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EPISODE 26: FINANCIAL FREEDOM THROUGH PROPERTY
Adrian Franklin (00:09):
Welcome to Ticker Home, where each week we will dive into the latest trends on the property market and answer the questions you need to know, and that I need to know. It’s great as always to have my cohost Ian Ugarte, founder of ianugarte.com.au. Hello, welcome back. I like the jacket.
Ian Ugarte (00:23):
Yeah, I spruced it up. Found it next door.
Adrian Franklin (00:25):
Perfect size, too.
Ian Ugarte (00:26):
Jumped into a bin and grabbed it.
Adrian Franklin (00:28):
Look at you. Hey, what are you looking forward to getting into today?
Ian Ugarte (00:30):
You know, for me, property is the thing that I talk about all the time and how you can gain financial freedom from that. And that’s what we’re going to be talking about today. And I’m going to bring a mate in who’s awesome and really well known. And you’re really going to enjoy Steve.
Adrian Franklin (00:44):
You’re very connected in this industry, aren’t you? Ticker Home, presented by Ian Ugarte, who’s reshaping housing, so it’s affordable again. Learn more at ianugarte.com.au. All right. This is what I like to do. This is your moment. Who is our very special guest today?
Ian Ugarte (00:59):
Our very special guest today is a guy called Steve McKnight and he’s become very well known in the property market because he has a book, written a book. 130 properties in three and a half years is what they accumulated, he and his partner. But more importantly for me, Steve, and you know, when you get to that point in your relationship, when you’ve got a girlfriend, boyfriend and do we call each other girlfriend, boyfriend? Steve’s not my boyfriend, but Steve to me is my best mate. He’s a great person to be able to talk to. He’s someone that I can sound and put some boards towards and he comes back with some information and he’s always looking out for me. And so I really love Steve. He’s amazing to me in my life.
Adrian Franklin (01:37):
All right, well, let’s bring him in. What an introduction that is. Welcome in to Ticker News. How are you?
Steve McKnight (01:42):
Hey, and I think Ian and I call each other big spoon, little spoon and he’s always little spoon. And for those of you watching, yes, I’m up in cyberspace where it’s raining. So apologies for being a bit pixelated. But I’m sure what I say will be much more important than how I look.
Adrian Franklin (01:59):
All right. I’m looking forward to getting into this. So Ian, firstly, you’ve known Steve for a while now. You just mentioned you’ve become best mates pretty much. And you recently spent time on his legacy project in Gippsland. So why was it important for you to bring Steve and his knowledge to our Ticker audience today?
Ian Ugarte (02:14):
I think for me what’s important is that property gives you a position to be able to be financial enough to do and choose what you want to do, and watching Steve’s project roll out and his legacy project, is what I see and what he calls it, is something that’s really amazing. It’s something that he wants to do and he chooses to do. And the freedom of choice to do what you want to do on a daily basis is really important.
Adrian Franklin (02:38):
Unbelievable. So we’ve got to get into this number of properties. This blows my mind. I don’t have one property and there are 130 properties here, apparently. So let’s talk about that, Steve. 130, in just three and a half years. That’s fairly impressive. But you also say not everyone needs to do that to enjoy financial freedom. So, what are your two tips for people who want to build their financial freedom through property?
Steve McKnight (03:02):
All right. Before giving the two, must know tips, perhaps, a little bit of background might help.
Adrian Franklin (03:07):
Of course. Go for it.
Steve McKnight (03:08):
So, I was working as an accountant and deeply unhappy doing it, and really felt that I had to find another way and a different way forward to be able to live the life that I want without having to sell my time. And whether you’re a professional or something else, ultimately in a job we’re all selling our time and expertise for money. And instead of doing that, I wanted to create income streams, and by creating income streams, work, but then get paid into perpetuity for that work rather than on an hourly basis. And I looked at various different wealth creation schemes, everything from blue gums, ostriches, share trading, negative gearing, and I settled on positive gearing, which was buying properties where the income that came in was more than the expenses that went out, left a little bit of surplus cashflow, and it became a numbers game.
How many properties did I have to buy where that surplus cashflow accumulated to be more than the money I was making, selling my time in accounting, in which case I would become financially free. And the answer was, I was with a business partner and together we needed to buy 130 properties. And then we said, let’s go and do it. So we bought 130 positive cashflow properties in three and a half years. And I’ve been financially free for the past 18 years, living the dream.
Adrian Franklin (04:34):
Unbelievable. All right. What have you got for him?
Ian Ugarte (04:37):
So, Steve is really well known. He knows a lot of people. He’s taught a lot of people how to invest. And for Steve, he’s got a mantra and the mantra is that you’ve basically got to make it, manage it and multiply it and then make it matter.
So Steve, tell everyone why it’s so important, those few things.
Steve McKnight (05:00):
All right. Well, coming back to Adrian’s question about what were the two tips and then moving on to that. I guess the two best tips that I could offer anyone were only invest in real estate that makes money. That seems obvious, but a lot of the time people get hooked into buying properties that lose money for tax benefits or other… If I said I’ve got a great business opportunity and you’re like, “Oh, okay, tell me about it.” And I’m like, “It’s going to lose money.” I mean, it fails at the first hurdle and real estate shouldn’t be any different. If it’s not going to make money, then don’t get into it. And if the number one reason for getting into it is so-called tax benefits from losing money. Well, no.
And then the second tip that I would give people is don’t just buy anything, buy something. A little Steve McKnight mantras that I’ve come up with over time is, our goal as investors is not just to buy something and hatch it, but there’s four parts to it. Want to make the most money in the quickest time for the least risk and the lowest aggravation. And that’s what I constantly ask myself, even today, when I’m looking at buying an investment property. Does it make money? Yes or no. And if no, you don’t even get to part two. And then part two, most money, quickest time, least risk, lowest aggravation.
Now coming on to Ian’s point, sometimes wealth creation seems all too hard. People are like, “Oh, I want to get better at money, but I just don’t know how.” And I’ve realized that really there’s three main parts to becoming a master of money and then a fourth part, which is how you actually make the most of money. So, the first three parts are you’ve got to make it. Then you’ve got to learn to manage it. And then lastly, you’ve got to learn to multiply it. And if you can’t make it, there’s no point managing it. And if you can’t manage it, there’s no point multiplying it. And this make, manage, multiply is really the space that I work in now in empowering investors to be able to get the money to invest with, to begin with.
So the two parts to life that people walk are, first of all, they want enough money to survive. And that might be own a house, have enough money in the bank, work if they want to work, whatever it looks like. And it’s a very selfish me centered conversation. I want this so I can do that. All right, great. No worries.
The second part of wealth creation then becomes significance, which is how can I make my life matter? How can I make money matter? And a lot of people don’t get to significance because they never get to survival.
And there’s always a constant, “Oh, I don’t have enough. I don’t have enough. I don’t have enough.” So therefore they live a life which is a constant grind, struggle and effectively get to a point at the end of their life where they’ve got to try and survive on what they’ve got without necessarily having the wherewithal to be significant. And what I’m doing with my money now is I’m blessed to have enough. I want to then allocate it towards significance, which is this legacy project we’ve been talking about earlier. So before you can really get into significance, I mean, high level human beings do significance, then survival. But the rest of us do survival, then significance. Once you’ve got enough, because you’ve learned how to make it, manage it and multiply it, you can then figure out how to make it matter by supporting and getting involved in causes that add meaning to [inaudible 00:08:25].
Adrian Franklin (08:27):
It all sounds very impressive. So let’s break it down for people out there. Is this something that anyone can do, Steve? And Ian, you can chip in here as well. And if so, what sort of properties should people look for when they are about to embark on the property journey? We’ll start, Steve, with you, and then Ian can chip in as well.
Steve McKnight (08:44):
Well, I think anyone can improve and the desire to improve is the beginning point. And the more you do of what you’ve done, the more you get of what you’ve got. So if you’re not happy with what you have at the moment, then add scale to it. And if you’re still not happy, you’re like, “Oh crikey, I couldn’t handle more of that.” Then you need to embrace change. And that’s going and finding someone who you would like to learn from, who hopefully has success in the areas that you would like to emulate. And whether that is investing, real estate, shares or basic money management, it’s up to you to decide to change and to do better and to find someone who can help you.
I always like to say, if you’re being sucked out in a financial rip and you’re too proud to put up your hand, well, no one’s going to come and rescue you. But if you can put up your hand and attract the attention of the lifesaver on the beach, then that lifesaver can come and grab you. Well, if you need help ask for it. And I know Ian for instance, is a fantastic person to seek help from when it comes to acquiring positive cashflow properties, high yielding, positive cashflow properties. And certainly if I lost all my money and had to start again, I would be pursuing Ian’s strategy. I’m lucky enough to have bought those properties, as we’ve mentioned before, and now in a situation where I’m typically in the commercial property space, but that’s what I would say. If you need help, first of all, don’t be too proud to ask for it. And then second of all, find someone who’s got the success and experience and runs on the board, that you want to emulate and then cozy up next to them.
Ian Ugarte (10:20):
You hit it spot on. I mean, that’s exactly the thing that you would say. You would say that if you can follow someone who’s already done it before, it’s going to make your life much easier because you can learn from your mistakes, but it’s actually better to learn from someone else’s mistakes that they’ve already done before.
