franchise at the time, which was called nationwide back then. Then I moved to LJ Hooker. Then I bought a RE/MAX franchise in 1999 and that was in Redcliffe and with that partnership on that one and that one went very, very well. We sold that in 2006.
Knights delves into how and why he started his property investing journey.
I was working as a builders labourer and I'm making pretty average money. I just thought the property market was an opportunity to make larger amounts of money with equity and growth as property always did back in the day. They grow up in value and I bought my first house at 20 for the $4,000 deposit. So then the interest rates were going up to 16-17%. But what I did as a single guy is I'd rent the rooms out. So back in the day you only get $50 a week per room. But that was enough to pretty well cover most of the payments. So I got in there and I rented it out for a while as well and then moved in and then thought this is an easy way to make some money. I sold that one. Then I bought a five-bedroom house and I rented all the rooms out and stayed in the one with the ensuite and that pretty well gave me my spending money and I just rolled all the other income back into the debt and that was my second house and then I got into real estate at 24
We learn about some of the benefits that he discovered from renting out rooms in his own property.
They were flatmates basically. So when I had the five-bedroom home, I was actually earning more. I was earning double in rent than what my payments were, so I was living pretty well, I had lots of spending money. I'd just rolled it back into an offset facility and I thought then I moved from there [inaudible] parked it up when I got the real estate with a builder and did the first block of units with him on a 50/50 arrangement. We just got into it basically and didn't hold back.
He talks us through in detail about where he bought his first properties and the numbers behind them.
That first one was in a place called Kippa-Ring on the Redcliffe peninsula and then another one I bought in Scarborough in the suburbs of the Redcliffe peninsula. So the first one I paid $50,000 for. I sold that for $88,000 and I bought another one for $121,000 I sold it for $160,000. I rolled some of the money over from that into a block of townhouses. Then as I got more experienced in real estate, I did my apprenticeship in a small company. I got to a stage where I was selling 30 houses a month myself. So as far as volume goes, I was one of the top agents in Australia back in the day which I just used to buy and sell and wheel and deal and do little developments and renovate and buy housing commission houses and do them up and just anywhere there was something I’d just roll it through the business.
To be so successful within the real estate industry and also property investment, there needs to be times that you can look back on as learning experiences. Knights tells us one of the biggest lessons he has learned.
I'll tell you one of the biggest things I've learned is when you're making lots of money and life's really good and you’re on a high or on the crest of this wave, making lots of money is just as dangerous as not making any money whatsoever. So you think you’re bulletproof. So we bought a property off the plan on the Sunshine Coast at the wrong time at the market.
And when we wanted to sell that property, when we sold a business, it was fought in the business. We actually lost money on that. And because at the time we bought it, we are bulletproof. We're making lots of lots of money. Our business at the time was doing 100 sales a month. I was doing 20 to 30 on average and it didn't matter. Sometimes complacency, when you make lots of money, is just as dangerous as when you're not working properly and not investing correctly and not doing enough research on that. So there are times where you're, you know, what happens if something went wrong in your life and you weren't making that income and it just stopped overnight and you made the wrong decisions. Because at the time you're making all that money, you bought the wrong type of geared property or property in the wrong location for the wrong reasons.
So that's some of the lessons I've learnt, it's equally now when I'm talking to people is while things are good and while you're making lots of money, what happens if you stop making that money or you go through something major changes in your life and you’re not making that money anymore and you've got this massive debt, you still gotta pay it back. So having the right type of structure and the right people around you and when you're Teflon and bulletproof, you sometimes neglect to surround yourself with the right type of team. It can be very, very dangerous.
Knights elaborates on the previous story and we find out about why that property did not go according to plan.
It was typically a cycle. It went up and then it went down and it was bought through our marketing group obviously, and we bought it for the wrong reasons and then it was sold for $80,000 less than we paid for it and that was in a short period of time. So you know, and we bought it as a unit for our staff and ourselves to use as a weekender. It wasn't really bought for an investment and we should have known better cause we were teaching people how to buy the property and then we went and bought this one, you know, so it probably wasn't the right decision at that time.
There are various factors that can impact the outcome of a property and Knights sheds light on a particular one. .
We could have held onto it, but at the time my business partner was having issues, relationship-wise, divorce, working too much, etc. So we decided to just sell out the whole business assets and let that one go. In that particular case, it was just time to move that particular asset on and take a hit. Luckily we had massive capital gains. We wrote the loss off on the capital gain anyway. That was just one property that was bought that didn't work out. We've bought other ones that haven't worked out either and you've gotta be in the business, you're gonna win some and you're gonna lose some. Every investor has to be humbled about not making money on every property all the time and hope that people do. But it doesn't always happen, everyone wins and loses at certain times in their life.
