Property Hub - Investment Insights & Inspiration - Get Invested: Part 2 - Drew Evans on building instant equity

Episode Date: March 8, 2024

When growth is flatlining, how do you continue to create value as a property investor? We continue our conversation with Drew Evans. When your borrowing capacity and property purchasing power is capped out, investors can add value and create instant equity through building properties - renovating, subdividing or developing. That might sound scary for you, because we all know of (or have experienced) development disasters and builder busts, but if you can manage the three key elements of cost, time delivery and quality you could open up huge opportunities. To talk about how, Drew Evans shares his insights on small developments.  Drew is an active property investor who has built up a property portfolio valued at $25 million over the last 10 years. He is passionate about helping his clients benefit from the same strategy that has fast-tracked his personal portfolio. Connect with Drew www.caifuproperty.com.au Join our Facebook community Join the The Property Hub Collective, connect and learn from likeminded investors and experts. Join the Property Hub community on Substack! Sign up to get Australian property news, opinion and episodes in your inbox: https://propertyhubau.substack.com/  Three easy ways to Get Invested right now: Subscribe to this podcast now, if you haven’t already, and get the inspiration delivered to your podcast feed each week Get a copy of my book, Get Invested, for FREE, and find out what it takes for you to invest in living more, working less. Go to: https://knowhowproperty.com.au/get-invested-free-ebook Join the Get Invested community. Each month Bushy sends a free and exclusive monthly email full of practical ‘Self, Health and Wealth’ wisdom that our current Freedom Fighter subscribers can’t wait to get each month. Just visit bushymartin.com.au, scroll to the bottom of the page and sign up. About Get Invested, a Property Hub show Get Invested is the leading weekly podcast for Australians who want to learn how to unlock their full ‘self, health and wealth’ potential. Hosted by Bushy Martin, an award winning property investor, founder, author and media commentator who is recognised as one of Australia’s most trusted experts in property, investment and lifestyle, Get Invested reveals the secrets of the high performers who invest for success in every aspect of their lives and the world around them. Get Invested is part of the Property Hub podcast channel, your home for property investment insights, inspiration and stories from Australia’s top property experts, investors, leaders and analysts. Subscribe now on Apple Podcasts, Spotify and Google Podcasts to get every Get Invested episode each week for free, and also get full access to RealtyTalk, Australia’s top online property show for red hot property investing news and insights direct from property industry leaders and influencers. Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, show producer Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast networkDM Media.  For business enquiries, email [e-mail] omnystudio.com/listener for privacy information.

Well, for me, it's all about how do you generate equity to speed up your results. Now, my investment philosophy is to find opportunities that are under market value, that you can then add value to. Now, the way that I do it is through small developing, but you could do it through other ways of adding value. You could renovate, you could subdivide, you could develop. The possibilities are endless. But the concept is, at the end, you want to generate an instant equity of return. The PI principle, you always want to start at the top. What's the population doing? What's the infrastructure, both public and private?

Where are all the jobs, the E? So it sounds sleazy, but it's true. Property investing should be as easy as pie. Population, infrastructure, and employment. Welcome to Get Invested on the Property Hub podcast channel, the leading weekly show to help you unlock your full self-health and wealth potential. I'm your host, Bushy Martin, and each week, I go deep with the best investors, experts, leaders, and founders

to find out what it takes to break free from the grind, discover freedom and live by design. Subscribe now and join me and get invested in the life you really want. Let's get started. Hi Freedom Fighters, are you capped out with your borrowing capacity and property purchase power? Are you concerned that the value growth of many properties in many areas is actually flatlining or is about to flatline for long periods of time, following the second biggest property boom in the history of our great country post-pandemic? How can you continue to generate wealth and grow equity in these circumstances? If you're a time poor, hardworking Aussie, what do you need to do differently and what

are your alternative investment approaches? Now, these are the questions that investors are constantly asking me and the ones we're actually going to delve in today with our returning guest, Drew Evans. As I've always said, there are many ways to make money in property because there's no single set, forget and repeat solution. yet there are underlying principles that apply to successful investment but it's the ability to adapt to changing conditions and circumstances and identify other investment options that separates the best investors from the rest. So before we get into this let's revisit the three key things

that you need to focus on in order to assist you to achieve what I call affordable growth with the emphasis on affordable and sustainable. These are capital and equity growth, optimal cash flow, and value-add potential. So if consistent capital growth is questionable, and cash flow continues to be challenged by rising rates and costs, how can you improve this and tap into the ability to value-add in order to continue to manufacture and grow equity regardless of prevailing property conditions?

because this is what separates the best investors from the rest. Why is there such a massive chasm in the 90% of investors who get stuck on just one to two investment properties versus the 1% that are able to grow significant high equity property portfolios? While many will be quick to blame current borrowing capacity constraints, there's more to it than this. So how can you overcome the apparent barriers to join this select few and be able to accumulate sufficient property to fuel your version of financial freedom.

One of the options is by considering small developments. In other words, building properties. And I just heard a lot of you gasp. Now in the current climate where the headlines have been dominated by a run of development disasters and builders going bust, you're probably thinking, what the hell are you talking about, Bushy? Why would you suggest building a property or properties? Well, the answer's simple.

