Daniel Walsh is a property buyer’s agent and founder of Your Property Your Wealth. He has years and years of experience in helping his clients on how to successfully buy a house and properties and build and estimate value of property portfolios in the smartest way possible. We are lucky enough to have him share some of his expert advice and knowledge with us on how we can improve our property investing.
Join us as we dive into discussing where to buy investment property based on the interstate market cycles. Daniel will be sharing with us the four fundamental principles he lives by when building a successful ‘recession-proof’ property portfolio, as well as sharing his strategies on how to balance your portfolio to gain wealth!
'So, if we stick to these four principles and we can break those principles down, then we know that we can build a really fundamentally strong property portfolio, which is recession-proof.'
Walsh and I dive straight in, and he describes the strategy he’s come up with after years of investing.
Daniel Walsh: I've been investing now over a decade, so it's been quite a while. And I've been able to formulate my strategy over that decade and work out really how to build a strategy that is recession-proof. Because, with our strategy and what we're looking to do, we're looking to build a long-term portfolio.
So, because we're looking to build a long-term portfolio, we know that there's always going to be points in the economy where we are going to see booms, and we're going to see maybe, you know, some vacancies and more of a robust sort of scenario. And we know that we're going to have to go through these periods throughout that 15–20 years. So, what we really want to do is build a strategy around the portfolio that we're looking to build. We want to make sure that it’s recession-proof.
And I guess the four principles that I've come up with and that I live by and stick by with building, you know, not only my own property portfolio, but my client's property portfolios as well, is No. 1: We like to buy in multiple affordable properties. And No. 2: We like to buy in fundamentally strong areas. No. 3: We like to buy a balanced portfolio or build a balanced portfolio. And No. 4: We like to have cash buffers.
So, if we stick to these four principles and we can break those principles down, then we know that we can build a really fundamentally strong property portfolio, which is recession-proof.
Buying Multiple Affordable Properties
Walsh dives into the first principle, breaking down what it means and why it works.
Daniel Walsh: Why I started that strategy of buying more multiple affordable properties was a few reasons.
No. 1 was I could buy more affordable properties rather than just buying one or two expensive properties. So, what happens is generally someone will go there and they just purchase one or two properties. And let's say they were buying them in Sydney, and they paid a million dollars for those properties. What happens is: Because they are at a higher end, they're going to have probably a property which is negatively geared. It's going to really drain their cash flows. So, you know, you can only buy so many of those properties before you're going to get stopped by the banks, but you're also going to be at risk if there are higher vacancies.
Let's say that you had one of those vacant and that property is meant to be renting for $1,000 a week or $800 a week, then we're going to be losing $800–$1,000 a week, essentially going into your buffers. So, we know that when buying a high-end property, there's much more risk associated with holding those properties long term. Plus, there's not much of a strategy around that other than just hoping for that property to grow. And if, let's say that you bought one property for a million dollars, you pretty much just put all your eggs in one basket.
So, with buying more affordable properties and multiple affordable properties, we can actually then diversify these properties into different locations. However, what I've realized over the years is, with affordable properties you can have more growth as long as you pick the right location, which comes back to the data or in doing the research. But if you, let's say, bought a property for $300,000–$400,000, it’s more of a likelihood that that $400,000 property will go to $800,000. And why it will go to $800,000 is because even at $800,000, it's probably considered more affordable than a property going from $1 million to $2 million.
So, we need to look at it from a wage perspective. If you have a house, a property worth a million dollars, it's got to go to $2 million. Wages need to increase significantly in that area for that to be possible. However, if you stick to the affordable property range—now, let's say, it's $400,000—we can get those properties from, you know, $300,000 to $600,000, or $400,000 to $800,000. And the majority of the population can still afford those properties.
Tyrone Shum: Yeah, I really, really resonate with that. And I guess what I wanted to maybe have this discussion around is the different types of States. So we know there's different States that have different pricings.
In this current market, as we're talking about on this podcast, with Sydney and Melbourne, the average property price is around about that million mark. For a house in Brisbane and all the other states or Queensland should I say, and the other States, it's a lot lower. What are you seeing to be the sort of affordable range in, say for example, Queensland, and why has that been a really attractive place for investors to go up there?
Daniel Walsh: Yeah, so I mean, let's say we look at Brisbane, for example. You're probably looking at something for around $400,000, maybe to the $450,000 or $500,000 mark. That's going to get you a really good property with a good rental return as well.
We see a lot of investors going North because it's more affordable. We also see that, you know, not only that it's more affordable—you're going to get a better rental return than say something in Sydney, where you're paying $800,000 to a million dollars. However, you're probably getting a 3% rental return, whereas you can get a 5% rental return in places like Brisbane.
Tyrone Shum: What I was going to ask as well, and I think a lot of questions will revolve around this, but why is it that, say for example, in Queensland, those properties are almost half the price of say in Sydney?
And I guess historically it's, when I look back at the figures, even going back to when Jan Sommers—I had her on the podcast a while ago—she says basically Queensland has always been 50%, almost half of what, say Sydney and Melbourne prices have been. You know, even if you look back to when it was worth about a hundred thousand, it's property price was worth $200,000 in Sydney going back even 20 years ago. And it hasn't changed much in that sense. And that means that historically, we can follow that principle.
But why do you think that is the case, even in today's environment? Because you know, we're not that much different. We're working remotely—you know, I guess, demand and supply. I'm just trying to understand. Why do you think that's the case?
Daniel Walsh: Yeah, I mean, when it comes to Sydney, and it comes to Brisbane and then Melbourne, each property market there, each State, has its own cycle. So, everything goes through cycles. So, we've seen that Sydney has gone through a cycle and that's come down to obviously job growth. It's come down to migration, immigration. It's come down to your population growth—so, supply and demand. Obviously, there was a lot more demand than there was supply, and therefore, we saw that the prices would increase. We saw the same with Melbourne. But each State will go through a cycle at a different time.
Typically, let's say what happens is, Sydney and Melbourne generally go through a cycle first. And then, all of a sudden, it gets too expensive for people to buy in Sydney or Melbourne, and/or, ...what we see is, you know, people in Sydney, people in Melbourne: They actually have a lot of equity in their properties where they can then start to invest in Brisbane. And we start to see interstate migrating from Sydney and Melbourne to Brisbane because it's more affordable. It is a case where it's probably going to be more affordable always. And that just comes down to I guess the supply and demand side of things, the population and also, economically, what's actually happening with jobs as well.
So, because we're seeing bigger markets in Melbourne, we're seeing more population, more jobs growth in Melbourne and Sydney. They are the driving force for property growth as well.
Tyrone Shum: Yeah, it's really fascinating. And I guess if you track on the time that we've been talking about this —‘cause I do remember going back even three, four years ago, the property prices haven't really moved that much in Queensland. I mean what's been your opinion on those?
Because, that's why I think a lot of people are still going up to Queensland to buy. And you ask these questions. When will it actually even get to the prices of, say, Sydney? I know there are some locations by the water, you know, million dollar properties and stuff. But even then, when you go back into sort of the other areas like down South and so forth, it was still around that $300,000 [or] $400,000 mark.
Daniel Walsh: Yeah. Typically, we normally see Brisbane or Queensland start to grow off the back of unaffordability from Melbourne and Sydney. So, every time they go through a cycle and become unaffordable, that's when other locations like Brisbane become the spotlight because they are more affordable from an investment perspective. They are more affordable [for] people downsizing. They're more affordable [for] even first-home buyers. So, we're seeing that now. It's in the right time of the cycle.
If we have a look at say, Sydney market—Sydney market from 2004 to 2012 was relatively flat. Now in that same period of time, Brisbane actually doubled in value over that period of time. Now just before that, Sydney from 2000 to 2004 actually had quite a big boom and it went sort of flat for, you know, all the way till 2012. And that's just because we needed wages to grow in Sydney before we could see the next cycle happen.
Now we've sort of seen that play out, where we've seen Sydney doubling in value between 2012 and 2018. And again it was, you know, hitting a wall almost compared to wages where prices couldn't continue to grow because people couldn't afford to pay more for that property. So, now what we're seeing is Brisbane's more affordable. It hasn't actually grown from 2009 to 2019 if you look at it from that whole decade.
Pretty much what's happened is, we've seen from 2000 to 2009 a really good price increase, and it doubled in value. Then we saw it sort of correct for a few years, and now we're starting to see that go back up. So, if you look at the data in Brisbane over the last sort of four years, it's gone up probably about 30% to 35% in some of the areas that we've looked at and where we're currently buying.
But what makes it a really good opportunity now is: You can buy into those properties much more affordably. What we've seen is over that period, over this last decade, wages have increased. Now we've also seen that interest rates have dropped, you know, from 6%, 7% all the way down to now, you know, you can get a 2%, 2.5% interest rate. So, now what it means is: It's much more affordable now in Brisbane than it ever has been in the last decade.
So, what we're going to see now is the next 10 years are going to be a lot better than the last 10 years due to the affordability. Obviously, we went through some changes with, obviously, mining and jobs in Brisbane. But we’re now seeing a lot more infrastructure projects come into that market, construction starting to build out; health and education starting to build up. And you know, the backbone of growth comes down to what's actually happening economically first, and then that will turn into price growth.
So, firstly you've got to really look at the actual state and say, ‘Okay, where does that state sit in a cycle?’ How long has that got to, you know, until it's going to grow. So, we've got to look at economically what it looks like, vacancy rates. We've got to look at where it is on its cycle. Once we can figure out why that market will grow, that's when it's a buying opportunity. Typically, it's a buying opportunity after we've seen a sustained period where we've seen no price growth—because we're now seeing more affordability in that market.
Tyrone Shum: Yeah. That's why I also totally resonate and agree with you on that side of things—because that's what happened with Tasmania. There was a wall where nothing happened. And then suddenly it just had this growth spurt. So, eventually, I think what we'll see, you know, Brisbane will eventually catch up. It's just a matter of when. And especially during this kind of time, it's very hard for us to sort of know what's going to happen—‘cause there's still a lack of confidence in the market and uncertainty.
Buying in Fundamentally Strong Areas
After covering ‘affordability’, the first principle in Walsh’s strategy, we move on to his second point.
Daniel Walsh: Buying in fundamentally strong areas. So what I'm talking about here is we always want to be making sure that because we're building portfolios for the long term. We don't want to see ups and downs of prices where they're fluctuating. You know, one minute we've got an industry in an area and we see price booms, and the next minute that industry is leaving the area and we're seeing, you know, 30% corrections. We don't want to see that in our portfolios. Instead, we want to see stability in the portfolios. And that comes down to being in a strong fundamental area.
So typically, what I want to do is base myself around a capital city and then from there we start to sort of, you know, look out and say, ‘Okay, let's have a look at each council around that’. And then we start to work out where is going to be a really good area to buy in? But if I can buy within a commutable distance back to the large CBD like Brisbane, Sydney, Melbourne, Perth, those types of things...what I know is that, over the long term, I'm going to have real stability in that market. Because as the population grows, it grows out.
But we'll also get to know that there's going to be a stronger market economically because we're not seeing, you know, a mining town. What we're looking for is a town or a state where there are multiple industries.
So, when you look at Sydney, for example—why Sydney has been so strong is because it's not really dictated by one industry. So, if you look at Sydney, for example, it's not like there's only construction that's holding or underpinning the city’s, you know, price growth. What we see is, there's health; there’s education; there's construction. There's so many different industries in Sydney where people are working in all different industries. So that if one of these industries, like manufacturing, starts to go downhill and we start to lose jobs, it's not going to hit Sydney’s market, because we've got other industries that are propping up that market.
Walsh gives us an example of when he used these strategies around fundamentally strong areas in his own portfolio.
Daniel Walsh: Even with my first two properties, I purchased in Sydney in 2011 and 2012. And I'm again always wanting to balance out good capital growth but also with rental return. So back then, obviously interest rates were a lot higher. But we were, you know, I picked up two properties with around a 7.5% rental return, which is, when you look at today's standards, quite good—especially in Sydney.
Tyrone Shum: Well it's not possible to get that at this point in time. ‘Cause even when I've been looking around locally, at most, 2% or 3% is what we kind of expect. But anything around 7%, you definitely have to have some extra, you know, rental income from the granny flat or, you know, hopefully have a dual lock somewhere on the property.
But yeah, that 7% is awesome!
Daniel Walsh: Yeah, definitely. And when I was buying these properties, again, what I wanted to do is: I went out to family demographic areas—just your normal blue collar areas—and I really studied those areas and worked out what was underpinning them. So, I looked at it and said, ‘Okay, what type of infrastructure is coming to this area? What's the population growth like? What's the building approvals like? Is their supply and demand good?’ And I really wanted to know whether that was going to be a strong area long term.
If there's a lot more happening to that area, let's say that, you know, there might be airports or there might be, you know, even schools and hospitals. And you know, there were those shopping centers that were going in...we know that that's going to bring more jobs to the area. The more jobs that come to the area, the stronger that area is going to be economically, and that's going to return the price growth.
It's not just about how close you are to the CBD, but looking at that area specifically and saying, ‘How strong is this area? If one of these industries goes down, does that mean that my property is going to also go down and suffer from it? Or are there many industries in this area?’
So for example, in Melbourne, you could go out towards places like Geelong and Ballarat. They aren't really underpinned by just one industry. They've got multiple industries. And I know for a fact, with Geelong we had that Ford manufacturer closed down. Now when they closed down—I think it was around 1,500 or 1,800 jobs that were lost at that period of time. However, the following three or four years, Geelong had a really good growth rate, price growth. And we saw properties pretty much go up around 50%, 60% the following three, four years. And the reason being was, yes, manufacturing was going downhill and there were jobs lost, but there were so many more government jobs coming into that area.
So again, looking at that area, looking at it and seeing if it's fundamentally strong, and if you're a commutable distance back to a large CBD, even if people do lose jobs, they can jump on a train or they can get on the highway, they can go get a job. They can get into the cities, and there's mass jobs in there. So, they can be, you know, they don't have to basically move areas.
So, if we, let's say look at regional areas, for example—If you go regional, what you've gotta be looking at then is, is that regional area strong, fundamentally? Because if, let's say, it's a mining town and, all of a sudden, we see that mine closed down, people are just going to leave. And that's just what happens. They're gonna up and leave. And then they’re gonna go somewhere where the jobs are.
So, No. 1 thing to look at is jobs. Are there jobs in abundance in that area? Are there more jobs getting created in that area? And if that's the case then we know that fundamentally that's going to be a strong area long term.
Tyrone Shum: How do people actually find that kind of detailed information? Because it's hard to predict what's going to happen. I mean do you look at like the government and you find out from, you know, online to see if there's going to be potentially new companies coming in?
Like, how do we find out all about that information to be able to determine, ‘Okay, this is going to be a good location to buy in?’
Daniel Walsh: Yeah. I mean the first thing that I would be doing is, you know, calling up the council. You'd want to be researching that council and saying, ‘How progressive are they? What type of infrastructure is already there?’ So, you can look around and say what's already in the area, but what else is coming to the area as well.
So, you've got to look at that and say—I might call the council and say, ‘Okay, what sort of infrastructure projects are coming to the area over the next 10 years? What's already been approved?’ And you can start to look at those projects. It might be that there's a new train line or there might be, you know, a hospital or something like that. And you can start to sort of collect all those pieces to see if that's going to be a good area in the future. You know, places like ABS and stuff like that as well. So, that sort of data.
You can then have a look at, you know, what's going on with the jobs in terms of how many jobs are being lost and how many jobs they're gaining there so that you can start to look at that type of data as well. So, they're probably the one of the two that you'd be looking at from economic purposes.
Buying or Building a Balanced Portfolio
Walsh and I dive into the third fundamental principle that he uses when building his portfolio.
Daniel Walsh: When I'm talking about building a balanced portfolio, what it means is not putting all your eggs in one basket.
So, I do see a lot of investors: What they do is they like to invest maybe within their own state or maybe within their own backyard, you know, their own suburb that they know really well. And all of a sudden they might buy two or three investments in that area. The problem with doing that is, let's say that the area they're buying in z doesn't grow for the next five or 10 years, so they just didn't hit a winner on that one—but now they've times that by their total portfolio. And they haven't balanced their portfolio out by diversifying it. So, when you're balancing a portfolio out, it's key to diversify that portfolio and balance it with different types of properties.
So, let's say that, you know, I have a property already in New South Wales. Maybe, you know, I look at Australia wide and say, ‘Where's another opportunity for me to invest?’ And let's say that I can then maybe go put one in Brisbane or one in Melbourne and find a really good growth location there. And what that means is, over time, all of these properties are going to be growing at different times. So, because there's multiple cycles through, you know, each State—and even within that State, there's multiple cycles again, through each suburban town.
What we can see is, if I have let's say a property in Melbourne and the property in Melbourne jumps up 20%, yet the Sydney property did nothing, all of a sudden, my portfolio is doing quite well. However, if it's all sitting in Sydney at that point, nothing's doing well.
So, it's about diversifying that portfolio over time and then balancing out with cash flow and capital growth. So, what I mean by balancing equity, capital growth and cashflow is: Too many people look for all cash flow properties or all capital growth properties, and I feel like you can balance them both, where you know you've got to be putting each asset into your portfolio and knowing why that asset is going into the portfolio. Maybe that asset is for cash flow. Maybe it's a higher rent return for you. You understand that maybe the growth is going to be a little bit slower in that market. However you are chasing the cash flow for that asset.
However, you might then look at another asset to balance that out. That might be a little bit less in terms of rental return might be a little bit lower. However, you're looking at that for more of a short- to medium-term capital growth play. So, now you're going to get the capital growth. You're going to get the cash flow from the other property, because what's important is to look at the end goal. And the end goal is the capital growth properties or the property that you're going to buy for capital growth. That's great to leverage you into more properties.
But when it comes time for retirement, you're not looking at the capital growth, you're now looking at the cash flow. And if you have both of those types of properties in your portfolio, then you could be maybe offloading one or two of those good capital growth properties to pay out the cash flow properties to be able to retire on that cash flow as well. So, I feel like it's very important to be able to make sure that you're diversifying all throughout Australia.
Tyrone Shum: Yeah, and I guess the markets go up and down at different cycles of time—and this is the hardest thing. It's very hard for us to sort of just say specifically where to go and invest by and so forth. But, I guess, the thing is the fundamental principle is looking at having those balanced assets, having the two types, looking at one for cash flow and one for capital growth.
Daniel Walsh: Well, a perfect example even with my portfolio: So, I have saved my two properties in Sydney; now, the two properties in Sydney from 2012 to 2018—they doubled in value. I could have gone back to that same market in 2016 when I was going to buy another property and then just bought another one and went, ‘You know what? They're doing really well. Let's buy another one here’. However, I diversified that next property that I wanted to purchase in 2016, and I put that property into Melbourne.
Now, that Melbourne property in the following two years from 2016 to 2018: It went up to 60%, so I had 60% growth in that property. Now, if I had actually put that property in Sydney where my other two properties had just doubled in value, I would have made no growth at all, because even though they've doubled in value, they actually had stagnated for about an 18-month to [a] 2-year period.
So, if I had just kept putting them into that same market, I would have then had some properties that doubled in value and then other properties that would have done nothing for me over that same period of time. But what I was focusing on was, ‘Where's the next growth market and where can I diversify to?’ ‘Cause no matter how good of an investor you are, you can't pick when the growth is going to occur.
You can look at the best markets to say this is going to be a really good, strong fundamental area long term. But you don't know whether that growth is going to occur in the next six months or two years. So, it's important to diversify those properties, because I would have missed out on that 60% growth if I didn't, you know, buy that property.
And that makes absolute sense because the thing is you don't want to be putting all your eggs in one basket even though there are a lot of cases. And I've had interviews of people who just only purchased properties in Sydney. But, I guess, you got to ask yourself, ‘How long are you prepared to hold on to these? Are you looking to hold them for 20, 30 years?’ Yes? Then you might be successful in having a massive portfolio.
But if you're looking to look at how the portfolio is growing and you're able to fund it over say, the next three to five years or so, then you definitely need to consider balancing it. Because the cash flow that comes from a property, those negative cash flows obviously hurt—you know, how much you got to put back into it every month. So, you just need to consider those factors because you gotta be able to fund it.
Tyrone Shum: So, having a positive cashflow will help you balance out the capital growth portfolio properties as well.
Daniel Walsh: And not only that. Like, look at 2004 to 2012: If you built a whole portfolio in Sydney off the boom, let's say, that 2000 to 2004 was when the boom in Sydney happened. Let's say that you bought in 2005 or 2006, your property portfolio wouldn't have done very much all the way until about 2013. So, you would have had pretty much some dud investments sitting in Sydney, which sounds crazy at the moment because people have seen what's happened in the last five or six years.
However, you could have built an entire portfolio in Sydney in 2011 and done very, very well. But no one would have known that. So, it would have been better off at that time, say in 2006 [or] 2007, to be able to buy in Brisbane, buy in Melbourne, buy in Sydney, and therefore, nobody had done very well over that period of time. We know that Brisbane doubled in value over that period of time and Sydney did nothing. So, you would have had two assets that probably doubled in value, and then you would have had Sydney that didn't do very much.
However, from 2012–2018, Sydney would have done its thing, and it would have doubled in value as well. So, then you could have been extracting those that equity out as you go from each of those properties. You could have been placing them in different markets as you go, rather than having, you know, five or six years where you can't do anything and can't extract any equity out because that market hasn't grown.
Why Keeping Cash Buffers Matters
Walsh and I move on to discuss the fourth and final fundamental principle that he uses when building his portfolio.
Daniel Walsh: Cash buffers. So No. 4, cash buffers, is probably the most important component out of all four, because at the end of the day, if you don't have a good cash buffer and something goes wrong with your portfolio, it doesn't matter how much that portfolio is worth…If you need to sell the portfolio, you're not going to be able to execute on your strategy.
And what we want to be able to do is obviously build a portfolio, but then also maintain that portfolio over the next 10, 15, 20 years—and even, you know, past that timeframe. So, because of that, we want to make sure that we have really good cash buffers as we're building his portfolio.
But if something was to go wrong—let's say that you were sick, let's say that you lost your job, let's say that the economy changed and things went south for a period of time—you want to know that you can ride out these periods without a sweat. And if you can do that, it's also from, I guess ,a mindset perspective as well, to say that you're not going to get scared in any circumstance throughout holding that period. Because if you hold a portfolio for 15 years, if you are too leveraged at that point and you don't have cash offers that are going to be able to support that portfolio, you're going to have periods within that 15 years where you're going to be very stressed. And you don't want that.
You want to be able to build a portfolio that's actually going to help and you know, make your life better, so that, you know, your future is secured—rather than just be sitting there going, ‘Can I hang onto this portfolio over the next few years because things didn't go the way I wanted?’ So, I think it's important to always have cash buffers.
The way that I like to do it is I like to put them in an offset account. So, you might just have your principal place of residence, and you might have five investment properties. Let's say you have an offset account. So, your principal place of residence, and for every property, you work out roughly how much you need in a cash buffer to be able to support that property.
Everyone's a bit different now. It can be that you have a government job and you know that your job is extremely stable, and you don't need to hold as large of a cash offer and you're more of a risk taker. Therefore, you probably have a smaller cash buffer than someone who owns a business and knows that cash flow can go from having a lot of cash in your pocket to, you know, feast-to-famine sort of thing. And if that is the case, well then you're going to need to have a larger cash buffer to be able to ride out those leaner times.
So, a cash buffer is the most important out of everything, because you've gotta hold these properties. What I see is a lot of people buy property and they get into an investment property. And within three or four years, they're forced to sell that asset because they haven't factored in their cash buffers to be able to hold the property. And then, all of a sudden, they've made no money or they've made a loss, because they're forced to sell at the wrong time.
Walsh gives us an example of how he works out his cash buffers.
Daniel Walsh: In the early days, my buffers were quite low. And that's because I was building, and I was a risk taker. And I was young, so I wouldn't advise to do that. But I mean, for me in that circumstance, I had nothing to lose. It was [when I was 20 or 21 years old], and I knew that I had to buy a property because property was going up. But now what I like to do is make sure that I have roughly between six or 12 months worth of cash profit for each property. Now, that might be between, sort of, $15,000 to $20,000 per property that I hold, in buffer, in an offset account. And then, it depends on how many properties I have.
If I have 10 properties, you know, I might have $15,000 to $20,000. I might hold even a little bit more if my portfolio gets larger than that. But it really depends on the time that I'm going in to. If I see that there's really good opportunities with that buffer, I may deploy that buffer for a little while. But I do want to make sure that I'm always maintaining a good buffer. So, if you look at a minimum of six months per property of expenses, then you know that you're going to be fairly safe.
If you want to be more risk averse, you might want to up that to 12 months. But I think that also comes down to as well, when we go back to, you know, point 1: buying multiple affordable properties. The vacancies. If you have one property and it goes vacant, and it's $1,500 a week rental to you, you know that you've now got to cover $1,500 a week. And you're going to be very stressed in that period of time that you've got to cover that. And let's say that that's vacant for three months—you're going to be extremely stressed.
