17 Feb Property industry leader talks about his mistakes + The future of property investing + Buyer beware of false reports
Property Industry leader Ben Kingsley is our feature guest this week as he talks about his earliest property investment lessons and how he nearly fell for a big mistake he now sees many investors make. Like so many of our past guests, Ben is very generous with the advice he gives which is drawn from his personal experiences.
A Melbourne start-up is capitalising on our love affair with auctions by developing an App to enable consumers to watch auctions either live or on demand from anywhere in the world. The App is called GAVL and with it a potential buyer can “virtually” attend dozens of auctions across several states over a weekend. GAVL is the brainchild of Joel Smith who tells us about it today.
A recent survey by the Property Investment Professionals of Australia (P.I.P.A) revealed the many and varied sources investors consult for advice, but since most property investors fail to achieve the financial freedom they deserve, and with less than 8% ever owning more than 2 properties, a better question to ask would be…Who should you ask for property investment advice? Michael Yardney helps with an answer to that question in the show.
Kylie Davis from Core Logic is fresh back from the USA where she attended the worlds largest real estate conference that focuses on the future of real estate and she tells us where it is all headed and about some of the innovations that are on the way to make it easier and more transparent to transact property.
Changes to the real estate sector in NSW that came into effect mid-way through 2016, require real estate agents to disclose all reports taken out by a vendor or potential buyer – usually building, pest and survey reports. Conveyancer Garth Brown tells us now that this has led to some agents and vendors supplying false reports.
The real estate experience of the future – Kylie Davis
Kevin: There’s a conference in America that seems to attract 4000 to even 5000 real estate agents and real estate professionals from all around the world. It’s called the Inman Conference. It’s done a couple of times each year, and there’s a lot of great information that comes out of it because it’s like a meeting of the minds – where’s the industry going, what’s going to happen, how will it be shaped in the future?
Kylie Davis from CoreLogic attended that conference. Kylie is the head of property services marketing at CoreLogic, and she joins as our guest to talk about some of the findings coming out of that.
Kylie, thank you very much for your time.
Kylie: Thanks, Kevin. Thanks for having me.
Kevin: Let’s have a look at this, because we’re going to talk about bots – which are robots – and virtual reality and lots of other things. What were some of the major takeaways for you from a consumer point of view as to how you see real estate changing in the future?
Kylie: I think the main takeaway for consumers, for buyers and sellers, is that real estate is going to start to get easier and less stressful. But the tradeoff for that is that you’re going to have to share your data with real estate agents.
What that means is that the algorithms and the artificial intelligence that’s sitting behind a lot of the portals and behind a lot of our apps like Facebook are going to come together and start to help you find the perfect property or identify information that will help you find a great agent.
Then there are going to be places you can go that both help you understand what the process is and make it really clear and understand where you are in the process and what the next step is so that you get a lot more transparency around how the transaction is going.
Kevin: Transparency is the key word, I think. As consumers, we’re already experiencing some of this. There are some groups who are getting information or who have information that we don’t even know they have in terms of who we are so that when we attend an open home, no longer do you have to give your name because it effectively comes straight off your phone.
Kylie: Yes, and I guess the information that comes off your phone then can be tied into other information that the agent might be aware of about you, which can then help them really help you. So, if you write down Donald Duck and a nonsense e-mail, there’s no point complaining about getting rubbish service.
Kevin: Yes, because that’s what it comes down to. It comes down to getting better service and allowing people to have a better understanding of you. But it goes even deeper than just agents getting this information, because if we’re sharing it on social media, social media is picking up on the things that we do, what interests us, and they’re reacting to that as well, Kylie.
Kylie: Yes. I’m a big believer in that the universe is sort of directing me in this way, and I guess one of the insights that I came away from Inman was “Gosh, it’s not the universe at all; it’s actually just big data that’s tracking what I’m doing and then directing content to me based on my preferences.”
What’s going to happen very shortly is when you start to exhibit behavior that identifies you as a buyer or seller on your computer or inside Facebook – and we’re already doing this – then you’ll start to see content around that space. That might be ads for companies that are active in that space, or you might suddenly start to see articles appearing in your feed about how to find the perfect house or “Seven properties with swimming pools.”
Information that is somehow tied a little bit to your search will start to pop up in your feed, and the purpose of that is to make it easy for you to find information that’s useful and to provide information that’s useful that will help you in that journey.
Kevin: One of the other advancements we’ve seen in recent times is virtual reality, and that’s becoming the reality – not virtual anymore; it is a reality – helping us make decisions about properties that we may want to buy.
