Chris Bates is the founder of mortgage brokerage, Wealthful. Originally from Melbourne, Bates has lived what he describes as a ‘nomad’ life. At a young age, he and his family moved to Newcastle for a job opportunity. From there, he attended university in Sydney but after deciding that further study was not for him, he picked up his life and went to London before eventually settling again in Australia.
In this episode, Bates will share the travelling stories that shaped his worldview, including exploring the beauty of countries such as India and Egypt. As well as this, learn how to find success without a university degree, and a common investing mistake
involving supply and demand issues.Timestamps:
2:04 | Reaching Dreams
5:15 | Living a Nomad Life
7:33 | Creating a New Life
9:17 | Experiencing Other Countries
11:55 | Coming Home
14:51 | Founding a Business
17:45 | The First Step
18:43 | Learning From Others
26:52 | Finding Success
0:55 | Long-term Investments
6:55 | Investing in Your Future
8:45 | Growing Into Your Family Home
10:47 | Property Can Skyrocket
14:45 | Advice From the World
15:50 | Getting Your Foot in the Door
20:05 | Perseverance is a Challenge
20:57 | Reaping in the Benefits
Resources and Links:
[23:16] That career advice that, I think it's lacking out there for a lot of people. It forces people to go to uni and then just get professional jobs. And it's not about following purpose and passion.
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 Chris Bates, founder of Wealthful.
He will share the travelling stories that shaped his worldview, including exploring the beauty of countries such as India and Egypt. As well as this, learn how to find success without a university degree, and a common investing mistake involving supply and demand issues.
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Wealthful is a mortgage broking business with the goal to help young families build financial wealth and allow them to live a fulfilling life.
[0:49] It's been going for about eight years. Fortunately, it's been going really well, especially in the last few years. We've been able to grow [a] pretty big team and we've sort of grown into one of the bigger, sort of smaller boutique mortgage brokers out there.
[1:02] All [of] our clients are sort of young couples [in their] 30s [and] 40s, you know, families, etc. And they're mainly doing one of three things. [They are] either buying their first home. Maybe they've left it a little bit later, and they're thinking about doing a big upgrade or a renovation. They're sort of having that dilemma on what to do first and how to make it happen.
[1:22] Or they're a little bit further in the line, they've got a happy home, and they're like, 'Okay, let's, how do we sort of do things for our retirement?' And so, generally, that's sort of what we do. Our average loan is much higher than most brokers. It's probably the, one to 1.5 per client, whereas most brokers are sort of that sub a million mark. And, yeah, that's a bit about us.
With his business performing so well, Bates is smashing his professional goals. As well as this, he is also reaching dreams in his personal life.
[0:38] [I’m] married to my wife Melanie [and] I got a couple of young kids under two. Two under two at the moment.
[1:46] I probably can't say that anymore. She had a second birthday on Tuesday. So, I shouldn't, I need to change my lingo. Two under two and one month.
Bates considers himself to be extremely lucky to have two children — One girl and one boy.
[2:13] My daughter's amazing. I've always wanted to be a dad and so when that moment happened, you know, I did want a daughter first as well. And we're very lucky to have that. I think it's so special. She's amazing. I just, that's what we, you know, yeah.
[2:27] It's hard to sort of put into words what it means to be a dad. And yeah, she's at this age now where she's sort of communicating. And she's talking back and she's, you know, telling us what she wants, which is an interesting sort of step from not being able to have those conversations.
Evidently Bates’s family is a massive priority in his life. This means that he has a short work week.
[3:05] I run a pretty tight, because we've got a pretty decent sized business in terms of clients, and we have a lot of clients coming to us. So, I at the moment, just due to family commitments and what I value, I run a, you know, basically [I am] only working around 30 odd hours a week. I run nine to four, four days and [I] have Friday mornings off.
[3:27] But what am I doing on those hours, is my role is to do the strategy for clients. So, I will do, like today, [I will make] probably five to ten calls of new clients who come to us, and we're really talking through what's happened in their past, where they want to head, what are they doing with their current properties, what are their challenges. And then we come up with a bit of a plan on what's the next best move. Then we'll get documents from them [and] the team will make it happen from a loan point of view once we've done the strategy.
[3:53] So, all day, every day, I'm just talking to people. I'm producing content, making podcasts, writing posts on LinkedIn, touching base with existing clients when they're, you know, [have] changes in their situation, what are they going to do next? And so my role in the business is just really to find the clients, though mainly is producing content or relationships that people refer to us.
[4:16] And to do their strategy. To figure out what's the next best move. We don't buy a property, we [are] massive believers in quality buyer’s agents. We've got an, as soon as I hear of someone who's good that's not in our network, I'll go and suss them out and potentially add them. But we refer to individual buyer's agents in individual pockets all over the country. So, not one company, we took over 20 in Sydney, for example.
On the days that Bates does not work, he spends quality time with his family.
[4:56] We're massive believers, not believers, but massive lovers of nature and travel and exploring. Usually, one weekend a month we're going somewhere, obviously only in Australia [for the] last couple of years. But we use it, we are massive lovers of travel and nature. So, if we're not travelling, we're going out hiking and walking. We just, you know, the best things in life are free to be honest. It's just sort of being out and about and we're very fortunate we live up in the northern beaches, so we're surrounded by water and nature.
