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Contributing to Your Life
KHI Partners has spent 18 years helping Australian families build wealth, protect assets, and navigate life's biggest financial decisions across accounting, financial planning, law, mortgage broking, insurance, bookkeeping, and property. This podcast puts their partners in front of the microphone to share real client stories, hard-won lessons, and the kind of advice that usually stays in the boardroom.
Hosted by Aaron Sim and Frank Wong. New episodes fortnightly.
Contributing to Your Life
Deals That Almost Happened - Property Stories From the Field | Ep. #04
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In this episode, Ross Le Quesne, Buyer’s Agency Partner at KHI Partners, provides an update on what he’s seeing in the property market, and shares property stories from his many years in the field - including the hidden gems and near misses.
He shares his insights on why focusing on the fundamentals is the key to thriving under any market conditions, and the difference between what experienced property investors look for compared to first-time investors.
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DISCLAIMER:
The discussions in this podcast are for informational purposes only, and should not be considered financial or legal advice. It does not take into consideration your personal circumstances. Consult a qualified professional first before making any investment decisions.
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I bought my first property in 2011. Even some of those properties in a 10-year period, they've doubled or tripled in value. So had I not taken the action back then, then I wouldn't have the results that I've got now.
SPEAKER_03This property was purchased for $204,000 in 2014. Unremarkable suburb, nothing special, not even Espresso Coffee. Fast forward to today, and it's worth over $800,000, which shows you capital growth is rarely linear.
SPEAKER_01As property investors, we're not looking in the rear view mirror. We're looking what's going to go forward and where in 10 years' time, if we're having this conversation, where is going to outperform?
SPEAKER_03Our guest today is buyers agent Ross Lacain. And what he's going to show you in this episode is that investment properties rarely look like standout properties at the time.
SPEAKER_02It's about land scarcity, gentrification timing, rental yield versus capital growth, and knowing which phase of your investing journey you're actually in. Because the right move at phase one is totally wrong at phase three.
SPEAKER_01In terms of looking at the property, yes, you need to focus on the fundamentals, right? Is this property going to grow over the long period of time?
SPEAKER_02If you've ever looked at a property and thought, I wouldn't want to live there, this episode is going to change how you look at every property from here on out.
SPEAKER_01You need to understand as a first-time investor that, hey, I want to be in the market for the long term. Then you've got to say, well, where would you buy a property that's going to grow for the long term?
SPEAKER_00Before we get into the episode, please be aware that the discussions in this podcast are for informational purposes only and should not be considered financial or legal advice. It does not take into consideration your personal circumstances. Consult a qualified professional first before making any investment decisions. What's happening lately in the world of buyers agency, Ross?
SPEAKER_01Um, the market's uh interesting. Obviously, there's a lot going on in the economy at the moment. You know, consumer sentiment and business confidence are, you know, I think at all-time lows since COVID. So it's creating a real opportunity for the right people in the property market right now. So, you know, what we're seeing uh around is markets probably come off probably by about 5%, uh, which, you know, it and it's turned from being a seller's market into a buyer's market. We're seeing a lot more properties that you know would have been going to auction that are now going to private sale. Uh, and you know, where there may have been, you know, say 10 bidders at some of the auctions we're going, now there's only you know, three or four, two or three in in some cases. So it's shifted in terms of more to a buyer's market. So there's some real opportunities in the market. I mean, the fundamentals haven't changed, which is the most important. Long-term fundamentals, there's just not enough supply in the major centers. We're still seeing vacancy rates, you know, one, one and a half percent in most capital cities around Australia. Uh, you know, with this sort of lack of confidence, um, there's just not the supply coming on, right? You know, I think the the government's got the goal of of hitting a certain number of properties, and you know, we're well below those targets. Uh, and you know, with this latest sort of shock in terms of confidence with what's going on in the market is not gonna do anything to do this. And uh, you know, with the things the the government's looking at, you know, affecting capital gains tax and so forth. So, you know, those things are then going to lessen, you know, construction and supply. So, yeah, it's fascinating. What do you guys find? Are you on the mortgage front? What are you finding that's happening in the in the market? What's the feedback that your clients are telling you?
