In this special episode Shum delves into how he grew up surrounded by endless renovations and how they made him who he is today. What started with a wheelbarrow and a shovel ended up turning into a successful career, but not in the way you’d expect! In taking us on a journey through his childhood, young adult life, and where he is now, we’ll learn how his family renovated one house but ended up changing a whole street, how Property Investory came to be, and listen in as he blows some young minds.

Timestamps:
24:44 | Learning the Ropes
28:08 | Value is Value
30:26 | Movin’ On Up
32:53 | Hold On A Minute…
38:57 | Lost Opportunities
43:59 | Take My Money!
48:03 | Expect the Unexpected
52:45 | The Strength of Security
56:04 | A Whole New World
1:00:29 | Get In The Game
1:03:56 | The Role of Relationships

Resources and Links:

[00:31:07] It just kept happening. Every so often, we would upgrade, get bigger homes. And then he got to the point where he was just buying more and more property. And I sort of watched and saw some of the things he did. And because I also saw some of the mistakes he made, I learnt from those and started my property journey as well, too. 

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 the two drunk accountants themselves, Dan Osborne and Tim Garth, interview me about both my property and podcast journeys. From starting neighbourhood-wide trends and changing streetscapes, to filling a gap in the lending industry and thinking outside of the box, this is only just the beginning of the story.

While this episode was initially recorded for Osborne and Garth’s podcast Two Drunk Accountants, there were many nuggets of wisdom strewn around and mind-blowing realisations that were too golden to not share with the Property Investory listeners as well.

Tim Garth:   

[00:24:44] Tyrone, give us a little bit of a background as to why property is so important to you. Let's just start with a bit of context here. What is your history in property? And how have you come up with these alternative strategies?

Tyrone Shum:   

[00:25:02] To give you a bit of a background behind property and where I came from was— maybe if I tell you a little story behind it, because that might just give you an insight into it. 

  

[00:25:11] As Dan and Tim have said, I've got the number one property podcast on iTunes. And we interview a lot of property investors and property developers from all walks of life. From people who've just gone from zero to multi million dollar property portfolios, rags and riches stories, to multi billion dollar property developers who I think a lot of you may have already heard in the news previously, and they share their story. 

 

[00:25:12] It's fascinating, because everyone has a different walk of life. And what it comes back down to, when I interview and find out more about this story, is that a lot of them all put their money back into property, being a very solid asset that can generate some good returns. That's how a lot of successful, wealthy individuals own property. 

  

[00:25:55] If you look at the top BRW review, the top 100, the majority of them are property developers. So it goes to show that you make money and that the most wealthy individuals make a lot of money through property. And Robert Kiyosaki from Rich Dad, Poor Dad has said that as well, too, on multiple occasions throughout his books.

  

[00:26:16] But to give you a bit of a background behind where I got started in my journey in terms of property was, when I grew up, my parents, or my father in particular, just bought properties to live in. And at a very young age, he started showing me what he was doing in terms of the renovating. 

  

[00:26:38] I don't think he knew at that time, because when he was just buying the property to live in as our principal place of residence, he would just naturally go in and tinker and renovate it and add value to the property. And all through my life growing up, he did that [with] every single property.

 

[00:26:51] I remember we bought one that I was in there, when I was very, very young, as a child going to primary school. Then during high school as well, we moved again, because we needed a bigger place because we had more kids. So our family doubled in size within a couple years from two to four kids. Obviously, we need a bigger home from that. And that that kind of happened very, very quickly. And when we moved, the first thing Dad started doing was to renovate the house. He just never stopped. I was like, 'Wow, you're into it again?'

Tim Garth:   

[00:27:21] Was it something your dad had a skill in? So he was a builder by trade, or...?

Tyrone Shum:   

[00:27:15] No, he wasn't a builder by trade. But he was very, very good with his hands. And he just loved getting on the tools. So naturally, he taught me how to do tools, because obviously [as a child] I'm a little bit like slave labour. 

  

[00:27:39] Son's doing all the work while Dad just watches. I can remember sometimes I had back breaking times where literally, he'd get tonnes and tonnes of soil. And I'd literally have to dig that soil and put it into the wheelbarrow and wheelbarrow it to the backyard and pour it in. And it was crazy.

Dan Osborne:   

[00:27:56] Trauma memories for me with Dad doing the same thing. Just like, 'Oh, hey, Dan, we've got a driveway full of mulch. And here's a wheelbarrow and a shovel'. 

Tyrone Shum:   

[00:28:08] That's exactly right! That's only one of the stories. But yeah, it was very, very interesting to see that. I guess it was also too [that] he had a few tradies doing certain things. [He] had a few electricians come in to rewire, add some lights on, change switches, he had painters come in to paint the house and so forth. So it wasn't obviously just only ourselves doing it. 

[00:28:29] But he wanted whoever had a spare helping hand and was available, he'd get us on site to help him with the house. And it was really, really interesting, because you learn a lot during that stage. And you don't think about it as a kid, you go, 'Dad's just doing a renovation, I hate it and I don't want to do it because it's so tiring'. 

  

[00:28:46] But when you look back in hindsight— and this is where I've learnt from my journey— every successful property investor or developer has added value. [It] doesn't have to be necessarily a renovation, but they've done some kind of add value to a property to be able to increase its value. 

