Many people go through life envious of the success of others. But what they fail to realise is that successful people, and especially those who reach the upper echelons, spend their lives working hard to achieve their dreams. While there’s no proven formula, there’s no denying that many of the people we admire share common qualities that helped them get to the top – and stay there! Hear what they are from Michael Yardney.
Paul Nugent explains why buying an investment property and buying your own home are two very different things. He talks to us in response to an email question from Bryce who is struggling with his wife as they have differing views on what to buy.
Owning your own four bedroom house on a decent block of land with a big backyard and outdoor swimming pool used to be the quintessential ‘Great Australian Dream’. But with rising property prices and increased living costs, that dream is being redefined. Social researcher Mark McCrindle expands on this topic.
Our feature guest this week is John Fitzgerald. John is the founder and CEO of Custodian Wealth Builders and helped thousands of Australians begin wealth building and achieve financial freedom. John’s main qualification for teaching people how to build wealth is having built wealth himself. Hear his story.
Those looking to get a piece of the Australian dream of buying a home are still falling victim to a shadowy scam commonly called rent-to-buy deals. So why – if the prices are over inflated and there is no legal security over the property – are these people shelling out thousands upon thousands of dollars and more importantly is nothing being done? Great questions that we try to get answered today by Associate Professor of Law at Curtin University Eileen Webb.
The great Aussie dream is being redefined – Mark McCrindle
Kevin: It looks like the great Australian dream of owning your own home, on a big block of land, having a nice backyard, the outdoor swimming pool, whatever it is you wanted may just be starting to fade. Rising property prices and increased living costs, that dream needs to be redefined. To help us understand the profile of the typical Australian property owner or property buyer now, Mark McCrindle joins me. Mark, of course, is a social researcher, commentator, and principal of McCrindle.
Mark, thanks for your time.
Mark: Thanks, Kevin. Great to be with you.
Kevin: How are we defining Australians now, or young Australian, I guess, Mark?
Mark: Well, there are a fair few challenges facing that next generation personally. And it’s a great thing. They’re more educated. They’re staying at university longer. They completing more education. The only downside of that is that it does mean they’re not starting their financial life until later than their parents did, and they’re starting their financial life with a study debt to pay off, which their parents didn’t have.
Kevin: Yes, that’s true.
Mark: So in a sense, they’re further behind the economic eight-ball, if you like, than their parents were at the same age.
Then, of course, it comes to buying the home, and we all know the property prices and the challenge there. People say property prices are up but wages are up, too, and that’s true, but not at the same rate. If you look at average wages compared to house prices, that ratio continues to rise.
Now, nationally the average house price is ten times average full-time annual earnings, whereas four decades ago, it was about five times average earnings. So that’s the challenge facing young people today.
Kevin: What is the average earning in Australia?
Mark: If you look at what they call the average, it’s $78,000 per annum. That’s the average adult full-time earnings. The only problem with that is it’s a bit overstated, because that’s average. They take everyone’s earnings, divide it up by all workers. The midpoint is quite a bit below that, because if you have a lot of big income earners and you average it out, it’s going to bump it up a bit higher than it is.
The median – the middle point in the earnings – is more like the $58,000 mark. It’s a bit under the $78,000, but that’s roughly where it plays out. I guess, you’d almost say around the $60,000 mark if someone’s working full time; that’s the midpoint.
Kevin: What about retirement age? Is that likely to extend out a bit, Mark, do you think?
Mark: Certainly, that’s the policy. For a male it’s been 65 ever since the Commonwealth Age Pension Act was passed more than a century ago, but we now have legislation that is going to push it to 67. I think that that’s just a start. I think it’ll continue to push back. That’s access to the pension. It won’t kick in for a little while before we get to 67.
But, I think, the reality is that people recognize they’re not only living longer, with longer in retirement to fund, but they’re younger longer. They’re a bit more active later in life. I think people won’t want to retire in those early to mid-60s, will certainly downshift from a full-time role, but we’re already seeing it, that they’ll work a little bit later, keep a foot in the work life, if you like, until probably well through their 60s.
Kevin: A couple of things, I guess, whether or not we trade off those backyards for balconies and look at living in apartments closer to the city, or we, in fact, really harness the energy of the Internet and move to some of the more regional areas where property is affordable. But quite apart from affordability, Mark, what else are Aussies looking for in their houses?
Mark: Well, Australians are very attached to, still, that dream of owning their own place. It’s quite strong. It’s quite different to what you see in Europe where people are happy to be lifelong renters and there’s more of a culture of that. In Australia, people want some ownership, even this next generation coming through.
And, yes, it’s harder and it can’t happen on one income now; it requires two. Often mom and dad have to help those young adult children get started. But nonetheless, they want a starter place and own it.
As you said, it might not be that block of land and a house. Increasingly, it is going to be that unit, it is going to be the apartment. That’s in our largest cities. The majority of all new housing approvals are in the unit and apartment category compared to the detached home category.
But, we still want to own, which is a great thing, because we know historically that home ownership has been the bedrock of building an asset, building net worth in Australia and continues to this day to be the case.
