24 Aug Ep05: Active Property Investing with Peter Koulizos
Imagine you could invest in ‘blue chip properties’ for huge returns, but without any tenant headaches…
In today’s epic show we are joined by one of the most creative property investors in Australia today, Peter Koulizos.
Peter (aka The Property Professor) is at the cutting edge of active investing and creative deal making and he will be sharing with us some very valuable information about property development, renovation and accelerated investing for long term capital growth.
Today’s episode is full of practical tips, advanced strategies and timeless wisdom from a true master of Australian property.
- Who is Peter Koulizos? [1:15]
- Is there a magic formula for property investing? [2:50]
- How to avoid analysis paralysis [3:20]
- The biggest mistakes property investors are making [5:45]
- Why you should not give up even if you failed on your first property [7:30]
- How Peter got started in property investing [10:00]
- Property Development: How the money is in the land and why often it’s not worth even building [13:10]
- Why you should never buy a property just for the tax benefits [14:20]
- Why you should develop to hold to keep the developer’s profit and long term capital growth [14:50]
- How to do a scenario analysis [16:45]
- What is the POPI strategy? and what are it’s benefits? [17:23]
- How to engage with the families of the pensioners interested in POPI [21:23]
- The Property vs Shares book: Which strategy won? [26:30]
- What are the things people should do to be successful in property investing? [28:00]
- Why buying and holding is not the only way [31:33]
- How surrounding yourself with like minded people can get you to your goals sooner [32:35]
- How a positive mindset makes all the difference [34:55]
- What makes Peter’s development workshop unique from other courses out there [36:35]
- How investing in education can save you time and money [42:10]
- The elements you should be looking for when doing a valuation [44:11]
- What do valuers consider when doing a valuation for a bank [47:30]
- The common traits of top performing suburbs [49:30]
On POPI option strategy: I can reap all the capital growth, without the hassles of tenants.
– Peter Koulizos
On developing: A lot of the time it’s not worth building, because the value is actually in the land.
– Peter Koulizos
It’s fine to have a goal, but you need to have the time frame and the plan to achieve that.
– Jane Slack-Smith
Go to as many seminars as you like, but leave your chequebook at home.
– Peter Koulizos
Your Property Success Podcast Transcript
Episode 05: Active Property Investing with Peter Koulizos
John Blackman: Did you know with just two investment properties and one single renovation that you could put over a million dollars in the bank? It’s true and why stop there? Welcome to Your Property Success Podcast, the show that explores the practical steps to making your property investment dreams a reality.
And now, here’s your host, the freckled-face farm girl made good all the way from Dubbo, ladies and gentlemen: Jane Slack Smith.
John Hubbard: That’s – I made it up.
Jane Slack-Smith: Well, in actual fact, you didn’t because it’s true.
John: Yeah, you’ve got freckles.
Jane Slack-Smith: I got freckles and I’m Dubbo, right?
John: And you’re from Dubbo, yup.
Jane: Maybe not a girl so much anymore.
John: No. That’s true, that’s true. We should call you a girl, should we?
Jane: You call me a girl.
John: But you are from Dubbo, so when was the last time you were in Dubbo?
Jane: Oh my goodness, I was in Dubbo – my parents actually moved from Dubbo almost five years ago now and I have not been back since. I’ve had family from Dubbo visit, very fortunate to get to them.
John: That should have some kind of parade for you or something. There should be awards for good property investing.
Jane: Maybe – and an award for a good podcast. I’ll take one of those. So John, we have a fantastic episode coming up today as we’ve been joined by the property professor Peter Koulizos. Peter is a very successful property investor, property developer, and the national coordinator of Property Investment Training at TAFE, South Australia.
John: Yeah, I’ve been looking forward to this episode Jane because I really liked Peter’s methods and ideas particularly around the creative deal making that he does and the development to hold strategy.
Jane: Yeah. Look, he is going to be sharing a lot with us today and he is going to tell us about one of those creative deals which is the POPI which stands for Property Options for Pensioners and Investors, and this is a very interesting strategy whereby instead of buying the house now, you enter into a contract with a homeowner, usually a retired person to buy it later but at today’s market value.
John: And so, I guess you get all the capital worth but without the headaches of managing tenants ___ .
Jane: Absolutely, so you know, he’s a very successful buy and hold investor like myself as well. He’s also a property developer which I know you’re interested in John.
John: Yeah, I’m definitely interested here more about this development to hold strategy. I know he’s doing this in the areas that are predicted to grow, like, holding the developments instead of selling them. A bit of a hybrid really.
Jane: Yeah. Look, he’s a really smart cookie and if that wasn’t enough for you, he also teaches “would be” values at TAFE out of value properties at will
John: And he’s an author.
Jane: He is. Is there anything that this man cannot do John?
John: I don’t think so.
Jane: So please put your virtual hands together for today’s very special guest: Peter Koulizos.
Jane: Peter, thank you so much for joining us.
Peter Koulizos: Thank you Jane.
Jane: Peter, you are a very successful property investor yourself. Can you just save us all some time and just tell us the magic formula for property investing please?
Peter: There are formulas but there’s not just one. Like, you make money in property in a different way to I do and a number of my past students, they make money in property in a different way to me and you. So there are a number of different formulas that you can follow but the first step is, well, you need to take the first step.
Jane: Yeah. And what is that first step?
Peter: Well, there’s too much analysis paralysis.
Jane: Yup, action.
Peter: Yup. So it’s – you know, let’s study the ABS steps, let’s read this report, let’s go that seminar, let’s do this course. A classic for me was when I first started teaching property at an adult education centre, I had a student in my class who was interested in property. I happened to meet 13 years later and she said, “Peter, I haven’t bought my first property yet.” Now, I could’ve said something like ___ but I said, “That’s alright.” But there’s a typical – you know, somebody is probably going through a dozen courses, probably read 20 books, but hasn’t done anything yet.
Jane: And I think it’s – sometimes people just needs – they have the knowledge or they have the access to the knowledge but it’s the confidence or even a guide or someone who says to them, “so what are you going to do next?” And often we don’t have mentors or property professors or people who are going to keep you accountable, so being part of a community that looks like mine that’s going to go, “so what were you up to?” is probably a good thing.
Peter: And that certainly helps a lot. One of the things after the students finish the TAFE course is we have, like, an alumni. So we get together every three months and end of the year is a Christmas function which is different but the other times we’ll get guest speakers in or outdoor presentation. So they stay in touch with each other because it’s one thing to do a course and that might take you three months but then what? But if you are with like-minded people, then you are encouraged to take that next step. For me, that’s one the most disappointing things about students who do the course. They’re just not willing to take that next step. You don’t have to be a genius to invest in property but once you’ve got that knowledge – and the students that do my course, like, they’ll come to class for a total of 7 or 8 weeknights and plenty of support in between that time and plenty of support afterwards but some of them just might take the next step.
Jane: So at this point, I mean, if we moved on to the biggest mistakes that you’ve seen, that’s probably the first one, is the analysis by paralysis, having too much information and then not taking the first step of action. Is there anything else that you’ve seen people – the big mistakes, what would they be?
Peter: Going to a seminar with your check book.
Jane: Leave your check book at home?
Peter: That’s right. Go to as many seminars as you want but you leave your check book at home.
Jane: Especially if they’re trying to sell you a house at the end of it right?
Peter: That’s right. So often I see – I hear people when they ring up and inquire about the course or at their first one or two lesions when we ask “so what’s your experience in property?” Now, a lot of them…sorry, not a lot a lot of them, but a number of them will say, I own an apartment in whatever it might be and how did you come across this apartment? I went to this seminar and I bought off the plan. And after the first hour of the course they realize, “Geez, maybe I shouldn’t have done that” because I teach things like the value is in the land. You should put most of your money into the appreciating asset which is the land rather than the depreciating asset which is the build. You pay the premium for something that’s brand new. The day after, it’s not brand new just like a car. Why is somebody going to pay you the same money? Thankfully, this time around, one of the students was able to sell their “off the plan” apartment before it settled out of profit but he —
Jane: Great. It’s unusual these days.
