Jacinta from Western Australia is troubled about property investing because, while she is keen, she is having trouble convincing her partner that it is the right thing to do. She asks ‘what can I do to convince my partner?’. Hear Nhan Nguyen’s advice.
We feature a chat with Jo Chivers from Property Bloom about how she has developed her own portfolio and imparts that knowledge to her clients. Like all successful people, Jo freely shares her experiences with us.
Every real estate agent has data – from customer relationship management systems, to knowledge of the local market, email contacts, history of sales and rentals, accounting systems and access to third party market data. So how do they use that and what do they really know about you? Kylie Davis from Core Logic RP Data, who supply a lot of this data, will explain.
Last week in the show we chatted to Brad Beer about his personal philosophy on property investment. Now we ask him to give us his top tips for successful investing. 5 great pieces of advice.
You might recall that Michael Yardney recently told us why he likes 70’s units. In this interview he highlights the 6 mistakes investors must avoid if they are wanting to invest in older units.
You will find us at iTunes under podcasts as Real Estate Talk. Listen there for free, leave a review which helps us grow and tells us what you like and how we can improve the show. Don’t forget to subscribe at the site as well –even if you do get the show through iTunes – so that we can tell you about the bonus offers we make to subscribers. Your questions are welcome through the site as well.
Transcripts:
Is it wise to ‘go it alone’? – Nhan Nguyen
Kevin: I received an email from Jacinta in WA, a lovely spot of the world, too – and a very interesting question. Jacinta writes, “I’ve attended a course on property investing and I’m keen to get started but my husband is reluctant. I wish now that he had been at the course with me because I can’t convince him that it’s the right way to go. Do you have any advice? I don’t want to do it on my own.” Jacinta, I’m going to refer this question to Nhan Nguyen from Advanced Property Strategies.
Hi, Nhan.
Nhan: Good day, Kevin. How are you doing?
Kevin: Good. You’ve probably heard that question before, have you?
Nhan: Oh, for sure. I’m married myself, so I know what it’s like.
Kevin: What do you do in a situation like that? What should Jacinta do?
Nhan: It’s a very delicate situation, and I think it’s a slowly-slowly type attitude. Personally, I’m sure there are a lot of other courses that come up from time to time, and getting your partner onboard by having a third-party is really a good way to start and get them onboard to learn about the process, because it’s a journey, as well.
I think also in partnerships, when one spouse may be earning the income and the other may be supporting, looking after the kids, or both partners are working, sometimes both incomes are required to borrow, so you can’t just go by yourself.
I think that definitely a first start is getting education. After that, finding out is it going to be something that both parties are going to participate in? It’s very hard with two partners if one doesn’t really agree with what’s going on.
Kevin: Nhan, you raise an interesting point there I just want to dig a little bit deeper on, if I may. That is, one partner is earning the money and the other partner is not necessarily bringing money in but wants to start a separate business. How important is it to have the property investment side of what you do as a separate profit center?
Nhan: I think it’s really important to do that, especially if you’re wanting to create long-term wealth. I set up my entities separately to the property that I own in my personal name. I only have one in my personal name, and the other ones are in other companies and trusts, you could say. That’s very important, because if something happens to me, my assets are still protected and they still can be passed down.
As a profit center, that’s how we treat it. We treat properties as a separate business and entities creating their own income. I know that sometimes when partners don’t want to participate, it may be due to a risk factor. They might have an Uncle Bill or Bob who 30 or 40 years ago, went bankrupt doing a land subdivision, and they have certain beliefs about money, wealth, creating wealth, and sometimes it’s an uncomfortable thing.
But I don’t think it should stop you. If your partner likes playing golf and you don’t like playing golf, and you like playing tennis instead, it doesn’t stop a relationship; you just have to manage the risks and the outcomes.
Kevin: Yes, that’s a very good point. That really underlines that point – doesn’t it – about making sure it’s a separate profit center.
I do believe that you can’t make someone do something they’re not either comfortable doing or they don’t believe in, Jacinta. Jacinta raised the point there that she wished her partner – her husband in this case – had been on the course with her.
The other piece of advice I’d give is that if you’re going to do something like this and you want your partner to be involved in it, make sure that they’re getting the same type of education as you are. Would you agree with that, Nhan?