But we’re seeing changes, as well. We’re seeing people get a home a little later in life. We’re seeing, as you said, people move to the regions, and the growth of the regional areas is quite phenomenal. In Queensland, Toowoomba and the growth there, and, obviously, the cities right up the coast continue to grow.
We have the growth of not just the coastal cities around Australia but the inland regional areas – the Ballarats and Bendigos, the Albury-Wodongas, the Wagga Waggas, and the like. So that’s been a bit of a trend – the resurgence of regional Australia. Again, as you said, not only because of affordability, but the access to the Internet, [5:03 inaudible], people can work or run a business from wherever they are.
Kevin: I’m talking to Mark McCrindle.
Mark, you made the point there about lifetime renters. There’s nothing wrong with that, and in fact, I think there’ll be a lot of investors who’ll be saying, “Well, that’s great. We like to see people become renters because we need someone to be able to rent our properties.”
Mark: That’s right. To get a bit more stability in renting is important for not only the renter; it’s great for the landlord and, of course, it’s great for the community as well. In Australia, the average renter – we know this from the census data– stays 1.8 years per home. That is a lot of churn, particularly if people are renting for a long period of time. That means they’re moving to a lot of homes, which means you don’t get a sense of belonging and connection. You keep moving to new shops and new community organizations.
It’s hard to build community when you’re staying less than two years on average, and a lot of people – to make that the average – are staying a lot less than that. So, yes, if we can develop a culture where it’s a little bit more set up for people to stay longer and they’re encouraged by their landlords to do so, that’s going to be better for all concerned.
But the reason that it is so low is that people don’t so much care because they’re staying in the rental period of life until they save up for the deposit for the mortgage for the home ownership. So we still have that strong channel in Australia from renting until people can then move into owning.
Kevin: Final point, I guess, is wealth distribution. We’re saying that the current generation probably not as wealthy, in fairness, but they are going to inherit a fair bit of wealth, aren’t they?
Mark: They are. If we look at the parents of today’s young adults – so the parents of the mid-20-somethings – they are the younger baby boomers, in their 50s through into their 60s, and they have the highest net worth in Australia. A 55-to-64-year-old household has a net wealth of $1.2 million. It’s the highest that it’s ever been.
And that’s the average net wealth. You have a lot of households, obviously, above that; some, of course, below that. But $1.2 million, now most of that or certainly much of that is tied up in the family home, a lot more in superannuation. So that’s where it is.
But nonetheless, that’s a pretty good foundation for retirement, and it does allow a little bit of money there, some potential liquidity if they downsize to help their children out, as well. That’s what we’re starting to see.
And if they can do well – and keep in mind, the mid-50s to the mid-60s are still earning, they’re still wealth accumulating – if they can build that nest egg a bit further, within a few decades, a fair bit of that – if not most of it – will be passed on to the next generation, and it will represent the biggest inter-generational wealth transfer Australia has ever seen. Probably about $3 trillion will be transferred in wealth between the generations over the next three decades.
Kevin: We out of time, Mark. But, thank you so much. Check Mark out on his website. There’s a huge amount of information there. Great information for you to read. The Web address is mccrindle.com.au.
Mark, thanks for your time.
Mark: Thanks again, Kevin.
Beware of ‘rent-to-buy” schemes – Eileen Webb
Kevin: Well, here’s a timely warning for you. I read a brilliant piece that was written recently about how many Australians are still falling prey to the rent-to-buy schemes that we see plastered all over telephone poles and in the classified section of the newspapers. The article was written by Associate Professor of Law at Curtin Law School at Curtin University, Eileen Webb, who joins me.
Associate Professor, thank you very much for your time. Tell me a little bit about how these schemes work.
Prof. Webb: The easiest way to look at them or understand them is to compare them to a regular bank loan. With the standard bank loans, you have land being transferred to a purchaser upon settlement. The mortgage is noted as a charge on the title but the purchaser is acknowledged as being the owner of the land.
Now, this never happens with these fringe lending schemes. The land won’t be transferred to the purchaser until it’s paid off in full, and you allegedly pay off your home by simply paying rent for that period or until the property is refinanced.
The problem is that the so-called purchaser never actually has an interest in the land. You’re like a renter, and so if they default, the vendor can simply say, “Oh, you’re in breach of your contract.” They lose everything that they’ve paid and the opportunity to buy the house.
Kevin: Is there a record of the deal anywhere that it shows that the renter is, in fact, buying the home.
Prof. Webb: No. This is one of the big issues with this. Everything is done via contract. And again, it depends on the particular arrangement. Some are quite well documented, but as you would imagine, the contracts are all in either the vendor’s and often the broker’s favor.
The basis of the agreement is the contract, so there’s no transfer of title. Arguably, the perspective purchaser could lodge a caveat, but it seems nobody ever does, and there simply is no interest in the title.
What you could do is you could rely on that contractual right and you could try and proceed in a court, but who has the time and the energy and the money to do that? Particularly when the people who were targeted by these schemes are often challenged economically to begin with.
