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Stefan Angelini had the pleasure of sitting down with Mike Mortlock from MCG Quantity Surveyors on his Geared for Growth Podcast to talk about my Property Development Journey, Experiences and Learning. We talk about how I got started in property, why financial advisers normally HATE property, what returns you can expect from property development as well as the costs and steps in getting a project from an idea into a delivered product. If you're keen on property development, jump on my podcast or visit the Geared for Growth Podcast.
Stefan Angelini
Good day everyone it's your host Stefan Angelini for the investor Types podcast thanks for joining me this episode we're talking about property development and I was actually interviewed by Mike Mortlock on his Geared for Growth podcast to talk about my property development journey we talk about the risks it takes we talk about some of the pitfalls that people find themselves in and we talk about why I love it and why I love the strategy so if you're a property investor that likes to push the boundaries that likes to get active and happy to take on that extra risk this might be an episode for yourself what I want to remind you before we get into it is that this is just general information only it's not considered personal advice or financial advice if you want to think about doing a strategy like this go consult your own financial planner love to get your thoughts afterwards feel free to email me at [email protected] let's get into it
Mike Mortlock
Stefan Angelini thanks for joining me on Geared for Growth
Stefan Angelini
Mike thanks for having me mate love you to be here how are you
Mike Mortlock
Where is here were is here at the moment we're all sort of scattered across the different corners of the earth during the pandemic
Stefan Angelini
So believe it or not I got kicked out at home my wife said you are just too much stress being at home you've got computer screens everywhere and we've got a three month old at home
so she goes get your stuff and get out and go back to the office so as soon as we're allowed to I'm back in my office in Melbourne CBD which is it's actually refreshing i haven't got a three month old baby crying whenever I make a phone call
Mike Mortlock
takes the edge off the professionalism isn't it
Stefan Angelini
with your few kids do you know how that feels good
Mike Mortlock
occasionally I get a little sort of two-foot butler bringing in a banana bread or something which is lovely but yeah it's a mean opportune moments Stefan for anyone that hasn't come across you before who are you and what do you specializing
Stefan Angelini
alright so I'm a financial advisor I'm a financial advisor that loves property so I run a business named Angel Advisory but traditionally I'm also a Property Developer which means that I'm a property lover so we specialize in giving people development strategies that relate to their specific financial situation um but as well as building almost early retirement goals for people
so a lot of my clients are younger they're not necessarily at retirement age and we simply create ways that we can use property to to better their or to increase their wealth
Mike Mortlock
Awesome and we're going to dive right into that but beforehand what were the posters on the wall growing up
Stefan Angelini
posters on the wall when I was young I used to have time stables on the wall but as I got a little bit older and entered high school I realized I was very ocd so you look at my cupboard I had my m t-shirts were color coordinated that were hung up they were perfectly folded if they were folded my underwear drawer had my underwear folded in perfect squares and that meant there were no posters on the walls bare white only reason my wife has forced me to put paintings on the walls and some artwork which has changed my world
Mike Mortlock
your wife's not Marie Kondo is it
Stefan Angelini
no no she's an interior designer so she met me and typical story I'm a tight ass I love saving my money she loves spending her money she loves things on walls I don't like things on walls and as you know in a relationship you need a compromise
Mike Mortlock
opposites attract who said that pull out that was before all the drinking business
Stefan Angelini
yeah hundred percent I'm like no I posted on walls as kids but where I got my like for property is I used to drive past properties that my family had built um so my grandfather started buying
industrial assets back in the day and they built their own factories to work out of on there so they come from a tile background so they just hold tiles from the factories that they built and I was like that's amazing
Mike Mortlock
wow that's pretty cool
Stefan Angelini
Yeah um traditional Italians you know you come to Australia with one shoe um save some money and you buy some land
Mike Mortlock
Yeah there's some there's something to be said for the immigrant work ethic like there's a lot of people that have come to Australia and just built empires and you look at you know people like Gary Vaynerchuk for example he was an immigrant to the US and yeah it's a it's a it's an interesting sort of narrative but it sort of sort of range true what about um property for yourself how did you get started in property and what was the first investment
Stefan Angelini
uh so I built my first property at 19 so I was able to save pretty well and I worked fairly hard before I got to that point um but I didn't I didn't buy a house I bought a block of land direct from the developer in an area that I knew was fantastic so it was a new little estate that opened up just off a freeway in a suburb that I grew up in so I was able to because the developer was family I was able to pick it up at a good price before any agent costs were taken involved um and I was able to settle on that quickly for them so I bought that for 70,000 dollars held it until it settled uh built on it when I was able to and then ended up selling that a few years later so um that's how I got involved in my with my journey buying a land that was quite cheap and then building on it straight away and then selling it
Mike Mortlock
and having the times tables on the wall obviously you were pretty number focused so you knew exactly what the sort of outcome was going to happen before you pulled the trigger I'm guessing
Stefan Angelini
