Effie Zahos from Money Magazine says she is trying teach her kids the value of money and the power of compound interest.
Property identity and CEO of McGrath Real Estate, John McGrath, adds to the topic of how to educate kids about investing in property and the power of money by sharing his experiences growing up in a family where it wasn’t that important. He sought the advice of mentors outside his family circle.
Executive Chairman and Founder of Aussie Home Loans, John Symond, says kids need to appreciate that money doesn’t grow on trees. He talks about the advice he received from his father that no doubt shaped his thoughts.
Michael Yardney talks about the lessons he was taught by his father and how he has educated his children about investing. Michael says that his father’s plan was, like many people, to get rich by winning the lottery.
As well as talking to us about the topic of educating our children about investing and finance, our feature guest Ken Raiss says he understands the importance of discussing wealth at home as part of educating them that it is not an evil word. Ken also thinks we should share our adult finance journey with the kids as part of their education.
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Don’t gamble on a Lotto win – Michael Yardney
Kevin: Let’s set the scene for this week’s show because we’re going to canvas the thoughts of a number of people – as many as we can get through in the show, anyway – about the sorts of advice you should be giving your kids now about money and about property and investing generally and probably in fairness, about life. This is a subject that I’ve discussed many times with my first guest Michael Yardney from Metropole Property Strategists.
Good day, Michael.
Michael: Hello, Kevin.
Kevin: I know you and I have talked about the importance of the conversations around the table as we’re growing up and getting kids into the understanding about what they should be doing with money and investment generally. Michael, what were you taught?
Michael: I remember my father’s financial plan. Every Saturday morning, he would sit in the kitchen having his cigarettes and a black coffee, and he’d write out this list of things. I asked him, ‘What is it?” and he said, “That’s what I’m going to spend my money on when I win the lottery.” Because every Saturday night, he took a lottery ticket. He always won enough to buy a few more tickets but never the big prize.
So his financial plan was winning the lottery, Kevin, and I guess I learned that that’s not the right way to do it.
Kevin: Certainly. Many people in fact do that, Michael. Many people are guilty of that. What sort of language should we be using with our children?
Michael: First of all, I think you should be talking about money because a lot of people don’t, and then the things that they do say are often the wrong things, and that’s what sets the scene because you’re not born knowing how to do money and your early mentors are your parents. To be honest, most of our parents weren’t wealthy and they’ve learned their bad money habits from their parents.
So I think one should be talking openly about money, about budgeting, about saving, about not taking on too much credit card debt, but also the positive things about rich people aren’t dirty, greedy robbers, but they should be proud of other peoples’ successes and if somebody else can achieve it, so can you, Kevin.
Kevin: Michael, I know that you’ve studied this in particular and written books about it, and I know you’ve done many blogs and even videos about it, too. What have you learnt from talking to the people you’ve talked to about getting rich?
Michael: I think the first thing is to see how other rich people think and behave, because there are particular ways they do, and if you do much the same, you can also become that way. Find people who you can emulate and you can model.
I think that people should also recognize that you do have to work hard to get money, to become a saver. So the old lessons that they taught years ago of spend less than you earn, save it, invest it, and then reinvest it, are the primary lessons.
The other one is to become financially fluent, to understand a bit about money, understand a bit about credit cards, make sure that you don’t buy anything on a credit card that you can’t pay off by the end of the month.
Maybe there’s one other one, Kevin also, that you have to enjoy the journey, that the person with the most toys at the end isn’t necessarily the winner. So while it is important to talk about saving and investing for the future, also enjoy your life and it’s not all about money, Kevin.
Kevin: No, it’s not. Michael, do you think that this generation… Or is it speaking too generally to say that kids nowadays think differently about these things?
Michael: I think that the way kids think today is very much dependent upon what they see with their parents. I know when I was younger and my kids were younger, because I went without, I probably gave my kids a little bit too much because I didn’t want them to go through the hardship that I went through. Sometimes parents overcompensate in one direction or the other.
But I’m very proud of the way my kids have come out. In my blended family, I have six kids and nine grandkids, and most of them have learned good money habits and good discipline and have gotten into the property market as investors. Because one of the other big lessons to teach them is the sooner you get on the property ladder, even though it’s hard, the better it is because then you have that compounding and time working for you.
