EPISODE 24: THE ‘RIGHT SWIPE’ FOR YOUR INVESTMENT PROFILE Pt 2
Adrian Franklin (00:07):
Hey, there. Welcome back to the Ticker Home, where each week we will dive into the latest trends on the property market and answer the questions you need to know. It’s great as always to have my cohost, Ian Ugarte, co-founder of Small is the New Big. Hello, sir. How are you?
Ian Ugarte (00:21):
Hi, Adrian. How are you? How was your weekend?
Adrian Franklin (00:23):
Good. Weekend was great. Every weekend is absolutely wonderful. How was yours?
Ian Ugarte (00:29):
Not bad. I like to spend time in the sun in Queensland.
Adrian Franklin (00:33):
Yeah. Well, we don’t see the sun in Melbourne so, there you go. Let’s not talk about the sun. What are you looking forward to getting stuck into today?
Ian Ugarte (00:41):
Well, last week, you asked me to look at risk and match that to properties, so that’s what we’re going to be doing today. And as long as you understand Tinder, then we’ll be on the same page today, because that’s the example I will give.
Adrian Franklin (00:54):
Very good. Never heard of it, but that’s fine. Only kidding. Ticker Home, presented by our partners at Small is the New Big, who are on a mission to create one million affordable homes in the next 10 years and help Aussies struggling with housing stress. And it can be stressful, so learn more at smallisthenewbig.com.au. All right. In terms of what is trending for you this week, what have you got? Where would you like to start?
Ian Ugarte (01:16):
Yeah, I got an article in Sunshine Coast Daily, from my local paper here, from Alex Turner-Cohen. This one got my blood boiling a little bit here. Basically, economists warned that we were going to see a 20 to 25% dip in the property market a year ago, and here we are, 20 to 25% up. So, that’s a 50% turnaround. This quote came from a Professor Leishman, who said the fact that commentators switch their predictions so quickly shows how unstable the housing market is. And that that gets my blood boiling, because Mr. Leishman, I’m sorry, it’s a cycle that you don’t understand, and that’s the reason people are not seeing it the way it is, because it’s a supply and demand issue. It comes from a report in housing created calling Taming the Elephant in the Economy. Amongst its findings were that the number of homeowners under the age of 35 have halved since 1995.
So the inequality gap is widening as the housing market starts to continue to surge. We have talked about, Adrian, days on the market showing a strong marketplace and that anything under 40 days is a very strong market. The national average for days on the market right now is 32 days, so that shows that the whole of Australia is in this uplift right now. Professor Leishman in his great sitting behind his desk as a professor has said that the RBA should control house prices. I’m not sure how that could even possibly think about starting, but here he is talking about it. The housing sector basically is being fueled by a three-fold problem. Firstly, it’s creating an unstable [inaudible 00:02:47].
Secondly, that’s generating inequality and perhaps, most surprisingly, reducing productivity. Why? People are moving away from the major cities to get cheaper properties that are away from their workplaces, effectively taking good workers that are skilled from the city into regional areas. And as I said, all of this makes my blood boil, when someone sits behind a desk and starts to create commentary and has no experience in the market whatsoever. And there, I end my rant. Adrian.
There you go. Point taken. I won’t ask a follow-up question. That’s fine. Let’s talk about Reddit. The fact that millennials seem to be getting on Reddit to learn about trading and share market and all that, but maybe not so much. Is it old school news that’s trumping all of this?
Ian Ugarte (03:29):
Yeah, look, Aleks Vickovich in Financial Review wrote a really great article about this. They did a survey of nearly 2,000 people. Most of them were age 25 to 40, and they found that 63% of all of those people use social media for investing advice and education. Now, this is dangerous, because it’s an unregulated industry and ASIC want to see what can be done to make sure that it happens. Now I’ve asked for years for the wealth creation industry and, particularly, those that are marketing on social media to have some sort of regulation, because at the moment, it is unregulated and anyone could be out there saying things which will be advice by people that they don’t have to be qualified to do that. So the herd mentality means that as long as you’ve got a great marketing strategy in social media, then you can actually get to people and start touting being the next best guru.
A working group has been put together, including ASIC, to come up with some regulation for the industry. And they’ve termed those people in social media that can actually do well and influence people and pretend to be a guru or educator, as a finfluencer. And these finfluencers, I reckon 90% of them would disappear overnight if there was some regulation in the industry for them to show their experience and their wealth position, because I see a lot of them out there. I’ve been in this for 30 years now, investing in property, and I can tell you there’s some Johnny-come-latelys that are doing a lot of damage in the marketplace.
Adrian Franklin (04:53):
Let’s talk about cryptocurrency. It’s something we talk a lot about here at Ticker NEWS, and the fact that young Aussies might be turning to crypto to fund their way into the property market.
Ian Ugarte (05:03):
Yeah. Look, the interesting thing about this article here was that based on that and getting into the marketplace, so many that are investing in cryptocurrencies don’t really understand the tax outcomes from that. Just recently, I had someone contact me and say, “Well, does anyone sell properties in Bitcoin?” I said, “Yes, I’m sure there is someone out there, but why do you want to buy in Bitcoin? Why don’t you just sell your Bitcoin and pay cash?” And they said, “Well, because I don’t want to be taxed.” And I said, “Well, here’s a big one for you. ATO quite clearly says that if you make any money on the value of a Bitcoin, it’s taxable as a capital gain. So expect that you’re going to get hit with some pretty big tax disadvantages, because you’re selling out.”
“No, no, no, that’s not true.” And I said, “Well, here’s the ATO ruling.” Bitcoin is a good way to be able to look forward into the future of cryptocurrency in general. It’s no doubt that will be a trading, but as soon as you effectively change out of a crypto and into any other type of capital, you are going to get taxed no matter what.
Adrian Franklin (06:06):
So, Ian, last week, of course, we explored the three types of investors based on their level of comfort with risk and how important it was to understand this, to then ensure they made the right investment choices. So this week we want to ask you what types of investments each of these groups. So we spoke low, medium risk, high risk. I think that’s where we finished with me. So what should we be looking for to match their own individual risk profile? Can you help guide us through these decisions and make us smarter today, please?
Ian Ugarte (06:36):
Yeah. It doesn’t matter what type of risk profile you are. You need to match the investment property to the strategy or your profile. So for me, swipe right for properties that match your risk and left to those that don’t. And so from a risk perspective, we talk about low, medium, and high risk people and where and what they should invest in to achieve a good outcome. So, which properties should just swipe right on? Some people are comfortable with a lot of risk, others want very little, so the investment strategy needs to reflect the risk profile, so that you’re choosing the right investment mix to suit you and the situation that you’re going to be wanting to get to in the future.
Adrian Franklin (07:11):
All right, let’s start with low risk investors. Who are they and what sort of investments in particular they usually most suited to?
Ian Ugarte (07:19):
Yeah, a low risk investor would buy their own home and then decide to swipe right, maybe, on a granny flat, which would be a very low risk strategy for them because they are increasing the value of their property, and they’re going to get a little bit of return of income. Then they may use the investment strategy of buying a property that may be a lower cost, like a unit or a townhouse or a villa, that wouldn’t expose them too much. And the thing about a low risk person is the reason they like that style of property is because if they buy a townhouse, apartment, or villa, they actually can grasp real value, because the house next door might’ve been saled in the same complex or another sale in the complex gives them the lower risk of knowing what the end value would be if they had to sell.
So when you look at the downside with this strategy, is it’s a very little scope to be able to add value to the property through manufactured or manual growth. So it’s a trade-off for them. Swiping left on upside properties is something they would do all the time. They would much rather know that if they bought a unit, that every 10 years it should double in value and that they know their costs coming out from a body corporate perspective and ultimately, that’s a low risk person, swiping left on most and swiping right on only one or two.
Adrian FranklinN (08:35):
All right. So, that’s one down. Let’s talk about medium risk investors. What sort of risk profile do they have exactly?
Ian Ugarte (08:41):
Yeah. Medium risk would be a little bit more. They would include a purpose build maybe, or a brand new four bedroom, two bathroom home with a granny flat or a secondary dwelling. And we look at it from the perspective of saying, well, now I’ve got a dual occupancy component to an investment property, as well as my own home, meaning a family could rent it out or they could rent it into two different households that would bring in separate leases and more rent.
And as a medium risk investor, you might possibly look at resimercial. It’s my favorite strategy. Resimercial is basically the stability of a commercial component in a building with the residential part of it. Shop top housing, as an example. So there’s a shop downstairs and there’s housing above and behind it. This is where you can get a really great solid return from commercial, plus the stability of residential. And that top type of property is medium risk, because it’s halfway between low risk and high risk, because you’ve got the high risk strategy in there, plus a low risk strategy in the same property. It’s a really great outcome and serves you well, long into your investment career.
Adrian Franklin (09:49):
And that leaves the high risk investor. This is the fun stuff. Are these people a bit reckless, would you say, or do they just have a better strategy and then a higher appetite for risk?
Ian Ugarte (09:59):
Yeah, just like Tinder, how when it opens up, they continuously swipe right. It doesn’t really matter what it looks like or what it does. It’s more about what the outcome is going to be for them, and I’m talking about property here. A person with a high risk profile is attracted by the cash flow or the upside, but doesn’t remember or have any experience of the downside when it hits. So a high risk investor will go to mining, swipe right. They’ll go to a port town, swipe right. They’ll buy commercial, or they’ll buy site unseen, swipe right. Then they feel the wrath of the decision and realize that the relationships are not working out between them and their properties, just like Tinder, and they’ve lots of up and downs and swiping left should be a good option for them. The other part of the risk is what I would consider right now, which a lot of people ask me about. Every week I get this question, what about SDA property?
So SDA, a special disability accommodation, is part of the NDIS, the National Disability Insurance Scheme. SDA, for, me is the most high risk strategy in property right now. The national disability scheme pays out, or the government pays a home owner or home investor up to 16% returns to be able to build a home specifically for someone with a disability. The problem is that there’s a disjoint between the [inaudible 00:11:17] and getting the residents to move into them. So whilst you might be walking through a corn field and be Kevin Costner and he build it and they will come, unfortunately with an SDA, people are building it and they’re not coming.
So I’m not sure if you or the other millennials that are listening will understand that reference, but effectively people are building houses for people with a disability, and those people with a disability and not wanting to live in that location, that area, or they can not find someone to move into it. It’s one of the highest risk strategies right now. As someone who’s sat on a board for a disability support service, I can tell you, and I built their portfolio, I have not invested myself in that area. And considering that I know my stuff and I am a sophisticated investor, I just see it too high risk for people.
Adrian Franklin (12:07):
All right. So finally, how do people go about understanding their own risk profile so they don’t get caught out?
Ian Ugarte (12:14):
Well, I can tell someone’s risk profile from a really simple conversation and a few questions, and it probably can only take me 15 minutes to work out where they sit. From a risk perspective, the first thing I do is I send them to the MoneySmart budget planner on the ASIC website. It’s one of the best budget planners I have ever seen around the place. Financial planners use it. They send their clients there and they say, “Let’s work out how much you spend, versus how much you earn.” And it’ll clearly tell you whether you’ve got money left over at the end of the week. That’s the first indicator. Spend too much, you’re high risk. Saving 10% every week, you’re low risk. Then look at your previous investments. How were you convinced to be buying something?
Did you take your time? Maybe you didn’t buy it. Maybe you did buy it, and based on the fact that someone told you, the taxi driver or the dentist told you that the area was going to go up, or maybe you did your research. And had they turned out good for you as slow, constant, good growth with decent income, or have they gone backwards based on putting it all on black. To me, I’ve spoken to many people and I’ve spoken to quite a few people that are upside down. Adrian, that means when they bought a property, they’ve got a mortgage against it, and then the property price has dropped so much that the mortgage is worth more than the property and they are upside down. They can’t even sell that property, because they would be short to be able to pay the bank.
Personality traits and your upbringing around money is quite likely going to create a new cycle for you, and to break that cycle is very difficult. How do you do that? Mentors, get people around you, and get some understanding from those people that are great at saving money and are great at wealth, and ask them questions. Be curious, as Ted Lasso would say in the Netflix series.
Adrian Franklin (14:02):
Very, very good. We’ve got 30 seconds to go. Let’s get the top tips up on screen. Marrying risk and investment. Go.