Living a Nomad Life
Bates was born in Melbourne, but he and his family moved due to his father’s job.
[6:46] We moved to Newcastle because he was in the Air Force, and it has the big RAF base. He ended up leaving the Air Force and we ended up just staying in Newcastle. Yeah, for all my teenage years.
[7:24] I went to Lambton High in Newcastle, and I never really connected with schooling. I would do well, [I got] fine results, but the actual schooling process and sitting down and learning things, I didn't. And so, I had a very different type of brain.
[7:07] I think I had always a brain that was, I was very fortunate that I was good with numbers. [I'm] not just not being arrogant, I sort of was. School was not really a challenge for me, per se, especially in those numbers subjects.
After finishing high school, Bates followed the expected path and went to university.
[7:51] I sort of went to uni for a year. I studied commerce.
[7:41] I was always did well financially, well not financially, but in results. But it was never a typical sort of, you know, straight A student [that was] just loving studying. I wanted that real life world experience more, I guess, then those days.
[9:09] So, I didn't really want to do that study. I wanted to get out and work. So, I got an apprenticeship as an accountant. I guess you'd call it a traineeship. And I was doing uni part-time, but I could, even after a year of being, I was sort of well ahead of where I should be.
[9:26] And I was doing things that people were doing it for five or six years in that accounting practice were doing. And I was like, look, if I'm gonna be doing this in another five or six years, I'm going to be setting myself insane. So, I moved to Sydney because I thought, well, maybe I want to become a funds management, and I want to become an investment banker. So, I got a job at Platinum.
[9:42] But then after 6 [to] 12 months in the administration, sort of investor services side and making friends with lots of traders and the investment bankers there, I could see that a lot of them were extremely stressed and extremely unhappy and [they] were working stupid hours and they didn't really have much meaning. And so, I didn't feel like I want to be an investment banker, I guess. And then I met a financial advisor and thought, you know what, this could be a better direction for me. And so, I moved to London and became a financial adviser.
Creating a New Life
After watching his sister successfully create a life in London, Bates knew that he could do the same.
[10:27] I was only 20 at the time and so I thought, ‘Look, go and experience’. I knew that I could potentially get a job over there as well. I made a few inquiries, and I was like, yeah, this will be fine.
[10:39] I can, the benchmarks of financial advice are really quite low in terms of the study requirements. It's something that's improved over the last 10 years. But this is back to 2007. So, I made a financial advisor.
[12:42] You can become an advisor after a month [in London]. Pretty scary, to be honest and you could do that in Australia, up until recently. They've just finally increased the standards to a degree in Australia but back in the 2000s, I guess you'd call it, it was very low. And after a month, I was out there advising people and it was pretty, pretty scary.
[13:06] And that's where I actually got kicked out of the first bank. I was their top advisor in the area because I could see what, I actually got access to data that I could see the whole bank was mis-selling products. And I raised it, and we had arguments with a boss. And I thought, you know what? The grass is greener, I'll go to another bank. And [I] went to another bank and so it was pretty much exactly the same.
[13:26] Years later, all that bad advice actually came out and the banks got into a lot of trouble over it. But I could see it firsthand because I could see what I was doing versus the rest of the country and say, 'look, this is they're just mis-selling products'. And so yeah, [I] made a real sort of, that first five years in advice, I was very conflicted. Because I was very passionate about helping people [and] making sure we're doing the right thing, but I could see the industry was heading in the wrong direction, and it wasn't giving great advice to be honest.
Experiencing Other Countries
While he was in London, Bates took advantage of his ability to travel.
[11:14] We did lots of travelling and [I] had an amazing group of friends that were probably all around 10 [to] 15 years older than me to be honest. And yeah, I'm still very close to a lot of those friends now. It was such a special time and I think it was also interesting to do at such an early age. It made me become very independent, [my] friends allowed me to mature a little bit faster. I, just in terms of networks.
[11:42] And yeah, seeing the world and especially travel does that. It sort of makes you understand the world on a bigger level.
[14:18] We went to sort of Shemini, sort of skiing. We went to obviously all your Berlin's and your Prague and all those sorts of cute little towns. Paris, we used to go to Paris quite a bit because you know, [you can] just jump on the Eurostar and straight down, you know, food you've never tasted before. I mean, the travelling that really sort of resonates with me is the travelling that we did after London.
[14:41] It's the places like India and Africa [and] Egypt. Obviously, Egypt is in Africa. Now they're probably the holidays that I really love the most. You know, Sri Lanka. You know, where we're just looking at nature to be honest and getting to really be a part of the community and etc. So, we really just go and look at wildlife.
Travelling to those countries played a big role in shaping Bates’s worldview.
[15:35] You do come back a lot more grateful. You won't whinge about the things that you used to whinge about. You see things that aren't fair, and you see things that are tough for people, but you also see happiness. They can be, you know, people are very happy around the world with very little and it's not the other things that make people happy. And you actually form really close connections with the people you're travelling with, or people, etc.
