Property Investment Strategy: New Homes

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Transcript

SPEAKER_00 0:02

Welcome to Equity Strategy Prosperity. Powered by equity, driven by strategy and focused on prosperity. Putting you on your journey to your financial prosperity. Whether you're building your portfolio, whether you're refining your portfolio, or whether you're scanning your portfolio, this podcast is for you. It's designed to give you the opportunity to make smarter decisions with your property investment. Welcome to Equity Strategy Prosperity. Powered by equity, driven by strategy, and focused on prosperity. My name's Peter Bardadin. I'm here with Frank Pisini from IFP property what would you call yourself?

SPEAKER_01 0:50

Advisory, yeah.

SPEAKER_00 0:51

Property advisory. So thanks for coming. Um it's good to see you.

SPEAKER_01 0:55

Yeah, thanks for having me.

SPEAKER_00 0:56

Pleasure indeed. So tell me a little bit about what uh what you do in in the property industry.

SPEAKER_01 1:02

So um basically our role is to help clients be able to create wealth through strategic property investments so they are able to retire early, have the life, the financial freedom that they want in the future. So by doing that, we take them through a process, be able to understand them as a client, and then through to the purchasing stage of hopefully a really great opportunity.

SPEAKER_00 1:27

Oh, fantastic. Because that fits uh neatly with what uh we believe here at the Finance Nest that's so important. Uh, it's important for us uh as mortgage brokers to ensure that people understand their equity, which is their powder keg, um, because that supports everything they do, to then go through and look at what their borrowing capacity is, both in terms of the normal as well as self-managed super funds, which is uh an area that is only growing in terms of people's interest and understanding. And then we go about putting um the pre-approvals in place. So that sets everything up. The customer is understanding of everything, confident with everything. And then once we've got all of that in place, then they're able to focus on their strategy. And that's where you come in in terms of that. Is that correct?

SPEAKER_01 2:17

100% agree, yeah. So that's where we um we let the mortgage brokers understand the finance side of things in terms of getting them the where they want to be finance-wise. Uh, and our job is to make sure that that finance is going towards a really good opportunity that suits their their end goal. So starting with the end in mind is really what we start with is looking at where they want to be, where they're at today, and what they need to do to be able to get there. So, with your help, Peter, and and our help, hopefully they are able to achieve that in the future.

SPEAKER_00 2:49

Okay, so the the that's the process then is one where you're looking at what the client wants to achieve ultimately, what their goal is. Yeah, I I I can't agree more because that's really the the the key piece. I understand that everybody is different, so everybody's journey to their prosperity is going to be different. So everybody is unique, and that's where you come in. But the challenge for me is always around people making the right decision. And if you've listened to the podcast previously, you'll you'll know the classic story that I give out of two settlements on the one day, where one chap literally a day after we'd done the maths, he rang me back and said, Hey, I've got a property. And I went, Oh, fantastic. Now he uh bought a property in Metro, Adelaide for $920,000, which is right towards the limit of what he could do. Straight out, straight into it. Congratulations. All fine, that's your decision, please for you. Another chap looked around and looked around, looked around, um, took the advice, uh, looked at market, challenged people, did a lot of investigation, and finally sent it in a place out north and through buying it off market, got it for $610,000. Now, this the argument in that story is that after six months, um, my client that spent $920,000 and rushed off was insanely happy because he'd made $30,000. Whereas the other chap, for $610,000 of investment, he had made $75,000 over the same period of time. So you multiply that out, it's quite a significant gain by being rigorous about what you do and adopting the strategy that works for each individual. So tell me, um, you've got a plan and a strategy. Tell me, tell me a little bit about that.

