In this episode we delve into the benefits of buying in blue collar suburbs with lower socioeconomic statuses than their neighbours. While many people see a prestigious suburb as the more desirable option, Loo has found time and time again— especially amid the latest boom— that this is often not the case. After all, the difference between suburbs can lead to an extra $60,000 in equity, propelling you to expand your portfolio beyond your initial expectations. A self-confessed ‘stubborn buyer’, Loo explains how being unemotional in your suburb choice can generate over $300,000 in growth in just one property, rather than taking 10+ properties to achieve the same result. While a Besser block house may not be your first choice, Loo recommends giving it— and that slightly less fancy suburb next door— a crack.

Timestamps:
00:33 | Emotions Are Allowed… Sometimes
03:36 | I Don’t Give a Damn ‘Bout My Bad Reputation
05:11 | What Have I Gotten Myself Into?!
10:23 | From Cringe to Character
12:04 | A Good Balance
14:51 | Is It All It’s Cracked Up to Be?
18:03 | And Sometimes, Throw Your Emotions Out the Window…
23:51 | …And the White Noise, Too

Resources and Links:

[00:06:12] Because even though a lot of areas in Brisbane have boomed, many of the blue chip areas haven't doubled. Maybe they've experienced 50% [or] 60% [or] even 70% growth. But doubling? No. Very few of them. But in these areas, it's possible, these low socio economic areas. 

This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

 

I’m Tyrone Shum and in this episode of Invest Like A Pro we’re chatting with founder and director of House Finder, Simon Loo. He explains why it doesn’t always pay to listen to the naysayers, how to strike the perfect balance when it comes to choosing suburbs, and how buying at a lower price point in a lower socioeconomic area can lead you to 100% growth in just two years.

Tyrone Shum:   

While areas in Brisbane such as Logan, Woodridge, and Crestmead may not be beachside, they’re certainly worth taking a ride on— as long as you know how to surf these particular waters. Loo recognises buying in a lower socioeconomic area is difficult for some investors to consider, but the benefits and rewards at the end of the ride can be pretty darn swell.

Simon Loo:   

[00:00:33] As property buyers, we're always conditioned to buy the best we can afford. The best areas, the best house, the best street, and in many ways, the best in terms of how we, or our family and friends perceive that property. 

 

[00:00:55] I think for a lot of us... I don't want to say it's, like, an insecurity that we all have, but, it's a massive purchase for anyone. And I think it's natural to want to be proud of that purchase in terms of being able to tell your family and friends that 'I bought this amazing house in this amazing suburb'. 

 

[00:01:15] But in my experience, and [the] experience of a lot of my clients and colleagues and people who are professional investors, I guess you can say— that doesn't necessarily translate to the highest performance of property investing. 

  

[00:01:35] What I mean is, using my example, when I started buying properties from day one, I was gravitating towards— okay, I went to a mortgage broker, find out exactly how much I could borrow. And I was looking at properties at the absolute max of that affordability.

  

[00:02:01] And I was also focusing on compromising on the property itself, to maybe getting to a "better" suburb. So at the time, the best suburb I could afford was in an area called Ryde in Sydney. And instead of buying a house, maybe further out west, which I should have, I ended up with a little two bedroom unit instead,

Tyrone Shum:   

[00:02:31] This was in West Ryde, if I'm not mistaken.

Simon Loo:   

[00:02:34] It was in West Ryde, correct. 

Tyrone Shum:  

[00:02:35] That's right. I remember this story.

Simon Loo:   

[00:02:39] I still own it, by the way. I've had the opportunity to sell it, but I thought, it's my baby! It's my first baby.

Tyrone Shum:   

[00:02:44] You gotta keep that, yes.

Simon Loo:   

[00:02:46] Interesting I talk about being unemotional, but here I am being emotional. When you get to a certain point, you can afford to be a little bit emotional about something, so it's all good.

Tyrone Shum:   

[00:02:57] It's a balance! 

