Timestamps:
0:55 | Long-term Investments
6:55 | Investing in Your Future
8:45 | Growing Into Your Family Home
10:47 | Property Can Skyrocket
14:45 | Advice From the World
15:50 | Getting Your Foot in the Door
20:05 | Perseverance is a Challenge
20:57 | Reaping in the Benefits

Resources and Links:

[24:59] The motivation to keep doing what I'm doing is knowing that I'm changing people's lives, and every conversation matters.

 

This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

 

I’m Tyrone Shum and in this episode, we’re continuing the conversation with the founder of Wealthful, Chris Bates. He will detail the dangers of hot spotting and why his strategy focuses on the long term. As well as this, hear about the value of believing in yourself and

the resource that kicked off Bates’s own property investment journey.

 

 

 

 

Previously, we have heard about the success of Bates’s business and his personal property portfolio. Now, let’s explore the strategy that he used to achieve this.

 

[7:06] Books are starting to perpetuate what Australians really want to hear and that's the sell the property dream, and hot spotting, and lots of properties, etc. And I just don't think this works. I think hot spotting is extremely dangerous because what you're doing is you're betting on a short term growth. And then if that doesn't happen, then you got buyer costs, sell costs.

 

And then you got to get out of this hotspot as well, because you went there for a short term growth and now you got to get out of it. And then you got to pay selling costs and capital gains tax, etc. What we bet on is long term fundamentals. So, things that yeah, may or may not happen in the short term, but we know they're going to stay like that longer term.

 

In his business, Bates makes sure to advise his clients with this strategy and to practice what he preaches.

 

[8:25] I just jumped off a call with a client who wants to buy in Brisbane, for example. And he wants to buy in the outer rings of Brisbane and when I looked at that a few years ago, I said, 'Look, there's so many properties in the outskirts of Brisbane. It's not a big city. It's easy to get around. Where would actually people want to leave Sydney for and move to Brisbane? If the city, if you're doing well in Brisbane, where do you want to live? You want to live around the river around the city in an old sort of Queenslander. Right?'

 

[8:52] And so we had lots of clients buy up there for $700,000 [or] $800,000 [or] $900,000. Old Queenslanders, you know, decent blocks around the city. But all of those are now worth like, $1,300,000 [to] $1,600,000, right? They've all gone up dramatically. Yeah, the outer suburbs have gone up due to affordability and low rates, but they're not driven by higher incomes.

 

And so, as Brisbane grows as a city, will a fraction of the population do well financially? Yes. Will people who are doing well financially from other states move there? Yes. Where are they going to want to be? They're going to want to be in these locations around the city, because they want to buy lifestyle properties driven by the lifestyle benefit, and that's why people pay a lot of money for a property versus another property.

 

[9:32] So yeah, I would still say that's a great hold [for the] long term. You could say though, I'm going to [be] willing to cash in but then where do you want to go? You want to go play in another quality market? Well, that's probably gone up as well. So, it's not like you can shift your money from Brisbane and take it to Sydney. Sydney has gone up just as much in the last few years and so has Melbourne and so have a lot of the quality regions. So, I think switching and buying different cities is really tough, especially if you pay capital gains tax along the way because if you've made $600,000 in gains, then you lose $150,000 of that in capital gains tax.

 

[10:05] So, you're reducing your asset base to make these transactions, then you've got stamp duty and selling costs. So, I think the hot buy and hold strategy is the best strategy, maybe adding value to those land as well. You have got developments and things like that, which you can definitely play in and try to manufacture growth.

 

We've seen clients do very well in that, but I feel like a lot of that has been luck rather than skill because the people it's really worked for is bought in an area that [is] pre boom and then a booms happens. And then they've made money on their build because they've sold in a really hot market. So, it's a real timing issue there and you've got to get lucky. Where we've seen it go both ways for clients.

 

The clients that Bates works with are usually in a younger age bracket and come to him for help investing into their future.

 

[11:16] It's usually the younger couple pre kids, and one or two of them are doing. So, they're usually maybe around 30 to 35 [years old] and so their careers are quite established now. They've had 5 [to] 10 years in the workforce and they've had some pay rises, they've been putting a lot of energy into their self-education and growing themselves and their human capital. And now they're out there and they're earning a decent income. Either one of the parties or both.

 

[11:43] So, incomes could be $200,000, $300,000 [or] $400,000, who knows right. It definitely can be a lot higher than that as well. So, they're coming to us and a lot of them have gone and enjoyed their lives. So, maybe they've got a bit of savings, or maybe they've got heaps of savings — Whether it's inheritance or gifts from family, etc. And we’re really trying to have that longer term lifestyle chat with them. Okay, so you're with a young couple pre kids. Where are you from? Where'd you grow up? Where's your family? Where's the best opportunities for work? Where [do] you want to live long term?

