From 1 to 28 properties – what's his secret?

Tune in as he explains the importance of breaking down the numbers, how building relationships with agents is key to getting the best deals, why the smart property investor will treat their portfolio like a business and much, much more! 

To hear about Scott’s five-step plan, tune in now to this episode of The Smart Property Investment Show!

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Full transcript

Phil Tarrant: Phil Tarrant here, back for a very quick bonus episode of The Smart Property Investment. I've asked Scott O'Neill to stick around and have a chat with me. Scott, how you going?

Scott O’Neill: Good, thank you.

Phil Tarrant: So we had a good chat earlier on, and if you haven't listened to the podcast with Scott, we put up about three or four days ago, so I highly recommend that you listen to it because there's a lot of things that we spoke about there and Scott articulated his growth as a property investor and how he's gone from buying his first property, which he said he was quite lucky in buying into building quite a sizeable portfolio. So what I want to do now is I'm gonna have a real quick chat with Scott around a key thing and we get asked about it a lot, how do you go from one property to many properties.

So my question for you Scott is how do you go from one property to 28 properties in seven years, which is what your portfolio. What's the key steps mate?

Scott O’Neill: In general terms always buy based on the numbers. So by that I mean, don't sort of follow what the media's saying about the next growth hot spot and buy purely on sentiment because you think it's going to grow in value, you really got to write the numbers down and that may involve trying to find out where the population's growing the fastest. Where it's a suburbs next to another suburb worth $100,000 more or a vacancy rates are tighter than the other areas so the rents are going to grow a little bit quicker. You can start to analyse the numbers to get a better result out of your investing.

Second one, and this probably being one of the most important one for me, is build relations with agents. The only way to get a good off-market deal, which can involve you getting it below the value of the, you know, the actual market value of the property is to have an agent send you the property in the first place before it goes online. Over half my portfolio bought before it's been listed online and in some cases I've got deals that would've been snapped up by 50 other investors if it was on realestate.com or domain. So getting that sort of agent to send you those properties before anyone else has been a real important part for me.

Treat the ... the third one would be treat your portfolio like a business in terms of its cash flow verse the growth. I've always bought in a ratio of two high cash flow properties for every high growth one. But I don't neglect cash flow on that third growth one either, so I still like to keep a minimum 6 per cent yield. It's not easy, you've got to look long and hard for it. That would completely eradicate Sydney at the moment, because yields are around 2.8 per cent below that 3 per cent mark, which isn't good enough to build a large portfolio. But cash flow is the key to keep moving forward and without it, you're never going to retire anyway, so I don't know why people put cash flow so far in the back in their priorities because these properties still will grow in value, it's like we're not going to be buying in the middle of nowhere as well, it just might mean you need a house of a granny flat or something with multiple incomes or buying it below its market value. Things like that can keep the cash flow up.

Fourth one is never follow the crowd. Back in 2010 when I bought my first property, it was actually the worst time in recent history in terms of market sentiment. It dropped the Sydney market, it actually didn't really pick up until 2012, but the market was very soft and everybody was saying don't buy, don't buy, it's gonna drop 30-40 per cent on the spot, and I was terrified. It was my first time but I just basically found a property that gave me a good enough cash flow so I wasn't relying solely on growth and it allowed me to get one of the best buys of my life as well because there was no one else buying at the time, so there were many good deals around.

Fourth one or fifth one should I say is never take advice from those that are not in a position that you want to be in. So basically everyone's got an opinion on property. Everyone lives in it. Everyone maybe spent 30 years paying a mortgage, it doesn't necessarily mean they're someone to listen to with investing because markets change. They might be stuck in an old school patent that worked 20 years ago, which won't work the next 20 years.

I used to read books like Rich Dad, Poor Dad or that Steve McKnight book was a good one and I looked up to those guys because they had done what no one else did. And you know, going back to numbers again, less than 1 per cent of people own six or more properties in Australia, which is a lot of properties but that means that less than 1 per cent of people have done considerably well with properties as well. So listening to the other 99 per cent is probably not wise and yet that's what everyone does. They listen to their parents and then their parents say go buy a family home. Now where I grew up in the shire, it cost over 1 million dollars to buy an average house, and yet parents are pushing their kids to acquire a mortgage where they're gonna pay up to six grand a month mortgage to just own a home where they could rent the same place for half the cost. To me that's just crazy. They're locking themself away for 30 years where they should really be probably investing in cheaper markets and then acquiring the family home when they can afford it.

Phil Tarrant: Scott, that's probably one of the most succinct five points that we've had on the show in terms of articulating how someone can actually grow a portfolio quickly. So whether or not you've got one property and you want to grow to 10 properties or 10 properties are gonna grow to 50 properties. I think those five points should be key tenants for everyone on the brazen. I'll quickly run through them with you and I'll give you my quick observation on it.

