Interview with an expert : Lloyd Edge from Aus Property Professionals This is Hugh Thyer, and today I am talking with Lloyd Edge, owner and director of Aus Property Investing. Lloyd is renowned for souring properties which most investors only dream about. That is, they are cashflow positive, high growth and typically have over $100,000 in equity built into them from day one. This means investors can invest in one of these, and use the equity and cashflow to go again almost straight away. There s no waiting around for enough capital growth to go again, and because they re cashflow positive you actually improve your standing with the banks as your portfolio grows. Lloyd is a fully licensed buyer s agent, holds a Diploma of Property Services and is a member of Property Investment Professionals of Australia. He has been featured in Australian Property Investor magazine, Your Investment Property Magazine, the Daily telegraph, on 2GB and has been interviewed by Kevin Turner from Real Estate Talk. This is sure to be a revealing interview! Welcome Lloyd Thank you for the intro Hugh, and it s a real pleasure to be talking with you today. Lloyd could you please share who you are and what you ve achieved in your property journey? Sure Hugh, I ve been investing for around 15 years now. In that time I ve accumulated a large portfolio worth around $7,000,000 using a number of different strategies. Those strategies include cashflow properties, through equity gains including duplexes, and different types of properties in the outer suburbs and regional areas. And I ve also got a number of blue chip properties in the capital cities around Sydney and Brisbane. The way I ve done it is by focussing on building equity into each property when I buy it rather than hoping for the best. I ve always believed you make your money when you buy, not when you sell. So if you really focus on trying to get something under market value then you re going to be ahead and not pay too much up front. And through following this process I ve been able to move ahead quite quickly. Each property I buy helps set me up for the next one. If I m buying something a bit under market value and I m planning to do a renovation on it, I know I can put value into it straight away. If I m building a duplex I know I ll get a lot of equity out of it while I build it and strata title it. And I can use those funds to go ahead and buy another property, maybe a blue chip property of do another duplex.

So my portfolio is worth around $7,000,000 right now and the yearly income from it is around $500,000. This includes the rental income and the equity gains I m making. A lot of this is instant equity where you build the property and then you strata title it and get that revalued so you get instant equity out of it. It s a really fast and safe way of investing in property. From here you can go to paying off your other debt or buying more properties. And that s part of the income that comes from it as well. It s a very impressive portfolio Lloyd. What does this mean for the life you lead? It s given my wife and I a lot of freedom to do a lot of things most people really can t do with a 9-5 job. We go on those holidays we want to go on. We spend time with our family and friends. And we get to choose how we spend each day rather than being forced into a 9-5 job. One of the important strategies I do, and I encourage my clients to do is to consider paying off their home because that s non-deductable debt. And by doing this you can pay off your home using your investment portfolio. So a lot of the profits from our portfolio goes into paying down the debt on our home. And this means our home is almost completely paid off through our portfolio. If you rely on your salary to do this you can get stuck for 20 or 30 years trying to pay off your home. Also you can put your kids through the best schools without needing to worry. That s what a successful portfolio allows you to do. You just have to focus on equity gains and positive cashflow. If you re too negatively geared you re not going to get ahead. You need to make sure there s a balance between the two. I guess people don t usually think about how much interest they pay on their own home. And yet as we head towards retirement, or we ve got kids we want to send to private school or take more elaborate holidays that interest bill is a huge amount of money that could be better spent. Yet most people don t even think about it. You re right, it s a huge chunk out of anyone s income. And when you think about it, most people have to plan or and save up for their next holiday for months leading up to it. And then they still worry about where the money s coming from. Then they often have to look for cheap airfares or a cheaper destination and then maybe make a choice between the holiday, the school fees, the car loan and so on. So having a property portfolio with the right structure really leads you to living the life you want. It s all about living life on your own terms rather than living like everyone else. You know what I mean, where you leave school, go to uni and work your whole life so you can pay off your house. This is a much faster way of doing it so you live life on your terms.