[15:59] So, I just think it makes you a lot more grounded and you understand what really matters in life a lot more after visiting these places. But there's so much beauty in these places as well. Yeah, maybe they're crowded but, you know, India is absolutely stunning. Especially when you get up into places like the mountains. Africa is just unbelievable in terms of wildlife, etc.
[16:18] And so, I mean yes, you've definitely got the issues with populations and standard of living, but then you've also got beautiful countries in these places as well and beautiful people. So, I find a lot more benefits going to places like that, then I would going to say New York or London or a major city. And that's obviously really just a carbon copy of each other, in some sense.
After living and working in London for four years, Bates decided to come back to his roots in Melbourne.
[17:49] My grandfather wasn't very well at the time and that was one of the reasons why I came back. I was like, if I don't go now and something happens, then I'll regret it. And it was what turned out that way unfortunately, a couple years later he did pass away. But I spent two years living in Melbourne and seeing him every week.
[18:07] And was that after living in London and living in Sydney for a bit, I hadn't scratched that itch to be honest. I still wanted to sort of see a different part of Australia and so, living in Melbourne for a couple of years. It's been also great, because I mean, my Nana's still there and my dad’s still there. So, I know Melbourne really well and I do visit them quite often. And so, we've got lots of clients who are buying in Melbourne, and I can really guide them on that journey as well, because I know the city really well.
When he came back to Melbourne, Bates continued to work as a financial adviser.
[18:42] I still work as a financial advisor in 2011, and I joined a practice that was offering quite cookie cutter advice. So, it was a type of business and then I thought, 'look, I'm not sure if this is really for me anymore, I need to get into a better practice'. And that's when I took a bit of a turn, I went from working with a lot of older clients [in their] 50s, 60s, 70s [and] 80s. That's traditionally where most financial advice is driven, to help people retire, basically. And I joined a company that really worked with [people in their] 30s and 40s, and that was Property Planning Australia. They're quite well known in the mortgage broking industry [and] they're based in Melbourne.
[19:20] And I joined as a financial advisor within that business. And after about 12 [to] 18 months, I was like generating a lot of new clients for the business in different ways. And I also wanted to control the conversation around the mortgages and the advice around that, rather than just the insurance and super and other things. And we were doing joint meetings with mortgage brokers, and I thought, 'You know what? I just want to become a mortgage broker. I just want to be the one person driving that rather than the conversation going in a different direction than I think it should'.
[19:55] And so, I became a broker then. So, I was working as a financial advisor and a broker. You know, we kept our financial advice and started kept doing that till 2020, it is only a couple of years ago. But in parallel, we were growing ourselves as mortgage brokers. And we now work with lots of financial advisors. We kind of carved out a niche in [the] financial advice world, where people had seen that we became brokers and had seen our success. And we really just focus 100% on the property discussion with young clients and so a lot of financial advisors were referring to us and, so they still refer to us now. Because they know we understand what quality advice is and how to work with them.
Founding a Business
Bates founded Wealthful in July of 2014.
[20:48] We're coming up to eight years now and it wasn't called, it was called Canopy Private. I was a little bit torn whether I wanted to work with a lot of wealth management clients still, or just go for that younger clientele. And then we shifted to Wealthful I'm not exactly sure, maybe 12 [to] 18 months into business.
[21:12] I, it was at an interesting point in time in the business where I was very passionate around wealth [and] moving into the right direction. I was frustrated with [the] wealth management industry, because it was all around numbers and making money and profit and it lost the whole meaning of what it's all about, and that's actually true wealth whilst it's in many forms. Whether it's health or family or relationships or experiences or purpose, etc.
[21:37] And so it was just really a play on that to talk more about true wealth. And make people really understand they are wealthy, and this goes back to those travel discussions. It's all about your mindset or your perception of what's wealth. And so that's where it sort of came from, sort of mindful wealth and to think about it in those terms. But yeah, it still is a bit misunderstood to be honest.
[22:01] I think people when they see the word wealth, they think naturally to money. It's hard for people to make that brain switch.
The First Step
For his first investment property, Bates stuck to an area inside of his comfort zone.
[24:18] [It] was about four or five years ago. I used to do a lot of shares all through my 20s. I had margin loans and there's a lot into the sort of the business to start-up and travelling etc. But we bought a house in Melbourne a few years ago. Yeah, it was a tough market. It was sort of 2015 [or 20]16 and was when the business could have the income to do it. And yeah, it was just sort of house in the north of Melbourne.
This property became a principal place of residence for Bates and his family.
[24:55] We did live in it. So, we got sort of six years sort of tax free exemption. The idea was if we did stay in Melbourne, then we could sort of renovate it and live in it. But if we decide to leave Melbourne and move to Sydney, then we will buy a house in Sydney, for example, and keep it as an investment and we still got it down there now.
Learning From Others
A property investment journey can be viewed as a learning curve. Bates takes away the lessons learnt from his clients.
[25:36] I think that the learnings is out there, through all the clients. We speak to over 700 new clients last year, and then if you multiply that over the years. We know exactly what doesn't work through looking at all that they've done over the years. For us, fortunately I haven't gone and bought down the quantity strategy, or just focused on getting properties.
