How this investor learnt from costly mistakes

By Demii Kalavritinos 15 March 2018 | 1 minute read

Interim host and managing editor of real estate at Momentum Media, Tim Neary, is joined  by Phillip Tarrant’s business partner Alex Whitlock who reveals the challenges and experiences he faced throughout his 20-year property investment journey, acquiring over 30 properties around Australia.

Smart Property Investment's Cambridge Park property

Accountant Michael Johnson also joins Tim and Alex to discuss the learning curves of property investing, including the need to understand the impact of rising interest rates, the dynamics of property markets and demographics and the important things to understand with budgeting and cash flow.

They also discuss the key things learnt along the way as well as the peaks and troughs that created a significant impact in Alex’s life, why Alex needed to ‘scrape the change’ to gain a clear focus on his future, and why he eventually learnt to remove emotion from property investing.

You will also find out how to avoid the same mistakes Alex made, the most important things to be aware of and the pitfalls of stretching yourself too thin.



If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: Facebook, Twitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!





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About the author

Announcer:    Welcome to the Smart Property Investment Show with you host Phil Tarrant.

Tim:    Hello everyone. It's Tim Neary here. I am editor of sister publication to Smart Property Investment, Real Estate Business and will be hosting the Smart Property Investment Show today in place of regular host Phil Tarrant, who is away. Joining me on the show today are friends and colleagues, here at work, Alex Whitlock and Michael Johnson. Hello Alex and Michael. Welcome to the show.

Alex:   Tim, thanks for having me on.

Michael:         Hello, Tim.

Tim:    Now, Alex you've been in the business of property investment for over 20 years and you've bought and sold something like 30 properties. Tell us a little bit about your experiences there.

Alex:   I have. It's funny. I don't ... time ticks by. You don't really think about all the transactions that you've made or even really catch your mind back to where it all started. But yeah I have bought a lot of properties. Just to give a bit of visibility, I'm actually Phil's business partner. Phil and I have worked together for many, many years. And as you'll be aware we've bought and build a property portfolio together, which is featured on the Smart Property Investment Show, Investment In Action. Joining me also is my colleague Michael Johnson, who is very well versed with that portfolio.  Look, I thought I probably wouldn't focus on that because that gets covered quite a lot. I thought, "Well, you know what? It's probably quite interesting to think back to my story." And it's been quite good, because property is something which I've always ... I'm 50 years old now. I think back to when I was just started work in England when I was in my early 20's after having started university and I earned about 5,000 pounds a year at that stage. Very, very low income. And I can remember in the area, I lived in a small town called Derby. The average property price in the cheap areas, you were looking at about between 25,000 pounds and 30,000 pounds to get into a terraced house.  And my dream, my dream was to own a property. And you used to, in those days, you used to need to have ... you probably needed about I'd say probably a 25% deposit. And you used to have to sit in front of the bank manager. And there was just no way in the world that I was ever going to ... on my small income I could never save up to buy a property. So yeah, that was my first notion when I started work. I stumbled into my first property purchase. It took place when I was in Hong Kong before I came down to Australia. And I'd started earning some money. I stumbled and I won't bore you with the details. I'd stumbled into a sales job. Turned out to be a reasonably good salesman, so I started to earn some money for the first time in my life. One of the advertisers that I sold to in publishing, as I am in now was a developer, a Melvin developer, Central Equity.  And so I used to have to go down, they used to force me to ... My job was to sell them adverts. So I would go down and be as charming as I could to try to persuade them to put a full page advert into the print magazine. And every single time they would insist on having some editorials. They would force me to read the editorial to sell them another advert. And they only bought one at a time, so I'd have to read about negative gearing. I'd have to read about the stamp duty concessions in Melbourne, I'd have to read about the power of leveraging, and all these things, which I didn't really know or care about. And it reached a point where I'd go into their office, and they'd always have the model there in the middle. This wonderful, white, towering model of new apartments with little people playing tennis in a little artificial tennis court. And they looked wonderful.  So one day I went in and I ... It's a classic slip. I went, "So how much does one of these two bedroom apartments cost?" And then that was the end of it for me, because then they honed in, the salesman from the other side.

Michael:         The salesman been sold.