Kylie: I think one of the biggest complaints that buyers have is that wasted time of seeing a property online or seeing a property in the paper and thinking, “Oh, that looks fantastic. I really want to go and look at that,” and then when they see it in reality going, “The way the bedrooms are set out is horrible, the way it flows into the kitchen. I thought it was bigger, and actually the photos make it look much bigger than it is. It’s actually quite small.”
But virtual reality allows you – from the comfort of your own home – to walk through that house or that property and really examine the features, to feel the flow, to get a sense of how big the rooms are, and to get a feel of the setting of the property – so which way it’s angled, what the street is like outside, if there’s an ocean view or something – to actually see what that looks like, even if the property hasn’t necessarily been built.
It gives you a much better idea as to whether it should be on your selection list to then go and see in reality, or it makes it easier to cross things off.
Kevin: One of the great advantages in virtual reality for agents is that they don’t have to make a decision about what are going to be the points of a property that will interest a buyer, because virtual reality takes care of that.
In other words, an agent making a decision that the city view is the thing that’s going to turn most people on when it probably won’t. But if that’s not something that you enjoy, looking at it in virtual reality, you’ll say, “Well, that doesn’t really turn me on, but I love the size of the kitchen,” as an example.
Kylie: Yes, and I guess agents will still sort of have to pick features to promote, but what it will allow you to do is if you’re interested in the kitchen benchtops or you want to really check out whether the appliances are Miele or Gaggenau, or you really want to examine the marble to see what it looks like, you can go into detail and really examine things quite closely.
And you can choose which things you want to look at. It is like being at an open for inspection and being able to really poke things without having to actually get in the car and go.
Kevin: Yes, we identified earlier in our chats how important transparency is going to be. I was fascinated. You were talking about Transaction Rooms. Tell me how they’re working.
Kylie: Transaction Rooms are a secure place online or in the Cloud where all of the documents pertinent to the sale – which might be the contract, it might be any building and pest inspection reports, it might be anything that you need to make the sale go ahead – are all in one safe, secure place, and the people who need to sign off on that information or sign off on those contracts are invited and allowed to see the parts of the transaction that are pertinent to them.
The outcome of that is that the buyer and the seller – on both sides of the transaction – have a really clear understanding of what stage the transaction is up to, what has to be done next, who has to do it, where the holdups might be. It makes that horrible period of settlement a lot smoother and easier to get sorted.
You don’t have to e-mail people whopping great contracts as PDFs and find out that the e-mail never turned up because the file size was too big. E-mailing things on contracts is always dangerous for security reasons anyway.
If one of the parties is overseas, you can get signatures without having to wait for them to come home or to find a place to go and sign off. Everything can be done regardless of where anyone is.
Kevin: Well, anything that makes buying and selling real estate easier has to be fantastic. Kylie, it’s been great talking to you. Thank you so much. Kylie Davis has been my guest. Kylie is the head of property services marketing and content at CoreLogic.
Thank you, Kylie. Great talking to you. Thanks for your time.
Kylie: Thanks, Kevin. Lovely to speak to you.
New App to help auction buyers – Joel Smith
Kevin: One of the most common questions we’re asked is “How do I get on with auction? What really happens with auction?” Getting around of them can be quite tortuous. I’m going to tell you now about a new app that’s just been created by a company called GAVL. The CEO for GAVL, Joel Smith, joins me.
Joel, tell me about the app and what will it do and why have you introduced it?
Joel: Thanks, Kevin. Thanks for having me on your show. The app really came out of a need for consumers, I guess. A work colleague of mine was in house-hunting mode, and he couldn’t be in two places at the one time. He’s based down in Melbourne and for whatever reason, most of the auctions in Melbourne are on at 11:00, 12:00, and 1:00. He found it hard physically getting around all the auctions at one time. It was that 21st century question, why isn’t there an app for this? So, we set about a task of developing one.
We found that the key or the secret or the reason there hadn’t been one before is that the issue was mobile-based broadcasting technology. There’s quite a delay in the technology – upwards of 10 or 15 seconds – and with the real estate, you can’t afford to have even a one- or a two-second delay.
We set about rectifying that problem and we built our own livestreaming technology in which we got the delay down to one second, which we think in any one’s language is live, and then set about building an application that allowed real estate agents to broadcast their core product, which is an auction, to a greater audience.
Kevin: Now, with this, Joel, is someone able then to bid online. If they’re not there, are they able to bid through the app?
