Building Safe Returns from Development: The Truth from the Inside with Fabian De Marco
Fabian De Marco is a property finance guru with experience in land and construction finance across senior debt, mezzanine debt, preferred equity and joint venture funding. He’s had experience in funds management, financial markets and retail banking and held senior roles for leading banks such as CBA, NAB, Citibank and Bank of Queensland. But on this episode of Property Investory we see what makes him tick. He shares his story of a childhood centred on dreams of professional football, going toe to toe with some of Australia’s all-time legends of the sport. We hear tips on how to juggle investing, work and a young family. He tells us how he got his start in the world of property finance, without university or previous job experience, and how his work his transformed him into a lifelong learner even 20 years later.
We’re back with debt specialist Fabian De Marco as he shares his keys to overcoming one of investing’s greatest enemies: the person in the mirror. He reveals how he’s managed to keep self-doubt and comparison at bay as well as how others do too. He tells us the blueprint to property
success that he’s seen used by some of Australia’s biggest market players and why it can pay to slow down. Plus, the numbers behind your borrowing decisions and an evaluation of the pro’s and con’s of private lending. All for the chance to get one step closer to reaching your goals, less about money and more about freedom.
4.30 | Home is Where the Heart Is
8.25 | Ball is Life
13.01 | What Could’ve Been
16.01 | Starting from Scratch?
21.12 | No Test Runs
Resources and Links:
Fabian De Marco:
[10:49] I'd say up to the age of 16, I was playing at the highest level that you could for a 16 year old in Australia. [11:02] A couple of my teammates are probably well known— Tim Cahill—I played with him on his team for a couple of years at Sydney Olympic. I also played alongside Lucas Neil a few times when I was younger as well.
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 we’re speaking with Fabian De Marco, Managing Director of Commercial and Construction Capital. We’ll hear how he juggles a business and his own personal investments. He’ll share some life lessons from a self-proclaimed former party animal, and the difference between loving the game of soccer and living it.
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Home is Where the Heart Is
De Marco is a Senior Commercial Lending specialist with over 20 years of financial services expertise honed within property development and corporate finance. He’s worked for the big banks and the small ones. He’s seen the good, the not-so-good, and the great ways of doing property finance. But maybe the best part about him? He’s a local boy from Sydney!
Fabian De Marco
[0:26] You can probably tell by the surname that I have some ethnic descent. My parents were both born in Italy and migrated over to Australia when they were about 13 or 14 years old. I was born and raised here in in Sydney. I would describe myself as someone that is adventurous, someone that likes having fun, but someone that can also be serious when when they need to.
[1:05] I'm the managing director for Commercial and Construction Capital. Commercial and Construction Capital are an expert firm in arranging non-bank, private finance for property investors and property developers.
As someone who’s worked in a high pressure environment for several decades, you’d think De Marco can handle everything that’s thrown at him. You’d be right if we were just talking about finance, but family? I don’t think anyone has that figured out yet.
Fabian De Marco
[1:35] The best way to describe it is—and I know the younger listeners are probably not going to have any idea about what I'm about to say —but when I was little, there used to be these little Christmas things that were filled with water. And when you shake them it had snow in it. And as you shake it the snow would go everywhere and it would slowly then settle back down to the ground. But when you first pick it up and you shake it, everything goes everywhere. And then as the water starts to settle, everything starts to settle back into place, and that's pretty much my day in a nutshell now. I wake up in the morning, we've got three young boys, and it's just nonstop from the second they wake up to the second we get them to bed. Obviously in between there there's some serious stuff, I run a business.
[2:33] I try to keep myself active by trying to get to the gym as well in the mornings, at least three or four times a week. I can't say that always happens, but that's typically the plan. We start off with with a little bit of exercise in the morning, get the kids off to school and then get into the workday. Obviously, afternoons, the kids come home. There's that period between sort of three o'clock and five o'clock where both my wife and I are like circus juggling clowns where we're juggling between kids and trying to take emails and take calls and still try and present a very corporate and professional appearance. All whilst we've got kids asking for afternoon tea and activities and all of that. It's very exciting, it's that time of life for us. The one thing that I've realised, you can miss a lot of life if you're constantly trying to always be at the next checkpoint instead of sort of just appreciating where you are. This is the phase of life we're in right now, it's chaotic, but we try to find a little bit of beauty in the chaos, if that makes sense.
Now De Marco is a father, trying his best to forge a great life for his family. His own childhood was a little different.
Fabian De Marco
[5:06] For the listeners that are not from Sydney, I'd say it's about 20 minutes outside of the Sydney CBD in an area called Ryde. I went to school in that area as well. I've pretty much been in Sydney my whole life. We've toyed with the idea of possibly life outside of Sydney, but at the moment Sydney is where we call home.