Alex:   Yeah. You know what? I am the easiest person to sell ... You know what I'm like, Michael.

Michael:         Mm-hmm (affirmative).

Alex:   Easiest person to sell to. I'm a salesman's dream. Look, in many ways it's the worst decision I made in my life. It was not a good investment. On the other hand it was the best decision I made in my life. And I'll tell you why. What it did, it was a very strange experience, so I start looking at this model, and I start asking questions. And my heart just started beating a little bit faster and started breathing a little bit heavier. And then that, that sense of moving into something a bit frightening and very, very exciting came about. So I hadn't committed anyway.

Tim:    Well, at the time Alex, was it an investment property or was it a place to live?

Alex:   Okay, now good question. So this particular group builds new builds, so I'll give you ... So this was back in 1997 and these were new builds in the South Bank in Melbourne. So back then that was a rapidly developing area in Melbourne, inner city living type arrangement. There weren't a lot of developments there. So the South Bank was being redeveloped. So it was at the early stages of that development or midway through, certainly nowhere near completion. So these were off the plan purchases. So this is a build that would be completed in 18 to 24 months. So you were looking at ... you've got a fancy brochure, you've got this wonderful model, and you've got some very good salespeople. Worst decision because and look ... this is just my personal opinion. I hope I don't cause any offence to those that build developments. And certainly people who buy developments because it's horses for courses but for me personally I was not aware of a lot of the costs associated with a new-

Tim:    Off the plan?

Alex:   ... with a serviced apartment. So I hadn't realised ... we'll get into this in a bit. But I hadn't realised ... I thought great you buy a place for $217,000 dollars was the price of a two bed in this you know, luxury apartment. What I didn't understand at those days was cash flow from an investment. I understood the concept of capital growth, you buy it for $217 and you hope it goes up. Doubles in value every 8 to 12 years is ... as the well worn terms go. So anyway. So yeah, I got excited about it. I talked to my fiance at the time and it was the best decision because we'd saved a little bit of money. So to put this into context we'd between us working hard saved 10% of the purchase price. So we've got about $20,000-ish Aussie dollars. And we scraped our savings ... sorry, our earnings together for that month.  So I could put the 10% down. Now that meant I've got to save for another 18 months another 10%. So that was a good thing.

Tim:    Forced saving?

Alex:   Forced saving. We'd started saving and then it gave me something to focus on. And a goal. And it was life changing for me because even though it was going to take 18 months to be built I just ... all I thought about was this property. I just was so excited about it. It was such a big thing in my life. It was almost a coming of age for me. I would've been 29 years old. It was a sign of growing up for me. I'd never saved a penny apart from this money that we'd scraped together since being in Hong Kong, taxes are very low there, so you can save if you ... even unmotivated people like me can scrape a few bucks together.

Tim:    And it was a long term dream for you.

Alex:   Long term dream.

Tim:     Because the seed was planted back in Derby, where you were earning less and you needed to get a 25% deposit back then.

Alex:   That's right.

Tim:     Something that started then and now all of a sudden, all of that had come to fruition almost. And you'd put it into something, something tangible.

Alex:   And it pulled ... Tim, it pulled ... For me as a young bloke it put a lot of things into focus. Not only was I suddenly very, very excited, really excited and scared about this investment, but it then gave me focus in terms of my job, because I'd now got a responsibility to make this other 10% payment down, in order to get an 80% percent. And 80% percent in those days, that was the most that lenders would lend you. So that was really doing it by the skin of your teeth type thing. So it made me ... it nailed me down to my job and that's not a negative thing. It committed me to my job. It committed me to working hard. It took me through the peaks and troughs of being a salesman, which are significant. It gave me focus through the dark days. And it gave me focus in terms of saving money. And that was a good thing for me.

Tim:    And in the end you got there?

Alex:   So I got there. Yeah. And I just ... desperate for this thing to built. I couldn't wait. I'd look at pictures in the brochure and imagine. But it's a really ... I look at that back with hindsight and I bought for all the wrong reasons. It was emotional. Totally emotional. See the granite tops, see the four burner, the hob, air conditioning throughout. This is ... they sold me a place that I'd want to live in.

Tim:    The salesman in you saw all the benefits and all the features.