For sure, and you re living proof of how easy it can be once you know what you re doing. And there s a lot of fulltime investors out there, and not just people who rode the last boom upwards either. It s more than achievable now, isn t it? It sure is. It s all about having the right strategy in place, and your strategy is critical when it comes to investing because times are changing a little bit. The days of holding your house in the 1970s and 1980s when properties were tripling are over. So you need to look at other ways to build wealth, and you d be wise to get professional help. You certainly need to look at ways of creating instant equity in your deals when you buy. Building equity into your deals so you don t have to rely on the markets moving is what I call sophisticated investing. It s certainly still very achievable these days. You just have to do things a bit differently to the way your mum and dad might have done it, that s all. Certainly in our mum and dad s days it was all about buying blue chip properties 2-8 kilometres from major capital cities and relying on the capital growth. But this isn t going to cut it anymore, is it? It s not going to cut it anymore, and it s even more difficult now that APRA have just made changes forcing banks to increase the interest rates on investor loans. So it s getting harder because the low interest rates and massive investing people have done in the last few years, particularly in Sydney and Melbourne, and the exceptionally high prices and low interest rates mean APRA are trying to slow it down. I actually think it s a good thing, and people just need to be careful about how they go about doing things, otherwise they won t be able to get ahead. And that s why looking for alternatives like doing small developments, building some duplexes, buying cheap and doing a renovation means building equity and getting a positive cashflow. And this will satisfy the banks lending criteria, and that s how you can go again so quickly. I believe the market will slow down a bit over the next few years. Certainly that s what APRA has tried to do with their changes. It s mainly because Sydney and Melbourne got so hot, and it ll affect everywhere. If you just buy a property and hope for the best I m afraid it won t happen like it happened in the past. If you want to make money you have to use some of these more sophisticated strategies. In a lot of ways, it ll knock out some of the more amateur investors the people who only buy one property it ll knock them out. Does this mean a bigger opportunity for people armed with strategies like yours? It sure does. Duplexes, for example are perfect because you manufacture your own capital growth because you re building one property, then strata titling it at the end to create two properties. And two properties are worth more than one. It s an excellent way of creating some massive growth, and you can do it in virtually any market. Obviously I build duplexes in really strong markets. And there are some really strong regional markets around, as well as some excellent outer suburbs where the land prices are much cheaper.

Everyone would love to be doing these projects in the blue chip suburbs but it s too expensive to buy the land there. And most of the land has already been developed. Anything left is in such high demand your chances of snaring a bargain are basically zero. So you go out to a regional area, get some affordable land and build a duplex there. And what I typically find is anywhere from $80, 000 to $150,000 instant equity, even if the market is going up, down or is flat. And while other investors are frustrated that their portfolios aren t going anywhere, you can buy again straight away because you set yourself up to do this. If your strategy is a bit smarter you ll get ahead while everyone else is stuck with one or two properties with nowhere to go. One of my personal mottos is return OF my money. So if something went wrong and I had to get out, one of the best things about duplexes is you build instant equity you could use to cover your legal fees, stamp duties, bank fees and so on. Is that correct? Absolutely. Even if you don t get as strong a valuation as you d like the fact is you ll still make plenty of equity on a duplex because you created two properties out of one. And in bad times you still make money, and you ve covered your expenses and you get your initial deposit back. Duplexes are also really good because there s so much you can do with them. You can keep both, you can sell both, you can keep one and sell the other. You can live in one and rent the other. You ve got a world of options. They re a little different from multiple properties on one title because they have to be sold as one title. But with duplexes being strata titled you can do anything you want. You can live in one, rent one or both out, or just tap straight into the equity and go again. There are lots of options. What about first home buyers doing this so they keep one and rent the other one out? Or retirees downsizing and creating a retirement income? Absolutely, you can do all these things. There are so many options. Something else about duplexes is you get enormous tax discounts too. You sure do. Of course, you don t just buy a property for depreciation. You should always be looking for the ultimate capital growth from it. But depreciation sure is a big bonus and it certainly helps with your cashflow. With a duplex there s two lots of everything, There s two kitchens, two dishwashers, two overs. There s two lots of things you can claim and that makes you really healthy come tax time. Tell me Lloyd, who are the types of people who typically benefit from working with you? There s typically three types of people. One is the novice who wants to get into it but doesn t know where to start. They think they have to buy blue chip properties and hold onto them for years. Then there s people who might have one or two properties and they re looking to move to the next level.