Kevin: Michael, you shared right at the start of this chat a great story about your dad sitting around the table and how he was going to spend his money from his lottery win or whatever. What are some of the other lessons you learnt growing up that you’ve taken forward now, or things you wish you’d been told then?
Michael: I did learn a lot of lessons when I grew up, but interestingly it wasn’t from my parents. My mentors were my friends’ parents when I saw that they owned real estate and they took a punt financially while my parents didn’t. I saw that they were able to go away on holidays at Christmas time and we weren’t able to. I saw that they had cars and my parents didn’t have a car until I was about 10 or 11 years old.
I also learned that they invested in real estate, so it was a lesson that I learned and I decided not to be like my parents and have to argue at the end of each month about who gets paid and who doesn’t get paid. I found positive mentors and I was lucky to have those people around me to give the inspiration to move forward.
Kevin: Michael, the three top things that you think we should be doing with our kids now to instill this common sense into them. What should we be doing?
Michael: First of all, talk about money and teach them about financial fluency, about credit card debts, about debt, teach them to save, and teach them to invest.
Number two, give them information about real estate and about property. I remember my kids telling me that I used to drag them to open for inspections and the properties I’d been building and the properties I’d been buying, and that left them a positive influence about it. So talk to them about it positively.
Also, teach them respect for people who are successful, who have already achieved success, and give them the confidence to know that if they work hard and save hard, they also can be successful.
Kevin: Michael, before I let you go, what books should we be sharing with our kids, apart from yours, of course?
Michael: Mine talk about property, but also over the last few years about finance and getting rich. But I think Secrets of the Millionaire Mind by T. Harv Eker talks about the way successful people in all areas of life think, so that’s a great one to teach your kids.
Robert Kiyosaki’s books are very, very good in the areas of money and finance. I don’t think his property strategies work in Australia, Kevin, because the rules in America are very different, but there are some great lessons to be learned from Robert Kiyosaki.
And Tom Corley’s book Rich Habits, where he’s unpacked the way that the rich people act and behave differently to the average person is also a good one to have on your reading list.
Kevin: Great talking to you, Michael. Thank you for spending some time with us and sharing your wisdom. Great talking to you, mate. Thank you.
Michael: My pleasure, Kevin.
The power of compound interest – Effie Zahos
Kevin: A fascinating topic: what advice should be giving your children about money, and what advice do you wish someone had told you when you were younger? Effie Zahos is the editor of Money magazine and also the author of that great book The Great $20 Adventure.
Good day, Effie.
Kevin: Good to be talking to you again. Tell me, what finance and investment advice do you give your kids?
Effie: Believe me, I do give them quite a bit, because the one thing I don’t want to be stuck in is a situation where they’re still at home when they’re 30. I think it’s very important for all parents to get their kids financially savvy, because we are in a situation where kids are not wanting to leave home, and why should they? If we make it too comfortable for them, they’re going to stick around.
The thing I teach my kids with money – I have a 10-year-old and a 15-year-old – are very different in their approach, but really the value of money is important for them to understand, and we do live in a society now where they probably don’t see a lot of cash. A lot of it is done over the Internet, through cards and so on, so they’ve really lost the value of money, the meaning of money, and the importance of compound interest.
Both my children do understand what compound interest is – interest on interest – because it’s only then that they get excited about saving.
Kevin: My earliest memory of money was the smell of money. I used to love opening my birthday card or Christmas card or whatever it was, and there would be money in there, and I could smell it.
Effie: Yes. They don’t have that now, do they? That’s gone. And money flows out too easily. I actually believe once a child can count, then they should be introduced to the world of money, and get them to actually spend it, use it, make mistakes.
Whether you pay them pocket money or not, that’s kind of irrelevant – and that’s really up to you as parents or guardians to work out how to manage that – but it’s important that they understand… This is a tip that goes right through life, and editing something like Money Magazine for 20 years, I’ve seen people who earn six-digit figures who can’t put together a couple of hundred dollars. Then I’ve seen others who are on the minimum wage and manage to buy investment properties as well as a homes.
It’s not what you earn that counts; it’s what you spend, and I say that to my kids quite a lot. And because they do manage their own money and they have a bank account, they know exactly “If I do spend this, it’s gone. The cash has gone out of my wallet.” I have a 10-year-old for whom now the pain of spending money is far greater than the pleasure of buying something, which is great.