Nhan: Yes. I think it’s really important, so they are both on the same page. Being married myself, I that know that sometimes my wife won’t listen to me but she’ll listen to someone who’s a bit more detached who’s saying the same thing. That’s not uncommon and vice versa. No one likes being what to do by someone close to them.
I think that the other thing that you can do to really move things forward is use a strategy that you learn in a general purchase. I understand that most people are going to buy a house to live in, anyway, so if you learn how to buy property under market value, you might as well start on that one.
If you’re going to buy a property for $500,000 and you can figure it out using the education to buy it for $420,000 or $430,000 and get a $70,000 to $80,000 discount using the education, that’s a great way to incentivize a spouse, partner, or significant other to show that the stuff works.
An other ways is to build a granny flat in the backyard or underneath your house. I know we have a granny flat, and I say to my clients, practice what I preach. My wife was very much conservative and she didn’t really want a granny flat. But I was able to show her that with just a small investment, we were able to make an extra $15,000 a year passively through doing that.
It’s softly-softly, and you can use it to apply in everyday situations, because everyone has to live somewhere, so you might as well do it on something you’re going to buy anyway and show your spouse or partner that it can be done. Once you’ve given them enough proof on one or two examples, then there’s nothing holding you back.
Kevin: Excellent advance. Thank you very much for your time. Nhan Nguyen, I appreciate it.
Nhan: Excellent, Kevin. Thanks for having me.
Brad’s tips for successful investing – Brad Beer
Kevin: Brad Beer joins me from BMT Tax Depreciation.
Brad, we normally talk to you about tax depreciation – and why wouldn’t we – but I’m keen to get your tips on becoming a successful property investor. What have you found?
Brad: I have a few of the top tips. I’ll probably start with moving outside your comfort zone. I think I’ve definitely been guilty in some ways of buying properties around where I know, and there have been certain reasons for that – it’s good because you can manufacture equity and renovate – but I think outside of the area is sometimes a very good way to go.
A lot of property investors in Australia only buy one property, and often it’s just around the corner from home or where they want to go on holidays, but it’s not necessarily the right thing. So look wider, outside of your comfort zone.
Kevin: Yes, I remember talking to you recently, and you mentioned that the bulk of your portfolio – or quite a bit of it – is in the Newcastle area, I think. Is that what you’re referring to, is that you’re comfortable with that area because you knew it?
Brad: I was comfortable, I knew it. Now, I had another reason: I was renovating and trying to get equity quickly, and sometimes renovating is a way to do that. It doesn’t always have to be the way to do that. But you know, I should have gone outside the comfort zone earlier in life probably, as well.
Kevin: Yes. You mentioned off air before we started this that you see a lot of people follow the herd. That’s also a big mistake, isn’t it?
Brad: Absolutely. I think this country seems to have a herd mentality in investing in property. If prices start moving somewhere and everyone buys, it’ll push the prices higher and we keep buying, and then we overcook the price and then it goes backwards. You almost need to be going and buying in the areas after it’s gone backwards, but no one likes those at that time, do they? So not following that herd mentality is a good thing to think of, absolutely.
Kevin: How do you get ahead of the herd?
Brad: A very good question. Unfortunately, no crystal ball exists. However, looking at some of the fundamentals about why areas should grow into the future: do they have some of the important things? Do they have infrastructure, jobs, education, health – the things that are going to mean that population growth in those areas will happen? Why would someone move there? Is there something that’s going to drive demand in that area? That’s kind of what you’re going to be often looking for.
Kevin: Is that like looking at the complete picture, the whole picture?
Brad: I’m a depreciation guy, and I don’t say go look at to buy stuff that’s got good depreciation; I think depreciation is one of the things that’s really important to know, but it’s a kicker at the end with the cash flow.
You have to look at the complete picture. Cash flow is important, but what am I going to make the most money out of over the next five years with everything that relates to investing into a property?
Kevin: How far into the future do you think? Are you a long-term thinker about your investments?
Brad: I am an absolute buy-and-hold guy. I’ve been holding my properties because I’m looking for growth. I think changing over costs you. I think you have to know about the cash flow on the way through, doing things like PAYG valuations.
I’m looking long term, but short term is where the cash flow comes all the way through, and short term, you want to make some money, as well, of course, but I’ve been a buyer-and-holder, absolutely.
Kevin: Yes, we all make mistakes, and I think you’ve probably made mistakes with properties, as well.
Brad: Absolutely.
Kevin: That’s not the problem, is it? The problem is if you don’t learn from those mistakes.
