Expert Guide on Calculating Depreciation on Investment Property
From travelling the world to a degree in construction economics at UTS to believing he was too old for property investing at 24; Hyde has learnt a lot about property investing in the real world, especially from his first steps into Washington Brown. Now head of Washington Brown, Hyde is the ruling voice when it comes to estimating construction costs, and improving investment portfolios for himself and his clients.
Coming up you’ll hear about his amazingly successful journey, and Hyde’s brilliant strategy to double your property value. You’ll learn all this and more in today’s podcast. So jump on in!
Hyde’s all-or-nothing attitude and reflection on commitment have seen him achieve great things throughout his property journey.
Well, I’d say I’m funny. Some people might not agree with that, but I think I’m pretty funny. I’m pretty motivated from a professional point of view and sometimes athlete point of view. I’m pretty studious, I like to study the markets whether it be property shares but I’d also say that I’m a bit of an all-or-nothing kind of guy. So, when I put my head to something — my wife would say that that could be considered stubborn but I’d say it’s an all-or-nothing kind of attitude and when I commit to doing something, I pretty much want to achieve it.
In any given day he estimates construction costs and focuses on marketing, management and working on projects.
I’m a quantity surveyor so my skillset’s estimated construction costs so that’s part of my day, what things cost to build. But as the business grows and gets bigger like a lot of professionals, we don’t do everything that we get taught and I’ve moved on to more the marketing side of the business, paying people, managing staff but my passion and why I’m here, why you’re interviewing me is really about estimating costs and that’s still part of my job particularly with the bigger projects or more unusual projects. That’s what I do on a day to day basis.
So, estimated construction costs is what my expertise is. The ATO in 1995 put out a ruling that said that if you as a property investor want to claim the depreciation of a property based upon its construction costs which it has to be you need someone like me to estimate those costs where the costs are unknown and the ATO has a ruling that said that if you don’t know the costs, they’ll accept my estimate. So, every day we’re out there estimating construction costs for property investors basically.
So what is quantity surveying and how can it affect your property?
If you were to buy a property today worth say $500,000, that’s the value of the property, what it’s worth but in order to claim a tax deduction based upon its construction costs which you’re entitled to — you’re entitled to claim on the structure of the building, the brickwork, the concrete, you’re entitled to claim 2.5% per annum of the actual costs of construction. So, if you buy a property today for $500,000, if it’s brand new, the construction costs may be about $250,000 and you could roughly claim 2.5% of that structure per annum. If the property is ten years old, what we need to do is we need to work out what it cost to build ten years ago and that’s what the basis of the claim will be today. So, you might only have 30 years left at 2.5% but you still have a substantial amount to claim on that. As a property investor, you need to instruct someone like me to work out what those costs are.
And the advantages of using a service like Washington Brown are estimated to be literally in the thousands!
It reduces your taxable income. If we give you a report that says you can claim $10,000 per annum — say you’re on $80,000 per year, if you’ve got a report from Washington Brown that says you can claim $10,000 per annum, you should have been only paying tax on $70,000. The net effect depending on your tax rate may be a $4,000 net benefit to you immediately so it’s definitely worthwhile.
It also makes you be affordable along the way because you can also claim those allowances on a monthly basis and make it more affordable on a monthly basis for you, not just waiting for the end of the financial year. You can actually put in a variation and claim those allowances along the way. If you are struggling to hold that investment property and you haven’t claimed depreciation, well, this is something you might want to look at.
The rave responses of clients of Washington Brown are evidence enough that Hyde’s work will save you money.
It’s good to be in a business where people actually appreciate your service. We’ve got another side of the business where we estimate costs for developers and in that side of the business, you’re never right. Everyone’s always arguing with you and they don’t appreciate what you do whereas this side of the business which is the largest percentage of our business, our clients are happy, because we save them a lot of money and they give us great feedback and sometimes just made them — I’ve had some awesome feedback and it’s really good to have that. You know people appreciate what you do.
So what are the tips and tricks that property investors should use to save themselves big money?
People know that in order to claim the capital allowances which is the structure of the building, the property has to be built after 1997 now. But if a property is renovated, that timeline starts again. So, say you buy on old Paddington Terrace in Sydney that might’ve been built in the 1900s or 1800s and it was renovated in the year 2000, just because the structure of the building was in the 1900s, it starts again even if the kitchen was renovated in the year 2000. The date the kitchen was installed is the new starting point for that kitchen. So, just because the structure is old, it doesn’t disallow you claiming when the renovation occurred even if you didn’t do the renovation. So, here’s a case where you can claim deductions without even getting your hands dirty. You can still claim the depreciation when someone else has done the work. That’s one.