so a hundred percent the land was cheap which is always good compared to anything else in the area um knew the area knew the area like the back of my hand and just believed that in that location things can't go wrong there was already housing around it just like an old farm that got rezoned and I did a similar thing just recently bought um an old farm that had been re-zoned in a great location and then um bought the land and built on it and the value of the property the value of the land pretty much doubled within two years
Mike Mortlock
yeah wow yeah if you can sit on something and then have it re-zoned it's a potential gold mine isn't it
Stefan Angelini
Yeah we're not even re-zoned it's these some of these older towns you still got these people that sit on these 4,000 square meter lots that whether it might be an old farm or an old shed and it's in a great location but they've just never had anyone to come through and say all right I'm going to put a road through here and I'm gonna drop it up into 30 lots
Mike Mortlock
yeah
Stefan Angelini
that's what that's still happening out there
Mike Mortlock
yeah wow some untapped potential out there I I want to start the the structured a few times has come up on the podcast that financial advisors seem to have like a an allergy to property um to the point of anaphylaxis you know they've got to carry an epipen around if someone mentions property they've got to jam it into their heart and give them a shot of adrenaline or what have you but you're all in on property and you're a financial advisor uh you didn't get the memo what's going on
Stefan Angelini
a bit different cut from a different clock look I grew up in an Italian big Italian family we loved a few things we love coffee we love wine we love property um so
Mike Mortlock
you're talking you're speaking my language man
Stefan Angelini
so if I powered that carried that through to my professional journey and given my my personal experiences in property then I just I wouldn't be doing the right thing I just pushed directly to shares but you gotta understand how a financial advisor sits so a financial advisor's job is not is to both grow someone's wealth and put them in the right investments but we're very important we don't want to lose people's money therefore we look at things like diversification when it comes to property if you want to diversify you have to buy a different property in different states or different kinds of properties so commercial assets whereas if you look at investing into shares you can spend your money put your money around the world and it shows in in a situation recently like Covid 19 when that popped up we've got Australian equity portfolios of Australian property portfolios that have decreased dramatically but then international portfolios that have actually gone up over the time so they look at diversification but probably one thing which is where everyone goes to is financial advisors are typically rewarded based on the assets that they manage
Mike Mortlock
Right
Stefan Angelini
so if you've got a million dollars with the financial advisor and they invest it all into the share market they might take a percentage of that asset which means why would they push you into property
Mike Mortlock
yeah cause what are they getting there at best maybe a kickback if they're using an external provider to flog them something off the plan perhaps
Stefan Angelini
kickbacks are gone because there's too much of that cowboy stuff back in the day um as an advisor now you can't accept any kind of feedback
Mike Mortlock
right even if it's disclosed to the client
Stefan Angelini
even if it's disclosed so the only feedback we're allowed is from insurance policies so if I see up the life insurance policy and that's why a lot of advisors don't charge for it because every insurance company will pay 66 percent upfront for insurance policy and 22 ongoing it's like the maintenance it's almost like a mortgage broker would get
Mike Mortlock
right yeah
Stefan Angelini
um for all the work they do financial advisors now are the same so if I was to refer someone to yourself to to get a depreciation schedule on a new property I couldn't accept something in return from you
Mike Mortlock
Yeah
Stefan Angelini
cause royal commission 2019 they just said not this is all stopping now
Mike Mortlock
well the good news is I wouldn't have given you anything anyway mate but um bottle of wine coming your way for sure um
Stefan Angelini
probably with that you've got to understand so people invest in what they're good at especially if you're an advisor so you never expect a buyer's advocate who focus on property to tell someone to buy shares
Mike Mortlock
Yeah
Stefan Angelini
financial advisors focus on managed funds stock markets and things like that so therefore they buys on it as well I can't tell people what property to buy because I don't have enough experience in it and that's that's probably another reason probably one of the biggest ones you know if you want to get if you want to advise people on what property to buy you better be bloody good at what you do
Mike Mortlock
Yeah absolutely and I wonder if that's the next royal commission we're going to see is is into some of the buyers advocates
Stefan Angelini
how are you gonna become and advisor
Mike Mortlock
well I I don't know for sure um back in the day I did a real estate uh license that was kind of like a year's worth of work I think you can get it done sort of mostly in a weekend these days but I don't I don't think there's a huge barrier to entry that's for sure
Stefan Angelini
right so I'm a massive advocate for buy for buyers advocates um because I'm like if you don't have the time and the time and the effort to put into it all the knowledge to find a good property go use someone that is going to that does it for that basically puts their blood into it to find you the best property because you know it's so easy to find a data of a property
Mike Mortlock
absolutely and I think most people do find a that and that's why they don't end up getting a second or a third one and yeah if there's if there's one sort of industry that is featured the most on this podcast it's probably the buyer's agents um because they're they're who investors often want to speak to but with people like yourself um as a financial planner what's your bread and butter style service like we know that advisors help fix up our super like you go to an advisor you go how many super funds you got I don't know 13 14 you fix that sort of stuff um insurances you mentioned we get a little graph that tells us what we're going to have in retirement then we go oh cross we better do something yeah what else is there