 

[00:29:02] Now, you can wait through capital growth. And even if Dad didn't do renovations on those properties, it would have doubled in value anyway after about 10 years. But what was interesting was by adding what it is and chang[ing] the streetscape— because we were the first in that particular street to render the house. And in essence, we did it [and] every other house down the street just copied us. And I was like, 'Oh, great!'

 

[00:29:24] And that was interesting because he also uplifted the value of all the properties in that street and therefore increased the values of every house in the area, which made it more prestigious. 

 

[00:29:33] So just by looking at that, I learnt that you can actually just simply by doing simple things and getting the right tradespeople you can increase the value. And that's where my journey kind of started. And one thing though, I vowed not to do it again after all those experiences! 

Tim Garth:   

[00:29:52] You had a concept of how to do them all and that you didn't want to do them, ever again. 

Tyrone Shum:   

[00:29:56] That's exactly right. Which is why I've never had to pick up a tool since then! I've always called a tradesperson. Even for rental properties, I will not bother going out and changing a hot water tap or whatever it is, I just get a tradesperson out to get it fixed. There's no way I'd do it.

Tim Garth:   

[00:30:14] Our tool is the pen. We are pen pushers. That's what we do.

Tyrone Shum:   

[00:30:19] And mics as well. [Those are] our tools.

Tim Garth:   

[00:30:21] And mics, yeah, true!

Tyrone Shum:   

[00:30:26] Growing up, I had a lot of exposure to property in some shape or form. And I guess what happened was, Dad also purchased two empty blocks of land. And I knew he was planning to build on those two blocks of land, which would have started our development journey. And it was in a very, very well known suburb called Strathfield. 

  

[00:30:43] Now, I'm not sure if you know where Strathfield is in Sydney, but right now, it's [an] extremely, extremely expensive suburb and a very affluent suburb. Now I wish Dad kept those two properties, where we bought the land for $350,000 each. They'd probably be worth multi million dollars. But he sold them to buy our family home in another location up in Gladesville. And I'm glad he did, because those properties [themselves] were worth a lot. 

 

[00:31:07] And it just kept happening. Every so often, we would upgrade, get bigger homes. And then he got to the point where he was just buying more and more property. And I sort of watched and saw some of the things he did. And because I also saw some of the mistakes he made, I learnt from those and started my property journey as well, too. 

 

[00:31:27] I thought the one thing that I would do differently to how my dad was [to] probably educated myself. And that's kind of where I started on this journey of learning a lot more, getting involved in courses, speaking to mentors, and eventually starting my podcast, because I was hungry to get more information. Because you wonder how these people have done it so successfully— all you really have to do is follow their plan. Find out what they've done and just model off them. You don't have to be copying exactly what it is, but you find the ones that work out very similar to what you want to do. And that's kind of what I did over that period of time.

  

[00:32:01] How the podcast started and how I kind of eventuated to where I landed, was going back [to] about 2017. I was working in a large manufacturing company, just driving to work day in, day out. And [I] really, really enjoyed my job at that point in time. But the challenge I faced was that I was hitting a limit. I couldn't earn any more, because the next position I could go up [to] was to my boss's position. And he'd been there for 22 years so I don't think he'd be leaving anytime soon. 

Tyrone Shum:  

[00:32:53] So during that time I was driving to work, listening to a lot of property podcasts. And I thought, 'How can I actually get out of what I'm doing and earn a lot more income?' Because the other way was to jump into another job and start again and work up the ladder. 

  

[00:33:06] And it kind of led me to listen to all these well known property experts, but also these successful property investors. And they talked a lot about how to buy property, where to buy property and all that kind of stuff. But it missed out on the 'why'. Why did they jump into property? And it was this story part that was missing. 

 

[00:33:26] And that's where I felt like I would resonate a lot better, because I just want to hear people's journey. Because there's a strong ‘why’ behind it. You know, why they actually did what they did. It helps them overcome their biggest challenges, because any property person's journey is faced usually with challenges. Even for yourself, like running a business and myself with one as well, too. Every day there isn't one challenge at all, you're bound to have one. 

  

[00:33:49] But what is it that pushes you through those challenges to be able to continue to keep working through and succeed? And it's the 'why' behind it. The reason why I run the podcast, why I help so many people achieve what they want to do, is because I want to impact and pass this on to future generations. 

  

[00:34:06] Because once you've achieved the income that you need, or the money that you need, and you have all your lifestyle set up, there's not really much more to chasing more and more money. That's the end goal. There's no point doing that. It just doesn't end. 

Tim Garth:   

[00:34:20] World domination is the end goal, that's all it is.

Dan Osborne:   

[00:34:24] I'm loving everything you're saying, because it really resonates to how we like to talk to everyone who listens to this podcast, and how we like to run our own business. It's very much about: Why you're doing what you're doing? What's the end goal? What's the plan? What's the lifestyle that you're trying to live? And can your assets— in your case, property and in our case, people's businesses— provide that lifestyle that they're trying to do? And then figure out how to get there.

 

[00:34:51] And then once you're there, well then you've done it. Unless you've got a new goal, you don't need to have world domination. You Just need to have the goals reached that you're trying to hit.

Tim Garth:   

[00:35:502 Otherwise, you could just keep going. But you'll never be happy. Because you don't know what drives your happiness anyway. You think it's owning more properties or building more wealth, but it may not be that. So I love that. I love that that is, I think, a very different spin in property, to many other people who sort of make it a bit more glitzy and glamorous and all about the rich side of things, or the richness that can come from it. So I like that. I like that you're going back to stories of people's purposes and why they did it. 