SPEAKER_03Yeah, look, I think we we are also hearing, you know, a bit of a shift in the sentiment um and you know, not as much confidence going into uh things, but um, some of the clients that are in that position are really want to use this opportunity uh to get a good buy. Um, and quite often we're having to work through the psychology with some of these clients that are maybe teethering on the edge. But is that something you you have to work with clients on as well?
SPEAKER_01Definitely. And you know, it's it's a constant uh conversation, almost a daily conversation with our clients at the moment in terms of strip out the noise in terms of what's happening in the market, because you know, it is just that noise. You know, I've been investing in property, uh, I bought my first property in 2011, and uh, you know, in that time I've been a mortgage broker uh for many, many years, as well as um you know, coaching a lot of top mortgage brokers are now into the buyer's agency business. And you know, one of the things you you get from being in the market for you know, and again, I've been in finance since 2003, you know, of the benefit of you know having the last you know 25 years in in finance and property, you realize that you know there's peaks and troughs in the market. But if we strip out the noise in terms of what's happening in the market and we focus on where the opportunities and uncertainty creates opportunities, long-term fundamentals are really, really strong, right? Yes, there's gonna be some ups and downs, and in this market, there's no different, right? There is gonna be those times where uh, you know, again, we've probably seen a 5% fall towards the end of last year to where we are now, but that's just a blip. If we you know fast forward, you know, 10 or 15 years time, I can guarantee you there's gonna be some amazing results, and we're gonna look at back at this time in the market and think this was an ideal time to buy property. And I think if you look back to, you know, I guess the the the last upheaval, which was the um COVID. Uh, and you know, COVID, if you remember back to the start of COVID, there was talks that the market was going to drop by 30, 40 percent. Uh, and at that initial period, there was a lot of uncertainty. And that proved to probably be the best buying opportunity before it really sort of played out and we started to get on and do business as usual when we realized, hey, you know, the the fund long-term fundamentals are going to stack up for property. And then we saw some of the biggest gains even over the last five years where interest rates have increased, there's still been a solid demand for property. And we've seen over the last five years, if you look at you know what's happened in the last five years, you've got markets like you know, Brisbane has gone up by a hundred percent in the last five years. You've got Adelaide that's gone up by a hundred percent in the last five years, you've got Perth that's gone up by a hundred percent in the last five years. So all these markets in you know, a period of rising interest rates have you know outperformed. So if average growth over the last 25 years is 7%, you know, these markets, you know, so that would be 35% over a five-year period. So they've almost tripled the average growth rate over a five-year period, right? So you look at that, and you know, from what was a period of uncertainty, you know, some people had they invested, you know, back then, and it's probably you know, around about five years ago now that you know we were in COVID, they've tripled their money. So had they listened to the doomsayers, the negativity, and a lot of the things that were around in the market at that point in time, had they sat on the sidelines, they would have lost out, you know, and and you know, potentially doubled their money in property in five years, which is phenomenal.
SPEAKER_02Totally. Yeah, and you know, I remember buying a property in 2022, which was the peak of uh COVID, and speaking to to Manzuru, he said, go buy here in Queensland, bought it for 400,000, it's now 800,000. And you know, back then there was fear the interest rates were high. And, you know, I think in those moments it's very easy to listen to the media, the fear-mongering. And like you said, over the years we've seen many crises, geopolitical events happen, uh, you know, GFC 2008, dot-com boom, all these wars going on. I guess someone that's new to investing and they've just jumped in maybe the last couple of years, they're seeing the media, they're seeing things happen. Uh, what would you say to them? You said focus on the fundamentals. What should they focus on or look at to make the right objective decision in this opportunity market that we're talking about?
SPEAKER_01Yeah, and it's a great point, right? So, you know, for a first-time investor, and again, you know, we say there's time in the market or timing the market, right? So, yeah, the best time for a first-time investor to invest is when they can afford it, right? And so, what does when they can afford it mean, right? So, one, they've got to have the savings or they've got to have the deposit to be able to get in the market. You you both are in uh brokers and you're both in finance, so you understand that, right? So they've got to have the deposit or the access to equity uh to get into the market first, right? They've got to have the cash flow to be able to uh you know hold that property long term. So, what things come into the cash flow? So their income comes into the cash flow, the rental return from the property that they purchase comes into the cash flow. But one of the things that not a lot of people take into account as well is the cash flow buffer that allows them to hold the property long term. So just like in business, you know, cash is king, the same for you know property investors looking to invest long term because you know, short term in property is five to 10 years, medium term is probably 10 to 20, and longer term is is 20 years plus, right? And so, you know what, you know, and there's a lot of sort of you know sprukers and people get out as who you know see property as a uh get rich quick scheme, which is not, right? It's it's not, it's sort of it is something that you know again takes time. So you need to understand as a first-time investor that hey, I want to be in the market for the long term. So, you know, the the cash flow that we're talking about is important that we can manage to be able to hold those properties for the long term. So if you've got the business uh if you've got the deposit and if you've got the income and you've got the means to hold that property for the long term, then it's a great time to invest as a first-time investor. All right.
