The founder of House Finder joins Tyrone to discuss the key reasons why you sell a property and the mindset needed to take that equity and reinvest it for even more profit. Loo takes us through a couple of different properties and why he sold them to show how you too can Invest Like a Pro.

Timestamps:
0.32 | Achieving Passive Income to Achieve the Dream
4.10 | Why Sell At All?
11.22 | Seizing Opportunities
18.09 | When is Developing Worthwhile?
22.41 | Following the Patterns

Resources and Links:

[11:22] There's no right or wrong answer. Everyone has different purposes and goals in investing. But for me, when I sell a property, it's purely a money making exercise as an investment property.

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 of Invest Like A Pro we’re chatting with founder and director of House Finder, Simon Loo. We explore his personal property journey to undercover when and why you might sell an investment property and he shares with us how you can turn a $300,000 investment into a $1 million sale in just 5 years if that is your goal.

To contextualise he will use an example from his own property portfolio that has taken over eight years to build. His goal was to get around $100,000 passive income. So why would he decide to sell any of his properties if his portfolio was generating a recurring substantial income?

 

Simon Loo:

(0:32] Initially, my goal was to achieve enough passive income to quit my day job, which took me about eight years from buying zero properties. And after I achieved about $100,000, passive, passive income during that eight year period, I had a lot of people reach out to me to see if I can help them achieve something similar. Because most, I think most investors have a goal of achieving passive income to get what we call financial freedom. And for the past seven or so years, I've been running a buyer's agency called House Finder, where we've been helping clients achieve similar goals. So, that's kind of a short spiel about my journey today, when I accumulated enough properties to get $100k passive income, within that eight year period, I had accumulated about 12 properties at the time, I was only earning about 80 to $100,000 in my day job, so not like a spectacular salary, fairly average kind of salary. And, you know, even from when I first started buying properties, I realised that for me to get enough properties to actually achieve passive income could not be done on savings alone. Right, it would be impossible to save 60, 70, 80,000 as a minimum, to buy decent enough properties to add to my portfolio.

[2:26] So early on, I realised the only way to do it is what I've been talking about in many episodes that we've done together. The biggest thing is to get good bargains, get good deals, get properties at a price that's genuinely below market value. And I know that term gets thrown around a lot. But genuinely below market value means that you actually pull out real equity, real money from that property almost immediately after buying it. And then you can use that equity to accumulate more properties down the track. So you know, if they enabled me to, you know, earn $100,000 a year, in some years buy three properties or two properties. And over the years, I've accumulated twelve properties. And during that time, as well, I also sold down a few, the ones that made a lot of money. And with the profit from the sales, I paid off some of the other ones that I had in my portfolio at that time. So ending up with about four houses, four to five properties of the 12 houses that I had just fully paid off or fully offset with with cash. And that enabled me that's what enabled me to get the 100k passive and quit my job and got bored and started the buyer's agency house finder business. And yeah, I've just been running ever since. So that's kind of like a spiel about me.

Tyrone Shum:  

[4:10] Because the thing is, that's, that's perfect, because it goes to show like what you've been doing in the past, being able to buy a lot of these properties, as you said, it's been thrown around on the market value and so forth. You actually do it every single day, the clients because we've shared a lot of case studies about this. And a lot of them you know, a real… Yeah, real life type of scenarios that, [where you’re] being able to buy a very good deal on the market, get it revalued and then be able to pull equity out and you've done that multiple times in your own personal journey, which is why you know, you've accumulated so many properties because basically leapfrogged from one property to another property, so forth. And I guess at the end of the day, we wanted to sort of maybe have a discussion about this recent property that you've actually not necessarily purchased but recently sold, and most people go why are we talking about selling a property this time around because you've been talking about buying. So this is actually an interesting topic that we wanted to talk about, when is probably the best time to exit or sell a property? And this is an excellent case study that you can share with us.