Sometimes it takes another person to lead you in the right direction for you to acknowledge what you should have been doing all along.
I go back to when I first started in real estate. For me when I got into it part-time and when I decided to go full time, it was like, I was working part-time for a building company and we both went to the car park and one came back and at that time the boss, he said, “Mike, you're gonna make it in real estate. So I was told to move you on.” That was like a bit of a hit. But it was more the most exciting time of my life and that week, my first full-time week, I made three sales as a new guy, in the business. I honestly never looked back. So that was probably my first aha moment, why wasn’t I doing this years ago? I was a bit scared to leave a stable job because I was only working part-time in property but when I had no other choice but to give it all, I gave it everything I had.
I had a relationship at the time that went bad, had a massive debt. When I started I was scrubbing dishes at night, I was working 24/7 to make this work, I had no other option but to survive and to give it everything I had. So it was done or die and I think that is what made me be the best agent I could be.
Wow that's tenacity and persistence.
Scrubbing dishes at night and I just started because I didn't have the income coming through and then, in the end, several years later I was selling the restaurant owners and their cooks and chefs, I was selling them million-dollar houses many years later. They were buying them from me and there I was as a dish pig washing dishes, while I started off as a real estate agent to give you an idea, I had no other option but to survive because I already had a couple of properties that I was paying off before I got into real estate.
From scrubbing dishes to selling property to these restaurant owners was not just a transaction, but a life long relationship. I ask Michael if he still sees them?
I see them all the time, not all the time but when I do go down to Redcliffe occasionally, I’ve been out of Redcliffe since 2006 and I got a phone call last week from someone from Redcliffe who wanted me to sell the house, I referred them on, I'll usually refer them on to other agents down there. So we have a 50% market share down there.
If you want to reach your goals you are going to have to work hard and earn it.
When you're a real estate agent you are typically working for yourself and you've got to back yourself 110%. It's a business within a business and it's not really about the brand. It's all about yourself. This business relies on you and you have to do the work.
Knights were always looking for other challenges and meeting people through his real estate job created opportunities for him.
I'd meet super successful builders and developers along the way as clients and I thought, I just want some of that. So basically they were all my mentors, I would watch them, learn from them and I’d know the numbers and they would show me how it worked and teach me as to what they are looking for. You become a spotter, like a seller's agent, but you'd see opportunities that come up and I wanted some of that as well. The other thing, I was in real estate for a few years and I did my first AREC conference, John McGrath put the first conference on and I saw all these Americans coming over making millions of dollars and selling hundreds of properties. I just wanted some of that as well. So effectively I put on a team of people, telemarketers and then a personal assistant and it really turned it into, not a one-man band, turned into a little business within a business and at that level there and they all had multiple properties and they were doing developments as well.
It’s what inspired me to do the same as well and just take action and do it. So hanging around other successful people and learning and seeing what they're doing. So that inspired me to do similar.
Seeing people from overseas and hearing about their success inspired Knights to push himself to another level.
They had a whole team of people around them which gave them leverage to scale their business into, similar to what most of the successful agents in Australia are doing now. We all copied off the Americans back in the day and then obviously Australia and New Zealand are up there in the top echelon of agents in the world now. I think we're in some cases more equipped but obviously populations, demographics are slightly different, but we're all up there competing together now in that top echelon.
We learn about some of the reasons behind agents deciding to stay within their agency rather than branching out and creating their own business.
A lot of us went out on our own and some of them do really well and some of us crash and burn. Then you've also got burnout as well. You get to a level in your life where you think, “Well, should I go out on my own or will I just continue to work at work for someone else?”
Commission splits are all different all around Australia. Outgoing costs are different, rents are different, and the models changed again now. There are very exciting models now that you can actually work remotely and have remote PAs overseas. So I think it's just a journey you go through as a person, as an agent or as a business person in general, you have different ambitions and different goals. So to me, the natural move was to own a business and whether that was a good or bad thing at the time I learned how to do things really well and how to do things really badly as well. We will make mistakes along the way. So to me, it was just part of the natural progression of going from an agent to a business owner.
Then back to an agent again, and then back to a business owner. Effectively I was always a business owner, but we have a big business back to a little business. It comes back to what you feel, what you want to do at that time.
After being on both sides of the spectrum of working for an agency and building his own, what works better for him?
I think really it comes back to energy. Like when I decided to sort of semi-retire at 40, I really was never going to semi-retire, it was just in my mind. It took me like 18 months, two years to wind down and go from a workaholic, an unhealthy lifestyle too, to get myself fit and healthy and try and come down to a relaxing lifestyle.