SPEAKER_01 4:41

We have a process, it's it's actually 15 steps, which is broken down to stages that we go through with the client. So, not every step we will meet with the client, but those steps are there to ensure that we are hitting every point that needs to happen throughout that that's those stages. From start, it's understanding the client, what they want to achieve, what their end goal is. Do they have any extraordinaries that they're going to be doing in the future? Could be private schooling, could be going on a holiday, new car, whatever it is. So we need to know that so we're understanding that we're not going to get the client into any issues in the future, be up or not be able to do that. So that's where we need to really understand what they have and what they want to do, and then we can move through a process where we can start looking at different funding analyses. So, how much is uh a scenario going to cost if they say have a borrowing capacity of 700,000? So, with the help of UPEDA to understand what their what their capacity is, what would that then mean for them cash flow-wise? So we have a property investment analysis that we'll run through. Then once we have we've gone through that, we can really make a strategy for the client on on what they want and what they want to achieve. From there is then we'll hit the acquisition stage, really go out and start hunting for a property that matches that strategy. And once we find that property, or could be a few different opportunities for the client, we'll run through them with them, and then the buying stage happens. So throughout those first six or seven steps, that's basically those that stage. Um, once the buying stage happens, is when we'll then engage them with the conveyances, get the purchasing stage happening, do contract reviews. Um, we mostly do brand new house and land packages throughout our time. We've noticed that's probably the best for our clients and what they want to achieve. So then the build stage would start. We'll run through the build stage, ensure that everything's running up to date, and we're notifying the client through every stage, and then the end stage is the handover stage. So that's where we'll connect them with a handovers or team that does the inspections for the property to ensure that it's built correctly. Then we'll um match them up with the property manager in that area that's we've used before or has a good track record, as well as an insurance broker to get their insurances in um in place, uh, and also set up a uh get them in in front of BMT, which is a tax depreciation schedule. So all those professionals get put in place uh with the client from any, it could be from us, or if they've got some, uh, one of those professionals, and then we review the review how how it's gone over that build time. That way we can see all right, we've started from here, you've purchased an investment property, and now how how has it gone over that stage? So that's our full 15-step process, obviously, into into 20 seconds of uh talking, but that's essentially how we would help our clients.

SPEAKER_00 7:38

Sure, you've done it, you've you've gone through it very quickly. So that in that in that initial stage of of the strategy, yeah. So your focus is then around uh a new property. So perhaps we might focus on on that. Why do you why do you suggest a new property? Because that's that I think is the essence of what ESP is about, because everybody has a different approach, everybody has a different risk level, a different comfort level, and everybody will approach things. This is what I want to do from an investment perspective, rather than something else. So your focus is really around on new house land. So so tell us why it's focused that way.

SPEAKER_01 8:17

Um, great question. It there's a multiple different reasons, and obviously the budget has changed a little bit in terms of that. We won't go through that into too much detail. But that's for another podcast on another day, I think. We we choose new property because you you get your hundred your most appreciation for the property. Uh, so you can do fixtures and fittings where they changed the rule. I can't remember when exactly, I think it was 2017, where like existing properties don't get your fixtures and fittings appreciated. Okay. But one of the biggest reasons we do it is we can be more we can have more due diligence on on the area that we're choosing. Because established areas are obviously already established and they have their established properties where we can find some really cool up-and-coming areas, which we found that has a lot of opportunity for the client to make some money over over that period of time.

SPEAKER_00 9:12

Um so how how does that work really a new suburb or area? So, how what are the steps you do in that rather than say an existing um older suburb?

SPEAKER_01 9:24

Yeah, so essentially we we're looking at sort of the the areas itself. We go macro to micro and looking at what what sort of things are happening in that area. So obviously, big developments are happening in certain areas of of Australia. We look at the infrastructure and and the the employment and and also the population that is increasing in a certain area, which generally the that area then moves and starts developing and building new new houses. So when when people are going there, then the we need to build more houses. So that's where we we try and find those areas that a lot of people are going to, and that a lot of those drivers could be the infrastructure, new hospitals, new schools, new train lines, new yeah, in any sort of that infrastructure that we can see, yet that's going to be something that is going to drive that area. And another thing that we do while we do new builders is because it's a fixed price. So the client isn't going to an auction, or we're not helping him go through an auction where there could be 10, 15, 20, some could be up to 50 more people bidding on that property, where you pay a premium price for a product that you're kind of there, could be 10 other people there buying it because they like the property and they're they're buying it with their heart. Whereas an investment should be purchased with it with your with your brain. Looking at the numbers, looking at what what why that we think that property is going to go up in value. Because at the end of the day, it's either going to be those two things. Is it going to rent well and is it going to go up in value? And they're the two things we want to get right.

