Discover The Australian Property Market With John Lindeman

Transcript:
John Lindeman:

(26:01) And as a result of that I lost heavily the second time around, it was a big lesson. But I didn't understand what I'd done wrong, either, until years later, when I realised that what I did was use my heart and not my head.

**INTRO MUSIC**

Tyrone Shum:

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 one of Australia's leading property market analysts, and author of two best selling books, John Lindeman. Renowned for his accurate predictions for the property market, he shares where we should be focusing our energy on and his valuable insights into diversifying your portfolio.

**END INTRO MUSIC**

**START BACKGROUND MUSIC**

Tyrone Shum:

Having spent years studying the property market, Lindeman has become known as a property investment analyst.

John Lindeman:

(0:28) I've analysed the fundamentals of the property market over the last 15 years, proficiently, and come up with a number of systematic approaches to how you can predict whether or not prices are likely to fall or rise in any given area.

Tyrone Shum:

His predictions for the property market have been very accurate in the past and we’ll talk more about that later on. But first, we find out about his life in Australia and how he spends his time.

John Lindeman:

(1:07) It's a combination of two things. One is I prepare, I do lots of presentations around Australia. So I'm constantly preparing information for those. And I also write for a number of property investment magazines and newsletters. So I'm always, you know, looking out for new angles and stories of information and interest to investors for those. So that's pretty much what I do most of the time.

Tyrone Shum:

In terms of research, how much time does that take up for you?

John Lindeman:

(1:41) Well, luckily, I have a team of researchers that I can rely on. So not as much as it used to, you know, we've got about three people on our team who are full time researchers and looking at various markets and providing me with the findings. So it probably takes you know, an hour or two a day. But that's quite enough for me to get a good understanding of what's happening anyway.

RESEARCH IS A HUGE PART OF LINDEMANS SUCCESS.

Tyrone Shum:

So basically, the rest of your time is spent analysing the data and then preparing those reports to give into the market?

John Lindeman:

(2:11) Yeah, and also a lot of it is, because of the presentations, a lot of time has been travelling, and we use that time. You know, I've written two books about the property market, I'm in the process of writing another one, and also researching markets by doing on the ground research. So if we're in a particular locality, we'll go and have a look at areas that have promise and report back on those.

Tyrone Shum:

(2:34) Hmm, that's really exciting as you get to see things on the ground as well.

John Lindeman:

(2:46) Yeah. And I mean, it's fun in some cases, you know, you can get really exciting places that are great to visit. But in other cases, of course, you've got to go to areas that you'd rather not visit at all, but it's all part of the research process.

Tyrone Shum:

Lindeman further describes the research process, which is based on three levels.

John Lindeman:

(3:15) The first is we look at the dynamics of any market, and by dynamics, I mean the causes of change, usually it's high population growth, you know, people moving into an area, the availability or need for finance.

(3:28) So you know, if they're first time buyers, they need finance, but if they're retirees, obviously, they don't need any at all. And then the actual state of the local market. Is there a shortage or surplus of types of properties that are in demand? So that's the first level. The second level is in looking at the numbers, the number of sales that are occurring, the number of properties listed for sale, how that's changing, rental vacancies, and changes in asking prices.

(3:57) You know, there's all sorts of little tricks you can use to really find an area that's got a lot of imagepress potential or not. And then the third level is to go and have a look, which as I said, can be fun or it can be rather daunting, but that's the three levels of research that we do.

Tyrone Shum:

Moving on, Lindeman describes the theory behind his personal investment strategies over the years.

John Lindeman:

(4:31) Many years ago, I would have been an investor who was looking for high growth. I think that property investment is a journey. And you need to start by leveraging as much as you can, buying properties in areas that have got high growth potential, and leveraging off that growth. By that I mean borrowing money, you know, so 5%, and getting 20% [or] 30% return on that investment.

(4:54) But then as you go on in life, and I'm not young anymore, there's not much point in doing that. So when you've got a sufficient portfolio of properties, you switch them to high cash flow, because that's where your income is going to come from. And if you still have growth, it's fine, but you're really only gonna leave that to the kids or grandkids anyway. So, you know, cash flow is king when you’re approaching retirement.

YOUR STRATEGIES SHOULD CHANGE AS YOU APPROACH THE LATER STAGES OF LIFE.

Tyrone Shum:

(5:20) So it’s a different phase in your life at this point in time. Are you're looking for more high cash flow type of properties to buy or you're changing your existing properties into high cash flow?

John Lindeman:

(5:29) Yeah, we're in the process of moving from growth to cash flow. So we've got investment properties in areas that are generating say 10% yield, which is really good—

Tyrone Shum:

(5:41) That’s really good!

John Lindeman:

(5:42) Yeah. So that's the aim, then when you move from one to the other, you get high yield, rather than growth.

