Sam Saggers from Positive Real Estate is our feature guest this week telling his investment story.
His first investment, how he got hooked on positive cash flow property, how he works with agents and the drivers that he looks for before buying. Lots more too in this extended chat with Sam.
Transcripts:
Kevin: Sam, I’ve spoken to you on many occasions but I don’t really know how you got started in property. When was your first personal purchase of a property?
Sam: I got introduced to property at a very young age. I grew up in a neighborhood where the family of a couple of my friends and peers actually ran property companies for a living. For me, I had an experience where a lot of my friends and family influenced me to get into the property industry.
I actually got into property at age 18, where I got involved and went through the process of becoming a licensed real estate agent. From there, I worked within the property industry itself for a good five years. I watched people sell real estate on behalf of the clientele of the day and, for me, I created a real passion at that point in my life for getting into the property market.
I bought my first property when I was in my mid-twenties – about 25. Basically, the first property I purchased, I didn’t use any rules of investment at all; I bought purely on emotion. I picked a unit in the area that I worked in. I thought the property was going to go up in value quite rapidly, but I ended up not doing the math correctly and chose a property that just didn’t perform.
So, my first property was actually an absolute dud. I ended up only owning the property for about 18 months, and I sold it after a brief ownership. The main reason I sold it was that at that point in time a few life commitments changed, and I actually couldn’t afford the property in the end.
The big lesson for me was to not buy on emotion, but to learn how to pick a property deal for mathematical reasons rather just because it was a cool place to live at the time.
Kevin: Sam, when you bought that property – and you obviously sold it 18 months later, and it wasn’t really as successful as you would like for it to have been – was that the temptation for you to stop investing in property or was that just the lessons that you learned from that experience that drove you further?
Sam: I’d saved $30,000 to get into that property deal, and it was my life savings at the time. Probably, a few people reading have lost money in one way, shape, or form over their lifetime. But when you lose money, you tend to ask yourself a few questions, and the first thing that I asked myself was “How did this happen to me?”
I think what it came down to for me was I was listening to the wrong people, and I had no great mentors to understand what I should be really doing when it comes to real estate. I was quite eager to get back into the market. Some people asked me what was the biggest lesson I’d learned out of that, and I think the biggest lesson was the ability to actually have a savings plan.
Though that experience cost me around $30,000 of my deposit, because I sold it at a loss, I saved another deposit within another 18 months time. I learned some invaluable lessons. I think probably that we all pay for education in one way, shape, or form, and for me it was a massive experience from an education point of view.
Kevin: What was the next property you purchased after that?
Sam: The next property I got into, I flirted with some positive cash-flow properties in regional market places. At that point in my life, I really started to work out there is a bit of a science to buying real estate and a little bit of an art form around creating offers on property that are quite discounted to what the market value of the property was.
My second property was quite an inexpensive property in regional Moree, where I bought the property for some $45,000. I had some money in my back pocket, and the reason I bought that property was to get a high return; at the time, it was renting for $110 a week.
Kevin: Just on that point, you said there that you learned the lesson to buy below market. Are you talking about being a good negotiator, or just looking around for the opportunity-type properties?
Sam: It’s looking for both. It’s looking for the opportunity properties, and also I think becoming a good negotiator is really important when it comes to understanding how to connect with people selling properties, how to work with agents in particular, working out how to condition vendors, and how to buy off them.
Kevin: Give us some examples of what you mean by how to condition sellers.
Sam: Yeah, sure. Conditioning sellers is a bit of an art form, but it just takes a little bit of practice. The whole concept of buying real estate is a bit of a game of bluff. It’s a game of understanding your adversary and just trying to counter punch. The way I look at it is you need to create objections, or counter objections with objections.
For example, if a real estate agent wanted you to pay X amount, say $20,000 more than your offer, your job as a property buyer is to work out what price points around the area or what are the reasons why you won’t do that. It’s creating constant objections to it.
Here’s the inside scoop: real estate agents are looking for you to give them a script and a dialogue that they can go and recondition the vendor. In real estate, we call that conditioning the vendor.