Simon Loo:  

[5:11] I think there's a lot of emphasis in property investment about buying and holding a house for as long as you can. Which is great. It's definitely gotten me to where I am today, with the properties that I bought for myself. But exit strategies, and selling is a very, very important integral part of not only making money, but also helping you progress on to bigger and better investments, right. Throughout my 15 years that I've been investing in property by and large, I've only been buying. But on occasion, I've also sold down a few houses. And recently, I've just sold a property that's not even settled yet. It is unconditional, but it hasn't settled yet. And for me, personally, there are three reasons why most investors should decide to sell a house. So the first reason is, if let's say you've bought a house for $400,000. And in a few years time, it's doubled in value to 800. Or even a million dollars, right, which is something that we've seen a lot of in recent years. At that point, you might think to yourself, ‘Okay, cool. It's doubled in value in such a short amount of time.’ What's the likelihood that it's going to achieve that same level of growth in the next five years? Or the same amount of time frame? And if the question is not likely, or sorry, the answer is not likely, then that may be reason enough to take profit, to take the profit, take the money, and use that money somewhere else. Even if maybe if even if you don't use it, you might think to yourself, it's kind of just the likelihood of this property continuing to perform over the next few years, is probably not that great, you know, so that's one reason that where you may walk away, and you can use that profit that you make by selling, if you don't reinvest it to offset, maybe a few other properties that you have, you don't necessarily need to pay them down. 

[7:35] But you might have an offset account or offset facility with a loan, and you chunk that cash into the offset. And you're essentially owning one or two properties fully unencumbered with no debt. And that may bring you $700-800 a week of passive income until you decide or until you know what you want to do with that money to maybe reinvest it into another area, another property or maybe it externally to shares or business or whatever it is. The second reason is where it might become the property that you have, may become an opportunity cost for you to progress. So for me an opportunity cost in the world of property can come in two ways. The first way is if it stops you from borrowing your money. So I know a lot of clients it myself included that have hit what we call the serviceability wall. Many, many times the serviceability wall is basically you've borrowed so much money across multiple properties that the banks just simply see you as too risky. And your prospects of borrowing more money to buy the next property is not possible. Yeah. So at that point, at that point, you might think to yourself, ‘Okay, cool. For me to progress on to more money making properties, I may need to sell some of the existing ones just to free up some borrowing capacity.’ 

Tyrone Shum: 

[9:04] That’s going to pay down the debt, so you can show the bank that you can actually have some additional equity, not only that, but serviceability from your portfolio.

[9:12] I think obviously, if you do get to that stage, you might look at it across your portfolio, again, similar to the first point that I made, which property has made the most money or which property might be causing the some, some headaches, some drum, you know, in order for me to, to let go of that so that I can move forward on to the next area that's emerging another property or another location or another investment that may bring me more return at the end of the day. So that's the second reason why I would let a property go. Sorry, the second part of that, in terms of the opportunity costs is similar to the first thing as in, like, if if I have a property that has doubled in value recently, should I take that money and put it into another area that's more likely to double in value in the short term as well.

[10:15] So using a recent example, geographically, when a lot of people made a lot of money very quickly in the Sydney market, maybe would have been wise for them to have sold, and put that money into Brisbane three years ago, and for that money to literally double again, you know, so it's kind of like, that's, that's what, that's what I would consider an opportunity cost, right? Because a lot of people hold on to these houses with their life. And they in their mind, they think to themselves, ‘man, I bought this house for $300,000, it's not worth a million. If I sell it, there's no way I can buy that property back for $300,000,’ which is completely true. But you have to, you have to remind yourself, the purpose of you owning that property in the first place isn't for you to live in. Nor is it for you to feel good at night when you sleep, that you own a million dollar property that you only paid three or four, is it to make money?

[11:22] So there's no right or wrong answer. Everyone has different purposes and goals in investing. But for me, when I sell a property, it's purely a money making exercise as an investment property.

[11:38] It makes absolute sense. opportunity cost is always something in hindsight, we always look back and go, Man, I wish I could purchase X, Y and Z in X Y Z suburb, to ride that growth. No one knows at the end of the day, no one knows exactly when the next property boom, where it's going to be. But I guess if you rely on some expertise and see what's happening with some of the experts that are following the market, then you could actually gain from the experience and then follow what they're doing. Just like we're talking about now you've been in the Queensland market for many years. Now you're gradually shifting to the Perth, Western Australia market, because that's where the next I guess you can say potential opportunities lie.

[12:17] I actually follow the owner occupied trends…  migration trends as well. It's one of those really basic fundamentals that usually causes a long and a large amount of growth in a short time, but anyway, that's a different conversation. So the third factor, and the reason why I recently sold this particular property is when it starts to become a bit of a handful. Right, so just to give you a bit of background on this particular house, I bought this house in it, this house is in Brisbane, I think the Logan area. I bought it for $230,000, in around 2015 as a mortgagee sale, right, when I bought it $230,000 was cheap. Yeah. It's like, I mean, the land on it, it's a massive block, almost 1000 square metres flatlock, you know, a good part of Logan, a good suburb in Logan, and it came with a house. Now the house was nothing special. It was, it was one of those houses where it's livable, it's safe. But it's not a house where you'd get the maximum rent. And it's also one of those houses that would probably scare away a lot of people to be honest, in terms of like, you know, the potential maintenance and… 

[14:00] The cost involved to continue to look after it. So what were some of the issues that we faced, because I mean, you know, in most people's minds ago, I would stay away from something like that, because you know, there's a lot of maintenance costs along the way.

