Andrew Allen’s Winning Strategic Plan for Property
In this episode of Property Investory, we are joined by Andrew Allen, a successful property investor who runs a buyer’s agency called Allen Real Estate. Learn how he went from growing up in Western Australia on a sheep and cattle farm, and then a career playing and teaching chess, to working in the world of property. We will also be delving into his various property investments and how he increased their value exponentially, the general ratio when it comes to securing properties and his strategic plan when it comes to investing in properties.
Come along with us as we chat to Andrew Allen and explore how he took advantage of the property boom in 2003 to great success and the conclusion he has come to about the amount of capital growth needed per year for a property to generate excellent profit. We’ll also be talking about key factors about buying in Brisbane that is different from Sydney and Melbourne, the effect flooding in Brisbane has on insurance and the one kind of property that is the exception to the rule when it comes to purchasing insurance and so much more! So what are you waiting for? Click the play button and let’s get started!
Allen is a property investor who also runs a buyer’s agency. His average days are quite flexible and generally, involve tasks such as desk-based work and speaking to investors and home buyers.
We buy property in Brisbane mainly for investors but investors and homeowners. And I’m the director of that business and that business has been operating for, it’s about just over 10 years; we started in 2009.
And that’s one of the reasons I started with a buyer’s agency instead of starting with property sales. And one of the reasons I love property investing is that I have a lot of flexibility over my time. And sometimes that changes, like Saturdays can be busy if you’re looking at property. But basically I have a family with two young children and every day a lot of the scheduling gets us scheduled around the children. And I have the privilege to be able to take them both to school and collect them in the afternoon. And that time takes care of the side of the end of the day. A lot of the work-related activities are talking with investors and home buyers and researching property. And there’s a lot of reading and looking online that goes into just surveying the market, working out what’s happening with trends and whether the areas we’re buying in is still the best value. So there’s a lot of desk space looking at a computer screen work. And also we do property management. And one thing about property management is every day is definitely different and there are always challenges. So that’s another area that throws us tasks that just tend to take up a fair bit of time.
When Allen first started out, he believed the ideal business size was one person, however, this changed as time went on. He tells us also a bit about the general ratio when it comes to securing properties and the kind of work he does more often these days.
When I started the buyer’s agency it used to be myself and I no longer think that’s the ideal business size. You can have such a thing as a business that’s too big, but you can also be too small in my opinion. And when it was just myself, I was doing everything and that would involve a lot of inspections. And you’d be doing inspections during the week and very busy on Saturdays. Sundays tend to have not a lot what happening with property in Queensland or Brisbane unless you’re involved in the negotiation. The very general ratio is four for a hundred properties. If you research, if we checklist a hundred properties, like look at a hundred properties, look at the details, I’d find approximately 10 of those properties that might be worth an inspection.
And of those 10 properties that I’d be inspecting, two might be worth an offer or would generally be worth an offer. And of those two you’d offer on, you’d secure approximately one. And that was how the numbers work with looking at property and inspecting properties, and any week you’d be doing a lot of inspections. And for the past five years, however, I’ve been in charge of a smaller team, there’s three of us, Amanda and Micah are the buyer’s agents who do the day-to-day inspecting. And that means I don’t do as many inspections as I used to. If there’s a clash of scheduling problems with Saturdays, I might do an inspection of a property, but generally, I’m doing more desk-based work these days so I don’t inspect as many properties as I once did.
Allen grew up in Western Queensland and went to the local state school there for a while until he moved.
I grew up in Western Queensland in a small town called Dirranbandi and the population of that town was about a thousand people—today it’d be perhaps 500—and I grew up on a sheep and cattle station and that was quite a normal-sized station, about 30,000 acres. Today, it’s quite a bit bigger. And I went to school at the local state school until I went to boarding school in Brisbane, and pretty much I’ve been a Brisbane-based person with a 10 year excursion to the Gold Coast and also living overseas on and off for the early two thousands but basically grew up in Queensland and grew up on a farm. My dad was a grazier and Queensland-based, pretty much all my life.
