In this first episode of Investor vs. Developer, Flux delves into the differences between the two by explaining how and when most people transition from one to the other, before giving an overview of each. He explains the four reasons somebody will purchase a property, and reminds listeners how important the trusty GPS is in mapping out the next 20 to 30 years in any property journey.

Timestamps:
01:37 | Rewinding and Starting Again
04:02 | The Transition Phase
09:10 | Delving Into the Details
12:31 | The Magic Words
14:45 | Step 1: Understand. Step 2: Invest.
17:27 | Keep an Eye on Your Assets
19:40 | Developer 101
27:51 | Hone Your Craft
00:12 | The Ends of the Scale
04:00 | Risk Management
09:24 | Put the Hours In

Resources and Links:

[00:05:28] We'll start out with buying a principal place of residence, and then we'll slowly grow and say, 'Okay, I want to get an investment property, and then maybe we collect another one'. And as we start to grow, we start to go, 'Well, what else can I do? And how can I get there?' 

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 special episode we’re speaking with Rob Flux from Property Developer Network. With his wealth of knowledge in both investing and developing, he is uniquely familiar with both sides of the property coin. Armed with all the insider knowledge, he highlights the key differences between the two in this first episode of Investor vs. Developer. 

Tyrone Shum:   

Flux has 35 plus years in the game, and runs the largest property networking group in the country called Property Developer Network. While his journey wasn’t easy, he uses his experience and the knowledge he’s garnered from its over 15,000 members to educate everyday mums and dads to reach their development potential.

Rob Flux:   

[00:01:37] I did 20 years of buy and hold and, unfortunately, lost the wealth that I built through that through a divorce and then didn't want to wait 20 years to do it again. So I was hell bent on wanting to force value onto the property and not wait that 20 years again.

  

[00:01:56] I went and educated myself by paying a lot of what I would now loosely call spruikers, who were selling great courses that would allegedly teach you the property development process. And I found that I was $120,000 emptier in the pockets, and was very motivated in what to do, but didn't really know how to do it still. Even though I'd invested that amount of time and effort into myself. 

  

[00:02:22] And so I got five mates who had gone through a very similar experience. And we sat around the kitchen table after reading one of the books that's sitting behind me, Napoleon Hill, Think and Grow Rich. And we realised that, collectively, we probably knew more than individually, we did. And if we helped each other's projects move forward using a masterminding process, then we would all move forward. And so that was basically how it started with five mates around the kitchen table. 

  

[00:02:49] And then as each mate started to get success, and then they invite a mate, and they invite another mate, and all of a sudden, I found that in 2012, we kicked off with our first public networking group. As a matter of fact, next month is actually our 10 year anniversary of the formal creation of that group. So that's kind of the humble beginnings of where it started, mate. But now we've got 15,500 people strong in that in that community.

Tyrone Shum:   

[00:03:14] Well, congratulations. That's exciting. And 10 years, woohoo!

Rob Flux:   

[00:03:20] It's a month of celebration, we've got to do that all across the eastern seaboard. We run events in Brisbane, Sydney, and Melbourne. And so I get the privilege of going and celebrating with each one of those communities. And I sense at the end of the month, if I stay drunk, then I won't get a hangover. That's my logic! But I'm going to very much try moderation because I don't think I can last that long.

Tyrone Shum:   

[00:03:47] Well, I'll try and join that club, you know, if I can! I haven't got[ten] drunk for a long, long time, since [my] teenage years. So this might be a fun party to attend.

Rob Flux:   

[00:03:56] You're more than welcome, as are all of your community for anyone wanting to come along.

Tyrone Shum:   

[00:04:02] Fantastic. Well, thank you so much for sharing that, Rob. The reason why I wanted to join forces with you to actually create this part of these episodes series for our listeners is because there's a transition phase that we all sort of go through as an investor potentially into development. 

 

[00:04:16] Because you get to a point in your investing journey that you've got enough properties and you go, 'What's next?'. And we started getting those questions been asked by a lot of listeners. And I personally am going through, have been through, a very similar journey. And hence the reason why for me to be the host of Property Investory, but also, too, as a personal learning experience, I thought this would be excellent to be able to just ask these kinds of questions and also provide feedback from my learnings as well. 

  

[00:04:41] My background in history— and most people know, I'm the host of this podcast— I have had investing experience for the last 10 years as well, [with] my own property portfolio with both residential and commercial. And then in the last couple of years, I've jumped into a bit of property development. So I can definitely talk about from that transition from there. And as almost you can say, a beginner's point of view. 

  

[00:05:00] And Rob, you've been there for a long, long time. So therefore, it's great to be able to have that experience and come back with both feedback and share that knowledge as well. Because ultimately, at the end of the day, we're here to be able to share this knowledge and help each other out as well. So that's awesome. 

Rob Flux:   

[00:05:16] I'll have to say, having run the community that we have run for so long, it's amazing how much that journey that you just described is common across the board. We'll start out with buying a principal place of residence, and then we'll slowly grow and say, 'Okay, I want to get an investment property, and then maybe we collect another one'. And as we start to grow, we start to go, 'Well, what else can I do? And how can I get there?' 

