Property Industry leader Ben Kingsley is our feature guest this week as he talks about his earliest property investment lessons and how he nearly fell for a big mistake he now sees many investors make.
Like so many of our past guests, Ben is very generous with the advice he gives which is drawn from his personal experiences.
Transcript:
Kevin: My featured guest this week is Ben Kingsley. Ben is the CEO and founder of Empower Wealth, and you might even know of him on his very popular podcast, which is called the Property Couch. He joins me.
Lovely to be talking to you, Ben. Thanks very much for your time.
Ben: Absolute pleasure, Kevin.
Kevin: Let me ask you firstly, you’re a luminary in the area of property investment. I believe you’re also the chair of PIPA. Is that right?
Ben: Yes, that’s right. This industry is a growing industry. There are plenty of sharks out there, and so to be part of the peak association and to be able to help set the agenda in how we improve the professional standards of people operating and how they look after consumers is really important to me. It’s just nice to be able to give back in that respect.
Kevin: A lot of leading lights on PIPA, as well. PIPA stands for…?
Ben: Property Investment Professionals of Australia. There is some real talent on there. You have Margaret Lomas, you have Damian Collins, you have Steve Waters, Phillip Tarrant, David McMillan, all of the greats, the Property Professor Peter Koulizos, just some real talented people who care about how consumers are looked after.
Kevin: Of course, we’re very happy to support you, too, in that endeavor and I think we’ve spoken to most of those people. But, mate, I’m particularly interested in talking to you, Ben, about your journey and what you’ve learned along the way. Tell me about how you first got involved in property investment.
Ben: From a young age, I was always interested in being in a position where I could make sure that I was creating some wealth so that I could have the sort of lifestyle that I was looking for. I was brought up in a middle-class household, a hard-working father, and from that point of view, I saw that he did three jobs for 37 years and made some investments – some good ones and some bad ones and some that didn’t deliver on what he was looking for. That meant that he obviously had to work those extra jobs to hit the target he was looking at.
For me, it was very much around how could I be smarter and be more educated? I wanted to make sure that I controlled the money as opposed to it controlling me. I didn’t want to be in a household where it changed the mood in terms of how much money we had to look after ourselves.
Kevin: We learn a lot of lessons from our parents and how they operated. I know it was a different generation, but it also I guess reminds us as parents the impact that we have on our own children and the lasting memories we can give them as well, Ben.
Ben: Totally, Kevin. I think it’s really important that we have to be the role models. We don’t fall too far from the tree, as they say. For all of those people who grew up in challenging households, they have to try and break the mold.
For me, I didn’t grow up in a challenging household; I grew up in a very loving household, but I also knew that where every dollar was spent was closely watched. I just wanted to make sure that there was enough to go around for everyone to be able to do what they wanted to do and to enjoy the things that we all enjoy.
Kevin: What was your first property deal? How old were you when you did it, Ben?
Ben: I was 23. Again, I started quite young. I bought the house across the road from mom and dad. I lived in a great little court in the northern suburbs of Bunburra. I got a $10,000 inheritance from my grandfather. One of my grandfathers passed. It was that as well as I did a lot of part-time work in school holidays and so forth. As I was also in college or uni, I then was able to be in a position to secure that first property. I paid $120,000 for a three-bedroom AVJennings home in the outer suburbs of Melbourne, really not having a clue what I was doing.
Kevin: Was it a new property?
Ben: No. It was an existing property. It basically went to auction and I paid $120,000 for it.
Kevin: Your parents were living across the road at the time, were they?
Ben: Yes, it was perfect. I could go home and have a nice feed with mom and borrow the old man’s lawn mower. It worked out quite well, but I did move into the property for a while there.
Kevin: So you bought it as a principal place of residence not as an investment?
Ben: Yes. I originally bought it as a principal place of residence, but it was always tagged to be an investment property. The reason I think, going back, there might have been some type of concession. Certainly, the interest rate was cheaper if you had an owner-occupied property. But I only lived at the property for probably just on about nine months before I moved interstate to start my career in tourism.
Kevin: Do you still own that property?