Kevin: Exactly. That’s the point I’ll come to in just a moment. In the article, you also say the Consumer Action Law Center has seen no examples of successful rent-to-buy deals anywhere. How can this be legal?
Prof. Webb: It’s legal because it hasn’t been made illegal. Basically, they’re operating in this twilight zone. Where the problems arise with the law is that these sorts of things are regulated, if you like, across a smorgasbord of state and national law. Within each state, you have the state government being responsible for property laws and the carriage of much of the consumer law relevant to that jurisdiction. Then you have the national credit law, so you have national laws in relation to responsible lending and the National Credit Code.
Now, what is happening is that first of all, many of these transactions are falling through the cracks. Just a quick example: many of the brokers who are involved in this area are not licensed and therefore, if they’re not licensed, they’re not being caught by the national credit laws. Similarly, other transactions just simply fall through the cracks, so they don’t fit within the particular state legislation, they don’t fit within the national legislation.
Of course, it’s inconsistent across the country because one of the joys of being in a federation is, of course, we have a lot of different state laws. In some states, the consumer protection authorities have actually been quite proactive, so I’m very happy to say in Western Australian they’ve been very proactive with going after these guys, but in other states, there isn’t as much opportunity to do so.
Kevin: How widespread is it? Do we really know?
Prof. Webb: No, we don’t, because as Consumer Action actually noted in their report there’s very little usable data because the thing is the property doesn’t change hands, you don’t pick that up, and you don’t get anything from the consumer protection agencies unless they’re following up a complaint. You don’t get anything from land titles. You don’t get anything stamp duty offices because, again, you haven’t got these things changing hands.
What we do have is evidence that legal services and consumer organizations and the consumer regulators are seeing more and more of these transactions. So I guess you’d say we have anecdotal evidence of an increase in these types of transactions.
Also, too, there is an unhealthy interest in getting involved in these schemes. People are actually encouraged to become brokers within these rent-to-buy schemes by very high-profile promotors, and they tout it, if you’d like, as a way of getting rich quick. People get attracted by this and they go into these schemes, and if even a small proportion of numbers of people who do these courses actually go out there and become brokers, that will lead to a very significant number of these transactions.
Kevin: Is it only a matter of time before this does become illegal?
Prof. Webb: One of the recommendations of Consumer Action Law Center… And I can’t speak, obviously, on behalf of Consumer Protection in Western Australian but I’m sure that given our experiences over here, they would be applauding this. Look, they really should be banned. They’re of no discernible consumer benefit. We haven’t seen any successful rent-to-buy schemes and most vendor finance schemes fall over.
The idea behind the rent-to-buy is that at the end of the rent-to-buy period, the potential purchasers refinance. They simply are not able to refinance because they’ve paid too high a price for the property, they’re in low-growth areas, so they haven’t got any equity to offer a mainstream lender, and so after the five-year period, they pretty much lose everything they’ve paid and have to walk away.
Now, the other alternative is if we strengthen regulation of these contracts. So basically, we should ensure that if these transactions are brokered by intermediators for profit – which is a fancy name for brokers, obviously – the law should be amended to make sure that the National Credit Code will apply and we don’t have these unlicensed people falling between the cracks and us not being able to prosecute them.
Also, too, what we need is that the monies that are paid by the prospective purchaser should be held securely. At the moment, it’s just going to the broker and back to the vendor or going directly to the vendor, and it can be used as that person wishes. Basically, it needs to be held securely on behalf of the buyer until such time as the property settles – which it invariably doesn’t – or that if things go wrong, the buyer can recover any amount that they’re entitled to if the deal is not completed.
Kevin: Well, it certainly is an area that needs to have some legislation to protect people, I think, because you rightly said, the people who are attracted to this are those who probably aren’t best equipped to handle it.
Prof. Webb: It’s tragic, and I think what’s going to happen, too, is that we have this perfect storm, if you like, because housing affordability is decreasing because you have increasing casualization, we have rising defaults, job losses, and so on. You have problems with people financing loans and actually being able to get mainstream loans but you also have decreasing home values, so you have vendors who are really worried about selling their own house. They’re attracted to these schemes, as well, because brokers will say them, “Well, look, we can get you more than you could selling it through the regular market.”
One thing I should emphasize is that often vendors in these situations aren’t necessarily the bad guys; the brokers in the middle are often the ones who are causing the most trouble and are causing us the most concern.
Kevin: Absolutely. We’re going to continue to look into this, as well, but I want to thank you for joining us, Eileen. Thank you very much for your time.
Prof. Webb: My pleasure. Thank you.
Successful people leave clues – Michael Yardney
Kevin: Success definitely leaves clues. If you follow a successful person, you’ll pick up lots of really good information, if your antenna is out and you’re looking for it. Probably one of the most common questions I’m asked is “What makes a successful investor? Why are some people more successful than others?” Well, there are some great lessons, and Michael Yardney joins us to talk through those with us this morning in the show.
Good morning, Michael. How are you?