  

[00:05:44] And that tends to be the slow approach. And then there's other people that want to race ahead, they want to take some shortcuts and get there faster. And we're gonna go through all the pros and cons of all the different approaches out there over the next few series and episodes over time. 

Tyrone Shum:   

[00:06:00] That's extremely exciting. So that's the reason why I can't wait to share this as well. So maybe just for the listeners out there, we're probably going to just explain to them and sort of set some expectations. 

  

[00:06:11] Basically, it is the investor versus a developer, and we're going to be talking from both perspectives and different angles. There's no right or wrong answers, we're going to be just sharing as much as we can. Not only just from my experiences, but also through clients' experiences, case studies, and people who we've met along the way. And through that, hopefully, you'll gain a lot of insight into the differences as well. 

  

[00:06:30] Maybe just to give the audience a little bit of a background, from what we kind of perceive: What is typically investing? And what's the difference between that and developing?

Rob Flux:   

[00:06:42] Investors [are] going to take a much longer view of the market. I like to think of it as there's only four different reasons why you would actually buy a property at all. 

  

[00:06:53] The first one is we're looking for capital growth. The second one is that we're looking for cash flow. The third one is we're looking to manufacture profit into the property. And the fourth one is lifestyle. 

  

[00:07:04] So if you have a very clear goal and objective as to why you're going in, then you can then start to work out which approach is going to be better, what skills I need to learn, [and] what market I want to invest in, in order to get that outcome. 

  

[00:07:20] But if you're looking for the capital growth side of things, then typically picking an area where there's lots of population growth, and the like that's going to push the demand up for the property is going to help that capital growth perspective. 

  

[00:07:32] If you're looking for cash flow, that might be a very different market completely. But again, you're taking that long term point of view to say: 'How do we actually generate that regularly and consistently over time where a small amount of effort at the start to pick the right location will then be the gift that keeps on giving for the next 20 or 30 years?'

Tyrone Shum:   

[00:07:53] And that's an investor's point of view, that perspective there. Because you're looking for medium to long term growth, or cash flow, whatever it is that you choose, as you said there. 

Rob Flux:   

[00:08:03] Correct. 

Tyrone Shum:   

[00:08:03] And then for the developer, then I guess from that perspective, it seems like it's the opposite, if I'm not mistaken.

Rob Flux:   

[00:08:10] It's exactly the opposite. So for a developer, it's all about the velocity of money. So, how quickly can we get our money to turn over? And time is actually our enemy. 

  

[00:08:21] So [for] an investor, time works to their benefit. But for a developer, time means more holding costs. And that erodes the profitability of the deal. So we want to get in and out as quick as humanly possible. So it's all about: 'How do we force value in in the least amount of time that we can to get in and out hopefully in the same market wherever humanly possible to eliminate the risk that the market might go against us?'

Tyrone Shum:   

[00:08:48] So it's basically getting things in as quick as possible to manufacture the equity as a developer. Now people go, 'Okay, this is great, Rob, Tyrone, you've explained to us the perception behind the investor and developer. These sound very factual', which it kind of is. Let's talk about some examples. What is a typical example of an investor?

Rob Flux:   

[00:09:10] A typical investor is someone who has set themselves up for their principal place of residence. They've got somewhere nice to live, but they're looking 20 or 30 years away from retirement and going, 'Well, if I can actually accumulate some wealth and still have my time for my family, all those sorts of things, then the property is going to do the work for me'. 

  

[00:09:31] A developer tends to come in... we tend to see them coming in a little bit later in the journey. And they're a little bit closer to retirement. Time is starting to work against them. And in this instance, they tend to go, 'Well, I actually need to get a little bit of a hustle on and maybe letting the market do the work isn't going to work for me'. 

  

[00:09:53] So our demographic we tend to see 35 to 45 [years old] is fairly typical coming into the development world. [They] just say, 'Look, I've done this investing side, and it hasn't gone as fast as I would like'. And now they're worried that they're not going to get there in time.

Tyrone Shum:   

[00:10:08] This is a really, really good example. And I can talk for myself as well, as a perspective, it's like buy and hold. I was planning to buy 10 properties in 10 years. And then hopefully, with the market of growth, you kind of go, 'Okay, this is fantastic, you got enough equity, built up a wealth base, your assets are increased, hopefully it's doubled, because you've been holding for 10 years, and so forth'. 

  

[00:10:28] But the thing is is that depending on the market as well, too, if you've bought well, then that's great. But the cash flow, particularly in Australia isn't the best. And you'd be having a fantastic base. But sometimes people who have bought maybe 10 [to] 20 years ago, they may have bought it unintentionally and had negative gear, so they've had to put more funds into it. Then they're kind of stuck in a position going, 'Man, I'm having to fund this portfolio, be an investor. I thought this was gonna be able to fund my lifestyle'.