SPEAKER_02So yeah, and I think you you see, you've seen so many people, you help people buy property at the moment. Uh, and so you probably see maybe the two different mindsets as well. You might see someone with uh, you know, huge maybe cash buffer. Um, they got the borrowing, uh, but maybe they're hesitant to get into the market. And then you've seen someone uh that scraped together their deposit, but they've just got this mindset that they're they're trusting the professional advisor and they get into the market. Can you tell us maybe some examples of your clients where you've seen those two examples and and one really do really well from that simply that go-to mindset that I need to get into the market as soon as I can?
SPEAKER_01Yeah, definitely. And if I uh have a look at some clients, and again, you know, I've got some clients that are in a perfect position at the moment, right? They're in a perfect position, they've got the cash flow buffers, got solid incomes, got good equity in the property, but they're still hesitant, right? And they've been talking about investing and had different conversations, and they've almost got analysis paralysis, right? They're they're looking and they're taking advice from the wrong people and they're not taking action, right? And then you've got some others, uh clients that we've worked with where, you know, and I remember even some really young clients, if I'm going back to my mortgage broking days, that took action, right? So their mum was their property investor, they understood the value of it, they took action, right? They they ended up buying a cheaper property out in the west of Sydney back in the time. And, you know, they did it, they used the uh family guarantee to get into the market. And, you know, within a number of years, both the the um, I think they were boyfriend and girlfriend at the time, but they both bought properties at that point in time. And then they came back to me to do a loan where they were now upgrading and buying their own house using the equity that they'd built up in those first two properties that they'd purchased, right? So whilst they couldn't afford their dream home at that point in time, what it allowed them to do was to get into the market as you know a rent vestor. And then in a number of years, I was doing finance for you know the both of them to buy their, you know, their first home together, right? Which is a great story about taking action while you can, uh, even though it was a cheaper type sort of property that led them into their next um goal, which was that family home, which is you know amazing um to see that. You know, I know in my own investing journey, you know, I look back, as I said, I bought my first property in in 2011. And and you know, even some of those properties that that uh I look back and you know, in a 10-year period, they've doubled or tripled in value. So had I not taken the action back then, then I wouldn't have the results that I've got now.
SPEAKER_02And I know you probably I know we actually went through this with you personally. We we look at some of your properties and you're like, how is this property gonna go up in value? Like, just look at this property and you're like, this property has doubled in value. So I think on people traditionally think the house needs to be you know the best house, you know, everything put together uh in order for it to grow. And you are a living example of that. You've shown me some of your properties that have doubled in value. What would you say to people that you know, trying to get it all perfect when it comes to property that it's not necessarily the case and what should they focus on?