SPEAKER_00 11:02

Okay, so you're what you're in effect doing is you're taking, you're trying to dilute as much risk out of it. Yes. Whilst whilst um whilst looking at the projection and the potential of that. So you're you're you're creating a much more solid outcome, is uh I guess the way of looking at it.

SPEAKER_01 11:20

And then another big risk is when you're buying a new, sorry, an existing property, you don't really know what you're buying. Whereas a new build, you you know you you can do your track record on the builder, you can make sure that it's built correctly. Whereas an existing property, you don't know what can go wrong. You can have um an air conditioner or something electrical is not up to date. So they're all costs that could be in the future that that the client might have to in in take out of their profit or then their margin, which you generally won't have to do with the new build because you've got your build warranties, you've got your maintenance warranties, uh, and it's a brand new product.

SPEAKER_00 12:00

Okay, so I'm starting to get the sense that you're driving this from an accounting perspective. So what you're doing is you're picking up benefit for the client out of being new. So you're maximizing your depreciation, you're minimizing potential downstream costs. That's right. You're then looking at potential growth because of the new area. So what you're trying to do is put it through a road test, if you will, to make sure this thing is fit for purpose and will drive you to the destination that you want. Yeah. To build an analogy around it. Um okay, so that that makes a lot of sense. And it's the same argument that I have with with people with mortgages, where I argue that uh 10 basis points. I mean, I I think we all talk about basis points these days, as if we're um uh we've all got an economics degree, but um, 10 points can make all the difference. A $395 fee on their mortgage is just highway robbery, in my view. Yes, it's an extra $400 that you're giving to the bank for no good reason at all. So these are things that I point out, and I think they're important. So you take that to the nth degree with what you do in your suggestion. Yeah, so in terms of the properties, who who builds those properties?

SPEAKER_01 13:13

We've got a very select, like we've got a select builders, but we also have builders all across Australia. So one of the good things about going through and and engaging with with IFP advisors, we we don't just have places in Adelaide or opportunities in Adelaide. We can look all across Australia. So one of the reasons for that is because we don't have our own acquisitions. We have a team called Aspire that we work under, or not work under, but we work with, and they are the ones that creating relationships with vendors, so developers and builders, to be able to give us the those great opportunities to present to our clients. So that's where yeah, we have a very big list of people that we can use, but also a very big list of people that we won't use because there's a lot of people out there that, as you would know, there's a lot of different builders out there and developers out there that are really out doing it because they want to fill their back pocket. Um, and we just can't have that for our clients. We want to make sure that they get the best outcome and they are also a rec a reflection of us.

SPEAKER_00 14:20

So yeah, it's so true, it's a it's a maximum in life, isn't it? I mean, we're we're very much the same that um uh there are a lot of people that we engage with or come and seek to work with us at the finance nest, and uh, we become very b particular about it. There are uh a lot of uh buyers' agents, there is a lot of investment uh professionals. Yeah, there's a lot of them out there, and uh yeah, we're very much the same. We're very circumspect about who we suggest for our clients because at the end of the day, it's about getting the outcome that the want.

SPEAKER_01 14:54

Yeah, exactly. And yeah, I like to use the analogy. If I wouldn't use them, I wouldn't recommend them to anyone.

SPEAKER_00 15:01

Fair enough.