If you can mitigate construction risks by carefully and contractually controlling the three key elements of cost, time, delivery and quality, all else being equal, my reply boomerang question to you is, why wouldn't you consider it, given that there are significant stamp duty savings and depreciation benefits from our buildings that improve cash flow affordability greatly, but if done well and managed tightly, can also create and manufacture equity immediately. if you can build properties to less than what they're currently worth on completion. And if you're clever, you can also use part proceeds to distinguish debt and preserve your own borrowing capacity. Now I can hear you say, yeah, yeah, it's all right for you, Bushy, because you're an architect and project manager for many years, so you know how this whole building development thing all works. But I wouldn't even know where to start,

let alone find the time to manage and make this happen. I just don't know what I don't know, and the risks are very scary, particularly given all the bad news i keep hearing about building the news well fair call on the face of it but where there's a will there's always a way so don't throw out the baby with the bath water but instead start asking yourself the energizing and motivating question how can i make this work to my benefit and who can help me to enjoy all the build benefits while minimizing the risks because in every industry there are always great outperformers that outshine the average. You just need to know how and where to find them, and then what questions to ask,

which is exactly part of what we'll be looking to today with our returning R2 guest, Drew Emmons, whose boutique business, KFood Property, has helped more than 700 personal clients. I think it's 850 now, you said in part one, Drew, to develop more than $1 billion worth of property. So welcome back to Get Invested, mate. Bushy, thanks so much for having me again. But to sort of set the scene on this over and above what I've just done, what are some of the common mistakes that you see investors make when it comes to money, property, and investing? Yeah, I think in the context of developing,

you can really lose money in two ways. Number one is you can overcapitalize on a project, which I'm guilty of it like 100%. I like nice things, especially when it comes to my own home, but nice things don't necessarily give you a dollar return on your capital. so it's number one and number two is you can under capitalize and this is one of my favorite sayings when it comes to developing is cheap is not affordable and cheap is cheap for a reason and you know excuse the french if you build a cheap shitty product you should expect to get a

cheap shitty result now that's very different towards building towards a demographic and towards building on a cost very different but unfortunately in developing you see far too many people cut corners and those corners get reflected in their end results. Beautifully said. Sort of a bit of an extension of this one. What's one idea that experts in the development investment field say that you disagree with? It's controversial because there is hundreds of different ways to make money in real estate. So please don't misunderstand this. One thing I don't necessarily agree with is the advice that my mentor gave me many years ago, which was buy the best piece of blue chip real estate you can

afford and hold on, right? Now, he's not wrong, right? And for me, blue chip real estate is amazing. Who wouldn't want blue chip real estate? Waterfront, oceanfront, cityfront, these are the best properties without a doubt. What they leave out of the glossy brochure is the actual cash flow and the ability to continue to build up your portfolio. Right now, again, not to get too personal, but I live in a pretty nice house and it's valued in the multi-millions. But the rental return, if I was to rent my house out, makes no financial sense. In fact, I'll get just over a 2% return gross. So under my mentor's advice, I can afford that. I can afford an investment property. But then how does that set me up for the one after that and the one after that and

the one after that? So for me, that's probably the biggest piece of advice that I wouldn't take. again, depending on the individual circumstance, is find opportunities that set you up that don't set you back in line with what your goals are. Yeah, beautifully said. So, flowing on from all that, can you share some of your best tips for us to improve property investment outcomes, particularly in the development space and what we're about to deep dive into? Totally. For me, it's all about the numbers. Let me clarify. It's about the finance, it's about the numbers and then it's about the result. You always in developing, you need to protect your capital at all costs. So for me, it's capital protection first, profit creation

secondary, right? Nothing is stopping you from having a gun to your head, pulling the trigger on an acquisition. And if it is, it's probably the wrong acquisition, right? Now, don't misunderstand me. Sometimes there may be occasions where you need to make a decision quickly, but to get in that position to make a decision quickly, you've done your research, you've done your due diligence, You understand how things work because let's face it, deals are that good, they don't sit on your typical websites like realestate.com or domain or get advertised everywhere. They can get snapped up by people like me well and truly beforehand. So again, when it comes to developing, think twice, cut once, see the numbers for what

they are. Don't massage them to what you want them to be. And that's an estate we see all too common. Oh, I'm going to pay this for the land and the builder's told me this is how much it's going to cost to construct. and when it gets finished, I've spoken to this agent and he says, it's going to be worth it. And it's like, wrong, wrong, wrong, wrong, wrong.

And the only sucker that's going to pick up the tad is you as the developer or the investor. Beautifully said. Absolutely beautifully said. And it comes back to, we'd both be believers in a plan for the worst and then expect the best. And if it works on the most conservative belts and braces approach,

then you know the reality is likely to be better for its manager rather than what I see a lot of people in the investment space do, both as investors and people trying to sell investments, is blow smoke by making things look way better than they are and they only find out years later just how bad those very costly decisions can be. So, beautifully said.

Now, I want to switch... Bushy, I'll give you a quick example on that, which you have to be very careful of, even in today, because this conversation happened a week ago. You need to be very careful of what's called bait advertising. right now builders do this marketers do this real estate agents do this they'll tell you a price with a little asterisk right now uh we met a client a first-time investor that joined our business recently and they said drew you know let me tell you a story we're looking at this block

of land and it all made sense you know because the land price they were happy with they then went to a builder i'll leave the names out of it and the builder said no we can build you a all-bed, two-bath, two-car home, and get this, we can build it for $291,000. $291,000. Okay, that's really interesting. I said, well, tell me more. They said, yeah, we're about to go unconditional

on the land purchase, and then the builder asked if they could do some soil tests. Again, first-time investor, so what does this mean? How does it work? Ah, actually, we've come back, and on that particular parcel of land, it's going to cost $360,000.

that's $80,000 or $78,000 more than what they originally quoted and they can tell you for a fact the real issue right there I'm going to jump straight in because this is another thing that a lot of people don't appreciate by the time we've got to that stage they've signed a contract which is full of PC sums and provisional allowances which is a free ticket to charge what you like you only get one bite of the at the bank cherry and anything that comes out beyond that is either going to come out of your pocket or you're in big strife. So beautifully said, Matt, but go on because that's a big flashing light right there. Well, I just think in the context of our conversation, don't massage the numbers to what you want them to be. You need to clearly identify

what they're going to be. And if a deal doesn't make sense, don't do the deal. Nobody's forcing you with a gun to your head saying you have to do this project and it's the only project. So when you are doing your research and due diligence, debate advertising for what it is and don't get caught up in all the hype. Beautifully said. Now, to really drill down on the building side of the equation, just to kick this off, why do you believe building investment properties

is better than buying them? Well, for me, it's all about how do you generate equity to speed up your results? Now, my investment philosophy, for those who didn't listen to my first interview this morning, well, last week, sorry, that you published, is to find opportunities that are under market value that you can then add value to.