Joel: There’s not bidding at the moment. But we will build features that will allow an agent the ability to talk to a buyer and communicate bids. As we know, at auctions, a similar process already happens, where you can have a buyer on a phone communicating their bids verbally to an agent or an advocate. In the same way, they’ll be able to communicate to an agent, but this time digitally, while being able to watch.
What we’ll be able to do to is we’ve just built what we call a bid-capturing technology. We’ve digitized the penciller’s role, and now, we’re able to overlay the bids over the screen. We have an in-built currency converter especially for the Chinese buyer and also some other interactive features where their agent is able to engage their buyers.
Kevin: You’d need to tee this up with the agent so that you can actually watch it, wouldn’t you? There has to be someone at the other end?
Joel: Yes, the technology has been built that it will all be done by the agent. It’s quite a simple setup. It’s all mobile phone-based streaming technology. The one constant at every auction is the agent, and we all know they have a mobile phone. It’s literally a 10-second job to set a tripod up, mobile phone on the tripod, two presses of a button, and they’re live streaming.
From a consumer’s end, they just download the app or they can jump on a PC computer if they have time. Literally download the app, search through our app. The app’s been built in a similar way to an REA or a Domain, where agents upload all their properties, all the photos, property details. A consumer can search, shortlist, and they’ll get a notification when the auction goes live. And they can sit there and watch.
Kevin: Okay. How do we get a hold of the app, Joel?
Joel: Just in the app store. We have released the app for the iOS. It’s new with Apple. The Android app has been released, so Google Play. If you don’t have one of those phones, you can obviously jump on and watch it on the website.
Kevin: Yes. It’s aptly known too, GAVL – as in auctioneer’s gavel. Very easy to remember and very catchy name too, Joel.
Joel: Yes. We were quite surprised when it comes to the challenge of picking names when you try and find something short and catchy. We thought we’d have a little bit of a play on words there with the GAVL, and the feedback, so far, it’s been very good.
Kevin: Yes. Certainly anything that’s going to increase transparency for auctions and get the word out there about auctions to get more people participating is something we’d certainly support. The app is called GAVL. Already 500,000 auctions have been viewed, so it’s well and truly underway.
Joel, thanks for your time today. Also, congratulations on the move. I think it’s fantastic. Well done.
Joel: Thank you, Kevin.
Who SHOULD you ask for advice? – Michael Yardney
Kevin: There’s a recent survey done by PIPA, the Property Investment Professionals of Australia. They asked the question about who do you ask for property advice? Well, with so many property investors not necessarily succeeding at their portfolio, maybe we should ask the question who should you ask for property investment advice? That’s the question I want to pose now to Michael Yardney from Metropole Property Strategists.
Good day, Michael.
Michael: Hello, Kevin. That’s a good question, because there are so many different people you can turn to. Sometimes, it’s confusing.
Kevin: I was going to say you’ll probably say, “Well, they should ask me.”
Michael: Well, yes, that’s a good point, isn’t it? They could, or somebody who’s a professional advisor. Maybe we could have a look at the various options of who they could ask, and we’ll end up with who they should ask. Would that be okay?
Kevin: Yes, fantastic. So, who?
Michael: One of the first places to start is what some people do is actually not ask anybody. They think they know a bit about property because they’ve lived in their house or they’ve rented before. That’s a big mistake, and probably one of the reason why – I don’t know – about 50% of people who buy their first investment sell up within the first five years.
Kevin: The next one no doubt is friends and family. That could be a bit of a mistake, couldn’t it?
Michael: I understand why you’d do that, but the question is are they really financial experts? How many millionaires do you have in your family? If not, don’t ask them, because you’re probably going to find their advice will be to avoid property investment because they’re going to think it’s risky.
Kevin: The point that I would make, too, is that most friends and families feel that they should try and talk you out of most things for fear of you making a mistake.
Michael, what about a real estate agent?
Michael: Remember, real estate agents work for the vendor. It’s their job to help the vendor – the seller – achieve the best price, so they’re unlikely to tell you about other good properties down the road that another agent has for sale. So no, I wouldn’t be asking a real estate agent advice, remembering that most don’t own investment properties themselves.
Kevin: What about mortgage brokers?
Michael: I know a lot of people do ask their mortgage broker for advice, and it is really important to have an investment savvy broker as part of your team. But that’s more to help you through the maze of finance, because most don’t understand the property market well enough to advise on what’s an investment-grade property.