Rob Flux:   

[00:10:55] I think that comes because in a lot of instances, people don't educate themselves enough before going in and purchasing the property in the first place. And they've bought the wrong property for the wrong reason. And they think that buying every property is going to give them capital growth. 

  

[00:11:13] You very much have to pick from those three different investment approaches. Is it going to be capital growth? Is it going to be cash flow? Or is it going to be manufactured profit? All of them are investing, but they just have a very different kind of market, different kind of analysis, how do you actually determine whether or not you're going to get the outcomes that you're looking for, the yields that you're looking for. 

 

[00:11:35] And if you don't know what you're trying to aim for, then you don't know how to assess the property on its merits to actually achieve that outcome. I think that's where a lot of people fail, irrespective of if they're trying to be a developer or an investor is they're not clear on: 'What is the outcome of that property?'.

Tyrone Shum:   

[00:11:52] That's really, really true. Because I think a lot of people go, 'I see my uncle or my family member who's buying a lot of properties and doing really well materially', maybe they're just driving around nice cars, live in nice homes and stuff like that. And they've got a really large asset base. 

  

[00:11:52] But then I guess you've got to ask that question: What is the real goal at the end of the day? Are you looking for financial freedom, where you don't have to worry about having to go back to work? You can choose to go to work, or whatever you choose to do. Do philanthropy type of work, or you want to just spend more time with the family. I guess the goal is, is really, really important behind this. And I think that's going to be an aspect we're going to talk about in a future episode in the mindset side of things. 

Rob Flux:   

[00:12:31] You mentioned the magic words that everyone's looking for, which is financial freedom. And it's this mythical thing that people standing in front of Lear jets or leaning on Ferraris are trying to pitch to you what the dream is. 

  

[00:12:46] The reality is that financial freedom is about passive cash flow, and about enough passive cash flow to pay the debts that you currently have in order to live the lifestyle that you currently live in. 

  

[00:12:58] The dude that sitting in front of his Learjet, what he's trying to sell you on is lifestyle, and he's trying to pretend that that's financial freedom. But financial freedom is just enough food on the table, fuel in the car, send the kids to school, pay the bills. You don't need a lot of money for financial freedom. 

  

[00:13:16] You do need a lot of money for lifestyle, though. That is a very distinct difference, I think between wealth— so wealth is having a lot of assets— and cash flow, or financial freedom, which is the cash flow to actually fund your lifestyle. 

  

[00:13:36] And you can be asset rich, but cash flow poor and still be leading a fairly meager lifestyle even though you're a millionaire in assets. You're not living a millionaire lifestyle.

Tyrone Shum:   

[00:13:49] That's the biggest challenge. This is a great point that you've touched on. Because typically, I have heard so many different people who have come across this kind of journey, where they go, 'Okay, I've got all these assets I've been purchasing over the last 10 [to] 20 years, and they've doubled and tripled in value'. And it's great that they can sit there, and they've got a ton of equity in there. 

  

[00:14:08] But then they're still working full time, because they just can't get out. Because the challenge is that they still haven't been able to generate the kind of cash flow. 

  

[00:14:15] And this is the really interesting thing about investors compared to, say, developers. We're going to touch on that shortly. But what I'm just saying is that ultimately, you've got to understand what is it that you're trying to achieve before going ahead. Because you can go ahead and buy all these properties and say you've got 20 [or] 30 properties, but is it actually attaining what you really want? [That] could be lifestyle, financial freedom, spend more time kids, etc, all those kinds of things. And we're definitely gonna be talking about that very much in detail.

Rob Flux:   

[00:14:45] Understanding exactly how much cash flow you need, and then coming up with the investment strategy. Whether it be a long slow, passive growth through the typical buy and hold, or whether that be manufacturing those profits. You need to understand how much actual cash flow do [you] need, and design the outcome. 

  

[00:15:06] I think that's where many people fail. They don't design their outcome, and so they don't know where they're going. And if they don't know where they're going, then an expression that I like to [use is] 'If you don't know where you're going, then every bus will take you there'. And you don't know that it's the wrong location until you're there and you go, 'Actually, that's not what I wanted at all'. 

 

[00:15:26] So firstly, get yourself a plan. That's probably the first thing. Be very, very clear on your objectives. Learn that one skill, whether it is buy and hold, whether it is development, [it] doesn't really matter. They all work. But they all work in different ways. And they all need different skills. And so whatever it is you want to be doing, you want to get very, very clear in that particular skill, and then go and execute it to perfection.

Tyrone Shum:   

[00:15:54] Well said, Rob. And especially when you come from a solutions, design, architectural background, you can't design any solutions unless you know exactly what the end goal is. So this is no different, which is fantastic. That's why I think we both resonate, because we've both been in that space for a long, long time as well. 

Rob Flux:   

[00:16:13] The other important thing that I would add to that, just to kind of round that out, is to say: Be very clear on where you want to go. Be very clear on where you are now. And then the path to get there is then just mapping the journey between the two. 