Stefan Angelini
so look a lot of my clients come to me um if they're approaching that retirement age where they can retire they typically don't want to so they're still looking looking at ways to grow their wealth so I'm typically on the wealth creation side of things one of the biggest strategies I work on is how do we retire early how do we finish up work at 55 the government's not going to let you tax your super money until you're 65 so super might not matter that much what assets do we need to last you that 10 15 years before you can actually get access to your super and that's what we might look at well what what's our property strategy what's our direct equity strategy how much are you earning so how much you earn and save is direct correlation so how much you can have at the end of the day and what in fact
Mike Mortlock
yeah
Stefan Angelini
isn't it it's a correlation with that but um a lot of my clients also come to me where they've got development properties or a property they want to develop and they just don't have the expertise to cover off everything that's involved in a property or developing a property so I'm more sit on the finance structuring tax strategy side um where I can work with someone to say alright you've done all your numbers now how does it work out from an after-tax perspective what finding strategy are you going to use and how much cash do you need to develop to do what you want to do
Mike Mortlock
yeah no that's it's not the fun stuff though is it like I mean a financial planner is an expert in the strategy and the execution of the strategy but the fun stuff is alright let's start building you know let's buy this asset and all that sort of stuff but often people um don't have a clear idea about what they're setting out to achieve and really the acquisitions and the developments should be sort of subservient to the overall plan rather than vice versa right
Stefan Angelini
yeah that's right if I want to do the fun stuff I want to become a financial advisor that's for sure I've got to read um I was working for a client just the other day and I was reading through tax legislation and tax reports and I turned to my wife who's an interior designer and I go I'm a bit of a gay guy she looked this 50-page report I had was just black writing she goes don't hate I know how you do it
Mike Mortlock
yeah I know it is sad and uh it's amazing we got we both got married um so yeah my biggest goal is to not screw that up let's talk about your property uh journey so after you purchase the property at 19 and and focusing sort of before you got into the development side because I want to pull that apart separately what what did you do with property after that first acquisition
Stefan Angelini
so I walked walked away from that property quite profitable and with a bit of money so I I went a little bit into the share market so international equities and Australian equities but then actually believe it or not I bought an apartment off the plan
Mike Mortlock
Right
Stefan Angelini
yeap it's not something
Mike Mortlock
normally we're uh that's where we sort of go yeah cut Stefan he's out he doesn't get it
Stefan Angelini
in life you learn from your mistakes so I bought it at a time where actually apartments had done quite well because apartments weren't huge in Melbourne uh uh people I'd known had bought a really good apartment they bought it for 800 grand it had been revalued four years later for one point four yeah it's a beautiful place and I'll go this place it's beautiful great good builder got city views great location 50 meter walk from the beach you can't go wrong I settled the bank goes we need another 60 grand like okay this is not fun we need more money um and then I moved into it and I'm like oh wow probably this isn't a great great idea having a really big debt moving into a property that I can't afford so I've got a house mate to try and help me with the repayment
eventually I moved out and sold it and while depreciation was great on the property the costs to hold it were too high way too high
Mike Mortlock
Yeah
Stefan Angelini
so anyway after about four years of being in there I ended up selling that and I broke even
not even I think I needed a little money
Mike Mortlock
Ouch
Stefan Angelini
I got once it's built I looked around I'm like what do you mean there's other places exactly like this going up around the corner so hey look that's my next that was my next property journey and while I was in that I realized how much I stuffed up and I actually went back to building and developing yeah I had it until I could get rid of it and then go helpful about what I wanted to do
Mike Mortlock
and and so you you had a bit of schooling with your your family in development how did how did you get started because I'm I'm interested in the notion that property investors sort of get to a point where they want to become developers it seems like that natural next aspirational step you know like I've got a couple of investments now I want to build a duplex or do a few townhouses I wanna stand back and go look what I created and you know sort of marvel in my own magnificence that's probably being a little bit silly but there's definitely there's definitely this drive for property investors a lot of them to go into development so how did you do that and do that successfully how did you start
Stefan Angelini
um so I learnt a lot from building that first house from what's required from a planning perspective to get the subdivision through but basically my brother and my father were already doing some developments so they come to me and said why don't you get involved with us and I go you know what that's a great idea so I've actually got a brother who's a builder and my father's been around doing things for a long time so I jumped it jumped on board with them now before getting involved I thought well this is going to be easy you know if I'm gonna develop a property buy a site understand how much it's going to cost to build go after town planning for actual um for a permit and I'll be able to build it and sell it no worries I'll be out of it in a year and a half but I realized quite quickly that's not the case so but I was lucky I had those people with me to guide me through it to say that no well you think developing is like this and it's nice and simple you've got to negotiate with council you've got to pay people before you actually start construction and you've got to are you going to sell these assets
