Property Hub - Investment Insights & Inspiration - Get Invested: Tom Pettifer on investing as 'Duplex Development Dad'

Starting point is 00:00:00 To me, it's all about achieving passive income so then we can get the most valuable asset of all, which is our time and more time to spend with family, friends, loved ones. I'm just about keeping things simple and really just trying to get my time back, to be honest. It's life short and time is our most valuable commodity. There's no doubt about it. So I very much keep that at the forefront of my decision making. But I really look at return on time as a big metric as well and what exactly are we receiving back for the time that we employ. We purchased another block of land that was in a sort of gentrifying little two-acre lot, again, about 50 minutes

Starting point is 00:00:37 from Melbourne, again, in Melbourne's west. The thing with that one was it was delayed land settlement strategy. And this, I guess I can touch on this later, but essentially we just put down a 5% deposit and then just waited about, might have been a year to a year and a half, for that land to register. and in that time the property market moved a whole heap so we actually decided to um to sell that lot of land and and fortunately it actually moved about a hundred thousand dollars in

Starting point is 00:01:05 in just over a year um on the land value so and again this just took me this was the the real catalyst for this return on cash annualized or cash on cash return annualized return on equity annualized but essentially what we made like i can't remember what the return on cash was but it was it was in a couple of hundred percent like you see literally it sounds unbelievable it sounds like crypto or something, but it's not. We put down a 5% deposit and we made $100,000. It was in just over 13 months and it was a really good just return, cash on cash return, annualised.

Starting point is 00:01:36 And then that's where we thought, look, this is really where we thought, how can we repeat this on a more efficient and more productive scale? Welcome to Get Invested, the leading weekly podcast to help you unlock your full potential and enjoy your version of sustainable success that lies at the intersection of your three elves, yourself, your health, and your wealth. I'm your host and guide, Bushy Martin, and each week we go deep, sharing great conversations with proven experts in all walks of life, including the best investors, property experts, analysts, leaders, founders, sports stars, and health gurus, to uncover their secret

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Starting point is 00:04:23 Are you keen to get into property but you just don't know where to start? Everyone you talk to is an expert and has a different idea on what you should be doing. so you end up totally confused and then either don't do anything or you just buy a property and hope for the best. Now you're not sure what your investment strategy is or what it needs to be to achieve your goals. Maybe you don't know what type of property and what type of location and what type of ownership structure you need to buy a property. So what property path is the best for you to follow. Or maybe you've secured some property and you want to buy more, but now you're maxed out as your capacity from your growing family reduces your ability to borrow. So what can you do?

Starting point is 00:05:08 Well, these are all questions that have plagued today's special guest, and you're going to love how he's overcome them to creatively continue his property investment journey and evolve his approach by recognising that where there's a will, there's always a way. And once you do this and embrace the fact that property is a game of finance in terms of the numbers, the structure and strategy and also realising that it's an elite team sport. So how does a proud father of five who started as a Kiwi pig farmer come CPA accountant

Starting point is 00:05:36 overcome the normal property investment limits and challenges to build a substantial portfolio across the residential and commercial sectors and now helps others to invest by becoming a successful duplex and development manager with well-known buyers agency, Polici Property. Well, that's what we're going to find out today with our very special guest, Tom Pettifer, who's become well known as Development Dad after he was able to do three deals in four years. So welcome and let's get invested, Tom.

Starting point is 00:06:08 Great to be here, Bushy. Thanks for having me on. Yeah, true, Matt. We're going to have a lot of fun today because you've had a really interesting journey. And, you know, what I love about you from Google stalking you, mate, is your ability to overcome the normal hurdles and think creatively about how you can continue your investment journey. But before we get into all of that, tell us a bit about what you do differently and why you do what you do, Tom. Yeah, well, certainly, as you've just mentioned here, I'm a father of five. So as much as we love our children, the banks don't hold that same position.

Starting point is 00:06:42 and it's fair to say that lending is very difficult for us. So we've really had to think outside the box to ensure that we can keep growing in our journey and that's essentially what we've had to do. So I really look at property as a game of finance and with that in mind, it really drives how myself and my wife move forward and how we've been able to continue borrowing and continuing to purchase property

Starting point is 00:07:09 when we might not have had we just stuck to the traditional routes. Yeah, I'm going to unpack a fair bit of that shortly as we go through. Why do you do what you do, mate? Look, for me, it's become very apparent that just relying on the nine to five, and I guess if you want to call it saving your way to wealth, this isn't really going to cut it. You need a job, but to me it's all about leverage, and we really need to leverage into property

Starting point is 00:07:38 to achieve the level of passive income. To me, it's all about achieving passive income so then we can get the most valuable asset of all, which is our time and more time to spend with family, friends, loved ones. That's the whole purpose of it. I'm not about trying to buy the Lamborghinis or the private jets.

Starting point is 00:07:57 I'm just about keeping things simple and really just trying to get my time back, to be honest. It's life short and time is our most valuable commodity. there's no doubt about it so um i very much keep that at the forefront of my decision making when we move forward it's really uh return on time is a big metric um even when i delve into it later i look at a lot of these development metrics we look at annualized cash on cash return and things like that but i really look at return on time as a big metric as well and you know what exactly

Starting point is 00:08:25 are we receiving back for the time that we employ yeah i love that mate return on time it's a it's It's an indicator that very few people actually spend any time thinking about. So we might unpack that a little bit further on as well. But before we sort of get into your journey, mate, can you share with us something unique or interesting about you that you never actually shared publicly before? Yeah, I guess, yeah, I'm an ex pig farmer. So I worked in the free range pork sector for over 10 years. So my parents actually were originally pig farmers from New Zealand. and dad you know came over to australia in 99 at 40 and basically you know he was he'd taken a bit

Starting point is 00:09:09 of a financial hiding some of the macro environmental factors to the new zealand pig farming industry weren't very favorable and he just he made a bold decision to come over to australia and receive a manager's job um so and yeah basically where we've there so as as a 14 year old kid with um three two brothers and a sister and then another sister that came along recently uh she was a true australian um a little bit later so i'm actually one of one of five as well um so yeah it's a bit of a trend there um but yeah so that's that's me so i i worked um in financial statement auditing for four years first um i actually worked for a company that um and this is their sort of slogan was total financial solutions and and as as good as it was to