I'll have some balance but still work hard, enjoy what you do. I burned out pretty well in my mid-forties, like 42-43. I'd been hit pretty hard by the GFC, had 30 odd properties and they hit me pretty hard and I was buying negative geared properties and land banking developments and had to work really hard to get through that. That was when I started a new business on the Sunshine Coast. So you can get burned out and you have a couple of kids and you get married and your values change.
Working long, hard hours can burn anybody out, Knights describes his work life prior to burning out and what helped him come back from it.
I think the burnout was accumulated over time. So when I was the top gun and I was working six and seven days a week, even though it would take two or three months off that year, you’re still technically working and running a business and you're not really winding down as much as what you should be. Even if you take a month or two off and go overseas with your family, because you're still on call, you're still obligated, you're still working for the vendor, so you really have to be there 24/7. So I was just doing whatever it takes. If you haven't got the passion or the energy to do it and you don't really enjoy what you're doing, you should get out of it and find something that lights your boat. That really makes you want to be a part of that.
Otherwise, you're going to struggle and it's going to be hard work for you to be successful. So for me, when you start to lose that passion in the mid-forties like I’m 50 now, it's like you have to find that mojo. You have to get that passion back otherwise you’re just going to float through the business for a while, not really knowing which direction you're going to end up in. That’s where I was for quite a while, it was really difficult, in this kind of depression, not knowing what I want to do anymore.
It is incredibly important that you are passionate about what you are doing. Knights recommends different ways to keep yourself motivated.
One of the worst things that happened to me in my life is when I got to the stage where I was making over a million dollars and making lots of money, it wasn't even about the money. I just did not want to do traditional real estate anymore. I was doing it and it was hard work. Picking up the phone, making those calls, working Saturdays and doing open houses and traditional work. I lost it for quite a while. I got it back 2015-16 and I got it back with 100% passion. It's like a renewed energy now I've come up with a new business model, with what I'm doing now.
I just can't wait to go back to work and talk to people again. But I had four or five or maybe even longer than that year of just floating through the industry, just getting by with massive debts. Then when the banks say, “You're not making the income anymore.” I said, “No, I'm going to be a developer,” but you've got negative geared property, you’ve got to work hard to support that debt ratio with your LVRs. It was a tough time and I just didn't quite know where I was going and I had to trade through it and sell down properties and I had commercial properties and all sorts of stuff and if something goes wrong in your life and you’re not earning the money, the banks don't care. They can knock on your door and they can take it off you tomorrow as quick as they can.
You can lose it all in a day. So you go through that time, that happened to me. Yet you had to find your mojo, you have to be positive, you have to hang around the right people. Complacency is the biggest killer when we go through different stages in our life with family and stuff, so that's why I created a more positive cash flow environment. Now it's a safe investment and it doesn't really matter what the market does. If I was positively geared through all those years where I gave up work, they wouldn't have even had to call me up and say, “Hey, you need to work harder Mike. You need to sell some properties down because you're on the edge of it.” So you really have to make sure you're on top of that. Surround yourself with the right people to keep you motivated by having a coach and a mentor and accountability. Or if you're feeling like you're losing your way, you really have to be on top of your game and know your numbers and watch them closely.
How To Develop A House And Get NDIS Funding Scheme With Michael Knights
There was a period when Knights had accumulated around 30 properties and he delves into his strategy behind it.
I would buy little renovators, little weekend renovators and I'd also buy off the public trust and so I open a contract with the housing commission and that was selling all their housing community houses.
So I was selling them to investors and I was having an opportunity to buy them myself and we were wheeling and dealing, buying and selling and adding value along with the growth of the market. Then I’d buy splitter blocks and little subdivisions and things like that. So small fish, I would buy all the little cheapies I could get, houses that people didn't want to buy because they didn't like the area. I could see things happening in the area. So having good market knowledge, knowing what the council's doing, infrastructure is happening, I bought a property where they rezoned at all and I was able to put nine townhouses on it and then I was able to get them sold and funded by the government and on-sell them. So I didn't borrow any money to build nine townhouses, things like that. Just understanding what's available, what government initiatives are there. You really got to know, understand the market and what's happening all around you. I was obviously an expert in the area. I was always in touch with everything going on. Market knowledge is the most important part about investing.
Knights explains a scenario where he would end up selling the property back to the government and how deep his knowledge was.
So many years ago, the government were doing a lot of low-cost housing. They're looking for land and quarrying blocks and they wanted developers to build housing for the low-income earners and just for housing commission. So they were selling a lot of the stuff off, but then they needed to rebuy back in again. So knowing that, for example, in Kippa-Ring we knew the railway was going to come there one day, so they rezoned a lot of land. So we're from residential to unit size and so as an agent or buyer's agent or developers, they need to know that sort of stuff. So for people starting out in development or buying properties or local real estate agents, you need to be really well informed with what's actually happening now and what could happen in the future.