Simon Loo:  

[00:02:58] It's a balance. When I bought this property in West Ryde, it was negatively geared, negative cash flow. At the time, I paid way too much for it. And in hindsight, even now, when I'm looking at the massive boom, that Sydney has experienced, if I had just put that money into an area that was possibly a little bit lower socioeconomic at the time— not only would it have paved the way for me to grow a larger portfolio, but I would have made a lot more money on that particular property as well.

Tyrone Shum:   

[00:03:36] Can you just explain to the listeners, what lower socio economic would be in reference to, so people can get an understanding?

Simon Loo:   

[00:03:44] In any major capital city, or in any area, really, there are good and bad areas. Perceived good and bad areas. And then there's a lot of stuff in between as well. So a lower socioeconomic area is an area where it might be a large mix of renters. It might have, at least printed in [the] media, or at least the perception of that area is considered [to have] high crime rates, lower socioeconomic, maybe the demographics of the population living there is not as desirable, if that makes sense. 

 

[00:04:23] And it's an area that normal sane people would naturally gravitate out of. They don't necessarily want to get into it, especially from an investment perspective or property standpoint. 

 

[00:04:39] But I'm going to use Logan as an example. Because Logan, literally two or three years ago, was one of those areas if you jumped online, did your research on forums and things like that, it was bashed to death. It was one of those areas that people were like, 'Don't ever buy there, it'll never do anything, it will never go up. The demographics there are way too bad.' And just really...

Tyrone Shum:   

[00:05:11] A negative sentiment on that particular area. And I'll admit, I looked at that area too on the recommendation to have a look, and looked at Logan, Loganlea, Woodridge, Marsden, all those areas, I even went up to have a look. 

 

[00:05:27] When I first drove up there, from my personal experience, I thought, 'Wow. There's trashed cars on the street'. Everywhere. And I thought, 'Wow, what have I come up to have a look at?' And they kind of put me off because I saw that. And obviously in hindsight, when we talk about it, it's obviously changed quite a bit.

Simon Loo:   

[00:05:47] We can talk about it now, obviously, in hindsight. Because the properties that I bought just two or three years back, for myself and even for my clients as a buyer's agent, have more or less doubled already. 100% growth. 

 

[00:06:04] And the growth has come about, not because everywhere else in Brisbane is also booming. Because even though a lot of areas in Brisbane have boomed, many of the blue chip areas haven't doubled. Maybe they've experienced 50% [or] 60% [or] even 70% growth. But doubling? No. Very few of them. 

 

[00:06:26] But in these areas, it's possible, these low socio economic areas. And this is what I mean when I talk about riding the socio economic boom. Whenever there's a massive boom cycle that we're currently seeing in Brisbane, or even what's happening in Sydney, properties become too expensive. Especially in desirable areas. And that forces people to move further out. It's called urban sprawl, I'm sure a lot of listeners would have heard of it. 

 

[00:06:52] And when they move out, they inadvertently gentrify lower socio economic areas. And these become the next "middle class" or more "acceptable" owner occupier friendly areas. And that's exactly why a lot of my portfolio and my clients' portfolios that have bought in places like Logan, that were low socio economic, have experienced so much growth and so much equity now that we're all on to our next stage of property investment. 

 

[00:07:27] The beauty with these areas is when you buy them at a point before that gentrification or that socio economic change happens, you buy them at the floor rate. You buy them at, like, the cheapest they can be. And the yields, the cash flow is typically quite high. Especially in comparison to other parts of Brisbane. 

 

[00:07:54] So what that means is, for an average investor, who's on an average salary with average savings, it allows you to buy more. It allows you to buy a larger quantity of these properties, which in turn exposes you to a lot more growth when that socio economic boom, or socio economic shift happens. Does that make sense? 

 

[00:08:19] I wanted to make this point, because a lot of people have that fear of jumping into these areas. I talk to clients every day, especially investors. 'Oh, Simon, I really only want to buy within 10 to 15 kilometres of the city', 'I'm really not looking into these areas, because of X, Y, Z, it's too uncertain, they're bad areas, they're not going to do anything'. 

 

[00:08:41] I think that is sometimes correct with some areas, but you need to be selective, even with these sort of low socio economic areas. You can't be buying in areas that maybe are too low socio economic. They're in areas that have intrinsically something physically there that will hinder growth, irrespective of what anything else is doing at that particular point in time. So being selective of your suburbs is important.