[14:12] Totally. So this house is not Fibro, it's not old. Like those sort of, you know, 6070 year old fibre houses. It's actually made from a material called besser block. So besser blocks or basically concrete blocks, right where you see quite common in car parks and, and things like that. They're actually extremely solid properties. Right. Very few things can harm a besser block house. Yeah, including tenants.

[14:47] It's almost like a war zone house. They build those ones, underground bunkers.

I used to work in one you know, an office with masonry blocks like this too, and it was solid as anything. I wonder what happened to yours?

[15:03] Well, one of the reasons why what was appealing physically to this property was that I knew that there was no way tenants could punch a hole in the wall. You know, which is quite common. If you're an investor, if you own a few properties, you know, that happens from time to time. Yes. So, you know, and it's true, you know, there's no holes in the walls at this point in time. But what's happened gradually, over time, with his best of luck property, was the slab underneath it has started moving. And the besser block is not there's nothing in between, it's basically just the block itself that's built that builds the house, right?

[15:42] Not like bricks, where you can actually have some expansion and contraction that allows for that,

[15:47] Yeah, like, there's no frame, there's no frame. Yeah, basically. So it's just like this. Imagine just like a Lego Lego house, right? You build just one block on top of the other. So when the foundation moves, you get cracks. And the cracks became so large that you could fit like a hand through them, to the outside of the property. Right. 

Simon Loo:

[16:27] Over the time of ownership, I knew this could not be fixed. It was one of those problems where basically the only way to do it is to knock it down. So there are various ways you can seal it up. But obviously, as the ground keeps moving over time, you get a new contract. Yeah, the ceiling… started sort of sagging and coming apart as well from one else's. 

[16:57] So it just got to, you have to remember as well, it's been rented all this time. Yeah. Now, I haven't neglected the tenant or the property because it's still in a clean, functional state. But I did charge quite low rent for the property. I think that was like an appealing factor for the tenants that have lived in that property. And they were very long term tenants. By and large, they were quite happy living there, knowing that it had faults, but they were obviously paying low rent. 

On that fact, as well. Even though it was low rent, the cash flow was still huge. Because I only paid $230,000 for it. So let's say I could get 500 bucks a week for this property. If it was if I had no had no issues, even renting at $400 a week is still very good. Usually cash flow is positive. Yes. So you know, yeah, it just got to a point [where] the current tenant left, or the most recent tenant had left the property. And yeah, it just got to a point where I couldn't get to a state and it started becoming unsafe.

Coming up after the break, Loo and I consider whether it’s worthwhile to renovate the property instead of selling it?

[18:21] It isn't really worth it. It's going to be a bit of a Pandora's box. The silver lining on this particular property was block size. 

He examines a case where it was the right time to sell a property in Queensland… 

[20:02] I bought it for $230,000. As it's not settled yet, I won't tell exactly how much it sold for, but it sold close to $600,000. So in the span of about seven ish years, you know, way more than 100% growth, way more than double in value.

He shares with us the important motivation you should have around the money you get out from selling… 

[30:34] As a bit of an extra tip, I guess, when you sell a property, you should always have something in mind to do with what you're gonna do with the proceeds. Right? For me, it was definitely to buy more houses. 

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

Loo and I continue to discuss about the property he decided to sell and we take a look to see if it was worthwhile to renovate it and fix up the issues, then put a tenant back in.

Simon Loo:   

[18:21] It isn't really worth it. It's going to be a bit of a Pandora's box. The silver lining on this particular property was block size. Yeah, about 1000 square metres, it's subdividable. And I knew subdividable, because the immediate neighbour next door had done it in the past year or two, or whatever it was. Now, I didn't bother doing the subdivision. I didn't bother even renovating it. I just wanted to sell it as is. 

Tyrone Shum:   

[18:52] Did you explore that option though? Like why?

[18:55] I did. Yeah. And it got to a point where I thought to myself, it's not really worth it. Okay, especially at this price point. The cost of doing a DA, whether you're doing I don’t know, a $500,000 property or a $5 million property, fairly constant. If you've got, you've got more, a few more costs are in the more expensive property. But clearly the return to do it timewise and money wise is worth a lot more if you have it, if you're doing it on a much higher value property.