Tyrone Shum:

(5:49) Okay, well, I would like to delve into this a little bit more. For example, I know within a few other markets on average and correct me if I'm wrong, aren't we averaging around between 4-6%?

John Lindeman:

(6:10) Yeah, I mean, it's lower in places like Sydney because of the high growth that's occurred. Because rental yield is a combination of rent and price. So you know, it's the return you're getting on the amount of money you've paid for a property. You can get high yields, but what you've got to be careful of is that yield is not caused by price falls, but it's actually been caused by demand for rental properties.

(6:35) So it's a genuine rent yield caused by rent demand. There are places in Australia and some in Tasmania, for example, like Queenstown and Zeehan, where the rental yield, you know, with those reports that you get with the highest rental yield suburbs around Australia, they always appear in there. But it's yield caused by the fact that prices have just been plummeting for years.

WHAT’S THE POINT IN INVESTING IN AN AREA THAT NO-ONE WANTS TO RENT IN?

(6:58) And the median price, say in Queenstown is $70,000. You know it so you can buy a house very cheaply. And the yield is high, but no one wants to rent there so you'll end up with an empty property.

**MUSIC BREAK**

Tyrone Shum:

Moving on to discuss Lindeman’s personal journey, we hear about his early life and family on the east coast of Australia.

John Lindeman:

(7:52) I grew up in Sydney. And when I was about 20 year old, I met a girl from Melbourne. And so naturally, I had to move on at that stage. And then I spent about 15 years living in Melbourne.

Tyrone Shum:

(8:06) Oh, wow. So you’re originally from Sydney, went to Melbourne, and now you're back in Sydney.

John Lindeman:

(8:11) That's right.

Tyrone Shum:

(8:12) And the girl that you met in Melbourne? What happened there?

John Lindeman:

(8:17) We had a long and happy marriage and a couple of kids and then we parted ways about 10 years ago. So that is fairly common these days, you know, marriages that don't last a lifetime, but you know, no regrets. It was good, and we had two kids and it was a nice experience. But you know, the reason I got married at the age of 20 was for all the wrong reasons.

Tyrone Shum:

So at what point did Lindeman begin his journey as a property investor?

John Lindeman:

(9:01) It was almost immediately at that time because what I discovered was that you could buy old terrace houses in the inner suburbs of Melbourne which were very inexpensive and then renovate them and sell them for a lot more.

(9:18) And that was something in Sydney at the time that already had become a very fashionable thing to do, and places like Paddington and Balmain were booming markets but that hadn't happened yet in Melbourne so I thought, ‘Let's buy an old terrace house do it up and and sell it’. We did that and doubled the price in three years. So I was convinced even at that early age that property investment was, you know, the right way to go.

HIS FIRST INVESTMENT WAS A SHOCKING SUCCESS.

Tyrone Shum:

Did you have any influences from your parents that inspired you to get into property?

John Lindeman:

(9:51) Probably the opposite. Yeah, my parents grew up in, you know, after the depression and the war. They are very anti debt. So it was all about buying a house as soon as you could, paying it off as quickly as you could and not getting into debt. And had I known then what I know now about debt, you know that there's good debt and bad debt.

(10:14) And good debt is the sort of debt that gives you a return, which is greater than what it costs for you in interest. Bad debt is credit cards, personal loans, you know, that sort of thing, which can cost you money. So, had I known then what I know now, I think I would have gone ahead and got into property investment in a much more ambitious way than what I did.

(10:39) So, yeah, they taught me something, which was the opposite of what's actually the right thing to teach. And I guess that took me a long time to learn.

Tyrone Shum:

During that time when you were in Melbourne, were you there for a particular job?

John Lindeman:

(11:17) Yeah, I had a job with what was then the PMG and became Telstra. And then, while I was there, I completed my education. So I've got a postgraduate in marketing. That was over the years that I was in Melbourne. And so I was always employed. And I was always virtually studying, you know, part time as well.

Tyrone Shum:

(11:42) So you've done a marketing post grad degree. And you're working for Telstra. At which point did you move into becoming a property analyst?

John Lindeman:

(12:02) That was because of, it was a long process, but after that experience, the first house I bought, and the fact that you know, it doubled in value, and I thought, this is interesting, I'm going to do that again. The second house we bought, we did the same thing. And then after three years, we had to sell it, because the market had changed. And so prices had gone down, and we lost a lot of money on that second purchase.

LINDEMAN TOOK IT AS A PERSONAL CHALLENGE TO FIGURE OUT THE PROPERTY MARKET.

(12:28) And then I thought, ‘Well, hang on, I don't really understand how the market works at all, you know, in one case, I made a lot of money, in the next I've lost a lot. There's something going on here which I don't understand’. And I really wanted to be able to do what I did the first time over and over again. So I started, you know, reading every book I could find on the property market and went to seminars, and webinars and boot camps and you know, workshops, and so on.

