Brett Warren is the only property expert we know that can do a handstand push up. That is impressive enough but as chief property strategist at Metropole Brisbane, he is an expert in investment property selection and portfolio building.
Mike Mortlock: Welcome to Geared for Growth, I’m your host Mike Mortlock. Today we’re chatting with Brett Warren who can do an inverted handstand pushup. Now I think that’s probably impressive enough, but to add to his resume, he’s chief property strategist at Metropole Brisbane. We have a great chat about the Brisbane property market, and we have a look at the key drivers that were pushing the previous boom in Brisbane and see how close we are to the next boom. We also have a chat about property selection, and a few strategies that Brett uses to help his clients. Here’s Brett. Brett Warren, welcome to Geared for Growth.
Brett Warren: Thank you very much, good to be here Mike.
Mike Mortlock: Awesome. Let’s kick off with who you actually are, and what you specialise in.
Brett Warren: Sure, so I’m the property strategist at Metropole in Brisbane. I specialise in property within the 10 or 12K ring. I’ve been buying property in Brisbane for over a decade, and we’ve probably bought more property than anyone on Brisbane over that time. We like to think of ourselves as Brisbane’s specialists.
Mike Mortlock: Awesome. We’re definitely going to get into the Brisbane market and a bit into your background as well. So the punters at home can get to know some of your darker secrets, what posters were on the bedroom wall as a youngster?
Brett Warren: I was actually a AFL football tragic back in the day. I dreamt of playing AFL, so I had a lot of Gary Ablett up on my wall.
Mike Mortlock: Excellent. I’m a big Gary Ablett fan myself, or was. That was version 1.0, I heard he’s cloned himself and even that one’s retiring.
Brett Warren: Yeah, right. That sounds about right, yeah.
Mike Mortlock: So not a Brisbane Lions fan?
Brett Warren: No. I moved to Brisbane probably about 15 years ago and was kind of over the whole AFL thing by then, and fell in love with the Broncos, so now I’m a rugby league tragic. One extreme to the other.
Mike Mortlock: There you go. How did you get started in property, and what was your first investment Brett?
Brett Warren: It’s funny, I always had a passion for property at a young age, and I don’t know whether it was friends or family I hung around with that invested in property, but my first investment was a small apartment in the suburbs, probably about 20 or 30Ks from the city of Perth. Michael Yardney always says you get your first property right, because it inflates your confidence and you think you’re going in the right direction. I got that right and right in front of the mining boom, and did really, really well out of it, but then the next seven years it did nothing, because it didn’t have the fundamentals we look for today.
Mike Mortlock: Right. It’s not an uncommon story for people do get it right with the mining boom. They get a big uptick and then what happens after that? It either stays flat for maybe in perpetuity or can drop very heavily, so we’re talking down Mandurah Way, that got a little bit of a hiding in the four corners episode recently.
Brett Warren: Yeah, no, not quite. Probably about halfway between Perth and Mandurah, so a bit at the halfway point.
Mike Mortlock: Okay. Do you still hold that investment?
Brett Warren: No, definitely not. It’s funny, because for a period of time there, you do take it quite personally and you do get into denial and think this performed well, it will happen again. You don’t want to admit you’ve got it wrong, but sometimes you have to walk away from these things, especially when there’s other opportunities that are continually performing well.
Mike Mortlock: Yeah, and so in looking at other markets, obviously we’ll get to Brisbane, but you’ve been active obviously in WA. Where else have you been in actively investing?
Brett Warren: I try to invest interstate as well. There’s, you know, not Sydney as yet, I missed the boat there unfortunately, but Melbourne, getting into those kinds of pockets, and just from our relationships with the Metropole in Sydney and Melbourne as well, we get to hear a fair bit about those markets too.
Mike Mortlock: You’ve been, I guess, involved in property for nearly two decades, you’ve got hundreds of millions of dollars worth of property transactions that have gone through you. What have you learned in the time that you’ve been in property?
Brett Warren: It’s quite a journey, nothing ever surprises you, I’ll tell you that. We’ve learned a lot, especially about the right places to invest. You learn your lessons from people who are successful and try and add upon those lessons as well, to create better performing assets and things like that.
Mike Mortlock: Awesome, that’s what we’re all about. I wanted to get stuck into an article that you wrote recently where you were talking about Brisbane’s relatively subdued price growth over the last five years. I think we were looking at round about 20% or 21% growth in Brisbane, compared to say 70 in Sydney and 40 in Melbourne. Why has Brisbane been underperforming over the last five or so years?