The other one I’ll briefly mention is something called scrapping. This is where you’re going to renovate a property. This is where you get deductions for stuff you’re about to throw away. Now that sounds interesting, doesn’t it? Say you bought a property today and it had a tenant in place for three to four months but I want to renovate that property when the lease finished as the tenant was leaving.
This means that you can take advantage of household items, like an old oven, and claim more money at tax time.
So, I bought a property today, I have the tenant in place for four months. At the end of that four months, if I replace the kitchen or replace the oven, there are values attached to those items. Now if you remove those, you get the immediate deduction of whatever was left there. So, say you got me out as a quantity surveyor the moment I settled and we said that oven there, well, it’s worth $500. It would depreciate steadily over the next say five years but if in three-months time, I threw that oven out because I’m going to renovate it, you’d get that $500 in an immediate tax deduction. Now that can add up quite significantly if you’re taking all the appliances, some light fittings and if the property was built after 1987, there’ll be much more deductions available because if you’re removing the kitchen cupboards, there’ll be some residual values left on those items as well. We’ve had some massive claims in this regard because the ATO has said that things like kitchen cupboards are going to last for 40 years and shelves are going to last for 40 years.
Now it’s not that uncommon for a property investor to renovate a property that’s 20 years old today, right? But the ATO has said it’s going to last for 40 years. So, if you remove a kitchen cupboard that said 20 years old and had a $10,000 initial cost if it’s 20 years old, there’s still 50% left of that to go. You can get a $5,000 immediate tax deduction when you remove that kitchen. Then you’ve got the oven, the dishwasher, the microwave, the blah, blah, blah. That could add up to a $15,000 tax deduction that a lot of people aren’t claiming because they don’t know. Now the only caveat here, is it has to be income-producing prior to you removing that. All right? But it’s not that uncommon that a lot of people buy a property where there’s a tenant in place for one or two months after they settle or even if you held it for one year and you do this. It’s worth considering if you’re going to renovate a property and it has been income-producing prior to, to get a quantity surveyor out before you rip stuff out so we can put some values on it and then when you renovate it, all the new stuff that you put in starts it again.
It seems that the trend of properties doubling in price has followed Hyde even from his childhood home; in Sydney’s inner west.
I grew up in a place called Concord, Sydney’s inner west. When I grew up it was definitely Sydney’s west. But now there are million-dollar homes there. The median price I think is now $1.5 million or something like that. It’s a changing area from when I grew up which — yeah, that’s probably right. I used to be called a big Westie when I was growing up there but now it’s not the case anymore. Roads are changing. It used to take a lot longer to get in the city. The other day I was on RP Data and I was looking up what the property price of what would have happened if my father had kept those properties. That might be… but you know that’s life. It’s one thing not to do but I think sometimes look upon RP Data what could’ve been but
anyway… So, middle- or working-class suburb but obviously not so much anymore. t’s definitely a bit more upper market these days, but yeah, now it’s a
good area, parks, the usual stuff.
From the inner west, he went and discovered the rest of the world.
When I was about nineteen, I moved to Leichhardt with my mother then I went travelling for three years from about when I was 20 to 23 and then I came back and finished my degree because I worked out — I was doing a degree in construction economics at UTS. So, I did it for the first two years and that was when interest rates were up at — if your listeners are old enough, rates were at seven or eight per cent for residential home loans and so for developers — now they’re up at 21% and so the property market came to a halt. So, I went on, I’m going overseas for three years, backpacked, did a lot of work for minimum wage and realized I don’t want to work for minimum wage for the rest of my life, Tyrone, so I came back and finished my degree and I don’t regret it.
That’s where I thought, ripe old age of 24, 25, I was too old to get in the property market. At that point, there were a couple of ads around the university technology auditorium that said, “Cadet wanted for Washington Brown.” I thought that was a big company. The man at that point, Tony Brown, the Brown in Washington Brown. I arrived and funnily enough, I was the only one that went to the interview because I went around and stole all the ads that were at university. Because I thought I was too old, so I thought I have to get into this industry and I stole them all so I was the only one that turned up. I got the job but I worked voluntarily for a year at Washington Brown, just me and Tony Brown, and now I own the company so that’s a nice story.
A disturbing trend among the influences for property investors is watching their families lose it all due to one wrong step. Unfortunately, Hyde’s story is no different.
I’ve always been interested in property since I was a boy. I was always that guy was walking past and hoarding and peeking through those holes and just fascinated with construction. But in terms of my parents’ influence, the influence of property from my father was really that he lost all his money in property, well, in a property scheme I guess, a company called Estate Mortgage which was — I don’t know if you’re old enough to remember but there was a company back around those late ‘80s. My father was a lecturer at… and he had all his super in — back I think it was about $250,000 which was a lot of money back then. He put all his eggs in one basket when he retired and unfortunately, he chose the wrong basket. It was a basket called Estate Mortgage which was a basket in company in effect.