Tyrone Shum:   

[00:35:36] I love it. Thank you. Yeah, it's made a huge impact in my life. And I'm sure many listeners out there who have been listening to my podcast for a while, have said the same thing as well. Because they come to me and say they love the podcast. And because they like the stories, whether it be you know, someone who's just a young teenager who's just bought maybe one or two inspires them to take action. 

  

[00:35:54] Whereas you hear all these really successful property developers with multimillion dollar developments and making hundreds and hundreds of million dollars a year just from a development. It's glamorous, but what does it mean?

Dan Osborne:   

[00:36:08] I'm looking forward to all the feedback you get about people being inspired by my journey.

Tyrone Shum:   

[00:36:19] Yours was a great story! Don't forget, guys, go hop on [and] listen to when it comes out. So absolutely, absolutely agree with you on that side, because the stories are important. And I think coming back to why I started was because I was looking for that, I was earning to try and hope that someone started the podcast. 

 

[00:36:35] I just procrastinated for literally a year and didn't do anything, because I thought, 'Someone's gonna do it. Eventually, someone's gonna catch on and realise there's no none of these kinds of [podcasts]. But no one did it. So I thought, 'I'll bite the bullet'. 

  

[00:36:46] I had initially selfish reasons, because I wanted to reach out to these property experts and all these other people who are successful and learn from them, and ask them questions. Because to get hold of these people [was] going to be a challenge. I'd have to attend their seminars, I'd have to pay for their services, etc. 

  

[00:37:01] Where I could actually just feature them on the podcast and share their stories, and share with the world and provide a lot [of] impact. So it's a win/win for them, for us, and the listeners as well. And it's brought many, many benefits not only to them, but you know, for our listeners as well. 

  

[00:37:16] And that's kind of where that journey started with the podcast. And then it pretty much turned into... a lot of followers were hearing my journey, because I do share a little bit about my journey on the podcast as well, on property investing and property development, so forth. 

 

[00:37:32] I started finding opportunities that would actually allow us to be able to look into higher returns. Because when you look at and read more books like Rich Dad Poor Dad from Robert Kiyosaki, one key component that resonated with me was to look at how you can actually use the compounding effect. 

  

[00:37:51] Because over time, if you actually compound something starting from, say, $1, and you compounded it every day, rather than getting a million dollars on the first day... I can't remember the exact amount, but you can probably ask yourself, which one would you take first? The one that is starting at $1 and compounding for one day over, say, a period of 90 days? Or would you prefer a million dollars right now? 

Tim Garth:   

[00:38:14] Hmm, well, I mean, I'm gonna say a million dollars right now, but I think that might be the wrong answer.

Tyrone Shum:   

[00:38:24] Yeah, and I think you're right, Tim. If you compound it, it's some ridiculous number, like $6 million, or something like that, from memory. Because of the compounding effect. And that's what I've seen.

Dan Osborne:   

[00:38:40] We often talk about this in business as well, about when we're setting goals and actions. And it's those small, little tiny changes every day that lead to big changes in your business. Incremental change leads to big change. Now you're resonating again.

Tyrone Shum:   

[00:38:57] So that was the key thing that I learnt. And I thought, 'Alright, how can I go and find opportunities that would give me at least 10% per annum return on an investment?' So that way I could just put it in passively, and then every year, I'd just keep reinvesting that 10% that I've got on the capital.

 

[00:39:11] I looked everywhere, [but] I could not find it. You think to yourself, 'Wow, where are these investments? Where are these opportunities?' I mean, I was only looking in Australia, in particular, because that's where my funds were, I'm sure it's available in the US day in and day out, but I didn't have an opportunity to look at [opening] a separate bank account in the US, go over there, and have a look at the opportunities. 

  

[00:39:31] So I couldn't find it. And the average rate of return through property was, like, a 5% yield, maybe 6% yield, sometimes. Even in commercial property, you might get an 8%, maximum 10% yield. And that's gross. After you deduct all the expenses and taxes and whatnot, you're left maybe between one and 3% or maybe most 5% in a commercial property. 

  

[00:39:51] And you go, 'Wow, this is hard'. Especially when property prices keep increasing. And this is what's been happening over the last decade plus. The prices of property have doubled so much. 

 

[00:40:01] I remember when I used to deliver around the North Ryde area, we were able to look at buying property for about $550,000, [that was the] average price of the house, a three bedroom, four bedroom house over there. Nowadays looking in Ryde, you won't be able to even pick up one for less than $1.5 million. 

 

[00:40:17] So you go, 'Wow'. And even the return on that back then, I think it was like, $400 [or] $350 a week for rent. Now you're paying about $500, max. $600 a week. Actually, more, sorry, probably over $800 a week for a house like that. And it hasn't gone up in line with how the yield has been.

Tim Garth:   

[00:40:36] The value of the property has increased more than the rent as a percentage.

Tyrone Shum:  

[00:40:42] That's exactly right. And then you're going to question, 'Okay, if I am going to be starting from today to buy property— especially when they're averaging $1 million to $1.5 million across, say the metropolitan suburbs, like Sydney metro, Melbourne metro, etc— how am I going to be able to build a portfolio? Just like how people have done in the past with buy and hold strategies?' 

 

[00:41:03] It's near impossible. 