Now, the way that I do it is through small developing, but you could do it through other ways of adding value. You could renovate, you could subdivide, you could develop. The possibilities are endless. But the concept is at the end, you want to generate an instant equity of return, right? As opposed to the typical retail way, I call it, of investing, which is to buy, hope, and pray that you're going to get the results. But sometimes, even in my case, seven years later, you found out that you've invested

and they're done. So again, let me just pre-frame. there's a hundred different ways to do it this just works extremely well for me now the second part to that is so audrey why don't you just go and flip properties why don't you go renovate them bushy i've tried to renovate my own house and i've ended up in hospital twice i'm not a tradesperson right i just i i know what my strengths are and renovating a building is not one of them so um mate i'm super time poor um yeah i've got the the skills i've got the contacts i've got everyone to bring it all together i'm just not the guy to do it myself so i guess right there

with you mate there's a reason they call me an architect and a project manager mate and that's because i was good at and knowing what needed to be done getting other people to do it but don't get me near a nail gun or a hammer it's going to be a disaster so totally great the the i guess the flow on from that and given what i talked about in the intro because there's and sadly there's a lot of headlines that are scaring people around the construction process at the moment So how do you create certainty in the building price, particularly in terms of time, cost, and quality? Yeah, so this is a very, very good question,

and you'd have to be an idiot or hiding under a rock to not realize that this is the pink elephant in the room because it's so true. And it's super sad, right? Like over COVID, the amount of builders that went bust when it's a liquidation was crazy. In the building world, they call it the profitless boom because nobody made any money because of inflation

and blah, blah, blah. up. Anyway, you get all this. So the way that you do that is you protect yourself, you plan for it. Now for us, we only deal with a handful of builders by choice. And the reason we do that is because we know they agree to our development terms on a retail basis, which I'll explain in detail. We know that they are financial, right? They have the QBC, CC or the HIA come through their books every quarter, give them adequate homeowners warranty insurance. We also know that they have a quality product. Remember, cheap is not affordable and cheap is cheap for a reason. You need to consider yourself when you're a developer being in business with your builder.

The fact that a builder makes money is okay. And if you're not happy with a builder making money on your job, don't do this strategy. And the last one is we know that they have a vested interest in keeping us happy because if they don't and they don't keep our clients happy, they don't get the next 10 jobs. So we have this win-win scenario. Now, the question you actually asked me relates to the development terms on a retail basis, right? And that's protecting the downside. So prior to COVID, we would have a fixed price contract. No ifs, no buts, no maybes, as that is how you see a lot of builders have gone bankrupt because it is just physically impossible to do now, given the economic environment that we're in. But that doesn't

mean that you can't have a fixed contract for a fixed timeframe. I'll explain. Now, at the moment now, depending on the project, are you developing a house? Are you developing a duplex? We will fix in that price for either six months or 12 months from the date of acquisition. Anybody who tells you they can do it for longer, I think may be misleading because it's physically impossible to do. At the moment now, I'm filming a behind the scenes development masterclass, which will be coming out in the coming months, which I'll talk to you about. But I can tell you now, concreters, you've got carpenters, you've got gyprockers, you've got brickies. Bushy, they are not coming to our builders and saying, hey, Mr. Builder, please give me a pay

decrease. Things are getting more expensive. And I'm guilty of this is, when I first started doing this, you could develop a four-bedroom house for $200,000. Now, it's double that and some, and that's just the nature of where we're at. So again, it's getting a fixed price contract for a fixed period of time right if the builder hits rock that's their problem if their materials go up that's their problem if their labor charges go up that's their problem and in reality nobody's an idiot the builders probably factor in a little bit of a buffer to make sure it doesn't happen so they should because nobody would be in business to lose money right it would be naive to think that okay and again when developing it's all about the numbers okay so that's number one is making

sure that you have a tick price contract. Number two is making sure that you negotiate a fixed timeframe. Now, again, this fixed timeframe has to be super, super clear on. No builder in their right mind would have a fixed timeframe on factors that they cannot control. So your timing council, your time with a private certifier is outside of that. The way that we structure our contracts is once you do the pre-plumbing drainage works, that is when the clock starts ticking. That's Prior to pouring the slab. Now, again, depending on the area, it's normally, it was 16 weeks per house, believe it or not.

It's now 22, 24, 26 weeks. That's still pretty good, actually. In the context of, you know, I spent a lot of time in South Australia, Drew, and they started at 26 weeks and often ended up at 52 weeks. So if you're saying 22, 26 weeks is now the sort of added premium that's come out of this whole process, that's still a very good result. Yeah, it totally is.