For example, when the real estate agent listed the property off the vendor, typically they won that business because they used a script and dialogue. They would have discussed price at some point, but quite often when they discussed the price they would have discussed things like owner/occupier, sales volumes in the area, open houses, marketing concepts, and things like that.
But if you can give that real estate agent a script as to why the property is worth less than the vendor wants for it – for example, a script could be “It’s a great property but the rental return is very low. Have you discussed the low rental return with the vendor?” – the agent, who quite probably has not discussed that with the vendor, now has actually a piece of information.
What the agent will typically do is then go to the vendor and say “Excuse me Mr. and Mrs. Vendor, we’ve quite an interested party but they did highlight something that I haven’t discussed with you. If we were to sell this property to an investor, the rental return is pretty low. Knowing that, an investor would actually offer a lot less for the property than, say, an owner/occupier.”
That creates a conversation, and that is what we call conditioning the vendor. The vendor is all of a sudden on the back foot, and the seed is planted for that property to get a price reduction.
Kevin: I want to pick up something on that point, if I could, Sam? When you’re talking to an agent there – bearing in mind that their job is to get the highest price for the seller, so they may not be all that disposed to taking the message back to the seller – do you try and work up a better rapport with the agent, so the agent feels they can work with you, as opposed to working against you?
Sam: Absolutely. I think you’ve got to establish rapport pretty quickly within the process and make sure the agent who is in the middle doesn’t get put in a position where they’re negotiating on nothing, or put in a position where they don’t really know who they’re dealing with.
You nailed it, Kevin. Rapport is a huge part of the process. But at the end of the day, if a property is on the market it’s the job of a real estate agent to get the best price, but also to report the facts. Under their fiduciary responsibilities to the process, they need to take information on buyer feedback to vendors.
Conditioning a vendor is all about gathering information. If you can find as much information on an area, a property, a street, a price range, or a rental return, and you present that to an agent to justify why you want the price at a certain price, or a reduction in price, the agent is going to use that information.
If you don’t have any information, if you’re just negotiating because you like the property, or you’re talking about it’s missing a door handle or something like that, that doesn’t really buy as much leverage. If you use real estate principles to negotiate, I think you’re going to get a lot further.
Kevin: As a successful property investor, and someone who is working with successful investors all the time, what is the most common question you get asked about the market, Sam, and how do you answer it?
Sam: The most common question I get in real estate is what makes a good growth asset or growth property. I think investors need to look at growth drivers. There are six key drivers for growth in real estate. If people start to learn them and understand a little bit about them as a driver, they can tend to start to work out where they should be investing.
Kevin: What are those drivers, Sam?
Sam: The Growth drivers are yield. If a yield is quite high compared to the market norm, it’s usually a good sign that capital growth is going to follow.
Economics is important; so, where are people going to work. For example, there’s a big correlation with wages; if wages are growing, generally house prices tend to grow in correlation to wage growth. It’s really good if you can find an area where the economics of that area are actually growing.
Supply and demand is one of the biggest. If you’re truly going to become an astute property investor, you’ve got to really start to understand what new supply of properties are coming into a market place and when they’re going to be delivered. There’s no use buying in a market where there is too much supply, because you’re going to be sitting there for quite a long time.
I think that most people I deal with are looking for a little bit of a return or profit on their investment within two or three years, as opposed to traditional property owners who are happy to wait a good ten or twelve years for a market cycle to do its thing.
Infrastructure is important, and we see a lot of people tend to focus on where new infrastructure is going to be built. There’s an old saying in real estate: just buy next to that infrastructure and reap the benefits.
One which I like studying is demographics. The reason I study it is consumer habits are very interesting. You can work out what, essentially, buyers are looking for and where they choose to live as a demographic. You see the demographic change happening in an area and you can find things like gentrification, or turbo-gentrification. Demographics, for me, are one of the best because if a new class of people move into an area, it really pushes property values quite high.