SPEAKER_01 15:02

So that's really that's the way I've always sort of looked at it. Because you you you would want to do the the the the due diligence and and understand who you're gonna be using as a professional, so we should be doing that for our clients.

SPEAKER_00 15:16

Absolutely. I there is nothing sure. Now it doesn't mean that everybody that's in the industry is out there to try and take advantage of people, definitely not, but then we narrow off. Yeah, so what we're trying to do is suggest the best lender, we're trying to maximize the understanding of the equity, put the best pre-approval in place so people are optimized in terms of their position to start this journey. So that's then where we recommend uh a range of people, and everybody is going to be unique in terms of what their offering is, what your offering is, and what a client is going to be comfortable with. Some people will like um commercial properties, some people will want a knockdown. There's a whole range of different things. Some people want equity, some people like so there's a whole range uh of areas. So, in terms of where are you focusing now? Uh, because everybody that's listening to this podcast will want to do where do I go to make some money? But ultimately, yeah the market is whilst Australia is obviously one country, there are so many different markets within that within uh the the country and and finding those that that are going to work.

SPEAKER_01 16:27

Look, there's no one size fits all, and I couldn't say a specific area because realistically we we're not focusing on area as such, we're we're more focusing on strategy.

SPEAKER_00 16:38

Okay.

SPEAKER_01 16:39

We're focusing on the client and understanding what their strategy is, we'll then find that area for them. There's as like you said, there's so many different markets and opportunities out there, and some really, really good ones. Uh, but just just because it's a good area doesn't mean it suits the client, and they might have limitations on what they can achieve finance-wise, or or and that's where we really need to navigate. So if I sat here and said, hey, this area, for instance, we've have a plot like we've made a lot of success for our clients in in Harvey Bay and Queensland. But if I sat here and said, Oh, Harvey Bay is the best place, go and invest there, people might go there and try and invest and and not do it correctly, um, which then really it's not a good place to invest if you're not doing it properly.

SPEAKER_00 17:27

It's really finding uh understanding the individual and mapping it to what they do. Okay. Yeah. Have you got some examples of of where you've some great success or been able to turn some people around?

SPEAKER_01 17:38

Yeah, so we we actually had um IFP advisory of we've been around for 15 years, so I obviously haven't been working for IFP for that long, but throughout the process, um John he had a that's your principal. Principal, yeah. So he had a client that's worked through the process probably five or six times now. Um they've made a very, very good up like good outcome through that, but it wasn't actually them that we I want to talk about, it's actually her their daughter. So their daughter, so this is a generational, like they've come, and she ended up having a chat with us, sitting down, and we went through a meeting, uh, talked her through it, and she was very, very scared of getting in obviously investing for the first time into a property, very, very nervous. Sure. Her parents are saying, just do it. We've been through the process five or six times, but she still just wasn't really there yet.

SPEAKER_00 18:36

So yeah, I've seen that first-home buyers are very much like that, and it's about building their confidence, yeah.

SPEAKER_01 18:42

So it took about six months of back and forth to try and get her in again, and we finally got her in, which was which was great. And essentially what we did was we just did the same process that we do with every client. We go through each and every step with them. We obviously held her hand a little bit more than um some of the investors that have done it 10 or 15 times. So we sat through and really showed her through the numbers behind it and what should be what the actual process is step by step. And it's I like to use the analogy of baking a cake, so or doing anything when it comes to cooking. You look at this lovely meal on the table and you think, oh, I would never be able to make such a thing. But once you actually look at the the recipe and then go through the process with a cookbook, then all of a sudden you've got that lovely meal on the table. So that's exactly what we did with her. We went through every step and she ended up purchasing a property in 2022, in it was in uh WA. That property she purchased for $400,000. The value of that property today would probably be around $750,000 to $780,000. So throughout that four years, she's made about $350,000 thereabouts, which she hasn't actually purchased her own property yet, but that's really accelerated her to be able to put a great deposit down for her owner occupied. She will look at reinvesting with that that equity.