  

[00:16:30] I see many people that don't actually take stock of their own assets and liabilities, their own budgets, they get very clear on where they are. And then a little bit like a GPS, if you know where you're going and you know where you are, you can easily put that path together. 

  

[00:16:45] And you need to go back and keep checking on your status as you go. So in a year's time, your position is going to be very different to where you are now. In five years' time, it's going to be very different. So you need to keep reassessing, and keep bringing yourself back on track over and over and over. If you do that, you will inevitably get there. 

  

[00:17:03] But I think a lot of people will make up their mind to say, 'Hey, I want to do one thing'. They go and buy one particular asset, they never go back and assess: 'Is that asset doing well? Is it performing as originally intended?'. And so they get themselves 10 years down the track and go, 'Actually, I actually did buy myself a dud. And I never did anything about it. And so it's sitting there not doing anything for me'.

Tyrone Shum:   

[00:17:27] That's true in a lot of scenarios as well. And especially, you know, life changes as well. You're not going to say, 'In 10 years' time, I'm going to be still in the same position'. Because you may have personal things that change. Family, new kids, you may retire, etc. So all these things need to be factored in as part of your plan, because life changes. And as Rob said, along the journey, you've got to reassess. 

  

[00:17:50] Otherwise, you can put yourself into automatic mode and you go, 'Okay, I'm gonna keep buying these', for whatever the plan has been set initially 10 years ago, but it may not still be relevant to the current times in your situation at the end of the day. And that's why it's so important to look at it. How often would you recommend to sort of have a look at this, just as a reminder?

Rob Flux:   

[00:18:08] I look at every single one of my assets every three months. It doesn't have to be as often. It can be every six [months] if you're comfortable that your asset's actually performing well.  

  

[00:18:19] I look for two really clear goals. One: Is it meeting the original intention of what I had that asset for? So that could be capital growth, it could be cash flow, it could be manufactured profit. 

  

[00:18:32] And then the second thing that I assess it for is: Well, even if it is performing, have I acquired a skill that means I can actually do better? Could I repurpose my money in a better way than what that asset's currently doing right now? 

  

[00:18:48] And so sometimes, if it's performing well, and there's no extra skill that I can actually add to the value, then I allow that asset to keep doing what it's doing. If I've acquired a new skill, if I've got a better market opportunity, then I make an assessment to say, 'Am I better to cash in on that right now and go and invest somewhere else?' 

Coming up after the break, Flux delves into development and gives a history lesson all in one…

[00:20:53] One of the things that I like to remind people [of] is that if we go back 220 odd years ago, Australia was a one lot land subdivision.

He reveals the fundamental investment that everybody should pay into that doesn’t cost a cent…

[00:24:05] I think that's the step that has been missed by most, because of the dude standing in front of the Learjet who says you're going to become a millionaire on your first deal with that get rich quick scheme. 

He delves into the two extreme approaches and their middle ground.

[00:01:27] There's a couple of different ways that you can actually... I won't say limp in, but you can kind of put your toe in the water and test [it] to see [if] this [is] really what you're after.  

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

When it comes to property, many people don’t realise that even a simple renovation can be considered a development strategy. As a result, some people are part of the developer realm without even knowing it.

Rob Flux:   

[00:19:40] A developer is anyone who is manufacturing profit into the deal. So forcing value in some way, shape, or form. As you touched on, a renovation is a form of development you're forcing value on. It's a relatively simplistic approach, but it is absolutely valid. 

  

[00:20:00] So you're increasing the value of your property, so it's lifting your capital, you potentially are increasing the rental yield that you'll actually achieve. So you've manufactured that extra profit into the deal straight away. And it's that extra capital that you've just put into that that is now going to grow with the market as opposed to the lower value, or the original value of the asset. 

 

[00:20:18] It has a multifaceted approach. And it's amazing how many people buy an investment, do a renovation, so they are developing, in order to hold that asset, pull the original equity out and reload and go again. So that's the bottom end of the scale. 

  

[00:20:35] The high end of the scale is, well, you can design an entire city. You could design entire suburbs. You could do master plan communities. And so there's everything in the middle that is really property development. 

  

[00:20:53] One of the things that I like to remind people [of] is that if we go back 220 odd years ago, Australia was a one lot land subdivision.

Tyrone Shum:   

[00:21:07] I was thinking, 220 years, what are you talking about, Rob? Now I get what you're saying.

Rob Flux:   

[00:21:13] Every house that we live in, every office that we go to, every shopping centre that we go to, every road that we live [on], everything was created by a developer. 

  

[00:21:26] And what a developer does is not rape and pillage the Earth. 

  

[00:21:40] A property developer is actually a maker of community. So we understand the needs of the community, we understand what they're looking for, the demographics, the demand that's actually coming into the area, and we create opportunities that people then move into. So everything that you see is because somebody has thought ahead and said, 'There's somebody in that area that needs that something, and we're gonna go build that something'.

