Property Podcast
The Bargain in a Boom Challenge: Emotions v Investors With Simon Loo
June 16, 2021
Simon Loo is the founder and director of buyers agency House Finder, and is a buyer’s agent himself. His property portfolio is now worth over $8 million, with $4 million in equity, affording him the ultimate goal of financial freedom. He has a wealth of knowledge to share about property investment and today we’re focusing on a case study revolving around investing in today’s fast-moving market.
Join us as we discuss the wonderful opportunity a new client of Loo’s— and a new investor overall— happened upon in Brisbane. In the several months between this client signing on with House Finder and now, the market has surged ahead in leaps and bounds. What is this boom all about, anyway, and what makes people pay $50,000 more for a property than they need to? Loo may just have the answer for you.

Timestamps:
00:54 | Buying in Brisbane
04:03 | Assess Your Goals
05:54 | Off-Market Property Still Exists
11:11 | When Maximum Price Isn’t the Priority
14:33 | The Fear of Missing Out
18:01 | Emotions Need Not Apply
20:07 | Two Months? Try Two Weeks
21:16 | Hindsight is 20/20 (Or, in This Instance, 2020)

Resources and Links:

Transcript:

Simon Loo:
[00:13:33] That's how this particular client is now in the process of extracting that equity to assist them to buy the next house. So you're kind of just riding a bit of a boom wave, but at the same time, you have to buy the right property to be able to do so. What most people are doing right now when they're buying property is they're paying way too much for it.

**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 of Invest Like A Pro presented by House Finder, we’re chatting with founder and buyers agency director, Simon Loo. We delve into what happens in a seller’s market and discuss who’s buying, where, and when. In addition, we chat about what investors need to keep at the forefront of their minds when purchasing.

**END INTRO MUSIC**

**START BACKGROUND MUSIC**

Tyrone Shum: 
Loo dives in with a case study featuring one of his new clients who has recently purchased in the Brisbane area, beginning with what the client’s situation was.

Simon Loo:   
[00:00:19] This particular case study surrounds the recent boom that everyone knows is happening at the moment. Whether it's Sydney, Brisbane, Adelaide... obviously in this particular scenario, it's Brisbane. This particular client that I had signed up with me late last year, I would say around about the late November mark. And back then it was already a completely different market to what it is today. 

Buying in Brisbane

[00:00:54] When we signed up, we ran through the what you're after specifically, what you don't want with the type of property that we're looking for. As you know, my focus has always been on investment properties, and has always been on properties that are distressed, properties where we can make money from without relying on the hope of capital growth, even though that's also happening right now, just organically. 

[00:01:22] So this particular client that I have in Sydney, he was very new to investing, he wanted something that was very visually appealing. So something that was quite nice, something that he could picture himself living in, which is fine. And the challenge was it clashed with what was happening on the ground, and what is currently happening on the ground at the time. So just to give you a bit of context, when I was buying property for clients in this particular area in Brisbane about five or six months ago, I would say the mix was about 50/50, owner occupier and 50/50 investor. So if you had a house, 50% of the interest would be owner occupiers and 50% of the interest would be from investors. 

[00:02:17] Now, that was fine, because when you're competing for a property with other investors... the way I negotiate and things like that, it gives me a little bit of an edge. But when you're competing with owner occupiers as an investor, it presents a lot more of a challenge if you're looking for a bargain, if you're looking for a good deal. Because owner occupiers, they're buying emotionally. They buy properties based on how they feel. And then a lot of them aren't really looking at the bottom line in the sense that they might happily pay an extra $50,000 more than even what it's worth, potentially. Especially in this market, you see it happening every day, just for the fact that they can picture themselves living there. Money's very cheap at the moment, there's a lot of government grants. So for them, the extra $50,000 isn't even their money, that's what they're thinking. 

[00:03:14] But for us as investors, that $50,000 will make or break a deal, as to whether it's a good investment, whether it can help me generate the cash flow, or whether I can get enough equity out of this property to buy the next one, and so on and so forth. So, with me and this client, when we first started looking, we were looking at a lot of properties that were quite nice to look at, newly renovated modern type houses. But we were competing with so many owner occupiers that the numbers just didn't make sense anymore. We couldn't buy these properties that were paying above market value for. Because the multiple offer situations for these houses was just through the roof. 

Assess Your Goals

[00:04:03] Currently, the mix in this particular suburb that we're looking at at the moment, or we were looking at, is now about 90% owner occupier. So the shift was from 50% owner occupied to 90%, owner occupied that's looking in this area. Now, that might sound great from a growth perspective, which it has grown. But we had to shift our strategy a little bit. Because we had to buy properties where we weren't competing with owner occupiers. 