Alex:   Australia's worst investor was rolled out. And I'm not saying anything was wrong with the development, but me as an investor, just the worst investment decisions because I made my decisions emotionally. I made my decisions as a, "Wouldn't you love to live there? See the views?" It was really, really bad. It was good and bad. Now they probably did well. It did double in value in less than ten years, and I made good money on it. The cash flow was really poor and I didn't understand body corp. I didn't understand the fees that the agents take. I didn't really understand the impact of rising interest rates. And I'll tell you they rose, so I would have probably kicked off a rate with that.  At the time when that ... So that would've settled around 2000 I believe or 1999, 2000. And I have a feeling that rates were just on their way back down. So I probably got a rate of about six point seven five percent, something in that region. They carried on going down. I know I have a feeling I probably locked that in being told that was a good thing to do. And then ... but locked in for a two, three year period. You then got ... rates went down further. And then of course they started to go back up again. So things got more expensive. And in the meanwhile, not being satisfied with making one silly, emotional decision, I bought four of them. Off the plan.

Tim:    All in the same year? Nice work.

Alex:   No, no, no. Not in one go. So I bought that one and then in the meanwhile I then bought a one bedder. So I bought the two bedder for $217,000. I then bought a one bedder for $169 grand.

Tim:    How much later? How long later?

Alex:   Oh, mate, a lot. Yeah. Look, I'm a bit out of touch with the Melbourne market. I reckon the two better be at least ... I don't know, well over half a million, well over half million. And the one bedder would be up in the $400's I would say, certainly high three's. I don't know. But a lot of money. But I bought another. I bought two more two bedroom apartments. I made good money on the first one because I held it for a long time. I made a bit of money on the one bedder. I lost probably 20,000 on another one I sold. And I just about broke even on another. And the whole thing was pretty disastrous. And this is why I say if you'd have talked to me in the guts of that ... my investment decisions were appalling.

Tim:    And I just want to come back to that in a little bit. You talk about yourself as being Australia's worst investor. Well, I would say today you're probably one of Australia's most experienced investors. And that experience is ... looking back allows you to say that. And I guess what's really important about that is you made the mistakes early. But also that you recognise that you made the mistakes. And then probably put into place some things not to make the same mistakes again.

Alex:   Yeah. And let me just articulate. It put a lot of pressure on myself and my family. And I've got two young kids. And I think when you're motivated, when you got a vision, when you see what can happen through property investment. I think one of the pitfalls is that you stretch yourself. Now, as I do in life, I put everything into my passion, and into my hobby, and into my vision. I leveraged myself. I did without. My family had to do without. And I then took a job, which the pay wasn't what I expected and all of a sudden I was underwater.  So I really couldn't make ends meet. I had to sell a property because I couldn't afford ... now fortunately it was my own personal circumstances rather than the market. And this is one of the things that people need to be aware of. If your own personal circumstances change and the market change together, you're in real trouble. Fortunately, I was just struggling to keep up with those repayments, so I had to let a property go. And it hurt. It was like losing a limb. I did not want to lose it. And I lost money on it.

Tim:    Yeah. I bet you did. And I'd like to bring the voice of reason in here, Michael. Just in terms of budgeting and some those mistakes that Alex made earlier ... For investors that are getting into the market starting out without much experience. What are some of the key things that they need to be looking at around budgeting and cash flow.

Michael:         Yeah. I think one of the key things would be knowing what you're getting into. And I think Alex raised a fair point. It's quite emotional and, from your story, Alex seems to, "Ooh, that's the shiny new thing. I'm going to go chase it." And I think for a lot of new investors, you need to do a lot of research. And understanding not only what your spending habits are but straight away, "Okay, how much is this going to cost me in the short term? And the medium term? And then the long term?" So when I say by that is, "Okay, what happens if the rates go up by a percent? What happens if there needs to be some major maintenance?" So we just need to think medium term and long term, not just the short term, "Can I make the loan repayments?" So there's a few different things you have to think about.

Tim:    And do a little bit of what-if planning?

Michael:         Yeah, exactly.

Tim:    And modelling, would you recommend doing modelling in a spreadsheet and that thing?