But they’re advertising that they’re a bank and they would have ads on TV
saying we guarantee you two or three per cent more than the Commonwealth banks of the world but in reality, they weren’t spending money on houses. They were putting it into development sites and my father not understanding what was going on in the property markets, they went belly up and it killed him basically. Well, I think it did anyway worrying about all of that. He worked all his life as a debt lecturer — still makes me sad — and then put all the money into one company and… So, I vowed to learn a bit about property after that, to be honest. That’s my influence from my father who’s passed away. That’s the influence I’ve got in property. You still see the same things occurring. Moms and dads getting ripped off in that regard, it still irks me a bit but it will happen again, it will happen again and again.
However there is always a silver lining to these stories and for Hyde, it’s the ability to move on and learn from his father’s unfortunate mistake.
And sometimes I think that those products — I guess some people would say well, your father could’ve learned that but I would look at some of those products and say I would challenge the smartest guys to fully understand the prospectuses that come out with those — those PDS’s that come out with those. I’m a pretty sophisticated investor and I’d still sometimes go, hmm, I’d like a little bit more information in that regard. And I guess that’s why simple bricks and mortar is sometimes good rather than the complicated PDS’s that come out for mom and dad and there is a line of advisers who might be getting a bit of your clip on the way through.
A lucky charm for doubling the value of properties, Hyde’s luck seems to have been with him even from his very first investment property.
I started with nothing so I guess my first deal I had to work out how I was going to get involved in it. Actually, to this day, it’s probably one of the best deals I ever did. Because I had no money I was actually — as I said we do a lot of work for property investors where we are giving the depreciation reports but the other side of the business is where we act on behalf of the bank as the project auditor. That way we’re controlling the funds on the bank. So, we go out, we estimate what the costs are, the banks want an estimate at the beginning. The banks aren’t, surprisingly going to believe every developer so they want an independent construction costs which we might provide. We might say it’s worth $10 million to build this property and then every month we go out and we give progress claims. We might say they’ve poured all the subs here, done the brickwork here, there are a million dollars that’s spent and the bank then releases that progressively to the developer.
Anyway, it was on one of these jobs that I was — it was one of my first jobs, I was about 25, and I was doing a QS project auditing on a job, pretty big job, at… and it was on that, this is where my first property deal came along. I was working with the developer and I said these look great. It was a conversion of his… so I convinced me and one of my friends to put down $1,000 as a holding deposit on this job and we paid $259,000 for it between the two of us but on $1,000 down each. Halfway through the job, the builder went broke so I then with the developer had to manage the situation out. That took about three years.
In that time, the property kept going up and up and for the other people that had done the same type of thing, the developer went back to them. He invoked his sunset clauses and he said, look, it’s not going to be done. I can either rescind your contracts — this is actually a fair developer. What he did was he said I can either rescind your contracts as I’m entitled to do or we can share half the profit of what’s gone up in that point. Very fair, a lot of developers wouldn’t do that but I thought that was fair but with me, he didn’t ever do that because I was controlling the funds with him so he’d let me ride on that. So anyway, I bought it for $259,000 with $1,000 down and that was in 1996. In 2005 we sold it for $490,000. So, my $2,000 turned into something like $231,000 in less than ten years and I did the math on that. It worked out to about a 70% compounding return over a nine-year period which wasn’t bad.
He does understand that other property investor may not have his luck or sense of the market – and without those, investments can go very wrong – as in the case of Henry Kaye.
He went down but he was doing a similar thing, buying deposit bonds and into the property but it was the same time of return. He was telling people to go and buy property on a deposit bond. You don’t need any money whatsoever, use a credit card, buy the $1,000 deposit bond, then go and buy the property. That was when the property market was going up. I was lucky with timing but it can go awfully wrong. I wouldn’t encourage anyone just to — you have to pick the market very well in order to get those returns obviously.
Learning from Kaye’s mistake, Hyde now advises that timing is the key to any successful property investment.
Well, I’d actually say the agent’s location, location, location. I believe that timing, timing, timing is far more important than location, location, location. Timing, timing, timing is better.
Continuing on with his first fruitful property investment, he moved from one astounding success to another.