Tyrone Shum:   

[00:09:15] I want to add as well, too. This is the thing, you don't necessarily have to go into the particular suburb that has had a lower socio economic [reputation], and buy the worst in that area. There are going to be also homes or houses in there, or investment properties that are in a good quality part of that social economical area. 

 

[00:09:15] I remember— this is the interesting thing when I was driving around yesterday— you kind of know which side is the really, really bad side of Logan. And then when you hop onto sort of the other side of Logan, you go, 'Wow, that site looks really good, actually. It's reasonable, and it's affordable, too'. That's the side that you want to sort of sit on. 

  

[00:09:49] And what will happen, as you've just talked about with gentrification, is that eventually all that whole area gets cleared out. And a good example and this is mostly for Sydneysiders, and I'm sure interstate [residents] would probably know, Redfern was a classic example of a very... I guess you can say [a] rundown suburb in Sydney. It's not far from the city, but it was very, very much considered as being the kind of area, and there was a lot of drugs going on in that area. Housing Commission. All that. They're still there. But it's completely converted over to now a high demanding area.

Simon Loo:   

[00:10:23] It's got a lot of character, a lot of cafes, it's got that sort of influx of... it's fashionable now to live in Redfern. It's kind of like the next Surry Hills.

Tyrone Shum:   

[00:10:36] Spot on. And I'm not saying that Logan's going to be like that. But maybe one day it could be. And people will look back in 10 [or] 20 years and say, 'Oh, I'm living in Logan'. 'Wow. It's a good suburb you're living in'. Whereas 10 years ago we were going, 'Wow, I don't know if I want to live in Logan'. It's like that perception changes.

Simon Loo:   

[00:10:54] People forget that Logan is literally just a council area. You've got Daisy Hill, you've got a lot of extremely sought after owner occupied suburbs, properties that are well over a million bucks in Logan. And then on the same hand, you've got areas like Kingston, Woodridge, and Logan Central, which are still considered probably one of the lowest socio economic areas in Brisbane, and maybe southeast Queensland. So it's a balance. 

  

[00:11:27] With that said, I know a lot of people that have bought properties in Woodridge and Logan Central and Kingston and they still made money. But I would say the risk of buying and holding onto those properties are a little bit higher. 

Coming up after the break, Loo delves deeper into how the socioeconomic boom works…

[00:13:24] When you get into that kind of feel, I think it kind of sets you up for experiencing that growth a lot sooner. Like, sooner rather than later. 

How he learnt about building materials the hard way, but it was far from the end of the world…

[00:16:35] But it's still rented. It's still rented, it's still producing cash flow. Two very good tenants actually, might I add. 

He shares when you can and can’t afford to invest your emotions as well as your money.

[00:24:16] If you break down all the white noise, I guess you can say, we're all investing to make money. We're investing in property, shares, businesses, whatever it is, to hopefully make some money. 

And that’s next. I’m Tyrone Shum and you’re listening to Property Investory.

Loo advises his clients who are new to investing to steer clear of the lowest socioeconomic areas and to aim for the middle of the range, so that they don’t take on too much of a financial— or a mental— load.

Simon Loo:   

[00:12:04] If you start off with a bunch of properties that are super low socioeconomic, the boom hasn't happened yet, and you're exposed to bad tendency issues, a lot of maintenance issues... it's going to mentally stop you from pursuing more properties, and ultimately reaching your goals. 

  

[00:12:25] When we analyse the right areas in these sort of low socioeconomic parts to buy, we still make sure they have that owner occupier appeal. Family friendly, good amenities, drive around the streets, they're nice looking houses, not trash and burnt out cars and stuff like you mentioned before, a lot of the streets and things like that. 

  

[00:12:47] So those are the areas that are next in line to gentrify. When people get priced out. When your mum and dad gets priced out of inner city Brisbane, and they're forced— well, not forced, but they decide to buy into more affordable settings. They do that same drive around and they go, 'Oh, you know what? Kingston, Woodridge, and Logan Central's very rundown. But Loganlea is landing, Nathania, Crestmead, Browns Plains. Like, these areas are quite nice. You can drive around and it's just your standard house in suburbia. 