With duplexes, obviously, it's a little bit longer. You're building more of a product, more of a property. You've got 28, 32, 34 weeks. Again, you know this bushy before you take on the project. Yeah. The reason that this is important is we negotiate full liquidated damages on every contract, right? Now, listeners at home, if you don't know what that is, basically, it's a clause in the bill contract that says any single day that you are late over the contracted bill period, you have to pay us a nominated fee. Now, in a standard HIA contract, that's normally zero or a dollar,

we negotiate it as the full market rent because we want to incentivize the builder to get done as quickly as possible. And if they don't, that becomes expensive for them. Now, there's one other thing that will prevent the builder from getting it done on time, which is outside of anybody's control. They call them extensions of time or adverse weather conditions. So if it's bucking down with rain or the site's unsafe to get to do so, they shut it down but also for public holidays so christmas period easter and so on they get added

on but again what it does for us as investors and developers is it gives us the cash flow peace of mind right to factor into our feasibility how long are we going to be developing for where we have an interest bill that's going out but we don't have any rent that's going to be back in return yeah plan for the worst hope for the best i love it and i'm almost surprised to hear that you're still able to negotiate a fixed time and fixed cost contracts in the context of what continues to happen in the industry. And I guess my read of that is that because of the volumes of stuff you're doing within the industry, you have more clout and the ability to negotiate those things because the builders know there's a quantity of opportunity there if they do the

right thing. Am I right in saying that? Yes, that's correct. Sorry, the computer of froze just then. But yes, 100%. So when we go and negotiate with builders, we negotiate on an economies of scale. Now, again, a lot of dirty work, but imagine if we're going to develop a house, say, in the Newcastle marketplace. Do you think that we can negotiate a better deal for one house or for 10 houses? Yeah. It's a no-brainer, right? The builder, all of a sudden, he can get bulk rates for his materials. He can get bulk labor rates. He can get one side supervisor looking after 10 houses as opposed to the one house. So economies of scale really start to play in. Yeah. Yeah. I love that. So the obvious flow on from that approach is how do you overcome the potential to flood a particular marketplace with too many properties too quickly to ensure that the investor is still going to get the right outcome?

Well, there's two different conversations there. The reality is we only go into marketplaces that are, in our opinion, undersupplied. So you need to have a vacancy rate that's at a healthy level so that you know there's going to be a huge demand, not only for renters, but also for potential resellers as well. Of course. Some marketplaces are bushy. A lot of builders actually won't go and develop. I'll give you an example.

We've had an absolute cracking development in the coastal town of Yamba in New South Wales. Yep. Right? Now, again, we've got our clients in there for 570 grand. They've just been evaluated at about $940,000 in Yamba. Now, the reality is to get trades from Yamba, they have to come in from out of town, right? So not a lot of builders are building there. So it's not like, you know, there's a huge demand and obviously the market gets over flooded.

But again, this comes back to macroeconomics 101, right? The PI principle. You always want to start at the top. What's the population doing? What's the infrastructure? You know, both public and private. where are all the jobs, the E. So it sounds sleazy, but it's true. Property investing should be as easy as pie. Population, infrastructure, and employment. But again, anybody can sit on

the internet and find that information out. It's really not that hard. You then got to look at your micro drivers. These are things like your demand versus supply. This is the days on market. This is the yield variation. This is the vacancy rates. This is the comparable sales. Not what's listed on realestate.com or domain, but what's done and dusted through RP data. And it has to be comparable you can sit on the internet long enough and you can find the stuff out right it's really not that hard it's time consuming but it's not hard where the gold is in my opinion is these niche drivers right and the niche drivers is what really separates you know the successful investors from those potentially who may not be as successful which is all about how do you get the highest and

best use of your land what is the best desire for the demographic what's the street frontage what are the easements what are the setbacks how do you maximize the building part i'll give you an example i'm developing two projects um again in similar price points one is an eight bed four bar two car the other one is actually a six bed four bar four car right still both duplexes now in the different demographic the different market the agents collectively have said drew in this marketplace you definitely need the extra bedroom right to lose the garage space yeah in this market The agent's like, no, mate, you need a two-car garage, lose the bedroom. Again, that is gold because you don't want to be developing to the wrong demographic

who's going to be renting it from you or, you know, obviously you're going to unsettle it too as well. So, again, all these little bits and pieces, we always go and get independent town planning advice letters. We don't push the friendship with impact-assessable DAs. Everything we do is code-assessable. We know it fits the local environment plan. It fits the development control plan. It fits all the covenants of where we're developing. right so we're not you know pushing the friendship with local councils um but anyway i mean sorry i

digress uh that's that's some of the stuff we look at well i don't think you are digressing i think these are all the important the devil's always in the detail uh drew as you and i know and it's the detail again that's a big separator between the average investor and the one who does really well but when you go to that level of understanding and nitty-gritty is just as you say, understanding where's a sweet spot of demand in this particular area, whether it be a three bedroom or four bedroom, so you're going to optimise your return, but also minimise your spend. They are the sorts of questions and answers that most people just don't get down to that level. So I love the fact that you and the KPU team are drilling into that. You've touched on

some of these already, Drew, but in addition to what we've talked about, what other risks go with this? Because a lot of people are going to be, yeah, well, this sounds okay, but it still sounds a bit risky. What are they and how can they be either eliminated, mitigated, or overcome? Totally.

And you're right. It is risky, but life's a risky business, right? So you've got to categorize the risk into what you're comfortable with. So the risks are you have a cost blowout. The risks are you have a time blowout. The risks are the builder goes bust.