  

[00:41:05] I'm not saying it's impossible, but it's pretty near impossible. Because once you buy one, your service capacity goes down. You've gonna earn more money to find another deposit. The cycle just doesn't end from there. And then you're stuck with a huge mortgage or debt.

Tim Garth:   

[00:41:21] If you go off that interest only loan payment, then all of a sudden, you're losing money from your weekly disposable income. So that also sucks, too. You're sacrificing lifestyle to grow something that may be worth more in 10 to 20 years. 

Tyrone Shum:   

[00:41:53] Spot on. And that's why I just start looking at it and going, 'Wow, it's not really feasible to go and buy, say $10 million worth of property to generate 5% yield on it'. And even if you have to spend $10 million, you have to wait that 10 to 20 years to hold on to those properties for the double in value. And on top of that, service those properties. I don't think a lot of people can afford to do that at this point in time. 

 

[00:42:00] So you kind of question, 'Okay, if I'm to have a goal set, I want a comfortable lifestyle at $10 million dollars worth of properties with a 3% yield return— which will give me about 300,000 a year— then how am I going to be able to achieve that if I don't have servicing, and I don't have access to all that capital right now?' And I thought, 'Wow, there's got to be other opportunities'. 

  

[00:42:20] So I started looking at alternative property strategies, which is where I kind of tapped into this alternative space. And [I] started finding deals that were returning between 20 and 30% per annum. Wow. Where were these deals been? Have they been hiding under a rock or something? 

  

[00:42:36] They've been there all along, but structured differently. And this is where I didn't realise once I started looking into this space, that there was a big gap in the market, because of COVID, as well too, it accelerated us to jump into this. 

 

[00:42:50] So in the last 18 months or so, I've been helping a lot of clients, investors from the podcast, who reached out to me [after] seeing what I've done and just asked to be joining part of what I've done, to invest in these opportunities. And they're getting, as I said, anywhere between 20 to 30% return on their capital, secured against property. Yeah, it's amazing. 

  

[00:43:10] So I think that's the biggest challenge that people face. It's hard to find a particular property at this point in time, an investment property, that stacks up the numbers. It's good for growth, good for wealth building, but you're not guaranteed unless you [have] a crystal ball, knowing what's gonna happen. 

  

[00:43:24] And people are looking for cash flow, because ultimately, you don't want to be holding on to these lost assets and not have something to be able to pay down the debt. So that's why I started looking into this alternative space. So that way I could find ways of being able to fuel the capital from my portfolio and inject more cash. 

  

[00:43:43] So I've got a property myself, but I've also got these alternative investments. Which, you know, I've got a substantial amount in there that's generating, as I said, between 20 to 30% per annum return. Which, in itself provides a nice steady income, which can fund a lifestyle [and] can do so many things. 

 

[00:43:59] And I guess it's really understanding why. Because people go, 'Wow, that's a high return, that must mean it's high risk'. But in actual fact, if you actually look at the numbers, and you do your due diligence, and your homework, and understand what the concepts are behind it, then really, it's very minimal risk and it's actually a lot safer than putting money into the share market as an example.

Tim Garth:   

[00:44:18] Wow. Okay. Wow. 

Dan Osborne:   

[00:44:21] You've piqued the interest.

Tim Garth:   

[00:44:23] I'm super interested. I'm like, I'm on the verge of saying, 'Take my money'! But I am really interested to know, like, how did you find this opportunity?

Tyrone Shum:   

[00:44:35] I'll tell you the backstory behind it, and this will probably reveal how it's done as well. Which is important to know, because I'm pretty sure people are going, 'How's he do it? What is this?' 

 

[00:44:44] So, back in 2019, around April 2019, I went into a joint venture partnership with another developer to develop a block. We went and bought this large block of land and subdivided one into two. [A] simple subdivision. And it was just a... let's say derelict house at the front, which required a lot of TLC. 

 

[00:45:04] So we did that. We pretty much gutted inside the structure, renovated it nicely, and [were] ready to put it on the market. 

  

[00:45:11] That process was supposed to take about nine to 12 months. But by about the ninth month mark, we had the property ready to go, because it was fully renovated. It was just waiting for council to finish the subdivision papers and come back to us. That took another three months or so. Which is a pain. 

 

[00:45:27] But as you probably realise, April 2020 was when COVID hit. And that's the sad thing about that. We were anticipating to make an extra $100,000 on top of the profit that we had prior to COVID. And because the market was steaming hot, we were anticipating to sell it down pretty easily. 

  

[00:45:46] As soon as April hit, which is when our property [had] just come on the market, it just felt like crickets. No one responded to the ads, there was no one. And unfortunately, that particular property just sat there. Unfortunately, we had to take off the market a few times, and it didn't get sold until about 12 months later in April 2021. 

  

[00:46:06] So that was my real first foray into development of a sub division, wanting to do it as a joint venture. And that lasted 24 months. I didn't make any money at all. Big learning lessons. The investor who put their money into this deal, who was funding the property, got their money back at a fixed return. So you can already see, if you actually just put your money in there at a fixed return, there's a greater chance that you would get your money back. 

  

[00:46:29] I just said, 'No matter what happens, if we make a loss, we'll still pay you by what we agreed upon'. Now, luckily, I wasn't just involved in one deal, I had multiple deals running at the same time. 

 

[00:46:39] So this second deal that I'd invested into was down in Victoria, Rowville, and it was a one into four lot subdivision. It was around about November 2019 and that was going really well. This particular developer had already fully funded the project. So [they] had no issues with money. 