[5:51] The best memories I have is sort of just playing with your cousins on a weekend or after school. We did everything, we'd play soccer, we'd play cricket, we'd chase cicada's, knock on the neighbor's doors and go and play in their backyard. There's a lot of things that kids don't I think have the opportunity to do today. The world is a very different place now than it was a while back. I don't want to say how long back but it was fun. I have great memories of my childhood. It’s something that I hope my kids look back as well and can say they have good memories as well.
In the modern world we live in, great memories can look different to every new generation.
Fabian De Marco
[7:07] My little one was at the TV the other day just trying to swipe and change the channel. At first we looked at him and said, 'What's he doing?' But then we thought, 'Why wouldn't he do that?' Every single device he touches, he can touch and swipe it and move it and it looks just like a giant iPad, so it would make sense. That's the future. Obviously, it's a balancing act, you try to sort of not expose them to too much technology, because obviously you want their brain to develop organically. But at the same token, that's the future, that's the world they're growing into. You can't shield them from it and not let them be exposed to it, because then they're probably going to grow up a little bit behind where everyone else is. It's a bit of a balancing act, trying to balance, what's a fair and suitable amount of time on devices.
Ball is Life
Sport has always played a big part in the Australian way of life. For De Marco, it really shaped how he has lived his.
Fabian De Marcp
[8:37] Growing up, I was very, very much into my football, into soccer. I would say I would describe myself as obsessed. That's all I thought about, that's all I wanted to do. I was convinced that I was going to be a professional player. In my head through high school, it wasn't a matter of if, it was only a matter of when. Look, truth be told, I probably had enough talent to probably play it at a higher level than I did. However, I think one of the key fundamental parts, which is attitude, discipline, those sorts of elements, I lacked poorly, which brought my career to an early halt. So I never gave too much thought to university or anything like that whilst in my year 11 and 12 studies. Hence when I finished high school, I ventured overseas for a short stint to trial my luck overseas. I came back with no success and once I got back I— look obviously as an 18 year old, you're just trying to earn some money and go out and have some fun, which is what I sort of did. That might be a good segue I suppose into the next phase. I ended up just working and trying to get myself some money so I could go out on the weekends and have fun and and I sort of always said to myself, 'I'm still young, I’ve got plenty of time to get serious about my training again and give professional football another crack.' But as time goes on, you keep putting everything on the back burner and eventually time passes you by and you start to see all your old friends playing on TV and playing for the Socceroos in World Cups and then it hits you like a ton of bricks. Your chance is gone.
[10:49] I'd say up to the age of 16, I was playing at the highest level that you could for a 16 year old in Australia. I never played for the national team or anything like that. But a couple of my teammates are probably well known. Tim Cahill, I played with him in his team for a couple of years at Sydney Olympic. I played alongside Lucas Neil a few times when I was younger as well. So, a few of the Socceroos, that's as a 15, 16 year old when I was sort of playing at that level. As I said,, that jump from that age group to senior football, it's all mental. It's all discipline, it's all hard work. And if you're not willing to do that, then you don't have a chance. And unfortunately, I was more concerned about going to nightclubs chasing girls and having fun than I was about training.
What Could’ve Been
Hindsight is a powerful tool that we are all presented with about a decade too late.
Fabian De Marco
[11:52] I had a lot of fun. I definitely can't deny that I had a lot of fun in my 20s. Obviously, hindsight is a beautiful thing. It was a lot of great lessons learned to put that away.
[12:40] There's no doubt, being a professional football—So when I say football, I'm referring to soccer. I just habit by calling it football— Being a professional in that sport, you're pretty much set. If you play anywhere in Europe, provided you invest your money wisely, you should be financially set for the rest of your life. But it's one of those things. I always think if I had gone down that path, whilst it sounds glamorous, and it sounds like it would have been amazing. I look around and I think, 'Well, I wouldn't have probably wouldn't have these kids, I probably wouldn't have met my wife, I probably wouldn't have learned all these lessons over the last 20, 30 years that I have now to draw on. So, it's one of those things. My dad's got a good saying that he always says to me, “If you look over your fence and the grass looks greener, sometimes it's not a matter of the grass being greener, it means you need to water your own grass.” I always sort of look around what I have and I'm quite grateful for for what I've got.
From footballer to financier, something had to happen in-between. De Marco says his journey wasn’t as profound as some others, but it did lead him to the best outcome he can think of. And it’s not his job.