Kevin: It’s difficult when you’re young to understand that there comes a time in your life when the money that you frittered away when you were young would have been even more valuable as you get older. We tend to live for the present. I know in my generation, we did. “What the hell, we’re young; we have some money in our pocket; let’s just have some fun with it.” Saving didn’t seem to be as important as it is today.
Maybe it’s just because I had gotten older, I don’t know.
Effie: I think age does bring with it wisdom. And you’re absolutely right; I look around at 20-year-olds and you talk to them about super, and it’s like, “What? No, I’ll never be that age.” But probably one of my biggest regrets is that I did not salary-sacrifice when I started my first job.
I finished university, and then I did a degree in economics and worked at a major bank. I remember this day clearly, because my mate who was sitting next to me did say he was going to salary-sacrifice.
A financial advisor came around and said, “Would you like to put some of your pay into a superannuation fund?” And I was like, “Are you kidding me? No.” Had I done that today, just put away $50 each pay – and I was paid fortnightly; it was only $25 dollars; I wouldn’t have noticed it – my super fund would be a lot more healthier than it is now.
Sure, I’m catching up now, but it’s the little things. Like if you cook one extra meal at home each month and you put that in your super fund, you’d have an extra $40,000 almost there. It’s the little things that count, and that’s the thing you have to get to your kids.
But more importantly, do involve them in your finances. I find that once my children understand how hard it is to earn a dollar and how it’s spent, they appreciate it more. So they get involved in the family bills. They see the electricity bill, they see the phone bills, and they get a good understanding. They manage their own phone plans, so they know when to go somewhere and get free Wi-Fi data instead of using their own, so they appreciate it more.
I think if you shield them from your financial affairs and make out that everything is okay and everything is easy breezy, you really are doing a disservice for them.
Kevin: That’s a very valuable lesson, isn’t it? It’s a great insight. Kids with money, do you think that they should be made to save money, or should they be shown the benefits of it? There is a difference.
Effie: There is a difference, but I am from the old school, that you just jump in, throw yourself into it. I like the tactile approach of you having to save yourself and spend yourself. You can do all the theory you like, but for me, I learn best if I’m doing it myself.
I think in the case of kids, give them an account. Get them to save some, get them to spend some. Exactly what ratio that is, I’ll leave that up to your listeners to do. But if they don’t actually open it and do the mechanics themselves, they don’t really appreciate or understand it.
Then from a parent’s point of view, if your kids are serious savers, do understand the tax implication of things. Children don’t pay any tax on the first $416 of unearned income, but after that, the tax rate can be as high as 68%.
Effie: So, if you’re stashing a bit of cash, maybe get some expert advice as to where or whose names it should be in. If you’re buying shares for your kids, you can’t buy them in your kids’ name if they’re under 18; you have to buy it as trustee for your children, and then you can transfer it to them later without paying capital gains. Once you start moving to the bigger end of town, you do need to think a little bit and be strategic with them.
But if you have got younger kids – like 9, 10, 15 – open a kids’ account. They’re not going to get rich with it. I can tell you better places to put your money than in a bank account, but that’s not what it’s for. It’s really to teach them, to show them, “Go online, see the statement, see what interest you’re earning.”
The sad reality is like my 15-year-old said to me the other day, “I only earned a dollar interest, are you kidding me?” because rates are so low.
Kevin: Are we good at teaching our kids financial literacy in schools?
Effie: We haven’t been for a long time, and I really have to thank my boss in a way, Paul Clitheroe, for putting financial literacy onto the school curriculum. Now, it does differ from school to school when it gets introduced and in what subjects, but it’s only just starting to really roll out in schools – and it’s about time. I think financial literacy should be taught in all manners.
When you think about, say, music – let’s say your child is gifted, creative, and so on – who better needs financial advice than someone in the arts? Because their income is so irregular, they have to make their pay last for ages, so any way they can sneak financial literacy – it applies to everything with do – can only do better for the economy as a whole.
Kevin: Indeed, great talking to you. Let’s round this chat out with a bit of a plug for you, too, The Great $20 Adventure. I’m a great believer in that. Where do we get it from?
