Property investor Nhan Nguyen talks about his system for making a good living from property in both in the long and short term.  In a two-part interview, we explore finding the best deal, some tips about what to allow for with small developments, how to develop a formulae that will increase your chances of success and how to unearth the hidden property nuggets.
Transcript:
Kevin:  My featured guest this week is Nhan Nguyen. While studying a bachelor of science at university, Nhan read Rich Dad, Poor Dad by Robert Kiyosaki – I guess a lot of people can trace their early starts back to that book as well – and from that moment, his grades started to decline as his passion for property really started to emerge. His biggest learning from the book was don’t work for money; have money work for you.
After university, Nhan took a role with a property education company, where he received a real education, learning how to do deals, qualify leads, and look for opportunities. Nhan also learned how to tie up opportunities with little money – and you’re going to be fascinated when we talk about some of the ways that he does that – and then on-sell the properties at significant profit.
Then at the age of 23, Nhan quit working for someone else, and in December 2003, he moved into full-time investing, which is when he established Advanced Property Strategies. He’s now done more than 100 deals worth $30 million in total in the past 24 months alone. He’s done 29 property transactions just over the last two years using none of his own money. He tells us how he does that. Nhan is also the founder of Green Mint Property Group, focusing on property investment and development. He is my guest and joins us.
Nhan, lovely to have you in the studio.
Nhan:  Thanks, Kevin. Appreciate you giving me the opportunity to be here and join you.
Kevin:  There’s so much we can learn from you and your experiences over the years, and I have interviewed you on a few occasions. The first question I want to ask you, Nhan, we all know that property is cyclical, but is this the time to hold property, or can you actually make good money out of buying it, doing something with it, and then flicking it over?
Nhan:  Absolutely. That’s a question I get all the time. I suppose it really depends on what city you’re in, because every city has a different time in the market. We talk about the property clock. I’ve been reading recent valuer’s reports and some cities are about to peak, some cities are about to come out of the doldrums there.
I was reading about Perth. They were talking about how the market is close to the bottom and potentially coming up. Townsville is another place that’s really, really flat and with the potential to come up as well.
I believe that buying and holding versus developing has two parts to it. Holding is if you think there’s a bright future in the marketplace, definitely. In the Brisbane marketplace – which I’m very, very heavily invested in – I know that we’ve had a good run for three to four years now. I’m looking at selling a few of my properties just to take my money in so that I can do other things with it. Sometimes other people look at selling if they want to get the capital back and reuse the debt, because one of the things that people get stuck on is serviceability and they can’t borrow more.
So, considerations are threefold. One is where are you in the marketplace and the timing? Two, can you use that capital for other things? And three, do you have a serviceability issue, or can you borrow some more or not? Potentially thinking about it that way.
Development is always prolific. There are always times and opportunities to make money through development.
Kevin:  You said reusing your debt; is that what you look at? Do you look at pulling the debt out of one part of your portfolio and looking at another area where you may be able to gear it a lot higher? Is that what you’re talking about?
Nhan:  Yes, what I mean by that is let’s say you own a property and it’s worth $800,000, and you owe $500,000 on that and you have $300,000 in equity. If you sell that property down, it allows you to go back to the bank and borrow another $500,000. Most people might have a limit of $1.5 to $2 million worth of borrowing. So what I mean is being able to use that leverage into another property that may give you a better return because you’re buying in at a better price.
Kevin:  But there are times when I guess you’d hold on to that property and use the equity – you have that $300,000 – and gear against that. How are the banks looking at that, and what sort of gearing can you get out of, say, a $300,000 lump of equity?
Nhan:  That’s right. Generally the banks at the moment, on an investment level, they’re looking around about the 80% loan-to-value ratio, or LVR as they call it. With that, let’s say the property is once again worth $800,000, you go 80% against that, which is $640,000, and you already owe $500,000; you can pull out roughly $140,000 on that to buy another property.
I do believe, however, in not always gearing up in refinancing, simply because that $140,000 is still debt, as opposed to selling some of your portfolio down and keeping some. So I’d talk about selling some, keeping some, and not necessarily selling everything and not necessarily holding everything.
They talk about buy and hold which is a strategy, but some people apply that as the only strategy, which I think can be dangerous, simply because the more property you buy and hold, you have an exposure to debt. If interest rates go up – which they have been, especially for investors in the last three to six months with some of the interest rate rises – you can be exposed.
Yes, it’s a balancing act, and it depends on what your outcomes are as well.