Steve, you’ve got your legacy project. Both of us are very big about using our wealth to create legacy. What would you say to people out there? Why is it important for you to be able to use your wealth for a legacy project?
Steve McKnight (10:49):
Well, I always like to say that money doesn’t hug you back. So there’s lots of people out there hugging money, but it’s a bit empty and something very interesting happens along the road to financial freedom. You start off trying to get to this mythical number where you think you’ve got enough. And then along the way you start becoming a bit worried that you’re going to lose what you’ve already got. And that’s this double-edged sword to wealth creation. How much do you need to have enough? And then how can you overcome the need of not losing what you’ve already got? And the answer to the second question is to make your money matter, to give money a purpose, because money has no purpose in and of itself. It’s just a figure on a bank statement, or on a spreadsheet. But if you can start making your money matter, if you can start getting involved with your time or your resources, and then experiencing what it’s like to, as a mentor of mine, Brendan Nichols says, “Get a life or give a life.”
Then you can start feeling like you’re contributing, that you can touch, move and inspire other people, to be able to help them in ways which matter to you. And it might be saving the starving cats of Sydney, or it might be whales, or it might be a cause that’s deep to my heart, about trying to help rescue people who are in sex slavery in Southeast Asia and give them new skills or retrain them. Or it might be planting 300,000 trees up here in Northeast Victoria, where I am at the moment, to create a massive carbon sink forest that’ll never be chopped down, because the government isn’t doing what they should be doing and showing leadership in this space. Well, I don’t have to wait for the government. I can use my own time and my own money to pursue a cause or causes that are deeply important to me because I can self-fund it, and hence that’s making my money matter and adding meaning to my life.
Ian Ugarte (12:51):
You can see why I love my mate, Steve. He’s so amazing and passionate about helping people out and he’s in a position to be able to do that, and I just love that.
Adrian Franklin (13:00):
No, I love that link too. Yeah. I mean, because you can make money, but as you say, it doesn’t really mean that much, unless you attach a meaning to it and then it means whatever you want it to.
Ian, we’ll get you to finish up and wrap up the most important steps to gaining financial freedom through property. Take us through these ones.
Ian Ugarte (13:14):
Yeah. Firstly, to gain financial freedom, you’ve got to make it, get money. You’ve got to manage it, then multiply it and then make sure that you’ve got a mentor with you, that can help you be able to master that moving forward, all through the ways that you are starting from beginning to end.
Steve, just for your legacy project, what’s the website?
Steve McKnight (13:36):
If people want to find out more, just head to treechange.com.
Adrian Franklin (13:40):
So good. Really great to have you. It was very inspirational and motivating to have you on Ticker today, so hopefully we can talk again in future. All the best until next time. Hopefully you guys catch up really soon as well.
Great work. Awesome. Amazing.
Ian Ugarte (13:56):
Adrian Franklin (13:56):
Not a bad friend to have.
Ian Ugarte (13:57):
Well, he’s a great friend to have, and the one thing that I’ll say about Steve is that he would not normally come on and do a segment like this, because he likes to stay in the background now, and he’s done that as a favor to me and you. So, I thank you, Steve.
Adrian Franklin (14:08):
Amazing. Yeah, that was incredible stuff. Well done. Thank you for bringing him on. Really appreciate it.
Ian Ugarte (14:08):
Adrian Franklin (14:13):
Ticker Home, presented by Ian Ugarte, who’s reshaping housing so it’s affordable again. Learn more at ianugarte.com.au.
EPISODE 25: MAKING THE MOST OF THE POST-COVID BOOM
Adrian Franklin (00:08):
Hi there. Welcome here to Ticker Home where each week we will dive into the latest trends on the property market and answer the questions that you need to know. It’s great as always to have my cohost Ian Ugarte, co-founder of Small Is The New Big, in person, ladies and gentlemen.
Ian Ugarte (00:23):
In studio finally. COVID almost stopped as again, a few weeks ago, so it’s good to be here.
Adrian Franklin (00:29):
It’s great to have you here. How are you?
Ian Ugarte (00:31):
It’s awesome. Really awesome.
Adrian Franklin (00:32):
Awesome. We’re going to get started here today. We’ve got a special guest in a moment, but what are you looking forward to talking about today exactly?
Ian Ugarte (00:38):
Today about making the most of the post COVID boom in property. And really there was only three people, commentators in property talking about a boom about 18 months ago, and that was myself, this guest and someone else. And so I’m pretty happy about that.
Adrian Franklin (00:54):
Awesome. We’re going to get into that in just a moment. Ticker Home presented by our partners at Small Is The New Big, they’re on a mission to create one million affordable homes in the next 10 years and help Aussies struggling with housing stress. Learn more at smallisthenewbig.com.au. All right, well usually it’s my job to introduce the guests, but you’ve known each other longer. So who is our very special guest for this episode?
Ian Ugarte (01:14):
Yeah so, our guest this episode is Terry Ryder Ryder from Hotspotting and he’s got a massive following. He’s been in the industry for a long time and really knows his stuff, puts out some great reports and lives just up the road from me. So good to have him in from the sunshine coast.
Adrian Franklin (01:30):
Terry Ryder welcome in, how are you?
Terry Ryder (01:33):
Very, very well. It’s great, well, beautiful day on the sunshine coast as always.
Adrian Franklin (01:39):
So we want to talk about this growth and he’s already given us a bit of a clue, Mr. Ugarte. He might’ve been one of the first to predict it, but Ian, is that true? Is Terry Ryder one, and who’s the third? The fact that we’ve seen this huge growth post pandemic, I guess I got to say it like that, don’t I?
Ian Ugarte (01:54):
Yeah and except for me, Simon Presley was the other one. So the self [inaudible 00:01:57] Simon Presley, the ones that I could see. You know, I had a dollar bet with one of my mates who will be on an episode very soon, and I won that bet. He paid me back in 5 cent coins. So the reason I saw that there was going to be movement was there’s already a shortage of housings. We’ve got demographics that had, not matching the housing style. We did have a lot of people leave, but we did have a lot of people come back. There was some factors in the market that just felt right and generationally, they hadn’t been the move that we’d seen, like back in ’85 to ’88. And so for me, it was what’s going to happen now. So from here, Terry Ryder, let’s just drill down a little bit on there.
Terry Ryder (02:34):
Let’s do it.
Ian Ugarte (02:35):
Yeah. You said that this growth has been fueled by multiple factors. What do you reckon is your top three factors that you are seeing fueled or is going to fuel the growth continuing moving forward?
Terry Ryder (02:48):
Well, I’ve actually got a list of them with which has got 16 dot points on it. In fact the list is growing. There’s actually [crosstalk 00:02:56]. Yeah. And I think that’s really important for people to understand because every day in the media, for some reason, media thinks that the place to go for analysis of real estate markets is a gaggle of chattering economists who don’t really collectively understand too much about residential property. And they’re one line answer to why we’re having a property boom is record low interest rates, which is sort of kindergarten analysis and just plain wrong. So yeah, I’ve got 16 dot points. There’s so many different factors feeding into this, but if you asked me to nominate my top three, well the first one will be what I think is the biggest single force impacting residential property in the 21st century, which is the one I call the exodus or affordable lifestyle, which means that Australians increasingly are leaving the two biggest cities and hitting for the smaller cities or the regional areas because I’ve learnt over the last few years that they can effectively work remotely.
Terry Ryder (03:53):
That’s one of the main drivers and having made that realization, they’ve asked themselves the question, do we need to be in the big expense of congested city? And if the answer is no, many, many Australian individuals and families are moving to places like where Ian live and I live in the sunshine coast inter land, but many, many parts of Australia are benefiting from this trend and we’re seeing massive uplift, firstly, in sales activity, in these places. And secondly, it’s translating into big, big price growth, the like of which I haven’t seen in the 35 years I’ve been researching and writing about residential property. So that’ll be the first one.
Adrian Franklin (04:31):
So can we go further into the comment you made and we’ll bring Ian in on this as well, I like the fact that you talk about how we’re getting it wrong, how, I wrote down, did you say chattering economists? I don’t think I’ve heard of that, but what does that actually mean?
Terry Ryder (04:43):
Well look, economists love to be in front of, some of them, of notable media tasks. They just liked to be front of the cameras as regularly as possible. And so they’re not afraid to make comment on things that are outside their area of specialty and which includes residential property. For me getting an economist to analyze what’s going on in the housing market is kind of like asking a hockey expert to provide expert commentary for the AFL grand final. I mean, you just wouldn’t do it. So why media feels that economists are the go-to people for housing analysis, I don’t know. And as Ian has pointed out, now 12 or 15 months ago all those people that I call the chattering economists were forecasting, massive decline in property prices. And the only people who were saying, no, we’re actually going to have the opposite, actually going to have a property boom were Ian, myself, and as he mentioned, Solomon Presley of Propertyology. And the difference that we bring to the table is that we’re actual specialists. Every day we’re at the coalface of the housing market researching and gathering information, which isn’t the case with those chattering economists, unfortunately.
Adrian Franklin (05:52):
So I’ve got to get Mr. Ugarte’s thoughts on this chattering economist, but how in all seriousness, how do get it wrong in maybe the mainstream media and what are we looking at that we’re getting wrong here?