[00:04:34] So what we did was we sat down and we thought, 'Okay, cool, what are your goals? What are you looking to achieve with this property? Are you looking to buy a property to make yourself feel good in terms of the fact that it looks new and feels great and you can picture yourself living there, even though you would never probably set foot in that property? Or are we looking for a property that's going to help you make money? Achieve your long term goal of passive income? Help you buy that next property just because we bought a good deal?' 

[00:05:04] When we asked those questions again, it was clear that the goal was the latter. We were looking for an investment property to help us make money, to achieve goals. So our shift then, knowing that, okay, most of the people on the ground are owner occupiers looking for a house to live in, they're looking for a polished product— we started to focus our efforts on properties that... I wouldn't say [were] ugly or rundown, but properties that may not have been hitting the mark with a lot of the emotional first time buyers. So properties were a little bit older, maybe a little bit more original. Properties that even though they're in a safe, tidy and rentable condition immediately, they have that potential that you can add value to. Which, coincidentally, is what most investors want anyway. 

Off-Market Property Still Exists

[00:05:54] So in doing that— and I would say more than 80% of the properties we buy for our clients are off market— we focused all our efforts on by looking at properties that weren't on the market yet, or pre-market properties just before they hit the market. Regardless of what you're seeing in the media at the moment, all the hype that's happening around you about properties, as soon as they get listed, [they're] getting multiple offers, and all that kind of stuff. Off market property still exists. And they're actually extremely prevalent as well. You just need to know the right people and have the right conversations with people to get access to them.

[00:06:37] And in doing that, it enabled us to buy a property that was still below market value, it was still distressed, it was a property that was already rented, which is another thing that I'm finding a lot of. If there's a first time buyer or an owner occupier that's looking for a house to buy and move into, you can't have a property that's already got a tenant in there. Otherwise, you're gonna have to wait several months for them to move out before you can actually move in. 

[00:07:05] So we focused our efforts on property that was already rented, which meant cash flow from the property from day one. And we ended up with a great property that literally just two to three months now, I think it was, since we bought this property, they're already looking to extract a significant amount of equity from this house. Which was a combination of the fact that we got a good deal in the first place, but also just an organic growth that's been happening everywhere in Australia at the moment. So we're kind of taking advantage of both aspects to pull this equity out, and using this equity to buy the next property and the one after that, and so on, like I've talked about in previous episodes. 
 
[00:07:47] I guess the moral of this particular story, or this scenario, is that sometimes we have to really just sit down and think about what we want to achieve with property. Why are we in the market? What are we looking for? Are we looking for properties that will help us as an investor to invest in, i.e. make money? Or are we looking for a property that will help us feel good, sleep well at night, knowing the fact that you've got a nice product, at least in the pictures of the ad? 

Tyrone Shum:   
[00:08:22] Or roof over your head kind of thing. That's emotional buying, it's almost like you're buying for your own self to potentially live in. That's a completely different mindset there. And it's fine, if you're looking to buy a place to live in, like your principal place of residence. That's great and all, but if you're an investor, you've got to take that side out of it, and then focus mostly on the numbers.

Simon Loo:   
[00:08:43] Yeah, for sure. And now more important than ever, because everything's going up, and you're competing... Mum and dads, first time buyers, very emotional buyers— you need to think of a way to counter that. So that's what we've been focusing our efforts on. 

**ADVERTISEMENT**

Tyrone Shum:
Coming up after the break, Loo reveals the reasons sellers may be selling privately...

Simon Loo:
[00:11:11] Some sellers are actually aware that if they put the property on the market, they'll probably get more money for it. But interestingly, for a lot of sellers, maximising the sale price is not a priority for a lot of people, depending on what their situation is. 

Tyrone Shum:
He details the potentially dangerous way many buyers are purchasing at the moment...

Simon Loo:
[00:14:44] But that's also very dangerous, especially in a rising market. Because even though you've bought a property, you're potentially playing catch up. 

Tyrone Shum:
We discuss how to get around the obstacle of not seeing any opportunities.

Simon Loo:
[00:21:52] I think a lot of people did this in Sydney and Melbourne, back in the boom, at the start of the Sydney boom, for example. Everyone obviously wanted to buy as close to the city as possible. And they were neglecting Western Sydney, or areas that were further out. 

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

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Insert HouseFinder Midroll advert.

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Tyrone Shum:   
Loo shares further on the numbers behind this particular deal— what was it on the market for, and how did he come across it originally?

