Timestamps:
1:00 | Different Strategies
6:09 | Investing Interstate
9:13 | Building a Portfolio
13:02 | A Second Investment Vehicle
21:13 | Resources That Aid Success
23:58 | Get Uncomfortable
26:09 | Take the Opportunity

Resources and Links:

[35:37] I think when you talk to someone who's done it, and they've experienced some failures or even some wins, that's where you learn most of your knowledge.

 

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 back with the founder and director of JD Capital, Jyh Kao. He will explore the value of his strategies including cosmetic renovations, buying properties for land value and investing interstate. As well as this, Kao will share how he invested into a fitness business using equity from his property investments!

 

 

In our previous conversation with Kao, we explored his property investment journey. Now, let’s delve into the strategies that he uses, including renovations.

 

[8:53] I've only been able to do it on two properties so far, and the ones that are in Sydney only because of being in the physical location. I definitely do intend on renovating properties that I hold elsewhere and the main reason that I buy houses now is because I want to be able to add value and do improvements. What I realised with the apartments [is that] there's only limited things you can do. [You are] usually just limited to internal but I can tell you just from doing internal cosmetic renovations and what I did for North Sydney, and I've got another apartment in Brighton Le sands.

 

[9:29] So, [in] these two apartments I did some cosmetic reno's. The total renovation spend for both of them was around just under $10,000 each. So, basically what I did was complete revamp. So, fresh paints all out, new lighting fixtures — changed kind of the oyster light into downlights. LED down lights. [I] changed the blinds into venetian blinds or shutter blinds, [installed] floorboards — so, ripped out [the] old carpet and just put down those floating floorboards. [I] did some basic kitchen stuff — just changing fixtures, changing benchtop, splashbacks. Which are all DIY, most of it's all DIY through Bunnings.

 

[10:11] So, a lot of this stuff it's quite simple to do, or I could just outsource to like a, not even a builder, but you can just probably get like a tradesman to do a lot of the stuff. Yeah, so it won't cost you too much money. Whereas if you go pay a builder to do this stuff, it probably would cost like $30,000 [to] $40,000. So, around $10,000 all up, including labour for the spend and the property just transforms itself. Like if you look at the photos of some of the properties that I've been able to renovate — like really, really ugly apartments, and they're now looking quite modern inside. And from that I was able to increase not only the equity, but also increase the rent. So, that increases your cash flowing rental yield.

 

Another strategy that Kao sticks to is buying properties with good land value.

 

[15:10] So, most of the houses I'm looking at have minimum of 500 to 600 square metres of land. Because I've worked that land value is what appreciates over time, fastest. So, we can see that houses have over performed compared to apartments. So, the first two properties I bought were apartments. So, now that I've got this learning, I've just really focusing on houses.

 

[15:33] And for areas, look, I'm not really too stuck on which area it is. Usually what I like to do is I kind of just like to research a particular area, and I just study it for a while. And I just look at the house prices in that area and see what neighbouring suburbs are doing too. Because one thing I like to look at is pricing disparity. If a particular house is cheaper than another house, particularly if it's unrenovated, let's say you could buy a four bedroom house in Chatswood, right? Let's just say $500,000, right? Unrenovated, but then you found the same house, four bedrooms, on the same street, that's worth $800,000.

 

[16:13] So, there's a $300,000 disparity there, right? Most likely, just because it's renovated. So, if I can go in, buy the house, do a renovation that's then going to give it a big uplift. So, for me, I'm not too hung [up] on the area, as long as we're the numbers work. Like if I can add value to it and if the rental income is covering more than the repayments of the property and the holding costs, then to me it makes sense because I'm going to hold that property for quite a long time.

 

These strategies allow for Kao to achieve his ‘why’ in property investment.

 

[13:05] The why is really just to be financially independent and not have to worry about money. Yeah, for me, I remember seeing my parents work so hard. Like they were saving every single dollar and I can just see that they're so frugal, they'll never spend things on themselves. I remember comparing myself to other kids. Like they were able to go [and] always buy new toys or go out and family holidays and just do a lot.