I could drive around the state in any area and know just by driving through it what's going to happen in that area. Just from the knowledge of understanding the market, I could see houses that were going to come on the market before anyone knew they were going to come on the market. So I don't know whether it was just a sixth sense or not, but you could drive up and down the street and knock on a door and you could get it on the market and then you could cut that up and do whatever you want to do with it. So not necessarily for me but for developers. So that's how it would work out and then the sellers would be over the moon because they get a great price for it as well. So just understanding, you really got to know what you're doing and specialise in an area and really know it well.
Knights delves into the difficulty he found in being an agent whilst at the same time investing in property.
I mainly focused on the small ones and the ones that I thought had good capital gain or potential to add value. I wasn't really into anything new at that time, but I did do a few small developments to six-packs and four packs myself as well. Also a nine pack the government-funded and onsold but mainly I would just be amongst a bit of everything. So most of the time I worked as a traditional agent or as an investor to buy and hold to accumulate wealth for the long term. So sort of collecting property rather than selling them. Sometimes I'll do a little reno and onsell, but mostly I'll collect property and add value. It was sort of my little niche, so more of an investor rather than a developer.
Then as I got more equity and more experienced in the market [inaudible], I started doing a few more developments. So it was sort of a bit of both really because honestly when you're doing that sort of volume, you don't really have the time to do the whole lot. You've got to decide you're in the market to be an agent or to get out of the market and be a developer, it's really difficult to do both properly at that top end with the volume I was doing. You know, 'cause you've got to keep the service up and so a lot of the time sites would come on that I would onsell or just get on the market and pass on to small-time developers or developers to do their own projects. It was really impossible to do both properly. You have to focus 110% on everything you do as best you can, otherwise, you can make mistakes in that game.
Being an agent and investing in properties at the same time might have been what led to his burn out but having a team around him has been very helpful.
It was too hard to do everything properly and you can run yourself too thin and look back now it's probably one of the main reasons why I did burn out in the forties. If I had two admin girls and I had a two or three part-time or a couple of full-time buyers agents, when I say buyers agents that were still working for the seller, but they were running the buyers around.
So my job initially as an agent, at the time, I would just do appraisals all day every day, that was it. Negotiate the sale and the guys that worked for me were also really good at negotiating the sale and they would be just running buys and showing properties. Back in the day, you'd put them in your car and you meet them at houses and you drive them around and show them as much as you could, these days It's all changed. That would be also lead generating, making calls and following up as well. So the girls would do all the admin processing in the marketing and I would do the closing of the sales and the market appraisals along with helping the two boys and girls, who worked for me at the time, follow up buys. So we had a whole process, we had a checklist and a system for everything. That was sort of copied off similarly to what some of the Americans would do. So they were the main ones that inspired me at that time.
Technology has come such a long way, especially within the last 10 years. Knights gives his opinion on whether the traditional strategies of real estate can still work in the modern day.
I think modern technology is handy to save time, but I really think the old fashioned way of doing real estate is coming back into play. I haven't done the letterbox drops for a long time now. But direct marketing and picking up the phone, if you send someone a letter, a direct market or an email, whatever, I still think picking up the phone, having that conversation really is the best way to win business. Face to face networking and meeting people and relationship building, listening and asking questions rather than to sell or spruik, it's all about relationships and referrals. You do need a combination of absolutely everything to generate the inquiry, whether it be a buyer or seller, finding your niche and what you're really good at and then creating a team as you can do a bit of leverage with. Face to face talking and communicating really to me is the old school way of doing it. But I think that's really the best way to take action, make the call, meet people, get to know them, they like you then they’ll trust you and then you can win business. Stop selling and just form relationships. It's all about relationship building.
He explains how he was able to build up his profile when he moved to the Sunshine Coast.
I sort of bought a profile. So when I say that is at the time, back in the day and even now, you can market yourself on every billboard, buy full pages in the paper. You can do your letterbox drops, you can do a combination of TV, radio, the whole lot. So coming up for like cashed up, I bought a profile and I wrote big business in the first nine months, you know, over $1 million in the first 12 months. So one place is starting from scratch and when you look at your return on investment it worked and everyone said who’s this guy that comes out of nowhere and he smashed it. Not intended to do it that way. I would just, I knew of no other way to do it. I just knew one way to do it and that was do everything. That's what I did.
After the catastrophic events in 2008 Knights was looking at other potential business ventures.
