G’day. Ben Everingham from Pumped on Property here, I’m really excited about today’s video. I’m going to talk about what type of property investor you are and why I think it’s really important as investors for us to understand what type of investors we are. I’m also going to talk about six or seven different things. Some of those include, is it better to be lower risk or take on higher risk and what the appropriate ages to do that are. Whether you should be looking at short term or long term gains, whether cash flow or capital gains is more important. We’re going to look at are you a passive or an active investor, is your preference houses or units, brand new versus existing, should you be targeting metro or regional property and should your strategy be to buy or hold or develop and flip.
After I get through all of that stuff, which is going to be awesome, I’m going to focus on what I’ve seen work from talking to over 4,000 investors in the last three years and what I’d like to do personally as an investor, now knowing what I now know so it’s going to be a huge video. For those of you who this is the first time you’ve seen me, I’m Ben Everingham, I’m the director here at Pumped On Property. As I said before, I’ve bought a lot of property in the past. If you’re on YouTube right now please subscribe to my channel. If you’ve got any questions, please put them below. If you’d like me to record a certain video for you or you’ve got a question, please put it in the comments below and I’ll do my best then. If you like this stuff show me some love. Let’s get started today.
The reason I recorded this video is because I have strategy sessions, I might have between 20 and 30 of those every week. Some of those investors are just getting started and some of those investors are very sophisticated and might own between 10 and 30 properties. The common trend between all of the investors that I speak to, and I probably spoke to 4,000 investors in the last three years now, is that a lot of them don’t have a clearly defined strategy and I think that strategy comes back to really what type of property investor are you. This isn’t one of those situations where you can kind of sit on the fence because you’re talking about such big amounts of money.
You’re talking about #300,000, the two million dollars, depending on where you’re parking your money in Australia right now. It’s really, really important to understand what type of investor you are and then from that you can try the property investment strategy that serves your personality type, your risk profile, and your longer term goals. The first thing I wanted to talk through is low risk versus high risk. For those of you that have been watching my stuff for awhile you know I’m extremely low risk from a property investment perspective. I don’t like taking on huge risk, I don’t like taking on huge debt. I like my portfolio to be well geared with a low loan to value ratio and I like my properties to have strong income to cover themselves in times where interest rates are much higher.
I’m personally low risk but that’s probably because I grew up in an environment without a lot of money when I was really young. My parents ended up accumulating quite a bit of money from starting their own businesses but I was a lot older when they actually started to do that and most of that occurred when I’d actually moved out of home. For me, I’ve seen the bad side of not having enough money and that sort of thing growing up and the sacrifices my parents had to make for me and so I don’t like taking on risk.
There’s other people out there who have had completely different experiences like that or might have a slightly higher palate or profile for risk and that’s completely fine as well. As long as risk is calculated and as long as you’ve taken all scenarios into account including multiple exit strategies then depending on your stage of your investment journey in life you might be prepared to take on a bit more risk. I started to buy property at 24 and at that time I wouldn’t have said I was low risk at all because I, at 24 years of age, didn’t even know what risk really was.
Unlike a lot of other investors I was lucky to be finishing my Union degree at the end of the global financial crisis and buying in Sydney after that sat flat for literally nine years straight. Anybody could have bought at that time, which was 2011 in that marketplace and made really good money. I’m not stupid enough or I don’t have a bias to go, “That was all me or that had actually anything to do with me.” It was just lucky that I grew up in Sydney and finishing at the perfect time to capitalise on that opportunity.
For most people who don’t accidentally time the cycle like that or believe that it was their choice that they really bought Sydney in the last six years … 80% of the investors down there think that they, no matter what they touch now will turn to gold and, unfortunately, 60-80% of those people are going to go on to lose money so understanding your risk profile is very important and getting comfortable with that. A lot of people I speak to say they’re medium to high risk but when I ask more questions they’re actually extremely low risk and that’s probably why they’re not financially independent already.