Well, I kept going into the property. I kept trading up. I sort of wish I didn’t sell that one, but you know what, if I had a dollar for every property I didn’t sell. I bought a few at a time but that one I could see recently it sold for $900,000 so I sold that one in 2005 and I can see it just sold in 2015 for $900,000 so I. But anyway Told you too much sometimes. So, I kept going in property and I bought more properties, some with partners. That’s one thing I did do early on. The first four properties I think I bought were all with other people. I don’t highly advise that and really it was me running it. It was me running that show and people made good money but you know what? You’ve helped me get into properties as well instead of having so much debt. You know, half a million here, you only have $130,000, etc. But it’s not a bad way if you can structure it or you have trustworthy — some of them with friends, some with family. They all worked out. I guess it all worked out because we all made money. I never got to a situation where I had to divvy up the losses. That would have been an interesting scenario so I guess it definitely works well when you make money.
So, yeah, I kept buying into property. Then I bought a home, then I bought offices. That’s been another great investment I’ve made here. I’m sitting in my office in Pitt Street which is about — you’ve been here — it’s about 300 square meters in Pitt Street. I bought it six years ago for a million bucks right after the GSE, or right in the middle of the GSE. I just had it valued the other day for $2 million so that’s doubled plus I’ve had a 15% per annum, so $150,000 rent per annum the last six years so virtually tripled in six years. And that worked with the I started, I’ve put it into a unit trust, so I had some other investors buy out the 30% of the unit trust. I had 70% in my super fund. So, my super fund has been collecting a lot of rent from Washington Brown via a unit trust so that’s been a great investment because obviously the income in property is only taxed at 15%, which is pretty cool. And I’ll do continue to do that in my superfund because it’s actually a good investment. That’s another good one.
With such great successes in commercial property, what made him try his luck at residential property?
I continued to look at it, commercial property. For starters, my lease was up at my old office in Crows Nest and the lease was up where we were in Crows Nest and I at that point also became 100% owner of Washington Brown so I wanted to move closer to where I lived so the city was a good point — because Crows Nest is a little bit of a funny area for transportation. I live in Bondi so I wanted to be closer to the city.
The timing was good. I’m a big believer in doing the opposite of what other people are doing, so at that point in time, I was buying commercial property. Yeah, I’m a big believer in doing the opposite of what everyone else is doing because I think you can make more money doing that than following the herd. I looked around and saw this opportunity. It looked like a dog’s breakfast when I bought it but in commercial fit-out, it doesn’t take that time. A grand get you, say, a bit of a beautiful space. It’s pretty amazing what they do for 200 grand and so I moved in. It was timing, it was good timing.
At the moment, I think Sydney commercial property is a pretty interesting space to be in Sydney commercial property because what’s happened, is you’ve got a lot of the buildings are being knocked down to make way for the infrastructure. You’ve got Barangaroo, that’s happening so there are a lot of offices going up there and a lot of the commercial buildings here are being replaced by residential. Not everyone can afford Barangaroo. Not everyone can afford a new office as a tenant. Not everyone’s a lawyer and can afford a $5 million fit-out or your beautiful space. So, this secondhand stock of the B-grade kind of stock in the city, it’s becoming rare as hens’ teeth and it’s going gangbusters.
His passion for property is based on being able to add value and its simplicity, among other reasons.
Look, there are seven reasons why I really like property. First one, you can add value, you know? You can improve a property. You can actually get your hands dirty. You can’t do that with shares. You can buy as many Commonwealth Bank shares as you like but it’s really hard for you to personally improve the value of your shares. So, that’s the reason number one why I like it because you can personally add value to it. Number two, there’s a limited supply of property, Tyrone. Unlike shares, you can just issue scripts and create more shareholders. You can’t really, simply put more apartments in Bondi very simply for instance. So, there is always going to be a limited supply of land in certain areas. I wouldn’t say that about land everywhere but in certain areas, there’s a limited supply.
Number three, I like property because it’s capital gains-free on your home. You don’t get that with shares. There’s no such thing as CGT exemption in relation to shares but on your personal home, there is, of course. Four, it’s the KISS principle. Keep it simple stupid. For me, if I buy property for X, I can rent it for Y. Well, I know what I can get for the depreciation. It’s a pretty simple mathematical equation. So, as I said before, many assets that they issue for buying into shares or the property trusts, they’re pretty complicated and I think I’m a pretty sophisticated investor, and I feel sorry for some of the people reading it and having the full understanding of that product they’re about to buy. Whereas, property is pretty simple.
Number six, I don’t want to be reminded every day. The stock market, every five minutes you can look and see what your shares are doing. It’s nice to have a property and not have to worry about it every minute. They go, oh my god, it’s gone up point one percent today, it’s gone down point two percent. Blah, blah, blah. Number six, margin calls. I don’t know if you’ve ever been margin called but it’s not the nicest experience in the world and so with property, provided you pay off your loan, you very rarely will ever get margin called, if ever. But with shares, your property, even if you’re paying the interest off, if your shares go below a certain point, they’ll perhaps say you need to put in five per cent or sell stock and that can have a contagion effect and even though the stock might be a good stock, if everyone’s doing it, then it would go down just because of supply and demand.