Tyrone Shum:   

[00:22:05] It's really interesting, because, yes, a lot of people— and particularly myself, when I first started looking at into development— I saw that wow, all these successful developers are making a lot of money. And I thought, 'Wow, that seems to be a fast track way to be able to generate wealth'. Which is why kind of attracted me into it. And at the same time, there'd be a much faster way to be able to find cash flow as well, because if you do the developments well, you can potentially hold on to some of these, which turn into a fantastic asset as well, too. 

 

[00:22:34] So the reason why I think development is fantastic, from my point of view, is because it's probably the next stage. Once you've started investing, then you go, okay, what is going to be able to help you increase your growth much faster than to wait 10 to 20 years as an investor to buy and hold?

Rob Flux:   

[00:22:49] I think the ideal outcome is to be able to blend the two worlds. To be able to use the property development process to manufacture the profit, and then use the investment approach to hold that asset and allow that to grow over time. So you're going to force the value on in the short term, and then allow the market to do that in the long term. 

  

[00:23:14] Now, you can't go in necessarily and do that on deal number one. Property development is fundamentally a new career. You don't just walk in and magically go, 'Well, the first deal I'm going to do, I'm going to walk away with $1 million and passive income that's going to fund me for life'. 

  

[00:23:36] You need to master your craft. You spend eight years to go become a doctor. You spend four years to become a scientist. If you want to become an architect, you've got to go study that. Whatever you want to be, you need to invest time in yourself to actually start to learn the skills before you get that doctor's wage, and before you get that architect's wage, and before you get the developer's wage. 

  

[00:24:01] Invest in yourself, so that then it will start to reward you a little bit later on. And I think that's the step that has been missed by most, because of the dude standing in front of the Learjet who says you're going to become a millionaire on your first deal with that get rich quick scheme. And it's not. It's get rich, slow, folks. And if you think that you're going to get rich quick, then you really want to reassess your your targets and your ambitions.

Tyrone Shum:   

[00:24:31] I think that's the challenge we all face. Even for myself when I first started, I thought, 'This is great because I [can] actually try and generate a lot more cash and much faster'. But once you start learning about these things and start doing it, it's not as easy [as that]. I learnt from experience. And it takes a lot of time. 

  

[00:24:45] And also a lot of trust, because it's not just you doing this yourself. It's great if you can find a deal and do it, but you rely heavily on a lot of people because this is a team sport. Ultimately you've got to find the right people to help you.

Rob Flux:   

[00:25:00] You're right. When you say it's a team sport, it is. Property is what we are trading. And that is the widget that we are manufacturing, is property. 

 

[00:25:10] But in reality, it's a people game. We are buying property [from] people. We are going through people as agents in order to negotiate those. We are dealing with agents to sell our finished property. We're dealing with people as town planners to actually get all our approvals. We're dealing with people who are builders who are actually creating our stock. 

  

[00:25:31] So you need to be very people focused, understand the needs and wants of the people that we're actually dealing with. Then if we can solve their problem, then they will want to help solve ours.

Tyrone Shum:   

[00:25:46] And usually, what's our problem that we're trying to solve?

Rob Flux:   

[00:25:51] What is the problem? Well, we're trying to manufacture profits. But we make money as a property developer, we make money by solving problems. And so you're going to basically create a product or a stock that Joe Public who wants to buy it off you doesn't have the time, the effort, the skills, or the risk appetite to actually do. So we have to take on the challenge to do that in such a way that we can actually do that [in a way that is] commercially viable.

Tyrone Shum:   

[00:26:24] That's right. And maybe just to ask you, why do you think it's important for developers anyway? Like, why do you think we need developers in this day and age? I'm probably asking the obvious question, but I'd like to probably hear your point of view. What's the importance in their role that they play in our society?

Rob Flux:   

[00:26:41] I think it's because I guess society as a whole is becoming more and more [interested in] instant gratification. So they basically want to be able to turn up and get a turnkey something. So it might be a turnkey apartment, it might be a turnkey townhouse, it might be a turnkey house. I might be a house and land package, where somebody's already designed that and put the package together for us. 

 

[00:27:04] But basically, we're time poor. And so people are willing to pay a premium for the privilege of the fact that the solution has been solved for them. 

  

[00:27:14] And so [a] developer's role is to actually solve all the headaches to take away their time. We are, I guess, time managing the process, we're problem solving the process, we're taking away the headaches. And so that is our role. [It's] to firstly work out what it is that our target market audience wants to be purchasing, and then go and create it for them. And if we do that, there's money to be made.

Tyrone Shum:   

[00:27:41] Great. Now, it's really good to be able to hear that's what a developer does. And what an investor also does as well. And now we've kind of talked [about] the differences between the two. 

  

[00:27:51] We typically get a lot of questions asked [like], 'If I want to move as an investor and transition into a developer, what development strategy should I start off with first?' Because that seems like, 'Okay, I'm not sure, I don't know what to do'. What are your thoughts on that?

Rob Flux:   

[00:28:05] There's lots of development strategies. And we touched on a couple of them before, but I'll flesh a few more out. 

