Beginner’s Journey With Michael Routh (Ep299)
Michael Routh is starting his journey to become a property investor. We talk about what got him to this point and what his investment plans are.
Ryan here from onproperty.com.au, helping you find positive cash flow property and today we have a very special interview. Something that I am going to call Beginner’s Journey with a guy called Michael Routh, who has been a longtime customer and reader of mine. We have emailed back and forth awhile and he has really an interesting life traveling the world and also considering and looking at investing in property.
So I thought it would be great to have him on to hear a bit about his story, what he is doing and hopefully we can track this over time and maybe get him back here in a year or so and see how things are going.
—- start of interview —-
Ryan: Hey Michael! Thanks for coming on today.
Michael: My pleasure. How are you doing?
Ryan: Good. Let us start. To help people, what you have been doing – because you have been traveling a lot spending time in Tokyo and all these other places. What do you do and why are you all over the world?
Michael: I started teaching in Australia for 2 years and I have always been a bit of a traveler. My mum took me out to Canada when I was 8 years old. Went to school there for a year and I just always had traveling in my blood I guess. And I was just thinking how I could keep doing it with work.
I looked in the teaching overseas and found these International Schools. They are just like normal schools in Australia except obviously, the kids that go there tend to be from parents who have gone overseas for a job and they cannot speak the local language like Japanese for example.
So they go to these international schools where it is all English language. But it is a normal school. So I have been doing that for the last 10 years.
Ryan: So whereabouts have you been teaching? Is there one country in particular or in a lot of different ones?
Michael: I started in Singapore which was great. It was close to home and it was an easy place to live and a good first experience. So I did 3 years in Singapore and then I got a little bit bored so I thought I would go for something a bit more challenging and so I went to Egypt for the next 3 years which was about as challenging and as different as you can get.
Ryan: What is so challenging about Egypt?
Michael: Singapore was English language based, safe, and clean and easy to live. You get a maid and you get a swimming pool and great cruisy living. And Egypt, every day it was different. You never really knew what was happening and there was always something going on and when I was there, the revolution kicked off and I lived through that.
It was just a lot more challenging. The language was challenging, Arabic is very difficult. I had an amazing time but it was a lot more challenging than the ease of life in Sydney or Singapore.
Ryan: Yeah. We have a pretty easy life here in Australia so I can imagine, and living through the revolution that happened. I do not actually know a lot about that.
I do remember when the government shut down the internet in Egypt and then Twitter worked out and Google worked out a way that people could call in to tweet and bypass the government. Did that happen when you were there?
Michael: Yeah. It was about 10 days, no phones, no internet. Mum was sitting there watching the news on and looking at things getting blown up and all that and no contact for 10 days. I was a little worried but got through it.
Ryan: What was it like for you being in that area? Was that like a war zone or was it just like there was no internet and you just went about your daily life anyway?
Michael: Yeah. It always looks worse on tv like they always focus on the epicenter of where it was all going down and clearly I did not go in any of that. So no, it was just not knowing really. Not knowing how serious it was or who was involved or what could happen or what might happen.
Like Syria for example, it was a lot worse for everybody but the Egyptian – it was more about their problem with the government. It did not have anything to do with foreigners or expats. It did not affect us directly. So we just flunk it down and had 10 days off school and just watched from a distance. It was pretty amazing.
Ryan: So after Egypt, then where did you go?
Michael: I was back in Asia, back in Japan now for the last 3 years in Osaka. Asia in general is just such a good place. I mean the food and the people, the proximity to Australia, it just ticks a lot of boxes and the packages tend to be consistently good as well, some packages in maybe Africa or South America or Central America, they hit-miss so Asia is just pretty reliable.
Ryan: By packages do you mean how much you are getting paid to do your job?
Michael: Yeah plus the flights and the tax and lots of stuff and just the whole thing put together, rentals. It just seems to be the best all-around package.
Ryan: So let us just cross to property because obviously you have been working overseas for the last 10 years and not spending the majority of your time in Australia. What got you interested in investing in property and particularly in Australia if you are living overseas why not pursue investing overseas? How did you get started on, Okay I’m interested in investing in Australia?