I was on TV, I was on the back of buses. I was on the radio, I was on full pages of paper. I was absolutely everywhere. So if I spent a $100K that year, it generated $900k and that was a pretty good return of my investment. So for me that's what worked and then it just flowed from there. That was in 2007 because I took six months off. I did that in 2007 then I got smashed in 2008 by the GFC having all this property. I kept trading through it. It's still doing really good business, but I was starting to get really tired with that financial pressure on you at the same time. I bought a couple of other businesses, a couple of 24-hour gyms as well, I thought, ‘I can buy five of these and I can retire doing that and I can do property developments and having other businesses with other profit centres are also good at the time. So I was diversifying into all sorts of stuff. That was another learning curve.
We find out about what happened to the gyms that Knights bought and what he learnt from that experience.
I kept one of them. At the moment you’ve got the 24-hour gym industry where they were just great little cash cows and you know, good profit centers and then they become an oversaturated business and need to really work them hard. So as a solid investor I would try and maintain my manager, but if you drop the ball on those things, now you really got to work at a 24 hour gym really hard to make them make money or be in a really good location and you've got to spend a lot of time marketing and working to make nowhere near as much as you used to make because it's basically a discount gym model now.
And then you've got the new franchises coming in and they're on every corner. So there's an oversaturation factor and knowing when to get out at the right time was important too. So luckily I didn't buy a lot of them cause you know, one of them doesn't make any money. So I had to sell that one away. Where some guys had bought half a dozen, 10 of them, well they ended up going broke. So you really got to understand what you're really good at and not be complacent about what you're into at the time and focus on what you're the best at and keep that passion alive.
What is the NDIS Portal?
To keep going in business you need to find something you are passionate about or keeps you motivated. We learn what that is for Knights.
At the moment what's really got me so excited is the NDIS, The National Disability Insurance Scheme. They’re rolling out disabled housing. Particularly in southeast Queensland and one of the main things that excites me the most is that we're giving back to the community. We're helping get disabled people out of the hospital system and all the nursing homes and helping them integrate into the community. So we're actually doing something really nice. But in saying that as well, the return on investments, you know, 15 to 20% net on your income. So you know, if you buy a property and you get 7-8% gross, then you're doing pretty well. What if you were getting 15 to 20% net on your investment and having the government pay the rent to support the business and you're giving something back to the community at the same time. So there's a win-win for the participants in the disabled community, there’s a win for all the people looking after them because they have a job.
There’s a win for the construction industry because it's generating lots of constructional jobs from carpenters down to the drivers and the carers and all the providers that look after the participants and the investors who are taking the risks to build these properties are getting a massive return on their investment and the government's helping all these people get out of the system to integrate in the community. So the whole structure of NDIS is such an amazing organisation and it really resonates with my giving back as well as having a great time doing something that's completely brand new and pioneering a whole brand new process and system into the community. So we've created a whole brand new model that we're rolling out now, which has just got me so excited. Like it's just unbelievable opportunity for everyone involved.
The NDIS projects have been on the news in recent times and the importance of the projects are immense. How did Knights learn about it?
Probably two and a half years ago, I spoke to a couple of providers who were in the allied health industry and they said, ‘Mike, they’ve asked us to create this model moving forward for the disabled community or people with mental issues and mainly just disabled, [inaudible].’ I started investigating it. I sold them a couple of normal houses and they said, well, we're really going to invest our money into this business because we're involved in the industry and we can see how it's going to help disabled people out. I just started to investigate further and further and the more I read about it, the more I got into it, the more it basically consumed me and the more I got excited about it. It just resonated with me that everyone wins and you're doing something really good to give back as well.
And you're taking a bit of a gamble, absolutely. But the risk for return is really good and it's a safe, positive cash flow investment once you fill the property up. So it just basically got my mojo back. It was something completely brand new. So the last 12-18 months has been creating a whole brand new business model around positive cash flow property and that's one of the products that I've included in that particular opportunity. You know, so I can do a duplex project and make 100,000-$200,000 for a client. I can build a [inaudible] or whatever has positive cash flow in a prime location that's not in an area that's not going to be devalued. Then I can offer an NDIS product for say $550,000 that's going to rent for $100K a year in rent paid by the government and we’re going to get people out of hospital beds and give them life again. So there's a win-win for everybody in what we do now.
The NDIS project is creating homes that provide a lot of benefits for its residents and Knights explains some of them.
Think of a four-bedroom home, a low set, four-bedroom home or a five-set home that’s decked out to a level of disability for people who need full 24-hour care. So we spec a place out, we get it certified, we find an area that's going to be in demand where there's lots of participants, so a participant is a disabled person and we build it and we get it approved and we fill it up and you get paid on a per room basis. So on average is about $25,000 a room for a fully accessible tenant. Part of that $25,000 is paid by the government and the other part of it is a contribution from the tenant's pension. So now a lot of these participants and families are living in really old nursing homes or boarding houses that aren't kept up to standard or churches and they're not supported correctly.