Simon Loo:   
[00:09:11] Like I come across with most deals, I have a lot of agents that we've done a lot of business with over the years— some agents we've bought dozens of properties through– so they know that if they present a property to me, if the seller is in a situation where they have to sell very urgently or very quietly, then chances are I can make that happen as smoothly as possible. Typically when you sell a property, you market it, you put up an ad, you do hundreds of inquiries and open homes and you're dealing with first home buyers, shakiness and uncertainties from buyers, and that can be quite a draining process. Not only for the agent but for the seller. 
 
[00:09:57] So when the agent called me up about this property— it was off market, by the way, he never hit the market— the property was a rental already. Again, the seller situation was definitely distressed financially. So he needed to sell this property very, very quickly. So he called me up, 'If you have the right buyer, we're after a buyer that can make the transaction happen as quickly as possible, but also a buyer that will retain the tenant'. Because in this particular scenario, the tenant was actually a friend of the seller, the vendor, so the seller didn't want to sell it to somebody that was going to kick them out at some point, or after the sale went through. 

[00:10:44] For me and my clients, all my clients are investors, that's kind of like a win-win, obviously. If my buyer can buy it, and just have a tenant existing there, they love the place, they want to keep renting it— stay there. We're happy for that to happen. So, when we put these two together, that's how we got the deal. And that's how a lot of these deals happen for us currently. Agents will call us up, they've got a property that needs to sell. Maybe some don't even want to list it. 

When Maximum Price Isn’t the Priority

[00:11:11] Some sellers are actually aware that if they put the property on the market, they'll probably get more money for it. But interestingly, for a lot of sellers, maximising the sale price is not a priority for a lot of people, depending on what their situation is. There are a lot of situations where people have to sell privately to avoid making it public that they're selling a house, whether they're living in it, or whether they're selling an investment property or something like this. So that's how we got access to the property. 

Tyrone Shum:   
[00:11:47] Fantastic. And maybe just run through high level, I guess, in terms of the numbers behind this type of property. How much was it actually offering off the market? And after bidding negotiation, what did you guys do to get it to the right terms that would suit both parties and make it a win-win?

Simon Loo:   
[00:12:05] The property itself was about 20 kilometres from Brisbane CBD. I won't reveal exactly where it was. When we looked at the immediate comparables... bearing in mind that in a rising market, which is where we're in at the moment, the comparables that we're looking at are usually about two months old already. By the time they register with the title's office, before the price becomes public, because most agents when they're selling a property now, they don't reveal the price. But it will become public anyway, the information, the prices. 

[00:12:39] So just by using the comparables, we were about, I would say 10 to 12% below what the market value was for this house at the time. So we picked it up for $400,000. It was a house. All the comparables at the time suggested it was worth at least $440,000 [or] $450,000, something like that. But obviously, since we bought it— literally the 42 days, it was a 42 day contract— by the time that it settled, just by looking at the new comparables that came on, the ones that sold in the recent week or so, the house was probably at that time worth about $480,000 [or] $490,000 already. Just by organic growth. 

[00:13:27] So you're getting half below market value, half organic growth as well. And that's how this particular client is now in the process of extracting that equity to assist them to buy the next house. So you're kind of just riding a bit of a boom wave, but at the same time, you have to buy the right property to be able to do so. What most people are doing right now when they're buying property is they're paying way too much for it. Because they're thinking to themselves 'Money's so cheap', they're only paying 2 to 3% interest rates. They go to the bank and they give them $600,000 of borrowing power. And then they go off and they look at a property, even though it might only be worth $500,000 they're like, 'You know what, I can afford up to $600,000 I really want this one. It looks great, it fits a lot of my emotional buying criteria, and I'm more than happy to pay $600,000 for it'. So that kind of stuff is happening rampantly. 

The Fear of Missing Out

[00:14:33] It's also creating a lot of FOMO, so a lot of people are thinking to themselves, 'I'm gonna miss out, I'm gonna miss out, I'm gonna miss out, I'm just gonna have to pay a little bit more and just go into it'. But that's also very dangerous, especially in a rising market. Because even though you've bought a property, you're potentially playing catch up. Even if the market is going up as you bought the property, it might be 12 months before that property is actually worth what you paid for it in the first place. So it's really important just to maintain a certain level of calmness in this market. 

[00:15:18] Don't ever feel like you're gonna miss out. There's always going to be another bargain, there's always going to be another deal, there's always going to be another market. Don't forget that property is a long-term game. And during that long term, you're going to get rising markets, you're going to get falling markets, you're going to get markets that are doing absolutely nothing. So it's really important just to ensure that every single property you buy fits into what you're looking to achieve in the long term.

Tyrone Shum:   
[00:17:00] So, Simon, we were talking a little bit about the FOMO. The market right now where there's a lot of people potentially looking at buying more property, especially first home buyers, and also people who've never really been in the market. And I've been in a seller's market at least two times in my lifetime. One as a real estate agent, and one as an investor. And every time that happens, I go, 'Gosh, this is not the time to be buying', because there's just too many people. The time just before it goes up is great. But when everyone's all buying, that's the time I just sit back and watch. 