Explore all your options in each category. Make sure your design strategy matches your risk profile. Swipe to suit your risk profile, hopefully right when you need to, not left when you shouldn’t. Seek out proven experts for your help all the time. As always, the cheat sheet for everything that we do is at smallisthenewbig.com.au/tickerhome, Adrian.
Adrian Franklin (14:33):
Great stuff. And if you’re swiping, wherever you’re swiping, just make sure you take care. Ian Ugarte, great from you. Once again, we’ll talk very soon.
See you next week.
Adrian Franklin (14:43):
Ticker Home, of course, presented by our great partners at Small is the New Big, who are on a mission to create one million affordable homes in the next 10 years and help Aussies struggling with housing stress. Learn more at smallisthenewbig.com.au.
EPISODE 23: THE ‘RIGHT SWIPE’ FOR YOUR INVESTMENT PROFILE Pt 1
Adrian Franklin (00:07):
Hey there, welcome back to Ticker Home where each week we will dive into the latest trends on the property market and answer the questions you need to know and I need to know, and there’s only one man to answer these questions. His name is Ian Ugarte, co-host and co-founder of course of Small is The New Big.
Adrian Franklin (00:21):
Hello, sir. That was a good introduction by me, I thought. How are you?
Ian Ugarte (00:25):
Oh, I thought it was great. A great ad lib and I thought you did really well.
Adrian Franklin (00:29):
Thank you very much, thank you very much. I appreciate that. What are you looking forward to getting stuck into today?
Ian Ugarte (00:35):
Today I want to talk about your risk profile and the really simple thing that you can do to find out what your risks are and then that’ll help you invest in property.
Adrian Franklin (00:44):
Smart. I am listening. Ticker Home presented by our great partners at Small is The New Big who are on a mission to create 1 million affordable homes in the next 10 years and help all of us struggling with housing stress learn more at smallisthenewbig.com.au.
Adrian Franklin (00:58):
All right, what is trending off the top this week, Mr. Ugarte?
Ian Ugarte (01:03):
We’ve got Sally Hickey from the FTAdvisor, basically talking about a survey that showed half of the 18 to 24 year olds believe that they are now more risk averse because of Covid. So 50% said they had paused on making any major financial or investment decisions in the past 12 months. When broken down by gender, 46% of women were less risk adverse and 43% of men. So this has been more prevalent because of the pandemic. It’s going to be fascinating to watch as lock down comes out, how this investment might spark back into life.
Ian Ugarte (01:41):
So we’ve got some pent up demand that happened during the pandemic, which was based on vulnerability and emotions, and there we’ve saved some money and what’s going to happen when we come out of pandemic in the rest of ’21, basically anyone that makes a financial decision on purchasing anything, based on emotion, will end up probably in a bad spot. So it’ll be interesting to see, maybe you should go and get some advice from some financial planners or some advisors so that any decision that you do make is actually stable and emotional neutral.
Adrian Franklin (02:16):
Let’s have a look at younger investors and what they’re being attracted to, particularly at the moment and the fact that there might be some risks here.
Ian Ugarte (02:23):
Yeah. Look, this is an article by Rhiana Whitson, ABC News, basically saying that the Corona generation are very much loving what they call EFTs, which is an exchange traded fund. They’re just hit $100 billion on the ASX.
Ian Ugarte (02:40):
So what is an ETF? It’s a popular place for investment for inexperienced investors. So you get a better return than a bank, based on someone taking on a fund, and they invest across multiple shares, and they’re good companies. They’ll be the Teslas and they’ll be the Telstras and they’ll be the telecommunication companies or the banks. And what they do is they have lower rates and charges to be able to look after these EFTs, which means that the consumer then ends up as a better outcome.
Ian Ugarte (03:12):
So the experts warn though, there are what they call a thematic ETF and the thematic ETF is basically an industry specific. So you might say I just want sustainable green, or I just want banks, or I just want electric cars. You just got to be careful in fluctuations in the market because if that whole industry gets affected, then it sort of takes away the purpose of being diversified across all of it.
Ian Ugarte (03:38):
For me, people maybe 40 and above feel more comfortable in the share market. People under 40 are basically going into ETFs. More than 1.3 million Australians have put their money into ETFs, and this is double the number of investors since 2019. The basic role of the fund manager in the ETF is to get some great ASX 200 companies, put it into one basket, and have the solid results that they get so that people get a return. So it’s interesting that that’s the way that people are going with a lower risk strategy.
Adrian Franklin (04:12):
And let’s talk about whether millennials prefer to rent or whether they’re being cheated out of a home. This one’s interesting.
Ian Ugarte (04:19):
Yeah, this one got me a bit active as far as my mind is going. This is Arwa Mahdawi and The Guardian basically. Capitalism is reshaping the property market, locking young generations out of buying somewhere. I’ll just read you this passage, which is really interesting. The year is 2070. Nobody owns a home anymore. Instead, a few large corporations control all of the world’s real estate and people subscribe to holistic housing solutions on their iPhone 78X. And you can buy your monthly subscription into BezosCoin, MuskCoin or ZuckCoin and if you default, they’ll dispatch you to Mars so that you can pay off your debt by [inaudible 00:04:56] in intergalactic Amazon warehouses, right?
Ian Ugarte (05:01):
The problem here is that that’s far out there, but it could be possible because currently right now there are governments and policies asking institutional investors to come in and buy existing property stock, especially housing, so that they can create some social outcome. But that’s based on a model of capitalism that needs to have a profit so they can continue to buy more. What does that do? Well that pushes people out of the marketplace. So, it’s an untrammeled capitalism, basically. A capitalism that’s not being stopped.
Ian Ugarte (05:32):
So for me, it doesn’t matter whose fault it is. The consequence is the same at the moment. An increasing number of people, mostly young people, will be forever locked out of the home ownership model. And this statement, that millennials prefer to rent than buy, are you serious? Really? Are you saying that millennials would prefer to chew up 60 to 70% of their wage, renting someone else’s property so that the capitalist nature of whoever owns that can go up in value? And I know they’re mum and dads that usually own those investment properties, but this institutional investment strategy for me is way out there and way wrong for what we need for our young people.
Adrian Franklin (06:09):
Love the passion. Love when you get worked up. Take a deep breath, have a drink of water. No, don’t have a drink of water. Stay right there because we’re getting in to our main conversation now.
Adrian Franklin (06:18):
In your decades of helping people invest in property, you must have seen all types. From the cautious, the ultra cautious to the gung ho. So in your experience, what are the three main types of investors and how do we know which category that we fit into?
Ian Ugarte (06:33):
So when investing, I’ve always looked at risk profiles and wondered whether I would be in a different situation if I changed my risk profile when I was younger. I think the answer is probably yes. At least I would have suffered less anxiety because I’ve suffered anxiety from a very young age. So I describe three factors as low, medium, and high risk.
Ian Ugarte (06:51):
And I’ve got a question for you, Adrian. I’ll put a scenario in front and you tell me which one you are. You’re driving on a freeway, 100 kilometers an hour. You’re on the left-hand lane. The car in front of you starts to slow. So you’d pull out to overtake and inevitably, like everyone that you go and overtake, they speed up to the speed limit of 100. Someone comes in, pulls in behind you. What do you do, Adrian? Do you speed up and move in front of the car next to you that’s driving a hundred? Do you slow down and move back in behind the car or do you just stay at 100, waiting to see what’s going to happen? Which one are you, Adrian?
Adrian Franklin (07:23):
Oh, well, so if I’m in the far right lane, then I’m going to move into the other lane, is what I would do. Because when you’re in the far right lane, you shouldn’t be there if-
Ian Ugarte (07:32):
By overtaking or slowly overtaking or slowing down?
Adrian Franklin (07:36):
Maybe overtaking. Is that-
Ian Ugarte (07:40):
So, you’re high risk. So, if you stayed in the outside lane, medium risk, and if you pull back, you’d be low risk and they’re the three appetites for risk when it comes into looking at almost everything in life, but particularly in investing. And I know I’ve used a very simple way to be able to dictate whether you’re high risk or not, but that’s basically it.
Adrian Franklin (08:00):
All right. So how would you describe a person with a low risk profile?
Ian Ugarte (08:05):
Yeah, low risk profile is someone in a PAYG employed by someone else, will never start their own business. They look at their lives through the lens of what could go wrong if I spend my money on this. And what I found consistently over the years is that people with low risk profile get to the age of retirement and have more than enough to live the rest of their life because they’ve saved well, they put their 10% away.
Ian Ugarte (08:29):
These people research, research, research, to the point where it’s analysis paralysis. And they won’t make decisions because of that analysis. So whilst they have enough money to retire, they may have had a little bit more, if they just spent a little less time researching and a little bit more time looking at what the upsides could have been.
Adrian Franklin (08:47):
Okay. So that’s low risk. What about a medium risk profile? What do they normally feel comfortable with when it comes to investing?
Ian Ugarte (08:55):
People with medium risk profiles will take some risks. So they may go out and work for themselves, be self-employed, they might buy that investment property without too much research, but they’ll do some research to be able to back themselves on their decision. A medium risk person will do some research, they’ll know the numbers, they’ll understand it, and they’ll make decisions based partially on they gut feel and on their head space. And then they think it’s the right decision going in.
Ian Ugarte (09:21):
Medium risk people look at a balanced approach of what can go wrong, plus what can go right at the same time. And I’ve found people with medium risk profiles will end up in an okay spot at the point of retirement, if they stay medium risk and quite likely, very wealthy. Most entrepreneurs after establishing themselves in their first business, will go off and become medium risk people and that’s a really classic case of being able to really sustain. So I would consider those people in your life that are wealthy that you know, are medium risk people.
Adrian Franklin (09:53):
All right, let’s get into the fun one, the high risk profile. So is it wrong to think these people, I guess we’re talking about me apparently, that these people are reckless and what is it that they can tolerate that others can’t?
Ian Ugarte (10:09):
And I don’t consider you to be reckless in any way. I just think we used it as a simple way to detect that, but basically these type of people will put it all on black. They basically will bet every dollar to try to get the best possible return in the hope that they’re going to strike it rich at some point. And that was me for many, many years while I started multiple businesses. And I’d move on to the next very big, quick, shiny thing.
Ian Ugarte (10:29):
We talked about the restless puppy dog from moving across the backseat many episodes ago, and that restless puppy dog wears themselves out, trying to find the next best thing or the best outcome for them. I’ve started 30 businesses in 30 years, Adrian, and I’m a serial entrepreneur, but I worked off the idea that if we started 10 businesses, one would have to come off. Well, 15 businesses in, none of them had come off though. Some were operating and doing okay, but they didn’t get the outcome for me. So the last 15 businesses have done really well and that’s because of the way that I handled my risk and I changed it. So I’ve blown some businesses out of the water financially in a very good way, simply by just lowering my risk.
Adrian Franklin (11:12):
And so are you still that high risk investor and if not, what’s changed? And then what advice do you have for our viewers when it comes to their own risk profile?
Ian Ugarte (11:22):
As far as my financial success is concerned, my real financial success started to come when I started to make lower risk decisions based on research and making sure I had a good mentor that was sitting alongside me. I became essentially a medium risk investor with structure around me, education and those people that have done it before. So we started a portfolio where I could buy as much as I could without any knowledge whatsoever and that basically when I first started early on, almost ended my financial position. That almost got taken under.
Ian Ugarte (11:56):
Seven out of the seven properties I owned, I had to sell down six, so that I could actually survive and start again. And when I started again, it was based on the lower risk strategy of actually pacing out and planning what the next 18 months to two years looked like and that could extract myself out of work and become full-time in property. So that worked out really well for us. And since then I’ve taken on lower strategies.
Ian Ugarte (12:20):
You have to be compliant. High risk people generally aren’t compliant with what they do. They will usually overtake the car to get the extra speed to get in front of them and it certainly takes the anxiety out of life when you lower your risk. And as I said earlier, Adrian, from the age of 14, I suffered from anxiety and that high risk time in my life was something that was really quite confronting to me. So I know one thing that helps me out is non-complex decisions that can affect me financially. If I can get those decisions simple and lower, then anxiety for me drops down a lot.
Adrian Franklin (12:55):
No, I think that’s a very, very good point. Particularly in these times when people do suffer a lot of anxiety and other sort of issues, I suppose, as well. So reducing risk, I think is probably a pretty wise decision. Let’s pop up the top points in terms of all of our risk profiles. Take us through those.