Kevin: I guess an accountant is a good person to turn to, but are they the best for property investment advice, Michael?
Michael: Again, they’re meant to be part of your team – that’s important – but most accountants should stick to advising on tax matters and structuring, but leave the property side to other people.
In fact, I found a lot of accountants are aligned with developers and project marketers and end up getting reasonably high commissions for theoretically advising you but in fact, pointing you in a direction.
It’s much the same with financial planners. While they’re licensed to sell financial products, most aren’t able to advise on real estate, and those that do end up getting… Look, I got an e-mail only two days ago from a large developer suggesting they’d give me 9% commission on a development to recommend to our clients. Of course, we don’t do that.
Kevin: No. We’d have to put property marketers into this list, but you’d certainly never rely on their advice, I wouldn’t imagine.
Michael: The problem is that some property marketers seem like they’re salespeople working on your side when in fact they really are selling a product of a developer. That’s their job and they get paid by the developer to do it, so it’s not independent or unbiased.
Kevin: We get a lot of questions from people saying, “I’m going to an investment seminar or a workshop.” Is this a good area to get that type of independent advice?
Michael: I have to make a disclosure: I do those once a year, and you therefore have to ask yourself “Is the person who’s conducting the event an expert in their field? How long have they been financially secure? Or do they make their money out of teaching people rather than by doing it themselves?”
So, there are opportunities, but like with everything else, you have to choose your advisors, your mentors carefully.
Kevin: And I guess if you do go to one of those seminars or workshops, just be very careful if they’re actually promoting any real product on the day, as well.
Michael: Exactly. If they have a property to sign at the back of the room, then you should run away.
Kevin: And property mentors? They’re fairly new on the scene.
Michael: I have always – well, over the last 20 years or so – relied on mentors and coaches. I firmly believe in mentoring, and I’ve mentored over 2000 people, but currently there seems to be an abundance of property mentors around, some of whom actually give really great guidance while others are really property sellers or marketers in disguise.
So, I believe it’s important to have mentors because they see your blind spots, they give you guidance, they support you. Just make sure they’re a true mentor and not somebody selling property.
Kevin: Yes, because on this show, Michael, we talk to all of the people we’re talking about here, and they all have different levels of advice. Even buyer’s agents, as well. Are they worth talking to?
Michael: Of course, they are. They can be a great help in selecting the right property, but again, some of them are just what I’d call order takers. They don’t devise a plan that takes into account your own personal and your family’s future, your needs, your risks, your risk profile.
And most buyer’s agents are only good in their area. I’m not running them down and calling them order takers because they’re very good in that group of suburbs they’re familiar with, but they won’t know the other city or the other state.
In my mind, that’s why you need somebody who’s going to coordinate all those, and that’s a property strategist. I believe it’s critical to have a trusted advisor when making investment decisions. It’s just too hard to do it on your own. You can do it by trial and error, but there’s a huge learning fee involved in that – of time, of money, of effort, of heartache.
Kevin, I’ve actually found that most wealthy people have – and they’re actually prepared to pay for – trusted advisors in many areas of their life, while an average person has no advisors or they get their advice from salespeople who they believe are advisors but they are far from independent.
If you want to become wealthy, do what the wealthy people do: take a bit of advice.
Kevin: Help me here now, because just very quickly we’ve covered across a number of people: friends and family, real estate agents, mortgage brokers, accountants, financial planners, property marketers, investment seminars and workshops, property mentors, as well as buyer’s agents. You’ve mentioned there about property strategists. It’s no wonder people get confused.
How can we tell if we’re actually dealing with a trusted advisor?
Michael: Good question, Kevin. It is hard to tell, because they all come across meaning well. A trusted advisor in my mind tailors their recommendations to your personal circumstances and will also warn you about the risks as well as the rewards.
So, their advice isn’t biased to a property, to a product, to a service that they’re selling, or in fact to a specific state. Because if all they can advise you on is Brisbane or Perth or Darwin or Sydney or Melbourne even, it may be right today but it may not be in the long term.
One of the first questions you should ask is “How are you getting paid?” because this is actually going to reveal a lot. If you’re offering services for free, are they being paid by a third party like the developer or the seller? Their advice can’t be independent.
Your advisor should also be qualified. They should be a member of a recognized organization, maybe like PIPA that we discussed before. They should have a thorough understanding not just of property; they really have to be a holistic advisor understanding finance, economics, the tax system, at least in relation to how it relates to real estate.
