How Should A First Time Investor Get Started

Hi, my name’s Ben Everingham and today we’re going to talk about how should a first time investor get started.

Hi there, my name’s Ben Everingham and I’m the director here at Pumped on Property and we’re a buyers agency that help our clients buy tens of millions of dollars worth of property in the Australian market every year and in today’s video I’m going to talk about how should a first time investor actually get started.

So to kick off today’s video we need to talk about the different types of first time investors. So we’ve got young people that are looking to just get started in the market and before they buy their own home they’re looking to buy an investment property. We’ve got people that are extremely well established that may have owned their own home for a period of time and have good equity in their own home. And then I suppose on the flip side there’s people that have bought and sold their own homes over their lifetime and are looking to step out and make that investment decision now. So regardless of where you’re personally at I think you’ll get a huge amount of value out of today’s video.

So we’re going to talk about eight different things, and the first thing we’re going to talk about is I suppose, really understanding before you make that decision as to buy your first investment property or not, can you actually afford to buy a property? Do you have the equity in your own home or in another property that you own? Or do you have the cash savings to actually be able to enter the market?

So with lending constantly changing in the Australian marketplace depending on the government interventions and also where the banks are at with their lending at that particular point in time when you’re looking to buy, generally you need anywhere between a five and a twenty percent deposit as a minimum depending on which bank you actually move into the market with. So if you don’t have a 5-20% deposit or equity in a property then that is the first thing that you need to do.

The second thing is, will the banks actually lend you money? So if you bought a property, your own home, two, four, five, ten, fifteen years ago and you haven’t done anything since then, the lending environment changes and the lending environment is constantly changing based on the broader real estate cycle that’s taking place, so at different times of the cycle … And a great book to have a look at if you’re into learning a little bit more would be Phil Anderson’s The Secret Life of Real Estate and Banking, which is an amazing book which looks at the bigger picture and the bigger cycles taking place and how you can buy at the right times. I just finished it for the second time and it’s an absolute cracker of a book … But the banks will lend different amounts of money to different people at different times of the cycle so sometimes they like to only lend to owner-occupiers, sometimes they like big deposits, sometimes they like smaller deposits, but you need to talk to a mortgage broker or your bank manager and find out can you actually borrow money?

The third thing that I wanted to talk about is this concept around can you actually afford to hold a property?

So a lot of people rush out and go “yeah I want to buy another investment property” but you’ve really got to take a step back before you even think about it and go “do I have a budget?”. Based on today’s interest rates or your current situation you might be able to afford a property but can you afford the property if you lose a tenant for 10 weeks or if interest rates go back up to 7% which I can guarantee they will go back up to at some point in the future. So based on your current budget, do you have a surplus amount of income coming in on a week-to-week or month-to-month basis? Do you have a little bit of a buffer or a savings buffer sitting there for a rainy day? Can you physically afford to hold what you own right now if you own something? Or continue to have the lifestyle that you’re looking to have right now if you don’t own something, and still buy a property and not have that property effect what you’re doing too much?

So the cool thing about what I like about investing in property is you don’t just have to go for the old buy a property and hope that it increases in value in the future, the old capital growth approach, where you lose two or three or five hundred bucks a week like you do on property in Sydney or Melbourne, but you can go for a more active strategy and maybe buy a house, build a granny flat and then all of a sudden, even up to a 7% interest rate, the property, because you’re getting so much surplus income per week from the house and the granny flat you can afford to hold that property and for a period of time it might even be positively geared.

So there’s plenty of different options in the market, around what you could do and what that first investment might be for you, but it’s really important to take a step back and just understand that you feel comfortable, that you can sleep at night and that you’ve thought about the worst case scenario or the rainy day, that if you’re anything less than 100 years of age is inevitably going to happen at some point in the future.

The fourth thing that I wanted to talk about and touch on is this concept of goals. So again I find a huge amount of people rush into the marketplace and buy a property that may or may not necessarily align with what it is that they really want to achieve in the future. So I think it’s worthwhile sitting down for a moment, having a glass of wine or a beer if you’re a drinker or going somewhere peaceful if you’re not, and really thinking about what it is that you’re looking to do longer term. You know, why are you investing in property? Because property is a vehicle to achieve something, whether that something is time, financial independence, more meaningful relationships, better health, taking that time to travel and explore the world and do the things that actually give you a buzz, volunteer or start businesses. Property is ultimately a vehicle for financial independence and it’s an easy vehicle that most Australians can access so it’s really important to remember the why or the reason you’re doing something before you start.

For me the reason why I invest in property personally is because I’ve got two beautiful daughters and I’m probably going to have another one at some point soon, so I want to spend as much time with them and my wife as possible. The thing that gives me a kick out of life is spending time with my family, looking after myself and exploring this amazing world that we live in.