Ian Ugarte (13:14):
Yeah, everyone has a risk profile. I don’t care where you sit, you’ll have a profile right now which can change. Every profile has different benefits because… I dare say that Steve Jobs was a high risk person and he changed the world so there is advantage to each one of them. Investments must match your risk profile. So if you’re a low risk investor and you go off into high risk property, then it’s not going to match you. It’s not going to be quite right. Research is always key. And always discussed with a mentor next to you that has done it before, that has been through the mistakes, so that you can learn from their mistakes rather than having to make them yourself.
Adrian Franklin (13:50):
Great stuff. So next week, let’s maybe talk about the types of investments that these people should be looking at as part of their portfolio so they can match their investment style with the right property. How does that sound to you?
Ian Ugarte (14:02):
Sounds good to me, I’ll get straight onto that.
Adrian Franklin (14:04):
Yeah, a bit of homework for you, Mr. Ugarte. Great stuff, yet another sensational episode. We’ll talk to you very soon.
Ian Ugarte (14:12):
Thanks, Adrian, see you next week.
Adrian Franklin (14:14):
Ticker Home presented by our great partners at Small is The New Big who are on a mission to create 1 million affordable homes in the next 10 years. And as we just spoke about, reduce and help our stress levels when it comes to housing stress. Learn more at smallisthenewbig.com.au.
EPISODE 22: THE RISKS OF INVESTING IN COMMERCIAL PROPERTY
Adrian Franklin (00:07):
Hey, there. Welcome to Ticker Home where each week we will dive into the latest trends on the property market and answer the questions that you need to know. It’s great as always to have my co-host, Ian Ugarte, co-founder of Small is the New Big. Hello, sir. You’ve got a plant in the background. Real or fake?
Ian Ugarte (00:24):
It’s partially real when you look at it, but it’s actually a fake plant.
Adrian Franklin (00:27):
Very good. I do like it against that wall there. You’ve done well. What are you looking forward to talking about today exactly?
Ian Ugarte (00:34):
We’re talking about commercial property and the risks involved and how you should probably be a sophisticated investor if you’re going to invest in commercial.
Adrian Franklin (00:42):
Interesting. I like this one. Ticker Home presented by our great partners at Small is the New Big, who are on a mission to create one million affordable homes in the next 10 years and help Aussie struggling with housing stress. To learn more, and you should, head to smallisthenewbig.com.edu. Okay, what is trending this week, Mr. Ugarte?
Ian Ugarte (01:02):
Yeah, we’ve got an article from Sue Williams in the domain commercial real estate section, and it’s talking about vacant offices and how the vacant offices are being turned into medical suites and effectively getting a better yield return than as standard office space. The medical industry is in demand, especially with COVID and pandemic. And as an example in Brisbane, they’re starting to strata title office spaces often to medical suites.
As soon as someone that’s medical goes in there, it then starts to attract other medical practitioners into the same place, and they’re getting a central hub that’s being located in different places. Now, banks are lending to doctors at 100%. They can get 100% loan to be able to set up their own practice around the place. It’s a really big industry that’s happening. Office buildings are not easily converted to residential, and in which case, adapting them to medical suites is much easier and, again, is creating some great outcomes.
And now what it’s doing is it’s creating little central hubs all over the place in suburbia plus the CBD, so people don’t have to travel that far to get to their medical practitioner.
Adrian Franklin (02:10):
Now, it’s really interesting to talk about what has changed considering the pandemic. We’re looking at tenants today. Something’s changed. Now the pandemic is, fingers crossed, done, what are you seeing here?
Ian Ugarte (02:23):
Yeah, I was saying I large volume of small to medium businesses taking up spaces in office space that used to be quite large, but they’re actually about a thousand square meters or less is the point that are getting the most tenancy. You’ve got about 60% of non-CBD activity is sub-1000 square meters, about half of the tenants are moving or downsizing. This is a change from what they’d called the spoke and hub model.
The hub model is where you’ve got one central office somewhere in the country, and the spokes are you’ve got individual offices in different territories and state. When it comes to that model, it’s now broken and being replaced with a spoke model that is a hub office with people working from home, which means that the hub office can be much smaller. They don’t need those extra spices and now the places are and the CBDs are basically being moved away from.
It’s interesting to see what’s going on in the commercial market space right now.
Adrian Franklin (03:24):
Just finally with what’s trending this week, let’s talk about post-pandemic cities, the great reset. What’s this all about?
Ian Ugarte (03:33):
We’re now living in cities more than ever. 55% of the population is currently living in cities. The cities benefit obviously. You’ve got a lot of people around you from centralization, which means you’ve got a lot of activity and ability to get to different services. The United Nations predict by 2050 that 68% of us are going to be living in a city somewhere in the world. In 2020, cities, however, have actually dropped off or flighted off.
They’ve actually got lower numbers in there. New York City, as an example, is 4% smaller than what it was with people moving away. Councils and governments have starting to produce more bike tracks because people want to stay off public transport because of the fear of COVID. Will COVID actually end the trajectory of the growth that we’ve had for 200 years in all cities? It’s unlikely.
My thing about this is that if you look back into the 19th century, the stench of animal [inaudible 00:04:30] and smoke from industrial buildings basically took the wealthy out of the CBD. But what happened? We ended up with a planning of densification, and we started to live vertically in the cities. For me, I just can’t see that at any point in the future that we’re going to decentralize. It would be absolutely awesome if we did, but it’s unlikely.
Adrian Franklin (04:50):
Fascinating start. Let’s get into a topic we haven’t touched too much on, but I reckon this will be interesting to our viewers. So often, of course, we talk about residential properties. I wanted to ask you today about commercial property. Firstly, what are your thoughts on investing in commercial property?
Ian Ugarte (05:07):
For me, I always prefer residential or actually a mix of residential and commercial, which we’ll talk about, but especially in recent times, we’ve seen commercial landlords facing long-term vacancy rates due to the COVID trouble, retenanting, trying to find people to move back in. And that highlights the main risk for me in commercial property. There’s not that many people waiting out the front door to rent your property if someone else moves out.
Residential market, completely different. It’s strong. It’s gone strength of strength, because there are a number of people needing somewhere to rent and there’s a shortage of housing. But if people want to explore commercial property, then they really need to be a sophisticated investor and understand the strategy. Because on the surface while an eight to 10% return on your money may sound appealing, there’s also many risks that are involved in commercial, as opposed to a residential that most people are just not aware of, Adrian.
Adrian Franklin (05:57):
Let’s have a look at these risks then, because this is what people talk about with commercial property. What do people [inaudible 00:06:02] if they are considering investing in this space?
Ian Ugarte (06:07):
Well, the first thing you’ve got to be aware of is that you’re going to have a higher deposit. In a residential property, you can have a deposit of 20%, 10%, 5%. Even right now, single parents can get a 2% deposit to be able to buy their own residential property. But in commercial, you need a minimum of 30%, sometimes 40%, sometimes 50%, which means that you’re really chewing up a lot of cash on equity into one deal, which means you’re not diversifying and getting into other deals and spreading your risk.
Also, the value of your commercial property is based on the lease that it holds. Effectively, the length of the lease and the value of the lease is what determines the commercial’s properties value. As opposed to residential, it goes up with the market or stagnates or maybe drops a little bit. The commercial property will be based on what your tenant pays you.
Whether it be a shopfront or a factory or a retail outlet, whether it’s a medical suite, you’re always going to have some sort of difficulty to find a tenant if someone moves out. The amount of people that are looking for your particular place is not huge. You could end up going from an 8% return to a 0% return very quickly, and money starts to disappear out of your bank account when you have to pay the cost upfront when you’ve got no income coming in.
Adrian Franklin (07:25):
Let’s talk about commercial leases. You say that the value of the property is really tied up in the type of lease that it has. But if someone buys a property that’s already leased for say the next three to five years or beyond, isn’t that a good investment?
Ian Ugarte (07:40):
Well, so someone that buys a property with a five-year leasing tax still means that they’ll be purchasing check cash flow right now. It’s a good thing that you’ve got future cash flow. The downside is that if the tenant three, four, five years out moves out and doesn’t take up the second option or a third option, then your back to square one with zero income.
In a residential property, though, if you can’t find a tenant, you can drop your rate and eventually someone will come into it, because there’s a lot of people looking for rentals. With commercial properties, they are very specific. You have to attract exactly the right type of tenant for your style of commercial property. And again, what you’re doing is limiting your options.
Adrian Franklin (08:18):
I mean, that’s a lot of downside there, so let’s see if there’s anything on the other side. What are the upsides exactly?
Ian Ugarte (08:25):
Well, one of the big advantages of commercial property is that unlike residential, a commercial property has all of the outgoings paid by the tenant. In a residential property, as a landlord, you have to pay for insurances. You have to pay for the agent’s commission. You have to pay for your rates, water rates, electrical. Utilities, all of that sort of stuff. But in a commercial property, the lease will say most of the time that all of the costs that are incurred on the property are picked up by the actual tenant.
The landlord, when they’re actually getting their income, the only thing they need to take away from that income is the cost that they pay their managing agent to look after it. With commercial property, there are a huge ways that you can increase the value of the property if you know what you’re doing and you’re a sophisticated investor.
So as an example, if I could buy a property that’s commercial under market rent and I can increase the lease value and I can then actually start to look at a better option for the whole area and it’s increasing in what they call a cap rate or the return on that property, you can sometimes make on paper overnight millions of dollars if you buy the right type of property.
So if I was to buy a million dollar property, you may be able to get a hundred or $200,000 uplift if you knew how to increase rent, how to buy well, and work your way down to maybe even strata titling within that building. So again, you do need to be a sophisticated investor and know what numbers are and how you work those numbers.
Adrian Franklin (09:55):
Just finally, if someone does want to take the plunge and get into commercial property, what advice would you offer given all the cautions that you’ve outlined today?
Ian Ugarte (10:05):
As always, I always say mentor, mentor, mentor. A good mentor will drive your mental because they will probably stop and block 90% of your deals all the way along. Find someone who specializes in commercial and knows that and invest in it and has done all the mistakes, because the smartest thing in the world is to learn from someone else’s mistakes rather than you making them yourself.
To me, it’s fraught with danger that people that go off and start investing into different styles of properties and find out how difficult it is and sometimes lose hundreds and thousands of dollars. For me, I think a mentor is the way to go. If you want to find out how expensive a mentor is, try not using one because eventually you’ll become unstuck. This is certainly not a game for beginners.
You don’t want to be going into a property without the knowledge and base or the support of someone nearby you. Always know your numbers, be sophisticated in what you’re doing, and use a mentor to help you out.
Adrian Franklin (11:03):
Very good. All right. Let’s have a look at the top five reasons and points that you want to take through just to wrap us up there.
Ian Ugarte (11:11):
Understand the risk. We probably should do something on risk pretty soon, because you might be low, medium or high risk and that’s going to be pertained to what type of property you’re going to go to. Make sure you save a big deposit if you’re going to be buying commercial. Because as far as deposits are concerned, you’re going to need a minimum of 30%. long leases don’t equal long returns. You’ve just got to be very careful on the lease, how it’s written, whether it’s got CPI increases into the lease.
Always get a lawyer to look at that. Look at adding value wherever you can, and that means can you increase rent or can you rent out other spaces within the dwelling or the commercial property that you’re buying. And as always, have a good mentor that knows their stuff, that’s been in the game for a long time. As always, Adrian, the cheat sheet is at smallisthenewbig.com.au/tickerhome. And as always, it’s so awesome being with you.
Adrian Franklin (12:05):
Absolutely. That was one of your best episodes. I reckon we’ve had some very good episodes, but I really like that. Fid you feel good about that one?
Ian Ugarte (12:12):
It felt pretty good. It wasn’t bad at all actually.
Adrian Franklin (12:14):
No, you smash it every single week.
Ian Ugarte (12:16):
For you too, That comedy thing this week and it turned out quite good. A few people laughed.
Adrian Franklin (12:22):
Really? Just three people laughed or just no, no?
Ian Ugarte (12:27):
Yeah, no, the whole crowd, including the people I invited and other people as well. And I did get my mother’s accent into it for you as well.