SPEAKER_00 20:05

So her strategy was a rent vest.

SPEAKER_01 20:08

Yeah, yeah. We'll live at home and and invest.

SPEAKER_00 20:11

Yeah, yeah, great, uh, a great strategy. Um, I've got clients who have done the same, have recommended their um their sons in in that example, and they've both got properties, and it's it's a fantastic situation. Yeah, um, mum and dad are happy because they're still living at home, but they're also insanely happy because both their sons are in property uh and have got that, yeah. Uh, as my my uh dear old grandmother says, they've got a backbone.

SPEAKER_01 20:40

That's right.

SPEAKER_00 20:40

Um, but it is, it's it's so important because property grows grows wealth. 70% of Australia's wealth comes from property. Yeah, and that's why we have a podcast and that's why we have an industry around it, because leaving aside the interesting scenario of the federal budget that will wash through, property uh is still a great investment, and Australia will continue to do so because all government all government changes uh are in effect temporary. They will change at some time. So we've got to see the outcomes of what this is, but ultimately the underpinning of property strength in Australia is that there is a shortfall between supply and demand. Yes, and until that equalises, if it ever would, then that's gonna that underpins the market in terms of strength. So that's that that's a great outcome. 400 into 750, 780 at that age.

SPEAKER_01 21:36

And that's in that's it's a game changer for her life, really. It starts her off to such a good uh took great start, like and from there she can go anywhere, really. Yeah, it can be um, and it it just goes to show like if she just hadn't done and didn't sit down with us that day and didn't go through that, she would be probably like a lot of other estrangers. Where they're a lot of first home buyers where they just don't have the ability to not even get where they want to where they want to live, is be able to even achieve a property themselves.

SPEAKER_00 22:14

I just can't agree more. I mean, uh the if I was to typify a conversation that I have, it's about yes, you can do this. Yeah. And that's that's not only the repository of uh first home buyers, it's across the board. Of course. A lot of people in the investment, I'm sure you'd see that in the investment space who have got their owner occupied property. Yes. If you've had a property in Australia for the last five years, certainly in Adelaide and many other markets, then you've got to have you've appreciated significantly, creates your equity. Yes, that creates concern around what the future might look like, but it is that engine that you can use to throttle up and use to drive towards your prosperity. It's it's such an amazing situation.

SPEAKER_01 22:59

Yeah, it is and it's such a powerful tool that a lot of Australians aren't capitalizing on either. Having that equity there that they can use. And I think a lot of Australians don't have the not the understanding of how achievable it actually is for them. Until they sit down and have those numbers, and it's similar to the the the daughter I was talking about before, until you have those numbers in front of you and say how this is how much it's actually going to cost you per week to hold on to this.

SPEAKER_00 23:29

Correct.

SPEAKER_01 23:29

They don't know that. And then um look, investment always holds some risk, but at the end of the day, if you don't take risks, then it it's very hard to get far in in the current circumstances that we're in.

SPEAKER_00 23:41

Can't agree more. Um, in terms of it, I mean, uh uh, we have a focus on self-managed super funds as well. Um, I like to call it smart money securing futures, actually, because uh a lot of people have sufficient money in their super fund to be able to leverage up. So what it does is is it takes away um risk, it offers diversity.

SPEAKER_01 24:04

It does, yep.

SPEAKER_00 24:05

Uh, and and it and it uh maximizes your opportunity with within it. So are you seeing an increase in in self-managed super funds?

SPEAKER_01 24:14

We have, yes. We've recently had a few, and we are part of an accounting practice as well, which is good. So we we can do a lot of the setup. Obviously, the advice process is very regulated and and needs to be done very correctly. So um, but we have seen a lot of a lot of clients seeing that maybe it's not something they want to do in their in their names, but they've got a big chunk of of money uh in their super, and they can use that as as a way to to to get into it. So yeah, we we have um we've we've seen yeah, quite a few few clients that have come through wanting to to invest with their super, which is rich as yeah. For a lot of them, and this is what they're saying, is that it gives them more control over what their their retirement looks like. So yeah, I think it's a great great tool to do that as well.