And then there s people who have bought a number of properties and want to accelerate their wealth using some more sophisticated strategies. These investors usually come to me with 3 or 4 properties, usually in blue chip suburbs in Sydney, Melbourne or Brisbane and they re finding themselves maxed out and they can t invest any more. They want to know how to add value to their portfolio and become like the people in property magazines who have huge portfolios. I sit down with people at our first strategy session and show them how they can get into developments and build in instant equity so they can start moving again. They do this with the extra equity and the extra income. And from the bank s point of view, they ve got plenty of new cashflow. You see, even though your portfolio is growing, you re actually improving your borrowing power because you ve got two more rental incomes. They ve now got dual income properties with over 7% yields. So they build that duplex, then go on to do it again and again. I have clients coming to me who have 1 or 2 properties and they re stuck. About 90% of Australian investors only buy one property and never go any further. And there s a few reasons for this. One is getting bad advice and having the wrong financial structure. Buying the wrong properties is another. Quite often they ve paid too much for a house and land package 5 years ago and now the house is worth LESS than what they paid for it, even though the area has increased in value. They can t work out what s going on, and it turns out they paid too much in the first place! Some people have cross securitised their home and that s another problem they have to sort out. This is when the bank bundles up their properties together. And because they treat it like a package they won t let you borrow again without getting each one valued. And often, once you hit 3 properties they see you as over-exposed so they won t lend to you anyway. Same thing if another bank sees it. So we sit down with a broker and work out how we can separate their investment property from their home and fix their structure up. Then we set them up so they can go forward with their next property. From this we could do a duplex deal or whatever is the best option for them. I love duplexes but it s about the strategy. And that may mean doing something a little different. And then we ve got people who haven t ever bought. They re novices. So we sit down and work things out with them, where they want to go, what their financial and lifestyle goals are and how

property will help them achieve them. And with all these types of people they re often time-poor, so working with a buyer s agent and project manager like me means I can do the work for them. They often don t have the confidence or knowledge, and because they have to go to work before finding the time to research the markets and manage a project they re often better off getting some help. Let s say I wanted to do it myself, and I had the time what would I have to do if I wanted to build my own duplex? OK, I ve got a pretty strict process in terms of following what I do when I build a duplex. Firstly, I look at the serviceability of the client, and how much they can borrow for the deal. And that determines whether we re building in a capital city or in a strong regional market. Once I know this I find the best location which gives us the best growth possible. They have to have good industries, separate industries, good education, excellent transport links, new hospitals, school and so on. And a great cosmopolitan lifestyle with cafes, restaurants and new shops. One of my sneaky tricks is to follow Bunnings and McDonalds because these guys do their research seriously well. And if they re going in then it means it s a pretty safe bet for strong growth. After we ve chosen our location I get on the ground and find suitable lots of land to build the duplex. This means lots of research online, hassling real estate agents and driving around. I m really familiar with some of the best suburbs and towns, and a lot of the agents and coffee shop owners think I m a local! You have to do the hard yards to know a market intimately so you can make great decisions. Something else I check out carefully is that it s surrounded by owner occupied properties. If you build in an estate full of investors then everything looks the same, and price increases are determined by rents instead of buying pressure from people who want to live there. Once I ve done this I check the zoning with the council to make sure I can build what I want. Sometimes the zoning won t allow multi-dwelling properties. Sometimes there s a covenant stopping it. And if there is, I negotiate with the council to see if I can get that changed, and that s been surprisingly successful. All this happens before buying the land. The next step is getting a quote for the actual build. Although building a duplex is similar from one to the next the build costs can vary depending things like the type of land. If it has contours or a slope it can increase the cost because of levelling costs. And I get the boundary and easement diagrams to make sure nothing s going to impact on the build. After this is done I get a final quote from my builder. And because I choose from a handful of builders they look after me with their best rates. And of course I know I can trust them. Next I put in a DA which stands for Development Application. Typically I do this before the land