The risks are the interest rate rises go up. Again, all of these things are outside of your control to some extent. But the way that we protect it is we have fixed price contracts. We have full liquidated damages. We do thorough, thorough, thorough research on the builders that we use. Again, those four factors we spoke about. In terms of interest rates, you've got an interest bill that's going out,

but you don't have any rent that's coming back in return. But the way that you overcome that bushy is you plan for it. This isn't rocket science. You know what's going to happen. So again, plan for it. And if you can't afford it now, then that's okay. Either A, save up more money or get another structure in place to allow you to do it where you're not losing sleep overnight

and it's not causing too much stress and anxiety. The whole idea of doing this is to set you up. It's not to set you back. Again, some of the wealthiest people in the country all made their fortunes through developing real estate. It's not exactly rocket science. Absolutely right. So in that context, because there's a lot of players

who are out there pushing the barrow around the house of land stuff that you see these slick marketing teams talking about, which also have a lot of holes in them in terms of the non-fixed price. And then they're buying a property in acres of greenfield where there's no scarcity and therefore that's going to limit the opportunity beyond the actual build itself. So if we look at that in the context of all that, Drew, What does Kithu Property do and how do you do it differently and better to give investors confidence that they're going to be looked after?

Totally, totally. So, mate, my company, we employ a full-time research team and acquisitions team. We're not tied down to any particular developer, vendor, agent, geographic location or any particular type of property for that matter. My company, actually, you know, the pink elephant in the room, we actually have a vested interest in our client success. because if I can help our clients make $100,000, $200,000, $300,000, $400,000, I don't want to say this, but it's true, $700,000 in their first project with us, I would like to think that they don't have to look anywhere else to get their second, their third, their fourth, their fifth.

So for us, it's about working a long-term relationship, and the only way that that long-term relationship works is if the results speak for themselves and our clients get the Rolls-Royce treatment. So for us, that's what we do differently. We don't have a builder stock sheet that we pick from. We don't work for a builder. or we don't work for a developer,

we're at complete arm's length. If a deal's crap, excuse the French, I can't even see it. It gets put in the bin. So I guess when we work with individuals, it really is their hard-earned money that they're investing. It's not mine, right?

It's my business. It's my brand. It's my reputation. So I'm super comfortable and confident in everything that we do. But at the end of the day, it's your money that you're investing. And it's my job and my team's job

to give you that clarity and give you that confidence. And if there's a project you don't like, don't do it. I'm going to tell you don't do it. Wait until there is something you are comfortable with and you do like, and that's how we're different, is we have a full-time research team, an acquisitions team, a contracts team, a projects team.

You know, we're very fortunate now where we've been around for a long time. We're not a one-man band. We've been doing this for a long time. Our clients have made hundreds and hundreds of thousands of dollars, and that's not going to change anytime soon. Well, the proof's in the pie there, Rudd. Now, you've got some great approaches for different situations that I'd like you to break down for us.

So tell us about your instant equity and your mechanical momentum approaches and how they differ and benefit over others. Yeah, totally. So both roads lead to Rome in the fact that it's all about generating an equity-advanced job depletion bonus. They also work in combination with each other. And the third tactic there that you did mention is also market maturity. right? So there's a misconception that, hey, listen, we just develop property, get in and get out. Not true. We get in, we develop equity and you hold it for a long time because property does do well over time if it's in the right location. So to start off with mechanical momentum, quite

simply, is the way that billion dollar companies make money, right? Again, I've done a project personally where we always try and get into the earliest stages of a release, right? Now, We may go into a marketplace where there may be a new infill subdivision of, say, 50 lots, as an example. And inexperienced people go, oh, Drew, I don't want to buy there. There's going to be 50 lots. It's going to overflood the market. What you don't understand or may not understand is no developer will develop 50 lots at once. They might develop 10.

They get what they do to the price. Each developer stays out there. They rank up the land price. Yeah, exactly. exactly right so that's what we call mechanical momentum because it's manufactured by the billion dollar companies that do it for you that's their way of getting instant equity right so but just be careful too right is mechanical momentum can work the other way right very important you understand this if you're not dealing with a land developer that's got a good track record

um you know this is a stereotype but it happens more often than not uh sons inherited a sugar farm in Mackay and all of a sudden he thinks he's going to be a developer and he has no interest in longevity of being a developer, he can fire sale his land in the later stages just to make his upside profit. You avoid that at all costs. So important to know, mechanical momentum can work in two ways. The second way is the instant equity. And that's very simply is what is this property going to be worth when it's completed based on comparable sales as it stands today? If you're developing a duplex and the duplex price is $1.3 million and you've got comparable sales, mistressed sales of duplex halves at $750,000 per side, you know that that project has a gross

realization of $1.5 million. Take away your initial acquisition price, you have a gross uplift, mistressed gross of $200,000 in that project. So for me, it's then, well, listen, is the juice worth the squeeze, the market has to drop by 200 grand for the property to be worth what I actually paid for it. Make sense? So again, mechanical momentum,

instant equity, and then long-term market reach. Those are the three tactics. Talk to us about the last one to put some color around that one. Yeah, well, I mean, obviously you want to invest in areas that have good fundamentals

for long-term growth, right? It's not about getting into property and getting out of property. You and I both know that that can get very expensive. You've got to pay stamp duty. You've got to pay legal fees. You've got to pay insurances. You've got to pay a whole bunch of different things. And when it comes to selling, you've got to pay capital gains tax. You've got to pay an agent. So the on-cost and off-cost with real estate becomes expensive. And my advice is to never, ever sell unless one

of two things are preventing you from moving forward. Number one is your current portfolio is preventing you from growing, so something has to give. Or number two, the opportunity cost of holding a property outweighs the opportunity cost of selling it. So those are the only two ways that I would ever consider selling, unless it is your specific strategy to buy, develop, sell, buy, develop, sell, buy, develop, sell, and you treat it as a trading entity. Now, given the vagaries that's happening in the industry at the moment, Drew, how can you actually guarantee profit in every deal? Bushy, we always joke about the word guarantee. I think it's very loosely thrown about. In my opinion, nothing's guaranteed