And number seven — I don’t know if I go the order right — but you can be the master of your domain. You can control the property whereas I could be the CEO of my property, whereas it’s very hard to run and I can make decisions on whether I need to renovate on my property. I can make decisions where there’s repair needed to be made. It’s very hard to do that with shares. You’re relying upon other people. I can be the master of my domain. That’s why I like property as opposed to shares.
This passion for property investing directly relates to Hyde’s animosity towards shares. This dislike for shares came after he learnt the hard way that property is the much safer option.
Look, it was in relation to shares. I still have some shares but I got greedy in relation to — I think I wanted to be the richest person in the grave which is stupid. There wasn’t the point. I had a lot of borrowings. I lost the GDP of a small African nation during the GFC.
the shares kept going down and going down. My properties were really going well, business was going great but the shares were going down and down. I lost a lot of money. Luckily, one thing that was good that I never did was borrow one against the other. So, my properties were all stand-alone, my business was all stand-alone, the shares were all stand alone. Now I’d advise anyone to always do that so you’re not relying upon the other especially in terms of banking so that if one does fail, you’ve still got the other. I would certainly advise that.
But it lost me a lot of money and at that point, that was with borrowings and at that point, I vowed I’d never borrow against shares again which I haven’t to this day. I still have some shares but in my super fund, none borrowed, and it’s a lot easier, it’s a lot less stressful. I couldn’t go on holidays without every five minutes — you wake up, first thing you do, you look at the NASDAQ. What’s going on? And it’s so nice to be in a position where I don’t have to do that anymore and I don’t care what the NASDAQ does. Yeah, let them ride and that’s it. I will have all these properties which I do and I focus more on my business since I’ve done that rather than sitting looking at CommSec changing every two seconds. I don’t care anymore about that and it’s such a nice thing to do. I’m really glad that occurred, to go through that. I’ve always done really well in property and that’s what I really, really know.
What was I thinking, getting into shares? I’m a property man! What was I thinking?
I’m sure the JSE, where I lost, basically a lot of money on the stock market, I had a lot of property, my business, of course, was successful, and I had huge debt in margin lending on my shares. And when the JSE hit, probably pretty flat, and I thought my business would be hit a little more than it was but it wasn’t. People still bought properties regardless of when the JSE came because there was some bargains there, but my shares tumbled down and I lost it all. As I say, I left the GDP of a small African nation. I thought to myself, what am I doing borrowing money to invest in shares, something that I think I know a lot about, but in reality, I don’t know as much as I think I do, and here I am property expert. I should just stick to properties. So, that’s pretty much what I’ve done for a while now. I do have some money in the share market. But that’s only in a superfund which has no borrowings against it. I guess my hard moment was, Tyron, you’re a property guy, stick to property, stick to what you know. That’s what I do today.
The temptation to try new things and explore new avenues to create wealth is powerful. But as he learnt, it is always better to stick to what you know.
I’ve tried many different businesses, and most have been values, to be honest. I still do have a craft, but at the end of the day, my core niching has been working on that. So, I’m thinking, why don’t you just focus on that? But I’ve created other businesses, different website corners and all these other things, I’ve gone into financing all these things and at the end of the day I said, was your values worth that? And that’s why I’m in for the rest of my life.
With so many diverse property markets in Australia, it’s easy to get excited as a property investor. With his years of experience in doubling or even tripling the values of his properties, Hyde is excited about exploring these new Australian investment opportunities.
What am I excited about? You know, my daughter asked me the other day, she said to me, “Daddy, are we rich?” and I went, “In this country if you’re born in Australia, you’re rich. You know, we’re lucky to be born in this country.” To me, we’re all rich here, but what it makes so great are opportunities, from that being born in Australia comes opportunities.
And I think there are always opportunities. I remember there was an ANP ad that said, “Somewhere in the world right now, there’s a stock market boom.” That was their ad. That was promoting buying into a shared trust, well what? I actually got a bit further, I said, “Well, somewhere in Australia right now is a property boom or a boom about to occur. Australia’s such a big place, such a diverse market.
Look at the property market in Sydney compared to Perth, right? So, I’m more interested in buying Perth at the moment because I think well, you know what? It’s much closer to [inaudible 0:35:22], but Sydney might have a little bit more legs, but on the risk-reward ratio, I could buy four properties in Perth compared to the one average property in Blacktown, now, a million bucks, you know? Or I could buy four in Perth [inaudible 0:35:41] and it’d spread my risk a bit. I would look at things like Townsville, it could be a massive [inaudible 0:35:50] but again, it’s bottomed out. Again, the option of people are buying there but to me, that’s an opportunity. You know? You know there’s an opportunity.
