Elite Agent TVEPM: TransformPM Transform Coaching 2016

Transform PM Ep 15: The Investor Mindset, Bradley Beer

Thank you to our Episode 15 sponsor:

BMT Tax Depreciation, leading quantity surveyors in Australia, who are helping property investors to claim maximum tax depreciation deductions. For more info, visit bmtqs.com.au

Coach:

Bradley Beer

Coaching Transcript:

For about 15 years I’ve been investing in property. I’ve bought numbers of properties since then. I’ve done small development. I’m a buyer and holder. I have about 13 property managers myself, because the properties are spread all over the place. I thought [about] the questions on, “What does the investor look like today?”

Firstly, I’m probably not the typical one to start with, but I do have regular dealings with 13 different property management organisations, that manage properties for me personally. I’ll try to put a little bit of personal thoughts into that because of the fact that, you know, I’ve got 13 as opposed to 1 to start with, but then let’s look a bit about the investors and what I see with them going on as well and what’s changing, and my thoughts on that industry.

A little bit about today’s property investor. A property investor (I talk about myself, and the property investors of the country) has one common goal. It’s pretty easy, he’s there to make money. I don’t think people are investing in property for the purpose of wanting to have lots of tenants that wreck stuff, or wanting to fix lots of hot water services, or anything like that. It’s really simple. It’s a money making exercise. It’s a business, you could say. Not treated as a business in the same way often, but there’s two ways to make money out of property. It’s through the cash flow on the way through and capital growth. They intertwine, they come together.

The number of properties that people have probably spits out some interesting information about across our 400 and something thousand properties. 83% of the people that we’ve done a depreciation schedule for only own one. That’s a big chunk of the numbers, it’s a big chunk of the people. Another 11, or just over 90%, in total have one or two. Just about all the investors in the country, they’re not all moguls. They’re mum and dad investors, they’re people. They’re not 13 property managers like me. They’re people that have one property manager most of the time, maybe two.

Often, if you’ve got two properties, they’re probably in a similar area and you manage two properties for the same person. It’d be interesting to run those numbers across your own portfolio as multiple owners, which I’m sure you do know, but across some very large numbers there. Most people only own one property, so think about that.

They’re not specialist business property investor people. They’re people who own one property most of the time, well 80% of the time. Over 90% of the time, two properties. I don’t think there’s anything brought to you guys that’s very new if I said that they’re a little bit more savvy and they have more access to technology etc. than they did in the past.

I look at my experiences personally with my property managers and what they say and what they suggest etc. Now they don’t usually suggest depreciations to me because they know that’s probably not necessary. Them actually knowing what’s really important to do the best for my investment is what’s one of the things that’s highly important to me, and I think you’ll probably look at the demands of your investor clients now. They’re probably more likely to ring you now and ask for something unusual that 15 years ago they didn’t even know what it was.

They’ve got more data in front of them. If I correlate it back to my business, by the time someone rings me and wants a depreciation schedule now, as opposed to back then, they used to say, “I want one of these things etc.” Now they’ve read, they’ve researched, they’ve Googled, they’ve seen something, they’ve watched maybe a YouTube video that’s done by me or someone else on depreciation. There’s no reason why they can’t be educated about this. They expect you to probably do that.

They expect us, in our piece of property investment to know more than they did in the past. I think they have, and I probably do as well, higher expectations than the past. Everything’s a bit instant in our society at the moment, and I think they expect an instant answer from you on everything and in front of your emails all the time. Whether that’s right or wrong’s not relevant to the fact that that’s the fact.

Another thing about the client experience of exceeding that expectation. If someone calls me on the way through the process of a depreciation schedule, to ask me where it is, I believe we’ve failed because we didn’t set their expectation.

I don’t know how you put that across the property management industry, but to me, if I’ve got to call you and ask, “Why is it still vacant?” “What is an issue about this?” Is it that you failed to tell me how soon you were going to do something about it? That’s the way I see it, that’s the way I view my business. Have we not told them what we’re going to do by a certain time, in order to get to this?

Everything and every time I ever get called by someone who’s, “Where is this?” For me, it’s a depreciation schedule. For you, it’s that repair or that vacancy or whatever it actually is. When they call me, I find out where it is to start with, but then I ask questions of my management team or whoever’s in control of that department about “Did we fail to set or fail to exceed the expectation at the start?”

