01 Jul 001 – Developing with a $300k Property Portfolio with David Laverty
Today we’re looking at developing a $300k property portfolio and how to buy right with David Laverty.
Each week we speak to young entrepreneurs, investors and property bosses to help you take your portfolio to a new level.
Whether you’re a young investor, trying to build your property portfolio or not even in the property game yet, this is the episode for you.
David Laverty has gone from losing over $300k in the stock market to investing and developing over 60 properties in the past three years.
In this episode, we’re going to be covering:
- Why are you investing in property?
- How to make mistakes and learn from them.
- What to look for when you’re buying property, key tips, and simple pointers.
- The importance of a strong team and key members around you.
David, what’s the scariest thing you’ve ever done?
Probably taking the plunge into doing my first residential project. Looking back, it was good to be naive and not understand all of the risks, involved because I probably wouldn’t have done it if I had of known.
I think I was lucky to have a good group of consultants and a good builder to take me through. If you bump into a difficult consultant or builder it can be hard to see the property development through to the end.
With your small project in Greenslopes, what was your vision?
In the job I was in, I was doing a little bit of property development, and I always wanted to do a form of development. I grew up in Holland Park so I always had an understanding of the area and saw the transformation in the area. It was all I could afford at the time. I had a feeling that if I could build something at a median price there’d always be someone to rent it.
My advice would be to start small and do something you can actually afford rather than running around and trying to raise money to do something enormous.
When you’re looking for properties, do you automatically go for suburbs you know?
The worst property deals I did were the first ones I did. I bought three townhouses in Bundaberg. There might have been 28 on the block and 10 left. I thought they were so cheap they were $260k – you can barely build them for that, so I thought I’d give it a go. But I made a mistake by buying in an area I had no idea about.
It’s important to know the area and understand the amenities it has to offer. Don’t just jump in and buy it cause it’s cheap. That’s what brought me back to Greenslopes and Holland Park because I knew where the shops were, hospitals, bus stops etc. so I could sell it easier. The more comfortable you are with where you are investing, the easier it will be.
Speaking of investments, you were previously in shares and lost a fair bit of money, how did that happen?
Was it the market or naivety?
It was all of that. I was working in an investment bank and everyone was investing in shares between 2005 and 2007. That was the only vehicle I had with the people that I was working with to try and make money. I didn’t have enough details and I didn’t take the right advice. It was more that everyone was doing it, so why don’t I?
It was a valuable lesson in leverage, where I lost the most money in shares was in margin lines and being called on margin lines. I worked very hard to get some capital up in those years and pretty much started again from scratch just by buying the wrong shares and being leveraged, not understanding what a bad investment through a levered position can leave you with. Which goes the same for property.
It’s critical you know what you’re doing otherwise you will burn your equity. Don’t take advice from the wrong people. Stick to your knitting and what you’re good at.
Back on property, what’s the best deal you’ve done since then?
It’s hard to say a best one, but what has been consistent in my approach is that there’s not a lot of variation. I have a consistent model in doing in field LMR projects. I’ve had the same team and consultants, so we’ve had the same costs. But it comes down to how well you buy the land in the front end.
Most of them are broadly in an acceptable range of returns. They’re all very close but there’s been some that were more difficult to get through like the earlier ones.
Some of the earlier ones, the financing I had in place wasn’t ideal like trying to do a project on a line of credit rather than doing it through a construction facility and having to scramble at the end. Now setting the finance up at the start makes it the deals a lot easier and more stress-free to complete.
Probably the better ones are in the areas I know the best like Greenslopes. (Which goes back to his other point of knowing the area, the transport, and amenity and sticking to that.)
Something that’s different from you, to people our age (in their early thirties), is that you have a long-term view.
Where does that come from and why do you take that view?
A couple of things, my parents both love property and both have held property for a long period of time. Watching them, (mind you they did buy a couple of properties that ended up being developed sites) and just seeing the growth in those properties, within those cycles like a 20 to 30 year view, and the amount of revenue those properties gave them has given them far more revenue than their jobs.
Another was working as a fund manager, we were meeting developers all the time, they’d always be looking for the next best deal. For a lot of them, it’s only one bad deal and they lose it all. The pressure of selling out and then having a bunch of capital to reinvest, it’s clear in development there are times to put a lot of money into land, but there are times where it becomes more marginal and land is more expensive and I think if you’re constantly turning your capital and settling there’s a chance that you’ll feel the pressure to redeploy your capital into a bad time and cycle, and it only takes one bad deal to fall apart. So this turns into a bad cycle.
The model of holding everything is difficult because serving your income and finding the capital can be hard. But the hybrid model that we’re working towards now, I think is the way to go. Where if you have 10 apartments you will sell five and keep five, then those five will clear most of the debt and you’ve got the other five to produce an income which makes you look better to the bank for the next project.
Some of the wealthiest people you will meet are people who have been conservative. If you can get through three or four property cycles, it might be twenty years. So it’s all about delayed gratification.
What would be your key piece of advice for young investors or even people who maybe are 40 and never got into property?
So if we’re talking about investment and not developing property:
First, if you’re living in a suburb and you like it, you can see the cafes and schools are good, there’s no reason why you’d try and do something different like go on the other side of town and buy there. Most people have a feeling for suburbs, you sort of get a gut instinct. Invest in where you feel good and where you know.
Another thing – property is a people business it’s not just an asset that is going to appreciate after many years. When I did my Bundaberg deals, I didn’t know any property managers up there and I thought that the rent would come in and there would be no issues. But it was vacant for three or four weeks and my property manager wouldn’t call me or tell me how it was going.
If you feel comfortable buying the asset and have a team of good people working with you, when you marry those two things you should put yourself in a good position. Don’t have the idea of making a quick buck because the stamp duty and agency fees are too high for that.
I would never go in under the assumption you’re going to make a profit in the first year because you’re starting 6% behind, you need to hold it for at least the next 3 to 5 years.
Top three takeaway points:
- Know why you’re investing in property. It’s good finding something cheap but are you going for capital growth? Yield? Not just because it is cheap.
- It’s okay to make mistakes but learn from them. Doing a development on a line of credit like David touched on, isn’t a good idea but he learned from it.
- The importance of building and retaining an amazing team around you. There’s only so much you can do on your own, know what you’re a specialist at and where you need assistance. Having a great builder for David was the difference between going right through with the development or not.
See you next week!