What Are Sophisticated Investors Doing In The Current Market?

It’s a very interesting property market at the moment and today I wanted to talk with Ben Everingham about what kind of things sophisticated investors are doing in the current market.

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0:00 – Introduction
0:37 – Why are sophisticated investors coming out of the woodwork?
3:00 – This doesn’t feel like a boom market, like Sydney 2015/16
5:30 – The conversations we are having with sophisticated investors
7:00 – What types of properties these investors are looking for
8:10 – Managing your downside risk during a time when you’re not speculating
12:14 – This is not a market to get rich quick
14:50 – What sophisticated investors are doing to take advantage of low interest rates
17:05 – Look at growth, timing AND cash flow

Transcription:

Ryan 0:00
Very interesting market at the moment with a lot of stuff happening in the Australian economy and in the Australian property market, as well as up here in Brisbane. And so say I want to start with Ben Everingham, buyer’s agent from Pumped on Property of some of the things that good and sophisticated investors are doing in the current market, as we’ve seen a lot of them kind of come out of the woodwork and start to work with us again. So today, I’m here with Ben Everingham. We’re driving around inspecting a property today and wants to talk about some of the things that good investors are doing in the current market and what sophisticated investors are doing, because a lot of them are starting to come out of the woodwork again and start to work with us again.

Ben 0:37
Yeah, it’s crazy, because over the last couple of years, a lot of the people that we’ve been hearing from and getting in contact with have been, you know, first time second time investors, but particularly since the election, we’ve noticed a huge amount of investors from around Australia and actually all the way around the world that are in between three and 10 properties have been coming out of the woodwork and starting to really look at Brisbane and southeast Queensland as their next option.

Ryan 1:02
Yeah, so what sort of things? Are they doing that, you know, kind of causing them to come out of the woodwork? And what sort of things that those investors looking for?

Ben 1:12
That’s a really good question. Man. I think one of the things that has been pulling investors out of the woodwork has been the fact that people like Karen, Todd Wyatt, have just positioned Brisbane at the very bottom of the market cycle, you know, buying at the bottom of the cycle, or the start of the recoveries, ideally, sort of where you want to be. And that’s a free report that anyone can go check out and take a look at. So there’s that message. Then in the Australian Financial Review, a couple of days ago, there was an article from big Stratton or where they were sort of suggesting that Brisbane could increase by as much as 20%. In the next two and a half years ago, I got Simon Priestley sort of coming out late last year and saying that Brisbane could do upwards of 10 plus percent. You don’t have all logic, suddenly,

Ryan 1:58
suddenly pushing Brisbane as well.

Ben 2:00
Yeah. And then you’ve got Michael McKusick saying that the Gold Coast looks like it’s just about ready for another boom, and its economy is completely diversified, compared to 10 years ago, which was very much a heavily tourist oriented economy. So I think, slowly, slowly, that positive news combined with super cheap interest rates, like in my personal position, obviously, I’ve got a few properties, I’m refinancing all of those at the moment, I’ve just moved my own home down to 3.2%. My investments, interest only down to 3.5, and 3.6%, I’ve got offset accounts are set up with all of those, you know, smart investors, like myself have just been patiently waiting, saving money, reducing their, you know, reducing their cash flow, like all their out of pocket cash flow expenses. You know, I think it’s been a couple of years where a lot of smart people have just been trimming out focus on increasing their income, getting all their ducks lined up so that they can start taking advantage of the conditions that the government’s now allowing us to have again,

Ryan 3:00
yeah. And so for me, being in this market, it feels very different to what Sydney felt like back in, you know, 2015 2016,

Ben 3:09
nothing like that.

Ryan 3:11
So that’s what I was thinking as I okay, so 2016 in Sydney, when Sydney was super hot, everyone was trying to get in, it doesn’t really feel like that

Ben 3:20
is more like Sydney, 2012. Man.

Ryan 3:22
Yeah, it’s like, the data doesn’t look like that. And it also doesn’t feel like that and talking to real estate agents, it doesn’t feel like that, you know, there’s definitely hot pockets, and some areas that are more difficult to buy in and stuffs moving quickly. But it doesn’t feel like okay, these investors trying to get on the ground in Brisbane, so that they can, you know, get 80% growth in the next three years.