Peter: It is, it is. But he took on board what he learnt in class and now he’s looking for a period style home in an inner city suburb of that light.
Jane: And I think the really interesting thing that you touch on the mistakes that people make is often, I think, that when I talk to people and they have made a mistake, you kind of have to acknowledge it and move on and a lot of people get caught and go “look, property doesn’t work” “I bought a property…” and I talk to taxi drivers all the time when I’m heading off to courses, like, “what do you do?” “What I’m teaching a property course” and they go, “Oh, you know, I had a property once and it dived” and they kind of give up and I think it’s often because they didn’t they didn’t have that kind of roadmap set out for them or they designed themselves that kind of says, look, these are the kinds of things…appreciating asset…yada, yada, yada, add some value, create some equity, and —
Peter: And also, your ego might need to take a hit and you might have to sell at a lost, but you also have to consider opportunity because some people say, “If I sell now, I’ll lose. I’ll wait five years, alright because you hope that in five years’ time it’s worth more but imagine if you took, let’s say, a 10 or 20 or $30,000 loss today, put it into a better asset where it actually grew much in value in that time. It is very disheartening for people to get sucked in by education seminars which are just cleverly disguised sales pitches but —
Jane: Move on.
Peter: Yeah, that’s right. You know, nobody’s perfect. We all make mistakes in life. Admit it, learn from it, then deal the second time. Learn from it, move on.
Jane: Yup. And that’s what I say to my renovation students, which is, review your renovation at the end, repent because there’s going to be mistakes, and then just move on because if you don’t learn from those mistakes, then you just become like the next person who said, you’re going to make them again and again. What about you? Have you personally — I mean, I know you’re an active property investor, have you personally made some mistakes?
Peter: Yeah. My biggest mistakes are selling property when I shouldn’t have. We’re all geniuses in hindsight. I should kept that because three years later the price doubled or whatever but I had lot of property 10 years ago, decided to sell, and…well, I have four kids, we live in a lovely house so we put it all into the children and into the house and now we’re getting back into it again but I think to myself if I’d kept all of those investments, I would be a lot wealthy than I am today but they’re now be living in a crappy home, and…I don’t know.
Jane: No. But sometimes you make sacrifices but that period of time —
Peter: And now the property people would say “Oh pity, you should’ve kept your investments.” But no, there’s more to life than that.
Jane: Ah, exactly, exactly, which is where we’re always trying to get to. I ___ truth, commodity for the wealthy is time.
Peter: Ah, yes, very true.
Jane: I just work towards having more free time.
Peter: Yeah, very good.
Jane: So, how did you get started in property?
Peter: I bought my first investment…I say it’s a very interesting story. Even though I grew up in a real estate family, my father was always telling me, you should buy a house, buy a house, buy a house, but I was a young lad, I’m not interested in buying a house. I want to go play football and check with the girls and did that sort of stuff. So I didn’t buy my first investment property ‘til my late 20’s but I wasn’t the best saver in the world. I mean, we had our own home but that was it. But I knew it, I thought I knew a bit about property. So I went to my brothers-in-law and I said, “Boys, I have this renovation. If you give me some money, we can fix it up, sell it, make a profit.” Now, we’re going back 30 years alright, so I said to them, “If you each give me $6,000 dollars, we’ll buy this house, that would be enough money for the deposit and for some simple repairs. We’ll get planning approval to put two at the back and then we’ll sell it.” But I never had $6,000 dollar, so I had to borrow the $6,000 dollars from one of them and that worked out well. In the end, they gave me $6,000 dollars. By the time we had bought and sold, they got the $6,000 back plus another $6,000 dollars on top.
Jane: Nice return.
Peter: Very nice return, 100% return on equity. I think we may have had 100% return on the investment, so that was my first one. Then, we bought a group of three units out in the country, again, country is cheaper so we were able to afford them and so now we’re getting into the early 1990s when it was much easy to buy positively geared [00:11:50] properties. So we bought – going back a long time now – then, I bought a house where the agent was selling it as keep the house and cut off a block. I worked out if he keep the house and cut off two blocks, so I’ve put in an offer that day —
Jane: So you sold the blocks and kept the house?
Peter: Yes, yup. Then, bought some units, groups of units, but then as more and more kids came along, we need bigger and bigger houses, so like, we extended and renovated our original house twice, then we had to go buy a bigger house, and so, it just grew from there. And yes, I should’ve listened – if I made another mistake in property is I should’ve started earlier. I should’ve started in my early 20’s rather than my late 20’s, but you know what, we’re all geniuses in hindsight.
Jane: Exactly. So I guess the thing that has always intrigued when we’ve had a chat Peter is you do teach very much the methodology that I agree with, you know, the low-risk, find value in the market when you value, add value, cosmetic renovations, hold the property, but you yourself have actually done some pretty interesting things. You’ve done developments.
Jane: And you teach a development course.
Jane: Or a workshop even. You make people do the work.
Peter: Yeah, so unlike a lecture where you just sit back and listen, you actually have to do the work and some homework which is new to people —
Peter: Yeah, new to people that haven’t don’t it for 30 years since they were in high school.
Jane: So your developments, you’ve kept those, can you give us a bit of a summary of those?
Peter: And again, if I can cut to the chase with the property development workshop what a lot of the students will learn is, a lot of the times not with building because the value is in the land. If you could do the subdivision and sell the land, percentage-wise, you’ll make more money than if you build the house.
Jane: And a lot of a year less stress as well.
Peter: That’s right. And I say to the students at the end, I know you’ve spent all this money doing the workshop and you’ve come to class all these nights but in the end, I hope you realize, the money is in the land. I have built because I have kept. I have never built to sell but I’ve built to keep, and keeping brand new property is great for the depreciation benefits and the tax, but you should never by buying a property just for the tax benefits. Let’s say, my example, development cost me $400,000 dollars but the whole project is worth $480,000. So, my tenant pays me rent based on the fact that the whole thing is worth $480,000 but my mortgage is only based on the fact that it cost me $400,000. My depreciation is based on that final cost of $480,000 so the tax benefits have been fantastic to me. I wouldn’t go encourage people to go and buy brand new but to build it so you keep the developer’s profit and what I teach in class is 20% gross profit.
Peter: That’s a very good way to start a portfolio because you don’t have so much of a negative ___ Actually, if you’re smart with the depreciation benefits, it’s probably neutrally geared. It doesn’t cost you anything.
Jane: ___ [00:15:09] the key to your developments that we’ve talked about before is that you target where you buy them as well, so you put all of that knowledge and research that you take to play.
Peter: That’s right. So if you’re going to build and sell, it almost doesn’t matter where you do it. Providing the numbers stack up, you can do it 2K from the CBD or you can do it 22K from the CBD.
Jane: As long as there’s a market who wants it.
Peter: That’s right. But if you’re going to keep them, you want to make sure you build in an area that is either up and coming or is on the upswing of the property side.
Jane: So this 20% profit…
Peter: Gross profit, yup.
Jane: Tell me, is that across two units on one title, four units, six units, what are we talking about? Everything?
Peter: If we’re talking about the mom and dad investor, probably would do one into two, maybe up one into five or six. I would aim for a 20% gross profit. If you’re doing a larger project, you would expect a greater return because the greater the risk, the greater the return that you see.
Jane: And from a learning point of view, it’s what the banks think of as a minimum anyhow. They want to see 20%, otherwise, I mean, 10% or 15% might feel like a lot of money to mom and dad investors but the reality is that the banks have a lot of experience in what works and what doesn’t and contingency costs and they want to start it at 20%.
Peter: And as you would know because part of your role is to lend money or borrow it, if you’re doing four or more or three or more —
Jane: ___ [00:16:33] residential.
