Simon opens today’s conversation by delving into the current market in Brisbane and discussing the reasons why the market is heating up for first-time buyers.
Simon Loo: The Brisbane market at the moment is extremely buoyant in certain pockets, I would say probably the more affordable housing around the $500,000 or $600,000 mark still within Brisbane City Council is absolutely getting smashed with owner-occupier and first-time buyer activity.
Tyrone Shum: Why do you think that’s the case, by the way?
Simon Loo: There’s a number of reasons that I’ve noticed just being on the ground looking for deals. The main driving force is super low interest rates that we have at the moment. You know, most first-time buyers are getting loans at around the 2%, 2½% sort of interest rate mark, which is essentially lower than what it would cost them to rent any equivalent property that they were to buy. So, that’s number one.
The second reason is there’s been a lot of government incentive, from a first-time buyer perspective. That’s been thrown at owner-occupiers. There’s also you know, obviously, as you know about job keeper/ job seeker as well, there’s just a lot of government help. That’s maintaining a lot of confidence with first-time buyers with people looking to buy a property.
I think there’s been a lot of misconception that during this pandemic we’ve had, that people are showing back that the property market is going down the drain. And that’s been perpetuated, I think, a lot through the media as well.
How Simon Loo Secures a Deal Amid a Pandemic
Tyrone Shum: I was just gonna say, yeah, the reality is going to be a completely different thing. And I was just saying the media paints a completely different picture to what we are actually seeing happen. Because even just in my own looking on the ground and also just my own research, when people were saying the market is potentially going down, in actual fact, it’s been stable-and some of them have been just snapped up much, much quicker.
It’s really interesting to hear that different point of view at this point in time, but we are. What were you gonna say next?
Simon Loo: Well, I was gonna say that because there is so much doom and gloom in the media, I think that’s triggered buyers to actually come out and look for opportunities, because they’re in the mindset that, ‘Okay, if the media is suggesting that markets are in turmoil, maybe I can go out now and buy a good deal’, coupled with the fact that interest rates are low and there’s all these sort of first-time buyer grants as well.
But, you know, when you’ve got a whole bunch of people doing the same thing with the same mindset, you end up with a property market that’s still incredibly buoyant. Because there’s just so much demand and the other element that’s sort of playing into the fact that it’s an incredibly buoyant market is that there’s still a very, very small number of listings, or new listings, compared to, let’s say, this time last year, coming on the market.
And this is like every single selling agent that I speak with, you know. That’s their main struggle at the moment, just to obtain new listings. People are reluctant to sell. People are holding on to what they’ve got until the uncertainty blows over. And the people that do need to sell are in many cases in a position where they kind of have to. So, when you’ve got all these different elements coming together, you just create a situation where certain areas in any capital city are just being smashed at the moment with a lot of buyer activity.
Now, that said, I would say prior to the pandemic, it was probably maybe, you know, 40:60 investor to owner-occupier ratio in terms of the types of buyers in the market. But nowadays, what I’ve noticed is it’s at the most maximum-maybe 20% investors and 80% owner-occupiers. And in many pockets, it’s probably even less-meaning it’s more skewed towards people looking for a house to live in. So, as is the case with this example that we purchased for a client recently.
This was probably only about three weeks back, to be honest. I can even tell you the general area within Brisbane, which is around the sort of Ferny Hills, Ferny Grove, Upper Kedron-that kind of pocket. That particular area is again just being incredibly hot with first-time buyers because [of] a couple of things-the distance to CBD and the extremely low price point compared to surrounding suburbs. And also, there’s been a bit of a development change in the area as a whole, meaning there’s just projects coming up, infrastructure projects coming up and all this kind of stuff, which is attracting a lot of first-time buyer and owner-occupier attention.
So, this particular property came online. And immediately at the first open home, there are about eight or nine groups-all of them owner-occupiers and all of them fairly green in terms of their buying experience. So, this particular seller, the house was a very sort of standard brick three-bedroom, 600-odd square metre house. But I guess what the differentiating factor was that the seller was in a bit of a situation-a distressed situation where he had some mental disabilities and he was moving into a facility, which meant that the house needed to sell pretty quickly, pretty urgently.