For example, if you're a participant and you're in a hospital, it's going to cost the government $1M to keep you in there and you might be in your twenties and you're hanging out with people in their eighties and you really can't do much at all and it's sending you crazy. So this is about integrating these people into the community, helping them get a normal life again and that can put four or five or two or three people in a house. Then you have your own personal carer look after you. The family can come and go, the houses are decked out like a five-star holiday house. Close to all the major infrastructure. They've got drivers to pick them up and take them out to the beach and to parks and integrate and there’s just a really good arrangement where there's so many people involved in the whole process that the poor participants who have been neglected for that long, they’re like this neglected community that can actually get amongst it again. So you’re an investor and you want to return on your investment, but you also want to give back to the community, everybody wins.
So the whole process is quite structured. It's very involved and it's taken a long time to get to where it's at now. But it's just a good thing to do, to be involved in.
So can anyone actually apply to do this or is it something that you need guidance from people like yourself to do?
We've been working on our SDA licensing arrangement, which we had to reapply for just since July. So it's a specialist disability accommodation. We were a provider of disability accommodation. So there's providers out there that just specialise in care and they're all different levels of different allied health professionals. Then there's SDA providers who specialise in accommodation and housing and there are two trenches of payments. So one payment comes for accommodation and the other trench of payment comes for care. So we're strictly looking after the accommodation and we do that in conjunction in collaboration with providers and those providers have contracts or agreements with disabled participants. Then the care planners, coordinate, like concierges, they look after the participant with all the other allied health professionals and they make an application for the funding in between the SDA provider and the care provider.
We both work in collaboration to fill our properties up on behalf of the investor. Then as a licensed agent, registered SDA holder, we then apply for the funding on behalf of the participant to live in that property and then the investor gets paid.
These projects are helping a lot of people with disabilities and creating a home for them so they can get the care they need. Knights shares what is in it for the investors.
Say for example, you build a $550,000 full turnkey, you get paid on a per room basis. So you might have a $100,000 return. If you're averaging $25,000 a room, we'll property manage that once the room's full, we'll matchmake the participants. So we want to try and make sure that the participants are all similar in age and interests because they're all technically flatmates and that all the families get on really well. Then we coordinate that there with the providers who are going to employ and employ the carers to come in and look after those participants on a 24-hour basis. So that little businesses work in the house. So we, that's what we do pretty well. Manage the property, build it, get it certified, ensure that it's all correct to the right specifications, have it all approved through the NDIS, that gets all certified and stamped off and then a certifier looks at it at the end and make sure it's habitable.
Then we'll fill those rooms up in collaboration with all the providers and we've incentivised everyone so that some of these providers are non-for-profit. So we've got an ongoing arrangement with them to ensure they get looked after, the participants get looked after and the whole model flows really well. So it allows for longevity in the business and investors still get 14 or 15% return on their money.
The NDIS project homes are still new to the market and Knights knows it is only a matter of time before they are properly recognised.
For any property with a higher return, there are some risks. These ones haven't been recognised very well by the valuers and the banks yet because there's no real track record and we’re all pioneering this process.
There are quite a few guys having a bit of a play in this space. So there will be an evaluation shortfall sometimes when these things get built because they're built to a standard of disability level. So we just had one that's about to be built up in Toowoomba and it was $40,000 out. But remembering that these things are specced up, five star finish with disabled facilities in the house, four bedrooms with four ensuites, stone benches, remote control windows and doors and all sorts of fancy stuff like that. It only come $40,000 out. So it's not that the property's not worth that. It's just that they haven't been recognised yet by the banks and the valuers. But in saying that, if you're getting 15% return on your investment, and this is a long term play, that outweighs any of the capital gain that you may have gotten over the long 20 year period, it’s a 20-year rollout.
Knights can see the potential in these homes but there are some risks the clients need to be aware of.
You get your money back in the first 12-18 months, two years. So we are saying to our investors, look, you really need to have a 10-20% extra equity or cash to put in just in case there’s a valuation shortfall. So try to be as transparent as possible.
Now after 12 months or so when there's a bit of a track record and these things are producing really good income. I'm sure the banks and the valuers then reassess it and they'll be valued differently. But because everyone's brand new and pioneering it, the banks aren't recognising at this stage, particularly with tightening up their lending policies. So as long as every investor knows and we share that in our feasibility anyway, what the pros and cons are with borrowing the money and they are entering into that, we've got a roll-out process as well, which assures them to get a tenant or get tenants in the property price as them cutting the block so that their money is protected, the rest is protected and that doesn't affect their cash flow. So we've got a whole unique system on rollout for that to safeguard everyone involved in the whole process.