Brad: One very important tip would be to learn from the experience. I like a term that I often hear called “Fail fast and fix fast.” If you’re going to do something, get in and absolutely do it, so you can learn from it and fix it fast, because the longer you leave it, the worse it becomes. Learn as much as you can about investing; continually learn.
I’m BMT since 1998 and I still go to property seminars and I listen to people talk about property, talk about investing in property so that I can actually learn about that. I’ve been investing for nearly as long as that, and I still feel like I learned something when I sit there and listen to people who talk about property and what they think is going on in the future.
Kevin: It’s amazing; I’ve spoken to a lot of successful investors like yourself, and Margaret Lomas is another one who comes to mind instantly. I asked Margaret the question about the worst property investment she’d ever made. She told me what it was, and then she told me that she still has it, and she has it for sentimental reasons. I think she probably does it to remember the pain so that she won’t make that kind of mistake again. I don’t know.
But what about you? Would you quit your worst-performing property?
Brad: Now, the thing is I still own my worst-performing property.
Kevin: That’s hilarious.
Brad: I think you absolutely should quit your worst-performing property if it stops you from investing in another one. For me, it doesn’t stop a thing, or I would quit it and sell it tomorrow and cut the loss.
The thing is you have that problem of once you realize that loss, you really see it and you have to put the money in. I think you have to absolutely be prepared. If you do learn that investing in a property in a different way means that the long-term future is going to look a lot better and what you have is going to stop you from doing that, you should cut your losses and move on.
Kevin: Yes, great advice. Brad Beer from BMT Tax Depreciation.
Brad, thanks for your time, mate.
Brad: Thanks, Kevin. Great to chat, as always.
6 mistakes to avoid when buying older units – Michael Yardney
Kevin: Last week in the show, I was talking to Michael Yardney about not so much the pros and cons but the benefits of buying older units and how adaptable they can be. It got us to thinking during the week that obviously, we go wrong in a lot of areas in real estate; where can you go wrong with buying older apartments? What should you be aware of? What should you avoid?
Good morning again, Michael, and welcome to the show.
Michael: Hi Kevin. Thanks for having me again.
Kevin: Yes, it was an interesting conversation after that last interview. Can you run through some of the things that you think we should avoid or be aware of?
Michael: Just to make things clear, we’re talking about what when you and I were growing up used to be called flats that were built in the 1960s and the 1970s and today make good investments compared to many of the new, smaller, off-the-plan high-rise and high-density blocks. But again, not all properties are good investments, and in my mind, still probably less than 5% of established apartments – these older what we call flats – are investment grade.
One has to start from the top and choose the location. You can’t just buy any apartment and hope it’s going to make a great investment. Maybe 70% or 80% of your investment property’s performance is going to be dependent upon its location. The rest of it is, of course, going to be dependent upon the property’s specific, unique features.
A common mistake investors make buying established apartments is not strategically looking at the state and then that location, the suburb in the state – one that’s got the right demographics that’s going to outperform the averages, because it’s a gentrifying area, it’s an area where people’s wages are high, it’s an area where people are moving into and there’s a lack of supply and lots of demand, Kevin.
Kevin: We did make the point last week, though, that a lot of those older units are in some of those areas that are becoming gentrified. We can look around the cap cities and think of many locations where the flats were always looked down upon but now they’re in quite good, emerging areas.
Michael: In the early days – sorry, my early days – the inner suburbs were the working class areas. Interestingly, if you look back, that’s where a lot of the factories used to be as well, a lot of the manufacturing and warehousing, and the heavy industrial was in the inner suburbs, and the workers were living close to them.
Then in the 1970s and ’80s, with the advent of our freeways, the industrial areas moved to the outer suburbs and migrants moved into these inner suburbs. They became a bit more bohemian, and restaurants and cafés came out. And these areas are still gentrifying, Kevin, so yes, there definitely has been a significant change, hasn’t there?
Kevin: Yes, there certainly has. I guess, too, when you’re looking at some of these older units, you really have to dig deep and have a look at the history of the building, not so much just the history of the area.
Michael: Very much so. Not just the area, but also the right streets. Not every street in the suburb is going to be good. You want one with a good feel to it. Some streets have a different feel, a better feel, a unified feel, and if you’re buying apartments, you’d like, if possible, to have a street where there are homes and a lot of owner-occupiers, as well, rather than a street just of apartments.