other than death and taxes. But what we do is we guarantee at the time of acquisition, right? I can't control the market. It would be remiss of me to even try and say that we do. But what we do do is we guarantee what the price is at the time. We know what our land cost is. We know what our bill cost is. We know what our section 94 contributions, headworks, charges, and subdivision fees are if you go down the duplex path so that is a known variable yeah by contrast we also have a look at what other known variables are for example what is a comparable sale that is done dusted and settled through rp data right not what's listed online not what you know casual commentary kind of stuff so that is where we guarantee uh what the the margin in between is

the time of acquisition let me stress that right because in the last uh little while obviously the with the 13 interest rate rises that we've had, the market has pulled back in specific areas. But for me, how good is it to know that if you're developing a duplex at 1.3 million and comparable sales are at one and a half million, you essentially there have a $200,000 buffer, right, that it can drop by in order for the property to be worth

what you've actually paid for it, if that makes sense. Yeah, totally. It's actually building in a form of insurance policy to some degree that gives a little bit of a safety blanket as a consequence of that, which a lot of people will go, okay, I hadn't thought of it that way, which is a brilliant way to say it. So the other thing I want to delve into here is how do you help investors determine how much money they'll actually make

from their property investments from start to finish? Yeah, so part of when you become a client of ours, we actually sit down and go through a cash flow analysis. Now, let me disclaimer this till the cows come home because there's no one-size-fits-all when it comes to cash flow. it's what's your individual incomes what's your individual tax situation what entity are you purchasing it in and so again when it comes to specific advice around cash flow you probably need to sit with an accountant first because again are you investing in your personal name

if so what are your individual tax rates are you investing in a company if so what are the tax rates are you investing as trust and so on and so forth so when it comes to that is we need to factor all of that in again rain for the worst hope for the best but it is something that you do need to take a ton of time working out because there's no one blanket one size fits all yeah beautifully said and and again the key message here is to run the numbers build it on paper first before you do anything else uh to make sure that you're going in with your eyes completely open and again a lot of investors i don't see getting down to that detail i'm sure you do as well but part of our team we've got some pretty sophisticated software that enables us to determine

what the actual position is going to be on a worst-case scenario before we even take it any further. So I'm sure you'd be doing the same. Well, I'll give you an example, right? In my experience, it doesn't matter how fancy your software is when it comes to actually working out the physical drawdown payments, right? Because sometimes, you know, if you have an amazing weather, you may get the slab down really, really quick.

Yep. Melbourne, I don't want to pick on you guys, but you're known to have some pretty doozy weather from time to time. What happens if the slab's down and you've got three, four weeks of rain? Software can't pick that up, right? So typically speaking, when I personally take on projects, I always plan for the worst and hope for the best. Let's assume that your loan is 100% drawdown from day one. Now, we know that's not the case. We know that you get progress claims as you go. So you pull the slab, you then put the frame, the roof on, the enclosed, fixing, and handover. Progressively, your loan gets more and

more and more. In my opinion, plan for the worst, hope for the best. Factor in buffers. Life doesn't always go according to plan, but you can plan for when things don't. Have adequate personal buffers in play. Have adequate property buffers in play. At the end of the day, this is the stuff that you're not doing on a daily basis. Plan for it. Well, I wouldn't know. You've touched on this already, but just to really emphasize it, Drew, while your investments can clearly manufacture a quantifiable instant equity, what about the ongoing long-term capital growth? Yeah, of course. So Bushy, a lot of people misunderstand my strategy sometimes and the fact that, hey, it's all about finding opportunities that are undervalued. You add

value during development and then you take off the table straight away. In my opinion, you never want to sell unless one of two things are happening. Number one is your current portfolio is preventing you from moving forward. And essentially you become stuck and no one wants to be stuck, right? So then it's worth entertaining. The second reason is the opportunity cost of holding that acquisition

is outweighed by the opportunity cost to take the profit off the table, right? You always need to think what's going to prevent me from moving forward. Is it my borrowing capacity or is it my buying power? And then have a strategy that's flexible enough to overcome those potential hurdles. Not to contradict myself,

but you could also have an entity where your pure strategy is to buy, develop, sell, or buy, develop, sell, and I do that too. So it comes down to your individual circumstances. Yeah, beautifully said. A lot of people are going to go, this sounds really interesting. We're certainly ticking the boxes on things that previously I would have gone, oh, yeah, I'm not prepared to take the risk.

So the obvious exercise is if investors want to work with KFU, how much does it cost and what do they need to be paying you? Yeah, well, I mean, Bushy, without the risk of sounding too rude or arrogant, if we don't take on anyone, anybody that we do work with, I need to show you exactly how I'm going to add value to your bottom line. But you need to show me that you can afford the opportunities that we have. So we charge a refundable deposit. Let me stress, this is refundable, $495. It's almost like a first date, if you will. I'm going to find out exactly what you can do today if you were to invest in a house project or if you're going to invest in a duplex

project. I'm also going to figure out, well, listen, if your capacity is struggling a little bit. Can we take profit off the table, pay down debt, and can we make it work? I'll go through all those numbers with you. We then have that conversation in detail because it allows two things. It gives you clarity and it gives you understanding, but also it takes away any pressures from making irrational decisions. The last thing I ever want to do is for people to feel pressured or rushed or stressed into joining my business. This has to be a fit for both of us for the long term. But let's assume that you do have the capacity, you do have all of your questions answered, there's nothing left unturned. Our joining fee is $4,990. That's what it costs

to get access to my professional circle, obviously all of our team, our project managers, but of course, the actual acquisitions that you wouldn't be able to typically find on your own accord. Yeah, no, beautifully. And then if we look at that in the context of what the property's going to do, both from a manufacturing equity and a long-term growth perspective, five brands are a drip in the bucket so we're yeah but um on that note bush also i don't want to insult your intelligence or any of your listeners um you know you don't have to be a rocket scientist to understand that i can't run a successful business on a five grand membership fee for us it goes towards helping cover costs and labor and wages and expenses where my company makes money which

is really the burning question that everybody has is via a project management fee now this is really important to understand yeah imagine if you're a builder all of a sudden you don't have to employ a sales team, a marketing team, a contracts team, a projects management team. That's what I do, right? But one way or another, a human has to do the work to get his projects out of the ground. So that's how I make money. Now, the next question that some people may have is, well, Drew, I'll just go to your Build It Direct.