Fabian De Marco
[14:21] I sort of thought, 'What's the easiest job that I could get that sort of fits with my personality and what I like?' When I was 18, 19, I was quite a sociable person, I enjoyed music. In Parramatta Westfields there was a clothing store, like a young hip clothing store— I approached them and just said, 'Look, if you have any casual work I'd love to work.' I mean for me it was you go into a shop, you say hello to people and there's music blaring. It was just a fun thing for me to do and I thought, “they're gonna pay me for this too, even better.” I worked in that sort of role for a year and a bit, two years towards—when I was around 21, I met my wife who was working two doors up in another shop. At the time, she was going to uni, she was studying accounting, or a Bachelor of Finance in Accounting or something. But I liked her and I sort of got the idea, I thought, 'Okay, if I'm going to be her with long term, I've probably got to think about my future and maybe what do I want to do with my life?'
[15:54] I sort of started thinking and I had a chat with my dad who was working in finance at the time. And naturally, as any parent would, they sort of said, 'Look, why don't you have a think about this and I'll show you a little bit about it, I understand it.' So, I started learning a little bit about that through my dad's business at the time. Once I sort of thought I had a decent amount of knowledge I just applied for a role with a finance company at a very entry level position. And I did that, and twenty odd years on, here I am now running my own finance company. It's been one of those, not to sound cliche, but sort of started at the bottom and worked my way through it. And along the way I've done some study, some entry level studies, have done a couple of certificates in finance. I've done my RG 146 in securities, derivatives, managed investments. I've done a little bit of study, but really my education has been done through through basically trial and error.
Starting from Scratch?
While De Marco learnt the tools of the trade by using them on the job, he already had a natural disposition for finance, at least at the core level.
Fabian De Marco
[17:27] I like numbers. Numbers make sense to me. I like money, I like making money. I like understanding how money is made and I like property. So, property is something that really interests me. Now, whether it's property investment, property development. So when sort of thinking about the idea of finance, and when I talk finance, I'm talking about I'm working in finance to do with financing property, so buying and selling of property. The two sort of excited me, I sort of liked that idea. What's crazy is when I say I like numbers, one thing that might shock people is that in year 11 and 12, I did not do mathematics as a selected subject.
[18:22] But back when I was in Year 12, it was possible. I didn't do mathematics. But look, I don't mind admitting it, because I'm actually quite good with numbers now. My wife would kill me for saying this, but many, many, many years ago, she was interviewing for a job and one of the tests she had to do was in online mathematics. It was like a quick flash a question up and you've got like five seconds to answer it. And it was one you do at home, so I sat next to her and as the questions came up, I just gave her the answers like lightning straight away. And she came back and said, 'This is the highest score we've ever had on this test.' I said, ‘Not bad for someone that didn't do mathematics in year 11 and 12.
[19:20] My day to day role, I probably crunch four or five feasibilities a day sometimes.
No Test Runs
Of course, playing with someone elses numbers is one thing. Putting your money where your mouth is, is often where the rubber hits the road. For De Marco, this rings true even outside the world of investment.
Fabian De Marco
[20:20] The first purchase would have been, how long ago now, about 20 odd years ago now almost, maybe a little bit less. Obviously, just getting married, we were looking to buy a property. At that stage we weren't sure whether we wanted to buy it as an investment or one to live in. But it was, I remember, it was quite nerve racking. We found one that we fell in love with, which, as anyone knows puts you in a very difficult position when it comes time to try and negotiate price. It was one of those properties where it was a two bedroom apartment in Hunters Hill. At first, when you looked at it, we thought, ‘Look, it looks nice, but I don't think it will be the one.
[20:39] Usually when you go to buy, any of your listeners who buy property, and I'm talking about when you're buying a property that you're most likely going to live in, you usually make a decision within the first 20 seconds, or sometimes even just approaching the property you can make a decision about whether this is going to be it or not. Not always, but nine times out of 10 you can approach a property and straight away, 'I don't like this street, I don't like the driveway, I don't like this.' This one was a bit weird approaching it. We said 'No, I don't think so, the road looks a bit too busy and this and that.' The second we stepped inside and went out onto a balcony, it wasn't that it had a spectacular view or anything. The view was okay, but just something about it was so serene, we fell in love. And immediately we asked for a contract of sale and just started the negotiating process. So, it was very exciting.
[22:18] The most exciting feeling we had was, I suppose when they accepted our offer. We went to the offices and signed the contract. And that excitement was swiftly followed by sheer terror. Once we settled and got the keys and went to visit the property and realised just how bad a condition it was internally. We didn't you know, when you go to look at a property, you don't check little things like windows. Do the windows open properly? Are they jammed? Can the doors open? Are other other doors rusted? Or, what's this storage area like? So there's little things you don't check into. What was the condition of the carpets? Or underneath the couch? We didn't realise underneath the couch, the carpets were in poor condition. And so, we quickly realised a lot of the savings we had set aside were going to be used to bringing the apartment back up to a good standard for us living. But it was exciting.