Starting point is 00:09:54 understand businesses and processes and controls and internal control structures i actually didn't have a great financial understanding about this whole wealth creation journey and not really many of the people not many of the accountants around me did either it wasn't until later in life that um i actually really started to you know after i bought and sold a few properties and and realized how that turned out it really opened my mind up to that that avenue because it wasn't really um something that i thought about but yeah so essentially i worked in financial statement audit for four years it was a great grounding and then i actually went back to um the the the poor production business so i always worked there uh part-time weekends whenever i could when

Starting point is 00:10:33 it was at uni just to just to make money and then i ended up going back there and being the farms production manager underneath my father who was the operations manager we did that for 10 years so just to give you a bit of an insight it was like a three three and a half thousand sows so they're your breeding mothers and we had approximately 30 000 pigs across the whole farm so it was it was a free range outdoor product so it was very ethically i think it's the way to go but yeah very hard work we had approximately 25 staff that i was getting control of so very very different than what i'm doing right now i enjoyed the journey but it came to a point where i wanted to pursue something i was passionate about and that's

Starting point is 00:11:13 and then combined with what i was currently personally doing in property then that led led me to working as a buyer's agent and then working with Steve to where I currently am right now. Yeah, awesome, mate. I'd love for you to sort of pick the brains out of, you know, your time in the pork industry and your time as an accountant. How have both of those helped you in your property investment journey? Well, look, yeah, very, very good question, Bushy. I think on the accounting side, you can get a little bit too regimented, but the good side of the accounting was essentially as a financial statement auditor, you're trying to look for material misstatement

Starting point is 00:11:52 in financial accounts. So it performs a lot of analytical reviews. So you look at a lot of high-level, you know, does this pass the sniff test type stuff before you really get into the substantive documentation and information gathering. So I think from a high-level analytical review, that was quite good. And then from the pork production side, I mean,

Starting point is 00:12:13 that's just the business. We're operating at profit. I was heavily involved around the numbers like pig farming is a high volume, high frequencies, margins business. So really, there's a lot of synergies between putting together, believe it or not, putting together a production budget and the way I currently would put together a financial feasibility study for a development site right now. You know, you're applying a lot of assumptions. You're looking at a lot of historical data. It's a lot of synergies. So it's really, you know, we're all trying to get to that magical profit margin that's acceptable.

Starting point is 00:12:45 we've got to be you've got to err on the side of caution we can't just be optimistic there was a lot of synergies between between the two believe it or not between your free range pork and and a property development side yeah it's that structured structured thinking and looking at the numbers and then can being able to to uh shift with the times because uh you know i was lucky enough as a kid to spend a lot of time my my mother's brothers were all pig farmers and uh not quite to the same scale as as you were talking about with three and a half thousand thousand and thirty thousand you know and open range exercise but i certainly got my fair sniff of methane in my childhood that's the result of that mate and uh but uh really

Starting point is 00:13:28 interesting on on that front mate so what i'd love to do now is is really get granular about your investment journey because it's been such an interesting one that i i know that we're really going to enjoy your evolution through that exercise. So sort of kicking off, I'd love for you to talk to us about why property and what actually triggered your personal interest in property, please, Tom. Yes, certainly. Why property? I believe it's the asset class. I mean, you may not do it if it wasn't for the leverage. I mean, there's probably other asset classes that produce a higher annualised rate of return, but it's when you bring the leverage in, and we can maybe talk more about leverage too i like to consider leverage is a pretty open broad topic

Starting point is 00:14:11 i mean whether you're leveraging other people's money which is the banks and your tenants so i think that's a big part of why i like property um and then we can also talk about you know leverage other people's time and expertise but why does property make sense i believe it's purely around the leverage side of things um and your ability to you know put you know 10 to 20 percent deposits down and then control an asset with farm rule play the long game and then really receive that a great return on your equity invested as opposed to just putting down your cash. And that's the same way with the pig farm.

Starting point is 00:14:43 We'd be looking at 20%, 25%, but obviously it was too risky, so it was not in borrowed funds. But where you actually, and properly where you can get a much higher return on your equity is because you're at leverage. I think leverage is the key component as to why it makes sense. Yeah, I totally agree. What triggered your initial interest in property then, Matt? Well, look, when I started, it was just a PPOI.

Starting point is 00:15:08 And I purchased in 2008, so we all know what happened in 2008. The GFC. The GFC, yeah. And it was a bit of a – and I wasn't thinking investment. I'm just completely open with you. I wasn't like this is a masterstroke. But I was able to receive – and this is why I love this country too – $36,500 from the Australian government to basically fund my first purchase.

Starting point is 00:15:30 and just for the record I've never really saved for a deposit other than this 36 and a half thousand which I've just leveraged into further but it was a PPOR in the western suburbs of Victoria and yeah I was able to leverage into a property and then a few years later I was able to sell that and obviously CGT free because it was my principal place of residence and I thought well gee I've made like a hundred thousand dollars here in the space of a couple of years just by putting down really $36,500 as a deposit with a little bit of lender's mortgage insurance. So that was just really opened my eyes up to,

Starting point is 00:16:06 oh, hang on here, we can explore this further. Yeah, awesome. Well, let's continue that journey then. Once you started to go, hold on, there's a lot more to this property thing than what I first thought. Take us through what your journey's been since that time in terms of what you've invested in,

Starting point is 00:16:26 why and how that's evolved over time, as well as some of the challenges that you've overcome along that and the learnings that have now sort of evolved into your current investment strategy and where it's leading you to. So there's a lot in that, mate, but let's start kicking it through and we'll dive in as we go. Yeah, certainly, certainly. Well, look, yeah, I mean, yes, that first property, we actually, you know, we sold it and realised the gains and then leveraged that into another parcel of land so by then I'd met my wife-to-be at that point and we we purchased into we purchased another block of land that was in a sort of gentrifying little two acre lot again about 50 minutes from Melbourne and again in Melbourne's west

