podcast

SPI portfolio update: what's next for the team?

In this special episode of The Smart Property Investment Show, host Phil Tarrant shares an update on the team's investment portfolio and explains how they'll manufacture equity in their latest 'cosmetically challenged' property to increase its value.

Joined by buyer’s agent Steve Waters from Right Property Group, the duo also give listeners a rundown on the stats within the portfolio, explain how they’ll make the portfolio cash neutral in the future, as well as warn investors against taking shortcuts in the buying process to ensure a property is the real deal.

Tune in now to hear all of this and much, much more, in this episode of The Smart Property Investment Show!

Do you have a story to share with the team? Email [email protected] and appear on the podcast!

Make sure you never miss an episode by subscribing to us now on iTunes.

Listen to other instalments of The Smart Property Investment Show:
Episode 78: How house-sitting is helping this young couple achieve their investment goals
Episode 77: How will the government's changes to tax depreciation impact investors?
Episode 75: How travelling cross-country helped this investor buy 9 properties in 6 years
Episode 74: How this investor plans to double his portfolio within 10 years
Episode 73: Bad builders: how this investor bounced back
Episode 72: Policy changes to interest-only loans: what buyers need to know
Episode 71: How this 'stubborn' investor recognised a property lemon
Episode 70: How this investor complements each property and balances his portfolio
Episode 69: Are you a ‘lazy’ investor? Consider the benefits to working with a financial team
Episode 68: Special episode: audience discussion live from the Property Buyer Expo

Full transcript

Phil Tarrant: G'day everyone, it's Phil Tarrant here. I'm the host of The Smart Property Investment Show, thanks for joining me today. Flying solo, all alone, but I've got one guy in the studio who, I hope, is going to shed some light on my portfolio and how I'm tracking with it. As you know, sharing my journey as an investor has been very important to me in terms of the show and also smartprorpertyinvestment.com.au.

I've been doing it for six years now, talking about our buying experience, investigating property, what we do, why we do it, how we do it. What we do wrong, what we do right. All the great things about it and also some of the negative things about our portfolio. To keep in with that spirit, obviously if you've tuned in to The Smart Property Investment Show beforehand you would know that there's been some episodes prior. Where we've spoken about our portfolio and that growth in it, so I do recommend you go and listen to those.

I'm going to pick up that chat and we haven't done it for a little while now, talking about portfolio. Made a lot of big promises to myself and our listeners about our drive to keep growing our portfolio. Some of the challenges we've had with that which are mainly being my poor administration and not having my shit in order.

I've got Steve Waters on the show today. Steve's my buyer’s agent, he's been working with me across the growth of our portfolio from day one. Every property we've purchased has been side by side with Steve from the Right Property Group. He's a valuable part of our A team. I turn to him for knowledge, insight, and just some motivations sometimes that keep us going. Building his portfolio.

Steve, how ya going, mate?

Steve Waters: I'm going well, mate, how are you?

Phil Tarrant: Good, so, I made a commitment a little while ago and I can't remember exactly what it was. But I promised I'd be buying some property at some point soon because it's been about two years in the wilderness for me.

Steve Waters: Been a while.

Phil Tarrant: Way too long. I'm not going to blame you for that, I'm going to blame me for that.

Steve Waters: That's nice to know.

Phil Tarrant: We can argue over these or why not, mate. But, the breaking news is that we've signed a contract.

Steve Waters: You have, yeah?

Phil Tarrant: On a property.

Steve Waters: Yep.

Phil Tarrant: In an undisclosed location. It's a secret for our listeners, but -

Steve Waters: Not too much of a secret -

Phil Tarrant: No it's not. It's up in Brissy, in the Logan area.

Steve Waters: Yes it is.

Phil Tarrant: Cool little property. Once it is all signed, done and dusted, and we have it in our hot little hands. We'll fill you all in on exactly where it is and what it is and what we intend to do with it. It's quite an interesting play. Bit of an ugly duckling, I'll give it that much.

Steve Waters: It's a little bit like one of the other ones. Up in the Central Coast. It's almost identical actually.

Phil Tarrant: It is. It is very much so – classic sort of high sort Queenslander, which needs a lot of love and attention. I think it ticks a lot of the boxes in terms of upside for manufacturing equity. It's a good buy. The way we're getting out of market value because it's not a particularly nice property. But we can see -

Steve Waters: Cosmetically challenged.

Phil Tarrant: Cosmetically challenged. It's a lot like myself. There's lots of scope there, so it will be a good buy. We can hold it and it will be great over time. The yield should be good, it's yielding pretty good already.

Steve Waters: The yield, as it stands today is quite reasonable. But there's certainly the potential upside with another dwelling out the back or an annexed unit in the future. It's on a good sized block of dirt. It's well located. It's got all the amenities, all the infrastructure. But the value we'll add there even is just with that cosmetic renovation, if and when the tenants leave.