 

[00:13:23] So when you get into that kind of feel, I think it kind of sets you up for experiencing that growth a lot sooner. Like, sooner rather than later. So, that's called riding the socio economic boom. 

  

[00:13:40] And the socio economic boom typically happens in line with a property boom cycle. Like I said, it's tied very closely to affordability. When a city booms, the inner city parts go first, or at least in this example, using Brisbane, the inner city parts went first. And then it's getting filtered out into these sort of outer areas. And if you bought several of these properties a few years ago, [or] even today, I think there's still so much opportunity in Brisbane, which we're definitely still picking up. I think you kind of just expose yourself to more growth.

Tyrone Shum:   

[00:14:18] Yeah. What I'd like to ask, since we are talking about you and your portfolio and what you've experienced as well. Are you able to share with us maybe two of your properties that you might know [off] the top of your head that you purchased in those areas that have shown some really good examples? Because I remember when I was looking, this was maybe 10 years ago, we could have picked up properties for about $180,000 [to] $220,000. I remember you posted them on Property Chat, you were picking them up like peanuts. That's like just going to a candy store. I don't know how much they're worth now but my gosh, those were good times.

Simon Loo:   

[00:14:51] I'm a very stubborn investor. I bought these properties, and look, they were really crappy houses when I bought them. But I bought them cheap, and I bought them in suburbs like Crestmead. I bought them in suburbs like Loganlea. When I was buying them I was buying them for around about the $230,000 mark. This was maybe five or six years ago. 

 

[00:15:20] They achieved very little growth, honestly, during that immediate timeframe. And when I bought them, they needed a bit of work. 

  

[00:15:37] We'll talk about a property I bought over at Loganlea. It was an old Besser block house. It was on a big block of land, 985 square metres or something like that. Fairly close to Loganlea Station, all that kind of stuff. But being Besser block... this was, like, my third or fourth property. So I was still quite new to investing. I thought Besser block was great, because I knew I was buying in a low socio[economic] area and I knew that tenants could punch holes in the wall. It was literal concrete. 

  

[00:16:10] But what I didn't know was Besser block is extremely prone to cracking. So there's a very slight movement in the ground, which all houses settle over time. Anyway, there's massive cracks throughout the entire property now, which has been filled in— obviously, it's tenanted, so I have to fill them in— with, like, this special kind of sealant. It's a pretty shoddy house, put it that way. 

  

[00:16:35] But it's still rented. It's still rented, it's still producing cash flow. Two very good tenants actually, might I add. And $230,000 we paid for this house, and now literally, I would say maybe about three or four weeks ago, we had a knock on the door, an agent called me up and said, 'Hey, I have someone wanting to buy it for $600,000'. Because of the land potential. 

  

[00:17:04] And anyone who knows Loganlea knows that $600,000 for a property with this land in Loganlea is not far fetched in this market. That's a classic example of an investor, or myself, biting the bullet and going against the grain. 

  

[00:17:23] I remember buying this house and I actually drove up at the time to look at the house. And I think it was my dad, because my dad's quite handy, so I think he wanted to come up and maybe help me fix a few things. He came up as well. And the general sort of consensus was, 'What the hell was I doing?' 

Tyrone Shum:   

[00:17:47] I can imagine your dad like that. Because I've met your dad and had a chat to him. And yeah, he's the kind of person who's very handy. Same as my father, they have very similar traits. My father would have said exactly the same thing. And I would have listened to my father. That's the thing. 

Simon Loo:   

[00:18:03] Looking back now, all respect to him, but they're not property investors. They're coming from a point of care. They're coming from a point of what they know. Which in the property industry, or the property investment industry, is quite limited. So even though there [were] those kind[s] of personal hurdles to get over to buy a house like these, I knew what I was doing. I knew this was part of the strategy. I knew these areas would gentrify. All those fundamentals made sense. 

 

[00:18:37] It was right near the M1, literally. I've driven to Brisbane and back several times. And it was, like, 20 minutes [to] drive the city, 20 minutes back, to the Gold Coast, it's easy. A lot of shops, schools, parks and transport, everything's there. 