Mike Mortlock
can you can you yeah I mean I don't want to sort of smash anyone's hopes and dreams but
can you run us through some of the the revelations that you that you had why why it wasn't that simple you you talked about um the consultant's pre-construction um maybe starting with that who who are we talking about and what are some of the costs before you start turning clods over
Stefan Angelini
yeah well you know you've got you've got costs for an architect if you don't want to pay
for an architect you pay for a draftsman you don't pay for a draftsman you try and design them yourself and go to council and say hey councillors um will you please accept my designs um you've got to pay for if you've got a bigger site you need to pay for account planning consultant who's actually going to draft the application for you um every site if you're going to the subdivision needs a land surveyor to tell you whether or not you can actually chop the site up you need to pay for lawyers to draft agreements need to pay for an account and to set up new structures so they're just some of the costs of some of the pre-development costs for consultants before you actually get involved and as you start becoming quite bigger the cost of consultants becomes even larger so you've got to consider engineers now every application actually requires a storm water management plan we've got a site that we just had to get a an aboriginal heritage report wow that cost us another five and a half grand storm water management report costs us a lot more money uh traffic engineers is another one um so when you when you're building a few you need to actually say that well if you're going to have all these cars in your property how's that going to affect the traffic in the area yeah and you need these reports before you've lodged a council to get your permit
Mike Mortlock
so so typically what sort of costs would be would we be talking about like I mean if you're doing three town houses you might not necessarily need um you know an aboriginal sort of
artifact survey or traffic management plan but if we're kicking our developing career off are we talking you know with the town planners and the consultants we could be in the tens of thousands of dollars before beginning
Stefan Angelini
easy easy so you don't always need to track so one of the people you probably don't need all the time is town planner if it's a site because you can go and consult with council yourself
Mike Mortlock
yeah
Stefan Angelini
so this is what I've got how do you feel about it is there a way we can work together on this let me know what you want me to change you need to pay for that draftsman and depending on how complex the plans are that will cost money um and the aboriginal heritage report is a must and normally the traffic management report is a must now the stormwater management report is a must so definitely ten thousands uh and I typically tell my clients if it's gonna be a small development allow for forty to fifty thousand dollars just to get the plans approved because even lodging with council is going to cost you money
Mike Mortlock
Yeah
Stefan Angelini
that's before we get into the whole getting ready for construction part
Mike Mortlock
yeah okay alright so you you certainly are coming across as the development fund police
so let's um let's get let's get past the consultants and and let's say we budgeted for that
we're going we're going to into the construction phase we've got let's say um here's another annoying consultant you might have to pay for a quantity surveyor to do an estimate but
let's say you you you know you've got a good builder that you work with and and you know you think that um they're going to be able to get a good price and you might chuck it or chuck the plans around to a couple of other people what are some of the things that we need to consider when we starting that construction phase
Stefan Angelini
um so starting the construction phase what a lot of people where a lot of people trip up is they choose the cheapest builder now with the cheapest build there's a few issues that builder normally might stuff up um which means you've got to pay for a new builder to come in to fix it or that builder might go bankrupt and that's what we've been seeing a lot in the last few years so these builders that have come in for a cheap price has gone belly up and now the developer has to go and pay for a new build up but when it comes to getting ready for that construction part well you need to consider a few things like you need to get working drawings for the construction you get more detailed engineering reports or engineering drawings um so that the builder knows exactly how they're going to quote up the job um you know they might have to pay for quantity surveyor to know how much the construction might be um but even when it comes to finance you need to a lot of the times you need to pay an application fee so so finance applications that will say that well if you want if you want to use us you need to pay for a quantity surveyor you need to pay for legal costs and you need to pay for um the actual obtaining of the finance which is called a line for your an application fee
Mike Mortlock
Yeah
Stefan Angelini
so they're just some of the some of the extra cash requirements that's going to take you before you even get your money to develop to construct it
Mike Mortlock
and the the you raise a really good point about the the builders going bankrupt it's something that happens a lot and and even sort of structurally they might sort of decide to go bankrupt and then appear in a different entity and getting your money back or getting any money back is is near impossible plus if you're getting a new builder it's not like if one builder did 30% then you're just paying 70% on what's left that builder has to take on the liability of the works that the previous one has done so the costs are not they're not going to add up to a 100% you're going to be way over that right that's something that people don't realize
Stefan Angelini