But you’re right in what you were saying a month ago, Kevin. That you can get a lot of research not just on the area, but because it’s an established apartment, you can get information about previous sales, sales within the block, how it’s performed, owners corporation information about potential disputes, repairs, sinking funds – the sort of information you can’t get on new properties, because they don’t have a history.
You only really know what a new property is worth when it’s sold down the track in the secondary market, and unfortunately, some investors are getting disappointed when they see what happens to the property’s prices a year or two after they’ve purchased it.
Kevin: Yes, and that’s a good thing about older units, too – they do actually have a history; you can check on it. We can learn a lot from looking back, as well.
What about position and outlook, Michael?
Michael: When you’re buying new property, you often have an opportunity within the block to choose “Do I want to be on the 10th floor or the 4th floor? Do I want to face north, south, east, or west?” You don’t have that luxury of choice with established properties, but that doesn’t mean that you should buy it if the outlook and the position in the block isn’t good.
Light and amenity is important, so the direction it’s facing and being able to get good light during the day, the views that you have are important, what floor it’s on. There’s not a correct answer. Some people don’t want to be on the ground floor because they feel a level of security on the first floor.
I think in these older blocks, if you had to choose, the prime position is the first-floor front unit, and sometimes if there are two or three stories up, maybe the top story, people don’t particularly want. We’ll often find tenants and owner-occupiers don’t want to walk that extra level with their shopping at the end of the day.
So yes, look at the positon and the outlook of the property, and if it doesn’t suit, just go to another block.
Kevin: Michael, many people are concerned when they’re buying a unit that there’s no land with it. How does that impact the value?
Michael: That’s an incorrect thought that people have, because if you own an apartment in a block of ten, then you basically have a tenth of the land component underneath you, and I’d rather own a tenth of a block of land in a good inner suburb of Melbourne, Sydney, Brisbane, as opposed to hectares of land out in the middle of nowhere. It’s the land component that is important, and that’s what is going to create the scarcity.
The other interesting thing is that a lot of these established apartments are bought below intrinsic value, meaning you couldn’t replace them. If that block of ten apartments burned down, under today’s town planning regulation, you wouldn’t be able to build them at that size or with that amount of car parking, so you’d often have to dig in and do underground car parking, and it would be much more expensive.
So the land component is what’s underpinning the increasing value of your property, because as I said right at the beginning, 70% or 80% of the heavy lifting is going to be done by the location and the land, and the rest by the value of the property.
Kevin: One of the outstanding things that we’d discussed last week, too, when we’re talking about these older units, Michael, is the opportunity to renovate and add some value.
Michael: In today’s market where the property market is not going to grow as strongly as it did in the last couple of years, I like the concept of adding value. I’d still be buying established properties even if I didn’t have the budget to do a renovation now, because the added value upside is still going to be there a bit further down the track if you can’t do it today.
So buy the best property you can, knowing that in two, three, or four years’ time, you’re going to have the ability – when you’ve saved a little bit more – to add value, and that’s going to bring the insides up to the standard – or it should bring the inside up to the standard – of the modern apartment with new kitchens, new bathrooms, and that’ll make it attractive to tenants and ensure that you have a top performing investment.
Kevin: Indeed, Michael. Once again, thank you very much for your time. We’ll look forward to catching up with you again next week.
Michael: My pleasure, Kevin. Thank you.
“Don’t get lazy with your developments” – Jo Chivers
Kevin: There is a very big step between becoming a property investor and becoming a property developer. But you know, it doesn’t have to be as difficult as it sounds. When we think of property developers we think of those big high rises. It doesn’t necessarily have to be that complicated.
I’m drawn to an article that was written by Jo Chivers from Property Bloom where she gives some great advice about getting started. She joins me as my guest.
Good day, Jo.
Jo: Good day, Kevin. How are you?
Kevin: Good. I want to get your tips on getting started in property development, but just before we do that, tell us how you got involved in it. How did it start for you?
Jo: Sure. I started investing – gosh – 15 years ago now. After I’d educated myself a little bit, I started with an off-the-plan strategy. My first investments were off-the-plan apartments in Sydney. Back then in 2000, I was very lucky because the timing was great. We had that nice little lift-off and that boom that was happening from about 2000 to 2003 or 2004.