Adrian Franklin (12:34):
Of course, you did. You’re a funny man. We love you here at Ticker News. Great stuff. We’ll see you again very, very soon. Okay?
Ian Ugarte (12:41):
Adrian Franklin (12:42):
Of course, Ticker Home presented by our great partners that Small is the New Big who are on a mission to create one million affordable homes in the next 10 years and help Aussies struggling with housing stress. Learn more at smallisthenewbig.com.au.
EPISODE 21: HOW A MILLENNIAL COUPLE MADE THEIR INVESTMENTS WORK FOR THEM
Adrian Franklin (00:00):
Hey, there. Welcome to Ticker Home where each week, we will dive into the latest trends on the property market and answer the questions that you need to know and I need to know. It’s great as always to have my co-host, number one man, Ian Ugarte, Co-Founder of Small is the New Big.
Adrian Franklin (00:19):
Ian Ugarte (00:21):
Hey, Adrian. How are you? Hope you had a good weekend.
Adrian Franklin (00:24):
Had a great weekend. Tell us what are you looking forward to getting stuck into today, exactly.
Ian Ugarte (00:31):
Today, we’re going to be talking about millennials getting into the marketplace and the housing market. I’m bringing along two of my stars. They are absolutely killing it, and they’re amazing, so it’s going to be really interesting today.
Adrian Franklin (00:43):
Special guests coming right up. Ticker Home presented by our great partners at Small is the New Big, and we’re on a mission to create 1 million affordable homes in the next 10 years and help Aussies struggling with that housing stress. To learn more, head to sitnbdev.wpengine.com.
Adrian Franklin (00:58):
All right, let’s get into what is trending. Where would you like to start?
Ian Ugarte (01:01):
An article based around nearly ⅔ of all millennials surveyed regret actually buying their home. Now, it’s an interesting thing, considering the market moving in the way that it’s moving. But the reason behind that is because they found themselves in a cutthroat situation, creating higher price points by chewing up all the cash to get into the deal by making higher offers.
Ian Ugarte (01:24):
One person in particular went in. They had about 30,000 left over to be able to renovate the property and found herself trying to fix issues and maintenance that they didn’t pick up in the building report and upselling the property at a loss which is beyond me. She’s clearly not watching Ticker Home with you and I, and so they’re talking about this being a bigger issue into the problem, into the future, and hopefully, that we can fix the housing market so that this doesn’t become a problem and that millennials can buy a property like they did in the 40s and 50s, 60s and still be able to afford to live the rest of their life.
Adrian Franklin (02:03):
That would be a good thing.
Adrian Franklin (02:04):
There’s also a report out recently talking about millennials may never beat baby boomer home-owning records. What’s the report saying exactly. Do I want to hear this?
Ian Ugarte (02:16):
Look, no, you’re not going to want to hear it, but we’re here now, Adrian, so let’s just do it.
Adrian Franklin (02:21):
Ian Ugarte (02:21):
In 2021, New South Wales Intergenerational Report, their suggestions that… it goes out, all the way out to 2061 and what’s going to be happening with population. Effectively, what the property should… this is by the treasurer, Dominic Perrottet says this report shows very clearly that this average age for a millennial to get into the property market is much higher than it was for boomers.
Ian Ugarte (02:43):
Basically, if you were born between ’42 and ’51, 60% of baby boomers owned properties. Currently, anyone born between 1982 to 1991, only 45% of you are actually owning property. So hopefully, by 2061, we have a equilibrium where it becomes the baby boomer situation again, Adrian.
Adrian Franklin (03:04):
Let’s get into our main conversation. Ian, of course, you’ve talked a lot about the importance of millennials educating themselves on how the property market works and how they can use the manufactured growth strategies that you teach to build a decent property portfolio. But still, many people wonder how it’s all done exactly.
Adrian Franklin (03:19):
Today, you’re joined by a young couple who thought they were doing the right thing with their portfolio, but who’d actually made some pretty common mistakes. On the back of the education you gave them, they turned their property portfolio around, and they liked the concept so much, they asked you for jobs. Now that is some dedication.
Adrian Franklin (03:35):
Can you tell us why you brought Joel and Bianca along with us today?
Ian Ugarte (03:41):
So Joel and Bianca, power couple. They haven’t always worked for me. As you said, they asked for a job. They basically went the Remington Model. Now I’m sure, Adrian, you’ve got no idea what the Remington Model is, but I [crosstalk 00:03:51]…
Adrian Franklin (03:51):
I do not. I do not.
Ian Ugarte (03:54):
… they were so engaged with. So the Remington Model [inaudible 00:03:55] so impressed, I bought the company. So they came and joined the company. They’re walking, talking examples of exactly what we’re all about, really hungry for education, making sure they get to the next level and sell. They were hungry. And what they did in the last few years is just amazing. And it consistently gets me emotional to know that these guys are just living the dream, right?
Ian Ugarte (04:18):
So tell us, the property portfolio, what it looked like when you first came in, and what does that look like now?
Sure. So I guess we’ve always had… when we first started, it was just sort of the buy-and-hold sort of scenario. We were waiting for capital growth, negatively geared, so it was hurting us. We were working our asses off to pay those properties off and then something changed for us. I’ve always had a [inaudible 00:04:45]. I’ve always liked property, and I thought, well, I wanted to do it full time, so we decided to get educated and found you, Ian.
Ian Ugarte (04:57):
… maybe the way we were doing things wasn’t the way we should be, and maybe there was more information out there, and the more we started to find Ian’s model just made complete sense to us. Rather than us working for the properties, how about getting those properties to work for us?
Adrian Franklin (05:12):
So let’s talk more about that and particularly, the biggest difference, Joel, that you learned from Ian, and how did you apply this strategy to your portfolio?
Sure. So, like I said earlier, we were negatively gearing, and you don’t know what you don’t know until you realize that you didn’t know it. So a lot of people don’t realize that negative gearing… it’s not a good thing. It keeps you in a job. And if you don’t like your job, you’re going to become very unhappy. The government bangs on about this and for people our age, I don’t think that negatively gearing their property portfolio is the way to go.
Ian Ugarte (05:54):
Talk about one of the latest deals you’ve done.
Sure. So originally, we started off… when we joined you, we did a couple of renovations and conversions and then obviously, you grow as you progress. And one of the latest ones we’ve now moved into development. We just bought a little cheap block of land. However, it was in a good zoning, so there was a lot of due diligence that went around that which we learned from your teachings. And then we built a duplex, and we also stacked couple other strategies on there. We ended up strata titling them.
The project overall cost is about 700k, valued at 900k. That allowed us to pull a million, majority of our cash back out of the deal, and it actually gives us about 40k a year of income after all costs. That’s after mortgage repayments, insurance, everything.
Ian Ugarte (06:44):
So this is exactly, Adrian, what we’ve been talking about. You take a home for the last few months. They got into a property. They’ve got it up into value and got it to a better place. And then because of that, they’re now at a place where they can say, “Well, I can then go on and do the next deal, and I’ve got cash flow,” so [inaudible 00:07:02] tell everyone about where you’re living currently right now and what that deal is going to look like.
Sure. So one of the properties that we actually already owned before we got educated, once we understood a lot more about property, we realized that it had a lot more potential than we first thought. So through educating ourselves, we were actually able to come up with a strategy that allows us to turn one title into three. So this project, it’s taken us a few years of planning.
Ian Ugarte (07:32):
It’s quite a big project, but what it’s done for us, and it’s just about to come into fruition. The end result will be that we’ll have an uplift of over about a million dollars in equity, and we’ll be getting paid to live in our own home at the end of it. So essentially, we’ll have our mortgage repayments paid for, and we’ll get paid to live in our own house.
Ian Ugarte (07:51):
How about that, Adrian? You want one of those?
Adrian Franklin (07:53):
I do. I do actually want one of those.
Adrian Franklin (07:55):
So there’s nothing like having other people pay your mortgage, of course, but you guys say there’s extra money left over on top of all the mortgage repayments once all the rent has been paid. So that must make life, especially in these times, feel a lot more secure.
Adrian Franklin (08:09):
So what advice would you have to other young couples who may be watching this thinking they’d like to do something similar?
I guess we don’t want other couples thinking like us at the start where you sort of have to buy and hold and wait, waiting for capital growth and if that’s the way to build a property portfolio. It’s really going to take a long time, and it’s quite risky, something as well keeps you stuck in a job, as Joel talked about earlier. We’ve all just seen through COVID that our job, even when we think we’re quite secure, aren’t secure. So having mortgage repayments that are reliant on your job is actually a pretty risky strategy, so that would be the first thing.
Another one is stacking strategies. You get yourself educated. If you learn how to stack strategies, such as renovation, subdivision, strata titling, you’ll be able to manufacture enough growth just in that one deal, usually to be able to pool your initial investment back out. So that means you can recycle your money and go again, rather than having that cash tied up in the deal.
The other one is don’t overcapitalize. You’ve got good debt. You’ve got bad debt. If you go out and get a $50,000 car loan and you go to get a loan to buy a house, that’s going to really affect you in the ability to be able to buy that house. So really just taking, getting yourself educated around what is good debt, what is bad debt, and using it to your advantage.
Absolutely. And I guess exactly like that deal that I just talked about before, your next deal doesn’t have to be the one that’s out there that you need to go and purchase. If you own a property, you might already be sitting on your next deal, and there might be an opportunity to manufacture growth in that without actually having to go and find something else because right now, the market, it’s really hot. Finding a deal is just the hard part. So looking at what you’re sitting on first and going from there.
We had a couple of those in our portfolio we’re able to do something with and get a really good outcome out of it, and we didn’t even know that they were there.
One was neutrally geared. It was doing nothing, and it hadn’t gone up in capital growth in a couple of years. Once we figured out what we could do with it and create micro-apartment, it now brings us in about $20,000 of income after all costs a year, and we already owned it.
Ian Ugarte (10:25):
And so the thing here, Adrian, is always to make sure we stop investing like our parents did. It’s a very different way of investing nowadays.
Adrian Franklin (10:32):
Absolutely. Some awesome tips.
Adrian Franklin (10:33):
So let’s go through the main tips to live rent-free and for millennials to get involved. Ian, I’ll let you roll through, and the guys can add anything just to wrap up.
Ian Ugarte (10:43):
Learn from a mentor. You can choose whoever you want, but choose me.
Ian Ugarte (10:47):
Don’t invest like your parents did.
Ian Ugarte (10:49):
Always make sure that you look for the next deal while you’re in the current one. So at the end of this deal, can I do another deal? And if the answer’s yes, go for it.
Ian Ugarte (10:57):
Make sure you positively gear your property all the time and embrace the micro-apartment/adaptable house/co-living strategy for you to be able to move forward.
Ian Ugarte (11:05):
And I just want to, again, publicly acknowledge these two here. They’re a spearhead in my company. They’re an amazing couple, and they’re living life. If I had my time again, I would re-live my life like these two are living their life right now. They are doing everything that they should do and want to do, and it’s amazing.
Adrian Franklin (11:20):
Adrian Franklin (11:20):
Did you guys want to add anything to that?
[crosstalk 00:11:21] we’ve had a good teacher.
Adrian Franklin (11:23):
We’ve had a fantastic mentor, so I think that says a lot [inaudible 00:11:30].
Definitely. It’s made life definitely a lot easier. Just so much out there to learn and really grabbing that education and using it. It’s not a silver bullet, but using it to your advantage and phoning someone like Ian, it’s going to make life a lot easier.
Adrian Franklin (11:45):
Awesome stuff. It’s so great to always have a guest or two people that have done it out in the real world. Of course, Ian has done it so many times before, but it’s great to chat with you two. And hopefully, we can talk again in the future. Thanks for your time today.
No worries. Thank you.
Ian Ugarte (11:58):
See you, Adrian.
Adrian Franklin (11:59):
Good stuff. We’ll talk again really soon. Ticker Home presented, of course, by our great partners at Small is the New Big who are on a mission to create 1 million affordable homes in the next 10 years and help Aussies struggling with housing stress. Learn more about all of this, sitnbdev.wpengine.com.
Adrian Franklin (12:14):
Catch you soon.
EPISODE 20: INVESTING IN ADAPTABLE HOUSING
Adrian Franklin (00:07):
Hey, there. Welcome back to Ticker HOME where each week we will dive into the latest trends on the property market and answer the questions that you need to know. It’s great as always to have my number one man and co-host. Ian, co-founder of Small is the New Big. Hello, sir.