yeah that's right so as often times if you go and buy a cheap car that cheap car might break down and you're going to pay even more to get it fixed or brought up to scratch and that's right the builder has to go back and look at what what what's been done before and say well am I willing to take this on for the interesting profit margin a lot of times it's known and that's where people like you know in a development construction cost you can almost say you can make that quite fixed because you can lock in fixed price contract
Mike Mortlock
Yeah
Stefan Angelini
unless you hit rock which is that sucks
Mike Mortlock
Yeah
Stefan Angelini
or if the builder goes bankrupt and that's the they're the only times the construction costs actually really blow out
Mike Mortlock
yeah yeah and and and certainly you can you can assess the variations yourself and make sure that that's all that's all reasonable with with some experience obviously and or having a brother who's a builder you can say get out of town we're not paying you for this I'm sure that sure that comes up so um now we get to the point where we've got to sell whatever it is let's assume that we're we're doing a residential development and we've got say a couple of townhouses I mean that sort of seems pretty simple we've got it we've got it built let's say we have to we want to sell pre-construction or during construction post construction what are the different new ones there and any difficulties we can run into throughout the process
Stefan Angelini
yeah so pre-selling uh people often don't want to do it because you take a hit on your profit margins um for instance I had a site we had four townhouses we pre-sold three come settlement time which was 12 months later we could have made say an extra 300 grand
if we kept them and sold them at the end of the project then the next site we went on to be like oh no we'll just build four townhouses and we'll hold on to them and sell them at the end turns out the market had turned we hadn't locked in our risk factors and we couldn't really sell them that quickly
Mike Mortlock
Right
Stefan Angelini
So sometimes you're left holding the ball some might say um but when it comes for doing your actual strategy for pre-sales you need to factor in what sort of a sales agent am I gonna use am I gonna to use a advise a seller's agent or or a do a selling marketing campaign where someone might take say 30 grand per town house or 30 grand per property or am I just going to go to the local real estate agent sell them through them who might take two percent or three percent so you need to factor in different things into your strategy and normally with pre-even pre-sales you need to pay the agent who sells it up front you need to pay for marketing costs same thing um whereas at the end of construction you can just go through a normal marketing campaign
Mike Mortlock
right yeah
Stefan Angelini
pay for furniture get it in there get your new photos done make it look pretty and then just run through the normal selling campaign the only issue is is that if you've got your town houses that are coming up at the end of a project then there's no um as I say that there's no immediate demand because there's four it's almost like
Mike Mortlock
Yeah
Stefan Angelini
you know the fear of missing out
Mike Mortlock
there's no scarcity because yeah you know we've got four of these you know yeah
Stefan Angelini
Yeah so there's no there's no immediate demand there's no immediate want for someone to go oh I don't need to get this one I can just get the next one
Mike Mortlock
yeah
Stefan Angelini
so they're the kind of thing I need to think about
Mike Mortlock
I met the guy that started um continue tours and he um he got started basically he wanted to travel around Europe for free and he he put some posters up in some boarding houses or you know backpackers and he didn't really get any nibbles until he put one up that said only two seats left and he wrote a book titled only two seats left so like that scarcity thing is is really really important and that's part of the reason why some um apartments sort of struggle from a capital growth point of view right because there's so many of them that are so
similar that it can be a bit of a problem
Stefan Angelini
and similar ones might pop up around the corner
Mike Mortlock
yeah yeah exactly so um you you touched on an interesting point and that is you had two examples where the market was doing well and then the market turned how do you sort of factor in that sort of risk given the time frame of the development and typically how long would it take to build three town houses and and really what can the market do in that amount of time
Stefan Angelini
oh what you know over the last few years if we're recording this in May 2020 we know that in the last three months the market has taken a dip because of Coronavirus um in the last 18 months it took a dip because people just didn't know what was going to happen in the property market so the markets change oh that was because of finance that's right because of the royal commission
Mike Mortlock
yeap
Stefan Angelini
the market changes so quickly and while you have a strategy I guess when it comes to developing you have to be nimble but most importantly you've got to be willing to build stock and and be able to hold it at the end of the project in case things do go wrong otherwise if you're forced to sell you're going to be forced to sell at a loss so why not give up in a location that
you love and develop stock that you would be willing to keep for the next 20 years
Mike Mortlock
how many sort of beginner developers for one of a better term would would have the capacity to hold an asset if it wasn't a good time to sell do you think most developers when they're starting out they wouldn't necessarily have the cash available to hold on to something if the market tanked on them
Stefan Angelini
you'd hope so um that you'd hope so but a lot a lot don't and this is where you see the horror stories come up that you know I lost money on my development and a lot of people do lose money because it's stressful it's hard there's so many changing gears within it that could lose money especially because you got that that time frame that you want to meet um having the cash is so important but a lot of the times even now finance they want to see an exit strategy or they want to make sure that you can hold them at the end of the project the only issue is that people might encounter the refinance costs if you have to go through that because what's happened at the moment is it's not cheap to get finance especially if you're a business owner
