조후혁의 블로그

I was trying to find who actually said this. Believe me or not, it was said by Bruce Lee.

I’d like to share one secret with you – I have a rare and mysterious skill that allows me to detect who has more than 2 investment properties or not. How? The one who seem to have an extensive knowledge RE: current economic climate and hosing prices in Australia, and speak like an economist, is the one who either has recently purchased his/her very first investment property or have none.

I have met many young successfully property investors (most of them under 35 years old) and they seem to share one common denominator (in three parts). Please allow me to elaborate.

a) Pre-purchase stage – Analyze logically and scientifically. Block out any emotions that may cloud your judgement.
b) Purchasing stage – Proceed decisively without hesitation.
c) Post-purchase stage – Hindsight may haunt you to regret the buying decision. Face and mitigate risk proactively if any.

For a) they seem to take a lot of hours to analyze every aspect of the property they intent to buy. They have the ‘matrix’ of their own – every box needs to be rigorously examined and checked. They look for every reason to support the buying decision but if the property fails to meet the prime conditions of the ‘matrix’, they discard the property and look for a new one.

For b) They proceed with the purchase decisively. There is no room to hesitate for them. The choice is in a binary form – 0 or 1, yes or no, now or never.

For c) If the investment goes south for any reason, they bravely face and proactively mitigate risks. They reserve no space to haunt themselves with endless ‘what if-s’. They accept the consequences of the decision that they have made and move on. They learn from their mistakes and learn not to make the same mistakes again.

“Empty vessels make the most sound” – this is a common expression that describes those who have a little knowledge/experience usually talk the most and make the greatest fuss. I have come across too many empty vessels who want to give me an advice RE: property investment, and I have developed the most effective method of suppressing the ‘noise’ – asking them this question. “How many investment properties do you currently have?” If the number is less than what I have, then I politely withdraw myself to prevent from engaging any further conversation with the ’empty vessels’. Wouldn’t it be wise to seek one’s counsel who is wiser, better and have more than you? I certainly would.

Before answering the above question, I always impose this counter-question – “Do you have sufficient funds available which can be used as a deposit to buy either of them right now?” If I detect a slight moment of hesitation in answering my counter-question, I often keep the conversation relatively short because talking about buying an investment property without having a deposit is like trying to build a castle on a block of sand – its mere attempt is not just counter-productive itself but make one unconsciously drift away from a realistic pragmatist to a idealistic fool.

Let’s assume that you are ready to buy an investment property. You have sufficient cash reserve and you have a secure job which gives you a good cash flow. Otherwise there is no point of reading beyond this paragraph. Let’s talk about buying an apartment.

I bought my first apartment in April 2007. It is a 1 bedroom apartment without a car space, and is located in the heart of Brisbane CBD. (Ignoring that the housing price in Brisbane has not been great for the past many years) It initially sounded like a good investment. However, there is one thing that I always find very distasteful – a hefty strata management fee that is payable by the owner, not by the tenant. (Ignoring that the strata management can be claimed for tax deductions) Just the idea of bearing the cost of $1,500 per quarter does seem cumbersome as I could make a better use of $6,000 per annum. I also recall seeing a sudden leap in the strata management fee because of the floods in Brisbane and it caused a few big dents in my cash flow planner.

Let’s talk about buying a house. Honestly I cannot say too much about buying house because all of my investment properties are apartments but I could justify my position by saying this – my risk appetite was ‘to minimize maintenance costs’. This is my view – a young couple without any child and both of them have a full-time job would prefer a new, clean apartment which is close to public transport and amenities. A mid-aged couple with two or more children and one has a full-time job would prefer a house because they require more living space. Now as myself being a father of 3 children, I appreciate how destructive they can be. Walls and carpets are tainted with unknown substances and they are impossible to be removed. Every electrical device in the house will be stress-tested without mercy and anything fail to resist the test will break eventually. In other words, to me personally at least, ‘children’ are one of the high risk variables that I’d prefer to avoid as a landlord.

I can sense what you are thinking at the moment – Isn’t the strata management fee for an apartment and the maintenance cost for a house essentially the same? Probably not because the strata management fee is known/predictable/controllable (to a degree if you go to strata meetings often) but the maintenance cost is unknown/unpredictable/uncontrollable (I do not know about you but I cannot effectively control my children). I am not sure of your risk profile but remember this – different types of properties attract different types of tenants.

In conclusion,
If you want to attract a young couple without a child and both working full-time, my suggestion is to buy a new/clean apartment. Assuming your wallet won’t bleed much due to expensive strata management fees, then you will be fine but don’t forget to take out a landlord insurance because even a young just-got-happily-married couple can be quite destructive time to time as they could express their anger in more of violent fashion.
If you do not mind a mid-aged couple with young children, my suggestion is to buy a well-maintained house. Assuming that you can manage endless repair requests from your agent or your tenant may cause insomnia, having a good landlord insurance may help you sleep well.