Michael: Hi Kevin.
Kevin: I know you’ve made a study of this, and you’ve written several books about it, as well, and that is, what makes someone very successful? They do leave clues, and there are some common traits, Michael, aren’t there?
Michael: Yes, there are. Now, of course, everyone measures success differently, so I’m not necessarily talking about how big your bank balance is or how many properties you have in your portfolio or how big your share balance is – even though a lot of people do measure success in a monetary way, don’t they, Kevin?
Kevin: They do, mate. Yes, exactly. So what have you found, then?
Michael: What I’ve done is I’ve studied, I’ve learned. I’ve actually mentored over 2000 people in the last ten years, so I’ve seen those who’ve been successful and those who haven’t. Yes, there are some common traits, so let’s go through them.
One of them interesting is that a lot of the successful people start their day early. They’re early birds. They’re earlier risers –and fancy people like Sir Richard Branson, Robert Iger, the Disney CEO. Lots of people wake early and they actually take advantage of their time in the morning – the extra hour or two – to get things done in an efficient way, Kevin.
Another thing that a lot of successful people do – in fact, all of them – is they read. They understand the power of reading today. It’s also, I guess, passed on to podcasts, where people are just continuously learning. It helps them learn from the mistakes as well as the successes of others, and that opens their eyes to other possibilities.
Kevin: Interesting that they read, Michael. Any examples there of people who you can cite as good readers who have been successful?
Michael: Well, I’ve heard that Bill Gates reads for an hour as part of his bedtime routine. J.K. Rowling, the first ever billionaire author, read everything she could.
Kevin: Oh, was she really? Is that right – she was the first billionaire author?
Michael: She’s done particularly well, Yes.
Kevin: Oh, okay.
Michael: Albert Einstein. In fact, all successful people read. Today it’s not just hardcopy books, as I said, but there’s so many ways of giving yourself energy and motivation by looking at what others have done.
Kevin: Okay. Well, they get up early. They read books. What else do they do, Michael?
Michael: They actually get going. They actually have all the resources they need, and so they create a daily habit of doing something.
They also keep themselves fit. They understand the importance of their health as part of a balanced life, so you’ll find that many of them workout and exercise. They keep moving. They take a break during the day to walk, as well. They recognize that one way of being rich, one way of being successful is having health, Kevin.
Kevin: What about the other end of that: how do they relax?
Michael: Well, they understand the importance of balance. So despite getting up early and despite being active during the day and doing things, they also recognize the power of relaxation, meditation, taking time out, balancing their life.
Now, it’s not always balance day-by-day, Kevin, so often they work really hard and then they take long holidays, or they work really hard and take some off over the week. When you look at them hour-by-hour, day-by-day, the balance may not be there, but if you look over a long term, it’s the only way you can keep going, Kevin.
Kevin: Michael, what separates professionals from wannabes?
Michael: Well, professionals work even when they don’t feel like it. There are lot of examples of people who have done well and persisted on when the average person would give up. So they’re dedicated, Kevin.
They also practice. They get to the top of their game by doing the same thing over and over again. You’ll never become an expert by doing a hundred things once, so they do one thing and do it a hundred times until they’re an expert in it. I guess the way you know you’re an expert is if you can get reproducible results.
One way they do this is also eliminating distractions. They don’t multi-task. A lot of people think it’s good to multitask and they’re proud of that, but it’s been shown to be a very inefficient way of doing things, Kevin.
Kevin: I don’t multitask at all. I can’t do it. I’ve always thought that was because I was a male.
Michael: That’s what we’re taught – isn’t it? – and that females can, but in fact, it’s been shown… Even with the old story of disruptions with e-mails: if you’re going to do that, just set aside certain times of the day and just keep doing that, and don’t handle your e-mail or any other papers more than once. They tend to be very efficient and learn to minimize distractions.
Kevin, another interesting characteristic of successful people is that they dedicate time to giving back to their community, to charities; they volunteer, they donate. They not only donate money but they donate time.
Kevin, our joint good friend Tom Corley, author of Rich Habits, has found that 73% of the wealthy people in his five-year study volunteered for over five hours a month. And others do that, too. We know about the philanthropy of Bill Gates and Oprah Winfrey and Mark Zuckerberg; they all donate to different causes.
And it’s not because they’re already rich, Kevin. They started doing that long before they were rich, and if you don’t have money to donate, Kevin, we all have time that we can give back to the community.
Kevin: Just on that point, Michael, if I can just have my two bob’s worth just you for a minute, I’ve been doing this show, I think, for about ten years now, and without doubt, every time I ask someone like yourself to contribute to the show, to give us some information, it’s always on the basis that “I’m so happy to help. The more people I can educate, the more people I can tell about how to do this sort of stuff, the better.” That’s the giving nature, Michael, I’ve found.
Michael: It’s also the abundance philosophy, Kevin. If I buy a property, it doesn’t stop you buying one. If I buy some stocks and shares, it doesn’t stop you doing it. So passing on the information doesn’t harm me. If, in fact, it helps other people and improves their level of wealth and the community, I’m going to be living in a better place.