Mike Mortlock
yeah
Stefan Angelini
or you're trying to develop if you're a developer getting getting access to residential property finance is quite cheap development and construction finance is a different kettle of fish
Mike Mortlock
yeah yeah and it seems like the appetite has never really come back post GFC even for development finance that was kind of like the gold rush back then but that's quite some time ago and it's still sort of a competitive market right
Stefan Angelini
Yeah it's getting yeah it's getting it's getting harder and harder and harder and banks requirements are tightening up and they're saying well yeah we know you make good money and back in the day back in 2008 we would have given you the money and I talked to my older clients about this all the time they go why would the bank give me money tell them I own this much money and it's all fine yeah I know but banks talk to each other now they know you've got 20 credit cards and they know you've got four properties over there
Mike Mortlock
that's right
Stefan Angelini
but they want you because you've got too much debt because you can't show them that you're going to pay the debt back
Mike Mortlock
so Stefan you've you've given us some very good insights into what can go wrong with property investing or or at least things that people need to consider but let's let's finish this sort of development module on a positive you can make money and serious money right we've all seen sort of timmy gerner in the news giving people crap about you know smashed avocado and stuff and that bloke looks absolutely minted so what can what can people expect if if they are uh successful in investing in property
Stefan Angelini
so well you only go into a development if you can see some sort of a profit in it I know myself I reinvest all my properties so I'm not looking to pull money out of it I want to build up some sort of a legacy portfolio and probably same with get it that's why it just keeps turning along when it comes to actually what numbers do you want to look at in order for the development to work so there's two main things you need to look at so the return on your money and the actual profit on the project so when you look at the profit project you want to look at well so if if all my costs add up to two million dollars and I walk away with 2.5 million dollars I've made a 500,000 gain on my 2 million dollars spent therefore I've made 25%
Mike Mortlock
yeap
Stefan Angelini
you typically want to look at maybe anywhere between at least a fifteen to twenty percent
profit on a project then there realize to uh what's the return on my cash the return on my cash is well how much finance can I use and how much debt can I use so I don't have to use my own money
Mike Mortlock
yeap
Stefan Angelini
that you want to target because if you can get up a property or dead up a development you can you want to target a return of somewhere between 50 and 80% sometimes higher we like to target a 100% return if we can but you've got to think about it over a time frame so while on the entire project that might be the the goal of the return you've got to if you're working out on a per annum basis so if you've got if you're earning if you want to get an 80% return on your money over a two year period that's 40% annum
Mike Mortlock
Right
Stefan Angelini
that's what a lot of people typically don't don't think about when they go to develop them they might think I'm gonna make 30% 30% on this development it's going to be great all right but how much money are you making each year
Mike Mortlock
and that's where this this young Stefan with his times tables on the wall and of course your your financial planning degree has a little bit of an advantage over the average developer right because that's the way your brain is trained
Stefan Angelini
yeah look at the numbers um but understand the strategy the the probably the biggest thing is well you might do your numbers do your numbers understanding your strategy and your sales strategy and then pop in what is your after tax return and after GST return
Mike Mortlock
Right
Stefan Angelini
cause a lot of people don't realize is when they sell a property and they develop it and they sell it they're running a business so they need to pay GST on the sale they can claim GST along the way which is great um but they also need to pay taxes at the end of the projects unless your unless you've got a structure set up where you can reinvest those profits you don't have to pay taxes but if you're just developing through your own name or through a family trust and you want to claim a 50% capital gains tax exemption then you're going to be paying tax so take that into consideration because so many people forget about their after tax return that's what really matters
Mike Mortlock
Yeah
Stefan Angelini
because that's something you're going to be left
Mike Mortlock
yeah it's all very well to sort of stand back and say I built that but if your return was five percent then you probably could have done it with a lot less stress and gray hairs and legal disputes
Stefan Angelini
you want to say I built that and I made money off that
Mike Mortlock
yeah that'll be even better now Stefan you've got a fantastic initiative called Investor Types a snappy little podcast I must say I love the little graphic where the ball sort of charges in and head butts things that's uh that's very sharp um you've had some amazing guest on it as well
what was sort of the motivation for that and and what have you learned along the way with some of the gurus you've had
Stefan Angelini
first off trying to organize people to do your own graphics is not my forte I mean there's more here than the development um so Investor Type of podcast it's essentially what my main role is helping people set up their investment portfolios to understand what investment is right for them and when I come across them I normally look at their superannuation I go why is your super there a lot of people say I don't know it's just that's where it is and then I look at their portfolio and everyone's got those few little stocks that they might have invested into back in the day whether it's a mining company or whether it's some sort of a tech startup they wanted to get into that they thought they were going to make money on