  

[00:28:14] There are development strategies that are cash flow focused, for example. So you might do a rent per room type model. You might do an NDIS type model. You might do an AirBNB type model where you're manufacturing that kind of stock. So they're the cash flow models. 

  

[00:28:33] Then there's the subdivision type approaches, where you might go and create one or two blocks of land, where you might build house and land packages and the like. 

  

[00:28:44] Then there's the multi res type strategies, where you're building townhouses or apartments or all sorts of things like that. 

  

[00:28:50] Fundamentally, what we're really looking to do is to say, 'Look, if I want to make a career out of this, what I don't want to do is the same job over and over and over. I don't want to do a renovation followed by another renovation followed by another renovation'. Because all you're really doing is swapping your day job for your property development job. 

  

[00:29:13] Instead, we want to do something where we can say, 'Well, I'm going to start small because I need to learn my skills. I'm going to start small and then slowly build on the skills of that previous project and do one slightly bigger'. 

  

[00:29:26] So when you start to look at that, there are only really two strategies that allow you to scale. You could do a one into two subdivision, into one into four subdivision, one into six, one into 10. You could build entire suburbs. So that's still land subdivision. 

  

[00:29:45] You could do townhouse projects. You might start with a duplex, you might do a triplex, a quad pack, a six pack, and keep growing out that way. 

  

[00:29:53] You might do apartment complexes and start growing up and do 20 [or] 30 storey apartments. So it's really subdivisions where you scale out, townhouses where you scale out, or apartments where you scale up. Either way you need to scale if you want to build on the skills of the previous one. The other kinds of strategies are really just doing the same thing over and over and over.

Tyrone Shum:   

[00:30:20] So basically honing in on the craft. Start somewhere, because you're obviously learning this craft, being a developer or starting as a developer, and then really, really improve on those skills over the period of time. Especially when you're doing this through experience and building more and scaling up your development as well, too. 

  

[00:30:36] I think the key lesson— for me, anyway— is to start small. Don't start into doing a 20 lot [or] 30 lot subdivision. You've got to start somewhere so you can learn the skills.

Rob Flux:   

[00:30:45] Absolutely start small. But the other thing that I would say is: Be very clear on the end result. So where do I want to be in five years time? And then whatever that is, in five years time, how do I do a smaller version of that today? 

  

[00:31:03] So if I want to be a townhouse developer in five years time, then what skills do I need to learn today in order to do that? Maybe I might do a duplex, which is a much smaller version of that 10 pack of townhouses that I'm thinking about. If you do that, then each project that you do will build on the skills. 

  

[00:31:24] Where I see a lot of people fail is they will start going down one path, and then they'll deviate to a different strategy and then deviate, again to a third strategy on deal number three. And they're not reaping the benefits of the lessons learnt from the prior one.

Tyrone Shum:   

[00:00:12] [I'd] love to be able to just chat to you a little bit more about this particular one. This is something that I think covers really well. It'll be interesting to understand what are the three different investment approaches that we can look at from an investor versus a developer point of view?

Rob Flux:   

[00:00:27] I guess there's someone who is a pure investor, and is really taking that long-term view of the world and letting the market do the lifting. So I like to think of them as a passive approach. They take a small amount of active effort at the at the start, and then they let the market do the work for them. So the market is doing the heavy lifting. 

 

[00:00:49] You've got the other end of the extreme, which is then the property developer who's doing a very active approach. That is, their sweat, their skills, their equity, they're trying to use that to force value onto the property itself, with that very short-term view. 

  

[00:01:06] And then there's the bit in the middle. And the bit in the middle is the transition between the two stages to say, 'Well, I've been investing for a while, and I'm interested in this property world. How do I take a semi passive approach to say I want to be a little bit more involved in the developing world, but I don't quite know how yet?' 

  

[00:01:27] There's a couple of different ways that you can actually... I won't say limp in, but you can kind of put your toe in the water and test [it] to see [if] this [is] really what you're after. 

 

[00:01:37] So [the] first approach might be, 'Look, I purchased a property as an investment, I've been holding on to it for 10 or 15 years. And whilst I've done that, the city has grown and expanded. And the property that I purchased in one particular location is now suddenly a hotspot of activity, it's got lots of demand and it's got this development potential and development uplift'. 

  

[00:02:02] So you've purchased that sometimes accidentally, and the property has been rezoned. So you might partner with a developer who actually knows what they're doing. The developer will actually do that in some sort of joint venture capacity with you, and actually manufacture that profit in there. 

  

[00:02:22] So you might turn one key into many keys. And you're going to share those proceeds with the developer along the way. So that's one approach. 

  

[00:02:30] Another approach would be [that] you've been a very successful investor, you've actually manufactured either a whole bunch of equity, or alternatively, a whole bunch of cash. And now you would like to actually have that accelerate your journey. 

  

[00:02:46] And you might use that cash or use that equity, and give a developer access to that so the developer can actually use that to fast track some of their projects and run more projects at the same time. 