Ian Ugarte (00:21):
Hi, Adrian. How are you?
Adrian Franklin (00:22):
Good. As always, what’s on the agenda today?
Ian Ugarte (00:27):
Yeah. We are going to be talking about adaptable housing today which is working with a house that can actually morph and change depending on the occupants or the people that are living as they grow, will get smaller and it’ll be interesting. I’m pretty sure that you’ll find it a lot of interest especially for you as a millennial.
Adrian Franklin (00:44):
Yeah. Absolutely. And you know a lot about this. I know that for sure so let’s get stuck into it. Ticker HOME presented by our great partners at Small is the New Big who are on a mission to create 1,000,000 affordable homes in the next 10 years and help all of us Aussies struggling with housing stress.
Adrian Franklin (00:58):
Smallisthenewbig.com.au. That’s where you can learn more each and every week. All right. Let’s get into what is trending today. Mr. Ugarte, where would you like to start?
Ian Ugarte (01:09):
Yeah. This is an article by Charis Chang in news.com.au. The Australian museum actually has an exhibition right now with the innovations and the technology that’s being produced by Australians that is just on the cusp of being released which is unusual for a museum to hold.
Ian Ugarte (01:28):
Now, one of the big things that’s coming is the hydrogen battery that’s being produced which can hold 40 kilowatts of energy which is going to be a competitor to Tesla AWOL and it will cost $34,000. You can actually pre-order it right now and you’ll be able to put it in your garage.
Ian Ugarte (01:46):
Other inventions are something that’s coming right now is a microalgaes. Microalgae actually produces 50% of all oxygen in the world and they are producing a household garbage microalgae plastic-eating machiney thingy thing that will produce up to a hectare of equivalent oxygen that trees would produce.
Ian Ugarte (02:08):
That’s pretty amazing. Australian already has invented an EV charger for electric cars which is not in Australia so they’re just about to put it into Australia but it’s an Australian venture that went overseas and there’s now these flexible solar strip that has incredible power that’s going out there.
Ian Ugarte (02:24):
Now, the reason I bring this up today is obviously if you’ve got an adaptable house and you want to be sustainable, this is the sort of stuff that can make a big difference to your energy efficiency running but also your sale costs when you go to sell a property if it’s low cost to be able to run the property.
Adrian Franklin (02:40):
Yeah. It makes a lot of sense. That’s where the future is heading of course. All right. Next up in what’s trending. It’s all about transcending the gimmick of the tiny house. Tell us more.
Ian Ugarte (02:51):
Yeah. This has paid us to sell our [Harney 00:02:52] in architecture.com. I am not an advocate of tiny homes per se because I don’t think they’re the greatest outcome in the world for the majority of demographic.
Ian Ugarte (03:04):
Although they are a good opportunity for people to live at a lower cost price point, the problems with the tiny houses in Australia is that you can’t legally tow something like a big caravan which is what they are onto a block of land and putting it there so a Minima was produced and this is produced between a Sydney architectural company, Trius and built by Prefab on the Central Coast of New South Wales.
Ian Ugarte (03:28):
They’ve produced a 21 square… Made a tiny home which is on skids which will make the national construction code and can be put on blocks of land everywhere throughout Australia. They’re not that cheap and actually tiny houses and small modular buildings are not actually cost competitive to standard stick builds, although the flexibility of being able to drop them into the backyards is where it comes to.
Ian Ugarte (03:51):
The Grattan Institute showed that the quickest way to double the density in Australia is to simply put a small dwelling on the back of every property that we’ve got and then that way we can start to fix a housing problem but the modular design seems to be the right path but we just haven’t got there. Modular design is like a teenager pretending to be a grown-up. It’s just not quite there yet.
Adrian Franklin (04:15):
Very good. Hey, let’s talk about the Sydney market in particular and the potential or idea of downsizing. What’s this one about?
Ian Ugarte (04:24):
Yeah. People are not downsizing for a number of different reasons. We’ve got families where they realize that their child that’s left home is quite likely to come home because paying rent and saving money to buy a home for millennials is really difficult so the parents aren’t selling the houses and on top of that, the parents also want those houses there for their grandchildren to come in and start living with them on one night, two night a week so they can enjoy their grandparent to grandkid relationship.
Ian Ugarte (04:52):
To our targeted domain, the com.au is basically said that it’s the reason that people aren’t going smaller. That there’s no benefit or incentive to downsize and go to a smaller property which means there’s less properties on the market and [Agent Claire Murphy 00:05:06] has basically said that people are living into their seventies and eighties and selling in their seventies and eighties rather than when they’re 50 or 60 or close to retirement so this becomes a bigger problem in community because there’s no larger houses for people to buy.
Adrian Franklin (05:21):
Let’s get into the main conversation today which is talking about adaptable housing which you know a lot about. First of all, what is adaptable housing and why is it such a passion of yours?
Ian Ugarte (05:33):
Yeah. it’s a big passion of mine because I see adaptable housing as the way of the future to fix the housing problem we’ve got in Australia and see a property built adaptively will have a lifetime of change so as the family changes or the market changes, the house can be used in different ways.
Ian Ugarte (05:50):
It can grow, it can reduce, it can change its formation, it can create genuine community connection. That’s what happens when you start to do this and we have fallen into a trap of Australia of building the standard four bedroom, two bathroom house and in that four bedroom house, we’ve only got 2.5 people and there should be five people in that house but unfortunately like at that last article I just talked about, there’s only two people in every house so we need to make a better change and make sure that this adaptable house starts to have a very decent dent in the property market so that we can actually get affordability down to where it needs to be.
Adrian Franklin (06:27):
Okay. So you’re saying that the average house is built for four plus people but only two and a half people live in each one so that doesn’t really make too much sense. You’re not suggesting at the moment that people just rent out a room. It’s not as simple as that. There’s a bit more sophistication in terms of your solution. Tell us more about this.
Ian Ugarte (06:47):
… ting out their home to Bob. He’s a smoker at the back. It’s not what we talk about. We certainly just say we want people to be strategic about how they do housing. Now when we’re talking strategic, we’re talking about mom and dad investing, stepping up and showing the government that housing can be provided with some really great sophisticated results without their input whatsoever.
Ian Ugarte (07:12):
That’s why I’m so passionate that this problem is fixable by moms and dads who already own properties around the country or want to invest into the future and so the home is where the heart is and it’s a place for feeling safe and welcomed and if we can create those spaces, produce convenient spaces that grow and shrink on any given day, month or year, then not only can we create the affordable housing that fits the need of the community but it can also create happy people and ultimately, what do we want?
Ian Ugarte (07:41):
We don’t want people to be feel isolated. We want people to be part of community and that’s the best part of what we do. Our strategic approach does exactly what we are talking about and that is creating happiness because happiness is within community.
Adrian Franklin (07:54):
Oh, I like that. I like those words. Happiness, community. That works for me. You talk about using one house seven different ways. What are these seven different ways to use the same house?
Ian Ugarte (08:05):
Yeah. Let’s look at a standard family home like we’ve got here on the screen, all right? It can be used as a first-time owner where they’ve got… The two young couple lives in the studio. They rent out two other areas of the house. They have one child so they move and they still went out two areas at their house.
Ian Ugarte (08:23):
They then have a second child and they decide that they’ll still rent two areas but they’ll take the bigger part of the house. They have three children. They take up most of the house. You’ve got a house in granny flat situation and then of course they’ve got four children like me. Four daughters and they take the whole house.
Ian Ugarte (08:37):
As each daughter leaves… Fingers crossed, they then go back and they start reversing their way to a point where they end up with two children then back to one child and then they end up back living in the studio while they rent out the other components of the house so they’ve effectively started as first-time buyer all the way through to the end.
Ian Ugarte (08:59):
You’ve got a family home with first-time owners then a secondary dwelling which is a granny flat attached. There’s multi-generational family uses. We got the siblings that can live with their friends or with their partners, we got co-living share houses, we’ve got disability housing because these properties are built with disability in them and then what we call the up-lifers or the downsizers is what others call them. They have this beautiful ability to adapt a house into a multiple of different ways.
Adrian Franklin (09:24):
What are some of the benefits of thinking about housing in this way? It’s a different way to think about it. We’re looking to the future. What are the benefits?
Ian Ugarte (09:32):
Yeah. Look, in Australia we’re known to be able to flip houses or basically move from one house to another every six to seven years so when you have one house that you’re going to live in for the next 40, 50, 60 years, there’s no internet cost, there’s no stamp duty to be paid, no agents to be paid so there’s a financial outcome about that but for me, I’m passionate about the circle of life and the circle of life is what I just discussed.
Ian Ugarte (09:54):
Move into a property when you’re young, be able to create that property, create a family home, create some financial outcomes, paying down your mortgage as quickly and then getting to the point where you’re an older couple where you’re still renting out property but you’re still part of the community, you know your neighbors, you know where all the shopping centers are, you know that you’re going to be safe if you have a fall that there are other people in the house that are in different areas and not interacting totally with you but they’re there to help you out.
Ian Ugarte (10:20):
This builds community and genuine community connection because you get this number of different people starting to interact in ways that we did in the ’60s and ’70s and that now stops again the isolation and disconnection from being part of what they should be and what they have been for the last 60, 70 years as an older couple.
Adrian Franklin (10:39):
Love it. Love it. Love it. Let’s talk about where people can start. If someone wants to turn their house into an adaptable house, I’m assuming there’s planning permits, builders needed. All that sort of thing. If someone wants to do this, where can they start?
Ian Ugarte (10:51):
Look. It may sound really cumbersome to be able to go through and get an approval for one of these but it’s not that hard. It’s simply finding the right policies and knowing where those policies are and how to create the application process.
Ian Ugarte (11:07):
Most of the stuff that we do around the country for adaptable housing is based on policies that don’t require a council application. What we do is we go to a private certifier or a building surveyor and we give them the exact same documentation we would give to the council but they’re not ready to argue with us because they’re working on our behalf.
Ian Ugarte (11:25):
They checking off making sure everything’s okay and then once they’re okay with it, they then just go to the council and say, “Hey, I just approved this on behalf of Ian and his business or for the people out there thinking about doing exactly the same thing.”
Ian Ugarte (11:40):
With me, I look at it and I say, “Okay. What’s the next step? Once you’ve got your approval, you need your a-team to get in and out. Now, as you know Adrian, my a-team is incredible. We get in and out of a property, we turn a four bedroom, two bathroom house into a five bedroom, five bathroom, five kitchen that’s set up, that’s fully adaptable within four weeks.
Ian Ugarte (12:00):
We start on a Monday and by Friday of the fourth week, it’s furnished, photographed and ready to be rented and that’s what you need on your side. A really great team to help you get from beginning to end without any hassles whatsoever.
Adrian Franklin (12:11):
The a-team. Absolutely true. Let’s look at the key points you’ve made. We’re talking about adaptable housing. Run us through just to wrap up here.
Ian Ugarte (12:20):
Yeah. Think of your home as an investment vehicle because when you buy your first home, it has to be paying off its debt so you’ve got to do the best out from that by making sure the finances work as well.
Ian Ugarte (12:30):
Consider using space differently. Make that a house adaptable. Think beyond flatmates. Think about families, think about multi-generational homes, disability and more.
Ian Ugarte (12:40):
Use your house to build community and by just creating the adaptable house, you’re already creating that and think about the various different stages of life that you have gone through and your parents have gone through and where you’re going to go to in the future. Can your house adapt to that? As always, if you want the cheat sheet for this week’s segment, sitnbdev.wpengine.com/tickerhome.
Adrian Franklin (13:01):
Yeah. We’re going to spread the word. Community and happiness. You talked about that and that tugs at my heartstrings as well. Great to have a chat. We’ll talk again next week. Good stuff, mate.
Ian Ugarte (13:11):
Thanks, Adrian. See you next week.
Adrian Franklin (13:12):
Ticker HOME presented by our partners. They are great partners. That Small is the New Big who are on a mission to grow 1,000,000 affordable homes in the next 10 years and help Aussies struggling with their housing stress. Learn more at sitnbdev.wpengine.com. Catch you soon.
