G’day my name’s Ben Everingham. Thank you so much for jumping on today’s video. It’s gonna be action packed. We’re gonna talk about a huge amount in today’s video. I’m gonna share a number of the things that I wish I knew 10 years ago, that I’ve learned from buying, literally over 140 million dollars worth of property for my clients, and about eight million dollars worth of property for myself over the last eight years.
We’re gonna talk about compound growth and what I wish I knew about compound growth. We’re gonna talk about timing the market, and how to select the right market and the right suburb. I’m also gonna talk about which types of properties perform better and how, if I knew what I knew now, then, things would be very different for myself. I’m gonna talk about history and how to identify great mortgage broker. I’m also gonna talk about the power of leverage, as well as how to manufacture growth in property.
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There’s really nine things that we’re gonna talk about in today’s video. The first one is, the power of compound growth. And so, Einstein said famously, that the eight wonder of the world should actually be compound growth, and anybody who understands it, receives it, and anybody who doesn’t, pays it. I think it’s such a powerful thing. I’m gonna give you some examples of this today.
Imagine, you’re in a position similar to me, where you’re thinking about buying an investment property in the next 12 months. Let’s say your budget for that property is 400,000 dollars. If I was to invest that 400,000 dollars into a property that grows in value by four percent per year, over the next 20 years, I’d have a little bit over 830,000 dollars in my pocket. Well, that would be the value of the property at that time. You’ve made a pretty good chunk of cash, but if I was to invest that same 400,000 dollars into a property today, that grows by six percent per annum, compounded over the next 20 years, I’ve not got over 1.1 million dollars in my pocket, over the next 20 years, or that would be the final value of that property at that time.
Obviously there’s gonna be times where there’s significant growth, like 20% in a year, and minus 10% in a year, and times where it sits flat. We’re talking averages over that period of time here. If I was to use the same example again, of putting 400,000 dollars today into a property that grows in value by eight percent per annum, over the next 20 years, you might go, “Whoa. Eight percent’s a serious return on investment.” You’ve got to remember that in Australia, property prices in Sydney, Melbourne, and Brisbane, in the last 20 years grew by, on average, 8.7% per annum, and over the last 46 years grew by 9.7% per annum on average.
Let’s just say, if the past repeats itself into the future, that you’re gonna be sitting in a position where eight percent per annum for 20 years on 400K, you’ve now got a property worth 1.8 million dollars in the bank, or a million dollars more, just by investing in something that gets you an eight percent return, as opposed to something that gets you a four percent return.
When people come to me and they say they’re looking to make 20, or 30,000 dollars on the way in, and they’re buying regional property, or units, or the wrong type of property in the wrong market, I do scratch my head and go, “You know, you’re trying to save this tiny bit of money on the way in, but you’re costing yourself, literally in a lot of cases, between 300,000 dollars, and a million dollars in growth, just by not buying the right type of asset class.” Compound growth is so powerful.
I highly recommend getting online, jumping onto one of the calculators and having a play with it. Maybe if you are in property at the moment, put the total value of your portfolio in and put it at four percent growth rate for the next 20 years, and see where you’ll be. And maybe put it at six percent and see where you’ll be. I can guarantee both options will make you very excited about where you’re gonna be long-term.
The second thing that I wanted to talk about, that I’ve been fascinated with for the last couple of years is timing. For me in my business, at Pumped On Property, which is a buyers agency that helps investors from all over Australia buy high quality investment properties each month. Timing is fundamental to everything.
Three, four years ago, we were buying a lot of property in Sydney. It’s 2017 at the time of recording this video. During that three to four years, since we bought that property, our average client’s made about 50%. If you look at the market we’re buying in now is 2017, it’s Brisbane. We’ve been buying here for the last two and a half years. I expect that if you’re watching this years into the future that, things have gone pretty well over the next seven years in Australia, or if you’re watching it now, predicted to do very well.
Timing’s powerful if you like reading like I do, there’s a great book called, The Secret Life Of Real Estate and Banking, by Phillip Anderson. It’s an incredible book and looks at 250 years worth of property data in America. There’s also another amazing book called, The Power Of The Land, which looks at 300 years of property booms and busts in Europe.