Ian Ugarte (06:01):
I think that the property, that the tarts is where we’re looking at, like there they’re out there to get their face in there to get the next big job, to get something else. So fingers crossed, hopefully that they can make a prediction, not based on any data or figures or outcomes. And that will then mean that they’ll get more notoriety if they get it right. But you never hear from them when they get it wrong. You only hear their rightness, which is, what do they say, a clock is right twice a day. Twice a day, if you get it wrong and you know, the clock is going to hit the same point. So I think it’s just more, it’s chatter is the perfect word for it.
Adrian Franklin (06:37):
Interesting. All right Terry Ryder back to you. Tell us about how much you think the government incentives, stimulus measures and also tax cuts have played into this growth or not.
Terry Ryder (06:48):
No, I think it’s been massive and certainly a number of those things, factors are on my dot point list for why we’re having this extraordinary property boom and why I think that property boom has longevity. Firstly, because this tax cuts in the system, there are direct measures to help first-time buyers and others in the market, both federal and state measures. In fact, I’d say there’s never been a time in the history of this nation where there’s been a better time to be a first-time buyer, contrary to what you hear in media a lot as well, because there’s never been such a high level of assistance to first-time buyers, as we’re currently seeing. And at the same time, interest rates have never been lower. So it’s a great combination effect for first-time buyers, but also others there’s was other stimulus measures out there, including what we’re currently seeing announced to help businesses and workers that have been affected by the lockdown in Sydney.
Terry Ryder (07:44):
And we’ve seen that right the way through we’ve seen job seeker and job keeper, those kinds of packages. My business has benefited from that now 12 months ago, when things are looking a bit dire and that’s helped businesses, stay afloat, people maintain their incomes. And also we’ve had the fact that where people in lockdown or with borders closed, have had time to reassess their priorities and might make new decisions, but also save a lot of money because for example, if the borders were open, I’d be spending a lot of money on overseas travel like I normally do, but I can’t. So I’m saving a lot. I’m using that as seed capital for property investment, and a lot of people have been doing that. But probably the biggest single factor under the general heading of government stimulus is the one that’s just getting underway.
Terry Ryder (08:35):
We’re going to be feeling it for years and it’s going to create longevity in this boom. And that is the big infrastructure spend. It’s really clear that state and federal governments intend for us to have an infrastructure led economic recovery. And we’re talking about multi-billion dollar projects and dozens and dozens of them across the country, that the projects that have horizons of multiple years, for example, the inland rail link, which has already under construction, that’s a $13 billion project, hugely influential for the towns along the route, but we’ve got so much more in the mix. And that’s just going to, because that really does pump up economies, it creates jobs and from that comes to mind for real estate. So I think that’s one of the big factors.
Adrian Franklin (09:18):
So Ian I’ll bring you in, how can we take advantage of this, people out there, the boom, given that many people might feel like they missed the boat? How can we take advantage of it?
Ian Ugarte (09:26):
First thing they going to do is get onto hotspotting.com because Terry Ryder does some amazing reports and has done well for a lot of people. And understand that there’s areas in growths that are moving at different paces differently and we’ve talked about, even though it’s called hotspotting, we remember the woman spotting.com. I do check whether it’s available, it’s not available, but it’s certainly a hotspot, and is about making sure that you’re in the right place at the right time.
Adrian Franklin (09:52):
All right. Nice. So finally, Terry Ryder, do you share Ian’s view that this growth will continue? Or do you see a bit of a dip on the horizon?
Terry Ryder (10:01):
No, I think I agree with Ian. I think it’s got considerable longevity. Typically we don’t have these national, truly national, property booms very often in Australia, maybe once every 20 years. And we know from history, they tend to run for three or more years. But beyond that, the reason why I am confident that it’s going to roll on into next year and beyond is because there are so many factors feeding into it. It’s not like the chattering economists say, it’s not about the low level of interest rates at all. And therefore if interest rates do at some point in the next few years rise, it’s not going to actually slow down the runaway train. We’ve got all these other factors and some of them haven’t really come into play yet. Investors are only just coming into the market. The growth we’ve had to date has largely been driven by home buyers and first home buyers without a lot of competition from investors, but that’s changing there.
Terry Ryder (10:51):
We’re also seeing evidence that foreign investors are targeting Australia because it’s seen as a safe haven. The infrastructure spend is going to roll out for many years and it’s going to continue to have an impact. And then when our borders do finally eventually open, we hope we’re going to see an influx of migrants because again, Australia is seen as a safe haven and that’s going to have another wave of demand for real estate. So I think this is going to go on, maybe not at the same current level of price growth, but we are going to see prices growing strongly well into next year and beyond I believe.
Adrian Franklin (11:23):
Fascinating stuff. All right. Let’s put up some key points, and Ian I’ll let you finish with just the final tips for how we can get involved. This is all important.
Ian Ugarte (11:31):
Sorry. Let’s make sure you invest in smaller regional cities. That’s where the movement’s happening the most look for major infrastructure projects that Terry Ryder talked about. Explore low cost finance options. Sometimes you can make a phone call to the bank and they will drop your interest rate over the phone if they say, make sure you do that. And when they do that, make sure that you take those savings and put it in the bank because at some point in time, interest rates are going to rise, and it’s nice to have a little buffer or a war chest sitting there for you.
Adrian Franklin (11:56):
And finally, Terry Ryder, that all works for you. Is there one point there that you’d like to really focus on or are they all as important as each other?
Terry Ryder (12:04):
Look, they’re all important. But what I would like to say to people out there, investors are starting to pile in to the market now. And what I would say to people is please be careful, please select your location wisely. What we’re seeing increasingly is people doing some really silly things because they think they can throw a dart at their map of Australia and buy where it lands, and anywhere is going to give them growth. Maybe that’s true in the short term, but in the long term they want to be in those places that have intrinsic growth drivers, identifiable drivers for future growth. And the other point is pay local prices. People out of Sydney think that they’re buying cheap because the pay is cheap compared to Sydney, but it’s quite often they’re paying silly prices and that will come back to bite them, if they’re not sensible.
Adrian Franklin (12:48):
Very wise words indeed. I know why Mr. Ugarte brought you on the show, that was really enjoyable and very insightful Terry Ryder. We’ll hopefully talk to you again soon, all the best and until next time.
Terry Ryder (12:58):
Okay. My pleasure. Thanks a lot.
Adrian Franklin (13:00):
Great stuff. Great stuff from you as well. He’s a wise man. Isn’t he?
Ian Ugarte (13:04):
He’s been around for a long time. I’ve done a podcast with him, a really interesting in podcast on how he got started in property.
Adrian Franklin (13:11):
You got to let us know about that podcast. Maybe we’ll get it up on the website. All right. Great stuff from you. We’ll talk really soon. Okay. Awesome. Ticker Home presented by our great partners at Small Is The New Big, they’re on a mission to create one million affordable homes in the next 10 years and help Aussies struggling with housing stress. Learn more at smallisthenewbig.com.au.
EPISODE 24: THE ‘RIGHT SWIPE’ FOR YOUR INVESTMENT PROFILE Pt 2
Adrian Franklin (00:07):
Hey, there. Welcome back to the Ticker Home, where each week we will dive into the latest trends on the property market and answer the questions you need to know. It’s great as always to have my cohost, Ian Ugarte, co-founder of Small is the New Big. Hello, sir. How are you?
Ian Ugarte (00:21):
Hi, Adrian. How are you? How was your weekend?
Adrian Franklin (00:23):
Good. Weekend was great. Every weekend is absolutely wonderful. How was yours?
Ian Ugarte (00:29):
Not bad. I like to spend time in the sun in Queensland.
Adrian Franklin (00:33):
Yeah. Well, we don’t see the sun in Melbourne so, there you go. Let’s not talk about the sun. What are you looking forward to getting stuck into today?
Ian Ugarte (00:41):
Well, last week, you asked me to look at risk and match that to properties, so that’s what we’re going to be doing today. And as long as you understand Tinder, then we’ll be on the same page today, because that’s the example I will give.
Adrian Franklin (00:54):
Very good. Never heard of it, but that’s fine. Only kidding. Ticker Home, presented by our partners at Small is the New Big, who are on a mission to create one million affordable homes in the next 10 years and help Aussies struggling with housing stress. And it can be stressful, so learn more at smallisthenewbig.com.au. All right. In terms of what is trending for you this week, what have you got? Where would you like to start?
Ian Ugarte (01:16):
Yeah, I got an article in Sunshine Coast Daily, from my local paper here, from Alex Turner-Cohen. This one got my blood boiling a little bit here. Basically, economists warned that we were going to see a 20 to 25% dip in the property market a year ago, and here we are, 20 to 25% up. So, that’s a 50% turnaround. This quote came from a Professor Leishman, who said the fact that commentators switch their predictions so quickly shows how unstable the housing market is. And that that gets my blood boiling, because Mr. Leishman, I’m sorry, it’s a cycle that you don’t understand, and that’s the reason people are not seeing it the way it is, because it’s a supply and demand issue. It comes from a report in housing created calling Taming the Elephant in the Economy. Amongst its findings were that the number of homeowners under the age of 35 have halved since 1995.
So the inequality gap is widening as the housing market starts to continue to surge. We have talked about, Adrian, days on the market showing a strong marketplace and that anything under 40 days is a very strong market. The national average for days on the market right now is 32 days, so that shows that the whole of Australia is in this uplift right now. Professor Leishman in his great sitting behind his desk as a professor has said that the RBA should control house prices. I’m not sure how that could even possibly think about starting, but here he is talking about it. The housing sector basically is being fueled by a three-fold problem. Firstly, it’s creating an unstable [inaudible 00:02:47].