Michael:         Yeah, it does ... Yeah, exactly. It doesn't need to be too detailed. It just needs to be something that you can understand. And then if you show it to a family member or a friend and then go, "Hey, what do you think of this? Can you run your eye over it?" And see what they think about it as well.

Tim:    Get a second opinion on it?

Michael:         Yeah.

Tim:    Yeah.

Alex:   My wife said no to the fourth one I bought. She said, "No." I went, "Look, here's another one. It's going to be good." She went ... I said, "What do you think?" She goes, "No." I went, "Well, I'm going to do it anyway." And it was not a good move. It's-

Tim:    Yeah. Did she forgive you for that eventually?

Alex:   Well, she's still with me now so ...

Tim:    That's a good sign.

Alex:   Yeah.

Tim:    Yeah.

Alex:   And look I've learned ... Still a bit of an idiot, but I've learned. I'm less of an idiot than I was. I think that what was good, to the bizarre ... the irony is the closer that I went to the window ... the tighter the noose went around my neck ... I suddenly became very good at budgeting. I'd got a spreadsheet. I recorded every cent that I spent. Every cent. And I had a spreadsheet where I looked at the income. And in those days you just had to plug it in. So I'd get the rental through from the property manager and I would start to map. And this was over a long time, because I struggled for many years doing this. So I would map when I'd get hit. And I have to try and put a buffer in to make sure I could make ... because the mortgage repayments are everything. And this is the thing. You hear about people getting into financial strife. It's often not the mortgage that hits people. It's other things such as credit cards and maybe expensive car loans. But it's the....mortgage where it manifests itself. Because then you become unable to meet the mortgage repayments and that's when you're really, really in trouble. So I struggled. I struggled badly. I used to ... I didn't buy coffee. I didn't buy food at work. I-

Tim:    All the nice things.

Alex:   All the nice things, yeah.

Tim:    Cut all the frills. Yeah.

Alex:   I could go out. And I used to ... Well, I wouldn't go so far as saying playing golf. I used to wander around hacking chunks out of turf very badly and-

Tim:    Used a fist?

Alex:   ... used a lot of foul language. But even that lot, playing nine holes of golf, I used to have to record that. It used to be $13 dollars for nine holes in that golf course. And I could do that once a month. My god it was tight. But the irony is I learned about budgeting. And I learned about running a pretty tight ship.

Tim:    Yeah. And an important lesson there as well, and I reckon not a lot of people know this or would have experience to this, but it's not the mortgage repayment that'll get you, it's the other debts that you've got, but it'll manifest it there. How important is-

Alex:   Manifest itself in that. That's when the banks will come after you.

Tim:    How important it is when you're budgeting to make sure that you take all of these things in account, your total borrowings, and not to forget about the smaller ones?

Alex:   Yeah. Oh, massively important. And when we're budgeting we want to try and encapsulate everything. And I know I've done it myself. I've put a number down and I say, "I'm going to spend this much this month." And then what a lot of people do is say, "Yeah, I'm going to spend that month." And then you come back the month afterwards and you're going, "Oh, wait hold on. I actually ended up spending a whole lot more than that." And if you haven't got the plans or the right controls in place you might not realise, but then the most important thing is to make sure you're looking back and realise ... and looking at how much you actually spent. So for example, when you're budgeting this out you want to have that plan and review process. And I think the review bit is what sometimes people miss. And that is where you pick up those things, where there's these are the things that have fallen into this pot as well.

Tim:    And if you get them wrong then that noose is going to tighten around your neck and find it's way to the mortgage.

Alex:   Look, it was a good experience. We had just ... so to conclude I bought another place, which was up in Manly in a suburb of Brisbane, which I also sold fairly ... I wish I'd still got it now I tell you. And this is the other thing. If I could have held onto all those properties now, they'd all be doing very nicely. So we sold up those properties and we bought our own place. And that was me at the property investment market. And it felt bad. Life felt a little bit lonely without investment properties.

Tim:    It felt like you left something behind
Alex:   Yeah. It's a strange thing. I mean it shouldn't be ... property investment decisions shouldn't be emotional, but it is an emotional relationship with investment property. I buy stocks and shares. I don't care about them. I usually lose more money than I make. But I love property. I get very ... I spend a lot of time looking at property. It's just very tangible.