So I want more time through passive income streams, through investing in property, to spend my future doing that, and I don’t want to wait ’til I’m 60 or 70 to do that, I want to do that … You know, I’m 31 years of age when recording this video, I’m well on my way to achieving that already and by the time I’m 35 I should be able to make any decision that I’d like to in my future which is kind of cool and kind of exciting in the sense that there’s so many different options available to you when you start peeking behind the screen, and we’re not the get rich quick company, I do believe that it takes 15 years to achieve financial independence, unless you’re one of those lucky people that bought in the Sydney or Melbourne markets in the last four years and then all of a sudden you could sell a couple of properties down to pay off some others outright and you’ve achieved it.

Goals are super super important so identify your why and realise what’s important to you and where you want to be by what time and then you can either plan towards it or reverse engineer it backwards, but either way you need to know where you’re going.

The fifth thing that I wanted to touch on is this concept around strategy. So I spoke to a client during one of our one on one strategy sessions this morning … For anyone that’s interested in a strategy session just jump on and click strategy session at the top of the heading bar and you can book a one on one session with me or my brother.

So this guy was in an extremely, extremely strong cash position, he grew up on the land and he’s been through the cycles of the boom and the busts and so he knows that cash is king at the end of the day at different stages of the cycle and he’d bought and sold a couple of properties over his lifetime but he had this ridiculously large amount of cash in the bank that was sitting there getting him a 2.2% return on his money that was in the fixed term bank account that he had and what he’s trading effectively is this 2% return because he was too scared to jump into the property market, for what could be anywhere between 4.5-7% rental return plus a anywhere between 3% and 5-7% capital gain over the next ten years and if you were to do those numbers and put them into a spreadsheet you’d realise extremely quickly that you can go the slow and steady approach to building wealth, which is your 2%, but if you’re losing that 2% of value every year with inflation then you’re actually just breaking even or potentially even going backwards over time versus buying high quality assets that achieve the things you’re looking to achieve with the right strategy in place.

So I sat down and talked to this client, and the reason I share this story is because he was looking at brand new property, existing property, un-renovated, renovated property, he was looking at houses and units, he was looking at New South Wales and Queensland and he didn’t have a clear strategy in place so he didn’t actually know what he wanted, and the problem with not knowing what you want or having a clear strategy in place is that everything looks like an opportunity when you don’t know what it is that you want, and so your strategy should align directly to your goals.

For example if passive income and a future where you’re financially independent is what it is that you’re working towards then there’s two ways you’re going to get there. You’re going to get there through capital growth and you’re going to get there through cash flow. So it’s important to remember where you’re going when designing your strategy.

By the end of the call we’d identified that he’d be targeting the Brisbane market in the $400 to 500,000 dollar range. He’d be looking for a three bedroom, one bathroom, un-renovated home on a 600 square metre block with the potential to add a granny flat and he was much, much clearer on the area that he was targeting, the suburbs that he was targeting, the type of product that he was buying, which meant instead of all the clutter and the noise going on through his head, because I know that a huge amount of people spend so much time listening to these types of videos and talking to people and almost get to this position where they’re just stuck moving forward because of the noise and the clutter and the fact that they don’t have a clear strategy, so he walked away … Whether he works with us, someone else, or he goes and does it on his own, it doesn’t matter because he now knows what he needs to do. I’ve pointed him in the right direction of some great tools where he can find some really cool information and he can go on and implement his strategy now rather than losing money in his bank account which he was doing at the moment.

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Strategy’s extremely important and as I said for anyone interested in a one on one strategy session with me or my brother, just jump over to the website, click the strategy session button and you’ll be able to look straight into my calendar and book a time that suits you.

The sixth thing that I wanted to talk about … We’re using two hands now, we’re getting crazy … Was this whole, once you’ve got the strategy in place, identifying the right market, the right suburb and the right product type. Because anyone that’s been in property for a period of time, and even though I look young if you’ve never seen one of my videos before, I help people buy about 50 million dollars worth of property per annum in Australia. The number one mistake I see people make outside of not knowing what their goals are, not understanding their strategy, is they just can’t identify the right market at the right time, and timing has got everything to do with succeeding in property and I don’t have to explain that to anyone who’s watching who bought in Sydney or Melbourne four years ago because you’ve made a small fortune over that period of time.

Timing the rising market, as Warren Buffett says a rising market lifts all boats, is extremely extremely important to get long term success through investing in property and it just speeds up the journey. I speak to a lot of people with regional properties that grow by 1-3% per year and I’m like, you’ve got $400,000 tied up there when you could put that same money into Brisbane or a Sydney or a Melbourne and exponentially increase your growth rate and achieve financial independence quicker.

So identifying the right market comes down to understanding what’s going on globally, understanding what’s going on in the Australian marketplace, and there’s some cool resources, for example to HTW month in review report’s a great free resource where you can look at where Australia’s major metro and major regional markets are at in any one point in time, and then use that information to effectively reduce it down to one state, one market, one or two suburbs that you become obsessed with and know better than anyone else in the industry. So HTW’s a great resource to start with. The Residex reports which you pay for are also great resources if you don’t know how to find the right suburb. DSR score can be really helpful for identifying the right suburb. There’s also some other great reports that you pay for like the RP data reports, the Real Estate Investor reports and the BIS Shrapnel reports but they’re probably for the more advanced investor that’s at a slightly higher level of the journey or a professional investor.