The other big thing is your advisor should have no properties for sale but should have a number of investment options for you depending on your circumstances. The other thing is they shouldn’t be pushing you. There shouldn’t be a sense of urgency to it, Kevin.
Kevin: I guess the bottom line, Michael, is that there are just so many things that you can learn from financial media, books, seminars to really gain that good knowledge. You have to work with those trusted advisors and try to help them work you through all of that information.
Michael: Sure, because you can get knowledge from all those things you mentioned – the books, the seminars, the Internet – but what you can’t get from that is experience. And that’s what you’re paying for, Kevin. That takes years to acquire and it comes at a cost, but it actually minimizes your risks.
It’s just too difficult for beginners, and in today’s environment, even for more experienced investors to gain the perspective of what’s happening in our markets as they’re moving so fast. So, why not leverage an experienced professional advisor – a property strategist, one who’s independent?
In my experience, Kevin, professional advice is never expensive. On the other hand, most investors pay a huge learning fee to the market by buying the wrong property or in the wrong location or paying too much for it.
Kevin: Well said, Michael. Thanks again for your time. Michael Yardney from Metropole Property Strategists. Michael, your blog carries a lot of good information, as well.
Michael: PropertyUpdate.com.au. Thank you, Kevin.
Kevin: It’s a pleasure, mate. We’ll talk to you again soon. Thank you.
Property Industry Leader talks about his mistakes – Ben Kingsley
Kevin: My featured guest this week is Ben Kingsley. Ben is the CEO and founder of Empower Wealth, and you might even know of him on his very popular podcast, which is called the Property Couch. He joins me.
Lovely to be talking to you, Ben. Thanks very much for your time.
Ben: Absolute pleasure, Kevin.
Kevin: Let me ask you firstly, you’re a luminary in the area of property investment. I believe you’re also the chair of PIPA. Is that right?
Ben: Yes, that’s right. This industry is a growing industry. There are plenty of sharks out there, and so to be part of the peak association and to be able to help set the agenda in how we improve the professional standards of people operating and how they look after consumers is really important to me. It’s just nice to be able to give back in that respect.
Kevin: A lot of leading lights on PIPA, as well. PIPA stands for…?
Ben: Property Investment Professionals of Australia. There is some real talent on there. You have Margaret Lomas, you have Damian Collins, you have Steve Waters, Phillip Tarrant, David McMillan, all of the greats, the Property Professor Peter Koulizos, just some real talented people who care about how consumers are looked after.
Kevin: Of course, we’re very happy to support you, too, in that endeavor and I think we’ve spoken to most of those people. But, mate, I’m particularly interested in talking to you, Ben, about your journey and what you’ve learned along the way. Tell me about how you first got involved in property investment.
Ben: From a young age, I was always interested in being in a position where I could make sure that I was creating some wealth so that I could have the sort of lifestyle that I was looking for. I was brought up in a middle-class household, a hard-working father, and from that point of view, I saw that he did three jobs for 37 years and made some investments – some good ones and some bad ones and some that didn’t deliver on what he was looking for. That meant that he obviously had to work those extra jobs to hit the target he was looking at.
For me, it was very much around how could I be smarter and be more educated? I wanted to make sure that I controlled the money as opposed to it controlling me. I didn’t want to be in a household where it changed the mood in terms of how much money we had to look after ourselves.
Kevin: We learn a lot of lessons from our parents and how they operated. I know it was a different generation, but it also I guess reminds us as parents the impact that we have on our own children and the lasting memories we can give them as well, Ben.
Ben: Totally, Kevin. I think it’s really important that we have to be the role models. We don’t fall too far from the tree, as they say. For all of those people who grew up in challenging households, they have to try and break the mold.
For me, I didn’t grow up in a challenging household; I grew up in a very loving household, but I also knew that where every dollar was spent was closely watched. I just wanted to make sure that there was enough to go around for everyone to be able to do what they wanted to do and to enjoy the things that we all enjoy.
Kevin: What was your first property deal? How old were you when you did it, Ben?
Ben: I was 23. Again, I started quite young. I bought the house across the road from mom and dad. I lived in a great little court in the northern suburbs of Bunburra. I got a $10,000 inheritance from my grandfather. One of my grandfathers passed. It was that as well as I did a lot of part-time work in school holidays and so forth. As I was also in college or uni, I then was able to be in a position to secure that first property. I paid $120,000 for a three-bedroom AVJennings home in the outer suburbs of Melbourne, really not having a clue what I was doing.