Where is Knights mainly focussing his attention with these properties at the moment?
I'm based in southeast Queensland. We're focusing here at the moment, but we are receiving a lot of inquiries from Sydney and Melbourne but thinking of it as the cost-effective region where Queensland’s got, in most cases, the cheapest land, knowing that it's not a cyclic type of investment, we're rolling Queensland at the moment. South Australia is pretty strong. Western Australia is quite strong. Sydney’s land content is pretty high. Melbourne is regional, they're looking at doing a bit in there.
It's still very, very brand new and most people are pioneering it and when I say to my clients and friends that are buying into this, look we're all in this together, this is like a partnership and there'll be some bumps in the road, but brace yourself because it's pretty exciting. That be aware that this is a government program and it's not as straightforward as it looks. The returns on investment are outrageously good if you can, if we can pull it off as well as what we hope to do over the next 12-18 months.
He wanted to learn from people who were already in the business that were doing it rather than just talking about it.
I used to go to all the seminars and all those wealth creation workshops and there were lots of ideas there and it was more of an eye-opener on how not to do it in a roundabout way because a lot of the stuff was just a money grab and they wanted me to pay all this money for courses and education. In saying that, there were some good ideas that were there, but really the way I encourage people to learn now is just to hang out with people that are actually doing it successfully and make friends with them and luckily for me I was in the business. So I learned a lot from people who are actually in the business actually doing it and just asking questions and working with them either to sell their properties that they've created and built or helping them find properties.
So for a new person who wants to be a property developer, I would say go and find part-time work experience with developers. Just get to know them and have coffee with them and just hang out with them. They say hang out with the five most successful people you can find and if you’ve got a passion for property, hang out with people who are walking the talk. I have done lots of different courses, etc. but one lady in particular, when I first started, she was friends with every single agent that you could possibly know of. Everyone knew this lady, little short lady and she’d buy and sell, wheel and deal. She was the most successful little property developer I knew and one of the things that she did, she would make sure she'd walked down the main street and have coffee and talk to every agent possible that was any good.
Whenever a property would come up, that was a good deal, she would get given first preference. She knew the market, she’d make a decision really quickly. She was always on the money and she made her money by just being really well connected. So she’d wheel and deal, buy and sell. She was always a small-time developer. She bought big properties, little properties and do them up, sells them, sell divisions, all sorts of stuff like that. That would probably be the first tip I would give where I learned a lot from that. Another friend of mine who has a massive portfolio, he would go out and wine and dine bank managers and valuers and people who would see lots of receiverships and bankruptcies and he would pick up lots and lots of deals that way.
Knights tells us about how his friend who was able to get the best deals and the best value in the market.
If they would sell or provide him with a really good deal, he'd pay for the trips over to New Zealand or holidays for them. He bribed them in the right way. He would reward them basically and he wouldn't give them money upfront to do a deal, obviously. But if they gave him a really good deal, he would look after them. So he was really well connected and like you can get as much knowledge and experience and learn every trick in the book but most of the time people don't take action. Most times it's about being in the right place at the right time, making yourself available in the right place at the right time. Make sure all your finances are in place so that you can jump on a good opportunity and is very, very well connected.
Look, I've got developers who are super successful who just intrust me. When one comes up, I just ring them up. We can either do a JV with them, now they could spend all the time, every day looking for stock, looking for land. But they come to me first cause I'm connected. Now I can't do them all so I just ring them up and they're ready to go and they do deals. So it's all about putting yourself out there and finding every connection possible that's going to give you an opportunity to buy.
What does Knights like to read about in his limited spare time?
I like reading articles that you send out. I'm not going to name one in particular, but there's so much information out there. Little short success stories and case studies really resonate with me. Just hanging out with the right people. There's so much real estate information out there that I get given and sent so much stuff every day. Rather than read a really long book, unless it’s outstanding, I just like little snippets here and there and then it'll lead me into a rabbit hole and I'll look at the information and then go into some other information. You start to probe and it just goes from one to the other. I get right involved in that, you know, like where is this going to take me?
So I sort of get involved with that, but I did listen to lots of motivational and all sorts of stuff back in the day. It was more about keeping you motivated, always had a mentor and a life coach and I was able to talk to a lot of the successful people, more about hanging around with the right people. There's so much stuff on the Internet, on Facebook and there’s heaps of stuff everywhere you want to go. Like as long as you keep your mind active and you’re reading positive things that interest you, that's your hobby and hanging around and network with those types of organisations, that's just as much information that's more practical than just reading the books. It's about taking action for me.