SPEAKER_00 25:04

Yeah, the the the challenge there is a lot of not a lot of people understand um uh how straightforward it is, yes, and what it actually means. Because effectively, if you you'll it's the same type of investment strategy where you're you'll have a deposit, that deposit comes from your super fund, and you then go and um uh acquire an investment property. Now it's different to a standard investment, but it sits outside of everything else and is quarantined away uh specifically, so it becomes a superannuated asset that you can access on retirement. So there are opens up a whole range of strategies for you and can be driven out of equity as well. And there are ways that your equity, as you would know, through the accounting rules, you can use your equity to fund uh a self-managed superfund. So there are lots of benefits of having great advice.

SPEAKER_01 26:00

Yes, that's exactly right. And that that's what it comes down to is always speaking to your professional, and if you don't have one, go find one or talk to us, and and we'll we'll push you in uh into the right direction. Because, like I said before, we not only do we like to work with people like us, and I seem like to think that we're both very transparent and also have good ethics behind us, but that we're gonna try and get them into uh professional that that's gonna really help them uh understand that and for them to get a good outcome from that.

SPEAKER_00 26:33

Absolutely, absolutely.

SPEAKER_02 26:35

Yeah.

SPEAKER_00 26:35

Well, there we go. It's been an inter interesting discussion. Now, um I always like to to finish up. Um I'm I'm a great one for having um sayings or statements that drive people. So my question for you is have you got one that um one special line or or something that that that fuels you?

SPEAKER_01 26:53

Fuels me. I think the one that that comes to mind is that it's not what you don't know that gets you in trouble, it's what you know for sure that just isn't isn't so.

SPEAKER_00 27:03

So that's deep. There we go.

SPEAKER_01 27:07

To get how that works for me is that when I think I know something to be completely true, or I I think I want to challenge myself to get more education around it, to always adapt and always evolve from that. And I think looking at if I wanted to put it into a scenario, for instance, is for a client to know something for sure, especially in the property market, they might start investing or they might start doing something that that will not do the advice that we give them because they just they know that it's that's that's what they think is right. But I think it's always having an open mind about what anything in life uh and really getting their education around it and and evolving. And I think a lot of people can get themselves in trouble from not taking advice and not getting the right advice.

SPEAKER_00 27:57

True enough. Uh again, you couldn't have finished on a uh on a more uh poignant note with what this is all about. It's about doing the due diligence, taking your time, and once you've got there, as they say, you you plan slowly and implement quickly. That's right. Uh and so that's what this is all about. It's it's been a pleasure, Frank. Now you're uh uh whereabouts are you in Adelaide? We are on Sturt Street in the city.

SPEAKER_01 28:23

Um our office is there, and yeah, we You're on all the socials and everything. Instagram, Facebook. Obviously, you can you can reach me via email, frank at ifpadvisory.com.au. We are actually doing a webinar coming up as well on um the 27th, I believe. It's called Beyond the Budget, and it's invest with confidence and not fear. So we're gonna be running through uh a yeah, a really cool webinar. Goes through, yeah. John goes through all these different uh scenarios and and we go through a few different areas in the in the market that we're seeing some great opportunity. Uh, and then also a little bit about the budget as well. So what we might think is gonna happen, and yeah, it'd be really good if anyone's interested in jumping on. We do run them pretty much monthly as well, so feel free to reach out to us and and go onto our website, uh, have a look at that, and yeah, it'd be great to have you.

SPEAKER_00 29:19

There we go. There's there's a plug, and of course, they're available on on socials as well. Well, that brings ESP to the end of another episode Equity Strategy Prosperity. Uh, powered by equity, driven by strategy, and focused on your prosperity. I'm Peter Bardadin. Thanks for listening.