 

[12:12] We have those conversations, and we say, 'Look, can we firstly try to get an asset that you could grow into? And, if you don't want to live there now'. They might say, 'Look, we want to live around the city now, but we're happy to move to down towards the Shire or Hornsby in the future or something like that. Why don't we go and buy that as an investment, maybe live in it for six months, move back to the city, [and] rent an apartment'. So, we’re trying to problem solve that situation for them.

 

[12:37] [We] want to solve their long term lifestyle needs from a living point of view because if they don't solve that, they go and invest that money elsewhere. Then they go and have kids, then they've got they want a house to live in because they want stability and security in school zones, then they got to sell those investments to then go and do that, and then that's probably a good asset. Because that's driven by demographics. And I'd argue that's probably, especially that sub $2,000,000 range in houses is really, really tough right, especially in somewhere like Sydney.

 

[13:04] So, that's the sort of conversations we have. That's the type of clientele that we're working with. It's usually multiple hundreds of $1,000 of income and they're either trying to get their first place, or they come to us, and they go, 'Look, we've got an apartment but it's not big enough. We need to do an upgrade. So, how do we make that happen? Do we buy before we sell? What do we buy? What can we afford to borrow? Etc'.

 

[13:30] And then you got the third type of client that's super happy in the house, they've renovated it, they're been smashed, just been focusing on paying down their mortgage. So, they have a huge amount of equity. They're on great incomes, because maybe they're in their 40s and they're getting started [at] peak earning. And then we start to try to help them buy one or two investment properties. But it's not like six or seven, it's like two quality assets.

 

 

Bates advises that people buy their future family home so that when the time comes, they already have housing stability.

 

[14:42] You think about that advice have been the same for [the] last eight years, and we've had clients [that have] been doing that and look [at] what's happening in Sydney sort of market right? So, people naturally at that stage, go and buy something for what suits me now. I was having a conversation with a client yesterday around this, and we just want to buy an apartment, that's what we need. Sorry, they were in a townhouse, a two bed townhouse and are thinking about buying an investment property.

 

[15:06] And I'm saying, 'Look, you guys have got the income there [and] you've got the equity there. You could get into the housing market into the lower north shore'. Which is where their family are, and they want to live long term. But instead, they were going down the wrong track. They were like, 'We've already got a two bed townhouse, we're going to go and buy this investment property'. I can see the writing on the wall, you're already telling me you guys want kids in a few years’ time, but they just didn't want to make that big lifestyle shift now, because they're just gone and spent a year trying to buy this two bed townhouse last year.

 

[15:32] So, it's helping them think through their longer term lifestyle. Now, the reason why you do it is firstly, you de-risk yourself financially long term because you don't have to worry about dealing with that problem in the future. Which may run on you, or you might not be able to because of incomes or whatever. Two, you can get it grown tax free by living in it for a little bit and then getting the six year rule.

 

[15:54] And three, I'd argue that's probably one of the strongest growth assets. To be in this sort of family housing market in a capital city, that's more likely to do better than pretty much any other investment out there to be honest, because it's driven by real scarcity and it's driven by high incomes, people competing for scarce products. And so rather than buying an investment property and playing in the sub, not as good market, you're getting all those other benefits as well. And so that's why we encourage people to go down that route.

 

If you’re an investor who already has a few properties but are now looking for a home to grow into, Bates shares how to break into that market.

 

[16:58] I'm sure there's people that defy the real back 2014, you could borrow 10 or 12 times your income right. Now you struggle to get six or seven times your income. And you could borrow a lot more to buy investment properties, than you could buying homes and interest rates were a lot higher. So, back then it actually did make sense to potentially gear up a lot more into investment properties because you could double almost, and interest rates were higher, so you get the negative gearing benefits and owning homes was expensive.

 

[17:25] So, when interest rates shifted lower and would argue that they're going to likely stay low at some level, even the threes and fours. It means that homeownership is cheap plus, you don't have to pay rent. So, the rent offsets your interest and so that's the big driver of why house prices have gone up through the roof. Because lower rates make it more enticing to take on home debt. 

And so, I think that the fallacy is that you [are] thinking that you're going to buy all these investments, and they're going to grow faster than the home, and then you're going to take off the transaction costs and capital gains tax. And I think it's also if it doesn't happen, right, if your investments don't go up and then the home goes up, that you ultimately want. It's like a double hit because you've got to minus off the costs, etc.

 

[18:06] So, I do think though, if you've, you know, potentially doing rent vesting so you can get a home, maybe the strategy is just to shift from rent vesting into getting that home sooner rather than later, rather than expecting your investments to outpace the home that you want to buy. Now, if you want to move to a regional town into a cheap house that's not super desirable, and there's lots of them, then absolutely invest your money elsewhere.