Kevin: Was it a new property?
Ben: No. It was an existing property. It basically went to auction and I paid $120,000 for it.
Kevin: Your parents were living across the road at the time, were they?
Ben: Yes, it was perfect. I could go home and have a nice feed with mom and borrow the old man’s lawn mower. It worked out quite well, but I did move into the property for a while there.
Kevin: So you bought it as a principal place of residence not as an investment?
Ben: Yes. I originally bought it as a principal place of residence, but it was always tagged to be an investment property. The reason I think, going back, there might have been some type of concession. Certainly, the interest rate was cheaper if you had an owner-occupied property. But I only lived at the property for probably just on about nine months before I moved interstate to start my career in tourism.
Kevin: Do you still own that property?
Ben: No. That one… Coming to mistakes, that’s a cracker. I moved to the tourism industry and found myself working in Sydney. I went and saw an accountant who had some so-called property knowledge. I sat down with him and said, “Look, this is the property I have. This is the income I’m earning. What can we do here?” And he said, “Oh, gee. That’s cash flow positive. We need to sell that property and we need to get a deposit and buy one of these great off-the-plan properties here in Sydney. You’ll be well-served in doing that.”
Kevin: Oh, no. Goodness.
Benefit: As an inexperienced person at that time, I’m like, “All right.” I’m supposedly talking to someone who’s in the know, and it was definitely the worst decision I think I made from a property investment point of view.
I think right now it’s probably sitting at about a $550,000 mistake, and each year, that I don’t own that property it’s growing, whereas I could have quite easily released the equity out of the property in the time that I owned it an done a little cosmetic reno as well.
There was a lot wrong with that, but it goes to show you when you don’t know what you don’t know, you can be easily led by the wrong people.
Kevin: Yes, a lot of lessons inside that, of course. Going on to your second property, did you actually buy something off the plan? Did you follow that advice?
Ben: Luckily, I didn’t. By that stage I’d gotten myself into a real interest in what I was doing and hence I was reaching out to a lot of people, going along to a lot of events. I went to hear John Edwards speak and went and heard Ed Chan speak. Also a few of the spruikers out there, I went along to a few of their seminars. You were starting to sort out the wheat from the chaff, as they say. API magazine at the time was maybe a year or two old and I was starting to consume that on a monthly basis.
Fortunately, I didn’t follow the lead. I did look at and put a $1000 holding deposit on a two-bedroom apartment in Zetland but decided against that one. Once I started to get an understanding of what I wanted to do and did pretty much six months of solid research, I bought a semi in Alexandria for $395,000 in 2001, and that property got bank valued four or five months ago at $1.3 million.
Kevin: I was going to ask you, you still own that one. You’ve learnt that lesson, haven’t you?
Ben: Yes. Once I started to understand more about the drivers and the things I needed to understand – but that was through literally months and months of constant research. I had scrapbooks. This was pretty much pre-Internet period around RealEstate.com.au and I was scrapbooking all of the local newspapers and documenting what sold for what, trying to work out the technical valuations of things. So there was definitely a lot of research that went into that execution.
Kevin: Was that the best deal you’ve ever done?
Ben: It’s up there. I have quite a few like that. I replicated the same type of thing in Flemington in 2005 for $395,000. Again, a beautiful weatherboard two-bedroom, fully renovated property in an area that’s significantly gentrified since then. I suspect a bank valuation around $850,000 on that property now. That’s sitting very nicely.
The GFC period, Moonee Ponds, passed in auction right on the GFC at $1,050,000, and I picked that one up for $913,000. I’ve renovated that one, and that one’s become our principal home now. That would probably be sitting around $1.3 to $1.4 million unrenovated.
The years of experience and the 10,000 hours of education and knowledge-building that I’ve done over the journey have obviously put me in good stead to know when good opportunities present themselves.
Kevin: Have you done any developments at all?
Ben: No. I’ve kept away from that. I’ve been pretty much a passive investor – a true what I would consider the traditional investor. If I were going to invest in shares, I’m not having a say in what BHP is doing; I’m just a passive investor. And with my property investments, it’s been very similar.
I’ve done very little work in regards to improving the assets. I haven’t put new kitchens or new bathrooms or any of those sorts of things in. I’ve just let them sit. They’ll need a bit of a tidy up. There’ll be the odd deck and the odd fence that needs repairing, but I haven’t gone into that whole equity-harvesting and that whole development space.