[00:17:39] But for investors out there who are going through this potentially the first time or maybe it's even the second time, what have you found to be the best thing to do in this instance? What do you think we should be doing to be able to capitalise on an opportunity like this, but also, at the same time not get caught up within that FOMO kind of thing?

Emotions Need Not Apply

Simon Loo:   
[00:18:01] It's the same thing for whether the property market's going up, down, left, right, or nothing— just to stay unemotional. When it comes to investing in anything, emotions is probably the one thing that will cause most people to make mistakes. Whether they pay too much, or whether they sell at the wrong time. Always be ready for opportunities. That's the second thing I will say. Get your finances ready, whether it's an up market, down market, left, right centre— get your finances ready, get your deposits ready, and wait for the right opportunity. 

[00:18:43] There are a lot of people out there that are getting FOMO, including the people that work with me as well. Even though on average, the typical client of mine might buy a property within about four to six weeks or so. But there is that fear that if they don't buy this next thing they're going to miss out. So my suggestion is don't feel like you're going to miss out. There's always going to be another property, there's always going to be another opportunity. If you're an investor, you should practice being open minded to different areas as well. Not everywhere is booming as crazily as Sydney, or Melbourne, as an example. So obviously, we're buying heavily in Brisbane at the moment. And even though Brisbane is booming, I do feel like we're at the start of the boom cycle. 

[00:19:41] So this boom cycle— given the fact that for the past 10 years, most of southeast Queensland has done absolutely nothing— I do feel like this boom cycle is going to last quite a while. For a number of years. Unless of course there's economic or government intervention or anything like that. So ensure the numbers work. Super, super important. Again, just look at what properties have been selling for. 

Two Months? Try Two Weeks

[00:20:07] One of the things I would recommend is, instead of looking at comparables from two months or three months back, get your hands on data that might even be just a week old. Literally in a rising market, it's important to look at what sold last week that is comparable to what you're looking at. That will give you a much more accurate representation of what a particular house that you're looking at is worth. Because two, three months old, that's already old data, that's gone. 

[00:20:09] So let's say you're looking at a house, it's going to cost $500,000 to buy it. If you're looking at old data, like two to three months back, you might be thinking houses back then were selling for $450,000. But there's obviously no way you can buy this house at $450,000 because within the two months, the market's actually already moved. So it's important to look at that and say, 'Okay, cool, maybe if I do pay $500,000 for it, based on the house that literally sold three days ago, that sold for $530,000, it's still not a bad deal'. So that's just one thing about just being a little bit more diligent about the kind of data or the kind of research that you're doing as well. 

Hindsight is 20/20 (Or, in This Instance, 2020)

[00:21:16] Don't be afraid to explore different markets, I think I've mentioned this already. Even if it's in the same city. A lot of people have a prejudice of buying in a particular area that they think is going to perform better long term. But if there's no opportunities in that particular area at present, because it's just getting absolutely smashed by owner occupiers and first time buyers, and there's no listings and like kind of stuff, don't be afraid to venture into other areas that may be foreign to you, or areas that you might have a negative perception about. I think a lot of people did this in Sydney and Melbourne, back in the boom, at the start of the Sydney boom, for example. Everyone obviously wanted to buy as close to the city as possible. And they were neglecting Western Sydney, or areas that were further out. But obviously, in hindsight now, looking back, if they bought in these areas, they probably would have made a lot more money from a percentage growth perspective. 

[00:22:23] I think it's important to just look at the fundamentals. Obviously, you're still looking at areas that are close to schools, shops, parks and transport, good amenities, close to the city, a lot of government spending, a lot of infrastructure upgrades, all that kind of stuff as well. But it's a natural progression in any booming city where the money goes further and further out eventually. Obviously everyone wants to live close to the city and in desirable areas. But when people get priced out, they immediately gentrify and move into the next best thing. 

[00:22:55] So as investors, it's important for us to be maybe one step ahead of that. And think, 'Okay, cool, what is that next best thing?' And maybe you should be getting into that area before it gets smashed. Just like that desirable area is happening at the moment. So I think a combination of all these things will increase any buyer's or any investor's chance of picking up a decent investment property in this market.

**OUTRO**

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

Also, for being a loyal listener of the podcast, I’ve asked Simon to offer a free 1 hour strategy session normally valued at $500 to help you put together an actionable property plan.
To get your free strategy session, simply visit housefinder.com.au and fill out the contact form, or call Simon directly on 0415 626 342 and quote “Property Investory”.