Now, the house itself was fine, you know, there’s no structural issues or anything like that. But it probably had a number of cosmetic wear and tear. Things that just needed touching up. So, you know, in that sense, it kind of put off-I wouldn’t say put off a lot of the first-time buyers and owner-occupiers, but it meant that they may have seen it as an opportunity to put in some super lowball offers. But, you know me, sort of knowing the market a little bit more, knew what it was worth. And I can tell you some numbers. It was probably worth around the $565,000 or $570,000 mark, once the house was done up, you know, properly.
But we managed to secure the deal for around the $510,000 mark, I won’t go into specifics because the deal is still kind of, you know, it’s still in motion around the $510,000 mark. Look, I mean in terms of cosmetic items, part of my process is to get my trades to go out and do a bit of a quote, and when we price it up to fix the carpets, to repaint a few walls, fix a few little cosmetic wear and tear things here and there-like doors and a bit of yard work and things like that.
You’re probably coming in at around the $6,000-$8,000 mark, which if you buy it as an investment, you know, for $510,000, spend, let’s say, very conservatively $10,000 to get everything done and dusted… You’ve got a pretty good product that’s going to be worth even more than what you paid for it. And also, it’s going to be highly sought after by owner-occupiers if and when you decide to sell it. Even if you had to sell it immediately, you’d get a tonne of people through so I guess that’s kind of one of the ways I’m finding and buying investment deals at the moment.
I guess finding opportunities where it’s not as attractive to owner-occupiers and first-home buyers in the sense of, the house needs work. But we’re also being a little bit more realistic with the price based on the demands of the housing market at the moment. And coupled with, you know, not being afraid to spend a little bit of money on this particular property, to make it a livable, presentable condition. I think that spells a pretty good outcome for the particular investor that we were working with.
Simon’s Strategy in Getting Good Property Deals
Simon makes it sound easy. But how did he manage to secure the deal at a good price despite there being so much competition?
Simon Loo: So, there were a number of moving parts that enabled me to, I suppose, get a bit of an edge over the other buyers. The first thing is I knew the agents. because we had done a number of deals previous to this particular deal. So, we had a bit of a relationship where she knew that if I came along with an offer from a buyer, it would be pretty solid. We weren’t going to mess around too much.
With uncertainty surrounding the negotiations around the deal itself-and when you’re working with a seller that is clearly motivated to sell and can’t afford to spend the time or the risk that the contract may fall over in two or three or four weeks time, you know, which might be based on finance issues or building and pest issues or something along those lines-then they can sway towards a buyer like myself that is more certain, more confident that the sale will complete.
Interestingly, with this particular deal, there were actually a number of offers that were higher than mine from a pricing perspective. And the seller in the end, the selling agent still decided to go with me because I was just a lot more certain and, you know, getting the absolute highest price was not the priority for this sale. I was just ensuring that the property could sell quickly and with as little fuss as possible. So, you know, I think that just being able to sort of read a couple of things, you know- the first thing being the type of buyers that are interested in this property, knowing the motivation for the seller, as well.
And having that relationship with a selling agent, you know, combined, enabled me to negotiate a deal that was to our benefit as an investor. So, yeah, I think the fact that there were higher offers from a dollar perspective, kind of, told me that these guys were definitely in a situation where they just had to sell it. And they couldn’t sort of sit around and wait, you know, another four or five or six weeks.
Tyrone Shum: Yeah, so how long did this deal take to actually complete to get to the point where you know you’re going pretty much unconditionally very soon?
Simon Loo: The settlement was 42 days which was actually pretty standard. We only put in 42 days because the banks are really taking their time at the moment to gain approvals so you know, we’re at the tail end of that now, the property is actually not settled just yet. It’s just a standard kind of a deal. But, you know, the finance was pre-approved, so we didn’t have any issues there.
