Imagine, if you will, that two years ago you had the opportunity to invest a relatively small sum of money in a property in a location that no one was talking about.   In fact, most people were talking that particular location down.  Would you do it?  Simon Pressley tells us the story of someone who had the guts to do it and it paid off big time.
Transcript:
Kevin:  Imagine, if you will, that two years ago, you had the opportunity to invest a relatively small amount of money in a property location that, well, no one was really talking about. In fact, most people were trying to talk it down. What would you do? Would you do it?
Well, Simon Pressley from Propertyology knows someone who did, and it’s a great success story that I wanted to share with you today.
G’day, Simon. How are you doing?
Simon:  Really well, Kevin. Thank you for the opportunity to share this amazing story.
Kevin:  It is an amazing story, and I think it’s one we can learn a lot from. Okay, walk us through it. Who was it?
Simon:  It’s a Sydney-based investor who reached out to us a couple of years ago. I’ll come back to what the actual results that this investor achieved, but how it was brought to our attention was just a couple of months ago, this same client contacted to us two years after we helped him buy, and he was in the middle of working with his broker to get a pre-approval in place so that he could invest with us again.
He contacted us with great excitement, and he said “I’m getting my pre-approval. The bank has revalued my property. We paid $395,000 for it. Two years later, it’s worth $540,000.” That’s an official bank valuation in only a two-year period, and this person has not spent a single cent on renovations or anything like that. That’s how we know it’s a factual valuation. We’re not talking about changing median values or anything like that.
But he also recalled that when he contacted us to invest two years earlier and we recommended a particular location, which was Hobart back then, it took some convincing because back then, Hobart was getting a lot of negative press and hadn’t done much for too long. And it’s fair to say he’s pretty grateful that he supported our recommendation.
Kevin:  Was there any hesitancy there from him when you suggested it?
Simon:  No, not hesitancy. I guess it was a surprise recommendation, but once we stepped him through what we knew about the market, why it performed poorly before, why we thought it was going to perform well in the future, it all made sense.
I guess the trouble is it’s very easy for members of the general public to get caught up in perception without actually focusing on the numbers. And the drivers. When we did that for this particular client, it all made sense. As I said, he certainly is very grateful that we brought Hobart back to his attention.
Kevin:  This is one of the difficulties I think a lot of investors have, Simon, and that is they need to take the emotion out of this, don’t they? You need to look at it as a business.
Simon:  You do need to look at it as a business. You need to get past whether you’d live there, whether you would or wouldn’t live there, because the objective of investing has nothing to do with that, of course.
It’s understanding what are the things that actually influence property prices and then looking at those things in isolation, stacking them up, and then forming a bit of a picture of how that might change in the coming years. Is it a good picture, or is it a not so good picture? When we did that with Hobart a few years back, it was a very exciting picture and that’s certainly how it’s unfolded.
This is also a great example of the power of leveraging. This particular property, Kevin, the purchase price was $395,000. The investor’s own deposit money, if you like, was $75,000, so that was their equity, not a huge sum. A bank loan of $320,000 obviously. But with what the property value has grown by, that equity has increased from $75,000 initially to $220,000 in just two years.
Now I’ve done the calculations for those listening to this interview. That’s a 290% increase in two years, from $75,000 to $220,000 in just two years. What would you have made if you put $75,000 in the bank for two years?
Kevin:  Yes, that’s the capital growth. Then, of course, you have the return on the investment, haven’t you? It’s returning money for you as well.
Simon:  That’s right. This is a really unique situation where Hobart has capital growth and extreme rental growth, so not only has his initial equity increased by 290% but the property is cash flow positive, so he’s getting the double benefit there. It’s putting money in his pocket each and every year, and the asset value is already grown significantly in just two years – and that market continues to grow.
Kevin:  I think I remember reading the blog article you wrote about this, and it’s getting a rental return now of almost $500 a week, isn’t it?
Simon:  Yes, that’s right. For an asset that was purchased for less than $400,000 and interest rates that look like remaining very, very low for many years yet, yes, it’s cash flow positive.
Kevin:  Hobart, of course, you’re the first person I know of to actually tip that market when everyone else was saying it’s not even worth looking at. Are there any more Hobarts on the horizon? I don’t expect you to name them, of course – that’s your IP – but are there any on the horizon?
Simon:  I would love to say there are dozens of them. There aren’t, in our professional opinion – and I hope we’re proven wrong – but there are a couple. There’s one market that we’re investing in at the moment that in the space of a few months, we’ve seen buyer competition go through the roof. We got in just at the start of the growth cycle, but I think we’ll be out of there by Christmas before it becomes public knowledge that this market is performing particularly well.
But yes, there are a few. And in any calendar year. there are always some. It just depends whether there are lots or just a couple. Here and now, there are just a couple we feel.
Kevin:  Are they regional markets?
Simon:  They are regional markets, yes. I can’t see any capital city in Australia producing double-digit price growth in the next year or two. Beyond that, anything is possible, of course. If it does happen, it’s going to be capital city markets that haven’t already been through a growth cycle.
So, in no particular order, it’s going to be the likes of Adelaide, Brisbane, Perth. Darwin has got too many troubles, I think. But those three capital cities, logic would suggest would be the most likely to have double-digit growth, but I’m not expecting it to happen in the near term.
Kevin:  If you’d like to know a little bit more, reach out and talk to the team at Propertyology. Reach them through the website, Propertyology.com.au, through our website, Real Estate Talk. That’ll take you there. Or you can ring them on 1-300-65-4070.
Simon Pressley, thanks for your time.
Simon:  Thanks, Kevin.