 

[18:29] Get that working for you and then just go and rent in these locations, rather than owning that as your home or buy it when you can really afford to do it and you can take that, the opportunity cost of owning that. But if you do want to get into a quality housing market, then if you do well on your investments, there's probably going to be offset by the opportunity cost where you have to pay more for that in the future.

 

At the beginning of Covid-19, many investors anticipated that the property market would settle and come back, but it did the opposite and skyrocketed.

 

[19:27] There was a lot of heat behind the market in 2019. As soon as the negative gearing changes didn't go ahead. APRA cut borrowing capacity, increased borrowing capacities, interest rates got cut in 2019, the market took off late 2019. When Covid hit, there was a lot of steam behind the market. Yeah, there was a little bit of a, I'm not sure what's going to happen with this but then interest rates crashed. People were spending a lot more time in their home and we literally in March, April, May, after that April period, we could start to see people coming to us and saying, 'Look, you know, we're really keen to take advantage of that'.

 

[20:03] And you could see that in late 2020, the market did start to really pick up and then obviously going into 2021, there was so much heat behind the market and people couldn't sell for lots of different reasons. They couldn't find other properties on the market. So, they were, that was getting a supply lag and that's what caused 2021. We are seeing 2022 is interesting, though, because prices are much higher. Buyers are a lot more hesitant to take on a lot more debt, because you got to pay a lot more for it, but then the interest rates are likely to increase and so they're not going to compromise as much as they were willing to last year.

 

[20:36] So, properties that are on busy roads, that are dark, that have got privacy issues, or weird blocks, or weird layouts or, future infrastructure — These properties are going to sit on the market because they're not going to probably be able to replicate the price sales they got last year, and the sellers won't want to sell them unless they can sell them for the same price in 2021.

 

[20:57] So, you've got the sellers are going to hold there, and buyers aren't going to want to buy them, and sellers aren't going to want to sell them and they will just sit on the market. The good properties, on good streets, unfortunately, all the buyers are going to shift to those properties. And even if interest rates do increase, they're still desirable at current prices. 

It sounds crazy, but people [are] paying $2,000,000 [to] $3,000,000 for a house. They're not going in there and borrowing 80% on it, they go in there with a $1,000,000 to $2,000,000 of cash because they've sold something else. And so even if interest rates go up, they're not like they're paying 3% or 4% on $2,000,000 dollars of debt. They're only paying out on a smaller mortgage because they went in there with such a big deposit.

 

 

Coming up after the break, we hear the best advice Bates has received…

 

[22:14] Really have a crack at it and believe in yourself.

 

He shares the advice that he would give to himself 10 years ago…

 

[23:24] I would say don't fall for shiny object syndrome and just pick a problem and go and solve it.

 

We’ll learn about the resource that aided Bates’s career…

 

[6:25] I mean I really love Pete Wargent.

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

 

 

Throughout his property investing journey, Bates has received irreplaceable advice. However, it may not have necessarily been from a person, but from the world.                                                                                             

[22:05] I think the best thing I ever did was go out and see the world and invest in yourself and invest in your knowledge. And just really have a crack at it and believe in yourself. And always stick to your principles and doing the right thing. Working in whatever the best advice is for clients, we just sort of give it the way it is. We know how to deliver it in a way that's going to be digestible for them but that's always going to come and be better for our business.

 

[22:34] If we have zero phone anxiety, we always know that we've looked out after our clients’ best interests. And so always focus on the long term, invest in yourself, and try to stay grounded and remember just how lucky you are really to be alive and healthy and focus on the right things. So, that would be my best advice that you know, whether I received that or not, I probably just got that advice from going out and trying to explore the world. So, hopefully that helps people.

Let’s take a step back to the start of Bates’s property investment journey and look at the resources that he used to get his foot in the door.

[6:15] It's trying to remember back to what books are really important. I mean, there's always the standard business books, etc. In property per se, I mean I really love Pete Wargent. Pete is a very smart chap who really understands a lot around property and does a lot of research. And so, I'd say his blogs was definitely a key part of the picture.

 

 In terms of other property books, I think there's not too many. I mean, Michael Yardney, in fairness, as well. His books have a pretty much bang on what I believe as well. He will talk pretty straight to the importance of understanding your demographics and population. So, in terms of property per se, they're the two ones that I would probably suggest in Australia that you [will] probably get a bit of value out of.

 

Bates shares the advice that he would give to himself 10 years ago, which can also be valuable for others beginning their property investment journey today.

 

[23:09] I think my, because it's 10 years ago, which is 2012. Look, I think in the initial stage in business, I was sort of wanting to help everyone and whether it was older clients and younger clients, etc. And so, I would say don't fall for shiny object syndrome and just pick a problem and go and solve it. And so that's what we probably made a decision in business round 2015 [to] 2016 that we just, we're going to go on [and] own this one problem, which is sort of guiding people on their big property decisions. And so, I think whatever you're doing in life, if you're passionate about a problem, yeah there's lots of other things you could solve or do as a business, etc.