When we did the building and pest, we did the building and pest knowing that the house had those cosmetic issues, which is always going to be a concern for any seller when they know that their house is not perfect. A lot of times when people do these building and pest inspections, they freak out. Because the nature of a building and pest inspection and building and pest inspectors is that they kind of have to make a big deal out of everything.
The number one reason being to insure themselves as inspectors.
So, you know, a lot of times when these older houses that clearly have some cosmetic issues, they tend to fall apart at the building and pest stage if you’re working with, let’s say, an inexperienced buyer, because it just becomes like a reality of the work or the potential risk of the property just sinks in. Whereas, you know, with us, when we did the visual inspection prior to the building and pest, you know, we’re very thorough. We kind of saw pretty much everything that needed to be done to the house, you know, obviously pending any sort of hidden damage in a roof or you know, within the walls or something like that, that we couldn’t see.
So, you know, we knew that the amount of actual work needed was probably going to be limited. And when we did the building and pest, it obviously reinforced that as well. There weren’t any major termite issues. There weren’t any sort of building and pest issues or anything like that.
Tyrone Shum: That’s great. Sounds like a pretty good deal there. So, what’s the actual purchaser going to be doing now since the purchase of that particular property?
Simon Loo: Well, they’re just going to fix it up. Spend $6,000-$8,000. This particular buyer-he’s one of my overseas clients as well. So, they also want a fairly stress-free experience in buying and owning the property. So, you know, I’ll organise a few trades, I’ll get a few quotes and get the stuff fixed up and we’ll just rent the property out. Yeah, the property itself is probably going to rent for about $510 a week. So, we’re looking at around the 4% or 4½% [to] 5% rental yield, which is above average, you know, for an area that’s within 13-odd kilometres from the CBD.
And yeah, we’re just going to do it up, rinse it out. In 6 months time, we’ll get the bank back out, revalue it. Most likely there’ll be, you know, $50,000 [or] $60,000 equity in it that we can reuse or that the client can reuse to either put that equity in the offset account, or to reuse that into a subsequent purchase. So, just a very simple buy-and-hold kind of strategy-ensuring that the house is as low maintenance a standard as possible. I would consider it’s like an all rounder type of deal, but we just managed to pick it up pretty cheap.
Focusing on a Clear Objective
Simon explained earlier how he secured the awesome deal in Brisbane, but how did he actually come across it?
Simon Loo: Every client is a little bit different. You know, every client comes to me from different backgrounds, different occupations, different income levels, different age groups, different levels from, you know, how experienced they are with investing. Some people have zero properties. Some people already have 20 houses. So, I guess for me, the main thing is just to source distressed properties. You know, that’s what we primarily focus on.
So, this particular buyer came to us with a slightly higher budget than my average investor. You know, most of my buyers come to me with around a $400,000-mark type property, whereas this investor wanted something, you know, up to $700,000. Now, that’s not saying that we’re going to spend, you know, $699,000 and not $1,000 less. I think what that actually translates to is that they just wanted something a little bit more close to the city.
You know, maybe a little bit more blue chip, but still retain the fundamentals of, you know, buying well. Buying definitely below market value. Buying properties that you can add value to with good cash flow. All those boxes still need to be ticked.
So, you know having worked with, obviously, buyers from the more affordable end of the market to more sort of expensive end of the market. You know, I’ve got a wide range of agents that know what I do and know that I can put together a deal and see the deal through fairly confidently.
So, in all honesty, with this particular house, the agent called me up and said, ‘Hey, you know, we’ve got this house; we have to do one showing’. You know, that wasn’t the instruction from the seller. They have to do at least one open home before they were going to consider any offer, which didn’t play into my hands too well, to be completely honest-because I prefer to deal with properties that are off-market and potentially less competition. But, at the same time, you have to respect that, you know. Obviously, sellers want the best outcome for themselves as well. And sometimes you have to just work with it.
So, anyway, we put in an offer before we even did the open home-just to cement the fact that we were serious and we were there to negotiate a deal. And as soon as the open home happened, which was on a Saturday, I got to negotiating, literally an hour after the open home finished, with a selling agent. Because when you’re in those situations, you need to move very, very quickly. You know, you can’t afford to wait until Monday or Tuesday or have a think about or anything like that, especially when you know that there’s competing offers to be to be coming in.