(12:56) And although the people I've learned from taught me a lot, none of them could actually tell me how the market worked. And so it was about 1990, I joined the Australian Bureau of Statistics. And at that point, I decided, you know, that that was going to be my calling. And I spent five years professionally researching the housing market with them. And then I moved on to other data providers. And in total, about 15 years of research has elapsed since then.

Tyrone Shum:

(13:26) Wow. I mean, that is a great springboard to go into ABS because they have so much data that you could work off. Was that something where you were just curious to jump into?

John Lindeman:

(13:39) You know, I saw that job advertised. And I thought, that's the one I want. And it was fantastic and not so much just about the housing market, but how to analyse change. They have a thing called trend analysis, which is where you look at trends, and you can predict what's likely to happen by the way that the trends are going solid.

(14:01) I then adapted that to the housing market, and said, ‘Does it work the same way?’ And I discovered that it does, and as long as you're looking at the right sets of numbers, you can make fairly accurate predictions as to which way the markets are likely to move.

Tyrone Shum:

Lindeman shares some of the important lessons he learned while working at the Australian Bureau of Statistics.

John Lindeman:

(14:29) When you're looking at areas where there's a lot of investors, and a good example of that would have been the mining boom towns of a few years ago like Mullimbimby, Emerald, and over in the West Port Hedland and South Hedland, and the first indicator that something was wrong with those markets was way back in 2013.

HE SOON LEARNED THE WARNING SIGNS OF A MARKET ABOUT TO COLLAPSE.

(14:49) And that was when the number of rental vacancies was starting to rise. And if you're an investor, you've got to have a tenant. And if you can't find tenants, of course, you can't make the repayments, and you try to sell the property. So the whole thing goes bad. And that was one of the things I learned, that the rental vacancy trend in those sorts of markets is the first early warning indicator that something could be wrong.

(15:14) And it was a very, very valuable lesson, because a lot of people were still moving into those markets at that time. And I was advising anyone that I was associated with not to do that, you know, and stay well away from them. And of course, they started collapsing as markets almost immediately after that, and you know, because of the fact that there were too many investors and not enough renters.

Tyrone Shum:

Jumping back into Lindeman’s investment story, we learn how he bounced back after his second investment property turned out to be unsuccessful.

John Lindeman:

(16:39) Well, that was when I decided to really spend some time on learning how the market operated. And that took quite a bit of time, I didn't buy any other investment properties during that time. Because I didn't want to repeat the nasty experience of the second property. So I thought, ‘I'm not gonna do this again until I really know what is going on’.

(17:02) And then once I nailed that, then I started buying investment properties again, with great success, you know, I bought a property in Mount Isa, in 2011. And that was, in the next two years, the highest performing market in the whole of Queensland. So, you know, it was picked like that, which enabled me to claim this little record for accuracy that I'm renowned for.

ONCE HE NAILED THE PREDICTIONS HIS SUCCESS SKYROCKETED.

Tyrone Shum:

Lindeman shares the details of his personal portfolio and how it’s progressing.

John Lindeman:

(17:46) We're moving from growth to cash flow. But we have properties in three states at the moment, Queensland, New South Wales and Tasmania. And all the ones in Tasmania are high cash flow properties. Mainly situated around Hobart, in the ex housing and commission areas, where you're getting about 7 [or] 8% yield.

(18:07) And then ones in New South Wales, in places like Cobar, which is an old mining town, but according to our figures it's got good growth potential, but it's also delivering a very high yield. And then in Queensland, most of the properties there are in what we call tourist areas.

(18:30) So the demand is being sustained by the tourist industry and the number of people working in that industry, so places like Cairns, they've got a lot of people working in the tourist industry, and that's increasing because of the Chinese tourism market, which is booming. So, yeah, we've got properties in those areas as well.

Tyrone Shum:

(18:53) Did you sit down before you actually started building your portfolio of properties to decide what was your goal?

John Lindeman:

(19:05) I've written two books on how to invest in the market. And both of those explained this process, the idea of leveraging of getting as much growth as you can, so you're starting with little money of your own, but you're borrowing a lot, but you gotta make sure you're buying in high growth potential areas and then swapping out the to cash flow areas as you get older. And that's the model I've used in advocat.

Tyrone Shum:

(19:33) Okay, maybe if we could just delve a little bit deeper and explain that process. So you said that you buy into high growth areas, and assumably when those areas grow, do you usually just draw out the equity? Or do you sell the properties to purchase higher cash flow properties?

John Lindeman:

(19:52) That depends entirely Tyrone on what the prediction is for that area. So it's not so much a matter of time, it's a matter of performance. And we have a very simple technique we use to work that out. And that's to compare the number of sales to the number of properties listed for sale.