If you want to understand timing, you’ve really got to look at your history. I think, if you can get into the right market at the right time and understand how to do that, and then the right suburb and type of property at the right time, you can do far better than the averages. You know, the average property that I buy these days, makes a nice chunk on the way in, and then definitely an above average return over the medium to longer term as well.
The third thing that I wanted to talk about, is how to select the right market. This is something that I wish I knew 10 years ago. Luckily enough, eight years ago, when I was starting my own portfolio, I grew up in Sydney. I also grew up or finished university at the very middle to end of the global, financial crisis that we went through, between, sort of 2017 to 2011.
Because, you know like most investors, I was buying where I lived, which was Sydney. I was lucky enough to ride some of that growth up, after that market. Knowing what I now know, I realise that, Sydney, Melbourne, Brisbane, Perth, Cambria, you know, all of those major market places in Australia perform very differently, at different stages of the cycle.
An example of this is, you know, Sydney at the moment, in 2017 has just gone through six crazy years, where property prices in most suburbs have gone up by 60 to 100 percent. The nine years before that … So, from pre-2011 for nine years, the average annual growth rate in Sydney was only 1.5% per year. Had you of bought nine years before the GFC, there was almost no growth in Sydney, but had you of bought in 2011, you could have almost made 100% in seven years, which is exceptional. Timings powerful and very, very important, as is selecting the right market, at the right stage of its cycle.
As of right now, in 2017, Brisbane’s in a position where, it is set, almost flat for the last nine years in most suburbs. Almost flat, to me means, it hasn’t received a year where it’s got double digit growth. A great way to understand the timing of markets, is to read the Herron Todd White month in review report. It’s a free report that you can Google. It looks at those major markets in Australia, and where they’re at right now, in terms of timing.
The fourth thing that I wanted to talk about, is how to select the right property. The right property is very, very simple from my perspective. If you’re not a developer, or you’re not a professional developer, because it’s a whole different kettle of fish if you’re looking for the right type of product, if that’s your space.
If you’re like me, or you’re the average Australian, then the type of product that’s performed best in Australia over the last 200 years, and most consistently, is houses on good sized pieces of land, in Sydney, Melbourne, and Brisbane, either as close to the water as you can possibly afford, or as close to the water as you can possibly afford. If you select that type of product, it is very, very difficult to go wrong, over a 15, 20, 30 year period in those cities, regardless of when you buy. If you can overlay timing and selecting the right market, then you can be in a much, much, much more powerful position.
The sixth thing that I wanted to talk about … It could be the fifth actually, I’m sorry. I’m just reading through my stuff. It’s kind of underneath my camera today. I know my partners not gonna edit this out, so I’m sorry. Going off on a bit of a tangent. Yeah, so the sixth thing, if we’re at number six. It might be number five, is how to identify a good mortgage broker. I’ve personally had nine mortgage brokers and a number of bank managers in the last eight years.
What I found from working with so many different people, is most of them are beautiful people, very nice people, but completely incompetent at what they’re doing, you know, especially the bank managers that can only sell you one type of product. It works as long as you fit inside that box, but as soon as you don’t, it doesn’t. I’ve got a number of mortgage brokers that I work with now, that have been very, very good for me to deal with.
They’re not just brokers that, when I ask them to give me money they get me that money, but if I can’t get the money, they tell me why I can’t and what I need to change to be able to do something, and their more strategic. They wanna know what my long-term plan is. They help me execute that plan. A good mortgage broker to me, is somebody who’s already financially independent, and has actually been applying what they know over the last 10, 15, 20 years. That means, someone that has a good property portfolio of investment properties, and is in a good stable, financial position themselves, because the worst thing you can do is go to someone for advice that hasn’t actually walked where you wanna walk.