Buying property to invest in was a bit of a shock to De Marco’s system. It’s more transactional, theoretical and sometimes even downright taxing, in more ways than one.
Fabian De Marco
[23:32] We later bought another villa in Putney which was a similar experience. We didn't particularly fall in love with it. But we fell in love with what we could do with this place. S,o this was something we bought and thought we could completely strip it down to the bricks and rebuild the inside. Both properties, I'd say if you were to look at them as investments, let's say you're buying to renovate and flip, I'd say we would have done well on both of them. I don't know if a lot of your listeners have been involved in property renovations and flipping and selling, it can be a pretty draining experience. Trying to coordinate things and all of a sudden, a quote has gone from two thousand to three and a half thousand because of something unexpected. And all of a sudden you're getting carried away with picking expensive tiles for the kitchen and the backdrop and so the budgets can blow out, costs can go up. But overall, I think it was an enjoyable experience. We've really liked it financially, I'd say the second property was more of a break even transaction. But it's fully enjoyable.
[25:19] That's always something you're thinking about. When you're youn, and you're buying a property to live in, most of the time in today's day and age it doesn't end up being the house or the property you stay in forever, because naturally family grows and you need more space. They're always sort of bought with a view to become an investment. It's easy to get carried away when you're new and you start renovating and dressing it up. And you've sometimes got to remind yourself, 'Look, we're not going to be here forever. I don't need the $10,000 benchtop.'
It’s this scenario where feelings and property become involved that De Marco says can be so damaging. Not because he’s heard about it, but because he sees it every day.
Fabian De Marco
[27:08] I have to say, the properties we've invested in, we've also invested in a commercial office in the city before, which was probably out of the three investments, was probably by far the best one. I wish I could say we've had a really bad experience on property investing, but I've seen some some horror stories. And I'd say the one thing that I would probably be wary of most if I was investing in property is not to over capitalise in the beginning. If you're buying a property for investment purposes, it has to be the only property purchase where I would go all out and not be worried too much about it is obviously a property that that's going to be your forever home. Because in that instance, you're going to enjoy it, you're going to be there. But if you're buying something for investment and the purpose of that acquisition is to give you either a profit, capital growth or income, then you have to be smart. So, I've seen in the property development space a lot of developers get it wrong, because they've maybe paid too much for this site, way too much. Because they get caught up at an auction and there's two or three people bidding and they all want the site. And it goes from where their feasibility told them that this site should be worth no more than 1.2 million, they ended up paying 1.6 million. So, all of a sudden, to get a profit out of this project, they have to sell the property for a ridiculous amount. That's never going to happen, and that's where you can get caught. I would probably recommend people to really take a close look on how much they spend in the beginning because that could ultimately affect how much profit you'll end up making on a property purchase.
[29:35] The amount of clients sometimes that I come across that sign contracts of sale, and then go and try and organise finance after is is just mind boggling. Now, I don't know if I see more of it because I specialise in that private space and most people that end up in that situation, tend to up in a non-bank private lending option. But I would highly recommend people at least engage with a financier or a broker to at least understand what their options are, before they sign a contract of sale. I've seen some clients that put themselves in a position where they may be buying a commercial property or a development site, and they've signed a contract of sale, they've got a settlement date now that's looming. They've gone to their bank, who they thought was going to do it and the banks turned around and said no. And now they've got two weeks to find a finance solution, or they lose their deposit.
[30:47] When you put yourself in that position, you open yourself up to predatory lenders because you can't hide your situation, it's there to see. And if you're not careful, you’ve got lenders out there who will take advantage of that and charge you astronomical rates and fees. I guess this sort of comes back to investors and anyone who's looking at property to sort of have a bit of a clean process, a strategic process that you follow when you're buying property or investing. You need to sort have a set criteria of things that you do. It's kind of like a pilot, don't let him take off or let her take off a plane off the ground unless all of the checks have been done by the engineers before and the plane is cleared for takeoff. They don't let him just take off and say, 'Okay, we'll just check it when we land or halfway up in the air. Doesn't happen. I guess when people are playing with their money, money is not the most important thing in the world, but it's up there with oxygen. It's pretty important, you can't survive without it. So, the thought of people being just careless with it and buying property and not thinking about the risk involved and how they can mitigate that risk. It's crazy sometimes.
When we last spoke with De Marco, we heard about his positive attitude to the mistakes of his past. He says he wouldn’t change where he’s ended up and learnt so much from those experiences. That makes an impact on his day to day.