(20:14) And this information, again, is very easy to obtain your number of properties listed for sale, you go to realestate.com.au, or domain.com.au and look it up for any suburb. And it gives you a number such as the 30 or 40, you know, houses for sale. Then you look up in, say, your investment property magazine in the back, that same suburb and see how many were sold over the last year.

IT TOOK LINDEMAN YEARS TO WORK OUT WHAT HE IS SHARING HERE.

(20:39) And the amazing thing is, it took me two years to work this out, that if the number sold in the last year is about the same as the number that you know, people are trying to sell right now, then that's what we call a neutral market. And that means prices are moving. But as soon as that ratio changes, so if you've got more people wanting to buy, in other words, the sales are higher than the number of properties listed for sale, then prices tend to go up.

(21:08) And if you've got more properties listed for sale than were sold last year, prices tend to go down. And the greater the difference, the greater prices are likely to be going up or down. And you can track that over time yourself. So you do it once a month, and that tells you where the tipping point has reached sweet, prices are not going up anymore. So that's what I do. And we look at the suburbs, we have properties, and this is what we were doing when we're looking for growth.

(21:40) And when we realised that there’s no more growth, likely, we would then sell that property before the growth actually stopped. And then find other areas where there was growth potential and then buy in those areas. Of course, you've got to be careful because the cost of selling a property is about 3-4% the value of that property.

YOU’RE LOSING ABOUT 8% EVERY TIME YOU BUY AND SELL.

(22:05) So you know, you've got to pay agents, you've got to have the house staged, there’s legal fees, and so on. When you buy a property, it's about 4% of the process of the purchase price, because you've got to pay stamp duty, and you've got to total contract fees, you've got to get an inspection done, and so on. So you're losing about 8% every time you buy and sell. So unless you get 8% or more gross, you're going backwards.

(22:33) And the interesting thing about the property market is that the long term average price right in the market is about 8%. So you've got to find areas that are going to do better than the average performance.

Tyrone Shum:

(22:45) There's a lot of people out there saying, don't sell, just buy and hold the properties and just let the equity grow. I'm leaning more towards that, because I don't have to worry about those costs.

John Lindeman:

(23:22) Yeah, and you know, running at 8%. So it means that unless you can find areas where there's higher growth than that, and you know, we're looking at 20 [or] 30% growth over the short term, then you are better off just buying and holding because that 8% growth will mean that the property will double in value over about 11 years.

(23:46) So, you know, it can double every 11 years, which is great. So that's a good thing. But that's all you can expect to achieve in most of the markets in Australia.

**MUSIC BREAK**

Tyrone Shum:

Taking us back to his second purchase, an unsuccessful investment, Lindeman outlines where he went wrong, and how we can avoid it.

John Lindeman:

(24:41) With the first property it was just pure luck. And it was in Hawthorne in Melbourne. I mean this may sound ridiculous, but I was watching the AFL footy on TV in Sydney and this Hawthorn club had been playing really well and I thought, ‘They're a good club to follow’. So when I lived in Melbourne, I said, ‘I want to live near the Hawthorn Football Club.’ You know, that was it.

(25:07) And it just so happened that that area had a lot of old terrace houses and the market was about to boom. But then when I bought the second house, I thought since it worked the first time around, it would work again. But in Sydney, I live near the beach, and I thought it would be nice to buy a house near the beach in Melbourne. And I thought that would have a lot of growth potential.

WHAT WORKS IN ONE MARKET MIGHT NOT WORK IN ANOTHER.

(25:29) So I bought this place, on the Bayside area near Mordialloc, and unfortunately, the Melbourne market is not like the Sydney market at all. And the people don't live near the beach for the same reasons they might do in Sydney, and it's a different market. And so that price just didn't didn't eventuate. In fact, it went backwards. And so I was going on all the wrong things, I was buying on emotion, using my heart instead of my head.

Tyrone Shum:

Just curious, has that market changed, since then?

John Lindeman:

(26:35) I know it is. I mean, markets change over time. And it recovered quite well. It's now a very, you know, popular area of Melbourne to live in. The house we had is still there, by the way, but it goes on to win up a lot more. You know, if you compare the two, the average growth rate was about 10%, which is per annum, which is much better than Melbourne as a whole over that time.

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Tyrone Shum:

Coming up, Lindeman and I move on to discuss the simple strategies which enable your success.

John Lindeman:

(1:17) As long as you invest in good areas with growth potential, you've got nothing to worry about, because the property market has always improved over time, it's always gone up.

Tyrone Shum:

We hear his valuable advice for first time investors.

John Lindeman:

(4:26) There's a lot of sharks, you know, wolves in sheep's clothing out there, who pretend to be on your side. And what I always say is, have a look at their actual track performance.

Tyrone Shum:

We discuss the latest market movements and what that means for you as an investor.