settles because this simply saves time. A DA can take 2-3 months to come through, so I get what s called a Development Consent which means I can lodge on my client s behalf before settlement. Settlement can take up to 6 weeks so this saves time, and saves money on holding costs. In some cases I get the DA approved before the property even settles. OK, once we ve got the DA the builder takes over. One of the things I make sure of is the builder can start quickly, and they usually start within a month. I manage this entire process for my clients. One of the things I make sure of is the building contract is fixed time and fixed cost. A duplex is usually a 26 week build, so from the day they start they ve got 26 weeks to get it done. And sometimes there can be major weather delays. But if there are other issues like not being able to get materials or subcontractors then they have to pay a $100 a day damages fee. And this adds up pretty quickly for them so it sure keeps them on track. One of the things which traps beginners is signing a contract without a set time because these projects can drift on and on. And your builder s focus will go to another project, not yours. Being a fixed price means there s no sneaky surprises at the end. What they sign for is the exact cost they re up for at the end. And it includes the cost of strata titling too, so the day the builder is finished there s nothing left to do or pay for. And this includes the extras like landscaping and so on. I send weekly photos to the client, and I fix any issues along the way. That s my job as project manager and I ve built dozens of these so there s not much that surprises me these days. It certainly makes sense to use someone like you. For sure. It can be a daunting process. And some people will give it a go themselves and get stuck. Some people get lucky and don t run into problems. However there s lots of little tricks like getting a development consent to save time, making sure everything s included in the building contract, doing a set-time contract with penalties and so on which add up to tens of thousands of dollars if they re not done right. How long does it typically take from the start of the process to the finish? I generally allow 9 months from when I source the land. The build takes 6 months, then a couple of months for the DA to come through plus a month for contingency. So that s pretty comfortable. What kind of figures do you give to clients to help them make a decision? I do a full feasibility study before we purchase the land. I look at comparable sales in the area, rents, how big the land is and I put together a comprehensive financial on how much the duplexes will be worth at the end of the project, and what they are expected to rent for. This is all done on real data, not what you get from real estate agents. I like dealing in hard facts, not fantasy!

Now this means you have all the facts and figures, you know how much equity there will be and what your new cashflow position will be before you go ahead. What kind of equity gains can you expect doing this? I don t touch any projects where the figures don t support a gain of at least $100,000 in 9 months. I d love someone to show me a buy-and-hold type property where you ll gain over $100,000 in 9 months. Possibly the odd property in Sydney but that s not going to last. And you d have to be seriously negatively geared to get something like that. Doing this process of instant equity gain you can create wealth regardless of what the market s doing. I call it manufacturing capital growth. With the blue chip properties you have to buy them, and hold them a couple of years before there s any usable equity. And of course you re forking out a whole lot of money in the meantime to hold them. What I love about your process is that 9 months after you start, you ve got plenty of equity and cashflow to go again. Exactly. Having the dual income and extra equity you re reducing your LVR (Loan to Value Ratio) as well. You could easily go from 90% LVR to 70% LVR. And your serviceability has improved dramatically. If you hold a house in a capital city and it doesn t move your LVR is stuck at 90% and you can t go anywhere. A lot of people buy a property and hope for the best. If it doesn t move then 2 years down the track you could be stuck waiting to buy your next one. A lot of investors dream of growing their portfolio. But if they use the wrong strategy, like buying a property and hoping for the best it means your property portfolio gets stuck. It s mainly been Sydney and Melbourne going up in price in recent years, but the rest of the nation has stayed pretty steady. So this strategy keeps you moving forward. For the typical mum and dad type investor who can t afford their property to go down in value, or the negative gearing to rise if interest rates go up this strategy means they can sleep well at night. All their repayments are completely covered. That s absolutely right. It s all positive gearing. For years we ve been taught to negatively geared to save on tax. But it doesn t make and sense to lose a lot of money to make a little bit back on tax. This gives you a sleep at night factor because your repayments are all covered including your mortgage, your rates, insurance. If you ve got a 7% yield or higher everything is covered. And because the houses are new you don t have a very high maintenance bill either. Plus you get some excellent depreciation you can claim on your tax because everything is brand new.