Peter: That’s right. It’s a higher interest rate because it’s a commercial due, so the banks see the risks as well. The other thing I teach in class is not just the 20% gross profit, you do a scenario analysis. So you hope to make 20%. What’s the worst that you’re going to do? What’s the best thing you’re going to do? So you’re not just focused on one particular number and I say to the students, you might have two particular developments that you’re interested in but in one of them, in the worst case scenario, you would lose money but in the other one in the worst case scenario, you wouldn’t lose any money but in the case scenario you may not make as much money…
Jane: Minimum downside.
Peter: Minimize the risk. Nobody ever went broke making money.
Jane: No. And we like that. And now you’ve also done something quite innovative with an option.
Peter: Ah, yes.
Jane: Now, it confuses, I have to put my hand up to that beat. It’s not a typical option either is it? Tell me, can you work ___
Peter: One of my lecturers in the TAFE course is a property lawyer here and his business partner had come up with something called a POPI. So it’s Property Options for Pensioners and Investors. So basically, I have the option to purchase a pensioner’s house at some stage in the future, so I pay the pensioner a certain amount of money every month and that continues on until they leave the house or go to a retirement village or they want to sell the house and then at that time, I have the option but not the obligation to buy the house.
Jane: And do they have the obligation to sell to you because you have the option?
Peter: Yes. So I’m number one cab off the rank just to give you an example. So if I bought a period or – sorry – I’ve got an option on a period or character style home in a suburb in Adelaide called Unley. So for those of you that are interstate, you imagine that you have an option on a property if you’re Melbourne ___ [00:18:35] or if you are in Sydney, it’s a period style home in Mosman, so very expensive.
Jane: Nice area.
Peter: So for me, I’ve ticked the number boxes already because I’m in a great suburb and I got the great top property.
Jane: And the typical property for the area.
Peter: That’s right. So the reality is, as an investor, I didn’t want to pay the equivalent of $1 or $2 million dollars to buy the property and then get a measly return. So, for me, the bottom line is I can reap all the capital growth without the hassles.
Jane: And without the loan, so it’s not taking you’re borrowing capacity, you haven’t had to put a huge deposit down. So just that option, the benefits to you are that you have the right to buy in the future, have you agreed on a value or how do you actually determine the value?
Peter: I buy at the value at whatever it was when we signed the agreement. So for me, the longer the live…
Jane: Live there as opposed to live…
Peter: That’s right, the happier I am. Because if they would have to sell it now which is only two or three after years after the option, yeah, I’ll get some growth but not a lot. But if they move out after 15 years, that’s even better for me because in theory, the property would’ve grown even more in value and it might sound strange but for me, the greatest advantage is, I don’t have any tenants. I have an investment property but if the hot water system breaks down, it’s not my problem. You own the house.
Peter: I don’t have any insurance. I don’t have any land tax. I don’t have any of that and the pensioner likes it as well because basically, the money that I’m giving them is an additional 50% to their pension.
Jane: Wow. So how do you work that out?
Peter: So, the cash flows work out – if an investor was to buy it, what would be their cash flow over a 30-year period? So generally speaking, an investor would be negatively gears in the beginning and then positively geared. So as to keep the cash flow the same for the pensioner, they’ve averaged it out and said it’ll be this much every month.
Jane: And how does that affect their pension?
Peter: It doesn’t.
Jane: Tell me.
Peter: That’s why they love it you see. It’s like, if somebody was to increase our income by 50%, their life would change which is exactly what’s happening with the pensioners that live in the house.
Jane: So they get to keep their home where they want to be, sometimes when people retire, asset ___ , no cash, no ___ especially if they’ve done it tough ___ older and so now they’re actually getting some income to help them stay in their home, have the lifestyle that they want and without the burden of worrying about finding another property or moving out. So how do you engage with their family?
Peter: Okay, so one of the stipulations in the contract is they must consult their family so that the family is fully aware what they are doing. Now, the family may not agree but in the end, it’s up to the pensioners to sign off but they must have spoken to their family about what they’re going to do. And for most children, they would say, mom and dad, you enjoy yourselves. We’ll take whatever’s left over. That’s fine because they understand it, their family, the mom and dad are cash poor. There is in the ___ [00:21:56] of options I provide there is a family POPI, so the children can formalise the arrangement just like I’m an investor, I don’t know them I have a POPI, it could be a family POPI, so it’s formally documented, one or more of the children will give the parents an income stream, a monthly amount, whatever it is, in return for the option to purchase the property at some stage in the future. So that can be done as well.
Jane: Fabulous. Now, your option payment that you’re making, do you get any deductions on that?
Peter: No. I mean, there are negatives, so now, I’m not an accountant.
Jane: No, me neither.
Peter: I should’ve found this out before I came on air but my understanding is it well come off the capital cost of the building because it’s a capital —
Jane: Yeah, like depreciation.
Peter: That’s right, so it’s capital input rather than making a loss on an annual basis which you can claim every year. The other negative is, I don’t decide when I take up the option. It’s up to the pensioners that are living in the property but for me there are far more advantages than disadvantages.
Jane: And even if at that time, you can’t find that you can buy, you could do a back-to-back settlement so you could pass on on that sale.
Peter: I don’t actually ever intend to buy this house. I’m just going to pass it on. So let’s say, in 10 years’ time it’s doubled in value, I’ll say, I’ll pay you what we originally agreed on and then I can pass it off to the next person at an increased price.
Jane: Tell me this, the excitement I’m getting here, one of the benefits that I see also is that that, let’s say, 10 years’ worth of capital gain is not currently under our taxable regime taxable because it’s on the person’s home. So you might be having an option to buy a million dollar home that in 10 years’ time could be $2 million dollars, you have the option to buy the million dollars they’re selling their property so effectively they’re not paying any capital gains tax because it’s their home, but in addition to that, the purchaser is getting a $2 million property for a million dollars and in your case you’d be flicking that on maybe not having to pay stamp duty twice either.
Peter: I pay stamp duty on the option but because the option is so worth little compare to what the house is worth, like the stamp duty is in the 10s, maybe a hundred dollars because I pay that option fee every years, so far as the tax is concerned, if I’m claiming a tax benefit at the end, that must mean that I’m paying some sort of capital gains tax at the end, again, I should’ve consulted my accountant about that, but for me, to get all the capital growth without having to tenant houses in the meantime —
Jane: Or paying interest and paying all those it’s amazing
Peter: I don’t have to approach the bank. No land tax. The tenant has [crosstalk]
Jane: It’s definitely a twist.
Peter: It is.
Jane: Now, I know that you have to deal with someone who understands these contracts and there might be some that you could recommend that you’ve dealt with
Peter: Yes, POPI Australia, so if people POPI Australia, they can–
Peter: Yup, POPI, P-O-P-I, one of the gentlemen that runs it, Sean Ryan, he’s a lawyer. He actually lectures in my classes back in Adelaide, very nice bloke, and then he’s got his business partner as well Brenton But I think it’s a great product. I don’t know what people’s thoughts are on reverse mortgages but I personally hate them because for the poor pensioner, even if you don’t borrow any more money, you still owe more as time goes on because of the compounding effect and in this way, you are in your own home. You don’t have somebody else over the top of you telling you what to do and you’re not worried about spending your money, he is dispersing, giving you some money. Life is pretty good.
Jane: It’s great. Now, do I get an upfront as well?
Peter: Yes, an upfront payment plus a monthly option.
Jane: There’s a lot of positives.
Peter: There is. It’s all very legitimate which I like because i would never be involved in anything that was unethical or immoral but the way I’m doing a social good because the pensioner’s life has almost changed completely, and for me, in theory, I will capitalise in all the growth without having all the hassles in the meantime.
