The LeoT interview

Hi Everyone,

I think you'll agree that LeoT is a young man going places (fast)!

1. How did you get involved in property?

A family friend would come over to my house to do some business with my dad and my uncle. I had just turned 17 at the time and I remember whenever he would come over I would always pull up a chair and listen to what he and my uncle and dad would discuss, but didn?t really understand much of it. I remember one time I was admiring his watch.. and I said something like ? you have a really cool watch?, to which he replied, ?thank you, would you like one?? and I said something to the effect of ? it looks really expensive I don?t have the money?. Cutting a long story short, he had said to me, if I really wanted the watch, he could teach me how to be able to afford it, and so much more. Needless to say I accepted his offer to learn and from that moment on he became what I now know to be my first mentor. He introduced me to basic finance, investment principles and yes, the property world!

2. What is your property investment philosophy/strategy (CF, CG, renos, houses, flats, buy and hold, develop, flip, wrap, etc)?

Through the years, I have utilized various strategies with property investing from the common buy and hold, to buy, renovate and sell, to buy renovate and hold, to subdivisions and property developments. Investment dwellings have included units, houses, semis, duplexes and townhouses.

3. What is your IP / property story so far?

I bought my first IP just before my 18th birthday. It was a 1 bedroom unit in Rose Bay, Sydney. I can still remember the feeling was so exhilarating and thrilling that I was really hooked from that point on. My friends at the time would be going to the movies or swim at the beach while I was working at McDonald?s, mowing the yard, delivering papers and doing other chores around the house and my grandmas house to earn as much money as I could to put into property. I continued to buy IPs and at that time it was mainly the buy and hold strategy. When I was 20 I did my first buy, renovate and sell deal. I had made about 20k on that deal and I remember thinking that I had won the lottery! Fast forward today, I am 32 years old now and I mostly do residential property development deals, ranging from duplexes to 20 townhouse developments. It?s been such a rollercoaster ride all these years, but one that I simply don?t want to get off!

4. Is there a story of a really good IP that you would be prepared to share with us?

This one time I had bought an IP in Quakers Hill. It was an older style, 3 bedroom house that needed a desperate renovation. After renovating it and renting it out, I remember writing my own ?report? which I was going to give the valuer when they had come round to value the property to let them know what I thought its new worth would be. My plan was to get a revaluation and extract the created equity to reinvest, something that most investors do these days. I remember writing at the end of that report that I thought the new value would be around 220k. Valuation came back at 265k!! I couldn?t believe it. I went back to look at the report I had written, and lo and behold I had indeed written 265k instead of 220k that I was intending to write. Cutting a long story short, I had been diagnosed with mild dyslexia soon after hence getting the numbers wrong! I don?t know for certain if it influenced their decision but I certainly wasn?t complaining about it!

5. Is there a story of a really bad (or not so good) IP that you would be prepared to share with us?

Not so much a bad IP story but rather a design cost nightmare. Basically with one of my very first developments I was as green as they come. Thinking I?m in the ?big boys? arena now and not properly doing my due diligence, I had engaged an architect who designed something that looked great for a particular project. Come time to quote for it, because he had made so many unnecessary turns and twists etc, the quote came back 40k over budget! And not just from 1 builder, but came way over budget from 3 builders who all gave the same reason. Over designed and unnecessary? I had to weigh the cost of redesigning, doing a new DA, holding costs etc and it just wasn?t worth it. So I had to eat the about 40k extra costs for the silly, unnecessary design. From that day on I vowed that I will never let this happen again. And it hasn?t.

6. Do you invest in other asset classes (shares, commodities, businesses, managed funds, cash, forex, etc)

Probably 90% of my holdings are in real estate, 10% in the stock market.

7. What criteria do you use when selecting an area to purchase in?

When I used to buy IPs, I would always follow some basic rules which I feel have served me well over the years.
1. Buy in the state that is on the climb (7-9 oclock). (I never buy at the peak of a boom market. Ever.)
2. Buy below what I believe to be its intrinsic value.
3. Buy something that I believe has the ability to further add value through reno, subdivision etc
4. Do my due diligence on the growth drivers of the area eg population growth, infrastructure, planned infrastructure, supply/demand equation, vacancy rate, recent CG history, demographic of the area
5. Make sure the purchase fits into my overall goals and is getting me closer to my target.