We’re very big on technology at BMT, I have a team of, well it’s grown a little bit likely for other reasons, but I think there’s about 12 or 13 software developers in my business, so technology’s important to me as well, absolutely. It shouldn’t get in the way of the client’s experience in any way. It should actually enhance the client’s experience, and I never want someone in my office to say, “Can you just go and do that online please?” or “Can you send me an email instead?” because if the person wants to talk to you they should be able to talk to you, in my business. Sometimes you need to change that for the fact that you need to set the expectation because otherwise you’ll be talking to landlords all day about the hot water service for 25 minutes each time etc, so your industry’s slightly different in that respect.

The people – 83% of them only have one property – they’re just normal people. They’re not people that understand that you’re in a business that needs to make money as well and you can’t spend all your time talking about the hot water service.

How do you set the expectation with that person, I suppose, is what I would say is the important thing. How do they set the expectation with me? How long should it take to respond?

One thing on technology that’s been the most frustrating thing is one of the most important things if we look at the common goal is to make money out of that property. One of the important thing’s about that is the rent being there, or a tenant being in place. I find it very frustrating that technology, or that the moment of truth is when I’m vacant, because then I’m getting nothing. The data and the ability for me to get on to realestate.com.au, whatever, and see what the current properties in the area are renting for at the moment is really easy. It should be easy for you.

I think if my property’s vacant for more than a certain amount of time it’s one of three problems. It’s not presented properly, and it’s not able to be rented — that still comes down to price, it just still be able to be rented at a lower price at some point, someone will generally rent it. That doesn’t happen everywhere, but a lot of the time that is the case, it’s either not presented properly, it’s not marketed properly, so you haven’t got someone that’s willing, or it’s not priced properly.

Number three is probably the most regular thing. I have very distinct instructions that I have to reiterate on a regular basis. Yes, it’s coming up to vacancy. It’s going to be vacant, you know, my $300 per week’s going to be zero. Whether that’s $330 or $250, after the fact, zero is way worse than $250. What I get as far as information is concerned around that period of time is, across 13 property managers, it’s not very good, and it’s probably a gripe of more than just me. I’m not saying it’s absolutely hopeless, but sometimes I think it might be a situation of the technology, or a setting of the expectation. I don’t know why, that’s probably sometimes something for you to consider.

My instructions are very clear. Yes, when you know it’s becoming vacant put it on the market, we want to get as much as we can because we’re investors. As soon as it gets close to the mark, if you don’t have the inquiry, dump it and fill it.

If we look at that simple scenario, if I get $250 a week for a property, and I sit there for three weeks trying to get $300, waste of time. I’ve lost the money I tried to get, by trying to get more in that period of time. How do you use technology to help you manage that situation as opposed to…I get the automatic alert to zero — this the really one that bugs me sometimes — is an automatic alert from the thing on Saturday to say that no one turned up for the open house, and we had no inquiry or no applications. That’s great. I kind of want a phone call on that one. Applications, that’s great. I kind of want a phone call on that one. Or I want a, “and we have adjusted the rent because the market says it’s too high.” If I talk about how today’s property investor thinks that, that’s what I think.

If my property’s vacant for a week, based on a lot of things about property investment that I think you should cover as far as risk is concerned, you should have some spare money to cover these things. Which I do. It’s vacant, it doesn’t mean I’m going to be at the end of the month not able to pay the mortgage payment. 83% of property investors only have one. They don’t understand it very well. They’re probably a little bit keener a lot of the time to need their money straight away as much as possible, because they don’t put buffer money aside as an investor, as much as you should, and therefore it becomes that issue.

On technology, on today’s investor, I suppose there’s a bit of negative there, but it’s how do you learn from that to actually turn it into a positive because I think the technology can help you to do that.

I think there’s a big increase in rent-vestors. We have an affordability problem in this country where it’s harder to buy a property, so it’s actually not a bad idea to look at investing in something that makes money elsewhere so you’re still in that market you can take advantage of the growth that happens out of this property in this country, and rent something else where you do want to live. If you can’t afford to buy where you want to live, it’s an option. We’re seeing a lot of those. What does that mean to you as a property manager?