During Allen’s childhood, the cattle and sheep station mainly held sheep and he gives us some background history on graziers and how things were different back in that time.
Nowadays there’s a lot more difference in what people are doing, they have to be more flexible. But basically I grew up in the 1970s and Australia still remembered the great war boom of the postwar eras and many graziers they sort of, I guess, never outgrew that mindset. But growing up on the farm is definitely different. I look at what I allow my kids to do today and look at what I was doing at the same age, and it’s really day and night. For example, when I was 8 to 10 years of age, it was normal to have your own car and you’d be driving it on on the main road, which wasn’t very busy as well.
He tells us a bit more about what it was like to grow up as a country kid in those times…
You were basically best friends with the local policemen, so it was very flexible. Yeah, lots of experiences that are different and the times are different as well in terms of connectivity. I mean, we didn’t have the internet and telephones definitely, but my first telephone number was seven. There just weren’t many telephones. And the telephone was a party line in terms of you could pick up the phone to listen to someone else’s conversation. My nearest neighbour was perhaps 30 minutes drive away. So you had the freedom to explore and grub as a country kid. But yeah, it was also a bit lonely sometimes as well.
The cattle and sheep station Allen grew up on was about 12 kilometres from a centre town, which meant that going grocery shopping, getting mail and even going to school, especially during floods, was a different process than it is today.
You used to go in and do the perhaps weekly grocery shopping run. And the mail would be delivered once a week on the train and every day there’d be a bus that would come and collect the kids from the stations, bring them into town for school. And if it was raining, because often there’s droughts and flooding rains in the country, you’d be cut off for days or days longer at a time. When my sisters were growing up, we had a light plane and we could actually fly into town, which wasn’t a great thing if you were missing school, but your dad could fly you into town over the floodwaters. It was quite a big station. 30,000 acres isn’t actually large for a station, but it’s big enough that you can go missing for a day or two if you are driving in the car and so you have to be careful.
Allen goes on to tell us a little bit more about what it was like for him to go to boarding school, to make the transition from the farm to the city.
Went to school locally until Grade 5 and then I went to boarding school in Brisbane because basically the schooling options perhaps weren’t great as you got older and just that’s what the country kids did. They were sent to boarding school either in Toowoomba or Brisbane or the Gold Coast. And it’s still the case today. And from that point, I’ve basically been a city person and I’ve spent my whole life in Brisbane.
It was a shock to the system because never being away from home for that long and then all of a sudden I was at Christian Brothers boarding school in Brisbane, and that was a shock. But there’s also a feeling of family with boarding school and you make very good friends and boarders probably consider themselves a bit better than day students. And that was a shock. But basically I can understand why my parents did it. And that’s one of the great drawbacks steps to living on the land. There really is just a tyranny of distance. And with boarding school, it wasn’t like you could go home every weekend either. Sometimes some of the students there would see their parents once a term, once every three months or so.
After leaving high school, Allen pursued a rather unique passion of his that coincided with his growing interest in the property.
After high school—I finished school in Brisbane—and my interest in property basically began not too long after then, but I had a passion at the time and that passion was actually something that you might find a little bit different and that was playing chess. And I actually play chess to the standard that was quite decent and ended up pursuing that as a full-on passion. I tried to make it a career for many years and ended up getting into coaching or training students how to play chess. And that was a business that operated in Brisbane and the Gold Coast after leaving university. And yes, that was a little bit different. And that lasted for about 10 years.
Chess led him to tournaments in different countries, and after some travelling, Allen needed a way to earn his livelihood.
I think there are crossovers into business and investing, but not so much. Another activity where probably being an Australian was not a good choice because just like being sort of a long way from anywhere on the station, being an Australian with chess at the time was a significant handicap because we didn’t have the internet when I was playing mostly. And all of the good tournaments and good players were basically outside of Australia and Europe. And the good part of that was I got to travel a lot and see quite a bit of the world including places such as Argentina. And I played a world junior championship in 1992 in Argentina, which I happened to be my first overseas trip as well, and got to see a number of countries as I was travelling, playing chess tournaments, made a lot of friends with people from different parts of the world.