Secondly, that’s generating inequality and perhaps, most surprisingly, reducing productivity. Why? People are moving away from the major cities to get cheaper properties that are away from their workplaces, effectively taking good workers that are skilled from the city into regional areas. And as I said, all of this makes my blood boil, when someone sits behind a desk and starts to create commentary and has no experience in the market whatsoever. And there, I end my rant. Adrian.
There you go. Point taken. I won’t ask a follow-up question. That’s fine. Let’s talk about Reddit. The fact that millennials seem to be getting on Reddit to learn about trading and share market and all that, but maybe not so much. Is it old school news that’s trumping all of this?
Ian Ugarte (03:29):
Yeah, look, Aleks Vickovich in Financial Review wrote a really great article about this. They did a survey of nearly 2,000 people. Most of them were age 25 to 40, and they found that 63% of all of those people use social media for investing advice and education. Now, this is dangerous, because it’s an unregulated industry and ASIC want to see what can be done to make sure that it happens. Now I’ve asked for years for the wealth creation industry and, particularly, those that are marketing on social media to have some sort of regulation, because at the moment, it is unregulated and anyone could be out there saying things which will be advice by people that they don’t have to be qualified to do that. So the herd mentality means that as long as you’ve got a great marketing strategy in social media, then you can actually get to people and start touting being the next best guru.
A working group has been put together, including ASIC, to come up with some regulation for the industry. And they’ve termed those people in social media that can actually do well and influence people and pretend to be a guru or educator, as a finfluencer. And these finfluencers, I reckon 90% of them would disappear overnight if there was some regulation in the industry for them to show their experience and their wealth position, because I see a lot of them out there. I’ve been in this for 30 years now, investing in property, and I can tell you there’s some Johnny-come-latelys that are doing a lot of damage in the marketplace.
Adrian Franklin (04:53):
Let’s talk about cryptocurrency. It’s something we talk a lot about here at Ticker NEWS, and the fact that young Aussies might be turning to crypto to fund their way into the property market.
Ian Ugarte (05:03):
Yeah. Look, the interesting thing about this article here was that based on that and getting into the marketplace, so many that are investing in cryptocurrencies don’t really understand the tax outcomes from that. Just recently, I had someone contact me and say, “Well, does anyone sell properties in Bitcoin?” I said, “Yes, I’m sure there is someone out there, but why do you want to buy in Bitcoin? Why don’t you just sell your Bitcoin and pay cash?” And they said, “Well, because I don’t want to be taxed.” And I said, “Well, here’s a big one for you. ATO quite clearly says that if you make any money on the value of a Bitcoin, it’s taxable as a capital gain. So expect that you’re going to get hit with some pretty big tax disadvantages, because you’re selling out.”
“No, no, no, that’s not true.” And I said, “Well, here’s the ATO ruling.” Bitcoin is a good way to be able to look forward into the future of cryptocurrency in general. It’s no doubt that will be a trading, but as soon as you effectively change out of a crypto and into any other type of capital, you are going to get taxed no matter what.
Adrian Franklin (06:06):
So, Ian, last week, of course, we explored the three types of investors based on their level of comfort with risk and how important it was to understand this, to then ensure they made the right investment choices. So this week we want to ask you what types of investments each of these groups. So we spoke low, medium risk, high risk. I think that’s where we finished with me. So what should we be looking for to match their own individual risk profile? Can you help guide us through these decisions and make us smarter today, please?
Ian Ugarte (06:36):
Yeah. It doesn’t matter what type of risk profile you are. You need to match the investment property to the strategy or your profile. So for me, swipe right for properties that match your risk and left to those that don’t. And so from a risk perspective, we talk about low, medium, and high risk people and where and what they should invest in to achieve a good outcome. So, which properties should just swipe right on? Some people are comfortable with a lot of risk, others want very little, so the investment strategy needs to reflect the risk profile, so that you’re choosing the right investment mix to suit you and the situation that you’re going to be wanting to get to in the future.
Adrian Franklin (07:11):
All right, let’s start with low risk investors. Who are they and what sort of investments in particular they usually most suited to?
Ian Ugarte (07:19):
Yeah, a low risk investor would buy their own home and then decide to swipe right, maybe, on a granny flat, which would be a very low risk strategy for them because they are increasing the value of their property, and they’re going to get a little bit of return of income. Then they may use the investment strategy of buying a property that may be a lower cost, like a unit or a townhouse or a villa, that wouldn’t expose them too much. And the thing about a low risk person is the reason they like that style of property is because if they buy a townhouse, apartment, or villa, they actually can grasp real value, because the house next door might’ve been saled in the same complex or another sale in the complex gives them the lower risk of knowing what the end value would be if they had to sell.
So when you look at the downside with this strategy, is it’s a very little scope to be able to add value to the property through manufactured or manual growth. So it’s a trade-off for them. Swiping left on upside properties is something they would do all the time. They would much rather know that if they bought a unit, that every 10 years it should double in value and that they know their costs coming out from a body corporate perspective and ultimately, that’s a low risk person, swiping left on most and swiping right on only one or two.
Adrian FranklinN (08:35):
All right. So, that’s one down. Let’s talk about medium risk investors. What sort of risk profile do they have exactly?
Ian Ugarte (08:41):
Yeah. Medium risk would be a little bit more. They would include a purpose build maybe, or a brand new four bedroom, two bathroom home with a granny flat or a secondary dwelling. And we look at it from the perspective of saying, well, now I’ve got a dual occupancy component to an investment property, as well as my own home, meaning a family could rent it out or they could rent it into two different households that would bring in separate leases and more rent.
And as a medium risk investor, you might possibly look at resimercial. It’s my favorite strategy. Resimercial is basically the stability of a commercial component in a building with the residential part of it. Shop top housing, as an example. So there’s a shop downstairs and there’s housing above and behind it. This is where you can get a really great solid return from commercial, plus the stability of residential. And that top type of property is medium risk, because it’s halfway between low risk and high risk, because you’ve got the high risk strategy in there, plus a low risk strategy in the same property. It’s a really great outcome and serves you well, long into your investment career.
Adrian Franklin (09:49):
And that leaves the high risk investor. This is the fun stuff. Are these people a bit reckless, would you say, or do they just have a better strategy and then a higher appetite for risk?
Ian Ugarte (09:59):
Yeah, just like Tinder, how when it opens up, they continuously swipe right. It doesn’t really matter what it looks like or what it does. It’s more about what the outcome is going to be for them, and I’m talking about property here. A person with a high risk profile is attracted by the cash flow or the upside, but doesn’t remember or have any experience of the downside when it hits. So a high risk investor will go to mining, swipe right. They’ll go to a port town, swipe right. They’ll buy commercial, or they’ll buy site unseen, swipe right. Then they feel the wrath of the decision and realize that the relationships are not working out between them and their properties, just like Tinder, and they’ve lots of up and downs and swiping left should be a good option for them. The other part of the risk is what I would consider right now, which a lot of people ask me about. Every week I get this question, what about SDA property?
So SDA, a special disability accommodation, is part of the NDIS, the National Disability Insurance Scheme. SDA, for, me is the most high risk strategy in property right now. The national disability scheme pays out, or the government pays a home owner or home investor up to 16% returns to be able to build a home specifically for someone with a disability. The problem is that there’s a disjoint between the [inaudible 00:11:17] and getting the residents to move into them. So whilst you might be walking through a corn field and be Kevin Costner and he build it and they will come, unfortunately with an SDA, people are building it and they’re not coming.
So I’m not sure if you or the other millennials that are listening will understand that reference, but effectively people are building houses for people with a disability, and those people with a disability and not wanting to live in that location, that area, or they can not find someone to move into it. It’s one of the highest risk strategies right now. As someone who’s sat on a board for a disability support service, I can tell you, and I built their portfolio, I have not invested myself in that area. And considering that I know my stuff and I am a sophisticated investor, I just see it too high risk for people.
Adrian Franklin (12:07):
All right. So finally, how do people go about understanding their own risk profile so they don’t get caught out?
Ian Ugarte (12:14):
Well, I can tell someone’s risk profile from a really simple conversation and a few questions, and it probably can only take me 15 minutes to work out where they sit. From a risk perspective, the first thing I do is I send them to the MoneySmart budget planner on the ASIC website. It’s one of the best budget planners I have ever seen around the place. Financial planners use it. They send their clients there and they say, “Let’s work out how much you spend, versus how much you earn.” And it’ll clearly tell you whether you’ve got money left over at the end of the week. That’s the first indicator. Spend too much, you’re high risk. Saving 10% every week, you’re low risk. Then look at your previous investments. How were you convinced to be buying something?
Did you take your time? Maybe you didn’t buy it. Maybe you did buy it, and based on the fact that someone told you, the taxi driver or the dentist told you that the area was going to go up, or maybe you did your research. And had they turned out good for you as slow, constant, good growth with decent income, or have they gone backwards based on putting it all on black. To me, I’ve spoken to many people and I’ve spoken to quite a few people that are upside down. Adrian, that means when they bought a property, they’ve got a mortgage against it, and then the property price has dropped so much that the mortgage is worth more than the property and they are upside down. They can’t even sell that property, because they would be short to be able to pay the bank.