Michael: Well, looking at my bank account one day, it was a bit … I was working when I was 15, I was pushing my way and started early on but I never really had any real focus or any real set long-term goals, I just earned it, spent it.
I really did not think too much. I am young enough. I am still young, then hit university and came out at 20 with a loan and no money. Had a great time but did not really think too much about it. And then working and getting things set up and established. All of a sudden I was in my mid-thirties and going ****.
Where is all that time and where is all that money going? It was one of those first times that I really thought about the future which was obviously better late than never but so now I am just really determined to make up for those 10 years of not really thinking much about money and not really doing much about it.
I figured that property just seemed to be the least risky and more of a process that you can continue instead of all these other ideas, businesses or shares or whatever. Because teaching, it takes your time so I just wanted to do something I could get into without having to be in it every day like shares for example.
Ryan: Yeah. That is one of the things like I have said before, the share market kind of just goes over my head in terms of understanding how to manage and how to really make money from it.
I understand you could just invest in a company and just leave it but in terms of these people who are doing day trading, working on the foreign exchange and trading currencies and stuff, that stuff just sounds like too much work to me.
And I like the idea of property as well because it is a large capital investment but then it is more passive of an investment strategy than investing in shares and trying to change them every single day and stuff like that. If you are investing in good property then it can go up in value.
For me, I can kind of see towards where I want to achieve financially, I can understand that property would get me there whereas with shares I do not really know how that would work so I am kind of in the same boat as you are. It just seems easier.
Michael: Seems like once you do one, you do not have to change with the system or change with the year or change what is happening. It does not really matter. It is just the same principles. Obviously, the first one is the hardest and then you just repeat and it just snowballs. It seems to be the one avenue that seems you know where it is going and it seems trusted.
Ryan: Yeah, totally. And so you do not own any property at the moment, do you?
Michael: No, I own one about 6 years ago. It was just – I did not have a clue what I was doing. I did no research. I did no due diligence. I did not understand property at all. I had no mentoring, nothing. So I just went, Yep! I’ll buy that and great. It was okay but it was just I did not understand the process so I bought off the plan.
It went up a little bit. It was in Brisbane. Now, it is probably doing okay but back 10 years ago it was not so good. I just got rid of it and start fresh like to do it properly after the second time around.
Ryan: Yeah. Even the statistics that I have seen about Brisbane is that houses are growing. But in terms of units they are not growing as much because there is more supply coming into the Brisbane market in terms of units, things being built. So I do not know if it would have done well or not.
Obviously, it is easier to look back in hindsight and say I should have done things differently but at least you have had a stab and you have some experience under your belt. What do you think it would be, your strategy moving forward and what are you aiming towards? What is your end goal?
Michael: I am thinking I will be working probably 15 to 20 more years. Obviously, less the better. But 15 years, that is looking with my situation as it is at the moment.
I can probably buy 1 property a year for the next 15 years so ideally, the goal is, if the minimum would be 1 property if not more and basically retire on the passive income and replace my income. Yeah, the mixture of positive cash flow and neutrally or negatively geared just to bounce the portfolio.
Ryan: Yeah. And so the end goal would be financial freedom through the rental that is coming in basically.
Michael: Yeah. That is the plan.
Ryan: Everyone starts with one plan and then as things progress, you can obviously change your plan over time. Like say, you did buy one every single year. At the end of 15 years, maybe you have passive income enough coming in to retire. Maybe you have to sell a couple to pay down debt.
That is one of the things I like about property as well, over time you do get the flexibility to change your strategies. I was even talking to my friend Ben Everingham who is a buyer’s agent and he was talking about his existing portfolio. He owns a bunch of different properties and he is financially free.
But there are still opportunities in those properties to kind of increase return of investment there and so I do kind of like that. So what makes you think like 1 property a year for 15 years?