Starting point is 00:17:10 but the thing that one was it was delayed land settlement strategy and this yeah this I guess I can touch on this later, but essentially we just put down a 5% deposit and then just waited about, might have been a year to a year and a half for that land to register. And in that time, the property market moved a whole heap. We were reinvesting in the meantime as well, but that parcel of land moved a whole heap in value. And then by the time we built on that parcel of land,

Starting point is 00:17:40 there was already automatic equity already generated from the time that, you know, we didn't have to pay any interest repayments, nothing other than the 5% deposit. So by the time we then moved into this property, to be honest, Bushy, we probably were still caught up in that real emotional attachment and, if anything, we probably overcommitted on our mortgage. Again, we might have had a borrowing capacity of $500,000

Starting point is 00:18:03 or $600,000 or I reckon I went up to every single cent of it. And, yeah, we fitted that house out with furniture and all the silly emotional things that you can do at times. um just to really you know because you know it was meant to be our dream home and and to be completely honest with you it was a beautiful house but it was it was far from a dream because the cash flow that and and the pressure that created it really actually forced you to like earning a high income and really place a lot of financial pressure on us because um because of really the over commitment yes we could we we received the loan um but it was yeah it was a

Starting point is 00:18:39 very uh it was a very big mortgage um so we so rather than actually staying there my wife and I actually, we made a decision to sell that property and then obviously we realised the gains on that one. So it was... Just jumping in there, mate. So it was the sort of looming yoke around your neck and that financial pressure you thought, oh, there's got to be... Was that the trigger that said, oh, let's sell the dream home?

Starting point is 00:19:06 Well, look, it wasn't. By that stage, I'd actually been to a couple of seminars, an actual bus tour. talking about the bus tour was actually really informative and really good and i now realize i was actually the base on this bus tour but um it was actually a lot of good takeaways if you see past that you were the actual product um it was actually yeah so so so that really triggered trips you know that really triggered the the whole interest in property like we knew we got some valuations and we could see that there was a lot of equity there and then we thought well how

Starting point is 00:19:37 can we replicate this and you know replicate that time and time again and then so obviously we started talking to brokers and working out how and obviously I was reading as many books as I could educating myself on property as much as I possibly could and probably one of the light bulb moments was actually a conversation with the broker and I was getting all excited going look we've got three or four hundred thousand dollars equity I want to buy four properties and we're going to and he just pulled me up and said hang on there mate I couldn't even get you in you just had another trial he said I couldn't even you couldn't even refinance that same house you're right now get a loan purchase another investment property so that was that was probably one of the

Starting point is 00:20:13 reasons why we've gone okay we've got two options we can either stay here try to pay down our debt not really borrow anything else for a few years have some financial pressure that is probably unnecessary or we can realize that going go back and actually rent vest for a while and then put that money out to work for us where you know where it makes sense yeah love it mate love it okay well Let's go further on that journey, mate, because I know your thinking and your approach and what you've done has evolved over time. So take us through the next step from there and what that meant to you, mate. Yes, certainly. So the next step, Bushy, was actually the neighbouring property.

Starting point is 00:20:57 So it was while we were in the midst of selling, the neighbouring property actually was advertised on Facebook. and we realised it was, you know, it was quite a run down, it was actually a divorcee sale and it was quite a run down property but we knew the bones were good. So actually the neighbour actually put it on Facebook and he advertised it. I actually rang him and said, look, I think you can actually receive more for this, you know, just as a neighbour,

Starting point is 00:21:22 as I guess a bit of a friend. And he said, look, he was hell bent on selling it. They just wanted to clear it at that price. And look, so he said, look, if you're hell bent on selling it at that price, we'll buy it off you, we'll solve that problem. So we actually ended up moving next door and actually moving here. So we packed, we had a two-acre property that we moved right over the fence to another two-acre property.

Starting point is 00:21:44 It was, you know, read about this stuff. Like it was quite, yeah, like it was three kids. It was quite a fun little move. And it was actually a really beautiful house, to be honest. It was an absolute cracking beautiful house. It was a steel frame. It was like 47 square home. um but yeah look it just by that stage there we had actually uh applied for our daughter to go to

Starting point is 00:22:07 a private school in Geelong and she was actually accepted so we were probably going to stay there for a little while but once the acceptance came through then we just we decided okay we're going to move to down to Geelong um so then that triggered the sale of that property um and yeah again see capital gains tax free because we um even though we only had it for like six months um but yeah the numbers on that one there too were quite a light bulb moment there too if i'm going to mention light bulb moment again they're pushy because yeah we put down i'll have to go over the numbers but basically it was you know we put down it was was close to 200 percent like cash invested annualized um so it was it was made like you know 170 profit in like a six-month

Starting point is 00:22:49 period so um and then that really got me thinking by that stage i think i can't actually remember but I remember doing a property development course and I started, you know, started to think about, you know, the metrics and when you really look at the return on cash annualised, that was a real white ball moment. So we didn't make as much money as we did on the prior property but then when you consider over an annualised basis, it was actually far superior.

Starting point is 00:23:12 So that's something that I really, you know, look at when I go forward into property development deals too when I really assess the metrics. Yeah, it's, you know, you've got to have that margin, which is great, but the time is also needs to be considered because it's how hard is that money working for you on an annualised basis? Yeah, let's emphasise that point, Ray, because I think it's one

Starting point is 00:23:33 that a lot of people really don't spend much time thinking about because, you know, you hear stories of, you know, so-called overnight sensation gurus who've made massive profits on properties, but if it's taken a long time to do that you break it down to look at okay well what's the actual return on the money i've put in on an annual basis compared to other things and that that starts to take shape and and given you know we both have belief that time is that is your key resource uh applying that time to you know the the level of profitability or other of what what you're doing is a really important one mate so

Starting point is 00:24:14 So a really good one to make note of and something that I know the audience will start to think about now that you've raised that. So, yeah, sorry, mate, go on. Yeah, excellent. Yeah, definitely. So, yeah, it really got us thinking and we actually, and again, we were still emotional at this point, even though we were looking at investing, we still actually made one last purchase,

Starting point is 00:24:35 but that was really the, this was the real catalyst to go, okay, we can, we've done it a couple of times now. And I guess like anything, the more you do something, the more comfortable you get. The more comfortable, the more confident you get because you're just doing it. It's the reps. So, again, we hadn't had a large number, but we're starting to feel a bit more comfortable with this property thing now. You know, we're pretty much just signing pieces of paper and, you know, making lots of money.