Personality traits and your upbringing around money is quite likely going to create a new cycle for you, and to break that cycle is very difficult. How do you do that? Mentors, get people around you, and get some understanding from those people that are great at saving money and are great at wealth, and ask them questions. Be curious, as Ted Lasso would say in the Netflix series.
Adrian Franklin (14:02):
Very, very good. We’ve got 30 seconds to go. Let’s get the top tips up on screen. Marrying risk and investment. Go.
Explore all your options in each category. Make sure your design strategy matches your risk profile. Swipe to suit your risk profile, hopefully right when you need to, not left when you shouldn’t. Seek out proven experts for your help all the time. As always, the cheat sheet for everything that we do is at smallisthenewbig.com.au/tickerhome, Adrian.
Adrian Franklin (14:33):
Great stuff. And if you’re swiping, wherever you’re swiping, just make sure you take care. Ian Ugarte, great from you. Once again, we’ll talk very soon.
See you next week.
Adrian Franklin (14:43):
Ticker Home, of course, presented by our great partners at Small is the New Big, who are on a mission to create one million affordable homes in the next 10 years and help Aussies struggling with housing stress. Learn more at smallisthenewbig.com.au.
EPISODE 23: THE ‘RIGHT SWIPE’ FOR YOUR INVESTMENT PROFILE Pt 1
Adrian Franklin (00:07):
Hey there, welcome back to Ticker Home where each week we will dive into the latest trends on the property market and answer the questions you need to know and I need to know, and there’s only one man to answer these questions. His name is Ian Ugarte, co-host and co-founder of course of Small is The New Big.
Adrian Franklin (00:21):
Hello, sir. That was a good introduction by me, I thought. How are you?
Ian Ugarte (00:25):
Oh, I thought it was great. A great ad lib and I thought you did really well.
Adrian Franklin (00:29):
Thank you very much, thank you very much. I appreciate that. What are you looking forward to getting stuck into today?
Ian Ugarte (00:35):
Today I want to talk about your risk profile and the really simple thing that you can do to find out what your risks are and then that’ll help you invest in property.
Adrian Franklin (00:44):
Smart. I am listening. Ticker Home presented by our great partners at Small is The New Big who are on a mission to create 1 million affordable homes in the next 10 years and help all of us struggling with housing stress learn more at smallisthenewbig.com.au.
Adrian Franklin (00:58):
All right, what is trending off the top this week, Mr. Ugarte?
Ian Ugarte (01:03):
We’ve got Sally Hickey from the FTAdvisor, basically talking about a survey that showed half of the 18 to 24 year olds believe that they are now more risk averse because of Covid. So 50% said they had paused on making any major financial or investment decisions in the past 12 months. When broken down by gender, 46% of women were less risk adverse and 43% of men. So this has been more prevalent because of the pandemic. It’s going to be fascinating to watch as lock down comes out, how this investment might spark back into life.
Ian Ugarte (01:41):
So we’ve got some pent up demand that happened during the pandemic, which was based on vulnerability and emotions, and there we’ve saved some money and what’s going to happen when we come out of pandemic in the rest of ’21, basically anyone that makes a financial decision on purchasing anything, based on emotion, will end up probably in a bad spot. So it’ll be interesting to see, maybe you should go and get some advice from some financial planners or some advisors so that any decision that you do make is actually stable and emotional neutral.
Adrian Franklin (02:16):
Let’s have a look at younger investors and what they’re being attracted to, particularly at the moment and the fact that there might be some risks here.
Ian Ugarte (02:23):
Yeah. Look, this is an article by Rhiana Whitson, ABC News, basically saying that the Corona generation are very much loving what they call EFTs, which is an exchange traded fund. They’re just hit $100 billion on the ASX.
Ian Ugarte (02:40):
So what is an ETF? It’s a popular place for investment for inexperienced investors. So you get a better return than a bank, based on someone taking on a fund, and they invest across multiple shares, and they’re good companies. They’ll be the Teslas and they’ll be the Telstras and they’ll be the telecommunication companies or the banks. And what they do is they have lower rates and charges to be able to look after these EFTs, which means that the consumer then ends up as a better outcome.
Ian Ugarte (03:12):
So the experts warn though, there are what they call a thematic ETF and the thematic ETF is basically an industry specific. So you might say I just want sustainable green, or I just want banks, or I just want electric cars. You just got to be careful in fluctuations in the market because if that whole industry gets affected, then it sort of takes away the purpose of being diversified across all of it.
Ian Ugarte (03:38):
For me, people maybe 40 and above feel more comfortable in the share market. People under 40 are basically going into ETFs. More than 1.3 million Australians have put their money into ETFs, and this is double the number of investors since 2019. The basic role of the fund manager in the ETF is to get some great ASX 200 companies, put it into one basket, and have the solid results that they get so that people get a return. So it’s interesting that that’s the way that people are going with a lower risk strategy.
Adrian Franklin (04:12):
And let’s talk about whether millennials prefer to rent or whether they’re being cheated out of a home. This one’s interesting.
Ian Ugarte (04:19):
Yeah, this one got me a bit active as far as my mind is going. This is Arwa Mahdawi and The Guardian basically. Capitalism is reshaping the property market, locking young generations out of buying somewhere. I’ll just read you this passage, which is really interesting. The year is 2070. Nobody owns a home anymore. Instead, a few large corporations control all of the world’s real estate and people subscribe to holistic housing solutions on their iPhone 78X. And you can buy your monthly subscription into BezosCoin, MuskCoin or ZuckCoin and if you default, they’ll dispatch you to Mars so that you can pay off your debt by [inaudible 00:04:56] in intergalactic Amazon warehouses, right?
Ian Ugarte (05:01):
The problem here is that that’s far out there, but it could be possible because currently right now there are governments and policies asking institutional investors to come in and buy existing property stock, especially housing, so that they can create some social outcome. But that’s based on a model of capitalism that needs to have a profit so they can continue to buy more. What does that do? Well that pushes people out of the marketplace. So, it’s an untrammeled capitalism, basically. A capitalism that’s not being stopped.
Ian Ugarte (05:32):
So for me, it doesn’t matter whose fault it is. The consequence is the same at the moment. An increasing number of people, mostly young people, will be forever locked out of the home ownership model. And this statement, that millennials prefer to rent than buy, are you serious? Really? Are you saying that millennials would prefer to chew up 60 to 70% of their wage, renting someone else’s property so that the capitalist nature of whoever owns that can go up in value? And I know they’re mum and dads that usually own those investment properties, but this institutional investment strategy for me is way out there and way wrong for what we need for our young people.
Adrian Franklin (06:09):
Love the passion. Love when you get worked up. Take a deep breath, have a drink of water. No, don’t have a drink of water. Stay right there because we’re getting in to our main conversation now.
Adrian Franklin (06:18):
In your decades of helping people invest in property, you must have seen all types. From the cautious, the ultra cautious to the gung ho. So in your experience, what are the three main types of investors and how do we know which category that we fit into?
Ian Ugarte (06:33):
So when investing, I’ve always looked at risk profiles and wondered whether I would be in a different situation if I changed my risk profile when I was younger. I think the answer is probably yes. At least I would have suffered less anxiety because I’ve suffered anxiety from a very young age. So I describe three factors as low, medium, and high risk.
Ian Ugarte (06:51):
And I’ve got a question for you, Adrian. I’ll put a scenario in front and you tell me which one you are. You’re driving on a freeway, 100 kilometers an hour. You’re on the left-hand lane. The car in front of you starts to slow. So you’d pull out to overtake and inevitably, like everyone that you go and overtake, they speed up to the speed limit of 100. Someone comes in, pulls in behind you. What do you do, Adrian? Do you speed up and move in front of the car next to you that’s driving a hundred? Do you slow down and move back in behind the car or do you just stay at 100, waiting to see what’s going to happen? Which one are you, Adrian?
Adrian Franklin (07:23):
Oh, well, so if I’m in the far right lane, then I’m going to move into the other lane, is what I would do. Because when you’re in the far right lane, you shouldn’t be there if-
Ian Ugarte (07:32):
By overtaking or slowly overtaking or slowing down?
Adrian Franklin (07:36):
Maybe overtaking. Is that-
Ian Ugarte (07:40):
So, you’re high risk. So, if you stayed in the outside lane, medium risk, and if you pull back, you’d be low risk and they’re the three appetites for risk when it comes into looking at almost everything in life, but particularly in investing. And I know I’ve used a very simple way to be able to dictate whether you’re high risk or not, but that’s basically it.
Adrian Franklin (08:00):
All right. So how would you describe a person with a low risk profile?
Ian Ugarte (08:05):
Yeah, low risk profile is someone in a PAYG employed by someone else, will never start their own business. They look at their lives through the lens of what could go wrong if I spend my money on this. And what I found consistently over the years is that people with low risk profile get to the age of retirement and have more than enough to live the rest of their life because they’ve saved well, they put their 10% away.
Ian Ugarte (08:29):
These people research, research, research, to the point where it’s analysis paralysis. And they won’t make decisions because of that analysis. So whilst they have enough money to retire, they may have had a little bit more, if they just spent a little less time researching and a little bit more time looking at what the upsides could have been.
Adrian Franklin (08:47):
Okay. So that’s low risk. What about a medium risk profile? What do they normally feel comfortable with when it comes to investing?