[19:29] Yeah. So if you were to spend that money to actually subdivide it, the return from selling say these two subdivided blocks probably wouldn't have got the same amount of money as you would have maybe just sold it as it is now

Simon Loo:  

[19:39] I would have made a little bit more money on it but probably not enough to justify the time and, and the risk involved

Tyrone Shum: 

[19:47] And opportunity costs, you know, at the end of the day, as you said, if that time that you put into subdividing this when you could have actually used that same amount of time to get something that's gonna drain a lot more income a lot more profit. Makes sense to go with something else.

[20:01] Absolutely. So I bought it for $230,000. As it's not settled yet, I won't tell exactly how much it sold for, but it sold close to $600,000. So in the span of about seven ish years, you know, way more than 100% growth, way more than double in value. The cashflow positive component throughout the entire ownership was worked out to be around about the 40 to $50,000 Positive Cash Flow mark.

[20:37] Every year was cash flow positive enough so that it didn't cost me anything, maybe put like a few thousand dollars in my pocket every year. But at the end of the ownership period, it accumulates, so on top of the, let's say $350,000 of profit that I made in capital growth, I also had another $40-50,000 of positive cash flow to add onto that during the ownership of the property. So it was a pretty, pretty decent return. Regardless of the fact that I didn't do the subdivision. I do know the person that bought it has the intention to do the subdivision. But they're going to live in one of the properties. So they wanted to live by the minute and then maybe have the other property to sell or rent out or whatever they want to do.

Tyrone Shum:

[21:39] Yeah, or knock down. As you said, you know, just put something else on as well, because you said this place, you know, it's not worthwhile to continue to put more money into fixing it, they may as well use that opportunity to subdivide and knock down the house, and then build possibly two brand new houses on it. And one to live in as well. So that sounds like a very good plan.

[21:57] Yeah. So this was the reason why I sold this property. It was for the third reason that I mentioned before, it really just became too much of a handful. And the amount of energy, time, effort and money to keep maintaining this property that's already had a massive growth run was not worth what I felt like it was the potential return in the short term. Right. So that's when I decided so I'm not entirely sure what I want to do with the money as yet. I'll probably just pocket in an offset account, along with a few other offsets that I've got. And yeah, just wait for the next opportunity to come around. Yeah,

Tyrone Shum: 

[22:41] Well, that's really good, let's unpack a little bit more about selling, because we've touched on three very good points here. Obviously, the whole idea behind us buying investment property is to make money, unless you've got a different purpose behind it. But as soon as we look at it from the point of view of selling, that changes, what you need to also consider as well. And ultimately, you know, if you just have one of these properties, it's great, you've made a profit over the last say, you know, eight-nine years or so that you've held it and so forth. But at the same time, it's a nice stepping stone to move into it. Now, because Simon you've built up a substantial portfolio, it's not just one or two, we've got, you know, dozens of these there. And if you had certainly had to decide to consider selling a few of them to be able to pay down the debt and basically bring out your portfolio to be zero, fully unencumbered, there'll be a substantial amount of positive cash flow coming through there. 

[23:33] What I'm just sort of trying to get at here is talking about the selling process, because you've got to go through those three thoughts, or those three things that you just discussed about. And I think it'd be just good to sort of unpack each one a little bit more in detail and let’s just say... Give people some more examples, you know, why would they consider that as well?

[23:51] So the first one being you've made enough money, or you feel like you've made enough money on it. In any investment, you know, you go through a boom cycle, you go through a boom period. And anyone that teaches investing or, or has found a lot of success in investing themselves, always preaches the, you know, the fact that you should take profit, right? Because properties, stocks, it doesn't really matter, it's really rarely a consistent forever growth. Property in particular, it's usually this and then this and then like this.

Tyrone Shum:  

[24:42] Yeah. So maybe I should describe it to people on audio because obviously, it goes flat… And then it rises exponentially

[24:50] There’s a very long period of no activity, maybe even backwards might even go down a bit. And then you'll go up very quickly, in a very short amount of time, which is what we've seen happen in Brisbane in Sydney and Melbourne in particular. And then you might go through another 10 year flat period, where it might even go down a bit. So, you know, if your goal and your purpose is to continue building your portfolio and continue building your properties, it might make sense for you to go okay, cool if I bought this house during the flat period, and it went up a lot in a very short amount of time. Just take the money and run. It might go further, you might miss out on a little bit more growth. But what you do with that money that you make, by reinvesting it into something else, in hindsight, you might think I actually made a better decision than, get a little extra bit of money that I could have made. And I learned this early on with one of the properties that I sold in Sydney.