Brett Warren: It’s the million dollar question. I couldn’t find a lot of research on it, so I ended up just going and doing my own research Mike. What I found was quite … I’m a bit of a numbers man, so the numbers told me a story. Obviously everyone had the GFC and while the other states kind of recovered and really blossomed from that period, unfortunately Brisbane had the floods and then we had the mining downturn.
People stopped moving to Brisbane, our population stopped increasing substantially, jobs growth went backwards and wages growth also went backwards. There was less people coming to Brisbane, probably about half as many. Immigration was cut by about a half, and that reduces demand for housing. There’s just not the demand for the properties like you’re seeing in the southern states that really make things outperform.
Mike Mortlock: How did the mining downturn affect Brisbane compared to say Sydney. I’m guessing that Sydney has, I suppose, a little bit more of a diversified labour market. It maybe didn’t make the same dent that it did in Brisbane, is that fair to say?
Brett Warren: A 100%. You’re completely right. There’s dimensions to the economy there. The other thing that people don’t realise, although the mining boom did happen in the northern parts of Queensland, a lot of the head offices for the mining companies and huge GMs and management and things like that, were actually in Brisbane. That’s a significant portion of our economy taken out as well.
Mike Mortlock: I suppose with the mines as well, and this is something that … I mean I don’t want to bash mining too much, but they’re quite happy to completely shut a site down and make everyone redundant and just sit on the resources and wait for the fundamentals to turn around before they ramp up again. It is a pretty ruthless game, isn’t it?
Brett Warren: Absolutely. That’s a good lesson. You mentioned lessons learned before, you certainly … you don’t want to be exposed to those kinds of regions where mining can just shut down at a drop of a hat, and your investment can not also go with it potentially, you know?
Mike Mortlock: Yeah, of course. What about tourism in Brisbane, what’s been happening with tourism, and what do you see for the next little while, and how important is tourism to Queensland and Brisbane?
Brett Warren: Tourism’s massive. Mike obviously we’ve got … especially to the northern parts and even the Gold Coast and Sunshine Coast to a certain extent. I think Brisbane’s starting to move past that reliance, but there’s still too much of a reliance for it our northern parts, and in particular the Gold Coast and Sunshine Coast. If you remember probably the last five to seven years, we’ve almost been on par with the US dollar. The tourism dollar hasn’t been there as much, but we’re starting to see that return to some normality. Tourists are starting to come back and the Commonwealth Games will help Brisbane as much as it will the Gold Coast and the Sunshine Coast, because people will start coming back to Brisbane and now it’s a lot cheaper as well.
Mike Mortlock: on that Australian dollar, I guess a low Australian dollar is good for tourism, but there are negatives with a high Australian dollar. Is it generally better for the economy and better for property, that we have that lower Australian dollar and our exports are a little bit more, I suppose, they’re a bit more competitive and we’re getting that tourism injection as well?
Brett Warren: Absolutely. There are certain parts of the economy it does benefit and those types of things. The money coming into our country’s definitely something, particularly in Queensland and those areas that are volatile with tourism, that they definitely benefit from.
Mike Mortlock: Just looking at the article that you wrote, it was talking about the difference in the numbers behind the last boom in Brisbane, which was 2008, the population growth at the moment is now less than half, net interstate migration is even lower than that. Overseas migration is down, the unemployment rate was actually a bit lower in 2008. Is this pointing to Brisbane remaining an underperforming market across the board?
Brett Warren: That article was … the result of that were pointing down towards 2015, so from 2015 on, things are actually starting to turn around. I’ve started to use the term “green shoots,” because people are returning to Brisbane again. Our instate migration’s picked up, probably because a little bit of affordability issues and things like that. There’s more jobs being created, slightly more. We’re still along way away from where we need to be, and it’s just more people coming to Brisbane. Some of those numbers have started to turn around, but we’re still a long way from those peaks and where we were in 2008. The signs are good early, but I think there’s probably a fair way to go yet.
Mike Mortlock: I see what you’re talking about with the article, obviously the last couple of years we’ve seen lower unemployment and better population figures. Is it just the case that the media jumped on Brisbane a little bit too early?
Brett Warren: I think everyone’s asked the question. The question was, “Why isn’t Brisbane performing,” and there’s been really no information about that. The media probably has jumped on a little bit early and they’ll probably stay there for a little bit longer, until we start to see those jobs created and jobs growth is a major part of it, as we talked about before. We need to replace our mining construction elements of our economy with more services and healthcare that are starting to happen, and transition into that now. But it’ll take some time for that to happen.