Beyond that, population growth is the final one. Population growth areas, high growth areas, sometimes also have a high supply of land. It’s looking for high population areas with low supply of land or building coming through. If you can pinpoint all of that activity, you tend to be able to find a good marketplace.
Kevin: You’ve outlined those very well, Sam. Is it possible to get all six, and if you did, is that almost a guarantee that you’ve got yourself a recession-proof property?
Sam: There are obviously one or two things you’ve got to take into consideration, but I think if you were to do it in a metropolitan area – a big capital city or a big secondary marketplace, leaving the small towns aside – I think you will get a pretty good return on your investment over a shorter period of time. I’ve done it for 20 years, so there’s no reason why other people can’t do it. Absolutely.
Kevin: What advice would you give to someone who is just thinking about getting into property investment? What should be the first step they take?
Sam: There is a couple of minor steps that people need to get in the habit of. I think people in today’s society don’t value the concept of going through – more or less – an apprenticeship in real estate, or in anything.
I think the current way the world behaves is there’s this instant gratification mindset out there, where people want to become a successful property investor overnight. People tend to frequent three-day courses and try to become an overnight success.
I actually think that, having done it the slow way – over virtually two decades – there is something to that. For people getting involved in real estate, the first things they need to consider are just staying in it for the long term and also on working on building a team of people around them who are going to help for the long term, and taking advice from people who have done it over a longer term period rather than any sort of fly-by-night activity.
I think people can buy a property a year for ten years – I know they can – and at the end of the day if you could get that result, you would end up in a really good position in your life.
Kevin: You’re talking there about building a team, and we’ll talk about the team in just a moment. Before we do, I just wanted to ask you about your first experience and how you were a failure at that. Do you think that made you a better investor? Is that what you’re hinting at when you’re talking about getting that experience yourself?
Sam: Without a doubt! When you lose something and you go through the pain process, you ask the universe, “Why did that happen?” For me, the first thing that I looked at was the team around me. I soon realized that I didn’t really have a team and I was taking advice from people who weren’t actually even successful in property. They were just my peers at work.
The interesting thing for me was I worked at a real estate agency and the ten people who worked there were giving me advice. I was listening to these people because they had been long time realtors, but only one of them owned an investment property. The others didn’t even own real estate. I really looked at who I was listening to, and I soon realized that one of the big furphies within the industry is that realtors don’t necessarily own real estate, so they’re not necessarily the best people to go and listen to.
Kevin: It’s not only real estate agents. You made a very good point there; it could be any advisor you may listen to who, if they haven’t had that practical experience or are not investors, are certainly not the sort of people you should be listening to.
Sam: Absolutely. One of the questions that I would encourage people to ask people they’re dealing with is where do they own property, or whatever they’re investing in? I think it provides a deeper level of empathy over how hard it is sometimes to go through a property transaction.
I think everyone needs to go through an apprenticeship; you need to listen and be coached, and actually work or associate with people who’ve had ups and downs in whatever experiences they’re going to share with you. It doesn’t have to be about real estate, but the concept of taking time to work with someone or learn from someone is, I think, important for investors.
Kevin: If you were putting a team of advisors together now, who would you have on that team?
Sam: Without question, it’s important to have a really good accountant, a really good advisor when it comes to self-managed superannuation. At the moment, it’s really important to take control of that when it comes to whatever you’re doing with your super.
I believe a good property strategist is important – someone you can talk to about property. For most of us, we actually grow up in an environment where people don’t talk about money or talk about wealth. Not a lot of us are brought up in that format. Quite often, our own internal peer group is quite dysfunctional in a way.
Above all, you need to find someone to talk to about your goals and about what you want in your life. If money is something that you want, you need to be able to talk to a mentor. However that looks to you, I don’t know, but find a mentor – someone who has been down the path and done it before.
Kevin: You’re talking there about an accountant and about getting a strategist to work with you as well. A solicitor? Just as important?
Sam: Absolutely. The more properties you buy, the closer a bond you need with a good solicitor, or even a conveyancer or settlement agent – just someone who can help you understand where you are at when it comes to contract law processes.