Whereas, let's say that you bought four properties for that one property, and one of those properties goes vacant and it would only be costing $200 a week or $250 a week. You know that you can cover that property; your other three properties are rented. So, you have more properties to be able to prop up that other property that you have that is vacant at that period of time. That's another reason why we do buy multiple affordable properties over buying really expensive properties. That, you know, if they do go vacant, you're going to be a lot more stressed.
Tyrone Shum: I think that's really, really important that you mentioned that, because I don't think people realise you need to actually just keep these things aside.
It's important to continue to grow and invest your money. But at the end of the day, if you can't hold onto these properties, then you spend all that effort buying it, and then you have to sell it out due to stressful times or whatever it is. And times like this, I guess due to COVID and all those kinds of things that are happening, there are unfortunately a lot of sellers who have not planned for things like this and, unfortunately, have to sell at a price that's current—meaning the market—and then having to make a loss on whatever their investment was [or] initially what they had put in place.
Daniel Walsh: With cash buffers as well, you can actually—for a cash buffer, you can release equity from a property and stick that in an offset account. And that could be your buffer. That could be your survival rate. It all comes down to how long can you survive for, really?
You know, when you're having a portfolio and you're building that property portfolio, you've got to think like a business. And a business always has cash-on-hand, and cash is their survival rate. If something goes wrong, how long can your company survive for? We're thinking the exact same way with our property portfolio.
And you might have, let's say you have a portfolio that's worth $2 million and you have, you know, a million dollars worth of equity sitting in that. Well, you might then extract $200,000 out of equity. You might put that in an offset account, and then you just forget about that. You don't touch that. It's not for going out there and blowing it on a boat or a car. However, that's for emergencies. If you need to continue to pay the bills, you can continue to dwindle that $200,000 down. And let's say that $200,000 buys two years worth of time or three years worth of time. So, you can now use that $200,000 for two to three years before you even get into any strife with that portfolio.
Now, why I say it's not that bad to use your equity is because people say, ‘Well, I'm getting in more debt. Why would I want to do that?’ If you have $2 million worth of property and that $2 million over the next 10–15 years goes from $2 million to $4 million, it's not going to matter that you spend a hundred thousand dollars to get it there or $200,000 to get it there. It's much better doing that than it is to sell the entire portfolio and have to use everything.
Investing Successfully in the Long Run
Tyrone Shum: Yeah, and I was going to comment on that too. Exactly what you said. It's only a short-term thing anyway. You're not looking to hold on to using equity for the next 10 years. Things move up and things improve, and, hopefully you increase your income within 12 months or so. But at least a minimum [of] 12 months would be a good starting point just to have those cash buffers in place.
And I personally am the same. I can tell you from my own personal experience with one of my father's properties that he purchased back in Sydney: He purchased a really good property down in King Street Wharf for something close to like a very high-end property price, which is close to about $800,000. And at that time, that was actually a prestigious property, very expensive. I mean, when you look at it now it's, you know, it's a tiny amount of money in comparison. But back then it was a lot of money.
That property is probably worth like over $2 or $3 million now ‘cause it was by the waterfront. Unfortunately, over a period of five years, because the market didn't move—it actually went backwards—, he had to sell that. And he actually made a $200,000 loss on that because he just couldn't hold onto it. He had not enough cash buffers.
He bought it, unfortunately, at the wrong time of the cycle. But also, at the same time, it was costing him so much each month not only just from the rental side of things and mortgage. It was also the strata fees and all those kinds of things. And if you don't do calculations behind that, it can be a very, very big loss. But if he actually held on for another two more years, which is when the boom happened, well, he would've made an extra cool, $1.2 million of equity. But, you know, there’s a lesson there to be learnt. And I guess that's coming from experience from that.
Daniel Walsh: That's a really good point that you made as well, because, at the end of the day, like you said, that property was $800,000 and is now worth $2 or $3 million. If he had been able to hold that, he would have made that money. If he had a good buffer, he could have held through those periods of time. And when you look at it, that's another thing with building a balanced portfolio.
So, when you build a balanced portfolio, you're looking at that from a cash flow perspective and saying, ‘Can I actually hold this property through bad times? Has it got enough cash flow for me?’ Because people will go out there and say, ‘I'm going to, you know, get a 2% rental return. I'm going for capital growth’—but what happens if that capital growth doesn't come? How much is that property going to cost you each year to hold and how long are you going to hold that property until you become sick of it and then offload it because it [didn’t] make you anything?
I’ve seen a lot of people who have done this. They bought two properties in Bondi, and those properties in 2018 peaked. They bought them. And now, all of a sudden, they went back 10% at one point and then they're going, ‘Geez, these properties are costing me $15,000 each, per year to hold’. So, there’s $30,000 each year that it’s costing to hold those two properties.
Now, [in] that same period of time, I remember actually saying to those people, ‘Why wouldn't you go buy some more affordable properties in Melbourne? You pick them up for around $350,000 to $400,000; they've got better cash flow, you know. You can hold those properties’. But they had more upside for growth, because they hadn't been through their growth cycle just yet. And I remember them telling me going, ‘Oh, you know what, I don't want to do that because Bondi’s you know, blue chip. It's a blue chip.’ Well, those properties still haven't gone up in value. They're only probably just back to where they paid. But they're costing them $30,000 a year to hold.
Whereas, [in] the same market that I told them to buy in, in 2016 [or] 2017, I remember all those properties—I bought my own property there. It went up 60%. However, I was getting a 5 ½ per cent rental return. So, it was paying for itself. I made 60% capital growth. I was able to leverage that equity and go buy more properties. So, they're sort of sitting there going ‘I’m probably lucky to break even, and it's costing me to hold’. They're probably going to end up selling out ‘cause they're sick—you know, the holding costs. Whereas, I've been able to leverage and buy more properties, and they're not costing me anything to hold.
And I did that by buying affordable properties where they weren't costing me, you know, an arm and leg to hold those properties. ‘Cause I knew that if they cost me too much to hold, I'd be in the exact same scenario.
Tyrone Shum: Yeah, exactly right. And it's a mindset thing as well. I mean you've just given perfect examples of what could potentially happen in one scenario. If you hold it in a place that doesn't have any growth at this point and no one knows, you know, what it’s going to do. But if you get a property that can cover the cost itself and potentially have its capital growth, then that actually sounds a better option.
But I think it's just understanding the fundamentals, understanding the calculations behind it, and then, furthermore, speaking to experts, you know, who actually know what's happening in the markets. So, I think these four very, very fundamental things...Daniel, would you mind just sort of summarising those four again?
Daniel Walsh: Yeah. So the four points are, No. 1 is buying multiple affordable properties. No. 2 is buying in a fundamentally strong area. No. 3 is building a balanced property portfolio, and No. 4, the most important, is having cash buffers in reserves.
Lloyd Edge is the director and founder of Aus Property Professionals in NSW real estate. He is a driven property investor, licensed buyer’s agent and is the author of Positively Geared where he delves into his journey from being a music teacher to then building his impressive property portfolio, where he currently holds 16 properties.
Join us in this episode of Property Investory to hear how Edge achieved financial independence while still on a teacher’s salary, how he changed career paths and how he educated himself on property and the market that has impacted his journey that could ultimately inspire you along yours!
When He Started
Properties in Portfolio
Buy and hold
How to Achieve Financial Independence with Lloyd Edge
After losing his passion for music, he kick started his property investment journey where he soon fell in love with teaching others about property and helping them achieve their own property goals.
We will learn exactly how the multitasking director and founder managed to accumulate 16 properties. You’ll also be able to hear the kind of mindset he has adopted to continue to increase his wealth and the kinds of strategies he uses to deal with the changing markets and much much more!
"You make your money when you buy, not when you sell."
Sam Gordon is a very successful property investor and buyer’s agent. He is also the founder of property buyer’s agency, Australian Property Scout, who owns 20 rental properties.. His business helps clients get the best possible deals available whether on or off the market. Gordon is one of the most successful property investors in Australia and he wants to impart some of the wisdom he has learnt along his journey.
Join us as we reconnect with Gordon and find out more about some of the projects he has been working on since the last time we spoke with him, he talks to us about a special goal that he achieve recently, we delve into the mindset that he needed to have to achieve everything he has so far in his career, what he predicts is going to happen in the next 12 months, and much much more!
'I've made a lot of mistakes on the way through and I can hold these people's hands on the way through and avoid all those mistakes.'
To start off this episode, Gordon reminds us of his background and fills us in on his property investing journey.
Sam Gordon: I've been investing now for a little over 10 years. I bought my first property back in November 2009, which was a little two-bedroom unit in Wollongong real estate and essentially renovated that one, and lived in it for about a year, and then turned it into an investment. When I realised I could pull equity out of that deal and recycle that into another one, that’s where I started learning more and more about investing and got a little bit more serious about it.
And from there it pretty much grew. And within about two years of that first one, I bought again. I did a small development for my next deal, and then I kept that deal, but then rolled those profits through equity into more high cash flow deals.
Because that's what I essentially really needed in my portfolio. I was a very low-income owner. I was only on probably about $40,000 a year. So, the high cash flow was really, really important to me. And I went out, and I purchased. And there were another 4 investments in a 12-month period. And I really boosted up my cash flows. And then, pretty much it was a journey from there, from being between about 25 to 28.
I went really aggressively and grew my portfolio from, I think it was about 7 properties to, what was it? It was 18 by the time I was 28, and it was a pretty aggressive kind of expansion there. Had a lot of growth on the back of one, buying really well with what I was purchasing, but also in good growth corridors.
I think the portfolio equity, and even at that point, got up to about—I think it was up about just over $2 million. The passive income was about $68,000 at a time when I decided to walk away from work which was—I think I just turned 29 when I decided to do that.
An Amazing Property Journey So Far
Tyrone Shum: Basically you're financially free because your portfolio is paying for you, you know, without you having to work. That's amazing.
Sam Gordon: It was awesome. So, I've kind of walked away from work on the back of that passive income. I traveled for about 6 months. And then, kind of, off the back of that, that's when I decided to become a buyer's agent. It really is my passion: going out and buying property and buying property for other people and helping them along similar sorts of journeys to mine, and kind of helping people create financial freedom the way I did.
And probably I guess the really big thing with my journey was I had a goal of 10 properties before I turned 30. And then when I hit that, I think I was about 26 or 27, and it shifted, right. Like I changed the goal, and so the goalposts moved to 20 properties before 30. And so, I turned 30 in January this year. And in December I purchased myself a site that I'm developing into a duplex. So, I kind of essentially, in my opinion, I got around the 20 out of that one. I was pretty pumped with that.
Sam’s Mindset Behind His Achievement in 20 Rental Properties
To be able to build a property portfolio with over 20 properties before the age of 30 is seriously impressive, and we find out about the mindset that allowed him to achieve that.
Sam Gordon: I think what it was, I was around that 25, 26 years of age—I had a few things that happened in my life that kind of completely flipped. What I was looking to do as a career that I wanted to go down that kind of got shut off from me. So pretty much what was left was my passion for property.
And so, what I decided to do was stick with the job that I wasn't happy in but was providing an okay salary and leverage that to go as hard as I could with property. So, I had done a huge amount of research over those. Pretty much since I bought the first one, I got bitten by the bug of the renovation and the pulling out the equity.
And I did a huge amount of research in those ensuing years. And it was essentially in that time that I kind of formulated—I pulled everyone's different strategies together to create my own. And it was pretty much from that, that really, when I made the mindset shift that: ’You know what? I'm going to go for this. I'm going to go as hard as I can to hit these goals, create the passive income to do what I want, and essentially live life on my own terms.’
That was pretty much what it was for me making that decision that I was just going to go for it. And I knew I'd already up-skilled with everything—I guess, with personal development, with how I was going to do it. And I had the time with what I did. I never took holidays, in the sense of I never traveled overseas or anything during those years.
What I did was if I had four weeks or a year of leave, I would go and renovate properties. And so I'd force substantial value on those properties, or I'd go out and do a scouting trip as well. And I'd just focus all my time into trying to find these deals and renovate those deals. And that's essentially where I was kind of creating the equity and essentially then recycling it out into more deals.
And the matter went through a lot of different things. I've done strata titling and subdivisions and granny flats. And, you know, these different things, we've created good equity and good cash flow. And essentially that's what it was: continually formulating and reinventing and just doing everything I could to do it.
We learn about an incredible moment that happened recently that was years in the making for Gordon.
Sam Gordon: When I first started reading, I started way back when reading all the property mags back when I first bought that Wollongong real estate investment at 19. I got my hands on as much content as I could get. And in Your Investment Property every year coming into the New Year, they'd award ‘Investor of the Year’.
And I remember when I turned 20—that was a year like when I first read probably that edition winning that award back then—and I remember just being like, you know what, that was one of my goals as well. I'm like, ‘That's what I'm going to win, and I'm going to win it before I turned 30’. That was all part of this big plan of what I wanted to do. So, that was essentially it.
So, it was this year. It was a funny story because I had a couple of mates that kind of wrote in for me and said, ‘Look, you should get in touch with this guy’. Because I knew I was running my businesses well. And they go, ’Man it’s going to be mad if you win this thing. That's going to be awesome’. And I didn't really like people knowing my portfolio though. Like most of my mates didn't know. They thought I had a couple of properties, [and owned] my own home. That was it.
And then when they contacted me, I sent all my info in. And then I had to verify it with all the land rates and then the rental incomes, you know, ledgers, and show everything. I didn't hear from them for like two months, and I didn't even think about it. For the first couple of weeks, like I was really excited, ‘I hope I get the call and then I forgot about it’. I got busy with work, and then, all of a sudden, I got this private number call me. And I was just like, ‘Hey, it’s Sam from Australian Property Scout’, and they were like, ‘You’ve won investor of the year.’
I just wasn't expecting it. And I don't know, maybe that was cool, you know, even better that I wasn't expecting it. It was awesome, and I was pretty pumped to win it.
Beyond Sam’s ‘Investor of the Year’ Award
We find out just how much has changed since he won that investor of the year award.
Sam Gordon: It was definitely an influx to the business. There were definitely a lot of people that wanted to work with me and, I guess, leverage the same things that I'd done in my portfolio, and help do the same things. So, that was great. Honestly, it's my passion. I literally do it when I wake up in the morning ‘til I go to bed at night—like I just do it at all hours.
It's been awesome that people can kind of… I guess, it's the credibility that comes with that. The fact that I won that award and then I think it makes people feel more comfortable working with me because they know I'm someone that's done essentially what they want to achieve. So, that was a big one that came with it. And I think just a little bit of, I think I finally stopped at that point and thought, ‘You know what? Maybe you did all right’. I did it all right out of it.
He shares with us the two properties he needed to achieve his goal of 20 properties under the age of 30.
Sam Gordon: Essentially what it was, I have a lot of different avenues in my business that I'd go down and help other people with. And essentially we were looking for a few development sites for my clients. I kind of signed on a bit of a bunch to cover through at once to acquire a site or multiple sites. And that was essentially how it came about.
We got a massive discount on a fair few pieces of land for different clients and myself. And I essentially just bought a couple of them for the same price as the clients. And it was just like the deal was stacked up, and there was actually a couple of left over. And it was more than I was planning to put into the last couple of properties, you know. Obviously, development sites aren't cheap, and obviously, the construction on it as well, but they were there.
I got offered them at the same money, which was a great price. And I just decided to pull the trigger on those as well. Because it was a funny thing. When I started the business I was doing so much research, but I didn't have all that many clients on my books—and I still don't. I'm not a huge organisation. I kind of like the term ‘boutique’. I don't have a huge load of clients, pipeline clients. It's manageable and I love that. But what it means is that quite often is that deals will come through, and I don't have anyone for them. Sometimes I just have to buy it.
That's essentially what it was like. It was just the opportunity there. I'd almost like half, not half-forgotten about the goal. But I just, like, I was more focused on my clients and trying to get them the best deals that I could. And then it just almost fell into my lap at the same time I was doing these deals. It was for other clients going through at the same time. And it just made sense. So, I pulled the trigger on it.
Tyrone Shum: Tell us a little bit about the sites that you purchased. You said they are development sites. What can you do on them?
Sam Gordon: What I do—and I've done this for probably close to 10 years almost. The second investment was the same one as these. So, the block's got to be significantly below market. And typically the way I do it is I will source it off market through a developer—and I've got developer relationships in certain areas.
Essentially, what they do is when they’re releasing a stage, the easiest thing they can do is pre-sell a bunch to me just to clear their books. And then they'll put the other ones on market at a higher amount and then they don't care. They can let them sit there for a while because they've cleared out what they needed to complete that stage. And so, essentially, a lot of the time, it's those that we pick up. And sometimes they can be like, we're talking $250,000 to $350,000 is the block price. And then we're developing either single homes or duplexes on them. And the upsides on them are quite significant.
This is my fifth one that I'm going through now. So, it’s definitely not my first rodeo, and we're definitely, you know, getting some really good margins off these as well.
On Development Sites and Rental Income
Gordon goes into more detail about his developments and tells us the kind of margins he expects to get out of it.
Sam Gordon: Typically, if we're doing the full, just a specky build. Like a standard, sort of, you know, 200, 250 square metre home. And we're typically either keeping them and renting them or flipping them back to the market, depending on the client's brief. We're typically doing them for, say, sub $600,000, and they're pulling over $700,000 on a sale price or a reval.
And then sometimes, if we go down the duplex version, you're looking more towards $700,000 or over. But we're pulling revals or end sale prices over $900,000. So, we're making quite good margins on these deals. I don't do heaps of them, you know, if I'm being completely transparent. I don't do heaps of them. I normally take on a bit.
A couple of clients will sign on in a row. And when I have a certain amount, that's when I'll hit up my contacts. It is one form of the business and one form of my personal portfolio that I've done really well with.
I remember last time we spoke about my trident formula and half of them are really strong below-market buyers with good cash flows in capital growth locations. That's one form of it. And then there's the positive cash flow ideas, which are essentially what you need to retire, the big cash flow deals. But then on the back end or if you need chunk deals, then we'll go down that development arm. They're not for everyone. They're not for when you first start out. But when you need those chunk deals to essentially pump some funds back into the portfolio, that's when we'll go down that avenue and throw those in as well.
Gordon explains about the typical time frame between settling on a development site to when you can expect to get rental income.
Sam Gordon: Typical turnaround time, like turnaround timeframe, is typically up to about 12 months. So, typically, we will purchase them just before they register. If you're taking everything into the equation, if you're not selling and you're holding, we typically get them down to about 8 to 9 months.
If you do look to sell them, typically it is over 12 months to go through that whole process. But it's, as you say, it's not for everyone. Most of my clients when they come through are starting their portfolios, or they've only got a couple of portfolio properties and they're trying to build it out. I will always say, ‘Let's build the foundations first’. Let's get the foundations exactly right. Let's then put some high cash flow ideas in there. And then let's look at some chunk deals to either accelerate, pay down—or what I love to do is I'll do them and then I'll keep rolling that development money that I put in, keep putting that into more deals.
But the profits that get spit off—I'll go and put that into high cash flow deals or into the foundation properties. But that's once you're a few deals in; you definitely start with that. But that's honestly how you can just keep rolling when you get to that point. You can honestly just keep it moving, especially if you're using those cash profits and putting it straight into a high cash flow deal.
You're going into a 7-year and 80% lend on a unit block or a house and granny pulling 9%. You know, some of my unit blocks are at 10%, 11%. A lot of my granny flat deals are 9% yields, that is $15,000 to $20,000 a year positive, all day long.
Strategies to Getting a Good Property Deal
A lot of beginner investors might be wondering how they can find a good deal. Gordon delves into some of the strategies that will help.
Sam Gordon: The majority of our staff, especially at the moment with COVID and whatnot, I reckon, at the moment, we'd be doing 70% to 80% of our deals off-market. So, it's agents coming to us. I've got a huge amount of connections all over the country where I've invested personally for myself and for clients as well.
And essentially a volume of that is coming through off-markets. And essentially what it is is an owner is much more willing, especially, you know, with COVID and all the rest of it. And if the tenant doesn't want to go to the market, like they don't want to do opens and all the rest of it. Sometimes, the agent will condition them and say, ‘Well, there's nothing wrong with it. It makes it quick, easy, and transparent for everyone’. And they're like, ‘Look, if you don't want to take it to market, we have this buyer’; they literally will do one inspection.
We'll suss out the numbers first. If the numbers work, it will be one inspection, and then the deal is done. And essentially like the perfect thing. The thing that works really well for us is a simple fact that there's no competition in that sale.
And a lot of the time, the sellers, like, you know, for the ease of a transaction that's done, it doesn't have to go to market, we don’t have to pay for advertising. We don't need to upset the tenant. We potentially then walk out and then a 3-month campaign with no rent. All these different factors that typically a vendor or a seller has to deal with. We essentially will take that out of the equation—but, I guess, in exchange for maybe 10% plus off the purchase or, you know, off of what is fair market value.
So, that's where we're getting ridiculous value for clients at the moment. And some of those are up towards like we're settling. And, quite literally, I'm talking very close to capital cities, we're settling and getting 15%—like getting a reval and we've made 15% in 90 days from what we settled the property for. And then they're pulling that money back out and we're rolling it in with a 10% deposit on the next one.
And I've got clients that have honestly come in and came to me with one deposit. And within 12 months we've purchased three properties off that one deposit. And there's you know, I've got other clients who've come to me with two deposits—like $100,000—and we've purchased six properties in about eight or nine months. Literally, just rinsing and repeating that strategy.
It all comes down to purchasing the property for a really, really good price. And essentially, that goes back to me being a small boutique agency again. Like, I'm not huge, so I can focus on making sure each deal fits that criteria for each client. And that is a repeatable process—the same way I did it with mine. So, it's working really well.
Gordon reiterates the importance of making money as you come in rather than waiting for your property to grow in value.
Sam Gordon: Especially in a market like now, like if you were waiting for growth before you went to your next one and you bought at the end of last year at earliest, you're probably waiting to the start of next year. Because we're not going to see any. There’s a very slim chance of any huge gains or 10% gains where you can pull that money out and go again.
So, if we're still buying into those growth locations, but making that margin, you know, anyone that tells you, you know, ‘You pay market value in a strong growth location’, I honestly think that they've probably just got too many clients on their books, and they're not willing to work hard enough to do it.
I'm telling you, we're doing it every week. We're doing it for clients. And it's definitely possible. It's just putting in the hard work and getting those deals to come through.
We hear more about one of Gordon’s very successful clients and how he has been able to help this client build their portfolio.
Sam Gordon: I've got a lot of clients with similar stories. But he came to me right at the very start of when I started the business, and he wanted to kind of ramp up his journey. He'd come from another buyer's agent, who'd paid market value for a similar property. And he said, ‘If you can beat this, I'll buy as many properties as you can bring me’.
And essentially, this other buyer's agent literally had paid $317,000 for a property—and the street behind it, three doors down, we bought the same one for $280,000. So, $317,000 to $280,000—it was a $38,000 difference. And I found it, I think in, in three weeks. And he said, ’Man, I'm a client for life’. And I was like, ‘All right. Well, let's do it’.
He came to me with two deposits. So, he had about $100,000. He was happy to go at 10% deposits to 90% lends. He had decent servicing, and he essentially said, ‘Look, how do we scale this? How do we take it?’ And I said, ‘Look, what we'll do is we'll find this first property. And then while that's going through settlement, we'll find you another one’. And then essentially what happened: As the second one settled, the first one was coming very close to being 90 days since we settled it. So, in that, after the 90 days, we were able to get another bank valuation. We got it valued at $335,000. We'd paid $280,000. So, it's $55,000 equity sitting in that deal.
He was able to refinance that back out and fund another purchase. Now, the second one we bought, by the time we funded the third purchase here, we tapped into that equity. That was a very similar number. And he's funded that into the next one. We literally just kept repeating it and I think in about nine months, he's onto his sixth purchase now.
And I convinced him to maybe look down the avenue of looking towards some cash flow. So, we're paying $280,000 to $290,000 per property for these. Some were in Brisbane; some are in Adelaide. And he was making anywhere between about $35,000 to $55,000 on each of these deals. Actually, I think it was about $40,000 to $45,000 to $50,000 for each of these deals.
But the cash flow was sitting at about between $350, $360 a week. So, it's still decent, like 6.5% plus yields. But after he bought six of them, I said to him, ‘Look, it might be time to maybe look for a high cash flow deal. Let's go out. Let's do a house and granny’, and we've got that going through at the moment. And I think he was running the numbers on it last night. We did some updated numbers because the house is settled.
So, the house was rented for more than what we thought, which is excellent. And the granny flat is about to be rented. We just signed a lease on that as well. So, I think it came out about $15,500 a year positive on that. And that's at a 90% lend, like that's not putting $100,000 into the deal. He literally put like $50,000 into the deal, and he's getting that sort of return. So, he's stoked, and he's ready to keep going.
Start Property Investing With $50,000
To gain a better perspective on how he was able to build this portfolio, we hear about how he funded all of his investments.
Sam Gordon: He's married—and he and his wife, I think he earns about $150,000. I don't think the wife earns crazy figures. I can't remember exactly what the wife earns. But it's not crazy figures. Like they came to me with $100,000, which you think about, most people would have $200,000, $300,000 equity sitting in their home.