Fabian De Marco
[0:20] Probably about six months ago, I had this moment where the universe sort of tapped me on the shoulder and sort of said, ‘Here is a little bit of wisdom that you're in desperate need off.’ Up to about six months ago, I was a pretty hard worker. Not saying that I'm not hard worker now, but I would really grind it out, I would have early mornings, I went through through a period about 10 years ago where I woke up at 3am every morning. There were weeks where I'd have periods where maybe I did three days a week or two days a week, but for a good 10-year period, I would get up at 3am. I'd work, I'd hustle, I would grind all of the cliche stuff and I wasn't seeing the results that I wanted. And I started developing a bit of a chip on my shoulder because of that. I felt like the universe owed me something like if I put in the work.
[1:25] I'd done the hours, no one else was getting up at that time, why am I not being given the accolades or all the rewards that I deserve? I started having a bit of a chip on my shoulder. Then I don't know what it was, but something sort of grounded me. One of my mentors is quite humble and sort of always drilled into my brain the importance of being humble and sort of being grateful for what you have, and thinking about that I started looking around, maybe it was COVID, started making me reflect a bit on this and started thinking, maybe spending more time with the kids. And I started realising, you know what? I'm actually quite lucky. I've got a lot of things around me that make me quite fortunate that a lot of people don't have and it just started making me think, and I started changing my mentality when I woke up in the morning.
It’s truly fascinating the impacts of a changed mindset, across both business and life. De Marco says the moment his headspace changed, he actually started to see results.
Fabian De Marco
[2:17] Instead of waking up with this chip on my shoulder, thinking that the world owes me something, I'd wake up and I just make a declaration in the morning to the universe, I'd say, ‘I'm going to wake up today, I'm going to do everything I can, I'm going to put 100% into this day. I'll do the best I can in work, I'll do the best I can as a husband as a father. And if you want to give me anything in return, I'll happily accept it, whatever it is, I'll say thank you. If you don't want to give me anything, that's fine.’ Tomorrow, I'll wake up and do the same thing, and I'll tell you what, I don't know if it's just coincidental, but since I took that approach it's been like night and day the difference. Business has just skyrocketed, I feel a lot more relaxed, I feel a lot more at peace. And things are well. And don't get me wrong, it's not like a magic thing where nothing's gone wrong. Ever since I said that, like there are days where the universe will test me and say, 'Okay, let's see if you really stand by this.' Or is it just something you're saying, because things are going well now. But a couple of times, I sort of went through a few moments which I would classify as high frustration moments in the business. And I sort of kept my cool and stuck to what I sort of believed in and things have sort of continued on in a nice way.
[3:43] I think there's something in that, especially in today's day and age with all this social media, I see it with so many young people. It's so easy to get caught up in looking at everyone else's life thinking that you don't have something or you know, you should have more and you're behind and this and that. But the reality is, if you look around, there are a hundred reasons why you've got everything you need to be happy. There is nothing wrong with ambition, and constantly striving for more and I think that's fundamental to sort of keeping yourself active. But there has to be a moment where you sort of say, ‘Thank you.’ Simple words, just thank you, and take that on board. That's just a personal experience. That was a moment that I'd say was life changing. It was a big shift in my head and I've definitely noticed a change.
Think Fast, Act Slow
Speed is a crucial element in the world of football. But De Marco says in the world of property it can be an investor’s worst enemy.
Fabian De Marco
[5:39] One thing I did as a young, young man is I moved very quickly on impulses, on things that I had an interest in. I took an interest in my early days in the stock market, and I was quick to go and borrow money and invest and see how high I could could reach, but, it's like that with everything. But as I've sort of gotten older, I've realised it's better to slow down, be more strategic, really do your research. At this stage, I've got the best opportunity to learn because my job day in day out entails me looking at property development projects, understanding the numbers behind them, understanding which ones make money, which ones lose money, why they make money and why they lose money. So it's just an underground training thing at the moment. So I'm really enjoying that, I'm building up my knowledge and when the time is right, then that's something I'll definitely venture into. But at the moment, it's something that I'm sort of learning more about every day. It's something that I think a lot of people sometimes don't respect the amount of knowledge that is required in order to do something great. Which is why I think a lot of people sometimes try things, they lose money, and they never try again, because I think sometimes in the beginning, we don't give the proper amount of respect to the craft.
