Property Hub - Investment Insights & Inspiration - Realty Talk: Secure property at wholesale price

Episode Date: September 2, 2023

Drew Evans, a Director of Caifu Property, joins Bushy in this week's show with a somewhat fascinating thought about securing property at a wholesale price to maintain cash flow affordability while generating equity growth. An interesting thought. Find out how Drew suggests it is possible. Also in today’s show, Bushy talks to Kev Tran who quotes from the Australian Housing and Urban Research Institute report that reveals 40 percent of 25 to 34-year-olds rely on the bank of mum and dad to purchase their first property. So where does that leave the young Aussies who don’t have family support as an option? Let's see what Kev and Bushy come up with in the show. This week we also welcome a new commentator to the team. Rasti Vaibhav from Get RARE Property has appeared with Bushy in past shows and has provided us with some outstanding advice on securing good solid investment property and developing a successful portfolio. So much so that we have invited Rasti to join us as part of our Advisory Group and help us develop meaningful and helpful content for our shows. So welcome Rasti and his partner Rupali to the Realty Talk team. We look forward to your valuable contribution to the shows. NEW – Join the Property Hub community on Substack! Sign up to get Australian property news, opinion, and episodes in your inbox: https://propertyhubau.substack.com/ Subscribe to RealtyTalk on the Property Hub channel: Apple Podcasts | Spotify | Google Podcasts | Email Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast network DM Media. Business and partnership enquiries: [e-mail] omnystudio.com/listener for privacy information.

So I have this ethos where retail investors, they buy a piece of real estate and they hope and pray that they've made the right decision over time. That's Drew Evans, who'll join Bushy in this week's show with a somewhat fascinating thought about securing property at a wholesale price that'll maintain cash flow affordability while generating equity growth. Hello, I'm Kevin Turner and welcome to this week's Realty Talk Show. Interesting thought, isn't it? buying property at a wholesale price well you'll get drew's thoughts on that shortly in the show

also on today's show bushy talks to kev tran who quotes from the australian housing and urban research institute report that reveals 40 of 25 to 34 year olds rely on the bank of mom and dad to purchase their first property understanding that there's always markets if we're searching across the whole country that are growing and you know moving a different part in different cycles so no matter what's happening nationally if you look at averages there are always markets that are performing and growing well if you know what to look for and just before we start we want to also welcome a new commentator to the team rasty viabav from get rare property has appeared with Bushy in past shows, and he's provided us with some outstanding advice on securing good,

solid investment property and developing a successful portfolio. So much so that we've invited Rusty to join us as part of our advisory group and help us develop meaningful and helpful content for our shows. So welcome Rusty and his partner, Rupali, to Realty Talk Team. and we look forward to your valuable contribution in the shows in the weeks and months ahead a realty talk is one of the shows on the property hub distributed by dm media you're going to find us on all podcast players and through the southern cross austereo network realty talk is australia's longest running property podcast with over a decade of presenting property investment insights inspirational stories and unbiased advice if you like the show make sure you hit the subscribe

button and help us continue to bring you the best guests. We'll be back in a moment as Bushy kicks off this week's show. Property deductions can save you thousands of dollars each year. To make sure you maximize deductions, you need to work with the most experienced quantity surveyor in the country. BMT Tax Depreciation is the leading specialist in the industry. They've completed over 700,000 tax deduction schedules for residential investment and commercial properties australia wide bmt guarantee to find double your fee in the first full financial year deductions call bmt on 1-300-728-726 today for an obligation free quote realty talk and your host bushy martin now a lot of investors are feeling the pinch in terms of cash flow affordability in recent times

due to the rapid rate rises over the last 12 months or so and following the meteoric rise of property values post-pandemic, by upwards of 20% to 50%, pretty much across the board, capital growth has actually slowed to a crawl in many areas that aren't experiencing the positive changes that need to occur through the combination of new committed infrastructure, growing industry diversity, and strong and growing income demographics to support it. So how can you continue to maintain cash flow affordability while generating equity growth? Well, today's guest suggests that you need to adopt a wholesale rather than a retail approach. But what does this actually mean?