Jane: Exactly. Well, obviously Peter, you’re well positioned to talk about many many things and you’ve written lots of books as well. Well, I know two books anyhow The Top Australian Suburbs which was great and you co-authored the Property versus Shares book. Now, I personally read it and I think that property came out on top but I think it was a good equal match. So, what kind of feedback have you had about this because it is always a conversation with people who are looking to invest their money. They want to know is it property or shares and the market’s always changing –
Peter: I wrote the book with Zachariah who lectures in the share investment course for me at TAFE, and look, from a commercial point of view, you couldn’t say that property won or shares worn because ___ [00:27:05] to get property investors buying or a share investor’s buying it. So again, if you cut through the chase, the answer is you need both. But in the real world, you need both because —
Peter: You and I love property but if we wanted some cash tomorrow, you’re not going to sell your property tomorrow but with a share portfolio, we can get the cash tomorrow and the beauty is we don’t have to sell all of our share portfolio like we have to sell all of our house.
Peter: So there are advantages and disadvantages with both, so if you can have property for the fact that you can gear against it far more than you can for shares, it’s less risky, but if you can have some shares because you can liquidate them very quickly, then you have the best of both worlds.
Jane: Good advice, good advice. Well, let’s move on with – I’ve got a list of questions I hope I can get through but I guess the thing for me that I think the listeners are being interested in is, is obviously you’ve got a lot of experience and you’ve taught a lot of people, I’m really trying to, I guess, lock down the keys to success and what people can do to kind of follow a road map or a process. We talked about taking action, what else would you add to the list of things that people would do to be successful in property investing.
Peter: Okay, so to be successful could be measured by a number of different ways but the first step is to set your goals. So somebody might consider success as renovating profitably on a regular basis. Whereas another person might see success as owning three rental properties and whether you renovate, whether you buy and hold is depending a lot on what your goals are, so do you want to retire richer , retire earlier, earn some extra income, maybe earn some extra income on a regular basis to work part-time or give up your day job. Because if you want to give up your day job, buying and holding investment properties are not going to do it not unless you want to give up your day job in 30 years’ time when the mortgage is paid off. If you want to give up your day job, you either have to renovate regularly or you have to develop. So work at what your goals are which is actually much harder than working out what the strategies are. So work out what your goals, go see a mortgage broker to work out exactly how much you can borrow based on what you own, what you owe, what you earn. Go see your accountant. So basically, what I’m getting to here is you need a team of people to help you.
Jane: And qualified experienced people as well.
Peter: That’s right. I mean, there’s of plenty of free stuff out there but what I find is that a lot of that free stuff has a vested interest in being ___ [00:29:56] so you might have to pay for advise or pay for the information but that’s just the reality. If you want to make money, you have to spend money.
Jane: We wouldn’t go to a free doctor really would we?
Peter: I certainly would not. I haven’t heard that one before. That’s good. [crosstalk]
Jane: [Crosstalk] just came up with myself. I guess the thing about what you were saying around goals and giving up your day job, the fact of the matter is, if you’re going to borrow money, you’re going to have an income source anyhow. So, I speak to a lot of people who come along to courses who want to give up their job on Monday. I was like, “Hey, let’s get you some money first” and make sure you can pay it back. So you really need to – be it developing or renovating profitably, you need to have at least two years of being able to do that to show that you have an income to support you giving up your job as well. So it’s not a – I think the thing around goals is that it’s fine to have a goal but you need to have the timeframe and the plan to achieve that. That’s right.
Peter: That’s right. As you’re saying, you’re not going give up your day job the day after you finished the course, but realistically, what’s going to happen is you’re going to have to say renovate or develop while you’re working full time and then a short of period down the track if all goes well you can work part-time and then when you have a lot more confidence and more importantly the bank has confidence in what you’re doing, alright ___ [00:31:16]
Jane: And just confirming, the reason that you say renovate or develop is that you’re actually maximizing the equity or bring forward the equity that you’ll be getting if you just buy and hold for 30 years.
Peter: That’s right.
Jane: So you’re trying to maximize that return.
Peter: Buying and holding investment property is the best way to make money in property but it is not the only way. There are many different ways to skin the real estate cat. And for me, I just don’t have the patience to buy and hold that’s why in the early days we renovated, I do developing as well. Yes I could’ve been much wealthy than I am today if I held all those properties, but I can’t just sit there and do nothing. I’m teaching people how to make money and I practise what I preach because I’ve made it in a number of different ways. However, I do get back to what I said at the beginning, the best way to make money in property is to buy and hold but that’s the only way especially if you want to give up your day job or work part time.
Jane: So it’s the active investment strategy rather than the passive investment strategy that’s going to allow you to supercharge or bring your goals being achieved sooner. So goals, setting the goals is one thing, what else do you say successful people are doing?
Peter: Setting their goals, knowing what their strategies are, mixing with like-minded people, some might have mentors or teachers or whatever you want to call it, so they have support around them because, I mean, property might be the number one thing in your life when you enrol in a course but it may not be number one thing in your life 5 or 10 years down the track. But if you want to have a great lifestyle from property, you’re going to have to do it for more than five years, so you need that support around you whether it’s other like-minded investors or somebody who knows a lot more about it than you do, and that way, you got a much better way of achieving the success because it’s not going to happen overnight.
Jane: It’s interesting. It’s one of the things we’ve got a private Facebook page and the members in there, a lot of the feedback I get messaged on is it’s remarkable to see these other people who think like me. I thought I was the only one and I think often we kind of go through an education phase or a self-realization phase when we go, “I need to get better educated” or I need to find… a messenger has done it before somebody who I can have a look at their information but I also want to talk about this for someone and often you don’t have the chance to do that when you’re reading a book and I find myself I sit there going, “Gosh, this is a good strategy” I highlighted it in the book, okay, who can I talk to about it? I know my husband’s going to get “Uh…I don’t know what you’re talking about Jane” so it’s nice to have that community and sometimes you do just have to start with a team of professionals because they’re the ones that you can talk to when you know where their information’s coming from too.
Peter: That’s right and if those professionals are happy for you to learn along the way, then that’s the best way to go rather than paying for somebody to do it each time, learn as you go along the way.
Jane: Okay. So, tell me this, I’m going to ask you now, I guess the thing I’m really interested in is, how you’ve practically seeing people put into place some of these things, the goals, the strategies, finding a team and finding a community they can talk with. You mentioned a lady earlier that done a course and 3 years later still hadn’t brought a property. You obviously have some success stories too of your students, do you want to share one of those.
Peter: Hey look, number one is you need a positive mindset. It’s one thing to come along to class and listen to what’s being said but you need to be able to put that into practise and if you have a positive mindset, then you are more likely to do that. And thankfully, a number of my students have done that, they may come to class not feeling that confident because they’re inexperienced, don’t have a lot of knowledge but they do the course, they’re surrounded by other like-minded people not only in class but also after the class if finished and then they’ve gone on to buy a number of properties or they’ve renovated and some go on and develop. I wouldn’t encourage anyone to go from knowing nothing to developing. Developing is the riskiest of all.
Jane: Excuse me. I’m not that brave.
Peter: So, I think a positive mindset, a willingness to learn, and the willingness to listen.
Jane: So, willingness to learn and take action and you referenced the fact that you’ve got a popular course because there’s no exam. Do you find the facts that, you know, you’ve got a workshop now and this homework, do you find the fact of actually making people go through a process of having to deliver and doing the work is sometimes the biggest issue? We find people fall over.
Peter: Yup, the fundamental of a property investment course is just basically a lecture, sit back and listen, by all means, ask questions. But the workshop is very different. The workshop, I’ll provide the resources, the online stuff. We get in experts, they’re here to help you and yes, you’re going to have to do some homework. But just like school, if you need to hand up your homework and you haven’t done it, you just might wag school so you don’t come to class which is very unfortunate and I’ve seen it. Those people who are willing to put in the effort and probably because they have the passion for it, I can see that they are going to be successful ones. But the those who just sit back and just want to soak it up and let maybe other people do it for them, it’s just not going to happen, not going to happen.