So, to pull out $100,0000 of equity—or start it however you want, but say $100,000 in equity—, you'd probably only need really to start it.You only need $50,000 to $60,000—probably, not even. I started my portfolio on $30,000 a year. Like, it's usually possible. Like, even when I was working my job and hit 18 properties, the most I ever made was $85,000 a year.
I never made any more than that. And I still hit that many. It's managing each thing as we go. And for him, I knew his servicing was strong enough to sustain building that portfolio around growth and below-market buying. And we could leverage it and keep building it. But then, I knew we'd get to a point where ‘Let's throw a high cash flow deal in there to make sure the servicing stays strong’. But essentially, that portfolio, I mean, interest rates here at record lows.
But each of those deals, even those normal bread-and-butter, they're low maintenance houses, most of those properties—and they're all running at about $3,000 to $4,000 a year positive. But the granny flat deal obviously was a huge amount on top. So, even if I think we worked it out, even if rates went back up to, I think they had to get to 6% before he ran neutral. And then when he ran neutral, he had all that appreciation of all the properties. So, he'd probably still be $20,000 a year positive on that.
So, it's possible. It's just creating a strategy and then executing with the correct deals.
With everything that is happening in the world at the moment, it’s hard to predict what’s going to happen in the near future. But we learn what Gordon is hoping to achieve within the next 12 months.
Sam Gordon: Personally, I've got my little duplex going through. I'm just personally—I'm just going to focus on that with my own portfolio. I don't think I'll ramp it up unless some crazy deals come across my desk, and I don't have anyone lined up at the time. Unless something happens, I don't think I'm going to be picking anything up for myself. But it's honestly just going to be focusing on clients.
I want more people like this client of mine now. I want more people like that and build portfolios like that. My client base is so varied. I'll have guys and girls in their young 20s through to you know, 50, 60-year-old men and women and couples coming to me, and I'm helping everyone. But I love being able to do what I can do.
I just love it, man. I really resonate with it. It's a passion. It honestly is such a passion. And I kind of thought maybe I'll do this for, I don't know how long I thought. Because obviously, I got the portfolio. I have an income there, and I thought maybe I'll just do this for 5 years and help people and see how it goes. But I don't see myself ever getting sick of it, man. I just absolutely love it. Being able to pull those results.
And I think what I love about the boutique side as well is so many of these guys can just pick up a phone and call me. And I think they get blown away when I answer the phone or they text me late at night—and it's like 10 o'clock at night—and I write back to them and they're like, ‘Man, I just wasn't expecting it. Like I was thinking like two days later to get a reply or something’, or like, you know, ‘maybe a subordinate to kind of jump on and he wrote back to me or whatever’.
I'm just going to keep running this. I just absolutely love this side of things and focusing on building other people's portfolios. It's a funny feeling, because it almost feels like you might have played video games back in the day. When you've played a game and you went through it, right—and you made all the mistakes but you finished the level, and then you go back like six months later and play that game again. And, you know, all the things, all the mistakes and all the little pitfalls—that's kind of like what it is now with property.
I've made a lot of mistakes on the way through, and I can hold these people's hands on the way through and avoid all those mistakes. That's honestly like how I think I got it. Like, it's kind of cool like that. Like, again, ‘No, you don't want to do that. You don't do that’. Like, ‘This is the path. This is this strategy forward’. And it's awesome, and I love it.
Thoughts On the Property Market’s Future
We get Gordon’s prediction on what could possibly happen within the property market in the near future.
Sam Gordon: I can't 100% see what's going to happen at the back end of these holiday periods on people's loans coming off, JobKeeper ending—all those sorts of things. That is a thing that obviously people have to take into consideration: that we don't actually know what's going to happen with it. But I can tell you right now on the ground: All the places that I invest, the stock levels on market are ridiculously tight.
Now, if the stock levels on the market are ridiculously tight and there's still plenty of people looking to buy, prices are not going to fall. Like, if anything, that's a precursor to them rising. There's no precursor at the moment that I'm seeing prices going down. Combine that with ridiculously low interest rates, you know, record-low interest rates.
What I hope is that if people have put loans on hold and stuff, they've saved any additional income in case, you know, the worst happens, and they don't have a tenant at the back end. But for the most part, I'm seeing the same thing on the rental side as well. We're having no problems leasing the stock that we bring to clients. What I always negotiate for clients is early access for our property managers. And 9 properties out of 10 that we will bring that we have settled, have a tenant lined up for the next day.
That's what I've always done for myself, I've always done for clients—and it hasn't changed in this environment. I just can't personally, I don't see anything catastrophic happening. You know, all these people talking, you know—I can't even understand why the banks are releasing these reports, reckoning what they think is going to happen. I just don't see it happening.
If anything, definitely in the markets we’re in, the markets are still running hot. And we're definitely working really, really hard to keep the good deals coming. So, that's just my take on it, but I guess we'll see what happens.
Tyrone Shum: You can come back in 12 months, and we’ll say, ‘Hey Sam, were you right?’
Sam Gordon: I'll tell you one thing. I can't remember who interviewed me, someone called me a few months ago when it first started, when the pandemic first kicked off and they go, ‘What do you think is going to happen with the market?’ And I said, ‘I reckon we've got like a month. We've got like, you know, maybe 4 to 6 weeks where the panic is everywhere, and people will cut stock and just the fear. The absolute fear of what's going to happen’.
That was probably the busiest I've ever been in the business of both people coming to me, finding deals. And the amount of deals that were coming to me—it was unbelievable. The absolute steals for some of these properties that we were getting, because people just panicked and was like, ‘Just want to sell it. Just want to sell it’.
And then, a lot of stock cleared, a lot of people pulled listings off the market that didn't need to sell. And then, all of a sudden, there was this massive shortage of stock. And that window, that immediate window that was there was gone. So, now, like the next window of opportunity is what I said before about finding the off-market with the agents. But that window of opportunity that I called—I got it right. So, I was really pumped with that.
I realised I was talking to one of my good mates who is a really heavy investor as well, and I kind of spoke to him about a couple of weeks ago. And he was like, ‘That did actually happen’. So, we had a little bit of a laugh about that one.
Brendan Shine is a buyer’s agent and investment consultant. His love for property has allowed him to help others acquire wealth and leverage equity through investing with his consultancy and buyers’ agency, Strategic Property Acquisitions. After realising he would never earn a sufficient income for himself working as a baker, Shine jumped into the world of property investment and where he has now purchased six houses, four duplexes, two blocks of units and one boarding house.
Join us in this episode of Property Investory to hear how Shine was inspired to get into property by his boss at the bakery, how he and his wife managed to purchase 15 properties and his worst investing moments and what he learnt from it that could ultimately inspire you along your journey!
'At the end of the day I was only ever making someone else rich. I was never going to be able to make the big piece of the pie just being a worker.' Brendan Shine
We find out what Brendan Shine does and what his job description is.
I currently own a lawn and garden maintenance business, which I've been running till the last four years, which I have built up to 130 regular clients. But property is my passion. I've been investing in property for the last 16 years. And last year, I decided to put my experience to work full-time. And I'm in the midst of starting up the buyer's agency business—that's where strategic property acquisitions was born.
He delves into what a typical day looks like for him.
During the week I generally try to get up around 5 in the morning. First thing I do is get my coffee machine on; I [have] got to start the day with a coffee. In my house, the first hour of my day is generally the quietest. So I try to work on my mindset. So, I listen to a podcast. Or I try to read a book—and I've always got a book or two on the go at the moment.
And then generally around 6 o'clock, my two little girls generally wake up. And that's the end of my mindset-work for the day. And I generally help organise them with my wife, get the breakfast, get the lunches, and get them out the door by about 7:30 a.m.. And as I mentioned, I run a garden and lawn maintenance business. So, at the moment I'm working two to three days a week there.
I've got a guy working with me as well. So, I organise with him if I don't need to be there. Or I work with him and the other days I’m building up my buyer's agency business. And so I spend my other days on that. And Saturdays, I'm getting out to open homes, getting to know the local real estate agents and what not. And as opposed to the BA business, my time is spent over developing relationships with brokers and agents.
I’ve spoken to a couple of clients so I've already gotten potential clients that I've been introduced to. So, I'm doing that. And I'm researching and doing properties on behalf of those clients and coming up with strategies and consulting on investment strategies that they may want to be doing, and looking at the trends, and I've been creating a few feasibilities. One of my clients is looking at doing a duplex, so we're just going through that process at the moment to see what it will cost—if it's worth doing or not worth doing. So, that's generally my day.
Before he was interested in property, Shine discusses how long he has been in the lawn and maintenance business for.
I've been in that business for the last four years. So, I moved back to the Gold Coast four years ago. And we had decided we'd build our family home. Then we built on the North Coast, up from the Tweed. So, I was with the builder and I had spoken to him. And I said to him I would like to work from the beginning to the end on a build just to learn all the procedures along the way. Like, I've done a lot of renovations over the year, but this one was a complete build. So, I wanted to spend the time; we had the money there, so I wanted to spend the time. And there was a delay in our starting of the build. So, I thought, ‘Well, what am I going to do while I'm waiting?’
I've done a bit of landscaping; my dad's a real keen gardener. So, I thought I'll just start my own lawns—that will keep me occupied until we start the build. Well, next thing I knew, I had 10 customers, 20 customers—and yeah, over the last four years, I've built it up to 130 customers, a full-time business. I did have two guys working with me. But as I said before, my passion really is property. So, last year I decided I'm going to change that.
And you know, I came across and listened to a few podcasts, heard about buyer's agents and that struck a chord with me. That was something that resonated with me. So, I made a decision last June to start transitioning out. So, I'm at that stage now. I've got all my licenses. I've got my business ready to go. And I've just secured a buyer for my business three weeks ago—and hopefully that will settle next week for us—and then, we'll hit the ground running.
From Becoming A Chef And Baker To Diving Into Property
Before discussing how he found himself in property, Shine shares a bit about his upbringing.
I grew up in a town called Laidley, an hour west of Brisbane in Queensland. It's just a farming town they have towards Gutten. So, that's where they grow a lot of your fruit and your veggies and everything. So, yeah, it was just a country town. I think it was about 15,000 people in the town.
Did you go to school around there or did you have to travel out?
There was a school there in town—about 600 people in the high school. So, I went to high school there and got my first job out there when I was at the end of Year 9; I started working at KFC. My mum decided it was time for me to get a job. So, she came home one day and she said, ‘Here is an application for KFC. It's opening up the next town across, and I want you to apply’. So, I started working there.
Mum would drop you off over there as well too and pick you up?
Yes, my mum dropped me off over there. I wasn't the brightest student. You know, I just trodded along. But, yeah, mum thought it was time for me to get a job—so I went.
Shine delves into how he got into the workforce once he finished high school.
I started off in KFC when I was just coming up to 15. And I worked there for nearly two years. And then in Year 11 at high school, there was a traineeship offered as a chef at a campsite about 20 minutes out of town. So, I applied to that because I enjoy cooking and hospitality was something that I did well at school. So, I applied for that, and I got the traineeship out there.
So, I did that for two years while I was still in Year 11 and 12, and I worked out there. And then after school finished, the first year afterwards, they took me on as a cook and I worked out there for another year as a cook. And then I decided I'd had enough and I wanted to move to the Gold Coast. So, I moved down to the Gold Coast and I got an apprenticeship as a baker pastry chef. I've got a bit of a sweet tooth, so I thought that would definitely suit me.
What inspired you to become a chef?
Well, my mum used to bake every Saturday. And I would be there at home, and, always, I used to enjoy doing that. And as I mentioned, I have a bit of a sweet tooth, so it was something I did well at school, and I wasn't the most academic student. But, you know, I was good with my hands. Like I said, I enjoyed cooking, so I thought, ‘Well, why not?’. At that stage, I was like, you know, ‘This is something I like’. It was never about the money or anything. It was just something that I enjoyed. So, I was like, ‘I'll pursue that’.
He goes on to explain how long he was a pastry chef after he moved to the Gold Coast, where he actually began his property journey.
I moved down to the Gold Coast, and I worked for one place for about six months and then they shut down. So, I went to another bakery down at Kirra and, actually, that's where my whole property journey really started. I started working there with the owner, Todd, and he also was into network marketing and passive income. So, that's where he started to talk to me, you know, at one o'clock in the morning—you know, not much really to talk about, no one else was around.
And he started talking to me about, you know, that he was also involved in network marketing and passive income and started introducing to me all these different concepts about passive income. And he was training me to be a baker, pastry chef. And there was nothing to stop me from in four years going up and opening the shop down the road and being his competition.
But, you know, if you have a passive income, or as he was in with network marketing, he could train me up, and I would be able to earn a passive and he would own a part of it. And that really just opened my mind up to a new world. So, yeah, it was working for him. He started talking about that. And that started getting my mind thinking more about, you know, there's more than just working for the money. I could see how he was living—you know what I mean? He had a very nice ute, and it wasn't due to the bakery. It was due to his passive income from the networking that he was involved with.
Shine delves into more about his previous boss, as to how he was involved in network marketing and managed to run a bakery business.
Him and his partner own the bakery, and it was called Ocean Breeze Bakery at Kirra. So they had been running their bakery, I believe when I came along, maybe about six, seven years, and they had been introduced through someone they knew about network marketing. So, when I came along and started working in the bakery, as I mentioned, in the middle of the night, he would spend his time with a young 21-year-old, and we would talk about saving. And he started talking to me about money and putting ideas in my head.
And after a few months, he had introduced me to reading Robert Kiyosaki, which was, you know—that was mind blowing when I started reading Rich Dad, Poor Dad and all those other books by Robert Kiyosaki. It just opened my mind to the possibilities and the different quadrants and learning that I was just an employee and, at the end of the day, I was only ever making someone else rich. I was never going to be able to make the big piece of the pie, I suppose, just being a worker.
Discovering his passion for property in such a peculiar way, Shine discusses how long he was in the pastry chef business before he eventually moved on.
While I was in my first year as an apprentice with Todd and Tracy, the owners, there was a girl who worked out the front of the bakery. She was doing it while she was at school. And when I came along, she was just finishing school. And her name was Rhiannon, who is now my wife. So, Tracy was talking to Rhiannon at the same time, and Rhiannon was, you know, she'd been saving up money for the previous three years when I first started there, and she was ready to buy a property.
She had read everything. She was as keen as could be to buy. So, when we started to date, I was already reading and because, obviously doing night shifts, I'd be finishing around seven, eight o'clock in the morning. I would then have the day to read. And she started uni, so I would catch up with her when she was at uni. Or sometimes, I was reading and she was really keen—so that's what really formed the propulsion.
Within two years, we'd saved up enough money, and we knew we wanted to buy a cash flow property. That was our aim. We weren't worried about growth. You know, at that stage, I was on a limited income period. As an apprentice, you don't earn a huge amount of money. Rhiannan worked casually. So, between us, we had saved up $30,000. And one day she was at uni and she was skipping a class, you know, as uni students, and we came across Mount Isa—and I'd heard of Mount Isa, and it was a mining camp, but didn't really know much about it. And she sent me an email saying, ‘I found this house for $130,000. Four bedrooms, one bathroom, single garage and only one $127,000 for it. And the rental on it is 260’. And I was like, ‘What?’.
We had been looking for probably a good 12 months by this stage, going around Brisbane, Gold Coast, gone out sort of West back towards Ipswich—and we couldn't find something that met our criteria, our strategy. So, when we came across that, all of a sudden, we both did a bit of a deep dive into Mount Isa. And we had learned that xstrata had just come into town previous to this and was putting a lot of money into the town and that they were expanding the mines. So, we jumped in. And that was our first house. We bought that—I was only in my third year of my apprenticeship—and, yeah, we made our first house.
The former pastry chef shares with us the kinds of baked goods he would create in the bakery before he fell in love with property.
We did the normal bread run—so, your wholemeal, your white, your multi-grain, your sweet buns. And then we also made everything from scratch in our shop, so we didn't buy anything. We made all our pies, our pastries, all the different flavoured pies. And then, just your standard sponge cakes, eclairs, jam and cream donuts.
You know, it was a standardised sort of bakery. It wasn't a high-end bakery being right across from the beach there, Kirra. So, we got a lot of surf guys coming in, people down on the weekends, and then people in the local hotels and resorts would pop in for a croissant or a muffin. And they also made basic sandwiches and cappuccinos and everything.
Brendan Shine looks back at his time at the bakery and delves into where he learnt his money skills.
Working with them, to tell you the honest truth. I wouldn't work out the front much, but my wife Rhiannon, she definitely did work out there. And she definitely learnt the cost [of] things that would come in and out. But, I suppose for me, where my money skills really came from was from my parents. My parents were, you know, average people. My dad's on a disability pension as I grew up. He had an accident in the late 80s, and he was put onto the pension because he couldn't stand up for too long, couldn't sit down for too long.
You know, we're a comfortable family. But my parents had very good money management skills and they put away their money. They knew what bills were coming up, and they would put away a bit of money every week towards those bills. That definitely was an impression on me. So, when I started working, my mum and dad gave me a little folder and they said, ‘Right, okay, you've got rego, you've got fuel, you've got maintenance of your car—if you're working now, you're going to need equipment’. So that was a very good installment in me.
So, I started putting away my money every week. And that's how I ended up saving my money. I mean I wasn't a big party-person—and, obviously, working, I worked six nights a week in the bakery so I didn't go out a lot. So, I was able to save my money, and that's where we started off. I think we sort of got into property. And we read the fundamentals from Robert Kiyosaki and other books, and we put them into practice. And, I think, we were both very eager, and we sort of just jumped into the deep end and learnt on the go. It was really a baptism of fire.
From The Kitchen To The Mines While Property Investing
Shine shares with us the next path he took after working in the pastry chef business.
I did that for three and a half years. So, I was in the bank for about two years. We bought our first property, and we bought our second property within a couple of months. Our mortgage broker at the time said...well, we only put down $15,000 on the first property. At that stage, the banks were lending out money, hand over fist. So, you know, we borrowed 97%—and we rolled everything in, and it only cost us just under $15,000. So, the lender said, ‘You could buy another property’. We were like, ‘Can we?’. So, we literally went back out and looked for another property again in Mount Isa because things were starting to move.
And that's where we bought our second property. It was a three-bedroom, one-bathroom, double-garage, a fully-renovated house. [There] was a divorce that was going through. So, it was a stunning house. That was $127,000—and at that stage, it was rented for $260 a week. So, again, it was cash flow positive. And it wasn’t a huge cash flow, but it was paying the bills and putting some money into our bank account every week.
It sounds like you were able to pick up bargains at that point in time as well.
It was. We were at the entry level of the market and, you know—my parents seeing what we were doing—and my mum was a bit cautious about it, but my dad, he was quite pleased. And he said to me, ‘Well I've got a little bit of money saved up. I'm not getting a huge interest’—and because I was always talking, ‘Oh, I want to buy another one. Property is so cheap’—so, my dad turned around and said, ‘Okay, I'll lend you $50,000, but you have to pay me up 2% higher than what I'm getting at the bank’. And I was like, ‘Okay, I can do that’. You know what I mean? Why not? It's just sitting in the bank. I was very fortunate that my dad had faith in me.
He could see what we were doing and what Rhiannon was doing. And yeah, so he helped with his own money. So, we very quickly, or about another two or three months later, we had built a very good relationship with the agents up there. And one of the agents came to us and said ‘We've got a sale’. Again, it was another divorce settlement. They just want to sell it for what they owe as the mortgage, which was $97,000. And so, we bought that.
And about two weeks after it had gone unconditional, the agent said, ‘Would you be interested in selling it?’. And we're like ‘not really’. She goes, ‘I've got someone who's really keen. They were looking at it, but they couldn't act quick enough’. And I said, ‘Okay, well what can we get for it?’. And she said, ‘Well, I'll go talk and see what we can do’. She came back, and they offered us $129,000 and we went, ‘Sold’.
So, in a very short period—once it settled and went through registry and everything and we were able to sell it—we were introduced to the whole flip concept. We'd been reading Steve McKnight and other ones, you know. So, we thought we'll put that into practice. And so we sold that one. And it wasn't a huge profit on it, but, you know, it was more than a year's wage for me in the bakery. So, I couldn't complain.
Since then, how many properties would you say you've bought, sold, or even have in your portfolio at this point in time?
Over the last 16 years, I've probably had about 14 to 15 properties go through our portfolio. I currently still hold a couple of properties in Mount Isa, and we currently hold seven properties at the moment. But we started off like I said in Mount Isa when we bought the two houses, then we flipped one. And then, with that bit of money we got from that and the bit of money that my dad had lent me, I started doing more research.
And one day, while I was researching, I must have just put in houses, because that's all I thought I could afford—I didn't want a unit or a townhouse, and I must have open-searched—and it came up with blocks of units. And all of a sudden, I’d seen a house and it said, ‘One bedroom, $115,000’. I thought, ‘Oh, that can't be right’. And I went into it, and it was an old house that had been split into full one-bedroom units and it was for sale for $115,000. And I went, ‘Hmm’. I rang the agent and they said ‘Yep, that's right’. And I said, ‘How much are they renting for?’. She said, ‘$80 a unit’—like $360 a week. Yeah, so that was our next purchase.
And that was a really big aha moment for me. It had been my reality that we could only buy houses. I didn't even dare dream that I could buy a block of units; it just wasn't in my reality. So, you know, once that happened, all of a sudden I'm like, ‘Well, if I can buy this, what else can we buy?’. So, we're fortunate we still had the money. So, a few months later we came across a bedroom boarding house.
That was $150,000. And at that stage, they were renting for about $60 and $70 a week. So again, I think it was about 25% return on our investment on that one. It was a rundown place, and we knew we were going to have to do some work to it. But, at that stage, we were like, ‘Okay, we can do this’. So, that was where we went. And about a year or so after owning those properties, I went up to Mount Isa to have a look at one of our rentals because the tenant had moved out. And then, the agent had said to us, ‘You know, it probably needs a bit of work’. And as I said, we like to jump into things. So, I decided I would go up there and put my handy skills to work, which I had never done before, but I thought, you know, why can't I do it?
I went up, and it needed new carpets and painting. And I thought, ‘Yep, I can do that’. And then, while I was up there, one of the neighbours, who was an electrician who worked up at the mines, he sort of said, ‘Would you be interested in a job up here? What are you doing?’. I thought to myself, they're not going to hire a baker. You know, I've got no skills in the mine. And he said, ‘Just write up what you've done, what you're doing’. So, I did that. And 24 hours later I got a call from a superintendent at the mines, asking me to come in for an interview. And two weeks later, I was working at the mines and I gave notice to my boss. And, yeah, I decided I would work at the mines.
At that stage, I was still dating. And Rhiannon was still at uni down there. So, obviously, before I accepted the job, we had a bit of a conversation about all that. We weren't living together at that stage. She was still living at home. I was living back with my parents. My parents had in this time bought a house down on the Gold Coast, and I moved back home to help save up my money. And, obviously, because I was working night shift, I didn't really interrupt with anyone else.
I was sleeping during the day and then I got up at night. So, it worked quite well for us. So, I decided I would move into this one-bedroom unit of ours and I would, like I said, I would renovate while I was there. I started working in the zinc lead processing plant there. They mined zinc and lead; it’s one of the mines up there. And, yeah, I had no clue what I was doing. But I turned up on my first day and they said, ‘Okay, you're staying underneath this machine, and you just hose the concrete’. And I did that for 12 hours.
It sounds very much like using your hands, and you've got a very strong skill set in that. It wasn't really too much of a difference except that, instead, you'd be standing there for 12 hours.
It was amazing at that stage. I think it was about 2006—they were really looking for people. So, I went onto what they called the ‘pool gang’, which is just maintenance—so, hosing up underneath the big grinding mills where they grind down the zinc from the lead so it can be processed. Doing basic repairs with things—but, yeah, I was doing that for about two weeks. And then my supervisor asked me if I'd be interested in going on shift and I'm like, ‘Well, what does that entail?’. He said, ‘Well, instead of doing Monday to Friday, you'd start working four days on, four days off, four nights on or off, and basically, you'd be working up here where they learn how to process—like grinding, floatation and all of that’. And I was like, ‘Okay’. And I got a $7,000 pay raise. I was like, ‘This is great’.
So, I went up to just over $70,000 coming from a bakery job where I was earning about $30,000. I was wiping my hands, thinking this was the best.
With all the properties he has invested in, he shares one of his worst property moments.
I would say my biggest thing I have learnt was when the GFC hit. We bought a boarding house, a share house combination. And we bought that in 2006. And while I was working at the mines, we started renovating that property. And, you know, we spent nearly $100,000 on completely gutting the place and redoing it. And at that stage, there were a lot of companies coming into town because things were going quite well with the mining industry.
And we ended up landing a tenant who would take over the whole property. And they were an earthmoving company who had contracts with smaller mining companies. So, we had a lease with them for three years. It was set up at $104,000. It was fantastic. And next thing, the GFC hit and the company who we had, they were fine. But the smaller mining company that we were doing a lot of the work for went belly up. So, they didn't pay their invoices, which then meant he had to let go of his guys, and then, he couldn't pay the rent on the property.