If you’re not earning 100k per year in passive income I’d say your risk profile is probably very low; otherwise, you probably would have gone out there and done what it takes to achieve that already. I don’t mean to be an asshole when I say that but that is just the honest truth. People that have a very high risk profile will make decisions to bring that money in if it’s very important to them. The second thing I wanted to talk about it whether you’re a long term investor or a short term investor and what you’re looking to achieve from each property you buy so are you looking for short term returns or are you looking for longer term returns?
Now, I personally am looking for both. I’m always chasing a short term return so I like to make at least 10-20% in the first 12 months from any property that I buy so that I can get my deposit back and I can recycle that into another property. I’m also always focusing on the long term. My mind, because I’ve played with the compound growth calculator so many times now, just see things 15 or 20 years in advance, I can’t help it. Every decision that I make now I’m thinking about is this the best use of my money and does this property have the potential to compound at a slightly above average rate over the next 15 or 20 years.
For any of you that have played with those compound growth calculators you know that a 1% difference on a 400 grand property over the next 20 years will put about an extra $450,000 net profit in your pocket. For those who think that it’s not important or that they’re so focused on the short term gain that they miss out on the long term gains, you’ve got to be really careful with that stuff and be very, very thoughtful about that stuff as well.
The third is cash flow versus capital gains, which there’s hundreds of videos about this, I’ve recorded a few myself. For me, I want both on every single property that I buy, I will never sacrifice one or the other. That makes it really difficult to buy in Sydney and Melbourne at the moment because there’s not the cash flow returns that there were before. Don’t worry, property prices rise rents rise. Rents rise, property prices. It’s just a constant little juggling act between them. I think there’s great potential long term for good yields to balance back out around three and a half to 5% in those markets, which they have historically for the last couple hundred years.
Cash flow is important because it takes a lot of the risk away from what you’re doing, it also makes you sleep easier at night, it also means that you don’t have to sacrifice your day-to-day lifestyle during the accumulation phase of your property investment journey. Capital growth is what really makes you wealthy long term so for me it’s always how can I find the balance of both. That means really targeting properties with at least the 5-7% average annual capital growth rate in the last 10 years and buying a market that has a historical return of between 5 and 7%, which really means Sydney, Melbourne, and Brisbane in the last 50 years in Australia. Then, from a cash flow perspective I like yields of over 7%, which aren’t always easy to find but they are around if you know where to find them.
The fourth thing I wanted to talk about is, are you a passive or an active investor? There’s plenty of people that pretend they want to be active but they don’t want to roll their hands up and actually do what it takes to do that. By active I mean buying a rundown property and doing a renovation on it, buying a three bedroom home and turning it into a four bedroom home, buying a piece of land and building, finding a subdivision site, spinning it and building or renovating or whatever it takes. That is more of an active strategy in my mind, where a passive strategy is more buying a high quality property at or below market value and buying it in the right market at the right time. Just realising that it is a 15 year strategy or 20 year strategy to replace your income.
Being passive is completely fine if you’re buying in the right areas so I take both of these approaches. Sometimes I just find really good properties that are in great condition for myself that I just buy and I won’t think about for the next 15 years. Then other times I’m very active and I like to buy land at good prices and build cheap or I like to buy renovators and clean them up or add granny flats and those types of things. Again, it depends on your life stage, depends on your workload. I’ve got two kids and one on the way, which will be here in a month so I’m going to be really busy soon. I think my strategy will probably go back to more passive for a while. Pay off a bit of debt, maybe buy a couple of decent properties in Brisbane that have really good potential close to the CBD around the water.