  

[00:46:57] But what happened was one of their relatives or his sister in law passed away, so suddenly, it just happened. And she had been already invested into that project. He felt it wasn't right to take the money and use that money whilst the deceased was, you know, happening. 

 

[00:47:10] So she returned all those funds that she put in back to the family so they can do what they need to do. And that meant that he was short about $230,000. 

  

[00:47:19] And that's where he came and reached out to me and said, 'Hey, Tyrone, would you like to invest into this? Put your money in here?' [It was] $230,000 for... I think it was, like, 15 or 20% per annum. I can't remember exact figures, but as around that figure. And I said, 'Yeah, sure, I'll go with one other investor', and we put our money in there. 

  

[00:47:35] And remember, in this point, I wasn't doing any work. I was just only putting my money in as a lender. I wasn't actually helping with painting, wasn't helping with renovations, meeting documents and accounts, etc. This was all on the developer. 

 

[00:47:47] Now, interestingly enough, six months later, he came back to me and said, 'Hey, Tyrone'. And this was literally April 2020 again, when COVID hit. And I thought, 'Man, what's this other news I'm gonna get? Because I've already had bad news'. 

Coming up after the break, Osborne and Garth quiz me on risk mitigation…

Dan Osborne:   

[00:51:28] Immediately, a few questions come to mind. The first one is: You hear about property developments going bad occasionally. What's the risk there? 

We witness the two of them experience an aha moment, as it happened…

[00:56:23] I guess I knew that existed in property development. But I suppose what you're doing there is really, you're cutting out the banks. 

Osborne neatly sums up what he and Garth learnt from our discussion.

Dan Osborne:   

[01:07:00] The one thing it's inspired me to do is just to think differently about everything. 

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

During the second deal I’d invested in Rowville, Victoria, we’d hit another snag. After the developer had experienced a sudden loss earlier during the deal, things had already taken an unexpected turn. What happened next was yet another astonishing twist.

[56:14] Tim Garth:

I've just never heard of this before. This is... this is groundbreaking, for me!

Tyrone Shum:   

[00:48:03] He said to me, 'No, [it's] good news for you, man. I've got a developer who wants to actually refinance you out and pay you out what we agreed upon'. I said, 'Oh, wow, that's fantastic. I'll take it, give it to me now! I don't know what's gonna happen with COVID!'

  

[00:48:15] And true to his word, it happened all in April. We got paid out. I got actually the full amount that I was promised for 12 months in six months with my interest. And I was like, 'Wow, this is fantastic'. Because I never had to touch anything, and didn't have to worry about the headaches of the development, and so forth. 

 

[00:48:30] That kind of introduced me to the world of, I guess, lending. Becom[ing the] bank. And essentially, what was happening was, I was actually just lending some funds to the developer for a short term period to be able to help them get to the next stage. 

 

[00:48:45] Because when we got refinanced out, that was basically getting a construction loan. And that construction loan helped them build the property. And usually, sometimes the developer might have a bit of a gap between, say, selling of a property all the way to construction. It usually takes about four to six months to get construction financed, because they need to get all reports from engineers, all the finance organised, etc. And it's that little gap that we're filling in the market. 

  

[00:49:10] Hence the reason why we're able to get a good return. Because for them, the developer is getting a small loan for the short term. For us, we're getting a high rate of return. But it doesn't impact the project hugely, because it might add an extra one or 2% margin on them. So I've kind of revealed the secret source.

Tim Garth:   

[00:49:24] That's brilliant! You found the gap in the market. It's still property, and you're still leveraging the growth in value of property, which is why people are borrowing from you. That's fascinating. There you go.

Tyrone Shum:   

[00:49:39] The good thing about it is there's so many investors out there with a lot of capital, just like myself. I had a lot of equity in my property, and I wanted to go back to the bank to draw the equity out. But it took so long to be able to get that processed. And by the time I got it, I'm already losing opportunity cost to be able to invest that money somewhere else.

  

[00:49:58] So I said, 'Stuff the banks, I've got to go find other opportunities'. And that's what I did. I took a lot of the capital I had. Even though the banks, few times have rejected me because they said that I didn't have my servicing, but I had a lot of capital available. I didn't want to let it sit there dormant. And when you're talking about $1 million worth of capital sitting there dormant, doing nothing, it's a bit annoying, because you're not earning a thing. Or you may be earning 1% interest on that.

  

[00:50:21] You're losing money. And that's what we've done with a lot of investors. The same thing. A lot of investors have said the same thing to me. And hence the reason why they like this opportunity, because one, they can actually deploy their capital, rather than let it just sit in the bank. And two, diversify what they're doing. Because their portfolio, yes, it's generating income, but it's not enough to be able to fund whatever else they're doing. Especially at a, like, maybe a 5% return. 

  

[00:50:24] When you're getting, like, 20 or 30%, you pay maybe 3% max. back to the bank, and you keep the rest and use it to pay whatever you want, or use it for your lifestyle. And we just kept turning these over, and that's kind of what's happened over the last 18 months. We've done quite a lot of deals, about $15 million in the tune of, and it's helped a lot of investors like myself do it. 

 

[00:51:10] And this is the thing, I won't usually share deals unless I have invested in them myself or I would do it myself. Because I don't like to go into things without knowing what's happening. So that's the reason why I'm very, very familiar with this, because I've done already multiple of these. I've done about 12 of these deals already over the last 18 months, myself. 