Phil Tarrant: Or you can just go clean up, change a thing around.

Steve Waters: Yeah, yeah. There's a few little issues there as we've identified in the pest and building report. We'll see how that unravels.

Phil Tarrant: So let's have a quick chat about that. Where we're at right now is we've signed the contract saying we intend to buy this and we've got some clauses in there, pretty much giving us a finance clause and a pest and building clause.

Steve Waters: And a pest and building clause.

Phil Tarrant: So can you just tell our listeners about that. How it works. Those sort of clauses.

Steve Waters: Well, it's a Queensland contract obviously and every contract throughout the states, a little bit different from each other. Queensland contracts, I actually like because it gives the buyer more flexibility. You actually have a better chance of controlling the asset. Everything's on your side. In this particular case we've got that roughly 14 day pest and building clause.

Phil Tarrant: So that means, within 14 days, if we're not happy with the pest and building we can say, "We don't want this, give us back our deposit."

Steve Waters: You get your deposit back. There's always caveats though, of course. If you don't get financed you'll get your deposit back. In this particular case it's a thousand dollars exchange.

Phil Tarrant: Yeah.

Steve Waters: That will come back to you. If the pest and building report is beyond, sort of, wanting to keep the property will you also get the deposit back. But you would have done the money on the pest and building reports, of course.

Phil Tarrant: Yeah, bit of bother, what's that worth?

Steve Waters: Yeah, five hundred bucks or something like that. It does have some work needed. There's a few leaks here and there. Couple of rails that are loose. There's some old water damage to a ceiling downstairs in the storage room. There's some stuff there.

Phil Tarrant: Our play is gonna be to, say, "Hey, Mr Vendor, yeah, we still want to press ahead with this but the price has changed."

Steve Waters: Well, as long as he's not listening to this until afterward I'll hold onto it.

Phil Tarrant: If you know Mr Vendor, that's what's gonna happen. We've got some leverage.

Steve Waters: We've got a little bit of leverage here. But the thing -

Phil Tarrant: Let's have a chat about leverage. So, pest and building reports. Most investors get a pest and building report. Most of the time they do that thinking, "Am I buying a lemon?" Or "Yes, it's okay. I'll press ahead with it." We're going to use this as leverage to play a bit of brinkmanship with this guy.

Steve Waters: Yeah and we will. I really urge everybody to never shortcut that process. Forget about the leverage for a minute, but just having that peace of mind that there is no structural issues or anything like that. It's funny though. In Queensland, especially in Brisbane area, a lot of the local buyers actually don't get a pest report of all things. Brisbane is -

Phil Tarrant: Termite central.

Steve Waters: It is, yeah, which is very unusual from our point of view anyways. So the pest and building is obviously there to make sure it's structurally sound and highlight potential issues, but you can use it as leverage and sometimes you go into a negotiation knowing well, "I'm going to give you Mr Seller, what you want but there is the potential that I might ask for that back once I get pest and building report…

Phil Tarrant: So keep the powder dry.

Steve Waters: Yeah, yeah. It's never done till it's done.

Phil Tarrant: How will you play it to the agent or vendor, will you say "Look, mate, I've got this pest and building thing. The thing is it's all sorts of problems all over the place. This thing is pretty much falling down. I'm going to do you a favour and take it off your hands, but it's gonna come at a price." Say we think this thing is gonna cost us fifteen grand to fix up. But what you've got, mate's thirty grand. How will you play it?

Steve Waters: How I play it will depend on the relationship we have with the agent. I mean the agent is always going to work in the vendor's best interest because that's his job. As they should do. It depends on the vendor's circumstances, but more importantly, and in this case being more specific is how many other other buyers are actually stacked up behind us. Because this was down to the wire during the negotiations and I know there's at least one other buyer's agent. They're waiting for us to stumble and then pick it up.

The agent, if he's any good, he'll be playing that out. We'll hit them from the buyer's agent point of view, our buyer's agent, us. Direct to the agent. We'll also get your solicitor to hit this. Solicit it up in terms of "Well this is the problems that the report has highlighted and as a result of that we're going to be seeking a reduction of X." Or sometimes will the vendor fix. We've just got to also make sure as with any negotiation that we play it, I suppose, down to the wire. Because we're still waiting on a few other things, such as finance approvals.

Sometimes we've got to give a little to get a lot. That might be an extension of the cooling off period.

Phil Tarrant: Yeah, interesting, so we'll keep you guys informed about how we track along with this. Already like this game playing side of things.

Steve Waters: But this is what you love, right?

Phil Tarrant: I do, I love the deal. I love the deal. But, you know, you make money on your way in, right.

Steve Waters: You do, you do.