[25:57] We made a, we bought that, then we bought another house, and we've done a big reno on that, and then our next decision will be another block of land and do a build on that. And so, we've always believed in the quality over quantity strategy. And we're very fortunate as well — We bought up in the northern beaches in Sydney pre Covid, and so that's done very well for us, as well.
[26:17] But what works for clients is buying in aspirational parts of capital cities, where there's higher incomes, and buying assets that they would really love as a family. Things that are in scarce supply and things that they're willing to go into a lot of depth for. And that’s the stuff that's gone up a lot in Brisbane in the last 12 months. [It] is the stuff that's gone up a lot in Sydney and it’s [the] stuff that continues to go well in Melbourne. And that's what we follow ourselves and that's what we would recommend our clients to do.
Bates has noticed a common investing mistake, involving supply and demand.
[27:11] I think it's all comes down to simply thinking about things from a demand and supply [view] and really going back to. I know that sounds so basic, everyone's like, 'Yeah, no, I get it, I get it'. But a lot of people don't apply it, right? So, if you think about things, what doesn't work for a lot of people is apartments, for example, and definitely high density, etc. The reason is supply. And secondly, the demands not, you can just keep on building more of them and the problem is that demand is always not the greatest of demand.
[27:38] You know, high income families don't want to be raising their kids in high density apartments, they want to be buying houses, etc. So, you have a demand issue, but you also have a supply issue. The same thing is when you might say, 'Well, I'll buy a house in the outer suburbs', for example of capital cities. Well, yeah okay, maybe supply is limited, not always because there's Greenfield estates, but then also the demands not that strong. The higher incomes generally gravitate towards closer to the city, where there's greater lifestyle, when they start doing better.
[28:06] So yeah, you might have a supply restriction in some sense, but demand, income growth sort of there, etc. That's why we don't really believe in sort of the quantity strategy and playing in those more affordable markets. So, generally, a lot of new property hasn't worked for really anybody. Now people have got lucky with off the plan purchases at the start of a boom, and then have sold their [property] off the plan. You know, it may be just that settlement, etc. But very few, that doesn't work.
[28:33] We very much rarely see even people doing duplexes and things like that was fine. A lot of people buy the land too expensive, they overspend on the build, and then the market shifts over that timeframe to get it done. We haven't seen much success in that space. So, it's really the people have come to us, and they've got the most lots of properties. To be honest, they're the ones who usually are in the biggest mess, and we usually have to unwind their portfolios. There was even one yesterday, he's had to unwind it and he bought a house in New Farm in Brisbane two years ago, that house he paid $1,800,000, it's probably worth over $3,000,000 now.
[29:10] So, he had eight properties I think it was, seven or eight, he's gone down to still got two of them. But then he shifted his borrowing capacity into a quality asset and that's where he's made all his money. Through a simple decision and buying a quality asset and so, the people we've seen do the best, is the people who have just gone and carefully just bought a quality asset and kept it. And focus on that rather than trying to buy as many properties.
Since Covid-19 and people beginning to work from home, the issue of supply and demand has shifted.
[30:20] I think prior to Covid, there was a real pressure that time was the most important thing for people, and they had to get back to their house as quick as they can and they didn't want to spend an hour on the train twice a day, five days a week. And so absolutely, they'll pay a premium to reduce their commute time right. Covid shifted that and so what it does, it did it created people to look at areas that are great lifestyle, but are a bit further away, and the train stations didn't matter as much.
[30:46] So, what it is is shifted demand obviously to pure lifestyle locations, like the Byron's and Sunshine Coast, etc, but it also moved it to the sister cities. You know, the north of Wollongong, the central coast, the Mornington, Geelong. But it moved to the premium parts of those markets because if people said they're going to leave the inner ring of Sydney, they wanted the premium end of the Central Coast. So, places like Avoca went up a lot there and Thirroul in Wollongong. You know, the real nice pockets in these lifestyle.
[31:15] Not everything in these locations went up anywhere near as much as the premium end. That's definitely what happened is you will find people willing to space is more important, obviously, because they are working from home and so they, before they would want to hug the train lines but now, they're willing to go a little bit further and maybe it's a double leg commute and they allow a bus to the train station they're willing to look at.
[31:40] So, places like in the upper north shore of Sydney like St. Ives and things like that, they became much more desirable because it's a great place to live but commute was holding it back before. Where we are is exactly the same. Commute people are willing to commute from further and so, I do think quality sort of shifted because the commute wasn't as important to drive whether people were moving there as much.
Bates does not think that this is going to change.
[0:32] I don't think it's going back. I think top talent are demanding flexibility, they've had a taste of it and if they are going to apply for a job, they're going to make sure that that's a part of their terms and maybe the [people in their] 20s and 30s, they're going to want to be in the city to get those promotions and things like that. But a lot of the top talent in that 30 to 35 plus range, they're going to want flexibility. So, then the whole company is going to have to offer etc. And so, the return to work thing, I think is potentially in some form, but I don't think it's going back to five days.