John Lindeman:

Tyrone Shum:

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

**END ADVERTISEMENT**

Tyrone Shum:

Lindeman and I discuss the rising and falling of the market over the years, and he remembers a time when things became clear to him, and everything clicked into place.

John Lindeman:

(27:32) It was during the global financial crisis, and a number of the major lenders, the big banks came to us and said, ‘We are concerned because we think that housing prices could fall’. And the problem with mortgage lenders is that if mortgages fall over, they tend to do so in the first year. A lot of them anyways. So if people get past the first year they’re okay. So then I said, ‘Well can you tell us whether or not housing prices are likely to fall over the next year?’

(28:05) And so I started studying the, what I call the indicators, you know, or the whole range of indicators like time on market and vendor discount rates and number of listings and average hold times, and, you know, all of those things, to try and work out if any of these could give an indication as to whether or not prices were like to rise or fall in the short term.

THE HOUSING MARKET OBEYS THE SAME RULES AS ANY OTHER COMMODITY.

(28:30) And that was when I discovered, to the contrary of that, listings and sales, and that's because the housing market is just like any other commodity, you know, obeys exactly the same rules. So it's like if you go to an apple shop, and there's hardly any apples, the price is going to be high. But if there's heaps because nobody wants them, they knock the price right down.

(28:53) And so it's the same with housing. If the demand is high, then prices go up. And if it's higher than the supply, they'll go up even more, you know, but if there's too many people trying to sell or not enough wanting to buy, the unit cost price goes the other way. And that was that was the ‘aha’ moment where I realised that you can predict the future using those two sets of numbers.

Tyrone Shum:

It's like reading into a crystal ball, because it helps you determine where to buy and where to invest. So, tell me a little more, why do markets change?

John Lindeman:

(29:34) Well, it's for that simple reason, supply and demand. So if you've got a mining town and the mine closes and people leave, nobody wants to live there, then the supplies are going to be much higher than the demand and prices will fall. Whereas if you live in a market where people want to buy properties, for whatever reason, and there's a shortage of them, then the prices will go up.

(30:00) So the only complication is the fact that you've got two types of markets, rental markets and owner-occupier markets. But as long as you're aware of which one you're operating in, then you can use things like the rental vacancies in markets where there's a lot of investors and renters. And you can use the sales and listings in all markets, because that'll give you a really good indication as to what the future holds.

Tyrone Shum:

(30:27) Let's take an example such as the Sydney market, say in the last 10 years or so, we hadn't really seen much growth up until about 2011-2012. I think that's when it actually started seeing prices just double. I'm always curious, why was that demand driven up so much?

John Lindeman:

(31:01) Well, they doubled between 2000 and 2002. And the graph stopped in 2003, went backwards, slightly. And then nothing for 10 years until 2012, when it started going up again. And the very first part of Sydney where that occurred was around the Blacktown area. And we picked that up, we suddenly saw that the number of properties on the market was dropping dramatically.

(31:27) And you know, that ratio started to get to the point where prices were going to start going up. And so we predicted that the prices would go up in Sydney. And people laughed at us and said, ‘Well, that's ridiculous. They haven't gone up for 10 years’. And I said, ‘No, this is how the market works’. And this is an answer to your question.

(31:51) It doesn't go up regularly, when you look at percent average price, there are long periods of time where there's no growth, and then suddenly it shoots up and doubles in a few years, and then you get a long period of time with no growth again. So when you look at what Sydney's done over the last 10 years, that growth rate is right on 8%. Melbourne is about the same.

SYDNEY AND MELBOURNE MARKETS ARE HOLDING STEADY RIGHT NOW.

(32:14) So both these markets are actually now performing at the long term growth rate. So they're not housing bubbles or anything to worry about. Unless, of course, the growth keeps on going. Then I think I'd be getting a bit worried. Right now they’re right where they should be based on the long term performance.

Tyrone Shum:

(32:32) I guess you could sort of predict the market by saying, ‘Look, we won't be investing for 10 years, wait till it gets to that point where you compare the listings and sales. And at that point, you could probably jump in because that's still like two or three years' run to be able to ride that growth’.

John Lindeman:

(32:50) Exactly. And after Sydney, you know, boomed and Melbourne sort of boomed. And a lot of experts started saying, ‘Oh, Brisbane will be next, as it always follows Sydney and Melbourne’. And I said, ‘No, it won't be next because that ratio of demand or supply is not there. There's not enough demand and there's too much supply’. And we had a situation in Brisbane where all the construction workers from the mining towns were moving back to Brisbane and building houses everywhere.

(33:22) So all the outskirts of Brisbane, there's new housing developments. And that was having a down effect on the prices because there were just too many being built. So I said, ‘I don't think that Brisbane is going to be the next boom city at all’. And then people said, ‘Well, what do you think it'll be?’ And I looked at Hobart and I said, ‘I think it will be Hobart’. Because the demand there was rising dramatically because prices were very cheap, rents were high.