Effie: That’s from magshop.com.au. You can buy it online, or in any good book store. This book really came about because my son kept spending everything he had. He just would not save. So these characters came to life, I think after a couple of arguments with my son, and maybe a nice glass of red, and these are characters we meet in real life.
A little boy gets his hands on some birthday money and he automatically thinks he has to spend it, but his mother says, “Go for a walk,” and he comes across these animals. You have Donnie Dangerous who guarantees to double it. Believe me, I’ve met a few Donnie Dangerous in my life. You have Ms. Pennysaver who says save, the entrepreneur, Queen Bee, Mr. Giving, the philanthropist. So this child is left with a big decision to make and realizes that you can do more with your money than just spend it.
He definitely changed his tune: he doesn’t spend a cent now, which means he’s costing me more.
Kevin: Well done. Well worth writing the book.
Effie: It was.
Kevin: It’s called The Great $20 Adventure, written by Effie Zahos, who has been our guest. Effie, of course, is the editor of Money magazine.
Effie, always great talking to you, thank you so much for your time.
Effie: Thank you.
Seek advice outside the family unit – John McGrath
Kevin: Well, to continue our topic this morning about the advice that you should be giving your children about real estate, I’m joined by John McGrath.
Now, good morning, John.
John: Good morning, Kevin.
Kevin: John, I’m really keen to get your perspective on this. I want to talk to you about the company, too, and its phenomenal growth. But just before we do, is there anything that you wish you had known when you were younger, about starting out and investing in property that you’ve now learned?
John: Probably not a lot, Kevin, because I was fortunate that I was surrounded by a couple of great mentors, and their advice… Actually, I was probably clever enough at that point, one of the few things I did well in my early stage of career was to take their advice, which was to invest as early as I could and live very frugally and utilize property as – if you like – a forced saving.
I bought my first property in inner Sydney when I was about 20, turning 21. Believe it or not, it was $90,000 in those days, and of course, you’re lucky to get anything under $1.5 million now in Sydney, in those price ranges.
But the key thing around advice is not how to find good sage advice; the key is do you take it and are you disciplined? I put all my savings aside, I lived within my means, and I cobbled together a little deposit, bought a property, and once you’re on the first rung of that ladder, subsequent purchases seem to be a little bit easier.
Kevin: Yes, I’ve heard many stories about you as a young person going along to auction. You obviously had an interest in real estate from a very young age, John.
John: Well, yes. Funnily enough, Kevin, not at school. It was my unfortunate HSC result that made me have a real think about what I wanted to do with my life. It was soon after school, I thought real estate would be an interesting career, and the more I learned about it and I got into it, the more I loved it.
The people side, I’ve loved for 33 years, the property side, the design side. The investment side is great because I’ve seen people now, I’ve sold them portfolios of properties. Like we’ve just been talking, they started when they’re in their early to mid-20s, and they’ve now amassed 10 or 15 properties, and that’s exciting to be a part of that journey, as well.
Kevin: John, what were the conversations like around the kitchen table when you were growing up? Did they relate to property at all or investing?
John: No, not particularly, Kevin. My family was just an ordinary family, and my father used to run a pub. So my forte in my early days was at sport, and I wanted to be a sportsperson, and unfortunately, injury prevented that.
I was not particularly from a business background, but the minute I got involved in business, I found it intriguing, even as a late teen. Unfortunately, I didn’t do well in the high school certificate as I mentioned, and I’m not particularly proud or not proud of that. It was just a fact, I didn’t apply myself, because I thought sport was going to be my lifelong career – at least my career for a period.
Anyway, when that wasn’t to happen, I started thinking, “What am I going to do next?” And real estate, for me, was just something that was a very important part of life. We all need a roof over our head. It was a great way to earn money.
I used to read BRW 200 Rich List when I was very, very young and dream about “What have these people done?” I used to see, every third one was property. They had property as a base of their wealth. I thought, “Well, yes. It’s interesting, it’s important to society, and it’s a particularly good way to build some wealth in the future.
That was the starting point and the more I got into it, and hopefully, the better I got at it, it turned out to be very much that way.
Kevin: John, the company that bears your name, one of the fastest growing real estate companies in Australia, it’s been a huge success for you. You’ve mentioned a couple of times about your HSC results. How do you go from something like that to being the founder of such a hugely successful business?