[1:02] So, we are sort of pro places that are commutable to the city. You got to remember as well though, is that the places close to city will always be super desirable because a lot of jobs, especially business owners, they don't want to be working from home a lot. And so, a lot of execs, they need to be on the ground. A lot of positions, they can't just work from home, they need to be out in construction, for example. And if one party, even if it's the husband or the wife has a job that requires maybe they're in the hospitals or something like that right, they can't work from home, then that the commute problem starts again.
[1:39] So, you also find that the inner rings properties will always do really well. A lot of people do like that city vibe, and that city in and out. Especially people who aren't from Australia. They've grown up in smaller places all around the world and they say, 'If I'm going to live in Sydney, I'm going to live in the action'. So, when migration kicks off, again, is you'll find that a lot of people from around the world are more than happy to have a bigger two bedroom apartment or a three bed apartment somewhere in a lifestyle location around the capital city, around Sydney in particular. Because they, you know, their friends and families come and visit from around the world, they want to be in the action and they're more than happy to live in a smaller space.
[2:22] So, we're definitely for inner ring property still. And we do think that as the city gets bigger [and] busier, and the roads get busier, and the public transport gets busier as well, the pressure cooker, especially if populations in Sydney, for example go from five million, to six million, to seven million, to eight million over time, those commutes become harder and that then puts pressure again back on the inner ring. So, you've got to be gutsy to say the inner rings gonna die. I'd say the inner ring is going to be super strong. So will the lifestyle hubs and so will the bigger houses in the lifestyle hubs in the middle and outer ring.
After hearing about common investing mistakes, let's look towards the flip side. Bates shares one of his ‘aha’ realisations.
[4:43] Look, I think it's [that] I do a lot of reading around sort of how cities form, I'll track every development, etc. And I think once people understand how a city is going to grow, and how you've got little sanctuaries and nimbyism in capital cities and heritage overlays, etc. You can start to really formulate that these pockets will be great longer term, and they've got lower risk because they're likely to be offering the same lifestyle benefits long term. And as the city gets bigger and more places get knocked down and rebuilt, these sanctuaries become even more desirable.
[5:16] So, I think that it's just really through those constant sorts of research and understanding how the city is going to grow, you can then form, apply that in really any city to be honest. You know, you could say, 'Well, where do people in this city that are doing well financially, where do they want to live? You know, why do they want to live there? What's the reasons?'. It's the type of housing, the lifestyle benefits, it's the bigger blocks, it's that heritage overlays, etc. And so, you want to be in these parts of the market, no matter where you're investing, rather than the more affordable part of the market.
Previously, we have heard about the success of Bates’s business and his personal property portfolio. Now, let’s explore the strategy that he used to achieve this.
[7:06] Books are starting to perpetuate what Australians really want to hear and that's the sell the property dream, and hot spotting, and lots of properties, etc. And I just don't think this works. I think hot spotting is extremely dangerous because what you're doing is you're betting on a short term growth. And then if that doesn't happen, then you got buyer costs, sell costs.
And then you got to get out of this hotspot as well, because you went there for a short term growth and now you got to get out of it. And then you got to pay selling costs and capital gains tax, etc. What we bet on is long term fundamentals. So, things that yeah, may or may not happen in the short term, but we know they're going to stay like that longer term.
In his business, Bates makes sure to advise his clients with this strategy and to practice what he preaches.
[8:25] I just jumped off a call with a client who wants to buy in Brisbane, for example. And he wants to buy in the outer rings of Brisbane and when I looked at that a few years ago, I said, 'Look, there's so many properties in the outskirts of Brisbane. It's not a big city. It's easy to get around. Where would actually people want to leave Sydney for and move to Brisbane? If the city, if you're doing well in Brisbane, where do you want to live? You want to live around the river around the city in an old sort of Queenslander. Right?'
[8:52] And so we had lots of clients buy up there for $700,000 [or] $800,000 [or] $900,000. Old Queenslanders, you know, decent blocks around the city. But all of those are now worth like, $1,300,000 [to] $1,600,000, right? They've all gone up dramatically. Yeah, the outer suburbs have gone up due to affordability and low rates, but they're not driven by higher incomes.
And so, as Brisbane grows as a city, will a fraction of the population do well financially? Yes. Will people who are doing well financially from other states move there? Yes. Where are they going to want to be? They're going to want to be in these locations around the city, because they want to buy lifestyle properties driven by the lifestyle benefit, and that's why people pay a lot of money for a property versus another property.
[9:32] So yeah, I would still say that's a great hold [for the] long term. You could say though, I'm going to [be] willing to cash in but then where do you want to go? You want to go play in another quality market? Well, that's probably gone up as well. So, it's not like you can shift your money from Brisbane and take it to Sydney. Sydney has gone up just as much in the last few years and so has Melbourne and so have a lot of the quality regions. So, I think switching and buying different cities is really tough, especially if you pay capital gains tax along the way because if you've made $600,000 in gains, then you lose $150,000 of that in capital gains tax.