Tim:    Yeah, that's an interesting position.

Alex:   And I missed it. And I missed it.

Tim:    Yeah.

Alex:   But then with me and Phil setting up the business, again we didn't have a lot of money to our name at that time. But as soon as we'd got a little bit of income and we went in. And there's a lot of things that people say about going into investment with a friend, or a partner, or family. But for me and Phil it's worked extremely well. And we went in. And Phil is very diligent. He's very good with the numbers. But most importantly we surround ourselves. And I won't go through the portfolio because I know Phil talks about it a lot. But because we ... SPI was ... it came from my passion. We launched Smart Property Investment because of my passion for property. I said to Phil, "We need to be active investors. It's no good. You can't write about property and start advising people about property. And bringing other advisors to fill your paper with content, unless you're in the game yourself." So this was something, which was central to mine and Phil's philosophy. So we got in there. And we have been very, very successful.  Look, Phil talks about it a lot. But we've been successful because we have had support from people who are talented and help temper our decisions, and guide our decisions, and steer our hands. So I won't talk about that. One of the reasons why I was keen to bring Michael in ... So that's the early part of the piece. The middle chunk is really around building up the Smart Property Investment, Investment In Action portfolio. But I've recently gone back into the investment market. And I've gone back in because I have a medium to long term goal, which I'll ... happy to share with yourself.

Tim:    Yeah. Love to hear it.

Alex:   So I've bought a ... I've just recently bought my own principal of residence. So I've bought my own home. I've sold my place in Pymble, which is in ... so just outside Sydney, New South Wales, which I sold for about $1.75 million. I bought it for a million in 2012.

Tim:    Nice Return

Alex:   Got on quite nicely. So I've stretched myself a bit further. As I say, I'm 50. So I'm starting to think I don't want to rely on ... my earning days are not stretching out miles ahead of me. So I wanted to buy ... I bought a place for just under 2.6, 2575.

Tim:    Okay.

Alex:   A nice place. 1500 square metre block of land. I think there's quite a good land bank there. It's an older place, 1970's 4 bedroom house, nothing fancy, but it's on a nice big block of land in an area that is starting to get carved up. So I think I can live there comfortably for quite some time and then there may be scope to develop it further on down the line. But I'm stretching myself Tim in terms of, I'm taking on a two million dollar debt. So I've looked at that. So I've got ... People are going to be wondering at this point. They're going to go, "Hang on you bought a place for ..." You're smiling Michael. Stop it. They're going to be thinking, "And he's bought his place for a million, he sold it for $1.7, where's the rest of the money gone?"  We'll talk about boats in a bit. I like wasting money as well as investing money. I've got about $500 grand, which I've taken out of that property. But I've also used ... I've saved some money as well, which I scraped together some cash to build a little bit of a side investment portfolio. So I made a decision that I was going to build up a little bit of a portfolio. And then really the goal around this ... this sits outside investment in action is a strategy to help pay down the loan on this principal place of residence in a ten year programme. So I use buyer's agent. I used Paul Glossop from Pure Property, who I've known for many, many years before he got involved into the advisory business.

Tim:    Regular on the show here as well. People will know Paul.

Alex:   Yeah. And a good guy. I've known Paul for a long time. So I asked Paul to and we use Right Property Group for investment in action. I didn't want to conflict that particular arrangement. I thought I would go outside of the guys that we use for that. So I thought I'd talk to Paul. So Paul advised ... I said, "This is my goal Paul. What should I ... I would like your help in steering me as to where to buy, what to buy, and just looking at ten year strategy. So no surprises. We've gone up into Queensland, the first place that we bought was Mango Hill. So we got a three bedroom Mango Hill, just over a year ago, so probably November ... I think probably November 2016. I then went into ... so probably about six or four or five months later. Is that right Michael?

Michael:         Yeah, in February. Yeah.

Alex:   Yep. So it went back into Queensland. Went to Calanger, which obviously that's a suburb that has potential with some of the infrastructure that's taking place there in the ... you're probably looking at a three to five year cycle there. But again because I've got a goal ... so this relates to my goal of a ten year view. I'm not looking to make money in two years, three years, or even in four or five years. This is really about a 10 year view. So on that basis that represents a good investment prospect for that time frame. I also coincidentally went off for a ... bolted off to Tassie, which I'm ashamed to say I'd never been to before. Absolutely lovely.