It’s probably been because I’ve been a bit time-poor but also because a true investment should stand up on its own principles. If I have to value-add to it, I’m taking on more risk, so effectively I should be getting a lot more reward.
Kevin: Are you always looking to grow the portfolio, or are there specific times that you’ll do that?
Ben: That is a great question, Kevin. The reason why I love answering this question is more around after we had two or three in the portfolio and my wife and I were about to start thinking about starting a family, the question starts to come: how many more of these things do I need? What about the impact of cash flows with the kids and their schooling and their education? All of those things you have to start thinking about from a cash flow point of view.
There was really nothing out there that could accommodate a multiple property portfolio and modeling that, so that led me to build that with Michael Pope, one of my business partners here, to be able to start answering a lot more of those questions.
The answer is I’ve still being active. I’ve bought a couple more. I have a self-managed super fund. The strategy inside the self-managed super fund has been different strategy for my wife Jane and I in terms of how we built the portfolio, but what we’re able to do by getting more understanding of the planning side of it is we set ourselves a target of $160,000 in passive income from our portfolio by the age of 50. I turn 46 this year, so that’s what we’re striving towards.
So from that point of view, I haven’t had to constantly say to myself, “I need another one. I need another one. I need another one.” There’s probably just one more to fit in for that based on our planning. But I’ll probably still buy a couple more in the self-managed super fund because I can’t touch that until I’m 60 or 65 the way the governments are playing with super.
Kevin: Let me ask you the question this way. What sort of investor are you?
Ben: I think a buy-hold. Other than the silly one where I was given the wrong advice to cash out and basically buy into that Sydney property, into Alexandria there, everything else has pretty much been a buy-hold. The super fund is chasing a bit more yield, but the main properties that I’ve been buying have been more blue-chip type assets in the right locations around the major employment centers in the big capital cities.
Kevin: Would you buy overseas?
Ben: I haven’t touched the overseas market. I’ve had a couple looks at America a couple of times, and my brother’s put a couple of brochures across my desk in regards to Bali and Indonesia and so forth. But I’ve always taken the view that as much as my portfolio is very easy to manage, they’re still local assets. So if I have any problems around being able to fix up whatever it may be or difficult tenants and all that, it’s a lot easier to manage in Australia than what it is offshore.
That’s not to say that as my knowledge and understanding of more global property markets develops that I wouldn’t look at that, but I think I’m a bit like Scott Keck from Charter Keck Cramer. I’ve heard him speak a couple of times, and he’s a ripper. He’s like “When should we start to invest in commercial property? When should we start to invest in offshore?”
He said once you get around the $5 million residential portfolio. I heard him say that about 13 years ago, and then I recently heard him speak about two years ago and he said once you have about a $10 million residential portfolio.
That probably speaks volumes to me in terms of my portfolio, and that’s certainly how I approach looking after clients. I understand that we all work hard for our money, so I’m not about to speculate in markets that have very little regulation and jurisdictions and potential risk.
Bali is an example, maybe. We saw the horrific bombings that occurred there and what happens to the marketplace there and it’s a one-industry town. From that point of view I’ll probably steer clear of that. I still see a great opportunities in the Australian market.
Kevin: Yes. Plenty of opportunities here. What’s the most common question you’re asked from people who are looking at becoming property investors?
Ben: I think that’s an easy one. It’s “Where’s the best suburb to buy right now?”
Kevin: How do you answer that? What do you say?
Ben: Pretty simply. It’s “What’s your end game? What’s your goal?” That’s the truth. For some people, buying a $1.5 million property is actually their best move right now. For other people who maybe have less income coming into the household, it could be a matter of two properties in a regional town that’s delivering them strong cash flow and maybe a bit of capital growth along the journey.
I think the best way to answer that is to just understand the client a little bit better in terms of what they’re trying to do, because right in that GFC period, on my credit card I could have bought 30 properties on my credit card in Detroit. For people to say, “I have 35 properties, or I have 40 properties, or whatever” it could mean a lot for some people. They could be 35 fantastic properties and good luck to them.
Kevin: You have to ask that question though, haven’t you, really?
Ben: I think you do. If you have five or six really good ones that are generating income and you pay your debt down and each property is generating you $30,000 or $40,000 a year in income, that is a very handsome retirement that you’re going to enjoy with that type of income.
Kevin: Always great talking to you, Ben. I appreciate your time. Ben Kingsley, my guest, the CEO and founder of Empower Wealth.
Great talking to you, Ben. All the best, mate.
Ben: Thanks, Kevin. Thanks for having me.