Obviously experience is extremely important to me personally. I like to work with people with a track record of success over time, and multiple cycles. My mortgage broker’s been doing it for quite a while now. That mortgage broker is absolutely key and an absolutely necessary thing. If you don’t have a great mortgage broker, jump over to my website. I’d be happy to introduce you to mine at any time. I’m not gonna keep counting here, because I don’t know if we’re at six or seven.
The next thing I wanted to talk about, that I wish I knew and that has been so powerful for me in recent years is, how to identify properties with manufactured growth potential. Again, we’re not talking about development sites here. Identifying properties with the potential to make short-term money does one very powerful thing. That thing is, it enables you to get your deposit that you put into the property, because obviously in Australia, we’ve got to put down a five, 10, 15, 20, 30% deposit, depending on which lender you’re using. If you can get that deposit back sooner, rather than later, it means you’ve got funds to continue to move forward with your journey.
You know, as someone who’s earned great money and okay money in the past … I remember when I was earning 50, or 80,000 dollars a year. It was very, very difficult to keep saving deposits. It was very, very difficult to keep moving forward as fast as I wanted to at that time of my life, when I had a bit of a high risk profile than I do now with couple of kids and a lot of information behind me. I think, it’s really important to understand what types of properties help you manufacture growth, with the least amount of cost and pain to you.
I really like to buy pieces of land at good prices, not in greenfield sites, but in established suburbs, just little in-field blocks, and then build the right type of property at the right price, and sometimes by buying the land and building, you can manufacture a nice little chunk of, between five and 20% growth in the first 12 months.
Other options are to buy a three bedroom, one bathroom home for example with nice big floor plan, or a garage, under the same roof line and then convert it into a four bedroom, one bath, or a four bedroom, two bathroom home. In a lot of suburbs around that 500K mark, the difference between a four bedroom home and a three bedroom home, with one or two bathrooms, could literally be 50, or 60K, but it might only cost you 20, or 30,000 dollars to make the conversion.
Another opportunity, I’m sure you’re aware of, is cosmetically renovating properties, which can be very, very powerful. If you buy a place that has been unloved for a period of time, or is in a condition where the owner occupied doesn’t want to pick it up, or most people that walk through can’t see what it could be. With a renovator, you want good bones, but you know, a bit of a face lift can add massive value.
In many instances, every dollar you spend should get you a 1.50 to two dollars back out. There are a couple of the different ideas for manufacturing growth. When I buy these days, all I’m thinking about is how quickly I can get my deposit back, as well as obviously the timing of the market, the type of property that I’m buying, and what I can do to add value to that property in the short, medium, and long-term, and also making sure I’m buying a marketplace that has the potential to grow by six or eight percent over the next 20 years, as opposed to something that grows by four percent. You know, the cost to me, is too large to even consider that type of product anymore, long-term.
One of the second or the second last thing that I wanted to talk about, which I’m also very passionate about. I wish I understood better, you know, five, 10 years ago from today, is actually the power of leverage. Let’s say I had one dollar, and if I was to invest that dollar in an index fund in the stock market, like the American Stock Exchange, or the Australian, I’d get an average annual return, if I just put that money in and hold it for 10 years of let’s say somewhere between seven and nine percent, depending on which of those markets you invest in. That’s a nice return. I lose my one percent of the top, in fees and transactions and all that stuff. If I ever sell it, I’ve got my capital gain as well.
Let’s just say I put a dollar in today, and I get seven percent return compounded over the next 10 years, that’s a fantastic outcome. If you’ve got good money to play with, you know, let’s say you had a million dollars to invest in it, that’d be a nice sort of 70 grand in the first year and then, you’re starting point in the second year is one million and 70 thousand times seven percent. It continues on. Obviously there’s peaks and troughs through that, but the thing I love about property is, you leverage. You can still leverage with shares, but for anyone that’s had a call from a bank asking for some money, it can be very stressful at the wrong times of the market as well. A lot of my friends do this full-time for a living.