Yesterday, for instance, I was looking up—you know, Tesla’s got these new Superchargers, I put my name down for one of these new $300,000 Teslas coming to the market in a year’s time and I get their email remaster that says they—you know, they’ve got this new Tesla car, they’ve got a motor that can only go 300 km or 350 km. So, in order for you to drive from Sydney to Melbourne, it’s not possible. But what they’re doing is, every 200 km they’re doing a supercharging station. So, you stop at two hours and you’ve got a half an hour break where you can fully charge your car, then you go the next two hours. So, I’m thinking to myself well, I wouldn’t do that over a whole day period and they’ve got the map of where the supercharge stations are. So, I think to myself well, I might do three of those so where does that end me up? I ended up somewhere I think it was somewhere like Wodonga. Well, let’s buy a hotel in Wodonga because I think people are going to stop and break there. Right?
His advice for any property investor is to take a bit of a risk – and do the opposite of everyone else.
That’s what you’ve got to do to make it. That to me is how you make money. You don’t make money by just boring buying—don’t get me wrong, it’s been great for the time, but if you want to make real money you’ve got to think outside the box. That’s what you’ve got to do, you’ve got to think outside the box.
Why Tyron Hyde is Investing In Property Around McDonalds
Doing anything in life, the first step is always the hardest. This rings true especially for property investing, as Hyde reveals.
My personal trainer used to say to me it’s the starting that stops you, right? That’s a good way to look at life and I think so. Just getting up in the morning, once you start that run, you’re there, aren’t you? But it’s the same with property values. So many people procrastinate about making that initial step into the market that by the time they’ve done it, then they look back, oh, I wish I did it ten years ago. Oh, it’s gone up too much but they should’ve just done it at that point in time. I think it’s the same with stop you is a great mentality to have. For me personally, nothing really ever stopped me.
I just had a go but the one thing that could’ve stopped me was money, not having any money was definitely a thing that stopped me but there are ways to be creative whether you’re investing with friends, whether you put the small deposit down or you buy it for plan and hope that things go right. So, there are ways of being in the market. You buy into this is probably trust now. So, I don’t think people have to say — the traditional way of buying property if you’re in Sydney you’d have to have your ten per cent deposit, your stamp duty, your legs, etc. If you wanted just to borrow that ninety per cent on your medium home in Sydney these days, you’d have to have $150,000 cash in the bank, right?
That’s a big barrier to entry and so maybe it is a case of — then you’ve got all that debt so maybe it is a case of you know what? Why don’t you buy one in Perth when in the market’s down? Why don’t you buy one Adelaide? I just bought a property in Cairns for $150,000. It’s running for $270 a week. There are other ways and so my staff in my office, they say to me, oh, I can’t afford this, mate. I said well, don’t, rent. To me at the moment the renters are winning, not the property owners to buy right now. Why don’t you buy one in each state? Cover your risks, pay less land tax and actually your bases are covered. You’re still in the market.
He recognises that the traditional mindset of has a family, then own a home is not always the smartest option.
It’s a mindset and so people have this oh, I got to own my own house. No, you don’t. No, you don’t. You know what? What you can actually do also and if you’re worried about the attitude of oh, if I leave in a year’s time, I get settled and I’ve got to leave. Well, you can be creative with your rental lease as well because for me for instance, I have some leases where I’ve got the tenant on a five-year lease on a residential property, right? Gives them security, gives me security, and why not? You can do that with a residential as well as you can with commercial. So, that’s something to think about.
So what sort of mindset did Hyde need to take his risks and come out big with his property investments?
I think you have to start with the mindset. Because I was involved in some many property developments in terms of being the QS on the project, I was constantly meeting clever guys who were putting together deals, etc. so I just wanted a piece of that action. So, I was hungry, pretty hungry in that regard but just back to the starting that stops your attitude, do something. Sometimes people bag out — this is an interesting thing. Sometimes people bag out a property, what they call sprukits right? It’s not to some degree and in a lot of cases, they are correct however I’d also argue that sometimes these spruikers are getting paid ten per cent, right? But in some particular deals, that ten per cent that the person had paid them, it’s probably been sometimes the best thing they ever did because that spruikers be fair more committed at making that person actually do something and now that that money — they sat on their hands and did nothing, it now might be their nest egg.
So, sometimes it takes a little bit of committing to reducing which is understandable. Okay, probably can be a big risk. You can borrow lots of money against that asset, you can lose lots of money. Probably don’t think you can always make money on the property. In fact, I think I’ve read some studies where people lose more often than they win in property but it’s sometimes just doing is what people have to do. They just have to do.
