16 Nov "What research has taught me about property investing" – Mark McCrindle
This week we feature a chat with social researcher Mark McCrindle and ask what it is about his job – analyzing and commenting on our behaviours and market trends – that has influenced how he has viewed property investing.
Kevin: I’m delighted to say that our featured guest this week in the show is Mark McCrindle, who we’ve spoken to in the past. Mark, of course, is a social researcher, a commentator, and principal of McCrindle.
Mark, welcome to the show, and thank you very much for giving us your valuable time today.
Mark: No worries at all, Kevin. I’m glad to be with you.
Kevin: Mark, we normally talk about you analyzing the market, looking at what people are doing, and so on and so forth. Would it be fair to say that that gives you a bit of an insight as to how the market is going to perform? Does that help you at all with your investment strategy?
Mark: Yes, definitely. I think being in an area where, as we do, we look at demographic change, we run a lot of research projects, we get across a lot of data sets just looking at some of the trends, that does help inform life. You keep an eye on the changes, and obviously, you apply a little bit of that to one’s own business decisions and investment, as well.
I think everyone should be across and looking at abroad trends and changes, but we do it professionally and so hopefully try to apply some of the learnings that we made.
Kevin: I guess one of the failings that a lot of investors find is that they over-analyze the market. They almost go into paralysis through analysis, I guess. Are you guilty of that at all?
Mark: I guess we’re blessed in that our analysis, our research approach, is very broad by its nature. It’s looking at demographics, and it’s looking at some global trends. We’ll run surveys, and then on the ground, we run a lot of focus groups. We’re asking people different decisions or different insights to different questions. We will survey various industries. That then gives that helicopter view, which I think is the approach that everyone should bring to their investment.
I think you’re right; the problem with some analysis is that we get so focused in on our particular thing that we miss the big picture – the focus on the woods and missing the trees approach. We all need to keep it broad. I guess our work takes us across broad areas, so that’s pretty useful.
Kevin: I guess a lot of people, if they over-analyze something, they end up looking for reasons not to do it as opposed to reasons to do it.
Mark: That’s right. Sometimes we can over-analyze the market numbers, particularly. We can over-analyze financial data, and I think that’s where the problem lies because these things, any investment, humans, we’re not rational; we’re emotional. It’s not based on individual numbers or charts, but it’s societies, it’s behaviors, it’s attitudes.
While observing the charts and the financial trends, keep an eye on the market, of course, but also step back and have a look at what else is happening. Even if something on paper is going well, step back and say, “Okay, but what are the timeless human drivers in this? Is this really going to work long-term?”
You wouldn’t want to put all of your savings into Pokémon Go even though at the time, it was the number one app and taking off. You step back and say, “We understand human nature. Things come and things go. Apps arrive and they fade again.”
I think that’s how we all need to approach things: look at the multitude of factors, not just one particular trend line and think that that will tell us the future.
Kevin: Mark, are you an active property investor?
Mark: Yes, I am. Early on, I realized that for me and probably my field of demographics but also just in life, it was probably the one thing I had an interest in. I had a little bit of time to look at some of the data and kept a bit of an eye on the trend, certainly more than equities and shares.
For me, property is where the numbers and the people meet. Because we spend a lot of time researching people, then that, for me, has been something that I’ve utilized. It’s probably the Aussie dream, that people who invest in property. More than anything else, that’s been where we put a little bit of money over time.
Kevin: Mark, where was your first property deal, and what did you have to do to get into the market?
Mark: As young people today face – I was, I think, 24 and was just about to be married – we rented for a little while and then got hold of a little unit at Harris Park in Parramatta in Sydney’s west. Basically, the west of Sydney back then – and to some extent, now – was where the most affordable housing was. The cheaper part of Parramatta was a little part of it called Harris Park. We found a tiny little unit, and it was all that we could afford.
But I just knew, and I watched my own dad in that way, own something real and get something you can pay down, and start with what you can afford. If it’s something you’re prepared to live in, it’s something that will be sellable in the future. All of those basic bits of wisdom held us in good stead.
It was back when you could afford these things, or at least, it seems like it was quite affordable in today’s money. It was $121,000, I remember, that we paid. That was a lot of money and a big mortgage, but we got that thing and paid it down. It allowed us to leverage, once we sold that, to the next unit. That stepping-stone approach that still exists so much in Australia was our start, as well.
Kevin: Yes, interesting to hear that you sold because I guess in those days, the banks were not all that encouraging even taking into account double incomes and people building property portfolios, so you really had to use that as a springboard to go to the next one.
Mark: Exactly right. It was about paying down the mortgage a little bit, getting a little bit more equity in the place – capital growth. If you buy well and in an area that is a little under-priced and can hold for a reasonable time – and I think we were there for five years, something like that – that just lifted the price enough to then step up to something that was going to be a bit more useful for us, particularly as at that point in our lives, our first and indeed our second child had come along.
I’m someone who believes in being financially conservative, in not carrying too much debt, in making timely decisions rather than rushing into it, building things over time. Rather than thinking we’re going to be financially independent in a short period, it’s about taking the long view – and that was our approach – and not getting in over our heads.