SPEAKER_01Yeah, so it's you know, in terms of uh looking at the the property, yes, you need to focus on the fundamentals, right? Is this property going to grow over the long period of time? And not all properties are created equal, but you know, when we look at properties and look at the you know the properties at the moment in the market, you know, what I tend to focus on in my own portfolio is focusing on you know properties that are going to have that long-term growth. So my aim is to not sell, is to hold the properties for the long term. So then you've got to say, well, where would you buy a property that's gonna hold, you know, grow for the long term? So then it comes down to the fundamentals that we're talking about. And you know, most of my properties are held on the eastern seaboard in the major cities or within a commute of the major cities. So we're talking Melbourne, uh Sydney or Brisbane. All right, why? Because you think if you're gonna open a multinational business, where are you gonna open one? All right, you're gonna open one on the eastern seaboard major city, right? So with that comes employment, all right. So employment again provides that cash flow that we were talking about to hold the the property. So you're gonna have population growth, right? Because people are gonna move. If you're gonna move in from overseas, you're gonna go to somewhere that's gonna have a job nearby, right? So we want these fundamentals where there's you know more than one industry that they've got sustainability around industries where the population is gonna grow, provide jobs, and you know, with that demand is gonna become demand for accommodation, right? So are these properties going to grow in the long term? So, you know, to your point, some of my properties and an example of a property I bought in the Logan sort of area in Brisbane, and I paid 200,000, you know, for it uh just over 10 years ago, and it was 200,000. But you know, I'm getting told that's worth about 800,000 now, so it's almost quadrupled in value. But I'd show you a picture of it and you go, ugh, no, you didn't, right? Um yeah, and you know, it's it's not the greatest looking property, but you know, the fundamentals were there. So this was a a property in in Woodridge, right? So if we look at this property back then, I think it was around 204,000 was the purchase price, and it was in around 2014, all right, was when I purchased that property. Back then it was probably rented for about $350 per week. So the fundamentals, you know, good return back then, uh, we'd love to get a return like that, around a six or seven percent um return at that point in time. So, and it had a good land value. I think uh it's on around about six hundred um square meters of land. So whilst the the property was an average property, um the fundamentals were there, right? It was in an area that, you know, there was a scarcity of land, there was uh, you know, good fundamentals, it was you know good transport into Brisbane, uh down the highway. But it wasn't an area that had gentrified at that period of time, right? I remember going to the shopping center, Logan Central shopping center back then, and I couldn't even find an espresso uh coffee, right? And I'm like, where is this place? But anyway, the fundamentals sort of made sense in terms of that respect. And you know, one of the things when we talk about that 7% growth on average over the last 25 years, people think the growth is linear. Where if I look at the growth on this property, it was flat, right? So, you know, between 2014 to 2020, there was very little growth, right? Maybe 3% growth, right? And so, but as we said, between 2020 and 2000 today, in 2026, you know, that property probably went up from about 300,000 to about 800,000, right? So I guess the lesson in this, had I only held it for a short period of time, maybe five years till 2019, I wouldn't have had anywhere near the level of growth. But, you know, since I held for the long period of time, um, you know, now that property is worth around about $800,000 because of willing to hold for the long period of time. And you probably, you know, similar to me, hired clients that, you know, but through this flat period of growth between sort of 2014 and 2020, say, hey, this property hasn't performed. And they've actually sold properties, and you probably had clients similar to ID that sold during that time that weren't patient and waited for the level of growth. And, you know, back then when I was looking at Queensland compared to New South Wales and Victoria, I could see the market was undervalued. When I purchased it, you could see the market was undervalued. And I'm seeing that at the moment in places like Melbourne, where you know, Melbourne used to be at around 90% of the value of Sydney, all right? So just 10% under. Whereas at the moment it's only about 70% of the value of Sydney. So there's significant value in intrinsic value in the Melbourne market at the moment compared to historically where it's been. And so, you know, similar to the level of growth that we're talking about in terms of Brisbane and Perth and so forth, right? Things will come back to their average, right? Things will come back to that 7% average over time. Uh and, you know, and same for you know places like Melbourne, it will come back up. It's only grown 11% in the last five years, right? So, you know, in compared to a lot of these other, it's underperformed. But as property investors, we're not looking, you know, in the rear view mirror in terms of we're looking what's going to go forward and where in 10 years' time, if we're having this conversation, where is going to outperform? Right. And so this is where we, you know, as buyers agents, yes, we we identify those areas that are my more likely going to give That long-term results.
SPEAKER_03Yeah, now, Ross, we hear a lot of first-time investors essentially just probably looking 10 minutes from where they live to buy their investment property, right? And I think in this day and age, it's very, very important to remove the emotion out of these decisions. So can you talk to like how important is it to remove your emotion from the decision and where how do you actually go about identifying where a client should buy?