Kevin:  Yes, because if you are gearing that high, of course, you’re going to be relying a lot on negative gearing, and with so much talk about the possibility of some changes to negative gearing, you’re going to be highly exposed, I would have thought.
Nhan:  Yes, exactly. One of the things Warren Buffett often talks about is buying, holding, and never selling. I believe that in an environment where you have debt… Berkshire Hathaway, they don’t have debt; they basically have investors, and it’s all capital, it’s all cash.
In a business or in a project where you have debt, it’s a balance between selling some and holding some, and using that money to make it work for you and not just gearing up, because property is capital-intensive and you will run out of either serviceability at one stage or you’ll run out of capital at another stage because you’re just all in. Every time you buy a property, property is very capital intensive.
Kevin:  Have you got a benchmark for your loan-to-value ratio in your portfolio? Is there a level you like to maybe not exceed?
Nhan:  Yes, absolutely. When I was starting out and I bought my first property, I didn’t have a lot of cash, a lot of equity, so I borrowed as much as I could – 95%, 97%. These days when I’m buying property, I’ll go to the bank and we might borrow 80% just to get into the deal and we’re not paying lenders’ mortgage insurance. It’s not because of anything other than it’s an expense that I believe that if you have enough capital, it’s unnecessary.
In my portfolio, sometimes we’ll push 50% or 60%. As your wealth grows and you have more equity and more cash and more cash flow, it’ll pay itself down. Sometimes it’s lower, sometimes it’s higher, just depending on the project.
I did a land subdivision in 2015 where the bank was going to lend us $1.8 million. The valuation came in, I think, $3.4 million for the total project. That was just a little bit over 54% on the loan-to-value ratio.
So it depends on the project and it depends on individual circumstances, but I prefer to keep my LVRs – or loan-to-value ratios – down, just because I don’t want to be at the whim of interest rates when they go up.
Kevin:  Do you think this is the time to drive your LVRs lower?
Nhan:  Like I mentioned before, I personally think those three things are critical. The fourth thing might be in the time of your life. Some of you might be wanting to go into a retirement phase and want to capitalize and get your cash back so that you can spend that capital. I think LVRs are one of those things that is dynamic. I’m not going to say definitely bring It down; I’m just saying to manage your interest rates, because if they go up…
Basically a big topic everyone like Malcolm Turnbull and Scott Morrison are talking about is housing affordability and how they can bring that back and they banter back the negative gearing. If they basically hand-brake the negative gearing, that can affect the market terribly as it had in America. I think it was the late 1990s when they did that. They basically scrapped negative gearing, and the market just went into freefall.
Kevin:  How do you go about finding the properties?
Nhan:  One of the key sayings I use in my training is “You make your money when you buy, not when you sell.” That can relate to when you’re buying a house to live in, or an investment, or a development site. A key part of this is knowing what the market values are.
If you’re looking at buying a car and you know it’s worth $20,000, how can you get that car for $12,000 or $15,000? People trade in their cars all the time at a wholesale value and then it gets sold at a retail value.
It’s the same thing with houses, and so if you’re looking at buying a house and it might be worth $350,000, how can you get it for $300,000 to $320,000 so that you make your money when you buy?
There are a handful of strategies that I use there. Firstly, I look for a motivated seller. I look for someone who’s genuinely looking to sell quickly and might want to settle in 30 days, and I can help them move on that transaction but the house might need a bit of work. It might need a paint job or it might have some termites in it. So I’m definitely looking for motivated sellers.
The other thing is if I have to pay retail I look for what we call a free block of land. So it might have a big back yard, it might be on a corner block. One of the sites that I bought recently on the south side, about 16 kilometers out, is zoned for units and townhouses and the owner wasn’t aware of that and he didn’t really care. He just wanted to sell the property.
I bought the property and I cut it from a one into a two on a corner block. It’s about a 600-square-meter block and you might think this is crazy, but I cut a 184-square-meter block off the corner there and I found a buyer for it.
My point there is looking for either a motivated seller who wants to sell now and you can get it at a low price or you’re looking for another upside, which is what we call the free block of land to add value – like a big back yard or cutting a block off.
Kevin:  How do you find these people?
Nhan:  There are a handful of ways to do that. One is you can talk to a real estate agent and tell them, “I’m looking for a deal. I’m looking for an opportunity to develop. I’m looking for a motivated seller.” That’s definitely one way. The other ways that we use are off-market, where you can door-knock, you can send flyers out, you can send letters out, to property owners directly. That is my preferred option, especially if the marketplace is hot.