John: Look, I think it’s one of those things in life, you know. They talk about taking overnight success taking 20 years, and I think the catalyst for me getting serious about life was a very bad HSC. I got 18% in the HSC, and as I said, it’s not something that I want people, young kids, to role model me on.
But it is what it was, and I did find that I was in a very painful period in my late teens, and the only way that I felt I could get out of it was get good at something. When sport no longer became a career path for me, I really put my head down, and it was really, just one day at a time.
I started renting flats as an 18 year old, Kevin, and I got very good at that. Then I started selling when I was 20, selling real estate, and after six very slow months – at the beginning, the first six months I didn’t sell a property – but I got my act together after that, and then it really grew from there.
It’s one of those things like when people haven’t visited your kids for a while and they say, “God, your kids have grown,” and you look at them and think, “They have,” but when you see it every day, it doesn’t have that same impact. I guess, my career, I think about it as just 33 years of everyday, going to the office, trying to do a little bit better, trying to support my team, delivering great service to customers. Then when you look at it, you think, “Well ok, if I look back, it has been an exciting ride.”
But, I think like a lot of entrepreneurs, Kevin, I’m very fixated on the future, so rather than dwelling too much on “What have we done thus far?” I’m very excited about “What are we going to do?” I think that’s a big part of it. You’re continually stretching yourself to just see how far you can go as an individual and indeed how far your company can go as a group of individuals.
Kevin: That looking ahead that you just said, John, do you think that’s helped you stay grounded? There have been tremendous success and there have been a lot of disappointments, I guess, along the way, too. But that staying grounded is fairly important in continuing that growth, isn’t it?
John: I think so, Kevin. Look, not everyone who achieves some level of success remains humble and grounded, which I think is very unfortunate because I see a lot of successful people, and some of them, it totally goes to their head and they really become unattractive people in many ways. They’re still successful, no doubt.
I’ve always felt all-round success, which is healthy, happy, good friendships, doing something you love, and if there’s a great financial reward that comes with that, that’s a bonus.
But, I think when you come from humble beginnings, and you work your way through, I think the smarter people realize we’re all the same. No one’s better than anyone else. We all have some degree of fortune and luck in our lives.
You’re right; it’s the disappointments along the way that are inevitable. Anyone who thinks they can achieve great success without having a degree of failure along the way, it’s just not going to happen.
You’re always going to have disappointments. Perhaps the more successful one becomes, or a company becomes, or an individual, the more people like to take pot-shots at you, and I think that’s just a part of the journey. You have to be able to deal with that because I don’t think you can avoid it. Success, to some degree, polarizes people and attracts attention.
Kevin: John, great talking to you. Thank you for giving us your time today. Congratulations on what you’re doing with the business, too, and all success for the future.
John: Thanks, Kevin. It’s always a pleasure speaking with you. Thanks for having me.
Share your adult finance journey with the kids – Ken Raiss
Kevin: I’m pleased to say that our feature interview in this show, which is where we’re talking about the message that you give your children, is none other than Ken Raiss. Ken is a regular on our show.
I imagine you have really been drilling this into your kids over the years, Ken. How are you?
Ken: I’m well. Thank you, Kevin. Hi, listeners. Drilling is probably not the right word.
Kevin: That’s my terminology, Ken.
Ken: Kids take it in at a different rate or a different pace, so you definitely have to tailor the discussions to the individual child. But I think it’s important to talk about wealth at home so that children start to understand that it’s not a dirty word and that it can actually be very helpful in doing the other things they want to aspire to in life.
Kevin: We can actually shield our kids a bit too much, can’t we? In other words, for them to think that it’s just a bottomless pit. We don’t involve them in the fact that things are a little bit tight and we may have to cut back a little bit. It doesn’t hurt to share that with them when they get to a certain age, Ken?
Ken: It certainly doesn’t, and I think it also helps to share the solutions that you put in place and why so that kids start to get values around that. That, I think, is very important even at a very young age to start instilling those sorts of values with your children.
Kevin: I’ll come back to talking about those kinds of messages, Ken. But I’m really keen to find out from you what molded you. How did Ken Raiss grow up, and what were the conversations around your kitchen table like?
Ken: Can I say there were none? Then all of a sudden, at age 17, I found myself in the big, wide world and had to survive.