Tim:    Loved it? Yeah.

Alex:   Oh, I loved it.

Tim:    Beautiful place.

Alex:   Looked at a home ... and emotion again, so to partly emotion, but I thought Hobart's. I really love Hobart. I had a bit of a look at the market down there, saw that things were starting to happen in terms of the Hobart market. I had a chat with Paul, "What's your thoughts on Hobart?" He went, "Look, that's really, really attractive at the moment, so I'd move very, very quickly," and would have been nearly a year ago, Michael, is that about right that we…

Michael:   Yeah. Yeah. Back in April. So yeah, almost coming on 12 months now.

Alex:   Yeah, coming on for 12 months. I moved into the Brighton Market, which is probably about 15k north-ish of Hobart. Yeah, so. And that's probably been the best buy out of the lot in terms of the short term, so that gives a ripping rental yield.

Tim:    That was a good time to buy, because about a year ago there wasn't much said about Hobart. These days a lot is being said about Hobart.

Alex:   Yes.

Tim:    So you got in just at the right time. Big ups to the buyer's agent on that one as well.

Alex:   Yeah. Look with a bit of luck, the fact that I went, "What do you think about this?" And look you know he's on the ball. So that was really good. It's got a really, really strong yield and there's been some pretty solid capital growth there as well. So in the short term, but this is the long term view. In the short term that's been very, very good.

Tim:    You've got a few boundaries there. You've got a long term goal but you've got a few early boundaries so take those.

Alex:   The thing is though Tim, I'm now in a position and Michael's helping me just get a bit of perspective. And also a long chat ... have a chat with the mortgage broker, with Ross. And also again chatting with Paul. So we're going to look to now dip back into that portfolio because there's a bit of equity there, isn't there Michael? What's your take?

Michael:         Yeah. I think there's a good opportunity. So, as you can see there, the portfolio has now has been over a year old, so-

Alex:   It's about a $1.1 million portfolio now.

Michael:         Exactly. So you've got a little bit of equity that's growing in that. Probably depend who estimates it, but probably about $100 to $200 roughly in there?

Alex:   So I would ... Yeah, I think. I think there's probably $100k equity in there. I think and anything more than that would be probably being a little bit on the overenthusiastic side. So there was a $100k in a year. That's a lot of money.

Tim:    That's good.

Alex:   That's a huge amount of money.

Tim:    That's good. Yeah.

Alex:   So sorry. Yeah.

Michael:   Yeah, so I mean that's a good amount to start all right. And obviously leveraging on the back of Paul's experience and be able to go, "Okay, great we're ready to go again. Where do you think?" Yeah. And I think it's really promising. I think this strategy is quite a good one. And what it does is it exposes your capital base to the market, if you like. You let the market do its work, so by then leveraging these properties because that's what we're going to do. We're going to do a small refinance on them in order to get a little bit with the equity out, so we can fund a deposit. What we're doing then is then purchasing another property we've now increased our asset base to another maybe three, four hundred thousand dollars depending on the purchase price of the property.  And that just opens that up to the market as well. And the market may experience, pick a growth rate, five percent let's say, at being conservative. It just really gives you more area to move as well. So yeah I think it's a smart idea.

Alex:   So my goal Tim with this, as I say, I bought a 2.2575 property. I bought that at an 80% LVR. So really I don't want to go into LMI for that. And some people are taking on interest only loans for their principal place of residence. But I don't want to do that. I want to be chipping away at that property is ... to move along. So I'm going to try and grow this portfolio. And I'm going to work with Michael and with my advisors to try and now generate a base of equity that I can put back into the property portfolio. There's obviously a buyer's agent fee. So you got overheads of course when you go back in.

Tim:    That's what I wanted to ask you. And we'll get to that. Please continue.

Alex:   So I'm figuring that if I can ... so this is probably a conservative-ish evaluation. This is about $1.1 million. I reckon if I can get this little portfolio up to the circ of the $2 million mark and then let it sit. Because I've got ... Phil and I have got a very ... we've got $7.2 in our portfolio. Is that about right?