Ben 3:45
Every time every single one of these people that you and I’ve spoke to in the last month or two have been all about a 15 year plan. So they’re not coming into Brisbane to speculate on the short term opportunity. But they do want to be buying somewhere close to the bottom. They’re more coming in to go, Okay, I can get great cash flow with a granny flat, I can get upwards of five and a half to 7% yields. I’m buying very close to the bottom of the market, that long term has done over 9% growth per annum in the last 50 years. You know, I’m coming into a marketplace that is slowly slowly starting to build confidence now that Sydney and Melbourne prices are stabilizing a bit and it feels like you know, the short term pain there is over. Yeah, I think I think people especially now that their property prices are stabilizing down. They’re kind of like cool. I know where the bottoms out for right now. You know, I feel more comfortable releasing some of that equity knowing where my position is as well.

Ryan 4:39
Yeah. So I think that’s what I wanted to get across to people is that it’s not something times it’s not like a time it’s not like FOMO quick get in, you know, to get short term gains, but it’s like, Okay, this is a good market and a good opportunity where maybe the risk profile has changed for these investors where previously over the last couple of years, we’ve seen near melbourne going down you know 10 to 15% plus thinking okay this is kind of high risk territory and now we’re kind of entering a period where the risk profiles change and it feels like low risk even having brisbane going back a couple of percent or like 3% over the last year

Ben 5:19
that’s nice that was that was a hot

Ryan 5:25
was definitely a hot orange like

Ben 5:29
i’ve been talking to a couple of these people man like some really sophisticated investors one guy’s name’s greg and he owns 11 properties in new zealand and has been hearing about the australian opportunity in southeast queensland from there and he sort of perkins is up and starting to learn i’ve got another client he’s one of the 30th like top 30 wealthy people in australia he’s got one of the top 15 or 20 businesses in australia in terms of gross sales volumes and income and he’s you know really looking to ramp up and looking to sort of effectively try and buy a site that we can build four or six places in one go on it for him close to brisbane i’ve got another client that we met recently ryan and i both met and he’s an absolute legend down there in melbourne and he’s you know had seven or eight properties down there in melbourne which he’s exited out of recently and he’s got another couple to get rid of and then he’s repurposing that money in brisbane eight that’s george and he just bought three properties he’s about to buy a fourth and a fifth yeah and then build granny flats on the mall so it’s like these more sophisticated people and the conversations i have with them is if you had a bought sydney in 2011 for example yeah not much happened between 2011 and 2014 but there was a subtle 20% growth there that a lot of people forget about because it was just 4% issue like 7% that year 5% the next year 5% the next and all of a sudden it’s 20%

Ryan 6:57
plus it’s also this like this sort of stage of the market you have a bit more time to find the right property that you i feel like with these sophisticated investors they’re not just looking for anything when it’s boom times it’s like okay people just want to jump in the market because the rising tide lifts all boats and so they just want to get in and it just getting into anything whether it not be exactly right or not exactly meet their financial goals or be on a main road or on a train line or something that they would prefer not to do whereas in this market it’s more like okay let’s hunt for those opportunities that are like oh wow this is gonna be this perfectly suits my financial goals this perfectly suits the portfolio that i want to build long term and i feel like that’s what the sophisticated investors have been doing or that i’ve been watching that’s like okay i look at this property and i can see the long term potential in this property not just short term but okay how’s this going to perform in 1015 years what are the opportunities that i have with this how’s it going to serve me both short term as well as long term

Ben 8:03
i love that man it’s completely true you know this what sophisticated investors do is they manage their risk and they manage their downside so you know had you have bought in 2011 in 2011 rather than 2014 that 20 of you know bought in sydney in 2011