[7:19] A mentor of mine once told me something really insightful. He said making money is not easy. You can have moments where it feels like money has come easy, but the reality is making money is not easy. People look at these property developers, and they think, 'Oh, wow, look how much money they make and how they built 10 apartments and made a million dollars.' Oh, that's so easy. I was buying a site tomorrow, and I'll put in 10 apartments and I'll make a million dollars. It doesn't work like that, there are about 500 things that could go wrong in that project that at any one time could turn that million dollar profit into a zero or a loss. And people don't understand that. It's not about just picking something and jumping full steam ahead into it. But you have to really understand what it is that you're doing. I heard a great saying once that risk is mitigated by the amount of knowledge you have about the subject that you're entering into. And that's why people say the stock market is risky. The stock market is risky for someone like me, that doesn't know much about stocks, yes. But for the guy who sits at home, nine hours a day, researching stocks, reading papers, immersing themselves in the stock market, the stock market is far less risky for that person than it is for me. So it's the same market, but one has a totally different level of risk. It's applicable to any subject, whether that's property development, property investing, the more you immerse yourself, the more you understand it, the less risky it is. You can never eliminate all risk, but you can certainly reduce it and the more you know about something, the less riskier it is.
De Marco gets a first-hand look at some of the most rewarding property projects in Australia everyday. He says the difference between those who make money and those who lose it is, almost always, painfully obvious.
Fabian De Marco
[10:18] Some of the successful strategies that I've seen from developers are the ones that sort of they have a bit of a plan in terms of what they're doing. When I say they have a plan, they may have a 10 project plan. So meaning that by the 10th project, they want to be at a certain level, whether that's the size of project, how much much income they want to be making, but they work backwards from there. They deconstruct it and say, 'Okay, to get to this level, I need to start from from this.' Whether I might want to start with building a duplex and I might do two or three duplexes and really understand how to do a duplex properly then I might buy a site and build four units, or six units or something like that, and slowly progress up to maybe 10 townhouses. And then once they have that experience, there might be up to say 30, or 40 units and everything is a progression leading you up to that moment. And everything that you do up to that point prepares you for those bigger projects. Those types of developers that have that strategy tend to be very successful and it comes back to that little thing I said about respecting your craft. Now, that's not to say there aren't exceptions to every rule, that's not to say that if you want to be a property developer, you have to start with a duplex. And there's no way you can start with 10 units or 20 units or something. That's not what I'm saying.
[12:03] What I'm saying is long term, the ones that have a plan, are the ones that are successful, that have a strategy. Whether that's to have a goal that they want to reach into deconstruct that and work backwards. Now, whether their plan, you might have one developer who's very well cashed up and says, 'I want to start with 10 units, and I want to work my way to 500 units.' So each person's starting point could be different, but the theory about having a plan and the strategy is the same, and that's the main thing. I suppose the ones who get into a bit of trouble, and now this is applicable for whether it's property investing or property developing, are the ones that probably don't look at sort of a steady progression. They may try to go from a $2 million project to a $20 million, big jump. The reason why it's not the process of doing a $20 million project versus a 2 million, the steps you have to do, council approvals, building contracts, all of those sort of things are probably very similar, if not the same, from a $2 million project to a $20 million, what's not different? The potential problems that can arise in the project, from a $2 million project to a $20 million project, all of a sudden you have a whole raft of new problems and issues that could come up that you have to deal with.
[13:43] If you don't have the experience on how to deal with those problems, that's where you can get in a lot of trouble. And the thing about property development is it's a little bit like being at a casino at the blackjack table or a roulette table. And this is how it works. You go in with your first bet, duplex, put my money on the table. Great, I double it, fantastic. Let's find another site to take my money. Let's go buy another site, which might be another duplex or it could be for four units. Do the project, great, double my money, fantastic, I'm superman. Now let's go find another site. And they do this and they roll and they roll. What happens next? Because they're constantly rolling their profits into the next project. It only takes one project to go bust for them to lose everything.
The reality of property investment is that you’ve got to get it right every time. A little bit of once-in-a-lifetime luck sadly won’t cut it. To see safe returns, playing the long game is the best way, and De Marco says it’s also a team sport.
Fabian De Marco
[14:34] You're effectively on this process where the more projects you get right, the more invincible you think you are. And sometimes it's nothing to do with the developer. The developer could have done everything right. But exactly what we're seeing right now is a strong change in the market. Rising costs, lower sales. That is a recipe that can be very disastrous for some developers if they haven't anticipated it. You're gonna have a developer that says, 'You know what? I did everything right, I did everything that I did on the last project, and I didn't cut any corners, but this has just sent me bankrupt, because the markets changed underneath.' So that's why it can be very risky. If you don't have a plan, if you don't have the right people around you. But yeah, it's one of those things where you really have to sort of know what you're doing and really have a clear strategy about it.