Vendor Reports – Let the Buyer Beware – Garth Brown
Kevin: Homebuyers in New South Wales will soon have greater access to discounted pre-purchase inspection reports with reforms announced by the state Minister for Innovation & Better Regulation in that state.
We very rarely do a state-only story, but we will in this case because I think there’s a lot of lessons that can be learned by people right around Australia. Apart from New South Wales, the ACT is the only other state that asks sellers to get the pre-purchase inspections done. It could happen in other states. And if it does, maybe there are some lessons in what we’re about to talk about now.
Conveyancer Garth Brown from Brown and Brown Conveyancing has warned buyers that they should beware of these reports. He joins me.
Hi, Garth. Thanks for your time.
Garth: Hi, Kevin. Thanks for that.
Kevin: Why are you sounding this note of caution? Surely, it’s a good thing; it’s going to save buyers some time and money.
Garth: Yes. Look, it’s a good thing in theory but there’s this proviso or red flag where I warn potential purchases of property where a vendor has had these pre-inspection reports produced is that they could be dumbed down. Maybe an agent regularly uses a particular pest and building report and they’ll just brush over any potential major problem and maybe list it as a minor problem when really it’s a major problem. It’s that independence of opinion, as well.
Kevin: What regulation is there around this to prevent that and protect consumers? Surely, a qualified building inspector who has a license, he’s doing this, doesn’t he have an obligation to make sure that he reports accurately and correctly?
Garth: Yes, that’s what he’s employed to do. He generally has insurance for that. But other than that, it’s really up to the freewill of the billing inspector as to what he reports.
What’s a really good thing with the pest and building reports is any report that has pictures of different parts of the house, it gives you a bit more confidence in their report – and videos. Some of those pest and building inspectors carry those sorts of technology. That gives you a bit more confidence in the report and independence of it.
It’s just there’s a red flag that some purchasers, they’ll rely on those reports and then they’ll end up doing their own after exchange of contracts.
Kevin: After exchange of contracts, what position are they in at that stage to dispute the contract if they find something?
Garth: Not in a very good position, but if a major problem is found, they could still negotiate with the vendor. So, that is potentially a problem. But most vendors I have encountered do come to the party and negotiate, but you are running that risk.
It’s just that between exchange and getting these reports together, there’s so much going on that potential buyers can miss out on a property and just decide to do it afterwards.
Kevin: Because in some other states of Australia, when you do take a contract out on a property, you can make it subject to a satisfactory building and pest inspection, which admittedly is funded by the buyer. In this case, you’re recommending the same thing should happen anyway, Garth. Is that right?
Garth: Yes, that’s right. Yes, you should. But most of those contracts don’t have that special clause in the contract in New South Wales unless it’s agreed to by the vendor before exchange of contract.
The other way is if you have a cooling-off period but some vendors won’t allow that; they want an unconditional contract.
Kevin: Yes. It really varies from state to state, doesn’t it? I’m just looking around Australia. Each state is totally different in how they handle. The New South Wales system seems to me to be very convoluted. There are lots of things that can go wrong and there’s no surety that you’re really ought to be able to settle on the date of settlement.
Garth: Yes, that’s true, but that is changing as well with this PEXA online settlement system, where it does away with the need for titles and people turning up with checks and other associated things at settlement. That is slowly changing where if a settlement day is chosen, it generally goes ahead pretty well with this new PEXA online system.
Kevin: I did an interview recently, Garth, and you may or may not have heard about this. In the States, they’ve enacted things they call Transaction Rooms, which is where all the documents are placed if there’s a sale going through. All the solicitors’ contracts and documents and searches are all inside the Transaction Room, and anyone can view them at any point in time. And even to the point of all the way through the settlement, all parties are there.
This is probably the way it’s going to go long term as we become more used to how the Internet as working and this need for transparency. I think it’s very, very important, isn’t it?
Garth: It is. And just on that note there, the PEXA have this little app that you can track your online settlement as to how it’s going. It’s like a countdown clock, letting you know where it’s all up to.
Kevin: How could those interested access this, Garth?
Garth: You go to Pexa.com.au. It talks about online settlements. If your practitioner is not registered for it or if your bank is not, you won’t be able to use it. But if all parties are, it’s a great system to make sure your property settles on time.
Kevin: Yes, well worth looking into. Thank you for your timely warning too, Garth. Garth Brown from Brown and Brown Conveyancers. Thanks for your time, Garth, and talk soon.
Garth: Thanks, Kevin.