BRISBANE MARKET WILL BOOM WHEN WE LEAST EXPECT IT.

(33:51) And a lot of people were retiring as investors and moving in. And of course, you know, Horbart's been the second best performer over the last year. So you know, that prediction came true. But when Brisbane goes, it'll be when people least expect it. They'll give up on Brisbane. And then suddenly, when that ratio moves, suddenly, then Brisbane could be an expanding city.

Tyrone Shum:

Lindeman shares some interesting insights around the Brisbane market, despite the media predicting the opposite. So what’s got him excited about the market?

John Lindeman:

(34:54) Well, I think that what excites me is that there's always areas of potential, you know, people say, ‘Oh, we can’t afford to invest in Sydney or we can’t afford to invest in Melbourne, it's too dear. I say that when there's growth in one area, it produces the opportunity for growth in others. And a good example of that is what we call the ripple effect where that high growth in Sydney is now moving outwards.

A LOT OF GROWTH IS OCCURRING DUE TO RETIREES SELLING UP AND MOVING TO THE COAST.

(35:22) People over 50 are selling their homes because they've doubled in price in the last few years. And then they're moving up the coast or down the cost and buying properties for a quarter that price and using the rest as sort of a piggy bank for the future. So that excites me, because I can see a lot of growth occurring right now in north and south of Sydney.

(35:44) And I think that'll continue for some years. So there's a lot of opportunity. And people shouldn't say, ‘Well, I can't afford to invest in Sydney’. My view is don't because you don't want to invest in a city that’s already had three years of growth, go to an area where there hasn't been any, but there’s potential for that growth to occur.

Tyrone Shum:

In the ever-adapting world of property, things can get pretty challenging. Lindeman and I move on to discuss the mindset required to become a successful and resilient investor.

John Lindeman:

(0:31) I think the greatest obstacle that first time investors have is that they sort of go into this world of uncertainty, and a property is really the biggest investment they'll ever make in their lives. And so they think, ‘Wow, this is a lot of money I’m putting on the line here. And if I get it wrong, it could affect my future, for a long time’. And there's lots of stories out there about people who've lost a lot of money.

(0:58) And it's almost ruined their lives because they've made bad decisions. So I think that the obstacles that people have to face is this coming to grips with the uncertainty, and the fact that it can hold you back. So I always say to people who are in that position, as long as you invest in good areas with growth potential, you've got nothing to worry about, because the property market has always improved over time, it's always gone up.

DON’T LET FEAR HOLD YOU BACK, BUT BE THOROUGH IN PLANNING YOUR INVESTMENTS.

(1:29) And it always will, because there's more people who want to buy them than there are properties available. So you know that's just the way it is, don't worry, just be careful about where you invest and the type of property you buy.

Tyrone Shum:

Lindeman shares the earlier parts of his journey which helped him in becoming the renowned market analyst that he is today.

John Lindeman:

(2:07) One thing I did when I was researching the market, I looked at a number of studies that have been done over the way the market performs. And there was one really interesting study which was conducted. This is a Dutch professor, he researched the performance of houses in one street, it was like a canal in Amsterdam, for the Herengracht Canal. And those houses hadn't changed in 400 years, they were the same houses.

(2:36) So he analysed the changes in price that had occurred over 400 years. And that was when he first came up with the idea that it's all about supply and demand, as long as the demand for these houses was higher than the number there were, prices went up. And if the demand fell away, they went down.

LINDEMAN RESEARCHED THE WORK OF SCHOLARS FROM THE PAST AND CONVERTED THE INFORMATION INTO AN EASY TO UNDERSTAND FORMAT FOR THE INVESTORS OF TODAY.

(2:54) And there's been a number of other experts that have done similar long term studies on the performance of the housing market. And they all say it performs in accordance with the laws of supply and demand. And so I think, you know, rather than any particular mentor, it was more using the resources of people that had written them, PHD’s and so on, on this subject to use the the research in this way, and then to say, ‘Well, now how can I convert this information into a form that investors can make use of?‘

(3:27) And that was the idea of looking at the ratio of supply to demand, you know, in a very simple way that gave you the power of all that research that has been conducted over hundreds of years of property market performance, and put that into a form that you could use yourself.

Tyrone Shum:

(3:47) For us, people who are time poor, and I'm sure that there are a lot of us out there who are listening to this podcast… You've got so much research that you can access but don't have the time to sift through all of it. So what would you suggest?

John Lindeman:

(4:12) Well, I'd say if you rely on genuine experts in the market that have done all the work for you, that's the best thing you can do. And the problem here is, of course, that it's an unregulated market. There's a lot of sharks, you know, wolves in sheep's clothing out there, who pretend to be on your side. And what I always say is, have a look at their actual track performance.