Ian Ugarte (08:55):
People with medium risk profiles will take some risks. So they may go out and work for themselves, be self-employed, they might buy that investment property without too much research, but they’ll do some research to be able to back themselves on their decision. A medium risk person will do some research, they’ll know the numbers, they’ll understand it, and they’ll make decisions based partially on they gut feel and on their head space. And then they think it’s the right decision going in.
Ian Ugarte (09:21):
Medium risk people look at a balanced approach of what can go wrong, plus what can go right at the same time. And I’ve found people with medium risk profiles will end up in an okay spot at the point of retirement, if they stay medium risk and quite likely, very wealthy. Most entrepreneurs after establishing themselves in their first business, will go off and become medium risk people and that’s a really classic case of being able to really sustain. So I would consider those people in your life that are wealthy that you know, are medium risk people.
Adrian Franklin (09:53):
All right, let’s get into the fun one, the high risk profile. So is it wrong to think these people, I guess we’re talking about me apparently, that these people are reckless and what is it that they can tolerate that others can’t?
Ian Ugarte (10:09):
And I don’t consider you to be reckless in any way. I just think we used it as a simple way to detect that, but basically these type of people will put it all on black. They basically will bet every dollar to try to get the best possible return in the hope that they’re going to strike it rich at some point. And that was me for many, many years while I started multiple businesses. And I’d move on to the next very big, quick, shiny thing.
Ian Ugarte (10:29):
We talked about the restless puppy dog from moving across the backseat many episodes ago, and that restless puppy dog wears themselves out, trying to find the next best thing or the best outcome for them. I’ve started 30 businesses in 30 years, Adrian, and I’m a serial entrepreneur, but I worked off the idea that if we started 10 businesses, one would have to come off. Well, 15 businesses in, none of them had come off though. Some were operating and doing okay, but they didn’t get the outcome for me. So the last 15 businesses have done really well and that’s because of the way that I handled my risk and I changed it. So I’ve blown some businesses out of the water financially in a very good way, simply by just lowering my risk.
Adrian Franklin (11:12):
And so are you still that high risk investor and if not, what’s changed? And then what advice do you have for our viewers when it comes to their own risk profile?
Ian Ugarte (11:22):
As far as my financial success is concerned, my real financial success started to come when I started to make lower risk decisions based on research and making sure I had a good mentor that was sitting alongside me. I became essentially a medium risk investor with structure around me, education and those people that have done it before. So we started a portfolio where I could buy as much as I could without any knowledge whatsoever and that basically when I first started early on, almost ended my financial position. That almost got taken under.
Ian Ugarte (11:56):
Seven out of the seven properties I owned, I had to sell down six, so that I could actually survive and start again. And when I started again, it was based on the lower risk strategy of actually pacing out and planning what the next 18 months to two years looked like and that could extract myself out of work and become full-time in property. So that worked out really well for us. And since then I’ve taken on lower strategies.
Ian Ugarte (12:20):
You have to be compliant. High risk people generally aren’t compliant with what they do. They will usually overtake the car to get the extra speed to get in front of them and it certainly takes the anxiety out of life when you lower your risk. And as I said earlier, Adrian, from the age of 14, I suffered from anxiety and that high risk time in my life was something that was really quite confronting to me. So I know one thing that helps me out is non-complex decisions that can affect me financially. If I can get those decisions simple and lower, then anxiety for me drops down a lot.
Adrian Franklin (12:55):
No, I think that’s a very, very good point. Particularly in these times when people do suffer a lot of anxiety and other sort of issues, I suppose, as well. So reducing risk, I think is probably a pretty wise decision. Let’s pop up the top points in terms of all of our risk profiles. Take us through those.
Ian Ugarte (13:14):
Yeah, everyone has a risk profile. I don’t care where you sit, you’ll have a profile right now which can change. Every profile has different benefits because… I dare say that Steve Jobs was a high risk person and he changed the world so there is advantage to each one of them. Investments must match your risk profile. So if you’re a low risk investor and you go off into high risk property, then it’s not going to match you. It’s not going to be quite right. Research is always key. And always discussed with a mentor next to you that has done it before, that has been through the mistakes, so that you can learn from their mistakes rather than having to make them yourself.
Adrian Franklin (13:50):
Great stuff. So next week, let’s maybe talk about the types of investments that these people should be looking at as part of their portfolio so they can match their investment style with the right property. How does that sound to you?
Ian Ugarte (14:02):
Sounds good to me, I’ll get straight onto that.
Adrian Franklin (14:04):
Yeah, a bit of homework for you, Mr. Ugarte. Great stuff, yet another sensational episode. We’ll talk to you very soon.
Ian Ugarte (14:12):
Thanks, Adrian, see you next week.
Adrian Franklin (14:14):
Ticker Home presented by our great partners at Small is The New Big who are on a mission to create 1 million affordable homes in the next 10 years. And as we just spoke about, reduce and help our stress levels when it comes to housing stress. Learn more at smallisthenewbig.com.au.
EPISODE 22: THE RISKS OF INVESTING IN COMMERCIAL PROPERTY
Adrian Franklin (00:07):
Hey, there. Welcome to Ticker Home where each week we will dive into the latest trends on the property market and answer the questions that you need to know. It’s great as always to have my co-host, Ian Ugarte, co-founder of Small is the New Big. Hello, sir. You’ve got a plant in the background. Real or fake?
Ian Ugarte (00:24):
It’s partially real when you look at it, but it’s actually a fake plant.
Adrian Franklin (00:27):
Very good. I do like it against that wall there. You’ve done well. What are you looking forward to talking about today exactly?
Ian Ugarte (00:34):
We’re talking about commercial property and the risks involved and how you should probably be a sophisticated investor if you’re going to invest in commercial.
Adrian Franklin (00:42):
Interesting. I like this one. Ticker Home presented by our great partners at Small is the New Big, who are on a mission to create one million affordable homes in the next 10 years and help Aussie struggling with housing stress. To learn more, and you should, head to smallisthenewbig.com.edu. Okay, what is trending this week, Mr. Ugarte?
Ian Ugarte (01:02):
Yeah, we’ve got an article from Sue Williams in the domain commercial real estate section, and it’s talking about vacant offices and how the vacant offices are being turned into medical suites and effectively getting a better yield return than as standard office space. The medical industry is in demand, especially with COVID and pandemic. And as an example in Brisbane, they’re starting to strata title office spaces often to medical suites.
As soon as someone that’s medical goes in there, it then starts to attract other medical practitioners into the same place, and they’re getting a central hub that’s being located in different places. Now, banks are lending to doctors at 100%. They can get 100% loan to be able to set up their own practice around the place. It’s a really big industry that’s happening. Office buildings are not easily converted to residential, and in which case, adapting them to medical suites is much easier and, again, is creating some great outcomes.
And now what it’s doing is it’s creating little central hubs all over the place in suburbia plus the CBD, so people don’t have to travel that far to get to their medical practitioner.
Adrian Franklin (02:10):
Now, it’s really interesting to talk about what has changed considering the pandemic. We’re looking at tenants today. Something’s changed. Now the pandemic is, fingers crossed, done, what are you seeing here?
Ian Ugarte (02:23):
Yeah, I was saying I large volume of small to medium businesses taking up spaces in office space that used to be quite large, but they’re actually about a thousand square meters or less is the point that are getting the most tenancy. You’ve got about 60% of non-CBD activity is sub-1000 square meters, about half of the tenants are moving or downsizing. This is a change from what they’d called the spoke and hub model.
The hub model is where you’ve got one central office somewhere in the country, and the spokes are you’ve got individual offices in different territories and state. When it comes to that model, it’s now broken and being replaced with a spoke model that is a hub office with people working from home, which means that the hub office can be much smaller. They don’t need those extra spices and now the places are and the CBDs are basically being moved away from.
It’s interesting to see what’s going on in the commercial market space right now.
Adrian Franklin (03:24):
Just finally with what’s trending this week, let’s talk about post-pandemic cities, the great reset. What’s this all about?
Ian Ugarte (03:33):
We’re now living in cities more than ever. 55% of the population is currently living in cities. The cities benefit obviously. You’ve got a lot of people around you from centralization, which means you’ve got a lot of activity and ability to get to different services. The United Nations predict by 2050 that 68% of us are going to be living in a city somewhere in the world. In 2020, cities, however, have actually dropped off or flighted off.
They’ve actually got lower numbers in there. New York City, as an example, is 4% smaller than what it was with people moving away. Councils and governments have starting to produce more bike tracks because people want to stay off public transport because of the fear of COVID. Will COVID actually end the trajectory of the growth that we’ve had for 200 years in all cities? It’s unlikely.
My thing about this is that if you look back into the 19th century, the stench of animal [inaudible 00:04:30] and smoke from industrial buildings basically took the wealthy out of the CBD. But what happened? We ended up with a planning of densification, and we started to live vertically in the cities. For me, I just can’t see that at any point in the future that we’re going to decentralize. It would be absolutely awesome if we did, but it’s unlikely.
Adrian Franklin (04:50):
Fascinating start. Let’s get into a topic we haven’t touched too much on, but I reckon this will be interesting to our viewers. So often, of course, we talk about residential properties. I wanted to ask you today about commercial property. Firstly, what are your thoughts on investing in commercial property?