Phil Tarrant: You need to understand why you're buying a property and maybe that's a good segway for us to move ahead with this particular episode of the podcast. What I want to achieve, Steve, one of them was just to fill in our listeners of where we are at the moment. This, sort of, period of time that we've been arming up and gearing up to go on a bit of a buying spree. I spent some time, recently, with our accountant, Munzurul Khan, who I turn to on a lot of the strategy side in conjunction with you, to what's next for us. I think we've got some good plans ahead of us in terms of the types of assets that we want to identify.

I guess I'll preface where I want to go with this by: Rockhampton's underwater as we speak right now.

Steve Waters: It is, yeah.

Phil Tarrant: Northern New South Wales, Southern Queensland. It's been absolutely flogged because of the, you know. You also see some damage from the cyclone, but it's what happens after the deluge really. A lot of the northern areas are underwater at the moment. You've got some guys on the ground up there who've been looking around. Most of the properties that you've, well, all the properties that you've purchased from clients up there haven't gone under water.

Steve Waters: Not a one. Not a one. In particular, we're talking about the Brisbane area, of course. This is where the diligence really pays dividends. It's not about the diligence about infrastructure or anything like that. Especially in Brisbane, what gets wet, so to speak, and what doesn't. There's vast tracks of Brisbane that do go underwater in these events like these one in hundred year floods.

Phil Tarrant: Yeah.

Steve Waters: The problem with the one in one hundred year floods, is sometimes that you get half a dozen of them.

Phil Tarrant: Yeah.

Steve Waters: Yeah and I think it was five years ago they had the same scenario, but not so much Logan in this instance. There are a lot of investors that we are seeing now, not our clients, that perhaps people that haven't done the diligence beforehand with things such as I always talks about these flood overlay maps.

Phil Tarrant: They're free to get.

Steve Waters: They're free to get. They're on all kinds of websites. You gotta use them. They're hurting now because their properties have half gone underwater or have gone underwater and there's some pretty considerable damage after that. The other side of the story is that if you look up most of the insurance companies now, there also putting a momentary embargo on the area until they assess what's happened. Now, that's across all purchases not every insurer.

There is a massive difference between insurers, as we know. Once again, the diligence beforehand. Sometimes it's cheap for a reason. You just got to stay away from the stuff. You don't need the heartache in your life.

Phil Tarrant: So there's a couple reasons why flood affected property might not be ideal in your portfolio and you mentioned price. Just because something's cheap doesn't mean it's a good deal. I think that's a really important point. Why is something cheap? If it's flood effected then obviously there's insurance concerns with that.

But you need to be thinking about why you would have a flood affected, potentially, flood effected property in your portfolio. Thing is that if there's something wrong with and that is in one hundred years it might be get flooded. That's going to be something which is going to be detrimental to it, in terms of valuation. It's probably not going to go up in value as fast in places in the same area that is not flood -

Steve Waters: Potentially, but if you look at some of the areas such as. Let's look at the Ipswich area as an example. There's a massive difference there just after the floods. What did flood and what it would sell for versus what did flood and what it would sell for. There was that momentary discrepancy in the data, in the sale prices, to be real, where those flooded areas you could pick them up for pennies or for dollars. Just cost you nothing.

But now, because that's five, six, seven years ago people tend to forget and they forget quite quickly. So those areas have caught up to the non-flooding areas. But the data still hasn't caught up. If you're that type of a speculative investor and you want to roll the dice. Go ahead. Knock yourself out. But for me, it floods, I'm not going to go in there. I don't need the heartache in my life and I don't think anyone else does  to be honest with you.

Phil Tarrant: So what you're saying then, as a property investor, don't buy flood affected property or potentially flood effected property.

Steve Waters: I wouldn't. Nope.

Phil Tarrant: So when would you want to have a property portfolio which potentially flood effected? Never?

Steve Waters: Look, there's none in mine.

Phil Tarrant: A cashflow play or something -

Steve Waters: No, I just don't think. If you do the figures over period a time then it's not going to help you. If you're one of those people that wants to get in and get out. Well maybe you'll make a dollar. For me, I don't have any. I don't need that. You're either an investor or you're a gambler.

Phil Tarrant: Sage wisdom. I'd like to think that the good listeners of the Smart Property Investment show are good investors.

Steve Waters: No doubt, no doubt.

Phil Tarrant: That's the way we like to roll. So I wanted to cover off, sort of, flood effected property. I think a good way's part of a portfolio build and I think you made a very sage point saying "Just don't have them in your portfolio." You don't need, it's not worth the risk.

Steve Waters: There's plenty of other opportunities out there. You don't need the heartache.

Phil Tarrant: You can park your money better somewhere else that's going to get return on your investment.

Steve Waters: I believe so too.