In terms of development, my rules are different.
1. Make sure the numbers stack up, on current figures, not projected future figures.
2. Walk away from any deal where the numbers indicate it would be difficult to get at least 20% return on total development costs.
3. Ensure that where I develop has good growth fundamentals because invariably I always keep some stock, hence I don?t want to keep stock in a very weak area, unless I plan to sell all the stock.
4. Ensure that the stock is at least neutrally geared when rented out. This is usually not a problem and tends to often be positively geared, unless I?ve stuffed up the feasibility big time! Fingers crossed that won?t happen!

8. What structure do you use for your investing?

I have used various structures including own name, join names and Trusts.

9. What is your strategy to fund your lifestyle in the future (eg Live off Rent, Live off Equity, Live off something else?.)?

I live off two things:
1. The net cash flow from my equity
2. Lump sum profits from development projects. (My asset base continues to grow from the stock I keep).

10. If a budding property investor asked "what are the top 5 things I should do", you would say?

Look, in my honest opinion it really depends on the person?s goals and timeframe. Different goals/targets will require different approaches/levels of effort.. To answer this question, I am going to make the assumption that the ?budding investor? has the goal of retiring in 15-20 years, on a passive income of say 250k net, a year.
1. Develop your mindset. I believe this is largely unavoidable and has to be done, if someone wants to achieve similar figures as the scenario above. ?Mindset? is just a word, but really it involves many things, some of which are: a) working out which beliefs are holding you back and tearing then down 1 by 1. b) adopting a belief system that is congruent with your goals and maximizes your chances for great success, c) reshaping one?s personal philosophy about how they view success, failure, money, time, goals, investment, relationships, sacrifice, commitment, focus. (there is an abundance of information on how to do this: books, cds, dvds, YouTube clips. (I believe this is probably at least 75% the battle).
2. Develop your property investment knowledge. I would recommend that the budding investor buy at least 10-15 books by Australian authors on the subject. Not because any one book is the Holy Grail, but rather it will give a very good starting point and cover most of the basic topics. It will also, I believe allow the budding investor to eventually gain their own perspective on it all. Forums such as Somersoft are then a great place to discuss some of what they read/learned to get feedback etc and start to formulate what they think will work for them. Over the years it?s a process of refining, discarding and adopting new strategies/approaches etc to find what really works best for the person?s goals.
3. Develop a network of ?experts?. Accountants, brokers, conveyancers, tradies etc. Get a folder and start to build your team, adding great contacts that you have used over time and also get referrals from others who have had great experiences with their ?experts?. Never, ever think to try and DIY Property Management, contracts, schedules etc. Leave it to the experts while you focus your time/energy on the big picture. As a property business owner, you should see yourself as the entrepreneur whose job it is to manage his/her team, take advice from them but always do your own due diligence as well. Your most valuable commodity is time/energy. Don?t waste it on things that others can do, and will generally do much better than you can. The goal is 250k in 15-20 years, not becoming a property manager or finance broker etc. Leverage off their expertise. This is essential. I just want to add here, if the budding investor can also find a mentor who has achieved similar to what the investor wants to achieve, and is willing to teach/guide them, this would be of massive, massive benefit).
4. Develop your negotiation skills. I believe it?s important to spend some time on this topic, as every property acquisition we go through will most likely involve some form of negotiation. Becoming better at negotiating happens in 2 ways. One: from reading books and learning strategies, approaches, concepts, ideas etc, and Two: From experience. While experience will come with time, I believe that budding investors should buy some books and get a head start. Becoming a skilled negotiator can greatly influence your level of wealth and how long it takes you to achieve your goals, hence the reason I believe a budding investor should take this seriously.
5. Take massive action: Goes without saying that everything we learn, understand and are ready to apply is totally useless, unless you decide to take action, and a lot of it.
So those are my 5 points I would impart to a budding investor, whose goals are similar to the scenario I created above. Now it also goes without saying that for someone whose goals perhaps are more modest or they require less passive income in a longer timeframe, they can always adjust how much effort, focus, discipline, level of mindset sophistication etc they want to put in, increasing or decreasing it.

11. And if that same budding investor asked "what things should I avoid", you would say?

1. Listening to anyone who does not invest in property. (there are exceptions but generally I would stick to this).
2. Assuming anything. Always do your due diligence
3. Negative people. Run as fast and as far as you can. Don?t look back. Brian Tracy says our success will be the average of the 5-8 people we spend most of our time around/interact with.
4. Trying to save some money on not doing B&P, searches etc.
5. Treating your tenants badly. Without them, its game over.