[10:05] So, you're reducing your asset base to make these transactions, then you've got stamp duty and selling costs. So, I think the hot buy and hold strategy is the best strategy, maybe adding value to those land as well. You have got developments and things like that, which you can definitely play in and try to manufacture growth.
We've seen clients do very well in that, but I feel like a lot of that has been luck rather than skill because the people it's really worked for is bought in an area that [is] pre boom and then a booms happens. And then they've made money on their build because they've sold in a really hot market. So, it's a real timing issue there and you've got to get lucky. Where we've seen it go both ways for clients.
The clients that Bates works with are usually in a younger age bracket and come to him for help investing into their future.
[11:16] It's usually the younger couple pre kids, and one or two of them are doing. So, they're usually maybe around 30 to 35 [years old] and so their careers are quite established now. They've had 5 [to] 10 years in the workforce and they've had some pay rises, they've been putting a lot of energy into their self-education and growing themselves and their human capital. And now they're out there and they're earning a decent income. Either one of the parties or both.
[11:43] So, incomes could be $200,000, $300,000 [or] $400,000, who knows right. It definitely can be a lot higher than that as well. So, they're coming to us and a lot of them have gone and enjoyed their lives. So, maybe they've got a bit of savings, or maybe they've got heaps of savings — Whether it's inheritance or gifts from family, etc. And we’re really trying to have that longer term lifestyle chat with them. Okay, so you're with a young couple pre kids. Where are you from? Where'd you grow up? Where's your family? Where's the best opportunities for work? Where [do] you want to live long term?
[12:12] We have those conversations, and we say, 'Look, can we firstly try to get an asset that you could grow into? And, if you don't want to live there now'. They might say, 'Look, we want to live around the city now, but we're happy to move to down towards the Shire or Hornsby in the future or something like that. Why don't we go and buy that as an investment, maybe live in it for six months, move back to the city, [and] rent an apartment'. So, we’re trying to problem solve that situation for them.
[12:37] [We] want to solve their long term lifestyle needs from a living point of view because if they don't solve that, they go and invest that money elsewhere. Then they go and have kids, then they've got they want a house to live in because they want stability and security in school zones, then they got to sell those investments to then go and do that, and then that's probably a good asset. Because that's driven by demographics. And I'd argue that's probably, especially that sub $2,000,000 range in houses is really, really tough right, especially in somewhere like Sydney.
[13:04] So, that's the sort of conversations we have. That's the type of clientele that we're working with. It's usually multiple hundreds of $1,000 of income and they're either trying to get their first place, or they come to us, and they go, 'Look, we've got an apartment but it's not big enough. We need to do an upgrade. So, how do we make that happen? Do we buy before we sell? What do we buy? What can we afford to borrow? Etc'.
[13:30] And then you got the third type of client that's super happy in the house, they've renovated it, they're been smashed, just been focusing on paying down their mortgage. So, they have a huge amount of equity. They're on great incomes, because maybe they're in their 40s and they're getting started [at] peak earning. And then we start to try to help them buy one or two investment properties. But it's not like six or seven, it's like two quality assets.
Investing in Your Future
Bates advises that people buy their future family home so that when the time comes, they already have housing stability.
[14:42] You think about that advice have been the same for [the] last eight years, and we've had clients [that have] been doing that and look [at] what's happening in Sydney sort of market right? So, people naturally at that stage, go and buy something for what suits me now. I was having a conversation with a client yesterday around this, and we just want to buy an apartment, that's what we need. Sorry, they were in a townhouse, a two bed townhouse and are thinking about buying an investment property.
[15:06] And I'm saying, 'Look, you guys have got the income there [and] you've got the equity there. You could get into the housing market into the lower north shore'. Which is where their family are, and they want to live long term. But instead, they were going down the wrong track. They were like, 'We've already got a two bed townhouse, we're going to go and buy this investment property'. I can see the writing on the wall, you're already telling me you guys want kids in a few years’ time, but they just didn't want to make that big lifestyle shift now, because they're just gone and spent a year trying to buy this two bed townhouse last year.
[15:32] So, it's helping them think through their longer term lifestyle. Now, the reason why you do it is firstly, you de-risk yourself financially long term because you don't have to worry about dealing with that problem in the future. Which may run on you, or you might not be able to because of incomes or whatever. Two, you can get it grown tax free by living in it for a little bit and then getting the six year rule.
[15:54] And three, I'd argue that's probably one of the strongest growth assets. To be in this sort of family housing market in a capital city, that's more likely to do better than pretty much any other investment out there to be honest, because it's driven by real scarcity and it's driven by high incomes, people competing for scarce products. And so rather than buying an investment property and playing in the sub, not as good market, you're getting all those other benefits as well. And so that's why we encourage people to go down that route.
Growing Into Your Family Home
If you’re an investor who already has a few properties but are now looking for a home to grow into, Bates shares how to break into that market.
[16:58] I'm sure there's people that defy the real back 2014, you could borrow 10 or 12 times your income right. Now you struggle to get six or seven times your income. And you could borrow a lot more to buy investment properties, than you could buying homes and interest rates were a lot higher. So, back then it actually did make sense to potentially gear up a lot more into investment properties because you could double almost, and interest rates were higher, so you get the negative gearing benefits and owning homes was expensive.