Starting point is 00:24:56 So, obviously, there was some favourable market condition movements in our favour as well. But essentially, we then purchased another plot of land in Geelong in the Highton region down by the Barwon River. and it was the final stage actually of a multi-stage release and it was very highly sought after. But again, we put down 5% and we were actually planning, we had plans built, plans drawn up. We're actually going to build another PPOR there and then basically mid sort of waiting for land registration,

Starting point is 00:25:29 we just changed our strategy. We started actually involving more critical members of the team, not just talking to local brokers but then talking to investment specialist brokers and really strategising about what is the best and most optimal way for us to grow our wealth moving forward. And as good as it would have been, there would have been a little bit of markup in that PPOR that we still would have been then forced

Starting point is 00:25:51 to the position to probably sell it again to then unlock equity and to continue moving forward. So we actually decided to sell that lot of land. And fortunately, it actually moved about $100,000 in just over a year on the land value. So, and again, this took me, this was the real catalyst for this return on cash annualised or cash on cash return annualised, return on equity annualised. We probably, we only put down a 5% deposit. We have to factor in your stamp duty because that was payable.

Starting point is 00:26:18 But we, and obviously the agent fees, the agent loved it because he received a double commission. He sold it to us without meeting us and then onsold it without meeting us. Happy days. He absolutely loved it. But, yeah, essentially, we made, I can't remember what the return on cash was, but it was in the couple of hundred percent. So you literally, it sounds unbelievable. It sounds like crypto or something, but it's not. We put down a 5% deposit and we made $100,000.

Starting point is 00:26:43 It was in just over 13 months. And it was a really good just return, cash on cash return, annualized. And then that's where we thought, look, this is really where we thought, how can we repeat this on a more efficient and more productive scale? and that's really where we started looking at the duplex sites this is really where it all sort of you know the pathway and the previous experience has really led to to you know undertaking that that path yeah okay well before we drill into a little bit more into the duplex sites so it gets you've mentioned it a couple of times now and it is a i think a very uh a smart strategy that not many people get their heads around and that's the the sort of delayed uh

Starting point is 00:27:28 land uh strategy that you you know the delayed settlement strategy that you touched on earlier can you can you sort of dive into that a little bit and talk about the pros and cons and when it's appropriate to think about that sort of an approach yes certainly certainly look i think i mean it's good that you mentioned the pros and the cons i'm just going to sit here and talk about the pros there are without unregistered land as you'd be well aware there are some risks as well so i'll touch on them as well um but the the good the crux of it is is that you can essentially like we've done you can put down a five percent deposit and you can control the site without paying any interest until the land registers so where it can make sense as if

Starting point is 00:28:06 as if yeah you maybe you're in between properties and you've just got enough you haven't got enough to to actually control a property outright you've got enough to control a parcel of land um like for instance currently i'm holding three sites and i've only probably put in 150 to 200k cash but their you know their value is two two million so it's it can happen and and the thing about the delayed settlement strategy is if you employ it correctly and you really plan and i'll go back to the development metrics you've really got to have a really strong handle around um around your the finance that you would that you will seek in order to you know to get to get your build completed um you need to see then so once you know what development what we call developers

Starting point is 00:28:49 equity contribution once you know what that is you basically need to plan with the end in mind so when you acquire your first if you're going to do two or three um you need to need to really carefully plan out your your cash flow requirements because that's really the key to it all you don't want to get stuck um with with not being able to complete a project so so what i what i like to do is i'll for instance you know let's say we're doing the three projects in four years this is just a hypothetical you can that that permutation can change whoever you like but we would we would essentially buy a plot of land a lot of land um at month zero um let's say it's got a three to six month land registration period then the build completes well before that project is completed

Starting point is 00:29:36 ideally what you'd like to do is put in another you buy another pass of land so you build your pipeline so you can actually you can be controlling it a land a pass of land let's say a five hundred thousand dollar pass of land for 25k cash down so you've already got your next your next project already working for you whilst you're only putting 25 000 and that's that's a big thing because with with the um with like say a multi-stage release developers generally now they start low with their prices and depending on how how desirable that that that area is and how much demand there is that then they've got justification put their prices up so essentially you want to be getting in into a you know an affluent area on the cusp of gentrification but you want to try

Starting point is 00:30:20 to get as early on the development as possible because generally developers go sideways or up if they put their prices down the the valuations will fall over and it'll you know it doesn't work so yeah exactly well when you know that you go okay well to get in early enough it doesn't work everywhere you've still got to pick the right areas and i'll really go back to that that scarcity factor it's got to be that scarcity factor but once you do that you can really you know that you're basically buying it at a discount that the closer it is to land registration the more that land's worth so if you can just control it far out from the land registration and then ensure that you that land registers after your first project completes and don't cut it too far and you want

Starting point is 00:30:58 to leave it a sufficient buffer um you can yeah basically you can have your next project working for you or the capital growth happening and that's where most of the margin comes from it's really the lead time between the time you sign the unconditional contract between when the land registers and that's that's essentially where you're getting most of the most of the capital growth as well as you know building a duplex and um you know utilizing the highest and best use of site but so essentially what you're doing is yeah you're putting down minimum cash deposits you're strategically working out your land registration terms um so it might be that you've got like an ascending registration so that it always goes

Starting point is 00:31:36 out further than the build completion. So it really comes down to being selective in the type of land that you buy. You don't want to buy three plots that are all registered at the same time because you're never going to be able to commit to that. It needs to be quite strategic. But if you're playing your cash flow accordingly,

Starting point is 00:31:50 there's definitely an opportunity to take advantage of that staggered effect, I guess, if you want to call it. Yeah, well said. Well, I can hear some people listening to this going, well, that's all really good in a rising market. Everything we're currently hearing in the media at the moment is how property values are softening. In terms of the cons and overcoming that potential situation, what are your thoughts around that, Tom? Yes, certainly. Look, there's always cons to it.