After that, I had to work out how to make money out of what was my passion. And like a lot of people I turned my passion into a job, which was a terrible idea. Chess is probably not a very good career or a job, but it’s a fantastic activity for children. And there’s a lot of buy-ins in Australia or in Australian schools for teaching chess to students in the curriculum or just as a voluntary activity. And it’s a wonderful idea because it doesn’t cost much to get involved and it is great for kids, it’s teaching them competition and strategic thinking, and taking responsibility for themselves. And I started a business that was basically training students to become a few chess players. And also we did quite a bit of curriculum work, which means we’d teach the whole of Grade 3, Grade 4 how to play chess or how to improve. And that was mainly based on the Gold Coast, also Brisbane. And that was something that I did basically since leaving university through to about probably 2002, 2003.
Amazing. What I’m curious is, is that part of the curriculum nowadays in our school system or is it just something that would be an extra-curriculum or extra co-curricular activity that people…?
It depends on the school and quite a few of the private schools, the ones that I guess have money for things like that, they do include it as part of the curriculum, but mostly it’s a co-curricular or extra activity similar to tennis or karate or dance, music, similar.
Allen’s growing interest in the property was spurred on by books and the advent of the internet and was also influenced by his parents, all of which led to him purchasing a property.
I’ve always been interested in property investing and have owned the property for a long time and been a property investor also for a very long time, and I was doing a lot of reading of property forums, and this was in the 1990s when the internet first started appearing and becoming significant. Before then, I’d been reading property books and I had a good experience just basically with property in seeing what had happened with properties my parents had owned for a long time and being a grazier you have a love of the land, of course. And it had always been an interest that basically didn’t become more of serious interest until probably the early two thousand.
I was definitely influenced by my parents and it’d be pretty normal for a country person to own a property in Toowoomba or the Gold Coast, and it’d usually be like a holiday home. And I’ve basically seen how those properties have performed over the long-term and I’m old enough to remember holidays to the Gold Coast when there was one high rise. That’s changed significantly. That really probably isn’t that long ago. And we basically do a lot of buy and hold investing, that’s our main niche that we help with at the buyer’s agency and that’s served me well. And I’ve had a lot of lucky timing with the buy and hold. To give you just one example, when I was living on the Gold Coast, I was renting in 2003 and ended up moving out of the rental because it was being sold to be renovated and ended up buying an apartment on the Gold Coast.
And that apartment I bought in 2003 for $89,100. And the interesting thing about that is you could actually buy property for that much back then. The interesting thing about that property was it had not moved in about 10 or 11 years. And the previous buyer almost definitely gone through a two-tiered marketing scheme and overpaid for the property, but they basically paid $92,000 back in the late 1980s. And I bought it for $89,100 in 2003. This was my first property on the Gold Coast. This was just before the property boom swept through Australia. And for those of you who are old enough to remember the 2003 property boom, that was a serious property boom and it was supposed to be a once in a generation boom but Sydney has done quite well for itself recently as well. And that property ended up selling in 2005 for…I believe it was $240,000. So that just caught that boom perfectly.
This was not his first property—he has owned other properties and as a result, come to a conclusion about the amount of capital growth per year needed for purchase to generate a good profit.
I’ve owned property in Brisbane for longer and having researched some of the property I own in Brisbane, I’ve pretty much come to the conclusion that you sort of can use a figure like 5% per year capital growth as a reasonable because the apartment I’ve owned in Brisbane since the 1980s has really had years where not much happens and things goes sideways. But then you get years such as 2003 that you can see property just double very quickly in a year or two.
An apartment that he bought in Brisbane was his first property purchase and revealed Allen’s discomfort towards debt.