Hyde attributes most of his success to the influences of his mentors; especially his very first one, Tony Brown of Washington Brown, the company that Hyde now owns.
Well, I had a lot of mentors comes and go via things. Well, my first mentor was really the Brown in Washington Brown, my partner. He was an incredibly knowledgeable property guy. He lived and breathed property and so we’d be having meetings after meetings, developers where from an early age, I was just sitting there like a puppy dog at the end of the boardroom table, taking notes, listening until midnight. I listened to every word that was spoken about the property so I learned an incredible lot about property transactions and developing and blah, blah, blah. So, he was one mentor.
Another mentor was Harry Triguboff, the owner of Meriton. He’s been a client. This is his 20th year as a client of mine. He pretty much took me under his wings. He chose me when I starting out I guess in a major national firm and I’ve been doing his work ever since and so
I’ve had hundreds of meetings with Harry. It’s always an interesting time, meeting with Harry. I’ve learned a lot from him. He’s always thinking outside the box, I can tell you that much. He might build a lot of boxes but he’s always thinking outside them. Yeah, they’ve been my main two I would say. In terms of business, the blueprint has been a pretty good, Dale Beaumont as you know. There’s this blueprint, that’s from a business side of you but from the property, it’s been Harry and my best business partner being pretty crucial in terms of my property journey.
With these powerhouse mentors, he has received some spectacular advice over the years. And the best piece of advice he was ever given was about McDonalds!
Well, one of them was – this is more from a business point of view – but you never make real money working for someone else. You make good money but you never make real money working for someone else. The other was that McDonald’s is a property development company. They just flip burgers on the side and that made me think because that’s where they’re making their real money, the land. They just build burgers on this side. So, that made me think about property development and why I wanted to get into the property so that was an interesting analogy. Yeah, they’re probably two of the best bits of advice I’ve received.
For anyone getting into property investing, Hyde’s advice is simply to follow McDonalds.
Well, think about the sites they have. They generally own fantastic sites, you know?
They do a lot of research, etc. That was one of strategy was someone used to follow where Maccas were going. Just back on to where they’re going. Buy something around there because they’ve done the numbers on the populations and all this kind of stuff before going there, infrastructure going there and just back onto them.
If you don’t feel like following the golden arches all across Australia, his alternative is to follow Harry Triguboff.
If you followed Harry Triguboff at Meriton, wherever he was doing his next — when you first found out where he bought a block of land, if you went and bought in that area, you would be quids in by now. Same with Lane Walker of Walker Corporation. These guys have — they’re just smart. They’re don’t make mistakes these guys and when they go and buy a massive area that you might think is a bit of a wasteland now, it’s not going to be by the time they’re finished.
Take for instance at the moment, Pagewood in Eastern suburbs of Sydney, right? Harry’s got something like 5,000 units being built there. I guarantee you by the time he’s finished, light rail will be going there and it’ll be a booming area. It’s not cheap but compared to the rest of the suburbs of Sydney, it’s relatively affordable. But by the time that he’s finished there in ten years’ time because he’s got 5,000 units going there, the light rail will be going there and it’ll be a good area to buy.
For Hyde the first step to invest in property is education – whether it be tertiary, online or the school of hard knocks, knowing the ins and outs of property investing is essential.
Well, first thing you’ve got to educate yourself. I’ve got a degree in construction economics so I love property and I’ve learned property but you know what? Sometimes educating yourself at university and educating yourself in real life is very different. I read a lot. I love property magazines. I write for them and to be honest sometimes the best form of education actually is living it and doing it. You can read about how to buy property all of your life, until you’ve done it and gone through a settlement and done all those things, it doesn’t all really make a lot of sense until you do that.
So, education would have to be the first thing, asking people, asking questions. If I was buy in an area that I didn’t know of, I’d go and — for instance at the moment, I’m interested in Townsville, right? So, I’m going to fly out to Townsville, walk around outside and ask every agent, what do you think of this area, why would you go there, just door knock, old fashioned way. But tell you it’s a good way because you get the real answers so I met a couple of agents there. I don’t love buying properties site unseen especially in an area that I don’t know so I go there and learn. Asking questions, asking questions of mentors, research.