Starting point is 00:32:26 Again, it's unregistered land. it's nothing until it's titled so there's always that risk that the land takes far too you know it takes longer than you expected for it so the sunset clause and that's the thing if there's a sunset clause of another three years when potentially they've got that two or three years for that land to um to register so the risk is that if you're generally with this unregistered land you're putting in an unconditional or you so you're going unconditional on finance you're waiving your right to finance so your maximum risk is is the deposit you're putting down so the risk is that if you can't, for whatever reason,

Starting point is 00:32:58 you might be able to receive finance right now, but your personal circumstances change, and then the land registers at a later date and you're unable to obtain finance, you'll lose your deposit if you can't settle on that block of land. So that's one of the risks. And generally, when you say about the market declining,

Starting point is 00:33:17 and that's always inherently that risk, but I guess there's markets within markets and always trying to time the markets where that scarcity factor is still at play. Like we're looking at a lot of affluent coastal regions and little, yeah, like little lifestyle locations and they were still receiving, we sourced one for a client a couple of weeks ago

Starting point is 00:33:38 and we can still comfortably, using conservative assumptions, still receive our 20% development margin on cost and with current market conditions. So, and the thing is too, with these duplexes, they are quite cashflow positive. so i don't we're always looking for long term like so yes we want to make some short-term profit but we want to be purchasing you know in an area that's got strong fundamentals and we also have that long-term focus as well so no one's ever really going to be able to protect exactly what's

Starting point is 00:34:06 going to happen with the market but if you always have that if you buy the fundamentals and you and you have a long-term approach you're going to mitigate that yeah it's a spot on that well Well, Sam, the approach we often adopt with clients that we assist as well is, you know, plan for the worst and then expect the best. And if the worst is that you end up holding on to the property and not shifting it, the numbers need to work from a cash flow perspective at that point if you can't offload a property in the short to medium term and you're still going to be protected. But I want to pick on something that you've mentioned a couple of times now that I'd like to open up a bit as well. you mentioned the focus on duplexes so talk to us about how uh your thinking revolved around the duplex exercise why are duplexes something that uh something you've focused on and and uh talk to us a bit more about that if you can yes certainly certainly well look i guess it falls under the

Starting point is 00:35:01 bracket of you know property development but property development can come with a little bit of stigma um and there is there always is a little you know there's a higher risk there's a higher return there's a higher risk with the duplexes what i like about them is the risk isn't much more than a standard house and land build at times i mean it's a pretty straightforward da and you can receive some some pretty healthy returns on them so when i assess any deal i look at those key metrics and um when we go to assess a site i'll really look at that residual value of the land so going back to your point before when we put in all the all the assumptions and plan for the worst and hope for the best.

Starting point is 00:35:39 It's planning for the worst. So we put in a building contingency buffer and we put in a low gross realisable value to ensure that and once you actually put all that in, then we really work out, okay, it comes up with the residual value of the land and that's really our bargaining tool to go, okay, does this site make sense or not? If we want, for instance, a 15% or a 20% development marginal cost,

Starting point is 00:36:03 we'll factor that all in. And if my feasibility calculator, once applied all those conservative assumptions, doesn't show that the land is at worth what it's currently advertised for, we won't proceed. So that's a good tool to use to say yes or no. But what I like about the duplexes is there's a lot of options on them. So you can essentially, on completion, you can, depending on your circumstances and goals and timeframes that you want to achieve your goals in, you can either hold both on completion, you can sell one and hold one, or you can sell both. and then again there's lots of there's myriad of buying structures and tax implications behind that but essentially what you can do is you can create some great instant equity and you can accelerate your portfolio faster than you potentially just doing a traditional buy and

Starting point is 00:36:58 hold approach so i think you can get the best of both worlds you can buy for fundamentals but you can also receive some you know development profit because essentially you're utilizing the highest best use of the land it's a straight one into two but you're still turning really wholesale into retail so that's that's where you're going to get that uplift and again if if it doesn't have to be um a big profitable development deal it can just be something small like a duplex if it's going to give you the numbers that you require uh with a low risk that's what i like about them yeah beautifully said okay well uh you sort of got into that let's continue the your personal journey then uh talk to us about where that led you from from that point on

Starting point is 00:37:42 yes certainly so it actually led us into um probably a good point to mention now too so we were in a position where after we sold the um the the block and or that the house in melbourne's west and also the block of land we continued to rent fest but we had you know obviously we just kept on rolling the equity over and a lot of it was all capital gains tax free because it was principal place of residence every time uh the block of land we actually purchased them a wife's name she wasn't working at the time so it was minimal transaction cost there as well and we actually had some equity we were struggling with the amount of kids we had to leverage into residential property so we actually um started looking at commercial property um so basically

Starting point is 00:38:26 for that that what we discussed earlier that passive income element and the ability to you you know, to have that passive income and really get your time back. So when you look at the numbers on commercial, yes, they require higher deposits, but for us it made sense at that time too. We couldn't really do anything else. They still grow very well in the right areas. So we purchased a couple of warehouses in the trade coast

Starting point is 00:38:51 in Brisbane. Oh, so now, you know, most people go, you know, we need a much bigger uh deposit when we get into the commercial space which can often be a bit of a barrier around that how did you overcome that in the context of your first on train to the commercial space yeah i think our lvr was around 67 so we had to put in a little bit more but it was at that point it was still you know do something or do nothing and it um i mean the numbers that generated like we purchased a warehouse for 715 000 it generated a 7.7.3 i think percent net yield and that's net so tenant pays all the outgoings um so it was essentially