Ian Ugarte (05:07):
For me, I always prefer residential or actually a mix of residential and commercial, which we’ll talk about, but especially in recent times, we’ve seen commercial landlords facing long-term vacancy rates due to the COVID trouble, retenanting, trying to find people to move back in. And that highlights the main risk for me in commercial property. There’s not that many people waiting out the front door to rent your property if someone else moves out.
Residential market, completely different. It’s strong. It’s gone strength of strength, because there are a number of people needing somewhere to rent and there’s a shortage of housing. But if people want to explore commercial property, then they really need to be a sophisticated investor and understand the strategy. Because on the surface while an eight to 10% return on your money may sound appealing, there’s also many risks that are involved in commercial, as opposed to a residential that most people are just not aware of, Adrian.
Adrian Franklin (05:57):
Let’s have a look at these risks then, because this is what people talk about with commercial property. What do people [inaudible 00:06:02] if they are considering investing in this space?
Ian Ugarte (06:07):
Well, the first thing you’ve got to be aware of is that you’re going to have a higher deposit. In a residential property, you can have a deposit of 20%, 10%, 5%. Even right now, single parents can get a 2% deposit to be able to buy their own residential property. But in commercial, you need a minimum of 30%, sometimes 40%, sometimes 50%, which means that you’re really chewing up a lot of cash on equity into one deal, which means you’re not diversifying and getting into other deals and spreading your risk.
Also, the value of your commercial property is based on the lease that it holds. Effectively, the length of the lease and the value of the lease is what determines the commercial’s properties value. As opposed to residential, it goes up with the market or stagnates or maybe drops a little bit. The commercial property will be based on what your tenant pays you.
Whether it be a shopfront or a factory or a retail outlet, whether it’s a medical suite, you’re always going to have some sort of difficulty to find a tenant if someone moves out. The amount of people that are looking for your particular place is not huge. You could end up going from an 8% return to a 0% return very quickly, and money starts to disappear out of your bank account when you have to pay the cost upfront when you’ve got no income coming in.
Adrian Franklin (07:25):
Let’s talk about commercial leases. You say that the value of the property is really tied up in the type of lease that it has. But if someone buys a property that’s already leased for say the next three to five years or beyond, isn’t that a good investment?
Ian Ugarte (07:40):
Well, so someone that buys a property with a five-year leasing tax still means that they’ll be purchasing check cash flow right now. It’s a good thing that you’ve got future cash flow. The downside is that if the tenant three, four, five years out moves out and doesn’t take up the second option or a third option, then your back to square one with zero income.
In a residential property, though, if you can’t find a tenant, you can drop your rate and eventually someone will come into it, because there’s a lot of people looking for rentals. With commercial properties, they are very specific. You have to attract exactly the right type of tenant for your style of commercial property. And again, what you’re doing is limiting your options.
Adrian Franklin (08:18):
I mean, that’s a lot of downside there, so let’s see if there’s anything on the other side. What are the upsides exactly?
Ian Ugarte (08:25):
Well, one of the big advantages of commercial property is that unlike residential, a commercial property has all of the outgoings paid by the tenant. In a residential property, as a landlord, you have to pay for insurances. You have to pay for the agent’s commission. You have to pay for your rates, water rates, electrical. Utilities, all of that sort of stuff. But in a commercial property, the lease will say most of the time that all of the costs that are incurred on the property are picked up by the actual tenant.
The landlord, when they’re actually getting their income, the only thing they need to take away from that income is the cost that they pay their managing agent to look after it. With commercial property, there are a huge ways that you can increase the value of the property if you know what you’re doing and you’re a sophisticated investor.
So as an example, if I could buy a property that’s commercial under market rent and I can increase the lease value and I can then actually start to look at a better option for the whole area and it’s increasing in what they call a cap rate or the return on that property, you can sometimes make on paper overnight millions of dollars if you buy the right type of property.
So if I was to buy a million dollar property, you may be able to get a hundred or $200,000 uplift if you knew how to increase rent, how to buy well, and work your way down to maybe even strata titling within that building. So again, you do need to be a sophisticated investor and know what numbers are and how you work those numbers.
Adrian Franklin (09:55):
Just finally, if someone does want to take the plunge and get into commercial property, what advice would you offer given all the cautions that you’ve outlined today?
Ian Ugarte (10:05):
As always, I always say mentor, mentor, mentor. A good mentor will drive your mental because they will probably stop and block 90% of your deals all the way along. Find someone who specializes in commercial and knows that and invest in it and has done all the mistakes, because the smartest thing in the world is to learn from someone else’s mistakes rather than you making them yourself.
To me, it’s fraught with danger that people that go off and start investing into different styles of properties and find out how difficult it is and sometimes lose hundreds and thousands of dollars. For me, I think a mentor is the way to go. If you want to find out how expensive a mentor is, try not using one because eventually you’ll become unstuck. This is certainly not a game for beginners.
You don’t want to be going into a property without the knowledge and base or the support of someone nearby you. Always know your numbers, be sophisticated in what you’re doing, and use a mentor to help you out.
Adrian Franklin (11:03):
Very good. All right. Let’s have a look at the top five reasons and points that you want to take through just to wrap us up there.
Ian Ugarte (11:11):
Understand the risk. We probably should do something on risk pretty soon, because you might be low, medium or high risk and that’s going to be pertained to what type of property you’re going to go to. Make sure you save a big deposit if you’re going to be buying commercial. Because as far as deposits are concerned, you’re going to need a minimum of 30%. long leases don’t equal long returns. You’ve just got to be very careful on the lease, how it’s written, whether it’s got CPI increases into the lease.
Always get a lawyer to look at that. Look at adding value wherever you can, and that means can you increase rent or can you rent out other spaces within the dwelling or the commercial property that you’re buying. And as always, have a good mentor that knows their stuff, that’s been in the game for a long time. As always, Adrian, the cheat sheet is at smallisthenewbig.com.au/tickerhome. And as always, it’s so awesome being with you.
Adrian Franklin (12:05):
Absolutely. That was one of your best episodes. I reckon we’ve had some very good episodes, but I really like that. Fid you feel good about that one?
Ian Ugarte (12:12):
It felt pretty good. It wasn’t bad at all actually.
Adrian Franklin (12:14):
No, you smash it every single week.
Ian Ugarte (12:16):
For you too, That comedy thing this week and it turned out quite good. A few people laughed.
Adrian Franklin (12:22):
Really? Just three people laughed or just no, no?
Ian Ugarte (12:27):
Yeah, no, the whole crowd, including the people I invited and other people as well. And I did get my mother’s accent into it for you as well.
Adrian Franklin (12:34):
Of course, you did. You’re a funny man. We love you here at Ticker News. Great stuff. We’ll see you again very, very soon. Okay?
Ian Ugarte (12:41):
Adrian Franklin (12:42):
Of course, Ticker Home presented by our great partners that Small is the New Big who are on a mission to create one million affordable homes in the next 10 years and help Aussies struggling with housing stress. Learn more at smallisthenewbig.com.au.
EPISODE 21: HOW A MILLENNIAL COUPLE MADE THEIR INVESTMENTS WORK FOR THEM
Adrian Franklin (00:00):
Hey, there. Welcome to Ticker Home where each week, we will dive into the latest trends on the property market and answer the questions that you need to know and I need to know. It’s great as always to have my co-host, number one man, Ian Ugarte, Co-Founder of Small is the New Big.
Adrian Franklin (00:19):
Ian Ugarte (00:21):
Hey, Adrian. How are you? Hope you had a good weekend.
Adrian Franklin (00:24):
Had a great weekend. Tell us what are you looking forward to getting stuck into today, exactly.
Ian Ugarte (00:31):
Today, we’re going to be talking about millennials getting into the marketplace and the housing market. I’m bringing along two of my stars. They are absolutely killing it, and they’re amazing, so it’s going to be really interesting today.
Adrian Franklin (00:43):
Special guests coming right up. Ticker Home presented by our great partners at Small is the New Big, and we’re on a mission to create 1 million affordable homes in the next 10 years and help Aussies struggling with that housing stress. To learn more, head to sitnbdev.wpengine.com.
Adrian Franklin (00:58):
All right, let’s get into what is trending. Where would you like to start?
Ian Ugarte (01:01):
An article based around nearly ⅔ of all millennials surveyed regret actually buying their home. Now, it’s an interesting thing, considering the market moving in the way that it’s moving. But the reason behind that is because they found themselves in a cutthroat situation, creating higher price points by chewing up all the cash to get into the deal by making higher offers.
Ian Ugarte (01:24):
One person in particular went in. They had about 30,000 left over to be able to renovate the property and found herself trying to fix issues and maintenance that they didn’t pick up in the building report and upselling the property at a loss which is beyond me. She’s clearly not watching Ticker Home with you and I, and so they’re talking about this being a bigger issue into the problem, into the future, and hopefully, that we can fix the housing market so that this doesn’t become a problem and that millennials can buy a property like they did in the 40s and 50s, 60s and still be able to afford to live the rest of their life.
Adrian Franklin (02:03):
That would be a good thing.
Adrian Franklin (02:04):
There’s also a report out recently talking about millennials may never beat baby boomer home-owning records. What’s the report saying exactly. Do I want to hear this?
Ian Ugarte (02:16):
Look, no, you’re not going to want to hear it, but we’re here now, Adrian, so let’s just do it.