Michael: Based on my current situation, what I can afford to save a deposit. I mean obviously, the cost of the properties at the moment, my borrowing power is around $260,000 so that takes away a lot of the capital city options but there is always the strong regional centres that I am looking at, for the first few anyway until equity increases in those properties each year and I can get into the stronger markets in capital cities later on. But the first one, just go from there.
Ryan: And how does borrowing work for you if you are earning the majority of your income overseas? Do banks in Australia recognize that? And can you get a loan? Or is it really difficult?
Michael: Yeah. No, not at all difficult as I thought it was going to be. It is the same process. They need to see your savings. They need to see your credit files. And they need to see 3 months of your pay slips from your overseas job and it is in Japanese Yen and all that but you just get translated to Australian dollars.
There is some formula that they use. They estimate the amount that they recognize. Maybe it is a little less than a normal – audio out — That has not been an issue.
Ryan: Okay. Sweet. So did you have to go through a mortgage broker to find out all of these? Or did you just go to a bank?
Michael: Yeah, I went through a mortgage broker and she gave me the information I need and it was just a matter of – I think it was more depends on the way you are buying and how much you are buying for and the fact is that in those areas you are more likely to not get back from buying a property that they think is a risk instead of the actual fundamentals of my own finances.
Ryan: Okay. So that is good for people who are overseas and are thinking about they want to invest in property in Australia. Obviously because you are an Australian and you have an Australian citizenship, an Australian passport will make it easier.
If someone was overseas listening to this and they were Japanese or they were something else, I imagine the situation would be very different. But because you are an Australian, it is much easier for you. Do you need to lodge like a tax return in Australia? Or because you are overseas you just do it over there?
Michael: Yes, that is right. I paid like local taxes in Japan. I am a non-resident for a tax purposes so as far as the ATO (Australian Taxation Office) is concerned.
But when I started buying property and when I did have property then I see that I would need to lodge a tax return to do with the property. But as far as my salary goes, I am considered a non-resident. But as an Australian, I have the rights to get property as you said.
Ryan: Yeah. That is cool. You said you are talking about looking at regional areas to invest in first. What kind of drew you to those areas?
Michael: You. Basically. When I look back into it, started looking I was just shocked at how – because I really have not followed the market since I sold the one in Brisbane years ago.
And I did not really looked at it since and I just got turned off and all and went back in and I said, Wow. Everything is $500,000, $600,000, $700,000 and today the median price in Sydney is a million which is just, for a humble teacher is obviously out of my control.
Ryan: Yeah. I just had friends who bought like a 3-bedroom shack basically in Sydney and I think they paid like $1.3 million for it.
Michael: That is crazy. It is crazy. So you know, obviously it is not good so I started looking at some of the properties that popped up on your site. One of those were $150,000, $250,000, that is sort of in regional areas and so it was like I can afford that. So basically I started looking at those and that is where it is at.
Ryan: That is where we are at at the moment. There have been a few people I know that have actually invested in regional areas. There is a guy who did my course on finding positive cash flow properties.
His name is Nathan Callis, who is a footy player. He invested in Armidale, which is a regional center. There is another guy, his name is Nathan as well. I cannot remember his last name. I interviewed him last month and he started and invested in a whole bunch of properties in regional areas or country towns spending like less than a hundred grand on each property, bought them all site unseen and he did pretty well as well.
And he had some capital growth out of them. Like a lot of people say that regional areas do not get as much capital growth as the capital cities but for a lot people they have actually experienced capital growth in those areas. I guess you have to pick your areas.
So let us talk about the mentorship program that you have decided to join. What made you choose like a coaching program and what made you go with the one that you decided on?
Michael: Yeah. The first time around I did not know what I was doing and what do you do? You listen to people. You get help now or you google everything. It takes forever. I wanted to do it properly this time and long term. It is a little bit expensive but I would rather learn it properly the first time.
There is this old saying, you know, of the teach me how to fish kind of thing. You can pay a buyer’s agent $10,000 commission to go and buy your property or you can pay an amount to… — audio out — You do not have to do it yourself so I want to do it properly and commit to it so I joined this property company … — audio out — It has been great.. — audio out —
Ryan: You are cutting out a bit there. What did you say? Something about the first few months?