We hear some great words of wisdom that Knights still carries with him to this very day.
I'd say always leave a little bit for the next guy. Do your research, surround yourself with the right type of people that you resonate with. One of the things that sometimes there’s a time limit to your friends as well. So you might have your best friends for life, but then there's people who might be your friends, but they're actually acquaintances and they might not resonate with you and you move at a different level. It's hard to keep looking for new people to hang out with. So leave a little bit for someone else. Don’t be greedy and be humble and always be ready to pounce when something comes up. So do your homework and make sure you're in a strong financial position and never be complacent. I would say complacency in our industry, whether you're a developer or whatever industry you’re in, it doesn't matter. Complacency is the biggest killer in our life. It really is. When you’re complacent, you drop the ball, things happen in your life and things can go wrong really, really quickly when you're not on the ball.
It is pivotal that you are able to look back on certain experiences and learn from them. Knights tells us some of these experiences.
It's 2019 now, 2008 was the GFC, I would've sold a lot more property more quickly because in Queensland particularly we still haven't really recovered from 2008-2012 mini booms. I would have restructured the type of properties I bought and made them all positive cash flow. So I mean, when you're making lots of money, you worry about the tax you’re paying. I've got no problem with paying tax. I mean, obviously no one wants to pay tax, but I'd rather be making the cash flow that has the property stand alone and pay for themselves and then try and save a bit of tax. So positive cash flow and still make sure you've got enough leverage to be in a position that if something went wrong in your life and you had to give up work tomorrow that your properties would pay themselves off and you wouldn't need to work to fund them and you wouldn't actually have to sell them. As far as my property investment portfolio goes, so positive cashflow was king without question. No matter how much you earn or what type of tax you pay, it still go positive. Positive rules the world really. Cash is king.
Knights is always looking forward and is excited about what he has coming up in the near future.
I like doing lots of little projects and a few joint ventures with other like-minded developers or agents. So for me, small boutique stuff and collecting positive cash flow properties is my agenda. I've done a few developments and subdivisions and things like that, but I think that knowing the markets, no one really knows what's going on in the market. If you're doing little boutique stuff and you can do a few of them at any one time, it's a much, much safer way to go. So because that’s what I like to sell and introduce to people, I've got to walk the talk. So for me, it's just a much safer way of get in, get out, hold and collect and the standalone investments that give you positive cash flow. So for me, it's all about positive cash flow and deciding to keep some ourselves, just wheeling and dealing in the small boutique market suits me better.
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’d say more than anything, really getting a thorough understanding of your niche market that you want to focus on. So market knowledge is extremely important, hanging around the right people and being connected and yes there is some luck along the way. I’ll say with luck as being in the right place at the right time and I got lucky but being ready to buy when one comes up, so that’s actually making yourself ready to buy and jumping when one comes in. Then obviously, understanding the market, we don’t have control of booms and busts but you’re going to have a bit of luck when the market booms as well. So you really need to have a combination of everything but if you’re not doing anything then nothing’s going to change so taking action is equally as important as having luck or having an education. You can have all the education in the world and you might get some luck in the market because you’ve bought the property at the right time before a boom but if you didn’t actually do anything about it then you’re not going to get any opportunity.
I’d say it’s a combination of both. There’s a couple of times when I got damn lucky and the market went through the roof. Other times I got unlucky but if I didn’t have a crack at getting involved in the market I wouldn’t learn. You have to stretch yourself and get out of your comfort zone. Having the right advisors around you and having them structured correctly around you is key and then taking action. I don’t think you should go to a one-stop-shop, try and get external independent advisors so that they can all debate together around a table about what is right for you as they’ve all got your back rather than a one-stop-shop because technically if you go to a one-stop-shop you’re a number. They’re all on a KPI, they all want to sell you something and they want a cut of the pie. All my advisors are external and they’re all in the market and they’re all walking the talk. They are all experts at what they do and they love property and I’m not into shares, I’m into the property. So I hang out with those guys.
If you want to find out more about the NDIS project here is where to get more information.
Well on my website there's a bit of a briefing, some videos and they can also download a full feasibility on the whole process from start to finish and that's at Horizonpropertyalliance.com.au. They can call me direct any time and just call me off the system. So Horizon Property Alliance is where most of the information is there. There are all sorts of stuff we're collecting and adding.
Just heaps and heaps of information on our website. Loads of it. But easiest way is to just get on the phone and have a chat to me and I can send you as much information as possible. Like I've got a huge book of info to share.
This episode was produced by Andrew Faleafaga with narrations and interviews conducted by Tyrone Shum.