11. And in a slightly different vein - what would you advise the property investor who maybe has a portfolio of properties, but is at a loss as to how to proceed?

1. Reassess their goals and current progress
2. Network with similar minded/level of success people who can share ideas, strategies etc. and try to reformulate a way forward.
3. Depending on the issues that?s stopping them, seek specific professional expert advice on the issue.
4. Most likely the above 3 points would provide some level of insight and a way to move forward.

12. How important is planning to being a successful investor?

I believe planning is vitally important. Especially if you want to save money, time, energy, unnecessary heartache AND achieve your goals faster. Goal setting is also important as it allows us to measure our progress over time to evaluate if we are on track to achieving our goals or not, and how to realign if need be. Generally, planning, goal setting etc will be covered in the 10-15 books you read. After you read them, you should have a good idea how to plan, what to plan and how to set goals. You will also learn how to plan exit strategies. This is important and also part of strategy. I believe it is in the ?acquiring property knowledge? stage that most of the basic/fundamental topics will be covered eg, goals, strategies, property clock, cycles, demographics, CG vs Yield, LMI or not, buying process, auctions and whole range more. I believe this is very important basic knowledge to have and understand, especially for the scenario created above.

13. Do you consider that there is any natural progression for an investor? (eg. From owning a few properties, to owning many, to being a developer, joint ventures, commercials)

I think it completely depends on the individuals goals. Someone who wants 1m net worth in 30 years? time probably won?t need to be as aggressive and buy 15 properties or get into development. However the more daring the goal, the more sophisticated the strategy/approach will need to be I believe. So yes, perhaps an investor will start with buy and hold, to buy and renovate. Then after a while they might realize that if they want to meet their goal of 4mil net worth in the next 10 years, they will need increase the level of sophistication they apply and change strategies. For most, it?s an evolving process.

14. Do you have any thoughts on:

the CF vs CG debate: Depends on the individuals goals. I do believe that generally most people will need CG if they are going to create wealth.

the issue of metro vs regional: I tend to avoid regional because it doesn?t fit into my strategy and most likely won?t get me to my goals quicker. Others will have to assess if buying regional is going to get them to their goals quicker or slower. It?s on a case by case basis I would say.

units vs houses: I think the important thing here is to understand the demographic of the area. If an area has a ratio of 90% houses and 10% units, you will have to ask yourself if it?s a wise decision to buy a unit? Will units have slower growth (assuming growth is the goal), higher vacancy rates? Is there less demand for that type of dwelling? Personally, I think it?s very important to invest in what the majority demographic is, and wants for any area. With regards for adding value, generally I have found that houses provide for opportunities that units simply cannot, eg subdivision, structural reno etc.

15. What do you prefer, fixed or floating interest rates and why?

I believe the larger a portfolio is, the more important at least part of it should be fixed. The benefits of fixed rates I believe outweigh the benefits/risk factor of variable rates, especially on larger portfolios. Generally I go for some fixed and some variable.

16. How important in your life is having a partner and other family members who are ?into property??

Personally I have been very lucky because my partner and I are completely on the same page which probably makes it easier in some ways. What I find the most important about having a partner on the same page is the support that you can get/give to each other.

17. Where do you see the market at the moment?

As we all know, there are many, many markets in Australia, and while 1 market may be flat, others may be peaking or somewhere in-between. If we were to very broadly categorize each state or city as a different market then I would say much of Sydney is at the peak of a boom, Brisbane is growing steadily and increasing fast in some suburbs, Canberra continues to have subdued growth, Perth is coming of a boom, Melbourne has had very strong growth and Tassy continues to lack the growth drivers to make it a great investment option, I believe.

18. Do you think the current environment is making it harder for newer investors than when you started?

I actually don?t think it?s any harder or easier. I believe it all depends on the individual and how serious/focused/committed they are to their goals.

19. Your thoughts on the next 1 year, 5 years, 10 years?

There will continue to be many, many markets in Australia to have good to excellent growth prospects. I do believe that investors will need to be a little bit savvier in how they go about selecting properties that have good potential for CG. I think it?s very important to be able to manufacture some growth and not solely rely on market movement for the short term though, as this also mitigates some risk.
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