Mike Mortlock
and I got a bit too close to home I've got to say
Stefan Angelini
yeah that's right everyone everyone I've got them everyone is got them and why do you have that and they go because my mate Joe said it was going to be a good investment and they were about to discover some sort of oil oil refinery and it was going to make heaps of money but it never made any money I'm like okay cool it's not invested didn't do it right yeah um or you there's a lot of people that are bandwagon supporters out there so you're a rugby fan when Melbourne Storms winning everyone in Melbourne wanted to be a Melbourne supporter jump on the storm bandwagon then they got born for the salary cap preaching premiership gone uh if you're a Paramount supporter I'm sorry you didn't get successes from breaching salary caps um but people jump on the bandwagon and that's what happens in investing so then what bitcoin driving up at the end of 2017 everyone started buying bitcoin and then what was like what happened it fell from grace it fell from the sky people lost a lot of money but now they're stuck there
Mike Mortlock
Yeap
Stefan Angelini
you know in the property environment back in 2008 to 2010 people buying into mining towns everyone was making money so there was a rush towards mining towns but then everyone said hold on what do you mean people actually don't want to live here or can't live here prices dropped but a lot of people done it though things happen with share markets so the podcast is simply about educating people on a certain type of investment allowing them to learn from experts and see how that's positioned for their personal portfolio whether it's the capital growth whether it's for income what are they trying to get out of it and that's essentially what it is so we're interviewing heaps of smart people and we're getting we're getting you on the podcast which I'm excited about
Mike Mortlock
heaps the smart people up until me and I'll ruin the I'll ruin the average for you but um I appreciate the invitation nonetheless
Stefan Angelini
running a business and a podcast is a type of investment um I see there's typically four ways that people invest their money they invest money into themselves and that's to run a business and start a business because as you know running a business takes your own money before you can't buy and buy heaps of properties and shares they might invest into property
and that goes into property development commercial properties residential property they might go into share markets in Australia and around the world that is also fixed income as well or they might go into alternatives so the bitcoin scenario so if we can educate people on those all different types of invested investments but they where they invest and speak to the gurus the guns the people that do this on a day-to-day basis then hopefully at least we can educate people before they take that next step and hopefully keep people from making the wrong move
Mike Mortlock
yeah I love it and congratulations on the work um so far I think it's a it's a great show people should check it out once again it's called Investor Types now changing direction for a second your typical investor owns one property as we know from the ATO stats and I assume a lot of the listeners or my listeners are in the same boat can you give us some advice on the best way for people to grow their portfolio i.e their net wealth
Stefan Angelini
right so saying the more you save the more you have if you're able to save money you're able to save money that's step number one uh you need to be able to earn money save money so you can make that next investment it's as simple as that
Mike Mortlock
all the best advice I've found is is remarkably simple it's not the sort of stuff that sells books
or gets us you know some nice little click click bait you know Stefan Angelini says you've got to buy bitcoin and you've got to leverage your mortgage but it's that sort of stuff I'm like oh I'm clicking on that that sounds interesting save money
Stefan Angelini
that's what you're saying old school Italian method I went to my grandmother the other day and she still she sees coffee on sale and she buys 30 tins of coffee why don't you do that she goes I'll take five dollars per tin okay
Mike Mortlock
the more the more you buy the more you save
Stefan Angelini
Yeah so the old school save more uh you're able to put yourself in a position to buy the next place if you want to really ramp your wealth up you can always use other people's money to invest or combine your funds with other people so when you've got a a lot of people purchasing gives you more purchasing power so you can if you've got 10 friends that all want to do the same thing you've all got 50 grand each all of a sudden you've got 500 thousand dollars to play with
Mike Mortlock
Yeah
Stefan Angelini
you need someone to manage those relationships you need to make sure that everyone's in it for the same reason and doesn't need access to the cash it's more but there is that's a that's a way to sort of fast-track it and I guess that's even what I do with my own developments is i have other people's money working alongside mine um but probably the best thing is just know yourself and know your strategy so if you're an ambitious person and you want to get to that next level you're probably trying to drive your income more and more and more therefore you can take on riskier strategies but if you are just a someone that's just happy to to cruise through make an income you're very you care about your family then take your time with your investment don't try and go in too far over your head don't try to dead up too much because essentially what eventually might happen is you might have to sell an asset because you need access to the cash
Mike Mortlock
yeah and that's that's never a good thing is to be forced to sell because the timing might be wrong the market might be terrible but if you're in that position where you're backed into a corner that that's a really important thing to avoid right having the cash buffer and I think maybe the the pandemic is going to have a lot of investors rethinking their cash buffer right
Stefan Angelini
that's right and I see so many people and that's where it fails when you don't have that cash buffer or that ability to write out a scenario or you need access to cash and this is some of the problems with property if you need access to the money you cannot sell a bathroom