(4:35) So these days, it's very hard for people to hide. You can google anyone and I welcome you to Google my name John Lindeman, and see what comes up, you know, what I predicted and what actually happened, because some of these people you'll find have been investigated by seeking trade practices and so on. And yet they're claiming to be on your side. And there's other people who will also claim to be on your side.

THESE DAYS IT’S HARD FOR PEOPLE TO HIDE, IF YOU JUST DO YOUR RESEARCH, YOU SHOULD BE ABLE TO FIND EXPERTS WHO YOU CAN TRUST.

(5:01) And they really sellers agents masquerading as buyer's agents. So they've got their own hidden agendas, so do your research on the actual person giving the information and their track record and their bonafides, because that's going to stand you in good stead.

Tyrone Shum:

Lindeman shares another piece of advice which has positively impacted him in his own journey.

John Lindeman:

I think the idea that there's good debt and bad debt, which comes from ‘Rich Dad, Poor Dad’, the book, because with that, for the first time I realised that it was different depending on what you did with the money. So if you get a credit card and max it out, and you're paying off the monthly repayments, that's bad debt, you know, it's costing you money all the time.

THE SOONER INVESTORS REALISE THAT THERE’S GOOD DEBT THE BETTER.

(6:33) And what you bought with that doesn't generate any income. But if you borrow money to buy property, and assuming the property goes up in price or returns more in rent than what you pay for the interest, then that's good debt. And I think that was really the best advice I've ever received, that there is a distinction. And sooner investors realise that there’s good debt, and they need to be able to use it properly. That's the first step to, you know, success in property investment.

Tyrone Shum:

(7:25) I’d like to explore the steps that you have taken in your strategy. You've explained to us that your first stage is to buy high growth properties. And then as you get towards your retirement, to actually be looking at higher cash flow type of properties. Could you go into more details about that.

John Lindeman:

(7:55) Let's say you’re starting off as an investor, first time, you might have $30,000, or something, you know, as a deposit. Say, you're going to have to borrow say, $120,000, to buy a house for $150,000. So the first thing you need to do is to say, ‘Well, I want to buy the $150,000 house in an area where it's going to go up as much as possible over the next few years.’ Maximise that growth, because let's say, like the Hawthorn house, the first one I bought, it doubled in price in three years.

(8:27) If that happens, then your property is now worth $300,000. So you pay back the bank $120,000. And you've lost your 10% for buy, hold and sell costs, but you end up with about $130,000 instead of your initial $30,000. So you've suddenly made $100,000. And then you do that again. And so I think the steps are to keep focused on that goal of ‘I'm going for growth, and I'm going to find areas with high growth potential’. That's what I did.

THERE ARE NO SECRETS IN FINDING THE AREAS WHICH ARE LIKELY TO BOOM.

(9:02) And I discovered ways of finding those sorts of areas. And then there are no secrets either. If you'd like to know what the secrets are in finding those types of properties you can read my books or past articles in various magazines, you know, because I make it quite available to everybody. ‘Hey, you can do this’. But consistency is the real main aim in all of this to be consistent and not to lose track of work which you want to achieve.

Tyrone Shum:

Having a wealth of property knowledge at his disposal, Lindeman is not shy about spreading that knowledge in the hopes that the average investor can become a success. I ask him what he’s got to say about diversifying your portfolio.

John Lindeman:

(10:20) Well, I definitely think you should spread your risk. But I've had people come to me and say, ‘I've got a balanced portfolio’. And I said, ‘What do you mean by that?’ And they say, ‘Well, one third in commodities, one third in shares, and one third in housing’. And I say, ‘Well, that's not balanced at all. Because it should all be in housing. Because housing will give you the best returns as long as you buy in the right areas’.

(10:45) So then other people say, ‘Oh, well, I've got a balanced housing portfolio, I've got two properties in Queensland, two in WA and two in South Australia’. I said, ‘But that's not balanced either, because they could be the same types of markets in each state. So the idea of minimising your risk is to buy in different types of markets, not different states or whatever’.

HOUSING WILL GIVE YOU THE BEST RETURNS AS LONG AS YOU BUY IN THE RIGHT AREA.

(11:12) So at the moment you might say the best growth potential areas in Australia are Hobart, Tasmania, the coastal areas where retirees are moving, that's got a lot of growth potential. But then there's a lot of Chinese tourists arriving and moving to spend a few weeks in places like Cairns or Port Douglas, so you think, ‘Wow, I could buy a property there and then do very well out of that as well, or say the Whitsundays or the Gold Coast into different parts’. So, depending on the type of market, you're going to get good results.

(11:48) So, these are the ways in which I say you should minimise the risk by going for areas where the growth is coming from a particular type of buyer. And then, if one doesn't work, the other will, but it could well be that both work and one's not going to cancel out the other.