Kevin: It was pretty much the way it was, wasn’t it?
Ken: It was pretty much the way it was.
Kevin: What do you wish they had told you?
Ken: It’s like crying over spilt milk.
Kevin: Yes, but there are some good lessons to be learned over that, aren’t there?
Ken: Yes. What I’ve done is while not trying to talk to my children along the lines of what I wish I had been talked about or taught, I brought it to a more contemporary situation – because there are 20 to 30 years, depending on when you have children, between when you would have a conversation with your parents to when you have a conversation with children, and you learn a lot in that period of time.
The discussions I’ve had with my children have taken into account my own experiences – and can I dare say that of many of our clients as well? Because you learn from everybody through life. It was really instilling in them core values – and I can expand on some of these – teaching them to save, making sure they pay their bills on time, teaching them that they have to do some work; you get nothing for nothing.
And as the kids got a bit older, how to buy a property and, really, the methodology and the process you go through to invest, I think, is very important because they don’t teach you that at school – and there are shortcuts, if I can put it that way.
The shortcuts are you don’t make the mistakes and lose a lot of time. If you can leapfrog and teach your children to leapfrog, they get to where they want to get financially, I think, much quicker, and certainly, with less heartache.
Kevin: As a parent, there is that instinct – isn’t there? – that we want to help our kids, we want to cushion them, make it as easy as we possibly can, so therefore that has led, over the years, to us maybe giving them a little bit too much or making it too easy for them.
I’m not saying in your case, Ken, but certainly, many of the people I speak to, they’ve made that mistake and they’ve suffered by it because the kids don’t fully appreciate the value of money.
Ken: Correct. They don’t see money as a means to an end. Money, really, just is the tool you use to achieve your other goals and objectives, whether it be a work/life balance, whether it be to pursue your dreams, or whether it’s to give to charity. Money is the tool, so I think you have to teach children that money is not the be-all and end-all; it’s what you do with it.
Kevin: Money is not something where you just got to a thing in the wall and it pops out.
Ken: That’s it, the Bank of Mom and Dad.
Kevin: You actually have to earn it, don’t you?
Ken: Correct. You have to teach your children the values of earning it and then they value it.
Kevin: Let’s broaden this conversation just a little bit. I’m keen to hear about you and your journey. I know you’re at that stage in life where you’ve intelligently put aside a nest egg so that you’re never going to really suffer. But where did it all begin for you? Where was your first investment property?
Ken: I think my first investment property was around age 22 or 23. But can I say my first investment…? I don’t necessarily think I would do it again this way, but I first started investing in super as a 17-year-old – unheard of in those days.
Ken: I think that’s not necessarily the way to go today because you can’t get your hands on it. That’s what I didn’t realize at that point in time. I was doing it for when I’m 65.
I think the savings component of investing in super was the critical thing, and that’s why I’ve taught my children that they need to save. Even when they’re at school, go and get a part-time job – not so much that your studies suffer, of course, but to instill those life lessons in you. Once they’re working, put at least 10% aside to save for investing.
The hardest lesson, I think, I found to instill was debt is not a dirty word. Debt is not evil. Debt is not something that will cause you great heartache. Like anything, improper use of debt can certainly create all of those problems, but thought through with a risk strategy, debt is your friend because leverage is what’s important. Save a bit, borrow the rest, and understanding how you’re going to fund that debt is very important.
Kevin: Intelligent use of debt, isn’t it? Keeping it in perspective. There was a time when there was a saying that said “It’s our national responsibility to have as much debt as we possibly can and then work like hell to pay it off.” I don’t know that I necessarily follow with that.
The other interesting word you used there – and I want to talk to you about that – is risk. As a young person, I remember my risk profile was actually high – I was quite prepared to take pretty high risks – but as I got older, I found I became a lot more risk-averse. Do you think most people are like that?
Ken: I think most people start off very risk-averse. Risk takes on many different guises, of course: not only the debt, but I just notice even the difference in the types of properties my kids bought. A property that they could do a reno was one of my children. Another one who really just didn’t like the idea of that, we bought something that didn’t require any work.
But in all cases, I got them to learn how to research what type of properties grow. It’s the capital value that I taught them, not the income stream at the beginning, because as that capital grows, you can then borrow against it to then go and buy the next investment property. The income from the rent doesn’t help you greatly in achieving that growth projectile.
