Understanding real estate investments from a buyers perspective
One of the most common questions i get is ‘What property investing strategy is right for me and how does it compare to alternatives such as shares?’.
One of my clients has recently gone through that journey with his adviser, Deloitte Private, and he shared his experience with his staff so that he could empower them too. One of his staff took immediate action and he then emailed his experience back to the other staff too.
I wanted to share their emails with you as it may well help you on your journey.
Begin forwarded message:
Email from Andrew Walker, founder of 3wks.com.au
To All Staff,
We settled on our first investment property last week and several of you have asked how it was. Here are my notes…
I hope it’s useful to someone 🙂
(obviously I’m not offering advice here, just my reasons & experience).
The trigger: Moving personal affairs to Deloitte Private
We moved our private client stuff to Deloitte earlier this year. The strategy from previous advisers was to invest in long term stocks, this is where our investments were held at the time.
1) I was concerned about exposure/risk from:
a) USD being the reserve currency of most countries
b) Impact of China ups/downs on Australian stocks
c) General unease in stock markets
d) Margin calls in particular
2) I was wondering whether stocks gave the best long term returns
Shares or property?
I asked Deloitte, they declined to answer 🙂 As they’re not licensed to give stock/property advice they gave me a few suggestions of who to talk to.
I spoke to RBSMorgans (Stocks) and Chris Gray, YourEmpire.com.au (Property)
Both agreed that long term gains in both markets are roughly equivalent, or at least you can’t guarantee one is going to outperform the other (for long term, risk-averse investment, like our retirement 🙂
Neither wanted to give formal advice, but I found the perspective I was looking for in Chris’s free book The Effortless Empire (copies in the office or from www.YourEmpire.com.au/book)
I assumed that I could invest in either market in a reasonably tax effective manner, which seems to be backed up by what Deloitte say.
We decided to move from stock to property (long term) because:
1) 5x to 10x more leverage available
• Which means higher gains from the same investment / growth
2) Less volatile nature and lower chance of margin call
• I’m not forced to sell at the worst possible time
• My investment is totally passive / relaxed
We sold all our shares in the meantime as they were at a reasonable value and I didn’t want to get caught out by short-term fluctuation.
• Which turned out really well in the end!
DIY portfolio strategy or someone else’s?
This was an easy choice for me. I’ve known many people who DIY and they all agree that if you’re going to manage your own, you need to REALLY understand your market. Otherwise you’re gambling.
I don’t have that knowledge. So I know I’m going to make some mistakes and more importantly that my nervousness is going to cost me valuable time (aka growth).
We lose roughly $10k for each month our money is uninvested – based on 20 year average.
I could have used one of the many services like RPData or RipeHouse (my fave).
For me it’s about referral and trust.
Secondly, Chris Gray offered a Buyers Agent service in line with his strategy, which means I will get into the market (much much) faster, given I’m time poor and nervous.
So we decided to give it a go.
Chris Gray’s strategy:
• Buy in an area with limited stock (height restrictions, no more land).
• Buy 5-10km from CBD.
• Get as close to 4.5% rental return (vs property value) as you can.
• Minimise your expenses (strata mainly, for units).
In Sydney this equates to:
• 2 bed
• No lifts
• No pool
• Small block of units (5-10)
• $900k to $1.2M
• Never go to auction, make an offer beforehand.
• Make the offer by completing the contract and getting a cheque.
• Expire the offer within 24hrs, don’t go to 2nd offer.
• Never offer over the top end of the valuation.
Summary of the experience (buying the first one)
I’m very very pleased with the result.
We signed up to the service at exactly the wrong time, when stock was low and people were paying even more crazy prices than normal. They assured us that this had happened before that that we should just stick to the strategy, wait for it to work.
Once you sign up, there’s a waiting list (normally 2-12 weeks until everyone else is clear).
• Week 2: Finance approved
• Week 12: Property 1 (went to auction, sold $58k over our offer)
• Week 13: Property 2 (sold before auction $10k over our offer)
• Week 16: Property 3 (success, purchased before auction)
The process was (extremely) low effort.
They found the properties through their network of agents, arranged valuations, strata reports, rental assessments and lawyers. We just gave the go/no-go on each offer and I went in to the lawyers to sign contracts (after getting a bank cheque from 3 doors down).
We didn’t inspect a single property.
For us this translated into real money in two ways, conservative guess:
1) 12 months faster than us trying DIY, most likely much longer
• this means $60k more growth for that one property
2) $50k to $100k better deal using their negotiating strategy
• we would not have had the conviction to stay true on our offers
• agents may not have believed our offer was final, given we’re unknowns
• likely would have gone to auction and overpaid on the first one
The only down-side I can think of is a couple of admin bungles – but I’ve had those buying our properties before, so I’m not sure it’s a differentiator.
I’ve got the details on each property valuation, our offer etc if anyone’s interested.
Feel free to ask me questions.
Maxim – how did you go with yours, were your experiences positive or negative?
Thanks so much for the note and for introducing me to Chris Gray in the first place.
My experience was very close to yours. I chose to pass on 3 properties before we exchanged contracts on the 4th one.
I missed the first two as apparently there are a lot of loaded with money people who a happy to pay way more than valuation. The 3rd property was a no go because of some major issues we found while running the inspection reports.
I got the 4th property before it was even on the market and got it a great price.
Chris’ team was extremely helpful and supported me every step of the way. Everyone I worked with was very professional, great to deal with and always delivered on their promise.
Long story short – I wouldn’t be where I am if I was doing it on my own. They make it as easy as it could get, especially for someone being in the market for the first time.
As I always say to myself – sometimes you need to make a decision, stick to it 100% no matter what and most importantly, trust the process and have faith.
So once again thanks for reference!