That was a very big wake-up for us. We were fortunate that we had the buffer there to cover the drop in rent. Overnight, we basically lost $2,000 a week in rent. And there was no one there that we could take on. You know, a lot of the companies were scaling back down. So, it was like, ‘Okay, we really need to be aware or not take it for granted’. I think, at that stage, it was all roses. Everything was fantastic, and we were acting like this was going to be forever. And that was something that caught us out.
So, we were fortunate that when the GFC hit, we had a buffer. We had been doing the work on the other properties. We had renovated some of those properties and we had drawn down equity. And we had sold off two of the houses and one of the blocks of units we had bought. We had cashed up. So, we were fortunate. But that was definitely a big learning curve for us, which we still hold today.
What happened to that particular property? Did you just completely ride out the wave and then all the other properties sort of helped that one out?
That's exactly right. Actually, it was nearly vacant for a year before we could. So, it sat there. It wasn't boarded up, but we had a big electric gate on the front of the property. So, that was shut off. And we used to have chairs and tables outside—because the way the property was set up, it was a big long veranda that led into eight different bedrooms. And there was a kitchen and a bathroom and a laundry in the middle of the building.
So, we used to have tables and chairs out for the guys. We had a couple of barbecues there. So, basically, we packed everything up, shut the gate on it, and put a lock on it until we could find a tenant. We didn't want to just put individual tenants back in there because we had had a lot of trouble with that. So, we just basically decided to ride that out until it came to the other side.
That would have been quite a tough challenge. Especially when you say it was like $2,000 a week. That's almost $100,000 of income per year.
It was a massive loss. And, like I said, we were just fortunate. Our mortgage on the property at that stage was only about $220,000. So, it was more the passive side of it that we had lost and—and we weren't living off the passive income. All the money we were generating up until then, we were just putting back into it. We didn't have kids, and we were very bullish about our property. So, basically, as the money came back out, we were growing and learning new skills; we were reinvesting.
So, it actually turned out, when that happened, we were in the midst of building our first set of duplexes back on the Gold Coast. And we were lucky by that stage. We had moved into using a business banker. And when this happened, he said, ‘Well, you're already all pre-approved. You've got the cash buffer there. It's not going to affect you’. So, you know, there were a few nights of ‘Is this going to affect our build?’. We've got a construction loan, but we were lucky it didn't affect it. So, the rent would keep moving on. And we would ride it out until we could get another tenant in.
How to Get Rich Quick with Brendan Shine
Brendan Shine talks about the aha moments where everything just clicked for him.
To tell you the honest truth, my aha moment is something that is always evolving. It really is. We have been growing. Like I said at the beginning, we started off with looking for cash flow. That's what we were looking for. And then as we bought properties and we came across a multi tendency idea, our mindset grew. And that's something I've always tried to keep going—always to try to keep learning.
The day you stop learning is the day you die. There's always new strategies out there, you know what I mean? But in saying that, once I get to know a good strategy, stick to that strategy, try to make it. Once you get to know it, it becomes simple. Don't need to complicate it, just stick to it, you know? And I've always been evolving. So, I wouldn't say I've had one particular aha moment.
I'd probably had many small moments as we've gone through. We've jumped in—and doing our first development, we just sort of jumped in and went ‘Okay’. And we learnt as we went, which then when we went to the next one, we took a lot of those of what we've learnt and applied it to the next one. And it's just continued to fold. And it's given us experience over the years to be able to come into new properties and to be able to see pitfalls straight away, which we wouldn't have picked up five years ago or 10 years ago. We agreed to it then.
So, we've always been hands-on and learning. I love to read books, but reading books is nothing compared to actually doing it.
Adopting The Right Strategy On The Path To Success
Shine shares the kind of strategy he has adopted to help him succeed along his journey.
Currently, we've got a good passive income sitting there. So, in the last, probably, eight years, we have started to move more towards development, trying to build chunks of cash. Again, as I said, when we first started out, it was about cash flow, and that's what we wanted. But we learnt over the years—and as our equity grew in the properties we had and when we started renovating—we could see the amount of equity we were building into the properties all of a sudden.
And the mindset started to change too. We don't just want cash flow. Cashflow is great, but these bigger chunks will enable us to buy a better lifestyle, which, you know, having that basic income wouldn't allow us to do. In 2009, we decided we would try our hands at developing. And after much research, we found a block of land on the Gold Coast on the northern end of it.
A builder—I think there was some sort of health issue—and he had pre-approval to build a sedentary plexus three bedrooms, two bathrooms, double lockup garage on a corner. And he basically just wanted to sell it for what it had cost him. So, he offloaded that to us. We were fortunate that the agent at that stage knew a small builder and put us in contact with him. So, we ended up buying the block of land.
That was just $300,000. And when the builder came in, he said he could build it for $345,000. And the agent had given us appraisals that we would be able to look at selling it for around $400,000 a duplex. So, at that stage, we were like, ‘Oh, those sums that up’. So, we jumped in, never doing it before. But we thought you got to learn on the go. And we learnt many things through the build—what included, what's not included.
When we started doing it, we were on a bit of a hill, and they started building this big cutout. And I said to them ‘What are you going to do here?’. He goes, ‘Oh, that's not a part of the build. That's outside of it’. So, all of a sudden, we had to do retaining walls, which weren't included in it. So, it was a lesson, you know what I mean? Next time we knew. Just because the builder says it's going to be X… You know, they always say you got to have those contingencies, but we didn't have the full side.
We couldn't see what would happen. You know, we knew they were going to cut the block but we didn't think, ‘Okay if they cut on the block that means you're going to have more retaining, you're going to have to do something with that’. That was oblivious to us at that stage. So, again, it was a big learning curve.
He goes on to explain how he has learnt from his mistakes by recognising them as life lessons.
It's the little things that are hidden. We did a renovation on one of our units late 2009. And we replaced everything in the unit, cleaned it all up. But the only thing—it was a partially furnished unit—the only thing we didn't replace was the washing machine because it's only a couple of years old. It's all good. And two months later [we] got a call, the connection had busted and we had water everywhere through the place. And the washing machine had also broken down. The one thing we didn't do failed, you know. We had tiled floors. Like, it wasn't a lot of damage, but it was just funny that we've replaced everything else. Ee replaced the fridge and the oven. But the one thing we didn't replace, because it was only a few years old, was the thing that failed on us.
It's one of those lessons. And now, when we go in, if they're partially finished or renovating, we'll just sell it and we'll just replace it. So, it's all new. It's under warranty. So then, at least if something goes wrong, you've got warranties on it. Take out the extra warranty when you're buying it. When they offer it to you because, you know, as your own stuff, you know you've gotta look after it. But tenants, you know—some are fantastic and they look after everything like it’s their own. But others, they're not so concerned, they're rough.
Things break and you can't say, well, you know you can't just point your finger and say, ‘Well, you broke the washing machine’, because it could have been faulty. But it's safer to just take that warranty out, that extra bit of warranty. And you can just ring up and say, ‘Okay, this has gone wrong. I've got the warranty’. And they'll come out and repair it or replace it, whatever it is.
Since jumping into development, he shares more of the details and whether he ever sought out consultants to help.
In the first one, we [didn’t], because we thought we were being smart. We bought it all pre-approved; it had been through DA, the town planners, everything had been done. We were handed a set of building plans. All we needed to do was take it to a private certifier to get him to certify the building plans. We had all the working drawings. So, in a sense, we jumped a massive step of it, which, you know, we had done a whole development and built these duplexes. But we had never sourced the land and taken it through. So, in that case we didn't.
But the next one, which we bought, we had to do a material change of use. So, we then had to hire town planners. And we went from scratch, taking it as a rural piece of land. And we liked buying corner blocks because we can always split the houses so that the houses face onto each separate street—so they look like individual houses. So, when people come down they go, ‘Oh, that's a house around the corner, that's a house’. And people get a bit more privacy, which we found was always a comment we got when people came through the house. They'd always say, ‘Oh, we thought this was a house being built. It’s so great that they're completely separate, you're not on top of each other’.
How many of these types of developments have you done so far?
We have done four sets of duplexes, and we've also done three houses now. So, we've basically done nearly one a year. So, like I said, we did our first one in [the] end of 2008 into 2009. And then, [at the] end of 2009, we bought another block for Stocklands. And then, as the GFC was hit...because Stocklands wasn't moving the blocks, they actually contacted us. And they said, ‘We have another block, which is only three lots up from yours. And the builders pulled out. We'll give it to you for what we had offered it to the builder who was 30,000 less than the previous block’. So, it was great. So, we had paid $282,000 for the first one from Stocklands and next thing, they offered the next one at $250,000 to us.
We really wanted to do it, went to the bank, and they're like, ‘Well, you're starting to get stretched here’. And that's when I went back to Todd from the bakery. By this stage he had sold the bakery. And I said to him...because we'd stayed friends after I left the bakery and I told him what we were doing—and he said, ‘You know what, I'd love to be a silent partner in this. You guys are doing so well’. So, he came on board as a silent partner and put up 50% of the funds. So, that was our first experience into joint venture. So, we literally had two blocks. We were building on one while the other was starting to go through again. We had to do another material change of use again.
By this stage, we had a good town planner and, on board with us, my partner's father—he was a draftee, so that was fortunate for us. He designed our house or duplexes for us. So, my wife sat down with him and sort of said this is what we want. And [he] made them unique. And that was another key point we had sort of learnt after doing our first one. Because we'd bought from this other builder—we had learnt after that he'd probably done about another 15 sets of these duplexes that were identical. And, at that stage, we didn't know—we knew he was a small builder, but we didn't realise how much he had done in the estate. So, we were fortunate that we had Rhiannon’s father who was a draftee and very creative. So, she sat down with him, and they came up with designs that would suit the block.
We made it—we looked over the state forest—so we made it so each bedroom had a bit of a view. And, as I said, we split the block so that each one had their own driveways on a separate street. So, they look like individual houses. It didn't cost a lot more to make them unique, but we decided we wouldn't go with the cookie-cutter sort of design. We would make them unique. And we would aim towards the owner-occupier. And, at the end of the day, we sold each of them to an owner-occupier.
And, actually, at that stage in 2010–2011, we actually got the highest prices for the duplexes in the estate. Most duplexes were going for around the $400,000 to $415,000, and we had achieved $425,000–447,000 over those four. So, you know, everyone was willing to pay; they valued up. I mean, you could buy a house and the estate of that stage for that same price. But they were unique, and they were a bit different. And that was their selling point.
A lot of investors just want to do the cookie-cutter process—get it over and done with. But when you actually put a little bit of detailed time, you can actually achieve a much better result than just to go with the standard stock-and-bill.
It doesn't have to cost that. And that is one thing over the years. And speaking to other people, you mean, a lot of them just go, ‘I'm just going to buy this house and land package’. But they don't consider that there's probably another 50 of those identical houses down the road. They're like buying a townhouse. What makes yours unique to the next house down the road? Why are you going to get a better price than the guy down the road? You know what I mean? You've got the same layout, the same everything. You've got a lot more competition. Whereas if they're unique, when people came in, they fell in love with it. It was different. They couldn't go out and purchase that anywhere else.
So, for us, that strategy was that we would aim towards our own occupier. We would play on their emotions, that they would fall in love with the property. And we knew that they couldn't find that somewhere else. So, it was unique and that was our strategy with those duplexes, to aim towards that market. And it worked out at the end. We got a good price. We were very happy with it.
Shine shares more about his portfolio, and how many properties he is currently holding.
I currently hold seven. At the moment, just on our investment side, the value would be about $2.7 million in value. And our debt ratio is about just under $2 million for everything. But then, as I said, we've always held a high ratio, so, whenever we could, we would redraw out the equity. So, we also have another $176,000 in offset accounts, which we've drawn back out of the property so that we're ready to go. So, if we find something, we're not having to go to the bank and trying to show our savings.
We've generally got a good deposit, plus from our other developments, we've built up a good cash base to be able to fund to get things started. So, yeah, we currently sit around 80%, which is high. I suppose, for us now, we've got two little girls, we will start to bring that back. But when we were younger and we were hungry, we were happy to ride on the edge of it all.
It's really interesting. Just the reason why I ask that—because you've got passive income coming from those properties, is that right?
That's right. So, at the moment we derive just over $4,000 a week in rental income. So, we definitely have cash flow. So, again, we've had most of these property sales. We did a few more houses back in Mount Isa in 2012 to 2014. I went back working in the mines, and we ended up doing prefab houses up there this time around. There were some blocks of land that were quite cheap, and rates were starting to go back up again. So, to build up there was taking about six months. And it was about $2,000 a square metre, which meant your house is going to cost $450,000 plus to build a basic house.
We ended up doing prefab. We found a company called Westbuilt out at Warwick. We got houses built for about $270,000 a piece. They were three- and four-bedroom prefab. They took them eight weeks to build. They brought them up on the back of their trucks. They sent their guy out two days before. And he just drilled the pier holes where the house was going to be reversed in. And they literally reversed these two pieces of the house in, dropped it down, and put it back together. And all they had to do was patch up the plaster work inside, pull out the tiles, and then our electrician would come in and install the air conditioners. And the plumber would come in and connect everything up underneath.
But everything else was already in the house—all the kitchens, vanities, cabinetry, carpets, fans are all there. And then I would come in on my days off from work, and I had some friends that helped me. I did all the landscaping, everything. So, pretty much from the day we said, ‘Let's build this’, it took us about four months to have it complete. They would have all their side done. And then that was just me working four days on, four days off. I could have done it quicker if I just hired someone in, but I liked using my hands.
So, I did all the landscaping, installed irrigation—because, you know, it's Northwest is quite hot up there. Again, it's going to be tenants. So, I installed irrigation systems just to make it as low maintenance for them as possible, and so that was the last fall. And we re-rent them out now to Queensland ambulance, Queensland police, school teachers; they bring them in. So, when we decided to do that, that was that strategy in Mount Isa.
They want to bring people in. They want to give them a nicer home. A lot of the houses are quite old, and so they struggled to get people into the town. So, when they were looking for a property, they always went to new properties. So, at that stage, that was our strategy to aim towards them. And that has worked out quite well. We’ve had a Woolworths manager in one of our properties for five years. And, like I said, we've had the other services. They just basically change out their people. If someone gets transferred, they just generally put the next person in, which has been fantastic.
Despite prefab saving time and money, Shine discusses why many aren’t choosing to use it.
Do you know, I think there was a stereotype. I know I had it myself. And when my wife first brought it up with me, you know, ‘Oh, maybe we should look at this’, I was thinking that they were going to be very simple, very basic laminate sort of style that was going to be not appealing. I was thinking old cabins—you know, you go to a caravan park and you get those little cabins, and that's what I was expecting. And when we went to our first one, and I went into the display house, I looked at it and I honestly thought there is no difference between this house here and our house at home. You know, they're both brand new.
You have all the mod cons. You can have whatever you put into a normal house you can put into these houses here. So, in our case, once they went on site, 99% of people couldn't tell that they were prefab. They just thought it was a house that was sitting 800 up from ground. You could not tell at all.
Even though we see videos and marketing material behind it, people just don't accept prefab or take it on board as they should. But it's just fascinating. It might be a huge market here potentially to do this because it would spice things up.
I think it is. Honestly, it is fantastic. And the other side of it, where they were building our houses, I had two teams that would work basically from six in the morning till 10 o'clock at night that would come in and you could keep working. There's no wet days; there's no downtime. You know what I mean? You have them on a production line, and they just literally move them along.
Honestly, I think until someone can see it, they then realise the quality of them. They just don't. It's just that perception that they're of lower quality—they're not going to be as high quality as a standard brick and tall house—which is not true at all.
Once you've actually profited from these developments, did you reinvest that or put that money back into the portfolio to pay it down? What did you do with those funds?
With the duplexes we did down on the Gold Coast, at that stage with the first set, we kept one. Well, actually my parents came to visit the building site we were on, and we looked over the Nerang State Forest. We were halfway down a bit of a hill, and my parents loved one of them. So, they said, ‘If you're happy, we will buy one off you’. So, we sold one to my parents. And at that stage, I had moved back to the Gold Coast due to family issues, and we were renting near Robina. And as we were progressing, we thought it would be cheaper to live in this other duplex. So, we decided to do that.
And due to us always having investment properties, and, at that stage, the $21,000 was available as the first-time owner’s grant. My wife decided she would...because we had built it underneath a company structure. So, we sold it from the company structure to my wife in her personal name and she was able to apply for the $21,000. So, that was a great bonus to have. It was very handy. And she then took those funds and set up her own.
She has an online travel business, which obviously today at the moment is not the best, but she set up a travel business doing travel accessories, travel products, which was a passion of hers. So, she took those funds to set up her business. But the next two lots that we did at that stage, we decided to sell them. Looking back on that now, that probably wasn't the smartest idea. With the growth in them, we should've kept them.
But at that stage, our mindset was, ‘We will build; we'll take the chunks out of it’. And so we did that. So, we took the money out, and we reinvested it. When, like I said, I had the opportunity to go back up to Mount Isa, this time I went working underground—and because I don't like sitting around on my bum. We were offered the blocks of land. We found three blocks of land in Mount Isa over an 18-month period. And we did the prefab property. So, on my days off I would be working on those properties, maintaining the other properties. We were very hands on.
And so, we did that up until 2015. By that stage, we had our first daughter Isabella. And my wife, you know, we were struggling living out in the middle of nowhere without any family, which is completely understandable. So, we decided we would relocate back down to the coast. And it must've been the right time because I went into work to handle my notice to say that I wanted to resign. And there was a big work meeting and they said, ‘We want 200 people to take redundancies’.
I've always been a big believer that things happen for a reason. When you put it out there into the universe for whatever reason, it always comes back in some form. You know, you may not recognise it. But when I look back on it later, I’m always like, you know, we were looking for something or I was confused about something, and next thing the answer just seems to appear.
So, we had decided to move back. My wife took some time off work. And we relocated everyone back down. And I thought at first I might do fifo, we'll see how that goes. And that lasted like two months. And that's when we decided ‘No, this wasn't working out’. So, like I said, I went in to give the notice and they put up the redundancies. And so, I had to work another two months.
That was the catch. They weren't ready for everyone to go straight away. But I took the redundancy, and I came back to the coast. And we had our block of land already down at Lambeau Heights in Northern rivers, standing on the Tweed. And so, before I left, we had whatever equity we had in our properties. I had a good income, and we got our house plans drawn up for our family home—our forever home—and got everything approved before the end of the eight weeks. And I took that. And that's when I took my redundancy as I said.
And we had the finances behind me now. I didn’t have to go to work. But when there was a delay on starting up the build, I thought, ‘Well, I don't want to sit around again’. And that's where my lawn and garden maintenance began; it just happened. And it obviously was meant to be, and it grew.
A Mindset That Moved Brendan Shine Forward
Shine goes on to share with us his biggest driving factor for getting into property.
As I said there at the beginning, my parents, my dad was on a disability pension, so there was never a lot of money. We were comfortable. But, as I started working, I started learning about passive income and what it could offer. It became a really big draw for me to be able to be financially able, to be able to do things that I wasn't able to do as a child. My parents weren’t able to offer that to me.
And I wanted to be able to have that freedom—to be able to go, ‘I want to learn French’. So, I can stop, and I can go and do that. I'm not just locked into work. After all my readings and learning, it really came apparent to me that if you're going to just go to work and put your money into super, you're going to work until you're 65 or plus these days. And then your best years are gone. And then you get to retire and then you get to travel.
To me, it didn't make sense. So, my driver behind it was: I wanted the ability to have that freedom if I wanted to stop and I wanted to travel. At the very beginning, the driver was the passive income to replace my income. That was my original goal. I wanted to earn $600 a week. That was my goal, because that's what I was earning. And I was like, if I can do that, I'm set. Obviously I was young, I didn't have a lot of expenses. But that was the goal, and that was my driver.
And then as life has progressed, we've kept growing and we've had a family now. So, now it's more about being able to provide for my family—to be able to provide for my girls. If I want to be able to send them to a better school or if I want to be able to put them into certain educational programs, I've got that ability to do it. Whereas if I was just working for ‘the man’, I have a set income. And it doesn't matter how hard and how good I work for the man. I'm still going to have that set income.
It doesn't matter what I do. But when I work for myself or I build my property portfolio, I can earn extra money. I can create money. And every Monday morning, I know that money's going to come into my bank account, and I've only just got out of bed. And if I decide to travel—like, we were fortunate enough, we worked our tail ends off until 2009, I didn't go out at nighttime. I would be doing renovation; whatever work I could do, we did do. And we sacrificed. So, in 2009, when we sold off one of our blocks or units and two of our houses, we went traveling for three months.
Me and my wife—we went to Europe, and we had a fantastic experience. And that even pushed me further. Now that I had experienced that and I was able to enjoy that, it gave me more reason to pursue that—to be able to have the choice, which I think most people don't have. You don't have a choice. You've got to go to work. If you don't go to work, you can't pay your bill; you can't survive. That's where my mindset comes from. It's about being able to provide, to be able to give back to my parents.
When we got married, we were fortunate enough again. We had the finances; we got married in Greece. A lot of people couldn't do that. But we enjoyed Greece so much. We went to Santorini on our first trip, and we had the money. We were able to pay for my parents to just come. My parents were like, ‘I don't know if we can afford it. But [we said] ‘It's okay, we will pay’. We were able to do that. I never would've been able to do that if I had stayed working in a bakery. It just never would have been possible. It opens so many doors.
The hard working investor talks about the kinds of mentors and resources he came across that have contributed to his success.
Do you know what we didn't, which again, looking back on it now, that would be something where I would have been able to progress a lot faster.
We learnt on the job. We did a lot of research, but at that stage, we didn't. Like today, I'm involved with a lot of different networking groups. Matt Jones, for example. His resources are fantastic. Even though I've done developments, I go on and I listen to his different experiences and the different people that come along. I'm involved in different Facebook groups and you can ask questions.
So, I think if I had that 10 years ago, I'd be in a different spot to where I am today. But back then, you know, me and my wife, we bounced off each other.
We worked really well together so that we were fortunate. What I lacked, she had good strengths in, and vice versa. And we learnt in the trenches. We have the mindset, and we got in hard work. And as those things arose, we would then seek the answers, or we would then ask the town planner, ‘How do you do this?’.
One of the first ones [we] had done—our builder, he had never built a set of duplexes. And it came to the end when we were strata titling and there was an infrastructure charge of $15,000 and we were like, ‘What are infrastructure charges?’, and the builders like, ‘Oh, I didn't allow for that’. And we had to go to the surveyor and he's like, ‘Oh no, that was our cost. It's your cost of strata titling, you need to have this.’ And we're like, ‘Oh’. Again, if we had a mentor or we had someone, we would have known that.
So, looking back on it now: Having those team players, having someone to help you, someone who's already done it, who's down further down the path, would have been fantastic. But we took our journey. We took our path. And we learnt from our mistakes. And then, we would take what we learn, and we would then put it into the next property, the next deal. And it's been a process of 16 years of learning stuff continuously. I'm always evolving and learning new things.
It's amazing what you've achieved in that period of time. I'm inspired just to hear your journey. And I think as part of that, I guess it would have been great to have the mentors there. But nothing beats having that experience as well. And you learn those things so much faster and quickly, too, to be able to apply them.
They stick in your mind a lot stronger. And that's what I was saying earlier. You can read and read, but until it happens, it really sticks in your mind. It's a big lesson, you know what I mean? I suppose this is the impact they can have. You can read it and go, ‘Oh that's not good’. But when it actually happens and you're in the trenches, you know what you’re going to remember for that next time. Or, that's something to really observe when I go look at the next development or next property that I’m going to rent, you know—the infrastructure that's around it. You know what I mean?
You become a lot more aware of your surroundings. It's not just the house you're buying or building. It's the surrounding connections.
A Great Advice For Property Investors And Developers
Throughout his property investing journey, Shine reflects on the best advice he has received.
Always try to be the small fish in the big tank. Always try to be around those elephants—even though we didn't always emulate that—and get out there. But as I evolved, in the last four or five years, I've definitely taken that advice. I've joined up with a lot of different property group and everything. And that has been the best thing I could've done because there are so many people out there that you wouldn't even realise who have done so much.
I go to Matt Jones meetups once a month. And you meet the average person, you know, you wouldn't think of it and you start talking to them, and they're like, ‘Oh, I'm doing a 10 lot subdivision’ or ‘I'm building five townhouses’. And they're lessons, that when you start talking to them, you think ‘Oh, I didn't realise this’. And you go, ‘Oh, I hadn't thought of that before’ and ‘How did that affect you?’ or vice versa. When I'm talking to them, I give my experiences. And you get that back and forth happening.
'I started learning about passive income and what it could offer. It became a really big draw for me to be able to be financially able, to be able to do things that I wasn't able to do as a child.'
If he had some time to reflect on his past self 10 years ago, we find out what he would have said to himself.