I was fortunate enough to inherit the half share of an apartment and that apartment was brand new at the time. And I ended up buying that half share off of one of my siblings. And that was 1997, I think. So that was my first experience of actually getting a mortgage and getting a loan. And that was
very uncomfortable I remember at the time, and I’ve always had a very conservative attitude towards debt and have a very low, very low tolerance for debt. So I’ve always had very low LDRs and larger cash buffers as my investing approach, which has been just my sleep at night factor. But that was my first experience and the apartment at that time was worth $135,000, and now it’s worth 440 and that’s a 20-year time frame approximately.
With Brisbane and this apartment three ks from the CBD, one of the key factors is that we’re definitely different to Sydney and Melbourne in terms of we don’t have the density of population that Sydney or Melbourne do. So when you’re buying, we’re basically a housing market and when you’re buying a strata property, which includes townhouses and apartments, you really need to be in a location where basically you’re closer to the CBD, you don’t have issues with future supply or you’re not in a suburb that’s mainly housing with no apartments. So basically you want to be five kilometres approximately or closer when you’re talking in apartments with Brisbane.
Allen first talks a little bit more about his first property and then gives an example of a house that he bought and the buy and hold strategy he used to increase its value.
Brand new and 1985 but basically just cosmetic renovations and what’s worked well for me has been just holding quality long term and buying good locations, high land value and you can get good land value with apartments also, but buying good quality houses that can do with a cosmetic renovation. And I’ll mention just one example of that is this house, I’m in a house at the moment, which we use for our rental guardian’s property management. We run the business from this house and I purchased this house in 2007 for $260,000 and did a full cosmetic renovation, not a large house. So that was about $20,000 organising that myself and that put the cost base to about $280,000 for the property.
And there’s been pretty much not a lot done to it since then. Always rented well when it was for rent. And now the property would be worth approximately 480, so not incredible capital growth but very solid. And that’s what’s sort of underpinning the buy and hold strategy. It’s a system that works for well-located residential property and in cities such as Sydney, Melbourne and Brisbane, especially the capital cities I’m talking about here. It’s just been a winning strategy for well since Federation for centuries and it’s a great underpinning of an investment strategy. You can combine different strategies. I’m definitely not against selling. I don’t believe anybody who says buy and hold everything, I just don’t think they’ve bought enough properties and strategic selling is fantastic and you can combine property development, renovations as cash flow generated as to like a core strategy of buy and hold. I think that works really well.
He delves into a property problem that is prevalent in Brisbane—flooding—and talks about the effect the floods had on his property..
With property investing, if you’re avoiding the obvious mistakes, then that’s a lot of the heavy lifting because it really isn’t that complicated in the end. And avoiding the obvious mistakes will get you a long way towards buying good quality property. And some of those mistakes are just issues with the location of the house. And in Brisbane specifically, there’s issues with water and we’re talking flood here. And one moment that comes to came to mind when I’m thinking of this question were the 2011 floods. And nowadays everyone’s aware of what can happen with Brisbane and flooding and water. But I can tell you that before 2011 that wasn’t really the case. Almost nobody was paying attention to that. And that’s something that I’ve always watched out for, but even myself, I probably wasn’t weighting how chronic that issue was.
And I remember the 2011 floods in the Brisbane market basically had a heart attack at that point and the phone literally didn’t ring for two months. It was just nothing happened. Brisbane was underwater and Brisbane by geography is a gigantic floodplain. So basically every suburb will tend to have pockets that flood; some suburbs, significant parts of it flood. And it’s not just the water that’s coming from a critical or a water source, it’s also overland flow, which is our tropical summer storms flowing down. And that’s something that we’re very, very careful to factor in for every property we checklist. And to some extent, people have sort of forgotten a little bit about the flood issues. But that would be one of the significant negative moments where nothing happened for the right property for two months after the 2011 floods.
Due to these floods, many properties in Brisbane are built on stilts, which Allen elaborates impacts developments. He also tells us about the effect flooding has on insurance.