As is often said, you want to be able to sleep at night and relax without too much debt. We took that stepped approach, moved up through a few places, and that helped us eventually move into a home.
Kevin: Are you a trader of property or more an accumulator?
Mark: To start out, definitely a trader because we couldn’t afford the first place let alone holding and moving to others. Again, particularly that it’s not just my decision but with my wife. You have to work with, I think, the capacities and confidence that each party has.
While I was maybe willing to take a little bit of financial risk, particularly just starting a young family, my wife not so much, so it was, “Let’s keep our mortgage affordable; let’s not overly leverage ourselves.” We just took the step-by-step approach. It may not be the quickest way to grow, but it’s certainly a safe way and it’s a way that creates not too much stress.
Yes, it was buying the first place, selling and upgrading to another unit. I held that for a few years, sold and upgraded to a home. Held that for a little while, sold, and got a block of land – stepped it up like that.
Kevin: What’s the best property deal you’ve ever done?
Mark: Probably buying some land. We bought some vacant acres just on the outskirts of Sydney. They were not presented very well. They were really scrubby acres. The person selling hadn’t slashed the property. I think the location was not as well presented; there was a bit of rubbish, builder’s waste, and stuff like that in the front.
Also, if it’s vacant acres, there’s not as much demand for that. People want an old house on acres they can live in while they build their dream place. But we saw the potential of it and found that we could get in without being outbid by many others.
That worked out well for us, and even though we weren’t ready nor did we have the capacity to build at that point, we just knew that it was an unbeatable deal. We saw the potential in the land, so we bought that and held that until we were in a position to then actually work out our plans, move through that whole process, and build a home there.
It was just looking at a few of the factors that lined up to be able to take advantage of a really good deal even if it was a bit earlier than ideally we would have planned.
Kevin: What about a deal that maybe didn’t go so well for you that probably we can learn from? What lessons did you learn from that?
Mark: A big one for me was buying some shares when I really didn’t know anything about the share market. I had no personal interest in the share market and was not about to get interested in it. It was actually the T2 float. We all remember Telstra 1 and how well that did. A bunch of us, late to the game, “Oh, there’s going to be a second Telstra share float, so let’s get in if we missed the first one.”
That’s well known in the annals of Australian history that everyone who got into the T2 float saw the value of those shares drop. It might now, after many years, have come close to being what was paid, but in terms of growth and value, it really didn’t work out very well.
I learned a big lesson. Putting not a massive amount into something like that, it’s not going to cost you your life savings or cause major dramas, but it taught me enough. When we didn’t have heaps of surplus, it taught me a sharp lesson to remind me that I have no business investing in things I don’t understand or that is not a personal passion and that I can’t add any value to. I might as well let others who have more of a specific strength or insight into the market… How can I compete against the smart money in that sector?
That brought me back to what I know more and what I deal with in terms of people and property.
Kevin: I suppose another lesson, too, is not following the herd mentality. Just because the first one was successful doesn’t mean the second one is going to be necessarily.
Mark: Exactly. There’s the old mantra I should have taken advice from: when everyone is buying, then sell; when everyone is selling, buy. Being counterintuitive often does work out well.
Kevin: What’s the most important thing that you’ve learned about successful property investing?
Mark: Great question. For me, it’s probably not buying your ideal place but buying the best valued place. It’s not necessarily always chasing the perfect situation for you, but chasing what has the most potential. The two are quite different.
Every investment is a series of compromises, but if there are going o be compromises, you might as well compromise and downgrade a little bit in terms of what might be your ideal luxury or your ideal location if you feel that the opportunity, the investment and the growth is there in that place.
I guess that’s what has worked for me, having a second look at something that maybe because of its presentation or appeal is not red hot, because if it’s not red hot but you see value there, then that’s tomorrow’s winner. That’s where the growth is going to be. If it’s already well presented, chances are it’s at its peak already and you might have to wait a while for the growth.
I think that was key, as well as just holding to those timeless financial mantras of not getting in too deep, of holding for a reasonable period, and also of making sure you can take something and service it and not feel the stress over it, because you have a fair while as life goes on, to accumulate and set yourself up for retirement. You don’t have to rush into it; you might as well enjoy the journey.
Kevin: Would you invest in property outside of Australia?
Mark: Probably back to my share market experience…
Kevin: Yes, I thought you might come there.
Mark: I would try to apply the lesson learned. If I don’t have any specific knowledge and if I’m not going to put the time into understanding the market, then I have no right to be in it, because if it comes unstuck, there’s no point in complaining. You have to take responsibility for your investment, and if you can’t stand behind it, then why put your money into it?
For me, certainly, people understand it well and do it well and there are great professionals who will put the advice out there, but if I’m taking the reins of the investment myself, it’s certainly not something that I have the knowledge in, nor indeed, the time to really give it the quality analysis and investigation that it requires.
Kevin: Mark, great talking to you. Thank you very much for your time.
Mark: No worries at all, Kevin.