I probably would have said, ’Stick to the strategies that you're on at the moment’. You know, for us, we started doing some of the developments, and it became a lot simpler. You know, once we knew the rules, how to do it, and then we sort of divulged out of it like ‘No, this is too simple. Are we missing something?’. And we started looking at other things. And I think, looking back on it, if we had stuck to what we were doing, finding the blocks of lands and the duplexes, I probably would have done more.
We started looking at other opportunities. We didn't pursue them. But there were a lot of opportunities we probably missed because we sort of went off our paths a little bit. But you know, thankfully, it didn't hurt, I suppose, our financial position when we did go off our paths a little bit.
The Combination Of Skill, Hard Work, Intelligence And Luck
So Brendan, how much of your success is due to skill, intelligence and hard work, and how much of it is because of luck?
I would really say, you know, 25%...when we went into the market in Mount Isa, even though we had learnt about strata coming in and they'd put money in it, we never anticipated that properties would grow so quickly. Houses were being sold before they even got onto real estate.com by mid to late 2005. We were lucky that we had made a lot of good connections with real estate agents up then. So, we were getting access to it. And because they knew we were ready to go when they came to the market, we got access to them. But yeah, 25% of that, you know—we couldn't forecast that. The other 75%—it really took us years on the front line, learning the process, taking actions, taking the risks, working through these things, learning how to pinpoint the properties and their potentials.
Dealing with the tenants, financial education mindset, the accounting side of things—like, we managed our properties for the first 10 years, so we dealt with all the tenants. So, you know, doing the rental tenancies and making sure that they're up to date with their rent, renewing their leases when someone moved out, and making sure that we had all that covered. And then, as we sort of moved into the development side of things: dealing with the local councils, compiling the development applications, even though we ended with the town planner, but it was still learning that process, you know, getting through that, dealing with covenants when we went in, what you can, what you can't do. So. it really has been a lot of work being in the trenches.
Seventy-five percent really comes back down to hard work, you know what I mean? If you are willing to put yourself out there and learn, you really can succeed.
I was just going to say I haven't really heard that many people actually manage their own property. So, hats off to you because it's not easy managing your own.
Again, it was that mindset of ‘We can do it’, right or wrong. Like now, we have property managers who look after our properties. And I deal with them, and they deal with the tenants. But at the time, we were like, ‘Why can't we do it?’ We probably lost some rent, you know what I mean? We weren't the best property managers; we weren't. But that being said, the process of it all and going through it again, it was another massive learning curve—dealing with tenants coming in, how to manage tenants' concerns or complaints.
I mean, we had some tenants that were absolutely fantastic. And you wouldn't know that there was a problem at the house and they repaired it. You have other tenants who would ring up and complain and tell you they need an electrician to come out because the light wasn't working, and it turned out they just didn’t know where the light plug was. The electrician says, ‘Yeah, they didn't realise the light point was on the other side of the wall in the laundry’. And I'm like, ‘Really?’. But you know, again, I've been there. So, now, I suppose I have an appreciation for my property managers who will look after my properties when they're going through things.
Again, I've been there. So, I understand what they're going through. So, you know, it's not an easy job. I think a lot of people just expect miracles from their property managers and they're just going to be able to solve everything. Sometimes, it's not that easy.
You're dealing with people. Sometimes, better for worse, they can make your life quite difficult or they might have good jobs, but sometimes they can do the silliest things. Like the light switch [situation]: He was an engineer who worked at the mine, and he rang me and he said, ‘The light doesn't come on out the back’. And I'm like, ‘Really?’. It was a brand new house, and he just couldn't find the light switch. He was flicking a switch. He was looking for the light to come on outside. And I didn’t know what switch he was flicking, but it wasn't the light out the back. And we ended up with an electrician there.
Simon Loo is an expert property buyer’s agent and director of buyer’s agency, House Finder. He has built up a wealth of knowledge over his many, many years of working in the property industry. We are lucky enough to learn some of his expert strategies and listen to his advice on the importance of property prices and areas.
Join us as we delve into today’s topic of how the property and the area that you buy into correlates with the ability to consistently have your property tenanted. We discuss the areas you should be focused on, a certain type of property that has seen a significant downturn in demand, how the COVID-19 pandemic has affected what people are looking for in a property, and much much more!
'Just because you can doesn't mean you should. I think that applies to property quite a lot.'
Diving into this topic, we discuss the current trend that Loo is seeing specifically in the Sydney property market.
In the world of property, there's so many things you can do. There [are] so many types of properties you can buy, you know, not even just physically, but location. You can buy in regional areas, capital cities; you can buy in different states, and the types of properties you can buy could be units. They could be houses, townhouses, villas; they could be off the plan, house and land packages. They could be commercial properties, development sites. Like there's so many different things you can do. And every different person you speak to will have their own opinion on what's, you know, the best performing and the best types of properties.
But I guess today, what I wanted to talk about is the type of properties that will help you ensure that it goes through the time test. The test of that property being consistently tenanted, you know, causing the landlord as few headaches from both a vacancy or a tenancy perspective and from a maintenance perspective.
Also, one of the biggest things that I focused on as with my own portfolio and as a buyer's agent is I emphasise the fact of avoiding units. Now, units in Australia at least are never going to be as sought after as an accommodation option than houses, standalone houses with their own yard. The culture in Australia is, you know, people enjoy their own space. They enjoy outdoor living. They enjoy doing barbecues and, you know, having people over and all that kind of stuff.
Now in Sydney, literally in recent weeks, recent months, there's been a significant downturn in rental demand from units, especially units in where there's a lot of support like, you know, let's say, for example, areas like Mascot and Zetland and those kinds of pockets and, you know, maybe even areas like Rhodes, where there's just a lot of units, you know, built by Mirvac and Meriton and those kinds of unit hubs.
Now I've noticed in these areas, a lot of the landlords are having to drop their rent significantly. And when I say significantly, I'm talking, you know, 30%, 40% in some cases to be able to, you know, even attract inquiries. A lot of these units are not even rented out yet still. And they’re throwing ridiculous incentives as well. Like, you know, two months free rent, you know, three months free rent, furnished, you know, all these kinds of things. And they still can't get the units rented out. And the bottom line is it just appeals to a very limited amount of potential tenants out there. Only certain types of people that want to rent these particular properties. A large chunk of that are students or people that might be married, they might be, you know, new to the workforce.
What The Majority Of Australians Are Looking For
Loo delves into why there has been a significant drop in demand for units and provides some tips on what to be looking for in a property.
You've got young people who, you know, maybe used to live with a couple of mates, but because of COVID, maybe a bunch of them have actually moved back into their parents' houses. So, the demand for this type of product is extremely low. And the only way that they can attract a tenant to live in these units wherever it is, is really by reducing rates and reducing rent. It is one of those things that, you know, can really impact a landlord's portfolio. Because, you know, having negative cash flow or having less cash flow over the long term is hugely detrimental.
It's not something that can be sustained over the long term. So, definitely, you know, when you're choosing a property to buy, now even more than ever, even before COVID, only focus on houses. It's really important to focus on property with its own land component. It's really important to focus on houses that are private to separate from other people because those are the kinds of properties that have the biggest demands. Those are the kinds of properties that affect the best type of tenants, which are going to be families with kids. So, you know, buying that type of property is super, super important.
I think, also, the characteristics of the properties are also extremely important as well. So, you know, you'll see here all the time now, you know, nowadays that there's a lot of people out there talking about, you know, dual-living properties and properties that have been cut up into an abnormal number of rooms to increase rent, to maybe lease out to two separate tenants.
I think those were risky to begin with, but now more than ever, you know, the demand for those properties are probably quite low. So, you know, the type of properties that I like to focus on [is] the type of houses we talked about. Only buy houses. But just keep it really simple at the end of the day—three or four bedrooms, you know, living area, dining, kitchen, just a very typical, I would almost say vanilla house. Because those are the kinds of houses that most people are after, you know, to live in. They don't want any quirky things that are, you know, if it requires a lot of stairs to get up and down again, that's a bit of a negative factor with a rental property.
You know, if there's a lot of maintenance ensuring that the property is structurally and physically sound and, you know, ensuring that the property is in a very presentable, a very clean and tidy state and safe as well. I think that's also important. So, those are some of the characteristics that I try to incorporate when I'm buying properties nowadays for clients and for myself as well.
It's really, really interesting that you mentioned all those because I guess it gives you good criteria or a guideline because it's very easy with thousands and thousands of houses out there to choose from, which one do you choose?
And sometimes we all fall back into choosing via emotion rather than choose based on criteria and guidelines and facts. And by doing that, it doesn't really help the situation because if you're looking for an owner-occupier, different story, you will definitely be choosing things that you will like, that you can picture with the kids in there, yourself and so forth.
But when you're looking at an investment, we're coming back down to affordability. You have got to make sure that you are choosing it in a market that is suitable, that will attract the most tenants, rather than say an upper-end market where properties are worth like $2 million, $3 million, $4 million, $10 million—which completely attracts a completely different market.
And especially in tougher times, that kind of drops off eventually. And that makes it really hard. Just as you said, there's a lot of apartments on the market, and there are only a certain amount of students—especially a lot of them that were from overseas have now been restricted from coming back into Australia during a pandemic like this. It's going to be very, very difficult to rent out to them because they're not around.
And then who do you fall back to? You fall back to the local market. And there aren't actually very many students who are very well-off to be able to afford them. As you said, they go back to their own parents' place and stay there just to, I guess, save a few dollars here and there. But it's quite challenging in that sense.
But then again, if you're not looking at that market, there may be the baby boomer market. But, I think, that they still will be looking at townhouses instead because they still want a bit of space, but not tight into [an] apartment-living type of style. And that's where demographics and so forth is changing over this period of time. Because, obviously, we're seeing a lot more medium-dense housing compared to, you know, higher-density housing around the area.
The other thing I think is worth mentioning as well is, you know, tenants are very smart people. I think as landlords, we sometimes like to see tenants as just, you know, a factor that will assist us in reaching our property investment goals. But tenants like, you know, even if they're renting, let's say, you know, previously you might be renting like a two- or three-bedroom unit, but then you see the market falling, you know, you see the price of the units around you, from a rental perspective, dropping as well.
And then you immediately think to yourself, ‘Am I getting the best value out of this product, or out of this property that I'm living in that I'm renting or is there something better out there now?’. In most circumstances, people always think upwards. And I think some tenants are not immune to this, but you know, they're always thinking what's next.
Like, how do I improve from this? So if they're suddenly thinking, let's say, for example, they're paying $600 a week in rent to rent a typical unit in Sydney, but then now they're looking at the market and they're realising, you know, for $600 a week they can actually get into a townhouse now or get into a villa or get into a house, you know, or get into a nicer, bigger unit. Then they're going to be looking at those kinds of options and they're going to be comparing it to what they have. And I think at the end of the day, you know, it plays into, again, the fact that, you know, if you have a product that most people want to get into, then I think it's going to help you a lot in the long term when it comes to a rental perspective. Location is key.
You mentioned buying, you know, properties that people are buying potentially emotionally as an investment. If you do that nowadays, it's even more damaging potentially than before COVID because, you know, buying emotionally, a large part of that is buying into what most would consider ultra blue-chip areas—as expensive as you can get. Now, the demographic for people that are buying those properties and for people that are renting those properties, you know, are generally high-income earners.
And high-income earners at this present time are some of the people that are getting affected the most. They might be running businesses that have taken a massive hit. They might have a really large share portfolio that's also taking a bit of a hit. Well, maybe not recently; it's gone a bit crazy. But in general, you know, you've got to look at these kinds of elements, you know, as to what most of the population is after at the end of the day.
Looking For The Best Property Type To Invest In
We discuss Loo's opinion on the type of property you should be looking to invest in and the importance of the area you buy.
We talked in previous episodes about buying affordable housing and affordable areas. That still rings very true. I think sticking to houses is extremely important. If you're in a built-up large population city—like Sydney and Melbourne—, then yes. You know, townhouses and villas and duplexes and things like that are definitely viable options. But if you're buying in southeast Queensland or Brisbane, you know, where the price of a house compared to a townhouse or a unit from both a buying and a rental perspective is an extremely small gap, definitely go for the house with land.
Sticking to built-up areas—again, super important. I think there's been a lot of hype about regional areas as of late. Again, I don't have a crystal ball, so I don't know what's going to happen in terms of growth. But it only makes sense to buy in areas or to focus on areas where there is consistent population demand.
If you do experience a vacancy or if you have to sell it one day, if you have a house and unfortunately, you know, a few years down the track, you come into some unforeseen circumstances personally, and you have to let it go—you don't want to have to either wait around for months and months and months for the right buyer or drop your pants in terms of the property prices. So, I think it's super important to also consider how sellable the house is—and you need to take this into consideration when you're buying it.
If I'm buying a house—if I had to sell it the next day—, is it going to be a huge issue? And if you buy like a really quirky house, if you buy a house that has, you know, a lot of investment credentials perhaps—when I say ‘investment credentials’ I mean things like having a lot of different rooms or having like a dual occupancy alternative, like things like that—, you're not appealing to owner-occupiers when you sell it. You're only appealing to other investors which are very limited in these times. So, that's super important.
Just one last thing as well: I wanted to mention the trend of working from home. It has been accentuated with this whole COVID-19 scenario. So, you know, working at home options—even though it's safe to go into an office, I think there's, you know, you see articles and you hear a lot now that, you know, a lot of companies are having to adapt to that kind of work lifestyle nowadays.
So, a lot of the things that I've been focusing on for clients currently are properties that have that potential or that extra area within that house that people can set up their individual home office, you know, away from the other property.
Now, you don't really get that with a two-bedroom unit. You've got that extra room, but it's not really separate for people to be able to work completely away from their family or from their kids. So, I think when you have a property that has, you know, a dedicated area with space where people can set up a proper home office, I think those will be in significant demand as well.
The Impact of COVID-19 On The Property Market
More people have been forced to work from home due to COVID-19. And Loo shares his perspective on how it will impact people buying in regional areas and built-up capital cities.
There's a lot of people talking about it now because the need to work in an office is not as important as it was before this whole pandemic thing started. Moving to a regional town or moving into maybe like a seaside location is going to be ‘the norm’. But—and this is very big but—I think the reality is most people romanticise that kind of lifestyle, but it's not like there's going to be like a dramatic shift from people wanting to live in a built-up capital city area to more regional areas just because they can, or just because they can afford to.
Because, at the end of the day, convenience, you know, family and friends, lifestyle amenities, infrastructure, like you said—I think all of those are at the core of what most people want from a place to live in. Believe it or not, I think a lot of people also think working from home is great and it does have its benefits, but, at the same time, there are a lot of people that actually desire to work in an office.
They actually want to get away from home, and you have to go into a proper office, you know, if not for the ‘professional feeling’, you know, ‘this is my place of work’, but really just for the social interaction of working with co-workers and colleagues and things like that. I think once things calm down a little bit with [the] whole COVID situation, I think people will still return to offices as a majority. But definitely, the option of working from home is going to be increased as well.
There are more opportunities to buy because of the amount of distressed sellers due to the pandemic, and Loo provides some tips on what to focus on to ensure you make the best possible investment.
I think at the end of the day, people prefer to actually see and hug someone and take someone's hand in real life. I don't think that social interaction will ever diminish. But bringing it back to property—that's what I've been looking at for my clients. In recent times, my focus has always been below-market value, distressed properties, which we're seeing a lot of. People that really need to sell, which is good from a buying perspective. We're finding properties that have really good cash flow.
We're finding them houses that you can add value to. When I say ‘add value’, meaning that, you know, you can add extra rooms and extra bathrooms; you can make it worth more by spending money into it. That's the main criteria that I focused on as well. But, you know, on top of that, what we're looking for now are elements within that property or within the house that will enable people to work from home to run home offices. They have elements that will retain and keep good tenants in the long term. And if those tenants were to leave or if they decide to not pay rent or anything like that, it's not going to be a huge challenge to find a replacement tenant.
So, you know, looking at these elements I guess, in summary, focusing on built-up areas, focusing on areas where there's a lot of demand for people to live in, you know, mostly capital cities or within sort of 20 kilometres, 30 kilometres of a capital city. Focusing on houses, you know. Don't buy units, if you can always focus on a house that you can control the land underneath it.
So, even sometimes, when you buy a villa or when you buy a townhouse, you might have to pay body corporate. Like, I would still probably avoid that if you can afford to. And ensure that the house that you buy isn't anything wacky or anything extraordinary. Just ensure it's like a simple three- or four-bedroom, you know, family-friendly, safe, clean, tidy house, you know, that you can add value, that you have that option to make cosmetically better in time—but at the same time, still livable and rentable from day one. I think that's super important.
I think the age of the property is also quite important, you know. Try and avoid properties that are super old because it could be a pandora's box of maintenance and those things. In a normal market, it might not be that much of a problem, because you might consider it as a renovator or something that you could easily flip. But during times of uncertainty, buying a property and flipping it, or buying a property and blindly expecting the house prices to go up, is not a very sensible approach.
So, you know, ensuring that the houses are in good condition is also super important. But again, all the fundamentals still make sense. So, you know, close to schools, shops, parks, transport, away from power lines and main roads. And avoiding things like flood zones, bushfire zones, like all those factors still need to be super important. And, I mean, those are the kinds of properties that we'd be buying for our clients. Ensuring all those kinds of factors do come into play.
The Importance Of The Small Details
I just want to add one other thing as well in regards to actually buying land. I guess we're very ‘pro-land, purchase housing’ type of investors. And I guess the reason why I want to sort of just emphasise that a little bit more—just so that people understand why—[is] because there is value in the land.
So, if down the track you find that the land itself can actually add more property to it—such as, maybe, a granny flat in the back if there’s space for it, or maybe you could subdivide it and turn it into two blocks, or even just knock it down in the future and turn it into a duplex with dual occupancy—there's opportunity to do all those types of things.
Obviously, you're not going to do that immediately because you want a tenant to be in there to cover and pay the rent and so forth to pay it off. But once you’ve paid it off and it's secure in your portfolio, and you've got this asset, there are so many opportunities that you can do with it.
And that's what I always try to look for is when I'm purchasing a property, I want to be able to say, ’Okay, in future, if I want to add value to it, is there potential or opportunity to do that?’. And I would obviously do my due diligence before that. But if there is, then there's a chance that you can do something to it later on and increases its value straight away.
Granny flat is a really good example. I would say 9 out of 10 of the clients that I speak to ask for granny-flat potential. But granny flat potential—you have to ensure there's like a lot of nuances with the block and the type of property that's on there already. Whether it's suitable, just because it meets the requirements of the 450 square metres and, you know, within 3 metres set back from the rear boundary, like all that kind of stuff that you would normally find as part of the requirements to build a granny flat; you need to ensure that it's got its own access.
You know, does it have enough frontage so that you can access the granny flat without impacting the front house? Can you fence it off from the front house so it becomes literally two separate properties? If you build this granny flat, will it affect the front house too much?—meaning that, maybe, before the granny flat that house or that property, you know, might have like a decent-sized backyard, but once you chuck on the granny flat, it's got zero yard on the front house. And it can really devalue the overall property if that were the case.
So, there [are] all these little things that we need to consider as well. Just because sometimes I see this a lot—like, you know, like selling agents when they sell a property, if it meets the requirements of being subdividable or [have] granny-flat potential to advertise it as such. But, you know, just because you can, [it] doesn't mean you should. I think that applies to property quite a lot. So, you know, if it is subdividable, if you can add on that granny flat, can you do it sensibly? Can you do it so that it does not impact the value or the desirability of the property itself?
Because, sometimes, I do see people chuck up these granny flats, but there's no way to access that granny flat except for through the main house. So, in [the] future, if you did want to rent them out separately, if the council permits and all this type of stuff, you know, no one's ever going to rent a granny flat where you can't get to it or you have to walk down a very narrow laneway to get to, if that makes sense. There's a lot of factors to consider.
Hadley Nightingale is a buyers agent and property investor, where he actively invests in the Whangarei Markets and in Palmerston North. Before settling back in New Zealand, he had the opportunity to work in the agricultural industry in Wheatbelt, Australia as he had always dreamed of being a farmer. But once he returned to his home country after eight years, his passion for investing in New Zealand real estate quickly flourished which has led him to where he is today.
Join us in this episode of Property Investory to learn how Hadley Nightingale started building his portfolio and how he figured out how to increase his wealth through investing in property!
‘When you're going to purchase a property, your strategy is the key thing.’ Hadley Nightingale
We find out what Hadley Nightingale’s day to day role entails and how it ties in nicely with property investment.
I'm a buyer’s agent in New Zealand and also a real estate investor myself. So, [I’ve] been in the buyer’s agency space for about three years now, or coming up to three years, and from a property investment perspective, about the same time. So, they sort of went hand-in-hand to a degree, as we got into things.
He shares with us what a typical day for him is like where he usually finds himself devoting his time to his clients.
My day consists basically of being out there in the market for both myself and my clients to acquire property. So, working one-on-one with them to sit down and dive into strategy, work through what's really going to get them to the next level and what they’re looking to achieve with their property goals. For some people it's to buy one house, for others to build a portfolio and a legacy. So, I suppose that's the exciting thing is—working with a range of people to create outcomes and get them what they are after.
Nightingale goes on to explain how he became a buyer’s agent in New Zealand.
I'm based in New Zealand. And it really came about through my own personal property journey earlier on. And the piece—so, back when I was 20 myself and my parents went out —we bought a piece of land. And the whole way through the process when we went and saw a real estate agent who said, ‘Hey, look, I've got this amazing deal for you’—which I've now learnt isn't always the best thing to hear of a real estate agent's mouth. Secondly, when we went to a lawyer who went, ‘The payload all looks good to me. ‘It's 2007, happy days. Just go and buy it, and if it costs you a little bit of money, at the end of the day, it doesn't really matter’.
So, sort of fast forward that to where we are. Three years ago when I first started this was when I got back into the property market and sort of realised that there was no one representing the buyer. You know, anyone that walks off the street goes and meets a real estate agent who works for the seller and then they defend for themselves to try and get themselves the best deal. And when you're not in the market every day, it makes it really tough to, to know where the market's at, what you should or shouldn't be paying for a house, and, sort of, what you should be looking at. So, it was more around buyer representation that I wanted to go on this journey. And for me, I still strongly feel that the buyers are hugely underrepresented in the market.
More on Hadley Nightingale's Story
Prior to becoming a buyer’s agent, he shares with us his upbringing in New Zealand.
I grew up in New Zealand in a little town called Fungaday, which is about two hours north of Auckland. So, I grew up there and decided I was going to become a farmer. So, that sort of lasted for a couple of years. And then at the same time, towards the end of that, when I bought this piece of land because that was part of the grand plan, and then from there I worked out that I had to earn some more money to cover a mortgage than what New Zealand was going to pay for me, or paying me for.
So, [I] ended up moving to Australia and worked out in Wheatbelt. So, driving tractors and heavy machinery out there which then turned into operating road trains. So, I was driving from Perth to the Northwest and then transitioned into mining. And then sort of to where I am now. It's been a bit of a chop and a change right through.
Growing up in a small town he delves into his schooling years.
From where we are, the town that we were in is reasonably sized. There's about 80,000 to 90,000 people that live here. We're on the outskirts of town; so I mean, schooling was in Fungaday. And then I went down to a farming school towards the lower end of the North Island for 12 months after I left school at the end of the sixth form over here, and yeah got on with my working there after.
What age did you actually start going out into the workforce to do these different things?
I left school when I was 16, oh, 17. I had more or less made my mind up that school wasn't for me at about 16. And so I struck a deal with my parents that if I got reasonable grades in the last year that I was there, I could leave. So, made sure that I did that so I could get out of there.
Nightingale tells us about the first job he had once he left school at a young age.
First job, I was milking cows on a dairy farm with about a thousand cows on it. So, probably one of the key lessons from that was learning how to get up early and work a long day. We'd start by getting up at 3:00 in the morning to go and get the cows to milk them, we were out for breakfast—out for lunch, if you're lucky—and then, back out milking the cows again in the afternoon to sort of knock off at 5:00 or 6:00 at night. So, they were pretty long days. But I think it put me in good stead to learn what hard work was about and not be afraid of the hours.
That is very long. Especially because it's quite labour-intensive as well, did you have machinery to help milk the cows or did you have to all do it by hand?
We had a 50-bar rotary so that the cows would walk on, then [we’d] milk them. And then as they got round to the other side, they’d walk themselves off. So, it was like a three-hour operation in the morning and three hours at night.
Wow, it's still quite a lot of work though. To be sitting there for hours on end—it's not easy is it?
It was sort of the driving force to try and find something else that was less labour-intensive.
He explains how long he stayed in this kind of job and the direction he took after.
I was in the dairy industry in New Zealand for about two years. And then from that, I had a bit of a dream, I suppose, when I was young about the Wheatbelt in Western Australia was somewhere that I'd like to go and work for a bit. So, when I was 20, I decided that that's where I was going to head. I applied for a job over there, and I happened to land it. And then basically for the next two years after that, I was working on the farm over there in the winter. Then I’d come back here to New Zealand for the summer season. So, six months here, six months in Australia—and then, after about two years, made the move back to Australia permanently to work on farms over there.
After making the decision to move, he shares how long he lived in Australia during this period of his life.
It was about 10 years—so about a third of my life in WA.