I got into that strategy – and I actually repeated that probably four or five times – but what I did find is that when I was settling those properties in Sydney, they were very negatively geared. But I also noticed that while I could create some equity in that off-the-plan strategy, it’s a little bit different to how it’s done today. Back then, the developer gave you a discount to buy in early, to buy off the plan, and then if you had the market rising at the same time, you made a nice little chunk of equity. When you settled you could draw that out and use that to go again.
That’s exactly what I did. Obviously, I wanted to hold these properties and I found that they were quite negative, but looking into that strategy I found that also if I was making that much money, the developer must be making quite a bit, as well. So that got me really interested in developing property.
After I settled the fifth property, I realized “Okay, I can’t keep having these negatively geared properties in my portfolio. I need to find something that’s a bit more cash flow positive.” That’s when I looked outside of Sydney and found a lovely big regional area in the Hunter Region.
Kevin: Where was that one? What was your first development?
Jo: The first development was in the Hunter. I went up there to do my research, and I spent a few weeks really researching the whole area and region. I found a city, then just honed in on that particular city and did a lot more research – talked to all the agents, got to know the area a little bit and the different suburbs within that city or town. Then I bought a big piece of land. It was 1000 square meters, had a little cottage on it. I renovated the cottage and built the duplex behind it and subdivided.
Before I did that I’d researched with council exactly what the requirements were and what you could and couldn’t do up there. Because of the large lot sizes, there was a lot more opportunity and also it was so affordable compared with Sydney.
Mind you, that very first development that I did – gosh – I didn’t really know what I was doing, but it taught me so much along the way. I learned a lot simply by asking lots and lots and lots of questions. And the best way to learn is great study, but the best way to learn is to actually get in there and do it. You really do come away with a lot more information and experience.
Kevin: At that time, too, the market was a little bit different from what it is now, and you could actually make some mistakes and the market would pretty much take care of it because it was an increasing market. You probably have to be a little bit more careful nowadays, would you think, Jo?
Jo: Well, yes. In hindsight now looking back, I actually did make some nice equity on that but it wasn’t because the market was rising; the equity was created because I added value to the property. By adding value, I mean we built the duplex, so it actually ended up being three dwellings on that piece of land and then we subdivided. That’s adding value. That market up there when I started that development was actually quite flat at the time. But through that development process, the equity was created.
That’s why I actually think developing property is a great way for investors because you’re actually building in a little buffer of equity through this development process. It can be quite a safe strategy, in a way.
Kevin: I’ve just done a quick calculation. You’ve probably been doing this for 15 to 16 odd years now. You would have seen a lot of changes in the market. The one you just mentioned there about how the market dynamic has changed, has that been the biggest change you’ve noticed?
Jo: We’ve had so much happen over the last 15 years. Obviously changes come in many ways – so changes in the market and the economy. We’ve seen the GFC, we’ve seen the credit crisis, we’ve seen the mining boom, we’ve seen the mining slow-down. We’ve seen a lot of changes in the market,
But also the changes in construction methods, so to speak, or costs – they evolve, as well – and ways of going about things. I’ve now completed over 100 developments, and over the years, I’ve basically been able to fine tune the process. I’ve cut out a lot of these time-wasting processes that I was doing in the beginning.
Yes, there’s been a lot of change over this last 15 years, but essentially what you do is add value through development. The strategy is still the same; it’s just the process, I guess, that I’ve been able to fine tune over that period of time.
Kevin: Is that a skill you’ve developed? Have you learned that? You can’t add value all the time unless you really know what you’re doing.
Jo: Well, you can…
Kevin: Good, tell me.
Jo: …If you know the area. The area doesn’t necessarily have to have the capital growth but it’s all about the numbers. You buy a piece of land – most recently, we’re doing a lot of work around Newcastle – and you build just a duplex. A duplex is an attached dwelling, so you’re actually building two dwellings – so two, three-bedroom dwellings – but they’re attached as part of a duplex.
But you can Torrens title subdivide that. By Torrens title subdividing the land, you’re actually only paying half the amount of the land for each of those dwellings. That’s where the equity is created; it’s in that subdivision process – as long as the numbers are stacking up.
You just have to run the numbers first. You look at your land costs, you look at your costs to build the duplex, the cost to subdivide it, and then there should be a chunk of equity there – depending, of course, on what the end value will be in that particular market. You need to research what it is going to be worth when we finish – that three-bedroom, two-bathroom, single-garage, detached villa – and work back from that number.