Yes, you’re right, Kevin. The only reason I know what I know is because other people helped, taught me, educated me, so that I see it as my obligation to do it, Kevin.
Kevin: They’re very goal-oriented, too – aren’t they, Michael? – these successful people.
Michael: Yes, they are. They have goals, they write them down, they know where they’re heading, and then they keep on track. Now, of course, you don’t have successes every time, so they’re also able to get up one more time than the average person and start it all over again, recognizing that the setbacks and the failures are just a normal part of entrepreneurship, business, and property investing, Kevin.
Kevin: It’s a great insight you’ve given us there, Michael, those nine traits. But you know, the bottom-line to all this and a good mutual friend of ours, Michael Sheargold, once said the power of any great idea is in its implementation. It’s actually getting off your butt and doing something about it, isn’t it?
Michael: Kevin, I’ve often used Michael Sheargold’s word in that regard, because I have had over 2000 people go through my mentorship program, and they’ve all said how much they’ve learned and how good it is. Some of those people at the end of the year program, have changed their lives. They’re the ones who’ve done something. Those who said, “Hey, I really liked, I enjoyed it,” but haven’t done anything, they’re back to where they started.
So it’s not the information. You’re 100% right; it’s the implementation of it.
Kevin: That’s absolutely right. And on that note, I’ll implement and get on to the next interview. But Michael, thank you very much for your time. It’s been great talking to you. Michael Yardney from Metropole Property Strategists.
Michael: My pleasure, Kevin.
Learn from someone who has succeeded – John Fitzgerald
Kevin: Our featured guest this week is John Fitzgerald. John is a renowned property expert, public speaker, and philanthropist. He’s had decades of experience in real estate, as you’re going to hear in our chat.
Founder and CEO of Custodian Wealth Builders, John has helped thousands of Australians begin wealth building and achieve financial freedom. Today, Custodian Wealth Builders is one of Australia’s most highly respected property investment companies and has helped hundreds of Australians, thousands maybe, become millionaires through effective wealth building.
Now, John regularly conducts his wealth-building workshops across Australia, educating people, using his successful strategies that he’s used to build his own wealth. He joins me.
Hi, John. How are you?
John: Kevin, great to be with you again.
Kevin: It’s been too long.
John: It’s a fantastic job you guys are doing in putting all that out there to people. I think it’s great for people just to tune in and just be aware of not just what’s out there but education, education, education. We just need education. It is important.
Kevin: It is very, very important as we’re going to hear about your development. John, born in Melbourne, I believe, 1963, not giving too much away there.
Kevin: Completed secondary school in Ballarat.
John: Yes. I actually grew up in Moorabbin in Melbourne. I was one of five kids, and dad died when I was eight in a car accident. So mom shipped the three older boys off to St. Pat’s in bloody Ballarat, which was the most coldest place in the world. I couldn’t get out of there fast enough.
I left there at age 16, and I’d never actually been outside of Victoria, so the first thing I did when I left school a month after was hitchhike up to Queensland. I think I just did it to thaw out. If any of your listeners from Ballarat, they’ll know what I’m talking about. Those winds go straight through you.
I got up into Queensland at age 17. I started working in real estate when I was 17. My mentors – and I really credit my mentors with everything – were Jewish, mega wealthy, hundreds of millions, billionaires, and they just taught me the basics of real estate and also the basics of success.
To me it comes down to two things: success is just repetition and there’s only truth in numbers, and that’s what they taught me day one. They said to practice repetition, you have to have good habits. Just interesting little things like that that are important.
Kevin: When you came to Queensland, you would have arrived around about the time when the boom was on, I guess, if that’s my understanding.
John: There was a 1980 boom, and it was interesting because, being in property yourself, you study cycles. And the market, studying the cycles, boomed really in Sydney in ’78 to ’80-81. Queensland and Gold Coast particularly went through same sort of cycle a little bit later, but certainly I was at the tail end. I got in 1980 and really got my teeth into it in ’81, ’82. But then there was quite a significant downturn and a recession in the 1980s that lasted from about ’81, ’82 right through until about ’87, ’88.
Kevin: I got into real estate in ’88, and that was actually a very good time to be in real estate because you learned some great skills. It was a pretty tough time having to tell people that their properties were worth less than what they’d paid for them some five or six years earlier. It was an interesting time to cut your teeth.
John: I’ll tell you a funny story about that because a lot of people talk about all that. I had a lot of property in 1986, ’87, ’88. I talk about property and I talk about specifically land per square meter. RP Data and all the people who do median house price, unit price, and all those sorts of things, no one ever gets down to really the land price per square meter, but I’ll go back to land per square meter.
I was buying land per square meter in ’85, ’86, ’87 for about $16, $17 a square meter. This was in Brisbane, in and around Brisbane – about $16, $17 a square meter.
John: And in 1988 it was still worth $16, $17 – just nothing happening after two or three years. Like you, everyone was despondent. Everyone was scratching their heads. “This is no bloody good, blah, blah, blah,” and all that sort of thing.