Tyrone Shum:  

[25:54] And that was the one in the West Ryde. Right? Was that the one?

[25:57] No, this was one in Western Sydney.

[26:00]  Blacktown. Yes. I remember we talked about that a long, long time ago. 

[26:03] Yeah, a long time ago. And you know, I bought this house Fibro off Flushing road, if you know where blacktown  is. It's quite a busy road. I paid $379,000 for this really rundown asbestos dump. And within five years, I ended up selling it for I think it was $887,000. Not even within five years, it was like four years. Yeah. Bought in 2011 sold in 2015. Ish. So the property had more than doubled in value in the space of four years. Right. And I knew that there were some legs left. Yeah, I knew that over the next five or six or seven years, it would probably keep growing. But then I thought to myself, what can I do with this? $400,000 to achieve even more growth than what this crappy Blacktown house will get me at the end of the day, right? So yeah, it was true. You know, if I look at that particular property today, you would probably get somewhere around about the $1 million-$1.1 million 

Tyrone Shum:  

[27:21] Yeah, probably 1.1 around the market.

[27:29] But the thing is, is that what you're saying, for example, did you say you sold it back? What was the time that you sold it again? 2015 All right, so that's six years, or seven years worth of growth? Or about another? So 300,000? Yeah, that 300,000? You know, obviously sounds like the opportunity cost behind that would have been better elsewhere. To capture a property, say, for example, in Queensland, where you could have bought it for, you know, you could have bought it for $200,000 or something like that. 

[27:56] That's actually what I did, yeah. So for example, at the time, obviously bought this particular property in Logan, which is actually in Loganlea. And amongst other properties I bought in Logan, and other parts of Brisbane at the time, the growth that I've made from that $400,000 ish profit from that blacktown sale has been far far, far, far more than what I would have made if I just held on to that blacktown house until today. Yeah, right. So it's, I didn't know about it at the time, because I feel it is obviously a risk. But then it just makes sense, right? Like if you buy something for $1, and it becomes $2 in a very short amount of time. You should seriously think about letting go

[28:43] Yeah, it's a business transaction. You think about the day.

[28:47] It’s not emotional. I had zero emotional touch. In fact, my emotions attached to this blacktown house were mostly pain.

[28:57] It has a lot of maintenance issues. We talked about borderless investing, we talked about by interstate, this house was a house that I could drive to, which was an even bigger problem. Because I was now spending my weekends at the time going to look at this property that was just giving me constant strife. So anyway, emotions aside, I let it go to make money basically. Yeah. So I think that opportunity cost comes down to so many factors. What's happening in the world at the moment, your personal circumstances, what you want to achieve, your goals, how aggressive you want to go. And yeah, if it's the right time, then I would say don't hesitate. 

[29:49] It's great that you've shared that. And it's actually perfect because it ends this segue really well, because the question that I really wanted to sort of hone in is, if I was to ask you what's the reasons behind selling it? You got to analyse and have a look at your goals. See what the reason is why you bought this because ultimately, property itself is a vehicle. And there really shouldn't be any really emotional attachment unless it's your principal place of residence that you can live in. But it should be used as a vehicle just like shares, just like businesses. And as long as it's making its money, then you basically go and move forward and take wherever you can to make that profit to continue to let it grow. Otherwise, yeah, yeah, but it just basically just sits there. There could be just a nice property mantelpiece there as part of your portfolio, not doing or working as hard as it should.

[30:31] So just to finish off, as a bit of an extra tip, I guess, when you sell a property, you should always have something in mind to do with what you're gonna do with the proceeds. Right? For me, it was definitely to buy more houses. And for this particular sale, that's just happened. I've got a few offset accounts that I can chunk that money into. And it will at the moment be about 5% interest rates, I've just increased my passive income for now. But I do have goals to buy, I'm accumulating at the moment, you might probably journey. I'm accumulating more capital so that I can invest it into a bigger project or number of bigger projects that I've been kind of considering in the near future. So it's kind of part of that strategy as well. That's if you're planning to sell a house to do nothing with the money or maybe spend it on something silly. Won't be worth it.

Thank you to buyer’s agent Simon Loo, our guest on this special episode of Invest Like A Pro presented by House Finder.