Phil Tarrant: So the portfolio review that we've gone through, we've done a lot work recently in terms of buying this new property and getting it set for a bit of a purchasing spree. Getting our financials sorted out so we can secure financing. We've just gone through that process now delivered our broker all our, up to that returns that the lender requires for us to confidently and comfortably give us money. Which we're very happy about. That's part of that process. Always good to look at the numbers as you all know. We invest via a couple different trust structures, so we got all those numbers back from that. In terms of performance, I look at our overall after tax position. It's a positive one, which is good.

That said, before tax it does cost a little bit of money to hold this portfolio over time – which we get and it's okay. That's factored into our serviceability situation and I'm confident that we can always meet our mortgage repayments in order to hold this portfolio. When you look at the portfolio now it continues its good growth. It's not surging ahead as it quickly as what I did back in the heady days of western suburbs, Steve -

Steve Waters: Western Sydney, yep.

Phil Tarrant: - five years ago, but we're still getting the benefits from that just in broad terms. The portfolio's worth about $5.625 million. Now that's based on recent bank valuations and if you don't really have recent bank valuations, pretty good market valuations.

Steve Waters: Market valuations.

Phil Tarrant: So, 5.6. There's about $3.683 million bucks in debt. So that includes the refinances that we currently, recently undertook in order to cash up for this next purchase. A spree. That gives us an equity just shy of $2 million bucks. So we're sitting at LVR about 65 per cent and I'll add that there's also about $250,000 grand in cash sitting in an offset. That's the money we've pulled out of those -

Steve Waters: Your liquid.

Phil Tarrant: - finance, yep. When you take into account equity just shy of two plus quarter of a million bucks in cash, you're looking at about $2.2 million in equity.

Steve Waters: Not bad for, what, six years? Five, six years.

Phil Tarrant: Six years, yeah. First property was purchased in October '11. So, what's that – that's six years.

Steve Waters: Six years ago, yeah.

Phil Tarrant: Five and a half years’ time. Not a bad spot to be. But what became really clear and I mentioned very briefly is that it cost us a little bit of money month to month to hold this portfolio. It's expected. We've invested a trust structure so it's a little bit more expensive. We're copping land tax right across everything we have in New South Wales.

Steve Waters: Yeah.

Phil Tarrant: It's a price you pay to invest in a trust. We've spoken why we've invested in a trust. If you need more information on that I do recommend you go and check out some of the older podcasts around a bit. Speech your account as well because there's pros and cons to being invested in different structures depending on your personal circumstances or situation.

I'm quite happy where we are. The recommendation from our accountant, one of our trusted advisers, and also you, Steve, is the two trusts that we have with all these properties sitting with it now – we're not going to add anymore properties to them. Let's say they're maturing so we should be looking at trying to minimise our exposure in terms of cash to try and get this as neutrally geared as possible at a, sort of, net level, right.

Steve Waters: Well, it's one thing to talk about the after tax benefits but we want the cash in, cash out.

Phil Tarrant: The cash in, cash out. So our goal is to try and manoeuvre this portfolio to be cash neutral before any of the effects or impacts of tax. How can you do that? You can either decrease the cost to hold it or increase the -

Steve Waters: Income.

Phil Tarrant: The Income. It's difficult to decrease the costs. You might get some rate reductions. I don't see that happening in the foreseeable future. If anything -

Steve Waters: Nah.

Phil Tarrant: it's going to get more expensive to hold -

Steve Waters: Yeah.

Phil Tarrant: Those properties. For our listeners I'll get our mortgage broker on some point soon just to have a look at the current lending environment and how that might impact you.

How do we increase the revenue? We can lift our rents up and when you think that three, four, five of these properties. Maybe a few more are in the Western or Southwestern suburbs of Sydney. The investor appeal out there has waned a little bit recently. There's a big surge out there a lot of investors which impacted on your ability to push up rents. It's probably changed a little bit now, Steve, do you reckon?

Steve Waters: Yeah, I'd also suggest that the pick of the market in that western corridor's been and gone on the secondhand stock. You had the craziness 18 months ago where no one knew what the price was. It was just, "Well, let's list it at this and see what happens." And people were achieving those prices.

When you get a surge in market value and investor activity and construction activity. What you start to see is your rents either plateau or actually retract a little bit, which is what we've seen and what we expected. As a result of that the cash out expenses has increased a little bit, especially with the recent interest rate hikes. And I'd expect, as you said, that that probably go on a little bit further. So it should and that would probably be another podcast subject.

But, as you say, we've got to look, perhaps, minimise some of the expenses and we can adjust some of the rates. You and Ross will have good talk about that because there is a little bit of an excess there as we discussed earlier on. Increase rents, at this stage, I would suggest that rents are at market value and the consistency of a good tenant as opposed to clutching for an extra couple of bucks is -

Phil Tarrant: Much better.