you know had they have bought in 2011 in sydney they would have made an easy 20% but nobody really noticed up until 2014 15 and you know once it once we get any market soco looks like this it goes really slowly then it speculates and it gets to the top people pay way too much and then it’s comes down and redirects to an affordable level and they’ve you know the correction in sydney has been about 15 to 20% depending on whose data you’re looking at and what sophisticated investors do is they know that the correction at the top is going to be a roundabouts at much and you’ve seen that in perth and darwin in sydney you know in melbourne not so much in melbourne but you’re still seeing a bit of a correction and so by buying a little bit earlier you’re not going to get that really short term run up but you’re managing your downside and your risk because you’re protected against that 10 to 20% drop that brisbane will say after it goes through a crazy cycle of growth like everywhere else does yeah and i think that’s what i do i’m not necessarily looking to come into the market the year that everyone else is all around australia looking around yeah like george bought that property with city views for under 500k on a 900 square meter block 10 k’s in the city at a crazy time that property could sell for another 100 grand more than that than it’s actually worth just because of the speculation you know those types of premium sites close to the water close to the city are the ones that people speculate most on and so if you buy too you know because what’s going to happen is in two to three years time everyone else that doesn’t follow our stuff is going to be aware that it’s the time to buy you because all this cheap money is going to wash through the economy or the year construction projects that government’s doing is going to create more employment. And we’re going to be in a position where that that sort of, you know, subtle 10 20% in the right suburbs that people don’t even notice, will have already been priced into the market. And then, you know, you’ve effectively got to jump on everyone else jumps, which means sacrificing stuff or paying more. Yeah. And it causes a correction on the downside as well.

Ryan 10:22
And so I think, yeah, from this, and from this conversation, a big thing that sophisticated investors are doing is, it’s not that rampant speculation that we see in super hot markets where you’re overpaying. But it’s the market is at the place where you can take the time to look for the right property, and be patient, even you with the development that you’re working on at the moment. And the discussions that we’ve had around it, it’s not like, Oh, I’m in this property, because it’s going to grow 80% in the next three years, it’s like any growth on it, it’s like, Okay, I’m investing in this property, I know that it’s in a good area, I know that it’s in a good location, you know, almost walking distance from the beach, you know, you you’ve secured the good location for the long term growth of that area. And so it’s not like, Okay, I’m, I need this to generate heaps of capital growth in the short term, that’s like, okay, long term, this is gonna do really well and short term and meets my cash flow needs. So the downside risk is quite low in the short term. And you know, we’ve talked about it and the valuations came in at more than what you stand for it. So you’ve minimize your risk even further there. I feel like this is a time to secure really good properties in good locations, to minimize your downside risk by, again, investing in the best properties you can find rather than in speculative properties, like, wait until you find the right one that suits your needs, and then set it up. So the cash flow is good, and just be patient with it. It’s like these sophisticated investors all have long term plans. But none of these sophisticated investors are coming to us saying, okay, in the next two years, I want to purchase this property and accident within two years and make 300 grand, or, you know, I need to quit my job by the end of the year, like no one’s saying that everyone’s like, I’m setting myself up

Ben 12:12
for the future. See, I’m just I’m just thinking about every person that we’ve spoken with in the last five years. And now is this real time between 2015 and 17? And I was so sick of it, to be honest with you, because I think so differently than this. But there’s so many people wanting to get rich, quick. Yeah. Because people were like, people were genuinely getting rich quick in Melbourne, and Sydney. And all of these people were like, yeah, I’m looking for 10% gains per year I’m looking to, everyone was looking to flip, like, everyone was looking to just buy something, ride the wave up and exit out within two to three years. And I’m just like,

Ryan 12:46
that’s a risky,

Ben 12:47
fuck off. Like, that’s what I was thinking like, Oh, it’s just like, you know, that’s such a novice way of looking at things like it’s such a dangerous, speculative way of like, doing absolutely nothing to achieve something is like a really dangerous way to live as an investor. Yeah. And to expect that to be a long term thing, like it can work. Every 15 years in Sydney, it works once people

Ryan 13:08
can make money that way.

Ben 13:10
And we will. And you know, there will be clients of ours that come in at the right time over the next five years in Brisbane, and they’ll make really easy money and expect, like, you know, that easy money to continue to the next place. So by but

Ryan 13:23
who knows, in a couple of years, we might be having videos about

Ben 13:27
how to make easy money.

Ryan 13:28
Yeah, how the ramp in Brisbane is happening. And you know how to take advantage of that. So we’re not against that.

Ben 13:35
Now, I’m just thinking, like, there’s a time and a place for everything. And I think, setting up, you know, a lot of these guys that I’m talking to, you know, thinking about, like, how can I get the maximum quality out of what I buy? How can I buy the more premium area, the more premium suburb, the more premium property at today’s pricing, you know, there are also a lot of them have been consolidating, like I said before, like they’ve looked at all the expenses in their life or their business, and they’ve actively reduce those expenses out Ryan and I both just gone through this the hard way last year as well. You know, with my investment properties, I’ve been, you know, waiting, waiting, waiting for the drop in rates. And now the drops here, I’m actively refinancing everything I own to improve my cash position. You know, rather than going principal and interest on everything, like I have been for the last two and a half years because the government forced my hand to go that way. Yeah, I’m going back to interest only on everything. So that again, I’m instead of paying that 70 or 80 grand a year in principle, I pay that 70 or 80 grand extra per year I can save

Ryan 14:39
Yeah, it goes on to offset.