Mike Mortlock: I definitely want to have a chat about some of the projects that are on the agenda for Brisbane, but just quickly wanted to ask you about wages growth. I mean wages growth has been flat pretty much across Australia for a fair while. It hasn’t really stopped the Sydney market, but is it having more of an impact in Brisbane do you think, because perhaps there’s less speculation by those that have got a bit of equity to tap into and maybe that’s pushed Sydney a little higher, or is there more at play there than wages growth?
Brett Warren: I mean that’s obviously one element and one key element. When there’s jobs and competition for jobs, and competition for good employees and people who are going to be professional and perform well for the company, that creates competition and drives wages growth. When the economy’s sliding and jobs growth is coming down, that wage growth doesn’t really pick up until the economy picks up and jobs start being created again. I think Sydney’s had a lot of that, they’ve still performed quite well, their economy’s ticking along very well, and they’ve had a lot of wage growth, where Brisbane’s kind of gone the other way unfortunately.
Mike Mortlock: But you are pretty bullish on the opportunity for investors in Brisbane over the longer term. Obviously you mentioned green shoots, what does it hinge upon? Is there anything that we can see where we can look at and go, “Okay, well we’ve hit a milestone here, so things should be moving along.” Is it linked to population, or wages, or the dollar, or is it just a mix of everything? Is there anything you can kind of point to where we can, I guess, categorically say it’s turning around?
Brett Warren: There are a lot of different elements. The two elements I’m really focused on, the first one is the jobs growth. We need to start creating jobs, and there’s some really big projects that are one the horizon that will start creating those jobs. One those jobs start being created, that’s when people start coming back to Brisbane. You remember the articles back in 2007, 2008 where there’s about 1,000 people from our southern states moving a week, and people coming in from overseas and stuff like that. That happens when jobs growth occurs. They’re the two key things I’m looking at, that generally then leads to more wages growth, employment growth and also property price growth, which is really what we’re about.
Mike Mortlock: The climates really got to be a boost as well. I mean the last time I was in Brisbane, I’d come from Hobart through Melbourne and then up to Brisbane, didn’t pack a pair of shorts, but I could’ve been in them in the middle of winter. What impact does … is that a bit facetious, or does that have an impact with net interstate migration as well?
Brett Warren: Absolutely. I heard a couple good stories there, but I think it was one of the guys suggesting that they place an ad in the middle of Melbourne in winter, where it’s about six degrees with a nice sunshiny beach and saying, “Why don’t you move to Brisbane?” But that will play a part, particularly with affordability and the weather and things like that. I mean our climate is 25 degrees in the middle of winter all year round, so a lot of retirees are starting to head north as well. They’re starting to cash in the chips from Sydney and Melbourne markets and move to the warmer climate.
That was a trend happening 10 or 20 years ago, and it’s starting to return again. We’re also … statistics are starting to show that younger families, 28, 29 and the 40 year olds and stuff like that. They’re a lot more of the demographic that are also moving to Brisbane. They’re probably wanting a better future and life for their family. They don’t want to be two or three hours from a CBD. They can kind of afford somewhere here maybe 10 or 12Ks, where they get better benefits for their family.
Mike Mortlock: I was chatting to a CEO of a valuation firm in Sydney yesterday, and he’s basically saying that he’s worried he’s going to lose his kids to Brisbane, just because of the opportunities in the housing market. There must be a point where Sydney and Melbourne are a number of multiples higher than the median for Brisbane, and that really sucks people northward. Is that maybe an even more powerful driving force than the ability to get a bit of sun on the shins?
Brett Warren: Most definitely. I think we’re at two and a half times, which is almost the greatest it’s ever been. That’s probably … the sun will be the icing on the cake I guess, but they’re the big reasons that people move, affordability.
Mike Mortlock: You mentioned about project before. I’ve seen the new runway looks like it’s well and truly under construction. What projects has Brisbane got lined up for the next little while?
Brett Warren: This has got me pretty excited and a bit optimistic. We haven’t really had this excitement probably since the mining boom, but starting with the airport. Our three biggest employment hubs, the airport’s one of them. We’re getting a second runway, so that’s going to create thousands more jobs. It’s really designed to open up at that Asia Pacific gateway as well, because at the end of the day, Brisbane’s the closest to Asia than Sydney or Melbourne. There’s big opportunities there. The Queen’s Wharf project is another one, that’s 12 football fields worth of development happening in our CBD, that’s massive. That’s going to become a real lifestyle precinct. There’s six star hotels, there’s a new casino, 40 food and beverage outlets. That’s going to create more than 10 or 15,000 jobs once it’s completed, and a huge amount of construction’s going on there as well. Then we’re starting to see other minor employment hubs like hospitals and things like that expand.