Well, to delve into the details, we're joined by Drew Evans, the founder and director of KFU Property, a boutique privately owned real estate investment advisory firm. So welcome to Realty Talk, Drew. Well, she, thank you so much for having me, mate. I appreciate it. Awesome, mate. But look, just to sort of set the scene and to frame the context for our discussion, what are some of the common mistakes that you see many residential property investors making yeah sure mate how long is that piece of string there's a lot of them and I guess you and I both

see it every day for me the most important one is is not having a strategy in play a lot of people think oh you know I should go and buy a property you know they go in their backyard they chat with family and friends and and off they go so for me it's so important to have a clear strategy and direction in line with what your goals are so you need to begin with the end in mind a lot of people too get emotional as well about what they want to purchase. You know, they watch reality TV shows and go, oh my God, you know, what's the block? It's so easy. And what happens on TV in reality is that sometimes very, very different. A lot of people get advice from the wrong people. And I've always been an avid believer that there's a hundred different ways to make money in property.

There really is. It just comes down to what's good for you and your personal circumstances and what you're personally wanting to achieve. Classic example. You know, I hear it from my little brother all the time i'm the most useless person when it comes to anything trading related uh you know i've ended up in hospital two almost three times uh trying to renovate a property so for me that's a big no-go so renovations aren't my cup of tea uh developing on the other hand definitely is um i see a lot of people go to seminars and you know they go to a seminar or go to a boot camp and and come out of them you know believing that they're donald trump which you know some people may be but uh at the end of the day what we do takes a lot of time skills experience and industry

contacts to bring to bring together um i also see a lot of people that try and do it all themselves and for me sometimes that makes no sense why would you make the mistakes yourself when you can learn from others that have already done it and uh but you mentioned my favorite one is the biggest mistake i see people making is investing in real estate in a retail way as opposed to a wholesale way for me that makes no sense why would you purchase somebody else's capital growth when you can do it all yourself. Beautifully said. Well, you've captured quite a number there, Drew. Just briefly, what are the best ways to overcome these? Listen, for me, it's find somebody that's done what you already want to do and mirror or mentor

them in some way, shape or another. There's no point reinventing the wheel. Understand that time, skills and experience is just that. It does take time to build wealth. It does take experience. And if you don't have that, go and learn from someone that already has. I'd find a niche because as i said if you are a good trader if you are a good builder do that if you're not if you're time poor you don't have the the skills then leverage all the people that do yeah yeah beautifully said well i i want to return now to the the core of what i want to talk about today and that is to get you to differentiate a wholesale investor from a retail investor can you sort of break that down for us yeah totally so i have this ethos where retail investors they buy a piece of

real estate, and they hope and pray that they've made the right decision over time. And listen, to be honest, Bushy, if you bought real estate in Australia, you should have done well, especially in more recent times. However, sometimes it takes, you know, four, five, six, 10 years to find out that you've bought a dud. So my personal investment strategy is to always find opportunities that have an instant equity advantage on completion. Now, for me, I buy opportunities that are under market value. I then add value to the land through doing small developments, whether that's a house or whether it's a duplex or the mutual subdivision. And at the end, it gives me options to A,

either take profit off the table to pay down debt or B, use the equity that I've generated to roll into my next project and keep moving my portfolio forward. Because the last thing that you want to be as an investor is stuck. And unfortunately, that's the biggest mistake that retail investors make is they buy property,

which ties them further and further to their job or further and further to their business because of the cashflow and the inability to continue to get finance. Yeah, extremely well said. And you've touched on some of these already, but can you expand on the benefits of adopting this wholesale versus retail approach? Yeah, well, I mean, you and I both know the property game ultimately is a finance game.

And unless you have the bank of mum and dad or a rich uncle that's, you know, giving you an absolute fortune, you need to keep the banks happy. And for me, there's really only two ways that you can do that. It's by improving your borrowing capacity, you know, say your household income versus your expenses, or it's improving your buying power. the cash you have, the equity you have, or access to somebody else's equity. And most retail investors get stuck because of those two limiting factors. So wholesale investors, you have the ability to take profit off the table,

pay down debt across your portfolio, which in turn frees up borrowing capacity to allow you to continue to build up your development pipeline. Yeah, really well said. Now, I want to switch to the risk side of the equation a little bit because there's a lot of people who, particularly with some of the media news that they're hearing around the whole construction and development sector are a bit nervous so can you talk us through some of the risks and and how best to mitigate those totally yes i've definitely given you the glossy brochure overview but there is definitely risk

uh for sure um and you mentioned a few of it you know interest rates have gone up a there's a lot of builders that unfortunately going into liquidation a lot of tradies that are obviously out of work so this strategy of developing isn't without its risk but i guess that is why we're able to develop these incredible returns is because there is an element of risk involved. One of my favorite sayings, I pinched from someone else and forget who it was, but for me, risk and minimization is just as important, if not more important than profit creation. So everything that you always do, you need to understand what is the risk and how do we mitigate that.