Ben: No. That one… Coming to mistakes, that’s a cracker. I moved to the tourism industry and found myself working in Sydney. I went and saw an accountant who had some so-called property knowledge. I sat down with him and said, “Look, this is the property I have. This is the income I’m earning. What can we do here?” And he said, “Oh, gee. That’s cash flow positive. We need to sell that property and we need to get a deposit and buy one of these great off-the-plan properties here in Sydney. You’ll be well-served in doing that.”
Kevin: Oh, no. Goodness.
Ben: As an inexperienced person at that time, I’m like, “All right.” I’m supposedly talking to someone who’s in the know, and it was definitely the worst decision I think I made from a property investment point of view.
I think right now it’s probably sitting at about a $550,000 mistake, and each year, that I don’t own that property it’s growing, whereas I could have quite easily released the equity out of the property in the time that I owned it an done a little cosmetic reno as well.
There was a lot wrong with that, but it goes to show you when you don’t know what you don’t know, you can be easily led by the wrong people.
Kevin: Yes, a lot of lessons inside that, of course. Going on to your second property, did you actually buy something off the plan? Did you follow that advice?
Ben: Luckily, I didn’t. By that stage I’d gotten myself into a real interest in what I was doing and hence I was reaching out to a lot of people, going along to a lot of events. I went to hear John Edwards speak and went and heard Ed Chan speak. Also a few of the spruikers out there, I went along to a few of their seminars. You were starting to sort out the wheat from the chaff, as they say. API magazine at the time was maybe a year or two old and I was starting to consume that on a monthly basis.
Fortunately, I didn’t follow the lead. I did look at and put a $1000 holding deposit on a two-bedroom apartment in Zetland but decided against that one. Once I started to get an understanding of what I wanted to do and did pretty much six months of solid research, I bought a semi in Alexandria for $395,000 in 2001, and that property got bank valued four or five months ago at $1.3 million.
Kevin: I was going to ask you, you still own that one. You’ve learnt that lesson, haven’t you?
Ben: Yes. Once I started to understand more about the drivers and the things I needed to understand – but that was through literally months and months of constant research. I had scrapbooks. This was pretty much pre-Internet period around RealEstate.com.au and I was scrapbooking all of the local newspapers and documenting what sold for what, trying to work out the technical valuations of things. So there was definitely a lot of research that went into that execution.
Kevin: Was that the best deal you’ve ever done?
Ben: It’s up there. I have quite a few like that. I replicated the same type of thing in Flemington in 2005 for $395,000. Again, a beautiful weatherboard two-bedroom, fully renovated property in an area that’s significantly gentrified since then. I suspect a bank valuation around $850,000 on that property now. That’s sitting very nicely.
The GFC period, Moonee Ponds, passed in auction right on the GFC at $1,050,000, and I picked that one up for $913,000. I’ve renovated that one, and that one’s become our principal home now. That would probably be sitting around $1.3 to $1.4 million unrenovated.
The years of experience and the 10,000 hours of education and knowledge-building that I’ve done over the journey have obviously put me in good stead to know when good opportunities present themselves.
Kevin: Have you done any developments at all?
Ben: No. I’ve kept away from that. I’ve been pretty much a passive investor – a true what I would consider the traditional investor. If I were going to invest in shares, I’m not having a say in what BHP is doing; I’m just a passive investor. And with my property investments, it’s been very similar.
I’ve done very little work in regards to improving the assets. I haven’t put new kitchens or new bathrooms or any of those sorts of things in. I’ve just let them sit. They’ll need a bit of a tidy up. There’ll be the odd deck and the odd fence that needs repairing, but I haven’t gone into that whole equity-harvesting and that whole development space.
It’s probably been because I’ve been a bit time-poor but also because a true investment should stand up on its own principles. If I have to value-add to it, I’m taking on more risk, so effectively I should be getting a lot more reward.
Kevin: Are you always looking to grow the portfolio, or are there specific times that you’ll do that?
Ben: That is a great question, Kevin. The reason why I love answering this question is more around after we had two or three in the portfolio and my wife and I were about to start thinking about starting a family, the question starts to come: how many more of these things do I need? What about the impact of cash flows with the kids and their schooling and their education? All of those things you have to start thinking about from a cash flow point of view.