What's that like in the WA?
It's a good place. I really like it. I think I'd still be living there if it wasn't so far away from everywhere.
Good people, pretty laid-back, and yeah, I had some really good times there.
After living in Western Australia for 10 years, he discusses the stage in which he decided to move back to New Zealand.
I moved back to New Zealand when I was 30. So, back in 2015, or end of 2015, and [the] start of 2016 is when I moved back—when the mining industry was starting to slow down and the company I was working for started to lay people off. So, I thought, ‘Right, well I’ll jump before I get laid off and get back to family and people I hadn't seen for a long time’.
Nightingale explains how he changed industries once he arrived back in New Zealand.
What I did when I came back: I entered into a company over here and then moved to Auckland for about 12 months with a safety and training company, which is sort of where I ended up in the mines, in terms of safety and training. So, it was a bit of a flow on from another flow.
What attracted you to continue to work in that space?
I suppose when you get yourself into a position where that's all you've done for 10 years, you haven't got any tertiary qualifications and you've been chasing the dollar—which is all good and well—when you come out the other side, your options are fairly limited. And I suppose for me, I didn't really have any inclination to go back and sit in a truck or to go and operate machinery.
So, it was sort of a thing of ‘Right, what’s my skill set? What can I do?’. And I suppose it also got the mind ticking as well to go, ‘Well, you haven't been to university. You know, what other options have you got for income?’ I think you have to become a little bit entrepreneurial to, to sort of get yourself over the hump there of, of moving forward as opposed to staying stuck where you are, if that's not where you want to be.
Following the arrival back to his home country, Nightingale shares how he was influenced to get into property.
Not so much from my parents. I think I got my work ethic, most definitely, from them—both extremely hard workers. The only property they own is the place that they live on. Plus, another section of land that they've also got. But I suppose I always remember my mum saying to me, ‘Why would you want to become a landlord when you have to fix people's toilets?’. So, that was her reasoning and her justification as to why you wouldn't want to get into property. So, they weren't into it.
But I sort of sat there and looked and went, ‘Surely there's got to be a way of this happening, a way to do this. Because there's so many people that do use it as a wealth creation tool’.
He delves into the first property he purchased which ultimately kick-started his property investing journey.
In terms of the first property aside from the farm, that was an absolute disaster as a first start. Anyway, the first property that we bought, we got into that by seeking out some mentors. So, myself and my partner at the time went to a Rich Dad, Poor Dad seminar and then went through with their mentoring program as well. And then I suppose that was the thing for me at the time with property investment. Like I said before, it has to work because so many people do so well out of it. But there was the fear and the trepidation there if I get this wrong again, I know what the consequences are. So, that's sort of how we got into it back in late 2016—started investing in a place called Palmerston North in New Zealand. And that sort of propelled us in the positive direction there after.
He goes on to explain the exact timeframe he started investing property.
We started in 2016. So, [we] moved back to New Zealand at the end of 2015. In November 2016, we bought our first property.
How many properties have you accumulated since then?
At the moment we're sitting at three, sorry, we've got four at the moment that we have ourselves with. And we’ve got six income streams from that.
After experiencing ups and downs throughout his property investing journey, Nightingale shares with us one of his worst investing moments.
Lowest of the low with that was a joint venture that we did and we sold. It started out as a pretty straightforward flipping project. Builder was lined up, where he gave us a quote for what the work was going to be. He was all good to go. We got some other contractors to give them a hand, and we were sort of looking at about a $70,000 renovation. So, everything started out good and well for that.
It was a remote project where we didn't have anyone on the ground at the time. And then we were getting updates every week from the builders to say, ‘Hey, look, I've done this and I've done that’ and to say that everything was good and on track. But, I suppose, from a bit of naivety and overtrust, we didn't sort of ask for photos every weekend and actual video walkthroughs of where we were.
We got about a month and a half to two months into this when he told us he was nearly finished and decided we'd go down and have a look at the property to pretty quickly find out what he'd seen and what he'd done were two very different things.
What kind of things did you see?
It was things that he said like ‘Oh, the wardrobes are all finished and everything's good’, and you walked into a room and there were no wardrobes, and yet they were still just ripped back to studs and nobs. Also, things like we walked down the side of the house and there's like a hundred metres of boards that have been put on the property that we would have never asked for in the first place.
You walked down, and it was just jaw-dropping, the stuff that had been done and the stuff that hadn't been done—and then just watch the bills escalate substantially from there.
Wow. What did you do to get out of that problem?
Well, we were very lucky that we had a very understanding JV partner with that. So, we ended up having to sack the guy that was on the project at the time, get some other builders in there, and then just basically strictly manage the build from there to get it over the line. The other thing that we did, because our margins became so tight from a flipping perspective, that we ended up turning it into a boarding house for about 18 months.
A rent-by-room situation in the university town, so that we could get some more cash flow back.
And we were also lucky that the market was rising substantially as well at the same time. So, we ended up cashing out of it in 2018. Just sort of two years or 18 months of holding onto it. I guess I was in a position where we were going to lose money. And I think that was probably one of the blessings. And the key learnings from that was that it's all very good and well to go out with the best of intentions to go and flip something, but at the same time, do you have a strategy in place to go right, ‘If the flip doesn't work, can I do it?’.
The thing is that it was a blessing and a lesson at the same time that with the way the property panned out and how things happen that really emphasise the point that when you're going to purchase a property, your strategy is the key thing. You can look or see out to go and flip a house, but if your renovation costs blow out or the market turns, what other options have you got to hold onto that property to make sure that you're not losing money on the back end of that?
So, that was really our saving grace, so to speak—was that we had the option of rent-by-room there to cover our costs and our expenses and everything else until a time where we could cash out of the property and make the required money that we wanted without it costing us anything along the way.
Despite the disappointing outcome, he shares his initial intentions with buying his first property.
The initial plan for that was just to think of it as a refurb and then trade it. So, carpets, there was a bit of a repair that needed to be done. Paint bathrooms, kitchens...so it was supposed to be about a $70,000 job all up. But, obviously, with the way things that panned out, that didn't quite end like that.
If you didn't actually sell it, do you think you would've held onto that property and still continue to get cash flow from it?
Most definitely. That was sort of where we were looking to go towards the end of it, was just to buy our joint venture partner out of it and then keep it for ourselves. So, just some really rough numbers on it was that we bought it for $210,000. We ended up spending all up, including furniture about $130,000, so the budget went over by 50. But in the end, we were renting the property for about $850 a week with rent-by-room. So, it was cash flow positive from the day we got it.
I guess the question is, do you now look back and go, ‘Should we have kept this and bought it out from our partner instead of selling it?’.
It's one of those things that we do sit there and go ‘Should we have done that?’. It was the next project that we did afterwards...if we'd bought that house, we wouldn't have been able to do the next renovation that we did which sort of set us up properly—and it was probably one of the best deals we've done.
Despite the obstacles he faced along his journey, he looks back on the moment where everything just clicked.
My amazing moment was probably the first house we bought. We walked into the house; there was mould on the ceilings, down the walls. There were people walking out going, ‘Oh, this house is disgusting’. And that one day is probably the moment I probably went, ‘Right, this is what we've heard about. This is what we've been taught to go and look for. Let's go and buy a house’. And so, we sat down; we did our research. We did the renovations that we needed to do on it. And then when we rented the property out, it actually cash flowed and gave us rental returns that we'd figured we were going to get.
I suppose that first house was the aha moment of ‘Wow, this property thing really does work from previous experience of having to fork out each and every week to feed the farm’.
As the first house he bought was an ordeal to begin with, Nightingale explains how much he made on this particular deal at the end.
That first property, well, everything that we do is buy and hold, other than the one that we had with our joint venture partner. So, that one there we purchased for $250,000. We put in new carpets and painted the kitchen, a new bathroom. Painted the outside and just gave it a general tidy-up. The place looked a lot worse than what it actually was.
So, [we] spent about $35,000. So, the revaluation came back at $360,000. And then also, from a rental perspective, we rented that property at $550 a week to a group of students. So, from an equity uplift, it was about $80,000 worth of equity and a cash flow of around $500 a month after expenses as well. So, it was a good little deal to kick us off with.
He goes into more detail about the deal he sold that was later reinvested into another and how it set his future up financially.
That one was a house that we bought and we cut into two. So, that's sort of my strategy now moving forward—is to find properties where there’s potential to either cut them down the middle and so turn one house into two, or to buy something that's got two units, refurbish them, and rent them out.
That one, there was a house we bought that had two kitchens in the property, and we put a firewall down the middle of it so that we had a big unit: a three-bedroom unit and a two-bedroom unit in that particular house. So, that one there, our costs all in for that were around $550,000 for round figures. And then our reevaluation on that one was $700,000. So, there was about $150,000 of equity for that property, and then, from a cash flow perspective, about $1,300 a month.
It really did set you guys up quite substantially there.
Exactly. There's a good upside from an equity perspective—and also some solid cash there on the other side of that.
How to Know the Property Market with Hadley Nightingale
Finding Great Deals and Moving with Property Investing
In terms of strategy, Hadley Nightingale delves into how he plans to move forward with property investing.
More of what we've just done, that is the strategy moving forward. So, if we can turn one house into two or buy a house with a couple of units on it that have some subdivision potential, I suppose that the key thing for moving forward is to make sure that we are getting some solid cash flow with whatever we're buying. But also that it needs to generate some equity and some forced depreciation in there as well, so that we can keep moving forward. And obviously the cash flow in there, from a serviceability standpoint, is really key as well.
The property investor explains how he goes about in finding deals.
I suppose the big thing with these is around zoning. And then also there's a whole lot of intricate bits when the house is built, council requirements, also just the layout of the house in general. So, is it going to be easy to turn into two units? How do we need to go about fire-rating them? And from finding them, it's quite interesting. Some of them stare you right in the face in terms of realestate.com.nz and and Trade Me, which is our other property site, where there's actually stuff on there that may have been on there for like a while that people just haven't seen the potential.
And also too, we work closely with agents that ring up and tell us about deals that are off the market. And the other thing that we have, and it just happened last week for one of our clients that lives in Brisbane, was to purchase him an off-market property that the vendor came directly to us and said, ‘Hey, look, we've got this property; it yields about 9.4%. We've got some other stuff going on. Have you got someone that can buy it?’.
And so, it's really a range of situations that the deals come through to us and that we look at rather than, you know, just sort of [a] one-set piece or one-set website.
When coming across a deal, Nightingale also has a particular process where he looks for certain criteria.
I suppose the first thing that we look at is rent and rental potential to then do a reverse calculation on the yield. So, that's sort of the first thing. If the yield is not there, then we sort of stay clear and move on. Unless there's something extremely creative we can do to make sure that we can achieve that.
So, there's been properties that we've bought that if you looked on paper and clients would buy them, but once we do some stuff to them, then it changes that yield position. Because if we turn one into two, then obviously our rent doubles; our yield increases. But then also, at the same time, location's really important. Building conditions are really important as well. Because at the same time, we don't want to be buying places that need $200,000 worth of work when you're only going to make $100,000 out of them.
It's really important, but overcapitalisation is probably one of the biggest mistakes I see people make where they go, ‘Oh, cool, awesome. We’ll buy the house. We've probably paid a little bit too much for it. But I think we really need to do the kitchen up’. Doing the kitchen up is only going to give you $10 a week more than what painting the kitchen is going to do, to have exactly the same outcome more or less. So really, you've just got to take everything into context. But it really comes back to yield and rental demand in the area as well.
As the property expert has built up his contacts over the years, he discusses how he has found trustworthy people that he knows he can depend on.
We’ve been through a few of them to find some really good people. So, I suppose that's one of the things that we do ourselves. And we also provide for our clients, as well, is that when we go into an area, we've got contacts there or we know people that invest in the area as well that have got builders, electricians, and plumbers and things like that. So, it's really important that you're getting people that are going to do the job. And especially if you are investing from abroad, it becomes even more important for them to have trusted people on the ground.
So, we recommend accountants, mortgage brokers, lawyers also, too, from a trades’ perspective—all the trades that people might need as well—to all of our clients and our Australian clients, especially to get them set up and to get them sorted. I suppose the other great thing is that because we don't provide any of these services ourselves, we are independent to them. So, if people aren't performing, then we've got options to go and find other people there as well.
As Nightingale is very knowledgeable of the New Zealand market, he gives us insight on what it’s like in comparison to the Australian market.
One of the biggest things for New Zealand, or the attractions to New Zealand, is that it's really from a tax perspective. So, I'm not an accountant. This is just an overview or outlining of the differences. So, basically, we haven't got stamp duty, so there's a massive save there for anyone. We don't have wealth tax. We don't have inheritance tax. We don't have capital gains tax. What we do have is a bright line test, or if you’re trading in property and you sell it within five years of purchasing it, then there's a tax to pay. But if you're a long term investor and you sell your house in 20 years time, but you've had the intention to keep it, then there is no tax on that.
So, there’s a huge difference between New Zealand and Australia, and those aspects. The other thing is too, is that we've still got yield over here, which after finally talking to Australians that, you know, guys are chasing yield but are having to go into more remote sort of places to get that—where we've still got it in our big the centres which is also really attractive too.
What kind of yields are we talking about in New Zealand?
They range hugely. So, as I was saying, the last unit that we bought from one of our clients was about 9.4%. And obviously the bigger the city gets, the smaller the yield gets. But generally clients are after stuff from sort of six and a half to eight, where we regularly see stuff with that, with good equity on the other side of that as well.
He also talks about the main differences between Australia and New Zealand in terms of living.
The climate in Australia is fantastic; it’s the same with Perth. If I was in the east coast of Australia, I'd probably still be there. But I think the great thing about New Zealand is that not everything is out there to try and bite you or kill you. It's quite nice going for a walk through the bush and not waiting for a snake to jump out at you, or go and swim and get attacked by a crocodile or a shark, which is quite attractive.
And then, from a property perspective, the biggest thing that I've found is just differences in contracts and things like that. The New Zealand sales and purchase agreements is a fantastic contract because it gives the purchaser, you know, quite a bit of power in terms of what they do from a due diligence investigative standpoint. We don't have gazumping over here; so once you've got a contract on a place, you've got a contract. No one can just come in and pull the rug out from under your feet, so to speak, at the 11th hour. So, things like termites, we haven't got them. Personally, I just find it quite easy to transact and there's a few less things to worry about.
Preparing Financially for Today and Tomorrow
In terms of mindset, Nightingale delves into the reason why he jumped into property investment.
I think the biggest thing for me is it's really been around passive income. It's quite the cliché saying about making money while you sleep. And I think now with the Coronavirus and everything else that's happening with the world, it just goes to show—and it's definitely stood out to me—that having passive income is quite important. That if something happens to you, or for some reason you can't go to work, to have your income cut off today would be a shock to the system. And there's not a whole lot you can do about it because it's out of your control. So, that's really the thing, is just to have something that generates income for me so I can survive and live and get by.
Nightingale takes a look back on the resources and mentors that have helped him along his property investing journey.
In terms of the property side of things, when we first got started, the Rich Dad, Poor Dad training was the first one where we went. And then through a company called Wealth Mentor in New Zealand, which was a really good stead to get going and to start learning about how property works, what we need to do, what we need to look for, and just be there, to give us a guided process. And I suppose, like anything, as you become more involved in the industry, you get to know some more people. And your mentors change a little bit as you go. And your circle of friends changes as you go as well. I suppose that a number of my friends now, we all bounce ideas off each other, and it's just that sort of mentoring component from a property buying perspective at the moment.
From the buyers agency, Ben Handler's been absolutely phenomenal in terms of a shift in mindset, shift in business— and just opening eyes up to the possibilities of where we can go and what we can do. The mentor side of things I think is vital to anyone that's looking to either purchase property or in business. Or no matter what you're looking to do, it's always easier to stand on the shoulder of someone else than to want to try and go on and do it yourself and learn the hard way.
He shares with us how the Rich Dad, Poor Dad training impacted him and his mindset.
They were the ones that got us through the process of the mentoring program. And so we sat down, and we ended up working with Wealth Mentor, a company in New Zealand, to go through our mentoring program to make sure that what we were looking to do was going to fit our needs and our wants and formulate a plan of how to acquire the properties that we needed to get us from where we were to where we wanted to be.
They kind of helped you map out a plan that you could just follow and work together on what you want to achieve in terms of your goals and your targets?
'It's really important to get up, get your mind in the right place and just be really clear and really focused on what you're looking to do, what you're looking to achieve, and just keep that at the forefront of your mind.'
Exactly—and also for someone to use as a sounding board to go, ‘Hey look, we're looking at doing this. What do you think?’. Some of the ideas the guys who were working with said, ‘Fantastic’. Some of the ideas they said ‘I wouldn't touch it. I wouldn't do it. This is where you're going to lose your money’—which is, you know, an absolutely wonderful thing to have, especially when you're new in the game. Having someone that's got the experience. Not your uncle at the barbecue that's never bought something before, but someone that's in the game and knows what's going on to see the pitfalls that you can't.
Reading Books and Listening to Sound Advice
Nightingale shares his book recommendations that have helped develop his mindset.
This is probably going to be another cliché answer, but Rich Dad, Poor Dad was the book that started me off. And the other week, I picked it up for about the sixth time and read it again. But what I found was, is that there was a whole lot of stuff that I missed the first time. So, you read it the first time you go through it, you get some of the ideas about, you know, around what money looks like and things like that. But then what happens thereafter is once you read it and you absorb that information and you grow as a person, your mindset grows, you start to pick up other bits of the book.
And what I sort of found on the sixth time was, is that the book is quite heavily spiritual, not so much from a religious perspective, but from how you position yourself and on an energy perspective on how you view the world or how you view the situations that you're in. It’s not simply just a book about money.
The property expert reflects on the best advice he has ever received.
The best advice I've ever received is what we've been talking about. If you're not sure how to do something, find someone that's done it and find someone that's done it well. There's an old saying that ‘Price is what you pay and value is what you get’. So, for me personally, I'm quite happy to pay people a lot of money to teach me to do stuff—because I know that I'm going to get the value on the other side of it. And the price tag for me is the price tag. But the value that these people can provide should be exponential to what they're charging you, if you apply the lessons that are there.
Adopting a certain mindset throughout his property investing journey, he also shares his personal habits that have helped him along the way.
I think persistence and determination are the two key things. Especially in the game, you get a hang of a lot of no’s for every guess that you get. And if you weren't persistent and you weren't determined, the amount of no’s and opportunities that lead to nowhere would get you down at the end of the day. I suppose that it's really important to get up, get your mind in the right place, and just be really clear and really focused on what you're looking to do, what you're looking to achieve, and just keep that at the forefront of your mind.
If he had some time to reflect on his past self 10 years ago, we find out what he would have said to himself.
Probably No. —dump the farm. That definitely would have been...although there's been a lot of really good lessons learnt from that, and I probably wouldn't be where I am today if I hadn't have been through that experience. But I suppose it comes back to the same old thing of: If I could've gotten to it five years earlier, then that would have been a fantastic thing. But it's more so just around, you know, that persistence, that determination and to follow through on what it is that you want to do and go and get that help that you need.
The earlier you can realise that in your journey, rather than just going, ‘Hey, look, I'll dabble on this and see what happens’, the far better off you are on the other side. So at the end of the day, you don't know what you don't know.
He discusses the future, painting a picture of what is happening for him in the upcoming five years.
For me, the thing I'm most excited about is just to continue on the journey that I'm on at the moment. I'm really loving helping people achieve their goals and sort of coaching them through that, too, to a degree as well. And then personally, for myself, is just to also keep expanding my portfolio and doing projects that I enjoy doing is the key fun to the whole thing. If it’s not enjoyable, it’s not worth it.
And lastly, Hadley, how much of your success is due to skill intelligence and hard work and how much of it is because of luck?
To be honest with you, I've put most of my success down to my team rather than me. That is it in a nutshell at the end of the day. I mean, back in 2016, at the end of 2016 when we bought the first two properties, we were very fortunate that we bought them just before the market and Palmerston North went ridiculous. But, at the same time, without the advice and the guidance from our team, and that's everything from accounting to mortgage broking, legal advice, mentoring about what we should and shouldn't do, and how things needed to be structured, is more how the success came from.
Simon Loo is a very successful property buyer’s agent and director of the buyer’s agency, House Finder. He has gained a wealth of knowledge through the many, many years of experience he has built up and he is generous enough to share some of that knowledge with us and provide some expert advice and strategies in the midst of the COVID-19 global pandemic.
Join us in this episode of Invest Like A Pro as we dive into the topic of overcoming your fears during the COVID-19 pandemic. We discuss the impact that the pandemic has had on the property market from Loo’s perspective, the best way to mitigate risk during this time, reminding us that property is a long term play and that you always need to have that end goal in mind, and much much more!
'This pandemic is actually playing to the fact that housing is more of a necessity than ever before.'
We jump right in and Loo shares with us some of the conversations he has had with his clients about the COVID-19 pandemic.
I think it's more pertinent than ever before. I think previous to COVID-19 there was just a lot of—most property investors would just have an expectation that their properties would be rented, would find great long term tenants, or all they'd have to focus on is vacancy rates and things like that. But I think deeper into that, that this whole pandemic that we've gotten into, the more we are seeing articles of the rental market really taking a massive hit, people reducing rent significantly—especially certain types of properties.
So, the conversations I'm having a lot of at the moment with my current clients and past clients are, you know, what they should be doing and what they should be looking for in property or in their own portfolio to ensure that it will be relatively securely tenanted in the long term. Even if there are vacancies, even if they're in between tenants, I guess, it just comes down to mitigating a lot of risks which is more important than ever.
We find out the best ways for us to mitigate risks in light of the pandemic and some of the biggest fears of a property investor.
The biggest risk is not being able to find a tenant. Having a very long vacancy period in any property investors portfolio is extremely frustrating. And it gets to a point where it's a downright scary experience. You know, if you're just paying mortgage repayments, if you're just paying council rates and all these expenses, and you're not getting any income from that property, you know, it really does put a lot of stress on your finances. You know, even if you are fully employed and all that type of stuff as well. So, that's probably the first fear.
The second fear is getting bad tenants, you know. They sign on, and they don't pay rents, which I have noticed in specific areas. That has been a little bit more frequent, you know. Since this whole COVID-19 thing happened, there's been a lot of measures put in place from the government. To stop landlords from exercising their rights that they could have previously, if tenants were, you know, to just stop paying rent.
Well, I mean, eventually as a landlord, you can take action depending on what state you are in. There's certain timeframes that you can. But it's so long that it's, again, just a very frustrating and stressful experience. If a tenant decides not to pay rent, you know, up to six months, you basically can do nothing. So, a few of the ways that I try to, you know, mitigate a lot of this type of risk, you know.
I guess it's no secret that I've always had a focus on buying investment properties that are in more affordable housing areas in major capital cities. So, we're not talking like, you know, it's very blue-chip houses in a city type of area. But the focus has always been in areas where it's just your typical sort of an average income, you know, middle ring kind of suburb.
And I think that the main point that we have to focus on is the way that investors see property is different from what the majority of Australians see property as, which is at the end of the day, a place to live in for themselves, for their family. And whether you know, obviously notwithstanding massive catastrophic events, housing will always be first and foremost considered as an essential item for people to live in.
So, the type of properties that will always be in demand are what I would consider affordable housing, you know. You've got your three-, four-bedroom house that's in a major city and that's in proximity to shops, schools, parks, and transport. It may not be right near the city, but it's within a distance of traveling, you know, to various aspects of that particular city.
In times like these it can be as simple as having affordable housing to mitigate the risk of long vacancies.
Even in my own portfolio, you know, I've had a few vacancies in recent weeks and legitimate vacancies where tenants had to leave. And I had to find new tenants. That kind of stuff is still significantly in demand from a rental perspective. You know, you're getting a lot of people now that are unfortunately exposed to some pretty bad financial situations personally. And previously they might be renting or they might be living in a ‘nicer property in a city’. But because of unseen circumstances, they're having to move back into more sort of affordable options. So, that's one side of the demographic. The other side is, you know, for the people that are maybe moving out of home—or for, maybe, like a young family that's new to the state or starting out, they're also looking at these kinds of more affordable options.
I guess at the end of the day, there will be consistent demand for houses that are affordable, you know—houses that are clean, safe, they're tidy; they can house a family. I think that's also a very important factor: to find properties where young families with kids or for any family with kids can safely live in. So, you know, I feel like if there is more of a focus for investors to focus on this type of product it will mitigate a lot of the risks of having tenancy issues down the track.
Loo provides us with a tip on the type of property that he believes is always in high demand.
That's always the bottom line. And whatever your goals are with property, it's 99% going to be a very long term exercise. You know, usually when you buy a property, you're holding onto it for at least five years, usually around 10 years—and a lot can happen in 10 years. You'll have ups and downs with the economy. You'll have, you know, unforeseen circumstances—like this pandemic happening, high interest rates, low interest rates, personal circumstances, you know.
Investors or people sometimes run into situations themselves where they might have a bit of a rough patch. Maybe they have a bit of unemployment or maybe a health issue, health scare potentially. So, I think risk mitigation is so important, like now more than ever. And it's been a big focus for me.