For me in these times, obviously the last few months, we have seen the market come back a little bit, start to cool off. But for me, I'd much prefer to find an opportunity that has a significant amount of equity on completion and if the market does pull back then at least i know i have a buffer and plate based on the equity created anyway yeah beautifully said i'd love for you to give us an example word so that it's it's clear in our minds exactly what you're talking about can you sort of uh paint a picture for us in that regard yeah totally so we know we're working on an acquisition at the moment it's a it's a duplex the the total acquisition price so that's for

the land for the construction or the below the ground cost things like your council contributions your headworks charges, your subdivision fees, the total acquisition price is $1.3 million. So that's for an eight bed, four bath, two car design, which of course you can subdivide. So at the end, you can sell one, you can keep one, you can sell both, or you can keep both. Now, based on comparable sales as it stands today, not appraisals, but sales, so done dusted through RP data, each duplex half has been worth $800,000 a site. So as a gross realization, that's $1.6 million. But remember, it's cost us $1.3 million.

so effectively in this acquisition the market has to drop by three hundred thousand dollars for the project to be worth what you actually paid for it yeah great example of manufacturing equity and having more control over the process rather than let market forces do the work so look i really want to thank you for this very refreshing approach drew it at a pretty appropriate time and it's really reinforced that building new dual income or duplex type properties in limited supply high demand areas as a wholesale investor can go a long way to minimizing holding costs and manufacturing that ongoing equity growth providing of course that investors can negotiate fixed price fixed delivery time land and build contracts which I'm sure that

KFU helps them with so I want to thank you again for sharing this with this is on the Realty Talk Show today thanks Drew. Thanks Bushy. Thanks Drew. Successful property investment is a game of finance. Do you have the right team and the right game plan? Realty Talk is brought to you by KnowHow Property. More than mortgage brokers, Bushy Martin and his team of investment architects set you up with a sustainable strategy structured to lower your costs, tax, risk and stress while increasing your capacity for growth. KnowHow has helped over 1,900 homeowners and investors secure more than 800 million dollars in property wealth so get set to live more work less and live your legacy want to know how to invest in your freedom visit knowhowproperty.com.au

this is realty talk powered by realty.com.au a recent report from the australian housing and Research Institute revealed that 40% of 25 to 34 year olds rely on the bank of mum and dad to purchase their first property. But that leaves a huge portion of young Aussies who simply don't have family support as an option to help them secure and get on the property later. So how can you buck the trend and avoid the biggest mistakes that many property purchasers make in order to get into the property game? Well, the best way is to learn from others who've actually been there and done it. And to show you the way, we're joined today by a shining example, Kev Tran, who's a first-generation Australian who overcame considerable obstacles seven years ago to

secure his first property. Rolling forward to today, and Kev's now a keen investor with three investment properties under his belt, and he's turned his property passion into a career as a buyer's agent for data-driven buyer's agency and well-known InvestiKit. And he joins us now to reveal the five biggest mistakes that potential property buyers make. So welcome to the Property Hub's Realty Talk Show, Kev. Thank you for having me, Bushy. Really happy to be here. Yes, I'm really looking forward to sort of unpacking some of the learnings that you've had on your journey and how you've overcome some of the considerable obstacles that get in the way of people getting into property. But to sort of kick things off and to set the scene, Kev,

can you start by sharing the sort of headline bullet points on what are the five biggest mistakes that property buyers make and then we'll set it start digging into each one in detail yeah absolutely so the the biggest mistakes that i see time and time again number one would be buying the wrong asset type number two not doing your due diligence number three would be only buying in your own backyard and not looking elsewhere and before not understanding the fundamentals of finance it's really important and then lastly number five not having sufficient rainy day funds that's a pretty good list so let's sort of break those down now and sort of dive into them individually and let's kick that off by getting you to share you know what are