Kevin: You said there you’ve done over 100 developments, so this is probably going to be a hard question for you to answer, but what’s been the best one?
Jo: It is a bit hard. We’ve done some larger developments, but it’s interesting; what I’ve found is that sometimes a smaller development can give you the same return on investment as a larger development, but you’re not having to outlay so much capital.
Really, what I’m finding at the moment is around the Newcastle market, it’s a good market. There’s been a lot of spend in that particular area. There’s a lot of infrastructure going on. There’s a lot of gentrifying, if you like, of the city. And they’re making it more attractive for people to move to Newcastle. It has the beautiful beaches. There are a lot of reasons why people can work there, and a lot of people are working remotely these days anyway, so why not live in a more affordable but beautiful city two hours from Sydney?
What I’ve found lately with the duplex developments around that particular city is that the equity we’re creating is far higher than what we did, say, on a six-unit project a few years ago. It’s interesting; I’d say the best developments that we’ve done so far are these dual-occupancy developments that we’re working on now around Newcastle.
Kevin: This next one might be easier because I’m going to ask you what’s the worst one you’ve ever done? That’s probably the one that you learnt most from or that is probably still prominent in your mind.
Jo: Yes. I do get asked that, and it’s a good question to ask because really not everything is rosy all the time. The worst development? We had council we were working under that went into administration. We had two DAs that had been in Council for far too long, and they were just taking so long to process. They were both for three-unit projects.
When the administrator took over, they brought in an Independent Planning Panel. So the town planners who had been working on that DA basically got pushed aside and this new panel of planners from Sydney and all over the different councils came into assess the DAs that were still in council.
They looked at ours and then they basically said, “No, we’re not going to accept a three-unit project for these two,” and they cited a whole heap of weird and wonderful reasons, which really didn’t suit that location.
We had to go back to a dual occupancy, so we had to redesign it, put two dwellings on each of those projects instead of three, so the equity creation was less than what we originally planned. However, we had two bigger dwellings and it still ended up a fairly good project for our clients.
That’s an unknown. So council is always the unknown. Even though you have your requirements and we were meeting all of the DCP – the Development Control Plan – and L&P, it just came down to just being unlucky at the time with this administration process.
Kevin: Unfortunately with a situation like that, I guess with someone new coming in, they feel like they have to make those kind of changes or those statements, otherwise there’s no need to have them there really. That’s the difficulty.
Jo: We could have fought it. We could have gone to the Land Environment Court, but that would have been very costly. So we just discussed the options for the client, and we decided to just go with the dual occupancy. That’s a bit of an anomaly. Yes, I’d have to say that’s probably the worst project.
Kevin: Thanks for sharing that with us. I know you do work on behalf of a lot of your clients, but you also do work for yourself. Do you have a buy-and-hold strategy, or are you a flipper?
Jo: No, I’m a holder. I love holding property. I hate selling it. I think we work so hard to get the property. And you know, time heals. Sometimes you find you’re going through a market condition where “Gosh, there is an oversupply now. Shall I sell it and just be done with it?” Or the rental market is not as good as it has been and you have to drop your rent.
Over time if you hold it for a long period, conditions change. I think if you’ve bought in a decent enough area to start with, holding is a great strategy because you will see the returns after probably 10 years or so. And then after 20 years, you’ll look back and you’ll say, “Gosh, I wish I would have bought five of those.” So I’m definitely a holder.
Kevin: Yes, good on you. I notice in reading your blog, too, and your tips about getting started in development, one of the things you say is that you need to take massive levels of action. Why do you think some people don’t? Is it that they don’t have the confidence to do it or they don’t have the absolute belief?
Jo: Yes. When I did my course, I watched as a lot of people who finished the course went on and signed up for more courses and more education and went off to another educator and did more courses, and they just didn’t get into the market. I put that down to it has got a different risk factor. People look at things in a different way.
But the best way to learn is to really get into the market and give it a go. Sure, you might make mistakes, but if you do your research and you talk to enough people and ask enough questions, then you’re going to learn far more from actually taking that action.
When I say massive amount of actions, I mean don’t just fiddle around with a bit of research here and a couple of phone calls there. Make a commitment, hone in, focus in on a location, and become an expert in that location. But give yourself a time period. “I’m going to study this market for two weeks or three weeks.”