And my clients nowadays really focus on characteristics. I mean, we talked a little bit about the type of properties, which are affordable housing. But the characteristics of these properties as well [are] coming into play. And in general terms, you do need a property that appeals to as many people as possible. You know, like a property that might appeal to the wider range of demographic would be like a three- or four-bedroom house with a decent-sized yard. It might be very low maintenance. It might be very safe, a very typical layout, nothing too flashy, nothing too odd.
In Queensland in particular, there's obviously the difference between high-set and low-set houses. High-sets basically is a single-storey house but on stilts. Those are less in demand from a rental perspective than your typical sort of low-set three-, four-bedroom brick house. Because if you have a house that needs stairs to get in then get out, you're cutting out a significant amount of potential tenants that may have some disabilities—or, you know, maybe they just don't like stairs.
Building a portfolio with properties that appeal to a wider demographic is important in getting through a difficult period.
With my portfolio as well, the ability of having these affordable houses, this is obviously when the buying price is generally a bit cheaper compared to your more empty city areas. So, over the long term, it allows an investor to spread their portfolio over a larger quantity of assets rather than, you know, having a lot of debt tied to just one or two inner city houses. Because if one of those houses [has] become vacant or both become vacant, then you're really in a sticky situation. So, I think that's also, I guess, in many ways, proving to be a bit of a lifeline. Just having, you know, these properties that are appealing to the majority of tenants, you're in decent areas in capital cities that they're priced to a certain point, not super expensive.
And if you've got a few of them, then it becomes like a bit of a self-fulfilling portfolio where, you know, even if you have like one or two properties that are going through a bit of a rough patch, you've got a bunch of other properties that might be doing well enough to absorb some of those costs, if that makes sense.
I feel like if you get these things right, it really helps investors not be exposed to too much potential pain, I guess, in the coming months, in the coming years, even depending on how this pandemic plays out. Another controversial point that I've actually noticed down on the ground when it comes to tenancies, the stereotypical bad tenants can prove to be your best, especially in times of crises.
We hear an interesting story about one of Loo’s tenants and why you shouldn’t judge a book by its cover.
I've got a single mum tenant in one of my properties who was struggling to find a home for herself and a couple of kids that she has. So, I decided to take her on because, you know, at the time she was employed, she wasn't on TICA, which is a database for bad tenants. She came back with some really good references. And she was extremely grateful that I took her on because clearly she had been rejected by a few other properties based on her single-mom status or stereotype that a lot of landlords associate with as being not a reliable tenant. But the other thing is, she was actually receiving Centrelink benefits, rent assistance. And that rent assistance paid my rent or paid her rent completely.
So, as a landlord, her rent was basically coming directly from Centerlink into my bank account. Now I know for a fact that, you know, this particular tenant did lose her job. And I think she's kind of on the new job at the moment. But, you know, regardless of whether she's in between jobs or not, my rent as a landlord is still secure because it's coming directly from Centrelink. And, you know, it's unnecessary for her to try and negotiate a lower rent—or, you know, even if she chooses not to pay rent like it doesn't really affect her, if that makes sense.
So, I guess what I'm trying to say is, you know, a lot of the negative stigma that a lot of people have with tenants and with certain types of properties can actually prove to be the best kinds of investment—especially when there's trouble, you know, when there's a lot of uncertainty in the market.
When you are looking for tenants you need to ensure that you approve the right people in the end.
I think a lot of character and analysis comes into play. And an offshoot of that is having an extremely good property manager as part of your team. So, you know, typically when you have a house for rent, obviously you do an open home. And the type of people that come through, you know, you never want to judge a book by its cover.
But at least when you're having a chat to them physically and looking into their eyes and having a conversation about the situation and what they're after and all that kind of stuff, you get a gauge to some degree on the situation or the genuineness of a particular person that's looking to rent a property.
Now, I think if it was, let's say, two able-bodied mates, you know, the mid-20s that are on Centrelink. I think maybe that's a little bit different to have, you know, like a single struggling mum with three kids that's looking for something safe to live in. Everyone's got different situations. Obviously, if there's two able-bodied friends or brothers that have been unsettling for a very long time, then they may not be the most genuine of characters—because, I mean, we're in a pretty bad economic situation at the moment.
People can't find jobs, but you kind of have to question, ‘Okay, are you guys actively looking? When was the last time you had a job?’ All those kinds of factors are super important. Now, I'm not suggesting every single mum with three kids out there is genuine and struggling, and they're not all angels doing the right thing. But look, I guess what I'm trying to say, there's always going to be a risk, you know, with any tenant in any property.
I think it's our job as investors to minimise that risk as much as possible.
And what I found [out] recently part of that is actually taking advantage, I wouldn't say taking advantage, but I guess we're using ‘leverage’—leveraging the generous benefits that the Australian Government has for people that are genuinely struggling. So, you know, I think that has helped me ensure that the cash flow from my properties haven't really been impacted too much. Because these properties that I have, they appeal to the type of people that will forever, you know, need affordable and safe housing at the end of the day.
Nobody saw the global pandemic coming and the impact that it would have. If you are a little fearful at this time, just remind yourself that everything will eventually get back to normal.
This pandemic is actually playing to the fact that housing is more of a necessity than ever before. People need their own spaces, you know, to overcome and minimise the risk of catching COVID-19. Authorities are advising people to stay indoors as much as possible and to keep apart. So, you know, at the end of the day, I feel like this particular pandemic globally, you know, will actually benefit certain property markets.
You know, it might not benefit the super expensive blue-chip type properties because the amount of people that are buying and can't afford those kinds of properties at times, during times of risk, is definitely lower. But I do feel a multitude of the median and the most sort of affordable options there's definitely been a bit of an uptake—especially in the areas that are operating from a business perspective, from a buying perspective. A lot of homeowner-buyer activity at the moment, a lot of owner-occupiers now, you know, looking at these suburbs that, I mean, just because they're affordable, it doesn't mean they're the lowest socio.
It doesn't mean that they're bad areas. You know, they’re just a bit further out—maybe not what a lot of people would prefer in terms of proximity to cities and things like that. We're talking about the 20-kilometre distance. So, it's not like a huge, you know, 5-hour commute or anything like that.
And the other thing is, I feel like a lot of these from what I'm seeing as well, a lot of these owner-occupiers or first-home buyers that are buying a house to live in are also being a little bit more conservative. Previously they might be borrowing to the hills to try and get that property that they really want in a very desirable location. But now, you know, because of the economic risk and potential employment risk as well, you know, even if they can't afford, let's say a million bucks to buy a fancy place to live in, they're opting for more sort of conservative options. And they're maintaining a bit of a buffer from a cash perspective as well. So, they might be, you know, budgeting $700,000 instead as an example. So, I think that's starting to become a little bit more normal as well.
We delve into why Loo thinks that work in the property industry has been busier than ever even during this period of time.
There's a few factors at play currently. I think the government has done a great job in maintaining confidence with the general public, you know—with job care, with JobSeeker, you know, banks deferring mortgage repayments, extremely low interest rates. Even though that's not really a government policy, all of these factors combined has helped maintain a lot of confidence with people who need to enter the property market because they need a house to live in.
Now, pre-COVID, I would say there was probably a 50/50 balance between an investor wanting to buy a property versus an owner-occupier wanting to buy that property. Now, since we're, you know, several months into COVID, I would say that shift is probably more like 20% or 25% investor versus 75% or 80% owner-occupier.
So, there's a lot more owner activity and a lot more first home-buyer activity. On the other hand of the equation is a very limited number of listings that are coming on the market. Definitely a lot less than there would be normally. So, the people that are selling houses at the moment, there's a lot more situations where people have genuine reasons to sell rather than previously where people are thinking, ‘Oh, you know what if I can cash out or make a decent profit, or maybe I'll just test the market and see if there's any potential buyers’ and things like that.
So, we've got a situation where we do have a lot of buyers on the grounds. The shift has been owner-occupiers being propped up by a lot of confidence and also being propped up by a lot of media bashing on the property market because it’s all the doom and gloom, and property prices are going to tank—and all this kind of stuff.
So, you know, there's a lot of owner-occupiers that are out there thinking that they're going to be getting a better deal or a cheap house that they can, you know, buy a house for their family to live in or to grow up in. And then, on the other hand, you've got a limited number of listings as well. So, I think when you marry the two together, you get a situation where there's just a lot of market activity. And it's more apparent in locations where it's not super expensive. You have locations that are, again, more affordable in locations that are more conducive to, you know, meet any income standards and things like that.
You need to be in property for the long haul and understand that there will be bumps along the way, but always have that end goal in mind.
Property is a long-term game, and I think investors will have to remember this. And this is how I advise all my clients that come to me and say, ‘Simon, I want to build a portfolio. I want to have $100,000 dollars of passive income in 10 years’. I go, ‘Okay, cool. That's great. Let's strategise. We can work that out. That's fine’. But 10 years is a long time, you know. Within the 10 years, there's going to be high interest rates. There's going to be different economic policies. There could be, you know, pandemics like what we're experiencing.
So, it's really important not only to focus on growth and advancing towards a goal, but it's also important to ensure that you don't get in too deep. Have measures in place to ensure that if things were to go wrong, you can exit.
Exit strategies are super important. We've discussed this in previous episodes. And also to ensure that your property appeals to lots and lots of tenants and it's rentable, and you're not going to come under any undue stress or risk if that tenant decides to not pay rent, or if they decide to leave, or if you have maintenance issues and things like that.
Peter Toma is a motivated elite real estate professional and the founder and director of the buyer’s agency, Elite One Property. His company is trying to create a better life for their clients through the property. They help you build your property portfolio so you are effectively funded for your future retirement.
Join us as we delve into Peter Toma’s incredible journey and we discuss his background and find out about his childhood and where he went to school, how his parents shaped him and their influence on his career, how his property investing journey began, where he sees his property journey going in the near future, his worst investing moment and his incredible aha moment, and much much more!
'We should look at ourselves and say, “We don't have that much time right now, so we need to make the most of it when we're younger.' - Peter Toma
We find out about what a normal day in the life of Toma looks like.
Our main aim is to build wealth for people through property. So any given day we're talking to agents, we're doing market research, we're inspecting properties, we are trying to find new clients, looking for the best deals that we can, strategising with potential clients, with clients themselves on how they can best build their wealth through property and the best way they can move forward to effectively fund their retirement.
Toma shares some stories from his past and we find out what life was like when he was growing up.
I grew up in the Eastern Suburbs and Western Sydney. I sort of split my younger years between the two areas. I Loved playing basketball when I was younger. I really, really enjoy the sport in general. But I really got started in property because my parents were buying property when I was younger and I probably didn't understand the full, you know, I didn't understand what it all meant back then. But as I've got older and I've realized what they were doing, I found it to be a really good way to build wealth and effectively fund your retirement so you don’t have to worry about how much money you've got left in super.
He tells us about the schools he went to and how he was subjected to the different types of demographics within each area.
I went to school at St Gregory's College in Campbelltown as my main high school. Primary school went to St Agnes in Matraville. So it was a good split I think.
Definitely different demographic in the areas and I think just because of the age difference as well. You know, interacting differently with different people at those specific ages. So you know, when you're a lot younger in primary school you just want to probably be accepted and get along and play and all that sort of stuff. But when you're getting a bit older and into that high school age, you're trying to find who you are and you’re probably hanging out with people that you see yourself wanting to be friends with for a lifetime. So I think different demographics but also from an age perspective different characters and different personalities as well.
We learn more about his journey straight after high school and what he was doing at that time.
After school I went to uni, I studied civil engineering for four fantastic years. And that was good. That was interesting. And it really, I think it really helped to hone my analytical skills. Probably not so much my interpersonal skills. But I think it was good from an analytical perspective. And then when I finished uni, I started working in civil construction and was doing that for a long time until a couple of years ago where I just decided that, you know, working full time is great, but you need to find something else that's going to make you happy. And that was probably when I started it.
He decided to make such a massive change in his life after working in the same job for so long and we find out about what triggered that change.
The main thing was I remember one day I was just sitting at home after a long day at work and I think I did about 14 or 16 hours that day and I just sat there and I thought there's got to be a better way to make a living or to be happy in life. And at that time I had just bought my first investment property. Hadn't really seen much growth at that point until a few weeks later. I just realised and saw the potential in property because all those hours are always working and however many dollars I was making during that time, I made more in that short amount of time through investing in property than I'd had in actually working full time for somebody in a job.
And that's kind of what triggered me, this is a way, there's definitely a better way than working full time for the rest of your life.
It's a fascinating thing and that's what I’ve heard so many times from investors is that once you get to a certain point, when you build up a certain amount of properties in your portfolio, that exceeds what you grow and earn than just working full time or even a job. And I think that's ultimately what we all want to try and achieve. It's just we get stuck and a lot of people just can't get out of that, unfortunately, to do what they want to achieve their dreams.
I think it's so powerful, honestly. It's so, so powerful and until you sort of take that leap and start investing in property the right way, it is really hard to sort of imagine or fathom that there's a vehicle out there that can effectively fund your life until you pass or if you decide to pass that on to your children, that's great as well.
Toma talks about his parents and whether they had any influence on his property journey or any of his interests.
It's always been around in my family. Like I said earlier, they had been investing in property, you know, when I was really young and didn't really understand what was happening. Back then I probably didn't even know they had a little portfolio to start off with. But as I got older, my parents started to do more in the development space. And that's where I started to get more involved in the onsite, you know, development and actual physical building just helping out here and there weekends after work. And that's sort of what triggered, you know, what's happening here? What's going on? And that education through them, I started to understand why they were doing it and then further to that is I started reading more books and trying to understand different strategies because there's a million books out there and everybody's got a different strategy. But just really trying to absorb as much information as possible to understand like why are people doing it. And then obviously compound growth and rental return was a big factor in that. So they played a big part and big influence in my investing in property. And I've really tried to just try to continue that.
Through his parents he had been around the property industry for quite some time and we hear some examples of the properties that his parents were investing in.
Initial investments were around just the unit style investments. Once the development started they were just like a duplex townhouse maybe a triplex style. And it was really cool to be able to go back and just see what was going on and what was happening and getting an idea on how to effectively build a development. Not only from a, I guess, physical construction perspective, but the numbers that go behind it. Like why are we building 2? Why not 3 or 4? What are the council requirements? You know, all those different things were the sort of things I was exposed to when I was going to visit after work or on the weekends to help out.
We learn about the locations of his parents' properties and whether they have expanded out of NSW.
No, just New South Wales and they don't do that many. It's just one every now and then. But you know, it's always nice to be exposed to that kind of thing and I'm very, very lucky in that sense that I am exposed to that. And that I can bounce off ideas with my parents with investing in property in general. Not a lot of people can do that. And I guess that's the reason why people listen to podcasts like this so they can get some more information and have a little community on property investing and have someone to talk to if they need to.
Toma provides us with a status update of his parents’ property portfolio.
They’ve still got their portfolio. They're getting closer to 70 which is getting up there in age I guess. But they're just looking to, I guess, enjoy their life now. So they've worked hard and they deserve it obviously.
A lot of people get into property to set themselves up in the latter stages of their life, he shares how his parents’ journey has impacted their life at their older age.
It's definitely been a positive impact. I've seen people that are the same age and don't have property or investments in general. So from a financial perspective it's definitely helped them and it's definitely a positive and it's probably been more stressful than, you know, not having a portfolio. But I think that sort of immediate, short term stress or financial burden, if you want to call it that at that time, it's all worth it in the end because it's a long term game property. So you're not going to get those amazing returns in the first 2 years. I mean, if you time the market, yeah, you might. But generally speaking property is not a short term investment. You know, unless you're flipping. But I think in general looking at them now closer to the age of 65 to 70, we should look at ourselves and say, “We don't have that much time right now, so we need to make the most of it when we're younger.”
We jump into Toma’s property investing journey and find out about how he got started and what property he invested in.
It was a property in Western Sydney. I knew I was ready to invest, had a bit of a chat to dad about, you know, what we can do? Where can we invest? And we had a big conversation about it and him obviously being successful in what he's done, I took a lot of advice from him. And he suggested a property out in Western Sydney and bought that property for $288,000 back in 2011, I think. Now it’s worth a lot more than that. And so it's been great. But I remember investing going, “That's a lot of money to put down for a deposit,” because you work so hard for the money, you work so hard for your savings, for your money and your deposit and you get a bit scared when you’ve got to write or send that money across for the deposit.
After getting over the hump and purchasing that first property, we find out if he has added any more properties to his portfolio.
Since then I've added another two investment properties and currently in the middle of doing a joint venture development. And so I could have bought more investment properties along the way, a more sort of passive income, but I really wanted to get into that development space. So for me in particular, my strategy was more around saving a bit more and allowing not too much debt to build up in my portfolio so that I could fund my next venture, which is basically a joint venture with a couple of people to do a duplex site in the Sutherland Shire, which we're doing right now. So I've added a few since then and now I'm getting into that sort of development space and really enjoying it. More risk definitely, but with more risk comes more reward.
The first property in the portfolio can sometimes be the most important and we learn about whether his first property was the springboard he needed to jump into his second and third properties.
The strategy there was the buy and hold and refinance, obtain that equity, use that equity to buy the next property and then basically repeat the process. Buy, hold it, refinance and use that deposit and use that equity to buy the next property. So it was definitely the same strategy for property 1, 2, and 3. By now, obviously we're getting into a bit of a different strategy.
We hear about one of the worst moments he has had since purchasing properties as an investor.
I bought a property in Queensland. Obviously me being in Sydney I bought it sight unseen, which is fine. That was all good, there were no dramas with that. The mistake I made at the time was the property that I bought and the property manager, the managing agent that I engaged to manage the property, was in two different cities. So I bought it out near the Ipswich area and the managing agent that I had was in Brisbane. And I guess the rookie error, the rookie mistake I made back then was, they're not close by, they can't go to the property often and check up on it. And it caused me a lot of heartache because they weren't managing the tenants properly.
The tenants were paying rent. And in fact that managing agent, I think in the first sort of 24 months, they went through about 5 or 6 different property managers that was managing my property. And that really caused big issues because information was getting lost between everyone and it was really hard to communicate with them. So that was about a $5,000 mistake that cost me. Because people weren't paying rent on time and they couldn't evict the tenants and all this kind of stuff happened in the background. But something I'll definitely remember and a mistake I'll never make again.
On the flip side, we hear about his amazing aha moment and how everything clicked for him.
I think it's what I was saying earlier, just about my first investment when I was, I still remember I was sitting in an apartment. I was just reading a book. I think it was Michael Yardney’s book actually. And I just realised that this is the way to go to build long term wealth for not only you but your family and hopefully future generations so you can pass it on to them. And I still remember it vividly. I was sitting on the couch, it was a beautiful summer's day. Had the sliding doors open, the breeze was coming through and I was just sitting there going, this has to be the way. And that was my aha moment.
Then what happened after that? What did you do and how long?
I just wanted to soak up as much information as I could and contact the broker to refinance to get that equity out so I can do it again. Because I was pumped. I was excited. I wanted to keep going.
We delve into his second and third property investments and how both of them came about.
The second investment I bought in the same area that I had purchased the first investment, I guess the theory back then I was still learning as it's done well. It's got good fundamentals. It wasn't long after I purchased the first one that I purchased the second one. And then after that, it was a little while in between drinks. Because I was looking at the idea of purchasing interstate and have this borderless investing mentality. Which is quite scary for someone doing it the first time because you don't know what's going to happen. There are different rules in different states. This whole notion of buying a property without seeing it, that's a bit weird for some people. But I really wanted to grow a portfolio where I wasn't restricted and if the market was down in Sydney, well then there would be another market that would be growing. And that's when I started looking interstate and you know, I was looking at things like population growth incomes in the area and the demand for property. What's the supply pipeline like? Are there going to be too many properties coming into the market relatively soon? Scarcity is a big thing. So I looked at all of these different things and I ended up deciding to purchase interstate. It was a great experience for me and something I can pass onto my clients.
How To Take Control of Your Own Future With Peter Toma
Toma shares why he moved into property development so early in his investing journey and we learn about the strategy behind this.
For many sort of serious investors, professional investors you know, the buy and hold strategy is going to take you so far. But I think if you want to take it to the next level, then you need to start looking at manufacturing equity. Manufacturing equity can be just through a simple renovation, could be through a subdivision or it could be through physically developing property. It could also be you're buying a block of land and you're building on top of that. But for me, I feel as though if you're serious about investing, serious about building wealth through property, development is something you're going to get to eventually hopefully sooner rather than later. For many of us there is more risk to it, like I suggested. But the financial rewards from an investment perspective can be a lot greater. And when you've got your manufacturing equity from a build and you've got the market moving in a positive direction for you, then the growth just compounds even more.
I totally agree with you in an uprising market, but in a sort of a flat or downturn market, how does that strategy work?
I think as long as you're buying well, and if you're buying in a slow market and you're selling in a slow market, that's great. If you're buying in a hot market and selling in a hot market or refinancing, whichever one, that's okay too. But if you're buying in a hot market and selling in a slow market, which, you know, nobody has a crystal ball. So the biggest thing is you need to be able to do your feasibility studies properly. Do your realistic one, do your conservative feasibility study and do the best case scenario. So you really need to make sure that, you know, if the market drops by 20%, what's your return going to be? Do the numbers still stack up? If they are, well then it's a pretty good sign to go, even if the market does drop, we're still going to make money and move on to the next development. So your feasibility seems to be on point and you just need to be able to risk assess that as best as you can.
We delve into his current property development project and find out how long he has been working on it.
We bought a couple of years ago. The option there was an older house on quite a sizeable block, a 15 metre frontage, 45 metres long. So pretty big in terms of depth. And the opportunity for that was just simply to buy it, to build it and to build a duplex on it. They're the kinds of properties that you can sort of build in those areas for that size block, for that particular zoning. So that's the opportunity that we found and we took it.
Toma told us that he purchased this property in the Sutherland Shire and he explains why he chose that area over many others in Sydney.
That particular one just worked well within our budget. And the return that we were looking at we could probably get better returns in different areas. But the price points are probably a little bit higher. So for us at that time, it was mainly around the price point to purchase the land to do that specific development.
So at the time the land costs us about $1.2 million. And then obviously you get your closing costs on top of that. We're funding the build ourselves and through an owner builder. So the build cost isn't as high as, I guess some of the other commercial builders. But all in all, we're probably looking after we build and refinance, we're probably looking at about a 15% return.
Which, you know, I think in the scheme of things isn't too bad. Ideally you want 20% plus, but I think in the current market that's a good result.
Basically you're able to sell those duplexes individually for roughly how much in the area?
If we were to sell, we're looking at ranges from anywhere between sort of 1.2 to $1.4 million for each duplex. It really depends on how many bedrooms and level of finish, but that's probably the range 1.1 to $1.4 million is probably the range in that area.
We delve into what he plans to do once the property development is complete.
I think with the current climate, I think we'll just see what happens. Expected to finish soon so it just depends on if the market is going to take a dip or not. For us it’s just a bit of a wait and see game right now.
When is it due to complete?
Probably looking to have it finished in the next sort of 3 to 4 months.
We jump into the process side of things and Toma talks us through the steps he had to take to get a project like this done.
DA approval was a nightmare. Just with the council. Took forever to approve our plans. I think it took us 8 months to get approval.
When you're paying interest for 8 months for nothing. It's very painful. It's a very frustrating process. And I'm sure a lot of people who've done it before can sort of agree with that. But look, from the process, I think you'd need to be clear of the council requirements, what you can and can't build on specific size blocks. Because no matter what the real estate agent tells you in terms of you can build this, you can build that. They'll always tell you subject to council approval. So you really need to be sure. From there we engage somebody to do the plans for us, submit the plans to approval. And that in itself is a bit tricky because you need to sort of, I guess, have an idea of what you want to build, level of finish, the style of property.
You have got to make sure you've got all your ratios right in terms of landscape and hardstand and you need to be sure what you can and can't build in that space. And then once the approvals go in or once the design goes in for approval, from that point it's just a waiting game. Honestly, it's just a waiting game. During that time, you can talk to builders, get pricing from them as well. Council will want to know your estimate of the budget for your build costs as well. So you need to be across that and then once you do get approval it’s all hands on deck. You just got to get started as quickly as you possibly can. There's obviously specific gates in between or during construction where you got to get private certifiers out or council out to come and, you know, get the tick to keep going. The build is actually probably the quickest part if you know what you're doing. It's the research, it's the upfront research. It's the council requirements, the application, which takes a long time.
We discuss the process of figuring out what the land could be used for and who he could seek help from to get it developed.
We just spoke to an architect and I looked up the council regulations myself. And I was comfortable enough, but then when the architect looked at it, they said it was okay as well. I just knew it would be fine and there were other developments in the area going up as well. So having a look at those and seeing what they got approved, public information allows you to be comfortable with that decision.
Toma was able to bring his parents in to help build the property but there are a lot of smaller building companies that can do a good job for you.