[17:25] So, when interest rates shifted lower and would argue that they're going to likely stay low at some level, even the threes and fours. It means that homeownership is cheap plus, you don't have to pay rent. So, the rent offsets your interest and so that's the big driver of why house prices have gone up through the roof. Because lower rates make it more enticing to take on home debt.
And so, I think that the fallacy is that you [are] thinking that you're going to buy all these investments, and they're going to grow faster than the home, and then you're going to take off the transaction costs and capital gains tax. And I think it's also if it doesn't happen, right, if your investments don't go up and then the home goes up, that you ultimately want. It's like a double hit because you've got to minus off the costs, etc.
[18:06] So, I do think though, if you've, you know, potentially doing rent vesting so you can get a home, maybe the strategy is just to shift from rent vesting into getting that home sooner rather than later, rather than expecting your investments to outpace the home that you want to buy. Now, if you want to move to a regional town into a cheap house that's not super desirable, and there's lots of them, then absolutely invest your money elsewhere.
[18:29] Get that working for you and then just go and rent in these locations, rather than owning that as your home or buy it when you can really afford to do it and you can take that, the opportunity cost of owning that. But if you do want to get into a quality housing market, then if you do well on your investments, there's probably going to be offset by the opportunity cost where you have to pay more for that in the future.
Property Can Skyrocket
At the beginning of Covid-19, many investors anticipated that the property market would settle and come back, but it did the opposite and skyrocketed.
[19:27] There was a lot of heat behind the market in 2019. As soon as the negative gearing changes didn't go ahead. APRA cut borrowing capacity, increased borrowing capacities, interest rates got cut in 2019, the market took off late 2019. When Covid hit, there was a lot of steam behind the market. Yeah, there was a little bit of a, I'm not sure what's going to happen with this but then interest rates crashed. People were spending a lot more time in their home and we literally in March, April, May, after that April period, we could start to see people coming to us and saying, 'Look, you know, we're really keen to take advantage of that'.
[20:03] And you could see that in late 2020, the market did start to really pick up and then obviously going into 2021, there was so much heat behind the market and people couldn't sell for lots of different reasons. They couldn't find other properties on the market. So, they were, that was getting a supply lag and that's what caused 2021. We are seeing 2022 is interesting, though, because prices are much higher. Buyers are a lot more hesitant to take on a lot more debt, because you got to pay a lot more for it, but then the interest rates are likely to increase and so they're not going to compromise as much as they were willing to last year.
[20:36] So, properties that are on busy roads, that are dark, that have got privacy issues, or weird blocks, or weird layouts or, future infrastructure — These properties are going to sit on the market because they're not going to probably be able to replicate the price sales they got last year, and the sellers won't want to sell them unless they can sell them for the same price in 2021.
[20:57] So, you've got the sellers are going to hold there, and buyers aren't going to want to buy them, and sellers aren't going to want to sell them and they will just sit on the market. The good properties, on good streets, unfortunately, all the buyers are going to shift to those properties. And even if interest rates do increase, they're still desirable at current prices.
It sounds crazy, but people [are] paying $2,000,000 [to] $3,000,000 for a house. They're not going in there and borrowing 80% on it, they go in there with a $1,000,000 to $2,000,000 of cash because they've sold something else. And so even if interest rates go up, they're not like they're paying 3% or 4% on $2,000,000 dollars of debt. They're only paying out on a smaller mortgage because they went in there with such a big deposit.
Advice From the World
Throughout his property investing journey, Bates has received irreplaceable advice. However, it may not have necessarily been from a person, but from the world.
[22:05] I think the best thing I ever did was go out and see the world and invest in yourself and invest in your knowledge. And just really have a crack at it and believe in yourself. And always stick to your principles and doing the right thing. Working in whatever the best advice is for clients, we just sort of give it the way it is. We know how to deliver it in a way that's going to be digestible for them but that's always going to come and be better for our business.
[22:34] If we have zero phone anxiety, we always know that we've looked out after our clients’ best interests. And so always focus on the long term, invest in yourself, and try to stay grounded and remember just how lucky you are really to be alive and healthy and focus on the right things. So, that would be my best advice that you know, whether I received that or not, I probably just got that advice from going out and trying to explore the world. So, hopefully that helps people.
Getting Your Foot in the Door
Let’s take a step back to the start of Bates’s property investment journey and look at the resources that he used to get his foot in the door.
[6:15] It's trying to remember back to what books are really important. I mean, there's always the standard business books, etc. In property per se, I mean I really love Pete Wargent. Pete is a very smart chap who really understands a lot around property and does a lot of research. And so, I'd say his blogs was definitely a key part of the picture.
In terms of other property books, I think there's not too many. I mean, Michael Yardney, in fairness, as well. His books have a pretty much bang on what I believe as well. He will talk pretty straight to the importance of understanding your demographics and population. So, in terms of property per se, they're the two ones that I would probably suggest in Australia that you [will] probably get a bit of value out of.
Bates shares the advice that he would give to himself 10 years ago, which can also be valuable for others beginning their property investment journey today.