Jane: It’s kind of like the, a lot of – a few years ago, The Secret was a big thing. It was like, if I will it, it will happen. And they kind of missed the step in between and I was like, “Well, you can will it but then you do the work and then it will happen.”
Peter: That’s right.
Jane: I guess the other thing is that, I find with some of the students or people that I talk with, they have a positive attitude, they have an abundant kind of mindset, they’ve got themselves positioned and often the inexperience people are more successful in getting involved and doing the work because when I speak to experienced investors, sometimes there’s a bit of shame or embarrassment around the fact that some of their portfolio they’ve done the work now and the analysis and they go – in actual fact, these are dogs, some of these are dogs and I should – I don’t want to put my hand up and say “I’ve got 15 properties” when in actual fact, five shouldn’t be there and I think sometimes, as an investor, you have to take that on the chin and go, “you know what, probably going back and reviewing my portfolio and seeing where it is and doing the same research before I move forward is one of the biggest steps and acknowledging the fact that you make some mistakes and
Peter: Yeah and I had a classic example in the property development workshop that we did where there was a student in there who had already done two developments and… I mean, I can’t remember the numbers exactly but if I just give you an example. So let’s say, he bought a broker land and he built four and he sold them. And I said in class, you make more money from just from subdividing the land then you built. And he said to me, “Peter that can’t be right. I’ve done it twice, I’ve made very good money.” I said to him, “You go back out and check out your spreadsheet. Take out the building cost and all the time and just look at the percentage profit.” He came back the next week, said, “Peter you’re right.” I made, I think, an 18% gross profit with building but I would’ve made it 23% gross profit if I didn’t actually build. So the willingness to say either “yes, I’ve made mistake” or “I could’ve done better” then you are willing to learn but just because you come and do a course and you may have done some investment before doesn’t mean you know it all. I mean, I grew up in a real estate family because my father was real estate agent, so I remember going out with my father as a young lad and helping him with renovation projects, but I learn new stuff every day. I’m not ashamed to say that. Even though I’m supposed to be the property professor, I learn new stuff about property every day and I’m happy to listen to other people’s point of view and take it on board. I may not agree with everything but you need to be open to new ideas, and as you said earlier, you need to act upon them.
Jane: And I think, I mean, often when – and I know when I was asked to write my book with Wiley’s, I was like, I’ll spend a year going – look, seriously, there’s nothing new in property that I can say and they’re like, “They want to know your story.” And I think that the fundamentals of successful property investing, there is nothing new but as you said, there’s always some twists or someone doing something a little bit different or a change in the economic environment or I’m actively looking at crowdsourcing information at the moment but there are so many little twists and changes that you can apply but I think the fundamentals that you’ve laid down of successful, you know, starting the goals, know your strategy, have a team, have a process, take action, regardless of what your strategy is, you put that in place in property or any investing and you’re going to be successful.
Peter: That’s right.
Jane: Okay. So tell me this, where you’ve seen people in the past apply some of your learnings or yourself, is there some – you know we’ve kind of touched on some of the off the plan and buy new information but are there big traps out there that people should try to avoid?
Peter: For me, it’s be wary of property marketing. They might be disguised as education but often it’s not. Read as much property stuff as you can. Gather as many seminars as you can but don’t think you have to buy straight away. Go home, think about it, let it sink in, speak with some other people that may know more about you, about property or about the tax implications or whatever it might be. So we’ve talked a lot about analysis paralysis, but the other one is jumping in too quickly, which is being sucked in by clever marketing and before you know it, “Geez, I’ve just bought ___ [00:41:52] apartment. It’ll be alright. It’ll be alright.
Jane: Time will heal always, right?
Peter: Any property it does. Generally, time heals always but you might have to wait a very long time.
Jane: You may not have 30 years to achieve your goal. It brings me to paying for education, I mean, obviously, you’re in the business of educating people and people pay you for that and you’re paid to deliver it. I know when I started off, I was looking for free information. I just didn’t have the cash flow to put into paying for education and now I look back and realised that the time I kind of missed being in the market, I could’ve jumped forward if I had.
Peter: And it does seem a big hurdle for some people. Most property courses are going to be in the thousands. The TAFE 1 that I teach is $2,000, the property development one is about $2,000 which is a lot of money. But when you consider the profit that you can make, it’s not. What’s $2,000 dollars if you’ve learnt how to do a project which make you $100,000 dollars and that doesn’t mean that you have come back the next time and spend another $2,000 to make $100,000. You only have to spend it once. What’s the biblical saying, “Give a man a fish, feed him for a day. Teach a man to fish (or a woman) and they can eat forever.”
Jane: And I think, I know for me in the beginning the hurdle of the price was a big thing to get over, and as you say, you look back in hindsight and you think sometimes you look and go, “Oh my gosh, I would’ve bought in this place and lost $50,000 dollars.” Spending $500; $1,000; $2,000; $10,000 to save it or buying a better place that allowed me to grow by $40,000 dollars a year. It’s something I can’t communicate because until you’ve been there and looked back you can’t say it. Now Peter, your lecture would be valuers as well.
Peter: Yeah, property evaluation, yup.
Jane: And we have, gosh, we have a lot of people doing deal analysis all the time and doing comparison. There’s a bit of a mistake around who the value or works for how they do these numbers. Sometimes we even wonder where they got the qualifications from when we look at some of the valuations. So I’m just wondering from a deal analysis point of view, if people put on their valuation and they try to be a valuer and go out and have a look at a property, what should they be looking at?
Peter: Okay, so first thing in valuation like with real estate is the location, alright. So you’re looking for properties in the same area. However, there are many suburbs around Australia where you can be in the same suburb but they are very two different localities. One might full of housing commission, like, if we go Flemington for example, Melbourne, there’s the section near the Flemington Flats which you probably don’t really want to buy next to but then there’s the other section where there’s lot of nice period style homes. So it’s not just getting the same suburb but it’s getting the same locality. Now if you can’t find enough properties in your particular suburb, then it’s okay to go to the neighbouring suburb, but again, it needs to be similar in nature. If the property you’re looking to buy is surrounded by government housing, then you need to compare it to other property that is also surrounded by government housing. So in theory, once you’ve got your location right, then we’re looking at the size of the land. If you’re comparing apples with apples, they need to be similar-sized properties. Then, the next step is similar-sized house. And in Melbourne, and Adelaide, and Sydney, the year the house was built. I don’t necessarily mean a specific year but period style homes are very important. When you’re looking at houses, if we have two houses next door to each other, one was built in 1920 and one was built in 1980 and they’re both the same size, the 1920 house will probably sell for a lot more than the 1980s house. So you need to keep that into consideration and the condition of the property. There many other finer points but from somebody who’s trying to do their to do their own valuations on their own property, location, size of land, size of house, and condition of the house.
Jane: So, you can’t compare a two-bedroom with a board house that’s surrounded by housing commission and thinking you’re getting a good deal if you’re comparing it to the median in the area and median in the area is a three-bedroom period property on the other side of the street.
Peter: That’s right. And somebody who’s in mortgage broking who sees a lot of valuations come across their desk, there’s market valuation but then there’s also valuation for mortgage purposes. And I will give you a classic example of a couple of students of mine who were buying in a seaside suburb in Adelaide called Christies Beach. So there were two properties for sale. One was on 850sqm of land, one was on 750sqm of land, same suburb, very similar locality. The one that was on 850sqm of land, the house was almost unliveable but the one that was on 750sqm of land already had a tenant and paying rent. The bank valuation came back on both. The one the bigger block of land came back at $340,000. The one on the smaller block of land came back at $350,000 because when the valuer is doing a valuation for the bank, it’s how much can I get for this if I have to sell it in four weeks’ time ___ Now, the 850sqm block had much more development potential but the bank doesn’t have time to go get planning approved.
Jane: And they don’t care about potential.