I think 60 or 70% of the jobs being created in the next 10 years are going to be in healthcare. Hospitals and age care are going to become a huge industry, and Brisbane’s starting to prepare for that.
Mike Mortlock: We had someone jump on our Facebook page the other day looking for bargains in Brisbane. We can talk about bargains, or maybe have a chat about some of the suburbs that you’re investing in, and what some of the key fundamentals that you see in that suburbs have in common. Where are some of the good places in Brisbane to be looking for good capital gains and reasonable yields?
Brett Warren: It all gets back to the price point, but if we’re starting for an entry level home, a house, you’re generally looking between 500, 550 plus to 600, and you’re looking between about nine and 11Ks from the CBD. In those kinds of pockets, we look at wage growth. A lot of the older retirees and low socioeconomic earners are moving out, and young families are moving in, high income earners sending their kids to the schools. It’s got access to public transport, all those important things that are driving growth.
They’re knocking houses over, they’re renovating, they’re really improving the suburb. We’re starting to see really good flow on effect in those kinds of pockets, because the fundamentals are there, and their money’s being spend and young professionals are coming in and really taking over.
Mike Mortlock: Is there a key point distance from the city where the values are quite reasonable and then they drop off just with accessibility to the city? What are the transport networks like in Brisbane, and how far do you need to go out before you start seeing suburbs that aren’t really going to get much capital gain?
Brett Warren: We’re obviously very focused on capital gain and for an investor, but there are some good suburbs around. You just start to lose the wage growth, the incomes, the closeness to employment hubs, once you start to get past that 12 or 15K ring. We’re not like Sydney or Melbourne, we don’t have the sprawl. A lot of investors actually make mistakes and they can still buy reasonably well in Sydney and Melbourne with the 20Ks, and when you come to Brisbane, 20 to 30Ks, they’re just areas you probably wouldn’t invest in. They’re not bad places to live, but they don’t have those fundamentals I was talking about before. The access to the CBD isn’t as easy, and employment hubs isn’t as easy and consistent.
Mike Mortlock: With your investors or people that seek you out as a buyer’s agent, do they have some goals in common, or is it very different reasons that they come to you? Are people looking for cashflow? Are they planning for their retirement? Are they getting their first investment? Does it vary, or do you serve the same sorts of clients?
Brett Warren: It does vary a lot Mike, absolutely. It does vary a lot. It’s really about … a lot of investors make the mistake of looking two or three years ahead, and trying to time the market, or trying to find the next hotspot, or things like that. But what we really want to try and do is try and look 20 years ahead, or 10 years ahead if you’ve only got that long, and work out where you need to be in 10 years and then kind of work backwards from there.
As I said before, the mistake I made, I bought in a good spot that went well for two or three years, but the next five years it remained fairly flat. If I’d have held that asset, it would’ve stayed flat. That would’ve been a great asset for a two or three year period, but for the next 10 years, it hasn’t done a thing. We want that regular, consistent capital growth, good access to employment hubs, strong demand in those kinds of suburbs as well.
Mike Mortlock: Is there a mix where you’re looking for long-term growth fundamentals, but also for maybe a bit of a sleeping market to get some quick capital gains, or do you prefer a less speculation and more focus on the long-term positive fundamentals and positive drivers, and I guess a market that has displayed reasonable metrics over the longer term?
Brett Warren: A 100%. Speculations, there’s a lot of risk involved. People have speculated a long time about different areas in Queensland and Brisbane with train lines coming and hospitals, and sometimes they eventuate, sometimes they don’t. But it’s really the tried and proven suburbs that perform well. As I mentioned before, within those kinds of pockets, you can find those sleepers where areas are undergoing gentrification, younger people are moving in and stuff like that, so there is that element.
The other thing you can also do rather than relying on the market to do the heavy lifting, is undertake a simple cosmetic renovation or a hard renovation, or a development, where you’re not just relying on the market to do the heavy lifting, you can actually add some equity yourself. At the end of the day you widen your asset base a bit quicker.
Mike Mortlock: What tips would you have for people that are employing that purchase and renovate and maybe revalue strategy? Is it easy to overcapitalize in Brisbane, or do people appreciate the higher standard of finish? What’s the best way to make sure that if you’re spending one dollar, you’re getting two dollars back in valuation?