Buy the numbers, absolutely. You don't buy a property on emotion, you've got to buy on the numbers. Does it make commercial sense to buy a particular property? How does it fit within your portfolio? What is the long term play for that particular property and how it's going to enhance your long term strategy in terms of investing in property? Most people invest in property, let's be fair, for long term wealth creation. So if you're doing it because you just like to have a bit of fun, that's cool, but you want the upside.

The one point I would also make on that is, as well as buying on the numbers, is knowing your numbers. Our chat that we had a little bit earlier, you probably rattle off every single property you've ever purchased, its address and what you paid for it and what its evaluation is today and probably what the yield is, right? So you know your numbers is key.

Point number two you made, relationships with agents, I completely agree with this. This is one of the reasons why I buy all my properties through a buyer’s agent. And Scott, now I know you're doing a bit of buyers agency work yourself and you can't discount the importance of having that direct line into an agent. One of the things I sort of said to my buyer’s agents a lot with his, you know when markets start moving and changing when real estate agents stop returning your phone calls. So it's a real supply and demand game. So if agents are desperate to sell stuff, they'll call buyers agents up first because they know that they can shift stuff quickly and most of the stuff they want to sell off-market. Soon as it goes on the market and a property language is on the market for a long time, it loses a lot of its marking appeal and typically you get a less sort of sales price.

So if you don't use a buyer's agent, that's fine. It means that you're going to be playing in a game though where the people that do it for a living are hustling and connecting with agents every single day. So if you want to do it yourself, great. And some very good property investors don't use buyers agents but you've got to be prepared to get on the phone and actually make those relationships yourself. And if you're buying across Australia like Scott does, that means having a multitude of relationships with agents and that can be quite a headache. So a very good point.

Point number three, the way I'd summarise what you said is cash flow is king. It's like any business, cash is king, right? You need cash coming in and the art of property investment is you want to try and hold your asset for as long as possible to experience the capital growth and hopefully it's not costing you anything to do. So you pay your property, so I think you did sort of two cash flow properties versus one real capital growth play and that allows you to keep the money coming in. And when we chat, I think you said that your portfolio is positively geared to that 300 grand a year, so that's good money. So that strategy is clearly working for you. So building a property portfolio is a business.

Point number four, I sort of summarise as play your own game. You know, you said don't follow the crowd and I think that's a good thing. Obviously a lot of people tune in to The Smart Property Investment Show because they want to know what people are doing but if you're buying a hot spot and everyone's talking about their hotspot on sort of don't particularly like talking about hot spots even though they make good headlines because today's hot spot is probably past guys like yourself who are building large portfolios have probably been and gone a long time before everyone's talking about it. So, that's a good way to do it.

And point number five, I said get good advice. Not all advice is created equal so I pay for advice. As I mentioned, I use a buyer's agent to secure me my properties. They advise me where and how I should be buying in line with my accountant, they negotiate the deal and take care of it so I'm happy to pay for good advice. There's people out there that can do a lot of things better than I can do it myself, so I prefer to concentrate on other things I can do well and get other people to do other stuff. So Scott, I think we done well there. It's a really good five step plan. We'll write it up on the website as well so check it out on SmartPropertyInvestment.com today. Anything you'd like to add about going from 1 to 28 in 7 years? Do you need nerves of steel and a backbone of a granite? Or is it just sort of getting there, and roll your sleeves up and get it done?

Scott O’Neill: A lot of hard work, expectations are key. Like I know a lot of people when they get their first 2 grand or $1,500 hot water tank blow out, property is not for them. But you've got to think, what's it going to look like in 10 years? I don't care about a $1,500 cost here, if it's gonna grow by 300 grand. So it's probably thinking on a macro level a long term method and that basically takes the sting out of any little bad day to day events you will always inevitably have with property. So yeah, probably expectations, just be ready for it and then by the end of the day it'll look good.

Phil Tarrant: Plan for the worst, hope for the best. You know, or you can manufacture the best right through buying will, but we'll leave that topic for another time. Scott, thanks again mate. We really appreciate coming in.

There's just a quick bonus episode. If you want to listen to the full chat that I had with Scott, check it out, it'll be listed under wherever your listening to this now, whether it's on iTunes or Soundcloud or on the SmartPropertyInvestment.com.au website. Check us out social media, like us on Facebook, you'll be the first to hear about when we release a new podcast. You can follow me if you'd like on Twitter @PhilTarrant, so what I'm up to.

Otherwise, please keep those reviews coming on iTunes, I do appreciate them. Get in touch with us if you'd like, [email protected]. If you've got any questions for me or even for Scott, I'll flick them over to him. Get in touch and hopefully we can help you out. We'll see you again next time. Bye bye.

Disclaimer: The information featured in this podcast is general in nature and does not take into consideration your financial situation or individual needs and should not be relied upon. Before making any investment, insurance, tax property or financial planning decisions, you should consult a licenced professional who can advise whether your decision is appropriate for you. Guests appearing on this podcast may have a commercial relationship with the companies mentioned.