Michael: — audio out —
Ryan: You are cutting out. I cannot hear you. What I might do, I might hang up and give you a call back and we will just do a voice call for the last bit.
Ryan: You are cutting out and I cannot hear and I think it is because the internet is trying too hard to send the video.
Michael: Oh okay. Yup.
Ryan: I will call you back in a second.
Ryan: Hi! It is clearer now. So let us go back. With the mentorship program, what have you been learning? What have they taught you that you think has been valuable?
Michael: Yeah, like this first thing is getting all your financials in order like checking your credit file, getting all that set up and ready to go and — audio out — I thought that I was only able to purchase, you know I was looking originally really cheap say the $100,000, $110,000, $120,000, something like that. But with this buying power and taking all these different factors and basically it put me up to $260,000 which I was surprised about. And in each one you get depending on how much you get rent, you get rent for each property. If that increases your next buying power for your next investment so it is always changing and increasing. Basically I was given more access than I thought I would have had due to my situation.
Ryan: So I am guessing that you probably need to invest in positive cash flow properties to start with in order to increase your borrowing capacity. Is that right?
Michael: Yeah, that is right. Like for example, I can buy for say $460,000 but I do not have the deposit for that. So with the $260,000 plus the new rent coming in then that will increase it again and yes, so the first few would be positive cash flow to bump up that buying power but yes, I think that comes down to the deposit as well. So it does not matter what my buying power is if I cannot afford to buy, that power does not really matter, right?
Ryan: Yeah, totally. Do you think you will expand your portfolio just based off equity or you are planning to continue to save up deposits to reinvest?
Michael: Well, yeah. Both – audio out — and the budgeting. The budget was another thing they did in detail. I was always like I spend about this much, I can bet about that much but doing a budget like basically for a month I wrote down every cent I spent in every category and looked at areas that I was spending in and how I can cut back and a few things. So that was kind of interesting because you do not really think about how much you spend on stuff that you do not really have to until you really look at it. So with the budgeting in mind I can comfortably save a deposit for a property a year but also as that is happening, the equity from the other previous properties will come into it as well. So it ends up ideally snowballing in the fact that I would be able to buy property a year from my own savings plus another property from the equity. So ideally as it gets 5 or 6 years down the track I will be able to buy 2 or 3 a year maybe and it just depends on how the growth goes in those areas.
Ryan: Well that is good that you are not relying on equity because I know a lot of people who invest and they are saying, Well, I am going to buy one and then when that grows in value then I am going to buy the second one. But like your first property purchase in Brisbane, like if you buy out of plan or if you do something wrong and it does not go up in value, a lot of people get stuck. So I think like taking control and continuing to save a deposit for your second property sounds pretty smart to me. And then I guess if you start with positive cash flow properties, you could potentially save that cash flow, that positive cash flow as well.
Michael: Yes, that is right. So the more sort of streams that keep building the better, eventually it would just snowball, how many I can get. I have set 15 as the goal but ideally the more the merrier of course.
Ryan: Yeah, of course. What about – you do not have to share it if you do not want to, but do you have a financial goal that you are aiming for? Like 15 properties sounds great but you are after a certain amount of income per year? Like for me, to be financially free I would need to earn at least $60,000 a year in passive income. Do you have a figure like that that you are shooting for?