[23:09] I think my, because it's 10 years ago, which is 2012. Look, I think in the initial stage in business, I was sort of wanting to help everyone and whether it was older clients and younger clients, etc. And so, I would say don't fall for shiny object syndrome and just pick a problem and go and solve it. And so that's what we probably made a decision in business round 2015 [to] 2016 that we just, we're going to go on [and] own this one problem, which is sort of guiding people on their big property decisions. And so, I think whatever you're doing in life, if you're passionate about a problem, yeah there's lots of other things you could solve or do as a business, etc.
[23:49] But, you won't get flow and you won't get knowledge because you're trying to — I'm learning about this, I'm learning about that, and I'm doing this but once you've got your problem you want to solve in the world, then just go for it and keep investing in it and know that you [are] making a difference in that problem.
[24:07] So, I would say that's probably a great thing to be. When you get that real calling and you know what you're doing and whether it's business or you're working somewhere, that the temptation is always to jump ship and do something new, but I just don't think that gets you, you go two steps back to then potentially go one step forward.
Bates has a lot of wisdom to share from his time investing in the property market. Let’s hear some advice specifically regarding worries about debt.
[27:18] It all comes down to your confidence and your belief in your capacity to earn an income and you doing that sustainably long term. Now, if you're gonna take on a $2,000,000 mortgage but you hate your job, and you want to quit that and you want to go and start a new business that's got unreliable income, then absolutely, it's going to be stressful, right. Or if you go and take on that big mortgage, without any buffers, without any money in offset accounts, etc.
[27:44] So, I would say, yeah definitely understand how to use buffers to protect you. If there was any change during employment and people don't use buffers correctly, they don't know how to pull equity out, they don't know how to use offset accounts, they don't understand how to reduce their repayments and things like that.
So, protect yourself with buffers. Use buffers to give you that sleep at night factor but then also from paying a mortgage, etc, doing a job that you love and something you're passionate about. Because then that's gonna give you confidence that your income is going to be there and keep investing yourself.
[28:13] Like, you can't ever get complacent and think that I've got this job and it's going to keep on happening. There's people that are studying today, that are working hard, that are wanting to do your jobs and unless you keep staying ahead, then you've got to be your future income [is] never guaranteed. So yes, you could have a big mortgage but if your income [is] always there and your incomes growing and you've got buffers, then what are you really concerned about?
[28:34] Even if interest rates go up, you've got buffers and you're gonna have wage increases as well. So, I would say that's my biggest advice to people. And that's what we see from our clients. Look, the clients that we take on, the clients that have got strong trajectories, that are investing in themselves, [that] are studying etc. And so they back themselves, and they back themselves into buying, ah, taking on a bit more debt than the average.
Perseverance is a Challenge
Perseverance is a big challenge but when times are tough and you feel like throwing in the towel, overcoming challenges can lead to great rewards.
[24:49] You just got to be aligned to it though. Like you've got to really genuinely be passionate about it and genuinely know that you're helping and making a difference in people's lives because that needs to be, that's your motivation long term.
[25:06] Whereas if I knew I was just sort of selling a product, and I could just sell more of it, then it's only a financial benefit. I'm not gonna have that same reward, once you've got certain financial security and you're not worried about money or you don't need more money, then that starts to run out. So, it's only that real purpose or that meaning that impact that will sustain you for a long time and so you've got to be really, know that you're making a real difference.
Reaping in the Benefits
Because Bates has persevered and continued to work hard, he is now able to enjoy the benefits.
[25:43] We're at a good point. We've got a great house, we've renovated it, we're happy here, but we've got the ability to potentially do another upgrade, right? And there's financial reasons why we would do that. We believe that the ultra-high end part of the market is where there's true scarcity. And we, unfortunately every year there's more people that are doing well financially.
[26:06] Due to a capitalist society, there will always be people doing even better, and what they're gonna want to do is want lifestyle. And so, for financial reasons but also life reasons, we'll probably do another upgrade, and probably a build. And so, that's sort of how we build a dream home, is sort of the challenges that trying to find that piece of land and then also then facilitate that build and then manage the lifestyle impact of that is sort of what I'm probably working on a personal level.
[28:58] Chris, thank you so much, I guess, for sharing so much of your wonderful journey and your knowledge and so forth. Last question for you is how much of your success is due to your intelligence, hard work, and skill? And how much of it do you believe is because of luck?
[29:22] I wouldn't say luck. I do think it is generally down to that. I mean, I remember like a lot of what's making our business grow is the amount of time that I spent in producing content and researching. The business, in a day there's 16,000 mortgage brokers, right? And what do we do [that is] different?
[29:40] Well, we've gone and invested in producing content, and that was all through hard work and learning, etc. So, I think that hasn't been luck. That's what's created a lot of that same success. I mean, we're all lucky. We're all born in Australia, right? And so, that's that to me, people have got to remember is that yeah, you're lucky to be here and you're lucky to have the options here in Australia. So, that's a big part to play in it but then after that, I just think it's sort of dedication and learning as much as you can.
Thank you to Chris Bates, our guest on this episode of Property Investory.