Brett Warren: For us the bigger goal is actually just widening your asset base. Whether you’re making 50 cents or a dollar, it’s going to be a beneficial, because you’re going to be holding it for the next decade anyway. Ideally it would be great to make one for every two dollars, and that’s something we can try and do, but it’s not the main purpose. The main purpose is to widen your asset base, increase the cashflow, and as you know Mike, the depreciation benefits once you’ve renovated it and things like that, start to come back into play as well. It becomes an overall better investment to hold for the longer term once you start to bring those other factors into play as well.
Mike Mortlock: Of course renovation’s pretty important strategy for depreciation now, especially with the plant and equipment assets you’ll be able to keep all of that. But over and above that, I guess there’s also just the maintenance expense, and I suppose the happiness and wellbeing of the tenant. I mean that has to be priced into the investment as well, isn’t it? Because the damage that an unhappy tenant can do, is pretty significant.
Brett Warren: 100% Mike, and as I said before, if you’re still buying in those kinds of areas where there are low socioeconomic, high unemployment, things like that, you really increase your chances of destruction to your property, and rears for your property, all those types of things. Where if you’re buying in areas 10 to 12Ks from Brisbane with high employment, the tenants don’t really get a chance to ruin your house cause there at work all day. They’re the kinds of areas we probably prefer to buy in, where there’s good disposable incomes, rents are getting paid, and people are working hard and they don’t have time to muck around there. You’re completely right.
Mike Mortlock: I wanted to ask you about Queensland. It’s a bloody enormous state and I suppose a bit dissimilar to the US where they have so many states and so many huge regional centres and cities. Australia’s a little bit more unique in the fact that, for example, in Queensland there’s Brisbane and the Gold Coast and I’m imagining a fair drop off for the next population centre. What does Brisbane have in common with some of the regional areas, and are they really chalk and cheese in terms of the diversity of employment opportunities and that sort of thing?
Brett Warren: I think they are at this stage. Brisbane’s a major capital city, 70% of people that move to Queensland actually come to Brisbane, because of the jobs and all those types of things. There’s not enough dimension to the economy. For years the Gold Coast for an example, and even to the Sunshine Coast to some extent, very heavily relied on tourism and the weather and those types of things.
They’ll perform well in patches, for example the Gold Coast is performing extremely well at the moment, and that’s generally led to … led because of this construction of the Commonwealth Games. Then once the Commonwealth games comes in, the extra tourist dollar will benefit the Gold Coast. It will perform well for as short period of time, but then what happens when that leaves town? There’s nothing there at this stage to take its place. That’s a little bit of what Brisbane’s experiencing at the moment to a lesser extent now mining’s left town. We just have to find those areas that a bit more resilient and quicker at recovering.
Mike Mortlock: The Gold Coast, obviously you say it’s had a bit of an uptick, but it sat flat for about a decade, is that right?
Brett Warren: Absolutely. Again, that gets back to the tourism and other things that are really driving growth in those kinds of areas, that were just lacking.
Mike Mortlock: What sort of industries are the main employers in Brisbane at the moment? You mentioned that health is going to be massive at the moment, but is it a lot of finance and consultancy work, or who are the main employers? What’s our typical Brisbane tenant avatar look like?
Brett Warren: That’s a good question. Obviously we’ve reemployed a lot of those FIFO workers that were working in the mining boom. Mike, I’m sure when you were here last time, all you had to do was look up and look at the hundreds of cranes in the skies to realise that. They’ve been repositioned into construction. That also will come to an end, but in the meantime, you’re quite right. That services industry, the finance services and all those types of things, along with healthcare, that’s the next area that’s going to really take up that slack and it’s just transitioning our Brisbane economy into that in the shorter term, that’s taking a little bit longer because there’s no jobs growth and things like that.
Mike Mortlock: What’s happening in the market at the moment? Is there a lot of competition for properties? Are you seeing overseas investors? Are there first home owners that are coming back into the market? Who are you competing against when you’re sourcing property at the moment?
Brett Warren: Let me just first say it’s obviously a two speed market. I’m sure that our listeners have read the papers and understand that there is an apartment oversupply and that’s not too far away from being completed and again, the only thing that’s holding that oversupply up is our population growth. That’ll take up eventually, but houses are performing very, very strongly.