Ben 14:41
All of these little things like might mean that my financial position within two to three months. Once I get through all this is 150 grand a year better.

Ryan 14:48
And that’s it. And I think as well, sophisticated investors in this time of low interest rates, you’ve got to recognize that okay, this probably isn’t gonna continue forever low interest rates. So it’s like take advantage of it, but don’t over leverage yourself so you’re in a position that if rates go up half a percent or 1% that you’re screwed it’s like take advantage of this low interest rate period to maximize your cash flow and build up buffers and to build up you know redundancy

Ben 15:14
what i’ve got in my spreadsheet is like this year 2019 next year 2020 2021 i’ve got reits sitting at below four and a half percent and then every year after that for the next 30 years i’ve got them sitting at between five and 7% a year yeah it is about being aware that this is a low interest rate environment which is going to create an asset boom probably like we haven’t seen in a long time but it’s also going to create a massive bubble at the top and we’re going to get a big problem next time we get walk into a gfc style environment so you know don’t over leverage definitely don’t expect things to be as good as they always are as many people in sydney and finding now they’ve had to reduce like you just rented a place down on the beach and you’re paying like 25% less than someone might have paid two years ago for that join it’s crazy how much the rent returns have come off

Ryan 16:03
exactly yeah and so i think this has been a really insightful episode just talking about if we’d won it we’ve kind of gone back and forth but it’s been really interesting to see what the sophisticated investors are doing and even when you do have those boom times sophisticated investors might take advantage of those markets but they generally speaking have a long term plan of how that fits into their overall strategy so might be like okay the markets hot and i can flip a property that i’m going to flip a property to pay off other properties i own that have better cash flow so it’s going to you know accelerate my growth towards financial freedom and so it’s not like oh i’m just gonna flip property and get rich and that’s it and they’re only thinking three years a lot of these sophisticated investors are thinking well into the future and yeah now is a time where you can get deals and secure great properties and do it in a way that makes sense for you for your long term plan and for your risk profile

Ben 16:58
do you know what a lot of these guys are doing to which i forgot to mention is they’re looking at growth but they’re also looking at timing and they’re looking at cash flow too and that’s something that a lot of people haven’t had the option to do in 10 years in australia like to get a really high quality cash flow property close to a metro cbd yeah but a lot of these guys are thinking about the future in a completely different way than they were three four or five years ago where it was just buy and hold a home in melbourne or sydney for maybe seven or 800k get 600 bucks a week ran from it and that was it like a lot of these guys are coming to me and going ben i’ve got these good quality portfolios here there or anywhere and you know this makes sense to me for this reason but what i want to do up in brisbane is something a bit different like i want to be walking distance to the beach or i want to be closer to the city and i want a year to five and a half to 7% on top of that and and they almost feel like guilty asking why because i’ve been so taught that it’s one way or the other in sydney and melbourne but it doesn’t have to be that way in brisbane and that’s certainly why i’ve reorient ated part of my portfolio up here and i can’t wait to go back to sydney and melbourne when the time’s right of course it’s just it’s not their time right now for me yeah and so sort of sunny coasts in brisbane makes a lot of sense right now in terms of you know the big you know 10 year picture

Ryan 18:18
yeah yeah cool so we hope that this has been helpful to you we hope that you can take these tips and things that what we’re seeing sophisticated investors do and apply it to yourself and your own investing if you are interested in potentially getting into the market up here you want to go ahead and invest then ben and the team over pumped on property do run a buyer’s agency and they offer free strategy sessions so you can get on the phone to them talk about your situation talk about where you’re at what you want to do and then they can help help you set up a strategy that suits you and will help you move towards your financial goals you can then decide to work with them if you want or you can go and implement it yourself that’s up to you it’s a complimentary strategy session so go to onproperty com au forward slash session to check that out and to book a time in the calendar over they’re currently booked out like a month in advance for those strategy sessions so they are very limited so go ahead check him out while they’re still there at onproperty com au forward slash session otherwise we wish you the absolute best of luck in your property investment journey and until next time stay positive

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