Adrian Franklin (02:21):
Ian Ugarte (02:21):
In 2021, New South Wales Intergenerational Report, their suggestions that… it goes out, all the way out to 2061 and what’s going to be happening with population. Effectively, what the property should… this is by the treasurer, Dominic Perrottet says this report shows very clearly that this average age for a millennial to get into the property market is much higher than it was for boomers.
Ian Ugarte (02:43):
Basically, if you were born between ’42 and ’51, 60% of baby boomers owned properties. Currently, anyone born between 1982 to 1991, only 45% of you are actually owning property. So hopefully, by 2061, we have a equilibrium where it becomes the baby boomer situation again, Adrian.
Adrian Franklin (03:04):
Let’s get into our main conversation. Ian, of course, you’ve talked a lot about the importance of millennials educating themselves on how the property market works and how they can use the manufactured growth strategies that you teach to build a decent property portfolio. But still, many people wonder how it’s all done exactly.
Adrian Franklin (03:19):
Today, you’re joined by a young couple who thought they were doing the right thing with their portfolio, but who’d actually made some pretty common mistakes. On the back of the education you gave them, they turned their property portfolio around, and they liked the concept so much, they asked you for jobs. Now that is some dedication.
Adrian Franklin (03:35):
Can you tell us why you brought Joel and Bianca along with us today?
Ian Ugarte (03:41):
So Joel and Bianca, power couple. They haven’t always worked for me. As you said, they asked for a job. They basically went the Remington Model. Now I’m sure, Adrian, you’ve got no idea what the Remington Model is, but I [crosstalk 00:03:51]…
Adrian Franklin (03:51):
I do not. I do not.
Ian Ugarte (03:54):
… they were so engaged with. So the Remington Model [inaudible 00:03:55] so impressed, I bought the company. So they came and joined the company. They’re walking, talking examples of exactly what we’re all about, really hungry for education, making sure they get to the next level and sell. They were hungry. And what they did in the last few years is just amazing. And it consistently gets me emotional to know that these guys are just living the dream, right?
Ian Ugarte (04:18):
So tell us, the property portfolio, what it looked like when you first came in, and what does that look like now?
Sure. So I guess we’ve always had… when we first started, it was just sort of the buy-and-hold sort of scenario. We were waiting for capital growth, negatively geared, so it was hurting us. We were working our asses off to pay those properties off and then something changed for us. I’ve always had a [inaudible 00:04:45]. I’ve always liked property, and I thought, well, I wanted to do it full time, so we decided to get educated and found you, Ian.
Ian Ugarte (04:57):
… maybe the way we were doing things wasn’t the way we should be, and maybe there was more information out there, and the more we started to find Ian’s model just made complete sense to us. Rather than us working for the properties, how about getting those properties to work for us?
Adrian Franklin (05:12):
So let’s talk more about that and particularly, the biggest difference, Joel, that you learned from Ian, and how did you apply this strategy to your portfolio?
Sure. So, like I said earlier, we were negatively gearing, and you don’t know what you don’t know until you realize that you didn’t know it. So a lot of people don’t realize that negative gearing… it’s not a good thing. It keeps you in a job. And if you don’t like your job, you’re going to become very unhappy. The government bangs on about this and for people our age, I don’t think that negatively gearing their property portfolio is the way to go.
Ian Ugarte (05:54):
Talk about one of the latest deals you’ve done.
Sure. So originally, we started off… when we joined you, we did a couple of renovations and conversions and then obviously, you grow as you progress. And one of the latest ones we’ve now moved into development. We just bought a little cheap block of land. However, it was in a good zoning, so there was a lot of due diligence that went around that which we learned from your teachings. And then we built a duplex, and we also stacked couple other strategies on there. We ended up strata titling them.
The project overall cost is about 700k, valued at 900k. That allowed us to pull a million, majority of our cash back out of the deal, and it actually gives us about 40k a year of income after all costs. That’s after mortgage repayments, insurance, everything.
Ian Ugarte (06:44):
So this is exactly, Adrian, what we’ve been talking about. You take a home for the last few months. They got into a property. They’ve got it up into value and got it to a better place. And then because of that, they’re now at a place where they can say, “Well, I can then go on and do the next deal, and I’ve got cash flow,” so [inaudible 00:07:02] tell everyone about where you’re living currently right now and what that deal is going to look like.
Sure. So one of the properties that we actually already owned before we got educated, once we understood a lot more about property, we realized that it had a lot more potential than we first thought. So through educating ourselves, we were actually able to come up with a strategy that allows us to turn one title into three. So this project, it’s taken us a few years of planning.
Ian Ugarte (07:32):
It’s quite a big project, but what it’s done for us, and it’s just about to come into fruition. The end result will be that we’ll have an uplift of over about a million dollars in equity, and we’ll be getting paid to live in our own home at the end of it. So essentially, we’ll have our mortgage repayments paid for, and we’ll get paid to live in our own house.
Ian Ugarte (07:51):
How about that, Adrian? You want one of those?
Adrian Franklin (07:53):
I do. I do actually want one of those.
Adrian Franklin (07:55):
So there’s nothing like having other people pay your mortgage, of course, but you guys say there’s extra money left over on top of all the mortgage repayments once all the rent has been paid. So that must make life, especially in these times, feel a lot more secure.
Adrian Franklin (08:09):
So what advice would you have to other young couples who may be watching this thinking they’d like to do something similar?
I guess we don’t want other couples thinking like us at the start where you sort of have to buy and hold and wait, waiting for capital growth and if that’s the way to build a property portfolio. It’s really going to take a long time, and it’s quite risky, something as well keeps you stuck in a job, as Joel talked about earlier. We’ve all just seen through COVID that our job, even when we think we’re quite secure, aren’t secure. So having mortgage repayments that are reliant on your job is actually a pretty risky strategy, so that would be the first thing.
Another one is stacking strategies. You get yourself educated. If you learn how to stack strategies, such as renovation, subdivision, strata titling, you’ll be able to manufacture enough growth just in that one deal, usually to be able to pool your initial investment back out. So that means you can recycle your money and go again, rather than having that cash tied up in the deal.
The other one is don’t overcapitalize. You’ve got good debt. You’ve got bad debt. If you go out and get a $50,000 car loan and you go to get a loan to buy a house, that’s going to really affect you in the ability to be able to buy that house. So really just taking, getting yourself educated around what is good debt, what is bad debt, and using it to your advantage.
Absolutely. And I guess exactly like that deal that I just talked about before, your next deal doesn’t have to be the one that’s out there that you need to go and purchase. If you own a property, you might already be sitting on your next deal, and there might be an opportunity to manufacture growth in that without actually having to go and find something else because right now, the market, it’s really hot. Finding a deal is just the hard part. So looking at what you’re sitting on first and going from there.
We had a couple of those in our portfolio we’re able to do something with and get a really good outcome out of it, and we didn’t even know that they were there.
One was neutrally geared. It was doing nothing, and it hadn’t gone up in capital growth in a couple of years. Once we figured out what we could do with it and create micro-apartment, it now brings us in about $20,000 of income after all costs a year, and we already owned it.
Ian Ugarte (10:25):
And so the thing here, Adrian, is always to make sure we stop investing like our parents did. It’s a very different way of investing nowadays.
Adrian Franklin (10:32):
Absolutely. Some awesome tips.
Adrian Franklin (10:33):
So let’s go through the main tips to live rent-free and for millennials to get involved. Ian, I’ll let you roll through, and the guys can add anything just to wrap up.
Ian Ugarte (10:43):
Learn from a mentor. You can choose whoever you want, but choose me.
Ian Ugarte (10:47):
Don’t invest like your parents did.
Ian Ugarte (10:49):
Always make sure that you look for the next deal while you’re in the current one. So at the end of this deal, can I do another deal? And if the answer’s yes, go for it.
Ian Ugarte (10:57):
Make sure you positively gear your property all the time and embrace the micro-apartment/adaptable house/co-living strategy for you to be able to move forward.
Ian Ugarte (11:05):
And I just want to, again, publicly acknowledge these two here. They’re a spearhead in my company. They’re an amazing couple, and they’re living life. If I had my time again, I would re-live my life like these two are living their life right now. They are doing everything that they should do and want to do, and it’s amazing.
Adrian Franklin (11:20):
Adrian Franklin (11:20):
Did you guys want to add anything to that?
[crosstalk 00:11:21] we’ve had a good teacher.
Adrian Franklin (11:23):
We’ve had a fantastic mentor, so I think that says a lot [inaudible 00:11:30].
Definitely. It’s made life definitely a lot easier. Just so much out there to learn and really grabbing that education and using it. It’s not a silver bullet, but using it to your advantage and phoning someone like Ian, it’s going to make life a lot easier.
Adrian Franklin (11:45):
Awesome stuff. It’s so great to always have a guest or two people that have done it out in the real world. Of course, Ian has done it so many times before, but it’s great to chat with you two. And hopefully, we can talk again in the future. Thanks for your time today.
No worries. Thank you.
Ian Ugarte (11:58):
See you, Adrian.
Adrian Franklin (11:59):
Good stuff. We’ll talk again really soon. Ticker Home presented, of course, by our great partners at Small is the New Big who are on a mission to create 1 million affordable homes in the next 10 years and help Aussies struggling with housing stress. Learn more about all of this, sitnbdev.wpengine.com.
Adrian Franklin (12:14):
Catch you soon.
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