Steve Waters: Much better. So we need to add income and that is via secondary dwellings, which is what we've land banked, so to speak. This is your bread and butter portfolio. This is the initial stages of a larger portfolio, in construction, so to speak. So we need to leverage off this and that dirt is part of leveraging. Therefore your cost to hold also goes up.

Phil Tarrant: So, what we've done, and I'll take benefit for this because I'm so bright and forward-thinking. We've built this portfolio the right way from the ground up.

Steve Waters: Yes…

Phil Tarrant: That comes, obviously to your advice very early days. The first property we bought in North St. Mary's and we've written about this extensively, smartpropertyinvestment.com, that you go and check it out. Corner block, way back in October '11.

Steve Waters: The first one, yeah.

Phil Tarrant: First one we bought and at the point in time it was standalone good investment. We knew North St. Mary's was set to surge.

Steve Waters: Yeah.

Phil Tarrant: We timed that and there's a lot of reasons why and we've wrote about this. Investments Western Sydney suburbs hub, it's positioned between Blacktown and Penrith. Et cetera, et cetera. It was geared for growth.

Steve Waters: Yep.

Phil Tarrant: But we bought something which had bit of an X factor to it.

Steve Waters: Well, it was a corner block and it has the potential to add the secondary income. Just on the opposite corner is a duplex pair. Even way back then, it did have that X factor and has, certainly, the potential and it might now be worth actually capitalising on that potential. Buy a secondary dwelling or at least do the feasibility studies.

Phil Tarrant: I completely agree and how do you go about doing that? We've got Mally Street, it's sitting there. It's in North St. Mary's. Great little product that we can move on. The second property we bought is a unit. Not relevant. Third property is a unit. Not relevant. Got another property in Ambervale which is a suburb of Cambelltown. Put a granite flat on it, couldn't we?

Steve Waters: Yeah, we've got the potential there. The construction costs in something like that would be just a little bit extra because it is a slopey block. Nonetheless, it's a corner block.

Phil Tarrant: Yeah. So we do the excavate to us and sell that property. Then we've got a place up in Berkeley Vale. Potential put a granite flat on that.

Steve Waters: Look, I'd probably, on that one, I'd suggest not. Because we do have that other kitchenette and bathroom and habitable area downstairs.

Phil Tarrant: That's right, correct.

Steve Waters: So I'd rather lean towards a larger family. Interestingly enough you're about to lose the very first and only tenant you've had in that property.

Phil Tarrant: Yeah, we are. We've got to replace him. Said we push the rent up.

Steve Waters: The rent up all the way through.

Phil Tarrant: The rent up all the way through. We've got, obviously, the property we have down in Port Kembla, which is a duplex on quite a large block which you can easily put granite flat down on that.

So we can actually change the income component of this portfolio by adding these additional dwellings if we want to go down that path.

Steve Waters: Yeah, so, and everything was quite deliberate being that you controlling the opportunity. Nothing really happens right there and then, it's about controlling that opportunity so that as time goes on you can capitalise on it. So you talk about the Wollongong duplex pair, so to speak, there is the room out there to add another dwelling.

Phil Tarrant: Or knock the whole thing down.

Steve Waters: Or knock the whole thing down.

Phil Tarrant: Create ten houses.

Steve Waters: Yeah.

Phil Tarrant: Yeah. So, you talk about having the capacity to do something in the future. So, my question to you, Steve, would be and we're looking at the type of assets we want to add to this portfolio moving forward. We've got plenty of good performers, you know, units that have just down their thing and sit there and they're a nice little earner in portfolio that will go up over time. Maybe not as fast as what they have done now. For us moving ahead is the question we get quite a lot from our listeners is, "How much should you let what you plan to do with your portfolio in the future dictate what you do today?"

So, should I be going, "This doesn't really stack up that well as an investment for my portfolio right now, but in ten years’ time, I'm going to have the capacity to do x, y, z with it." How do you have these two play off each other?

Steve Waters: You really need the stability in your existing portfolio. You need to build towards that, so if we come to your scenario where we're looking to accumulate some larger blocks of land. Maybe little blocks of units or something like that.

Phil Tarrant: Mm-hmm.

Steve Waters: That wouldn't be something I would be suggesting you go out and do from the very get go. You need to have that stability in your portfolio or the safety base, so to speak, that you can leverage off. And part of that leverage and part of that safety, or mitigation, is your cashflow. Because you might be controlling a block of land now that you can do something with in the future. It has poor cash flow.

But you need to have that cash flow elsewhere, whether it be from your daytime job or your existing portfolio to support it. Because you can have all the equity in the world and the best opportunity, but if you haven't got the cashflow to support it, especially with rates on the rise, well you'll be a victim.