Peter: That’s right. And interestingly, the one on the 850sqm had a bank valuation of $340,000 sold for $400,000 at auction. The one that was one 750sqm land had a bank valuation of $350,000 sold for $361,000. So the point I’m trying to make is, bank valuations are not necessarily market value. The definition of market value is what could this property sell for if both parties are knowledgeable and nobody is desperate to sell. In plain English, that’s what it is. But for bank valuation is, what can I sell this for in the next few weeks if I have to. And because the house was unlivable, the price has to come down.
Jane: And I’m saying on valuations now there’s the environmental rating —
Peter: Ah, the risk analysis.
Jane: The risk assessment is really, oh yeah, I’m having conversations with lenders and valuers over a full rate in environmental rating risk which might be it’s in a bushfire zone. I was like, “Well, every house in the blue mountains in a bushfire zone.” So those kind of risk ratings really have come to the floor in the last couple of years haven’t they?
Peter: And a lot of society is very wary of risk and in particular, valuers, that they insurances sky rocketed, so they are very conservative, and so banks who are also lending the money are taking particular notice of those risk assessments. I think it’s anything greater than a rating of 3, banks have a second and third look at.
Jane: Absolutely. Now Peter, you did write the book, Top Hundred Suburbs, and I know you’re in doing research on all these things all the time. You can rattle off suburbs in every state so everyone can really relate to them. If people listening to this in a year’s time, two year’s time, three year’s time, rather than making it specific to now, I’m really interested in what you’ve seen in you research over the last 10 years or so of the areas or the common traits that these top suburbs have that people can potentially can look at for themselves.
Peter: Yup, so for me, the key is proximity to the CBD or proximity to the sea, a decent land component. It doesn’t mean a huge block of land because 100sqm of land in Toorak is going to be worth more than a 1000sqm of land in Caroline Springs. So it’s buy something with a valuable land component. Even if it’s a unit, that’s okay. If the unit’s 60 years old, the building itself is not worth much but what you’re paying for is the land, so the rule of thumb I teach in class is 70% of what you spend should go towards the land component and generally, you do that if you’re buying an oldish type of property and the common theme running through many of the suburbs is gentrification. So if I write the book 50 years ago, suburbs like Richmond would’ve been in there, so Richmond in Melbourne, Balmain and Paddington and Sydney. If you pick up the book now, you’ll see other suburbs that I think are going through that gentrification process or about to, like in Melbourne, Footscray, West Footscray, Yaraville, and Seddon are a long way down that track. But certainly, Footscray, West Footscray are just starting, Maidstone as well. We go to Sydney, places like Enmore, Erskineville or the areas just starting to gentrify include St Peters in Sydney. In Adelaide, places like Torrensville, ___ seaside suburbs like Christies Beach and Port Noarlunga because gentrification – basically, gentrification means these suburbs were down and out areas, if we say, Richmond and Melbourne where it was full of crime but over time the criminals moved out or the bad element moves out and those who are working in the city, the white-collar workers on a white-collar wage are attracted to the nice character. Well, they weren’t so nice when they moved in, they had to renovate them. And they’re happy to pay the big money to either rent or buy there and the fact that everyone is else is fixing up their houses, lifts up the prices of everything in the area. So I think being able to spot areas that are gentrifying is a key to long term buy and hold.
Jane: And it’s interesting there is a period of time there when the bad element moves out and there hasn’t been the opportunity identified by others and there’s this parochial kind of mindset of, Oh, new town Paddington down and out, you wouldn’t ___ I buy there and that’s really the time to get in isn’t it? And those people who are getting in when it’s your friends or family are saying “Oh, you’re not going to be living there are you?” is when you should be buying because in 10 years’ time, they’re going, “Wow, you were so lucky.”
Peter: And isn’t that amazing, the harder you work, the [lucky] you get, isn’t that amazing.
Jane: That’s a good comment. I agree completely. Okay, I’m going to heat you up for some resources that you use or you teach. I mean, preferably free but some websites. Where do you go to for information? Where would you recommend people start their research?
Peter: So, the ABS Website is good. I’m actually writing an academic paper at the moment and I’m using the ABS Website extensively. However, the ABS Website over a long period of time reports facts slightly differently. Like, it might say, “IN Adelaide in the year 2001, there were this many living in it. And then in the year 2011, there were this many people in it. But what does Adelaide mean? Is it the statistical division? Is the greater capital cities statistical area So you have to watch out for those anomalies, but generally, if I go to the ABS Website, you go to the left-hand side click on census data and then you go quick stats.
Jane: It’s the quick stats as my go-to ___ fabulous.
Peter: Yeah, for me too. And if you want to more detailed information, you go to the next one down which is Community Profile and you click on that and you get even more detailed information. So that’s one place that I go to because I’m interested in developing, this one’s not free but it’s pretty cheap for what you’re getting.
Jane: Okay, share it ___
Peter: It called Nermap, nearmap.com.au. It costs me $100 dollars a year. Basically, Nearmap has maps and allows you measure distances, measure area, but unlike Google which is satellite photography, this is aerial photography so you get much better clarity.
Peter: Yeah, so from developer’s point of view–
Jane: So you’re using that to see distance to train stations or–
Peter: Area of land.
Jane: Area of land, and this Australia wide?
Peter: Yes, that’s Australia wide but it has historical photo so you can go back a year ago and have a look at the map as what it was like then, it can go back two years or three years. I think it might go back a total of four years but it might have 15 or 20 series of photos and that’s a good way to see what sort of developments having in the area because you’ll see a change in the roofs and you can see if there’s lot of new roofs in your photos or maybe there’s lots of vacant blocks of land from time to time which means there’s new development going on. So Nearmaps I like. I use RP Data extensively.
Jane: How do you use that? There’s so many different things that you can use in RP Data.
Peter: When my students do the course, they get RP Data access. Now, RP Data access on its own costs you a lot of money, like $2,000 dollars a year. But again, if you’re going to make $100,000 dollars, what’s $2,000. What I look for is if I’m looking at a particular property, so I’ve so I’ve seen it on realestate.com ___ this looks good. First thing I do is go to RP Data. How much did it sell for and when did it sell? Because if they bought it last year and they’re selling it again, then why is that happening? The other thing that RP data is an on-the-market history how long has this property been on the market for.
Jane: And rental.
Peter: So it has a lot of information. It’s not free because you did specifically ask me for free ones but there is free info on RP Data. If you go their–
Jane: My RP.
Peter: Yeah, My RP, you can get suburb profiles or if you just go to the rpdata.com.au homepage, then you can get information on what’s happening on all the different capital cities as well. So they are useful sites, the Australian Property Investor Magazine has an online newsletter, profitable small developments that comes out every month. I’ve subscribed to that. Google Earth.
Jane: Ah, tell me about Google Earth.
Peter: Ah, in Google Earth, I mean, Google Earth does wonderful things, but so far as South Australia is concerned, you can also download — another technical term here, but you can download datas. When you go to Google Earth, you can see where the heritage listed properties are. You can see where the proposed subdivisions are. You can see what zoning the property is in, what policy area it’s in. Now, I don’t know if you can do that in other states but it overlays – there’s a technical term – it overlays onto Google Earth and that’s free, fantastic.
Jane: Well, I’m going to check out those overlays of Google Earth because I have to say that I can put my hand up and say that I bought a heritage listed area in it did create a few issues with renovation that a knew it before I bought so I did take into account but yes having that kind of information is interesting especially designing as well, changing of zoning. [crosstalk]
Peter: And one of the things that I teach in the property development workshop and I act upon myself. Often we can make money because everyone else thinks you can only put two on this site. But you know that the zoning is about to change and you might be able to get three, four, or five. That’s where we can make the money. The other way you can make the money in any sort of property is because it’s not a local agent and they’re actually underselling the property and you were saying to me, what holds people back, sometimes people think if they can buy it for $10,000 dollars ___ advertise price, so $20,000 dollars it’s a bargain ___ no it’s not, not if they’re asking $50,000 more than it was worth. But what I encourage my students to do is research, work out what it’s worth, and if you see a property that comes on the market and your eyes light up because you think “Hang on, it should worth more than that and you go to the ___ and you’ve made your research, don’t wait. Make an offer that week because somebody else just as smart as you is going to make an offer sooner rather than later, but research is the key
Jane: And I have to say also, another mistake I’ve made is this seems too good to be true. I’m going to have spend more time researching this because obviously I’ve missed something and it turns out that it was just a really good deal and ___
Peter: And in all states, except Western Australia, you’ll get a cooling off period so you can do your due diligence during the – if you’re not sure, got to get the building inspection go, see the surveyor or the lawyer, whatever you think you need to get, but secure it by signing a contract and then you can do a lot more of that research afterwards.