It impacts development in terms of you’ll have to be raised a certain amount off the ground or developments cost more. Also, costs are felt in insurance. You might not be able to get insurance or just not at a reasonable price and it’s a chronic issue, Tyrone, so that issue never goes away and people tend to forget about it. So it’s an issue where you can probably still buy those properties and sell them, that’s fine. But I just think you need to be very careful with any…and we basically now have a very strong policy that that time, it’s just not worth it usually. And you won’t go a long way to find an exception to that rule to find a property being worth it. And one exception to that rule is riverfront property, because riverfront property is limited by nature in Brisbane and it’s prestige, so you can assume a certain risk and it might just be a certain part of the block that floods, not the dwelling. Or you can have the dwelling high enough that the risk is acceptable.
You’re not forced to buy any property. It can be very choosy. That’s your big advantage as a buy and hold investor. You can be very choosy about what you offer on. And we’re looking for flood tray. Good block of land, good slope, good shape to the block of land, good street frontage and high-quality land.
The Strategic Plan for Selling a 13.6 million Farm with Andrew Allen
For Allen, there were various light bulb moments on his property journey where he felt as though all his hard work had paid off.
I think getting the first rental statements from your property manager is always a nice moment. I remember how good that felt still in terms of well getting paid rent and you’re not doing anything for that. That was a fantastic moment. And also just being old enough to see property appreciate through different cycles and being old enough to remember higher interest rates, and property not going anywhere and just seeing what happens over the fullness of time. The station I grew up on just recently we actually sold it for a reasonable amount of money in the 1980s, but just recently that transacted for 13.6 million and they’ve had a really solid growth per acre in terms of property values and that market is a classic market where the real money perhaps is not made in appreciation, though that’s fantastic. It’s made by buying well and usually that’s the case of you’re buying when other people are having to sell because there are really long periods of not much happening or property going backward and then you get all the appreciation at once. And for me, that’s really been the ‘aha’ moment, that buying the good quality property and holding for long-term or holding for a very long term works well in Australia.
In terms of the station Allen grew up in which recently sold, it makes use of various income sources and although income for the station is not a problem, there are other issues which can be.
It’s grazing and just using the land for various purposes. Dirranbandi is near, you might’ve seen it on the news, a large cotton farm called Coffee Station and that’s a political football. But basically there are lots of ways to use the land. And my last visit out there, it was interesting to see how many different ways that the graziers are using it. And we’re talking about just different types of crops and livestock for it to…even things like ecotourism, people going out for camping or hunting. And there’s a lot more flexibility and entrepreneurship around getting an income from the land because you’ve just got massive amounts of land. And when one commodity such as wool is doing fantastic that is great. But you have droughts to prepare for. And just having that diversity in income sources seems to be very important these days.
Income’s not a problem. The problems are debt, the same with proper standard residential investing, being able to handle debt. If you’ve got too much of that, that will end up finishing you off because eventually, something’s going to go bad with the weather. And it hasn’t rained out there for a long time. But the income is usually not a problem when the wool boom was going bust after the second world war the joke was that there were so many Mercedes and BMWs driving on the Outback roads that you had never seen any dust before, that the farmers were doing very well. Commodities go up and down in price and if you’re just exposed to one, then it’s an issue, but the people that tend to do well, they either own outright or they have very manageable debt and they’re in a position to be able to buy from people who they aren’t as fortunate when times are bad.
And that seems to happen I guess as part of any market or property part of the market because I guess there are people who are distressed and people who can come in with at the right timing can actually pick them up for good price as well too.
Absolutely. Brisbane has had some reasonably good distress buying in apartments over the last probably year and a half. And the Gold Coast is a classic market for that as well, for those who’ve got the patience to collect the distress department. The buying is always good.
For Allen’s next purchase, he is looking to buy a good-sized block of land and build a house on it in order to be a part of a unique market. He also tells us about the preferences of people with a certain level of purchasing power when it comes to buying properties for rental income.
We’d like to upsize our house where we’re part of the market that have children that are getting older. And that market is quite a healthy one in Brisbane and people such as myself, we’re looking for things like good school catchments and if you’ve got a house in a good school catchment in Brisbane compared to being the street over, that premium can be worth, let’s say, $50,000 for a good school catchment. It’s quite significant. That’s going to be our next purchase. And in terms of what we target for our buyer’s agent clients, we have two main groups.