That’s just where I’m at now. Once all my kids are in school I might go to a more active strategy again because I’ll have some more time back in my life. The fifth thing I wanted to talk about is houses versus units. For me, this is a no brainer. If you look at the data in Australia in the last 30 years in Sydney, Melbourne, and Brisbane, houses have outperformed units by between 1 and 3% per annum better. For me as someone that goes, “If I’m going to put 400k into a property and hold it for 20 years and if I get a 1% better return on that money
I’ll be in a position where I’ve made an extra 450k then I will never, ever buy a unit again. Maybe consider a block of units at the right time but Sydney seems to be the only market where units consistently work well. When I say units I’m talking about small complexes, apartments are the bigger complexes of 50, 100 plus units or dwellings. I think understanding where you sit on houses versus units is very important but if you’re logical you’d be targeting houses because of the length component, which appreciates in value over time.
The sixth thing that I wanted to talk about is whether you should consider brand new or existing property. Again, it’s a personal preference. I know there’s a lot of sprukers in the market that like brand new probably because they get 15-$50,000 behind the scene commissions from the builders and the developers if they don’t disclose to you or don’t legally have to tell you about. They also push the spruke because you get depreciation, like depreciation actually means anything. I mean, I suppose it does a little bit but in terms of the priorities, for me timing the market is number one. Think buying Sydney and Melbourne five or six years ago, capital growth, cash flow, manufacturing, adding value, then depreciation.
It’s not something that I personally chase because who wants to save $3,000 a year when you could buy a property in the right time with capital growth potential and make 40 or 50 grand a year, it just doesn’t logically make sense to buy shitty properties because they get use in depreciation like units in some of Australia cities are, or the dual-lock stuff or the brand new stuff that people are flogging off everywhere at the moment. Again, I don’t have a preference towards existing or brand new, I just have a preference towards returns. If I’m looking for that 5-7% long term capital gain and 5-7% rental return then most of the product in the Australian market doesn’t even register on my radar anymore.
If I find a piece of land in an existing suburb, just a block to fill in near the water or near the CBD that’s priced well and I know I can build at a good price, I might consider brand new. If I find a great house on a nice, big piece of land that I can renovate or add a bedroom to or add a granny flat to that’s at a good price then I’ll look at existing. It’s not I am this one type of investor and I’ve got to just do this forever but you do need to find a strategy that works for you and a preference based on your risk profile and the other things we’ve talked about already.
The seventh thing I wanted to talk about is metro versus regional. For me, this is just another no brainer. The same as units versus houses, again, metro properties Sydney, Melbourne, and Brisbane outperform everything else and have done in Australia for the last 200 years, particularly the last 50 years where Sydney, Melbourne, and Brisbane have all grown over the last 46 years by 9.7% at least per annum. In the last 20 years all three markets have grown by 8.7% or more per annum and it’s only in the last 10 years where Sydney and Melbourne have still grown by 7.9 where Brisbane has grown by just under 5. For me, again, that’s citywide. There’s some suburbs in Sydney that have grown by 20% per year for the last 40 years, and there’s some suburbs in Sydney that have grown by 5%, and the same with Brisbane and Melbourne.
There’s markets within markets and in the last 10 years in Brisbane there’s some suburbs that have only grown by 2% per annum. There’s some suburbs that have grown by 4-5 and then there’s some suburbs that have grown by 7-9, which are the ones that I like to target personally. There’s all types of opportunities even in flat markets but metro property is what you should be focusing on because metro property performs best long term. Again, that 1% difference per year over 20 years is the difference between close to a half a million dollars in your pocket or not.
The eighth … Getting my fingers working again, it’s a bit early up here this morning, is the buy and hold versus develop and flip. Now, from experience there’s about 2% of investors that can actually make developing and flipping work for them and profitable medium to longer term. The rest us will just lose money doing it long term. Timing has a huge amount to do with your ability to buy at the right prices and understand certain pieces of policy around planning, has a huge amount of your skill set, your ability to build at great prices and have a strong team of advisors around you. Also, has a strong correlation to long term success in that development gain.