the impacts of buying the wrong asset type yeah perfect so uh let's um let's look at just residential property in this situation which is what most people will be buying you know for their first investment and then with residential um different asset types you've got your your houses and then you've got your strata titled so apartments or townhouses so a lot of the time i see when um people make their first mistake and realize afterwards um myself included as well is buying a strata titled property um so these are your apartments and townhouses they basically there's a risk for oversupply there and with the oversupply it's hard to be getting your capital growth you've also got high holding costs like strata and then if there are issues as well it's

common to get special levies which are big big deals that you get up front yeah really good point i think a lot of people make the mistake of chasing the sort of next hot spot and then buy whatever they can get in that area and if it's just a unit or apartment they still think they're going to be okay but there's no land con content that's not the sweet spot of demand uh for those sort of properties so they don't end up enjoying the sort of growth and opportunity that they thought was going to be there so that's that's a a really good first one that let's now talk to us about the mistake of not doing your due diligence what what's your view on that one yeah so due diligence uh mainly people were talking about the actual property itself so

making sure you're not buying in like a flood impacted zone or a bushfire risk or main road and a few other things which are really important the property itself but before that i like to have a look at an overview uh so the first thing would be your overall strategy having um doing your checks on that um and then of course the location that you're buying in so running all your checks making sure that um you know it passes all your uh checklist of due diligence so you've got your strategy your location and then the property itself yeah so the property is actually the last thing in that list which is interesting given that most people jump straight on domain and realestate.com and start flicking through looking at the properties and getting excited about that

tell us can you put a bit of shape around what good due diligence actually entails and what it looks like yeah so um i can do a quick snapshot on all the aspects as well and then go into the property part but when you're doing the initial strategy you want to be understanding kind of what what are your long-term goals uh what's your position now so what's your borrowing capacity look like how much cash do you have to start off with um because then that's going to shape how quickly or um what what your potential portfolio building uh journey looks like right also your risk appetite and what sort of buffer that you need so this initial strategy really paints or frames what your journey can look like after that you can then look at what locations

can support that strategy in terms of budget uh if there are yield requirements for cash flow and so forth so these are the first things before you even look at properties on domain and then when you actually have all that sorted and now you're looking at particular uh properties what you want to be checking are the main things uh they're not it's not in a flood zone which you can do your council searches for that um bushfire risk areas um typically want to avoid main roads i do see that there's a discrepancy with um sale prices um and deterrence for many people um you also want to be checking you're not close to major power stations um yeah maybe too close to entry and drop-off points for schools so that that can be an impact for some people um they're they're kind

of the main ones to look out for yeah that's a yeah a good list to start looking seriously at to really refine the search let's let's move now to the next mistake you see them uh most people making and i would love your thoughts on why is only buying in our backyards a mistake yeah so this is a common one as well especially for for many people living capital cities like myself sydney a lot of time conversations come up and we're it's natural we're familiar with our own areas right but with over 15 000 suburbs in the whole country i mean statistically speaking it's highly unlikely that our local area is going to be the highest performing location right now to invest in so i think having that kind of narrow mindset can really limit yourself from really

amazing opportunities nationwide and then that could kind of put you towards maybe buying apartments which is kind of another mistake that we talked about um because we're limited to budget now yeah spot on let's say a really good point as you say that the chances of your particular area being in the top of the pops in terms of growth and performance given the 15 odd thousand suburbs and nearly 11 million properties around the country is pretty slim so you'd really want to be backing yourself and finding the area and the property style that's that's going to perform best moving on to the the next mistake what impacts does not understanding the fundamentals of finance have in your view kev yeah like there's so many things you know we talk about in a property

investing is uh is largely a finance game and i think understanding the basics uh anyway it's going to help you then understand what's possible for you and i think always having the right team around you mortgage broker or banker is going to help but for me i think understanding um you know like how can you maximize your borrowing capacity with the impact of credit cards what do they have um the fundamentals of finance so being able to save consistently in budget you know so then you can actually predict where you can be into the future um a big one as well when it comes to property specific would be um understanding opportunity costs so uh for me i didn't understand when i first started this is a mistake that i had of um lenders mortgage insurance so i