Particularly in that 10 to 12K ring, that entry level area, eight to 10Ks from the city. Huge demand from first home owners, upgraders who may be living 15, 20Ks, it’s too far, they want to get a little bit closer to the city and things like that. They’re the ones that are driving growth at the moment. There’s a lot of … Brisbane’s not historically a strong auction market, but there’s really good auction clearance rates tipping over 50 to 60%, whereas before they’re generally around 30 or 40. We’re quite often getting beaten quite substantially at auctions. They’re starting to get a bit more emotion creep back in the market as well.
Mike Mortlock: It’s interesting you note that houses are performing well, as opposed to units. Obviously there’s the supply problem with units, which I imagine will be taken up eventually. But just looking at the year on year percentage growth on core logic today, you’re seeing units roughly half in terms of the capital growth percentage, than houses. How long do you think that that’s going to last for?
Brett Warren: Well that’s a good question. I’m looking out the window now, there used to be 20 cranes out there, now there’s only five. We’re starting to-
Mike Mortlock: The cranes is telling us that it’s slowing down.
Brett Warren: I’ve got my eye on the ball Mike. I think they’re saying there’s about another 18 months of supply to finish, 12 to 18 months of projects. Once that’s finished, it’ll probably take another year or two to wrap up, so you’re probably looking about the two or three year mark before that supply starts to be take up and things start to return to some normality.
Mike Mortlock: Are there other markets that you’re looking at in Australia at the moment? Are there any other areas that you’re identifying these same sorts of green shoots that maybe aren’t on the media radar at the moment?
Brett Warren: We’re Brisbane experts, so we buy a lot in Brisbane. But the same fundamentals in Melbourne and Sydney, even though they’re markets are closer to the top, there’s still really good opportunities in those kinds of areas. Those blue chip pockets of Melbourne and Sydney, they never really go backwards. They always keep performing strongly. Again, it’s a bit boring Mike, but that where I prefer to put my money.
I don’t want to really speculate. I want to look longer term, 10 or 20 years down the track and historically, those are the areas that have performed the best and there’s no reason why that won’t continue with increased population, jobs being created and things like that.
Mike Mortlock: To what extent do you think that the market trickles out from the CBD? For example, I’m guessing that there are opportunities in some of the outer suburbs of Sydney that the price growth in the city hasn’t necessarily kept pace within the regional areas. Is that something that you see in Brisbane as well, that some of them more central suburbs will see the growth and then that’ll trickle out towards the outer ring?
Brett Warren: It’s a good question. We’re starting to see that a little bit already. Probably 18 months, two years ago, we were starting to … our entry level prices, 550 were getting us houses about six to eight Ks from the city. Now we’re finding that around nine or 10. It is starting to creep outward and that’s generally how it happens as well with the process. We are starting to see that here as well.
Mike Mortlock: Say for example there’s a suburb in Brisbane that someone says to you, “I’m interested in looking in this area,” and in this weird hypothetical scenario you’ve never heard of the suburb before, what are you looking at as part of your due diligence? Is it purely about the numbers, or does it make a difference, you know, what’s happening in the suburbs adjacent? Are you looking at proximity to schools and employment, or is it just yields that you’re looking at, or is it historical fundamentals? How do investors do that due diligence themselves?
Brett Warren: We’ve got a bit of a checklist, and obviously for an investor you want to buy somewhere where there’s a high owner occupied percentage. Owner occupies don’t sell up, if there’s a downturn or something, they’re there for the long haul. We also monitor wage growth, so we don’t want people who, I guess, live pay check to pay check.
We want people with high disposable incomes that aren’t affected by interest rate rises and rental increases. They’re generally happy to overspend and spend more on their properties. We don’t like buying brand-new. We like established land with high land value. 70 or 80% of the purchase price of a house, if that’s made up of land, that’s a very strong investment, because land’s the thing that appreciates at the end of the day.
We want to make that the highest part of your investment, and then like you said, we look for the twists. Public transport, infrastructure, school catchments, walkability, things like that. The suburb has to have a good history of capital growth. I’m not talking of five years or seven years. I’m talking over a 20 year period. We need to know what happens over a 20 year period, and if the suburb continually outperforms. Also, what happens in a downturn? Let’s go back to 2008, 2009. Did the suburb go back five or six percent and 12 months later it’s back to where it was? Or did it go back 15 or 20% and we’re still waiting for the suburb to come back? They’re the types of things we like to look at.
Mike Mortlock: Awesome. Are you happy to give us any of your secret herbs and spices as to the areas that you’re active in at the moment?