Kevin: That’s leverage you’re talking about there.
Ken: Yes. Leverage it, but buy a property that has good capital growth because that’s what gets you into the next property – the increased value that you can borrow against.
Kevin: What was your worst investment?
Ken: My worst investment, I think, was an emotional purchase of a unit on the waterfront within a large development.
Kevin: Was that new off-the-plan?
Ken: It wasn’t off-the-plan; it was completed, but it was very similar to an off-the-plan purchase. I had bought three other off-the-plan properties, which all did very well, and it took me many years to realize it was more dumb luck than me. I just so happened to be in the right place at the right time.
Kevin: There was a time when buying off-the-plan actually made a lot of sense. You could actually buy off-the-plan, flip it, and make some money before completion but you can’t do that nowadays.
Ken: No. Can I say the world, the developers, and the banking institutions are too smart for that?
Kevin: They are.
Ken: I signed a contract close to the bottom of the cycle, three-year construction, and when it was time to settle, the property had certainly grown at least close to 50% in value. It took me a while to realize that wasn’t me who did that.
Kevin: You were Johnny-on-the-spot. You said that was your worst investment. Was it your worst because you bought it with the wrong mindset? Was it like you were what I call the ice cream licker, in love with the lifestyle purchase?
Ken: Yes, that was a very emotional purchase. It was probably the only one I’ve made emotionally, and coincidentally, it’s the only one that really didn’t do well. But what I did is I came to that realization pretty quickly and sold it. I sold it at a loss, but cut my losses and rolled that money into something else. A lot of people can’t do that.
Kevin: You learn from those mistakes, don’t you?
Ken: Yes. I think the big lesson was cut your losses. I review my properties periodically, and the one question I ask myself is “Would I buy that today?”
Kevin: Obviously, the answer is no. What has been your best investment, Ken, that you would say, “I’m really proud of this one, I’m so glad I did this, it’s still in my portfolio, and it’s going to stay there forever”? Is there one of those?
Ken: There are ones, but they’re much later in life where I had the resources behind me that I could fund a construction. Hence, the utilization of the land from one property to multiple properties.
There, again, people can make a lot of mistakes: they build the wrong thing, they overcapitalize, they make it a piece of artwork as opposed to a good, solid investment property. I brought all of those principles in, and it was the ability to use land for multiples as opposed to one, so they’ve done quite well.
Kevin: Ken, putting you on the spot here now – not as if I haven’t done that already, and you’ve responded very well, thank you – but in closing out, I just want to ask you what you’ve learned over the years, maybe the biggest mistakes that you’ve seen investors make. Let’s talk about property. What are the biggest mistakes you’ve seen investors make that you wish you could get them by the scruff of the neck and say, “Hey, listen, don’t do that; it’s not good”? What would they be?
Ken: They bought the absolute wrong property from the beginning. There is a thought, I think, among many investors that you can make money out of property. If you live long enough, you might, but you need to truncate the time to use it within your lifetime and certainly, within a relatively young age, not “I’m 100 and I’ve now made money out of property.” They haven’t done the research to buy the right property.
The next mistake is they haven’t structured it and put it in the right name. Thirdly, I think they haven’t created a system that allows them to fund that property when times go sour. I use the word “buffer.” You need to create a pool of resources that can help you through the bad times, just in case.
Kevin: Is there a percentage to that buffer, if you look at your overall portfolio, or is it all about how much gearing you have?
Ken: It’s all about how much gearing you have, but the buffer is not a dollar value as much as a time period: how much time do you want to feel safe or safer if something goes wrong? If that’s ten years for you, you’d better have ten years’ worth of money in case things go sour. If it’s two years, then have two years. Because what you want to be able to do is have an orderly exit. By that, I mean a sale in case you want to.
You don’t want the banks knocking on your door forcing you to sell and maybe accept a fire-sale price. You’d want at least a couple of years, I would have thought, because in most instances, you can have an orderly sale in that period of time.
Kevin: Ken, you make so much sense – you always do and I appreciate you giving us so much of your very valuable time today.
Ken Raiss has been my guest, and he’s been our feature guest this week in the show. Ken, thanks for your time. I look forward to catching up with you again soon.