One are the homeowners and there’s a lot of people from Sydney and Melbourne who are looking to relocate to Brisbane, and that’s quite normal after Sydney and Melbourne have had strong price growth because they look at what they can get for $1 million, and it might not be much in Sydney, but it’s really quite a lot in Brisbane. So if they have a job, they’ll look to relocate and we buy properties often in the 1 to 1.5 million price range for homeowners and that’s a good quality blue-chip suburb in Brisbane, good school catchments, they might not send their children to private school but good school catchment and not really focused on yield, the yields can be quite low. And that’s one segment. The other main segment we service with the buyer’s agency are the buy and hold, which is really our specialty and we’ll do small improvements, cosmetic improvements but not usually for renovations and that market is very active on the 500,000. And the reason for that is I think it’s mainly affordability but also people who have 1 to 1.5 million buying power might prefer to buy two or three houses in Brisbane around that that 450 to 550 price point rather than just invest in one property. And we’re doing quite a bit of buying under 500 price point, let’s say the sweet spots around sort of 430 to 450 and also we do quite a bit of buying closer into the CBD at a price point, which is closer to 600,000 and that can get you a good quality house, 9 to 12k from the Brisbane CBD on a 600 square meter plus block of land with high land value at a reasonable yield.
When it comes to purchasing two or three smaller rental properties or purchasing one large rental property, Allen elaborates on these two options and how they compare.
Generally, I’d say that all of these properties are floating on the same market, which is the Brisbane residential market. And the property that you buy for 500 is definitely different to the property you buy for 800, which might be the 800-850 plus property which is five kilometres from the CBD. And the property that we’re buying for 450,000, that might be 25 kilometres from the CBD. And the reason it’s that far, we’re talking house with a really significant land component as a percentage of the total price. And generally you do tend to get more diversity in terms of having two rental income coming in instead of one but that’s really only if vacancy is a significant risk, which basically isn’t for a property that’s in a good location and priced correctly in Brisbane.
So for those investors who want to be closer to the CBD and they want to, let’s say, invest 900,000 or a million in one property, that’s absolutely fine. And those buyers have the preference for close to the CBD and they don’t mind the lower yield and the one rent. And I think that approach is absolutely fine. It’s personally what I’d choose over the two properties that are the lower price. But I also think it’s a personal preference in terms of it’s not clear necessarily what profile would do better there, the one house for 900 or the two for 450 because we can buy both of them well.
Allen goes on to tell us what kind of criteria he is looking for his clients in properties when it comes to utilising the buy and hold strategic plan.
Some of the common criteria, what we’re looking for in all of these properties, Tyrone, are excellent locations, so good quality locations within Brisbane but also in the suburbs because we have the belief that every property deal is very specific in terms of the numbers and whether it’s a good idea or not. And that’s more important usually than suburb ‘a’ is better than suburb ‘b’. Both suburbs are of a similar nature in terms of distance from the CBD, but what we are looking for, we’re primarily buying houses and no reason for that apart from the apartment market has had almost zero demand from investors for the previous three years. However, the value in that market is returning to what we think we think is quite interesting. But talking about housing, what we focus on are good blocks of land.
So usually it’s above 600 square meters and good location if you’re in the suburbs. So close to key infrastructure, usually train station, good walkability and not on a busy road or compromised locations. So good neighbours, significant housing around you, which means a lot of owner-occupiers who are spending money on their lawns and houses and good school catchments are also very important, and the house that’s low maintenance or prospects of low maintenance and flexible and housing style with a view that you want the house to be appropriate for the area. So in some areas that will be character housing and in other areas, it might be brick and tile and the house purchase at an acceptable year, which is basically for the housing under 500,000 in Brisbane, that’s sort of 5 to 5.5% yield these days. And for housing that’s sort of 600 to 650,000, the yields would be about 4.5% in Brisbane.