thought you don't want to be paying that so i kept trying to save up to the 20 percent um but not knowing that could have entered earlier um and capitalized that lenders mortgage insurance into the loan i didn't have to pay it up front so i would have got in earlier yeah and i did i think that a lot of first-time investors in particular don't realise is that lenders mortgage insurance is actually a tax-deductible expense that your accountant can write off in the first year or over five years so it certainly shouldn't be a limiting factor on what you invest in and the amount that you invest because as you say that extra 10% of capacity can make a massive difference to the asset base that you can establish so that's a that's a great one Kev. Kev how does

the absence of a sufficient rainy day reserve affect property buyers in your view yeah so this is a really important one because i think the the benefits of holding onto properties come over the long term right of compounding and you know the longer we can hold properties for it's always going to be better and if you're if you're forced to sell your property early because you you know have unexpected interest rate rises or maintenance items to take care of or vacancies because of tenants these are these are going to cause you stress and you know it's going to be hard for you to hold on to the property so you know having a sufficient emergency or rainy day fund or a buffer over a certain amount of months that'll give you that reassurance that when things

inevitably do come up it's all part of the plan going back to that strategy that we talked about before so it's important yeah absolutely from a peace of mind perspective you're not sort of going to be left living on toast and two million noodles while you're hanging on a property yeah if you've got the reason that reserve there knowing that when something happens as you say it's not a matter of if it's when uh that you've got uh resources to fall back on without having to knee jerk and make short-term decisions that have long-term lasting impacts so another really good point uh the the next one then kev uh just to wrap things up here what was your biggest learning since purchasing your first investment property uh man so so many learnings it's hard

to put up to just one but um you know just to kind of be different to what i've already mentioned regarding the finance aspect which is really important uh which stopped me um another big learning that i had was uh understanding that there's always markets if we're searching across the whole country that are growing and you know moving a different part in different cycles so no matter what's happening nationally if you look at averages there are always markets that are performing and growing well if you know what to look for so i think that's the big thing and i saw that personally back in 2018 when i invested um there was a national downfall so so to speak but there were still markets that were performing and um it's the same method i use today to grow

in my portfolio and for clients 100 agree i think there's a real danger in relying on the mainstream media national medians and averages because as you say uh from my own personal view as well you can create your own economy when it comes to your property you don't need to worry about something at the medium and the average levels that can be quite misleading at times so there's always opportunities there if you know what you're looking for and and how to put that together so look i want to really thank you for sharing your experience with us today kev and it's it's quite clear that the key to property success is to actually change your financial habits and mindset and to get invested in learning the basics of finance. So you're able to make the right

financial decisions and new choices to grow your wealth. So I want to thank you again for joining us on the show today. And for those that have really resonated with your message, Kev, how can they connect with you further? Yeah, you can just find me on kevtran.com.au. So K-E-V-T-R-A-N.com.au. Awesome. Well, thanks again, Kev. And we look forward to talking to you again in coming episodes where we're going to get you to break down your five tips for property buyers. So let's keep the conversation going.

Thanks, mate. Property deductions can save you thousands of dollars each year. To make sure you maximize deductions, you need to work with the most experienced quantity surveyor in the country. BMT Tax Depreciation is the leading specialist in the industry. They've completed over 700,000 tax deduction schedules for residential investment and commercial properties Australia-wide. BMT guarantee to find double your fee in the first full financial year deductions. Call BMT on 1300 728 726 today for an obligation free quote.

And that brings us to the end of this week's show. A big thanks to Drew, Kev and Bushy for another great show. We hope you enjoyed it. Make sure that you don't miss a single episode of Realty Talk or Bushy's Get Invested podcast delivered to you each and every week by subscribing to the Property Hub now. You can do that on your favorite podcast player or wherever you're listening to or watching this show. I want to say a special thanks to our supporters, realty.com.au, BMT, Tax Depreciation, Know How Property Finance and Apiro Marketing, as well as our newest content partner, Get Rare Property, for their ongoing support.

I'm Kevin Turner, and on behalf of Bushy and the Property Hub team, we look forward to seeing you again next week.