SPEAKER_01Yeah, definitely. And you know, most of us understand property, right? Because we've lived in a property all of our lives. So we grow up and we get used to what a property looks like and feels like. And we tend to then, when we go into the investment side, we start to look for a property like we would like to live in, right? Because it that's what we know. And, you know, you quite often, you know, want to be able to, you know, touch and feel that property. And it makes sense to go in areas that we're familiar with. But you know, this is one of the biggest mistakes I see first-time investors do because you know, they don't look outside in terms of the market, they just look around where they're looking to live, uh, and they miss the real opportunities for growth. In terms of if you look at some of those areas and some of those properties where I've purchased properties, I wouldn't live in those properties myself. And I think this was a learning that came on early in my career. Is you've got to base it on the fundamentals. Where is their value? Where am I getting the return? Where is going to be the capital growth? Where is going to be the cash flow? Where is likely to outperform the other areas in the market? And where can I get the cash flow so I can hold this property for a longer period of time? And quite often the answer is that's not in your local area. You've got to then look further out, and then you've got to use the services of someone, you know, like ourselves in a buyer's agent to be able to then go ahead and source the right property for you.
SPEAKER_02So are you seeing a shift from people wanting to buy their own home to rent vesting just because of where the market is? And do you think that's a good strategy?
SPEAKER_01Yeah, definitely. And you know, I think it's a great strategy, especially in this market, because as you said, if you're say someone, a Sydney looking to buy your first home and you're gonna have to pay for a house, um, that's gonna take a lot of your disposable income. So that's gonna take a lot of there's not gonna be a lot left to then go and invest. So the old rich dad um ported philosophy, if I if I buy my home and it's it's worth a million dollars, you know, when that property goes up in value, you know, the home is gonna be worth two million, but you know, so are all the other homes that you're looking to to buy going to be worth. So when I've only got one home, is it actually an investment? Right? So it's not till I've got my my second home over here that sort of gone up in in value and that's all profit. Right? So, you know, when we're looking at um when we're looking at you know people that are looking to rent vest uh you know for the same amount of capital, right? So let's say for example, you know, what will what would the repayments be on a million dollar low or a $1.5 million low?
SPEAKER_02So it's an 800k mortgage, you know, uh paying six percent currently, uh or 45, 50 grand at the moment.
SPEAKER_01Right. So so it's it's about 50,000, or we'll say it's five thousand dollars per month, right? Is is the is the payment for that particular um property, right? So five thousand dollars per month is the the property, and that's their in their owner occupied, right? So they've got to live somewhere. So let's say um they're living, you know, uh right young people living in a share um sort of property, equivalent sort of property gets a two to three percent return. So a million dollar property costs them, you know, um you know, how much are they gonna pay for a room in in that with their friends? How much per week? Probably like 400. 400? Yeah, right. So say, for example, you they've got to have something that somewhere to live, right? So 1600, they're not gonna have all the other costs, right? But that leaves them uh around about 3,400 in terms of so you know, potentially that 3,400 could be the same amount of cash flow, they could potentially control three properties, right? Just purely from a cash flow. So if I can, you know, the same amount that I would spend on a mortgage control three investment properties, and you know, fast forward 10 years, you know, those three investment properties, and even if they were 500,000 um, you know, cheaper investment properties, and if they've doubled in value, you you're now sitting on, you know, um, you know, a property portfolio worth three million dollars. Yes, you continue and invest, but the equity position that you're in here gives you options, right? And so I think you know, this is definitely becoming a consideration for a lot of people, purely from a financial position, right? We can't, you know, owning your own home gives you so much from an emotional point of view, and sometimes that can't be put into the numbers. But if we're looking purely about wealth creation, rent vesting for young people is definitely the smarter financial decision in terms of to get ahead in this particular market.
SPEAKER_03No advice being given right now, by the way.
SPEAKER_01No, exactly.
SPEAKER_02Again, as you say, and the capital, the capital that it takes to actually go into that million dollars being lost going into that property as well, not just the cash. Being tied up, being tied up into that owner-occupied compared to splitting that, I guess, against three investment properties compared to one.
SPEAKER_01Exactly, right? And so you're diversifying your risks, you've got three um properties to pensionally in three different areas and location. You've got, you know, three different levels of income. So you've diversified your risk and potentially, as I said, investing in areas as we spoke about before that are going to have a better um potential for capital growth uh and growth fundamentals.
SPEAKER_03Yeah, now, Ross, I want to switch gears a little bit and I really want to take a deep dive into uh what does a BA look at at the moment when trying to identify the actual property that someone should buy? Right? We want to go into the fundamentals, what are you looking at? Um, how are you comparing different properties in that same area?