Then all of sudden, someone must have rung a bell at the end of 1988. I think it was when Expo started, and the Japanese started coming into the Gold Coast and South East Queensland. That land doubled in less than one year. It doubled in less than one year. It went from $16, $17 a square meter to over $30, $35 a square meter.
We saw exactly the same thing in the outskirts of Sydney just last year, in 2015, interestingly. I know there’s been a boom going on in Sydney. We bought about 400 blocks of land, and we put small houses on them. We bought land for around about $400 a square meter, and now that land is $1200 a square meter. It’s actually tripled in the last three or four years. At the same time, the Sydney median has only gone up by probably 65%, 70% and units have gone up by 25%.
Yes, ’88, ’89 was a massive boom particularly in Sydney, but a massive boom in South East Queensland on the back of not only the cycle turning over and recession and everyone kicking back in but also the Japanese coming in and buying.
Kevin: Interested to hear from you why when you arrived in Queensland, you choose real estate – or did real estate choose you? Was it just so much in your face that you really had to get involved in it?
John: I ask myself the same thing. I chose real estate because of the people in it. I really actually like the people in real estate. They’re positive people. They’re out there doing things. They’re not negative and they’re not not doing anything. They’re self-motivated people.
In real estate, you get paid by what you generate, and I actually liked that. I didn’t want to be on an hourly rate, at $8 an hour or whatever it was back then, where if you work hard, you get $8 an hour, and if you slack off, you still get $8 an hour. I just didn’t like that. I still don’t like it. I still don’t like the concept of hourly. I find that a little bit demotivating in a lot of ways.
I looked at an industry that would compensate me for how hard I worked and how smart I worked, as well. Real estate is good like that. The people who you migrate to are really great people – self-motivated, building, developing, creating, pioneering – and I like that sort of people.
Kevin: You left school at age 16, jumped on a car… Well, no, you hitchhiked to Queensland.
John: Yes, I did.
Kevin: By age 20, you’d syndicated well over $5 million worth of developments, and you’ve gone on. Your company now, JLF Corporation, you’ve been responsible for transacting thousands and thousands of properties. You’ve developed about 8000 to 10,000 yourself, have you?
John: Well over that now. I’ve probably done 12,000 properties. I’ve bought, sold and, developed over 12,000 properties. We do 500 to 1000 a year, every year. I try and build my own portfolio, so I have a massive land portfolio as well myself. Really, what I do is I tell people to do what I do and then they buy alongside me, most of them.
Kevin: Just in doing some searches that I’ve done over the years, the name JLF comes up quite often, JLF Corporation. How many companies are involved in that now?
John: I have about 26 companies, and I’d actually like to have less, to be honest. In the ’80s and the ’90s, your accountants and solicitors were saying “Set up a company – protection, tax,” all that sort of thing. It’s actually simplified itself a little bit more now, but we still have a fairly complex group structure. We have assets and businesses in four states of Australia. Then we have a finance business, funds management, and various other things we own and operate as well.
It is a little bit more convoluted, but I like actually still getting out, walking over land, and still talking to clients about them building a portfolio, which is really good.
Kevin: Well, that’s what drives your business, isn’t it?
John: Just on that, Kevin, I have a great story to tell. We do a portfolio review for our clients, and some of our clients have 15 or 20 properties. I have a female client. She has a good portfolio. I sent her a review yesterday, and her properties last year alone went up by $554,000. We revalue their assets every year, and her properties have grown by $554,000. She has properties with us in Sydney, Melbourne, and Brisbane. The Brisbane ones haven’t grown as much, but Sydney has gone off the charts and Melbourne has gone off the charts.
I looked at that, and I thought, “How fantastic is that for her to have done that in the last year?” I really felt proud for her.
Kevin: There must be a lot of that, too, in your business that you see.
John: It’s great. It’s fantastic.
Kevin: You and I have spoken in the past about the book that you wrote, 7 Steps to Wealth. That’s the program that you’ve done. You deal with a lot of investors. Where do you see the majority of them go wrong with their strategy?
John: That’s the point. They don’t have a strategy; they just buy property. The numbers on people who buy an investment property are really interesting. About 8% of Australians buy an investment property. Now, 50% of them sell that property within five years, so that’s a mistake. Property is not short term, Kevin. As you know and I know, it’s long term. It has to go through a cycle.
The other mistake is that 50% of people who buy an investment property buy an apartment. I don’t really want to bag apartments, but if you’re buying property, the only component of the property that grows is the land. When you buy an apartment. you just don’t get any land content. They’re great to live in. Apartments are great for location and they’re okay for a lot of things, but as an investment strategy to build wealth, you really need the land and the land growth.
So when you look at it you say, “Well, investors 50% of them buy apartments and 50% of them sell within the first five years.” It’s not really a well thought-out strategy. Then you get to how many investors own two properties in Australia, and that’s only 2.5% of all Australians. And then how many are in four or more, it’s a fraction of 1%.