[16:34] The developers I see around me that are the most successful— and not just developers, I deal with a lot of corporate property investors, or corporate groups that buy commercial property, industrial property, those sort of things. The ones that are most successful are the ones that prioritise working with trustworthy and reliable people, opposed to sharp pricing, or people that can sell. And I'll explain what I mean by that. If you don't have reliable people around you, it doesn't matter how good your pricing is, you can end up getting burnt very, very badly. The guys that build a team around them—and their team starts from advisors, to consultants, to accountants, to lawyers, to brokers, to just having a good team that you trust. Property, whether it's development or property investing, you need a team around you. You need agents, you need accountants, you need someone to do your legal stuff, you need someone to arrange a finance, you need someone perhaps maybe to help source out properties. If you have the right team in place, people that are reliable and trustworthy, there's no limit to what you can do. But if someone is not trustworthy or reliable, then they can end up hurting you in the long run. The guys that I see doing really well, they have a really close knit circle, they've got people around them that they can call on that they trust. They know how they work, and everyone sort of respects each other and it just gels, it works. That's sort of the thing that I've seen that really, really works.
Banks vs The World
Have you ever wondered what the differences are between the big banks and the hundreds of private lenders?’ Which is the better option? And most importantly what’s best for me? Look no further.
Fabian De Marco
[19:19] I always say, if pricing is the only thing you're looking for, then obviously a traditional bank is hands down, always going to be cheaper in pricing. However, with that pricing comes a lot of hoops that you need to jump through. Now, sometimes a borrower can jump through those hoops, and that's great. That's when you have a bankable deal. But sometimes those hoops might just be too much to jump through. You might not be able to meet all the criteria. You're then faced with a difficult situation where either you can't go ahead with whatever it is that you're looking at doing or you need to find an alternative funding source. Now ten, fifteen years ago, an alternative funding source was very, very difficult to find. Then you would pay through the nose, if you had to go down that option. Now we're in a market where, last count, I have a spreadsheet of about 280 private lenders, and I'm positive I don't have them all in there. Now, I can assure you, I don't use 280 lenders, but I like to keep track of everyone that's in the market. And at the very least, know who's about. But there are so many options out there for someone who the bank says no to now.
[20:42] Now just make it clear to listeners, these private lenders only deal with non-coded loans. Now, what that means is commercial borrowers only. If you're investing in a property or developing a property, your loan would would have to be a commercial purpose. So, you would either have to have a company entity that's buying the property, or a company entity that's borrowing the money, and that reason for borrowing the money has to be to make a commercial transaction. If you tick that criteria, you now have a myriad of possibilities on how to source financing and supply and demand because there are so many of them out there. That's pushed pricing, I wouldn't say at bank rates, but it's certainly like getting to the point where people are saying, I've got developers that say, 'I know I could probably get bank funding, it would take me a while to get through all the hoops, but I could probably do it. But I don't want to waste nine weeks of my time, I'd rather just get the funding sorted and get building.’
[21:54] Because the pricing now is yes, it's more expensive, no doubt, but when they weigh it up, and they think I don't have to do pre-sales, which means now I don't have to discount any of my early sales to get them sold. I can just sell them as I'm building or at the end, they think whatever extra I'm going to pay for the interest and fees, I'm going to make it up on my sales anyway. So, it's a no brainer, they just say let's roll. That being said, I would say watch this space, because we're entering into a market where I have a feeling over the next sort of six to 12 months, we may see a lot of these private funds start to sort of disappear. Because as markets change and investors start to look at other options at the moment, there is just an influx of investors looking to invest in sort of these private mortgage funds, real estate debt funds. But that's when term deposits were virtually non- existent. If term deposits start to become attractive again, and other asset classes start to become more appealing, you may see a lot of these investors withdraw their cash from these private funds and that may see a lot of them shut up shop. But at the moment, there's definitely no shortage of them out there.
I’m Not Like Them !
At the end of the day, to invest in property you’ve got to have a business mindset. But we’re not all born with the vision of Warren Buffett, or with the genius of Elon Musk. De Marco says you don’t have to.
Fabian De Marco
[24:41] I've been quite fortunate to sort of work with some great people. One of my old managers many years ago, has remained a close friend of mine and a mentor. His name's Mohammed Hash. He's given me some great advice that's sort of stayed with me, particularly around sort of work ethic and attitude. And I know they sound like really cliche things, but when you break these things down, they really are fundamental to being successful. integrity, honesty, these sorts of qualities, you would be surprised how rare they are, in today's day and age in the business environment. I could tell you, I deal with so many different funds and it's sad to say that integrity is not always something that they will present. And it baffles me to this day, because it becomes a very, very short relationship, when that's not at the forefront of how you do business, so things like that. My father gave me some really, really good advice once when I was younger, and I've passed this advice on.