Starting point is 00:39:36 i think it was a 52 k a year um net income and then with the loan attached against it was it was approximately a 30 to 35 000 a year passive income um and that was that was a real white moment for us too it's like we can acquire enough of these um you know we can create financial freedom um through through commercial property and that's really carved the ways to how we move forward so i really look at you know the commercial is my passive income source so i generally roll over the profits put it into commercial and then have the duplexes as a more active approach um actually i don't really have buy and hold um residential portfolio anymore because it's just too tough with the amount of kids that we have but i've still got the blind hog element through

Starting point is 00:40:21 the commercial so um that's that's really and the thing is too as you know that after went through and decimated resi lending but they actually completely left the commercial lending alone so we were actually able to receive a finance for a property when we couldn't have in residential so that drove a lot of it as well but when you look at the numbers it's a bit of a no-brainer when get commercial right it's very lucrative from a passive income standpoint it's 2.5 to 3 times higher net cash flow than what residential offers yeah and what i'm loving about what i'm hearing and correct my wrong with what i'm reading here but you're using the duplex deals to create a quick cash that then effectively can become deposits for the commercial properties that then

Starting point is 00:41:04 give you a a much better long-term a passive income flow is that am i reading that right 100 percent that's exactly that's the way the way i view it um it's actually um my father actually um being the operations manager at the pig farm he's actually delving into it now too bushy he actually read um i read steve police's book and then i gave it to um i recommended my father read it and he basically had sold his shares of the property it was only a little over a year ago and he was just looking at what's his what does he do now and he was he was hypothesizing as to to how we should proceed next uh after he read the commercial property book he he's now taking action on the back of that steve actually sourced him a really fine commercial property over in

Starting point is 00:41:45 perth and dad probably understands commercial he's gone from a pig farmer that didn't believe in debt to now someone that like loves commercial property he wants to leverage not too deep but acceptable levels looks at his return on equity and he's completely across the commercial market he's addicted so yeah my dad's uh he's in his late 60s and worked hard all his life and now he's he's actually um yeah he's got a large commercial portfolio so from convert converting that pig farm profit uh generational of the sale of the of the of his of his share of the pig farm to now into commercial property so um yeah that's yeah that's actually um how i actually started working with steve was i uh dad was a client of his and then we then we uh stayed in contact and

Starting point is 00:42:27 obviously i've been now working for steve so it's all worked out very well yeah i love it mate love But tell me, for those that are, because, you know, commercials are getting a lot more airspace, particularly over the last couple of years with what's happened with Resi for some of the reasons you mentioned and the concerns around that at one stage with COVID and now we're seeing, you know, given the massive uplift that we've seen in residential the last couple of years,

Starting point is 00:42:54 you know, that there are going to be areas that are going to struggle because it's effectively brought forward some capital growth. Just in terms of parameters then for those who might be going, well, I might have a look at this commercial space, I'd love for you to sort of put some shape around that for us in terms of, you know, if we're going to be in the sweet spot of commercial, what should we be looking for?

Starting point is 00:43:15 What are some of the minimum price points that you need to be being able to stump up to get into something that's going to perform well? Just so that people can start thinking about that. Yes, certainly. The thing about commercial too is you can buy quality assets at smaller price points. It's all about the square metre rate.

Starting point is 00:43:36 So unlike residential where you might have to get a good yield, you might have to go out regional, in commercial you can still receive a really good yield, but you just buy a smaller space. But generally speaking, the larger the space, the longer tenant you're going to have, and the more high quality the tenant, the smaller the space, the tenants are going to go into, the business is basically going to outgrow the space. or they're going to stay there or they're going to leave so generally you have a higher turnover

Starting point is 00:44:02 of the smaller commercial properties but there's smaller periods of turnover and for the larger ones they're less often but there's for slightly longer periods but when I look at a commercial property I always want to look at the relitability of it you need to plan that okay that tenant's going to leave one day how relatable is that space so there's certain types of assets that I think in commercial that you really want to be looking at the the main the main i guess the the one that's most popular now is really industrial warehouses um that's you know like entirely held areas they're very in demand product um i'll be staying away from your your cbd office space we don't we don't really buy much office space at all um and suburban retail and and you know in good locations where

Starting point is 00:44:46 there's good frontage and good foot traffic um they're they're the key type of assets that you to look at in commercial it needs to be supported by fundamentals and and just the same as residential basically but uh the industrial warehouses are probably the most low risk asset you can buy right now with the sort of the e-commerce boom happening um and the need for you know space and logistical issues caused by covert um they're they're they've got very multi-use type assets so they're not just pigeonholed to one type of tenant or one type of sector they're very relatable because you know so many sectors and business type of businesses can use them yeah and that well said so for someone who's going whoa this sounds really

Starting point is 00:45:27 exciting to me i want to jump straight into it uh as a as a starting point uh what sort of price point uh is and then this is a how long's a piece of string question but what's the sort of minimum price point and the minimum uh deposit they're gonna need to stump up to to kick off if if commercial is something they're interested in pursuing yeah so generally um you know 500k is probably like 44 to 500k would be your sort of minimum for a quality asset you can still get less but yeah prices have yields have compressed a bit so let's say four four to five hundred thousand is a good entry level um price point you can still receive a five and a half to six percent yield but you're going to need to put in a 30 deposit so again if you're looking at from a

Starting point is 00:46:13 purely finance base it's a great way to go but you probably want to leverage firstly i like leverage residential first because you've got the higher ldrs and you can actually grow your equity and actually create more wealth that way but then once you've done that and depending on your goals and circumstances time frames then you can look at leveraging into and transition into commercial as a as a later play so i think it depends on where you are in your journey too but i would probably go out straight away and buy a commercial i think it's more of a more of a later play um and more of a passive income you know retiring transitioning to retirement type type asset um yeah and i think it's the way to go as well because as we know i think the old living off

Starting point is 00:46:54 the equity and the current lending environment doesn't really work and residential cash flow just doesn't really cut it from a from a passive income standpoint and that's really where commercial makes sense it's just that tenant pays all the outgoing so you're looking at a net uh net lease and that's the big difference and that's where your cash flow is so much stronger than your standard residential property yeah i love it mate i uh in my own book the freedom formula i talk about the cash flow to absolutely capital growth the cash flow curve where you know i suggest that investors starting off focus on growth to build equity and then convert that to cash flow later in the exercise because the other misconception a lot

Starting point is 00:47:32 of people have is this amount of buying a bunch of residential rental properties paying off the and living off the rent but the rent's never going to be enough to survive comfortably but what resi property is good at doing is building uh through leverage uh building that uh equity base that you can then safely put into a a much better performing asset that gives you a much higher yield like the commercial exercise that you've just spoken about mate so um no i love that mate well if we if we look back on all of that uh i'd love for you just to summarize what what you think have been your best and worst investments to date and what have you learnt from both of them?