Dan Osborne:   

[00:51:28] Immediately, a few questions come to mind. The first one is: You hear about property developments going bad occasionally. What's the risk there? Is there a worry that they go under and you don't get your money? What's your process to vet any risk out of that part of it?

Tyrone Shum:   

[00:51:52] It's a great question. I get asked that all the time. Because ultimately, it's our money. It's my money I'm putting there, I'm not just [going to] willy nilly lend it to anyone else. The key thing is that when we're doing all our due diligence, we have a very, very thorough process to do our due diligence. We go through and check all the criterias and make sure that they actually meet certain criterias. 

  

[00:52:13] For us, the key thing is a sponsor. Have they got a strong, proven track record firstly? Have they done developments, more than just one or two? If a developer says, 'This is my first project, I need some money', obviously, I'm not going to be lending to them at this point in time, because I need that track record. 

 

[00:52:28] But a lot of the developers we've worked with, and a lot of the brokers who have worked with these developers have had a strong track record [of] usually at least five years worth of developments. And they show us in their books and so forth. A lot of them have really amazing portfolio[s] of developments [that] have succeeded as well. 

Tyrone Shum:  

[00:52:45] So that's key for us, is that checking out their experience. I'm not going to say any developer could bust any day. It depends on what happens. But the thing is even if they do go into administration, or [become] bankrupt or whatever happens, we still have the security, which is the key component here. 

  

[00:53:02] So if we took the developer out of the picture, and we actually took security and enrich the mortgage, which is what we do, over these properties— as long as there's plenty of equity in there, we try to leverage no more than, say, 80% into these developments, and we have a buffer of up to, say, half a million dollars of equity in there, which covers anything potentially that could happen, like legal fees, sales costs, and whatnot— then we feel at ease and comfortable with that.

  

[00:53:26] And as long as those assets are in very, very good high demand areas, such as metropolitan cities, then we feel that the risk is pretty much mitigated in that sense. Because even if we have to put this property on the market fire sale, even 10%, which is very unlikely because you'll have people fighting over good blocks like these, then you'll most likely be able to sell it as is.

  

[00:53:48] And we get official valuations come in, on the as is value and also as complete values. So we kind of know the difference between the increase. So most of all you have DAs on approve, and with the DA approval, you kind of go, 'Okay, well, it's going to be valued at that much', you weigh up the costs, you work backwards and go, 'Okay, this property is going to be valued at this much with this amount of equity', and you just basically assess it on the asset. 

 

[00:54:10] So that gives us a lot of reassurance that when we do our due diligence, if those assets match those criterias, then we would continue our offer the due diligence. If they don't, I straightaway flick them. 

 

[00:54:20] I'll tell you, in the last two weeks, I've had about... close to nine to 10 deals sent across to us, and I've had to decline a lot of them because they just don't match those criterias. When we do find that one that does match, great. I'll go ahead and let you know,

Dan Osborne:   

[00:54:33] That's really cool. I love that you kind of laid out the case earlier. Here's the problem with the property market at the moment. Here's why I wasn't getting the return, and I don't think it's going to be for me at the moment, but here's a gap that I found. And just from a business perspective, I love that idea.

Tim Garth:   

[00:54:53] Yeah, your approach to your business. 

Tyrone Shum:   

[00:54:58] Everything you look at from that point of view... I guess you've got to find from a commercial perspective. Because at the end of the day, a lot of people are not going to do these things for nothing. And if you go in there with the mindset that, 'I'm just doing it for fun, and  it's gonna make a little bit of money', you won't succeed. 

 

[00:55:13] You've got to actually treat it as a business because you want it to do well and properly. You've got to make sure you have a good team backing behind you, have good systems in place to check your due diligence. If you just go in there as like a hobby, and I'll just have a look and go, 'I think I like that deal. Emotionally, I think that's going to be great', it's not gonna work. Because you're putting emotions into it. 

 

[00:55:30] We're very much simple numbers, and you just go, 'Okay, does this deal stack up?' If it doesn't work out numbers wise, then you flick it and move on to the next one. 

  

[00:55:40] I know it sounds a bit harsh in that sense when I say it that way. But it is the reality of life, because there's so many people property that have emotionally got involved into it, and then go, 'Ooh, I potentially could renovate that, I could potentially get value by adding a granny flat'. And then when they go through and do the further DD later down the track when they've bought it, and they find that they can't do it, they're stuck. That's not what you want to be in that position at the end of the day.

Tim Garth:   

[00:56:04] No, definitely. I think I feel like I'm having an aha moment here. On Tyrone's podcast we [were] talking about aha moments. 

Dan Osborne:   

[00:56:11] We were, yeah. What's your aha moment?

Tim Garth:   

[00:56:14] I've just never heard of this before. This is... this is groundbreaking, for me!

Dan Osborne:   

[00:56:19] There are other things you can do in property.

Tim Garth:   

[00:56:23] I guess I knew that existed in property development. But I suppose what you're doing there is really, you're cutting out the banks. And you're offering funds a bit easier and more quickly to developers. So you're differentiating the property development game. That's what you're doing.

Dan Osborne:   

[00:56:42] And I imagine... What's the regulation around this? If any? [Are] the hoops you're having to jump through the pain? Or was it literally as straightforward as just saying? They need money, we lend them, we register our interest over their property. And that's it?