By that stage, you’ll have a good understanding of what the pricing and the conditions are, what the demand is, where it’s coming from, what the economic factors are, what’s going on that’s going to add value to that location down the track. Then get in and buy something. Don’t muck around because there are opportunities every day. Once you’ve done your research you just have to back yourself. Get in there. Buy something.
If it’s just a first investment, always look for a property that you can add value to later, whether that’s through renovation or subdivision or adding other dwellings. You may not be ready to do that yet, but if you buy that property with the intention down the track to develop it, then you have that option down there.
Usually, you’ll come back to that and you’ll find that you make far more equity from that project after you revisit it in a few years because you’ll have the benefit of the capital growth that may have taken place.
Yes, just get in and do it.
Kevin: Research, of course, is so important, isn’t it? You can be guilty of doing too much research. You can over research something and then almost become paralyzed. That’s why I love what you just said about giving yourself a time frame and saying, “Two weeks, I’m going to research this. Then I’m going to make a decision – either go ahead with it or I don’t and then go and find another one.”
Jo: That’s right. Because it can be overwhelming. Particularly, if you’re looking at too many locations, it can be really daunting and overwhelming. So you just need to focus on the area, become a bit of an expert, and then jump in and go for it.
Kevin: You mentioned also about refining your process. At the end of each development, do you look at it and say, “How could I have done that better? What did I learn out of this?” Is that what you call refining your process?
Jo: Yes. We track the timing on every stage. There are so many different phases of a development, and we track the timing and we look at ways that perhaps if we could have got that DA into council earlier, we would have saved three or four weeks.
We can’t really do much when the council is processing it because it is up to their internal resources, but there are a few different phases where you can definitely improve timing and cost. So we always look back over a development and we look at where we could save some time or save some money by doing it in a different way.
We discuss this very closely with our builder because sometimes we’ve done so many developments and you just go, “We’ll do that one again. We’ll do it in the same way.” But you can get a bit lazy doing it that way.
By looking at “Okay, what if we change the configuration? What if we did put this different feature into the development? How much is that going to add value? And can we save costs by changing some of the fittings or changing the way we cut the size using a dropped edge beam slab, for instance, rather than so much retaining if it’s required.”
There are lots of ways you can actually fine tune the whole process. It’s just a matter of focusing on each little stage and seeing how you can do it better.
Kevin: Jo, I know you do a lot of investing around the Newcastle area. Do you move out of that area at all? Would you buy elsewhere in Australia?
Jo: I would, but it’s a really good region. The Hunter Region is massive, so we actually move around that region. When things change in one particular area, we’ll go to a different area. I’ve just found that it’s been good and consistent and still has a lot of potential.
But yes, I would look in other areas. It’s a diversification and you really should. My personal properties aren’t all in the Hunter, for instance. I would definitely look around. It does take time to get your head around a different state and then honing in on a different city and then a different suburb. You need to then focus on that.
For me at the moment, there’s so much potential there in the Hunter I don’t need to at the minute, but I will moving forward. I have a mix personally in my portfolio of commercial property and residential. There are always possibilities everywhere.
If you look at the property clock and in what stage each city and state is in, they’re all in a different stage of the market, so if you can buy in at the bottom of the market in a particular state, then why not?
Kevin: Just one last piece of advice. I’m hearing from a lot of people, and particularly young people, that they’re really concerned about the current market. I’m talking now about first-home buyers who are not willing to take that first step or they’re really concerned about some of the information that’s coming out.
What advice would you have for them? Let me ask you it this way: what advice would you give to your children about getting into property?
Jo: I’m already giving it to my two sons, who are 8 and 14. They’re saving for their deposit.
My advice is to get into the market. Look, for a first-home buyer, you don’t have to buy your dream home as a first investment. Start low. You can even have an investment property before you actually have your own home to live in.
I’d just say get into the market. It seems really expensive and it seems crazy and out of reach, but you know what? In 10 years’ time, you’re going to look back and go, “God, that was so cheap. We should have bought that house at $500,000 and now it’s valued at $800,000,” or whatever the number is.
I would say save up, get your deposit together, and get into the market because really property has performed so well. It goes in cycles like everything, but long-term holding of property really from my perspective and my experience is a really good investment.
Kevin: Jo, thank you for spending so much time with us. It’s always a delight talking to you.
Jo Chivers from Property Bloom. Thank you so much for your time.
Jo: You’re welcome. Thanks, Kevin. Bye.