 

[00:18:54] Even though I bought a crappy Besser block house, there were a lot of really nice established houses in Loganlea, as well. So I knew that there was potential for that sort of socio economic boom. 

 

[00:19:06] And more importantly, when I got it at $230,000, it was probably worth about $300,000 at the time. I always bang on about buying good deals. And for me, just purely numbers wise, putting my blinders on about how I would never ever live there and that kind of stuff— there was money to be made. And that $60,000 difference of equity that I've managed to pull out, helped me buy a few more properties in Crestmead. So that enabled me to buy more houses in these low socio[economic] areas. 

 

[00:19:42] Which now, obviously, looking back, has exposed me to a lot more growth. It's kind of like owning 10 or 20 or 30 Loganlea houses that have gone from $230,000 to $600,000. And still going, at this point in time. So that's the power. That's the power of being able to be unemotional and just thinking about the strategy rather than how you feel about buying your next property.

Tyrone Shum:   

[00:20:15] And that's allowing you to be able to also grow into other amazing deals, which we're talked [about] on previous episodes, like the ones that you purchased at Port Macquarie as well. If you didn't have the ability to [have] be[en] able to have built up that equity over that period of time due to what's happened over this period of time. And it's a matter of buying and holding it for that period of time to be able to access that equity, you wouldn't have been able to purchase those additional properties that now you've turned into Airbnb and generate great cash flow as well, too. 

Simon Loo:   

[00:20:42] It happens in stages. I always look at property investing in stages. Just because we're buying these low socio economic houses, that's not the end of your journey. That's just the start of your journey. Once you've got your five or 10 established houses that [are] generating equity, generating passive income, they're solid, low maintenance.

  

[00:21:01] I mean, even this house in Loganlea that's, I would say, more or less falling apart, the rental demand is huge. It's providing me with a passive income. Yes, I need to spend a bit of money on it every now and then in terms of maintenance, but probably no more than any other investment property. 

  

[00:21:17] And because of the expectation of the quality of the house, and maybe the area, the maintenance that I can do on it, or get away with, I guess you could say, can be quite affordable. If I need to replace a tap, I just get the cheap one from Bunnings. If I need to redo a benchtop or whatever, a kitchen benchtop, I don't have to replace marble. I can just go again to Bunnings and get one of the more affordable options.

  

Tyrone Shum:   

[00:21:28] Why would you need to? It’s a tenanted property. You just put the basics that they need, and they're happy. And that's the most important thing. 

Simon Loo:    

[00:21:59] Once you establish that portfolio of 10 properties and you've got that going, then yes, you can target your inner city fancy renos, like you see on The Block. You can do it properly. Or instead of doing little subdivision sites, you can do maybe four or five subdivision blocks, which obviously yield a lot higher returns. Or maybe you can get into blue chip renovations, maybe you can get into commercial property, like large scale commercial properties that actually give you a decent yield. 

  

[00:22:37] So, property for me has happened in stages. I've got my initial stage, I've got that set and forget to bring in my initial passive income, if all else fails tomorrow, I can live off. And then now I have the financial luxury to target more risky, and maybe higher return projects as well.

Tyrone Shum:   

[00:23:02] I think what was also good that you touched on briefly— and we'll go into a little bit more depth about this— is the mindset behind it. Because at different stages of your journey, you'd have to change your mindset to fit, to ensure that you can overcome some of the challenges. 

[00:23:19] As you said, some people who you don't recommend when they're starting out [at] the beginning of their journey not to go and buy into those lower socio economic areas, because mindset wise, they're not ready for it. 

 

[00:23:30] But because you've done so many of those now, you're comfortable with that. You know what the risks are. Your mindset's in that headspace, it makes [it] a lot easier for you to transition. So I wouldn't mind just delving into that aspect about the mindset side of things of how you've been able to gradually overcome.

Simon Loo:   

[00:23:51] I was the same as any other investor starting out. Very emotional, all based on how I feel, based on the expectations of the people around me to buy these properties. A turning point for me was the realisation that had I done things more unemotionally, I would have made more money. 