Michael: Yeah, a $100,000. It was another part of the program, to set goals, short-term and long-term, and it was kind of hard to set goals because that sounds almost impossible. You think that is just never going to happen. But you know, — audio out — feel like that would be a comfortable, more than comfortable income to retire on and yes, also but I do not know if that is possible now but in 5 more years’ time seeing how things change and in 10 years’ time you can just continually looking back at your goals and the same with your property strategy you have to keep looking at them and.. — audio out —
Ryan: Yeah and you have to keep looking at it and changing it the way your life changes and what you need or you have a family and you have more mouths to feed or if you downsize your life and you do not need as much money. Things change. One of the cool things that I just want to share with people who are listening to this is something that I found to make property feel more achievable for me was if I set a goal of say, $100,000 per year, I would then divide that by 52 to get how much do I need to earn per week which is like $1,923, I am just doing my calculations now. And then I would then divide it by how much average weekly rent I think I would get for a property. So let us say if I get $350 a week for a property then I would need to own 5.5 properties fully paid off in order to be financially free. Obviously, assuming there would be no costs which there are. So maybe bump that up to 6 or 7 properties. But for people who are listening, I found that as a good strategy because obviously for some people, 10 properties or 15 properties is unachievable for them but for a lot of people, purchasing 5 or 6 properties and then paying them off over time could be a strategy that could get them a decent passive income as well. So I just want to encourage people with that.
Look, Michael, I think I really appreciate your coming on and sharing your story and learning about you and like your travels as a teacher. It sounds pretty fun and sounds like you have a good financial goal. Is there any advice that you would give to people who are in a similar position to you? Not necessarily that they are working overseas but they are about to get into the property market and they have similar goals to you like financial freedom?
Michael: Yeah. I just think that you can make so many mistakes and a lot of people just do not really know what they are doing. If I have my time again I would have joined this program earlier and I would have put more effort into the research and just finding out as much as you can about it before just jumping and hoping it is going to work. That was all I did. I just buy and did not know where I was going to buy. I did not know why I bought it and I did not know what the market was doing, I did not know anything. I just had the money and okay I will buy there.
So I just figured that yeah, I would do a little more research before you jump in because everyone is always excited when you buy your first property, it is like, Oh yeah! This is great! But if you do not really know what you are doing or where you are buying or why you are buying there and you do not really have a strategy or a long-term goal and you are just hoping it works instead of believing and really knowing it is going to work due to the work you put it.
Ryan: Yeah. And so what sort of research do you think people should be doing? Like we can say, Yeah, do more research but a lot of people feel stuck at that point because they are like, I do not actually know where to start or what I should be researching. Do you think there are certain things people should look into?
Michael: Obviously if you are looking at cash flow or a couple of different areas but there are these reports that are out there based on a whole bunch of different factors that they look at and you can find the previous history of growth from a whole bunch of sites but there are also features like predicted growth. If you are looking at capital growth so you can find reports that will give you predictions on growth after 5 years or 10 years. I guess using the evidences that are already out there in the past, as far as previous growth and what is happening in the current situation, you could talk to real estate agents on the ground or going into and around auctions and just get a feel of what is happening today and also looking at these predictive reports, I guess there are 3 different ways and 3 different times that give you a fairly good indication. I guess the more research that you do the more you would feel comfortable that you made the right decision, things like population growth and infrastructure and town councils and what they are doing in the area. Just anything that gives you more ticks in the boxes.
Ryan: Yeah. I think especially if you are investing in regional areas, looking at what is the population growth or decline of this area. Because obviously population is growing, more people are moving into the area, there is going to be more demand for housing. But if population is decreasing and people are leaving the area well then there are going to be houses that are sitting empty and there are more supply and less demand which affects prices. Yeah, population growth is great to look at as you said past growth history is also good to look at. There are a whole bunch of things that people can look at. I have some stuff on my site on how to research or you could join a mentorship group like you have done to learn more advanced techniques.
Well, thank you so much for sharing your journey. Hopefully we will be able to check back in like a year or 2 or something like that and see how you have gone. And I am pumped to look back on this and to say, Here is where you were and look how far you have come. I know you are a bit hesitant to do this interview because you do not have a large property portfolio but I think people are going to really resonate with this because a lot of people are in the same position and often like you do interviews with successful people and it just feels like this is unattainable. But to actually do an interview with someone who is getting ready to invest and just a normal person, I think we will really help a lot of people.
So I just want to say thanks for that.
Michael: Yeah, no problem. That is great! I will look forward to seeing where I am at in 12 months’ time as well. You are another reason for me to keep on track and keep focused and be accountable.
Ryan: Awesome! Alright, well until next time guys! Stay positive!