Kevin: What about a real estate agent? Would you put someone like that on your team too?
Sam: Look, there are great realtors out there, absolutely. If you’re pinpointed at a particular area that you’re focusing on, building relationships with real estate agents is imperative. I think you can do it yourself, certainly with the help of a team. For most people, it’s just getting connected with that team to start with.
Kevin: Sam, who do you turn to for inspiration? Who inspires you?
Sam: I think today it’s very easy to find inspiration. It’s going to sound a bit silly, but I actually get a lot of inspiration using the Internet. I value self-learning, and I find there is so much free education these days within the realms of the Internet that it’s an easy and simple way for people to get started.
For big picture inspiration, I’m still inspired by my dad, who is a great businessman and a great leader within our family structure. I also have a few other more inspirational people that I’m a big fan of – people like Margaret Lomas; she inspires me.
Kevin: You mentioned your dad there. Growing up, was he giving you some good lessons in saving money? Obviously, you started to save at a very young age, as you’d said you saved $30,000 for your first deposit, which is no mean feat! Was your father a great inspirer for you in that?
Sam: Yeah. My father is very much a realist. I think the blessing he instilled in me was to get ahead in life, you need a little bit of a high quality work ethic, and you need to think and plan. He is a great strategist. He imparted on me not worrying about the day-to-day stuff but engaging the world on big-picture stuff. What he taught me was you need to get out there and build your own life and your own nest egg. I think that was an awesome set of teachings that he imparted on me.
Kevin: You certainly started at a young age; you said you started at age 18. Did you start in real estate at age 18?
Sam: I started in real estate aged 18, yes.
Kevin: What does success mean to you?
Sam: Success for me is freeing people financially to live the life that they want to live.
Kevin: What about you personally? What does success mean to you? Not about giving to other people. How do you measure your success?
Sam: I know it’s probably a little bit similar to what you’re trying to say, but I actually do measure my success by how many people I can help along the way. I’m a big believer in sharing knowledge and information. I’m measuring my current success by building schools overseas. I’m a big believer in education. To date, I’ve been able to fund, through property investing, six schools: two in Nepal, two in Laos, and two in Vietnam.
For me, I don’t have a problem getting out of bed every day, because I know that what I do and what I get out of it is to free people financially to live the life they want; whether that be a young 25-year-old property investor who is buying their first investment property and just needs some technical expertise, a multimillion-dollar property investor who is looking to find an amazing subdivision somewhere, or a person who has grown up disadvantaged and looking for a break in a third world country. That’s why I exist.
Kevin: We’ve been through a pretty tough time in the last couple of years. The economy has not been too good, and there have been a lot of people who’ve actually failed not matter what they’ve tried.
When someone does have a failure or a setback, like you did in the early stages, what do you think people should do to turn that around and keep themselves motivated to keep going?
Sam: I think absolutely there’s going to be a point in our lives where something goes wrong – where someone we love passes away, where we get a divorce, where a business partner or a business fails, or something like that. I think for most of us, if we have a good relationship with our goals and our wealth, you can work through things quite easily.
At the end of the day, I don’t believe that anyone is getting involved in real estate to make themselves wealthy. Call this naiveté, but I think people buy real estate and fail, and also succeed, because they want to – generationally speaking – pass on a better life for someone else. For most people that’s their children.
I think if people do have a setback in real estate, you’ve got to just get back on the horse and give it another go. The fact remains you will have setbacks through your life. I think that’s why most people fail at real estate.
There’s an interesting statistic where of all the investors that are out there only one percent of them – I think the statistics from the Australian Bureau are around 11,000 people today – have more than six properties in Australia. That’s a pretty interesting statistic, and it tells me that out of all the investors that get out there, most people won’t go the distance because they will run in to some sort of adversity.
I think it’s about overcoming your adversities and becoming a good money manager, and just having clear goals – resetting your goals and going again.
Kevin: Sam, thank you very much for your time. It’s been great talking to you.
Sam: I appreciate being on board.