Michael:         Yep.

Alex:   Yeah. So we've got a pretty substantial portfolio, which is going to do great things for us long term, and will be a legacy also for our family. So that's all trust based and that's a wonderful, wonderful nest egg for us moving forward. So this is really something that is just supplementary to that and is going to help me ensure ... I'm quite conservative and I don't like the idea of being excessively in debt. In those early days Tim where it was, life is very tough, for me and for my family. And it's burned me, in a good way. And it has made me not want to get myself ... you feel that noose tighten around your neck and let me tell you, you don't think it's going to happen until it does.  And when it starts to constrict you, you realise too late, you realise too late what you've done. And I don't want to be in that position again. And my counsel for anyone is, from a young man who was very, very driven, you've got to understand, and I don't wish to sound negative, but you've got to understand that interest rates go up. And the more highly you're leveraged and the bigger your exposure, the multiple effect of pain if things do turn against you. So I'm very conscious not to get myself every into a higher leverage, albeit it good debt, but in a higher leverage position. So I figure I can build this little supplementary portfolio and let this grow, and germinate, and then I can put that into my principal place of residence and retire happy.

Tim:    Those are wise words Alex. And it sounds you learnt some very important lessons earlier. I came across this saying once that said experience is what you get when you don't get what you want. And when that noose was tightening around your neck that with you getting what you didn't want, you got the experience, and you've learned from that experience now. I wanted to come back ... Michael wasn't talking a little earlier and he was talking about putting your assets, and I think that the word that you used was open to the market, putting the capital, and making the capital open to the market. Now a lot of that depends on ... It's good advice. But a lot of that depends on that the market is going to be working for you. So putting it in the right places in the market. And a lot of that is making good decisions. And a lot of that ... and this is a question we get asked a lot on SPI, is whether to use or whether not to use a buyer's agent? Principally because of the cost of a buyer's agent. So you've got to weigh up the cost of the buyer's agent against putting your assets into the capital of the market in the right places. How would you respond to that Alex?

Alex:   Very, very good question. You know what? There's no right or wrong. I mean I've bought properties without buyer's agents and they've doubled in value and I've done very, very well. Despite, I refer, back to my experiences with the off the plan places not being good. It's more of a cash flow thing. The actual assets themselves, hey, they've all gone up beautifully. I think you've got to consider a couple of things. One, how much time do you want to put into your research? Personally I like the outcome of properties and investment. I'm not the smartest bloke in the world. I'm a fairly simple being. And I've really ... property works well for me. I just have no idea with shares and every time that I convince that I've learned my lessons I just go and lose more money.

Tim:    On the shares?

Alex:   Which reminds me that I'm not a smart guy. So with ... go on.

Michael:         Yeah. I was just going to jump in there and say, I think one of the key things ... And that's a really good question. And I hear that from my friends all the time. And I think one of the key things is ... and the reason that properties can be so successful people is because you've got so many touch points around you to help you. And buys into just one of them. But also your mortgage broker. You also got your accountant. And these are the people that ... they just give you these touch points. And Alex mentioned there, just quickly, about the shares. And so you go into shares, you open up your account, and you go, "Oh, great that looks good. I'll get that." But you don't really have any touch points with any advisors around you. I think that's one benefit property does have, because it does ... it channels you into speaking to an advisor about then getting better advice.

Tim:    And advice is invaluable isn't it? So you can't really put a price on it, especially when it's working well. But aren't buyer's agent expensive to hire?

Michael:         I think there are plenty of people who've made poor purchases with using a buyer's agent. So let me tell you it's not infallible. And in fairness to ... buyer's agents cannot guarantee where the market is going to go. Tim, there's also a perception thing. People hear what they want to hear. And I know the way that a lot of investors are wired. I know the way I'm wired. I will make my mind up that something's a good idea. And I don't hear the things I don't want to hear. Do you understand, Tim?

Tim:    You look for ... Yeah, yeah, yeah.