  

[00:02:58] So either way, you're partnering with a developer and taking kind of a passenger seat in the process, but picking up some skills as you do that.

Tyrone Shum:   

[00:03:09] So just to clarify, are we talking here about semi-passive investor development? Or are we talking about passive investor here? Just for clarification.

Rob Flux:   

[00:03:17] It can be both. So, how much of a role do you want to take? Do you want to shadow the developer along the way and actually learn? Sometimes we'll have people ask to do that and actually want to take some active steps in the process. 

  

[00:03:32] So 'Give me the little tasks, the ones that I can actually handle'. And it allows you to get that feel for the experience without necessarily having to do every single step. You might shadow the developer into the town planning meetings, for example. Or maybe you're going to do some legwork in running around and talking to the architect, all sorts of things like that. So you can step into that in whatever level or capacity that your bandwidth allows and your risk appetite allows.

Tyrone Shum:   

[00:04:00] That's really good. And that also mitigates a lot of the risk, because most people find developments risky. Especially when I first started, I thought there was a lot of risk in there because [I had] a lack of knowledge. And when I realised, 'Hold on, if I learnt about that, and I actually improve my knowledge behind that, then it mitigates a lot of the risk'.

Rob Flux:   

[00:04:19] You've touched on a really interesting quote that I was just about to say. That's a Warren Buffett quote, and he says, 'Risk comes from not knowing what you're doing'. So if you educate yourself well, then you'll be able to identify the risk and be able to put a risk management plan in place. 

 

[00:04:37] Now, the perfect example of that that's really easy for everyone to understand is: When you were a child, you were taught that crossing the road is dangerous. And then you were given a risk management plan that said, 'Look left, look right, look left again', and you were able to navigate crossing the road. 

  

[00:04:55] So over time, you learnt that you could cross the road by pressing a button and waiting for the little green man. You'd learnt that there were crosswalks where you could actually do that. You learnt to just wait till there was no traffic, and you found many ways to actually manage that risk. The danger is still there, the risk is still dangerous, the car will still hurt if they hit you. But now, by identifying the risk and putting a management plan in place, you can actually safely cross the road. 

  

[00:05:20] The same happens with any investment vehicle, and particularly in property development. Once you take the time to educate yourself [and] identify the risk, then you can actually manage your way through it.

Tyrone Shum:   

[00:05:31] I love that, that's a fantastic example. I think I'll be taking that away to apply to my property developments now for the future. Not that I don't use risk managements, but it's so simple, the way you've said it in simplistic terms that it helps you reduce the thoughts. Okay, you think about what's the worst case scenario. In this instance that a car may hit the child, well you're trying to figure out what you're gonna try and do to prevent that. 

  

[00:05:52] And I guess you look at it from many ways, from the development point of view, if there's going to be delays, that could be a huge risk. If there's going to be blow up costs, that's another risk. And you think, 'Okay, how do I actually put a risk management plan in place to be able to reduce any of those potentials from happening?' Not saying that won't ever happen. But at the same time, we don't know until it actually comes. So it's fantastic that you've talked about that as well. 

  

[00:06:17] I'm also interested to understand as well, as an active developer, I guess what we're trying to understand is how much time and effort goes into it. Because when I think about it, a passive investor who has looked at buying property and buy and hold, yes, it's a lot of work up front. Because you still need to do a lot of research, you need to actually get the finance organised, yada, yada, yada, all that kind of information. 

  

[00:06:40] And [if] you think about it, that is quite active. Especially if you're going to buy 10 [or] 15 properties in a year or two years, or whatever, for a short period of time. So I still see that sort of being active. But you compare that to, say, a developer, what's the difference in that kind of activity that they're doing compared to say, an active developer going in, day in day out?

Rob Flux:   

[00:07:00] You go through different stages of the journey with regards to how much effort you actually take. The hardest part is actually finding the deal. So a lot of research goes into that stage. And the reason for that is that 90% of all properties that are development capable are not profitable. 

  

[00:07:22] And that's a misnomer that any real estate agent trying to sell you a development capable site is going to tell you that you're going to make a gazillion dollars in buying that. But the reality is that you have to pick and choose your projects very carefully. Because if the supply and demand curve is not working in your favour, you might run the project perfectly, but nobody will buy the property. Or if they do buy the property, they won't buy it at a premium enough to cover your costs. 

  

[00:07:49] So you have to be very, very careful in actually selecting that project in the first place. So all of your effort goes into finding the deal. Once you've found the deal, once you've actually locked that in, then it's really a process from there. 

  

[00:08:07] So you have to go through certain stages, you have to get a development approval, you have to get a building approval, you have to go out to tender for the build, and you have to then construct it and sell. 

  

[00:08:17] But that's really follow the bouncy ball once you're at that point. And you can have people to actually come and help you and assist you in each of those tasks as and where required. You might get project managers in or a development manager to assist. You're going to have experts like town planners and civil engineers and architects that take an active role in helping you. And as you touched on before, it's a team sport. So you really want to assemble that great team to actually do that. 