Brett Warren: Sure, sure. One of the areas we like at the moment is on Brisbane north. There’s a real hub around Chermside that’s starting to happen. It’s starting to become a bit of a satellite city, it’d be a corridor and really open things up for Brisbane, but we’re not buying in Chermside. We’re buying in Chermside west, which is actually right next door, but it’s going to be close enough to benefit from all this infrastructure upgrading and it’ll become jobs growth with a mini CBD. There’s a hospital there. All those things that Brisbane have on a bigger scale, those areas have on a smaller scale. Chermside west, we’re just starting to see those wages transition from retirees and low socioeconomic, into high families. There’s good school catchments, green space, and we’re just starting to see people knock houses over, renovate, do silly things that owner occupies do, and that’s what we like to see when there’s a turn in a suburb.
Mike Mortlock: What about, you mentioned a bit further north of Sunshine Coast and places like that, are those sorts of areas more of a retiree type market where there’s less disposable income, the cash registers aren’t ringing as much, so there’s less of a potential for growth? Or is there’s a big demand for some of those lifestyle locations and does the Gold Coast fit into that as well?
Brett Warren: The first thing you said was right, it is a retirement destination, a holiday destination first and foremost. That’ll start to change as well. Brisbane’s still relatively affordable, but when it becomes not affordable, it’s almost like the discussion we had before about people being priced out of Sydney and Melbourne and moving to Brisbane. That’ll eventually happen in Brisbane as well. They’ll head to the Gold Coast and Sunny Coast, but I saw an interesting statistic during the week that put things into perspective for me, and that’s by 2030, the population of the Gold Coast and Sunshine Coast will be in greater Brisbane.
Mike Mortlock: Right.
Brett Warren: That really put things into perspective for me, and just how much of a bigger economy and bigger player that Brisbane is.
Mike Mortlock: Will Brisbane be able to handle that? Obviously there’s a few spare apartments going around, but that’s a huge influx of population. I mean I’m not sure exactly what the Gold Coast and Sunshine Coast populations are, but at them together, that’s Brisbane bursting at the seams I’m guessing. Are there going to be problems with housing that amount of people?
Brett Warren: That’s where that spread starts to happen between that 15 and all of a sudden, 10 to 15 becomes 15 to 20, there’s new housing out there. There’s a lot more infill happening as well, so there’ll be more apartments, there’ll be more townhouses, so there’s a fair way to go before that happens, but definitely the amount of work that still got to happen is quite large, but more importantly, the amount of jobs to be created still got to be quite large as well.
Mike Mortlock: Now you’re dealing with property investors all the time, I’m interested in some of the key things that people come to you with as either preconceptions, or ideas, or perhaps even mistakes that they have made, or you can see that they’re about to make. What are some of the common, I guess, misconceptions and things that property investors get involved in that you would advise against?
Brett Warren: That’s a good question. A lot of people obviously want the same goal. I think 99% of people who come to me want financial freedom and to live off a portfolio one day, but the strategies they consider using are very different. Buying off the plan is very dangerous in most markets. In most timing of the market, buying brand-new’s not ideal.
Again, you get that depreciation element, but generally you’re buying in outer areas that aren’t great. I mean we had an investor that was picked up from the airport in a limousine and whisked out to three or four hours from Brisbane to a suburb where there was nothing but dried dirt to be sold. A house where the land value was probably worth 10,000, and the house was probably 300 to build.
Cash flow’s another one. A lot of people make the mistake of chasing cash flow, and at the end of the day an extra 20 or $30,000 a year cash flow’s going to be beneficial, but it’s not going to change your life in 10 or 15 years time when you consider tax implications and stuff like that. My advice is just you really got to look at your asset base and expand your asset base with high quality assets. It doesn’t matter how many properties you’ve got, whether you’ve got three or four, or seven or eight, it’s about the size of your asset base and insuring that that asset base is working to give you quality capital growth.
Mike Mortlock: There is a bit of an obsession with cash flow and obviously positively geared properties were pretty much en vogue. I guess pre boom when they were a little bit easier to find. To me I guess cash flow is important that you can sort of service your investment properties, but why do you think people I guess are hung up on cash flow over and above just looking at enough to cover the investment so that you can get those capital gains?