Someone who owns a property has a better understanding of the fact that it costs money to fix things sometimes, and things break down. When you live on a property, things break down. It’s your responsibility, you’ve got to fix them, or have no hot water.

Rent-vestors are probably more of a headache for you. They just ring the property manager, “Can you fix my hot water service?” When you go to them to say, “I’m here to fix the hot water, can I have some money please? Etc.” Probably a little bit tougher. They’re more likely to be a younger person, the technology’s going to help you more, they’re probably more likely to be a bit savvy about technology, but less savvy about property investing. It’s not necessarily a positive thing for the property manager, but how do you deal with that property investor I suppose is the important thing.

30% of the properties that we do at BMT are new, 70% secondhand, 20% constructed before 1987 which is an important date for depreciation, for not much else than it’s a date that puts it at an age where a lot more fix-ups are being required, a lot more maintenance are required if it’s really those older properties. We’re trending in our numbers to more secondhand properties than newer properties as time goes on. I think that might be a little bit of that would be the result of actually education as opposed to that’s what everybody’s buying, because so many people don’t realise depreciation’s available on secondhand and older properties, and as we get better at educating people about that or people get educated about investing they realise that’s the case, so my numbers would probably be skewed a little bit from what’s really happening in the world as far as buyers are concerned.

I had a situation a while ago with a property that I had managed for about 10 years and I hadn’t been to it in 10 years. There’s a leak in the rear of it that was probably quite obvious if you had a look. Maybe the property manager didn’t pick it up, but I would have fixed it if I’d have known about it, but I didn’t. I don’t necessarily think that’s the property manager’s fault, either, don’t get me wrong, but I would have really loved them if they had a said something to me and said, “Looks like something’s leaking out the back here.” They just didn’t pick that up.

Maintenance is an important thing. I ended up having to replace the kitchen, I ended up actually knocking half the back of the house and doing the renovation. The kitchen wasn’t that good anyway, but I was forced to do that pretty much because as I started pulling apart a little bit about, you know, once it came to my attention, because the kitchen was falling to pieces. It could have been stopped.

I renovated that property — it’s in much better shape now. Maintenance is an important thing to see. How do you learn a little bit more about things? One of the most important things is water. If it’s leaking, it’s going to wreck stuff, especially if it’s around the kitchen. Things are going to get damaged and wrecked by water. Anything with a roof that’s not much good, in whatever way. It was very obvious once I’d seen what had happened. Insurance didn’t cover it because, funnily enough, the insurance said to me that the property manager probably should have picked something up. I don’t necessarily agree with them, but it’s interesting that the insurance people would bring the property manager into that. “Don’t you have a property manager that looks after this, Brad?” Was a question. I don’t necessarily agree with them, but something to consider.

Once again, the simple things, old properties still gets depreciation. The quantity surveyor works with the accountant to make that happen. You don’t need to be an expert about that. You just need to know how to answer some of the basic questions about the fact that it exists, it means money, and you can get some numbers on what it could actually potentially look like. The fact that they don’t know and it could be there makes a fairly substantial difference to that cash-flow piece of the property.

The average claim is around about $10,000 in the first year in depreciation. What that means to them is dollars outwards in paying on their tax rate is, you know, most of them $3,000 or $4,000 a year or $60 or so a week. We’re all here to make money out of these investment properties. Pretty hard to change your rental by $60 a week, because you’re not going to be at the market. If you’re not at the market you’ll be vacant, and then you’ll have annoyed landlords instead.

The simple questions about the things that matter. Depreciation’s one that means cash flow. The average is about $60 a week across the country, across all those that we do, it means to an investor. Maybe you just got to ask a couple questions. Are you getting all your money? Apply that across the board to the things that you do, but $60 a week on average makes a pretty big difference to a lot of investors that only own one property and struggle through.

I think the reason people only buy one investment property at a time is it doesn’t turn into something that maybe was as good or as solid a concept in the first place. A lot of people get burnt the way they buy property or they have bad tenant experiences or they have bad property management experiences maybe or otherwise. They don’t go again.

There’s ability to make wealth out of investing in property and that’s what they’re all there to do. I don’t think there would be anything you can do to help to facilitate that on the way through will be beneficial to them and therefore to you which comes back to your businesses. People are going to talk about it if you’ve been a savvy property manager that helped them to maximise that wealth out of their property.

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