And what many people don t realise is the banks use a higher interest rate to assess your serviceability. It s around 2 to 2.5% higher than the current rate. So if you re paying 4.5% interest, they assess you as if you re paying up to 7% interest. Because the duplexes are so cashflow positive you won t have a serviceability problem, even at a higher assessment rate. And you won t have any trouble paying your interest or expenses, even when interest rates rise, which they inevitably do. I ve helped a number of people who couldn t get finance for a more traditional investment property who suddenly could when they factored in the higher rents from a duplex development. This keeps you in the game. What are some of your biggest successes with your clients? I ve had lots, which isn t hard when you build so much equity into each deal. I can think of one in particular who lives out of Sydney on the south coast. He had 2 negatively geared properties which were cross securitised. This means the banks treated them as one bundle, rather than two individual houses. They wouldn t let him access any equity because even though one had gone up in value, the other one hadn t. It gets very messy doing this. So I worked out a way to separate those loans and put them with different lenders which is something I strongly recommend. We went up to Toowoomba to do a duplex deal, which was just starting to boom. We found some ideal land, and we got a valuation on the land which was $14,000 higher than what he paid for it. Anyway, we did the duplex deal and got an equity gain of $120,000 at the end of the deal. So that was a huge success because he went from the banks not letting him do anything to suddenly pulling $120,000 out of thin air in 9 months. And having enough cashflow coming in to cover the negative gearing on his existing portfolio. I had to get him out of the mindset of blue-chip properties, and now I have he s ready to do another deal. He s building up a really strong portfolio and he s going to be really wealthy in a few short years. Amazing! What else have your clients done? OK, well as I said there s too many to mention. But speaking of overpriced house and land packages, I have another client who got caught by one of these in Newcastle. He paid way too much for it a few years ago just north of Brisbane, and they were badly negatively geared. The still house wasn t worth as much as they paid for it 5 years ago. And worse still it was cross-securitised with 2 other properties. So when he went back to the bank for more money they saw him as over-exposed. And when he went to another bank they assessed him as being overexposed to the original bank. It was a real mess.

Anyway I managed to find a way to separate his properties out to separate banks to fix this up, and we negotiated a property for them which was $50,000 below market value through some tough negotiations. So this meant they got some decent equity which they re drawing out at the moment to go into another property deal. They went from 3 properties which were stopping them borrowing any more to having a 4 th, and being able to look around for their 5 th. So as you can see it all comes down to having the right strategy and getting good advice. You mentioned house and land packages which often don t go anywhere. Often the problem with these is that the person selling them gets a massive commission or kickback from the developer. And so they ll do anything to sell them. That s not the case with you though, is it. No, I pride myself on being a completely independent buyer s agent. And the only person who pays me is my client. It funny you know, because builders sometimes ask me what commission to add to their price, and I tell them there s no commission. They re just used to it. You see, when you buy something off the plan through a marketing company, the marketing company gets a kickback from the builder. They have to pay for advertising, brochures, sales staff and so on. And all this goes onto the price you pay. So what I do instead is I negotiate the best possible price, and because I do a lot of work with the same builders I can get a really competitive price. And because I don t add in any commission I can get a duplex built for an incredibly low price. It means everything is fully transparent, and the only thing I get paid is what my client pays me for my work. I also have a team of people such as mortgage brokers, accountants, building and pest inspectors people can use, and I don t get a commission from any of them either. I prefer to keep 100% independent, and it means the people I recommend are people I trust fully. And it s all in writing so there s full transparency, right? Absolutely. And we have a Buyer s Agency agreement which the client and I both sign. This is all after the first strategy session which is completely free and no obligation. We make sure we re the right fit to work together, and everything is out on the table. My clients know exactly what I do, what the process is, and what my fees are. Something you told me earlier is your completely risk free guarantee, which I think is amazing. I ve never heard of something quite as risk free as it. Can you run me through it? I guarantee to all my clients that in if, for any reason they re not absolutely satisfied with my services I will take the deal over myself. So this means they can get out of any deal at any time which shows how confident I am in any deal. I wouldn t put a client into a deal which I wasn t 100% confident in myself. People tell me it s a pretty gutsy guarantee, but the fact is if someone