I have clients in Sydney where you go to auctions and you get outbid all the time, but if you’re approaching owners directly, you’re not being outbid, you’re not being out-negotiated or competing with other buyers. Those are a handful of ways.
Kevin:   I imagine in that scenario, being a real estate agent and knowing that that’s how they prospect, there are a lot of dry gullies, aren’t there? You put a lot of flyers out there, send a lot of letters, you’ll get some calls, people who are just interested in knowing what their house is worth. You obviously have to go down those dry gullies.
Have you ever thought about how many people you have to contact to actually get a deal?
Nhan:  Yes, absolutely. As an example – and I’ll give you some statistics here – in the last 12 months alone we sent out roughly a thousand letters and we’ve purchased three properties, and we’ve sold one of them. I made a quick $60,000 on that. The last two projects, we’ve projected around about $250,000 to $290,000.
Kevin:  It’s a very good return on a thousand letters. Would that be because you really target the areas that you go to?
Nhan:  Absolutely. This is not just a blanket approach, because you’d be sending out brochures or flyers to any Tom, Dick, or Harry, but really this is a targeted approach into targeted areas that we are experts on.
That’s the other part of it: when you’re buying any property or any item, you need to become an area expert. You need to know your item or your zonings, you need to know whether there’s flooding, is it too close to the train line, the noise corridors? There are so many aspects of it that you need to consider.
For example, if you’re looking to do renovations, you wouldn’t go into a new suburb; you’d go into an older suburb with a lot of Queenslanders or a lot of timber houses that potentially need a lot of work.
We generally focus on a zoning called a low-to-medium residential, which has a lot more potential for unit and townhouse developments, and there’s a lot of upside there, whereas there are a lot of people looking for double blocks out there – which is great – but I’m looking for a different angle where I can add a duplex at the back, I can subdivide the blocks off smaller, I can potentially build a block of five to ten apartments in the future.
Kevin:  It’s very important what you say about becoming an expert in your local area – not only that but also understanding what those zonings are. That zoning you mentioned there may be applicable in one area, but if you’re looking at even a different council area somewhere else in Australia, a different state, they’re all very different. You have to become an expert in that area.
Nhan:  Exactly. Like I mentioned before, I have a client in Sydney. She’s looking at a zoning called R3, which is a multi-unit dwelling as well, and there are limitations there.
So you need to become an area expert wherever you are – whichever city, whichever state.
Kevin:  When you get a call from someone who receives one of your letters and they show some interest, what sort of conversation do you have with the owner? You mentioned there that you’re trying to find out their motivation. Tell me about some of the conversations.
Nhan:  Some of the conversations start with “Have you tried to sell your house recently? Why are you returning my call? Have you tried to sell your house previously in the last 6 to 12 months? Is it rented?” just to find out more about the owners themselves. Are they working? Are they looking to sell now? And then we slowly broach the aspect of price: “How much are you looking for?”
One of the things that we aim to do is test their motivation. We need to be able to see if it’s worthwhile having a further conversation with them, and we ask “Why are you looking at selling? Are you looking at selling sooner rather than later?” One of the other key questions we ask them is “What‘s the least that you’d consider?” Basically it’s a negotiation just like buying a car or selling anything else: “What’s the least that you would take?”
And like you said before there, Kevin, 99% of the time they are dry gullies and we’re not concerned about that; we’re just looking for the diamond in the rough.
Kevin:  I imagine some of those dry gullies, too, would come to something at a future time. Do you keep in touch with some people?
Nhan:  Yes. I think it’s very, very important not to think that just because you’ve sent out a letter or had a door-knock and you’re having a conversation with an owner that they’ve said no. You have to get that it’s just no for now and eventually, they have to sell. Like it or not like it, eventually we have to sell our properties because you’ll move on at some stage – whether it’s the next 10, 20, 30, or 50, years, the property is going to be transacted on.
We had a recent transaction where we’d spoken to them in February and they said, “Yes, we’re keen to sell but we’re not keen to sell now.” It’s very important that you ask the sellers that before they list with an agent and before they sell, just to give you a chance to have another go, have another quick conversation before they list on the market. You just want that first dibs. Once it hits the Internet or once it hits a real estate agent, it can be gone forever. All you want is the first dibs.
Kevin:  Nhan Nguyen is my guest from Advanced Property Strategies. We’ll take a break and come back after that, and we’ll talk more about becoming a property developer.