SPEAKER_01Yeah, for sure. So there's a number of things that come into it. First of all, if we look, you know, as we said, you you focus on an area that we think is going to outperform. And as I said, you know, Brisbane, Perth, Adelaide have already gone by 100%. So, you know, quite often, you know, people looking, the horse is already bolted. I'm not gonna get the the same level of growth uh if I look to invest in that. And again, because we're looking for the long term, we're looking for those areas. So then we can look at well, what what areas have the potential to do something similar over the next you know 10 to 15 years? Because we're looking longer, longer period of time. So once we then come up with a you know an area that we want, and then within those um particular cities or or locations that that we're focusing on, and as I said, I I'm not a big fan of regional um because I think you know COVID has given the regional areas a bit of a boost in terms of uh, but you know, long term I think there's some of the areas, you know, again, with what's happening in the economy, are a bigger risk to the capitals, right? So I like capital cities or within a commutable distance of a capital city. So then once we've identified the cities or um those regional areas outside a major city, then we look at well, where are the opportunities to get value? All right. So uh in terms of you know, you you understand in terms of if if um you know a home is fully renovated, if it's already done, it's marketable, right? Similar to a suburb, right? If a suburb has all the things, you know, and everything it's fully gentrified, the the price is going to be built in. Right. So when we're looking at suburbs, we're looking at those suburbs where the opportunity for some gentrification to take place, which means it'll accelerate the rate of growth. So let's say, for example, you know, in a simple um you know, diagram, and we say, okay, well, we've got a suburb here that's worth $1.5 million, right? And it's already been done, right? Or it ticks all the boxes with the fundamentals, it's got you know all the things that an owner occupied would dream of. But then you've got a couple of suburbs that are surrounding those suburbs, and maybe they're they're worth only half of the value, right? Maybe they're only worth $750,000, right? So for um you know, normally what happens when people can't afford here, they look to the next thing, right? So, and then these um areas will start to gentrify, right? What I mean by gentrify is you know, new cafes, new um services will move in. Espresso coffee, yeah, espresso coffee will come into it, um and you know, better schools and and more infrastructure will come in, which will then change that, right? And you know, the other things that we're looking at is well, what what investment is being made into these particular areas, right? What are the likely changes in development laws or zonings that may come into those particular areas, right? So then we identify those areas that are more likely to gentrify. Then we overlay that with what is the rental demand in those areas? A big thing in, and especially for areas like Melbourne at the moment, is scarcity of land, right? Scarcity of land is important because you know, as the the cities go and develop, um, you know, if there's a big opportunity and um land, an abundance of land to be developed, it's going to limit the growth of those areas until all of those areas are developed, right? So we're looking for areas that have a scarcity of land. So um, you know, they can't just you know release a developer and open up another thousand homes, right? Which is going to increase the value of those those homes more quickly. Same for in terms of the the land value, right? We all know that land uh appreciates uh in value and and you know, what's the average size block that we're seeing in a new development these days? It's very small. It's very small, right? So, you know, by having a bigger land component in in the properties that you're buying gives you opportunities. You know, look at Tasmania at the moment, they've got so much shortage and there's such a rental um demand, they've just released a law that allows people to build up to a 90 square meter granny flat, right? If you didn't have that um land component in your property, you couldn't take advantage of building a 90 square meter granny flat, right? But if you've got that land opportunity, who knows what the change of zonings. If we look at you know to Europe and the size of the blocks and you know what's happening over there, land long term is going to be key. So, you know, the land component in a in a property is really important when it comes down to the individual properties that we're looking at to create value. Because you know, whether you want to subdivide, whether you want to add a granny flat, whether you want to redevelop the home and extend, those things will all be decisions that we'll make. Um, as well as, you know, as we said, looking at the planning and the development opportunities that are going on in those particular areas and council areas are really important.
SPEAKER_03Yeah, I want to go one more layer in, Ross. So, you know, you're identifying suburbs that um essentially are probably on the let's call it the sweet spot of their gentrification journey. Right. So do you go so far as to, you know, what's a good street in that suburb versus a bad street? Um three three better versus four better. Um one of the theories I guess I've heard uh recently was that um you know the three better might be better bang for buck initially uh in terms of better yield for how much you're spending. But as that suburb gentrifies and starts to bring in more demographic in uh bigger tenant pool, um you think about exit, right? And uh the the four better might be more desirable. So over the long term that might be better value. What's your take on that?