Mike Mortlock
Yeah
Stefan Angelini
I wish you could and people build up share portfolios on the side because you can sell a few thousand dollars worth of shares if you have to not locking too much of a loss but if you've got to sell a property you're going to sell the whole thing
Mike Mortlock
Yes
Stefan Angelini
it's not in a depressed market I'm sorry you're stuck yeah so that's just the way it is
Mike Mortlock
in your experience um as a financial advisor is there anything that you see investors just getting wrong all the time that makes you want to sort of smash your forehead on the desk
Stefan Angelini
yeah people invest just because they've been told that they have to invest
Mike Mortlock
Yeah
Stefan Angelini
they buy a property and then you put you probably would have seen it people go on looking for property then alright I'm ready to buy property I'm going to go and get one they lose out of three four five six auctions or or three four five six offers and then they just buy up a property they don't like they've overspent for it and there's actually not much profit to be made or they've over leveraged themselves and they've gone too hard too quick and not considered what's going to happen in the next five years yeah and then that's where they have to lock in losses or they have to sell things or they've got to ask people for money in order to make it out at the end so it all comes down to no know your strategy have the cash ready but be patient I mean in 2018 property prices were through the roof construction costs were edging up higher and higher and higher I think I knocked back about hundred development opportunities because the feasibilities just didn't stack up
Mike Mortlock
wow you're going to be patient be
Stefan Angelini
patient that's right wait for something good to pop up because you're never going to make more money if you buy a site well that's how you're going to make your best amount of money why well cheap i was talking to a really real estate developer and they started developing in the 90s they do greenland subdivisions and someone turned to them and said hey where do you get your property knowledge from how do you know what property to buy he goes I know what property to buy when it's cheap
Mike Mortlock
you're right
Stefan Angelini
you know fair enough so buy something cheap and make sure you can last through the journey with it and that's taken into consideration your future goals what do you need your money for whether it's having a kid expanding your family going on holidays do you need that money or can it sit in that asset that you've got
Mike Mortlock
Yeah well I mean I I personally need one of these wood grain clocks and they look expensive so at least I've got you know I've got a carrot to chase
Stefan Angelini
battery operated
Mike Mortlock
battery operated right um for people that are chasing an investment are there any sort of typical types of properties that you would you would go for as an investment philosophy so putting the putting the development stuff to the to the side are you a you know house and land sort of guy you're a blue chip in the city is it more about scarcity are you an off the plan guy I know you've got form but I presume you've you you've maybe changed angles
Stefan Angelini
mate thanks for embarrassing me again I don't know that moment too much but hey you learned from the past um in terms of what property I like to buy like I like to buy property in areas that I know I'm a big fan of pounding the pavement when it goes to buying the property step one is know your strategy so income versus growth is it an income play or is it a growth play and it's an income play I've been looking at things like grooming houses lately
Mike Mortlock
Yes
Stefan Angelini
drop great amount of income they're doing really well for us from a growth perspective sort of small townhouse developments are out of it because construction costs are too high
and it takes too long to get permits through whereas commercial developments like child care centers and even factories are still going quite well
Mike Mortlock
Yeah
Stefan Angelini
so that's the growth plate but still it comes back to know the area you're buying in that's that's what I see is the biggest thing if you know in in where you live you could probably look at five streets away and you know you might not want to buy in that street
Mike Mortlock
Yeah
Stefan Angelini
so knowing a specific locale and a specific area is so important when buying a property that's the only really advice I can give out other than that go speak to a buyer's advocate who will go and find you the right property for you
Mike Mortlock
good one good one I like that now Stefan if people are wanting to get in touch with you to have a chat what's the best way to do that
Stefan Angelini
reach out to me on Linkedin so Stefan Angelini on Linkedin I'm quite active there I've got Instagram Stefan Angelini
Mike Mortlock
Nice and easy now we've uh maybe touched on this already but just to finish the show
off if there's one piece of advice that you could impart to property investors what would that be
Stefan Angelini
I'm a planner so I'm going to stick to the plan in the strategy I haven't planned these
Mike Mortlock
Underpants neatly just to finish
Stefan Angelini
that one and find them if you can if you get the chance
Mike Mortlock
oh geez
Stefan Angelini
have a plan have a strategy in mind the only way you really learn in life I believe is if you fail
from those failings you become so much better so if you're if you're ambitious and you're willing to fail but you know that even if you do fail your strategy and your plan can just continue on you can learn get better from it then you're going to just I think thrive throughout life plan strategize be happy with what you're going to do
Mike Mortlock
the financial planner says have a plan who who've never seen that coming
Stefan Angelini
Who have thought
Mike Mortlock
there's our click-bait article it's um in all in all seriousness you've imparted some absolute gold today and and thanks for your your time and your patience and your good humor it's been a lot of fun and I'm sure people will get a lot out of it thanks so thanks very much for joining me
Stefan Angelini
mate really appreciate you having me and and putting up with my pretty much
Mike Mortlock
Cheers
Stefan Angelini
alright take care bye mate