What agents know about you and how they use it – Kylie Davis
Kevin: In the real estate industry, real estate agents use data for many, many things – to keep in touch with their future listings, to keep in touch with their past sellers and buyers, etc. – but there are good and bad ways to use it, and there’s a new thing called big data. Well, it’s probably not all that new, but let’s get a definition on what it is and how it’s going to impact agents and consumers. Joining me to talk about this, Kylie Davis from CoreLogic RP Data.
Good morning, Kylie.
Kylie: Hi, Kevin. How are you going?
Kevin: Well, thank you. Tell me what big data is, firstly.
Kylie: Big data is one of those catchphrases, and a lot of agents think they have big data because they know a lot about the houses in their local area, but what big data is is where you know everything about all of the properties in your area, not just the ones that you’ve transacted with, but all of the properties in your area – all of their features, when they were last sold, how long occupancy is, all of that sort of information – and then you overlay that with information from other sources.
You overlay it with information about the people who live in them and information about them and then any other information you can find so that you get a really deep and rich picture about what the area is doing.
You can then look at what past sales have done, like the behavior of people as well as the properties in past sales, and then you can overlay it across what hasn’t sold to see which are the properties that match that behavior the best, and therefore, work out what’s going to sell.
Kevin: Yes, well, I think RP Data has been around for quite a while, of course, and now known as CoreLogic RP Data, but that data that you provide agents is pretty much ownership and past sales data, and that’s what agents used to use as a bit like their spray and pray. They’d just send stuff out and hope that some of it stuck.
But it’s become a lot more refined these days, Kylie, hasn’t it?
Kylie: Absolutely. We are now working with partners like Experian, Quantium, and Greater Data to find out a lot more about the people and the behaviors of the people inside those properties, so that we can get a richer idea of what’s happening around the country.
Kevin: Can you give me a bit of an idea about how agents can best use this big data?
Kylie: Yes, sure. The first, easiest way is to use that information about the people in the properties to write better direct mail, basically. Every week, agents put thousands of fliers in everyone’s letterbox, and all they really say is “I sold a house,” “There’s a house for sale,” or “Let me sell you a house.” Everyone does it, and there’s absolutely no way of differentiating yourself if you’re doing that.
But if you’re smart and you’re combining that with testimonials – you sold somebody’s house down the road, you had a great experience with them, and you’ve helped them in a particular way – you can write to the neighbors personally, in an addressed way, rather than a flyer, and tell them the story about what you’ve done and also to help.
And we know that direct mail has a three times better open rate than just a flyer in somebody’s letterbox.
Kevin: What about agents talking to people on the phone?
Kylie: Yes, they can definitely do that, too. We’re now using big data – that information about the people in the house – to create lists for agents that help you warm up your cold calling. So instead of just calling a hundred people and trying to get one hit, we’re able to give the analytics and insights to give you a list of addresses where they haven’t sold yet but the behavior matches things that we can see that have been selling.
That gives you a warmer list of people to call, and that has about a five times greater chance of getting a hit.
Kevin: One of the big developments we’ve seen in recent times, too, is social media. Is there a way to integrate this into social media?
Kylie: There is. There’s a company called Quantium, who are one of the biggest analytic companies around customer behavior, and they’ve done a deal with Facebook. They have a thing called a QSegment. You contact them for free and they whitelist you, so that you can use their database to target people on Facebook.
You never get a list of people that you’re targeting, but you do a normal post on Facebook and you use their segmentation to tie in with things like “I want to target people on Facebook within five kilometers of my office who have three-bedroom homes, who have owned them for more than 20 years.”
You can really start to drill down into that behavior so that your post targets those people. That’s a great way of getting content out to people who are thinking of selling, useful things about your local market.
Kevin: Yes, there was a time – I guess going back even only a few years – when a lot of consumers would have felt this was a bit creepy, that the agent knew a little bit too much about me, but I think it’s a great way now that agents are connecting with future sellers and starting to build that relationship.
Kylie: Yes, I think it depends on how you do it. if you take the approach that you’re spying on people, that’s a pretty awful way to do it. It’s more about helping you understand what kind of service you can offer the best, and letting people select in and out of using that service.
Kevin: If you’re an agent and you’d like to find out a little bit more about this, there is an e-mail address you can send to and you’ll be automatically whitelisted. That is qmedia@quantium.com.au.
Thank you very much for your time, Kylie.
Kylie: No worries. Thank you.