There was really nothing out there that could accommodate a multiple property portfolio and modeling that, so that led me to build that with Michael Pope, one of my business partners here, to be able to start answering a lot more of those questions.
The answer is I’ve still being active. I’ve bought a couple more. I have a self-managed super fund. The strategy inside the self-managed super fund has been different strategy for my wife Jane and I in terms of how we built the portfolio, but what we’re able to do by getting more understanding of the planning side of it is we set ourselves a target of $160,000 in passive income from our portfolio by the age of 50. I turn 46 this year, so that’s what we’re striving towards.
So from that point of view, I haven’t had to constantly say to myself, “I need another one. I need another one. I need another one.” There’s probably just one more to fit in for that based on our planning. But I’ll probably still buy a couple more in the self-managed super fund because I can’t touch that until I’m 60 or 65 the way the governments are playing with super.
Kevin: Let me ask you the question this way. What sort of investor are you?
Ben: I think a buy-hold. Other than the silly one where I was given the wrong advice to cash out and basically buy into that Sydney property, into Alexandria there, everything else has pretty much been a buy-hold. The super fund is chasing a bit more yield, but the main properties that I’ve been buying have been more blue-chip type assets in the right locations around the major employment centers in the big capital cities.
Kevin: Would you buy overseas?
Ben: I haven’t touched the overseas market. I’ve had a couple looks at America a couple of times, and my brother’s put a couple of brochures across my desk in regards to Bali and Indonesia and so forth. But I’ve always taken the view that as much as my portfolio is very easy to manage, they’re still local assets. So if I have any problems around being able to fix up whatever it may be or difficult tenants and all that, it’s a lot easier to manage in Australia than what it is offshore.
That’s not to say that as my knowledge and understanding of more global property markets develops that I wouldn’t look at that, but I think I’m a bit like Scott Keck from Charter Keck Cramer. I’ve heard him speak a couple of times, and he’s a ripper. He’s like “When should we start to invest in commercial property? When should we start to invest in offshore?”
He said once you get around the $5 million residential portfolio. I heard him say that about 13 years ago, and then I recently heard him speak about two years ago and he said once you have about a $10 million residential portfolio.
That probably speaks volumes to me in terms of my portfolio, and that’s certainly how I approach looking after clients. I understand that we all work hard for our money, so I’m not about to speculate in markets that have very little regulation and jurisdictions and potential risk.
Bali is an example, maybe. We saw the horrific bombings that occurred there and what happens to the marketplace there and it’s a one-industry town. From that point of view I’ll probably steer clear of that. I still see a great opportunities in the Australian market.
Kevin: Yes. Plenty of opportunities here. What’s the most common question you’re asked from people who are looking at becoming property investors?
Ben: I think that’s an easy one. It’s “Where’s the best suburb to buy right now?”
Kevin: How do you answer that? What do you say?
Ben: Pretty simply. It’s “What’s your end game? What’s your goal?” That’s the truth. For some people, buying a $1.5 million property is actually their best move right now. For other people who maybe have less income coming into the household, it could be a matter of two properties in a regional town that’s delivering them strong cash flow and maybe a bit of capital growth along the journey.
I think the best way to answer that is to just understand the client a little bit better in terms of what they’re trying to do, because right in that GFC period, on my credit card I could have bought 30 properties on my credit card in Detroit. For people to say, “I have 35 properties, or I have 40 properties, or whatever” it could mean a lot for some people. They could be 35 fantastic properties and good luck to them.
Kevin: You have to ask that question though, haven’t you, really?
Ben: I think you do. If you have five or six really good ones that are generating income and you pay your debt down and each property is generating you $30,000 or $40,000 a year in income, that is a very handsome retirement that you’re going to enjoy with that type of income.
Kevin: Always great talking to you, Ben. I appreciate your time. Ben Kingsley, my guest, the CEO and founder of Empower Wealth.
Great talking to you, Ben. All the best, mate.
Ben: Thanks, Kevin. Thanks for having me.
Kevin Turner, Kevin Turner’s Real Estate Talk, 22 February 2017
http://realestatetalk.com.au/property-industry-leader-talks-about-his-mistakes-ben-kingsley/