 

[13:36] Whereas our family was just very, very focused on saving. And I just watched my parents save a lot of their money and they weren't very aggressive when investing. Besides the property that they bought in Linfield; they didn't invest in anything else. So, I always wanted to kind of take money off the table. I don't really have like a specific number that I need to target. It's just for me, I just want to be financially independent to the point where I don't have to really worry about money.

 

[14:07] And just being able to have freedom. And that doesn't mean to live a lavish lifestyle, it just means to, you know, maybe for a year I might want to take some time off and just go travel, explore the world, and not have to worry about working or have to worry about a boss knocking at my door saying come back to work.

 

 

In order to achieve his ‘why’, Kao also dares to do something that many investors won’t: investing interstate.

 

[17:25] I remember at the time, like not many people I knew were buying interstate. Borderless investing wasn't really a big thing back then, people were worried that they're like, people kept telling you don't buy something you can't see. Don't buy sight unseen. I remember I had an argument [with] my dad because I wanted to buy in Queensland. He was telling me it would be such a bad investment. He's like, you can't see the property. What if there's something you need to go fix? And I just argued with him because I said, 'look, like the numbers work and let me try this'. And we just kept arguing back and forth about it.

 

[17:57] In the end, I said, 'I'm going to do what I'm going to do. It's my money. I'm going to make that decision. If it fails, it fails. I'll take ownership'. But the real trigger for me was, I just at that time, Sydney, it was moving quite a lot. And I just couldn't afford to get back into the Sydney market and I wanted some exposure. 

So, I was going to a lot of property seminars, and I ended up meeting a buyer's agent at the time and they were buying a lot in Queensland. So, I sat down with her and she kind of talked me through the rationale behind why they're buying in Queensland. Showing to me some of the purchases that they bought, some of the figures and I started to become a lot more comfortable.

 

[18:35] For me, the good thing was I wasn't really emotionally invested in the actual physical property itself. I knew talking to people that was the one learning that most people say is just you know, do not be emotionally invested in a property that you're not going to live in. So, I took that learning and just thought okay, well if the numbers work and the location seems to stack up. All of the criteria was kind of ticking all the boxes. 

Like it was not far from a capital city, [it] wasn't too far from the water, local amenities [and] schools, it ticked all the right boxes. I was thinking long term, how bad could it be? If it fails, how bad is it really going to be? So, yeah, I took that kind of leap of faith to decide and buy something interstate on which I'm really glad I did.

 

Kao bought this property sight unseen but still made some precautions.

 

[19:29] We did a building and pest inspection. We took a lot of photos, so I was comfortable with it. But when it settled, we actually went over because I wanted to see what it was like and then I remember spending a good two days just cleaning the property because it was vacant for a while. So, the garden was really messy. I even bought my dad over so he can actually go see the property. I'm like dad, it's a physical property, you can now see the property. And then when he got there he is like okay, yeah, it's not too bad.

 

Although Kao’s dad had some concerns about the property, he still showed his support.

 

[20:12] He loves doing gardening and all the house kind of stuff. So, he ended up bringing some tools and he had some, he had a good family friend that lives in Queensland. So, we ended up borrowing some tools off him for the garden. But yeah, we spent quite a lot of time just pulling out weeds and just mowing the lawn.

 

After cleaning up the property, it got rented out.

 

[20:42] The vacancy rate at the time in Queensland was not as great as now. It was taking a bit longer to rent out. So, I think it took just over a month.

 

The success of this investment egged on Kao to make a second purchase in Queensland but this time, with a little bit of help.

 

[21:16] Simon did help us buy a property in Coalinga. I think he did a purchase price was $500,000 and we just got a valuation for that a couple of weeks ago, and it came back at $700,000, which is incredible. Like, I think [in] less than six months $200,000 in equity.

 

[21:42] Yeah, so that one's actually bought for Danica. So, Danica is my partner. So, she is starting to build a property portfolio. So, we have a combined portfolio of around 10 properties, but we have it in separate names. So, we kind of help each other out. So, she was wanting to look for a property and I just met Simon, and we started connecting. 

And then I said to Simon, 'We want to try and get back into the Queensland market, can you help us out?' And so, he was just looking around and he found us this really good deal. And our brief to him was kind of quite simple. We just want something that can hold long term, low maintenance, good cash flow and yeah, kind of a good location.