SPEAKER_01Yeah, definitely. I think you know, with the particular, you know, per property in in the street, it really does come down the street locations, right? Because certain um streets may have say a higher housing commission demographic, all right, or be further away from transport, um, you know, or may have a flood overlay to to them, or may have single um property covenant, which means you can't build. So, you know, coming down to the individual property is important. And then you've got, as you said, the characteristics of the property. So, you know, the thing that drives the market and drives the value is the desire for owner occupiers. So, as property investors, we are price takers. The the owner occupiers make the prices. And when we look at you know, the demands, if you look at even from a rental perspective, if you've got a a three-bedroom, two-bathroom, it's much more desirable for friends to want to share that because they can each have a separate bathroom, right? They don't, you know, everyone fighting to get out the door at 7.30 sharing the one bathroom, right? So even that extra bathroom can make a big difference, not only from the desirability of you know, a family wanting to to own or occupy and live in that, but the livability of that property as a rental property as well. And um, as you mentioned, in terms of you know having that additional bedroom, and we've got to look at the way that work and and things have changed nowadays, right? So, you know, more often than not, people want that additional room in their house because that's where they're gonna be working at two, three days a week, or sometimes you know, they're gonna work from home. So no longer is it just the the three bedrooms is enough, they want additional space so they can have things like a home office um as and use that as one of the rooms. So obviously the size of a property uh moving forward makes a big difference as well to that desirability for the ultimate end buyer, which is potentially going to be an owner-occupier.
SPEAKER_02And how about rental yield? How important is that in your decision when you're looking at properties or is it irrelevant? Is it more about those other fundamentals?
SPEAKER_01No, it's definitely important. And uh as I said, the the and I've always seen from my point of view, if I can, you know, have let's say, for example, I've got spare cash of $2,000 per month that I can spend on property. If I can buy one property at negative $2,000, or I can buy two properties um for the same out of cash flow expense, I'd rather buy two properties. All right. So what then comes down to that is the ability to hold, and that comes from the cash flow. The biggest cash flow is from the rental yield that we get from the property. So it's balancing you know the capital growth that we're gonna get for the property with the cash flow. All right. So and I think you know, sometimes we may do both, right? As for people building a property, we might um pigeon pair them where you know one is slightly more negative, and then the next property we buy is slightly um a better yield, which sort of balances the cash flow on the on those particular properties, or you know, we have properties where over time we can change the cash flow. You know, I've got a number of uh, you know, been investing for a long time, as I said, and but my next um step in my portfolio journey, rather than buying another five properties, is to go and put granny flat on, say, five of my properties, right? Why? Because that's gonna give me another five rentals and change the cash flow on those properties. So the ability to change yield in the future is important as well.
SPEAKER_02And that cash flow, just going back to that, do you have an ideal? I get it asked all the time from clients, how much should I have? How much should I have to hold this property? And what do you kind of say to your clients in terms of, you know, should I hold have enough cash if I'm losing, you know, 10 grand a year? Should I have 40 grand so I can hold it for the next four years? What would you say to clients that are thinking about how much cash do I actually taste?
SPEAKER_01You know, to say three to six months worth of repayments is uh as a rule of thumb, if you weren't getting rental from your property, do you have three to six months worth of repayments to cover those repayments over that period of time? Right. Because you know, the in reality is your your properties are rarely going to be vacant for that period of time and they're not all going to be vacant at once. But if we've got that buffer, if things come up, if expenses come up, if you've got that, is just give you that peace of mind that you can hold the property for the long period of time. But you know, I think one of the things that's important is there's three journeys, right? In terms of if we look at, you know, the the property and and we look at the you know the um the journey in terms of property investing, and I sort of draw this out for for clients, you know, quite often and saying, you know, there's there's three phases when it comes to property investment. All right. So we've got the the first phase, um which is your accumulation phase, okay. We've got the the accumulation phase here, and and so this uh this is all around you know acquiring as many properties as we possibly can. And quite often we we come up with a goal, all right. So we we come up with a goal and it might be an income goal or it might be a net asset position, right? And the aim is to get to that goal as quickly as we possibly can. Right. And so what this quite often means is is we will have some negative cash flow in terms of that, because you know, and again, you guys are mortgage brokers quite often, they're using the equity, so they're borrowing 105% of the the property, um, because they're they're borrowing all the the costs as well. So at this period in in their portfolio, they've got some um negative cash flow, right? So then you know, the next phase, and as being in um in the market for as long as I have in terms of the last 20 years or so, um, you get to a point where you know once they've built their portfolio, they want to consolidate, right? And so the the aim of consolidation is to um is to get to the point where they're they're doing some making some moves within their portfolio where they're consolidating, where they're getting to the point through natural growth and through you know manufacturing some cash flow where they're getting to the point where they're they're proper they're they're getting closer to achieving their goals, but they're balancing their cash flow, right? So, and you know what types of things, and I guess you guys see it from your point of view as mortgage brokers, right? What are you seeing where people are balancing their cash flow? Granny flats, granny flats, some might even move to commercial, some might move to commercial, um, some may sell down some properties to pay off some debt uh that will then, you know, or sell off some debt to give them some bigger cash flow buffers, right? So they're balancing their cash flow in that consolidation phase. And then if we look at, you know, the the the final um phase is the retirement. Right.