They’re the ones who I think have a strategy – the fraction of 1% of Australians who buy property. They have a strategy to buy property and use that property to buy more property and get some growth, to actually build wealth out of it. I think that’s the key.
Where do people go wrong? They just think, “I’ll just buy an investment property because that’s the thing to do.” It’s just like saying, “I’m going to put my runners and go for a run.” I think you’re better off sometimes thinking, “Well, look, what do I want to achieve from this because I don’t want to hurt myself?”
Kevin: I know, John, as part of what you do in your company, you’re an educator. I think as parents, we have a responsibility to educate our own kids about wealth, about how to build it from a very young age. Let’s go back to when you were a kid. What were the conversations like around your table?
John: My mom was actually really good. This is quite interesting. When dad died, he had a house halfway under construction. Then dad died while the house was halfway under construction, and mom’s accountants said to her, “Mary, you should sell that house because you’re not going to be able to afford that” – because dad had menswear businesses, a couple of shops that were going okay – “And you need to get in,” and all that sort of thing.
She said, “No. I’m not going to do any of that. I’m going to hold on to it. I’m going to finish the dream, and I’m going to do the hard yards.” She ended up taking a third mortgage on that house and really stretched herself, but it really did pay off for her. Then she went on and bought other property and worked out how property cycles and how you have to do the hard yards, you have to take a position, and take a longer-term position.
I think really what she engrained in me is do the work: do the hard work, take a position, and take a long-term position – and that’s really what I try and counsel people. A lot of people think, “I want to make quick money, so unless I make money within 6 months, 12 months, or 18 months, I don’t want to do it.” Really, it’s just a fool’s strategy.
People who are successful are people who persist and people who really do the hard work, the hard yards. That just sums up mom. The discussion around the dinner table was we have to share the food around the five or six of us because we’re living in this nice house.
Kevin: A very gutsy thing that your mom did.
John: It was.
Kevin: Who was your first mentor? Where did you draw your inspiration from? You mentioned there about when you first came to Queensland, it was the people you were working with in the industry. Would they have been your first mentors?
John: Yes. I had two great mentors I talk about. One was George Margolis. He started in real estate in the 1960s, built up a massive portfolio, owned a lot of property along Cavill Avenue in Surfers Paradise, and then made the classic mistake of selling the commercial property, which was income-producing, and putting it all into land in Gladstone.
He lost a lot of his portfolio but still kept his real estate office, his real estate agency, and a little bit of stuff. He still kept his good humor, his hard work, and his daily habits. He became my first mentor who taught me to do the hard yards.
My second mentor was a guy called Michael [14:56 inaudible] and he owned a company called Daneford Limited, and they built most of the high-rise on the Gold Coast but also massively developed a lot of Sydney and all around – office parks. They had $500 million dollars’ worth of projects on the go at any one time. Michael was a big visionary, and I think he gave me that big vision to look beyond yourself. He was the one who actually told me when I was 25 to set up a school for youth at risk.
I think the collection of George and Michael were just great inspirations to me because they were both people who were always positive, always looked forward, always got up in the morning, and they were self-motivated. I just think they were just good foundations for all of us.
Kevin: Have you got a mentor today?
John: Yes, I have actually. My great mentor today is Nev Pask. Nev’s in his 80s, and he’s Mr. Land in Australia. I think he would have developed personally more land than anybody else. I was honored that he let me interview him for the front cover of a magazine recently. He’s been in BRW’s rich list as one of the billionaires or close to a billionaire.
I really like him because he really is Mr. Land and he’s a very humble person. He’s a guy who I enjoy spending time with. Same sort of attributes – always very positive, always looking forward, very disciplined, self-motivated, just all of that – but a great land man. He’s developed in and around Brisbane, Melbourne, lots of land, and he’s got a great company that is run by his son Dean now.
Kevin: What do you believe are the essential qualities of successful people, people who are successful no matter what they do?
John: Look, I think first and foremost, it is important that you team up, that you surround yourself with other successful people – because success breeds success. The first thing is don’t try and do anything on your own. I have people around me and I’ve had people around me for 20 or 25 years, and you develop communication and you develop some good foundations with them.
The second thing is know your numbers. Data is really important, so know your numbers and base your strategy on numbers not on stories. So many people think, “I’ll buy a property there because I really like that area. I see new cafés going in, new this, new that,” all that sort of thing. But the numbers don’t necessarily support that. Because little café areas… And a good area is Main Beach on the Gold Coast. It comes and goes. It was trendy five years, and now it’s not because a new trendy area goes.
Base your strategy on numbers and you surround yourself with good people. When I say good people, good people who will test those numbers with you. They’re probably the two things that I notice about successful people – and I’ve met a lot of them. I’ve met most of the Australian property billionaires and they surround themselves with good people, and those good people are very good at numbers.
Kevin: John, we’re out of time. Thank you so much for spending so much time with us today. It’s been great talking to you, and all the best. We didn’t even get to talk about your philanthropic work, but congratulations on that, too. I know you’re a great giver to the community, as well.
John: Good on you, Kevin. It’s been great chatting, and I look forward to chatting again soon.