EPISODE 19: PLAYING IT SAFE WITH INSURANCE
Adrian Franklin (00:09):
Hey there. Welcome to ticker HOME, where each week we will dive into the latest trends on the property market and answer the questions you need to know. It’s great as always to have my number one man, co-hosting Ian Ugarte, co-founder of Small Is The New Big. Hello, sir how are you?
Ian Ugarte (00:23):
Good. How are you Adrian?
Adrian Franklin (00:25):
Going well, what are you looking forward to talking about today exactly?
Ian Ugarte (00:29):
Today, we’re going to talk about insurances and insuree beware because we don’t like insurance companies, they find ways of not paying out. That’s how they make their money. And so hopefully we can help out with that today.
Adrian Franklin (00:40):
That is absolutely, hopefully you’ve got some stories ready to go for us. Ticker HOME presented by our partners at Small Is The New Big who are on a mission to create 1 million affordable homes in the next 10 years and help Aussies struggling with housing stress learn more at sitnbdev.wpengine.com. All right, let’s get into it, what is trending. Where would you like to start, Mr. Ugarte?
Ian Ugarte (01:02):
Yeah, we’ve got this one from this article from insurance.com.au it’s about a couple who have an island destination so they own a property on an island, which is on short-stay. Now they made a claim against IAG for $17,000 of lost income during COVID because of all the cancellations. IAG said, “No we’re not going to pay you. We’ll give you a $1000 because we’re a nice company.” They then took that to the Australian Financial Claims Authority and the AFCA basically said, “Sorry the insurances companys right. You’re actually not protected. The wording is quite clear and ambiguous.” So I don’t know how that works. The argument of the couple was that because they had been paid out previously for the fires that had gone through the island, that they should be paid out for this time as well. But essentially the insurers didn’t lose out on this one and the AFCA backed them.
Adrian Franklin (01:51):
So I’ve heard of a few insurance nightmares, but I’m not sure about this one, a mouse plague not covered by home insurance. This wasn’t your place was it?
Ian Ugarte (02:01):
No, it wasn’t. This is Queensland, New South Wales has been hit by a rodent plague out in the country, regional areas. So insurers certainly won’t cover, well there’s not many of them that will cover insurance against rodent damage. So it certainly won’t cover the crop damage that’s been happening out there and farmers are going bankrupt because of it. So they found in this article by Gary Hunter on finder.com that only one in five insurers actually covered some sort of rodent damage. Now, usually it was the rodent damage because of what happens afterwards. So a rodent eats through a wire, a wire then creates a fire and then you’re covered. But actual damage is said to be that you’re not actually maintaining the premises. At the end of the article, it says, “Watch out to Sydney because the rodents could be on their way.” These rodents, mice, can actually be pregnant at six weeks old and they can have 10 newborns every 20 days so that’s where we’re at right now. So be careful Sydney, those mice are going to join the rats down there.
Adrian Franklin (03:04):
Goodness me. And of course we know that our CBD areas have been hit pretty hard over the past 12 months or so, but now there’s government backing a CBD revitalization. What’s this one?
Ian Ugarte (03:16):
Yeah Scott Morrison, this is Bianca Dabu in Smart Property investment has basically said, “We need to get back into the cities. COVIDs happened, we’ve got it under control. So can we get people back into the CBD and working again?” And so he’s asking for a standard rule that says we can do that because what’s happened since COVID is that there’s a lot of businesses that have started to operate under overseas policies based on workplace, because everyone’s working from home and Scott Morrison doesn’t want to see that.
Ian Ugarte (03:44):
So working in a CBD has many outcomes, there are the retailers that benefit from it, obviously. And there’s a lot of other business type relations that start to happen in there. Brisbane has introduced the Friday in the City, so they’re trying to get people back into the city and working in the city on Fridays. Melbourne has Fab Fridays so that people come in there. Canberra and Hobart were the least effectors, they’ve got the highest occupancy rate for commercial premises at the moment in the CBD at 84% and 82%, respectively. Sydney and Melbourne have come up in the recent months to 59% and 41% respectively.
Ian Ugarte (04:20):
And it is rising. And as I said weeks and weeks ago and months ago that we would see a return to the marketplace and CBD people working in there, and it is starting to happen Adrian.
Adrian Franklin (04:30):
That is some good news, we all need that. Let’s talk about insurance companies. We love to hate them at times and sometimes it’s with good reason, especially when we see the weather episodes like fires, floods, and all that sort of thing. And we hear of people who are affected, not getting the payout or support from their insurance companies that they thought they would. So in some cases it’s understandable, but Ian, when it comes to buying a property, you stress that insurance is an absolute must. Why is this?
Ian Ugarte (04:57):
Yeah. I mean self-insuring, you can do that if you want, but the whole point of self-insuring is that you have to have the ability of having $400, $500 million worth of money lying around, just so that you can replace an asset that has been lost. So you may not like insurance, but they are a necessary evil to have. And so you have a level of risk that says, “Well how much insurance do I have? Do I have any, and should I be fully insured?” I think you should be fully insured because not being insured is foolish. And the ridiculous thing about insurance is its something that we have to pay, something we don’t want to claim against on the safety that we’re going to have to pay money and not claim on it. And so it’s sort of a double-edged sword, have it and be in trouble, not have it and then what do you do if something happens?
Adrian Franklin (05:44):
So what types of insurance do homeowners actually need? And does it differ from an owner occupier to a landlord?
Ian Ugarte (05:53):
Yeah owner occupiers you certainly want your standard home and contents insurance. So basically the building itself, if something happens to it is protected by insurance and then the contents inside it, if they get damaged, lost, or it gets spared in a fire that you’ve got that replacement. But if it’s a rental property you will need a couple more insurances. So one is landlord insurance. So that landlord insurance will include rent loss. It can also prevent against flood and damage to the buildings as well for a landlord. You also want public liability for anyone getting hurt on the property. Now you should always have public liability on every property, whether you own it or not. And the really big one here is to ask your insurance company, “Am I protected against an uninvited guest?” And they will say, “Yeah, you are,” but you want that in writing or you want to be able to see it in your product disclosure statement in your PDS.
Ian Ugarte (06:46):
There has been examples around the world, and especially in Australia, where someone has come onto the property unannounced and uninvited like a thief, hurt themselves and then been able to sue the owners of the property because they’ve cut their wrists or done something like that. And you might think it’s bizarre, but it’s out there and it does happen. So always make sure you’re protected with uninvited guests on the property.
Adrian Franklin (07:06):
And often we talk about the need to prepare and have everything in place before we buy a property and understand how it all works. So what are the key things a landlord needs to have in place in terms of their insurance requirements for their investment property?
Ian Ugarte (07:22):
I think the key thing here Adrian is that we talk about an insurance broker. We generally nowadays go out and we find a mortgage broker that represents us on our behalf to get the best deal for our situation. But unlike in mortgage broking, people go out and get insurances, they might ring AAMI or IAG or anyone, and I’m not endorsing any products by the way, but they only have one company that they’re dealing with. Whereas an insurance broker will sit down with you, they’ll work out exactly what you need, what cover you need for your situation and the best cover for your area. Sometimes regionally is different insurer to someone that you’ll have metropolitan. Now, the beauty with having a broker on your side is that they’re actually there to back you.
Ian Ugarte (08:04):
Now we’ve had a few insurance claims, like we hadn’t had insurance claims for years and years and years and all of a sudden we got hit with a roof that blew off. We had damage from flood storms and a few other bits and pieces. Now that insurer basically came back to us and said, “Oh, we’re not insuring for this. And we’re not insuring for that. We’re not paying out on the claim.” Our mortgage broker went in and backed us and said, “No here’s what it says, heres what we’re insured against, you’re saying no, we’re saying yes.” And they fought for us and won those cases so that we could get our insurance paid out. It’s the best advice that I could recommend to anyone. If you’re going to get insurance get a broker on your side, because they’ll pick the best and most adaptable product for your situation.
Adrian Franklin (08:45):
So when renting out a property, what things are not covered by the average insurance policy that landlords should be made aware of?
Ian Ugarte (08:54):
Yeah. The biggest one at the moment is rent default. So rent default is when you protect yourself as a landlord from your tenants when they stop paying rent. Now when COVID hit, they did pay out a little bit of money but they then did what they called an embargo. They basically said across the board, there is no insurance company in the world that currently is going to give you insurance for rent default because of the situation, the pandemic that we’re in. So they pulled up stumps.
Ian Ugarte (09:23):
Now there are a few starting to come back into the market with a few little isolated, little asterix and disclaimers, but they are coming back. Floods another thing that becomes difficult to rent. Now you can insure floods, but depending on the level of the flood that happens on your property or marked on your property, you will have very much higher premiums than anyone else so sometimes in that case, you might say, “Well it’s just not worth the extra money or the premium that I have to pay on that.” And as I said, earlier in the articles about rodents and pests and infestations, they’re also going to be difficult to insure against.
Adrian Franklin (09:59):
So if you think you have all of the right insurances in place, everything’s covered, what are some things that can potentially put claims that are made at risk?
Ian Ugarte (10:09):
Yeah, the biggest thing is not having kept good records. You want a real estate agent that makes sure that they’ve got a full entry report when the tenants move in. They also have to have inspections that happen every six weeks to three months or six months, depending on the agent and they’re recorded and documented as well. And then an exit report as well. If you don’t have all of those documentations put in place and saved somewhere, when you make a claim, the insurance company will ask for all of that detail and if you don’t have it, you’ve now actually gone against your PDS and you’re no longer insured.
Ian Ugarte (10:47):
Now we have a classic case that we talk about a lot where a owner didn’t have a good agent. One of the tenants started creating a lot of damage, he started pulling wiring out of walls and creating malicious damage, the owner went in to see what was going on. The owner then got assaulted and ended up in hospital, while he was in hospital the police removed the tenant and the tenant went back and then burnt the property. And all of the documentation needed to be in place for that person to be able to claim those insurances. Now, thankfully they rebuilt the house and had a few different outcomes from that, but that’s a really severe case where it can happen and you just got to make sure you’ve got all the paperwork put in place.
Adrian Franklin (11:30):
Wow. You do have stories to tell don’t you? That was a remarkable one. Hopefully everyone’s safe after that. Hey, you’ve made some great points. Let’s tick through all the key points, just to wrap up here.
Ian Ugarte (11:41):
As with anything in life document everything you can possibly do because if you’ve got that, then you’ve got some safety and security if anything happens in the future. Shop around, get your insurance broker to shop around for the best out there for your situation. Make sure you maintain your property in good order. If you let it lag down in its maintenance, then you may not be able to claim insurances. Make sure you get regular inspections by your agents and getting good reports and photographed and videoed if possible. And remember again to consult your broker for every situation, especially when you need their help to back you. As always, our cheat sheet is on sitnbdev.wpengine.com/tickerhome.
Adrian Franklin (12:23):
You’re the best in the business for a reason. Mr. Ugarte great stuff from you. Of course, insurance is a painful one so it’s very helpful to have all of those tips. We’ll talk to you again next week. Thanks for your time.
Ian Ugarte (12:34):
Adrian Franklin (12:35):
Ticker HOME as always presented by our great partners at Small Is The New Big who are on a mission to create 1 million affordable homes in the next 10 years and help Aussies struggling with housing stress, learn more at sitnbdev.wpengine.com.
EPISODE 18: HOW TO BUY SMARTER
Adrian Franklin (00:09): Hey there. Welcome back to another episode of Ticker Home, where each week we’ll dive into the latest trends on the property market and answer the questions you need to know. It’s great as always to have my cohost, Ian Ugarte, co-founder of Small is the New Big, and we have another special guest. Ian, I might get you to introduce Scott there. You’re sitting next to him.
Ian Ugarte (00:27): Yeah, this is Scott. A mate of mine who’s a key negotiator on property, helps people out. He’s from Hello Haus and he’s been helping me out as well.
Adrian Franklin (00:35): Scott, great to see you again. How are you today, mate?
Scott Aggett (00:38): I’m very well, thanks. Thanks for having me again.
Adrian Franklin (00:40) Yeah, of course. So we’ll get into a conversation in just a moment, but Ian, firstly, what are you most looking forward to touching on today, exactly?
Ian Ugarte (00:50):
Yeah, look negotiation and how you can get the best out of the property pricing right now and how Scott can help you out as well.