Alex:   A buyer's agent will do ... often they'll give some advice, but they'll basically work with the client, in terms of what the client's strategies are. I haven't bought a bad property, bad in inverted commas... I haven't bought a bad property with a buyer's agent. Some have performed better than others, but so far to date we haven't had a dud in there. I think you've got to again ... you've got to think about how responsible you want to be for yourself. And you've got to be responsible for yourself and for your own decisions, even if you're using a buyer's agent, but if you're single minded and you don't want to pay the seven to $12,000 dollar fees that the agent is going to charge you ... if you want to save that money fair enough.  The whole premise for us is with using a good buyer's agent and with you making a good decision is you should be buying at below market prices. So a good buyer's agent should really work out, that you're going to be ahead of the game by using them when all their fees are paid. The other thing as well, see when the market's going up you can buy anywhere and you will make money. And Phil and I stand around and go all the properties that we turn down in West Sydney, my goodness. If we'd have bought all those six, seven, even four years ago we'd be very, very wealthy people, along with everybody else. But the bottom line is you use a strategy. A buyer's agent you've got I think ... A shrewd property investor fears the worst because they need to look to buy with the worst in mind, not the best in mind. So if you buy shrewd, now, you're hedging against the market turning against you rather than assuming that the market's going to go ahead.  And I think using a buyer's agent they will help to give you ... A good buyer's agent knows how markets are performing. They get a sense of demand in certain areas and they also done their homework. They should have done their homework about infrastructure, not just making good growth in the next twelve months, but over the next two, three, four, five years. And look we're not in the business of buying and doing them up, and flicking them on. Phil and I's ... our philosophy is to buy and to hold, to generate a cash generating nest egg that's going to grow, in terms of equity, but also spit out an income moving forward. So look there's no right or wrong. I personally am a big fan of buyer's agents. The buyer's agents I've worked with personally, Paul from Pure Property, Steve and Victor from Right Property Group. They've done an extremely good job for us.

Tim:    Fantastic. And wise words, Alex. We're getting to the end of the show. I wanted to end off with if you could look back over your portfolio and tell your younger self today what your older self knows, or tell your younger self then what your older self knows today, what would you tell Alex, age 20?

Alex:   What I would say in terms of property, what I didn't understand was cash flow. Anyone can go, well, great property is going to double in x number of years. And it's not hard to get a calculator out or get a pencil and paper out and work out what your property may be worth. What I would say is, understand the value of cash flow. It's critical. Because when you're chasing capital growth, but you're hemorrhaging on a monthly basis, that's a bad thing. And you've got to look at the cost of your losses. If a property is costing, and some of my properties were costing me $1,000 dollars a month. And this was a long time ago. Or the overall, that's $12 grand a year going out of my pocket. So even if they're going up in value and sometimes they don't Tim, so is it worth losing $12,000 dollars a year to hope to make a capital gain in the future. So cash flow is king.

Tim:    Important.

Alex:   The second thing I would say is be painfully aware of what happens with interest rates. We are at ludicrously low levels right now. There's going to be a generation of people who think this is the norm. It certainly isn't the norm. Brace yourselves.

Tim:    It's just a false rail isn't it?

Alex:   It's just a market cycle. And things have a habit of changing when you don't expect it to. And interest rates will go up and they'll go up without a lot of notice. And suddenly it'll be 25 basis points and everyone will be looking around, so what I would say is be really conscious of your cash flow. Now be that through interest rates rising, be it through having a property that doesn't have a strong yield, and just think about ... you don't want to put pressure on yourself, even as a young individual, or if you're in a partnership, or if you've got a young family. Be really conscious of the effects that struggling in life. Life's about ... you got into you look to make a better future for yourself, but there's also the matter of living now and going through pain and strife. And getting lost in debt is not a positive way to go through life.

Tim:    Alex, thanks very much. Alex and Michael, thank you for your time. It's been a very interesting show.

Alex:   Thank Tim. Thanks for having me on.

Michael:   Thanks very much.

Tim:     Thank you. Remember to follow us on all the social media stuff: Twitter, Facebook, LinkedIn. You can follow Phil also on Twitter @philliptarrant if you want to do that. If you've enjoyed today's show please leave us a five star review on iTunes. That's the very best way for new listeners to find us and for them to hear the great content that we are putting out. Thanks again for tuning in. We'll see you next week. Goodbye.

Announcer:     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 decision 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.

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