  

[00:08:45] But the actual effort from that perspective is less about effort and more about duration. So you might go into a meeting that lasts for an hour with your town planner. And that creates two weeks of work for the town planner. So the duration is two weeks, but your effort was one. 

  

[00:09:05] And then you will have to do an hour to review the results that they gave you to then go talk to the architect, which will then be another one hour meeting. And so the duration takes time, but the effort is actually quite minimal. Most of the effort goes into finding and negotiating the deal in the first place.

Tyrone Shum:   

[00:09:24] That's really interesting. And I can relate to that. Because going through a development that I've done in the past, it is a lot of basically on the phone, talking to people, chasing things up and so forth. And being very active. That's what really happens. But then you've got a lot of downtime because you've got to wait for things to happen. And particularly the council issue— as I think a lot of people realise— is a very slow process, unfortunately. 

Rob Flux:   

[00:09:49] My candor would be that you need to be putting at least 15 hours a week into the process to do it any justice to make sure that you're learning earning enough to keep progressing forward and getting the momentum that you actually need. 

  

[00:10:04] If you can't put 15 hours a week in, it's probably not the career that you're looking for. You might find an investment approach takes a lot less time. It can be spread out, because an investment market moves a little bit slower, whereas a property development market moves really, really fast. So you need to be on the ball and ready to pounce as soon as you actually see that deal. Because if you don't, someone else will. 

 

[00:10:28] Whereas in investment world, there's probably two or three other properties in that same area that's probably still going to give you similar kinds of results. So every site is on its own merits, and you've gotta move really fast.

Tyrone Shum:   

[00:10:41] It's a really good point that you've raised there. I mean, putting in 15 hours a week, that's just the minimal effort. I mean, [it] depends on the project, it depends on what happens during the week, and [it] depends on which stage you're at as well, too. 

  

[00:10:52] But it does sound like it's a part time effort, at least, as a minimum, to be able to get involved into property development. Once you've got a few deals underneath [your belt], you can obviously scale up as we've talked about, or you can stay where you are. And if you're happy with the profits that you're making, you can continue on the way it is.

Rob Flux:   

[00:11:08] Initially for most people, it starts out as a side hustle. And you would find that for most of those small projects, the profits that you're actually going to generate those in most instances will double the wage that you're on from your day job. 

  

[00:11:26] And so that starts to get very, very tempting to say, 'Well, 15 hours a week, and I was able to double my income. That sounds really attractive. So imagine what will happen when I quit my day job and now I'm doing that full time.' 

  

[00:11:40] So that's very tempting that people want to jump out super quick, because they're really wanting that accelerated cash. The problem is that you need to be very, very careful that if you don't have a day job, that you still have living expenses. You're still going to have a burn rate, you need to have quite a nice cash nest egg. But you're going to slowly, slowly eat your nest egg while you manufacture the profit. And you need to make sure that you manufacturing enough profit to replenish the nest egg, so that you can then do that again. 

  

[00:12:14] So you've got to make sure that you've got those cash reserves set up correctly, before you jump. So my guidance is get at least two projects under your belt, build that cash reserve, prove that the first one wasn't a fluke. And then start to think about whether or not you actually want to then transition. And when you transition to doing it full time, you're doing more projects at a time. 

Tyrone Shum:   

[00:12:35] That's exactly right. And what's really interesting is that you raised a really good point there. A lot of people do this as a side hustle. So you've got your ongoing cash flow that's coming in from your full-time job or whatever it is. But also there's a lot of... typically there are investors out there who may have built up a substantial portfolio who also have a cash flow there. And they go, 'Okay, maybe I've got a bit of stability there, I can actually jump into property development and therefore rely on my passive income that's coming in from my portfolio'. 

  

[00:13:01] Either way, it goes to show that development isn't as easy as just going in and hop[ing] every project will be profitable. Because it's all about chunks of cash, you guarantee, I can say to you that you're not going to get cash flow during the project. It's only after you've actually finished a project, that's when you'll get paid out. And by then it could be 12 [to] 18 [to] 24 months down the chain, even sometimes longer depending on how large the project is.

Rob Flux:   

[00:13:25] The shortest projects that you'll do will typically be in the three to four months range. There's projects that you can do that fast. The longest projects are probably two to three years, I guess for a typical Mum and Dad style developer. If you're doing some really, really big master plan communities, those things can be 15 and 20 years long, those projects. 

  

[00:13:51] So the most important part in all of that? Cash flow. Cash flow is king. So it's not cash, it's cash flow. So can I afford to pay the town planner? Can I afford to pay the civil engineer? Can I afford to pay the architect? Because those bills are going to happen along the way. And as you touched on, you only get paid the day you sell the finished product. 

 

[00:14:15] And so you've got a lot of money that leaves your pocket in the early stages and doesn't come back for quite some time. So being able to cash flow that is really important. So that nest egg becomes a critical element to the process.

Thank you to Rob Flux, our guest on this special episode of Property Investory.