In terms of buying location, again I like to buy where people aren’t buying. So, there’s a thing called the Herron Todd White Property Clock which tells you what they think — they’ve got hundreds of valuers and they interview a hundred of those and they say okay, what do you think of the Sydney market? What do you think of the Townsville market? What do you think of Cairns, etc, etc.? That tells you on the Property Clock where they are at this point in the cycle. So, they will say that Townsville is at the bottom. Sydney’s approaching the top, Brisbane, and you can look at that and say well, okay, where do I want to buy in that part of the cycle. I will then look hot-spotting. If I’ve picked Townsville, I’ll say well, what does his think of Townsville and he’ll write a report on if he agrees with it. Then I’ll go to SQM Research so then I can overlay all those experts because I’m the best expert in picking a market but I’ll overlay three of four data centres and then go okay, they’ve all kind of said this area. Then I’ll go and do my own research out there before I go and buy something. That’s what I think people should do rather than just rely on other people, do a bit of your own research in that regard and I think that’s a pretty good tip. So, once I’ve done that then I go and actually look at properties in that area. I focus on one area and then I drill into that area.
With an intense love for property and education, it goes without saying that the personal habit that contributes most to Hyde’s success is reading.
I read constantly whether it be Entrepreneurial Magazine or property magazines even though sadly we’re down to one property investment magazine which luckily it’s the one I write in, your Investment Property magazine but API magazine is gone, Smart Property Investment magazine is gone so those resources are gone for property investors but there’s so much online now, isn’t there?
So, I guess that’s the way it’s going but definitely reading, reading, reading is the number one tip that I could give people. Yeah, definitely. I read all the time. In terms of property, I love it.
Once the research and reading is done, he recommends finding the best format of property investing for yourself, whether it be through an entity, on your own or with a superfund.
Well, as I said, you’ve got to educate yourself first would be the number one strategy whether — look, I’m not the person to come up with this is a financial plan for you but I can talk from an overview point of view. I think if someone was starting out in the market, they would have to firstly decide what vehicle they want to buy and that’s where you got to get financial advice. Is a property best to be in your own personal name, trust structure, or a superfund, right? That would depend upon your own personal circumstances. That’s the number one piece of advice I should give. Don’t buy a property in an entity and then try and change it which I’ve done in the past. It doesn’t work. You should be seeking financial advice before you buy property because people have different needs. Some might want security or safety. The tax structure might be more beneficial in one regard to the next. So, the first thing people should do before they even start looking at properties, look at what entity they should buy it in.
Then they should research how to buy the property and they should know how — I would also tell people is to understand the financial implications of buying a property. So few people know what happens when they sell a property and if they can work out what the capital gains tax implications are when they sell a property, then if you ask me they are ready to buy a property. Not many people know that. They just think okay, so I spent a lot of time in the papers. Someone writes wow, they bought a property for $450,000 off the plan and they sold it for $500,000 and they just made $50,000 profit. I read that story and said they just lost money. They got $450,000, right? They’ve got stamp duty of $25,000, they then had an agent’s fee of $3,000. If they value hold it for six months and all that they got, they got legal, they’ve got marketing costs.
If there was any profit left whatsoever which is pretty doubtful at that rate, then they’ve got to pay at least 50% tax on that because they value hold it for less than a year. So, they’ve got to understand that analogy before they can invest in property if you ask me. So, once they’ve done that, once they understand the mathematics of it, then they’re ready to go. Then they’re ready to go and that’s when they’ve got to come and research the market as I said before, analyzing between the four different experts out there telling you where to buy the hot spots and the SQMs and the others, Herron Todd White, etc. telling you where to buy and that’s when they should start drilling down into the areas that they should buy.
Never shy to promote his own stellar work, the first resource he suggests to go to is his book, ‘Claim It’.
Well, there’s a great book out there called “Claim It!”. I wrote a book called “Claim It!” but we’ll come to — that gives a bit of understanding about the property tax implications of the market, gives a little bit of background story about some of the things I’ve talked about today. The other book I really like in terms of property was “Rich Dad, Poor Dad,” talked about cash flow property. I think that’s a good basis for someone who’s getting into the property market to understand that sometimes buying a cash flow positive property, it can be a good thing as well. It’s a really well-written book and I held off reading that for years. I thought oh, I don’t know. There was some negativity around the market and what he does whatever but when you actually read the book itself, it’s a really good read. People should start there.
If you have any questions for Hyde or want to know more about his strategy for property investing, you can connect with him via email.
So if you’ve got this far, you can email me: [email protected] with any questions regarding this and also look, I’ve got a fair few books here spare. I’m sitting here that I’ve brought a lot of so if you’ve got this far in the interview and you email me and you just tell me your name, your phone number, I’ll send you a book, a signed book, Tyrone. How’s that for a deal? I’ll send them a signed book. I don’t know whether a signature adds value or diminishes value but I’ll send them a signed book if they’ve got this far in the second part of the interview. So, email me at [email protected] with your details, your address, postal address, your phone number and I will send you a signed copy of my book “Claim It!”.
This episode was produced by Andrew Faleafaga with narrations and interviews conducted by Tyrone Shum.