I have no problem of associating with one who is ostentatious as long as one has something to substantiate one’s position.

I was having a cup of tea with two business associates of mine a few days ago. She, the ostentatious one who often expresses her skewed opinion explicitly (and that often misfires and ends up humiliating herself), was in a frenetic status as usual. She started the conversation by regurgitating the Federal Budget which we already know its substance quite well. She endlessly went on about the Federal Budget with a full of resentment, and my tolerance level was about to be breached. Luckily another business associate of mine who is well known of his perspicacious outlook, he decisively interjected as below.

“There is one solution for facilitating ever-rising living costs in Sydney – You generate more income and that is the only one solution. Unless you become the Prime Minister of Australia and have the policies changed and restore the balance of its economy?”

“There is one solution for facilitating ever-rising school fees in Sydney – Either you earn more or your children are qualified for receiving a scholarship.”

His approach is pragmatic and not esoteric at all. I must say that I enjoyed the moment of this peaceful and halcyon silence of her. I finished my tea and walked away (and I smiled).

I will keep this post short because I want to finish writing before the bitterness of coffee fades away.

For those who know me well I have speaking engagement with major universities in Australia. Especially Macquarie University where I spent 5.5 years of my life, I often visit the building ‘C5C’ just to refresh my old memories, prior to seeing Dr Wang who has been inviting as a guest lecturer since 2012.

I was in the room to review my lecture materials for a while. All of sudden a security guard entered the room and asked all students to present their student cards. There was a group of students in the corner who seemed uninterested in what the security guard said. They were asked to present their student card repeatedly and they appeared to be very reluctant to comply. The security guard asked them “What do you study?” One of them answered in a very resentful tone “Commerce”. “This room is for the students who study business administration only. You guys should not be here.” One of them suddenly stood up and said “Listen mate! Business administration is under the umbrella of the Commerce faculty. Get yourself educated mate. No wonder you are a low-paid security guard.”

The security guard walked away and I could sense that how upset he was. They laughed and said “That was so cool bro. I like that sh!t man.” I kept my silence for a moment to observe them. Soon I realized that they were the students of the class that I was going to teach that evening so I chose to withhold my retaliation and waited to ‘strike back’ in the classroom instead.

I was on the verge of concluding the lecture and I stared at the group of students who made a fun of the poor security guard and said

“People have different status in life – some are rich and some are poor; some are more fortunate than others; some are highly educated and some are not. However, you do NOT, I say again, you do NOT have the right to claim that your integrity is worth more than others. Today unfortunately I witnessed a group of Macquarie University students who humiliated a security guard because he did not know that business administration is under the commerce faculty. One said “No wonder you are a low-paid security guard.” Not an ounce of humility but a full of arrogance. This is not the quality that I expected from Macquarie University students.

Perhaps it would be wrong to assume that this small group of students represent the overall quality of all Macquarie University students accurately but it was very, very distasteful, and I still remembered the bitterness of that moment. Time to go and pick up my car now – the bitterness of coffee is about to fade away from my mouth.

I have been asked this question a lot recently and my answer has been always concordant – “When you can”. Perhaps my answer appears to be rather precarious but in fact it is most pertinent, whether you may realize or not. Why? allow me to explain.

Assuming that you have found my answer is intriguing, you must understand one important element that determines the “when” – that is money, and without it the chance of buying an investment property has gone beyond recall or desire.

I usually continue the conversation only if the subject understands the substance of my answer as above. In other words, my counter-question for “When would be a good time to buy an investment property” would be “Do you have sufficient funds to buy an investment property now?” As you appreciate I have deliberately and purposefully selected more diplomatic answer “When you can” based on euphemism in order to suppress the possibility of offending those who have less financial freedom. Talking about buying an investment property when your cash holding is significantly inadequate is like trying to build a house on sand.

I used to live in fear for not buying an investment property when my friends already have at least one or two. The mixture of greed and envy drove me to waste my time to look for properties which I wasn’t able to afford. I used to live in the world of ‘what-if’ and the agony of waking up from the foolish dream forced me to focus on ‘the one thing’ – saving cash as much as I can and as quickly as I can for the deposit.

Did I succeed? Yes, I did. I bought my first investment property in Brisbane CBD at the age of 29, and subsequently bought two more investment properties in the following year. What is the lesson to be learned from here? Cash is the king and that is indisputable. Focus on how to improve your cash holding and save as much as you can and as quickly as you can must come first before anything else. Because it will widen up the ranges of buying options later on. I must it is far more pleasant experience of having ‘too many choices’ than ‘not many choices’, especially when the moment of buying your very first investment property.