Starting point is 00:48:09 Yeah, all right. Best investment, as it currently stands, again, it sounds a little unbelievable, but as it stands right now, a parcel of land bought, purchased in New South Wales for the 20K cash down and 14,000 stamp duty for 420 and a year and a half later is currently worth 650. So, again, it's not the biggest margin I've made,

Starting point is 00:48:32 But when you look at annualized return on your cash, that's got to be the – it's about a 6 or 7x, so 6 or 700%. And, again, it sounds like crypto, but that's the actual reality on that one. So I would say that probably takes the kicker at the moment. And worst, it's actually probably – the lease margin was actually that very first one. But it's still – I'm very grateful for it because it actually enabled – we realized a profit and then we leveraged up. then we're able to then roll that forward and gain the momentum so the first one probably had the least amount of profit on a on an annualized basis but the thing was i had that home buyers grant that actually wasn't essentially my money so um i'd say that's probably a double-edged sword there

Starting point is 00:49:16 but and probably it also led me to believe that if you can hold as well that property now is worth um you know it's it's more than doubled in a 10-year period so it does show that the importance of compounding, you know, if you can and you don't have to sell, the importance of compounding as well. So obviously it's a finance consideration for myself and my wife with our five kids. We just, you know, we have to roll equity over because obtaining a big portfolio is just tougher

Starting point is 00:49:45 for lending, but it just can show if you do hold, never sell, never incur the transaction costs, that compounding can be quite powerful as well, very powerful. Yeah, but what I love about your approach is you've been adaptable to your circumstances and look at, okay, well, we can't go down the traditional road. Every child you add to the plate takes a big chunk

Starting point is 00:50:08 out of your borrowing capacity. And with what we're seeing in the lending market at the moment with every increase in rates significantly drops your borrowing capacity as well. What I love about what you've done is go, okay, well, let's think outside of the square here. There's got to be another way. how can we continue to build our nest egg and our opportunity

Starting point is 00:50:28 and our passive income potential. And, you know, the way you've sort of embraced, you know, much more innovative approaches is fantastic. And I think as a lesson to the learners, don't be stymied by the fact that, you know, you can't just follow one route. There are always other ways of doing it and the sort of range of activities that you've done to maintain and continue to grow, your opportunity, mate, has been quite remarkable.

Starting point is 00:50:55 So just before we jump into what I'd like to refer as the ambush lightning round, Tom, I just want to sort of reinforce to everyone listening that what we've been talking about today isn't financial advice. It's really just intended as general information only because everyone's situation and circumstances are different. So, you know, feel free to take on board some of the thoughts that Tom's been sharing with us and make sure that you go

Starting point is 00:51:21 and talk to a qualified professional before you invest to make sure that it's, you know, best suited to your situation, your circumstances, your plans and your risk appetite. So, mate, that has been absolutely awesome, mate. I really appreciate you unpacking that for us. So I now want to jump into what I like to call the bushfire lightning round, which is just the quick fast-forward questions that you get a blindfold and a cigarette on for all of the podcasts.

Starting point is 00:51:48 So to kick that off, Tom, what's your favourite quote? And why? Favourite quote. Compound interest is the eighth wonder of the world. Look, I would say don't find a fault, find a remedy. Anyone can complain. Henry Ford. So it fits the theme of what we're doing.

Starting point is 00:52:07 I've used this one before, but I really like it. It's basically what we've had to do. You can either put your head in the sand and just accept your fate or find a remedy and go out and grab the pen and write your own story. Yeah, I love it, mate. I absolutely love that. Very inspirational.

Starting point is 00:52:26 On the literary front then, for those that are listening in, what's the top book that you'd recommend we read and why? Yeah, look, I would say, just for a pure mindset, I guess Rich Dad Poor Dad by Robert Kiyosaki. Again, some people have got their opinions on it, But just as a real eye out there around just mindset, I would say that's a great one just to start off and then delve down. I would actually, again, to a bit of self-promotion here, but like I said, Steve's commercial property book was a huge item for myself and it worked wonders for my dad. And he's also got a new residential book out as well that I can say it's excellent.

Starting point is 00:53:11 it's um it's like a blueprint for how to grow a portfolio and it's um it's like a textbook so it's very user friendly as well so both of them are great books um but i would say yeah like i mean you've got steve at nights zero to 300 zero 100 properties in 3.5 years that's probably a little bit out of date with uh the current lending environment so um i would i would stick with robert kiyosaki uh rich there for that um just for a mindset shifter yeah i totally agree mate uh i I mean, I wouldn't be doing what I'm doing today if I hadn't read that book back in the late 90s and I actually had the pleasure of going along to see him live

Starting point is 00:53:47 and it was an absolute, I actually call it my Kiyosaki moment. It was that that triggered the journey that I now have followed ever since and I reckon it's an absolute must-read for the, you know, like you say, some people either love or hate it, but if you look beyond to, you know, the key message, that's awesome and and i agree with you i've also read steve police's uh uh commercial property book and he's been on the show previously you know a very good easy read for anyone who wants to understand how that exercise works mate so that's awesome um sort of flicking back to the

Starting point is 00:54:26 investment piece what's both been the worst and the best in investment advice that you've ever received today man worst uh i'll probably say it's just a generic one that you hear a lot but go buy a property to save tax and go buy it off the plan partner or a house of land package to save tax that that one there just it doesn't it just doesn't stack up what we buy property to create wealth not to create tax yes it can be a little a little favorable benefit but i think a lot of the time i mean again i'm actually a cpa i'm not not currently practicing a CPA anymore, but I think a lot of time accountants can potentially, and not talking down to any accountants