So it’s definitely respectable for anyone from Sydney or Melbourne but not positive cash flow at high quite gearing levels. And one of the key components we focus on is the land ratio. So we’re looking for a high percentage of the total price to be the land value, the underlying block of land. And that is what is delivering your appreciation longer term. And that’s the short summary. So well-located property purchased with a solid house at an acceptable price and the focus very much is on capital growth and giving yourself that chance to outperform with capital growth. And to give you just some like a real-world data point around that land appreciates example, the property I mentioned before that I purchased in 2007 for 280,000, the land value when I purchased that would have been approximately 150 or 160 and the house would have been 120 of the total price. So fast forward through to 2019 and the end value is 480 and the house would approximately be about 120 and the rest would be the land value, so the land’s gone from 150, 160 up to as much as 400,000.
So land value is really, really important. That’s the key aspect that you want to be looking for, especially as you said, buying the right location or good location and having those surrounding factors as well too.
Hundred percent. And land value is very important with a view that you need a holding income as well. So you don’t just go and buy blocks of land because you don’t have any income. So you want a house that’s low maintenance and generating and acceptable. Also, it is a compromise.
Allen gives some advice on how you can consistently buy properties and build your portfolio.
Most of our clients there’s a mix in terms of, we have some people who have very large portfolios, but usually they’re interstate. So those people almost always are focused on growth. So we’re just not looking on maximizing the yield. And I agree that the prospects for growth are the most important. And that’s what’s helping people leverage into more property and build a portfolio is that capital growth. Having the extra $20 a week rental income usually doesn’t make as much sense. And this strategic plan has an optimistic view of the future in terms of if we don’t have any capital growth and then absolutely it doesn’t make sense to do this. There are better ideas. And the yields are quite healthy in Brisbane and most of our clients have got a reasonable deposit, which might be sort of 15, 20% report neutral or positive gearing with the lower price point properties.
But it’s definitely a negative gearing. And the best description of negative gearing I’ve ever heard is it’s not something you seek out, but it’s something you tolerate. And I think that’s an excellent way to view it. It’s not a strategy in itself. It’s an outcome but it’s something that you tolerate because that’s the price you’re paying to get high-quality property and when you’re starting out for your first or second property, I think that approach in terms of building a portfolio is definitely the best approach in terms of you take the hit on the cash flow with a view that you’re positioning yourself to capture that growth when it comes. And what we find is when we get more experienced investors who’ve basically hit land tax thresholds for Queensland, which might be as many as little as one properties or often it’s three or four properties, they’re looking at development deals. So there’ll be doing basic subdivision splitters, townhouse developments, that’s when you can look to deals that would look to maximize the yield, like a second income on a property.
That’s what I was thinking as well because in order to really add capital value, like manufacture the equity, you’d probably have to be looking at developments of some sort you know, whether it be a renovation or adding an extra room somewhere and just adding value to those properties in order to sort of manufacture the equity. Otherwise sitting and holding, sometimes, you’d be waiting 10, 20 years and not saying that that strategic plan isn’t working, but it is a very, very long term view. And it’s great that you mentioned that.
Absolutely Tyrone. And what I point out again is what we’re describing as a buy and hold strategy is really you’re like a core strategy of a portfolio in terms of if you’re doing that as an only strategy again, that’s fine. But if you want to get somewhere faster or get superior results, then value-adding is always a good idea at any point. And that can be done through renovations and development. We also offer joint venture deals for people who’ve basically got the capacity and don’t just want to add more buy and hold properties. But for anybody who doesn’t have any exposure to property in Australia, then buy and hold is like an excellent place to start while you’re working at what you do in the future.
Allen informs us of the reason behind why he invests in property and built up his portfolio and started a buyer’s agency.
Well, flexibility is being able to manage or invest your time how you wish and is a great side effect of having shares and residential property and commercial property. And with property investment, I’ve never been a sales agent, never been on the sales side. I started the buyer’s agency in 2009 because I was a property investor and thought like one. So that was the reason that I started offering to help other investors because that’s basically how I identified as well.
Allen has accumulated knowledge of property and investing through various avenues.