Buying an investment vs buying a home – Paul Nugent
Kevin: We’re going to address an e-mail that I’ve received from Bryce at Northgate who writes: “Hi Kevin. My wife and I are looking for an investment property, and we have very different views on what will suit us best.” Oh, goodness gracious. I’m going to get involved in a marital dispute here, I can see it.
“I think we need to look for a property that has either a great rental return or the likelihood of good capital growth, and I’m perfectly okay to look at the ugly ducklings of the property world. My wife thinks that we should be looking at properties as if we were going to live in them ourselves – meaning the properties should be modern, finished, in a fancy area – plus, according to her it should have a nice feel about it.
“So can you please settle the argument once and for all.” I don’t know if I can do that, but I’ll try. “Is buying a rental property any different from buying your home?” Well, the answer, of course, is yes. I’m going to seek some professional advice now from Paul Nugent, who is director of Wakelin Property Advisory.
Good day, Paul.
Paul: Kevin, how are you?
Kevin: Good, mate. Do you want to wade into this marital dispute with me on this?
Paul: Exactly. Is it a marital question or a property question? Let’s treat it as a property one, okay?
Kevin: I think we should. What’s your answer for Bryce?
Paul: It’s a very common question that people ask themselves when buying an investment property. In a perfect world, the ideal investment property would always feel like somewhere you might like to live yourself as well as stack up in terms of financial return, because then it would be very easy to spot those sorts of properties and both husband and wife would agree on what to buy.
Unfortunately, this isn’t always the case. In fact, it’s very rarely the case. Not every great investment property matches one’s own view on what makes good home, or vice versa. So as much as it pains me to disagree with your wife, Bryce, I think that you’re on the money. You have the right idea. The investor should set aside their own personal tastes and judge investment property purely on investment metrics.
Kevin: Yes. That’s very easy to say. Let’s talk about experience. If Bryce and his wife have really good experience, does that necessarily make them a good property investor?
Paul: Well, it can help, but it can also hinder, as well, Kevin. The sorts of properties that Bryce and his wife have been trading in over the years, are they investment-grade properties or have they been a series of homes? This is the problem.
When one is buying a home to live in there’s three major factors that one compromises on – how much money have I got, where do we want to live, what accommodation do we need? Whereas when you’re looking to buy an investment property, it’s purely a matter of looking for the sort of property that is in high demand and limited supply.
Now, that’s quite often a very different property to the sort of property that most people are used to either buying and selling or even living in. So, yes, it is very, very different.
Kevin: Paul, just listening to you now, I’m thinking to myself, “Okay, we have to take the emotion out of this and look at this as a business decision.” Does that mean that I can necessarily buy it purely off the Internet – I don’t really have to go there?
Paul: Oh, no. That’s a disastrous way to go. I know a number of people who espouse that, particularly over the last 10 or 15 years. Absolutely not. What works for buying any property – and particularly an investment property where it’s actually about getting the parameters right – is actually having an intimate knowledge of the market that you’re dealing with.
Only then do you know if you’re buying… Whether it’s a house or an apartment, it’s not just the suburb you’re buying in or the price range you’re buying in, but it’s the particular street, the side of the street, the position in the block if it’s an apartment. You need to take into account what’s going on next door, what’s going on over the back fence. You need to actually see the property to actually understand it.
So it’s actually a disastrous situation with these people who say that they’re going to buy something just by looking at the facts and figures and looking at some photographs over the Internet.
Kevin: Investment-grade property – which I think is what you were talking about earlier – is that just anything in a city or anything near a beach that’s going to be a fairly popular area? Does that necessarily make it investment-grade?
Paul: Well, it certainly would help if one was close to a metropolitan beach. But I think what really drives investment-grade property over the long term is capital growth, together with a balanced rental yield.
Now, the best way to get strong capital growth… And not looking for artificial growth that’s bestowed on a property by means of rezoning or some potential change in the area. The best way to get inherent strong capital growth is to actually buy a property that’s as close as possible to the CBD of a major capital city that you’re living in.
Now, that major capital city, yes, it would be great if it was Brisbane or Sydney or Melbourne or perhaps Adelaide or parts of Perth or Darwin, but it could also be a major regional center. Certainly, with the competitive nature of land use, if one is to buy as close as possible to the CBD without being in it and buying the right style of property, that’s of a consistent form of architecture, in a good residential street, it’ll be very hard to go past that.
Now, what drives that over the longer term, Kevin, is actually the level of amenity associated with that location – and by that, I mean proximity for perhaps village-like shops, good public transport, good access to freeways and major roads, good access to park land. This all really helps make an area desirable. Now, if you can overlay that with proximity to a good beach or proximity to a major tertiary institution, even better – absolutely fantastic.
Kevin: It’s been fantastic talking to you, Paul. You’ve been a great help. Thank you so much.
Paul Nugent has been my guest, director at Wakelin Property Advisory. Thanks for your time, Paul.
Paul: Been an absolute pleasure. Thank you so much, Kevin.