Starting point is 00:55:06 because it depends on where you receive your advice and there's great property accountants, but just be very careful sometimes that you receive advice to go buy a property to save tax and it's a very deductions-focused type mindset when a forced user potentially buying an inferior asset really sets you back um at times so again there's there's many ways you can look at that and the type of property that you need to purchase depending on your strategy but i would say yeah that's one of

Starting point is 00:55:35 the worst piece of advice is go buy an off-the-plan apartment to save tax totally agree mate my my accountant who's a very active property investor himself he says uh often says to people look if you if you just want to save tax i'll just charge you more uh don't don't buy property as as a reason to save tax so do it for all the reasons that you've mentioned today mate um what about the uh best piece of investment advice then yeah i guess it's um i guess someone like warren buffett uh saying i guess you could say yeah if why doesn't everyone just copy you and if investing was that easy why doesn't one just copy it because no one wants to get rich slowly so i guess it's um you know it's that that wealth is just a transfer from the inpatient to the patient

Starting point is 00:56:21 So it's just about understanding that, I guess, just from your mentor saying it's a long-term game, got to be patient, play for the long-term and just really allow that compounding to happen. Totally agree. And embrace time as your friend. This is the, it took me a while to realise this, Tom, but everyone's in such a gut-busting hurry for things to happen yesterday. But if we actually embrace the fact that sustainable success does take time and compounding takes an extensive period of time to really work its magic, as you sort of quoted Einstein earlier on. But if you actually embrace the time and go, okay, well, it's going to take 10 or 15 years. Let's enjoy that. Let's, you know, use the time we've got now to invest in assets that are going to grow in time so that we then get our time back.

Starting point is 00:57:12 You can actually enjoy the journey. So that mindset piece, if we shift that and say, okay, well, it's not going to happen overnight, but it is going to take time, then we can actually sit back and actually get out of the way and let the assets do their work. So awesome thoughts there. Final exercise in on the ambush series, mate. What's a personal happy habit, rewarding ritual or daily discipline that you employ that's contributed most to your investment success today? Yeah, certainly. I'd say not a bad habit, but just a trait, I guess, is resilience, perseverance and relentless perseverance

Starting point is 00:57:46 to achieve a result. So, yeah, I guess it's not a habit, but it's a habit of being consistently persistent. Yeah, well, it is a habit because a lot of people don't have the persistence, Tom. They expect results to happen overnight and then when they don't, they throw their arms up in the air and, you know, I'm sure that's the reason why over 54% of first-time investors

Starting point is 00:58:11 sell the property within the first five years and never return is because they don't embrace the persistence and discipline that's required to stay the distance and that requires the resilience that you've just spoken about, mate. So, no, extremely well said. To sort of bring our great conversation, you know, to a logical conclusion there, mate, what are your key takeaways for aspiring and current investors

Starting point is 00:58:36 that are listening in? Yes, certainly. I guess everyone's, there's no one fixed strategy. Everyone's strategy is going to be different depending on your goals, personal circumstances, borrowing capacity, et cetera. But I think that the common denominator is taking action. It's undeniable that if you sit on the fence,

Starting point is 00:58:59 you can be the smartest person in the room, but unless you take that action, you're never really going to reap the rewards of of the things we discussed that you know that the leverage and the compounding interest and yes there's going to be you know there's downturns in the market from time to time but if you can just stay the course stay persistent stay resilient and see the play for the long term and start as early as possible my i guess i'm happy i'm so happy i'm so grateful for everything that's happened and the way it's all evolved but if you if you had your time again i would love to educated myself earlier and started earlier because you don't have to take on as much risk

Starting point is 00:59:34 as well because when the compounding really takes effect you just start earlier you're mitigating your risk um naturally and you've got a lot more time on your side so and again what they say that the best time to buy a property was 10 years ago when's the next best time now and i'm not just saying that as a you know because of the industry that i'm in if you if you really apply those fundamentals it absolutely makes sense i mean um yeah we're an inflationary environment but i guess inflation is applied to assets as well so and it's not to your debt so if you look at from a purely finance perspective um yeah it just makes sense in the long term to to buy property using leverage and and let compound interest take effect over time yeah beautifully said mate and

Starting point is 01:00:17 as i've been saying a lot lately because unfortunately the mainstream media is helping on scaring the living hell out of people around the property front and you know with the you know the scare tactics around rising interest rates and and the doom and gloom around uh falling values but i've always believed that uh you know as long as people need a house to live in there's always opportunities in property don't worry about property markets don't worry about medium levels create your own economy by drilling down because there's always opportunities there if you know where to look and it's it's it's never about when because when is you know the best time as you've said is always now but it's always about what you're buying and where you're buying it so um

Starting point is 01:00:58 some very good thoughts there mate look uh really appreciate your thoughts on it uh for those that have really resonated with what you've shared with us today like i have tom uh uh what's new and next for you and and how how can people get in touch certainly yeah and so yeah what's next for me is uh just to just to acquire i'm actually acquiring another looking at applying another duplex site um currently and obviously uh i'm in i'm in that market daily looking for current clients as well um and in terms of getting in touch with me um you can reach out at tom at fleecyproperty.com i'm also on uh tom petter for property on instagram and at tom pedifer on facebook um and obviously you can reach out to uh on steve's website policeyproppy.com

Starting point is 01:01:46 if you want to reach out through the through the brand as well yeah fantastic mate uh really encourage people who have an interest in what i'd educate themselves particularly around the commercial front to reach out to yourself and steve uh i really appreciate your time on the show today mate and uh looking forward to staying in touch thanks very much for having me bushy you had a ball awesome thanks tom talk soon appreciate it cheers thanks for getting invested now here's three easy ways you can take action to start making it happen to ensure you build momentum and start living by design not default so that you're following your freedom formula firstly subscribe to this podcast if you haven't already and keep

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Property Hub - Investment Insights & Inspiration - Get Invested: Tom Pettifer on investing as 'Duplex Development Dad'

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