Logical question, right? The reality is the people that I work with don't deal with individual consumers, right? They deal with big companies like mine, not big, but companies like mine to negotiate it all. So, essentially, that's how it works is we're very honest. We're very upfront around everything and anything that we do. There is a fee to work with us. Our strategy isn't for everyone.

But my goodness me, if you do have the capacity and if it is a strategy that you're entertaining, you can do some pretty amazing things in a relatively short time frame. Yeah, I love it. So, if someone's sitting here going, well, what questions do we need to ask property development type facilitators like Carrefour to help us separate the best from the rest? Well, I think a proven track record is the obvious one. How long have you been in business for? What are some of the results that you typically got? Don't tell us about your best performing opportunities. Tell us about your worst ones. Again, you can tell a lot by someone if they're going to be upfront and honest to you right at the very beginning. yeah um what team do you have behind you right because again unfortunately there's a lot of people that uh you know pay x amount of money to become a buyer's agent but what have they personally done right have you physically invested in the projects that you're recommending to your clients we mentioned before the last 10 projects that i've done personally my clients have invested

right next door to me that's not like i'm telling you hey bushy you're going to do one thing with your money and then i'll go in a completely opposite direction with mine so i think that's probably up there with the most important. Totally. Is there the ability to talk to some of your existing clients to get the good, bad, and ugly independent of talking to you and your team? Bushy, I've had a change of tune on this and I'll tell you why. My response in the past was yes, sure. But my change of tune in now is saying, hey, I could put you in touch with anybody that you know. I can have my family, cousin, relative twice removed on my payroll and you would never know that. So my belief now is it's not up to my clients to sell my services.

right? That's my job. That's my team's job. The reality in today's marketplace is if we did anything wrong or untoward, jump on the internet before I could say do, right? And you'll find it there. So at the end of the day, there's an element of risk and it's both ends, right? The last thing I ever want to do is to take on a client that we genuinely can't help and vice versa. Yeah, that beautifully said. So if we sort of bring this all to our head then, Drew, what are the keys to being successful with small developments? you always need to protect the downside. It's not all about the upside. It's all about the numbers and let the numbers be factual. Don't let them be massaged based on your ego or what you want

them to look like. But always understand, is this first acquisition, is it going to set me up or is it going to set me back? That is key. Whether it's you, whether it's me, we all have challenges with finance and we need to plan for that accordingly. Yeah, very well said. So for those that are going, wow, I really want to know a bit more about this where do we need to start with small development builds and what are the initial steps uh yeah so let's be taking well i think the the initial step is to get educated right um you know i've got a lot of free master classes um you know again i don't want to cut all the horse but i've got a full-on master class uh that's going to get launched in the coming months again awful free

um it doesn't cost any money i don't mean get educated by going to overpriced seminars and boot camps and coming out thinking that you're donald trump um but but learn from people right learn from people that have done what you want to do. Again, you don't have to jump headfirst into a project. You can come to companies like mine where you do your first project with us or second project with us, knowing that you want to get educated to then go and do it on your own accord. So that's how I do that. I love that. So we've covered a lot of ground, but we've still only just scratched the surface, Drew. Before I jump into the airbrush round for part two, Is there anything we haven't covered that you want to talk about?

No, I think we've covered a lot today. I mean, the reality is it's really hard to cover off a whole decade worth of experience in the short time that we've had together. But I think that, hey, understand that there's hundreds of different ways to make money in real estate. There really is. It just comes down to what you're personally wanting to do and what strategy works best for you.

I can tell you now that through the blood, sweat, and tears, I've found what I believe to be the best recipes for success. So if you're thinking about it, we'd love the opportunity to have a chat with you. There's no pressure. If we can do business together, amazing. If we can't, then that's okay too. I love that.

So just to reduce potential tie-kickers and time-wasting for you and potential developers, is there a sort of a core avatar that an investor needs to have in terms of equity and or income, given the sorts of dollars that they need to spend to jump into the build process that's going to give some clarity on,

yes, well, now I'm in that position, therefore I should have a chat, or no, I'm not quite there yet, I'll wait until I'm in that position. Yeah, of course. And let me clarify, I don't think anybody's a tie kicker or anybody's a waste of time

because to be honest, mate, I was that person when you first get started. So everybody has to be there. The reality of the developments that we do is you need to have a minimum deposit and a level of income in order to get a loan. Yeah. Typically speaking,

you can actually get into a project for as little as a 10% deposit on the land whilst you wait for the land to register and build up funds. So typically speaking, a 10% deposit plus cost is a very good starting point. But again, the way that my company works is we figure out how to make a deal work, not how to sort of section it off.

Are you in a position where you can potentially join a venture? Can you go to the bank of mum and dad? There's some strategies that you can use to fast-track your results. And I guess the only way we know about that is if we have a conversation. Yeah, beautifully said. But no, it's just always useful, I think, to make sure that the people that are talking to you are at least close to the position they need to be to actually make it happen. So thanks for clarifying that.