So, you know, we moved fairly quickly. We negotiated the price a little bit. We went into the negotiation, knowing the comparable sales, knowing what it’s worth. Again, we did the visual inspection and we kind of knew the typical cosmetic stuff that had to be done.
So, rather than starting at a super low price point, which is what normal buyers do when they start negotiating on these houses, they start super low. But because there’s a lot of competition, you need to be sure that you’re getting a good deal. But you also need to be realistic. Because if it’s super low, it just puts you completely out of the picture, and someone else is going to get it.
So, you know, we put in that price; we put in our conditions, which was fairly relaxed, compared to some of the other offers. I wasn’t told what the other offers were and how much they were offering. But I do know that after the deal was done that there were other offers that were a higher price, like I mentioned before.
So, I think it’s just, again, just a combination of, you know, finding information, you know, getting access to that house, obviously, as the first step. The agent called me and said, ‘Hey, we’ve got this house. The seller really needs it sold. And we need to do one open home and then the sellers [are] happy to look at all offers after that’. Obviously, knowing the area, knowing what the property’s worth, doing a lot of due diligence on comparable sales, ensuring that you’re not paying retail, ensuring you’re definitely not paying over market value, and just knowing how to negotiate.
Look, I mean we’ve done so many deals that we’ve kind of just got a little bit of a knack in terms of being able to negotiate with a lot of competing offers, and, obviously, not losing your head as well. I think that’s super important because a lot like this one works well. But so many times, when we negotiate these properties, you know, you might get someone that just really loves the property so much they’re willing to pay some ridiculous amount for it.
Looking at the Big Picture When Buying a Property
Tyrone Shum: Yeah, that’s what happens at auctions. Auctions are very, very typical of this, you know-especially [for] a first-time buyer, because they’re probably wanting to get something that they’ve been looking for.
They may have been looking for three, six, [or] 12 months and going, ‘Oh man, this is the perfect one that I think, you know, I really, really want’. So, they just end up going and taking it and trying to win the whole thing. It’s only afterwards when they purchased it, that they have potentially buyer’s remorse.
Simon Loo: And look, I mean, as investors, I think that that’s the fundamental difference between investors and homeowners. Homebuyers are the ones who buy very emotionally. You know, it’s all about how they feel. Whereas, you know, [for] investors, if they don’t make sense, we have the ability, or we hope we have the ability to simply walk away. Because, you know, like I always say, the deal of a lifetime comes around once a week.
So, there’s always going to be another opportunity; there’s always going to be another. And sometimes, you have to put in the yards. Sometimes, you have to put in the time, the patience, the research, the, I guess, the losses, the missing out of properties, for you to end up with a really good deal that forms as part of your overall portfolio and your strategy. So, obviously, for this particular one, it worked out. But, you know, for every one that works out, there’s a bunch of ones that don’t.
Tyrone Shum: Very much so. Wow, that’s fascinating. So we’ve kind of talked about how you found this deal, the whole process that you went through to be able to get the deal at this point in time, especially, you know, when in a very kind of hot buyers market at this point in time, particularly in Brisbane.
What would be also interesting to understand is: What do you think has happened with the pandemic? Because it’s-you know, in the media says one thing, but on the ground, you’re seeing something different. How do you think it’s now impacting the properties that you’re looking at for investors?
Simon Loo: So, [for] the affordable end of the market, I would say anything. Using Brisbane as an example, I would say anything under the $700,000 [or] $800,000 mark is still an extremely hot market.
I think one of the main things that people need to realise is even though yourself, maybe perhaps the listeners for Property Investory, and myself, we consider properties as not only a place to live in, but [also], obviously, as a means to make money-as in, like, it’s an investment tool. Whereas for 95% of the population out there, they still see houses as obviously a means for shelter, you know, as a necessity.
And, you know, this whole COVID pandemic has really sort of brought home the fact that people need security. People need a place to live in, especially if there is any sort of a situation where they’re in a lockdown.