Phil Tarrant: Now your business partner, Victor Kumar, at the Right Property Group talks a lot about pigeon pairing.

Steve Waters: Correct.

Phil Tarrant: So let's talk about that. So if you're holding something which isn't good on the cashflow side but it's quite good on the potential growth side.

Steve Waters: Or equity.

Phil Tarrant: You want to try and pair it with something which is the reverse of that essentially. Something with really good yielding property. It might not have the potential to grow at the same speed, but it's helping supplement the holding costs of the other property by delivering you the cashflow.

Steve Waters: And there’s some parameters around that. Like you're not going to go out to the back of Burke. For good yields.

Phil Tarrant: Well you can great yields out of Broken Hill.

Steve Waters: You can.

Phil Tarrant: Momentarily, anyways.

Steve Waters: But it still needs to have all the fundamentals around it. Just coming back to your point where you might be buying a potentially fantastic opportunity. Let's call it a subdivision block that has pretty poor yield now. You just have to put up with that or balance it out, as you say, with a pigeon pair as we talk about. That might be buying another block just like it but adding a secondary income. It might be a higher yielding townhouse. Different area. Different state.

But I certainly wouldn't be putting the cart before the horse and going to that negative or that massive negative cashflow area to begin with, if you can't sustain it in a worst case scenario.

Phil Tarrant: For us to keep pushing ahead with this portfolio, what do you think is holding us back?

Steve Waters: Probably a couple of things. Opportunities one of them.

Phil Tarrant: Yeah.

Steve Waters: There's very few of them on the ground at the moment.

Phil Tarrant: There's sort of stuff we're looking for.

Steve Waters: For you?

Phil Tarrant: Yeah.

Steve Waters: And everybody is different and you're, if you were starting now it's a different story. We're going to that next level now. They're not everywhere.

Phil Tarrant: So do you find as a buyer's agent, do you start getting annoyed with blokes like me at a point in time where you just go. "He's just so hard to get. What this guy is looking for is so hard to find." I'm more of a sophisticated investor.

Steve Waters: Yeah.

Phil Tarrant: I get it. I've got a good basis. Good portfolio. It's not huge compared to other people we know, but it's down the right path. For me to gotten involved as an investor, it gets harder for me to find these things.

Steve Waters: Always. This is where, this is the trick to it. It's called patience.

Phil Tarrant: Yeah.

Steve Waters: Because if you start to force the numbers because you get impatient, well it's just going to hurt you. Look everybody's in a different scenario and in your position and what we're looking for. They are not a common type of property. They are few and far between, but this is where the patience comes into it and you will eventually find it and it'll be worth it. Just like it is now. We've lost a lot of properties over the last, say, month, six weeks.

Phil Tarrant: We've had quite a few. Let's have a chat about that quickly. So we went to auction on a couple of places.

Steve Waters: Large blocks, yep.

Phil Tarrant: Large blocks, three weeks ago or so, maybe a month?

Steve Waters: Maybe a month, yep.

Phil Tarrant: So, what is was, we'll say the suburb. I can't remember where it was, can you?

Steve Waters: Marsden.

Phil Tarrant: It was somewhere up in -

Steve Waters: Up in Brisbane.

Phil Tarrant: Up in Brissy way. I'll find out where they are and I'll write an article on it, guys. So, apologies. It was two blocks, side by side, single owner. Each about twelve hundred.

Steve Waters: Yeah.

Phil Tarrant: Twelve to thirteen hundred square metres, oth with properties on it. One was damaged by termites. We couldn't get a pest and building in time.

Steve Waters: Couldn't get a pest and building, no.

Phil Tarrant: So we went to auction.

Steve Waters: Yep. With dialled back limits, with worse case scenarios.

Phil Tarrant: Yeah.

Steve Waters: We did the visual inspection, but we didn't have it on paper. We still had to be very, very careful with what we were doing. We were hoping that with us at the auction and us talking about, to the crowd, how much termite damage there was that perhaps people wouldn't bid. But that wasn't the case.

The first property went, I can't remember now, but it was for too much. For us. So we tried to get the second one and that was even pricier, in terms of price. So it just didn't stack up anywhere. You can always say to yourself, "Well, look if we had paid market price for them on that day. In ten years, what's it gonna matter?" I would suggest no one operates like that even if it is their potential opportunity.

Phil Tarrant: It's gotta be -

Steve Waters: It's gotta be in the right here, right now.

Phil Tarrant: And I agree with you and obviously. But these two assets we're something which gave us that controlling factor. So standalone that would have sat nicely in the portfolio, given us some growth over time. They're in good areas, good location.

Steve Waters: Secondary -

Phil Tarrant: Logan home, wasn't home.

Steve Waters: Yep.

Phil Tarrant: It was near Logan home, I think. So walking distance to the shops.