Brett Warren: I truly think it’s an education thing. People are focusing on the end game and thinking, “Well, if I can get $20,000 a year, I can get 10 properties. That’s 200,000 I can live off,” but obviously that’s going to be taxed and fees and land tax and all that come out of it. It ends up being about a quarter of what it really is, but I think that’s the fixation. I think if they actually realised they can grow an asset base a lot quicker and, like you said, rent in Brisbane are around 4% at the moment and interests rates are around 4%. It’s probably been the best time to buy a neutrally geared to slightly negative geared asset, and not have those huge costs but still get that capital growth, I think that’s the mistake people make.
Mike Mortlock: Are there a lot of people that are coming to you with rent vesting strategies? Do you do much with beginner investors?
Brett Warren: More and more all the time, and people actually haven’t heard of the term rent vesting, they’re actually doing it, but they don’t know they’re doing it, which is quite interesting because people are being forced into that. Sometimes people want to live on the Gold Coast or Sunshine Coast and live that lifestyle, but I always say, “Well look, rent where you want to live and invest were your money’s going to work hard for you. You’ve got to treat it like a business.” We are starting to see that trend a lot more, particularly from 25 to 30 year olds.
Mike Mortlock: Are they Brisbane locals that are getting in touch with you, or do you deal mostly with people from Sydney, both rent vesting and investors in general? Who’s buying the Brisbane investment properties?
Brett Warren: Mainly Brisbane at the moment. We’re starting to get a few people creep up from down south, as things become more affordable, they priced out of those markets. We’ve got a better rental yield, but we get a lot of the young guys, they work on the Gold Coast or work on the mines and things like that. They just want their money to work hard for them, rather than putting it in a bank, or drinking it away, or whatever they do, partying away. They want to live in those lifestyle areas and live near the beach and stuff like that, but we just encourage them to invest their money wisely, and they’ll be in a considerably better position if they do that.
Mike Mortlock: What about yourself Brett, what sort of goals have you got in investing, and what stage are you at, and I guess what does a successful investing career look like for you? You’ll be messing about with your racehorses, or your crossfit, or whatever it is. I saw a video with you and Pete Wargent the other day, and Pete certainly makes you look huge, what’s going on there?
Brett Warren: My investing’s always … I always got my eye open. I’m probably at a stage where I’ve probably worked quite hard early on and taken the right advice from people to expand my asset base a little bit quicker. It just gives you a few more choices that you can work out when you want to work out and do what you want to do, which is a great part of it.
You’ve got to find something you’re passionate about. I think some advice I learned a while ago was to increase the income streams you have, if you’ve only got a job, then you’re probably going to be in trouble, but if you’ve got a job and a business on the side and a property investment career, or property investment portfolio, you’re going to be … more changes to successful and stuff like that. I just try to expand my horizons and get into as much mischief as I can.
Mike Mortlock: Excellent. What sort of mischief are we talking Brett? We can’t leave without a little bit of dirt.
Brett Warren: I’ve got a passion for horses as well, so the guys in the office here like horses. I don’t … not in the racing horses, but we’ve got our young couple of horses that we train up and we’re looking to sell them off in a sale and stuff like that. It just allows me to pursue other interests and it’s good to have a distraction away from work as well. Obviously got a lovely family that keep me fairly busy too, so I’m always up to something Mike.
Mike Mortlock: Good to hear. Now how do people get in touch with yourself Brett, if they’ve got some questions, or just want to have a chat about their portfolio and their investing?
Brett Warren: More than welcome to, they can obviously get in contact with yourself, Metropole, brisbanebuyersagent.com.au have a website that we’re on there. You’re more than welcome to contact me at any time. I love talking about property, so more than happy to have a coffee and a chat and talk anything that anyone would like to talk about.
Mike Mortlock: Fantastic. If we can leave our listeners with one sort of piece of advice, what’s the key takeaway that you’d like people to have, or the key piece of information that you think will help investors in their journey of increasing their portfolio?
Brett Warren: My biggest advice, if I split my career in two, is when I first started I thought I knew everything, as most young men do. But it’s not until I actually dropped the ego and actually learned from people and took advice from people, treated my property portfolio like a business, had mentors. The quickest way to a goal is to follow someone who’s done it before and learn the mistakes and things like that, especially in today’s market. Property’s been a pretty forgiving asset over the last two or three decades, that’s not going to continue to happen moving forward, because of the way people are living and choosing to live and stuff like that. You’re not going to be able to cover up your mistakes as easily, so you can get there significantly quicker by learning from people and learning from systems that work.
Mike Mortlock: I think that’s fantastic advice Brett, thanks very much for your time. We appreciate you coming onboard.
Brett Warren: No worries Mike, really good to be with you. Thanks for your time.
Mike Mortlock: Cheers.