 

[22:22] So, he came to us with the Coalinga property. And I've seen a lot of my clients also buying around that Coalinga [and] Moreson Bay area. So, I could see there was a lot of growth. So, I knew the figures and the fundamentals were strong. So, it was a high set property, which is generally worth a little bit more because you've got the downstairs with the car space and then you've got the upstairs. So, it was a low maintenance, very well maintained. I think the couple that lived there were quite old and they were retiring and moving out.

 

[22:48] So, it was very well maintained for an older style building, and I think they even created a separate room downstairs. So, it's kind of like a little rumpus room. So, [a] really good layout. I think it would really attract families. So, we bought that for $500,000 off market, as well. And it ended up renting out for I think just a tad over $500 a week and it rented out very quickly. I remember the first inspection there was, I think 16 groups of people. Yeah, big demand and I was just quite surprised how quickly it rented out. [There was] just so much demand and [the] first week, first open inspection, there was three or four applications already.

 

 

Coming up after the break, Kao will delve into owning a second business…

 

[24:46] I've always wanted to get into business or do something business related.

 

He will share the resources that he uses to achieve success…

[35:47] But in terms of like specific resources, I think over the last year or two, definitely me listening to a lot of podcasts.

 

We’ll delve into what he is excited for in the future...

 

[40:37] I'm really excited to grow JD Capital.

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

 

 

 

As well as properties, Kao has also invested into a second business.

 

[24:38] It was a really good opportunity that came by. So, when I was working at Optus, I feel like I had quite an entrepreneurial spirit. I've always wanted to get into business or do something business related and I was starting to get frustrated at work just because I didn't really like what I was doing in my job. And I just wanted to look at different avenues [and] different opportunities.

 

[25:02] And I thought, okay, what if I start a business, but still do that as a side hustle because I didn't want to just jump in and go all out and risk a nine to five [and] having a decent salary at the time. So, I thought, how can I leverage a decent salary that I was on to then invest that into another business or asset that gives me another income stream? So, I was quite into fitness at the time. So, I thought, okay, kind of toy with the idea of buying a gym, and I started looking into the cost of building a gym or buying a franchise.

 

[25:40] So, I looked at a few different options. I remember looking into Anytime Fitness, but I realised quite quickly, it's a very expensive business model for something like that. Because you're buying a lot of equipment, and you need a lot of maintenance, and over time, it wears out, right? So, you got to buy new equipment. So, you're constantly upgrading equipment. So, I went okay, that's too expensive. I remember looking into [it] at the time and the entry cost was more than $500,000 or $600,000. So, [it was] quite [an] expensive business to get in as a first business.

 

[26:11] And then a colleague of mine, his name's Peter. So, he also worked in marketing at Optus, and he owned an F45 franchise, while still working full time. And I was like, how is this guy doing it? Like he's runs a business and he's still working his full time job. This is the best of both worlds. I was like, this is amazing, and everyone knew him, he was very, like, famous for that. Everyone's like, yeah, this guy runs a gym and he's like a very fit guy. And so, I decided to set up a coffee [to] catch up with him and I just asked him how he does it, how's it possible, talk to me a little bit more about the business model. And I remember just the entry costs into F45 was quite low because there isn't too much equipment, it's more class based.

 

[26:59] So, it's really reliant on having members and the margins a bit higher because it's more around class training and hit training. So, I looked into the business model for that, I think the entry cost was around $150,000. So, much lower compared to an Anytime business. And then so I looked into the numbers, and it just really made sense and I really wanted to try it. So, I remember talking to Peter about it, and he said, 'look, if you're really interested, why don't we just go 50% [and] 50% into a franchise?' And I said, 'okay, that would be amazing. You've got the experience, you've run one, so you know what you're doing. I'll come in and help out and kind of do as much as I can whilst working full time'.