Steve Waters: All the infrastructure. It was there. If you had a controlled both of the properties or bought both of the properties there was so many options. So many options. It just didn't happen.

Phil Tarrant: Just didn't happen.

Steve Waters: No.

Phil Tarrant: So you've got to dust yourself off and move on.

Steve Waters: And go again, yeah. There was a cash cost there in terms of the inspections, but that's the cost of business. You just gotta wear that.

Phil Tarrant: So we're keeping at it. Because of the type of assets we're looking to put in our portfolio, other investors are attracted to them as well.

Steve Waters: Other investors that are at that stage as well, Because, if we talk, come back, to say, small blocks of units. We're up against listed and unlisted property trusts. We're up against perhaps, I'll call them old age or sophisticated investors. Someone whose been doing it for quite some time.

Phil Tarrant: Yeah.

Steve Waters: But we're now also going to that next level. Who are cashed up in terms of equity and they are paying big dollars for these sorts of assets. So you just gotta wait.

Phil Tarrant: So people are overpaying, right?

Steve Waters: I believe so.

Phil Tarrant: Is it then harder to find under market value property these days. Have I wrecked the marketplace by talking about using buyer's agents and everyone's using these days.

Steve Waters: Yeah, potentially, right. No, we've talked about your scenario before where finance is not easy to get being self-employed in different structures. Those that are out there that are self-employed would appreciate -

Phil Tarrant: It's a little bit more difficult in being paid -

Steve Waters: Much more -

Phil Tarrant: Just, it's people complicated, you know. Once you show to the banks, "Yes, Mrs. Herring, you can afford to pay these. They're okay." Articulating that to a banker, you know which -

Steve Waters: Which is where a good broker, like Ross comes into. So, because you have not been able to get financed. Well, it's been difficult to get finance for nearly two years, plus there was whole heap of other things going on.

Phil Tarrant: Yeah, that was more of an administration problem rather than bank willingness.

Steve Waters: Correct, yeah.

You've also probably missed, I would say, somewhere in the vicinity of 15 per cent of the market. So that's an opportunity cost, but, you know you've got to get your head around as well. I'm just generally speaking, of course. Say, I've lost 15 per cent of the market, but I still expect and know that the market will grow by X. So I've just got to move on from that.

Phil Tarrant: Yeah.

Steve Waters: It's something we all face from time to time. If I were to go back out in the western corridor of Sydney today and pick up a three bedroom house for three hundred thousand dollars, I'd jump at it but it wasn't too long ago that I was paying two hundred thousand dollars for the same thing. You've just got to know where the value sits and that's part of the reason. Or part of the way you buy under market value. You've got to be able determine what is market value before you make that call.

Phil Tarrant: Yeah, I think also the point I make about that, Steve, is that I might not have done anything for two years. I've been doing it a lot, right, in terms of the portfolio.

Steve Waters: Oh, for sure.

Phil Tarrant: Gearing and doing. Getting ready and getting administratively in order so we can secure finance. The beauty of properties and asset class versus other asset classes, whether it's sort of bonds, fixed income, shares, equities, whatever it is. Right. Your fancy wine collection that you've got. Take him to the drinker. Even though you say we might have missed 15 per cent of the market in terms of certain parts.

Steve Waters: Certain parts, yeah.

Phil Tarrant: Yeah, yeah. I agree with that, it's a missed opportunity. But we've been the market though, as well, so the fact that we're in the market. We've realised over that two years, you know, I don't know exactly the number, but in terms of equity growth over that two years of time. It's given us plenty of equity that we can pull out and actually capitalise so.

Steve Waters: So just to clarify, it's not from a lack, well it's not from procrastination or anything like that, that you haven't been purchasing. You have been in the market and sometimes actually the best thing to do when you already have a portfolio of properties is to actually sit on your hands and consolidate.

Phil Tarrant: Yeah.

Steve Waters: Yeah.

Phil Tarrant: Which is what we've done, but I guess life catches up with you. I imagine every single investor will agree with this, you know. It's -

Steve Waters: We're all in the same boat.

Phil Tarrant: Yeah.

Steve Waters: Right, I get antsy too if I haven't bought something for a while.

Phil Tarrant: Yeah. I think we've covered a lot of ground in this, Steve. Reasonably enjoyable. It's good to have you back on the show.

Steve Waters: Good to be back.

Phil Tarrant: I know we got a lot of complaints last time you're here. They said that you were boring and -

Steve Waters: I know, right.

Phil Tarrant: That you lacked a lot of pizazz.

Steve Waters: I know, I know. It's funny. It's only with you as the host.

Phil Tarrant: It's my job to get the best out of people. I don't know how good I'm doing. But, anyway. Now good, mate. So we're down this path right now. So we're buying property, which is cool. Appreciate your support. Before I finish, would you say I was a tough guy to have as a client? And he smiles, he smirks, but my expectations of you normal? Or am I bit softer and easier?