Tyrone Shum:

(12:08) So you could say that in Sydney, there probably would be different markets, you can invest in say, the retiree market, another could be student accommodation, and so forth? is that what you mean?

John Lindeman:

(12:31) Yeah, there's actually probably about six different markets in any city. And if you look at the rental market, you'll find that young people that leave home for the first time, and they set up as singles, couples, or group households, they’ll rent. And they’ll be living in certain inner urban areas in new apartments, so you get high rent demand for those.

(12:56) Then you've got overseas arrivals who need to rent for a couple of years, and they’ll go out to the more cost affordable areas where there’s work and public transport like Burwood and Strathfield and Parramatta. So different markets again. And then you've got what I call an opportunity seeker renters, which are students in capital cities, who live near universities.

YOU CAN DIVERSIFY YOUR PORTFOLIO WITHOUT INVESTING INTERSTATE.

(13:20) And you've got out of Sydney, whole towns, like Armadale is a good example, where 25% of the people I think living in Armadale either work in education or are students themselves. And so the rent demand, you know, generated by that is huge. So there's the rental markets, and then the owner occupier markets, you've got first time buyers, you've got upgraders.

(13:47) And then you've got retirees. So looking at which areas has got the most potential for one or more of those types of buyers or renters is going to get you the best results.

**MUSIC BREAK**

Tyrone Shum:

Having shared some valuable market insights, Lindeman goes on to share some of the personal habits which contribute to his success in the industry.

John Lindeman:

(14:23) I think consistent analysis is the most important thing. So even for existing properties, keeping track of the number of listings, the number of sales, rental vacancies, what are prices doing? What are the neighbouring areas doing? Those habits, and continuing to do that are essential and there are many, many investors who will buy a property and then just let it go and not worry about it.

(14:52) And then suddenly, they'll say, ’Oh, I should have sold a year ago’. You know, prices have plummeted, it’s too late, because they weren't tracking those trends. And so I think the most important habit is to be consistent and maintain an ethic. It's as easy as every Saturday morning for half an hour, I'll just track how my properties are going or areas that I'm interested in. So I know where I'm going to buy next. And I think that's a large part of anyone's success.

Tyrone Shum:

Hoping that we might benefit from his research, Lindeman suggests that anyone listening should read his books.

John Lindeman:

(15:50) My first book was published by Wiley’s in 2011, it was called ‘Mastering the Australian Housing Market’. And you can buy that as an Ebook or online. I am no longer in print. But the second book, which is called 'Unlocking the Property Market’ was published by Wiley's last year, and that's still available in bookstores, or you can buy that on online as well.

(16:16) So they’re two books that summarise all of the methodologies and principles that I've been able to sort of discuss with you, in the course of these interviews. And what I do is I explain exactly how you can go about doing the things that I did, and which I’ve learned will give you the best possible results.

Tyrone Shum:

(16:38) You definitely walk your talk.

LINDEMAN’S BOOKS WILL HELP YOU FIND THE AREAS WHERE PRICES ARE LIKELY TO ESCALATE.

John Lindeman:

(16:46) In general, I've been very, very accurate. We've had a lot of people, you know, I won't say that every prediction has resulted in a doubling in prices. But we've had situations, we've predicted Hay, which is in Southern New South Wales, as a boom area. Prices doubled in nine months there. And another one was buried in South Australia, where we said that the drought is over, prices are going to escalate and we had people buying properties there, which doubled in just over a year. So it is possible and the books will help you find those areas.

Tyrone Shum:

(17:25) And how does it apply when time passes, because information becomes outdated.

John Lindeman:

(17:38) ‘Unlocking the Property Market’ was only published last year. So it's fairly recent, it's not five or six years old, it's quite recent. And a lot of the information is updated information from what was in the earlier book. But when I do presentations around Australia, I get people coming up to me with the first book, ‘Mastering the Australian Housing Market’.

(18:02) And saying, ‘Oh John, can you autograph this for me?’ And it's all dog eared and falling to bits. And they still use it, it still maintains its relevance. So I think that the principles of housing market investment dont change. And whereas, you know, mining booms may come and go and different interest rates may go up and down. The principles that guide all these things don't change. And so the books are both still quite relevant.

**OUTRO**

Tyrone Shum:

Thank you to John Lindeman, our guest on this episode of Property Investory.

If you want to hear more about his journey and get a copy of the episode guide on the website, head over to PropertyInvestory.com/guide.

This guide will give you the inside scoop on the little gold nuggets of wisdom all our guest's share from their backstory and all their overall strategies and philosophies. Plus, you’ll get a copy of their advice broken down and shared in a quick and easy-to-consume format!

Just head over to PropertyInvestory.com/guide and download it today.