 

[23:49] But, you won't get flow and you won't get knowledge because you're trying to — I'm learning about this, I'm learning about that, and I'm doing this but once you've got your problem you want to solve in the world, then just go for it and keep investing in it and know that you [are] making a difference in that problem.

 

[24:07] So, I would say that's probably a great thing to be. When you get that real calling and you know what you're doing and whether it's business or you're working somewhere, that the temptation is always to jump ship and do something new, but I just don't think that gets you, you go two steps back to then potentially go one step forward.

 

Bates has a lot of wisdom to share from his time investing in the property market. Let’s hear some advice specifically regarding worries about debt.

 

[27:18] It all comes down to your confidence and your belief in your capacity to earn an income and you doing that sustainably long term. Now, if you're gonna take on a $2,000,000 mortgage but you hate your job, and you want to quit that and you want to go and start a new business that's got unreliable income, then absolutely, it's going to be stressful, right. Or if you go and take on that big mortgage, without any buffers, without any money in offset accounts, etc.

 

[27:44] So, I would say, yeah definitely understand how to use buffers to protect you. If there was any change during employment and people don't use buffers correctly, they don't know how to pull equity out, they don't know how to use offset accounts, they don't understand how to reduce their repayments and things like that. 

So, protect yourself with buffers. Use buffers to give you that sleep at night factor but then also from paying a mortgage, etc, doing a job that you love and something you're passionate about. Because then that's gonna give you confidence that your income is going to be there and keep investing yourself.

 

[28:13] Like, you can't ever get complacent and think that I've got this job and it's going to keep on happening. There's people that are studying today, that are working hard, that are wanting to do your jobs and unless you keep staying ahead, then you've got to be your future income [is] never guaranteed. So yes, you could have a big mortgage but if your income [is] always there and your incomes growing and you've got buffers, then what are you really concerned about?

 

[28:34] Even if interest rates go up, you've got buffers and you're gonna have wage increases as well. So, I would say that's my biggest advice to people. And that's what we see from our clients. Look, the clients that we take on, the clients that have got strong trajectories, that are investing in themselves, [that] are studying etc. And so they back themselves, and they back themselves into buying, ah, taking on a bit more debt than the average.

 

Perseverance is a big challenge but when times are tough and you feel like throwing in the towel, overcoming challenges can lead to great rewards.

 

[24:49] You just got to be aligned to it though. Like you've got to really genuinely be passionate about it and genuinely know that you're helping and making a difference in people's lives because that needs to be, that's your motivation long term.

 

[25:06] Whereas if I knew I was just sort of selling a product, and I could just sell more of it, then it's only a financial benefit. I'm not gonna have that same reward, once you've got certain financial security and you're not worried about money or you don't need more money, then that starts to run out. So, it's only that real purpose or that meaning that impact that will sustain you for a long time and so you've got to be really, know that you're making a real difference.

 

Because Bates has persevered and continued to work hard, he is now able to enjoy the benefits.

 

[25:43] We're at a good point. We've got a great house, we've renovated it, we're happy here, but we've got the ability to potentially do another upgrade, right? And there's financial reasons why we would do that. We believe that the ultra-high end part of the market is where there's true scarcity. And we, unfortunately every year there's more people that are doing well financially.

 

[26:06] Due to a capitalist society, there will always be people doing even better, and what they're gonna want to do is want lifestyle. And so, for financial reasons but also life reasons, we'll probably do another upgrade, and probably a build. And so, that's sort of how we build a dream home, is sort of the challenges that trying to find that piece of land and then also then facilitate that build and then manage the lifestyle impact of that is sort of what I'm probably working on a personal level.

 

[28:58] Chris, thank you so much, I guess, for sharing so much of your wonderful journey and your knowledge and so forth. Last question for you is how much of your success is due to your intelligence, hard work, and skill? And how much of it do you believe is because of luck?

 

[29:22] I wouldn't say luck. I do think it is generally down to that. I mean, I remember like a lot of what's making our business grow is the amount of time that I spent in producing content and researching. The business, in a day there's 16,000 mortgage brokers, right? And what do we do [that is] different?

 

[29:40] Well, we've gone and invested in producing content, and that was all through hard work and learning, etc. So, I think that hasn't been luck. That's what's created a lot of that same success. I mean, we're all lucky. We're all born in Australia, right? And so, that's that to me, people have got to remember is that yeah, you're lucky to be here and you're lucky to have the options here in Australia. So, that's a big part to play in it but then after that, I just think it's sort of dedication and learning as much as you can.

  

 

Thank you to Chris Bates, our guest on this episode of Property Investory.