Ken: Thanks very much, Kevin.
“Money does not grow on trees” – John Symond
Kevin: With some advice on the topic now, John Symond, executive chairman and founder of Aussie Home Loans.
John, thanks again for your time. What advice would you give your children on investing and money?
John: Well, first of all, kids have to appreciate that money doesn’t grow on trees. Dad used to tell me as a kid, he’d say, “Son, it’s so much easier spending money than earning money, so be very, very careful.” You have to make sure that the kids understand the real meaning of that, because nothing comes easy. To live and pay your bills and then hope to have a few bob over to save is very difficult.
I make sure my kids appreciate the value of money. If money’s there, it doesn’t mean it’s there to be spent. They have to be careful. And I suggest to them that when they can, a safe investment long-term is buying a property – if not to live in, to rent out – because it’s not as volatile as other forms of investment.
I always listened to my dad on that. I’ve always loved housing. I’ve been working in the housing industry – finance and property – now for the best part of 40 years.
Kevin: I understood you grew up… Your mom and dad, I think, owned a fruit shop. Is that right?
John: Well, a number of fruit shops, Kevin. I went to 11 schools. Every day after school, even as a 10-year-old, I’d come home with my older brother and sister. I’m one of seven. My older brother and sister in those days, we’d go straight to the back of the fruit shop, help bag potatoes and apples and polish fruit. We did all those types of things. And weekends we used to take turns minding the shop.
But, wow, I say to people, I went to two universities, 11 schools, but my best education was from my parents, who had very little formal education. But they made me appreciate how important it was to look after your customers, the importance of working very hard, and acting truthfully with integrity. I learned some terrific stuff from my mom and dad.
Kevin: It’s interesting listening to people like yourself, successful people, and the conversations around the kitchen table and the lessons you learn from your parents. What were the conversation like at your kitchen table? Were they about money?
John: Well, it was about life, really. Even though I had a very modest upbringing because we didn’t have money. We lived on the back or on top of the fruit shops. Mom and dad would build up the fruit shop and over about a 12-month period, sell it for a profit. We’d hop on the back of the fruit truck. We couldn’t afford a car. We’d go to the next suburb, open another shop, sold the other one, and it goes on and on.
I used to talk to them, “How long, mom, do you think we’re going to be here?” Because after the first two or three moves at a young age, I was expecting that in the next six months or so, we’ll move to another place, which meant another school.
But as a young kid, I never realized the value in me embracing change. Because as a kid I was going through it. We had a happy household. We used to joke a lot. Dad would make sure we always had food on the table. The family always came first.
We would talk about moving, where we were going to move to. They’d always make it sound interesting and fun. We laughed a lot as a family, and we worked hard, and all the kids were involved in working hard. Mom raising seven kids, she would be in the fruit shop serving customers with the apron on. Dad would be unloading the truck with his singlet on, sweating profusely.
At times, I used to think he was going to break his back with the big bags of potatoes in those days with the two pick that you’d stick in the bag and throw it on your back. I used to think his back’s going to break.
But anyway, we had a very good upbringing, I learned a lot, and as I said, the best things in life– the most important things, I learned in life was from my mom and dad.
Kevin: I know, unfortunately, your dad’s no longer with us. Did he have the opportunity to see how successful you had become, John? Was that a proud moment?
John: Mom passed before dad. They were really proud of me. They knew that I was wanting to help change the system to give Australians a better go and all the rest of it. I’m really grateful that they were around to see that we were making a difference. I know that they were very proud parents, and that made me feel good. I’m thankful that they were around when we did make a real difference.
It makes me very sensitive to having the background and the experience I had of not having money, moving around every year, going to 11 schools, watching my parents physically work hard. It made me always remember my background. It gave me the opportunity of understanding the average moms and dads and how tough they do it and how hard it is to put food on the table and educate your kids.
That was a big advantage that I felt I had over a lot of other senior executives because I’d been through it.
Kevin: Well, John, I appreciate you giving us your time. I know it’s a busy time for you. I think, as we speak to you now, you’re in Darwin. You continue your travels and a very active life and a very successful business. Thank you for giving us your time and a great insight.
John: No, great. I’m opening another Aussie store and I’m trying to do the right thing. But thank you, Kevin.