[26:07] I used to run a football academy as well a while back, and I coached and mentored a lot of young footballers, soccer players. And I pass this advice on to them too, because a lot of them would say, ‘I want to be a professional but I don't know where to start, what do I have to do? And my father gave me some advice once and said, 'You need to start from where you are, with what you've got, to the best of your ability.' And it's such an easy thing to do. From where you are, just where you are today, that's where you begin. And with what you got, just have a look around you, what resources do you have? Don't worry about what you don't have, just look around, what have you got? What can you do? You know, can I read a book? Can I do some research? Can I make a phone call? Can I get in front of someone? Can I learn from someone, so from where you are with what you've got. And the key thing here is to the best of your ability. So what I found is when you start with those three things, magic happens, then it just starts to create like a tornado around you and it sucks opportunity into you.
[27:20] That probably touches on a little bit of what I said about before about that aha moment, your life sort of ties into that a bit as well. That's sort of a little bit of how I start my day as well with with sort of that mentality. But I hear it so often, and I used to hear it a lot from from the young players that I used to coach, but it can get very easy to get into this overwhelming feeling sometimes of I don't know where to start, I don't know what to do. So what's the point of just accepting fate and just being miserable, basically? And people are always sort of looking sometimes for this big grand moment to happen. Once that happens, then I know I'm ready, that now I can start properly, and it's usually Monday. That’s the moment you get that feeling, but it's not the case. You just sometimes need to stop, start from where you are, have a look around with what you've got, and just do the best you can and just focus on that every day and things start to happen. I'd say those sort of pieces of advice have resonated the most with me.
What I’ve Learned
Now equipped with valuable wisdom compounded through positive and disappointing experiences, De Marco has a few ideas.
Fabian De Marco
[29:06] Me 10 years ago to now I would very politely sit him down and tell him to slow down. Slow down. I think it's a natural thing for anyone young and full of excitement and wanting to take on the world. You want to go 100 miles an hour. I didn't have an older brother, I've got a younger brother, but I've never had an older brother that sort of was sort of able to be over my shoulder and saying, ‘Hey, slow down. Listen, try this, do that.’ If I could have bumped into myself, I think just having that insight to be able to slow down, measure twice and cut once. I would tend to describe the scissors and just cut and then figure out if it fit after. Obviously now when you get older you have time to reflect and look back on things. So you sort of think, ‘Okay, if I had just relaxed and I'm learning that even within day to day operations of a business I find you're about to send an email, sometimes let it sit in your drafts overnight. Go back to in the morning.
[32:19] The Fabian 10 years ago would have said, ‘It's all down to my skill.’ And maybe, looking back now, I've got a bit of a theory that I've been sort of teaching my kids and to be successful at something, you need four things that go into it. Three of those things you can control, and one you can't. And the first three that you can control is time, how much time you put into something. Two, is the effort, how much effort you put into it? And the third one is skill, how much do you develop your skil? So talent is different from skill, Talent you have naturally, but skill can be developed by repetition, and the more you practice, so those three things, and the fourth one is luck. Now, luck, unfortunately, I don't care what anyone says, is out of your hands, it's nothing to do with this preparation meets opportunity. I don't believe in that, I believe luck is just luck.
[33:24] For example, there are some kids that will be born on a dirt floor on the other side of the world with no food, yet I'm born in a wonderful city where you have all the resources I need to be healthy. That has nothing to do with me being better or more skill for anything. That's just sheer luck, so we might not understand that yet. Maybe in our afterlife, we can understand those things but right now, the only thing I can attribute that to is just luck. So, luck does play a part in a successful outcome. However, like I said, in my opinion, it's only one quarter of the pot, there's three parts that we can definitely influence. And there's no point putting a lot of time into something if you don't put a lot of effort into it. So hence, the two have to work hand in hand. There’s no point putting a lot of effort into something if you only put a fraction of time into it. So you got to work them together. But those four things, I'd sort of say when you put them all together, they play a real part in sort of where you get to.
So what does the future hold for De Marco?
Fabian De Marco
[30:55] I'd probably say from from a business perspective, I'm really excited about the possible evolution of the business. There's a number of different directions it can be taken. I think the most fundamental part of that though is establishing a good trustworthy brand. And that's where all the focus is at the moment. But there's a number of exciting possibilities. I'd say watch this space over the next couple of years. From a personal perspective, obviously every day getting to see your kids grow up is a privilege, so I really take that on board. And I'm excited to sort of see what tomorrow brings, let alone the years ahead. Every day is a new experience. So I’m just really excited about those things.
Thank you to Fabian De Marco, our guest on this episode of Property Investory.