 

[27:44] And for a while, we kind of just sat on it for a little bit because there wasn't any F45 available for sale. Like they were already purchased and each territory kind of had their own. So, there just weren't any new ones to open up. So, I kind of just left it and then I remember very clearly I got a call just after New Year's Eve one day. And because I inquired about it on a F45 website online. And I put my expression of interest and this guy gave me a call. And he said, 'I'm looking to sell my F45 franchise in Chatswood'. And I was like, 'no way. I've been living around that area for so long. I know the area so well'. And he wanted to get out of the business because he wanted to get into real estate. So, it was yeah, it was very funny. So, I was just like, you know what, I would be really interested in this opportunity. And so, I had a chat to Peter, and we just moved very quickly on it. And that's kind of how it happened.

 

To be able to invest into this business, Kao used some savings and some equity from his properties.

 

[29:25] We've had it for just over four years now. The first few years honestly, was very, very hard. Because one, we're both working full time. We're trying to earn a salary to cover our costs, operating costs. So, we hired trainers, we hired a manager to run it day to day. So, we were more focused on the operations or the management side of things. I was more looking after the financial side of things and kind of [the] back end. But it was very hard because we bought into a business that was underperforming. It was barely breaking even. The customer retention was really poor because it didn't really have a good reputation. I think this is because the previous owner wasn't very active in the business.

 

[30:10] So, when we took over and we had the keys handed over, on paper it looked really good. But then what we didn't realise was that there was a lot of unhappy clients, they wanted to cancel. And so basically on day one, we're just like, ‘crap, there's like 20 people that wanted to cancel’. But you don't see this on the financials, right? And so, we didn't know any of this and I guess we didn't know better to look for these signs, or maybe have asked better questions. So, this is a very good learning for businesses. You know, you need to look at different metrics, not just financials. Like customer retention is a really, really big one. Especially when the business is largely made of clients.

 

[30:51] So very quickly, our numbers just tanked because of a lot of unhappy clients and we really had to focus on changing the team because the trainers who work there just weren't really good. So, we had to rehire, re-staff the team, rebuild the reputation in Chatswood, and that takes a long time. It's not something that you can just build overnight. So, we focus a lot of our efforts on marketing, attracting new people into the gym, getting new trainers, and upskilling them.

 

[31:20] So, a lot of hard work and then unfortunately, we had Covid over the last year. So, it was hard honestly, just because gyms were hit quite hard, right? Because we couldn't open, we were very limited to running just outdoor style training that, you know, again, very limited to what you can do. So, for almost two years, we kind of just sat there. We couldn't really do too much with a gym. So, now that everything's kind of resumed normal trading, we're picking back up again.

 

Kao and his business partner have the goal to put in as much effort as possible and make their business a success.

 

[33:34] I do want to give it a red hot crack. And now that we've kind of put Covid behind us — hopefully, fingers crossed — really try and just build it back up to where it used to be. Because we did at peak hit around, I think around 150 [or] 160 members, which is quite good for us for a small gym. So, [it] definitely has potential and I think if we look at what's been happening over the last few years, people do value their health and fitness a lot.

 

[33:57] So, I do truly believe people always have a place to go to a gym and they want to be able to train. And the great thing about F45 I find is that you build communities, you build friendships, and a lot of people are like the same faces you see every day, right? And so, it's kind of like having an accountability partner. So, I feel like it's a really, it's a really good type of business because you get to meet a lot of people. And you get to also help people, [it is] very similar to mortgage broking.

 

[34:23] We help them build their portfolios but in fitness, you kind of help someone build better health and fitness habits over time. So, it's definitely something I want to try and give it a red hot crack, try, and get it to the next level. For me, I'm really focused on just personal development and business. And I really want to try and excel on these areas. So yeah, hopefully we can try and get it to a new level over the next year or two.

 

In various aspects of life, Kao has achieved great success. Let’s take a look at what resources he used along his journey.

 

[35:15] I think back then there weren't many, like, I remember years ago before the whole social media, there weren't that many podcasts. And there just wasn't as much resource. At the time, honestly, I didn't have that much, and I didn't read too much. So, it was more going to property seminars where I met people, and it was talking to other investors. That's where I got the most amount of knowledge.