Adrian Franklin (00:58):
Awesome work. We’ll get to that in just a moment. Ticker Home, of course, presented by our partners at Small is the New Big, who are on a mission to create 1 million affordable homes in the next 10 years and help Aussies struggling with housing stress. And it can be stressful as we know. Learn more at sitnbdev.wpengine.com. All right, Ian, what have you got for us in terms of what is trending? Where would you like to start today?
Ian Ugarte (01:21) Yeah, Michael [Uganda 00:01:22], ABC Business. He has a study here from Core Logic for the results for the last year. 2% actually rise in a national pricing across the properties in Australia for one month. 10% across its COVID. Sydney’s 3% rise and 9.3 for the last quarter. The regional centers for the yearly is doing the best. You’ve got Darwin at 20.3%, Hobart 16.5 and Canberra at 15.6. So there’s 97% of all government areas in Australia had a rise in the last month though, that goes to show how strong the property market is right now. And that’s a demand and supply thing. There’s 160,000 buyers out there and only 120,000 listings. So first time owners are getting pushed out of the marketplace. So you’re likely to see APRA stepping in very soon and making changes to lending to stop the investors pushing the first home owners out. There’s actually time to think about fixing off on your loans. Canstar has got a loan, showing a loan at 1.7, 9% fixed. That’s ridiculous. So it’s about paying down your debt now because interest rates will be going up.
Adrian Franklin (02:28): Yeah, so it’s a fascinating conversation. I mean, it’s concerning for you, Ian, isn’t it at the moment in terms of those first home buyers, potential buyers being priced out of the market?
Ian Ugarte (02:39): Yeah. I mean ultimately as a child, I had the ability to understand and see that I could get into the marketplace, but I just can’t see that without the help from me, my children can actually save enough money to be able to buy in because of the rent they have to pay, and the market getting pushed in upwards direction and we really need to fix it.
Adrian Franklin (02:57):
Scott, maybe just your thoughts? Obviously you’re working very closely in the market there as well. How concerned are you at the moment that it’s just so tough for so many people to get involved?
Scott Aggett (03:07):
It’s definitely an affordability issue and I’m seeing some buyers just tap out, Adrian, just call it stumps. And say, “I’m just going to sit on the sidelines.” Because it’s just gone beyond that point that they can justify the prices that are being achieved. So it’s definitely a concern for some. And then others are just looking at it saying compared to their parents’ generation or even their elder siblings, just the rate at which you’ve got to pay back the mortgage and you’ve got to earn is just out of whack. I think that the multiple is now more than 10 in Sydney.
Adrian Franklin (03:36) Yeah, 16 I think it is now.
Scott Aggett (03:38): Wow. It’s way beyond where I even thought. Anyway I haven’t stopped and looked at it, but yeah, it’s just getting out of control really in terms of affordability.
Adrian Franklin (03:44): So let’s get into the main conversation today, which is hopefully helping people out in some ways. And Scott, maybe I’ll start with you in terms of Hello Haus and just tell a little bit about the work that you’re doing and why you’re doing this at the moment.
Scott Aggett (03:58): Sure. Well, I left being a leading Estate Agent in Sydney for over two decades and set up a business to help the 98% of Australian buyers that currently go it solo. So they don’t represent themselves with a buyer’s agent and believe that they’ve got the ability to out negotiate the agent and save themselves money. So I step into their shoes, people who’ve got the ability to find their own home, and then I work with them to effectively out negotiate the agent and save them money. And that’s been working really well for me nationwide since I set the business up about two years ago.
Adrian Franklin (04:25): And Ian, we’ll go across to you. You’ve always said that buyers are heavily emotionally invested in finding and securing in the right home, of course, and this means they can be vulnerable. So why are they so vulnerable? And how do you think Scott can help with the work that he’s doing and make it a bit easier for them?
Ian Ugarte (04:42) Yeah. I mean buyers just want to secure a property and they’ve got their heart set on it, essentially wanting to pay whatever they can to get into the market. And Real Estate Agents know that that’s a deck that’s stacked in favor of the Real Estate Agent. So they just go out and know that they can draw on those emotions. And so it’s a classic buyer mistake to put your emotion out on the line. And so that’s why I wanted to bring Scott in, to explain that there’s another way. So Scott, what’s your number one tip for buyers when it comes to evening out the playing field and negotiating a better price for the property that they want?
Scott Aggett (05:16): Well, I think the key thing is being a really good listener and asking them lots of really well thought through questions to try and establish what the motivations are for the seller and establish what buyer competition you’ve got. So if you can do those things, you’ll be able to piece together a negotiation strategy that you can come back and feed back to the agent, and really put together a deal that makes sense for the seller and gives you the best opportunity to close it at the right price.
Adrian Franklin (05:39): And Scott, what are some of the key questions that you recommend a buyer to ask the Agent, exactly?
Scott Aggett (05:48) Some of the questions I think are really crucial is that a lot of buyers just completely avoid asking you is, first of all, what will buy the property? So a lot of Agents will simply just will tell me that answer if I ask the question. And it just simplifies the whole negotiation process. So first of all I ask is, “What will buy the property, if there’s a number today?” The other questions that you want to build your negotiation strategy around is understanding the motivations for the vendor to sell. So what’s the ideal timeframe for them to sell? What settlement period they’re looking for? Will they accept a 5% deposit or has it got to be a 10% deposit? Can you make your offer subject to a building and pest inspection or strata inspection report?
Scott Aggett (06:25): So just to understand what you can and can’t get away with, and then understand the timeframe that the Agent is going to give you to make that offer. And at the end of the day, how much competition you’ve got. So another key one that I always ask is, “How many, not how many offers you’ve had rejected?” I should say, I ask, “What is the top offer that you’ve had rejected?” To see if the agent will expose where the other interest is and then understand how many other buyers are going to make an offer in a set timeframe. So you can really work out how long you’ve got to position yourself to get through your due diligence and make the right offer out.
Adrian Franklin (06:57) Ian, have you ever tried some of Scott’s techniques in all the properties that you’ve purchased and tell us about some of the results you’ve seen.
Ian Ugarte (07:06) Yeah. As you’re in the property industry, I’ve been here for 30 years and you develop these techniques normally just through experience. And so I actually use Scott myself now, now that I know it exists, it just takes a lot of the stress and the complications out of having to do it. And I just know I can lay it in his hands. So when it comes to experience though, I’ve bought many, many properties and had the experience of going backwards and forwards, but no one has the experience that I know of that Scott has, for many different reasons. Do you want to talk about that?
Scott Aggett (07:35): Yeah. I think just being in that hot seat as an Agent for over two decades, you’re part of a ton of deals. As a selling principal and owner of the business, I was probably overseeing 25 sales a month, but each agent, each property that you’re transacting is dealing with multiple negotiations in every transaction. So sometimes you’re dealing with 10, 20 different buyers that are trying to buy a home. So there’s little negotiations going on right across the board there. So just that weight of experience over a long time. When I first got into the industry, I was working in one of the major franchise group’s head office. I was seeing 20, 30, 50 auctions a week. So just watching the dialogue used, watching people’s emotions, what cards they play at certain points. And then of course I’ve gone off on my own journey.
Scott Aggett (08:16): So as Ian said, I’m negotiating for a lot of people. Just on the weekend alone, Adrian, I had nine negotiations going on on Saturday afternoon. So I’m in that game and in that space more than I think most people and I’m in a unique position where I’m negotiating across the country. So I’ve got a really good feel and a finger on the pulse in terms of what’s happening in different capital cities at any given time. And I think that’s an advantage to me as well, to understand where the market’s going.
Ian Ugarte (08:38): And what about these techniques? You know, everyone have these … They read books and they say go into auctions and go into buy and purchase and all of that sort of stuff. Do you need these special techniques or do you just need to be simple?
Scott Aggett (08:52):
I think you just need to have the deepest pockets and your hand up last is the honest truth for the auctions. That’s how I coach all my clients. You’ve just got to be there at the end with the most amount of money. And you’ve got to see value better than you’re higher than everyone else that you’re competing against. But look, there’s certain little things that you can do to, I guess, try and out muscle people that are emotional at auctions. But the real key danger at an auction, if you go down that path is getting caught bidding against yourself as the market’s changing. And that affordability that we talked about at the start, you’re getting to a position now where buyers see value at X and vendors may be stuck at Y.
Scott Aggett (09:22) : And that creates this imbalance where you’ve got Agents in the center that get you into that pressure cooker scenario of an auction. And then once they exhaust the bidding, they want you to bid against yourself to meet the vendor’s expectations so they can get the deal closed. And that’s a real danger zone for me and where I’m trying to coach buyers to stay strong. If you’re in that top position as the highest bidder, the agent wanted that public auction. Don’t bid against yourself, turn the pressure back over to the vendor to get them to make a decision and try and land it at the right price.
Adrian Franklin (09:50) : And Scott, when it comes to buying a property, is your preferred way of buying via the Agent direct or through an auction?
Scott Aggett (09:56): Adrian, it’s always through the Agent direct if you can do it. But it depends on what stage of the marketing campaign you get it at. So typically, in the main capital cities we sell via auction. If you can get to the property in the first week or even pre auction is the ideal scenario, then you’d want to try and stop the auction and control the negotiations as best you can using different techniques. But if it does get to week three of the auction campaign, it is very difficult to try and stop the auction, especially in this market where there’s a lot of competition. So if you have to go into that auction scenario, then we can talk about different tools and techniques to control that and not bid against yourself. But yeah to answer your question, ideally, stop it first in that first week, and make sure you don’t over pay for it, and you’re not emotionally involved as well. You can control that as best as you can.
Adrian Franklin (10:42) : And Ian, what about you? Some top tips for negotiating a better deal? What have you got in mind?
Ian Ugarte (10:49) : So for me, you think about learning to negotiate. Where are you positioned? So the more questions you ask, the better off that you are going to be because you know the situation of yourself and the vendors, and the agent as well, outsource as much as you can. And if possible, don’t get emotional. If you talk about a pendulum, if you make decisions at a positive or a negative effect, you’re going to have a bad decision. Always make a neutral emotional decision when it comes to property and be able to walk away. I use a technique that mate of mine, Steve says, do the walk away. At that point in time, you’re going to work out whether you’re really wanting the property or whether they want you to buy it.
Adrian Franklin (11:34) : That works for you, Scott?
Scott Aggett (11:37): Yeah, absolutely. I do a little trick actually on that point. On that last one of saying to someone, let’s say for example, that you think it’s going to go for a million dollars at auction. I’ll say, “Okay, well look at 1,000,010, will you be gutted that you missed it? Mm, no. Okay. At 1,000,020, would you be gutted if you missed it?” And I just keep going through that process. And then they’ll say at some point, “Nup. At that stage, I’m ready to let it go.” And I say, “Okay, well, that’s that emotional test that you’ve got to run yourself through each time and you’ll work out where that number is. And then that’s your line in the sand.” So you’ve got absolute confidence that if it goes beyond that, whether it’s an auction or if you’re just negotiating privately with the Agent, you can just have confidence to walk away and say, “Do you know what? It’s gone beyond where I see value and I’m comfortable.” So that is a good little tip.
Ian Ugarte (12:15): And I would say that if you are working with Scott, just lay all your cards on the table. Don’t get to auction day and say, “That I’m willing to spend nine 30, but really actually really spending nine 50.” He needs to know that so that he can help you.
Scott Aggett (12:28): Absolutely.
Adrian Franklin (12:29) : Yeah, of course.
Scott Aggett (12:30) : And that’s the problem that I get, is people set me a certain price and then I have to build a negotiation strategy around it. And then they get emotionally involved and they want to put more on the table because they perceive they have to, to buy it. And then I lose all face with the Agent when I’m negotiating. So yeah, really clear parameters. And if you’re going to do it, do it yourself and go out solo, you need to set those rules.
Adrian Franklin (12:47): Yeah, absolutely. Yeah. Well, the emotion can just come into it. So putting the work in and the effort and understanding where the point is beforehand is crucial, as you mentioned. Hey Scott, thanks so much for your time. Where can we learn more and reach out to you if people want to learn a bit more?
Scott Aggett (13:03): Pleasure. Thanks for having me again. So it’s Hello Haus, the German spelling, haus.co All the details are on there, including my guide to the buying process and things for people that want to go it solo. Thanks for your time.