I now want to sort of jump into the bushfire lightning round or the ambush session take two, Troy. So again, get that cigarette and blindfold out because the first question, and you've mentioned a couple of these already in both today and last week, but what's your favourite quote and why? I'll give you a different quote. Most people overestimate what they can do in 12 months but underestimate what they can do in a decade. And it's so true. Like when you listen to it, it doesn't really grasp in.

But, mate, to think that 10 years ago I started with nothing and to where I am today and not being a douchebag, you know, the portfolio is valued at over $27 million. It's just – so that's probably my favourite quote. Yeah, that's an absolute cracker. Turning to the literary field then for a second, and you probably don't have too much time to read a lot of books with what you've got on the plate,

but what's the top book that you'd recommend we read and why? Mate, I love, love getting educated. To be fair, I haven't become lazy because I just listen to podcasts and sit on YouTube. But Rich Dad Poor Dad by Robert Kiyosaki is an absolute classic. That's a great starting point for everybody. Yeah, 100% agree. It was the Kiyosaki moment back in the 90s

that started me on this journey, Drew. So I know exactly what you're saying. returning to the investment arena for a second what's both the worst and the best piece of investment advice that you've ever received uh the worst piece of advice i've had is buy the most expensive blue chip piece of real estate you can afford and then hold on for dear life right um again may work for some people but definitely doesn't work for me there is a place for blue chip real estate don't get me wrong everybody loves waterfront beachfront cityfront don't get me wrong, but not if it hinders your ability to continue to borrow money,

which it does for most of us. The best piece of advice is think big, but start small. Rome wasn't built in a day, right? I didn't 10 years ago, oh my God, my portfolio is going to be valued at 27 mil. I thought, hey, after I make the most amount of money off this project, that project, and this snowball effect, it just compounds and pretty exciting. Very exciting. One of the things that I think, and I'm sure you'd agree with this, But one of the things that's important about what you've said also is not only the financial evolution and growth, but personally, as your knowledge, comfort and understanding of what's going on increases, then in parallel, as those two things are happening, you're in a better position to expand and take on new opportunities that you would never have thought of doing from day one. So that evolution, I think, is important in both of those contexts and perfectly set in relation to what you've shared with us there. Last question in the ambush round is what's a personal happy habit or a rewarding ritual or a daily discipline that you employ that's contributed most to your success, do you think?

Mate, I'm an early riser. So, again, it's probably more of a habitual thing, you know, having two young kids now probably earlier than I'd like. But typically speaking, I'm a typical bloke. I can't focus when I've got noise and people and everything around me. So I get most of my best work done, you know, between 6 and 7.30 in the morning. When nobody else is around, that's when I do my best work. Yeah, I love it. Yeah, man after my own heart there, mate.

I'm very good at doing one thing at a time. But if there's a lot of stuff going on, the noise drives me crazy. So right with you there. I guess to put a bow around our conversations over the last two weeks, Drew, because you've shared a lot of gold with us, and I know a lot of people are going to be pretty excited about the opportunity that you've revealed to us. Can you sort of summarise what are your key takeaways

and the actions that we need to take? Yeah, so, I mean, for us, at the end of the day, Rome wasn't built in a day. Find a strategy that works, works well for you. But please make sure you mirror and you get mentored by people that have done what you already want to do. um you know if you want to follow our story obviously you can go to kaifu property.com.au follow us on all the socials and bushy something i'm fully committing to um you know this year is building up more of a personal presence you know telling my story down to earth non-scripted

hear it straight from the horse's mouth it is a brand new project uh so please if your followers are interested in picking up some content getting some tips and strategies go to instagram instagram.com.au forward slash kaifu drew d-a-i-f-u-d-r-e-w and uh we'll chat a lot over that platform i love that we'll make sure we put that in the show notes so it's easy for people to click on it and i i really want to thank you for being so generous in your time drew it's been a really energizing inspiring conversation now i just want to close on one last question and that is if I ask you to get invested, what does it mean to you? Get invested means get clarity on what you're investing in, right? Get invested doesn't always refer to investing in money.

It could be investing in your time, in your relationships, your education. So get clarity on exactly what you're investing in. Beautifully said. Don't want to go and thank you for taking the time to share all this with us, Troy. And to further optimize your cashflow and to keep more of your hard-earned income in your pocket instead of the tax office, make sure you get a BMT quantity surveyors to complete a totally tax deductible tax appreciation schedule for you that has personally saved me thousands of dollars a year over the years. Also make sure that you keep the conversation going on building small developments by joining and jumping into our Property Hub Collective interactive Facebook community by clicking the link to facebook.com

forward slash groups forward slash the Property Hub Collective and we'll put that link in the show notes where you can also sort of share your questions and comments along with other like-minded hardworking Aussies and get answers from myself and other proven property professionals without any fear of ever being sold to. So thanks again, Drew. I really want to keep this conversation going and look forward to having more deep dives into pretty exciting areas with you in the future. Me too. Thanks, Bushu. Chat to you soon. Thanks for tuning in to Get Invested on the Property Hub podcast channel, your home for property investment insights and inspiration. And don't leave yet until you've taken the next step towards living by design

by getting my award-winning book, Get Invested, absolutely free when you sign up at knowhowproperty.com.au or bushymartin.com.au. And finally, make sure you subscribe to Property Hub to get your weekly dose of Get Invested inspiration along with every episode of Realty Talk, Australia's leading property show for red-hot property investing news and insights, direct from industry leaders and influencers. Remember to always get invested in your knowledge

and I look forward to seeing you next time.