Steve Waters: It sounds like a bad Tinder date.

Phil Tarrant: I know, it does, doesn't it? He's right, you know, he wants to swipe, swipe. What do you do, swipe left or right if you like someone? I don't know.

Steve Waters: No one's willing to answer that.

Phil Tarrant: So sort of expectations and a buyer's agent. You know, it's an interesting relationship because, you intimately know someone's finances and what they're -

Steve Waters: Yeah.

Phil Tarrant: Trying to achieve in life.

Steve Waters: It's quite a close relationship that we have with our clients. You're no different from anybody else.

Phil Tarrant: No different than anybody else. Everybody's trying to achieve the same thing.

Steve Waters: Everybody's trying to achieve the same thing although in perhaps in different ways or different types of properties and different levels of investing as well. I come back to this whole patience scenario, but even before that. Knowing your own circumstances, such as disposable income. You're quite conservative and that actually suits us as buyer's agents because we're actually quite conservative as well.

So you tend to attract, perhaps, the people that are more like yourself and your investing style.

Phil Tarrant: Yeah, that makes sense. I think if you're shopping around for a buyer's agent. Look, there's some exceptional ones out there, Steve included, but there's some other great operators in the space.

One of the really good things about doing The Smart Property Investment Show, we talk about buyer's agents a lot, is that more investors are getting attracted to them. That's good because, for me, and one of the reasons I do this show is try and make better educated, more educated the investors. Because I see some nightmare stories of people doing stuff. Which with just a little bit of education you just wouldn't get suck into, you know.

Steve Waters: Well, it's your own diligence. No matter who the service providers are, I don't think, as a purchaser, you've still got to rely upon your own diligence. It's got to be part of it.

Phil Tarrant: You've got to be part of it, you can't outsource responsibility.

Steve Waters: No.

Phil Tarrant: For me, I outsource a lot of the grunt work. The essential grunt work, which is the most important stuff required to be a good property investor. So I lean on people and I pay good money for it, by the way, for the advice that I receive. If you are shopping around for a buyer's agent, I'd heed Steve's advice and find someone that sees the world the same way you do.

You need to be comfortable and confident with them. That they see the world the same you do and if they're telling you something which you think is not really genuine, I'd keep looking around. So, anyways, let's get you back on. Soon as we settle this property.

Steve Waters: Yep.

Phil Tarrant: If it happens.

Steve Waters: Or find the next one.

Phil Tarrant: Yeah, not a hundred percent gonna happen. I can't see any reason why it would fall over. The deal, unless we can't the price we want on post, well, we know what the price is and I'll sign -

Steve Waters: We're happy with that.

Phil Tarrant: We can go back to sort of -

Steve Waters: Finances.

Phil Tarrant: Yeah. Finances are sorted, it's fine. It's all under control.

Steve Waters: Nothing's ever done with finance until it's done.

Phil Tarrant: I know. We'll chat through you guys where the property is and what we intend to do with it and how it's going to slot nicely into our portfolio. Gonna hunt in other areas, I'll tell you where we are buying. We're buying up in Queensland. Brissy.

Steve Waters: Brissy.

Phil Tarrant: Brissy at the moment is where we're looking and there's a couple of areas that we really like up there right now. I'll let you know once I bought there, I don't know. Isn't that cool? I'm supposed to tell -

Steve Waters: So, you're supposed to tell where you're going.

Phil Tarrant: Yeah.

Steve Waters: You just did. In all seriousness, there is no secrets at the end of the day. The fundamentals will always shine. That a bit deep? That was deep.

Phil Tarrant: But you're gonna go and find it.

Steve Waters: I do.

Phil Tarrant: Anyways. Thanks, Steve. Really enjoyed it. Thanks for tuning in everyone. Now remember to check out smartpropertyinvestment.com.au. We're on all the social stuff. LinkedIn. Search for me, Phil Tarrant. Facebook, same. Twitter. Phillip Tarrant. Smart Property Investment as well, find all those guys.

Yeah, make sure to join us next week. Keep those reviews coming in on iTunes – do you like them. We're rising through the ranks and, yeah, it was really popular. I was chatting with Adam, who is here behind our computer, and there's literally tens and tens and tens of thousands of people tuning into this. It's nice to know that my dulcet tones are invading the podcast airways across Australia, Steve.

Steve Waters: Hostest with the mostest.

Phil Tarrant: And the world. No I do enjoy doing this, as you can tell. It's a nice sort of sidestep from my day to day job.

Steve Waters: It's what you're passionate about, right?

Phil Tarrant: Yeah, dude, I like it. It's good fun. Anyway. Thanks for tuning in. We'll see you next week. Bye bye.

 

 

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