I got a great amount of wisdom out of forums called the Somersault forums back when they were online. And that was in the 1990s. And that was I thought the best collection of property investors sharing their wisdom at that time and now the choices are even better with podcasts and forums and online resources. The information has never been better. And that’s only going to continue, I think, and the Somersault forums were an inspiration and also that would be the book I would recommend to anybody to read. My favourite book, the one I’ve given away the most is ‘Building Wealth Story by Story’ by Jan Somers. And that’s quite well-known, it’s an older one of Jan’s books, but basically it’s a mindset book around the wisdom of accumulating property.
When asked what was the best advice he has ever received, Allen’s answer is short and succinct.
Buy high quality and hold.
Allen then shares some personal habits that have contributed to his success.
I think there’s wisdom in taking action and that’s something that I notice sometimes with what separates what I see as or what I think of as successful investors from ones who aren’t, there are people who basically just accumulate knowledge and keep on accumulating and don’t end up doing anything. And that magic, it’s almost magic in actually acting and doing things, taking targeted feedback, refining and going again is it’s something that I’m working on but when I’ve done that, usually a good sign is when you’re feeling uncomfortable. If you’re uncomfortable at something and you can push through it, you think it’s the right direction to take and you’re taking targeted action, then just acting is something that works very well.
If Allen could have met himself ten years ago, he would have said to him to enjoy life more.
Be in the moment more, especially with young children because they grow up very quickly and relax and try to enjoy your life because business and investing are just the game in the end, not serving themselves, they’re to serve yourself and your lifestyle. So relax, enjoy the moment.
For Allen, what he is most excited about in the next five years are the advancements in technology and purchasing properties in growing cities.
I think we’re about to have an awesome decade. I have this belief that the roaring twenties are again and we’re already only a few months away now, but I think that just amazing things are happening with technology and Australia is very well positioned to take advantage of those. And what we’re doing with residential property, I think that won’t change, I don’t think it’s getting disrupted in terms of land is still going to remain relevant. And I think that there’s going to be a continued trend of cities getting larger and mega cities developing. So buying what place properties in capital cities in Australia will continue to be a valid idea.
That is very, very interesting. There are so many interesting factors showing, especially the way that the market’s changing as well and people’s living lifestyles are changing. You know, I’ve been hearing more and more people wanting to move into apartments because people are getting busier so they just don’t have time to manage your house.
Absolutely. That’s one of the trends in America. You can see it happening at the moment in Australia. In America, there’s something like 10,000 baby boomers a day retiring. And there’s some real trends about what they’re selling and what they’re buying. And that downsizer market is exactly the kind of demographic trends that we’re watching with a view to like what property you should be building or developing and then what properties are likely to outperform.
That’s one of the wants from the downsizers, they don’t want as much maintenance as they would have had with the house, so they might want a small courtyard but definitely less maintenance and good size living areas as well, so close to the good shopping centres and restaurants and lifestyle, but you also want to have enough space there that the kids and the grandkids can stay when they visit.
Allen attributes a great deal of what he has achieved to luck—particularly the good fortune of being an Australian.
A lot of what we do is luck and probably, to be honest, I think a lot of that luck is just because we’re Australian and we live in this amazing country and we really are a lucky country. And if you’ve travelled around the world, you can verify that in terms of we’re really a rich, politically stable Western country with a growing population, both a growing population base and an increase in wealth. So I think a lot of the luck is just acknowledging that we’re born in a very fortunate country and you can obviously help that with intelligent action and skill. But yes, I’m happy to attribute a lot of what I’ve achieved to luck.
If you would like to contact Allen, here are some avenues with which to do so…
The best way to stay in touch is would be to visit the website or to contact me. We have a market update newsletter which goes out regularly, which is the latest on the ground intel about Brisbane. And the website is Allen real estate, that’s allenrealestate.com.au/. And my email is just [email protected] and your readers are welcome to contact me for just an obligatory portfolio review, market update, chat about anything they like and I encourage them to do so.
This episode was produced by Annie Gao with narrations and interviews conducted by Tyrone Shum.