Tyrone Shum:   

[00:57:01] Everything's done all legitimately through a lawyer. He drafts all the loan agreements, all the funds are transacted, all done through his trust account. And we work with a couple lawyers as well, too, just to spread the load, for whatever reason. 

  

[00:57:15] At this current point in time, we are also regulated by Australian ASIC [the Australian Securities and Investments Commission], and we're actually going through this process right now to get our FSL licence as well, too. Because of the fact that we're dealing with a larger volume now, I've had a lot of discussions with lawyers and stuff like that. 

  

[00:57:35] Hopefully by the time we probably come on to, potentially in the future, another podcast, I could probably share all that journey. But yeah, it's part of the things. Like, as you organically grow. Because we never anticipated to grow this large. That's all just part of the regulations. 

  

[00:57:50] But initially, it started off just being, 'Okay, I'm happy to go into this deal with another investor'. We basically registered our entity. So it's not like we set up a brand new trust or we set up a new company to go and register. We register individually on the mortgage. And at the end of the term, which is usually six months or 12 months, we just pay it out. And then interest is dispersed. And we just keep it really simple. 

Dan Osborne:   

[00:58:14] What I really like about this is— going all the way back to the beginning— you started with your 'why'. Why am I doing what I'm doing? Am I investing in property because it's the [cool] thing to be doing and I think I'm going to make millions? Or should I step back and think about, 'Right, what [do] I actually want? What am I trying to achieve? Does this actually get me that result?' And then, you decided that doesn't, but maybe this thing does.

 

[00:58:41] I really love that, because we talk about this in our business all the time. We talk about... we mentioned earlier in the podcast, it's all about trying to match what your business can do for you, and what you're trying to achieve, to what you actually want to achieve personally in your lifestyle, and your family and your money or your wealth, whatever it is that you're trying to do. 

 

[00:58:58] So I think you've really clearly demonstrated that what you were doing didn't match what you were trying to achieve. So you pivoted a bit, and you found a gap. And I think that's amazing. 

  

[00:59:09] And, as Tim said, you've created an aha moment, that there's still new things to try and find. There's still new things out there in areas in which you can invest in opportunities and create businesses.

Tim Garth:   

[00:59:21] That's brilliant. Can people get into this if they're not really coming from a background of investing?

Tyrone Shum:   

[00:59:32] That's the interesting thing about this, is that we do have a pre qualification process. You have to go on a wait list, you have to apply for it and so forth. Because it's not suitable for everyone. 

 

[00:59:43] As you probably know as accountants, most of the type[s] of great investments offered are for wholesale and sophisticated investors. This is deemed as one of those at this point in time because you've got to meet certain criteria or certain requirements.

  

[00:59:55] But once you reach that level, there [is an] ample amount of opportunities. And this is where over time, when you start learning about all these things, there's a reason why they're only exclusive for people earning a certain amount of income or have a set amount asset basis. Because they're more sophisticated, [they] understand these. 

 

[01:00:11] And typically, we get investors with at least half a million dollars worth of capital available. They've got a property portfolio, generating a nice income, keeping them happy, and so forth. But they just need to turn that over to generate some additional cash. So that way, they can either use it to fund their passive income or to actually pay down some debt. 

[01:00:29] And this is a nice accelerated way to do it. Because the fact is that you can either sit on the sidelines and wait 10 years [or] 20 years for your capital growth of your property. And then by the end of 20 years, whenever that happens, you sell down the assets, pay down your debt, and then you get your passive income. 

  

[01:00:44] But who has 20 years to wait? I know I'm not gonna be sitting around for 20 years, because it'll be my kids by then taking all my assets. When you think about that, there's got to be a faster way. 

  

[01:00:57] I'm not saying this is an overnight success thing. This has taken me a while to actually build up. But if you look at it from, say, a five to seven year timeframe, which is what I'm sort of projecting out at the moment, I think this is a much faster way to be able to build up solid capital, if that's the stage you're at in your property journey. 

  

[01:01:14] Because as we know, as most property investors talk about, there's usually three stages. The first stage is about capitalising, build[ing] up lots and lots of capital to be able to have that asset base there. 

  

[01:01:24] Then the next stage is to optimise it, increase the cash flow, [and] so forth. And then the final stage is to generate that cash flow, that passive income to be able to live off as well. 

  

[01:01:33] So if this is the stage that you're looking at, you need to build up lots of capital, whether it be buying more property, buy[ing] more assets, and so forth, then this is an opportunity to be able to do that. 

  

[01:01:42] For myself, over the last 18 months, as I mentioned, I've got about $1 million deployed out there, generating a nice chunk of cash. And all I'm doing is every time the interest comes back in when it matures, I just reinvest it again. And it's just capitalising.

 

[01:01:55] You can imagine what happens after compounding on that over two or three years. You literally don't even need to buy more property, you just have as your capital base, and you just keep going. So, yeah, it's just a different way of looking. 

  

[01:02:09] And that's why this is a great alternative strategy to think about, because the old adage, in my opinion of buying and holding doesn't necessarily work. I'm not saying don't go down that path, I still recommend still buying property, but you've got to be strategic about how you go about it. Because once you tie the capital into property, it's very hard to get it out. 

  

[01:02:28] And the challenge is there's a lot of cost involved in selling. There's a lot of cost in trying to get money out of that, especially equity, and you've got to wait as well with the capital growth. 