Adrian Franklin (13:14): Awesome work. Keep us up to date. And Mr. Ugarte, always a pleasure. Have a great day and we’ll have to get some more guests. You enjoy sitting next to a guest and just interviewing them there, don’t ya?
Ian Ugarte (13:24): I do. It gets a bit lonely in here, especially when I can’t get down to Melbourne.
Adrian Franklin (13:28) : Yeah, exactly. Hopefully fingers crossed this Thursday or Friday, we get some good news. Guys, thanks for your time. We’ll talk again really soon, okay?
Ian Ugarte (13:35): Thanks Adrian.
Scott Aggett (13:36): Thank you.
Adrian Franklin (13:36): Awesome work. Ticker Home presented by our great partners at Small is the New Big who are on a mission to create 1 million affordable homes in the next 10 years and help Aussies struggling with housing stress. Learn more at the simple, but very effective website. Smallisthenewbig.com.au
EPISODE 17: 3 WAYS TO BREAK INTO PROPERTY
Adrian Franklin: Hey there. Welcome to Ticket Home where each week we will dive into the latest trends on the property market and answer the questions that you need to know. It’s great as always to start my Monday with my co-host Ian Ugarte, co-founder of Small is the New Big. Hello, mate. How was your weekend?
Ian Ugarte: Good. It was pretty awesome. Thank you.
Adrian Franklin: Awesome. Why so awesome? Every weekend you have is awesome. You’ve just got [00:00:30] a knack for it.
Ian Ugarte: Yeah. Look, do you really want to know? I did a comedy course on the weekend. I’m doing some standup comedy now so to make you laugh. So I thought I might…
Adrian Franklin: That is awesome. Well, tell me a little bit more about that, come on. Briefly, but what have you got?
Ian Ugarte: Yeah, look, I’ve done a little bit of standup comedy in the past, and I just want to get a bit more structure around it and want to have a crack again.
Adrian Franklin: I love it. You just throw yourself into life and you do those things. That is very, very cool. You got to try and make [00:01:00] me laugh. I mean you do every week, whether it’s intentional or not, who knows, but that’s your job again for today. Anyway, Ticket Home presented by our partners at Small is the New Big who are on a mission to create 1 million affordable homes in the next 10 years and help Aussies struggling with housing stress learn more at sitnbdev.wpengine.com. Alright, Ian, what have you got for us today? What’s trending?
Ian Ugarte: We’ve got an article in domain.com.au from Tawar Razaghi. [00:01:30] House prices are growing quicker than wages. Basically we’re seeing unemployment rates drop. We are down to 5.5%, which is pretty good, but wage growth is increasing only a little bit. So we’ve got a 0.6% increase in wage growth for March. We’re 1.5% wage growth for the year, but we’ve got an 8% growth in properties just in the last quarter. We’ve got a 15 to 20% growth over, most of the majors this year are going to happen in property and Brisbane is sitting at 30% year on year. So the government’s stuck in this hard place about what do we make decisions around, trying to [00:02:00] get rid of incentives and tax incentives, or first home owner grant and lose our voters, or do they do something else? And as you know, for me, my very general opinion is that’s the [inaudible 00:02:11] of supply and demand, and that’s what dictates property prices.
Adrian Franklin: So property prices are going through the roof as you’ve just touched on. How does it affect renting? What are we seeing with the rental market at the moment?
Ian Ugarte: Yeah, this is firsthand experience in the Guardian from the journalist Selena Rivera herself in the last [00:02:30] four years has had to swap properties four times because the landlords come in and decided to put a granny flat in the backyard or subdivide or do something different. So she now keeps her eye on the front door, basically waiting for the landlord to knock. She doesn’t unpack her boxes anymore. Basically there’s boxes unpacked, and cardboard boxes she keeps. She doesn’t even hang paintings anymore. And hoping that in the four week notice that she get that she’ll be able to find a property within the school zone that our kids go to or close to the childcare center. Such a competitive market now. There’s only three [00:03:00] properties available across the whole of Australia that are affordable according to the affordability index. It’s absolutely crazy.
Adrian Franklin: That is absolutely crazy. Just finally, in terms of what’s trending this week, there’s a warning for novice investors out there.
Ian Ugarte: Yeah. Core logic has shown some research. This is in mortgagebusiness.com.au. Sarah Simpkins showing 13% growth in regional areas versus 4.6% growth for the metropolitan area. So there’s a few buyer’s agents out there saying, be careful [00:03:30] if you’re a first time investor and you’re looking at that 13% growth, and you’re going to go invest regionally that you may get surprised that it won’t grow as quick as Metro from this point forward. Obviously COVID hit, people moved out of the cities into the regional areas, and there’s a likeliness that a lot of people are going to move back into the city in the next one to two years. So just go in with eyes wide open and make sure you’re ready to educated on what you’re doing.
Adrian Franklin: Alright, great stuff from you. No jokes yet, but that’s okay. They will come. Let’s get into our main conversation today. We’re going to talk more about the ways that people can get [00:04:00] into the property market. Now, Ian, you say there are three main ways people can start their journey, the DIY, the DWY, and the DFY what are these acronyms, these terms mean, exactly?
Ian Ugarte: Yeah. These acronyms do-it-yourself. DIY is where you go out and you make the decisions based on what you know, and sometimes on what you don’t know. Then we’ve got the DWI. So do-it-with-you. That’s where you’ve got a mentor that stands alongside you, helps you through the process, and then [00:04:30] the done-for-you. That is where you basically say I haven’t got the time. I’ve got the resources. Here’s the resources. Can you as an advocate, go out and do it all for me. There’s advantages and disadvantages to all of them, Adrian.
Adrian Franklin: So let’s take a closer look at each of these, the pros and cons. Let’s start with the way most people do things, the DIY model. So what are some of the benefits and pitfalls of doing it all yourself when it comes to property investing?
Ian Ugarte: Yeah. Do-it-yourself, I’m not a fan of for a beginner. So because [00:05:00] do-it-yourself, it’s going to take you time and it’s going to give you conflicting advice. And then it’s going to take your time and then not knowing where to start. And it’s going to take your time and then it’s going to take your stress. And then it’s going to take your time. So for me, there’s an underestimation of time and knowledge required to get into property. Like I’ve said to you before, you wouldn’t go to a GP to go and get some neurosurgery. You want to go to a specialist and people are not specialists in property purchasing, so they shouldn’t be going in with no information at all. In some cases, I see [00:05:30] people coming to me and saying, “The taxi driver told me to buy in this area.” It’s absolutely crazy. So I want people to go out and educate themselves. And we’ve got all the former ticket segments.
Do you remember The Warm Spot, which was one of the first segments that we did? They’re all on our website. So everything in property takes time and you’ll be doing this on top of your day job. So do it yourself will cost you more in errors and money. And again, the time that it takes is underestimated when it comes to do it yourself.
Adrian Franklin: So as you say, DIY may sound appealing [00:06:00] because of the perceived cost savings. It doesn’t sound like it’s a fast strategy though, for getting into the market. So let’s talk now about the second strategy, which is done-with-you. What are the major benefits of this strategy?
Ian Ugarte: Yeah. The done-with-you is saving you against yourself and making the mistakes yourself. So the reason you can save yourself is because you’ll have a mentor like myself, standing alongside you that has been there before, that’s made the mistakes and won’t get it all wrong. And that mentor knows when you’re about to make the wrong [00:06:30] mistake and they’re lowering your risk. So you’ve got them on your side, by doing that you’ll get it right. It makes less mistakes and you learn the process so that you can work towards do-it-yourself. And then you’ve got low risk confidence. This is a classic apprentice and master relationship. It’s like Mr. Miyagi and Daniel-san wax off, wax on in The Karate Kid. That transfer of information been there, done that and then that the experience comes through.
Adrian Franklin: So in the final way of getting [00:07:00] into the property market is the full enchilada. The done-for-you model. This is obviously perceived as the most expensive option, but you say the upfront investment in this service can actually save thousands in the long run. So what are some of the benefits to this way of getting into property?
Ian Ugarte: Yeah, the done-for-you model is essentially saying, “I don’t really have the time and I don’t have the experience, so I want someone to do it all for me.” All right. So go out, find me a property, make sure it’s got [00:07:30] the ability to do what can be done so that I can not only lift my equity, but I can also get a cash flow. So that at some point in time, I may be able to retire and not actually have to work again because the income coming from property have served me correctly. So most done-for-you services are buyer’s agents and not all of them are created equal. Okay? There’s a conflict of interest as a buyer’s agent that I see at times where they get paid by finding you anything. In our buyer’s agency, we have to find people properties that [00:08:00] will give them a 10% return or else we’re not doing our job.
So for me, when you’re shopping around for buyer’s agents and you ask them about making sure that we’ve got a manufactured growth strategy and they stare you blankly in the eye, it’s time to move on from those ones, because they don’t understand what you need. They have to understand all the strategies like the subdivision and strata titling, and renovation, and all of the bit and pieces we’ve talked about in the past and we’ll talk about in the future. But the most important point here is that a good buyer’s agent [00:08:30] provides a done-for-you service that has relationship with selling agents. And so when a property comes up in an area, that selling agent knows that I am a buyer for other clients, and they will come to me and say, “Ian, it’s going to go on the market next week. Do you want to have a look at it? And this is the asking price, or they want around this much.” That allows us to be able to go in and negotiate on behalf of our client and get the price to a reasonable rate. And at the moment, it’s one of the hardest things to do. Buying a property once it hits realestate. [00:09:00] com is incredibly difficult. All buyer’s agents that are good get their buyers before. And then you can save tens and thousands of dollars for a smaller amount of fee. It’s a great way to be able to move forward.
Adrian Franklin: And finally, what do you recommend someone with little or no property experience should do first when deciding between these three options of getting into the market? Where do we start?
Ian Ugarte: Yeah. Have a strategy and plan
and to fit the plan going [00:09:30] on without a plan will end with tears. And I’ve got a mate of mine that’ll be coming on in the next few weeks, and he has a saying that says, “Start with the end and end with the start.” So think about one year, three years, five years ahead, and from that start to work backwards to where a point today, and then that way you will be able to understand the plan that you’ve drawn out will actually work.
Adrian Franklin: So in the long run, and we can tick through those final steps there, it’s all worth it. Getting more advice, having a strategy, [00:10:00] putting in effort in all of these areas in the long run, when it comes to properties, it’s all worth it, right?
Ian Ugarte: Yeah, absolutely. I’ll talk about our business if that’s okay.
Adrian Franklin: Of course.
Ian Ugarte: We’ve got a number of different clients, a number of different situations. So we had a farmer that sold their farm, kept all their machinery. So they still have a little bit of income when they crop for other people, but they needed income because their main farm income is gone. So they just came to us and said, “Look, we’ve got cash. We want to buy something. We need to get cashflow.” [00:10:30] We bought them something about a year and a half ago for $550,000. They spend a total of $700,000 to do the uplift, manufactured growth strategy. And with that, they’re getting $50,000 of income on one property because there’s no loan on it. You know, we’ve got other people that are saying, “Well, actually I want to get out of work in the next three to five years” where we’ve purchased a property for $670,000, and it’s now worth $800,000, and it’s got cashflow. These are the things that people have to come to someone like myself and say, “This is [00:11:00] what I want to achieve in the next three to five years.” And from that, we can then help that plan happen and get it into action.
Adrian Franklin: Nicely done. Hey, great to chat as always. No jokes from you. It was a bit more of a serious one, but that’s fine. You can always feel the humor just bubbling behind. So you’ve got to keep us up to date with what the standup comedy routine is going to be going forward. Okay?
Ian Ugarte: No worries. I might even get a 15 minute stint on this line, eh?
Adrian Franklin: Yes. We could have a show. We could make a show. We’ll talk to you again about it soon, Ian. Thanks for your time. [00:11:30] We’ll talk soon. Okay. Ticket Home presented by our great partners at Small is the New Big, and they’re on a mission to create 1 million affordable homes in the next 10 years and help Aussies struggling with housing stress. It can be stressful. Smallisthenewbig.com.au. Check it out right now.
Click below to download the Ticker HOME Cheat SheetDOWNLOAD NOW
Free Live Training Webinar
Get a jump start on your positive cash flow property portfolio, and learn more about the co-living micro-apartment strategy with our Free 2 hour webinar & Q&A session. Click below to register for the next session.