I’m personally a person that likes to just buy and hold high quality property but I also have no problem selling properties. Now, I wouldn’t call it flipping because I don’t try and buy properties, do something to them in three, six, 12 months and make some short term money on them./ I have no problems buying in Sydney in 2011 and selling it in 2017 after it’s doubled in value or the central coast or buying in Brisbane now and selling it in 2024 once it’s gone through its market cycles. Sometimes if you’ve made good money and you’re in a high debt position, selling a property to pay off some debt or selling some properties to put yourself in a financially independent position can be a really, really powerful thing to do.
I hope you’ve enjoyed some of those eight things that I wanted to talk through, which were really around low risk versus high risk, short term/long term gains, cash flow versus capital growth, passive versus active investor style, houses versus units, brand new versus existing, metro and regional and buying and holding versus flipping. As an investor you need to understand where you sit across each of these things because the more you can understand where you personally sit the better your long term position will be, the clearer your strategy will be and will be for you to execute and make financial independence come your way.
The things that I’ve seen work personally are people that time the market, that buy and hold really high quality houses in Sydney, Melbourne or Brisbane, and that hold those properties for the longer term. Generally with something that they can do to add some value to them over time as well. There’s no secret to success with property investing and this is the big thing, there’s no silver bullet that you’re going to find to make easy money. For most people earning less than 200 grand it’s going to take you more than 10 years to achieve financial independence if you’re just getting started, for most of us it’s probably going to take more like 15 or 20 years to achieve it.
I know that sounds like a period of time, you can obviously speed that up but if you want to speed it up it means taking on a bit more risk and having that type of strategy in place. Some of the other things that I’ve seen work over time with people that buy existing properties and actually manufacture value into them to create those shorter term returns. Again, the one thing I always come back to that makes the biggest difference is timing and time in the market. If you can buy at the right time and ride the cycle up and if you can just be in the market for the next 15 years on a number of high quality assets your position will change more than you can even dream of right now.
In terms of what I like to do personally, I kind of explained a few of those things as we’ve gone through this video, across these things I’m definitely low risk. I don’t like to take on huge amounts of debt and I do like to own properties outright or that’s my medium term goal. I do need the short and long term gains, I’m always looking to reduce my risk by making money on the way in. I’m always looking at the long term potential of one property versus another or one area versus another. I chase capital gains first because I know that’s going to put me in the best long term position but I make sure the properties have cash flow coming in or the potential for cash flow in the future.
For example, I bought a property in Brisbane within 10 k’s of the city, a house last December 2016. The property’s in very average condition, it’s renting for 385 bucks a week, it cost me, like, $430,000. I’m going to add a granny flat to it next year and I’m going to claim up the property longer term. I bought that property even though it’s not cash flow neutral because I can see how I can put a granny flat on it and actually make some really good passive income. I’ll build the granny flat for, like, $110,000 next year and it should rent for 320 a week so that’s like a 17 or 18% return in itself. Again, I like the cash flow, I’m much more of an active investor than a passive one. Despite what I said before about having the children I sort of can’t help myself, I like to get my hands dirty. Well, not personally anymore, more by employing the right types of people.
Always houses for me, always metro property for me. I’d be looking at accommodation of brand new and existing properties in my portfolio based on the opportunities. Again, I’m much more of a buy and hold style of investor but I may sell some properties at different times of the cycle to reduce my overall exposure and debt. I hope you’ve got some information from today’s video, it’s gone a lot longer than I thought it would. I’m really passionate about this stuff.
For those of you who now understand what type of investor you are, fantastic. For those of you who need some support just figuring yourself out, if you go over to my website, www.pumpedonproperty.com you can click free strategy session. Me and my brother, Simon, would love to catch up with you and walk you through a much, much more detailed process of where you are right now, where you’d like to go in the future and share some different ideas and educate you a bit more about the Australian Market. It’s a complimentary session, we don’t expect anything. For those people that would like some support buying that service, see what we do as a business.
Thank you for your time and attention today and have a great week. See you later.