Jane: Well, I have to say, we have got so much information here. I’ve been taking notes. I’ve got all of these great new websites and things that I’m going to check out and I’m definitely going to check out those overlays and Google it. You can bet that. So thank you so much for coming in and having a chat to us and I hope you come back again some time.
Peter: I’d love to Jane. Thank you very much for the invitation. I always love chatting to you because we always go for a bite to eat in the lovely ___
Jane: You’re on.
Jane: Well John, what did you think of that?
John: Yeah, that was great wasn’t it? I really like his approach. I mean, they’re all active strategies that he’s pursuing but he’s also got those safeguards in place, for instance, the POPI strategy. He’s in the blue chip suburbs that are predicted to grow and the same with the developments he is holding as well.
Jane: Yeah, that’s what I love, he does a lot of research and even though these are more advanced strategies like development and options, he is playing the long game for capital growth still and so he’s building on the fundamentals that every day buy and hold investing people use every day, so I like that. He’s looking at an asset, he’s creating a higher and better use for it. He’s investing in areas with multiple drivers of growth, not those wanting the street town. He’s doing the demographic research to establish that there’s a demand for what he wants. These are strategies that I guess we’ve heard about previously, they’re fundamentals but he’s got a bit of a twist on it, so yeah I loved it.
John: Yeah it’s great isn’t it? And he said the buy and hold was in his opinion the best way to invest in property but he said but it’s not the only way and in his case, he can’t just sit around in his hands. He likes to get into the monster.
Jane: Yeah, he’s absolutely an active investor which is great. Well, let’s talk about some of these active strategies. What did you make of the POPI strategy?
John: Yeah, I think it sounds great. I mean, it sounds like a real win-win for the vendor and the buyer, so he has the exclusive option to buy the property at the time that the vendor chooses, so it can be in five years or 10 years or whatever that is. But he also has the option not to buy the house, so if he wants out of the deal, he can get out of the deal. And he’s buying at today’s price and not the future value in 5, 10, 15 years. So I guess it’s the growth over that time period where his profit lies.
Jane: Absolutely. He’s kind of like locking in the future growth with today’s value but you know what, the win-win that I really love about it is the vendor, you know someone who’s maybe retired and the only way that they can actually put food on the table is to sell out their home, and this gives them opportunity to stay in the home, they may get a lump sum of money upfront but he’s paying them monthly as well kind of an income which doesn’t affect their pension. So I think it’s a really good strategy and everyone wins.
John: Yeah. If you would’ve put your mortgage broker’s head on just a for a moment, is this the type of thing you get finance for or would this have to come out of your savings or line of credit or some other way?
Jane: Yeah, so let me have to think about that. So this is not actually an asset that you’re securing against as an option. So you’re paying an upfront and it might be $5,000 or $10,000 dollars as a kind of good faith option of entering into the agreement, so that you can’t borrow for directly or secure against. The monthly payment is just a payment that you’d have to make as well. So although in theory you couldn’t get a finance just for that, you could actually use finance for it, so you could use your line of credit or obviously, you could use your savings to actually make that initial contribution and then the ongoing phase.
John: And I guess, you probably should explain for people who might not know what a line of credit is.
Jane: Sure. So, line of credit is a different type of loan product that banks offer, so what most people is the standard variable rate, a variable rate interest loan, and this line of credit is usually – different lenders have different requirements but usually it’s a 30-year kind of like a big credit card. So with the standard variable rate, you’re usually paying principal and interest. Obviously, investors try to pay interest only and not have to pay the principal down and put that money on their home loan but the line of credit’s like a credit card. It’s interest only. You only pay interest on what you use. So if you have $100,000 dollar line of credit and you handed over $10,000 dollars as this option fee, ___ paying interest on the $10,000. Now, obviously, check with your accountant, but you know, if this is for the future purchase of an income generating asset, the interest on that may even be tax deductible, so it could be interesting.
John: Well, you still got your finance head on. We compared the POPI to reverse mortgages so could you tell us what a reverse mortgage is.
Jane: Look, a reverse mortgage, I have only ever done a handful of these over the 12 years and they are quite unusual and possibly with, I guess, how the economy is going and the baby boom is a number of those retiring in the future there might be more and more of these. But essentially, you enter into an agreement that the lender is going to take a certain percentage or give you a loan against the value of your property. They use a bit of that loan to make repayments and you have that money available to you. It’s not an ideal situation. It can suit some people. At the end of term, when you want to kind of sell your property, you don’t have a property worth $500,000 dollars that you get the cash for, you might only have $100,000 dollars left and obviously those who are expecting to inherit that money often gets surprised and a bit upset about it, so it’s not a complete solution for everyone, sometimes people who want to stay in the house it is an option, but yeah, I think Peter makes a really fair point that this POPI strategy potentially could actually be a better, fairer, solution for everyone. But he also talked about developments in subdivisions and I know this is right up your alley John, but he said, percentage wise, when we look at percentage and return of an investment, the money is in the land, not the development. So I’m interested in your thoughts on that.
John: Well, it’s an interesting point isn’t it? I mean, both of our current developments are going to sell above the price that we originally estimated in our feasibility which would be pretty well in line with the capital growth that has occurred in those areas over that time, so ___ ring true with what Peter’s saying there but I can understand where his student was coming from. You do all this work building this development making sure they’re right for the target market and I need to find out you could’ve saved yourself the trouble the trouble of building in the first place. So it’s not kind of what you want to hear –
Jane: But we could probably get the numbers off a couple of months soon on what you could have done.
John: Yeah that’s right and last one will be sold in a month or two, so I’ll go back and do the exercise and let you know.
Jane: Okay, good. Well, we’ve been talking about your development in our community for couple of months now, so I know everyone would be interested in saying this, that the selling with the permits than actually doing the whole development itself, it’s kind of one of those things that you kind of think, well, you know, I’m a developer. I develop. Wherein actual fact, there’s a lot of money in just the first stage of that.
John: Yeah, it’s true. Lots of developers but with permits in place and we do this and from a developer’s point of view, there are a lot of advantages of buying with permits in place. For instance, you avoid the down time and the uncertainty of lodging the DA or the planning permission.
Jane: Especially with councils taking years sometimes ___
John: Yeah, that’s right and you might not end up with the original project that you’d hoped to end up with which may be you’ve got less on the site or it’s a different facade or whatever. We’ve certainly had that happened. We haven’t ended up with a facade that we originally wanted which actually affects the bottom line because you don’t have that same street appeal, but apart from that, buying with permits, the finance is just so much more straightforward, so it’s just a standard development finance on having to hold for a period of whatever. It could take up to two to three years to get planning permission in some councils, so it’s just a straight up development for the period of the build. And also, lots of developers, particularly the builder developers, they need that through port of work because they have the teams of guys that they need to keep working because they do not want to lose them to another builder or whatever. So they need to move from one job to the next and keep that momentum up. So yeah, lots of reasons that a developer will pay a premium to have permits in place. So yeah, good strategy, don’t bid the build just sell with the permit.