  

[01:02:39] What goes up has to sort of come back down with the markets. And I've seen it already, probably three times in my lifetime. And every single time when the market peaks, it will drop back a little bit, and then it just plateaus out for many years until it just takes its next peak again.

Tim Garth:   

[01:02:55] There's still opportunities during those years doing this method?

Tyrone Shum:   

[01:02:59] I think there is. I mean, the main thing is as long as the asset of the property that developers have purchased and using it. Because property development's going on all the time. There's always demand, especially when you look at the overall economy. When the borders open up, for example, down the track, when immigrants come back into Australia and overseas, our supply will probably come to a particular shortage, which means they'll require a lot of developers to develop more stock. 

  

[01:03:26] And that's where they'll need quickly to get those funding. And banks are just too slow to act on these things at this point in time. 

Tim Garth:  

[01:03:33] That is great. I mean, when you put it that way, you really, like, removing the risk of requiring capital growth anyway, because you're just requiring them to complete the development. 

Dan Osborne:   

[01:03:48] Not even complete the development. Just get a loan.

Tyrone Shum:   

[01:03:53] A loan. Exactly.

Tim Garth:   

[01:03:56] It's brilliant. How did you— and sorry to jump back— how did you find that first opportunity with that developer down in Melbourne? 

Tyrone Shum:   

[01:04:06] It was just by luck, because this is the funny thing. We talked about luck last episode.

 

[01:04:18] I have a very good relationship with my property coach. So she's the one who in the past has referred me contacts to do development joint venture type of deals. And she was one who referred me to that one down in Rowville. And that's where it started. It was like, 'Oh, if I can do one of these, and I find more of these types of developers or brokers, then basically I just keep repeating that same process, rinse and repeat'. 

  

[01:04:40] And then the second time around was actually through another friend referral, who was saying to me, 'I got this deal that looks amazing'. And I thought, 'Wow, I'll take a look at it'. And it turned out really, really good. And at that point in time, because he was saying, 'I've got a lot of these kind of deals coming through, but I don't have any funding for it, like private investors', and I said, 'Well, I've got a podcast, there's a lot of people interested in these types of deals, why don't we join hands in that?' 

 

[01:05:06] That's how I build up a lot of relationships with new brokers and so forth like that, that's how they kind of brought that. And it's really contacts and building those relationships. Now, it's not something that happened overnight. It took me now to where I am 18 months later, but those relationships are so so important. Because once they know that you can fund these deals successfully, they'll want to keep sending more of these to you, and it just doesn't stop.

Tim Garth:   

[01:05:29] It's almost like crowdfunding. It's super interesting. I love it. 

Dan Osborne:   

[01:05:34] I'm fascinated by it. 

Tim Garth:   

[01:05:35] Because, you know... to be honest, guys, we're amongst friends here— I hate the banks. And so this is really improving things. 

Tyrone Shum:   

[01:05:49] If you have a look at how the banks do their application process and go through their approval process, they do everything based on servicing. And if you understand that their model is basically getting a monthly payment to pay down the asset, over [a] 30 year loan, it's actually very inefficient. Because anything can happen in 30 years time. 

  

[01:06:09] But for them, they just take a little margin clip. And if they do that in volume, that's enough to have the bank succeed. So for us, we're only doing [a] certain amount of deals. Not a large volume of it. But the thing is is that it's quality deals. And most of the time developers are paying their interest at the end. And for us, it's just like, you know, come in for six months and get out in six months. And it mitigates the risk. 

  

[01:06:33] Because as I told you in my first part of the story, where I went in with a joint venture of a developer that went for 24 months, and I didn't make any money out of that— it wasn't guarantee that I was going to make money because I'm relying on sales. Whereas here, once you've got a loan agreement, you're locked in. 

 

[01:06:50] As long as you've done your numbers, and the developer has enough profit in the deal, then you know that they're gonna be able to pay the loan back.

Tim Garth:   

[01:06:56] Brilliant. 

Dan Osborne:   

[01:06:57] That's great.

Tim Garth:   

[01:06:58] I love this. 

Dan Osborne:   

[01:07:00] The one thing it's inspired me to do is just to think differently about everything. Not just property, but is there gaps in other markets and other things that you could be... you're not thinking about or there's a gap somewhere. I think it's important just to be inspired by this story. Not just for property investing or not just for this specific opportunity. But in your own business. Is there anything you're not thinking about the right way? That's inefficient in the gains that you're trying to get into? 

Tim Garth:   

[01:07:25] Things we just take for granted.

Tyrone Shum:   

[01:07:27] I have to say that there is an opportunity in the business market too, which is what I've started seeing come through. We've had a few businesses come through and asking us for loans [and other] kind of stuff. And they just basically provide property as a security. So it definitely can work in all sorts of ways. It doesn't have to end in just development. But that's been our bread and butter.

Dan Osborne:   

[01:07:49] There's a big gap in the startup capital sort of area. And it is going to be more and more difficult. And I was having this conversation with someone the other day. As more and more young people go to start businesses, it's hard to get a loan to start something, right? But what if young people these days, in less proportion to what it used to be, owned property? Because it's getting harder for them to enter. 

  

[01:08:12] So that startup funding is actually a lot harder now. But as you're saying, even you know, you guys still need it to be secured against something. And the banks require it to be secured against something. So there's a gap there. I'm not sure how to fill it. But yeah, interesting. Interesting. 

Thank you to Tim Garth and Dan Osborne, our interviewers on this episode of Property Investory.