SPEAKER_02On the beach.
SPEAKER_01Yeah. So um so they're they're on the beach where this is where we've got the passive income. All right. And this is, you know, why people get into property investing in the first place. And again, you know, through the strategies that we've done in the consolidation, whether that's commercial properties, whether that's granny flats, whether that's selling down the portfolio and living off the cash that they've invested in other means, that we get those, um, that sort of passive income, which is the long-term journey, right? So understanding where clients are at on this journey is very important. Right. And so, you know, during the accumulation phase, I might not spend $200,000 building a granny flat or doing those things because I want the money that I would have spent that to be the deposit on my next property because I want to get to my goal. I don't want to focus on doing some of the activities that make sense in a consolidation phase. So I think, you know, one understanding what the client's goals are, where they are in this phase, is gonna make um that important. Frank, do you want to sort of talk to this a little bit?
SPEAKER_03Yeah, just to add to that, Ross. So, you know, some of the things we also see happening during that accumulation phase. So there's quite a lot of equity strips. So someone's loan, like if you look in their bank account, um, online banking, it's it's gonna look quite messy. You're gonna have a lot of little loan splits where they've taken equity uh to buy the next property. And uh just to talk to that buffer as well, um, you did mention like three to six months, but there's no single answer that is right for everybody, right? So if we look at really what is the purpose of that buffer, it's really to protect that client from becoming what we would call a force seller. Right. So it's not just if the property goes vacant, um, what if there's some health issues or one of the one of the borrowers can't work for a period of time, how long can you hang on to? Right. That's that's really what I think someone really needs to think about in terms of what you know how what what's the right buffer for them. Now, when we move into uh consolidation, so you mentioned some of the things about um this is really optimizing, isn't it? People might be optimizing their loan structures, um, restructuring for simplicity. So in the accumulation, we had all these little equity releases, we might consolidate them back into the main loans against each property. Um, and then as we go into retirement, now this this is where they may actually exit some of those assets, and uh it's all about maximizing return.
SPEAKER_02Yeah, I think this is key, Ross. And I think I liked how you've mapped it out here because I've seen clients that are in accumulation phase maybe do a granny flat too early. And so they've used that fund that it's tied up in construction for 12 months and they could have bought another asset during that time. But I think you know, a lot of people think, well, how many assets do I need? And I think it's it's a lot less than people think if they map it out, and so it may only be five properties, but I think in that accumulation phase, it's key to focus and not get that shiny object syndrome. I think what I see a lot with our clients is sometimes they get two properties, they're like developing, I want to do developing now, you know, and it's like, well, the goal is to get to five properties, and then we can move on to each stage, and I think those stages are key, uh, and it's it's uh in stages for a reason, and you've probably seen it many times as well, is that people want to jump to retirement before they even have accumulated. Exactly. So I think it's key to follow these steps that Ross has laid out so clearly. Uh, Ross, I think it's clear that we can talk a lot about property uh and your experience, like you said, 2011, uh, since you've first bought your property and uh you've given us uh a lot of wealth and not to be fearful, especially in this market at the moment. Uh, but we're really grateful for you coming on to this episode, and no doubt we'll uh bring you back on to go even deeper uh to see what else is happening in the property market at that time. But thank you, Ross.
SPEAKER_01No worries, pleasure, guys.