took me up on my guarantee I d end up well ahead financially! I know the areas we work in and I invest in those areas. I know the market, I know what the end result will be and I wouldn t recommend anything I wouldn t do myself. You mentioned a free strategy session. How does that work? When I first meet a potential client we start with a free, no pressure and no obligation strategy session. We can do this in their house, in my office, or if they re further away on the phone or with Skype. What we do is we go through their financial and lifestyle goals, and what they want to achieve by when. It could be an early retirement, financial freedom, certain cashflow goals. Then I map out a roadmap to get them there. And I ll often include properties other than duplexes. As you know, I love duplexes but the most important thing is getting the strategy and the balance right. I often recommend some blue chip properties from Melbourne, Sydney or Brisbane in their portfolio. Building duplexes with the extra equity and cashflow can get investors into these supergrowth properties without the burden of negative gearing. Your strategy makes sure we only do this when the new cashflow covers is easily. So you might do an equity gain by picking up a property below market value and doing a renovation on it. You can take that equity into a duplex property, then use this new equity and cashflow to secure a blue-chip property in Melbourne. The other thing we do is create an exit plan. So for example we might plan to do a partial exit in 15 years time where you have 16 properties. You can sell half to pay off the debt on the rest, and you ve got 8 debt-free properties which gives you a huge passive income and you re set for life. We also talk about the best areas to invest in right now, and why they re such good areas. And I always look for up and coming areas rather than the ones which have been flogged to death in the investing magazines because these up and coming suburbs are where the best growth opportunities come from. For example, I ve recommended Sydney in the past but I don t recommend it now. My clients in Sydney have made extraordinary gains, but I look to Brisbane now because it has many years of strong growth ahead of it. And yes, I encourage people to ask me their toughest questions because sometimes it s that one question they don t ask which costs them a shot at their dream lifestyle. Typically this takes around an hour, but if there s more questions or things to discuss I stay with

them until all their questions have been answered and they completely understand the strategy we put together. I ve spent up to 3 hours with some people over a couple of cups of coffee going through everything at their pace, making sure they re comfortable. And there s no cost or pressure, right? Absolutely. The way I see it, if someone is comfortable and understands what we do and how it moves the quickly towards their goals then they may ask for my help. Naturally, that s their choice. If I went in to push them into becoming a client they d kick me out the door. And I m not that kind of guy. So I help them create a strategy, show them how it works and answer all their questions. That s it. If, at the end of this they ask for my help then that s great. If not, that s great too. Everyone s different, and I only want to work with people who decide to work with me without me putting any pressure on them. I understand you have a teaching background. How does this help you? It means I ve got excellent communication skills, and I can explain often complex concepts in very simple terms. People need to be comfortable with what they ve been told, and I make sure they understand everything fully. Speaking of communication, you re very easy to contact too. Why is that? The nature of what I do means managing multiple projects and that means I m often working for my clients outside normal office hours. So if anyone has any other questions or thoughts after their session they re more than welcome to contact me by phone or email during the day, after hours or on the weekend. Lloyd, you ve had an incredible journey so far. What does the future hold for you? I m going to continue with development projects because you can t help anyone unless you practice what you preach. So it s really important for me to be an active investor and developer. Besides, there s a lot of money to be made out there and it s a real passion of mine. I also love helping everyday people achieve the same kind of results so I m going to devote more time doing this too. I m also looking at triplex developments which are three properties instead of two. And I m doing my due diligence on some larger projects as well. Interesting times, for sure! Is there anything you d say to people wanting to get into the market right now but need a little advice to get going? The number one thing is to start with a strategy. You need to get some professional advice with this too. Don t just go out and buy something because you fear missing out. If you do this it could be your biggest mistake. You need to plan how you re going to build your investment portfolio, and the types of properties that will make it up.

And make sure you surround yourself with a great team. For example, if you work with me you get access to my recommended solicitor, accountant and brokers. And all of a sudden you re in charge of a team of people all pulling together in the one direction. Lloyd, for someone interested in doing a strategy session with you, what s the best way for them to get started? The easiest thing to do is call me on 0410 411 047. Or they can go to a special booking page I ve set up. And the link will be below. Lloyd, thank you for spending this time with me today. I ve learnt a lot and I know anyone reading this will have learnt a lot too. My pleasure. Book your cost and obligation free session with Lloyd Edge from Aus Property Professionals. Call 0410 411 047 or click here.