So once you’ve got that market right, let’s say for example that the marketplace is Brisbane, then you reduce it down to a handful of suburbs. So you might draw a 10km radius of the city and you might analyse all of those suburbs against say key performance indicators which, if you know what you’re doing and how to do it, it should only take you about five minutes per suburb to make a yes or no decision on an area, and then you might go of the 20 suburbs within a 10km radius of Brisbane city, I’m going to target these two.

Then once we go to the suburb level and we’ve gone these are the two suburbs I’m targeting, we then really rip it down to what sold in the last 12 months, what’s the difference between a four bed and a three bedroom, un-renovated vs renovated property, and really begin to put a business case for this is the type of product that I should be targeting in that suburb, this is what comparables have sold for, these are the good streets, the good parts of the suburb and you really at that time can make a smart investment decision and it’s only at that point that I start jumping on something like domain or talking to a real estate agent or jumping on to look at listings, but for some reason a lot of first time investors, or first time buyers just jump straight onto the internet and think that they’re crunching the numbers, they’re looking at all these properties when in fact 80% of the value that they’re going to make on their portfolio over the next 10 years is going to be based on the market and the suburb they target, not the property type.

So it’s really important to get that research right up front so that you give yourself the best possible option to succeed. You can’t control the global financial crisis, you can’t control the recession in the Australian market, you can’t control a bust in some sort of bubble that may or may not happen. What you can control is the quality of your research, the market that you target and making sure that the product that you buy is well below market value.

The seventh thing that I wanted to talk about is this concept of do you go it alone? Or do you … Which is part eight, I can’t get those fingers working properly, I don’t even know why I’m still showing them with my hands like it means anything … But, getting help.

So I bought my first six investment properties on my own, and then I started a buyers agency and since then I’ve bought a lot of property, but it’s mainly my team that actually buy my properties for me these days, because they know a lot more about the actual market than I do. My team includes my brother, my sister, my mum, my wife’s best friend and an amazing recruit that we pulled from Sydney. It’s a small team, it’s definitely a family orientated business but I think trust is one of the biggest things in the world and working with good people, and I’m lucky enough to have grown up with amazing people.

So this concept of going it alone is great. You’ve just got to remember that you need to identify your goals, your strategy, your market, your suburbs and the product type you’re going to target, and sometimes if you haven’t experienced doing that it can be a little bit overwhelming so sometimes getting some support for that stuff can be beneficial but there’s nothing also like learning on your own, as long as you’re buying the right product at the right price in the right market at the right time, you can do very very well from buying on your own and you learn a lot from doing that as well. I’ve made some massive, massive mistakes like selling great properties at the wrong time or buying shitty properties in average areas and losing money. I’ve also made some very very smart decisions which have done very well, so learning on your own has its place. Or getting the help of someone like me or a coach, which can speed up that journey.

If I’m buying 50 million dollars or 120 properties per annum, and you plan on buying three over your lifetime. On a week to week basis I’m probably learning as much about the market as you would over an entire lifetime. You can’t fake that experience, you can’t fake the things that you learn from buying volume and our process has become more and more refined over time as well, to support people to get as consistent an outcome as you can from the property market.

So whether you’re buying it alone or going with somebody else, ultimately there’s four things which I think are most important and I’ll finish the video with this: You need capital growth if you’re a first time investor looking to get started. I think cash flow is extremely important and will become more important moving forward because capital growth isn’t going to be what it used to be in the Australian market anymore. I also think you need to time the market at the right time and buy the rising marketplace, and I think it’s extremely important to buy a property with the potential for … I’ve just realised I can’t move my pinky properly for whatever reason, I can’t get the four fingers out there properly, but yeah …

I think it’s extremely, extremely important to buy something that you can actually add some value. So if the marketplace goes flat or backwards you’ve got an opportunity to add some value and continue to move forward, or if the marketplace stays buoyant which I personally think it’s going to do for a period of time, then you can potentially add some value or create another deposit pretty simply through renovating or adding a granny flat or adding a bedroom or bathroom or subdividing or doing something like that to help you continue to move forward without just buying and hoping the market’s going to do all the heavy lifting for you.

I know we spoke about a lot in today’s video and I really appreciate you staying all the way through if you have. As I said in today’s video we looked at how should a first time investor get started. These are just some of the ideas that I have. Obviously take everything that I have to say with a grain of salt always, your job is to pick the pieces from the pieces, different strategies in the market that you like, and end up developing something that works for you, and that ultimately gets you from where you are to where you want to be as quickly as possible.

Thank you so much for your time today. Until next time, stay hungry. Thank you.

Ben Everingham


Ben founded Pumped On Property after building a multi-million dollar property portfolio over a 5 year period. His mission is to show you how to replace your income through property investing so you can do what you love…full time.