I wouldn't discount people going to smaller builders in general. I think that they can provide a lot of value and can show a lot more care for your product. Going to some of these larger commercial builders they've got like the specific trades they are going to use. But they're all about cash and money and they want to get in and get out as quickly as possible and may not take the same level of care for the quality. Because if it's your home, you want it to be nice, you want it to feel nice, you want the things that you're after. So, you know, I wouldn't discount smaller builders out there. If you are looking to put a home or even an investment property because they will look after you.
Next, we delve into the mindset behind his success and we find out about what his main motivating factor is.
The biggest one is I don't want to work for someone for the rest of my life. And so that's number one. And the second thing is, when I leave this world, I want to be able to leave something behind for my family to basically live off. I don't want them to have nothing. I don't want to just have enough for my super and that's it, I want to be able to give more when I'm not here. So that's one of the biggest drivers for me. The other part of it is coming from a background where my parents didn't grow up in Australia. They came here with nothing. And for me to just basically, I wouldn't say waste my life, but not build upon what they've already given me in terms of a good life, for me, it'd be disappointing.
Taking that first step can sometimes be the hardest and we hear about what held him back initially before jumping into his property journey.
I think initially it was do I have enough money for it? I thought I needed to have like 20%. I thought I needed to buy in Sydney. And so back then, you know, it's still relatively big money. But knowing what I know now is you don't have to buy in Sydney, you don't have to have a 20% deposit. There's other ways around that to get into the market and if you need to borrow a little bit more to do that and as long as you can support the cash flow, then that's the main thing. As long as you're in the market. But I think that was the biggest thing that was stopping me back then.
We get some amazing book recommendations and learn about some of the people that have been a big influence for Toma.
Margaret Lomas, I've read a few of her books. Like I said, Michael Yardney, they're probably the main two that I guess look up to and read about. Other than that, everyone has a bit of a different strategy. So like people like Chris Gray who's very into buying, renovating and using equity to do more and using equity to live your lifestyle. Some people don't necessarily agree with that theory. But you know, they’re the sort of three that I look to and say, you know, these are some really, really great strategies that these guys are implementing. I absorbed a lot of knowledge from those guys. They probably don't know it, but it's just the material that they've been producing over the years.
We delve into the best piece of advice that he has ever received.
The best advice, the best advice I've ever received has got to be that you are in control of your future. Don't let anybody else control your future. You are in complete control. Things will happen, but it's up to you to decide what's going to happen from there. It's up to you to find a way, whether that be through your own passion, skill drive or going out there and finding advice from other people as badly as you want it, you'll find a way to get it.
A lot of people are creatures of habit and we discuss what are some of the habits that might have contributed to his success.
One of the things as I mentioned before, had that issue with the property management. Since then, I've always been diligent in checking my rental statements as they come in because it's so easy to just assume that they're going to come in and the rent is coming in. There's no issues. Sometimes managing agents do things without your permission because they think it's okay, even if it's a small amount of money. So just a habit of checking your rental statements that everything's coming in.
And checking your portfolio where everything's at in terms of equity, debt and your finance every 6 to 12 months.
If he could go into the past and give himself some advice, what would it be?
Why didn't you buy more properties? I think I would've said, whatever you've got, just start investing, start investing now. And hindsight is great but I think you just got to go for it. No one is going to determine your future. Only you can determine your future.
We find out some of the goals that Toma is looking forward to achieving in the very near future.
I'm going to continue to do what I'm doing. From the development side of things, I'm keen to continue doing that. But I'm also really, really excited to be able to share my knowledge and help other investors do what I've done. And if people are out there looking to build a wealth base through property. I'd love to be able to share my knowledge, show them different strategies that might be applicable to them and really that's my way of giving back is passing on what I've learned to others now.
There are many agencies and strategies out there for us to choose from but we hear why Toma’s strategies stand out from the rest.
I think the biggest thing is that we recognize that not everybody's strategy is going to be exactly the same. You can read all the books that you want, but at the end of the day, everybody has a different financial situation, a different appetite for risk.
Everybody's at a different stage in their lives. Some are single, some are young couples and people with kids, older people above 60, they still want to invest. So they're going to have different strategies in different models that need to be implemented to them. And then that's one thing that we do is we really look at people's specific scenarios and situations and tailor that advice, that solution for them. So their strategy isn't going to be the same as the next person.
Last and final question for you, paydays. How much of your success is due to skill intelligence and hard work? And how much of it is because of luck?
Luck definitely plays a part. You know, I was lucky that I was born when I was born and I was at a specific age where I had saved enough money because I'd been working and I got into the market in late 2011 when things started to ramp up. So you know, that part of it is luck. But after that comes the skill, the knowledge, the tenacity, the desire to keep learning, to keep going. Because so many people can just buy one property and just stop and think that’s enough, that's okay, I've got my investment property, I'm good. But if you want to keep going, if you want to build a future, a wealth base, you need to educate yourself. You need to put in the hard work and learn. You need to be able to have those conversations with different investors, different managing agents, real estate agents, and when you're doing research. So I think luck definitely plays a part in it. In terms of percentage, I reckon, I’m going to say 20%. Well, I was thinking 30 but 30% is probably a bit too much, but 20% luck. Everything else comes from your own hard work and mindset.
Lindsay Stewart is a successful property investor and founder of Star Dynamic Property Investments which helps its clients find properties in the US to invest in. He has been investing in property for nearly 15 years and has been investing in US properties for 6 years. He has a wealth of knowledge when it comes to the US property market and we are lucky enough to learn from him on how we can jump into that market.
Come with us as we learn about one of Stewart’s clients, an entrepreneur that wanted to diversify his property portfolio and find some positive cash flow properties in the US, we delve into the strategies that he used to build his portfolio, the advantages of buying in the US compared to Australia, some incredible differences in the property market between the US and Australia, and much much more!
'The first and foremost thing is to just sit down and determine exactly what it is you want. Then what you can do is start to build a strategy.'
In this episode we are going to be talking about investing in the US with Lindsay Stewart but first we learn about what he does and his background.
We've been investing in the US market for probably coming up to, well gosh, what is it 2020? So 8 years now. And we had been investors in Australia for quite some time. What attracted me most of the time back in the end of 2012 in the US market was the affordability of the properties. That was probably the first thing I noticed. We had a lot of funding tied up in a development here. So we were sort of at a bit of a stalemate. Developments in Australia as we know, can take quite some period of time. So we've sort of been going backwards and forwards with council approvals and all that sort of thing for quite a long time.
So I sort of felt we were getting nowhere. So that's what really attracted me to the US. It was something that I thought we could do while we were still developing. And what ended up happening, we sort of jumped in, I ended up buying some properties over there. The results were astounding. And in the end our developments here in Australia have taken a back seat and and we now focus generally, predominantly on the US. We still do a lot of properties ourselves. We've, you know, in the last year alone, we were able to do 85 properties in the US which was fantastic. You know, for ourselves and for clients as well. So, you know, a lot of activity now over there. That's sort of my primary focus and we have moved a lot now to helping other Aussie investors be able to get into the market and show them how to do that safely and sort of how to avoid the pitfalls and what strategies to use to make sure it's profitable.
It was interesting to learn that he was able to invest into the US whilst still living here in Australia. We find out about how he was able to do that?
I think the first and most important thing you can do whenever investing, particularly in a, I want to say a foreign country, it probably wouldn't matter if you're an investor in Victoria investing in Queensland for instance, or if you're an investor in Sydney investing in Perth, you need to build a team on the ground. And this is probably more so exacerbated once you get overseas because you're now talking about a market that you really don't know a lot about and you need to rely on people's expectations. You need to rely on people's advice. So building a team is probably the first and foremost important thing. We have an online training course that we do. And I think after the first module goes through, you know, finding a location and building a team on the ground as the first and foremost thing you can do.
You need people you can trust. Now this is the hard part and from a distance that can be difficult, but it's really just built up over time, it's built up with referrals, you know, talk to people that you know over there. We tell a lot of people and we have a lot of clients who may have friends or relatives or colleagues or something like that in the US or possibly they have friends or relatives here in Australia that know people in the US and that way you can sort of leapfrog into those areas. And you know, let's just say you have a colleague who actually works in Texas, you can reach out to them and you can say, I'm interested in investing in that region. Do you know or have you used any realtors that were very good?
You know, and they can start putting you in touch with some people that they know that was good for them. And that gives you a bit of, nothing's guaranteed, but it gives you a little bit of certainty that this person's probably fairly straight up and down and above board and can help you. So then you can reach out. And then of course if you're looking for property managers within the realtor that you've got a contact with now can say, well look, I have a property manager who is very good and here is his or her number and you can contact them. If they're looking for contractors, well often the realtors will have access to some good contractors because you know a lot of these properties might need a little bit of maintenance. So slowly but surely you can start building your team from referrals and then as you go through you can start finding extra people in additionals. And there's nothing wrong with having two or three realtors that you’re using. two or three contract teams, two or three title companies, etc.
Next, we delve into the background of one of his clients that he helped jump into the US property market.
It's amazing the diversity that we have of people coming to us. And this gentleman, you know, was certainly an extremely successful entrepreneur. Him and his wife run a seven or eight figure business already in the marketing, online marketing space. We actually got introduced to them. My wife actually signed up to do his wife's course that’s actually how that started. And the information that we use for a lot of our marketing has come exactly from that course that my wife did. But her and her husband were so intrigued by our business because it was such a different business from most of the ladies that she teaches. He decided he wanted to give it a shot. He could see a lot of potential.
So, you know, in the last 12 months, he's bought three properties in the US now and you know, the first one was actually in a very great area of Michigan called Harper Woods which is tucked in behind and I don't know if a lot of listeners may or may not have heard of an area in Michigan called Grosse Pointe and it is probably one of the most expensive areas of real estate in Michigan. So Harper woods is the next suburb just inland from Grosse Pointe, a very, very nice area. You know, lovely properties. Most of the properties are in very good condition, generally quite expensive. But in this particular case, we were able to get this property for him for around about $40,000 US dollars. Now, it needed a lot of work, admittedly you know, now over the next six months, he went on to spend around $50,000 on that property.
So you know, all out the whole process, the whole purchase and renovations and holding costs and everything probably cost him less than $100,000 US dollars. Now we were able to then put that property back, straight back on the market. This was a, what I would call an owner occupier strategy. So what he's done here is he's purchased a property to do up to a very high end standard so that the person who's going to buy the house is the person who's going to live in it. You want to, you want to wow the people when they walk in. You want that really nice sort of feel to the property, you know, beautiful kitchens, beautiful bathrooms. That side of things. And if you're an investor and you've got a bit of a flare for interior design or decoration or that's something you like, then that's certainly the sort of strategy that you'd look at because you can sort of, you know, you can really do some lovely things within the house, within the homes, make them unique. And that's what really can attract people.
Stewart explains his client’s living situation and the reason that he wanted to start investing in properties in the US.
I think Adam would be about in his late thirties, him and his wife. I would think both. They don't have any children at this stage. I don't know whether that's something they're looking at doing down the track. I know he's got three or four sports cars. I don't know if he treats them as his kids. They've got a couple of dogs. They have a beautiful acreage. I think they've got a five acre property in the Adelaide Hills, just in Aldgate. It is such a beautiful property. They run a lot of their marketing masterminds from their home, and they've got facilities on their property to run a lot of this which is good. They spend a lot of their time also in the US that they've got a very big following in it.
A lot of their clients are also in the US as well, so they do a lot of travel backwards and forwards. And that, you know, as you can probably understand, very busy people you know, they'd be turning over, I couldn't even begin to estimate. I would certainly say it's a seven figure business. If not, I wouldn't be surprised if they're probably up around the eight figures now. So very successful. They've been doing it for the last 10 years, I think now. So, you know really at the end of the day, investing in property in the US it was not something that would have necessarily been on his radar, but his own business generates such an income for him. But when he heard about what we were doing, it was something that was quite fascinating for him. And, and he sort of wants, he loves the diversification of it. So I think what he was really looking for is to be able to diversify and possibly put together a bit of a property portfolio that would then also generate more passive income as well as the business side. That of course you've got that safety there if anything happens on either side.
Before just jumping right in one of the most important aspects is deciding on the strategy you are going to implement.
We spend a good couple of hours when we first start up or talk to any client regarding their strategy. You know, the first and foremost important thing when you're putting together any form of strategy whatsoever is to determine what it is you're actually after. And I think a lot of people, I think an investment strategy is probably something that a lot of people are quite remiss. They don't really have an investment strategy written down. They don't have it really mapped out exactly. You know, first and foremost, why are you investing in property? Now you can say, well, it's the passive income. All that's all great, but why passive income, right? I mean, you're not going to be investing so that you can have the dollar in your hand and you can look at it.
There’s something that you want. That might be safety, it might be security, it might be to be able to give up a little bit of work, spend some more time with the family. It might be travel. All these things are what is really the core underlying reason as to why you're investing. So the first and foremost thing is to just sit down and determine exactly what it is you want. Then what you can do is start to build a strategy using property, which is really just a vehicle to be able to get you what it is that you want. And that's really the best way. Once you've got that strategy mapped out and you've got it really crystal clear, then of course it's really easy because then when you see deals, you can look at the deal and say, right, is this my strategy? Yes or no?
Well, if it is, then you can assess it and say, well, yes, this is a good deal and you take it. If it's not, it's easy because you just flick it and go to the next. So you know, without that strategy, that's where a lot of people buy the wrong types of properties. You know, they get themselves cornered and it might not be that they bought a bad deal. It just simply wasn't the right deal for their strategy. So, you know, this strategy is really important. We spend a good couple of hours with him and now in his case, of course, he's in quite an advantageous position a lot more so than probably a lot of us in that funding and finance was not really an issue for him. What he was looking to do was to develop an income that was to diversify so that he had a bit of safety and security.
Whereas, you know, he has not unlimited funds of course, but the amount of funds to invest for him wasn't necessarily an issue. So that was an easy one for him as far as strategy goes. Buying the higher value dollar properties that were in good areas was probably something he was looking at because he preferred that sort of safety and security of the A class B class properties. That's sort of what fitted his strategy. Whereas you know, there's a lot of other people that come to us that are probably looking for more of that B class, C class property because they don't have a lot of funds there. They're happy to try and get the best they can get their money working as hard as they can for it. And that way they can then start building their equity and building their capital so they can reinvest and not sort of paint themselves into a corner.
Can you elaborate a little bit more about what A, B and C classes are? Just for the listeners who might not know what that means.
I mean in Australia, here we have a lot of A class and B class property and that would be primarily what you would see, particularly on the east coast without going into some rural areas and things like that. But I mean really there's probably actual definitions of this in a property handbook somewhere, but in essence an A class property would be something like the very high end regions. I mean in Sydney you'd be looking at sort of North Shore, Glebe, inner suburbs, those sort of areas.
They're quite expensive, large properties, very, very high-end fittings, you know, marble floors, all this sort of, you know, that would be your A class sort of property that you'd be looking at. And the B class would be, I would hesitate to say, what a lot of us would be living in. Lovely homes in nice areas. Varying in prices of course, depending on the regions. But you know, very solid homes, very nice areas. Now C class is a little bit lower than that. So, you know, you can have homes that probably need a little bit of work. You know, the people can make these quite homely, but you wouldn't necessarily walk in and go, wow, this is a nice place. It's someone's house. But now that might be where it is that it's probably working class.
You might find that there's a lot of people in the area looking for jobs possibly or working in factories and you know, that sort of area. Now the US also has a D and an E Class, which we don't have over here. And that's where a lot of people can get themselves into trouble because you can buy some very cheap properties in some ordinary C and some bad D and E class areas. Now a D class area is a very poor area, generally not a lot of people working. Genuinely, there's not a lot of employment opportunities and there generally isn't a lot of schooling in the area. So, that sort of gives you a bit of an idea that you would find a lot of people would be on the streets, they'd be talking and walking around because they've got not much else to do during the day.
Properties are genuinely in pretty poor state of disrepair. Both exterior and definitely interior. And that can be, you know, quite visible. And then an E class area was what you would call a ghetto, you know, and these are properties that would be hardly liveable. And there are people probably living in properties that are run down or squatters and so on and so forth. So you've got, you know, this is sort of a whole range, unfortunately in the US there is quite a vast difference between the top and the bottom. In Australia where we are a little more fortunate not to have a lot of that lower class areas.
We learn more about the area classes and the type of areas that he is looking to get into and what he would stay away from.
I certainly wouldn't go into any D class areas or I wouldn't recommend anybody does. Now look, if you are an investor on the ground and you know the areas really well, there's probably ways you could mitigate a lot of that risk. But, from afar it's just too dangerous. It's too difficult to be able to mitigate a lot of the risk. From our perspective what I would call sort of C plus those sort of areas would be about as far as you'd want to go. Now look with anything, I guess there's always a risk versus return, right? So you know, you go into an A class area, you buy a house, you try and do it up, your return's going to be relatively small or the amount of return you can get in an A class area is a lot less than you're going to get if you were in a C class area for instance.
You might be able to get 10 or 15% return on your money in an A-class area by doing up a property and selling it. In a B class area, you’re probably looking at that 15 to 20%. In a good solid C class area, you could possibly get that 25 to 30%. Now having said that, you may also find that you might get a property in a C class area broken into at some point if you don't take precautions, whereas you're not going to get that in an A-class area. So you've got these two dichotomies or you know, areas I suppose of regions to look at. So when we go through our strategy, and this is getting back to what you were saying about the strategy, we also want to help the person sum up what their sort of risk level is.
Now, people who are quite risk averse don't want to be looking at strategies to buy properties in C class areas. They're going to be finding that too hard on their nerves if something goes wrong. So that's why you'd sort of lead them towards the more A and B class properties. Whereas on the other hand, someone like myself, I have no problem with a reasonable level of risk. I understand how that works and I can understand how to mitigate it and I'm okay dealing with that. So the A class areas are not necessarily something I look at because I prefer a higher return and I'm happy to manage and mitigate the risks in the C class areas.
Stewart details how the strategy they implemented is working and we find out in more detail about how his client is able to build up his portfolio because of the strategy.
First and foremost his strategy was to invest an amount of funds into the US and to treat it like a business and to have that business turning over and giving him a return of which he would then invest a percentage back into that business to keep generating that return. So that's in essence what he was looking at doing. And he wanted it to be able to build a property portfolio that was developing and giving him a nice return on his investment and then be able to invest a percentage of that back into keeping improving and increasing that return. So to start with, our strategy with him to start with was to look at what we would call owner occupier flips, sort of that B class area where we could buy decent properties, do them up to a really nice standard, sell them for quite a good return.
And now what that does is that gives him really good high level capital equity improvement and boosts to the amount he's got invested. So, you know, arguably, and I'll just use some example numbers. I can't really give you too much detail of course about that exactly. But you know, let's just say he wants to invest $500,000 Australian dollars, he's going to get around about 360,000-$390,000 USD for that. So what he does is, we're going out and buying two or three properties for him in that amount. Trying to get him around about that 30% return on his flips. So within a year or so his 360,000-$380,000 USD is going to be around about that 450,000-$500,000 again. Then what we're looking at doing for him is being that he's very interested in multifamily properties.
So then what we'll do and once we finish, we've probably got another six months of his strategy to go in his initial phase, I guess first phase. Then in the second phase, what we're going to do is look at buying an apartment block that needs work. We'll do up the apartment block for him. He'll get all the properties tenanted, increase the value of that property. He's now developing a relatively decent capacity income. I'd say, you know, if you get six or eight or ten apartments in a block that needs work, you can do up all the apartments, you can start tenanting them. And then what happens with apartment blocks, of course is apartment blocks are more like a commercial strategy. So the value of the property is more hinged on the net operating income of the property. So as you can do up the properties, each unit itself can start getting more rent. You can start putting tenants in them and asking more rent then the value of the property starts to rise. Then what he's going to do is borrow and refinance out most of his funds and then go and do the same again.
Stewart’s client travels to the US frequently which is a little bit of an advantage for him when investing over there.
The other advantage he's going to have of course is by doing the first few flips in the first 12 months and he gets a tax return. He does that over in the US that starts generating you a bit of a credit rating over there. The lenders start looking at you a little more seriously once you've done some tax returns and so on and so forth. And they start looking at you a lot more seriously when you've had some experience. This is all favourable for him. So when he's ready and does that apartment building and when he refinances out, he should be able to get about 70 odd percent of his, you know, loan to value ratio out of that property. Now if he's had a 20-30% uplift in the value from when he's renovated all these units and as you can see, he'll probably get pretty close to all his funds out. Now if you're paying around about 6, 7, 8% even if you're paying private equity at 7 or 8% and the unit block itself is giving you, including a vacancy rate of say something like 15 or 16% net, which it would, the difference between your loan repayments and your net amount is still going to be around that 7 or 8% which is definitely worthwhile. And then you've got most of your funds back to go and do it again.
Investing in properties in the US has its advantages when it comes to balancing out your portfolio.
Even Adam in his case, he owns property here in Australia as well, and he has the growth coming in through there. So what you said before about balancing your portfolio is absolutely perfect. In his case, that's what he was looking for. I personally am not an advocate for negative gearing. I still have never been able to see the sense in spending a dollar to save 30 cents in any case. And even in Australia, I don't see, you know, there are properties available that you can buy that you can make at least neutrally geared, if not even some form of positive. You know, at the end of the day, and I sort of keep going back to Robert Kiyosaki's rules of investing from Rich Dad Poor Dad, to some degree, you know, to be classified as an asset it's got to be putting a dollar in your pocket.
Anything that takes a dollar out of your pocket is called a liability. I think really even a property can be a liability as much as it can be an asset. It depends on how you’ve got it structured, you know, having a property and even if it's only giving you a dollar a month that is at least a positive or at least a neutrally geared property, and then you're on the wind, you know, you can't be going backwards at least if it's giving you a dollar, because here in Australia you're going to get growth. In the US or in the Midwest of the US you don't have the growth like that. So what you're going to want is you're going to want higher cash flow. You need that higher return. I'd never buy a property in the US giving me 2 or 3 or 4% because tying up your money for that sort of small return isn't worthwhile because the property is not going to be worth significantly more in years to come. So that's why you're going to want that 10% plus and particularly multifamily is great because you can be looking at 15% plus.
We delve into the term ‘multifamily’ and he explains to us what the term means and gives us some examples.
Multifamily property is literally any property that will have more than one tenant occupying the property. There's a number of ways that that can be done. In the US it's very popular to find what they call duplexes and triplexes. Now in Australia, a duplex, you'd probably see on one block you'd have two houses directly side by side. In the US that's not generally the case. What you find a duplex is one house which is actually divided inside into two units. That might be an upstairs unit and a downstairs unit or they might be a unit on the left and a unit on the right as you go through the front door. So it can, the format can be a little different, but that's what you would call a duplex property.
So you've got one house literally under one deed or one title and you are renting it out to two separate families under two separate leases. Now a triplex, it goes one step further where you would have three units inside one property. You know, and again, this could be an upstairs unit and two downstairs units or in the US in a lot of cases you can find an upstairs unit, a ground floor unit, and maybe a basement unit because they're very big on their basements in the US and that could be a triplex. Now, there is such a thing as a quad or a fourplex. They're a little harder to find and I don't necessarily recommend them as a strategy. There's quite a few little drawbacks with them. But then beyond that your next step would be apartment blocks.
Now in the US again, this is a little different when we talk about apartments in Australia, you're thinking of buying one apartment, a two bedroom apartment or a one bedroom apartment, in the US that's called a condominium. Not an apartment. So these apartment blocks are actually all on the same title. They're not strata titles. So you can't buy an individual unit. The only way you could do that would be through a condominium. And again, not necessarily, unfortunately quite a popular strategy that a lot of the international, should I say the US companies try to sell to international investors because you know they're very glamorous and they're overlooking the San Francisco Bay or Miami, right. And they're beautiful and they've got pools and you've got tennis courts and you've got all this in the complex, which is fantastic to live in, but to own one that you have what they call homeowner association fees, which is very similar to our body corporate fees here in Australia. These can be extremely high and particularly when you buy in compounds that have tennis courts and pools and gyms and all this sort of thing, what you can find is your HOA fees can be as much as your rent.
I had a lady come up to us only a couple of years ago and she had a condominium in Atlanta and it was costing her money to hold onto it. And you know, again, there's not a lot of capital growth there and there's another step that's even worse in a lot of cases you can find that some of these homeowner associations have built into their contracts that you have to get approval from the homeowner association to be able to sell the property.The HOA was not giving her approval to sell so she couldn't sell it. So there's some real traps there but apartment blocks are quite good strategies where you're buying an entire block of four or five, eight, ten, thirty, however many apartments come under that block. You renovate those out, you can make them very good cash line apartments. And you can increase the value of the block itself by increasing the value or the amount of rent that each individual one gets. Because the more rent you get for each apartment, the higher the net operating income becomes of the entire block.
Therefore increases the value, very similar to commercial property in Australia because the value is determined because of the rental income.
It's pretty much exactly the same. You'll have a cap rate in an area that, you know, commercial property in this area is bringing 10 to 12%. So if you're getting, you know,10,000 or $100,000 a year in rent from that property, then if you're getting $100,000 net rent then you've got a property that's worth $1 million. If the cap rate of the region is 10%. So you know that it really just boils down to that.
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