With property, what I like is, I can put down a dollar and that dollar can, depending on the loan-to-value ratio on the property, if I’m putting down a five percent deposit, it can give me a pretty significant amount of leverage. If I’m putting down a 10% deposit, for every dollar that I put in, the bank is effectively giving me nine dollars back. Now, that is the power of investing in property, because let’s say in the example before, that I had a million dollars cash to play with, and I put that into the stock market … I know that’s a huge number. It’s probably the wrong number for this video, cause who’s got a million dollars cash to play with.
Let’s say you had a million dollars. You put it in the stock market, and you got 70 grand in the first year. If you had a million dollars to play with and a high income, you might be able to go and buy a number of properties, you know, with a deposit. Let’s say you went and bought five properties worth 500,000 dollars each. Now, you’ve only had to use, to buy those properties, 500K of that money, so you’ve still got a nice chunk of money sitting in the bank as a buffer, or that you can invest in a different asset class. Now, you’ve got two and a half million dollars growing at, you know, your seven percent per annum. The power over time, is absolutely incredible.
In that example you’ve got 70 grand on the first million, 70 grand on the second, 35 grand on that half a million dollars. You add them up in year one. Instead of making your 70 grand on your million dollars, you’ve been able to make 170,000 dollars through the power of leverage on those properties in the same period of time, only using 500K of your actual capital.
I hope I haven’t overcomplicated that. I know I get a bit too deep into some of these things sometimes, but the power of leverage is very, very important and is one of the major reasons why someone earning 50, or 80, or 100,000 dollars should seriously consider property, because it means they can leverage their savings up into a bigger platform and over time, with that compound growth stuff we talk about before, your long-term position can be completely different from where you are today. I bought my first six properties, before I was earning less than 80,000 dollars per annum. It’s completely possible with leverage and buying the right types of properties to do very well.
The last thing I wanted to talk about in this video, I’ll call it the ninth thing. It’s debatable. History will repeat itself. What I found from really understanding and studying the history of property prices in Europe, America, and Australia over a couple hundred year period is that, there’s very, very good times, like we’ve just gone through in Sydney and Melbourne for example. There’s long periods of flatness, where nothing much happens, and there’s periods of decline where, at one time in the 1800’s in Australia, I think it was 1890. Between 1890 and 1892, property prices in Australia dropped by 90%.
You’ve gotta remember, and you’ve gotta know your history. You’ve gotta be smart enough to know that there’s good times to buy. One of those times is just after a global financial crisis. Another one of those times is when other people can’t afford to buy, and therefore prices sit flat for a period of time. You know, sometimes during the middle of a property cycle. Understanding that history is gonna repeat itself, and as an investor over a 20 year period, you’re gonna go through times where your properties decline in value, times where they sit flat, and times where they increase.
All that really matters, if you’re a long-term investor like myself is, the average over that period of time. And so, like I said before, in 46 years worth of data, in Sydney, Melbourne, and Brisbane, the average over that 46 year period per year has been, you know your 9.7% per annum. That growth rate is pretty insane when you actually think about it, especially if you were leveraged at the type of money that we talked about before. Knowing that things are gonna be good, that things are gonna be bad in the future, just enables you to make more educated decisions to think about the rainy day, to make sure you put yourself into a safe position. You really start to understand some of those things. Again, a great book to understand more about the property cycle and how it ebbs and flows over 14 to 18 year period, would be Phil Anderson’s, The Secret life Of Real Estate and Banking.
I hope you’ve got a bit out of this video. I know it’s been very thorough and there’s been a lot that I’ve talked about. There’s so much that you can learn about property investing. There’s so far that you can take this, and there’s so much value in understanding how to get yourself a six percent return versus a four percent return.
If you’d like to talk more about that sort of stuff, I’d love to offer you a free strategy session. You can jump over to my website, www.pumpedonproperty.com, and book yourself in a free session with myself or my brother Simon at any time. We absolutely love this stuff. We’d love to help you, you know, get clear on where you and where you’d like to be. If possible, or if it’s something you’d like and we get on well, cause we only take on seven new clients per month, then I’d love to work with you and have the opportunity to learn more about what you do.
Thank you so much for your time and your attention today. Please subscribe to the video and until next time, have a great week. See ya.