Obviously, what’s been happening in Victoria, they need that level of security. They need that comfort of having a place that they call home. And I think with all the doom and gloom that’s been perpetuated in the media and amongst all the other factors as well, interest rates and, you know, government stimulus and all this kind of stuff, it’s really created, unintentionally, a bit of a scenario where there’s just people out in force looking for that home to live in that security.
And when they’re looking for these homes, like previous to COVID and the pandemic, you know, if people could, let’s say, borrow a million bucks, they might spend up to a million dollars to buy their dream house. But right now, I think people are, you know, even inexperienced buyers, they’re still being a lot more conservative with their choices. So, they’re not spending absolutely every dollar they have. They’re not borrowing absolutely to the max of how much they can borrow. They’re being a little bit more realistic. They’re buying in more affordable areas. They’re buying in areas that might be even further out from the city-especially as working from home is now increasingly popular.
So, yeah, it’s the same in Sydney as well. You know, in Sydney, between the $1 million to $2 million mark that I’ve noticed-and any listener out there that that’s been on the ground in Sydney will attest to the same thing-the demand is just incredibly hot. You know, every single open home, there’s dozens of parties. You know, auctions just going through the roof every year at pretty much every single one.
I think, for first-time buyers and owner-occupiers, if you are in the market, looking for houses right now, looking for a place to live in, [it’s] very important not to just go completely gung ho and overpay for houses. Because whichever way you look at it, you know, we’re looking at a bit of a shaky 12–24 months, from an economic standpoint. It’s really important to just keep your head, work on your budget and stick to that budget.
Don’t fall in love with houses as well.
Like I said with this particular example that we just bought, you know, the difference between really sort of nice, looking sexy, a-lot-of-emotional-appeal houses, versus a house that needs a lot of work-it might only be a $10,000 difference. I say ‘only $10,000’ but, obviously, in the scheme of things, when you talk about buying houses and renovating and things like that, a $10,000 renovation is not a lot of money. But that can make all the difference.
So, I guess maybe a bit of advice for any first-time buyers out there is really just don’t neglect houses that need a bit of work. Yeah, don’t dismiss them. Don’t be afraid to do a little bit of work. Don’t fall into the trap of looking at a house and saying, ‘Oh, well, you know, this is really nice. It’s all done up and looks really good’. And it’s probably even staged, to be honest, you know, in terms of people putting in fake furniture and things like that. Just be sensible and realistic.
Removing the Emotion Out of Property Investing
Tyrone Shum: So, take the emotion out of it, especially if you’re looking to buy your first home. And ensure that when you’re looking at it, make sure that there is still enough in there to be able to cover any of the costs and renovations. Because, ultimately, from an investor’s point of view, if we’re purchasing it, it’s usually, you know, you make your money when you actually buy not when you’ve actually already purchased it. And it’s too late then, you know, to add value on to it; you’ll have to wait.
And we don’t want to be sitting there waiting for 10 years before it appreciates, because that [is a] 10-year loss, or not loss, but 10 years [of] opportunity cost, which could have gone into purchasing more properties to build up your portfolio. So, it’s very, very wise words that you’ve said there as well. Fantastic.
Well, Simon, that’s been a fascinating story, and it’s really good to hear an update from you especially being on the ground at this point in time. And this means so much that I’ve also felt the same as well. Because speaking to so many different people, I’m getting the same feeling that the media has portrayed and, you know, throws things out of perspective.
But when you actually look at what’s actually happening and look at the facts, and what’s really, really happening, the fact is that the market really hasn’t gone backwards at all, [it] hasn’t dropped by 40%. It’s just to get fear into people’s minds to hop onto these sites to read more and sell more advertising to you. And I don’t mean to be that blunt, but it is true. That’s what they do. That’s how they make their money. That’s how they survive.
Without those ads, without all those things that are put on the website and creating all these stories and headlines, they won’t get your attention. And that’s how we are, you know. Humans absolutely drift towards fear.
So, ending this episode off, I think there’s a lot of great opportunities if we just stick to our fundamentals and continue to do what we do best, which is to be an investor.