Jane: And I think that’s a really great thing I took from what Peter saying is there’s a lesson there for us is actually look for the opportunity and it might be fun to do a renovation and choose colour schemes or do a development, and put your own little stamp on a block of land but if there’s another option that’s more profitable, then potentially you should take that. So I don’t know, I remember going back a few years ago and we had this small ___ Ultimate Guide for Renovation Students and one of the ladies there, she came across this amazing deal and we all got really excited for her but she said, “I’m not going take it because there’s no renovation.” We’re like, “Woah! It’s always fun to do a renovation but if you don’t have to and you already got a profit, why go do all that effort.
John: Yeah, good. If no renovation, don’t do it. Yeah, it’s ___ the renovation is not the purpose of the exercise, so yeah, if there’s profit without it, yup, all good.
Jane: And that’s another thing that Peter said. He obviously teaches a lot as well and has a lot of students and he was saying teaching’s one thing and having that understanding and information but taking action is completely different.
John: Yeah, it’s interesting. He talked about there were people that did his course, agreed with it, took it all in at an intellectual level, accepted that it worked but didn’t kind of correlate to actually taking the action and I guess this is the – yeah, we see this too. It’s the torment of the educator isn’t it?
Jane: Oh my God, absolutely. We are so committed to having 100% of people take the information and become successful and I remember I was talking to a lady on customising a course that I’ve written to the US Market and changing some of the terminologies so it made sense and she said, “Don’t go through all the effort of riding a course just because only 5% read it all, so you could just buy this one off the shelf that I’ve already written because five other property educators in the US have done that” and no one knows because they don’t read it. I’m like, “No. That goes against every grain in my body. I want people to read it and apply it.” Education is a good thing and even free seminars are a good thing, he tapped on that.
John: Well yeah, he had some stuff to say about free seminars, go to as many as you like but leave your check book at home.
Jane: Exactly. Good information. And you can always go home and think about it and come back and pay later. If it’s genuine they’ll still take your money wouldn’t they?
John: Yeah. He said he often comes into touch with people too late doesn’t he. They’ve been to the seminar and bought off the plan or something similar which we see ___
Jane: Oh absolutely and he just wished he could get to them sooner but sometimes you make mistakes and you have, maybe, an underperformer in your portfolio or you bought over the market value and it’s going to take a few years for the market to rise, but it’s a hit to your ego but sometimes you just have to accept it. Having an underperforming property in your portfolio has a lot of opportunity cost. It may not cost you a lot per week but maybe that $2-, 3-, $400,000 dollars in borrowing capacity could be used elsewhere making you money, so considering reviewing your underperforming properties in your portfolio is a good strategy.
John: He also finished with some good advice for people. He talked about the danger of analysis paralysis and relate —
Jane: We can relate to that sometimes can’t we?
John: Yeah, that’s right, particularly with that. And yeah, he told a story about a lady that took 13 years to get started and yeah, we’ve got a few stories along those lines too.
John: Yup and the benefit is surrounding himself with like-minded people which is crucial isn’t it.
Jane: I think just having that support sometimes you feel like you’re only the voice or the only person who’s sitting up there at midnight looking at these real estate sites, and the fact is, that you’re not alone, just find where your community is.
John: Yup. He also said, he said this all the time, start with your goals, goals and form your strategy, that’s a fundamental that we’ve heard across all of the episodes so far.
Jane: Absolutely. And then, the final one that I wrote down here on my notes, the value of education, if you want to make money, you have to spend some money and I think the best investment you can make is investing in yourself and your own education, so some really great words of wisdom from today’s amazing guest, property professor, Peter Koulizos and you can find out more about Peter at thepropertyprofessor.net.au.
John: Well done and I think it’s that time again.
Jane: I was waiting for it. You know John, this surprises me and I hate to say this publicly but people keep telling me how much they love this segment.
John: How could you not?
John Blackman: Yes. It’s that time again where you get the chance to test your suburb knowledge while the entire nation holds its breath. Ladies and gentlemen, it’s time to play, Suburbs Against the Clock. The rules are simple. To play, all you have to do is answer a question about 10 suburbs in the city of your choice within 20 seconds. The lucky winner of Suburbs Against the Clock will win 1 year’s free access to Your Property Success Club. Your Property Success Club is an in-depth monthly master class which gives you the practical tools needed to grow your portfolio yourself without having to spend a fortune on expensive seminars or even leaving your own home. So, who do we have standing by to play Suburbs Against the Clock?
John: Graham are you there?
John: Oh, well done.
Jane: Graham, you’re going to kick yourself when you see this question.
John: Graham, which city are you playing for?
Graham: I’m in Sydney so Central Coast.
Jane: Yeah he can do this.
Jane: Yeah, he can do this.
John: No. Now, you going to play for Sydney surely?
Graham: Okay, we to Syndey.
Jane: We’ll let you go up to the central coast because I reckon he can.
John: We may even go up ___ coming up with 10 suburbs in the Central Coast might be pretty tough.
Jane: Especially with York ___
John: Yeah, that’s right. But you know, you can chuck a few Central Coast suburbs in there. I don’t think it won’t matter too much.
John: All you got to do is come up with 10 of them in 20 seconds, so you understand the rules okay Graham?
John: Okay. So the question is: In 20 seconds, name 10 suburbs that have freeway access.
Graham: Mount Colah
John: Two. Counting back [01:14:30]10 seconds.
Graham: Castle Hill.
Graham: ___ [01:14:37]
John: Ah, what did you get? Eight?
Jane: I got nine and I reckon that he was about to say one more. What was that one that you’re about to say Graham?
Graham: ___ [01:14:48]
Jane: Yes. That was the one. Another winner.
John: Geez, we’re tough around here aren’t we?
Jane: Okay, we’re going to get tough next time.
Graham: Very tough.
Jane: Well done Graham. Good job and the fact that you were able to put some of those ___ [01:15:01] Central Coast type suburbs in too was well played.
Graham: Thank you very much.
John: Ok. See yah.
John: So, if you would like to be a contestant on Suburbs Against the Clock simply e-mail email@example.com
Jane: Oh well, John that is it for today. So guys join us in episode 6 when we talk our next fabulous guest, Bernard Salt. You heard Peter in today’s show talk about the crucial information that he uses, demographic research in analysing a suburb. Well, out next guest, Bernard Salt, is probably Australia’s best-known demographer and social commentator on this, so he has so much important information to share with us about the population and the demographic trends affecting the Australia property market and how we, as investors, might use them to our advantage, so another exciting episode coming up. And if you would like instant access to the transcript of today’s show and all of the show notes and the links and everything mentioned on the show, links including Australian Bureau of Statistics, Nearmap, RP Data, and to Peter’s books, The Top Australian Suburbs and Property versus Share book, then go to www.yourpropertysuccess.com.au/ep5. So that’s all for today. Stay safe and here’s to your property success.
John Blackman: Ladies and gentlemen, it’s important for you to understand that you need to take care in applying what you’ve heard on this podcast to your own personal circumstances. Every one’s situation is different. And while we go to great lengths to ensure that everything we share is accurate, the information in today’s podcast was based on personal experiences and opinions and is not intended to be specific to your circumstances. We are not real estate agents, financial planners, lawyers or accountants and are not liable for any loss, damage, or misunderstanding caused by reliance on any information provided or inferred. We highly recommend you seek out the services of a professional or mentor to help chart your own path to property success.
John Blackman: Hmm, I don’t know, maybe I need another take.
John Hubbard: Oh why?
John 1: I’m hungry.
John 2: Okay.
John 1: Well, I never read well when I’m hungry.
John 2: I didn’t pick up on that.
John 1: Are you sure? I didn’t sound a little peckish?
John 2: No, not at all.
John 1: You sure?
John 2: Yeah, no. Honestly. Do you want something to eat?
John 1: Yeah, that’ll be nice.
John 2: Yeah, no problem. I’ve got some pastries and some tea or coffee. What do you feel like?
John 1: Is that Vegemite?
John 2: Yup, yeah. Do you want to me to make you some Vegemite on toast?
John 1: Ah, that would be great. Thanks John.