 

[35:47] But in terms of like specific resources, I think over the last year or two, definitely me listening to a lot of podcasts. So, Property Investory has for sure 100% been really good. I've also been, I always came across Rich Dad, Poor Dad, which you probably would know, Robert Kiyosaki. His book just completely changed my mindset around money. You know, he talks a lot about [things] like liabilities and income and cash flow. He actually has another book called Cash Flow Quadrant, which I think is a very good book. Just understanding cash inflows and outflows, and how that can help you build wealth.

 

[36:22] So, that was a really a good read for me in terms of business, applying that to business and also personal investment. And then I watch a lot of YouTube as well. So yeah, I watch a lot of different stuff out there. But kind of sometimes you have to take a bit of a grain of salt, right, just because people are trying to sell you things, too. So, I think the best resource for me is talking to investors, other investors.

 

For Kao, he learns a lot from other people’s experiences and is very thankful for his mentor.

 

[37:21] I'm very grateful that he agreed to take me on because I remember he was very busy and just about to have a baby as well. So, I think I was just really, really grateful that he actually agreed to [it] because it's definitely not easy working your own business and trying to mentor someone from scratch, too. So yeah, I just said to him at the time, 'I really want to try and get into mortgage broking'. And he has a really good network of people as well, because he's also a mentor, I think quite a lot of other new brokers.

 

[37:51] So, we've got a really good community that we all kind of leverage off each other. So, when I first started my mortgage broking business, I ended up moving into an office in a city with two other brokers. And so, we just everyday shared [our] learnings. I was able to listen to how they were talking to clients and just how they interact with people as well. So, that was a massive learning curve. That first year just really helped me just build up that business.

 

If Kao was able to speak to himself 10 years ago, he would pass on the lessons he learned from his own journey.

 

[39:16] I would definitely say take more risks and be uncomfortable. I think I got too comfortable for many years, especially during my corporate years at Optus. Probably three years just being too comfortable in the same role. Right. That's three years of growth that I missed out on. So, yeah, I look back. I'm like, there were many years that I kind of think I just wasted just because I was too comfortable. I was happy, not happy but like content and you just didn't push yourself harder.

 

[39:45] And I think if you, I really do believe the more upfront work you do in the early stages, it's like the foundation, right? The more upfront work you do, it's going to compound into your later years. Same as investing, right? You have much larger compounding when you get to the later decades, same kind of concept. So, I think if I worked, not worked harder, but like if I took a bit more risk, put myself in uncomfortable positions, take calculated risks, then I would have probably been able to see a lot of different or more opportunities.

 

On the other side of the spectrum, Kao is very excited about his future.

[40:37] I'm really excited to grow JD Capital. So, this year, or last year, we've actually been growing at a very, very fast rate and we've been able to connect with so many different people. A lot of people from different states as well. I personally have been travelling to Perth, and also Darwin recently because Danica, my partner, she works in defence. So, she travels around for work. So, I've had the pleasure to kind of move around Australia. And the great thing about that is I get to see more real estate, more opportunities.

 

[41:09] So, that's also kind of how I got into the Perth market. I was like Perth is actually quite an amazing area and it just opens up a lot of opportunities. So, I'm just really excited to travel a little bit more again, see more of Australia, meet more people, and help people build their wealth journey. Because I think wealth is a conversation that was, you know, traditionally quite a taboo subject but if we talk more openly about it, it can be an everyday conversation.

 

When it comes to building success, Kao pushes the value of hard work and thinks that luck only has a small role to play.

 

[42:08] I would say 80% hard work, and 20% luck. And the reason why I say 80% hard work is if you don't put in the work, it won't happen. So, it really has to come from your initiative to take action. And I find if you just take action, even if you make a mistake, if you consistently take action over time, you will end up getting further than not doing anything.

 

[42:33] 20% luck, I say that because there are so many factors we can't control, right? Like we don't know if the markets [are] going to go up or down. Like I bought into the city market not knowing it's going to keep booming. It boomed, which is great. Same as Queensland. I didn't expect Queensland was gonna go through such an incredible growth period last year. No one knew house prices are going to increase 22% last year, right. So, I think there was a bit of luck last year too, but it doesn't happen if you don't take the opportunity.

 

 

Thank you to Jyh Kao, our guest on this episode of Property Investory.