 

[00:24:16] If you break down all the white noise, I guess you can say, we're all investing to make money. We're investing in property, shares, businesses, whatever it is, to hopefully make some money. 

  

[00:24:28] And the realisation that by being emotional about buying houses was an opportunity cost. For me to not make as much money or make less money with buying these initial houses. It was kind of like a light bulb moment in my head, meaning that, 'Okay, every property I buy from now on, [I] can't be emotional about it. It's got to be about numbers. It's got to be about unemotional factors that would actually generate profit. And that will enable me to build on that, build a portfolio on that'. 

 

[00:25:07] It's definitely a hard thing to do. I remember buying each and every one of these houses. As soon as you sign on the dotted line, the doubt creeps in. Did I do the right thing? What if these areas never experience growth? What if the houses are not up to standard? What if the tenants are bad? Whatever, all the things that people tend to worry about. 

 

[00:25:33] Another thing that actually helps is the price point of these houses. Naturally [in] low socio[economic] areas, the buy in is a lot cheaper than obviously more expensive areas. And mentally, it's easier to get your head around the fact that, back then I was spending $200,000 or $300,000 on these properties. But even now, spending $500,000 [to] $600,000 on a property is not as daunting as buying a one to one and a half million dollar property. 

  

[00:26:08] The prospect of getting into that much debt, the prospect of having to pay the amount of interest on a larger loan, the prospect of seeing what properties are renting in that area and realising the cash flow is so bad kind of gave me a peace of mind. 

 

[00:26:29] And coming from that last point as well, cash flow, I think that is another point that enabled me to overcome that hurdle. Because when I was buying these houses for $250,000 to $300,000, they were yielding at least 6% [to] 7% rental yield at the time. So cash flow was great. 

 

[00:26:48] And even now, when we're buying houses for clients for $500,000 [or] $600,000 [or] $700,000, and they're bringing in $500 [or] $600 [or] $700 a week in rent, on the interest rates that we're on now, when we do the cash flow analysis, they're all cash flow positive. 

 

[00:27:05] So, for me, especially when I was working nine to five, when I was still working nine to five back then, having that peace of mind that, 'Okay, if it goes up, great. If it does nothing, fine. But even if it goes backwards, I've still got this cash flow coming in, that's not going to put me on the streets. It's not going to jeopardise me in a position where I am struggling financially, or I have to sell the house or whatever the case may be'. So, I think that coming back to the numbers, the numbers definitely helped me make that decision or take that plunge at the end of the day.

Tyrone Shum:   

[00:27:45] It's absolutely so, so important when you mentioned that as well, too. Because when you actually have say, for example, a property that pays itself off without you having to put more money in— that gives you the assurance that no matter what it does, you can sleep at night.

 

[00:28:00] Because I know what it's like to be in debt, and also family wise to be in debt with so much, when we purchased something that had such a huge mortgage on it. But it was also negative cash flow. And I think back in our parents' generation, they were hounded in saying, 'Buy for negative gearing purposes so you can offset the high income'. 

 

[00:28:23] But looking back at it, it was probably a very, very bad loop or spiral to go into, because ultimately you just get into more and more debt that you won't be able to pay off until, hoping that the property goes up in price.

Simon Loo:   

[00:28:36] We see this time and time again with people doing house and land packages and off the plan units. That is very physically appealing. I mean, who doesn't want brand new? But you don't even have to go that deep. Just look at the surface of it and realise, 'Oh, wow, I've actually paid so much higher than what this property is worth'. For that feelgood factor. Even if those houses go up in value, you're just playing catch up, because you probably paid way too much to begin with. So anyway, I think it's a pretty important lesson for a lot of people, a lot of investors, especially when they're starting out, to learn.

Thank you to buyer’s agent Simon Loo, our guest on this special episode of Invest Like A Pro presented by House Finder. 

Also, for being a loyal listener of the podcast, I’ve asked Simon to offer a free 1 hour strategy session normally valued at $500 to help you put together an actionable property plan.

To get your free strategy session, simply visit housefinder.com.au and fill out the contact form, or call Simon directly on 0415 626 342 and quote “Property Investory”.